Aquatera

The formation of Aquatera as a regional water utility has been a subject of much debate. There are many that would argue that Aquatera was the city’s biggest mistake because we gave away a resource that gave us a major competitive advantage over the County of Grande Prairie. I believe that this is a moot point because the decision was made and it would be extremely difficult, if not impossible, to go back on that decision. It is highly unlikely that the province would allow us shut down Aquatera without just cause.

The final reason as to why Aquatera was formed has to do with infrastructure needs. Our water treatment plant at the city was, and is still, in need of major upgrades. Since the city has a legislated debt limit, the financial needs would have exceeded what the city can borrow to upgrade the system. As a separate corporation, Aquatera is able to borrow on its own without affecting the city’s ability to take on its own capital projects.

Aquatera operations have also been a subject of controversy with the rate increases that seemingly happen every year. In additional, there have been allegations of inefficient operations and mismanagement of funds. The truth about Aquatera’s comes down to issues when the corporation was first formed.

The Unanimous Shareholder’s Agreement (USA) that was in place when Aquatera was formed had problems with it that led to financial difficulties with Aquatera’s operations.

Firstly, the USA called for many decision to be made that required unanimous consent from all shareholders. That means that all board members assigned by the City, County and town of Sexsmith need to agree unanimously on major decision, especially those regarding share structure, finances and governance. I don’t believe this was a good idea because it means that minority shareholders are given as much power as majority shareholders on key issues. However, it is no longer possible to change the USA on this issue because it is impossible to unanimous agreement to do so. After all, who would want to give up power they have been granted from day one?

Secondly, the payout of cash dividends hurt Aquatera financially because it essentially took all retained earning and paid them out to the shareholders. The shareholders then used that money to subsidize taxes in their municipalities. Without any retained earning, the Aquatera was unable cover shortfalls in revenue when the economy started to slow down. Since inception, Aquatera paid about $7 million to its shareholders. If it were allowed to keep even a portion of that money, we would have seen rates stabilize instead of steadily increase.

Governance structure was also a problem when Aquatera was first formed. Each shareholder was given a number of directors to assign based on the percentage of ownership in the corporation. All shareholders also had political representation on the board. In some cases, as with rate increases, the political members would not want to vote in favour of rate increases, regardless of whether they were necessary, because it contradicted their interests when they went back to council. Also, political members don’t necessarily have the expertise to run a utility corporation. To make things even more complicated, the political members on the board didn’t necessarily represent their shareholders – they represented a position that may or may not be supported by the rest of their respective councils.

As a final note, the allegation that corporation was running inefficiently may have been correct. This happens in every corporation and is periodically is self-corrected. The slow down in the economy has definitely forced Aquatera to tighten up their operations.

A committee made up of City, County and Sexsmith council representatives reviewed the USA and governance structure. I took part in these negotiations along with the mayor and other 2 other members of council. Through hard work, many of the problems identified above were resolved and will allow Aquatera in the future to operate without the financial problems that were plaguing them beforehand.

Reviewing the problems caused and encountered by Aquatera in the past, it’s easy to see how finances were responsible for the majority of them. For example, Aquatera was accused of competing with the private sector in roll-out bin waste hauling. The decision to enter this business to supplement income was necessary since financially, the corporation had no retained earnings to buffer its operations. Rate increases were imposed when revenues dropped due to environmental efforts by Aquatera in their public campaign to encourage reduction in water usage and promotion of recycling. Both these initiative cost the corporation in revenues when marked improvements in public behavior reduced the volumes in the landfill and the water meter. Again, with no way to retain earnings, the corporation had zero reaction time.

Other examples can been be sited, but I am fairly confident that many of those problems have been corrected in the recent negotiations. One of the main principles corrected is that Aquatera will be allowed to keep retained earnings and still be able to pay out dividends to its shareholders. The only issue that was not possible to resolve was the voting structure of the shareholders, which is to remain unanimous consent.