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
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