STRATEGY AND RESOURCES COMMITTEE

15 JULY 1996

A meeting of the Strategy and Resources Committee

was held on Monday 15 July 1996 at 4.00 pm

PRESENT: Councillor David Close (Chairman),

The Mayor,

Councillors Oscar Alpers, Carole Evans,

Pat Harrow, Ian Howell, Garry Moore,

Margaret Murray, Denis O'Rourke

and Ron Wright.

IN ATTENDANCE: Councillor Graham Berry.

ABSENT: Councillor Alister James.

APOLOGY: An apology for early departure from the meeting was received from Councillor Margaret Murray, who retired at 5.30 pm and was present for clauses 1, 2, 4, 6, 7, 8, 9 and 14.1.

Councillor Alpers arrived at 4.15 pm and was present for all clauses.

Councillor Moore arrived at 4.30 pm and was present for all clauses.

The Mayor retired at 5.30 pm and was present for clauses 1, 2, 4, 6, 7 and 8.

The Committee reports that:

PART A - MATTERS REQUIRING A COUNCIL DECISION

1. REMOVAL OF GOODS AND SERVICES TAX (GST)

FROM RATES RR 3282

Officer responsible	Author
Director of Finance	Bob Lineham/Lindsay Moore
Corporate Plan Output: Volume I Table I, GST on Rates

The purpose of this report is to outline the issues surrounding the Council's intention to lobby government for the removal of GST from rates.

This report was requested by the Committee in June following receipt of a report outlining a recent court judgement that rates are a tax. The Committee considered that since rates are now determined to be a tax that it is no longer appropriate that GST is added as this would be a "tax on a tax".

CURRENT LAW

Goods and Services Tax is charged on supplies of goods and services, which are not exempted or zero-rated. The tax is imposed by legislation under the Goods and Services Tax Act 1985, and is a consumption tax paid ultimately by the consumer or end user.

GST must be charged if a business carries on a taxable activity. Essentially a taxable activity is any activity which is carried on continuously or regularly whether or not for profit, and which involves the supply of goods or services for a consideration.

GST can only be charged on a "supply". The provision of Goods and Services in a number of situations which might not usually be considered to constitute a supply, are specifically deemed to be a supply for GST purposes. Section 5(7) of the GST Act states, "For the purpose of this Act, every local authority is deemed to supply goods and services to any person where any amount of rates is payable by that person to that local authority."

At a time shortly before the introduction of the GST Act, local government made submissions to exclude GST from rates. These submissions were not successful.

CHANGING THE TAXABLE STATUS OF RATES

The recent court case which ruled that rates are a tax will not directly affect the taxable status of rates for the purposes of GST. That case has been very useful in determining that rates do not have to be applied in direct proportion to services applied. It will however, be interesting to see what the impact is in due course once the Local Government Law Reform Bill is enacted. While it will clearly reinforce the taxation element of rates in respect of the general benefits produced by the Council the implication is not so clear in respect of direct benefits where there will be an expectation that the elements of the rating and charging systems applied will match as closely as possible the benefits.

There are two types of exemption from GST which could be applied for:

* Exempt Supply

* Zero Rated Supply

Each of these is dealt with in the remaining paragraphs in this section.

To make rates exempt from GST would require a legislative change to have them moved from being a `deemed supply' to an `exempt supply'. GST incurred by the Council in conjunction with expenditure in making exempt supplies would also not be deductible. Most exempt supplies are made to end-consumers and the recipients do not have to pay GST on the supply. Because the supplier (the Council) could not claim a refund (as it does at present) on GST paid on business inputs, that extra expense would have to be passed on to the ratepayer.

The Council already has one exempt supply, which is housing. Housing rental income is exempt from GST for all supplies of this service but GST included in direct expenditure on housing cannot be reclaimed from the Inland Revenue Department and in effect has to be carried by the end user. In addition, GST has to be paid to the IRD for overheads which are allocated to housing.

If all the Council's supplies became exempt, that is GST is not added to rates and other services supplied by the Council, the same rules as for housing would apply, and the Council would not be able to reclaim GST on all goods and services it purchases.

Under present legislation, some types of supply can be "zero rated" for GST, and under this situation, the person making the supply does not pay GST on his supply of goods or services, but can claim the GST paid on expenditure. If rates were classified as a "zero rated" supply, the Council need not charge GST on Rates, and could claim back an apportionment of GST paid on expenditure. GST would apply to other supplies of the Council. Currently zero rating applies to certain goods such as exports, sale of going concerns, exported services, and certain supplies on which other taxes such as excise duty is paid. Having services classed as zero rated supplies places a business in a favourable position in that its own supplies do not have GST added to the cost, and a refund can be obtained for GST on all outputs (supplies paid for). It is most unlikely that Government would agree to zero rating.

ASSESSMENT OF IMPACT

GST is currently charged at the rate of 12.5% on all rates and charges made by the Council with the exception of Housing rentals.

A review of year ended 30 June 1995 shows the following:

GST collected on rates $12,621,543

GST collected on other supplies $8,493,934

----------------

Total GST collected $21,115,477

GST paid to suppliers $16,449,458

----------------

Net Amount Paid to IRD $4,666,019

----------------

Using the above figures, the effect of the Christchurch City Council becoming completely exempt from GST would result in removing $12,621,543 from rates levied plus $8,493,934 from other charges. Because the Council could not reclaim GST paid on expenditure, the amount of $16.4m GST paid to suppliers will have to be recovered directly from ratepayers or increased user charges. If user charges inclusive of GST remain the same and the extra revenue collected is retained by the Council, there will still be a shortfall of $8m to be recovered from ratepayers. This is $4.6m less than the GST currently charged on rates and is the advantage which would gained by ratepayers overall. This would be approximately 4.1% reduction on rates.

