TABLE OF CONTENTS

REPORTS OF THE STANDING COMMITTEES

AND OTHER COMMITTEES

As Considered by

The Council of the City of Toronto

on October 28, 29 and 30, 1998

STRATEGIC POLICIES AND PRIORITIES COMMITTEE

REPORT No. 20

1Business Case Review of the"Works Best Practices Program

2Service Level Harmonization

3Toronto Transit Commission - Procurement Authorization- Excavation and Paving 1998 Surface Track Program

4Governance of Toronto Hydro-Electric Commission

5Ontario Property Assessment Corporation- Recovery of 1998 Costs

6Staff Lay-Offs in Works and Emergency Services

City of Toronto

REPORT No. 20

OF THE STRATEGIC POLICIES AND PRIORITIES COMMITTEE

(from its meeting on September 24 and October 1, 1998,

submitted by Mayor Mel Lastman , Chair)

As Considered by

The Council of the City of Toronto

on October 28, 29 and 30, 1998

1

Business Case Review of the

"Works Best Practices Program"

(City Council on October 28, 29 and 30, 1998, amended this Clause by adding thereto the following:

"It is further recommended that:

(1)City Council establish a work group to address the Works Best Practices Program, especially as it relates to restructuring;

(2)the work group report to the Works and Utilities Committee with recommendations that enhance co-operation between staff and management to ensure that the delivery of high level services to the public is maintained;

(3)the work group be comprised of two representatives of management, two representatives of Local 416, and three Members of Council; and

(4)Councillors Altobello, Layton and Shiner be appointed to such work group.")

(City Council on October 1 and 2, 1998, deferred consideration of this Clause to the next regular meeting of Council scheduled to be held on October 28, 1998.)

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(Clause No. 14 of Report No. 18 of The Strategic Policies and Priorities Committee)

The Strategic Policies and Priorities Committee recommends the adoption of the recommendations of the Budget Committee embodied in the following transmittal letter (September 16, 1998) from the City Clerk:

Recommendations:

The Budget Committee on September 15, 1998 recommended to the Strategic Policies and Priorities Committee, and Council:

(1)the adoption of the supplementary joint report (September 9, 1998) from the Chief Administrative Officer, the Chief Financial Officer and Treasurer and the Commissioner of Works and Emergency Services, wherein it recommended that:

(a)Toronto Council endorse continuance of the Works Best Practices Program, described herein, and with the additional control and reporting methodologies;

(b)funding in the amount of $1.908 million (in Water Supply Appropriation WS026) be approved from the Water Supply Capital Financing Reserve;

(c)subject to recommendation (b) above, authority be granted for an expenditure of $1.908 million after the Municipal Goods and Services Tax Rebate, to continue implementation of the Best Practices Program;

(d)the costs associated with staff downsizing and retraining, along with computer hardware and software replacement, be financed from the reduction in expenditures in the Works Best Practices Program. The annual cost avoidance will be identified separately in the Water Supply Capital Financing Stabilization Reserve and the Water Pollution Control Measures Reserve Fund; and

(e)the appropriate City officials be directed to take the necessary action to give effect thereto;

(2)that a benefits tracking program be developed and upon completion, the Commissioner of Works and Emergency Services report back to the Works and Utilities Committee as to the final form being accepted; and

(3)the Commissioner of Works and Emergency Services provide a report to the Works and Utilities Committee every six months on the benefits tracking program, and a copy be provided to the Budget Committee for information.

The Budget Committee reports having received the joint report (July 23, 1998) from the Chief Administrative Officer, the Chief Financial Officer and Treasurer and the Commissioner of Works and Emergency Services.

Background:

The Budget Committee on September 15, 1998, had before it the following:

(a)joint report (July 23, 1998) from the Chief Administrative Officer, the Chief Financial Officer and Treasurer and the Commissioner of Works and Emergency Services;

(b)communication (August 5, 1998) from Mr. Bob Toop, National Representative, Toronto Civic Employees' Union, C.U.P.E., Local 416;

(c)supplementary joint report (September 9, 1998) from the Chief Administrative Officer, the Chief Financial Officer and Treasurer and the Commissioner of Works and Emergency Services; and

(d)communication (September 11, 1998) from Ms. Anne Dubas, President, Local 79, Canadian Union of Public Employees, forwarding a brief regarding the Business Case Review of the "Works Best Practices Program", a copy of which is on file in the Clerk's Department.

The following persons appeared before the Budget Committee in connection with the foregoing matter:

-Mr. Peter Leiss, Vice-President, Toronto Civic Employees' Union, Local 416,

-Mr. John Murdock from the Water Division and the Toronto Civic Employees' Union

Local 416.

-Mr. Allister Reid from the Water Pollution Control Division and the Toronto Civic Employees' Union Local 416.

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(Joint report dated July 23, 1998 addressed to the

Budget Committee from the Chief Administrative Officer,

the Chief Financial Officer and Treasurer and

the Commissioner of Works and Emergency Services)

Purpose:

To report on the review of the Business Case for the Works Best Practices Program (WBPP), currently underway in the Water and Wastewater Services Division of Works and Emergency Services, and to seek funding in the amount of $19,433,000.00 for continuation of WBPP in 1998.

Funding Sources, Financial Implications and Impact Statement:

At its meeting of April 29, 1998, Toronto Council approved the 1998-2002 Capital Works Program, which includes provision for continuing expenditure on the Works Best Practices Program (WBPP) in the Water and Wastewater Services Division of Works and Emergency Services.

The Works Best Practices Program is a four and one-half year plan, with an estimated capital cost of $101,905,000.00. The two major outcomes of this Program are the substantial replacement of obsolete and aging plant instrumentation, equipment and control systems, and the modernization of work and management practices and procedures, enabled by new information systems, in all areas of operations and maintenance. The operating cost reductions produced by WBPP implementation in Water and Wastewater Services will increase through the implementation period to $37,076,000.00 per year in 2002, the first full year following completion of the project and will continue at that level thereafter. WBPP is presently on schedule with regard to the overall planned capital expenditure and the achievement of operating cost reductions.

In approving the 1998-2002 Capital Works Program, Council withheld funding approval of expenditures pending a review of the WBPP business case by the Chief Administrator's Office. Of the planned total WBPP cost of $101,905,000.00, prior financing has been approved totalling $25,377,000.00 to complete Phase 1 activities.

Of the amount approved, the total spent and/or committed to date is $22,840,000.00 leaving an uncommitted balance of $2,537,000.00, which is, however, earmarked for remaining Phase 1 planned activities.

Additional financing in the amount of $19,433,000.00 is now required for continuation of planned implementation work in 1998, with some expenditures extending into 1999 as major contracted plant detailed design work, under Phase 2 of the Program. Details to the Costing Unit level are shown in Appendix 1.

The Treasurer has advised that funding can be made available from the Water Pollution Control Measures Reserve Fund and the Water Supply Capital Financing Reserve.

The financial impact of implementing WBPP in the former Metro Water Supply and Water Pollution Control functions was analyzed by the Finance Department in 1997. The results of that analysis indicated that the WBPP can be financed through the water rate without adverse impact to the existing rate projections. The consequences of not completing WBPP are significantly higher future water rates as a result of foregoing planned operating cost reductions estimated at $37,076,000.00 per year.

It should be noted that this program will contribute significantly to resolution of the Year 2000 (Y2K) problem in Water and Wastewater Services. The estimated twelve-to-fifteen million dollar cost of replacing aging, non-Y2K compliant SCADA (Supervisory Control and Data Acquisition) equipment and systems in the water and wastewater treatment plants and in the collection and transmission systems is already contained in the WBPP capital estimates. Further, all new information systems and technologies deployed under WBPP will be certified Y2K compliant as per corporate standards, avoiding the need to repair or replace a host of older, non-compliant systems.

Recommendations:

It is recommended that:

(1)Toronto Council endorse continuance of the Works Best Practices Program, described herein;

(2)funding in the amount of $19,433,000.00 ($3,063,000.00 in Water Supply

Appropriation WS026 and $16,370,000.00 in Water Pollution Control Appropriation WPC001) be approved from the Water Supply Capital Financing Reserve and the Water Pollution Control Measures Reserve Fund;

(3)subject to recommendation No. (2) above authority be granted for an expenditure of $19,433,000.00, after the Municipal Goods and Services Tax Rebate, to continue implementation of the Best Practices Program; and

(4)the appropriate City officials be directed to take the necessary action to give effect thereto.

Council Reference/ Background/ History:

At its meeting of July 2 and 3, 1997, by adoption of Clause No. 3 of Report No. 13 of Financial Priorities, Metropolitan Council endorsed continuance of the WBPP. The program had been previously established by Metropolitan Council on September 25 and 26, 1996 through adoption of Clause No. 2 of Report No. 14 of the Environmental and Public Space Committee with the objective of implementing the best practices in the utility industry in the areas of work management, technology and organization, to maximize operating effectiveness and efficiency across the Department. The WBPP arose through expanding the structure and scope of the previously existing Process Equipment Replacement and Strategic Information Systems Plan (SISP) project for the former Metro Works Water Pollution Control Division (reference Clause No. 1 of Report No. 15 of Environment and Public Space Committee, adopted by Metropolitan Council at its meeting of September 27 and 28, 1995) to encompass all business functions of the former Metro Works Department.

Comments and/or Discussion and/or Justification:

At its meeting of September 25 and 26, 1996, Metropolitan Council, by approval of Clause No. 2 of Report No. 14 of the Environment and Public Space Committee, endorsed commencement of the Works Best Practices Program in the Works Department. At its meeting of July 2-3, 1997, Council, by approval without amendment of Clause No. 3 of Report No. 13 of the Financial Priorities Committee, authorized expenditures to perform Phase 1 implementation of the Works Best Practices Program (WBPP). In each of these instances, a presentation of the business case for WBPP, in the context of the recommendations being requested at the time, was presented to the Committee. Further, the business case had been reviewed and endorsed by the Metro Chief Administrative Officer, Commissioner of Finance, and Commissioner of Corporate Services.

On May 26, 1998, the Chief Administrative Officer met with staff of the Water and Wastewater Division of Works and Emergency Services, including the Project Manager for WBPP, to review key elements of the Works Best Practices Program business case. In the light of previous business case reviews having been performed by senior Metro officials, and because this Program is both broad in scope and diverse in nature, involving substantial equipment upgrades in seven major water/wastewater operating facilities, the commissioning of a number of strategic information management systems, and the redesign of operations/maintenance work and management practices, the review focused on three key perspectives.

The first perspective is the financial component of the Program, including costs over time, operating cost savings over time, and the implication of the program on water and sewer user rates - related to this would be the impacts on overall service delivery in terms of quality and effectiveness.

The second perspective is the implication on organization and staff, both bargaining unit and management, and the relationship between WBPP and the City of Toronto Amalgamation processes.

The third perspective is the implementation methodology being used to govern the wide range of tasks and activities involved in implementing the Program.

Financial Aspects.

The fundamental objective of the Works Best Practices Program is to ensure business operations continue to be performed to degrees of efficiency and effectiveness that are consistent with modern practices and supporting technologies. One of the first steps in the initiation of the Program was the establishment of a "competitiveness assessment". This exercise utilizes an efficiency benchmarking technique which is essentially identical to those used by the multinational private operators in developing operating contract proposals for major water and wastewater utilities. It is the results of this exercise, backed up by similar conclusions produced in a totally independent, internal "simulated competition", that led to the establishment of a thirty-seven million dollar per year operating cost reduction target for the Works Best Practices Program.

The total cost of the Program, to be implemented over a four and one-half year period, is stated to be $101,905,000.00. Of the total cost figure, approximately $65,000,000.00 represents previously planned expenditures for the necessary ongoing replacement and upgrading of existing equipment and control systems in water and wastewater plants and in the collection and transmission systems (these facilities have a combined infrastructure value estimated at $7,500,000,000.00). It is in fact the remaining investment component of approximately $37,000,000.00, aimed at new and improved operations and maintenance work practice and organizational redesign, underlying technology development and process control improvements, that generates the bulk of the $37,076,000.00 in annual operating cost reductions. The $65,000,000.00 has been effectively "bundled" into the Best Practices budget in order to leverage opportunities for efficiencies through operational improvements and to ensure those investments are coordinated within the broad standards and technology development strategies of the core Best Practices initiative.

In 1997, the full WBPP costs and schedule of planned operating cost reductions were included by Metro Finance in Water Rate Model calculations and it was determined that no rate increase would be required. The Program, even including the bundled $65,000,000.00 component, is effectively self-funding in that the accumulated operating cost reductions generated exceed the capital costs within the life of the Program implementation. As the table below shows by the year 2002, the program breaks even and is producing savings of $37,076,000.00 per year. If the Program does not proceed to completion, there will be an increasing effect on water rates.

The table below summarizes the business case figures. Capital costs are year-by-year, inflated to year of expenditure and after the Municipal Goods and Services Tax Rebate. Operating savings are net, year-by-year, in constant 1997 dollars. FTE reductions are approximate, year-by-year. The Program is presently on target to deliver the planned operating cost reductions within the planned Program cost.

The effects of implementing Works Best Practices on service delivery and product quality are favourable. Present quality levels for potable water production and wastewater effluent production will be maintained, with improved flexibility and cost management relating to legislated or otherwise directed improvement strategies. Service levels will be maintained, providing for better responsiveness and better access to more relevant and timely information. Other benefits include improved asset management and long-range performance, increased facility/infrastructure lifetime, and opportunities for improved receiving water quality.

As a result of delay in proceeding with implementation of certain works, the projected cash flow for the project has been revised from the 1998 Capital Works Program submission as noted below.

Appropriate amendments will be reflected in the 1999 Capital Works Program.

Staffing and Organization.

The findings of the competitiveness assessment, confirmed in the simulated competition, pointed to reductions in operations and maintenance labour costs as the primary source of available cost savings. The "best practices" that have been identified under this Program as most relevant to former Metro water and wastewater operations stress the following as the most significant areas of opportunity:

(i)more efficiently planned, managed and executed work practices;

(ii)"total productive operations" (TPO), which focuses on maximizing the productive time of human resources; and,

(iii)workforce flexibility, which tackles the issue of separated skills and crafts and its associated inefficiencies.

WBPP therefore emphasizes a broad transition of the workforce, including management, in terms of the jobs people do, the way people are organized, and the work practices they employ. This transition must be orchestrated in conjunction with the replacement and upgrading of process control equipment and systems and the implementation of key computer systems aimed at organizing and managing resources, automating tasks, and managing the performance of the business, its resources and assets.

Activities under WBPP to-date have identified and confirmed a clear need to reduce on a phased basis the size of the overall workforce needed to perform the work and business processes that characterize the present workload. This was evidenced by the competitiveness assessment, and by work done under the Program to-date, particularly in business re-engineering exercises. This should not be surprising, given the rapid pace of change in the industry over the past decade at the global level and the lesser degree of organizational change that has taken place in North America. At the same time, change of this magnitude, regardless of the underlying business and financial logic, cannot be instituted without consideration for its impact on staff at all levels. Included under Works Best Practices are a range of work redesign components, affecting the jobs, responsibilities and skills of front-line staff in operations, maintenance, and general labour areas, as well as the change management skills at the supervisory level. Within that process, some job descriptions need to be revised, and new ones created. WBPP incorporates costs to support staff transition. This includes funds to finance voluntary exit packages and staff training, including training for staff needing new skills to perform new types of work and training for staff who wish to leave, but who require certain skills to assist them in finding new jobs. Both these funding mechanisms are financed out of accruing savings during the implementation period, and have already been netted out of the planned cost reductions.

Senior staff in the areas of Finance, Human Resources and Corporate Services are to be involved in this process to assist in policy areas and to ensure that developed policies are followed. In the area of Labour Relations specifically, senior staff have been involved in this Program from the outset, and continue to play an active role in the process.

At this stage, C.U.P.E. Local 79 continues to support the Works Best Practices Program, and has for the past year maintained an active role in the Program. Local 416 formally "stepped back" from active WBPP participation earlier this year. At this point, formal discussions are under way at the senior level to develop an appropriate working relationship aimed primarily at addressing areas of concern relating to the impact of WBPP on its members. It is a stated goal of the Works Best Practices Program to achieve planned reductions in the workforce through attrition, voluntary exit packages, and an active process of redeployment on a City-wide basis, with layoffs to be considered only on a last-resort basis. Intensive discussions are planned to take place in August for purposes of arriving at a firm set of principles and protocols to govern the implementation of WBPP.

With regard to the relative implications of WBPP and amalgamation, it is clear that this Program is actively performing Phase 3 restructuring work, and will help provide a solid operational foundation for the emerging Works and Emergency Services management structure. Appropriate linkages between the two activities are presently under development.

Implementation Methodology.

