Water Rate Study & O.Reg.453/07 Water Financial Plan No A

Transcription

1 March 2, 2012 dfa DFA Infrastructure International Inc.

2 dfa DFA Infrastructure International Inc. 33 Raymond Street St. Catharines Ontario Canada L2R 2T3 Telephone: (905) Fax: (905) March 2, 2012 Mr. Dan Best Chief Administrative Officer Municipality of Grey Highlands 206 Toronto Street South Markdale ON N0C 1H0 Re: Water Rate Study and O.Reg 453/07 Water Financial Plan No A Dear Mr. Best: We are pleased to submit our report for the above captioned study. Please do not hesitate to call of you have any questions. We appreciate the opportunity to be of assistance to the Municipality of Grey Highlands with this undertaking. Yours truly, DFA Infrastructure International Inc. Derek Ali, MBA, P.Eng. President

3 Table of Contents Transmittal Letter Table of Contents 1 Introduction Background Purpose Regulatory Requirements Provincial Regulations Methodology Full Cost Considerations Financing Principles Stakeholder Input Data Sources Markdale Water System Full Cost Assessment Customer Growth and Consumption Tangible Capital Assets (TCA) Capital Budget Requirements Debt Financing Reserve Fund Requirements Operations & Maintenance (O&M) Cost Projections Full Costs KAT Water System Full Cost Assessment Customer Growth and Consumption Tangible Capital Assets (TCA) Capital Budget Requirements Debt Financing Reserve Fund Requirements Operations & Maintenance (O&M) Cost Projections Full Costs Full Cost Recovery Markdale Water System Rates KAT Water System Rates Financial Plan No A Statements of Financial Position Statements of Operations Statements of Cash Flows Lead Service Pipes i DFA Infrastructure International Inc.

4 8 Conclusions & Recommendations References...37 Appendices Appendix A: By-Laws Appendix B: Customer Growth Projections Appendix C: Capital Projections Appendix D: Debt Schedule Appendix E: Reserve Funds Projections Appendix F: O&M Cost Projections Appendix G: Rates and Revenue Projections Appendix H: Meeting O. Reg. 453/ 07 Requirements Tables Table 1-1: Water Systems Included in Financial Plan Table 3-1: Cost Components and Drivers Table 3-2: Data Sources Table 4-1: Projected Annual Water Consumption (m 3 ) Markdale Table 4-2: Asset Depreciation and Net Book Value (NBV) - Markdale Table 4-3: Asset Replacement Needs Markdale Table 4-4: Debenture Requirements Markdale Table 4-5: Average Annual Full Cost of Managing System - Markdale Table 5-1: Projected Annual Water Consumption (m 3 ) KAT Table 5-2: Asset Depreciation and Net Book Value (NBV) - KAT Table 5-3: Asset Replacement Needs - KAT Table 5-4: Debenture Requirements - KAT Table 5-5: Average Annual Full Cost of Managing System - KAT Table 6-1: Markdale Water System Monthly Rates ( ) Table 6-2: Markdale 2012 vs Rate Implications Table 6-3: KAT Water System Quarterly Rates ( ) Table 6-4: KAT 2012 vs Rate Implications Table 7-1: Statement of Financial Position Markdale Water System Table 7-2: Statement of Financial Position KAT Water System Table 7-3: Statement of Operations Markdale Water System Table 7-4: Statement of Operations KAT Water System Table 7-5: Statement of Cash Flows Markdale Water System Table 7-6: Statement of Cash Flows KAT Water System ii DFA Infrastructure International Inc.

5 Figures Figure 4-1: Current Asset Value - Markdale Figure 4-2: Projected Debt and Reserve Balances Markdale Figure 5-1: Current Asset Value - KAT Figure 5-2: Project Debt and Reserve Balances - KAT iii DFA Infrastructure International Inc.

6 1 Introduction 1.1 Background The Municipality of Grey Highlands (Grey Highlands) is situated in one of the most beautiful parts of Grey County and has a population of approximate 10,000. Water is supplied to its customers through two (2) independent systems that are owned and operated by the Municipality: The Kimberly AMIK Talisman (KAT) Water System, which services approximately 151 customers; and The Markdale Water System, which services approximately 550 customers. The KAT Water System services the Village of Kimberley, Amik Subdivision and the Talisman Mountain Resort. Raw water is drawn from two springs along the Niagara Escarpment and treated at the Water Treatment Plant located at the top of the Amik Subdivision. The treated water is stored in a reservoir with a capacity of approximately 878 m³ and distributed to customers through the water distribution system. The Markdale Drinking Water System consists of two groundwater well sites, one elevated standpipe and all of the associated watermains, services and hydrants. This system provides potable water to all the residences, businesses, and industry within Markdale. Municipal staff and Council have recognized the need to not only meet the requirements of the Drinking Water Licensing system under O.Reg. 453/07, but also to develop a long-term financial plan for its water systems. DFA Infrastructure International Inc. (DFA) was retained by Grey Highlands to undertake a Rate Study and prepare the O. Reg. 453/07 Water Financial Plan in accordance with the drinking water licensing requirements. The rate study includes an assessment of full costs to manage the water systems over a 25-year period from 2011 to 2031 and the recovery of full costs through appropriate rates and charges. 1.2 Purpose The purpose of this document is to present the following information related to the Municipality s water systems: The full costs of managing both water systems over the study period; The required rates and charges to customers to recover the full costs of supplying and distributing drinking water and to provide for sustainable financing over the long-term; A single water financial plan as defined in O.Reg. 453/07, thereby allowing the Municipality to fulfil its obligations under the drinking water licensing regulations for its drinking water systems shown in Table 1-1. The number for the financial plan is A as it covers both of the water systems. 1 DFA Infrastructure International Inc.

7 Table 1-1: Water Systems Included in Financial Plan Water System Licence No. Kimberley AMIK Talisman Drinking Water System Markdale Talisman Drinking Water System Regulatory Requirements 2.1 Provincial Regulations Provincial requirements governing water services primarily include the following: The Environmental Assessment Act (EAA); The Safe Drinking Water Act (SDWA); The Municipal Act (MA); The Development Charges Act (DCA); The Sustainable Water and Sewage Systems Act, 2002 (SWSA); and The Water Opportunities and Conservation Act, 2010 (WOA). The first two (2) set out the technical requirements related to service delivery. The EA Act applies to expansion of existing facilities and establishment of new capacity such as the installation of new pipes to service growth in customers. The Safe Drinking Water Act, 2002 (SDWA) has significant implications to the daily operations as it sets out the water sampling and other operational requirements (in O. Reg. 170/03) for ensuring that the water delivered to consumers is of high quality and safe for consumption. The SDWA has been a major influence over the past decade in terms of adjustments to operational practices and water quality assurance. In addition, there is also a requirement under this Act (O.Reg 188/07) for drinking water providers to establish a Drinking Water Quality Management System (DWQMS) and obtain licences for their respective water systems. As part of the DWQMS, and as required under O. Reg. 453/07 (Financial Plans Regulation), operating authorities must submit a financial plan for their respective water systems as a condition of licensing. There are also many regulations and guidelines that deal with design and operation standards that mandate certain activities be undertaken as part of service delivery. The Municipal Act, Part VII, Section 293 requires municipalities to establish reserves for dealing with longterm liabilities. This applies directly to the water systems and the future liabilities associated with their age and condition. The Municipal Act also permits the municipalities to establish fees for cost recovery and requires public input prior to any fee adjustments. The Development Charges Act and regulations establishes the requirements for the recovery of portions of future growth related capital expenditures to be incurred by the municipalities. The Sustainable Water and Sewage Systems Act, 2002 requires that water systems be financially sustainable. The Water Opportunities and Conservation Act, 2010 is the most recent legislation to be enacted influencing water system management. It requires sustainability plans to be prepared for water systems and overlaps somewhat with the SWSA. 2 DFA Infrastructure International Inc.

8 The Sustainable Water and Sewage Systems Act, 2002 One of the main recommendations contained in Justice O Connor s report on the Walkerton incident is the need for municipalities to identify the full cost of Water services and to develop a sustainable plan to finance these costs. This resulted in the establishment of the Sustainable Water and Sewage Systems Act, 2002 in December 2002 which requires operators of Water systems to report full costs and the method of cost recovery to the Province of Ontario. However the Regulations under SWSA are still pending and it remains unclear as to when these would be made. Under the Sustainable Water and Sewage Systems Act, 2002, the municipalities are required to submit to the Province of Ontario: A report prepared by a Professional Engineer, identifying the full cost of water services; A report identifying a sustainable method by which municipalities would recover these costs; The comments made by the municipality s Auditor following a review of both reports; and Copies of Council resolutions accepting the recommendation of reports. The Water Opportunities and Conservation Act, 2010 The WOA was enacted in November 2010 and the regulations are pending. This legislation promotes water conservation and requires municipalities to develop: Water conservation plans; Sustainability plans for water, wastewater & stormwater management; and Asset management plans. Financial plans are required as a component of the water sustainability plans. The DWQMS Requirements Regulation 188/07 under the Safe Drinking Water Act requires Ontario municipalities to apply for and obtain Drinking Water System Licences as part of their overall DWQMS. One of the requirements to obtain a drinking water licence is to prepare and submit a financial plan in accordance with O.Reg. 453/07. A copy of the Municipality s financial plan is due to be submitted to the Ministry of Municipal Affairs and Housing in March 2012 to allow for completion of the rate study In general, the financial plan must apply to a period of at least six (6) years and must include the following: The proposed or projected financial position of the drinking water system; The proposed or projected financial operations of the drinking water system; and The proposed or projected gross cash receipts and gross cash payments. These requirements are addressed in Section 7 of this report. 3 DFA Infrastructure International Inc.

9 The Municipality of Grey Highlands By-law The Municipality of Grey Highlands By-law No established the water rates and charges that applied to the various customers classes in By-law No establishes the new rates and charges for 2012 based on the information developed in this study. Copies of both by-laws are included in Appendix A. 3 Methodology This section describes the study process in general. The Rate Study addresses each water system separately as they are managed by Grey Highlands as independent systems with different rates and charges to the respective customers. The Municipality also indicated its wish to maintain independent rates and charges for each system on a go forward basis as opposed to blended rates and charges for both systems, to avoid the potential for cross subsidization of costs between the two (2) systems. The study period is 25 years (2011 to 2035). However, the life cycle costs of assets are considered well beyond that period to determine the full replacement and / or rehabilitation needs given that some water system assets (e.g. watermains) can have life expectancies in the 70 to 100 year range. The following are determined for each water system: The full cost of managing the water system; The rates and charges required to recovery the full costs; and The financial plan to meet the requirements of O.Reg 453/07. This plan covers the minimum period of six (6) years from 2011 to 2016 as required by the regulations but is based on the information generated from the full cost calculations and projection of the required water rates and charges over the 25-year period. It includes the following three (3) financial statements: - The Statement of Financial Position; - The Statement of Operations; and - The Statement of Cash Flows. 3.1 Full Cost Considerations Higher costs are generally expected in the future as the water business environment changes. However, the impact can be mitigated by fully understanding, assessing and planning for future water system costs. Determination of the full cost of managing the Municipality s water systems took into account the factors that have a bearing on the cost of providing a safe and reliable supply of potable water to the customers over the long-term. These included both current and future considerations that would influence the cost of managing the systems (and the revenues required to sustain them). Table 3-1 notes the main drivers of cost. The assumptions made for each water system are noted in the respective Sections later in this report. 4 DFA Infrastructure International Inc.

10 Table 3-1: Cost Components and Drivers Cost Component Cost Drivers Future Cost Implications Water systems operations and maintenance (O&M) This is the annual cost of operating and maintaining the current system including direct (e.g. operations staff) and indirect costs (e.g overhead, charge backs etc). Changes in regulations can result in additional (O&M) activities and added costs. This was evident when the regulations under the Safe Drinking Water Act took effect. Municipalities were required to undertake specific activities in the interest of water quality management (e.g sampling, analysis and reporting of water quality). More recently, the DWQMS meant additional costs for water system operational plans and licensing albeit not annually. It is expected that pending regulations under the Water Opportunities Act may have a similar effect. This is a direct annual cost that is reasonably consistent (fixed) from year to year but requires adjustment to account for non-recurring items, operational changes, variable cost (e.g. chemical use) changes and inflation. Non-rate revenues from administrative fees and grants offset these costs. The long term impact fo new regulations on costs are difficult to predict. However, the costs are expected to rise as more stringent requirements are established. Customer Growth Consumption Volume (m3) New growth related services As the existing urban areas are developed, the addition of new customers would increase the total demand for water. Consumption is a function of the number of customers (existing and new growth), weather conditions and the economic environment. The weather conditions have a significant influence on how much water is consumed in a given year. For example, lower temperatures and wet weather tend to result is less water consumption. Dry weather and higher temperatures increase water consumption. The loss of large (commercail or industrial) customers perhaps due to economic climate would reduce demand This refers to installation of new assets to increase the system capacity to facilitate new development and build out of the approved service areas within the Municipality. The increase in demand, if significant, would increase volumes consumed and variable costs in the year the new customers are added. The annual consumption volume is unpredictable. Fluctuations can result in higher than anticipated costs or lower revenues and lead to budget deficits. There is the need for an annual allowance to minimize the risk of deficits and stabilize rates (i.e. minimize rate spikes) Would result in capital investments in the year the new infrastructure is needed. Note that financing of these costs can be through debt or cash from reserves after third party contributions are considered (e.g. grants, developer contributions etc.) Asset preservation and renewal This is mainly the replacement of aging Tangible Capital Assets (TCA) e.g. old water mains, water towers etc. that have exceeded their service life. Would result in future capital expenditures in the year in which the assets require replacement or rehabilitation to extend their useful lives. Allowances must be made as part of the annual costs to account for the futur replacement of these assets Financing can be through a combination of debt and reserve funds. 5 DFA Infrastructure International Inc.

