COUNCIL MEETING
Cost of Service Study
Rate Design Review
Meeting Date: 05/20/14
Agenda Item #: 10.1
Report Purpose
To present Council with recommended changes to the water rates through the completed Cost
of Service Study (COSS).
Recommendation
THAT Council approves changing the 2015 water rate structure by:
i.
Consolidating the Sherwood Park, Ardrossan and Josephburg volumetric
rates into one consolidated hamlet volumetric rate;
ii.
Consolidating the Tamarack, Half Moon Lake and Ardrossan truck fill
rates into one consolidated truck fill volumetric rate; and
iii.
Consolidating the Country Residential and Expanded Services Area one
and two volumetric rates into one consolidated rural volumetric rate.
Council History
July 6, 2010 – Council received the Utilities Department Performance Review Final Report as
information.
October 23, 2012 – Council endorsed, for analysis purposes only, the following pricing
objectives for water rate design:
i.
Very Important: Financial Sufficiency, Equity, Rate Stability
ii.
Important: Revenue Stability, Conservation, Affordability
iii.
Less Important: New Customer Contributions, Customer Impacts, Simple to
Understand, Economic Development, Ease of Implementation
Council directed Administration to proceed with analysis of a proposed water rate structure to
restructure our customer classes to a consolidated Hamlet Rate, Truck Fill Rate and Rural Rate
and report back to Council with the impacts of the potential changes.
Strategic Plan Priority Areas
Economy: Water rate structure can help to ensure funding is available for sustainable
municipal infrastructure. Water rates structure can be a factor for commercial and industrial
development.
Governance: n/a
Social: Water rates structure impacts a resident’s cost of living.
Culture: n/a
Environment: Water rate structure can help encourage water conservation and reduce water
demand which would benefit the environment.
Other Impacts
Policy: n/a
Legislative/Legal: n/a
Interdepartmental: n/a
Summary
April 15, 2014 – The Priorities Committee was updated on the progress of the Cost of Service
Study (COSS) for water services.
Document: 5995327
Page 1 of 2
-2Enclosure
I
Cost of Service Study Rate Design Review PowerPoint Presentation (Document:
6024428)
Author: Bobby Kuruvilla, Utilities
Date: May 7, 2014
Director: Jeff Hutton, Utilities
Associate Commissioner: Kevin Glebe, Infrastructure & Planning Services
Document: 5995327
Enclosure I
Cost of Service Study
for Water
Utilities
Council Meeting: May 20, 2014
Document: 6024428.ppt
Purpose
To present Council with recommended changes to the
water rates through the completed Cost of Service Study
(COSS).
2
Council Direction
October 23, 2012 Council Motion
THAT Council endorses, for analysis only, the following pricing
objectives for water rate design:
i. Very Important: Financial Sufficiency, Equity, Rate Stability
ii. Important: Revenue Stability, Conservation, Affordability
iii. Less Important: Economic Development, New Customer
Contributions, Customer Impacts, Simple to Understand, Ease of
Implementation
3
Council Direction
October 23, 2012 Council Motion
THAT Council direct Administration to proceed with analysis
of a proposed water rate structure to restructure our
customer classes to a consolidated Hamlet Rate, Truck Fill
Rate and Rural Rate and report back to Council with the
impacts of potential changes.
4
Council Direction
Council Strategic Plan:
Goal 1: Strategically manage, invest and plan for
sustainable municipal infrastructure.
