Sarnia says Bluewater service agreement extended through 2027

Sarnia says a Bluewater Power service contract has been extended through 2027. Behind the arrangement is a history of shared billing costs and municipal staffing decisions, including a 2008 proposal to free two City employees for other water-system work. With the City describing its price benchmarking as “high level,” we examine the original cost case, later negotiations and what information it has provided about assessing alternatives before another extension.

Sarnia says it has extended a Bluewater Power service contract through the end of 2027 and will bring any potential further extension to Council next year.

The City disclosed the one-year extension in an Oct. 9 response to questions from The Sarnia Journal about its water-meter reading, billing and maintenance agreements. It said the original billing arrangement was directly negotiated in 2004, with direct renewals in 2011 and 2021. City records also document an intervening billing renewal in 2016.

“We have entered into a one-year extension of the contract with a CPI increase taking us to the end of 2027,” communications manager Steve Henschel wrote. “We will bring any potential further contract extension to Council in 2027.”

Asked whether the City had benchmarked Bluewater’s pricing against other potential providers during the agreements, Henschel described the extent of that work.

“During the lifetime of these agreements, we have undertaken high level benchmarking, but not an in-depth analysis,” he wrote.

His response referred to one contract extension but did not identify which agreement it covered or its dollar value.

Sarnia is both a customer and Bluewater’s largest municipal shareholder. Through its wholly owned Sarnia Power Corporation, the City holds 86.05 per cent of Bluewater Power Corporation and receives dividends and interest from the group, according to City financial statements.

The Council-approved agreement for 2021, with Bluewater Power Services Corporation, provided for a first-year fixed fee of $792,335 and annual adjustments for inflation and customer growth. Its six-year term was originally scheduled to end Dec. 31, 2026. That fee covered meter reading, billing, customer service, collections and associated management; meter maintenance was separately contracted.

Henschel said the original arrangement was based largely on efficiencies from using Bluewater’s meter readers and combining bills. Staff checked costs in other municipalities using outsourced providers to assess whether Bluewater’s price was competitive, he said.

Changing providers would sacrifice some efficiencies from shared bills, customer service and meter work, Henschel said. He also pointed to transition costs, service challenges and additional oversight costs if the City regularly switched providers.

“Any transition to a new provider would require a significant lead time to implement,” he wrote.

How the arrangement began

The original records show why City staff favoured the arrangement, and how it became tied to decisions about municipal staffing.

In October 2004, Sarnia was reading residential water meters and billing customers only twice a year. Then-treasurer Dean Anderson described delayed City cash flow, large household bills and consumption information that could leave leaks undetected for months.

Staff proposed moving to six bills a year. Providing that expanded service internally was projected to cost $761,812 annually, plus about $70,000 in computer upgrades. Bluewater proposed an annual cost of $504,146, a projected $257,666 less for the expanded service. Those were estimates for the proposed options, not measured savings subsequently realized.

Bluewater could share meter-reading, customer-service and billing resources, including postage. Council approved outsourcing in October 2004, and the original contract began April 1, 2005.

The contract assumed Bluewater would hire additional staff and provided a route for two City workers to join it. Bluewater agreed to make a customer-service position available to one employee experienced in water billing or collection, and a meter-reader position available to one of three potentially affected readers. It also agreed to try to secure recognition of City seniority for employees choosing to move. These were provisions for employment opportunities; the agreement does not confirm that both positions were taken up.

Within City Hall, Anderson proposed using the cost advantage over expanded internal billing to support a Finance Department reorganization. The plan included a tax clerk, tax analyst and payroll/accounting clerk, and making an existing one-year financial analyst position permanent. Senior finance staff would have more time for analysis, planning and policy development.

For that broader billing and Finance proposal, Anderson’s report separately estimated a net additional cost of $114,800 against the existing 2004 budget. The estimate covered the combined proposal, rather than Bluewater’s billing fee alone.

Bluewater president and CEO Janice McMichael-Dennis, who said she became CEO in 2004, described the arrangement as a way to use infrastructure the utility had already built.

