Committee Minutes

MINUTES OF JOINT MEETING OF SAFETY/SERVICE
AND FINANCE/DEVELOPMENT STANDBY COMMITTEES
Tuesday, May 6, 2003 - 4:00 p.m.__________________________

Members present: Gershman, Kreun, Hamerlik, Kerian.
(Also present were Todd Feland, Candi Stjern, Rick Duquette, Mary Weaver, Steve Burian of Advanced Engineering, John Mastracchio of Malcolm Pirnie; John Schmisek,

1. Utility Cost of Service Analyses.
Todd Feland, Public Service Director, reported at previous meeting they had given draft results on water and wastewater, that they have now taken some of the cost information and put rates to it, and want to review water and wastewater, and have preliminary results on the solid waste and stormwater they want to review also. He noted that in presentation material when they get to area on "Questions" they will stop as rest is background information and have already reviewed that at prior meeting.

John Mastracchio, Malcolm Pirnie, gave a brief overview of Utilities Cost of Service Evaluation Overview for wastewater, water, sanitation and stormwater, will hear about cost of service and defined cost of service - is determining what exactly the cost of providing the services, the goal is not only to determine what the cost is but what you are going to use that information for, and will present some rate recommendations based on the results of the cost of service evaluation, and to establish rate structures that are equitable to different customers and are aligned with city objectives. He noted on the stormwater - costs allocated to operational and administrative components and to runoff units and no specific customer classes other than different property types.

COUNCIL MEMBER HAMERLIK REPORTED PRESENT

He stated results in brief from a cost of service perspective on
1) wastewater - rates fairly equitable and no specific adjustments needed from a cost of service standpoint - are in detailed rate recommendation stage and have identified proposed rates for each aspect of the rate structure.
2) water - there are some rate adjustments that they are recommending based on the cost of service results and are in detailed rate recommendations phase .
3) solid waste utility - there are some rate adjustments that they are going to recommend, and are in general rate recommendations phase and are providing some general rate recommendations but not to specific rate component detailed level.
4) stormwater - will provide with costs per runoff unit compared to current rate structure and provide with general rate recommendations.

Mr. Feland stated they have a CIP meeting later and if can't get through all the information at this meeting, will go into stormwater and solid waste at the CIP meeting. Kreun stated that water and wastewater most important because we're going to get detailed rate information and go to general recommendations if have to on the CIP.

WASTEWATER UTILITY:
Mr. Burian stated that many have been through the Phase I presentation, moved into Phase II presentation and get into results. He stated for the wastewater utility the rate structure was fairly equitable - but when look at revenue adequacy results for 2004 and moving forward it showed that rate increases will be required and reviewed Summary of Results of 5/06/03. He stated they looked at percentage of cost and percentage of revenue and the four classes they looked at for wastewater (residential, commercial/light industrial, heavy industrial/Simplot and heavy industrial/RDO). He stated some of the rates should be increased to eliminate future revenue deficiencies to help pay for the plant capital improvements plan and that includes phase I of the biosolids project as well as some of the rehabilitations and things within the wastewater utility to cover the associated increases, debt and operational expenses that come with inflation, continue to maintain adequate cash reserves. He stated by deferring the major biosolids job to somewhere in the future it was far enough out there that they felt it did not land in the CIP and is prudent but something to be aware of that by ratcheting down from what previously thought was $25 million biosolids job to the $4 million have included in this planning process -- but there is another biosolids project that they will need to be aware of and planning for. He stated in looking at growth of the city and city is looking at potential of southend master pump station and forcemain and this was also left out of the plan because it seems this will happen beyond planning of 2008.

He moved into recommendations for the detailed rate analysis and reviewed report showing 2003 actual rates and proposed 2004 rates:

Residential class - base rate of $16.23, which includes the first 5,000 gal. and are not charged until you get over the 5,000 gal. (after 10,000 gal. you are no longer charged in residential as water used would end up going on lawn and never end up in sanitary sewer)

Commercial class - base fee of $16.23 also for Simplot and RDO - for 2003 had constant rate to $16.23 throughout, that they went through cost of service and revenue adequacy and assumptions and recommendations and looking at for proposed rate rates: look at base rate of $8.90 for wastewater in 2004 and that the first 5,000 gal. of flow would not be included because of the water that would end up in wastewater utility is almost assured that the first 5,000 gal. would - they would continue the cap at 10,000 gal. and not charging for water that ended on lawns.

