Council Communication...MWC have been completed. In cooperation with MWC, the new agreement includes dispute resolution language; special conditions that provide the 2.13 mgd capacity,

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Council Communication December 2, 2014, Business Meeting

Talent Ashland Phoenix Emergency Pipeline Intertie Project Update and Approval

of Medford Water Commission Wholesale Agreement

FROM:Michael R. Faught, Public Works Director, [email protected]

The emergency Talent, Ashland and Phoenix (TAP) project was substantially completed and Medford water was added to Ashland’s distribution system on August 27, 2014. The final phase of the TAP project involves construction of a new permanent pump station on City controlled property and staff is seeking Council direction on one of two pump station options.

SUMMARY:

Additionally, staff recommends the City Council approve the attached Medford Water Commission Wholesale Water Agreement.

BACKGROUND AND POLICY IMPLICATIONS:

Project Update A ribbon cutting ceremony was held on September 11, 2014 to celebrate the substantial completion of the TAP project. While there are still outstanding elements of the project (acquisition of an easement for the permanent pump station, construction of the pump station and finalizing an agreement with the Medford Water Commission), Medford water was added to Ashland’s distribution system beginning on August 27, 2014. More than 17 million gallons was added during the testing period that ended in mid-September. The TAP project included engineering and construction of 14,000 feet of 16-inch pipeline within ODOT Highway 99 right-of-way from Ashland Mine Road in Ashland to Creel Road in Talent, and construction of a temporary pump station located near Butler Ford at the corner of Valley View and Highway 99. The new water supply system was designed to provide an additional 2.13 million gallons per day (mgd) of water to Ashland for emergencies. The approved budget for the project is $4,322,000 and there is $478, 973 remaining to construct the final TAP pump station (see chart below) expenditures are as follows: Description Costs Approved TAP Budget $ 4,322,000 Pipe Line & Temporary Lift station Costs to Date ($3,531,438) Land Acquisition ($ 160,000) Professional Services (engineering, project inspection, etc.) ($ 151,589) Remaining Funds for Lift Station Construction $ 478,973

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The Public Works team and subsequent engineering and construction contractors take great pride in having substantially completed this project within five months, when it normally would have taken up to two years to complete under normal circumstances. Delivering this project in that short window was an amazing accomplishment and ultimately ensured our community would have an emergency water supply available during Ashland’s worst drought year on record. The project was designed and constructed in phases and funding for the project was accomplished just prior to the construction process. Staff successfully secured a $2.97 million Safe Drinking Water Revolving Loan at 1% interest that included $950,000 in loan forgiveness. In addition, staff successfully negotiated a long term water delivery agreement with the Medford Water Commission. An out-of-the-box approach to the project resulted in having Medford water available for our community on time. Any number of things could have caused this project to fall apart, including obtaining all required right-of-way permits, finding and having 14,000 feet of 16 inch water pipe delivered on time, securing the loan prior to construction to ensure reimbursement, acquiring a permanent easement for the pump station, etc. It took the relentless perseverance of several dedicated and talented team members to see this fast-tracked project through. While the success of this project reflects the talents and skills of several Public Works employees and consultants, staff would like to specifically recognize key players that provided the leadership to make sure this project was delivered on time. The first is Morgan Wayman (the Dude) who, as the Public Works project manager for the project, worked tirelessly, while providing some humor along the way to ensure the project was completed on time. Others include Steve Walker, our distribution supervisor, who made sure that the project interfaced with our distribution system; Scott Fleury who managed all of the contracts and loan documents; and our Legal Department for their assistance in the emergency procurement process and timely review of important documents. In addition, staff would like to recognize: • Jeff Ballard, RH2 design engineer and Jeff Fowler, Pilot Rock Construction, for understanding the

emergency situation and focusing their time on our project and ultimately completing it on time. • Fumi Schaadt, Regional Coordinator Community Development Division Oregon Economic and

Community Development, for expediting the Safe Drinking Water Revolving Loan application. • ODOT and Jackson County for fast tracking the permitting process. Without this team commitment

and out of the box problem solving, this project would not have been completed on time.

Next Steps Two elements of the project still need to be completed in order to finalize the project. • The first is that staff seeks Council direction on one of two options for the construction of a new

permanent pump station on City-controlled property. • The second element is finalizing the Wholesale Water Service Agreement with the Medford Water

Commission (MWC).

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Staff asked RH2 to provide pump station design options that allow for future expansion from 2.13 mgd to 3 mgd. To that end, RH2 has provided two pump station design options (as presented in the attached RH2 TAP Pump Station Final Construction Planning memo) for Council consideration. A summary of the two pump station design options are as follows:

TAP Permanent Pump Station on City-controlled Property Options

Option 1:

Construct pump station utilizing existing pumping equipment at an estimated cost of $542,000. With the exception of purchasing the rental pump and variable frequency drive, this option meets the original intent for the emergency TAP system and will exceed budget projections by $63,027.

Remaining TAP Funds $478,973 Option 1 Pump Station Cost $542,000 Difference ($ 63,027) The reason staff is recommending the purchase of the equipment under this option is that it cost $47,815 to rent the equipment this summer and would require similar costs every time the TAP system is used in the future.

1. Invests partially in permanent structure constructed to current essential facility standards to Advantages:

resist natural disasters (i.e., earthquake, flooding, etc.). 2. Provides for future expansion of pump station capacity. 3. Locates pump station on City-controlled property, permitted and constructed in accordance with Jackson County codes. 4. Exceeds TAP funding by $63,027

1. Does not provide the desired capacity of 3.0 MGD, until future upgrades are completed. Disadvantages:

2. Requires purchase of used pumping equipment that may be less reliable and which is less efficient than proposed permanent equipment. COST: $442,000

Option 2:

Construct a permanent 2.13 mgd pump station with designed ability to expand to 3 mgd at an estimated cost of $1,020,000, more closely meeting long term future supply needs. If approved, this option exceeds budget projections by $541,027.

