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Home My WebLink About2025-10-07 Work Session Meeting Packet Meeting location: Edina City Hall Community Room 4801 W. 50th St. Edina, MN City Council Work Session Meeting Agenda Tuesday, October 7, 2025 5:30 PM Accessibility Support: The City of Edina wants all residents to be comfortable being part of the public process. If you need assistance in the way of hearing amplification, an interpreter, large-print documents or something else, please call 952-927-8861 at least 72 hours in advance of the meeting. 1. Call to Order 2. Roll Call 3. Meeting Topics 3.1. Utility Rate Study Update 4. Adjournment Page 1 of 39 d ITEM REPORT Date: October 7, 2025 Item Activity: Discussion Meeting: City Council Agenda Number: 3.1 Prepared By: Pa Thao, Finance Director Item Type: Other Department: Finance Item Title: Utility Rate Study Update Action Requested: Discussion only Information/Background: Ehlers will provide an update to the 2025 Utility Rate Study that is designed to do the following for the 2026 - 2027 utility rates: • Implement inflationary increases to utility rates • Provide changes to water and sewer rate structures Formal approval of the 2026 rates will be presented to Council December 2025. Resources/Financial Impacts: • Budget – Utility Funds Relationship to City Policies: Three year best practice study update Supporting Documentation: 1. Staff Presentation Page 2 of 39 EdinaMN.gov Utility Rate Study Update August 6, 2025 Page 3 of 39 Overview Utility Systems -Capital Planning Update Utility Enterprise Funds -background Ehlers 2025 Analysis Questions and Feedback Page 4 of 39 York Trunk Sanitary Sewer Improvements York Avenue, Hazelton Road, 69th Street, 65th Street Area 4: 69th Street to 66th Street Area 5: 65th Street –Drew to York Area 6: Hazelton Rd Area 7: 69th Street Page 5 of 39 South Trunk (Cahill) Sanitary Sewer Improvements Under France Ave 72nd Street Oaklawn Avenue Gilford Drive Kellogg Avenue Hibiscus Avenue Under TH100 Estimated at $60M over 10-years Page 6 of 39 Lincoln Londonderry Sanitary Sewer •Not included in the rate study •$20M to $40M Page 7 of 39 Water Treatment Plant #5 Layout and Size of a Water Treatment Plant •3 Well WTP or 3000 gallons per minute •2 Wells are connected already Estimated Cost in 2025 Dollars 1.$18. 5M Estimated Construction 2.$4.6 to $6.5M Construction Contingency 3.$1.8M for water system and well integrations 4.$4.7M professional services 5.$31.5M Page 8 of 39 Water Treatment Plant #5 Schedule •Early 2026 old Fire Station #2 Demo •2026 York Town Park Master Plan •2027 – 2028 Design •2028 – 2030 Construction Page 9 of 39 Flood Risk Reduction Strategy •2018 Water Resources Management Plan included commitment to develop a Flood Risk Reduction Strategy •2019 convened Flood Risk Reduction Strategy task force •2020 Flood Risk Reduction Strategy adopted by City Council •2022 Water Resources Management Plan amendment to incorporate Flood Risk Reduction Strategy Page 10 of 39 Flood Risk Reduction Strategy Comprehensively reduce risk throughout the community. Infrastructure: We renew our infrastructure and operate it to reduce risk. We will plan public streets and parks to accept and convey flood waters to reduce the risk and disruption of related city services. Regulation: We acknowledge competing demands of land use and addressing drainage, groundwater, and surface water issues. We help people solve issues without harming another. Outreach and Engagement: We make flood information available and give people tools for flood resilience. Emergency Services: We help people prepare for floods, remove people from harm during floods, and recover after floods. Page 11 of 39 Flood Risk Reduction Projects Project Estimate Cost Year(s) Morningside Flood Project $13M Complete Adoptive Level Control / Minor Grading / Pipe Improvements $7.5M 2026-2028 Concord Flood Project – Coop w/ School District $10.5M 2027-2028 Chowen & 60th Flood Project w/ Street Reconstruction $1.1M 2030 Lake Cornelia & Normandale Park Flood Project $16.0M 2031 Arden & 50th Flood Project $5.0M 2031 Page 12 of 39 Utility Enterprise Funds Enterprise Funds Intended to operate as a business Self-sufficient funding for operations, capital and reserves Water Cost for providing clean water for drinking, indoor, recreational, and commercial use Sewer Costs related to treatment of waste discharged into the sewer system Edina is part of Metropolitan Council wastewater services Stormwater Costs related to managing stormwater runoff into collection system Page 13 of 39 Utility Revenue Components •How Edina Charges (Quarterly Billing Period) •Water Base Fee – fixed fee based on meter size Volumetric (usage) charges – per 1,000 gallons User classifications – residential, commercial, multifamilty, irrigation Charges are tiered at higher consumption levels (conservation pricing) •Sanitary Sewer Use charge based on lesser of winter quarter minimum or actual use •Stormwater Single rate adjusted for Residential Equivalency Factor (REF) applied to acreage •Other: Connection Fees (WAC and SAC) Upon Development - designed to contribute toward paying for system capacity expansion Page 14 of 39 Purpose of a Utility Rate Study Maintain Financial Health of Utility Funds •Ensure utilities are self-sufficient •Assure fixed costs are covered by base rates •Maintain healthy reserves Usage, Conservation & Fee Equity •Review usage classifications and tiers •Inform decisions on charges and promoting conservation Inform Capital Planning •Determine how future Capital Improvement (CIP) costs will be funded Estimate Bill Impacts •Review user impacts and overall affordability Page 15 of 39 Prior Rate Study Analysis •2022 Study •Update Capital Funding Needs 2022 to 2031 CIP: Water - $62 million; Sewer - $35 million; Storm - $63 million Informed future general rate increases: Water -5.0%; Sewer - 6.0%; Storm - 8.0% •Evaluate charges and structural issues Sewer minimum reduced from 12,000 to 8,000 gallons and applied to lesser of winter- or current-quarterly use Addressed low-volume user equity complaints Enhance water conservation Redesign tiers to promote water conservation while supporting each class pays for share of system use Tightened Tier 1 and Tier 2 residential bands to reflect actual winter (i.e. “essential”) use Stretched Tier 1 and added third Tier to commercial Tightened irrigation tier band Page 16 of 39 Rate Study Financial Goals •Evaluate each utility’s rate structure and financial capacity •Build a multi-year financial forecast model (10 years - 2026 to 2035) •Determine annual cashflow needs to pay for utility costs Operations – staff, supplies, current maintenance and repair Capital projects Debt payments associated with capital projects •Year-end target is to have a minimum balance that covers: 4 months of operating expenses, excluding depreciation 100% of next year’s bond/debt payments Flexible reserves to accommodate unforeseen repairs and fund capital needs •Analyze sufficiency of revenues from base charges and usage tiers Page 17 of 39 Study Factors and Key Assumptions •FY 2024 actual and 2025-2027 budgeted expenditures •Assumptions •3% annual operating expense growth; 5% personnel •Sewer Fund - 7% for Met Council Environmental Service (MCES) charges •1% investment income •Future system connection growth (redevelopment) •Forecast future capital expenditures •Current Capital Improvement Plan plus additional forecasted needs beyond •Analyzed 12 months of usage data •January to December, 2023 Page 18 of 39 Utilities Are Capital Intensive Page 19 of 39 Connection Fee Recommendation •Water and Sewer fees paid by new development / redevelopment •Recommend increases to pay for capacity expansion projects •Water Connection fee Continue 3.0% increase per year to fund $12 million of CIP’s capacity expansion projects •Sewer Connection fee Adjust to 9.0% per year to fund $16.7 million of CIP’s capacity expansions projects Page 20 of 39 Water Fund - Usage Analysis •Findings on Composition of 2023 Water Usage and Revenue •Includes irrigation accounts Page 21 of 39 Water Fund - Usage Analysis •Findings on Composition of 2023 Water Usage and Revenue Take Away Tiers working as designed •Tier breaks reflect “essential” use •Median user wholly within Tier 1 •Only 7% of users exceeded Tier 2 use Page 22 of 39 Water Fund - Usage Analysis •Findings on Composition of 2023 Water Usage and Revenue Take Away Tiers working as designed •Median user wholly within Tier 1 •18% of users exceeded Tier 2 Page 23 of 39 Water Fund •Water base fee provides stable funding stream for fixed costs, so operating revenues are buffered from usage fluctuations •2025 Budgeted Fixed Costs = $3.7 million (Personnel and contractual) Take Away 1.Base fee charges currently pay for approximately 66% of fixed costs Page 24 of 39 Water Fund •Proposed Water Rates – 5.25% Annual Increases Take Away 1.5.25% increase keeps pace with updated funding needs 2.Applied to Base and Volumetric charges 3.Keep existing tier breaks 4.User class revenues on pace with usages Page 25 of 39 Water Fund •Ensure Adequate Cash Balances Bond proceeds for multi- year treatment plant project Take Away 1.Water fund is maintaining adequate reserves