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HomeMy WebLinkAbout05-11-18 Agenda Packet THE FULL PACKET IS POSTED ON THE WEBSITE www.mwmcpartners.org MWMC MEETING AGENDA Friday, May 11, 2018 @ 7:30 a.m. City of Springfield City Hall, Library Meeting Room 225 Fifth St., Springfield, OR 97477 Turn off cell phones before the meeting begins. 7:30 – 7:35 I. ROLL CALL 7:35 – 7:40 II. CONSENT CALENDAR a. MWMC 4/6/18 Work Session Minutes b. MWMC 4/13/18 Regular Session Minutes Action Requested: By motion, approve the Consent Calendar 7:40 – 7:45 III. PUBLIC COMMENT Request to speak slips are available at the sign-in desk. Please present request slips to the MWMC Secretary before the meeting starts. 7:45 – 7:50 IV. FY 2017-18 SUPPLEMENTAL BUDGET #3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Meg Allocco Action Requested: By motion, approve Resolution 18-07 7:50 – 8:05 V. POPLAR HARVEST MANAGEMENT SERVICES: BIOCYCLE FARM’S MU-2 REPLANTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Todd Miller Action Requested: By motion, approve Resolution 18-08 8:05 – 8:20 VI. SMALL HOMES SYSTEMS DEVELOPMENT CHARGES (SDCs) . . . . . . . . . . . Matt Stouder Action Requested: By motion, approve Resolution 18-09 8:20 – 9:00 VII. RNG UPGRADES PROJECT (P80095) UPDATE AND IMPLEMENTATION DECISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Josh Newman Action Requested: Commission direction on project implementation 9:00 – 9:25 VIII. MWMC FINANCIAL PLAN RESERVES #3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Katherine Bishop Action Requested: Consider proposed minor revisions to Reserves policy language THE FULL PACKET IS POSTED ON THE WEBSITE www.mwmcpartners.org 9:25 – 9:35 IX. BUSINESS FROM COMMISSION, GENERAL MANAGER, & WASTEWATER DIRECTOR 9:35 X. ADJOURNMENT The meeting location is wheelchair-accessible. For the hearing-impaired, an interpreter can be provided with 48-hours-notice prior to the meeting. To arrange for service, call 541-726-3694. All proceedings before the MWMC are recorded. MWMC WORK SESSION MINUTES Friday, April 6, 2018 at 7:30 a.m. City of Springfield City Hall, Library Meeting Room 225 Fifth St., Springfield, OR 97477 President Ruffier opened the meeting at 7:30 a.m. Roll call was taken by Kevin Kraaz. ROLL CALL Commissioners Present: Pat Farr, Bill Inge, Walt Meyer, Joe Pishioneri, Peter Ruffier, Jennifer Yeh Absent: Doug Keeler Staff Present: Meg Allocco, Katherine Bishop, Dave Breitenstein, K.C. Huffman (attorney), Laura Keir, Tonja Kling, Kevin Kraaz, Shawn Krueger, Troy McAllister, and Matt Stouder, SMALL HOMES SYSTEM DEVELOPMENT CHARGES (SDCs) Commissioner Pishioneri recused himself due to a potential conflict of interest. Background: SDCs are impact fees collected when expansion, new development, or intensification of a use occurs on property served by municipal infrastructure. SDCs are collected for systems such as wastewater, stormwater, transportation, parks, water, etc. MWMC collects a regional wastewater SDC and then on the local side, Eugene and Springfield collect a local wastewater SDC as well as stormwater and transportation SDCs. MWMC’s latest SDC methodology was adopted September 9, 2009. It had a 90-day public notification followed by the public hearing process. It resulted in a SDC project list which is tied to MWMC’s capital program; it lists projects that are eligible for SDCs and the percentage eligible. For example, 20% of the digester project is needed for the growth in the community so 20% can be funded by SDCs and the remainder would be funded by other means, in this case, user fees. Recently the Commission adopted a revised SDC fee schedule to ensure equity and fairness in structure resulting from completion of recent capital work. The schedule is posted on MWMC’s website http://www.mwmcpartners.org/wp-content/uploads/2017/06/SDC_Schedule_2017.pdf. In early 2017, the MWMC received two requests for potential SDC waivers or SDC payments. The first request came from Square One Villages, a 501©3 nonprofit housing provider. They requested the MWMC to waive or pay their SDCs for 22 Tiny Homes. The second request came from the City of Springfield, to waive SDCs for Accessory Dwelling Units (ADUs) through 6/30/19. MWMC Work Session Minutes April 6, 2018 Page 2 of 8 In June 2017, the Commission discussed policy issues related to the history of MWMC and its partner agencies regarding waivers and also the possible Intergovernmental Agreement (IGA) conflict to uniformly charge SDC’s across the service area. The MWMC has no history of waiving SDCs and neither does Eugene. Eugene does, however, occasionally pay SDC’s on behalf of the applicant depending upon the type of development and the circumstances. Springfield waived SDCs in 2012 in an attempt to encourage economic growth. They did a 50% reduction in SDCs for any new development and 100% waiver for certain types of developments that would create a certain number of jobs. Prior to that Springfield had an incentive program where they did not charge SDCs for the downtown core district to spur economic recovery. Out of the June 2017 meeting, the Commission directed staff to work with Galardi Rothstein Group to determine if small homes had less impact on the system and if that would result in a corresponding lower SDC. In October 2017, staff came back with data that GRG had gathered from local and national flows/loads based on house size. Their analysis showed small homes generate proportionally less flow and charging small homes to a multi-family rate was justified. The Commission defined small homes as 800 square feet or smaller and created a new category in the fee schedule. It reduced the SDC from $1,709 to $1,465. In November 2017, potential risks were discussed in Executive Session. Once back in regular session, the Commission decided that paying SDCs on behalf of applicants would be the best approach and directed staff to work towards setting aside money in the budget to pay SDCs. In January 2018 the Commission began the conversation on criteria and directed staff to set up a work session on the topic. Mr. Stouder said the nexus to move this potential pilot project forward is that one of MWMC’s values is to collaborate with its partners. MWMC’s partner agencies have a goal to increase access to affordable housing and infill development. The recent increase in low income households is proportional to increased need for affordable housing. Mr. Stouder stated that the proposed resolution is written to express the program’s goals and intent so there isn’t a question as to why small homes are covered and others are not. Criteria Discussion: Size: Defined as 800 square feet or less on SDC schedule, includes Tiny Homes and Accessory Dwelling Units (ADUs). Commissioner Meyer asked if Eugene and Springfield have specific criteria they use to define what is allowable for an ADU. Mr. Stouder said yes they do, it is 800 square feet. Commissioner Farr said a new state law is passing July 1, 2018 regarding mandatory ADUs within the municipalities. It is rather vague, it just requires ADUs. Commissioner Inge asked if the number of fixtures make a difference. Mr. Stouder said it doesn’t matter for MWMC; the original SDC is based on a fee per dwelling unit not fixtures. On the local side it is based on fixtures units (the more fixtures you have, the more you pay). MWMC Work Session Minutes April 6, 2018 Page 3 of 8 Line Item Amount: Mr. Stouder asked what level of resources the Commission would like to commit to the program and how much per dwelling unit. The full amount of a small home SDC is $1,465. So $50,000 would cover 34 small homes at 100% coverage. Commissioner Meyer asked if someone builds an ADU but doesn’t meet the income level, would they not qualify for coverage. Mr. Stouder stated they would qualify. Commissioner Meyer asked if the fees on the City side would also be waived. Mr. Stouder answered in Springfield they would be waived but in Eugene it depends, it is decided on a case by case basis. Commissioner Farr said that a lot of the discussion we are having today is speculative of what might happen. A year from now we can talk about what did happen and that would be a good time to look at the criteria and decide if it needs to be tweaked. He is thrilled that MWMC is moving forward with this pilot program. It gives us an opportunity as a Commission to see if it does work. He said there are three main reasons people build ADUs. One of them is to provide low-rent housing, another is to make money for the builder, and a third reason is to accommodate relatives. He said first come, first served is probably the only way we can do it at this point in time until we can set up a specific criteria. He is fine with what Mr. Stouder is proposing and then taking a look at it in a year to see what would work better. Commissioner Yeh referred to the draft resolution, stating that there is no mention of infill as an issue. It does mention affordable housing six times and low-income two times but as was pointed out, there is no guarantee that these small homes would be used for low-income housing. She feels it should be reworded to be more honest. Mr. Stouder referred to the first “Whereas” in the draft resolution, “Whereas, the Cities of Eugene and Springfield have identified increasing access to affordable housing and infill development as a priority community.” He said that the affordable housing and infill development were the two issues that were made clear to him but he could certainly revise the resolution to however the Commission feels is appropriate. Commissioner Yeh said that she isn’t sure how you would guarantee that it would be used that way but she thinks it is problematic when we are stressing it and we have no criteria to ensure that it does happen. Commissioner Inge questioned the words incentivize and promoting in the draft resolution. He understands that we have received requests to incentivize SDCs for affordable housing, but asks if there is a better word that could be used other than incentivize. More important to him is where it says “MWMC has determined that promoting construction of small homes …” He asked if it is MWMC’s purpose to promote small homes or is it to support the municipalities? He thinks that it needs to be done differently for promoting versus supporting. The Commission needs to decide which one is MWMC’s purpose. Commissioner Meyer said in MWMC’s role, if our governing bodies have a project to build small homes and they decide to pay those SDCs, then MWMC has the opportunity to do the same. He would feel a lot better if MWMC was linked to its governing boards. Commissioner Inge clarified that he meant if the City approves it, then MWMC would support it, if they don’t approve, then MWMC would not support it. Commissioner Inge referred to the draft resolution and asked what is meant by “eligible builders”. MWMC Work Session Minutes April 6, 2018 Page 4 of 8 Mr. Huffman replied that it should probably refer to the structure rather than the builder. A better way to say it would be a builder of an eligible structure. Mr. Huffman added, in regards to affordable housing, there is a definition of it in a statute and it could be incorporated into the program. That would be one way to ensure it is used for affordable housing, however, it would add a lot of administrative work. President Ruffier said that he likes Commissioner Meyer’s approach to allow the governing bodies make the decision and MWMC follow them. Mr. Stouder said from the staff’s perspective, he appreciates that as well. Since our staff doesn’t review the permits or have anything to do with the permits. Local staff reviews the permits and makes a determination on what category it falls in, charges the appropriate amount, and then passes the money to us. We would be involved in tracking the money that the Commission sets aside for the program and then receipting the payment. Commissioner Yeh asked how this would affect the unincorporated areas. Mr. Stouder replied that if they are building a house and connecting to the sewer, they have to be annexed. If they are building a home and connecting to a septic, then they would not be eligible because they are not connecting to the sewer. Mr. Stouder asked the Commission how much money they wanted to put in the line item on the budget. The amount will affect how many requests will be accommodated. Mr. Stouder added the cost of construction index would have an inflationary increase as of July 1st which would affect the SDC amounts. Commissioner Farr said that during the pilot period, we could do a $1000 per unit. That way there is some participation by the developer as well plus we could cover 50 homes instead of 34. Mr. Stouder replied that is something staff could accommodate, although it does add a bit of complexity to the administrative component. Mr. Huffman said another way to do it is for the Commission to state they want to support X number of units and then times that by the SDC rate and enter that amount for the line item in the budget. Mr. Stouder added instead of listing a program amount, the Commission could say we will support the first X number of units. Commissioner Meyer said that the MWMC could support the payment of the SDC at the same percentage as waived by the governing entities. So if Eugene decides to pay half of the SDC, then the MWMC would do the same. If the City decides to pay 100% of the SDCs, then the MWMC would do the same. Since it is a one-year pilot, he is inclined to make the line item $100,000 with the caveat that the MWMC would support it at the same level as the governing body. Commissioner Farr asked if that would add complexity to the program. Mr. Stouder said the amount would not add complexity and equal support shouldn’t be an issue either. Commissioner Inge asked when the program would come into effect. Mr. Stouder replied it would not be available until July 1, 2018 for the fiscal year. MWMC Work Session Minutes April 6, 2018 Page 5 of 8 Commissioner Inge asked if the construction would have to happen within that fiscal year or does it rely on when the permit was issued. Mr. Stouder answered that it would be depend on when the plans were actually submitted and approved. President Ruffier caution in overthinking it; it is a pilot program and should be kept as simple as possible and see where it takes us. Mr. Huffman said if you follow the governing bodies and they decide to do a certain percent, you are only talking a few hundred dollars difference and it is adding a significant administrative burden. Commissioner Inge agrees that we have to be careful about overthinking it but is also a firm believer that order matters. Often times we do not think about it enough in the beginning and create some dynamic problems afterwards. He much prefers to think about it on the front side. Commissioner Meyer said he feels that the MWMC should align with the governing bodies. The MWMC is a wastewater treating agency and by aligning with our governing boards, we are depending on them to set the policies and incentives - that gives the MWMC some level of cover. That is why he thinks if the governing body supports a project to a certain level, then the MWMC should do the same. We are using money from other users and therefore we should be aligned. Commissioner Farr stated that a lot of the complexities that we are talking about, the unforeseen things, we should be able to identify them in a year and take a look back at it then. Aligning with the municipalities is great. Looking at the draft resolution, Commissioner Farr thinks the “whereas’” are fine other than what Commissioner Yeh pointed out and a little