HomeMy WebLinkAbout21-081 Authorizing the City Managerto Execute a Wter Supply Contract and Negotiate and Execute an Operations Agreement with the Port Townsend Paper Corporation Resolution 21-081
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RESOLUTION NO. 21-081
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PORT TOWNSEND,
WASHINGTON AUTHORIZING THE CITY MANAGER TO EXECUTE A WATER
SUPPLY CONTRACT AND NEGOTIATE AND EXECUTE AN OPERATIONS
AGREEMENT WITH THE PORT TOWNSEND PAPER CORPORATION
WHEREAS, the Olympic Gravity Water System (OGWS) is the City of Port Townsend's
29-mile water supply system constructed in 1928 that transports water from the Big and Little
Quilcene River watersheds to the Quimper Peninsula; and
WHEREAS, the Crown Zellerbach Corporation, the Port Townsend Paper Corporation's
(PTPC) predecessor in interest and the City executed a lease for the OGWS in 1956 that expired in
March 2020; and
WHEREAS, the PTPC and the City extended the lease until December 31, 2021; and
WHEREAS, the City and the PTPC have negotiated a water supply agreement that calls for
a separate operations agreement whereby the PTPC will operate the OGWS; and
WHEREAS, the agreement establishes a rate model for untreated water that both parties
will pay for their share of OGWS untreated water that will be metered as of April 1, 2022; and
WHEREAS, the revenue for the untreated water will provide for the costs of operating the
OGWS and investment into future OGWS capital improvements; and
WHEREAS, the water supply agreement also calls for readjustments to the rate model
every five years; and
WHEREAS, the agreement establishes a OGWS management and replacement strategy by
creating a sinking fund for capital replacement costs that will maintain a minimum balance of$2
million; and
WHEREAS, a first quarter 2022 supplemental budget will be needed to account for any
changes caused by this water supply agreement; and
WHEREAS, the agreement includes PTPC volume limits based on the system capacity and
makes City retail customers the priority; and
WHEREAS, the agreement addresses the possibility of low water supply due to climate
change; and
WHEREAS, should conservation measure create excess capacity in the system, the City
may offer untreated water to other wholesale water customers per the agreement; and
WHEREAS, the agreement also requires coordination between the City and the PTPC for
any OGWS repairs and improvements;
Resolution 21-081
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NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Port
Townsend, Washington, the City Manager is authorized to execute a water supply agreement with
the Port Townsend Paper Company in substantially the same form as Exhibit A and make minor
modifications as necessary. The City Manager is also authorized to negotiate and execute an
OGWS operations agreement with the Port Townsend Paper Company.
ADOPTED by the City Council of Port Townsend, Washington, at a regular meeting
thereof, held this 6 t day of December 2021.
..mm ._.._._ _ . ... .. _..
Michelle Saanc,o 1
Mayor
Attest: Approved as to form:
Joanna Sanders, MMC - i arca wo6
City Clerk City Attorney
Resolution 21-081 Exhibit A
Page I of 26
WATER SUPPLY AGREEMENT
dated as of December 2021
among
CITY OF PORT TOWNSEND
as the City,
and
PORT TOWNSEND PAPER COMIORATION
as the Mill
Resolution 21-081 Exhibit A
Page 2 of 26
TABLE OF CONTENTS
1. RECITALS Page
2. DEFINITIONS Page
3. RELATIONSHIP BETWEEN THE PARTIES Page
4. ASSETS AND OWNERSHIP Page
5. WATER SUPPLY, USE, AND QUANTITY Page
6. UNCONTROLLABLE CIRCUMSTANCES Page
7. WATER DELIVERY POINTS Page
8. QUALITY OF WATER Page
9. FINANCIAL MANAGEMENT, RATES, AND CHARGES Page
10. BILLING AND PAYMENT Page
11. METERING Page
12. TERM, MILL SHUTDOWN, AND TERMINATION Page
13. GENERAL Page
EXHIBIT A—OGWS FINAL REPORT Page
EXHIBIT B —ASSETS Page
EXHIBIT C—RATE MODEL & CAPITAL SPENDING PLAN Page
EXHIBIT D—OPERATIONS AGREEMENT Page
EXHIBIT E—CITY DEBT DISCLOSURE Page
WATERSUPPLY AGREEMENT, dated as of December [ ], 2021 among the City of Port
Townsend, ("City") and Port Townsend Paper Corporation ("Mill"). The City and Mill are each
a"Party" and collectively the "Parties"to this Agreement. The Parties agree as follows.
1. RECITALS
1.1 Olympic Gravity Wager S stens l listor . In 1927, the Mill constructed a kraft paper mill
in Port Townsend. In 1928, the Parties cooperated in building a 29-mile pipeline, known as the
Olympic Gravity Water System or OGWS, from the Big Quilcene River watershed to the City of
Port Townsend. This water system replaced a failing Snow Creek water system. The Parties have
jointly improved the system by, among other things, replacing the original wood stave pipe,
installing the Little Quilcene Diversion, constructing Lords Lake reservoir, rehabilitating the Big
Quilcene Diversion, and upgrading the City Lake outlet system. Today, the OGWS provides raw
water to the Mill for industrial purposes and to the City's newly constructed water filter plant to
treat water for domestic use. The OGWS provides an average daily flow of twelve (12) million
gallons per day ("MGD") with a maximum daily flow of approximately sixteen (16) MGD.
Water Supply Agreement—Page 1 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 3 of 26
1.2 Co01 eta at on. Both Parties recognize that cooperation is necessary to sustain water
delivery through the OGWS. In 2020, the Parties extended the lease agreement to December 31,
2021, to provide time for an analysis of the system. The analysis included, among other things, a
GPS survey of the 29-mile pipeline, initial evaluation of alternative water supply, pipe condition
evaluation, value engineering analysis and research concerning the 1928 steel pipe, operations
assessment, capital investment analysis, environmental and planning review, and a financial
analysis. The results of this analysis are included in a series of white papers that are attached to
this Agreement as Exhibit A.
1.3 Water SLipply and Conservation. Water supply is limited based on water availability in the
Quilcene watershed and the capacity of the pipeline system. The City is required to implement
conservation measures by the Department of Health and therefore the City anticipates low growth
in water use. The Mill water-use is limited in this Agreement. Historically, the Mill has
temporarily reduced water consumption based on a lack of supply during low stream flows and
the requirement to maintain In-Stream Flows. Additionally, the Mill periodically must curtail
water use to ensure the City can obtain enough water to meet Retail Water System demands. The
impacts of climate change in the region are anticipated to exacerbate water supply challenges in
the future. Given the lack of future additional water supply,the Capital Spending Plan provided in
Exhibit A and the Rate Model do not include capital improvements for system expansion to
accommodate growth in water use by the Mill. This Agreement allows the Mill to pursue other
sources of water or implement water saving technology to reduce the impacts of water supply
limitations on the Mill's operation and withdraw from the City's water supply system if the Mill
obtains an alternative source of water.