through a balance of cash and debt CIP funding 2.Target reserve can be maintained through moderate increases to user rates 3.Includes projected connection fees and bonding Page 26 of 39 Sanitary Sewer •Prior Rate Study Recommendation – 6.0% annual rate increases •Updated Funding Challenges •Metropolitan Council sewer treatment charges – 66% of fund operating budget Cashflow forecast assumes 7% annual MCES increases •Capital costs increase from previous studies •Recommendation: 9.25% annual increases •Minimum Current flat rate is $61.66 (includes 8,000 gallons of use) Recommend increase to $67.36 •Usage Rate Current rate $7.71 per thousand gallons over the minimum Recommend increase to $8.42 Page 27 of 39 Sanitary Sewer •Ensure Adequate Cash Balances Take Away 1.Sewer fund currently positioned with adequate reserves from prior 6% rate increases 2.Anticipated capital and MCES require increased funding 3.Continuing to achieve target reserves requires further user rate increases 4.Includes projected connection fees and bonding Page 28 of 39 Storm Water •Prior Rate Study Recommendation – 8.0% annual rate increases •Updated Funding Challenges •Capital costs increases - $46 million for flood mitigation (2026 to 2033) •Recommendation: Phase rate increases •2026 – 15% From rate of $61.66 to $67.36 •2027 and 2028 – 14.5% •2029 and thereafter plan for 8.5% Page 29 of 39 Storm Water •Ensure Adequate Cash Balances Take Away 1.Storm Sewer fund is expected to begin depleting reserves without additional rate adjustment 2.Rate increases anticipate large CIP needs in 2028 and 2030 3.Monitoring project timing and future bonding can moderate declines Page 30 of 39 Next Steps – Council Feedback •Utility Rate Study presented for initial dialogue only •Water Usage Tiers – continue to monitor for impacts •Raise Connection Fees to fund water and sewer capacity projects •Continue moderate water increases •Increase sewer charges for anticipated MCES and CIP funding •Increase charges 9.25% annually, instead of 6.0% •Funding the storm water CIP requires increased revenue •Phase increased as projects occur – 15% initially •Explore alternatives? Property taxes Storm water taxing districts Special Assessments Page 31 of 39 Additional Background Slides •Various sample bill impacts and community comparisons Page 32 of 39 Impacts: Low-Volume Residential User •10,000 gallons water, 8,000 gallons sewer (winter min.) and 3/4” meter Quarterly Residential Bill Actual Low Usage Example 2025 2026 2027 2028 2029 2030 Water 55.32$ 58.12$ 61.17$ 64.39$ 67.77$ 71.32$ Sewer 61.66$ 67.39$ 73.62$ 80.43$ 87.87$ 96.00$ Storm $55.00 $63.25 $72.58 $83.10 $90.17 $97.83 Total 171.98$ 188.76$ 207.37$ 227.92$ 245.80$ 265.15$ Percent Increase 6.2%9.8%9.9%9.9%7.8%7.9% Amount Increase- per quarter $10.06 $16.78 $18.61 $20.55 $17.88 $19.35 Preliminary Recommendation Page 33 of 39 Impacts: Mid-Volume Residential User •24,000 gallons water, 12,000 gallons sewer (winter min.) and 1” meter Quarterly Residential Bill Actual Mid Usage Example 2025 2026 2027 2028 2029 2030 Water 119.80$ 125.69$ 132.29$ 139.23$ 146.54$ 154.24$ Sewer 92.52$ 101.08$ 110.43$ 120.64$ 131.80$ 143.99$ Storm $55.00 $63.25 $72.58 $83.10 $90.17 $97.83 Total 267.32$ 290.02$ 315.30$ 342.98$ 368.51$ 396.06$ Percent Increase 6.0%8.5%8.7%8.8%7.4%7.5% Amount Increase- per quarter $15.02 $22.70 $25.28 $27.68 $25.53 $27.55 Preliminary Recommendation Page 34 of 39 Impacts: Low-Volume Commercial User •24,000 gallons water and sewer; 1” meter Quarterly Commercial Bill Actual Small Business 2025 2026 2027 2028 2029 2030 Water 92.44$ 98.09$ 103.24$ 108.66$ 114.36$ 120.37$ Sewer 154.20$ 168.46$ 184.05$ 201.07$ 219.67$ 239.99$ Storm 96.93$ 111.48$ 127.92$ 146.47$ 158.92$ 172.42$ Total 343.57$ 378.03$ 415.20$ 456.20$ 492.95$ 532.78$ Percent Increase 6.4%10.0%9.8%9.9%8.1%8.1% Amount Increase- per quarter $20.52 $34.45 $37.18 $40.99 $36.75 $39.83 Preliminary Recommendation Page 35 of 39 Impacts: High-Volume Commercial User •502,000 gallons water and sewer; 1” meter Quarterly Commercial Bill Actual Large Business 2025 2026 2027 2028 2029 2030 Water 1,928.36$ 2,023.01$ 2,129.22$ 2,241.01$ 2,358.66$ 2,482.49$ Sewer 3,870.42$ 4,228.43$ 4,619.56$ 5,046.87$ 5,513.71$ 6,023.73$ Storm 1,043.96$ 1,200.55$ 1,377.63$ 1,577.39$ 1,711.47$ 1,856.94$ Total 6,842.74$ 7,452.00$ 8,126.42$ 8,865.27$ 9,583.84$ 10,363.16$ Percent Increase 6.1%8.9%9.1%9.1%8.1%8.1% Amount Increase- per quarter $390.97 $609.26 $674.42 $738.85 $718.57 $779.32 Preliminary Recommendation Page 36 of 39 Community Comparisons Page 37 of 39 Community Comparisons Page 38 of 39 Community Comparisons Page 39 of 39