recommendation: for information only€¦ · contribution by burlington hydro towards the hydro...

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Engineering Department TO: Budget and Corporate Services Committee

SUBJECT: Downtown Hydro Policy Update

Report Number: E-24-13 File Number(s): 825-01

Report Date: May 24, 2013 Ward(s) Affected: 1 2 3 4 5 6 All

Date to Committee: June 17, 2013 Date to Council: July 2, 2013

Recommendation: For information only

Purpose: Address goal or action in strategic plan Establish new or revised policy or service standard Respond to legislation Respond to staff direction Address other area of responsibility

Reference to Strategic Plan:

Vibrant Neighbourhoods Prosperity Excellence in Government N/A

Executive Summary:

Vibrant Neighbourhoods: Action 1: “Ensure that neighbourhoods and commercial areas, including the downtown, are safe and accessible places to live and gather for activities”. Prosperity: Action 1f: Encourage a vibrant and healthy mixed use downtown. Expected result: redevelopment of vacant or under-used properties to mixed use developments. _____________________________________________________

As per council direction, city staff have completed a financial analysis in order to identify the cost related to hydro servicing in the city’s downtown. The results of the analysis indicate that, under current conditions, development projects in the city’s downtown have small profit margins which do not enable developers to absorb significant added costs, such as hydro burial, within development pro formas. The results also indicate that the taxes generated by intensification projects benefit the city as a whole, even after factoring in the additional services required to support the

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increased growth. Staff would like to highlight that this financial analysis is one of many aspects when considering development in the downtown. Other considerations that must be kept in mind are planning principles, as articulated in the Provincial Places to Grow Plan, the city’s Official Plan and the city’s Core Commitment. These plans do emphasize how intensification in the core area has been shown to facilitate a vibrant downtown community. In addition, these plans are based on the premise that increased density reduces urban sprawl, which in turn makes transit more viable and utilizes infrastructure more efficiently. Staff have considered various tools for recovering cost of hydro burial. The tools are either municipal tools or hydro related tools. Of the tools considered, recoveries by Burlington Hydro as permitted by the OEB are considered to be most practical. With respect to streetscaping, nearly 75% of what was originally planned for downtown streetscape area has been streetscaped. Staff recommend completing the plan. This will provide a consistent streetscape theme in keeping with the projects carried out over the past 30 years.

Background: At the February 4, 2013 meeting, Development and Infrastructure Committee staff submitted report E-1-13 for committee’s consideration. This report provided an overview of a proposed policy to establish standards for power networks as well as propose a cost-sharing plan. In considering this report, council at its meeting of February 19, 2013, passed the following staff direction: “Direct the Director of Engineering to provide more comprehensive analyses of the cost/benefit (or present value cost/revenue analyses) for the capacity upgrading and burial of Hydro for all parties (Developers, Burlington Hydro, the City of Burlington). An analysis of a development site’s incremental floor area costs compared to the additional revenue that relates to an expanded building footprint arising from hydro burial will be included. Also, staff to provide commentary on bonusing issues, possible applicability of Community Improvement Plans and Local Improvements as optional funding sources, front ending financing and cost recovery from subsequent developers and the current status of the Downtown Streetscape Policy and Reserve account.”

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Discussion: With respect to council’s direction, there are three specific elements that need to be addressed. The specific elements are as follows:

1. Net present value cost-benefit analysis for both the entire site as well as the incremental floor area for a typically representative site.

2. Assess the tools available to municipalities to front end or recover development related hydro costs.

3. Provide a Status Update of the Downtown Streetscape Policy and Reserve account.

1. Financial Analysis In order to address council’s direction, staff have developed a high level financial model to determine the net present value of costs and revenues for typical development projects in the city’s downtown district. This model is intended to provide an “order of magnitude” and not necessarily a detailed cash-flow for the city, Burlington Hydro and the developer.

1.1. Scenarios and Assumptions The scenarios analyzed are based on a typical development in the downtown that is compliant with the city’s Official Plan. For the majority of the downtown area, the official plan currently permits up to 8 stories. There are some exceptions where 14 stories are permitted. Consequently, the following are the scenarios analyzed:

• Typical 8 and 14 story building on a typical lot with no city contribution and a 33% contribution by Burlington Hydro towards the hydro burial cost.