1.4 Water Use Priority. The Parties recognize that water supply from the Big Quilcene River
watershed is beyond their control and that the City has priority use. The Parties desire to
cooperatively manage the available water to minimize disruption to service recognizing water
supply shortages have occurred and will occur in the future.
1.5 Cost of Water. This Agreement establishes a charge for water based on actual water usage.
The rate is based on the cost of operations and maintenance, capital projects, and other expenses,
and expressly excludes the City's Utility Tax as allowed by the City code. This Agreement
anticipates significant capital spending on the OGWS over the term. The rate for water applies
equally to the Parties based on actual water usage. Rates have been developed for the term of the
Agreement, but will be updated every five (5) years. The initial rates are attached as Exhibit C.
The intent of establishing rates- on a five (5)-year basis is to provide for the opportunity for
conservation investments to realize a return on investment within the five(5)-year period. Updates
will involve adjustment of the model to equalize rates based on actual water use data, revenues,
operational costs, and capital costs. For example, a reduction in water use by both Parties will
result in an adjustment of the rates upward to ensure adequate operational funds are available to
operate the system and sufficient capital funds are available for the implementation of the Capital
Spending Plan.
1.6 Mill and City Contributions to the OGWS. The Mill and the City built the OGWS and
have jointly operated, maintained, and funded capital costs on the OGWS since 1928. The Mill
will continue to operate and maintain the OGWS pursuant to this Agreement and the Operations
Water Supply Agreement—Page 2 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 4 of 26
Agreement attached as Exhibit D. The Mill's historical and ongoing contributions put it in a
unique position to provide benefits to the City and its residents in their continued use of the OGWS.
In recognition of the Mill's contributions to the OGWS, the City has determined it is in the best
interests of the community to enter into this Agreement with the Mill.
1.7 Multiple Customers. This is one of a possible series of similar, non-exclusive water supply
agreements that the City may enter into. Through the OGWS,the City supplies water to the City's
retail customers and may, in the future, desire to provide water to others. Subject to water supply
availability including the impacts on supply water pressure, if the City desires to expand the use
of the OGWS to diversify the customer base and lower the cost of water, the OGWS costs will be
shared by all customers based on pro rata usage. Curtailment to all customers will occur according
to the drought contingency plan developed in cooperation with the Mill and in place at the time of
curtailment per Section 5.2.
2. DEFINITIONS.
2.1 "Annual Consq!n ation" means the total water metered during the calendar year.
2.2 "Averg e Dav Demand" means total water use for a year divided by the number of days a
Party is operating. Average Day Demand excludes days the Mill or the City are shut down.
2.3 "Big uileene Diversion"means the location and infrastructure on the Big Quilcene River,
, as designated in Water Right Certificate S2*01991C, where water is diverted into the OGWS
pipeline.
2.4 ",Capital Costs" means the costs incurred or planned for the betterment and rehabilitation
of the OGWS, including, but not limited to, planning, engineering, permitting, construction,
financing, administration and taxes and fees. Capital Costs are outlined by project in the Capital
Spending Plan and supporting documents. Unanticipated Capital Costs may also be incurred and
will be included in the Rate Model if the costs exceed $10,000 and provide ten(10)years or more
of useful life.
2.5 "Capital Spending 6 " or"CSP"means a twenty (20)-year schedule of Capital Costs by
project. The CSP is updated every five (5)years in connection with the Rate Model.
2.6 "City Finance Department" means the City of Port Townsend office responsible for
accounting and financial management.
2.7 "City La e" means the water reservoir in the OGWS system located at the terminus of
Grouse Lane. City Lake provides important equalizing storage for the system operation.
2.8 "City Maana gernent Fee" means overhead costs consisting of City management, finance,
accounting, administrative staff, information systems and costs to support the City management
of the OGWS.
2.9 "City Olaerating Costs" means City costs associated directly with operating the OGWS,
including cost of permits, Maintenance, Emergency Repairs, System Repairs, materials and
Water Supply Agreement—Page 3 of 26 Draft 12-03-21
Resolution 21-081 Exhibit
Page 5 of 26
supplies, fees, services, staff time operating and managing the OGWS,time coordinating with the
Mill, Watershed Management and performing services and work for the OGWS. City Operating
Costs shall exclude the cost of overhead covered by the City Management Fee and that portion of
costs the City pays the Mill under the Operations Agreement attached as Exhibit D.
2.10 "City Utility Tax" means those taxes established by Chapter 5.84 PTMC and excluded
from this Agreement pursuant to Chapter 13.18 PTMC.
2.11 "Consumer Price Index" or "CPI" means the consumer price index established by the
United States Department of Labor,Bureau of Labor Statistics for the Seattle—Tacoma—Bellevue
Metropolitan Area for the US City average urban wage earners and clerical workers calculated
from July of one (1) calendar year to June of the subsequent year.
2.12 "Debt Service Costs" means all costs relating to any OGWS debt, including the costs of
issuing such debt, funding any necessary reserve or obtaining necessary credit enhancement, all
principal of and interest on such debt, and ongoing costs of such debt(such as trustee and registrar
costs, publishing costs, ongoing rating fees, and call premiums)..
2.13 "Delivery Poitit Meters" when referring to the Mill means the meter serving the Mill and
when referring to the City means the meter serving the City. Both meters are located near the
intersection of Mill Road and South 8'" Street. The meters are part of the OGWS and mark the
delivery end of the system.
2.14 "Emer zenc i Re airs" means any event that impacts the system and requires a response
that does not permit time for public bidding consistent with Chapter 39.04 RCW and City Financial
Policies. Emergency repairs may constitute Public Work.
2.15 "In-Stream Flow" means the minimum river flow to be sustained at the diversions for the
Big Quilcene River or the Little Quilcene River as required by the United States Forest Service
Special Use Permit or the City's Water Rights whichever is less.
2.16 "Instantaneous Demand" means the discharge flow rate at any given time as measured by
the Delivery Point Meters over any five-minute time increment.
2.17 "Little Qtail ene Diversion" means the location and infrastructure on the Little Quilcene
River, as designated in Water Right Certificate S2*01990BHC, where water is diverted via a
pipeline into Lords Lake.
2.18 "Lords Lake"means the water reservoir located where the pipelines converge from the Big
Quilcene diversion and the Little Quilcene diversion. Lords Lake provides water supply storage
used when instream flows prevent diversion from the Big Quilcene and/or the Little Quilcene
Rivers.
2.19 "Maintenance" means keeping facilities in good usable, operational condition through
work performed on a scheduled basis, as defined by WAC 296.127.010(7)(a)(iv), and may include
minor improvements.
Water Supply Agreement—Page 4 of 26 Draft 12-03-21
Resolution 21-081 Exhibit
Page 6 of 26
2.20 "'Maxiaaaum Day Demand" or "MDD" means the maximum amount of water used in any
one (1) day within the period of one (1) year.
2.21 "Mill Shutdown"means the scheduled shutdown of the Mill for major maintenance and/or
capital spending for Mill purposes.
