A proposal to sell treated water in bulk to West Bench met with approval from Penticton council Monday, but not without concerns being raised that the deal might not be as good for the city as it seemed.
The deal, if approved by West Bench residents, would see the city selling the neighbouring community water at the rate of 22 cents per cubic meter for the next 25 years. That is far below the 52 cents currently paid by Penticton residents, and even below the 39-cent cost that city staff calculate it will cost to produce and deliver to the connection point with the West Bench system.
The difference, said city engineer Ian Chapman, will be made up by a one-time buy-in payment from the Regional District of Okanagan Similkameen, which now control the assets of the former West Bench Irrigation District.
“The $3.6 million we would receive as a lump sum payment on day one would allow us to offset that 17-cent difference per cubic metre for the whole of the 25-year term, based on a capped volume,” said Chapman. The price will also be tied to cost, he explained, so that it will rise to match any increases. Any infrastructure costs, such as larger pipes to carry water to the connection point, will be borne by the regional district.
“Mathematically, it is not possible for us to not end up with a surplus. The only way that we could make those figures worse would be to allow more water to be consumed than we currently have capped,” said Chapman, who expects the city will profit by about $130,000 per year over the term of the contract. West Bench residents are not expected to see an increase in their water rates; with the introduction of water meters and education campaigns, the RDOS is hoping to lower water usage in the community, bringing rates down to the range of $1,600 per year.
Buying water from the city will solve the water quality problem the RDOS inherited when it took over the WBID last summer. The other option being to build an ultraviolet treatment plant of their own.
“From our perspective, West Bench can’t do any better at this price,” said Area F director Michael Brydon, adding this is also the lower risk solution. “Buying the bulk water from Penticton exactly equals the cost of building our own plant. It’s the optimal price for Penticton. If they’d gone any lower, then there would have been some money left on the table. If they’d gone any higher, then ultraviolet would have been the best choice economically.”
Coun. John Vassilaki, however, isn’t quite convinced it is such a good deal for the city. His estimate of the water production cost is much higher, at 68 cents per cubic metre, including ancillary costs like management of the system. The amount of possible profit, he said, is a minuscule amount compared to the cost of the treatment plant and other infrastructure over the years.
“One cubic metre of water costs the city of Penticton 68 cents to produce,” said Vassilaki. “If you compare our sale price to our cost to produce, we will have a huge deficit at the end of 25 years. You can massage it and spin it any way you want, it is still going to be a loss after 25 years.”
Brydon sees the issue differently, that the deal has benefit for both communities. Penticton, he said, will be using surplus capacity in an existing system.
“They’ve got the water treatment system, it’s paid for,” said Brydon. “It’s pure profit for Penticton, they can do accounting numbers anyway they want, but they are paying for that capacity, whether they sell it or not. Here’s an opportunity for them to sell it.”
According to the engineering department’s figures, Penticton is currently using less than half the capacity of the city’s water system. With the addition of West Bench, and even a possible future expansion to include the Sage Mesa area, the city will be left with room for growth.
“We have made a projection based on a two per cent growth every year for the next 25 years, the life of the agreement. Based on that, we will still be at less than 85 per cent of the peak day capacity of the plant,” said Chapman.
With the city’s endorsement in hand, West Bench residents will now be presented with two options at a public meeting on April 3 — whether to build their own UV treatment system to raise the quality of water to provincial standards, or simply to buy water from Penticton. Then, if the RDOS also endorses the deal at their April 5 meeting, they would start the process to bring the question to referendum sometime in early June.