Remaining TAP Funds $ 478,973 Option 2 Pump Station Cost $1,020,000 Difference ($ 541,027) This option constructs an initial facility with two pumps and room to add a third pump if the City decides to expand to 3 mgd. Having two pumps available provides another level of redundancy in the event of pump failure during an emergency. In the event Council selects this option, staff has begun conversations with the Fumi Schatt about securing low interest loan funds for the additional $541,027.

Advantages:

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1. Invests in permanent structure constructed to current essential facility standards to resist natural disasters (i.e., earthquake, flooding, etc.). 2. Improved performance and reliability of pumping equipment. 3. Best solution to move towards long-term goals. 4. Excess funding is not spent on equipment that does not meet build-out goals.

1. Highest cost alternative due to purchase and installation of new pumping equipment. Disadvantages:

As Council considers the pump station options for construction, staff wants to let council know that increasing overall capacity of the TAP system from 2.13 mgd to 3 mgd is more complex than upgrading the pump station. Increasing capacity to 3 mgd may require adding anywhere from 4,000 to 8,000 feet of 16” water pipe depending on impacts to Ashland, Talent and Phoenix distribution systems. Because of those complexities staff is recommending further evaluation of the TAP capacity and that expansion be deferred until after the next Water Master Plan update, scheduled to be completed in 2017. It is important to note that property negotiations for the permanent pump station could not be completed by the early September deadline; therefore, staff obtained a right-of-way permit with Jackson County on a soon to have been abandoned county right-of-way where the current temporary pump station was constructed, meeting the early September deadline. To that end, staff is now close to completing an agreement to purchase an easement for the permanent pump station. Most of the equipment located in the temporary pump station will be moved to the permanent pump station; however, of the $559,120 spent to construct the temporary facility $115,876 can’t be re-used at the new site. Just for clarity, the $559,120 also includes $47,815 for the rental of the emergency pump. This cost would have been expended even if we would have been able to negotiate the pump station property.

Staff is pleased to report that negotiations for the attached wholesale water service agreement with the MWC have been completed. In cooperation with MWC, the new agreement includes dispute resolution language; special conditions that provide the 2.13 mgd capacity, and the ability to expand to 3 mgd in the future, as long as additional SDCs are paid; and it acknowledges Ashland’s right to exchange and transfer water between Ashland, Talent and Phoenix.

Finalization of the MWC Wholesale Water Service Agreement

In addition, the proposed agreement excludes some language in MWC’s standard contract based on Ashland’s legal staffs review. Those sections that do not apply to Ashland are lined thru on the agreement. Examples of strike thru language include Article 5 Urbanization Policy, sections of Article 7 System Development charges, and sections of Article 12 Annual Water Quality Reporting Project History Ashland’s 1998 Water Master Plan projected that daily peak water demand would exceed the treatment plant’s capacity by 2016. At that time, the preferred solution was hooking into the City of Medford’s drinking water supply through an interagency agreement called TAP. To that end, the City entered into a TAP agreement, invested $2.6 million to upsize the pipe from Medford to Talent and purchased Lost Creek water rights.

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The adopted 2012 Water Master Plan recommended connectivity into the Talent Ashland Phoenix (TAP) pipeline to provide a backup emergency water supplement for Ashland. This project was scheduled for 2015; however, low snow fall and winter drought conditions led staff to recommend an emergency procurement process to move planning, permitting, engineering and construction of the emergency TAP water line from 2015 to 2014. An accelerated project schedule necessitated the emergency procurement process. Following the City Council’s decision in 2008 to delay the TAP project, the City began the process of evaluating different options to solve the peak demand issues. The new water master plan, adopted in 2012, recommends constructing a new 2.5 mgd water treatment plant to address projected peak demand shortfalls. The plan also identified the need for a redundant water source during droughts, toxic algae blooms, earthquakes, fire in the watershed, and other water quality issues that could restrict our limited water supply. The TAP project was included in the master plan for such emergencies. http://ashland.or.us/Agendas.asp?Display=Minutes&AMID=3436 At the February 18 Council meeting, Council approved the emergency engineering procurement process for the TAP pipeline (http://www.ashland.or.us/Agendas.asp?Display=Minutes&AMID=5579) At the March 4, 2014 meeting Public Works presented the cost options for paying the MWC, SDC for both options along with the water delivery agreement. These options included whether to purchase 2.13 or 3 mgd worth of SDC's from the MW C. The 2.13 mgd represents the amount of water the City could receive on a daily average amount over five months based on the 1,000 acre feet of Lost Creek water rights. At the April 22 Council meeting, Council approved the emergency construction procurement of the TAP pipeline, re-obligated $2.4 million Park Estates Pump Station monies to the TAP project, granted the City Administrator contracting authority in excess of $100,000 for construction of the TAP pipeline, granted the City Administrator authority to sign a State Revolving Fund loan agreement in the amount of $2.97 million. The Council approved proceeding with the 2.13 mgd option and staff has continued to work with the Finance Department and economic adviser on payment strategies. http://ashland.or.us/Agendas.asp?Display=Minutes&AMID=5593

N/A COUNCIL GOALS SUPPORTED:

As reported in April, staff, with the assistance of the financial advisor and the Finance Department has developed a strategy to fund TAP at a maximum cost of $4.322 million. That included re-allocating $2.4 million in bond monies from the Park Estates improvement project to the TAP project and by securing a $2.97 million loan at 1% with $950,000 in loan forgiveness from the Infrastructure Financing Authority to fund the remaining $2 million for TAP project.