11 Cost Component Cost Drivers Future Cost Implications Other capital expenditures These are capital expenditures other than those needed for growth and asset renewal. These would include cost of studies and implementation of operational improvements of the water system such as water loss reduction measures and new watermain loops. Would increase costs in the year the expenditure is required. Financing can be through a combination of debt and reserves Capital Financing Capital financing for projects can be from four (4) main sources: Debt financing, reserves, annual rates and third party contributions (grants etc.). Grant funding is available only when approved and is therefore not a predictable source of financing for financial planning purposes. The greater the debt financing, the higher the annual amount (costs) needed to repay the principal and interest on any current or future debt. Financing from reserves can only be used if sufficient funds are available. Therefore annual contributions to reserves are required to build balances for use in future years. Financing from rates do not increase annual costs but tend to drive up rates in the year the capital expenditure is required Annual costs would increase to proivde for debt repayment and reserve contributions. It should be noted that using debt financing would minimize spikes in funding required for capital projects and allocates cost to future users. Inflation Market competition and pricing This is the annual rate of inflation as reported by Statistics Canada or the provision for cost of living adjustments each year. The level of competition within the market place depends on the number of service providers available. Additionally, the capacity of industry service providers to meet the increasing demand for their services may tend to increase prices. Tender prices for future capital projects would be influenced by the market conditions at the time of tendering. Would result in annual cost increases. Potential higher prices depending on the future behaviour of the industry. 3.2 Financing Principles The key principles described this section were the basis for establishing Grey Highlands new water rates and charges. Senior staff and Council made fundamental important changes to the rate structure in 2011 to increase the portion of revenues that were derived from fixed charges. This change was critical in reducing the risk of revenue instability due to the unpredictability of water consumption associated with either weather conditions or the loss of major commercial and/or industrial users. Therefore the rate structure established in 2011 was maintained as the basis for the future, with some modifications as noted in Section 3.3 following review with Council and senior staff. The development of the rates for 2012 and beyond was considered to be the next phase to follow up on the changes already made by staff and adopted by Council in Capital financing for future projects was also based on a managed combination of debt and reserves. Funding from provincial and or federal government grants and programs were not included as these sources of financing are arranged on a case by case basis and their approvals are unpredictable. However, it should be noted that it is the intention of the Municipality of Grey Highlands to aggressively pursue all Federal and Provincial funding opportunities. The acquisition of such funding would serve to reduce the debt requirements and the load on the reserve funds for financing. 6 DFA Infrastructure International Inc.

12 The following are the guiding principles that were considered and approved by senior staff and Council in developing the future water rates: 1. Full Cost Recovery The full costs of managing the water system should be recovered through the rates and charges to sustain adequate financing for the water systems including asset replacement based on life cycle costs (consistent with Sustainable Water & Sewer Systems Act, 2002 & Water Opportunities Act 2010); 2. Reduce wasteful uses of water - This promotes water conservation (consistent with requirements of the Water Opportunities Act, 2010); 3. Fairness and reasonableness (avoid discrimination) - The rate structure should not unduly benefit or adversely affect one customer class over another; 4. Ease of Administration - Rate structure should be simple; this would serve to minimize administration costs and facilitate easy understanding by customers; 5. Stability Major fluctuations in the rates and charges from year to year should be avoided by establishing and utilizing a rate stabilization reserve fund. The rates should also provide predictability in terms of revenues each year i.e. the portion of revenues from fixed and/ or base charges should be sufficient to reduce risk of running deficits; 6. Industry promotion All industries will be treated equitably with no specific incentives for a particular industry; 7. Address problems / issues with existing rates - Any issues with the current rate structure should be identified and addressed in the rates and charges update. Once issue is the complexity of the current structure (noted in principle #4); 8. Financing to Include Debt - The capital projects related to the water system should be financed through combination of debentures and transfers from the water reserve fund; 9. Reserve Funds Reserve balances must be able to address the needs but not unduly overbuilt; and 10. Rates/ Charges to be Specific to Each System - The current approach of having separate rates for each system would be continued. 3.3 Stakeholder Input One of the key elements of the process was the consideration of input from senior staff and members of Council. A workshop session was held on December 6, 2012 with senior staff and Committee of the Whole to review the financing principles, full system costs, the potential rate options and respective implications to customers. Both senior staff and Council felt that it was important to ensure that the future revenues and rates be sufficient for the long-term financial sustainability of the water systems. In addition, there should be consistency with current Provincial expectations (as indicated through the SWSA and the Water Opportunities 7 DFA Infrastructure International Inc.

13 Act) and best practices, including the need to promote water conservation so that the Municipality can be in a position to successfully pursue and secure future Provincial and/ or Federal Government funding. The following are the main outcomes of the session: Approval of the financing principles; Phase out the preferential industrial rate that applied to the large industrial users with very high annual water consumption; Increase the margin between the rate blocks as a step towards promoting water conservation; Over the long-term, consideration should be given to servicing the KAT Water System customers from the Markdale Water System due to the relatively high cost of managing the KAT system. This would improve efficiencies within the overall water service to customers. However, the feasibility of consolidating the two (2) water systems would need to be thoroughly investigated from an engineering perspective as part of the ongoing Water & Wastewater Servicing Master Plan prior to any further decisions being made; and Pursue funding opportunities particularly, for the new Markdale Water Tower. Refined capital financing and rate options were developed for both systems and these were presented to and approved in principle by Council on December 19, 2011 subject to public consultation. A Public Meeting was held on January 9, 2012 to review the new rates for both systems and obtain public input. Staff made a presentation at the session describing the new rates and addressed all questions. Council subsequently approved the new By-law No to implement the new rates in The new rates identified in this report for 2012 are those approved by Council in the By-law. 3.4 Data Sources The primary sources of data used to prepare this financial plan are listed in Table 3-2. In addition, information was also developed from discussions with and input from Grey Highlands staff, as required. Table 3-2: Data Sources Item Data Source Asset Life Expectancy Municipality s TCA Policy Information Provided by the Municipality Asset Values Municipality s TCA Policy Information Provided by the Municipality O & M Costs and Revenue Projections Municipality s 2011 and 2012 Water Operating Budget Capital Cost Projections Municipality s 2011 and year Water Capital Budget Forecast Debt Information provided by the Municipality Municipality s 2011 and 2012 Water Operating Budget and 5-Year Capital Budget Forecast Investments, Reserve balances etc. Information provided by the Municipality 8 DFA Infrastructure International Inc.

14 4 Markdale Water System Full Cost Assessment This section identifies the current and future costs (i.e. the full costs) associated with the management of the Markdale Water System over the next twenty (25) years (2011 to 2035). The key cost areas include: Operations & Maintenance (O&M) cost projections; Capital Budget based on the approved 5-year forecast; Tangible Capital Asset (TCA) projections including asset replacement needs; Debt Requirements; and Reserve fund requirements. The non-rate revenues associated with the system are also identified. These are defined as revenues that are routinely generated each year by the daily operations and include administrative revenues such as service fees, penalties, operating grants (i.e. OSWAP) etc. It is important to note that the non-rate revenues do not include the revenues generated by the water rates (i.e. from the sale of water). The full costs developed through the various analyses in this study identify the revenue requirements for the water systems and form the basis for the future rates and charges. 4.1 Customer Growth and Consumption The cost of service depends on the number and type (residential, commercial, industrial) of customers and corresponding water demand. Although most costs are fixed, variable costs such as annual chemical use and hydro costs can increase depending on the level of growth and water consumption. Capital costs related to increasing system capacity to accommodate growth can also be influenced by growth and demand. In addition, the current rate structure is comprised of a flat or base charge per unit plus a consumption charge based on the metered volume of water consumed. Therefore forecasting customer growth and annual water consumption volumes by customer type are essential to projecting future costs, revenue requirements and rates. Customer Growth There were 550 customers in 2011 totalling billable units. Billable units are the number of units at a specific property (customer) to which the base charge applies. Based on the Municipality s projections, customer growth is projected to be marginal. Approximately five (5) new customers are expected to be added between 2012 and 2015 and then one (1) new customer per year thereafter. Each new customer is expected to add one (1) new billable unit. The number of customers to which the flat fee applies (i.e. those customers with no meters) is projected to remain unchanged. The projected growth in customers and billable units over the 25- year study period is presented in Appendix B. Water Consumption Projections It is important for the consumption projections to be conservative so that revenue projections from the consumption rate are not unduly overestimated (leading to potential annual deficits). The annual consumption 9 DFA Infrastructure International Inc.

15 volumes by rate category are shown in Table 4-1. These estimates were developed based on considering the following information: 1. The 2009 and 2010 consumption volumes were 276, 561m3 and 178,950m3 respectively. The lower consumption in 2010 was due to one of the large customers not operating at full capacity; 2. The actual 2011 consumption to September 30, 2011 was 217,592m3 with the largest customer operating at an increased capacity. The projected 2011 year-end consumption was estimated to be approximately 294,360m3. Therefore an annual consumption of approximately 285,000m3 was developed with input from staff as being a reasonable volume that can be expected each year and used for future projections. Table 4-1: Projected Annual Water Consumption (m 3 ) - Markdale Rate Category Annual Consumption 0-15 m3 per month 38, m3 per month 43,929 >100 m3 per month 25,424 Industrial >600 m3 per month 177,092 Total 285, Tangible Capital Assets (TCA) The depreciation (amortization) of existing assets is a non-cash annual cost that reflects the annual use of assets until the end of their respective useful lives. Therefore allowances must be made to finance the replacement and/ or rehabilitation of the existing assets once they expire and can no longer play a role in providing the required drinking water service to customers. However, it should be noted the since depreciation is based on the original (historical) cost at the time the asset was placed in service, it does not account for inflation since the year of installation. Therefore basing asset replacement costs on depreciation alone is not sufficient to cover the future replacement of assets. Therefore replacement cost estimates based on indexing historical costs to the replacement year are used for projecting future asset replacement costs. The Municipality s PSAB 3150 TCA data was used to develop the financial information and asset replacement projections related to the Markdale Water System. The TCA projections are based on the following assumptions: Amortization of existing assets is based on the Municipality s Tangible Capital Assets Policies and Procedures. Amortization of new assets is based on straight line depreciation with full year depreciation charged in the year of acquisition; Historical costs, life expectancy and remaining useful life as per the PSAB 3150 data provided by the Municipality; Replacement costs are based on indexing historical costs to the year of replacement using the appropriate Construction Price Indices; Fully depreciated assets continue to be used in service i.e. no asset removals; 10 DFA Infrastructure International Inc.

16 New assets to be acquired are based on the capital forecast presented in Appendix C. The forecast includes projects in the 5-year Capital Budget Forecast and asset replacement projections based on TCA analysis undertaken as part of the rate study. The new are added to the TCA in the year of acquisition and depreciated over their useful life. Note that some future projects are deemed to be operational i.e. they do not meet the definition of a TCA or Betterment as per the Municipality s TCA policy and therefore are considered as operating expenses in the financial statements; and Contributed assets from new development are assumed to be zero as the current growth rate is marginal. Asset Value The Markdale Water System is comprised of the following asset classes: Land & Land Improvements; Buildings; Linear Assets; Equipment; and Hydrants. It should be noted that land is not a depreciable asset. The total replacement value (in 2011 dollars) of the assets, not including land, is estimated to be $6,526,208. As shown in Figure 4-1, approximately 50% of the asset value is in buildings and 31% in pipes and other linear assets. Figure 4-1: Current Asset Value - Markdale Linear Assets $2,012,654 31% Land Improvements $36,857 0% Buildings $3,248,287 50% Land Improvements Buildings Hydrants Equipment Linear Assets Equipment $966,665 15% Hydrants $261,745 4% 11 DFA Infrastructure International Inc.

17 Table 4-2 summarizes the historical cost of the assets, the accumulated depreciation and the net book value (NBV) of the assets over the 6-year period required for the O. Reg. 453/07 Water Financial Plan. This indicates that the Markdale Water System, as a whole is approximately 45% depreciated or at approximately half way through its life expectancy. This suggests that many components are at or approaching replacement and / or rehabilitation within the next few years. The depreciated value (or NBV) of the Markdale Water System is projected to increase from approximately $1.6 million at the end of 2011 to $7.5 million at the end of This increase in Net Book Value is primarily due to the replacement of the existing water tower and related system upgrades that would be required over the next few years, which adds value to the assets. Table 4-2: Asset Depreciation and Net Book Value (NBV) - Markdale TCA Historical Cost Accumulated Depreciation (Beginning) Depreciation Expense Accumulated Depreciation (Ending) Net Book Value CONSOLIDATED (TOTAL) $ 2,986,062 $ 3,821,268 $ 8,969,040 $ 9,688,233 $ 9,816,561 $ 9,914,519 $ 1,257,587 $ 1,356,660 $ 1,491,799 $ 1,713,253 $ 1,947,399 $ 2,175,045 $ 99,072 $ 135,140 $ 221,454 $ 234,146 $ 227,646 $ 231,617 $ 1,356,660 $ 1,491,799 $ 1,713,253 $ 1,947,399 $ 2,175,045 $ 2,406,662 $ 1,629,402 $ 2,329,469 $ 7,255,787 $ 7,740,834 $ 7,641,516 $ 7,507,857 Asset Replacement Needs A TCA analysis was completed to determine the future assets replacement needs. This involved consideration of the following information for the respective assets: Historical cost; In- service or year of installation; Useful life expectancy and anticipated year of replacement; Replacement costs in 2011 dollars (developed by applying the appropriate historical Construction Price Indices to the historical costs); and Replacement costs in the future year of replacement (estimated by adjusting 2011 replacement costs using 2% inflation). The asset replacement and/ or rehabilitation requirements resulting from the analysis are summarized in Table 4-3. This shows that approximately $3.7 million (a large portion of which includes the water tower replacement) is required over the next 25 years. Approximately $2.79 million is required beyond 2035 primarily for replacement of linear assets. The annual asset replacement requirements between 2011 and 2035 are presented in Appendix C as part of the overall capital requirements for the study period. These annual projections suggest that $3.2 million (i.e. most of the projected asset replacement needs for the study period) is required within the next ten (10) years. 12 DFA Infrastructure International Inc.

