County of Prince Edward. Water and Wastewater Rate and Study and Connection Charges Update

Transcription

1 County of Prince Edward Water and Wastewater Rate and Study and Connection Charges Update December 16, 2015

2 Contents Page 1. Introduction Background Update Study Process Regulatory Changes in Ontario Sustainable Water and Sewage Systems Act Safe Drinking Water Act Financial Plans Regulation Water Opportunities Act Water and Wastewater Rate Calculation Methodology Forecast Growth and Service Demands Current Service Demands Forecast Service Demands Capital Infrastructure Needs Overview of Lifecycle Costing Asset Inventory Capital Forecast Capital Cost Financing Options Summary of Capital Cost Financing Alternatives Development Charges Act, Municipal Act Grant Funding Availability Existing Reserves/Reserve Funds Debenture Financing Recommended Approach Operating Expenditure Forecast Operating Expenditures Operating Revenues Municipal Act Connection Charge Calculation Connection Charge Methodology and Calculation Connection Charge Impacts Forecast Water and Wastewater Rates Introduction Water Rates Wastewater Rates Water and Wastewater Rates Annual Impacts Recommendations Appendix A Detailed Water Rate Calculations...A-1 Appendix B Detailed Wastewater Rate Calculations...B-1

3 Page Introduction 1.1 Background In 2008 the County of Prince Edward initiated a review of its water and wastewater services financial plans and fees/charges. In 2009 Council adopted 2010 interim uniform water and wastewater rates for all municipal serviced areas, with the exception of Rossmore/Fenwood and Consecon/Carrying Place. Moreover, interim connection charges for Picton and Wellington were also implemented. These interim fees and charges were adopted in response to annual water and wastewater rates not fully recovering the annual operating and capital expenditures of service, existing users funding the entire cost of development and the lack of a Council-approved rate model or capital forecast. At this time Council established the Water and Wastewater Connection Charge and Rates Ad Hoc Committee (Ad Hoc Committee). The Ad Hoc Committee consisted of a broad cross section of stakeholders, including municipal councillors, residential and general services rate payers and representatives from the development industry. The mandate of the Ad Hoc Committee was to review the imposition of uniform rates and connection charges across the County and to provide recommendations on a plan leading to system sustainability. The Ad Hoc Committee met 11 times during the period of October 2009 through June 2010, and ultimately provided recommendations to Council on the overall principles, water and wastewater financial plan and rate model assumptions, and water and wastewater connection charges and model assumptions. Table 1-1 summarizes these various recommendations.

4 Table 1-1 Summary of 2010 Water and Wastewater Connection Charge and Rates Ad Hoc Committee Recommendations Page 1-2 In 2010 Council adopted a financial plan to move toward full cost recovery uniform water and wastewater rates over a 4-year period (i.e ). Table 1-2 summarizes the water and wastewater rates adopted by Council, as well as the current rates adopted in 2015, for the respective municipal water and wastewater service areas.

5 Table Water and Wastewater Rates by Municipal Service Area Ameliasburgh, Bloomfield, Hallowell, Peat's Point, Picton & Wellington Annual Water Rates ($) Page Monthly Base Charge (by meter size) 5/8" /4" " /2" " " " " Multi-Tenant Customers - rate Multi-Tenant Customers - percentage 50% 57% 57% 57% 57% Consumptive Rate Constant Rate ($/m3) Annual Water Rates ($) Consecon/Carrying Place Monthly Base Charge (by meter size) 5/8" /4" " /2" " " " " Multi-Tenant Customers - rate Multi-Tenant Customers - percentage 50% 57% 57% 57% 57% Consumptive Rate Constant Rate ($/m3) Rossmore/Fenwood Annual Water Rates ($) Monthly Base Charge (by meter size) 5/8" /4" " /2" " " " " Multi-Tenant Customers - rate Multi-Tenant Customers - percentage 50% 57% 57% 57% 57% Consumptive Rate Constant Rate ($/m3)

6 Table 1-2 (cont d) Water and Wastewater Rates by Municipal Service Area Page 1-4 Council also adopted uniform connection charges to be imposed on new development and private service conversions within the municipal water and wastewater service area. Table 1-3 summarizes these residential and non-residential connection charges for the period. Table Water and Wastewater Connection Charges

7 Page Update Study Process (Watson) was retained by the County of Prince Edward to update the 2010 Water and Wastewater Rates and Connection Charges Study. This update study was prepared utilizing the same principles and recommendations of the 2010 Ad Hoc Committee (with revisions noted). The objectives of this study and the steps involved in carrying out this assignment are summarized below: Water and Wastewater Rate Study Update water and wastewater service demand assumptions based on analysis of historical consumption and recent trends; Estimate future consumption levels by applying revised demand assumptions to forecast growth identified in the County s D.C. Background Study; Develop a capital program consisting of lifecycle needs arising from the County s 20-Year Plan, Long Term Population, Housing and Employment Forecast and Capital Needs Assessment dated January 14, 2013, and asset inventory; Forecast annual operating costs and rate-based funding requirements; Assess adequacy of forecast water and wastewater rates within the County s bylaw in addressing long-term financial plan requirements; Provide an impact assessment on the rate payers; and Develop long-term water and wastewater rate forecast ( ). Water and Wastewater Connection Charges Update the County s current Connection Charges, which are imposed under the authority of the Municipal Act; Update the growth related capital costs arising from the Long Term Population, Housing and Employment Forecast and Capital Needs Assessment dated January 14, 2013 and specific needs identified by staff, as well as the replacement costs of major water and wastewater infrastructure based on the County s asset inventory; and Calculate the updated connection charges per residential dwelling type and nonresidential charges GFA based on the updated costs and County s D.C. Background Study growth forecast.

8 Page 1-6 In approaching this study, the following analysis in provided herein: Chapter 1 Introduction Chapter 2 Forecast Growth and Service Demands Chapter 3 Capital Infrastructure Needs Chapter 4 Capital Cost Financing Options Chapter 5 Operating Expenditure Forecast Chapter 6 Connection Charge Calculation Chapter 7 Forecast Water and Wastewater Rates 1.3 Regulatory Changes in Ontario Resulting from the water crisis in Walkerton, significant regulatory changes have been made in Ontario. These changes arose as a result of the Walkerton Commission and the 93 recommendations made by the Walkerton Inquiry Part II report. Areas of recommendation included: watershed management and source protection; quality management; preventative maintenance; research and development; new performance standards; sustainable asset management; and lifecycle costing. The following sections describe significant applicable regulatory areas. 1.4 Sustainable Water and Sewage Systems Act The Sustainable Water and Sewage Systems Act was passed on December 13, The intent of the Act was to introduce the requirement for municipalities to undertake an assessment of the full cost of providing their water and the wastewater services. In total, there were 40 areas within the Act to which the Minister may make Regulations, however regulations were never issued. On December 31, 2012, the Sustainable Water and Sewage Systems Act was repealed. 1.5 Safe Drinking Water Act The Safe Drinking Water Act was passed in December, The Safe Drinking Water Act provides for 50 of the 93 Walkerton Part II recommendations. It focuses on the

9 administrative and operational aspects of the provision of water. The Safe Drinking Water Act is being implemented in stages. The purpose of the Safe Drinking Water Act is to protect human health through the control and regulation of drinking-water systems and drinkingwater testing. Building on existing policy and practice in Ontario's treatment and distribution of drinking water, the Safe Drinking Water Act requires that all municipal drinking water systems obtain an approval from the Director of the Ministry of the Environment in order to operate. Operators are required to be trained and certified to provincial standards. The act also provides legally binding standards for testing of drinking water and requires that testing be done in licensed and accredited laboratories. 1 The following is a brief summary of the key elements included in the Safe Drinking Water Act: Mandatory licensing and accreditation of testing laboratories; New standards for treatment, distribution quality and testing; Mandatory operator training and certification; Mandatory licensing of municipal water providers; Stronger enforcement and compliance provisions; and Standard of care requirements for municipalities. Page 1-7 This legislation impacts the costs of operating a water system with the need for higher skilled operators including increased training costs, increased reporting protocols and requirements, continuing enhancements to quality standards and the costs to licence each water system. 1.6 Financial Plans Regulation On August 16, 2007, the Ministry of Environment introduced Ontario Regulation 453/07 which requires the preparation of financial plans for water systems (and municipalities are encouraged to prepare plans for wastewater systems). The Ministry of Environment has also provided a Financial Plan Guideline to assist municipalities with preparing the plans. A brief summary of the key elements of the regulation is provided below: The financial plan will represent one of the key elements to obtain a Drinking Water License. 1 The Ministry of Environment

