November 13, 2019 Page 1 of 27 · Meeting Date: November 13th, 2019 Submitted by: Rob Cascaden,...

Meeting Date: November 13th, 2019

Submitted by: Rob Cascaden, P.Eng. – Director, Public Works and Engineering

Report No: PWE 34-2019

Subject: 2020 Water, Wastewater and Stormwater Rate Proposal

Recommendation:

THAT Council approve the 2020 water and wastewater rates for Middlesex Centre as recommended by BMA Management Consulting Inc.

Purpose:

To request Council’s approval of the 2020 water, wastewater, and stormwater rates for Middlesex Centre.

Background:

Under Ontario Regulation 453/07, all municipalities are required to prepare a minimum 6 year Water Financial Plan for all municipal drinking water systems. The Financial Plan must be submitted to the Ministry of Municipal Affairs and Housing and made available to the public. This regulation is part of the Province’s long term strategy to ensure that all municipal drinking water systems are financially viable.

In 2015, BMA Management Consulting Inc. was engaged to undertake a Long Range Financial Plan and a Water/Wastewater Rate Study. These two reports were approved by Council on December 2, 2015 and January 20, 2016 respectively from which new rates were established for 2016. Additionally, in 2016, departmental administration staff prepared and tabled a report before Council on April 20, 2016 recommending and ultimately leading to the Municipality making the decision to terminate its servicing contract with American Water Canada and electing to bring the operations of the Municipality’s water and wastewater systems in‐house on November 1, 2016. This new approach was endorsed by Council.

In 2016, BMA Management Consulting Inc. was again engaged by departmental administration staff to undertake a stormwater financial review to fund its stormwater management program and to make recommendations in the recovery of stormwater management costs based on best practice research. BMA was also tasked with calculating a proposed rate using the 2016 Operating and Capital Budget provided by the

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Municipality. At such time, the recommended and Council endorsed funding approach for stormwater management operating and infrastructure lifecycle costs as detailed in BMA’s report was a flat rate per property. It was further recommended and endorsed that a threshold be established at 0.4 hectares (1 acre) for industrial, commercial and institutional properties whereby a flat monthly rate is charged to all properties, consistent with the flat rate for the residential class plus an incremental per hectare rate for hectares exceeding the threshold. The 2016 rate was based on current operating costs with an annual contribution to reserves for lifecycle infrastructure funding.

The Municipality's existing rate structure includes a uniform volumetric rate structure, a minimum by-monthly fee, a seasonal water rate for residential customers and a fixed infrastructure lifecycle rate. The Municipality’s water, wastewater, and stormwater rates have been frozen since 2016. The following summarizes the existing water and wastewater rates:

2019 Water Wastewater Total Fixed Monthly Charge $22.76 $29.30 Water Usage Charge (Volumetric) 0-8 m3 No additional charge Water Usage Charge per m3 for consumption exceeding 8 m3

$2.84 $3.66

Infrastructure Lifecycle Reserve Fund Charge based on Meter Size - Monthly

5/8” $18.00 $17.32 3/4” $27.00 $25.98 1” $45.00 $43.30

1.5” $90.00 $86.61 2” $144.00 $138.57

The following summarizes the existing stormwater rates:

2019 Rate Monthly rate for all customers $14.88 For Industrial, Commercial and Institutional Customer with properties larger than 0.4 hectares an additional monthly charge applies Monthly ICI Land area above 0.4 hectares per hectare

$42.18

BMA Management Consulting Inc., hereinafter referred to as BMA, was retained by administration staff to undertake a review of the existing water and wastewater rate structure for 2020.


Analysis:

BMA Management Consulting Inc. was engaged by the Municipality of Middlesex Centre to review and update the existing water, wastewater and storm rates for 2020. This report is not intended to provide a long range financial plan but has been undertaken to calculate the rates using the 2020 Operating and Capital Budget. Over the next year, municipal staff will undertake a long term view of the future financial requirements to ensure revenue stability and financial sustainability.

The existing rate structure supports the goals and objectives of the Municipality and a detailed review of the rate structure was undertaken several years ago. As such, consideration of alternative rate structures was not undertaken for the calculation of 2020 rates.

The aforementioned analysis was undertaken using the most current information available to the Municipality including:

Customer account information by meter size; Current 3-year consumption trend information; 2020 Draft Operating Budgets; and, 5-year Capital Budget and Asset Management Plan

The following table provides the respective 2019/2020 opening and projected ending reserve balances:

2019 Opening Balance

2019 Projected Ending Balance

2020 Projected Ending Balance

Wastewater Reserve $1,806,189 $1,375,459 $1,260,978 Water Reserve $2,261,267 $504,523 ($2,511,131) Stormwater Reserve $1,372,687 $1,435,693 $904,771

Water, wastewater and stormwater fees have not been increased in four years as there were efficiencies created in the operations which helped absorb inflationary increases. However, it is important, at this time, to ensure that financial sustainability goals are maintained in terms of adequate contributions to reserves in relation to the future capital program to ensure the timely replacement of assets as they come due for replacement as well as the need to fund the growth‐related costs that are not recoverable from DCs.

Middlesex Centre continues to be faced with the challenge of costly water and wastewater systems to operate with relatively fewer customers to support these costs. The Long Range Financial Plan recommended eliminating the annual funding gap in water by approximately 2025 and 2027 in wastewater.