18 Table 4-3: Asset Replacement Needs - Markdale Water Assets Total Replacement Amount to be Funded Amount to be Funded Costs in Study Period Beyond Study Period Land & Land Improvements $ 36,857 $ 12,536 $ 24,321 Buildings $ 3,248,287 $ 2,788,988 $ 459,299 Hydrants $ 261,745 $ - $ 261,745 Equipment $ 966,665 $ 931,553 $ 35,112 Linear Assets $ 2,012,654 $ - $ 2,012,654 Total Water Assets $ 6,526,208 $ 3,733,077 $ 2,793, Capital Budget Requirements The future capital budget requirements are presented in Appendix C for the study period. This reflects the projects identified by the Municipality in the 5-year Capital Budget Forecast and the replacement of existing assets as they reach their respective useful lives. Approximately $7.7 million in capital expenditure is required between 2012 and It should be noted that some of the projects identified in the 5-year Capital Budget Forecast include asset replacement. Therefore these projects were rationalized with the projected asset replacement needs to ensure that there was no duplication in the 25-year projection. The TCA analysis indicated that replacement of some assets is required in 2012 i.e. immediately. To allow sufficient time for developing budgets and arranging for financing an assumption was made that the replacement of these assets would be deferred by approximately five (5) years. There are also no growth related projects included in the forecast due to the limited customer growth expected for the system. Appendix C also shows the projected sources financing for the annual expenditures. Based on the financing principles noted in Section 3.2, capital financing will be through a combination of debt and cash from the Capital Reserve. Financing from other sources such as provincial and/ or federal grants is unpredictable and are therefore not considered over the long-term. However the Municipality is encouraged to aggressively pursue these funding opportunities as they become available to reduce the overall amount to be debenture financed or funded from the Capital reserve. Note that a provincial funding contribution of $1,525,920 is anticipated for the Water Tower Replacement. This represents two-thirds of the estimated project cost with the remaining one-third to be provided by Grey Highlands. Debt financing and the reserve fund requirements are described in Sections 4.4 and Debt Financing Issuance of debt allows for financing to be available in the year the project is required and repayment occurs over the future years. This approach supports the principle of user pay in that the beneficiaries of the new asset pay for its use through the debt repayment. Financing from the capital reserve requires that sufficient funds be available in the reserve in the year the project is undertaken, through annual contributions to the reserve in prior years. Without debt or reserve financing, major rate increases or spikes would be required in the project year to raise sufficient funds to cover the project expenditures. Therefore the approach was taken to finance major projects over the next few years though debt to minimize the burden on the capital reserve or on rates in the short-term. This allows the projects to proceed while the reserves are gradually built to finance future projects. 13 DFA Infrastructure International Inc.

19 There is currently no existing debt related to the Markdale Water System. The projects to be financed through new debt are noted in Table 4-4. Approximately $4.9 million of new debt will be required between 2012 and A longer term of 25 years for repayment was selected instead of a shorter term to reduce the annual repayment amounts to be raised through the future rates. This is a reasonable approach given that the assets for which the debt would be incurred would have life expectancies that exceed 25 years. The assumed interest rate is 4% based. The projected debt repayment schedule including annual principal and interest payments and remaining debt is presented in Appendix D. The annual debt repayment is projected to be approximately $49,622 in 2013, $278,275 in 2014 and $312,240 for the remainder of the term. Table 4-4: Debenture Requirements - Markdale PROJECT TERM RATE Class B Environmental Study, (2012 construct watermain from tower to Main Street) 229, , , % New Water Tower (1/3 Funding) 762, % Infrastructure Upgrades (for pressure issues) 2,601, % New Water Meter System 545, % Asset Replacement Buildings 25 4% Total 775,200 3,572, ,604 The projected outstanding debt balance and reserve balances over the period are shown in Figure 4-2. The outstanding debt is projected to be at a high of $4.75 million in 2014 and subsequently reduce over the next 25 years as the total debt is retired. 14 DFA Infrastructure International Inc.

20 Figure 4-2: Projected Debt and Reserve Balances - Markdale $5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $ Capital Reserve O&M Reserve Debt Balance 4.5 Reserve Fund Requirements There are three (3) reserve funds for which projections were made for the study period: The Capital Reserve Fund for The Operating Reserve Fund; and The Development Charges (DC) Reserve Fund. Appendix E shows the projected continuity schedule for each reserve. This shows the transfers to and from the respective reserves and the opening and closing balances. Reserves are assumed to earn 1% annual interest on balances. Capital Reserve Fund The Capital Reserve Fund, which had an opening balance of approximately $240,345 at the beginning of 2011, will be the primary source of financing for projects not funded through debt. Approximately $1.43 million in financing will be required from this reserve between 2011 and 2035 mostly for asset replacement. This requires that annual contributions be made to the Capital Reserve Fund to ensure that sufficient funds are available for the respective projects. These annual contributions (to be raised through the water rates each year) are generally projected to range between $150,000 and $200,000 for most years during the period with the higher contributions in the later years. The reserve annual closing balance is projected to range between $200,000 and $460,000 until 2023 after which it gradually increases to approximately $2.5 million by This allows the Municipality to be in a reasonable position to fund the asset replacement work required beyond 2035, estimated to be approximately $2.7 million as noted in Section DFA Infrastructure International Inc.

21 Operating Reserve Fund The Operating Reserve Fund is required to provide a source of funding to offset any year-end operating deficits that may occur during the period and avoid rate increases in the subsequent year. The annual contributions (to be raised through the water rates each year) are based on a minimum 5% of projected annual operations and maintenance costs with higher amounts in some years as required. In general the contributions are less than $18,000 each year and decline to less than $8,000 after Higher amounts of approximately $69,000 and $118,000 are required in 2012 and 2013 respectively. The reserve annual closing balance is projected to be approximately $79,000 in 2012 and range between $180,000 and $200,000 until 2019 after which it gradually increases to approximately $346,000 by Development Charges (DC) Reserve Fund No significant transactions are projected for the DC reserve. The 2011 opening balance was approximately $43,000 and is projected to increase marginally to approximately $55,000 by 2035 due to interest earned. 4.6 Operations & Maintenance (O&M) Cost Projections The annual operating budget is based on the operations and maintenance needs of the water system which includes costs related to water treatment, distribution, metering and hydrants. These costs generally include the following: Personnel; Materials and Equipment; and Administration and Vehicles (shared with other water and wastewater systems). Transfers to operating and capital reserve and debt servicing are typically included in the annual O&M budgets. However these costs are addressed separately for the purposes of the rate study and noted in Sections 4.4 and 4.5. A portion of these O&M costs is offset by non-rate revenues including: Late payment charges; Administrative service fees; and Government grants (OSWAP). The projection of the gross costs and non-rate revenues over the six (6)-year period from 2011 to 2016 were obtained from the County s 2011 Rate Supported Water & Wastewater Capital Forecast and Operating Budget and 2011 Rate Model projections. The assumptions used in arriving at these projections are as follows: O&M costs (not including non-recurring costs and reserve transfers) will increase annually by 3% until 2017 to account for potential new regulatory requirements and 2% thereafter; No grants after expiry of the current OSWAP funding in 2013; and Recurring non-rate revenues would remain at 2012 levels until 2017 and increase by 2% thereafter. 16 DFA Infrastructure International Inc.

22 Appendix F summarizes the gross operating costs, non-rate revenues and net costs to be recovered from users through the Municipality's base and consumption charges. The gross annual O&M costs (not including nonrecurring costs and reserve transfers) are expected to increase from approximately $275,000 in 2012 to $306,000 by 2017 and up to $438,000 by Full Costs Table 4-5 is a summary of the projected costs for all the water system cost components over the study period. It shows the annual average cost of approximately $933,000 to manage the water system over the next 25 years. This is equivalent to a unit cost of $3.27 per cubic metre per year based on 285,000 m3 per year. These annual costs reflect the average annual revenue requirements for the water system to be recovered from the water rates. Table 4-5: Average Annual Full Cost of Managing System - Markdale Cost Component Average Annual Cost % $/m3 O&M $ 355,581 38% $ 1.25 Capital from Reserve $ 88,904 10% $ 0.31 Cap. Reserve Contributions $ 173,000 19% $ 0.61 Op. Reserve Contributions $ 6, % $ 0.02 Debt Repayment $ 309,320 33% $ 1.09 Total $ 932, % $ KAT Water System Full Cost Assessment This section identifies the current and future costs (i.e. the full costs) associated with the management of the KAT Water System over the next twenty (25) years (2011 to 2035). The key cost areas include: Operations & Maintenance (O&M) cost projections; Capital Budget based on the approved 5-year forecast; Tangible Capital Asset (TCA) projections including asset replacement needs; Debt Requirements; and Reserve fund requirements. The non-rate revenues associated with the system are also identified. These are defined as revenues that are routinely generated each year by the daily operations and include administrative revenues such as service fees, penalties, operating grants (i.e. OSWAP) etc. It is important to note that the non-rate revenues do not include the revenues generated by the water rates (i.e. from the sale of water). The full costs developed through the various analyses in this study identify the revenue requirements for the water systems and form the basis for the future rates and charges. 17 DFA Infrastructure International Inc.

23 5.1 Customer Growth and Consumption The cost of service depends on the number and type (residential, commercial, industrial) of customers and corresponding water demand. Although most costs are fixed, variable costs such as annual chemical use and hydro costs can increase depending on the level of growth and water consumption. Capital costs related to increasing system capacity to accommodate growth can also be influenced by growth and demand. In addition, the current rate structure is comprised of a flat or base charge per unit plus a consumption charge based on the metered volume of water consumed. Therefore forecasting customer growth and annual water consumption volumes by customer type are essential to projecting future costs, revenue requirements and rates. Customer Growth There were 151 customers in 2011 totalling 220 billable units. Billable units are the number of units at a specific property (customer) to which the base charge applies. Based on the Municipality s projections, customer growth is projected to be marginal. Approximately two (2) new customers are expected to be added each year. Each new customer is expected to add one (1) new billable unit. The number of customers to which the flat fee applies (i.e. those customers with no meters) is projected to remain unchanged. The projected growth in customers and billable units over the 25-year study period is presented in Appendix B. Water Consumption Projections It is important for the consumption projections to be conservative so that revenue projections from the consumption rate are not unduly overestimated (leading to potential annual deficits). The annual consumption volumes by rate category are shown in Table 5-1. These estimates were developed based on considering the following information: The 2009 and 2010 consumption volumes were 18,970 m 3 and 18,253 m 3 respectively; and The actual 2011 consumption to September 30, 2011 was 8,208 m 3. The significantly lower consumption compared to previous years was due to the closure of one of the large customers. The projected 2011 year-end consumption was estimated to be approximately 10,944 m 3. Therefore an annual consumption of approximately 10,944 m 3 was developed with input from staff as being a reasonable volume that can be expected each year and used for future projections. Table 5-1: Projected Annual Water Consumption (m 3 ) - KAT Consumption Category 2011 % Monthly consumption of 0 25 m % Monthly consumption of m % Monthly consumption >100 m % Total Annual Consumption 10, % 18 DFA Infrastructure International Inc.

24 5.2 Tangible Capital Assets (TCA) The depreciation (amortization) of existing assets is a non-cash annual cost that reflects the annual use of assets until the end of their respective useful lives. Therefore allowances must be made to finance the replacement and/ or rehabilitation of the existing assets once they expire and can no longer play a role in providing the required drinking water service to customers. However, it should be noted the since depreciation is based on the original (historical) cost at the time the asset was placed in service, it does not account for inflation since the year of installation. Therefore basing asset replacement costs on depreciation alone is not sufficient to cover the future replacement of assets. Therefore replacement cost estimates based on indexing historical costs to the replacement year are used for projecting future asset replacement costs. The Municipality s PSAB 3150 TCA data was used to develop the financial information and asset replacement projections related to the KAT Water System. The TCA projections are based on the following assumptions: Amortization of existing assets is based on the Municipality s Tangible Capital Assets Policies and Procedures. Amortization of new assets is based on straight line depreciation with full year depreciation charged in the year of acquisition; Historical costs, life expectancy and remaining useful life as per the PSAB 3150 data provided by the Municipality; Replacement costs are based on indexing historical costs to the year of replacement using the appropriate Construction Price Indices; Fully depreciated assets continue to be used in service i.e. no asset removals; New assets to be acquired are based on the capital forecast presented in Appendix C. The forecast includes projects in the 5-year Capital Budget Forecast and asset replacement projections based on TCA analysis undertaken as part of the rate study. The new assets are added to the TCA in the year of acquisition and depreciated over their useful life. Note that some future projects are deemed to be operational i.e. they do not meet the definition of a TCA or Betterment as per the Municipality s TCA policy and therefore are considered as operating expenses in the financial statements; and Contributed assets from new development are assumed to be zero as the current growth rate is marginal. Asset Value The KAT Water System is comprised of the following asset classes: Land & Land Improvements; Buildings; Linear Assets; Equipment; and Hydrants It should be noted that land is not a depreciable asset. The total replacement value (in 2011 dollars) of the assets, not including land, is estimated to be $6,526,208. As shown in Figure 4-1 approximately 50% of the asset value is in buildings and 31% in pipes and other linear assets. 19 DFA Infrastructure International Inc.

