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HomeMy WebLinkAbout06/05/2007, SS 1 - NACIMIENTO WATER SUPPLY PROJECT STATUS REPORT councit Mfi,Mw June 5,2007 j agenda Report CITY O F SAN LU I S O B I S P O FROM: John E. Moss, Utilities DirecePROJECT SUBJECT: NACIMIENTO WATER S STATUS REPORT CAO RECOMMENDATION Review and discuss the status of the Nacimiento Water Supply Project and the proposed process for considering the City's continued participation in the project. REPORT IN BRIEF The City is pursuing the development of additional water supplies to meet its long term water supply objectives as defined in the General Plan. The City's primary water supply option being pursued is the Nacimiento Water Supply Project. Other key project participants include the County of San Luis Obispo, City of Paso Robles, Templeton Community Services District, and the Atascadero Mutual Water Company. To date, the City has expended nearly $6.6 million on its share of the design costs for the project. The project design has been completed and the initial phases of construction are currently out to bid. The current cost estimate for the project is $186 million. Based on this, it is anticipated that the total construction cost as bid will exceed the $150 million "opt-out" cost threshold included in the participation agreements between the agencies and the San Luis Obispo County Flood Control and Conservation District (District). Once the District provides the City notice that, based on initial bids received, the cost of the project is projected to exceed $150 million, the City will have 30 days in which to consider its continued participation in the project. This report provides an update on the status and timing of the project, design and other efforts provided to control cost, and the proposed process and timing of the City's consideration of its continued participation in the project, in the likely event that the project costs will exceed $150 million. DISCUSSION Background In June 2004, the City entered into an agreement with the San Luis Obispo County Flood Control and Water Conservation District (District) for the design and construction of the Nacimiento Water Supply Project. The project entails the construction of an intake structure and pump station at the Nacimiento Lake Dam, 45 miles of pipeline, two booster pump stations and three storage tanks. The initial project will serve untreated water to Paso Robles, Templeton Community Services District, Atascadero Mutual Water Company, CSA 10 (Cayucos) and the City, with future expansion to other agencies expected. These five agencies along with the l t r Nacimiento Water Supply Project Status Report Page 2 District make up the Nacimiento Project Commission established to advise the County Board of Supervisors on the development, design and operation of the Nacimiento Water Supply Project. The City has requested 3,380 acre feet per year of supply from the project. The City will treat this water prior to distribution to our customers at our Stenner Canyon Water Treatment Facility, which is currently being upgraded and has available capacity to treat this new supply. The other agencies receiving water from Nacimiento will initially take their water via groundwater recharge and extraction, but will eventually have to construct water treatment facilities. From early 2005 to present, the District has been working with the participating agencies to complete the design of the project. The project will be bid in five phases (separate contracts) and the initial phases have recently been advertised for bid. The first construction bids are anticipated to be received in July 2007. The purpose of this report is to provide Council with an update of the project status, efforts made through the design and bid process to control costs, and the process and timing for consideration of the City's continued participation in the project should the cost exceed the $150 million opt-out limit identified in our agreement with the District. Project Design and Bidding Design Status - As stated previously, the project design has been completed and four of five separate contracts for construction have been advertised for bid. The design phase of the project has gone very well with design, environmental permitting, easement acquisition and negotiations with Camp Roberts all being completed essentially on schedule over the past 24 months. Design phase costs were budgeted at $18,900,000, and the design has been completed within that budget. Included in the design phase work were: project management; environmental design assistance, permitting and agency coordination; PG&E service extension; right-of-way consulting and easement acquisition; pre-bid construction management services and constructability review; engineering design, including survey and geotechnical investigation; and financing coordination. Cost Savings by Design - During the design phase, numerous steps were taken to manage the overall cost of the project. On completion of the Engineering Design Report (about 30% design), the project underwent a comprehensive value engineering (VE) process. This process uses a VE team consisting of engineers, construction managers and operations specialists to review the basis of the project design and propose alternatives that could provide either construction or operational cost savings for the project. The VE on this project