Base rate for commercial/light industrial from $16.23 to $9.00 and similar to rationale up above. He stated because Simplot and RDO have significant impact on the wastewater utility and have potential to float up and down in terms of how much time on and off and for potential for leaving City in hole in terms of revenue deficiency, it is proposed that include fairly substantial increase in base rate to give solid revenue in utility for these users - proposing base rate increase from $16.23 for both to $2,001 for Simplot and $1,653.00 for RDO, they have comparisons on what this means in big picture and not as drastic as bottom line impact but different change of philosophy.

He stated they looked at flow scenario and now have constant flow rate for everybody of $1.96 throughout per 1,000 gal. and for residential that starts at 5,000 and caps at 10,000 and for rest of them it goes throughout, and also have a total suspended solids surcharge for anything over domestic strength and BOD surcharge for anything over domestic strength, and these are only charged to major users (Simplot and RDO). He stated looking to future year given the lighter cost of service and overall approach, they recommended increasing this from $1.96 to $2.05 in both cases for residential and commercial/industrial and for major industrial because of change in philosophy of having higher base rate, they recommended an actual drop in flow rate to $1.73 per 1,000 gal. He stated surcharge only kicks in when public works department indicates there is a project that is going to affect those types of things and because of biosolids job is anticipated to start some of the design aspects and construction aspects in the near future, there was a proposed slight increase in TSS surcharge and the BOD surcharge to reflect those capital projects.

Gershman asked if the City stands any risk of being sued by Simplot because they have been picking up so much of the difference, picking up 336,000, overpaying because of the survey and if they complained or have any recourse. Mr. Burian stated he doesn't know detailed implications of that but as part of the process they included some of the various stakeholders and had preliminary meeting with RDO and Simplot and that he didn't get the sense from the individuals they met with from Simplot that he had this historic perspective but if didn't try to do something to right that shift in near term, it would be hard for him to go back to his leadership and explain. He stated later in the meeting he would show a combined situation of water and wastewater and see that based on those minor cost of service inequalities that are starting to dial in towards Simplot having a more appropriate rate over time. Mr. Mastracchio stated if your costs and revenue come within 5% of each other, are doing well, can make adjustments to close that gap further but tend to offer the position that if within the 5% you are considered equitable and no need for adjustments.

WATER UTILITY:
Mr. Burian stated that there's bigger differences between user classes in terms of equitability of the rate structure and because of the plant capital improvements the rate increases are going to be needed in future years; that water utility does have a longer outlook because of some of the major projects that are anticipated and rather than 5-year planning horizon, did look at longer horizon, and because major capital improvements that are anticipated in the out years and longer planning horizon, and cash balance used up in 2007 and disastrous in 2012 if didn't look at rate increases. He reviewed the report with the committee and conclusion that rates should be increased to meet future coverage requirements, help pay for the CIP, cover increases in debt and operational expenses, and continue to maintain adequate cash reserves.

He stated the report recommends more aggressive water rate increase but given amount of cash they have and having done some planning with public works and engineering and finance, have decided that could take step back and do a compromise rate increase where would rather than go for it in one year, step into things. He stated in residential monthly based fee have in meter size have elaborate structure of rates for each of the base, but proposing in 2003 to make that $5.00 for all of the residential users, that is not a huge adjustment because most of your residents will be in the two lower meter sizes, and in addition have a declining block, residential flow rate where for first 30,000 it is $2.52 and next 170 to 200,000 is $2.32 and over 3 million is $2.12 and then $1.93 is over 3 mg/mo.; and recommending here because of the fact have to design infrastructure for that peak day, were recommending eliminating declining block for the residential users and putting a constant rate of $2.60 per 1,000 gal., which is a slight increase but if aggressive on lawn watering would be disincentive to get too aggressive with that.

On the commercial side where have 5/8" meters which could be small business that looked like residential or didn't have peaking factor all the way to someone who may have 8" meter and looked at keeping base rate structure based on meter size and making some adjustments to that. He stated they looked at changes in flow rate but rather than having a declining block rate, they looked at based on economy to scale on the smaller meter sizes, having that rate be the same $2.60 per 1,000 as you have for residential and as meter sizes get bigger, dropping those rates to recognize that economy of scale.

COUNCIL MEMBER KERIAN REPORTED PRESENT

Gershman asked if they looked at one rate; Mr. Burian stated if didn't keep this structure some getting off with big decreases or some large increases and didn't feel that would be appropriate or advisable. and for residential the one size fits all did not have drastic impact, goal was not to increase too large for any single user.

He stated for heavy industrial because had meter charge for everybody, both of heavy industrial users have 8" meters and much like previous graphic for wastewater were recommending a constant fixed rate and raising that up to reflect variability of their operations at time ($760.33), and because they are very consistent, low peaking users, there was justification to drop cost per 1,000 down to $2.02 and would be recommended structure for RDO and Simplot.