25 Figure 5-1: Current Asset Value - KAT Linear Assets $1,533,923 34% Land Improvements $25,000 1% Buildings $1,137,400 26% Hydrants $105,744 2% Land Improvements Buildings Hydrants Equipment Linear Assets Equipment $1,650,604 37% Table 5-2 summarizes the historical cost of the assets, the accumulated depreciation and the net book value (NBV) of the assets over the 6-year period required for the O.Reg. 453/07 Water Financial Plan. This indicates that the KAT Water System, as a whole, is approximately 45% depreciated or at approximately half way through its life expectancy. This suggests that many components are at or approaching replacement and / or rehabilitation within the next few years. The depreciated value (or NBV) of the KAT Water System is projected to decrease from approximately $1.48 million at the end of 2011 to $1.46 million at the end of This decrease in Net Book Value is primarily due to the depreciation of existing assets over the period, primarily equipment as noted Table 5-3. Table 5-2: Asset Depreciation and Net Book Value (NBV) - KAT TCA Historical Cost Accumulated Depreciation (Beginning) Depreciation Expense Accumulated Depreciation (Ending) Net Book Value CONSOLIDATED (TOTAL) $ 2,727,533 $ 2,824,198 $ 2,858,151 $ 2,951,419 $ 3,021,033 $ 3,102,964 $ 1,156,156 $ 1,245,958 $ 1,341,375 $ 1,437,337 $ 1,517,511 $ 1,577,642 $ 89,802 $ 95,417 $ 95,962 $ 80,175 $ 60,131 $ 62,202 $ 1,245,958 $ 1,341,375 $ 1,437,337 $ 1,517,511 $ 1,577,642 $ 1,639,845 $ 1,481,575 $ 1,482,823 $ 1,420,815 $ 1,433,907 $ 1,443,391 $ 1,463,119 Asset Replacement Needs A TCA analysis was completed to determine the future assets replacement needs. This involved consideration of the following information for the respective assets: Historical cost; In- service or year of installation; Useful life expectancy and anticipated year of replacement; 20 DFA Infrastructure International Inc.

26 Replacement costs in 2011 dollars (developed by applying the appropriate historical Construction Price Indices to the historical costs); and Replacement costs in the future year of replacement (estimated by adjusting 2011 replacement costs using 2% inflation). The asset replacement and/ or rehabilitation requirements resulting from the analysis are summarized in Table 5-3. This shows that approximately $1.53 million for asset replacement is required over the next 25 years. Approximately $2.92 million is required beyond 2035 primarily for replacement of linear assets and buildings. The annual asset replacement requirements between 2011 and 2035 are presented in Appendix C as part of the overall capital requirements for the study period. These annual projections suggest that $1.4 million (i.e. most of the projected asset replacement needs for the study period) is required within the next ten (10) years. Table 5-3: Asset Replacement Needs - KAT Water Assets Land & Land Improvements Buildings Hydrants Equipment Linear Assets Total Water Assets Total Replacement Amount to be Funded Amount to be Funded Costs in Forecast Period Beyond Forecast $ 25,000 $ 25,000 $ - $ 1,137,400 $ 38,982 $ 1,098,418 $ 105,744 $ - $ 105,744 $ 1,650,604 $ 1,467,164 $ 183,440 $ 1,533,923 $ - $ 1,533,923 $ 4,452,671 $ 1,531,146 $ 2,921, Capital Budget Requirements The future capital budget requirements are presented in Appendix C for the study period. This reflects the projects identified by the Municipality in the 5-year Capital Budget Forecast and the replacement of existing assets as they reach their respective useful lives. It should be noted that some of the projects identified in the 5- year Capital Budget Forecast include asset replacement. Therefore these projects were rationalized with the projected asset replacement needs to ensure that there was no duplication in the 25-year projection. The TCA analysis indicated that replacement of some assets is required in 2012 i.e. immediately. To allow sufficient time for developing budgets and arranging for financing an assumption was made that the replacement of these assets would be deferred by approximately five (5) years. There are also no growth related projects included in the forecast due to the limited customer growth expected for the system. Appendix C also shows the projected sources financing for the annual expenditures. Based on the financing principles noted in Section 3.2, capital financing will be through a combination of debt and cash from the Capital Reserve. Financing from other sources such as provincial and/ or federal grants is unpredictable and are therefore not considered over the long-term. However the Municipality is encouraged to aggressively pursue these funding opportunities as they become available to reduce the overall amount to be debenture financed or funded from the Capital reserve. Note that approximately $0.49 million and $0.81 million in equipment replacement are targeted for 2017 and 2019 respectively. This is to address the declining asset value noted in Table 5-2 and the replacement needs noted Table 5-3. Debt financing and the reserve fund requirements are described in Sections 5.4 and DFA Infrastructure International Inc.

27 5.4 Debt Financing Issuance of debt allows for financing to be available in the year the project is required and repayment occurs over the future years. This approach supports the principle of user pay in that the beneficiaries of the new asset pay for its use through the debt repayment. Financing from the capital reserve requires that sufficient funds be available in the reserve in the year the project is undertaken, through annual contributions to the reserve in prior years. Without debt or reserve financing, major rate increases or spikes would be required in the project year to raise sufficient funds to cover the project expenditures. Therefore the approach was taken to finance major projects over the next few years though debt to minimize the burden on the capital reserve or on rates in the short-term. This allows the projects to proceed while the reserves are gradually built to finance future projects. There is existing debt of approximately $0.047million related to the KAT Water System, which would be retired by The projects to be financed through new debt are noted in Table 5-4. Approximately $1.3 million of new debt will be required in 2017 and A term of 15 years for repayment was selected instead of a shorter term to reduce the annual repayment amounts to be raised through the future rates. This is a reasonable approach given that the assets for which the debt would be incurred would have life expectancies of approximately 25 years. The assumed interest rate is 4% based. The projected debt repayment schedule including annual principal and interest payments and remaining debt is presented in Appendix D. The annual debt repayment is projected to be approximately $44,054 in 2017 and 2018 and $117,326 for the remainder of the term. Table 5-4: Debenture Requirements - KAT PROJECT TERM RATE Asset Replacement Equipment 489, , % Total 489, ,663 The projected outstanding debt balance and reserve balances over the period are shown in Figure 5-2. The outstanding debt is projected to be at a high of $1.25 million in 2019 and subsequently reduce over the term as the total debt is retired. 22 DFA Infrastructure International Inc.

28 Figure 5-2: Project Debt and Reserve Balances - KAT $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 Capital Reserve O&M Reserve Debt Balance $200,000 $ $(200,000) Reserve Fund Requirements There are three (3) reserve funds for which projections were made for the study period: The Capital Reserve Fund; The Operating Reserve Fund; and The Development Charges (DC) Reserve Fund. Appendix E shows the projected continuity schedule for each reserve. This shows the transfers to and from the respective reserves and the opening and closing balances. Reserves are assumed to earn 1% annual interest on balances. Capital Reserve Fund The Capital Reserve Fund, which had an opening balance of approximately $209,554 at the beginning of 2011, will be the primary source of financing for projects not funded through debt. Approximately $0.58 million in financing will be required from this reserve between 2011 and This requires that annual contributions be made to the Capital Reserve Fund to ensure that sufficient funds are available for the respective projects. These annual contributions (to be raised through the water rates each year) are generally projected to range between $50,000 and $80,000 for most years during the period with the higher contributions in the later years. The reserve annual closing balance is projected to increase from approximately $164,000 and $356,000 by2027 after which it gradually increases to approximately $1.4 million by This allows the Municipality to be in a reasonable position to fund the asset replacement work required beyond 2035, estimated to be approximately $2.9 million as noted in Section DFA Infrastructure International Inc.

29 Operating Reserve Fund The Operating Reserve Fund is required to provide a source of funding to offset any year-end operating deficits that may occur during the period and avoid rate increases in the subsequent year. The annual contributions (to be raised through the water rates each year) are based on a minimum 5% of projected annual operations and maintenance costs with higher amounts in some years as required. In general the contributions are between $15,000 and $32,000 each year until 2017 and decline to less than $9,000 until Lower contributions of less than $5,000 are periodically required for the reminder of the study period. The reserve annual closing balance is projected to be approximately $5,000 in 2012 increasing to approximately $144,000 by 2022 and remains in that range until Development Charges (DC) Reserve Fund No significant transactions are projected for the DC reserve. The 2011 opening balance was approximately $2,374 and is projected to increase marginally each year to approximately $3,000 by 2035 due to interest earned. 5.6 Operations & Maintenance (O&M) Cost Projections The annual operating budget is based on the operations and maintenance needs of the water system which includes costs related to water treatment, distribution, metering and hydrants. These costs generally include the following: Personnel; Materials and Equipment; Administration and Vehicles (shared with other water and wastewater systems) Transfers to operating and capital reserve and debt servicing are typically included in the annual O&M budgets. However these costs are addressed separately for the purposes of the rate study and noted in Sections 5.4 and 5.5. A portion of these O&M costs is offset by non-rate revenues including: Late payment charges; Administrative service fees; and Government grants (OSWAP). The projection of the gross costs and non-rate revenues over the six (6)-year period from 2011 to 2016 were obtained from the County s 2011 Rate Supported Water & Wastewater Capital Forecast and Operating Budget and 2011 Rate Model projections. The assumptions used in arriving at these projections are as follows: O&M costs (not including non-recurring costs and reserve transfers) will increase annually by 3% until 2017 to account for potential new regulatory requirements and 2% thereafter; No grants after expiry of the current OSWAP funding in 2012; and 24 DFA Infrastructure International Inc.

30 Recurring non-rate revenues would remain at 2012 levels until 2017 and increase by 2% thereafter. Appendix F summarizes the gross operating costs, non-rate revenues and net costs to be recovered from users through the Municipality's base and consumption charges. The gross annual O&M costs (not including nonrecurring costs and reserve transfers) are expected to increase from approximately $238,000 in 2012 to $253,000 by 2020 and up to $341,000 by Full Costs Table 5-5 is a summary of the projected costs for all the water system cost components over the study period. It shows the annual average cost of approximately $481,000 to manage the water system over the next 25 years. This is equivalent to a unit cost of $43.92 per cubic metre per year based on 10,944 m 3 per year. These annual costs reflect the average annual revenue requirements for the water system to be recovered from the water rates. The cost per cubic metre to manage the KAT system is significantly higher than the Markdale system costs ($43.92 compared to $3.27). The KAT system cost per customer is almost double that for Markdale ($3,183 compared to $1,696) Table 5-5: Average Annual Full Cost of Managing System - KAT Cost Component Average Annual Cost % $/m3 O&M $ 278,048 58% $ Capital from Reserve $ 42,863 9% $ 3.92 Cap. Reserve Contributions $ 85,200 18% $ 7.79 Op. Reserve Contributions $ 2, % $ 0.21 Debt Repayment $ 72,306 15% $ 6.61 Total $ 480, % $ Full Cost Recovery This section identifies the future rates necessary to meet the revenue requirements of each water system i.e. to recover the full cost of managing the water systems, based on the assessment of system costs completed in the study. As noted in Section 3.2, changes to the rate structure were made by the municipality in 2011 to ensure revenue stability. The main adjustment was to increase the portion of revenues derived from the base charges and reduce dependency on variable revenue i.e. from the consumption charge. The future rates are based on maintaining the 2011 structure with consideration given to the principles noted in Section 3.2. The 2011 rate structures for the two (2) water systems are similar with the following components: A Base Rate per Billable Unit (a billable unit refers to the number of building units at a customer s property); Consumption charges for different blocks of consumption. The rate for each block increases with consumption (i.e. increasing block ) except for the Industrial Rate for the Markdale Water System which decreases; and 25 DFA Infrastructure International Inc.

