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HomeMy WebLinkAboutItem 5c. Execution of First Amendment to City and Cal Poly Water and Sewer Rate Agreement Item 5c Department: Utilities Cost Center: 6001 and 6101 For Agenda of: 2/4/2025 Placement: Consent Estimated Time: N/A FROM: Aaron Floyd, Utilities Director Prepared By: Julie Ridgeway, Utilities Business Manager Shawna Scott, Special Projects Manager SUBJECT: AUTHORIZE EXECUTION OF FIRST AMENDMENT TO CITY/CAL POLY WATER AND SEWER RATE AGREEMENT TO EXTEND THE TERM OF THE AGREEMENT BY ONE YEAR WITH OPTION FOR EXTENSION RECOMMENDATION 1. Authorize the City Manager to execute the First Amendment to the Agreement Between the City of San Luis Obispo and the Board of Trustees of the California State University Regarding Water and Sewer Rates, which would extend the current water and sewer service agreement with California Polytechnic State University (Cal Poly) by one year; and 2. Authorize the City Manager to approve additional extensions up to a cumulative total of three years (up until June 30, 2028). POLICY CONTEXT General Plan Water and Wastewater Element Program A2.3.1 addresses the collaborative nature of staff’s work with California Polytechnic State University (Cal Poly), stating that the City will “work cooperatively on regional water issues and water resource planning (Water Resource Advisory Committee, Whale Rock Commission, Groundwater Sustainability Commission, etc.).” The existing agreement to be extended related to the University’ s capacity interest in City facilities is consistent with Water and Wastewater Element Policies A5.2.5 and B2.2.3; these policies address fair share contributions to upgrades to water and wastewater facilities. DISCUSSION Background The City and Cal Poly have a long-standing relationship, with the City providing water treatment and wastewater collection and treatment services to Cal Poly dating back to the 1960s. The City provides Cal Poly with water and wastewater services via agreement because the University lies outside the City limits. In April 2021, the City entered into the current water and sewer agreement (“Agreement”) with Cal Poly, supporting both parties’ water and wastewater service needs (Attachment A). Page 25 of 603 Item 5c The Agreement, set to expire on June 30, 2025, has facilitated a long-standing relationship of providing Cal Poly with treated potable water1 and the University’s capacity interests in the City’s Water Treatment Plant, Water Resource Recovery Facility (WRRF), and wastewater collections system. Since the Agreement was executed, Cal Poly has proceeded with implementation of its 2035 Master Plan, including, but not limited to design and construction of on-campus housing and plans for the University’s own Water Reclamation Facility (wastewater treatment plant). In anticipation of the expiration of the existing Agreement, City and Cal Poly staff have initiated negotiations on amendments to existing terms and have identified a need for additional time to comprehensively and collaboratively amend the Agreement. To allow staff and University representatives adequate time to address each party's concerns and to develop a comprehensive, mutually beneficial, long-term contract, staff recommends approving the proposed one-year extension (Attachment B) of the existing agreement. This extension will allow both parties the time needed to establish terms that align with the City’s and University’s shared goals. As proposed, the Amendment would also allow for additional extensions up to a cumulative total of three years (up until June 30, 2028), subject to the approval of the City Manager. All other terms of the existing Agreement would remain unchanged and in effect until replaced by the new agreement. Previous Council or Advisory Body Action On June 16, 2020, the City Council authorized the City Manager to enter into Agreements with the University (on behalf of the Board of Trustees of the California State University) for water and wastewater service to the University. Executed Agreements included the current Water and Sewer Rate Agreement, Capacity Interest Agreement, and a Capacity Memorandum of Understanding. Public Engagement This item is placed on the City Council Consent Agenda, which provides the opportunity for the public to provide comments prior to and during the public meeting. CONCURRENCE Cal Poly has agreed to the proposed language in the First Amendment to the Agreement. The City Attorney’s Office has approved the form of the First Amendment to the Agreement. 1 Cal Poly has its own source of water supply from Whale Rock Reservoir. Page 26 of 603 Item 5c ENVIRONMENTAL REVIEW The proposed action would result in the continuance of the existing Agreement and would not result in any physical change to the environment. Furthermore, pursuant to California Environmental Quality Act (CEQA) Guidelines Section 15273, CEQA does not apply to the establishment, modification, structuring, restructuring, or approval of rates…or other charges by public agencies, because the University’s continued payment of rates and fees would not fund capital projects not otherwise evaluated under CEQA. Capital projects identified in the existing Agreement proposed to remain in effect include the Water Energy Efficiency Project and WRRF Project, both of which obtained CEQA determinations prior to construction: x The Community Development Department issued a Notice of Exemption on January 24, 2019 for the Water Energy Efficiency project per Section 15301, Class 1 – Existing Facilities. x The Final Environmental Impact Report for the Water Resource Recovery Facility Project was certified by the City Council on August 16, 2016. FISCAL IMPACT Budgeted: No Budget Year: 2024-2025 Funding Identified: No Fiscal Analysis: Funding Sources Total Budget Available Current Funding Request Remaining Balance Annual Ongoing Cost Water and Sewer Funds * * * * Total $ $ $ $ Note: The University will continue to pay for water and wastewater services pursuant to the formula identified in the existing Agreement. ALTERNATIVES Council could decide not to approve the agreement amendment to extend the current agreement. This alternative is not recommended, as it would limit the time available to negotiate updated agreement terms. Without the extension, there is a risk that both parties may not reach a consensus and secure approval from their respective Councils/Boards before the current agreement’s expiration on June 30, 2025, potentially