• Typical 8 and 14 story building on a typical lot with city contribution and a 33% contribution by Burlington Hydro towards the hydro burial cost.

• Existing development consisting of 2 story structure. • All scenarios assume ground floor retail or commercial with the remaining floors

being residential.

For this analysis, the assumption and input variables have been developed using the study carried out for lot 4 and 5. The assumptions in this study are based on typical average values for the GTA area. In addition and as a result of discussions with local developers, city staff have also completed the analysis using figures that are more reflective of the conditions in the City of Burlington. A key factor of this additional analysis is that the market value of properties in Burlington is slightly lower than other GTA municipalities such as Toronto or Mississauga. These assumptions and input variable, along with the results, are summarized in Appendix A.

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1.2. Analysis Results Utilizing the input variable for each of the above scenarios, staff have carried out a financial analysis to determine the net present value. This analysis is a high level financial review and not a detailed fiscal impact analysis. With respect to the city, the results of this analysis indicate that the increased tax revenue due to intensification can be more favourable than that of the status quo development. On its own this outcome corroborates staff’s previous conclusions of a reasonable payback period for the city’s contribution to offset the streetscaping and hydro burial cost. It should be noted though that this analysis does not include the annual operating cost for additional services required by these new developments, which if included would increase the payback period. In general, downtown intensification projects require relatively less operating costs as compared to typical suburban development. The results of the analysis for Burlington Hydro do indicate that Hydro’s initial investment of 33% will not be recouped over the 25 year analysis period. However, as per past practice, Hydro has traditionally provided a rebate in the order of 33% to new developments. Consequently, Burlington Hydro staff have confirmed a contribution of 33% towards the burial of hydro expansion in the downtown area. For calculating the developer’s net present value, the analysis utilized a range of cost and revenues that are reflective of both average GTA values as well as more local downtown Burlington numbers. Based on the outcome of this analysis it can be concluded that for the current market condition in downtown Burlington, high-rise development projects as permitted in the Official Plan, have a marginal profit margin that in some cases would be considered inadequate to enable developers to absorb a major significant cost item such as hydro burial and upgrade. Staff would like to highlight that this financial analysis is one aspect when considering development in the downtown. Other considerations that must be kept in mind are planning principles as articulated in the Provincial Places to Grow Plan, the City’s Official Plan and the City’s Core Commitment. In addition, intensification in the core area has been shown to facilitate a vibrant downtown community and in turn provides a market for retail and commercial uses in the downtown. Finally, increased density reduces urban sprawl, which in turn makes transit more viable as well as utilizes existing infrastructure more efficiently. Based on the financial analysis results staff are suggesting that the city contribute towards the cost of the streetscaping portion of burying hydro. As indicated previously in report E-1-13, the city could consider funding $3.4 million of the estimated $6 to $8 million burial cost. This cost would be included in the city’s Capital Budget and Forecast and be allocated on a project by project basis.

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2. Cost Recovery Mechanism 2.1. Hydro Related Recoveries

