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Mr. Brett Twardy Water/Wastewater Supervisor Re: Proposal and Letter Agreement Between Owner and Engineer Rate Study for Water and Wastewater Utilities City of Pequot Lakes, Minnesota June 6, 2006 Page 2of6 Pequot Lakes) that are required for continued maintenance and growth of the utilities. It is anticipated that the rate design component of the project will include suggested utility rate adjustments, utilizing the City's existing rate structure, as necessary to achieve full cost recovery and maintain self sufficient water and wastewater utilities. To assist in managing utility system cost variations over time, the rate design model, as suggested by AE2S for the City of Pequot Lakes, could be updated on an annual basis to reflect changes in operation, maintenance, and debt service costs and adjusted to account for changes in the utility customer base or water demand projections. While there is merit in maintaining a stable rate structure, annual review of this information will assist the City of Pequot Lakes and its customers in proactively planning for required rate adjustments. AE2S is eager to put our financial consulting expertise to work for the City of Pequot Lakes and we believe our extensive experience in utility revenue adequacy evaluations and rate design projects around the region, specifically for municipal water and wastewater systems, will insure that you get the product you need, at a reasonable cost, and in an efficient manner. This will allow the City to proceed with its rate setting process. Additional benefits of selecting AE2S for your utility system rate study include: • AE2S is not merely a financial consultant, but an engineering firm whose primary service is catering to municipal water and wastewater utilities. This means that you can be assured that we will provide you with a comprehensive project for your utilities. • We regularly act as an "extension of staff' for our clients and assist them with yearly updates as it relates to rate setting. This means that we are reliable and accessible. • AE2S is a local engineering firm, with regional experience, committed to working together on the successful completion of the revenue adequacy evaluation and rate design project for the City of Pequot Lakes. Scope of Services AE2S proposes the following scope of services based on our understanding of your desire to evaluate the revenue adequacy of your water and wastewater utilities and identify a rate design that achieves full cost recovery for each of the utilities. 1. AE2S will gather the following information from Pequot Lakes: a. Itemized 2005 Actual Expense and Revenues for each utility b. Itemized 2006 Expense and Revenue Budgets for each utility c. Itemized 2007 Expense and Revenue Budgets for each utility d. Total 2003, 2004, 2005 gallons of potable water treated by Pequot Lakes �. e. Total 2003, 2004, 2005 gallons of potable water sold by Pequot Lakes f. Total 2003, 2004, 2005 gallons of wastewater treated by Pequot Lakes