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Watson & Associates Economists Ltd.
905-272-3600
September 17, 2025
[email protected]
Water Rate Study
Township of Perth South
Watson & Associates Economists Ltd.
Table of Contents
Page
Executive Summary ....................................................................................................... i
1.
Introduction...................................................................................................... 1-1
1.1
Background ............................................................................................. 1-1
1.2
Study Process ......................................................................................... 1-2
1.3
Regulatory Changes in Ontario ............................................................... 1-2
1.4
Sustainable Water and Sewage Systems Act ......................................... 1-3
1.5
Financial Plans Regulation ..................................................................... 1-5
1.6
Water Opportunities Act, 2010 ................................................................ 1-7
1.7
Infrastructure for Jobs and Prosperity Act, 2015 (I.J.P.A.) ...................... 1-8
1.8
Forecast Growth and Servicing Requirements ..................................... 1-10
2.
Capital Infrastructure Needs........................................................................... 2-1
2.1
Capital Forecast ...................................................................................... 2-1
3.
Lifecycle Costing ............................................................................................. 3-1
3.1
Overview of Lifecycle Costing ................................................................. 3-1
3.1.1
Definition .................................................................................... 3-1
3.1.2
Financing Costs ......................................................................... 3-1
3.1.3
Costing Methods ........................................................................ 3-4
3.2
Impact on Budgets .................................................................................. 3-6
4.
Capital Cost Financing Options ..................................................................... 4-1
4.1
Summary of Capital Cost Financing Alternatives .................................... 4-1
4.2
Development Charges Act, 1997 ............................................................ 4-2
4.3
Municipal Act .......................................................................................... 4-2
4.4
Historical and Current Grant Funding Availability ................................... 4-4
4.5
Existing Reserves/Reserve Funds .......................................................... 4-6
4.6
Debenture Financing............................................................................... 4-6
4.7
Infrastructure Ontario .............................................................................. 4-6
4.7.1
Housing-Enabling Water Infrastructure Lending Stream ............ 4-7
4.8
Recommended Capital Financing Approach ........................................... 4-8
Table of Contents (Cont'd)
Page
Watson & Associates Economists Ltd.
5.
Overview of Expenditures and Revenues ..................................................... 5-1
5.1
Water Operating Expenditures ................................................................ 5-1
5.2
Water Operating Revenues .................................................................... 5-1
6.
Pricing Structures ........................................................................................... 6-1
6.1
Introduction ............................................................................................. 6-1
6.2
Alternative Pricing Structures .................................................................. 6-2
6.3
Assessment of Alternative Pricing Structures ......................................... 6-4
6.4
Rate Structures in Ontario ...................................................................... 6-9
6.5
Recommended Rate Structures ............................................................ 6-10
7.
Analysis of Water Rates and Policy Matters ................................................. 7-1
7.1
Introduction ............................................................................................. 7-1
7.2
Water Rates ............................................................................................ 7-1
7.3
Connection Fees ..................................................................................... 7-2
8.
Recommendations .......................................................................................... 8-1
Appendix A
Detailed Water Rate Calculations - Black Creek ................. A-1
Appendix B
Detailed Water Rate Calculations - St. Pauls ...................... B-1
Watson & Associates Economists Ltd.
List of Acronyms and Abbreviations
Acronym
Full Description of Acronym
A.M.O.
Association of Municipalities of Ontario
A.W.W.A.
American Water Works Association
cu.m.
Cubic metre
C.W.W.F.
Clean Water and Wastewater Fund
D.C.A.
Development Charges Act, 1997
F.I.R.
Financial Information Return
I.J.P.A.
Infrastructure for Jobs and Prosperity Act, 2015
I.O.
Infrastructure Ontario
LPAT
Local Planning Appeal Tribunal
M.O.E.
Ministry of Environment
O.C.I.F.
Ontario Community Infrastructure Fund
O.C.W.A.
Ontario Clean Water Agency
O.L.T.
Ontario Land Tribunal
O.M.B.
Ontario Municipal Board
O.Reg.
Ontario Regulation
O.S.I.F.A.
Ontario Strategic Infrastructure Financing Authority
P.S.A.B.
Public Sector Accounting Board
P.T.I.F.
Public Transit Infrastructure Fund
S.W.S.S.A.
Sustainable Water and Sewage Systems Act, 2002
Executive Summary
Watson & Associates Economists Ltd.
PAGE i
Executive Summary
The Township of Perth South retained Watson & Associates Economists Ltd. (Watson)
to undertake a Water Rate Study. This study aims to provide a water rate analysis for
current capital and operating forecasts, in addition to lifecycle cost requirements. The
results of this analysis provide for updated water rates for customers within the serviced
areas of the Township of Perth South. The rate analysis contained herein continues to
provide fiscally responsible practices that align with current provincial legislation. This
analysis includes rate increases that allow the Township to work towards saving the full
lifecycle replacement amounts required for adequate asset management practices.
The analysis presented herein provides the following:
- The Township has two distinct water service areas: the Black Creek and St.
Pauls water systems. Each area has its own rate to recover capital and
operating costs associated with the respective system.
- The current rate structure for both water systems is a flat rate.
- The 2026 to 2035 capital spending program for the Black Creek water system
totals $161,200 (inflated dollars).
- The 2026 to 2035 capital spending program for the St. Pauls water system totals
$217,000 (inflated dollars).
- Provisions for asset management needs have been factored into the rate
analysis to align with the recommendations in the Township's Asset Management
Plan.
- Annual operating expenditures related to wages and salaries are increasing by
2% per annum over the forecast, while expenditures related to utilities, fuels, and
chemicals are increasing at 5% per annum.
- Existing water customers total 33 in the Black Creek water system and 36 in the
St. Pauls water system. It is anticipated the Township will see an increase of
approximately 5 new customers in the St. Pauls system over the next 10-year
period and no growth is anticipated in the Black Creek system; and
- The present rate structure (annual flat rate) is continued for both water systems
in order to recover the capital and operating related costs.
Based on the above information, the estimated rate increases are as follows:
Watson & Associates Economists Ltd.
PAGE ii
- In order to meet the needs of the water forecast for the Black Creek system, the
flat rate is anticipated to increase annually by 5% from 2026 to 2030, and 3%
every year thereafter.
- To meet the needs of the water forecast for the St. Pauls system, the flat rate is
anticipated to increase annually by 3% from 2026 to 2034.
- The connection fee for new users is currently $2,000 per new property that
connects into the water system. This rate has not been adjusted for inflation
since 2002. It is recommended that the connection fee is updated to $5,500 per
property to adjust for inflation and reflect the current costs of the water system.
Table ES-1 summarizes the recommended water rates for the Black Creek system
based on the analysis provided herein over the forecast period. Table ES-2
summarizes the recommended water rates for the St. Pauls system over the forecast
period.
Watson & Associates Economists Ltd.
PAGE iii
Table ES-1
Township of Perth South
Annual Customer Water Bill - Black Creek
Table ES-2
Township of Perth South
Annual Customer Water Bill - St. Pauls
Description
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Annual Flat Rate
$1,694
$1,779
$1,868
$1,961
$2,059
$2,162
$2,227
$2,294
$2,363
$2,433
$2,506
% Increase
5%
5%
5%
5%
5%
3%
3%
3%
3%
3%
Description
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Annual Flat Rate
$1,599
$1,647
$1,696
$1,747
$1,800
$1,854
$1,909
$1,967
$2,026
$2,086
$2,149
% Increase
3%
3%
3%
3%
3%
3%
3%
3%
3%
3%
Report
Watson & Associates Economists Ltd.
Chapter 1
Introduction
Watson & Associates Economists Ltd.
PAGE 1-1
1. Introduction
1.1 Background
The Township of Perth South is located in Perth County, with a population of
approximately 3,776 population. The Township currently provides water via two well-
based distribution systems: Black Creek water system and St. Pauls water system.
Both systems are small residential systems with unmetered water users.
Currently, there are 33 water customers in the Black Creek system and 36 water
customers in the St. Pauls system.
The water systems in the Township utilize an annual flat rate charge for their customers.
Table 1-1 provides the existing rates currently in effect for the Black Creek and St.
Pauls water systems.
Table 1-1
Township of Perth South
Water Rates - 2025
Since the Walkerton crisis, the Province has continued to make legislative changes for
municipal water and wastewater systems. Noted below are the historical changes along
with pending legislation anticipated to be implemented in the future. Watson &
Associates Economists Ltd. (Watson) was retained by the Township of Perth South to
assist in addressing these changes in a proactive manner as they relate to the water
systems. The assessment provided herein addresses changes recommended to the
water rates based on the most current information and forecasts the implications over
the next 10-year period.
Black Creek Water System
$1,694
St. Pauls Water System
$1,599
Township of Perth South
2025 - Water Billing Rates
Annual Flat Rate
Watson & Associates Economists Ltd.
PAGE 1-2
1.2 Study Process
The objectives of the study and the steps involved in carrying out this assignment are
summarized below:
- Identify all current and future water system capital needs to assess the
immediate and longer-term implications;
- Identify potential methods of cost recovery from the capital needs listing. These
recovery methods may include other statutory authorities (e.g. Municipal Act) as
an offset to recovery through the water rates;
- Identify existing operating costs by component and estimate future operating
costs over the next ten years. This assessment identifies fixed and variable
costs in order to project those costs sensitive to changes to the existing
infrastructure inventory, as well as costs which may increase commensurate with
growth; and
- Provide staff and Council the findings to assist in gaining approval of the rates for
2026 and future years.
1.3 Regulatory Changes in Ontario
Resulting from the water crisis in Walkerton, significant regulatory changes have been
made in Ontario. These changes arise as a result of the Walkerton Commission and
the 93 recommendations made by the Walkerton Inquiry Part II report. Areas of
recommendation include:
- watershed management and source protection;
- quality management;
- preventative maintenance;
- research and development;
- new performance standards;
- sustainable asset management; and
- lifecycle costing.
The legislation which would have most impacted municipal water and wastewater rates
was the Sustainable Water and Sewage Systems Act (S.W.S.S.A.) which would have
required municipalities to implement full cost pricing. The legislation was enacted in
Watson & Associates Economists Ltd.
PAGE 1-3
2002, however, it had not been implemented pending the approval of its regulations.
The Act was repealed as of January 1, 2013. It is expected that the provisions of the
Water Opportunities Act will implement the fundamental requirements of S.W.S.S.A.
Furthermore, on December 27, 2017, O. Reg. 588/17 was released under the
Infrastructure for Jobs and Prosperity Act, 2015 (I.J.P.A.), which outlines the
requirements for asset management for municipalities. The results of the asset
management review under this Act will need to be considered in light of the recent
investments undertaken by the Township and the capital spending plan provided herein.
The following sections describe these various resulting changes.
1.4 Sustainable Water and Sewage Systems Act
As noted earlier, the S.W.S.S.A. was passed on December 13, 2002. The intent of the
Act was to introduce the requirement for municipalities to undertake an assessment of
the "full cost" of providing their water and wastewater services. It is noted, however,
that this Act has been repealed. To provide broader context and understanding to other
legislation discussed herein, a description of the Act is provided below.
Full costs for water service was defined in subsection 3(7) of the Act and included
"...source protection costs, operating costs, financing costs, renewal and replacement
costs and improvement costs associated with extracting, treating or distributing water to
the public and such other costs which may be specified by regulation." Similar
provisions were made for wastewater services in subsection 4(7) with respect to
"...collecting, treating or discharging wastewater."
The Act would have required the preparation of two reports for submission to the
Ministry of the Environment (or such other member of the Executive Council as may be
assigned the administration of this Act under the Executive Council Act). The first report
was on the "full cost of services" and the second was the "cost recovery plan." Once
these reports were reviewed and approved by the Ministry, the municipality would have
been required to implement the plans within a specified time period.
In regard to the full cost of services report, the municipality (deemed a regulated
entity under the Act) would prepare and approve a report concerning the provision of
water and sewage services. This report was to include an inventory of the
infrastructure, a management plan providing for the long-term integrity of the systems,
and would address the full cost of providing the services (other matters may be
Watson & Associates Economists Ltd.