2.22 "Mill Operating Costs" means Mill costs associated directly with operating the OGWS,
including Maintenance, Emergency Repairs, System Repairs, cost of materials and supplies, fees,
services, staff time operating and managing the OGWS, time coordinating with the City, and
performing services and work for the OGWS.
2.23 "Olympic Gravity Water System", or "OGWS" means the water supply, storage and
transmission systems consisting of the Big Quilcene Diversion, the Little Quilcene Diversion, the
Lords Lake reservoir, the City Lake reservoir, and approximately 29 miles of steel transmission
pipeline. The OGWS terminates at the pipeline bifurcation between the City and the Mill near the
intersection of Mill Road and South 8"' Street at the Delivery Point Meters.
2.24 "Olyn-mic Gravity Wtater S "or"OGWS h"und"means a fund established by the
City and used for OGWS operational and capital expense accounting separate from the City's
other utilities. All Raw Water sales shall be placed in this fund as revenue to pay for OGWS
operational costs and the capital..
2.25 "Operations" means the professional service activities outlined in the scope of services in
the Operations Agreement(Ex. D)associated with keeping water flowing through the system from
the point of intake to the Delivery Point Meters. Operations does not include Maintenance or
System Repairs.
2.26 "Operations Curtailment" means a reduction in the Mill's use of Raw Water under this
Agreement by 50% or more for a period of more than one (1) year for any reason other than
Uncontrollable Circumstances or because of a permanent Mill shutdown.
2.27 "Public Work" means all work on the OGWS as defined by WAC 296-127-010(7)(a),
2.28 "Raw Water" means untreated and unchlorinated water conveyed from the point of
withdrawal to the Mill and the City Delivery Points through the OGWS. Raw Water is a source
of water to the Mill for industrial purposes and the source of water feeding the City's Water
Treatment Facility for production of potable water.
2.29 "Rate Model"means the cost-of-service model used to calculate the rates charged for Raw
Water. The Rate Model calculates Raw Water rates based on revenues generated from water
usage, interest earnings, bond proceeds, Capital Costs, , City Operating Costs, Mill Operating
Costs, City Management Fee, Debt Service Costs, applicable State and Federal taxes,and all other
costs required to support the OGWS. Pursuant to Chapter 13.18 PTMC, the City Utility Tax
defined in Chapter 5.84 PTMC will not be included in the Rate Model.
2.30 "��etdi l Water S steaaa ' means the City's water utility system created under Port Townsend
Municipal Code Chapter 13.11. This system includes water rights, Water Treatment Facility,
Water Supply Agreement—Page 5 of 26 Draft 12-03-21
Resolution 21-081 Exhibit
Page 7 of 26
irrigation wells, distribution systems, reservoirs, fire hydrants, and other appurtenances necessary
to potable and irrigation water within the City water service area as provided for in the City's
Water System Plan.
2.31 "Systcm 1�er):tirs" means any repairs that do not qualify as a Capital Cost. System repairs
may include Emergency Repairs or other minor repairs that are not part of normal Maintenance or
Operations.
2.32 "Unanticipated Capital Costs'" means capital inycstnients not inclu&d in the Capital
Spending Plan,.
2.33 "Uncontrollable Circumstances" means acts of sabotage, war, riots, civil disturbances,
explosions, epidemics, pandemics, major weather events, earthquakes, floods, lightning, fires,
power failure, watermain breaks,shortages or delays in materials,equipment or supplies necessary
for the operation and maintenance of the OGWS,issuance of a temporary restraining order or other
form of injunction by a court brought by a third party that prohibits a Party from performing its
obligations under this Agreement, unforeseeable failure of the OGWS, or other similar events.
2.34 "'Watcrshed Mana,ei�uen " means coordination with the other local, State, and Federal
agencies to prevent or minimize threats to source water quality. Activities include watershed
patrol, permit management, regulatory compliance, and environmental monitoring.
2.35 ",Water Rights" means the City of Port Townsends right to use water from the Quilcene
watershed under water rights record numbers S2*01991C and S2*0199013HC and certificate
numbers 322 and 7028, respectively, and as provided for in the Department of Health approved
July 2019 Water System Plan.
2.36 "Water Treatment Facili1y" means the City's water filtration plant that treats Raw Water
to be delivered to the City's retail customers.
3. RELATIONSHIP BETWEEN THE PARTIES
3.1 This Agreement replaces and supersedes any and all previous agreements or
understandings between the Parties, including any and all lease agreements, including the most
recent extension ending on December 31, 2021.
3.2 This Agreement defines how the City will supply Raw Water to the Mill. The provisions
of this Agreement are not intended to create, nor shall they in any way be interpreted or construed
to create, a joint venture, partnership, agency relationship, or any other similar relationship
between the Parties. No Party shall have any right to obligate or bind the other Party , outside of
the terms of this Agreement, in any manner whatsoever, and nothing contained in this Agreement
shall give, or is intended to give, any rights of any kind to any third persons or Parties.
3.3 Nothing in this Agreement shall interfere with the Parties' compliance with laws and
regulations, including, but not limited to, environmental laws and permits specific to the OGWS.
3.4 The Mill will only use Raw Water for its own purposes and will not resell water.
Water Supply Agreement—Page 6 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 8 of 26
4. ASSETS AND OWNERSHIP
4.1 The City and the Mill enter this Agreement with the separate assets listed in Exhibit B.
Upon termination or expiration of this Agreement, each Party will retain ownership of its separate
assets listed in Exhibit B and those it procures from resources independent of the OGWS Fund
during the Agreement period.
4.2 The City retains ownership of the OGWS. The Parties agree that if there is any part of the
OGWS located on Mill property, or if the Mill holds title to any of the rights-of-way or easements
necessary to access the OGWS, the Mill, upon reasonable advance notice by the City, will work
in good faith to provide the City access to those parts of the OGWS as and when necessary.
5. WATER SUPPLY, USE, AND QUANTITY.
5.1 The City Retail Water System is the priority use of raw water; to that end, the Mill usage
is limited. The following flow and volume limits shall apply to the Mill subject to additional
limitations based on the City's ability to operate the Water Treatment Facility with adequate water
pressures prescribed in this section. The Mill shall not consume water in excess of these limits
without prior approval of the City. The water usage limits specified in this section will be
evaluated at least once every five (5) years consistent with the Rate Model update.
Flow and Volume Limits
The Mill will limit its water consuni tion under this Agreement to the following flow and
volume limits:
• Maximum Day Demand= 13.0 MGD, subject to the City's ability to produce treated water
to meet municipal water demand.
• Maximum Instantaneous Demand= 14.0 MGD or equivalent to 9,722 gallons per minute,
subject to the City's ability to produce treated water to meet municipal water supply
demand.
• Average Day Demand = not to exceed 11.0 MGD. This Average Day Demand water use
average equates to an annual volume consumption limit of 12,322 Acre-ft.