made several design recommendations, including modifications to the intake structure design,pipeline alignment, and location of pumping stations and tank sizing, which provided considerable savings to the estimated project construction and operational costs. The design engineer, Black and Veatch, continued to refine its design throughout the design process in an effort to provide increased efficiencies and reduced project cost. Ensuring a Competitive Bidding Process - Beginning in late fall 2006, the District, the design engineer and the selected construction management firm began a project information program aimed specifically at outreach to the construction community to solicit a broad base of interest in bidding this project. This effort was well attended by most of the major construction contractors I ^ a Nacimiento Water Supply Project Status Report Page-3 in the western United States and should serve the project well in obtaining.a high degree of competition and interest in the project. How the project is packaged for bidding and the timing of bidding can have a significant effect on the quality of bids received. The Nacimiento Commission and project team provided great consideration to the bidding approach for the project and ultimately decided to proceed with a project broken into five construction contracts with staggered bid dates as the best approach. The size of the different construction contracts was defined not only by logical physical segmentation of the project (such as by major project reach or construction type), but also to provide construction contracts that would be sufficiently large to attract contractors from outside the area, but not so large as to eliminate more local construction contractors. The following summarizes the five contracts and bidding scheduling, along with an estimate of the percentage each represents of the total project cost. WIL'1.1'7- D- e o mom- : o Oo- o %&@39 1. Intake facilities(spec. 1) May 22, 2007 July 12,2007 11 % 2. Pump stations,tanks and SCADA(spec. 2) June 19,2007 Aug. 16,2007 27% 3. Northern pipeline segment(spec. 3) May 22,2007 July 19,2007 36% 4. Central pipeline segment(spec.4) May 22, 2007 July 26,2007 13 % 5. Southern pipeline segment(spec. 5) May 22, 2007 Aug. 2, 2007 13 The timing of the bidding was established to allow adequate time for the same contractors to bid on multiple phases of the project, and the low bid for each phase to be known,hopefully resulting in a more competitive bid process for subsequent phases. The timing of the bidding also needed to consider the timing allowed for award of the construction contracts and the need to provide sufficient information for projecting the total project cost so that the participants would be afforded the ability to consider their continued participation in the project should project costs exceed$150 million. Project Financing Financing of the design phase services was provided on a pay-as-you-go basis by Paso Robles, Templeton Community Services District and Atascadero Mutual Water Company. The City elected to debt finance its share of the design costs via Bond Anticipation Notes (BANs) issued through the County's financing mechanism for the project. The BAN's will be refinanced when the bonds for the construction phase of the project are issued. The City's share of the design cost was approximately $6.6 million and is not refundable. The total project financing will be debt financed by the District with repayment ensured by the participating agencies contractual agreement with the District to make the required operating payments. Opt-Out Provision I - 3 i Nacimiento Water Supply Project Status Report Page 4 Article 2(B) and 2(C) of the Nacimiento Project Water Delivery Entitlement Contract (Participation Agreement) provides participating agencies with an opportunity to "opt-out"of the project should the construction costs exceed $150 million. These contract terms provided that upon receipt of bids equaling no less than 30% of the total estimated project construction costs, the District will provide the participating agencies with a summary report of the construction bids received, and based on those bids, a projected total construction cost for the project. Assuming a construction cost exceeding $150 million, within 30 calendar days of receipt of the summary report of construction costs, the City must consider its continued participation in the project and, if its decision is to opt-out, provide written notice to the District and all other participants of that decision. If the City's decision is to continue participation in the project, no affirmative action is required and the opportunity for opting out of the project will expire. Proposed Process Staff anticipates that the City Council will need to affirm (or not) its continued participation in the project, as recent construction estimates for the project total $186 million. Based on the current projected timeline for receiving bids, staff recommends that Council consideration of participation in the project be deferred as long as possible, within the 30 day opt-out period, to allow as many phases of the construction to be bid as possible to provide greater certainty over the projected cost. The District will prepare the summary report after receiving approximately 47% of the project construction costs (spec's 1 & 3). We currently anticipate receipt of this report on