A Public-Private Partnership for Wastewater Treatment Plant Upgrade

Transcription

1 A Public-Private Partnership for Wastewater Treatment Plant Upgrade Business Plan 9 July 2001 Prepared by Jonathan R. Huggett J.R.Huggett Co. Infrastructure Consultants, th Avenue, Surrey, BC, V4P 2R9

2 Table of Contents EECUTIVE SUMMARY INTRODUCTION...II PROJECT OBJECTIVES... III PROJECT OPTIONS... III MULTIPLE ACCOUNT EVALUATION OF OPTIONS...IV RISK CONSIDERATIONS...VI STRUCTURING AN OPERATIONS CONTRACT...VII CONSULTATION...VII IMPLEMENTATION...VII FINANCIAL IMPLICATIONS... VIII RECOMMENDATIONS AND NET STEPS...I BUSINESS PLAN 1. OBJECTIVES OF PROJECT CONTET OF THE BUSINESS PLAN STEPS TO DATE BUSINESS PLAN CONTENTS LEGISLATIVE ISSUES BACKGROUND ASSENT OF THE ELECTORS ASSESSMENT OF NEED HISTORY VISION FOR WASTEWATER TREATMENT IDENTIFICATION OF DELIVERY OPTIONS DIVERSITY OF DELIVERY METHODS RELATIONSHIP BETWEEN DESIGN, BUILD AND OPERATE TRADITIONAL VERSUS DESIGN/BUILD/OPERATE OWNERSHIP VERSUS CONTRACTING OUT PARTNERSHIP OPTIONS THE OPTIONS AVAILABLE EVALUATION OF OPTIONS...16 Business Plan 9 July 2001 Table of Contents Page 1

3 8.1 MULTIPLE ACCOUNT EVALUATION OF OPTIONS MULTIPLE ACCOUNT INDICATORS RISK AND REWARD RISK AND UNCERTAINTY SOURCES OF RISK RISK ANALYSIS DEVELOPMENT RISKS TECHNICAL RISK OPERATING RISK DETERMINING VALUE FOR MONEY METHODS OF FINANCING STRUCTURING THE OPERATIONS CONTRACT CONSIDERATIONS SCOPE OF OPERATIONS GENERAL STRUCTURE OF AGREEMENTS RISK CATEGORIES AND CONSIDERATIONS Labour Costs Energy Costs Chemicals Other Costs Long Term Maintenance of the Asset Revenue Risk Performance Measures EMPLOYMENT OF MUNICIPAL STAFF Offers of Employment Employee Training SUMMARY OF RECOMMENDATIONS SUCCESSORSHIP RIGHTS AND THE LABOUR CODE IMPLICATIONS INTRODUCTION SUCCESSORSHIP RIGHTS APPLICATION TO THE WASTEWATER TREATMENT PLANT STAKEHOLDER CONSULTATION INTRODUCTION STRATEGIC APPROACH CONSULTATION OBJECTIVES KEY MESSAGES PRIMARY TARGET AUDIENCES ACTION PLAN MONITORING AND EVALUATION IMPLEMENTATION PLAN PROCUREMENT PROCESS DISCUSSION OF OPTIONS THE TWO-STAGE PROCUREMENT PROCESSES CONTENT OF AN RFP NEGOTIATING AND CONCLUDING A FINAL AGREEMENT SCHEDULE IMPLICATIONS FINANCIAL ANALYSIS...48 Business Plan 9 July 2001 Table of Contents Page 2

4 14.1 CAPITAL UPGRADE COSTS OPERATING COSTS RECOMMENDATION AND NET STEPS...49 APPENDICES APPENDI ONE LIST OF RELEVANT DATA APPENDI TWO YEAR 2001 OPERATING BUDGET APPENDI THREE QUESTIONS AND ANSWERS APPENDI FOUR CANMORE UTILITIES PERFORMANCE ASSESSMENT REPORT APPENDI FIVE RISK MATRICES APPENDI SI NATIONAL POST ARTICLE ON SEYMOUR WATER FILTRATION PLANT APPENDI SEVEN EAMPLES OF WATER AND WASTEWATER PUBLIC-PRIVATE PARTNERSHIPS 1.1 PORT HARDY CANMORE, ALBERTA STRATHMORE, ALBERTA MONCTON BANFF, ALBERTA... 1 LIST OF FIGURES Figure 1 Wastewater Treatment Plant... i Figure 2 Business Plan Context... 4 Figure 3 - Procurement by Design/Build/Operate Figure 4 - Traditional Project Delivery LIST OF TABLES Table 1 - Summary of Evaluation of Options...v Table 2 - Traditional versus Design/Build/Operate Table 3 - Multiple Account Evaluation Indicators Business Plan 9 July 2001 Table of Contents Page 3

5 ABBREVIATIONS USED IN THE REPORT The following abbreviations have been used in this report: 3P means Public-Private Partnership CICA means the Canadian Institute of Chartered Accountants DBO means Design, Build, Operate FAQ means Frequently Asked Question MELP means the former Ministry of Environment, Lands and Parks of the Province of British Columbia (now the Ministry of Water, Land and Air Protection) RMOW means the WTP means Wastewater Treatment Plant Business Plan 9 July 2001 Abbreviations

6 Executive Summary Introduction The (RMOW) operates a Wastewater Treatment Plant, which is operating close to maximum capacity. RMOW retained the services of Dayton and Knight Ltd., Consulting Engineers, who have recently completed a predesign report for a proposed expansion of the WTP. The predesign report has identified a need for significant immediate expenditures of around $19 million for the expansion of the Whistler Wastewater Treatment Plant to meet the requirements of the Whistler Liquid Waste Management Plan. The proposed expansion involves significant changes to the existing plant, resulting in changes to the operation of the plant, and a requirement for retraining of the existing workforce. This report compares a design/build/operate option, often referred to as a publicprivate partnership, for undertaking these capital works, to the traditional design/bid/build. The intent of the report is to identify the most efficient way to deliver the proposed upgrades. There are various considerations that help determine a recommended strategy including: The identification and allocation of risk in the most appropriate way. Recognition that capital works and their operation and maintenance are inextricably linked. The importance of stakeholder consultation Issues of public versus private responsibility and the related consequences. The traditional methods of procuring infrastructure are less than optimal from the following perspectives: The risk of non-performance, and cost overruns is often inadvertently assigned to the municipality, not the consultant or the contractor, Consultants may favour particular forms of technology because of familiarity, yet frequently these technologies do not provide the most effective solutions, Municipal budgeting is not ideally suited to just-in-time provision of infrastructure often leading to over provision of capacity, and The focus of traditional project delivery is usually capital expenditures, whereas operations and maintenance on a life cycle basis, are usually at least equal to the capital costs. Business Plan 9 July 2001 Executive Summary Page ii

7 A public-private partnership strategy will differ from traditional design/bid/build delivery strategies by: Transfering performance risk to the private sector by not specifying a preferred technology, only the effluent quality. Introducing operational changes that may defer or reduce capital expenditures. Permitting just-in-time infrastructure provision by contracting for wastewater processing services. This report has been prepared to outline the issues and strategies for the successful implementation of a design/build/operate contract for the required wastewater treatment plant upgrades. Project Objectives The project implementation objectives include: Meet the requirements of the Whistler Liquid Waste Management Plan Upgrade the wastewater treatment plant in the most cost effective and efficient way. Improve the quality of the effluent discharge Improve the efficiency of the existing wastewater treatment plant Reduce the operation costs of the wastewater treatment plant, and Reduce the risk to the RMOW with respect to cost, schedule and technical performance. Project Options The Municipality has undertaken considerable investigation of the various technical options for implementing the proposed upgrade to the WTP over the past 6 years. All of this work has focused on traditional delivery of the infrastructure. There are three distinct stages to a project: Design, Construction, and Operation. Although traditionally these are separate functions, there is growing realization that all three are inextricably linked and an optimum delivery solution must recognize the interrelation of all three. Business Plan 9 July 2001 Executive Summary Page iii

8 Multiple Account Evaluation of Options The comparison of the options for delivering the wastewater treatment plant upgrade has been undertaken using multiple account evaluation methods based on guidelines developed by the Province for the evaluation of major capital projects. Accounts evaluated include: financial, customer service, environmental, urban development and system impact. Under each account, key indicators are evaluated. Financial account indicators include capital, operating, and maintenance costs. The traditional Customer service account has been replaced for this project by a Municipal Account as the DBO option will be largely transparent to the end customers. Municipal Account indicators include the impacts to the municipality and the staff employed at the present facility. Environment account indicators include impacts to the environment and specifically related to the current MOE discharge permit held by RMOW. Urban Development indicators include assessments of how well each option would contribute to regional land-use goals. The System Impacts account provides indicators to ensure that the full impacts on all of Whistler s operations are properly recognized. Initially three different options were identified for evaluation, while variations on these options are also possible: Traditional design/bid/build delivery, where a consultant designs the project, the construction is undertaken through low bid tender, and the Municipality continues to operate the facilities. Design/Build Delivery, where a single proponent assumes responsibility for designing and constructing the required facilities for a fixed price and guaranteed performance. The Municipality will continue to operate the upgraded facilities. Design/Build/Operate, where a single entity is responsible not only to design and build for a fixed price, but also operate for a term, usually between 5 and 20 years. Under this option the operation would be contracted to the private sector. The design/build delivery option has not been further evaluated as a proposal to design and build without the obligation to operate means that it will be difficult to make proponents accountable for the satisfactory performance of the upgraded treatment plant. Business Plan 9 July 2001 Executive Summary Page iv

9 The following table summarizes these options: Table 1 - Summary of Evaluation of Options Option Life Capacity Option One Traditional Design/Bid/Build Fixed one stage upgrade to accommodate build out at the outset Specified by Municipality, though value engineering could identify options for savings Option Two Wastewater Treatment Plant DBO Could involve a staged upgrade, providing just in time infrastructure Could be by just in time provision, and phased approach to capacity increase Capital Cost $19.0 million estimate Could be substantially less capital cost. Previous DBO wastewater projects suggest between 15% to 40% less. Operating Costs Municipal responsibility but NPV over 20 years estimated to be $19.15 million Risks, particularly effluent discharge quality and costs Quality of Service Environmental Urban Development System Impacts Recommendation Operating risk with municipality High quality public service but no benefits from performance guarantees, financial penalties and operating experience of other plants Municipality assumes risk for non compliance Upgrade will be designed to accommodate build out of municipality Municipality still has overall control of total system Option 2 (DBO) provides the best overall solution that can be implemented. Operating costs known and fixed in advance by private sector. Savings of at least 10% likely. Operating risk assumed by private sector and RMOW largely indemnified against failure to perform Service quality guaranteed by contract performance requirements, accompanied by financial penalties Private sector assumes risk for non compliance, though RMOW will suffer impact to reputation for violations Upgrade will be designed to accommodate build out of municipality Private sector only able to control wastewater treatment plant. Municipality still responsible for collection systems issues and bylaw enforcement Preferred Option Business Plan 9 July 2001 Executive Summary Page v

10 Risk Considerations Expansion of the WTP will likely entail the following key risks: 1. Development risk. There is risk in the design and construction of any upgrading work that costs and schedule will overrun. Upgrading of existing operational facilities is one of the highest risk projects that can be attempted. 2. Technical risk - ensuring that the expanded wastewater treatment plant is properly designed and constructed. 3. Operating risk basically that the enhanced wastewater treatment plant will operate satisfactorily, and meet the requirements of the MELP Operational Permit. A key part of that risk is training of staff to a higher level to operate the new facilities. The appropriate allocation of these risks is crucial to the success of the project. In structuring and evaluating the options, the Municipality also needs to consider the following factors: Any private sector involvement should be undertaken in such a way as to not jeopardize access to any available infrastructure grants and any other future provincial grants for which the Municipality may presently be eligible. The cost of services will provide value for money to the citizens, with the maximum appropriate risk transfer to the private sector, i.e. risks over which the private sector may exercise some degree of control. Receiving input from an experienced commercial partner in developing, operating and maintaining the waste water treatment facilities. Providing the facilities in the most efficient manner, considering such factors as the appropriate and efficient use of technology, and balancing capital, operating and maintenance considerations to achieve lowest lifecycle costs. Any significant private sector involvement should be determined using a competitive process. Any public-private partnership must comply in all respects with the BC Local Government Act, and other relevant legislation and codes. Where possible arrangements with the private sector should eliminate as far as is possible, any legal liabilities arising from the ongoing maintenance, operation and development of the wastewater collection and treatment facilities. Business Plan 9 July 2001 Executive Summary Page vi

11 Structuring an Operations Contract The WTP operating contract should identify the various categories of work to be performed, each with their own payment formula, which reflects the different level of risk. These categories of work can be summarized as follows: Basic work Capital Expenditures Extraordinary work Rehabilitation, and Abnormal circumstances The risk for cost inflation is most efficiently retained by the municipality. The typical breakdown of operating costs is 50% labour, 20% energy, and 5% chemicals with the rest distributed to miscellaneous items. Performance incentives are a key part to any successful operating contract. A final important factor is the role of the existing staff operating the plant. The upgraded WTP will require a retraining of the existing staff, and a supervisor with an Operator IV designation. A key requirement of the operating contract will therefore be training and the provision of additional qualified personnel if required. Consultation An ongoing proactive consultation program is essential to the success of such a venture. Key issues to be addressed will be: Addressing issues of ultimate control and responsibility for the provision of superior wastewater treatment, Assuring the public of an open, transparent and defensible procurement process, Dealing with the concerns of the existing workers Assuring all stakeholders that the wastewater treatment work will meet the highest standards, and that the public will receive superior value for money. It is difficult to ignore the recent failure of a design/build/operate procurement process by the Greater Vancouver Water District for the $125 million Seymour Water Filtration Plant. While it is not the scope of this report to critique the GVWD process, the general consensus is that key to the failure of the process was an inadequate and ill-timed public consultation process. Other contributing factors were the removal of the only all Canadian team in the short-listing process resulting in the shortlisting of large multinational companies. This coupled with a gag order on the Business Plan 9 July 2001 Executive Summary Page vii

