Sault Ste. Marie Ratepayers Association Meeting of February 27, 2013
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1 Sault Ste. Marie Ratepayers Association Meeting of February 27, 2013
2 PUC Structure 1917 to 2000 Corporation of the City of Sault Ste. Marie (the City) City Council (Mayor & 12 Councillors) Public Utilities Commission of the Corporation of the City of Sault Ste. Marie (the P.U.C.) Publicly Elected Commission (6 Ward Commissioners) All Staff Employed by the P.U.C. Sault Ste. Marie Drinking Water System (owned by the P.U.C.) Sault Ste. Marie Electric Distribution System (owned by the P.U.C.) February 27,
3 Electricity Competition Act 1998 Province legislation passed to privatize Ontario Hydro and all municipal electric utilities (i.e. incorporate under the OBCA) City had only two choices: 1. Sell the electric utility; or 2. Keep the electric utility. If kept, then had to choose: 1) For profit; or 2) Not for profit City chose to keep PUC electric utility and operate for profit Profit is regulated by OEB as Rate of Return on Assets February 27,
4 Water Utility Structure 2001 to Current Corporation of the City of Sault Ste. Marie City Council (Mayor & 12 Councillors) Public Utilities Commission of the Corporation of the City of Sault Ste. Marie 3 Commissioners Appointed by Council PUC Services Inc. Board of Directors (9) Appointed by Council ~ 175 Employees Sault Ste. Marie Drinking Water System (owned by the P.U.C.) February 27,
5 Electric Utility Structure 2001 to Current Corporation of the City of Sault Ste. Marie City Council (Mayor & 12 Councillors) PUC Inc. Board of Directors (9) Appointed by Council PUC Distribution Inc. Board of Directors (3) Appointed by Council PUC Services Inc. Board of Directors (9) Appointed by Council ~ 175 Employees Sault Ste. Marie Electric Distribution System (owned by PUC Distribution Inc.) February 27,
6 PUC Operations (before new building) C.J. Murphy Centre Second Line E. includes integrated service garage, vehicle parking garage, and limited office space and inventory/equipment storage space Nicholas Trbovich Centre 550 Second Line E. includes Engineering, work shops and vehicle storage area Queen Street Building 765 Queen Street E. administration offices, including Finance, Billing, Customer Service, IT, HR and Marketing. 175 total employees at September 1, 2011 February 27,
7 PUC Services Staffing Murphy Centre Line Department 30 Water Distribution Department 18 Stations, Metering & Fleet Department 17 Purchasing & Stores Department 4 Safety & Environment Department 6 General Office 3 Total 78 Trbovich Centre - Engineering Department 15 Environmental Operations 15 Water Treatment Operations 21 SSM 2 Blind River February 27,
8 PUC Services Staffing Queen Street Building Customer Service 12 Billing 7 Accounting & Collections 12 Marketing & Customer Communications 6 Information Technology 3 Human Resources 2 C.E.O. Office 2 Total 44 Students 14 Anticipated hires in future as required Total Company 175 February 27,
9 What does PUC do? Sault Ste. Marie Operations: (operate, maintain, construct, manage) Municipal water supply and distribution for Sault Ste. Marie & Rankin Reserve Municipal electricity distribution for Sault Ste. Marie, Rankin Reserve, Prince Township, Dennis Township (Red Rock area) Municipal wastewater treatment plants and major sewage pumping stations External to Sault Ste. Marie : (contracted services) Operate several municipal water & wastewater plants Provide regulatory water sampling services for the two school boards across Algoma District Manage operations and provide Customer Service/Billing services for Espanola Regional Hydro Annual revenue from external contracts: ~ $2 million February 27,
10 PUC Services External Service Contracts February 27,
11 What government bodies regulate PUC s activities? Electric Activities: OEB (Ontario Energy Board) approves/sets rates and charges OPA (Ontario Power Authority) administers conservation programs IESO (Independent Electricity System Operator) controls the grid Measurement Canada (electric metering) Ministry Finance Ministry of Energy ESA (Electrical Safety Authority) MOL (Ministry of Labour) MOE (Ministry of Environment) MTO (Ministry of Transportation Ontario) February 27,
12 What government bodies regulate PUC s activities? Water Activities: MOE (Ministry of Environment) APH (Algoma Public Health) Environment Canada MOL (Ministry of Labour) MTO (Ministry of Transportation Ontario) MNR (Ministry of Natural Resources) February 27,
13 Why did PUC need a new building? PUC had outgrown the existing buildings which required major renovations at a very high cost Long-term costs to build and operate a new facility were lower than renovating and operating the three existing locations PUC will continue to add staff to continue systematic growing of capital works to address infrastructure renewal New integrated facility will provide foundation for next 50 years of PUC efforts to provide best service possible to our customers February 27,
14 Cost Savings Comparison: New Building vs. Keep Existing Buildings Cost to build new rather than renovate existing facilities $1.1 million less (after sale of properties) Energy savings $108,000/yr ---- PV* $1.4 million (25 yrs) Operational savings $102,000/yr --- PV* $1.3 million (25 yrs) Total operational savings $2.6 million over 25 years Total overall savings $3.7 million over 25 years New facility was the best choice from savings perspective * PV stands for Present Value - a generally accepted financial analysis method to assess the value today of future costs or savings February 27,
15 Why not use the $23.5 million (cost of new building) to replace aging infrastructure? PUC did not have $23.5 million to put into the infrastructure and borrowed the money for the new building from Infrastructure Ontario at very low interest rates (this building qualifies for such borrowing) PUC Distribution owns the building and is regulated by OEB PUC requires OEB approval to spend $23.5 million on infrastructure and OEB would evaluate the need based on outage performance PUC reliability indices are in line with provincial average therefore OEB would not approve the expenditure for infrastructure as there is no demonstrated need February 27,
