Planning & Environment
Committee/
Comité de l’urbanisme et de l’environnement
5 June 2009 / le 5 juin 2009
Submitted by/Soumis par: Nancy Schepers,
Deputy City Manager/ Directrice munipale adjointe,
Infrastructure Services and Community Sustainability/
Services d’infrastructure et Viabilité des
collectivités
Environmental
Services Department/Services environnementaux
(613)
580-2424 x22002, Dixon.Weir@ottawa.ca
SUBJECT:
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OBJET:
|
EXAMEN DE LA STRUCTURE de redevances
d’eau, des eaux‑vannes et des eaux pluviales |
That the Planning and Environment Committee receive this report for information purposes.
Que le Comité de l'urbanisme et de l'environnement prenne connaisse du présent rapport à titre d'information
The City is carrying out a Cost, Revenue and Rate Study in order to meet provincial regulations requiring the submission of a Council-approved Financial Plan for Ottawa’s drinking water system by 1 July 2010. A Cost of Service Study was last completed for Drinking Water Operations in 1996, and has never been undertaken for sanitary and stormwater systems. Accordingly, the study was expanded beyond regulatory requirements to include all three systems.
Consultants
were retained to assist the City with this initiative in November 2008, and to date the following activities have been
completed or underway:
·
Full cost accounting of drinking water,
sanitary and stormwater services; and
·
Identification and evaluation of alternative
rate structures to recover those costs.
The
purpose of this report is to present interim findings, and to table a
short-list of alternative rate structures to undergo public consultation from
now until October.
In
total, $319.3 million is identified in the approved 2009 Budget to deliver
drinking water, sanitary and stormwater services and
capital programs. Approximately 75% of
those costs are to be recovered through rates.
Other funding sources include development charges, debt financing and
reserve funds. Details regarding
long-term funding requirements and financial management options will be
presented in the fall.
Currently, the City uses a “volumetric” rate structure whereby users pay by the cubic metre purchased. This rate structure is easy to understand and administer, but has shortcomings. For example, there is not a direct relationship between costs incurred and volumes sold, yet revenues are directly tied to water sales. This failing was identified by the Auditor General in his 2008 Review of the Water Rate, which recommends that the City consider adoption of “water rates based on a fixed meter charge plus a consumption charge as this will provide…a more predictable and stable cash flow.”
Accordingly,
other commonly used rate structures were examined that would better enable the
City to meet the following key rate setting objectives:
· Revenue stability;
· Improved rate fairness and defensibility;
· Long-term financial flexibility and resiliency (healthy reserve funds);
· Rate stability; and
·
Simple to understand and
update.
The
following rate structures were short-listed for public consultation, with
Option B best meeting the above rate setting objectives:
·
Option A: base
plus volumetric charges applied to both drinking water and wastewater;
·
Option B: base
plus volumetric charge applied to drinking water and sanitary services; and the
transfer of stormwater costs to a fee levied on the
tax bill;
·
Option C: base
plus volumetric charge applied to drinking water and sanitary services; and the
division of stormwater costs between serviced and unserviced areas of the city, with fees applied on the
water and sewer bill and tax bill, respectively; and
·
Option D: current
rate structure—volumetric charge applied to water and wastewater, plus a fire
charge fee.
The
objective of adding a “base” charge to the water and sewer bill is to help
ensure recovery of fixed costs that do not vary according to the volume of
water or wastewater managed—i.e. a fee for access to the service (as does Hydro
Ottawa). The reason for breaking out stormwater costs from the sewer rate is because there is no
relationship between the volume of water consumed and the amount of stormwater generated on a property. The objective of dividing stormwater
costs between the serviced and unserviced areas of
the City is to better apportion costs where they are incurred.
With Council’s support of the tabled rate structures, staff will consult with the public between June and October. Following public consultation, staff will table a preferred rate structure for consideration and approval by Council this fall. This will allow for completion of this study and submission of the provincially mandated Financial Plan to the Ministry of Environment by mid 2010.
La Ville d’Ottawa effectue une étude du coût,
des recettes et des redevances dans le but de se conformer aux règlements
provinciaux exigeant la présentation d’un plan financier approuvé par le
Conseil municipal concernant le réseau d’eau potable de la Ville d’ici le 1er
juillet 2010. La dernière étude portant sur les coûts des services relativement
à l’eau potable a été réalisée en 1996. Aucune étude n’a été effectuée
concernant la gestion des eaux-vannes et des eaux pluviales. En conséquence, la
portée de l’étude a été étendue au‑delà des exigences réglementaires afin
d’inclure les trois réseaux.
En novembre 2008, la Ville a retenu les
services de consultants pour la guider dans cette initiative. À ce jour, les
tâches suivantes ont été réalisées ou sont en cours de réalisation :
·
évaluation
complète des coûts liés aux services de gestion de l’eau potable, des eaux‑vannes
et des eaux pluviales;
·
sélection
et évaluation d’autres structures de redevances pour recouvrer ces coûts.
Ce rapport vise à présenter les résultats
provisoires ainsi qu’une brève sélection de structures différentes de
redevances afin de mener une consultation publique débutant maintenant et se
poursuivant jusqu’en octobre.
Un montant total de 319,3 millions de dollars du budget approuvé de
2009 a été affecté à la prestation de services d’eau potable et d’égouts ainsi
qu’aux programmes d’immobilisations. Les redevances devraient permettre de
récupérer environ 75 % de ces coûts. Les redevances d’aménagement, le
financement par emprunt et les réserves de fonds constituent les autres sources
de financement. Des précisions concernant les exigences de financement à long
terme ainsi que les options de gestion financière seront fournies cet automne.
