Saturday, September 17, 2016

Comments on the GVAC Special Meeting, September 1, 2016

An apology!

First of all, I would like to apologize to my faithful followers for a long pause I had in maintaining my blog. My family went through a trying time and I was unable to concentrate on the water issues. I intend to restart the provision of information to taxpayers of the community even though my peers have removed me from active duty at GVAC. 

Just to reassure you that I am not a hack pretending to be an expert let me re-present to you my qualifications. I obtained a diploma in Forest Engineering and subsequently a Master of Science Degree. I also have worked on a PhD which remains incomplete. In 1967 I was hired by the BC Ministry of Forest as a Research Scientist and charged with the development of a tree breeding program for the interior spruces of British Columbia. I have completed the plans for the project in 1967 and the plan is continuing to evolve to this day by my successors.

One of the project of my plan was to develop a forest research station in the Okanagan as it was necessary for the success of the breeding program. I have encountered major opposition from my peers in the BCFS Research Branch but, thanks to my superiors trust in me, I prevailed.The resulting Research Station can be seen at the south entrance to the City of Vernon. An unintended but very important consequence of my plan is the present siting of the Okanagan College in Coldstream. Additional benefits to Greater Vernon are the seed orchards that sprung up as climatic benefit to forest tree seed production was recognized by the Forest Service and the private forest sector.

Closer to home and to the subject of water: In 1990 I was elected to Coldstream Council as an Alderman. The first major challenge I faced as an Alderman was to vote on a request from VID for a grant of $10,000 from each of Vernon, Coldstream and the North Okanagan Regional District ostensibly to investigate ways to improve  water quality to VID's domestic customers. I considered the request, did some investigation and concluded that VID could only solve its problem either by treating all of their water supply, including that used for crop irrigation, to domestic quality or separate off the domestic customers from the irrigation system and supply them by a new domestic distribution system. It was a bad business plan by VID to try to sell something they did not have: domestic water. That report can be found here.

In future reports I will try to explain why a relatively simple solution to VID's dilemma developed into such a huge project. How a less than $100 million project developed into a plan costing $200 million or more without actually resolving the problem. I will also explore way how we could return to a sane Master Water Plan with no more costs than what we are facing now. I will also continue to attempt to convince my peers to agree to a fair and equitable water rate structure.

The report below is the first one of my information dissemination effort. I will explain my interpretation of data supplied by consultants and GVWU staff. The readers should examine my position, compare it to staff's interpretation and draw their own conclusions.

Let me turn to the evaluation of the data provided by staff at the September 1st Special GVAC Meeting. The staff report can be accessed here.

Thank you!  
The purpose of the special meeting was to provide statistical information on water consumption patterns staff collected during  2015. They also included revenue patterns during the same period. Staff presented several charts and tables to review so I summarized the more relevant information in simple terms.

Schedule B

The first chart provided by staff demonstrates the distribution of revenues in a visual format. Note the very high percentage of base fees (referred to by staff as “Infrastructure Base Fee”) contributed by the domestic customers.

RDNO’s stated policy on rate structure is: “50% paid by base fees, 50% by consumption fees”. As illustrated by the graph, this policy is not met by the rate structure. Domestic customers pay the majority of the “infrastructure costs”. Customers using less than 80 cu. m. always pay more base fees than consumption fees. This defeats the "user pay" policy GVWU adopted.

The capacity (size) of the infrastructure must be designed to meet the maximum daily demand. That is driven by large daily consumers like ICI (Industrial, Commercial, Institutional). As the chart demonstrates none-domestic users contribute 5% of the total base fee while the domestic customers shell out 92% while they could be served by a significantly smaller infrastructure.

Another note of interest is that the variable revenues from ICI customers are derived from a preferential rate of $1.58 per cubic meter regardless of consumption. The question may be asked: Why should large users get a preferential rate? Domestic customers are discouraged increased usage by penalty rates of $2.37 per cubic meter above 80 cu. m. per quarter. All customers should pay the same rate for a cubic meter of water.

The table below the GVWU chart summarizes the revenues in a tabular form. I prepared a summary of that table and it is presented below.

Total domestic+non-domestic revenue:         $18,246,978

The above table illustrates the unequal distribution of “Infrastructure Base Fees”: Domestic customers pay 63% of total, None-domestic 14.7% of total base fees.

In an earlier report (July 21, 2016, Schedule A, page 4 of 29) staff summarized the GVW average water consumption and revenue by class (see above table). Only 17.7% of customers used more than 80 m3 of water per quarter. A rough calculation (sum of all quarter consumption of the reporting jurisdictions divided by 12) of average consumption per domestic accounts was 56.4 m3 per quarter or $2.83 per m3 for a ratio of 64% base fee 36% user fee. Hardly a 50-50 ratio.

The following questions arise again: why should domestic customers pay so disproportionate amount for infrastructure when the size and therefore cost of infrastructure is driven by high maximum daily demand for water? Also: why should domestic customers and small businesses subsidize high consuming ICI customers with consumption rates?

Schedule J

The Table: GVW Water Accounting & and Water Loss illustrates consumption and consumption distribution among GVW customers as summarized in the Table below.

For comparison the table below presents the Predicted consumption figures from Technical Memorandum #1:

The difference between the predicted and actual consumption is quite significant (27,260 ML vs. 14,228 ML or ~92%). The significance of discrepancy shows up in increased infrastructure cost. Part of the high infrastructure cost is due to the oversized infrastructure.

The water loss (unaccounted-for-water) is quite significant. Of the 19,000 + ML inflow only  14,000 ML is metered on the consumer end. That is a loss of almost 5,000 ML or ~35% (as a percentage of the consumed water). The value of this lost water is anywhere from $3.9 million to $12 million depending on what water rate we consider ($0.79/ m3 or $2.37/m3).

Schedule K

A great deal of effort was spent on justifying the low agricultural contribution to revenue. My concern with the agricultural subsidy is that it is spent on treating agricultural water. This has no benefit for agriculture and it is a huge drain on domestic customers' pockets. If we were to provide cash to agriculture in lieu of compensation for water licenses obtained from agriculture it would benefit both parties.

According to the Summary Table the difference between agriculture expenses and revenue is only $63,349. It drastically differs from consultants estimates of between 12 to 18% of annual costs attributed to agriculture.

Schedule L

Debt payments are listed as $2,911,957 (capital of about $41.6 M) whereas the borrowing costs in Schedule K are shown as $2,176,545 (a capital of about $31.1 M).

There is a lot of information provided in the staff report and it is hoped that Directors utilize them properly. A proper distribution of rates would significantly reduce the burden born by domestic customers. It would be a lot fairer distribution of water rates. Domestic customers do not need preferential treatment, they just need fair treatment especially those who use the least amount of water.


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The opinions expressed by "Coldstreamer" are strictly his own and do not represent the opinions of Coldstream Council!

Because I value your thoughtful opinions, I encourage you to add a comment to this discussion. Don't be offended if I edit your comments for clarity or to keep out questionable matters, however, and I may even delete off-topic comments.

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About Me

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I have been a resident of Coldstream since 1976. I have had 15 years of experience on Council, 3 years as Mayor. As a current Councillor I am working to achieve fair water and sewer rates and to ensure that taxpayers get fair treatment. The current direction regarding water supply is unsustainable and I am doing all I can to get the most cost effective water supply possible.