HomeMy WebLinkAboutFIN-20-067 - 2021 Water Utilities RatesStaffReport`
Financia! Services Department www. kitchener. ca
REPORT TO: Council
DATE OF MEETING: December 14, 2020
SUBMITTED BY: Ryan Hagey, Director of Financial Planning, 519-741-2200 ext. 7353
PREPARED BY: Ryan Hagey, Director of Financial Planning, 519-741-2200 ext. 7353
WARD(S) INVOLVED: All
DATE OF REPORT: December 9, 2020
REPORT NO.: FIN -20-067
SUBJECT: 2021 Water Utilities Rates
RECOMMENDATION:
THAT the proposed rates contained in the 2021 Water Utilities Rates schedule
attached to Financial Services Department Report FIN -19-088 be approved.
REPORT HIGHLIGHTS:
• The total Water Utilities Rate Increase is 0.9%
• Water and Sanitary Sewer rates are being held flat at 2020 levels
• Stormwater increase is required to leverage $50M of grant funding through the Disaster
Mitigation and Adaptation Fund (DMAF)
• New rates come into effect January 1St
BACKGROUND:
The rates for the City's Water Utilities (water, sanitary, and stormwater) are set annually by
Council. In 2017, a comprehensive review of the water, sanitary and stormwater
infrastructure (the Water Infrastructure Program or WIP) was conducted to evaluate
infrastructure investment needs and other factors such as affordability, growth, and
sustainability. The WIP report provided information about the infrastructure in each of the
utilities and provided Council with investment options for both capital replacement and
increased maintenance spending along with 5 -year rate options for the utilities. Council's
consensus from that discussion provided staff with direction for future investments and
rate increases which have been reflected in previous budgets.
As well, rate changes for the Water Utilities are passed prior to the start of the year as the
new rates come into effect on January 1 St
*** This information is available in accessible formats upon request. ***
Please call 519-741-2345 or TTY 1-866-969-9994 for assistance.
REPORT:
The proposed rate increases for the Water Utilities are summarized in the table below, with
the more detailed schedule attached to the report.
Summary of Water Utilities Rate Changes
Water
0.0%
Sanitary
0.0%
Stormwater
6.0%
Combined
0.9%
The 2021 combined proposed rate increase of 0.9% is significantly lower than the forecast
rate increase (as shown in the table below) and aligns with the overall budget strategy of
fiscal restraint.
Proiected Combined Utilitv Rate Increases
Rate Increase Projection from WIP
Revised Rate Increase Proiection
6.5% 6.5% 4.5% 4.5% 4.5%
6.5% 6.5% 4.4% 0.9% ?
This reduced level of increase was achieved through two major adjustments to the 2021
cost structure for the WIP utilities.
First, City staff have proposed a one year pause on the projected increase to full road
reconstruction funding and maintenance increases for the WIP utilities. This will maintain
the 2020 funding amount for the capital program which replaces aging water, sanitary, and
stormwater infrastructure in existing roads, but not increase it as planned during the WIP
analysis. Similarly, the planned increase to move the WIP utilities towards more proactive
maintenance will be delayed by a year.
Second, Regional staff have proposed to hold the costs of water supply and sanitary sewage
processing flat at their 2020 levels. These were projected to increase by 1.9% and 4.9%
respectively. This has downward pressure on rates since the price increase is less than
what was modeled during the WIP analysis. The overall impact is summarized in the table
below and shows how each change impacts the overall WIP rate increase.
WIP 2021 Rate Increase Reconciliation
Original Projected WIP Rate Increase 4.5%
Planned Increase to Capital and Maintenance Put on Hold -2.0%
Regional Rate Reduction -1.6%
Revised Proposed WIP Rate Increase 0.9%
An increase to the Stormwater utility rate is required to fund the City's committed share
($75M) of projects being significantly funded ($50M in total) by other levels of government
through the Disaster Mitigation and Adaptation Fund (DMAF). A significant portion (75%) of
urban areas in the city lack adequate stormwater management. The DMAF funding will
implement important stormwater management initiatives that will help mitigate the severity
of local flooding that can impact drinking water quality, downstream environments and public
and private properties. It is estimated that for every dollar spent by Kitchener ratepayers,
they receive a projected return of $18 in prevented damage costs.