The third area of focus is the implementation methodology of the Program - the standards and procedures and methods being applied to enable and achieve the planned results. This is a complex area, and it is evident that much expertise has been applied to the WBPP methodology. The initial design phase utilized external consultants from a wide range of disciplines. This was needed for a number of reasons: the volume of work to be done; the transitional nature of much of that work; the need to apply techniques that are very current and very specific to water and wastewater operations and management; the need for assistance in project management activities relating to several major disciplines including engineering and process control technologies and practices, information systems design and development, and "total productive operations" work practices redesign; and, importantly, the need to apply specially-skilled resources to the Program on a full-time basis through the critical design stages. As the Program moves into its second phase of work this year, new roles are planned for development in Works and Emergency Services to effect the transition of sustaining aspects of the new operation into the hands of staff. The need for consulting support will reduce substantially as key implementations are rolled out in operational work areas, in major process control systems and their networks of equipment and devices, and in underlying information technology applications.

From a project management standpoint, the methodology being applied is well suited to the Program. There is a strong Quality Control and Quality Assurance component, which is separated from the main project body to ensure objectivity. There is a review and approval process for project deliverables which brings to bear the expertise of both consultants and staff and also provides effective knowledge transfer to staff to maximize self-sufficiency in the future.

A benefits tracking program is under development, with the assistance of Finance staff, to capture and report direct WBPP benefits in the areas of energy, chemicals, parts and materials, and savings in labor costs. This system will operate until completion of the Program, and can be adapted to support continuous improvement initiatives on an ongoing basis.

The Performance Management component of WBPP is a computerized business tool which will be used for monitoring business performance, for establishing improvement targets and for tracking the achievement of those targets. This capability is in keeping with emerging corporate strategies for benchmarking and tracking of key business improvements.

Conclusion:

The Works Best Practices Program is an important strategic initiative. It emphasizes the establishment of a continuous improvement business and work environment in a climate of fiscal restraint, public accountability and openness, and global competition. The business case for WBPP is strong - the achievement of ongoing cost reductions in the range of $37,076,000.00 per year for an investment of $101,950,000.00, a large part of which is an operational necessity to maintain the operational viability of approximately $7,500,000,000.00 in infrastructure. The resulting payback ratio of 35 percent represents a solid cost-benefit. WBPP effectively pays for itself within the lifetime of the project.

While the Program will have a significant impact on both management and bargaining unit staff, funding has been built in for transition and training. Communications and staff involvement are firmly entrenched principles of the Program. Corporate labour relations/human resources staff have been involved in our ongoing discussion with the Union and are providing input with respect to transition and training initiatives. The project methodology is well-suited to the needs of this large and complex undertaking. Performance management and benefits tracking are integral to the design of technologies, practices and organization.

This review process concluded that the Works Best Practices Program Business Case is complete and appropriate. The Commissioner of Finance and the Executive Director of Information Technology for the City of Toronto have reviewed the Program and are in concurrence. It is recommended that funding for the Program be provided as set out in Appendix 1 to this report.

Contact Names and Telephone Numbers:

William G. Crowther

Director, Management and Technical Services

Toronto Works and Emergency Services Department

Phone: (416) 392-8256

Fax: (416) 392-2974

E-Mail: william_g._crowther@metrodesk.metrotor.on.ca

Jim Coe, Manager, Works Best Practices Program

Toronto Works and Emergency Services Department

Phone: (416) 392-3141; Fax: (416) 392-8817

E-Mail: jim_coe@metrodesk.metrotor.on.ca

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Business Case Review of the "Works Best Practices Program"

Appendix 1: Capital Accounts

(in $000's, including GST after Rebate)

* The cash flow indicated in this table reflects that required for new work to be initiated in 1998 and for which funding is now required. The cash flow for certain elements extends into 1999 because the contracts to be awarded in 1998 will not be completed in 1998.

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(Communication dated August 5, 1998 addressed to the

Chair, Budget Committee from the

National Representative, Toronto Civic Employees' Union, C.U.P.E. Local 416)

Please be advised that the Toronto Civic Employees' Union, Local 416 would like to make a presentation to the Budget Committee meeting which I understand is scheduled for September 15th, 1998.

We would like very much to be placed on the agenda in order that we may discuss the Works Best Practices program.

Should you have any questions or concerns, please do not hesitate to contact either Brian Cochrane or myself at (416) 968-7721.

(Supplementary joint report dated September 9, 1998 addressed to the

Budget Committee from the Chief Administrative Officer,

the Chief Financial Officer and Treasurer and

the Commissioner of Works and Emergency Services)

Purpose:

To provide financial and informational updates to the report titled "Business Case Review of the Works Best Practices Program", consideration of which was deferred by the Budget Committee at its meeting of July 28, 1998 (Item No. 14) to its meeting of September 15, 1998. Recommendations contained in that report are reproduced in this report in their updated form.

Funding Sources, Financial Implications and Impact Statement:

Refer to the accompanying report, "Business Case Review of the Works Best Practices Program", to which this report is an addendum. This section contains updates to that report.

Funding is sought herein in the revised amount of $1.908 million for continuation of Works Best Practices Program (WBPP) in 1998, this has been reduced from $19.433 million in the original report due primarily to the revised scheduling of planned expenditures as a result of delays. Funding already approved for 1998 plus this proposed amount will cover planned work to the end of 1998. Future funding requests will be covered as part of the 1999 capital budget process.

Financing in the amount of $1.908 million is required for continuation of planned implementation work in the Water Supply area to the end of 1998. One expenditure extends into 1999 as a contracted activity commencing in 1998 and finishing during 1999. Details to the Costing Unit level are shown in Appendix 1. The revised cash flow analysis is contained in this report.

Recommendations:

Refer to the accompanying report, "Business Case Review of the Works Best Practices Program", to which this report is an addendum. This section restates and revises the "Recommendations" contained in that report.

It is recommended that:

(1)Toronto Council endorse continuance of the Works Best Practices Program, described herein, and with the additional control and reporting methodologies;

(2)funding in the amount of $1.908 million (in Water Supply Appropriation WS026) be approved from the Water Supply Capital Financing Reserve;

(3)subject to recommendation no. (2) above, authority be granted for an expenditure of $1.908 million after the Municipal Goods and Services Tax Rebate, to continue implementation of the Best Practices Program;

(4)the costs associated with staff downsizing and retraining, along with computer hardware and software replacement, be financed from the reduction in expenditures in the Works Best Practices Program. The annual cost avoidance will be identified separately in the Water Supply Capital Financing Stabilization Reserve and the Water Pollution Control Measures Reserve Fund; and

(5)the appropriate City officials be directed to take the necessary action to give effect thereto.

Council Reference/ Background/ History:

Refer to the accompanying report, "Business Case Review of the Works Best Practices Program", to which this report is an addendum.

Comments and/or Discussion and/or Justification:

Refer to the accompanying report, "Business Case Review of the Works Best Practices Program", to which this report is an addendum. This section contains updates to that report.

Revised Financial Aspects of Works Best Practices Program (WBPP)

Phase 1 of WBPP, now near completion, has included a wide range of activities which have set the foundation for full-scale implementation of modernized process control systems and equipment, plus management practices designed to enable long-term continuous improvement. This Phase 1 work has in some areas identified better solutions than originally envisaged and in some cases higher costs than originally estimated, for example, completion of Preliminary Design for the three major wastewater treatment plants has identified a wider need for process control components than was estimated in 1991. The total increased cost to implement the whole program is $8.477 million. This increase in the budget estimates, as a result of the preliminary design and eight years of inflation, represents an increase of 8.3 percent over the original estimates.

The selection and acquisition of a comprehensive "work management system" to improve asset and human resource management across the Water and Wastewater business is designed to be compatible with the SAP systems now selected for City finance and payroll.

Full documentation of these revised capital costs will be provided in the 1999 Capital Works Program submission later this year. The revised cash flow projection is contained in this report. In order to address the year 2000 problem, we are currently assessing the need to advance the installation of some process control equipment into 1999. Unless this advancement is required to address Y2K then the revised cash flow is valid to the end of the project.

General Manager's Review of the Program

The WBPP is a 4½ year project that has a revised total program cost of $110.382 million. The program started in 1997 and has received funding approval of $25.377 million to date. Based on the expenditures to date in 1998 we can only anticipate spending, or committing, a further $1.908 million in the balance of 1998. The cash flow projections for the remaining years in the program have been revisited and we do not anticipate revising them at this time unless to address Y2K issues.

Contained within the total program costs are expenditures of $65 million that were identified in the previous Metro Capital Programs as ongoing replacement of existing equipment and control systems in the water and wastewater plants plus in the collection and transmission system. In effect these normal replacement costs have been bundled into the WBPP capital appropriation. Assuming these expenditures would have taken place regardless of the WBPP, then the remaining $45 million more appropriately represents the investment of new money to achieve the savings identified. These savings would be more accurately described as future cost avoidance and therefore enable Council to maintain, or even lower, the water rate which has historically risen gradually due to the normal inflation factors.

The projected reduction in annual operating costs upon full implementation of the WBPP is $36 million per year for the Water and Wastewater Division. This would indicate that the program would pay for itself within the lifetime of the project. The water rate charge per cubic metre could be expected to start declining in the year 2000, hit 3 percent reduction in 2003 and keep falling at 3 percent for the next 3 years. Alternatively, the rate could remain constant and allow Council to invest the additional revenue in new or enhanced programs. This clearly demonstrates that the WBPP is worth investing in.

To date 20 percent of the total program expenditures have been spent, which are predominately associated with process control preliminary design, integration technologies and implementation of the work management system. In order to control future expenditures and track the benefits of the complete program, we are proposing a staff secondment from the corporation for at least the next three years and possibly to the end of the project. This position will report directly to the General Manager and be responsible for implementing cost control measures and reporting mechanisms. We are currently seeking applications for this secondment and will be looking for someone with a background in financial planning and cost control technology.

Staffing and Organization

Refer to the accompanying report, "Business Case Review of the Works Best Practices Program", to which this report is an addendum. This section contains updates to that report.

To date, a series of meetings have taken place between representatives of C.U.P.E. Local 416 and management of the Works and Emergency Services Department. Corporate Human Resources and Labour Relations have actively participated in these meetings and in the preparations leading up to them.

Management had placed on hold all new implementation activities relating to the roll out of WBPP work areas in the operating facilities since June to allow these discussions to take place without the hindrance of ongoing implementation issues.

In addition to discussing matters of an immediate nature, formal proposals from both parties have been presented for consideration as a "framework" for joint administration of the Works Best Practices Program plus the broader context of all Continuous Improvement initiatives in the Department. It is the stated intention of management that, while the targets for operating cost reductions and associated reductions in the overall workforce, including both management and unionized staff in approximately equal proportions, must be preserved as a commitment to the citizens and ratepayers of the City of Toronto, every reasonable effort is to be made to ensure that the transition of the workforce is implemented in a fair and equitable manner.

To this point, the position of Local 416 has been that job security is a mandatory component in any process they would agree to participate in. In effect, there must be a "no layoff" clause in any agreement that they are party to. Management has indicated its inability to guarantee there will be no layoffs because of inherent uncertainties around the degree of response to offered early exit packages and the extent of employment available elsewhere in the City to surplus staff. Layoffs is the stated "last resort".

C.U.P.E. Local 79 continues to actively support and participate in the process.

The use of specifically reserved funds for voluntary separation packages and training programs, as well as the exploration of any opportunity for redeployment in the City, not solely within Works and Emergency Services, is part of the proposal under WBPP. Within the program we have estimated $5.5 million for staff buy-outs, plus $1.5 million for training/retraining. There is a need to clarify the fact that exit incentives under the WBPP are not part of the corporate amalgamation budget but have been incorporated as part of the Division's total WBPP program costs. A new recommendation dealing with this issue has been included as no. 4 in the revised recommendations.

Timing of the Project

The project is approximately four months behind schedule, due primarily to the delays associated with discussions around staff impacts with Local 416. This delay was largely accommodated into the WBPP work plan. However, the capacity to absorb further delays without seriously jeopardizing the Program schedule has, for all intents and purposes, been exhausted. Further delay will be translated into late achievement of promised operating cost reductions.

The table below provides a revised summary of the business case taking into account the delays so far. Capital costs are year-by-year, inflated to year of expenditure and after the Municipal Goods and Services Tax Rebate. Operating savings are net, year-by-year, in constant 1997 dollars. FTE reductions are approximate, year-by-year, and occur by year end.

(* in $000's)

As a result of delays in proceeding with implementation of certain works, the projected cash flow for the project has been revised from the 1998 Capital Works Program submission as noted below.

(*in $000's)

Appropriate amendments will be reflected in the 1999 Capital Works Program to be submitted later this year.

Conclusion:

The Works Best Practices Program is an important strategic initiative. It emphasizes the establishment of a continuous improvement of business and work environment in a climate of fiscal restraint, public accountability, openness and global competition.

The business case for WBPP is strong. While the current program has bundled normal ongoing upgrades and maintenance costs of $65 million into the overall costs, the achievement of ongoing cost reductions in the range of $36 million per year for an investment of $45 million of new money represents a solid cost-benefit.

The earlier report substantiated the need for the WBPP to continue and the new General Manager's review supports this position and went on to address the cash flow and funding requirements. This supplemental report has now reduced the funding approvals required in 1998 from $19.433 million to $1.908 million. Further, it is proposed that a senior financial staff person be seconded to the General Manager's office to provide control and reporting functions.

While the Program will have a significant impact on both management and bargaining unit staff, funding has been built in for transition and training. Communications and staff involvement are firmly entrenched principles of the Department.

Contact Names and Telephone Numbers:

Jim Coe, Manager, Works Best Practices Program

Toronto Works and Emergency Services Department

Phone: (416) 392-3141; Fax: (416) 392-8817

E-Mail: jim_coe@metrodesk.metrotor.on.ca

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Business Case Review of the "Works Best Practices Program"

APPENDIX 1: Capital Accounts

(in $000's, including GST after Rebate)

* The cash flow indicated in this table reflects that required for new work to be initiated in 1998 and for which funding is now required. The cash flow for one element extends into 1999 because the contract to be awarded in 1998 will not be completed in 1998.

(Communication dated September 11, 1998, addressed to the

Chair and Members of the Budget Committee from the

President, Canadian Union of Public Employees, Local 79)

This report reviews the Business Case for the Works Best Practices Program and seeks funding for its continuation in 1998.

Through this project, the operation of the Water and Waste Water Services Division will be redesigned. The goal is to continue to provide public sector environmental services to taxpayers, while becoming more cost-effective.

CUPE Local 79 representatives have participated in the Best Practices Program because we are committed to ensuring that Works and Emergency Services continues to offer the best possible services to the public and remains a public sector utility.

The report identifies plans to reduce overall staffing levels during the period from 1996 to 2002. CUPE Local 79 representatives have been working to develop a fair and achievable program for the staff transition which is in keeping with our Collective Agreements and City policies. Retraining and educational opportunities must be provided so that staff can develop the skills needed to succeed. It is important to ensure that sufficient funding has been included in the budget for transition and training. Improved retirement packages and exit incentive programs should be made available to all employees on a voluntary basis. There may be opportunities to contract-in work from other areas outside of the new City.

CUPE Local 79 is opposed to the privatization of our water and waste water and solid waste assets. In 1996, a public attitude survey was carried out with industry and the public--it found that two-thirds of those polled unequivocally wanted water and waste water services to remain in the public sector.

Our resources are too valuable for us to give up. We urge the Budget Committee to support programs which ensure that these assets remain in the public domain, delivered by public sector employees who are accountable to publicly elected officials.

(City Council on October 28, 29 and 30, 1998, had before it, during consideration of the foregoing Clause, the following transmittal letter ( October 7, 1998) from the City Clerk:

The Works and Utilities Committee at its meeting on October 7, 1998, directed that:

(1)the following communication dated October 5, 1998, from Councillor Olivia Chow, Downtown, respecting the establishment of a work group to address the Works Best Practices Program, be forwarded to Council for consideration with Clause No. 1 of Report No. 20 of The Strategic Policies and Priorities Committee, headed "Business Case Review of the 'Works Best Practices Program' ", which was deferred by City Council to its meeting of October 28, 1998; and

(2)Locals 416 and 79 of the Canadian Union of Public Employees be requested to indicate in writing their concerns on the matter.

(Transmittal letter dated October 5, 1998,

addressed to the Works and Utilities Committee from

Councillor Olivia Chow, Downtown)

Recommendations:

It is recommended that:

(1)City Council establish a Work Group to address the Works Best Practices Program, especially as it relates to restructuring;

(2)the Work Group report to the Works and Utilities Committee with recommendations that enhance co-operation between the staff and management to ensure that the delivery of high level services to the public is maintained;

(3)the Work Group be comprised of two representatives of management, two representatives of Local 416 and two Councillors; and

(4)Councillors Gerry Altobello and Jack Layton be appointed to such Work Group.