10 Page 1-8 The plan is to be completed, approved by Council Resolution and submitted to the Ministry of Municipal Affairs and Housing as part of the application for receiving approval of a water license. The financial plans shall be for a period of at least six years but longer planning horizons are encouraged. As the regulation is under the Safe Drinking Water Act, the preparation of the plan is mandatory for water services and encouraged for wastewater services. The plan is considered a living document (i.e. can be updated if there are significant changes to budgets) but will need to be undertaken at a minimum every five years. The plans generally require the forecasting of capital, operating and reserve fund positions, and providing detailed capital inventories. In addition, Public Sector Accounting Board full accrual information on the system must be provided for each year of the forecast (i.e. total non-financial assets, tangible capital asset acquisitions, tangible capital asset construction, betterments, write-downs, disposals, total liabilities, net debt, etc.). The financial plans must be made available to the public (at no charge) upon request and be available on the municipality s web site. The availability of this information must also be advertised. In general, the financial principles of this regulation follow the intent of the Sustainable Water and Sewage Systems Act, 2002 to move municipalities towards financial sustainability for water services. However, many of the prescriptive requirements have been removed (e.g. preparation of two separate documents for provincial approval, auditor opinions, engineer certifications, etc.). A guideline ( Towards Financially Sustainable Drinking-Water and Wastewater Systems ) has been developed to assist municipalities in understanding the Province s direction and provides a detailed discussion on possible approaches to sustainability. The Province s Principles of Financially Sustainable Water and Wastewater Services are provided below: Principle #1: Principle #2: Ongoing public engagement and transparency can build support for, and confidence in, financial plans and the system(s) to which they relate. An integrated approach to planning among water, wastewater, and storm water systems is desirable given the inherent relationship among these services.

11 Page 1-9 Principle #3: Principle #4: Principle #5: Principle #6: Principle #7: Principle #8: Principle #9: Revenues collected for the provision of water and wastewater services should ultimately be used to meet the needs of those services. Lifecycle planning with mid-course corrections is preferable to planning over the short-term, or not planning at all. An asset management plan is a key input to the development of a financial plan. A sustainable level of revenue allows for reliable service that meets or exceeds environmental protection standards, while providing sufficient resources for future rehabilitation and replacement needs. Ensuring users pay for the services they are provided leads to equitable outcomes and can improve conservation. In general, metering and the use of rates can help ensure users pay for services received. Financial Plans are living documents that require continuous improvement. Comparing the accuracy of financial projections with actual results can lead to improved planning in the future. Financial plans benefit from the close collaboration of various groups, including engineers, accountants, auditors, utility staff, and municipal council. 1.7 Water Opportunities Act The Water Opportunities Act received Royal Assent on November 29, The Act provides for the following elements: Foster innovative water, wastewater and stormwater technologies, services and practices in the private and public sectors; Prepare water conservation plans to achieve water conservation targets established by the regulations; Prepare sustainability plans for municipal water services, municipal wastewater services and municipal stormwater services.

12 Page 1-10 With regard to the sustainability plans: The Bill extends from the water financial plan and requires a more detailed review of the water financial plan and requires a full plan for wastewater and stormwater services; Regulations (when issued) will provide performance targets for each service these targets may vary based on the jurisdiction of the regulated entity or the class of entity. The Financial Plan shall include: An asset management plan for the physical infrastructure; Financial Plan; For water, a water conservation plan; Assessment of risks that may interfere with the future delivery of the municipal service, including, if required by the regulations, the risks posed by climate change and a plan to deal with those risks; Strategies for maintaining and improving the municipal service, including strategies to ensure the municipal service can satisfy future demand, consider technologies, services and practices that promote the efficient use of water and reduce negative impacts on Ontario s water resources, and increase co-operation with other municipal service providers. Performance indicators will be established by service: May relate to the financing, operation or maintenance of a municipal service or to any other matter in respect of which information may be required to be included in a plan; May be different for different municipal service providers or for municipal services in different areas of the Province. Regulations will prescribe: Timing; Contents of the plans; Identifying what portions of the plan will require certification; Public consultation process; and Limitations, updates, refinements, etc.

13 Page Water and Wastewater Rate Calculation Methodology Figure 1-1 illustrates the general methodology used in determining the full cost recovery water and wastewater rate forecast. Figure 1-1 Water and Wastewater Rate Calculation Methodology Drivers: Legislation Local Issues Health & Safety Issues Technical Innovations Financing Options: Reserves/Reserve Funds Development Charges Municipal Act XII Debt Limit Grants Growth Forecast Capital Works Requirements Capital Budget Forecast Draws from Reserves/ Reserve Funds Operating Contribution to Capital Capital-Related Expenditures Reserves/ Reserve Funds Operating Budget Forecast Contributions to Reserves/ Reserve Funds User Count and Profile Consumption Forecast Rates Forecast The methodology employed generally consists of 5 major elements: 1. Customer Demands and Consumption Forecast As noted in Section 1.1, the County employs a rate structure consisting of a monthly base charge and a consumptive rate. The base charge is imposed based on water meter size with higher charges imposed on larger meters, generally reflective of higher capital infrastructure demands. The consumptive rate is imposed at a constant rate based on consumption. This first step in the analysis is important as it produces the current base revenue by source and assumptions for forecasting purposes. The base charge revenues are forecast with customer growth. The customer profile forecast is modeled

14 Page 1-12 based on the County s D.C. study growth forecast, by type, applying generally witnessed metered size assumptions by use. Moreover, the customer forecast is modelled for the water and wastewater systems independently to identify differences in service demands. The water consumption forecast is prepared by applying average annual consumption estimates to future development. The forecast may adjust the base consumption levels for anticipated water conservation based on historic trends and industry witnessed practices. Consumption estimates are based on average consumption levels by customer type drawn from municipal billing records over multiple years. The non-residential consumption estimates are generally adjusted to net out large consuming water customers that may skew anticipated consumption levels of future growth. Consistent with the customer forecast, the water consumption forecast used to determine the wastewater consumptive rates is adjusted to reflect differences in service demands. 2. Capital Needs Forecast The capital needs forecast is developed to measure program/service level adjustments, lifecycle requirements and growth-related needs. The County s 20- Year ( ) Water and Wastewater Capital Plan provided the base capital forecast with adjustments made by County staff for specific projects. Further adjustments were made to reflect works already complete and additional growthrelated projects identified by staff and growth related projects identified in the County s Long Term Population, Housing and Employment Forecast and Capital Needs Assessment, January 14, Capital expenditures are forecast with inflationary adjustments based on actual inflation over the previous 10 years, consistent with Ad Hoc Committee recommendations. 3. Capital Funding Plan The capital funding plan considers the potential funding sources available to address the capital needs forecast. The sources of capital funding include ratebased support, reserves/reserve funds, provincial/federal grants, connection charges and debt for program/service level improvements. Growth-related sources of funding include provincial/federal grants, connection charges/dcs and debt. The use of rate-based funding is measured against the revenue projections and affordability impacts. The reserve/reserve fund sources are measured against the sustainability of these funds, relative to lifecycle demands, revenue projections and affordability impacts. Debt financing is considered for

15 Page 1-13 significant capital expenditures, where funding is required beyond long-term lifecycle needs or to facilitate rate transition policies. Debt financing is measured in against the County s debt policies and annual repayment limits to ensure a practical and sustainable funding mix. 4. Operating Budget Forecast The operating budget forecast considers adjustments to the County s base budget reflecting program/service level changes, operating fund impacts associated with infrastructure and financing for capital needs. The operating expenditures are forecast with inflationary adjustments and growth in service demand, based on fixed and variable cost characteristics consistent with Ad Hoc Committee recommendations. The operating budget forecast ties the capital funding plan and reserve/reserve fund continuity forecast to the rate-based revenue projections. This ensures sufficient funding for both the ongoing annual operation and maintenance of water and wastewater services, as well as the capital cost requirements to ensure service sustainability. Operating revenues are projected to identify the base charge and consumptive rate components net of anticipated operating revenues, such as septage and holding tank disposal, taxation and other miscellaneous revenues. 5. Rate Forecast and Structure The rate forecast and structure component of the analysis considers various rate structures to recover the forecast rate-based revenue from the projected customer demands. The full costs of service are measured against the customer growth and consumption demands to determine full cost recovery rates. The analysis considered adjustments to the County s current rate structure for base charge and consumptive components of the rates, consistent with municipal policies/strategies, industry practice and customer affordability. Providing context to the rate forecast, the results are quantified to measure the impacts on a range of customer types and in relation to other municipalities.