If the Council was successful in getting rates removed from being a taxable supply, but other supplies of the Council were still subject to GST, there would have to be an apportionment of GST paid on goods purchased into exempt and taxable supplies.

As most activities of the Council are funded jointly by direct charges and rates it would be impossible to establish whether individual purchases were taxable or non-taxable inputs and the apportionment would need to be made arbitrarily in proportion to the turnover of the funding revenues. For example, using the 1995 figures again:

Rates income from 1995 Annual Accounts $101,736,000 63% GST excl

Other taxable income from 1995 Annual Accts $58,794,000 37%

Sixty-three percent of $16,449,458 ($10,363,158) would have to be borne as a direct cost and recovered from rates. This compares with the $12,621,543 recovered from ratepayers in the 1995 year and so the ratepayers would have an advantage of $2.3m (2.0%).

Clearly there could be savings for the ratepayer of between 2.0% and 4.1% if government agreed to make the legislative changes to make rates exempt.

OTHER ISSUES

Local government is a significant supplier of services in the economy. Certainly the charges for a significant share of those services are levied by rates in the form of a tax. However, I consider that it is most unlikely that government would want to release this sector from the Goods and Services tax net. Some of the reasons for this would be:

* Loss of revenue for the government.

* The need to increase other higher profile taxes to compensate for revenue lost.

* Introduction of an uneven playing field where services are also provided by non-local government suppliers (eg refuse collection, parking, golf courses etc).

* Upset to the GST process by removing significant services from what is currently a very comprehensive and efficient taxing regime which is designed to cascade tax down to the end user.

Currently ratepayers registered for GST (generally, but not solely commercial ratepayers) are able to obtain a refund for GST paid. This would no longer be possible if rates were exempt from GST but as outlined above the level of rates would not reduce by the equivalent amount (say 2% instead of 12.5%). They would nevertheless still have to add GST to all their supplies.

Capital projects which are currently funded by loan would require additional debt funding for the non-claimable GST input cost. For every project currently requiring debt funding of $10m there would be a need to borrow an additional $1.25m. The debt servicing cost would be of the order of $125,000 per annum over the life of the loan and debt levels would be proportionately greater.

SUMMARY

If the Government removed local authorities from making "taxable supplies" the Council would not have to account for GST on rates or any of its other revenues. The Council would become the end user, and would have to accept the cost of GST charged to it, and recover it from ratepayers and users of other chargeable services.

If rates were made an exempt supply, a large portion of GST paid to suppliers would have to be carried by the Council as end user and recovered from ratepayers.

It seems unlikely that any government would agree to making rates a zero supply, as the effect of receiving no tax from GST and having to refund a sizeable portion of GST paid by local authorities, could have a major effect on its revenue base.

CONCLUSION

An application can be made to the Government to remove the GST on rates but as long as the Government intends to continue with GST as a significant part of its taxation regime it is unlikely to agree to a legislative change. As legislation over-rides case law, the recent case will not by itself permit a change.

I do not consider that there is merit in devoting Council resources to such a cause at this time as it is highly unlikely to be effective.

Recommendation: 1. That a further report be prepared on the mechanics of exempting rates from GST.

2. That the City Manager be requested to write to the political parties contesting the 1996 Parliamentary elections, seeking details of their policies regarding:

* The exemption or otherwise of rates from GST.

* Making rates tax deductible against income for all ratepayers, bearing in mind that residential ratepayers are currently unable to claim rates as a deduction, unlike the occupants of commercial, professional and other business premises.

* A possible amendment to the qualifying income levels under the Rates Rebate Scheme. (See separate reference to the Rates Rebate Scheme in clause 8 of this report.)

2. RATING SALES - INTEREST ON JUDGMENT RR 3286

Officer responsible	Author
Legal Services Manager	Peter Mitchell
Corporate Plan Output: Legal Advice

The Council has resolved to conduct a rating sale of the vacant section situated at 1064 Lower Styx Road. The owner of the property can not be located.

Section 144 of the Rating Powers Act 1988 sets out the procedure for a rating sale and as a first step the Council forwards to the Registrar of the High Court a notice that the land is to be sold.

The Act provides that the Council is entitled to recover the amount of the judgment and costs that it has previously obtained and can also recover:

"Interest on the amount of the judgment and costs at a rate per annum fixed by the local authority from the date of the said judgment to the date of payment..." The purpose of this report is to seek a determination by the Council as to that rate of interest.

An analogy could be made with the rate of interest which a Court can order to be paid on an outstanding judgment.

The Judicature (Interest on Debts and Damages) Order 1980 provides that a Court may award a maximum of 11% on a judgment debt. This sum also accords with current interest rates for borrowing.

It is recommended that the Council set this interest rate for the purposes of rating sales.

Recommendation: That for the purpose of section 144(2)(b) of the Rating Powers Act 1988 the interest fixed by the Council shall be the current rate of interest as fixed by the Judicature (Interest on Debts and Damages) Order 1980, or any order or enactment in substitution therefor.

