Water & Wastewater Municipal Service Corporation

Many questions have been received regarding the structure of the MSC and concerns about City Council’s control.

The proposed MSC would be a not-for-profit corporation which means that it reinvests all revenues into the water and wastewater operations and infrastructure. The MSC Board would be composed of various members of the community, with expertise in various areas, and representation from City Council. This is in line with a report produced by the Association of Municipalities of Ontario.

The illustration outlines the management and leadership structures of the current Utilities Kingston model and the proposed future state MSC model. Mayor & Council are and would continue to be sole shareholder under current and future proposed structure. The W/WW Operating MSC size would not justify a full-time President and CEO. Therefore, the appointment of the Utilities Kingston’s CEO would ensure coordination between the Utilities Kingston and the MSC during and following the transfer of assets from the City to the MSC; and of the day-to-day operations and management responsibilities which would continue as status quo under the leadership of the Utilities Kingston President and CEO.

The transition of the delivery of water and wastewater services from Utilities Kingston to the MSC would involve minimal organizational disruption. The primary changes include the termination of the existing service agreement between Utilities Kingston and the City, which would be replaced by a new agreement with the MSC. The MSC would also establish a service agreement with Utilities Kingston.

Figure A: Comparison of current and proposed organizational structures

Shareholder Agreement, Master Services Agreement & Administrative Agreement

A number of agreements would be in place between the City and the new MSC. The Shareholder agreement would sets parameters within which the MSC Board is permitted to operate independently. This Shareholder agreement would require City Council approval before the MSC board is established and operating. The Shareholder Agreement operates to bind the MSC to certain performance obligations, decision-making processes, development approval processes involving applicable infrastructure, and operational standards.

A Master Services Agreement between Council, Utilities Kingston and the MSC will mirror a contract for service, i.e., the scope and standards of services to be provided, clear performance metrics, regulatory compliance, reporting obligations, term and renewals, dispute resolution, and the calculation of the cost of service, including operational and capital considerations. It is important to note that under the existing Utilities Kingston governance model, the City Council has already relinquished its responsibilities pertaining to direct oversight of safe operations.

To the extent that the MSC will operationally remain the responsibility of Utilities Kingston, then an Administrative Services Agreement should be established between the MSC and Utilities Kingston. This allows for all of the day-to-day functions (e.g., operations, finance, human resources, information technology, customer service, etc.) to be carried out by management and employees of Utilities Kingston on behalf of the MSC.

Similar to a Master Services Agreement, the Administrative Services Agreement includes the standard contractual provisions for acquiring services (e.g., the scope and standards of services to be provided, clear performance metrics, regulatory compliance, reporting obligations, term and renewals, dispute resolution, and the calculation of the cost of service, including operational and capital considerations).

The table below illustrates the differences between the current responsibilities of the City Council and those following the implementation of the MSC model. With the introduction of the MSC model, the City Council would maintain ownership of the assets as a shareholder of the corporation, provide guidance on strategic policy direction, and appoint the Board of Directors. However, it would no longer retain direct responsibility for approving budgets.

Financial Structure

A number of questions and concerns have been raised about the City’s motivation to establish an MSC.

The City’s primary objective is to establish a structure (MSC) that will have the capacity to take on its own borrowing and financing capacity. Currently Kingston Hydro is set up in such a way but Utilities Kingston, does not have the ability to undertake its own borrowing and financing. By establishing this MSC, the City would be able to transfer the water and wastewater debt which is about 40%-45% of the current city’s debt load so that future debt for water and wastewater is not impacting the City's debt capacity. The proposed MSC would have greater borrowing capacity and also access to different financing for repayment. This would allow the replacement of infrastructure and new infrastructure to be accelerated without adding to the City's debt burden.

The proposed MSC would be a corporation wholly-owned by a municipality, ensuring it remains under public control while allowing for operational flexibility, including the ability to access diverse funding sources. It would essentially act as a shell company which would hold assets, issue borrowing and ensure repayments while holding a service agreement with Utilities Kingston which would continue to operate day to day services related to water and wastewater. Funding sources available are development charges (DCs), revenue bonds and project-based loans. This approach allows for tailored financing that preserves operational independence and keeps debts off the City’s financial statements.

Ontario municipalities are limited with respect to the amount of long-term debt that can be issued based on a formula that caps debt servicing payments at 25% of net revenue. Based on the City’s 2024 Financial Information Return and 2024, the City’s debt servicing costs amounted to approximately 7.7% of net revenue. As a Government Business Enterprise, the revenues and debt servicing costs of water and wastewater services would be removed from the City’s financial statements thereby impacting the City's allowable debt limit.

Figure B: Financial statement comparison of current state and current state with water and wastewater services removed (including difference of amounts)