Background:

When the Works Best Practices Program came to the Budget Committee for approval, the Toronto Civic Employees' Union, Local 416, expressed some frustration at not being able to participate or influence the implementation of the Best Practices Program or the restructuring initiatives. As the Best Practices Program was not dealt with at the last Council meeting, I am submitting the proposal to establish a Work Group to your Committee for approval.

Thank you for your consideration.)

(City Council also had before it, during consideration of the foregoing Clause, the following communications:

(a)(October 1, 1998) from the National Representative, Toronto Civic Employees' Union, CUPE, Local 416, requesting that Council refer the matter of the Works Best Practices Program back to the Works and Utilities Committee and that Council conduct a thorough audit of the program; and

(b)(October 22, 1998) from the President, Toronto Civic Employees' Union, CUPE, Local416, advising that Local 416 is in favour of the creation of a "Working Group" to report to the Works and Utilities Committee with recommendations that enhance cooperation between staff and management to ensure that the delivery of high level public services is maintained.)

2

Service Level Harmonization

(City Council on October 28, 29 and 30, 1998, deferred consideration of this Clause to the next regular meeting of City Council to be held on November 25, 1998.)

(City Council on October 1 and 2, 1998, deferred consideration of this Clause to the next regular meeting of City Council to be held on October 28, 1998.)

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(Clause No. 18 of Report No. 18 of The Strategic Policies and Priorities Committee)

The Strategic Policies and Priorities Committee recommends the adoption of the report (September 18, 1998) from the Chief Administrative Officer:

Purpose:

The purpose of this report is to update the Strategic Policies and Priorities Committee on the status and results of the analysis and review process for service level harmonization.

Financial Implications and Impact Statement:

Harmonization of service levels will result in financial impact for some programs; the analysis of the range of impacts is still under development by departments and will be reported separately as part of the 1999 budget process.

Recommendations:

It is recommended that:

(1)the appropriate Standing Committee review service level variations including an option of harmonization with no budgetary impact; and

(2)the input from the Standing Committees be used by departments for preparation of the 1998 budget estimates.

Council Reference:

At its meeting of June 3,4, and 5, 1998, Council approved the Chief Administrative Officer's report on the harmonization of service levels.

This report outlines the analysis and process undertaken to date by departments for service level harmonization for 1999 and future action.

Comments:

Background:

In the 1998 approved budget, the status quo was maintained in relation to service levels and user fees for the various programs and services offered to the public. As a successor municipality, the City continues to provide the services its residents have become accustomed to, while trying to rationalize and harmonize them from the perspective of the unified City. Examples of amalgamating services that need to be considered for rationalization include: parks and recreation services; garbage pickup and recycling; road cleaning and snow removal; library services; and health services.

Current Situation:

During 1998, amalgamating departments whose programs and services have been restructured are to review and assess their respective programs for the harmonization of services and user fees in some cases. This exercise will be a multi-year undertaking and priorities will have to be established for the sequencing of programs to be reviewed.

Overview of Issues:

The harmonization of services, service levels, and user fees have different aspects and a variety of processes have been initiated with departments based on the specific circumstances. These initiatives within the departments fall into the following major categories:

(a)Reviewing harmonization of user fees for recreational programs is to be carried out through a public consultation process approved by the User Fee Committee established by Council. User fees and transaction fees in all other areas (e.g., issue of birth/death/marriage certificates) will be reviewed as part of the 1999 budget process;

(b)Reviewing availability and proximity of city facilities which may result in capital spending will be addressed through the City's capital works programs in 1999 and beyond;

(c)Operational Programs: Key programs and services which have been already identified as harmonization candidates, and which may have a major financial or service impact, are the basis for this report. Harmonization of other programs and services which will not have a material financial impact will be dealt with through the normal 1999 budget process.

Programs to be Considered:

Using the guidelines provided by the Chief Administrative Officer, the Senior Management Team, has identified the following programs and services having significant variations across the City and where harmonization could have significant financial impact:

(a)Garbage Pickup: the frequency of residential garbage collection in North York is twice per week for about 100,000 residences all year round; in the former City of Toronto, garbage collection is twice per week to approximately 50,000 residences during the period June 22 to August 28; in all other parts of the City, the garbage is picked up once every week. Variations also exist in relation to pick up of commercial and industrial waste.

(b)Winter Maintenance Activities: windrow clearance service is currently provided in North York and Scarborough; similarly, all sidewalks are cleared of snow during winter in North York.

(c)Public Health Services: several of the services in this area have newly mandated standards under the Health Promotion and Protection Act. Others are discretionary or vary from area to area. For clarity the department is classifying the program in three ways. Service Rationalization Projects, such as centralization of communicable disease control notification; sexually transmitted diseases case management, site rationalization study, unified client intake system, animal services information system; Council/Board directed projects, such as animal services, dental services, grants for AIDS prevention, grants for drug abuse prevention program, harmonized ETS by-law; and responses to homelessness and environmental issues; and Disease Prevention/Health Protection Projects, such as tuberculosis control, needle exchange and food safety.

(d)Library Services: Sunday services are currently provided at 19 libraries in East York, Toronto, North York and Etobicoke. Extending Sunday services to Scarborough and York is a consideration. A strategy will also be considered for a more equitable allocation of library materials at the library's ninety-eight branches located throughout the City.

In addition to the above programs and services identified on a priority basis, other more minor variations in programs and services will be considered for harmonization as part of the 1999 budget process.

Process For Harmonization of Service Levels:

The Chief Administrative Officer provided department heads with guidelines for service level harmonization and requested departments to conduct an assessment pertaining to analysis of variations in existing service levels between former municipalities; financial analysis relating to the total cost of service; cost implications of setting service standards at the highest, median and lowest levels; opportunities for cost reduction and potential savings; and special considerations ie. legal commitments, equipment availability, and capital expenditures.

In particular, departments will address the following key questions when reporting to their respective Standing Committees:

(a)What are the existing variations in service levels and the total and unit cost of delivering the services?

(b)What are the plans for the recommended service level as a result of the consolidation of the seven jurisdictions?

(c)What unique needs and neighbourhood characteristics should be taken into consideration that may result in variations in the proposed service levels?

(d)What is the total cost for the proposed service level, the cost per unit and the net impact on the 1999 operating and capital budget?

(e)What are the key issues or challenges to be addressed?

To ensure consistency across the City for the harmonization of services, departments will also take into consideration the following key factors: compliance with legislated requirements and Council priorities; accessibility strategies; responsiveness to community needs; impact on other programs; detailed service cost analysis; analysis of demographic and geographic variables; and, potential impact on low income groups.

Approval Process:

The Chief Administrative Officer has requested the commissioners to brief the respective Standing Committees during October 1998 on the analysis and options for the harmonization of service levels. The departments will prepare the 1999 program budget submission after taking into consideration input from the Standing Committees towards the preparation of the 1999 preliminary budget. The Chief Administrative Officer will report on the financial impact of service level harmonization and the preliminary estimates to the Strategic Policies and Priorities Committee as part of the budget overview, priorities and corporate pressures.

As part of the 1999 budget process, the Budget Committee will review the proposed 1999 budgets and planned service levels in the context of corporate budget pressures, pre-set expenditure targets, and competing or emerging priorities, and make a balanced assessment of the level of funding to be recommended. The recommendations of the Budget Committee will be forwarded to Strategic Policies and Priorities Committee, and then to Council for consideration as part of the overall 1999 budget process.

In the final analysis, Council will have to assess the competing demands of different programs, historic differences among former municipalities, unique neighbourhood characteristics, special considerations, downloading of programs by the Province, mandatory programs, City wide priorities, and corporate budget pressures.

Conclusion:

This report identifies those services that have the most significant variation in service levels. It proposes that these variations be discussed at the appropriate Standing Committee and their recommendation be used as input to the departmental budget preparation.

Contact Name:

Firoz Kara, 392-8678.

3

Toronto Transit Commission - Procurement Authorization

- Excavation and Paving 1998 Surface Track Program

(City Council on October 28, 29 and 30, 1998, re-opened consideration of Report No. 6 of TheStrategic Policies and Priorities Committee, insofar as it pertains to the 1998 Capital Budget and Financing Authorities, specifically the Excavation and Paving 1998 Surface Track Program for the Toronto Transit Commission, considered the foregoing Motion with Clause No. 3 of Report No.20 of The Strategic Policies and Priorities Committee, headed "Toronto Transit Commission - Procurement Authorization - Excavation and Paving, 1998 Surface Track Program", and adopted the following Motion, without amendment:

Moved by:Councillor Ootes

Seconded by:Councillor Jakobek

"WHEREAS City Council at its meeting held on April 29 and 30, 1998, adopted, as amended, Report No. 6 of the Strategic Policies and Priorities Committee, which included recommendations pertaining to the 1998 Capital Budget and financing authorities; and

WHEREAS City Council at its meeting on October 1 and 2, 1998, during its consideration of Clause No. 3 of Report No. 20 of The Strategic Policies and Priorities Committee, headed 'Toronto Transit Commission - Procurement Authorization - Excavation and Paving 1998 Surface Track Program', was advised by the City Clerk that any increase to the Capital Program would first require a re-opening of that specific portion of the 1998 Capital Budget; and

WHEREAS the Chief Financial Officer and Treasurer has now submitted a report dated October 19, 1998, entitled 'Approved 1998 Debenture Issuance', embodying the following recommendation:

'(2)The report "Toronto Transit Commission - Excavation and Paving 1998 Surface Track Program" as considered at its meeting on October 1 and 2, 1998, be amended by the following:

"That the approved 1998 Capital Program of the TTC be increased by $1.891million, that it be financed through the issuance of debentures for a term not exceeding twenty years, that the amount is within the City's updated debt and financial obligation limit and direct the City Solicitor to apply to the OMB for approval as required under the City of Toronto Act," ';

NOW THEREFORE BE IT RESOLVED THAT Recommendation No. (2) of the October19, 1998 report be deleted and replaced by the following:

"That the approved 1998 Capital Program of the TTC be increased by $1.891million and that it be financed from the TTC Capital Subsidy Reserve Fund and direct the City Solicitor to apply to the Ontario Municipal Board for approval as required under the City of Toronto Act,";

AND BE IT FURTHER RESOLVED THAT in accordance with Section 46 of the Council Procedural By-law, Report No. 6 of The Strategic Policies and Priorities Committee, insofar as it pertains to the 1998 Capital Budget and Financing Authorities, specifically the Excavation and Paving 1998 Surface Track Program for the Toronto Transit Commission, be re-opened for further consideration;

AND BE IT FURTHER RESOLVED THAT the approved 1998 Capital Program of the TTC be increased by $1.891 million and that it be financed from the TTC Capital Subsidy Reserve Fund and direct the City Solicitor to apply to the Ontario Municipal Board for approval as required under the City of Toronto Act.")

(City Council on October 1 and 2, 1998, deferred consideration of this Clause to the next regular meeting of Council scheduled to be held on October 28, 1998.)

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(Clause No. 26 of Report No. 18 of The Strategic Policies and Priorities Committee)

The Strategic Policies and Priorities Committee submits, without recommendation, the transmittal letter (September 23, 1998) from the City Clerk.

The Strategic Policies and Priorities Committee reports having requested the City Clerk to report directly to Council on October 1 and 2, 1998, on whether or not the action recommended in the report (September 23, 1998) from the Chief Financial Officer and Treasurer would be a reconsideration of Council's action respecting the Capital Budget.

The Strategic Policies and Priorities Committee submits the following transmittal letter (September 23, 1998) from the Budget Committee:

Recommendations:

The Budget Committee on September 23, 1998 recommended to the Strategic Policies and Priorities Committee, and Council, the adoption of the joint report (September 17, 1998) from the Chief Administrative Officer and the Chief Financial Officer and Treasurer, wherein it recommended that:

(1)additional financing approval in the amount of $2,223 thousand for the TTC capital project No. 120 Subway Track be granted to cover the road reconstruction portion of the surface track work;

(2)an increase to the total 1998 net expenditure of the TTC capital program in the amount of $1,891 thousand be approved, representing the budgeted amount for this purpose in the 1997 capital budgets of Metro Transportation and the former City of Toronto; and

(3)the remaining $332 thousand, to complete the total TTC request for this project, be transferred from other 1998 projects with anticipated under expenditures, and that the TTC identify the projects to be reduced and report back to the Budget Committee.

The Budget Committee reports having requested the Chief Financial Officer and Treasurer:

(a)to report to the Strategic Policies and Priorities Committee on September 24, 1998 on the financing of this project and whether the amount that needs to be debentured falls within the $110 million; and

(b)to submit a report during the 1999 - 2003 Capital Budget Review Process, providing details on the 1998 approved Toronto Transit Commission Budget along with any additional items that were subsequently approved by City Council.

Background:

The Budget Committee on September 23, 1998, had before it the following:

(a)a transmittal letter (September 8, 1998) from the City Clerk forwarding recommendations adopted by the Urban Environment and Development Committee on September 8, 1998; and

(b)a joint report (September 17, 1998) from the Chief Administrative Officer and the Chief Financial Officer and Treasurer regarding the issue of inter-departmental and inter-agency cost allocations with respect to this program.

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(Transmittal letter dated September 8, 1998, addressed to the

Budget Committee from the Urban Environment

and Development Committee)

Recommendations:

The Urban Environment and Development Committee on September 8, 1998, recommended that:

(1)additional project financing approval in the amount of $2,223,000.00 be granted to City Project No.120 of the Toronto Transit Commission, "Surface Track"; and

(2)the TTC's approved 1998 Capital Program be increased by a corresponding amount to cover the road reconstruction portion of the surface track work.

The Urban Environment and Development Committee reports, for the information of the Budget Committee, having requested the Chief Administrative Officer to submit a report directly to the Budget Committee, for consideration with this matter at its meeting on September 15, 1998, regarding the issue of inter-departmental and inter-agency cost allocations with respect to this Program.

Background:

The Urban Environment and Development Committee had before it the following communications:

(i)(August 20, 1998) from the General Secretary, Toronto Transit Commission advising that the Commission on August 19, 1998, approved the recommendations contained in Report No.(10), entitled "Procurement Authorization - Excavation and Paving 1998 Surface Track Program".

(ii)(April 23, 1998) addressed to the Chief General Manager, Toronto Transit Commission, from the Interim Functional Lead, Transportation, regarding TTC track rehabilitation projects.

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(Communication dated August 20, 1998 addressed to

the City Clerk from the

General Secretary, Toronto Transit Commission)

At its meeting on Wednesday, August 19, 1998, the Toronto Transit Commission considered the attached report, entitled "Procurement Authorization - Excavation and Paving 1998 Surface Track Program."

The Commission approved the Recommendations contained in the above report, as listed below:

"It is recommended that the Commission:

(1)approve the issuance of a Purchase Order in the total upset limit amount of $3,802,000.00 to the City of Toronto Works and Emergency Services Department for the Commission's cost of excavation and paving within the track allowance. This work will be completed by the City of Toronto in 1998; and

(2)forward this report to the City of Toronto requesting an increase in the TTC's approved 1998 Capital Program in the amount of $2,223,000.00 and a corresponding increase in project approval to reflect the downloading of costs from the City to the TTC for the road reconstruction portion of the surface track work (this work has traditionally been funded through the City's Transportation Department's budget); and

(3)note that this work is proceeding at this time since deferral of the work would impact the ability to complete the work in a timely and cost-efficient manner."

The foregoing is forwarded to City of Toronto Council for the necessary approval, as detailed in the report.

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(Toronto Transit Commission Report No. 10 dated August 19, 1998

entitled "Procurement Authorization - Excavation and Paving

1998 Surface Track Program.".)

Recommendations:

It is recommended that the Commission:

(1)approve the issuance of a Purchase Order in the total upset limit amount of $3,802,000.00 to the City of Toronto Works and Emergency Services Department for the Commission's cost of excavation and paving within the track allowance. This work will be completed by the City of Toronto in 1998; and

(2)forward this report to the City of Toronto requesting an increase in the TTC's approved 1998 Capital Program in the amount of $2,223,000.00 and a corresponding increase in project approval to reflect the downloading of costs from the City to the TTC for the road reconstruction portion of the surface track work (this work has traditionally been funded through the City's Transportation Department's budget); and

(3)note that this work is proceeding at this time since deferral of the work would impact the ability to complete the work in a timely and cost-efficient manner.

Funding:

There are insufficient funds to accommodate the downloading impact of City costs in the 1998-2002 Capital Program under 1.2 Surface Track Replacement Program and Surface - Special Trackwork Replacement Program, as set out on pages 31-51 in the "State of Good Repair" category. A total amount of $1,579,000.00 was budgeted for excavation and paving in 1998, leaving a shortfall of $2,223,000.00 as a result of City downloading.

