Laserfiche WebLink
Summary Memorandum <br />Re: Sewer Revenue Adequacy <br />October 21, 2021 <br />Table 5: City of Elk River Sewer CIP and Planned Capital Equipment <br /> Funding <br />Project 2021 2022 2023 2024 2025 2026 <br />Source <br />Sewer Equipment Rate Revenue $103,000 <br />Lift Station <br />Rate Revenue $61,800 $50,000 $50,000 $50,000 $50,000 <br />Improvements <br />CIP Placeholder Rate Revenue $84,752 $87,418 $90,041 $92,742 <br />Budgeted Capital <br />Rate Revenue $135,000 $460,000 $247,500 $256,425 $265,618 $275,086 <br />Outlay* <br />Total $135,000 $624,800 $382,372 $393,843 $405,659 $417,828 <br />* Accounts for budgeted items such as vehicles, sewer camera, major equipment, etc. <br />The last component of the Capital-related revenue requirements is that associated with <br />contributions to Renewal/Replacement (R&R) reserves. Discussion of R&R contributions is <br />included in the following section. <br />Capital Renewal/Replacement Reserve Considerations <br />The establishment of rates that represent full cover recovery is key to ensuring financial health <br />The at approximately $20 million (M) <br />has been invested in the collection system since the late 1970s, meaning the oldest pipelines are <br />40 to 50 years old. With pipeline life expectancies ranging from 50 to 100 years in some cases, It <br />is likely that the City will soon see significant pipeline renewal needs if it has not to date. <br />Records also indicate that the existing wastewater treatment infrastructure came online in 2017, <br />Given this is relatively new, there has likely been little renewal/replacement (R&R) needed at that <br />facility. Due to growth-related revenue from Sewer Access Charges (SAC), the Sewer Utility <br />currently has strong reserve balances, which is favorable for meeting near-term capital needs. <br />By adopting a rate-setting approach that includes a capital component associated with on- <br />going R&R, the City has the ability to phase in the necessary adjustments over multiple years, <br />using existing reserves in the interim to cover any revenue shortfalls. <br />The measurement of full cost refers to the cost of system operation, as well as use of the <br />capital components in service. The cost of the latter is most commonly represented as <br />depreciation. Full-cost recovery requires that at a minimum, the revenue generated by the rate <br />, <br />and is important for two reasons: <br />1. To promote the generation of adequate revenue to cover annual revenue requirements, <br />including periodic renewal required to maintain system value. <br />Project Number Page 5 of 20 <br />Think Big. Go Beyond. www.ae2s.com <br /> <br />