or about July 25, 2007. This will start our 30 day opt-out consideration period, effectively making the opt-out date August 23, 2007. Again, based on the current projected timeline for receiving bids, staff recommends returning to Council with a report requesting direction relative to continued participation in the project on August 14, 2007. By this date, it is projected that approximately 73% of the bids will have been received for the project and there will be a relatively high degree of certainty in the remaining amount being estimated. If by chance the project costs do not exceed the $150 million opt-out mark, staff will return to Council with a project progress report at that same time. Project Affect on Rates Staff has completed the 2007 Water Fund rate analysis which is being presented to Council on May 31, 2007 (before this Council meeting but after agenda close for this report). In this analysis, staff assumed the most recent cost estimate for the project of $186 million and the City's projected annual share of the debt service, operations and maintenance costs ($6.8 million annually) as a basis of analysis for the 2007 Water Fund rate analysis. This will provide Council with a very good understanding of the effects on rates associated with the Nacimiento supply. Beginning in 2005, the City began implementation of a series of annual rate increases in order to build revenues in anticipation of the annual cost of the Nacimiento supply. At that time, it was projected that six years of annual rate increases of 8% would be sufficient to fund this new supply. If the cost of the project cost remains as projected, additional rate adjustments will be required. Staff has provided a detailed analysis of those adjustments, along with rate and fee L - L- Nacimiento Water Supply Project Status Report Page 5 adjustments associated with other Water Fund program cost increases, during the 2007 Water Fund Rate Review on May 31, 2007. As presented to Council on May 31" and scheduled for Public Hearing and adoption on June 19, 2007, the water rate increases for the next two years, necessary to fund the Nacimiento project and other water fund capital and operating programs, are 13% per year. The fund analysis also projects that continued increases of 12% in 2009 and 2010, 9% in 2011 and 3% in 2012 will be needed to meet the water fund's operating and capital expenses including funding the ongoing operating cost of the Nacimiento project. Revisions to our water development impact fees are currently being studied and will be brought before Council later this summer. Those revised Water Development Impact fees will be based in part on the most recent cost estimate for the project of $186 million, or actual cost if that information is available before presentation to Council, to ensure that new development will continue to fund its fair share of new water supply and infrastructure costs. CONCURRENCES The County's project manager has been consulted in the development of the proposed process and timeline and concurs that the proposed process should achieve its objectives. FISCAL IMPACT There is no fiscal impact associated with the recommended action. The full fiscal analysis of the City's participation in the Nacimiento Pipeline project is as provided to Council as a part of the Water Fund Rate analysis on May 31, 2007. ALTERNATIVES The Council could consider participation on a faster track than recommended at this time. The following outlines two options for doing so. However, both of these options would require the Council to make decisions without the most complete and accurate information that could otherwise be available under the recommended schedule. Because of this, we do not recommend either of these alternatives. 1. Faster Review of Cost Estimates. With this approach, the Council would consider the opt- out provision as soon as the cost report summary is received from the District indicating that project costs will exceed $150 million. This will occur with only about 47% of the project bids having been received. This would allow the possibility of a second Council meeting within the 30 day opt-out period for Council to consider project participation, should Council require information not provided in the original report, or simply require additional time for their deliberations. The downside to this is that with only approximately 47% of the bids having been received, the opportunity for final cost variation is somewhat greater. Staff believes that given the magnitude of this project, bringing the decision to the Council with the most complete and accurate information is the best course. Accordingly, this alternative is not recommended. l - � Nacimiento Water Supply Project Status Report Page 6 2. Revise Cost Threshold Sooner. Under this option, staff would return to the Council with an analysis of increased cost impacts prior to project bidding and authorize continued participation in the project under a different (higher) cost threshold than the current $150 million. While this may streamline staff work related to this issue and possibly eliminate the need for later consideration by Council, staff would prefer Council's consideration be provided with the most complete and accurate information possible. As such, we do recommend this alternative. G:\UTIL\CAR-CAO Reports\2007 Council Agenda Reports\Naci Status Report opt out process.DOC Cp