Water/Wastewater Rate Structure Review

Transcription

1 1 Water/Wastewater Rate Structure Review Interim Study Overview June 26, 2008

2 2 Presentation Overview: Process to Date Proposed Goals and Objectives Current Rate Structure Preliminary Analysis Conservation Initiatives Next Steps

3 3 Water/Wastewater Review Process Review Existing Rate Structure Develop a Preliminary Proposed Rate Structure Further Analysis & Incorporate Feedback Goals & Objectives Conduct Impact Analysis Finalize Report Review Rate Structure Options Prepare Draft Report Budget & Council Meeting & Consultation Fall 2008 Undertake Rate Study Public Consultation 2009 Water/Wastewater Rates Set Earliest that a change will be made

4 4 Proposed Goals/Objectives A variety of alternative rate structures can be used depending on the goals and objectives of the municipality The following are the proposed goals and objectives (Not Ranked): Fairness and Equity Full Cost Recovery Conservation & Water Efficiency Environmental Soundness & Sustainability Revenue Stability & Rate Predictability Affordability Seeking Assistance on the Customer Questionnaire in Prioritizing These Goals

5 5 Goals & Objectives, Striking the Right Balance Goals and objectives can be in conflict with one another. For example: Fairness and Equity would suggest that all costs that are fixed (costs that exist regardless of the volumes consumed) should be recovered through a fixed basic charge. This also supports the objective of Revenue Stability, however, moving a large portion of the costs to fixed would negatively impact Conservation objectives Conservation would suggest the use of an inclining rate structure (seasonal, year round or excess use) but this may negatively impact Affordability for large families and unless the premiums are tied to underlying costs, may lead to Fairness and Equity issues.

6 6 Goals & Objectives, Striking the Right Balance As stated by the Canadian Water Works Association (CWWA), there is and always will be a lot of variation in rate setting practices given that there is no single rate setting approach or rate structure Ultimately, the right balance needs to be struck to meet the priorities of the municipality

7 7 Existing Water Rate Structure Two Part-Rate Structure 1. Uniform Rate Structure Every m 3 of water consumed and sewer treated is charged the same rate, regardless of the amount used 2. Customer related basic charge About 15% of the budgeted costs are allocated to fixed Two-part rate structure is aligned with CWWA recommended approach Used by 72% of 80 Ontario municipalities surveyed

8 8 Fairness and Equity

9 9 General Findings of Existing Rate Structure From a technical perspective, the majority of the water/wastewater costs are fixed and do not vary based on volumes consumed While the City recognizes this, to support conservation initiatives, the City has allocated about 15% of the total costs to be recovered from fixed This percentage has been in place for a number of years and as part of the review process, an analysis was undertaken to determine whether this continues to be the best approach in light of all the goals and objectives Currently, the cost of billing, reading, customer service and meter repair which are directly related to the number of customers served are not fully recovered from the basic daily charge To improve fairness and equity.

10 10 Preliminary Recommendations Continue with two-part rate structure To improve Fairness and Equity everyone should pay their fair share of the following costs: Billing Reading Collection Meter replacement These costs exist, regardless of the water consumed, and therefore all customers should contribute To ensure conservation efforts are supported, do not include other fixed costs such as: Reserve contributions Capital improvements Debt servicing costs Q: Is this the right balance between Fairness and Equity and Conservation??

11 11 Conservation Analysis

12 12 Effectiveness of Guelph s Conservation Initiatives Before considering a conservation rate structure, it is important to understand the current situation: Consumption trends Winter/summer average monthly consumption Maximum day factor Average residential consumption compared to other municipalities Specific program outcomes

13 Total Billable Consumption (m 3 ) Guelph s total billable consumption has declined significantly over the past several years due in part to the success of the City s programs Reductions have been experienced in Residential and the ICI 17,400,000 17,200,000 17,000,000 16,800,000 16,600,000 16,400,000 16,200,000 16,000,000 15,800,000 15,600,000 15,400,000 15,200,000 Introduced Water Restrictions 7.8% decrease Actual Consumption 2001 Consumption Adjusted for Pop. Growth

14 14 Winter Versus Summer Average Pumpage Winter Average m 3 Summer Average m 3 % difference ,593,620 1,631, % ,632,813 1,750, % ,589,788 1,686, % ,562,469 1,593, % ,530,730 1,606, % ,551,994 1,676, % ,528,519 1,611, % 7 year average 5.2% Low differential between the summer and winter average suggests the City s conservation efforts are effective Years with the biggest winter/summer differences tends to be when summer precipitation was low (2001, 2005) The watering restrictions help to keep peaks low even in dry summers

15 15 Maximum Day Factor City s Water Supply Master Plan The maximum day factor - ratio of peak day use to average day use Guelph MOE guideline Guelph s low maximum day factor can be credited to the success of its water efficiency programs, i.e. public education, Outdoor Water Use by-law, etc.

