kwa - preliminary engineering report - sept 2009 - appendix 18

8/7/2019 KWA - Preliminary Engineering Report - Sept 2009 - Appendix 18

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540 S. Saginaw Street Suite 200 P.O. Box 3748 Flint, MI 48502

Lake Huron Water Supply Study

Karegnondi Water Authorityo City of Flinto Genesee Countyo Lapeer Countyo Sanilac County

Appendix 18Continued Supply from DWSD

April 28, 2009Revised September 24, 2009


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Lake Huron Water Supply Study Appendix 18 Continued Supply from DWSD

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18.1 Introduction

The City of Flint (Flint) and the Greater Lapeer County Utility Authority (GLCUA) have watersupply contracts with the City of Detroit Water and Sewerage Department (DWSD). TheGenesee County Drain Commissioner-Division of Water and Waste Services (GCDC-WWS) hasa contract with Flint for supply of water. Sanilac County, the other study participant, is notcurrently a customer of DWSD. The Sanilac County community of Worth Township is suppliedwater by the Village of Lexington. Neither Sanilac County nor Worth Township is considered inthis discussion regarding service by DWSD. Continuing their existing service will be discussedlater.

One of the alternatives for long term water supply for Flint, GCDC-WWS, and GLCUA iscontinuing to purchase finished water from DWSD. Representatives of the study group have metwith DWSD officials to discuss options for continued supply by DWSD. Although the specificdetails for any of the options discussed have not been worked out, several different concepts havebeen discussed. This appendix provides a review and analysis of some of the options forcontinued supply by DWSD.

18.2 DWSD Rate Model

DWSD has established a uniform rate structure to establish water rates for all of its suburbanwholesale customers. The rate structure includes the following variables which are defined foreach individual suburban wholesale customer:

Annual average day demand Maximum day demand Peak hour demand Distance from geographical center of all DWSD WTPs Elevation difference from geographical center of all DWSD WTPs Meter Size Combinations of some of these factors

DWSD determines its cost to operate, maintain, and expand the system on an annual basis.Individual costs are categorized according to their impact from the preceding variables. The costof water for each customer is computed annually using the cost factors and the variablesestablished for each community.

Because of their location away from the Detroit metropolitan area; the cost of water for Flint,GCDC-WWS, and GLCUA is heavily dependent upon the distance and elevation variables of theDWSD rate model. As an example, the 2009 water rate for Flint is $13.07 per 1,000 cubic feet(MCF). Table 18-1 shows that 69% of the cost of water is attributed to distance and elevationfactors incorporated in the DWSD rate model.

Table 18-1 Example of Cost Components of Flint Rate

Component of RateCost of Water

($/MCF)

Portion of RateAttributed toDistance & Elevation

Commodity $3.95

Distance $2.21 17%

Distance / Elevation $6.84 52%

Other $0.07

Total $13.07 69%


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18.3 Planned DWSD Transmission Facilities Upgrades

DWSD is planning significant upgrades to their transmission facilities. The cost of upgrades toDWSDs facilities are divided amongst customers and incorporated into the water rates. The costof transmission facilities are considered common to all and are distributed on the basis ofdistance and elevation. Future rates for Flint, GCDC-WWS, and GLCUA are expected toincrease significantly to provide for the investment in the new transmission facilities because oftheir high distance and elevation factors.

Table 18-2 summarizes upgrades planned by DWSD to their transmission facilities.

Table 18-2 Planned DWSD Transmission Facility Upgrades

ProjectEstimated

CostConstruction

Start

Flint Loop Transmission System $572,200,000 2009

NOTS $245,200,000 2009

Macomb (includes the following) $464,800,000 2023

Chesterfield Booster Pump Station $15,150,000

24 Mile Road Parallel Main $38,000,000Lake Huron WTP HS Pump Upgr. $23,450,000

Second Feed - PH to Chesterfield $388,200,000Source: DWSD Capital Improvement Program-September 25, 2008 Presentation

DWSD has let contracts for management of many recent projects. A construction managementfee of 7% will be added to the project costs, shown in table 18-2, to allow for constructionmanagement.

