GENERAL COMMITTEE
	TO:	Mayor and Members of Council
	FROM:	Barb Cribbett, Treasurer
	PREPARED BY:	Fred Rich, Business Analyst
	DATE OF MEETING:	2005-Nov-7
	SUBJECT:	Powerstream Rate Increase for Water Billing Service

RECOMMENDATION:

THAT the report dated November 7, 2005 entitled “Powerstream Rate Increase for Water Billing Service” be received;

AND THAT the new rate increase from Powerstream be absorbed in the 2005 Waterworks budget and included in the 2006 Waterworks budget;

AND THAT approval be granted to the Finance, Asset Management, Waterworks and Legal departments to negotiate the terms of the agreement, including service levels, with Powerstream Inc. whereby the Town’s meter reading, water billing and collection activities will continue to be performed by Powerstream Inc;

AND THAT staff will bring the negotiated agreement between Powerstream and the Town of Markham back to Council for consideration and execution by the Mayor and Clerk..

PURPOSE:

This report is to update Council on and obtain approval to negotiate the terms of the agreement based on, the new pricing structure for water meter reading, billing and collection services provided to the Town of Markham by Powerstream.

BACKGROUND:

In April 1996, Council approved an agreement between the Town of Markham and the Markham Hydro Electric Commission, whereby the Town’s water billing and related services, previously performed by Town staff, were taken over by Hydro. The five-year agreement, which was effective from January 1, 1997 to December 31, 2001, specified the services to be provided by Hydro and the compensation to be provided by the Town for these services.

In 2001, the Hydro deregulation was consuming the majority of Markham Hydro Electric Commission’s time when the existing water billing contract expired. During the next three years Markham Hydro became part of the Powerstream Inc. a company jointly owned by the Town of Markham and the City of Vaughan. As part of the Hydro deregulation process the Province of Ontario created an “Affiliate Relationships Code for Electricity Distributors and Transmitters”. The purpose of the Affiliate Relationships Code is to set out the standards and conditions for the interaction between electricity distributors or transmitters and their respective affiliated companies. One section of the code addresses the “Transfer Pricing”, which states “Where a utility provides a service, resource or product to an affiliate, the utility shall ensure that the sale price is no less than the fair market value of the service, resource or product”. The Town of Markham is a minority shareholder in PowerStream (43%) so there is some question of an “affiliate” relationship. However, as a result of the enhanced powers available to the Town of Markham within the shareholder agreement (more control than normally would be available to a minority shareholder), the Town accounts for its financial interest in PowerStream in the annual financial statements as a “joint venture”, which is more supportive of an affiliate relationship.

In response to the “Affiliate Relationship Code” Powerstream undertook a fair market assessment of the services they provide, including the services provided to the Town of Markham. In November of 2004, Powerstream informed the Town of a rate increase for water meter reading, billing and collection services based on that fair market value assessment. Since then, Town staff have analyzed the cost impact of the rate increase and investigated the validity of Powerstream’s fair market assessment. The investigation included contacting neighbouring Municipalities regarding their service delivery methods and associated annual costs, as summarized below.

Municipality	Cost per Account	Delivery Method
Newmarket	$ 17.20	Newmarket Hydro
Richmond Hill	$ 17.76	In-house
Vaughan	$ 22.87	Powerstream
Markham "Proposed"	$ 16.95	Powerstream

The “Cost per Account” above, is an average cost per account, the total cost of providing the service divided by the total number of accounts.

Staff also contacted two external service providers to obtain competitive quotes, Terasen Utility Services and CustomerWorks (an Enbridge Company).

Terasen Utility Services provides meter reading and billing services for gas, water and electric utilities, municipalities in the U.S. and Canada. Terasen’s quote to provide the same services currently provided by Powerstream was $43.30 per account, plus capital startup cost for meter reading equipment.

CustomerWorks provides meter reading services for various utilities including Enbridge Gas and BC Hydro. Town staff provided CustomerWorks with the details of our Water meter reading and billing requirements but CustomerWorks declined to provide a quote as Markham does not meet their minimum number of meter reads per year requirement.

Based on the in house costs provided by Richmond Hill, and factoring in the initial capital startup costs of providing this service in-house, it was determined that the new Powerstream rate is still a competitive option over the in-house option at this time.

After reviewing other Municipalities costs for like services and the quote from Terasen, Town staff confirmed that Powerstream’s new rate is price competitive and therefore can be considered the fair market value of the services provided.

It is recommended that the Finance, Asset Management, Waterworks and Legal departments be authorized to negotiate the terms of the agreement, including service levels, with Powerstream Inc. whereby the Town’s meter reading, water billing and collection activities will continue to be performed by Powerstream. It is further recommended that Town staff consider how current technology changes, such as Automated Meter Reading (AMR) will impact the future delivery of these services and include provisions for these changes into the agreement.

Staff will bring the negotiated agreement between Powerstream and the Town of Markham back to Council for consideration and execution by the Mayor and Clerk..

FINANCIAL CONSIDERATIONS:

In May of this year Powerstream started billing the Town at their new rate which included a retroactive charge back to January of 2005. The 2005 annual impact of Powerstream’s new rate will be an additional $769,000 over the current budget of $235,000, based on Powerstream’s annual estimate of $1,004,000.

The 2006 Waterworks budget for water meter reading and billing services will include a 4% growth factor increase over the 2005 estimate, for a total of $1,044,000. This 2006 budget amount will be incorporated into the proposed 2006 Waterworks budget.

BUSINESS UNITS CONSULTED AND AFFECTED:

Waterworks and Asset Management

Barb Cribbett, Treasurer

Andy Taylor, Commissioner, Corporate Services

Q:\Finance and Administration\Finance\SHARED\2005 General Committee Finance\0533 Powerstream Rate Increase for Water Billing Service 10-21-2005.doc