PAGE 1-4
specified by the regulations) along with the revenue obtained to provide them. A
professional engineer would certify the inventory and management plan portion of the
report. The municipality's auditor would be required to provide a written opinion on the
report. The report was to be approved by the municipality and then be forwarded to the
Ministry along with the engineer's certification and the auditor's opinion. The
regulations would stipulate the timing for this report.
The second report was referred to as a cost recovery plan and would address how the
municipality intended to pay for the full costs of providing the service. The regulations
were to specify limitations on what sources of revenue the municipality may use. The
regulations may have also provided limits as to the level of increases any customer or
class of customer may experience over any period of time. Provision was made for the
municipality to implement increases above these limits; however, ministerial approval
would be required first. Similar to the first report, the municipal auditor would provide a
written opinion on the report prior to Council's adoption, and this opinion must
accompany the report when submitted to the Province.
The Act provided the Minister the power to approve or not approve the plans. If the
Minister was not satisfied with the report or if a municipality did not submit a plan, the
Minister may have a plan prepared. The cost to the Crown for preparing the plan would
be recovered from the municipality. As well, the Minister may direct two or more
regulated municipalities to prepare a joint plan. This joint plan may be directed at the
onset or be directed by the Minister after receiving the individual plans from the
municipalities.
The Minister also had the power to order a municipality to generate revenue from a
specific revenue source or in a specified manner. The Minister may have also ordered
a regulated entity to do or refrain from doing such things as the Minister considered
advisable to ensure that the entity pays the full cost of providing the services to the
public.
Once the plans were approved and in place, the municipality would be required to
submit progress reports. The timing of these reports and the information to be
contained therein would be established by the regulations. A municipal auditor's
opinion must be provided with the progress report. Municipalities would also revise the
plans if they deem the estimate does not reflect the full cost of providing the services, as
a result of a change in circumstances, regulatory or other changes that affect their plan,
Watson & Associates Economists Ltd.
PAGE 1-5
etc. The municipality would then revise its prior plan, provide an auditor's opinion, and
submit the plan to the Minister.
1.5 Financial Plans Regulation
On August 16, 2007, the M.O.E. passed O.Reg 453/07 which requires the preparation
of financial plans for water (and wastewater) systems. The M.O.E. has also provided a
Financial Plan Guidance Document to assist in preparing the plans. A brief summary of
the key elements of the regulation is provided below:
- The financial plan will represent one of the key elements for the municipality to
obtain its Drinking Water Licence;
- The financial plans shall be for a period of at least six years, but longer planning
horizons are encouraged;
- As the regulation is under the Safe Drinking Water Act, 2002, the preparation of
the plan is mandatory for water and encouraged for wastewater;
- The plan is considered a living document (i.e. will be updated as annual budgets
are prepared) but will need to be undertaken, at a minimum, every five years;
- The plans generally require the forecasting of capital, operating and reserve fund
positions, providing detailed inventories, forecasting future users and volume
usage and corresponding calculation of rates. In addition, P.S.A.B. information
on the system must be provided for each year of the forecast (i.e. total non-
financial assets, tangible capital asset acquisitions, tangible capital asset
construction, betterments, write-downs, disposals, total liabilities and net debt);
- The financial plans must be made available to the public (at no charge) upon
request and be available on the municipality's website. The availability of this
information must also be advertised; and
- The financial plans are to be approved by Resolution of the Council or governing
body indicating that the drinking water system is financially viable.
In general, the financial principles of the draft regulations follow the intent of S.W.S.S.A.
to move municipalities towards financial sustainability. Many of the prescriptive
requirements, however, have been removed (e.g. preparation of two separate
documents for provincial approval, auditor opinions, engineer certifications, etc.).
Watson & Associates Economists Ltd.
PAGE 1-6
A Guideline ("Towards Financially Sustainable Drinking Shores - Water and
Wastewater Systems") had been developed to assist municipalities in understanding the
Province's direction and provided a detailed discussion on possible approaches to
sustainability. The Province's Principles of Financially Sustainable Water and
Wastewater Services are provided below:
Principle #1: Ongoing public engagement and transparency can build support for, and
confidence in, financial plans and the system(s) to which they relate.
Principle #2: An integrated approach to planning among water, wastewater, and
stormwater systems is desirable given the inherent relationship among
these services.
Principle #3: Revenues collected for the provision of water and wastewater services
should ultimately be used to meet the needs of those services.
Principle #4: Lifecycle planning with mid-course corrections is preferable to planning
over the short term, or not planning at all.
Principle #5: An asset management plan is a key input to the development of a financial
plan.
Principle #6: A sustainable level of revenue allows for reliable service that meets or
exceeds environmental protection standards, while providing sufficient
resources for future rehabilitation and replacement needs.
Principle #7: Ensuring users pay for the services they are provided leads to equitable
outcomes and can improve conservation. In general, metering and the
use of rates can help ensure users pay for services received.
Principle #8: Financial plans are "living" documents that require continuous
improvement. Comparing the accuracy of financial projections with actual
results can lead to improved planning in the future.
Principle #9: Financial plans benefit from the close collaboration of various groups,
including engineers, accountants, auditors, utility staff, and municipal
Council.
Watson & Associates Economists Ltd.
PAGE 1-7
1.6 Water Opportunities Act, 2010
As noted earlier, since the passage of the Safe Drinking Water Act, 2002, continuing
changes and refinements to the legislation have been introduced. Some of these Bills
have found their way into law, while others have not been approved. Bill 72, the Water
Opportunities Act, 2010, was introduced into legislation on May 18, 2010 and received
Royal Assent on November 29, 2010.
The Act provides for the following elements:
- The fostering of innovative water, wastewater and stormwater technologies,
services and practices in the private and public sectors;
- Preparation of water conservation plans to achieve water conservation targets
established by the regulations; and
- Preparation of sustainability plans for municipal water services, municipal
wastewater services and municipal stormwater services.
With regard to the sustainability plans:
- The Act extends from the water financial plans and requires a more detailed
review of the water financial plan and requires a full plan for wastewater and
stormwater services; and
- Regulations will provide performance targets for each service - these targets
may vary based on the jurisdiction of the regulated entity or the class of entity.
The financial plan shall include:
- An asset management plan for the physical infrastructure;
- A financial plan;
- For water, a water conservation plan;
- An assessment of risks that may interfere with the future delivery of the municipal
service, including, if required by the regulations, the risks posed by climate
change and a plan to deal with those risks; and
- Strategies for maintaining and improving the municipal service, including
strategies to ensure the municipal service can satisfy future demand, consider
technologies, services and practices that promote the efficient use of water and
Watson & Associates Economists Ltd.
PAGE 1-8
reduce negative impacts on Ontario's water resources, and increase co-
operation with other municipal service providers.
Performance indicators will be established by service, with the following considerations:
- May relate to the financing, operation or maintenance of a municipal service or to
any other matter in respect of what information may be required to be included in
a plan;
- May be different for different municipal service providers or for municipal services
in different areas of the Province.
Regulations will prescribe:
- Timing;
- Contents of the plans;
- Which identified portions of the plan will require certification;
- Public consultation process; and
- Limitations, updates, refinements, etc.
As noted earlier, it is expected that this Act will implement the principles of the
S.W.S.S.A. once all regulations are put in place.
1.7 Infrastructure for Jobs and Prosperity Act, 2015 (I.J.P.A.)
On June 4, 2015, the Province of Ontario passed the I.J.P.A. which, over time, will
require municipalities to undertake and implement asset management plans for all
infrastructure they own. On December 27, 2017, the Province released Ontario
Regulation 588/17 under the I.J.P.A. which has three phases that municipalities must
meet:
Watson & Associates Economists Ltd.
PAGE 1-9
Figure 1-1
Legislative Timelines set out by the Jobs and Prosperity Act
Legislation related to Asset Management Plans
Note: on March 15, 2021, the Province filed Regulation 193/21 to extend all of the
timelines of Regulation 588/17 by one year (reflected in the table above).
Every municipality in Ontario was required to prepare a strategic asset management
policy by July 1, 2019. Municipalities will be required to review their strategic asset
management policies at least every five years and make updates as necessary. The
subsequent phases are as follows:
- Phase 1 - Asset Management Plan (by July 1, 2022):
o For core assets, municipalities must have the following:
Inventory of assets;
Current levels of service measured by standard metrics; and
Costs to maintain levels of service.
- Phase 2 - Asset Management Plan (by July 1, 2024):
o Same steps as Phase 1 but for all assets.
- Phase 3 - Asset Management Plan (by July 1, 2025):
o Builds on Phase 1 and 2 by adding:
Proposed levels of service; and
Lifecycle management and financial strategy.
In relation to water (which is considered a core asset), municipalities were to have an
asset management plan that addresses the related infrastructure by July 1, 2022
(Phase 1). O.Reg. 588/17 specifies that the municipality's asset management plan
must include the following for each asset category:
1-Jan-18
1-Jul-19
1-Jul-20
1-Jul-21
1-Jul-22
1-Jul-23
1-Jul-24
1-Jul-25
Strategic Asset Management Policy
Asset Management Plans - Current Levels of Service
Asset Management Plans - Proposed Levels of Service
Deadline for completion
Update
- Current levels of service
- Asset (inventory) analysis
- Current performance of assets
- Lifecycle activities and costs to maintain current levels of service
- Impacts of growth on current levels of service
- Proposed levels of service
- Proposed performance of assets
- Lifecycle activities and costs to achieve proposed levels of service
- Financial strategy
- Impacts of growth on proposed levels of service
Core municipal
infrastructure assets
All municipal
infrastructure assets
Watson & Associates Economists Ltd.
PAGE 1-10
- The current levels of service being provided, determined in accordance with the
following qualitative descriptions and technical metrics and based on data from at
most the two calendar years prior to the year in which all information required
under this section is included in the asset management plan;
- The current performance of each asset category, including:
o a summary of the assets in the category;
o the replacement cost of the assets in the category;
o the average age of the assets in the category, determined by assessing
the average age of the components of the assets;
o the information available on the condition of the assets in the category;
o a description of the municipality's approach to assessing the condition of
the assets in the category, based on recognized and generally accepted
good engineering practices where appropriate; and
- The lifecycle activities that would need to be undertaken to maintain the current
levels of service.
1.8 Forecast Growth and Servicing Requirements
The Township of Perth South services 69 water customers, with 33 customers in Black
Creek and 36 customers in St. Pauls. Information on the existing number of customers
was obtained from the Township.
For future water customers to be added to the systems, consideration has been given to
development potential for both the Black Creek and St. Pauls areas. Based on
discussions with staff, there are no future developments anticipated in the Black Creek
area over the forecast period. With respect to St. Pauls, it is anticipated that five (5)
new water customers will be added to the system over the forecast period. Table 1-2
provides the forecast of water users in the St. Pauls water system.
Watson & Associates Economists Ltd.
PAGE 1-11
Table 1-2
Township of Perth South
2025 to 2035 Water System Forecast - St. Pauls
Water Users Forecast - St. Pauls
Year
Total Users
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2025
3
2
3
3
3
3
3
3
3
3
3
3
2026
2
1
2
2
2
2
2
2
2
2
2
2027
0
-
-
-
-
-
-
-
-
-
2028
0
-
-
-
-
-
-
-
-
2029
0
-
-
-
-
-
-
-
2030
0
-
-
-
-
-
-
2031
0
-
-
-
-
-
2032
0
-
-
-
-
2033
0
-
-
-
2034
0
-
-
2035
0
-
Total
5
2
4
5
5
5
5
5
5
5
5
5
Water Customer Forecast
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Existing
36
36
36
36
36
36
36
36
36
36
36
New - Growth
2
4
5
5
5
5
5
5
5
5
5
Total
38
40
41
41
41
41
41
41
41
41
41
Watson & Associates Economists Ltd.
Chapter 2
Capital Infrastructure Needs
Watson & Associates Economists Ltd.
