5.2. ERMUSR 01-15-2008~j
Elk River
Municipal Utilities
13069 Orono Parkway • P.O. Box 430
Elk River, MN 55330-0430
January 4, 2008
To: Elk River Municipal Utilities Commission
Jerry Takle
Jerry Gumphrey
Jim Tralle
From: Bryan Adams
Subject: Alternate Water Rate Design
Phone: 763.441.2020
Fax: 763.441.8099
At the December 2007 Elk River Municipal Utilities commission meeting, water rate increased
was discussed. We currently use a 2-Tier water rate structure where the second rate is much
higher to discourage excessive lawn watering and promote water conservation. Jerry Gumphrey
suggested we consider a 3-Tier structure to further promote conservation. This would be an
inclining block rate with more usage resulting in unit cost increases. The proposed rates are as
follows.
Residentia l Rates CommerciaUIrri ation Rates
2007-2 Tier 2008-2Tier 2008-3 Tier 2007-2 Tier 2008-2Tier 2008-3 Tier
(Bud et) (Bud et)
Meter Char e $6.50 $6.50 $6.50 Varies -Size of Meter
Tier 1 Rate $1.40 $1.50 $1.50 $1.40 $1.50 $1.50
Tier 2 (1000 al) 8 8 9 Avera e Winter Months + ] 0%
Tier 2 Rate $3.25 $3.50 $3.50 $3.25 $3.50 $3.50
Tier 2 (1000 al) - - 15 - - 40 + Tier 1
Tier 3 Rate - - $4.00 - - $4.00
Graph of Rate Structure
$4.00
$3.50
$1.50
Tier 1
Tier 2 ~ Tier 3
Quantity
The design of proposed 2008 2-Tier and 3-Tier rate structure is approximately cost neutral where
both structures produce approximately the same revenue at $2,210,000 resulting in a 6% rate
increase from 2007. The effect on individual water customers with high summer usage is much
higher. The attached spreadsheet reflects usage pattern and resulting cost for selected high use
customers.
We are proposing the 3-Tier rate to be only $.50 higher than the second tier for the following
reasons. Typically we have raised rates or changed rate structure to gradually increase rates and
avoid large rate fluctuations. The concern I have is raising rates to fast and too far to promote
conservation; the effected customer may explore other alternatives such as constructing their
own well. The customers affected most have the resources to drill irrigation wells. As you may
recall from last year's ISD 728 irrigation well issue, the Minnesota Department of Health
controls the construction of new wells not the local government such as county or city. The
DNR only gets involved if the water withdrawn exceeds one million gallons but nobody really
monitors the withdraw quantity for the small wells. If we push too hard, a water user could drill
their own well, circumventing our intended conservation measures and we would lose the
associated revenue. The proposed 3-Tier structure hopefully provides a good balance.
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