ADMINISTRATIVE REPORT

Date: October 19, 1999
Author/Local: G Merchant/7250
RTS No. 01094

CC File No. 1755

Council: November 30, 1999

TO:	Vancouver City Council
FROM:	Director of Finance and General Manager of Engineering Services
SUBJECT:	Annual Review of Water Rates for 2000

RECOMMENDATION

A. THAT Council approve an increase in water rates for 2000 of approximately 5.1% as follows:

· for single dwelling units be increased from $244 to $256,
· other flat water service charges for residential properties (Schedule “B”),
· charges for metered water service (Schedule “D”), and
· charges for temporary water service during construction (Schedule “F”)

with the rates as detailed in this report be approved effective January 1, 2000.

B. THAT other fees for water services be increased by 1.5% to reflect cost increases including inflation, including:

· flat rate connection and removal fees (Schedule “A” and Schedule “A.1”),
· flat service charges for unmetered fire service pipes (Schedule “C”),
· meter service charges (Schedule “E”), and
· flat rate fees for installation of water meters (Schedule “G”)

with the rates as detailed in this report be approved effective January 1, 2000.

C. THAT the Director of Legal Services be instructed to bring forward the necessary amendments to the Water Works By-law for approval.

GENERAL MANAGER COMMENTS

The General Manager of Corporate Services and the General Manager Engineering Services RECOMMEND approval of A, B and C.

COUNCIL POLICY

Water rates for both metered and non-metered customers are specified in the Schedules of Rates and Charges included in the Water Works By-law. These schedules are updated annually by Council to establish the following year’s water rates.

PURPOSE

The purpose of this report is to recommend a general increase in water charges for 2000 to fund GVWD and City water system costs.

BACKGROUND

The waterworks distribution system of the City of Vancouver operates on a utility basis, with the City purchasing water from the Greater Vancouver Water District (GVWD) supply system and distributing it to water consumers within the City on a cost-recovery basis, including debt charges.

DISCUSSION

1. 2000 Waterworks Operating Budget Projection

In order to develop water rates for 2000, staff have developed a projection of the operating expenditures for the waterworks utility (Table 1) which includes estimates of City operating and debt costs and the costs of purchasing water from the GVWD. This projection indicates that a 5.1% increase in water purchase costs for our customers will be necessary to balance that budget.

This increase in water rates is driven by the requirement to fund:

· the projected 16.2% increase in City debt charges following from the debentures issued in July and October 1999. The 1999 debenture issues, totalling $40 million for water purposes, arise from the borrowing approved by Council for the 1997 - 1999 Waterworks Capital Plan. This plan included funding for a 1.5% annual waterworks infrastructure replacement program as well as the development of the Dedicated Fire Protection System.

The value of the debenture issues in 1999 was unusual for the City and resulted because of delays in waterworks and other capital expenditures during 1997 and 1998. Staff are recommending some mitigation from the impact of the new debt charges on 2000 water rates which is detailed below.

· the projected 9.1% increase in GVWD water costs. This increase is a combination of a projected 8.6% increase in GVWD water rates along with a 0.5% projected increase in consumption. The GVWD rates are expected to increase substantially over the next ten years, due to an extensive water transmission capital program to address regional growth, and implementation of the Drinking Water Treatment Program.

· the projected inflationary increase (1.5%) in waterworks operations costs.

Overall, these factors are anticipated to result in an increase in water costs of 11.0% over the anticipated 1999 result.

2. Transfer from the Water Rates Stabilization Reserve

The water rates stabilization reserve is comprised of the accumulated operating surpluses and deficits of the waterworks operations over the years and is used mainly to stabilize year over year changes in the water rates.

It is expected that there will be a surplus of $2.3 million in 1999 which will increase the reserve to a balance of $5.25 million. This surplus arises primarily for two reasons:

· net income from water consumption is approximately $1.0 million below expectations as a result of lower metered consumption.

· although the 1999 water rates assumed new debt charges of $3.2 million, the delay in issuing water debt resulted in none of this expense being incurred.

As noted above, one of the main drivers in the increase in water costs for 2000 is debt charges. As some of these costs were actually accounted for in 1999 water rates, it is appropriate to mitigate the increase in 2000 by drawing from the Water Rates Stabilization Reserve. It is recommended that $575,000, equivalent to a half year interest on the delayed 1998 debenture issue, be transferred from the reserve to offset the large increase in debt costs in 2000. Council has the option of taking a larger draw from the reserve and further reducing the rate increase, but this is not recommended as reserve funding is not sustainable, and would require larger rate increases in the future at the same time as the City will face additional water purchase costs from the GVWD.

3. Water Rates for 2000

The impact of the proposed water budget will be to bring the flat water rate for a single family dwelling to $256 per year, up from $244 in 1999. This is slightly lower than the $259 projection shown in the Waterworks 2000-2002 Capital Plan which was approved by Council on September 21, 1999.

Table 1
1999 and 2000 Water Budget Projection

	2000 Projected Budget	1999 Estimated	Inc/(Dec)	%
Expenditures
Debt Charges	$24,685,400	$21,247,400	$3,438,000	16.2
Water Purchases (GVWD)	22,633,700	20,742,100	1,891,600	9.1
Water Rates Billing	801,500	789,700	11,800	1.5
Operating & Maintenance	6,547,600	6,450,800	96,800	1.5
Total Expenditures	$54,668,200	$49,230,000	$5,438,200	11.0
Revenue
Flat Rate Revenues	$21,908,900	$20,833,400	$1,075,500	5.2
Meter Service Charge	2,079,300	2,048,600	30,700	1.5
Metered Rate Revenues	30,105,000	28,661,600	1,443,400	5.0
	54,093,200	51,543,600	2,549,600	4.9
Transfer from/(to) Reserve	575,000	(2,313,600)	2,888,600
Total Revenues	$54,668,200	$49,230,000	$5,438,200	11.0

4. Other Water Fees and Charges

In addition to consumption based charges, the water bylaw includes fees and charges for a variety of services provided by the City, including service connections fees, unmetered fire service fees and meter installation and service charges. These are detailed in Schedules
A, A.1, C, E and G of the bylaw. It is recommended these fee be increased by 1.5% to cover inflationary increases in the cost of material and labour.

CONCLUSION

Rates for water consumption and services are adjusted annually to offset cost increases in the water utility, including operating and debt charge costs and the costs of purchasing water from the GVWD. Based on a review of the waterworks costs for 2000, it is recommended that consumption based fees be increased by approximately 5.1% and service fees be increased by 1.5%.

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(c) 1998 City of Vancouver