Operating Budget Follow Up Content
During the 2021 Operating Budget discussions on November 30, Council requested
additional information about the WIP Utilities including:
1. Provide information about the City's progress towards its road reconstruction goals (e.g.
how many kilometres have we completed versus what was planned)
2. Provide information about how reductions in either Water or Sanitary could offset the
planned increase in Stormwater
1) Road Reconstruction
In 2017, Council approved a long-term infrastructure investment strategy (INS -17-070) that
addressed the water infrastructure gap by 2044. The WIP capital program was projected to
increase by 6.1 % annually until 2044 to address the gap.
The following table shows the total length of road reconstructions planned and completed in
each of the previous years of WIP funding (2018 — 2020):
2018 (WIP year 1) 5,800
5,858
2019 5,900
5,828
20j 20 5,990
5,608
Total 17.690
17.294
As demonstrated by the table, the City has been slightly under pace with the planned
replacements over the initial 3 years of the WIP program. Further, the original forecasted
length planned for 2021 was 6,090 metres however the capital program is being
recommended to hold at 2020 funding levels which would realize approximately 5,544
metres of WIP replacements. This will represent a cumulative deficit of 942 meters
compared to the original replacement forecast by the end of the fourth year of the WIP
program. Attachment B illustrates the infrastructure gap and the planned replacement
schedule to address the gap by 2044.
The 5 -year WIP program rates endorsed by Council in 2017 represented the longest horizon
(by 2044) to close the funding gap for linear capital replacements (also representing the
highest risk option). Other proposed options saw the gap closed by either 2032 or 2037,
but also included higher rate increases. Given the City has already chosen the lowest
proposed rate increase option with a higher level of risk, staff would recommend against
additional rate reductions which could further impact utility infrastructure/services.
2) Reduction to Water/Santiary
As noted earlier in this report and in the 2021 Operating Budget content, staff are proposing
to hold Water and Sanitary rates flat at 2020 levels (i.e. 0% increase). In order to have a no
combined rate increase (including Stormwater), either Water or Sanitary would need to have
a rate decrease from their 2020 levels. Staff have calculated the impact on these utilities
and modeled the impact over the 5 -year forecasts. To have no increase overall in the WIP
utilities would require a decrease of either 2.5% to the Water rate, or a decrease of 2.0% to
the Sanitary Sewer rate.
The impact to the Water utility is so significant it cannot even be considered. A rate reduction
of 2.5% in 2021 results in deficits in across all years of the forecast and a stabilization
reserve that is below its Council approved minimum value and approaching a negative
balance.
The impact to the Sanitary utility is also significant and is demonstrated in Attachments C &
D of this report. A rate reduction to Sanitary results in deficits of $511,000 in 2021 and
$400,000 in 2022 before returning to a surplus position in 2023. It also completely eliminates
the balance in the Sanitary Capital reserve meaning there is no funding available for projects
that were to come in over budget, or for unexpected projects that may emerge as part of the
Sanitary Master Plan scheduled for 2021.
In addition to the items mentioned already, staff strongly recommend against a rate
decrease in 2021 to either Water or Sanitary for the following reasons:
• Council is responsible to ensure the physical and financial quality of our Water & Sanitary
systems. The Ministry of Environment's 2016-2017 Inspection Report recommended that
the City of Kitchener provide more resources to allow proactive work to the distribution
system. Flattening the rate increase at 2020 levels and pushing off reconstruction
projects that replace some of the worst condition WIP utilities infrastructure in the city
may result in increased reactive response (e.g., more watermain breaks). Therefore,
further reductions would put these utilities and infrastructure at increasingly more risk.