18.4 Continued Supply by DWSD

DWSD has developed a new master agreement for wholesale water sales to suburbancommunities. A copy of the master agreement is included in Section 18.6. The agreement

requires a thirty year commitment for water supply and that customers purchase a minimumvolume annually. The agreement also allows suburban communities to establish the demands andpressures to be supplied. Water rates will be established based upon the demands established bythe customer. DWSD is not required to deliver rates greater than the demands required by thecontract and DWSD may increase a communitys rate when the contracted amount is exceeded.

Existing suburban customers are not required to execute the new master agreement for continuedsupply by DWSD. Existing customers can continue to purchase water using the existing contract.Water rates will be established using historical demands plus a 20% proxy.

Some of the concepts for continued service which have been discussed with DWSD will becompared on the basis of the projected cost of water. Rates for the concepts studies have been

computed using the format presented by DWSD and the Foster Group in September 2008 todocument the computation of the 2009-2010 rates.

DWSD officials have indicated that the cost of water to wholesale suburban customers isanticipated to increase at an average rate of 7% annually through 2014 and 5% annuallythereafter. These increases represent the average for all suburban customers. A review ofhistorical rates indicates that annual increases to Flint have averaged 1% higher than the averageof all customers. For this analysis, it is assumed that rate increases are 1% higher than theaverages anticipated by DWSD.


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Table 18-2 identified several upgrades to the transmission facilities planned by DWSD. DWSDrate methodology incorporates the recovery of capital investment in new facilities into the rate.In developing rates for the options considered here, the following assumptions have been made.

The group of suburban wholesale customers remains unchanged

Water loss is constant

Four options have been studied for Flint, GCDC-WWS, and GLCUA to continue as DWSDcustomers.

18.4.1 Option 1- Annual Contract

This scenario assumes that Flint and GLCUA continue to purchase finished water fromDWSD based on their existing contracts. GCDC-WWS is assumed to continue to purchasewater from Flint. This option represents no change from the present arrangement.

Without executing the new master agreement, rates will be established based on historicaldemands plus a 20% proxy.

The 2009-2010 rate was determined by DWSD and presented in September 2008. For thisanalysis, it is assumed that the rate increases at an annual rate of 8% through 2014 and 6%later. Table 18-3 shows the 2009-10 rates, key variables used in the DWSD rate model, andthe required rate of capital recovery used to determine the cost of water for this option.

Table 18-3 Factors Used to Determine Cost of Water for Option 1

2009-10Rate

($/MCF)DistanceFactor

Distance-Elevation

Factor

% PeakHour

Distance

Capital RecoveryRequirement($ / $100M)

Projected2036 Rate($ / MCF)

Flint & GCDC-WWS $14.32 52.0 76.2 8.52% $570,000 $60.55

GLCUA $16.11 47.3 70.1 0.82% $55,000 $65.57

Table 18-4 shows the projected cost of water if Flint and GCDC-WWS continue to purchase

water utilizing the existing water supply contract. Table 18-5 shows the projected cost ofwater for GLCUA from DWSD with their original contract.

18.4.2 Option 2- Master Agreement (Current Demands Plus 5%)

This option is based on the assumption that Flint, GCDC-WWS, and GLCUA execute thenew master agreement for water supply with DWSD. It is assumed that the agreement limitsdemands to 5% more than historical demands for purposes of establishing rates.

Table 18-6 shows the 2009-10 rates, key variables used in the DWSD rate model, and therequired rate of capital recovery used to determine the cost of water for this option.


2009-10Rate


Distance-Elevation

Factor

% PeakHour

Distance



Flint & GCDC-WWS $12.71 52.0 76.2 7.69% $516,000 $53.80

GLCUA $14.16 47.3 70.1 0.73% $49,000 $57.65

Table 18-7 shows the projected cost of water for Flint and GCDC-WWS and Table 18-8shows the projected cost of water for GLCUA.


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18.4.3 Option 3 Master Agreement (Future Demands)

This scenario is based on the assumption that Flint, GCDC-WWS, and GLCUA execute thenew master agreement with DWSD for water supply. It is assumed that the agreementestablishes the future demands from Appendix 1 for establishing water rates.