The cost responsibility for distribution infrastructure upgrades is determined by the Ontario Energy Board through the Ontario Energy Board Act and the Board’s Distribution System Code (“DSC”). The DSC makes a distinction in the cost responsibility of distribution infrastructure by providing two classifications, “Expansions” and “Enhancements”. Enhancement Under the DSC section dealing with “enhancement”, a distributor like Burlington Hydro may perform enhancements to its distributions system for purposes of improving system operating characteristics or for relieving system capacity constraints. Distribution system enhancements could also be undertaken in order to maintain existing performance levels and reliability. The DSC makes it clear that the distributor is responsible for the cost of constructing an enhancement and shall not charge the customer a capital contribution to construct an enhancement. Staff would like to indicate that the city has no obligation whatsoever with respect to hydro system enhancement. Burlington Hydro will bear all such costs. Expansion As noted in staff report E-1-13, there have been a number of recent downtown developments that have proceeded. These developments did necessitate the upgrade of the current network to accommodate additional power needs. Under the DSC, an “expansion” of the main distribution system includes, among other things, building a new line to serve a connecting customer, rebuilding an existing line with a larger size conductor to serve the connecting customer, converting a lower voltage line to operate at a higher voltage, replacing a transformer to a larger size, and upgrading a voltage regulating transformer or station to a larger size. Accordingly, based on the DSC definition, the upgrade of the hydro services in the downtown area could be classified as an “expansion of the main distribution system”. It should be noted that Burlington Hydro is responsible for the costs of system expansion but may be able to recoup some of the costs from developers. The DSC sets out a framework for the determination of the developer’s obligations, and includes a cost sharing mechanism for unforecasted consumers that connect to the distribution system. Burlington Hydro would collect from the unforecasted customers an amount equal to the rebate that Hydro would pay to the initial developer. The city has no obligation whatsoever with respect to hydro system expansion. Finally staff would like to point out that although the power network maybe expanded, in some areas of the downtown, the existing 4kV power network may also need to be maintained overhead to service the existing customers. The burial or decommissioning of this existing network will be dealt with on a project by project basis.

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2.2. City Related Recoveries of the Hydro Burial Component Staff has investigated various cost recovery tools that may be applicable to recovering the city’s portion of the burial cost. The following is a summary and commentary for each of these tools:

Section 37 Section 37 of the Planning Act is a planning tool, which allows municipalities to share in the increased value that may result from an increased density and/or height of a development project. It allows the municipality to enter into an agreement with a proponent in association with an amendment to a zoning by-law. The fundamental requirements are that the proposal represents good planning and that the benefits sought are consistent with Official Plan policies. The receipt of public benefits can never compensate the city for a project which does not meet acceptable planning standards pertaining to build form, compatibility with adjacent uses, adequacy of hard and soft infrastructure, social and environment impact, other planning policies of council and the Official Plan, and any other tests of good planning. In exercising the provision of Section 37, the city may negotiate the provision of items that are over and above those typically funded through development charges (i.e., roads) and other contribution tools. For example, the developer may agree to the construction of enhanced pedestrian connections or the installation of public art. Alternatively, a cash contribution may be more appropriate. In such cases, the funds obtained through Section 37 agreements may be used by the city towards these same or similar items or objectives. The City’s Official Plan does include policies to allow for the provision of community benefits in relation to an increase in height, including the provision of public walkways, waterfront public open space and other facilities such as the burial of hydro. The policies require an agreement between the landowner and the city relating to the community benefits. To date, staff have negotiated a number of public benefits under section 37, including: monies towards the downtown parking fund; enhanced road works; public art; and improved pathways and pathway connections. Experience gained from these cases has been used to develop the protocol for use in future section 37 opportunities and negotiations section 37 is one of the few planning tools at the city’s disposal to add to the facilities that enrich the quality of life in Burlington. It enables the city to accept public benefits for the community when permitting increases in density and height that are appropriate in the context of good planning. Past use of section 37 has resulted in securing valuable public benefits and consequently is considered an appropriate tool for recovering costs related to hydro burial.

As confirmed in report E-1-13 and consistent with the Ontario Energy Board standard practice, Burlington Hydro has agreed to an overall financial contribution of 33% of the total cost for the city’s downtown power distribution expansion.