16 Page Forecast Growth and Service Demands 2.1 Current Service Demands In preparing the demands forecast for water and wastewater services, the County provided a summary of the metered and multi-unit consumption for each system broken out by residential and general (non-residential) use. Furthermore, a customer summary was provided detailing the number of residential and general customers by meter size for each water and wastewater system. Table 2-1 provides a summary of the water and wastewater customers as of December 31, Table 2-1 Residential and General Service Water and Wastewater Customers Residential General Metered Water Wastewater Metered Water Wastewater ¾" 3,737 2,579 ¾" " 4 1 1" ½" ½" " - - 2" " - - 3" 1-4" - - 4" 2 1 Mulit Unit Mulit Unit Total 4,577 3,391 Total Compared with projections in the 2010 Rate Study, the 2014 water and wastewater customer projections were generally consistent. Water customer were projected to total 5,062 by 2014, with year-end actuals totalling 5,215. For wastewater customers, 2014 total customers were projected to be 3,788 compared with year-end actuals of 3, Forecast Service Demands Reviewing the 2010 Rate Study water consumption forecasts (i.e. service demands), the previous study assumed 3% annual water conservation based on historic trend analysis. On this basis, it was projected that average residential consumption in 2014 would be approximately 151 m 3 /customer/year and general service was based on 614 m 3 /customer/year. This resulted in an assumed overall consumption in 2014 of 1.02 million cubic meters for water and 0.78 million cubic meters for wastewater actual water consumption levels were considerably lower than forecast at 0.77 million cubic meters for water and 0.51 million cubic meters for wastewater. This implies average annual consumption levels per customer of 116 m 3 and 370 m 3, for residential and general service customers respectively. These average consumption levels are

17 Page 2-2 amongst the lowest average consumption levels witnessed in the Study prepared by Watson, reflecting significant water conservation. These historic average annual consumption levels by customer type were applied to the County s growth projections for the serviced areas to forecast future service demands. The growth forecast estimates are taken from the County s 2013 D.C. Study, completed by (Watson). In total, water system customers are anticipated to increase by 1,432 customers and wastewater system customers by 1,329 by This results in an increase from 5,215 customers currently to 6,647 for the water system and from 3,880 currently to 5,209 for the wastewater system. Table 2-3 provides the detailed growth forecast for the period. The consumption summary provided by County staff was applied to the customer profile above to determine the average annual consumption per customer for each system. Groups of large volume customers were then isolated and netted out to recognize that they may not be representative of a typical new general water/wastewater customer. The County intends to maintain its practice of charging uniform rates and as such average annual water consumption per customer was calculated for the County as a whole across all systems (Table 2-2). Wastewater billing is calculated using metered water flows, therefore average annual water consumption, presented in Table 2-2, is used for wastewater flows. Table 2-2 Average Annual Water Consumption per Customer Consumption (m 3 /customer) Residential Metered 124 Multi-Unit 78 General Metered 405 Multi-Unit 139 Applying these estimates to new customers, results in an estimated increase in total water consumption from approximately 767,000 m 3 currently to 967,000 m 3 by Total wastewater flows are anticipated to increase from approximately 513,000 m 3

18 Page 2-3 currently to 699,000 m 3 by Based on average annual water consumption levels seen elsewhere in the province, it is assumed that average consumption per customer will not decrease further but remain constant over the forecast period. Table 2-4 provides the detailed water consumption forecast for water and wastewater customer for the period.

19 Page 2-4 Table 2-3 County of Prince Edward Water and Wastewater Customer Forecast Water Residential Picton Wellington Bloomfield Rossmore Consecon/Carrying Place Ameliasburgh Total Growth Existing Customers 4,577 4,577 4,577 4,577 4,577 4,577 4,577 4,577 4,577 4,577 4,577 4,577 4,577 4,577 4,577 4,577 4,577 4,577 4,577 Total Residential 4,621 4,665 4,710 4,754 4,820 4,886 4,952 5,019 5,085 5,165 5,244 5,324 5,404 5,484 5,569 5,654 5,739 5,824 5,909 General Picton Wellington Bloomfield Rossmore Consecon/Carrying Place Ameliasburgh Total Growth Existing Customers Total General Total Customers 5,264 5,313 5,362 5,412 5,484 5,557 5,629 5,701 5,773 5,857 5,942 6,027 6,111 6,196 6,286 6,375 6,465 6,554 6,644 Wastewater Residential Picton Wellington Total Growth Existing Customers 3,391 3,391 3,391 3,391 3,391 3,391 3,391 3,391 3,391 3,391 3,391 3,391 3,391 3,391 3,391 3,391 3,391 3,391 3,391 Total Residential 3,432 3,472 3,513 3,553 3,613 3,673 3,732 3,792 3,851 3,926 4,000 4,074 4,148 4,222 4,302 4,382 4,462 4,542 4,622 General Picton Wellington Total Growth Existing Customers Total Residential Total Customers 3,925 3,971 4,016 4,062 4,128 4,194 4,259 4,325 4,389 4,468 4,547 4,626 4,705 4,784 4,868 4,953 5,037 5,121 5,206

20 Page 2-5 Water Consumption Forecast (m³) Table 2-4 County of Prince Edward Water Consumption by Water and Wastewater Customers Forecast Water Residential Existing 531, , , , , , , , , , , , , , , , , , ,222 New 5,309 10,618 15,927 21,236 29,178 37,119 45,061 53,003 60,945 70,476 80,006 89,537 99, , , , , , ,160 Total 536, , , , , , , , , , , , , , , , , , ,382 Water Consumption Forecast (m³) General Existing 235, , , , , , , , , , , , , , , , , , ,628 New 1,925 3,851 5,776 8,253 10,730 13,206 15,683 18,160 20,160 22,160 24,160 26,161 28,161 30,142 32,124 34,105 36,086 38,068 40,472 Total 237, , , , , , , , , , , , , , , , , , ,100 Total 774, , , , , , , , , , , , , , , , , , ,482 Wastewater Flows Forecast (m³) Wastewater Residential Existing 366, , , , , , , , , , , , , , , , , , ,263 New 4,862 9,723 14,585 19,446 26,568 33,689 40,811 47,932 55,054 63,888 72,723 81,558 90,392 99, , , , , ,682 Total 371, , , , , , , , , , , , , , , , , , ,944 Wastewater Flows Forecast (m³) General Existing 147, , , , , , , , , , , , , , , , , , ,110 New 1,897 3,795 5,692 8,113 10,533 12,954 15,375 17,796 19,730 21,665 23,600 25,534 27,469 29,385 31,301 33,217 35,133 37,049 39,390 Total 149, , , , , , , , , , , , , , , , , , ,500 Total 520, , , , , , , , , , , , , , , , , , ,444

21 Page Capital Infrastructure Needs 3.1 Overview of Lifecycle Costing Definition For many years, lifecycle costing has been used in the field of maintenance engineering and to evaluate the advantages of using alternative materials in construction or production design. The method has gained wider acceptance and use in the areas of industrial decision-making and the management of physical assets. By definition, lifecycle costs are all the costs which are incurred during the lifecycle of a physical asset, from the time its acquisition is first considered, to the time it is taken out of service for disposal or redeployment. The stages which the asset goes through in its lifecycle are specification, design, manufacture (or build), installation, commissioning, operation, maintenance and disposal. Figure 3-1 depicts these stages in a schematic form Financing Costs This section will focus on financing mechanisms in place to fund the costs incurred throughout the asset's life. In a municipal context, services are provided to benefit tax/rate payers. Acquisition of assets is normally timed in relation to direct needs within the community. At times, economies of scale or technical efficiencies will lead to oversizing an asset to accommodate future growth within the municipality. Over the past few decades, new financing techniques such as connection charges or D.C.s have been employed based on the underlying principle of having tax/rate payers who benefit directly from the service paying for that service. Operating costs which reflect the cost of the service for that year are charged directly to all existing tax/rate payers who have received the benefit. Operating costs are normally charged through the tax base or user rates. Capital expenditures are recouped through several methods, the most common being operating budget contributions, connection charges, D.C.s, reserves, developer contributions and debentures. New construction related to growth could produce connection charges, D.C.s and developer contributions (e.g. works internal to a subdivision which are the responsibility of the developer to construct) to fund a significant portion of projects, where new assets