La Ville utilise actuellement une structure de
redevances « volumétrique » selon laquelle la consommation des
utilisateurs est facturée au mètre cube. Cette structure de redevances est
facile à comprendre et à administrer, mais elle présente des inconvénients. Par
exemple, il n’existe pas de rapport direct entre les coûts engagés et les
volumes vendus. Pourtant, les revenus sont directement liés à la vente des
services d’eau. Cette lacune a été soulevée par le vérificateur général dans la
Vérification de la redevance d'eau de la Ville d'Ottawa effectuée en 2008.
Celui-ci recommande que la Ville envisage d’établir « des redevances d'eau
basées sur une facturation fixe au compteur et une facturation à la
consommation, ce qui fournirait […] un flux de trésorerie plus prévisible et
plus stable ».
En conséquence, d’autres structures de redevances courantes ont été
étudiées. Ces structures pourraient mieux aider la Ville à atteindre les
principaux objectifs suivants en matière de redevance :
·
stabilité
des revenus,
·
Augmentation
de l’équité et validité des taux de redevances en fonction de la TPS sur la
prestation de service,
·
flexibilité
et résilience financière à long terme (réserve solide de fonds),
·
stabilité
des taux,
·
facilité
de compréhension et de mise à jour.
Les structures de redevances suivantes ont été retenues aux fins d’une
consultation publique, l’option B étant celle qui répond le mieux aux objectifs
énoncés ci-dessus :
·
Option A : frais fixes et frais selon le volume appliqués
aux services de gestion de l’eau potable et des eaux usées;
·
Option B : frais fixes et frais selon le volume appliqués
aux services de gestion de l’eau potable et des eaux‑vannes; transférer
les coûts relatifs à la gestion des eaux pluviales à des frais présentés sur la
facture de taxes;
·
Option C : frais fixes et frais selon le volume appliqués
aux services de gestion de l’eau potable et des eaux‑vannes, répartition
des coûts relatifs à la gestion des eaux pluviales entre les régions desservies
et non desservies de la ville, les frais étant reportés respectivement sur la
facture des services d’eau et d’égouts et la facture de taxes;
·
Option D : structure de redevances actuelle — frais selon
le volume appliqués aux services de gestion de l’eau
potable et des eaux usées, auxquels s’ajoute une redevance d'eau-incendies.
L’ajout de frais fixes à la facture des services d’eau et d’égouts vise
à assurer le recouvrement des coûts qui ne varient pas en fonction du volume
d’eau ou d’eaux usées géré (c.-à-d. des frais d’accès au service, comme l’exige
Hydro Ottawa). Les coûts relatifs aux eaux pluviales sont dissociés des
redevances d’égout parce qu’il n’y a pas de relation entre le volume d’eau
consommé et la quantité d’eaux pluviales recueillie sur une propriété. Enfin,
la répartition des coûts relatifs à la gestion des eaux pluviales entre les
régions desservies et non desservies de la ville vise mieux répartir les coûts
là où ils sont engagés.
Le
Conseil municipal ayant approuvé les structures de redevance présentées, le
personnel mènera une consultation publique entre les mois de juin et d’octobre.
À la suite de cette consultation, le personnel présentera la structure de
redevances privilégiée aux fins d’évaluation et d’approbation par le Conseil
municipal. Cette démarche permettra de terminer cette étude et de soumettre le
plan financier prescrit par la province au ministère de l’Environnement d’ici
le milieu de l’année 2010.
Project Objectives
The purpose of
the Cost, Revenue and Rate Study (CRR) is to identify short and long-term costs
to deliver drinking water, sanitary and stormwater
services in Ottawa, and to determine how best to recover those costs over
time. Specifically, the study is to
achieve the following key objectives:
The purpose of this report is to table options for addressing the fourth item, with details regarding long-term revenue requirements and financial management options to be presented in the fall.
Regulatory and Policy Context
Several regulatory and non-regulatory matters have influenced the design, timing and completion of this study.
Ontario Regulation 453/07 requires municipalities to submit a Council-approved Financial Plan for their drinking water systems no later than July 2010. In preparing the Plan, municipalities must demonstrate that funds collected through rates and other revenue sources will allow for the sustainable planning, design, operation, maintenance and renewal of their drinking water system(s) over time. This project is designed to meet all regulatory requirements.
The intent and direction of the City’s 2007 Fiscal Framework is almost identical to those of the regulation. For example, key City objectives and guiding principles include:
·
Capital assets are maintained
and/or replaced using models of best economy;
· Capital and operating costs for water and sewer to be 100 per cent recovered;
· Sufficient revenues are raised to fund operations, while maintaining appropriate levels of debt and equity;
· Equity (reserves) provides flexibility to respond to economic cycles and manage financial risk;
· Financial decisions based on a multi-year forecast;
· Changes in user fees to be transparent; and
· Recovery rates for services to consider…extent of private, commercial and community benefit (including environmental considerations).
These objectives are mirrored in the rate setting objectives of this
study, and directly influenced the evaluation of alternative rate structures.
The Auditor
General 2008 Report Review of the City’s Water Rate makes several
recommendations regarding the financial management of Ottawa’s drinking water
system that are being addressed through the study, including the following.
That the City:
·
Establish “water rates based on a fixed meter
charge plus a consumption charge as this will provide…a more predictable and
stable cash flow”;
· Review “the method for establishing fire protection costs”;
·
“Undertake a cost of service study which would
include a detailed asset management study”;
· Revise “the water rate to ensure full cost recovery”; and
· “Prepare an integrated asset management plan that addresses (the question)…Are the Reserve Fund balances sufficient?”
The Tangible Capital Asset Reporting (TCAR) Implementation Project is designed to ensure that municipalities, including Ottawa, comply with new financial statement and asset reporting requirements set out in Public Sector Accounting Board (PSAB) Standards 3150 and 1200.[1] This project builds on TCAR by completing life cycle analysis and forecasting capital renewal and replacement costs over the next fifty years.