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However, applications that evoke an opportunity for section 37 cannot be forecasted nor relied upon for planning and for overall financing of either hydro system burial. Depending on the specifics of a section 37 opportunity (location and size of project) the city can apply some of the site specific section 37 funds to offset a city share of the hydro burial. Local Improvement The Municipal Act gives municipalities, through Local Improvement Regulations, the authority to impose charges for the installation of, or for the replacement of municipal infrastructure. Municipalities can use the local improvement process to undertake a capital project and recover all or part of the cost of the project by imposing local improvement charges to the benefiting properties in the vicinity. Municipalities are not specifically limited in the types of capital projects they can undertake, however, in general, these projects have historically included installation of water and wastewater infrastructure, roadway reconstruction, new sidewalks and installation of new street lighting. The benefits of using local improvement process is that the municipality can generally equitably allocate cost to benefiting properties as well as spread the cost over several years to minimize the annual payment a property owner has to make. Under the local improvement process, a municipality can chose to take a “forceful” approach for services deemed essential. Under this approach, the municipality must make application and seek approval from the O.M.B. Consequently one objection to the O.M.B. can invoke a hearing. A second option is to use a “petition approach”. In this approach the majority of benefiting property owners must agree, otherwise the project cannot proceed as a Local Improvement. In staff’s opinion although the local improvement process would be a valid process to be used for distributing the cost of hydro burial, it is, however, unlikely to be successfully agreed to by the existing property owners and particularly the non-developing properties. In addition, the city would have a difficult time making the case that the burial of hydro is an essential service. Community Improvement Plans Community improvement planning is a process by which a municipality can address local needs, priorities and circumstances. This incentive-based program gives municipalities the ability to focus priority initiative such as targeting areas in transition, redevelopment or stimulate private sector investment. Community improvement approach is a flexible, comprehensive, coordinated and strategic framework for dealing with lands and buildings, which can address many physical, social, economic or environmental matters. Over the years, community improvement plans have been used for a broad array of priorities aimed at rehabilitating and revitalizing targeted areas. Project areas may range from specific properties and employment areas to streets, neighbourhoods and entire communities, Traditionally program coverage can span a wide spectrum of

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municipal initiatives ranging from infrastructure works (including streetscaping) to brownfield remediation and downtown core revitalization. Ultimately the goal of this program is to support sustainable planning principles that include more compact land uses, intensification and mixed uses. It’s important to note that Community Improvement Plans intent is to direct and stimulate private sector investment though incentive-based programs. These incentives can be grants, loans and tax assistance. Therefore it follows that there is no real advantage to utilizing Community Improvement Plan to fund hydro burial. Development Charges As indicated in report E-1-13, the intensification of Burlington’s downtown will require the upgrade of the power circuits in order to service current and future developments. Given that this upgrade strictly addresses hydro service expansion, staff conclude that this work is not eligible under the Development Charges Act.

2.3. Developer Front Ending and Recovery Options There are several funding and recovery options to be considered in which the developer would contribute to, or “front end”, their respective cost of burial for hydro extensions to particular development projects. . The following are options for consideration:

1. Through OEB rules, the portion attributed to a development for hydro expansion could be recovered by Hydro from future benefiting developments. This option of recovering this fund is only available for 5 years subsequent to construction. Staff do recognize that this time limitation will result in uncertainty with respect to the amount of potential recovery of the initial hydro expansion costs.

2. A coordinated hydro master servicing plan can be developed where future development in the downtown would share equitably in the construction of hydro expansion. This model is somewhat similar to previous municipal master servicing plans, however, in this case the city would have no jurisdiction. Consequently, this option is not considered practical due to the challenges of securing an agreement from the development community and in turn enforcing this agreement.

3. The city could also use a best effort approach to recover cost of hydro expansions and burial from future developments and return that recovery to the initial developer. However, given that the city has not legal mechanism to recover burial costs from subsequent developers, it follows that any cost recovery will be on a case by case basis with no guarantees of full or even partial recoveries.

With respect to recovery of developers front end cost, staff recommend that the most practical tool is the recoveries through OEB.

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2.4. Bonusing

In Ontario, the issue of bonusing is addressed in section 106 of the Municipal Act, 2001. The Act does not contain a specific definition of “bonus” or “bonusing”, however, the common law interpretation refers to an “obvious financial advantage” to a particular person or entity. With respect to the city’s financial contribution, staff would like to indicate that this contribution will specifically fund a portion of hydro burial and not the expansion. There is no financial advantage to the developer in that the works is a requirement of the city and the city’s contribution does not exceed the estimated $6 to $8 million cost attributed to hydro burial and streetscaping.

3. Downtown Streetscape Policy and Reserve Account During the committee discussion on the downtown hydro system capacity and burial report, questions were also raised about the city’s downtown streetscape standards and ongoing costs (condition of streetscape sidewalks, cost of refurbishing the decorative light poles and fixtures, etc.) This section of the report provides an update and status on the downtown streetscape standards, cost of streetscape elements and comments on the streetscape program and streetscape reserve fund.