3. SELWYN PLANTATION BOARD LTD RR 3116

CONSULTATION ON SALE OF SHARES

Officer responsible	Author
Director of Finance	Bob Lineham/Julie Sadler
Corporate Plan Output: Public Accountability

The purpose of this report is to present the results of the public consultation on the possible sale of the Council's shareholding in Selwyn Plantation Board Limited.

1. BACKGROUND

In the 1994/95 Annual Plan and again in the 1995/96 Annual Plan, the Council indicated that it would consult the public regarding the possible disposal of its shareholding in Selwyn Plantation Board. The Council currently holds a 39% interest in this company with the balance being held by the Selwyn District Council.

2. THE CONSULTATION PROCESS

At its September 1995 meeting the Council resolved to consult the public through an article in City Scene; with the article being supported by appropriate newspaper publicity.

The consultation commenced with advertising in the Press and Star in December and February and a comprehensive article in the December 1995 edition of "City Scene". Submissions closed on 28 February 1996.

Six hundred and ten submissions were received, with 341 respondents supporting the sale and 253 opposing it. Sixteen had no definite opinion but raised various issues regarding Council ownership of the shares.

To facilitate the consultation process a coupon was included in both the newspaper advertisements and City Scene inviting respondents to indicate firstly, whether they supported or did not support the sale and secondly how the funds should be used if the sale took place. A summary of these responses is contained in clause 4 of this report. Submitters were also given the opportunity to make oral submissions in support of their response.

3. HEARING OF SUBMISSIONS

Oral submissions were heard by the Committee on 2 May. Three organisations - the Merivale Precinct Society, the Templeton Residents' Association and the Campaign for People's Sovereignty - and 19 individuals were heard by the Committee. The points made by the submitters supporting the sale proposition can be summarised as follows:

* Opposition, on philosophical grounds, to Council investment in business ventures and non-core activities.

* Concern about the Council's current level of debt. Sale of this asset would enable the Council to retire debt.

* Selwyn Plantation Board Limited was a successful enterprise which with a major capital injection could have a significant impact on the local economy. As present shareholders are not in a position to provide the investment capital needed to allow the company to develop to its full potential these shareholdings should be sold.

The main points made by the submitters advocating the retention of the Council's shareholding were:

* The community had the right to have trading enterprises retained on its behalf for the benefit of future generations.

* The forestry industry was dominated by transnational corporations and one or more would almost certainly buy the Council's stake. The Council would therefore be responsible for the alienation of another New Zealand asset if it sold to an overseas investor.

* The forestry venture was a sound investment and should be used to assist in realising the Council's economic development and job creation goals. To this end, the Council should increase its shareholding and invest in downstream processing which added value to the product.

* The company's output will increase considerably over the next few years and the sale of this asset would result in the loss of an expanding revenue stream for present and future generations.

* Asset selling was "inverse borrowing" in that it deprived future generations of a revenue generator.

* Concern that this was the first stage in a progressive sell off of the Council's trading enterprises.

* Following a change in Board policy, land had been purchased in areas better suited to production forestry. As a consequence, the likelihood of windthrow had been reduced and the viability of the operation improved because of the better growing conditions.

* If debt levels were a concern to the Council then the enhancement programme should be curtailed before assets were sold to reduce debt levels.

* Loss of public access to Bottle Lake Forest.

* The Council should learn from the lessons of the national asset sales.

Mr D G King submitted:

1. That the asset was undervalued for the following reasons:

(i) The book value of the company did not include trees under 12 years of age.

(ii) Contrary to normal practice, the Board had developed a network of forestry roads and culverts to logging standards throughout the forestry estate. The estimated value of the roading system was $22,000 per km.

2. Based on historical evidence the current difference between interest rates and inflation was an aberration. The current cashflows were not valid for this reason.

Mr Angus Mackenzie proposed that the current process be abandoned and a working party of outside experts be set up to advise the Council on the issue. Consultation to take place after working party reported back. It was submitted that the consultation process was a breach of public faith in light of the undertakings given to the public that Council assets would not be sold.

4. ANALYSIS OF SUBMISSIONS

Geographical Analysis

For the purpose of undertaking this geographical analysis the City was divided into four areas plus the Central City Area. These areas can be broadly defined as:

North West Suburbs - bounded by Yaldhurst Road to the west and Papanui/Main North Road to the north

North East Suburbs - bounded by Papanui/Main North Road and Ferry Road.

South/South West Suburbs - bounded by Ferry Road taking in all southern suburbs around to Yaldhurst Road

Hill Suburbs - areas on the Port Hills and including Cashmere, Sumner and Redcliffs.

The percentage distribution of total submissions was as follows:

North West Suburbs - 31%

North East Suburbs - 26%

South/South West Suburbs - 17%

Hill Suburbs - 12%

Central City and others - 14%

The 341 submissions supporting the sale were divided into each of the five geographic areas according to the address provided with their submission. Likewise for the 253 submissions opposing the sale. The results are shown in the attached graph.

The graph shows for instance that of those opposing the sale (90 or 36%) reside in the North East Suburbs and of those supporting the sale (121 or 35%) reside in the North West Suburbs.

The following table summarises the information from the graph giving percentages (of total submission) for and against:

	For Sale:	Against Sale:
North West Suburbs	19%	11%
North East Suburbs	12%	15%
South/South West Suburb	10%	7%
Hill Suburbs	8%	4%
Central City	3%	2%
Others	3%	2%
	-----	-----
	55%	41%

Analysis of Proposed use of Funds

Of those 341 submissions in favour of the sale of Selwyn Plantation Board shares the breakdown of possible use of the proceeds of sale is as follows:

Purchase other business 78 (22%)

Repay debt 223 (65%)

Increase Council shareholdings 29 (8%)

Improve existing community facilities 40 (11%)

Funding Community projects 75 (21%)

Note: This does not add up to 100% because some people cited two or more possible uses.