12 private sector proponents meant that those who do not favour such arrangements were free to present inaccurate information unchallenged. This illustration further emphasizes the critical nature of an early comprehensive public consultation process. Implementation The recommended procurement strategy is a two stage process as follows: A Request for Expressions of Interest (RFEI) process to short list all interested parties down to three groups. The RFEI document will define the project, the process, the values of the Municipality, and the evaluation criteria that will be used to pick the three finalists. A Request for Proposals (RFP) which will follow the selection of the three short-listed teams. It will involve the preparation of a formal document in which the three proponents will be asked to prepare detailed technical and financial proposals. The format of the RFP will deal with the issues in the RFEI but in much more detail. Having selected the preferred proponent from the RFP process, the Municipality will enter into detailed negotiations with the preferred proponent leading to the signing of an agreement. Financial Implications The estimated construction cost of the wastewater treatment plant upgrades has been established by Dayton and Knight at $19 million. A process of Value Engineering could be utilized to reduce that cost. Specific opportunities for cost reductions include: Redesign of the tank to simplify and reduce the number of compartments, Fix operations on one method rather than accommodate two systems, Phase certain aspects of the upgrade, thereby deferring capital expenditures. The current annual operating budget is predicted to rise from the present $1.012 million to $1.67 million. Based on a 20 year life cycle and a discount rate of 6%, the following project costs are anticipated: Initial Capital Costs Annual operating costs Net present value of annual operating costs (6% discount rate over 20 years) $19 million $1.67 million $19.15 million Business Plan 9 July 2001 Executive Summary Page viii

13 It follows that from a cost perspective capital and operating have approximately equal weight, and so the competitive process should optimize both capital and operating to achieve true best value for money. Based on previous experience of similar projects, moving from traditional delivery to design/build alone should reduce capital costs by a minimum of 15% over traditional procurement methods, while at the same time providing improved risk allocation to the Municipality. Moving to a design/build/operate model with provide further savings due to the following factors: The opportunity to introduce optimum phasing of the upgrades, Modifications to operations to defer capital expenditures, and Reduction in both capital and operating expenses by superior integration of capital and operating. The project will be financed from the Municipal reserves if the RMOW is successful in attracting matching federal and provincial grants through the Infrastructure Program. It is unlikely that private financing would be beneficial due to the availability of existing funding and the lower cost of Municipal Financing Authority finance if grants are not available. If private finance were used it would only be to further offset risk to the private sector. In doing so the Municipality would need to ensure that such financial arrangements did not constitute a contingent liability to the Municipality. Accepted Canadian Institute of Chartered Accountants (CICA) guidelines should be used for making such a determination. Recommendations and Next Steps The recommendations resulting from this Business Plan are as follows: 1. should procure the upgrade to the wastewater treatment plant through a design/build/operate proposal call. 2. The proposal call should be a two stage process. The first will shortlist proponents to no more than three complete teams, while the next stage will solicit detailed technical and financial proposals from those shortlisted teams. The following next steps should be undertaken: 1. Following receipt of this business plan by Council, it is recommended that a series of workshops be held with key stakeholders to review the contents of the business plan. Business Plan 9 July 2001 Executive Summary Page ix

14 2. Retain a consultant to prepare a Request for Expressions of Interest document to select three short-listed proponents to submit design/build/operate proposals. 3. Continue with an ongoing process of consultation to ensure all identified stakeholders are kept fully informed of progress on a timely and frequent basis. Business Plan 9 July 2001 Executive Summary Page x

15 Figure 1 Wastewater Treatment Plant Business Plan The Site 9 July 2001

16 Business Plan The Site 9 July 2001

17 Business Plan 1. Objectives of Project The (RMOW) operates a Wastewater Treatment Plant, which is operating close to maximum capacity. RMOW retained the services of Dayton and Knight Ltd., Consulting Engineers, who have recently completed a predesign report for a proposed expansion of the WTP. The predesign report has identified a need for significant immediate expenditures of around $19 million for the expansion of the Whistler Wastewater Treatment Plant to meet the requirements of the Whistler Liquid Waste Management Plan. The proposed expansion involves significant changes to the existing plant, resulting in changes to the operation of the plant, and a requirement for retraining of the existing workforce. This report compares a design/build/operate option, often referred to as a publicprivate partnership, for undertaking these capital works, to the traditional design/bid/build. The intent of the report is to identify the most efficient way to deliver the proposed upgrades. The Stage III expansion includes expansion of liquid and solids treatment to meet the build-out provisions for the Liquid Waste Management Plan, as well as odour treatment not originally included in the Plan. The objectives of the Project are as follows: Meeting the requirements of the Whistler Liquid Waste Management Plan Upgrade the wastewater treatment plant in the most cost effective and efficient way. Improve the quality of the effluent discharge Improve the efficiency of the existing wastewater Treatment plant Reduce the operation costs of the wastewater treatment plant, and Reduce the risk to the RMOW with respect to cost, schedule and technical performance. Main Text Page 2

18 2. Context of the Business Plan This Business Plan should be viewed in the context of the various stages of the project. The Municipality has prepared a Liquid Waste Management Plan in 1994 and since that time has undertaken significant technical studies of the options to meet the goals of the plan. The Predesign Report (2000) outlines the technical options for the upgrade. The LWMP is currently being updated to reflect the new study findings. Based on traditional project delivery methods whereby a consultant is selected to design the required upgrades, and a low bid tender is used to select a constructor, the capital costs for the project have been estimated at $19 million. This provides the basis for determining whether other delivery options will provide superior value for money. This business plan should therefore be viewed as a mechanism for the Municipality determining the most effective way of delivery the wastewater treatment plant upgrades. This is the second stage of a 4 stage delivery process as illustrated by the following diagram. Main Text Page 3

19 Figure 2 Business Plan Context Step 1 Step 2 Step 3 Step 4 Liquid Waste Management Plan (Predesign) Prepare Business Case Review and Approval of Business Case Implement Plan YES / NO YES / NO YES / NO Resort Municipality of Whistler MInistry of Environment, Lands and Parks Stakeholders History Wastewater Treatment Plant Plan Delivery Options Financial Issues Consultation Risk Analysis Implementation Strategy Financial Analysis Recommendations Discussion with key stakeholders Modifications as required Approval by Council Presentation to Province Depends on approved business plan RFEI/RFP for a public-private partnership If traditional delivery, detailed design and tender 3. Steps to Date A number of documents have provided the basis for this Business Plan. These are as follows: 1. The Liquid Waste Management Plan. 2. The 1994 Pre-Design Report for Wastewater Treatment Plant Expansion Contract The 1994 Report on Re-evaluation of Phosphorus Reduction Options. 4. Odour Assessment and WWTP Audit Predesign Report Wastewater Treatment Plant Expansion Contract 2. Main Text Page 4

20 6., Liquid Waste Management Plan Update, February 2001, Dayton and Knight Ltd. 7. Whistler 2002, Five Year Plan, Waste Management Act, British Columbia 9. Local Government Act, British Columbia 10. Best Practices Guidelines Initiating Contracts and Contracting with the Private Sector, Canadian Council for Public-Private Partnerships, June 1996 The has retained the services of Jonathan R Huggett, of J.R.Huggett Co. to prepare this Business Plan, which is the next logical step in the progression of the project evaluation. 4. Business Plan Contents The Business Plan is a written summary of what the Municipality hopes to accomplish by undertaking the project and how it intends to organize its resources to meet certain stated goals. It is the road map for operating the wastewater treatment system and measuring progress along the way. This Business Plan has been prepared according to generally accepted principles for the preparation of Business Plans and addresses the following key issues: History of the Project Analysis of the Options Implementation Management Critical success factors and key performance indicators Risk Factors Financial Projections and Controls The actual headings used differ from the above, but the business plan deals with each of the issues. In any good business plan the key issues are not just stating the plan and the costs, but rather examining the key risks, (what could go wrong), and then either mitigating those risks by assigning them to a third party or developing a strategy to deal with the risks should they materialize. Main Text Page 5

21 5. Legislative Issues 5.1 Background The key legislative issues relate to three items of legislation: The Local Government Act The Waste Management Act The BC Labour Code Each of these requirements addresses different facets of the project implementation requirements. The Local Government Act issues largely relate to the consent required before entering into contractual relationships. In particular it is the requirement for consultation with the electorate. The Waste Management Act issues relate to the implementation of an approved Liquid Waste Management Plan, and the extent to which the public consultation provisions of establishing the plan, or in some cases the provisions of the Waste Management Act, override the requirements for assent of the electors under the Local Government Act. The Waste Management Act also provides for the granting of an Operating Permit for the existing wastewater treatment plant by MELP. Finally the BC Labour Code issues relate to the rights of the existing workers under their collective agreement with the Municipality, prior to the Municipality contracting with a private company for the operation of an upgraded wastewater treatment plant. 5.2 Assent of the Electors The primary legislation impacting the project approval provisions is contained in the Local Government Act, and the Waste Management Act. The consultation provisions in the establishment of an approved liquid Waste Management Plan Despite anything in the Municipal Act, if a waste management plan (a) is required under subsection (2) or (3) (a), or (b) has been approved by the minister under subsection (7), a bylaw adopted by a municipality for the purpose of preparing the waste management plan referred to in paragraph (a), or implementing the waste management plan referred to in paragraph (b), does not require (c) the council of a municipality or the board of a regional district to provide an opportunity for electors to petition against it, or (d) the assent of the electors, a petition, an initiative plan or Main Text Page 6

22 constitute assent of the electors. This is illustrated by the excerpt from the Act, shown above. Public-private partnerships are usually entered into through a partnering agreement. The Local Government Act defines a "partnering agreement" as an agreement between a local government and a person or public authority under which the person or public authority agrees to (a) provide or manage a facility or work for the local government, or (b) provide a service on behalf of the local government; Under this arrangement, the Municipality would usually be required to provide notice of a counter-petition opportunity under the Local Government Act, which means that if 5% of the electorate sign a counter petition, the Municipality would be obliged to hold a referendum before approving the Wastewater Treatment Plant Project. However subject to a legal opinion being provided by the Municipality s Solicitor, it appears that as the project is being implemented to comply with an approved Liquid Waste Management Plan under the Waste Management Act, assent of the electors is not required. 6. Assessment of Need 6.1 History The original Liquid Waste Management Plan was produced in 1993, and is in the process of being updated. Options for wastewater collection and treatment were evaluated during an extensive public and stakeholder consultation process in The 2001 LWMP update was initiated to ensure that the water conservation and wastewater treatment strategies remain current. The 2001 update also extends the scope of the LWMP to meet the current MELP requirements by including biosolids reuse and stormwater management. Extensive stakeholder and public consultation was included in the 2001 LWMP update. A Predesign Report for the Wastewater Treatment Plant Expansion was completed by Dayton and Knight in August 2000, and details their proposed capital works, estimated to cost $19 million. Dayton and Knight have also provided estimates of the impact of flow reduction on operating costs, but assuming a zero flow reduction, operating costs are projected to rise from $1.012 million annually to $1.67 million annually. Main Text Page 7

23 6.2 Vision for Wastewater Treatment The treated wastewater is discharged to the Cheakamus River. The proposed upgrade for the wastewater treatment plant is to provide capacity to treat flows associated with build out, and assumes that the effluent discharge limits will remain as per the current Operational Certificate. The proposed Stage III upgrade includes the addition of biological phosphorus removal for liquid treatment and expansion of the autothermal thermophilic aerobic digestion process. 7. Identification of Delivery Options 7.1 Diversity of Delivery Methods When considering non-traditional procurement of infrastructure and services consideration must be given to the range of options that may be available. The arrangements that may be chosen or identified will very much depend on a variety of circumstances including the subject matter of the project, the political climate, the degree to which public intervention is necessary in order to protect the public interest and financing options. Not all projects can or should be procured in the same way. In natural monopoly situations, such as the Whistler WTP, a strong case can be made for retention of public sector ownership. Analysis is required to determine what functions and responsibilities should be carried out by the RMOW and what functions can be performed by the private sector. There are a variety of structures that may be used and considered for the delivery of the WTP upgrade. The continuum, at the extreme may involve retention of municipal delivery to the other extreme of private entrepreneurship with the delivery of the project by the private sector including the design, construction, operation, and management for a given period of time. While many variations exist, procuring the WTP upgrade through a design/build/operate arrangement will involve dealing with the following issues: < risks being transferred by the RMOW to the private sector < a contract, lease or concession for a fixed period of time to the private sector sufficient in time to allow the private sector to develop operating efficiencies for the upgraded WTP < continued control of water rates by the RMOW Council Main Text Page 8

24 < ownership of the upgraded WTP by the RMOW. In structuring and evaluating the options, the Municipality needs to consider the following factors: Providing and upgrading wastewater treatment facilities in a timely manner, subject to the following considerations: Any private sector involvement should be undertaken in such a way as to not jeopardize access to any available infrastructure grants and any other future provincial grants for which the Municipality may presently be eligible. The cost of services will provide value for money to the citizens, with the maximum appropriate risk transfer to the private sector, i.e. risks over which the private sector may exercise some degree of control. Receiving input from an experienced commercial partner in developing, operating and maintaining the wastewater treatment facilities. Providing the facilities in the most efficient manner, considering such factors as the appropriate and efficient use of technology, phasing and just in time provision, and balancing capital, operating and maintenance considerations to achieve lowest lifecycle costs. Any significant private sector involvement should be determined using a competitive process. Any public-private partnership must comply in all respects with the Local Government Act, and other relevant legislation and codes. Where possible arrangements with the private sector should eliminate as far as is possible, any legal liabilities arising from the ongoing maintenance, operation and development of the wastewater treatment facilities, recognizing however that the RMOW will still likely be named on the Operating Certificate; 7.2 Relationship between Design, Build and Operate There is a key relationship between the three activities of design, build, and operate as illustrated by the following diagrams. The first diagram shows the process if one entity manages the project under a design/build/operate contract arrangement. The second Diagram illustrates the change in this process of determining total project costs through a traditional design/bid/build delivery process. Both models assume that the Municipality begins Main Text Page 9

25 a project procurement process with the preparation of a business plan. The first diagram illustrates that there is an earlier determination of total life cycle costs leading to better decision making by the Municipality, with improved risk management. Figure 3 - Procurement by Design/Build/Operate Initial Budget based on Consultant s Estimate Initial Annual Target Service Cost (PSCP ( Best Offer ) Agreed Final Annual Service Payment Business Planning Design Construction Operation Costs Project Outline Business Case Proposed risk sharing Contract Award Design Approval, Contract SPV Award & Business Full Case Commissioning Management Fee Main Text Page 10

