Town of Drayton Valley Water and Sewer Rate Review: Public - PowerPoint PPT Presentation

Town of Drayton Valley Water and Sewer Rate Review: Public Presentation March 13 th , 2017

Agenda Introduction Water Current Water Rates & Issues  Updated Rate Strategy  Customer Impacts  Sewer Current Sewer Rates & Issues  Updated Rate Strategy  Customer Impacts  Conclusion Q&A 2

Introduction 3

CORVUS Background CORVUS was created in 2003 by three former partners of TkMC (now Sierra Systems). Prior to TkMC our partners were with Ernst & Young and KPMG We are best known for our specialty financial services and rate Morinville Lamont County Sturgeon County design (e.g., offsite Fort Saskatchewan St. Albert levies, water and Spruce Grove Strathcona County sanitary rates, Edmonton annexation financial Parkland County MD of Peace Devon Beaumont plans, recreation Calmar Peace River Leduc contribution rates, full Leduc County cost municipal planning MD of Big Lakes Grande Prairie and development fees Lac La Biche County Cold Lake and charges, etc.) Grande Cache CORVUS rate models Vermilion River County Edson Vermilion Lloydminster Drayton Valley are now in place in Camrose Wetaskiwin Camrose County Legend: over 40 Alberta Sylvan Lake Rocky Mountain House Lacombe Offsite Levy Rates & Policies municipalities. Annexation Strategies & Financial Impacts Drumheller Chestermere Calgary Financial Viability Assessment Planning & Development User Fees Redcliff Medicine Hat Water & Sanitary Utility Rates & Strategies 4

2016 Water Rates 5

2016 Water Rates Commodity Charge Represents the cost of finished water provided to the customer associated with  average (non-peak) demand. The Town’s commodity charge was $1.71 per cubic meter consumed by the  customer ($1.60 + $0.11 sustainability charge). Fixed Charge Capacity Charge   Represents the infrastructure costs (standby costs) that are associated with providing a customer with their peak water requirements.  Capacity charges are determined by the size of water service entering customer’s premises.  The Town’s fixed charge was $15.25 per month . However, this charge is applied uniformly to all customers regardless of service size. Admin / Billing Charge   Represents the cost to create, send and collect a water customer utility bill (i.e., admin) and administer utility accounts.  The Town does not have a separate billing charge. 6

Water Rate Issues Commodity Fixed (Standby) Admin/Billing Charge Charge Charge + + = Utility Bill $1.71/m3 $15.25/mo $0/mo Average Residential $22.91 + $15.25 + $0.00 = $38.16 Customer (13.4m 3 ) Sustainable X X X Recovery √ X √ Fairness 7

Recovery Issue Existing water rates are not sufficient to recover funds needed to meet utility requirements. Should the Town continue with current rates, a deficit of ~$10.30 million would result. This shortfall represents a ~$5.3 million burden on tax payers and ~$5.0 million shortfall in utility investments for future infrastructure. Utility (Full Cost) Recoveries vs. Utility (Full Existing Cost) Existing Year Revenues / Revenue Shortfall Rates Existing Recoveries Requirement 2016 $ 3,416,769 $ 2,269,272 $ (1,147,497) 2017 $ 3,157,463 $ 2,314,658 $ (842,805) 2018 $ 3,382,588 $ 2,360,951 $ (1,021,637) $4,000,000 2019 $ 3,452,504 $ 2,408,170 $ (1,044,334) 2020 $ 3,456,755 $ 2,456,333 $ (1,000,422) 2021 $ 3,479,022 $ 2,505,460 $ (973,562) $3,500,000 2022 $ 3,467,901 $ 2,555,569 $ (912,331) 2023 $ 3,730,107 $ 2,606,681 $ (1,123,426) 2024 $ 3,798,903 $ 2,658,814 $ (1,140,088) $3,000,000 2025 $ 3,810,143 $ 2,711,991 $ (1,098,152) Total $ 35,152,154 $ 24,847,899 $ (10,304,255) $2,500,000 $2,000,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Based On Utilty (Full Cost) Rates Based On Existing Rates Solution : Gradually increase water rates to meet utility requirements. 8

Fixed Charge Equity Issue All customers pay the same capacity charge (standby charge) even though their standby requirements are much different. Customer Service Size Cost of Current Utility Service Rate Gain/(Loss) 5/8” Water Line (15mm) $15.37 $15.25 ($0.12) 3/4” Water Line (19mm) $24.66 $15.25 ($9.41) 1 1/4” Water Line (37mm) $3.52 $15.25 ($78.27) 3” Water Line (75mm) $384.25 15.25 ($369.00) 6” Water Line (150mm) $1537.00 $15.25 ($1512.00) Though both small and large customers are not paying for the full cost of providing standby service, this disparity is amplified significantly the larger the customer service. Of the water utility’s estimated 3,074 customers, 2,886 (94%) are smaller service customers (15mm and 19mm) who are paying, in part, to make up for a significant revenue shortfall stemming from larger service customers. 9