leaving them without a formal agreement in place. ATTACHMENTS A - Current 2021 City of San Luis Obispo and Cal Poly Water and Sewer Agreement B - First Amendment to the Agreement Page 27 of 603 Page 28 of 603 AGREEMENT BETWEEN THE CITY OF SAN LUIS OBISPO AND THE BOARD OF TRUSTEES OF THE CALIFORNIA STATE UNIVERSITY REGARDING WATER AND SEWER RATES (“Agreement”) THIS AGREEMENT, made on _____________________________, by and between the CITY OF SAN LUIS OBISPO, CALIFORNIA (hereinafter referred to as "City"), and BOARD OF TRUSTEES OF THE CALIFORNIA STATE UNIVERSITY (hereinafter referred to as "University"). WITNESSETH: WHEREAS, the City and the University entered into a Memorandum of Understanding on March 17, 2020 agreeing to address a series of water and sewer objectives by agreement; and WHEREAS, the City and the University agree that this Agreement is solely for the purpose of establishing appropriate water and sewer rate structures based on the Agreement Between the City of San Luis Obispo and the Board of Trustees of the California State University Regarding Capacity Interest in the Water and Sewer Systems dated, _______________________________, and the 2021 Memorandum of Understanding Between the City of San Luis Obispo and the Board of Trustees of the California State University Regarding Capacity Interest in City Facilities collectively referred to as the “Agreement”; and WHEREAS, the City and the University entered into a new methodology of calculating rates in January 1993, and subsequently recalculated the rates in 1998, 2003, 2007, 2012; and WHEREAS, the City and the University agreed in 1998, 2003, 2007, and 2012 to a rate structure which ties the University to the City’s approved non-residential rate structure, including monthly fixed charges, and periodic rate review, while reflecting the University’s unique differences from other City customers; and WHEREAS, it is agreed that the University is exempt from all City Water Source of Supply costs as it has its own source of supply in Whale Rock Reservoir and as a member agency of the Whale Rock Commission pays separately for its water supply costs; and WHEREAS, it is agreed that the University will pay the City to provide water supply operational resiliency from other City water supplies to prevent service interruption when the University’s water supply from Whale Rock Reservoir is unavailable; and WHEREAS, it is agreed that the University will maintain its capacity interest in the City’s Water Treatment Plant by paying its percentage share of agreed upon capital costs for the upgrade underway in 2021 thereby adjusting their water rate; and 4/29/2021 | 9:48 AM PDT 4/29/2021 | 9:48 AM PDT DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 29 of 603 WHEREAS, it is agreed that the University will maintain its capacity interest in the City’s Water Resource Recovery Facility (WRRF)1 by paying its percentage share of agreed upon capital costs for the upgrade underway in 2021 thereby adjusting their sewer rate; and NOW, THEREFORE, in consideration of their mutual covenants, the parties hereto agree as follows: 1. RATE STRUCTURE METHODOLOGY Water Rate Structure The University's rate structure for water shall be based on the current rate for City non- residential accounts as modified by a percentage ("ratio") that accounts for that part of the rate structure that is applicable to the University. Using only those expenses related to water treatment, water distribution, and less any capacity interest in the system purchased by the University defined in the 2021 Capacity Interest Agreement, this ratio is based on the following formula: The sum of (3 most recent fiscal years audited expenses + 1 current fiscal year projected expenses + 1 upcoming fiscal year projected expenses) divided by 5 = annual ratio. As an example, FY 2020-21 rate ratio calculation would be (2018+2019+2020+2021+2022) / 5. It shall be established as outlined in paragraph 2 and shall be recalculated annually by the City and provided to the University 30-days prior to its Annual Partnership Meeting as described in part 6 of this agreement. The calculation of the current ratio for water charges is shown in Schedule A to this agreement. Sewer Rate Structure The University's rate structure for sewer shall be based on the current rate for City non- residential accounts as modified by a percentage ("ratio") that accounts for that part of the rate structure that is applicable to the University. Using expenses divided appropriately according to operational, capital, and debt service expenses for three components: collection, pretreatment, and treatment less any capacity interest in the system purchased by the University defined in the 2021 Capacity Interest Agreement, this ratio is based on the following formula: The sum of (3 most recent fiscal years audited expenses + 1 current fiscal year projected expenses + 1 upcoming fiscal year projected expenses) divided by 5 = annual ratio. As an example, FY 2020-21 rate ratio calculation would be (2018+2019+2020+2021+2022) / 5. It shall be established as outlined in paragraph 3 and shall be recalculated annually by the City and provided to Cal Poly 30-days prior to its Annual Partnership Meeting as described in part 6 of this agreement. The calculation of the current ratio for sewer charges is shown in Schedule B to this agreement. 2. SETTING A WATER RATE RATIO The ratio to be applied to the non-residential water rate structure shall be determined by the City. The City shall prepare a five-year analysis of the expenses for the City's water system. These expenses shall be divided according to Operational, Capital, and Debt Service for three components: Source of Supply, Treatment, and Distribution. The division of expenses in this manner will therefore appear as a matrix (three columns labeled Source of Supply, Treatment, and Distribution; five rows labeled Operations and Maintenance, Capital Outlay, Debt Service – 2018 WTP, Debt Service – 2019 WTP, and Debt Service - Other). 