26 Figure 4 - Traditional Project Delivery Initial Budget based on Consultant Estimate Initial Target Consultant Estimate Agreed Construction Target (Option Cost 1) or lump sum (Option 2) Option 2 Final Cost Business Planning Option 1 Design Construction Operation Option 1 Opti on 2 Agreed risk allocation Costs Outline Business Case Stage 1 Contract Award Design Approval, Stage 2 Contract Award & Full Business Case Handover Project 7.3 Traditional versus Design/Build/Operate Design/Build/Operate procurement has been used in British Columbia, and throughout the world, for a variety of projects, both public and private. In design/build/operate projects, the designer, constructor and operator are on the same team, and work together to provide a more efficient and constructable project. Traditional consultant/owner design, low bid tender removes competition from the procurement process. Municipalities tend to use the same design consultants year after year, and once the designer has been selected there is little incentive for creativity and innovation, yet the major cost savings are at the design not construction stage. This leads to projects that are overdesigned and overscoped. Attempts have been made to improve the traditional project delivery approach, by adding such features as value engineering where a second consultant is hired to find savings in the design of the first. This approach results in some savings, but design/build/operate, by its very nature, automatically incorporates value engineering into the process, since if the design is not the most efficient, the team is unlikely to win the project proposal. It also provides a guaranteed lowest life cycle cost at the outset. Main Text Page 11

27 The primary advantages over the traditional consultant design, low bid tender process are: Single point responsibility for quality, cost and schedule Quality - single responsibility motivates project performance. Designer and constructor cannot blame one another for problems. They have to fix them Cost Savings design, construction and operating team work together to achieve maximum efficiency Time Savings - design and construction overlap, and constructability is improved Reduced administrative burden Early knowledge of firm costs Improved risk management Experience 1 of design/build for wastewater treatment projects shows that capital costs of the Whistler WTP expansion will likely be reduced by 15% to 30%, with accompanying significant reductions in schedule. Moreover, unless the RMOW changes the original project performance requirements, there are unlikely to be any changes made to the contract, since the usual sources of changes are caused by a design, which cannot be constructed as detailed. The owner usually pays for this in increases to the contract price. Savings on the operation will also likely be significant. A recent proposal call in Canmore, Alberta resulted in a 15% operating cost reduction saving a total of $1 million over 5 years. 7.4 Ownership versus Contracting Out The issues related to public versus private ownership, or some hybrid arrangement through contracting out, require consideration of the following to determine the optimum strategy: The ability of the Municipality to contract out services and the conditions around that. The willingness of the Municipality to provide the required capital to undertake the capital works. The advantages of phased capital expansions, which are normal in the private sector, but sometimes difficult in the public sector, because capital can be 1 In Canmore, EPCOR have undertaken to reduce 15 year estimated capital requirements from $42 million to $28 million In Moncton US Filter US Filter have reduced costs by 11% In Port Hardy capital cost reductions in the water treatment plant were close to 50% Main Text Page 12

28 difficult to secure in the public sector and there is a tendency to go for funding once only. The transfer of risk, particularly related to capital cost overruns, technical performance, and operating costs. Ensuring the most efficient technology is employed, not just the one the consultant is familiar with. Optimizing capital versus operation and maintenance expenditures. The ability of the private sector to provide the required service. The ability to attract future grants or funding from senior levels of government. All these considerations have application to the WTP expansion project. Main Text Page 13

29 Table 2 - Traditional versus Design/Build/Operate PARAMETER TRADITIONAL PROCUREMENT DESIGN / BUILD / OPERATE Cost effective design Design to Construction Risk Contractor Selection Relies on the judgement of the design consultant, but no market forces brought to bear Costs of design not working out in construction borne by Owner Open tender based on lowest price encourages inexperienced contractors Cost effective design required by competition for the design If design changes are required during construction, these are borne by design/build/operate team. The owner contracts only for the finished product. Short-listing for final proposals ensures only qualified and experienced groups undertake work Scope Changes All scope changes at Owners expense Owner pays for scope changes initiated by Owner. Scope changes required to meet performance are design/build/operate teams responsibility. Cost Overrun Risk Performance Risk Operation and Maintenance Project Costs Innovation in delivery Final cost of contract is nearly always higher than tendered price, even though it may be under budget. Final costs not known until work is complete Failure to meet desired performance ends up with Owner unless Owner can prove design failure or construction fault Control on operations and maintenance costs achieved through design provisions. Process does not necessarily lead to lowest life cycle cost Generally higher than design/build/operate. Competition only applies to construction phase, whereas most savings are during design. Optimizing capital and operating costs is not inherent in the procurement process. No financial incentive for consultant to phase or be innovative. Has lead to over provision of public sector projects Cost overruns are less likely unless owner changes scope during implementation. Final costs are known before contract is awarded Contract specification is performance based. Failure of project to perform is design/build teams responsibility Operations and maintenance control inherent in the design/build /operate contract. Cost savings demonstrated through various projects. Also the process leads to optimizing the balance between capital and operating costs. To be successful design/build/operate team must look at innovative ideas to achieve lowest cost, and best value for money * Geotechnical risk has not been identified as a major issue because of prior construction experience on the site and the availability of good subsurface data Main Text Page 14

30 7.5 Partnership Options The optimum solution to the provision of a WTP expansion is rarely found at either end of the spectrum of options, i.e. fully public or fully private. Usually some form of partnership is necessary between the public and private sectors, where the public sector retains risks and responsibilities that it would be uneconomic or impractical to pass to the private sector. This may be particularly so when the existing infrastructure is in public ownership. The optimum partnership arrangement is usually determined by placing all manageable risks in the private sector, with the Municipality retaining the risks that the private sector has no control over. These can include unknown existing system conditions, changes in legislation, political risks etc. 7.6 The Options Available Initially three different options were identified for evaluation, while variations on these options are also possible: Traditional design/bid/build delivery, where a consultant designs the project, the construction is undertaken through low bid tender, and the Municipality continues to operate the facilities. Design/Build Delivery, where a single proponent assumes responsibility for designing and constructing the required facilities for a fixed price and guaranteed performance. The Municipality will continue to operate the upgraded facilities. Design/Build/Operate, where a single entity is responsible not only to design and build for a fixed price, but also operate for a term, usually between 5 and 20 years. Under this option the operation would be contracted to the private sector. The design/build delivery option has not been further evaluated as a proposal to design and build without the obligation to operate means that it will be difficult to make proponents accountable for the satisfactory performance of the upgraded treatment plant. Main Text Page 15

31 8. Evaluation of Options Multiple account evaluation entails the systematic documentation and assessment of the financial, environmental and other relevant implications of alternative plans and projects in order to determine the advantages and disadvantages they entail. It involves three basic steps: the specification of evaluation accounts that best measure the WTP upgrade; the documentation and assessment of implications for the WTP under each account; and the presentation and interpretation of the results. 8.1 Multiple Account Evaluation of Options The comparison of the options has been undertaken using multiple account evaluation methods based on guidelines developed for the evaluation of major capital projects by provincial Crown corporations. Standard accounts that are usually evaluated include: financial, customer service, environmental, urban development and system impact. These will be modified for assessment of the WTP project delivery options. Under each account, key indicators are evaluated. Financial account indicators include capital, operating, and maintenance costs. The traditional Customer Service Account has been replaced for this project by a Municipal Account as the DBO option will be largely transparent to the end customers. Municipal Account indicators include the impacts to the municipality and the staff employed at the present facility. Environment account indicators include impacts to the environment and specifically related to the current MOE discharge permit held by RMOW. Urban Development indicators include assessments of how well each option would contribute to the final build out of the RMOW and it is likely there is little impact that can be measured in this category from the various options. The System Impacts account provides indicators to ensure that the full impacts on all of Whistler s operations are properly recognized. The definition of options used here is sufficient to compare the characteristics, performance and relative merits of the different options. Main Text Page 16

32 8.2 Multiple Account Indicators From the various sources of information, a selection of indicators is used for comparison within the multiple account framework. The indicators selected for this analysis are defined as follows: Table 3 - Multiple Account Evaluation Indicators Account Indicator Description Financial Capital Costs Total costs of planning, and construction of options Operating Costs Average annual operating costs net of savings to total municipal operations Risks The likelihood that other factors will lead to cost and schedule overruns Municipal Staffing issues Impacts on existing municipal staff, particularly ongoing employment, training and salaries and benefits Environmental Reduced water pollution Impacts on improved effluent quality Probability of permit Reduction in permit violations violations Impact on surroundings Compliance with local and regional regulations Energy Issues Estimate of energy saved Urban Development Impacts to community The impacts that the various options will have on the System Impacts development Impact on Whistler s other water and wastewater operations development of the community Consequences to the existing water and wastewater operations and other facilities Main Text Page 17

33 Account Financial Option Life Option One Traditional Design/Bid/Build Conservative assumptions used to ensure service needs met Option Two Design/Build/Operate Can use the concept of phased infrastructure as the operator builds the required improvements Capacity Likely provided in one improvement resulting in over capacity initially Permits optimum phasing of capacity provisions thereby deferring capital expenditures Capital Costs 2 $19 million Innovation in design could result in very large cost savings Operating Costs (annual) Estimated to increase from $1.012 million to $1.67 million if no unit flow reduction, but risks with municipality Revised operating procedures and better integration with design will lead to lowest life cycle cost. Risks Impact on Municipal Debt and Financial Statements Municipal Staffing Issues Full municipal risk for costs, schedule and technical performance unless negligence by others can be proved Either financed from reserves or MFA financing with municipal debt assumed Operating staff remain with municipality Full performance risk can be transferred to private sector Either financed from reserves or MFA financing with municipal debt assumed, but opportunity for private financing exists Private sector assumes responsibility for existing staff with safeguards. Environmental Reduced Water Pollution Probability of Permit Violations Impact on Surroundings Municipal responsibility for permit compliance Violations of permit are sole responsibility of RMOW RMOW upgrades odour treatment system Private sector responsibility for permit compliance with added contractual penalties Increase in violations would likely lead to contract termination and penalties Improved odour control because of contractual performance ties 2 Preliminary order of magnitude costs, requiring more detailed analysis Main Text Page 18

34 Account Option One Traditional Design/Bid/Build Option Two Design/Build/Operate Energy Issues No change to current situation Operating contract can include incentives to introduce energy conservation measures Urban Development Impacts to community development Full build out capacity achieved at outset Could consider phasing Main Text Page 19

35 9. Risk and Reward 9.1 Risk And Uncertainty Virtually all plans and projects are subject to uncertainty and consequent risk. A critical component of any evaluation is an explicit recognition and assessment of the risks, and in this case those specifically involved with the upgrade and expansion of the WTP. The assessment of uncertainty and risk should serve two basic purposes: iit should clearly identify the sources and nature of the risk facing different alternatives and the impact on the evaluation results; and iiit should evaluate the flexibility of the different alternatives to respond to uncertain, unfolding events, and how this flexibility can be managed and enhanced through appropriate risk management strategies. 9.2 Sources of Risk There are numerous sources of uncertainty that can raise significant risk with respect to the performance or outcome of different alternatives. For the WTP project these include uncertainty with respect to: economic, and capacity factors; technological performance and duration; environmental impacts; and regulatory constraints. The risk assessment for the WTP should identify which factors are subject to uncertainty, and what effect they can have on financial and other evaluation results. An important factor that governs the risk management potential of different alternatives is the flexibility they offer. Flexibility refers to the extent to which different alternatives can respond to and benefit from any new information that emerges over Main Text Page 20

36 time. An assessment of flexibility 3 and the risk management opportunities it affords should be considered along with the multiple account evaluation in the overall assessment of the advantages and disadvantages of different alternatives. 9.3 Risk Analysis A detailed risk matrix has been prepared for the project and is attached as Appendix 5. The principal risks identified in the proposed venture are: 1. Project risk such as cost and schedule 2. Technical performance design risk related to the design of suitable infrastructure that meets requirements, and 3. Operating risk related to complying with the operating permit. As a general principle, risks associated with the implementation of a project must be carefully identified and appropriately allocated. Transferring all risk to a private partner is unlikely to provide the best value for money. Only those risks that the private partner can control should be transferred. However it must also be recognized that will not wish to backstop technical risks related to failure to meet the discharge effluent quality. The following are some of the issues related to each of these risks: 9.4 Development Risks For any project there are a range of options for the delivery method. The preferred option will relate to the particular characteristics of the project, and the importance that the owner attaches to certain objectives it wishes to achieve. In the case of the wastewater treatment plant upgrade some of the objectives that Whistler may wish to consider include: Achieving the best value for money, - providing what is required, and undertaking the project as efficiently as possible using all possible innovation and creativity, 3 Flexibility can be analyzcd in quantitative or qualitative terms. A quantitative measure is the "quasi-option value" or expected value of new information the alternative affords. This is calculated by multiplying subjective estimates of the probability of new information times the value (incremental benefit or avoided cost) of the best available response to it. Generally, attenuated, smaller scale projects offer much greater flexibility values because of the opportunity to change during the course of the program. Irreversible measures offer no flexibility value. Main Text Page 21

37 Minimizing the project risks to ensure the WTP expansion is built within the approved budget and available funding, Moving quickly to get the project done, - building the project as soon as possible to meet the needs of the RMOW, but without incurring unnecessary cost penalties. There are many ways in which the WTP expansion can be procured. The following represent two broad categories, though there are many possible variations on each. Traditional Procurement - in this option, an engineer is retained to design the WTP expansion. On completion of the detailed design, which usually consists of detailed drawings and specifications describing how the WTP expansion is to be constructed (method specifications), public competitive tenders are sought from Contractors and the project is awarded to the lowest bidder. Design/Build/Operate Procurement - in this option, the RMOW prepares performance specifications on what the WTP expansion is to accomplish. An over simplified illustrative example would be provide an upgraded wastewater treatment plant to meet current design codes and bylaws. A short list (usually three or four), of interested complete teams of engineers, contractors and operators is then invited to submit detailed proposals to provide the project for a fixed price and to a given schedule, and to include operating and maintaining the completed upgrade. The chosen company not only designs and builds the required upgrades, but also operates them, ensuring that the best value for money is measured not just by a competitive tendering of the capital component, but also including 20 years of operating costs. Selection is made on best value for money to preset evaluation criteria, not on low price tender. Recent successful examples of non traditional delivery in the water and wastewater fields include the procurement of the water treatment plant in Port Hardy, the water and wastewater upgrades in Canmore, Alberta, the wastewater treatment plant upgrades in Strathmore Alberta and also Banff, Alberta, and the new water treatment plant in Moncton, New Brunswick. Some of these projects are described in more detail in Appendix Seven. The design of the wastewater treatment plant upgrade is a complex undertaking. It is important that the Municipality concerns itself with the output performance specifications, and passes the responsibility and risks for the correct technical solution to the private sector operator. 9.5 Technical Risk Main Text Page 22