Additional Temporary Flow 1:,imils Based on the City's Need to Maintain Miiiimgm System
Pressures
The City may require the Mill to implement one or more of the following additional flow
restrictions to maintain the City's priority water use. Water pressure, as measured at the inlet
of the Water Treatment Facility,will be the compliance measure for the following limitations.
If there is a discrepancy between flow data and pressure, pressure shall govern under the
following use restrictions. The City will endeavor to minimize additional restrictions for the
benefit of the Mill through management of the City's Retail Water System.
Water Supply Agreement—Page 7 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 9 of 26
• Maximum Day Demand: If water pressure at the inlet of the Water Treatment Facility
drops below 75 psi during a period of high water demand in the City Retail Water System,
the Mill shall limit flows to 11.0 MGD on a daily basis until the period of high water
demand in the Retail Water System has ended. The City will use reasonable best efforts to
provide the Mill with at least one (1) week advanced notice of high water demand in the
Retail Water System necessitating this measure.
• Maximum Instantaneous Demand: During periods of high water demand in the City Retail
Water System, typically caused by extended hot weather events, the Mill shall limit
Maximum Instantaneous Demand Flows to 11.5 MGD or equivalent to 7,986 gallons per
minute. During these periods,the Mill shall not cause the water pressure at the inlet of the
Water Treatment Facility to decrease below 55 psi. The City will use reasonable best
efforts to provide the Mill with at least one(1)week advanced notice of high water demand
in the Retail Water System necessitating this measure.
• Emergencies: In the event of Uncontrollable Circumstances affecting the water supply in
the City's Retail Water System, the Mill may be required to reduce water usage to a
Maximum Instantaneous Demand of 9.5 MGD or equivalent 6,597 gallons per minute. The
Mill shall make best reasonable efforts to respond immediately to a request by the City to
lower flows during an emergency.
If the Mill does not comply with the flow and volume limits in this section, the City may install an
automatic flow valve, such as a back pressure sustaining valve, at the Mill Delivery Point to ensure
compliance with this section. All costs for such flow restriction device shall be paid by the OGWS
Fund.
The above limits were developed using data from Mill and City internal meters between June 2019
and May 2020. The Parties may adjust these figures based on more reliable data as measured by
the new Delivery Point Meters to be installed per this Agreement. The Parties may also adjust
these flow limits as part of OGWS capacity upgrades. OGWS capacity upgrades are not included
in the Capital Spending Plan but may be added in the Capital Spending Plan with mutual agreement
of the Parties.
5.2 The Parties agree to work cooperatively to reduce the risk and occurrence of drought-based
water supply shortages through monitoring and efficient Operations. The Parties agree to assess
water supply no less than quarterly based on watershed snowpack, rainfall, river flows, and water
use as defined in more detail below. Based on the quarterly assessment, the Parties agree to work
in good faith to cooperatively implement mutually beneficial additional use reduction measures.
If the Parties cannot agree to implement additional water use reduction measures, the City may
unilaterally limit water use for the Mill and City retail water customers to promote pro rata
reductions in water consumptions based on projections of water supply. The City will not
unilaterally limit water use for the Mill without also implementing water conservation measures
for City retail water customers. Conservation for the City will include providing notice to
customers to conserve water. Water use reduction measures shall be evaluated based on, but not
limited to, the following steps:
Water Supply Agreement—Page 8 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 10 of 26
1. No later than May 31" of each year the Parties will mutually agree whether or not to
proactively implement water use reduction measures based on snowpack and USGS Big
Quilcene flow data. Snow pack as measured by Mount Craig SNOTEL and USGS Big
Quilcene flow data measured from January 1 to May 31 annually is an indicator of when
Lords Lake drawdown will start as determined by the above and on-the-ground field
observation and other available watershed data.
2. Prior to starting Lords Lake drawdown, which is required to meet In-Stream Flows, the
Parties will mutually agree whether to implement additional water use restriction measures
due to predicted water shortages. In such an instance, both Parties will implement mutually
beneficial measures to minimize the impact of water supply shortages. Based on recent trends
as of the date of this Agreement, beginning to draw off of Lords Lake prior to August 15th is
an indicator of potential water supply shortage in October and November.
3. If the Lords Lake reservoir supply is depleted to a point where the outlet tower is no longer
able to supply demand and the Mill wishes to continue to utilize the remaining water in the
reservoir,the Mill shall be responsible for all costs associated with utilizing that water,which
costs may include the installation and operation of pumps to lift water up to the outlet tower.
4. The Mill will cease production and limit water use to that essential for health and safety
when Lords Lake is empty. In this case,the City Lake reservoir shall serve as reserve solely
for municipal purposes until diversions from the watershed can resume. The standard for City
Lake reserve capacity is City Lake shall be at least 50% full (22'-6" or at 70 MG) on
November 30th. City Lake shall not be drawn down more than the projected need by the City
to achieve this standard.
5.3 If decreased water-usage by the Mill results in sustained excess capacity,the City may offer
other customers Raw Watenand reallocate costs based on usage. Any increased costs, including
Capital Costs and/or costs related to Maintenance_or Operations, associated with the addition of a
customer or customers will be the responsibility of the prospective customer or customers and the
City. The Mill will not be responsible for those costs.
5.4 The City will provide Raw Water to the Delivery Point Meter subject to shutdowns
required to perform Operations,Maintenance, System Repairs and projects in the Capital Spending
Plan. To the extent feasible, the Parties agree to make repairs and improvements to the system
that require shutting off the water to the Mill and City during the Mill Shutdown and during low
water use periods of the year. Shutdown of the OGWS shall be minimized through coordination
and planned and scheduled outages. If the OGWS is out of service or water supply is interrupted
for any reason other than during the planned Mill Shutdown or low water use periods, including
because of Uncontrollable Circumstances, the Mill will not be charged a higher rate for resulting
lower water consumption. The City shall not be liable to the Mill or to third parties for damages,
breach of this Agreement, or any other claim based on the interruption of water service or
curtailment of water supply due to Uncontrollable Circumstances.
