Expert Panel Calls for Major Reforms to Ontario's Water Systems

Archived Release

Expert Panel Calls for Major Reforms to Ontario's Water Systems

Ministry of Infrastructure

Capital Investments Needed to Remedy Decades of Neglect TORONTO, July 22 - The report of Ontario's Water Strategy Expert Panel was issued today, calling for significant changes in the way the province's water and wastewater systems are organized, governed and regulated. In a year-long, in-depth examination of Ontario's water infrastructure, the Panel found the results of decades of underinvestment and planning in water systems throughout the province. It has recommended a comprehensive set of proposals for correcting the situation and ensuring the safety, affordability and long-term financial sustainability of Ontario's water and wastewater systems in the coming decades. The Panel reports that the province's water systems will require more than $30 billion in capital investments over the next decade and a half. "The fact is that governments, both municipally and provincially, have neglected essential investments in the province's water systems for the past thirty years. For example, there are systems in this province that actually contain pipes over a hundred years old," said Panel Chair Harry Swain. "That, combined with our growing population and economy, means we're going to have some serious catching up to do over the coming years, if we want to maintain the level of safe, accessible, affordable water we all take for granted." The report's key recommendations are: - Increasing the scale and capacity of water systems, including consolidating smaller water systems in various parts of the province into larger regional utilities; - Strengthening the governance of water services and increasing their effectiveness by making municipally-owned utilities responsible for providing services; - Phasing in cost increases over a seven-year period; - Creating an independent economic regulator - the Ontario Water Board - charged with reviewing business plans and proposed water rates; - Encouraging innovations in technology and training in order to reduce costs; - Revitalizing the Ontario Clean Water Agency by revising its mandate to include an arm's-length relationship with the province and establishing a business-oriented board of directors. "Larger water systems will provide the scale to make the large capital investments that are necessary, and do so at a cost that's much more affordable," said Mr. Swain. "In fact, studies show that water systems that serve populations of more than 100,000 provide not only lower cost water, but greater quality control and therefore consistently safer water than smaller systems. That's a key factor in recommending larger scale systems in parts of the province that currently are served by a plethora of small networks." The Water Strategy Expert Panel was commissioned by Public Infrastructure Renewal Minister David Caplan in August 2004 to determine the best ways to organize systems and deliver safe, clean affordable water and wastewater services in the province, while ensuring continued public ownership of these systems. "We are pleased to see that the Panel has acknowledged the significant investments that are critical for the sustainability of Ontario's water and sewage systems," said Kathleen Grimes, President, Ontario Sewer and Watermain Construction Association (OSWCA). "Addressing the infrastructure deficit would be a major step forward in enhancing the safety and long-term sustainability of this province's vast underground network of clean water pipelines and sewage systems." "The Expert Panel, chaired by Harry Swain, consulted with multiple stakeholders and the release of the report is a significant milestone in achieving the sustainability of water systems," stated Joe Salter, Chair of the Ontario Water Works Association (OWWA). "Both OWWA and the Ontario Municipal Water Association look forward to working with the government, as we have with other legislation and regulations, to ensure the continued safety of drinking water in Ontario," added Rosemary MacLennan, Chair of the Ontario Municipal Water Association (OMWA). "We welcome the direction that the report takes because it recognizes the importance of affordable, high-quality training which the Centre is currently developing, and because the report identifies the importance that new technology and its deployment will have in providing safe drinking water throughout Ontario. The Centre's technology demonstration mandate fills an important role in helping to promote the use of this new technology," said Murray Elston, Chair of the Walkerton Clean Water Centre. Members of the Panel include Dr. Swain, former Chair of the Walkerton Research Advisory Panel; Professor Fred Lazar, Associate Professor of Economics at York University and the Schulich School of Business; and Jim Pine, Chief Administrative Officer of the County of Hastings and former member of the Expert Source Water Protection Committee. "We are providing the government with this advice after consulting extensively with both large and small municipalities, environmental organizations, engineering and public works economic and financial experts," said Dr. Swain. "The panel would like to acknowledge the valuable feedback we received from these stakeholders and experts on an issue that is so important to all Ontarians." The report, Watertight: The case for change in Ontario's water and wastewater sector, is posted on the Panel's website (www.waterpanel.ontario.ca). Disponible en français. Backgrounder ------------------------------------------------------------------------- LONG-TERM INVESTMENT AND FINANCING STRATEGY FOR WATER AND WASTEWATER INFRASTRUCTURE Water Strategy Expert Panel's Report CONTEXT In August 2004, Minister of Public Infrastructure Renewal, David Caplan, appointed an independent Water Strategy Expert Panel to provide advice on all aspects of organization, governance, investment, financing and pricing related to Ontario's water and wastewater systems. The government is committed to implementing the Walkerton Report's recommendations and protecting our drinking water from source to tap. As part of this overall strategy the government has directed the Ministry of Public Infrastructure Renewal (PIR) to spearhead the development of a long-term investment and financing strategy for water and wastewater infrastructure to help ensure the safety of Ontario's drinking water well into the future. In order to have the best research and information available, Ontario commissioned