Reasons for Opposition to sale

Of the 253 submissions opposed to the sale of Selwyn Plantation Board shares, 28(11%) gave recreational or environmental reasons for opposition and 49 gave reasons of long term investment or philosophical opposition to the sale of publicly held assets.

Recreational Use of Bottle Lake Plantation

For the information of the Committee, the Forestry Licence, granted by the Council to Selwyn Plantation Board Limited provides for public entry to the Bottle Lake Plantation for recreational purposes. The key clause in this respect is quoted below:

6.1 Public Entry

The licensee acknowledges that so long as the CCC is the Licensor hereunder the public shall at all times during the term of this Licence have the right to enter and use the Land or such parts thereof as may be so designated pursuant to clause 3.4 for recreational purposes. Such entry shall, unless the Licensee expressly permits otherwise, be limited to access on foot or with horses, mountain bikes or other modes of transport excluding motor vehicles. The Licensee shall have the discretion to control such entry and use only for reasons relating to the safety of the public or those working on the Land or for the protection of the trees, buildings, plant, equipment and related items. 5. REVIEW OF PUBLIC CONSULTATION PROCESS

Councillors welcomed the opportunity to hear, first hand, the opinions of a number of submitters and are grateful to the groups and individuals concerned for taking the time to attend the meeting to discuss their views with the Committee. However, because such a diverse range of views emerged from the public consultation, the process has not provided the Council with a clear indication of how the community would like it to proceed in respect of this issue.

In order to encourage public participation in the process the response coupon was kept very simple to make it as easy as possible for people to comment if they wished to do so. Given that 610 submitters represents only .28% of the adult (over 18) population of the city the response was rather disappointing. Furthermore, as the consultation process lacks the statistical purity of a professionally designed survey the results do not provide an accurate indication of public opinion on the issue.

In view of the above, the Committee drew the following conclusions:

* The vast majority of the community do not have strong views on this issue.

* The community is happy for the Council to make the best decision on the sale of the shareholding.

6. THE SALE ISSUE

In late 1994 the Council commissioned and received a report from Buttle Wilson, Investment Analysts, which analysed the issues surrounding a sale including the cash returns available to the Council.

In September 1995 the Council in resolving to proceed with the public consultation process passed the following resolution:

That it be noted that the appropriate timing for a sale of this Council's interest in Selwyn Plantation Board Limited is likely to be one or two years. That Selwyn District Council be advised that this Council would be interested in co-operating in a joint sale process provided the outcome of the public consultation process for the Council is positive. That the Council resolve as a matter of principle that the rationale for sale be, inter alia, the intention to reinvest the proceeds of sale primarily in ways which will: (a) Encourage sustainable economic growth in Canterbury and (b) Provide in due course, a rate of return comparable to or better than the net equivalent result achieved by debt repayment; and/or (c) Provide a source of funds should it become prudent for the existing programme of debt repayment to be accelerated. The report received from Buttle Wilson was prepared in late 1994 and there have been significant changes in market circumstances since that date relating to:

- Market prices of wood

- Sale of other forests

- Continued growth of the forest

- Processing plants being established elsewhere in the country

In view of this the Committee concluded it would be inappropriate to make a definitive decision on this issue without further research being undertaken including updated valuations.

As enquiries are received from time to time from investors interested in purchasing the Council's stake in Selwyn Plantation Board Limited, it is important that the Council has a policy on the sale issue as a prospective investor could appear at any time.

The Committee unanimously agreed that further specialist economic and financial advice was needed before the Council would be in a position to make an informed decision on this issue.

Recommendation: 1. That the submitters be thanked for their input into the public consultation process.

2. That, given the broad range of options from the public consultation process, an independent economic analysis of the long term potential of the Council's shareholding in Selwyn Plantation Board Ltd be sought before reporting further to the Council.

4. ELECTRIC CAR REPORT RR 3263

Officer responsible	Author
Plant and Building Manager	Paul McNoe
Corporate Plan Output: Plant Renewals and Replacements

The purpose of this report is to report on the feasibility of purchasing approximately twenty electrical vehicles to replace a similar number of petrol or diesel powered vehicles in the Council's fleet.

BACKGROUND ON ELECTRIC VEHICLE DEVELOPMENT

Electric cars are not new. As early as 1901 Porsche manufactured an electric car with a DC electric drive motor and lead acid batteries. The electric car scene has changed little since then. Lead acid batteries, similar to those in a normal car, and DC electric motors remain the most common electric car

conversions today. Technological improvements have of course made an impact with batteries being smaller and holding higher charge levels than those of the past. Today's DC motors and their electronic control systems are also more sophisticated and efficient than those originally used in the 1901 Porsche.

Over the past ninety years developments on electric vehicles have been sporadic and electric vehicles appear only in niche markets where the internal combustion engined vehicles are not satisfactory. Typically electric vehicles are used where noise levels are very important, eg early morning milk deliveries in Britain, and in enclosed spaces where noise or air quality are significant factors. Electric forklifts are widely used in enclosed buildings to avoid pollution from noise and exhaust emissions.