The Development Charges By-law Review & Update identifies growth-related infrastructure and the amount to be paid via development charges. The new by-law is to be adopted by Council by July 2009, at which time the percentage of growth costs to be covered by development charges will be known. This will determine the amount to be recovered through other revenue sources such as rates, and influence the Financial Plan to be completed later this year.
2009 Budgeted Costs and Revenues
The short-listed rate structures were compared and evaluated using the 2009 Budget as a base. The total budget for drinking water, sanitary and stormwater services in 2009 is $319.3 million. Figures 1, 2 and 3 illustrate the costs in each service area; how those costs are distributed over operating, capital, debt and support services (e.g. planning, engineering and legal); and, illustrate how service costs are to be funded via different revenue sources.
As charges for
municipal drinking water and wastewater services are levied on one invoice and
use the same rate structure, review of the structure entailed consideration of
both systems. Furthermore, as the City’s
Fiscal Framework applies equally to drinking water and wastewater systems, it
was decided to use the opportunity presented by Ontario Regulation
453/07 to carryout comprehensive financial analysis and planning for all
three service areas: drinking water,
sanitary and stormwater.
Rate Setting Objectives
The following
rate setting priorities were established for this study and reflect key
objectives of the 2007 Fiscal Framework.
Revenue Stability – The rate structure should provide for a steady and predictable stream of revenues to the City.
Improved Transparency and Defensibility – The rate structure should be consistent with the rate setting methodologies provided by Ontario Water Works Association (OWWA), applicable laws and city precedents in order to ensure that rates are defensible if challenged in court.
Long-term Financial Flexibility and Resiliency – The rate structure should adequately recover, separately, the costs associated with providing drinking water, sanitary and stormwater services, including enough revenues to achieve the reserve levels required to address infrastructure renewal and replacement needs over time, in compliance with corporate debt financing principles.
Stable Rates – The rate structure should minimize dramatic rate increases or decreases over the planning period.
Simple to Understand and Update – The rate structure should be easy for ratepayers and taxpayers to understand. In addition, the rate structure should allow for effective maintenance by City staff in future years.
Other important
principles that were considered in the evaluation of options included the
following:
·
Adverse financial impacts to each customer group should be minimized;
·
Rates should be affordable within the Ottawa economic climate; and
·
Rates should discourage wasteful consumption and discharge practices.
Alternative Rate Structures
Evaluation
against the above rate setting objectives yielded the following short-listed
options for public consultation, with Option B best meeting the objectives.
Table
1: Short-listed Rate Structure
Options
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Service |
Rate Structure |
Option A Base + Volumetric |
Option B B+V plus City-wide Tax |
Option C
B+V plus Rural Tax |
Option D
Current Structure |
Drinking Water |
Base Charge |
ü
|
ü
|
ü |
|
Volumetric Charge |
ü
|
ü
|
ü |
ü |
|
Sanitary |
Base Charge |
ü |
ü |
ü |
|
Volumetric Charge |
ü |
ü |
ü |
ü |
|
Stormwater |
Incl. in water and sewer bill |
ü |
|
ü
|
ü |
Stormwater Tax |
|
ü |
Those not receiving water and sewer bill[2] |
|
Under
the Current Structure, the City applies a “volumetric” charge whereby
customers pay a fixed rate for every cubic metre of drinking water purchased ($1.264/m3) plus a fire service charge. Wastewater costs are also
recovered using a volumetric rate on the assumption that discharges roughly
equal the amount of water purchased (100% surcharge).[3] Stormwater management costs are recovered via
the sewer rate.
Option A differs from the Current Structure in that it introduces a “base” charge, which would recover a portion of the fixed costs incurred by the City that have no relationship to the volume of water purchased--for example, customer and billing service costs. Customers would be charged a fixed amount based upon the size of their water service line, and then an additional amount per cubic metre metered. This “base plus volumetric” approach provides for greater revenue stability by ensuring minimum revenues per customer.
Approximately 75% of the City’s 2009 water and wastewater costs are projected to be funded via rates per the 2009 Budget. In 2008, water and sewer bill revenues fell short from budget projections by approximately 3.3% ($7.31 million) due to a decline in projected water sales. As pointed out in the Auditor General’s 2008 Report, the current rate structure is vulnerable to fluctuations in water demand and a “fixed meter charge plus a consumption charge” (i.e. base plus volumetric) approach would help to ensure recovery of fixed costs.
Option B also introduces a base charge, but differs
from Option A by removing an inequity that has sanitary service ratepayers
funding the full cost of stormwater services, which
are delivered on a City-wide basis, i.e. greater defensibility. Currently, anyone in the City not paying a sewer
bill is receiving stormwater and related
environmental services free of charge.[4] This includes all rural property owners, as
well as those with private septic systems in areas receiving municipal water
service. Under Option B, stormwater costs would be removed from the water and sewer
bill and levied on the tax bill.
Option
C differs from Option B in that stormwater
costs would be divided and levied on a cost for service basis, generally along
the lines of urban and rural. Everyone
receiving a water and sewer bill would be charged a fee for stormwater
costs incurred in the serviced area.
Everyone not receiving a water and sewer bill would be levied a charge
on the assessment portion of their property tax for stormwater
costs incurred in the unserviced areas of the
City. The following are key drawbacks
against this approach:
·
Stormwater run-off is a function of the size of
a property and its permeability (lot coverage).
These factors better correlate to property value than water consumption,
and should be applied equally amongst all property owners—both urban and rural. Moving towards an assessment-based approach
allows for the migration of rates to a lot size and coverage approach over
time, and will improve fairness in the interim.
·
Tenants often pay water and sewer bills. A single property may have a few or scores of
tenants. It would be difficult to set a stormwater rate on the water and sewer bill that ensured
equity amongst ratepayers, and between ratepayers and taxpayers.