The TTC's 1999-2003 Capital Program will include sufficient expenditure estimates to accommodate the cost of the work downloaded from the City's budget to the TTC's budget. The downloading of the costs amounts to an increase of $28.8 million in the TTC's 1998-2002 budget envelope.

Background:

Each year sections of the Streetcar network are rehabilitated by the Commission in conjunction with the City of Toronto (formerly Metro Transportation and City of Toronto). Under this arrangement the Municipalities provided technical assistance with the project while funding a portion of the roadway costs under a cost-sharing formula. In 1998, the City of Toronto withdrew previously committed funds from this program.

In order to maintain the Streetcar tracks in a state of good repair, it is necessary to proceed with these projects as originally planned, absorbing the City of Toronto excavation and paving costs associated with this work (see attached letter dated April 7, 1998).

Discussion:

There are six surface track locations and five special trackwork locations scheduled in 1998 within the City of Toronto jurisdiction. No change in the scope or schedule of the program was made from budget. The Commission's portion of the cost for excavation and paving work within the track allowance at these locations is estimated by the City of Toronto Works and Emergency Services Department at an upset limit amount of $3,802,000.00.

Justification:

In order to maintain the Commission's surface track system in a state of good repair, it is necessary to proceed with this work in 1998.

Approval is also necessary to enable payment for the Commission's portion of the excavation and paving costs, including the impact of City downloading.

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(Letter dated April 7, 1998, addressed to

the Commissioner of Works and Emergency Services, City of Toronto,

from the Chief General Manager, Toronto Transit Commission,

regarding Funding of TTC Track Rehabilitation Projects.)

In our March 30, 1998, correspondence regarding Joint Track Rehabilitation Projects, we discussed initiating and completing surface track replacement and track allowance projects, at 100 percent our expense, independent of the City except where there is a mutual interest in jointly completing a section of track/roadway. As discussed with Messrs. J. Marcinek and J. Niedra of your staff, due to the inability of the City to continue the traditional cost-sharing arrangements, the TTC is prepared to assume the City's portion of the track allowance costs for the projects highlighted on the attached Surface Trackwork Rehabilitation Projects schedule. The withdrawal of your share of the costs will have an impact on our budget; this impact is currently being reviewed and will be identified in our 1999-2003 Capital Program.

Specifically, the projects involved are both Lakeshore tangent projects including the special trackwork at Kipling, the Dundas tangent project including the special trackwork at Parliament, and the Coxwell tangent project including the special trackwork at Gerrard. It is understood that only items within the track allowance will be covered, and these costs should be in the order of magnitude of the estimates provided by your staff (attached) plus approximately 25 percent overhead costs (i.e.,planning, inspection, administration fees, etc.). It is further understood that some escalation of costs on the Coxwell project is to be expected, as this will be the test bed for a new construction methodology utilizing a temporary turnout. The traditional cost-sharing arrangements will continue in place for all remaining projects.

Please instruct your staff to design and tender all works in order to meet the construction dates outlined on the attached Surface Trackwork Rehabilitation Projects schedule for 1998.

Should you have any questions or concerns with the aforementioned, please contact Mr. Jim Teeple, Superintendent - Streetcar Way at 393-2067.

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Coxwell Avenue from Lower Gerrard Street to Upper Gerrard Street

Estimated Cost TTC Share City Share

Reconstruct Track Allowance$400,000.00$200,000.00$200,000.00

Overlay Adjacent Pavement60,000.0060,000.00

Sidewalk and Curb Repairs30,000.0030,000.00

Reconstruction of intersection100,000.0050,000.0050,000.00

Total$590,000.00$250,000.00$340,000.00

(Communication dated April 23, 1998, addressed to

the Chief General Manager, Toronto Transit Commission,

from the Interim Functional Lead, Transportation

regarding TTC Track Rehabilitation Projects.)

In response to your letters dated March 30, 1998 and April 7, 1998, we acknowledge that the TTC is willing to fund the entire cost for the Coxwell project, both Lake Shore Boulevard West projects, and the two Dundas Street East projects in the 1998 Track Rehabilitation Program. Our staff is currently in the process of preparing contract documents and will be tendering the work in an effort to meet the 1998 work schedule.

For subsequent years, you have proposed that the TTC initiate, fund (100 percent) and complete all surface track replacement and track allowance projects. We would support this proposal in principle but recognize that there are numerous responsibilities and details that still need to be clarified to ensure safe and effective program implementation. Some of these are as follows:

(i)responsibility for the different aspects in developing, approving, designing, tendering and administering the Track Rehabilitation Program;

(ii)responsibility for maintenance of the track allowance;

(iii)responsibility for quality control of materials and workmanship;

(iv)co-ordination of joint road/track allowance reconstruction projects; and

(v)co-ordination of all utility work within the road right-of-way.

We look forward to meeting with your staff to discuss these issues and any others that the TTC wishes to bring forward. Please contact Mr. John Marcinek, P. Eng., Project Manager, Construction at 392-8342, as he will be representing the City of Toronto regarding this matter.

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(Joint report dated September 17, 1998, addressed to the

Budget Committee from the Chief Administrative Officer and

Chief Financial Officer and Treasurer)

Purpose:

To provide for the increase in TTC capital expenditures resulting from full funding by the TTC of the road reconstruction portion of the surface track work in 1998, formerly funded from the Transportation Department budget.

Funding Sources, Financial Implications and Impact Statement:

The recommendations in this report would increase the approved 1998 Capital Program of the TTC by $1.891 million to be financed by the issuance of debentures, if required.

Recommendations:

It is recommended that:

(1)additional financing approval in the amount of $2,223 thousand for the TTC capital project No. 120 Subway Track be granted to cover the road reconstruction portion of the surface track work;

(2)an increase to the total 1998 net expenditure of the TTC capital program in the amount of $1,891 thousand be approved, representing the budgeted amount for this purpose in the 1997 capital budgets of Metro Transportation and the former City of Toronto; and

(3)the remaining $332 thousand, to complete the total TTC request for this project, be transferred from other 1998 projects with anticipated underexpenditures, and that the TTC identify the projects to be reduced and report back to the Budget Committee.

Council Reference/Background/History:

The Urban Environment and Development Committee, on September 8, 1998, recommended that additional project financing approval in the amount of $2,223 thousand be granted to Project #120 of the TTC, "Surface Track", and that the TTC's approved 1998 Capital Program be increased by a corresponding amount to cover the road reconstruction portion of the surface track work.

The UEDC also requested the CAO to submit a report directly to the Budget Committee, for consideration with this matter, regarding the issue of inter-departmental and inter-agency cost allocations with respect to this Program.

Comments and/or Discussion and/or Justification:

Before 1998, through an arrangement between the TTC, Metro and the local municipalities, the rehabilitation of the streetcar network was funded under a cost-sharing formula. Accordingly, in 1997, the approved capital budgets of the former City of Toronto and Metro included a total budget of $3,147 thousand for road reconstruction/track rehabilitation, with $1,256 thousand recovered from the TTC. Therefore, the municipal contribution for this program in 1997 was $1,891 thousand. No contributions were however budgeted in 1998.

In a letter to the Acting Executive Commissioner of Emergency and Protective Services dated March30, 1998, the TTC indicated its intention to initiate and complete surface track replacement and track allowance projects at 100 per cent its expense. The purpose of the transfer of funding and responsibility to the TTC was to ensure that the track rehabilitation program be primarily driven by the requirements of the surface track replacement.

The participation of several entities in the funding of these activities, with different sets of priorities, among other reasons, resulted in a slower than required rate of rehabilitation according to the TTC assessment. The TTC indicated that a new approach was required in order for the Commission to achieve its objective of maintaining the streetcar network in a state of good repair. The TTC also indicated that with the centralized control and funding, unit costs for track rehabilitation will fall from $940.00 per D.T.F. (Double Track Foot) to $900.00 per D.T.F. However, due to the deferral in the track rehabilitation, it is anticipated that the TTC will request a significant increase in the funding for this project in its 1999-2003 capital budget submission.

An agreement was reached between the TTC and the Transportation Department that the Commission would fully fund and control all future street car rehabilitation projects. However, the transfer of funding from the original budget of the Transportation Department to the TTC budget was not realized through the 1998 budget process. In addition, as already indicated, the Transportation Department budget did not include any expenditure for this purpose in its 1998 capital program. Therefore there is no 1998 approved funding that could be transferred to the TTC for this project.

However, based on the objective of ensuring an ongoing level of maintenance of the City infrastructure, it is recommended that additional funding for the road reconstruction portion of the surface track work be approved at the same level of the 1997 capital budget ($1,891 thousand). The $332 thousand shortfall as compared to the TTC request should be funded, if required, from underexpenditures in the TTC 1998 capital program.

Conclusions:

The TTC has indicated its intention to centralize the control and funding of the surface track replacement and track allowance projects, to better achieve the objective of maintaining the streetcar network in a state of good repair. An agreement on this matter was reached between the TTC and the Transportation Department.

However, no transfer of funds was realized through the 1998 budget process and there is no 1998 approved funding that could be transferred to the TTC for this project. It is therefore recommended that additional funding for the road reconstructions portion of the surface track work be approved at the same level of the 1997 capital budget ($1,891 thousand), and that the $332 thousand shortfall as compared to the TTC request be funded from TTC 1998 underexpenditures.

Contact Name:

Shekhar Prasad, tel: 392-8095, fax: 392-3649

internet e-mail: shekhar-prasad@metrodesk,metrotor.on.ca

The Strategic Policies and Priorities Committee also submits the following report (September23, 1998) from the Chief Financial Officer and Treasurer:

Purpose:

To outline the responsibilities of a Municipal Council under Provincial Legislation as it pertains to the Annual Debt and Obligation Limit.

Funding Sources, Financial Implications and Impact Statement:

Not Applicable.

Recommendations:

It is recommended that:

The report "Toronto Transit Commission -Excavation and Paving 1998 Surface Track Program", as considered by the Budget Committee at its meeting held on September 23, 1998, be amended by the following "that the approved 1998 Capital Program of the TTC be increased by $1.891 million and that it be financed through the issuance of debentures for a term not exceeding twenty years and that the amount is within the City's updated debt and financial obligation limit."

Council Reference/Background/History:

At its meeting held on September 23, 1998, the Budget Committee considered the report "Toronto Transit Commission - Excavation and Paving 1998 Surface Track Program". The report required the following amendment "that the approved 1998 Capital Program of the TTC be increased by $1.891 million and that it be financed through the issuance of debentures for a term not exceeding twenty years and that the amount is within the City's updated debt and financial obligation limit."

Comments and/or Discussion and/or Justification:

Prior to January 1, 1993, if the financing of a capital expenditure approved by City Council required the issuance of long-term debt, approval of the Ontario Municipal Board (OMB) was required before commencement of the project. Final Council approval of the capital program and related borrowing authorities were granted when the OMB was satisfied that the long-term obligations were within the financial capacity of the municipality.

Effective January 1, 1993, the role of the OMB in monitoring the issuance of debt by municipalities was greatly diminished with the introduction by the Province of a new borrowing procedure for issuing municipal debentures. The Ministry of Municipal Affairs and Housing assumed a level of supervision by calculating an annual debt and financial obligation limit for each Ontario municipality, setting a ceiling on the total amount of new debt that can be issued. It is calculated by taking 25 per cent. of the municipality's own-source revenue and subtracting existing debt charges and other long-term commitments such as leases in order to arrive at the level of allowable new debt charges. This amount is capitalized over the debt's average term-to-maturity. The resultant amount is the debt and financial obligation limit and represents the total amount of new debt that is permitted to be issued to finance approved capital projects. Only if the debt and obligation limit is exceeded does a municipality have to apply to the OMB for approval.

Based on the Provincially imposed limit, the City of Toronto's annual repayment limit for new long-term commitments is $654,033,748.00 for 1998 that translates into $3.5 billion of allowable debenture issuance. The debt and financial obligation limit is not a measure of the affordability of the debt by the municipality. In fact, the City's interim capital financing policy approved during the 1998 capital budget review is much more restrictive than that approved by the Province. The policy limits borrowing so that no more than 10 per cent. of the City's property tax revenues are required for debt repayment. The actual approved 1998 level was significantly below this level, at about 7.5 per cent. To maintain the level of debt charges at a constant rate would require the City to cap its average annual borrowing for tax supported capital works over the next five years at $110 million, excluding that required for the Sheppard subway. The borrowing projected at the time of approval of the 1998 capital program was $131 million. If the additional $1.891 million for this project is approved, debenturing of that amount would be required, which would have an annualized impact on the operating budget from debt charges of approximately $200 thousand.

Issues pertaining to capital financing and debt will be addressed in the Debt Management Report, which is being drafted as part of the capital budgeting process.

Contact Name and Phone Number:

Martin Willschick, Manager, Treasury - 392-8072

E-mail: mwillsch@mta1.metrodesk.metrotor.on.ca

(A copy of the Surface Trackwork Rehabilitation Projects schedule for 1998, which was appended to the letter dated April 7, 1998, from the Chief General Manager, Toronto Transit Commission, has been forwarded to all Members of Council, and a copy thereof is also on file in the office of the City Clerk.)

(City Council on October 28, 29 and 30, 1998, had before it, during consideration of the foregoing Clause, the following report (September 29, 1998) from the City Clerk:

Purpose:

To respond to a request from the Strategic Policies and Priorities Committee for the City Clerk to report on whether the action recommended in the September 23, 1998 report from the Chief Financial Officer and Treasurer would be a reconsideration of Council's action respecting the Capital Program.

Funding Sources, Financial Implications and Impact Statement:

Not applicable.

Recommendation:

It is recommended that this report be received for information.

Council Reference/Background/History:

In a report dated September 23, 1998, entitled "Annual Debt and Financial Obligation Limit", the Chief Financial Officer and Treasurer recommended to the Strategic Policies and Priorities Committee that "the approved 1998 Capital Program of the TTC be increased by $1.891 million and that it be financed through the issuance of debentures for a term not exceeding twenty years and that the amount is within the City's updated debt and financial obligation limit." The report was in furtherance to a joint report dated September 17, 1998, from the Chief Administrative Officer and the Chief Financial Officer and Treasurer to the Works and Utilities Committee which recommended that certain additional financing approvals be put in place with respect to the above-captioned Capital Program. The Strategic Policies and Priorities Committee submitted this latter report to Council without recommendation, and requested the City Clerk to report on whether an increase in the approved Capital Program for the Toronto Transit Commission would first require that the procedural requirements for reconsideration of a Council decision be met.

Comments and/or Discussion and/or Justification:

Given that the 1998 Capital Program for the Toronto Transit Commission was adopted by Council at its meeting held on April 29 and 30, 1998, it is my opinion that any increase to the Capital Program would first require a reconsideration motion, falling as it does within section 46 of the Procedural By-law, as amended:

"46.(1)Subject to subsections (2) and (3), no question after it has been decided shall be reconsidered within the twelve month period following the decision of Council unless otherwise decided by a two-thirds vote of the Members present and voting.

(2)After any question has been decided, any Member who voted thereon with the majority or, where a two-thirds vote is required, any Member who voted thereon for the decision of Council, may submit a Notice of Motion for a reconsideration of the matter."

Contact Name:

Jeffrey A. Abrams, Director, Secretariat, Printing and Distribution, Clerk's Division

Tel. 392-8670, jabrams@city.toronto.on.ca.)

4

Governance of Toronto Hydro-Electric Commission

(City Council on October 28, 29 and 30, 1998, struck out and referred this Clause to the Office of the Mayor for further consideration.)

(City Council on October 1 and 2, 1998, deferred consideration of this Clause to the next regular meeting of Council scheduled to be held on October 28, 1998.)

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(Clause No. 28 of Report No. 18 of The Strategic Policies and Priorities Committee)

The Strategic Policies and Priorities Committee recommends that:

(1)the current citizen members of the Toronto Hydro-Electric Commission be thanked for their service and advised that their terms of office expire on October 31, 1998, and that an appropriate reception be held to thank them for serving on the Commission;

(2)City Council at its meeting on October 1 and 2, 1998, express its intention to appoint an Interim Board consisting of five more members of Council, and that the Striking Committee be requested to report to Council on October 28, 1998, recommending the five members;

(3)the Chief Administrative Officer be requested to report appropriately on the Terms of Reference and mandate of the Interim Board until such time as a permanent Board is appointed, as early as possible in 1999;

(4)effective the date of incorporation, the Board of Directors of the incorporated successor company to the Toronto Hydro-Electric Commission be comprised of 13 citizen members, including the Chair;

(5)the selection criteria be as described in the report (September 23, 1998) from the Chief Administrative Officer;

(6)Council appoint the Chair of the new corporation from among the citizen members;

(7)a reputable search consultant be engaged by the Chief Administrative Officer to provide Council with a list of candidates qualified to serve on the Board of the new corporation;

(8)the search process begin immediately to ensure that the Board is in place when the Articles of Incorporation are finalized, following the enactment of Bill 35 and the coming into force of the applicable portions of the legislation permitting incorporation, which may be in December 1998 or January 1999;

(9)the Toronto Hydro-Electric Commission be directed to revise its By-law 98-04-01 pertaining to reimbursement of the expenses of Commissioners to rescind the $80 per diem and direct that Commissioners' expenses be monitored and reported monthly to the Chief Financial Officer and Treasurer;

(10)the Chief Administrative Officer report further on the remuneration for the new Board of Directors of the successor corporation taking into consideration the report submitted by Jalynn H. Bennett & Associates dated August 12, 1998; and

(11)the appropriate officials be authorized to take the necessary action to give effect thereto.