eight expert studies on a range of water and wastewater issues. This research indicated that very large capital investments in our water and wastewater infrastructure are needed, and will continue to be needed for a considerable period of time. As part of its mandate, the Panel was asked to provide advice on how to ensure these investments can be made. Ontario has more than 700 municipally owned water treatment facilities and approximately 450 wastewater treatment facilities. WHY Clean, safe drinking water ensures Ontario is strong, healthy and prosperous. Ontario's current situation is not sustainable in the long-term. For the last two decades there has been a long, slow decline in the quality and capacity of public infrastructure in Ontario; and in water and wastewater systems in particular. Not enough money has been invested to replace the infrastructure when necessary, and maintain it as needed. So a lot of it is old and deteriorating. For example: - In the City of Toronto half of the water network is at least 50 years old, and eight per cent is more than 100 years old. - In some municipalities, parts of water systems date back to the nineteenth century. This is the case in Ottawa, where some of the water mains went into the ground in the 1870's. - There are still some wooden pipes in use in Ontario. The older the pipes, the more likely they are to break. For example, from 2001 to 2003 over a period of just two years the rate of water main breaks increased by 22 per cent in the City of Toronto, and by 45 per cent in Thunder Bay. In 2003, Prince Edward County reported over 200 water main breaks per 100 kilometres of water main. In 2003, the Town of Minto had over 20 wastewater main back-ups per 100 kilometres of wastewater main. In addition, more than three quarters of the water plants in Ontario serve fewer than 5,000 people, and more than 87 per cent serve fewer than 10,000 people. Studies conducted by public utilities commissions in the United States indicate that systems serving fewer than 3,000 people are not sustainable. And, the United States Environmental Protection Agency indicates that a threshold of 10,000 people-served is necessary to achieve standards. By either measure, the majority of Ontario's systems are too small to be sustainable. The costs to renew municipal systems and accommodate future growth are huge in the order of tens of billions of dollars. But there are also some significant costs involved if systems are not brought up to standard. For example, just a few months ago, a burst water pipe in Toronto flooded a power station and blacked out a large part of the downtown. And, in 2003, a broken water main severely flooded a residential street in Hamilton. There are similar occurrences in most towns and cities across the province, and these occurrences cost both the municipality and the broader economy. Broken water mains can cause rush hour traffic jams. But worse yet, some water infrastructure problems may pose broader public health issues. In addition, there is a slow, steady drip of lost revenue from water main breaks and leakage. One estimate puts the lost revenue at more than $150 million a year.(1) On average, Canadian municipalities typically lose 20 to 30 per cent of their water through leaky pipes. However, current needs are not the whole story. While municipal governments are playing catch-up to correct past neglect of the systems we have today, they also have to expand services to meet the needs of Ontario's future growth. By 2031, Ontario's population is forecast to grow by nearly four million people. These people will all need water and sewer services, as well as schools, hospitals and roads. Investments must be made to help ensure clean, safe drinking water well into the future. ------------------------------- (1) Ontario Sewer and Watermain Construction Association WHAT The Water Strategy Expert Panel was asked to advise the government on proposed solutions to help ensure: that water rates are affordable, that water systems are financially sustainable and that needed investments can be made. In short, the Panel was to recommend the best way to organize and deliver water and wastewater services to achieve these objectives, while ensuring public ownership of these systems. The commitment to public ownership of systems was outlined in the Panel's Terms of Reference: "Ontario's municipal water and wastewater systems will remain publicly owned, and the Panel will carry out its work on that basis." Over the course of its work, the Panel consulted with a variety of stakeholders including: individuals, large and small municipalities, municipal associations, plant operators, engineering and public works experts, and economic and financial experts. These stakeholders, as well as the public, were also invited to submit comments by mail and through the Panel's website. The Panel's recommendations include: - Increasing the scale and capacity of water systems; - Strengthening the governance of water services and increasing their effectiveness by making municipally-owned utilities responsible for providing them; - Ensuring that municipalities look to their customers for financial sustainability (full-cost recovery); there is already legislation that will set the stage for full-cost recovery in the future - the Sustainable Water and Sewage Systems Act. This 2002 legislation was supported by Commissioner O'Connor in the Report of the Walkerton Inquiry, Part Two (p. 299); - Creating an independent regulatory body - the Ontario Water Board - charged with reviewing business plans and proposed water rates; - Encouraging innovations in technology and training in order to reduce costs; - Revitalizing the Ontario Clean Water Agency by revising its mandate to include an arm's-length relationship with the province and establish a business-oriented board of directors. WHO Dr. Harry Swain, Professor Fred Lazar and Mr. Jim Pine were the members of the Expert Panel. On leaving the Canadian federal government, where he had been Deputy Minister of Indian Affairs and later Industry, Dr. Swain became CEO of Hambros Canada, and a director of its UK merchant banking parent. At present a company director and management consultant, he served as Chair of the Research Advisory Panel for the Walkerton Inquiry. Dr. Swain holds a doctorate in economic geography from the University of Minnesota and an LL.D. from the University of Victoria. Professor Fred Lazar is Associate Professor of Economics at York University and the Schulich School of Business. He has a PhD from Harvard University. He has