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Report to: General Committee Date
Report Authored: April 29, 2010
SUBJECT: Water
and Wastewater System Financial Plan
PREPARED BY: Raymond
Law, Senior Business Analyst, Ext.3585
Eddy Wu, P.Eng., Waterworks QMS Controller, Ext. 2737
RECOMMENDATIONS:
1)
THAT the report entitled “Water and Wastewater System
Financial Plan” prepared in accordance with the Safe Drinking Water Act and Ontario Regulation
453/07 be received;
2)
AND THAT Council, as the Owner and Operating Authority
of the Town of Markham’s Drinking Water System, approve the Corporation of the
Town of Markham’s “Water and Wastewater System Financial Plan”;
3)
AND THAT Council authorize Staff to submit the “Water
and Wastewater System Financial Plan” to the Ministry of Municipal Affairs and
Housing on or before July 1,
2010;
4)
AND THAT this report be taken to the June 8, 2010
Council meeting;
5)
AND THAT Staff be authorized and directed to do all
things necessary to give effect to this resolution
EXECUTIVE SUMMARY:
Not applicable
To obtain Council’s approval of the “Water and
Wastewater System Financial Plan”, and to seek authorization from Council to
publish the Town’s water and wastewater system financial information, and
submit a copy to the Ministry of Municipal Affairs and Housing, as required by
the Safe Drinking Water Act.
In Part Two
of Justice Dennis O’Connor’s Walkerton Inquiry Report, it stated that the
Ministry should move towards a municipal licensing program regime incorporating
the concepts of quality management. The recommendation forms the basis of the
Municipal Drinking Water License (MDWL) program.
The MDWL is a
new approvals framework for municipal residential drinking-water systems,
replacing the current Certificate of Approval (C of A). Requirements for the
issuance of a MDWL became mandatory for all owners of municipal residential
drinking-water systems in 2007, as part of the Safe Drinking Water Act (SDWA).
The
requirements for the issuance of the MDWL are:
1.
A Drinking Water Works Permit (DWWP – replacing any
current C of A)
2.
A Permit to Take Water
3.
An approved Operational Plan
4.
An accredited Operating Authority
5.
An approved Financial Plan
The Town has
already fulfilled requirements 1 to 4 (with requirement 2 as not applicable),
by implementing the Quality Management System (QMS) that complies with the
Drinking Water Quality Management Standard (DWQMS). The successful QMS
implementation leads the Town to become the accredited Operating Authority and
received the Municipal Drinking Water License in August 2009. However it is
with the understanding that the Owner must prepare and approve the Financial
Plan for the Town’s drinking-water system that satisfies the requirements O.Reg.
453/07 by July 1, 2010.
O.Reg. 453/07
requires the following:
·
The Financial Plan be approved by resolution of
Council that specifies that the drinking water system is financially viable;
·
Full-cost accounting to be utilized to determine the
true cost of the drinking water system; and
·
Projections be at least six years, but recommends a
long term plan
Together with
the approved Operational Plan, the Financial Plan must be made available to the
public who are served by the Town’s drinking-water system. Failure to approve
and submit a Financial Plan prior to the deadline may result in the loss of the
Town’s MDWL. The Financial Plan is a mandatory
requirement for the Town to be in full compliance with the MDWL program.
The Financial
Plan must include a statement that the financial impacts of the drinking-water
system have been considered, and must apply for a period of at least six years.
For each year in which the Financial Plan applies, the Financial Plan must
include details of the following:
i.
Details of the proposed or projected financial
position of the drinking water system itemized by,
a)
Total financial assets,
b)
Total liabilities,
c)
Net debt,
d)
Non-financial assets that are tangible capital
assets, tangible capital assets under construction, inventories of supplies and
prepaid expenses, and
e)
Changes in tangible capital assets that are
additions, donations, write downs and disposals.
ii.
Details of the
proposed or projected financial operations of the drinking water system
itemized by,
a)
Total revenues, further itemized by water rates, user
charges and other revenues,
b)
Total expenses, further itemized by amortization
expenses, interest expenses and other expenses,
c)
Annual surplus or deficit, and
d)
Accumulated surplus or deficit.
iii.
