Water rate study recommendations presented to Pine City Council

The Pine City Council was presented with recommendations from a water rate study at a meeting on Dec. 17.

The council voted to move forward with water and sewer rate studies in April of 2025, after multiple Pine City businesses petitioned the city to consider a discounted commercial water rate aimed at small businesses.

The water rate study was conducted by financial consulting firm Ehlers, and presented by representative Jason Aarsvold.

Aarsvold explained that the city's current rate structure includes a fixed monthly service charge, based on meter size, and a usage charge at a rate per 1,000 gallons.

"Right now, all of your customer classes are treated the same way, which isn't necessarily how we'd recommend doing that," Aarsvold said.

Aarsvold said the study recommends adjustments to the monthly service charge to conform with meter size maximum flow and better reflect the actual use of the system by user type.

"Also what we're doing is recommending some adjustments to the usage tiers," Aarsvold added. "Just slightly adjusting those, to more quickly get into those tiers, and then keeping those in place for residential, but they'd be effectively eliminated for commercial and multifamily purposes."

Aarsvold explained that the study funds $8.18 million in capital over the next decade, and rate increases would be needed if capital projects exceed that cost or operating costs run higher than projected.

"All of this exercise as well, the rate tier changes and everything else, we've set them up to not raise more revenue. It's just shifting around where it's coming from based on customer class," Aarsvold said.

Aarsvold said the city's monthly service charge should cover fixed costs, including staff, benefits, technology, and supplies.

"You need some kind of revenue stability to make sure that those costs can be covered, and that it doesn't rely on user fees to be able to cover those fixed costs," he said.

Pine City currently generates 54.3% of its budgeted fixed costs through its existing base rate.

"Right now, more of that base rate revenue is coming from the 5/8 inch, or residential meter size," Aarsvold said.

The study proposed a revised base rate for each meter size.

"All of them get raised, but some of them are going to get raised more than others, and that's really just a function of that fairness issue with the meter size that's out there," Aarsvold said.

From Ehlers Water Rate Study presentation

Those recommended increases would cover 99.3% of the city's annual fixed costs.

Aarsvold also addressed the city's current usage rate structure, which are currently the same regardless of class — something he said is not recommended.

From Ehlers Water Rate Study presentation

About 88% of Pine City's water usage in 2024 fell under the first usage tier.

"We think that's a little much to have that falling all in that first tier," Aarsvold said. "I think maybe 70% to 80% is more appropriate."

Aarsvold said multi-family accounts and commercial accounts should be billed differently than single-family homes.

"You're really solving, often when you set these tiers, for peak demands, and commercial isn't generally a driver of that," he said.

The study recommended decreasing the usage limits for Tiers 1 and 2 to promote conservation, moving all multi-family and commercial accounts to Tier 1, and shifting all irrigation accounts to Tier 3.

"When we apply this new fee, the idea was that we set it such that we're not raising more revenue as a system," Aarsvold said. "What we're doing is we're shifting that revenue recovery between the different kinds of rates, fixed and variable, with the idea that you're doing it to promote equity around how people are using the system and how they're impacting the system, and also for conservation reasons."

From Ehlers Water Rate Study presentation

The study states that the changes would have a "minimal impact to the majority of residential users," with more nonessential water use charged at a higher rate.

Commercial and multi-family users would see a higher impact to customers with large meters, and some with small meters could see a decrease.

Mayor Kent Bombard raised concerns about the potential for base water rate increases during discussion after the presentation.

"I've already heard complaints from homeowners and business owners for years now that our water rates are super high and ridiculous," Bombard said. "So to have a water rate study, and then say, 'oh, by the way, we're going to raise your water cost of service fee' isn't necessarily the greatest position that I thought we were going to land in."

Aarsvold said the recommendation would likely be to keep the base fee adjustments in place, but make up for the impact with the usage tier rates.

"Philosophically, I think that's probably the way to do it," he said.

Council member Dan Swanson questioned if there were "any more tools in our tool belt" to help Pine City's commercial usage rates, after the petition was an impetus for the study.

"We started with a recommendation that's just kind of based on best practice," Aarsvold said. "But you all [the council] decide all of this. We can show you other scenarios, you can evaluate those, and then you can make a decision based on what the numbers are telling you."

Ehlers is also conducting a sewer rate study for Pine City, which Aarsvold said is "a more intensive cost-of-service type study," which is anticipated to be presented to the council at a future meeting.