FISCAL IMPLICATIONS:

Since that time, the water fund has experienced revenue short falls due to the 2014 drought. At this point, Ray Bartlett, of Economic and Financial Analysis, is projecting FY 2015 revenues to be

http://ashland.or.us/Agendas.asp?Display=Minutes&AMID=3436�

http://www.ashland.or.us/Agendas.asp?Display=Minutes&AMID=5579�

http://ashland.or.us/Agendas.asp?Display=Minutes&AMID=5593�

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$195,000 below revenue projections. His report states that the revenue short falls reduce water fund cash balances but that they do not in themselves necessitate a rate increase. In addition to the drought impacts, Mr. Bartlett evaluated the financial impacts of borrowing the additional $541,027 to construct the TAP pump station to accommodate the 3 mgd expansion (Option #2).

Remaining TAP Funds Option #2

$ 478,973 Option 2 Pump Station Cost $1,020,000 Difference ($ 541,027) Again, Mr. Bartlett’s evaluation determined that no additional rate increases, above those recommended in the Water Master Plan would be needed for the additional debt at this time. However, he does point out that additional debt could result, depending on the outcomes of the 2017 water master plan update, in a need to increase water rates higher than just inflation after 2020.

• Staff supports RH2’s recommendation to construct a new pump station as outlined in option 2 at a cost of $1,020,000.

STAFF RECOMMENDATION AND REQUESTED ACTION:

• Staff recommends approving the MWC Wholesale Water Service Agreement.

• I move to approve the Option 2 TAP pump station project. SUGGESTED MOTION:

• I move to approve the Medford Water Commission Wholesale Water Service Agreement.

1. RH2 Technical Memorandum ATTACHMENTS:

2. RH2 Technical Memorandum Cost Estimate Update 3. Economic & Financial Analysis Memorandum 4. Medford Water Commission Agreement

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City of Ashland TAP Emergency Intertie Project

TAP Pump Station Final Construction Planning

November 13th, 2014

Introduction

Since the completion of construction for the Talent Ashland Phoenix (TAP) Emergency Intertie pipeline and temporary pump station improvements, RH2 Engineering, Inc., (RH2) has been assisting the City of Ashland (City) at the City’s request to evaluate and recommend the options to complete the project. The emergency project was initiated in March 2014, and required to be complete and delivering water for beneficial use by the City by late August 2014. Throughout the project, the design team and City strived to present options and make decisions that achieved the appropriate balance between providing the best long-term value and meeting the short-term expediency required by the project. However, due to the time restrictions associated with the project, at times it was necessary for the City to make quick decisions and keep the project moving forward to meet the goals and timeline. Now that a temporary system has been constructed that meets the short-term emergency needs of the City, RH2 has begun working with the City to establish plans and direction for the future of the TAP Intertie system, which will provide the infrastructure needed to establish a permanent emergency supply for the City.

The TAP Emergency Intertie piping facilities have been designed and installed to meet the estimated current and future emergency demand conditions of 2.13 million gallons per day (MGD) to 3.0 MGD, respectively, as determined by the City. The pumping facilities, however, have been designed and installed to meet only the current emergency demand of 2.13 MGD. Some of the reasons for limiting the pumping capacity of the system are as follows:

The City has stated that water rights purchased by the City limit the flow to 2.13 MGD for the TAP supply.

Impacts on the existing City of Ashland water system have not been fully analyzed to distribute 3 MGD across the entire system. The system was only analyzed to determine the impacts of distributing 2.13 MGD in the Granite pressure zone.

The existing TAP facilities upstream of the City’s intertie connection were not previously designed to deliver over 1.5 MGD to the City of Ashland. During design, RH2 verified that the existing facilities could supply 2.13 MGD through minor modifications to the existing system. Expansion to 3.0 MGD would require more substantive improvements and modifications to agreements between jurisdictions that would exceed the time restrictions imposed on the project.

As part of the drought response, the City enacted a voluntary conservation policy with the goal of encouraging customers to voluntarily reduce the demand on the water system. The effects of a conservation or curtailment policy should be evaluated and incorporated into the future planning for the TAP system prior to expanding the system to 3 MGD.

At the time of design and construction, the City was still in negotiations and had yet to secure property for a permanent pump station to supply TAP water to the City’s distribution system. As a result, a temporary pump station was constructed within abandoned Jackson County right-of-

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way near the intersection of Hwy 99 and West Jackson Road utilizing rented pumping equipment sized to meet current emergency demands of 2.13 MGD. This was done with the expectation that a permanent pump station would be constructed soon after, and in the same general vicinity as the temporary station, that would be designed to meet current and future demand requirements.

With many of the above issues and constraints still requiring evaluation, and some of which will require extended planning and coordination, additional work is needed in the interim in order to firm up the use of the existing temporary pump station to a permanent status, or to construct a new permanent pump station in its place. Without this, the City’s existing water supply remains vulnerable, whether due to drought which would affect the watershed or due to flooding which could threaten the operation and safety of the water treatment plant. In order to help secure the TAP system as a reliable year-round emergency supply, the City has requested that RH2 evaluate alternatives for firming up the use of the existing temporary pump station to a permanent status. The motivation to quickly perform this evaluation comes from the fact that the existing temporary station needs to be relocated onto property controlled by the City and that the existing station was constructed with a rental pump and appurtenances, which may not provide the best long-term economic value or meet the City’s long-term operational goals. Per conversations between RH2 and the City, we understand that the alternatives that are to be evaluated include:

1. Construct a new permanent pump station on City-controlled property that utilizes existing rental equipment. This pump station would be designed to utilize existing rental pumping equipment to a maximum of 2.13 MGD. While provisions will be provided that would allow the building and pumping capacity to be expanded in the future, under this alternative, a greater emphasis is placed on reducing the short-term construction costs by minimizing the size of the building and utilizing existing pumping equipment.

