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Elk River --�-
Municipal Utilities UTILITIES COMMISSION MEETING
TO:
FROM:
ERMU Commission
Mark Hanson — General Manager
MEETING DATE:
AGENDA ITEM NUMBER:
February 11, 2024
5.4
SUBJECT:
Water Service Line Ownership
ACTION REQUESTED:
Discuss possible policy changes to ERMU's water service line ownership
BACKGROUND:
At the December 2024 meeting, commission members directed staff to survey water service
line ownership policies of various cities. Staff selected 50 cities and identified their respective
ownership policies. Cities were selected based on a desire to get a diverse sample set while still
including cities with similar attributes such as Minnesota Municipal Power Association
membership, Minnesota Municipal Utilities Association membership, size, and regional
proximity.
For ERMU's customers, property owners own and are responsible for their entire water service
line, from the main to their home or business. Per city ordinance, the same is true for sanitary
sewer service lines. The surveyed cities, however, described four different types of ownership
for water service lines:
• The property owner owns the entire service line (current ERMU policy)
• The city owns the service line from the main through (including) the curb stop valve
• The city offers a protection program (repair fund) to assist owners with repair costs
• The city differentiates between residential and commercial properties
Water service line breaks are relatively rare but can be expensive. Such repairs typically cost
anywhere from $3,000 to $30,000+ depending on the amount of restoration work needed.
Water service line repairs often involve older homes/businesses with owners who may have
limited resources, making it difficult for them to absorb these unexpected costs.
DISCUSSION:
Frequencies and Costs of Service Line Breaks:
Based on historical averages over the last eight years, ERMU experiences roughly two water
service line breaks (leaks) per year. Most of the breaks occur at the curb stop valve. With
roughly 5,650 total water customers, repairing two service line breaks per year at an assumed
$8000 repair cost would average out to an increase of $0.25/month per account.
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The bigger financial impact, however, is the need to replace service lines from the main through
the curb stop when doing water main replacement projects. This is a common practice for
utilities that own the service line through the curb stop valve because it minimizes the potential
of having to cut into a freshly paved road to repair/replace a broken service line. These costs
are estimated at $3,000 per service line. On average, ERMU would replace approximately 45
service line connections per year as part of a water main replacement project, adding another
$2.00/month per account.
Differentiating the frequencies and costs described above by residential versus commercial
accounts yields the following averages:
Break Repair
Residential
Commercial
Customer Accounts
5,100
550
Breaks per Year
2
0.33
Average Cost per Break
$6,000
$12,000
Average Cost/Month/Account
$0.20
$0.60
Curb Stop to Main Replacement
Residential
Commercial
Customer Accounts
5,100
550
Services per Year
40
5
Average Cost per Break
$3,000
$6,000
Average Cost/Month/Account
$2.00
$4.50
Totals
Residential
Commercial
Monthly Break Cost
$0.20
$0.50
Monthly Replacement Cost
$2.00
$3.80
Total Monthly Cost/Account
$2.20
$5.10
Possible Ownership Options:
Listed below are the typical options for ownership/responsibility of water service lines. The
chart summarizes the surveyed data for each option. The advantages and disadvantages of
each option are listed after the table.
1) Status Quo: The property owner owns the entire service line (24 cities/50 surveyed)
2) Modified Status Quo: No change to ownership, but ERMU implements a service line
protection program to cover repair costs (3/24).
3) ERMU owns from the main through the Curb Stop for all properties (26/50)
4) ERMU owns from the main through the Curb Stop for residential properties only (3/50)
Option
Overall
Metro
MMPA
MMUA
Size
Regional
Main Only*
24/50
9/28
3/5
9/16
18/33
6/12
Protection Program
3/24
0/9
0/3
3/96
3/18
1/6
Through Curb Stop
26/50
19/28
2/5
7/16
15/33
6/12
Residential Only*
3/50
1/28
0/5
2/16
2/33
1/12
*Includes those cities offering a protection program.
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Option 1, Status Quo. The property owner owns the entire service line (24/50).
Advantages: The simplest approach to managing service lines. Customers would have the
option to distribute their repair/replacement costs over 10 years by having their repair costs
assessed to their property.
Disadvantages: Can place a financial burden on customers that need to repair/replace their
water service line. Despite numerous "Who Owns What" communications, most customers
don't realize they are responsible for service line costs.
Option 2: Modified Status Quo. No change to ownership, but ERMU implements a service line
protection program to cover repair costs (3/24).
Advantages: No change to City Ordinance/ERMU Water Rules (the property owner will still own
the entire service line). The implementation of a protection program provides a funding source
for water service line repairs without impacting rates. Additionally, it can be crafted to control
ERMU's liability while still easing the financial burden on customers. Whether to implement a
cap to limit/share repair responsibility, whether to include the entire service line or just
through the curb stop, and whether to limit eligible line size are all examples of how ERMU can
control its financial exposure. It can also include an opt -out option if desired. Allows for the
option to not include customers who are behind on their payments.
Disadvantage: Since it's a separate fee (not included in the water rates) some customers may
see it as a lack of transparency. For comparison, Austin Utilities charges $3.00/month for their
water service fund program. Owatonna Public Utilities charges $0.99/month for their service
line protection program. Information on both programs is attached. Austin's water service fund
covers service lines 100% up to two-inch and at 50% for service lines larger than two-inch.
Owatonna limits their program to residential customers only.
Option 3: ERMU owns from main through Curb Stop for all properties (26/50).
Advantages: Simple and consistent implementation that mirrors most of the 50 cities surveyed.
Offers protection to all customers, regardless of type, size, or location. The added risk
associated with covering all properties could be further controlled by using a tiered structure
based on service line size.
Disadvantages: Likely represents the most expensive option as it represents the greatest
financial exposure. Rates would need to increase to cover the increased exposure. Since the
increased costs would be recovered through increased rates, there is no opt out option.
Option 4: ERMU owns from main through Curb Stop for residential properties only (3/50).
Advantages: Offers protection to residential customers while avoiding the higher cost potential
associated with commercial properties. The majority of residential properties have one -inch or
smaller lines that connect to water mains located under low -volume residential roads.
Commercial/industrial properties can have service lines that are considerably longer and larger
that connect to water mains under higher -volume collector roads. Larger lines and connections
under higher -volume roads can significantly increase repair costs.
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Disadvantages: Smaller business owners, with line sizes similar to residential properties, may be
upset over the lack of consistency with residential properties.
FINANCIAL:
Financial exposure will depend on what, if any, changes are made to our current policy. If ERMU
takes on the added responsibility of funding service line repairs/replacement from the main
through the curb stop valve, residential costs would increase by approximately $2.20/month.
Costs for commercial customers would increase by approximately $5.00/month. Depending on
the selected program, these amounts would be recovered through either a service fee or a rate
increase. Calculating the final amounts would be part of our 2025 rate study, planned for the
third quarter of 2025.
Note: The amounts presented are estimates only, they are not intended to cap our expenses. If
we adopt a plan that increases our financial responsibility, we will have to treat all eligible
customers the same, even if the total annual costs exceed our budget estimates.
NEXT STEPS:
Staff requires commission direction on which, if any, policy changes they would like to pursue
for approval at a future commission meeting.
ATTACHMENTS:
• City Survey— Water Service Line Ownership
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