bit of work is needed on the “therefore”. Mr. Stouder said he needed clarity on the program amount and if we are covering at 100% or something different. Commissioner Inge stated he likes Commissioner Meyer’s idea to align with the governing bodies. If they do it, we do it – for this pilot program. If it ends up being 100 units, it is 100 units. Mr. Stouder said since we are paying for this, we need to determine what would be the amount to put in the budget. We could do a supplemental budget, if needed, but we need to make sure we have the money available. Mr. Huffman stated to be clear; you have to have a budget item to do this. Commissioner Inge said that he supports $100,000 for the line item or even $150,000. He thinks it is very important to support what is going on in the governing bodies. Commissioner Yeh asked how many small homes were built last year. Mr. Stouder replied 27 have been built in the last two years. Commissioner Yeh said that our amount is already double what would happen in approximately a year. She feels that the Commission should pick a number that is reasonable and since it is a pilot program, see how it goes. If we run out of money half way through the year, we can always make a choice to add more money. Doing a huge amount like $150,000 is a little high for her and a little uncomfortable for a program that we have never done and do not know what is going to happen. President Ruffier concurs with Commissioner Yeh’s comments. He said $50,000 seems a reasonable start. We have the supplemental budget authority if things explode and it looks like we are going to get MWMC Work Session Minutes April 6, 2018 Page 6 of 8 a lot of requests. He also thinks, in respect to Commissioner Farr’s comment, that leaving the ability to entirely subsidize the SDC at $1,465 if we are going to align with governing bodies decision about how they subsidize the ADUs, makes sense. That doesn’t put us at any inconsistency. Commissioner Farr stated he is 100% fine with the entire discussion. Mr. Stouder said that the reason that the proposal is for the whole amount is getting back to the nexus – supporting infill development and affordable housing. We are either going to be all in or not. We can certainly set it at something other than what the proposal says. Mr. Huffman said he needed to add one issue if we are going to track the SDCs. The IGA requires that you establish revenue adequacy, provide long term health and stability with regional sewage facilities through a program of monthly sewer charges and system development charges that are imposed uniformly throughout the service area. He is wondering if Eugene is doing 32% waiver and Springfield is doing 100% and we just track those, he is not sure that is uniform through MWMC’s system. Each jurisdiction has their own area but the MWMC has everything. He wants to look it up before the Commission moves forward on whether we can do that or not. Commissioner Meyer stated the MWMC is charging uniformly if it chooses to pay a part or all of it; that is a choice the Commission can make. He doesn’t think that Mr. Huffman needs to read it so restrictively. Commissioner Inge clarified that it is because the SDC charge is the same. Mr. Stouder brought up availability and equity. For example, if one development takes all the money on the first day in Springfield. Is that what the Commission wants? He has heard from a couple of the Commissioners that they would like to see a split in the money, X amount for Eugene, and X amount for Springfield. If there is a large enough program amount maybe it will not be an issue. If the program amount is small, then maybe the Commission wants to have a split. The way the proposed resolution is set up it can be easily tweaked. Mr. Stouder suggested 1/3 of the program amount for Springfield and 2/3 for Eugene because that is how the populations are. If the MWMC is doing whatever the governing bodies are doing, then the amounts do not matter. Commissioner Farr said to make it as simple as possible, don’t do 1/3 or 2/3 and don’t say you get 2 units and you get 4. Just make it first come, first served. If we need to adjust the budget mid-year, we do have the option of the supplemental budget. Commissioner Inge stated he does not like first come, first served. He likes supporting the governing bodies – if they do it, we do it. It is pretty simple that way. We can put $100,000 or $150,000 in the budget, if it gets spent great, if it doesn’t get spent great. Mr. Stouder said doing that makes it less complex. Commissioner Inge said it makes it consistent, everyone gets the same shot. Mr. Stouder said he is seeing head nods (for following what the governing bodies do). Mr. Stouder went over the administration portion of the program. 1) Applicant pays fees with permit issuance and MWMC reimburses upon occupancy. 2) MWMC pays fees with permit issuance, internal transfer of funds. Or we could do it how the jurisdictions are doing it. MWMC Work Session Minutes April 6, 2018 Page 7 of 8 Mr. Huffman asked what would happen if someone got the permit but then didn’t follow through with construction. Would there have to be a return transfer of the SDCs. Mr. Stouder said he would need to look into it but it would probably be a journal entry to reverse it. In the case of the locals, if they do pay and they don’t move forward they get reimbursed. Mr. Stouder stated that we have a one year program coinciding with the budget process. It would take affirmative action by the Commission to extend or renew it. Staff will report back mid-year on the progress. He is going to incorporate the feedback that he gets today, update the draft resolution, and bring it back to the May meeting. It could be either on the consent calendar or as an agenda item. Commissioner Meyer asked about a request that was made to hear back from the councils about this issue. Mr. Stouder replied that it was talked about a couple of meetings ago. Springfield waived SDCs for ADUs and Eugene has done it case by case. Commissioner Inge stated that he would prefer that the resolution be an agenda item in May and not on the consent calendar. MOTION: IT WAS MOVED BY COMMISSIONER INGE WITH A SECOND BY COMMISSIONER FARR TO ALLOCATE $100,000 FOR THE LINE ITEM IN THE FISCAL YEAR 2018-19 BUDGET TO SUPPORT PAYMENT OF SDCs FOR NEWLY CONSTRUCTED SMALL HOMES. THE MOTION PASSED UNANIMOUSLY 6/0. Mr. Huffman asked Mr. Stouder to walk him through the whole process (of getting a permit to build and paying SDCs) in order for him (Mr. Huffman) to write the resolution. Mr. Stouder said staff will coordinate with the two communities and let them know the direction the Commission is going and the permit staff at each jurisdiction will have the information to process it accordingly. Commissioner Inge asked to revise language to say supporting not promoting and eligible builders to eligible units. Mr. Huffman replied yes, that will be changed. BUSINESS FROM COMMISSION, GENERAL MANAGER, AND WASTEWATER DIRECTOR General Manager: IP Oil Spill: A hydraulic line burst under one of IP’s big paper machines and around 1,000 gallons of oil entered the process line and discharged into the McKenzie River. IP has a separate permit with the DEQ. The spill was a very costly accident for them as they had to shut down in order to deal with it. In the interim they needed somewhere to take their wastewater because they have processes in place that continued to use water even though the plant was shut down. Staff worked with IP, DEQ, Lane County, and others, so they could end up pumping 3,500 gallons a minute to the City of Springfield and ultimately to the regional wastewater facility to keep their lagoons from overflowing. The discharges that they sent were partially treated process water and were consistent with the waste that the plant is able to treat. IP will be billed according to the amount of wastewater that they discharged to the MWMC. Poplar Ceiling Grills: A few of the poplar ceiling grills, which were talked about at the last MWMC meeting, are installed in the ceiling in the Library meeting room to get an idea of what they will MWMC Work Session Minutes April 6, 2018 Page 8 of 8 look like. The intention is to install them in this room as a show piece for different governing bodies, public entities, and community groups that meet here. In the future, staff would like to do something similar in Eugene and Lane County. The trial run is fairly small so that is why it will be this meeting room. o Commissioner Inge asked if they would be used out at the treatment plant. Mr. Stouder replied that they hadn’t discussed it. This is a pilot project to see how much work is involved and how much it would cost. o President Ruffier asked if there would be a commemorative plague on the wall. Mr. Stouder replied that he did not know if that was contemplated but staff could do something like that. o Commissioner Pishioneri agrees with Commissioner Inge that it should be installed out at the treatment facility. Mr. Stouder told the Commission that on MWMC’s Facebook page you can see the boards being milled by Urban Lumber. Commission Picture: Laura Keir will take individual headshots to update some of the Commissioners’ pictures on MWMC’s website. It was decided that a group shot would be postponed until all the members were in attendance. Commission: Commissioner Meyer will be out of town for the May meeting but will phone in. Commissioner Pishioneri will be out of the country for the May meeting. ADJOURNMENT President Ruffier adjourned the meeting at 8:50 a.m. Submitted by: Kevin Kraaz MWMC MEETING MINUTES Friday, April 13, 2018 at 7:30 a.m. City of Springfield City Hall, Library Meeting Room 225 Fifth St., Springfield, OR 97477 Vice-President Keeler opened the meeting at 7:30 a.m. Roll call was taken by Kevin Kraaz. ROLL CALL Commissioners Present: Pat Farr, Bill Inge, Doug Keeler, Walt Meyer, Joe Pishioneri, and Jennifer Yeh Absent: Peter Ruffier Staff Present: Meg Allocco, Todd Anderson, Dave Breitenstein, John Casto, John Huberd, K.C. Huffman (attorney), Laura Keir, Tonja Kling, Kevin Kraaz, Shawn Krueger, Troy McAllister, Josh Newman, Loralyn Spiro, Matt Stouder, and Greg Watkins CONSENT CALENDAR a. MWMC 3/9/18 Meeting Minutes MOTION: IT WAS MOVED BY COMMISSIONER PISHIONERI WITH A SECOND BY COMMISSIONER MEYER TO APPROVE THE MINUTES. THE MOTION PASSED UNANIMOUSLY 6/0. PUBLIC COMMENT There was no public comment. FY 2018-19 USER RATES, PUBLIC HEARING, AND ADOPTION Tonja Kling, ESD Management Analyst, stated the purpose this morning was to hold two public hearings; one to adopt user rates and one to adopt the Regional Wastewater budget. The public hearing notice was published in the Eugene Register Guard on April 5, 2018 and since that time the budget document and rates have been available to the public for review at Springfield City Hall and on MWMC’s website (www.mwmcpartners.org). The budget and rates will go out for ratification to Springfield City Council on May 7, Eugene City Council on May 14, and Lane County Board of Commissioners on May 15 and will return to the Commission on June 8 for final adoption. Ms. Kling stated the proposed budget for FY 2018-19 is $34.1M and includes $17M carryover funds from this year. The Regional 5-year Capital Plan reflects $93.2M. The proposed rate change is 2.5% and would go into effect July 1, 2018. Eugene’s average residential customer usage is currently 3,700 gallons per month which would equal $23.05 per month for regional wastewater services in FY 18-19. Springfield’s MWMC Meeting Minutes April 13, 2018 Page 2 of 11 average residential usage is 4,300 gallons per month which would equal $24.64 per month for regional wastewater services in FY 18-19. There is no change to the mobile waste hauler septage fees at this time. They are currently $0.12 per gallon. Ms. Kling requested the Commission to open a public hearing for public input and consider adoption of the regional rates through Resolution 18-04. RESOLUTION 18-04: IN THE MATTER OF THE FY 2018-19 MWMC REGIONAL WASTEWATER SCHEDULE OF USER RATES AND SEPTAGE AND HAULED WASTE RATES AND RECOMMENDING THEM TO THE GOVERNING BODIES Public Hearing: Vice-President Keeler opened the public hearing. There was no public comment. Vice- President Keeler closed the public hearing. DISCUSSION: Commissioner Pishioneri asked if the rate increase is driven by personnel costs increasing. Mr. Stouder replied it is driven by the capital program and the cost of inflation. The rate increase is actually lower than the increase in inflation. Ms. Kling said the cost of living for the CPI-U Urban Wage Earners and Clerical index reflects 3.9% increase in 2017. Commissioner Inge asked if the revenue projection is based on the 5000 gallons (used for average usage) or actual usage. Meg Allocco said that it is based on the actual usage. MOTION: IT WAS MOVED BY COMMISSIONER PISSIONIERI WITH A SECOND BY COMMISSIONER YEH TO ADOPT RESOLUTION 18-04. THE MOTION PASSED UNANIMOUSLY 6/0. FY 2018-19 REGIONAL WASTEWATER PROGRAM (RWP) BUDGET & CAPITAL IMPROVEMENTS PROGRAM (CIP), PUBLIC HEARING, AND ADOPTION Ms. Kling requested a public hearing on the proposed Regional Wastewater Program (RWP) Budget and Capital Improvements Program FY 2018-19 and asked the Commission to consider adoption of Resolution 18-05. RESOLUTION 18-05: IN THE MATTER OF ADOPTING THE FY 2018-19 MWMC REGIONAL WASTEWATER PROGRAM BUDGET AND CAPITAL IMPROVEMENTS PROGRAM AND RECOMMENDING THEM TO THE GOVERNING BODIES Public Hearing: Vice-President Keeler opened the public hearing. There was no public comment. Vice- President Keeler closed the public hearing. DISCUSSION: None MOTION: IT WAS MOVED BY COMMISSIONER PISHIONERI WITH A SECOND BY COMMISSIONER YEH TO ADOPT RESOLUTION 18-05. THE MOTION PASSED UNANIMOUSLY 6/0. MWMC Meeting Minutes April 13, 2018 Page 3 of 11 CONSTRUCTION CONTRACT AWARD FOR THE ELECTRICAL DISTRIBUTION SYSTEM UPGRADES, PROJECT P80092 John Casto, Project Manager, stated that the bid opening was April 3rd and received one combination bid. For the pre-bid walk through, six contractors showed up and two of them went together to bid as Lantz Electric with Camp Creek Electric as the first-tier subcontractor. They did a group bid since they didn’t have enough electricians in the area. Four companies did not bid and Mr. Casto called each one to inquire why. They responded that they had too much work to do, they couldn’t man the projects. Lantz Electrical is a well-known industrial electrical contractor in the area and Camp Creek has been the electrical subcontractor for all but three of MWMC’s projects. They split the work up very well between them. Lantz Electrical will be pulling all the cables and Camp Creek will be doing all the connections to the plant, which they have been doing for years. The engineer’s estimate for the project was $2,350,000 and the bid came in at $1,995,000, $355,000 under the engineer’s estimate. Synopsis of Project: The project was turned over from the design team to the construction team in July 2017. In July, the project was scheduled to be before the Commission in April 2018. The project was budgeted for $6 million in case of worst case scenario. The worst case would have been that the cables would not come out. Staff now believes that most will come out. There is a bid in to replace all the duct banks; if they are not broken, they are not going to be replaced. There is enough reserves to replace the duct banks if needed. In the Resolution, 15% is added for change orders (normal practice); it is under $300,000 which should cover incidental duct banks. Currently, the project is on schedule, the consultant design