North Huron Council to amend water rates moving forward
BY SCOTT STEPHENSON
North Huron Council received an update on its water and wastewater works financial plan on Monday. Ryan DeVries, a project engineer at B.M. Ross, presented the overview, which covered both the current state of the township’s water supply and an update on the financial forecast for North Huron’s next 10 years, waterwise.
“You might recall that I was here in May, when we presented an earlier version of these financial plans,” he began. “And one of the items that came up there was, in regards to the wastewater financial plan, recognizing that the current 2024 replacement cost of the wastewater assets is higher than the water assets, but the wastewater revenue is lower than the water revenue. Out of that, we identified that the wastewater system currently didn’t have a metered charge on their revenue, and water did, so it was council’s wishes at the time that it go back to staff for consideration on that, and we’ve since received some comments from staff, so I’m here to present the revised version of those financial plans.”
DeVries continued by saying, “The driving force for both financial plans, but particularly the water financial plan, is - your drinking water licence is coming up for renewal. I believe it’s December, the application for renewal has to go in, and there’s a number of things you have to provide with that application, and one of them is a resolution by council passing a financial plan.”
He went on to refresh council on some basic details. As of 2023, North Huron had 1,849 customers, and the collective net book value of its water assets was $14.1 million. In 2023, water rates increased by 7.2 per cent, and in 2024, they increased by 8.2 per cent. “Revenue is $1.6 million - that’s approximately what you’re bringing in on the water side,” DeVries explained. He pointed out that the annual cost of operating the water system is $800,000 a year, with an amortization expense of $300,000. “There’s no debt, and there’s healthy reserves at just about $11 million,” he said.
The water financial plan is based on several assumptions: that operating costs and contracted services costs will each increase by three per cent every year, and that energy costs will increase by five per cent. It’s also assumed that the earned interest rate of the current reserves will be 1.5 per cent. “We took out a new debenture in 2025 at $5 million for 15 years at six per cent interest, and also accounted for getting a grant at $2.1 million,” he added. The assumed growth is nine customers a year as of 2025, through 2033. The plan also adjusts for an assumed $6.1 million in capital upgrades over that time period. The predicted 2024 revenue was based on the amount budgeted for in 2023, inflated by 8.2 per cent.
The presentation also included a proposed cost recovery plan intended to ensure the adequate funds needed to operate, maintain and replace infrastructure. This plan would eliminate metered rates for residential units, set fixed rates for Blyth and Wingham, and change the industrial and commercial rates to be more reflective of actual water usage, compared to residential usage. DeVries reminded council that these cost-recovery measures came out of the discussion had at the May meeting. “Staff wanted to get rid of the metered rate for residential,” he said. “I believe, the reason being, there’s a large number of these meters that are getting close to the end of their life, and it’s going to be pretty costly to replace them.”
The projected revenue for 2025 is based on new proposed rates. “Currently, the residential rates are $21 fixed operating [per month], and then there was a metered rate. We’ve combined those into a $54 fixed operating rate, and that’s just based on the average monthly usage. The fixed reserve was $22, and we’ve kept that the same, so combined, you’re looking at $76 per month,” DeVries informed council. The fixed annual cost for residential units would therefore be $912. “And then, on the industrial/commercial side, previously, the fixed operating was $21 - we broke that out into a fixed portion and a metered portion. The metered portion is in the same sort of ballpark of what it was, but the main thing is that if you take the average monthly usage for industrial/commercial customers, on a per-customer basis, and you work that into those numbers, it comes out to $67 per month, which is about 25 per cent higher than your residential fixed. But that also reflects, on average, how much more water an industrial/commercial customer uses than a residential customer.” The annual fixed cost for industrial or commercial customers would be $1,073, with a metered rate of 90 cents per cubic metre.
The total replacement cost of North Huron’s water assets is currently $61.4 million. The average life expectancy of those assets is 72 years, which means the average weighted remaining life of each asset is about 39 years. The current rate of asset replacement is 37 years. DeVries outlined some possible options for annual rate increases that would allow North Huron to meet its rate-of-replacement goal. If the annual water rate were to increase by 1.6 per cent, it would match the current life expectancy for the average water asset. A 5.8 per cent increase would mean matching the actual current remaining life expectancy of North Huron’s water assets.
Councillor Mitch Wright wanted to know why the rate increase would need to be so much larger if North Huron chose to match the average life expectancy rather than the actual, if the difference were only two years. DeVries explained that the difference would be caused by 10 years of inflating the operating costs by three and five per cent. “You start to lose ground,” he said.
