Mr. Chair and members of the committee, thank you for having me here today, and thank you for addressing this very important subject.
I echo some of the comments of my colleagues, Dan and Greg. I think municipal governments have more money than they say they have. I think we can find efficiencies there. I also think that open tendering is very important. I'm with the PVC PIPE Association of North America. We're responsible for the water and sewer pipes that go under the ground to service residential areas as well as buildings, and we certainly echo some of their comments.
Canada's underground infrastructure is at a crossroads. It's corroding at an alarming rate. Government officials have the opportunity to take an active role in reforming local procurement practices to ensure adoption of sustainable and cost-effective materials.
According to the Canadian Water and Wastewater Association, the total estimated replacement value of Canada's water distribution and waste water network is $250 billion, and it's probably much higher than that, and more open procurement processes that include the life-cycle costs of water and sewer piping are critical to spending this money more wisely.
McGill University's Saeed Mirza has argued that municipalities must consider the full cost and depreciation of infrastructure, as well as the operation and maintenance of assets over their service lives when making purchasing decisions. This often has not been done across the country when it comes to water and waste water infrastructure. We're just buying the stuff, not calculating its depreciation, and then saying, “Well, we have a crisis now.” It has been improperly managed by municipalities, you can be sure of that, and procurement is at the heart of it.
The Canadian federal government can play an important role in reshaping outdated municipal procurement policies by requiring that federal funds transferred to municipalities for water and waste water infrastructure be spent in an open and competitive manner. Numerous organizations in the United States, such as the Competitive Enterprise Institute, the National Taxpayers Union, the American Legislative Exchange Council, and the United States Conference of Mayors, recently and very significantly are all discussing the issue of open procurement for water and sewer piping.
Many members of the U.S. Congress and state legislatures have also identified procurement reform as critical to mitigating the future cost of the investment in water and sewer infrastructure. In fact, the number is quite astounding. It's $2.28 trillion, according to the U.S. Conference of Mayors' report, that will need to be spent over the next 20 years on water and sewer piping because it's corroding. It's corroding because of the materials that are being used in the systems, such as iron piping and corrosion-prone concrete piping, which of course we see used a lot in Canada. The author of the report, Richard Anderson, said, “Only by modernizing procurement practices and the assumptions upon which pipes are selected can municipalities achieve much needed cost savings and performance improvements in their underground infrastructure at a time of dwindling financial resources.”
The same arguments apply to the Canadian municipal sector. Reforming procurement practices for underground infrastructure would ensure that bidding is aligned with modern asset management standards that consider life-cycle costs and materials performance in all public projects.
Since piping networks are the largest component of a water utility's assets, their performance is critical to holding the line on costs. Unfortunately, utility operators often exclude widely used materials, claiming that they need to study them further, or rely on myths to avoid breaking old habits, which is also described as habituation. “Habituation tendencies associated with procurement of materials, in particular, can pose a real financial danger,” according to the U.S. Conference of Mayors, “because as manufacturing technology and materials science advance the procurement official may be making spending decisions today based on information from yesterday, last year or the last century for that matter.”
The Competitive Enterprise Institute contends that open competition for water and sewer piping is essential to meeting future U.S. underground infrastructure requirements. Again, the same arguments apply to Canada.
The corrosion eating away at North America's underground infrastructure, as I mentioned before, has to do with the materials used in the systems today. In the United States, the figure is $50 billion annually wasted on corrosion. In Canada, the figure is over $5 billion.
Despite these huge costs, many municipal utility operators continue to fail to consider the cost benefits of using non-corroding piping materials. As Rick Anderson of the U.S. Conference of Mayors said, “The conventional approach to water pipe replacement decision-making has been to merely replace the pipe with roughly the same product regardless of price, and based on manufacturer's recommendations.”
The burden of old technology materials is not limited to the cost of repairing and replacing failed pipelines. It includes the cost of losing treated water from leaking systems, averaging between 20% and 50% in most water treatment systems.
Montreal is a case in point. More than 40% of the water pumped through its systems leaks and comes out of the piping networks because of water main breaks. In North America over 300,000 water main breaks occur every year. As our networks corrode and leak and break rates increase, higher energy costs and stricter quality control standards continue to drive the pumping and treatment costs higher.
The City of Montreal is investing colossal sums of money in repairing its water and waste water infrastructure. Since pipe represents up to 60% of the capital investments in these projects, it's possible to realize significant savings through better management of pipe procurement. For inexplicable reasons, most tenders for Montreal water mains are limited to suppliers of corrosion-prone concrete pressure or ductile iron pipes.
Yet the city has other options, including PVC pipe, one of the safest materials and up to 70% less expensive to use, according to the U.S. Conference of Mayors. Approved by regulatory authorities and independent standards and certification agencies, PVC meets or surpasses all health and safety standards and regulations governed by Canadian and U.S. law for drinking water and sanitation systems. It also has the lowest break rate of all piping materials.
There's a reason I'm bringing this up. I'm not trying to sell you on PVC. The point I'm trying to make is that this great product is excluded from many markets in Canada, Montreal being one of them. I'm just pointing out to you all the attributes. You wonder why this product isn't allowed to bid when it meets all the standards.
Calgary is a great example that you can look to in Canada. It has been using PVC for 35 years. Today more than half of its system is made of PVC pipe. The result—this is incredible—is it has the lowest water main break rate in all of Canada.
Prior to using PVC pipe in the 1970s, Calgary's system performed like that of Montreal's, poorly, with high break rates and high water loss caused by corrosion. Today it's the best system in Canada, arguably in North America.
PVC lasts in excess of 110 years, according to the American Water Works Association. A European study determined its longevity at 170 years.
Recently Toronto, a long-time user of smaller and medium-sized PVC pipe, voted to allow PVC in all sizes. It goes right up to 48 inches, and soon up to 60. This was driven by a staff report arguing that open competition for large-diameter water pipe would help make infrastructure renewal in Toronto more affordable. Denzil Minnan-Wong, the chair of the public works committee, concurred with this.
I have a couple of additional points. The surface of the pipe is so smooth that, according to a professor at the University of Toronto, Canada could reduce its greenhouse gas emissions by 5% if all water systems were using PVC pipe. It's lightweight. It uses less energy than competing piping materials.
A new study by the National Taxpayers Union in the United States suggests that the United States could save $371 billion on future investment requirements for water pipe infrastructure if it were to include open competition and PVC in its bidding processes down there.
Essentially the message I'm bringing to this committee is this. There's a trend in the United States, a recognition that there's a problem with procurement. Piping is very expensive. It's a great area to start. It's not complicated. Just allow all the piping materials that meet the standards out there today to compete.
The federal government can play a key role. If you give money to localities, don't let them spend it in ways that are not competitive. Ensure they spend it in an open and competitive fashion and get better taxpayer value for the people of Canada.
Thank you.