·
There are significant administrative
constraints to dividing the tax base into “serviced” and “unserviced”
areas as there are numerous exceptions across the City.
Other
rate structures and features that were considered included the following.
Flat Fees – A fixed rate is charged, independent of usage (e.g. City of Gatineau).
Inclining/Declining Block Rates – Volumetric charges can also vary according to the amount, or “blocks”, of usage. Under declining block rates, the per unit rate would decrease as the volume increased (e.g. City of Toronto).
Fees and Charges per Customer Class – Several rate structures can be refined to allocate specific costs among different customer classes to allow for greater “user pay.” Customer classes can be defined along different lines, for example: a) residential, commercial, industrial; b) inside the Greenbelt, outside the Greenbelt; c) by water pressure zones or sewer catchment areas.
Stormwater Specific Rates – Other methods for recovering stormwater costs were considered including:
· Property tax through the surface operations budgets; and
·
Property-based fees based on an
assessment of the impervious area or property size.
In
summary, none of the above options achieved the current rate setting objectives
of the City to the same degree as those short-listed. More information regarding alternative rate
structures and rate setting objectives is contained in Attachment A to the
report.
Customer Impact Analysis
The cost implications of the short-listed four options were analyzed for key user groups using the 2009 Budget, with the following results:
Table 2: Comparison[5]
of Average Monthly Charges for
Different Rate Structures
|
||||
Service |
Option A Base + Volumetric |
Option BB+V plus City-wide Tax[6] |
Option C
B+V plus Rural
Tax
|
Option D
Status Quo |
AVERAGE RESIDENTIAL PROPERTY (consumption 18m3/month; >30% of
customer accts.) |
||||
Drinking Water |
$24.60 |
$24.45 |
$24.60 |
$25.39 |
Sanitary |
$23.57 |
$17.37 |
$22.56 |
$22.75 |
Stormwater
|
Incl. in Sanitary |
$6.19 |
Incl. in Sanitary |
Incl. in Sanitary |
Monthly Total |
$48.17 |
$48.01 |
$47.16 |
$48.14 |
AVERAGE HIGH DENSITY RESIDENTIAL PROPERTY (consumption 625m3/month) |
||||
Drinking Water |
$723.92 |
$785.13 |
$752.82 |
$808.79 |
Sanitary |
701.62 |
$560.73 |
$671.26 |
$790.00 |
Stormwater
|
Incl. in Sanitary |
$88.79 |
Incl. in Sanitary |
Incl. in Sanitary |
Monthly Total |
$1,454. |
$1,434.65 |
$1,424.08 |
$1,598.79 |
AVG. LOW CONSUMPTION
COMMERCIAL PROPERTY (780m3/month;
< 2% of customers) |
||||
Drinking Water |
$87.45 |
$87.42 |
$87.45 |
$86.85 |
Sanitary |
$83.52 |
$62.15 |
$79.94 |
$82.16 |
Stormwater
|
Incl. in Sanitary |
$34.78 |
Incl. in Sanitary |
Incl. in Sanitary |
Monthly Total |
$170.98 |
$184.36 |
$167.39 |
$169.01 |
AVG. HIGH CONSUMPTION
COMMERCIAL PROPERTY (42,000m3/month; < 1% of customers) |
||||
Drinking Water |
$4,723.65 |
$4,716.58 |
$4,723.65 |
$4,541.45 |
Sanitary |
$4,514.29 |
$3,352.54 |
$4,320.67 |
$4,424.00 |
Stormwater
|
Incl. in Sanitary |
$217.40 |
Incl. in Sanitary |
Incl. in Sanitary |
Monthly Total |
$9,237.94 |
$8,286.52 |
$9,044.32 |
$8,965.45 |
AVG. UNSERVICED PROPERTY (private well
and/or private septic) |
||||
Drinking Water |
$0 |
$0 |
$0 |
$0 |
Sanitary |
$0 |
$0 |
$0 |
$0 |
Stormwater
|
$0 |
$6.19 |
$10.39 |
$0 |
Monthly Total |
$0 |
$6.19 |
$10.39 |
$0 |
Refer to
Attachment B for theoretical rates and impacts to other customer groups.
The
Fire Service Fee is included in the new base rate.
Under all three Options A, B and C, most ratepayers and taxpayers would experience minimal change or a reduction in their monthly charges, with the following two exceptions:
· Those in unserviced areas of the City; and
· Low water consumers (<10m3/month).
As noted previously, those who do not currently pay a water and sewer bill[7] are receiving stormwater and related environmental management services at no costs. Under Option B, total stormwater costs are levied across the City on an assessment value basis. Under Option C, urban stormwater costs are born by those paying a water and sewer bill; and rural stormwater costs are born by those outside the service area on their tax bill. Under both scenarios, landowners in unserviced areas of the City would have a new stormwater charge added to the assessment portion of their tax bill to cover the cost of services they currently receive for free.
Customers with very low average monthly water consumption (<10m3/month) would experience an increase in their total water and sewer bill of approximately $4.12 - $6.00 per month (depending upon the rate option and their actual usage.)[8] This reflects the additional cost they would pay to cover their fair share of the fixed costs for providing drinking water and sanitary sewer services. These increases would be experienced by up to 20% of water and sewer customers. Under Option B the property owner would pay an additional $6.19 per month in property taxes to cover stormwater costs. Under Option C, rural property owners would pay on average $10.39 per month for stormwater services.
These increases are considered to be defensible, and would not unfairly affect low-income households. Assuming an average household income of $20,000 for low-income earners, those consuming less than 10m3 per month would pay less than 2% of their annual income on the combined services of drinking water, sanitary and stormwater. Industry benchmarks suggest that municipal water and sewer bills are affordable if they constitute less than 4% of the mean household income of a community. The mean after-tax household income in the City of Ottawa in 2005 was $68,288 (Source: 2006 Census). Accordingly, all Options A, B, C or D meet industry affordability benchmarks.
