Analysis of Asset Management, Accounting, Financing and ...

Government of Ontario Ministry of Finance Ontario SuperBuild Corporation Long Term Water and Sewer Infrastructure Investment and Financing Strategy

Analysis of Asset Management, Accounting, Financing and Pricing Practices for Municipal Water and Wastewater Systems in Ontario June 3, 2003

Ontario SuperBuild Corporation Analysis of Asset Management, Accounting, Long Term Water and Wastewater Strategy Financing and Pricing Practices

Table of Contents Executive Summary..............................................................................................................................3

1 Background...................................................................................................................................16 1.1 Terms of Reference..................................................................................................................... 16 1.2 Scope of Work............................................................................................................................. 16 1.3 Limitations and Qualifications...................................................................................................... 17 1.4 Structure of the Report ................................................................................................................ 18

2 Survey Responses .......................................................................................................................19 2.1 Overview of Survey Responses .................................................................................................. 19 2.2 Geographic Region ..................................................................................................................... 20 2.3 Size of Municipality...................................................................................................................... 21 2.4 Size of Municipal Water System.................................................................................................. 21 2.5 Water Source .............................................................................................................................. 22 2.6 Correlation Between Municipal Classifications ............................................................................ 23

3 Asset Management Practices......................................................................................................26 3.1 Background ................................................................................................................................. 26 3.2 Summary of Findings .................................................................................................................. 27 3.3 Summary Analysis....................................................................................................................... 30

3.3.1 Level of information municipalities currently have available regarding water and wastewater asset condition and performance ............................................................................................... 30

3.3.2 Municipal practices relating to MRO activities ............................................................................. 35 3.3.3 Impact of current asset management practices on system investment decisions ....................... 37

4 Accounting Practices...................................................................................................................39 4.1 Background ................................................................................................................................. 39 4.2 Summary of Findings .................................................................................................................. 40 4.3 Summary Analysis....................................................................................................................... 43

4.3.1 Extent to which current municipal asset management and accounting systems can provide information about the “full cost” of water and wastewater services ............................................. 43

4.3.2 Current definitions of operating and capital costs used by municipalities for water and wastewater services .................................................................................................................... 45

5 Financing Practices .....................................................................................................................51 5.1 Background ................................................................................................................................. 51 5.2 Summary of Findings .................................................................................................................. 52 5.3 Summary Analysis....................................................................................................................... 56

5.3.1 Revenue sources currently used to finance operating and capital expenditures for water and wastewater systems .................................................................................................................... 57

5.3.2 Extent to which municipalities may be cross-subsidizing other non-water and wastewater activities and vice versa.............................................................................................................. 65

6 Pricing Practices ..........................................................................................................................68 6.1 Background ................................................................................................................................. 68 6.2 Summary of Findings .................................................................................................................. 69 6.3 Summary Analysis....................................................................................................................... 72

6.3.1 Current rate structure practices for water operations .................................................................. 72 6.3.2 Current rate structure practices for wastewater operations ......................................................... 74 6.3.3 Availability of current water consumption and revenue data........................................................ 76

Appendix A – Data Collection Process.............................................................................................78 Appendix B – Total Municipalities Sent Survey, By Geographic Region .....................................83 Appendix C – Total Municipalities Sent Survey, By Population Grouping...................................87

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Executive Summary Background PricewaterhouseCoopers LLP (“PwC”) was retained by Ontario SuperBuild Corporation (“SuperBuild”) to study the current asset management, accounting, financing and pricing practices for all municipal water and wastewater systems in the Province of Ontario (the “Province”). The objectives of this study were to:

• Collect information on current practices for all municipal water and wastewater systems in the Province through a comprehensive survey;

• Develop a database (the “Ontario Municipal Water and Wastewater Database” or “Database”) to act as a repository for all information gathered through the survey process; and

• Analyze and summarize the key findings with respect to current asset management, accounting, financing and pricing practices in relation to water and wastewater infrastructure and operations in Ontario.

The Ontario Municipal Water and Wastewater Database, and the information contained therein, has been used as the primary source of information for the purposes of our analysis in this report. However, the information contained in the Database does not represent a complete and accurate census of all municipal water and wastewater systems in Ontario. The final survey response rate was 62%, representing 72% of the total population of municipalities responsible for such systems. In addition, while the information contained in the Database has undergone a rigorous quality inspection, we have not undertaken an independent audit or verification of any information provided to us through the survey responses or other information sources. Furthermore, our quality inspection of the survey responses received identified a large amount of missing or inconsistent data which we were not able to resolve within the scope of this study, thus impacting the nature and extent of our analysis. As a result, the analysis derived from the information contained in the Database, while meaningful, does not necessarily represent a true statistical representation. Accordingly, attempts to extrapolate the survey data across the broader population of Ontario municipalities should be made with caution. Survey Responses The survey was originally sent to all municipalities that were identified as having responsibility for the operation of water and/or wastewater systems. In total, 301 out of the total 448 municipalities in Ontario satisfied these criteria, representing 11.0 million people or 97% of Ontario’s total population.

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The final survey response rate totalled 187 municipalities, for a 62% response rate. These responding municipalities represent a population of 7.9 million or 72% of the total population of municipalities that received the survey. In analyzing the survey responses, municipalities were classified on the basis of four key characteristics:

• Geographic region; • Municipal population size; • Municipal water system size; and • Water source.

The purpose of these classifications was to confirm the extent to which the survey responses received provided a representative cross-section for each of these groupings, and to assist with comparing and identifying any trends in various practices within different categories. Based on our analysis, the survey responses received provided a representative cross-section for each of the four groupings. Municipal population size is a key factor influencing regional and municipal water system size characteristics. As a result, our findings regarding municipal asset management, accounting, financing and pricing practices related to water and wastewater systems in respect of municipal population size can be broadly applied to regional and municipal water system size characteristics. For example, our findings regarding larger municipalities can broadly be applied to the Greater Toronto Area and Golden Horseshoe regions, and similarly, to water systems with flow rates over 5,000 cubic metres per day. Likewise, findings regarding smaller municipalities can be broadly applied to the Eastern, Central Ontario, South Western and North regions (with the exception of the few large municipalities within those regions), and to water systems with smaller flow rates. Municipal water source tends to have little correlation with municipal population size characteristics, but rather, is based on characteristics unique to each municipality. Our review of survey responses regarding municipal practices identified no specific or meaningful trends based on water source. Given the above, our analysis of asset management, accounting, financing and pricing practices that follows is focused on the number of responding municipalities and their municipal population size.

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Asset Management Practices Asset management is a critical element of managing water and wastewater operations given the highly capital-intensive nature of water and wastewater services. The primary objectives behind asset management systems include:

• Optimizing the life cycle value of the physical assets by gaining a thorough understanding of the condition, performance and risk associated with specific assets so that informed decisions can be made on when to repair or replace an asset; and

• Providing key inputs into understanding the financing or investment requirements to support the sustainable operation of the assets (i.e., what investment is needed, when is it required, and how will it be financed), including the pricing of services.

While asset management is a critical aspect of water and wastewater operations, it also presents numerous challenges:

• Most water and wastewater assets are underground. As a result, it is often difficult to identify the assets and assess their condition since most are buried. Furthermore, the repair, upgrade and replacement of underground assets can be expensive;

• Water and wastewater systems often service small communities who may not have sufficient expertise and/or resources available to effectively manage the assets; and

• The health and safety issues regarding the delivery of water and wastewater services make effective asset management paramount.

Summary of Findings (i) Level of information municipalities currently have available regarding water and

wastewater asset condition and performance The survey responses indicate that the level of information municipalities currently have available with respect to the condition and performance of their water and wastewater assets ranges widely. This implies that there is a wide range in the ability of municipalities to effectively determine the timing of maintenance work and/or the replacement of assets to ensure optimal performance of water and wastewater systems, and to identify and plan for the timing and amount of future investment needs. For instance, while only 33% of all responding municipalities (representing 84% of the responding population base) report using computer-based management information systems (“MIS”) as an asset management tool, roughly 52% of all responding municipalities do not either perform asset inspections or record information relating to the condition and performance of their water and wastewater assets.

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Larger municipalities (those over 50,000 in population) indicated having a higher level of current information on their water and wastewater asset condition and performance, and that they consider a greater level of system reliability factors, than smaller municipalities. (ii) Municipal practices relating to maintenance, repair and overhaul (“MRO”) activities The key factors that municipalities use in determining their MRO budgets include the condition of the assets, the age of the assets, and the amount expended on MRO activities in prior years. Larger municipalities consider these (and other) factors to determine their MRO budgets to a greater degree than smaller municipalities, thereby suggesting that larger municipalities have a higher level of current information to make more informed decisions regarding their MRO budgets. The range of normalized MRO costs ($/m3 of water/wastewater treated) varies significantly across municipalities. Roughly half of the responding municipalities indicated MRO costs ranging between $0.10 and $0.50 per cubic metre of water and wastewater treated. However, small municipalities (those with populations less than 5,000) indicated that they spend less per cubic meter on water MRO costs, on average, compared to municipalities with populations greater than 5,000. This implies that water MRO expenditures for small municipalities may not be sufficient relative to larger municipalities, and that there may be a correlation between the current level of information on asset condition and performance available to small municipalities relative to larger municipalities and their respective water MRO expenditures. (iii) Impact of current asset management practices on system investment decisions Based upon the municipal survey responses, the single most important decision criteria in making asset investment decisions is the impact the asset investment would have on system reliability. Impact on service quality, lowest life cycle cost and lowest purchase cost were also identified as the single most important decision criteria, but to a lesser degree. While no responding municipalities greater than 50,000 in population identified overriding budget considerations as the single most decision criteria, 14% of municipalities under 5,000 identified overriding budget considerations as their single most important decision criteria. Although not necessarily identified by responding municipalities as the single most important decision criteria, overriding budget considerations, combined with the current level and quality of information available (or lack thereof) to municipalities with respect to the condition and performance of their water and wastewater assets, and their corresponding ability to effectively determine the timing of maintenance work and/or the replacement of assets to plan for their future investment needs (as discussed above), may be leading to the deferral of required water and wastewater system investments. The survey responses indicated that the deferral of required system investment is more prevalent among smaller municipalities.

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Accounting Practices A primary objective of accounting is to provide stakeholders with accurate and relevant information to make fully informed decisions. More specifically, effective accounting practices:

• Provide a valuable tool for strategic planning and management decision making purposes;

• Allow for improved tracking and monitoring of operational performance; and • Allow for increased accountability with respect to operational performance.

Key factors impacting accounting and accounting practices in Ontario municipal water and wastewater operations include:

• Water and wastewater operations are highly capital intensive with the assets having a very long service life;

• Much of the infrastructure is underground, making it difficult to assess asset condition and the required repair, upgrade or replacement at any point in time; and

• Ontario municipalities employ modified accrual accounting. Under modified accrual accounting, investments in infrastructure assets are expensed as a cash expenditure in the year in which they were incurred instead of being recognized as long-term assets. As a result, information about the capital component of providing water and wastewater services is not readily available.

Summary of Findings (i) Extent to which current municipal asset management and accounting systems can

provide information about the “full cost” of water and wastewater services Asset Management Systems Determining the “full cost” of water and wastewater services requires an understanding of the infrastructure or investment needed to provide those services on a long-term or life cycle basis. To determine future infrastructure investment needs, municipalities need to determine the assets they have and where they are located (i.e., an asset inventory) and the condition that they are in, together with minimum service level requirements for the water and wastewater systems and the municipalities’ growth expectations. As indicated earlier, approximately 52% of all responding municipalities do not either perform asset inspections or record information relating to the condition and performance of their water and wastewater assets. This implies that just over half of the responding municipalities do not have the necessary asset management systems and/or information available with respect to the condition and performance of their water and wastewater assets.

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As a result, their ability to effectively estimate their future infrastructure investment needs for the purposes of understanding their true “full costs” of providing water and wastewater services, including the cost and timing of planned future maintenance and replacement activities, would correspondingly be limited. This finding was more predominant amongst smaller municipalities as compared to larger municipalities. Accounting Systems The modified accrual accounting systems used by Ontario municipalities report capital expenditures on a cash basis and show expenditures for capital investments (and debt service) in the year that they were incurred. These systems do not, however, report the value of the fixed assets (i.e., the capital investments) or the accumulated depreciation charged against those assets. As a result, it is difficult to track the status of those assets, including their net value, over time. This information would provide municipalities with a useful tool to assess how they are managing their capital-intensive water and wastewater assets. For instance, a decline in the net value of the fixed assets may indicate that there is a growing backlog of deferred investments for necessary maintenance, repairs and replacement and that additional investments may be required. In addition, this information provides a useful management tool to determine future investment needs and therefore the true “full costs” associated with providing water and wastewater services. The survey results indicate that the majority of responding municipalities do not track the net value of their water and wastewater assets. For instance, only 10% of the responding municipalities maintain a fixed asset sub-ledger for their water and wastewater assets. For those that do not maintain a fixed asset sub-ledger, 69% do not assign or record a financial value to those assets and 68% report having no information regarding the expected useful life of their water and wastewater assets. Accordingly, current municipal accounting systems do not appear to provide sufficient information with respect to capital investments, a critical component in determining the true “full costs” of water and wastewater services. Given that water and wastewater operations are highly capital intensive with the assets having a very long service life, the movement towards a full accrual accounting approach is considered more appropriate. Under full accrual accounting, the cost to acquire a fixed asset is spread out over the life of the asset through annual depreciation charges, thereby allowing a better matching of the benefits of the asset (based upon its use) with its costs. This would help municipalities better manage the status (including the net value) of their water and wastewater assets, and facilitate the determination of their true “full costs” of providing water and wastewater services on a life cycle basis. (ii) Current definitions of operating and capital costs used by municipalities for water and

wastewater services The survey results suggest that a wide range of interpretation exists amongst responding municipalities as to the definition of, and accounting for, both operating and capital costs,

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thereby implying that the definition of “full cost” is also not consistent between municipalities. The responding municipalities indicated that they include a wide and differing variety of cost categories in determining both operating and capital costs, although this may partly be explained by the unique nature of their respective operations. For example, 54% of responding municipalities (81% of responding municipalities over 50,000 and 45% of responding municipalities under 5,000) indicated that they include overhead costs in determining their operating costs for water and wastewater services. Given the findings above with respect to asset management and accounting systems and the wide range of interpretation amongst responding municipalities as to the definition of, and accounting for, both operating and capital costs, Ontario municipalities, particularly the smaller municipalities, will likely face significant challenges in determining their true “full costs” of providing water and wastewater services, and will likely require guidance and direction. The introduction of Bill 175 is a first step to address this issue. In addition to ensuring that Ontario municipal water and wastewater operations operate on a truly self-sustaining basis, Bill 175 is also focused on moving towards best practices (e.g., ensuring that municipalities are employing effective long-term planning and life cycle asset management practices, and that asset management practices are more closely integrated with accounting and financing practices) and improved consistency in the operation and accounting for municipal water and wastewater systems. Financing Practices Financing is one of the most critical aspects of municipal water and wastewater operations in Ontario and other jurisdictions today. This is driven by the following factors:

• Water and wastewater operations are highly capital intensive, and significant costs and financing requirements are associated with same;

• Much of the infrastructure is underground, making it difficult to assess not only asset condition and required repairs, upgrades and replacements, but also financing needs, at any point in time;

• Capital expenditures are not typically “smooth” but rather have many peaks and valleys (i.e., larger expenditures in some years followed by smaller expenditures in other years); and

• There is currently a substantial shortfall in water and wastewater infrastructure investment (an infrastructure deficit) among Ontario, and other jurisdictions’, municipal water and wastewater operations today.

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Summary of Findings (i) Revenue and financing sources currently used to fund operating and capital

expenditures for water and wastewater systems Operating Expenditures While the survey responses indicate that a wide range of revenue sources are used to finance operating expenditures for water and wastewater systems, direct customer billings (i.e., user fees and service charges) are indicated as being the predominant source of revenue for financing both water, and to a lesser extent, wastewater operating costs. 85% of responding municipalities indicated that they use direct customer billings to fund operating costs for water systems while 64% indicated that they use direct customer billings for wastewater. It was also found that direct customer billings are used to a greater extent by larger municipalities compared to smaller municipalities. Other current direct revenue sources used to finance operating costs for both water and wastewater systems include special area tax levies, amounts added to property tax bills and charges to other municipalities for water services. Examples of other financing sources used to fund operating costs for both water and wastewater systems include transfers from both dedicated water/wastewater and general reserves, transfers from the general revenue fund, and “other revenues” designated for water/wastewater operations and from other sources. Capital Expenditures Consistent with operating expenditures, the survey responses indicate that a wide range of financing sources are used to fund capital expenditures for water and wastewater systems. The predominant financing tool indicated for both water and wastewater capital costs, particularly amongst larger municipalities, is the municipalities’ general revenue fund. 43% of responding municipalities indicated that they use their revenue fund as a financing tool to finance capital costs for water systems while 37% indicated that they did the same for their wastewater systems’ capital costs. The survey results indicate that a higher percentage of larger municipalities used their revenue fund as a financing tool to finance capital expenditures in the year 2000 compared to smaller municipalities for both water and wastewater systems. However, this may have been impacted by a higher level of capital investment activity potentially undertaken by larger municipalities in the year 2000 compared to smaller municipalities. The source composition of municipalities’ general revenue funds may comprise both direct customer charges for water and wastewater services such as user fees, and non-direct customer charges such as property taxes. Accordingly, it is difficult to determine the extent to which capital costs funded from municipalities’ revenue funds have been financed through direct customer charges or non-direct charges.

