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 13th, 2017

2

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

3

Introduction

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

4

We are best known for

• ur specialty financial

services and rate design (e.g., offsite levies, water and sanitary rates, annexation financial plans, recreation contribution rates, full cost municipal planning and development fees and charges, etc.) CORVUS rate models are now in place in

• ver 40 Alberta

municipalities.

Camrose County Lacombe Sylvan Lake Rocky Mountain House Chestermere Drayton Valley Lloydminster Wetaskiwin Fort Saskatchewan Devon Sturgeon County Lamont County Strathcona County

Legend: Offsite Levy Rates & Policies Annexation Strategies & Financial Impacts Planning & Development User Fees Water & Sanitary Utility Rates & Strategies

Peace River Grande Prairie Grande Cache Edson Camrose Calgary Medicine Hat Redcliff MD of Big Lakes Lac La Biche County Cold Lake

Financial Viability Assessment

Vermilion River County Vermilion Leduc County Leduc Calmar Parkland County Beaumont Morinville

• St. Albert

Edmonton Spruce Grove MD of Peace Drumheller

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2016 Water Rates

2016 Water Rates

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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.

Water Rate Issues

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Commodity Charge $1.71/m3 Fixed (Standby) Charge $15.25/mo Admin/Billing Charge $0/mo

+ + =

Utility Bill Sustainable Recovery Fairness

X √ X X X √ $22.91 $0.00 $15.25 $38.16

Average Residential Customer (13.4m3)

+ + =

Recovery Issue

8 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.

Year Utility (Full Cost) Revenue Requirement Existing Revenues / Rates Existing Shortfall 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) $ 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) $ 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) $ 2025 3,810,143 $ 2,711,991 $ (1,098,152) $ Total 35,152,154 $ 24,847,899 $ (10,304,255) $

$2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Utility (Full Cost) Recoveries vs. Existing Recoveries

Based On Utilty (Full Cost) Rates Based On Existing Rates

Solution: Gradually increase water rates to meet utility requirements.

Fixed Charge Equity Issue

9

All customers pay the same capacity charge (standby charge) even though their standby requirements are much different. 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.

Customer Service Size Cost of Service Current Rate Utility 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)

Fixed Charge Equity Issue

10 Customers that have large standby requirements (commercial/industrial/institutional customers) are being cross-subsidized by small (residential) customers.

Solution: Establish differential standby charges—that reflect differential standby benefits.

$15.25 paid by med / large customers Standby costs not paid med / large customers Small / residential customers

Service Size 5/8" 15mm 3/4" 19mm 3/4"+ 20mm 1" 25mm 1.25" 37mm 1.5" 38mm 2" 50mm 3" 75mm 4" 100mm 6" 150mm

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Water Rate Changes

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.

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Year Commodity 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 $

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. 13

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 $

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.

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Admin Charge Capacity Charge Total Fixed 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 $ Service Size

Total Fixed Charge – Year 1

Updated Water Rate Strategy:

New Revenue Recoveries

The updated rate strategy eliminates tax burdens immediately in Year 1, and gradually achieves full cost requirements by Year 10.

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$2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Proposed Rate Strategy and Recoveries

Based On Utilty (Full Cost) Rates Based On Existing Rates Based On Proposed Rates

Small Non-Residential (1 1/2" Service) Consumption Level m3 50 50 Service Type - 38mm/1 1/2" Existing Year 1 Customer Billing Charge

• $

4.55 $ Capacity Charge 15.25 $ 29.36 $ Consumption Charge 1.71 $ 1.80 $ Total Monthly Billing 100.75 $ 123.91 $ Change from Existing Billing

• $

23.16 $ Subsidy Amount 68.51 $ Medium Non-Residential (2" Service) Consumption Level m3 200 200 Service Type - 50mm/2" Existing Year 1 Customer Billing Charge

• $

4.55 $ Capacity Charge 15.25 $ 50.83 $ Consumption Charge 1.71 $ 1.80 $ Total Monthly Billing 357.25 $ 415.38 $ Change from Existing Billing

• $

58.13 $ Subsidy Amount 118.61 $ Large Non-Residential (4" Service) Consumption Level m3 2500 2500 Service Type - 100mm/4" Existing Year 1 Customer Billing Charge

• $

4.55 $ Capacity Charge 15.25 $ 203.33 $ Consumption Charge 1.71 $ 1.80 $ Total Monthly Billing 4,290.25 $ 4,707.88 $ Change from Existing Billing

• $

417.63 $ Subsidy Amount 474.44 $

Updated Water Rate Strategy:

Customer Impacts (incl subsidy)

16 Average Residential Consumption

Consumption Level m3 13.4 13.4 Service Type - 15mm/5/8" Existing 2016 Customer Billing Charge

• $

4.55 $ Capacity Charge 15.25 $ 15.25 $ Consumption Charge 1.71 $ 1.80 $ Total Monthly Billing 38.16 $ 43.92 $ Change from Existing Billing

• $

5.76 $

(~70 Customers) (~45 Customers) (1 Customer) (~2850 Customers)

Year 1

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2016 Sewer Rates

2016 Sewer Rates

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Commodity Charge



Represents the cost of treating sewage, storage and transmission.



The Town’s commodity charge was $1.40 per cubic meter of water consumed by the customer. Capacity Charge



The Town’s fixed charge was $15.25 per month (the same as water).