The Strategic Policies and Priorities Committee reports having requested the current Board of Directors of the Toronto Hydro-Electric Commission to provide directly to City Council for its meeting on October 1 and 2, 1998, a written undertaking that:

(i)it will focus its activities on the amalgamation and integration of the six former hydro utilities; and

(ii)not sell any off its assets or make any other major business decisions without approval of City Council, until the new Board is approved by City Council.

The Strategic Policies and Priorities Committee also submits the following report (September23, 1998) from the Chief Administrative Officer:

Purpose:

The purpose of this report is to address issues arising from the Works and Utilities Committee meeting of September 14, 1998 concerning the current and future governance structure of the Toronto Hydro-Electric Commission and related issues.

Funding Sources, Financial Implications and Impact Statement:

There are no financial implications.

Recommendations:

It is recommended that:

(1)effective the date of incorporation, the Board of Directors of the incorporated successor company to the Toronto Hydro-Electric Commission be comprised of 13 citizen members including the Chair;

(2)the selection criteria be as described in this report;

(3)Council appoint the Chair of the new corporation from among the citizen members;

(4)a reputable search consultant be engaged by the City Chief Administrative Officer to provide Council with a list of candidates qualified to serve on the Board of the new corporation;

(5)the search process begin immediately to ensure that the Board is in place when the Articles of Incorporation are finalized, following the enactment of Bill 35 and the coming into force of the applicable portions of the legislation permitting incorporation, which may be in December 1998 or January 1999;

(6)the existing Commission Members serve until the successor company is incorporated and the new Board of Directors is named, recognizing the short remainder of the term;

(7)Council direct that the Toronto Hydro-Electric Commission revise its By-Law 98-04-01 pertaining to reimbursement of the expenses of Commissioners to rescind the $80.00 per diem and direct that Commissioners' expenses be monitored and reported monthly to the City Commissioner of Finance and Treasurer;

(8)should Council determine that the Commissioners' expense issue is key and should Council wish to exercise its authority to replace the Commission, in the event that the Commission does not comply with recommendation (7), then Council could proceed with option 2 and authorize the Mayor to replace the existing Commission;

(9)the CAO report further on the remuneration for the new Board of Directors of the successor corporation taking into consideration the report submitted by Jalynn H. Bennett & Associates dated August 12, 1998; and

(10)the appropriate officials be authorized to take the necessary action to give effect thereto.

Council Reference:

At its meeting on September 14, 1998, the Works and Utilities Committee considered a communication from Mr. Mark S. Anshan, Chair of the Toronto Hydro-Electric Commission, concerning the proposed future governance structure of the Commission. The Committee also had before it a copy of a Notice of an Amending By-Law of the Commission concerning its policy on reimbursement of Commissioners' expenses. The Committee heard four deputations.

The Works and Utilities Committee requested the Chief Administrative Officer to report to the Strategic Policies and Priorities Committee on the communications received by the Committee, the submissions to the Committee and questions raised during the deputations. To respond to this request, the following topics are discussed in this report:

(i)the proposed board structure for the corporation to be formed to replace the Toronto Hydro-Electric Commission in accordance with Ontario Bill 35 and the process for nomination

(ii)the process for moving toward incorporation and an approximate timetable

(iii)the interim structure of the Toronto Hydro-Electric Commission prior to incorporation

Comments:

To provide some context to the discussions in this report, a brief overview of Bill 35, the Energy Competition Act is provided in Appendix A. Over the course of the next few months, Council will be presented with several comprehensive reports providing the details, the options available to Council, and seeking approval of several documents required to comply with the Bill. At some point after enactment of the Bill, possibly as early as December 1998 or January 1999, the existing Toronto Hydro-Electric Commission will cease to exist, being replaced by a business corporation with share capital. At that time, the City will be the single shareholder and as such will have more authority to give direction to the new Board of Directors than under the existing structure and reporting relationship. Appendix B outlines in simplified form the activities and documents required to implement these new structures and the possible timeframes. It is expected that portions of the Bill will become effective in stages, as yet unknown. Since the timing of the proclamations will drive the timing of the City's and Toronto Hydro's activities, the target timeframes in Appendix B are tentative.

Board of Directors of the New Corporation:

Pursuant to the provisions of the Energy Competition Act, the City will own all of the issued shares of Toronto Hydro upon its incorporation. Under the Business Corporations Act, the directors appointed by the City, as sole shareholder, will be responsible for guiding the affairs of the corporation. The City, however, may restrict the scope of power of the directors through a unanimous shareholder agreement in which specific directions may be given to directors. Such an agreement could cover matters such as financial objectives, acquisitions, divestitures or corporate structuring.

The electricity distribution business will be subject to greater regulation by the Ontario Energy Board than in the past.

The Board of Directors of a business corporation is responsible for protecting the value of the corporation as defined by the shareholder. Toronto Hydro will be operating in an aggressive competitive market. Its Board will have to be astute business people who are experienced in such an environment in order to protect the shareholder value. The new corporation will be structured and operated as a private sector business corporation, unlike any other City entity. It competes directly in the electricity retail market against other electricity retailers rather than in a monopoly competing with related, but not identical, businesses such as is the case with the TTC. This is particularly important in the quickly evolving market foreseen over the next few years.

Directing a share capital corporation also requires knowledge and experience with capital structures (the variety and number of shares); the opportunities for financing and investment in a non-government environment; and buying, selling, and trading in an open competitive wholesale market.

The Board will have to devote substantial time commitment in the early years of the new corporation to deal with the development of the plans, organizations, markets, financing and new business opportunities.

The Edmonton Power Corporation (EPCOR) is an excellent parallel to the situation facing the City of Toronto and Toronto Hydro over the next few years. Although not as large as Toronto, Edmonton is a significant market and the utility is publicly owned. It is operated as a corporation in a competitive market. Its 14-member Board of Directors is an expert board comprised of high profile people from education, human resources, consulting, engineering, law, technology research, banking, finance, and competitive business. The complete list of the newly appointed directors is attached as Appendix C. The President and CEO of EPCOR is also a director ex officio.

In a large and changing business environment, it is also important that board members understand the distinctions among the roles of the single shareholder, the Board, and the CEO. Since there are no exact comparators for this situation, a mix of experience in both private sector and public sector boards would be helpful.

(1)Selection Criteria:

Selection criteria were discussed at a workshop hosted by Toronto Hydro involving Commission members and staff, City CAO staff, selected Councillors, and consultants. In addition, Jalynn Bennett & Associates report dated August 12, 1998 listed recommended selection criteria. The Commission suggested additional criteria in its communication to the Works and Utilities Committee.

All suggestions have been taken into account in compiling the selection criteria recommended in this report. However, the residency requirement suggested by the Commission has been expanded to the Greater Toronto Area to open up the possible candidate pool to those with the necessary experience particularly in the electricity industry and to recognize that there is a possibility of competing for and expanding the business region beyond the City of Toronto. In the same vein, it is not necessary to ensure that all geographic regions within the City are represented. Given that the new corporation will serve all geographic areas in the City, the interest should be in the corporation as a whole, not the individual service areas. It is recommended that the following selection criteria be used to select members for the Board of Directors of the new Corporation:

Personal Characteristics:personal integrity

appreciation of social and environmental issues

understanding of public accountability

independent judgement

available time and dedication

commitment to reliable service at reasonable cost

Status:a Canadian citizen and resident of the Greater Toronto Area

not an employee or director of Ontario Hydro or its affiliates

not an undischarged bankrupt

not a person holding federal or provincial government office

not an employee of Toronto Hydro or its affiliates

not an employee of the City of Toronto

Mix of complementary skills and experience required of the Board as a whole:

(i)experience in company governance, corporate financial structuring, competitive market development, or large corporate structural transitions

(ii)experience in a heavily regulated environment, a competitive consumer retail environment, a monopolistic service or utility, or the public sector

(iii)skills in marketing, finance, human resources, communications, corporate law, health and safety, labour relations

(2)Board Composition:

The Bennett report advised that an expert board with broad business skills and experience would be appropriate. The report also suggested that the size should range between 11 and 15 in number, with an odd number preferred and the CEO should be a board member. The Toronto Hydro-Electric Commission endorsed the concept of an expert board and recommended a specific structure as follows:

12 members, 9 citizens which would be recommended by the outgoing Commission,

2 Councillors, and

the President and CEO (ex officio).

Except for the inclusion of 2 Council members, this structure is not dissimilar to the EPCOR structure. It is unclear, however, why in either case the President and CEO should be a member of the Board of Directors. It is the responsibility of the President and CEO to be present at board meetings and be a non-voting participant, but it may not be necessary for the position to be on the Board. This would be particularly awkward during a change in incumbents for any reason.

Under the new legislation, Council as sole shareholder will have significant influence over major business directions of the corporation and may choose to exercise its increased powers as such in important policy areas. Through a unanimous shareholder agreement, Council may give direction to the Board and require periodic reports from the Board.

It is recommended that the Board of Directors of the successor corporation to the Toronto Hydro-Electric Commission be comprised of 13 members recruited and selected to meet the criteria outlined above.

The Chair is a key position that takes responsibility for communicating with both the shareholder and the consumer. The Chair also manages the agenda of the Board and encourages all Board members to participate and keep abreast of emerging issues. The Chair is also the major point of communication between the Board and management. The Chair, above all others, must understand the requirements of the shareholder, but should not be a Member of Council. In this rather unique situation of an independent corporation wholly owned by a public sector shareholder, it is recommended that the Chair be appointed by Council, the shareholder, rather than chosen by the Board. The Chair must possess significant knowledge of the industry, have demonstrated business acumen, and have a substantial profile and reputation in the community.

(3)Nomination Process:

In a corporation with multiple shareholders, the Board of Directors normally presents a recommended slate at the shareholders' meeting and the shareholders then elect the members. It is possible, however to receive nominations beyond the recommended slate. One must be a shareholder, however, to nominate a candidate for the Board.

In a single shareholder situation, however, the shareholder may select members in whatever way it chooses. The City and its predecessors have a tradition of conducting open competitions for positions on boards of its agencies, boards, and commissions or requesting nominations from organizations which have a critical and specific interest in the business. Although the new corporation is quite different from any agency of the City, some parts of the selection process could be employed. The Board of Trade has suggested that it be given the right to nominate a member and another suggestion was that any member of the public have the right to nominate members. There are, however, far too many stakeholders to afford each an opportunity to nominate candidates. Council ultimately represents the interests of residents and businesses in Toronto in the City's business affairs.

The Bennett report recommended that the outgoing Commission nominate a slate of Board members. Since the business is radically changing and the skills and experiences required of the new Board will be different under a freely competitive environment, it may not be appropriate for the out-going Board to make the nominations. However, the Bennett report's suggestion that a search consultant be engaged to seek and screen candidates has much merit. An expert search consultant would use its own processes to seek qualified candidates, seek input from a range of sources and through advertisements.

Once candidates are identified, the search consultant would screen applicants against the selection criteria and recommend a short-list of qualified candidates. The Mayor, the Chair of the Works and Utilities Committee and one other Member of Council would work with the consultant and the Chief Administrative Officer to develop a slate for Council approval.

(4)Remuneration of new Board of Directors:

In public companies, Board remuneration is usually set by the Board itself just as City Council and the Legislature set their own remuneration. This happens because the people they represent are a large, diverse group and a debate and vote by shareholders or the general public would be logistically difficult.

However, in this case, there is a single shareholder, the City, who could determine board remuneration. The Bennett report recommended a remuneration range. Before approving a specific level of remuneration, some further investigation and opinions should be sought. The CAO will report further on this issue.

Interim Commission Membership:

Some of the debate at the Works and Utilities meeting focused on a submission concerning the Commission By-Law 98-04-01 regarding the reimbursement of Commissioners' expenses. This topic was intertwined with a suggestion that the composition of the Commission prior to incorporation be reconsidered. During the debate, the CAO was requested to report on the timeframe of this interim period and recommend a course of action in dealing with Commission membership during the interim period.

Appendix B to this report provides a brief summary of the expected timelines for the legislative changes and the major activities required to incorporate the new corporation required under the legislation and appoint new Board members. The earliest date for incorporation appears to be early December 1998, but a more likely date is January or February 1999. This means that Toronto Hydro will remain a Commission for another 3 to 5 months.

The recruitment process for the new board will take approximately 3 months. Recruiting new citizen Commissioners through the existing processes would also take at least 3 months. Efforts would more prudently be spent recruiting Board members for the new corporation. Given these time requirements and considering the cost to recruit citizens, there appear to be 3 viable options for the interim period. These are:

(1)continue the existing Commissioners for the term expiring upon incorporation;

(2)authorize the Mayor to appoint at least 3 Commissioners for the interim period to replace the existing Commission; or

(3)replace the existing Commissioners with Councillors nominated by the Striking Committee for the interim period.

During the period leading up to incorporation, the Commission is still dealing with some remaining amalgamation issues in addition to the incorporation, other concerns with Bill 35, and the amalgamated budget and strategic plan. There would be a significant learning curve for anyone newly appointed for a short period of time. The current Commission has a vast amount of experience and history in this business area and existing knowledge of the current issues.

Council Members, beyond being deeply involved with the City's own amalgamation issues and development of new policies, procedures, and structures, will have to direct their attention to establishing the high level business direction for the new Hydro Corporation, the shareholder interests, and the financial strategies involved with becoming the sole shareholder of a major business corporation. Council Members during this period will need to participate as shareholders rather than Commissioners.

Replacing the existing Commission at such a critical time may be perceived by potential candidates as a desire to control operations of the business. This may discourage highly qualified candidates from expressing interest in serving as Directors on the new Board.

It is therefore recommended that the existing Commission continue its service for the term expiring upon incorporation of the new entity.

The City Solicitor has been asked for a legal opinion regarding the authority of Council to determine or restrict amounts paid to Commissioners in carrying out their duties as Commissioners. This is the subject of a separate report before the Strategic Policies and Priorities Committee. Regardless of whether or not Council has the legal authority to place limits on such amounts, Council can direct the Commission to revise its new By-Law respecting reimbursement of Commissioners' expenses, specifically to eliminate the $80.00 per diem and to report such expenses monthly to the City Commissioner of Finance and Treasurer.

If Council believes that the expense issue is key and wishes to exercise its authority to replace the Commission if it does not comply with Council's directive, then Council could proceed with option2 and authorize the Mayor to appoint at least 3 Commissioners for the interim period, replacing the existing commission.

Conclusions:

The Chief Administrative Officer has been requested by the Mayor to take the lead in working with the Toronto Hydro-Electric Commission to develop a process for Council to deal with issues resulting from the introduction of Bill 35, the Energy Competition Act, as well as the new board structure, the nomination process for members, and the reporting required to City Council. This report provides an initial briefing for Council on the Bill as it relates to the structure of the new corporation and its Board of Directors and recommends specific actions to move toward selecting the Board members.

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Appendix A

Summary of the Energy Competition Act

The Energy Competition Act, which is expected to receive third and final reading by the Ontario Legislature by the end of October, will introduce the most profound changes to the province's electricity sector since Ontario Hydro was created over 90 years ago. For most of the century, electricity generation and transmission in Ontario has been dominated by Ontario Hydro, an essentially unregulated, public monopoly. The Energy Competition Act is intended to end this monopoly and introduce a competitive electricity market, which has been advocated by a broad spectrum of stakeholders including municipal utilities.

Ontario Hydro will be broken into three entities - the Independent Electricity Market Operator (which will be responsible for managing the province's transmission grid and establishing and operating the electricity markets), the Ontario Electricity Generation Corporation ("Genco", which will own and operate Hydro's generation facilities) and the Ontario Electric Services Corporation ("Servco", which will own and operate Ontario Hydro's transmission and distribution systems). The Act will give to consumers, large and small, the right to buy power from whichever generator he or she should choose. Distributors, such as Toronto Hydro, would be required to provide consumers with "non-discriminatory access" to their systems to deliver the power purchased.

The Ontario Energy Board will become an effective regulator of the electricity system with broad licensing and rate - setting powers.