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The survey responses also indicate that discretionary reserves (both general and designated) are a major source of financing for both water and wastewater capital expenditures, particularly amongst the larger municipalities. While 92% of responding municipalities reported that they use dedicated reserves and 73% indicated that they use general reserves for water and wastewater purposes, only 25% of responding municipalities indicated that they used discretionary reserves to fund capital costs for both water and wastewater in the year 2000. Other financing tools used, but to a much lesser extent (less than 15% of responding municipalities), to fund capital expenditures, based on the year 2000, include:

• Senior government grants; • Long-term debt; • Obligatory reserve funds, primarily related to development charges; and • Other various sources of financing including public-private partnerships.

(ii) Extent to which municipalities may be cross-subsidizing other non-water and

wastewater activities and vice versa While it is difficult to assess the extent to which municipalities may be cross-subsidizing other non-water and wastewater activities, and vice versa, several observations can be made based upon the survey results:

• Many municipalities, in structuring their water and wastewater rates, are not structuring them to fully recover their costs of providing water and wastewater services, implying that water and wastewater costs are being cross-subsidized by other activities;

• The predominant use of the municipalities’ revenue fund, general discretionary reserves and other non-dedicated sources of revenue to finance capital expenditures, together with the use of non-current or non-direct sources of revenue for operating costs (e.g., transfers from general revenue fund, etc.) suggests that water and wastewater costs, particularly as they relate to capital costs, may be cross-subsidized by other municipal activities;

• A number of responding municipalities indicated that they transfer water and wastewater revenues to the general revenue fund. While these funds may ultimately be used to finance water and wastewater operating and capital costs in the future, they could also potentially be used to subsidize other municipal activities; and

• The allocation of general municipal overhead charges to water and wastewater operations may also be a form of indirect cross-subsidization. For instance, 54% of responding municipalities indicated that they include overhead costs in determining their operating costs for water and wastewater systems, while only 35% and 27% of all responding municipalities indicated that they allocated overhead charges to their water and wastewater operations, respectively, in the year 2000. This implies that other

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municipal activities are subsidizing the water and wastewater operations since these charges are not being included in determining water and wastewater operating costs.

(iii) Trends and opportunities for improvement in financing practices Based upon the above survey findings, many Ontario municipalities are not directly matching their revenue or financing sources specifically attributable to water and wastewater to their true full costs of water and wastewater operations. As a result, other municipal activities maybe cross-subsidizing water and wastewater activities, and vice versa. In aiming to ensure that municipal water and wastewater systems are properly financed so that they operate on a self-sustaining basis (a primary objective of Bill 175), municipalities should establish and maintain separate dedicated reserve accounts for water and wastewater in order to segregate water and wastewater revenue and related financing sources from general revenues. The use of separate dedicated reserves will assist municipalities to more effectively determine and plan for their water and wastewater financing requirements, including assessing the sources of financing they have available and should be accessing, and ensuring that necessary investments in capital improvements and replacement are made on a timely basis. This will become increasingly important given the diminishing availability of senior government funding that has traditionally been a major source of financing for capital projects. Additional sources of financing municipalities could access include:

• Increase in user fees or direct customer charges. User fees or direct customer charges do not appear to be covering the true full cost of providing water and wastewater services, particularly as they relate to capital expenditures. Accordingly, given the relatively inexpensive cost of water and wastewater to users, there should be scope to increase revenues by increasing direct customer charges to more properly reflect the true cost of water and wastewater services;

• Municipal debt. Just over half of responding municipalities reported issuing long-term debt to finance water and wastewater capital expenditures. Recent studies have shown that municipalities generally have excess debt capacity available to them for financing purposes; and

• Public-private partnerships. Municipalities are increasingly considering public-private partnerships as an alternative method of financing and delivering their water and wastewater services.

Pricing Practices User fees are the primary source of revenue and financing for water and wastewater operating and infrastructure costs. While a wide range of user fee rate structures exists, all structures, with the exception of flat rates, require the use of meters to measure water consumption. Examples of common rate structures include:

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• Flat rates, which are fixed regardless of water usage or consumption; • Constant per unit or metered rates (primarily related to water consumption services

only), which are based on usage (i.e., a constant unit charge based on water consumption);

• A combination of flat and constant per unit rates (i.e., fixed and variable rates); • Declining block rates, which decrease as usage increases (reflecting economies of

scale); and • Increasing block rates, which increase as usage decreases (reflecting conservation

principles). In addition, rates may vary to reflect peaks in demand and may also be designed to reflect the characteristics of specific groups of users (e.g., social housing users). Summary of Findings (i) Current rate structure practices for water operations The survey responses indicate that a wide range of water rate structures are used by municipalities for pricing purposes, both for residential and industrial, commercial and/or institutional (“ICI”) customers. The use of different rate structures varies between larger and smaller municipalities and whether the customer is residential or ICI. For residential customers, smaller municipalities indicated that they predominantly use flat rates whereas larger municipalities indicated that they use a constant per unit charge or a combination of a constant per unit charge plus a flat rate for certain services or areas. For ICI customers, smaller municipalities indicated that they primarily use flat rates, whereas larger municipalities indicated that they use constant per unit charges or multiple versions of metered rates, and to a lesser extent, declining block rates. To gain an understanding of the extent that municipalities use water meters, the survey asked municipalities to indicate the percentage of their water accounts that were metered. Unfortunately, a significant number of municipalities did not complete the question making any meaningful analysis difficult. However, the rate structures used by municipalities (i.e., flat rate vs. some form of constant per unit charge or metered rate) provide a leading indication of the extent to which municipalities use water meters. For example, since smaller municipalities predominantly use flat rates, they likely do not use water meters to the same extent as larger municipalities that apply a constant per unit charge. Fire protection charges are typically not included in water rate charges but instead are predominantly levied through municipal assessment and property taxes, particularly in the case of smaller municipalities.

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(ii) Current rate structure practices for wastewater operations Municipalities primarily recover wastewater costs by applying a sewer surcharge on the municipalities’ water bill, and to a lesser extent, through property taxes. The survey responses indicate that sewer surcharges on the water bill are the predominant practice for larger municipalities, whereas smaller municipalities tend to recover their wastewater costs through property taxes or some other means. For those municipalities that apply a surcharge to the water bill, the surcharge is primarily determined by applying either a defined percentage of the total water bill, or a defined rate in terms of dollars per unit of water sold. Sewage strength is not frequently used as a basis for determining wastewater collection charges by the responding municipalities. The use of sewage strength is more prevalent with larger municipalities than smaller municipalities. (iii) Availability of current water consumption and revenue data Many of the municipalities that responded to our survey did not provide requested information regarding their total number of customer accounts, the total volume of water sold, and/or the total revenues received from customers for the year 2000, key information in assessing and understanding municipal water operations (e.g., revenue per customer account, revenue per unit of water sold, etc.). A greater number of smaller municipalities did not provide this information compared to the larger municipalities. This lack of response suggests that many municipalities either do not track this type information or have difficulty in compiling it (i.e., it is not readily available). Furthermore, it implies that many municipalities are not effectively tracking or managing some key business performance measures (e.g., revenue per customer account and unit of water sold). This type of information provides municipalities with important data necessary to make informed decisions around their water and wastewater operations, including analysis and planning around pricing decisions, future sources of financing to meet investment needs, and the development and tracking of the cost recovery plans contemplated under Bill 175. Summary The survey responses indicate that asset management, accounting, financing and pricing practices currently followed by Ontario municipal water and wastewater operations range widely across all Ontario municipalities. In addition to this lack of consistency in practices amongst Ontario municipalities, the survey results suggest that many Ontario municipalities do not currently:

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• Have sufficient quality information with respect to their water and wastewater operations, including their asset condition and performance, to make fully informed business (i.e., operating and investment) decisions;

• Have the necessary tools (e.g., asset management and accounting systems) to provide them with sufficient quality information to make these fully informed business decisions;

• Have an adequate understanding of their true “full costs” of operating their water and wastewater systems; and

• Match their revenue or financing sources specifically attributable to water and wastewater to the true full costs of their water and wastewater operations.

These findings are generally more prevalent among smaller municipalities than larger municipalities. However, this is not to conclude that all small municipal water and wastewater systems are poorly operated or that all large municipal water and wastewater systems are well operated. To ensure that water and wastewater systems provide Ontario residents with clean, safe water and operate on a self-sustaining basis (i.e., generate sufficient revenue to fully recover all of the long-term operating and capital costs), improvements in these practices are required. For example, municipalities should consider looking at their water and wastewater operations as separate, standalone businesses, identifying the critical drivers of the business, whether they be asset, operating or financial-related, and ensuring that they are monitored, analyzed and planned for on an integrated “business model” basis. The introduction of Bill 175 is an important first step to address this issue as it focuses on moving towards best practices and providing improved consistency in asset management, accounting, financing and pricing practices across all Ontario municipalities.

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1 Background

1.1 Terms of Reference PricewaterhouseCoopers LLP (“PwC”) was retained by Ontario SuperBuild Corporation (“SuperBuild”) to study the current asset management, accounting, financing and pricing practices for all municipal water and wastewater systems in the Province of Ontario (the “Province”). This study is one of a series of consulting studies that SuperBuild is undertaking to help develop a long-term water and wastewater infrastructure investment and financing strategy. The objectives of this study were to:

• Collect information on current asset management, accounting, financing and pricing practices for all municipal water and wastewater systems in Ontario through a comprehensive survey, with the goal of obtaining as complete, up-to-date and accurate information as possible;

• Develop a comprehensive and flexible database to act as a repository of all information gathered through the survey process; and

• Based on the information collected, analyze and summarize the key findings with respect to current asset management, accounting, financing and pricing practices in relation to water and wastewater infrastructure and operations in Ontario.

1.2 Scope of Work The scope of work for this study included the following:

• Designing a comprehensive survey document through a consultative process involving government and industry officials and selected municipalities, balancing the need for comprehensive and up-to-date information with the identified constraints impacting the ability of Ontario municipalities to provide the information required;

• Distributing the survey to all municipalities in Ontario that were identified as having responsibility for the operation of water and/or wastewater systems;

• For those Ontario municipalities that contracted out some or all of their operations to the Ontario Clean Water Agency (“OCWA”), distributing a separate survey containing selected survey questions to OCWA so that OCWA could send the completed OCWA survey to the relevant municipalities, thereby easing the municipal survey response burden;

• Administering the survey responses through: o Establishing a survey help line to assist municipalities having questions or

experiencing difficulties with the survey;

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o Initiating a significant number of follow-up telephone calls to address survey completion status and other related matters; and

o Undertaking a rigorous quality inspection of all survey responses received; • Developing a comprehensive database (the “Ontario Municipal Water and Wastewater

Database” or the “Database”) to capture the information contained in the survey responses;

• Inputting the data from the survey responses received into the Database and testing the information for input accuracy;

• Performing a summary analysis of the information contained within the Database, based upon key criteria developed in conjunction with SuperBuild, around current asset management, accounting, financing and pricing practices relating to municipal water and wastewater operations in Ontario; and

• Summarizing our analysis and findings in this report. A more detailed description of the data collection process is summarized in Appendix A.

1.3 Limitations and Qualifications The Ontario Municipal Water and Wastewater Database, and the information contained therein, has been used as the primary source of analysis for the purposes of this report. Other information sources that have helped supplement the information contained in the Database include:

• Municipal population data provided by SuperBuild based upon the year 2001 census; • Municipal water source and 1999 average daily water flow rate data sourced from the

Communal Drinking Water Inspection Report, 2000, prepared by the Ministry of the Environment; and

• Municipal water rates provided from the Superbuild Water Rate Database, which data was compiled using the following sources: municipal water rate cards, Municipal Water Use and Pricing Report 1999 (prepared by Environment Canada), and information published on municipal websites.

While the information contained in the Database has undergone a rigorous quality inspection, we have not undertaken an independent audit or verification of any information provided to us through the survey responses or other information sources. Furthermore, our quality inspection of the survey responses received identified a large amount of missing or inconsistent data which we were not able to resolve within the scope of this study, thus impacting the nature and extent of our analysis. As a result, the analysis derived from the information contained in the Database, while meaningful, does not necessarily represent a true statistical representation. Accordingly, attempts to extrapolate the survey data across the broader population of Ontario municipalities should be made with caution.

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Nevertheless, the survey results and resulting analysis contained in this report provide valuable insight into the characteristics and trends related to current asset management, accounting, financing and pricing practices for municipal water and wastewater systems in Ontario.

1.4 Structure of the Report The structure of the report is as follows:

• Section 2 provides a breakdown of the municipalities that participated in the survey, according to geographic region, municipal population, size of municipal water/wastewater system, and water source;

• Sections 3 through 6 comprise the summary analysis of the information contained in the Database, based upon key criteria for each of asset management, accounting, financing and pricing practices;

• Appendix A provides a more detailed description of the data collection process; • Appendix B provides a breakdown of the municipalities that were sent the survey, by

geographic region; and • Appendix C provides a breakdown of the municipalities that were sent the survey, by

population grouping. The framework for each of Sections 3 through 6, inclusive, is based on the following layout:

• Background; • Summary of findings, which provides a summary of the issues addressed and the

related findings; and • Summary analysis, which includes a detailed analysis of the factors considered.

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2 Survey Responses

2.1 Overview of Survey Responses The survey was originally sent to all municipalities in the Province that were identified as having responsibility for the operation of water and/or wastewater systems. In total, 301 out of the total 448 municipalities in Ontario satisfied these criteria, representing 11.0 million people or 97% of Ontario’s total population. Appendices B and C provide a listing of the municipalities that were sent the survey, sorted by geographic region and population grouping, respectively. Of the 147 municipalities excluded from the survey:

• 121 municipalities have no municipal water or wastewater systems; and • 26 lower tier municipalities have no water or wastewater system involvement. (In

determining the total population base of those municipalities receiving surveys, to avoid double counting for two-tier municipal organizations, only the upper tier municipality population base has been reflected).

After taking steps to improve survey response rates (outlined in more detail in Appendix A), the final number of responses totalled 187, or a 62% response rate. In addition, the 187 survey responses returned represented a population of 7.9 million or 72% of the total population of municipalities that received the survey, as outlined in Figure 1 below.

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Figure 1: Survey Response Rate

nder the analytic plan, municipalities were classified on the basis of four key characteristics:

• Geographic region; based upon municipal population;

er produced; and

Number of municipalities

Population1

000s

% of total municipalities (by population)

% sent survey (by population)

Total municipalities in Ontario 448 11,332.4 100.0% n/aTotal municipalities sent survey 301 10,992.7 97.0% 100.0%Total municipalities responded2 187 7,946.4 70.1% 72.3%1 Total population, based on 2001 census2 Number of responding municipalities (187) includes upper and lower tier municipalities. Population base (7.9 million) for those responding municipalities only reflects the responding lower tier populations to avoid double counting.

U

• Size of municipality • Size of municipal system based upon the volume of wat• Water source (i.e., surface water, groundwater or both).

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The purpose of these classifications was to confirm the extent to which the survey responses received provided a representative cross-section for each of these groupings and to assist with comparing and identifying any trends in various practices within the different categories. The following sections provide further information on the four classifications outlined above, namely geographic region, size of municipality by population, size of municipal system by volume of water produced, and water source.

2.2 Geographic Region The municipalities responding to the survey were grouped into the following six regions:

• Eastern; • Central Ontario; • Greater Toronto Area (“GTA”); • Golden Horseshoe; • South Western; and • North.

The percentage of municipal survey responses received for each region was fairly consistent, ranging from a response rate of 59% in both the Golden Horseshoe and South Western regions to 65% in Central Ontario, and suggesting that survey responses were received from a broad cross-section of municipalities throughout Ontario. However, this consistent regional-municipal response rate is impacted by the size of the municipality’s population that either responded or did not submit responses to the survey. For instance, the Eastern region’s response rate represents only 28% of its population base that received surveys (while having a 64% municipal response rate, reflecting the fact that larger municipalities in this region did not submit a survey response) compared to 95% for GTA (which had a 62% municipal response rate). Figure 2 below provides further detail on the regional analysis.

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Figure 2: Regional Analysis

# % # %Eastern 50 17% 32 64% 1,412.5 13% 401.5 28%Central Ontario 49 16% 32 65% 877.8 8% 598.3 68%GTA 13 4% 8 62% 4,706.3 43% 4,455.7 95%Golden Horseshoe 22 7% 13 59% 1,708.3 16% 1,027.1 60%South Western 73 24% 43 59% 1,567.1 14% 851.9 54%North 94 31% 59 63% 720.6 7% 611.9 85%Total 301 100% 187 62% 10,992.7 100% 7,946.4 72%

Total surveys sent 000s

Population BaseTotal surveys

sent

Number of MunicipalitiesTotal

responses 000s

Population response rate

Total responses

Municipality response rate

Region

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2.3 Size of Municipality The municipalities responding to the survey were grouped into four classes depending on the population size of the municipality, which were as follows:

• Less than 5,000; • 5,000 to 9,999; • 10,000 to 49,999; and • 50,000 and over.

In terms of municipality size representation, the percentage of municipal survey responses received for each population grouping was also somewhat consistent, both in terms of the number of municipalities responding and the population base of those municipalities. Municipalities with populations greater than 50,000 had the highest response rate (77% by number of municipalities responding and 75% by population), while municipalities with populations between 10,000 and 49,999 had the lowest response rate (53% by number of municipalities and 58% by population). This suggests that survey responses were received from a broad cross-section of municipal population sizes throughout Ontario. Further detail on the population analysis is provided in Figure 3 below.