22 are being acquired to allow growth within the municipality to continue. As well, debentures could be used to fund such works, with the debt charge carrying costs recouped from taxpayers in the future. Figure 3-1 Lifecycle Costing Page 3-2 Purchase Install Commission Operate Maintain Monitor Throughout Life of Assets To End of Useful Life Investment Costs Operating Costs Removal / Decommission Disposal Disposal Costs However, capital construction to replace existing infrastructure is largely not growthrelated and will therefore not yield D.C.s or developer contributions to assist in financing these works. Hence, a municipality will be dependent upon debentures, reserves and contributions from the operating budget to fund these works. Using connection charges as opposed to D.C.s as a cost recovery mechanism allows the costs of replacing existing infrastructure, in addition to growth related costs, to be included in the calculation of the charge thereby lessening the burden on existing rate payers. Connection charges will be discussed in greater detail in section 4.3., Figure 3-2 depicts the costs of an asset from its initial conception through to replacement and then continues to follow the associated costs through to the next replacement. As referred to earlier, growth-related financing methods such as connection charges, D.C.s and developer contributions could be utilized to finance the growth-related component of the new asset. These revenues are collected (indirectly) from the new homeowner who benefits directly from the installation of this asset. Other financing methods may be used as well to finance the non-growth related component of this project; reserves which have been collected from past tax/rate payers, operating budget

23 Page 3-3 contributions which are collected from existing tax/rate payers, connection charges collected from new development and debenturing which will be carried by future tax/rate payers. Ongoing costs for monitoring, operating and maintaining the asset will be charged annually to the existing tax/rate payer. When the asset requires replacement, the sources of financing will be limited to connection charges, reserves, debentures and contributions from the operating budget. At this point, the question is raised; "If the cost of replacement is to be assessed against the tax/rate payer who benefits from the replacement of the asset, should the past tax/rate payer pay for this cost or should future rate payers assume this cost?" If the position is taken that the past user has used up the asset, hence he should pay for the cost of replacement, then a charge should be assessed annually, through the life of the asset to have funds available to replace it when the time comes. If the position is taken that the future tax/rate payer should assume this cost, then debenturing and, possibly, a contribution from the operating budget should be used to fund this work. Figure 3-2 Financing Lifecycle Costs New Assets Financing Methods Replacement Assets Purchase Install Commission Development Charges (Growth) Reserves/Reserve Funds Debentures Taxation User Fees Grants Other Purchase Install Commission Operate Maintain Monitor (Throughout Life of Assets) (To End of Useful Life) Tax Supported Operating Budget User Fees Operating Budget Operate Maintain Monitor (Throughout Life of Assets) (To End of Useful Life) Removal / Decommission Disposal Proceeds on Disposal Funding of Disposal / Decommissioning Costs Removal / Decommission Disposal

24 Page 3-4 Charging for the cost of using up of an asset is the fundamental concept behind amortization methods utilized by the private sector. This concept allows for expending the asset as it is used up in the production process. The tracking of these costs forms part of the product's selling price and hence end users are charged for the asset's amortization. The same concept can be applied in a municipal setting to charge existing users for the asset's use and set those funds aside in a reserve to finance the cost of replacing the asset in the future Costing Methods There are two fundamental methods of calculating the cost of the usage of an asset and for the provision of the revenue required when the time comes to retire and replace it. The first method is the Amortization Method. This method recognizes the reduction in the value of the asset through wear and tear, and aging. There are two commonly used forms of amortization: the straight-line method and the reducing balance method. The straight line method is calculated by taking the original cost of the asset, subtracting its estimated salvage value (estimated value of the asset at the time it is disposed of) and dividing this by the estimated number of years of useful life. The reducing balance method is calculated by utilizing a fixed percentage rate and this rate is applied annually to the undepreciated balance of the asset value. Straight-line Amortization Original Cost Total Annual Contributions Equal Original Cost $x $x $x $x $x $x $x $x $x $x Formula: Original Cost Salvage Cost Number of Years of Useful Life The second method of lifecycle costing is the sinking fund method. This method first estimates the future value of the asset at the time of replacement. This is done by inflating the original cost of the asset at an assumed annual inflation rate. A calculation is then performed to determine annual contributions (equal or otherwise) which, when invested, will grow with interest to equal the future replacement cost.

25 Page 3-5 The preferred method used herein is the sinking fund method of lifecycle costing. 3.2 Asset Inventory Detailed water and wastewater capital asset inventory information was obtained from the County s asset inventory database. The information from the inventory was used to supplement the County s 20-year capital plan. Lifecycle sinking fund contribution amounts for each piece of infrastructure have also been included. These calculations determine the level of capital investment to be included in the full cost assessment and rate forecast. Table 3-1 summarizes the current asset replacement value, value of assets scheduled to be replaced between 2015 and 2033 based on acquisition date and useful life estimates and annual lifecycle replacement needs for assets scheduled for replacement post This rate study forecasts a gradual increase to reach the target inflated lifecycle contribution amounts by 2033.

26 Page 3-6 Table 3-1 County of Prince Edward Summary of Water and Wastewater Infrastructure (2015$) Lifecycle Capital Needs (Uninflated) Total Replacement Value Scheduled Asset Annual Lifecycle Replacement Needs (>2033) Replacement Total Water 108,223,823 28,530,628 1,931,831 Wastewater 63,980,583 23,463,728 1,112, Capital Forecast capital forecasts have been developed for the water and wastewater systems to address capital needs across all areas for the systems. The forecasts include projects from the County s 20-Year ( ) Capital Plan, the County s Long Term Population, Housing and Employment Forecast and Capital Needs Assessment, dated January 14, 2013, specific projects identified by staff and capital program provisions based on the County s asset inventory. The capital forecasts are summarized in Tables 3-2 and 3-3 for water and wastewater services respectively. These capital needs are forecast in constant uninflated dollars (i.e. 2015$). The water capital plan totals $67.2 million. $35.3 million of the capital needs are captured by the need to replace the Picton Water Treatment Plant and for Water Intake Improvements in In addition a provision for the replacement of watermains totalling $3.7 million has been added reflective of the 20-year capital plan, as the plan does not sufficiently addressing watermain replacements post Furthermore, $22.2 million of growth-related projects are included in the forecast, $10.6 million of which are related to the oversizing and replacement of existing infrastructure. For wastewater services, the capital plan totals $20.1 million over the forecast period. Included in this total are $10.8 million of growth related projects, $7.4 million of which are for the expansion of the Wellington Water Pollution Control Plant scheduled to occur in 2021.

27 Page 3-7 For rate determination purposes, the capital needs forecast has been inflated at 3.4% annually. This is reflective of the annual capital cost inflation witnessed in the Statscan Construction Price Index over the past 10 years. Figure 3-3 illustrates the capital needs forecast for both water and wastewater services over the period. Moreover, the graph further illustrates the forecast capital spending in the 2010 Study relative to actual expenditures. Projected total capital spending over the period and actuals are generally comparable, with greater actual spending occurring in 2012/13. Figure 3-3 County of Prince Edward Capital Needs Forecast

28 Page 3-8 Table 3-2 County of Prince Edward Water Service Capital Budget Forecast Uninflated$ Budget Forecast Description Total Capital Expenditures - Picton - Facilities - Treatment Plant 27,947,127 40,946 1,311,181 20, , ,000 80, , , ,260,000 75, , ,000 95, Pumping Stations 270, , , Storage 915, , , ,000-20, Linear - Mains 3,621, , ,158 15,000 2,010, Meters 250, , Wellington - Facilities - Treatment Plant 1,489,438 18, ,518 35, ,000 75, ,000-10,000-85,000 30, ,000 65,000 70,000-15, Pumping Stations Storage 1,675,000-75, ,600, Linear - Mains 14,152-14, Hydrants, Valves, Services 97,224 22,224 15,000 15,000 15,000 15,000 15, Meters 175, , Ameliasburgh - Facilities - Treatment Plant 1,388, ,807 50,000 85,000-37, ,000 70, ,000 20,000 10,000 40,000-75,000-35,000 - Storage 250, , Linear - Hydrants, Valves, Services Meters 28,000 28, Peats Point - Facilities - Treatment Plant 447,000 10,000 20,000-95, ,000 20,000 15, ,000 30,000-60,000-57, Linear - Hydrants, Valves, Services Meters 6, , Rossmore/Fenwood - Facilities - Pumping Stations 130, ,000-60, , Linear Hydrants, Valves, Services 240,000-30,000 30,000 30,000 30,000 30,000 30,000 30,000 30, Meters 178, ,788 40, Conceson/Carrying Place - Facilities - Pumping Stations 368,203 40,000 68,203-60,000 75,000-20, ,000-60, ,000 20,000 Storage 650, , , Linear - Mains 60, , Meters 100, , Overhead - Buildings 842, ,498 92, , , Equipment 81,000 4,500 16,500-9, , ,000-9, ,000 12, Studies & Engineering 37,986 16,986 21, Growth Related: - PIcton - 2 Water Tower/Booster Stn. (New Development - E of John St., N of Cty. Rd. 8) 1,154,762-1,154,762 Water Intake Improvements 10,000,000-10,000,000 Picton East - Nautical Group/McFarland Lands Servicing 450, ,000 Picton East Servicing 160, ,000 Rossmore/Fenwood - - Rossmore/Peats Point Water Storage 1,732,144-1,732,144 Wellington - - Water Reservoir (location to be determined) 1,732,144-1,732,144 Watermain Extension 10" (Prince Edward Dr. - Main St. to New Development) 214, ,324 Watermain Extension 10" (WTP to Area 1) 937, ,869 WTP Expansion/Upgrades 5,791, ,000 5,641,709 - Lifecycle: - Mains 3,753, , , , , , , , , , , , , , ,110 - Total Capital Expenditures 67,188,674 1,013,218 5,426, ,000 4,148,762 1,401,000 2,327,254 10,130, ,110 1,465, ,110 35,758, , , , , , , , ,110