31 A flat charge for non-metered customers. There is also a vacancy charge for unoccupied properties for the Markdale Water System. The projected water rates for the study period required to recover the full cost of managing each water system are presented in Appendix G. 6.1 Markdale Water System Rates The water rates for the 5-year period from 2011 to 2016 are shown in Table 6-1. The 2011 Industrial block rate ($ per cubic metre for consumption over 600 m 3 per month) offered customers with a very high consumption a much lower rate compared to customers in with low water consumption pattern (e.g. up to 15 m 3 per month for the first block). This is not consistent with water conservation pricing principles that typically set higher rates for higher consumption volumes. Additionally, the differences among the 2011 block rates were marginal and perhaps not significant enough to encourage conservation. The projected new rates for 2012 onward are based on the following: Phasing out the Industrial Block over a period of 3 years as follows: - In 2012, the Industrial block rate is the same as the first block rate; - In 2013, the Industrial block rate would increase to match the second block; and - In 2014 and beyond, the Industrial block rate would increase to match the third block rate i.e. for consumption over 100 m 3. Increasing the margin between the blocks to 2 cents; Applying an appropriate annual percentage (%) increase to the rates each year over the study period. An annual increase of 10% is projected for 2012 to The revenue from the base and consumption rates is projected to be 76% and 24% respectively of total annual revenue. Table 6-1: Markdale Water System Monthly Rates ( ) Rate Category Annual % Increases 10% 10% 10% 10% 10% Min. Charge per Billable Unit Flat Charge Vacant Property Charge Uniform Rate (0 15 m3) Uniform Rate (16 100m3) Uniform Rate (>100 m3) Uniform Rate (Industrial > 600 m3) DFA Infrastructure International Inc.

32 The potential implications of the 2012 rates compared to 2011 rates are presented in Table 6-2. The average residential customer with a consumption of approximately 180 m 3 per year would pay approximately $479 in The average commercial customer with consumption of approximately 600 m 3 per year would pay $1,468. Table 6-2: Markdale 2012 vs Rate Implications Customer Consumption m3/ year $435 $ m3 / year $1330 $ KAT Water System Rates The water rates for the 5-year period from 2011 to 2016 are shown in Table 6-3. The rate structure is similar to that for the Markdale Water system except for the following: The first block rate applies to consumption of up to 25 m 3 ; There is no separately defined industrial block rate; The differences among the block rates is almost 10 cents; and The rates (and corresponding consumption) apply to quarterly consumption. The projected new rates for 2012 onward are based on the applying an appropriate annual percentage (%) increase to the rates each year over the study period. An annual increase of 8% is projected for 2012 and 2013 and 3% for 2014 to The revenue from the base and consumption rates is projected to be approximately 80% and 20%, respectively, of total annual revenue. It should be noted that the KAT Water System rates are significantly higher the rates for the Markdale system. This is like due to the relatively low number of customers and consumption volumes to support recovery of system costs. The feasibility of interconnecting the two (2) water systems should be investigated to determine if there would be a benefit in terms of operating efficiency and avoidance of future debt related to the KAT system for asset replacement. 27 DFA Infrastructure International Inc.

33 Table 6-3: KAT Water System Quarterly Rates ( ) Rate Category Annual % Increases 8.00% 8.00% 3.00% 3.00% 3.00% Min. Charge per Billable Unit Flat Charge Uniform Rate (0-25 m3) Uniform Rate ( m3) Uniform Rate (>100m3) The potential implications of the 2012 rates compared to 2011 rates are presented in Table 6-4. The average residential customer with a consumption of approximately 180 m 3 per year would pay approximately $1907 in The average commercial customer with consumption of approximately 600 m 3 per year would pay $6,097. Table 6-4: KAT 2012 vs Rate Implications Customer Consumption m 3 / year $1766 $ m 3 / year $5645 $ Financial Plan No A This financial plan involves the review, analysis and assessment of financial information relevant to the Municipality s water system including costs, revenues, debt, cash transactions and Tangible Capital Assets (TCA) to prepare the following three (3) financial statements for each water system, covering the period 2011 to 2016 as required under O.Reg. 453/07: Statement of Financial Position; Statement of Operations; and Statement of Cash Flow. 28 DFA Infrastructure International Inc.

34 The information used to prepare these statements was developed through the rate study process and presented in earlier sections of this document. Separate financial statements were prepared for each of the two (2) water systems as the Municipality operates these systems independently and set different user rates for each system. Appendix H summarizes the requirements of O.Reg 453/07 and references where these were addressed in this financial plan. 7.1 Statements of Financial Position The Statements of Financial Position are presented in Table 7-1 and Table 7-2 for the Markdale Water System and the KAT Water System respectively. These statements summarize the Municipality s water-related financial and non-financial assets (Tangible Capital Assets TCA) and liabilities, and provide the net financial asset/ (net debt) position and accumulated surplus related to managing the each water system. The financial assets are primarily cash balances in the water reserves and reserve funds. Liabilities mainly consist of outstanding long-term debt and development charges. The non-financial assets (TCA) include the infrastructure and facilities related to each water system. The historical costs are amortized over the asset life to arrive at the net book value each year from 2011 to New assets are added in the years acquired, developed or built. Contributed assets are primarily new infrastructure and facilities that would be transferred to the Municipality s ownership and control by developers as they are completed. However this is assumed to be zero as growth is projected to be minimal. It is also assumed that other non-financial assets such as inventory and prepaid expenses are zero. Markdale Water System Contained within the Statements of Financial Position are important indicators, the first being net financial assets/ (debt) which is defined as the difference between financial assets and liabilities. This indicator provides an indication of a water system's "future revenue requirement". Table 7-1 indicates that in 2011, the Markdale water system will be in a net financial asset position of $0.337 million. This would change to a net financial debt position of $4.8 million by 2014, which decreases to $4.1 million by The increased net financial debt position is due to the significant increase debt required to finance new infrastructure between 2012 and T The next important indicator contained in the Statement of Financial Position is the net book value of TCA. Table 7-1 shows that net TCA for the Markdale water system is expected to grow by $5.8 million over the forecast period, or from $1.6 million in 2011 to $7.5 million This is due to the significant investment in tangible capital assets planned for 2012 to 2016 i.e. in excess of the consumption (depreciation) of existing assets. Further, a consumption ratio consisting of the accumulated amortization of the County's TCA as a percent of historical cost highlights the aged condition of the assets and their potential replacement needs. In simple terms this indicates how far along the system is in its life expectancy. The Water Asset Consumption Ratio for Markdale decreases from 45% in 2011 to 24% in The decline indicates that significant investment is planned for replacement or rehabilitation of aging assets as they expire, thereby extending the overall system life expectancy. Another important indicator in the Statement of Financial Position is the accumulated surplus. This indicator provides an indication of the resources available to the County for managing its water system. The accumulated surplus is projected to increase from approximately $1.96 million in 2011 to approximately $3.35 million by The accumulated surplus is predominately made up of the net TCA balance representing past and new investments in the water systems infrastructure during the period. 29 DFA Infrastructure International Inc.

35 Table 7-1: Statement of Financial Position Markdale Water System Financial Assets Cash,Receivables and Investment $380,855 $502,494 $642,598 $478,070 $395,440 $395,141 Total Financial Assets $380,855 $502,494 $642,598 $478,070 $395,440 $395,141 Financial Liabilities Accounts Payable & Deferred Revenue ($43,873) ($44,311) ($44,754) ($45,202) ($45,654) ($46,111) Long term Liabilities $0 ($775,200) ($4,328,626) ($4,754,100) ($4,632,023) ($4,505,064) Total Financial Liabilities ($43,873) ($819,511) ($4,373,380) ($4,799,301) ($4,677,677) ($4,551,174) Net Financial Assets (Net Debt) $336,982 ($317,017) ($3,730,782) ($4,321,232) ($4,282,237) ($4,156,034) Non Financial Assests Tangible Capital Assets $2,986,062 $3,821,268 $8,969,040 $9,688,233 $9,816,561 $9,914,519 Accumulated Ammortization ($1,356,660) ($1,491,799) ($1,713,253) ($1,947,399) ($2,175,045) ($2,406,662) Total Non Financial Assets $1,629,402 $2,329,469 $7,255,787 $7,740,834 $7,641,516 $7,507,857 Accumulated Surplus $1,966,385 $2,012,452 $3,525,005 $3,419,603 $3,359,279 $3,351,823 KAT Water System Table 7-2 indicates that in 2011, the KAT water system will be in a net financial asset position of $0.208 million increasing to $0.244 million by The net TCA for the KAT water system is expected to decline slightly over the forecast period from $1.48 million in 2011 to $1.46 million by This is due to the consumption (depreciation) of existing assets. Further, a consumption ratio consisting of the accumulated amortization of the County's TCA as a percent of historical cost highlights the aged condition of the assets and their potential replacement needs. In simple terms this indicates how far along the system is in its life expectancy. The Water Asset Consumption Ratio for KAT increases from 45% in 2011 to 53% in The increase indicates that investment is required for replacement or rehabilitation of aging assets as they expire. As noted in Section 5.3, investment in asset replacement is planned for 2017 and 2019 to address this issue. The accumulated surplus is projected to increase slightly from approximately $1.69 million in 2011 to approximately $1.71 million by The accumulated surplus is predominately made up of the net TCA balance representing past investments in the water systems infrastructure. 30 DFA Infrastructure International Inc.

36 Table 7-2: Statement of Financial Position KAT Water System Financial Assets Cash,Receivables and Investment $257,451 $174,870 $210,447 $206,583 $234,260 $247,360 Total Financial Assets $257,451 $174,870 $210,447 $206,583 $234,260 $247,360 Financial Liabilities Accounts Payable & Deferred Revenue ($2,398) ($2,422) ($2,446) ($2,471) ($2,495) ($2,520) Long term Liabilities ($46,642) ($2,150) $0 $0 $0 $0 Total Financial Liabilities ($49,040) ($4,572) ($2,446) ($2,470) ($2,495) ($2,520) Net Financial Assets (Net Debt) $208,411 $170,298 $208,001 $204,113 $231,765 $244,841 Non Financial Assests Tangible Capital Assets $2,727,533 $2,824,198 $2,858,151 $2,951,419 $3,021,033 $3,102,964 Accumulated Ammortization ($1,245,958) ($1,341,375) ($1,437,337) ($1,517,511) ($1,577,642) ($1,639,845) Total Non Financial Assets $1,481,575 $1,482,823 $1,420,815 $1,433,907 $1,443,391 $1,463,119 Accumulated Surplus $1,689,986 $1,653,121 $1,628,816 $1,638,020 $1,675,156 $1,707, Statements of Operations The Statements of Operations is presented in Table 7-3 and 7-4 for the Markdale and KAT water systems respectively. These summarize the annual revenues and expenses associated with managing the Municipality s water systems. They provide a report on the transactions and events that have an influence on the accumulated surplus. The main revenue items included are: Revenues from Basic Charges and Consumption Charges ; Earned Revenues (earned development charges and capital contributions); and Other Revenues (administrative fees, interest etc.). The main expense items are: The annual cost of operating and maintaining the water systems; Interest on debt; Amortization expenses on existing and added TCA; and Other expenses. The operating surplus/ (deficit) is an important indicator contained in the Statement of Operations. An operating surplus/ (deficit) measures whether operating revenues generated in a year were sufficient to cover operating expenses incurred in that year. It is important to note that an annual surplus is necessary to ensure funds will be available to address non-expense items such as TCA acquisitions over and above amortization expenses, reserve/reserve fund contributions for asset replacement and rate stabilization, and repayment of outstanding debt principal. 31 DFA Infrastructure International Inc.

37 Markdale Water System In 2011 there is an operating surplus of approximately $0.115 million increasing to $1.5 million in 2013 which is due to the anticipated provincial funding for the Water Tower. Between 2014 and 2016 there is a declining operating deficit from $0.105 million to approximately $0.007 million. This reflects an improving situation. Table 7-3: Statement of Operations Markdale Water System Water Revenue Base Charge Revenue $321,202 $356,526 $395,704 $439,152 $487,332 $537,003 Rate Base Revenue $98,716 $114,442 $129,239 $145,160 $158,779 $173,759 Earned Deferred Revenue $0 $0 $1,525,920 $0 $0 $0 Other Revenue $29,897 $28,052 $28,263 $6,519 $6,519 $5,707 Total Revenues $449,816 $499,021 $2,079,126 $590,831 $652,630 $716,469 Water Expenses Gross $234,220 $275,753 $281,613 $287,631 $293,806 $300,141 Non TCA Capital $1,236 $42,061 $32,498 $1,312 $1,338 $6,885 Adjustment to Non TCA $0 $0 $0 $0 $0 $0 Operating Expenses $235,457 $317,814 $314,111 $288,943 $295,144 $307,026 Interest on Debt $0 $0 $31,008 $173,145 $190,164 $185,281 Amortization $99,072 $135,140 $221,454 $234,146 $227,646 $231,617 Total Expenses $334,529 $452,953 $566,572 $696,234 $712,954 $723,924 Annual Surplus/(Deficit) $115,287 $46,067 $1,512,553 ($105,402) ($60,324) ($7,455) Accumulated Surplus/(Deficit), Beginning of Year $1,851,097 $1,966,385 $2,012,452 $3,525,005 $3,419,603 $3,359,279 Accumulated Surplus/ (Deficit), End of Year $1,966,385 $2,012,452 $3,525,005 $3,419,603 $3,359,279 $3,351,823 KAT Water System There is an operating surplus in 2011 of $0.018 million followed by deficits in 2012 and Between 2014 and 2016, there is an increasing surplus of $0.009 million to $0.033 million by DFA Infrastructure International Inc.