1 The City’s Water Resource Recovery Facility (WRRF), was referred to in prior agreements as the Water Reclamation Facility (WRF). DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 30 of 603 The University's rate structure will be based only on those expenses related to water treatment and distribution, less any capacity interest in the system purchased by the University under separate agreement. The University shall not pay the percentage cost of those components related to those Source of Supply costs as the University has its own source of supply from Whale Rock Reservoir, except as described below related to short- term non-potable water. Schedule A sets forth this analysis for the period beginning with the execution of this Agreement and extending until June 30, 2021 and shall serve as an example for determining any changes to the ratio in subsequent annual periods. Schedule A to this Agreement shows the current five-year expense analysis and related percentages as described above and provides a step-by-step description of the ratio-setting method. 3. OTHER WATER CHARGES Operational Resiliency for Potable Water The City will charge the University for water supply operational resiliency2 based on the historical duration of Whale Rock outages (five days). The operational resiliency cost for 2020-21 is $137,0003. In the event of a longer than the agreed upon five-day duration Whale Rock outage, the University would be charged the respective per acre-foot water supply pumping cost. The annual water supply operational resiliency cost will increase consistent with any approved water rate increase. Outages in excess of 30 days will require City Council approval. Short -Term Non-Potable Delivery If requested, the University’s rate structure for short-term non-potable water4 will be based on all current fiscal year City expenses related to Source of Supply. The University will make its annual request for short-term non-potable water to the City in writing 30-days prior to its Annual Partnership Meeting. Short-term requests will be considered for a rolling period no longer than five years 5. The provision of short-term non-potable water to the University will be interruptible during any declared City water shortage emergency and will only be made available following the City’s established policies and procedures. 4. SETTING A SEWER RATE RATIO The ratio to be applied to the non-residential sewer rate structure shall be determined by the City. The City shall prepare a prospective five-year analysis of the expenses for the City's sewer system. These expenses shall be divided according to Operational, Capital, and Debt Service expenses for three components: Collection, Pretreatment, and Treatment. The University’s rate structure will be based on the expenses for these components less any capacity interest in the system purchased by the University under separate agreement. The division of expenses in this manner will therefore appear as a matrix (three columns labeled Collection, Pretreatment, and Treatment; four rows labeled Operations and Maintenance, Capital Outlay, Debt Service – WRRF, and Debt Service – Other). 2 The City charges the University for Water Supply Operational Resiliency which provides the University source water from a City water supply source if the University’s Whale Rock water supply is unavailable. 3 Water delivered to Cal Poly from another City water supply source in-lieu of Whale Rock water is accounted for under the Whale Rock Operating Policy, executed on May 13, 2014 by the Whale Rock participating agencies. 4 Short-term non-potable water is untreated (raw) water provided by a City water supply source for non-potable purposes, such as agricultural irrigation. 5 As used here, the rolling five-year contract period would extend each year unless notice is given that non-potable water is no longer needed by the University or no longer available from the City. DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 31 of 603 Schedule B sets forth this analysis for the period beginning with the execution of this Agreement extending until June 30, 2021 and shall serve as an example for determining any changes to the ratio in subsequent annual periods. Schedule B to this Agreement shows the current five-year expense analysis and related percentages as described above and provides a step-by-step description of the ratio-setting method. 5. OTHER SEWER CHARGES If requested, the University’s rate structure for short-term wastewater collection system and wastewater treatment capacity will be based on City expenses related to wastewater collection and treatment, including financing costs. The University will make its annual requests for short-term wastewater collection system and wastewater treatment capacity to the City in writing 30-days prior to its Annual Partnership Meeting. Short-term requests will be considered for a rolling period no longer than five years6. The City retains the right to deny any requests. 6. ANNUAL PARTNERSHIP MEETING It is the intent of both parties to participate annually, no later than March each year, with information shared 30-days prior to the meeting, to review and discuss in good faith the following water and sewer rate and service issues. City to provide: A. Prior fiscal year’s rate analysis compared to actual expenses, B. Sewer meter calibration report, C. Water consumption and rate trends, D. Data related to peak day water demand, dry weather daily wastewater flow, and peak wastewater flow, E. Status of City WTP and City WRRF projects and any planned projects, F. Availability for short-term non-potable water, and available capacity for water treatment, wastewater collection system, and wastewater treatment, and G. Any major assumptions significantly changing the water and sewer rate ratios. University to provide: A. Progress on planned development, enrollment projections, planned Utility Master Plan improvements, and planned water service connections, locations, and required water and wastewater service for the coming year, B. Annual efforts to reduce inflow and infiltration into its wastewater collection system (feet of sewer pipe replaced, etc.), C. Request for additional water treatment capacity, if projections of peak daily water demand exceed WTP capacity interest, D. Request for short-term non-potable water, E. Request for short-term wastewater collection system and/or WRRF treatment capacity (if projections of average daily dry weather flow or peak flow exceed capacity interest), and F. Status of campus water reclamation facility and campus water storage projects. 