29 Page 3-9 Table 3-3 County of Prince Edward Wastewater Service Capital Budget Forecast Uninflated$ Description Total Budget Forecast Capital Expenditures - Picton - Facilities - Treatment Plant 1,565, , , , , , , , , ,000 45,000 70,000 - Pumping Stations 983,435-53, ,000 50, , , ,000 30,000 25, , Linear - Mains 3,341, ,662 1,930,897 10, , ,000 - Maintenance Manholes 120,000 19,217 60,783 40, Wellington - Facilities - Treatment Plant 1,290,619 7, , , , , ,000 70, Pumping Stations 868, ,000 25, ,000 40,000 40,000 25,000-82,000 25,000 90, ,000-60, ,000 Linear - Mains 338, , Maintenance Manholes 143, ,748 30, Overhead - Buildings 566,136 71,920 78, , , Equipment 54,000 3,000 11,000-6, , ,000-6, ,000 8, Studies & Engineering 25,324 11,324 14, Growth Related: - Picton - Picton East - Nautical Group/McFarland Lands Servicing 2,356,300-2,356,300 Picton East Servicing 160, ,000 Wellington - Sewermain Extension 10" (Prince Edward Dr. - Wellingto 267, ,905 WPCP Expansion/Upgrades 7,640, ,000 7,390,387 SPS at Millennium Trial 200, ,000 SPS at North of Cleminson St. 200, ,000 - Total Capital Expenditures 20,121,012 1,013,475 6,155, , , , ,000 7,962, , , , ,000 61,000 29,000 92, , , , ,000 42,000

30 Page Capital Cost Financing Options 4.1 Summary of Capital Cost Financing Alternatives Historically, the powers that municipalities have had to raise alternative revenues to taxation to fund capital services have been restrictive. Over the past number of years, legislative reforms have been introduced. Some of these have expanded municipal powers (e.g. Bill 130 providing for natural person powers for fees and charges bylaws); while others appear to restrict them (Bill 98 in 1997 providing amendments to the Development Charges Act). The most recent Municipal Act came into force on January 1, 2003, with significant amendments in 2006 through the Municipal Statute Law Amendment Act. Part XII of the Act and Ontario Regulation 584/06, govern a municipality s ability to impose fees and charges. This Act provides municipalities with broadly defined powers and provides the ability to impose fees for both operating and capital purposes. Under s.484 of the Municipal Act, 2001, the Local Improvement Act was repealed with the in force date of the Municipal Act (January 1, 2003). The municipal powers granted under the Local Improvement Act now fall under the jurisdiction of the Municipal Act. The methods of capital cost recovery available to municipalities are provided as follows: Recovery Methods Section Reference Development Charges Act, Municipal Act o Fees and Charge o Local Improvements 4.3 Grant Funding 4.4 Reserves/Reserve Funds 4.5 Debenture Financing 4.6

31 Page Development Charges Act, 1997 The Development Charges Act received royal asset on December 8, 1997, replacing the previous act, which had been in-force since November 23, The Province s stated intentions were to create new construction jobs and make home ownership more affordable by reducing the charges and to make municipal Council decisions more accountable and more cost effective. The basis for this Act is to allow municipalities to recover the growth-related capital cost of infrastructure necessary to accommodate new growth within the municipality. The Development Charges Act provides for limitations and ceilings on services that can be included in the charges. The County does not include water and wastewater within the services that it collects D.C.s and as such has not been considered as a source of financing. 4.3 Municipal Act The Municipal Act, 2001, came into force January 1, Part XII Fees and Charges, gives municipalities the statutory authority to recover the costs of services, including capital costs, through by-law. Municipalities have used these types of charges to recover infrastructure costs associated with the extension of municipal services to private service users, to recover capital improvement costs from existing developments, and to recover growth-related costs of service extension. These by-laws are typically used where development charges would not be applicable (e.g. recovery from existing developments) or where existing and growth-related cost recovery would be simplified under the administration of one by-law. The County has maintained its preference to recover the relevant share of infrastructure replacement costs and growth related needs from new development via connection charges. Chapter 6 details the connection charge methodology that has been employed by the County and updated through this process. The following subsections provide reference to the relevant statutory provisions of the Municipal Act and associated regulation.

32 Page Municipal Act Part XII By-laws re: fees and charges ) Without limiting sections 9, 10 and 11, those sections authorize a municipality to impose fees or charges on persons, Local board a) for services or activities provided or done by or on behalf of it; b) for costs payable by it for services or activities provided or done by or on behalf of any other municipality or any local board; and c) for the use of its property including property under its control. 1.1) A local board may impose fees or charges on persons, a) for services or activities provided or done by or on behalf of it; b) for costs payable by it for services or activities provided or done by or on behalf of any municipality or other local board; and c) for the use of its property including property under its control. Deferred benefit 2) A fee or charge imposed for capital costs related to services or activities may be imposed on persons not receiving an immediate benefit from the services or activities but who will receive a benefit at some later point in time. Costs related to administration, etc. 3) The costs included in a fee or charge may include costs incurred by the municipality or local board related to administration, enforcement and the establishment, acquisition and replacement of capital assets. The above referenced sections of the Municipal Act indicate that it is permissible for municipalities to impose charges for the recovery of capital costs associated with services that are provided either directly or on its behalf. These capital costs can include costs associated with the initial establishment or acquisition of capital or for the replacement of existing capital assets. Moreover, the Act permits the imposition of capital charges on persons who receive an immediate benefit or a benefit at some later point (i.e. deferred benefit).

33 Page 4-4 Section 391 of the Municipal Act does not define a methodology for calculating the fee or charge quantum, nor for determining its distribution among the benefiting landowners. As such, fees and charges may be determined at the reasonable discretion of Council following some general restrictions. Restriction, poll tax 393. No fee or charge by-law shall impose a poll tax or similar fee or charge, including a fee or charge which is imposed on an individual by reason only of his or her presence or residence in the municipality or part of it. Restriction, fees and charges ) No fee or charge by-law shall impose a fee or charge that is based on, is in respect of or is computed by reference to, a) the income of a person, however it is earned or received, except that a municipality or local board may exempt, in whole or in part, any class of persons from all or part of a fee or charge on the basis of inability to pay; b) the use, purchase or consumption by a person of property other than property belonging to or under the control of the municipality or local board that passes the by-law; c) the use, consumption or purchase by a person of a service other than a service provided or performed by or on behalf of or paid for by the municipality or local board that passes the by-law; d) the benefit received by a person from a service other than a service provided or performed by or on behalf of or paid for by the municipality or local board that passes the by-law; or e) the generation, exploitation, extraction, harvesting, processing, renewal or transportation of natural resources. There are no public process requirements under Part XII for adopting a charge by-law (although it is a prudent process recommendation). Part XII charges cannot be appealed to the O.M.B. on the grounds that the fees or charges are unfair or unjust. However they may be challenged in court on the basis that the municipality is not operating within its statutory authority.

