Letter to the Editor - and a response.

The above letter was published in the Morning Star on February 21, 2016. The following is my response to that letter.

"Nice to see that someone appreciates my efforts of trying to make sense of the MWP! Unfortunately, I cannot take all the credit for the defeat of the referendum last November. The writer may remember that there were two members of GVAC who voted against both the MWP and taking it to referendum. The rest of the GVAC members supported the plan and sent it to public scrutiny. Staff and consultants put forward their best efforts to convince the public to vote “yes”.

During the election campaign something changed. Most of the candidates running for office declared that they no longer supported the referendum and they would vote against it. Why did these candidates change their minds? Did they receive additional information on the plan? If they could share this new information with the members of SAC it would make their work a lot easier." 

The only two sitting Directors on GVAC who remained supporters of the referendum were those who were acclaimed without having to campaign. Oddly, those are the only two Directors who are NOT customers of the GVWU and do not pay for the MWP.

You mention using cash-basis to cover the costs of the MWP budget. That is exactly what staff had been doing since the 2004 referendum. Ratepayers approved the borrowing of $35 M for the MWP yet we spent over $66 M by 2012. Where did the extra cash come from? It came from direct cash extraction from ratepayers. This was against the spirit of the referendum as this cash is not shared by future ratepayers. If staff needed $66 M they should have asked for a loan approval of $66 M not $35 M.

The DCWTP was not recommended by the Consultants of MWP 2002. In fact, they declared the current plan a waste of money. Which consultants were right? Judging from the results the 2002 consultants were right.

Adding a filtration plant to Duteau was not mentioned in the 2004 MWP Addendum. That was kept a secret for fear of rejection of such large referendum bill.

The cost of borrowing $35 M is about $2.4 M annually. This represents about 12% of the total budget of $19.6 M. Feet dragging is not the cause of the high bills: the cause is the high cost of operation and maintenance of the triple  water system. We now operate the Kalamalka Lake system, the old VID system with the domestic quality irrigation water and the new raw water irrigation system built by the ratepayers of GVWU. Those are the sources of the high water cost. Ad to this the cost of the two filtration plants in the plans along with their operation costs and you’ll see where we are heading with water rates.

One would hope these high water costs are shared equally by all customers. Not a chance! The majority of RDNO Directors just approved the rates for 2016. Domestic customers will continue to subsidize ICI customers for over $2.5 M for 2016. If subsidies are necessary than the entire community should contribute through a RDNO Function. As it is only domestic water customers participate in this subsidy. The two Directors who fought hard for this subsidy are not participating in the costs. Easy to tell others to pay if you do not have to do the paying yourself!

So these are just some of the facts. There are lot more but let’s leave those for another occasion.

Writing a letter to the editor is easy. Writing a factual letter is a whole lot more difficult.

Some of you may wonder how the $2.5 M subsidy above was arrived at. Here is a quick summary:

Budget requirement for 2016:     $19,600,000
Agriculture contribution:              $     783,799
Needed from domestic:              $18,712,520
Expected water sales:                   5,820,000 m3
Cost of 1 m3 of water:                  $3.22
Water consumption ICI                   1,580,000 m3
Expected revenue    @ $3.22      $  5,080,000
Subsidized revenue @ $1.58       $  2,496,400
Difference (subsidy)                 $  2,583,631

These are real, hard figures calculated from the data provided by staff. We can manipulated anyway we wish but the real facts are these. Anyone who gets his/her water for less than $3.22 per m3 is being subsidized. The base fee of $408/a in real term is the value of 126.71 m3 of water. In other words we pay for 126.71 m3 of water without getting a drop.

Only water customers are forced to subsidize ICI customers.

The annual repayment of borrowing costs us 898,470 cubic meters of water. Every item in the budget can be expressed in terms of unit cost of water ($3.22 per m3). Employees' wages: every $10,000 costs 3,106 m3. Thus, if we subsidize anyone we force the rest of the customers to pay more than their fair share of those costs.

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One more word on water rates

Over the years I discussed water rates through articles I posted on this blog. Among others I advanced the financing of Master Water Plan infrastructure borrowing through property taxation similar to financing of other infrastructure borrowings. As an example I used the $35 million approved borrowing for the MWP in the 2004 referendum. Had we used taxation the annual cost of borrowing $35 M would have been about 0.25 mill rate or $100 for a property worth $400,000, a lot less than the current annual tax of $399.20

So far this proposal was rejected at GVAC with the argument that all costs should be recovered through water user fees.

The currently proposed $407.20 base fee, which is actually a very high tax and not based on consumption, would cover the annual general tax of a property worth of about $170,000 in Coldstream using the above 0.25 mill rate. I believe taxation would be a more fair way of financing water infrastructure that is directly connected to each customer's home infrastructure.

You can check out my earlier discussions by searching on the blog with the search words "water rates" entered into the search request area as indicated on the attached snip and click on "enter".

