1 THE CORPORATION OF THE TOWNSHIP OF SPRINGWATER Drinking Water System: Financial Plan A January
2 Nursery Road Minesing, Ontario L0L 1Y2 Canada DRINKING WATER SYSTEM: FINANCIAL PLAN TABLE OF CONTENTS 1. Introduction Legislation Lead Pipes Accounting Changes Township Water System Operating Plan Funding Plan Funding Plan Summary. 6 A. Statement of Financial Position. 6 Net Financial Assets. 6 Net Book Value. 7 Accumulated Surplus. 8 B. Statement of Operations. 8 C. Statement of Cash Flow Conclusion Financial Statements. 10 Appendix A1 to A3 Financial Statements Approved by Springwater Council on: January 16, 2012 Resolution: C Phone: Fax:
3 3 TOWNSHIP OF SPRINGWATER DRINKING WATER SYSTEM: FINANCIAL PLAN 1. Introduction The Township of Springwater maintains the following 9 water systems with the following licenses: Minesing Snow Valley Anten Mills Hillsdale DelTrend Elmvale Vespra Downs Midhurst Phelpston The Township of Springwater, for the purposes of billing and financial maintenance, treats the systems as one combined system. This plan has been prepared on a consolidated basis under Plan # A. The Financial Plan under Ontario Regulation 453/07 for the Township of Springwater water system(s) has been prepared by Township staff. To prepare a solid financial plan, a three step process was required: 1. Estimate future capital needs to maintain the system to 2025; 2. Project future operating expenditures and revenue needs to 2025; and 3. Based on 1 and 2 prepare a 6 year Water Financial Plan Preparation for the period In 2006, the Township of Springwater retained Hemson Consulting Ltd (Hemson) to prepare Full Cost Recovery Plan for Springwater. This plan was undertaken in response to Bill 175 The Sustainable Water and Sewage Systems Act (SWSSA). As a result, we were well positioned to prepare our Water Financial Plan as we already had steps 1 and 2 completed. Hemson undertook a comprehensive analysis of the Township s water and wastewater rates, infrastructure inventory and annual operating budgets. With that review completed full cost recovery rates were calculated for both water and wastewater. Rates were struck to gradually increase by 4.3% per year which will achieve full cost recovery status by 2015 for our water systems and by 2025 for our wastewater systems. A copy of the Full Cost Recovery Plan can be found at the following link: Full Cost Recovery Plan
4 4 Hemson s plan set rates for both water and wastewater systems. For the purpose of this plan, only water is reviewed. 2. Legislation In response to the Walkerton tragedy in 2000, followed by the O Connor inquiry, the Ministry of Environment passed the Safe Drinking Water Act, 2002 (SDWA). It required owners of a municipal drinking water system to apply for and obtain a Municipal Drinking Water License. There are five elements that must be in place in order for the owner of a drinking water system to obtain a license: A Drinking Water Works Permit to establish or alter a drinking-water system; An accepted Operational Plan An Accredited Operating Authority. A Permit to Take Water A Financial Plan that must be prepared and approved in accordance with the prescribed requirements in the Financial Plans Regulations. The Township contracts with the Ontario Clean Water Agency (OCWA) who has completed the first four elements required by the SWDA. Using the Hemson full cost recovery study and information provided by OCWA that further refines our capital needs for the next 6 years, the Township has prepared the required Financial Plan. Regulation 453/07 of the SDWA requires: a Financial Plan prepared by the later of July 1, 2010 or six months after the date the first license for the system is issued. The Township of Springwater s Plan must be approved by Council by January 29, 2012; the Financial Plan must be for a period of six years; and the Financial Plan is required to be updated every 5 years. 3. Lead Pipes In June 2007, the Government of Ontario proposed a lead action plan. The Financial Plan regulation contains requirements for municipalities to include in the Financial Plan the cost associated with replacing lead service pipes that are part of the drinking water system. Lead was tested in Springwater homes from We had no exceedances of the limit for lead so we were eligible for reduced sampling under O.Reg.170/03 and now test for lead every 3 years in the system. In addition, we are no longer required to test in private homes. The Township water systems are relatively new, lead pipes are not part of them so replacement is not necessary and we will continue with lead sampling as required. No provision for lead pipe replacement was required for this plan.
