Date:June 3, 1998

 To:Works and Utilities Committee

 From:Michael G. Thorne

Interim Functional Lead, Water & Wastewater Operations

 Subject:Execution of Agreement for Supply of Water to the Region of York

 Purpose:

 To obtain authorization to execute an agreement for the supply of water to the Region of York.

  Funding Sources, Financial Implications and Impact Statement:

 Adoption of the report=s recommendation regarding a revised agreement would impact positively on Toronto Water Supply=s Operating and Capital Budgets and on revenue generated through the sale of water to York Region. Financial analysis has determined that the revised rate formula and Capital cost-share methodology on the basis of proportionate use will ensure full operating cost recovery, a fair return on investment, and continued rate and reserve stability.

 Recommendations:

 It is recommended that authority be granted to execute an agreement for the supply of water to the Regional Municipality of York, essentially in accordance with the report provided as an appendix to this report, and the appropriate officials give effect thereto.

 Council Reference/Background/History:

 The previous agreements for supply of water to York Region were executed on December 23, 1974, by the Province of Ontario and Metropolitan Toronto and on August 1, 1975, by York Region, the Province of Ontario and Metropolitan Toronto. The tri-partite agreement specified an average day supply limit of 30 MIGD which has been exceeded since 1988. The average day consumption reached 40 MIGD in 1997 and continues to trend upwards. Several Capital Works projects required to supply an incremental amount of water beyond the supply limit have been cost-shared by York Region, pending execution of a new agreement.

 Through Clause No. 2 of Report No. 15 of the Environment and Public Space Committee (EPSC), Metropolitan Council at its meeting of September 27, 1995, was advised that Metro and York Region staff had reached agreement on a supply limit of 57 Million Imperial gallons per day (MIGD) average day and cost-sharing of the additional infrastructure requirements to provide for additional supply to meet Metro and York=s needs as identified by the 1995 Water Supply Joint Study and that negotiations for a revised agreement were continuing.

 Through the adoption of Clause No. 3 of Report No. 9 of the EPSC, as amended, Metropolitan Council at its meetings held on July 2 and 3, 1997, authorized staff to prepare, in association with staff of the Region of York, an agreement for additional water supply to the Region of York, generally in accordance with proposed principles contained in the report. Through an amendment to the clause, Council recommended that the detailed agreement be submitted to Council, through the Committee, prior to execution. The proposed principles are attached to this report as Appendix 1.

 York=s Council, at its meeting of July 10, 1997, adopted Clause No. 3 of Report No. 14 of its Transportation and Works Committee authorizing York to enter into an agreement with Metro based on the proposed principles.

 The agreement, provided as Appendix 2 to this report, contains terms and conditions satisfactory to Toronto=s Commissioner of Works and Emergency Services, the City Treasurer and the City Solicitor and to York Region staff in the Works, Finance and Legal Departments.

  Comments and/or Discussion and/or Justification:

 The proposed agreement provides mutual benefits in that York Region=s short-term needs, as identified in their 1997 Master Plan (57 MIGD average day anticipated in 2004) would be assured and further capital investment in Toronto=s system can be undertaken to ensure the capability to meet future demands within Toronto and York Region while maintaining competitive wholesale rates.

 Central to the development of the new agreement to meet York=s short-term requirements and Toronto=s requirements to 2011 was the agreed allocation of capital costs on a proportional use basis for the required infrastructure and a revised formula for determining future water rates.

 Analyses undertaken by Toronto Finance Department staff has confirmed future rate and reserve stability, full operating cost recovery and a fair return on capital investment for the City.

 The following summarizes the key elements of the proposed agreement:

 1.Supply Volumes

 Toronto to provide water to York on the basis of projected requirements for maximum day and average day volumes as set out in the agreement to an upper limit of 97 MIG (440 megalitres (ML)) per maximum day. By mutual agreement, Toronto may provide York in excess of average day volumes as set out in the agreement.

 York to continue to purchase 57 MIG (259 ML) per average day, or other amount agreed upon, once upper limit for average day volume is reached. York not to exceed on any day the upper limit of maximum day volumes as set out.

 2.Facility Cost Sharing

 York to contribute approximately 50 per cent. of the estimated $206 million total Capital costs of facilities required based on proportional use of the assets including water mains, plant and reservoir expansions and pumping station upgrades.