16 16 Average Consumption Many factors impact average consumption including but not limited to: Weather conditions, temperatures, precipitation Income levels and demographics Size of the properties and housing stock Household size Conservation initiatives watering restrictions, rebate programs, education Rate structure inclining and how it is structured Cost of water/sewer services Focus of the analysis was to determine in general terms: How does Guelph s average Residential consumption compare, in general, to other municipalities? How does Guelph s average Residential consumption compare to municipalities with conservation rate structures (are municipalities with conservation structures achieving lower consumptions than Guelph)?

17 Average Consumption Study completed in 2005 by Earthtech identified Guelph as having a lower average residential consumption among the best 28 in Canada Consumptions have continued to decline Below average consumption in relation to municipalities with similar rate structure to Guelph (Uniform) Comparison Guelph m 3 (most recent data indicates that Guelph is at the lower end of the range) Waterloo 256 m 3 Richmond Hill 325 m 3 St. Catharines 348 m 3 Markham 365 m 3 Vaughan 430 m 3 17

18 18 Comparison to Conservation Rate Structure Municipality Resid. Annual m 33 W/S Cost 2008 for 250 m 3 % increase on first threshold Res/Non Res? Comments Sault St. Marie 235 $ % Both Kingston 240 $ % Res only. ICI declining Humpback to assist large users. Continue to have high summer peak demand. Incomes and weather may also be factors in low consumption. Water only Guelph Barrie 250 $ % Both 100% premium on water and 70% on sewer London 250 $ 655 5% Res only. ICI declining Water only - under review Windsor 294 $ % Both Excess Use Charge Owen Sound 300 $ 740 2% Both Water and sewer Halton 325 $ % Both Humpback to assist larger users. Water only. Average 271 $ 639 Guelph $ 562 Guelph s average consumption is lower than municipalities that have implemented a conservation rate structure Is it likely that further reductions would be achieved? Is it fair and equitable to charge large premiums to achieve further reductions? What is the impact on large families?

19 19 Is a Conservation Rate Structure the Next Step? To be effective, research has shown that in a conservation rate structure: Premiums need to be significant due to the limited impact that price has on water demand Sault Ste. Marie (179%) Barrie (100%) High premiums pose a challenge in terms of Affordability e.g. large families with low incomes Should be applied to water and wastewater but there are public acceptance issues

20 Guelph Annual Consumption Statistics 35% Quantity of customers 30% 25% Residential Non-Residential 20% 15% 10% 5% 0% < 100m3/yr m3/yr m3/yr m3/yr m3/yr > 500 m3/yr

21 21 Current Conservation Resources Watering Use Regulations Since 2001, strictly enforced multi-level Outside Water Use Program Toilet Rebate Program City s program allows homeowners to replace up to two high water use toilets with new low-flush models and receive a rebate of $40-$60 Approximately 5,300 homeowners have taken advantage of this program over the past 5 years. Toilet retrofits can reduce household water consumption by 15-20% ICI Capacity Buyback Program The City provides detailed water audit and efficiency retrofit incentives to large IC&I water users Water Conservation is a Priority in City of Guelph

22 22 Current Conservation Strategies Low Unaccounted for Water The City s unaccounted for water (lost water plus unmetered water such as water used for firefighting, etc.) is low Plans to further reduce over the next 5 years Education and Awareness City regularly releases information about water conservation including public workshops, bill inserts, website resources, school programs and newspaper and radio ads. Public education is estimated to reduce consumption by 2%-5% Metering Properties Virtually all properties in the City are metered. Metering is proven to reduce end-use consumption by 15-20% Effective programs are in place in the City of Guelph

23 23 Summary of Findings Consumption reductions have been experienced since 2001 estimated at 8% Low differential in winter and summer average monthly consumption indicates significant success in existing water restriction programs Low peak day demand Low average residential consumption compared to other municipalities even compared to municipalities with conservation rate structures Declining ICI consumption over the past several years Success on City programs and initiatives - toilet program, water restrictions, education, low unaccounted for water

24 24 Conservation Rate Alternatives Three most common types of conservation rate structures Inclining Seasonal Excess Use

25 25 Conservation Rate Alternatives Inclining Rate Structure The rates in an inclining rate structure increase as consumption increases through predetermined thresholds or blocks Example (2 block rate structure) $1.5 m m 3 per month $1.9 $1.5 $1.9 m 3 greater than 20 m 3 per month 20 m 3

26 26 Conservation Rate Alternatives Seasonal Rate Structure Similar to inclining rate except this is only for summer months when usage is higher. Can be by using a threshold or applying a summer surcharge for all consumption. Example (2 block rate structure May to September) $1.50 m 3 Summer surcharge additional $.40 m 3 for consumption greater than 20 m 3 per month Example Charge a summer surcharge of $0.10 m 3 on all consumption

27 27 Conservation Rate Alternatives Excess Use Rate Structure The customer pays a higher rate for consumption in the summer that exceeds their winter average use This encourages conservation, is fair and equitable since it takes into consideration differences in family sizes However, this is the most administratively challenging because a separate winter average needs to be calculated for every customer to determine how much of the summer consumption should be charged at the higher rate Many variables which will impact the cost and cannot be readily tracked E.g. property sells, residents are away for the winter, kids move away, etc.