PAGE 2-1
2. Capital Infrastructure Needs
2.1 Capital Forecast
Capital forecasts have been provided for each of the water systems and are presented
on Tables 2-1 through 2-2 (note: the costs are provided in inflated dollars). The basis
for these forecasts is the capital infrastructure replacement needs based on
recommendations from the Ontario Clean Water Agency (O.C.W.A.) and discussions
with Township staff. Additional provisions related to asset replacement needs have
been incorporated into the capital forecast to align with the recommendations provided
in the Township's Asset Management Plan. These recommendations provided for an
annual amount to be spent related to the replacement of existing assets.
A summary of the capital works related is provided in the following tables. Table 2-1
presents the capital forecast summary for the Black Creek water system, and Table 2-2
presents the capital forecast summary for the St. Pauls water system.
Watson & Associates Economists Ltd.
PAGE 2-2
Table 2-1
Township of Perth South
2026 to 2035 Water Capital Forecast Summary (Inflated $) - Black Creek
Description
Total
2026 to 2035
Years
Undertaken
Capital Expenditures
Chemicals
5,900
2026-2030
Chlorine Injectors and Parts
1,400
2026-2030
Water Service Repair Parts
4,260
2026-2030
Well House Repairs (Pipe, Valves, etc.)
3,950
2026-2030
UV Parts (Solenoid Valves, Circuit Boards, etc.)
4,300
2026-2030
Well Inspection
3,300
2027
Data Logger Maintenance
500
2028
Overtime/Call-Outs
12,000
2026-2030
Contingency
6,400
2026-2030
Lifecycle
UV Lamps
5,500
2026-2030
Chemical Pump Replacement Parts
6,260
2026-2030
Pressure Tank Replacement
2,860
2026, 2028, 2030
Analyzer Probe
6,600
2027, 2030
Chlorine Analyzer Parts (Electrolyte Membrane Cap)
2,740
2026-2030
Provision for Asset Management Needs
95,230
2026-2035
Total Capital Expenditures
161,200
Watson & Associates Economists Ltd.
PAGE 2-3
Table 2-2
Township of Perth South
2026 to 2035 Water Capital Forecast Summary (Inflated $) - St. Pauls
Description
Total
2026 to 2035
Years
Undertaken
Capital Expenditures
Chemicals
5,900
2026-2030
Chlorine Injectors and Parts
1,410
2026-2030
Water Service Repairs
4,330
2026-2030
Well House Repairs (pipe, valves, etc.)
4,250
2026-2030
UV Parts (Solenoid Valves, Circuit Boards, etc.)
4,300
2026-2030
Data Logger Maintenance/Upgrade
3,000
2027
Overtime/Call-Outs
12,200
2026-2030
Contingency
6,400
2026-2030
Lifecycle
UV Lamps
5,500
2026-2030
Chemical Pump Replacement Parts
6,290
2026-2030
Pressure Tank Replacement
1,930
2027, 2029
Analyzer Probe
6,400
2027, 2030
Chlorine Analyzer Parts (Electrolyte/Membrance Cap)
2,740
2026-2035
Flowmeter Replacement
3,100
2027
Provision for Asset Management Needs
149,250
2026-2035
Total Capital Expenditures
217,000
Watson & Associates Economists Ltd.
Chapter 3
Lifecycle Costing
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PAGE 3-1
3. Lifecycle Costing
3.1 Overview of Lifecycle Costing
3.1.1 Definition
For many years, lifecycle costing has been used in the field of maintenance engineering
and to evaluate the advantages of using alternative materials in construction or
production design. The method has gained wider acceptance and use in the areas of
industrial decision-making and the management of physical assets.
By definition, lifecycle costs are all the costs which are incurred during the lifecycle of a
physical asset, from the time its acquisition is first considered to the time it is taken out
of service for disposal or redeployment. The stages which the asset goes through in its
lifecycle are specification, design, manufacture (or build), install, commission, operate,
maintain and disposal. Figure 3-1 depicts these stages in a schematic form.
3.1.2 Financing Costs
This section will focus on financing mechanisms in place to fund the costs incurred
throughout the asset's life.
In a municipal context, services are provided to benefit tax/rate payers. Acquisition of
assets is normally timed in relation to direct needs within the community. At times,
economies of scale or technical efficiencies will lead to oversizing an asset to
accommodate future growth within the Township. Over the past few decades, new
financing techniques such as development charges have been employed based on the
underlying principle of having tax/rate payers who benefit directly from the service
paying for that service. Operating costs which reflect the cost of the service for that
year are charged directly to all existing tax/rate payers who have received the benefit.
Operating costs are normally charged through the tax base or user rates.
Capital expenditures are recouped through several methods, with operating budget
contributions, development charges, reserves, developer contributions and debentures,
being the most common.
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Figure 3-1
Lifecycle Costing
Select
or Specify
Purchase
Install
Commission
Operate
Maintain
Monitor
(Throughout Life
of Assets)
(To End of
Useful Life)
Remove
Dispose
User
Cost to User
Investment
Costs
Operating Costs
Maintenance Costs
Monitoring Costs
Disposal
Costs
Life Cycle
Costs
New construction related to growth could produce developer contributions to fund a
significant portion of projects, where new assets are being acquired to allow growth
within the Township to continue. As well, debentures could be used to fund such works,
with the debt charge carrying costs recouped from taxpayers in the future. Note,
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PAGE 3-3
development charges are typically utilized to recover capital costs associated with new
growth, however, the Township does not currently have development charges in place.
Capital construction to replace existing infrastructure, however, is largely not growth-
related and will therefore not yield developer contributions to assist in financing these
works. Hence, a municipality will be dependent upon debentures, reserves and
contributions from the operating budget to fund these works.
Figure 3-2 depicts the costs of an asset from its initial conception through to
replacement and then continues to follow the associated costs through to the next
replacement.
As referred to earlier, growth-related financing methods such as developer contributions
could be utilized to finance the growth-related component of the new asset. These
revenues are collected (indirectly) from the new homeowner who benefits directly from
the installation of this asset. Other financing methods may be used as well to finance
the non-growth-related component of this project, such as reserves which have been
collected from past tax/rate payers, operating budget contributions which are collected
from existing tax/rate payers and debenturing which will be carried by future tax/rate
payers. Ongoing costs for monitoring, operating and maintaining the asset will be
charged annually to the existing tax/rate payer.
When the asset requires replacement, the sources of financing will be limited to
reserves, debentures and contributions from the operating budget. At this point, the
question is raised: "If the cost of replacement is to be assessed against the tax/rate
payer who benefits from the replacement of the asset, should the past tax/rate payer
pay for this cost or should future rate payers assume this cost?" If the position is taken
that the past user has used up the asset, hence he should pay for the cost of
replacement, then a charge should be assessed annually through the life of the asset,
to have funds available to replace it when the time comes. If the position is taken that
the future tax/rate payer should assume this cost, then debenturing and, possibly, a
contribution from the operating budget should be used to fund this work.
Charging for the cost of using up an asset is the fundamental concept behind
depreciation methods utilized by the private sector. This concept allows for expending
the asset as it is used up in the production process. The tracking of these costs forms
part of the product's selling price and, hence, end-users are charged for the asset's
depreciation. The same concept can be applied in a municipal setting to charge
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PAGE 3-4
existing users for the asset's use and set those funds aside in a reserve to finance the
cost of replacing the asset in the future.
Figure 3-2
Financing Lifecycle Costs
Purchase
Install
Commission
Operate
Maintain
Monitor
(Throughout Life
of Assets)
(To End of
Useful Life)
Removal/Decommission
Disposal
New Assets
Replacement Assets
Development Charges (Growth)
Reserves/Reserve Funds
Debentures
Taxation
User Fees
Grants
Other
Proceeds on Disposal
Funding of Disposal/
Decommissioning Costs
Tax Supported Operating Budget
User Fees Operating Budget
Financing Methods
Purchase
Install
Commission
Operate
Maintain
Monitor
(Throughout Life
of Assets)
(To End of
Useful Life)
Removal/Decommission
Disposal
3.1.3 Costing Methods
There are two fundamental methods of calculating the cost of the usage of an asset and
for the provision of the revenue required when the time comes to retire and replace it.
The first method is the Depreciation Method. This method recognizes the reduction in
the value of the asset through wear and tear and aging. There are two commonly used
forms of depreciation: the straight-line method and the reducing balance method
(shown graphically in Figure 3-3).
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PAGE 3-5
The straight-line method is calculated by taking the original cost of the asset,
subtracting its estimated salvage value (estimated value of the asset at the time it is
disposed of) and dividing this by the estimated number of years of useful life. The
reducing balance method is calculated by utilizing a fixed percentage rate and this rate
is applied annually to the undepreciated balance of the asset value.
The second method of lifecycle costing is the sinking fund method. This method first
estimates the future value of the asset at the time of replacement. This is done by
inflating the original cost of the asset at an assumed annual inflation rate. A calculation
is then performed to determine annual contributions (equal or otherwise) which, when
invested, will grow with interest to equal the future replacement cost.
The preferred method used herein for forecasting purposes is the sinking fund method
of lifecycle costing.
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PAGE 3-6
Figure 3-3
Process
STRAIGHT LINE DEPRECIATION
Original Cost
$x
$x
$x
$x
$x
$x
$x
$x
$x
$x
Formula:
Original Cost - Salvage Cost
Number of Years of Useful Life
SINKING FUND METHOD
$x
$x
$x
$x
$x
$x
$x
$x
$x
$x
1. "Estimate Future Replacement Cost"
Original Cost
Future
Replacement
Cost
Future
Replacement
Cost
2. "Estimate Annual Contribution which will Grow with Interest to Equal Future Replacement Cost"
Total Annual Contributions Equal Original Cost
"Annual Inflation"
"Annual Interest Earnings"
3.2 Impact on Budgets
The Township's Asset Management Plan outlines the total replacement cost of the
Township's water asset inventory to be approximately $2.08 million (2025 dollars).
Based on useful life assumptions and replacement costs of the water assets, the
average annual level of investment recommended for both water systems in the Asset
Management Plan is approximately $34,500 per year.
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PAGE 3-7
To integrate the asset management needs into the rate calculations, and ensure the full
lifecycle costs are being incorporated into the capital plan, additional asset management
provisions have been included in the capital needs forecast for both water systems.
The $34,500 has been allocated to each water system based on the proportionate
share of existing assets. Approximately 43% of the existing water assets are part of the
Black Creek system, and 57% are part of the St. Pauls system. This share has been
applied to the $34,500 to determine an annual provision in the capital forecast (see
Section 2).
Watson & Associates Economists Ltd.
https://watsonecon.sharepoint.com/sites/PerthSouth-2025WaterRateStudyandFP/Shared Documents/Report/2025 Perth South Water Rate Study Report - Updated September
17.docx
Chapter 4
Capital Cost Financing
Options
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PAGE 4-1
4. Capital Cost Financing Options
4.1 Summary of Capital Cost Financing Alternatives
Historically, the powers that municipalities had to raise alternative revenues to taxation
to fund capital services have been restrictive. Over the past decade, legislative reforms
have been introduced. Some of these have expanded municipal powers (e.g. Bill 26
introduced in 1996 to provide for expanded powers for imposing fees and charges),
while others appear to restrict them (e.g. Bill 98 in 1997 and Bill 23 in 2022 providing
amendments to the Development Charges Act).
The Province passed a new Municipal Act which came into force on January 1, 2003.
Part XII of the Act and O.Reg. 584/06 govern a municipality's ability to impose fees and
charges. In contrast to the previous Municipal Act, this Act provides municipalities with
broadly defined powers and does not differentiate between fees for operating and
capital purposes. It is anticipated that the powers to recover capital costs under the
previous Municipal Act will continue within the new Statutes and Regulations, as
indicated by s.9(2) and s.452 of the new Municipal Act.
Under s.484 of Municipal Act, 2001, the Local Improvement Act was repealed with the
in-force date of the Municipal Act (January 1, 2003). The municipal powers granted
under the Local Improvement Act now fall under the jurisdiction of the Municipal Act. To
this end, on December 20, 2002, O.Reg. 390/02 was filed, which allowed for the Local
Improvement Act to be deemed to remain in force until April 1, 2003. O.Reg. 119/03
was enacted on April 19, 2003, which restored many of the previous Local Improvement
Act provisions; however, the authority is now provided under the Municipal Act.