6 As used here, the rolling five-year contract period would extend each year unless notice is given that short-term wastewater capacity is no longer needed by the University or no longer approved by the City. DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 32 of 603 7. AMENDMENTS TO THE RATIO Exceeding Capacity Interest The City will inform the University in writing when water demand from the WTP or wastewater flows to the wastewater collection system or WRRF are within ten percent of the University’s capacity interest. If the University exceeds its capacity interest in the WTP, wastewater collection system, or WRRF, at the discretion of the partners, a Partnership Meeting will be held within 30 days of the exceedance for the City and University develop terms to mitigate the exceedance. Resetting the Rate Ratio In the event the City and University cannot reach agreement on the proposed applicable rate ratio for the next year, the rate ratio in existence at that time shall remain in effect until agreement is reached. The parties agree to cooperate and use their best efforts to reach agreement on the proposed rate ratio in an expeditious manner. 8. TERM OF AGREEMENT This Agreement shall remain in place until June 30, 2025 as long as all conditions described (other than the five-year ratio) remain the same. 9. AMENDMENTS TO THIS AGREEMENT Any amendment, modification, or variation from the terms of this Agreement shall be in writing and shall be effective only upon approval by both parties. 10. COMPLETE AGREEMENT This written Agreement, including the Memorandum of Understanding between the City of San Luis Obispo and California Polytechnic State University Regarding Capacity Interest in City Facilities dated _______________________________, attached hereto as Attachment A, specifically incorporated herein by reference, shall constitute the complete agreement between the parties hereto. No oral agreement, understanding, or representation not reduced to writing and specifically incorporated herein shall be of any force or effect, nor shall any such oral agreement, understanding, or representation be binding upon the parties hereto. 11. NOTICE The City shall provide the University with at least the same notice of proposed changes in water and sewer rates as other City customers. All notices related to this agreement shall be in writing and addressed as follows: University Dennis Elliot Interim Associate Vice President Facilities & Development Cal Poly State University San Luis Obispo, CA 93407 University Dru Zachmeyer Assistant Vice President Strategic Business Services Administration & Finance Cal Poly State University San Luis Obispo, CA 93407 City Aaron Floyd Utilities Director City of San Luis Obispo 879 Morro St. San Luis Obispo, CA 93401 4/29/2021 | 9:48 AM PDT DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 33 of 603 12. JOINT WORK PRODUCT This agreement is the joint work product of both parties; accordingly, in the event of ambiguity no presumption shall be imposed against either party by reason of document preparation. 13. RELATIONSHIP OF PARTIES City and the agents and employees of City in the performance of this agreement shall act in an independent capacity and not as officers or employees or agents of University. The employees of University who participate in the performance of this agreement are not agents of the City. 14. AUTHORITY TO EXECUTE AGREEMENT Both City and University do covenant that each individual executing this agreement on behalf of each party is a person duly authorized and empowered to execute Agreements for such party. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed the day and year first above written. ATTEST: CITY OF SAN LUIS OBISPO, A Municipal Corporation , By: , Teresa Purrington, City Clerk Derek Johnson, City Manager APPROVED AS TO FORM: , J. Christine Dietrick, City Attorney CONCUR: UNIVERSITY: __________________________, By: ______________________________, Dennis Elliot, Director Dru Zachmeyer, Interim Associate Vice President Assistant Vice President Facilities Management & Development Strategic Business Services Administration & Finance DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 34 of 603 SCHEDULE A. WATER Steps to setting Cal Poly’s appropriate share of the Non-Residential Water Rate X Annually the City shall prepare a rolling five-year schedule of expenses related to the City’s provision of water service. The schedule will include actual expenses for the three most recent audited fiscal years and projected expenses for both the current and next fiscal year. Y These expenses shall be divided appropriately according to operational, capital, or debt service. Each of these categories will be further divided according to whether it is a source of supply, treatment, or distribution expense. The information for each year will be shown in a matrix, at the bottom and right of which will appear the totals for that row and that column. Z Expenses applicable to Cal Poly will be shaded. [ The percentage of the shaded expenses to the total expenses will be calculated each year on the line labeled “Percent Applicable to Cal Poly”. \The five annual percentages will be totaled and then divided by five to determine the average percentage of the rate applicable to Cal Poly, based on the five-year schedule of expenses. This is the percentage of the Non-residential rate that will be charged to Cal Poly for the upcoming year. Each year, the oldest year will be moved out of the schedule, the most recent audited fiscal year expenses will be added and a new year of projected expenses will be added after which a new five year average will be calculated. This “rolling average” will determine each new year’s ratio. Formula: (3 most recent fiscal years audited expenses) + (1 current fiscal year projected expenses) + (1 upcoming fiscal year projected expenses) divided by 5 = annual ratio « The Non-Residential Water Rate itself will be set by the City Council each year. DEFINITIONS: Operations and Maintenance The portion of the budget that pertains to daily operations and delivery of basic governmental services related to provision of water service. The six water program budgets in the City’s financial plan form the Water Fund’s operating budget. Capital Outlay The portion of the budget that pertains to maintaining or replacing existing public facilities and assets, and for building or acquiring new ones as set forth in the City's capital improvement plan. For the purpose of the Cal Poly ratio-setting model, any project that is debt-financed will not show in the Capital Outlay expense category, it will show in the Debt Service category. Debt Service Payments of principal and interest on bonds and other debt instruments according to a pre-determined schedule. Debt financed capital expenses are not included in the Capital Outlay