38 The important issue for the Municipality is ensuring that the completed upgrade functions correctly and that there is no opportunity for the blame for failure to technically perform to be passed from the designer to the constructor to the operator and vice versa. In other words the responsibility for satisfactory technical performance must remain with someone other than the Municipality. Issues of prime importance in technical compliance include: Achieving the required effluent quality and capacity Management of odour control Predetermined levels of energy and chemical consumption 9.6 Operating Risk Operating risk is presently borne by the municipality. Frequently, when a capital improvement fails to meet the expected performance criteria, the design/builder blames unsatisfactory operation. One key part of the procurement must be to ensure that the Design/Builder assumes operating risk. The use of performance measurement is a key part of identifying and mitigating operating risk. 9.7 Determining Value For Money One key requirement in any public-private partnership must be for the Municipality to determine whether the proposal represents value for money 4. In other words the Municipality should not enter a partnership, which does not represent good value to the public. Value for Money analyses are complex, and can only be done once the proposals are received, though a good RFP will present guidelines as to what the Municipality will determine as good value for money. The usual approach is to compare the present value of the proposed financial transactions that form the basis of the Partnership, to the cost of the Municipality undertaking the project on its on without a private sector partner. This technique is known as a public sector comparator analysis and it is used to determine if private operation constitutes superior value for money. The projected annual payments by the Municipality are discounted by the Municipality s current long-term borrowing rate to yield a present value of the Municipality costs. By comparing this value to the projected capital costs of the 4 Building Partnerships Report of the Task Force on Public-Private Partnerships, Province of British Columbia, October 1996 Main Text Page 23

39 project if the Municipality were to act on its own, the Municipality can determine if there is any financial advantage to the partnership. In addition to the financial analysis as summarized above, it is crucial to assess various qualitative factors that should be considered in an overall analysis of the Project. Typically these are the values of the risks that are transferred. In most public-private partnerships the public agency should identify and then allocate all the risks associated with the project. The difficulty is usually putting a financial value to those risks, and typically the accounting profession balks at recording costs for which there is no certainty, e.g. the value of transferring a risk. 9.8 Methods of Financing The financing of the wastewater treatment plant upgrade can be undertaken in a variety of ways, which can be broadly defined by the following categories: Financing from municipal reserves if sufficient reserves exist; Traditional Municipal Finance Authority (MFA) financing in which the Municipality will incur debt; Use of the MFA s association with OnLine Leasing to provide a lease solution that will still maintain public control; and A privately financed option; It is likely that the preferred financing options will be through the Infrastructure Grant program where the Federal Government, Provincial Government, and RMOW will have equal shares in the funding. 10. Structuring the Operations Contract 10.1 Considerations To achieve the best value for money for the Municipality, it is important to structure the proposed Operations Contract for the Wastewater Treatment Plant by a careful analysis of the risks involved and only allocating those risks which the private sector has control over to the Private Operator. If risks are allocated to the Operator, which he cannot control, they will be priced as certainty and the Municipality will pay whether or not they occur. Operating financial risks can be broadly split into two categories: revenue and expenditures. Main Text Page 24

40 It is also important to ensure that the operating contract contains meaningful performance measurement, with adequate incentives and penalties Scope of Operations The scope of any operating contract for the wastewater treatment plant will likely cover the following issues: a. Provide continuous services; b. Employ experienced staff with the appropriate certification in wastewater, systems; c. Maintain existing security systems; d. Develop a maintenance program jointly with the Municipality; e. Complete all required maintenance, repairs, replacements and enhancements to the Facilities. f. Maintain records of operation and maintenance, including providing monthly reports; g. Maintain complete and accurate accounting records; h. Keep clean and neat all existing and future buildings, structures and grounds; i. Use best efforts to comply with all Regulatory Requirements and best practices including: i. providing the routine testing and laboratory; ii. iii. preparing all Provincial and Federal regulatory agency-required monitoring and operating reports; submitting samples to an authorized Provincial regulatory agency. k. Assist the Municipality in preparation of applications for renewal of the Approvals. l. Use best efforts to operate the Facilities in accordance with applicable municipal by-laws; m. Promptly respond to any emergency throughout the year without regard for the time of day. n. Perform non-emergency repairs during regular hours of operation. o. Each month, provide a written report to the Municipality; p. Identify available Federal and Provincial grants and assist the Municipality in preparing and submitting any applications under such funding programs; and Main Text Page 25

41 q. Respond to the Municipality regarding concerns, complaints and other observations regarding their activities; 10.3 General Structure of Agreements Typical operating contracts identify various categories of work to be performed, each with their own payment formula, which reflects the different level of risk. These categories of work can be summarized as follows: Basic work Capital Expenditures Extraordinary work Rehabilitation, and Abnormal circumstances Basic Work meaning the primary and fundamental services that are required to be provided by the Operator and includes the day to day running of the wastewater treatment plant. Basic Work excludes Capital Expenditures, Extraordinary Work, the Rehabilitation Fund and Abnormal Circumstances. Abnormal Circumstances are circumstances beyond the control of the Operator, for which no provision is made in the annual operating budget (including the Rehabilitation Fund). Such issues include: the presence of abnormal or toxic substances in the wastewater; effluent characteristics exceeding the design parameters of the Wastewater Treatment Facilities; Force Majeure (acts of God, strikes, industrial disturbances, wars, blockades, riots, epidemics, landslides, lightning, earthquakes, storms, subsidence, floods, washouts etc.) environmental protection orders or other directives or requirements of environmental or public health authorities; and damage to the Facilities caused by the Municipality. Capital Expenditures are reimbursed separately and cover: additions to and replacements included in the capital budget; the purchase of new equipment or additions in excess of $5,000.00; and Main Text Page 26

42 repairs or replacements which extend the life expectancy of the Facilities which exceed $5,000.00; They exclude any Work related to the Rehabilitation Fund. The Rehabilitation Fund is a pool of funds to which the Municipality will contribute annually to cover rehabilitation, repair and replacement work. The work covered is identified at the outset of the agreement Risk Categories and Considerations The key operating costs for the Wastewater Treatment Plant can be broadly allocated as follows, together with the percentage breakdown as a proportion of total cost: 1. Labour, (50%) 2. Energy costs such as natural gas and electricity, (20%) 3. Chemicals, (5%) 4. Other such as consumables, vehicles etc (20%), and 5. Long term maintenance of the asset (5%). In addition to the risks regarding operation costs, the other principal risk relates to revenue. Revenue will be impacted by such things as a water conservation program, changes in population, and the like, all of which are outside of the control of an operator. For these reasons, the payment for the operation of the wastewater treatment plant should not be fixed to wastewater volumes. It is also important to recognize at the outset that the Municipality retains ownership of the asset. To protect the maintenance and utility of the asset it cannot take a totally hands off position. The Municipality must ensure the Wastewater Treatment Plant is well maintained and operated over the term of the contract. The following is an analysis of the operating cost risks, with a recommended strategy on partnering those risks with the Private Operator LABOUR COSTS Labour is the largest operating cost and there are two components: Quantity of labour the number of staff employed Main Text Page 27

43 Wage rates. The private sector has control over the number of staff needed to run the facility. It also has control over the wage rates needed to attract competent staff in today s market. However the operator has only marginal control over future escalation in labour costs during the term of the contract, and the longer the term, the more risk is involved regarding wage rate escalation. The Municipality will not want to bear total and unlimited responsibility for wage escalation. The suggested strategy regarding labour risk is as follows: The Proponent will take responsibility for the quantity and skill sets of the labour, The Municipality will assume the risk for wage rate escalation to a cap of the wage rate escalation for similar municipal collective agreements, The Proponent will take responsibility for wage rate escalation beyond the cap ENERGY COSTS Again there are two components to energy: quantity and price. The Proponent has control over quantity, and it is within his control to reduce and manage consumption. Regarding unit price there are a number of factors impacting the risk allocation. These are: Energy prices are currently in a very unstable situation; A future Provincial government may introduce energy deregulation, similar to that in Alberta. Both the above represent significant unknowns to proponents. The suggested strategy regarding energy risk is as follows: The Proponent will take responsibility for the quantity of energy and the initial price, The Municipality will assume the risk for energy price escalation during the term of the contract, which can be easily verified through utility invoices CHEMICALS The suggested strategy for chemicals is similar to that for energy: The Proponent will take responsibility for the quantity of chemicals and the initial price, The Municipality will assume the risk for escalation of chemical prices, which can be easily verified through supplier invoices. Main Text Page 28

44 Currently the Municipality utilizes iron compounds obtained from the Tree Island plant in New Westminster. However the anticipated upgrade may result in the use of other chemicals permitting other sources to be explored OTHER COSTS The key unknown risk regarding other costs is inflation. While Proponents should take responsibility for all other costs, inflationary risk is likely beyond their control, and agreement to apply Vancouver CPI to other costs in future years would provide better value to the Municipality. The CPI should have the volatile energy component removed as energy costs have been dealt with elsewhere LONG TERM MAINTENANCE OF THE ASSET Long term maintenance of the asset is best dealt with through the establishment of a maintenance reserve fund for all items over $5,000 per single incident, such as replacement of pumps etc. This has been the usual practice. The fund ultimately is the property of the Municipality, though the day to day administration is done by the Proponent with reporting back to the Municipality. The fund is established through the operating payments and is typically set at 5% of operating costs per year REVENUE RISK It has been noted earlier that the Wastewater Treatment Plant revenue is subject to outside impacts beyond the Operator s control such as water conservation measures, changes in population and the like. The principal risk is therefore related to revenue and volume. Fortunately the Municipality does have an operating history, and it will be important for the Municipality to make detailed historical wastewater flow records available to prospective proponents. These records should include: Volumes by time of day and also seasonal variations from month to month, ideally linked to population served. An analysis of the composition of the wastewater. If the Municipality passes full revenue risk to the Proponent at the outset, two outcomes are possible: The Proponent will underestimate revenue and then receive windfall profits for the remaining years; or Main Text Page 29

45 The Proponent will overestimate revenue and will make significant losses likely leading to degradation of service. A preferred strategy is for the municipality to initially take the revenue risk and simply pay a fixed fee for operation based on the processing of an annual quantity of wastewater within a predefined range PERFORMANCE MEASURES Any good Operating Contract should contain performance measures, and specified financial penalties for failing to meet performance, which in an extreme case could result in termination of the operating contract for cause. The performance measurement should be outcome orientated and not method related. The following is a suggested format for performance measurement of the operating contract. Performance will be measured in the following categories: Index Weighting Performance Guarantee Value Environmental 40% $100 k Safety 10% $25 k Quality/Efficiency 20% $50 k Maintenance 20% $50 k Odour 10% $25 k Total 100% $250 k Performance by the Operator will be measured annually in each index and will be related to the guarantee values using the following typical scale: Actual Points Penalty (-) / Credit (+) % Guarantee Value < 50 pts - 100% pts - 80% pts - 40% pts 0 % pts + 40% pts + 80% > 150 pts + 100% Incidences that exist or occur as a result of deficiencies that existed prior to this agreement commencing or which are a result of uncompleted improvements will not Main Text Page 30

46 effect these performance measures, though the new project will likely deal with most existing deficiencies. Annual performance ratings in each index will be established jointly by the Municipality and Operator within 30 days of the end of the contract year. Penalties will be payable by the Operator within 60 days of the end of each contract year. Target Values and Variance Factors will be measured and a reference level set during the first year. As a minimum, the Target Values and Variance Factors for the first year will meet or exceed the Municipalities performance. Commencing in the second year, Target and Variance Factors will be set jointly by the Municipality and the Operator annually within the first 30 days of the contract year. Total points earned for each index will be the sum of actual points from each activity. The total Target Points for each activity are earned if the Target Values are met Employment Of Municipal Staff OFFERS OF EMPLOYMENT The Operator will be required to offer employment to the CUPE members of the workforce on terms and conditions and at a level of total compensation (including benefits) not less favorable than what that person would otherwise be entitled to from the Municipality. These employees will also be entitled to all the other benefits as other employees of the Operator at the same level EMPLOYEE TRAINING The Operator will be required to provide orientation sessions to familiarize the new employees with its policies and operating guidelines and the Operator will be required to provide all technical training and development opportunities to these new employees as are reasonably necessary to enable these employees to adapt to the Operator's policies, procedures and technologies and as are consistent with the Operator's employment policies. The Operator will also be required to establish career training and employee advancement programs to provide additional training and education opportunities Summary of Recommendations The following is a summary of the recommended risk allocation of the proposed Wastewater Treatment Plant Operating Contract: Main Text Page 31

47 Risk Description Labour Proponent Responsibility Quantity, base rate and price escalation beyond the Municipality collective agreement cap Municipality Responsibility Wage escalation up to a cap based on the Municipality s collective agreement negotiation Energy Quantity, and base rate Energy price escalation based on utility bills Chemicals Quantity and base rate Chemical price escalation based on invoice Other Costs Quantity and base rate Adjustment of costs by CPI annually Long Term Maintenance Performance All costs under $5,000. Costs over $5,000 to come from Municipality maintenance fund Financial penalties tied achievement of predetermined performance targets Establishment of long term maintenance fund Monitoring of performance by the Proponent 11. Successorship Rights and the Labour Code Implications 11.1 Introduction The has signed a collective agreement with the Canadian Union of Public Employees, Local 3853 regarding the terms and conditions of employment of the employees of the Wastewater Treatment Plant. Excluded positions from that agreement are the Plant Manager and the Plant Foreman. There are presently six employees covered by the agreement working at the plant. The collective agreement is silent on the right of the Municipality to contract out the operation of the wastewater treatment plant. Lay-off procedures are Main Text Page 32

