2. Fire Supply Charge – Allocation Methodology


REDEVANCE D’EAU-INCENDIES – MÉTHODE DE RÉPARTITION

 

 

COMMITTEE RECOMMENDATION

 

That Council move the Fire Supply Charge to the water bill based on the meter size.

 

 

RECOMMENDATION DU COMITÉ

 

Que le Conseil porte la redevance d’eau-incendies sur la facture des services d’eau et qu’elle soit fonction des dimensions du compteur.

 

 

 

 

 

Documentation

 

1. Chief Corporate Services Officer’s report dated 10 January 2006
(ACS2006-CRS-FIN-0001).

 

Report to/Rapport au :

 

Corporate Services and Economic Development Committee/

Comité des services organisationnels et du développement économique

 

and Council/et au Conseil

 

10 January 2006/le 10 janvier 2006

 

Submitted by/Soumis par:  

 

Submitted by/Soumis par:  Greg Geddes, Chief Corporate Services Officer/

/chef des Services généraux

 

Contact/Personne ressource:  Lloyd Russell, Director, Financial Services and City Treasurer/Directeur des Services financiers et trésorier municipal.

580-2424, ext./poste 21312, Lloyd.Russell@ottawa.ca

 

City Wide

Ref N°: ACS2006-CRS-FIN-0001

 

 

SUBJECT:

Fire Supply Charge – Allocation Methodology

 

 

OBJET:

REDEVANCE D’EAU-INCENDIES – MÉTHODE DE RÉPARTITION

 

 

REPORT RECOMMENDATION

 

That Corporate Services and Economic Development Committee recommend Council

move the Fire Supply Charge to the water bill based on the meter size.

 

 

RECOMMANDATION DU RAPPORT

 

Que le Comité des services organisationnels et du développement économique recommande au Conseil de porter la redevance d’eau-incendies sur la facture des services d’eau et qu’elle soit fonction des dimensions du compteur.

 

 

BACKGROUND

 

As part of establishing the 2006 Budget Council approved the transfer of the Fire Supply Charge from the tax bill to the water (utility) bill starting in 2006.  The Fire Supply Charge is used to recover the investments the City has made to upsize the transmission system, distribution system, reservoirs, pumping stations, fire hydrants and sprinkler connections to the distribution system in order to ensure that in the event of a fire there will be adequate water flow. The revenue is used to finance a portion of the overall water system.  Although the charge is currently on the tax bill, it is not a municipal property tax as the rate does not vary by property class.  Ottawa is one of only six municipalities in Ontario that charge for fire hydrant service on the tax bill and the other five are so small they collect less than 1% of what Ottawa collects.

The fire supply or hydrant charge and its allocation to the user should provide an equitable and fair allocation of the costs of the fire protection system.  In other words, a large shopping mall or office building that requires fire flows of over 5,000 imperial gallons per minute and the corresponding storage, pumping and delivery system to facilitate that transference of water supply for fire protection at the building should pay more than the residential home which requires 700 gallons per minute fire protection flow rate.  Since most  residential homes have the same fire rating, the amount of infrastructure required to provide the fire flow for each home is constant.

 

The current charge is on the tax bill as it was believed that assessment was a good way to represent what share of the cost of the fire hydrant system a homeowner would pay and represented the savings they would receive on their property insurance by being in proximity to a fire hydrant.  Only unweighted assessment is used in the calculation of the City Fire Supply charge, which in 2005 was $0.1515 per $1000 of assessed value and generated $11.368 million in revenue.  The average home valued at $247,000 paid $37.42 in 2005, whereas the average commercial property valued at $694,800 paid  $104 per year.

 

The amount to be collected for fire supply purposes in 2006 has been adjusted to reflect the decisions made during the budget deliberations.  The fire supply charge has been reduced to $7.803 million in 2006 which decreases the rate to 0.1040 per $1000 of assessed value (based on 2005 assessments) and reduces the average home to $25.68 and the average  commercial property to $72.26.  This report reviews the variety of allocation methodologies for the fire supply charge on the water bill.

