Synopsis of Sage Mesa Water Acquisition

In writing this document we are trying to help everyone understand the RDOS proposal for our water system. The RDOS staff are not the villains here and we believe Riley Gettens is our ally.

We feel the Province, through their inaction, is however guilty of mismanagement. The Province also represents our best chance at finding an equitable resolution. Both the RDOS and the Province have a vested interest in seeing our community vote yes on the referendum. This will solve a huge problem for them. For this reason we should be cautious about how they steer the situation.

This synopsis is broken into a number of relevant topics to make it clearer. We urge everyone to read the McElhanney Sage Mesa Assessment Report on our water system.

https://www.rdos.bc.ca/assets/UTILITIES/Sage-Mesa-Assessment-Report-20240723.pdf

The report is 176 pages but all the most important information is contained in the first 10‑12 pages. Take note that the “Projected 5‑Year Operations and Maintenance Expenditure histogram” (pg 10 of the pdf or pg 5 of the printed document) is mislabelled. Forecast O+M (existing) is actually the green bars. Forecast O+M (West Bench Connection) is the orange bars. These are switched in the figure.

It is also very instructive to re‑watch the October and June RDOS meetings at the West Bench School. You will find them on the RDOS website and YouTube (as well as links below). The question and answer portion outlines the RDOS position.

We will have the most success if we make this a political issue. We need to contact as many people as we can who have insights into our provincial (or federal) political system. Riley Gettens stated at the June 12 talk that she welcomes communication from us which she will forward to political appointees. We will design a follow up document with pertinent points that can be used to construct letters to send her. It would be helpful if everyone in our water system could take the time to put together an email (or letter) and send it to Riley. Rather than just complaining we need to make it clear we feel the Province has mismanaged our system for many years and precipitated this situation. Not literally owning the system is not an excuse for mismanaging it.

We should make a concerted effort to contact past or present federal or provincial politicians (NDP or opposition) who can help us find the right people to further our case. We should also start using local and social media outlets to press our case. But we need a unified strategy.

Below is a list of key government officials that we can use to direct letters and emails:

Key Government Contacts

We may have to pay up to $12,000 (infrastructure repair, O+M cost and water fees) a year per household to obtain adequate drinking water. That is a ten‑fold increase for most users and probably more expensive than any other location in Canada. We are also looking at an enormous reduction in property values if this debt payment schedule goes into effect. Some people may be facing bankruptcy as we will effectively have a thirty‑year lien on each property. This amount could be in the order of one‑third of the equity in your home.

The RDOS has an approach that is biased towards the best cost‑benefit solution. This was mentioned a few times in talks and in answers to questions on their website. They are not necessarily looking for the most cost‑effective (cheapest) solution. See the FAQ questions near the end regarding the packaged water treatment systems used at Sun Peaks. We read the RDOS answer as them wanting to develop a system that services more people and potentially allows development at our expense. This is not really our priority. Cost effective choices like packaged water treatment systems might serve us better if they are more economical.

Acquiring the Water System for $1

On the surface this may seem like a bargain. The water system does have some value because of water rights and infrastructure that already exists. However, it really represents a $33,000,000 liability to whomever buys it as repairs need to be done immediately. The Province will absolve itself of responsibility for its mismanagement by selling it to us.

The referendum has to be a yes vote in order for the acquisition (purchase) and borrowing of funds to proceed. This was stated unequivocally by Jim Zaffino at the June 12 meeting. If the RDOS acquired the water system without our assent (yes vote) the communities in all the electoral areas (Penticton, Summerland, Naramata, etc.) would share the cost of the repairs and upgrades.

RDOS insists we must acquire the water system to maintain it. This is contradicted by the fact that the Province has been operating it for 35 years without ever acquiring ownership. In the city of Penticton the residents do not own the water system. They simply pay for water and the system maintenance.

There were actually several previous opportunities for us to join the Penticton water system. This was stated by Al Aderichin in the June 12 meeting. The most recent opportunity was when the West Bench water system was joined to the city of Penticton system. The agreement that West Bench signed actually included our areas.