contract with CH2M Hill is about $100,000 under budget, the automatic transfer switch (ATS) came in at about $75,000 under the engineer’s estimate, and are currently about half a million under on construction. It looks like it should be successful; the whole team has worked together. RESOLUTION 18-06: IN THE MATTER OF DELEGATING AUTHORITY TO AWARD A CONSTRUCTION CONTRACT FOR PROJECT P80092 ELECTRICAL DISTRIBUTION SYSTEM UPGRADES MOTION: IT WAS MOVED BY COMMISSIONER PISHIONERI WITH A SECOND BY COMMISSIONER MEYER TO APPROVE RESOLUTION 18-06. THE MOTION PASSED UNANIMOUSLY 6/0. PUBLIC INFORMATION PROGRAM UPDATE Loralyn Spiro and Laura Keir, Communication Coordinators, made the public information program update. The program is guided by the MWMC Communication Plan which is driven by the Commission Goal stated in Key Outcome #5 (part of the annual budget). The Communication Plan was guided by a survey done in 2015 of community members. Staff plans to survey the community again in 2019 to get an update. TACTICS There are 20 different tactics in the Communications Plan, 10 tactics that had exciting developments over the past year are being highlighted today. Redesigned E-Newsletter: MWMC’s email newsletter was redesigned to match the branding elements of the MWMC’s website. Starting in February 2018, staff started sending it out monthly rather than quarterly so that news is fresher. The pieces are shorter to capture people’s attention and link to more MWMC Meeting Minutes April 13, 2018 Page 4 of 11 information on the website. The readership list has grown in recent months to 165 subscribers and staff is continuing to work on increasing readership. Pollution Prevention Outreach: It is a tactic to help increase community awareness about the MWMC and how the community can take steps, themselves, to reduce pollution introduced into the wastewater system. Staff is currently focusing on keeping FOG (Fats, Oils, & Grease) out of the system with the creation of FOG kits to handout at community events and to hang with information door hangers in hot spot residential areas identified by Pretreatment staff. Later this year, staff will focus back to promoting the use of prescription drug drop boxes in Lane County with the creation of pill box kits to handout at community events, local pharmacies, and additional distribution points to be identified. Sponsorships: The MWMC continues to include sponsorships as a tactic to build community awareness. EWEB’s Run to Stay Warm - The MWMC has sponsored it for four years and it averages 1200 participants. The sponsorship covers the cost for port-a-potties at the event and each port-a- potty had a flyer displayed in it to raise awareness about the MWMC in addition to having the MWMC logo on event materials and EWEB’s website. Land County Fair – The MWMC has sponsored it for the past two years. The attendance at the 2017 Fair was just shy of 114,000. The sponsorship covers the majority of the cost for port-a- potties at the event and each had a flier on it, and MWMC’s logo was on event materials and their website. Lane County Home & Garden Show: For several years the MWMC has sponsored an informational table with other agencies that are part of the Lane Area Pollution Prevention Coalition, also known as P2C. At the 2018 event, the MWMC provided a supply of the new FOG kits and other promotional items to hand out along with the new informational tri-cards created recently. McKenzie River Trust (MRT) Walk the Land: In 2017, the MWMC added a fourth sponsorship by being a supporting sponsor of the MRT’s Walk the Land event in June. The sponsorship included having the MWMC logo on event materials and MRT’s website as well as an informational booth at the event. Eugene’s Wastewater Division staffed the booth and included a Corn Hole game designed by them. The event was attended by more than 1,000 area community members. The name of the event in 2018 has been changed to Get Outdoors Day and will be on June 9th. Commissioner Pishioneri asked if MWMC’s sponsorships are monetary and if so how much. Ms. Spiro replied it is about $5,000 for the cost of port-a-potties at the Lane County Fair, EWEB’s Run to Stay Warm is around $1,500 for the port-a-potties, MRT is a straight sponsorship of $1,500, and P2C is a minimal cost because it is for the rent of the booth that is split up amongst all the agencies plus the cost of the give- away materials. Commissioner Pishioneri asked if that would be around $7,000 for all the sponsorships. Ms. Spiro replied roughly, yes. Commissioner Inge asked what the connection is with Run to Stay Warm. Ms. Spiro replied that the MWMC has a connection with EWEB as they do MWMC’s billing and we want to be supportive of their event. She added that we would like to do something with SUB, but have not identified anything yet. Commissioner Pishioneri recommended supporting the Lights of Liberty event that is sponsored by SUB. He said that several thousand people show up and it is the general public. It would be a great opportunity and there is plenty of space. Ms. Spiro replied that they would look into it. MWMC Meeting Minutes April 13, 2018 Page 5 of 11 Community Presentations: Over the past couple months staff has given presentations to three community groups, Emerald Empire Kiwanis Club, Springfield Lions Club, and Goodpasture Island Neighbors, which were led by Mr. Stouder and Mr. Breitenstein. The main goals are to tell people about what the MWMC provides, how wastewater is cleaned locally, and actions they can take to prevent pollution in our waterways. The presentations have been received with positive reactions and staff is looking to continue to go out into the community and talk to groups. The Commission was asked to give recommendations of groups to contact to the Communications staff. Social Media: The MWMC launched Facebook and Twitter accounts in July of 2017. Staff posts regularly photos from the MWMC facilities, wastewater trivia questions, notice of Commission meetings, and various videos (such as MWMC’s poplar being milled). The response has been mostly positive from community members and partner agencies; however growth in followers has been slow. Currently the MWMC has 141 Facebook followers, 70 Twitter followers, and there are roughly 15 posts on each site per month. The videos are popular. Staff will continue working to increase both followers and engagement with the posts. Digital Annual Report: MWMC’s Annual Report became completely web based in April 2018. The focus of this year’s report is threefold: 1. To highlight the successes and statistics for the reporting year 2. To highlight the ongoing and/or upcoming significant initiatives or projects 3. To provide the annual financial report. The annual report helps support increasing overall community awareness of the MWMC and raise awareness of the MWMC as a leader in water resources management, specifically in wastewater treatment practices and expertise. The report was built with several links to the MWMC website to encourage visitors to the website on a more regular basis and has several links to direct visitors to the Current Projects page which promotes signing up for the MWMC e-newsletter as the best and quickest way to receive the latest MWMC project news. Promotional Giveaway Items: This is a new tactic and was implemented to help increase overall community awareness of the MWMC and to help support pollution prevention education by providing information and tools to community members to help reduce pollution into the wastewater system. Additional promotional items will be purchased later this year that continue to appeal to both adults and kids. Current promotional giveaway items are stress balls that also have a mop head to clean phone/computer screens, a vinyl pocket to put on the back of your phone to carry your driver’s license/credit card, and the Freeze FOG kit which includes a lid for a can and a scrapper. All of the promotional items have the MWMC’ website address printed on them. Tours: Roughly 565 people toured MWMC’s facilities in 2017. The tours are most often school groups from 5th grade up through college students. Occasionally community groups do a tour, most recently the Springfield Utility Board. Tours of the Biosolids Management Facility (BMF) and the Biocycle Farm are becoming more popular. The Communications staff has worked with the BMF/Operations staff to develop guidelines and a more standardized process for providing tours at the BMF. Clean Water University (CWU): In 2017, 242 5th graders in Springfield were taught about wastewater and stormwater. Staff is working on reformatting CWU to launch this fall, to involve more students including schools in Eugene. Currently CWU is three sessions in the classroom and the fourth session is a trip to the MWMC Meeting Minutes April 13, 2018 Page 6 of 11 treatment plant for a tour and a graduation ceremony. The new format will cover all the information as before but will be given in a single day out at the plant. It will include a plant tour as well as interactive activity booths on wastewater, stormwater, and drinking water. It will be more hands on and a better way for the kids to learn plus streamlined efficiency of staffing resources. Staff will evaluate after this fall, including any needs in the future for additional resources as the program expands. Commissioner Farr stated that there is a third school district, Bethel. Commissioner Keeler asked what percent are 242 out of all the 5th graders in the area. Ms. Keir replied that she didn’t know how many 5th graders there are in Eugene and consequently the percentage. Commissioner Keeler stated that he appreciate everything that they are doing in their effort to expand and improve the program. Mr. Stouder added that Ms. Spiro and Ms. Keir did a really good job on reformatting CWU. One of the reasons they did the reformat is that CWU is time intensive for staff. Ms. Spiro and Ms. Keir contacted the school districts and asked what was working for them from this program right now and what could work better and gave a couple of options. The preferred option from the teachers was to do it as a field trip/single day event. There would probably be increased participation because there wouldn’t be as much time restraint as there is in having multiple classroom sessions. Staff plans to try the new format for a year and evaluate. They also plan to utilize City of Eugene staff and when it is time to expand, there may be a need to add additional resources and have a position that manages the program. But for now, this is a way to reach more students without having to do that. Explore Trademark: “We Clean Water” is the official tagline that clearly and quickly lets the community know what services the MWMC provides and what its purpose is. It was implemented on the website and social media; so far response has been positive. Staff is working with MWMC’s legal counsel in moving ahead with the process to register “We Clean Water” as a trademark and more specifically as MWMC’s official tagline. Legal counsel expects the State registration to be a straight forward process but the Federal level may run into a bit of resistance because there is a sand and gravel company in Wisconsin that has the tagline, “We Clean the World’s Water.” MWMC’s logo was also refreshed along with the website update last year. Staff has been adding all these branding elements into MWMC’s materials. DISCUSSION: Commissioner Inge said it bothers him that we have the Poplar Farm on Highway 99 but nobody knows what it is. Commissioner Pishioneri said it is a sign code problem. Commissioner Inge replied that he thinks that we should be able to come up with a way to communicate about it. It is a resource that should get more attention. Ms. Spiro replied that there has been several post on social media highlighting the harvest and the poplar farm and staff is receiving more requests from groups to tour the Poplar Farm. When staff researched doing a sign, there were a lot of restrictions from ODOT based on the right of way and the size of the sign. Doing more tours out there will be one of the best strategies to help increase the knowledge and people’s awareness of it. Mr. Stouder added that the Poplar Farm has been promoted in the community presentations and on the social media and with more talk about it there has been correspondingly more interest in doing tours. However, that is an area where there could potentially be the most controversy when it comes to MWMC Meeting Minutes April 13, 2018 Page 7 of 11 opinions about application of biosolids and whether it impacts ground water. It is something that staff has been looking at very carefully about how to promote. Commissioner Pishioneri asked if people can walk around at the farm. Mr. Breitenstein said there can be guided tours; the public can’t be out there on their own because of public health regulations. Commissioner Pishioneri asked if there was a way to have the public get engaged with the Poplar Farm and not sacrifice the public health issue. Mr. Stouder said that staff could work on coming up with some ideas. The first thing that comes to mind is writing an article about the farm. There have been public relations pieces on the farm in the past from the Register Guard and others; they haven’t always gotten it completely right. Commissioner Keeler said we may have a milestone anniversary coming up. Mr. Breitenstein said he thought it would be cool to have a sign that could be seen by the planes that fly over the farm. Commissioner Farr asked about a picture of the Poplar Farm out at the airport; it is one of the innovative things that MWMC does. Commissioner Yeh stated instead of focusing on signs why not focus on the final product. Anytime you can get the final product in front of people, they can get the connection. Commissioner Inge gave kudos for the Communication team’s work done to date. Commissioner Keeler said he appreciated that there are complete stories in the monthly newsletter. It frustrates him when other newsletters have three lines and then a link to the rest of the story. He asked that we don’t fall into that. Commissioner Farr showed a pamphlet that he had received from the City of Eugene with information about the MWMC. Ms. Keir stated that she had created it. Commissioner Farr said that the work she is doing is being distributed through our partners. It tells how good of a job you are doing. You are creating products that are attracting attention. MWMC ASSET MANAGEMENT PROGRAM UPDATE John Huberd, Finance and Administrative Manager, provided an update on the MWMC’s Asset Management Program. Staff has continuously managed MWMC’s assets since it went online 30 years ago and those efforts have resulted in effective and efficient operations. However, there is always room for improvement so staff has been working to improve the management of assets. The Asset Management Program supports two of MWMC’s outcomes: 1. Maximum reliability and useful life of regional assets and infrastructure 2. Fiscal management that is effective and efficient. Underlying those outcomes are some more specific objectives that are important for this project. Those objectives include the following: providing services in a financially sustainable manner; taking a long- term 20-year approach to asset management; using a lifecycle approach for asset management; and MWMC Meeting Minutes April 13, 2018 Page 8 of 11 linking asset management to other long-term financial planning efforts including annual budgets, CIP projects, and rate modeling. A Strategic Asset Management Gap analysis, or SAM Gap, was done in 2016 by staff. The