Presentation on theme: "West Bench Water Upgrade: Progress Report Michael Brydon Director, Electoral Area ‘F’ Regional District Okanagan-Similkameen 2 April,"— Presentation transcript:
West Bench Water Upgrade: Progress Report Michael Brydon Director, Electoral Area ‘F’ Regional District Okanagan-Similkameen email@example.com 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 Filtration Extra- 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
Results from July 2011 Open House 1.Find an alternative with low risk AND 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 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 Recommendation for 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 $3,600,000 Present value of annual fees (50 years, 6% interest, 3% inflation) $3,530,000 Total $7,130,000 Penticton Revenue Buy-in fee $0 Present value of annual fees (50 years, 6% interest, 3% inflation)$0 Total $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
Pricing Decision Price per night $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 Costs Fixed$158.40 Variable$11.60 $170.00 Revenues Rent$100.00 Total profit (loss)($70.00) Costs Fixed$158.40 Variable$11.60 $170.00 Revenues Rent?
Losing Money? Price to “break even”: $170/night (or not rent) Price at “market price”: $100/night Costs Fixed$158.40 Variable$0 $158.40 Revenues Rent$0 Total profit (loss)($158.40) Costs Fixed$158.40 Variable$11.60 $170.00 Revenues Rent$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 Costs Variable$0 Revenues Rent$0 Total profit (loss)$0 Costs Variable$11.60 Revenues Rent$100.00 Total profit (loss)$88.40
Losing Money on West Bench Water? (Numbers from recent media/CoP) Price to “break even”: $0.39/m 3 Price at “market price”: $0.22/m 3 Costs Fixed Variable $0.39 Revenues Fees$0 Total profit (loss)($0.39) Costs Fixed Variable $0.39 Revenues Fees$0.22 Total profit (loss)($0.17)
How Much per m 3 is West Bench Paying? time Standard Penticton DCC “Excess” payment above standard DCC Effective fee: $0.48/m 3
Water Pricing: Actual Numbers Water fee/m 3 $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