34 Page Ontario Regulation 584/06 Ontario Regulation 584/06 governs the fees and charges provision of the Municipal Act. The fees and charges regulation was revised in 2006 by the Municipal Statute Law Amendment Act. The regulation in its present form is less prescriptive than its predecessor. The previous regulation (i.e. O.Reg. 244/02) limited by-laws for water and waste services to a 1-year period, required public process notification and meetings to substantiate any charges and expressly limited any charges to the costs of service. Furthermore, the previous restrictions whereby a municipality did not have the power to impose fees or charges under Part XII of the Act relating to the allocation of sewage and water capacity have been removed. These changes to the fees and charges regulation provide municipalities with greater flexibility in determining its use. It should be noted that in applying Section 391 of the Municipal Act for the recovery of capital costs, a municipality must have regard for the associated regulation. Section 2(1) of the regulation indicates that a fee under the Act cannot be imposed to recover capital costs that are also included in a D.C. or front-ending agreement which is in effect before the imposition of the fee. This clause is provided to avoid a duplication of fees and charges for the same works. Capital costs 2.(1) A municipality and a local board do not have power under the Act to impose fees or charges to obtain revenue to pay capital costs, if as a result of development charges by-laws or front-ending agreements under the Development Charges Act, 1997 or a predecessor of that Act that was passed or entered into before the imposition of the fees or charges, payments have been, will be or could be made to the municipality or local board to pay those costs. As water and wastewater services are not included within the County s D.C. by-law and, based on our review, payments have not been made towards these costs under prior D.C. by-laws, no duplication in cost recovery exists Ontario Regulation 581/06 Ontario Regulation 581/06 provides priority lien status for fees and charges imposed for certain services. Under this regulation, fees and charges imposed for the use of a sewage system may be added to the tax roll, as a debt to the municipality, and will have priority lien status. These powers allow the treasurer of the municipality to add fees and charges to the tax roll and collect them in the same manner as taxes. Priority lien status provides for the recovery of interest costs associated with the debt from the assessed

35 Page 4-6 owner at the time of the fee or charge being imposed or from a subsequent property owner, and may be included in the cancellation price. Certain public utility fees and charges 1. Fees and charges that are imposed by a municipality or local board under the Act for the following services and added to the tax roll under subsection 398(2) of the Act have priority lien status as described in section 1 of the Act: 1. For the supply of water. 2. For the supply of artificial or natural gas. 3. For the supply of steam or hot water. 4. For the use of a sewage system. 5. For the use of a waste management system. 4.4 Grant Funding Availability In August 2012, the Province of Ontario initiated the Municipal Infrastructure Investment Initiative. In supporting the efforts of communities to restore and revitalize their public infrastructure, this initiative provides one-time provincial funding to improve asset management planning in small municipalities and local service boards. In addition, funding will be made available for municipal infrastructure projects under this initiative. Any municipality or local service board seeking capital funding in the future must demonstrate how its proposed project fits within a detailed asset management plan. To assist in defining the components of an asset management plan, the Province produced a document entitled, Building Together: Guide for Municipal Asset Management Plans. This guide documents the components, information and analysis that are required to be included in a municipality s asset management plan under this initiative. The County has identified that it will receive federal/provincial grant funding for large facility replacement projects. The projects for which grant funding is assumed are: Water o Picton Water Treatment Plant (2025) o Picton Water Intake Improvements (2025) o Wellington Water Treatment Plant Expansion (2021) Wastewater o Wellington Water Pollution Control Plant Expansion/Upgrades (2021)

36 Page 4-7 Three scenarios were considered to assess the impact of varying levels of grant funding being achieved for the above referenced projects: Scenario 1: 33% grant funding Scenario 2: 50% grant funding Scenario 3: 67% grant funding Through discussion with County staff it was determined that 50% grant funding would be the most realistic level of funding to be achieved, as such the analysis contained throughout the remained of this report is premised on the Scenario 2 grant funding assumptions. The current capital plan has identified $32.7 million in water related grants and $8.8 million in wastewater grants over the forecast period. Included in this forecast is $325,000 Ontario Community Infrastructure Funding (O.C.I.F.) to be received annually and split between water and wastewater systems, updated and consistent with the recommendations of the Ad Hoc Committee. 4.5 Existing Reserves/Reserve Funds The County has established reserves and reserve funds for water and wastewater capital costs. The established water and wastewater reserves have been utilized for growth and non-growth related capital purposes and to supplement operating costs (i.e. annual debt servicing costs). It is assumed that all connection charge revenue will flow though the water and wastewater connection charge reserves. The following table summarizes the water and wastewater reserves/reserve funds utilized in this analysis and the respective 2015 opening balances. Current reserves/reserve fund balances are lower than 2010 Study projections for 2014, this is due to the reduced water consumptions (and thus associated reduction in revenues) and the increase in projected annual operating costs.

37 Table 4-1 County of Prince Edward Water and Wastewater Projected Reserve/Reserve Fund Balances (as at January 1, 2015) Page 4-8 Reserve/Reserve Fund Projected Balance Water Operations Reserve 1 $(585,249) Water Connection Charge Reserve 2 $(55,904) Water Capital Reserve 3 $206,312 Wastewater Operations Reserve 4 $2,208,350 Wastewater Connection Charge Reserve 5 $253,291 Wastewater Capital Reserve 6 $4, $(1,386,860) from water/sewer operations reserve fund plus $801,611 from former utility sale reserve 2. Water Capital Reserve Fund 3. Includes Reserve for Rossmore Water System, Consecon Water Reserve Fund, Fenwood Water Capital Reserve Fund, Utilities Reserve Fund, Water Extension Reserve Fund and Water Facility Reserve Fund 4. Includes 1,673,942 from water/sewer reserve fund and $534,407 from former utility sale reserve 5. Sanitary Sewer Capital Reserve Fund 6. Picton Sewage Plant Expansion Reserve Fund and Sewer Expansion reserve fund 4.6 Debenture Financing Although it is not a direct method of minimizing the overall cost to the ratepayer, debentures are used by municipalities to assist in cash flowing large capital expenditures. The Ministry of Municipal Affairs regulates the level of debt incurred by Ontario municipalities, through its powers established under the Municipal Act. Ontario Regulations 403/02 provides the current rules respecting municipal debt and financial obligations. Through the rules established under these regulations, a municipality s debt capacity is capped at a level where no more than 25% of the municipality s own purpose revenue may be allotted for servicing the debt (i.e. debt charges). The County has outstanding external debt for water and wastewater services. In total the outstanding principal balance as of December 31, 2104 was $24,742,419. The

38 Page 4-9 associated debt payments in addition to other non water or wastewater debt payments represent 10% County debt capacity 1 The water capital funding plan proposes debt financing for the forecast period totalling $37.6 million ($5.5 million growth related and $32.1 million non-growth related). The wastewater capital funding plan proposes debt financing of $12.1 million ($7.3 million growth related and $4.8 million non-growth related). Ad Hoc Committee recommendations have been maintained in the forecasting of debt (i.e. 30-year term and 4% annual interest). The forecast increase in new debentures taken on by the County within the Capital Plan, totals $49.7 million. In the context of the County s current level of the annual debt repayment limit, this would increase from 10% to 17%. 4.7 Recommended Approach Table 4-2 summarizes the recommended capital funding sources supporting the capital needs forecast, for the preferred grant funding scenario (Scenario 2), as well as alternative grant funding Scenarios 1 and 3. Table 4-2 County of Prince Edward Water and Wastewater Capital Funding Summary Scenarios 1,2 & 3 Scenario 2 Scenario 1 Scenario 3 Debt ($) Growth Non-Growth Total Capital Reserves ($) Connection Charges Water 6,647,747 40,939,585 47,587,332 5,398,354 11,794,785 17,193,139 23,380,748 88,161,218 Wastewater 8,892,547 4,859,863 13,752, ,834 1,370,083 2,272,917 7,757,148 23,782,475 Total 15,540,294 45,799,448 61,339,742 6,301,189 13,164,867 19,466,056 31,137, ,943,693 8% County Debt Capacity Water 5,460,588 31,430,294 36,890,882 8,022,666 10,507,923 18,530,588 32,739,748 88,161,218 Wastewater 7,365,772 4,968,601 12,334, ,834 1,282,119 2,184,954 9,263,148 23,782,475 Total 12,826,360 36,398,895 49,225,255 8,925,500 11,790,042 20,715,542 42,002, ,943,693 6% County Debt Capacity Water 4,349,414 23,883,438 28,232,851 9,060,161 8,769,458 17,829,619 42,098,748 88,161,218 Wastewater 5,758,457 4,802,236 10,560, ,834 1,550,800 2,453,634 10,768,148 23,782,475 Total 10,107,870 28,685,674 38,793,544 9,962,996 10,320,258 20,283,253 52,866, ,943,693 5% County Debt Capacity Total Grants Total Capital Funding Tables 4-3 and 4-4 provide for the full capital expenditure and funding program by year for water and wastewater services respectively. These capital funding plans are provided in inflated dollars. 1 County of Prince Edward 2014 FIR, Schedule 81

