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a— <br />Step 4. Complete rate study and financial plan <br />This step will focus on options for establishing equitable water and sanitary sewer rates for <br />residential and commercial customers and the internal quality control review process. It <br />will also review development fees such as Water and Sewer Availability Charges (WAC <br />and SAC) charges, other revenue sources, and the current and projected expenses for the <br />utility. Finally, it will include reviewing and developing recommendations for the utility. <br />These recommendations will address cash reserve balances, project funding, and capital <br />replacement and expansion, as necessary and appropriate. Ehlers will: <br />Assemble and review existing historical utility system operating data <br />Develop a pro forma cash flow statement showing projected usage, total operating <br />revenue, and total expenses, including operations and maintenance costs, depreciation, <br />department servicing, net operating income, capital improvements, debt, etc. to test <br />adequacy of existing and proposed rates <br />Review utility rates and user charges to determine if the rates and charges are sufficient <br />to pay for operations and capital improvements. Currently, the City's rate structure <br />includes usage in the base rate. The State Legislature has imposed a mandate recently <br />that requires cities to set water rates that meet the DNR's criteria for "conservation <br />rates ". The analysis would include two options for revising the existing rate structure to <br />bring it into compliance with the State's mandate. <br />Review area and connection charges and review the policy for WAC and SAC charges <br />as they relate to the City's redevelopment efforts, as necessary and appropriate <br />• Identify future operating costs related to capital projects for the relevant time period, to <br />be provided by City staff <br />• Provide options for long -term financing of capital, both internally and externally, and <br />present the financial implications <br />• Identify any additional issues <br />✓ The use of debt vs. cash to pay for capital improvements <br />✓ Minimum cash balance for the utility funds <br />✓ Ensure fees are sufficient to operate the funds without requiring a tax levy <br />✓ Address city identified issues <br />Step 5. Provide a comparison of utility rates and development fees in comparable <br />communities <br />The survey will compare water fees charged for a single family home in Pequot Lakes with <br />fees charged by comparable communities. <br />Proposal for a Utility Rate Analysis to the <br />City of Pequot Lakes, Minnesota <br />Page 4 <br />January 2012 <br />