Based on the recommendations as detailed in BMA's 2015 Long Range Financial Plan, the annual rate increases for water and wastewater were projected at 3.5% and 4% respectively. Compounding these rates over 4 years from 2016 to 2020 would


result in rates 2020 water and wastewater rates which would be 14.8% and 17.0%, respectively, higher than the 2016 rates.

The proposed rate changes for 2020 include a 5.5% rate increase in water fixed monthly and volumetric, with no increase in the Infrastructure Lifecycle Reserve. Based on the existing assumptions, the wastewater rates can remain at the 2019 levels but a rate increase may be warranted in future years. A 3.3% rate increase is recommended for Stormwater based on the assumptions included in BMA’s report.

Although a 5.5% increase in the water rate is significant it is far less than the 14.8% originally projected over the 4-year period. The blended increase across water, wastewater and storm water will generally be in the range of 1.7% to 2.0% depending upon consumption.

Accordingly, the proposed 2020 water and wastewater rates are as follows:

2020 Water Wastewater Total Fixed Monthly Charge $24.01 $29.30 Water Usage Charge (Volumetric) 0-8 m3 No additional charge Water Usage Charge per m3 for consumption exceeding 8 m3

$3.00 $3.66

Infrastructure Lifecycle Reserve Fund Charge based on Meter Size - Monthly

5/8” $18.00 $17.32 3/4” $27.00 $25.98 1” $45.00 $43.30

1.5” $90.00 $86.61 2” $144.00 $138.57

The following summarizes the proposed stormwater rates:

2020 Rate Monthly rate for all customers $15.37 For Industrial, Commercial and Institutional Customer with properties larger than 0.4 hectares an additional monthly charge applies Monthly ICI Land area above 0.4 hectares per hectare

$43.57/ha

There are a number of sources which are used in the industry to establish a benchmark upon which affordability is measured. The most common approach is water/wastewater costs as a percentage of average household income. Based on the analysis undertaken, the Municipality of Middlesex Centre is below the affordability threshold. Depending on the source used, the range typically is from 1.5% to 3.0% of household income, beyond which, affordability is questionable.

The water/wastewater costs in Middlesex Centre as a percentage of household


income in 2019 is 1.2%, below the 1.3% average of peer municipal comparators in Southwest Ontario (range 0.8% to 1.9%).

Financial Implications:

The residential rate for water will increase from $2.84/m3 to $3.00/m3, however, the rate for wastewater will remain unchanged. The rate for stormwater will increase from $14.88/lot to $15.37/lot.

Water and Wastewater Rates

Based on the budget and the number of customers, the water rate for 2020 would be increased by 5.5% and would result in an estimated $1,545,245 contribution to the water reserve fund balance as proposed in the draft 2020 Operating budget. This reflects an approximate 5% increase in contribution to the reserve fund over the 2019 projection. The wastewater rate for 2020 will be held at the 2016 rate but due to growth and a reduction in interest payments, the forecast 2020 contribution to the wastewater reserve fund is $1,202,447 (a 3% increase of the 2019 projection). This growth in reserve funds is the minimum required to adequately support future capital requirements.

It is noted that the contributions to the reserve funds have increased significantly since 2015. The 2020 projection for water reserve contribution is nearing the recommended contribution of $1,592,000 (in 2015 $) identified in the existing Asset Management Plan. After correction due to inflation, it is estimated that the water reserve fund transfer will be about 90% of the recommended value in 2020. However, the 2020 projection for wastewater reserve contribution amount is only about 50% (inflation corrected) of the recommended contribution of $2,229,000 (in 2015 $) identified in the existing Asset Management Plan. BMA had projected the contributions for wastewater would take longer to reach the intended targets (est. 2027) and the 2020 contribution level is on target to meet that goal.

Maintaining the existing water rates would decrease the projected transfer to the water reserve fund by about $110,000 in 2020.

Stormwater Rates

Based on the budget and the number of customers, the stormwater rate for 2020 would be slightly increased and would result in a $429,743 contribution to the stormwater reserve fund balance as proposed in the draft 2020 Operating budget. This reflects an approximate 20% increase in contribution to the reserve fund over the 2019 projection. This is in order to adequately support the capital requirements which are expected to increase over the next four years.

Maintaining the existing stormwater rates would decrease the projected transfer to reserve fund by about $26,000 in 2020.

Conclusion


Based upon the aforementioned analysis undertaken by BMA Management Consulting Inc., departmental administrative staff are supportive of freezing the wastewater rates for 2020 (to the 2016 rate) but increasing the water and stormwater rates for 2020 as identified.

Strategic Plan:

The aforementioned recommendation will ensure the Municipality’s continued delivery of safe potable drinking water, wastewater, and stormwater services to residents, the ongoing approach to reduce cost of service, and its goal of delivering affordable sustainable services for generations to come.

Middlesex Centre`s 2012 - 2017 Strategic Plan, identified four applicable strategic themes as Maintain Financial Integrity, Manage Costs, Manage Reserves, and Environmental Sustainability.

