ADMINISTRATIVE REPORT

Date: September 3, 1999
Author/Local:Don Klimchuk/7283
RTS No. 00950

CC File No. 1611

Council: September 21, 1999

TO:	Vancouver City Council
FROM:	Corporate Management Team, in consultation with the Capital Plan Staff Review Group
SUBJECT:	2000-2002 Waterworks Capital Plan

RECOMMENDATION

THAT Council approve the 2000-2002 Waterworks Capital Plan at a total cost of $58.95 million, with funding to be provided from borrowing authority approved by Council on an annual basis.

CITY MANAGER COMMENTS

On behalf of the Corporate Management Team and the Staff Review Group, the City Manager RECOMMENDS approval of the foregoing.

POLICY

Vancouver's water system operates as a utility, with all funding recovered through its rates and fees. Under authority provided in the Vancouver Charter, Council approves borrowing for Waterworks without approval of the electors.

CityPlan, adopted by Council on June 6, 1995, proposed developing user-pay programs to reduce environmentally harmful actions.

PURPOSE

The purpose of this report is to present the Capital Plan Staff Review Group recommendation for the 2000-2002 Waterworks Capital Plan.

BACKGROUND

Waterworks is operated as a self-funding utility with user fees set to recover operating and debt service costs. As a result, the water capital program is dealt with outside the Capital Plan financial limit.

On March 23, 1999, Council instructed:

THAT the Staff Review Group report to Council on a recommended 2000 - 2002 Capital Plan based on consideration of program needs and projected financial impacts on user fees.

Council approves the Waterworks Capital Plan separate from the overall Capital Plan, without going to a plebiscite. However, the Waterworks Capital Plan is submitted along with the rest of the Capital Plans to ensure a consistent process for planning capital expenditures, and that the impact of water rates are considered in the context of the overall city charges to property owners.

Accordingly, during Council's Capital Plan Workshop on February 15, 1999, Engineering Services included a general review of the Waterworks Capital Program in its Municipal Service Report. Detailed submissions for the proposed Waterworks Capital Program were discussed with the Capital Plan Staff Review Group during development of the 2000-2002 Capital Plan.

DISCUSSION

Engineering Services submitted a proposed Waterworks Capital Program totalling $58.95 million to the Capital Plan Staff Review Group, representing a plan approximately 20% lower than the amount approved for the 1997-1999 Waterworks Capital Plan. Details of the submission were included in the document entitled 2000-2002 Capital Plan, Departmental Submissions and Staff Recommendations, circulated to Council on July 6, 1999. A summary of the proposed plan is attached as Appendix A.

The proposed plan includes the following five categories:

1) Aging Infrastructure Replacement $32.6 million

The water system has a replacement value of approximately $1.2 billion and an average life expectancy of 100 years. The replacement rate of 1.5% per year that was necessary to catch
up with the backlog of needed work in the 1994-1996 and 1997-1999 Capital Plans has been reduced to the long term target of 1% per year that was set out in the Waterworks Long Range Capital Plan. This rate will maintain a steady replacement program and limit the costs due to breaks, leaks and resulting damage.

2) Addressing Growth $10.4 million

A number of projects are planned which are intended to address existing pressure and fire flow problem areas in the City, and manage water demand by public facilities. These projects address historic and continuing City and regional growth, through transmission system improvements, cost-shared fire upgrading for new developments, water services and meters for new developments, conservation improvements at City and Parks facilities, and other minor improvements to the water distribution system.

3) Emergency Planning $11.9 million

This category focuses on a continuation of the development of the Dedicated Fire Protection System (DFPS). It includes funding for an underwater crossing of False Creek and 5 km of pipeline to provide protection to Kitsilano. The DFPS provides benefits on a day to day basis, as well as in the event of a major disaster, by upgrading the water supply available for fighting major fires in areas where building densities have increased the design fire demand beyond the capacity of the existing water system. The system allows the deferral of costly upgrading of the regular water distribution network, which would otherwise be needed to address this increased demand.

This funding category also includes exploration of alternative emergency water sources, such as ground water aquifers for potable water, and purchase of portable watermain supplies ("Ultra Large Diameter Hose") for emergency delivery of water to critical facilities such as hospitals.