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Figure 3: Population Analysis

2.4 Size of Municipal Water System

terms of municipal water system size, municipalities responding to the survey were r flow

• 500 cubic meters per day and under;

; and,

# % # %Less than 5,000 112 37% 69 62% 242.3 2% 161.6 67%5,000 to 9,999 65 22% 44 68% 476.8 4% 322.9 68%10,000 to 49,999 89 30% 47 53% 1,594.1 15% 920.9 58%50,000 and over 35 12% 27 77% 8,679.5 79% 6,541.0 75%Total 301 100% 187 62% 10,992.7 100% 7,946.4 72%

Population BaseTotal surveys

sentTotal surveys sent

000sTotal responses


Total responses

000s


Number of Municipalities

Population Size

Ingrouped into the following four system size categories (measured by average daily watefor 1999, in cubic metres):

• 500 to 1,499 cubic meters per day; • 1,500 to 4,999 cubic meters per day• 5,000 cubic meters per day and over.

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fifth category, where the size of the municipal water system was not available from

imilar to the findings for municipality population size, the percentage of municipal survey

base

he size of the municipal water system was unavailable for a total of 37 responding total

verall, our findings suggest that survey responses were received from a broad cross-section

igure 4: Size of Municipal System Analysis

2.5 Water Source

he fourth characteristic that responding municipalities were grouped into was water source,

• Groundwater only;

fourth category, where the water source was unknown, was also recorded.

ASuperBuild, was also recorded. Sresponses received for each municipal water system size grouping was also somewhat consistent, both in terms of the number of municipalities responding and the populationof those municipalities. The response rate ranged from 55% (by number of municipalities responding or 57% by population base) for those municipalities with an average daily waterflow of 500 cubic metres or less, to 70% (by number of municipalities responding or 78% bypopulation base) for those municipalities with an average daily water flow of 5,000 cubic metres or more. Tmunicipalities, representing a responding population base of 887,563 (or 11 % of theresponding population base). Oof municipal water system sizes throughout Ontario. Further detail on the municipal water system size analysis is provided in Figure 4 below. F

# % # %500 and under 62 21% 34 55% 290.4 3% 166.8 57%500 to 1,499 55 18% 32 58% 362.0 3% 193.5 53%1,500 to 4,999 57 19% 38 67% 501.3 5% 319.1 64%5,000 and over 66 22% 46 70% 8,157.2 74% 6,379.5 78%Subtotal 240 80% 150 63% 9,310.9 85% 7,058.9 76%Not Available1 61 20% 37 61% 1,681.8 15% 887.6 53%Total 301 100% 187 62% 10,992.7 100% 7,946.4 72%1 Some municipalities did not respond to Communal Drinking Water Inspection Report and/or did not have information available

Average Daily Flowrate (m3/day)

Total responses


Total surveys sent

Total surveys sent 000s

Total responses

000s


Number of Municipalities Population Base

Tspecifically:

• Surface water only; and• Both.

A

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CPage 23

he percentage of municipal survey responses received for each water source grouping was

water

ing

enting

igure 5: Water Source Analysis

icipal Classifications

ion size as a key factor fluencing trends in asset management, accounting, financing and pricing practices. In

• Municipal water system size characteristics. For a icipalities by population segment and

gion. Overall, certain regions tend to have higher concentrations of municipalities in the

on Analysis

Tfairly consistent, ranging from a response rate of 61% for municipalities with groundwater sources to 64% for municipalities with surface water sources, suggesting that survey responses were received from a broad cross-section of municipalities with all types ofsources. However, the response rate is impacted by the size of a municipality’s population that either responded or did not submit responses to the survey. For instance, the surface water response rate represents 91% of its population base that received surveys (while hava 64% municipal response rate), compared to 54% for groundwater (which had a 61% municipal response rate). The water source for seven responding municipalities, repres16,681 people or 0.2% of the total responding population, was unknown. Further detail is provided in Figure 5 below. F

# % # %Surface Water 118 39% 76 64% 4,563.9 42% 4,161.3 91%Groundwater 113 38% 69 61% 1,479.4 13% 802.1 54%Both 56 19% 35 63% 4,866.9 44% 2,966.3 61%Subtotal 287 95% 180 63% 10,910.3 99% 7,929.7 73%Not Available1 14 5% 7 50% 82.5 1% 16.7 20%Total 301 100% 187 62% 10,992.7 100% 7,946.4 72%1 Some municipalities did not respond to Communal Drinking Water Inspection Report and/or did not have information available

Water Source Total responses


Total responses

000s

Total surveys sent

Total surveys sent 000s Population

response rate

Number of Municipalities Population Base

2.6 Correlation Between Mun

Our analysis of survey responses identified municipal populatinaddition, municipal population size is also a key factor influencing:

• Regional characteristics; and

ex mple, Figure 6 provides a breakdown of munrelarger population groupings, and vice versa. Figure 6: Region Versus Municipal Populati

Region# % # % # %

Less than 5,000 5,000 to 9,999 10,000 to 49,999# % #

Eastern 14 28% 14 28% 20 40% 2 4% 50Central Ontario 9 18% 13 27% 23 47% 4 8% 49GTA 0 0% 0 0% 5 38% 8 62% 13Golden Horseshoe 0 0% 2 9% 11 50% 9 41% 22South Western 16 22% 24 33% 26 36% 7 10% 73North 73 78% 12 13% 4 4% 5 5% 94Total 112 65 89 35 301

Total Sent50,000 and overMunicipalities sent survey: Region versus Population


Based upon the above:

• All municipalities in the GTA region, and 20 of 22, or 91% of municipalities in the Golden Horseshoe region, have a population base greater than 10,000;

• More specifically, 62% and 41% of municipalities in the GTA and Golden Horseshoe regions, respectively, have a population greater than 50,000. These two regions have the highest concentrations of larger municipalities;

• Municipalities with a population base less than 50,000 are predominantly located in the Eastern, Central Ontario, South Western and North regions (248 out of 266 municipalities, or 93%). More specifically:

o 48 of 50, or 96% of municipalities in the Eastern region have a population less than 50,000;

o 45 of 49, or 92% of municipalities in the Central Ontario region have a population less than 50,000;

o 66 of 73, or 90% of municipalities in the South Western region have a population less than 50,000;

o 89 of 94, or 95% of municipalities in the North region have a population less than 50,000;

• In particular, the North region has a high concentration of municipalities with a population base of less than 5,000 (73 of 94 municipalities, or 78%); and

• The Eastern, Central Ontario and South Western regions tend to have a more even distribution of municipalities in the three population groupings below 50,000 people (i.e., less than 5,000, 5,000 to 9,999, and 10,000 to 49,999).

Figure 7 provides a breakdown of municipalities by population segment and municipal water system size. There is a significant correlation between the population of the municipality and the size of the water system.

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Figure 7: System Size Versus Municipal Population Analysis

ased upon the above:

• Municipalities with a larger population base have larger water systems, and vice versa;

• rates under 5,000 cubic metres per day have a population base less than 10,000;

# % # % # % # % #Less than 500 42 68% 11 18% 9 15% 0 0% 62500 to 1,499 27 49% 15 27% 13 24% 0 0% 551,500 to 4,999 14 25% 26 46% 17 30% 0 0% 575,000 and over 3 5% 2 3% 37 56% 24 36% 66Total 86 36% 54 23% 76 32% 24 10% 240

Daily Water FlowMunicipalities sent survey: System Size versus Population Total SentLess than 5,000 5,000 to 9,999 10,000 to 49,999 50,000 and over

B

• Specifically, 61 of 66, or 92% of municipalities with system flow rates over 5,000 cubic metres per day have a population base greater than 10,000; Similarly, 135 of 174, or 78% of municipalities with system flow

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• More specifically, 53 of 62, or 85% of municipalities with system flow rates under 500 cubic metres per day have populations less than 10,000;

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,000 and 50,000.

Based o ng asset

anagement, accounting, financing and pricing practices as they relate to population size can

to

l opulation, regional or municipal water system characteristics. Instead, water source is based

analysis will focus on asset anagement, accounting, financing and pricing practices, and any trends identified based on

• 42 of 55, or 76% of municipalities with system flow rates between 500 and 1,499 cubic metres per day have populations less than 10,000 and

• 43 of 57, or 75% of municipalities with mid-size system flow rates (between 1,500and 4,999 cubic metres per day) have populations between 5

n the above analysis, and our review of survey responses, our findings regardimbe broadly applied to regional and municipal water system size characteristics. Specifically, our survey findings regarding larger municipalities can be broadly applied to the GTA and Golden Horseshoe regions, and similarly, to water systems with flow rates over 5,000 cubic metres per day. Likewise, findings regarding smaller municipalities can be broadly appliedthe Eastern, Central Ontario, South Western and North regions (with the exception of the fewlarge municipalities within those regions), and to water systems with smaller flow rates. The fourth grouping, municipal water source, tends to have little correlation with municipapupon characteristics unique to each municipality. Furthermore, our review of survey responses regarding asset management, accounting, financing and pricing practices identified no specific or meaningful trends based on water source. Accordingly, in the following sections of this report, our mthe number of municipalities and municipal population size.

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3 Asset Management Practices

3.1 Background Asset management is a critical element of managing water and wastewater operations given the highly capital-intensive nature of water and wastewater services. The primary objectives behind asset management systems include:

• Optimizing the life cycle value of the physical assets by gaining a thorough understanding of the condition, performance and risk associated with specific assets so that informed decisions can be made on when to repair or replace an asset; and

• Providing key inputs into understanding the financing or investment requirements to support the sustainable operation of the assets (i.e., what investment is needed, when is it required, and how will it be financed), including the pricing of services.

The key components of asset management systems include:

• Asset inventory, which identifies current assets, including their location, age, maintenance record and expected useful life;

• Asset condition and performance assessments, which addresses what condition the assets are currently in, the assets’ condition and performance over time, and what investments will need to be made in the assets and when;

• Asset valuation, which addresses what the assets are worth to assist in financial reporting and financing matters;

• Investment decision making, to ensure that investments are made on a basis that minimizes the life cycle costs associated with the assets (i.e., should the assets be replaced or refurbished);

• Implementation, to ensure that asset refurbishment, upgrade or replacement is implemented effectively, in terms of timing, costs, and meeting stakeholder needs; and

• Monitoring, the ongoing process of tracking asset condition and performance focused on preventing asset failure and identifying and planning future investment requirements. Monitoring requires significant data collection and analysis (it is difficult to effectively manage what you cannot monitor), particularly around asset inventory, asset condition and performance and specific plans for capital investment.

While asset management is a critical aspect of water and wastewater operations, it also presents numerous challenges:

• Most water and wastewater assets are underground. As a result, it is often difficult to identify the assets and assess their condition since most are buried. Furthermore, the repair, upgrade and replacement of underground assets can be expensive;

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• Water and wastewater systems often service small communities who may not have sufficient expertise and/or resources available to effectively manage the assets; and

• The health and safety issues regarding the delivery of water and wastewater services make effective asset management paramount.

The focus of our analysis was to better understand current asset management practices with respect to municipal water and wastewater operations in Ontario, including:

• The level of information Ontario municipalities have available with respect to their water and wastewater asset condition and performance;

• Differences across municipalities with respect to maintenance, repair and overhaul (“MRO”) activities; and

• The impact of current asset management practices on system investment and maintenance decisions.

3.2 Summary of Findings The following highlights the key issues that were considered under asset management practices, and the related findings based on our analysis of the Database results: Level of information municipalities currently have available regarding water and wastewater asset condition and performance The survey responses indicate that the level of information municipalities currently have available with respect to the condition and performance of their water and wastewater assets ranges widely. This implies that there is a wide range in the ability of municipalities to effectively determine the timing of maintenance work and/or the replacement of assets to ensure optimal performance of water and wastewater systems, and to identify and plan for the timing and amount of future investment needs. For instance:

• Roughly 27% of all responding municipalities (representing 17% of the responding municipal population base) indicated that they do not perform inspections for asset condition and/or performance;

• For those responding municipalities that perform asset inspections, only 67% (representing 73% of the responding municipal population base) actually record the results of the asset inspections, thus suggesting that 52% of all responding municipalities do not either perform asset inspections or record information relating to the condition and performance of their water and wastewater assets;

• Only 24% of all responding municipalities (representing 69% of the responding population base) undertake comprehensive leak detection surveys, most of such municipalities being larger municipalities with populations greater than 10,000; and

• Only 33% of all responding municipalities (representing 84% of the responding population base) report using computer-based management information systems

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(“MIS”) as an asset management tool, the vast majority of such users being larger municipalities with populations over 50,000.

The key measures used to determine water and wastewater system reliability include the number of system breaks or major leaks per year, the number of customer complaints per year, system pressure and system downtime. Larger municipalities consider these (and other) factors to assess system reliability to a greater degree than smaller municipalities. The survey responses indicate that larger municipalities (those over 50,000 in population) have a higher level of current information on their water and wastewater assets’ condition and performance, and consider a greater level of system reliability factors than smaller municipalities. Municipal practices relating to MRO activities The key factors that municipalities use in determining their MRO budgets include the condition of the assets, the age of the assets, and the amount expended on MRO activities in prior years. Larger municipalities consider these (and other) factors to determine their MRO budgets to a greater degree than smaller municipalities, thereby suggesting that larger municipalities have a higher level of current information to make more informed decisions regarding their MRO budgets. The range of normalized MRO costs dollar per cubic metre of water/wastewater treated) varies significantly across municipalities, regardless of population size. Roughly half of the responding municipalities indicated MRO costs, in the year 2000, ranging between $0.10 and $0.50 per cubic metre of water and wastewater treated, as summarized below: Figure 8: Normalized MRO costs ($/cubic metre) in 2000

Water Wastewater<0.10 32% 38%0.10-0.50 53% 45%>0.50 15% 17%

% of Responding MunicipalitiesMRO ($/m3)

However, the survey responses indicate that small municipalities (those with populations less than 5,000) spend less per cubic meter on water MRO costs, on average, compared to municipalities with populations greater than 5,000 (see Figure 15). For instance:

• Only 4% of responding municipalities under 5,000 had water MRO costs exceeding $0.50 per cubic metre, whereas between 15% and 25% of responding municipalities in the other three population groups (i.e. greater than 5,000) indicated their water MRO costs exceeded $0.50 per cubic metre; and

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• 41% of responding municipalities under 5,000 had water MRO costs less than $0.10 per cubic metre, whereas between 26% and 31% of responding municipalities in the other three population groups (i.e. greater than 5,000) indicated their water MRO costs were less than $0.10 per cubic metre.

While this suggests that water MRO expenditures for small municipalities may not be sufficient relative to larger municipalities with populations over 5,000, and that there may be a correlation between the current level of information on asset condition and performance available to small municipalities relative to larger municipalities and their respective water MRO expenditures, there may be other influencing factors unique to each of these municipalities. The survey responses indicate that there is limited correlation among municipal population groups with respect to their spending per cubic metre on wastewater MRO costs. For instance, the 5,000 to 9,999 population group had the highest percentage (84%) of responding municipalities with wastewater MRO costs greater then $0.10 per cubic metre than municipalities in the other population groups (i.e. less than 5,000 -.59%; 10,000 to 49,999 – 50%; greater than 50,000 – 55%). Impact of current asset management practices on system investment decisions Based upon the municipal survey responses, the single most important decision criteria in making asset investment decisions is the impact the asset investment would have on system reliability. Impact on service quality, lowest lifecycle cost and lowest purchase cost were also identified as the single most important decision criteria, but to a lesser degree. While no responding municipalities greater than 50,000 in population identified overriding budget considerations as the single most important decision criteria, 14% of municipalities under 5,000 identified overriding budget considerations as their single most important decision criteria. Although not necessarily identified by responding municipalities as the single most important decision criteria, overriding budget considerations, combined with the current level and quality of information available (or lack thereof) to municipalities with respect to the condition and performance of their water and wastewater assets, and their corresponding ability to effectively determine the timing of maintenance work and/or the replacement of assets to plan for their future investment needs (as discussed above), may be leading to the deferral of required water and wastewater system investments. The deferral of required system investment may be more prevalent amongst smaller municipalities given that smaller municipalities:

• Appear to have a lower level of current information on their water and wastewater asset condition and performance;

• Consider a lower level of factors in assessing system reliability than larger municipalities; and

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• Identified overriding budget considerations as an important factor influencing their system investment decisions.

3.3 Summary Analysis The following sections provide a more detailed analysis of the supporting findings to the key issues outlined above. 3.3.1 Level of information municipalities currently have available regarding water and

wastewater asset condition and performance To address this issue, the following four factors were assessed:

(i) The extent to which inspections for asset condition and/or asset performance are undertaken and whether those results are recorded;

(ii) The extent to which comprehensive leak detection surveys are undertaken; (iii) The use of computer-based MIS to facilitate asset management programs; and (iv) The measures used to determine water and wastewater system reliability.

(i) Asset condition and/or asset performance inspections, and documentation of such

results Routine inspections of water and wastewater assets, and related documentation of the results, are an integral part of any asset management program. Tracking of inspection data over time is an important factor in determining trends in asset condition and/or asset performance, and should assist in determining maintenance or replacement activities, and better managing the life cycle of the assets. Figures 9 and 10 below depict the percentage of responding municipalities that perform inspections for asset condition and/or performance, and the percentage of municipalities that record asset condition and performance indicators at the time of inspection, respectively.

