Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO:

Standing Committee on City Services & Budget

FROM:

General Manager of Engineering Services
General Manager of Corporate Services

SUBJECT:

Establishment of 2002 Sewer Rates

 

RECOMMENDATION

GENERAL MANAGER COMMENTS

COUNCIL POLICY

On March 9, 2000, the Standing Committee on City Services and Budgets approved the rate structure and implementation schedule of BOD/TSS/Flow direct charges.

On April 4, 2000, Council approved the implementation of user fees for consumption based sanitary sewer services.

Council established that fees for services are to be set at cost recovery level or at market level in circumstances where City Services compete with the private sector.

Public Sewer Connection fees are reviewed annually by Council to establish the following year's rates.

PURPOSE

The purpose of this report is to recommend revised sanitary sewer user fees for 2002, pricing changes for public sewer connection services and some amendments to the Sewer and Watercourse By-law.

BACKGROUND

The City implemented a consumption based sanitary sewer utility effective July 1, 2000. In 2001, with full implementation, about 43% of sewer costs are now funded from user fees. The remaining 57% of sewer costs, comprised of infrastructure costs of the sanitary sewer operation and the entire storm sewer component, are more closely related to lot size and continue to be funded from the general tax levy. On December 14, 2000, Council elected to defer the implementation of lot size based sewer fees.

DISCUSSION

1. Review of 2001 Sewer & Drainage Operations

Staff have completed a comprehensive Sewer Utility post implementation review this fall. This review provided some insightful details of the sewer utility experience during the first eighteen months of operation and provided the fundamentals for making revisions to the Sewer Utility Costing Model for 2002 rate setting purposes.

It is projected that for the first eighteen months of sewer utility operation, net revenues will exceed expenditures by about $2.1 million This operating surplus will be transferred to the stabilization reserve and be available for managing the utility in future years. It should be noted that the actual surplus at year end is expected to be in the order of $2.7 million, but that a $600,000 allowance for rebates is recommended. Rebates of sewer fees are available to customers, such as golf courses and the Vancouver Port Corporation, who discharge less than 85% of their water consumption into the sewer system. Engineering staff are processing applications by a number of these consumers to validate their qualification for a rebate under the By-law and are in the final stage of the approval process before providing a retroactive credit.

A number of factors have contributed to the operating surplus. On the expenditure side over the last eighteen months actual sewer program costs have remained on target. However a change in the structure of the City's 2001 debenture issue resulted in significantly lower costs than anticipated in the original budget. The latter amounted to a savings of $1.2 million.

On the revenue side, staff project that overall sewer fees recovery will be about $900,000 more than budget projections after accounting for the $220,000 in foregone revenue associated with fee exemption provided to the Vancouver School Board for 2001. The reason for this revenue surplus is because metered water consumption was higher in both 2000 and 2001 than model projections which were based on 1999 metered water consumption level. Upon a review of the overall water consumption and metered water consumption, staff recommended modification be made to the costing distribution model to better reflect the water consumption pattern and trends as noted in the next section of this report.

The following table summarizes the projected financial result for the first eighteen months sewer utility operation.

Description

Amount

%

Revenues
Sewer Fees - Flat
Sewer Fees - Metered
BOD/TSS/Flow Charges
Total

Expenditures
Fees Supported Sewer Costs (43.4% of Total Sewer Costs)
BOD/TSS/Flow Costs
Sewer Utility Administrative Costs

Surplus (Deficit) before Allowance for Rebate

Less: Allowance for Rebates

Surplus (Deficit)

$16,251,000
$23,242,000
$1,735,000

$41,228,000

$36,616,000
$1,574,000
$307,000

$38,497,000

$2,731,000

$600,000

$2,131,000

39.4%
56.4%
4.2%

100.0%

95.1%
4.1%
0.8%

100.0%

2. 2002 Sewer Budget

In order to establish sanitary sewer fees for 2002, staff have developed a projection of the operating expenditures for sewer and drainage operations as shown in the table below. This projection indicates that sewer costs will increase by about $1,127,500 (or 2.0%). This increase is driven by the following factors:

· a projected $1,496,000 (or 4.8%) increase in GVS&DD costs. Regional staff have advised that this increase is attributed to an expected 7.7% increase in total operating costs and a 3.1% increase in debt charges.

· a projected $369,100 (or 1.5%) reduction in overall City costs. This includes reduced debt charges of $535,600 and an inflationary increase and budget adjustment in the City's sewer and drainage operating costs totalling $166,500.