Fixed Charge Equity Issue Customers that have large standby requirements (commercial/industrial/institutional customers) are being cross-subsidized by small (residential) customers. Standby costs not paid med / large customers $15.25 paid by med / large customers Small / residential customers Service Size 5/8" 15mm 3/4" 19mm Solution : Establish differential standby charges — that 3/4"+ 20mm 1" 25mm 1.25" 37mm reflect differential standby benefits. 1.5" 38mm 2" 50mm 3" 75mm 4" 100mm 10 6" 150mm

Water Rate Changes 11

Updated Water Rate Strategy: Commodity Charge The Town’s 2016 commodity charge was $1.71 per cubic meter. The updated rate strategy includes modifying the commodity charge to $1.80 per cubic meter in Year 1 (inclusive of any sustainability component), and gradually increases by $0.05 per year until reaching $2.20 per cubic meter. Commodity Year Charge Per m3 Year 1 $ 1.80 Year 2 $ 1.85 Year 3 $ 1.95 Year 4 $ 2.00 Year 5 $ 2.05 Year 6 $ 2.10 Year 7 $ 2.15 Year 8 $ 2.20 Year 9 $ 2.20 Year 10 $ 2.20 12

Updated Water Rate Strategy: Capacity Charge The Town’s current fixed charge is $15.25 per month regardless of services size. To rectify this cross-subsidization the updated rate strategy includes a capacity charge of $15.25 per month for 5/8” (15mm) service in Year 1, increasing by $0.10 in most years to $16.05 in Year 10. Other service sizes are calibrated based upon the base rate. It is recognized that the updated capacity rates represent a significant increase for large water customers. Accordingly, the Town is implementing a subsidization program which would reduce capacity charges for water customers (>20mm) as shown in the table below. The subsidy starts at 70% in Year 1, with no subsidized charge lower than the charge for 20mm. Fixed Charge By Service Size Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 5/8" 15mm $ 15.25 $ 15.35 $ 15.45 $ 15.55 $ 15.65 $ 15.75 $ 15.85 $ 15.95 $ 16.05 $ 16.05 3/4" 19mm $ 24.47 $ 24.63 $ 24.79 $ 24.95 $ 25.11 $ 25.27 $ 25.43 $ 25.59 $ 25.75 $ 25.75 3/4"+ 20mm $ 27.11 $ 27.29 $ 27.47 $ 27.64 $ 27.82 $ 28.00 $ 28.18 $ 28.36 $ 28.53 $ 28.53 1" 25mm $ 42.36 $ 42.64 $ 42.92 $ 43.19 $ 43.47 $ 43.75 $ 44.03 $ 44.31 $ 44.58 $ 44.58 1.25" 37mm $ 92.79 $ 93.40 $ 94.00 $ 94.61 $ 95.22 $ 95.83 $ 96.44 $ 97.05 $ 97.66 $ 97.66 1.5" 38mm $ 97.87 $ 98.51 $ 99.15 $ 99.80 $ 100.44 $ 101.08 $ 101.72 $ 102.36 $ 103.01 $ 103.01 2" 50mm $ 169.44 $ 170.56 $ 171.67 $ 172.78 $ 173.89 $ 175.00 $ 176.11 $ 177.22 $ 178.33 $ 178.33 3" 75mm $ 381.25 $ 383.75 $ 386.25 $ 388.75 $ 391.25 $ 393.75 $ 396.25 $ 398.75 $ 401.25 $ 401.25 4" 100mm $ 677.78 $ 682.22 $ 686.67 $ 691.11 $ 695.56 $ 700.00 $ 704.44 $ 708.89 $ 713.33 $ 713.33 6" 150mm $ 1,525.00 $ 1,535.00 $ 1,545.00 $ 1,555.00 $ 1,565.00 $ 1,575.00 $ 1,585.00 $ 1,595.00 $ 1,605.00 $ 1,605.00 Subsidy 70% 5/8" 15mm $ 15.25 3/4" 19mm $ 24.47 3/4"+ 20mm $ 27.11 1" 25mm $ 27.11 1.25" 37mm $ 27.84 1.5" 38mm $ 29.36 2" 50mm $ 50.83 3" 75mm $ 114.38 4" 100mm $ 203.33 6" 150mm $ 457.50 13

Updated Water Rate Strategy: Customer Admin/Billing Charge The Town currently does not have a customer admin/billing charge. The cost of producing a utility bill and administering utility accounts in the Town is ~$4.55 per month and is estimated to increase to ~$5.00 per month by Year 10. The updated rate strategy includes the addition of a customer admin/billing charge to the total fixed charge of $4.55 monthly, instituted in Year 1 and increasing by $0.05 each year. Total Fixed Charge – Year 1 Admin Capacity Total Fixed Service Size Charge Charge Charge 5/8" 15mm $ 4.55 $ 15.25 $ 19.80 3/4" 19mm $ 4.55 $ 24.47 $ 29.02 3/4"+ 20mm $ 4.55 $ 27.11 $ 31.66 1" 25mm $ 4.55 $ 27.11 $ 31.66 1.25" 37mm $ 4.55 $ 27.84 $ 32.39 1.5" 38mm $ 4.55 $ 29.36 $ 33.91 2" 50mm $ 4.55 $ 50.83 $ 55.38 3" 75mm $ 4.55 $ 114.38 $ 118.93 4" 100mm $ 4.55 $ 203.33 $ 207.88 6" 150mm $ 4.55 $ 457.50 $ 462.05 14