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Selected Morning Star Newsclips - In case you missed them

 

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GVAC Meeting - Budget presentation - February 4, 2015

I have sent the following email to GVAC members prior to above meeting:

 

"It appears I will not be able to attend tomorrow's meeting although I would have dearly loved to do so. I have family commitments which could not be postponed.

 

I would vote against the budget and would make a motion to "have a moratorium on budget items that would go towards projects that were identified in the MWP Referendum". I have difficulty identifying all the pipes and projects that would have furthered the current MWP but staff knows what those are and, hopefully, they would identify such projects. One such project is the purchase of the UVT Analyzer. What is "Capital project contingency.... Is this a slush fund?

 

I would vote against any increase in the budget. Last year we had $2 M for dam upgrade. That is now embedded in the budget.

 

I would not allow any more addition to the reserves until we know where we are going.

 

We have over $7 M in both Statutory and Operating reserves. We should not put in anymore till we get new directions ($736,000).

 

The Water rate calculator is an abomination. We should not determine the rates on a hit-and-miss basis. All those variables (volumes of a,b,c,d,e are estimated each with a potential error term). Using a normal user pay system will reduce the error to the estimated volume of water sale (5,766,696 cubic meters for 2015 and the number of customers "Base  24,325", this latter is not even important). Using the budget need as the "fixed cost" ( we must get all the revenues to cover all the expenditures) we get the true unit cost of water delivered to a customer's tap. To make sure everyone contributes to the costs we should set a minimum fee (access fee of say 10 cu. m.) that every connection must pay. Anyone using more than the 10 cu m will pay by multiplying consumed volume with unit cost.

 

More increase following the 23% increase from last year is a major blow to the citizens of Greater Vernon - like a penalty for voting down the referendum. Had either Vernon or Coldstream increased taxes at this rate there would be different people occupying those seats. So let's give a break to the ratepayers.

 

I am sorry again for missing the meeting but I am sure you will make wise decisions.

 

Gyula"

 

Obviously, the majority of directors believed that a 2% increase was still necessary. I am sure the operation and maintenance portion of the budget contains reasonable coverage of repairs and unforeseen expenses but be it. That was the decision by the majority.

 

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Water Budget Tops $20 Million - KISS FM and Kiss' comments

Written by Peter McIntyre  

Thursday, 29 January 2015 18:00 

This year's Greater Vernon Water budget calls for 15 million dollars in operating spending, and 5.5 million dollars for capital projects.

Regional District of North Okanagan Finance manager, Stephen Banmen, says one area of good news is water treatment costs are going down $410,000.

"Within the functional area of water treatment, the largest savings are related to water treatment chemicals ($134,000), utilities ($129,000) and operations and maintenance ($72,000)," says Banmen.

Among the 26 capital projects planned for this year is $660,000 to replace a cast iron water main at 9555 Highway 6 in Coldstream, $600,000 to upgrade a water main on Venebles Way between Aberdeen and Middleton in Coldstream, and $490,000 for Pleasant Valley Road, 41st Ave to 20th Street in Vernon.

Greater Vernon Advisory Committee director Gyula Kiss questioned staff why a $400 a year base fee is charged for water, calling it "a tax that doesn't seem to have any bearing on anything."

Finance manager, Stephen Banmen, says that fee helps cover the fixed costs of running the utility.

In a presentation to the board, Utility Manager Zee Marcolin said 53-thousand residents use the system, and 200 samples of the water are taking each month to ensure the quality.

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The "fixed costs" argument is frequently used by finance managers and other staff members. However, they cannot identify which part of the budget is dispensable.

In fact, a budget, by definition, is 100% fixed. Any part of the expenditure ledger not covered by the revenue ledger would create a shortfall and an imbalanced budget. I believe all budgeted items are fixed. If staff can identify any unnecessary expenditures I would be quite happy to eliminate it from the revenue stream.

Based on the above, if we were to cover all fixed items with base fees we would arrive at a point where all customers would pay the same flat fee regardless of their consumption. We used to have that not so long ago. Then we introduced water meters and started to implement small base fees (access fees) and collected the rest of the revenue through user fees. In 2005 the base fee was $25 per quarter or about 26% of total fees yet revenue targets were met. In 2014 base fees increased to $99.80 (which is basically a punitive tax not related to either property values nor water consumption) per quarter shifted to about 53% base fees and 47% consumption. I wonder how a business would survive with a similar philosophy?

Staff is considering spending up to $8.3 M for upgrading the water metering system. Considering how the ratio of fixed fees versus consumption fees is shifting what benefit would this huge expenditure have for the water customers? 

We must remember that we are trying to control consumption and the more revenue is collected from flat fees the less clout we have on the consumption control. Also, the less water one uses the more one pays for a unit of water.

Those are some of my concern with the budget. Other concern relate to the huge capital expenditures (over $5.5 million) at a time when we are still searching for a Master Water Plan that will be acceptable to the water customers.

      

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GVAC Special Meeting - Budget presentation - Additional information

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