28 Assessing the 3 Alternatives Goals/Objectives Inclining Rate Structure Seasonal Rate Structure Excess Use Rate Structure Conservation Year round conservation Summer only Summer only Fairness and Equity Difficult to justify the premiums Affordability Presents affordability issues for large low income families Less affordability issues compared with year round program as this only targets usage in the peak demand months (summer) Least impact on affordability as it compares winter to summer use Revenue Stability, Rate Predictability Increase revenue instability compared to uniform rate Revenue instability but to a lesser extent than inclining Revenue instability but to a lesser extent than inclining Environmental Soundness Promotes year round conservation Promotes a reduction in peak usage Full Cost Recovery Comments Yes but costs may increase as a result of a potential need to move to additional read/bill cycles Most administratively complex and costly to maintain database 28

29 Other Considerations Consumption may decrease, but due to the significant portion of fixed costs, expenditures will not reduce proportionately Lower consumption upon which to generate revenues results in rate increases for everyone Current Residential reading/billing cycle is every two months Monthly is preferred for fairness and equity as the month that a meter is read impacts the amount charged Also monthly is preferred to inform customer and provide an opportunity to modify behaviour on a timely basis Increase in cost to move to monthly reading/billing is estimated to be significant. Also potential one-time costs to reprogram billing system Decisions: # of blocks Rationalize where the threshold will be set? Rationalize % of premium? Will it apply to all properties or just Residential? Water and Sewer? 29

30 30 Conservation Rate Structure One Illustration The following provides one illustration of an inclining rate structure. Assumptions: 2 Block Rate Structure threshold at 20 m 3 Inclining rate set at 25% Applies to Water and Sewer Applies to Residential properties only 10% of the Residential consumption is greater than 20 m 3 (estimate only) Reduction in Residential annual consumption of 4% (used to calculate the rates) No increase in fixed basic charge Assumes no change in read/bill cycle (therefore no additional costs) Annual Consumption Current Revised Inclining $ Difference 150 $ 394 $ 389 ($4) 240 $ 547 $ 540 ($7) 250 $ 564 $ 561 ($3) 300 $ 649 $ 666 $ $ 955 $ 1,046 $91

31 31 Conservation Rate Structure One Illustration The following provides one illustration of an inclining rate structure. Assumptions: 2 Block Rate Structure threshold at 20 m 3 Inclining rate set at 25% Applies to Water and Sewer Applies to Residential properties only 10% of the Residential consumption is greater than 20 m 3 (estimate only) Reduction in Residential annual consumption of 4% (used to calculate the rates) No increase in fixed basic charge Assumes change in read/bill cycle (estimate $500,000 additional costs) Annual Consumption Current Revised Inclining $ Difference 150 $ 394 $ 395 $ $ 547 $ 548 $ $ 564 $ 570 $ $ 649 $ 678 $ $ 955 $ 1,066 $ 111

32 32 Conservation Rate Structure Considerations Extensive conservation initiatives already in place achieving the same or better results than municipalities with conservation rate structures Declining average consumptions, amongst the lowest surveyed Low peak day demand and seasonal demand With low average consumptions already in place there appears to be very limited room for additional consumption reductions and at what cost How much more reduction can be achieved (discretionary consumption)?

33 33 Conservation Rate Structure Considerations Water demand is not significantly influenced by price Affordability issues for large families Significant additional cost potential to move to monthly billing Would the benefit outweigh the cost? Majority of the system costs do not relate to peak demand. As such, a large premium cannot be justified Fairness and equity?

34 34 Preliminary Recommendation As a minimum, continue to utilize the conservation tools and strategies already in place and identify other nonrate related strategies to further promote conservation as part of the Conservation Strategy Update Further public consultation on conservation rate alternatives

35 35 Preliminary Recommendations Improves Fairness and Equity - Allocate customer related costs to be recovered from the daily charge is aligned to the actual cost incurred for each customer Maintains Full Cost Recovery Continue to fully recover costs from users Supports Conservation and Environmental Soundness - Continue with the successful conservation programs and initiatives already in place Limited/No Impact on Affordability -Since water/wastewater costs as % of household income are low, no further action is required. Continue to monitor Improves Revenue Stability Costs assigned to fixed are recovered regardless of volumes consumed, improving revenue stability

36 36 Next Steps Receive Feedback from the Public Questionnaires available today and on the City s website Room for comments on the back of the questionnaire as well as on the website Feedback from meeting Update Report Based on feedback from public and Council, run additional analysis and update report Budget and Council Meetings in the fall of 2008

37 37 Next Steps Phase Two Develop a 50 year model Stormwater Utility Review Finalize Rate Policies for Customers O/S Municipality

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