Gershman asked if they built in any population growth. Mr. Burian stated they looked at .9% per year growth, planning department has adopted 1.2% and growth has been a little lower than that from 2000 to 2003 and didn't cause major impact.

Mr. Feland stated they used for wages and benefits from salaries and all but fringe benefits, use 3% inflation actor, and for O & M 2.4% inflation factor and imbedded in these rates if go 5 to 10 years, each year that is the assumption. (.9 was revenue growth).

Hamerlik asked if there was anything between cutoff totally for the snowbirds and others;
Mr. Feland stated currently if resident leaves for 6 months, notify utility billing office, and charge $20 fee to turn water off and to turn water back on another $20 fee during business hours, and doing that don't get charged base rates for water or sewer, are charged for mosquito and stormsewer year around and garbage removed also - get 3 basic rates sanitation, water and sewer off.

Mr. Burian stated that 2,000 was to reflect the very low water users, and of the 12,500 meters, about 1900 of users are 2,000 gal. or less. Gershman stated he was concerned about the people who have low incomes and fixed incomes. Mr. Feland stated bill on a per 1,000 gal. basis and don't round it up to the next line, catches the next month (picks number on lower end).

Mr. Feland stated they are looking to the future but looking year to year on how base their rates, that looking at cost of service and present rate model they presume to build their future rates and asked if this group feels they are ready to bring this to a Committee of the Whole - not ready on solid waste nor stormwater because they have preliminary results and come at a later time. Committee stated they felt so. Kreun stated if bring it forth in this manner, most people understand it, going to be some variances and we are talking averages and depending on how much they use.

Hamerlik stated he had asked at the council meeting why this wasn't at the committee of the whole because both committees were to be here, and with CIP don't get a turn-out and if going to be reviewing this again - impatient with having to go through it twice. It was noted this is significant issue and should be focused only on this. Mr. Burian stated each of the reports for water and wastewater have been handed in as a 95% draft and that staff is now saying they are now recommending this to you but if found some questions, etc. wanted to have liberty to go back and change that.

Gershman stated that when they have a major presentation if there is a way, maybe take out things that are not time sensitive and staff handle some of that so don't have five controversial items on a COW meeting - Hamerlik asked what is controversial, quite a prediction to make - and if ready to go to COW, what go with. Gershman stated could offer for those who were unable to be here, to have a private showing of this. Hamerlik stated maybe should have been videotaped and other members would have that opportunity. Kreun stated this is significant change in policy. Gershman stated the offer to go over it privately with them is best way, but want enough information at the COW so that the public has information. Mr. Feland stated he would bring shorter briefing on water and wastewater and get to the results - that ordinance that says how to bill rates and this changes that. He stated this is a document that puts your O & M together, capital together and puts planning guide from 5 to 10 years out, and wraps into one document. Gershman stated he thought this was ready go come to council,

Mary Weaver stated they talked about the aspect of the research that has been quoted, that she is a household of 1 and uses between 1,000 and 2,000 every month - average of 1500 gal.month, and in comparing her costs for water and sewer to a family of 4 - that she is a low end user but in wastewater rates pays the same fees as a family of 4. She said she understands the philosophy to make the rates more equitable, get people to pay for what the cost of service is and to deliver it to them and what that may amount to in actual fact the possibility of residents subsidizing business usage and that the people who live here and who pay taxes should be given as much if not more consideration than businesses or future businesses. The need for a new treatment plant and maintenance and infrastructure could be attributed to new regulations but more so because of heavy users and more businesses moving in. She stated for businesses the key often is that they use water to make money, can also deduct off income tax and residents cannot. She stated she is a low income property owner and many people like her on fixed or low incomes, they tend to be economical in all things that affect their budgets, lot of things in the city that have to be paid for - flood protection, water plant and structures and amenities that have been proposed to help make our city a good destination city - that she would request that for this matter that they please try to find a more equitable way to assess for water and sewer usage, she felt totally or partially prorated method is much more fair to all, those who use more, pay more; those who use it for business purposes and pay more will also get the benefit of their tax deduction, and that is the best way to solve the problem - that it would be preferable to see a service for wastewater based on the amount of water that she uses. -. She also noted that Minneapolis also has two sizes of garbage containers available, that her garbage can is so big; take weeks to fill up, maybe for future choice of sizes.

The committee stated that this matter is to be brought to the Committee of the Whole meeting.

The meeting adjourned at 5:40 p.m.

Alice Fontaine