category. Source of Supply Those water expenses directly related to the City’s water supply from Whale Rock, Salinas, and Nacimiento Reservoirs, and recycled water. It also includes water conservation expenses, as this has been the key to reducing City water demand, effectively creating more water by reducing the need to create additional water supply. Development of new water supply projects fall into this category. Distribution The cost to deliver potable water from the Water Treatment Plant to customers and fire hydrants via the distribution infrastructure. Treatment The cost to treat raw water from the City’s sources to meet potable water standards and deliver it into the water distribution system. DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 35 of 603 SCHEDULE A. WATER Water Rate Cal Poly State University NOTE: Expenses applicable to Cal Poly’s water rate are shaded. Water Rate Percentage for FY 2020-21 (5-year Average): 54+46+44+47+52 / 5 = 48% Summary of Water Cost Components for 2017-18 Source of Supply Treatment Distribution Total Operation & Maintenance 9,126,710$ 4,107,968$ 3,454,283$ 16,688,961$ Capital Outlay 67,310$ 856,246$ 2,445,339$ 3,368,895$ Debt Service - 2006 WTP 1,033,548$ 1,033,548$ Debt Service - Other 525,457$ 569,600$ 65,427$ 1,160,484$ Total 9,719,477$ 6,567,362$ 5,965,049$ 22,251,888$ Total applicable to Cal Poly 5,997,762$ 5,965,049$ 11,962,811$ Percent applicable to Cal Poly 91% 100%54% Summary of Water Cost Components for 2018-19 Source of Supply Treatment Distribution Total Operation & Maintenance 9,238,768$ 2,390,373$ 2,390,373$ 14,019,513$ Capital Outlay 50,385$ 1,053,014$ 2,141,604$ 3,245,003$ Debt Service - 2018 WTP (Refunded 2006 WTP)898,802$ 898,802$ Debt Service - Other 525,457$ 571,600$ 74,669$ 1,171,726$ Total 9,814,610$ 4,913,789$ 4,606,645$ 19,335,044$ Total applicable to Cal Poly 4,342,189$ 4,606,645$ 8,948,835$ Percent applicable to Cal Poly 88% 100%46% Summary of Water Cost Components for 2019-20 Source of Supply Treatment Distribution Total Operation & Maintenance 11,165,554$ 4,121,628$ 3,596,769$ 18,883,952$ Capital Outlay 305,157$ 856,246$ 2,141,604$ 3,303,008$ Debt Service - 2018 WTP 883,900$ 883,900$ Debt Service - Other 2,960,804$ 567,800$ 28,111$ 3,556,715$ Total 14,431,515$ 6,429,575$ 5,766,484$ 26,627,575$ Total applicable to Cal Poly 5,861,775$ 5,766,484$ 11,628,259$ Percent applicable to Cal Poly 91% 100%44% Summary of Water Cost Components for 2020-21 Source of Supply Treatment Distribution Total Operation & Maintenance 11,078,031$ 4,821,694$ 2,808,168$ 18,707,892$ Capital Outlay 1,215,505$ 229,149$ 2,556,663$ 4,001,318$ Debt Service - 2018 WTP 892,300$ 892,300$ Debt Service - Other -$ 568,400$ 28,410$ 596,810$ Total 12,293,536$ 6,511,543$ 5,393,241$ 24,198,320$ Total applicable to Cal Poly 5,943,143$ 5,393,241$ 11,336,384$ Percent applicable to Cal Poly 91% 100% 47% Summary of Water Cost Components for 2021-22 Source of Supply Treatment Distribution Total Operation & Maintenance 10,246,096$ 4,339,308$ 3,800,232$ 18,385,635$ Capital Outlay 150,000$ 232,003$ 1,945,181$ 2,327,184$ Debt Service - 2018 WTP 889,700$ 889,700$ Debt Service - 2019 WTP 958,524$ 958,524$ Debt Service - Other -$ 573,200$ 28,747$ 601,947$ Total 10,396,096$ 6,992,735$ 5,774,160$ 23,162,991$ Total applicable to Cal Poly 6,419,535$ 5,774,160$ 12,193,695$ Percent applicable to Cal Poly 52% DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 36 of 603 SCHEDULE B. SEWER Steps to setting Cal Poly’s appropriate share of the Non-Residential Sewer Rate X Annually the City shall prepare a rolling five-year schedule of expenses related to the City’s provision of wastewater service. The schedule will include actual expenses for the three most recent audited fiscal years and projected expenses for both the current and next fiscal year. Y These expenses shall be divided appropriately according to operational, capital or debt service. Each of these categories will be further divided according to whether it is a collection, pretreatment, or a treatment expense. The information for each year will be shown in a matrix, at the bottom and right of which will appear the totals for that row and that column. Z Expenses applicable to Cal Poly will be shaded. [ The percentage of the shaded expenses to the total expenses will be calculated each year on the line labeled “Percent Applicable to Cal Poly”. \ The five annual percentages will be totaled and then divided by five to determine the average percentage of the rate applicable to Cal Poly, based on the five-year schedule of expenses. This is the percentage of the Non-residential rate that will be charged to Cal Poly for the five-year period. Formula: (3 most recent fiscal years audited expenses) + (1 current fiscal year projected expenses) + (1 upcoming fiscal year projected expenses) divided by 5 = annual ratio « The Non-Residential Sewer Rate itself will be set by the City Council each year. DEFINITIONS Operations and Maintenance The portion of the budget that pertains to daily operations and delivery of basic governmental services. The four sewer program budgets in the City’s financial plan form the Sewer Fund’s operating budget. Capital Outlay The portion of the budget that pertains to maintaining or replacing existing public facilities and assets, and for building or acquiring new ones as set forth in the City's capital improvement plan. For the purpose of the Cal Poly ratio-setting model, any project that is debt-financed will not show in the Capital Outlay expense category, it will show in the Debt Service category. Debt Service Payments of principal and interest on bonds and other debt instruments according to a pre-determined schedule. Debt financed capital expenses are not included in the Capital Outlay category. Collection Those sewer expenses directly related to the collection and transportation of wastewater from its various sources to the Water Resource Recovery Facility. Pretreatment The cost of the program whose goal is to prevent toxic waste from entering the wastewater collection system at non-residential and industrial sources. Treatment The cost to treat and dispose of municipal wastewater. All disposal must strictly comply with the State Health and Regional Water Quality board’s requirements for discharge into San Luis Obispo Creek or disposal of biosolids. DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 37 of 603 SCHEDULE B. SEWER Sewer Rate Cal Poly State University NOTE: Expenses applicable to Cal Poly’s sewer rate