 

DISCUSSION

 

1.      Add the Fire Supply Charge into the water rate

 

Adding the fire supply charge to the water rate would increase the water rate by $0.075/m3 and the sewer surcharge would be lowered in order to only generate revenue for the water service.   The impact of this on the average residential home will be a function of how much water is used. The following table illustrates the potential impacts based on varying property assessment values and water usages.

 

All Homes Assessed Property Value

$

Water Usage Per Day

Fire Supply in Water Rate

$

Fire Supply on Tax Bill

$

Yearly Difference

 

$

Low

174,000

0.750/m3

20.53

18.10

2.43

174,000

1.0/m3

27.37

18.10

9.27

174,000

1.25/m3

34.21

18.10

16.11

Med

218,000

0.750/m3

20.53

22.67

(2.14)

218,000

1.0/m3

27.37

22.67

4.70

218,000

1.25/m3

34.21

22.67

11.54

High

277,000

0.750/m3

20.53

28.80

(8.27)

277,000

1.0/m3

27.37

28.80

(1.43)

277,000

1.25/m3

34.21

28.80

5.41

 

 

For the commercial property owner, the impact is again a function of how much water is used on a daily basis.  For businesses that use more water, such as restaurants, charging for Fire Supply in the water rate will result in an increase while others, like shopping centres, will bear a smaller cost than under the current method of allocation.  The largest increase in a sample taken to review the impact was for an office building and the yearly increase was $246 over the amount charged on the tax bill. For the entire sample of commercial properties examined the inclusion of fire supply charge on the water rate saw an overall decrease of 31% compared to charging based on assessment.
 

For multi-residential property owners the impact of moving Fire Supply Charges into the water rate is also a function of how much water is used on a daily basis.  The increases and decreases compared to the tax bill for the sample properties examined ranged from a  decrease of $132 to an increase of $2,700.  By moving the fire supply charge to the water bill and using an allocation methodology other than assessment, the multi-residential class is avoiding a potential 18% increase to their fire supply charge.  This increase would have been generated from the fact that multi-residential assessments increased by 30% on average in 2006 which is 18% higher than the City average.

 

The water/sewer rate in Ottawa is below the average for residential units in Ontario according to the BMA Municipal Study for 2005.  The average cost (assuming a consistent 360 M3/year in consumption) in Ontario is $665 per year whereas the Ottawa average is  $645.

 

Pros

Cons

May result in the conservation of water

As part of the water rate, the cost of the fire hydrant service is not distinguishable.

Tax-exempt properties would no longer have a rationale to challenge the charge.

Providing Fire Hydrant service is an invariable cost, but would be charged on a variable basis.

 

May not generate the amount required.

Depending on water consumption it may represent a decrease over what was paid in 2005.

Depending on water consumption it may represent an increase over what was paid in 2005

Relatively easy to administer.

Would require some system modification for areas with water service but no hydrant service.

 

 

  1. Charge for the fire hydrant costs on the water bill as a function of the water connection size.

 

Ottawa does not have a flat fee, or monthly service charge on the water/sewer bill.  According to the BMA Municipal Study 2005, 46 of the 67 Ontario municipalities they surveyed have a monthly fixed charge on the water/sewer bill.  The flat fee recognizes that a portion of the costs of the water system do not fluctuate with consumption and ensure that the municipality recovers these fixed costs.  The costs of providing the infrastructure to ensure that there is sufficient water supply in the event of the fire is one of those fixed costs.

 

Each water connection in the system is provided with a service connection lateral to the distribution system therefore a water service connection size can be used as surrogates to apportion the costs of fire protection charges on an equivalency calculation basis.  The connection size needs to be pro-rated to reflect the flow as doubling the connection more than doubles the flow.  There are sixteen different connection sizes identified in the water billing system with the largest producing a flow 400 times greater than the flow going into the average single family home.

 

The results of the fire supply charge being based on connection size for the three values of homes used previously is as follows.