2. Construct a new permanent pump station on City-controlled property that allows for future expansion. Pump station would be designed to provide 2.13 MGD based on preferred pumping equipment with space provided for future expansion and redundancy of pumping equipment up to 3.0 MGD. Under this alternative, a greater emphasis is placed on providing a solution that minimizes the overall costs and meets the needs of the system based on the short-term and long-term emergency demand projections.

This evaluation of alternatives is limited in scope and its purpose is to present the options available to secure the TAP Pump Station facility as a permanent facility with the capacity to deliver a minimum of 2.13 MGD of emergency supply into the Granite pressure zone. While this evaluation includes options for expansion of the TAP Pump Station to a maximum capacity of 3.0 MGD, additional analysis and improvements to the TAP and Ashland distribution system will be required and are not included in this evaluation.

Alternative 1: Construct Permanent Pump Station and Utilize Existing Pumping Equipment

Under this alternative, the rental pumping equipment (i.e., pump and variable frequency drive) would be purchased and relocated to a new permanent structure constructed on property under the control of the City. The permanent pump station building would be constructed with separate rooms for chlorination and the mechanical/electrical equipment as shown in Figure 1. The building would be configured so as to minimize the initial construction costs, while providing the ability to expand the



building in the future as needed to install the permanent pumping equipment and increase the pumping capacity form 2.13 MGD to 3.0 MGD.

Advantages:

1. Invests partially in permanent structure constructed to current essential facility standards to resist natural disasters (i.e., earthquake, flooding, etc.).

2. Provides for future expansion of pump station capacity. 3. Locates pump station on City-controlled property, permitted and constructed in accordance

with Jackson County codes. 4. Can likely be constructed within the City’s current budget for the TAP project.

Disadvantages:

1. Does not provide the desired capacity of 3.0 MGD, until future upgrades are completed. 2. Requires purchase of used pumping equipment that may be less reliable and which is less

efficient than proposed permanent equipment.

PRELIMINARY COST ESTIMATE FOR ALTERNATIVE 1: Units Qty Total Cost1 Mobilization/Demobilization LS 1 $25,400 2 Site Work and Utilities LS 1 $59,700 3 Building Structure LS 1 $74,800 4 Mechanical LS 1 $27,300 5 Demolition and Relocation of Existing Equipment LS 1 $22,100 6 Finishes LS 1 $11,100 7 Electrical and Automatic Control LS 1 $58,900 Subtotal - - $279,300 Contingency 15% - $41,900 Purchase Rental Pump and VFD - - $120,000 Total Construction Costs - - $442,000

Alternative 2: Construct Permanent 2.13 MGD Pump Station with Designed Ability to Expand to 3.0 MGD

Under this alternative, a new permanent pump station would be constructed with two vertical turbine pumps with a capacity of 2.13 MGD on property under control of the City. Under this alternative, the City would return the rental pumping equipment and relocate the existing chlorination equipment to the new pump station. The station would be set up to only need one additional pump installed to supply 3.0 MGD to the Granite pressure zone, as shown in Figure 2.

Advantages:

1. Invests in permanent structure constructed to current essential facility standards to resist natural disasters (i.e., earthquake, flooding, etc.).

2. Improved performance and reliability of pumping equipment. 3. Best solution to move towards long-term goals. 4. Excess funding is not spent on equipment that does not meet build-out goals.



Disadvantages:

1. Highest cost alternative due to purchase and installation of new pumping equipment.

PRELIMINARY COST ESTIMATE FOR ALTERNATIVE 2: Units Qty Total Cost1 Mobilization/Demobilization LS 1 $72,800 2 Site Work and Utilities LS 1 $93,900 3 Building Structure LS 1 $127,200 4 Mechanical LS 1 $254,900 5 Demolition and Relocation of Existing Equipment LS 1 $11,200 6 Finishes LS 1 $29,600 7 Electrical and Automatic Control LS 1 $210,300 Subtotal - - $799,900 Contingency 15% - $120,000 Total Construction Costs - - $920,000

Conclusion

As described in the Introduction section, the issues and decisions surrounding the long-term goals and needs for the TAP system are complex and warrant further evaluation and discussion beyond this memorandum. These are important issues, and RH2 recommends that the City begin to take steps to allocate the resources necessary to complete this evaluation. That said, given the recent circumstances that have led the City to this point in time, one issue that seems beyond reproach is the need for the City to establish a permanent and reliable emergency water supply source. To date, the City has invested $3.5 million in the construction of the TAP Emergency Intertie for the purpose of providing emergency supply to offset the projected deficit caused by the drought of 2013. To secure this emergency supply source, it is recommended that the City proceed with design and construction of a permanent TAP Supply Pump Station. While both of the alternatives will meet the immediate needs of the emergency supply system for the City, each alternative has advantages and disadvantages depending on the desired operation of the final facility. Based on RH2’s understanding of the goals and needs of the City, it is our opinion that Alternative 2 moves the City closest to the system that will meet the long-term goals of the utility and provides the most completed project without full evaluation of the system as a whole which will be required in the future.

City of AshlandTAP Emergency SupplyProject Cost Estimate Update 11/10/2014

ITEM Preliminary Current Anticipated Anticipated Units Estimate Costs Costs thru June 2015 Costs thru June 2016

Transmission Main (Talent Creel Rd. to Ashland Main St.) 1 LS 2,258,000$ 1,995,469$ ‐$ ‐$

RBPS Pump Station Modifications * Includes modification of pump station controls to meet the demands of the system including Ashland

1 LS ‐$ 22,820$ ‐$ ‐$

Talent Pump Station Improvements* Includes installation of two new larger pumps to replace the existing pumps that are currently in use* Includes installation of new VFD drive to run the pump together and all programming controlmodifications

1 LS 53,000$ 159,905$ ‐$ ‐$

Ashland Temporary Pump Station Improvements* Includes standby and rental charges for temporty electric pump * Includes SCADA, electrical panel, control and power service, building, chlorination, vaults, meters, prv's, appurtanances and site work.