The methods of capital cost recovery available to municipalities are provided as follows:
Recovery Methods
Section Reference
- Development Charges Act, 1997
4.2
- Municipal Act
o Fees and Charges
o Sewer and Water Area Charges
o Connection Fees
o Local Improvements
4.3
- Historical Grant Funding Availability
4.4
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PAGE 4-2
Recovery Methods
Section Reference
- Existing Reserves/Reserve Funds
4.5
- Debenture Financing
4.6
- Infrastructure Ontario
4.7
4.2 Development Charges Act, 1997
Development charges are a revenue tool used by municipalities to recover the capital
costs associated with new development and redevelopment. These costs are in
addition to what a developer/builder normally constructs as part of their subdivision (i.e.
Local Services). Empowered by the Development Charges Act, 1997, municipalities
may pass by-laws to impose charges to recover the capital costs associated with
development and redevelopment, however, the Township does not currently impose
development charges.
4.3 Municipal Act
Part XII of the Municipal Act provides municipalities with broad powers to impose fees
and charges via passage of a by-law. These powers, as presented in s.391(1), include
imposing fees or charges:
- "for services or activities provided or done by or on behalf of it;
- for costs payable by it for services or activities provided or done by or on behalf
of any other municipality or local board; and
- for the use of its property including property under its control."
Restrictions are provided to ensure that the form of the charge is not akin to a poll tax.
Any charges not paid under this authority may be added to the tax roll and collected in a
like manner. The fees and charges imposed under this part are not appealable to the
Ontario Land Tribunal (OLT) (formerly Local Planning Appeal Tribunal (LPAT), formerly
O.M.B.).
Section 221 of the previous Municipal Act permitted municipalities to impose charges,
by by-law, on owners or occupants of land who would or might derive benefit from the
construction of sewage (storm and sanitary) or water works being authorized (in a
specific benefit area). For a by-law imposed under this section of the previous Act:
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PAGE 4-3
- A variety of different means could be used to establish the rate and recovery of
the costs and could be imposed by a number of methods at the discretion of
Council (i.e. lot size, frontage, number of benefiting properties, etc.);
- Rates could be imposed with respect to costs of major capital works, even
though an immediate benefit was not enjoyed;
- Non-abutting owners could be charged;
- Recovery was authorized against existing works, where a new water or sewer
main was added to such works, "notwithstanding that the capital costs of existing
works has in whole or in part been paid;"
- Charges on individual parcels could be deferred;
- Exemptions could be established;
- Repayment was secured; and
- OLT approval was not required.
While under the new Municipal Act no provisions are provided specific to the previous
s.221, the intent to allow capital cost recovery through fees and charges is embraced
within s.391. The new Municipal Act also maintains the ability of municipalities to
impose capital charges for water and sewer services on landowners not receiving an
immediate benefit from the works. Under s.391(2) of the Act, "a fee or charge imposed
under subsection (1) for capital costs related to sewage or water services or activities
may be imposed on persons not receiving an immediate benefit from the services or
activities but who will receive a benefit at some later point in time." Also, capital
charges imposed under s.391 are not appealable to the OLT on the grounds that the
charges are "unfair or unjust."
Section 222 of the previous Municipal Act permitted municipalities to pass a by-law
requiring buildings to connect to the municipality's sewer and water systems, charging
the owner for the cost of constructing services from the mains to the property line.
Under the new Municipal Act, this power still exists under Part II, General Municipal
Powers (s.9 (3) b of the Municipal Act). Enforcement and penalties for this use of power
are contained in s.427 (1) of the Municipal Act.
Under the previous Local Improvement Act:
- A variety of different types of works could be undertaken, such as watermain,
storm and sanitary sewer projects, supply of electrical light or power, bridge
construction, sidewalks, road widening and paving;
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PAGE 4-4
- Council could pass a by-law for undertaking such work on petition of a majority of
benefiting taxpayers, on a 2/3 vote of Council and on sanitary grounds, based on
the recommendation of the Minister of Health. The by-law was required to go to
the OLT, which might hold hearings and alter the by-law, particularly if there were
objections;
- The entire cost of a work was assessed only upon the lots abutting directly on the
work, according to the extent of their respective frontages, using an equal special
rate per metre of frontage; and
- As noted, this Act was repealed as of April 1, 2003; however, O.Reg. 119/03 was
enacted on April 19, 2003 which restores many of the previous Local
Improvement Act provisions; however, the authority is now provided under the
Municipal Act.
4.4 Historical and Current Grant Funding Availability
Phase 1 (April 1, 2016 to March 31, 2018)
Funding was provided by the Government of Canada to expressly help municipalities
with repair and rehabilitation projects. Funding was mainly provided through the Clean
Water and Wastewater Fund (C.W.W.F.) and Public Transit Infrastructure Fund
(P.T.I.F.) in Federal Phase 1 projects. The C.W.W.F. was announced in Ontario on
September 15, 2016. The Fund was $1.1 billion for water, wastewater, and storm water
systems in Ontario. The federal government provided $569 million and Ontario and
municipal governments provided $275 million each.
Over 1,300 water, wastewater, and storm water projects have been approved in Ontario
through the C.W.W.F. In Ontario, P.T.I.F. accounted for nearly $1.5 billion of the
national total of $3.4 billion. The program was allocated by ridership numbers from the
Canadian Urban Transit Association. The Association of Municipalities of Ontario
(A.M.O.) understands that $1 billion of Ontario's share has been approved.
Phase 2: Next Steps
The federal government announced Phase 2 of its infrastructure funding plan with a
total of $180 billion spent over 11 years. In addition to the balance of funding for
previous green, social, and public transit infrastructure funds ($20 billion each, including
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PAGE 4-5
Phase 1), the government added $10.1 billion for trade and transportation infrastructure
and $2 billion for rural and northern communities.
In Phase 2, Ontario was eligible for $11.8 billion including $8.3 billion for transit, $2.8
billion for green infrastructure, $407 million for community, culture and recreation and
$250 million for rural and northern communities.
Canada Community-Building Fund
The Canada Community-Building Fund is a permanent source of funding provided up
front, twice-a-year, to Provinces and Territories, who in turn flow this funding to their
municipalities to support local infrastructure priorities. Municipalities can pool, bank and
borrow against this funding, providing significant financial flexibility. Every year, the
Canada Community-Building Fund provides over $2 billion and supports approximately
2,500 projects in communities across Canada. Each municipality selects how best to
direct the funds with the flexibility provided to make strategic investments across 18
different project categories, which include other water and wastewater servicing.
Ontario Government
The Province has taken steps to increase municipal infrastructure funding. The Ontario
Community Infrastructure Fund (O.C.I.F.) was increased in 2016 with formula-based
support growing to $200 million, and application funding growing to $100 million
annually by 2018/2019. As well, $15 million annually will go to the new Connecting
Links program to help pay for the construction and repair costs of municipal roads that
connect communities to provincial highways. This is on top of the Building Ontario Up
investment of $130 billion in public infrastructure over 10 years starting in 2015.
Recently the Province announced funding through a new Ontario Infrastructure Bank.
This new, arms-length, board-governed agency will assist investors and institutions to
further participate in large-scale infrastructure projects. Ontario is providing $825 million
over three years towards the Housing-Enabling Water Systems Fund, which will help
municipalities repair, rehabilitate and expand drinking water, wastewater and
stormwater infrastructure needed to build more homes.
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PAGE 4-6
4.5 Existing Reserves/Reserve Funds
The Township has established reserves and reserve funds for water costs within each
water system. The following table summarizes the water reserves utilized in this
analysis and their respective estimated balances at December 31, 2024:
Table 4-1
Water Reserves
As of December 31, 2024
4.6 Debenture Financing
Although it is not a direct method of minimizing the overall cost to the ratepayer,
debentures are used by municipalities to assist in cash flowing large capital
expenditures.
The Ministry of Municipal Affairs regulates the level of debt incurred by Ontario
municipalities, through its powers established under the Municipal Act. Ontario
Regulation 403/02 provides the current rules respecting municipal debt and financial
obligations. Through the rules established under these regulations, a municipality's
debt capacity is capped at a level where no more than 25% of the municipality's own
purpose revenue may be allotted for servicing the debt (i.e. debt charges). The
Township of Perth South's calculation on Debt Capacity is shown on Schedule 81 of the
Township's most recent Financial Information Return (F.I.R.). This calculates to the
Township's estimated annual repayment limit of approximately $1.41 million. Based on
20-year financing at an assumed rate of 4.5%, the available debt for the Township is
approximately $18.33 million.
4.7 Infrastructure Ontario
Infrastructure Ontario (I.O.) is an arms-length crown corporation, which supports the
Ontario government's goals of modernizing and maximizing the value of public
Reserve
Dec. 31 2024
Water
Black Creek Water Reserve
170,716
St. Pauls Water Reserve
234,387
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PAGE 4-7
infrastructure. Its lending program was established as a tool to offer low-cost and
longer-term financing to assist municipalities in modernizing and renewing their
infrastructure. I.O. combines the infrastructure renewal needs of municipalities into an
infrastructure investment "pool." I.O. will raise investment capital to finance loans to the
public sector by selling Infrastructure Renewal Bonds to individual and institutional
investors.
I.O. provides access to infrastructure capital that would not otherwise be available to
smaller borrowers. Larger borrowers receive longer loan terms than they could get in
the financial markets. They can also save on costs such as legal fees and underwriting
commissions. Under the I.O. approach, all borrowers receive the same low interest
rate. I.O. will enter into a financial agreement with each municipality, subject to
technical and credit reviews, for a loan up to the maximum amount of the loan request.
To be eligible to receive these loans, municipalities must submit a formal application
along with pertinent financial information. Allotments are prioritized and distributed
based upon the Province's assessment of need.
4.7.1 Housing-Enabling Water Infrastructure Lending Stream
On November 28, 2024, the Province and I.O. announced the Housing-Enabling Water
Infrastructure (H.E.W.I.) lending stream. This lending stream will provide up to $1.0
billion in loans to municipalities for projects to construct, expand, and rehabilitate
drinking water, wastewater, and stormwater infrastructure to enable new housing
development. Eligible projects under this stream include:
- Potable Water Assets: Treatment plants, reservoirs, local pipes, distribution
system watermains, municipal service lines, and pump stations.
- Wastewater Assets: Lagoon systems, pump stations, lift stations, linear assets,
treatment plants, storage tanks, and collection systems.
- Stormwater Assets: Management facilities and linear assets such as conveyance
piping, ditches, and culverts.
Key features of this lending stream include lower interest rates, the option to defer
interest payments during the construction phase of a project, and extended amortization
periods (up to 40 years). Additionally, municipalities have the flexibility to issue multiple
debentures in sequence over the 40-year period (i.e., split terms during debentures) and
to pay down the principal between sequential debentures. This program started
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PAGE 4-8
accepting applications on December 2, 2024, and is being administered on a "first-
come-first-served" basis until the maximum program amount is reached.
4.8 Recommended Capital Financing Approach
Of the various funding alternatives provided in this section, the following are
recommended for further consideration by the Township of Perth South for the capital
expenditures (inflated) provided in Chapter 2:
Table 4-2
Township of Perth South
2026-2035 Capital Forecast Financing Sources
Inflated $
Tables 4-3 and 4-4 provide for the full capital expenditure and funding programs by year
for the water systems in Black Creek and St. Pauls, respectively.
Description
Water -
Black Creek
Water -
St. Pauls
Capital Financing
Provincial/Federal Grants
-
-
Non-Growth Related Debenture Requirements
-
-
Operating Contributions
-
-
Black Creek Water Reserve
161,200
-
St. Pauls Water Reserve
-
217,000
Total Capital Financing
161,200
217,000
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PAGE 4-9
Table 4-3
Township of Perth South
Capital Budget Forecast - Water (inflated $)
Black Creek Water System
Budget
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Capital Expenditures
Chemicals
1,000
5,900
1,100
1,100
1,200
1,200
1,300
-
-
-
-
-
Chlorine Injectors and Parts
220
1,400
240
260
280
300
320
-
-
-
-
-
Water Service Repair Parts
775
4,260
800
830
850
880
900
-
-
-
-
-
Well House Repairs (Pipe, Valves, etc.)