39 Capital Financing Description Total Budget Table 4-3 County of Prince Edward Water Capital Funding Program Table 4-4 County of Prince Edward Wastewater Capital Funding Program Page Provincial/Federal Grants 32,739, , , , , , ,000 3,639, , , ,000 24,849, , , , , , , , ,000 Connection Charges Reserve Fund (Growth) 5,066, , , , , ,992-1,505,000-1,275, Connection Charges Reserve Fund (Non-Growth) 5,441, , , , ,691, , , , , Non-Growth Related Debenture Requirements 31,430, ,667 4,480,303-3,136, , ,701 2,273, ,922, Growth Related Debenture Requirements 5,460, , , ,597, Transfer from Operating Reserve - Water 8,022, , , , , , ,000 2,217, , , , , , , , ,000 Total Capital Financing 88,161,218 1,013,218 5,613, ,000 4,586,000 1,601,000 2,751,000 12,380, ,000 1,914, ,000 49,955, ,000 1,104,000 1,009, ,000 1,328, , , ,000 Forecast Description Total Budget Forecast Capital Financing Provincial/Federal Grants 8,795,148 21,153 1,159, , , , ,000 4,708, , , ,000 88,000 43, , , , , ,000 77,000 Connection Charges Reserve Fund (Growth) 548, , ,569-76, Connection Charges Reserve Fund (Non-Growth) 733, , , , ,916-6, , Non-Growth Related Debenture Requirements 4,968, ,962 2,845, , , , , Growth Related Debenture Requirements 7,365,772-2,357, ,310, , Transfer from Operating Reserve Fund - Capital 1,370, , , , , , ,000 - Total Capital Financing 23,782,475 1,013,475 6,363, , , , ,000 9,732, , , , ,000 88,000 43, , , , , ,000 77,000

40 Page Operating Expenditure Forecast 5.1 Operating Expenditures In preparing the operating expenditure forecast for the water and wastewater service financial plan, the 2010 Study assumptions and actual expenditures were reviewed. Within the previous study, 2014 projected operating expenditures for water were $2.2 million, actual water operating expenditures for 2014 were $2.9 million, approximately $700,000 higher than forecast. For wastewater services, 2014 projected operating expenditures for water were $1.6 million, actual water operating expenditures for 2014 were $2.1 million, approximately $500,000 higher than forecast. In total operating expenditures increased by $1.2 million higher than forecast in the 2010 Study due to increased costs in water and wastewater treatment, additional regulatory requirements and related staffing needs, and additional supervisory staff requirements. Forecasted operating budget figures for water and wastewater services are based on the County s 2015 operating budgets. The expenditures for each component of the operating budget have been reviewed with staff to establish cost adjustments. Inflationary increases have been set at 2.1% annually, consistent with the recommendations of the Ad Hoc Committee. Capital-related annual expenditures in the forecast include annual debt repayments and contributions to reserves and reserve funds to support the forecast and future needs, based on the Scenario 2 capital funding assumptions presented in the previous chapter. While operating aspects identified above generally increase with inflation over the period, the capital-related aspects tend to increase more specifically with the increase in capital funding requirements. As a result of the inflationary and capital-related expenditure increases, the water and wastewater operating expenditures are anticipated to increase over the forecast period. Gross operating expenditures for water services are anticipated to increase from $3.8 million in 2015 to $7.9 million by Similarly, for wastewater services annual gross expenditures are forecast to increase from $3.6 million to $5.8 million by Operating Revenues The County has operating revenue sources such as taxation, local improvement recoveries, miscellaneous revenues and transfers from reserves some of the annual operating costs. Furthermore, the County has revenue from bulk water users and

41 Page 5-2 anticipates having revenues from septage and holding tank disposal (pending remediation of the Picton WWTP). Bulk water consumption is forecast to remain constant over the forecast period and the bulk water rate has been forecast such that bulk water sales will recover their share of expenditures based on the relationship of bulk water consumption and total County water consumption. The Picton WWTP has not received septage and holding tank waste since its construction in 2011 due to a deficiency that is to be addressed through contractual means. It is expected that the facility will be able to begin to receive septage and holding tank waste in 2016 and that it will do so at volumes consistent with those seen during the period. Annual septage and holding tank volumes have been forecast to increase at the annual growth rate within the unserviced areas of the County (i.e. 0.25% from the County s D.C. Study). Septage and Holding tank disposal fees have been set such that 2.1% of operating and capital related expenditures attributable to the Picton WWTP are recovered based on County staff s determination of costs related to septage and holding tank disposal. A significant source of revenue is secured from the monthly base charge rate for water and wastewater services. Water base charge revenues have been forecast based on the underlying system growth assumptions while increasing monthly base charges such that total base charge revenue is equal to the inflated annual lifecycle replacement needs in 2033 (i.e. $3.5 million). This ensures that the revenue the County receives from base charges approximates the fixed costs of providing the service resulting in increased revenue stability and lessening the potential impact of changing demand patterns. Wastewater base charges wastewater base charges have been increased at inflation over the forecast period revenues, reflecting average lifecycle replacement levels being met currently. As noted in the introduction, the County s current base charge fee structure imposes a reduced rate for multi-unit developments based on the underlying occupancy of the dwelling unit. This is intended to provide equity in the imposition of the base charge between residential customers. Although the relationship of base charges between meter sizes has been maintained in its current form, the multi-unit base charge currently set at 57% of the ¾ inch base rate has been revised based on updated occupancy levels from Statistics Canada Census Data (i.e Census). The base charge for multi-unit customers is now set at 63% of the ¾ inch rate for purposes of the calculations herein.

42 Page 5-3 The annual operating revenues for water services are forecast to decrease from $757,000 in 2015 to $477,000 by The water system is currently not fully funding operations and thus there is a transfer from reserves in of $ 645,000 required in 2015 to support rates. By 2033 transfers from reserves to support the rate will not be required except to fund growth related debt costs. For wastewater services, annual operating revenues are forecast to decrease from $623,000 in 2015 to $493,000 by As with the water system, transfers from reserves are not forecast to be required except to fund growth related debt costs. The consumptive rate recovery component of the water revenue is anticipated to increase from $1.4 million in 2015 to $3.7 million by The wastewater consumptive billing recovery is anticipated to increase from $1.4 million in 2015 to $1.9 million in Tables 5-1 to 5-2 provide the water and wastewater operating budget forecasts. The forecast operating budgets are provided in inflated dollars..