The Act will have a fundamental impact on municipal electricity utilities. It has confirmed that municipalities are the legal owners of the municipal electricity utilities operating in their boundaries. Within two years, municipalities will be required to incorporate their municipal electricity utilities under the Ontario Business Corporation Act which means that the utilities will have to be structured and operated the same way as any other business corporation. As a result, Toronto Hydro will be freed from the restrictions on its scope of activities currently imposed by provincial legislation. However, the company will be required to carry on its monopoly distribution business in a separate subsidiary from its competitive activities to prevent cross-subsidization.

Finally, the Energy Competition Act provides for the pay down of Ontario Hydro's debt. Genco and Servco, formed from Ontario Hydro, will assume a portion of this debt. However, since the debt of these companies will no longer be guaranteed by the Ontario Government, the amount of Ontario Hydro's debt assumed by the companies would have to be consistent with what a commercial company would be expected to finance. The balance of the Ontario Hydro debt, called "stranded debt", will be paid, at least in part through municipal electric utilities by means of special payments in lieu of property and school taxes, a charge on gross revenue, and a transfer tax on the sale of assets to any person or company which is not tax exempt. The City has written to the Ministry of Energy, Science and Technology urging that municipal electric utilities should be treated the same way as Genco and Servco in determining the various payments owing and eligibility for any deductions, since they will all be businesses incorporated under the Ontario Business Corporations Act.

Composition of the Board of Directors:

Toronto Hydro is the largest municipal electricity utility in Canada and the second largest in North America. It is also the fourth largest power company in Canada, after Ontario Hydro, Quebec Hydro and B.C. Hydro. By mandating incorporation under the Ontario Business Corporations Act, the Energy Competition Act frees Toronto Hydro to enter into a variety of business activities currently restricted by legislation. The new company's activities could include power generation, energy trading, the sale of electrical equipment such as meters, the rental of space in its conduits to the telecommunications industry and consulting services. Toronto Hydro could acquire or amalgamate with other municipal electric utilities. Toronto Hydro could sell its shares or other securities to the public. While this enhanced scope of activity will create a wide variety of promising opportunities, it will also create risks which will have to be carefully managed.

In this new competitive business environment, it will be vital for Toronto Hydro to have a Board of Directors with proven expertise in such areas as company governance, corporate financial structuring, competitive market development, regulatory affairs and familiarity with the power industry. Directors will be responsible for ensuring that Toronto Hydro is operated in a financially prudent fashion, taking advantage of profitable new areas of business activity while exercising judgement which will minimize the risks that may be associated with these activities. As well, directors will also be responsible for ensuring that safety and reliability are watchwords for Toronto Hydro's operations.

The Board of Directors of Toronto Hydro will be ultimately responsible for the management of one of the biggest power enterprises in Canada. The directors will have to be talented people with the necessary experience and expertise to run such an enterprise in a new and rapidly evolving marketplace.

It should be remembered that the directors of a business corporation may be held personally liable for such matters as environmental mishaps if they act negligently or fail to exercise proper diligence in carrying on their responsibilities.

Approach to Dealing with the Scope of Activities of Toronto Hydro:

The Energy Competition Act has opened up a broad scope of activities for Toronto Hydro and other municipal electric utilities. Toronto Hydro will require licensing from the Ontario Energy Board for certain activities while it can enter other activities like any other business.

Licensing from the Ontario Energy Board will be required for Toronto Hydro's distribution or "wires" business, as well as for its retailing of electricity to consumers and for any future involvement in power generation. Rates charged to consumers by the wires business will also be regulated by the Ontario Energy Board, while pricing associated with other activities will be unregulated and governed by the competitive market.

Toronto Hydro will be required to incorporate a separate subsidiary to operate its regulated wires business. Its other competitive activities would be operated by Toronto Hydro directly or through one or more subsidiaries. The precise corporate structure would depend upon the activities in which Toronto Hydro decides to become involved and the risks associated with these activities. It may be prudent, for example, to place higher risk activities, such as energy trading or generation, in one subsidiary and lower risk activities, such as consulting services or equipment sales, in another subsidiary.

Toronto Hydro is about to enter a new era with the passage of the Energy Competition Act. It will have to develop an appropriate structure consistent with the demands of a competitive market, the requirements of the legislation and the financial goals of the City. The structure should be determined by the City, as shareholder, in co-operation with the Board of Directors of the new corporation.

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Appendix B

Process and Timeframes

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Appendix C

EPCOR* Board of Directors:

Robert L. PhillipsPresident & CEO, PTI Group Inc.

Chairman of the Board of EPCOR

Dr. Michael B. PercyDean, Faculty of Business, University of Alberta

Mary J. CameronPresident and CEO, Worker's Compensation Board

Christopher J. RobbPartner, Traction Capital

J. Norman Olsen, P. Eng.former Chairman and CEO, B.C. Hydro, retired

Franklin Kobie, FCMAManaging Director, Brookview Consultants Inc.

Peter Flynn, P. Eng.Senior Process/Project Engineer, Colt Engineering Corp.

D. Mark Gunderson, Q.C.Partner, McLennan Ross Barristers & Solicitors

Janice G. Rennie, FCAPresident, Research Technology Management Inc.

Dr. Ian T. BrownlieVice President & General Manager, Celanese Canada Inc.

Larry M. PollockPresident & CEO, Canadian Western Bank

Tim MeltonChairman & CEO, Melcor Developments Ltd.

Mary Arnold, FCADirector, Arnold Consulting Group Ltd.

Donald J. LowryPresident & CEO, EPCOR (ex officio)

*EPCOR is parent to:

Edmonton Power (generation and distribution of electricity)

Aqualta (water treatment, distribution and related services)

Eltec (commercial services to industry and municipalities)

The Strategic Policies and Priorities Committee also had before it the following report (September 24, 1998) from the City Solicitor:

Subject:Toronto Hydro-Electric Commissioners - Expenses

Purpose:

The purpose of this report is to address the issue of whether City Council can impose limits on expenses of Toronto Hydro-Electric Commissioners, which issue was raised by the Works and Utilities Committee at its meeting of September 14, 1998.

Funding Sources, Financial Implications and Impact Statement:

n/a

Recommendation:

That this report be received for information.

Council Reference/Background/History:

At its meeting on September 14, 1998, the Works and Utilities Committee had before it a copy of a Notice of an Amending By-law of the Commission concerning its policy on reimbursement of Commissioners' expenses.

Comments and/or Discussion and/or Justification:

The Toronto Hydro-Electric Commission ("Toronto Hydro") is governed primarily by three pieces of legislation: the City of Toronto Act, 1997, the Public Utilities Act and the Power Corporation Act. Subsections 9(1) and (2) of the City of Toronto Act, 1997 establish a new Toronto Hydro for the amalgamated City, which is deemed to be a commission under Part III of the Public Utilities Act and a municipal commission under the Power Corporation Act.

Subsection 44(1), in Part III of the Public Utilities Act provides, in part:

"44(1) The salary, if any, of the commissioners shall from time to time be fixed by the council ...".

While subsection 44(1) of the Public Utilities Act clearly contemplates Council setting the salary level of the commissioners, no such authority appears to have been given to limit expenses. It appears that all that Toronto Hydro is required to do is to provide is an accounting of commissioners' expenses for the purposes of subsection 47(1)(c). This approach in distinguishing between remuneration, salary and expenses is comparable to the approach taken in certain Municipal Act provisions on this subject.

Conclusion:

City Council currently has no statutory authority to limit the expenses paid by the Toronto Hydro-Electric Commission to its commissioners, although Council does have the authority to fix Toronto Hydro commissioners' salaries.

This opinion is given only to the Strategic Policies and Priorities Committee and may not be relied upon by any other person except Council members, and persons who are employees, agents or offices of the City of Toronto.

Contact Name:

Lorraine Searles-Kelly (416) 392-7240

The Strategic Policies and Priorities Committee submits the following transmittal letter (September 14, 1998) from the City Clerk:

Recommendation:

The Works and Utilities Committee on September 14, 1998:

(1)referred the communication dated September 8, 1998, from Mr. Mark S. Anshan, Chair, Toronto Hydro-Electric Commission, and additional submissions respecting governance of the Toronto Hydro-Electric Commission to the Strategic Policies and Priorities Committee at its next meeting, scheduled to be held on September 24, 1998;

(2)requested the Chief Administrative Officer to submit a report to the Strategic Policies and Priorities Committee on the aforementioned communication and submissions and questions raised during the deputations; and

(3)directed that a copy of the aforementioned communication and submissions be forwarded to the Special Committee to Review the Final Report of the Toronto Transition Team for information.

Background:

The Works and Utilities Committee at a special meeting held on September 14, 1998, had before it a communication dated September 8, 1998, from Mr. Mark S. Anshan, Chair, Toronto Hydro-Electric Commission, respecting governance of the Toronto Hydro-Electric Commission.

The Works and Utilities Committee also had before it a copy of a Notice of an Amending By-Law, submitted by Councillor Betty Disero, which was before the Board of the Toronto Hydro-Electric Commission at its meeting on September 10, 1998, respecting procedures for the reimbursement of the expenses of Commissioners, together with related material.

The following persons appeared before the Works and Utilities Committee meeting in connection with the foregoing matter:

-Mr. Mark S. Anshan, Chair, Toronto Hydro-Electric Commission, and submitted a copy of his presentation;

-Mr. John Bech-Hansen, Economist, and Mr. Rob McLeese, Member, Electrical Task Force, Toronto Board of Trade;

-Mr. Jack Gibbons, Ontario Clean Air Alliance; and

-Mr. Bruno E. Silano, President, Canadian Union of Public Employees, Local One.

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(Communication dated September 8, 1998, addressed to the City Clerk, from

Mr. Mark S. Anshan, Chair, Toronto Hydro-Electric Commission

headed "Toronto Hydro-Electric Commission Governance

and Selection of Commissioners/Directors")

On behalf of the Toronto Hydro-Electric Commission (the "Commission"), I am pleased to forward this letter together with the attached documents. This letter and the attached documents are for circulation to Members of Council and senior staff of the City who are working on this matter, and for consideration by the Works and Utilities Committee of the City of Toronto at its special meeting called to consider this subject scheduled for Monday, September 14, 1998, at 6:30p.m.

Background:

In earlier discussions with Councillor David Miller and City staff, it had been determined that the Commission would make recommendations regarding the future structure and governance of the Commission. Toronto Hydro is now an amalgamated utility of the former six utilities in the Metro area and the process of the utility integration is progressing well. The electrical system in Ontario is about to be restructured and deregulated pursuant to the Energy Competition Act, 1998 (Bill 35) that is presently before the legislature. In view of the rapid changes that are taking place in the utility industry and for Toronto Hydro, the Commission determined that it would be appropriate to study the question of governance and forward recommendations to City Council.

The original plan was for the research and recommendations of the Commission to be forwarded to Councillor David Miller's Committee. We now understand that this matter will be the subject of the special meeting on September 14, 1998.

The Commission retained the services of Jalynn H. Bennett & Associates Ltd. to undertake research and prepare a report on a recommended governance structure for Toronto Hydro and a process for selecting Directors. As is noted in the attached fact sheet, Toronto Hydro will be required to incorporate under the Ontario Business Corporation Act as a business corporation and a Board of Directors will need to be elected by the shareholder, the City of Toronto.

At a Special meeting of the Commission on September 4, 1998, the Commissioners reviewed the attached report prepared by Jalynn H. Bennett, entitled "Accountability Framework for the Toronto Hydro-Electric Commission".

The author of the report, Jalynn H. Bennett, has wide experience on not-for-profit and for-profit boards of directors, and is a highly regarded expert on issues of board governance, membership and selection.

The Commissioners carefully reviewed the report and recommend it to City Council as the basis for determining the question of the composition and selection process for the Commission and the Board of Directors to be established upon the enactment of Bill 35.

Documents:

The Commission is forwarding with this letter the following documents for distribution to the Members of Council and senior staff:

(a)background Fact Sheet on Toronto Hydro Amalgamation and Bill 35, prepared by the Commission and Vision 2000 (Special Integration Newsletter); and

(b)the report "Accountability Framework for the Toronto Hydro-Electric Commission" prepared by Jalynn H. Bennett & Associates Ltd.

In addition, the following document was forwarded to all Members of Council and we request that copies be made available to senior staff:

(c)Toronto Hydro presentation to the Standing Committee on Resource Development on August14, 1998 on Bill 35.

The Commission generally endorses the Bennett report with the following additional recommendations and comments:

(1)Composition:

The Commission/Board of Directors should be composed of twelve individuals made up as follows:

9Members/Directors appointed/elected by City Council as a result of the process described below;

2Members of City Council; and

1President and Chief Executive Officer (ex officio member).

(2)Selection criteria:

In addition to the criteria set out in the Bennett report, it is recommended that the following criteria should be included:

(a)all members/directors should be resident in the City of Toronto;

(b)knowledge and experience with environmental matters, labour relations and occupational health and safety issues should be added to the list of skills; and

(c)members/directors should reflect the geographic diversity of the City of Toronto.

(3)Term:

The Commission recommends that members/directors be appointed/elected for three-year terms on a staggered basis. With respect to the initial appointment/elections, the Commission recommends that three of the nine positions be filled by existing members of the Toronto Hydro-Electric Commission for a term of one year and that the remaining six positions be filled for a term of three years. This model will ensure continuity of knowledge and experience on the Commission/Board of Directors.

It is assumed that the two members/directors who are also City Councillors will be appointed/elected by City Council and serve for terms not exceeding three years and until their successors are appointed.

(4)Process:

The Commission would retain a reputable search consulting firm that would propose a list of more than nine candidates for the nine positions noted above. As well as identifying individuals through their own direct process, the search consultant would be expected to publicly advertise for interested candidates.

The recommendations of the search consultant would be reviewed by the interim Nominating Committee of the Commission described in Model B of the Bennett report. The Nominating Committee would be composed as described in the report with the President and Chief Executive Officer as a non-voting resource person.

(5)Remuneration:

As far as the remuneration of the Board Members, the Commissioners propose that City Council should establish appropriate levels of remuneration. The Bennett report has background information on this matter.

(6)Commission/Directors Meetings:

The existing Commission currently meets once a month and it is expected that initially the frequency of meetings will be more than the proposed four meetings per year.

The attached Fact Sheet and Vision 2000 are provided in order to give basic background information on the amalgamation and Bill 35 and thus provide a context for Council's deliberations.

Toronto Hydro is well positioned to meet the challenges of competition in electricity sales and related services and regulation of electricity distribution by the Ontario Energy Board.

A knowledgeable and well qualified Commission/Board of Directors will be essential to ensure the interests of the City of Toronto as shareholder and the customers of Toronto Hydro are well served in the competitive market that is about to be introduced in Ontario.

The Commission requests the opportunity to make a deputation to the special meeting of the Works and Utilities Committee on September 14, 1998.

Thank you for your attention.

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(Report entitled "An Accountability Framework for

The Toronto Hydro-Electric Commission",

dated August 12, 1998, submitted by

Jalynn H. Bennett, Jalynn H. Bennett & Associates Ltd.)

Overview:

The Corporation is accountable to the shareholder(s) for its performance against its mandate.

Mandate is broadly determined by Bill 35 (distribution entity and service entity. The former is a monopoly; the latter is viewed to be open to private sector competition). In addition, Toronto Hydro will be subject to the purview of the Ontario Energy Board (OEB).

Corporate accountability rests on the established principle of enhancing shareholder value.

The shareholder must determine what, in its view, constitutes the elements of value it requires. The present shareholder (City of Toronto) must determine, inter alia, its financial expectations. Does it expect to receive an excess revenue stream (i.e., returns above the operating costs of Toronto Hydro) or does it expect to allocate revenues to Toronto Hydro (i.e., subsidize it)?

If the service entity is going to operate in a competitive environment, it will have to be operated as a commercial entity. It will have few or no customers if it cannot deliver service on a cost-competitive basis. If it is not commercially viable, the shareholder will face erosion of value (no revenue stream) or, worst case scenario, no value.

Normally, a shareholder, with a proposed slate determined by the nominating committee of the Board, appoints the Board of Directors, approves the appointment of the auditor, and approves the annual financial statements. The shareholder expects to receive regular communications (quarterly reports, annual report, annual shareholder meetings, etc.) from the Board and Senior Management.

The Board is responsible for ensuring that the entity has a vision and a strategic plan in place, with operating practices consistent with the ability of the organization to meet its goals and objectives.

It hires the CEO and determines his/her compensation. It holds the CEO accountable for achieving agreed upon goals and meeting specific performance targets.

It establishes risk parameters for the organization and ensures that controls, procedures and policies are in place so that risks are managed appropriately.

In summary, the Board exercises its accountability through clearly articulated and transparent governance practices on behalf of the shareholder, with the objective of creating long-term shareholder value.

The Board delegates to the CEO and the senior administration which reports to him/her, the management of the organization, holding management accountable for achieving agreed upon objectives.