700
3,950
750
750
800
800
850
-
-
-
-
-
UV Parts (Solenoid Valves, Circuit Boards, etc.)
700
4,300
800
850
850
900
900
-
-
-
-
-
Well Inspection
-
3,300
-
3,300
-
-
-
-
-
-
-
-
Data Logger Maintenance
3,000
500
-
-
500
-
-
-
-
-
-
-
Overtime/Call-Outs
2,400
12,000
2,400
2,400
2,400
2,400
2,400
-
-
-
-
-
Contingency
1,100
6,400
1,200
1,200
1,300
1,300
1,400
-
-
-
-
-
Lifecycle:
UV Lamps
950
5,500
1,000
1,050
1,100
1,150
1,200
-
-
-
-
-
Chemical Pump Replacement Parts
1,175
6,260
1,200
1,230
1,250
1,280
1,300
-
-
-
-
-
Pressure Tank Replacement
-
2,860
930
-
950
-
980
-
-
-
-
-
Analyzer Probe
-
6,600
-
3,300
-
-
3,300
-
-
-
-
-
Chlorine Analyzer Parts (Electrolyte Membrane Cap)
500
2,740
530
530
550
550
580
-
-
-
-
-
Provision for Asset Management Needs
-
95,230
1,640
1,670
1,710
1,740
1,780
16,660
16,990
17,330
17,680
18,030
Total Capital Expenditures
12,520
161,200
12,590
18,470
13,740
12,500
17,210
16,660
16,990
17,330
17,680
18,030
Capital Financing
Provincial/Federal Grants
-
Non-Growth Related Debenture Requirements
-
-
-
-
-
-
-
-
-
-
-
-
Operating Contributions
-
-
-
-
-
-
-
-
-
-
-
-
Black Creek Water Reserve
12,520
161,200
12,590
18,470
13,740
12,500
17,210
16,660
16,990
17,330
17,680
18,030
Total Capital Financing
12,520
161,200
12,590
18,470
13,740
12,500
17,210
16,660
16,990
17,330
17,680
18,030
Total
Description
Forecast
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Table 4-3
Township of Perth South
Capital Budget Forecast - Water (inflated $) (Cont'd)
St. Pauls Water System
Budget
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Capital Expenditures
New Drinking Water Well
160,000
-
-
-
-
-
-
-
-
-
-
-
Chemicals
1,000
5,900
1,100
1,100
1,200
1,200
1,300
-
-
-
-
-
Chlorine Injectors and Parts
220
1,410
240
260
280
300
330
-
-
-
-
-
Water Service Repairs
775
4,330
800
830
850
900
950
-
-
-
-
-
Well House Repairs (pipe, valves, etc.)
700
4,250
750
800
850
900
950
-
-
-
-
-
UV Parts (Solenoid Valves, Circuit Boards, etc.)
750
4,300
800
850
850
900
900
-
-
-
-
-
Data Logger Maintenance/Upgrade
-
3,000
-
3,000
-
-
-
-
-
-
-
-
Overtime/Call-Outs
2,400
12,200
2,400
2,400
2,400
2,400
2,600
-
-
-
-
-
Contingency
1,100
6,400
1,200
1,200
1,300
1,300
1,400
-
-
-
-
-
Lifecycle:
UV Lamps
950
5,500
1,000
1,050
1,100
1,150
1,200
-
-
-
-
-
Chemical Pump Replacement Parts
1,175
6,290
1,200
1,230
1,250
1,280
1,330
-
-
-
-
-
Pressure Tank Replacement
925
1,930
-
950
-
980
-
-
-
-
-
-
Analyzer Probe
-
6,400
-
3,200
-
-
3,200
-
-
-
-
-
Chlorine Analyzer Parts (Electrolyte/Membrance
Cap)
500
2,740
530
530
550
550
580
-
-
-
-
-
Flowmeter Replacement
-
3,100
-
3,100
-
-
-
-
-
-
-
-
Provision for Asset Management Needs
-
149,250
6,380
6,510
6,640
6,770
6,910
22,300
22,740
23,200
23,660
24,140
Total Capital Expenditures
170,495
217,000
16,400
27,010
17,270
18,630
21,650
22,300
22,740
23,200
23,660
24,140
Capital Financing
Provincial/Federal Grants
-
Non-Growth Related Debenture Requirements
-
-
-
-
-
-
-
-
-
-
-
-
Operating Contributions
-
-
-
-
-
-
-
-
-
-
-
-
St. Pauls Water Reserve
170,495
217,000
16,400
27,010
17,270
18,630
21,650
22,300
22,740
23,200
23,660
24,140
Total Capital Financing
170,495
217,000
16,400
27,010
17,270
18,630
21,650
22,300
22,740
23,200
23,660
24,140
Description
Total
Forecast
Watson & Associates Economists Ltd.
Chapter 5
Overview of Expenditures and
Revenues
Watson & Associates Economists Ltd.
PAGE 5-1
5. Overview of Expenditures and Revenues
5.1 Water Operating Expenditures
In this report, the forecast water budget figures (2026 to 2035) are based on the 2025
operating budgets. The operating expenditures have been provided by staff and have
been adjusted over the forecast period by an annual inflationary factor of 2.0%.
Expenditures related to utilities, fuels, chemicals and other materials are assumed to
increase by 5% per annum.
Annual contributions have been provided to the capital reserves over the forecast period
in order to minimize the need for debt to finance the capital program.
5.2 Water Operating Revenues
The Township has miscellaneous revenue sources to help contribute towards operating
expenditures. These miscellaneous revenues include penalties and interest payments,
which have been assumed to increase at a rate of 2% annually. In addition, new user
connection charges have been factored into the St. Pauls operating forecast, based on
the anticipated five (5) new connections (see Section 1.8). This connection charge is
currently $2,000 per new connection, however, further review of this charge has been
undertaken as part of this rate study (see Section 7.2).
Table 5-1 and 5-2 provides for the operating budget for the Black Creek water system
and St. Pauls water system, respectively.
Watson & Associates Economists Ltd.
PAGE 5-2
Table 5-1
Township of Perth South
Water Operating Budget Forecast - Black Creek (inflated $)
Budget
Description
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Expenditures
Operating Costs
Direct Salaries & Wages
6,656
6,656
6,656
6,656
6,656
6,790
6,930
7,070
7,210
7,350
7,500
Employee - CPP
130
130
130
130
130
133
136
139
142
145
148
Employee - EI
153
153
153
153
153
156
159
162
165
168
171
Employee - EHT
130
130
130
130
130
133
136
139
142
145
148
Employee WSIB
228
228
228
228
228
233
238
243
248
253
258
Employee Benefits
387
387
387
387
387
395
403
411
419
427
436
Employee - OMERS
599
599
599
599
599
611
623
635
648
661
674
Materials & Supplies
81
83
85
87
89
91
93
95
97
99
101
Hydro
3,478
3,572
3,668
3,767
3,869
4,060
4,260
4,470
4,690
4,920
5,170
Heat
443
455
467
480
493
518
544
571
600
630
662
Postage and Courier
121
124
127
131
135
138
141
144
147
150
153
Telephone
560
577
595
613
632
645
658
671
684
698
712
Insurance
120
123
126
129
132
135
138
141
144
147
150
Building Repairs and Maintenance
500
514
528
543
558
569
580
592
604
616
628
Equipment Repairs and Maintenance
2,000
2,055
2,112
2,170
2,230
2,270
2,320
2,370
2,420
2,470
2,520
OCWA 1 - Fixed Price
24,570
25,239
25,926
26,631
27,355
27,900
28,460
29,030
29,610
30,200
30,800
OCWA 2 - Contract Extras
5,420
5,570
5,724
5,882
6,045
6,170
6,290
6,420
6,550
6,680
6,810
OCWA 3 - Third Party
4,034
4,135
4,238
4,344
4,453
4,540
4,630
4,720
4,810
4,910
5,010
Contracted Services
5,500
514
528
542
557
568
579
591
603
615
627
Security System Monitoring
328
337
346
355
365
372
379
387
395
403
411
Property Taxes
797
820
843
867
891
909
927
946
965
984
1,004
Sub Total Operating
56,235
52,401
53,596
54,824
56,087
57,336
58,624
59,947
61,293
62,671
64,093
Capital-Related
Existing Debt (Principal) - Non-Growth Related
-
-
-
-
-
-
-
-
-
-
Existing Debt (Interest) - Non-Growth Related
-
-
-
-
-
-
-
-
-
-
New Non-Growth Related Debt (Principal)
-
-
-
-
-
-
-
-
-
-
New Non-Growth Related Debt (Interest)
-
-
-
-
-
-
-
-
-
-
Transfer to Capital
-
-
-
-
-
-
-
-
-
-
-
Transfer to Capital Reserve
-
6,481
8,226
10,085
12,062
14,215
15,071
15,957
16,886
17,851
18,842
Sub Total Capital Related
-
6,481
8,226
10,085
12,062
14,215
15,071
15,957
16,886
17,851
18,842
Total Expenditures
56,235
58,882
61,822
64,909
68,149
71,551
73,695
75,904
78,179
80,522
82,935
Revenues
Penalty & Interest
180
185
190
195
200
204
208
212
216
220
224
Contributions from Reserves / Reserve Funds
144
-
-
-
-
-
-
-
-
-
-
Total Operating Revenue
324
185
190
195
200
204
208
212
216
220
224
Water Billing Recovery - Total
55,911
58,697
61,632
64,714
67,949
71,347
73,487
75,692
77,963
80,302
82,711
Forecast
Watson & Associates Economists Ltd.
PAGE 5-3
Table 5-2
Township of Perth South
Water Operating Budget Forecast - St. Pauls (inflated $)
Budget
Description
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Expenditures
Operating Costs
Direct Salaries & Wages
6,656
6,656
6,656
6,656
6,656
6,790
6,930
7,070
7,210
7,350
7,500
Employee - CPP
130
130
130
130
130
133
136
139
142
145
148
Employee - EI
153
153
153
153
153
156
159
162
165
168
171
Employee - EHT
130
130
130
130
130
133
136
139
142
145
148
Employee - WSIB
228
228
228
228
228
233
238
243
248
253
258
Employee Benefits
387
387
387
387
387
395
403
411
419
427
436
Employee - OMERS
599
599
599
599
599
611
623
635
648
661
674
Materials & Supplies
252
259
266
273
281
287
293
299
305
311
317
Hydro
3,389
3,481
3,575
3,672
3,771
3,960
4,160
4,370
4,590
4,820
5,060
Heat
781
802
824
846
869
912
958
1,006
1,056
1,109
1,164
Postage and Courier
121
124
127
131
135
138
141
144
147
150
153
Telephone
550
565
581
597
614
626
639
652
665
678
692
Insurance
119
122
125
128
131
134
137
140
143
146
149
Equipment Repairs and Maintenance
1,713
1,760
1,809
1,859
1,910
1,950
1,990
2,030
2,070
2,110
2,150
OCWA 1 - Fixed Price
24,571
25,240
25,927
26,632
27,356
27,900
28,460
29,030
29,610
30,200
30,800
OCWA 2 - Contract Extras
3,558
3,657
3,758
3,862
3,969
4,050
4,130
4,210
4,290
4,380
4,470
OCWA 3 - Third Party
4,108
4,219
4,333
4,450
4,570
4,660
4,750
4,850
4,950
5,050
5,150
Contracted Services
6,040
1,069
1,099
1,129
1,160
1,180
1,200
1,220
1,240
1,260
1,290
Security System Monitoring
175
180
185
190
195
199
203
207
211
215
219
Sub Total Operating
53,660
49,761
50,892
52,052
53,244
54,447
55,686
56,957
58,251
59,578
60,949
Capital-Related
Existing Debt (Principal) - Non-Growth Related
-
-
-
-
-
-
-
-
-
-
-
Existing Debt (Interest) - Non-Growth Related
-
-
-
-
-
-
-
-
-
-
-
New Non-Growth Related Debt (Principal)
-
-
-
-
-
-
-
-
-
-
-
New Non-Growth Related Debt (Interest)
-
-
-
-
-
-
-
-
-
-
-
Transfer to Capital
-
-
-
-
-
-
-
-
-
-
-
Transfer to Water Reserve
13,605
20,635
19,191
20,132
21,104
22,126
23,178
24,267
25,404
26,581
27,788
Sub Total Capital Related
13,605
20,635
19,191
20,132
21,104
22,126
23,178
24,267
25,404
26,581
27,788
Total Expenditures
67,265
70,396
70,083
72,184
74,348
76,573
78,864
81,224
83,655
86,159
88,737
Revenues
Penalty & Interest
503
517
531
546
561
572
583
595
607
619
631
New User Connection Fee
6,000
4,000
-
-
-
-
-
-
-
-
-
Contributions from Reserves / Reserve Funds
-
-
-
-
-
-
-
-
-
-
-
Total Operating Revenue
6,503
4,517
531
546
561
572
583
595
607
619
631
Water Billing Recovery - Total
60,762
65,879
69,552
71,638
73,787
76,001
78,281
80,629
83,048
85,540
88,106
Forecast
Watson & Associates Economists Ltd.