Recommended Consultation Plan
Staff recommends that the Communication Plan in Attachment C be used to inform and consult with the public regarding potential changes to the rate structure, with a preferred approach adopted by Council this fall for implementation commencing 2011. This will allow for the finalization, adoption and submission of the Financial Plan to the Province by 1 July 2010 using the rate structure approved by Council.
The purpose of carrying out this study is to ensure sustainable funding for essential infrastructure that is designed, operated and replaced over time to protect natural resources and public health.
As set out above, depending upon the rate structure chosen, landowners lying outside of serviced areas may be charged for stormwater services that they currently receive at no cost. The average cost on their tax bill could range from approximately $74 to $125 per year depending upon the approach taken.
Due to the wide reaching implications of this study on several groups within the City, consultation to date has focused internally. Attachment C contains the Consultation Plan for this study, with public consultation commencing with the issuance of this interim report on rates.
There are no legal/risk management impediments to receiving this report.
There are no current financial implications as a result of this report. Impacts to ratepayers and the total water bill are outlined in Table 2. Subject to public consultation and Council’s approval, a future report will outline financial implications to the City.
Document 1 – Technical Memoranda: Rate Setting
Document 2 – Ratepayer
& Taxpayer Impact Analysis
Document 3 – Communication Plan
That Environmental Services Department continue to carry out this study in consultation with the public.
Document 1
Technical Memoranda: Rate Setting
|
n 1031 S.
Caldwell Street Suite 100 Charlotte • NC • 28203 |
n Phone 704 • 373 • 1199 Fax 704 • 373 • 1113 |
n www.raftelis.com |
T
E C H N I C A L M E M O R A N D U M
To: Sally
McIntyre
Steering Committee for Water and Wastewater Services Rate Study
From: Leta Hals of Raftelis Financial
Consultants, Inc.
Date: May
22, 2009
RE: Water,
Sewer, and Stormwater Rate Design
This technical memorandum provides: an overview of different water and wastewater rate structures and trends in the industry; RFC’s assessment of the pricing objectives of the City of Ottawa’s Water and Wastewater Services Branch (“W & WW Services”); and a discussion of how well different rate structures meet the City’s pricing objectives for water and wastewater services.
Rate Structures
and Industry Trends
There are a variety of water and wastewater rate structures in use across North America. Generally speaking, most of these structures fit into one or more of the following categories:
Flat fees: A flat fee is assessed, independent of usage. This fee may also vary by meter size or other characteristic such as number of fixture units. Generally speaking, the industry is moving away from flat fees as rate and cost of service studies indicate better ways of distributing costs to customers based upon their respective burdens on the system. It is more likely, though still not common, for stand-alone wastewater utilities to have flat fees.
Volumetric charge: A charge is assessed based upon metered usage. The rate structures of most utilities across North American incorporate some type of volumetric rate; however, most also incorporate a base component.
Base plus volumetric charge: A base charge is assessed, typically per meter size, on each customer bill. In addition, a volumetric charge is also assessed based upon metered usage. Most of the larger utilities in North America have a base and volumetric charge structure and this trend is growing. In addition to the volumetric cost burden, there is the recognition that each customer places a “base” impact on the system in terms of billing, meter services, overhead and infrastructure, irrespective of usage. Utilities also recognize that a base charge component also provides for a more reliable revenue stream.
Within this type of structure, there are two methods of structuring the volumetric charge:
· Uniform rates: The volumetric charge per unit (cubic meter, hundred cubic feet, 1,000 gallons, etc.) is the same regardless of the level of usage. The uniform rate structure is the most prevalent water and wastewater rate structure because it is easy to understand and implement and ties relatively well with cost of service. Wastewater utilities in particular frequently have uniform rates.
· Inclining/declining block rates: Volumetric charges can also vary according to the amount, or “blocks”, of usage. Under declining block rates, the per unit rate would decrease as the volume increased. This type of structure is typically used to represent the commodity nature water, and that larger users may place less cost on the system on a per unit basis. Although there are a fair number of utilities with this type of structure, there has been a decline in popularity in recent years due to a greater focus on conservation. Utilities with this type of structure may want to attract large industry to their area for economic reasons.
Under inclining block rates, the per unit rate would increase as the volume increased. This type of structure is considered a “conservation” rate structure and is typically used by communities with water shortage issues to represent the burden on the source of supply placed by larger users and/or users with widely varying demands. A fair number of water utilities utilize this type of structure, and its popularity is increasing, particularly in the western United States, as more utilities struggle with water supply issues. Inclining block rates are not very prevalent among wastewater utilities.
Fees and Charges per Customer Class: Most rate structures can also be fine tuned to further allocate the costs to different customer classes. Customer classes can be defined according to different customer types (residential, commercial, industrial, etc.), different pressure zones or other geographic areas, the type of service provided (water, sewer, stormwater), or other type of specific characteristic. Other than differentiating between service type, most utilities do not differentiate between customer classes outside of the rate structures previously discussed (e.g., the base charge may vary by meter size, or block structures may differentiate per usage level). However, a notable amount of utilities do have different rate structures for different customer classes, often to fine tune the cost impact of specific segments of the customer base or to meet other pricing, economic, or other community objectives.
Stormwater Specific Rates: In North America, there are a wide variety of mechanisms for recovering stormwater costs. In the past, cities used tax revenues for stormwater management, generally through the street department budgets. Once the costs of stormwater management started to increase due to stormwater permitting regulations, cities started implementing separate user fee structures for stormwater. The use of property-based fees, based on an assessment of the impervious area is a common method of charging for stormwater. However, the basis for the stormwater fees can also include: gross area, water use, flat fee, property value/characteristics, etc. Stormwater fees are typically recovered on water and sewer bills, but are also recovered by utilities on tax bills or other types of mechanisms.
