~s~s~~~ COUNCIL REPORT ABBOTSFORD

Report No. ENG 33-2011 Regular Council April 11, 2011 File No: 5600-30/Stave

To: Mayor and Council From: Tracy Kyle, Director of Water & Solid Waste Subject: Stave Lake Water Supply & Treatment Project

RECOMMENDATION

THAT Report No. ENG 33-2011, dated April 11, 2011, from the Director of Water & Solid Waste, regarding the Stave Lake Water Supply & Treatment Project, be received .

BACKGROUND

On April 4, 2011, both Abbotsford and Mission Councils were asked to vote on a recommendation to submit an application to PPP Canada for a potential $71.2 million grant from the P3 Canada Fund . Additionally the recommendation included that the Stave Lake Water Supply and Treatment Project (Project) would proceed as a public­ private partnership (P3) subject to suitable grant funding and assent of the electors in Abbotsford and Mission.

At the April 4, 2011 meetings, Mission Council did not approve the recommendation and the Abbotsford Council deferred the vote on the recommendation in order to consider input on the proposal from the public.

Approval of the recommendation was required from both Abbotsford and Mission in order to proceed as a regional project. As a result, Abbotsford will now be considering moving the project forward as a City Water project instead of a Regional Water project.

Answers to the questions and comments from the April 4, 2011 Abbotsford meeting are detailed in Appendix A. The questions are answered how they would have been answered with the project scope on April 4.

DISCUSSION

New Project Scope The Abbotsford Mission Water & Sewer Commission (AMWSC) Stave Lake Water Supply & Treatment P3 project scope initially included: • a water intake in Stave Lake; • a pump station on the east shore of Stave Lake; • a water treatment plant (WTP) north of the District of Mission which will treat water from Stave Lake; • a 6.6 km raw water transmission main from the pump station to the WTP; • a 12.4 km treated water transmission main from the WTP through Mission, crossing the Fraser River to a connection point on the existing transmission system in Abbotsford; and • an expansion to the Maclure Reservoir.

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As it is now proposed to proceed as a City of Abbotsford project, all of the same infrastructure will be included except for the Maclure Reservoir expansion. This will reduce the overall project cost estimate by approximately $16 million. The Maclure Reservoir is an existing Regional facility and will be expanded when required by the AMWSC.

Initially the project was planned to be in service in 2015. The District of Mission is not metered and conservation has not been as successful in that community as it has been in the City. Acknowledging the recent success of conservation efforts in the Abbotsford, we are plann ing to move the in-service date to the summer of 2016.

Federal Fund ing If Abbotsford Council agrees on April 18, the City will need to make an application to the federal government through PPP Canada to apply for grant funding under the P3 Canada Fund. The P3 Canada Fund can approve a grant of up to 25% of a project's eligible costs, which in the case of the Abbotsford Stave Lake Water Supply and Development Project is approximately $66.5 million. There is the possibility that only a portion of the Project will be determined to be eligible for the grant by PPP Canada ; however, feedback from PPP Canada about this Project is currently very positive.

Sizing of Infrastructure The new Stave Project infrastructure will be sized as initially planned to accommodate future growth. Mission's share of growth related projects (such as the Stave Lake Project) was only 12.16%. Proceeding without Mission, does not substantially change the sizing of any infrastructure.

Mission as a Bulk Water Customer Abbotsford and Mission will continue to own and govern the current AMWSC Regional Water system which supplies water to both communities. Mission will not be supplied with water from the new Stave Lake supply. In the future, if Abbotsford and Mission Councils both agree, it is possible that Mission could be a bulk water customer from the Stave Lake system. In the meantime, eXisting water allocation from the AMWSC system needs to be set in the master agreements between Abbotsford and Mission .

It is also possible that other local municipalities would be interested in being a bulk water customer from the Stave Lake system, too. Similar to agreements that the AMWSC has for FVRD water users and the Langley/Sumas use of the JAMES Treatment Plant, any bulk water customers from the Stave Lake Project would pay a premium over City rates .

Cannell Lake Water Treatment Initially the Stave Lake water treatment plant (WTP) was planned to treat both Cannell Lake and Stave Lake water at the new WTP . Moving forward as a City of Abbotsford project, the new WTP will only treat Stave Lake water. With only one source of water treated at the new plant, it will make the project less complex and possibly more cost effective. Also, depending on the site ultimately selected for the WTP, there may be several million dollars saved by not piping the Cannell water to the new WTP site. These savings are not included in the cost estimates as they cannot be valued at this time.

The Cannell Lake water source is considered suboptimal by Fraser Health because it is not filtered. The AMWSC will have to consider a separate, small water treatment facility (possibly using UV technology) to treat the Cannell Lake water source in the future .

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ANALYSIS

Business Case Impact The business case for the Stave Lake Project has been updated by Deloitte & Touche to reflect the removal of the Maciure Reservoir from the scope and changing the in-service date to the spring of 2016. The update does not change the viability of the Project as a P3. The Value for Money is essentially the same. A P3 Canada Fund 25% contribution (of eligible costs) is estimated to be $66.5 million.

FINANCIAL PLAN IMPLICATION

The Stave Lake Project will be transferred from the AMWSC Regional Water budget to the City Water budget.

COMMUNICATION PLAN

The communications to date for the Project are summarized in Appendix B.

The communications strategy developed for the Project will be amended to reflect that it is now a City of Abbotsford project.

If Council approves submitting the Project for consideration to PPP Canada and the assent of electors in November, there will be an extensive communications and consultation program that will run from May to November 2011 . Details of the proposed communications and consultation program can be found in Appendix C.

SUMMARY

At the April 4 Council meetings, Mission Council did not approve the recommendation and the Abbotsford Council deferred the vote on the recommendation in order to consider input on the proposal from the public. Approval of the recommendation was required from both Abbotsford and Mission in order to proceed as a regional project. As a result, Abbotsford will now be considering moving the Stave Lake Water Supply and Treatment Project forward as a City Water project instead of a Regional Water project and continuing to ner with Mission the AMWSC system.

Jim Gor n, P.Eng. Gener Manager, Engineering & Regional Utilities

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Appendix A - Stave Lake Water Supply & Treatment Project April 4 City of Abbotsford Council Meeting Questions & Answers* *Answered based on April41h scope of Project

Speaker 1 - A. Flavelle, 3170 Horn Street Why are we looking for a new source of water? The Bevan wells, conservation, improved leak detection/repair and seasonal rates can meet our future demands, Response - Once we receive an Environmental Assessment certificate from the Ministry of Environment, we will be able to operate the Bevan Wells at 25 MLD. In the interim, we can operate at 6 Mega Litres per Day (MLD) and this amount is already included in the total system capacity of 143 MLD. Thus, once we get the Environmental Assessment certificate, the total available capacity will rise by 19 MLD to 162 MLD.

While the total assum"d well capacity, including Bevan, is approximately 64 MLD, people should understand that the availability of groundwater from the Abbotsford-Sumas aquifer isn 't guaranteed in perpetuity. The aquifer capacity is known to be under stress from municipal, domestic and agricultural use; it is possible that the Province could take measures to restrict withdrawals. Furthermore, the aquifer has known contaminants from overland farming practices and is subject to contamination from industrial processes or activities. While contaminant levels have remained within safe limits to date, this could change. At this point, the water department does look at its future plans assuming that wells could be lost to either use regulations or contamination.

The last few years of stricter sprinkling restrictions have shaved approximately 20% off our peak day use. Sprinkling restrictions are the 'lOW-hanging fruit' of summer water conservation as they provide an immediate water use reduction. Most other conservation methods don't lead to overnight changes. The Abbotsford Mission Water & Sewer Commission (AMWSC) has introduced new conservation initiatives over the last two years (e.g. low-flow fixture rebates and subsidized rain barrels). More programs are rolling out this year, such as demonstration water-wise gardens, irrigation workshops, installation of rain cisterns on City facilities and industrial water use audits. Future demand management through changes to development bylaws are also being contemplated.

Abbotsford and Mission's current non-revenue water (NRW) is approximately 17%. NRW stems from more than just water leaks; water used for firefighting and unauthorized water diversion account for some of the NRW. Abbotsford's new Smart Meters will allow more leaks, both on private property and in our distribution system, to be detected and repaired quickly. The water department's goal is to ultimately reduce NRW to approximately 10% or less. Several other programs, such as the Asbestos Concrete (AC) replacement, the recent installation of 18,000 new meters and bulk water filling stations will also help to bring our NRW percentage down . Mission also has a leak detection program in place.

