Wastewater Treatment Facility
Wetaskiwin City Council approved the business plan for the creation of Peace Hills Utilities Inc. at the regular February 14, 2022 Council meeting.
Peace Hills Utilities Inc. will function as a Municipally Controlled Corporation (MCC) — a business or organization that is created and controlled by a municipality, with approval from Council — for the City’s water and wastewater services. The MCC structure minimizes the financial implications this mandated upgrade has on local ratepayers, and allows the City to retain ownership of the infrastructure.
Read the press release: Municipally Controlled Corporation structure proposed for City's water and wastewater services
Watch the February 14, 2022 Regular City Council meeting
Background:
The City of Wetaskiwin’s current lagoon system was constructed in 1979 and has been in service for over 40 years. Since the construction of the City’s current wastewater treatment facility, whose operations are governed by Alberta Government & Parks (AEP) under the Environmental Protection & Enhancement Act (EPEA), significantly more stringent effluent quality requirements have come into effect that must be met when operating approval of the current facility expires in 2023.
The Wastewater Systems Effluent Regulations are established under the Fisheries Act and include mandatory minimum effluent quality standards that can be achieved through secondary wastewater treatment. Simply put, effluent is the wastewater that is deposited from the wastewater system, and these new regulations set out rules that require a higher quality of wastewater than the previous regulations.
After being mandated by other orders of government to upgrade the Wastewater Treatment Facility to meet current effluent regulations, Wetaskiwin City Council approved $1 million in 2019 for a detailed design of the new Wastewater Treatment Facility to demonstrate to the provincial and federal governments that Wetaskiwin is moving forward to comply with the new regulations. The construction of the new Wastewater Treatment Facility is estimated to cost approximately $40 to $53 million.
In December 2019, Wetaskiwin City Council began lobbying the federal and provincial governments to pay for two thirds of the costs associated with upgrading the Water Treatment Facility. In August 2020, Council successfully secured and signed a $12.9 million Alberta Provincial Grant to aid in funding the construction of the facility as the federal money was not approved.
In the summer of 2020, the City of Wetaskiwin selected Graham Capital as a business partner to provide the P3 construction services that includes construction, financing, operations, and maintenance services for the new Wastewater Treatment Facility. Through this partnership, the City and Graham will be able to meet the required effluent regulations while reducing the financial burden on the ratepaying public.
“After a thorough review of options, opening an MCC was the only way the city could afford to complete this mandated project. The province has agreed to allow the use of the $12.9 million dollar grant to be used as part of the P3 project which will help reduce the overall impact of the rate increase to citizens,” said Sue Howard, City Manager.
The Wastewater Treatment Facility will operate as a Municipally Controlled Corporation (MCC) and will be the water and wastewater utility provider for Wetaskiwin residents, with the possibility of expanding into the surrounding regions if required. Aquatera, along with Graham, is another core member of the business partnership for this project and will be providing long-term operations and maintenance services to the City for both wastewater and water utilities. The MCC will be named Peace Hills Utility Inc.
The Partnership (the City of Wetaskiwin, Graham, and Aquatera) has developed a delivery structure that meets the following core objectives:
Financing for the project can be secured while ensuring any debt remains off the City of Wetaskiwin’s balance sheet.
The ownership of assets, the financial benefit of ownership, and control of the MCC are all retained by the City of Wetaskiwin.
Capitalize on an Early Contractor Involvement program that enables early collaboration between designer, constructor, operator, and municipal authority to ensure the best value.
Leverage private-sector expertise to supplement City resources and enable successful project delivery.
Adopting an MCC model for the Wastewater Treatment Facility, which will provide water and wastewater services, is beneficial for the City of Wetaskiwin and residents as the MCC is fully owned by the City of Wetaskiwin and is governed by a Board of Directors with a City-held majority—including City Councillors. The MCC is effectively structured as a non-profit entity, meaning there is no equity return, which minimizes the impact to ratepayers. Billing and collection activities will be managed by Peace Hills Utility Inc., with rates set to meet liabilities.