1 LS 154,000$ 559,120$ ‐$ 442,000$

SUBTOTAL ESTIMATE OF PROBABLE CONSTRUCTION COSTS 2,465,000$ 2,737,314$ ‐$ 442,000$

672,000$ 767,390$ 151,589$ 80,000$ 39,000$ ‐$ ‐$ ‐$

Land Acquisition Allowance 150,000$ ‐$ 160,000$ ‐$49,000$ 26,734$ ‐$ 20,000$

SUBTOTAL ESTIMATE OF PROBABLE INDIRECT COSTS 910,000$ 794,124$ 311,589$ 100,000$

SUBTOTAL OF TOTAL PROJECT COSTS 3,375,000$ 3,531,438$ 311,589$ 542,000$947,000$ ‐$ ‐$ ‐$

EMERGENCY SUPPLY PROJECT TOTAL 4,322,000$ 3,531,438$ 311,589$ 542,000$

Cost Underrun 790,562$ Anticipated Additional Funding Requirments 63,027$

Professional Services for the ProjectEasements & Legal @ 1.6%

OHA, Railroad permits, RVCOG and BOLI Permitting

Contingency 30% for preliminary estimate and 1% Currently

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Option 1

City of AshlandTAP Emergency SupplyProject Cost Estimate Update 11/10/2014

ITEM Preliminary Current Anticipated Anticipated Units Estimate Costs Costs thru June 2015 Costs thru June 2016

Transmission Main (Talent Creel Rd. to Ashland Main St.) 1 LS 2,258,000$ 1,995,469$ ‐$ ‐$

RBPS Pump Station Modifications * Includes modification of pump station controls to meet the demands of the system including Ashland

1 LS ‐$ 22,820$ ‐$ ‐$

Talent Pump Station Improvements* Includes installation of two new larger pumps to replace the existing pumps that are currently in use* Includes installation of new VFD drive to run the pump together and all programming controlmodifications

1 LS 53,000$ 159,905$ ‐$ ‐$

Ashland Temporary Pump Station Improvements* Includes standby and rental charges for temporty electric pump * Includes SCADA, electrical panel, control and power service, building, chlorination, vaults, meters, prv's, appurtanances and site work.

1 LS 154,000$ 559,120$ ‐$ 920,000$

SUBTOTAL ESTIMATE OF PROBABLE CONSTRUCTION COSTS 2,465,000$ 2,737,314$ ‐$ 920,000$

672,000$ 767,390$ 151,589$ 80,000$ 39,000$ ‐$ ‐$ ‐$

Land Acquisition Allowance 150,000$ ‐$ 160,000$ ‐$49,000$ 26,734$ ‐$ 20,000$

SUBTOTAL ESTIMATE OF PROBABLE INDIRECT COSTS 910,000$ 794,124$ 311,589$ 100,000$

SUBTOTAL OF TOTAL PROJECT COSTS 3,375,000$ 3,531,438$ 311,589$ 1,020,000$ 947,000$ ‐$ ‐$ ‐$

EMERGENCY SUPPLY PROJECT TOTAL 4,322,000$ 3,531,438$ 311,589$ 1,020,000$

Cost Underrun 790,562$ Anticipated Additional Funding Requirments 541,027$

Contingency 30% for preliminary estimate and 1% Currently

Professional Services for the ProjectEasements & Legal @ 1.6%

OHA, Railroad permits, RVCOG and BOLI Permitting

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Option 2

1409 Franklin Street, Suite 201 Vancouver, WA 98660 T/360.823.1700

MEMORANDUM

TO: Mike Faught

FROM: Raymond J. Bartlett

DATE: November 21, 2014

RE: Impact of 2014 Drought and TAP Capital Costs on Water Utility Cash Flows

The Impact Of The 2014 Drought On Water Rate Revenues

Customer response to the 2014 drought this past summer—July through September—has resulted in reduced water revenue of about 5.45% compared to the same time period in 2013 as shown in Table 1 by customer class. Residential and Irrigation customers conserved the most, and these customers were the City’s focus for conservation messages.

Table 1 Comparison of Water Rate Revenues July through September, 2013 and 2014 Calendar Change Customer Class FY 2014 Q1 FY 2015 Q1 $ %

Commercial & Industrial $289,522.78 $287,261.70 ($2,261.08) -0.78% Fire Guard 7,332.21 6,570.52 (761.69) -10.39% Governmental 72,171.41 70,266.44 (1,904.97) -2.64% Multifamily 236,740.71 228,621.01 (8,119.70) -3.43% Residential 1,346,389.94 1,211,647.70 (134,742.24) -10.01% Irrigation 366,130.98 346,502.52 (19,628.46) -5.36% New Service Installation 9,824.67 27,189.26 17,364.59 176.74% Miscellaneous Services 10,280.00 9,450.00 (830.00) -8.07% Total Charges For Services $2,445,562.18 $2,312,352.02 ($133,210.16) -5.45% Source: City of Ashland, Administrative Services.

The 5.45% reduction, however, understates the true impact since the City passed an across-the-board 10% rate increase for FY 2015 effective July 1, 2014. Relative to the budget for FY 2015, revenues are about 12.5% less than had been expected for the quarter. In a normal fiscal year, revenues in the first quarter account for approximately 37.6% of total annual revenues. Also, conservation is most likely to occur in the 1st quarter than in any other quarter because much of the water usage is for outdoor purposes, which are largely optional.