Recently there has been some significant development work on electric cars by American car manufacturers. This has resulted from Californian legislation requiring that two percent of all new vehicles produced in California by 1998 must be zero emission vehicles. The only vehicle that could be defined as being zero emission in this context is an electric powered vehicle (EV).

A major restriction of electric vehicle use is because of the battery pack's limited energy capacity and weight. Lead acid battery systems offer a relatively short range for the vehicle use while adding significant weight to the electric vehicle. Much of the current development work is targeted at new battery technologies. The aim is to produce lighter batteries with higher energy capacity and faster recharging cycles than the present lead acid batteries. Many new battery developments have been heralded; however none have proven especially successful, so the lead acid battery remains in common use in this field.

The driving force behind the legislative changes in California was high levels of pollution from the motor vehicle emissions. For Christchurch the issues are similar. Firstly motor vehicles do contribute to the pollution experienced in Christchurch. Secondly planners appreciate that we must be part of a national and worldwide effort to minimise the contribution fossil fuel use makes on global warming. Finally legislative change that will impact on the long term management of fossil fuels is imminent. The New Zealand Ministry of Commerce intends to introduce a carbon tax regime by December 1997. This will clearly be an incentive to shift away from the use of fossil fuels for heating and transport.

ELECTRIC VEHICLE OPTIONS

The future for electric vehicles seems promising. A number of motor companies like BMW, Volvo, Peugeot, Renault, General Motors, Ford, Honda, Toyota, are currently developing new electric vehicles. The operational range of these vehicles is also increasing. Five years ago the maximum range was around 70 kilometres. Today some of the new electric vehicles have an operating range approaching 200 kilometres, with a top speed of 120 kilometres per hour and an on-road performance similar to an equivalent conventional vehicle.

Within New Zealand the choices when purchasing electric cars are very limited. All of the electric cars available in New Zealand are conventional motor vehicles that have been converted to electric drive. To achieve this the normal engine is removed and replaced by an electric motor. A battery pack is then installed either in the engine compartment or in the passenger compartment behind the front seats. The Canterbury Regional Council electric vehicle has a Toyota Starlet converted in this style by a Hamilton based electric vehicle specialist. Typically these electric cars cost about twice the normal price of the conventional car. A typical operating range is 45-50 kilometres with a top speed of 105 kph. (Refer to CRC EV section.)

There are no New Zealand motor companies currently offering a fully assembled electric vehicle, even though these vehicles exist in America and European countries. Apparently these vehicles are still very much in developmental mode and the parent motor companies do not wish to support these vehicles away from their research base.

A purpose built electric car chassis is being developed in Christchurch by a team led by Ray Whiting, Pandect Prototypes Ltd, using highly sophisticated composite materials. The chassis design is intended to fit a range of body types from two seater hatchbacks, to four door sedans, and utility bodies. Pandect hope to have the working chassis completed in September this year. The prototype will then undergo extensive testing over several months at Ruapuna race track and on the Canterbury University's chassis dynamometer. An optimistic target has been set to have a completed electric vehicle, which has a range of 100 kilometres and a top speed of 100 kph, available approximately six months after tests have been completed. Limited production will begin shortly after this. The cost of a completed vehicle is not yet known, however it is expected to have a lower cost than converted conventional cars.

CANTERBURY REGIONAL COUNCIL - ELECTRIC VEHICLE

(a) Background

The Canterbury Regional Council purchased a Toyota Starlet approximately eighteen months ago which they converted to electric operation. Their prime reasons appear to have been to raise awareness in the general community of vehicle emissions, in conjunction with their vehicle exhaust testing programme and to raise the profile of an alternate transport mode. The car, which has been named "Sparky", has been used as a focal point for many of their displays around the city and is garaged at their Kilmore Street headquarters.

(b) Performance

The range on a full battery charge varies between 45 and 50 kilometres. The best result achieved was 68 kilometres on economy driving. Its top speed is 105 kph and the full recharge time is twelve hours. "Sparky" has travelled 4,500 kilometres in the eighteen months since its purchase and has needed less maintenance than a conventional car.

One interesting effect on electric vehicles in Christchurch is that of cold temperatures on battery recharging and storage capacity. They have discovered early morning performance is quite sluggish on frosty mornings and the car benefits from being under cover. Recharging is also adversely affected by cold temperatures, particularly if the battery is being "topped up".

On a recent test drive "Sparky" performed well. It had sufficient power to keep up with normal traffic flow with ease. It was very quiet and easy to drive. The silence lent a slightly unreal sensation to the driving experience. The car was well balanced to drive, even though it was very close to the manufacturers maximum weight limit. The weight of batteries was noticeable only when turning into a corner.

The only concern during this test drive was the cars braking ability. This electric conversion did not provide any over-run braking through the drive motor ie the car slowed very gradually with the power off. This feature, coupled with a high body mass pushed the braking system to its operational limit. While still having acceptable braking, in modern car terms it would be regarded as marginal.

Overall the car was well assembled, was very comfortable and a pleasure to drive. The conversion had minimised battery intrusion into the passenger compartment, with plenty of space behind the front seats for carrying light goods.

ELECTRIC VEHICLE SUITABILITY FOR COUNCIL FLEET

The majority of the Council's vehicle fleet are not suitable for electrical operation because of their operational requirements or high energy needs. Electric vehicles are most effective where vehicle usage range is relatively small and the large battery packs can be easily accommodated. Converting a four door car to electric operation effectively removes the rear two seats. However the EV chassis being designed by Pandect Prototypes, described under the section on EV options, may accommodate a future extension of EVs into the four seater car and utility arena.

