What Should Our Water Rates Be?

A year ago, Abbotsford voters decidedly defeated the proposed Stave Lake project. Although there are many reasons for the defeat, one of them was discontent with increased water rates and the tiered water rate structure.

Residential water rates increased between 2007 and 2011 by 77% at the lowest of the 3 tiered rate structure. Consumption at the third tier (91 + m3), suffered a 250% increase. Most residents saw the tiered rate increases as excessive, unfair and unacceptable. What was less known was the Industrial, Commercial, Industrial (ICI), and Agriculture (AG) sectors water rates.

Although residential tiered water rates were discarded by Council in March, 2012, the ICI and AG water rates were not changed, even though the rate charged to the highest tiered (over 100,001 m3), ICI customers were billed at $0.69 per m3 – 18% below the City’s cost of $0.83 per m3.

Recently, the Audit & Finance Committee unanimously agreed that the City cannot afford to sell water to high volume ICI and AG customers at rates below cost. This rectified part of the problem but did not address the question – should water rates be the same for every customer? As it stands now, increased ICI and AG water rates will be phased in over a 3 year period, which means that the residential users will continue to pay a much higher rate for 3 more years. Also, at the end of 3 years, ICI and AG water users will only pay 90% of the residential rate.

We have an opportunity to address this question now. Here’s how, assuming the following principles are correct;

  1. Every water user should pay the same rate per m3. Currently the residential rate subsidizes the entire ICI and AG sectors, with some ICI users are paying less than cost.
  1. Water rate changes should be set effective January 1st of each year, so that they are in cync with our financial year end. It is very difficult to reconcile water revenues when rates are changed July 1st and financial statements are presented as of December 31st of each year.
  1. Water rates must cover the cost of operating the system, including amortization (capital replacement over the asset’s life), which is approximately $0.42 per m3.
  1. A utility is supposed to operate on a break even basis. Therefore, the Water Fund should not be generating a $4.6 million surplus (2011) UNLESS specifically approved by Council for a specific project(s). Currently, the water utility is making a profit of 30% on water sales, most of which is derived from the residential users who pay $1.15 per m3. Stave Lake was defeated but, despite removing this project from our 5 year capital plan, the capital cost of Stave Lake is still embedded in the current water rate structure, which is neither fair nor defensible.
  1. A uniform water rate should be based on affordable and sustainable budgets and capital plans…not annual rate increases of 22% (as in 2008). The City needs proper long-term financial planning resulting in water rates that are affordable and sustainable.

Additional water sources will be required at some point in the future as a result of growth (20 plus years from now), however, existing residential water users should not have to pay for future growth, unless the residential water users are in favor of doing so. This is a conversation that needs to take place.

A suggestion to solve what many perceive as an unfair water rate structure is as follows;

  1. Water rates should be set at $0.86 per m3 (our cost, which includes replacement of existing infrastructure). This means that every residential water user and over 3,000 ICI customers (99.90% of all water users), would be charged less than they are currently paying.
  1. Rate changes take effect January 1, 2013.

The water rates could become one of the lowest in the region as all but four (4) high volume ICI water customers would receive a reduced water rate in 2013.

Senior management should aggressively work on resolving the Non Revenue Water (NRW) that the City cannot bill for. NRW accounts for 17% of the total water consumed in 2011. This is too high. Reducing this to 10 – 12% will reduce water costs and generate an improved ‘bottom line’.

If you believe that the solution offered has merit, is fair to all water users and represents an affordable way to correct the water rate imbalances, the time to make your voice heard is now. You can express your views by contacting the Mayor and City Councillors, urging reconsideration of the City Council decision.