Chapter 6
Pricing Structures
Watson & Associates Economists Ltd.
PAGE 6-1
6. Pricing Structures
6.1 Introduction
Rates, in their simplest form, can be defined as total costs to maintain the utility function
divided by either the total expected volume to be generated for the period for metered
systems, or the total number of customers for unmetered systems. Total costs are
usually a combination of operating costs (e.g. staff costs, distribution costs,
maintenance, administration, etc.) and capital-related costs (e.g. past debt to finance
capital projects, transfers to reserves to finance future expenditures, etc.). The
schematic below provides a simplified illustration of the rate calculation for water.
"Annual Costs"
These operating and capital expenditures will vary over time. Examples of factors that
will affect the expenditures over time are provided below.
Operations
- Inflation;
- Increased maintenance as system ages; and
- Changes to provincial legislation.
Operations
- Staff and operating authority (OCWA) costs
- Distribution Costs
- Maintenance
- Meter reading and billing, etc.
Capital Related
- Past debt
- Contributions to reserves
- Contribution to capital
Total Costs
Customers
Rate
Watson & Associates Economists Ltd.
PAGE 6-2
Capital Related
- New capital will be built as areas expand;
- Replacement capital needed as system ages; and
- Financing of capital costs are a function of policy regarding reserves and direct
financing from rates (pay as you go), debt and user pay methods (Municipal Act).
6.2 Alternative Pricing Structures
Throughout Ontario, and as well, Canada, the use of pricing mechanisms varies
between municipalities. The use of a particular form of pricing depends upon numerous
factors, including Council preference, administrative structure, surplus/deficit system
capacities, economic/demographic conditions, to name a few.
Municipalities within Ontario have two basic forms of collecting revenues for water
purposes, those being through incorporation of the costs within the tax rate charged on
property assessment and/or through the establishment of a specific water rate billed to
the customer. Within the rate methods, there are five basic rate structures employed
along with other variations:
- Flat Rate (non-metered customers);
- Constant Rate;
- Declining Block Rate;
- Increasing (or Inverted) Block Rate;
- Hump Back Block Rate; and
- Base Charges.
The definitions and general application of the various methods are as follows:
Property Assessment: This method incorporates the total costs of providing water into
the general requisition or the assessment base of the municipality. This form of
collection is a "wealth tax," as payment increases directly with the value of property
owned and bears no necessary relationship to actual consumption. This form is easy to
administer as the costs to be recovered are incorporated in the calculation for all
general services, normally collected through property taxes.
Flat Rate: This rate is a constant charge applicable to all customers served. The
charge is calculated by dividing the total number of user households and other entities
Watson & Associates Economists Ltd.
PAGE 6-3
(e.g. businesses) into the costs to be recovered. This method does not recognize
differences in actual consumption but provides for a uniform spreading of costs across
all users. Some municipalities define users into different classes of similar consumption
patterns, that is, a commercial user, residential user and industrial user, and charge a
flat rate by class. Each user is then billed on a periodic basis. No meters are required
to facilitate this method, but an accurate estimate of the number of users is required.
This method ensures set revenue for the collection period but is not sensitive to
consumption, hence may cause a shortfall or surplus of revenues collected.
Constant Rate: This rate is a volume-based rate, in which the consumer pays the
same price per unit consumed, regardless of the volume. The price per unit is
calculated by dividing the total cost of the service by the total volume used by total
consumers. The bill to the consumer climbs uniformly as the consumption increases.
This form of rate requires the use of meters to record the volume consumed by each
user. This method closely aligns the revenue recovery with consumption. Revenue
collected varies directly with the consumption volume.
Declining Block Rates: This rate structure charges a successively lower price for set
volumes, as consumption increases through a series of "blocks." That is to say that
within set volume ranges, or blocks, the charge per unit is set at one rate. Within the
next volume range, the charge per unit decreases to a lower rate, and so on. Typically,
the first, or first and second blocks cover residential and light commercial uses.
Subsequent blocks normally are used for heavier commercial and industrial uses. This
rate structure requires the use of meters to record the volume consumed by each type
of user. This method requires the collection and analysis of consumption patterns by
user classification to establish rates at a level which does not over or under collect
revenue from rate payers.
Increasing or Inverted Block Rates: The increasing block rate works essentially the
same way as the declining block rate, except that the price of water in successive
blocks increases rather than declines. Under this method the consumer's bill rises
faster with higher volumes used. This rate structure also requires the use of meters to
record the volume consumed by each user. This method requires, as with the declining
block structure, the collection and analysis of consumption patterns by user
classification to establish rates at a level which does not over or under collect from rate
payers.
Watson & Associates Economists Ltd.
PAGE 6-4
The Hump Back Rate: The hump back rate is a combination of an increasing block
rate and the declining block rate. Under this method the consumer's bill rises with
higher volumes used up to a certain level and then begins to fall for volumes in excess
of levels set for the increasing block rate.
6.3 Assessment of Alternative Pricing Structures
The adoption by a municipality or utility of any one particular pricing structure is
normally a function of a variety of administrative, social, demographic and financial
factors. The number of factors, and the weighting each particular factor receives, can
vary between municipalities. The following is a review of some of the more prevalent
factors.
Figure 6-1
Factors in Assessing Rate Structures and Funding Approaches
Cost Recovery
Cost recovery is a prime factor in establishing a particular pricing structure. Costs can
be loosely defined into different categories: operations, maintenance, capital, financing
and administration. These costs often vary between municipalities and even within a
municipality, based on consumption patterns, infrastructure age, economic growth, etc.
The pricing alternatives defined earlier can all achieve the cost recovery goal, but some
do so more precisely than others. Fixed pricing structures, such as Property
Administrative
Burden
Financial
Sustainability
Conservation
Equity
Cost Recovery
Funding
Approach
Policy
Analysis
Watson & Associates Economists Ltd.
PAGE 6-5
Assessment and Flat Rate, are established on the value of property or on the number of
units present in the municipality, but do not adjust in accordance with consumption.
Thus, if actual consumption for the year is greater than projected, the municipality incurs
a higher cost of production, but the revenue base remains static (since it was
determined at the beginning of the year), thus potentially providing a funding shortfall.
Conversely, if the consumption level declines below projections, fixed pricing structures
will produce more revenue than actual costs incurred.
The other pricing methods (declining block, constant rate, increasing block) are
consumption-based and generally will generate revenues in proportion to actual
consumption.
Administration
Administration is defined herein as the staffing, equipment and supplies required to
support the undertaking of a particular pricing strategy. This factor not only addresses
the physical tangible requirements to support the collection of the revenues, but also the
intangible requirements, such as policy development.
The easiest pricing structure to support is the Property Assessment structure. As
municipalities undertake the process of calculating property tax bills and the collection
process for their general services, the incorporation of the water costs into this
calculation would have virtually no impact on the administrative process and structure.
The Flat Rate pricing structure is relatively easy to administer as well. It is normally
calculated to collect a set amount, either on a monthly, quarterly, semi-annual or annual
basis, and is billed directly to the customer. The impact on administration centres
mostly on the accounts receivable or billing area of the municipality, but normally
requires minor additional staff or operating costs to undertake.
The three remaining methods, those being Increasing Block Rate, Constant Rate and
Declining Block Rate, have a more dramatic effect on administration. These methods
are dependent upon actual consumption and hence involve a major structure in place to
administer. First, meters must be installed in all existing units in the municipality, and
units to be subsequently built must be required to include these meters. Second, meter
readings must be undertaken periodically. Hence staff must be available for this
purpose or a service contract must be negotiated. Third, the billings process must be
expanded to accommodate this process. Billing must be done per a defined period,
Watson & Associates Economists Ltd.
PAGE 6-6
requiring staff to produce the bills. Lastly, either through increased staffing or by service
contract, an annual maintenance program must be set up to ensure meters are working
effectively in recording consumed volumes.
The benefit derived from the installation of meters is that information on consumption
patterns becomes available. This information provides benefit to administration in
calculating rates which will ensure revenue recovery. Additionally, when planning what
services are to be constructed in future years, the municipality or utility has documented
consumption patterns distinctive to its own situation, which can be used to project sizing
of growth-related works.
Equity
Equity is always a consideration in the establishment of pricing structures but its
definition can vary depending on a municipality's circumstances and based on the
subjective interpretation of those involved. For example: is the price charged to a
particular class of rate payer consistent with those of a similar class in surrounding
municipalities; through the pricing structure does one class of rate payer pay more than
another class; should one pay based on ability to pay, or on the basis that a unit of
water costs the same to supply no matter who consumes it; etc.? There are many
interpretations. Equity therefore must be viewed broadly in light of many factors as part
of achieving what is best for the municipality as a whole.
Conservation
In today's society, conservation of natural resources is increasingly being more highly
valued. Controversy continuously focuses on the preservation of non-renewable
resources and on the proper management of renewable resources. Conservation is
also a concept which applies to a municipality facing physical limitations in the amount
of water which can be supplied to an area. As well, financial constraints can encourage
conservation in a municipality where the cost of providing each additional unit is
increasing.
Pricing structures such as property assessment and flat rate do not, in themselves,
encourage conservation. In fact, depending on the price which is charged, they may
even encourage resource "squandering," either because consumers, without the price
discipline, consume water at will, or the customer wants to get his money's worth and
hence adopts more liberal consumption patterns. The fundamental reason for this is
Watson & Associates Economists Ltd.
PAGE 6-7
that the price paid for the service bears no direct relationship to the volume consumed
and hence is viewed as a "tax," instead of being viewed as the price of a purchased
commodity.
The Declining Block Rate provides a decreasing incentive towards conservation. By
creating awareness of volumes consumed, the consumer can reduce his total costs by
restricting consumption; however, the incentive lessens as more water is consumed,
because the marginal cost per unit declines as the consumer enters the next block
pricing range. Similarly, those whose consumption level is at the top end of a block
have less incentive to reduce consumption.
The Constant Rate structure presents the customer with a linear relationship between
consumption and the cost thereof. As the consumer pays a fixed cost per unit, his bill
will vary directly with the amount consumed. This method presents tangible incentive
for consumers to conserve water. As metering provides direct feedback as to usage
patterns and the consumer has direct control over the total amount paid for the
commodity, the consumer is encouraged to use only those volumes that are reasonably
required.
The Inverted Block method presents the most effective pricing method for encouraging
conservation. Through this method, the price per unit consumed increases as total
volumes consumed grow. The consumer becomes aware of consumption through
metering with the charges increasing dramatically with usage. Hence, there normally is
awareness that exercising control over usage can produce significant savings. This
method not only encourages conservation methods, but may also penalize legitimate
high-volume users if not properly structured.