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Figure 9: Percentage of Responding Municipalities Performing Asset Inspections

67%77%

66%

92%

73%

0%

20%

40%

60%

80%

100%

<5,000 5,000 to 9,999 10,000 to 49,999 >50,000 All Respondents

Municipality Population Size

Figure 10: Percentage of Responding Municipalities Recording Asset Indicators at Time of

Inspection


• 73% of all responding municipalities (representing 83% of the municipal population

• 82 of 123, or 67% of responding municipalities that perform asset e

68%57%

66%

78%

67%

0%

20%

40%

60%

80%

100%



B

base) indicated that they perform inspections for asset condition and/or asset performance; However, onlyinspections (representing 73% of the municipal population base) actually record thresults of the asset inspections at the time of the inspections, thereby suggesting that only 48% of all responding municipalities perform asset inspections and record their results;

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• that they perform asset inspections but only 18 of 23, or 78% of those record

For those responding municipalities with a population over 50,000, 23 of 25, or 92% indicatedthe results at the time of the inspections, thus suggesting that only 72% of all responding municipalities with a population greater than 50,000 perform asset inspections and record their results; and On the other hand, for those responding municipalities with a population under 50,000, 100

• t they perform asset inspections but only 64 of 144, or 69% indicated tha

of 100, or 64% of those record the results at the time of the inspections, thus suggesting that only 44% of all responding municipalities with a population of less than 50,000 perform asset inspections and record their results. The distributioresults for responding municipalities under 50,000 was fairly consistent between theunder 5,000, 5,000 to 9,999, and 10,000 to 49,999 municipal population groups.

eak detection surveys

n of

(ii) L

mportant component in assessing asset condition and asset erformance, since leaks in water systems result in lost treated water and may result in the

er

unicipalities That Undertake Leak Detection urveys

• Only 42 of 178, or 24% of all responding municipalities (representing 69% of the lation base) perform leak detection surveys;

• For those responding municipalities with a population over 50,000, 15 of 27, or 56% indicated they perform leak detection surveys, while for responding municipalities

Leak detection surveys are an ipentry of contaminants to the system, thus jeopardizing the integrity of a municipality’s watsystem. Figure 11 shows the percentage of responding municipalities that undertake comprehensive leak detection surveys. Figure 11: Percentage of Responding MS


8% 10%

40%

56%

24%

0%

20%

40%

60%

80%



100%

responding popu

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rm

he

5,000 to 9,999 municipal population groups. (iii) U The use dily access nd analyse asset condition and asset performance. This information is critical in determining

or replacement of assets to ensure the optimal erformance of water and wastewater systems and the identification of investment needs.

with populations between 10,000 and 49,999, 18 of 45, or 40% indicated they perfoleak detection surveys; and

• On the other hand, for those responding municipalities with a population under 10,000, only 9 of 106, or 8% indicated that they perform leak inspection surveys. Tdistribution of results for responding municipalities under 10,000 was fairly consistent between the under 5,000 and

se of computer-based MIS

of computer-based MIS as a tool for asset management allows users to reaathe timing of maintenance work and/pFigure 12 below outlines the percentage of municipalities that use computer-based MIS to manage their water and wastewater systems. Figure 12: Percentage of Responding Municipalities Using Computer-Based MIS

100%


• 122 of 182, or 67% of all responding municipalities (representing 16% of the

21%16%

36%33%

0%

20%

40%

60%



85%

80%

responding municipal population base) do not use computer-based MIS to track the condition and performance of their water and wastewater assets. This would suggest

f those municipalities to effectively monitor and manage their asset condition and performance and make informed investment decisions may be limited;

• n

or

that the ability o

and While 23 of 27, or 85% of all responding municipalities with a population greater tha50,000 use computer-based asset MIS, only 37 of 155, or 24% of municipalities with apopulation under 50,000 use computer-based asset MIS. The distribution of results f

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een the three municipal population groups, although the 5,000 to 9,999 group had

(iv) M Figure reliabil stewater systems.

ity

unicipal

• For municipalities with a population greater than 50,000, 81% consider the number of major leaks per year as a key measure in determining water and

wastewater system reliability compared to 51% of responding municipalities with a

• l as a key measure in

• r of

sponding municipalities with a population base less than 5,000.

responding municipalities with a population under 50,000 was fairly consistent betwthe lowest rate (16%).

easures Used to Determine System Reliability

13 below illustrates the various measures municipalities consider in determining the ity of their water and wa

Figure 13: Measures Used to Determine System Reliabil


• 69% of all responding municipalities (representing 61% of the responding mpopulation) consider the number of system breaks or major leaks per year as a key

0% 20% 40% 60% 80% 100%

Other

Mean time to repair

Mean time be tween fa ilures

Sys tem availability

Vo lume lo s s thro ugh leaks o r breaks

Number o f enviro nmenta l inc idents pe r year

Sys tem uptime / do wntime

% of Municipalities

<5,000 population >50,000 population All respondents

measure in determining water and wastewater system reliability;

system breaks or

population base less than 5,000; 54% of all responding municipalities (representing 50% of the responding municipapopulation) consider the number of customer complaints per year determining water and wastewater system reliability; and For municipalities with a population greater than 50,000, 70% consider the numbecustomer complaints as a key measure in determining water and wastewater system reliability compared to 37% of re

Number o f cus to mer co mpla ints pe r year

Number o f s ys tem breaks o r majo r leaks pe r year

P res s ure

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3.3 To add

(i) (ii)(iii) unt of time that municipalities spend on MRO activities.

) Factors that municipalities use to determine MRO budgets

igure 14 below illustrates the key factors that municipalities consider when setting their MR udg Fig 4:

% consider asset condition as a key factor compared to 71% of responding municipalities with a population base

• The second most common factor, based on responding municipalities, is the amount

.2 Municipal practices relating to MRO activities

ress this issue, the following factors were assessed:

Factors municipalities use to determine MRO budgets; The range of normalized MRO costs across municipalities; and The amo

(i F

O b ets.

ure 1 Key Factors Considered When Setting MRO Budgets


• The overriding key factor considered by municipalities, regardless of population size, in determining MRO budgets is condition of the assets. 81% of all responding municipalities, representing 95% of the responding municipal population base, consider this factor;

0% 20% 40% 60% 80% 100%

Other

Changes in eng ineering des ig n s tand ard s

Chang es in capacity req uired

Actual op erat ing p erfo ramcne agains t a s tand ard

% of Municipalities


• For municipalities with a population greater than 50,000, 93

less than 5,000;

expended on MRO activities in prior years. 61% of responding municipalities,

Cond itio n o f the assets

What was sp ent in the pas t

Long rang e overhaul o r rep lacement sched ule

Ag e o f the assets

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ount rs when setting MRO budgets; and

cipalities with larger populations consider the age of the assets

(ii) Ra Mu icalendathe totaamount rmalized MRO costs for those

spondents who reported the appropriate data.

igure 15: Normalized MRO Costs in 2000 by Municipality Population

representing 84% of the responding municipal population base, consider the amspent in previous yea

• For responding municipalities with a population greater than 50,000, the second most common factor in setting MRO budgets is the age of the assets. In particular, 89% of responding municompared to 40% of smaller municipalities.

nge of normalized MRO costs

nic palities were asked to provide the total dollar amount spent on MRO activities in the r year 2000. For comparison purposes, these MRO costs were normalized based on l volume of water supplied in 2000 in order to calculate a dollar per cubic metre . Figure 15 below illustrates the range of no

re F

In 2000 % of respondents - For Water Supply and Distribution Systems MRO $/m3 All respondents <5,000 5,000 - 9,999 10,000 - 49,999 >50,000

<0.10 32% 41% 29% 31% 26%0.10-0.50 53% 56% 46% 54% 58%>0.5 15% 4% 25% 15% esponse rate: 53% 39%

16%r 64% 55% 70%

In 2000 % of respondents - For Wastewater Collection and Treatment Systems M 10,000 - 49,999 >50,000 RO $/m3 All respondents <5,000 5,000 – 9,999

.10 38% 16 50%0.10-0.50 45% 46% 60% 33% 40%>0.5 17% 13% 24% 17% 15%response rate: 350% 5% 57% 51% 74%

Based upon the abov :

a pond nicipa t pr ent in on supplie their wate wastewate

systems, respectively, to be incl in this analysis; hose m palities that responded with sufficient informat 3% and 45

indicated their MRO costs range between $0.10 and $0.50 per cubic metre for water reated, respectively;

• Only 4% of responding municipalities under 5,000 had water MRO costs exceeding

• ad the highest percentage of h

e

• 47% nd 50% of res ing mu lities did no ovide suffici formatiregarding MRO costs and/or total water d for r and r

uded• Of t unici ion, 5 %

<0 42% % 45%

and wastewater t

$0.50 per cubic metre, whereas 16% of municipalities greater than 50,000 indicatedtheir water MRO costs exceeded $0.50 per cubic metre; The municipality population group of 5,000 to 9,999 hrespondents indicating their water MRO costs exceeded $0.50 per cubic metre, wit25% of responding municipalities indicating as such; and

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cubic metre. (iii) Wit e t percent to their w re 16 below.

predictive or preventative maintenance;

on unplanned corrective work or emergency work.

.3.3 Impact of current asset management practices on system investment decisions To mportant crit aby responding municipalities.

• 41% of responding municipalities under 5,000 had water MRO costs less than $0.10 per cubic metre, whereas 26% of responding municipalities greater than 50,000 indicated their water MRO costs were less than $0.10 per

Amount of time municipalities spend on MRO activities

h r spect to annual maintenance work undertaken in 2000, municipalities were asked whaage of total workforce hours were spent on various maintenance activities relatedater and wastewater system assets. Those percentages are listed in Figu

Figure 16: Maintenance Work, by Category


• 50% of total workforce hours were spent on • 20% of total workforce hours were spent on planned corrective work; and • 30% of total workforce hours were spent

All respondents

anned corrective work 18%12%

100%

aintenance Activity % of time spentPredictive maintenance or inspections 25%Preventative maintenance 25%Planned corrective work 20%

M

UnplEmergency work

3

address this issue, we assessed what municipalities consider is the single most ieri in making asset investment decisions. Figure 17 below captures the criteria selected

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igure 17: The Single Most Important Criterion For Asset Investment Decisions

nt, regardless of

er

population identified lowest lifecycle cost as the single most important decision

• While no responding municipalities with populations greater than 50,000 identified

F


• Overall, the single most important decision criteria for asset investmemunicipal population size, is the impact the asset investment would have on systemreliability, with 39% of responding municipalities, representing 43% of the responding municipal population, selecting this criteria;

• 19% of responding municipalities, representing 6% of the responding municipal population indicated that the impact the asset investment would have on customservice/service quality as the single most important decision criteria;

• 14% of responding municipalities, representing 4% of the responding municipal

0% 10% 20% 30% 40% 50%

Other

% of Municipalities


Lo wes t ins ta lled co s t

co ns idera tio ns

Lo wes t purchas e co s t

Lo wes t lifecycle co s t

Grea tes t impact o n cus to mers ervice / s e rvice quality

Grea tes t impact o n s ys temre liability

Overriding budge t

criteria; and

overriding budget considerations as the single most important decision criteria, this criteria was identified as being the single most important decision criteria for asset investment by 14% of municipalities with less than 5,000 people.

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4 Ac

4.1 B A prim t inform accounting practices:

• Provide a valuable tool for strategic planning and management decision making purposes;

• Allow for improved tracking and monitoring of operational performance; and • Allow for increased accountability with respect to operational performance.

Key factors impacting accounting and accounting practices in Ontario municipal water and wastewater operations include:

• Water and wastewater operations are highly capital intensive with the assets having a very long service life;

• Much of the infrastructure is underground, making it difficult to assess asset condition and the required repair, upgrade or replacement at any point in time; and

• Ontario municipalities employ cash-based accounting. Under cash-based accounting, investments in infrastructure assets are expensed as a cash expenditure in the year in which they were incurred instead of being recognized as long-term assets. As a result, information about the capital component of providing water and wastewater services is not readily available.

In December 2001, the Ontario Ministry of Municipal Affairs and Housing (“MMAH”) introduced Bill 155, an act respecting the cost of water and wastewater services, otherwise known as the Sustainable Water and Sewage Systems Act (the “Act”). The Bill was reintroduced as Bill 175 in September 2002 under the Ontario Ministry of Environment (“MOE”) and received Royal Assent on December 13, 2002. The key purpose of the Act is to ensure that Ontario water and wastewater systems generate sufficient revenue to fully recover all of the long-term operating and capital costs required to provide Ontario residents with clean, safe water. In other words, the Act is focused on ensuring that Ontario municipal water and wastewater systems operate on a truly self-sustaining basis. Under Bill 175, Ontario municipalities will be required to provide:

• A full cost report for both their water and wastewater operations, including information on the infrastructure and investment needed to provide water and wastewater services, the full cost of providing those services, and the revenue obtained to provide those services; and

counting Practices

ackground

ary objective around accounting is to provide stakeholders with accurate and relevanation to make fully informed decisions. More specifically, effective

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• A cost recovery plan describing how the municipality intends to pay for the “full cost”

require municipalities to establish and maintain a dedicated reserve

ccount for their water and wastewater operations so that cost recovery plan revenues are

urrent practices regarding municipal water and wastewater operations in Ontario,

c i

ms can

for water

.2 Summary of Findings The fol ey issues that were considered under accounting practices, and the a Ext tprovid Asset M

etermining the “full cost” of water and wastewater services requires an understanding of the

e tion that

ter

and therefore, their future frastructure investment needs, including the cost and timing of future maintenance and

ll responding unicipalities (representing 84% of the responding population base) reported using a

com eing larger munici

of providing the services.

In addition, the Bill willasegregated from the municipality’s general revenues. The focus of our analysis with respect to accounting practices was to better understand cccountinga

in lud ng:

• The extent to which current municipal asset management and accounting systeprovide information about the “full cost” of water and wastewater services; and

• The current definitions of operating and capital costs used by municipalities and wastewater services.

4

lowing highlights the k rel ted findings based on our analysis of the survey results:

en to which current municipal asset management and accounting systems can e information about the “full cost” of water and wastewater services

anagement Systems

Dinfrastructure or investment needed to provide those services on a long-term or life cyclebasis. To determine future infrastructure investment needs, municipalities need to determinthe assets they have and where they are located (i.e., an asset inventory) and the condithey are in, together with minimum service level requirements for the water and wastewasystems and the municipalities’ growth expectations. As previously indicated in Section 3 “Asset Management Practices”, the survey responses show that the level of information municipalities currently have available with respect to the condition and performance of their water and wastewater systems,inreplacement activities, ranges widely. . Furthermore, only 33% of am

puter-based MIS as an asset management tool, the vast majority of such users bpalities with populations greater than 50,000.

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Acc dnot hav gement systems and/or information available with respect to

e condition and performance of their water and wastewater assets. As a result, their ability

the lacement activities, would

orrespondingly be limited. This particularly was found to be the case amongst smaller

Systems

The moexpend vice) in t yfixed a tments) or the accumulated depreciation charged against those assets. As a result, it is difficult to track the status of those assets, including their net

n would provide municipalities with a useful tool to assess ital-intensive water and wastewater assets. For instance, a

ecline in the net value of the fixed assets may indicate that there is a growing backlog of

ides a useful management tool determine future investment needs and, therefore, the true “full costs” associated with

he survey results indicate that the majority of responding municipalities do not track the net ewater assets:

or ingly, based upon the survey responses, a majority of the responding municipalities do e the necessary asset mana

thto effectively estimate their future infrastructure investment needs for the purposes of understanding their true “full costs” of providing water and wastewater services, includingcost and timing of planned future maintenance and repcmunicipalities as compared to larger municipalities. Accounting

dified accrual accounting systems used by Ontario municipalities report capital itures on a cash basis and show expenditures for capital investments (and debt ser

he ear that they were incurred. These systems do not, however, report the value of the ssets (i.e., the capital inves

value, over time. This informatiohow they are managing their capddeferred investments for necessary maintenance, repairs and replacement and that additional investments may be required. In addition, this information provtoproviding water and wastewater services. Tvalue of their water and wast

• Only 10% of the responding municipalities maintain a fixed asset sub-ledger for their water and wastewater assets; and

• Of the 90% of responding municipalities that do not maintain a fixed asset sub-ledger: o 69% do not assign or record a financial value to those assets; and o 68% report having no information regarding the expected useful life of their

water and wastewater assets. Accordingly, based on the survey results, current municipal accounting systems do not provide sufficient information with respect to capital investments, a critical component in determining the true “full costs” of water and wastewater services. Given that water and wastewater operations are highly capital intensive with the assetsa very long service life, the movement towards a full accrual accounting approach is considered more appropriate. Under full accrual accounting, the cost to acquire a fixed asset s spread out over the life of the asset through annual

having

depreciation charges, thereby allowing a etter matching of the benefits of the asset (based upon its use) with its costs. This would

help municipalities better manage the status (including the net value) of their water and

ib

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and

ing for both operating and capital costs,

ereby implying that the definition of “full cost” is also not consistent between

ting

• The responding municipalities indicated that they include a wide and differing range

nique nature of their respective operations. For instance, 54% of responding municipalities (81% of responding municipalities over

r operating costs for water and wastewater services;

• Lar ost cate rthis ma the unique nature of their respective operations.

res as being “all costs bettering the asset”, having a “future benefit beyond one year”, being “over a

range

wastewater assets, and facilitate the determination of their true “full costs” of providing water and wastewater services on a life cycle basis. Current definitions of operating and capital costs used by municipalities for waterwastewater services The survey responses indicates that a wide range of interpretation exists amongst respondmunicipalities as to the definition of, and accounting thmunicipalities. For example, with respect to operating costs:

• Responding municipalities primarily define operating expenditures as being “all recurring costs”, having a “benefit of less than one year”, or to a lesser extent an amount “less than a predefined dollar amount”, or a combination thereof;

• 88% of responding municipalities use object cost categories (i.e., categories defining the nature of the goods received such as salaries, materials, energy costs, etc.) to classify operating expenditures, while 55% use functional cost categories (i.e., categories defining the finished product or service delivered such as water supply, water distribution and customer accounting costs, etc.), thereby suggesting that different methods or combinations of cost categorization are used to classify operacosts;

of object cost and functional cost categories in determining operating costs, although this may partly be explained by the u

50,000 and 45% of responding municipalities under 5,000) indicated that they include overhead costs in determining theiand

ger municipalities include a higher level of object cost and functional cgo ies in determining their operating costs than smaller municipalities, although

y also be partly attributable to Examples of the wide range of definitions of and accounting for capital costs include:

• Responding municipalities primarily define capital expenditu

predefined dollar amount”, or “all non-recurring costs”, or a combination thereof; • The responding municipalities indicated that they include a wide and differing

of cost elements in determining capital expenditures, although this may partly be explained by the unique nature of their respective operations; and

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cipalities, although this may also be partly attributable to the unique nature of their respective operations.

ve with respect to asset management and accounting systems, and the ide range of interpretation amongst responding municipalities as to the definition of, and

l ce and

troduction of Bill 175 is a first step to address this issue. In addition to nsuring that Ontario municipal water and wastewater operations operate on a truly self-

sset ancing

• d

4.3 S The l issu o 4.3.1

Our anpreceding section, Section 3 “Asset Management Practices”. We have addressed the latter hal specificassets. full cost” of water and wastewater services, we assessed the extent to which municipalities

ummarized in the figures below.