48 defined in Section and there is no requirement for the Municipality to find alternative employment for displaced workers Successorship Rights A recent British Columbia Labour Relations Board decision BCLRB No. B481/2000 dated December 14, 2000, Corporation of the District of Maple Ridge and RG Arenas versus Canadian Union of Public Employees, Local No. 622, provides some guidance regarding the labour issues related to the operation of the wastewater treatment plant under a public-private partnership arrangement. The key issue is to determine whether successorship rights apply to an operator taking over the operation of the wastewater treatment plant. Key issues in this determination are: Has there been a transfer of a business which in turn requires consideration of: What is the business? Is there a discernible continuity? Is the arrangement simply a contracting out, and if so does it amount to a successorship? The issue here is to what extent does the municipality continue to exert control over the project, or has it passed that responsibility to a third party. To avoid a successorship it will likely be necessary to demonstrate no transfer of assets, and a hands off approach to the operation of the wastewater treatment plant. That would then be a true contracting out Application to the Wastewater Treatment Plant We must define the nature of the Municipality s business. A business should not be defined too broadly, otherwise one might lose sight of whether a severable part of the business has been disposed of in a transaction. The Municipality s overall business is to provide numerous services to the community. Within that overall business there are several parts. The provision of sewer services to the community is one of the parts. We conclude that a part of the sewer services component of the Municipality's business can be more narrowly defined as the provision of a wastewater treatment plant. That part of sewer services is a severable and on-going viable operation. We conclude that the operation of the wastewater treatment plant does not result in an on-going concern being transferred to the Operator. The components of the treatment of wastewater do not make up a viable business, but rather are components of work transferred by Main Text Page 33

49 the Municipality to the Operator under the contracting out provisions of the Collective Agreement Prior to the upgrade of the wastewater treatment plant, the Municipality operates the existing plant. After construction of the upgraded wastewater treatment plant, the Municipality will continue to operate the same business. The users will still pay their utility fees to the Municipality to secure sewer service. The Municipalities customers will not be transferred to the new operator. The Operator s major customer is the Municipality. The Operator does not deal directly with the customers. The Municipality still has primary control of the wastewater services. The Municipality will no longer operate the wastewater treatment plant. That work will be contracted out to the Operator. In addition, the Operator will expand the treatment plant to include more capacity and a higher quality of treated effluent. The Municipality still retains primary responsibility to the Ministry of Environment for the operation of the plant, as evidenced by the permit. Upgrade, Operation and Maintenance of the wastewater treatment plant will be contracted out to the Operator. The work performed by the Operator is driven by the Municipality's desire to obtain an operator with superior expertise and resources, and to transfer the risk around performance. The work is ancillary to the integral part of the Municipality s business (i.e, operating a wastewater collection and treatment system). 12. Stakeholder Consultation 12.1 Introduction The following outlines the stakeholder consultation activities related to pursuing a public-private partnership for the upgrade and operation of the wastewater treatment plant. This plan is a living document that must be modified to respond to changing circumstances and to take advantage of opportunities. The stakeholder consultation will result from a mix of techniques such as development of a stakeholder mailing list to keep interested parties informed, press releases, presentations to local community groups, brochures and information packages, stakeholder discussions, radio interviews and advertisements, web site information and the like. A stakeholder consultation plan is a working document. Consistent evaluation and monitoring will allow opportunities for reactive strategies to be employed as needed. Main Text Page 34

50 Proactive consultation is a vital part of the establishment of any public-private partnership. It is difficult to ignore the recent failure of a design/build/operate procurement process by the Greater Vancouver Water District for the $125 million Seymour Water Filtration Plant. While it is not the scope of this report to critique the GVWD process, the general consensus is that key to the failure of the process was an inadequate and ill-timed public consultation process. Other contributing factors were the removal of the only all Canadian team in the short-listing process resulting in the shortlisting of large multinational companies. This coupled with a gag order on the private sector proponents meant that those who do not favour such arrangements were free to present inaccurate information unchallenged. This illustration further emphasizes the critical nature of an early comprehensive public consultation process Strategic Approach The following approach should be adopted regarding the stakeholder consultation strategy: Be proactive in communicating the purpose and progress of contracting out the wastewater treatment plant upgrade and operation. Use a multi-stakeholder approach to ensure input from a wide range of interests, to involve and inform a large number of people and to maximize the opportunities for consultation to be a two-way process. Take considerable care to explain the process, the reasons and the public safeguards that will be employed. Be appropriately open and transparent with all audiences to build trust and confidence in the process and its outcomes. Communicate and consult, as is appropriate, directly with interested parties, using the media as a means to supplement that information. Pre-empt and mitigate where possible issues that could become concerns debated in the public arena In addition to the media, a very effective way to provide information in Whistler is through the local community groups. The RMOW takes a lead role in maintaining a local committee structure to involve community groups in the decision making process. This approach began in 1993 and has only become stronger over the years. For example, regular meetings are held with the RMOW and stakeholder groups to discuss local issues. The community groups include: The Association of Whistler Area Residents for the Environment (AWARE), the Transportation Advisory Group (TAG), Lil'wat Nation (Mount Currie Indian Band), Squamish Nation and the Whistler Fisheries Stewardship Group (WFSG). The WFSG is a collection of partners representing various local groups including Whistler Golf Course, Main Text Page 35

51 Whistler/Blackcomb, RMOW, Rotary Club, Whistler Angling Club, Chateau Whistler Resort and Golf Course, and Nichlaus North Golf Course Consultation Objectives The consultation objectives are: 1. To build the trust and confidence of Whistler citizens, project proponents, Municipal administration, existing workers and Council for the development of a public-private partnership 2. To inform external audiences about the existence and procurement of the project 3. To generate significant positive media interest in the project 4. To ascertain the appropriate mechanisms for ensuring the ongoing participation of interested stakeholders 5. To conduct the overall consultation program in a way that delights the public opinion 6. To raise public awareness of the benefits the project will bring to the community in the form of improved expertise 7. To inform all audiences about the details of the project, the positive impacts and other consequences 8. To mitigate criticism of the project through sensitivity to stakeholders and community sentiment 9. To generate interest in and advocates for the project 12.4 Key Messages The following are the messages that are core to consultation pertaining to the contracting out process and its immediate outcome. There would be a number of secondary messages and specifics that support these core messages. Seeking a private partner means the provision of the highest quality wastewater treatment facilities in Whistler at a price affordable to the Municipality and its citizens. A public private partnership could mean the delivery of more efficient services with greater financial and technical risk assumed by the private sector, while maintaining current standards as a minimum. The Municipality wishes to ensure the employment conditions of the existing plant employees are not only maintained but enhanced through improved training and advancement opportunities. Main Text Page 36

52 A public private partnership will allow the Municipality to acquire the skills and experience of a high caliber operator who operates many plants. The selection of a private partner will be through an RFP process permits all parties to be treated fairly and equitably. The RFP process will adhere to the highest standards in terms of evaluation and due diligence to ensure that any proposal recommended to Council and the community for consideration is sound and viable Primary Target Audiences Community groups and key influentials in the Whistler community Whistler residents Whistler staff and wastewater treatment plant workers Downstream stakeholders such as Squamish Potential project proponents 12.6 Action Plan The actions outlined below will be modified as is necessary throughout the process to respond to changing circumstances and to take advantage of opportunities not yet evident. The development of a detailed plan to consult and communicate with residents on a potential proposal or how the Municipality will move forward will need to be more fully developed when more details are known. Task Details Timeline Responsibility Regular updates to Council by way of the Director of Engineering Initial covering letter to go existing employees, union, community groups, etc. Issues identification & management All releases, Q & A, etc. as well as ongoing updates verbal and in writing to ensure they are fully aware of where the project is at all points in time. Introduces Municipality s intention of communicating directly throughout process and invites contact Staff and consultants involved in the project are to identify areas of concern that might escalate into issues of broader concern. Strategies to manage these issues Main Text Page 37

53 Task Details Timeline Responsibility Distribution of Business Plan Project page on municipal website Meeting of prospective proponents are to be developed and pre-emptive or mitigating actions are to be taken as is appropriate. Distributed with appropriate covering letters to stakeholders To permit access to current information by all interested parties. All news releases, questions and answers, and other updates to be added regularly. Presentation of details to prospective proponents and respond to their questions. Formal presentation and structured meeting. Written Handout Ads and News Release Public Meeting/s Consultation Findings Report News Release & appropriate background Distribution of Findings Designed to describe for citizens the process & implications for the Municipality and its citizens. To include a questionnaire that can be completed and submitted to the Municipality. Duplicated on the website where feedback can be provided electronically. To be used as the base for special and public meetings, etc. Designed to promote public meetings and input opportunities for citizens Presentation of public-private partnership option and implications, respond to questions and solicit input. (Formal presentation/s with handout; facilitated session/s with input documented) Report developed to outline findings from all input received from special interests and the public at large. Announcing public consultation findings on the public-private partnership option immediately following presentation of those findings to Council. Mailout of consultation findings report to mailing list and all those who provided input (with their name) Main Text Page 38

54 Task Details Timeline Responsibility News Release & appropriate background throughout the process Announcing Council decision whether to proceed or not and describing next steps Monitoring and Evaluation The progress toward achievement of the objectives outlined in this plan will be monitored on an ongoing basis. However, monitoring and evaluation mechanisms will not be extended to broad-based surveys, questionnaires or focus groups unless that is deemed necessary at a further date. Additional means of monitoring and evaluation may be developed to complement the development of the final plan for public input and consultation once the outcome of the RFP process is known. Desired Outcome Balanced media coverage Coverage of key messages Understanding of the issue and opportunities by Council, key influentials, interested parties, and Whistler residents as is appropriate throughout the process Trust and confidence in the process Support for the outcome of the process Evaluation Mechanism Ongoing media monitoring and analysis Letters to the editor Questions of administration, Council and community services - phone, , faceto-face Anecdotal evidence Informal survey of Council members, CAO, selected staff, and representatives of interested parties Questions and concerns raised at public meetings Response to newspaper insert questionnaire (More formal mechanisms would be employed if necessary and appropriate) Main Text Page 39

55 13. Implementation Plan 13.1 Procurement Process There are three broad strategies for procuring the wastewater treatment plant upgrade and expansion through a design/build/operate/maintain process that could be considered, with various subsets of each main option possible. The three options are: 1. A two stage RFEI / RFP procurement process in this situation the contract opportunity is made available to all comers, and is the way that most projects of this type have been procured. 2. A limited competitive process involving a single stage Request for Qualifications (RFQ) The Municipality would chose the partner based on qualifications and experience and then proceed to a sole source negotiation. 3. A single stage RFP open to all Under this process anyone can participate providing they meet certain self-evaluating financial tests, and have proven technology that has been in proven commercial use for at least two years Discussion of Options The decision around procurement method for the wastewater treatment plant should consider the following issues: Protecting the public interest particularly through a competitive process, Fairness making the opportunity available to as many companies as possible, Attracting Industry interest this involves trading off the costs of industry responding versus the probability of success, Best Value for Money nobody has the monopoly on good ideas, and competition is the best way to determine the best value for money Based on our recent industry consultation and subsequent communications it is clear that the wastewater industry is very interested. We can expect to see serious interest from: Epcor Water Services (City of Edmonton) BCG Services (BC Gas) United Infrastructure Vivendi (formerly US Filter and now part of a large French owned consortium) OMI / CH2M Hill Earthtech (formerly Reid Crowther ) Main Text Page 40

56 Stantech In addition various consulting companies such as Dayton & Knight, Associated Engineering, UMA, and others will probably seek to be part of one of the above groups. Summarizing, there is strong interest from industry, and limiting the procurement process to a single RFQ and a sole source negotiation cannot be justified. A single RFP is also unwise because of the costs involved to industry with a low probability for success (1 in 7 or 8, as opposed to 1 in 3). It is recommended that a two stage RFEI and RFP process be adopted for the procurement process. The successful establishment of a public-private partnership requires careful consideration of the following factors: Evaluation of risks and the appropriate placement of those risks with the partner best able to manage them; Being proactive in communicating with the public; Ensuring the public receives value for money from any public assets involved; and Ensuring an open, competitive and publicly defensible process to select the partner; In consideration of a partnership for a project there are three typical stages: Developing the feasibility and optimum strategy for the partnership; Establishing a competitive selection process; and Negotiating and concluding a final agreement. While this proposal discusses the work required in stages 2 and 3, only the work that is required for stage 1 is developed in detail The Two-Stage Procurement Processes The usual process for selecting a private sector partner is a two stage competitive selection. The two stages of the process are as follows: Main Text Page 41

57 A Request for Expressions of Interest (RFEI) process to short list all interested parties down to three groups. The RFEI document will define the project, the process, the values of the Municipality, and the evaluation criteria that will be used to pick the three finalists. The completion of the RFEI stage will result in the selection of three complete teams, who will be invited to submit detailed proposals, in accordance with the Request for Proposals. A Request for Proposals (RFP) which will follow the selection of the three short-listed teams. It will involve the preparation of a formal document in which the three proponents will be asked to prepare detailed technical and financial proposals. The format of the RFP will deal with the issues in the RFEI but in much more detail. Having selected the preferred proponent from the RFP process, the Municipality will enter into detailed negotiations with the preferred proponent leading to the signing of an agreement Content of an RFP The Canadian Council on Public-Private Partnership s Best Practices guidelines contains the following recommendation concerning RFPs: The RFP solicitation document should contain sufficient information to permit bidders to thoroughly understand the objectives of the RFP as well as the details of proposed or planned management and operational requirements. The RFP documentation should identify how the procuring entity will deal with key items such as confidentiality, bid clarification and the relative importance of evaluation criteria. The RFP document should also set out: any important deadlines for preparation and delivery of the RFP document a description of the relationship that will result between proponent and host government (i.e. - joint venture, partnership, co-shareholders, etc.) the transfer plan including a description of any proposed operating agreement limitations on mortgaging and assigning contracts how confidentiality will be handled between competing proponents equity requirements permit requirements any opportunities for alternates to the proposal requirements, and how Main Text Page 42