Modern rate setting has eliminated the capacity charge because a customer’s sewer capacity is not determined by the size of water service entering the customer’s premises. Admin/Billing Charge



Represents the cost to create, send and collect a sewer customer utility bill (i.e., admin) and administer utility accounts.



The Town does not have a separate billing charge.

Sewer Rate Issues

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Commodity Charge $1.40/m3 Fixed (Standby) Charge $15.25/mo Admin/Billing Charge $0/mo

+ + =

Utility Bill Sustainable Recovery Fairness

X √ X n/a n/a n/a $18.76 $0.00 $15.25 $34.01

Average Residential Customer (13.4m3)

+ + =

$1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Utility (Full Cost) Recoveries vs. Existing Recoveries

Based On Utility (Full Cost) Rates Based On Existing Rates

Recovery Issue

20 Existing sewer rates are not sufficient to recover funds needed to meet utility requirements. Should the Town continue with current rates, a deficit of ~$7.7 million would result. This shortfall represents a ~$3.1 million burden on tax payers and ~$4.6 million shortfall in utility investments for future infrastructure.

Solution: Gradually increase sewer rates to meet utility requirements.

Year Utility (Full Cost) Revenue Requirement Existing Revenues / Rates Existing Shortfall 2016 2,060,590 $ 1,959,626 $ (100,964) $ 2017 2,324,876 $ 1,998,819 $ (326,058) $ 2018 2,523,397 $ 2,038,795 $ (484,602) $ 2019 2,583,338 $ 2,079,571 $ (503,767) $ 2020 2,589,295 $ 2,121,162 $ (468,132) $ 2021 3,001,044 $ 2,163,586 $ (837,458) $ 2022 3,214,982 $ 2,206,857 $ (1,008,124) $ 2023 3,585,035 $ 2,250,995 $ (1,334,040) $ 2024 3,667,105 $ 2,296,014 $ (1,371,091) $ 2025 3,655,789 $ 2,341,935 $ (1,313,854) $ Total 29,205,451 $ 21,457,361 $ (7,748,090) $

Fixed Charge Issue

21 All customers pay the same capacity charge (standby charge) even though there is no standby requirement.

Solution: Remove fixed charge.

Updated Sewer Rate Strategy:

Commodity Charge

The Town’s current sewer commodity charge is $1.40 per cubic meter

• f water consumed. However, when the average cost of the Town’s

current capacity charge is considered, the actual commodity charge is approximately $2.54 per cubic meter. The full cost as determined by the Town’s existing cost structure is $2.06 per cubic meter, increasing to $3.06 per cubic meter in Year 10

• f the planning period.

The updated rate strategy includes modifying the commodity charge to $2.05 per cubic meter in Year 1 and increasing gradually to $3.05 per cubic meter in Year 10.

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Year Commodity Charge Per m3 Year 1 2.05 $ Year 2 2.15 $ Year 3 2.25 $ Year 4 2.35 $ Year 5 2.45 $ Year 6 2.55 $ Year 7 2.65 $ Year 8 2.75 $ Year 9 2.90 $ Year 10 3.05 $

Updated Sewer Rate Strategy:

New Revenue Recoveries

The updated rate strategy meets cash requirements immediately in Year 1 of the planning period, and meets full cost requirements by Year 10.

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$1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Proposed Rate Strategy and Recoveries

Based On Utility (Full Cost) Rates Based On Existing Rates Based On Proposed Rates

Updated Sewer Rate Strategy:

Customer Impacts

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Average Residential Consumption

Consumption Level m3 13.4 13.4 Service Type - 15mm/5/8" Existing 2016 Fixed Charge 15.25 $

• $

Consumption Charge 1.40 $ 2.05 $ Total Monthly Billing 34.01 $ 27.47 $ Change from Existing Billing

• $

(6.54) $

Small Business (1 1/2" Service)

Consumption Level m3 50 50 Service Type - 38mm/1 1/2" Existing 2016 Fixed Charge 15.25 $

• $

Consumption Charge 1.40 $ 2.05 $ Total Monthly Billing 85.25 $ 102.50 $ Change from Existing Billing

• $

17.25 $

Medium Business (2" Service)

Consumption Level m3 200 200 Service Type - 50mm/2" Existing 2016 Fixed Charge 15.25 $

• $

Consumption Charge 1.40 $ 2.05 $ Total Monthly Billing 295.25 $ 410.00 $ Change from Existing Billing

• $

114.75 $ Large Business (4" Service) Consumption Level m3 2500 2500 Service Type - 100mm/4" Existing 2016 Fixed Charge 15.25 $

• $

Consumption Charge 1.40 $ 2.05 $ Total Monthly Billing 3,515.25 $ 5,125.00 $ Change from Existing Billing

• $

1,609.75 $ Year 1 Year 1 Year 1 Year 1 (~70 Customers) (~45 Customers) (1 Customer) (~2850 Customers)

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Conclusion & Q&A

Conclusion

For the average residential customer, the updated water and sewer rate strategy results in a monthly decrease of ~$0.80 per month. The updated rate strategy does result in significant increases for medium and large commercial/industrial/institutional customers, but this change stems from the significant cross-subsidization between small and large customers inherent in the Town’s existing rate structure. The updated rate strategy remedies this cross-subsidization. The updated rate strategy removes tax subsidies immediately, and achieves financial sustainability gradually over a 10-year period.

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Q&A….

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Thank-you

CORVUS Business Advisors 780-428-4110 gweiss@corvusbusinessadvisors.com