The longstanding tax disputed between the City of Winnipeg and Manitoba Hydro is officially over.

City council on Wednesday gave a thumbs-up to a $5.3-million deal that had been negotiated earlier this month.

The settlement is far less than the city had claimed it was owed. However, administrators encouraged council to approve it and drop a lawsuit that had been filed against Hydro rather than prolong the fight and engage in potentially costly court proceedings.

The city launched the lawsuit a year ago, on Feb. 25, 2010, claiming Hydro owed $10.18 million.

The provincial utility was supposed to be collecting the money from ratepayers' hydro bills between 1999 and 2009 then pay it back to the city.

Under the agreement, according to the city, residential customers should be paying a 2.5 per cent levy on their monthly bill, and commercial customers five per cent.

But Hydro never collected the money, or collected it and didn't pass it on the city, the lawsuit alleged.

The utility denied the claim.