west bench water upgrade: progress report michael brydon director, electoral area ‘f’ regional...
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West Bench Water Upgrade:Progress Report
Michael BrydonDirector, Electoral Area ‘F’
Regional District [email protected]
2 April, 2012
Purpose of this Meeting
Recall: West Bench Water Upgrade Project:
1. New core infrastructure:pump house, old water mains, meters(design has commenced on water mains)
2. IHA-compliant treatment• New stand-alone treatment (UV or filtration)• Agreement to buy filtered water from Penticton
Our task: Decide on a treatment method
New Core Infrastructure
REPLACED OR NEWER PVC LINES
1980’S DUCTILE IRON LINE (REPLACED ORIGINAL STEEL)
ORIGINAL LINES STILL TO BE REPLACED
INTAKE LINE
STATUS OF WEST BENCH IRRIGATION DISTRICT WATERMAIN IMPROVEMENT
The Treatment Decision Process
UV
FiltrationExtra-
territorial
Bulk Do nothing
Recommended alternative
Referendum“Yea”
“Nay”We are here
Decision Criteria for the RDOS
In selecting a single alternative to bring before voters in a referendum, the RDOS seeks to:
1. Satisfy all Interior Health Authority (IHA) requirements for safe drinking water
2. Minimize financial, technical, and political risk
3. Minimize overall cost to ratepayers
Cost Comparisons: Apples vs. Oranges
High capital cost/Lower operating cost
time
Lower capital cost/High operating cost
time
Stand-alone treatment
Agreement with Penticton
Net Present Value:The Life-Cycle Cost of Each Alternative
Step 1: Capital cost
capital
time
Cost
($)
Net Present Value:The Life-Cycle Cost of Each Alternative
Step 2: Capital cost net of external grants
capital
time
Cost
($)
grants
Effective capital cost
Net Present Value:The Life-Cycle Cost of Each Alternative
Step 3: Discount operating costs (adjusted for inflation)
capital
time
Cost
($)
grant
Total effective cost
operating
Recall July 2011
Results from July 2011 Open House
1. Find an alternative with low riskAND low cost
2. Change evaluation methodology• Life-cycle cost over the expected life of the asset
(50 years rather than 25 years)• Recognize the high probability that the Sage Mesa
water system will require treatment upgrades
Voter Assent for Matched Price?
“Assume that the City of Penticton matches the price of the UV option. Please indicate your level of support for this option…”
The “Price Matched” Alternative
Step 1: Estimate the 50-year life-cycle cost of the UV alternative (net of Sage Mesa pro-rated buy-in)
Step 2: Propose buy-in and annual fee structure such that the 50-year life-cycle cost of bulk water is the same as UV
Fees to Penticton:Grants are for Capital Costs
Penticton system buy-in
fee: $3.6M
RDOS infrastructure costs: $4.96
Grant-eligible costs
$2.34M
Actual grants available to
RDOS
32
A buy-in fee of $3.6M maximizes grant usage
$3.38M
Terms of a Bulk Water Deal
time
A buy-in fee of $3.6M Annual payments of
$135,000/year($0.22/cubic meter)
Changes tied to price paid by Penticton ratepayers
50-year life-cycle cost = UV cost:$11.27M
RDOS Recommendationfor the West Bench Water System
• Enter into a “bulk water” agreement with the City of Penticton for filtered water
• “Price-matched” to UV
• Term = 25 years (RDOS wanted 50)
• RDOS owns and operates the water utility on behalf of West Bench residents
• Sage Mesa has the right (but not the obligation) to buy bulk water from Penticton on the same terms as the West Bench
Benefits of Recommended Alternative:The West Bench Perspective
REJECTED
3. Cost: Tied for low-cost alternative
1. Water quality: Penticton’s water is already IHA-compliant
2. Low Risk: Low operational risk for RDOS
RDOS retains control of infrastructure and policies
Benefits of Recommended Alternative:The City of Penticton Perspective
Source: 2010 Annual Report Penticton Water Treatment Plant
With combined West Bench and Sage Mesa demand(less than 1,000 ML/year)
Annual capacity: 30,000 ML
Benefits of Recommended Alternative:The City of Penticton Perspective
If West Bench purchases bulk water:
If West Bench builds its own treatment plant:
Penticton Revenue
Buy-in fee $3,600,000Present value of annual fees(50 years, 6% interest, 3% inflation) $3,530,000Total $7,130,000
Penticton Revenue
Buy-in fee $0Present value of annual fees(50 years, 6% interest, 3% inflation) $0Total $0
Some Questions to Ponder:
• Are taxpayers from the City of Penticton “losing money” on the proposed deal?
