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HomeMy WebLinkAbout9B SMSC Cooperative Water Agreement Report Phone 952.447.9800 / Fax 952.447.4245 / www.cityofpriorlake.com 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: NOVEMBER 20, 2017 AGENDA #: 9B PREPARED BY: FRANK BOYLES, CITY MANAGER JASON WEDEL, PUBLIC WORKS DIRECTOR/CITY ENGINEER CATHY ERICKSON, FINANCE DIRECTOR SARAH SCHWARZHOFF, CITY ATTORNEY PRESENTED BY: JASON WEDEL, CATHY ERICKSON AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION APPROVING A WATER PURCHASE AND FACILITY EXPANSION AGREEMENT BETWEEN THE CITY OF PRIOR LAKE AND THE SMSC DISCUSSION: Introduction The purpose of this agenda item is to have the City Council consider approval of a Water Purchase and Facility Expansion Agreement which has been approved by the Shakopee Mdewakanton Sioux Community (SMSC). History The City has long-term water supply needs that include the need for additional water sources, treatment and storage. As the City is reaching its capacity with the existing facilities, an evaluation was completed to review the future demands and timing of critical infrastructure to ensure these needs can be met. There are currently seven wells that provide the water supply for the City of Prior Lake. Of the seven wells, six of them are pumped to the City’s water treatment plant where iron and manganese are removed before being distributed. Well No. 6 is not connected to the City’s treatment plant and is only used in extreme water demand situations. In 2010 the demands in the system indicated a need for additional water and the City considered the construction of another supply well to feed the water treatment plant. Before the well was drilled, various other options were considered including entering into a partnership with the Shakopee Mdewakanton Sioux Community (SMSC). Ultimately it was found to be more cost effective to move forward with a water purchase agreement with the SMSC. The current agreement allows the City to purchase up to 1.2 Million Gallons per Day (MGD) and has allowed the City to postpone the construction of another well at an estimated cost of $1 million. Since this agreement was approved, we have purchased water from the SMSC every month to meet city needs. 2 As the City continues to grow and as development occurs in the Orderly Annexation Area (OAA) it has always been envisioned that additional facilities would be required on the west side of the City near Spring Lake Park. Similarly, the SMSC also has a long term need for additional facilities in the same general location to support their future development. It is therefore logical for the two communities to work together on a joint facility. Cooperative approaches such as this are supported by the Metropolitan Council and Department of Natural Resources. Current Circumstances As the City began to look to provide for the future needs, an opportunity arose to expand on the existing partnership with the SMSC. The SMSC has a need to replace and expand their aging treatment systems and is in the process of constructing a new facility south of CR82 near Spring Lake Park. The SMSC intends to have this new plant online by mid-2019. The two entities undertook a study in 2016 to evaluate the future needs of the two communities and consider options to provide for those needs. The results of this study were provided to the City Council at a work session on June 27, 2016. The study considered the options of having each entity construct and operate separate facilities or partnering on a joint facility. Due to redundancies that must be designed into these types of facilities, there is significant cost savings with a joint facility for both the city and SMSC. The joint facility will include iron and manganese removal for both entities, reverse osmosis for the SMSC and ground storage. Initially the WTP can be supplied by the three existing wells the SMSC owns and Well # 6 for the City. Each entity will be responsible for extending watermain from their well(s) to the WTP. Since 2016, the 2040 Vision and Strategic Plan has contained the following objective, “Community Assets”: “Enter into cooperative agreement with the SMSC to construct a joint water treatment plant to save capital dollars and provide domestic water for the city and SMSC growth areas.” On July 11, 2016 the council adopted a resolution (attached) formally supporting the development of a collaborative water supply arrangement and authorized staff to begin the initial steps of negotiating an agreement. The agreement would be for the construction of the new WTP that would be