Report to: General Committee – Finance & Administrative           Date of Meeting: 2007-11-26

SUBJECT:                          2008 Water/Wastewater Rate Increase

PREPARED BY:               Andrea Tang, Acting Manager, Financial Planning

RECOMMENDATION:

That the report dated November 26, 2007 entitled “2008 Water/Wastewater Rate Increase” be received;

AND THAT the 2008 Water/Wastewater rate increase be equivalent to the Region of York’s (“Region”) increase of 6.35% resulting in an increase in the Town of Markham’s (“Town”) Water/Wastewater rate of $0.1006 per cubic metre (m3);

AND THAT in addition to the Region’s increase, a Water/Wastewater Infrastructure Surcharge of $0.4137/m3 will be phased-in over 10 years effective January 1, 2008 with an increase of $0.0827/m3 (20% of total increase) in 2008 and an increase of $0.0621/m3 (15% of total increase) in 2009.  The remaining 65% increase of $0.2689 will be spread evenly over the following 8 years which is equivalent to an increase of $0.0336/m3 per year from 2010 to 2017 inclusive.  The Infrastructure Surcharge will be applied to the Water/Wastewater rate to address the ongoing replacement and rehabilitation requirements for Waterworks infrastructure;

AND THAT the total 2008 Water/Wastewater rate be increased from $1.5838/m3 to $1.7671/m3, an increase of $0.1833/m3  or 11.6%;

AND THAT Staff report back to Council annually on the Region’s Water/Wastewater rate increase and the status of the Water/Wastewater Reserve Balance and any potential Infrastructure Surcharges in addition to the total increase of $0.4137/m3;

ANT THAT Staff be authorized and directed to do all things necessary to give effect to this resolution.

PURPOSE:

The purpose of the report is to obtain approval to increase the Town of Markham’s Water/Wastewater rate by $0.1833/m3 effective January 1, 2008 which includes an increase of $0.1006/m3 in matching to the Region’s increase of 6.35% and an additional Water/Wastewater Infrastructure Surcharge of $0.0827/m3.  The total rate increase proposed for 2008 is an 11.6% increase over the 2007 Water/Wastewater rate.

BACKGROUND:

A resolution was passed by Council in June 2002 stating “And that all further rate increases by Region of York be automatically met by the Town of Markham with a percentage equal to that of the Region”.  Historically, the Town receives projected water rate increases from the Region prior to the end of the year and, at a minimum, matches the Region’s Water/Wastewater rate increases following a public meeting and Council authorization towards the end of the year.

On October 29, 2007, the Water/Wastewater Reserve Study (Appendix A) was presented to General Committee followed by the report dated November 5, 2007 entitled “Proposed 2008 Water/Wastewater Rate Increase” (Appendix B).  The report identified the increasing number of burdens placed upon the Waterworks department that supported a Water/Wastewater Infrastructure Surcharge (in addition to the Region’s increase) in order to sustain the expected future capital replacement/rehabilitation costs as identified in the Water/Wastewater Reserve Study.

The recommendation in the report proposed an Infrastructure Surcharge  of $0.4137/m3 to be phased-in over 10 years with 20% of total increase (equivalent to $0.0827m3) in 2008, 15% of total increase (equivalent to $0.0621/m3) in 2009 and the remaining increase spread evenly over the following 8 years (increase of $0.0336/m3 per year from 2010 to 2017 inclusive).

In accordance with the Municipal Act (O.Reg. 244/02), the Town of Markham held a public meeting on November 20, 2007 to advise the public of the 2008 proposed Water/Wastewater rate increase.  A copy of the public meeting presentation (Appendix C) is attached to this report.

It was suggested that Staff provide another phase-in option over a 10 year period with 15% of total increase in 2008, 15% of total increase in 2009 and remaining increase spread evenly over the following eight years.

OPTIONS/DISCUSSIONS:

Region’s Increase

Based on discussions with the Region, the Region’s proposed Water/Wastewater increase is currently 6.35% effective April 1, 2008.  The recommendation is for the Town to match the Region’s 6.35% increase resulting in an increase to the Town’s Water/Wastewater rate of $0.1006m3 to $1.6844m3 effective January 1, 2008.

Water/Wastewater Reserve Study & Infrastructure Surcharge

The Water/Wastewater Reserve Study identifies future replacement/rehabilitation costs for Waterworks infrastructure based on asset inventory as of December 31, 2006.  According to the Water/Wastewater Reserve Study, with no Water/Wastewater Infrastructure Surcharge, the Waterworks Reserve will be fully depleted by the end of 2010 based on the projected capital replacement/rehabilitation program as identified in the Reserve Study.

The report dated November 5, 2007 entitled “Proposed 2008 Water/Wastewater Rate Increase” identified the need for a Water/Wastewater Infrastructure Surcharge (in addition to the Region’s increase) and outlined the 8 options that were considered.

The report recommended Option 8 which was to implement the increase over 10 years with 20% of total increase in 2008, 15% of total increase in 2009 and the remaining increase spread evenly over the following 8 years.

Option 9

Based on the request received at the public meeting, staff further considered the following option (Option 9) and below summarizes the financial implications:

Ø      Rate increase of $0.4202/m3 to be phased-in over 10 years with 15% of total increase in 2008 and 15% of total increase in 2009, and the remaining increase spread evenly over the following 8 years

(increase of $0.0630/m3 in 2008, increase of $0.0630/m3  in 2009, and $0.0368/m3 per year from 2010 to 2017)

Appendix D shows the impact on Reserves for the next 25 years based on Option 9.  As graphically illustrated, the Reserve will run into a negative balance of $0.48M in 2011 and a negative balance of $1.47M in 2012.

The impact to an average household for the Infrastructure Surcharge only under Option 9 (15% of total increase in Year 1) compared to Option 8 (20% of total increase in Year 1) is $7.19 less in Year 1 from $30.18 to $22.99.

As a result, Staff recommend Option 8 in order to ensure that the Reserve is always in a positive position.

FINANCIAL CONSIDERATIONS:

The proposed $0.1006/m3 (6.35%) increase in the Region and the Town’s Water/Wastewater rates and an Infrastructure Surcharge of $0.0827/m3 is outlined below:

TABLE A – Water/Wastewater Rate

An average household has water consumption of 365m3 per year.  With a total increase of $0.1833 increase/m3 (Region’s increase of $0.1006 and Town’s increase of $0.0827) in 2008, there will be an increase of $66.90 to an average household bill.  The impact on the top 10 ICI customers, including a health care provider, manufacturers, and hospitality providers, will range from $27K to $53K per year (Region’s increase $15K to $29K and the Town’s increase $12K to $24K).

The proposed new Water/Wastewater rate covers the increase in the Region’s wholesale rate and begins to phase-in the funding requirements for the major replacement/rehabilitation of the Waterworks infrastructure and provides funding for the capital induced operating costs and non-replacement program costs.

RECOMMENDED

BY:    ________________________          ________________________

Barb Cribbett, Treasurer                     Andy Taylor, Commissioner

Corporate Services

ATTACHMENTS:

Appendix A – Presentation to General Committee dated October 29, 2007 entitled “Water/Wastewater Reserve Study)

Appendix B – Report to General Committee dated November 5, 2007 entitled “Proposed 2008 Water/Wastewater Rate Increase”

Appendix C - Public Meeting Presentation entitled “2008 Proposed Water/Wastewater Rates”

Appendix D – Graph on Reserve Balance with Option 9