The Project Co. Delivery Partnership developed between the City of Wetaskiwin (through the MCC) and Graham Capital is a 50/50 partnership that allows for the $12.9 million secured in grant funding can be leveraged as an equity investment, with minimal-to-no private equity financing required. The economic benefits of the MCC will remain in the community over the long term, with any rate surplus flowing backing into Wetaskiwin instead of a private partner as per the terms of the partnership agreement. The rate setting recommendation will be retained at the MCC level, with Wetaskiwin City Council having final approval of the rates. This partnership allows for joint decision-making and partnership between the two parties, allowing for the City of Wetaskiwin to also benefit from Graham Capital’s expertise.
Aquatera will be providing comprehensive operations and maintenance to the community through a direct contractual agreement with Peace Hills Utility Inc. under a fixed or variable cost arrangement. The scope of the services provided by Aquatera through this contract includes water treatment, wastewater treatment, and collection and distribution infrastructure.
Benefits | Commentary |
Enables Effective Project Delivery | • Secures private sector partners with a breadth of expertise to deliver necessary work. • Project benefits from Early Contractor Involvement, ensuring effective risk management and cost optimization. |
Secure Alternative Financing | • City grant funding leveraged as an equity contribution to the partnership. • Debt secured from private sector lender at highly competitive rates. • Capped equity crowded in from the private sector partner, only to the extent required. • Rate pressures are alleviated by removing private dividends from the equation. |
Off-Balance Sheet Debt Treatment | • Partnership is intentionally structured such that project-level debt is consolidated off the municipality’s balance sheet. • Importantly, this accounting treatment is achieved without the municipality ceding control of the assets to the private sector. |
Retention of Control by Community | • Municipality retains joint control of the enterprise under this structure. • Maximizes the ability of the municipality to influence rates over the long-term. • Results in the optimum level of service for municipal consumers, and retention of economic benefits within the community. |
Facilitates Timely Delivery | • Project will be delivered under an accelerated model, which will allow pricing to be committed and construction to commence well ahead of design completion. • Aggressive timeline is necessary to ensure compliance with regulatory permits. |
Depending on the option selected by City Council the overall scope of the construction of this project will involve the construction of new facilities, such as the construction of a headworks building, Moving Bed Biofilm Reactor tanks, rehabilitation at the existing plant, and necessary upgrades to the South East Lift Station and Moseson Lift Station.
Two different approaches for construction of the project are being the considered. Scenario 2, which is the approach recommended by Graham, is estimated to cost $53 million to complete the comprehensive upgrades — which include a full build and renewal — as a single work program. Scenario 1 costs less at approximately $40.2 million, but would involve spreading the work required out over several stages, deferring renewal work to minimize initial capital costs.
Scenario 2 is recommended by Graham over scenario 1 for a variety of reasons, with the strongest being that although scenario 2 has a higher initial construction cost, it has a lower annualized cost at $9.75 million compared to scenario 1, which has a higher annualized cost of $11.7 million. Scenario 2 also has a lower projected operations and maintenance cost due to quality equipment and facilities, leading to reduced intervention and repair as well as consistent utility rates for consumers, which has the cost benefits of delivering the entire program at once instead of delivering the work program in multiple pieces over multiple years, which comes at a cost premium.
Rates for Peace Hills Utility Inc. will need to be set such that the MCC will receive sufficient revenues from operations to cover liabilities — meaning that the MCC must be self-sufficient and revenues must be sized to fully address costs – with a minimal surplus. If scenario 2, which minimizes rate impact, were to be employed residents would see a combined residential utility bill of approximately $158.77, which is a 26 percent increase when compared to a 2020 rate baseline of $125.08. Under scenario 1, residents would receive a combined residential utility bill of approximately $191. 06, which is an increase of 53 percent compared to the 2020 rate baseline.
Scenario 2: Minimize Rate Impact | Scenario 1: Minimize Capex | March 2021 Preliminary Guidance | 2020 Rate Baseline | |
Water Charge | $81.12* | $88.78* | $71.06 | $71.06 |
Wastewater Charge | $77.65* | $102.28* | $114.00 | $54.02 |
Combined Residential Utility Bill | $158.77 | $191.06 | $185.06 | $125.08 |
% Increase from 2020 Baseline | +26% | +53% | +48% | -- |
*Split between water and wastewater charges will be refined prior to rate adjustments being implemented.
For more information, access the Graham Presentation in the documents section to the right. To watch the full presentation, click here.
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