capable of supplying the SMSC with 2.46 MGD and supplying the City of Prior Lake with 2.1MGD. Since then City staff has re-evaluated the City’s water needs as well as updated the City’s population growth projections. Based on that review, it was determined that the construction of the City’s portion of the WTP could be delayed for up to 15-years. However, with construction of the SMSC’s portion of the WTP already underway it was determined to be more cost effective to complete the excavation and construct the two in-ground filter 3 cells that will be needed in the future for the City’s portion of the WTP now with the current construction. When the new SMSC WTP is completed and operational it will be connected to both the SMSC’s existing water system as well as the City of Prior Lake’s water system. They will all be interconnected. As such, it was suggested by the SMSC that a new agreement be put in place that addresses both the water purchase agreement as well as the future expansion of the new WTP. The new agreement therefore addresses the long-term water purchase agreement between the SMSC and the City of Prior Lake, the cost participation of the City of Prior Lake for the construction of the two filter cells as part of the current construction, and provides for the construction of the WTP expansion in the future when the City of Prior Lake deems it necessary. Some of the key provisions included in the agreement are as follows: 1. It increases the amount of water the City can purchase from 1.2MGD to 2.2MGD once the new WTP is operational in 2019. The SMSC can gradually decrease the amount of water they sell the City as their needs increase over time; however, the minimum amount that will be available for city purchase will never be less than 1.5MGD. 2. There is no minimum amount of water that is required to be purchased by the City. The current agreement requires that the City purchase at least 0.5MGD. The City will work with the SMSC to purchase enough water to not create unnecessary hardship with the operations of the SMSC’s water system. 3. The purchase price of the water from the SMSC is increasing from the current rate of $1.10 per 1,000 gallons to $1.54 per 1,000 gallons upon execution of this agreement. On full financial analysis, the SMSC was not charging Prior Lake the associated capital costs for water when they calculated the initial rate. This change in rate addresses that shortcoming. Their actual cost is $1.90 per 1,000 gallons. However, rather than increase the rate from $1.10 to $1.90 immediately they have agreed to moderate the increase to $1.54 now and increase to $1.90 on July 1, 2019. They will hold the $1.90 price through the end of 2021. After that the price will be adjusted based on the actual cost of operations. An exhibit is included in the agreement which sets the manner and the components of the water cost calculation so all parties are fully apprised. For reference, it currently costs the City approximately $2.40 per 1,000 to provide treated water to our residents. 4. The City will extend watermain from Well No. 6 to the new WTP. The cost estimate for this is $1,000,000 and is included in the CIP for 2019. 5. The cost of the filter cells currently being constructed for the City’s future expansion of the WTP is capped at $2,500,000. Based on current estimates it should be closer to $2,200,000. 4 6. There are several protections included in the agreement for the City. First, there is an escrow of $250,000 if there is a default by the SMSC under this agreement. Second, the SMSC provided a limited waiver of sovereign immunity. Conclusion Considering the options, it is most cost effective to move forward with an agreement with the SMSC for the purchase of water and for the future expansion of the new WTP as the City’s water needs necessitate. This approach provides the City with the flexibility to evaluate the pace and timing of development in the Orderly Annexation Area before a substantial investment is needed to construct the expansion of the WTP. These initial improvements combined with the long-term water purchase agreement could provide the City with enough water capacity for the next 15 to 20 years depending on the rate of development. ISSUES: The city council has previously expressed support for this collaborative approach and the agreement associated therewith. There are various aspects of the agreement which the council may want to consider, many of which are taken out of the existing agreement which has served our collective needs since its execution. The agreement is long term by its nature requiring both parties