Figure 6-2 provides a schematic representation of the various rate structures (note
property tax as a basis for revenue recovery has not been presented for comparison, as
the proportion of taxes paid varies in direct proportion to the market value of the
property). The graphs on the left-hand side of the figure present the cost per unit for
each additional amount of water consumed. The right-hand side of the figure presents
the impact on the customer's bill as the volume of water increases. Following the
schematic is a table summarizing each rate structure.
Watson & Associates Economists Ltd.
PAGE 6-8
Figure 6-2
"Rate Structure"
"Impact on Individual Customer"
Flat Rate:
Cost Per Unit
Total Bill Charged
Volume
Volume
Constant Rate:
Cost Per Unit
Total Bill Charged
Volume
Volume
Declining Block Rate:
Cost Per Unit
Total Bill Charged
Volume
Volume
Increasing Block Rate:
Cost Per Unit
Total Bill Charged
Volume
Volume
Hump Back Rate:
Cost Per Unit
Total Bill Charged
Volume
Volume
WATER RATE PRICING CONCEPTS
Watson & Associates Economists Ltd.
PAGE 6-9
Figure 6-3
Summary of Various Rate Structures and their Impact on Customer Bills as Volume
Usage Increases
Rate Structure
Cost Per Unit As Volume
Increases
Impact On Customer Bill
As Volume Increases
Flat Rate
Cost per unit decreases as
more volume consumed
Bill remains the same no
matter how much volume
is consumed
Constant Rate
Cost per unit remains the
same
Bill increases in direct
proportion to consumption
Declining Block
Cost per unit decreases as
threshold targets are
achieved
Bill increases at a slower
rate as volumes increase
Increasing Block
Cost per unit increases as
threshold targets are
achieved
Bill increases at a faster
rate as volumes increase
Hump Back Rate
Combination of an
increasing block at the
lower consumption
volumes and then converts
to a declining block for the
high consumption
Bill increases at a faster
rate at the lower
consumption amounts and
then slows as volumes
increase
6.4 Rate Structures in Ontario
In a past survey of over 170 municipalities (approximately half of the municipalities who
provide water and/or sewer), all forms of rate structures are in use by Ontario
municipalities. The most common rate structure is the constant rate (for metered
municipalities). Most municipalities (approximately 92%) who have volume rate
structures also impose a base monthly charge.
Historically, the development of a base charge often reflected either the recovery of
meter reading/billing/collection costs, plus administration or those costs plus certain
fixed costs (such as capital contributions or reserve contributions). More recently, many
municipalities have started to establish base charges based on ensuring a secure
portion of the revenue stream which does not vary with volume consumption. Selection
Watson & Associates Economists Ltd.
PAGE 6-10
of the quantum of the base charge is a matter of policy selected by individual
municipalities.
6.5 Recommended Rate Structures
Based on the foregoing, it is recommended that the Township continue the same flat
rate structure in the future for Black Creek and St. Pauls. The Township may consider
implementing meters in the future to provide for an alternative rate structure, however
the benefits of metering will need to be weighed against other factors such as cost of
installation, ongoing operating costs, additional administrative burden, etc.
Watson & Associates Economists Ltd.
Chapter 7
Analysis of Water Rates and
Policy Matters
Watson & Associates Economists Ltd.
PAGE 7-1
7. Analysis of Water Rates and Policy Matters
7.1 Introduction
To summarize the analysis undertaken thus far, Chapter 2 reviewed capital-related
issues and responds to the provincial directives to maintain and upgrade infrastructure
to required levels. Chapter 4 provided a review of capital financing options to which
water reserve contributions will be the basis for financing future capital replacement.
Chapter 5 established the 10-year operating forecast of expenditures including an
annual capital reserve contribution. This chapter will provide for the calculation of the
flat rates over the forecast period. These calculations will be based on the net operating
expenditures (the variable costs) provided in Chapter 5, divided by the number of
customers as provided in section 1.8.
7.2 Water Rates
Based on the discussion of rate structures provided in section 6.5 and the
recommendation to continue with the present structure, the rates are calculated for each
system by taking the net recoverable amounts from Table 5-1 and 5-2 (the product of
total expenditures less non-rate revenue) and completes the calculation by dividing
them by the number of customers resulting in the forecasted rates.
The needs for water are balanced throughout the forecast period for both water system.
Additional operating expenditures and lifecycle costs create pressure on the financial
sustainability of the water systems.
The Black Creek water reserve has a balance of approximately $170,700 as of
December 31, 2024. In order to meet the needs for water, it is recommended that the
flat rates for customers in the Black Creek system increase by 5% annually from 2026
to 2030, and 3% every year thereafter. These increases will allow for the Township to
fund capital needs and maintain existing assets as identified through the Asset
Management Plan. In addition, Township staff have also identified the need to replace
the existing water well within the next 15 years. These recommended rate increases
will allow the Township to fund this replacement utilizing existing reserve balances.
With respect to the St. Pauls water system, the water reserve has a balance of
approximately $234,400 as of December 31, 2024. It is recommended that the flat rates
Watson & Associates Economists Ltd.
PAGE 7-2
for St. Pauls water users increase by 3% annually from 2026 to 2034. These rate
increases allow the Township to fund the ongoing operating needs of the system, the
identified capital needs, and provides for the maintenance of annual asset replacements
in line with the Asset Management Plan recommendations.
The above increases are recommended to ensure that the Township can fund the
capital and operating costs without the need for debentures.
The forecasted rates are presented below in Table 7-1 and 7-2 for Black Creek and St.
Pauls, respectively. Detailed calculations of the flat rates are provided in Appendix A.
7.3 Connection Fees
The Township imposes a connection fee for any new users that connect to the water
system. The current rate is $2,000 per new property and is based on By-law #40-2002
which was passed in 2002. It is recommended that these rates be indexed to current
dollars so that the charge is better aligned to the costs of the water system. The
indexed rate would result in a connection fee of $5,500 per property.
Watson & Associates Economists Ltd.
PAGE 7-3
Table 7-1
Township of Perth South
Forecasted Annual Residential Water Bill - Black Creek
Table 7-2
Township of Perth South
Forecasted Annual Residential Water Bill - St. Pauls
Description
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Annual Flat Rate
$1,694
$1,779
$1,868
$1,961
$2,059
$2,162
$2,227
$2,294
$2,363
$2,433
$2,506
% Increase
5%
5%
5%
5%
5%
3%
3%
3%
3%
3%
Description
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Annual Flat Rate
$1,599
$1,647
$1,696
$1,747
$1,800
$1,854
$1,909
$1,967
$2,026
$2,086
$2,149
% Increase
3%
3%
3%
3%
3%
3%
3%
3%
3%
3%
Watson & Associates Economists Ltd.
Chapter 8
Recommendations
Watson & Associates Economists Ltd.
PAGE 8-1
8. Recommendations
As presented within this report, capital and operating expenditures have been identified
and forecast over a 10-year period for water services.
Based upon the foregoing, the following recommendations are identified for
consideration by Township Council:
1. That Council provide for the recovery of all water costs through full cost recovery
rates.
2. That Council consider the Capital Plan for water as provided in Tables 2-1 and 2-
2 and the associated Capital Financing Plan as set out in Tables 4-3 and 4-4.
3. That Council consider the water rates for Black Creek and St. Pauls as provided
in Tables 7-1 and 7-2, respectively.
4. That Council consider the updated connection fee as provided in Section 7.3.
Appendices
Watson & Associates Economists Ltd.
PAGE A-1
Appendix A
Detailed Water Rate
Calculations - Black Creek
Watson & Associates Economists Ltd.
PAGE A-2
Appendix A: Detailed Water Rate Calculations - Black Creek
Table A-1
Township of Perth South
Capital Budget Forecast (Inflated $) - Black Creek
Budget
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Capital Expenditures
Chemicals
1,000
5,900
1,100
1,100
1,200
1,200
1,300
-
-
-
-
-
Chlorine Injectors and Parts
220
1,400
240
260
280
300
320
-
-
-
-
-
Water Service Repair Parts
775
4,260
800
830
850
880
900
-
-
-
-
-
Well House Repairs (Pipe, Valves, etc.)
700
3,950
750
750
800
800
850
-
-
-
-
-
UV Parts (Solenoid Valves, Circuit Boards, etc.)
700
4,300
800
850
850
900
900
-
-
-
-
-
Well Inspection
-
3,300
-
3,300
-
-
-
-
-
-
-
-
Data Logger Maintenance
3,000
500
-
-
500
-
-
-
-
-
-
-
Overtime/Call-Outs
2,400
12,000
2,400
2,400
2,400
2,400
2,400
-
-
-
-
-
Contingency
1,100
6,400
1,200
1,200
1,300
1,300
1,400
-
-
-
-
-
Lifecycle:
UV Lamps
950
5,500
1,000
1,050
1,100
1,150
1,200
-
-
-
-
-
Chemical Pump Replacement Parts
1,175
6,260
1,200
1,230
1,250
1,280
1,300
-
-
-
-
-
Pressure Tank Replacement
-
2,860
930
-
950
-
980
-
-
-
-
-
Analyzer Probe
-
6,600
-
3,300
-
-
3,300
-
-
-
-
-
Chlorine Analyzer Parts (Electrolyte Membrane Cap)
500
2,740
530
530
550
550
580
-
-
-
-
-
Provision for Asset Management Needs
-
95,230
1,640
1,670
1,710
1,740
1,780
16,660
16,990
17,330
17,680
18,030
Total Capital Expenditures
12,520
161,200
12,590
18,470
13,740
12,500
17,210
16,660
16,990
17,330
17,680
18,030
Capital Financing
Provincial/Federal Grants
-
Non-Growth Related Debenture Requirements
-
-
-
-
-
-
-
-
-
-
-
-
Operating Contributions
-
-
-
-
-
-
-
-
-
-
-
-
Black Creek Water Reserve
12,520
161,200
12,590
18,470
13,740
12,500
17,210
16,660
16,990
17,330
17,680
18,030
Total Capital Financing
12,520
161,200
12,590
18,470
13,740
12,500
17,210
16,660
16,990
17,330
17,680
18,030
Total
Description
Forecast
Watson & Associates Economists Ltd.
PAGE A-3
Table A-2
Township of Perth South
Schedule of Debenture Repayments - Black Creek
Table A-3
Township of Perth South
Black Creek Water Reserve Continuity (Inflated $)
Debenture
Principal
Year
(Inflated)
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2026
-
-
-
-
-
-
-
-
-
-
2027
-
-
-
-
-
-
-
-
-
2028
-
-
-
-
-
-
-
-
2029
-
-
-
-
-
-
-
2030
-
-
-
-
-
-
2031
-
-
-
-
-
2032
-
-
-
-
2033
-
-
-
2034
-
-
2035
-
Total Annual Debt Charges
-
-
-
-
-
-
-
-
-
-
-
-
2025
Forecast
Description
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Opening Balance
170,716
158,052
154,982
147,633
146,857
149,348
149,279
150,644
152,603
155,202
158,480
Transfer from Operating
-
6,481
8,226
10,085
12,062
14,215
15,071
15,957
16,886
17,851
18,842
Transfer for Lifecycle Needs
Transfer to Capital
12,520
12,590
18,470
13,740
12,500
17,210
16,660
16,990
17,330
17,680
18,030
Transfer to Operating
144
-
-
-
-
-
-
-
-
-
-
Closing Balance
158,052
151,943
144,738
143,978
146,419
146,352
147,690
149,611
152,159
155,373
159,292
Interest
3,039
2,895
2,880
2,928
2,927
2,954
2,992
3,043
3,107
3,186
Watson & Associates Economists Ltd.
