City facing capital utility shortfall
Residents may see spikes in rates to make up difference
By: Peter Boer
| Posted: Wednesday, Feb 13, 2013 06:00 am
Confusion reigned at St. Albert Place Monday night as councillors tried to figure out exactly what the city’s utility model pays for after a report suggested the city radically change it.
The consultants who authored the report told council the city could use debt and franchise fees to ensure that utility rates remain stable over time and are not subject to large spikes when big-ticket items need to be built.
But councillors, sitting as standing committee on finance, expressed confusion and almost shock, as they were under the impression the city’s current model was created in part to keep rates stable.
“In prior years, we’ve been told something totally different from what we hear today,” said Coun. Roger Lemieux.
Adding a sense of urgency to the discussion is the year 2020, which will see three significant capital projects collide – the $36.4-million south pumphouse and reservoir, a rebuild of the Sturgeon Heights pumphouse at $20.2 million and construction of the $7.85 million north grit interceptor, totalling almost $65 million. That number leaps to $75 million when all the smaller projects are included.
The city’s present model is referred to as the 100-year utility model in which costs for future capital utility expenditures over the next 100 years are factored into utility rates charged now. The money is then banked until it is needed. As a result, the city doesn't need to use debt for capital utility costs.
But according to chief financial officer Anita Ho, even if the city collected and banked $8.5 million for the next seven years, it would still come up short, with utility bills jumping as much as 20 per cent annually.
“That’s exactly why we did (the 100-year model) – to eliminate spikes,” said Coun. Len Bracko. “That’s what we’ve been going on so I’m not sure what happened.”
Exactly how much money will be needed in 2020 is still undetermined. The city divides anticipated capital projects of all kinds into categories of funded and unfunded, which gives council some flexibility in determining when to start a new project. The report took every projected expense for 2020 – funded and unfunded – and treated them as funded. Current utility rates charged to residents reflect only what projects are considered funded.
The three projects in 2020 totalling $65 million are currently listed as unfunded. Council won’t know until the end of this year if all three projects will be needed in 2020.
Confusion over what is and isn’t funded even created an awkward moment for city manager Patrick Draper when he tried to explain two of the 2020 utility projects hadn’t been accounted for in the present model. Several councillors spoke up at once to correct him.
The report itself met some opposition from some councillors, as some of the 14 recommendations go against the city’s current model, specifically not using grant money to build new utility infrastructure and using debt to pay for significant projects. The report recommends borrowing to pay for large, one-time expenditures.
“Debt is one thing that has to be looked at very carefully,” said Bracko, who cited examples of federal and provincial debt to warn of its dangers. “To me we’re going to be like France or Spain or Greece if we carry on with more debt. This, to me, is not responsible leadership.”
But the more philosophical discussion of who pays for what also dominated the debate. A frequent critique of the 100-year utility model is that today’s residents are paying for infrastructure they will never use while future generations will use it without paying for it.
The report proposes a “pay as you benefit” approach in which current and future generations would pay for what they will use.
Specifically with respect to the anticipated 2020 expenses, Cam MacKay doesn’t see the current utility model as fair.
“We’d be placing 50 years of burden of infrastructure costs for the next seven years,” MacKay said.