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How water rates are set

Provision of water and disposal of sewage is a collaborative effort of both levels of municipal government.

It’s a $16 million business in Fort Erie — more than $1,500 for every household in town. And it’s forecast to grow to more than $18 million in five years.

Financial operation of the water system — technically water and sewer are two components of one system — is separate from taxation. All costs are funded from water billing revenue. Town council deals with it in a separate budget.

The Region is responsible for drawing water from the lake, filtering and sterilizing it. The Town distributes it to customers and collects the sewage which is sent to Regional treatment plants where debris and “bio-solids” are removed and the water is returned to the environment.

The Region charges the Town for water and sewer and the Town invoices customers — along with a mark up — and collects the money. In the language of merchandising, the Region is the wholesaler and the Town is the retailer.

More than half goes to Region

About 58 cents of every dollar on a water bill goes to the Region. Of that amount a little less than two-thirds is for sewer services and the rest for water.

The Town’s portion of water and sewer billings is expected this year to be about $6.6 million from which it pays all costs associated with distribution, collection and administration. The Town also expects to raise another $371,000 in local improvement charges, interest and penalties on late payments and user fees — usually connection and disconnection charges.

Billing revenue also funds construction projects, although a large portion of new projects is paid from development charges — special fees applied to private residential and commercial construction. Sometimes, but not this year, the federal and provincial governments provide grants for capital projects.

Costs are mostly fixed

The cost to purify water and process sewage is largely fixed based on the cost to build the infrastructure and maintain it. There is very little difference in the operational costs between the day-to-day, month-to-month or year-to-year variations in demand.

The Regional rate structure is established as a hybrid of flat rate and volumetric charges which are passed through the Town to the customer in much the same way.

Sewage treatment

Regional sewer charges are allocated to local municipalities as a proportionate share of the total cost including operations, maintenance, construction and debt charges Region-wide. The share is based on the volume of sewage processed by each municipality.

As an example, if a municipality’s sewage volume is 10 per cent of the Region’s total volume, it is charged 10 per cent of the Region’s total cost to run the sewage system.

The allocation is determined by each municipality’s average usage over the previous three years. If the actual usage is less than the average, the Region will credit the municipality the two years later. In Fort Erie’s case, sewage volume was over-budget, so the Town must make up the difference in 2013.

A year of abnormally wet weather is to blame for the difference because storm water infiltrates the sewer system and is needlessly treated at the Region’s two sewage plants in Fort Erie.

Water treatment

In setting wholesale rates for water, the Region’s price structure is weighted more heavily to actual consumption.

Just 25 per cent of the wholesale rate is a flat charge calculated from the three-year average of consumption. The balance is a straight volumetric charge — price per cubic metre — which is measured and billed monthly.

The Region increased its 2012 wholesale rates by 0.2 per cent for water and 4.33 per cent for sewer. The combined increase is 2.56 per cent.

When the Town sets its rates, it’s faced with the challenges of regulatory requirements, vagaries of the weather and the laws of economics.

Town delivers water, collects sewage

Simply put, the town’s only job is transport — deliver the water to residents and take the sewage away. In doing so, the Town must protect public health and ensure the water remains safe and clean, and it must protect people and the environment from the sewage.

The Town owns 265 kilometres of watermain, 12,600 lateral service connections and water meters, 1,398 fire hydrants and 190 kilometres of main line sewers.

Approximately $2.3 million is budgeted for capital works which had been approved in November and which are funded from last year’s revenues.

More than $1.8 million will be spent on wages in 2012, $1 million for materials and services, $318,000 on debt interest, $705,000 on vehicles and administration and about $2.7 million to replenish reserves for next year’s capital spending.

Expenses fixed, revenue variable

When council sets the retail rates for water, it knows how much it needs to spend to operate the distribution system, how much it’s going to spend on capital, maintenance and all the other expenses. It also knows how much it will spend to treat sewage.

But it doesn’t know how much water people will use and how much money it will collect. It can only be estimated.

The Town sets four rates when it calculates the retail price. There is a flat base price plus a metered consumption price for water. Sewer services are charged the same way.

In 2012 the base rate for water is $24.15 per month and the consumption rate based on volume measured by water meters is $1.07 per cubic metre (1,000 litres). The base rate for sewer is $39.22 per month and the usage rate which is based on water consumption is $2.207.

For a household that uses 16 cubic metres per month (what the Town calls average usage), 35 per cent of the total revenue is based on actual metered usage.

Yet, as shown in 2011, if water or sewer usage is underestimated, the Town will run a deficit.

The Town has to cross its fingers on both hands in order to meet its budget.

Use goes down, price goes up

On the one hand, wet weather reduces water usage but increases sewage treatment because storm water infiltrates the sewer lines. On the other hand, as the volumetric price rises, consumption will also go down and force the Town to raise its rates again to meet the fixed costs.

Four years ago, the average consumption volume was 19 cubic metres. While usage has gone down, fixed costs have risen and therefore the per unit cost of water and sewer services have also risen.

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