Pricing
Objectives
In determining which structure, or blend of structures is the most appropriate for a utility, a utility should first identify its pricing objectives. After working extensively with City staff, both internal and external to the W & WW Services Branch, we have identified the following pricing objectives for the City’s water and wastewater rates:
Primary Pricing Objectives
· Long-Term Financial Flexibility and Resiliency: The rate structure should adequately recover, separately, the costs associated with providing both water and wastewater service, including enough revenues to generate appropriate reserve levels.
· Rate Stability: The rate structure should minimize dramatic rate increases or decreases over the planning period.
· Transparency and Defensibility: The rate structure should be consistent with the rate setting methodologies provided by AWWA and applicable laws, in order to ensure that rates are transparent and defensible if challenged in court.
· Revenue Stability: The rate structure should provide for a steady and predictable stream of revenues to the Water and Wastewater Services Branch.
Other Important Pricing Objectives
· Stormwater Based Cost of Service Allocation: The rate structure should recover separately the costs associated with providing storm water service.
· Simple to Understand and Update (Complexity): The rate structure should be easy for City customers to understand, utilizing a moderate level of educational tools. In addition, the rate structure should be able to be effectively maintained by City staff in future years.
· Conservation/Demand Management: The rate structure should encourage water conservation as well as assist in managing system demand.
· Equitability by Customer Type: The rate structure should ensure that separate customer types are contributing equitably towards revenue requirements based upon the costs of providing service to each customer type. Customer types can be defined according to customer classes (e.g., residential, commercial, industrial), geographic areas (e.g. pressure zones, communal systems) or some other distinguishing customer characteristic.
· Minimization of Customer Impacts: The rate structure should be developed such that adverse rate impacts on different customer types are minimized.
Comparison of
Pricing Objectives with Current and Alternative Rate Structures
To determine the most appropriate rate structure, the various types of rate structures are compared against the pricing objectives to determine which structure most satisfies the objectives. One must recognize that often times one or more pricing objectives may compete or be in direct contrast with another. Ultimately, the objective is to identify the structure that best meets the primary pricing objectives while taking into consideration as many of the other pricing objectives as possible.
RFC has the following observations regarding rate structures and how well they relate to the City’s pricing objectives:
Flat fees: Although a flat fee for all customers would certainly provide revenue and rate stability, this type of structure is not defensible from a cost of service perspective.
Volumetric charge: The City’s fire supply charge is similar to a base charge, but since it is relatively small, the City’s current rate structure acts most like a volumetric only rate structure. Although the current structure is generally supportable, there is room for improvement.[9] Since all but a small portion of revenues vary directly with usage, there is little guaranteed revenue stability, which in turn can affect a utility’s long-term financial flexibility and resiliency. Furthermore, the defensibility of a volume only structure could be challenged given that each customer places cost burden on the system, irrespective of their usage.
Base plus volumetric charge: This type of rate structure provides a more stable revenue stream and assigns a certain portion of costs to each customer, regardless of usage. In doing so, the City’s pricing objectives of revenue stability, long-term financial flexibility and resiliency, and defensibility can be enhanced. One consideration, however, is initial implementation of a base charge will have impacts on certain customer groups.
· Uniform rates: Considering the City’s other pricing objectives, RFC believes a uniform volumetric rate is the most appropriate in the short-term. A uniform volumetric rate is simple to understand and update and typically leads to more stable rates compared with block-type volumetric structures. [10]
· Inclining/declining block rates: All block-type volumetric rates are more complex and should be cautiously undertaken if they are driven by clear pricing objectives. As economic development was not considered a driving objective, declining block rates do not appear to fit the City’s objectives. Inclining block rates would meet the City’s objective for conservation/demand management. However, given that this type of structure is less revenue and rate stable and is more complex and difficult to implement, RFC would suggest reconsideration of this rate structure in the future.
Fees and Charges per Customer Class: One type of customer class distinction is between service type (water vs. sewer vs. stormwater). Generally speaking, the current structure differentiates between water and wastewater (wastewater rate assessed as a surcharge on the water rate). However, RFC recommends the calculation of separate water, sewer, and stormwater charges, particularly given the long-terms financial flexibility and resiliency and storm water based cost of service allocation objectives. RFC further recommends the consideration of alternate methods for assessment of a stormwater charge to better align the assessment of stormwater charges to those who benefit from stormwater services.
With the exception of rates per service type, rate differentiation per other customer class distinctions typically adds complexity to the rate structure and can decrease revenue and rate stability. Furthermore, a base charge per meter size, combined with the volumetric charge, inherently provides a level of equitability by customer type. Given that there did not seem to be any other drivers for further differentiation between customer classes, RFC does not see the benefits of adding additional rate complexity. This issue, however, should be reviewed in the future as other factors affecting the pricing objectives could change the importance of differentiating between customer classes.
Based upon the assessment of the City’s pricing objectives for water and sewer rates, RFC recommends a base plus uniform volumetric charge structure, assessed separately for water and sewer services. RFC recommends further investigation and consideration of the recovery of stormwater costs through the sewer charges, or the development of a separate stormwater charge assessed through an alternate mechanism, such as impervious service area or per property value on the City tax bill.
Document 2
Ratepayer & Taxpayer Impact Analysis
Document 3
Communication Plan
Cost, Revenue & Rate
Study
1. Project Objectives
The following is a selection of the key project objectives for the Cost, Revenue & Rate Study:
· To determine the full cost to plan, operate, and maintain in operating condition the existing water, wastewater and storm water systems at current levels of service over 50 years commencing 2010, analyzed according to: capital and operating budgets, direct and indirect costs, communal and central systems, inside and outside the Greenbelt and rural, peak and average supply requirements, and by customer billing class.