written extensively on a wide variety of economic policy issues, including water industry investment and regulation and employment and trade. Mr. Jim Pine has more than 20 years of experience in both water issues and municipal government. Originally from northern Ontario, he is currently Chief Administrative Officer of the County of Hastings. He served as a member of the Implementation Committee of the Expert Source Water Protection Committee, providing advice to the government on tools and approaches to implement watershed-based source protection planning. He is also a member of the board of the Municipal Property Assessment Corporation. He has been active in many municipal organizations, including the Association of Municipalities of Ontario, the Ontario Municipal Administrators' Association and the Ontario Municipal Management Institute. He holds a Master of Public Administration degree from Queen's University. WHEN The Water Strategy Expert Panel released their report on July 22, 2005. The report, Watertight, the case for change in ontario's water and wastewater sector, is posted on the Panel's website at www.waterpanel.ontario.ca. NEXT STEPS The Ontario government will now carefully review the report's recommendations. The Panel's advice will contribute to the development of the government's long-term water and wastewater infrastructure investment and financing strategy. CONCLUSION Clean, safe drinking water ensures Ontario is strong, healthy and prosperous. The government is demonstrating leadership and responding to municipalities' concerns to help ensure systems can be upgraded and managed in the best possible, and most affordable way. The goals of a strategic and comprehensive approach to planning, managing and financing water and wastewater infrastructure are to ensure safe and clean drinking water for all Ontarians, to ensure water rates are affordable, and to protect the environment. The results, over the next decade, will be the creation of sustainable systems that will protect public health and allow communities to grow. CONSERVATION Ontarians can all do their part by helping to conserve water. Conserving water helps the environment and lowers your water bill - by both directly lowering your usage fees, and by also lowering the overall costs of providing clean, safe drinking water. Together, we can create a culture of conservation for a healthy tomorrow. Learn how you can take steps to help make Ontario cleaner, greener and healthier by visiting the Ontario Conserves website (www.ontarioconserves.gov.on.ca). Disponible en français. Report Recommendations ------------------------------------------------------------------------- The following is an excerpt from the Water Strategy Expert Panel's report, Watertight: The case for change in Ontario's water and wastewater sector. The Needed Reforms ------------------ The Panel believes that a wide range of changes to the water sector will be needed to meet the challenges ahead. We have focused on the following reforms to ensure that systems are sustainable and rates reasonable: The scale and capacity of systems must increase. Systems must join together to better manage risks, increase the depth of their expertise, gain economies of scale and scope, and help the highest-cost customers. There are many ways in which communities can achieve this. Because the answers will not be the same in every part of the province, local communities must develop local solutions - and an objective, professional regulator must ensure that those solutions are comprehensive and rigorous. Governance must be strong and effective. Water and wastewater systems are becoming increasingly complex, and in most cases - especially after consolidation into larger units - a municipally-owned corporation would be the best vehicle to own these assets. Those who oversee them, whether drawn from municipal councils or private life, need to understand a wide range of issues that are often specific to utility operations. For transparency, the finances of water services should be kept separate from those of their municipal owners. Finally, water services need the flexibility and tools to achieve cost savings through contracting out and other delivery options. Regulation should be results-based and as lighthanded as is compatible with the goal of safe, affordable water services. Ontario's water services will need a new style of regulator that looks at business plans and proposed rates from the perspective of optimal scale and scope, and measures performance to produce improvement. With the creation of the larger water services that this report foresees, and new licensing requirements in place, the focus of water-quality regulation should shift from detailed prescription to the results that systems are expected to achieve. Inspection and enforcement should be carried out by qualified staff who are expert in results-based regulation that takes risk management into account. Systems must look to their customers for financial sustainability. Consumers should pay the full cost of the services they consume, which will require full metering. This will help to ensure that systems are not overbuilt, conservation is encouraged and nature is respected. With full-cost recovery and improved economies of scale, most water systems in Ontario will be able to rely on their customer base to maintain and operate their assets over the long term. Only where systems are shown to be unsustainable should the Province provide subsidies, and in those cases it should act as trustee of the assets until the system can be made sustainable. Innovations in technology and training should be used to reduce costs. Active support from the Province will allow water services to benefit from cost-saving technologies in a more timely fashion. There is also a role for the Province to play in making training programs more easily accessible, especially for staff of remote and isolated systems. The Ontario Clean Water Agency (OCWA) should be revitalized. OCWA's front-line staff have a wealth of skills and experience, but lack of direction has led to uncertainty about its role and increasing competition in the sector has hurt its financial results. OCWA needs a revised mandate, a true arm's-length relationship with the Province and a business-oriented board. For More Information Watertight: The case for change in Ontario's water and wastewater sector is available at the Panel's website www.waterpanel.ontario.ca. Disponible en français.For further information: Sheldon Ens, Ministry of Public Infrastructure Renewal, (416) 212-7499