 

2001 Budget

2002 Forecast

Inc/(Dec)

% Change

Expenditures:
City Debt Charges
City Operating & Maintenance
GVS&DD Costs

Total Sewer Costs

$20,361,600
$4,681,900
$31,476,800

$56,520,300

$19,826,000
$4,848,400
$32,973,400

$57,647,800

$(545,600)
$166,500
$1,496,600

$1,127,500

(2.6%)
3.6%
4.8%

2.0%

Less:
BOD/TSS/Flow Direct Charges

$928,800

$971,000

$42,000

4.5%

Sewer Costs to be allocated

$55,591,500

$56,676,800

$1,085,300

2.0%

Sewer Utility Share:

43.4%
$24,126,700

47.3%
$26,808,100

3.9% Inc.
$2,681,400

  

Sewer Cost to be recovered from Sewer Fees
Add: Sewer Utility Administrative Costs
Costs to be recovered from BOD/TSS/Flow Charges

$24,126,700
$220,800

$928,800

$25,276,300

$26,808,100
$229,500

$971,000

$28,008,600

$2,681,400
$8,700

$42,200

$2,732,300

11.1%
3.9%

4.5%

10.8%

Cost Recovery:
Flat Rate Revenue
Metered Rate Revenue
BOD/TSS/Flow Charges
Transfer to Sewer Stabilization Reserve

Total

($10,930,600)
($14,590,800)
($928,800)
$1,173,900

($25,276,300)

($11,497,600)
($15,540,000)
($971,000)
$0

($28,008,600)

($567,000)
($949,200)
(42,200)
($1,173,900)

($2,732,300)

5.2%
6.5%
4.5%
(100.0%)

10.8%

BOD/TSS/Flow rates for 2002 will not be available until March 2002 because staff rely on GVS&DD unit rates and measured 2001 flow and loadings from each industry to set the rates. However, based on the discharge loading data gathered so far in 2001, staff project that the BOD/TSS/Flow recovery for 2002 will be approximately 15% lower than the 2001 actual experience but 4.5% higher than was budgeted in 2001. 2001 actual flows and loadings were higher than expected.

As part of the review, staff have also updated the distribution of sewer costs to be recovered through sewer fees and the general tax levy. In establishing the Sewer Utility, Council approved the recovery of sanitary sewer consumption costs through the Sewer Utility. One of the largest components of such consumption costs is the GVS&DD cost component,consisting mostly of sewage treatment costs. Since the original cost distribution was compiled in 2000, GVS&DD costs have increased by 11%, while City costs have actually decreased. As a result of these changes, there is a $2.2 million increase in the costs that should be recovered through fees (from 43.4% to 47.3% of total sewer costs) and an offsetting reduction in the costs that should be funded by property taxes. This change is built into the rates recommended below.

In addition to updating the costing data, staff have adopted a seven year moving average for water consumption data to use in the sewer rate setting model. Rate modelling was based on 1999 water consumption data for the 2000 and 2001 rate calculation. Staff believe that a seven year average of overall water consumption and metered water consumption will provide a better representation of water consumption trends that should be reflected in rates.

3. Sewer Rates for 2002

Applying 2002 budget projections and all of the above noted recommendations to the updated sewer rates costing model, staff have calculated key 2002 sewer fees as shown in the table below (see appendix 1 for full listing of 2002 sewer fees).

It should be emphasized that the table above shows that both metered and non metered rates will have a higher percentage increase than the overall increase expected in 2002 sewer expenditures (2%). This difference results from the additional $2.2 million in costs being funded by the 2002 rates which under the previous cost distribution formula would have been funded by general property taxes. Accordingly, this will result in a $2.2 million reduction in costs to be funded by the general property tax levy.

4. Public Sewer Connection Rates for 2002

Public sewer connections to new developments are provided through a cost-recovery program. Fees for this program are adjusted annually to reflect actual costs incurred and anticipated inflation. On average, fees have been increased approximately 2% per year over the last five years. The highest annual percentage increase was approved in 2000 to offset wage contract settlements and price increases for asphalt (up 85%) and aggregate (up 38%). Prior to this, annual adjustments were in the order of 1% to 1.5%, which was very often less than the general inflationary increase.

With the exception of a variable depth charge, connection fees are flat rated so that each property owner pays the same amount. This flat rate policy was established by Council with the intention of not penalizing property owners who live on major arterial streets or who have their sewer mains located on the far side of the street.

A recent review of the connection program has determined that some fee adjustments are needed for 2002.

(A) Residential and Commercial Connection Fees

(i) Residential Connections

The cost to install connections on arterial streets has increased significantly over the last three years. Annually, 8 to 10% of residential connections are installed on arterial streets. Arterial street construction is more expensive due to issues such as wider right-of-ways, higher street repair costs because of thicker asphalt/concrete required and wider sidewalks, additional traffic control requirements and slower progress rates because of the need to keep traffic flowing around work site. Increasing traffic volume and new traffic control procedures over time have tended to put upward pressure on the cost to install these types of connections. In the past, staff had been able to neutralize these negative impacts by deploying various cost control and efficiency measures and by spreading the costs over all of the connections in the City. Unfortunately, in the past year staff have found that it has become not possible to absorb all of these costs.

Procedures which have been gradually introduced over the last few years prohibit work on arterial streets during rush hours and require that a higher level of traffic control measures (warning signage, additional flag personnel, delineators, etc.) be implemented. More pre-construction planning and consultation with parties that might be affected by the work, including neighbouring businesses, is also now mandatory.

As a result of these changes, the time required to install a connection on an arterial street has increased significantly. In order to reduce costs, staff have begun installing many arterial connections on weekends when traffic volumes tend to be lower and there are no designated rush hour work prohibitions. While installing connections on weekends does provide some savings, it is not sufficient to offset all of the additional costs.