16 Why not use the $23.5 million (cost of new building) to reduce outages? Most outages are not due to failure of aged infrastructure Five year study of outages shows: 40 percent due to equipment failure second largest contributor trees on lines weather makes up most of the rest of outages 50 percent of equipment failure outages were due to defective equipment while the other 50 percent were due to aged infrastructure Average electrical outage in 2010 was 45 minutes Eliminating all outages related to aged infrastructure would cost $200 million and would reduce the average outage by 9 minutes. February 27,
17 Why did PUC make changes to our drinking water? SSM s drinking water is and always has been safe to consume Water has always met all provincial regulatory standards, except one lead in some homes with lead pipes. MOE introduced new regulations to limit lead at the kitchen tap and PUC had to comply with two choices: add more chemicals to control lead leaching from service pipes and household plumbing OR use less chemicals stop using ammonia (switch to free chlorine) PUC chose less chemicals February 27,
18 Water Quality Survey done November What has the public survey found? initial response indicated only 50% were satisfied with the quality of the current drinking water once customers understood the reason for the change in the disinfection process, 65% said the water is acceptable once told of the benefits of the new process, 84% indicated the current quality is acceptable seven in ten residents oppose adding chemicals to the water to improve taste and odour no guarantee that adding chemicals would make the water taste and smell exactly as it did before the change February 27,
19 Water Quality Survey done November What has the public survey found? PUC is committed to continual improvement to address residual dissatisfaction February 27,
20 Why did PUC change the drinking water? Next Steps Spring continue data collection and corrosion study to assess impact of free chlorine in reducing lead leaching continue residential sampling Next Steps: implement public communications/information program analyze all data once corrosion testing is concluded identify alternatives to determine preferred option develop action plan to implement preferred option update Council in Fall 2013 February 27,
21 Why did PUC change the drinking water? Closing Comments PUC had to make changes to satisfy provincial regulations and those regulations do not allow us to go back to the way it was PUC is providing safe drinking water in the most cost effective manner possible Testing confirms ongoing regulatory compliance PUC recognizes there are taste and odour concerns and is committed to continuous improvement February 27,
22 Why did PUC make the donation to Algoma U? PUC s mandate is to support local economy and grow the business to create more value for the shareholder, the City of Sault Ste. Marie. PUC as good corporate citizen supports local institutions and charities that support the local economy including Sault Area Hospital. Algoma U and Sault College are economic growth engines in SSM and as these institutions grow, so does PUC revenue, so does PUC value to the shareholder, so does value to the citizens of Sault Ste. Marie. February 27,
23 Donations Local donations made by PUC are funded by profits from external contracts. PUC earns about $2 million per year from service contracts outside its SSM operations (e.g. Blind River, Echo Bay, Espanola) PUC donations support local institutions including Sault Area Hospital and charities Balance of profits from external contracts go back to the shareholder, the City of Sault Ste. Marie February 27,
24 Why are my water rates going up so much each year? over 450 kilometers of watermains supply water to over 25,800 residential and commercial customers most watermains were installed between 1950 through 1980 and the average life span of a water main is 50 to 80 years PUC will have to spend between $8 and $10 million per year over the next 30 years to replace these watermains PUC currently spends about $4 million per year to replace watermains water rates have to increase over the next ten years in order to replace the watermain infrastructure to meet the future water needs of our city February 27,
25 Why are my water rates going up so much each year? Sault Ste. Marie Water Supply - Financial Plan required under provincial regulations - submitted to the Ministry of Municipal Affairs on February 21, 2012 February 27,
26 Why are my water rates going up so much each year? Note: all cities listed have higher water rates than Sault Ste. Marie February 27,
27 AMO Study: Towards Full Cost Recovery for Municipal Water and Wastewater Services: A Guide for Municipal Councils, Watson & Associates / Dillon Consulting - December 2012 February 27,
28 Infrastructure Renewal Watermain Age Distribution 25 Watermain Age Distribution (in-service pipe as of 2009) 20 Length (km) PVC started in 1992 DI used 1967 to 1991 CI used up to 1969 Total Construction Reconstructed Year Installed February 27,
29 Watermain Replacement Forecast 70 years Estimated Service Life (all pipe) 25 Watermain Replace Date (70 years ESL for all pipe) 20 CI replaced by DI Length (km) Replace Year Cost to replace water mains ~ $1million per km (in conjunction with complete road reconstruction) February 27,
30 Watermain Replacement Forecast Estimated Service Life CI 50 years & DI 35 years 30 Watermain Replace Date (ESL of 50 years for Cast Iron; 35 yrs for DI) 25 Length (km) Ductile Iron Cast Iron Replace Year Cost to replace water mains ~ $1million per km (in conjunction with complete road reconstruction) February 27,
31 2011 Provincial Comparison Combined Annual Water & Sewage Bill Data published by BMA Management Consultants February 27,
32 2010 Provincial Comparison Combined Annual Water & Sewage Bill Data published by BMA Management Consultants February 27,
33 Summary PUC is owned by the city of Sault Ste. Marie and operated similar to a private company, including selling services to other municipalities. Donations to support community initiatives in education and health are funded from revenue from external contracts Water rates need to increase to replace aging watermains and ensure a continuous supply of water Changes were made to the water system to comply with provincial regulations to deal with lead in residential pipes SSM has always had safe reliable supply of drinking water New PUC building was necessary to avoid costly renovations to existing buildings, consolidate operations, and realize long term operational cost savings February 27,
34 Thank You Questions? February 27,
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