to agree to discontinue. The agreement also provides for financial transparency since the calculation of rates is set forth in a public document which the parties review periodically. There are purchasing protections to both parties over time. The agreement does not require any minimum purchase by the city. On the other hand, it does provide for a guaranteed number of gallons should they be needed by the city over time. The agreement provides the city with full utilization of well 6 as it is to be connected to the plant as one of the first water sources. The agreement saves both the city and SMSC considerable money over building two plants on their own. The agreement does not create a punitive situation for either party whether the annexation area develops quickly or slowly. An escrow and partial waiver of sovereignty is in place to protect the City in the event of any kind of breach situation which could arise in the future. The price of water called for in the agreement is competitive. This agreement will result in both short and long term financial savings to the city. FINANCIAL IMPACT: The original cost analysis from the study of individual versus joint water treatment plants between the SMSC and the City of Prior Lake is shown below: 5 Construction Cost Comparison Estimated Construction Cost Community’s Share of Joint Facility Total Savings with Joint Facility SMSC $14,200,000 $10,804,238 $3,395,762 Prior Lake $14,857,500 $8,668,013 $6,189,487 Joint $19,472,250 This illustrates that the cost for the City to construct our own water treatment plant is estimated to be $14,857,500. The joint facility is estimated to cost $19,472,250 and the City’s portion of that is $8,668,013. However, under the current agreement the City will be contributing up to $2,500,000 for the two filter cells and an estimated $1,000,000 for the extension of the watermain from Well No. 6 to the new WTP for an initial maximum total investment of $3,500,000. The remainder will become due when the second half of the WTP improvements are installed to make the two city owned filter cells operational. We will incorporate these anticipated costs in our Capital Improvement Plan and our water development trunk fees as part of our 2040 comprehensive plan update. Funding for the City’s share of the project costs is proposed to come out of the Trunk Water (F502- $1M) and Trunk Storage Funds (F505 – up to $2.5M) No additional debt will be necessary. ALTERNATIVES: 1. Motion and second to approve a resolution authorizing the Mayor and City Manager to execute a Water Purchase and Facility Expansion Agreement with the SMSC. 2. Table this agenda item for a specific reason. 3. Deny this agenda item for a specific reason and provide staff with direction 6 RECOMMENDED MOTION: Alternative #1 ATTACHMENTS: Water Purchase and Facility Expansion Agreement and Escrow Agreement 4646 Dakota Street SE Prior Lake, MN 55372 RESOLUTION 17-___ A RESOLUTION APPROVING A WATER PURCHASE AND FACILITY EXPANSION AGREEMENT AND ESCROW AGREEMENT BETWEEN THE CITY OF PRIOR LAKE AND THE SHAKOPEE MDEWAKANTON SIOUX COMMUNITY Motion By: Second By: WHEREAS, The SMSC is constructing a new Water Treatment Plant. The Plant will be capable of supplying additional water to the City and will have future expansion available to meet the City’s long-term needs; and WHEREAS, The City is authorized to enter into contracts pursuant to Minnesota Statutes Chapter § 412.221; and WHEREAS, The Parties desire to enter into an Agreement regarding the City’s long term purchase of water from the SMSC. WHEREAS, The funding source for the City’s share of the project costs will be $1,000,000 from the Trunk Water fund (F502) and up to $2,500,000 from the Trunk Storage Fund (F505). NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. The City Council hereby approves a Water Purchase and Facility Expansion agreement and Escrow Agreement between the City of Prior Lake and the Shakopee Mdewakanton Sioux Community and authorize the Mayor and City Manager to execute the same. PASSED AND ADOPTED THIS 20th DAY OF NOVEMBER 2017 VOTE Briggs McGuire Thompson Burkart Braid Aye ☐ ☐ ☐ ☐ ☐ Nay ☐ ☐ ☐ ☐ ☐ Absent ☐ ☐ ☐ ☐ ☐ Abstain ☐ ☐ ☐ ☐ ☐ ______________________________ Frank Boyles, City Manager 4646 Dakota Street SE Prior Lake, MN 55372 RESOLUTION 16-090 A RESOLUTION SUPPORTING DESIGN OF A JOINT WATER TREATMENT PLANT WITH THE SHAKOPEE MDEWAKANTON SIOUX COMMUNITY Motion By: McGuire Second By: Keeney WHEREAS, The Shakopee Mdewakanton Sioux Community (SMSC) and the City of Prior Lake both have water source, treatment and storage needs which should be operational by 2019; and WHEREAS, The SMSC will be starting the design process for a new treatment plant in 2016 ; and WHEREAS, The SMSC and the City of Prior Lake conducted a collaborative study to evaluate the future water needs of both communities and potential options for supplying those needs; and WHEREAS, The study showed that there is a cost benefit to both communities to construct a joint water treatment facility including storage and source options to supply these needs; and WHEREAS, The study looked at two options for supply of the source water that included SMSC owned and operated wells and City of Prior Lake owned and operated wells. