Analysis and Recommendations on City of Ottawa Water, Wastewater and Stormwater Rate Structure Review

Background:

It is understood that the stated objective of this review is to establish a new municipal rate structure which is focused on fairness and equity, and ensures a stable revenue stream for the City in order to provide, operate and maintain three service infrastructures into the future.  It is also recognized that this review is exacerbated by the multitude of decision making factors which impinge upon the analysis including water conservation, measurement considerations, rural-urban differences and commercial, industrial, and institutional differences.

The three assessed services that are being provided to the City of Ottawa consumers consist of:

1. Drinking Water Services

2. Waste Water Services

3. Stormwater Services

These three services are currently being funded using a defective Water and Sewer Rate Structure that came into being during the amalgamation of Ottawa in 2001. 

Assumptions:

The stated objective includes using these six key principles to guide the development of a new service rate structure related to each of the three services being provided to consumers:

· Ensure that everyone who benefits from a service pays their fair share (Fairness and Equity)

· Be relatively easy to understand and implement (Transparency)

· Encourage water conservation and help to manage demand (Promote Conservation)

· Provide a stable source of funding that fully recovers the cost to provide services (Financial Sustainability and Revenue Stability)

· Be affordable at the level of consumption that meets basic needs (Affordability)

· Attract local businesses by being comparable to other rates in the province (Support Economic Development).

Discussion:

To be fair and equitable, consumers who directly benefit from Drinking Water Services should pay according to the water they consume (volumetric measurement) in order to cover the cost of the two City operated and maintained water purification plants, the five community wells, and the network of pipes, pumping stations and reservoirs required to treat and deliver water to the consumer. 

To be fair and equitable, consumers who directly benefit from Waste Water Services should pay according to the size and quantity of their business or household waste systems (volumetric measurement) in order to cover the cost of the City operated and maintained network of sewer pipes, pumping stations, odour control facilities and the wastewater treatment plants.

For the Stormwater Services however, consumers do not benefit directly from these services which are primarily spread across the region and directly attributable to the road infrastructure. Individual volumetric measurements are therefore invalid and are not appropriate for an individual water bill. The proposed methods to cover the cost of the City operated and maintained network of stormwater pipes, culverts, catch basins, ditches and stormwater ponds are now in question. The maintenance costs of private driveway culverts on city property are already borne directly by the individual property owners under the private approach by-law.

·  The maintenance and upkeep of a private approach, including any culverts and headwalls is the responsibility of the abutting property owner

Three methods to allocate the indirect costs of stormwater services have been presented based on:

a. Flat Rate per resident

b. Property Assessment Values

c. Hard surface area by property type

None of these methods, as presented, allocate storm water maintenance costs in a fair and equitable manner.  Council has arbitrarily, without public analysis, made a decision to reduce the current water bill funding by $42M and transfer 40% of those costs to the rural sector and 60% to the industrial, commercial and institutional sector.

Instead of consulting with the public on the development of fair and equitable cost standards, the public is being asked how to collect the 40% of $42M on infrastructure that cannot be attributed directly to specific households in a fair and equitable manner.

It was also unclear how commercial, industrial and institutional businesses will pay for the other 60%. If businesses generate more stormwater than most residences, there was no data to show how a 60% figure was determined to be a fair share of the cost of stormwater management. Insufficient information was provided by the City to allow the public to make an informed decision. The public should have been consulted on the Council’s decision to arbitrarily transfer $42M of what appears to be part of a road maintenance cost rather than review a separate stormwater fee structure.

To be fair and equitable on direct services like water and waste water, consumers must validate that they are receiving these direct services so that the costs can be fairly attributed and allocated. If no direct services are being provided, then consumers must not be asked to pay any fee. Fair cost standards need to be developed to ensure that each consumer is being billed fairly and equitably for direct services. Each service requires a separate cost analysis that caters to the consumption parameters of that service or the benefit received. For example, volumetric standards for drinking water services and volumetric standards for sewer waste discharge services appear to be appropriate.

