2014 Utility Operating BudgetREPORT TO COMMON COUNCIL -WEENNUM
M & C 2012 - 273
December 2, 2013
His Worship Mayor Mel Norton The City of Saint )ohn
& Members of Common Council
SUBJECT: Proposed Operating Budget Water & Sewerage Utility Fund 20V
Council will find attached two proposed options for the 2.014 Water & Sewerage Operating
Budget, labeled Option I and 2. While both proposed budgets contemplate similar expenditures
and revenues, there is a significant policy difference in the two; that being the issue of
fluoridation.
The proposed budgets are an extension of the 2013 Operating budget, adjusted to reflect
increases in anticipated expenditures, and debt servicing requirements.
Over the next few years, the Utility will be investing heavily in the Safe, Clean Drinking Water
(SCDW) project, as well as continuing to invest in infrastructure renewal.
The Operating Budget of the Utility is structured on a user pay basis. The expenditures,
including debt repayment, must be offset by revenues on an annual basis. Revenues are
generated solely by the users of the Utility and consequently expenditures must be managed
such that the cost to users remains affordable.
Council, in establishing the 2013 water rates, acknowledged that rates must increase
incrementally over the next few years in order to, adequately fund the significant expenditures to
be incurred for quality improvement.
The attached operating budgets recommend an increase in user rates of approximately 7.1 % for
2014. This increase is an across the board increase equally impacting all users of the system.
The flat rate customer charge being recommended for 2014 is $1,080. This is consistent with
the costs projected in the 2013 budget,
Proposed Budgets Option 1 and 2
As stated above, the expenditures and revenues in both budgets are essentially equal. The major
difference in the two is keeping fluoridation under option I or deleting fluoridation and using
the savings to fund in ho se work, option 2.
147
M & C 2013-273
December 2, 2013
Page 2
There are compelling arguments to be made both for and against the addition of fluoride to our
drinking water, Previous Councils have considered those arguments and concluded that the
health advantages of adding fluoride outweigh the disadvantages. Fluoride has been added to
our water since 1992 and continues today.
No Council, however, has explicitly examined the cost/benefit aspect of adding fluoride to our
water. The following information is provided for Council's, consideration when evaluating the
merits of the proposed Option I and Option 2 budgets.
The annual cost of fluoride is approximately $177,000 for product alone. In addition, the design
of the new water treatment plant includes $650,000 of capital related to fluoride for which debt
service charges would be funded through the operating budget. It is estimated that less than 1%
of treated water is actually consumed by persons. By far, most of the fluoridated water does not
reach its target (persons).
Based solely on the program inefficiency, staff recommend that Council discontinue the
fluoridation process when current supply is exhausted. Should COuncilagree with this position,
proposed Option 2 is recommended.
2014 Review of Water Rates and Rate Structure
Water and sewerage systems in New Brunswick are required by law to be constructed, operated
and maintained on a user -charge basis. The challenge in Saint John is that not all users are the
same; users range from residential households that consume relatively small quantities of water
to large industrial customers that consume large quantities. Given the diverse customer base, the
City must determine how to equitably distribute the water and sewerage costs to all users based
on sound principles and a logical approach that can be defended in a public forum. To achieve
this objective, it is critical that the City periodically have an independent third party review of
the rates, rate structure and associated Utility policies and procedures.
