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J% R <br /> ` www.ae2s. com <br /> June 6, 2006 <br /> Mr. Brett Twardy <br /> Water/Wastewater Supervisor <br /> City of Pequot Lakes <br /> 4638 County Road 11 <br /> Pequot Lakes, MN 56472 <br /> RE: Proposal and Letter Agreement Between Owner and Engineer <br /> Rate Study for Water and Wastewater Utilities <br /> City of Pequot Lakes, Minnesota <br /> Dear Mr. Twardy, <br /> In response to your recent request, Advanced Engineering and Environmental Services, Inc. <br /> (AE2S) is pleased to present this proposal and letter agreement for professional services to <br /> �. complete a rate study for both the water and wastewater utilities for the City of Pequot Lakes, <br /> Minnesota. The proposed rate study will include revenue adequacy evaluations and suggested <br /> rate adjustments, if applicable, for each utility. This letter agreement identifies the purpose, scope <br /> of services, fees, and performance schedule associated withthcompletion of the proposed rate <br /> study. <br /> Purpose ' <br /> K <br /> We understand that the City of Pequot Lakes currentlys service to approximately 390 <br /> water and wastewater customers .We further undet`sterl ���"recent audit of t utility finance <br /> statements prompted the City of Pequot Likes tQ eva - ttte existing utility rates <br /> actual cost of operating the water anqviste�s�'!i <br /> Regulators and professional societies fav adopted the position that water and wastewater <br /> utilities should be "self-sufficient' — meaning utilities should charge prates that enable them to <br /> obtain full cost recovery. In fact, marry government entities and funding agencies are beginning to <br /> require systems to set rates designed to achieve full cost recovery as a:,condition of receiving <br /> funding assistance. As a resulLi any municipal utilities are reviewing the costs of service <br /> associated with their water and"' stewater systems as a part of the annual.:budget and rate <br /> planning processes. ., <br /> To assess financial health and promote;elf sufficiency of the Pequot Lakes water ands tewater <br /> utilities, AE2S recommends the comp a of a revenue adequacy evaluation and development of <br /> a rate design model for the City's' and wastewater utilities. The revenue adequacy <br /> evaluation-will identify the actual Coif LL rate and maintain each of the utilities. The evaluation <br /> will also include considerations for,_ al Improvements Plan costs (determined by the City of <br /> ax . <br /> r <br /> _ ng and Environmental Services, Inc. <br /> 2016 nerd, MN 56401 • (t)218-824-1888 • (f) 218-824-1889 <br />