5
Rate Making Process
5
Step 5: Assess Effectiveness of
Addressing Pricing Objectives
4
Step 4: Design Rate Structure
3
2
1
Step 3: Allocate Cost
Step 2: Determine Revenue Requirement
Step 1: Identify Financial and Pricing
Objective
6
Step 4: Design Rate Structure

Fixed Charges
 Invariant with customer water usage
 Cost-of-service fixed charges reflect customer
service costs (e.g. billing, water meters)
 Fixed charges may include portion of capital
costs

Variable Charges (‘Consumption’ Charges)
 Vary with amount of water used
 Recover utility costs that vary with customer
usage patterns
7
Hamlet Customers
8
Proposed Rate Design
Hamlets
Current Structure
Proposed Structure
•Three customer classes (Sherwood
Park, Ardrossan and Josephburg)
– Similar fixed charge for metering
and billing
– Different volumetric charges
• One customer class (Sherwood Park,
Ardrossan and Josephburg)
– Similar fixed charge for metering and
billing
– Same volumetric charge based on a
similar service level (pressurized
water system)
9
Truck Fill Customers
10
Proposed Rate Design
Truck Fill
Current Structure
Proposed Structure
• Two customer classes (Sherwood Park Truck
Fill) and rural (Ardrossan and Half Moon
Lake)
-Different volumetric charges
• One customer class
-Same volumetric charge based on similar
level of service
11
Rural Customers
12
Proposed Rate Design
Rural
Current Structure
Proposed Structure
• Three customer classes (Expanded Service
Area 1, Expanded Service Area 2 and Rural)
-Different fixed charge based on cost of
service
-Different volumetric charges
• One customer class
-One consolidated fixed charge for
Expanded Services Area 1 and 2
-Rural (County Residential) fixed charges
unchanged
-Same volumetric charge based on similar
service level
13
Rate Setting Process
5
4
3
2
Step 5: Assess Effectiveness of
Addressing Pricing Objectives
Step 4: Design Rate Structure
Step 3: Allocate Cost
Step 2: Determine Revenue Requirement
Step 1: Identify Financial and Pricing
Objective
1
14
Step 5: Assess Effectiveness
• Key Considerations
– Effectiveness of the current and alternative rate
structures at meeting pricing objectives.
– Compare customer bill impacts under the current and
alternative water rate structures.
15
Pricing Objectives - Hamlet
Pricing Objective
Impact
(+ / -)
Comments
Financial Sufficiency
+
Improve ability to fund repairs in rural hamlets.
Equity
-
Sherwood Park residents will be offsetting costs for higher infrastructure costs for
Ardrossan and Josephburg.
Rate Stability
+
Larger customer groups improves rate stability.
Revenue Stability
N/A
Conservation
N/A
Affordability
N/A
Economic Development
New Customer Contributions
+
Lower rates in Hamlets may deliver a positive impact.
N/A
Minimization of Customer Impacts
--
Rate would change for majority of residential customers.
Simple to Understand / Update
+
Most residential customers would have similar bills.
Ease of Implementation
+
No administrative cost required to implement.
16
Pricing Objectives – Truck Fill
Pricing Objective
Impact
(+ / -)
Comments
Financial Sufficiency
-
Decreasing the rate charged to largest customer group will decrease likelihood of revenue
collection.
Equity
-
Tamarack customers will be offsetting costs for higher infrastructure costs for Ardrossan
and Half Moon Lake customers.
Rate Stability
+
Larger customer groups means less variability of the rate.
Revenue Stability
N/A
Conservation
N/A
Affordability
N/A
Economic Development
N/A
New Customer Contributions
N/A
Minimization of Customer Impacts
-
Rates for all truck fill customers change.
Simple to Understand / Update
+
Common rates for all truck fill customers.
Ease of Implementation
+
No administrative cost required to implement.
17
Pricing Objectives - Rural
Pricing Objective
Impact
(+ / -)
Comments
Financial Sufficiency
+
Increasing the rate charged to largest customer group will increase likelihood of revenue
collection.
Equity
+
Proposal recognizes that some customers have paid a connection charge.
Rate Stability
+
Larger customer groups means less variability of the rate.
Revenue Stability
N/A
Conservation
N/A
Affordability
N/A
Economic Development
N/A
New Customer Contributions
N/A
Minimization of Customer Impacts
-
Rate for all rural customers change.
Simple to Understand / Update
+
More customers with a common bill.
Ease of Implementation
+
No administrative cost required to implement.
18
Sherwood Park
18 cubic meters
24,327 customers
Fixed Charge
2014
Proposed
Rate
3
(2.32 / m )
2014
Current
Rate
3
(2.23 / m )
Change
($)
Change (%)
5.36
5.36
-
Volumetric Charge
40.14
41.76
1.62
Total
45.50
47.12
1.62
3.6%
Proposed rates for 2014 are for illustrative purposes only. Any changes proposed will be
effective for the 2015 budget.
19
Ardrossan
18 cubic meters
136 customers
Fixed Charge
2014
Current
Rate
3
(2.67 / m )
2014
Proposed
Rate
3
(2.32 / m )
Change ($)
5.36
5.36
-
Volumetric Charge
48.06
41.76
-6.30
Total
53.42
47.12
-6.30
Change (%)
-11.8%
Proposed rates for 2014 are for illustrative purposes only. Any changes proposed will be
effective for the 2015 budget.
