Edina considers major utility rate increases to fund infrastructure
The Edina City Council heard a presentation Tuesday on proposed utility rate increases for 2026-2027, with stormwater rates facing the steepest hikes to fund $46 million in flood control projects. The council will vote on the final rates in December.
Finance Director Pa Thao and consultant Ehlers presented a comprehensive utility rate study designed to cover inflation and fund major infrastructure improvements across water, sewer, and stormwater systems. The study analyzed 2023 usage data and projected 10-year capital needs through 2035, including a $31.5 million water treatment plant, $60 million in sewer trunk improvements, and extensive flood mitigation work.
The proposed rate increases vary by utility. Water rates would rise 5.25% annually to fund the treatment plant while maintaining adequate financial reserves. Sewer rates would increase 9.25% annually—higher than previously recommended—primarily because the Metropolitan Council Environmental Services charges consume 66% of the sewer fund's operating budget and are expected to grow 7% yearly. Connection fees would also increase: 3% annually for water and 9% annually for sewer.
Stormwater faces the most significant pressure. The study recommends a phased rate increase of 15% in 2026, 14.5% in 2027-2028, and 8.5% thereafter to fund flood risk reduction projects across the city, including work in the Morningside ($13 million), Concord ($7.5 million), and Chowen & 60th ($10.5 million) areas. The consultant warned that without these increases, the stormwater fund would deplete its reserves.
The council solicited feedback on alternative funding mechanisms for stormwater, including property taxes, stormwater taxing districts, and special assessments. The study confirmed that existing water rate tiers are working as designed, with median users staying in the lowest tier and only 7% exceeding the second tier.
No formal vote was taken Tuesday, as this was a work session for initial discussion. The council will formally approve the 2026-2027 rates in December 2025.
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Utility Rate Study Update (Agenda Item 3.1)
Dissent: No dissent recorded. This was a work session presentation for initial dialogue and feedback.
Pa Thao, Finance Director, presented Ehlers' 2025 Utility Rate Study for discussion only. The presentation covered utility systems capital planning, enterprise fund background, and detailed analysis of water, sewer, and stormwater rate structures. Key findings included: (1) Water fund tiers are functioning as designed with median users in Tier 1; (2) Sewer fund faces pressure from 7% annual MCES increases; (3) Stormwater fund requires phased rate increases to fund $46M in flood mitigation projects (2026-2033). The study analyzed 12 months of 2023 usage data and incorporated assumptions of 3% annual operating expense growth, 5% personnel growth, and 1% investment income. Financial goals include maintaining reserves covering 4 months of operating expenses plus 100% of next year's bond/debt payments. Connection fee increases were recommended: water at 3.0% annually ($12M CIP) and sewer at 9.0% annually ($16.7M CIP). Bill impact examples were provided for low-volume residential, mid-volume residential, low-volume commercial, and high-volume commercial users across 2025-2030. Council feedback was solicited on water usage tiers, connection fees, sewer rate increases, and stormwater funding alternatives including property taxes, stormwater taxing districts, and special assessments.
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
Tiers working as designed. Tier breaks reflect 'essential' use. Median user wholly within Tier 1. Only 7% of users exceeded Tier 2 use.
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). Base fee charges currently pay for approximately 66% of fixed costs.
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.
Storm Sewer fund is expected to begin depleting reserves without additional rate adjustment. Rate increases anticipate large CIP needs in 2028 and 2030. Monitoring project timing and future bonding can moderate declines.
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.
