Balancing growth and renewal: A decade of financial strategy for Alberta’s largest city

As the principal water and wastewater provider for the metropolitan area of over 1.6 million people, the City of Calgary, Alberta, faced a classic utility dilemma. They were experiencing continued growth and core redevelopment, while managing aging infrastructure.  

Serving more than 500,000 retail customer accounts and five major suburban cities, the City was faced with the challenge of balancing the impact of customer growth with the need to reinvest in aging infrastructure in core segments of the system. Recognizing the importance of sustainability and service reliability, coupled with awareness of effectively managing financial risks, the City has engaged Raftelis for multiple engagements over the past decade to examine and evaluate the financial position of the City’s water, wastewater, and stormwater utility systems and provide recommendations regarding financial risk management and future revenue increases necessary to fund operations and capital investment. We conducted a fundamental evaluation of two critical areas: the Utilities’ Financial Plan and the underlying Utilities’ Business Model.  

Building a resilient financial framework  

At the conclusion of the in-depth analysis of the City’s utility governance structure, financial planning procedures and tools, capital improvement planning, and operations, Raftelis made nine specific recommendations in the following areas: 

1. Financial management structure 

2. Governance structure 

3. Financial policies – capital reserve 

4. Financial policies - debt limitation 

5. Sustainment reserve policy 

6. Return on equity calculation 

7. Financial statements 

8. Other financial policies 

9. Water and wastewater utility pro forma financial projections 

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A decade of stability and transparency  

Calgary accepted Raftelis' recommendations and considered implementation strategies. While several recommendations were taken under advisement for future consideration, the City prioritized key financial policy shifts for the near term. Likewise, the recommendation regarding the return on equity calculation, which serves as the basis for determining fund transfers to the City, was used to adjust the calculation annually.  

Since the delivery of the Financial Review Project, the City has engaged Raftelis as part of a consultant team to conduct the next three cost-of-service and rate-structuring studies as part of the City’s four-year business cycle process. Each of these studies included the following facets: 

• Review and confirmation of the City’s utility servicing pricing objectives. 

• Comprehensive analysis of historical operation and maintenance expenses. 

• Collaboration among utility services to lay the foundation for net-new resourcing needs for the upcoming business cycle. 

• In-depth review and assessment of the planned capital improvement investments for the upcoming business cycle. 

• Detailed cost of service analysis for water, wastewater, and stormwater lines of service. 

• Design of rate structures aligning with the City’s pricing objectives and targeting revenue sufficiency to support sustainable utility services.  

The results of each study were presented to the City Council for discussion, debate, and approval. Ultimately, this decade of strategic financial planning helps the City of Calgary effectively manage financial risks, balance the demands of customer growth, and ensure the revenue sufficiency required to reinvest in aging infrastructure and maintain sustainable utility services.