Report for City Council September 13, 2005 Meeting

ATTACHMENT 3

W.D.GRACE, FCA

37 MARLBORO ROAD

EDMONTON, ALBERTAT6J 2C7

May 24, 2005

AlB.Maurer, P.Eng.Mr.DonaldJ.Lowry

City ManagerPresident and Chief Executive Officer

3rd Floor City HallEPCOR Utilities Inc.

1 Sir Winston Churchill Square10065 Jasper Avenue

Edmonton, AB T5J 2R7Edmonton, AB T5J 3B1

Dear Sirs:

Report of the Fairness Commissioner (Phase 2)

I have been engaged by the City of Edmontontofacilitate the joint City of Edmonton/EPCOR Utilities Inc. review of the overall merits of combining the City’s Drainage Services and EPCOR Water Services Inc. by ensuring objectivity and fairness of the review. The terms of my agreement state that I am to provide my assessment reports to both the City Manager and the President and CEO of EPCOR Utilities Inc.

The terms of reference for the joint study consisted of six stages as follows:

The appointment of a Fairness Commissioner.
Study initiation, being the preparation of terms of reference for the joint study.
The engagement of a consulting firm who will plan and execute the approach for the joint study.
Project planning and execution, i.e. the joint study itself.
Project assessment and recommendations, being the completion and presentation of any resulting recommendations with support material in deliverable format.
City Council presentation – joint recommendations, if any, to be tabled with City Council by the Management Team assigned to the joint study.

The scope of the study set out in the terms of reference provided that the study was to review the impact of combining Water Services and Drainage Services in six key areas – strategic, financial, legal, people, organizational, and stakeholder.

The scope of the study was also to examine potential utility service models such as:

Status Quo
Joining with EPCOR Water Services
Joining with City of Edmonton, Asset Management and Public Works
Combining into a new Environmental Utility.

I submitted my report on phase 1 of the assignment, being to review and report on the objectivity and fairness of the consultant selection process, on January 31, 2005 (a copy of which is attached hereto).

Phase 2 of my assignment was to evaluate and report on the objectivity and fairness of the consultant’s findings and recommendations in relation to the request for proposal.

The following provides an outline of the process and my comments related thereto.

The joint study was managed by BillBurn, General Manager, Asset Management and Public Works, City of Edmonton and ClaytonTiedemann, Vice President, Special Projects, EPCOR.

The selected consultant, PricewaterhouseCoopers (referred to herein as PwC), was advised of their appointment on January 10, 2005 with the required objective of submitting a draft report by April 30, 2005 and a final report by May 31, 2005.

A “kick-off” meeting of the Joint Study Working Group and the full PwC team was held on January 13, 2005. The Joint Study Working Group (referred to herein as the Working Group) consisted principally of Kurt Sawatzky, John Hodgson and Chris Ward of the City of Edmonton Drainage Services, and Clayton Tiedeman and Brian Gerdes of EPCOR, plus additional specific personnel from both EPCOR and Drainage Services who would be involved in the joint study.

PwC and the Working Group held regular status report meetings during the early stages of the study, usually on a weekly basis by teleconference. Such meetings were held on January 25th, February 1st, February 15th, February 22ndand March 1st. The purpose of these meetings was to monitor progress, to ensure that information was provided to PwC on a timely basis and to identify any additional information needs.

During the course of the study, there were joint briefing meetings of the City of Edmonton Senior Management Team (being AlMaurer, BillBurn and other members as required) and the EPCOR Priorities Council (being DonLowry, BrianVaasjo and other senior EPCOR executives). Such meetings were held on January 4th, January 18th, February 11th, March 15th, April 8th, April 15th and May 9th.

There were two major workshops held by PwC with numerous participants from both Drainage Services and EPCOR. Workshop #1 was held on February 8 and 9, 2005 and Workshop #2 was held on March 8 and 9, 2005. The major purpose of these meetings was to ensure that the baseline parameters and information provided by each of EPCOR and Drainage Services (and shared with each other), and the understanding by PwC of such information, was correct and understood by all parties.

There were two information briefing sessions held with executive members of the unions – CUPE 30, IBEW 1007 and CSU 52. Such meetings were held on March 16, 2005 and April 22, 2005. PwC was in attendance at both sessions.

There was an initial announcement of the joint study on November 15, 2004 followed by seven information bulletins issued to all City of Edmonton and EPCOR personnel, being one-page status reports as to the progress of the study. Such reports were issued on December 6th and 20th, 2004 and January 17th, February 7th, March 7th, April 4th and April 18th, 2005. Each bulletin also advised all personnel as to where they could obtain information on their respective intranet sites and also a voice call-in line where messages could be left for the study team. In addition, one bulletin advised all personnel as to the contact information for the Fairness Commissioner.

PwC delivered a draft report on April 4, 2005.

A meeting of the Working Group and PwC was held on April 19, 2005 for the purpose of providing comments to PwC on the draft report. Subsequent to this meeting, there were additional written comments provided to PwC by each of the parties and also shared with each other.