The Chapmans have not managed the water system for the past 35 years. In 1990 the utility was seized by the provincial government. Our actual legal liability for a water system we do not own is not really clear (unless we vote yes in the referendum and accept ownership). The utility is still owned by the Chapman family and maintained by the Province. The RDOS operates it and we are customers. It is unclear if there are legal grounds that can force us to pay for a mismanaged water system.

It appears the Province has never collected adequate reserve funds to maintain the system. By failing to collect adequate reserve fees over the last 35 years the Province has ensured the system will reach an infrastructure failure point.

There are several important questions regarding the agreement between the Province and the Chapmans that remain unanswered. What was the Agreement between the Province and Mr. Chapman that allowed them to walk away from the water system? It is understood that Mr. Chapman's family has been attempting to develop the lots at the end of Sage Mesa since the 1990s. How can we obtain access to this Agreement? If development were permitted, will Mr. Chapman be required to pay Development Cost Charges (DCCs) to the Sage Mesa Water System?

The Chapmans / Province / RDOS as a Water Utility

It is instructive to view the Chapmans, the Province and the RDOS as a single utility. The Chapmans own the system, the Province manages it and RDOS is the operator. They may have a loose association but effectively they are a water utility from our perspective. Unfortunately they have historically been opaque regarding their operations. Many things could have been done to improve transparency (meetings, announcements, website information), but a critical one would have been the listing of the costs for operation, maintenance and reserve funds on our water bills.

A typical bill from a utility (FortisBC, BCHydro, etc.) will itemize charges for the commodity (water, gas or electricity) and additional fees to cover the replacement and construction costs (reserve funds) for the system. Our water bills have never contained this information and, based on the amount of reserve funds available ($650,000), the reserve was seriously underfunded. These fees are supposed to be collected at the start of the water system’s life and are shared by hundreds of end users over many decades. We do not know what condition the water system was in when the Province took it over 35 years ago. But it was clearly underfunded after that and the infrastructure is now in danger of collapse. We feel the onus is on the Province to remedy this situation after decades of neglect.

By analogy imagine if a private utility such as FortisBC failed to charge adequate reserve fees for decades and then forced users to pay to rebuild collapsing infrastructure. Or imagine if Fortis tried to sell the utility back to the end users in order to escape their liability. Both those scenarios are probably illegal.

Buying the water system from the Chapmans is problematic from our perspective. The Chapmans have actual rights and a degree of control. But we will have no real authority over the system after purchasing it. That authority falls to the RDOS. We will become owners with effectively no rights whatsoever.

The Referendum

A yes vote in the referendum is essentially a commitment for all homeowners (and future homeowners) to pay $33,000,000 or more. We are still not absolutely clear on who “owns” the water system. Typically, the residents of a city or town do not own their water system. They simply pay for water and the operating and maintenance costs associated with it.

A no vote on the referendum will result in the Province taking control and then handing it over to Interior Health (IH). The Province would likely opt to connect to Penticton. They see this as the best scenario (based on the June 12th meeting comment by Al Aderichin). Chapman remains the owner. RDOS has more experience than IH in administrating water systems but the CoP (City of Penticton) has more experience than RDOS. IH may have an advantage in securing grants. At 1:33:33 of the Oct 30th meeting it was mentioned that IH support improves the chances of securing a grant.

Grants

The RDOS can and has applied for grants without assent (yes vote in a referendum). There is nothing stopping applications from being submitted. This was stated at the June 12 meeting. The chances of getting a grant improve if RDOS has the legal right to borrow money on our behalf. To ultimately obtain the grant money, they need to be the owner of the water system. Thus RDOS needs a yes vote to buy the system from the Chapmans and qualify to receive grant funds.

The grant process and rules are up to the Province. Our chances of getting a grant may not necessarily have to diminish if we don’t have financing secured. This is a bureaucratic decision. Our case is unique since the Province is responsible for system.

There is a $7,000,000 maximum grant ceiling. But that is split among whichever projects the RDOS board chooses to fund. We are unlikely to get $7,000,000. We believe there was only one grant in the last 18 months. It had joint Federal/Provincial funding. The Province expects municipalities to supply a larger proportion of their funds now than when the West Bench system upgraded.

The idea that we will see a significant amount of grant money is probably wishful thinking. The final cost of the upgrades will likely be close to the $33,000,000 estimate.

