SUPPORTS ITEM NO. 4 CS&B
AGENDA
APRIL 24, 1997
ADMINISTRATIVE REPORT
April 7, 1997
C.C. File No. 3753
TO: Standing Committee on City Services & Budgets
FROM: General Manager of Engineering Services
General Manager of Corporate Services
General Manager of Community Services
SUBJECT: GVRD s BOD/TSS Proposed Pricing Strategy for Permitted
Industries
RECOMMENDATION
THAT Council advise the GVRD Board that it endorses the Biological
Oxygen Demand/Total Suspended Solids (BOD/TSS) pricing strategy
proposal subject to the Charter amendments necessary for the Sewer
Utility and the following four points:
1. That each municipality maintain control of the billing of
the BOD/TSS pricing.
2. That full implementation of the BOD/TSS pricing be complete
by 2001, with municipalities having the option to phase in
the charges.
3. That the BOD/TSS capacity charge evolve into pricing
options that provide off-peak incentives and real time
pricing.
4. That the GVRD and municipalities ensure that municipal and
regional sewerage and drainage costs are clearly
delineated, there be no double-billing of industry, and
that the charges reflect the user-pay philosophy.
GENERAL MANAGERS COMMENTS
The General Managers of Engineering Services, Corporate Services
and Community Services RECOMMEND approval of the above
recommendation, and note that the review of the BOD/TSS pricing
strategy and the respective charges will be based on user-pay
principles. Larger issues such as global competitiveness of
industry in the Vancouver area have not been considered. The
BOD/TSS pricing strategy is contingent upon the Charter amendments
necessary for the Sewer Utility. If the BOD/TSS strategy is
approved by the GVRD Board, staff will report back to Council on
implementation, billing, mitigation and co-ordination with the
Sewer Utility.
COUNCIL POLICY
There is no Council policy on this matter, however Council has tended to
favour a user-pay system for many services and this is the rationale
behind the proposed Sewer Utility.
SUMMARY
The GVS&DD have proposed a special pricing scheme for those permitted
industries that discharge large quantities of waste (BOD/TSS) into the
sewer system. If implemented in Vancouver, there would be fifty-six
properties impacted by the proposed charge. This proposal has the
advantage of recovering the GVS&DD treatment costs from those imposing
large demands on the treatment facilities, and creating financial
incentives to reduce the amount of the effluent concentration and
loading discharge. City staff are currently reviewing the cost data
that forms the basis of the estimated BOD/TSS charges to ensure the
calculations properly reflect user-pay principles.
The proposed charge will be based on the GVS&DD treatment costs and will
be administered by the municipalities. There will also be the ability
for the municipalities to modify how the charge is implemented. For
Vancouver, it will require approval by the Province of the requested
amendments to the Vancouver Charter for the Sewer Utility in order to
implement.
The proposal is largely revenue-neutral for the City, and the higher
costs imposed on the permitted industries will result in offsetting
reductions for the balance of the properties in the system. Council s
consideration of this matter at this time simply establishes the
principles of the pricing scheme, with details of implementation,
including potential mitigation measures, to be considered at a future
date.
PURPOSE
This report is presented as an opportunity for City Council to consider
the issues and impacts of the BOD/TSS pricing strategy for permitted
industries and to provide direction to the Vancouver representatives on
the Regional Sewerage and Drainage Committee, and on the Regional Board.
GVRD staff will be present at the committee meeting to provide a
briefing on the BOD/TSS pricing strategy. Industry members of the
Technical Working Group have also been given a copy of this report and
may wish to address Council.
BACKGROUND
The GVRD has undertaken research on a system of sewage treatment charges
for permitted industries based on Biological Oxygen Demand (BOD), Total
Suspended Solids (TSS), and the effluents that they produce.
The BOD/TSS pricing strategy, which has been developed through a joint
process involving GVRD and municipal staff and industry representatives,
will, if implemented, result in significant cost increases to a number
of industries. The project gained formal GVRD Board approval on July 3,
1992 when the Board requested that staff examine options to apply a
surcharge fee for BOD/TSS discharges related to major permitted
industries. This work commenced in February 1996. The BOD/TSS pricing
strategy also has implications for the proposed Sewer Utility.