38 Table 7-4: Statement of Operations KAT Water System Water Revenue Base Charge Revenue $196,937 $215,474 $235,716 $245,882 $256,446 $267,422 Rate Base Revenue $10,944 $58,439 $63,114 $65,008 $66,958 $68,967 Other Revenue $62,789 $23,598 $3,284 $3,086 $3,118 $3,690 Total Revenues $270,670 $297,510 $302,114 $313,976 $326,521 $340,079 Water Expenses Gross $158,560 $237,840 $220,054 $224,597 $229,255 $234,032 Non TCA Capital $0 $0 $10,404 $0 $0 $11,041 Adjustment to Non TCA $0 $0 $0 $0 $0 $0 Operating Expenses $158,560 $237,840 $230,458 $224,597 $229,255 $245,073 Interest on Debt $3,735 $1,119 $0 $0 $0 $0 Amortization $89,802 $95,417 $95,962 $80,175 $60,131 $62,202 Total Expenses $252,097 $334,375 $326,420 $304,771 $289,386 $307,275 Annual Surplus/(Deficit) $18,573 ($36,865) ($24,305) $9,204 $37,135 $32,804 Accumulated Surplus/(Deficit), Beginning of Year $1,671,414 $1,689,986 $1,653,121 $1,628,816 $1,638,020 $1,675,156 Accumulated Surplus/ (Deficit), End of Year $1,689,986 $1,653,121 $1,628,816 $1,638,020 $1,675,156 $1,707, Statements of Cash Flows The Statements of Cash Flow are presented in Tables 7-5 and 7-6 for the Markdale and KAT water systems respectively. These statements summarize the main cash inflows and outflows related to the water systems in four (4) main areas - operating, capital, investing and financing, and shows the annual changes in cash. The operating cash transactions begin with the surplus or deficit identified in the Statement of Operations. This figure is adjusted to add or subtract non-cash items that were included as revenues or expenses (e.g. amortization expenses). It is assumed that there were no investing activities over the period. The capital section indicates the amounts spent to acquire capital assets (TCA) or received from the sale of assets. In the Municipality s case, it is assumed that there are no assets to be sold to generate cash. The financing section identifies the funds received from long-term debt, development charges receipts and capital contributions from external sources as cash inflows, and the portion of debt repaid as cash outflows. Markdale Water System Table 7-5 indicates that cash has been generated from operations, which is used in funding the acquisition of TCA, towards building internal reserves, and to repay debt over the forecast period. The cash position for the Markdale water system is projected to increase over the forecast period from $0.38 million in 2011 to $0.39 million in DFA Infrastructure International Inc.

39 Table 7-5: Statement of Cash Flows Markdale Water System Cash Provided by: Operating Activities Annual Surplus/(Deficit) $115,287 $46,067 $1,512,553 ($105,402) ($60,324) ($7,455) Non Cash Items Amortization $99,072 $135,140 $221,454 $234,146 $227,646 $231,617 Earned Deferred Revenue $0 $0 ($1,525,920) $0 $0 $0 Net Change in Cash Provided by Operating Activities $214,359 $181,207 $208,087 $128,744 $167,322 $224,162 Capital Activities Purchase of TCA ($117,722) ($835,206) ($5,147,772) ($719,193) ($128,328) ($97,958) Net Change in Cash Used in Capital Activities ($117,722) ($835,206) ($5,147,772) ($719,193) ($128,328) ($97,958) Financing Activities Government Grant Proceeds $1,525,920 DC Collections $434 $439 $443 $448 $452 $457 Proceeds From Long Term Debt $0 $775,200 $3,572,040 $530,604 $0 $0 Repayment of Long Term Debt $0 $0 ($18,614) ($105,130) ($122,076) ($126,959) Net Change in Cash Used in Financing Activities $434 $775,639 $5,079,789 $425,921 ($121,624) ($126,503) Net Change in Cash and Cash Equivalents $97,072 $121,640 $140,104 ($164,528) ($82,630) ($299) Cash and Cash Equivalents, Beginning of the Year $283,783 $380,855 $502,494 $642,598 $478,070 $395,440 Cash and Cash Equivalents, End of the Year $380,855 $502,494 $642,598 $478,070 $395,440 $395,141 KAT Water System Table 7-6 indicates a slight decrease in the cash position of the KAT water system over the period from $0.26 million in 2011 to $0.25 million in Table 7-6: Statement of Cash Flows KAT Water System Cash Provided by: Operating Activities Annual Surplus/(Deficit) $18,573 ($36,865) ($24,305) $9,204 $37,135 $32,804 Non Cash Items Amortization $89,802 $95,417 $95,962 $80,175 $60,131 $62,202 Net Change in Cash Provided by Operating Activities $108,375 $58,552 $71,657 $89,379 $97,266 $95,006 Capital Activities Purchase of TCA ($11,877) ($96,665) ($33,954) ($93,267) ($69,615) ($81,931) Net Change in Cash Used in Capital Activities ($11,877) ($96,665) ($33,954) ($93,267) ($69,615) ($81,931) Financing Activities DC Collections $24 $24 $24 $24 $25 $25 Proceeds From Long Term Debt $0 $0 $0 $0 $0 $0 Repayment of Long Term Debt ($50,998) ($44,492) ($2,150) $0 $0 $0 Net Change in Cash Used in Financing Activities ($50,975) ($44,468) ($2,126) $24 $25 $25 Net Change in Cash and Cash Equivalents $45,523 ($82,582) $35,577 ($3,864) $27,676 $13,101 Cash and Cash Equivalents, Beginning of the Year $211,928 $257,451 $174,870 $210,447 $206,583 $234,260 Cash and Cash Equivalents, End of the Year $257,451 $174,870 $210,447 $206,583 $234,260 $247, DFA Infrastructure International Inc.

40 7.4 Lead Service Pipes The Municipality's current approach for lead service pipe removal involves replacement upon discovery of service material. The financial statements do not include removal costs. 8 Conclusions & Recommendations The following are the main conclusions regarding the Markdale Water System: The replacement value of the water system is estimated to be $6.5 million in 2011 dollars (i.e. historical costs indexed to 2011) and the 2011 Net Book Value (NBV) is $1.6 million (i.e. historical cost less accumulated depreciation); The water system assets as a whole are 45% depreciated i.e. approaching half its life expectancy; The asset replacement needs are approximately $3.7 million in the next 25 years (most is within 10 years) and $2.7 million beyond 25 years; Capital expenditures including asset replacement over the 25-year period are projected to be approximately $7.7 million with financing of approximately$1.5 million from grants, $4.9 million from debt and $1.3 million from reserves; The annual debt repayment is projected to be approximately $49,622 in 2013, $278,275 in 2014 and $312,240 for the remainder of the term; The annual capital reserve contributions (to be raised through the water rates each year) are generally projected to range between $150,000 and $200,000 for most years with the higher contributions in the later years of the study period; The gross annual O&M costs (not including non-recurring costs and reserve transfers) are expected to increase from approximately $275,000 in 2012 to $306,000 by 2017 and up to $438,000 by 2035; The contributions to the operating reserve are projected to be less than $18,000 each year declining to less than $8,000 after Higher amounts of approximately $69,000 and $118,000 are required in 2012 and 2013 respectively; The full cost of managing the water system over the next 25 years is projected to be an average annual cost of $933,000. This is equivalent to a unit cost of $3.27 per cubic metre per year based on 285,000 m3 per year; An annual increase to the base and consumption water rates of 10% is projected for 2012 to The revenue from the base and consumption rates are projected to be 76% and 24% respectively of total annual revenues; The accumulated surplus is projected to increase from approximately $1.96 million in 2011 to approximately $3.35 million by 2016; 35 DFA Infrastructure International Inc.

41 In 2011 there is an operating surplus of approximately $0.115 million increasing to $1.5 million in 2013 which is due to the anticipated provincial funding for the Water Tower. Between 2014 and 2016 there is a declining operating deficit from $0.105 million to approximately $0.007 million; and The cash position for the water system is projected to increase slightly from $0.38 million in 2011 to $0.39 million in The following are the main conclusions regarding the KAT Water System: The replacement value of the water system is estimated to be $4.4 million in 2011 dollars (i.e. historical costs indexed to 2011) and the 2011 Net Book Value (NBV) is $1.48 million (i.e. historical cost less accumulated depreciation); The water system assets as a whole are 45% depreciated i.e. approaching half its life expectancy; The asset replacement needs are approximately $1.5 million in the next 25 years and $2.9 million beyond 25 years; Capital expenditures including asset replacement over the 25-year period are projected to be approximately $1.9 million with financing of approximately $1.3 million from debt and $0.6 million from reserves; The annual debt repayment is projected to be approximately $44,054 in 2017 and 2018 and $117,326 for the remainder of the term; The annual capital reserve contributions (to be raised through the water rates each year) are generally projected to range between $50,000 and $80,000 for most years with the higher contributions in the later years of the study period; The gross annual O&M costs (not including non-recurring costs and reserve transfers) are expected to increase from approximately $238,000 in 2012 to $253,000 by 2020 and up to $341,000 by 2035; The contributions to the operating reserve are projected to be between $15,000 and $32,000 each year until 2017 and decline to less than $9,000 until Lower contributions of less than $5,000 are periodically required for the reminder of the study period; The full cost of managing the water system over the next 25 years is projected to be an average annual cost of $480,711. This is equivalent to a unit cost of $43.92 per cubic metre per year based on 10,944 m3 per year; The cost per cubic metre to manage the KAT system is significantly higher than the Markdale system costs ($43.92 compared to $3.27). The KAT system cost per customer is almost double that for Markdale ($3,183 compared to $1,696); An annual increase to the base and consumption water rates of 8% is projected for 2012 and 2013 and 3% for 2014 to The revenues from the base and consumption rates are projected to be approximately 80% and 20%, respectively, of total annual revenue; 36 DFA Infrastructure International Inc.

42 The accumulated surplus is projected to increase slightly from approximately $1.69 million in 2011 to approximately $1.71 million by The accumulated surplus is predominately made up of the net TCA balance representing past investments in the water systems infrastructure; There is an operating surplus in 2011 of $0.018 million followed by deficits in 2012 and Between 2014 and 2016, there is an increasing surplus of $0.009 million to $0.033 million by 2016; and There is a slight decrease in the cash position of the water system over the period from $0.26 million in 2011 to $0.25 million in The following are the main recommendations resulting from the rate study: That the projected revenue requirements (i.e. full costs projections), capital financing, rates and other financial information presented in this study form the basis for financing the two (2) water systems over the next 25 years; That third party funding particularly Federal and Provincial Government funding opportunities for capital projects and operational programs should be pursued to reduce debt requirements, supplement available reserve funds and enhance operations; That solely from a financial planning perspective, the feasibility of servicing KAT customers from the lower cost Markdale Water System in the future should be fully investigated; and That this study report which includes the Water Financial Plan No for both water systems be approved for submission to the Ministry of Municipal Affairs and Housing (MMAH) in accordance with the Drinking Water System Licence requirements and O. Reg. 453/07. 9 References American Water Works Association (AWWA) Manual: Principles of Water Rates, Fees and Charges 3. Municipality of Grey Highlands 2011 and 2012 Water Budget 4. Municipality of Grey Highlands Historical Water Consumption Records 5. Municipality of Grey Highlands PSAB 3150 TCA 6. By-Law : 2011 Water and Wastewater Service Rates and Charges 7. O.Reg. 453/07 8. Sustainable Water and Sewage Systems Act, Water Opportunities and Conservation Act, DFA Infrastructure International Inc.

43 APPENDIX A BY-LAWS

44

45

46

47

48

49

50 APPENDIX B CUSTOMER GROWTH PROJECTIONS

51 APPENDIX B: CUSTOMER GROWTH PROJECTIONS Markdale Water System - Projected Customer Growth Year No. of Customers Customers Added/ year Annual Increase (%) -2.8% 0.9% 0.9% 0.9% 0.9% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Markdale Water System - Projected Growth in Billable Units Year No. of Billable Units Annual Increase (%) 34.7% 0.9% 0.9% 0.9% 0.9% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Markdale Water System - Projected Growth in Flat Charge Customers Year No. of Flat Charge Customers Annual Increase (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% KAT Water System - Projected Customer Growth Year No. of Customers Customers Added/ year Annual Increase (%) -8% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% KAT Water System - Projected Growth in Billable Units Year No. of Billable Units Annual Increase (%) 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% KAT Water System - Projected Growth in Flat Charge Customers Year No of Flat Charge Customers Annual Increase (%) 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