5 5 4. Accounting Changes A new accounting standard (PSAB 3150) came into effect on January 1, This required that tangible capital assets (TCAs) be included in municipal financial statements. The Township of Springwater complied with this requirement and published PSAB compliant financial statements. The included water TCA s are valued at historical cost of just over $31M at the end of This differs from the $61M in assets noted by Hemson s report. The differences relate to the fact that Hemson calculations were prepared at future replacement value versus the TCA historical cost value. In addition, not all items inventoried by Hemson (water hydrants, water meters, etc) were considered capital for TCA purposes. The Hemson plan is a more accurate reflection of what will be required to replace our assets as our system ages and serves as the basis for our water rates. 5. Township of Springwater Water System The Township of Springwater water system, in 2011, serves 3,250 residential and nonresidential (commercial, industrial and multiresidential) users. All users are metered. The Township uses a two part rate structure, with a fixed rate and a consumption charge based on water usage. The water rates effective from May 2012 are set out in Table A: Water System Charges. All charges and consumption breaks are on a per month basis. The fixed charge is applied to all metered users regardless of consumption. Table A: Water System Charges Residential and Multi-Residential Fixed rate per meter $15.44 Consumption per unit* 0 to 15 cubic metres $ to 30 cubic metres $ to 45 cubic metres $ cubic metres $2.601 Commercial Fixed rate per meter $25.74 Consumption per unit* $1.416 * Note: If more than 1 unit is serviced by a single meter, the consumption levels shall be multiplied by the number of units to calculate the consumption level. For example, a building with two units serviced by one meter would pay the lowest rate for up to 30 cubic metres of consumption, or 15 cubic metres * 2 units.
6 6 6. Operating Plan The operating plan includes recurring operating costs as well as capital replacement costs required to sustain the water systems. These costs have been developed using the following assumptions: 1. Operating costs (OCWA contract, insurance, hydro, etc) have been projected to increase at 2% per annum 2. Capital replacement expenses have been calculated using Hemson s full cost recovery study and further refined by the immediate 6 year needs as developed by OCWA 3. At the end of 2011, the Township had $2.3M in water system related debt which is projected to drop to $1.7M by end of There is no lead replacement costs 5. There have been no financial impact to the municipality for Source Water protection 7. Funding Plan Prior to the preparation of this plan, the Township of Springwater had already implemented a full cost recovery system for water rates. This rate structure included a provision for future capital replacement. The amounts of money to be raised for future capital replacement is significant and as a result we are phasing in our rates and for our water system will be at full cost recovery by The plan calls for a 4.3% annual increase to water rates until No government grants are included in the forecast due to the uncertainty of their receipt. 8. Financial Plan Summary The detailed projected financial statements are provided in Appendix A for the years in compliance with O. Reg 453. The notes regarding the financial statements are attached to the appropriate financial report where required. This section contains a summary of principal features concerning the current and future state of the water system.
7 7 A. Statement of Financial Position (Appendix A) Net Financial Assets Net financial assets are a good indicator of whether the Township has the resources to deal with future capital needs. Chart A shows that the Township has positive net financial assets with steady and predictable growth as we set aside funds for future asset replacements. $31,000,000 $30,500,000 $30,000,000 $29,500,000 $29,000,000 $28,500,000 $28,000,000 $27,500,000 $27,000,000 $26,500,000 $26,000,000 Chart A: Net Financial Assets Note: Amounts are unaudited for planning purposes only. Actual results will differ from the above and these differences could be material.
8 8 Net Book Value Net book value, as noted in Chart B, is currently being reduced every year. Assets are being depreciated on an annual basis. Springwater s water systems are relatively young, so currently it is not necessary to replace many assets. However, we do recognize that down the road that the assets will need to be replaced and have a capital replacement reserve set aside for that purpose. Chart A shows an increasing cash balance being set aside for future asset replacement. $25,500,000 Chart B: Total Non Financial Assets $25,000,000 $24,500,000 $24,000,000 $23,500,000 $23,000,000 $22,500, Note: Amounts are unaudited for planning purposes only. Actual results will differ from the above and these differences could be material.