Attachments:

BMA Water, Wastewater and Storm – 2020 Rate Review


Water, Wastewater and Storm 2020 Rate Review

Municipality of Middlesex Centre

Management Consulting Inc.BMA


Water and Wastewater Rate Structure Report

20

Table of Contents

Introduction—Water, Wastewater and Storm Rate Structure Report 1

Establishing the Municipality’s Water and Wastewater Rates 1

Water, Wastewater and Storm Rate and Financial Plan Goals and Objectives 2

Sources of Data Used to Calculate Rates 3

2016‐2019 Water and Wastewater Rates 5

2019 Existing Water and Wastewater Rate Structure 6

2016‐2019 Stormwater Rates 7

Affordability 8

Reserve Strategies 9

2020 Water Operating Budget 11

2020 Wastewater Operating Budget 12

2020 Storm Water Operating Budget 13

2020‐2022 Water Capital Budget 14

2020‐2021 Wastewater Capital Budget 15

2020‐2022 Storm Water Capital Budget 16

Key Challenges and Opportunities 17

Proposed 2020 Water, Wastewater and Storm Rates 18

Residential Impact Analysis 19



1

Introduction—Water, Wastewater and Storm Rate Structure Report

BMA Management Consulting Inc. was engaged by the Municipality of Middlesex Centre to review and update the existing water, wastewater and storm rates for 2020. This report is not intended to provide a long range financial plan but has been undertaken to calculate the rates using the 2020 Operating and Capital Budget. As will be discussed in this report, there is a need over the next year to undertake a long term view of the future financial requirements to ensure revenue stability and financial sustainability.

As will be discussed in this report, the existing rate structure supports the goals and objectives of the Municipality and a detailed review of the rate structure was undertaken several years ago. As such, consideration of alternative rate structures was not undertaken for the calculation of 2020 rates.

The 2020 rates have been calculated using the most current information available to the Municipality including:

Customer account information by meter size

3‐year consumption trend information

2020 Draft Operating Budget

2020 Capital Budget

Establishing the Municipality’s Water and Wastewater Rates

Despite industry trends in water, wastewater and storm rates, as stated by the Canadian Water and Wastewater Association (CWWA), there is, and always will be, a lot of variation in rate setting practices given that there is no single rate setting approach or rate structure.

The approach undertaken by each municipality is to establish goals and objectives and examine various rate structures in relation to these goals and objectives.

Goals and objectives have been included on the next page to reflect key considerations that municipalities use to develop their respective rate structure. This is consistent with information presented to Middlesex Centre in previous rate and long range financial planning reviews.



2

Goal and Objective

Description

Financial Sustainability

Revenues collected for the provision of services will be used to meet the needs of these services. Life‐cycle planning and asset management planning are key inputs to the development of the Financial Plan and will ensure that sustainable levels of revenue are available to meet or exceed environmental protection standards, while providing sufficient resources for future rehabilitation and replacement needs.

Revenue Stability

The rate structure and financial plan should provide for a steady and predictable stream of revenues such that the Municipality is capable of meeting its current financial requirements. To the extent possible, cash flows should be matched with expenditures. Any rate setting practice employed or financial plan developed will consider the impact on revenue stability and take the appropriate actions to maintain/improve revenue stability.

Fairness and Equity

The rate structure and financial plan should ensure that customers are contributing equitably towards revenue requirements. Equity should be based on the user pay principle. Fair sharing in the distribution of resources between current and future ratepayers will be employed.

Affordability The rate structure should incorporate policies that support affordable water services for all customers while, at the same time, ensuring that the full cost of service is being recovered.

Conservation The rate structure should encourage the efficient and justifiable use of water as well as assist in managing system demand. Programs that promote efficient water usage may reduce operating costs and capital investment needs over time. Less water consumed will result in deferral of plant expansions, thereby avoiding capital expenditures for all customers.

Practical The rate structure should support principles of fairness and equity but, at the same time, it should be simple to understand, rational and easy to update and administer.

Water, Wastewater and Storm Rate and Financial Plan Goals and Objectives



3

Sources of Data Used to Calculate Rates

Reserves—Water/WW and Stormwater Reserve year end balances were provided from 2011‐2018 and projected closing 2019 balances which takes into consideration any commitments from previous years. This will be shown later in the report.

Operating Budget—The Municipality’s 2020 Draft Operating Budgets for Water, Wastewater and Stormwater. Details are provided later in the report.

Capital Budget—The proposed 2020 Capital Budget included sources of financing. A summary of the Capital Budget over 2‐4 years, based on service has been included in the report to provide an understanding of the future capital requirements.

Historical Rates—A review was undertaken of the historical rates to gain perspective into the strategies that have been deployed to support financial sustainability. A four year historical rate table has been included for each service which reflects 0% increases during this timeframe.

Water Consumption—Consumption trends were provided for 2016‐2018 as well as a forecast consumption for 2019 by the Municipality to determine an appropriate assumption with respect to rate setting. This is important to consider in establishing future rates and revenue stability. As shown below, the consumption varies annually due to changes in weather conditions as well as growth. The approach was to use a three year average to establish the base consumption.

400,000

450,000

500,000

550,000

600,000

650,000

700,000

2016 2017 2018 2019

Billable Consumption (m3)



4

Customer Accounts and Meters by Size—The Municipality provided customer account information by meter size for 2019. A 1% increase in the number of residential customers was used to calculate the 2020 rates.