58 compensation will be paid including any points to be awarded as part of the evaluation criteria for the party providing the best solutions what negotiations will be permitted between the City and proponents with respect to their proposals prior to selection of a winning proposal and how those negotiations will be conducted explicit evaluation criteria risks that the procuring entity will not assume under any circumstances bonding requirements the means by which proponents may seek clarifications of the solicitation documents and information as to whether the procuring entity intends to convene a meeting of suppliers and contractors the identity of the procuring entity officers authorized to communicate with respect to the RFP documentation appeal or review rights; and restrictions on proponents with respect to discussions with third parties. The RFP document should adequately describe the nature of a legal contract arising from the proposal itself and the essentials of the expected contractual relationship to be subsequently negotiated with the winning proponent. Proponents should be advised of the application of privacy laws and access to information laws. The RFP document should also contain adequate information with respect to public sector objectives such as compliance with equity employment laws, social objectives and so forth. Information should be given with respect to the Municipality's right to waive deficiencies, prohibitions, if any to be included with respect to disclosing details of the process or bid contents by proponents and the extent to which information provided by bidders, details of their respective proposals and disclosed know-how will be ultimately treated from an ownership point of view. Publishing evaluation criteria is essential to effective competition in a public-private partnership process. It is important that the Municipality determine, prior to releasing its RFP, how it will decide which proposal presents the best value or best solution. Just as important to setting forth applicable important criteria is the requirement that criteria should not be used if not set forth in the RFP. To the extent possible factors should be objective and quantifiable and, where possible, weighted. The Municipality should ultimately make every effort to adhere to the published evaluation criteria in making an award. Main Text Page 43

59 Ordinarily a pass/fail system works best when combined with weighting Negotiating and Concluding a Final Agreement The two-stage procurement is a publicly defensible process for choosing a partner. While the selection of the preferred proponent will result in a broadly defined concept and proposal for the partnership, many details will remain to be resolved. The final stage of the partnership competition involves: Resolving the final details of the partnership, Producing a detailed legal agreement Schedule Implications The following discussion relates to the different schedule issues when comparing traditional procurement to a public-private partnership. The traditional project delivery contains the following key steps: Selection of an engineering company Design of the project Issuing of tender documents Preparation of bids by the contractors Negotiation and award of a Contract Once all these steps have been completed construction may commence. The public-private partnership schedule has the following significant differences in the key steps leading to start of construction: Preparation of performance specifications for the project Issuing Requests for Expressions of Interest (RFEI) to shortlist the proponents to three or four teams Preparing and issuing Request for Proposal (RFP) documents Preparation of Proposals by the short-listed Teams Evaluation of proposals Main Text Page 44

60 Negotiation and award of a Contract A number of these steps may be undertaken simultaneously. In addition the process enables the P3 team to fast track the project, something the public sector cannot do with the traditional process because of the public sector procurement rules. The construction usually commences before final design is complete. 14. Financial Analysis 14.1 Capital Upgrade Costs The estimated construction cost of the wastewater treatment plant upgrades has been established by Dayton and Knight at $19 million. A process of Value Engineering could be utilized to reduce that cost. Specific opportunities for cost reductions include: Redesign of the tank to simplify and reduce the number of compartments, Fix operations on one method rather than accommodate two systems, Phase certain aspects of the upgrade, thereby deferring capital expenditures. The current annual operating budget is predicted to rise from the present $1.012 million to $1.67 million. Based on a 20 year life cycle and a discount rate of 6%, the following project costs are anticipated: Initial Capital Costs Annual operating costs Net present value of annual operating costs (6% discount rate over 20 years) $19 million $1.67 million $19.15 million It follows that from a cost perspective capital and operating have approximately equal weight, and so the competitive process should optimize both capital and operating to achieve true best value for money. Based on previous experience of similar projects, moving from traditional delivery to design/build alone should reduce capital costs by a minimum of 15% over traditional procurement methods, while at the same time providing improved risk allocation to the Municipality. Main Text Page 45

61 14.2 Operating Costs Moving to a design/build/operate model with provide further savings due to the following factors: The opportunity to introduce optimum phasing of the upgrades, Modifications to operations to defer capital expenditures, and Reduction in both capital and operating expenses by superior integration of capital and operating. The project will be financed from the Municipal reserves if the RMOW is successful in attracting matching federal and provincial grants through the Infrastructure Program. It is unlikely that private financing would be beneficial due to the availability of existing funding and the lower cost of Municipal Financing Authority finance if grants are not available. If private finance were used it would only be to further offset risk to the private sector. In doing so the Municipality would need to ensure that such financial arrangements did not constitute a contingent liability to the Municipality. Accepted Canadian Institute of Chartered Accountants (CICA) guidelines should be used for making such a determination. Present operating costs are around $1.012 million and these have been projected to rise to $1.67 million after the upgrade is complete if no reduction in flows is achieved. It is important to provide for certainty around operating cost increases before commencing the upgrade, since on a net present value basis, the operating costs are a significantly larger cost component than the capital costs. Main Text Page 46

62 15. Recommendation and Next Steps The recommendations resulting from this Business Plan are as follows: 1. should procure the upgrade to the wastewater treatment plant through a design/build/operate proposal call. 2. The proposal call should be a two stage process. The first will shortlist proponents to no more than three complete teams, while the next stage will solicit detailed technical and financial proposals from those shortlisted teams. The following next steps should be undertaken: 1. Following receipt of this business plan by Council, it is recommended that a series of workshops be held with key stakeholders to review the contents of the business plan. 2. Retain a consultant to prepare a Request for Expressions of Interest document to select three short-listed proponents to submit design/build/operate/maintain proposals. 3. Continue with an ongoing process of consultation to ensure all identified stakeholders are kept fully informed of progress on a timely and frequent basis. Main Text Page 47

63 Appendix One List of Relevant Data The following is a list of other reports referenced in this business plan: 1., 2000 Pre-Design Report, Wastewater Treatment Plant, Contract 2, August 2000, Dayton and Knight Ltd. 2., Liquid Waste Management Plan Update, February 2001, Dayton and Knight Ltd. 3. Whistler s Wastewater Management Plan, July 1993 May Whistler 2002, Five Year Financial Plan, Waste Management Act, British Columbia 6. Local Government Act, British Columbia 7. Best Practices Guidelines Initiating Contracts and Contracting with the Private Sector, Canadian Council for Public-Private Partnerships, June 1996 Appendix One Page 1

64 Appendix Two Year 2001 Operating Budget WASTEWATER EPENDITURES OPERATIONS STRATEGIC PLANNING 86, , (390.19) UTILITIES GENERAL 475, , , SEWER LIFTSTATION O&M 144, , , SEWERMAIN MAINTENANCE 35, , , FORCEMAIN MAINTENANCE 2, , , SEWER RECORDS 1, , (3,907.23) SEWER CAPITAL PROJECTS 7, , (210.00) EMERGENCIES 6, , (26,017.19) WASTEWATER GENERAL 130, , , GENERAL EPENSES 461, , (6,027.95) CONTRACTS 16, , , LIQUID TREATMENT 192, , (30,084.96) SOLIDS TREATMENT 206, , (2,394.41) BIOSOLIDS 18, , (12,415.37) 1,784, ,789, (5,050.85) FISCAL SERVICES ADMINISTRATION FEES 449, , DEBT SERVICING 1,005, , , RESERVE CONTRIBUTIONS 1,000, ,000, MINOR CAPITAL 13, , SURPLUS CONTRIBUTION 304, , STORES PURCHASES 2,773, ,431, , EPENDITURES 4,557, ,220, , Appendix Two Page 1

65 6660 WASTEWATER 994,717 1,011,625 (16,908) REVENUES WASTEWATER REVENUE TIPPING FEES PW WTP Revenue (31,000.00) (44,784.30) 13, Total (31,000.00) (44,784.30) 13, EPENDITURES WASTEWATER GENERAL PAYROLL PW Wastewater General , , OVERTIME PW Wastewater General (208.86) COMMUNICATIONS PW Wastewater General , (3,522.83) TELEPHONE PW Wastewater General CELLULAR/PAGERS PW Wastewater General , , , OFFICE PW Wastewater General , , (87.40) COURIER PW Wastewater General , (4,904.42) VEHICLE FUEL PW Wastewater General , , (106.46) VEHICLE MAINTENANCE PW Wastewater General , , , VEHICLE INSURANCE PW Wastewater General , , , FLEET RENTALS PW Wastewater General , , (343.00) HEALTH & SAFETY TESTS PW Wastewater General , , , TRAINING PW Wastewater General , , , EQUIPMENT MAINTENANCE PW Wastewater General (771.71) BUILDING MAINTENANCE PW Wastewater General (463.98) ELECTRICAL MAINTENANCE PW Wastewater General , , , CONTRACT SERVICES PW Wastewater General , , , STORES PURCHASES PW Wastewater General , (1,289.54) Total 130, , , GENERAL EPENSES PAYROLL PW General Expenses , , (3,144.26) OVERTIME PW General Expenses , , , STANDBY PW General Expenses , , (594.54) EQUIPMENT MAINTENANCE PW General Expenses (145.20) BUILDING MAINTENANCE PW General Expenses , , (4,646.86) ELECTRICAL MAINTENANCE PW General Expenses (702.24) CONTRACT SERVICES PW General Expenses , (1,342.60) POWER -HYDRO PW General Expenses , (1,101.12) SUPPLIES PW General Expenses , , (7,356.56) SMALL TOOLS PW General Expenses , , STORES PURCHASES PW General Expenses , , , Total 461, , (6,027.95) CONTRACTS TRAINING PW Contracts (16.38) EQUIPMENT MAINTENANCE PW Contracts , (4,486.91) CONTRACT SERVICES PW Contracts , , , SUPPLIES PW Contracts (110.38) CHEMICALS PW Contracts (521.18) Total 16, , , LIQUID TREATMENT COURIER PW Liquid Treatment (551.02) EQUIPMENT MAINTENANCE PW Liquid Treatment , , , CONTRACT SERVICES PW Liquid Treatment , , , POWER -HYDRO PW Liquid Treatment , , (4,507.39) POWER-GAS PW Liquid Treatment , , (23,356.26) SUPPLIES PW Liquid Treatment (301.86) CHEMICALS PW Liquid Treatment , , (6,623.61) Office Supplies PW Liquid Treatment (92.14) STORES PURCHASES PW Liquid Treatment (63.21) Total 192, , (30,084.96) SOLIDS TREATMENT EQUIPMENT MAINTENANCE PW Solids Treatment , , , POWER -HYDRO PW Solids Treatment , , , CHEMICALS PW Solids Treatment , , (17,160.83) Total 206, , (2,394.41) Appendix Two Page 2

66 Appendix Three Questions and Answers Question: Wastewater Plant Upgrade Public-Private Partnership Questions and Answers Who will set water and sewer rates and what protection will there be against rate increases? Answer: The Municipal Council will continue to set the rates for water and sewer use. However because the private partner will provide a fixed price to operate the wastewater treatment plant, there will be greater certainty over future price increases. In addition, payment to the private partner will not be direct from the customers and so if there is a future short fall Council can determine to either increase rates or make up the short fall from other sources. Question: During the lifetime of the Agreement the partner may pay for various improvements to the system. Who will own the improvements and how does the private partner get its money back? Answer: The agreement with the private partner will be for may years. If the partner expands or improves the systems at sometime in the future, Council will negotiate payment for those improvements. Council can either: Pay for the improvements directly, or Permit the costs to be recovered by the partner from the operating fees with a lump sum buyout payment at termination of the Agreement if not all costs have been recovered. Appendix Three Page 1

67 Question: Is the Municipality giving up ownership of the Municipality s wastewater system? Answer: Throughout the agreement term the Municipality will own the wastewater treatment plant, including any improvements made. If the private partner pays for upgrades, ownership of the improvements will still be with the Municipality. The private partner in this case secures loans for the facility improvements against the stream of payments from the Municipality, not against the asset. Question: How will the working conditions of the existing employees be protected? Answer: Any proponents will be asked to submit specific proposals regarding the transfer of the existing CUPE work force. These proposals will be evaluated as part of determining the winning proposal. It is likely that the existing CUPE workforce will be protected as follows: There will be no layoffs; There will be no reduction in wages and benefits; Training and promotion prospects will be improved as the likely partner operates many water and wastewater facilities; and Profit sharing is usually a feature of private sector arrangements. Question: How will the Municipality establish the condition of the existing wastewater plant, and how will it ensure it gets the facilities back in good condition at the end of the agreement? Answer: At the start of the agreement, the partner will undertake a full condition survey of the existing plant. At various times during the term of the agreement the Municipality will conduct inspections to ensure the condition is being maintained. In addition a jointly administered major maintenance fund will be established from the revenue paid to the partner. The fund will be held in escrow and used for major equipment replacement over $5,000. The partner requires approval from the Municipality for any expenditure. Appendix Three Page 2

68 Appendix Four Canmore Utilities Performance Assessment Report Appendix Four Page 1

69 2000 CANMORE UTILITIES 2000 PERFORMANCE REPORT

70 CANMORE UTILITIES 2000 PERFORMANCE REPORT 1 TABLE OF CONTENTS 2 HIGHLIGHTS EPCOR Operations May December, 2000 How did we do? 3 BACKGROUND Background Success you can measure 4 QUALITY AND EFFICIENCY YOUR TOP CONCERNS AND OURS Highlights Water Quality Summary Table Maintenance Schedule Table Quality and Efficiency Table 7 CUSTOMER SERVICE KEY TO SUCCESS Highlights Customer Service Index Table 8 ENVIRONMENT GOING ABOVE AND BEYOND Highlights Environmental Index Table 9 COMMITMENT TO SAFETY AN ECELLENT RECORD Highlights Safety Index Table 10 CAPITAL AND REHABILITATION PROGRAMS Highlights Capital and Rehabilitation Budget Table AND BEYOND A SHARED VISION