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The water department is currently assuming that peak day projections in the 2010 Master Plan can be lowered by approximately 20% due to conservation success seen to date. As such, we currently anticipated that peak day capacities in 2015, 2020 and 2025 will be approximately 155, 185 and 210 MLD respectively. Thus, with today's conservation levels and the Bevan wells, the peak day capacity will exceed available supply sometime between 2015 and 2020. Cutting NRW by 7% still leaves the 2020 anticipated demand (172 MLD) above the currently available capacity. Ultimately, reducing leaks and conservation still won't be enough. A new water source is needed .

It takes many years (typically more than 5 years) to permit, design and build infrastructure associated with a new water supply. Considering that population grow1h, despite conservation measures, is anticipated to push demand beyond existing capacities within the next 5-10 years, it would be imprudent for the AMWSC to interrupt plans to develop Stave Lake . This new source won't change the AMWSC's commitment to leveraging conservation and NRW reduction for their water savings; while these strategies may not be able to defer the initial need for a new source, they will most likely be able to significantly defer future system expansion.

Speaker 2 - M. H. Hatch. 19-34755 Old Yale Road Angry about open letter in newspaper and some quotes regarding CUPE attributed to Mayor Peary. What prompted the letter to CUPE? Response - CUPE issued a "call to action" document that included some misinformation about the Stave Lake Water Supply and Treatment project. The Mayor wrote a letter to the President of CUPE to help clarify these issues.

The federal election could change availability of P3 Canada Fund. Response - We can't speculate on the availability of the P3 Canada Fund based on unknown Federal election outcomes.

Speaker 3 - R. Dalton. 33886 George Ferguson Way What are the water reserves at now, and what is owed? Response - The City of Abbotsford has established reserves for Development Cost Charges(DCC) to fund growth related initiatives such as the new Stave Lake Water Source, and Capital Reserve for existing infrastructure plus the 30% Assist Factor applied to growth. The DCC Reserve is budgeted to be at zero by the end of 2011, largely due to planned capital work that is grow1h related but outside of the scope of the new water source. To achieve a zero balance, internal borrowing will be used, with an estimated $4.5 million being loaned to the Waterworks DCC Reserve from other DCC Reserves. The Capital Reserve is projected to have a balance of $1 .95 million by the end of 2011 , with $8.0 million loaned to other Reserves through internal borrowing.

Why doesn't the AMWSC have a Plan B? There has been insufficient focus on conservation. Response - The Abbotsford Mission Water and Sewer Commission is partnering with local industries to develop a variety of water conservation programs that focus on all users of the system: residential, municipal and industrial, commercial and institutional (ICI) users:

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A. Workshops 1. Waterwise Gardening Workshops The AMWSC is partnering with Exemplar Horticulture and Tanglebank Nursery to offer workshops on waterwise gardening design and practices. Ewan Mackenzie from Exemplar Horticulture will be leading waterwise garden presentations throughout the Spring at City Hall and Tanglebank Nursery will be offering workshops onsite throughout the summer for Abbotsford and Mission residents and landscapers. Please go to ourwatermatters.ca for dates.

2. Rain Water Harvesting Workshops A ra in water harvesting workshop was held March 28 to 30 through the American Rainwater Catchment Systems Association . The AMWSC will be working with Barr Plastics to offer short seminars on rain water harvesting throughout the summer. Please go to ourwatermatters.ca for dates.

3. Efficient Irrigation Workshops Through the Irrigation Industry Association of BC and Smart Watering Systems, the AMWSC will be holding a certified efficiency scheduler course for Abbotsford and Mission irrigation installers, as well as hosting public workshops for residents on correct and efficient design, installation and maintenance of irrigation systems. Please go to ourwatermatters.ca for dates.

B. Summer Educational Campaign 1. Irrigation and Landscape Assessments Local irrigation specialists and nurseries will be train ing summer Water Conservation Staff to offer free irrigation and landscape assessments for residents in Abbotsford and Mission. Please go to ourwatermaiters.ca for more information.

2. Door-to-Door Educational Campaign using Social-Based Marketing The Water Conservation Patrol staff will be delivering an educational campaign on outdoor water conservation in late spring and summer as well as enforcing the sprinkling restrictions. Residents will be asked to pledge to be waterwise this summer and will be provided with a lawn stake to demonstrate that they are conserving.

3. Special Events Staff will be attending events in Abbotsford and Mission throughout the summer to promote water conservation. The AMWSC will be participating in Drinking Water Week through the British Columbia Water and Wastewater Association (BCWWA), by providing tours of the Norrish Water Treatment Plant.

C. Water Conservation at Municipal Facilities Municipal facilities will be leading by example this summer through several conservation initiatives:

• Development of a Waterwise Demonstration Garden at Mill Lake and the Rain Garden in Mission; • Water audits of the Abbotsford Recreation Centre, Matsqui Recreation Centre, Abbotsford City Hall and Mission Leisure Centre have been conducted . Reports can be found at ourwatermatters.ca.

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• Water audits at the following schools were conducted : Mission Secondary School, W.J. Mouat Secondary School, Yale Secondary and William A. Fraser Middle School. The AMWSC has started a grant program that allows School Districts to apply for money to retrofit each year; and • The AMWSC is working with both Parks Departments to install rain water harvesting systems for filling their water trucks. Look for the trucks that are using rain water this summer.

D. Seasonal Water Rates Seasonal water rates will assist in water conservation efforts by reducing peak demand for water. This is important in helping to ensure that there is enough water for the entire community until the Stave Lake water source is online in 2015.

Water rate structures play an essential role in water conservation by helping to communicate the value of water to customers and promoting long-term efficient water use. The increasing-block rate structure is used for many utilities and is not meant to increase revenue overall, but rather restructure the rate components to encourage conservation. This structure provides equity in that the cost of increasing peak capacity can be shifted to the users that contribute most to creating peak demands and is used to mitigate rate increases for those users who conserve.

E. Rebate Promotion The AMWSC is continuing this year with the residential ultra-low flow toilet rebate and hi-efficiency washing machine rebate. The rebates will be extended to ICI and multi-family building owners this year. The AMWSC is also partnering with BC Hydro and Fortis BC to increase the rebate amount for hi-efficiency washing machines by an additional $75.

F. lei Water Audits and Rebates The AMWSC has hired Stantec Consulting. to perform water audits of five ICI sites . The ICI water audits will be conducted in late April. In addition to the ICI toilet and commercial hi-efficiency washing machine rebates other forms of rebates or incentives will be considered for ICI facilities and will be determined from the water audit reports.

G. Indoor Water Saving Kits The AMWSC is offering indoor water saving kits that contain faucet aerators, a low-flow showerhead, a kitchen aerator and leak detection dye tablets for a reduced cost to residents. Kits are sold at the ARC, MRC, Abbotsford City Hall and Mission City Hall.

H. Rain Barrels Rain barrels provide an excellent method of capturing rain for irrigation purposes, helping to conserve water at the same time. The City and District offer rain barrels and they are available for purchase at Abbotsford Recycling Depot and Mission City Hall.

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I. Water Conservation General Promotion There is a general awareness program that runs all year to promote responsible water use. All the material has similar colours, and consistent logos used to identify the AMWSC. The campaign includes bus, radio, newspaper advertisements, special events and a comprehensive website that will be revamped for the spring .

J . Water Efficiency Plan The AMWSC is working on a Water Efficiency Plan that will look at conservation programs and targets for the next ten years.

Does not believe that P3 can save 25% over Design-Bid-Build. Response - The AMWSC had an independent assessment done that provides evidence that P3 procurement will result in lower capital and lifecycle costs as compared to owners' estimates for traditional procurement. The P3 procurement includes a cost-based design competition among firms, and the bid evaluation is based on long term rather than just upfront capital costs. In addition, the P3 Canada Fund offers up to 25% of the capital cost as a grant, wh ich is not available for Design-Bid-Build projects.