On average, the cost of connections installed to residential properties on arterial street for the past three years amounted to about 75% more than the fees which was received for these installations. Although only 9% of the connections installed this year have been to properties on arterial streets, this nevertheless has translated to an overall permit fees under-recovery of almost 7% and has put the connection program in an imbalance position.

While on-going cost control and efficiency efforts have mitigated some of the increases, some additional fee recovery above inflation is needed in order to run the connection program on a full cost recovery basis. Two alternatives exist to factor the cost component relating to the added costs due to the changes. One alternative is to increase permit fees by about 42% for connections to residential properties on arterial streets, and the other alternative is to increase permit fees for all residential properties by about 4%. Staff recommend the latter alternative as this would be consistent with the past Council flat rate connection fee policy of treating all properties equally regardless of the location of the property.

In addition, staff estimate that an inflation allowance of 3.1% will be needed for next year. This allowance is to cover projected increases in wages, materials and equipment rental costs. Therefore, staff recommend the 2002 residential sewer connection rates be increased by 7.1%. Because fees/costs for both the residential sewer and water connections are being accounted for as one combined job, staff recommend that 2002 residential water connection fees also be increased by 7.1%. 2002 flat rate water connection fees are listed under Schedule A in Appendix A of the 2002 Water Rates report.

(ii) Commercial Connections

The evolving rush hour work procedures have also had a similar negative cost impact on commercial connection costs. While a higher percentage of commercial connections (about 57% in 2001) are installed on arterial streets, some of these costs had already been factored into the fees. Staff therefore recommend holding the 2002 commercial connection rate increase to 7.1% (4% to offset additional traffic costs and 3.1% for inflation), which is the same as that recommended for residential sewer connections.

(B) Recovery of Manhole Installation Costs on an At-Cost Basis

Manholes are sometimes required on very large commercial developments where the size of the connection is the same size as the main sewer. Typically, less than 10 of these manholes are installed each year. Manhole construction costs are also extremely variable as they are driven by factors such as depth, soil conditions. traffic control problems, and utility conflicts. Due to the small number of manholes installed and their extremely variable costs, over a year it is difficult to guarantee full cost recovery without significantly increasing the flat fee charged.

One option to achieve full cost recovery for this service would be to provide it on an at cost basis. As manholes fees are typically less than 10 times each year, administratively it would be feasible to individually estimate and charge for them. It is therefore recommended that by-law revisions be made to eliminate the flat rate manhole fee and replace it with an at cost charge.

5. "HouseKeeping" Amendments to the Sewer and Watercourse By-law

In addition to bringing forward necessary amendments to the Sewer and Watercourse By-law for approval of 2002 sewer rates, staff recommend a change to the By-law to bring billing practice for industrial wastewater permit holders more in line with a user pay principle. Under the current By-law, permit holders are billed in each current year based on the prior year's discharge data. The current practice requires the permit holder to pay for a whole year's service even if the permit holder discontinues an industrial operation part way through a year. In addition, the property owner would be required to pay in the following year for the charges related to the wastewater discharge volume incurred for the portion of time the permit holder operated in the previous year. Staff feel that this does not reflect a true user pay system as the same property can be double billed for sewer services.

A fairer practice for billing the permit holder would be to proportion the current year's charges based on the actual current year wastewater discharge volume in the partial year they operated. Accordingly, staff recommend an amendment be made to the by-law to effect this.
In 2001, staff have noted a few properties where an industrial waste user has moved or ceased discharging industrial waste. Accordingly, staff also recommend that the By-law be amended so as to permit the giving of a credit (on the same basis as above) for those properties whose permit holders moved or discontinued industrial waste discharge operations during 2001. Such an amendment would permit staff to treat these "prior year" permit holders in the same way as 2002 and future permit holders.

* * * * *

cs011213.htm

APPENDIX 1

2002 SEWER FEES

APPENDIX 2

2002 SEWER CONNECTION RATES

Description

Current Fee

Recommended

Fee - 2002 *

Public Sewer Connection for One and Two Family Dwellings

$4,690

$5,030

Public Sewer Connection for other than One and Two Family Dwellings:

4 inch/100 mm diameter
6 inch/150 mm diameter
8 inch/200 mm diameter
10 inch/250 mm diameter
12 inch/300 mm diameter
15 inch/375 mm diameter

$6,130
$7,400
$8,370
$9,660
$10,980
$12,270

$6,570
$7,930
$8,970
$10,350
$11,760
$13,150

Manhole Installation in conjunction with a Public Sewer Connection

$3,700

at cost

Connections greater than 15 inch/375 mm diameter plus variable costs pursuant to Section 2.7(2) of Sewer and watercourse By-law

$12,270

$13,150

New Fittings - Twin Sewer
New Fittings - Single Sewer

$2,280
$1,000

$2,450
$1,080

Inspection Fee for Connection to a Public Sewer

$150

$170

* 2002 fee represents a 7.1% increase rounded up to the nearest 10 dollars

cs011213.htm

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