• A rate decrease in 2021 for either Water or Sanitary will lead to higher rate increases in
future years. Reducing rates beyond their existing 2020 levels will require catching up
at some point in the future, meaning higher than normal rates in those years.
• Each of the WIP utilities is a stand-alone business and surplus funds from one utility
cannot be used to offset deficits in another. Reducing the rates in either Water and/or
Sanitary below their 2020 levels would have a similar effect as transferring funds from
one of those utilities to the Stormwater utility.
• While the Water and Sanitary utilities have strong balances in their stabilization reserves,
these businesses are very susceptible to uncontrollable wet weather. Water and
Sanitary revenues fluctuate significantly based on how wet/dry the weather is and 2020
was a dry year. The dry weather resulted in high levels of outdoor water use which
translates into high revenues and improved stabilization reserve balances.
• Any excess funds from Water or Sanitary stabilization reserves are transferred to their
corresponding capital reserve. Capital is a large driver of Kitchener's Water and Sanitary
rates, so having more money available in capital reserves will help offset future rate
impacts for unexpected projects.
• A 0% increase for both Water & Sanitary is a consistent approach being used across the
region in 2020. Cambridge has already passed a 0% increase for these utilities, and
both the City and Region of Waterloo are proposing to hold their Water & Sanitary rates
at 2020 levels. The City of Waterloo is also planning to have an increase to their
Stormwater rate in excess of what is proposed by the City of Kitchener.
STRATEGIC PLAN ALIGNMENT:
This report supports the delivery of core services.
FINANCIAL IMPLICATIONS:
The total annual impact of the proposed rate changes is $11 (or 0.9%) as noted in the table
below.
Impact on Homeowner
Water
$451
$451
$0
Sanitary
$568
$568
$0
Stormwater
$186
$197
$11
TOTAL
$1,205
$1,216
$11
Assumptions:
• Water & Sanitary: water consumption of 175m3 annually
• Stormwater: Residential Single Detached Medium
COMMUNITY ENGAGEMENT:
INFORM — This report has been posted to the City's website with the agenda in advance of
the council / committee meeting.
PREVIOUS REPORTS/AUTHORITIES:
• FIN -20-066 2021 Operating Budget
APPROVED BY: Jonathan Lautenbach, Chief Financial Officer, Financial Services
ATTACHMENTS:
Attachment A — 2021 Water Utilities Rates
Attachment B — WIP Projection from 2017 Staff Report (INS -17-070)
Attachment C — Sanitary Sewer 5 -Year Budget Projection
Attachment D - Sanitary Sewer 5 -Year Budget Projection with 2% Rate Reduction
Attachment A - 2021 Water Utilities Rates
The minimum charge for water and sanitary sewer is calculated as 1/10 m3 per day
The flat rate sewer charge for properties not connected to the municipal water system is based on
the average annual residential consumption of 175 m3 at the current approved sanitary sewer rate
and is billed monthly
Sanitary (per cubic metre)
$
3.1546
$
3.1546
Water (per cubic metre)
$
2.5045
$
2.5045
Stormwater (monthly charge)
Residential Single Detached Small
$
9.26
