Drummond: Full-Cost Recovery Required

Infrastructure needs immediate attention, says the Commission on the Reform of Ontario’s Public Services. The newly released Drummond report is recommending that Ontario ‘s government immediately take a number of steps to ensure that infrastructure services are efficiently delivered to the public.

For water and wastewater infrastructure assets, the report explicitly references, among other items, a implementing a full-cost recovery model for water usage, similar to how the electricity sector operates.

In a message to its member companies, the Ontario Environment Industry Association (ONEIA) said that while user-pay is a “good starting point,” they should be cautious that it doesn’t become a “backdoor” means of taxation as opposed to real-cost pricing.

Economist Don Drummond, who delivered the report yesterday, also highlights the fact that average capital investment chronically lags what is actually needed by $1.5 billion per year. “In these two sectors, where the equivalent of about half of the $72 billion in municipally owned assets used to deliver these services needs renewal over the period from 2005 to 2019, a funding gap of that magnitude poses serious fiscal risks.” He further highlighted alternative financing and procurement (AFP, the public-private model endorsed by Infrastructure Ontario) tools as an option for renewing infrastructure at a sustainable and fiscally reasonable manner.

In addition to recommending a full-cost recovery model for the maintenance and development of water infrastructure, Drummond also made a number of water-related recommendations on the use and monitoring of water resources. With regard to the cost of water management to the Ministry of Natural Resources and the Ministry of the Environment, the report recommends the development of a payment system where the burden of cost falls on the “beneficiary’s shoulders” and not on the public’s.

The report also discusses three tiers of usage,  including high, medium, and low-volume users. High-volume users include industries such as cement and beverage manufacturers along with canning/pickling facilities. Medium-volume users consist of industries such as mining, construction, wood production and recreational facilities. Low-volume users include electricity generators such as hydroelectric and nuclear facilities. According to Drummond, the Ontario government spends approximately $15 million per year through various ministries to manage water quantity and encourage efficient use, but recovers only a fraction of that through the issuance of permits.

Click here to see an infographic that illustrates Ontario’s current spending, based on the report.

Douglas McCallum is a researcher at Actual Media Inc., publisher of Water Canada and ReNew Canada magazines.