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_ Mr. Brett Twardy <br /> Water/Wastewater Supervisor <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 /> June 6, 2006 <br /> Page 3of6 <br /> g. Total 2003, 2004, 2005 gallons of wastewater changed to customers <br /> h. Total number of individually metered customers <br /> i. Available data regarding population or water demand projections for Pequot <br /> Lakes <br /> j. Average monthly usage per individually metered customer <br /> k. Capital Improvements Plan for water and wastewater utilities <br /> I. Existing debt service <br /> m. Depreciation schedule for water system assets as provided in recent audit <br /> n. Depreciation schedule for wastewater assets as provided in recent audit <br /> o. 2005 year-end financial statements <br /> p. Any additional information relevant to the financial position on the City's water <br /> or wastewater utilities. <br /> 2. AE2S will complete revenue adequacy analysis for each utility. The analysis will <br /> provide an overview of the financial position of each utility for each of the next <br /> five-years (2007 through 2011) based on available information and reasonable <br /> escalation factors for future years. The initial analysis will indicate the projected <br /> financial status of each utility, assuming the rates remain at their current levels. <br /> 3. Based on results of the revenue adequacy analysis, AE2S will propose a rate <br /> design alternative for each of the utilities that will achieve full cost recovery for the <br /> utility. <br /> 4. Following completion of the analysis and rate design, AE2S will provide <br /> preliminary results to Pequot Lakes for review. AE2S will review the revenue <br /> adequacy analysis and rate design with representatives of the City of Pequot <br /> Lakes to verify assumptions and confirm escalation factors, growth rates, and rate <br /> design proposal. <br /> 5. Based on comments received from this review, AE2S will finalize the analysis and <br /> provide a brief memorandum describing the results and methodology applied in <br /> the analysis. <br /> 6. AE2S will present the results of the revenue adequacy and rate design project to <br /> the Pequot Lakes City Council. <br /> 7. For each of the next two (2) years, 2007 and 2008, AE2S will provide rate <br /> planning assistance through annual updates to the revenue adequacy worksheet <br /> and suggested rate design adjustments for each utility. Annual updates will <br /> include actual expense and revenue data from the prior year, as well as any <br /> identified modifications to escalation factors, capital improvements plans, or <br /> population and water demand projections. It was assumed, for fee estimating <br /> purposes, that all data for the annual updates will be provided electronically, or via <br />