• Larger municipalities include a higher level of cost elements in determining their capital expenditures than smaller muni

Given the findings abowaccounting for both operating and capital costs, Ontario municipalities, particularly the smaller municipalities, will likely face significant challenges in determining their true “fulcosts” of providing water and wastewater services, and will likely require guidandirection. The inesustaining basis, Bill 175 is also focused on:

• Moving towards best practices (e.g., ensuring that municipalities are employing effective long-term planning and life cycle asset management practices, and that amanagement practices are more closely integrated with accounting and finpractices); and Improving the consistency in the operation and accounting for municipal water anwastewater systems.

ummary Analysis

fo lowing sections provide a more detailed analysis of the supporting findings to the keyes utlined above.

Extent to which current municipal asset management and accounting systems can provide information about the “full cost” of water and wastewater services

alysis regarding current municipal asset management practices is covered in the

f of this issue by considering the current structure of municipal accounting systems, and ally, the ability of municipalities to track the net value of their water and wastewater

To address the extent to which accounting systems can provide information about the “account for, and track their capital investments using their accounting systems. This iss

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Fig e

Figure 19: Percentage Of Municipalities That Assign Or Record Financial Value To Their Wa

ur 18: Percentage Of Municipalities That Maintain a Fixed Asset Sub-Ledger

11%5% 5%

23%

10%

0%

20%

40%

60%

80%

100%



ter and Wastewater Assets Where No Fixed Asset Sub-Ledger

0%<5,000 5,000 to 9,999 10,000 to 49,999 >50,000 All Respondents


19% 22%

40%

31%

20%

40%

100%

56%60%

80%

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Figure 20: Percentage Of Municipalities That Have Information Regarding The Expected

intain a fixed

intain a fixed asset sub-ledger: unicipalities with

eful life of their water

y municipalities for water and wastewater services

To address this issue, the following factors were assessed:

(i) The definition of, and accounting for, operating costs; and (ii) The definition of, and accounting for, capital costs.

Useful Life Of Their Water and Wastewater Assets Where No Fixed Asset Sub-Ledger

20% 23%

49% 50%

32%

0%

20%

40%

60%

80%

100%




4.3.2 Current definitions of operating and capital costs used b

• Only 10% of responding municipalities (23% of municipalities with populations over 50,000 and 11% of municipalities with populations less than 5,000) maasset sub-ledger for their water and wastewater assets;

• Of the 90% of responding municipalities that do not mao 31% assign or record a financial value to those assets. For m

populations greater than 50,000, 56% assign or record a financial value to those assets compared to 19% of municipalities with populations less than 5,000; and

• In addition, of the 90% that do not maintain a fixed asset sub-ledger: o 32% report having information regarding the expected us

and wastewater assets. For municipalities with populations greater than 50,000, 50% have information regarding the expected useful life of those assets compared to 20% of municipalities with populations less than 5,000.

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r operating costs.

Based u

cos• 62% f

having• 19% of responding municipalities (33% of municipalities with populations greater

0) define an ope i71% s

(i) Operating cost definitions and classifications

predefined dollaramount

one year

Figure 21 below illustrates the range of definitions used by municipalities fo Figure 21: Operating Expenditure Definition

0%

20%

40%

60%

80%

100%

Less than a Benefit of less than All recurring costs Other


pon the above:

• 73% of responding municipalities define operating expenditures as “all recurring ts”; and o responding municipalities define an operating expenditure as an expense

a “benefit of less than one year”; and

than 50,000 and 14% of municipalities with populations less than 5,00rat ng expenditure as an amount “less than a predefined dollar amount”. Of those, u e a predefined dollar amount of $5,000 or less.

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as illustrated in Figure 22 elow.

igure 22: Operating Expenditure Classification

ng municipalities (96% of municipalities with populations greater than 50,000 and 86% of responding municipalities with populations less than 5,000)

• onding municipalities (84% of municipalities with populations greater 0)

ify operating expenditures.

Classification of operating costs also varies across municipalities,b F

0%

20%

40%

60%

80%

100%

Object Cost Categories Functional Cost Categories



• 88% of respondi

report using object cost categories to classify operating expenditures; and 55% of respthan 50,000 and 37% of responding municipalities with populations less than 5,00report using functional cost categories to class

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res.

Figure 23: Object Cost Categories Used For Operating Expenditures

igure 24: Functional Cost Categories Used For Operating Expenditures

Figures 23 and 24 below illustrate the cost categorizations used to classify operating expenditu

0% 20% 40% 60% 80% 100%

Other

Interest during construct ion

Buy water/ treatment of ww from/by others

Rent or other property charges

Allocated overheads

Principal on debt

Interest on debt

Chemicals

Contracted out services

Insurance

Utilit ies

Employee salaries wages and benefits

M aterials

% of Municipalities


F

0% 20% 40% 60% 80% 100%

Other

Customer accounts (metering, billing and/or collect ions, etc.)

Water supply

Water d

% of Municipalities

istribut ion / wastewater collect ion system operat ions

Water purif icat ion and/or wastewater treatment plantoperat ions

General and administrat ive


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• Larger municipalities include a higher level of object cost and functional cost categories in determining operating costs than smaller municipalities; and

unicipalities

stewater services.

costs bettering the

• 30% of responding municipalities define a capital cost as “all non-recurring costs”.

Based upon the above, key findings include:

• 54% of responding municipalities (representing 81% of responding mover 50,000 and 45% of responding municipalities under 5,000) report including overhead costs in determining operating costs for water and wa

(ii) Capital cost definitions and classifications Similar to operating expenditures, definitions for capital costs also vary significantly across the Province, as illustrated in Figure 25 below. Figure 25: Capital Expenditure Definition

40%

60%

80%

100%


• 54% of responding municipalities define a capital cost as “allasset”; and

• 53% of responding municipalities (67% of municipalities with populations greater than 50,000 and 45% of municipalities with populations under 5,000) define a capital cost as all assets with a “future benefit beyond one year”; and

• 34% of responding municipalities (52% of municipalities with populations greater than 50,000 and 23% of municipalities with populations under 5,000) define a capital cost as an amount “less than a predefined dollar amount”. Of those, 46% use a predefined dollar amount of $5,000 or more; and

20%

0%Over a

predefined dollaramount

Future benefitbeyond one

year

All non-recurringcosts

All Costsbettering the

asset

Other


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various cost categories when recording a capital xpenditure, as illustrated below.

Figure

ining their

unicipalities

ervices.

Similarly, differences exist in the inclusion ofe

26: Cost Categories Used For Capital Expenditures

0% 20% 40% 60% 80% 100%

Other

Insurance

Interest during construction

Design, legal, survey fees

C

% of Municipalities


Site preparation costs

M aterials

Duties and taxes

Testing

ost E

lem

ent Direct labours

A llocated corporate overheads


• Larger municipalities include a higher level of cost elements in determcapital expenditures than smaller municipalities; and

• 33% of responding municipalities (representing 41% of responding mover 50,000 and 38% of responding municipalities under 5,000) report including overhead costs in determining capital costs for water and wastewater s

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5 Financing Practices

5.1 Background

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Financing is one of the most critical aspects of municipal water and wastewater operations in Ontario and other jurisdictions today. This is driven by the following factors:

• Water and wastewater operations are highly capital intensive, and significant costs and financing requirements are associated with same;

• Much of the infrastructure is underground, making it difficult to assess not only asset condition and required repairs, upgrades and replacements, but financing needs, at any point in time;

• Capital expenditures are not typically “smooth” but rather have many peaks and valleys (i.e., larger expenditures in some years followed by smaller expenditures in other years); and

• There is currently a substantial shortfall in water and wastewater infrastructure investment (an infrastructure deficit) among Ontario, and other jurisdictions’, municipal water and wastewater operations today.

raditional financing for water and wastewater operations has come from a number of

er

• Senior government grants and loans – although this traditional major source of

financing for capital projects has been diminishing in recent years. More recently, public-private partnerships are being looked at as another possible source of financing larger capital projects. The recently introduced Bill 175 is focused on ensuring that Ontario water and wastewater systems generate sufficient revenue to fully recover all of their long-term operating and capital costs. In other words, the Bill is aiming to ensure that municipal water and wastewater operations are properly financed so that they operate on a self-sustaining basis. This financing includes the infrastructure deficit or investment shortfall that currently exists, together with ongoing capital investment requirements for the future. The focus of our analysis with respect to financing practices was to better understand the current financing practices of Ontario municipal water and wastewater operations, including:

Tsources, including:

• Current municipal revenue streams such as user fees, development charges and othspecific levies;

• Municipal reserves established and funded over a period of time from municipal revenue streams and other sources; Municipal debt; and

•

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• Identify revenue or financing sources that are currently being used to finance itures;

• Identify to what extent water and wastewater revenues are cross-subsidizing other ies and vice versa; and

• Identify some of the trends and opportunities for improvement in financing practices.

The lthe rela esults. Revenuexpend er and wastewater systems Operat Wh t ance operati , user fees an source of revenue for financing

oth water and wastewater operating costs. For example, based upon revenue sources

• 85% indicated that they used direct customer billings to fund operating costs for water

irect user fees are used to a lesser extent by municipalities as a source

• onding municipalities with populations less than ey used direct customer billings to fund operating expenditures

at rce of cost

recovery;

tions less than 5,000 indicated that they used direct customer billings to fund operating expenditures compared to 85% of responding

ing

es; and

cated water/wastewater and general reserves, transfers from the general revenue fund, and “other revenues”

operating and capital expend

municipal activit

5.2 Summary of Findings

fo lowing highlights the key issues that were considered under financing practices, and ted findings based on our analysis of the Database r

e and financing sources currently used to fund operating and capital itures for wat

ing Expenditures

ile he survey responses indicate that a wide range of revenue sources are used to finng expenditures for water and wastewater systems, direct customer billings (i.e.d service charges) are indicated as the predominant

bidentified by responding municipalities for the year 2000:

systems while 64% indicated that they used direct customer billings for wastewater, suggesting that dof cost recovery for wastewater services compared to water services; For water systems, only 74% of resp5,000 indicated that thcompared to 96% of responding municipalities greater than 50,000, implying thmany smaller municipalities do not employ direct user fees as a sou

• This relationship also applies to wastewater systems, where only 51% of responding municipalities with popula

municipalities greater than 50,000; • Other current direct revenue sources used, but to a lesser extent, to finance operat

costs for both water and wastewater systems include special area tax levies, amounts added to property tax bills, and charges to other municipalities for water servic

• Other financing tools used (but to a lesser extent) to fund operating costs for bothwater and wastewater systems include transfers from both dedi

designated for water/wastewater operations and from other sources.

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Wh s or both water a n larger and smaller municipalities, other than the use d do not app f revenue sources based upon the mu i

onsistent with operating expenditures, the survey responses indicate that a wide range of

water capital costs, articularly amongst larger municipalities, is the municipalities’ general revenue fund. For

he year

t they used their revenue fund as a financing tool to finance capital costs for water systems while 37% indicated that they did the same for wastewater

,000. ties access their revenue fund to

finance capital investments, these results may be impacted by a higher level of capital

• ue fund as a

The sou irect custom for water and wastewater services such as user fees, and non-direct charges suc scosts fu tomer charges The rare a mparticuide i

•

ile ome variations in the revenue sources used to finance operating expenditures fnd wastewater systems occur betwee

of irect customer charges by smaller and larger municipalities addressed above, there ear to be any material trends in the use o

nic pality’s population size.

Capital Expenditures Cfinancing sources are used to fund capital expenditures for water and wastewater systems. The predominant financing tool indicated for both water and wastepexample, based upon revenue sources identified by responding municipalities for t2000:

• 43% indicated tha

system capital costs; • For water systems, 59% of responding municipalities greater than 50,000 indicated

that they used their revenue fund as a financing tool to finance capital expenditures compared to only 25% of responding municipalities with populations less than 5While this may imply that fewer smaller municipali

investment activity potentially undertaken by larger municipalities in the year 2000 compared to the smaller municipalities; and This relationship also applies to wastewater systems, where 56% of responding municipalities greater than 50,000 indicated that they used their revenfinancing tool to finance capital expenditures compared to only 12% of responding municipalities with populations less than 5,000.

rce composition of municipalities’ general revenue funds may comprise both der charges

h a property taxes. Accordingly, it is difficult to determine the extent to which capital nded from municipalities’ revenue funds have been financed through direct cus or non-direct charges.

su vey responses also indicate that discretionary reserves (both general and designated) ajor source of financing for both water and wastewater capital expenditures, larly amongst the larger municipalities. For instance, based upon revenue sources

ntif ed by responding municipalities for the year 2000:

25% of responding municipalities indicated that they used discretionary reserves to fund capital costs for both water and wastewater in 2000; and

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(92%) indicated that they use dedicated reserves for water nd wastewater purposes. This is consistent across municipalities, regardless of municipality

proportion of responding municipalities (73%) indicated that they use eneral reserves for water and wastewater purposes. This practice of using general reserves to

e

ess of population.

Oth fmunici e noted,

•

• 52% and 67% of municipalities greater than 50,000, for water and wastewater, respectively, accessed discretionary reserves while 3% and 6% of municipalities less than 5,000, for water and wastewater, respectively, used discretionary reserves.

Almost all of the municipalities apopulation. A smallergfund water and wastewater activities is more prevalent with smaller municipalities (87% ofmunicipalities with populations less than 5,000 use general reserves compared to 46% of municipalities with populations greater than 50,000). The primary basis reported by thresponding municipalities for contributions to the dedicated water/wastewater reserve and general funds is through “budget surpluses”. This is consistent across municipalities, regardl

er inancing tools used, but to a much lesser extent (less than 15% of responding palities), to fund capital expenditures, based on year 2000 financials unless otherwisinclude:

Senior government grants. Provincial capital grants were identified as a source of financing for water and wastewater capital costs by roughly 14% of the responding municipalities, whereas Federal capital grants were only identified by roughly 2%, reflecting the reduced role of senior government funding for water and wastewater capital projects. Based upon the survey results, a greater percentage of larger municipalities have received capital grants from the Province in 2000 compared to

of

• Long-term debt.

smaller municipalities, although these results may be impacted by a higher levelcapital investment activity potentially undertaken by larger municipalities in 2000 compared to the smaller municipalities;

While 55% of responding municipalities indicated that they have

ce of financing for water and wastewater capital projects, was

not indicated as being frequently used as a funding source for capital projects in the

issued long-term debt to specifically cover capital expenditures related to water and wastewater, proceeds from long-term debt issued by municipalities in the year 2000 was identified as a source of financing by only roughly 5% of the responding municipalities. This implies that municipal debt, while considered by just over half ofmunicipalities as a sour

year 2000. The survey responses indicate the use of debt is more common amongst larger municipalities than smaller municipalities;

• Obligatory reserve funds, primarily related to development charges, was identified by

roughly 8% of the responding municipalities as a source of financing for water and

wastewater capital expenditures in the year 2000; and

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• Other various sources of financing. For instance, 14% of responding municipaindicated that they have entered into a public-private partnership at one time or another for the purposes of financing capital and operating expenditures related

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lities

to their water and wastewater systems.

de

s, in structuring their water and wastewater rates, are not structuring them to fully recover their costs of providing water and wastewater

by other

their water and wastewater rates, respectively, to fully recover the costs of providing water and wastewater services. While the definition of “full cost recovery”

” f

y; •

er

ized by other municipal activities; • 14% and 10% of municipalities, respectively, indicated that they transferred water and

s

•

located overhead charges to their water and wastewater operations, respectively, in the year 2000. This implies that

Extent to which municipalities may be cross-subsidizing other non-water and wastewater activities and vice versa While it is difficult to assess the extent to which municipalities may be cross-subsidizing other non-water and wastewater activities, and vice versa, several observations can be mabased upon the survey results:

• Many municipalitie

services, implying that water and wastewater costs are being cross-subsidizedactivities. For instance, 93% and 76% of responding municipalities indicate that they structure

may be interpreted differently by the responding municipalities, 78% and 81% of those responding municipalities report that they are operating on a “full cost recoverybasis for water and wastewater, respectively, whereas roughly 13% report recovery ooperating costs only, and roughly 8% report some other combination of cost recoverThe predominant use of the municipalities’ revenue fund, general discretionaryreserves and other non-dedicated sources of financing to fund capital expenditures inthe year 2000, together with the use of non-current or non-direct sources of revenuefor operating costs (e.g., transfers from general revenue fund, etc.) suggests that watand wastewater costs may be cross-subsid

wastewater revenues to the general revenue fund in the year 2000. While these fundmay ultimately be used to finance water and wastewater operating and capital costs inthe future, they could also potentially be used to subsidize other municipal activities; and The allocation of general municipal overhead charges to water and wastewater operations may also be a form of indirect cross-subsidization. For instance, 54% of responding municipalities indicated that they include overhead costs in determining their operating costs for water and wastewater services, while only 35% and 27% of all responding municipalities indicated that they al

other municipal activities are subsidizing the water and wastewater operations since these charges are not being included in determining water and wastewater operating costs.