· Confirm the average annual capital requirement over the 50-year period and to identify a minimum Reserve Fund balance for each system in 2010 dollars based upon capital needs identified by the City.
· To determine the incremental full cost to service growth, at current levels of service, over the period 2010-2031 based the updated Official Plan, scheduled for approval February 2009.
· To determine how those levels of service might change over time, particularly in response to requirements under the Clean Water Act, S.O. 2006 or to address Council priorities that exceed regulatory requirements, e.g. combined sewer flow capture greater than required by Procedure F-5-5.
· To document the capital and operating budget requirements for the ten-year period commencing fiscal year 2010.
· To identify and assess alternative revenue sources for each system, and to determine the most appropriate mix of funding sources that allows for full cost recovery, in consultation with internal and external stakeholders.
· To identify and assess alternative rate structures, particularly those employed by municipalities of similar profile and characteristics.
· To determine the most appropriate rate structure for implementation commencing fiscal year 2010, in consultation with internal and external stakeholders.
A key output of this study is a rate structure that
will sustain the City over time. Rate
setting involves the balancing of different and sometimes divergent
priorities. The rate setting objectives
set out in Table 1 will not have the same weight with amongst all
stakeholders. A key objective of this
Consultation Plan is to ensure that stakeholders are provided with the
information required to: understand the challenges involved; provide informed
input during the consultation process; and to accept changes that may be
required to help ensure the long-term sustainability of the City’s water,
wastewater, and storm water systems.
Long-Term Financial Sufficiency |
The rate structure should
adequately recover, separately, the costs associated with providing both
water and wastewater service, including enough revenues to generate
appropriate reserve levels. |
Rate Stability |
The rate structure should
minimize dramatic rate increases or decreases over the planning period. |
Minimization of Customer Impacts |
The
rate structure should be developed such that adverse rate impacts on
different customer types are minimized.
|
Equitability by Customer Type |
The rate structure should
ensure that separate customer types are contributing equitably towards
revenue requirements based upon the costs of providing service to each
customer type. Customer types can be
defined according to customer classes (e.g., residential, commercial,
industrial), geographic areas (e.g. pressure zones, communal systems) or some
other distinguishing customer characteristic. |
Economic Development |
The rate structure should
incorporate a preferential rate that may be used to attract economic
development to Ottawa. |
Affordability to Disadvantaged Customers |
The rate structure should
incorporate practices or procedures that help ensure that economically
disadvantaged customers can afford water and wastewater service. |
Simple to Understand and Update |
The rate structure should
be easy for City customers to understand, utilizing a moderate level of
educational tools. In addition, the
rate structure should be able to be effectively maintained by City staff in
future years. |
Ease of Implementation |
The rate structure should
be compatible with the City’s billing system.
In addition, the rate structure should allow for the continuation of
existing management and system reports. |
Defensibility |
The rate structure should
be consistent with the rate setting methodologies provided by AWWA and
applicable laws, in order to ensure that rates are defensible if challenged
in court. |
Revenue Stability |
The rate structure should
provide for a steady and predictable stream of revenues to the Water and
Wastewater Services Branch.
|
Conservation/Demand Management |
The rate structure should
encourage water conservation as well as assist in managing system demand. |
Storm Water Based Cost of Service Allocation |
The rate structure should
recover separately the costs associated with providing storm water service. |
· All stakeholders are made aware of the project.
· Stakeholders are provided information in a timely manner to allow for effective input into the decision-making process.
· Information that is provided is unbiased, easy to understand, and stakeholder specific.
· Sufficient historical and contextual information is provided to allow for informed input.
· Stakeholder feedback is appropriately considered by the project team, and communicated to Council.
· There is broad scale understanding and acceptance of any changes in rates and the rate structure that may result from this study.
This project has the potential to affect all
residents, businesses, and institutions in the City of Ottawa. Due to the manner in which they could be
affected, they are grouped as follows:
· Residential water-sewer ratepayers
· Commercial water-sewer ratepayers
· High Volume Users
· Rural, suburban, and urban landowners
· Business organizations
· Taxpayer organizations
· Environmental organizations
· Fixed and low income organizations
· Community associations
· The land development community
· The property management community
· Councillors
· City staff
· Media
A variety of communication tools can be used, as
listed below. Table 2 identifies which
tools may be used for the various stakeholder groups.
· Bill inserts.
· E-mail notices to those with electronic billing.
· Notices in community newspapers and major dailies.
· Public Service Announcements.
· Press Release.
· Information articles for community newspapers—short article for easy publication.
· Briefing Notes—1 page summary for internal use.
· Direct mail to specific groups.
· Small targeted group consultations / briefing sessions—no more than 20, focusing on issues of particular concern to that group.
· Public Open Houses / Information Sessions—widely publicized, open to all, with brief presentation and information panels.
· Public Meetings—formal PEC and/or CS&EDC, with delegations from the public.
· Technical Memo on rate setting options and practices elsewhere.
· Technical Memo on financial trends and pressures in water & wastewater industry, detailing current growth, use, and financing of Ottawa’s water, wastewater, and drainage systems.
· Technical Memo setting out preferred approach.
· Staff Report to Committee summarizes entire project with recommendations for adoption.
· Web site, with the above, and Q&A.
|
Residential water-sewer
ratepayers |
Commercial water-sewer
ratepayers |
High Volume Users |
Landowners |
Business organizations |
Taxpayer organizations |
Environmental
organizations |
Fixed and low income
groups |
Community associations |
Development community |
Property managers |
Councillors |
City staff |
Media |
Bill inserts |
x |
x |
x |
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E-mail notices |
x |
x |
x |
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Public Notices |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
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x |
Public Service Announcements |
x |
x |
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x |
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x |
Press Release |
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x |
Information articles |
x |
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x |
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x |
Briefing Notes |
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x |
x |
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Direct mail |
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x |
x |
x |
x |
x |
x |
x |
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Targeted sessions |
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x |
x |
x |
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x |
x |
x |
x |
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Public Open Houses |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
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x |
Public (PEC) Meetings |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
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x |
Green Papers |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
White Paper |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
Web Site |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
x |
6. Work
Plan
The Work Plan illustrated in Table 3 assumes the following overall approach:
· Table short-listed rate structures at PEC with supporting background documents in June using existing operating and capital data, and preliminary “O&M Gap” and Development Charges information.