52 APPENDIX C CAPITAL PROJECTIONS

53 APPENDIX C: CAPITAL PROJECTIONS MARKDALE WATER SYSTEM CAPITAL PROJECTIONS Description 2011 Forecast Budget Capital Expenditures 2011 Budget Well #1 Roof - Class B Environmental Study, (2012 construct watermain from tower to Main Street) 81,000 Queen Street - from Victoria South 25,000 Pump Replacement (Isla & Eliza) - UV System Replacement - New Water Tower (1/3 Cont. pd with reserves & loan) - Infrastructure upgrades for pressure issues - Est. cost of $2.5 million - New Water Meter system approx cost of $535,000 - SCADA Integration (Markdale & KAT) - Upgrade - Hydrants replacement 4,800 Truck replacement 6, Budget Forecast Well #1 Roof 31,212-31, Class B Environmental Study, (2012 construct watermain from tower to Main Street) 968, , , , Queen Street - from Victoria South 95, , Pump Replacement (Isla & Eliza) 27, , ,875 UV System Replacement 172, , ,167 New Water Tower (1/3 Cont. pd with reserves & loan) 2,288,880-2,288, Infrastructure upgrades for pressure issues - Est. cost of $2.5 million 2,601,000-2,601, New Water Meter system approx cost of $535, , , SCADA Integration (Markdale & KAT) - Upgrade 74, , Hydrants replacement 4,896 4,994 5,094 5,196 5,300 5,406 5,514 5,624 5,736 5,851 5,968 6,088 6,209 6,333 6,460 6,589 6,721 6,856 6,993 7,133 7,275 7,421 7,569 7,720 Truck replacement 7,565 7,973 8, ,795 8,519 8,979 9, ,779 9,594 10,112 10, ,886 10,804 11,388 11, ,134 12, Development Charge Projects Non - TCA Water Permit - 11, , , , , ,203 Water Tower Inspection & repairs from report - 40,800 40, , , Watermain Location Mapping - 31,212-31, General System Maintenance Computer Program for all systems 1,236 13,805 1,261 1,286 1,312 1,338 1,365 1,392 1,420 1,448 1,477 1,507 1,537 1,568 1,599 1,631 1,664 1,697 1,731 1,765 1,801 1,837 1,873 1,911 1,949 1,988 2, Asset Replacement (Life Cycle) Needs Land & Land Improvements , Buildings - 5, , , , , Hydrants Equipment - 692,896 47,545 5, ,132 92, , , , , ,333 22,662 61, Linear Assets Total Capital Expenditures 118,958 7,712, ,267 5,180, , , ,842 42, , , , , , , ,812 18,076 25,500 8,286 8,452 57,428 19,598 27,787 21, ,887 9,518 20,842 30,273 Capital Financing Provincial/Federal Grants - 1,525,920-1,525, Development Charges Non-Growth Related Debenture Requirements - 4,877, ,200 3,572, , , Growth Related Debenture Requirements Operating Contributions (Capital From Current) Water Capital Reserve/Reserve Fund Continuity - #1 118,958 1,308, ,067 82, , , ,842 42, , , , , , ,202 95,266 18,076 25,500 8,286 8,452 57,428 19,598 27,787 21, ,887 9,518 20,842 30,273 Water Capital Reserve/Reserve Fund Continuity - #2 - - Total Capital Financing 118,958 7,712, ,267 5,180, , , ,842 42, , , , , , , ,812 18,076 25,500 8,286 8,452 57,428 19,598 27,787 21, ,887 9,518 20,842 30,273

54 APPENDIX C: CAPITAL PROJECTIONS KAT WATER SYSTEM CAPITAL PROJECTIONS Description Forecast Budget Capital Expenditures 2011 Budget Hydrant replacement 4,800-7, Budget Forecast - Roof - Generator Building & water plant - 20,808-20, Pump Replacement - 27, , Aluminum PreCast Filter Replacement (Water Corrosion) - 56, , SCADA Integration (Markdale & KAT) - Upgrade - 74, , Replacement of Pressure Reducing Valves - 21,670 5,100-5,306-5,520-5, Generator Replacement to be done and fully financed in ,400 71, Hydrant replacement - 53,610 4,896 4,994 5,094 5,196 5,300 5,406 5,514 5,624 5,736 5,851 5,968 6,088 6,209 6,333 6,460 6,589 6,721 6,856 6,993 7,133 7,275 7,421 7,569 7,720 7,875 Truck replacement - 59,994 7,734 8,152 8, ,970 8,710 9,180 9, ,975 9,809 10,338 10, ,108 11,046 11,643 12, ,383 12, Development Charge Projects Non - TCA Water Taking Permit - 5, , , Clearwell cleaning - 33,161-10, , , , , , , , Asset Replacement (Life Cycle) Needs Land & Land Improvements - 28, , , Buildings - 46,049 7, , Hydrants Equipment - 1,373, ,534 14, ,813 16, ,663 11, ,934-30, Linear Assets Total Capital Expenditures 11,877 1,886,747 97,954 45,672 94,608 70,982 38, ,920 43, ,664 46,790 45,906 19,973 16,666 17, ,468 19,046 39,176 29,494 18,768 19,880 35,513 21,449 9,374 25,331 21,136 22,388 Capital Financing Provincial/Federal Grants Development Charges Non-Growth Related Debenture Requirements - 1,304, , , Growth Related Debenture Requirements Operating Contributions (Capital From Current) Water Capital Reserve/Reserve Fund Continuity - #1 11, ,271 97,954 45,672 94,608 70,982 38,058 71,107 43,192 28,001 46,790 45,906 19,973 16,666 17, ,468 19,046 39,176 29,494 18,768 19,880 35,513 21,449 9,374 25,331 21,136 22,388 Water Capital Reserve/Reserve Fund Continuity - #2 - -

55 APPENDIX D DEBT SCHEDULE

56 APPENDIX D: DEBT SCHEDULE MARKDALE WATER SYSTEM DEBT SCHEDULE Total Debt Year Total Annual Debt Charges Total Annual Interest Expense Total Annual Principal Repayments , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,844 92,388 83,594 74,448 64,936 55,044 44,756 34, , , , , , , , , , , , , , , , , , , , , , , , ,835 New Debt Issues - 775,200 3,572, , Total Annual Outstanding Debt - 775,200 4,328,626 4,754,100 4,632,023 4,505,064 4,373,026 4,235,707 4,092,895 3,944,370 3,789,904 3,629,260 3,462,190 3,288,437 3,063,083 2,830,501 2,590,401 2,342,484 2,086,436 1,821,932 1,548,634 1,266, , , ,251 37,416 KAT WATER SYSTEM DEBT SCHEDULE Total Debt Year Total Annual Debt Charges Total Annual Interest Expense Total Annual Principal Repayments 54,734 45,611 2, ,054 44, , , , , , , , , , , , , ,326 73,272 73, ,735 1, ,593 18,614 50,183 47,497 44,704 41,799 38,778 35,636 32,369 28,970 25,436 21,761 17,938 13,962 9,828 5,528 2, ,998 44,492 2, ,462 25,440 67,143 69,829 72,622 75,527 78,548 81,690 84,957 88,356 91,890 95,565 99, , ,498 67,744 70, New Debt Issues , , Total Annual Outstanding Debt 46,642 2,150 (0) (0) (0) (0) 489, ,351 1,254,574 1,187,431 1,117,602 1,044, , , , , , , , , , ,197 70,453 (0) (0) (0)

57 APPENDIX E RESERVE FUNDS PROJECTIONS

58 APPENDIX E: RESERVE FUNDS PROJECTIONS MARKDALE WATER SYSTEM RESERVE FUNDS CAPITAL RESERVE Opening Balance 240, , , , , , , , , , , , , , , , ,878 1,122,708 1,312,249 1,464,318 1,656,117 1,841,563 2,045,678 2,100,590 2,319,033 2,528,222 Transfer from Operating 169, , ,000 25,000 50, , , , , , , , , , , , , , , , , , , , , ,000 Transfer to Capital 118, ,067 82, , , ,842 42, , , , , , ,202 95,266 18,076 25,500 8,286 8,452 57,428 19,598 27,787 21, ,887 9,518 20,842 30,273 Transfer to Operating Closing Balance 291, , , , , , , , , , , , , , , ,622 1,111,592 1,299,256 1,449,820 1,639,720 1,823,330 2,025,424 2,079,792 2,296,072 2,503,190 2,702,949 Interest 2,912 3,421 3,632 2,019 1,243 1,207 2,297 1,914 2,223 2,509 3,308 4,303 4,614 5,907 7,585 9,256 11,116 12,993 14,498 16,397 18,233 20,254 20,798 22,961 25,032 27,029 DEVELOPMENT CHARGES RESERVE Opening Balance 43,438 43,873 44,311 44,754 45,202 45,654 46,111 46,572 47,037 47,508 47,983 48,463 48,947 49,437 49,931 50,430 50,935 51,444 51,959 52,478 53,003 53,533 54,068 54,609 55,155 55,707 Development Charge Proceeds Transfer to Capital Transfer to Operating Closing Balance 43,438 43,873 44,311 44,754 45,202 45,654 46,111 46,572 47,037 47,508 47,983 48,463 48,947 49,437 49,931 50,430 50,935 51,444 51,959 52,478 53,003 53,533 54,068 54,609 55,155 55,707 Interest Required from Development Charges OPERATING RESERVE Opening Balance - 69, , , , , , , , , , , , , , , , , , , , , , , ,935 (Contributions from) Operating Budget to Offset Surplus - (Cash Inflow) Contributions from Operating Budget - (Cash Inflow) - 69, ,339 14,382 14,690 15,007 17,591 15,639 54,572 65,846 27,367 7,049 5,117 8,160 6,526 4,516 7,477 10,407 3,305 6,169 8,997 1,788 4, Contributions to Operating Budget - (Cash Outflow) (Contributions to) Operating Budget to Offset Deficit- (Cash Outflow) 16,476 20,126 12,126 72,098 8,409 2,485 9,675 17,035 Closing Balance - 69, , , , , , , , , , , , , , , , , , , , , , , , ,900

59 APPENDIX E: RESERVE FUNDS PROJECTIONS KAT WATER SYSTEM RESERVE FUNDS CAPITAL RESERVE Opening Balance 209, , , , , , , , , , , , , , , , , , , , , , , , ,568 1,202,336 Transfer from Operating 47,278 15,000 55,000 70,000 80,000 80,000 80,000 80,000 80,000 15,000 30,000 35,000 50,000 55,000 60,000 75,000 80,000 85,000 85,000 90,000 95, , , , , ,000 Transfer to Capital 11,877 97,954 45,672 94,608 70,982 38,058 71,107 43,192 28,001 46,790 45,906 19,973 16,666 17, ,468 19,046 39,176 29,494 18,768 19,880 35,513 21,449 9,374 25,331 21,136 22,388 Transfer to Operating Closing Balance 244, , , , , , , , , , , , , , , , , , , , , , , ,800 1,190,432 1,404,948 Interest 2,450 1,645 1,754 1,526 1,631 2,067 2,176 2,566 3,112 2,825 2,694 2,872 3,234 3,639 2,541 3,126 3,566 4,156 4,860 5,610 6,261 7,109 8,486 9,768 11,904 14,049 DEVELOPMENT CHARGES RESERVE Opening Balance 2,374 2,398 2,422 2,446 2,471 2,495 2,520 2,545 2,571 2,596 2,622 2,648 2,675 2,702 2,729 2,756 2,784 2,811 2,840 2,868 2,897 2,926 2,955 2,984 3,014 3,044 Development Charge Proceeds Transfer to Capital Transfer to Operating Closing Balance 2,374 2,398 2,422 2,446 2,471 2,495 2,520 2,545 2,571 2,596 2,622 2,648 2,675 2,702 2,729 2,756 2,784 2,811 2,840 2,868 2,897 2,926 2,955 2,984 3,014 3,044 Interest Required from Development Charges OPERATING RESERVE Opening Balance 7,649 5,064 28,221 46,075 61,815 85, , , , , , , , , , , , , , , , , , , ,533 (Contributions from) Operating Budget to Offset Surplus - (Cash Inflow) Contributions from Operating Budget - (Cash Inflow) 7,649-23,157 17,854 15,741 23,980 32,586-7,427 9,263 4,835 6,760-1,265 3, , ,528 3,044-3,394 Contributions to Operating Budget - (Cash Outflow) (Contributions to) Operating Budget to Offset Deficit- (Cash Outflow) 2,585 2,235 1,098 3, ,845 1,508 3, Closing Balance 7,649 5,064 28,221 46,075 61,815 85, , , , , , , , , , , , , , , , , , , , ,927

60 APPENDIX F O&M COST PROJECTIONS

61 APPENDIX F: O&M COST PROJECTIONS MARKDALE WATER SYSTEM O&M COSTS Budget Forecast Description Operating Expenditures Shared System Costs 56,901 42,108 43,118 44,162 45,236 46,339 47,472 48,422 49,390 50,378 51,386 52,413 53,462 54,531 55,621 56,734 57,868 59,026 60,206 61,410 62,639 63,891 65,169 66,473 67,802 69,158 Markdale Water System Costs 177, , , , , , , , , , , , , , , , , , , , , , , , , ,560 Rate Stabilization Contributions Transfer to Operating Reserve - Additional 56, ,258 2,259 38,621 49,575 10,771 7,049 5,117 8,160 6,526 4,516 7,477 10,407 3,305 6,169 8,997 1,788 4,540 Transfer to Operating Reserve 13,788 14,081 14,382 14,690 15,007 15,332 15,639 15,951 16,271 16,596 Capital-Related New Non-Growth Related Debt (Principal) , , , , , , , , , , , , , , , , , , , , , , , ,835 New Non-Growth Related Debt (Interest) , , , , , , , , , , , , , , , , ,844 92,388 83,594 74,448 64,936 55,044 44,756 34,057 Transfer to Capital Reserves and Reserve Funds - #1 169, , ,000 25,000 50, , , , , , , , , , , , , , , , , , , , , ,000 Total Expenditures 404, , , , , , , , , , , , , , , , , , , , , , , , ,851 1,008,610 Non-Rate Revenues Late Payment Charges 6,154 4,000 4,000 4,000 4,000 4,000 4,000 4,080 4,162 4,245 4,330 4,416 4,505 4,595 4,687 4,780 4,876 4,973 5,073 5,174 5,278 5,383 5,491 5,601 5,713 5,827 Water Connection Fees Recovery from Ratepayer Government Grants 20,131 20,131 20, Total-Non Rate Revenues 26,985 24,631 24,631 4,500 4,500 4,500 4,500 4,590 4,682 4,775 4,871 4,968 5,068 5,169 5,272 5,378 5,485 5,595 5,707 5,821 5,938 6,056 6,178 6,301 6,427 6,556 Net Water Costs To Be Recovered From Users 377, , , , , , , , , , , , , , , , , , , , , , , , ,424 1,002,054

