Town of Drayton Valley

Transcription

1 Town of Drayton Valley Water and Sewer Rate Review: Public Presentation March 13 th, 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 2

3 Introduction 3

4 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 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 over 40 Alberta municipalities. Grande Prairie Grande Cache MD of Peace Peace River Edson Drayton Valley MD of Big Lakes Lac La Biche County Cold Lake Wetaskiwin Sylvan Lake Rocky Mountain House Calgary Vermilion Lloydminster Camrose Camrose County Lacombe Drumheller Chestermere Redcliff Medicine Hat Spruce Grove Parkland County Devon Leduc County Morinville St. Albert Calmar Vermilion River County Edmonton Legend: Sturgeon County Leduc Fort Saskatchewan Strathcona County Beaumont Offsite Levy Rates & Policies Lamont County Annexation Strategies & Financial Impacts Financial Viability Assessment Planning & Development User Fees Water & Sanitary Utility Rates & Strategies 4

5 2016 Water Rates 5

6 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 $1.71 per cubic meter consumed by the customer ($ $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

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

8 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. $4,000,000 $3,500,000 $3,000,000 $2,500,000 Utility (Full Cost) Recoveries vs. Existing Recoveries Utility (Full Year Cost) Revenue Requirement ,416, ,157, ,382, ,452, ,456, ,479, ,467, ,730, ,798, ,810,143 Existing Revenues / Rates Existing Shortfall $ $ 2,269,272 $ (1,147,497) $ $ 2,314,658 $ (842,805) $ $ 2,360,951 $ (1,021,637) $ $ 2,408,170 $ (1,044,334) $ $ 2,456,333 $ (1,000,422) $ $ 2,505,460 $ (973,562) $ $ 2,555,569 $ (912,331) $ $ 2,606,681 $ (1,123,426) $ $ 2,658,814 $ (1,140,088) $ $ 2,711,991 $ (1,098,152) Total $ 35,152,154 $ 24,847,899 $ (10,304,255) $2,000, Based On Utilty (Full Cost) Rates Based On Existing Rates Solution: Gradually increase water rates to meet utility requirements. 8

9 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 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) $ ($369.00) 6 Water Line (150mm) $ $15.25 ($ ) 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

10 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 Solution: Establish differential standby charges that reflect differential standby benefits. 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 10

11 Water Rate Changes 11

12 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. 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 $

13 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 $ $ $ $ $ $ $ $ $ $ /4" 19mm $ $ $ $ $ $ $ $ $ $ /4"+ 20mm $ $ $ $ $ $ $ $ $ $ " 25mm $ $ $ $ $ $ $ $ $ $ " 37mm $ $ $ $ $ $ $ $ $ $ " 38mm $ $ $ $ $ $ $ $ $ $ " 50mm $ $ $ $ $ $ $ $ $ $ " 75mm $ $ $ $ $ $ $ $ $ $ " 100mm $ $ $ $ $ $ $ $ $ $ " 150mm $ 1, $ 1, $ 1, $ 1, $ 1, $ 1, $ 1, $ 1, $ 1, $ 1, Subsidy 70% 5/8" 15mm $ /4" 19mm $ /4"+ 20mm $ " 25mm $ " 37mm $ " 38mm $ " 50mm $ " 75mm $ " 100mm $ " 150mm $

14 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 Service Size Admin Capacity Total Fixed Charge Charge Charge 5/8" 15mm $ 4.55 $ $ /4" 19mm $ 4.55 $ $ /4"+ 20mm $ 4.55 $ $ " 25mm $ 4.55 $ $ " 37mm $ 4.55 $ $ " 38mm $ 4.55 $ $ " 50mm $ 4.55 $ $ " 75mm $ 4.55 $ $ " 100mm $ 4.55 $ $ " 150mm $ 4.55 $ $

15 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. $4,000,000 Proposed Rate Strategy and Recoveries $3,500,000 $3,000,000 $2,500,000 $2,000,000 Based On Utilty (Full Cost) Rates Based On Proposed Rates Based On Existing Rates 15