6. UNCONTROLLABLE CIRCUMSTANCES
Water Supply Agreement—Page 9 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 11 of 26
6.1 Uncontrollable Circumstances.
(a) Relief. The Parties to this Agreement shall be excused from performing
any obligation under this Agreement to the extent such failure by a Party to perform directly
results from an Uncontrollable Circumstance. The Parties agree that the relief for an
Uncontrollable Circumstance described in this Section 6,1,shall apply to all affected obligations
in this Agreement,except to the extent specifically provided otherwise,notwithstanding that such
relief is specifically mentioned with respect to certain obligations in this Agreement but not other
obligations. The occurrence of an Uncontrollable Circumstance shall not excuse or delay the
performance of a Party's obligation to pay monies previously accrued and owing under this
Agreement, or to perform any obligation hereunder not affected by the occurrence of the
Uncontrollable Circumstance.Notice and Mitigation. A Party that asserts the occurrence of an
Uncontrollable Circumstance shall notify the other Party by telephone or email, on or promptly
after the date the Party experiencing such Uncontrollable Circumstance first knew of the
occurrence thereof, followed within five (5) days by a written description of: (1) the
Uncontrollable Circumstance and the cause thereof(to the extent known); and (2) the date the
Uncontrollable Circumstance began, its estimated duration, the estimated time during which the
performance of such Party's obligations hereunder shall be delayed, or otherwise affected. As
soon as practicable after the occurrence of an Uncontrollable Circumstance, the affected Party
shall also provide the other Party with a description of the steps being taken to mitigate and correct
the effects of such Uncontrollable Circumstance. The affected Party shall provide prompt written
notice of the cessation of such Uncontrollable Circumstance. Whenever an Uncontrollable
Circumstance shall occur,the Party claiming to be adversely affected thereby shall, as promptly
as practicable, use all reasonable efforts to eliminate the cause therefor, reduce costs and resume
performance under this Agreement. While the.. Uncontrollable Circumstance continues, the
affected Party shall give notice to the other Parties, before the first day of each succeeding month,
updating the information previously submitted. The Party claiming to be adversely affected by
an Uncontrollable Circumstance shall bear the burden of proof, and shall furnish promptly any
additional documents or other information relating to the Uncontrollable Circumstance
reasonably requested by the other Party.
7. WATER DELIVERY POINTS.
The City will meter water usage at the Delivery Point Meters. The City will install the Delivery
Point Meters during the 2022 Mill Shutdown. If the Delivery Point Meters are not installed by
April 1,2022,the Parties agree to pay for Raw Water based on Average Day Demand for each day
that the Mill and City are using water before the Delivery Point Meters are installed. Absent more
reliable data to be provided by the Delivery Point Meters, Average Day Demand shall be
determined based on the flow analysis as provided in the Operations White Paper as attached in
Exhibit A. As soon as the contractors performing the work for the 2022 Mill Shutdown notify the
Mill, but no later than two (2) months in advance of the shutdown, the Mill will notify the City of
the dates for the 2022 Mill Shutdown. Raw Water will be unavailable for no more than a period
of five (5) days for the City to complete installation of the Delivery Point Meters subject to
Uncontrollable Circumstances. The installation of the Delivery Point Meters will be paid for by
the OGWS Fund.
Water Supply Agreement—Page 10 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 12 of 26
8. QUALITY OF WATER.
8.1 Standards. Both Parties will use reasonable best efforts to prevent the contamination of
Raw Water for their respective end use purposes.
8.2. [Jability for Failure to-Meet law Water Quality Standards. The Mill agrees to defend,
indemnify,and hold harmless the City for damages caused by the City's failure to meet Raw Water
quality standards that are a direct result of the Mill's negligence. The City agrees to defend,
indemnify,and hold harmless the Mill for damages caused by the Mill's failure to meet Raw Water
quality standards that are a direct result of the City's negligence.
9. FINANCIAL MANAGEMENT, RATES, AND CHARGES.
9.1 Financial Mana wincnt. The City will track all OGWS revenues and expenses separately
from the other City utilities in the management of the OGWS Fund. The City will keep OGWS
financial records separate in the OGWS Fund applying a cash basis based on a calendar year. All
OGWS budgets and expenditures will be approved by the City Council consistent with this
Agreement and City financial policies. For financing purposes,the City's water system(including
the City's assets comprising the OGWS) and sewer system are currently combined and revenues
from both systems secure the City's water and sewer debt. A table of current debt is included as
Exhibit E. The City,however, is not prohibited from and may in the future separate its Raw Water
utility assets, finances, and revenues from the remainder of the City's water system and sewer
system for debt and other financing purposes.
9.2 Cost of Raw Wa e , The City will determine the cost of Raw Water (on a per thousand-
gallon basis) using the Rate Model. The rates in the Rate Model are calculated based on cost of
service analysis over a twenty (20)-year period. Cost of service includes a forward projection of
operations, maintenance, and capital costs. The cost of service model sets a target OGWS Fund
balance necessary to fund Capital Costs according to the Capital Spending Plan and the minimum
reserve;balance. The Rate Model then applies a projection of water use by the Parties to establish
annual volume of water use. An annual rate is calculated by taking the projected operations and
maintenance costs plus the annual capital contribution divided by the projected water use. Exhibit
C includes the initial Rate Model for the OGWS and establishes the Raw Water rates for the first
five (5)years.
9.3 Q dates to Cost of`Raw Water. The City will update the Rate Model once every five (5)
years to establish rates for the following five (5)-year period. Updates to the Rate Model shall
take into account the OGWS Fund balance and actual revenues and expenses for the proceeding
five (5)-year period. This data will inform the establishment of a projection for Operations and
Maintenance costs and the level of capital sinking fund contribution to ensure the ability to pay
for capital according to the updated Capital Spending Plan. The Rate Model will be updated such
that any adjustment in rates will be effective January 1St of the applicable calendar year.
9.4 U dates to Capital Spending Plan, The City will update the Capital Spending Plan at the
same time as the update to the Rate Model.
Water Supply Agreement—Page 11 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 13 of 26
9.5 Payment of Capital Costs. The Rate Model in Exhibit C does not contemplate that the City
will issue any OGWS debt in the next twenty (20) years and that any Capital Costs will be paid
from Revenues received by the OGWS fund. The Parties acknowledge that the City will not
undertake any Capital Costs unless the City has available cash in the OGWS Fund or expects that
it will have sufficient available cash in the OGWS Fund to pay such Capital Costs. The City will
not issue debt (including issuing bonds and obtaining loans) to finance any Capital Costs unless
the Parties consent to the issuance of that debt, and the Mill has provided the City with security
(such as a corporate guaranty, letter of credit or cash) that the City determines is necessary to
secure the debt. If the Parties agree that debt should be issued to finance any work on the OGWS,
Capital Costs shall include all Debt Service Costs. If it is in the Parties' mutual interest,the Parties
agree to amend this Agreement and the Operation Agreement to permit the City to issue debt that
is exempt from federal income taxation. In lieu of debt, the City will fund Capital Costs using the
capital sinking fund approach to build OGWS reserves to an amount sufficient to fund the Capital
Costs identified in the Capital Spending Plan. The OGWS Fund shall maintain a minimum balance
of$2,000,000 to provide for Emergency Repairs.
9.6 Operation and Maintenance Costs in the Cate. Model Exhibit Q. Operation and
Maintenance costs in the Rate Model attached as Exhibit C includes all of the following:
a. Mill Operating Costs.
b. City Operating Costs.
c. The City Management Fee which is in lieu of City Utility Tax in the amount of$150,000
in 2022 and 204,000 in 2023 and escalated annually by the CPI thereafter.
d. Any applicable taxes and fees excluding taxes levied by the City such as the City
Utility Tax established in Chapter 5.84 PTMC which, pursuant to this Agreement
and Chapter 13.18 PTMC, will not be levied on the Mill.