20
Josephburg
59 customers
2014
Current
Rate
3
(3.39 / m )
3
22.5 m
Fixed Charge
2014
Proposed
Rate
3
(2.32 / m )
Change
($)
Change (%)
3
18 m
5.36
5.36
-
Volumetric Charge
76.28
41.76
-34.52
Total
81.64
47.12
-34.52
-42.3%
As part of the proposal the minimum 22.5 cubic meter charge would be removed for all
residents in Josephburg.
Proposed rates for 2014 are for illustrative purposes only. Any changes proposed will be
effective for the 2015 budget.
21
Truck Fill
18 cubic meters
261 customers
2014
Current
Rate
3
2014
Proposed
Rate
3
(2.15 / m )
Change ($)
Change (%)
Sherwood Park (2.18 / m )
39.24
38.70
-0.54
- 1.4%
Ardrossan
& Half Moon
3
(2.34 / m )
42.12
38.70
-3.42
- 8.2%
Proposed rates for 2014 are for illustrative purposes only. Any changes proposed will be
effective for the 2015 budget.
22
Country Residential
18 cubic meters
750 customers
2014
Current
Rate
3
(2.23 / m )
2014
Proposed
Rate
3
(2.45 / m )
Change ($)
Fixed Charge
57.71
57.71
-
Volumetric Charge
40.14
44.10
3.96
Total
97.85
101.81
3.96
Change (%)
4.0%
Proposed rates for 2014 are for illustrative purposes only. Any changes proposed will be
effective for the 2015 budget.
23
Expanded Services 1
18 cubic meters
12 customers
2014
Current
Rate
3
(2.67 / m )
2014
Proposed
Rate
3
(2.45 / m )
Change ($)
Fixed Charge
46.46
46.46
-
Volumetric Charge
48.06
44.10
-3.96
Total
94.52
90.56
-3.96
Change (%)
-4.2%
Proposed rates for 2014 are for illustrative purposes only. Any changes proposed will be
effective for the 2015 budget.
24
Expanded Services 2
18 cubic meters
475 customers
2014
Current
Rate
3
(3.06 / m )
2014
Proposed
Rate
3
(2.45 / m )
Change ($)
Fixed Charge
47.26
46.46
-0.80
Volumetric Charge
55.08
44.10
-10.98
102.34
90.56
-11.78
Total
Change (%)
-11.5%
Proposed rates for 2014 are for illustrative purposes only. Any changes proposed will be
effective for the 2015 budget.
25
Conservation
• Current rate structure and other conservation initiatives are working
to meet water consumption targets as described in the Strathcona
County Water Conservation, Efficiency and Productivity Plan (2012).
• Consolidation of eight rates to three rates will have significant
customer impacts.
• Utilities to revisit conservation rate as part of next Cost of Service
Study (est. 2019).
26
Sherwood Park Water Consumption
Trends
Source: Strathcona County Water Conservation, Efficiency and Productivity Plan (2012)
27
Example Bill
2014 Monthly Bill
% Fixed
Solid Waste
Flat Fee
Subtotal
$23.95
$23.95
100%
Water
Flat Fee
Volumetric Charge
Subtotal
$5.36
$40.14
$45.50
12%
Wastewater
Flat Fee
Volumetric Charge
Treatment Charge (Min Charge)
Treatment Charge (Variable)
Subtotal
$13.25
$7.38
$13.20
$6.60
$40.43
65%
$9.65
100%
Storm
Flat fee
Total
28
$119.53
Recommendation
THAT Council approves changing the 2015 water rate structure
by:
i.
Consolidating the Sherwood Park, Ardrossan and Josephburg
volumetric rates into one consolidated hamlet volumetric
rate;
ii. Consolidating the Tamarack, Half Moon Lake and Ardrossan
truck fill rates into one consolidated truck fill volumetric
rate; and
iii. Consolidating the Country Residential and Expanded
Services Area one and two volumetric rates into one
consolidated rural volumetric rate.
29
Next Steps
– Wastewater cost of service study to begin in 2014
– Review Utility Reserve Policy in coordination with Financial
Services
• Current State
– Capital reserve
– Operating Rate Stabilization
• Potential options
– Capital reserve
– Asset Management reserve
– Operating Rate Stabilization reserve
– Dividend to municipality
30