A water rate hike of two per cent per year from 2016 to 2024 may be in the Town of Erin’s future.
At the May 5 Erin meeting, council received a presentation from Rakesh Sharma from GSS Engineering Consultants Ltd. regarding a new financial plan for the municipal water systems.
Sharma presented four funding models for council to consider when it decides on its preferred water rate billing method.
Each model uses base rates for 2015, meets cash flow objectives and maintains the life cycle reserve at $400,000.
The recommended model is the CPI (consumer price index) model, which sees a 2% increase in water rates from 2016 to 2024 per CPI. This model allocates any surplus (money not used that year to supply water to residents) to the lifecycle reserve, specifically set aside for unplanned costs to the water system.
Sharma said it’s important to keep the lifecycle reserve above $400,000 so the town has capital that can be used in the event of an emergency or unexpected cost.
“The municipality has to decide what it is going to be comfortable with (for) the minimum reserve fund,” he explained.
“If you allow the reserve funds to fall below a target level then you could be in a position where you have a big expense come up and you have to do a big capital project that you had not seen.”
Under the CPI model, in 2016, the average monthly base rate for regular residential customers would be $15.39 with $4.38 per cubic metre of usage going toward the water bill and the lifecycle reserve (this year the usage rate is $4.29/m³).
This model is recommended because it “generates the highest cash flow and healthy financial position,” the report stated.
Mayor Allan Alls said it is important to keep up the reserves because the town wouldn’t respond well if the municipality needed to use general revenues to pay for the water system.
“In our town, if we needed to use general revenues to pay for the water replacement we’d be faced with a rebellion and I’d probably be leading it because I’m about to spend at least $3,000 reconditioning my well … so a large number of our ratepayers aren’t on the water system, so it really has to look after itself somehow,” Alls said.
Another model that gained attention from council was the “roll back” model, under which the water rates would decrease by 5% reverting back to 2014 rates. They would then be frozen at that rate from 2016 and 2024. Any surplus generated over that time would be put into the lifestyle reserve.
This means the average homeowner will be charged $15.39 as a base rate with $4.08/m³ going toward the water bill and lifecycle reserve.
Councillor John Brennan questioned whether the roll back model was sufficient to make the reserves healthy enough to keep the town in a comfortable position.
“If we were to take this and say go with the roll back model, in other words freeze people’s water rates now, how much trouble will we be in, in the fifth year?” he asked.
“If we did that as opposed to actually increasing the rates year by year, and I know there’s a difference in terms of what we have and what we’d be capable of doing, but what kind of danger will we be putting ourselves in and is it significant enough to say don’t do it?”
Sharma said even if there is not a plan to replace an item in the municipal water system there is always the chance of something happening unexpectedly and it’s always a better practice to have more than needed in the reserves for that event, rather than too little.
“If you keep the reserve fund really low, only say $100,000, I mean you and me both know that $100,000 will not do a lot when it comes to the capital projects,” he said.
The other two models discussed were the depreciation model and the capital plan model.
The depreciation model would ask water ratepayers to contribute the average annual depreciation over nine years plus 15% to go into the lifecycle reserves.
In 2016 this means the base rate would still be $15.39 for the average homeowner and they would pay $3.49/m³ for water used.
This model “provides the most reduced cash flow” and “the least wealthy financial position,” the report said.
The capital model asks the ratepayer to “contribute total average tangible capital asset purchases over nine years to the lifecycle reserve,” the report said.
In 2016 this means the base rate would still be $15.39 for the average homeowner and they would pay $3.99/m³ for water used.
When Erin last reviewed its water system fees in 2011 a 20% hike over four years was approved, with the hike decreasing to a 5% increase scheduled from 2015 to 2019.
There is a public meeting scheduled to discuss the water system financial plan on May 19 at 6:30pm before the regular council meeting.