9.7 Citygdg,etin . The City with input from the Mill will develop an annual budget for
Operations, Maintenance, System Repair and Capital Costs by September Is' of each year for the
following calendar year to be included in the City's budget approval process. The first budget
under this Agreement for the period April 1, 2022 through December 31, 2022 will be adopted by
the City prior to April 1, 2022 through a 2022 supplemental budget appropriation. The Rate Model
will serve as the basis for budgeting and the Parties will work cooperatively in the development of
the annual budgets. The Parties will also work cooperatively to justify increases in the annual
budget for Operations, Maintenance, System Repair and Capital Costs above the level projected
in the Rate Model. Capital Costs for the following calendar year according to the Capital Spending
Plan will also be included in the City's capital budgeting process. The Parties will work
cooperatively to justify changes to the capital budget as compared to the Rate Model and Capital
Spending Plan. Actual expenditures will be considered in the update of the Rate Model every five
(5) years. The following schedule outlines the approximate budgeting process timeline based on
state law.
• July to August — City and Mill work together to start developing a budget for the next
calendar year and projections for the end of the current calendar year.
• Sept. 1 - Preliminary budget for operations and maintenance submitted.
Water Supply Agreement—Page 12 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 14 of 26
• Sept. 1 - Preliminary budget for capital submitted.
• October 15th - Final budget established for City Council review for the next calendar year
and the projection for the end of the current calendar year.
• November—December—Final budget adopted.
10. BILLING AND PAYMENT.
10.1 Monthly Billing by the Cita. The City will bill the Mill monthly for water consumed as
recorded by the Delivery Point Meter. The bill will identify the volume of Raw Water delivered
during the month since the last meter read at the rate in the current Rate Model. Payment by the
Mill is due within thirty (30) days of the receipt of the bill.
10.2 Char ges for Mill Operating Costs. The Mill and the City will endeavor to submit invoices
monthly and no less than quarterly to the City Finance Department for services rendered to the
OGWS. All invoices will include the services rendered with an itemized list of labor, materials,
and equipment purchased. Reimbursement for expenses will be made by the City within forty-
five (45) days of receipt of the invoice, subject to any necessary corrections to the amount billed.
The Mill will request City pre-approval of expenditures outside of the adopted annual budget
outlined in Section 9.7.
10.3 late Payment menu by the Mill. If a Mill bill remains unpaid after forty-five (45) days,the City
will assess interest on the delinquent amount at the rate of twelve percent (12%) per annum. If a
bill remains unpaid after ninety (90) days,the City may use other remedies legally available to it.
Nothing in this Agreement relieves the Mill of its obligations to pay for water consumed and
metered following a notice of termination of this Agreement.
10.4 Late Payment by the City. If a City bill remains unpaid after forty-five (45)days,the Mill
will assess interest on the delinquent amount at the rate of twelve percent (12%) per annum. If a
bill remains unpaid after ninety (90) days, the Mill may use other remedies legally available to it.
11. METERING.
11.1 Meters and 'restin . The volume of water delivered to the Mill will be measured by the
Delivery Point Meters. The Delivery Point Meters will be electromagnetic flow meters and will
be owned and read monthly by the City. The City will ensure that the meters are calibrated in the
factory before they are installed and will perform inspections on at least an annual basis to ensure
they are performing pursuant to the manufacturer's specifications. The City will provide the Mill
advance written notice at least five (5) days before any meter inspection and/or verification of
functionality, including the date, time, and location of, and the right to be present for, any such
inspection and/or verification of functionality. The OGWS Fund will pay the cost of conducting
routine inspections and verifications of functionality as part of Operations. Either Party may
request the meters be inspected or recalibrated at times outside of regularly scheduled inspections
and/or verifications of functionality at that Party's sole expense. In the event of any such request,
either Party may elect to have a representative witness the meter inspection and/or verifications of
functionality. If an inaccuracy of more than 1.0 percent is discovered during a verification of
Water Supply Agreement—Page 13 of 26 Draft 12-03-21
Resolution 21-081 Exhibit
Page 15 of 26
functionality, all billings for water for both parties from the date of the preceding verification of
functionality will be adjusted. The adjustment will be for the full amount in excess of 1.0 percent.
11.2 Temporary Lapses in Water Meter Data. If metered water use is incomplete or inaccurate
for a monthly billing period,the City may bill the Parties for such period based on estimated water
use. The City may estimate use based the on the Average Day Demand multiplied by the days in
operation. The Mill will provide water use records in support of creating such an estimate. The
City will provide the Mill documentation of the method used to estimate Mill water use for such
period. The Parties will agree on the methodology used.
12. TERM, MILL SHUTDOWN,AND TERMINATION.
12.1 Term. This Agreement will take effect on January 1, 2022 and remain in full force and
effect until December 31, 2041, unless terminated earlier by either Party pursuant to this Section.
The Parties may mutually agree to extend this Agreement for an additional period of twenty (20)
years.
12.2 Mill shut down and/or curtailment of water use. If the Mill permanently shuts down or
experiences an Operations Curtailment, the City may terminate this Agreement at its sole
discretion. In the case of an Operations Curtailment, the City will continue to make available to
the Mill Raw Water at the rate established at the time of the occurrence of the Operations
Curtailment for a period of three (3)years or until a revised contract can be negotiated, whichever
occurs first.
If the Mill shuts down without notice as required by Section 12.3, a termination fee of$3,000,000
will apply.
12.3 Notice of Termination. Either Party has the right to terminate this Agreement by giving at
least one (1)year written notice to the other Party. Termination fees are as follows:
12.3.1 In the case of the Mill giving notice of termination, to account for the City's need
to address Operations and Maintenance of the OGWS, the following termination fees will apply:
(a) One (1)-year advance notice. In lieu of a termination fee the Mill will continue to provide
Operations as outlined in the Operations Agreement for the twelve (12) month termination period
beginning upon issuance of the notice of termination.
(b) Less than one(1)year but more than six(6)months advance notice. The Mill will continue
to provide Operations as outlined in the Operations Agreement for six (6) months following the
date of notice of termination and a$500,000 termination fee will apply.
(c) Less than six (6) months. A termination fee of$1,000,000 will apply,
(d) In the event of a termination under Sections 12.3.1(a)-(c), if the City is under contract for
Capital Costs in excess of$3,000,000,then an additional termination fee of$1,000,000 will apply.
Water Supply Agreement—Page 14 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 16 of 26
12.3.2 In the case of the City giving notice of termination, to account for the Mill's need
to address its ongoing water supply,the following termination fees will apply:
(a) One (1)-year advance notice. No termination fee will apply
(b) Less than one (1) year but more than six (6) months advance notice. The Mill will only
provide Operations as outlined in the Operations Agreement for six(6) months following the date
of notice of termination and a$500,000 termination fee will apply.
(c) Less than six (6) months. Termination fee of$1,000,000 will apply.
13. GENERAL
13.1 Amendments. Amendments to this Agreement shall be made in writing, agreed to and
signed by both Parties.