Details of the
drinking water system’s proposed or projected gross cash receipts and gross
cash payments itemized by,
a)
Operating
transactions that are cash received from revenues, cash paid for operating
expenses and finance charges,
b)
Capital
transactions that are proceeds on the sale of tangible capital assets and cash
used to acquire capital assets,
c)
Investing transactions that are acquisitions and
disposal of investments,
d)
Financing
transactions that are proceeds from the issuance of debt and debt repayment,
e)
Changes
in cash and cash equivalents during the year, and
f)
Cash
and cash equivalents at the beginning and end of the year.
The Financial
Plan is currently only required for the water system, as set out in the
Regulation. This requirement may be expanded to include a wastewater system at
a future date when the regulations governing the Sustainable Water and Sewer
Systems Act are released. Two options were considered: develop the Financial
Plan for only the water system or develop the Financial Plan which is inclusive
of water and wastewater services.
Another consideration
made in developing the Financial Plan included the number of years to include
as the planning period. The minimum requirement of the legislation is a
Financial Plan which applies for a period of at least six years and will need
to be updated in five years as it is a required for the renewal of the MDWL. There
is no prescribed maximum period of time for the planning period.
The basis for
the Financial Plan is the Town’s annually updated reserve fund study which
includes both water and wastewater services. On an annual basis, Financial
Services reviews and updates the comprehensive Waterworks Reserve Study. The
Study utilizes a rolling 25-year planning horizon and examines funding
requirements for operating, capital, reserve and reserve fund contributions.
Based on the total costs, projections of growth and consumption, the reserve study
determines the water and wastewater rates to ensure long-term sustainability.
Since the comprehensive reserve study is inclusive of the wastewater system,
the Financial Plan will also include both services. The Financial Plan is
developed using the minimum prescribed planning period of six years. As the
Waterworks Reserve Study is updated annually, a six-year planning period is
better able to maintain alignment with the Reserve Study. The Financial Plan
may be updated to reflect the changes in the reserve study, ahead of the
renewal of the MDWL, should the reserve study vary significantly from the
Financial Plan after an update.
The water and
wastewater operating activities continue to present a surplus situation each
year over the planning period (approx. $79M over 6 years as evidenced in the
Cash-Flow projections). The positive cash-flows from operations combined with
the available balances in the reserves and reserve funds are forecasted to be sufficient
for the planned capital acquisitions during this period. The cash-flow
projections are based on the Town’s water and wastewater reserve study that includes
the full cost of providing services. Adequate funding is available when
required, thereby negating the need for any external debt for capital
acquisitions. As of January 1, 2010 the Town of Markham’s inventory of water and
wastewater tangible capital assets had a net book value of about $686.3
million. Over the planning period, to the end of 2015, this total is estimated
to increase to about $786.3 million, an increase of $100M.
The
combination of water and wastewater reserve funds along with positive cash-flows
from operations provides evidence of the financial viability of the water and
wastewater systems during the planning period.
The completed
“Water and Wastewater System Financial
Plan” is attached as Attachment “A”.
Not
applicable
Growth
Management – The preparation of the Town’s Financial Plan must apply for a
period of at least six years, which takes into consideration the future growth
of the Town’s drinking-water system.
Municipal
Services – The completion of the MDWL is crucial as the Town requires this
license in order to continue provide drinking water to the Town’s consumers.
Green Print –
The development of the Financial Plan supports the sustainability of the Town’s
water system ensuring the continued delivery of clean and safe drinking water.
The
completion of the Financial Plan is the joint effort of the Financial Services
Department and the Waterworks Division. Financial Services is taking the lead
role in the development of the Financial Plan, with Waterworks Division
providing the required data and support in order to complete the Financial
Plan.
The
undersigned represents the Corporate Top Management of Town of Markham’s
Drinking Water Distribution System. By signing below, the Corporate Top
Management of the Operating Authority has reviewed the Financial Plan, and
hereby recommends the Financial Plan to be brought forward to the Owner’s
attention.
RECOMMENDED
BY:
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Attachment
“A” – Town of Markham
Water and Wastewater System Financial Plan
WW%20System%20Financial%20Plan.doc