Speaker 4 - J. Bannister. 56-3054 Trafalgar Street Arena went over-budget; what guarantee is there that this won't happen on this project. Response - One of the key advantages of a Public-Private Partnership (P3) project is cost-certainty. Once a winning proposal has been selected, the AMWSC's costs for construction and operations will be absolutely fixed - which means the pre-construction budget will not ever be exceeded. With traditional procurement, construction costs are only partially fixed, and so there is much greater possibility that the pre-construction budget will be exceeded.

The $300 million project budget (as currently estimated) could increase as further and more detailed investigations proceed, however this would not be related to the selection of a P3 or traditional procurement model.

Energy costs rising and I have concerns about pumping costs. Can the City consider using a gravity flow system instead of a pump house? Response - It is not possible to have gravity flow from Stave Lake. Stave Lake has an average water level of about 77 metres. The various reservoirs in the water system have water levels between about 100 metres and over 200 metres.

Proper investigation of Stave Lake water system needs to be completed by the Engineering Department. Response - Future source investigations have been taking place for more than 10years. The Stave Lake option was initially raised in 2004, well into the discovery phase.

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Background Leading Up to Stave Lake (mid 1990s - 2006) The Water Supply Master Plan is updated every 3-5 years to refresh water demand projections and evaluate infrastructure needs for the upcoming 20-year period . As early as the mid 1990s, the Fraser Valley Regional District (previous water system owner) recognized that a new source would be required within 20 years. They focused on developing Harrison Lake or River, under the assumption that Metro Vancouver would be a partner sharing the costs. However, sometime soon after the millennium, preliminary studies suggested that the cost of a Harrison supply was higher than originally anticipated. Furthermore, Metro Vancouver long-range plans no longer included Harrison. As such, the 2002 Water Supply Master Plan recommended that alternative sources be investigated . In 2004, a high-level source study suggested that Stave Lake might be the best option. The 2006 Water Supply Master Plan supported further examination of Stave Lake's potential. That said, other studies continued to investigate alternatives, including expanding existing sources and leveraging conservation to defer further capital works. Studies that spanned through to 2009 concluded that:

(i) The existing sources (Norrish watershed, Cannell watershed & Abbotsford-Sumas aquifer) have insufficient capacity to sustainably meet maximum day demands much beyond 2012 at current consumption rates. (ii) Water conservation could certainly defer works, but most such conservation benefits take time to be realized as they are linked to the rate at which a population's water habits change . Immediate use reductions (i.e. through sprinkling restrictions) were expected to achieve approximately 20% savings and buffer the need for a new source by 3-5 years.

Stave Lake Conceptual Investigations (2007-2009) In 2007, staff began speaking to critical stakeholders such as Fraser Health , BC Water Stewardship Office and BC Hydro and found no fundamental objections to proceeding with conceptual,level Stave Lake investigations. In 2008, a consultant was engaged to begin the next master planning cycle. At that time, water quality testing of Stave Lake began. Following 18 months of demand projection analyses, water quality testing, continued discussions with upper government levels, public meetings, initial conSUltations with interested First Nations and conceptual-level engineering, the 2010 Water Supply Master Plan recommended that the AMWSC move forward with preliminary-level studies. A conceptual Stave Lake Water Supply engineering report was also released with starting points for possible intake designs, water treatment alternatives and routes for conveying water from the lake and to the consumers.

Preliminary Investigations (201 O-ongoing) Since the beginning of 2010, the AMWSC has overseen preliminary work to confirm that Stave Lake is a technically sound investment. As the program proceeds, the engineering team is endeavoring to respect feedback from interested stakeholders so that work occurs in a sustainable fashion, mitigating environmental and social impacts as much as possible. The following activities have occurred to date:

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o Investigation of design alternatives for the lake intake and raw water pump station, BC Hydro and Kwantlen First Nations were consulted early in the process to determine their thoughts on locations and alternative designs and then at the end to refine a proposed preliminary design, A public consultation meeting occurred in December 2010 to gather further input before publishing the preliminary design report, o Completion of a Project Description, including proposed envi ronmental/social mitigation measures, for submission to the BC Environmental Assessment Office. o Investigation of pipe alignment alternatives between Stave Lake and Abbotsford , The District of Mission , Transport Canada, Ministry of the Environment, and First Nations have been involved at various points to obtain their feedback on the options, The routing south of the Fraser Ri ver and north of Mission have been selected; from the Fraser River through Mission, this work continues. A screening-level Canadian Environmenta l Assessment, triggered by Oceans & Fisheries Canada , has begun for the segment crossing the Fraser River. • Continued Stave Lake water quality monitoring to determine design criteria for the water treatment plant. • Regular communication with BC Water Stewardship Office and BC Hydro to determine the most optimal approach for water licensing and water sharing,

Next Steps o Complete preliminary engineering investigations, including finalizing pipeline routing, further geotechnical investigations for the intake and the water treatment plant site. o Obtain all necessary permits, including BC Environmental Assessment & CEM approvals , water license, BC Hydro water use agreement, and a myriad of other upper level government agency approvals,

Speaker 5 - M, Gidda. 31366 Vista Court Public water should stay in the hands of the public, Response - If P3 is approved by the electorate in November, the existing water system will remain unchanged - the existing water system is owned and governed by Mission and Abbotsford , The system is operated by Abbotsford, Operational matters are reported through the AMWSC to the Councils of Mission and Abbotsford , Abbotsford and Mission will always retain ownership of the water, the plant and the rights,

Our new Stave Lake source will supply the existing system as required by Abbotsford as the operator of the overall system. The Stave Lake source, infrastructure and water rights will be owned and governed by Mission and Abbotsford , The only difference is that a private operator, rather than Abbotsford, will operate the Stave Lake system as a source to be accessed by Abbotsford as the operator of the overall system,

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Suggested that Abbotsford's P3 hospital isn't a 'poster project for P3' because of the long waiting times. Response - Hospital wait times do not have any relation to the hospital being a P3 project - they relate to the Provincial medical care structure.

Abbotsford pays twice the amount of municipal taxes than Vancouver. Response - The municipal tax rate for Abbotsford for 2010 was 4.7713 per $1000 of assessed value and it was 2.1486 per $1000 of assessed value in Vancouver. When applied against the average assessed value of $377,400 in Abbotsford versus $958,400 in Vancouver, the municipal portion of the tax burden for a typical home in Abbotsford in 2010 was $1801.17 compared with $2059.22.

Speaker 6 - M. Jones, CUPE 774 President Why was a Design-Build option not considered in the P3 Business case? Response - Design-Build was not considered in the business case because it is not a procurement model that is eligible for a P3 Canada Fund grant of up to 25% funding for the project and it does not provide Significantly different risk transfer then traditional procurement.

Argued that City won't be able to 'hold a stick' over the lawyers of an International Corporations [in the event of contractual disputes). Response - The contract in a public-private partnership includes performance standards written by the public sector. In this case, the AMWSC would write the performance standards. Those standards are strictly enforced through a performance payment system where the private partner can be penalized for not meeting the standards.

The payment mechanism outlines what conditions are required for the private partner to receive payment. If those conditions are not met, payments to the private partner are reduced. These payment deductions have a direct impact on the money the private partner has invested in the project. The financiers on the private partner's team will not allow ongoing activity that jeopardizes their financial investment and will step in to either manage activities more closely, or ultimately, they will replace the poor performers.

Suggested that under NAFTA, water is a commodity and that a P3 contractor could export to the US. Response - The Stave Lake water system will always be publicly owned. The water will be treated for the residents of Abbotsford and Mission, as directed by the AMWSC. At no time will the private operator ever own the rights to the water. The private partner would only have the rights that the AMWSC grants under the contract and the AMWSC would not grant a right to sell water.

For more information, the Canadian Council for Public-Private Partnerships has prepared a gu idance document for municipalities called, "Public-Private Partnerships and Trade Agreements Guidance for Municipalities" (www.pppcouncil.ca/bookstore/bookstore-guidance-and-position-papers/118- freetrade.html).

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What will the Private Company do with surplus water? City will only use 10% of water; what will the private company do with the rest? Response - The water licence will belong to the City of Abbotsford and the District of Mission through the AMWSC. The water would be the AMWSC's to use as it sees fit. The AMWSC could choose to sell excess water to neighbouring municipalities such as Langley or Maple Ridge. However, the contractor would have no ability to control or sell the water.