Introduction of electric vehicles into the Council's fleet today is limited to the 100 three door hatchbacks with two seats. Most of these three door hatchbacks daily work mileages fall within the normal operating range for an electric car.

Significant issues to be addressed before purchasing EVs include:

Safety Issues

Vehicle braking. Does the brake system adequately brake the vehicle in normal and emergency conditions.

Accident protection. Does the conversion add to or mitigate injury potential in an accident.

Changes in handling characteristics due to battery pack location and weight.

Containment of hydrogen gas given off by batteries during recharging.

Operational Issues

Recharging of electric vehicles. What additional provisions are needed? For one or two vehicles this a minor consideration. Where significant numbers of EVs are being used, this issue is significant and raises, amongst other things, allocation of overnight parking spaces for these vehicles, security and training of all staff who might use them. There can be no doubt that the introduction of large numbers of electric vehicles will require the creation of some unique solutions to address the safe and convenient recharging of electric vehicles.

ENVIRONMENTAL ISSUES

As a means of reducing exhaust emissions in cities the electric vehicle is an attractive solution because they produce no emissions at the vehicle. Electric vehicles are not however zero emission vehicles in the sense that the power stations that produce the electricity used produce atmospheric emissions. In New Zealand, at least, any new electricity consumption "marginal load" is considered to be generated by thermal power stations. The national formula for calculating the future carbon tax reflects this view.

Information on overall emissions for conventional cars and electric cars is somewhat conflicting. A 1992 American comparison of emissions from a standard and electric Chrysler minivan based on a United States average generation scenario showed the electric vehicle well ahead. The table below shows the result of that comparison and includes the power station emissions for the EV.

USA Comparison of Emissions from Chrysler Mid Sized Van
	Internal Combustion Engine	Electric Vehicle
	grams per kilometre	grams per kilometre
Carbon Dioxide	400	200
Sulphur Dioxide	0.1	0.5
Nitrogen Oxides	1.1	0.2
Carbon Monoxide	6.2	0.03
Volatile Organic Compounds	0.65	0.006

The principal emissions from a internal combustion engine are carbon dioxide, sulphur dioxide, nitrogen oxides, carbon monoxide, and volatile organic compounds. Volatile organic compounds essentially are unburnt hydrocarbons that have managed to escape combustion in the engine.

Recent analysis by the Christchurch City Council's Energy Manager paints a different picture for New Zealand. For example nitrogen oxide production from a small conventional car is 0.35 grams/km compared with 0.41 grams/km for an electric vehicle, when thermal power station emissions are included.

The principal differences between the two examples are the different electricity generation mixes. In the United States the mix is 4% oil, 9% gas, 64% coal, 33% nuclear or renewable resources. For New Zealand the mix is typically 85% hydro, 6% geothermal, 9% thermal (oil and coal), with the hydro stations providing the base load component.

An overall energy balance between the electric vehicle (EV) and internal combustion engined vehicle (ICV) should be considered, because the generational energy losses in thermal stations and supply networks are significant. Typically electric energy provided to the local power outlet from thermal power stations is approximately 34% of the original fuel input energy. The principal losses are in generation and the power distribution network. A conventional car engine by comparison would typically operate in the 40 to 50% thermal efficiency range. Analysis by the Christchurch City Council's Energy Manager suggests primary energy consumption is 37% higher for an EV than an ICV.

FINANCIAL CONSIDERATIONS

Conventional cars converted to electric power are expensive. Approximately double the normal conventional car price. Energy costs are slightly lower for an electric car, as are maintenance costs. This minor saving is offset by replacement cost of the battery pack. Typically a battery pack would last three years. Resale values for EVs are not expected to be at the same level as ICVs, because they would appeal to a limited buyer group ie limited operational range, two seats and EV enthusiasts.

Comparing the total life cycle costs for the EV and ICV on New Zealand purchase, conversion and running costs, the Total Life Cycle Ratio was 1.8:1 in favour of the conventional vehicle ie an EV's long term ownership cost is 80% higher than an equivalent conventional vehicle. A similar study in USA (Linquist, 1992) produced a Total Life Cycle Ratio of 2.3:1 in favour of the conventional vehicle.

The budgetary effect of purchasing twenty electric cars in the 1996/97 financial year would be to increase the plant purchase budget by $365,000 (7.2%) and an increase in the Council's annual operating budget of $99,600. The increased operating cost would continue until the EVs were sold after six years operation.

SUMMARY

There is little doubt that the Council should continue to investigate alternative transport modes and develop a long term fuel strategy. Fossil fuel (oil) resources have a limited future and while experts tend to argue about the volume of oil resources remaining, it is accepted that these resources are finite and in as little as sixty years, fuel oils may be becoming a rare commodity.

The international community is pouring substantial resources into the development of electric and alternate fuelled vehicles in response to societal pressure for pollution reduction and future proofing our transport systems. The electric car project of Pandect Prototypes is one of the local initiatives that could provide a step forward in creating an economic alternative to the conventional car.

Other future transport power sources will appear on the scene. It is possible that the car of the future could be powered by flywheels, steam or turbine engined. For instance Canterbury University is involved in a development project on an external combustion engine called a Stirling Cycle engine.

Twenty years ago a steam powered car, called "Gvang", was developed in Australia that had a computer controlled boiler and a 5 minute start up time. Over the next decade technological improvements in the transport industry will have a "watch this space" look about it as the search for alternate transport modes builds.