“Sharing costs such as bill preparation, postage and customer service benefits both water and hydro customers, because those costs are spread across a broader base,” she wrote in response to Journal questions.

She said implementation required account integration, system configuration, testing and coordination with City staff. Residents gained smaller, more manageable bills and access to Bluewater’s payment options and customer-service resources, she said.

Meter maintenance and City staffing

In 2008, the City proposed a second expansion with a different staffing purpose: freeing two Public Works employees for other duties within the City’s Water Section.

City engineer David Fielding reported that changing drinking-water standards and a new licensing program would require appropriate schedules for watermain maintenance, hydrant flushing and valve turning. Existing staffing was insufficient to complete those functions, he wrote.

His proposal would reassign the two employees then working on water meters to those maintenance duties, with Bluewater taking over day-to-day meter maintenance and operations. It called for an additional $200,000 annual payment to Bluewater, funded through water rates. Capital meter-replacement costs would remain the City’s responsibility, with Bluewater coordinating the work. The plan would buy external meter services while keeping the municipal employees available for other water-system needs.

Council approved the arrangement in October 2008 and required a review after two years, with a report back to Council, according to the Council minutes.

Renewals and review

Later records show substantive negotiations over Bluewater’s existing services. The 2021 billing agreement identifies the preceding contract as dated Dec. 12, 2016.

An October 2016 billing-renewal report acknowledged that electricity smart meters had ended shared physical hydro readings. Water meters still needed to be read, but staff said Bluewater had increased the City’s cost during that period only for inflation.

When electricity billing moved to a monthly schedule in 2017, Bluewater agreed to include water on every monthly bill without charging the City the additional billing cost. For residential and small-commercial customers, actual water readings continued every two months, with estimates billed in between. The 2017 fee reflected inflation and customer growth.

A separate 2016 maintenance report identified an annual base fee of $194,392, which staff said had remained unchanged for eight years, and proposed holding it for another four. This was the fee documented in the later renewal report; the 2008 proposal had budgeted $200,000.

Those reports document review and negotiation of the incumbent’s services. They do not set out a costed comparison with competing providers or municipal delivery.

The 2021 billing contract also provides continuing review mechanisms. It requires annual discussions about whether prices should increase or decrease in response to changes in costs, technology, legislation or circumstances, alongside annual service-quality discussions.

Either party can terminate without penalty on 12 months’ written notice, including a six-month transition to another provider or municipal delivery. That provision establishes an exit route, while the City’s response identifies costs and service challenges associated with using it.

McMichael-Dennis pointed to other Ontario municipalities as evidence of shared-billing efficiencies. Guelph’s 2024 business case projected that bringing billing in-house after Alectra announced it would discontinue the service would increase annual operating costs by $700,000 compared with the departing arrangement, with a $3.5-million transition budget. Guelph nevertheless assessed alternatives and concluded municipal delivery was the cheapest available option it examined. These were projections, not actual transition results.

Bluewater’s allocation of shared expenses is also subject to a regulatory commitment. Under a 2023 electricity-rate settlement approved by the Ontario Energy Board, the company agreed to an independent review of how costs are divided between the regulated distributor and its affiliates. Bluewater’s regulatory filings describe shared customer-service resources among those allocated expenses. The settlement accepted the methodology for 2023 while securing the future review. The study concerns internal cost allocation, rather than comparison of Sarnia’s contract with other suppliers.

The study is to accompany the next cost-of-service rate application. Following an OEB-approved deferral, Bluewater expects to file in 2028 for 2029 rates.

Henschel says any potential further extension will go to Council in 2027. The City provided historical cost analysis from 2004 and described its benchmarking during the agreements as high-level. Its response did not include a current comparison with other providers or municipal delivery, or specify how alternatives would be assessed before any further extension.

Bluewater Power requested that a link to its full written responses accompany this article. Read the company’s complete answers to The Sarnia Journal’s questions.