$
9.8277
Residential Single Detached Medium
$
15.46
$
16.39
$
0.93
6.00%
Residential Single Detached Large
$
20.32
$
21.54
$
1.22
6.00%
Residential Townhouse/Semi-Detached
$
11.04
$
11.70
$
0.66
6.00%
Residential Condominium
$
6.15
$
6.52
$
0.37
6.00%
Multi -Residential duplex
$
12.37
$
13.11
$
0.74
6.00%
Multi -Residential triplex
$
18.59
$
19.71
$
1.12
6.00%
Multi -Residential four-plex
$
24.72
$
26.20
$
1.48
6.00%
Multi -Residential five-plex
$
30.93
$
32.79
$
1.86
6.00%
Multi -Residential (>5 units)
$
3.10
$
3.29
$
0.19
6.00%
Non -Residential Smallest
$
29.57
$
31.34
$
1.77
6.00%
Non -Residential Small
$
79.07
$
83.81
$
4.74
6.00%
Non -Residential Medium -Low
$
207.17
$
219.60
$
12.43
6.00%
Non -Residential Medium -High
$
604.75
$
641.04
$
36.29
6.00%
Non -Residential Large
$ 1,465.70
$ 1,553.64
$
87.94
6.00%
Non -Residential Largest
$ 3,146.54
$ 3,335.33
$
188.79
6.00%
The minimum charge for water and sanitary sewer is calculated as 1/10 m3 per day
The flat rate sewer charge for properties not connected to the municipal water system is based on
the average annual residential consumption of 175 m3 at the current approved sanitary sewer rate
and is billed monthly
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Attachment C - Sanitary Sewer 5 -Year Budget Projection
1000,0 Budget Projected Budget Budget Budget Budget Budget
2020 2OZ0 21121 2022 2023 Z024 2025
REVENUE AND EXPENSES
Sealer Surcharge
castofsewage Processing
Gross Profit
GR055 PROFIT%
MISCELLANEOUS REVENUE
Other Revenue
EXPENSES
Administration
COQVI❑ costs
Maintenance
Sewage Rebates
Transfertocapltal (Road Reconstruction)
Transferto capital (13ther)
59,338 61,537 59338 52,010 555,058 68,062 71,409
32,873 32,505 3'x933 33,889 35,356 37,054 38,852
26,465 29,032 ZEg405 3.8, 121 29,702 30,996 32,557
45% 47% 44% 4;1% 45% 45% 45%
1,013
1,491
3. 332
1,.295
1,352
1,411
1,453
2,499
2,454
4524
3,5.68
2,512
2,664
2720
(2,038]
255
C)wrall Enterprise Result
5,097
4,486
%Cas
5,238
5,450
5,670
5,399
824
824
851
851
889
929
363
15,412
15,412
1%412
15,353
17,350
18,4(M
19,531
3.574
3,574
3,153
3,082
2,660
2,710
3,034
27,406
Z7,U06
21x985.
3$,091
33,951
30,381
3.2,207
Net Revenue (EM pen5e]
72
3517
TIM
1,325
21093
202B
1,813
` Transfer (to)jfrom 5tabll lEatlon Reserve
(72j
(3,517)
(702)
(1,325)
(2,.093)
(2,038]
(1,813]
C)wrall Enterprise Result
STAB 1LIZATI DN RESERVE FUN
Op en l ng Balance
7,171
7,171
9.231
8,901
9,301
9,759
10,209
,Add:Transfer (to)/from Enterprise
72
3,517
702
1,.325
2,093
2,028
1,813
Add: Interest revenue(expanse)
184
132
170
164
171
180
188
Less= Transferto capital reserve
-
(1,589)
(1„20Z]
(1,089)
(1,806)
(1,758)
(1,499+
ClOsl rg Balar
7¢427
9231
$901
9301
9,759
1021019
10,711
Minimum Benchmark[10%.Ft.I revenud
5,-936
G,154
5,934
6.201
GSGG
0,81M
7,141
Max i mu m Bench rry rk[15%el Pate l revenuo}
8,901
9,231
8,901
9,302
9,759
10,209
10,711
CAPITAL RESERVE FUND
Dpen l ng Balance
1,995
1,995
%730
1,141
2537
3,528
5,358
Add= Excess from stab l l Ratio n reserve
-
1,589
1.ZDZ
],089
1,806
1,756
1,499
Less: Transfer to capital
(81910
(857)
(Z, 310)
(555)
-
-
-
Add:lRte rest revenue(ex pense)
15
23
(1]
12
35
72
110
C 1051 ng B a l a noe
3217[1
2750
1.141.