13.2 Conflicts. To the extent there is any inconsistency between the provisions of (1) this
Agreement and (2) any exhibit incorporated as part of this Agreement, the provisions of this
Agreement will control.
13.3 Records lies ecti�on. The Parties will maintain and make available for inspection at
reasonable tunes all records pertaining to the OGWS. These records shall be maintained for five
(5)-years.
13.4 Notices. All notices and billing required hereunder shall be sent to the following addresses:
City
City Manager
Port Townsend City Hall
250 Madison Street
City of Port Townsend, WA 98368
Mill
Chief Financial Officer
100 Mill Road
Port Townsend, WA 98368
The person and address to which the notices are to be given may be changed at any time
by either Party upon written notice to the other Party. All notices given pursuant to this Agreement
will be deemed given upon receipt by certified mail.
The Mill shall appoint a local point of contact for the City to work with on a day to day basis.
13.6 Applicable Law a.ild Venue. This Agreement and all disputes arising thereunder shall be
governed by Washington State Law. The venue for all court actions shall be Superior Court of
Jefferson County Washington.
Water Supply Agreement—Page 15 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 17 of 26
13.7 Assignment; Survival. Except as otherwise provided herein, neither Party may assign its
rights or obligations under this Agreement without the express written consent of the other Party,
which will not be unreasonably withheld. This Agreement shall be binding upon, and inure to the
benefit of, the successors and permitted assigns of the Parties.
13.8Dis]jute lie,olution. The Parties shall seek to resolve amicably any disputes arising under
this Agreement. If a dispute cannot be resolved by the Parties, any Party may invoke a formal
conflict resolution process under this Section 13.8.
13.8.1 The first step in the process will be a meeting including the City Manager and Public
Works Director and the Mill representatives.
13.8.2 If the Parties cannot resolve the dispute at the first step within thirty(30)days of the
meeting in Section 13.8.1, or after making a reasonable effort to convene such a meeting, the
second step in the process shall be mediation before a single mediator selected by mutual
agreement of the Parties. If the Parties cannot agree on a mediator, either Party may apply to the
presiding judge of the Jefferson County Superior Court for appointment of a mediator.
13.8.3 If the Parties cannot resolve the dispute at the second step within ninety (90) days
of the appointment of the mediator, any Party may commence an action in court under this
Agreement.
13.8.4 Any dispute that cannot be resolved by the Parties shall be resolved in the Jefferson
County Superior Court with each Party preserving its right to trial by jury.
13.9 Non-Waiver. A waiver by either Party of the other Party's breach of any provision of this
Agreement will not be construed as a waiver of any subsequent breach of that provision or as
waiver of any other provision in this Agreement. No payment or acceptance of compensation for
any period subsequent to any breach shall be deemed a waiver of any right or acceptance of the
breach. When the condition to be waived is a material part of the Agreement such that its waiver
would affect the essential bargains of the Parties, the waiver must be supported by consideration
and take the form of an Agreement modification.
13.10 leo"l"hard-Part r Beneliciar . The rights and obligations created by this Agreement are for
the sole benefit of the Parties, their successors or assigns, and no person not a Party shall be a
beneficiary, intended or otherwise, of any such rights or be entitled to enforce any of the
obligations created by this Agreement.
13.11 Construction. This Agreement has been freely and fairly negotiated by the Parties hereto
and has been reviewed and discussed by legal counsel for each of the Parties, each of whom has
had the full opportunity to modify this Agreement and,therefore,the terms of this Agreement shall
be construed and interpreted without any presumption or other rule requiring constructional
interpretation against the Party causing the drafting of the Agreement.
13.12 Capj)ns. The captions and paragraph headings contained in this Agreement are for
convenience and reference purposes only and in no way define, describe, extend or limit the scope
or intent of this Agreement, nor the intent of any provision hereof.
Water Supply Agreement—Page 16 of 26 Draft 12-03-21
Resolution 21-081 Exhibit
Page 18 of 26
13.13 Prior Agreenient Superseded: Complete Agreenient. This Agreement replaces and
supersedes any and all previous agreements or understandings between the Parties, including any
and all lease agreement extensions, including the most recent extension ending on December 31,
2021. This Agreement contains the complete statement of the Parties' understanding with respect
to the subject matter of this Agreement. There are no other representations, agreements, or
understandings, oral or written, by the Parties relating to the subject matter of this Agreement that
are not fully expressed in this Agreement. Each Party acknowledges and represents to the other
Party that it is executing this Agreement solely in reliance upon its own judgment and knowledge
and that it is not executing this Agreement based upon the representation or covenant of the other
Party, or anyone acting on such Party's behalf, except as expressly stated herein. Any
modifications or amendments to this Agreement shall be approved in writing by both Parties.
13.14 Execution in Counterarts;. This Agreement may be'executed in two or more counterparts,
all of which, when taken together, shall constitute one and the same Agreement. Executed
counterparts transmitted by facsimile or electronic means shall be binding on the Parties.
13.15 Certain Representations And Warranties Of The Parties. Each Party represents and
warrants to the other that the execution, delivery, and performance of this Agreement have been
duly approved by all required government or corporate action, and that the person or persons
signing on behalf of such Party have full authority to do so.
13.16 Public Record's. All records provided to and communications with the City shall be subject
to the Public Records Act, Chapter 42.56 RCW, including exemptions under that Act.
1.3.17 l finits on Liabalit The Mill agrees to defend, indemnify, and hold harmless the City from
any and all claims, injuries, damages, losses or suits including attorney fees, arising out of or in
connection with the Mill's performance of this Agreement. The City agrees to defend, indemnify,
and hold harmless the Mill for damages from any and all claims, injuries, damages, losses or suits
including attorney fees, arising out of or in connection with the City's performance of this
Agreement. If joint, concurring, comparative or contributory fault or negligence of the Parties
gives rise to the claims, injuries, damages, losses or suits for which the Parties are entitled to
indemnification under this section, then any damages or losses shall be allocated between the
Parties in proportion to their respective degrees of fault or negligence contributing for such
damages or losses.-
IN WITNESS WHEREOF, the Parties hereto have each executed this Agreement as of the day
and year below written.
CITY OF PORT TOWNSEND PORT TOWNSEND PAPER CORPORATION
By: By:
Title: Title:
Date: Date:
Water Supply Agreement—Page 17 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 19 of 26
Approved as to Form:
... —........... .... . .._..................................... ........w
City Attorney
Attest:
City Clerk
Water Supply Agreement—Page 18 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 20 of 26
EXHIBIT A—OGWS Final Report—White Papers
Water Supply Agreement—Page 19 of 26 Draft 12-03-21
Resolution 21-081 Exhibit
Page 21 of 26
Exhibit B —OGWS Assets
The City's OGWS assets include the following:
• Municipal water rights Certificates 322 and 7028
• Real property owned in fee simple (Parcels #_list all city parcels, )
• US Forest Service Permits
• Diversion structures at the Big Quilcene River, including the residence, shop, and leased
real property located on US Forest Service-owned property.