Councillor Chris Palmer asked about the assumed increase of nine customers a year. “It doesn’t seem like enough - we have a 73-unit apartment building that will be coming on-stream soon, and hopefully Hutton Heights starts going soon.” DeVries pointed out that he had based his assumptions on the numbers he had received from North Huron staff. “If you look at the last three-to-five-year historical numbers, it works out to be about nine. If you have more than nine, or, especially much more than nine, then nine is still a very conservative number to use. You’re just going to be in better shape with more customers.”
Palmer also expressed concerns about potential overuse and the costs associated with it. “I don’t feel like we’re ready to have a cost figure here. We could be up a creek here because of overuse. With a flat rate, people aren’t as careful.” He asked if nearby municipalities that had gone from metered to flat rates had been used as comparators. “There’s certainly lots of municipalities around here that have meters on their residences, and there’s some that don’t... I don’t know what the implications of going from one to the other is,” DeVries replied.
Clerk Carson Lamb reminded council that the water rates could be adjusted in 2025 if they are too low. DeVries also reminded councillors of the December deadline. “The Ministry just wants to see that you have a plan - they aren’t holding you to that plan,” he said.
DeVries also presented the 10-year financial plan for North Huron’s wastewater. Currently, the township’s wastewater assets are valued at approximately $8.7 million, with a total estimated replacement cost of $82.4 million. The average life expectancy of said assets is 72 years, but the current rate of replacement is only 67 years, meaning that the average weighted remaining life of North Huron’s wastewater assets is 25 years. “It’s not uncommon that your wastewater would have a higher replacement than your water,” DeVries explained. “That’s a pretty common theme across most municipalities - sewers are deeper than water mains, and they cost more.”
North Huron’s wastewater revenue is about $1.2 million annually, with $700,000 in operating costs, an amortization expense of $200,000 a year, zero debt, and healthy reserves of $11 million. The wastewater financial plan assumes that both operating costs and contract services will increase three per cent annually, with energy costs increasing five per cent. Like the water financial plan, it assumes a minimum increase of nine customers in Wingham per year, for 10 years. It’s assumed that the money the township has in reserves will accrue interest at a rate of one and one-half per cent, with plans for $1.6 million in capital upgrades to be completed from 2024 to 2033.
North Huron’s residential wastewater rate does not have a metered component. “In this case, you already had only a fixed operating rate for residential. It was $35 - we’re proposing $40 here. Fixed reserve, we stayed at $22. The reason for the $40 over the $35 was just recognizing that we’re a little bit off the mark here on where we want to be,” DeVries explained. A metered rate of 90 cents per cubic metre will be added to the Industrial/Commercial fixed operating rate, which is currently suggested to be $22.50, along with the fixed reserve rate of $22.
DeVries also presented council with some potential options for annual wastewater rate increases to consider. An annual increase of 4.2 per cent would mean that the rate of replacement would match the current average life expectancy of 72 years, a 5.6 per cent increase would mean that, by 2033, revenue would match the annual cost of replacement, and an annual increase of 14 per cent would match the current remaining life expectancy of North Huron’s wastewater assets.
Wright made a motion that North Huron set the annual water rate increase at 1.6 per cent, with the annual wastewater rate increase at 14 per cent. “I know it’s a lot, but it seems like we’re really falling behind on wastewater. We need to catch up,” he argued. The motion was seconded by Councillor Lonnie Whitfield.
Van Hittersum asked if the potential replacement of the standpipe needed to be taken into account when deciding on the annual water rate increase. “Does it have influence on the cost of water in the foreseeable future? Because 1.6 per cent seems a little bit not too much.” Palmer added to her sentiment, saying “We need to stay ahead of the game, I feel. We do have these costs coming forward.”
Falconer had some comments about the assumptions on which the water and wastewater financial plans were based. “We’ve got roughly $22 million in reserves for water and wastewater. And these increases are calculated on current status and life expectancy of the system. Constantly, every year, we’re losing 15 per cent or 20 per cent of our buying power, just through inflation. That soon dwindles down your $22 million by 30 per cent every year. If some of those reserves were placed into upgrading the systems currently, at a price that will probably be less than it would be in six or seven years... it’s hard to charge somebody 14 per cent when you’ve got $22 million in the bank and you’re not spending it to fix the problem. What are the reserves there for?” There was also the question of how water rates in East Wawanosh would fit into the equation following the construction of the Hutton Heights development.
Whitfield said he’d like to see the water rates increase three or four per cent, with the wastewater rates increasing no more than eight or 10 per cent, not 14. “These are reviewed every year,” he reminded council.
After a brief discussion about procedure surrounding the motion, Whitfield moved that a friendly amendment be made that would change the water rates in Wright’s proposal from 1.6 per cent to 4.5 per cent, and the wastewater rate from 14 per cent to 10 per cent. Council then voted to approve the adoption of the water and wastewater financial plans with Whitfield’s amended 2025 rates in place. The motion passed, with Falconer casting the only opposing vote.