62 APPENDIX F: O&M COST PROJECTIONS KAT WATER SYSTEM O&M COSTS Budget Forecast Description Operating Expenditures Shared Costs 46,893 44,301 45,347 46,427 47,537 48,678 49,850 50,847 51,864 52,901 53,959 55,038 56,139 57,262 58,407 59,575 60,766 61,982 63,221 64,486 65,776 67,091 68,433 69,802 71,198 72,622 KAT System Operating Costs 111, , , , , , , , , , , , , , , , , , , , , , , , , ,457 Rate Stabilization Contributions Transfer to Operating Reserve - additional 7,649 12,154 6,624 4,278 12,278 20,639 7,427 9,263 4,835 6,760 1,265 3,856 1, ,528 3,044 3,394 Transfer to Operating Reserve - 11,003 11,230 11,463 11,702 11,947 Capital-Related Existing Debt (Principal) - Non-Growth Related 50,998 44,492 2, Existing Debt (Interest) - Non-Growth Related 3,735 1, New Non-Growth Related Debt (Principal) ,462 25,440 67,143 69,829 72,622 75,527 78,548 81,690 84,957 88,356 91,890 95,565 99, , ,498 67,744 70, New Non-Growth Related Debt (Interest) ,593 18,614 50,183 47,497 44,704 41,799 38,778 35,636 32,369 28,970 25,436 21,761 17,938 13,962 9,828 5,528 2, Transfer to Capital Reserves and Reserve Funds - #1 47,278 15,000 55,000 70,000 80,000 80,000 80,000 80,000 80,000 15,000 30,000 35,000 50,000 55,000 60,000 75,000 80,000 85,000 85,000 90,000 95, , , , , ,000 Total Expenditures 268, , , , , , , , , , , , , , , , , , , , , , , , , ,473 Non-Rate Revenues Government Grants 20,131 20, Water Penalty 4,472 1,500 1,530 1,561 1,592 1,624 1,656 1,689 1,723 1,757 1,793 1,828 1,865 1,902 1,940 1,979 2,019 2,059 2,100 2,142 2,185 2,229 2,273 2,319 2,365 2,413 Debenture Payments (on Tax Bill) 35, Total-Non Rate Revenues 60,340 21,953 1,530 1,561 1,592 1,624 1,656 1,689 1,723 1,757 1,793 1,828 1,865 1,902 1,940 1,979 2,019 2,059 2,100 2,142 2,185 2,229 2,273 2,319 2,365 2,413 Net Water Costs To Be Recovered From Users 207, , , , , , , , , , , , , , , , , , , , , , , , , ,060

63 APPENDIX G RATES & REVENUE PROJECTIONS

64 APPENDIX F: RATE AND REVENUE PROJECTIONS MARKDALE WATER SYSTEM RATES AND REVENUES BASE RATE CALCULATION Projected Number of Accounts (From Growth Worksheet) Customer Type No. of Billable Units No. of Flat Charge Customers No. of Vacant Charge Customers Total Projected Annual Base Charges Customer Type Annual Increase % Increases RATES 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 4.00% 2.00% 2.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.00% 0.00% 0.00% Annual Service Charge per Billable Unit Annual Flat Charge , , , , , , , , , , , , , , , , , , , , , , , Annual Vacant Property Charge $ Projected Annual Revenue Generated from Base Charges Customer Type Billable Units 320, , , , , , , , , , , , , , , , , , , , , , , , , ,176 Flat Charge ,012 1,113 1,224 1,347 1,400 1,428 1,457 1,472 1,486 1,501 1,516 1,531 1,547 1,562 1,578 1,593 1,609 1,625 1,642 1,658 1,658 1,658 1,658 Vacant Charge Total 321, , , , , , , , , , , , , , , , , , , , , , , , , ,834

65 APPENDIX F: RATE AND REVENUE PROJECTIONS MARKDALE WATER SYSTEM RATES AND REVENUES UNIFORM RATE CALCULATION Projected Annual Uniform Rates & Revenues Annual Increase to Uniform Water Rates 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 4.00% 2.00% 2.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.00% 0.00% 0.00% Uniform Rate (0-15 m3) Projected Water Consumption in Rate Category (From Growth Worksheet) 215,647 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 38,555 Uniform Rate (16-100m3) Projected Water Consumption in Rate Category (From Growth Worksheet) 43, ,021 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 43,929 Uniform Rate (>100 m3) Projected Water Consumption in Rate Category (From Growth Worksheet) 25,424 25, , , , , , , , , , , , , , , , , , , , , , , ,516 Uniform Rate (Industrial min. 600 m3) Projected Water Consumption in Rate Category (From Growth Worksheet) Projected Annual Uniform Rate Revenues 98, , , , , , , , , , , , , , , , , , , , , , , , , ,186 Projected Base (Fixed) Revenues vs. Uniform (Variable) Revenues Base Rate Revenue Percentage 76% 76% 75% 75% 75% 76% 76% 76% 76% 76% 76% 76% 76% 76% 76% 76% 76% 76% 76% 76% 76% 76% 76% 76% 76% 76% Uniform Rate Revenue Percentage 24% 24% 25% 25% 25% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24%

66 APPENDIX F: RATE AND REVENUE PROJECTIONS KAT WATER SYSTEM RATES AND REVENUES BASE RATE CALCULATION Projected Number of Accounts (From Growth Worksheet) Customer Type No. of Billable Units No. of Flat Charge Customers Total Projected Annual Base Charges Customer Type Annual Increase % Increases RATES 8.00% 8.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Min. Charge per Billable Unit , , , , , , , , , , , , , , , , , , , , , , , , Flat Charge 2, , , , , , , , , , , , , , , , , , , , , , , , , , Projected Annual Revenue Generated from Base Charges Customer Type Billable Unit Charges 194, , , , , , , , , , , , , , , , , , , , , , , , , ,100 Flat Charges 2,466 2,663 2,876 2,962 3,051 3,142 3,237 3,334 3,434 3,537 3,643 3,716 3,790 3,866 3,943 4,022 4,103 4,144 4,185 4,227 4,269 4,312 4,355 4,399 4,443 4, Total 196, , , , , , , , , , , , , , , , , , , , , , , , , ,587

67 APPENDIX F: RATE AND REVENUE PROJECTIONS KAT WATER SYSTEM RATES AND REVENUES UNIFORM RATE CALCULATION Projected Annual Uniform Rates & Revenues Annual Increase to Uniform Water Rate 8.00% 8.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Uniform Rate (0-25 m3) Projected Water Consumption in Rate Category (from Consumption Sheet) 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 4,636 Uniform Rate ( m3) Projected Water Consumption in Rate Category (from Consumption Sheet) 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 4,076 Uniform Rate (>100m3) Projected Water Consumption in Rate category (From Consumption Worksheet) 2, ,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 Projected Annual Uniform Rate Revenues 10,944 58,439 63,114 65,008 66,958 68,967 71,036 73,167 75,362 77,623 79,951 81,550 83,181 84,845 86,542 88,273 90,038 90,939 91,848 92,767 93,694 94,631 95,577 96,533 97,499 98,474 Projected Base (Fixed) Revenues vs. Uniform (Variable) Revenues Base Rate Revenue Percentage 95% 79% 79% 79% 79% 79% 80% 80% 80% 80% 80% 81% 81% 81% 81% 81% 81% 82% 82% 82% 82% 82% 82% 83% 83% 83% Uniform Rate Revenue Percentage 5% 21% 21% 21% 21% 21% 20% 20% 20% 20% 20% 19% 19% 19% 19% 19% 19% 18% 18% 18% 18% 18% 18% 17% 17% 17%

68 APPENDIX H MEETING THE REQUIREMENTS OF O. REG. 453/07

69 Appendix H: Meeting the Requirements of O.Reg. 453/07 Requirements 1. The financial plans must be approved by a resolution that is passed by, i. The council of the municipality, if the owner of the drinking water system is a municipality. ii. The governing body of the owner, if the owner of the drinking water system has a governing body and is not a municipality. 2. The financial plans must apply to a period of at least six years. 3. The first year to which the financial plans must apply must be the year determined in accordance with the following rules: i. If the financial plans are required by subsection 2, the first year to which the financial plans must apply must be the year in which the drinking water system s existing municipal drinking water licence would otherwise expire. How Requirements are Met This will be sent under separate cover following approval of the Financial Plan by the Municipality of Grey Highlands Council N/A Applies from 2011 to 2016 inclusive. This applies to the Municipality of Grey Highlands which received its licence in Therefore, the first year of the Financial Plan is ii. If the financial plans are required by a condition that was included in a municipal drinking water licence under subsection 1 (3), the first year to which the financial plans must apply must be the later of 2010 and the year in which the first licence for the system was issued. N/A 4. Subject to subsection (2), for each year to which the financial plans apply, the financial plans must include the following: i. Details of the proposed or projected financial position of the drinking water system itemized by: See Table 7-1and 7-2 Statements of Financial Position for each water system in Financial Plan. a. Total financial assets See Table 7-1and 7-2 Statements of Financial Position for each water system in Financial Plan. b. Total liabilities See Table 7-1and 7-2 Statements of Financial Position for each water system in Financial Plan. c. Net financial assets (debt) See Table 7-1and 7-2 Statements of Financial Position for each water system in Financial Plan. d. Non-financial assets that are tangible capital assets, tangible capital assets under construction, inventories of supplies and prepaid expenses, See Table 7-1and 7-2 Statements of Financial Position for each water system and Section 4.2 and 5.2 TCA Projections for each system in Financial Plan. e. Changes in tangible capital assets that are additions, donations, write downs and disposals. See Table 7-1and 7-2 Statements of Financial Position for each water system and Section 4.2 and 5.2 TCA Projections for each system in Financial Plan.

70 Appendix H: Meeting the Requirements of O.Reg. 453/07 ii. Details of the proposed or projected financial operations of the drinking water system itemized by, a. Total revenues, further itemized by water rates, user charges and other revenues. See Table 7-3and 7-4 Statements of Operations for each water system in Financial Plan. See Table 7-3and 7-4 Statements of Operations for each water system in Financial Plan. iii. b. Total expenses, further itemized by amortization expenses, interest expenses and other expenses See Table 7-3and 7-4 Statements of Operations for each water system in Financial Plan. c. Annual surplus or deficit, and See Table 7-3and 7-4 Statements of Operations for each water system in Financial Plan. d. Accumulated surplus or deficit See Table 7-3and 7-4 Statements of Operations for each water system in Financial Plan. Details of the drinking water system s proposed or projected gross cash receipts and gross cash payments itemized by, See Table 7-5and 7-6 Statements of Cash Flow for each water system in Financial Plan. a. Operating transactions that are cash received from revenues, cash paid for operating expenses and finance charges, - done in full cost report b. Capital transactions that are proceeds on the sale of tangible capital assets and cash used to acquire capital assets, See Table 7-5and 7-6 Statements of Cash Flow for each water system in Financial Plan. See Table 7-5and 7-6 Statements of Cash Flow for each water system in Financial Plan. iv. c. Investing transactions that are acquisitions and disposal of investments, d. Financing transactions that are proceeds from the issuance of debt and debt repayment. e. Changes in cash and cash equivalents during the year, f. Cash and cash equivalents at the beginning and end of the year. Details of the extent to which the information described in subparagraphs i, ii and iii relates directly to the replacement of lead service pipes as defined in section of Schedule 15.1 to Ontario Regulation 170/03 (Drinking Water Systems), made under the Act. See Table 7-5and 7-6 Statements of Cash Flow for each water system in Financial Plan.. See Table 7-5and 7-6 Statements of Cash Flow for each water system in Financial Plan. See Table 7-5and 7-6 Statements of Cash Flow for each water system in Financial Plan.. See Table 7-5and 7-6 Statements of Cash Flow for each water system in Financial Plan. There are no lead service pipes to be changed in the Municipality of Grey Highlands. Therefore, the information in the Financial Plan does not include lead services pipe replacement. 5. The owner of the drinking water system must. i. Make the financial plans available, on request, to members of the public who are served by the drinking water system without charge, ii. Make the financial plans available to members of the public without charge through publication on the Internet, if the owner maintains a website on the Internet, This will be done by the Municipality of Grey Highlands following Council approval. The Financial Plan will be posted on the Municipality s website and made available for public review at no charge.

71 Appendix H: Meeting the Requirements of O.Reg. 453/07 iii. Provide notice advising the public of the availability of the financial plans under subparagraphs i and ii, if applicable, in a manner that, in the opinion of the owner, will bring the notice to the attention of members of the public who are served by the drinking water system. 6. The owner of the drinking water system must give a copy of the financial plans to the Ministry of Municipal Affairs and Housing. O. Reg. 453/07, s. 3 (1). Each of the following sub-subparagraphs applies only if the information referred to in the subsubparagraph is known to the owner at the time the financial plans are prepared. 1. Sub-subparagraphs 4 i A, B and C of subsection (1). 2. Sub-subparagraphs 4 iii A, C, E and F of subsection (1). O. Reg. 453/07, s. 3 (2). A notice will be issued following Council approval. Will be submitted following Council approval. The Financial Plan was prepared using available information at the time of preparation and may not contain all desired items. Reasonable assumptions were made and these are noted in the Financial Plan. The Financial Plan was prepared using available information at the time of preparation and may not contain all desired items. Reasonable assumptions were made and these are noted in the Financial Plan. The Financial Plan was prepared using available information at the time of preparation and may not contain all desired items. Reasonable assumptions were made and these are noted in the Financial Plan.