Storm Sewer Accounts

The following summarizes the 2019 customers which includes the storm customers with no water meter. This table also reflects the number of customers to align with the existing rate structure.

Debt ‐ Middlesex Centre has existing debt associated with Water and Wastewater operations, some of which is related to growth and will be repaid from the DC Reserve Funds. In 2020, the following summarizes the total debt charges, the amount to be recovered from DC Reserve Funds and the Debt Charges as a percentage of Own Source Revenues.

As shown above, the 2020 net debt charges as a percentage of own source revenues is 5.3% on a consolidated basis which is reasonable.

There is currently no debt associated with Storm operations.

The majority of the existing debt charges in wastewater is attributed to growth and recovered from DCs.

2020 Debt Charges

Debt Recovered from DC

Reserve Fund

Net Debt Charges from

RatesDebt Charges as a % of OSR

Water 322,803$ (161,402)$ 161,402$ 5.2%

WW 675,709$ (468,954)$ 206,755$ 6.8%

Storm ‐$ ‐$ ‐$ ‐$

Total 998,512$ (630,356)$ 368,157$ 5.3%

2019 2020Water Accounts5/8" 3,599 3,636 3/4" 4 4 1" 26 26 1.5" 22 22 2" 20 20 Total 3,671 3,708

2019 2020Wastewater Accounts5/8" 2,820 2,850 3/4" 4 4 1" 20 20 1.5" 17 17 2" 15 15 Total 2,876 2,906

2019 # customers# of

hectaresless than .4 h 4,474 customers greater than 0.4 57 over .4 h 93



5

2016‐2019 Water and Wastewater Rates

The following table summarizes Middlesex Centre’s 2016‐2019 water and wastewater rates.

Water 2016 2017 2018 2019Total Fixed Monthly Water Charge 22.76$ 22.76$ 22.76$ 22.76$

Water Usage Charge (Volumetric) 0‐8 m3

no additional charge




Water Usage Charge (Volumetric) per m3 for consumption exceeding 2.84$ 2.84$ 2.84$ 2.84$

05/8" 18.00$ 18.00$ 18.00$ 18.00$ 3/4" 27.00$ 27.00$ 27.00$ 27.00$ 1" 45.00$ 45.00$ 45.00$ 45.00$ 1.5" 90.00$ 90.00$ 90.00$ 90.00$ 2" 144.00$ 144.00$ 144.00$ 144.00$

Water Infrastructure Lifecycle Reserve Fund Charge based on

Meter Size ‐ Monthly

Wastewater 2016 2017 2018 2019Total Fixed Monthly Wastewater Charge 29.30$ 29.30$ 29.30$ 29.30$

Wastewater Usage Charge (Volumetric) 0‐8 m3





Wastewater Usage Charge (Volumetric) per m3 for consumption exceeding 8 m3 3.66$ 3.66$ 3.66$ 3.66$

5/8" 17.32$ 17.32$ 17.32$ 17.32$ 3/4" 25.98$ 25.98$ 25.98$ 25.98$ 1" 43.30$ 43.30$ 43.30$ 43.30$ 1.5" 86.61$ 86.61$ 86.61$ 86.61$ 2" 138.57$ 138.57$ 138.57$ 138.57$

Wastewater Infrastructure Lifecycle Reserve Fund Charge based on

Meter Size ‐ Monthly



6

2019 Existing Water and Wastewater Rate Structure

The Municipality has a three part rate structure;

Minimum Monthly Fee—Consumers are charged a minimum of $22.76 monthly for water and $29.30 monthly for wastewater (this is equivalent to a usage of 8 m3 every month). This threshold approximately reflects a minimum level to support basic indoor water usage. This ensures that all customers are contributing toward the fixed costs of the system. It also provides a revenue cushion that is unaffected by variations in use.

Uniform Water and Wastewater Volumetric Rates—Middlesex Centre employs a uniform rate structure whereby all customers pay the same amount per m3 . This is the most common approach employed across Ontario and supports fairness and equity.

Infrastructure Lifecycle Reserve Fund Fixed Fee—Consistent with the experience across Ontario, Middlesex Centre has an infrastructure deficit in water and wastewater operations. To help address this challenge and to move toward financial sustainability, Middlesex Centre instituted a dedicated fixed charge for infrastructure lifecycle funding of $18 monthly for water and an additional $17.32 monthly for wastewater (these vary based on size of meter).

It should be noted that the fees have not been increased in four years as there were efficiencies created in the operations which helped absorb inflationary increases. However, it is important, at this time, to ensure that financial sustainability goals are maintained in terms of adequate contributions to reserves in relation to the future capital program to ensure the timely replacement of assets as they come due for replacement as well as the need to fund the growth‐related costs that are not recoverable from DCs.

The analysis contained in this report includes a review of the operating costs, reserve position, future capital requirements and growth in customers to calculate the 2020 recommended rates.



7

2016‐2019 Stormwater Rates

In 2016 a storm utility rate structure was established, consistent with the practices in many municipalities to ensure sufficient funding for this capital infrastructure.

The rate structure is a flat monthly rate for all customers.

For customer in the ICI sector with properties exceeding 0.4 hectares, an additional incremental per hectare rate is charged.

Note that the rate structure has not been changed since it was implemented in 2016 as extensive analysis was undertaken at that time to determine the most appropriate rate structure.

