1. Managing Risks for Winnipegs Water Treatment Program Presented by Tom R. Pearson, P. Eng, Project Director

2. 2 Agenda Background Project Profile Project Status Winnipegs Policy on Risk Management Key Issues Initial Risk Assessment Process Outcome Ongoing Risk Management Management of risks – Examples Benefits of risk management Questions

3. 3 Background – Councils Decision to Treat In 1993 Council -Accepted the recommendation to undertake water treatment within a ten year time frame -And established a Water Treatment Reserve Between 1995 and 1999 a comprehensive program of monitoring, pilot testing and engineering studies was undertaken In 2000, Council adopted a recommendation that Winnipeg proceed with a water treatment program This decision was supported by public consultation, public health officials and the opinion of an expert panel (low risk – high consequence)

4. 4 Background - Specific Objectives Reduce the risk of a waterborne disease outbreak caused by chlorine-resistant microorganisms Reduce chlorine disinfection by-products Meet the Canadian Drinking Water Quality Guidelines

5. 5 Background - Plant Location

6. 6 Background - History

7. 7 Profile - Our New Treatment Plant Located at the Deacon Reservoir Site. Design Life projected to be 2040 Maximum Finished Water Production– 400 ML/d Average Finished Water Production – 254 ML/d Minimum Finished Water Production – 100 ML/d Total cost now projected at $300 Million

8. 8 PROFILE - AERIAL VIEW FROM SOUTH WEST

9. 9 Profile - The Water Treatment Process

10. 10 Project Status Detailed Design is underway, concurrent with construction Design will wrap up this year About $55.3 Million spent Overall, we have committed about $192.2 Million to date The $300 Million budget projection appears to be secure

11. 11 Risk Management in Winnipeg In June, 1999 the City Auditor recommended to Council pursuant to a review of the Main Norwood Bridge, that We must ensure a corporately focused and risk-based approach to managing major capital projects. Policies and governance concerning risk are the responsibility of the Chief Financial Officer Administered under the auspices of the Corporate Controller All large projects ($10 Million or more) must report each quarter to the Committee on Fiscal Issues, outlining project status, emerging risks and steps to mitigate Reports are reviewed by a Major Capital Committee before submittal to the Committee on Fiscal Issues Risk management is identified as a deliverable in project Terms of Reference

12. 12 Key Issues Environmental Issues Organizational Issues Market Conditions Schedule Finances

13. 13 Environmental Effects Assessment An Environmental Effects Assessment study of the effects the water treatment plant identified no adverse effects. The study was voluntary –not required by regulators. The results were shared with stakeholders and Manitoba Conservation. Two Public Open Houses were held in Springfield; All substantive issues were addressed. The Environmental Effects Assessment study reduced project risk, and improved the quality of the project.

14. 14 Organizational Issues This is a large complex project with four major consulting firms working from geographically diverse locations Coordination/communication through ERoom Construction Management and Fast Tracking lead to risks and cultural issues for City and Consultants Hiring and training of certified operators in time for commissioning and start-up (2008 by Council mandate) will be challenging

15. 15 Market Conditions Many large new projects will be going to market over the scheduled construction period A period of high inflation within the construction industry is forecast (time = money) A shortage of qualified contractors and personnel is anticipated We must make this an attractive project for contractors

16. 16 Aggressive Schedule April 2005Finish preliminary design and environmental effects study Spring 2005Started building the water treatment plant Fall 2008Start testing the plant End of 2008Begin operating the plant

17. 17 Finances The original water treatment program budget was $214 million to build the WTP and $12.75 million/yr to operate Council has approved an additional $13.3 million for risk mitigation initiatives and $2.8 million for shops/staff consolidation (Total budget now at $230.1 Million) The current rate model will provide about $117 Million in cash financing Projected cost is now $300 Million and additional borrowing will be required Once the plant is up and operating, revenues from water sales are sufficient to cover operating and debt servicing without extraordinary increases to water rates

18. 18 Initial Risk Assessment Undertaken after preliminary design, before starting detailed design 2-day workshop format Pre-workshop preparation; survey of participants concerns orientation concerning risk assessment methodology and terms Facilitated by S.M.A. Consulting Ltd.