are shaded. Sewer Rate Percentage for FY 2020-21 (5-year Average): 100+100+100+100+100 / 5 = 100% Summary of Sewer Cost Components for 2017-18 Collection Pretreatment Treatment Total Operations and Maintenance 1,428,200 366,300 5,917,900 7,712,400 Capital Outlay - Adjusted 1,790,400 0 7,075,500 8,865,900 Debt Service - Prepaid 0 Debt Service - Other 782,950 0 618,363 1,401,313 Total 4,001,550 366,300 13,611,763 17,979,613 Percent Applicable to Cal Poly 22% 2% 76% 100% Summary of Sewer Cost Components for 2018-19 Collection Pretreatment Treatment Total Operations and Maintenance 1,751,800 421,300 7,157,700 9,330,800 Capital Outlay - Adjusted 4,058,800 0 3,515,700 7,574,500 Debt Service - Prepaid 0 0 0 0 Debt Service - Other 780,505 0 618,177 1,398,682 Total 6,591,105 421,300 11,291,577 18,303,982 Percent Applicable to Cal Poly 36% 2% 62% 100% Summary of Sewer Cost Components for 2019-20 Collection Pretreatment Treatment Total Operations and Maintenance 1,549,100 409,600 6,381,500 8,340,200 Capital Outlay - Adjusted 1,065,700 35,500 497,300 1,598,500 Debt Service - Prepaid 0 0 0 0 Debt Service - Other 737,011 0 618,177 1,355,188 Total 3,351,811 445,100 7,496,977 11,293,888 Percent Applicable to Cal Poly 30% 4% 66% 100% Summary of Sewer Cost Components for 2020-21 Collection Pretreatment Treatment Total Operations and Maintenance 1,639,600 402,700 6,603,500 8,645,800 Capital Outlay - Adjusted 2,479,800 0 300,500 2,780,300 Debt Service - Prepaid 00 Debt Service - Other 739,468 617,787 1,357,255 Total 4,858,868 402,700 7,521,787 12,783,355 Percent Applicable to Cal Poly 38% 3% 59% 100% Summary of Sewer Cost Components for 2021-22 Collection Pretreatment Treatment Total Operations and Maintenance 1,639,100 401,300 6,773,300 8,813,700 Capital Outlay - Adjusted 8,135,759 0 55,000 8,190,759 Debt Service - WRRF 00 Debt Service - Other 736,576 617,584 1,354,161 Total 10,511,435 401,300 7,445,884 18,358,620 Percent Applicable to Cal Poly 57% 2% 41% 100% WRRF Construction Costs Begin WRRF Debt Service Begins DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 38 of 603 AGREEMENT BETWEEN THE CITY OF SAN LUIS OBISPO AND THE BOARD OF TRUSTEES OF THE CALIFORNIA STATE UNIVERSITY REGARDING CAPACITY INTEREST IN THE WATER AND SEWER SYSTEMS THIS AGREEMENT, dated ________________________________ by and between the CITY OF SAN LUIS OBISPO, CALIFORNIA (hereinafter referred to as "City"), and the BOARD OF TRUSTEES OF THE CALIFORNIA STATE UNIVERSITY (hereinafter referred to as "University"). WITNESSETH: WHEREAS, the City and the University entered into a Memorandum of Understanding on March 17, 2020 agreeing to address a series of water and sewer objectives by agreement including fair share contributions to the City’s Water Treatment Plant and Water Resource Recovery Facility; and WHEREAS, the City and the University have a long-standing relationship participating on the Whale Rock Commission related to the operation of Whale Rock Reservoir, WHEREAS, the City and the University also have a long relationship with regard to the City’s Water Treatment Plant, Wastewater Collection System, and Water Resource Recovery Facility; and WHEREAS, it is the desire of both parties to continue that relationship; and WHEREAS, the City is upgrading both its Water Treatment Plant and Water Resource Recovery Facility; and WHEREAS, the University is interested in maintaining a capacity interest in the City's Water Treatment Plant and Water Resource Recovery Facility; and NOW, THEREFORE, in consideration of their mutual covenants, the parties hereto agree as follows: 1. WATER SYSTEM It is agreed that the University will maintain its capacity interest in the City’s Water Treatment Plant equivalent to a maximum of 1,000 acre-feet per year at a daily volume not to exceed 893,000 gallons daily, and not to exceed a peak day maximum flow rate of 1.44 million gallons daily (mgd). A. Water Treatment Plant The City’s Water Energy Efficiency project at its Water Treatment Plant will ensure continuing compliance with drinking water quality regulations as well as modernize certain components of the facility. The University agrees to pay the percentage obtained by the division of 1.44 mgd (University's maximum flow rate) by 16.0 mgd (total maximum daily plant flow rate), or 9.0 percent, of the total project cost. The cost to the University for project design totals $261,180 and will be charged during the 2020-21 fiscal year. The construction cost to the University is $1,548,180 plus 2.5 percent annual interest for a 4/29/2021 | 9:48 AM PDT DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 39 of 603 term not to exceed 20 years which will be finalized by letter when project construction is complete, subject to the total contribution ceiling noted in paragraph three of this agreement. The estimated annual payment is $86,267.16 for 20 years beginning in the 2021-22 fiscal year. The City will communicate with Cal Poly on future terms when refinancing or prepaying debt. B. Water Distribution System and Treated Water Storage As of 2021, the University has not purchased a capacity interest in the City’s water distribution or treated water storage system outside of the Water Treatment Plant. Prior to the University adding demand to the City’s water distribution or treated water storage system, the University will identify water service needs, design, and construct necessary pipelines and storage, including University capital contributions to City systems, to mitigate all impacts to the City’s water distribution or treated water storage system. New service cannot be provided to the University that could adversely affect downstream City customers. 