Note also, consistent with the water and wastewater rates, no increases have been made to the Stormwater rates over the past four years.

The analysis contained in this report includes a review of the operating costs, reserve position, future capital requirements and growth in customers to calculate the 2020 recommended rates.

Stormwater 2016 2017 2018 2019

Base monthly rate for all properties within settlement areas.14.88$ 14.88$ 14.88$ 14.88$

Industrial, Commercial and Institutional ( ICI) customers defined using the property code classification system provided by the Municipal Property Assessment Corporation with properties larger property than 0.4 hectares an additional monthly charge applies

$14.88 per property + $42.18 per hectare above threshold






8

Affordability

Ratepayer affordability has been taken into consideration. This compares the cost of water/ww services in relation to household income for 2019.

There are a number of sources which are used in the industry to establish a benchmark upon which affordability is measured. The most common approach is water/wastewater costs as a percentage of average income. The threshold value, which is expressed as a percent, is applied to a measure of income to determine the point at which the cost of water/wastewater becomes unaffordable.

There is no one benchmark percentage established in the industry. Depending on the source used, the range typically is from 1.5%‐3.0% of household income, beyond which, affordability is questionable.

While the total water/ww cost of service in Middlesex Centre is amongst the highest in the survey, the income levels are also high resulting in an affordability metric below the survey average.

As shown in the graph, using this affordability metric, Middlesex Centre’s at 1.2% is the below the survey of peer municipal comparators (1.3%) in Southwest Ontario reflecting a greater affordability.

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0%

Waterloo

Saugeen Shores

Guelph

Guelph‐Eramosa

Strathroy‐Caradoc

London

Sarnia

Haldimand

Brantford

North Perth

Cambridge

Centre Wellington

Kitchener

Middlesex Centre

Grey Highlands

Brant

North Middlesex

Mapleton

St. Thomas

Ingersoll

Norfolk

Chatham‐Kent

Wellington North

Central Elgin

Lambton Shores

Windsor

Owen Sound

Minto

West Grey

Meaford

2019 Affordability

Affordability



9

Reserve Strategies

Adequate reserves are important to mitigate the Municipality’s financial risk and to strengthen the Municipality’s ability to withstand negative impacts on revenues from economic fluctuations and unforeseen expenditure requirements. Reserves and reserve funds are accumulated net revenues which are set aside for future expenditures. Reserves and reserve funds are a critical component of a municipality’s long‐term financing plan. The importance of maintaining reserves is to:

Provide stability of rates and user fees in the face of variable and uncontrollable factors (e.g. interest rates, changes in subsidies, increase in fuel prices, weather);

Provide financing for one‐time or short‐term requirements without permanently impacting the utility rates;

Make provisions for acquisition and replacement of assets and infrastructure that are currently being consumed and depreciated;

Avoid spikes in funding requirements of the capital budget by reducing reliance on long‐term debt borrowing;

Provide a source of internal financing;

Ensure adequate cash flows;

Provide flexibility to manage debt levels and protect the municipality’s financial position; and

As shown on the next page, through planned contributions to the Capital Reserves, the consolidated Water, Wastewater and Storm Capital Reserves were negative $1.7 million in 2011 compared with a year end balance of $5.4 million in 2018.

Taking into consideration the 2019 Capital Budget and prior year commitments, the 2019 projected consolidated Reserve balance is $3.3 million.

As will be discussed in the Capital Budget section of the report, with large capital projects pending in 2020‐2022, there will be a significant draw on the combined Capital Reserves. This will require the issuance of debt as early as 2020 which will impact future water/ww and storm rates.

As shown earlier, there is sufficient flexibility to issue debt in future years but this needs to be taken into consideration in the establishment of future rates.



10

Year End Reserve Trend Analysis

As shown above, after years of building the Capital Reserves, it is anticipated that the combined Capital Reserves will be in a negative cash flow position by the end of 2020. This will require the issuance of future debt.

$(3,000,000)

$(2,000,000)

$(1,000,000)

$‐

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Water Capital Reserves WW Capital Reserves Storm Water Capital Reserves Total



11

2020 Water Operating Budget

The 2020 Water Operating Budget reflects a 5.5% increase in rate revenue requirements compared to 2019.

Contributions to capital reserves and debt charges accounts for 48% and 10% respectively of the 2020 Operating expenditures.

Contributions to reserves is budgeted to increase 5% over the 2019 budget. This is required, as a minimum in order to adequately support the future capital requirements.

Water Operating 2019 2020ExpendituresOperating Expenditures

Salaries, Wages & Benefits 346,786$ 393,180$ Water Purchase 456,000$ 465,120$ Hydro 152,424$ 156,157$ Contracts ‐$ ‐$ Other Expenses 323,518$ 358,497$

Total Operating Expenses 1,278,728$ 1,372,955$ Financial Expenditures

Debt Charges ‐ Interest Payments ‐ Existing 106,436$ 98,361$ Debt Charges ‐ Principal Payments ‐ Existing 224,442$ 224,442$ Transfer to Reserves 1,472,447$ 1,545,245$

Total Financial Expenses 1,803,325$ 1,868,048$ Total Expenses 3,082,053$ 3,241,003$ RevenuesOperating Revenues

Metered Water Revenue (1,984,996)$ (2,098,194)$ Infrastructure Lifecycle Reserve (820,000)$ (860,687)$ Transfer from DC Reserves ‐ Debt (165,439)$ (161,402)$ Other Service Charges (111,618)$ (120,721)$

Total Operating Revenues (3,082,053)$ (3,241,003)$ Total Revenues (3,082,053)$ (3,241,003)$



12

2020 Wastewater Operating Budget

The 2020 Wastewater Operating Budget reflects a 2.1% increase in rate revenue requirements compared to 2019.