Speaker 7 - D. Oliver, 2309 McMillan Road I oppose P3 and feel that the voters should decide, not council. Response - Residents will have the opportunity to decide through the referendum process. The only choice Council is making tonight is whether to submit an application to the Federal government to seek funding for the project should it be decided to proceed as a P3. A referendum will be undertaken so that residents can have the opportunity to approve borrowing for the project, including a contractual arrangement for P3 procurement.

Get rid of chloramination of our water, Voters should decide on treatment process too, not councilor the P3 partner. Response - The AMWSC may restrict the treatment alternatives available for consideration by the P3 bidders if it so wishes. The AMWSC will set the water quality standards that the P3 contractor must meet.

Why will Cannell water also be filtered by P3 infrastructure? Response - Cannell Lake water is currently classified as suboptimal by Fraser Health because it is not filtered . The AMWSC have applied for grants for several years to fund treatment for this water source. If it is not filtered through the Stave water treatment plant, then a smaller water treatment facility will be required just for this source.

Speaker 8 - L. Hookstra, 34691 - 1" Avenue Commented that Moncton (recently used as an example of P3 water project in the Abbotsford News) is only one good example and there are many more bad projects (i.e. Argentina, Bolivia, Philippines, Texas, New Jersey, Hamilton). Response - It is difficult to compare projects from different jurisdictions as they are fundamentally different than the one we are considering.

The Argentinean and BoliVian examples are not relevant, as those were not P3s. Rather, they are privatizations, where the private corporation is given rate-setting powers. In such cases the systems that are privatized are often in such poor condition that the operators have no choice but to raise rates substantially to improve the system. These "brownfield" projects are much more complex and have greater potential for problems due to the "latent defect" risk of the condition of the existing assets.

Since 2002, in British Columbia, more than 35 projects are operational, under construction or in the competitive selection process across a variety of sectors, including: transportation, water treatment, energy, health care and schools. One of the first major partnership projects in this province was the Abbotsford Regional Hospital and Cancer Centre - a $355 million state-of-the-art facility that was completed on time, on budget and within scope. It's an unprecedented achievement for a hospital project of that size and complexity.

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Within North America, there are many examples of successful partnerships for water and wastewater treatment plants, including: • Town of Canmore Water and Wastewater Services: 10-year utility management agreement with EPCOR was one of the first in Canada, the agreement has saved the Town more than $1 million in operating costs over the first five years of the agreement, these savings stabilized water rates while also providing the Town with higher levels of customer service . www.epcor.ca/en-ca/about-epcor/operations/operations­ alberta/Canmore/Pages/default.aspx • Cedar Treatment Facility in Seattle , Washington: 180 million gallons per day water treatment facility-largest UV drinking water facility in the world; meets City of Seattle's LEED Silver criteria; design-build-operate partnership with CH2M Hill ; completed in 2004. www.ch2m.com/corporate/services/engineer procure construct and design­ build/assets/ProjectPorttolio/Cedar.pdf • Tolt Treatment Facility near Seattle, Washington: opened in 2000 as a design-build-operate partnership, estimated $70 million in savings over traditional project delivery, performance-based contract includes water quality standards that are higher than those required by state and federal regulations, other contract provisions include payment of prevailing wages to workers, subcontracting to women owned businesses and subcontracting to minority owned businesses. www.cityofseattle.netiutil/About SPUlWater SystemlWater Quality/Tolt Tre atment Facility/ABOUTTHE 200401201445304.asp • A 50 MLD water treatment plant has been operating since 1999 in Moncton, New Brunswick, under a design-build-finance-operate P3 model. http://www.moncton.ca/residents/waterandsewer.htm

Why is construction starting this spring on transmission mains in advance of the referendum? Response - The transmission main south of the Fraser River is not in the scope of the potential P3 . This transmission main will connect with the existing Regional water system and assist in the short term to improve water supply tei the Maclure Reservoir on peak days.

Criticized lack of information about the project. Response - Information about the project and the meetings were widely publicized in the local newspapers in both municipalities, on both City's internet sites as well as www.ourwatermatters.ca . There was also a public information session and a special open council session on March 17'h. All information from all public sessions and notifications are still available online or by request at any time.

Speaker 9 - G. Peachey, 2044 Oakridge Crescent Praised private efficiencies, but said that deep public purse removes private drive to seek such efficiencies in a P3 model. Response - The procurement process (Request for Qualifications, Request for Proposals) in a P3 creates an extremely competitive situation for the bidders in which they must compete against each other to develop efficiencies that will allow them to win the cost-based evaluation. Then , their prices are locked in for 25 years. The public purse is shallow in a P3 , but much deeper in a traditional procurement where costs are not fixed .

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Citizens were never made aware before contract signed that City would guarantee Abbotsford Heat revenue. Concerned that this might happen again on this project. Concerned that financial transparency lost when private company operating a public service. Response - The AMWSC is bound by the provincial Freedom of Information and Protection of Privacy Act, and is guided by this legislation in making decisions regarding the release of information as it relates to Third Party Agreements .

Do not put water into the hands of private companies. Response - The existing water system is owned and governed by Mission and Abbotsford. The system is operated by Abbotsford. Operational matters are reported through the AMWSC to the Councils of Mission and Abbotsford .

If P3 is approved by the electorate in November, the existing water system will remain unchanged. Our new Stave Lake source will supply the exi sting system as required by Abbotsford as the operator of the overall system. The Stave Lake source, infrastructure and water rights will be owned and governed by Mission and Abbotsford . The only difference is that a private operator, rather than Abbotsford, will operate the Stave Lake system as a source to be accessed by Abbotsford as the operator of the overall system.

Speaker 10- B. Walsh, 3656 Forest Oaks Court Do the 2015 projections include conservation issues, and do they include the Bevan Wells? Response - Once we get an Environmental Assessment certificate from the Ministry of Environment, we will be able to operate the Bevan Wells at 25 MLD. In the interim, we can operate at 6 MLD and this amount is already included in the total system capacity of 143 MLD. Thus, once we get the Environmental Assessment certificate, the total available capacity will rise by 19 MLD to 162 MLD .

The last few years of stricter sprinkling restrictions have shaved approximately 20% off our peak day use. Sprinkling restrictions are the 'low-hanging fruit' of summer water conservation as they provide an immediate water use reduction. Most other conservation methods don't lead to overnight changes. The Abbotsford Mission Water & Sewer Commission (AMWSC) has introduced new conservation initiatives over the last two years (e .g. low-flow fixture rebates and subsidized rain barrels). More programs are rolling out this year, such as demonstration water-wise gardens, irrigation workshops, installation of rain cisterns on City facilities and industrial water use audits. Future demand management through changes to development bylaws are also being contemplated.

Abbotsford and Mission's current non-revenue water (NRW) is approximately 17%. NRW stems from more than just water leaks; water used for firefighting and unauthorized water diversion account for some of the NRW. Abbotsford's new Smart Meters will allow more leaks, both on private property and in our distribution system, to be detected and repaired quickly. The water department's goal is to ultimately reduce NRW to approximately 10% or less. Several other programs, such as the Asbestos Concrete (AC) replacement, the recent installation of 18,000 new meters and bulk water filling stations will also help to bring our NRW percentage down. Mission also has a leak detection program in place.

-26- Report No. ENG 33-2011 Page 15 of 22

The water department is currently assuming that peak day projections in the 2010 Master Plan can be lowered by approximately 20% due to conservation success seen to date. As such, we currently anticipated that peak day capacities in 2015, 2020 and 2025 will be approximately 155, 185 and 210 MLD respectively. Thus, with today's conservation levels and the Bevan wells, the peak day capacity will exceed available supply sometime between 2015 and 2020. Cutting NRW by 7% still leaves the 2020 anticipated demand (= 172 MLD) above the currently available capacity. Ultimately, reducing leaks and conservation still won 't be enough . A new water source is needed.

Does Council understand NAFTA implications? Is NAFTA a valid concern? Response - NAFTA does not apply to this project as the Stave Lake water system will be publicly owned . Water will be treated for the residents of Abbotsford and Mission, as directed by the AMWSC. Abbotsford and Mission will always retain ownership of the infrastructure and the water rights . The private partner would only have the rights that the AMWSC grants under the contract.

