Financing Integrated Water Resource Management:

Rate Development

Cathie O’Toole

Halifax Water – Director of Corporate Services/CFO

Outline • Background on the evolution of

our funding challenges

• Funding strategy

• Rate development W, WW, SW

• How it all comes together

Background • Origin – 1945 Public Service Commission

• 1996 municipal & water utility amalgamation

• August 1, 2007 wastewater/stormwater transfer

• First regulated water, wastewater and stormwater utility in Canada

Customer Base

• 97,416 customers at March 31/16

• 80% of customers receive water,

wastewater and stormwater service

• We have W, WW, SW only customers

and combinations

Challenges

• Setting cost of service based rates for

wastewater and stormwater services

• Aging infrastructure, CCME compliance, and

insufficient funding

• Lack of historical data on age, location,

condition and capacity of some assets

Solution Operating & Capital

Budgets

Rates

Rate Affordability Debt Service Ratio Rate Smoothing

IRP

Total $2,592 million

How to fund?

• Developed a 30 year financial model

• How much debt is appropriate?

• Considered best practices

• Interviewed key stakeholders

• Reviewed assumptions with economists

Rate Smoothing Required

Funding Mix

• Regional Development Charge

• Depreciation Funding

• Debt (amounts, terms)

• Infrastructure Funding

• Own source – pay as you go

Funding Strategy

• Debt Service Ratio limit of 35%

• Target Debt/Equity Ratio of 40%/60%

• Affordability 2 – 4% of median household income

• Sustainability – reserve of 3% - 5% of op ex

• Intergenerational equity – growth pays for growth

Funding Strategy • Flexibility – we adjust each year to reflect new

information and timing of projects

• Credibility – our strategies are vetted and

approved

• Predictability – We have a rate smoothing

strategy and set rates for multiple years

Funding Strategy

• Slowly and steadily increasing rates

• Diversifying funding sources (RDC,

SW rates, adding unregulated

business)

• Demonstrating we contain costs

IRP Funding Mix

What is right for you? • Depends on age and condition of assets

• Current compliance level, capacity & future growth

• Financial position and capacity to borrow

• Can customers pay higher utility rates or taxes?

• Availability of infrastructure funding by higher levels

of government

Cost of Service Rate Design

• Determine system cost factors

• Group customers with similar usage

• Look at peaking factors & strength loadings

• Allocate costs to customer classes

proportionate to system demands

COS Best Practice

• AWWA M1 Manual – Principles of Water

Rates, Fees and Charges

• WEF Financing and Charges for Wastewater

Systems

• WEF User Fee Funded Stormwater Utilities

AWWA/WEF Cost of Service Process

18

Rate design

Annual revenue to be recovered

from user charges (financial plan)

Grouping of functions by joint and

specific categories

Co

st a

lloca

tio

n p

roce

ss

Specific

costs

Allocation to

customer

classes Classification of cost of service by

service characteristic

Joint costs

Allocation to system functions

Joint Costs

Residential and ICI Public and Private Fire Protection

Water System Customer Classes

Cost Allocation Process: Water S

pec

ific

Co

sts

Treatment Supply Transmission

& Distribution Indirect Pumping

Standard Water System Functional Categories

Equivalent

Meters

Customer

Service Storage

Max-Day

Demand

Max-Hr

Demand

Customer/

Billing

Average

Demand

Equivalent

Meter

Standard Water System Service Characteristics

Fire

Protection

Emergency /

Standby

Volumetric charges

($/cu. m)

Customer charges ($/bill)

Meter charges ($/meter)

Average Demand

Peak Demand

Customer/Billing

Meter Size

SERVICE CHARACTERISTICS RATE COMPONENT

Cost Recovery by Water Rate Component

Fire Protection Charges Fire Protection

Standby/Emergency Meter or Customer charges

Joint Costs

Residential & ICI

Customer Classes

Monitored/Extra Strength

Cost Allocation Process: Wastewater S

pec

ific

Co

sts

Primary

Treatment

Non-Nutrient

Secondary

Nutrient

Removal

Solids

Handling Pretreatment

Industrial

Waste

Peak Flow

/I&I BOD TSS

Customer/

Billing

Average

Flow

Equivalent

Meter

Standard Wastewater System Service Characteristics

Nitrogen Phos.

Trunkss Collection Customer

Services Indirect

Treatment

Plants

Standard Wastewater System Functional Categories

Equivalent

Meters

Cost Recovery by Wastewater Rate Component

Customer Service

Strengths

Infiltration & Inflow

Average Flow Volume Charge

Volume or Fixed Charge (customer or meter)

Volume Charge, Extra-Strength Charges

Fixed Charge

Equivalent Meter Meter Charge (varies by meter size)

SERVICE CHARACTERISTICS RATE COMPONENT

Stormwater

Stormwater Rates • ROW billed to municipality (then to residents)

• Site generated flow costs billed to property owners-

$0.149 m2

• Properties that do not ultimately drain to our system are

exempt

• ICI billed for actual impervious area

• Residential billed a uniform charge based on average

impervious area - $33.39

Link Financing to Environmental Compliance

• Use price signals to promote conservation

• Establish separate SW charges or credit systems to incent

behavior or reduce SW getting into WW system and

recognize cost causation

• Surcharge for over-strength WW flows (in-addition to other

enforcement mechanisms)

• Separate “growth” related costs and consider dev. charges

Questions? Contact Me:

Cathie O’Toole

Halifax Water

Director of Corporate Services/CFO

CathieO@halifaxwater.ca