9 9 Accumulated Surplus As Springwater implements our full cost recovery strategy and sets asides funds for asset replacements, our net accumulated surplus grows in a steady and predictable manner positioning us well for the future. $31,000,000 $30,500,000 $30,000,000 $29,500,000 $29,000,000 $28,500,000 $28,000,000 $27,500,000 $27,000,000 $26,500,000 $26,000,000 Chart C: Accumulated Surplus/Deficit Note: Amounts are unaudited for planning purposes only. Actual results will differ from the above and these differences could be material.
10 10 B. Statement of Operations (Appendix A2) This statement summarizes revenue and expenditures. The expenditures include ongoing operating costs plus amortization expense. The system s excess of revenues over expenses, including amortization, remains positive over the six year period. This indicates there is an ability to cope with unexpected emergencies as well as planning for future asset replacements. The annual increase reflects the increased revenue collected as we move to full cost recovery rates. $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $- Chart D: Statement of Operations Note: Amounts are unaudited for planning purposes only. Actual results will differ from the above and these differences could be material.
11 11 C. Statement of Cash Flow (Appendix A3) The cash flow statement summarizes how the water system is expected to generate and utilize cash resources. A summary table follows: Chart E: Statement of Changes in Cash Flow $10,000,000 $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $ Note: Amounts are unaudited for planning purposes only. Actual results will differ from the above and these differences could be material. Cash and Cash Equivalents at Year End continue to grow, putting Springwater in excellent shape to replace our water assets in future. 9. Conclusion The Financial Plan and accompanying financial statements demonstrate that the Township of Springwater s water systems are in good shape to be replaced as they wear out. Undertaking a full cost recovery rate system in 2006 has placed the Township in good shape for future years. It is important to keep in mind that the financial statements have been compiled using a number of assumptions regarding cost increases, water usage and interest rates. 10. Financial Statements The detailed financial statements are set out in Appendix A1, A2 and A3 and include notes where required.
12 Statement of Financial Position Township of Springwater Appendix A Financial Assets Cash and Cash Equivalents $ 4,542,941 $ 5,231,508 $ 5,991,172 $ 6,756,331 $ 7,652,537 $ 8,667,506 Accounts Receivables $ 168,481 $ 160,057 $ 152,054 $ 144,452 $ 137,229 $ 130,368 Deposits Total Financial Assets $ 4,711,422 $ 5,391,565 $ 6,143,226 $ 6,900,783 $ 7,789,766 $ 8,797,874 Liabilities Accounts Payable $ 65,000 $ 70,000 $ 75,000 $ 80,000 $ 85,000 $ 90,000 Debt Principal $ 2,204,508 $ 2,111,043 $ 2,011,577 $ 1,905,112 $ 1,790,647 $ 1,667,182 Other Liabilities Total Liabilities $ 2,269,508 $ 2,181,043 $ 2,086,577 $ 1,985,112 $ 1,875,647 $ 1,757,182 Net Financial Assets $ 2,441,914 $ 3,210,523 $ 4,056,649 $ 4,915,671 $ 5,914,119 $ 7,040,692 Non Financail Assets Tangible Capital Assets Cost $ 31,411,789 $ 31,786,789 $ 31,865,789 $ 31,939,789 $ 32,077,789 $ 32,157,789 Additions to Tangible Capital Assets - Cost $ 375,000 $ 79,000 $ 74,000 $ 138,000 $ 80,000 $ 38,000 Capital Work in Progress $ - $ - $ - $ - $ - $ - Accumulated Amortization incl. Additions $ 6,687,165 $ 7,085,607 $ 7,482,549 $ 7,877,991 $ 8,271,933 $ 8,664,375 Total Non Financial Assets $ 25,099,624 $ 24,780,182 $ 24,457,240 $ 24,199,798 $ 23,885,856 $ 23,531,414 Accumulated Surplus/Deficit) $ 27,541,538 $ 27,990,705 $ 28,513,889 $ 29,115,469 $ 29,799,975 $ 30,572,106 Note: Unaudited for Planning Purposes Only - Actual results will differ from the above and these differences could be material