DISCUSSION
There are currently fifty-six permitted industries in the City of
Vancouver. An industry becomes permitted when it discharges more than
300 cubic metres of wastewater over a thirty day period. The City
levies a $1,400 fee for industries to obtain a permit. This fee is
needed to cover some of the costs associated with monitoring the
discharge and administering the permit.
Under the City s current taxation system, the costs of providing
sewerage services are recovered as a part of the general tax levy, which
is based on property assessments. Therefore the amount paid by each
industry is not related to the quantity or quality of the effluent they
produce. The City is attempting to obtain the legislative authority to
change this system to a cost recovery based utility, similar to all
other municipalities in the region.
Under the proposed Sewer Utility, industrial properties will be levied
for the municipal and regional components of sewerage and drainage costs
based on measured or estimated water flow, property size and zoning,
rather than property value. The BOD/TSS charge will establish costs for
the regional system on the quality of the effluent as well as on the
quantity. Therefore, it is anticipated that the BOD/TSS charge and
Sewer Utility would mean that each property would receive either two
bills or one bill with two charges on it; the BOD/TSS charge and the
municipal sewerage cost.
The industries most significantly impacted by the BOD/TSS pricing
strategy are: Brewery/Winery, Food Processing, Meat, Poultry, Dairy,
Fish, and Laundry. For some properties there will be a large net
increase in the cost of sewerage treatment due to the relationship
between the assessed value of their properties and the quantity and
quality of effluent they produce. In a few cases the change from costs
based on property assessment to BOD/TSS discharge could result in
reduced costs. Overall, the BOD/TSS pricing strategy is intended to be
revenue-neutral for the City, and the higher costs imposed on the
permitted industries will result in offsetting reductions for the
balance of the properties in the system.
The attached report titled "BOD/TSS Pricing Strategy"* outlines the
process through which these proposals have been developed, the
principles on which they are based, and the approach that would be taken
to establish the rates. The goal of this pricing strategy, as a part of
the more comprehensive BOD/TSS management program, is to offset future
high costs of expanded or enhanced treatment, to create financial
incentives to reduce loadings and the concentration of effluent in the
sewerage system, and to achieve regulatory compliance.
The strategy is based on five service principles. These are:
1. The Sewerage and Drainage Department s function is to provide
cost-effective sewerage service to its municipal members, who
represent the public, industry and commerce.
2. The allocation of sewerage and drainage service costs should be
based on the user-pay principle.
3. The allocation of sewerage and drainage services to all sewer
users should be done in a fair and equitable manner.
4. The level of sewerage and drainage services provided to any
user of the District s system should not result in problems to
the conveyance and treatment system.
5. The level of sewerage and drainage services provided to any
user of the District s system should not put the District s
facilities in non-compliance with their provincial permits or
other regulatory requirements.
* Limited Distribution. Copy on file in City Clerk's Office.
Perhaps the most significant of these is the user-pay principle. This
is the principle that treatment of the effluent produced by these
industrial operations should not be subsidized by the other users of the
system. Although the Industry members of the Technical Working Group
(TWG) have agreed with this principle, they argue that the cost of
sewerage treatment cannot be looked at in isolation of broader property
tax matters.
INDUSTRY CONCERNS
Some properties will be required to pay significant charges under the
BOD/TSS pricing strategy. There is a wide range of cost increases
facing properties: at the lower end, a few thousand dollars; and at the
upper end, over one million dollars.
In a special presentation to a joint meeting of the Regional Finance and
Engineers Advisory Committees, industry expressed significant concern
about the overall competitiveness of industry in the region, and the
impact on regional employment if, as they predict, a number of
industries become less viable as a result of these cost increases.
There is also the concern that only permitted industries are being faced
with this charge. The issue is that there are many smaller industries,
institutions and commercial properties such as micro-breweries,
restaurants and the like that also discharge BOD/TSS, but will be
essentially exempt because they do not exceed the 300 cubic metre
discharge limit. While the GVRD has acknowledged that they will address
this concern in the future, the pricing strategy has somewhat deviated
from what was fundamentally agreed to by the GVRD Board. For instance,
rather than being a surcharge on that discharge which exceeds the
By-law limit, the BOD/TSS charge, as proposed, must be paid by all
permitted industries for 100% of their discharge.
Industry participation in the TWG has been based on the understanding
that some of their concerns are still outstanding and will be raised in
the future at the political level.
