It has been said that water utilities are at the dawn of the long-term asset renewal and replacement era. Water and wastewater infrastructure constructed in the past half century was a key to protection of public health and a stimulus to community prosperity. Parts of this investment are approaching the end of their useful life. They must be significantly renewed or even replaced in the next decade or so.

The province, since the Walkerton water contamination tragedy, has recognized this reality and has taken a number of measures to promote financial sustainability in the water and wastewater sector. The Safe Drinking Water Act (2002) sets out a requirement for financial plans to be prepared as part of the Municipal Drinking Water Licensing Program. The Sustainable Water and Sewer Systems Act set out a two-component approach to developing a Financial Plan. One was a capital needs assessment extending many years into the future that identifies the utility’s infrastructure needs and their costs. The second was a financial plan that ensures that sufficient funds are available when the projected infrastructure renewal or replacement is needed. Regulations for SWSSA were never published however many utilities use it as the standard for developing financial plans. Also, provincial guidelines have been prepared to guide the preparation of financial plans. They strongly influence the rate setting process. The guidelines include the time horizon to be considered when identifying future life-cycle infrastructure needs that should be provided for in the near-term financial plan. This is a critical decision to be made at the commencement of a sustainable financial plan.

SWML has undertaken numerous water and wastewater rate projects where a long-range projection of capital renewal and replacement has been a primary focus. The capital renewal and replacement horizon in these projects has ranged from 10 to 100 years with the operating plan ranging from six to ten years. The projects have been undertaken by SWML solely with its principal or with engineering experts. All involve close consultation with the client’s staff and nearly all involve presentations to Council and the public. Reports are prepared that use straightforward language and charts to get the main messages across to readers. Sharratt Water Management Ltd. develops your financial plan. Our approach for water and wastewater systems includes the following:

  • Meet with you to determine your long-term asset management and financial plan objectives in terms of the asset renewal and replacement time horizon
  • Carry out a cost of services study to determine funds required for infrastructure renewal/replacement in a selected time horizon i.e. 20, 30 or 100 years (in partnership with municipal/utility staff, the utility’s engineering firm or an engineering group). The following questions are asked:
    • What infrastructure is in place now? – assessment
    • What new infrastructure is needed to accommodate growth?
    • What has to be renewed/replaced? - capital replacement and expansion schedule
    • when and at what cost? - development of a listing of current and future costs by future year

    Normally, most of these questions are answered in the utility’s existing PSAB inventory of assets for water and wastewater as well as recent engineering studies. If not, then the inventory is created.

  • Set out capital financing approaches, i.e. development charges, reserve funds, debt, etc.
  • Prepare a capital cost recovery plan utilizing the above funding methods that will finance the capital projects listed above
  • Develop an operations cost projection for at least the next 10 years
  • Prepare a financial plan for at least ten years that will balance future revenues with the long range capital cost recovery estimate estimates and the projected operating costs
  • Project future water use in by considering future growth as well reductions that will occur as a result of code changes, water price increases, active water conservation programs and changes in consumer tastes for water using fixtures and appliances, such as the adoption of the front load washing machine. The aim is to make provision for declining water use per capita and avoid revenue shortfalls for the utility
  • Calculate user fee revenues needed to sustain the needs of the financial plan
  • Review rate types in terms of their pros and cons for revenue stability, water conservation and other factors
  • Develop rates to supply the needed user fees. Rate setting is a key component of any sustainable financial plan - see the rates section for next steps. Present findings to utility and municipal management, as well as the public and modify as necessary
  • Prepare final written report