2. SEWER SYSTEM It is agreed that the University will maintain its capacity interest in the City’s Water Resource Recovery Facility equivalent to a total daily volume of 0.471 mgd. The University’s current capacity interest in the wastewater collection system is a peak flow rate of 833 gallons per minute (1.2 mgd), required due to infiltration and inflow and wet weather peak flows.7 A. Water Resource Recovery Facility The upgrades to the Water Resource Recovery Facility are mandatory to meeting regulatory discharge requirements. The total daily flow capacity of the plant will expand from 5.1 mgd to 5.4 mgd. The University agrees to pay the percentage obtained by the division of 0.471 mgd (University's interest) by 5.1 mgd (existing plant capacity), or 9.24 percent, or by the division of 0.471 (University’s interest) by 5.4 mgd (future plant capacity), or 8.72 percent, of the total project cost, as detailed in Attachment 1. The cost to the University for project design totals $730,704. The City will charge the University $243,568 over three consecutive fiscal years beginning in the 2020-21 fiscal year to cover the University’s share of the design costs. The estimated construction cost to the University is $13,997,193 plus 1.8 percent annual interest for a term not to exceed 30 years, which will be refined upward or downward by letter when project construction is complete, subject to the total contribution ceiling noted in paragraph three of this agreement. The estimated annual payment is $472,533.97 for 30 years beginning in the 2023-24 fiscal year. The City will communicate with Cal Poly on future terms when refinancing or prepaying debt. B. Wastewater Collection System No upgrades are planned at this time to the relief sewer main (i.e., sewer interceptor), therefore, there is no additional cost at this time for the University to maintain its capacity interest in the City’s wastewater collection system at the peak flow rate of 1.2 mgd level. 7 The University’s total daily flow capacity to the City’s Water Resource Recovery Facility (0.471 million gallons daily) is measured over a 24-hour period (a calendar day). The University’s peak flow rate to the City’s Wastewater Collection System (1.2 million gallons daily) is the highest recorded flow rate allowed under this Agreement. DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 40 of 603 3. RECEIPT OF FUNDS To maintain a capacity interest in the City's Water Treatment Plant and Water Resource Recovery Facility, the University's contribution for the construction will not exceed $15,545,373 plus applicable financing. Exercising this option will be reflected in the percentage ratio of the non-residential rate structure as set forth in the Agreement between the City and the University regarding water and sewer rates following execution of this Agreement regarding capacity interest. The adjusted water ratio is described in Exhibit A of that Agreement; and the adjusted sewer ratio is described in Exhibit B of that Agreement. 4. NOTICE All notices related to this agreement shall be in writing and addressed as follows: University: Dennis Elliot, Interim Associate Vice President City: Aaron Floyd, Utilities Director Facilities & Development Cal Poly State University San Luis Obispo, CA 93407 City of San Luis Obispo 879 Morro Street San Luis Obispo, CA 93401 Dru Zachmeyer, Assistant Vice President Strategic Business Services Administration & Finance Cal Poly University San Luis Obispo, CA 93407 5. AGREEMENT CONTAINS ALL UNDERSTANDINGS This document represents the entire and integrated Agreement between the City and the University, and supersedes all prior negotiations, representations, or Agreements, either written or oral, except as described the 2021 Memorandum of Understanding by and between the parties. This document may be amended only by written instrument, signed by both City and University. All provisions of this Agreement are expressly made conditions. This Agreement shall be governed by the laws of the State of California. DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 41 of 603 IN WITNESS WHEREOF, CITY and UNIVERSITY have executed this Agreement the day and year first above written. ATTEST: CITY OF SAN LUIS OBISPO, A Municipal Corporation , By: , Teresa Purrington, City Clerk Derek Johnson, City Manager APPROVED AS TO FORM: _________________________, J. Christine Dietrick, City Attorney CONCUR: UNIVERSITY: __________________________, By: ______________________________, Dennis Elliot, Director Dru Zachmeyer, Interim Associate Vice President Assistant Vice President Facilities Management & Development Strategic Business Services Administration & Finance DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 42 of 603 ATTACHMENT 1: 2021 Water Resource Recovery Facility Project Cost Facility ID Description Capacity Related A Estimated Cost B Capacity Percentage C Cal Poly Share D Cal Poly Share + Contingency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otal Construction Cost F $110,856,024.40 $9,939,557.82 $10,933,514 Program Soft Costs G $30,989,858.00 9.24% $2,863,462.88 $3,063,679 $12,803,021 $13,997,193 ATTACHMENT 2: 2021 Water Energy Efficiency Project Design WTP Backup Generator Construction Total Cost Total Project Cost $ 902,000 $ 2,000,000 $ 14,300,000 $ 17,202,000 Cal Poly Share (9.0%) $ 81,180 $ 180,000 $ 1,287,000 $ 1,548,180 City Share (91.0%) $ 820,820 $ 1,820,000 $ 13,013,000 $ 15,653,820 DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 43 of 603 2021 MEMORANDUM OF UNDERSTANDING (“MOU”) BETWEEN THE CITY OF SAN LUIS OBISPO (“City”) AND THE BOARD OF TRUSTEES OF THE CALIFORNIA STATE UNIVERSITY (“University”) REGARDING CAPACITY INTEREST IN CITY FACILITIES This MOU was made by and between the City and the University on _________________. Recital This MOU documents the University’s capacity interest (referenced in prior agreements as an “equity interest”) in the City’s Water Treatment Plant, potable water distribution system and treated water storage, wastewater collection system and wastewater treatment facility (Water Resource Recovery Facility or WRRF). This 2021 MOU replaces prior agreements regarding the University’s capacity interest in City facilities including the May 1, 2007 MOU, and the 1993 Agreement between the City of San Luis Obispo and California Polytechnic State University Regarding Water and Sewer Rates dated January 5, 1993, exhibit A, the Agreement between the City of San Luis Obispo and California Polytechnic State University Regarding Optional Equity Interest in the Water and Sewer Systems dated January 5, 1993, exhibit B, and the Memorandum of Understanding between the City of San Luis Obispo and California Polytechnic State University dated January 6, 1993, exhibit C. Capacity The City and University agree to communicate in the planning of its facilities to ensure that adequate capacity in the City’s Water Treatment Plant, potable water distribution system, treated water storage system, wastewater collection system, and wastewater treatment facility (Water Resource Recovery Facility) is available to meet the University’s current and projected needs. The University agrees to provide the City with its development, demand, and population projections annually in its partnership meetings1 which shall include an analysis of the University’s