71 CANMORE UTILITIES 2000 PERFORMANCE REPORT 2 HIGHLIGHTS MAY DECEMBER, 2000 EPCOR PERFORMANCE On May 15, 2000, EPCOR commenced a ten year utility management agreement with the Town of Canmore to handle water and wastewater treatment, water distribution, wastewater collection, storm drainage, biosolids composting, meter reading, billing and account management. EPCOR also manages Canmore s Capital and Rehabilitation programs. Our key measures of success include quality/efficiency, customer services, environment, and safety. We are pleased to share some highlights of our performance in HOW DID WE DO? The Town of Canmore s ten-year extensive utility management agreement with EPCOR is one of the first of its kind in Canada. Realized 99.9% compliance with the 3400 water and wastewater regulatory quality requirements. Realized savings of $140,000 on the 2000 Capital and Rehabilitation budgets. Initiated a Quality Assurance/Quality Control program for Canmore lab analyses. Upgraded the treatment plants control and monitoring systems. Initiated a safety orientation program for new employees and contractors. Developed a preventive maintenance program. Installed a computerized maintenance management system. Participated in Canmore s Canada Day parade. Sponsored Canmore s New Year s Eve Fireworks display. Established a volunteer odour monitoring panel. Instituted a new trouble contact phone number: FOR MORE INFORMATION CONTACT: Tami Wetmore, EPCOR Service Manager 102 Bow Valley Trail, Canmore, AB, T1W 3B7 Phone: (403) or Fax: (403) Or visit our website at

72 CANMORE UTILITIES 2000 PERFORMANCE REPORT 3 BACKGROUND EPCOR S VISION The Town of Canmore s ten-year utility management agreement with EPCOR is one of the first We provide essential elements for living. of its kind in Canada encompassing a complete Today and tomorrow. spectrum of services including water and wastewater treatment, water distribution, We create enduring customer wastewater collection, storm drainage, biosolids relationships and enrich the handling, meter reading, billing and account management. The contract commenced May 15, quality of life for the people, businesses and communities EPCOR also manages Canmore s Capital and we serve by providing costcompetitive and reliable services. Rehabilitation programs and one of our first tasks in this regard is to design and build an upgrade to We will increase shareholders Canmore s water treatment facility in This value as the leading provider of will be followed by a wastewater these services and will become treatment plant expansion. North American in scope. The Town of Canmore is supplied with water We build on the strengths of our from two sources the Spray Lake reservoir existing skills and assets through system, and a groundwater aquifier. The Level II flexibility and innovations. surface water treatment plant is equipped with a 7 ML/d direct filtration plant with chlorination. The groundwater supply, with a capacity of 13 ML/d, is chlorinated and supplies approximately half of the Town of 10,500 permanent residents. The Canmore wastewater treatment plant is a Level IV tertiary treatment plant designed to treat approximately 22 ML/d. The treatment process has a primary clarification stage where alum is used to precipitate phosphorus and settle solids. The effluent from the clarifier proceeds to the 2-staged Biofor process, which uses a fixed media in biological aerated filters (BAF) for carbonaceous oxidation and then nitrification. The effluent from the filters proceeds to an UV disinfection stage before being released to the Bow River. Nine of the Town of Canmore s staff joined the EPCOR team and, led by Service Manager, Tami Wetmore, P.Eng., M.Eng., they manage the utility services outlined above. SUCCESS YOU CAN MEASURE At EPCOR, we deliver on promises and the proof is in the results. Our key measures of success for the Town of Canmore encompass a variety of activities which are grouped under the following headings: quality/efficiency, customer service, environment, and safety. The Canmore Utilities 2000 Performance Report highlights our successes and our future plans.

73 CANMORE UTILITIES 2000 PERFORMANCE REPORT 4 QUALITY AND EFFICIENCY YOUR TOP CONCERNS AND OURS EPCOR Water Services has nearly 100 years of experience providing a complete range of quality water and wastewater services. More than one million people across Western Canada rely on EPCOR for a safe, assured supply of water every day. EPCOR s high internal water quality standards are even more stringent than government regulated requirements. HIGHLIGHTS Realized a 99.9% compliance with the 3400 water and wastewater regulatory quality requirements. A Quality Assurance/Quality Control program was established for the lab analyses that are conducted in Canmore. The water program was established in August, and the wastewater program was completed in December. Approximately 140 tests were conducted from May 15 to Dec 30 to confirm that the information collected on water and wastewater quality was accurate and the facilities were meeting regulatory requirements. Lab equipment was upgraded as a part of the capital program to ensure water quality parameters are met. A Quality Management Plan was submitted in July. This plan outlines the quality management systems that are in place or being established for environmental protection, safety, water and wastewater quality, system efficiency, maintenance, reporting, and customer service. Biosolids handling costs were reduced by $2400/month through the year. Composting was conducted at Coronation and Medicine Hat from May to December to eliminate biosolids odours in the Canmore community. A review of long term alternatives to manage odours from the facility was initiated in A Water Loss Audit was completed in December as part of the rehabilitation program to determine the extent of losses in the water system. Following AWWA standards and benchmarks, the analysis quantified metered use, unmetered use and reasonable system losses through leaks. The Canmore system has an Infrastructure Leakage Index of 5.2. The index can range from 0-10, and below 1 is the industry target.

74 CANMORE UTILITIES 2000 PERFORMANCE REPORT 5 A Maintenance Program was submitted in July. The program includes maintenance activities and frequencies for inspecting, testing and/or servicing for emergency power generators and batteries, pumps, electrical panels, lift station wet wells, heating and ventilation systems, cranes and hoists, emergency lighting systems, fire alarm panels, fire extinguishers, pressure reducing valves, air relief valves, clarifiers, digestors, grit handling systems, water and wastewater filters, blowers, control and alarm systems, air compressors, disinfection systems, reservoirs, chemical feed systems, grounds maintenance, snow removal, vehicle maintenance, distribution system main lines and valves, collection system main lines, and manholes. A Computerized Maintenance Management System was installed in December as part of the capital program to manage equipment history and maintenance schedules. A System Inspection Report (Condition Assessment) was completed on the water treatment plants, distribution system, sanitary and stormwater collection systems and wastewater treatment plant. The report, submitted in September, provides a condition rating of the Town s assets to establish a benchmark of condition at the beginning of the contract. The treatment plants control and monitoring systems were upgraded in December as part of the capital program. This improves the reliability of the treatment systems and will allow 24 hour monitoring from EPCOR s control centre in Edmonton. Regulatory reports required on a monthly basis or on an as-needed basis were submitted on time. A Staffing plan was submitted in July indicating how the Canmore Operations service commitments would be met. The total resources applied to meeting the O&M contract requirements exceeded the resources historically applied by the Town (see Staffing Support table). Electronic Billing Reports for the metering program were submitted on time. A Water Supply Management Plan was prepared in July to ensure water supply and storage was balanced to meet high customer demand during the hot summer period.

75 CANMORE UTILITIES 2000 PERFORMANCE REPORT 6 QUALITY AND EFFICIENCY ACTIVITY UNITS RESULTS RESULTS 2000 COMMENTS 1999 MAY-DEC Compliance to internal W & WW quality standards % 99.8% 99.9% Results are for compliance to regulatory quality standards (excludes WWTP potable water system). Unaccounted water % 25% 22% Used industry calculation method in QA/QC activities Total Enhanced water and wastewater number quality assurance program established in Energy efficiency index Being developed. Completion of scheduled % Not available 100% 1570 hours of preventive maintenance activities maintenance completed in 2000; 1340 hours completed in same period in Completion of reporting requirements - Contract % Not applicable 93% 18 contract reporting requirements added in Regulatory % 100% 100% All reports completed on schedule results are for the Town for a 12 month period results are for EPCOR for a 7.5 month period. STAFFING SUPPORT FOR OPERATIONS AND MAINTENANCE TOWN 1999 EPCOR 2000 (without composting) (7 months) Full Time Permanent Canmore employees Temporary Canmore employees 1 full time 1 six months Safety (Edmonton staff) 0 2 weeks QA/QC (Edmonton staff) 0 4 weeks Preventative Maintenance (Edmonton staff) 0 14 weeks Preventative Maintenance (Contract) 2 weeks 2 weeks Process expertise (Edmonton & Contract) 0 2 weeks Environmental (Edmonton & Contract) 0 4 weeks Communications (Edmonton Staff) 0 4 weeks TOTAL 11 FTE 13 FTE* Town 1999 information is based on the structure in place at the end of 1999, including vacancies. * Annualized for a 12 month period.

76 CANMORE UTILITIES 2000 PERFORMANCE REPORT 7 CUSTOMER SERVICE KEY TO SUCCESS EPCOR is known for its customer service focus. Building strong and enduring customer relationships is a cornerstone of our vision and key to success over the long-term. Not only do we aim to satisfy our customers but we also have a proud tradition of giving back to the community at large. We meet the standard of corporate giving set by Imagine, a program of the Canadian Centre for Philanthropy. This involves donating at least one percent of our pre-tax profits to community organizations. Our focus is on Youth and Science. HIGHLIGHTS EPCOR Alberta-wide initiatives that benefited Canmore include: A contribution to research at the University of Alberta into clean coal combustion technology; sponsorship of the 2001 World Championships in Athletics; the Triple Bottom Line Award of the Chamber of Commerce s Business Awards of Distinction; sponsorship of the EPCOR Environment Gallery at the Edmonton Space and Science Centre. Participated in Canmore Tradeshow in May. Participated in the Canada Day Parade and handed out water bottles. Biosolids Open House held in September. Sponsored New Year s Eve Fireworks display. Established a Volunteer odour monitoring panel to monitor odours over the summer. Ongoing evaluations and communications occurred regarding the handling of biosolids in the community. New trouble contact phone number CUSTOMER SERVICE INDE ACTIVITY TARGET ACTUAL ACTUAL COMMENTS VALUES VALUE VALUE 1999 MAY/DEC 2000 Number of service Total Number 1 0 No major outages outages greater than 24 hrs in Customer Satisfaction Survey 0 0 Scheduled in Number of community Total Number 0 3 Sponsored New Year s Eve activities fireworks, participated in Canmore tradeshow and Canada Day parade. Odour control measures 1 2 Community monitoring panel begun in 2000 and public open house on biosolids handling held results are for the town for a 12 month period results are for EPCOR for a 7.5 month period.

77 CANMORE UTILITIES 2000 PERFORMANCE REPORT 8 ENVIRONMENT GOING ABOVE AND BEYOND EPCOR has a successful history of environmental compliance to local, provincial and federal regulations. We have specific procedures for safeguarding aquatic and wildlife populations, vegetation, groundwater and aesthetics. We understand this is a critical responsibility in our role as a member of the community. Our team takes pride in their history of environmental stewardship. HIGHLIGHTS Minimized the number of environmental releases and contraventions to the Approval to Operate. Environmental emergency response plan content is established and procedures are in development. Spill containment facilities for chemical and fuel storage facilities were upgraded at the wastewater treatment plant and lift stations as part of the capital program. ENVIRONMENTAL INDE ACTIVITY UNIT ACTUAL ACTUAL COMMENTS VALUE VALUE 1999 MAY/DEC 2000 Alberta Environment Approval Number of 25 8 Minimized number of violations to Operate compliance violations in Environmental releases Total Number 11 7 Emergency preparedness and response activities (drills, procedures, reviews, etc) Training activities (TDG, WHMIS, etc) Proactive activities (audits, improvements, water source protection activities) Total Number 1 2 Total Number 1 0 Total Number Not 5 Available 1999 results are for the Town for a 12 month period results are for EPCOR for a 7.5 month period. Minimized number of releases in Developed response procedure for approval Established violations content in for 2000 updated and established content for update of emergency response plan. Training scheduled for Environment audit completed in Spill containment facilities upgraded at WWTP and Lift Stations 4,5 & 6 as part of the 2000 capital program.

78 CANMORE UTILITIES 2000 PERFORMANCE REPORT 9 COMMITMENT TO SAFETY AN ECELLENT RECORD EPCOR is committed to the ongoing safety of our employees. Lost time accidents are reported monthly and a target of zero is set annually. Regular safety inspections occur in all our work areas, from office buildings to plants. EPCOR has a long and successful history of safety management. We have a record that is above the industry average in Alberta. Our philosophy, and indeed our corporate policy, is to always put the safety of the individual over the urgency of the project. HIGHLIGHTS EPCOR safety program orientation was completed. Self Contained Breathing Apparatus (SCBA) equipment training for all employees was conducted in October. A safety orientation program was initiated for new employees and contractors. Preventive talks, site inspections and safe work plans were three tools that were introduced to the Canmore Operations at the beginning of the contract. These reports are incorporated into regular work activities to ensure promotion of safe work practices. Safety improvements were made at the facilities including installation of security alarms, upgrading the eyewash stations, chlorine cylinder emergency repair kit, and hoist support beams. SAFETY INDE Training ACTIVITY UNIT ACTUAL ACTUAL COMMENTS VALUE VALUE 1999 MAY/DEC 2000 Preventative activities (talks, inspections, work plans) Hrs/ employee 8 6 Total number Safety orientations and selfcontained breathing apparatus training completed in Documented tailgate talks, safety inspections, and safe work plans conducted in Safety Meetings Total number 9 6 Monthly meetings being conducted. Lost time incidents Total number 0 0 Our goal is results are for the Town for a 12 month period results are for EPCOR for a 7.5 month period.