• Are Penticton taxpayers “subsidizing” West Bench water?
Understanding the Economics of the Deal:An Analogy…
Scenario:
• You own and operate a condominium at Apex Mountain
• You use the condo for approximately 100 days per year
• You would like to rent the condo when you are not using it in order to make money
What price should you charge?
Fixed and Variable Costs
Mortgage $1,000
Strata fees $200
Utilities $100
Insurance $20
Monthly fixed cost $1,320
Annual fixed cost $15,840
Fixed cost per use$15,840/100 uses $158.40
Variable cost per use (hot tub, cleaning) $11.60
Total “cost per use” $170.00
VOLUNTARY TRANSACTION ZONE
Pricing DecisionPr
ice
per n
ight
$0
$11.60 Variable cost (friends and family rate)
$170.00 Total cost (fixed and variable)
“Market price” for condo rentals at Apex Mountain
$100.00
Losing Money?
Price to “break even”:$170/night
Price at “market price”:$100/night
CostsFixed $158.40Variable $11.60
$170.00
RevenuesRent $100.00
$100.00
Total profit (loss) ($70.00)
CostsFixed $158.40Variable $11.60
$170.00
RevenuesRent ?
Losing Money?
Price to “break even”:$170/night (or not rent)
Price at “market price”:$100/night
CostsFixed $158.40Variable $0
$158.40
RevenuesRent $0
$0
Total profit (loss) ($158.40)
CostsFixed $158.40Variable $11.60
$170.00
RevenuesRent $100.00
$100.00
Total profit (loss) ($70.00)
Simpler: Focus on Variable Costs
Price to “break even”:$170/night (or not rent)
Price at “market price”:$100/night
CostsVariable $0
$0
RevenuesRent $0
$0
Total profit (loss) $0
CostsVariable $11.60
$11.60
RevenuesRent $100.00
$100.00
Total profit (loss) $88.40
Losing Money on West Bench Water?(Numbers from recent media/CoP)
Price to “break even”: $0.39/m3
Price at “market price”:$0.22/m3
CostsFixedVariable
$0.39
RevenuesFees $0
$0
Total profit (loss) ($0.39)
CostsFixedVariable
$0.39
RevenuesFees $0.22
$0.22
Total profit (loss) ($0.17)
How Much per m3 is West Bench Paying?
time
Standard Penticton
DCC
“Excess” payment
above standard
DCC
Effective fee: $0.48/m3
VOLUNTARY TRANSACTION ZONE
Water Pricing: Actual NumbersW
ater
fee/
m3
$0
$? Variable cost
$0.39 Estimated total cost of providing a cubic meter of treated water
Effective willingness to pay for water (based on UV price-match)
$0.48
Summary
RDOS Recommendation:
• Price-matched bulk water deal with the City of Penticton
Benefits to West Bench:
• IHA-compliant water• Low technical and financial risk• Lowest cost (tie)
Benefits to Penticton:
• Better utilization of fixed-cost infrastructure• Profitable!
Other Good News
1. Veteran’s Tribute in Selby Park:• $24,520 grant from Community War Memorial Program• Chris Allen and Cal Meiklejohn taking design lead
2. West Bench walking corridor:• $496,155 grant from Province of BC to build pedestrian
trail• 2.5m wide paved path• River Channel bridge to Max Lake Road