There are a number of factors that would mitigate against the introduction of electric vehicles. Their high life cycle cost, higher primary energy consumption, higher national emission levels, limited (current) flexibility in seating arrangements, limited operational range and special recharging provisions necessary.

On the positive side, exhaust emissions of any EVs in Christchurch would be nil, and Christchurch citizens are likely to become more aware of the issues surrounding use of fossil fuel and transportation.

In today's environment the conventionally powered car with its improving thermal engine efficiency combined with unleaded fuel and catalytic converter continues to be the most economic solution to the Councils transport needs. Over time we can expect to see further reductions in fuel consumptions and exhaust emission levels as new technology is applied to these vehicles.

The City Manager comments:

The Council's plant fleet operates on a commercial basis, with its customers able to use alternative suppliers if they are able to secure better prices by so doing. Any additional cost associated with operation of electric vehicles should therefore be treated as an environmental policy cost. As well as furthering environmental outcomes there may be an opportunity to encourage development of electric vehicles in the local economy (the report refers to such a project being underway). The Council could indicate a preparedness to buy during the next two years up to, say, five vehicles from a local supplier providing the vehicles meet a minimum performance standard and cost no more than, say, 1.6 times the cost of conventional vehicles. The Chairman comments:

I am grateful for the comprehensive report prepared by the Plant and Building Manager. The only aspect of the report which I would wish to challenge is the calculation of the efficiency and pollution potential of the electric vehicle on the basis of electricity produced from fossil fuels. As 85% of New Zealand's electricity is hydro-based, that seems to me a misleading assumption, especially as batteries would be charged at night when steam stations are not operating. Assuming that the electricity to power the vehicle is produced from fossil fuels downplays the environmental advantage of the electric vehicle. As expected, the report demonstrates that the cost of purchasing and operating electric vehicles is higher than that for conventional vehicles. It is inevitable that this will be so until such time as economies of scale can be achieved through longer production runs. We have a "chicken-and-egg" situation. For this reason, I believe it is important for the Council to send a signal to manufacturers that it is willing to consider the purchase of electric vehicles for its fleet.

Recommendation: 1. That the Council explore the possible acquisition in the 1997/98 financial year of ten electric vehicles of appropriate specification.

2. That this objective be pursued by initiating discussions with manufacturers about a co-operative pilot project.

3. That should the Council purchase electric vehicles an environmental subsidy be paid to the plant account if necessary.

4. That alternative ways of making a significant reduction in vehicle emissions at similar cost be developed for comparative purposes.

5. MONITORING OF COMMUNICATIONS AND

PROMOTIONS ACTIVITY BY STANDING COMMITTEES RR 3287

Officer Responsible	Author
City Manager	City Manager
Corporate Plan Output: Public Accountability

The purpose of this report is to report, as requested at the Annual Plan Working Party, on possibilities for reducing the number of Committees which monitor the activities of the Communications and Promotions Unit. Currently the relationships of this unit to Standing Committees are broadly as follows:

Central City Committee - Central city marketing and activities

Strategy and Resources Committee - Communication functions

Community Services Committee - Sister Cities and City Promotion

(including Turning Point 2000)

Parks and Recreation Committee - Festivals and events

One of the design principles for the current Standing Committee structure was that Strategy and Resources Committee should be free of specific significant activities so as to be in a position to take an overview of Council functions. It is therefore valid for communications which is a Council-wide function to be monitored by the Strategy and Resources Committee but I believe it would be inappropriate for any of the more specific significant activities undertaken by the unit to be added to the Strategy and Resources Committee's terms of reference.

The Central City Committee is very focussed in its terms of reference and central city marketing is so much a part of its core activities that I believe this also needs to be left undisturbed.

It may be possible, however, to alter the responsibilities of the remaining two committees so that one of them only overviews the festivals, events and sister cities activities.

Sister Cities and City Promotion would sit uncomfortably in relation to the other functions of the Parks and Recreation Committee. It may be more acceptable to include festivals within Community Services which already deals with arts and culture and employment and economic development significant activities all of which have some relationship to festivals.

It would also be relevant to consider the workload of the respective committees.

Recommendation: That responsibility for festivals and events be transferred from the Parks and Recreation Committee to the Community Services Committee.

PART B - ITEMS DEALT WITH BY THE COMMITTEE AND

REPORTED FOR INFORMATION ONLY

6. CARD PAYMENT OPTIONS RR 3234

The Funds Manager reported on the result of a team investigation into the potential for the future use of plastic card payment options. The Funds Manager advised that since writing the report he had ascertained that New Zealand's major banks were preparing to introduce smart cards in the form of a "stored value card", called the Mondex Card, within the next 18 months.

The stored value card has been developed and trialed in England by National Westminster Bank, the Midland Bank and British Telecommunications. It is a plastic card with a microchip embedded in it to store electronic cash.

Cardholders can load money onto their cards at ATMs, over the phone or by using a Mondex electronic `wallet', a pocket-sized device with a keyboard and screen, like a pocket calculator, which can keep a separate store of money.

Mondex emulates cash by allowing person-to-person payments. Two cardholders can transfer cash between their cards by using a Mondex wallet. The cards can store up to five currencies so person-to-person payments can be made across the world by phone and on the Internet.

Six major New Zealand banks - ANZ, ASB, BNZ, Countrywide, National and Westpac/Trustbank - have bought the Mondex franchise for New Zealand in partnership with four main Australian banks.