Role of the Chair:

The Chair of the Board chairs all Board meetings. In consultation with the CEO and the Corporate Secretary, he(she) sets the agendas for the Board meetings, and ensures that there is an annual work plan for the Board which enables it to fulfill its obligations. He or she chairs the annual meeting of the Corporation and ensures regular and appropriate communication with the shareholder and the broader community. The Chair ensures that meetings are conducted in an orderly fashion and that all directors are encouraged to actively participate in Board deliberations. The Chair must be balanced, exercising good judgment and common sense in moving the business of the Board forward. By nature of the position, the Chair is frequently an informal sounding board for the CEO and often transmits to the CEO, on behalf of the Board, emerging Board views or concerns so that management can address the issues in a timely fashion. The Chair is, ideally, the fulcrum upon which accountability turns. He or she must have a clear understanding of the organization's vision and mandate and a clear sense of what constitutes good governance practices in achieving the necessary accountability of management to the Board, and the Board to the shareholder.

By virtue of the demands of the role, the Chair will need to have more time available for Board business than will the other directors. It is envisioned, however, that the Chair is a non-executive position, that is, the Chair is not part of the management team. This is necessary so that no confusion arises as to the role of the Board. The Board does not manage the organization. It sets broad parameters, it ensures that the management is in place to achieve the organization's objectives, and it monitors management's performance against the established objectives.

Organization of the Board:

Because of the over-arching stewardship role of the Board, a Board may choose to delegate some of its more detailed review of activities to specific committees for informed discussion. This will be discussed below. Suffice to say here, the Board and Board Committee meeting dates should be established well in advance and must be adhered to. A generally accepted practice is to establish meeting dates, as well as an Annual Meeting date for the following year, three to four months before the existing year end. Most organizations try to schedule regular Board meetings within four to six weeks after the fiscal quarter ends. (This would allow, for example, an Audit and Finance Committee to review quarterly and annual results prior to the Board meeting.)

At a minimum, four Board meetings a year are desirable; often a fifth meeting should be scheduled for review of the organization's annual and longer term strategic plans. In this case, as the Toronto Hydro-Electric Commission faces enormous and unprecedented change in its proposed mandate and in its competitive environment, two additional meetings are advisable in order to ensure that management is responding expeditiously to the business and organization challenges it is facing. Two additional meetings would also provide management with the opportunity to draw on the collective expertise of the Board members.

Normally, materials for Board and Committee meetings should be in the hands of all members at least one week prior to the meeting date.

Size of the Board:

Much has been written about what constitutes the "right size" for a Board. There is no clear and precise answer. The general consensus is that smaller is better. However, very small boards tend to develop a level of informality in their interchange with management that can, in the author's view, lead to some confusion as to who is managing who. A suggested Board size is somewhere between eleven and fifteen. This ensures that there are enough Board members available to staff Board Committees effectively. Odd numbers are preferable, in the experience of the author, because it allows, if necessary, the Chair to cast a deciding vote. While most effective Boards try to manage on a collegial basis so that clear decisions are arrived at with something close to unanimity, upon occasion a vote may be necessary, in which case, a simple majority should prevail. The CEO should be a Board member, but the rest of the Board members should be independent, that is, drawn from outside the THEC.

Role of Committees:

Committees should act as the arms of the Board, with responsibility for monitoring assigned areas and developing policy and recommendations for the consideration of the Board as a whole. Committees should not normally be asked to act for the Board or to direct the administration.

Each Committee should develop an annual work plan which should be distributed to the whole Board. Written minutes should be kept of all Committee meetings and distributed to the whole Board. The whole Board should only deal with a report from a Committee when a specific action is proposed or if a serious problem is encountered.

Turning to the question of what Committees should be formed, it is useful to review again the nature of the Board's responsibilities:

(a)employing the CEO, delegating responsibility for the management of the THEC to the CEO, and evaluating CEO performance;

(b)with a focus on the long term, approving the mission of the THEC and ensuring that strategic directions and outcomes are consistent with the mission;

(c)monitoring the quality of the THEC, its activities and its management and ensuring that internal controls to protect and to enhance the organization are in place;

(d)monitoring the image of the THEC and advancing its objectives; and

(e)monitoring the identification and management of risks.

It is envisioned that the THEC Board would have a number of Board Committees.

(1)Audit and Finance Committee:

(a)Responsible for monitoring the financial health and viability of the THEC and for liaison between the Board and the external independent auditors.

(b)The Committee would monitor budget projections (capital and operating) and review the results of internal audits and risk assessment.

(c)It would recommend to the Board all budgets, financial statements, appointment of auditors, levels of spending authority, lines of bank credit, contracts, loans or spending requiring Board approval.

(2)Management and Human Resources Committee:

(a)Responsible for assessing annually the CEO's performance and ensuring the CEO's performance appraisal of senior management takes place on a regular basis.

(b)Responsible for determining the CEO's compensation arrangements.

(c)Ensuring that appropriate human resources policies and practices are in place throughout the organization.

(3)Nominating and Governance Committee:

(a)Monitors the Board's governance practices, structures, by-laws, regulations and performance on an annual basis.

(b)Identifies and nominates for election to the Board, individuals with requisite skill sets and time availability to serve as Board members.

(c)Recommends Committee assignments and Committee Chairs, as well as Chair of the Board, to the Board.

(d)Oversees the development of, and monitors, the orientation program for new directors.

Ability of Board to Obtain Independent Advice:

The Board of the THEC shall be authorized to obtain, as it deems necessary for the fulfillment of its duties, any independent advice it requires (for example, legal counsel, independent audit, compensation expertise etc.). This shall be on the motion of the Board as a whole.

Conflict of Interest Policy:

The Board shall have in place a clear conflict of interest policy and should ensure that such a policy is also in place for management and employees.

Remuneration of Board Members:

In order for the THEC to attract and retain directors with the requisite skills and experience, it is important that Board members be compensated in line with prevailing practices in the commercial corporate sector. This means annual retainer, or base, directors' fees, augmented with attendance fees for Board and Committee meetings. It is also envisioned that the Board Chair and the Committee Chairs would receive additional remuneration in recognition of their additional responsibilities and requisite time commitment required to fulfill these responsibilities. On the other hand, the THEC has a single public shareholder, so the range of fees should recognize this.

Proposed fee structure:

(a)Chair of the Board - annual retainer - $50,000.00 - $100,000.00;

(b)Committee Chairs - annual retainer - $4,000.00;

(c)Board Directors (ex Board Chair) - annual retainer - $12,000.00; and

(d)Board/Committee meeting attendance fees - $1,000.00 per meeting.

These fees reflect the median fees in 1997 as reported in "Corporate Board Governance and Directors Compensation in Canada: A Review of 1997" by Patrick O'Callaghan & Associates.

Nomination Process:

Once the permanent THEC Commission/Board is established, the Board, through its Nominating and Governance Committee, should bring to the Board, on an annual basis, a recommended list of candidates for election to the Board at its annual general meeting. The rationale for this is that the Board itself will have the best sense of the skills and experience that the Board as a whole will require, on an on-going basis, in order to perform its stewardship and accountability functions on behalf of the shareholder.

The shareholder will elect the directors from the Nominating Committee's slate. However, there is a growing sense that directors should be elected on a name-by-name basis (U.S. practice) rather than on a slate-only basis.

The Nominating Committee should cast a broad net. It can ask for suggested names for its consideration from many sources: from City Council, through the press for public recommendations, from existing Board members, from specialists in Board recruitment, etc. The overwhelming consideration is to craft the best Board possible to support the Board's work. A list of skill sets and experience will be a necessary component to delineate when requests for appropriate nominees are solicited.

All of the above is for tomorrow. The issue for today is how to go about forming the first permanent Board/Commission, since the interim Commission does not yet have in place a Nominating Committee.

Model A:

There has been a suggestion that one can look at quasi public sector models, for example, the model of the Greater Toronto Airport Authority. To summarize briefly, the GTAA was put in place to operate the federally owned airports in the greater Toronto region on a not-for-profit basis with a 99-year contractual arrangement and lease agreement for the airports in question. It is important to note that these airports do not face commercial competition.

The GTAA Board of 13 is comprised of two representatives from each of the five regions with lands touching on the airports' perimeters. All of the above nominees' names are taken to the Nominating Committee of the GTAA Board which ascertains whether the proposed nominees' skills and experience meet the criteria that the Board has established. In addition, there are two nominees from the Federal Government that it alone chooses (Governor-General in Council appointments) and the Province of Ontario has one nominee. The Board itself elects the Chair of the Board. Some Board members would say, on a not-for-attribution basis, that it would be preferable, on a going forward basis, that the Board's Nominating Committee should play a stronger role and that the review process of prospective candidates for the Board should be strengthened.

It is interesting, too, to note the comments of Senator Michael Kirby on the need for increased professionalism of directors (see appendix).

When one reviews the specifications of what a Board is accountable for, one can see the emergence of defined skill sets and experience requirements that the permanent THEC Commission will require. Keeping in mind the over-arching responsibility of ensuring the enhancement of long-term shareholder value, the Board will require members with financial and managerial expertise in large, complex organizations that face competitive pressures. The Board will need members who understand the difference between holding management accountable and trying to manage the organization directly. The Board will need members who understand community needs for service delivery in a responsible and responsive fashion but who also understand that the organization will be facing competitive pressure from alternative-for-profit, service providers. Management, as it faces all these challenges, will need the support of a Board that helps it reposition the THEC to perform under it new competitive mandate. Above all, the THEC and the shareholder will be best served by a Board which is comprised of individuals who will take a disciplined approach to their responsibilities as Commission members and can make the necessary time commitment to effect their obligations.

Model B:

An alternative model is to strike a small (approximately five members) Committee from within the existing Commission, comprised of Commissioners who would not envision having their names go forward as future Board/Commission members, who will be charged with the task of proposing a slate of names for consideration by the shareholder. The Committee should be chaired by someone who is external to the present organization and who brings some sensitivity to public policy dynamics as well as to governance and corporate management issues. The present CEO should be a resource to the Committee, sitting ex-officio. The interim Nominating Committee may wish to retain a consultant who specializes in the field of board director searches. Such an individual, from a firm with recognized credentials in this field, can provide the necessary perspective to enhance the Committee's deliberations and to support the Committee in its identification of appropriate candidates.

Recommendations:

(1)That the interim Commission proceed with Model B as expeditiously as possible.

(2)That the Committee retain an independent consultant as described above.

(3)It goes without saying that discussions with the shareholder should precede any formulation of such a Committee. The shareholder must understand the financial risks that the THEC is facing under Bill 35 and be attuned to the skills and experience that the permanent THEC Commission requires. These criteria include:

(a)experience on boards;

(b)exercise on collective accountability;

(c)time availability;

(d)financial skills;

(e)marketing skills;

(f)commercial sensitivity;

(g)independence of judgment; and

(h)integrity.

Of course, management at the THEC may choose to form a community/large user advisory group as it works its way through the formulation of its strategic plans. I note in passing that the THEC will also fall under the purview of the Ontario Energy Board where interveners of all persuasions can also make submissions.

In the final analysis, it is the author's view that the permanent Board/Commission must be comprised of directors with experience in the areas of relevance to the mandate of the newly reconstituted THEC.

The final test should be an assessment of the fine balance required to achieve a Board which can operate in a collegial fashion, to the end that management receives clear and unequivocal direction, and that is responsive to the long-term needs of the shareholder. A Board/Commission which is internally divisive in its directions to management will be dysfunctional in its accountability. That would be, in essence, flawed governance and flawed accountability. This is not to say that the Board/Commission will not engage in vigorous debate. A Board, properly constituted, will both simultaneously challenge and, when appropriate, support management, as a necessary approach to achieving accountability to the shareholder.

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(A copy of the background material respecting the foregoing was circulated to all Members of Council with the agenda of the Strategic Policies and Priorities Committee for its meeting of September 24, 1998, and a copy thereof is on file in the office of the City Clerk)

(City Council on October 28, 29 and 30, 1998, had before it, during consideration of the foregoing Clause, the following report (October 26, 1998) from the Chief Administrative Officer:

Purpose:

This report provides for Council's information the options considered for the composition of the Board of Directors for the incorporated Toronto Hydro and recommends a process for Council to establish the business direction for the new corporation, define Council's expectations, and establish the financial and policy relationship between Council and the new Board.

Financial Implications:

There are no additional funding requirements.

Recommendations:

It is recommended that:

(1)Council receive the alternative options contained in Appendix 1 of this report for the composition of the Board of Directors of the new Toronto Hydro;

(2)Council approve the process outlined in Appendix 2 of this report for the development of Council's policy and financial strategies for Toronto Hydro; and

(3)the appropriate City officials be authorized to take the necessary actions to give effect thereto.

Council Reference/Background/History:

At its meeting of October 1 and 2, 1998, Council had before it Clause No. 28 of Report No. 18 of The Strategic Policies and Priorities Committee in which the Committee recommended approval of the recommendations contained in the Chief Administrative Officer's report dated September 23, 1998 concerning the governance structure for the new Toronto Hydro. However, the Committee recommended that, for the interim period before incorporation, the five citizen members of the existing Commission be replaced by Council Members.

The clause was held over to the next Council meeting, but during the brief debate a number of concerns were expressed regarding the composition of the new Board and the actions recommended with respect to the Interim Board. This report provides for Council's information other options which were considered.

In order to facilitate the discussion of the composition of the new Board of Directors, the issue needs to be put into context of the future direction of the new corporation and how Council will influence Toronto Hydro's business direction. This report recommends a process for Council to develop its risk profile which will in turn guide the business plan for the new entity to be incorporated in a new competitive market established by provincial legislation.

Comments:

The Ontario Government's Bill 35 introduces competition into the generation and retail components of the electricity industry. The Bill maintains the transmission business as a monopoly under the control of municipalities. All electric utilities are required to become incorporated companies. At some point after proclamation of the Bill, possibly as early as December 1998 or January 1999, the existing Toronto Hydro-Electric Commission will cease to exist, being replaced by a business corporation with share capital owned by the City.

As a commission, Toronto Hydro was removed from the direct control by Council. Council's only means of influencing the direction of the utility was to appoint its members. However, the new relationship will be very different. It is unlike an agency relationship where Council is obligated to assume financial and business risks and is held accountable for results of the agency. The new corporation will act independently, being responsible for its own deficits and debts. Operating in a competitive market, much of its business planning will be driven by consumer demand for goods and services at low cost, although the Ontario Energy Board will have a much stronger role in regulating the industry through licensing operators, limiting rates, approving system expansion, and other monitoring tools. The taxpayer and consumer will communicate their needs and expectations through exercising their right to choose a supplier, rather than through the political process.

Toronto Hydro will have to focus on marketing its services for the first time and is expected to face fierce competition. No other municipal service faces such direct competition from the private sector. To oversee the management of such a corporation, an expert Board comprised of 13 citizens with a broad spectrum of business skills and experience has been recommended. Other options considered are contained within Appendix 1 to this report.

In many ways, Council will have greater influence over the business strategy of Toronto Hydro as the sole shareholder than it currently has with the Commission. By setting out its high-level business expectations, Council can influence the strategic direction of the Board of Directors without being members of the Board.

Once Council's policy direction is communicated to the Board, the Board delivers the service within those parameters to maximize shareholder value.

Over the next several months, Council will have the opportunity to familiarize itself with the new legislation and understand the implications for Toronto Hydro, the City and the consumers. In addition, Council will have to define its relationship with the new corporation and establish its expectations.

Appendix 2 to this report outlines three proposed workshops designed to assist Council in these tasks. It is recommended that this process be adopted by Council. The Chief Administrative Officer, with consulting assistance, will provide the support required for Council to consider the many questions which need to be answered. Following each workshop, staff will provide Council with reports to confirm the direction established in the workshops.

(Appendix 1)

Alternative Options for Composition of the

Board of Directors for Toronto Hydro

The following options were before the Strategic Policies and Priorities Committee during its deliberations on September 24, 1998:

Chief Administrative Officer (CAO) Rationale:

CUnder the existing Commission structure, Council has limited authority to set expectations and provide business direction. However, as sole shareholder of an OBCA corporation, Council as a whole will have increased opportunity and authority to give specific strategic direction to the Board and to monitor its performance through prescribed reporting. It is therefore not necessary for individual Councillors to become engaged in business operations directly.

CIncluding Chief Executive Officer (CEO) as a voting member tends to diminish the distinction between the relative roles of the board and management. The CEO cannot vote on matters which impact him directly such as his hiring, salary, benefits, performance issues, etc and should not vote on matters which result in the board setting objectives for the CEO. CEO is already obligated to be present and participate in discussion at Board meetings without being a voting member. The CEO could be a member of the Board without voting rights.

CElectricity industry will be highly regulated by Energy Board

CBoard members are subject to personal liability.