gap analysis tool used was developed by Water Environment Research Foundation (WERF) and consisted of 88 questions that covered the entire range of asset management activities. Some of the results of the gap analysis in order of weakest to strongest areas are as follows: Organizational gaps need to be addressed. Need to assign an overall asset manager and clarify roles and responsibilities for asset management – currently it is somewhat fragmented between work groups. Asset management skills need to be further developed by staff with a focus on best practices and the latest techniques and technologies. Annual Asset Management Plan is highly recommended to do. Information Systems – scored well. Eugene staff uses Maximo software for maintenance and asset tracking. Springfield staff uses Constructware for CIP planning and capital project management. Eugene and Springfield corporate financial systems are used extensively in asset management. All of these information systems have been used for years and have been regularly updated. However, there are tools and features in these systems that are underutilized. For example, condition assessment reporting features are underutilized in Maximo. Gaps in Processes and Practices – MWMC’s asset management program has good operation and maintenance documentation and the gap analysis showed we have good staff competency. The gaps in processes and practices were largely due to not utilizing the latest recommend practices. Data and Knowledge Gaps – The current asset management program scored well in data and knowledge of assets. However the gap analysis showed some long-life assets, such as roadways and fences, which are not currently in the financial models. Staff needs to ensure all significant assets are included in the asset management program. There are also gaps in replacement costs valuation and expected life for some assets. There is a lot of staff involved in asset management and an organizational structure will provide improved coordination of that work. The organizational structure staff is developing is as follows: Asset Program Management team provides direction and coordination of the program. This group will define roles and responsibilities for asset management. Operations – this group is comprised of Eugene Operations supervisors and leads. It includes Operations at the regional treatment plant and the Biosolids Management Facility. Planning & CIP – Springfield staff provides CIP and planning support with close coordination with Eugene staff. Finance – Eugene finance staff tracks operational costs and changes of assets. Springfield staff provides financial reporting information and also does the insurance valuations for assets. Information Systems – Eugene IT staff supports Maximo asset management software. Springfield IT staff supports Constructware used on CIP and planning. Maintenance – this group is comprised of Eugene Maintenance and facilities staff. The responsibilities for this group include managing maintenance information and providing information such as asset condition, remaining life estimates and updates to replacement schedules. Accomplishments: The Asset Management team was formed in 2016 and has performed the gap analysis and is currently directing the asset management project efforts. Last year the annual asset reconciliation MWMC Meeting Minutes April 13, 2018 Page 9 of 11 was changed to quarterly reconciliations. This provides a more accurate and timely flow of information to Springfield financial staff for reporting purposes. James McClendon, Wastewater Business Analyst, and Mr. Huberd received certification through the Institute of Public Works Engineering Australasia (IPWEA) in Asset Management Planning. The 9-week on-line course focused on the development of annual asset management plans and was a course based out of Australia. Through the coursework a prototype MWMC Asset Management Plan was created. Next Steps: An asset data standard is currently being developed for the MWMC. A data standard is defined as the metadata on asset data. It is the rules by which data is described and recorded and it establishes a common understanding of the meaning of the data, ensuring correct, proper use and interpretation of the data. An example of how data standard works is asset replacement costs. The data standard will stipulate that replacement costs are a required field in Maximo and cannot be left blank. The data standard will also include guidance and methodologies to determine specific values such as replacement costs. The International Infrastructure Management Manual (IIMM), endorsed by IPWEA, is helping staff to develop the data standard by providing examples and case studies. Staff is completing the assignment of asset program roles and responsibilities including clearly defining those roles and responsibilities. A training curriculum is being developed for each major role in asset management. As part of the training, a Maximo trainer will provide group trainings, this summer, based on asset management roles. This will allow utilization of more features in Maximo such as condition reporting, failure codes, and integrating the data standard into Maximo. Going Forward: The initial Asset Management Plan is scheduled to be completed by September 2018 to help inform the FY 2019-20 CIP and budget processes. The plan will be updated annually thereafter. The Asset Management Plan template includes a section for continuous improvement. The improvement section lists items to be addressed in future plan updates and the list will be updated and re-prioritized annually. It is a large amount of work and so it has to be prioritized. The Asset Management Program upgrade is being done internally. Staff chose this route as the American Public Works Association and IPWEA both recommend not using consultants. The reasoning is that asset management is an ongoing program and new competencies and practices need to be developed and learned internally. Summary: This approach to asset management utilizes best practices with up to date techniques and better integration and definitions of staff roles in asset management. Developing this type of annual asset management plan is leading edge in the United States. However, this is a proven approach and has been used for several years in other countries. Asset management plans have been formally adopted in Australia, New Zealand, and Canada and are required to get federal funding for local projects in those countries. This is a comprehensive program that includes all significant assets and is based on total cost of ownership from procurement to the final disposition. This approach also provides a 20 year outlook of costs and revenue needs and will provide decision makers with better information. DISCUSSION: Commissioner Meyer asked if, at this time, are all the major equipment items in the Maximo system and does it generate work orders for doing improvements. Mr. Huberd replied yes. Commissioner Meyer asked if you can see trends, such as a specific piece of equipment has had an unusual series of maintenance requirements; will the Maximo system tell you that. Mr. Huberd replied yes, the Maintenance staff will look at preventive maintenance to corrective maintenance and those MWMC Meeting Minutes April 13, 2018 Page 10 of 11 types of analysis. Commissioner Meyer asked if staff has identified a protocol that they will be using. Mr. Huberd replied that is a work in progress. There are a lot of good technologies especially mobile devices where a person can go out in the field and while they are doing preventive maintenance they can also do condition assessment, pull up an application that will link into the Maximo system. That will also provide standardized criteria; it will walk them through how to score those issues. Mr. Breitenstein added it also has the capability of taking pictures of the assets to help support the condition assessment and attaching those to that asset in Maximo. Commissioner Meyer asked if staff was using this on remote facilities such as pump stations, etc. Mr. Huberd replied it would be for all of MWMC’s assets. Commissioner Keeler said it was really important work and very detailed. Mr. Huberd stated there is $260 million worth of assets. Commissioner Keeler asked what the current percentage of planned work to unplanned is. Mr. Breitenstein replied emergency maintenance is about 1%, completed maintenance is 95%, and he has the ratio of preventive to corrective maintenance but not a planned to unplanned. Commissioner Keeler said that would be a good thing to track and he assume it is very high on the planned side. It is one of those things where you narrow that gap continually. BUSINESS FROM COMMISSION, GENERAL MANAGER, AND WASTEWATER DIRECTOR General Manager: Commissioner picture – targeting June as a couple of Commissioners will be out in May. Next couple of months will be busy with items coming back to the Commission: RNG project, poplar planting contract, financial plan policy, and insurance renewal. The poplar ceiling grills demonstration project – the logs have been milled at Urban Lumber and are being shipped to 9Wood in Sweet Home to be turned into ceiling grills. Wastewater Director: When the plant helped IP out by taking their wastewater, the plant was completely successful in processing it. A new digester is under construction and eventually the removal of the temporary lagoon. The temporary lagoon was built in the early years of MWMC to help offset the solids handling needs before the Biosolids Management Facility (BMF) was constructed. The temporary lagoon was also used for when staff cleaned the digester; they would put the dregs out in the lagoon. A lot of plastics and other undesirable material, not suitable for biosolids, ended up out there. When the lagoon is removed, a lot of it will be going to land fill. Instead of stock piling waste, in the digester cleaning project we included a new digester cleaning station. The idea is that most of the material that is in the bottom of the digester is basically screw bite, which has good fertilizer properties. We pumped our last cleaning out to the lagoons at the BMF to test it out. It worked; it took longer than they wanted. They will be trying to do it again on the next digester which has a flatter floor (more difficult to drain). The Operations staff is learning what the best method is to run the pump and the best technique to use. They hope to be able to reuse the cleanings instead of taking it to the landfill. There is a picture of a digester being cleaned in MWMC’s newsletter. Commissioner Keeler asked if there was a risk of scaling the line out to the BMF. Mr. Breitenstein replied he did not believe so. He reminded the Commission that more access stations had been installed along MWMC Meeting Minutes April 13, 2018 Page 11 of 11 the pipe in order to do more camera inspections and cleanings to keep a better handle on the condition of the line. ADJOURNMENT Vice-President Keeler adjourned the meeting at 8:46 a.m. Submitted by: Kevin Kraaz ______________________________________________________________________________ M E M O R A N D U M DATE: May 3, 2018 TO: Metropolitan Wastewater Management Commission (MWMC) FROM: Meg Allocco, MWMC Accountant SUBJECT: FY 2017-18 Supplemental Budget #3 ACTION REQUESTED: Approve Resolution 18-07 ISSUE The purpose of this memo is to request approval of Resolution 18-07 authorizing proposed supplemental budget requests for FY2017-18. These adjustments will go through the City of Springfield finance department supplemental budget processes along with supplemental budget #3 for the City. DISCUSSION At the March 9, 2018 Commission meeting, staff requested Commission approval of Resolution 18-03, authorizing the MWMC Executive Officer or designee to execute a contract with Carollo Engineers for engineering consultant services in support of the MWMC’s Resiliency Planning Project P80096. This resolution also stated the Commission’s intent to approve funding for the project in the amount of $750,000 to be brought in the next formal supplemental budget request. At this time, staff has no additional budget requests other than the Resiliency Planning Project. ACTION REQUESTED Approve, by motion, Resolution 18-07 authorizing the budget action requested in this memorandum. ATTACHMENT 1 Resolution 18-07 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION RESOLUTION 18-07 ) IN THE MATTER OF APPROVAL OF FISCAL ) YEAR 2017-18 SUPPLEMENTAL BUDGET #3 WHEREAS, the Metropolitan Wastewater Management Commission (MWMC) approved the FY 2017-18 Budget on April 14, 2017 pursuant to Resolution 17-05; WHEREAS, sewer rates and budget amounts for the FY 2017-18 Budget were based upon certain estimates; WHEREAS, the increase of $750,000 to the Resiliency Planning Project (P80096) funded from capital reserves is appropriate to fund consultant technical services to perform needed infrastructure and interdependency assessments; WHEREAS, MWMC has appointed Tom Boyatt as its duly authorized interim Executive Officer for efficient execution of the day-to-day administration of MWMC business. NOW, THEREFORE, BE IT RESOLVED BY THE METROPOLITAN WASTEWATER MANAGEMENT COMMISSION THAT: The FY 2017-18 Supplemental Budget #3 as presented to the MWMC on May 11, 2018, is hereby approved. ADOPTED BY THE METROPOLITAN WASTEWATER MANAGEMENT COMMISSION OF THE SPRINGFIELD/EUGENE METROPOLITAN AREA ON THE 11th DAY OF MAY, 2018. ___________________________________________ MWMC President: Peter Ruffier ATTEST: _______________________________________ Secretary: Kevin Kraaz Approved as to form: _________________________ MWMC Legal Counsel: K.C. Huffman ______________________________________________________________________________ M E M O R A N D U M DATE: May 3, 2018 TO: Metropolitan Wastewater Management Commission (MWMC) FROM: Todd Miller, Environmental Management Analyst SUBJECT: Poplar Harvest Management Services: Biocycle Farm MU-2 Replanting ACTION REQUESTED: Authorization of Resolution 18-08 ISSUE The MWMC’s Biocycle Farm Management Unit 2 (MU-2) is planned to be replanted in 2018. The MWMC issued an Invitation to Bid (ITB) for Biocycle Farm MU-2 Replanting on March 26, 2018 and with a due date of April 20, 2018. The Northwest Youth Corps submitted a bid and qualifies for completing the work under a Cooperative Agreement with the MWMC. MU-2 replanting should be performed in May-June 2018 to establish tree growth by fall 2018. BACKGROUND MU-2 comprises approximately 124 acres and was fully harvested in 2017. The April 2018 MWMC Communication Packet included a memo providing an update on the harvest outcomes. The communication memo also describes that poplar cuttings were procured in early 2018 for replanting of MU-2. Those cuttings (30,000 to ensure the planting of over 27,500 trees) are currently in cold storage with GreenWood Resources in Clatskanie, Oregon, and will be delivered to the Biocycle Farm upon the MWMC’s request. In advance of replanting, the harvest contractor, GTFF Mill Corp, is returning to MU-2 to finish regrading and mulching the site to ensure it is level, free of large debris, and ready for replanting. That work is scheduled to be completed by mid-May. Planting work is anticipated to start the week of May 21, 2018 and be completed in June. To secure a planting contractor in time for May 2018 planting work, the MWMC solicited bids in March-April 2018. DISCUSSION The ITB total project cost comprised four lump sum bid items. The four bid items were (1) Replanting, (2) Signage, (3) Vegetation Management, and (4) Pruning. A voluntary pre-bid meeting and site tour was Memo: Poplar