13 Statement of Financial Operations Township of Springwater Appendix A Assumptions Revenues User Fees $ 1,984,246 $ 2,069,568 $ 2,158,560 $ 2,251,378 $ 2,348,187 $ 2,449,159 Consumption remains consistent, rates increased 4.3% per year Connection Charges $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 Other Revenues $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000 Largely water meter sales Earned Development Charge Income $ - $ - $ - $ - $ - $ - No projects scheduled using DC funds during this period. Interest Income $ 61,200 $ 62,424 $ 63,672 $ 64,946 $ 66,245 $ 67,570 $ 2,075,446 $ 2,161,992 $ 2,252,232 $ 2,346,324 $ 2,444,432 $ 2,546,729 Expenses Operation $ 1,162,842 $ 1,186,098 $ 1,209,820 $ 1,234,017 $ 1,258,697 $ 1,283,871 Assume 2% increase per year Debt Interest $ 133,286 $ 128,286 $ 122,286 $ 115,286 $ 107,286 $ 98,286 debt to be refinanced in 2012 Amortization $ 390,942 $ 398,442 $ 396,942 $ 395,442 $ 393,942 $ 392,442 calculated per capital plans Loss on Disposal of Assets Total Expenses $ 1,687,069 $ 1,712,826 $ 1,729,048 $ 1,744,744 $ 1,759,925 $ 1,774,599 Annual Surplus (Deficit) $ 388,377 $ 449,166 $ 523,184 $ 601,579 $ 684,507 $ 772,130 Accumulated Surplus (Deficit), Beginning of Year $ 27,153,162 $ 27,541,538 $ 27,990,705 $ 28,513,889 $ 29,115,468 $ 29,799,975 Accumulated Surplus (Deficit), End of Year $ 27,541,538 $ 27,990,705 $ 28,513,889 $ 29,115,468 $ 29,799,975 $ 30,572,106 Note: Unaudited for Planning Purposes Only - Actual results will differ from the above and these differences could be material
14 Appendix A3 Statement of Changes is Cash Flow Township of Springwater Operating Transactions Annual Surplus/Defict $ 388,377 $ 449,166 $ 523,184 $ 601,579 $ 684,507 $ 772,130 Add: Amortization of TCA $ 390,942 $ 398,442 $ 396,942 $ 395,442 $ 393,942 $ 392,442 (Gain)/Loss on disposal of Tangible Capital Assets $ - $ - $ - $ - $ - $ - Less: Earned Deferred Revenue $ - $ - $ - $ - $ - $ - Add: Development Charge Proceeds $ - $ - $ - $ - $ - $ - Change in A/R (Increase)/Decrease $ 8,867 $ 8,424 $ 8,003 $ 7,603 $ 7,222 $ 6,862 Change in A/P Increase/(Decrease) $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 Less: Interest Proceeds Cash Provided by Operating Transactions $ 793,186 $ 861,032 $ 933,129 $ 1,009,624 $ 1,090,671 $ 1,176,435 Capital Transactions Proceeds on sale of Tangible Capital Assets $ - $ - $ - $ - $ - $ - Less: Cash Used to acquire Tangible Capital Assets $ 375,000 $ 79,000 $ 74,000 $ 138,000 $ 80,000 $ 38,000 Cash Applied to Capital Transactions $ 375,000 $ 79,000 $ 74,000 $ 138,000 $ 80,000 $ 38,000 Investing Transactions Proceeds from Investments Less: Cash Used to Acquire Investments Cash Provided by (applied to) Investing Tranactions $ - $ - $ - $ - $ - $ - Financing Transactions Proceeds from Debt issue Less: Debt Repayment (principal only) $ 88,466 $ 93,465 $ 99,465 $ 106,465 $ 114,465 $ 123,465 Cash Applied to Financiang Transactions $ ( 88,466 ) $ ( 93,465 ) $ ( 99,465 ) $ ( 106,465 ) $ ( 114,465 ) $ ( 123,465 ) Increase in Cash and Cash Equivalents $ 329,720 $ 688,567 $ 759,664 $ 765,159 $ 896,206 $ 1,014,969 Cash and Cash Equivalents, Beginning of Year $ 4,213,221 $ 4,542,941 $ 5,231,508 $ 5,991,172 $ 6,756,331 $ 7,652,537 Cash and Cash Equivalents, end of Year $ 4,542,941 $ 5,231,508 $ 5,991,172 $ 6,756,331 $ 7,652,537 $ 8,667,506