Impact of 2014 Drought and TAP Capital Costs on Water Utility Cash Flows November 21, 2014

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In fall, winter and spring, water usage drops to indoor levels and residential customers have little opportunity to conserve water until May and June, when demand for outdoor water usage increases. Irrigators don’t use water in the winter. If the conservation messages have a lasting effect or if the City re-starts the conservation messages in April or May, then water sales in the spring may also decrease relative to historical levels. May and June typically represent about 17% of annual water sales. If conservation continues through these months, annual revenues may be reduced to $6,311,500, a reduction of about $174,000. The City budgeted $6,485,000 for the year, so revenues may be less by 2.7% (a loss about $174,000), or more conservatively by 3% (a loss of about $195,000). Table 2 shows a cash flow forecast assuming a 3% decrease in revenues in FY 2015 and a return to average water usage in FY 2016 and thereafter. The schedule of capital improvements presented May 20, 2014 when the City chose to build the TAP water line and contract with MWC for up to 2.13 MG of water per day. At that time adjustments were made to the capital improvements plan to defer some planned projects and to delay others to keep total annual costs at a level that the adopted rate increases remain unchanged. Table 2 assumes that the rate increases recommended and adopted in the Water Master Plan remain unchanged. Rates will not increase faster than already planned. The impact of conservation this past summer resulted in lower cash balances at the end of the year, but do not themselves trigger an increase in rates. Tables 5 and 6 at the end of this memo show the schedule of capital improvements for the year construction begins and the schedule of existing and future debts and grants. Table 5 includes the cost of replacing the temporary TAP pump station with a permanent pump station that can pump up to 2.13 mgd, This Alternative 1 (and Alternative 2) is described in a November 13, 2014 memorandum from RH2 engineering to the City of Ashland. Alternative 1 will cost $542,000 to construct. RH2 presented Alternative 2 for the TAP pump station that provides a better long-term solution. Alternative 2 provides a larger pump building with a 3rd pump bay so that at some time in the future the City could install a 3rd pump and increase the pump station’s capacity from 2.13 mgd to 3 mgd. Alternative 2 will cost $1,020,000 which is $478,000 more than Alternative 1. The financial impact of Alternative 2 assuming no additional rate increases is to increase the amount the City will have to borrow by $542,000, increase annual debt service which will reduce the cash balances. Table 3 compares the ending Cash & Equivalents of Alternatives 1 and 2. Since the City borrows the additional cost of Alternative 1 annual debt service increases. Alternative 2 presses the City to either delay other capital improvements or increase rates more rapidly sometime in the future. That decision could be delayed until the City updates its water master plan and financial plan which is scheduled for FY 2017. For both alternatives, EFA assumes the additional cost will be financed at 5% over a 25 year term. The City has applied to the state of Oregon IFA program to finance these additional costs at between 1% and 3% over a 20 to 30 year term. If successful, future debt service will be less and cash balances higher.


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Table 2 Water Utility Cash Flow Forecast with FY 2015, Alternative 1

Mod. Bdgt. Forecast

Fiscal year ending June 30 2015 2016 2017 2018 2019 2020

CASH FLOWS FROM OPERATING ACTIVITIES Revenues 7.7% 13.8% 8.4% 4.2% 3.4% 3.7%

Customer Receipts 6,290,000 7,155,000 7,759,000 8,088,000 8,367,000 8,675,000 Miscellaneous 5,000 2,600 2,700 2,800 2,900 3,000

Total Revenues $6,295,000 $7,157,600 $7,761,700 $8,090,800 $8,369,900 $8,678,000 Expenditures

Personal Services (1,751,367) (1,856,000) (1,967,000) (2,085,000) (2,210,000) (2,343,000) Materials & Services (2,554,578) (2,812,250) (2,897,000) (2,984,000) (3,074,000) (3,166,000) Tax Equivalents (377,400) (429,300) (465,500) (485,300) (502,000) (520,500) Forest Land Management (133,322) (308,322) (322,200) (336,700) (351,900) (367,700)

Total Expenditures ($4,816,666) ($5,405,872) ($5,651,700) ($5,891,000) ($6,137,900) ($6,397,200)

Net Cash From Operating Activities $1,478,334 $1,751,728 $2,110,000 $2,199,800 $2,232,000 $2,280,800

CASH FLOWS FROM CAPITAL & RELATED ACTIVITIES System Development Charges 107,169 100,000 100,000 100,000 100,000 100,000

Capital Expenditures (4,440,300) (4,886,900) (13,697,500) (11,749,900) (1,361,400) (308,500) Purchase of MWC Water Supply (262,008)

Grants 0 0 950,000 0 0 0 Loan Proceeds 1,531,300 4,971,900 11,972,500 11,916,900 3,889,400 0 Loan Closing Costs

(85,000) (175,000) (167,000) (76,000)

Debt Service Principal (329,440) (466,372) (613,900) (895,965) (1,180,353) (1,310,191)

Interest (119,738) (408,490) (1,073,713) (1,629,692) (1,792,862) (1,747,717) Net Cash From Capital Activities ($3,513,017) ($774,862) ($2,537,613) ($2,425,657) ($421,215) ($3,266,407)

CASH FLOWS FROM INVESTING ACTIVITIES Net Cash From Investing Activities $16,744 $14,177 $15,625 $14,065 $18,108 $20,267

Net Change in Cash & Equivalents ($2,017,939) $991,043 ($411,988) ($211,791) $1,828,893 ($965,340) CASH & EQUIVALENTS, Beginning 4,357,854 2,339,915 3,330,958 2,918,970 2,707,179 4,536,072 CASH & EQUIVALENTS, Ending $2,339,915 $3,330,958 $2,918,970 $2,707,179 $4,536,072 $3,570,732


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Table 3 Comparison of Cash & Equivalents for Alternatives 1 and 2