3.1. Overall Streetscape Program Status The downtown streetscape program commenced in 1981. Since then, approximately 14 projects have been carried out with the corresponding streetscape sidewalks and heritage style decorative lights. The attached Figure 1 indicates the streets that have been completed and the remaining streets originally planned to be streetscaped. Overall, approximately 75% of the planned streets have been completed. The “remaining” street sections are as follows, with an indication of relative priority for completion of the streetscaping enhancement:

Section Priority - John Street (Lakeshore to Caroline) High - Lakeshore Road (Nelson to Locust) Medium - James Street (Brant to Martha) Medium - Caroline Street (Brant to Elizabeth) Medium - Old Lakeshore Road Medium* - Locust Street (Ontario to Caroline) Low

*possibly consider as part of the precinct redevelopment project The approximate total streetscaping cost premium for completing these remaining streets is $1,600,000. The streetscaping works would normally be carried out as part of road reconstruction projects or in concert with major redevelopment projects. It should be noted that approximately 45% of the total frontage of the remaining streetscape streets is city owned land (parks, parking lots, etc.).

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Figure 1

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3.2. Streetscape Levy and Reserve Account Status

The Downtown Streetscape Levy was established in the 1980’s to fund the enhanced streetscape sidewalk design, enhanced tree plantings standard and for the premium on installing decorative black streetscape light poles and fixtures. The levy was established as a new development and redevelopment contribution (for land-use rezoning and site plans). The per-metre streetscape is annually adjusted based on construction cost index increases and the 2013 schedule for the levy is as follows:

Streetscape Levy (Approved 2013 rates per metre) Streetscape contribution – residential treatment (with trees) $228.26 Streetscape contribution – typical treatment $446.42 Streetscape contribution – special treatment (Lakeshore Road without trees) $531.26 Streetscape contribution – special treatment (Lakeshore Road with trees) $606.00 Streetscape contribution – special treatment (Brant Street and John Street) $606.00

In the early 1980’s and early 1990’s there were many applications that contributed to the streetscape reserve fund. These were typically smaller scale redevelopments and minor site plans. In recent years (since 2008) redevelopment in the downtown have been typically larger in scale and have required significant new and re-constructs of the streetscape elements as part of the site plan works (and as such, typically these larger sites have “commuted” their streetscape levy payments). The current balance in the Streetscape Reserve Account is $42,850.00 Staff have given consideration to alternative sources of streetscape funding (such as local improvements) but on balance, we believe that the current levy system is the most appropriate for the following reasons:

- A considerable portion of the remaining frontage is city owned land. - Major new developments will be responsible for the entire cost of

streetscape sidewalk construction along their frontages. - Other smaller non-developing sites would very likely object to a local

improvement type fee for streetscaping due to the fairly onerous per metre cost.

3.3. Streetscape Sidewalk Standard Update

The original streetscape sidewalk standard (1980) involved extensive red clay brick banding. This design was exactly the same as proposed for downtown Toronto. Early

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streetscape projects here (and in Toronto) resulted in issues with the clay brick detail and this method was abandoned in the late 1980’s. Subsequent revisions to the sidewalk and crosswalk standards have occurred over several years. Our most recent sidewalk standard has significantly less “banding” and is much more durable to both traffic loads and weather conditions. The updated sidewalk standard has been vetted through the city’s Accessibility Coordinator. (See attached photos) Our most recent standard also involves a more consistent colour/pigment for the banding areas. This standard will continue to be used for any new streetscape frontages and for re-constructs on our existing streetscape streets in the downtown area.

Figure 2

Staff recommend completing the remaining downtown streetscape area streets with the latest update streetscape sidewalk standard.