water treatment, potable water distribution and storage system, and wastewater collection system and treatment capacity needs as planned and projected for the next five years. The City shall consider the University’s projections in its own master planning to better understand the University’s capacity needs in future facility upgrades and expansions. Capacity Interest The University maintains a capacity interest2 in the City’s Water Treatment Plant, wastewater collection system, and Water Resource Recovery Facility to serve current and projected University needs. The University has done so by financially participating in required facility upgrades and expansions via capital contribution based on the University’s desired capacity percentage share of the facilities. Maintenance of said capacity interest, through fair share capital contributions, ensures that the City maintain available capacity to serve the University’s needs up to the amount of the capacity interest. As set forth in the 2021 Water and Sewer Rate Agreement, these capital contributions are reflected in the University’s water and sewer rates. 4/29/2021 | 9:48 AM PDT DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 44 of 603 The University’s capacity interest in the City’s Water Treatment Plant shall be calculated as 1,000 acre-feet annually (893,000 gallons daily; peak day maximum flow rate of 1.44 million gallons). As the City’s Water Treatment Plant can treat up to 16 million gallons daily, the University’s capacity share is 9.0 percent of the facility. Maintenance of this capacity interest is subject to future capital contributions at 9.0 percent under separate agreement. As of 2021, the University has not purchased a capacity interest in the City’s wa ter distribution or treated water storage system outside of the Water Treatment Plant. Prior to the University adding demand to the City’s water distribution or treated water storage system, the University will identify water service needs, design, and construct necessary pipelines and storage, including University capital contributions to City systems, to mitigate all impacts to the City’s water distribution or treated water storage system. New service cannot be provided to the University that could adversely affect downstream City customers. With prior payments to the City in 1993, the University’s capacity interest in the City’s wastewater collection system is a peak flow rate of 1.2 million gallons per day. Maintenance of this capacity interest is subject to future capital contributions. With prior payments to the City in 1993, the University’s capacity interest in the City’s Water Resource Recovery Facility shall be calculated as a maximum totalized dry weather flow of 0.471 million gallons per day3. As the City’s Water Resource Recovery Facility can discharge up to 5.1 million gallons of treated effluent daily (up to 5.4 million gallons daily in 2022), the University’s capacity share is 9.24 percent of the facility (reducing to 8.72 percent in 2022). Maintenance of this capacity interest is subject to future capital contributions at 8.72 percent under separate agreement. Authority to Execute Memorandum of Understanding Both the City and University agree that each individual executing this MOU on behalf of each party is a person duly authorized and empowered to execute agreements for such party. The parties hereto have caused this MOU to be executed the day and year first above written. UNIVERSITY CITY OF SAN LUIS OBISPO, A Municipal Corporation By: By : Dru Zachmeyer, Assistant Vice President Derek Johnson, City Manager Strategic Business Services 1 The Annual Partnership Meeting between the City and the University is defined in Part 4 of the “Agreement Between the City of San Luis Obispo and the Board of Trustees of the California State University Regarding Water and Sewer Rates” executed in 2021. 2 Terms related to University capacity in the City’s water and sewer systems are defined in the “Agreement Between the City of San Luis Obispo and the Board of Trustees of the California State University Regarding Capacity Interest in the Water and Sewer Systems” executed in 2021. 3 In the City of San Luis Obispo, dry weather wastewater flows occur between April and November. Wet weather flows occur from December through March. DocuSign Envelope ID: 8B4520D0-4D52-43A9-96BE-665D7C6F50AD Page 45 of 603 Page 46 of 603 FIRST AMENDMENT TO THE AGREEMENT BETWEEN THE CITY OF SAN LUIS OBISPO AND THE BOARD OF TRUSTEES OF THE CALIFORNIA STATE UNIVERSITY REGARDING WATER AND SEWER RATES (“Agreement”) THIS FIRST AMENDMENT TO THE AGREEMENT BETWEEN THE CITY OF SAN LUIS OBISPO AND THE BOARD OF TRUSTEES OF THE CALIFORNIA STATE UNIVERSITY REGARDING WATER AND SEWER RATES (“Agreement”) is made and entered in the City of San Luis Obispo on ____________________________, by and between the CITY OF SAN LUIS OBISPO, CALIFORNIA (hereinafter referred to as “City”), and BOARD OF TRUSTEES OF THE CALIFORNIA STATE UNIVERSITY (hereinafter referred to as “University”). WITNESSETH: WHEREAS, on April 29, 2021, the City entered into the Agreement with the University to address a series of water and sewer objectives by agreement; and WHEREAS the Agreement is set to remain in place until June 30, 2025; and WHEREAS the City and University are actively working on negotiating a new agreement and both parties desire to extend the term of the current Agreement as stipulated below while these negotiations take place. NOW THEREFORE, in consideration of their mutual promises, obligations and covenants hereinafter contained, the parties hereto agree as follows: 1. The Agreement shall be extended and remain in effect until June 30, 2026. 2. Additional extensions of the Agreement may be authorized in writing by the City of San Luis Obispo City Manager and Cal Poly Cal Poly Vice President of Strategic Business Services, not to exceed a total of three years (up until June 30, 2028). 3. All other terms and conditions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, this First Amendment is executed on the date above stated, at San Luis Obispo, California. Page 47 of 603 CITY OF SAN LUIS OBISPO UNIVERSITY Whitney McDonald, City Manager Dru Zachmeyer, Assistant Vice President Strategic Business Services Administration & Finance ATTEST CONCUR Teresa Purrington, City Clerk Mike McCormick, Vice President Facilities Management & Development Administration & Finance APPROVED AS TO FORM: J. Christine Dietrick, City Attorney Page 48 of 603