2009-10Rate


Distance-Elevation

Factor

% PeakHour

Distance



Flint & GCDC-WWS $14.13 52.0 76.2 9.91% $665,000 $60.38

GLCUA $14.50 47.3 70.1 2.58% $173,118 $62.28


18.4.4 Option 4 Master Agreement (Capital Contribution)

DWSD officials have indicated that Flint, GCDC-WWS, and GLCUA could realize reducedrates through a partnering arrangement. In this scenario, Flint, GCDC-WWS, and GLCUAwould execute the new master agreement and would be responsible for the construction andoperation of a portion of the transmission facilities upgrades planned by DWSD. Under thisoption, the distance and elevation factors used for establishing rates can be reduced.However, the cost for constructing and operating a portion of the proposed DWSD facilitiesmust be added to the purchase price of water to determine the total cost of water.

Specific details of such a partnering arrangement have not be discussed in detail or agreedupon. To evaluate this option, it is assumed that Flint, GCDC-WWS, and GLCUA construct

and operate that portion of the planned Flint Loop Transmission System (FTS) which arelocated in Genesee County. Table 18-12 summarizes the FTS facilities planned for GeneseeCounty.

Table 18-12 Flint Loop Transmission System Facilities Planned Within Genesee County

Facilities Cost

North Transmission CM-2018 $266,000,000*

30 Inch Main CM-2019 $9,500,000*

Grand Blanc Pumping Station $48,000,000*

Subtotal $323,500,000

Construction Management (7%) $22,645,000

Total Project Cost $346,145,000*Source: December 2008 DWSD Summary of Construction Cost, FlintTransmission System CS-1486

The proposed facilities to be constructed by Flint, GCDC-WWS, and GLCUA include theGrand Blanc Pumping Station. It is assumed that Flint, GCDC-WWS, and GLCUA will beresponsible for the ongoing operation and maintenance of the pumping station. For thisanalysis, an average pumping rate of 25 mgd is assumed throughout the study period.


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2009-10Rate

($/MCF)

Distance

Factor

Distance-Elevation

Factor

% PeakHour

Distance

Capital RecoveryRequirement

($ / $100M)

Projected2036 Rate

($ / MCF)Flint & GCDC-WWS $8.06 22.8 31.1 4.45% $299,000 $44.67

GLCUA $8.61 22.8 31.1 1.29% $87,000 $46.02


18.5 Summary

The cost of water for the four options considered is shown graphically in Figures 18-1 and 18-2.

Figure 18-1: Flint & GCDC-WWS Remain DWSD Customers-Cost of Water

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

Costo

fWater($/MCF)

Year

Option 1

Option 2

Option 3

Option 4


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Figure 18-2: GLCUA Remain DWSD Customers-Cost of Water

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

CostofWater($/MCF)

Year

Option 1

Option 2

Option 3

Option 4

18.6 Comparison of Options

The four options considered are variations of concepts for DWSD continuing to supply water to Flint,GCDC-WWS, and GLCUA. The specific details of any particular option for continuing the DWSDsupply have not been worked out; the analyses completed are based on certain assumptions to provide ageneral understanding of the likely cost of water from DWSD. Volatility of assumptions regarding utilitycosts, construction costs, inflation, and other economic variables will occur and cannot be predicted withaccuracy. However, costs for all options considered (including the alternative of a new Lake Huron watersupply) should be affected similarly. Although costs may vary, it is expected that the relative differencebetween the options and alternatives studied will be consistent.

In comparing the four options for continuing supply by DWSD, Option 2 and Option 3 appear to establishthe range of the future cost of water. Option 2 results in the lower rate since it is based on the assumptionthat there is only a 5% increase in demands over the next 25 years. Option 3 is based on the assumption

that demands increase about 16% over the next 25 years.

Over the 25 year planning period, the cost of water for Option 4 will almost be equal to that of Option 2,when averaged over the period. Initially, Option 4 will have a higher cost. Beyond the 25 year planningperiod, greater savings will be realized with Option 4 than the Options 1 through 3.

Because Option 4 has a slightly less cost than other options over the 25 year planning period and beyond,it will be compared with the alternative of constructing a new Lake Huron water supply in Section 8 ofthe Preliminary Engineering Report.


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18.7 Master Agreement

A copy of the master agreement developed by DWSD follows.


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kwa - preliminary engineering report - sept 2009 - appendix 18

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