 3.Water Rate Determination

 The water rate to be determined annually includes the following components:

 (a)Operating costs of the Toronto system excluding the local distribution system, net of Capital funding and debt charges;

 (b)Operating surcharge to cover additional hydro costs for pumping to York;

 (c)Return on investment for existing Capital assets not subject to cost sharing; and

 (d)Replacement allowance which acknowledges asset life expectancy.

 The 1998 water rate to York as determined by the proposed rate formula is 19.5 cents per cubic metre, which is unchanged relative to the 1997 rate.

 4.Premium Water Rate

 Premium rate at double the normal rate may be applied on each day that the maximum day limit as set out in agreement is exceeded. Premium rate may be waived by Toronto=s Commissioner of Works and Emergency Services if diligent actions were taken by York to reduce water consumption and if York exceedance did not reduce supply within Toronto.

 5.Water Use Efficiency

 Toronto and York to use best efforts in implementation of their water use efficiency programs as endorsed and funded by their respective Councils.

 6.Joint Studies

 Toronto and York to share in cost of joint infrastructure studies which consider expansion of Toronto system to service Toronto and York.

 7.Further Agreement on Certain Issues

 Toronto=s and York=s Commissioners may agree upon amendment of specific matters as set out in the agreement, including revised average day volumes so long as the maximum of 97 MIG is not exceeded.

 8.Dispute Resolution

 Any matters not resolved by direct discussion between Toronto and York staff to be referred to a three-tiered dispute resolution process:

 (a)High Level Negotiation

- Mayor and Regional Chair or designate

 (b)Mediation

 (c)Binding Arbitration.

 9.Term

 Agreement term to be twenty years with option in favour of York Region for renewal for successive twenty year terms on the same terms and conditions.

 Although the agreement specifies an upper supply limit based on York Region=s short-term requirements, there is a possibility that their long-term needs can be supplied by the City.

 The previously referenced Master Plan by York Region was completed in July of 1997 to identify a strategy to meet future water demands.

 The recommended strategy includes the following principal components:

 (a)Expansion of water supply from Metro (short-term supply);

 (b)Implementation of a regional water use efficiency program;

 (c)Construction of Lake Simcoe Water Treatment Facility; and

 (d)Implementation of a New Great Lakes Supply (long-term supply).

  A supply from Lake Ontario entailing a raw water pumping station and a pipeline through the western part of Durham Region to a new water treatment plant in Durham or York Region was identified as the preferred long-term supply alternative.

 Subsequent to completion of the 1995 Water Supply Joint Study, employment populations within Toronto have declined and York Region=s long-term demand projections (to 2031) have been reduced. Consequently, there is a potential for York=s long-term needs to be fully supplied through further expansion of Toronto=s system, above and beyond what was identified in the 1995 Water Supply Joint Study, precluding the West Durham alternative. The feasibility of long-term supply from Toronto will be reviewed as part of the scope of work for a joint optimization study to be undertaken by Toronto and York Region to update the 1995 study.

 The scope of work of the proposed study will also include a review of long term water supply strategies for the Regions of Peel, Durham and Halton in order to identify opportunities for efficiencies in water servicing across the Greater Toronto Area.

 York Region staff have expressed their eagerness to explore the viability and effectiveness of Toronto=s ability to supply water beyond the agreement=s limit of 57 MIGD.

 Any future amendments to the maximum day supply limits as specified in the agreement would require approval from Toronto and York Region Councils.

 It should be noted that the additional water supplied to York Region would not impact sewage flows to Toronto=s sewage treatment plants as York=s sewage is not connected to Toronto=s system except through emergency outlets. York Region has recently executed an agreement with Durham Region to enable treatment of the sewage flows generated from the areas of York using Toronto=s water at Durham=s Duffin Creek Sewage Treatment Plant.

 Given that the Capital Works identified in the proposed agreement will address Toronto=s long-term needs and York Region=s needs to the year 2004, execution of the agreement is now required to enable priority projects in Toronto Water Supply=s approved 1998 Capital Works Program to proceed and to enable York Region to secure its short-term water supply.

Conclusion:

 Authorization is recommended for execution of the agreement for additional water supply to the Region of York.

  Contact Name and Telephone Number:

 Mr. H.A. Taniguchi, P. Eng.

Director of Water Supply Division

Phone: (416) 392-8220

Fax: (416) 392-3639

E-mail: htaniguchi@metrodesk.metrotor.on.ca

 M.G. Thorne, P. Eng.

Interim Functional Lead, Water & Wastewater

 Barry H. Gutteridge

Commissioner of Works and Emergency Services

 HAT/rah

 Attachments