1.687
3-528
5358
5.967
Minimum Benchmark 150%avSbalanceln2Gyrfere Q
11,707
11,707
11,679
11,679
11,679
12.G79
11,679
Maximum l7mehrrurk[150%a.$6alanm in l0 yr fora -ase}
35,120
35,120
35.036
35,036
-ISA36
35,036
35A36
%Increasei n Rena i l Saver Raee
330%
0.00%
4.50%
450%
3.70%
4.08%
%.Increase i n ReB on Wholealc Ra oo
350%
❑.m%
2.90%
3.90%
390%
3.90%
% Ii n Cons umpeion
232%.
000%
0.00%
CAG%
0B9%
0.88%.
Attachment D - Sanitary Sewer 5 -Year Budget Projection with 2% Rate Reduction
,cac':I
R EVEN LIE AND EXPEN5E5
.5 k rSur[ha rge
Cast of S -g, Praressing
rxra Proftt
aRO55 PROFIT%
M ISC ELLAN EO115 REVENUE
other Revenue
Eft P ENSE5
AdminfoTatlan
COV I6 CCsts
Ma ht--.
Sewage Rebates
Transferto capital [Road Fec tr tlDnp
Transfer to caplt3l [(ltlrer[
Net Revenue{Expense)
•Trac fmr[k]yfmm5tablla3tk1n Resertre
Budget PrDjetted Budget Budget Budget Budget Budget
2924 2020 2021 2O22 2023 2424 2925
59338 51537 58,151 56,758 53,756 55,700 59,478
32,813 32 -WS 32933 33,889 35358 37,661 3$852
26AGS 251632 25:.18 26,879 28A03 29.535 3L,125
45% 47% 43% 44% 45% 44% 44%
L013 1A91 1.267 U60 1315 1372 1,423
2A99
2,451
21`35
2-W
2,524
2.677
2,T34
2-%
7,171
7,171
9,231
8,723
8A84
5"7
4,486
5.035
5.36
5,456
5,676
5,1,99
824
824
95L
834
872
911
445
L5Al2
L5AL2
LSA12
15352
17356
EBA68
19531
35T4
3,574
3,163
3531.
2,6613
2,710
3.095
27AC6
27.006
26996
28539
28956
30376
32,20.3
72
3.517
On)
(4VO]
759
632
346
M7
(3517[
511
460
[759[
{632[
[346)
10A97
CAPITALPLESEFIVE FUND
STABILIZATION RESERVE FUN0
Dpening63l rre
7,171
7,171
9,231
8,723
8A84
9399
10,005
• Add: Tr3mfer(m)/fmm Erlterpd�
72
3,517
[511)
(406)
759
632
346
Add: Interest
184
132
176
161
156
173
184
Less: TM rifer m capita I la'serve
-
[151}
[167�
-
-
[lggj
130
Cbsbrg Balance
7A27
g.31
8.723
aA84
g399
10.005
1OA97
Mlnlmum Bealchmark(10.9 aflot3 >:a1 I
5,934
8,154
5,815
5'77
5,375
5,570
8998
Maximum Benchmark(li%oftota.'alaglal
8941
9,231
8,733
4,115
9SB3
10,005
10A97
CAPITALPLESEFIVE FUND
Opening Sala,
1995
1995
2,750
10.6
-
-
199
Add: Exressframstablll7atinnr25a
-
1589
167
-
-
199
3S
L255: Trafeert0c3plt3l
19-13
[857}
(}_SIA)
110Bf
-
-
-
Add:Interest revenue[experae[
LS
23
[1[
4
Clesing 6aiaxe
1200
2,750
106
199
24L
Minimum Be4chmafk{30% avgbalanceln l0yrfmrecast}
11,707
11,701
11,679
11,679
111819
11,679
11,679
Max§m um Benchmark{1511%avghaiance 3n lay,f[a -t]
35,120
35,120
35,036
35,036
351036
35,036
35,836
%rnaeaseln Retail Sewer Pate
390%
-2130%
A30%
430.9
3.79%
4130.9
%Po-. ini I.. Who-lesale Pate
39a%
0130%
290%
390%
399%
390%
% In eease I n Canso mytIon
232%
QAQ%
0413%
0A0%
0.88%
098%