For more information, the Canadian Council for Public-Private Partnerships has prepared a guidance document for municipalities called, "Public-Private Partnerships and Trade Agreements Guidance for Municipalities" (www.pppcouncil.ca/bookstore/bookstore-guidance-and-position-papers/118- freetrade.html).

Questions wisdom of letting private entity operate/fund public water supply. Could the contractor control or sell our water? Response - The water licence will belong to the AMWSC. The water would be the AMWSC's to use as it sees fit. This could include selling excess water to neighbouring municipalities such as Langley or Maple Ridge. Abbotsford and Mission will always retain ownership of the infrastructure and the water rights . The contractor would have no ability to control or sell the water.

Speaker 11 -E. Gray, 36303 Countrv Place Why would Council not enter into dialogue with public speakers at the meeting? Why was no staff available to answer questions? Response - The Regular Council Meeting on April 4th was intended to provide the public with an opportunity to share their views on the proposed P3 procurement strategy. It was not intended to be an Open House or Town Hall Meeting.

Staff were available but were not called on to respond because that did not meet the intent of the meeting. Notes were made of the questions posed. The questions are now being answered and the answers are available to all residents . The public will have an opportunity to hear the Council deliberations on Monday, April 18.

Why did the AMWSC request a waive out of the Environmental Assessment process? Response - The AMWSC, as the proponent of the Project, is responsible for ensuring that all terms and conditions of the Environmental Assessment Certificate or Order are complied with, regardless of the entity that constructs, operates or manages the project. Even though the AMWSC is requesting a waive out of the process, that does not remove the safeguards to the environment. The AMWSC is requesting an exemption from a provincial environmental review based on the following considerations:

-27- Report No. ENG 33-2011 Page 16 of 22

• The source of water for the Project would be the Stave Lake reservoir subject to an authorization under the Water Act of an agreement between AMWSC and BC Hydro for use of some of the water stored by BC Hydro in the reservoir. • The diversion and use and storage of Stave River under the licences held by BC Hydro is regulated by the Comptroller of Water Rights to a set of operating parameters developed by BC Hydro in consultation with the public, First Nations and governrnent agencies. The diversion of water from the Stave Lake Reservoir to supply Abbotsford and Mission with water cannot affect these pararneters. • The Project construction and operations will be subject to oversight by other perrnitting processes including an authorization under the Water Act and the potential for the federal screening review under CEM. • Alignrnent of the proposed raw water pipeline along Dewdney Trunk Road, thereby minimizing potential for adverse environmental effects. • The relatively small scale of the proposed footprint for the proposed Project components. • Proposed measures to avoid, manage or cornpensate for potential adverse environmental, social, health, heritage and economic effects of the proposed Project.

Citizens are tired of the lack of transparency with projects like the Sumas Sewer Deal, the Abbotsford Heat and the Abbotsford Hospital. Response - Information on all projects that go before Council is widely publicized . All reports to Council are public documents available to anyone who would like to see them. Additionally, information on Council consideration of these projects published ahead of time in the local newspaper and online on the City of Abbotsford website and the District of Mission website.

Speaker 12 - L. Perrin: 3938 Caves Court Why are AMWSC reports not posted on the City website faster? Response - The AMWSC reports are posted on the website after each meeting. The AMWSC meeting generally occurs on the second Thursday of each month .

The private company will sell our water. Why did the AMWSC write a letter to Langley asking if they needed water? Response - The water licence will belong to the AMWSC, The water would be the AMWSC's to use as it sees fit. This could include selling excess water to neighbouring municipalities such as Langley or Maple Ridge. Abbotsford and Mission will always retain ownership of the infrastructure and the water rights. The AMWSC directed staff to investigate other local municipalities that may be interested in being a water customer. This is similar to the JAMES plant treating sewage from Langley. The contractor would have no ability to control or sell the water.

Why has the AMWSC not informed stakeholders such as BC Hydro, the Ministry of Environment and Fraser Health of the P3 plan? Response - Stakeholders are informed of the Stave Lake Water Supply and Treatment Project. Consultation on the P3 plan is just beginning. If Council approves moving forward with the Project as a P3 (subject to suitable grant funding and assent of the electors) the public and ali stakeholders will be engaged in further consultation in advance of the referendum in November.

-28- Report No , ENG 33-2011 Page 17 of 22

NAFTA concerns were raised and the AbitibiBowater case, Response - The Stave Lake water system will be publicly owned, Water will be treated for the res idents of Abbotsford and Mission, as directed by the AMWSC, Abbotsford and Mission will always retain ownership of the infrastructure and the water rights, The private partner would only have the rights that the AMWSC grants under the contract.

For more information, the Canadian Council for Public-Private Partnerships has prepared a guidance document for municipalities called , "Public-Private Partnerships and Trade Agreements Guidance for Municipalities" (www.pppcouncil.ca/bookstore/bookstore-guidance-and-position-papers/118- freetrade,html),

Feels that Partnerships BC is biased. Response - Partnerships BC's priority is to identify the delivery model which will secure the best value for taxpayers' dollars, The decision about how to deliver a project will be made by the AMWSC,

Not all projects are suitable for the partnership model. In fact, there are examples of projects where Partnerships BC has recommended a design-build approach, such as the Pitt Ri ver Bridge and Mary Hill Interchange Project, modular classrooms to support the introduction of full day kindergarten and the Clinical Support Building at Kelowna General Hospital.

Partnerships BC was hired by the AMWSC to be a member of the project team that prepared the business case for the Stave Lake Water Supply and Treatment Project. The business case analyzed a variety of procurement options for how best to deliver the Stave Lake Water Supply and Treatment Project in the most cost-effective way for local ratepayers. The project team examined the opportunities for innovation; the potential for transferring risks, such as construction cost and schedule; ability to lever efficiencies and innovation from the private sector; analysis of the scope, timing and complexity of the project; and the potential to use performance-based contracts.

Speaker 13 -W, Spann, 2516 Marcet Court If this project is dealt with in a referendum, will it result in the same process as with Plan A? Abbotsford residents are paying for a hockey team they don't want. Response - A referendum provides the opportunity for ALL residents to cast their vote on a project. A project only proceeds if residents show support for it through their vote,

Speaker 14 - A. Penner, 321 13 Mouat Drive Don't go P3 because private companies are only in it for profit. Response - By pitting companies against each other in a competitive P3 procurement process, it is expected that total costs to the AMWSC for deSign, construction , and operation will be less than through traditional procurement - despite the earning of profit in the operating period .

A P3 is a subsidy for private companies. Response - P3 is not a subsidy; it is a performance-based fee-for-service arrangement.

- 29- Report No. ENG 33-2011 Page 18 of 22

Speaker 15 - A. Epp. 54-34248 King Road Has a multiple criteria analysis been done? Response - Yes , a multiple criteria analysis was completed with respect to procurement options for the project.

Speaker 16 - V. Dimanno. 35333 Sandy Hill Road Ed Fast has already provided $45 million for this project. Response - We have no information from MP Ed Fast regarding this funding.

Raised NAFT A concerns with a water P3 project. Response - The Stave Lake water system will be publicly owned. Water will be treated for the residents of Abbotsford and Mission, as directed by the AMWSC . Abbotsford and Mission will always retain ownership of the infrastructure and the water rights. The private partner would only have the rights that the AMWSC grants under the contract.

For more information, the Canadian Council for Public-Private Partnerships has prepared a guidance document for municipalities called, "Public-Private Partnerships and Trade Agreements Guidance for Municipalities" (www.pppcouncil.ca/bookstore/booksto re-gu id a nce-a nd-position-pa pers/118- freetrade.html).

Troubled that private partner will control treatment of water. Response - While the private partner will select, build, and operate the water treatment process, the AMWSC will set the drinking water quality standards that the partner must meet. While the Contractor will be under contract to control the water treatment plant, the AMWSC will have control over the contractor through the payment mechanism, in which penalties will be assessed should the private partner ever not meet those standards. The AMWSC will own the water treatment plant and have full access to the plant.

Distrustful of words 'guarantee' and 'warranty'. Response - With the P3, the AMWSC will obtain a long term warranty on the intake & pump station and water treatment plant through the inclusion of partial private financing in the Design-Build-Finance-Operate model. The warranty effect is contractual, and laid out in the project agreement.