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Tre s Based u ng their rev attributable to water and wastewater to their

ue full costs of water and wastewater operations. As a result, other municipal activities may e cross-subsidizing water and wastewater activities, and vice versa. In aiming to ensure that

on a self- Bill 175), municipalities should establish and

aintain separate dedicated reserve accounts for water and wastewater operations in order to ipal

he use of separate dedicated reserves will assist municipalities to more effectively determine and a he sources essary investmbecomefunding Additio

•

he

• long-term

• erships as an alternative method of financing and delivering their water and

5.3 S The fol above,

nd and opportunities for improvement in financing practices

pon the above survey findings, many Ontario municipalities are not directly matchienue or financing sources specifically

trbmunicipal water and wastewater systems are properly financed so that they operate sustaining basis (a primary objective ofmsegregate water and wastewater revenue and related financing sources from general municrevenues. T

pl n for their water and wastewater financing requirements, including assessing t of financing they have available and should be accessing, and ensuring that necents in capital improvements and replacement are made on a timely basis. This will increasingly important given the diminishing availability of senior government that has traditionally been a major source of financing for capital projects.

nal sources of financing municipalities could access include:

Increase in user fees or direct customer charges. User fees or direct customer charges do not appear to be covering the true full cost of providing water and wastewater services, particularly as they relate to capital expenditures. Accordingly, given trelatively inexpensive cost of water and wastewater to users, there should be scope to increase revenues by increasing direct customer charges to more properly reflect the true cost of water and wastewater services; Municipal debt. Just over half of responding municipalities reported issuing debt to finance water and wastewater capital expenditures. Recent studies have shown that municipalities generally have excess debt capacity available to them for financing purposes; and Public-private partnerships. Municipalities are increasingly considering public-privatepartnwastewater services.

ummary Analysis

lowing sections provide a more fulsome discussion on each of the key issues outlinedincluding an overview of the analysis and supporting findings.

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.3.1 Revenue sources currently used to finance operating and capital expenditures

operating expenditures for their water systems.

• For those municipalities with populations greater than 50,000, 96% indicated they use direct customer billings to fund water system operating expenditures compared to 74% of responding municipalities with populations less than 5,000;

5

for water and wastewater systems To address this issue, we assessed current financing practices used for funding operating and capital expenditures as they relate to municipal water and wastewater systems. (i) Operating expenditure revenue sources – water and wastewater systems Figure 27 below outlines the various revenue sources used by municipalities to finance their year 2000 Figure 27: Year 2000 Operating Expenditure Revenue Sources – Water Systems

Amounts added to the tax bill for own purposes

Special area tax levies for upper tier purposes

Special area tax levies for own purposes

Tran r

Direct customer billings - user fees and service charges

Amounts added to the tax bill for upper tier purposes

999 10,000 to 49,999 >50,000 All respondents

Transfers from general reserves for current purposes

Other revenues

Other revenues designated for water operations

Amounts co llected from other municipalities

Transfers from the general revenue fund

sfe s from dedicated water reserves for current purposes

0% 20% 40% 60% 80% 100%% of Municipalities

<5,000 5,000 to 9,


• 85% of responding municipalities use direct customer billings to fund operating costs for water systems;

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• 30% of responding municipalities use “other revenues designated for water

• For those municipalities with populations greater than 50,000, 48% indicated they use

lities with populations less than 5,000.

igure 28 below outlines the various revenue sources used by municipalities to finance their

igure 28: Year 2000 Operating Expenditure Revenue Sources – Wastewater Systems


• 64% of responding municipalities use direct customer billings to fund operating costs

• lities with populations greater than 50,000, 85% indicated they use

operations” and “other revenues” as revenue sources for financing water system operating expenditures; and

“other revenues designated for water operations” and “other revenues” to fund water system operating expenditures compared to 17% of responding municipa

Fyear 2000 operating expenditures for their wastewater systems. F

0% 20% 40% 60% 80% 100%

Transfers from the general revenue fund

Transfers from dedicated wastewater reserves for current purposes

Transfers from general reserves for current purposes

Other revenues

Other revenues spec. designated for wastewater operations

Amounts co llected from other municipalities

Direct customer billings - user fees and service charges

Amounts added to the tax bill for upper tier purposes

Amounts added to the tax bill for own purposes

Special area tax levies for upper tier purposes

Special area tax levies for own purposes

% of Municipalities

<5,000 5,000 to 9,999 10,000 to 49,999 >50,000 All respondents

B

for their wastewater systems; For those municipadirect customer billings to fund wastewater system operating expenditures compared to 51% of responding municipalities with populations less than 5,000;

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venue

• opulations greater than 50,000, 15% indicated they use

(ii) Ca sources – water and wastewater systems


• ties used their revenue fund as a financing tool to

• tal

• 22% of responding municipalities use “amounts added to the tax bill” as a resource for financing wastewater system operating expenditures; and For those municipalities with p“amounts added to the tax bill” to fund wastewater system operating expenditures compared to 20% of responding municipalities with populations less than 5,000.

pital expenditure financing Figure 29 below outlines the various financing sources used by municipalities to finance their year 2000 capital expenditures for their water systems. Figure 29: Year 2000 Financing of Capital Fund Expenditures – Water Systems

0% 10% 20% 30% 40% 50% 60% 70%

Other financing

Discretionary reserves for current or capital purposes (both general and dedicatedreserves)

Obligatory reserve funds/deferred revenue

Obligatory reserve funds/deferred revenue (related to development charges)

Transfers from revenue fund

Cost of assets developed by others and transferred to the municipality

Proceeds of long-term debt issued by municipality for own purposes

Other grants and/or loan forgiveness

Provincial capital grants

Federal capital grants

% of Municipalities


B

43% of responding municipalifinance capital costs for their water systems; For those municipalities with populations greater than 50,000, 59% indicated they used their revenue fund as a financing tool to finance water system capi

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an

• used discretionary reserves to fund their water system capital expenditures compared

• Obligatory reserves, primarily related to development charges, were used by 10% of

50,000 used obligatory reserves related to development charges compared to 1% with populations less than 5,000);

s to finance water system capital expenditures (30% of responding municipalities with populations over 50,000 used provincial government grants compared to 6% with populations less than 5,000);

• Federal government grants were used by only 2% of responding municipalities to finance water system capital expenditures (4% of responding municipalities with populations over 50,000 used federal government grants compared to 1% with populations less than 5,000); and

• 6% of responding municipalities used long-term debt to finance water system capital expenditures in the year 2000 (15% of responding municipalities with populations over 50,000 used proceeds from long-term debt compared to 3% with populations less than 5,000).

Figure 30 below outlines the various revenue sources used by municipalities to finance their year 2000 capital expenditures for their wastewater systems.

expenditures compared to 25% of responding municipalities with populations less th5,000;

• 25% of responding municipalities used their discretionary reserves (both general and dedicated) to fund water system capital expenditures; For those municipalities with populations greater than 50,000, 52% indicated they

to 3% of responding municipalities with populations less than 5,000;

responding municipalities to finance their water system capital expenditures (41% of responding municipalities with populations over

• Provincial government grants were used by 14% of responding municipalitie

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Figure

• 37% of responding municipalities used their revenue fund as a financing tool to finance capital costs for their wastewater systems;

• For those municipalities with populations greater than 50,000, 56% indicated they used their revenue fund as a financing tool to finance wastewater system capital expenditures compared to 12% of responding municipalities with populations less than 5,000;

• 25% of responding municipalities used their discretionary reserves (both general and dedicated) to fund wastewater system capital expenditures;

• For those municipalities with populations greater than 50,000, 67% indicated they used discretionary reserves to fund their wastewater system capital expenditures compared to 6% of responding municipalities with populations less than 5,000;

• Obligatory reserves, primarily related to development charges, were used by 7% of responding municipalities to finance their wastewater system capital expenditures (30% of responding municipalities with populations over 50,000 used obligatory reserves related to development charges compared to 1% with populations less than 5,000);

30: Year 2000 Financing of Capital Fund Expenditures– Wastewater Systems

70%

ncing

Discretio

Obligatory re

Cost of

Proc


Federal capital grants

Other grants and/or loan forgiveness

Provincial capital grants

assets developed by others and transferred to the municipality

eeds of long-term debt issued by municipality for own purposes

serve funds/deferred revenue (related to development charges)

Transfers from revenue fund

Other fina

nary reserves for current or capital purposes (both general anddedicated reserves)

Obligatory reserve funds/deferred revenue

0% 10% 20% 30% 40% 50% 60%% of Municipalities

ased upon the above: B

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finance wastewater system capital expenditures (22% of responding municipalities with populations over 50,000 used provincial government grants compared to 10% with populations less than 5,000);

• Federal government grants were used by only 2% of responding municipalities to finance wastewater system capital expenditures (4% of responding municipalities with populations over 50,000 used federal government grants compared to no municipalities with populations less than 5,000); and

• 5% of responding municipalities used long-term debt to finance wastewater system capital expenditures in the year 2000 (19% of responding municipalities with populations over 50,000 used proceeds from long-term debt compared to no municipalities with populations less than 5,000).

In addition to the figures above, municipalities were asked to provide further detail on financing practices such as long-term debt and the use of general and dedicated reserve funds related to their water and wastewater system capital expenditures. Figure 31 below illustrates the percentage of municipalities that, in the past, have issued long-term debt to fund their water and/or wastewater system capital expenditures. Figure 31: Percentage of Municipalities That Have Used Long-Term Debt to Finance Water and/or Wastewater Systems

Based u

s; • ve

;

• Provincial government grants were used by 13% of responding municipalities to

43%60%

60% 61% 65%

35%

62% 64%70%

55%55%

20%

40%

80%

100%



Water Systems Wastewater Systems

pon the above:

• 55% of municipalities indicated they have issued long-term debt previously to specifically cover capital expenditures related to their water and wastewater systemFor water systems, 65% of municipalities with populations greater than 50,000 haissued long-term debt compared to 43% of municipalities with less than 5,000 peopleand

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00

Fig s oth their depercent Fig e

• For wastewater systems, 70% of municipalities with populations greater than 50,0have issued long-term debt compared to 35% of municipalities with less than 5,000 people.

ure 32 and 33 below illustrate the basis that municipalities use to contribute funds to bdicated water/wastewater and general reserve funds. These figures also highlight the age of municipalities that use dedicated and general reserve funds.

ur 32: Basis of Contribution to the Dedicated Reserve Fund

get surpluses are allocatedto reserves

0% 10% 20% 30% 40% 50% 60%

Do not use dedicatedreserves/reserve funds forwater/wastewater services

% of Municipalities


70%

of capital budget

A defined dollar amount or %

Bud


No specific method

of operating budget

Other

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Fig eur 33: Basis of Contribution to the General Reserve Fund

get surplusesto reserv

Based upon the figures above:

• 92% of overall responding municipalities use a dedicated reserve fund to finance their water and wastewater capital expenditures (based upon the number that indicated that they do not use dedicated reserve funds). The use of a dedicated reserve fund is fairly consistent, regardless of population;

• 73% of responding municipalities use a general reserve fund to finance their water

0% 10% 20% 30% 40% 50% 60% 70%

Do not use general reservefunds

Other

A defined dollar amount or %of capital budget

% of Municipalities


and wastewater capital expenditures (based upon the number that indicated that they do not use general reserve funds). 46% of municipalities with populations greater than 50,000 use general reserve funds compared to 87% of municipalities with populations less than 5,000;

• 62% of responding municipalities use budget surpluses as the primary basis of contributions to the dedicated reserve fund. This is fairly consistent, regardless of population size;

• 39% of responding municipalities use budget surpluses as the primary basis of contributions to the general reserve fund. 42% of municipalities with populations less than 5,000 use budget surpluses for general reserve fund contributions compared to 25% of municipalities with populations greater than 50,000; and

• 20% and 26% of municipalities do not employ any specific methodology in determining contributions to their dedicated and general reserve funds, respectively.


Bud are allocatedes

No specific method

of operating budget

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5.3.2 Extent to which municipalities may be cross-subsidizing other non-water and

Base p

• 42% and 34% of responding municipalities used dedicated reserve funds to fund c 000;

• F fw

• F eserve fmunicipalities with populations less than 5,000.

wastewater activities and vice versa In order to address this issue, we assessed the following:

(i) The percentage of municipalities that transferred funds to a dedicated reserve fund in the year 2000;

(ii) The proportion of municipalities that transferred funds to a general reserve fund in the year 2000; and

(iii) The allocation of general municipal overhead charges to water and wastewater operations in the year 2000.

(i) Dedicated reserve fund transfers Figure 34 below illustrates the percentage of municipalities that transferred funds to a dedicated reserve fund for water or wastewater operations in the year 2000. Figure 34: Percentage of Municipalities that Transferred to a Dedicated Water or Wastewater Reserve Fund in 2000

100%

d u on the above:

apital expenditures for water and wastewater systems, respectively in the year 2or municipalities with populations greater than 50,000, 67% used dedicated reserveunds for water system capital expenditures compared to only 19% of municipalities ith populations less than 5,000; and

or municipalities with populations greater than 50,000, 70% used dedicated runds for wastewater system capital expenditures compared to only 14% of

19% 14%

<5,000 5,000 to 9,999 10,000 to 49,999 >50,000 All Res

45%60%

57%67%

34%43%

34%42%

0%

20%

40%

pondents

70%80%


Water Operations Wastewater Operations


PwC

igure 35 below illustrates the percentage of municipalities that transferred funds to a general

Fig 3Fund in

rdless of population.

unicipal

(ii) General reserve fund transfers

Freserve fund in the year 2000.

ure 5: Percentage of Municipalities that Transferred Funds to a General Reserve 2000


• 14% of municipalities transferred funds from water operations to a general reserve fund in 2000, and 10% of municipalities transferred funds from wastewater operations; and

• This practice was fairly consistent across municipalities, rega (iii) Allocation of general municipal overhead charges Figure 36 illustrates the percentage of municipalities that allocated general mgovernment expenditures to water and wastewater operations in the year 2000.



14%9%

17% 15%13%2%

13% 11% 10%14%20%

0%

40%

60%

100%


80%

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Fig eExpend

unicipal unicipalities

allocated general

• For those municipalities with populations less than 5,000, 28% allocated general nment expenditures to water operations, and 16% toward wastewater

operations.

ur 36: Percentage of Municipalities that Allocated General Municipal Government itures to Water and Wastewater Operations in 2000


• In the year 2000, 35% of responding municipalities allocated general mgovernment expenditures to water operations and 27% of responding mallocated general municipal government expenditures to wastewater operations;

• For those municipalities with populations greater than 50,000, 59%municipal government expenditures to both water and wastewater operations in 2000;




100%

and

28% 30%

16% 18%27%35%40%

38% 34%

20%

80%59% 59%

60%

municipal gover

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6 Pricing Practices

stewater operating tures,

ption.

ption services

es (reflecting economies of scale); and

rates, which increase as usage decreases (reflecting conservation principles).

In addi e charact

The focunderstanding of current pricing practices for Ontario municipal water and wastewater ope i

• he various types of water and wastewater rate structures currently being used;

• Developing a better understanding of the prevalence of water metering by Ontario municipalities; and

• Determining the level of information municipalities currently have available regarding consumption and revenues.

6.1 Background User fees are the primary source of revenue and financing for water and waand infrastructure costs. While a wide range of user fee rate structures exists, all strucwith the exception of flat rates, require the use of meters to measure water consumExamples of common rate structures include:

• Flat rates, which are fixed regardless of water usage or consumption; • Constant per unit or metered rates (primarily related to water consum

only), which are based on usage (i.e., a constant unit charge based on water consumption);

• A combination of flat and constant per unit rates (i.e., fixed and variable rates); • Declining block rates, which decrease as usage increas

• Increasing block

tion, rates may vary to reflect peaks in demand and may also be designed to reflect theristics of specific groups of users (e.g., social housing users).

us of our analysis with respect to pricing practices was to develop a better

rat ons, including:

Identifying t

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s the key issues that were considered under pricing practices, and the lated findings based on our analysis of the Database results.

6.2 Summary of Findings

The following highlightre Current rate structure practices for water operations The survey responses indicate that a wide range of water rate structures are used by

unicipalities for pricing purposes, both for residential and industrial, commercial and/or st t een larger and

sma rcustom tend to plus a flat rate for or areas. For example:

ase) apply a flat rate for residential water accounts, whereas 43% (69% of

f a unit charge plus a flat rate for certain services or areas; and

• 70% of responding municipalities under 5,000 apply a flat rate for residential water

t charge plus a flat rate for certain services or areas.

ereas dicated that they use constant per unit charge or multiple versions of

etered rates, and to a lesser extent, declining block rates:

• f all responding municipalities (representing 3% of the responding population

ly a constant per unit charge or multiple versions of metered

• 57% of responding municipalities under 5,000 apply a flat rate for ICI accounts, whereas 60% of responding municipalities over 50,000 apply a constant per unit charge or multiple versions of metered rates, and 35% use some form of declining block rates; and

• No municipalities over 50,000 reported using strictly flat rates for ICI customers.

