Fort Walton Beach Council agenda — 10-09-2007 regular agenda — reading text

suspended growth activated sludge process. Ultimately, HAl recommended converting to a conventional suspended growth activated sludge process because this type of system C31l be modified to achieve a higher degree of treatment should the need arise due to stricter discharge limits imposed by the FDEP. Council accepted this recommendation 31ld the proposed improvements were included in the $ 10,910, 000 list of water and sewer projects captured in the " Utility System Revenue Bonds, Series 2005." The wastewater plant renovation component totaled $5, 142, 600 of the overall cost of the bond issuance. As staff reported to Council during the June 12, 2007 workshop, the cost of construction increased significantly from the time the original facilities plan was completed in April 2003 due to a number of different variables. These variables, along with other needed repairs not previously identified, have driven the cost of construction to the current estimate of $13, 500, 000. During this same workshop meeting, Council asked if staff had contacted Okaloosa County regarding the feasibility of treating the City' s wastewater at their proposed new treatment facility to be located immediately east of the City' s facility. The remainder of this memorandum addresses staff's discussions with the County on this issue and several additional discussion points which should be considered before deciding on an appropriate course of action. Discussion: Previous Negotiations with the County In April 2003, at the request of the City Manager, staff contacted County officials to determine if there were interest in developing a regional wastewater treatment plant to service both the needs of the City and County. At the time, Okaloosa County was in the process of securing suitable land from the Air Force to construct a 10 MGD facility to replace the aging Gamier' s WWTP. Staff believed the City might enjoy some economies- of-scale savings since the County' s new facility would be built immediately east of the City' s current plant location. The County expressed little interest in a cooperative agreement when first approached by staff and offered only a " capacity purchase" option with an estimated cost of $15,000, 000. Given the City' s estimated cost of $5. 1 million for renovating its own facility, no further action was taken on the County' s offer and both agencies continued with plans to address their respective wastewater treatment needs. Current County Proposal The City is not alone in experiencing escalating construction costs. Based on conversations with County staff, the cost for their new WW 1'P to replace the aging Gamier's WWTP has substantially increased from the original estimate of $40 million developed in 2005, to the current estimate of 64. 5 million for the same scope of work. Prior to the June 2007 workshop, staff again approached the County regarding an interlocal agreement for wastewater treatment; and the County proposed a " pay- as- you-go" option at a discounted commercial rate. The City continues to prefer to control its own destiny by owning a portion of the facility. However, a " capacity purchase" option with the County would not benefit the City since the purchase price ($ 16. 1M for 25% capacity) would far exceed the cost to renovate the City' s existing facility ($ 13.5M). During a meeting earlier this summer, County staff proposed establishing a large- user rate for a pay- as- you-go" option for wastewater treatment. Conceptually, the City would pay a proportionate share of the County' s commercial rate for every 1, 000 gallons of wastewater sent to the new facility for treatment. It is important to note that there are three primary components of the City' s wastewater rate: 1) treatment, 2) collections and transmission, and 3) utility billing. These elements comprise the wastewater portion of a utility bill and are typically reflective of the costs specific to wastewater operations, wastewater collections, and the proportionate share of utility billing services. The City' s utility bill accounts for these various elements which are detailed in the City' s annual budget. However, the County does not have this level of budget detail. Therefore, it is difficult to separate out the cost of actual treatment from the cost of maintaining the County' s sewage collection system. 2 Based on our preliminary conversations with the County, their staff is proposing a rate for wastewater treatment only ( costs of collection, mmsmission, and billing would still be borne by the City). The rate currently proposed by the County is approximately $2.39 per 1, 000 gallons, or 75% of their current base commercial rate of $3. 18 per 1, 000 gallons. In comparison, the City charges its customers a commercial rate of $4. 38* per 1, 000 gallons and a residential rate of $3. 66* per 1, 000 gallons which is inclusive of collection, transmission, and treatment. However, the treatment rate of 2. 