InnPower bills dropped into mail boxes recently. Did you notice the note at the bottom? (“A financial plan for the Town’s Water Systems has been prepared.” ) I didn’t think so. How many of you downloaded the Financial Report from the town’s website? Right. OK, let me tell you a little bit more about how your water rates will be going up, and why.
A slew of provincial legislation and regulations followed the Walkerton disaster and continues to affect the cost of municipal water services. Under the newer rules, all municipalities are required to submit a financial plan to the province accounting for:
- the full cost of water delivery
- the cost of system operation, maintenance, and expansion
- cost recovery from users
The submission deadline for this financial report was July 20. Innisfil’s report, (Water Rate Study and O.Reg 453/07 Financial Plan) prepared by consultants, DFA Infrastructure International, is dated April 15.
Meanwhile, on March 18, staff requested Council to request preparation of a business plan for a Municipal Services Corporation (MSC) for water delivery and potentially other services. That plan involves tilting residential water rates higher to finance costly water infrastructure for future industrial growth. Funds being borrowed (at a now historically-low rate) would be repaid mainly by residents over an extended period through higher water rates. The DFA report and a MSC Business Plan came to Council on May 6.
The DFA report assessed the need for Reserve Funds in the absence of debt financing as a municipal option.
- A Water Capital Reserve would need to increase from a deficit of $3.5 million to $13.2 million in 2031.
- A Water Treatment Replacement Reserve Fund would have to grow from zero to $15.3 million by 2031.
- A Water Development Charges Reserve of $26 million would be required by 2031.
DCs are assessed against developers and would be needed up-front. The report notes, “approximately $19.3 million in front-end financing is identified between the years 2015 – 2031. It should be noted that failure to secure front-end financing would require the issuance of debt or cause a delay in some growth related projects.” This is the basis for Council’s decision to create a separate corporate entity to facilitate debt financing. The Master Servicing Plan developed in 2011 estimated the cost of servicing Innisfil Heights would total $93 million in three phases up to 2031. The MSC business plan suggests a total “strategic program” of up to $200 million. Both figures are well beyond Innisfil’s current annual budget.
The report recommends creating an additional Asset Life Cycle Reserve Fund. “Contributions to this reserve fund would begin in 2020 and be phased in to reduce the impacts to the revenue required from rates.” This Reserve is projected to grow to $26 million by 2031.
The report shows that while there are almost 8,000 residential customers, Innisfil water utility has only 188 commercial customers, 18 industrial customers and 9 institutional customers – a total of 215 “non-residential” users. This is projected to increase by 50 non-residential users by 2031 – an average of 3 new industries or commercial establishments per year over 15 years. In contrast, residential users are expected to more than double by 2031 to over 18,000.
The DFA study further assumes that water conservation measures will reduce water consumption in all user categories, except residential, until 2019. However, by 2031, total water consumption is projected to almost double to 3,157,035 cubic metres.
The total average annual cost of managing Innisfil’s water system is calculated to be $4.34/cubic metre. The current 2015 water rate billed to residents is $1.91/m3. The difference of $2.43 consists of contributions to reserve funds and debt repayment. Annual water rate increases are needed to recover the full cost of operating the water system. Annual “base” rate increases from 2016 to 2022 are projected to be: 8%; 5%; 4%; 3%; 2%; 1%; 0
To recover these amounts, the report reviews a variety of different user rate structures before recommending adoption of a two-tier rate system for residential users. A basic rate would apply to those who account for 91% of current water use. A second higher rate would apply to those heavy users who add an additional 9% in peak demand for water. According to the report, “all the average customer (residential, commercial and institutional) water bills will fall. This is the result of the shift of water cost burden to the high residential water consumers (residential water consumers where monthly consumption exceeds 25m3/month).”
Under this scenario, the monthly base residential water rate per cubic metre for residents would be $2.02 in 2016, $2.10 in 2017, and $2.12 from 2018 to 2022. Those exceeding the average use would pay $3.03 to $3.18/m3 by 2022 for their peak usage.
The MSC business plan does not set out a rate plan but says “rates are set … across all ratepayers in a manner determined by Council and with consideration of the DFA studies.”