4) Investigation, Monitoring & Control $1.05 million

This program gathers waterworks information for system design and control, through our telemetry system and specific field investigations. The majority of the funding is used to collect information about system pressures and flow, water quality, soil conditions, system leakage and breaks. Together this is used to monitor system failures and prioritize replacements and upgrading. The program also funds our investigation of new technologies
and materials for trenchless methods, pipe rehabilitation, and non-destructive testing.

5) Water Quality $3.0 million

The City purchases its water from the Greater Vancouver Water District (GVWD), which takes care of water treatment up to the points of delivery to their customer municipalities. However, there are a number of local issues within the City's distribution system that are our own responsibility. This new program addresses areas that are far from the District's water treatment points and contain dirty pipes or low flows.

The GVWD has recently accepted operating responsibility for two of Vancouver's rechlorination stations, and they are constructing a number of stations throughout the region (including one which has been completed in Queen Elizabeth Park). When the District program is fully operational, the City will evaluate which areas of Vancouver's distribution system do not meet the Canadian Guidelines for Drinking Water Quality. These areas will most likely require the construction of two to four City rechlorination stations. Funding is included in this Plan for two stations, and for minor piping improvements which could eliminate some of the trouble areas, reducing the number of chlorination stations required.

FUNDING THE PROPOSED PLAN

The total funding recommended for the 2000-2002 Waterworks Capital Plan is $58.95 million, all of which is to be provided from borrowing authority approved by Council under the authority of the Vancouver Charter over the term of the plan. This includes:

· $12.4 million in planned borrowing that was included in the 1997-1999 Capital Plan but which was not utilized.

The 1997-1999 Capital Plan included funding for constructing a saltwater pumping station at Kitsilano Point, as well as completely replacing the Pender Street and 33rd Avenue transmission mains. The Kitsilano Point pump station was subsequently deferred indefinitely, resulting in $6.0 million in unspent funding. Another $5.7 million was deferred on the transmission main projects, through changes in scope and construction efficiencies. Reduced development activity, which resulted in less City cost-sharing on watermain projects, resulted in a further $0.7 million in unspent funding.

These changes have resulted in a total of $12.4 million of anticipated borrowing authority from the 1997- 1999 Waterworks Capital Plan not being utilized. As a result, water rates have not risen to the levels anticipated at the time the 1997-1999 Capital Plan was developed.

· $46.55 million in additional planned borrowing.

IMPACT OF THE PROPOSED PLAN ON WATER RATES

As waterworks capital expenditures are recovered from user fees, they do not affect general purpose taxes as do other City capital expenditures. However, they do form a part of the water rates charged to customers, and form part of the overall charges paid by City residents and businesses for municipal services.

Figure 1 projects single-family water rates from 1999 to 2003 for the total $58.95 million plan recommended by the Staff Review Group. Metered water rates would increase by the same proportion.
Figure 1

The bottom portion of each bar represents the City portion of the single family rate which includes funding the proposed 2000 - 2002 Capital Plan. This component of the rate increases slightly during the Plan due to financing costs for previous capital work. However, it is noted that these increases are lower than anticipated at the time the 1997-1999 Plan was approved as a result of the savings detailed above.

The shaded top portion of each bar shows the increase due to projected GVWD water rates. Two values are presented: the numbers in square brackets show the resulting water rate if the full GVWD Long Range Plan (LRP) is adopted; the shaded area and resulting totals represent City staff's prediction of a more likely outcome, based on approved GVWD increases to date.

The most significant driver of Vancouver's water rates is the growth in regional costs, conveyed to the City as water purchase costs. The GVWD's historic and projected water rates, shown in Figure 2, have quadrupled in the last ten years and are projected to double
again in the next ten years due to major water quality and supply improvements. These rate increases are, however, subject to Board approval, and in the last few years the approved increases have been smaller (between 8.5% and 10% per year) than anticipated in their long range plan. For these reasons, City staff feels that the water rate by the end of the Plan, in 2002, is likely to be approximately $281/year (or about 14% higher than current rates), as shown in Figure 1.