Penticton Indian Band Water Treatment Plant vs Sage Mesa WTP vs Penticton Connection

Connection to the Penticton water system would be a simpler alternative to connection to a water treatment plant run by Sage Mesa or the PIB. The RDOS is not necessarily looking for the most cost effective option, they would like to see the best cost‑benefit option (Oct 30 talk 46:15–48:23). They believe they come from a stronger position if they have options. Arguably we think we will probably get the same connection arrangement as West Bench from the CoP as we were included in the agreement that West Bench signed.

The Confusion Surrounding Annual Costs of Water

The cost estimate presented at the June meeting might be a bit confusing. If you look at the slide of “Cost Comparison Example” (from the June 12 meeting at 10:20 https://www.youtube.com/watch?v=PnGizo5lB8k) where Liisa compares the cost of going with the RDOS (yes vote) compared to the cost of going with the Province (no vote). This will make more sense if you go to the video.

Liisa presents two different scenarios for paying for $5,300,000 in upgrades. These scenarios are based on borrowing $5,300,000 not $33,000,000. So the debt payments are $1,310. This is not the $8,800–$9,400 mentioned at 5:50 of the same video and is rather confusing.

The two scenarios she explains at 10:20 represent two different ways of collecting the same funds. Scenario one borrows all monies at the start. Scenario 2 borrows $18,400,000 and then adds a user fee to raise the remainder. Both require assent in order to borrow the money. If you were planning to be here until 2056 (unlikely), scenario 2 will save you money.

What is not made clear is the total cost of water. This would be the debt per property plus the operation and maintenance for the system plus the cost of the water. Costs increase from year 1 to year 10 but for the bulk of the loan this is the estimated price each home will pay.

Annual Average Cost of Water

The average values for debt and O+M ($9,100 and $2,150) are used in this calculation. The cost of water is an estimate based on our current water bills.

The Confusion with Water Treatment Plants (WTP)

There are two water treatment plants being discussed at the talks. It might be assumed that by WTP RDOS means a stand‑alone WTP to be located at Sage Mesa. In fact RDOS is often referring to the plant they propose with the PIB. If you watch the Oct 30th talk 46:15–48:23 they clarify that their first choice is to do a feasibility study to assess the PIB option. That is the direction they will go if it appears to be the best cost‑benefit decision. Failing that they will decide on which of the two other options (stand‑alone Sage Mesa or connection to Penticton) they prefer. A yes vote gives them the power to decide.

Suggestions to Resolve the Problem

We are in no way responsible for the current state of the water system. That mismanagement was almost entirely the responsibility of the Province. Decisions to collect the reserve funds to maintain critical infrastructure should have been made at least 35 years ago, possibly earlier. When a new system is put in place those fees will certainly be charged. By paying reserve fees we will ensure residents 30 years from now are not facing a repeat of this debacle. However we are not responsible for reserve fees not collected in the past. The current water system repair costs should be paid by the Province.

Options Outside of the Water System

It has been suggested we could drill wells for much less than the cost of the upgrades. The successful drilling of a well is a gamble and relying on wells would mean our fire hydrants would no longer function.

Packaged water treatment systems exist and have been used in areas like Sun Peaks. See below under the RDOS Website FAQ section for the RDOS response to this question. The RDOS answer is vague. It can be interpreted as they want to get a high level solution first as it represents the highest cost‑benefit choice. Failing that they will consider more cost effective approaches. The highest cost‑benefit and not the most cost effective choice seems to be the RDOS default approach. Our fundamental concern should be minimizing the cost to us. Not facilitating future developments at our expense.

Points from the RDOS West Bench School Talks

Comments below are taken from the talks in the links. It’s a loose transcript of the video. It’s best to re‑watch the video at the time point. It shows the reader where we took some of our points above.

June 12, 2025 talk: https://www.youtube.com/watch?v=hTQP970m_Jw

1:38:18

Riley points out that we should let the Province know that we think they dropped the ball and that we intend to hold them to account. We could start a campaign (email, etc.) to encourage the Province to remedy the situation that they helped create. Talk to political representatives.

