ALTERNATIVE FUNDING MECHANISMS - FCM

Alternative Funding Mechanisms Utility Models
6. UTILITY MODELS
6.1 DESCRIPTION
6.1.1 APPROACH
Municipalities have begun exploring innovative practices for charging user fees
for some traditional municipal services. A utility model exists where user fees
collected are dedicated to the service, and the service is managed autonomously
relative to other municipal services. Such practices are well established in many
municipalities for potable water services and sewage treatment. However, two
other services are also emerging with high potential for utility model approaches:
storm water management and solid waste management. Some transportation
infrastructures, such as toll bridges, are also being managed on a cost-recovery
basis. However, these are not typically considered “utilities”; the term “utility”
applies more typically to services brought to, or coming from, individual
properties.
The utility model entails management of capital assets, operations and
maintenance on a cost-recovery basis through fees for service. The fee for service
must be sufficient to fund the needs of the infrastructure and overhead
operations, such as administration, bill collection and management. Only users of
the service support the service through the fee for service. The amount paid by
users is normally proportional to their use of the service.
As capital grant programs from senior levels of government decline, the
attractiveness of user fees increases, since it is seen as an equitable way to
recover the costs of services. Asset management programs and demand
management techniques may be easier to implement with the utility model than
for services managed as part of the broader municipal organization. In addition,
demand management and fees for service can encourage other social and
environmental benefits, such as a raised awareness of service benefits and
resource conservation. A utility model approach also allows for life cycle asset
management approaches to be more easily implemented due to long term,
predictable and reliable funding. This mechanism could be implemented at a
municipal level in association with local utilities (public or private utility
operators).
6.1.2 OBJECTIVES
Utility models are an approach that balances supply and demand, and can be selffinancing.
They entail allocating the costs of certain services to users for the use
and benefit they derive from the service. Such charges could be based on volume
of water used, area of property serviced, or volume of waste created, for example.
Ideally, this would be done in the context of aligning a level of service with
broader municipal goals for affordable services that meet community needs for
development and economic planning, environmental protection and social and
health needs. For shifts to a utility model to be fairly reflected in taxation levels,
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