 

All Homes Assessed Property Value

$

Fire Supply on Water Bill as a function of connection

$

Fire Supply on Tax Bill

$

Yearly Difference

 

$

174,000

20.68

18.10

2.58

218,000

20.68

22.67

(1.99)

277,000

20.68

28.80

(8.12)

 

 

 

 

 

 

 

 

 

For commercial properties, the connection sizes are larger than for residential, so in general the amount collected would increase, but there are significant increases and reductions within the class.  While the entire sample had an overall decrease of 29% the subsample of the six smaller properties had a 143% increase and the largest property had a  62% decrease.

 

Multi-residential are similar to residential in that the connection sizes tend to be smaller than they are for commercial.  As a result in the sample of multi-residential properties examined the total charged under this methodology is 7% less than if based on assessment.

 

Pros

Cons

The water connection size for residential properties is a better allocator of fire hydrant services as   most homes have the same connection and would require the same hydrant service.

The water connection size may reflect the water usage need in the commercial sector which is greater than that required for fire hydrant service, resulting in an increased charge.

Makes the charge a flat fee which represents the fire hydrant charge better than a variable cost

Any connection information not in the system would have to be determined. This will require significant resources and time.

Most connection information for calculation is on the water billing system making it easier to administer

Properties that have water service but no fire hydrant service would have to be coded for exemption.

 

  1. Charge for fire hydrant service on the water bill but as a function of meter size.

 

Alternatively, the fire protection charge could be calculated on the basis of the meter size, as a surrogate for the demand in the building.  Each water service in the utility has an appropriately sized water meter to measure the flow to the facility.  In other situations, unmetered sprinkler connections are providing fire protection services to industrial and large commercial sized buildings.

 

As with the connection size the meter size would be pro-rated to reflect the actual flow. There are 10 meter sizes identified into the water billing system with the largest meter having a flow 277 times larger than that of a single family home. This apportionment on the basis of the meter size will distribute the fire protection access and utilization service to the buildings requiring that service.  It provides a measure of equitable allocation of cost to service, provides a balance of costs to benefit and is transparent such that each customer classification group will understand that these charges will apply to the system utilization provided to the building.

 

All Homes Assessed Property Value

$

Fire Supply on Water Bill as a function of meter size

$

Fire Supply on Tax Bill

$

Yearly Difference

 

$

174,000

31.71

18.10

13.61

218,000

31.71

22.67

9.04

277,000

31.71

28.80

2.91

 

 

 

 

 

 

 

 

 

 

As meter size is more reflective of the water used in the premises the meter size for commercial is often much lower than the connection size.  As a result using the meter size reduces the commercial sector charges.  While there were some small increases in charges based on this  method of allocation in total the sample examined saw a decrease of 70%.

 

For the multi-residential properties sampled the use of meter size as the determiner of fire supply charges saw the total charged decline by 36%.

 

Pros

Cons

Becomes a flat fee on the water bill that is constant among the residential sector.

Meter size is a function of usage, so lower water usage commercial properties will pay less.

Information required for the charge is already in the water bill system

Those areas that have water service but no hydrant service would have to be coded for exemption.

 

 

CONCLUSION

 

The cost of ensuring sufficient water supply in the event of a fire is a function of infrastructure sizing.  The amount of sizing required is determined by the fire rating assigned by the building code and is consistent between types and sizes of buildings.  This cost of this infrastructure is fixed and should not be charged on a basis that fluctuates such as assessment or water consumption.

 

Of the other two methodologies examined result in a fixed fee, either of these two methodologies is recommended.  As meter size is the cleanest data set in the water billing system this method is recommended among the two.  It is recognized that this allocation methodology does not reflect demand on the system for fire suppression as accurately as possible and it is recommended that the Utility Services Branch undertake a review of the fixed costs of the water system and a methodology then be developed that ensures that these costs are allocated more precisely.

 

 

CONSULTATION

 

The Utility Services Branch was consulted in preparing this report.

 

 

FINANCIAL IMPLICATIONS

 

The financial implications are detailed within the report.

 

 

DISPOSITION

 

Upon approval of the recommendation, the Revenue Branch will begin the process of adding the Fire Supply or hydrant charge to the water bill.