Source document
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
Date: October 7, 2025
Meeting: City Council
Agenda Number: 3.1
Item Type: Other
d
ITEM REPORT
Item Activity: Discussion
Prepared By: Pa Thao, Finance Director
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
Utility Rate Study Update
August 6, 2025
EdinaMN.gov
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
Adoptive Level Control / Minor Grading /
Pipe Improvements
Concord Flood Project – Coop w/ School
District
Chowen & 60th Flood Project w/ Street
Reconstruction
Lake Cornelia & Normandale Park Flood
Project
Arden & 50th Flood Project
$13M
$7.5M
Complete
2026-2028
$10.5M
2027-2028
$1.1M
$16.0M
$5.0M
2030
2031
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
Stormwater
Costs related to managing
stormwater runoff into
collection system
Edina is part of
Metropolitan Council
wastewater services
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
Usage,
Conservation & Fee
Equity
• Ensure utilities are
self-sufficient
• Assure fixed costs
are covered by base
rates
• Maintain healthy
reserves
• Review usage
classifications and
tiers
• Inform decisions on
charges and
promoting
conservation
Inform Capital
Planning
Estimate Bill
Impacts
• Determine how
future Capital
Improvement (CIP)
costs will be funded
• 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)
1. Base fee charges currently pay for approximately 66% of fixed costs
Take Away
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
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
Bond proceeds for multi-
year treatment plant project
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
Preliminary Recommendation
Low Usage Example
2025
2026
2027
2028
2029
2030
Water
Sewer
Storm
$
$
55.32
61.66
$55.00
$
$
58.12
67.39
$63.25
$
$
61.17
73.62
$72.58
$
$
64.39
80.43
$83.10
$
$
67.77
87.87
$90.17
$
$
71.32
96.00
$97.83
Total
Percent Increase
$
171.98
6.2%
$
188.76
9.8%
$
207.37
9.9%
$
227.92
9.9%
$
245.80
7.8%
$
265.15
7.9%
Amount Increase- per quarter
$10.06
$16.78
$18.61
$20.55
$17.88
$19.35
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
Preliminary Recommendation
Mid Usage Example
2025
2026
2027
2028
2029
2030
Water
Sewer
Storm
$
$
119.80
92.52
$55.00
$
$
125.69
101.08
$63.25
$
$
132.29
110.43
$72.58
$
$
139.23
120.64
$83.10
$
$
146.54
131.80
$90.17
$
$
154.24
143.99
$97.83
Total
Percent Increase
$
267.32
6.0%
$
290.02
8.5%
$
315.30
8.7%
$
342.98
8.8%
$
368.51
7.4%
$
396.06
7.5%
Amount Increase- per quarter
$15.02
$22.70
$25.28
$27.68
$25.53
$27.55
Page 34 of 39 Impacts: Low-Volume Commercial User
• 24,000 gallons water and sewer; 1” meter
Quarterly Commercial Bill
Actual
Preliminary Recommendation
Small Business
2025
2026
2027
2028
2029
2030
Water
Sewer
Storm
$
$
$
92.44
154.20
96.93
$
$
$
98.09
168.46
111.48
$
$
$
103.24
184.05
127.92
$
$
$
108.66
201.07
146.47
$
$
$
114.36
219.67
158.92
$
$
$
120.37
239.99
172.42
Total
Percent Increase
$
343.57
6.4%
$
378.03
10.0%
$
415.20
9.8%
$
456.20
9.9%
$
492.95
8.1%
$
532.78
8.1%
Amount Increase- per quarter
$20.52
$34.45
$37.18
$40.99
$36.75
$39.83
Page 35 of 39 Impacts: High-Volume Commercial User
• 502,000 gallons water and sewer; 1” meter
Quarterly Commercial Bill
Actual
Preliminary Recommendation
Large Business
2025
2026
2027
2028
2029
2030
Water
Sewer
Storm
$
$
$
1,928.36
3,870.42
1,043.96
$
$
$
2,023.01
4,228.43
1,200.55
$
$
$
2,129.22
4,619.56
1,377.63
$
$
$
2,241.01
5,046.87
1,577.39
$
$
$
2,358.66
5,513.71
1,711.47
$
$
$
2,482.49
6,023.73
1,856.94
Total
Percent Increase
$
6,842.74
6.1%
$
7,452.00
8.9%
$
8,126.42
9.1%
$
8,865.27
9.1%
$
9,583.84
8.1%
$
10,363.16
8.1%
Amount Increase- per quarter
$390.97
$609.26
$674.42
$738.85
$718.57
$779.32
Page 36 of 39 Community Comparisons
Page 37 of 39 Community Comparisons
Page 38 of 39 Community Comparisons
Page 39 of 39
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Other Topics from This Document
Water Fund Rate Recommendations
Sanitary Sewer Fund Rate Adjustments
Stormwater Fund and Flood Risk Reduction Strategy
Capital Improvement Planning and Infrastructure Investment
Utility Enterprise Fund Financial Health and Reserve Targets
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