CCouncillors' time commitment to Hydro issues would be channelled toward considering shareholder (Council) interests rather than Hydro management issues.

Other Options Reviewed by CAO:

CSmaller board may expedite decision-making, but may not afford the opportunity to include all of the required skills and experience.

CCouncillors may represent diverse stakeholder interests which cannot or should not be represented directly because:

-number of stakeholders is large and diverse and Council is deemed to represent these interests;

-community interests are protected by Council as a whole acting in the capacity of shareholder, setting specific strategic directions and identifying performance expectations;

-consumers' interests are protected through market where companies must compete for market share by offering reliable and quality service at a good price; and

-other participants in the power market may be competitors.

(Appendix 2)

Process for Developing Council's Policy

and Financial Strategy for Toronto Hydro

Three workshops are proposed to facilitate Council decision-making with respect to developing Council's strategy for Toronto Hydro.

(1)Owning an Electric Utility in a Competitive Market:

CBriefing on Bill 35 and its impact on Toronto Hydro, the City, and consumers.

CHow will the competitive market work?

CHow is owning a corporation different from owning a municipal agency?

CWhat are the shareholder's rights, duties, and obligations?

(2)Business Direction for Toronto Hydro:

CWhat businesses should Toronto Hydro pursue beyond the monopoly "wires" business?

CTo what degree does the City want to assume risks associated with a competitive energy supply and retail market?

CWhat does the City expect as the sole shareholder?

-Maximize value of assets for potential sale of a portion of shares?

-Maximize dividend stream to the City?

-Minimize cost to consumers by foregoing City returns?

-Give environmental issues supreme priority?

CShould the corporation diversify into peripheral commodities and services?

CShould Toronto Hydro expand its operating jurisdiction in the generation and/or retail market?

(3)Developing the Shareholder Agreement:

CScope and authority of the Board of Directors.

CProcess for communicating Council's directions to the Board.

CDefining the financial relationship.

CCity policies which will apply to the Board.

CReciprocal service arrangements.

CConstraints on debt and reserves.

CReporting requirements and accountability framework.

Process:

(a)All Councillors will be invited to participate in all workshops.

(b)Workshop results will be summarized and distributed.

(c)Staff will make recommendations to Council based on directions established in workshops.)

(City Council also had before it, during consideration of the foregoing Clause, the following communications from the Chair, Toronto Hydro-Electric Commission:

(a)(September 28, 1998) advising that the Commission will be meeting on October 8, 1998, at which time they will be discussing the directives of the Strategic Policies and Priorities Committee with respect to the Governance of the Toronto-Hydro Electric Commission; and

(b)(October 26, 1998) advising that the Commission on October 8, 1998 did not deliberate on Items (i) and (ii) of the Recommendations of the Strategic Policies and Priorities Committee, since such Recommendations have not yet been considered by Council; and that the Commission will wait to hear further on the disposition of these matters from Council.)

5

Ontario Property Assessment Corporation

- Recovery of 1998 Costs

(City Council on October 28, 29 and 30, 1998, adopted this Clause, without amendment.)

(City Council on October 1 and 2, 1998, deferred consideration of this Clause to the next regular meeting of Council scheduled to be held on October 28, 1998.)

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(Clause No. 3 of Report No. 19 of The Strategic Policies and Priorities Committee)

The Strategic Policies and Priorities Committee recommends the adoption of the recommendations of the Assessment and Tax Policy Task Force embodied in the following transmittal letter (September 30, 1998) from the City Clerk, subject to Recommendation (2) therein being amended by deleting the words "and interested Members of Council" and substituting in lieu thereof the words "the Deputy Mayor and the Chair of the Assessment and Tax Policy Task Force", so as to read:

"(2)The Mayor, the Deputy Mayor and the Chair of the Assessment and Tax Policy Task Force, be requested to meet with the Minister of Finance to ensure that the City of Toronto has the number of members on the Board of Ontario Property Assessment Corporation proportional to the percentage of its levy;"

Recommendations:

The Assessment and Tax Policy Task Force recommends that:

(1)the report (September 15, 1998) from the Chief Financial Officer and Treasurer be adopted;

(2)the Mayor, and interested Members of Council, be requested to meet with the Minister of Finance to ensure that the City of Toronto has the number of members on the Board of Ontario Property Assessment Corporation proportional to the percentage of its levy;

(3)Councillor Chong be appointed an ex-officio member of the Assessment and Tax Policy Task Force; and

(4)Council's position be forward to the Association of Municipalities of Ontario with the request that it endorse the City's position.

Background:

The Assessment and Tax Policy Task Force, on September 29, 1998, had before it a report (September 15, 1998) from the Chief Financial Officer and Treasurer respecting Ontario Property Assessment Corporation - Recovery of 1998 Costs, and recommending that:

(1)The City of Toronto pay the Ontario Property Assessment Corporation (OPAC) the budgeted amount of 24.7 million that was highlighted in the April 1998 Provincial downloading estimates and that the OPAC Board of Directors be advised that the additional $1.2 million requested of the City of Toronto is unacceptable at this time of the year when two thirds of our fiscal year is complete.

(2)The OPAC Board of Directors be advised to continue to pursue funding of the $7 million in extra costs of operation of OPAC with the Province of Ontario and not pass through this cost to municipalities.

(3)The OPAC Board of Directors be advised that the City of Toronto requests that the levy amount for 1999 be set by December 31, 1998 in order to meet City of Toronto budget deadlines.

(4)The OPAC Board of Directors be requested to review the cost of operation of OPAC with a view to reduce costs and not increase future levies at or below the level of inflation particularly for 1999 and 2000.

(5)OPAC be requested to provide detailed cost breakdowns of its expected $130 million total cost of operations; to provide detailed information on the cost of the four Toronto regional offices and to outline the service level standard that accompanies the $25.9 million prior to the due date of the first installment of the 1998 bill; that the 1998 invoices not be paid until the Chief Financial Officer and Treasurer is satisfied with the costs; that interest not be charged by OPAC until November 1, 1998 in light of the lateness of their invoice.

(6)The OPAC Board of Directors, AMO and the Province of Ontario be requested to dedicate 20 percent of the seats on the OPAC Board to be representatives of the City of Toronto, and that City of Toronto staff be requested by OPAC to participate to the fullest extent possible in the development of service level standards for OPAC.

The Task Force's recommendations are noted above.

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(Report dated September 15, 1998 , addressed

to the Assessment and Tax Policy Task Force

from the Chief Financial Officer and Treasurer)

Purpose:

To outline the costs billed to the City of Toronto for 1998 property assessment services and support costs and a set of recommendations to deal with the recent billing.

Financial Implications:

Funds in the amount of $24.7 million are budgeted in Corporate Expenditures. Total billing for 1998 will be $25,946,916.00 which exceeds the budgeted amount by $1.2 million.

Recommendations:

It is recommended that:

(1)The City of Toronto pay the Ontario Property Assessment Corporation (OPAC) the budgeted amount of 24.7 million that was highlighted in the April 1998 Provincial downloading estimates and that the OPAC Board of Directors be advised that the additional $1.2 million requested of the City of Toronto is unacceptable at this time of the year when two thirds of our fiscal year is complete.

(2)The OPAC Board of Directors be advised to continue to pursue funding of the $7 million in extra costs of operation of OPAC with the Province of Ontario and not pass through this cost to municipalities.

(3)The OPAC Board of Directors be advised that the City of Toronto requests that the levy amount for 1999 be set by December 31, 1998 in order to meet City of Toronto budget deadlines.

(4)The OPAC Board of Directors be requested to review the cost of operation of OPAC with a view to reduce costs and not increase future levies at or below the level of inflation particularly for 1999 and 2000.

(5)OPAC be requested to provide detailed cost breakdowns of its expected $130 million total cost of operations; to provide detailed information on the cost of the four Toronto regional offices and to outline the service level standard that accompanies the $25.9 million prior to the due date of the first installment of the 1998 bill; that the 1998 invoices not be paid until the Chief Financial Officer & Treasurer is satisfied with the costs; that interest not be charged by OPAC until November 1, 1998 in light of the lateness of their invoice.

(6)The OPAC Board of Directors, AMO and the Province of Ontario be requested to dedicate 20 percent of the seats on the OPAC Board to be representatives of the City of Toronto, and that City of Toronto staff be requested by OPAC to participate to the fullest extent possible in the development of service level standards for OPAC.

Discussion:

(1)Cost of Assessment Services.

As part of the Provincial downloading that was originally announced in October 1997, costs for property assessment services are to be paid by the municipalities of the Province. Original estimates for the City of Toronto in October 1997 were $28.5 million which were subsequently adjusted to $24.7 million in April 1998. This amount of $24.7 million was budgeted in Corporate Expenditures.

On August 28, 1998, the Ontario Property Assessment Corporation sent its first billing to the City. This bill was received on September 9, 1998 and is comprised of two payments of $12,973,458.00 due October 1, 1998 and $12,973,458.00 due December 15, 1998 totalling $25,946,916.00. This amount is $1.2 million higher than was budgeted.

Correspondence from the Transition Leader of the Ontario Property Assessment Corporation (OPAC) (attached) indicates that the estimated cost of operation for OPAC is $130 million which is higher than the $123 million cost of the function which was provided by the Province in its downloading estimates. The Transition Leader states:

"The 1998 billing for assessment services has been set by the Board of Directors of the Ontario Property Assessment Corporation at $130 million. We understand that this amount is, regrettably higher than the $123 million cost of the function which was provided in the 'who does what' discussions. The Board believes, however, based on its knowledge of the function to date and its current understanding of future requirements and the needs of its municipal members, that the $130 million billing level is required immediately for the function to be sustainable into the future."

While OPAC is pursuing increased funding from the Community Reinvestment Fund to recoup the increase in costs of $7 million, it is unacceptable that at this late date in municipalities' fiscal years, that the increased cost be passed in their entirety to municipalities. It is recommended that OPAC be advised that the City of Toronto has only budgeted $24.7million and is not in a position to pay any additional costs and that the Province of Ontario be requested to pay the increased costs. Failing the Province paying the increased costs, it is recommended that the Board of Directors of OPAC be advised to seek cost efficiencies to meet their original $123 million budgeted costs.

It is also requested that OPAC advise each municipality of its cost share of 1999 assessment services by December 31, 1998 in order to meet deadlines for preparing municipal budgets.

The OPAC Board is anticipating that increases in future years' levies should be at or below the level of inflation. At a time when municipal budgets have been frozen, the OPAC Board should be strongly urged to freeze costs of OPAC at 1998 levels of $123 million for 1999 and2000 and in fact be directed to find cost efficiencies and strive to reduce costs of operation.

(2)Basis of Costs Allocation.

As noted, OPAC is budgeting $130 million as its cost of operation for 1998. The City of Toronto share is billed at $25.9 million. This represents 20 percent of the cost of OPAC's operation. The billing formula for OPAC is comprised of two components (a) Toronto's share of total assessed values (25.36 percent) averaged with (b) Toronto's share of total properties (14.56 percent).

The supporting information for the calculation of 1998 property assessment services and support costs is deficient in several respects;

(i)There is no breakdown of what comprises the $130 million total cost of operations

(ii)There is no breakdown of the cost of assessment services currently provided to the City of Toronto through its 4 existing regional offices.

(iii)There is no description of the service levels and quality of service to be provided for the $25.9 million billed amount.

The billing received from OPAC should not be paid until the above supplementary information is received and reviewed to the satisfaction of the Chief of Financial Officer & Treasurer.

According to the OPAC Board, the Province has already allocated $33 million towards defending the 1998 appeals. The Board, believing that the allocation of $33 million for appeals is inadequate, has raised concerns with the Province.

3)Membership in OPAC

The Province announced the creation of a municipal corporation for assessment services in their 1996 budget. The Ontario Property Assessment Corporation (OPAC) was created under Bill 164, the Tax Credits to Create Jobs Act, which received Royal Assent on December 18, 1997. All municipalities in Ontario are members of OPAC which is a municipal corporation responsible for assessment services delivery starting on January 1, 1998.

OPAC, funded by the municipalities on a cost recovery basis, is governed by a fourteen-member board who are appointed by the Minister of Finance. The Board is comprised of twelve municipal representatives (six of whom are elected municipal officials and six municipal employees) and two provincial representatives.

Currently the OPAC Board of Directors is comprised as follows:

As noted the City of Toronto has 25 percent of the total assessed values in the Province of Ontario and 15 percent of the total number of properties and is therefore paying 20 percent of the cost of OPAC. It follows that the City of Toronto should have representation on the Board equal to its proportionate cost share. The City of Toronto should have a say for what it is expected to pay particularly given the significance and complexity of the City of Toronto assessment base. Based on a 20 percent share of costs, the City of Toronto should have three seats on a fourteen person board. Currently, the City is represented by Councillor Chong who is sitting on the Board as one of the two Provincial representatives. It would be fair for the City to request that at least an additional City of Toronto representative be added to the Board and that two City of Toronto representatives are always sitting on the Board.

Conclusion:

The City of Toronto has just received its 1998 billing from the newly established Ontario Property Assessment Corporation (OPAC). The invoice amount exceeds the amount budgeted by $1.2 million and does not provide sufficient information to support a $25.9 million payment. The City of Toronto will be paying 20 percent of the cost of OPAC and should have equivalent representation on the OPAC Board.

Contacts:

Galena Carbone, Director of Revenue Services:392-8065

6

Staff Lay-Offs in Works and Emergency Services

(City Council on October 28, 29 and 30, 1998, adopted this Clause, without amendment.)

(City Council on October 1 and 2, 1998, deferred consideration of this Clause to the next regular meeting of Council scheduled to be held on October 28, 1998.)

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(Clause No. 7 of Report No. 19 of The Strategic Policies and Priorities Committee

The Strategic Policies and Priorities Committee reports having requested the Chief Administrative Officer to report directly to Council for its meeting on October 1, 1998 on the matter of pending lay-offs of employees in Water and Sewage Plants and advise of the status of such.

(City Council on October 28, 29 and 30, 1998, had before it, during consideration of the foregoing Clause, the following report (October 1, 1998) from the Commissioner, Works and Emergency Services:

Purpose:

With reference to the request from the Strategic Policies and Priorities Committee to report directly to Council for its meeting on October 1, 1998, on the matter of pending lay-offs of employees in Water and Sewage Plants.

Funding Sources, Financial Implications and Impact Statement:

There are no financial implications arising from this report.

Recommendation:

It is recommended that this report be received for information.

Comments:

The Water and Wastewater Services Division does not plan any lay-offs in 1998.

The misunderstanding may have occurred in two areas:

(a)the Industrial Mechanic Millwright Program; and

(b)the transfer of staff under the Works Best Practices Program.

(a)Industrial Mechanic Millwright Program:

-The Millwright Program started before Best Practices where we retrain staff to become Industrial Mechanic Millwrights.

-Graduating Millwrights will be placed in permanent positions in the Department where some are held by temporary staff at the present time, in accordance with the agreement between Local 43 and Metro Management (Appendix "A" attached).

-Temporary employees hired from outside (some have been hired as temporary staff for up to four years) could be laid off as new graduates are placed. Temporary staff become union members after six months and are eligible for seniority protection in the event of any lay-offs.

-Currently we are placing 4 new Millwrights from the apprenticeship program and 17 from our Skills Enhancement Program. There will not be any lay-offs as a result of this program, this year.

(b)Reassigning Staff under Works Best Practices:

-Within the WBP program we identified the need to retrain and cross-train existing staff within the plants.

-The new program was started at the Highland Creek Treatment Plant and some temporary assignments made.

-The continuation of the program has been on hold for four months, waiting for the Local 416 to see if a protocol could be reached for the unions' involvement.

-The report at Budget Committee, Strategic Policies and Priorities Committee and now Council indicates we are unable to agree on a process for their involvement as we cannot agree to a "no layoff clause".

-As a continuation of the WBPP at Highland Creek we plan to reassign staff from the Highland Creek Sewage Treatment Plant to the Main Sewage Treatment Plant commencing October7, 1998.

-The General Manager and Director of Water Pollution Control met with staff at the Highland Creek Sewage Treatment Plant on September 21, 1998, to advise them of the pending reassignments.

-Written communication to the union and staff is underway (copy attached Appendix"B").

Contact Name:

Mr. Michael A. Price, P.Eng., FICE, General Manager, Water and Wastewater Services

Telephone (416) 392-8200, Fax (416) 392-4540, E-Mail mprice@city.toronto.on.ca.)

(A copy of each of Appendices "A" and "B", referred to in the foregoing report, is on file in the office of the City Clerk.)

Respectfully submitted,

MEL LASTMAN,

Chair

Toronto, September 24 and October 1, 1998

(Report No. 20 of The Strategic Policies and Priorities Committee, including additions thereto, was adopted, as amended, by City Council on October 28, 29 and 30, 1998.)