The Committee resolved that the officers continue to actively investigate the card payment options available, and report back to the Committee.

7. ACCOMMODATION SUPPLEMENT RR 3284

The Funds Manager reported, identifying the extent to which the Accommodation Supplement was available for low income ratepayers. The Committee deferred the report to allow the Funds Manager to report back with a recommended strategy for publicising the availability of the Accommodation Supplement as widely as possible, targeting in particular wage earners in rental accommodation.

8. RATES REBATE SCHEME RR 3285

The Director of Finance reported, advising that the Minister of Local Government had advised that no change would be made at present to the qualifying income levels under the rates rebate scheme.

The Committee received the report, and resolved that each of the main political parties be requested to advise its policy on a possible increase in the qualifying income levels under the scheme (see recommendation contained in clause 1).

9. INTERNATIONAL MALLS CONFERENCE "REVITALISING TOWN

AND CITY CENTRES" - ADELAIDE SEPTEMBER 1996 RR 3288

The Principal Policy Analyst reported, seeking approval for elected member representation at the eighth International Malls Conference to be held in Adelaide on 16-17 September 1996.

The Committee was of the opinion that it would be desirable for a representative of the City Business Association to also attend the conference.

The Committee resolved:

1. That approval be granted for Councillors Margaret Murray, Carole Evans and Pat Harrow to attend the conference with expenses paid.

2. That the Council's delegates be authorised to make a formal bid for a future International Malls conference to be held in Christchurch.

3. That it be suggested to the City Business Association that it would be useful for a representative of the Association to accompany the Council's representatives to the conference.

10. LOCAL GOVERNMENT AMENDMENT BILL: RR 3277

information seminar

The Director of Policy reported, seeking an indication as to whether the Committee wished to be represented at a seminar on the new Local Government Amendment Bill. The Committee resolved that the Chairman and Deputy Chairman of the Strategy and Resources Committee be authorised to attend the Local Government Association/SOLGM seminar on the Local Government Amendment Bill to be held in Christchurch in 19 August 1996.

11. INTRODUCTION OF SUPPLEMENTARY REPORT

The Chairman referred to a tabled supplementary report regarding a Local Government Association land transport pricing forum to be held in Wellington on Monday 5 August 1996. The Chairman advised that the report had not been included in the agenda as notice of the forum had not been received until after the agenda had been prepared and circulated. The matter could not be deferred to a subsequent meeting as the forum would be held on 5 August 1996.

The Committee resolved that the report be received and considered at the present meeting.

12. LAND TRANSPORT PRICING STUDY

(SUPPLEMENTARY) RR 3009

Officer responsible	Author
City Streets Manager and Environmental Policy and Planning Manager	Dennis Morgan
Corporate Plan Output: Transportation Policy Advice

The purpose of this report is to advise Councillors of a New Zealand Local Government Association land transport pricing forum to be held in Wellington on Monday 5 August 1996.

The Land Transport Pricing Study comprises the following documents:

* National Road Account - Infrastructure

* Roading as an Economic Good

* National Road Account - Environment

* National Road Account - Road Safety

* National Traffic Database

The Land Transport Pricing Study is part of a wide ranging view of land transport services designed to support the New Zealand Government's policy of a "safe sustainable transport system at reasonable cost" - as outlined in the Ministry of Transport's Strategic Plan Transportation Directions 1994-1999. An officer project team has been established to review the study and formulate a submission to be received by the Minister of Transport by 30 August 1996.

The June meeting of the Council was advised that a joint seminar session of the City Services Committee and the Environmental Committee would be convened for a briefing by the project team prior to its report to August meetings of the Committees.

The seminar session is to be held at 3.00 pm on 2 August.

NEW ZEALAND LOCAL GOVERNMENT ASSOCIATION

The New Zealand Local Government Association has advised that a forum for local authority representatives will be held in Wellington on Monday 5 August 1996. The objectives of the forum are to:

* Consider the findings of the Association's Land Transport Pricing Study Working Party on Land Transport Pricing Study.

* Provide a way for local authority representatives to exchange views.

* Develop a local government position.

Recommendation: That the Chairmen of the Strategy and Resources and City Services Committees and a member of the Environmental Committee (the Chairperson of that Committee not being available) attend the Local Government Association Land Transport Pricing Forum in Wellington on 5 August 1996.

13. ITEMS RECEIVED

The Committee received the following reports:

14.1 Christchurch City Holdings Limited RR 3283

Report by Director of Finance regarding the following issues of interest handled by the Board of Christchurch City Holdings Limited since the last report:

* New Constitutions for Subsidiary Companies

* Review of Directors' Fees

14.2 Asset Management Plan Development RR 3255

Report by City Streets Asset Planning Manager outlining progress to date in developing asset management plans for roading/traffic, water supply, liquid waste, land drainage and parks, and confirming the dates for the relevant Standing Committee meetings to review the levels of service across these asset areas.

14. RESOLUTION TO EXCLUDE THE PUBLIC

The Committee resolved that the draft resolution to exclude the public set out on page 30 of the agenda be adopted, subject to the incorporation of a further item relating to an oral report on the appointment of directors of Selwyn Plantation Ltd, such report to be considered pursuant to section 7(2)(a) of the Local Government Official Information and Meetings Act 1987, relating to the protection of privacy of natural persons.

CONSIDERED THIS 24TH DAY OF JULY 1996 MAYOR

---

Top of Page ~ Council Proceedings ~ Council & Councillors