Contributions to capital reserves and debt charges accounts respectively for 39% and 22% of the 2020 Operating expenditures.

Contributions to reserves is budgeted to increase 3% over the 2019 budget. This is required, as a minimum, in order to adequately support the capital requirements over the next several years.

Wastewater 2019 2020ExpendituresOperating Expenditures

Salaries, Wages & Benefits 346,786$ 393,180$ Hydro 153,176$ 151,745$ Contracts ‐$ ‐$ Other Expenses 569,820$ 622,364$

Total Operating Expenses 1,069,782$ 1,167,289$ Financial Expenditures

Debt Charges ‐ Interest Payments ‐ Existing 282,553$ 267,736$ Debt Charges ‐ Principal Payments ‐ Existing 536,311$ 407,972$ Transfer to Reserves 1,168,029$ 1,202,447$

Total Financial Expenses 1,986,894$ 1,878,156$ Total Expenses 3,056,675$ 3,045,445$ RevenuesOperating Revenues

Metered WW Revenue (1,800,000)$ (1,817,333)$ Infrastructure Lifecycle Reserve (618,747)$ (652,462)$ Transfer from DC Reserves ‐ Debt (556,407)$ (468,954)$ Other Service Charges (81,521)$ (106,696)$

Total Operating Revenues (3,056,675)$ (3,045,445)$ Total Revenues (3,056,675)$ (3,045,445)$



13

2020 Storm Water Operating Budget

The 2020 Storm Water Operating Budget reflects a 7.5% increase in rate revenue requirements over the 2019 budget.

Contributions to capital reserves and maintenance accounts for 48% and 47% of the 2020 Operating expenditures respectively.

Contributions to reserves is budgeted to increase 20% over the 2019 budget. This is required in order to adequately support the capital requirements which are expected to increase over the next four years.

Storm Water 2019 2020ExpendituresOperating Expenditures

Salaries, Wages & Benefits 25,969$ 16,626$ Consulting 27,000$ 27,000$ Storm Water System Maintenance 410,000$ 425,000$ Other Expenses 500$ ‐$

Total Operating Expenses 463,469$ 468,626$ Financial Expenditures

Debt Charges ‐ Interest Payments ‐ Existing ‐$ ‐$ Debt Charges ‐ Principal Payments ‐ Existing ‐$ ‐$ Transfer to Reserves 359,611$ 429,743$

Total Financial Expenses 359,611$ 429,743$ Total Expenses 823,080$ 898,369$ RevenuesOperating Revenues

Stormwater Surcharge (822,480)$ (884,368)$ New Service Connections (600)$ (14,000)$ Transfer from DC Reserves ‐ Debt ‐$ ‐$ Other Service Charges ‐$ ‐$

Total Operating Revenues (823,080)$ (898,368)$ Total Revenues (823,080)$ (898,368)$



14

2020‐2022 Water Capital Budget

Note that the Water Capital Budget provided is for 2020‐2022 in water which poses some challenges in terms of planning for the future rate requirements. The Water Capital Budget includes the following:

$3.5 million in 2020 for the Water Supply Interconnection Phase 2 of which 90% is estimated to be recovered from rates with the remaining 10% from DC revenues.

$1.495 million for the Lake Huron Primary Water Supply Connection in 2021‐2022.

Over the next three years, 95% of the $7.4 million is related to existing assets that will be funded from rates, either through the Capital Reserve or debt financing. Based on the analysis from 2020‐2022, in consideration of the total consolidated reserves available and existing rates, there will be a need to issue some debt to support the plan.

System Water Capital Projects2020 +

Carryover2021 2022 Total 3 years

Reserves Financing

DC Financing $ Other

DELAWARE Water Supply Interconnection Phase 2 3,500,000$ ‐$ ‐$ 3,500,000$ 3,143,000$ 357,000$ ‐$

ARVA Water main replacement & twinning 913,050$ ‐$ ‐$ 913,050$ 913,050$ ‐$ ‐$

ILDERTON Watermain Replacement Program ‐$ ‐$ 500,000$ 500,000$ 500,000$ ‐$ ‐$

KOMOKA Servicing of Tunks Lane 150,000$ ‐$ ‐$ 150,000$ 150,000$ ‐$ ‐$

KILWORTH Glendon Drive Water main Extension ‐$ 440,000$ ‐$ 440,000$ 440,000$ ‐$ ‐$

MELROSE Lake Huron Primary Water Supply Connection ‐$ 495,000$ 1,000,000$ 1,495,000$ 1,495,000$ ‐$ ‐$