PwC delivered a revised draft report on April 27, 2005.

A meeting of the Working Group and PwC was held on May 3, 2005 to review and comment on the revised draft report.

PwC delivered a final draft report for review and comment on May 18, 2005.

PwC issued their final report on May 20, 2005, such report consisting of some 60 pages with an appendix of over 300 pages. The conclusion by PwC is found on page 9 and 10 of their report.

Finally, I would advise that I attended all but two of the above noted meetings in my role as Fairness Commissioner.

It is my observation and opinion that:

the joint study was conducted on an open and transparent basis,

there was a full sharing and review of informationby, and with, all involved parties, with ample opportunity to identify and rectify information gaps,

the openness of all working sessions and the ready access to, and responses from, management in both Drainage Services and EPCOR, allowed PwC to carry out and complete their work in a timelymanner, and

ThePwC report has been completed within the parameters and guidelines of the terms of reference on an independent and objective basis.

“Original signed”

W.D.Grace, FCA

W.D.GRACE, FCA

37 MARLBORO ROAD

EDMONTON, ALBERTAT6J 2C7

January 31, 2005

Al B. Maurer, P. Eng.Mr.DonaldJ.Lowry

City ManagerPresident and Chief Executive Officer

3rd Floor City HallEPCOR Utilities Inc.

1 Sir Winston Churchill Square10065 Jasper Avenue

Edmonton, AB T5J 2R7Edmonton, AB T5J 3B1

Dear Sirs:

Report of the Fairness Commissioner (Phase 1)

I have been engaged by the City of Edmontonto facilitate the joint City of Edmonton/EPCOR Utilities Inc. review of the overall merits of combining the City’s drainage services and EPCOR Water Services Inc. by ensuring objectivity and fairness of the review. The terms of my agreement state that I will provide my assessment reports to both the City Manager and the President and CEO of EPCOR Utilities Inc.

I have completed phase 1 of the assignment, being to review and report on the objectivity and fairness of the consultant selection process. The following provides an outline of the process and my comments related thereto.

A Request for Proposal (RFP) was issued on December 7, 2004 to the following consulting firms:

BearingPoint, Inc.

GrantThornton LLP

Deloitte & Touche LLP

PricewaterhouseCoopers LLP

I was engaged after the RFP was prepared and issued, and after the list of consultants to receive the RFP were selected. However, I reviewed the RFP and found it to be complete, as demonstrated by the limited number of enquiries from the consultants for clarification of various items. All clarification matters from any one consultant were circulated to all consultants.

In addition, I was advised that the list of consultants selected to review the RFP was determined by joint discussion and agreement between the City and EPCOR representatives. While the selected list is not exhaustive, in my view it is adequate for the purposes of the study.

During the period from December 16 to 22, I met with AlMaurer, DonLowry, ClaytonTiedemann, BillBurn and KurtSawatzky for briefing and background information. I received an excellent overview from all parties and received all information requested.

On January 6, 2005 I was provided with a tour of certain EPCOR facilities (Rossdale plant, E.L. Smith plant and the Genessee plant). On January 24, 2005, I toured the City of Edmonton’s Gold Bar plant.

Responses to the RFP were due by December 17, 2004, which date was subsequently extended to December 24, 2004.

Responses were received from

BearingPoint, Inc.

Deloitte & Touche LLP (“D&T”)

PricewaterhouseCoopers LLP (“PwC”)

Grant Thornton LLP advised several days before the due date that they would not be responding to the RFP.

The Consultant Selection Committee (referred to hereafter as the CSC) consisted of the following personnel:

City of Edmonton Drainage Services:

KurtSawatzky

JohnHodgson

ChrisWard

EPCOR Utilities Inc.:

ClaytonTiedemann

BrianGerdes

The CSC held three meetings - January 4, January 7 and January 10, 2005.

The Bearing Point proposal was eliminated fairly quickly as both parties agreed that they had “missed the mark”.

A detailed proposal evaluation sheet was used that covered a number of criteria – mandatory requirements, technical, pricing, deliverables, corporate evaluation and overall presentation.

Detailed discussion was held and evaluation points were agreed by the CSC on each of the criteria except for the pricing (which was deferred until after all other criteria were reviewed). On this basis, PwC were rated marginally higher than D&T. It was therefore agreed that PwC would be requested to provide additional information on certain matters.

PwC readily responded to the questions, and the CSC was satisfied with the response.

In regard to the final pricing of the two proposals, PwC was substantially lower than D&T for the fees and expenses (before GST) – PwC at $489,000 vs. D&T at $706,000.

On Monday, January 10, 2005, the CSC agreed to recommend the award of the consulting assignment to PwC.

In my opinion, the consultant evaluation and selection process was complete, rigorous and fair.

A consulting agreement has been prepared which covers all aspects of the terms of reference for the project. The agreement is dated January 21, 2005 and has been signed by PwC and EPCOR. As of the date of this report, the agreement has not been signed by the City.

“Original Signed”

W.D.Grace, FCA