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Figure 3 4. Streetscape (Decorative) Lighting: Costs and Maintenance Overview

As noted above, approximately 75% of the downtown streets are fitted with the decorative black light poles and fixtures. There is presently a total of 432 decorative lights. As committee is aware, all of the decorative streetlights have been identified for refurbishment over a 4 year period commencing in 2016 for a total cost of $884,000. The following provides an overview of the approximately life-cycle cost comparison of the black decorative lights vs. standard suburban concrete (cobra style) streetlights:

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Life-Cycle Costing (based on a 50 year design life) Standard Cobra

Streetlight Downtown Decorative Streetlight

Initial installation (supply, install, engineering)

$3,800

$3,960

Refurbishment @ 25 years ɸ $2,000

Replacement Refurbishment @ 50 years

$3,800 (replace)

$2,000 (refurbish)

TOTAL (present value cost)

$4,445

$5,123

As noted above, there is a premium for the decorative poles at least for the initial installation and for the mid-life refurbishment. Also, due to the lower light fixture mounting height, more decorative poles are required compared to the suburban light standards. As such, the overall life cycle premium for completing the downtown decorative streetlight program is in the order of 75% more costly. The total initial installation cost to complete the remaining downtown streetscape area streets is in the order of New Decorative Streetlights = $738,000 (approximate) (approximate number 144) Vs. Standard Cobra Streetlights = $422,000 (approximate) (approximate number 95) Staff are reviewing and evaluating alternative specifications and suppliers for the downtown streetlight poles for future new installations. Pending the results of that review, a new standard that has a similar appearance but a longer life-cycle may be found.

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5. Conclusions

Nearly 75% of the originally planned for downtown streetscape area has been streetscaped. Staff recommend completing the plan. This will provide a consistent streetscape theme in keeping with the projects carried out over the past 30 years. As noted above however, there may be merit in deferring or cancelling lower priority streets and for pursuing a greater amount of the remaining projects to be entirely funded by major development projects. The streetscape sidewalk standard has been updated over the years to achieve a simpler and more durable design. Staff recommend continuing with this latest standard. Staff is however, reviewing alternative specifications for the ongoing installation of new decorative streetlights. While staff have reviewed the current streetscape levy program and considered alternatives to the levy system, we feel that the levy system should be maintained for the foreseeable future.

Strategy/Process In addition to council’s direction, staff will continue to have discussion with Burlington Hydro and the development community in order to bring forward a Hydro Services Policy to formalize the city’s practice. Staff anticipate to bring forward a report to council outlining the Hydro Services Policy in the third quarter of 2013. Options Considered The options to upgrade the capacity of hydro services and for hydro services burial in the downtown area are addressed in this report as well as report E-1-13.

Staff strongly recommend completing the following streets with the decorative black streetlight poles:

• John Street from Lakeshore Road to Caroline Street • Lakeshore Road from Locust Street to Nelson Avenue • James Street from Martha Street to Brant Street

There may be a possibility to have the Old Lakeshore Road (from Pearl Street to Lakeshore Road) decorative streetlights totally funded by the redevelopment of the Old Lakeshore Road precinct. The streetscaping (sidewalks and streetlights) on Locust Street from Ontario Street to Caroline Street is, in staff’s view, a lower priority that could be dropped from the overall program.

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Financial Matters: Financial matters are addressed in this report as well as report E-1-13. It should be noted however that currently hydro burial projects are not accounted for in the capital budget and forecast. As such, if approved, the city allocation of $3.4 million will need to be incorporated into future capital budgets within the context of funding priorities.

Communication Matters: N/A

Conclusion: Conclusions for this report have been included in each of the respective sections. Respectfully submitted, Sam Sidawi, P.Eng. Tom Eichenbaum, P.Eng. Senior Engineer Director of Engineering 905-335-7600, Extension 7576 905-335-7600. Extension 7795

Approvals: *required Original signed by

Cary Clark for Tom Eichenbaum

Original signed by

Joan Ford

Original signed by

Scott Stewart n/a *Department

Head City Treasurer General Manager City Manager To be completed by the Clerks Department

Committee Disposition & Comments

01-Approved 02-Not Approved 03-Amended 04-Referred 06-Received & Filed 07-Withdrawn

Council Disposition

Appendices: A. Analysis Assumptions and Results

Notifications: (after Council decision)

Name Mailing or E-mail Address

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& Comments 01-Approved 02-Not Approved 03-Amended 04-Referred 06-Received & Filed 07-Withdrawn

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