Figure 2

Staff believes there is little opportunity to reduce Vancouver's water rate by deferring City work to offset the growth in regional costs. Deferring the needed capital expenditures which are proposed during the 2000 - 2002 Capital Plan will further burden future taxpayers when their rates will also be increasing due to regional costs. Rates would then increase more dramatically during subsequent Capital Plans.

CAPITAL PLAN STAFF REVIEW GROUP RECOMMENDATION

The Capital Plan Staff Review Group has reviewed the needs identified in the submissions, and has given consideration to the impacts that water debt charges will have on future water rates. That review has led to the recommendation that the Waterworks Capital Plan as submitted by the General Manager of Engineering Services, totalling $58.95 million, be approved. This recommendation acknowledges the existing City policy on system replacement and the commitment Council has made to developing the Dedicated Fire Protection System.

While water rates will increase over the next few years, it is noted that these increases are primarily driven by increases in regional rather than City costs. If the City's infrastructure is to be maintained, then the Group concurs with Engineering Services that deferring the proposed capital work is not a viable option. In short, the Capital Plan Staff Review Group views this proposal as a suitable compromise between mitigating water rate increases and undertaking needed capital works and recommends the program submitted by the General Manager of Engineering Services be approved.

CONCLUSION

The Capital Plan Staff Review Group has reviewed the proposals of the General Manager of Engineering Services for the 2000-2002 Waterworks Capital Plan and recommends that Council approve the $58.95 million plan as submitted. This recommendation is consistent with current policy on water system replacement and development and represents an acceptable compromise between the needs to maintain the system and moderate the growth in water costs to property owners.

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Appendix A. - Proposed Waterworks 2000-2002 Capital Plan Summary

Ref #	Department	1997-1999 Approved	2000-2002 Request	% Change
	Waterworks
F1	Aging Infrastructure Replacement
a	Distribution System	$24,900,000	$23,000,000	-7.6%
b	Transmission System	$9,000,000	$3,000,000	-66.7%
c	Services, Meters & Hydrant Connection	$8,900,000	$6,600,000	-25.8%
	Total Aging Infrastructure	$42,800,000	$32,600,000	-24.0%
F2	Addressing Growth
a	Storage & Transmission Optimization	$3,950,000	$6,200,000	36.3%
b	Miscellaneous Fire Upgrading	$1,500,000	$1,500,000	0%
c	Conservation Capital Projects	$0	$300,000	n/a
d	New Services & Meters	$1,750,000	$1,800,000	0.3%
e	Minor Improvements to the System	$600,000	$600,000	0%
f	Miscellaneous and Short Notice	$1,050,000	$0	-100%
	Total Addressing Growth	$8,850,000	$10,400,000	17.5%
F3	Emergency Planning
a	Dedicated Fire Protection System	$20,000,000	$11,500,000	-42.5%
b	Emergency Ground Water Supplies	$300,000	$200,000	-33.3%
c	Portable Watermains	$0	$200,000	n/a
	Total Emergency Planning	$20,300,000	$11,900,000	-41.4%
F4	Investigation, Monitoring & Control
a	Telemetry System - New & Replacement	$750,000	$750,000	0%
b	Engineering & Site Investigation	$300,000	$300,000	0%
c	Waterworks Operations Building	$1,000,000	$0	-100%
	Total Investigation, Monitoring & Control	$2,050,000	$1,050,000	-48.8%
F5	Water Quality
a	Rechlorination Stations	$0	$2,500,000	n/a
b	Miscellaneous Water Quality Projects	$0	$500,000	n/a
	Total Water Quality	$0	$3,000,000	n/a
	Discount on Debentures	$100,000	n/a	n/a
	Total Waterworks	$74,100,000	$58,950,000	-20.4%

Notes:

F1b	97-99 was a large program to make up for small program 94-96.
F1c	97-99 included PRV replacement. That project is complete, so this program is lower.
F2a	97-99 lower to accommodate DFPS program, 00-02 includes funding for West Side Redundancy Main
F2c	New Program
F2d,e,f	Previously part of F3, Customer Connections & Other Works
F3a	DFPS budget lower as no pump stations are being constructed
F3c	New Program
F4	New Name reflects changed content, was Customer Connections & Other Works in 97-99 Plan
F5	New Program

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(c) 1998 City of Vancouver