Oct 30, 2024 https://www.youtube.com/watch?v=gmObF9Tg7Mk

Regarding the RDOS take on cost benefit vs cost effective.

46:15–48:23

After assent (yes vote) they will look to replace the upper reservoir and then do a feasibility study with the PIB to see if a joint facility is feasible. If it is, they will go that direction. If the PIB WTP falls through then they will look at other options (WTP or Penticton). It would appear from these comments that the decision to go with a WTP or connect to Penticton is out of our hands if we vote yes. They are not necessarily looking for the cheapest option. They will use a cost‑benefit analysis to decide which way to go even though the McElhanney engineering report recommends connecting to Penticton.

1:00:20

You can put in an application for grants without assent. The Province doesn’t look as favourably on applying without assent (commitment of money). If the Province gives a grant, the RDOS needs to have ownership. Ownership is needed to do upgrades. RDOS is actually trying to get grants now.

1:33:33

IHA support improves chances of securing a grant.

The McElhanney Report

Listed are a few of the relevant points we took from the report. The page numbers are the pdf file numbering. The bracketed number is the page number if you print the document.

Pg 9 (4): As there is less than a 22% cost difference between the two water supply options, excluding the required system upgrades to address deficiencies, and the estimate is based on a Class D estimate with a 40% contingency, it is recommended that the RDOS consider tying into the West Bench / Penticton System.

Pgs 10(5) and 96(91): It appears the West Bench connection is 25% cheaper to run (Operations + Maintenance costs) than the WTP option each year. The legend under the page 10 histogram is mislabeled. $396,948 is the West Bench Connection option. The WTP is almost $500,000. This is per year for maintenance. So over 30 years that is over $3,000,000 extra. O+M costs would likely be even higher for a WTP on PIB option.

Pg 84 (79): In conclusion, the West Bench water mains are sufficiently sized to service Sage Mesa.

Pg 89 (84): No upgrades to the existing West Bench Pump Station or the City of Penticton’s distribution network are anticipated with the Sage Mesa system connection.

Please note that the costs listed for the West Bench connection above exclude any costs associated with upgrades that may be required in the West Bench distribution network. A water model was not available for the West Bench distribution network and as such, a detailed analysis of their system was not undertaken as a part of this project. However, the Penticton model was updated with the additional demands for Sage Mesa to confirm adequate water supply is possible, as noted in Section 4.6 of this report. A desktop review of the West Bench piping indicated that there should be sufficient capacity in the existing piping system (refer to Section 4.7).

As the City of Penticton water model includes an allowance to supply water to West Bench and Sage Mesa, it was assumed that the 2017 West Bench piping system upgrades also included an allowance to supply water to Sage Mesa.

Pg 96 (91): The required O&M expenditures for the West Bench Connection option are projected to be less than the current O&M budget due to a reduction in the number of reservoirs, booster stations, water intakes, and chlorine disinfection systems. For example, 2028: $380,000 (Penticton) vs $480,000 (RDOS).

The RDOS website FAQ

Many of the questions people asked at the meeting are addressed here. We’ve listed a few below that were informative about the direction RDOS has in mind.

https://rdosregionalconnections.ca/sage-mesa-water-system-acquisition-assessment

Is following the recommendations from McElhanney’s report the most cost‑effective option?

• Before any decision is made on which option is the most cost‑effective, all alternatives need to be thoroughly explored. The RDOS will develop a plan and make a recommendation based on a cost‑benefit analysis.

If the assent of the voters is not received, what happens?

• The Regional District of Okanagan‑Similkameen (RDOS) does not speak for the Province of BC, but it is expected the water system would remain with the private owner. The Province would maintain management of the system and determine the next steps.

If Interior Health were to deem the water unusable, couldn’t a packaged water treatment plant be brought in? These systems are compact, cost‑effective, and used in other communities like Sun Peaks.

• Packaged water treatment systems are one of several potential solutions. Before selecting a treatment option, the RDOS will evaluate all viable alternatives through a cost‑benefit analysis. At this stage, only a high‑level estimate has been prepared based on standard technologies. A detailed plan and recommendation will follow once further analysis is complete.

Summary

Prepared by concerned residents of the Sage Mesa Water System

Relevant documents