Harvest Management Services: Biocycle Farm MU-2 Replanting May 3, 2018 Page 2 of 2 held at the Biocycle Farm on April 9, 2018. One prospective Bidder attended the meeting but did not submit a Bid. The two Bidders that submitted Bids were GreenWood Resources and Northwest Youth Corps. Their Bids are summarized in the table below. Bid Item GreenWood Resources Northwest Youth Corps 1. Replanting $113,000 $27,400 2. Signage $3,200 $4,800 3. Vegetation Management $52,080 $13,250 4. Pruning $37,200 $43,300 Total Project Cost $205,480 $88,750 Aside from being the lowest responsive Bidder, the Northwest Youth Corps qualifies as a Youth Development Organization (YDO). Under ORS 344.415 through 425, a YDO qualifies to enter into a Cooperative Agreement for services with the MWMC and the statutes under ORS 279A, 279B, and 279C (the basis for the MWMC’s Procurement Rules), no longer apply. Therefore, the MWMC suspended the ITB and subsequent contracting process, and is instead developing a Cooperative Agreement with Northwest Youth Corps. Prior to the Northwest Youth Corps’ bid submittal, staff had been collaborating with the Northwest Youth Corps on opportunities to involve their crews in poplar pruning and planting tasks under the oversight of the MWMC’s contracted service provider. Upon review of the ITB, the Northwest Youth Corps determined that it had the qualifications, capability, and capacity to provide the full scope of services requested in the ITB. Upon staff review of the Northwest Youth Corps’ bid, including follow up questions with the Corps, staff determined that the Corps’ bid is fully responsive and that the Corps fully understands the scope of services to be provided. The Corps’ services appear to be more economical to the MWMC based on several factors, including: The youth service learning program work force to be employed on the project is less costly than typical contracted labor No sub-contractors will be used No herbicides will be used, instead relying on physical weed control and removal No heavy equipment will be used, instead relying on light tools and hand labor for all tilling, seeding, and transporting materials around the site. ACTION REQUESTED Staff requests that the Commission authorize Resolution 18-08 to award a Cooperative Agreement for MWMC Project P80083 – Poplar Harvest Management Services: Biocycle Farm MU2 Replanting, for an amount of $88,750, with a 15% cost contingency. ATTACHMENTS: 1. Resolution 18-08 ATTACHMENT 1 Resolution 18-08 Page 1 of 2 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION RESOLUTION NO. 18-08 ) IN THE MATTER OF COOPERATIVE ) AGREEMENT AWARD FOR MWMC PROJECT ) P80083 – POPLAR HARVEST MANAGEMENT ) SERVICES: BIOCYCLE FARM MU2 REPLANTING WHEREAS, the Fiscal Year 2017/2018 Budget includes Biocycle Farm Poplar Harvest Management Services, Project P80083; and WHEREAS, the Metropolitan Wastewater Management Commission (MWMC) has followed the procedures for competitive sealed bidding for goods and services set forth in MWMC's Procurement Rules, Section 137-047-0255; and WHEREAS, MWMC issued an Invitation to Bid (ITB) for Biocycle Farm MU2 Replanting on March 26, 2018; and WHEREAS, MWMC received Bids from two (2) respondents on the Bid closing date of April 20, 2018; and WHEREAS, one of the bids was received from Northwest Youth Corps, a Youth Development Organization (YDO) qualifying for Cooperative Agreement pursuant to ORS 344.415 – 425; and WHEREAS, the MWMC legal counsel (Thorp, Purdy, Jewett, Urness & Wilkinson, P.C.) has reviewed the bid for compliance with applicable law and determined that Northwest Youth Corps is the low responsive bidder; and WHEREAS, an interagency evaluation committee from Springfield Environmental Services Division and Eugene Wastewater Division (Evaluation Team) evaluated the Bid pursuant to the criteria in the ITB and determined the Northwest Youth Corps met the terms of the Bid; WHEREAS, pursuant to ORS 344.425, when a qualifying YDO is selected, the provisions of ORS 279A, 279B, and 279C do not apply. As a result of ORS 344.425, the review and award of this contract are no longer controlled by MWMC Procurement Rules; and WHEREAS, regional wastewater staff expects negotiation of a cooperative agreement with Northwest Youth Corps to be successful; and WHEREAS, the MWMC has appointed a duly authorized Executive Officer for the efficient execution of day-to-day administration of the MWMC business. NOW, THEREFORE, BE IT RESOLVED BY THE METROPOLITAN WASTEWATER MANAGEMENT COMMISSION: ATTACHMENT 1 Resolution 18-08 Page 2 of 2 The duly authorized MWMC Executive Officer, or authorized designee, is hereby authorized to: 1) Enter into a Cooperative Agreement for goods and services for P80083, Biocycle Farm Poplar Harvest Management Services: Biocycle Farm MU2 Replanting, for an agreement price of $88,750; and 2) Execute or designate qualified staff to execute all cooperative agreement and project management functions including, but not limited to, issuance of notices to proceed, cooperative agreement changes not to exceed a cumulative total of 15% (or $13,313) of the agreement price listed above, and to manage the agreement to ensure the services meet the agreement specifications. ADOPTED BY THE METROPOLITAN WASTEWATER MANAGEMENT COMMISSION OF THE SPRINGFIELD/EUGENE METROPOLITAN AREA ON THE 11th DAY OF MAY, 2018. ________________________________________ President: Peter Ruffier ATTEST: _______________________________ Secretary: Kevin Kraaz Approved as to form: _______________________ MWMC Legal Counsel: K.C. Huffman ______________________________________________________________________________ M E M O R A N D U M DATE: May 3, 2018 TO: Metropolitan Wastewater Management Commission (MWMC) FROM: Matt Stouder, General Manager SUBJECT: Small Homes Systems Development Charges (SDCs) ACTION REQUESTED: Approve Resolution 18-09 for Small Homes SDCs ISSUE At the work session on April 6, 2018, the Commission discussed criteria and eligibility requirements regarding implementing an SDC program for small homes. After discussion and direction from the Commission, staff prepared Resolution 18-09 for Commission review and consideration. BACKGROUND The Cities of Eugene and Springfield have both identified infill development and affordable housing as priority community issues, and the Commission has indicated a desire to support intergovernmental cooperation on these issues by examining its SDCs for small houses. The MWMC received two requests in 2017 to consider waiving or incentivizing SDCs for small homes (accessory dwelling units and “tiny” houses). The Commission discussed policy issues associated with the requests, and ultimately determined in October 2017 that assessing small homes (800 square feet or smaller) at an SDC rate consistent with the multi-family rate would be justifiable and defensible. Staff and legal counsel returned at the November 2017 Commission meeting for follow up discussion at the Commission’s request. The Commission directed staff to move towards creating a line item in the FY18-19 budget process to allow the MWMC to offset SDCs on behalf of applicants that meet qualifications (to be determined) for small homes. At the January 2018 meeting, the Commission began a conversation regarding criteria for eligibility, and that conversation continued at the April 6, 2018 work session. Memo: Small Homes Systems Development Charges (SDCs) May 3, 2018 Page 2 of 2 DISCUSSION At the April 6, 2018 work session, the Commission discussed program criteria for small homes, including eligibility requirements, the appropriate level of resources the MWMC should authorize as part of the budget process, and program duration. After discussion, the Commission determined that the program should be eligible to the construction of new homes sized 800 square feet or smaller, and that an appropriate program amount to allocate in the FY 18/19 budget would be $100,000. The Commission also determined that the program should mimic the actions of the local jurisdictions in a proportionate manner to how the local jurisdiction imposes SDCs for small houses. For example, in Springfield, the program would be eligible to Accessory Dwelling Units (ADUs) because of recent action taken by the Springfield City Council. In this case, the MWMC would support 100% of the regional wastewater SDCs for ADUs because the City has waived 100% of the local SDCs for newly constructed ADUs. In Eugene, the program would not be eligible to ADUs, because the City of Eugene has not taken action on waiving, reducing or paying SDCs for this development type. Furthermore, the Commission determined that the program should sunset on June 30, 2019, or upon expenditure of the budgeted $100,000 (whichever occurs first), unless the Commission elects to take action to extend the program. Resolution 18-09 provides additional information related to the program, and is provided as Attachment 1. ACTION REQUESTED Staff requests Commission review and approval of Resolution 18-09. ATTACHMENTS 1. Resolution 18-09 ATTACHMENT 1 Resolution 18-09 Page 1 of 2 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION RESOLUTION 18-09 ) IN THE MATTER OF ALLOCATING RESOURCES ) IN THE FY18/19 REGIONAL WASTEWATER ) PROGRAM BUDGET TO ASSIST IN THE ) PAYMENT OF SDC’S FOR SMALL HOUSES WHEREAS, The Cities of Eugene and Springfield have identified increasing access to affordable housing and infill development as a priority community issue; WHEREAS, The MWMC has determined that supporting construction of small houses aligns with the MWMC’s Key Outcome #3 to support a “successful intergovernmental partnership” with respect to affordable housing and infill development; WHEREAS, The Eugene-Springfield Consolidated Plan identifies a significant majority of low- income renters spend more than 30% of their income on housing costs; WHEREAS, The increase in low income households has increased the need for additional quality affordable housing and infill development; WHEREAS, The MWMC has received requests to evaluate Systems Development Charges for small housing, in order to encourage the construction of small housing to help meet the need for quality affordable and rental housing; WHEREAS, The MWMC has determined a “Small House” is 800 square feet or less and the resulting impact to the regional wastewater system from a Small House is proportionately less than single family dwellings; WHEREAS, The MWMC intends to allocate $100,000 in the fiscal year 2018-19 budget to support payment of Systems Development Charges for newly constructed Small Houses; WHEREAS, the City of Eugene and the City of Springfield may incentivize the construction of Small Houses through the reduction or payment of their respective System Development Charges; WHEREAS, the MWMC desires to support payment of Systems Development Charges for Small Houses imposed by it in a proportionate manner as the respective city imposes System Development Charges on Small Houses during fiscal year 2018-19; WHEREAS, The MWMC desires to have the Small House SDC Project automatically expire on June 30, 2019, or upon the expenditure of the budgeted $100,000, whichever occurs first, unless the Commission elects to take action to extend it. NOW, THEREFORE, BE IT RESOLVED BY THE METROPOLITAN WASTEWATER MANAGEMENT COMMISSION THAT: ATTACHMENT 1 Resolution 18-09 Page 2 of 2 Tom Boyatt, as the duly authorized Executive Officer of the MWMC, is hereby authorized to: (a) create a budget item for the Fiscal Year 2018-2019 budget whereby the MWMC may allocate up to $100,000 to apply towards SDCs incurred by builders of eligible Small Houses; (b) delegate to MWMC staff the creation of criteria related to a structure’s eligibility for, and participation in, the Small House SDC Project in a manner that will apply proportionate to any Small House incentives for System Development Charges imposed by the respective city in which the construction will occur; (c) delegate to MWMC staff the authority to regulate and administer the Small House SDC Project to ensure only builders of eligible structures are allowed to participate in the Small House SDC Project and to ensure compliance with the budget; and (d) require the Small House SDC Project to automatically expire on June 30, 2019, or the upon the expenditure of $100,000, whichever occurs first, unless the Commission elects to take action to extend it. ADOPTED BY THE METROPOLITAN WASTEWATER MANAGEMENT COMMISSION OF THE SPRINGFIELD/EUGENE METROPOLITAN AREA ON THE 11TH DAY OF MAY 2018. _____________________________________________ President: Peter Ruffier ATTEST: __________________________ Secretary: Kevin Kraaz Approved as to form: _________________________________ MWMC Legal Counsel: K.C. Huffman ______________________________________________________________________________ M E M O R A N D U M DATE: May 4 2018 TO: Metropolitan Wastewater Management Commission (MWMC) FROM: Josh Newman, Managing Civil Engineer SUBJECT: RNG Upgrades Project (P80095) Update and Implementation Decision ACTION REQUESTED: Commission direction ISSUE Staff and Kennedy/Jenks Consultants (K/J) will provide an update on the Renewable Natural Gas (RNG) Upgrades project to include a project risk assessment, cost estimation, and business case scenario evaluation. Following the presentation, staff requests Commission direction and input to determine whether the project should be fully implemented. BACKGROUND Since 2011, the MWMC has been evaluating opportunities to fully utilize its biogas as an energy resource. Originally staff applied a Triple Bottom Line (TBL) approach to the Biogas Utilization Study to evaluate alternatives considering environmental, community, and economic outcomes. Currently, the anaerobic digestion process at the MWMC’s Water Pollution Control Facility (WPCF) produces biogas containing approximately 61% methane. The rest is mainly carbon dioxide with other trace impurities. The daily biogas volume produced contains an energy equivalent of approximately 2,500 gallons of gasoline. Approximately 66 percent of this fuel is used to power a combined heat and power generation (CHP) system. The remaining 34% is flared to the atmosphere through a waste gas burner. The energy flared is approximately 850 gasoline gallon equivalents per day. To more fully utilize the biogas, the MWMC considered various alternatives including upsizing the CHP system. However, that alternative was abandoned due to market factors that made the project financially unfeasible. Recent changes to national and state level renewable/low carbon fuel policies have made utilization of the biogas as vehicle fuel potentially more cost effective than power generation when the credits (aka environmental attributes) associated with the fuel are valued. Memo: RNG Upgrades Project (P80095) Update and Implementation Decision May 4 2018 Page 2 of 7 Following a formal Request for Proposals (RFP) process in early 2017, the MWMC selected Trillium CNG as the buyer/off-taker of RNG from the MWMC pending feasibility assessments and full implementation of an RNG Upgrades project to provide the needed equipment. Following another formal RFP process in early 2018, the MWMC contracted with Kennedy/Jenks Consultants to provide predesign and design consulting services for a Renewable Natural Gas (RNG) Upgrades project (P80095). The initial predesign phase of this contract provided three assessments (below) for Commission consideration in determining whether to move forward with full implementation: Fuel Policy Risk Assessment Updated and refined estimates of capital and O&M expenses (CAPEX and OMEX, respectively) Revised business case evaluation (BCE) scenarios Summaries of each assessment are discussed below. At the May 11 2018 Commission meeting, staff and consultant will provide a presentation highlighting the results and describing the findings in detail. DISCUSSION RNG can be produced by the MWMC by removing the carbon dioxide and impurities from the biogas leaving pure methane. The value of RNG used as vehicle fuel is largely due to credits available through state and federal governmental renewable fuel programs. These include: The federal Renewable Fuel Standard (RFS) The California Low Carbon Fuel Standard (LCFS) The Oregon Clean Fuel Standard (OCFS) In addition to the credits/environmental attributes, there is the commodity value of the gas itself, which currently is the smallest contributor to the overall value of the RNG. If the MWMC is successful in negotiating an interconnection agreement with NW Natural, NW Natural has indicated that they would purchase the commodity gas value at their “Delivered Cost”. The Delivered Cost is the commodity value plus the interstate transport fee they normally have to pay for natural gas transported to their grid through a privately owned and operated interstate pipeline. Federal rules allow RNG producers to combine Federal and State credits, but only one state’s credits can be stacked with the federal credit. Since the California LCFS credit is currently worth substantially more than the Oregon CFS credit, the MWMC would presumably sell its RNG into the CA market and reap the value of the LCFS credits. Under the Off-take agreement proposed by Trillium CNG, Trillium’s share of the federal and state credits would be 20 percent each, and Trillium would pass on the full commodity gas value to the MWMC. A summary of these components of the RNG value is provided in Table 1 below. Assuming the MWMC received the value shown in Table 1 in the lower right cell ($34.63/MMBTU) from Trillium CNG for sale of the RNG commodity and the associated environmental attributes, the annual revenue to the MWMC would be approximately $3 million 1. 