To gain an understanding of the extent that municipalities use water meters, the survey asked municipalities to indicate the percentage of their water accounts that were metered. Unfortunately, a significant number of municipalities did not complete the question, making

min itu ional (“ICI”) customers. The use of different rate structures varies betw

lle municipalities and whether the customer is residential or ICI. For residential ers, smaller municipalities predominantly use flat rates whereas larger municipalities use a constant per unit charge or a combination of a constant per unit charge certain services

• 39% of all responding municipalities (representing 7% of the responding municipalpopulation bthe responding population base) apply a constant per unit charge or a combination oconstant per

accounts, whereas 36% of responding municipalities over 50,000 apply a constant per unit charge and 23% apply a combination of a constant per uni

For ICI customers, smaller municipalities indicated that they primarily use flat rates, whlarger municipalities inm

26% obase) apply a flat rate for ICI water accounts, whereas 35% (78% of the respondingpopulation base) apprates, and 27% (16% of the responding population base) use some form of declining block rates;

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any meaningful analysis difficult. However, the rate structures used by municipalities (i.e., stant per unit charge or metered rate) provide a leading

a municipalities use water meters. For example, since smaller

rate charges but instead are roperty taxes, particularly in the

0,000 include fire protection charges in the rate charge on the water bill.

Ther amunici

• n of a number of water-related charges such as and fire protection charges.

roupings using common water vels for residential and ICI customers did not prove to be meaningful and/or reliable.

Cu n

flat rate versus some form of conndic tion of the extent to which i

municipalities predominantly use flat rates, they likely do not use water meters to the same extent as larger municipalities that apply a constant per unit charge. Fire protection charges are typically not included in water

redominantly levied through municipal assessment and ppcase of smaller municipalities:

• Only 13% of responding municipalities indicated that they include fire protection charges in the water rate, while 7% reported that they are included as a separate chargeon the water bill, compared to 75% that indicated they are levied through municipal assessment and property taxes; and

• 32% of responding municipalities over 5water rate, while 12% include it as a sepa

e re a number of factors that impact the average price of water charged by

palities. These include:

• The extent to which rates are structured on a flat rate or constant per unit charge ratestructure, or some other variation thereof, and the water consumption patterns associated with each of these structures; and The inclusion or non-inclusiowastewater or sewer charges

As a result of these factors, plus our review of survey results, an analysis and comparison of the average municipal water prices for different municipal gle

rre t rate structure practices for wastewater operations

palities primarily recover wastewater costs by applying a sewer surcharge on the palities’ water bill, and to a lesser extent, through property taxes. The survey

Municimuniciresp slarg mrecover

on

on es indicate that sewer surcharges on the water bill is the predominant practice for er unicipalities compared to smaller municipalities. Smaller municipalities tend to

their wastewater costs through property taxes or some other means. For instance:

• 65% of all responding municipalities (representing 94% of the responding populatibase) apply a sewer surcharge to the water bill, compared to 17% of responding municipalities who recover their wastewater costs through property taxes;

• 89% of responding municipalities over 50,000 reported that they apply a surcharge on the water bill compared to 52% of responding municipalities under 5,000; and

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bill, or a defined rate in rms of dollars per unit of water sold. For example, of the responding municipalities:

• 32% indicated that they applied a defined rate in terms of dollars per unit of water

• Sewage strength is not used as a basis for determining wastewater collection charges by many of t rlarger m

any of the municipalities that responded to our survey did not provide requested inform , and/or n assessi ns (e.g., revenue per customer account, rev lities that res provided below:

greater number of smaller municipalities did not provide this information compared to the larg m This la e of informaimplies siness performance measures (e.g., revenue per customer account and unit of water sold). This type

• There was no significant variance between population groups for the collection of wastewater costs through property taxes.

For those municipalities that apply a surcharge to the water bill, the surcharge is primarily determined by applying either a defined percentage of the total waterte

• 52% reported that they applied a defined percentage of the total water bill as a basisfor the surcharge;

sold; and The remainder indicated that they applied some other means, such as a flat rate.

he esponding municipalities (only 11%). However, this practice is more prevalent with unicipalities than smaller municipalities.

Availability of current water consumption and revenue data M

ation regarding their total number of customer accounts, the total volume of water soldthe total revenues received from customers for the year 2000, key information ing and understanding municipal water operatio

enue per unit of water sold, etc.). A summary of the percentage of those municipaponded to the survey but did not answer these questions is

Figure 37: Details of Municipal Water Accounts for the Year 2000 (% of No Responses)

All Respondents% of municipalities without responses

ICI Accounts: Total number of accounts 26%Total volume of water sold (m3) 47%Total revenue received 37%

Residential Accounts: Total number of accounts 20%Total volume of water sold (m3) 45%Total revenue received 31%

Aer unicipalities.

ck of response suggests that many municipalities either do not track this tyption or have difficulty in compiling it (i.e., it is not readily available). Furthermore, it that many municipalities are not effectively tracking or managing some key bu

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of infordecisio ations, including analysis and planning around pricing decisions, future sources of financing to meet investment needs, and the

The ll issues o 6.3.1 ater

mation provides municipalities with important data necessary to make informed ns around their water and wastewater oper

development and tracking of the cost recovery plans contemplated under Bill 175.

6.3 Summary Analysis

fo owing sections provide a more detailed analysis of the supporting findings to the keyutlined above.

Current rate structure practices for w operations

o address this issue, the following factors were assessed:

(iii) Application of fire protection levies.

) Current rate structures and pricing practices for water operations

te

T

(i) Rate structure and pricing analysis for residential and ICI accounts; (ii) Prevalence of water meters; and

(i Figure 38 below summarizes the various water rate structures used by municipalities for residential and ICI accounts. Figures 39 and 40 provide a further breakdown of water rastructures by population grouping for both residential and ICI accounts. Figure 38: Residential and ICI Water Rate Structures – All Respondents

# %Flat rate 54 39% Constant per unit charge 32 23% 1, Constant per unit charge + flat rate for some services or areas 28 20% 3, Declining block rate 11 8% Declining block rate + flat rate charges for some services or areas 4 3% Increasing block rate 2 1% Increasing block rate + flat rate charges for some services or areas 2 1% Multiple versions of metered rates, includes non-volume based charges 4 3% Multiple types of metered rates 1 1% Total 138 100% 6,1 Year 2001 census municipal population, not population served by water system

Type of Rate Structure Currently Used by MunicipalitiesResidential

Number Population1IC

Number000s % # % 000s %505.6 7% 33 26% 174.5 3%460.2 22% 36 29% 1,487.9 25%156.6 47% 12 10% 154.1 3%842.9 12% 22 18% 721.9 12%151.7 2% 11 9% 227.8 4%33.1 0% 2 2% 33.1 1%

404.0 6% 1 1% 11.7 0%132.1 2% 5 4% 2,708.4 46%69.2 1% 3 2% 403.1 7%

755.3 100% 125 100% 5,922.5 100%

IPopulation1

Page 72


Figure 39: Comparison by Municipality Population (Residential) Type of Rate Structure Currently Used by Municipalities

For Residential # % # % # %Flat rate 28 70% 16 47% 8 19%Constant per unit charge 6 15% 8 24% 10 24Constant per unit charge + flat rate for some services or areas 4 10% 6 18% 13 Declining block rate 1 3% 2 6% 5

< 5,000 5,000 - 9,999 10,000 - 49,999

PwC

municipal

population base) apply a flat rate structure for ICI water accounts; • For those municipalities that apply a flat rate structure for ICI water accounts, 20 of 33

municipalities, or 61%, are municipalities with a population below 5,000; • 39% of responding municipalities (representing 28% of the responding municipal

population base) apply some form of a constant per unit charge for ICI water accounts; and

# %2 9%

% 8 36%31% 5 23%12% 3 14%

Declining block rate + flat rate charges for some services or areas 1 3% 1 3% 1 2% 1 5%- 0% 1 3% 1 2% - 0%

me services or areas - 0% - 0% 1 2% 1 5%ultiple versions of metered rates, includes non-volume based charges - 0% - 0% 3 7% 1 5%

1 5%22 100%

> 50,000

ulation, not population served by water system

Increasing block rateIncreasing block rate + flat rate charges for soMMultiple types of metered rates - 0% - 0% - 0% Total 40 100% 34 100% 42 100% 1 Year 2001 census municipal pop

Figure 40: Comparison by Municipality Population (ICI) Type of Rate Structure Currently Used by Municipalities

For ICI # %Flat rate 20

Based upon the above tables:

# % # % # %57% 8 25% 5 13% - 0%

onstant per unit charge 5 14% 10 31% 13 34% 8 40%er un 6 16% 1 5%

Decl lock 5 13% 6 30%Decl ock 1 3% 5 16% 4 11% 1 5%Incre loc - 0% 1 3% 1 3% - 0%Incre loc - 0% - 0% 1 3% - 0%

ultiple versions of metered rates, includes non-volume based charges - 0% - 0% 2 5% 3 15%1 3% 1 5%

38 100% 20 100%ear 2001 census municipal population, not population served by water system

< 5,000 5,000 - 9,999 10,000 - 49,999 > 50,000

CConstant p it charge + flat rate for some services or areas 4 11% 1 3%

ining b rate 5 14% 6 19% ining bl rate + flat rate charges for some services or areasasing b k rateasing b k rate + flat rate charges for some services or areas

MMultiple types of metered rates - 0% 1 3%Total 35 100% 32 100%1 Y

• 39% of responding municipalities (representing 7% of the responding

population base) apply a flat rate structure for residential water accounts; • For those municipalities that apply a flat rate structure, 28 of 54 municipalities, or

52%, are municipalities with a population below 5,000; • 43% of responding municipalities (representing 69% of the responding municipal

population base) apply some form of a constant per unit charge for residential water accounts;

• For those municipalities that apply some form of a constant per unit charge for residential water accounts, 36 of 60, or 60%, are municipalities with populations greater than 10,000;

• 26% of responding municipalities (representing 3% of the responding municipal

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sponding municipal

g Fire Protection Charges

Bas u

re

te

6.3

• 6% of responding municipalities (representing 53% of the repopulation base) apply multiple versions of metered rates, including non-volume based charges, for ICI water accounts.

Due to the wide range of factors that impact the average price of water charged by municipalities (i.e., rate structures – flat versus metered, and the inclusion or non-inclusion of non-related water charges such as wastewater and fire protection charges (see below)), an analysis and comparison of the average municipal water prices for different municipal groupings using common water levels for residential and ICI customers did not prove to be meaningful and/or reliable. (ii) Prevalence of Water Meters A significant number of municipalities did not indicate the extent that their water accounts were metered. As a result, an analysis of the prevalence of water meters for different municipal groupings for residential and ICI customers did not prove to be meaningful and/or reliable. (iii) Application of Fire Protection Charges Figure 41 below illustrates the various methods used by responding municipalities to levy fire

rotection charges. p Figure 41: Method for Levyin

Fire Protection Levies Municipality Population Size

Mun l 9 36%Included i 7% 8 32%Included a 9% 3 12%Othe 5 20%Total 25 100%

>50,000 All Municipalities

<5,000 5,000 - 9,999 10,000 - 49,999icipa assessment / property taxes 131 75% 56 88% 29 71% 37 82%

n water rate charges 23 13% 4 6% 8 20% 3 s a separate charge on the water bill 12 7% 1 2% 4 10% 4

r 9 5% 3 5% - 0% 1 2%175 100% 64 100% 41 100% 45 100%

ed pon the above:

• The vast majority of responding municipalities (75%, or 131 of 175), levy fiprotection charges via municipal assessment and property taxes;

• 20% of responding municipalities include it in the water bill, either as a separacharge or within the water rate charge; and

• 5% of responding municipalities apply some other means. .2 Current rate structure practices for wastewater operations

To . Overall, 65% of responding municipalities, or 122 of 187, representing 94% of the responding municipal population base, apply a surcharge for wastewater on the water bill. For those

address this issue, we analysed wastewater rate structures across Ontario municipalities

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resp d surcharmunici . Of the 122 municipalities that apply a urcharge, 107 indicated what the charge is based on, as illustrated in Figure 42 below.


ter

fined percentage of the total water bill as a basis for the surcharge; • 31% of responding municipalities (42% of municipalities with populations greater

h populations less than 5,000) apply a defined rate in terms of dollars per unit of water sold; and

% of municipalities with populations less than 5,000) apply some other means, such as a flat rate.

Wastewater collection charges are also recovered via property taxes or other means. Specifically:

• 17% of all responding municipalities recover wastewater collection charges via property taxes;

water collection charges via other means; and

f municipalities that recover wastewater collection charges via property taxes does not vary significantly according to population.

Only 11% municipal populaThis practi arger population base, where 42% of respond g th a population base of less than 50,000, where only 6% of responding municipalities apply this practice.

on ing municipalities with a population over 50,000, 89% indicated that they apply age for wastewater collection on the water bill, compared to 52% of responding palities with a population less than 5,000

s Figure 42: Basis for Calculation of Wastewater Surcharge on the Water Bill

Wastewater Surcharge Rate Structure# % # % # % # %

A defined rate in terms of $ per unit of water sold 33 31% 6 21% 4 17% 13 43% A defined percentage of the total water bill Other

Municipality Population SizeAll Respondents <5,000 5,000 - 9,999 10,000 - 49,999# %

10 42%56 52% 12 41% 16 67% 15 50% 13 54%18 17% 11 38% 4 17% 2 7% 1 4%

tal 107 100% 29 100% 24 100% 30 100% 24 100%

>50,000

To

B

• 52% of responding municipalities (54% of municipalities with populations greathan 50,000 and 41% of municipalities with populations less than 5,000) apply a de

than 50,000 and 21% of municipalities wit

• 17% of responding municipalities (4% of municipalities with populations greater than 50,000 and 38

• 18% of all responding municipalities recover waste

• The percentage o

of responding municipalities, representing 65% of the responding tion base, have wastewater collection charges that are a function of sewage strength.

ce is more prevalent in municipalities with a lin municipalities apply this practice, versus municipalities wi

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ta

• Total volume of water sold to those accounts; and • Total revenue received.

6.3.3 Availability of current water consumption and revenue data To answer this issue, we assessed the municipalities’ responses to provide the following dafor water customer accounts for the calendar year 2000, including:

• Total number of customer accounts;

Figure 43 below outlines the percentage of municipalities that did not provide the requested information. Figure 43: Details of Municipal Water Accounts for the Year 2000 (% of No Responses)

<5,000 5,000 to 9,999

10,000 to 49,999 >50,000

esidential Accounts: Total number of accounts 20% 32% 14% 9% 19%Total volume of water sold (m

Based u

• total number of residential accounts for the year 2000

compared to only 68% of responding municipalities with a population less than 5,000; able to

e information on the total volume of water sold to residential accounts for the year 2000 compared to only 33% of responding municipalities with a population less

• nding municipalities with a population greater than 50,000 were able

mpared to only 58% of responding municipalities with a population less

• 000 were able to provide information on the total number of ICI accounts for the year 2000 compared

pon the above:

Total revenue received 37% 54% 34% 17%

81% of responding municipalities with a population greater than 50,000 were able to provide information on the

• 74% of responding municipalities with a population greater than 50,000 were provid

than 5,000; 63% % of respoto provide information on the total revenue received from residential accounts for the year 2000 cothan 5,000; 81% of responding municipalities with a population greater than 50,

to only 61% of responding municipalities with a population less than 5,000; • 74% of responding municipalities with a population greater than 50,000 were able to

provide information on the total volume of water sold to ICI accounts for the year 2000 compared to only 26% of responding municipalities with a population less than 5,000; and

R3) 45% 67% 48% 23% 26%

37%

ICI Acco 19%

Total revenue received 31% 42% 30% 13%

unts: Total number of accounts 26% 39% 25% 13%Total volume of water sold (m3) 47% 74% 43% 21% 26%

37%

All Respondents% of municipalities without responses

lity Population Size Municipa

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n 50,000 were able to provide information on the total revenue received from ICI accounts for the year

• 63% % of responding municipalities with a population greater tha

2000 compared to only 46% of responding municipalities with a population less than 5,000.