RESPONSE BY CITY STAFF
The BOD/TSS pricing strategy has been reviewed by City staff in Finance,
Engineering Services and Permits and Licenses. The report has also been
reviewed by the Regional Engineers Advisory Committee, the Regional
Finance Advisory Committee, and the Regional Administrators Advisory
Committee.
The strategy is supported by all of the staff groups that have reviewed
it. This support is on the basis that the strategy is in keeping with
the user pay principle as outlined above, and is consistent with
Regional policy. The support of City staff is contingent upon the
pending enabling legislation for utility-based charges, and the
following items:
6. That each municipality maintain control of the billing of the
BOD/TSS pricing to ensure collection and co-ordination with
Sewer Utility charges.
7. That full implementation of the BOD/TSS pricing be complete by
2001, with municipalities having the option to phase in the
charges if they so wish.
8. That the BOD/TSS capacity charge evolve into pricing options
that provide off-peak incentives and real time pricing so that
treatment plant facilities do not exceed permit requirements.
9. That the GVRD and municipalities ensure that municipal and
regional sewerage and drainage costs are clearly delineated
and there be no double-billing of industry.
City staff have recently had the opportunity to review the cost data
that forms the basis of the estimated charges to industries contained in
the Strategy Report. There are some significant concerns with two of
the major assumptions that have been made in preparing the BOD/TSS
charges. Preliminary review would indicate that the calculations do not
reflect the fact that Vancouver has a combined sewerage system. There
is also a concern about the way in which Tier 2 costs for secondary
treatment at Annacis Island and at Lulu Island are allocated. Taking
these factors into account may result in a large reduction in the
estimated charges. These matters will be addressed with the GVRD in
more detail if the BOD/TSS pricing strategy is adopted.
INDUSTRIAL LANDS STRATEGY
On March 14, 1995, Council adopted the Industrial Lands Strategy. The
overall objective of the strategy is to retain most of the city s
existing industrial land base for industrial and service uses.
The conclusion of the Industrial Lands Strategy is that by retaining
land for industry, a number of other city objectives are being achieved.
For example, it reduces the need for travel by providing jobs and
services close to workers and customers in the city, contributes to the
economic vitality, and maintains a greater variety of jobs for city
residents.
When Council adopted the Industrial Lands Strategy, the goal was to
ensure that industrial zoning regulations would meet the needs of
contemporary industry and neighbouring residents. It is likely that the
BOD/TSS pricing strategy could influence the viability and locational
decisions of existing "wet" industry, but the extent of the impact has
not been determined in this report. As well, any "wet" industry
considering to locate in Vancouver will have to prepare a business case
related to BOD/TSS impact for review by regional and city staff.
MITIGATION OPTIONS
With some permitted industries facing a potential sewerage treatment
bill in excess of $100,000 under the BOD/TSS pricing strategy, Council
may wish to consider mitigation options. It is anticipated that
introducing the Sewer Utility in combination with the BOD/TSS charge may
justify the need to co-ordinate the mitigation options.
A number of options are being considered and are presented here for
Council s information only. These include:
Option #1: Defer the BOD/TSS charge until one year after the Sewer
Utility is introduced so as to shield property owners
from a large year-over-year increase. Council can then
decide on options to introduce the BOD/TSS charge after
the Sewer Utility is in place.
Option #2: Offer capping so that no property will experience a large
increase in any one year from the combined cost of
property taxation, Sewer Utility and BOD/TSS charge.
Option #3: Offer phasing with the goal being to fully implement the
BOD/TSS charge by 2001. Therefore, permitted industry
would be asked to pay 25% in 1998, 50% in 1999, 75% in
2000 and 100% in 2001.
Option #4: Implement the Sewer Utility and defer introduction of the BOD/TSS charge until a more comprehensive pricing
strategy is prepared that includes non-permitted
industries, commercial properties and residences. It is
anticipated that the GVRD will have a BOD/TSS pricing
strategy in place for all properties by the 2001
implementation date.
After consideration of the BOD/TSS pricing strategy by the GVRD Board,
and if it is approved, staff will report back to Council on
implementation, billing, mitigation and the relation to the proposed
Sewer Utility.
CONCLUSION
The BOD/TSS pricing strategy follows the principle of user-pay and will
represent a significant cost increase to some properties. This is an
important initiative in allocating costs, but may have larger
implications on other city initiatives. Staff have therefore identified
some options to mitigate the impact and these could be co-ordinated with
the Sewer Utility.
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