Speaker 17 - B. Douglas. 28591 DeBruyn There were no P3 bidders for the Port Mann project since it was too risky. Response - Recent British Columbia projects have attracted between five and seven responses to Requests for Qualifications which is an indication of a strong and competitive market. A strong and competitive market for projects encourages innovation and contributes to value for money for taxpayers.

The Port Mann 1 Highway 1 Project was subject to a competitive selection process where three teams were short-listed to submit proposals for the design, construction, financing and operations of the bridge and highway. Due to challenging and unprecedented economic conditions and the financial market instability during final negotiations, the Province and the preferred proponent for the Port Mann 1 Highway 1 Project were unable to reach a mutually satisfactory agreement, and negotiations were concluded .

· 30· Report No. ENG 33-2011 Page 19 of 22

Why does the City want to change over to a P3? Response - The AMWSC is considering P3 (for the new Stave Lake Project only) because it offers cost savings and risk reduction, as compared to the traditional approach. It also offers access to P3 Canada Fund grants of up to 25% of the capital cost of the project, which are not available if the project is not done as a P3.

Speaker 18 - L. Perrin: 3938 Caves Court Why isn't the City demanding developers create conservation-orientated developments by using rainwater harvesting and grey water reuse? Response - While rainwater harvesting and grey water reuse systems are excellent technologies for water conservation there remain several barriers that impede widespread implementation. These include cost, liability concerns, and a lack of clear policy. We are currently working with Barr Plastics to promote residential and industrial rainwater collection and will be offering rebates for systems in the future. We are working closely with the American Rainwater Catchment Systems Association (there is no Canadian equivalent) and Barr Plastics to establish rainwater harvesting guidelines. Once we have more clear guidelines we will be researching the possibility of mandating these new technologies for new developments.

The BC Living Water Smart Plan, released in June 2008, includes the commitment to "mandate purple pipes in new construction for water collection and reuse by 2010. However, there have been delays in changing the code.

The AMWSC is working on a Water Efficiency Plan that will address both of these technologies, but further research needs to be conducted before we move ahead in this area.

- 31 - Report No. ENG 33-2011 Page 20 of 22

Appendix B - Summary of Communications to Date

September 2010 Report WSC 86-2010 Stave Lake Development Monthly Status Update Report WSC 91-2010 Public-Private Partnership

October 2010 Report WSC 98-2010 Stave Lake Development Monthly Status Update Report WSC 107-2010 2011 Proposed Financial Plan

November 2010 Report WSC 113-2010 Stave Lake Development Monthly Status Update Report WSC 116-2010 P3 Responsibility and Approval Matrix

December 201 0 Report WSC 1-2011 Stave Lake Development Monthly Status Update Report WSC 7-2011 Stave Lake Water Treatment Plant & Maclure Reservoir Expansion

January 2011 Report WSC 13-2011 Stave Lake Development Monthly Status Update Report WSC 14-2011 Stave Lake Owner's Engineer Report WSC 16-2011 P3 Schedule of Milestones Report WSC 23-2011 PPP Canada Capacity Funding Report WSC 28-2011 Stave Lake Water Supply P3 Communication Plan

February 2011 Report WSC 30-2011 Stave Lake Development Monthly Status Update Report WSC 37-2011 Stave Lake Water Source Report WSC 39-2011 Stave Lake Water Supply & Treatment Business Case Report WSC 40-2011 Stave Lake Water Supply & Treatment Business Case

March 2011 Report WSC 44-2011 Stave Lake Development Monthly Status Update Advertisement City Page, Abbotsford News, March 11 Advertisement City Page, Abbotsford News, March 15 Advertisement Mission Record, March 17 Advertisement City Page, Abbotsford News, March 19 Advertisement City Page, Abbotsford News, March 22 Advertisement Mission Record, March 24 Advertisement City Page, Abbotsford News, March 26 Advertisement City Page, Abbotsford News, March 29 Advertisement Mission Record, March 31 Mayor's Letter Abbotsford News & Abbotsford Times , March 31

April 2011 Advertisement City Page, Abbotsford News, April 2 Public Comment MCA Auditorium, Regular Council April 4

- 32 - Report No, ENG 33-2011 Page 21 of 22

Appendix C - Proposed Communications and Consultation Program

Phase One - Business Case Submission Project Milestones: Council endorsement of the business case, April 18, 2011 Business case submitted to PPP Canada, April 2011

This phase of the communications strategy will include communicating the results of the business case analysis and the recommended procurement plan to the public and media,

• April 18, 2011 - pending Council approval, the Media Release will go to local media announcing Council endorsement of the business case and the application to PPP Canada for Federal support, Key messages include - this is an application phase, nothing has been decided yet; there is potential for taxpayers to save up-to $66,5 million by applying through this process; Abbotsford will always retain ownership and control of the water right and the treatment of the water. Follow-up interviews with Mayor Peary, Detailed project information posted on the City website, City Page information bulletin referring public to the City website as the main source of information for the Project.

• May through June 2011 - Detailed project information insert included with annual municipal taxation notice that goes to every household in Abbotsford, Public information session materials and social media campaign materials being developed,

• June 2011 - Media Release announcing PPP Canada Board Approval and next steps (Referendum), Public information session will be crucial in providing information to residents about the project and the funding,

Phase Two - P3 Canada Fund Approval

Project Milestones: PPP Canada Board approval, June 2011

June through November 2011 - This is the most crucial component of the communications campaign,

Public information sessions held two times per week at multiple neighbourhood locations across Abbotsford including Libraries, Community Centres, Senior's Centres, Schools, UFV, MCA, etc ,; A social media campaign will be launched with supporting Facebook and twitter accounts; the City website will have constant project information updates and will be used as a driver to social media campaign; an advertising campaign will be undertaken to inform residents and drive participation in public information sessions and social media campaign,

Phase Three - Stave Lake Referendum

Project Milestone: Obtain Assent of Electors, November 2011 Municipal election, November 2011 Confirm Councils' endorsement of P3 procurement, December 201 1 PPP Canada Minister approval, December 2011

-33 - Report No. ENG 33-2011 Page 22 of22

At this stage of the process, stakeholders should be well informed. Information updates will be regularly provided via the City website, the City Page and milestone news releases.

Phase Four - Procurement

Project Milestones: RFQ release RFQ close RFQ eva luation and shortlist RFP release RFP close Preferred proponent selected Financial close

At this stage of the process, stakeholders should be well informed . Information updates will be regularly provided via the COA website, the City Page and milestone news releases.

Phase Five· Construction & Commissioning

Project Milestones: Construction start Construction completion

Regular updates on the Project budget, schedule and details such as roadwork will be required.

- 34 - Deloitte

Business Case for P 3 Canada Fund Funding Request Executive Summary

April 12.2011

-35- Stave Lake Water Supply and Treatment Project Business Case for P3 Canada Fund Funding Request

Purpose of this Business Case The purpose of th e business case is to summarize the analysis undertaken for the City of Abbotsford (the "City") to detennine whether the Stave Lake Water Supply and Treatment Project (the "Project") may quality for financial support from the P3 Canada Fund. The document is structured according to PPP Canada's guidance as provided in the document P3 Canada Fund - Program Overview, Submission Guide & Project Submission Form: Round Two (May - June 2010). The methodology used is guided by Partnerships BC 's P3 analysis approach. Broadly, the business case examines the suitability ofthe Project to be fu lfilled through a Publi c-Private-Partnership (P3 , or PPP) delivery model.

Project and Procurement Objectives Based on the objectives for the Project, procurement objectives have been developed as shown on Table 1. Project Delivery models were assessed against these objectives.

