Elizabeth Brubaker
Financial Post
December 20, 2005

The people of Walkerton, Ont., don’t want to take any more chances. That’s why the townsfolk, and those in the neighbouring communities that comprise the amalgamated municipality of Brockton, have decided to turn to a private firm to operate their water and wastewater systems. "We want to hire someone we can trust," Brockton Mayor Charlie Bagnato states. "In the name of safety, and to keep everyone happy, we have to get someone we can rely on."

Mayor Bagnato knows a lot about the importance of a trustworthy and reliable operator. In 2000, contaminated water killed seven people and sickened more than 2,300. After the tragedy, Walkerton disbanded its public utilities commission, shed the dishonest and inept Koebel brothers and handed operations over to Ontario Clean Water Agency (OCWA), the Crown-owned agency that operates water or wastewater facilities for more than 200 municipalities across the province.

Now, chafing at OCWA’s costs, the municipal government has decided to tender the operations of its water and wastewater systems.

Some have argued for saving money by establishing a municipal department to operate the systems. But councillors understand that they might need specialized expertise they cannot afford to keep in-house. Local residents, too, largely favour hiring a third-party operator. "Citizens felt nervous about going alone," Mayor Bagnato says. Were council to choose the public over the private option, "citizens wouldn’t be happy. They would accuse the town of putting savings before safety."

That’s not to say the competitive bidding process for the new five-year contract won’t also bring savings. Last year, as Brockton considered breaking its ties with OCWA, it surveyed neighbouring municipalities’ water and wastewater operations. It learned that Arran-Elderslie had moved operations of several plants from OCWA to Oweson Water Services, a small private operator based in Owen Sound, realizing a $25,000 savings in the process. Similarly, Huron-Kinloss had moved operations from OCWA to Veolia Water, one of the world’s largest water companies, to save $10,000 a year.

Why is OCWA losing contracts to its private sector competitors? That’s a good question, given that the Crown agency enjoys a host of subsidies – tax exemptions, preferential borrowing rates, indemnification against liabilities, and freedom from the necessity to earn a profit – unavailable to its competitors.

The Expert Panel on Water and Wastewater Strategy, convened by the Ontario government to provide advice on the organization and financing of the province’s water and wastewater systems, blamed many of OCWA’s failures on its political nature. In its report, released in July, the panel noted that the "troubled operation" is governed by deputy ministers and the heads of government agencies – a framework that relies "too heavily on public policy expertise instead of commercial know-how." The panel urged the government to allow OCWA to act as an independent and commercially oriented company. Otherwise, it warned, "OCWA is a self-liquidating organization."

OCWA has earned harsh criticism from several of Brockton’s neighbours. Last year, the Township of North Huron, fed up with OCWA’s skyrocketing costs and unresponsive administration, hired Veolia to operate four of its five plants. "Extremely happy" with the service provided by the firm, the township will shortly transfer to it operations of its fifth plant.

Another disgruntled former client blames his municipality’s five-month boil-water advisory on OCWA’s operations. The councillor scoffs, "OCWA is not the water god people think it is. It’s just another Crown corporation run amok."

OCWA likewise comes in for criticism from some Brockton councillors, who object to an unannounced cost overrun and express frustration over attempts to obtain information about bills. Mayor Bagnato is less critical. While praising OCWA’s problem-free operations, however, he protests that the Crown agency is "just a little too expensive" for Brockton, which "has to be responsible with money."

And so the municipality is preparing to test the competitive waters. Council has been honing a draft request-for-proposals for several weeks, and an announcement soliciting expressions of interest could come as early as today. The Mayor hopes as many as 11 firms may express interest in the process, and that the municipality may request formal proposals from four or five firms.

The Canadian Union of Public Employees, long a fierce critic of the private provision of water and wastewater services, calls Brockton’s plan "a descent into utter irrationality." But the plan, in fact, is supremely rational. Only by contracting with a larger service provider can the municipality ensure that it has access to the expertise it requires. And only through competition can it ensure that it is getting that expertise at a fair price.

Ontario’s Expert Panel on Water and Wastewater Strategy promoted competitive contracting, calling it "a good solution in many areas." Indeed, it determined that in most Ontario communities, local conditions invite competition. An increasing number of municipalities, it reported, are contracting out plant operations. Some would be hard-pressed to provide services in-house. Others simply value "the better risk-management ability of a larger operator," their economies of scale and scope, and the cost savings that can result from competition.

The Panel concluded that lively competition among competent operators can help system owners provide safe and affordable water and wastewater services. "When water services are allowed to choose among several options to meet the needs of their customers, including contracting operations to one of a number of competent companies, the winners will be water consumers."

The provincial government has not yet responded to the panel’s report. It has not acknowledged the panel’s support for competitive contracting – the words "private," "contract" and "competition" make no appearance in the press release issued with the report or in subsequent references to the report. Nor has it acted upon the panel’s recommendation that it commission and publish basic contract templates for water and wastewater operations.

But provincial inaction is not holding back the mayors and councillors who increasingly seek private-sector expertise and efficiencies. They can’t afford to wait. As Mayor Bagnato reiterates, "We care about safety."