· Allow June through September for stakeholder input, including one-on-one meetings with interested groups and a Public Open House.
· Report back to PEC in December regarding the results of public consultation, and with final costing data projected out 50 years. Obtain Council approval in January on the rate structure.
· Prepare Financial Plan based upon final outcome of January meeting, and obtain PEC and Council approval early May 2010.
Activity / Date |
March |
April |
May |
June |
July |
Aug |
September |
October |
Nov. |
Dec. |
Jan. |
Feb. |
Mar. |
Apr. |
May |
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Preliminary
Rate Modeling Completed (10 years of data) |
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Final
Rate Modeling Completed (50 years of data) |
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1.
Technical Memo 1 |
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§ Develop,
approve, translate |
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Contain all background information |
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§ Publish to web |
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§ Publish/Distribute
Notice |
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§ Comment period |
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2.
Targeted sessions |
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§ Estb. room(s) &
date(s) |
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§ Prepare
materials |
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§ Event(s) |
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4 |
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Meetings w stakeholder groups |
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3.
Public Open Houses |
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§ Estb. room(s) &
date(s) |
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§ Publish/Distribute
Notice |
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§ Develop,
approve, translate materials |
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§ Event |
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4.
Technical Memos 2 & 3 |
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§ Develop,
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Final details and rates |
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§ Publish to web |
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§ Publish/Distribute
Notice |
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§ Comment period |
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5.
Public Meetings (PEC & CS&ESC) |
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§ Draft Staff Rpt |
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Table Rate Structures |
13 |
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Final Rate Structure |
15 |
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Financial Plan |
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§ Approval &
Translation |
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§ Publish/Distribute
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§ Event |
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23 |
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14 |
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P |
C |
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Activity / Date |
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April |
May |
June |
July |
Aug |
September |
October |
Nov. |
Dec. |
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May |
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Preliminary
Rate Modeling Completed (10 years of data) |
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Final
Rate Modeling Completed (50 years of data) |
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6.
Web Site |
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§ Develop,
approve, translate |
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§ Publish |
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7.
Bill inserts |
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§ Develop,
approve, translate |
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§ Distribution |
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8. Public Notices (incl. e-mail, mail, newspapers, and web) |
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§ Develop,
approve, translate |
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§ Distribution /
Publication |
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9.
Public Service Announcements |
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§ Develop,
approve, translate |
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§ Distribution /
Publication |
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10.
Press Release |
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§ Develop,
approve, translate |
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§ Distribution |
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11. Information articles |
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§ Develop,
approve, translate |
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§ Distribution /
Publication |
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12.
Briefing Notes |
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§ Develop &
approve |
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§ Distribution |
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Formal opportunity for stakeholder feedback
[1] The Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants is an independent body with the authority to set accounting standards for the public sector. Provincial legislation mandates that municipalities follow PSAB regulations. In 2006, the PSAB adopted a requirement that, starting in 2009, Canadian municipalities must report all capital assets on their financial statement. The assets will then depreciate over their useful life and the related depreciation expense will be reported as an expense on the financial statements.
[2] Landowners not receiving a water and sewer bill would be levied a charge on their tax bill. Some landowners (e.g. Richmond and Carp) are connected to municipal sewers but not to the drinking water system. They do not receive a water and sewer bill, but are levied a fixed fee on their tax bill. The stormwater charge would be added to the assessment portion of their tax.
[3] The City manages a sewer surcharge exemption program that compensates high volume consumers that have wastewater discharges significantly less than the volume of water purchased.
[4] The Municipal Drainage Act and programs there under do not provide for maintenance of rural cross-section roadside ditches. Over $4 million was budgeted in 2009 for the maintenance and renewal of open ditch drains in the rural area.
[5] This table illustrates the rates and taxes that might have been imposed in 2009 had those rate structures been in place when rates were set in January 2009. At that time, Council was notified that rate increases will continue in the foreseeable future to address a variety of factors including rising costs, decreasing water sales, system growth and increasing infrastructure renewal and regulatory requirements. Future revenue pressures and requirements will be presented this fall.
[6] The average tax values under Options B and C are based upon the current value assessment base, and an average residential property assessment of $292,750; average high-density residential assessment of $4.2 million; average low consumption commercial assessment of $800,000; and average high consumption commercial assessment of $5 million.
[7] Excluding those who are levied a sewer charge on their property tax (e.g. Village of Richmond.)
[8] Refer to Attachment B for details. Users with extremely low usage (less than 8m3/month) could experience a greater impact.
[9] Utilities in Canada with volumetric only rates, or volumetric rates with a very small base charge, include: the Region of York, the City of London, the Region of Peel, and Town of Richmond Hill. According to AWWA and RFC’s 2008 Water and Wastewater Rate Survey (“Rate Survey”), there were no Group A (large) systems with a uniform, volumetric-only rate structure. .
[10] Examples of utilities with a base plus uniform volumetric rate in Canada include the cities of Halifax, Hamilton, and Calgary (residential). According to AWWA and RFC’s 2006 Rate Survey, the following Group A (large) systems have base plus uniform volumetric rate structures: Washington, DC; New York, NY; Suffolk County, NY; Seattle, WA; Coachella, CA; Portland, OR; Tulsa, OK; Nashville, TN; Concord, CA; Gwinnet County, GA (Atlanta area); and Oklahoma City, OK.