Mod. Bdgt. Forecast

Fiscal year ending June 30 2015 2016 2017 2018 2019 2020

CASH & EQUIVALENTS Alternative 1 $2,339,915 $3,330,958 $2,918,970 $2,707,179 $4,536,072 $3,570,732

Alternative 2 $2,339,915 $3,306,748 $2,860,282 $2,613,841 $4,407,910 $3,407,572 Decrease $0 ($24,211) ($58,688) ($93,338) ($128,162) ($163,160)


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Paying for the TAP water l ine from SDC and Water Fund Revenues

The first payment to the Medford Water Commission for the TAP line system development charge (SDC) is due. The agreement calls for an initial down payment of $262,008 and semi-annual interest and principal payments of $81,877.77 for the next 20 years. The interest rate is 3.42% per annum. The City also paid contractors approximately $4.4 million to construct the TAP line. The proposed update of the water SDC includes 100% of the cost of the TAP water line project. Both the SDC charged to the City by MWC ($2,620,084) and the estimated construction cost ($4,400,000) are included in the SDC reimbursement fee. The City may use SDC revenues to pay up to 100% of MWC’s SDC and 100% of the cost of construction, though available cash is insufficient to pay both. As of June 30, 2014, the water SDC fund had a balance of $2,078,886. Since then, the City has collected an additional $107,169. While SDC revenues fluctuate significantly on a year-to-year basis, the annual average since FY 2009 has been approximately $240,000.

Price of water from TAP vs. City Water Rates

The City purchases water from the TAP line at a cost of $0.69/1,000 gallons (kgal). It sells water to its customers at prices that range from $2.97/kgal to $6.31/kgal. The revenue the City earns after paying TAP is used to pay for the rest of the costs of owning and operating the water system which include all O&M and debt service.

Table 4 City of Ashland Water Rates for Usage (July 1, 2014)

Consumption by Customer Class $/cf $/ccf $/kgal Margin

(at $0.69/kgal)

Single Family Residential 0 to 300 cf / month $0.0222 $2.22 $2.97 $2.28

301 to 1000 cf / month $0.0274 $2.74 $3.66 $2.97 1001, to 2500 cf / month $0.0365 $3.65 $4.88 $4.19

> 2500 cf / month $0.0472 $4.72 $6.31 $5.62

Multi-Family Residential 0 to 300 cf / unit / month $0.0222 $2.22 $2.97 $2.28

301 to 1000 cf / unit / month $0.0274 $2.74 $3.66 $2.97 1001, to 2500 cf / unit / month $0.0365 $3.65 $4.88 $4.19

> 2500 cf / unit / month $0.0472 $4.72 $6.31 $5.62

Non-Residential 0 to 50,000 cf / month $0.0314 $3.14 $4.20 $3.51

> 50,0000 cf / month $0.0323 $3.23 $4.32 $3.63


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Table 5 CIP Schedule, Construction Year Dollars, Alternative 1 2015 2016 2017 2018 2019 2020

S-4 FERC Part 12 Dam Safety Inspection - - 47,800 - - - S-5 Ashland Creek West Fork Bridge Construction - 125,200 - - - - S-6 Sediment TMDL in Reeder Resv 127,100 - 63,700 - 67,500 - S-7

- - - - - -

S-8 Reader Resv Access Road TMDL Compliance 112,600 - - - - - S-9 Reader Resv Variable Depth Intake - - - - 126,700 - S-10 TID Terrace St. Pump Station - 255,000 - - - - S-11 TID Canal Piping Starlite to Terrace Street - 765,100 644,800 - - - S-12

- - - - - -

S-13 Water Conservation Smart Controller Pilot 56,300 - - - - - S-14 - - - - - - S-15 Emergency TAP Pipeline 3,652,500 542,000 - - - - T-1 Raw water bypass measurement device 25,000 - - - - - T-2 - - - - - - T-3

- - - - - -

T-4 Permanganate Feed Facility Study - 307,200 - - - - T-5 WTP Security Upgrades 127,700 - - - - - T-6

- - - - - -

T-7

- - - - - - T-8 - - - - - - T-9 2.6 mg Reservoir/Clearwell (Crowsen) - 864,800 3,582,200 3,689,600 - - T-10 2.5 mgd WTP - 1,159,300 6,567,300 6,764,300 - - D-1 Telemetry Station at Water Warehouse - - - - - - D-2 Water Master Plan Update - 115,900 - - - - D-3 Park Estates Pump Station/Loop Road Reservoir - 618,000 1,909,600 - - - D-4 - - - - - -


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2015 2016 2017 2018 2019 2020

D-5

- - - - - - D-6

- - - - - -

D-7 Radio Read Meter Program - - - - 122,200 125,900 D-8 Hydrant Replacement - - - - 55,700 57,400 D-9 Emergency Response Plan - - - - - - D-10 Cross Connection Control Plan 16,900 - - - - - D-11 Safety Plan Update - 23,200 - - - - D-12 Granite Reservoir valving - - - 123,000 - - P-1 Ivy Lane 23,700 - 346,200 - - - P-2 Ivy Lane - - 100,300 - - - P-3 Normal Ave - - - - - - P-4 Walker Ave - - - - - - P-5 Parker Street - - 23,900 174,600 - - P-6 Harmony Lane - - 11,900 67,600 - - P-7 Lit Way - - 6,000 36,900 - - P-8 Ray Lane - - 6,000 60,300 - - P-9 Beach Street - - - 12,300 102,600 - P-10 AHS Property - - - 11,100 102,600 - P-11 Vista Street - - - - - - P-12 Vista Street - - - - - - P-13 Meade Street - - - 345,100 366,100 - P-14 Elkaber Street - - - - 91,200 - P-15 Ivy Lane - - - - 81,100 - P-16 South Mountain Ave. - - - - 7,600 - P-17 South Mountain Ave. - - - - 21,500 - P-18 Pinecrest Trail - - - - - - P-19 Pinecrest Trail - - - - - - P-20 Penny Drive - - - - - - P-21 Woodward Drive - - - - - -