The most recent rate review was conducted by Touchie Engineering dated October 30th, 20,08
entitled, "Review of Rates and Rate Structure Options". The review is principled by full cost
recovery and user pay based on the "American Water Works Association" (AWWA) M I manual
entitled a"Principles of Water Rates, Fees and Charges". 2 The MI manual is one of the leading
resources used by utilities in setting water and sewerage rates across North America. Much has
transpired since 2008 with respect to cost allocation, most notably the significant investment in
the City's wastewater treatment facilities and related infrastructure, the significant progress made
in the Safe, Clean Drinl<ing Water project which will include the creation of an East Industrial
Water System, as well as consumption data and patterns require updating,
1 Touchie Engineering, Review of Rates and Rate Structure Options, Flnad Report, October 30,2008
2 American Water Works Association, Principles of Water Rates, Fees and Charges; M1 Manual of Water
Supply Practices, Fifth Edition, 2000 148
Considering it has been over 5 years since the last rate review, $150,000 has been included in the
2014 Operating Budget to conduct a new review, The review is a significant undertaking; for
example the 2008 ratio review involved many months of work and collaboration between various
City departments and the independent third party expert. Notwithstanding, the investment in the
review will guide pricing policies for the Utility into the future,
Safe Cleaning Drinking Water P3 Project Staffing
Apart from the obvious need to demonstrate financial capacity, staffing is key to achieving a
successful procurement and a successful project. Included in this budget is approximately
$260,000 plus fringe benefits to fund critical temporary resouces in Records Management,
Office Administration, Communications and a part-time Procurement Specialist.
As Council is aware, Saint John Water has adopted a service -based budget format beginning in
2012. The service -based budget approach allows Council and the public to understand explicitly
the costs associated with the delivery of each of the specific services provided by the Utility.
Appended to this report is a summary of the service -based budget for 2014, The stated service
level, the expected service outputs, the anticipated impact of service delivery, as well as the
resource requirements are outlined for each subservice of the Utility. All of these services
collectively express the organizational goals and objectives of the Utility.
1; 99 0 [4191 U9
Common Council having given due consideration to the objectives of Saint John Water, and
acknowledging the inherent costs associated with providing services to achieve the goals, is
requested to adopt the following recommendation'
It is recommended that Common Council adopt the following resolutions:
I- RESOLVED that the estimated revenue for the Water and Sewerage Utility for the year
2014 in the amount of $39,097,000 be adopted (Appendix "B");
1 RESOLVED that the estimate of expenses for the Water and Sewerage Utility for the
year 2014 in the amount of $39,097,000 be approved (Appendix "A" — Option 2); and
3. RESOLVED that the By -Law entitled By -Law to Amend a By -Law Respecting Water
& Sewerage (Appendix "C") be given first and second reading
Respectfully submitted,
Wfm. Edwards, , ng. J. Patrick Woods, CGA
Commissioner City Manager
Transportation & Environment Services
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Proposed 2013 Changes
BiAaw Number M-16- A
(Wateran Sewerage Utifity Fund)
A BY-LAW TO AMEND,
UN ARR-trg P'OUR MODIFIER
A BY-LAW RESPECTING WATER AND
ARPAT9 CONCERNANT LES R-9SEAUX D'EAU ET
SEWERAGE
D'9GOUTS
Be it enacted by Common Council of the City
of Saint John, as follows.
Le conseil communal de The City OfSaint John
6dicte:
A by-law of the City of Saint John entitled "A
By-law Respecting' ater and Sewerage"
Par les pr6sentes, 1'arret6 de The City of Saint
John intituI6 o Arr8t6 concernant les r6seaux
enacted on the 70 day of June, A.D. 2004, is
hereby amended as follows;
d'eau et d6gouts >>, 6dict6 le 7 juin 2004, est
modifl6 comme suit:
1. Schedules "A" and "B" are, repealed and
the following are substituted therefor.
1. Les annexes o A >> et o B » sant abrog6es et
sant remplac6es par celles qui figurent aux
pr6sentes.
Mayor or the member ofthe Council who
Maire ou membre du conseil qui pr6sidait la
presided at the meeting at which it was
reunion A laquelle Farrft6 a 6t6 6dict6
enacted; and/
Common Clerk
Greffi6re cornmunale
First Reading
Premi&re lecture
Second Reading
Deuxi6me lecture
Third Reading
'Troisi6me lecture
1153
A BY-LAw RESPECTING WATER AND SEWERAG E SCHEDULE ""A„
ARR±Tt CONCERNANT LES R19SEAUX D'EAU ET DUOUTS ANNEXE << A >>
Effective January 1st, 2014/ Envigueurle I erianvier2014
154
A Y -LAV RESPECTING WATER AND SEWERAGE SCHEDULE °"$"
Effective January V. 2014
155