19. 19 Workshop Participants 23 in total, in addition to SMA staff City – 9 Earth Tech – 5 UMA – 5 EPCOR – 3 TetrEs – 1 Participants were divided into 5 groups that considered specific types of risks

20. 20 Group Assignments 1: Identify potential problems with the design. 2: Risk analysis focused on design of treatment processes, and mechanical equipment etc. 3: Risks analysis focused on operations including commissioning, resources, operations, responses to disastrous situations, contingency planning etc. 4: Risks associated with project coordination, project management, schedule, staging, estimating, cash flow, and external factors. 5: Risks associated with constructability, underground work, construction logistics, staging, tie-ins, and contracting strategies etc.

21. 21 Quantifying Risk Factors – 4 Steps 1.Determination of the likelihood of the factor being encountered (e.g. probability, or a subjective descriptor) 2.Determination of the magnitude of the impact if the factor is encountered (e.g. dollar value or a subjective descriptor) 3.Determination of the overall severity of the factor by multiplying the likelihood (1) by magnitude (2). 4.The factors are then grouped based on the overall severity score and risk responses are developed

22. 22 Step 1 - Determination of Likelihood

23. 23 Step 2 – Determination of Magnitude

24. 24 Step 3 - Determination of Severity

25. 25 Step 4 – Develop a Risk Response Possible actions include: Reduce uncertainty by obtaining more information. (This may lead to a re-evaluation of the likelihood and sometimes the magnitude.) Eliminate or avoid the risk factor by partial or complete modifications to proposed ideas, a different strategy, etc. Transfer the risk element to other parties. Insure against the occurrence of the factor if possible. Abort the project if the risk is intolerable and no other means can be undertaken to mitigate its damages. A planned response must be developed for all risks.

26. 26 Outcome 120 risk items were identified by workshop participants These were synthesized into 44 project issues and 33 design issues by the Risk Consultant. Some of the risks were Serious to Critical

27. 27 Ongoing Risk Management The risk management plan defines specific tasks to be undertaken to mitigate the risk Responsibility and timelines for the tasks are assigned Follow up on the risk factors is undertaken on a regular basis until the project is complete. Risks are monitored on an ongoing basis by the project risk team and reviewed at monthly meetings

28. 28 Risk -Public Involvement The public open house (or action by a resident or RM) could result in additional requirements to mitigate perceived risks or nuisance or the need to file an Environmental Impact Statement. Then the project will be impacted. Assessment: L: 10; M: 50; S: 500 Recommended Action: 1- Open House 2- Environmental effects assessment 3- Continued communication

29. 29 Risk – Impact of Floodway Operation Floodway operation may impact early stages of Construction particularly bulk excavation. Impact is increased potential of base heave from till layer; increased pore pressure affecting slope stability. Assessment: L: 20; M: 15; S: 300 Recommended Action: 1- Stop excavation at 50% depth 2- Install pump wells 3- Pile first / excavate after - cost

30. 30 Risk – Long Duration Power Outage If a power outage occurs then the DBPS pumps will stop and water supply to the city will be harmed Assessment: L: 10; M: 50; S: 500 Recommended Action: Could add backup power for partial UV and chlorination (chlorine - $2M at deacon, backup power $3). Come up with boil water strategy and potential for delay with regulators.

31. 31 Outcome – Chlorine Risk analysis: The probability of an accident resulting in a catastrophic release of chlorine gas from a rail tank car is very unlikely, but the consequences are disastrous and may include injury or death to City personnel and the general public. Recommended that this risk be eliminated or reduced. Additional capital funding of $7.3 million required for on- site sodium hypochlorite generation, and operating costs will increase by $74,000 per year.

32. 32 Outcome – Power Risk analysis: The probability of a long duration power failure which would cause depletion of potable water storage and result in the need to supply untreated water is very unlikely, but the consequences are severe and include the need to boil water to ensure health safety during the power outage. Recommended that the risk be eliminated. Additional capital funding of $6.0 million required for increased standby generation capacity, and operating costs will increase by $90,000 per year.

33. 33 The Benefits of Risk Management Quality Credibility Cost Value

34. 34 Questions?