For the regionally dispersed stormwater infrastructure however, which is only providing indirect services to consumers, more data and analysis is required to make a decision. The fixed fee, property assessment fee and impervious area fees for stormwater infrastructure services were not rationalized in relation to road infrastructure services.  To be relatively easy to understand and implement (transparency principle), standards must be developed that are quantifiable and clearly relatable to the indirect benefits a consumer receives from the stormwater infrastructure. Complexity such as trade-offs and credits for stormwater fees must to be avoided initially, until a fundamental fee structure has matured and been evaluated.

The identification of other specific services on any consumer’s annual property tax bill, drinking water bill, sewer bill or stormwater bill must be clear and transparent, indicating the costs incurred in the previous year for that property and if possible the projected costs for the following year.

The rates for items such as those below if not included with the three services being reviewed, must be clearly identified separately on whatever bill is appropriate, or invoiced separately.

1. Fire Hydrants - A separate fee that cannot simply be included on the water bill.

2. Municipal Drains – A separate fee for constructing and maintaining culverts, swales and drainage ditches.

3. User fees – A separate fee for one-time services such as service connection, thawing, inspections, service calls, water meter installations and replacements.

Lastly, this rate structure review for Ottawa did nothing to explain the benefits of controlling stormwater for environmental reasons. Reducing stormwater has been tackled by other cities in Canada like Waterloo, Victoria and Halifax and Ottawa is not keeping pace. Sophisticated mechanisms have been developed that allow credits for reduced stormwater discharge. A method based on impervious or hard surface area has already been selected as the best method by these progressive cities. This review ignored available data and analysis.

Consumers, therefore, have not been well served by this rate structure review process.  Consumers need to understand that flooding, erosion and sedimentation creates additional costs to residents and controlling stormwater is good for the environment.  Because of the lack of information and factual data presented, it is easy to understand why this rate structure review has been called a “money grab” by the residents of Ottawa.

Conclusions:

Due to the complexities of the Ottawa amalgamation in 2001, the current water, wastewater and stormwater rate structure has several inherent defects and shortcomings.

The problems are significant because:

a.  the revenue stream from consumer water bills is unfair and inequitable to current consumers,

b. the funds do not sustain the actual service delivery and infrastructure costs for drinking water, sewer and stormwater services,

c. consumers benefit directly from some services but they do not benefit directly from stormwater services making measurement parameters different and difficult,

d. there is no rationale for separating culvert and ditch costs which are always directly connected to the cost of road infrastructure; and

e. driveway culverts are already being funded and maintained by  the abutting property owners under the private approach by-law.

The scope of this problem requires a systemic analysis that is much broader than simply creating a new storm water management fee in the wrong category of drinking water and waste water services. Perpetuating the current defects and shortcomings yields a system that remains unfair and inequitable to urban, rural, commercial, industrial and institutional consumers. 

Recommendation:

The solution is for the current water bill mechanism to continue to reflect the two categories of drinking water and waste water services being delivered directly to property owners who are specifically identified by the City as beneficiaries of these services. 

The water and waste water fees must be managed and invoiced as separate items for transparency.

Revenue Stream 1. Drinking Water Services paid only by those property owners receiving drinking water.

Revenue Stream 2. Waste Water Services paid only by those property owners disposing of waste water.

The stormwater fee must be reassessed and managed as part of the road, traffic and stormwater infrastructure planning mechanism.  As in the case of water and sewer infrastructure which must be calculated separately, so must the road, traffic and stormwater infrastructure be calculated and managed separately.

Revenue Stream 3. Stormwater Services.

Revenue Stream 4. Road Services.

Revenue Stream 5. Traffic Services.

The revenue stream for stormwater must be objectively analyzed with much more detail by the City to ascertain the best method of cost attribution.  The current analysis is deeply flawed as it does not assess the urban, rural, institutional, commercial and industrial factors as a total system of Road, Traffic and Stormwater Infrastructure. The resultant fee structures for all these services must be managed so that they are specific, sustainable, transparent, fair, affordable and not used for other purposes.

The City of Ottawa has failed to recognize the fee structure problems that were created in 2001 after amalgamation, and it has failed to address these problems. A significant amount of staff work and analysis is required to make these rate structures fair, simple and easy to understand with a greater focus on sustainable living in the future.  Public input is also recommended for such an analysis.