Water and sewer rate increases well above inflation will be the norm for at least the next decade as Waterloo Region looks at making the system self-sustaining.

By provincial mandate, municipalities must work towards having user fees cover all operating expenses and, more expensively, future infrastructure upgrades to treatment plants, water pipes and sewers. That means fees rather than general tax revenues will have to help pay for spending in the region estimated at $1.2 billion over the next decade alone.

For 2010, the region has pushed up water rates by 6.9 per cent and wastewater 9.9 per cent. As the upper tier looks after those services in Wellesley Township, residents there will see the same increases. In Woolwich, which buys water from the region and runs the distribution systems itself, council has given preliminary approval to water rate hikes of 7.26 per cent, to $1.33 per cubic metre from $1.24 (a jump of $16 to $22 per year) and wastewater increases of 10.1 per cent, to $1.63 per cubic metre from $1.48 ($27 to $36 per year).

The Woolwich fees reflect the fact regional billing is the biggest-single component of the township’s costs, said director of finance Richard Petherick.

Rates will continue to rise in reaction to the infrastructure requirements; upgrades to Kitchener and Waterloo wastewater treatment plants alone are expected to cost $300 million and $120 million respectively.

“The main driver of [rate] increases continues to be our capital program,” said Thomas Schmidt, Waterloo Region’s commissioner of transportation and environmental services.

Facility upgrades, for instance, are needed to meet new provincial and federal regulations for processing bio-solids and improving the quality of water discharged back into the Grand River system, he explained.

The rolling 10-year capital forecast calls for $480 million in spending on the water side, and another $716 million for wastewater projects.

Given annual operating revenues of $88 million, those capital spending needs represent significant multiples of the budget.

Already pressed under current guidelines – Bill 175, the Sustainable Water and Sewage Systems Act, requires municipalities to run those services on a cost recovery basis. Additional costs and paperwork came with Bill 195, the Safe Drinking Water Act that followed the Walkerton tragedy – municipalities can expect more legislation and the costs that come with it, even if the rules aren’t needed or practical from an operating standpoint. Excessive water testing, for instance, has driven up costs without providing any improvement in service.

“I’ve never known a regulation to reduce costs,” said Pat Vanini, executive director of the Association of Municipalities of Ontario (AMO), a non-profit group representing most of the province’s 444 municipal governments.

While the organization has pressed the province for more manageable guidelines, much of the regulatory framework was implemented without consultation with the municipalities – the province was determined to bring in new rules.

This regulatory burden, added to the full cost-recovery funding model, has put more demands on local governments.

“There is a lot of pressure on municipalities’ water and sewer systems,” she said, noting the cost of water and sewer upgrades is part of an estimated $60 billion infrastructure deficit, money that should be spent over the next decade.

Municipalities, some acting sooner than others, now have to start building reserves with money from today’s bills to pay for tomorrow’s expensive repairs and upgrades – “It’s not cheap.”

“This is a real challenge for municipal governments.”

Waterloo Region is close to getting its system to be self-sustaining, but big rate increases will have to continue to help reach that goal, said Schmidt.

The region is aiming to have water rate increases down to 2.9 per cent a year by 2017 to 2019. On the wastewater side, that goal is 7.9 per cent by 2018, 5.9 by 2019.

Because rates were essentially “flat-lined” through the mid-1990s and into the early 2000s, the region is now playing catch-up, which has meant hikes of about 10 per cent annually for the past few years.

The transition from cheap water and sewer rates, a luxury when infrastructure wasn’t crumbling and costs were covered largely from general coffers, to a self-financing system with much higher fees is bound to be rough, Vanini explained, adding it’s prudent to set aside money for future costs, just as a homeowner might set aside money for replacing the roof at some point down the road.

“The question is, Do we have any responsibility to invest in the future as current users?”