The City of Thompson is prepared to debenture up to $4 million "to apply for borrowing to cover the costs of utility implementation."
Bylaw 1813-2009, which requires provincial approval to issue the debenture, passed first reading at city council Dec. 14 and has now gone to the Manitoba Municipal Board for consideration, says Carol Taylor, the city's chief financial officer. The board can approve the bylaw in its present form, kill it altogether, or amend it, and send it back to council either unchanged or amended for second and third reading by council before it becomes law.
In a Dec. 8, 2009 report to council, Taylor noted "the 2009 financial plan included a debenture for $237,500 for the establishment of the water utility. It is going to cost the city about $169,224 in interest payments over 15 years between now and 2024 to debenture the $237,500, -- for a total cost of around $406,724 in principal and interest, according to a maturity schedule attached to Bylaw 1813-2009.
The interest rate on the $237,500 debenture is pegged at 7.625 per cent, Taylor says, which is a conservative estimate and perhaps higher rate then will ultimately prevail, meaning the interest payment by 2024 may come in at a bit less than $169,224.
"As we are going to require further debentures to complete the water utility we have included these amounts in the debenture. Please note that we have put in an application for grant money with the Province of Manitoba and should we receive it [it] will reduce the debenture required," Taylor said in her report.
Repayment of the debentures not eventually covered by grants will be covered under the general levy - meaning from local taxpayers mainly through property taxes - the city says. The bylaw spells out that between 2010 and 2024 "there shall be raised annually by a special mill rate on all the rateable property within the City of Thompson, an amount sufficient to meet the requirements for principal and interest."
The last revised assessment roll listed $219.928 million worth of taxable property in the city. Among the items being paid for out of the $4 million for utility implementation will be the purchase and installation of water meters
Debentures are financial instruments used in capital markets to raise money in the form of debt. It is a certificate or voucher acknowledging and incorporating the details of the debt owed to the holder.
These are unsecured bonds inasmuch as the debts are not secured against any mortgage or physical assets. Only the credit standing, reputation and credentials of the issuer determine the market-worthiness of such debentures. Governments are the prime issuers of debentures for capital projects in North America. The City of Thompson's debenture debt prior to the current water utility venture was $9.849 million.
Last November, CHM2HILL, which council retained to manage the water utility implementation process, met with city administration and members of the public works and infrastructure committee to review overalls steps that will be taken to implement the new utility. Wayne Koversky, director of public works, says a working group will be put together made up of representatives from the public works and infrastructure committee, administration and representatives with Vale Inco who will work with CHM2HILL.
After that an application to the Manitoba Public Utilities Board will take place that will also include public consultation and the installation of water meters will follow.
Koversky says that the new utility will meter water usage and charge customers based on their consumption, with the revenue going to fund the utility. The public utilities board will regulate the utility and will be responsible for regulating the city's water rates, requiring "justification that the proposed water rates are fair and reasonable." He notes city administration will compile in-house financial information and CHM2HILL will help identify needs, information summarization, interpretation and submission.
A study by CHM2HILL, which looked at water rates for the 2008 utility study, estimated that the annual water bill for an average Thompsonite would be between $736 and $803 per year, without accounting for government grants, depending on the volume they use, as early as Jan. 1, 2011. The high-end $803 estimate is based on full cost recovery for sewer and water with no government grants received, while the $736 low estimate assumes 50 per cent in government grants for a new wastewater treatment plant.
The $803 estimate is about double the cost of what city residents pay for water now, regardless of amount used, albeit indirectly, on their property tax bill. Once a water utility is created, water charges from the property tax bill will be removed and residential users will be metered
The rate model developed by consultant CH2M HILL "assumes full cost recovery" for water and sewer. It is a two-part model because there would still be a "fixed base charge" for costs that do not vary with water consumption and a "variable consumption charge" based on water used.
The city has asked for funding from the Water Services Board and, if approved, the funding could cover up to 60 per cent of the cost of the installation of commercial and residential water meters. Koversky says the city will have to pay the remaining amount through debentures, with a total estimated cost of the installation of the meters between $3.5 million and $4 million.
The Thompson Water Utility Study, prepared by CH2M HILL, notes: "Public information and consultation will be critical to successful implementation. The public has never paid directly for water utility services in Thompson [so] resistance to charges for these services can be expected.
"Public relations specialists and the benefits of experience elsewhere can be drawn on to compose the appropriate messages and solicit buy-in or at least minimize resistance. Numerous outreach methods are available to communicate with the public, and experience has proven that the risk lies in under, not over communication."
The City of Thompson also needs a new wastewater treatment plant and the province has made it crystal clear that unless the city starts charging residents for water, there won't be any provincial money to help defray the estimated $15 to $20 million cost of a new wastewater treatment plant. Wastewater received at the treatment plant is dilute, which suggests that clean water is getting into the sewers, increasing the cost of sewage treatment.Koversky says once the water meters are installed, the city will look for funding from the government for a new sewage treatment facility.
CH2M HILL was founded in January 1946 in Corvallis, Oregon. The name is derived from the initials of the company's four founders: Fred Merryfield, Holly Cornell, James Howland, and T. Burke Hayes. Now headquartered in Englewood, Colorado, the company has about 1,000 employees in Canada.
The city and CH2M Hill estimate water consumption will drop by about 30 per cent after water meters are installed. Water pressure in the distribution system, which at times is low, is also expected to improve.
Right now the city has no way of monitoring or identifying who is using how much water among almost 4,000 residential homes in Thompson.
Vale Inco, which supplies the city's water under the December 1956 founding agreement, estimated in 2007 that each Thompsonite uses on average about 605 litres of water per day. Environment Canada estimated the average Canadian uses 335 litres per day.
While the water plant is owned by Vale Inco and the production of the water is not paid for by local taxpayers, the distribution cost once the water moves beyond the Inco property line is paid for by the municipality at a cost about $1.3 million annually. Water supply and treatment will continue to be provided by Vale Inco.
Thompson is one of a handful of municipalities in Manitoba not to have a water utility. The Manitoba Public Utilities Board (PUB) will have to approve, amend or reject the water rates set by the city for the new utility.
The plan here is to have the new water utility operate as a department of the City of Thompson rather than as a standalone corporation.
The city has about 73,000 metres of watermains and an additional 70,000 metres of sewer lines.
City council unanimously approved a resolution Jan. 26, 2009 "to authorize administration to proceed with the creation of a water utility." The resolution was based on council accepting the CH2M HILL Thompson Water Utility Study from November 2008.
The total management and administration costs for the new water utility department at city hall is estimated to be $263,400 per year. Water utility billing will increase the administrative costs by about $68,400 per year, the city has estimated.