79 CANMORE UTILITIES 2000 PERFORMANCE REPORT 10 CAPITAL AND REHABILITATION PROGRAM EPCOR expertise in managing utilities provides our partner communities with savings. This expertise has added value to the Town of Canmore by determining that some projects were not necessary and by minimizing the costs on others. EPCOR manages the Capital costs in an innovative manner that minimizes the risk of costs overruns to the Town. A maximum price is set for a project and if EPCOR exceeds this estimate, the company absorbs the costs. However, if the costs come in below the estimate, both EPCOR and the Town share the savings. HIGHLIGHTS Realized savings of $140,000 on the 2000 Capital and Rehabilitation Budgets. Capital and Rehabilitation Budgets for 2000 and 2001 were submitted on time. UTILITIES CAPITAL AND REHABILITATION PROJECT SUMMARY (APPROVED BUDGET VS. EPC) PROJECT TITLE ACTUAL* SHARED COMPLETED PROJECT BUDGET EPC (3% GST) SAVINGS IN O & M CANCELLED (EPCOR) UTILITIES REHABILITATION BUDGET Dist'n Appurtenance Upgrade 11,000 11,000 10, Watermain Upgrading/ Water Loss audit 22,000 9,000 5,932 Reservoir/Booster Stn. Mtnce 11,000 11,000 10, Computer Replacement 6,000 6,000 5,003 Sanitary Main-line Rehab 51,000 7,100 6,771 Catch Basin Drywell Replacement 29,000 29,000 27, WWTP Belt Press Upgrades 11, ,500 Cougar Creek Rehab 16, ,500 Emergency VFD Replacement LS #1-15,553 15, st Street Emergency Repair - 11,902 11,902 TOTALS FOR REHABILITATION PROJECTS 157, ,555 94,254 6,149 16,500

80 CANMORE UTILITIES 2000 PERFORMANCE REPORT 11 PROJECT TITLE ACTUAL* SHARED COMPLETED PROJECT BUDGET EPC (3% GST) SAVINGS IN O & M CANCELLED (EPCOR) UTILITIES CAPITAL BUDGET Diesel Tank Replacement 15,400 15,400 14, Alum Mixer 5,000 5,000-5,000 Trenching equipment 9, ,350 Water Meters 25,000 25,000 25,000 Miltronics Inter Ranger 8,800 8,000 7,701 3,959 Cathodic Protection Issue 47,500 14,124 11,984 Computerized Maintenance Mgmt System 27,500 25,000 23,676 UV System Upgrade 33,000 17,700 4,305 15,300 Access Gate to WWTP 15,000 15,000 14,439 7,756 Spill Containment 10,000 10,000 9,626 5,789 WWTP Grit Disposal 16, , OH&S Recommendations 10,000 10,000 9,626 1,123 WWTP Eye Wash Station Upgrade 11,000 11,000 10,589 1,324 WWTP Influent VFD Controls 5, ,500 Biosolids Long-term Planning Study 39,000 39,000 34,383 SCADA Upgrade 95,000 93,500 80,770 10,866 Lab Equipment 14,850 14,100 9,940 Chlorine Controls PH #1 16,500 15,400 6,190 Composite sampler 11,000 6,500 6, Bleeder Replacement Program 16,500 7,000 6,533 Truck-Mounted Hoist 5,500 5,500 5, TOTALS FOR CAPITAL PROJECTS 437, , ,604 11,422 30,451 40,650 TOTALS FOR CAPITAL AND REHAB PROJECTS 594, , ,858 11,422 36,600 57,150 Realized Savings 140,171 32% * Actual refers to the total cost payable by the Town including 3% GST. EPCOR assumed cost over runs totaling $21,930 in a total of 9 projects. 3 projects with a total combined budget of $21,500 were completed in the O&M portion of the EPCOR contract as they came in under $5,000 each. 3 projects with a total combined budget of $41,850 were canceled as further investigation revealed they were not necessary. 3 projects came in under budget and resulted in a shared savings of $22,844 ($11,422 for each party) Realized Savings calculated as Total EPC - Actual Total + Covered in O&M + Capital Projects Cancelled 2000 Cap & Rehab Summary (1)

81 CANMORE UTILITIES 2000 PERFORMANCE REPORT AND BEYOND A SHARED VISION We look forward to continuing to grow with the Town of Canmore over the next decade. Some of our future plans include: QUALITY Upgrading of Pump House #2 with leading edge technology Further upgrades to systems to allow control of critical facilities from a control centre staffed 24 hours per day. CUSTOMER SERVICE Establish Community Review Committee. Community Sponsorships School Education Program. ENVIRONMENT Long term biosolids handling solution Emergency Response Plan SAFETY Continued commitment to EPCOR Safety Program

82 EPCOR 102 Bow Valley Trail, Canmore, AB, T1W 3B7 Phone: (403) Fax: (403) Or visit our website at 02/01

83 Appendix Five Risk Matrices The following is a detailed assessment of the Project Risks 1. DESIGN RISK No. Risk Heading Definition Allocation Public Sector Private Sector Shared 1.1 Translate brief to design 1.2 Continuing development of design Failure to translate design brief requirement of the Resort Municipality of Whistler into the design. The detail of the design should be developed within an agreed frame-work and timetable. A failure to do so may lead to additional design and construction costs. 1.3 Change in requirements of the Resort Municipality of Whistler The Resort Municipality of Whistler may require changes to the design, leading to additional design costs. 1.4 Change in design required by the operator There is a risk that the operator need require changes to design leading to additional design costs. 1.5 Change in design required due to external influences specific to the Resort Municipality of Whistler There is a risk that the designs will need change due to legislative or regulatory change specific to the Resort Municipality of Whistler 1.6 Failure to build to brief Misinterpretation of design or failure to build to specification during construction can lead to additional design and Appendix Five Page 2

84 construction costs Appendix Five Page 3

85 2. CONSTRUCTION AND DEVELOPMENT RISKS No. Risk Heading Definition Allocation Public Sector Private Sector Shared 2.1 Incorrect cost estimates 2.2 Incorrect time estimate 2.3 Unforeseen ground/site conditions The estimated cost of construction may be incorrect The time taken to complete the construction phase may be different from the estimated time. Unforeseen ground/site conditions may lead to variations in estimated costs. 2.4 Unforeseen ground/site conditions under the footprint of existing facilities Additional costs resulting from where private sector is unable to carry out necessary surveys prior to commencing work because facilities are currently in use. 2.5 Delay in gaining access to site A delay in gaining access to the site may put back the entire project. 2.6 Responsibility for maintaining on-site security 2.7 Responsibility for maintaining site safety Theft/and or damage to equipment and materials may lead to unforeseen costs in terms of replacing damaged items and delay. The construction, design and management regulations must be complied with. 2.8 Third party claims This risk refers to the costs associated with third party claims due to damage adjacent properties. Appendix Five Page 4

86 No. Risk Heading Definition Allocation Public Sector Private Sector Shared 2.9 Compensation Events An event of this kind may delay or impede the performance of the contract and cause additional expense Delay Event An event of this kind may delay or impede the performance of the contract and cause additional expense Force Majeure In the event of force majeure additional costs will be incurred. Facilities may also be unavailable 2.12 Termination due to force majeure The risk that an event of force majeure will mean the contractor is no longer able to perform the contract Legislative /regulatory change: Provincial 2.14 Legislative /regulatory change: Resort Municipality of Whistler specific A change in Provincial legislation /regulations taking effect during the construction phase, leading to a change in the requirements and variations in costs. A change in a Resort Municipality of Whistler specific legislation /regulations taking effect during the construction phase, leading to a change in the requirements and variations in costs Changes in taxation Changes in taxation may effect the cost of the project Changes in the rate of GST Changes in the rate of GST may increase the costs of the Appendix Five Page 5

87 No. Risk Heading Definition Allocation Public Sector Private Sector Shared GST may increase the costs of the project. GST is partially refundable to the Resort Municipality of Whistler Other changes in GST Changes in GST legislation other than changes in the rate of GST payable Contractor Default In the case of contractor default, additional costs may be incurred in appointing a replacement and may cause delay Poor project management 2.20 Contractor/subcontractor labour disputes There is a risk that poor project management will lead to additional costs. For example, if sub-contractors are not well co-ordinated, one sub-contractor could be delayed because the work of another is incomplete Labour disputes may cause the construction to be delayed, as well as incurring additional management costs Protester Action Protester action against the development may incur additional costs, such as security costs Incorrect time and cost for changes to the existing facility The estimated costs of changes to the existing facilities may be incorrect, there may also be delays leading to further costs. Public sector risks unless delays and costs attributable to the private sector operator Appendix Five Page 6

88 No. Risk Heading Definition Allocation Public Sector Private Sector Shared 2.23 Incorrect time and cost estimates for commissioning the new facility The estimated cost of commissioning the new facilities may be incorrect, there may also be delays leading to further costs. Appendix Five Page 7

89 3. PERFORMANCE RISKS No. Risk Heading Definition Allocation Public Sector Private Sector Shared 3.1 Latent defects in new treatment facilities Latent defects to the new treatment facilities which require repair, may become apparent 3.2 Change to specification initiated by Resort Municipality of Whistler There is a chance that during the operating phase of the project, the Resort Municipality of Whistler will require changes to the specification. 3.3 Performance of subcontractors 3.4 Default by contractor or subcontractor Poor management of subcontractors can lead to poor coordination and under performance by the contractors. This may create additional costs in the provision of services. In the case of a default by a contractor or sub-contractor, there may be a need to make emergency provision. There may also be additional costs involved in finding a replacement. 3.5 Labour Disputes Labour disputes by the staff involved in providing facilities and services would lead to higher costs and/or performance failures 3.6 Failure to meet performance standards There is a risk that facilities management will not provide the required quality of services. This may be costly Appendix Five Page 8

90 No. Risk Heading Definition Allocation Public Sector Private Sector Shared to correct, and operator may incur financial penalties 3.7 Availability of facilities There is a risk that some or all of the facility will not be available for the use to which it is intended. There may be costs involved in making the facility available 3.8 Force Majeure In the event of force majeure additional costs will be incurred. Facilities may also be unavailable. 3.9 Termination due to Force Majeure There is a risk that an event of force majeure will mean the parties are no longer able to perform the contract Appendix Five Page 9

91 4. OPERATING COST RISKS No. Risk Heading Definition Allocation Public Sector Private Sector Shared 4.1 Incorrect estimated cost of providing specific services under the contract The cost of providing these services may be different to the expected because of unexpected changes in the costs of equipment, labour, utilities and other supplies. 4.2 Legislative/regulatory change having capital cost consequences: Resort Municipality of Whistler specific. Resort Municipality of Whistler specific changes to regulations may lead to additional construction costs, and higher building, maintenance, equipment, or labour costs. 4.3 Legislative/regulatory change having capital cost consequences: non-resort Municipality of Whistler specific Non-Resort Municipality of Whistler specific changes to regulations may lead to additional construction costs, and higher building, maintenance, equipment, or labour costs. 4.4 Changes in taxation The scope and level of taxation will effect the cost of providing services. 4.5 Changes in GST This may increase the cost of the provision of services to the Resort Municipality of Whistler. However changes in GST are generally refundable to the Resort Municipality of Whistler. Appendix Five Page 10

92 No. Risk Heading Definition Allocation Public Sector Private Sector Shared 4.6 Incorrect estimated cost of providing operating services 4.7 Incorrect estimated cost of maintenance 4.8 Incorrect estimated cost of energy used 4.9 Violation of discharge permit caused by poor facilities management The cost of providing operating services may be different than expected. These costs include staff, recruitment, training, equipment, and supplies. The cost of the facility maintenance may be different to the expected costs Failure to meet energy efficiency targets or to control energy costs. There is a risk that an illegal discharge could be traced directly to the actions of staff employed and managed by the facilities manager. This may include, for example, raw sewage or a fish kill. This risk may lead to increased treatment costs, and possibly legal costs if the Ministry of Environment takes legal action Estimated cost of transferring staff to the new employer is incorrect The estimated cost of the transfer of the employment of staff may be incorrect. This includes the costs of any legal appeals and Labour Board hearings Estimated cost of restructuring the workforce at any time during the operating phase, such as recruitment costs and redundancy payments The estimated cost of restructuring the workforce at any time during the operating phase, such as recruitment costs and redundancy payments may be incorrect Appendix Five Page 11

93 No. Risk Heading Definition Allocation Public Sector Private Sector Shared may be incorrect Appendix Five Page 12

94 5. REVENUE RISK No. Risk Heading Definition Allocation Public Sector Private Sector Shared 5.1 Non performance of services 5.2 Poor performance of services Payment will only be made by the Resort Municipality of Whistler for services received The operator will incur deductions from the performance payment for the poor performance of services. 5.3 Changes in the volume of wastewater to be processed 5.4 Unexpected changes in wastewater treatment technology 5.5 Unexpected changes in the water useage of the people in the catchment area There is a risk that the volume of wastewater to be processed will change because of changes in the size of the catchment area. This may occur because there is as an example, an unexpected increase in the size of population, leading to an increase in demand, or the reduction of water useage, leading to a reduction in demand. Unexpected changes in wastewater treatment technology may lead to a need to rescale or reconfigure the provision of services. Unexpected changes to the water useage of the people in the catchment area may lead to a reconfiguration or rescaling of the provision of services. Appendix Five Page 13

95 No. Risk Heading Definition Allocation Public Sector Private Sector Shared 5.6 Unexpected problems due to major incident such as chemical spill There is a risk of a major incident such as a chemical spill impacting the plant 5.7 Estimated income from income generating schemes is incorrect There is a risk that income generating schemes, such as biosolids disposal, generate less or more income than expected. Appendix Five Page 14

96 6. TERMINATION RISKS No. Risk Heading Definition Allocation Public Sector Private Sector Shared 6.1 Termination due to default by Resort Municipality of Whistler The risk that the Resort Municipality of Whistler defaults leading to contract termination and compensation to the private sector. 6.2 Default by the operator leading to step-in by lenders 6.3 Termination due to default by the operator The risk that the operator or individual service providers default and the lenders step in leading to higher costs than agreed in the contract. The risk that the operator defaults and step in rights are exercised by the lenders but they are unsuccessful leading to contract termination. Appendix Five Page 15

97 7. TECHNOLOGY AND OBSOLESCENCE RISKS No. Risk Heading Definition Allocation Public Sector Private Sector Shared 7.1 Technology change / asset obsolescence Buildings plant and equipment may become obsolete during the contract. 7.2 Technology change Technical changes may cause the Resort Municipality of Whistler to revise its output specifications. Appendix Five Page 16

98 8. CONTROL RISKS No. Risk Heading Definition Allocation Public Sector Private Sector Shared 8.1 Control of sewer and water rates Resort Municipality of Whistler retains control of water and sewer rates. 8.2 Control of services provided under the contract The operator should retain control of these subject to 8.1 above. Appendix Five Page 17

99 9. RESIDUAL VALUE RISKS No. Risk Heading Definition Allocation Public Sector Private Sector Shared 9.1 Resort Municipality of Whistler no longer requires assets at the end of the contract The risk that the Resort Municipality of Whistler will wish to vacate the asset at the end of the contract period, and that the operator may be faced with decommissioning costs. Appendix Five Page 18

100 10. OTHER PROJECT RISKS No. Risk Heading Definition Allocation Public Sector Private Sector Shared 10.1 Incorrect cost estimates for permitting or discharge approval Estimated cost of receiving permitting or discharge approval is incorrect including the cost of satisfying requirements Delayed permitting or discharge approval A delay in receiving permitting or discharge approval may have broader cost implications for the project, as well as the loss of potential savings. Appendix Five Page 19

101 Appendix Six National Post Article Appendix Six Page 1

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