1 Based on annual biogas production of 470,000 standard cubic feet (scf) per day with a lower heat value of 556 British thermal units (BTUs) per scf and overall process efficiency of 90 percent. Memo: RNG Upgrades Project (P80095) Update and Implementation Decision May 4 2018 Page 3 of 7 Table 1 – Summary of RNG Current Value Components RNG Component Current Value ($/MMBTU)(1) MWMC Portion ($/MMBTU) (1) Federal (RFS) $29.08 $23.26 California (LCFS) $8.76 $7.01 Commodity Gas (NW Natural) $4.30 $4.30 Total $42.14 $34.63 (1) An MMBTU is a unit of energy. One MMBTU = One million British thermal units Fuel Policy Risk Assessment The risks associated with the federal and state programs listed above were assessed and the associated findings are summarized below. The RFS 2: The RFS program has endured through three different presidential administrations and has remained essentially the same for over a decade. The program weathered both political and legal challenges, primarily from petroleum interests and their supporters in the US Legislature. Supporters of the program include agriculture companies and biofuels producers along with their supporters in the US Legislature. While both political and legal challenges will continue, the RFS program appears to be on solid footing. According to many experts in the field, at this point, the legal challenges to the RFS do not appear to be a serious threat. In addition, the legislative constraints on the EPA Administrator prevent unilateral changes to the annual amount of renewable fuels the oil refiners (Obligated Parties or Ops) must purchase. The Renewable Volume Obligations (RVOs) are set in the legislation through 2022, and modifications must first go through rigorous study and process before they can be adjusted. Especially important to MWMC is the fact that post-2022 will be set by statutory methodology. This likely means stability to the RFS program and the price for the RFS credits (Renewable Identification Numbers or RINs) over the long-term. Also important to note is that the prices of the category of credit for which the MWMC would qualify (D-3 RIN) has held their value through 2016 and 2017 even while ethanol credit (D-6 RIN) prices were volatile. The LCFS: The LCFS is aimed at lowering the overall carbon intensity of CA’s transportation fuel mix. Credits available to renewable fuel producers under this program are tied directly to estimated carbon reductions. Like the RFS, the LCFS program has successfully weathered repeal and legal challenges. The main source of legal challenge has been out of state biofuels (largely ethanol) and agricultural interests. These cases have largely only succeeded in stalling the program but ultimately have not succeeded in stopping the program. In fact, the program has expanded with Democratic supermajorities in both houses of the CA Legislature. Given this history, the probability of repeal of the LCFS program is considered to be low. For RNG sold into the CA market, the LCFS credits available make up a relatively moderate proportion of RNG value. Therefore, the impact of LCFS repeal on the project would likely be moderate. The OCFS: The OCFS in Oregon operates very similarly to the LCFS and has faced almost identical legal challenges. However, like the LCFS challenges, these challenges do not appear to be threatening to the 2 The RFS was enacted as part of the Clean Air Act in 2005 and has been in its current form since the 2007 revisions. Memo: RNG Upgrades Project (P80095) Update and Implementation Decision May 4 2018 Page 4 of 7 OCFS program. The value of the clean fuel credits offered under the OCFS is relatively low compared to either the RFS RINs or the LCFS credits. Like California, the OCFS enjoys a majority of support in both houses of Legislature. Therefore, the probability of legislative repeal is low. The potential impact of repeal to the project is lower than that of the LCSF due to the lower value of the credits available under the Oregon program. Table 2 summarizes the assessed risks associated with specific fuel policy potential events. Figure 1 illustrates the overall fuel policy risks resulting from the assessment performed by K/J. Table 2 – Fuel Policy Risk Summary Risk Event Description Level of Impact Probability of Occurrence Probability Explanation RFS repealed High Low Politics of the Senate make this extremely unlikely. RFS repealed after Year 5 Medium Medium-Low Politics of the Senate make this unlikely, but predicting the likelihood is more difficult further out in time. Significant lowering of RVO Medium Medium-Low Statutory constraints, strength of Mid-west Ag Senators, and potential legal action from farm, biofuels companies and trade organizations make this unlikely. Minor lowering of RVO Low Medium-Low This could happen, but the impacts would be low. LCSF repealed by CA Medium Low Super majority support in the legislature and extension of the program through 2030 make this very unlikely. OCFS repealed by OR Low Low Majority support in legislature makes this very unlikely. Figure 1 – Risk matrix illustrating fuel policy risk to RNG project A more detailed discussion of these programs is provided in Appendix 1 – TM No. 1 Executive Summary (Fuel Policy Risk Assessment). Memo: RNG Upgrades Project (P80095) Update and Implementation Decision May 4 2018 Page 5 of 7 Equipment screening and cost estimation: K/J was tasked with providing consulting assistance to screen various equipment and technology options for the removal of impurities from the biogas. These impurities (CO2, hydrogen sulfide, hydrocarbons, etc.) must be removed to produce RNG that can meet stringent NW Natural injection specifications. The MWMC’s existing biogas production was evaluated and additional samples were taken to better characterize the MWMC’s biogas. In addition, Wastewater Division staff visited four offsite locations with equipment similar to that under consideration by MWMC to observe the operation and maintenance practices associated with the equipment. K/J distilled the information into Requests for Information (RFIs) that were sent to a range of equipment vendors. The equipment vendors then submitted cost proposals on their products and technologies. From this, and with input from Eugene Wastewater Division staff, K/J was able to screen out unsatisfactory options and focus on the range of options most suitable to the MWMC’s facility and O&M objectives. Project lifecycle costs were then estimated based on this range of options. These are summarized in Table 3. Table 3 – Summary of lifecycle costs associated with suitable range of technologies Item Air Liquide Greenlane Guild Unison Average of 4 Facilities Equipment Capital $1,492,000 $3,098,900 $2,172,500 $2,070,000 $2,200,000 Annual O&M Costs $ 254,000 $ 147,000 $ 141,000 $ 578,000 $ 280,000 10-year NPV $2,912,000 $1,685,000 $1,616,000 $6,626,000 $3,210,000 Total $4,404,000 $4,783,900 $3,788,500 $8,696,000 $5,410,000 With the addition of estimated cost for civil and site improvements, equipment installation, planning, engineering/administration, legal services, and NWN infrastructure, the total capital cost came to $8,800,000 (in 2018 dollars), which includes 30% contingency. This represents an increase from the previous project cost estimate of $7,520,000. A more detailed discussion of technology screening is provided in Attachment 2 – TM 2 Executive Summary (Technology Screening and Cost) Business Case Evaluation Scenarios: K/J and sub-consultant BlueSource developed and evaluated potential scenarios using a two-step process. The first step used BlueSource’s analysis to develop low, medium, and high market price assumptions. The second step applied the capital and O&M costs, and the three market price scenarios, to the five potential program options, resulting in a total of 15 scenarios. The analysis then calculated the Net Present Value (NPV) for each scenario over the 10-year lifecycle. The 10-year NPVs of all 15 scenarios are illustrated in Figure 2 and the cash flow for each of the 15 scenarios is illustrated in Figure 3 Figures 2 and 3 provide three key takeaways: Referring to Figure 2, all of the cases where the NPV is negative are in the medium-low portion of the risk matrix described above. Moreover, the six bars with the lowest values all represent complete repeal of the RFS program, which is considered a low probability event. The scale of upside benefit is significant (blue bars on the right side of Figure 2) while the scale of downside risk is relatively modest. This is important because the positive NPV scenarios are generally considered significantly more likely to occur than the negative NPV scenarios. Referring to Figure 3 the average annual cash flow is positive in every case Memo: RNG Upgrades Project (P80095) Update and Implementation Decision May 4 2018 Page 6 of 7 Figure 2 – Summary of 15 NPV Scenarios Figure 3 – Cash Flow (Average Annual Revenues and Costs) A more detailed discussion of BCE scenarios is provided in Attachment 3 – TM 3 Executive Summary (Scenario Evaluation). Greenhouse Gas (GHG) Emissions Using 2017 Assessment: A GHG Assessment was performed in 2017 to compare the proposed RNG Upgrade project with the current practice of CHP plus flaring of waste biogas. The consultant Good Company performed these assessments. Two GHG accounting methods were used per recommendations of the GHG Protocol Program of the World Resources Institute. These were local based accounting and market-based accounting. Local-based accounting considers the average GHG emissions embodied in the electricity sold in the regional grid. In the MWMC’s case, this regional grid is the Northwest Power Pool electric region, which includes all of Oregon, Washington, Idaho, Utah, most of Montana, Nevada, Wyoming, and a small area of Northern California. By contrast, market-based accounting considers the contracted sources of power that the organization’s specific power consumption reflects. In our case, this is reflected by EWEB’s power purchase contracts (mostly hydro-power from Bonneville Power Memo: RNG Upgrades Project (P80095) Update and Implementation Decision May 4 2018 Page 7 of 7 Administration) and its power generation capacity which is largely hydro, biomass wind power, some natural gas and small amounts of third-party-owned solar. The two methods produce different results. However, in both cases the proposed RNG project would reduce overall GHG emissions compared to the current practice of CHP plus flaring. Table 4 summarizes the GHG emissions assessment. Table 4 – 2017 Good Company GHG Emissions Assessment Alternative Annual GHG Emissions (metric tons CO2 equivalents) Location based accounting Market based accounting Baseline (CHP Plus Flaring Waste Biogas) 6,682 7,540 RNG Upgrades Project 4,415 11 Annual GHG reduction with RNG Upgrades 2,267 7,529 RECOMMENDATIONS Staff and K/J conclude that the legislative and administrative risks to the RFS, LCFS and OCFS are in the medium-low area (See Figure 1). That is not to say there is no risk, but that given what we know all three programs appear secure for the foreseeable future. The economic analysis shows that the most likely scenarios result in significant benefit to MWMC. Additionally, the GHG assessment indicates a substantial net reduction in GHG emissions if the project is fully implemented. Given the magnitude of the benefit relative to the potential cost, and considering that every scenario is expected to create a positive net cash flow to operations, it is recommended that the RNG Upgrade project be fully implemented contingent upon reaching acceptable agreements with NW Natural and Trillium. ACTION REQUESTED Staff requests Commission direction on whether to fully implement the project. ATTACHMENTS: 1. TM 1 Executive Summary – Fuel Policy Risk Assessment 2. TM 2 Executive Summary – Technology Screening and Cost 3. TM 3 Executive Summary – Scenario Analysis TM 1 Governmental Fuel Policy and Qualitative Risk Assessment, MWMC RNG Upgrades Exec Summary - 1 Executive Summary This Technical Memorandum provides the program description and legislative history of the three relevant governmental fuel policies, as well as the recent politics surrounding each of these policies: 1. Federal Renewable Fuels Standard (RFS) 2. California Low Carbon Fuel Standard (LCFS) 3. Oregon Clean Fuels Standard (OCFS) The registration and reporting requirements for each program are explained in detail in the full report. Federal RFS Legislative Risk Assessment The RFS was enacted as part of the Clean Air Act in 2005 and has been in its current form since the 2007 revisions. The program has survived through three different administrations and has remained essentially the same for over a decade. The RFS program has withstood the test of time and has weathered both political and legal challenges. While both political and legal challenges will continue, the RFS program appears to be on solid footing. According to many experts in the field, at this point, the legal challenges to the RFS do not appear to be a serious threat. The political survival of the RFS program over the past six months is a testament to the robustness of the program. In fact, the most recent political attempt to significantly modify the RFS program has been repelled. The history of the RFS has been a battle between Big-Ag and Big-Oil. The latest battle between Mid-west Ag senators and the EPA Administrator, who manages the program, resulted in the EPA Administrator sending a letter in October 2017 to Iowa Senators stating there would not be any further attempts to revise the RFS. As long as the Midwest agricultural states have powerful Senators on both sides of the aisle the RFS will likely remain stable. 