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. The City Council supports the SMSC designing the Water Treatment Plant to incorporate the future water treatment needs of the City of Prior Lake. 3. The City Council supports making use of existing source water wells with future City supply wells being owned by the City. 4. The City Council directs staff to develop a draft water supply agreement with the SMSC. PASSED AND ADOPTED THIS 11th DAY OF JULY 2016. VOTE Hedberg Keeney McGuire Morton Thompson Aye Nay Abstain Absent Frank Boyles, City Manager EXHIBIT A 2019 Estimated Rate Summary SMSC - Prior Lake Joint Water Treatment Facility Chemicals Costs Chemical Total Used Cost/ Unit Annual Costs Chlorine (lbs)481 $1.50 $721.50 Orthophosphate (gal)1988 $21.87 $4,140.72 Fluoride (gal)1105 $6.48 $681.42 KMNO3 (lbs)4138 $5.44 $2,697.89 TOTAL $8,241.52 Cost per 1,000 Gallons $0.28 Equipment Power Costs MVEC Power Costs (Power Costs based on 1,200,000 gpd to Prior Lake) Motor HP hrs/ day kWhr/ day kWhr/ Year Motor Efficiency (%) Energy Cost/ kWhr Annual Energy Cost kW/ Year Demand Cost/ kW Annual Demand Cost Aerator 3 16.67 37.29 13,611.75 94.5%$0.0858 $1,235.86 40.84 $11.10 (June - Sept) $188.86 $9.40 (Oct - May) $223.91 High Service Pump 220 16.67 2,734.78 998,194.77 95.4%$0.0858 $89,774.75 2,994.58 $11.10 (June - Sept) $13,849.95 $9.40 (Oct - May) $16,420.30 Backwash Pump 65 2.00 96.94 5,040.93 94.5%$0.0858 $457.68 15.12 $11.10 (June - Sept) $69.94 $9.40 (Oct - May) $82.92 Backwash Blower 30 3.00 67.11 3,489.88 92.4%$0.0858 $324.06 10.47 $11.10 (June - Sept) $48.42 $9.40 (Oct - May) $57.41 Backwash Reclaim Pump 5 20.00 74.57 3,877.64 85.5%$0.0858 $389.12 11.63 $11.10 (June - Sept) $53.80 $9.40 (Oct - May) $63.79 Waste Sludge Pump 5 4.00 14.91 775.53 71.5%$0.0858 $93.06 2.33 $11.10 (June - Sept) $10.76 $9.40 (Oct - May) $12.76 TOTAL 328 62.34 3,025.61 157,331.75 $92,274.54 3,074.97 $31,070.08 Power Costs/ 1,000 gallons $0.28 Well Power Costs MVEC Power Costs (Power Costs based on 1,200,000 gpd) Motor HP hrs/ day kWhr/ day kWhr/ Year Energy Cost/ kWhr Annual Energy Cost kW/ Year Demand Cost/ kW Annual Demand Cost Well 130 16.67 1,616.01 589,842.36 94.50% $0.0858 $53,553.94 1,769.53 $11.10 (June - Sept) $8,184.06 $9.40 (Oct - May) $9,702.91 TOTAL $53,553.94 $17,886.97 Pumping Cost/ 1,000 Gallons $0.16 Operations, Maintenance, & Repair/ Rehabilitation Expenses Equipment Repair/ Rehabilitation Fund Item Replacement Schedule (Years) Replacement Costs Yearly Contribution Prior Lake Percent Use Prior Lakes Share Equipment Repair/ Rehabilitation 15 $500,000.00 $33,333.33 46%$15,333.33 See Note 1 & 2 Yearly Maintenance Fee $15,000.00 (From Page 5-3 of the June 14, 2016 Joint Water Study, Includes Labor and Material Costs to Cover Annual Maintenance Costs) Yearly Operation Fee $28,392.00 (7 hrs/ week at $78/ hr to Service Prior Lake Water Production) Total Yearly OM&R Costs $58,725.33 OM&R Costs/ 1, 000 Gallons $0.13 Project Depreciation ($25,000,000 over 20 Years @ 46%)$575,000.00 per year Project Depreciation Cost/ 1,000 Gallons $0.60 Total Direct Cost to SMSC $1.46 SMSC Indirect Costs (30%)$0.44 TOTAL RATE FOR WATER PER 1,000 GALLONS (2) =$1.90 (1) Items Shown in Blue Are Subject to Adjustment Based on Actual Costs Incurred (2) Subject to Annual Adjustment Based on Power, Chemical, Equipment, and Labor Costs Note 1: Includes Repair/ Rehabilitation (not full replacement) of Aerators, Process Valves, Compressor, Blower, High Service Pumps, Backwash Pump, Backwash Reclaim Water Pumps, Backwash Waste Pumps, HVAC and Control Upgrades. Does not Include Equipment, Valves or Pumps Associated with the RO Process. Note 2: The Repair/ Rehabilitation Fund does not include CIP Expenditures. CIP Expenditures include but are not limited to the following; Filter Media Replacement, Well Maintenance, Building Roof Replacement, Access Drive and Parking Area Maintenance, Interior Building Painting, Exterior Building Waterproofing, etc.