Table 1 - Procurement Objectives Ca te or Pro"ect Ob ectives Procurem ent Ob"ec!fves Schedule · Project In service prior to the summer of 2016 Maximize certainty thaI 2016 target will be met MaX im;Z~)$Cope for innovation and competition (e.g. design, construction, operation

Optimize the trade-offs between short term and long term costs Minimize the life- cycle cost of the Project · Maximize long term cost certainly (25 - 35 Maximize cost certainty in construction and operation phases Financial years) Minimize unforeseen fu ture costs Maximize costs covered by other levels of government · Lowest net cost to water users Ensure a marketable and competitive process

Supply sufficient quantity of water Supply suffICient quantity of water · Supply sufficient quality 01 water · Supply sufficient qualily of water Ensure sufficient functionality and flex ibility for adapting treated water quality Ability to aller/adapt trealed water quality · alleas\ cost Ability to alter/adapt quantity and quality 01 Ensure sufficient functionality and fle)(ibility for adapting res iduals · residuals characterisUcs at least cost

Ability to adapt \0 changes in energy costs Ability to adapt to changes in energy costs Social I Economic · Abilily to adapllo (permanent) changes in raw Ability 10 adapt to (permanent) changes in raw water quality water aualitv' • Reliable (short term) water quality and Availabitity of quantity and quality of water as demanded. quantity Reliable water quali ty and quantity aVatter Ability to operate and deliver quantity and quality 01 water as demanded (after · handback handback in case of P3, at similar point in time in the case 01 Traditional).

Asset when handed back has had all necessary maintenance and is fil lor Residual value · purpose as specified.

Traditional and P3 Delivery Models A wi de range of P3 delivery models was considered and shortlisted. Table 2 describes the two P3 delivery models that were shortlisted and compared to the traditional design-bid-build approach in the business case analysis. These two models are eligible for support from the P3 Canada Fund.

April 12 2011 - Confidential 10 Oeloiuc & Touche LLP and affi liated entities. Business Case for P3 Canada Fund FundingRequest- Executive Summary

-36- Table 2 - Proiect Delivery (Procurement) Models Under Co nsideration Traditional Design-Sid.Bulld Design-Build-Finance..()perale Project Responsibility Design-Bulld-Operate (OBO) (088) (08FO)

Needs As sessm ent Mun icipality Mun icipality Municipality

Investment Decision Municipality Municipality Municipality

Project Planning Municipality Municipality Municipality

Consultant selected on De sign qualifications and price

Qualified general contractor Construction selected by lender

Operation Municip al slaff Qualified special.purpose P3 Municipal staff Maintenance contractor selected on design, Qualified special'purpose P3 C&M plan, and price. Typically a Municipal staff or design contract contractor selected on design, consortium of firms organized into O&M plan, and price. Typically a Rehabili\allon and tende red construction a Special Purpose Company contract consortium of firms organized into (SPC). Speeial Purpose Company Design eontract and tendered (SPC). Expansion construetion contraet

Generally not req uired since Construclion (short-term) munieipality pays general Financing eontraetor for eonstruetion progress

Financing (long term) Municipal Finanee Authority Municipat Finance Authority

Funding MuniCIpality Municipality Municipality

Asse t Ownership Municipality Municipality Munieipality

A 25 year operating tenn was detennined to be most appropriate for the P3 models, enabling transfer of significant "lifecycle" risk for major component perfonnance and replacement and being consistent with the City's usual infrastructure financing tenn.

Qualitative Assessment of Delivery Models The delivery models were assessed qualitatively by a panel including City and District of Mission engineering, operations, and finance departments, CH2M HILL, and Partnerships BC. Through a qualitative risk assessment, it was found that the P3 models are lower-risk approaches for the mechanically and operationally intensive components of the Project, namely the Intake & Pump Station and Water Treatment Plant (WTP). The P3 models were not found to present significant advantage over the traditional delivery model for the transmission mains in tenns of project risk profile.

Through an assessment of the delivery models against the procurement criteria outlined in Table 1, it was found that the P3 models are more effective with respect to overalllong-tenn cost optimization, on-time completion, on-budget completion, and maintenance of assets. DBFO was found to be more effective than DBO with respect to maintenance of assets and in maximizing the costs that may be funded by other levels of government. The long teml perfonnance guarantee of DBFO (based on the project financing) is also considered superior to that ofDBO (based on parent company guarantee), which is considered much more important for the Intake & Pump Station and WTP components of the Project than for the transmission mains.

Overall, the qualitative assessment found DBFO to be preferential (for the Intake & Pump Station and WTP), followed by DBO, and trailed by traditional DBB. However, the analysis did highlight that DBFO and DBO are long-tenn arrangements that, while offering some flexibility through the contractual tenns, put limits on the ultimate freedom of the City over the operating tenn ofthe agreement.

It should also be noted that the P3 delivery models do not transfer all project risks to the P3 contractor. The City retains most of the planning and approval risks related to initiating design and construction. During the

April 12 2011· Confidential o Dcloitte & Touche LLP and affiliated entities. Business Case for P3 Canada Fund Funding Reque st - Executive Summary 2

- 37- operating term, some of the key risks that the City retains include changes in regulation (i.e. drinking water quality standards), ensuring access to raw water suppl y, the price of power and water treatment chemicals, and certain changes in raw water qua lity (i.e. those outside of the raw water quality window in the project specifications).

Quantitative (Value for Money) Assessment of Delivery Models Base costs are different for the tradi tional and P3 delivery models, reflecting an expectation of lower capital costs for the P3 models (based on observations of winning bids on DBO-style projects compared to owner's estimates for traditi onal procurement) and an expectati on of higher operating costs for the P3 models (based on the ability of the City to share staff positions between Norrish Creek and Stave Lake WTPs in the traditional model, and the costs of overheads in the P3 models).

Table 3 - Summary of Base Cost Estimates ($2011) Total Estimated ConSlruClion Ba se Com (52011) IJlti)ke & Pump Tota[ Bundle Transrniuiotl Station WIP Rese rvoir A M.,ln$ (8ul1dle BI

Traditional DBB ~, ~~ ("2 5J~ S12 ~ 7JJ 1J8 S(I S175.80 6 .6~ 3 $64 ,895.833

P3 Delivery I.IOI lel'· !oJ2 J('2·m S!t8 S.]J (,,)': 5·j S 1.11 ,206.434 S80.028.682 , CO"" a[~ (.35 .. COStS 10 'lIll$ lrat.. iI... -- ~. ,c alion of o. .,11· 1 ~ 1 ~ (I p ,.. . ffiCI.nCI . .. ' lind do not mclud~ the co~ 1 offm ancmg dunn;; ccnstruchon

F=i}Cecl Portion of Annual Ooenn inQ Cost [S2011) [make & Pump Tota l Bundle Tran~mi55iol\ Station WTP ResefVoir A !.Iains (B undle ~ Trlldhiolloll DBB ., ., ., $1.305.863 $66. 1)0 0

P3 Deli~ery Mode ls . ;. ., ., $2.092.392 $275,729

The "value for money" (VFM) is th e difference in risk-adjusted net present value costs between traditional DBB and each of the P3 delivery models. If a P3 model has a risk-adjusted cost that is less than DBB, then VFM is said to be achieved. In expectation of the optimal delivery model being different for the transmission mains than for the rest of the Project, the VFM analysis included a separate examination ofVFM for two bundles: "Bundle A" consisting of the Intake & Pump Station and WTP; and "Bundle B" consisting of the transmission mains.

The net present value of the base costs are calculated with a cashflow model that distributes the procurement, design, construction, operation, maintenance, rehabilitation, and financing costs according to the schedules anti cipated for each model. Risk costs, be they retained by the City or transferred to a contractor, are also distributed according to the schedules and the timing of the risks. Risk costs were quantified by a panel including City and District of Mission engineering, operati ons, and finance departments, CH2M HILL, and Partnerships Be. Two different discount rates are used to calculate net present va lues: 7.5% as recommended by Partnerships BC, and 6.0% as recommended by the City.

Table 4 -Value for Money Estimates for Bundle A @discountrete: 6.0% 7.5% $m i1!ions % $millions % DBa 25.6 10.7 26.0 12.0 DBFO with 35% capital contribution 8.8 3.7 22.8 10.6

Despite the higher VFM associated with DBO, DBFO is carried forward as the preferred P3 delivery model for Bundle A due to the hi gher quality ofthe long term performance security.

Table 5 - Value for Mone Estimates for Bundle B discount rale . 6.0% 7.5% $milJions % $mi lli ons % aBO 5.0 6.0 5.9 7.4

April 12 20 11 ~ Confidential o Dcloitte & Touche LLP and affiliated entities. Business Case for P3 Canada Fund Funding Requcsl- Executive Summary

- 38- Bundle B is believed to be too small to be procured competitively as a standalone DBFO, therefore only DBO is considered a viable P3 delivery model. The long term performance security provided by a parent company giiarantee is considered more than sufficient for the transmission mains.