2017 and 2018 can be looked at as a political stress test for the RFS program, and the program passed the test. In addition, the legislative constraints on the EPA Administrator prevent unilateral changes to the annual amount of renewable fuels the oil refiners (Obligated Parties or Ops) must purchase. The Renewable Volume Obligations (RVOs) are set in the legislation through 2022, and modifications must first go through rigorous study and process before they can be adjusted. Especially important to MWMC is the fact that post-2022 will be set by statutory methodology. This likely means stability to the RFS program and the price for the RFS credits (Renewable Identification Numbers or RINs) over the long-term. Also important to note is that the D-3 RIN prices have held their value through 2016 and 2017 even while D-6 RIN prices were volatile. Significantly, biofuel projects continue to get quite a bit of investor attention. For example, British Petroleum (BP) recently purchased Clean Energy, the nation’s largest biogas company with 550 fueling stations, for $155 million (Trillium by example has about 150 facilities and 65 fueling stations nationwide). As well, Trillium continues to be interested if not eager to pursue an RNG project with the MWMC. We conclude that the legislative/political risk to the RFS is in the Medium-Low category. ATTACHMENT 1, Page 1 of 5 TM 1 Governmental Fuel Policy and Qualitative Risk Assessment, MWMC RNG Upgrades Exec Summary - 2 California LCFS Legislative Risk Assessment While the lawsuits appear to continue, many have been resolved, and the remaining ones present a modest risk to the LCFS program. The fact that the California Air Resources Board (ARB) recently re-adopted the LCFS program to address many of the legal issues brought up in previous lawsuits should bolster one’s confidence in the program. As well, the price of LCFS credits has remained relatively stable above $80 for the last 2 years, and is currently on a big upswing, which should show confidence on the part of the program participants in the durability of the program. Most importantly, the fact that the California Legislature recently demonstrated overwhelming political support with its two-thirds majority vote to extend the LCFS to 2030 shows significant political willingness to fix future problems should they arise. The LCFS program appears to be on solid legislative footing, and we put the risk in the Medium- Low category. Oregon CFS Legislative Risk Assessment The legal risk to the OCFS appears to be modest. Federal Judge Anne Aikens’ recent ruling in favor of the program put the OCFS on solid legal footing. Equally as important, the 2017 Oregon Legislative compromise that added a price cap and thwarted efforts to eliminate the program should provide for some political stability in the years to come. Credit trading is strong and growing within the program, credit prices have been stable for the last year-and-a-half at around $50, and prices have seen a recent upswing. Our conclusion is that the OCFS program is also on strong legal and legislative footing, and we put the risk in the Medium-Low category. Legislative Risk Matrix To help show the qualitative legislative risk assessment for the three programs a risk matrix was developed. This classic tool shows the level of risk going from low (green) in the lower left corner, to high (red) in the upper right corner. The impact of an event occurring to the program is plotted on the Y-axis with high impact on the top and low impact being on the bottom of the matrix. The probability of an event occurring to the program is plotted on the X-axis with low probability to the left and high probability to the right on the matrix. An assessment that a program has a high probability of being eliminated or repealed, resulting in a high impact to the MWMC’s RNG Upgrade project would put the risk assessment in the upper right portion of the matrix (the red zone). An assessment that the program has a low probability of being eliminated or repealed resulting in a low impact to the MWMC’s RNG Upgrade project would put the risk assessment in the lower left portion of the matrix (the green zone). While the risks for all three programs are in the Medium-Low category, to represent the risk of these programs as a single point on the graph would belie the complicated nature of these programs’ circumstance, therefore the potential risks associated with particular events are shown as ovals rather than points. The overall risk to the potential MWMC program is shown as the region between the red lines. The risks associated with the repeal of the LCFS and OCFS programs is lower that the risk associated with the RFS program, so they are plotted below the RFS repeal events. The table below shows representative risk events and their expected impact and probability of occurrence. ATTACHMENT 1, Page 2 of 5 TM 1 Governmental Fuel Policy and Qualitative Risk Assessment, MWMC RNG Upgrades Exec Summary - 3 Table ES-1: Risk Events, Level of Impact, and Probability of Occurrence Risk Event Description Level of Impact Probability of Occurrence Probability Explanation RFS repealed High Low Politics of the Senate make this extremely unlikely. RFS repealed after Year 5 Medium Medium-Low Politics of the Senate make this unlikely, but predicting the likelihood is more difficult the farther out in time. Significant lowering of RVO Medium Medium-Low Statutory constraints, strength of Mid-west Ag Senators, and potential legal action from farm, biofuels companies and trade organizations make this unlikely. Minor lowering of RVO Low Medium-Low This could happen, but the impacts would be low. LCSF repealed by CA Medium Low Super majority support in the legislature and extension of the program through 2030 make this very unlikely. OCFS repealed by OR Low Low Majority support in legislature makes this very unlikely. These risk events along with their level of impact and probability of occurrence are plotted on the figure below – the Risk Matrix. ATTACHMENT 1, Page 3 of 5 TM 1 Governmental Fuel Policy and Qualitative Risk Assessment, MWMC RNG Upgrades Exec Summary - 4 Figure ES-1: Legislative Risk Matrix The legislative risks for all three of these programs are deemed acceptable, and we would recommend moving forward with development of the project should the Scenario Analysis indicate that there is sufficient revenue to cover the costs, and that the net present value of the project and resulting rate of return on the MWMC’s investment are acceptable to the Commission. Price Risk Assessment and Forecast The credits from the RFS are called RINs, the credits from the LCFS are called LCFS Credits, and the credits from the OCFS are called OCFS Credits. MWMC can claim either the LCFS or the OCFS along with RINs, but not both (i.e., MWMC can claim RINs plus LCFS or RINs plus OCFS). The RIN Credit Forecast Model used in this analysis is discussed in detail in the full report. Low, Medium and High credit forecasts for the RINs, LCFS, and OCFS were developed using this model. These three credit forecasts will be used in the next step of the analysis, the Scenario Analysis, to calculate the cost-effectiveness of the MWMC RNG Upgrades project under different scenarios. The most likely and the most beneficial scenarios are the RINs plus the HIGHMEDIUMLOWLOW MEDIUM HIGH PROBABILITYIMPACTRFS repeal after Year 5 Minor lowering of RVO LCFS repealed CFS repealed Regionof overall risk to program Significant lowering of RVO RFS repeal before project start ATTACHMENT 1, Page 4 of 5 TM 1 Governmental Fuel Policy and Qualitative Risk Assessment, MWMC RNG Upgrades Exec Summary - 5 LCFS scenarios, because the LCFS credit value is greater than the OCFS credit value, most recently $137 and $58, respectively. The figure below shows the expected annual credits, or total value, the MWMC will receive under the Low, Medium, and High credit forecasts for the most likely scenario of RINs plus LCFS. Figure ES-2: RIN plus LCFS Scenario – Total Credits Revenue Forecast $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029Annual Total Revenue to MWMCLow Medium High ATTACHMENT 1, Page 5 of 5 Technical Memorandum 2 – Biogas Upgrading Technology Screening Evaluation TM 2 Biogas Upgrading Technology Screening Evaluation, MWMC RNG Upgrades Exec Summary - 1 Executive Summary ‐ Existing Facilities Review ATTACHMENT 2, Page 1 of 7 TM 2 Biogas Upgrading Technology Screening Evaluation, MWMC RNG Upgrades Exec Summary - 2 Design Criteria Gas Quality ATTACHMENT 2, Page 2 of 7 TM 2 Biogas Upgrading Technology Screening Evaluation, MWMC RNG Upgrades Exec Summary - 3 Gas Quantity Proposed Facility Requirements Biogas Treatment Technology Alternatives ATTACHMENT 2, Page 3 of 7 TM 2 Biogas Upgrading Technology Screening Evaluation, MWMC RNG Upgrades Exec Summary - 4 Figure ES-1: Conceptual Siting of Biogas Upgrading Facility at WPCF ATTACHMENT 2, Page 4 of 7 TM 2 Biogas Upgrading Technology Screening Evaluation, MWMC RNG Upgrades Exec Summary - 5 Adsorption: Pressure Swing Adsorption (PSA) and Vacuum Swing Adsorption (VSA) to Absorption: Pressurized water scrubbing, physical absorption, and chemical absorption (using amines) ‐ Membrane separation: high pressure and low pressure Cryogenic upgrading and physical solvent scrubbing Biogas Treatment Technology Screening ATTACHMENT 2, Page 5 of 7 TM 2 Biogas Upgrading Technology Screening Evaluation, MWMC RNG Upgrades Exec Summary - 6 Air Liquide DMT Clean Methane Systems Greenlane Biogas Guild Associates Puregas Wartsila Unison Solutions Table ES-1: Lifecycle Cost Summary Item Air Liquide DMT Clean Methane Greenlane Guild Unison Total $4,404,000 $7,784,400 $4,783,900 $3,788,500 $8,696,000 ATTACHMENT 2, Page 6 of 7 TM 2 Biogas Upgrading Technology Screening Evaluation, MWMC RNG Upgrades Exec Summary - 7 Conclusion and Recommendation Table ES-2: Equipment and O&M Costs for Scenario Analysis (TM 3) Item Air Liquide Greenlane Guild Unison Average of 4 Facilities Total $4,404,000 $4,783,900 $3,788,500 $8,696,000 $5,410,000 ATTACHMENT 2, Page 7 of 7 Technical Memorandum 3 – Scenario Analysis TM 3 Scenario Analysis, MWMC RNG Upgrades Exec Summary - 1 Executive Summary The Metropolitan Wastewater Management Commission (MWMC) is interested in making a final decision on a renewable natural gas (RNG) upgrade facility and pipeline at its regional Water Pollution Control Facility (WPCF). The goal of this Technical Memorandum (TM) is to analyze the economic outcomes from a range of possible scenarios so that the MWMC can make a final Go/No-Go decision on the RNG Upgrade project. To accomplish this, we used the credit price forecasts developed in TM 1 and the capital cost and operations and maintenance (O&M) costs developed in TM 2 as inputs into Kennedy/Jenks’ “WTE Model” to determine the cost- effectiveness of various scenarios. Scenarios The scenarios in this analysis reflect the five possible combinations of the available RNG credits from governmental fuel policy programs, including: 1. Federal Renewable Fuels Standard – Renewable Identification Number (RIN) only 2. California Low Carbon Fuel Standard – LCFS only 3. Oregon Clean Fuels Program – CFS only 4. RIN plus LCFS 5. RIN plus CFS Each combination is further combined with the three credit price forecasts (low, medium, and high) to form 15 possible scenarios to analyze: 1. RIN only – Low 2. RIN only – Med 3. RIN only – High 4. LCFS only – Low 5. LCFS only – Med 6. LCFS only – High 7. CFS only – Low 8. CFS only – Med 9. CFS only – High 10. RIN+LCFS – Low 11. RIN+LCFS – Med 12. RIN+LCFS – High 13. RIN+CFS – Low 14. RIN+CFS – Med 15. RIN+CFS – High These scenarios represent the bookends of this economic analysis, and while there are possible outcomes that exceed the high forecast and go below the low forecast, these represent the vast majority of the reasonably expected possible outcomes. A lifecycle financial analysis was done for each scenario. 10 years, rather than 20 years, was chosen for the analysis period because of the increased uncertainty of the credit revenue and O&M costs after 10 years. ATTACHEMENT 3, Page 1 of 5 TM 3 Scenario Analysis, MWMC RNG Upgrades Exec Summary - 2 Key Assumptions There are four key assumptions in this scenario analysis: 1. Capital Cost: Total is $8.8 million. (Biogas equipment cost is based on the average of the four “plant tour” vendors = $2.2 million noted in TM 2. NW Natural pipeline and point of receipt equipment = $1.7 million. Balance of the plant, engineering, and installation = $3.7 million. Contingency = $1.2 million.) The analysis assumes the available capital reserve would be used to fund this project and no bonds would be issued, thus there is no debt service or interest expense included in the analysis. 2. O&M Cost: Annual O&M cost starts at $280,000 per year and escalates with inflation at 2.3%. (O&M cost is based on the average of the four “plant tour” vendors from TM 2.) 3. Cost of Digester Heat: Annual cost is $186,000. (Annual digester heat cost is based on the lower of either the use of the boiler fueled with natural gas, or using the heat from the Jenbacher engine and selling the electricity generated to EWEB. Running the boiler to create digester heat has a slightly lower cost.) 4. Expected Credit Revenue: The credit level 10-year price forecasts from TM 1 (low, medium, and high) was used for this analysis. Results Metric The Net Present Value (NPV) is the most common financial evaluation tool used in capital budgeting to analyze the profitability of an investment or project. It takes into account all costs and benefits of the project over its life – it is a lifecycle cost analysis. NPV, or “net present worth,” in this case is an indicator of how much value an investment or project adds to the MWMC. NPV analysis compares the value of a dollar today to the value of the same dollar in the future, taking inflation and financial returns into account. Another way to look at the NPV is that the MWMC should be indifferent to accepting the 10-year cash flow and savings from a project, or accepting a lump sum current year amount of cash (the NPV). In general, if the NPV is positive it should be considered for implementation. This analysis calculated the NPV for each of the 15 scenarios. The NPV was calculated using the annual net revenue or cost over the 10-year analysis period. Annual net revenue or cost is calculated by subtracting the annual credit revenue from the annual O&M cost. Results The figure below shows the NPV of each of the scenarios, ranked from the worst financial scenario on the left to the best financial scenario on the right. The scenarios with the blue bars above the zero line indicate scenarios with a positive NPV or net benefit to the MWMC, and the red bars below the zero line indicate scenarios with a net cost to the MWMC. There are seven scenarios with a positive NPV and eight with a negative NPV. ATTACHEMENT 3, Page 2 of 5 TM 3 Scenario Analysis, MWMC RNG Upgrades Exec Summary - 3 Figure ES-1: NPV of Net Savings/Cost of Each Scenario It should be noted that not all of these scenarios have the same probability of occurring. All the red bar (negative NPV) scenarios are considered to have a low probability of occurring while the blue bars (positive NPV) are much more likely to occur. The Medium scenarios (Med) cases are more likely to occur than the Low or High scenarios. The figure below shows the NPV for only the Medium cases for each of the five credit scenario combinations. Figure ES-2: NPV of the Medium Case Scenarios ($10,000,000) ($5,000,000) $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 Net Present Value ($) $7,587,000 $4,313,000 $14,592,000 $15,875,000 $21,035,000 ($10,000,000) ($5,000,000) $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 CFS only LCFS only RIN+CFS RIN only RIN+LCFSNet Present Value ($) ATTACHEMENT 3, Page 3 of 5 TM 3 Scenario Analysis, MWMC RNG Upgrades Exec Summary - 4 There are three key takeaways from this analysis. First is the recognition that the availability of RINs is important to making this project cost-effective. In almost every case where RINs are available the project has a positive NPV, and these cases are considered to be most likely to occur. The cases that have a negative NPV, except for the “RINs only – Low” case, are because the RINs are not available, and all these cases are considered to have a low probability of occurring. All of these cases are in the Medium-Low portion of the risk matrix described in TM 1. Second is that the upside benefit is significant, while the downside cost is relatively modest. The NPV range of all scenarios is from $24.4 million to -$8.6 million. The upside benefit is three times that of the downside cost. Looking at only the Medium case scenarios the NPV range is $21.0 million to -$7.6 million. This is important because the upside benefit scenarios are considered significantly more likely to occur than the downside cost scenarios. From an MWMC customer rate perspective (where $320,000 equals 1% of the rate base) using the net annual savings for the Medium case scenarios represent a range of 0% to 11% potential positive annual rate impact. Again, the scenarios that include RINs are considered the most likely to occur, meaning the positive cash flow from these scenarios could substantially mitigate future MW MC rate increase. Third is that the average annual cash flow is positive in every case. The figure below shows the expected average annual revenues from the credits (the blue bars) and the O&M costs (the red line) for each scenario. The annual cash flow from the project, not including the cash paid out for the capital cost of the project, is the revenue minus the costs. For each scenario the MWMC would, on average over the 10-year analysis period, see a positive cash flow. This would mean that every scenario would create a net benefit and that could reduce overall operating cost. Figure ES-3: Cash Flow (Average Annual Revenues and Costs) $0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 $5,000,000 Annual Revenue & Cost ($/Yr) Avg Annual Revenue ($/Yr)Avg Annual Costs ($/Yr) ATTACHEMENT 3, Page 4 of 5 TM 3 Scenario Analysis, MWMC RNG Upgrades Exec Summary - 5 Conclusion and Recommendation Kennedy/Jenks’ conclusion is that the legislative risk of the credit programs (RFS, LCFS and CFS) being eliminated or substantially reduced is medium-low. That is not to say there is no risk. Given all that we know, all three programs appear secure for the foreseeable future. The economic analysis shows that the most likely scenarios result in significant benefit to the MWMC. Given the magnitude of the benefit relative to the potential cost, and that every scenario creates a positive net cash flow to operations, we recommend that the RNG Upgrade project proceed to development contingent upon reaching acceptable agreements with NW Natural and Trillium. ATTACHEMENT 3, Page 5 of 5 ______________________________________________________________________________ M E M O R A N D U M DATE: May 3, 2018 TO: Metropolitan Wastewater Management Commission (MWMC) FROM: Katherine Bishop, Environmental Services Program Manager SUBJECT: MWMC Financial Plan Reserves #3 ACTION REQUESTED: Consider proposed minor revisions to the reserve policy language ISSUE Based on earlier discussions regarding the 2005 MWMC Financial Plan, including input from the Commission specific to the reserve policies under F5 on page 12 of the Financial Plan, staff is proposing minor revisions to the reserve policy language to update key components of the financial policies. BACKGROUND At the December 8, 2017 meeting, staff and the MWMC began discussions on the reserve policies, including a review of the financial administration of the Regional Wastewater Program as directed toward achieving the objectives as required by Section 3.f. of the MWMC Intergovernmental Agreement (IGA). In summary, the financial administration objectives include: 1. Establishing revenue adequacy to provide for long-term health and stability of the regional sewerage facilities through a program of monthly sewer user charges, and system development charges that are imposed uniformly throughout the service area to achieve full cost recovery 2. Fully funding a program of capital improvements to address capacity, regulatory, and efficiency/effectiveness needs 3. Ensuring equity between newly connected and previously connected users for their total contributions toward regional sewerage facilities 4. Ensuring equity among various classes of users based on the volume, strength, and flow rate characteristics of their discharges together with any other relevant factors 5. Ensuring efficient and cost-effective financial administration of the regional sewerage facilities Memo: MWMC Financial Plan Reserves #3 May 3, 2018 Page 2 of 3 6. Complying with applicable laws and regulations including those governing the establishment of user charges and the establishment of system development charges At the December meeting, staff and the MWMC reviewed the reserve policies located on page 12 of the MWMC Financial Plan including: F5a) Working Capital Reserve; F5c) Equipment Replacement Reserve; and F5j) adding an Insurance Liability Reserve policy. At the February 9, 2018 meeting, staff provided a chart displaying the flow of regional wastewater funds, including: (1) sources of funding for reserve funds, (2) individual reserve funds by type, and (3) how each of the funds and reserves relate to their intended purpose. The presentation in February displayed the fiscal year 2017-18 cash reserves in total and per each reserve fund. On December 31, 2017, combined total reserve funds were about $87.7 million, with 85% representing the Capital Reserve, Equipment Replacement Reserve and the Operating Reserve combined. Projecting forward to June 30, 2018 or end-of-year, the combined total would be about $65 million, based on conservative cash flow estimates. DISCUSSION Based on discussions and input from the Commission, staff is proposing revisions to reserve policy language in the 2005 Financial Plan on page 1, plus the proposed addition of an Insurance Liability Reserve policy. Revisions are outlined below, with underline representing additions and strikethrough representing deletions: F5A) The Working Capital Reserve shall be sufficient to fulfill operating and capital cash flow needs. The Working Capital Reserve has been set at a minimum of $200,000 for the City of Springfield and at $500,000 $700,000 for the City of Eugene for many years. The reserves are sized to provide the cities with cash to pay expense until the sewer user fees are received. The size of the reserve is reviewed annually and may be adjusted as needed to ensure that it is sufficient and that neither city experiences negative cash flow. F5b) The Operating Reserve shall be maintained to minimize the impact of unanticipated revenue shortfalls. In the operating budget, the guideline for establishing the Operating Reserve when preparing annual budgets is 8%-10% a minimum of two months of the annual operating expenditure budget. F5c) The Capital Reserve accumulates revenue to help fund capital projects (including major rehabilitation). The Capital Reserve is funded by annual contributions from user rates and is used to fund capital projects as determined through the annual budget process. In no year shall the Capital Reserve be allowed to fall below $1 million $3 million in the adopted budget. F5d) The Equipment Replacement Reserve is intended to accumulate funds necessary to provide for the timely replacement or rehabilitation of equipment, and may also be borrowed against to provide short-term financing of capital improvements. An annual analysis is performed on the Equipment Replacement Reserve. The annual contribution is set so that all projected replacements will be Memo: MWMC Financial Plan Reserves #3 May 3, 2018 Page 3 of 3 funded over a 20 year 10 year period and at the end of the 20 year 10 year period, the reserve will contain replacement funds for all equipment projected to be in use at that time. Estimates used in the analysis include interest earnings, inflation rates and useful lives for the equipment. F5j) The Insurance Liability Reserve is intended to accumulate funds necessary to provide for payments of the retained amount (deductible) of any insured loss and payments for losses that are either uninsured or uninsurable. The MWMC maintains liability and property insurance coverage including flood, earthquake, and all other perils. The Insurance Liability Reserve is set at a minimum of $1,500,000 in the adopted budget. ACTION REQUESTED Consider the proposed revisions to reserve policy language, including the Insurance Liability Reserve addition, and provide staff with direction to accept or amend proposed policy language. ATTACHMENT: 1. 2005 Financial Plan – Policy F5 Reserves • • • Policy F3 The Commission will monitor revenues and expenditures, and maintain a balanced budget through 'an appropriate combination of cost-saving measures, budget transfers, supplemental budgets and/or user rate adjustments as needed .. Policy F4 The Commission shall maintain a capital planning and financing system for use in preparing a multi-year CIP for consideration and adoption by MWMC and ratification by the partner agencies' governing bodies as a part of the Commission's budget process. This system shall include preparation of a rolling CIP (described in Policy C 1) and a Capital Financing Plan (CFP). Discussion -Each year, staff shall update its CFP based on the multi-year CIP and assumptions and projections related to increased operational requirements, inflation, and other cost factors. The CFP will support staff's analysis and development of revenue requirements, budgeted expenditures, and user charges. The CFP shall contain a ten-year projection of revenue requirements from all revenue sources, and resulting user rates needed to fund operating budgets, capital budgets, and debt service. Policy FS The Commission shall establish and maintain prudent minimum cash reserves, including, but not limited to Contingency Reserves and the reserves discussed below, as needed. F5a) The Working Capital Reserve shall be sufficient to fulfill operating and capital cash flow needs. The Working Capital Reserve has been set at $200,000 for the City of Springfield and at $500,000 for the City of Eugene for many years. The reserves are sized to provide the cities with cash to pay expenses until the sewer user fees are received. The size of the reserve is revi ewed annually and may be adjusted as needed to ensure that it is sufficient and that neither city experiences negative cash flow. F5b) The Operating Reserve shall be maintained to minimize the impact of unanticipated revenue shortfalls. In the operating budget, the guideline for establishing the Operating Reserve when preparing annual budgets is 8% -1 0% of the operating expenditure budget F5c) The Capital Reserve accumulates revenue to help fund capital projects (including major rehabilitation). The Capital Reserve is funded by annual contributions from user rates and is used to fund capital projects as determined through the annual budget process. In no year shall the Capital Reserve be allowed to fall below $1 million in the adopted budget. F5d) The Equipment Replacement Reserve is intended to accumulate funds necessary to provide for the timely replacement or rehabilitation of equipment, and may also be borrowed against to provide short-term financing of capital improvements. An annual · analysis is performed on the Equipment Replacement Reserve. The annual contribution is set so that all projected replacements will be funded over a 20-year period and at the end of the 20 year period, the reserve will contain replacement funds for all equipment projected to be in use at that time. Estimates used in the analysis include interest earnings, inflation rates and useful li ves for the equipment. F5e) A Rate Stability Reserve shall be maintained as necessary to protect ratepayers from volatility in user rates and to enhance credit-worthiness. The intent of a Rate Stability Reserve is to set aside funds to provide stable rates over a period of years. 2005 MWMC Financial Plan Page 12 ATTACHMENT 1 Page 1 of 2 • • • Establishing user rates with an anticipated contribution to the Rate Stability Reserve smoothes out the financial impact of required rate increases on customers over time, and ·hedges against potential rate spikes when assumptions about the future prove to be incorrect. Revenue is allocated to the Rate Stability Reserve only after budgeted Operating Reserve and Capital Reserve transfer targets are met F5f) The Reimbursement SDC Reserve accumulates revenues derived from the "reimbursement fee" component of SDCs charged to new development along with accrued interest. Expenditures of these funds are limited to support capital projects and debt service payments in accordance with ORS 223.311. F5g) Improvement SDC Reserve accumulates revenues derived from the "improvement fee" component of SDCs charged to new development along with accrued interest. Expenditures of these funds are limited to support capacity enhancement capital projects and debt service payments in accordance with ORS 223.311. F5h) A Bond Reserve shall be sufficient to provide assurances to bond holders that adequate revenue coverage will be provided for future debt service paTIOents. F5i) The Rate Stabilization Reserve contains funds to be used at any point in the future .when the net revenues are insufficient to meet the bond covenant coverage requirement. The Commission shall maintain the Rate Stabilization account as long as bonds are outstanding. Money in the Rate Stabilization account may be withdrawn at any time and used for any purpose for which gross revenues may be used. Earnings on the Rate Stabilization Account shall be credited to the sewer fund . Discussion -Each reserve has specific sources and uses, and the order in which the reserves are accessed to meet operating and capital needs follows: In the operating budget, in the event of a revenue shortfall, funds will first be transferred from the Rate Stability Reserve. If additional funds are necessary, the Operating Reserve will then be used. If additional funds are still needed, the budgeted transfer from the Operating Fund to the Capital Reserve will be reduced. Funding for capital projects will come from a combination of SDC reserves, Capital reserves, and debt financing. During each year's budget process, staff will consider reserve levels, reporting requirements, arbitrage considerations and debt issuance costs associated with borrowed funds and cash flow needs and determine the specific funding source for each project in the budget. Policy F6 MWMC funds are dedicated for the exclusive benefit of the RWP including operating expenses, debt service payments, and the associated capital program. Investment of Liqu id Assets The liqwd assets of the Metropolitan Wastewater Management Commission (MWMC) are managed by the City of Springfield, in the City's capacity as the MWMC's administrative agency. 2005 MWMC Financial Plan Page 13 ATTACHMENT 1 Page 2 of 2