43 Page 5-4 Table 5-1 County of Prince Edward Water Service Operating Budget Forecast Inflated$ Budget Forecast Description EXPENDITURES Operating Costs Water Treatment Picton 527, , , , , , , , , , , , , , , , , , ,100 Wellington 293, , , , , , , , , , , , , , , , , , ,000 Ameliasburgh 159, , , , , , , , , , , , , , , , , , ,400 Peats Point 160, , , , , , , , , , , , , , , , , , ,800 Water Distribution Picton 464, , , , , , , , , , , , , , , , , , ,600 Wellington 161, , , , , , , , , , , , , , , , , , ,100 Ameliasburgh 15,626 16,000 16,300 16,600 16,900 17,300 17,700 18,100 18,500 18,900 19,300 19,700 20,100 20,500 20,900 21,300 21,700 22,200 22,700 Fenwood/Rossmore 99, , , , , , , , , , , , , , , , , , ,100 Carrying Place/Consecon 123, , , , , , , , , , , , , , , , , , ,100 Peats Point 22,224 22,700 23,200 23,700 24,200 24,700 25,200 25,700 26,200 26,800 27,400 28,000 28,600 29,200 29,800 30,400 31,000 31,700 32,400 Water Overhead Overhead 508, , , , , , , , , , , , , , , , , , ,500 Bulk Water Purchases Fenwood/Rossmore 325, , , , , , , , , , , , , , , , , , ,730 Carrying Place/Consecon 80,850 78,933 82,600 88,957 91,603 95,647 95,911 96,175 96,451 96,683 96,916 97,148 97,380 97,613 97,845 98,077 98,310 98,542 98,774 Sub Total Operating 2,943,147 2,932,244 2,990,976 3,053,510 3,113,758 3,176,505 3,236,671 3,298,138 3,360,817 3,424,726 3,489,934 3,556,443 3,624,352 3,693,560 3,764,269 3,836,478 3,910,087 3,985,395 4,062,304 Capital-Related Debentures Existing Debt (Principal) - Growth Related Existing Debt (Interest) - Growth Related New Growth Related Debt (Principal) - 6,198 6,446 15,895 16,530 17,192 99, , , , , , , , , , , ,720 New Growth Related Debt (Interest) - 13,906 13,658 34,017 33,382 32, , , , , , , , , , , , ,067 Existing Debt (Principal) - Non-Growth Related 482, , , , , , , , , , , , , , , , , , ,535 Existing Debt (Interest) - Non-Growth Related 327, , , , , , , , , , , , , , ,598 84,087 62,856 40,878 22,004 New Non-Growth Related Debt (Principal) 12,029 92,395 96, , , , , , , , , , , , , , , ,572 New Non-Growth Related Debt (Interest) 26, , , , , , , , , ,884 1,175,052 1,149,350 1,122,619 1,094,819 1,065,907 1,035,839 1,004, ,045 Transfers Transfer to Capital Transfer to Reserve - Water Operations Transfer to Reserve - Connection Charges 52, , ,224 Transfer to Reserve - Capital 332, , , , ,145 1,190,829 1,282, , , , , , , ,386 1,462,304 Sub Total Capital Related 810, ,304 1,194,505 1,246,785 1,737,811 2,282,889 2,355,537 2,696,453 2,771,482 2,860,531 2,952,670 3,048,062 3,146,674 3,248,677 3,358,754 3,472,729 3,590,902 3,713,182 3,842,246 Total Expenditures 3,753,722 3,847,548 4,185,481 4,300,295 4,851,569 5,459,394 5,592,209 5,994,591 6,132,299 6,285,257 6,442,604 6,604,505 6,771,025 6,942,238 7,123,023 7,309,207 7,500,989 7,698,577 7,904,550 Revenues Operating Revenue Other Revenue 15,000 15,300 15,600 15,900 16,200 16,500 16,800 17,200 17,600 18,000 18,400 18,800 19,200 19,600 20,000 20,400 20,800 21,200 21,600 Taxation 9,242 9,400 9,600 9,800 10,000 10,200 10,400 10,600 10,800 11,000 11,200 11,400 11,600 11,800 12,000 12,300 12,600 12,900 13,200 Local Improvement Recovery 37,046 37,800 38,600 39,400 40,200 41,000 41,900 42,800 43,700 44,600 45,500 46,500 47,500 48,500 49,500 50,500 51,600 52,700 53,800 Miscellaneous Revenue 50,000 51,100 52,200 53,300 54,400 55,500 56,700 57,900 59,100 60,300 61,600 62,900 64,200 65,500 66,900 68,300 69,700 71,200 72,700 Transfer from Reserves / Reserve Funds Operating 13, Transfer from Reserves / Reserve Funds Capital 206, Transfer from Reserves / Reserve Funds Connection Charges (Growth) ,104 20,104 49,912 49,912 49, , , , , , , , , , , , ,786 Transfer from Reserves / Reserve Funds Connection Charges (Non-Growth 426, , , Sub Total Operating Revenue 757, , , , , , , , , , , , , , , , , , ,086 Billing Revenue Base Charge 1,493,565 1,684,083 1,752,056 1,823,332 1,904,960 1,989,859 2,078,153 2,169,968 2,264,702 2,368,537 2,476,583 2,589,000 2,705,953 2,827,580 2,956,368 3,090,361 3,229,756 3,374,759 3,526,460 Consumptive Charge 1,408,833 1,546,510 1,837,200 2,183,858 2,604,177 3,104,875 3,144,461 3,184,047 3,221,821 3,265,633 3,309,444 3,353,256 3,397,067 3,440,807 3,486,758 3,532,709 3,578,659 3,624,610 3,672,167 Bulk Water Charge 94, , , , , , , , , , , , , , , , , , ,836 Sub Total Billing Revenue 2,996,718 3,357,629 3,729,099 4,161,791 4,680,857 5,286,282 5,416,497 5,550,304 5,685,313 5,835,570 5,990,118 6,149,118 6,312,739 6,481,051 6,658,837 6,841,921 7,030,503 7,224,791 7,427,464 Total Revenue 3,753,722 3,847,548 4,185,481 4,300,295 4,851,569 5,459,394 5,592,209 5,994,591 6,132,299 6,285,257 6,442,604 6,604,505 6,771,025 6,942,238 7,123,023 7,309,207 7,500,989 7,698,577 7,904,550

44 Page 5-5 Table 5-2 County of Prince Edward Wastewater Service Operating Budget Forecast Inflated$ Budget Forecast Description EXPENDITURES Operating Costs Wastewater Treatment Picton 852, , , , , , , ,500 1,006,200 1,027,300 1,048,900 1,070,900 1,093,400 1,116,400 1,139,800 1,163,700 1,188,100 1,213,100 1,238,600 Wellington 462, , , , , , , , , , , , , , , , , , ,700 Wastewater Collection Picton 431, , , , , , , , , , , , , , , , , , ,100 Wellington 155, , , , , , , , , , , , , , , , , , ,900 Wastewater Overhead Overhead 385, , , , , , , , , , , , , , , , , , , Sub Total Operating 2,286,933 2,335,000 2,384,100 2,434,200 2,485,300 2,537,400 2,590,800 2,645,300 2,700,900 2,757,700 2,815,600 2,874,700 2,935,100 2,996,800 3,059,700 3,123,900 3,189,600 3,256,700 3,325,000 Capital-Related Debentures Existing Debt (Principal) - Growth Related Existing Debt (Interest) - Growth Related New Growth Related Debt (Principal) - 42,033 43,714 45,463 47,281 49, , , , , , , , , , , , ,754 New Growth Related Debt (Interest) - 94,296 92,615 90,866 89,048 87, , , , , , , , , , , , ,209 Existing Debt (Principal) - Non-Growth Related 772, , , , , , , , , ,051 1,012,820 1,043,489 1,075,240 1,108,050 1,142,057 1,177,177 1,213,523 1,251, ,693 Existing Debt (Interest) - Non-Growth Related 541, , , , , , , , , , , , , , , ,776 98,429 60,835 25,358 New Non-Growth Related Debt (Principal) 10,626 61,789 64,260 66,830 78,816 86,124 98, , , , , , , , , , , ,791 New Non-Growth Related Debt (Interest) 23, , , , , , , , , , , , , , , , , ,544 Transfers Transfer to Capital Transfer to Reserve - Wastewater Operations Transfer to Reserve - Connection Charges ,275 91, , ,367 53,935 1,084,106 Transfer to Reserve - Capital 46, , ,000 Sub Total Capital Related 1,314,023 1,371,926 1,672,817 1,672,817 1,672,817 1,702,450 1,715,929 1,993,508 1,996,971 2,025,250 2,025,250 2,025,250 2,025,250 2,037,525 2,116,833 2,198,232 2,281,618 2,367,185 2,457,455 Total Expenditures 3,600,956 3,706,926 4,056,917 4,107,017 4,158,117 4,239,850 4,306,729 4,638,808 4,697,871 4,782,950 4,840,850 4,899,950 4,960,350 5,034,325 5,176,533 5,322,132 5,471,218 5,623,885 5,782,455 Revenues Operating Revenue Other Revenue 15,000 15,300 15,600 15,900 16,200 16,500 16,800 17,200 17,600 18,000 18,400 18,800 19,200 19,600 20,000 20,400 20,800 21,200 21,600 Septage and Holding Tank Disposal 41,435 41,689 41,943 42,200 42,458 42,717 42,979 43,241 43,506 43,772 44,039 44,309 44,579 44,852 45,126 45,402 45,680 45,959 Transfer from Reserves / Reserve Funds Operations 608, , , Transfers from Reserves/Reserves Funds Capital Transfer from Reserves / Reserve Funds Connection Charges (Growth) , , , , , , , , , , , , , , , , ,963 Transfer from Reserves / Reserve Funds Connection Charges (Non-Grow - 167, , , , , , , , , , ,460 59, Sub Total Operating Revenue 623, , , , , , , , , , , , , , , , , , ,522 Billing Revenue Base Charge 1,542,295 1,749,725 1,808,782 1,870,528 1,943,259 2,018,220 2,095,472 2,175,078 2,256,165 2,347,427 2,441,527 2,538,544 2,638,560 2,741,615 2,851,121 2,964,018 3,080,399 3,200,361 3,325,029 Billing Revenue 1,435,563 1,367,434 1,412,496 1,460,222 1,515,508 1,572,415 1,599,208 1,626,001 1,651,429 1,681,667 1,711,905 1,742,144 1,772,382 1,802,568 1,834,596 1,866,625 1,898,653 1,930,682 1,963,904 Sub Total Billing Revenue 2,977,858 3,117,160 3,221,279 3,330,750 3,458,767 3,590,635 3,694,680 3,801,079 3,907,594 4,029,094 4,153,432 4,280,688 4,410,941 4,544,183 4,685,717 4,830,643 4,979,052 5,131,042 5,288,933 Total Revenue 3,600,956 3,706,926 4,056,917 4,107,017 4,158,117 4,239,850 4,306,729 4,638,808 4,697,871 4,782,950 4,840,850 4,899,950 4,960,350 5,034,325 5,176,533 5,322,132 5,471,218 5,623,885 5,782,455

45 Page 5-6 Figures 5-1 and 5-2 illustrate the annual net operating budget increase for water and wastewater service respectively over the forecast period by component, illustrating the increase in annual revenues for increased capital funding purposes. $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 Figure 5-1 County of Prince Edward Water Annual Net Operating Forecast by Major Component $0 Operating Costs Debt Transfers to Reserves Figure 5-2 County of Prince Edward Wastewater Annual Net Operating Forecast by Major Component 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - Operating Costs Debt Transfers to Reserves