• Diversion structure at the Little Quilcene River
• Lords Lake Reservoir including real property.
• City Lake Reservoir including residence, shop, and real property.
• Approximately 29 Miles of Pipeline between the diversions and reservoirs and between the
reservoirs and the Delivery Meter Point.
• Approximately 29 miles of pipeline easement between the diversions and reservoirs.
The Mill's OGWS assets include the following:
• Real Property owned fee simple (Parcels# list all Mill parcels,
• Tools purchased by the Mill
• Three utility pickup vehicles
• Personal property located at both residences, including employee's personal property
• Utility tractor and trailer
• Spare parts the Mill has purchased and has on hand as provided in the assets section of
Exhibit A.
Water Supply Agreement—Page 20 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 22 of 26
EXHIBIT C -Rate Model and Capital Spending Plan
Rate Calculation 2022 2023 2024 2025 2026
Allocation Basis Share of Tatal Volume
Operation&Maintenance Costs
Mill Operating Costs 341,775 464,814 $ 474,110 $ 483,592 $ 493,264
Mill Emergency Repair 45,000 61,200 62,424 63,672 64,946
City Operating Costs 76,500 104,040 106,121 108,243 110,408
City Management Fee(in lieu of Utility Tax) 150,000 204,000 208,080 212,242 216,486
Total $ 613,275 $ 834,054 $ 850,735 $ 867,750 $ 885,105
Annual Sinking Fund Contribution 2,689,045 3,807,178 3,939,016 4,075,273 4,216,095
Debt Service
Less:Use of Debt Reserve for Final Payments
Additional Coverage Required
State Excise Taxes 174,868 245,767 253,632 261,748 270,124
... _.•...m.•... -._. ..................
Total Allocable Cost $ 3,477,188 $ 4,886,999 $ 5,043,383 $ 5,204,771 $ 5,371,324
Annual Cost Allocated to Mill $ 3,179,295 $ 4,468,327 $ 4,611,313 $ 4,758,875 $ 4,911,159
Annual Mill Demand 2,962 MG 3,950 MG 3,950 MG 3,950 MG 3,950 MG
Mill Rate per Thousand Gallons(kgal) $1.07 $1.13 $1.17 $1.20 $1.24
Annual Cost Allocated to City $ 297,893 $ 418,672 $ 432,069 $ 445,896 $ 460,164
Annual City Demand 278 MG 370 MG 370 MG 370 MG 370 MG
City Rate per Thousand Gallons(kgal) $1.07 $1.13 $1.17 $1.20 $1.24
Rate Calculation 2027 2028 2029 2030 2031
Allocation Basis Share cf Total Volume
Operation&Maintenance Costs
Mill Operating Costs $ 503,130 $ 513,192 $ 523,456 $ 533,925 $ 544,604
Mill Emergency Repair 66,245 67,570 68,921 70,300 71,706
City Operating Costs 112,616 114,869 117,166 119,509 121,899
City Management Fee(in lieu of Utility Tax) 220,816 225,232 229,737 234,332 239.019
Total $ 902,807 $ � 920,863 $ 939,280 $ 958,066 ...,. �
$ 977,227
Annual Sinking Fund Contribution 4,198,393 4,180,337 4,161,919 4,143,134 4,123,972
Debt Service
Less:Use of Debt Reserve for Final Payments
Additional Coverage Required
State Excise Taxes 270,124 270,124 270,124 270,124 270,124
Total Allocable Cost $ 5,371,324 $ 5,371,324 $ S,371,324 $ 5,371,324 $ 5,371,324
Annual Cost Allocated to Mill $ 4,911,159 $ 4,911,159 $ 4,911,159 $ 4,911,159 $ 4,911,159
Annual Mill Demand 3,950 MG 3,950 MG 3,950 MG 3,950 MG 3,950 MG
Mill Rate per Thousand Gallons(kgal) $1.24 $1.24 $1.24 $1.24 $1.24
Annual Cost Allocated to City $ 460,164 $ 460,164 $ 460,164 $ 460,164 $ 460,164
Annual City Demand 370 MG 370 MG 370 MG 370 MG 370 MG
City Rate per Thousand Gallons(kgal) $1.24 $1,24 $1.24 $1.24 $1.24
Water Supply Agreement-Page 21 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 23 of 26
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Resolution 21-081 Exhibit A
Page 24 of'26
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Water Supply Agreement—Page 23 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 25 of 26
EXHIBIT D—Operations Agreement
Under negotiation
Water Supply Agreement—Page 24 of 26 Draft 12-03-21
Resolution 21-081 Exhibit A
Page 26 of 26
EXHIBIT E—CITY DEBT DISCLOSURE
Summary of City Water-Sewer Utility Debt as of 1/1/2022
Debt Date of Debt issuance Remaining Maturity
Description Purpose Source Issuance Principle I principle Date
..................................... ................ ...................................
2002 PWTF Loan(PW-02-691-044) Morgan Hill Booster Station 1,PWTF 2002 $ 1,242,733 59,595 2022�;
2002 SRF Loan(1-0200012) ':Sewer System Improvements CW5RF 2002 148,011
2024
2012 UV Treatment PWTF Loan(PC12-951-075) Water Filter Plant PWTF- 7.012 $ 1,896,0130 5 1,119:214 2.031
2013 UV Disinfection PWTF Loan(PC13-961-018) Water Filter Plant PWTI� 2013 5 5,000,000 5 2,711104 2032'1
1
2012 UV DWSRF Loan(DM12-952-092) Water Filter Plant DWSRF 2012 $ 3,041,910 $ 2,303,641 2036'1
2013 5 MG Reservoir PWTF Loan(P4 13-961-031) 5 MG Reservoir Construction PWTF 2013 S 2,104,000 825,682 20321
2012 City Lake Repair(PC12-951-060) City Lake Repair PWTF 2012 5 1,000,0100 S 1 526,316 2031
2015 5 MG Reservoir DWSRF(DM15-952-034) DWSRF 201$ $ 4596,320 $ 2„829,BN 2037
Revwwe
Utility Loan WTPlant&other profects Bonds 2 0i10, $ 1,834,800 2040
2017 Wastewater Outfall Loan(WQC-2017-portoc-00182) Sewer System outfall CWSRF 2017 5 204,(,190
2021 Wastewater OuVall Loan,(WOC 2021-poutoc-00169) Sewer System outfall CW R021 3,180,10 S 3.130,000 2054
.................................... ........
Total 24,179,943 $ 15,538,187
OGWS Debt:The following debt from above Is associated with the OGWS
2012 City Lake Repair(PC12-951-060) Debt Service Approx
2002 PTWF Loan Big Quicen Diversion Rehab. Debt Service Approx=$40,000
Notes'�
DWSRF=State Drinking Water State Revolving Fund
CWSRF=State Clean Water Revolving Fund
PWTF=State Public Works Trust Fund
Revenue Bonds=Kitsap Bank Loan
Water Supply Agreement—Page 25 of 26 Draft 12-03-21