39/ 1, 000 gallons offered by the County would have to be added to the City' s portion of the rate for collections, mmsmission, and billing to determine the final wastewater rate assessed City users. For example: if the City determines it must charge at least Vz of its current wastewater rate per 1, 000 gallons ($ 1.83) to maintain the activities listed above, then coupling this rate with the County' s proposed rate would result in a total charge to the City' s customers of $4.22/ 1, 000 gallons. CURRENT Proposed County FWB FWB Rate Treatment FWB New Difference RATE ( 1/ 2 existing) Costs Rate Residential 3. 66/ 1, 000 1.83/ 1, 000 2.39/ 1, 000 $ 4.22/ 1, 000 $ 0. 70 increase Commercial 4.38/ 1, 000 2. 19/ 1, 000 2.39/ 1, 000 $ 4. 58/ 1, 000 $ 0.20 increase Note: The rates quoted for the Gty's commercial and residential wastewater use are those that went into effect October 1, 2007. The Gty' s rates are established over a five-year period and are further detailed in the Comprehensive Fee Schedule. The County also has a five- year rate schedule and plans to implement a 3. 05% water and sewer rate increase effective March 1, 2008. This is the last year of the County' s current five-year rate schedule and a new five-year rate schedule is being developed for implementation starting in 2009. The County anticipates annual increases of 3. 5- 4.0% per year once the new rate plan is adopted by the County Commission.) Another factor that must be evaluated when establishing the City's overall wastewater rate is the effect weather anomalies have the collection system. _ During normal weather patterns, the on metered flow of water to each customer is approximately equal to the influent flow received at the treatment facility. During heavy rainfall events and tropical weather systems, the influent flow at the treatment facility greatly exceeds the combined metered flow from all customers. The proposed rate offered by the County does not take into account these fluctuations in weather patterns. As such, the City would require a provision in the interlocal agreement to limit the City' s costs for weather related changes in average daily flow (AD F)at a much reduced rate. . County staff did indicate in previous discussions that they would require a provision for a 3. 5% annual multiplier throughout the term of the agreement, in addition to whatever future rate increases that may be assessed to County users. Currently, there is no long-term guarantee that City residents would not pay more over time for a County- controlled wastewater treatment service versus the anticipated costs for maintaining our own treatment system. In short, the City will have a limited ability to control long-term rates if treatment costs remain at 50% of the total utility bill. The County is currently preparing a draft agreement for review by the City; however, this agreement will not be available for review until later this month. Should Council elect to stay the course with the WWTP renovation project, a rate increase will be necessary to secure the additional capital debt needed to fully fund the project. Staff is currently researching these impacts and the associated wastewater rate increase and will report back to Council in the next 30 days. Impacts of Developing an Interlocal Agreement for Wastewater Treatment with the County 3 1. Current Design Investment Lost Since late 2005, City staff together with the City's engineering and design consultants, Brown & Caldwell, have worked to prepare design plans to renovate the WWTP. the existing Currently, design plans are at the 90% phase and all permitting documentation has been submitted to the FDEP for approval. The total cost of the engineering and design effort is $ 978, 389. 70, which was previously approved by Council with change orders on August 14, 2007. Should the City elect to develop an interlocal agreement with the County for wastewater treatment, the substantial investment in design services for this project will be lost. The City may be able to recover a portion of the design cost ($ 286, 502 for construction administration); however, the remainder of the project cost, $691, 887. 70*, is obligated to Brown and Caldwell for design related services paid and/ or rendered to date. Note: The Gty has paid $ 430, 328. 35 to date for design related services. In addition, a substantial portion of the change order design services authorized by Council on August 14th has been completed by Brown & Caldwell but not yet invoiced. The additional design cost totals $ 209, 250.) 2. Capital Investment Loss and Evaluation Analysis As stated earlier, the City has maintained a wastewater treatment facility since 1980. All of the capital investment in this facility over the past 27 years will be lost if the plant were to be taken out of service. With an interlocal agreement arrangement, the County will control the revenue stream generated for wastewater treatment. Without this portion of a revenue stream, consideration must be given as to what revenues will be pledged to retire existing capital debt and fund future debt for collection system improvements. Provisions of Ordinance 1633 enacted by Council on April 12, 2005, titled " No Mortgage or Sale of the System" and " Defeasance and Subrogation" must be addressed prior to abandoning the City' s treatment facility. Although nothing in the Ordinance appears to limit