MELROSE Facility Condition Assessment 98,010$ ‐$ ‐$ 98,010$ 98,010$ ‐$ ‐$

BIRR Facility Condition Assessment 63,840$ ‐$ ‐$ 63,840$ 63,840$ ‐$ ‐$

ALL SYSTEMS Half‐Ton Pickup ‐ Replace 2010 Econoline 4301 24,000$ ‐$ ‐$ 24,000$ 24,000$ ‐$ ‐$

ALL SYSTEMS SCADA Replacement 120,319$ ‐$ ‐$ 120,319$ 120,319$ ‐$ 0$

ALL SYSTEMS Reservoir Cleaning & Inspections 43,984$ ‐$ ‐$ 43,984$ 43,984$ ‐$ ‐$

TOTAL Total 4,913,203$ 935,000$ 1,500,000$ 7,348,203$ 6,991,203$ 357,000$ 0$



15

2020‐2021 Wastewater Capital Budget

Note that the Capital Budget in wastewater is only a two year forecast which poses some challenges in terms of planning for the future rate requirements. The Water Capital Budget includes the following:

$3.4 million in 2021 for the WWTP Head Works and Tertiary Filter of which 40% is estimated to recovered from rates with the remaining 60% from DC revenues.

Over the next two years, 80% of the $7.8 million is related to existing assets that will be funded from rates, either through the Capital Reserve or debt financing. Based on the analysis above, in consideration of the total consolidated reserves available and existing rates, there will be a need to issue some debt to support the plan.

System Project2020 +

Carryover2021 Total 2 years

Reserves Financing


ARVA Arva WWTF ‐ New Facility 300,000$ ‐$ 300,000$ ‐$ 300,000$ ‐$

ILDERTON Ilderton Wastewater Collection System Inspection 61,500$ ‐$ 61,500$ 61,500$ ‐$ ‐$

ILDERTON Sewage Pump Station #4 ‐ Installation of new sewage pumps 19,867$ ‐$ 19,867$ 19,867$ ‐$ 0$

KILWORTH Demolishing of the Kilworth WPCP 1,070,000$ ‐$ 1,070,000$ 224,700$ 845,300$ ‐$

KOMOKA Upgrade Pumping Station ‐$ 400,000$ 400,000$ 228,800$ 171,200$ ‐$

KOMOKA Komoka Road Forcemain Replacement ‐$ 1,500,000$ 1,500,000$ 1,288,500$ 211,500$ ‐$

KOMOKA Servicing of Tunks Lane 350,000$ ‐$ 350,000$ 350,000$ ‐$ ‐$

KOMOKA Komoka Wastewater Collection System Inspection 41,750$ ‐$ 41,750$ 41,750$ ‐$ ‐$

KOMOKA Evaluation of wastewater treatment plant and tertiary filters 148,020$ ‐$ 148,020$ 148,020$ ‐$ ‐$

KOMOKA WWTP Head Works and Tertiary Filter ‐$ 3,400,000$ 3,400,000$ 1,360,000$ 2,040,000$ ‐$

KOMOKA Komoka WWTP Rotork Valve upgrade 25,000$ ‐$ 25,000$ 25,000$ ‐$ ‐$

ALL SYSTEMS Half‐Ton Pickup ‐ Replace 2010 Economize 4301 24,000$ ‐$ 24,000$ 24,000$ ‐$ ‐$

ALL SYSTEMS SCADA Replacement 120,319$ ‐$ 120,319$ 120,319$ ‐$ ‐$

ALL SYSTEMS Elevated Tank Inspection (Sludge Storage & Equalization Tanks) 36,653$ ‐$ 36,653$ 36,653$ ‐$ ‐$

ALL SYSTEMS Wastewater Collection System Flushing and Cleaning 266,369$ ‐$ 266,369$ 266,369$ ‐$ ‐$

TOTAL Total 2,463,479$ 5,300,000$ 7,763,479$ 4,195,479$ 3,568,000$ 0$



16

2020‐2023 Storm Water Capital Budget

Note that the Capital Budget in stormwater is a four year forecast which poses some challenges in terms of planning for the future rate requirements. The Wastewater Capital Budget includes the following:

$3.75 million in 2021‐2022 for the Stormwater Glendon Drive Reconstruction ($3 million in Komoka and $0.75 million in Kilworth)

Over the next four years, 100% of the $5.8 million is related to existing assets that will be funded from rates, either through the Capital Reserve or debt financing. Based on the analysis above, in consideration of the total consolidated reserves available and existing rates, there will be a need to issue some debt to support the plan.

Project2020 +

Carryover2021 2022 2023 Total 4 years

Reserves Financing


Millcreek Lane STM Sewer Upgrade ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$

Garden Avenue / John Street STM Sewer Upgrade 830,000$ ‐$ ‐$ ‐$ 830,000$ 830,000$ ‐$ ‐$

Longwoods Commercial STM Sewer Outlet ‐$ ‐$ 750,000$ ‐$ 750,000$ 750,000$ ‐$ ‐$

Meadowcreek Storm Sewer Replacement ‐$ 130,000$ ‐$ ‐$ 130,000$ 130,000$ ‐$ ‐$

King/George Street Reconstruction ‐$ 250,000$ ‐$ ‐$ 250,000$ 250,000$ ‐$ ‐$

Glendon Drive Reconstruction ‐$ ‐$ 750,000$ ‐$ 750,000$ 750,000$ ‐$ ‐$

Glendon Drive Reconstruction ‐$ ‐$ 2,000,000$ 1,000,000$ 3,000,000$ 3,000,000$ ‐$ ‐$

Settlement Community Storm water Master Plan ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$

Storm water Catch Basin cleaning Program 130,665$ ‐$ ‐$ ‐$ 130,665$ 130,665$ ‐$ ‐$

Total 960,665$ 380,000$ 3,500,000$ 1,000,000$ 5,840,665$ 5,840,665$ ‐$ ‐$



17

Key Challenges and Opportunities

Capital Program and Availability of Reserves

While the Capital Reserves are relatively healthy at the end of 2019, with significant capital requirements over the next several years, there is a need to continue to gradually increase the capital reserve contributions to support the replacement and refurbishment of assets.