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Appe Introd One of SuperBuild’s primary goals in commissioning Studies 3 and 4 was to gather current information from all municipalities in Ontario about their existing asset management, accounting, financing and pricing practices as they relate to municipal water and wastewater systems. Much of the Province’s information relating to these practices was incomplete, inaccurate or out of date. Accordingly, a survey of all Ontario municipalities with water and wastewater systems was conducted with the goal of obtaining as complete, up-to-date and accurate information as possible. Data Collection Methodology Survey Design The municipal water and wastewater survey was designed over the course of several months through a consultative process involving PwC, subconsultants retained by PwC with specific expertise relevant to the data being collected, SuperBuild, MMAH, and various selected municipalities. In discussions with the selected municipalities during the initial survey design process (the “pre-pilot interviews”), the municipalities indicated that they would have substantial difficulties providing multiple years of financial information, but generally confirmed their ability to respond to the key subject matters to be included in the survey. Following the initial design of the survey, the survey was pre-tested with a sample of 13 municipalities (the “pilot survey process”), with the goal of confirming the overall workability of the survey instrument prior to a full-scale launch of the survey to all Ontario municipalities with water and wastewater systems. The pilot survey process highlighted that there would be certain data collection challenges depending on a variety of factors such as the amount of information requested (in particular the amount of historical information requested), the number of municipal departments that would need to be involved, the timing of the survey, the support provided to municipalities during completion of the survey, and whether or not the questions appropriately took into account the multiple ownership and operational models prevailing across the Province, combined with the substantial change in organizational models in recent years. Recognizing these challenges, PwC and SuperBuild worked together to refine the survey instrument, balancing the need for comprehensive and up-to-date information with the identified constraints facing the municipal respondents. Efforts were made to assist municipalities in answering the survey questions in a focussed manner, and to reduce the amount of historical information required. In addition, recognizing that municipalities who

ndix A – Data Collection Process

uction

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had contracted out operations to the Ontario Clean Water Agency (“OCWA”) would likely selected survey questions were sent to

CWA (the “OCWA survey”). The intention was that OCWA would send copies of the WA survey to the relevant municipalities with the goal of easing the municipal n.

unicipal water or wastewater systems ave no water or wastewater system involvement

municipalities receiving the survey had responsibility for water and

al

s with the survey.

t

require some assistance when completing the survey, Ocompleted OCesponse burder

Survey Distribution The survey was mailed out on December 18, 2001 to all municipalities in the Province that were identified as having responsibility for the operation of water and/or wastewater systems. In total, 301 out of the total 448 municipalities in the Province satisfied these criteria. 147 municipalities were excluded from the survey on the following basis: • 121 municipalities have no m 26 lower tier municipalities h•

n certain cases,I

wastewater systems but contracted out their operations to OCWA, a public utilities commission (“PUC”) or a private operator. These municipalities were asked to take responsibility for obtaining, from the appropriate organization, the necessary input to complete the survey. Survey Administration

he surveys mailed out on December 18, 2001 were addressed to either the municipal T

Treasurer, Clerk or Chief Administrative Officer, as detailed in the 2001 Ontario MunicipDirectory published by the Association of Municipal Managers, Clerks and Treasurers of Ontario. Municipalities were asked to return the survey by January 25, 2002. A survey help line, consisting of a 1-800 number and an email address, was established to assist

unicipalities experiencing difficultiem On January 10, 2002, SuperBuild delivered the OCWA survey to OCWA, together with a listing of the municipalities with OCWA involvement. Follow-up calls were made to all 301 municipalities within two weeks of the survey mail-outo determine the status of the survey. During this follow-up call, a brief 5-minute interviewwas conducted to determine whether the municipality had: • received the survey; • begun working on the survey; • encountered any problems in completing the survey; and • anticipated any problems in returning the survey by January 25, 2002.

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)

Given the poor survey response rate and the level of incomplete and/or inconsistent in the surveys returned by January 30, 2002, the following plan was

eveloped to proactively follow up with municipalities on these issues.

returned a survey but at had originally indicated they would meet the January 25 timeline were contacted in a

2, a third round of survey

ompletion process, to help address any problems that municipalities might be having in g

ry 28, telephone calls were made with the specific purpose of addressing

sponse rates, as distinct from additional telephone calls that were made to address quality information submitted or to respond to a request for assistance (see

below). The follow-up calls resulted in an increase in response rates from 52 on January 30, rmore,

ll returned surveys underwent a rigorous quality inspection. A number of quality checks

d into the database (i.e. based on the urvey data as represented in the database).

(i) Missing key information; ts of measure and/or incorrect addition; and

on (such as the municipality showing a debt balance but no response (such as financial data

168 (56%) of the 301 municipalities indicated that they intended to return the survey by the January 25, 2002 timeline (282 (94%) of the municipalities indicated that they would return the completed surveys by February 28, 2002). On January 30, 2002, only 52 surveys (17%had been returned.

information containedd Steps to Improve Survey Response Rates Immediately after January 25, 2002, all municipalities that had not yetthsecond round of telephone calls. Beginning the week of February 4, 200follow-up calls was made. Follow-up calls were used to establish the status of the ccompleting the survey and, in the case of municipalities who were experiencing timindifficulties, to discuss deadline extensions. In total, approximately 230 follow-up calls were made between January 25 and Februa2002. These follow-upreissues with respect to the

2002 to 187 by April 1, 2002, resulting in an overall 62% survey response rate. Furthethe 187 survey responses returned represented a population of 7.9 million or 72% of the totalpopulation of the municipalities receiving the survey (10.9 million). Steps to Improve Survey Quality Issues Awere carried out both prior to entering the data into the database (i.e. based on the paper version of the survey) and after the data had been enteres The quality review was designed to identify three types of issues:

(ii) Incorrect uni(iii) Inconsistent informati

debt service costs) or unconventional forms of for water and wastewater being combined).

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y

t opriately rectified. Adjustments were made to the survey response forms

nd the database as appropriate.

re rectified, a

ignificant number of survey responses missing key information and/or displaying forms of responses, primarily with respect to

nancial and other quantitative information, were not able to be resolved within the scope of

capture the information contained in the survey sponses and to meet the following initial objectives:

ity issues identified ould not be resolved within the scope of this survey for the purposes of our analysis.

mmary

he

ined in the Database include:

pon the year 2001 census; • Municipal water source and 1999 average daily water flow rate data sourced from the

mm ection Report, 2000, prepared by the Ministry of the

• was cWate nvironment Canada), and information published on municipal websites.

Of the 187 municipalities who returned the survey by April 1, 2002, virtually all of the surveresponses exhibited one or more quality issues. Approximately 325 phone calls were made and 175 emails were sent to municipalities to follow up and address these issues to ensure thathe issues were appra While considerable time and effort was incurred to address the quality issues identified, andall issues around incorrect units of measure and/or incorrect addition wesinconsistent information or unconventionalfithis survey. This has impacted the nature and extent of our analysis. As a result, our analysishas been limited primarily to our findings with respect to practice and/or more qualitative matters relating to municipal water and wastewater operations. Ontario Municipal Water and Wastewater Database A comprehensive database was developed tore

(i) Provide a repository of all the information included in the survey responses; (ii) Allow for comprehensive and detailed analyses of information collected; and (iii) Provide a user friendly, flexible and robust format for future Province use.

As discussed above, the information contained in the Database has undergone a rigorous quality inspection, both prior to entering data into the database and after the data had been entered into the database. However, a significant number of the qualc Su The Database developed above, and the information contained therein, has been used as tprimary source of analysis for the purposes of this report. Other information sources that have helped supplement the information conta

• Municipal population data provided by SuperBuild based u

Co unal Drinking Water InspEnvironment; and Municipal water rates provided from the Superbuild Water Rate Database, which data

ompiled using the following sources: municipal water rate cards, Municipal r Use and Pricing Report 1999 (prepared by E

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,

inconsistent data provided in the survey responses, the nalysis derived from the information contained in the Database, while meaningful, does not

e th

While the information contained in the Database has undergone a rigorous quality inspectionwe have not undertaken an independent audit or verification of any information provided to us through the survey responses or other information sources. Furthermore, due to the large amount of unresolved missing oranecessarily represent a true statistical representation. Accordingly, attempts to extrapolate thsurvey data across the broader population of Ontario municipalities should be made wicaution. Nevertheless, the survey results and resulting analysis contained in this report provide valuable insight into the characteristics and trends related to current asset management, accounting, financing and pricing practices for municipal water and wastewater systems inOntario.

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Appendix B – Total Municipalities Sent Survey, By Geographic Region

Eastern Municipality Name Municipality Name

Alfred & Plantagenet Smith-Ennismore-Lakefield Arnprior South Dundas Bancroft South Glengarry Belleville South Stormont

onnechere Valley Stirling-Rawdon

Clarence-Rockland Cornwall Deep River Deseronto Edwardsburgh/Cardinal Gananoque Greater Napanee Hawkesbury Killaloe, Hagarty & Richards Kingston Laurentian Hills Laurentian Valley Leeds & the Thousand Islands Loyalist Madawaska Valley Marmora and Lake Merrickville-Wolford Mississippi Mills North Dundas North Glengarry North Grenville North Stormont Ottawa Pembroke Perth Township Petawawa Prescott Prince Edward Quinte West Renfrew Russell Total Municipalities = 50

BBrockville The Nation Carleton Place Tweed Casselman Westport Centre Hastings Whitewater Region Champlain

PwC

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nicipality Name Municipality Name Municipality Name

Central Ontario GTA Mu

Adjala-Tosorontio Shelburne Aurora Alnwick/Haldimand Smiths Falls Durham Amaran East Gwillimbury

Georgina King

illimbury Markham Beach Newmarket

rth Monaghan n North Peel lington Richmond Hill

Toronto Vaughan Whitchurch-Stouffville

York

fraxa d Valley

ndish-Harvey

sa

Bellmont-Methuen

h

Monaghan hene

y Total Municipalities = 49 Total Municipalities = 13

th Springwater Asphodel-Norwood Tay Barrie Tiny Bradford West Gw Trent HillsBrighton Wasaga Cavan-Millbrook-No WellingtoCentre Wel Clearview Cobourg Collingwood Cramahe Dysart et al East GaraEast Luther GranErin Essa Galway-CaveGuelph Guelph-EramoHamilton Township Havelock-Highlands East Innisfil Kawartha Lakes MapletonMidland Minden Hills Minto Mono New TecumsetOrangeville Orillia Oro-Medonte Otonabee-SouthPenetanguisPeterborough CitPort Hope Ramara Severn

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Golden Horsesh South Western Municipalit Municipality Municipalit

oe y Name Name y Name

Cambridge Amhe Pe h rstburg rt East Fort Erie Arran Pe h

Ashfie awanosh Pe oli Aylmer Ply pt

n Bayha Po t E Bluew Sarnia Brant Sa ge

Brantf So th Brockton So th

-the-Lake Brooke-Alvinston Southgate Central Elgin Southw sex Central Huron Southw

rne Chatham-Kent St las Chats St. Mar s

Dawn phemia St. Thomas Dutton/Dunwich Stratford

rloo City Enniskillen St thr Caradoc d Essex Tecumseh

Georgian Bluffs Thames Centre coln Goderich The Blue Mountains

Grey Highlands The South Bruce Peninsula Haldimand Warwick Hanover West Elgin Huron East W t G ey Huron- West Perth Kincardine Windsor Kings Lakeshore Lambton Shores LaSalle Leamington London Lucan Malahide Meafo Middlesex Centre Morris rnberry Newb y Norfolk North uron North iddlesex North Northern Bruce Peninsula Oil Springs Owen Sound

Oxford Pelee Total Municipalities = 22 Total Municipalities = 73

Elderslie rt South Grimsby ld-Colborne-W tr a Halton m on-Wyoming Hamilto m in dwardKitchener ater Lincoln u en Shores Niagara ord u Bruce Niagara Falls u Huron Niagara-onNorth Dumfries est MiddlePelham old Port Colbo . C ir St. Catharine worth yThorold -EuWaterloo Wate ra oy - WellanWellesley West LinWilmot Woolwich es r Kinloss ville Bidulph rd -Tu ur H M Perth

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North me Municipality Name Municipality Na

Armstrong Manitouwadge Assiginack

achewan r Matheson wa e-Val Cote

es cDougall lls rry

picoten

man keard

astern Manitoulin and Thever Paipoonge

Sound

er Additional spanola assan auquier-Strickland iver ort Frances rench River ck authier s Spanish Rivers ore Bay te. Marie reater Sudbury reenstone Shedden aileybury Sioux ookout earst ooth Rock Falls ilton Beach r imsworth North arles ornepayne nace oquois Falls ames gami ohnson race Bay apuskasing e enora illarney irkland Lake arder Lake s atchford arty acdonald, Meredith & Aberdeen dd st Nipissing achin hite River

Total Municipalities = 94

Marathon Atikokan Markstay-Warren Billings MatBlack Rive MattaBlind River MatticBruce Min MBurk's Fa McGaCasey MichiCentral Manitoulin Moonbeam Chapleau MoosoneeChapple Muskoka Charlton Nairn & HyCobalt New LisCochrane Nipigon Dryden North Bay Dubreuilville Northe Islands Dymond OliEar Falls Opasatika Elliot Lake ParryEmo Pickle LakeEnglehart PlummE PowF Rainy RF Red Lake F Red RoG SableG Sault SG Schreiber GH LH SmH South RiveH St. ChH St. Joseph Ig Sundridge Ir TehkummahJ TemaJ TerK The North ShorK Thessalon K ThornloeK Thunder Bay L TimminL Val Rita-HM A 'l WeM W

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ppendix C – Total Municipalities Sent Survey, By Population Grouping

than 5,000 y Name Mun me Municipality Name

A

LessMunicipalit icipality NaAmaranth Hilto Plummer Additional n Beach Armstrong Hims Point Edward

Horn Powassan Ignac Prescott Jame Rainy River John Red Lake Killal Richards Red Rock

on Killar Sables Spanish Rivers Lard Schreiber

re Valley Latch Shedden vinston Laur Shelburne

ines Luca Smooth Rock Falls Macdonald, Meredith & Aberdeen Add'l South River

Mach Southwold Mada St. Charles

anitoulin Mani St. Joseph stings Mara Stirling-Rawdon

Mark Sundridge le Marm Tehkummah

Mata Temagami Matta Terrace Bay Matti The North Shore McD Thessalon McG Thornloe

le Merri Val Rita-Harty wich Michipicoten Warwick

Moon Westport Moos White River Morri

rafraxa Nairn rand Valley New

New Nipig

en North land North oulin and The Islands

iver North eninsula avendish-Harvey Oil Springs

Opas y Pele

ont-Methuen Petro

st Pickl Total Municipalities = 112

worth North Asphodel-Norwood epayne Assiginack e Atikokan s Bancroft son Billings oe, Hagarty & Black River Mathes ney Blind River er Lake Bonneche ford Brooke-Al entian Hills Bruce M n Bidulph Burk's FallsCasey in Casselman waska Valley Central M touwadge Centre Ha thon Chapleau stay-Warren Chapp ora and LakeCharlton chewan Cobalt wa Dawn-Euphemia ce-Val Cote Deep River ougall Deseronto arry Dubreuilvil ckville-Wolford Dutton/DunDymond beam Dysart et al onee Ear Falls s-Turnberry East Ga & Hyman East Luther G Liskeard Emo bury Englehart on Enniskill Huron Fauquier-Strick eastern ManitFrench R ern Bruce PGalway-CGauthier atika Gore Ba e Haileybury Perth South Havelock-Bellm lia Highlands Ea e Lake

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5,000 to 9,999 Municipality Name Municipality Name

Paipoonge Alnwick/Haldimand Otonabee-South Monaghan

ound lie shene

awanosh Perth Township mpton-Wyoming

Renfrew

ith-Ennismore-Lakefield ce Bruce

th Monaghan thgate t Middlesex

s

e he Blue Mountains uce Peninsula

rdinal

es e

h itewater Region

ds

loss

ng

& the Thousand Islands

es lesex ont

tal Municipalities = 65

Arnprior Parry SArran Elders PenetanguiAshfield-Colborne-WAylmer PlyBayham Ramara BluewaterBrighton Sioux Lookout Brockton SmCarleton Pla South Cavan-Millbrook-Nor SouCentral Huron SouthwesChamplain St. MaryChatsworth Tay Cochran TCramahe The South BrDryden Tiny Edwardsburgh/Ca Tweed Espanola Wellesley Fort Franc West Elgin Gananoqu West Perth Goderic WhGreenstone Grey Highlan Hanover Hearst Huron East Huron-Kin Iroquois Falls Kapuskasi Kirkland Lake Laurentian Valley Leeds Malahide Mapleton Minden Hills Minto Mono North Dumfri North MiddNorth Storm To

Alfred & Plantagenet Oliver

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o 49,999 Munic Municipality Name

10,000 tMunicipality Name ipality Name Adjala-Tosorontio Missis West Lincoln sippi Mills Amherstburg New T t Nipissing

Niaga Whitchurch-Stouffville North Wilmot North Woolwich North North

n Orang ellington Orillia

ockland Oro-MOwen Pelha Pemb Perth

bury Petaw Port C Port Hope Prince rd Quinte Russe

fs Sauge Sever

panee Smith South Dundas

South rry d South n Township South Stormont

Spring ater St. Clair St. Thomas Stratf d Strath y - Caradoc Tecumseh Tham Centre

hores The Nation Thoro Timm s

Trent lls t Wasa Beach

Wella Wellington North

West rey tal Municipalities = 89

ecumseth WesAurora ra-on-the-LakeBelleville Dundas Bradford West Gwillimbury Glengarry Brant Grenville Brockville Perth Central Elgi eville Centre WClarence-R edonte Clearview Sound Cobourg m Collingwood roke Cornwall East East Gwillim awa Elliot Lake olborne Erin Essa EdwaEssex West Fort Erie ll Georgian Bluf en Shores Georgina n Greater Na s Falls Grimsby Guelph-Eramosa GlengaHaldiman HuroHamiltonHawkesbury wInnisfil Kenora Kincardine orKing roKingsville Lakeshore esLambton SLaSalle ldLeamington inLincoln HiLoyalis gaMeaford ndMiddlesex CentreMidland G To

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50,000 and over

Municipality Name Barrie Brantford Cambridge

ent

ury

ra a Falls

gh City

r Bay

loo ity

otal Municipalities = 35

Chatham-KDurham Greater SudbGuelph Halton Hamilton Kawartha Lakes Kingston Kitchener London Markham Muskoka Newmarket NiagaNiagarNorfolk North Bay Ottawa Oxford Peel PeterborouRichmond Hill Sarnia Sault Ste. Marie St. CatharinesThundeToronto Vaughan WaterWaterloo CWindsor York T

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