16 Updated Water Rate Strategy: Customer Impacts (incl subsidy) Small Non-Residential (1 1/2" Service) (~70 Customers) Consumption Level m Service Type - 38mm/1 1/2" Existing Year 1 Customer Billing Charge $ - $ 4.55 Capacity Charge $ $ Consumption Charge $ 1.71 $ 1.80 Total Monthly Billing $ $ Change from Existing Billing $ - $ Subsidy Amount $ Average Residential Consumption (~2850 Customers) Consumption Level m Service Type - 15mm/5/8" Existing 2016 Year 1 Customer Billing Charge $ - $ 4.55 Capacity Charge $ $ Consumption Charge $ 1.71 $ 1.80 Total Monthly Billing $ $ Change from Existing Billing $ - $ 5.76 Medium Non-Residential (2" Service) (~45 Customers) Consumption Level m Service Type - 50mm/2" Existing Year 1 Customer Billing Charge $ - $ 4.55 Capacity Charge $ $ Consumption Charge $ 1.71 $ 1.80 Total Monthly Billing $ $ Change from Existing Billing $ - $ Subsidy Amount $ Large Non-Residential (4" Service) (1 Customer) Consumption Level m Service Type - 100mm/4" Existing Year 1 Customer Billing Charge $ - $ 4.55 Capacity Charge $ $ Consumption Charge $ 1.71 $ 1.80 Total Monthly Billing $ 4, $ 4, Change from Existing Billing $ - $ Subsidy Amount $

17 2016 Sewer Rates 17

18 2016 Sewer Rates 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. 18

19 Sewer Rate Issues Commodity Charge $1.40/m3 Fixed (Standby) Charge Admin/Billing Charge + + = Utility Bill $15.25/mo $0/mo Average Residential Customer (13.4m 3 ) $ $ $0.00 = $34.01 Sustainable Recovery X X n/a Fairness n/a n/a 19

20 Recovery Issue 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. $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 Utility (Full Cost) Recoveries vs. Existing Recoveries 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) $1,500,000 Based On Utility (Full Cost) Rates Based On Existing Rates Solution: Gradually increase sewer rates to meet utility requirements. 20

21 Fixed Charge Issue All customers pay the same capacity charge (standby charge) even though there is no standby requirement. Solution: Remove fixed charge. 21

22 Updated Sewer Rate Strategy: Commodity Charge The Town s current sewer commodity charge is $1.40 per cubic meter of 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 of 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. 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 $

23 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. $4,000,000 Proposed Rate Strategy and Recoveries $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 Based On Utility (Full Cost) Rates Based On Existing Rates Based On Proposed Rates 23

24 Updated Sewer Rate Strategy: Customer Impacts Small Business (1 1/2" Service) (~70 Customers) Consumption Level m Service Type - 38mm/1 1/2" Existing Year Fixed Charge $ $ - Consumption Charge $ 1.40 $ 2.05 Total Monthly Billing $ $ Change from Existing Billing $ - $ Average Residential Consumption (~2850 Customers) Consumption Level m Service Type - 15mm/5/8" Existing Year Fixed Charge $ $ - Consumption Charge $ 1.40 $ 2.05 Total Monthly Billing $ $ Change from Existing Billing $ - $ (6.54) Medium Business (2" Service) (~45 Customers) Consumption Level m Service Type - 50mm/2" Existing Year Fixed Charge $ $ - Consumption Charge $ 1.40 $ 2.05 Total Monthly Billing $ $ Change from Existing Billing $ - $ Large Business (4" Service) (1 Customer) Consumption Level m Service Type - 100mm/4" Existing Year Fixed Charge $ $ - Consumption Charge $ 1.40 $ 2.05 Total Monthly Billing $ 3, $ 5, Change from Existing Billing $ - $ 1,

25 Conclusion & Q&A 25

26 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. 26

27 Q&A. 27

28 Thank-you CORVUS Business Advisors