VFM was also estimated for the total Project, consisting of Bundle A and Bundle B, in two forms : a combined DBFO, and a hybrid ofDBFO for Bundle A and DBO for Bundle B.

Table 6 - Total Project VF MC o~pa nson 0 fC om b'm e d DBFO and Hybrid DBFO+DBO discount ra le : 60% 7.5% $millions % $m itlions % CBFO with 55% cap ital contribution 17.7 5.5 33.5 11.3 Hybrid with 35% capital contribution to 18A 5.7 33.0 11.2 DBFO portion 01 hybrid

The value for money estimate is for all intents and purposes identical for both models. However, the hybrid is considered superior in terms of long term performance security protection for the assets that need it: the Intake & Pump Station and WTP.

The VFM estimated in all cases stems from:

• expectations of lower capital costs in the P3 models due to the integrated design-build-operate teams that are competing on a lifecycle cost basis for the Project; and • reduction of total risk cost in the P3 models due to the transfer of certain risks to the contractor (those risks that the contractor is believed better able to manage than the City).

Recommended Procurement Model Based on the qualitative assessment of delivery models and the VFM estimates, the hybrid DBFO+DBO with a 25-year operating term and 35% capital contribution as milestone payments during construction is the recommended procurement model. This model is estimated to provide value for money and provides the City with the long term performance security required to confidently transfer the responsibility and risk for designing, operating, and maintaining the Intake & Pump Station, water treatment plant and transmission mains.

It is recommended that the City make a funding request to PPP Canada from the P3 Canada Fund for support in the form ofa non-refundable contribution of25% of the eligible costs (approximately $66.5M) of the Project delivered as a hybrid DBFO+DBO. Such a P3 Canada Fund investment offers incremental value for money to the City of approximately $50M, or approximately 16%.

April 1220) 1 • Confidential o Delaine & Touche LLP and afti liated entities . Business Case fo r P) Canada Fund Fundi ng Req ues! - Executive Summary

- 39- Limitations

This report was prepared for the exclusive use of the City of Abbotsford, and is not intended for general circulation or publ ication, nor is it to be reproduced or used without written permission of Deloitte with the exception of its submission to PPP Canada for purposes of seeking financial support from the P3 Canada Fund. It relies on certain information provided by third parties, none of which Deloitte has independently reviewed. No third party is entitled to rely, in any manner or for any purpose, on this report. Deloitte's services may include advice or recommendations, but all decisions in connection with the implementation of such advice and recommendations shall be the responsibility of, and be made by, the City of Abbotsford.

www.deloitte.ca Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and financial advisory services through more than 7,600 people in 57 offices. Deloitte operates in Quebec as Samson Belair/Deloitte & Touche s.e.n.c.r.I. Delaitte & Touche LLP . an Ontario Limited Liability Partner ship, is the Canadian member firm of OelOitte Touche Tohmatsu Limited.

Deloine refers to one or more of DeJoitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and Its network of member firms , each of which is a legally separate and independent entity. Please see 'N'NW.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu limited and its member firms. © Deloitte & Touche LLP and affiliated entities.

April 12 201 1· Confidential o De!oitte & Touche LLP and affiliated entities . Business Case for P3 Canada Fund Fundi ng Requesl- Executive Summary 5

-40 - Stave Lake Water Supply & Treatment

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./ , ·n, ~ / - ~ ./ / ABBOTSFORD

Grant Application

In June 2010, an application for the Project was submitted to the P3 Canada Fund call for proposals. In September 201 0, the Abbotsford Mission Water & Sewer Commission was notified that PPP Canada positively assessed the project and has interest in developing it for eventual Comprehensive Assessment. A business case was requ ired to submit to PPP Canada for further consideration and review. • .A_ - V"h ABBOTSFORD

-41- Advisors Deloitte & Touche are retained 10 provide financial advisory services for th e business case phase CH2M HILL are the owner's engineer for the Project. Partnerships BC are retained as an advisor for the business case development.

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Reports, Meetings & Ads

SfI2I~mtl~:r 201 Q Repor1 WSC 86-2010 Stave Lake Development Monthly Status Update Report WSC 91 -2010 Public-Private Partnership

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~2V~rnt!t: ( 201Q Report WSC "3·2010 Stave lake Development Monthly Status Update Report WSC 116·2010 P3 Responsibility and Approval Matrix

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-~ -- J!!"I!SII): ZQ11 .-..,..-~ Report WSC 13-2011 Slave lake Development Monthly Status U • - Report WSC 14-2011 Stave lake Ownefs Engineer , - , ------Report WSC 16-2011 P3 Schedule of Milestones - Report WSC 23-2011 ppp Canada capacity Fu Repoc1 WSC 28-2011 Stave Lake Water y P3". ~omfn; .mjcation- Plan /' ABBOTSFORD• ~..6 /

-42- Reports, Meetings & Ads

F e:b:!l.!iI~221 1 Report WSC 30·201' Stave Lake Development Monthly Stalus Update ReportWSC 37·2011 Stave Lake Water Source Report WSC 39·2011 Slave Lake Waler Supply & Trea tm ent Busmess case ReportWSC 40·2011 Slave lak.e Water Supply & Treatment Busmess case

March 2011 Rep ort WSC 44·2011 Slave lake Development Monthly Status Update AdvertIsement Clly Page, Abbotsford News , March 11 Advertlsement City Page, Abbotsford News, March 15 Advertisement Mission Re cord, March 17 Public Information MeeUng MeA Auditorium, March 17 Advertisement Ci ty Pa ge, Abbolsford News, March 19 Advertisement City Page, Abbotsford News, March 22 AdvertJsement Mission Re cord, March 24 Advertisement City Pa ge, Abbotsfo rd News, March 26 -- ' Adve l"ll semenl City Page, Abbotsford News, March 29 --- Advertisement MIssion Record, March 31 /" ~------Mayor's Letter Abbotsford News & Abbots ford Times, 31 ~ ./ ,- /' ~ /' Advertisement Dty Page, Abbotsford , Aprit..2 .~ ~ Public Comment MCA Auditorium, ular Council, Apnl4 =. ~ ~/ ABBOTSFORD "

New Project Scope a water intake in Stave Lake; a pump station on the east shore of Stave Lake; a water treatment plant (WTP) north of the District of Mission which will treat water from Stave Lake; a 6.6 km raw water transmission main from the pump station to the WTP; and a 12.4 km treated water transmission main from the WTP th rough Mission, crossing the Fraser River to a connection point on the existing transmission system in Abbotsford,

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-44- Future Water Customer

Abbotsford and Mission will continue to own and govern the current AMWSC Regional Water system which supplies water to both communities. Mission will not be supplied with water from the new Stave Lake supply. In the future Mission could be a bulk water customer from the Stave Lake system.

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Cannell Lake Water Treatment Initially the Stave Lake water treatment plant was planned to ; treat both Cannell Lake and . Stave Lake water. Moving forward as a City 01 Abbotsford project, the new water treatment plant will only treat Stave Lake water. The Cannell Lake water source is considered suboptimal by Fraser Health because it is not filtered. The AMWSC will have to consider a separate, small water treatment facility to treat the Cannell L'ake water source in the future. • ...... A ABBOTSFORD

- 45 - Business Case Impact The business case for the Stave Lake Project has been updated Deloltte. by Deloitte & Touche to reflect the removal of the Maclure Reservoir from the scope and changing the in-service date to '~'- ' . . ";<-11 the spring of 2016. ... ,1P,-!' .', ' .:E . The update does not change '".- ,( the viability of the Project as a Business Case: for P3 Canada Fllnd Funding Requut P3. The Value for Money is essentially the same. . A P3 Canada Fund '25% contribution (of eligible costs) is estimated to be $66.5 million.

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Communications PI If Council approves submitting the Project for consideration to PPP Canada there will be an extensive communications and consultation program that will run from May to November 2011 (referendum). - Public infonnation sessions held two times per week at multiple neighbourhood locations across Abbotsford including libraries, Community Centres, Senior's Centres, Schools, UFV, MCA, etc. - A social media campaign will be launched. - The City website will have constant project information updates. - An advertising campaign will be undertaken to inform residents. • t,...-/.i ABBOTSFORD

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