PAGE A-4
Table A-4
Township of Perth South
Operating Budget Forecast (Inflated $) - Black Creek
Budget
Description
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Expenditures
Operating Costs
Direct Salaries & Wages
6,656
6,656
6,656
6,656
6,656
6,790
6,930
7,070
7,210
7,350
7,500
Employee - CPP
130
130
130
130
130
133
136
139
142
145
148
Employee - EI
153
153
153
153
153
156
159
162
165
168
171
Employee - EHT
130
130
130
130
130
133
136
139
142
145
148
Employee WSIB
228
228
228
228
228
233
238
243
248
253
258
Employee Benefits
387
387
387
387
387
395
403
411
419
427
436
Employee - OMERS
599
599
599
599
599
611
623
635
648
661
674
Materials & Supplies
81
83
85
87
89
91
93
95
97
99
101
Hydro
3,478
3,572
3,668
3,767
3,869
4,060
4,260
4,470
4,690
4,920
5,170
Heat
443
455
467
480
493
518
544
571
600
630
662
Postage and Courier
121
124
127
131
135
138
141
144
147
150
153
Telephone
560
577
595
613
632
645
658
671
684
698
712
Insurance
120
123
126
129
132
135
138
141
144
147
150
Building Repairs and Maintenance
500
514
528
543
558
569
580
592
604
616
628
Equipment Repairs and Maintenance
2,000
2,055
2,112
2,170
2,230
2,270
2,320
2,370
2,420
2,470
2,520
OCWA 1 - Fixed Price
24,570
25,239
25,926
26,631
27,355
27,900
28,460
29,030
29,610
30,200
30,800
OCWA 2 - Contract Extras
5,420
5,570
5,724
5,882
6,045
6,170
6,290
6,420
6,550
6,680
6,810
OCWA 3 - Third Party
4,034
4,135
4,238
4,344
4,453
4,540
4,630
4,720
4,810
4,910
5,010
Contracted Services
5,500
514
528
542
557
568
579
591
603
615
627
Security System Monitoring
328
337
346
355
365
372
379
387
395
403
411
Property Taxes
797
820
843
867
891
909
927
946
965
984
1,004
Sub Total Operating
56,235
52,401
53,596
54,824
56,087
57,336
58,624
59,947
61,293
62,671
64,093
Capital-Related
Existing Debt (Principal) - Non-Growth Related
-
-
-
-
-
-
-
-
-
-
Existing Debt (Interest) - Non-Growth Related
-
-
-
-
-
-
-
-
-
-
New Non-Growth Related Debt (Principal)
-
-
-
-
-
-
-
-
-
-
New Non-Growth Related Debt (Interest)
-
-
-
-
-
-
-
-
-
-
Transfer to Capital
-
-
-
-
-
-
-
-
-
-
-
Transfer to Capital Reserve
-
6,481
8,226
10,085
12,062
14,215
15,071
15,957
16,886
17,851
18,842
Sub Total Capital Related
-
6,481
8,226
10,085
12,062
14,215
15,071
15,957
16,886
17,851
18,842
Total Expenditures
56,235
58,882
61,822
64,909
68,149
71,551
73,695
75,904
78,179
80,522
82,935
Revenues
Penalty & Interest
180
185
190
195
200
204
208
212
216
220
224
Contributions from Reserves / Reserve Funds
144
-
-
-
-
-
-
-
-
-
-
Total Operating Revenue
324
185
190
195
200
204
208
212
216
220
224
Water Billing Recovery - Total
55,911
58,697
61,632
64,714
67,949
71,347
73,487
75,692
77,963
80,302
82,711
Forecast
Watson & Associates Economists Ltd.
PAGE A-5
Table A-5
Township of Perth South
Water Rate Forecast (Inflated $) - Black Creek
Description
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Total Water Billing Recovery
55,911
58,697
61,632
64,714
67,949
71,347
73,487
75,692
77,963
80,302
82,711
Total Customers
33
33
33
33
33
33
33
33
33
33
33
Constant Rate
1,694
1,779
1,868
1,961
2,059
2,162
2,227
2,294
2,363
2,433
2,506
Annual Percentage Change
5%
5%
5%
5%
5%
3%
3%
3%
3%
3%
Watson & Associates Economists Ltd.
PAGE B-1
Appendix B
Detailed Water Rate
Calculations - St. Pauls
Watson & Associates Economists Ltd.
PAGE B-2
Appendix B: Detailed Water Rate Calculations - St. Pauls
Table B-1
Township of Perth South
Capital Budget Forecast (Inflated $) - St. Pauls
Budget
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Capital Expenditures
New Drinking Water Well
160,000
-
-
-
-
-
-
-
-
-
-
-
Chemicals
1,000
5,900
1,100
1,100
1,200
1,200
1,300
-
-
-
-
-
Chlorine Injectors and Parts
220
1,410
240
260
280
300
330
-
-
-
-
-
Water Service Repairs
775
4,330
800
830
850
900
950
-
-
-
-
-
Well House Repairs (pipe, valves, etc.)
700
4,250
750
800
850
900
950
-
-
-
-
-
UV Parts (Solenoid Valves, Circuit Boards, etc.)
750
4,300
800
850
850
900
900
-
-
-
-
-
Data Logger Maintenance/Upgrade
-
3,000
-
3,000
-
-
-
-
-
-
-
-
Overtime/Call-Outs
2,400
12,200
2,400
2,400
2,400
2,400
2,600
-
-
-
-
-
Contingency
1,100
6,400
1,200
1,200
1,300
1,300
1,400
-
-
-
-
-
Lifecycle:
UV Lamps
950
5,500
1,000
1,050
1,100
1,150
1,200
-
-
-
-
-
Chemical Pump Replacement Parts
1,175
6,290
1,200
1,230
1,250
1,280
1,330
-
-
-
-
-
Pressure Tank Replacement
925
1,930
-
950
-
980
-
-
-
-
-
-
Analyzer Probe
-
6,400
-
3,200
-
-
3,200
-
-
-
-
-
Chlorine Analyzer Parts (Electrolyte/Membrance
Cap)
500
2,740
530
530
550
550
580
-
-
-
-
-
Flowmeter Replacement
-
3,100
-
3,100
-
-
-
-
-
-
-
-
Provision for Asset Management Needs
-
149,250
6,380
6,510
6,640
6,770
6,910
22,300
22,740
23,200
23,660
24,140
Total Capital Expenditures
170,495
217,000
16,400
27,010
17,270
18,630
21,650
22,300
22,740
23,200
23,660
24,140
Capital Financing
Provincial/Federal Grants
-
Non-Growth Related Debenture Requirements
-
-
-
-
-
-
-
-
-
-
-
-
Operating Contributions
-
-
-
-
-
-
-
-
-
-
-
-
St. Pauls Water Reserve
170,495
217,000
16,400
27,010
17,270
18,630
21,650
22,300
22,740
23,200
23,660
24,140
Total Capital Financing
170,495
217,000
16,400
27,010
17,270
18,630
21,650
22,300
22,740
23,200
23,660
24,140
Description
Total
Forecast
Watson & Associates Economists Ltd.
PAGE B-3
Table B-2
Township of Perth South
Schedule of Debenture Repayments (Inflated $) - St. Pauls
Table B-3
Township of Perth South
St. Pauls Water Reserve Continuity (Inflated $)
Debenture
Principal
Year
(Inflated)
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2026
-
-
-
-
-
-
-
-
-
-
2027
-
-
-
-
-
-
-
-
-
2028
-
-
-
-
-
-
-
-
2029
-
-
-
-
-
-
-
2030
-
-
-
-
-
-
2031
-
-
-
-
-
2032
-
-
-
-
2033
-
-
-
2034
-
-
2035
-
Total Annual Debt Charges
-
-
-
-
-
-
-
-
-
-
-
-
2025
Forecast
Description
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Opening Balance
234,387
77,497
83,366
77,058
81,518
85,673
87,871
90,524
93,893
98,019
102,959
Transfer from Operating
13,605
20,635
19,191
20,132
21,104
22,126
23,178
24,267
25,404
26,581
27,788
Transfer to Capital
170,495
16,400
27,010
17,270
18,630
21,650
22,300
22,740
23,200
23,660
24,140
Transfer to Operating
-
-
-
-
-
-
-
-
-
-
-
Closing Balance
77,497
81,732
75,547
79,920
83,993
86,148
88,749
92,052
96,097
100,940
106,607
Interest
1,635
1,511
1,598
1,680
1,723
1,775
1,841
1,922
2,019
2,132
Watson & Associates Economists Ltd.
PAGE B-4
Table B-4
Township of Perth South
Water Operating Budget Forecast (Inflated $) - St. Pauls
Budget
Description
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Expenditures
Operating Costs
Direct Salaries & Wages
6,656
6,656
6,656
6,656
6,656
6,790
6,930
7,070
7,210
7,350
7,500
Employee - CPP
130
130
130
130
130
133
136
139
142
145
148
Employee - EI
153
153
153
153
153
156
159
162
165
168
171
Employee - EHT
130
130
130
130
130
133
136
139
142
145
148
Employee - WSIB
228
228
228
228
228
233
238
243
248
253
258
Employee Benefits
387
387
387
387
387
395
403
411
419
427
436
Employee - OMERS
599
599
599
599
599
611
623
635
648
661
674
Materials & Supplies
252
259
266
273
281
287
293
299
305
311
317
Hydro
3,389
3,481
3,575
3,672
3,771
3,960
4,160
4,370
4,590
4,820
5,060
Heat
781
802
824
846
869
912
958
1,006
1,056
1,109
1,164
Postage and Courier
121
124
127
131
135
138
141
144
147
150
153
Telephone
550
565
581
597
614
626
639
652
665
678
692
Insurance
119
122
125
128
131
134
137
140
143
146
149
Equipment Repairs and Maintenance
1,713
1,760
1,809
1,859
1,910
1,950
1,990
2,030
2,070
2,110
2,150
OCWA 1 - Fixed Price
24,571
25,240
25,927
26,632
27,356
27,900
28,460
29,030
29,610
30,200
30,800
OCWA 2 - Contract Extras
3,558
3,657
3,758
3,862
3,969
4,050
4,130
4,210
4,290
4,380
4,470
OCWA 3 - Third Party
4,108
4,219
4,333
4,450
4,570
4,660
4,750
4,850
4,950
5,050
5,150
Contracted Services
6,040
1,069
1,099
1,129
1,160
1,180
1,200
1,220
1,240
1,260
1,290
Security System Monitoring
175
180
185
190
195
199
203
207
211
215
219
Sub Total Operating
53,660
49,761
50,892
52,052
53,244
54,447
55,686
56,957
58,251
59,578
60,949
Capital-Related
Existing Debt (Principal) - Non-Growth Related
-
-
-
-
-
-
-
-
-
-
-
Existing Debt (Interest) - Non-Growth Related
-
-
-
-
-
-
-
-
-
-
-
New Non-Growth Related Debt (Principal)
-
-
-
-
-
-
-
-
-
-
-
New Non-Growth Related Debt (Interest)
-
-
-
-
-
-
-
-
-
-
-
Transfer to Capital
-
-
-
-
-
-
-
-
-
-
-
Transfer to Water Reserve
13,605
20,635
19,191
20,132
21,104
22,126
23,178
24,267
25,404
26,581
27,788
Sub Total Capital Related
13,605
20,635
19,191
20,132
21,104
22,126
23,178
24,267
25,404
26,581
27,788
Total Expenditures
67,265
70,396
70,083
72,184
74,348
76,573
78,864
81,224
83,655
86,159
88,737
Revenues
Penalty & Interest
503
517
531
546
561
572
583
595
607
619
631
New User Connection Fee
6,000
4,000
-
-
-
-
-
-
-
-
-
Contributions from Reserves / Reserve Funds
-
-
-
-
-
-
-
-
-
-
-
Total Operating Revenue
6,503
4,517
531
546
561
572
583
595
607
619
631
Water Billing Recovery - Total
60,762
65,879
69,552
71,638
73,787
76,001
78,281
80,629
83,048
85,540
88,106
Forecast
Watson & Associates Economists Ltd.
PAGE B-5
Table B-5
Township of Perth South
Water Rate Forecast - St. Pauls
Description
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Total Water Billing Recovery
60,762
65,879
69,552
71,638
73,787
76,001
78,281
80,629
83,048
85,540
88,106
Total Customers
38
40
41
41
41
41
41
41
41
41
41
Constant Rate
1,599.00
1,646.97
1,696.38
1,747.27
1,799.69
1,853.68
1,909.29
1,966.57
2,025.57
2,086.34
2,148.93
Annual Percentage Change
3%
3%
3%
3%
3%
3%
3%
3%
3%
3%