The Municipality internally finances the capital program between Water, Wastewater and Storm Water operations which is a leading practice to reduce debt costs. However, there is a need to maintain a minimum level of reserves to address unforeseen events and avoid rate shocks.

There is a need to develop, at minimum, a 5‐year Capital Budget for each program in order to effectively plan for the future. This includes the need to review reserve and debt requirements.

Debt

The existing debt is high in relation to the total operating budget for water and wastewater, however, there is capacity to issue more debt to fund the capital program.

Under the existing economic conditions, interest rates have been relatively low. While the existing borrowing rates are favourable, it is unknown how long these conditions will continue. This is a risk in terms of future debt financing

Affordability

Residential Water and Wastewater costs in the Municipality are higher than the survey average of peer municipalities surveyed for Residential customers. This is driven in part by the complexity of the system. However, with higher average incomes, affordability of water/ww services is considered to be well within industry standards.

Relatively High Fixed Monthly Charge

The Municipality has a relatively high proportion of the water/ww bill that is recovered from the fixed monthly fee. This provides good revenue stability and should be maintained.

Growth

With the majority of the costs being fixed in nature and with an estimated growth of 1% annually, there is an opportunity to reduce the rate increases.



18

Proposed 2020 Water, Wastewater and Storm Rates

The proposed rate changes for 2020 include a 5.5% rate increase in water fixed monthly and volumetric, with no increase in the Infrastructure Lifecycle Reserve. Based on the existing assumptions, the wastewater rates could remain at the 2019 levels however, it should be noted that future capital requirements, as identified in the capital budget may warrant a rate increase. A 3.3% rate increase is recommended for Stormwater based on the assumptions included in this report.

Water 2019 2020

Total Fixed Monthly Water Charge22.76$ 24.01$

Water Usage Charge (Volumetric) 0‐8 m3



Water Usage Charge (Volumetric) per m3 for consumption exceeding 8 m3

2.84$ 3.00$

5/8" 18.00$ 18.00$ 3/4" 27.00$ 27.00$ 1" 45.00$ 45.00$ 1.5" 90.00$ 90.00$ 2" 144.00$ 144.00$

Water Infrastructure Lifecycle Reserve Fund Charge based on Meter Size ‐

Monthly

Wastewater 2019 2020

Total Fixed Monthly Wastewater Charge 29.30$ 29.30$

Wastewater Usage Charge (Volumetric) 0‐8 m3



Wastewater Usage Charge (Volumetric) per m3 for consumption exceeding 8 m3 3.66$ 3.66$

5/8" 17.32$ 17.32$ 3/4" 25.98$ 25.98$ 1" 43.30$ 43.30$ 1.5" 86.61$ 86.61$ 2" 138.57$ 138.57$

Wastewater Infrastructure Lifecycle Reserve Fund Charge based on Meter

Size ‐ Monthly

Stormwater 2019 2020

Base monthly rate for all properties within settlement areas.14.88$ 15.37$

Industrial, Commercial and Institutional ( ICI) customers defined using the property code classification system provided by the Municipal Property Assessment Corporation with properties larger property than 0.4 hectares an additional monthly charge applies





19

Residential Impact Analysis

An analysis was undertaken on the impact to a typical residential customer. Three customer profiles were used to illustrate the potential impact for customers consuming 100‐200 m3 annually.

For example, a customer consuming 200 m3 annually would experience an increase of $37 annually, or $3.10 per month for water, wastewater and stormwater.

As shown in the impact analysis, under the calculated rates in the table at the bottom, the combined impact to a residential customer would range from $1.79 per month to $3.10 per month, depending on the level of consumption. This equates to an overall increase of 1.7%‐2.0%.

Water WW Storm Total

100 501$ 574$ 179$ 1,253$

150 643$ 757$ 179$ 1,578$

200 785$ 940$ 179$ 1,904$

Annual Consumption

m3

2019


100 516$ 574$ 184$ 1,275$

150 666$ 757$ 184$ 1,608$

200 816$ 940$ 184$ 1,941$

Annual Consumption

m3

2020


100 16$ ‐$ 6$ 22$

150 23$ ‐$ 6$ 29$

200 31$ ‐$ 6$ 37$

Annual Difference

Difference


100 1.30$ ‐$ 0.49$ 1.79$

150 1.96$ ‐$ 0.49$ 2.45$

200 2.61$ ‐$ 0.49$ 3.10$

Monthly Difference

Difference


November 13, 2019 Page 1 of 27 · Meeting Date: November 13th, 2019 Submitted by: Rob Cascaden,...

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