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2015 2016 2017 2018 2019 2020

P-22 Hiawatha Place - - - - - - P-23 Morton Street - - - - - - P-24 Ashland Mine Road - - - - - - P-25 Fox Street - - - - - - P-26 Alameda Drive - - - - - - P-27 Skykcrest Drive - - - - - - P-28 Crispin Street - - - - - - P-29 Oak lawn Ave - - - - - - P-30 Sylvia Street - - - - - - P-31 Black Oak Way - - - - - - P-32 Oak Knoll Drive - - - - - - P-33 Ashland Street - - - - - - P-34 I-5 Crossing - - - - - - P-35 Ditch Road - - - 92,200 95,000 - P-36 Lithia - - - 86,100 - - P-37 Iowa Street - - - - - - P-38 Granite Street - - - - - - P-39 B Street - - - - - - P-40 Terrace Street - - - - - -

Oak Street - - 273,200 - - -

Siskiyou Blvd - - - 168,800 - -

Hydrant Replacement 108,000 111,200 114,600 118,000 121,600 125,200

Total

4,440,300 4,884,900 13,697,500 11,749,900 1,361,400 308,500

Cumulative 4,621,700 9,506,600 23,204,100 34,954,000 36,315,400 36,623,900


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Table 6 Existing and Future Debt Service, Alternative 1 FY Ending June 30, 2015 2016 2017 2018 2019 2020

EXISTING DEBTS

2003 Water Revenue Principal

($250,000)

Interest

($3,875) Total

($253,875)

GO Bonds (FF& C)

2009 Water Principal

(41,389) (43,463) (45,641) (47,929) (50,330) (52,853)

Interest

(25,277) (23,203) (21,025) (18,737) (16,336) (13,813) Total

(66,666) (66,666) (66,666) (66,666) (66,666) (66,666)

2013 Water Principal

(145,000) (150,000) (155,000) (155,000) (160,000) (165,000)

Interest

(48,225) (45,275) (42,225) (39,125) (35,975) (32,725) Total

(193,225) (195,275) (197,225) (194,125) (195,975) (197,725)

2013 Water 2003 Refinance Principal

(160,000) (165,000) (165,000) (170,000) (175,000) (180,000)

Interest

(29,600) (26,350) (23,050) (19,700) (16,250) (12,700) Total

(189,600) (191,350) (188,050) (189,700) (191,250) (192,700)

MWC Debt on SDC purchase Down Payment

Financed Loan/Bond Proceeds Debt Service Principal

($41,555) ($85,253) ($88,194) ($91,236) ($94,383) ($97,638)

Interest

($40,323) ($78,502) ($75,562) ($72,520) ($69,373) ($66,117) Balance

$2,316,521 $2,231,268 $2,143,074 $2,051,838 $1,957,456 $1,859,817

State of Oregon IFA Financing--S14005 Interest Rate 1.0%


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FY Ending June 30, 2015 2016 2017 2018 2019 2020

Term, years 29 Commencement Date 12/1/2017 Construction Costs

Grants 950,000

950,000 Financed Loan/Bond Proceeds 2,020,000 450,000 1,350,000 220,000 Debt Service

Principal

(60,388) (60,992) (61,602) (62,218) Interest

(42,700) (19,596) (18,986) (18,370)

Balance

1,959,612 1,898,620 1,837,019 1,774,801

FUTURE DEBTS Financing Assumptions, Master Plan

Closing Costs Interest Rate

5.00% 5.00% 5.0% 5.0% 5.0% Term, years

25 25 25 25 25

Construction Costs

3,990,300 3,534,900 12,527,500 11,749,900 2,587,400 308,500 Bond/Loan Closing Costs

61,000 85,000 175,000 167,000 76,000

Grants Financed Loan/Bond Proceeds

1,081,300 3,619,900 12,702,500 11,916,900 3,889,400 Principal

(22,656) (23,789) (24,978) (26,227) (27,538)

Interest

(54,065) (54,065) (52,932) (51,743) (50,494) (49,183) Balance

1,081,300 1,058,644 1,034,855 1,009,877 983,650 956,112

Principal

(75,846) (79,638) (83,620) (87,801) Interest

(180,995) (180,995) (177,203) (173,221) (169,040)

Balance

3,619,900 3,544,054 3,464,416 3,380,796 3,292,995 Principal

(266,149) (279,456) (293,429)

Interest

(635,125) (635,125) (621,818) (607,845) Balance

12,702,500 12,436,351 12,156,895 11,863,467

Principal

(249,688) (262,173) Interest

(595,845) (595,845) (583,361)

Balance

11,916,900 11,667,212 11,405,039


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FY Ending June 30, 2015 2016 2017 2018 2019 2020

Principal

(81,492) Interest

(194,470) (194,470)

Balance

3,889,400 3,807,908

TOTALS

GRANTS

$0 $0 $950,000 $0 $0 $0 Financed Loan/Bond Proceeds

$1,531,300 $4,969,900 $11,972,500 $11,916,900 $3,889,400 $0

TOTAL DEBT SERVICE Principal ($637,944) ($466,372) ($613,858) ($895,921) ($1,180,306) ($1,310,142)

Interest ($201,365) ($408,390) ($1,073,613) ($1,629,594) ($1,792,767) ($1,747,623) Balance $3,397,821 $6,909,812 $21,384,096 $32,778,003 $35,872,428 $34,960,138

Documents

Council Communication...MWC have been completed. In cooperation with MWC, the new agreement includes dispute resolution language; special conditions that provide the 2.13 mgd capacity,