As of January 1, Penetanguishene water rates will be set at 4.5 percent and wastewater rates at 8 per cent, for a blended 6.8 percent impact – or $79.40 increase – of an average residential customer.
In 2022, the total for an average residential customer who used 200 cubic metres was $1,168 per year. The proposed 6.8 percent increase for 2023 to bring that to $1,247 was approved by Penetanguishene council during a special committee of the whole meeting recently.
A presentation from Jim Bruzzese of BMA Management Consulting Inc. provided the rationale during the meeting, as the group had been retained earlier this year to complete an update to a previously completed water and wastewater financial plan and utility rates.
He praised Penetanguishene for taking a proactive approach to its long-term financial outlook, noting that by planning a 10-year time-frame the town was accomplishing more than the minimum five-year plan for water systems and six-year plan for wastewater operations as required by the province.
“We wanted to ensure a reasonable degree of stability and predictability in the rate burden, and this is for the benefit of both the municipality and the ratepayers,” said Bruzzese. “We wanted to make sure there is a fair sharing in the distribution of resources between current and future ratepayers; we don’t want to defer significant costs to future generations, which would cause more significant problems.”
Being a dynamic document, projected rates were estimated on assumed consumption based from previous years: a spike in decrease through to 2018 was due to the closure of the high school, loss of an industry, and reduction by the hospital. As it levelled off after that, Bruzzese stated that the assumptions were based on the 2019 through 2021 three-year average.
Additionally, no standard rate structure is recommended by the Canadian Waterworks Association; BMA found that Penetanguishene was similar to 90 of 100 comparable municipalities and set a foundation in that for their analysis.
“What we’re recommending is you continue on your two-part rate structure (a fixed-rate component and a volumetric component) and a continuation of 20 percent of your costs recovered from the fixed monthly charges. The reason for that is to continue to support ratepayer affordability,” said Bruzzese.
Reserve balances are important for a municipality’s financial flexibility in handling unexpected occurrences, one-time expenditures, and debt management. Nearly $1.2 million was recommended for the annual reserve contribution for water, and just over $1 million for wastewater. As the 2022 budget had only provided a $347,000 reserve contribution to water and $77,000 to wastewater, the annual funding gap was quite large with $824,000 water and $893,000 wastewater as a result.
“We recognize that you can’t have an increase in rates of that significance,” Bruzzese explained, “so one of the positive aspects coming out of the asset management plan was that when they looked at the water assets, they were rated as good and the sanitary assets were rated as very good.
“That’s what we built into the financial forecast; a gradual increase to provide a financially-sustainable base while considering ratepayer affordability.”
With debt servicing currently at a respectable 14 percent, by following the 10-year plan a gradual rate contribution increase would bring that to an above-average nine percent with no need to issue further debt.
“Right now you have a significant negative reserve balance in your wastewater operations, so by the time you get to 2026 if you have these rate increases, that negative reserve turns positive and therefore we can reduce the total impact to the taxpayers to five percent to 2031,” Bruzzese stated.
No questions were asked through the committee of the whole, with only Coun. George Vadeboncoeur sharing some words of support for the report which “clearly defines” the requirement to ensure sustainable water and wastewater operations in the future.
“I think that’s the message that we’ve heard; that these increases are necessary so that we can start to build the reserves, get the wastewater reserve out of a negative balance into a positive balance, and build a reserve so that we can meet our capital obligations for water and wastewater for the next 10 years and beyond,” Vadeboncoeur said.
A link to the detailed water and wastewater utility rate study update report can be found on the agenda page of the Town of Penetanguishene website.
Archives of the special committee of the whole meeting are located on the Town of Penetanguishene YouTube channel.
