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Page 2 Wastewater Treatment Plant City Council Meeting 3/21/00 the p�anning evolved around the availability of Unit 1 and the City's ability to restore/rehabilitate it, as discussed above (rated capacity of 2.4 MGD). Loss of this unit before the next scheduled addition would mean that the plant would fall below the prescribed rating to about 6.0 MGD. The Department has completed much of the engineering and design for plant buildout to get to the 10 MGD level without Unit 1. The additional 2 MGD, in the current construction phase, is ready to go on-line within the next 30 days. The plant will then be at 8.4 MGD capacity, but the concern over the longevity of Unit 1 clouds the issue. If this unit fai�s, either from age or catastrophic incident such as an earthquake, the plant rating for reliability would only be 6.0 MGD. This would not be sufficient to satisfy the Regional Board or effectuate the removal of the Cease and Desist Order. The recommendation of the consulting engineer to remove Unit 1 from service and replace it with two additional oxidation ditches provides a long-term solution to the reliability problem and should be satisfactory to the Board. It is their opinion that any effort to rehabilitate Unit 1 would not be in the City 's best interest, either financially or operationally. Money put into the unit would only prolong the inevitable, eventual degradation of the facility rendering it unusable. They insist that the money would be better spent on new facilities that give the City a permanent solution that does need to be addressed again until the population exceeds the new reliable capacity of the plant. The contractor on-site is completing two ditches at a cost of approximately $6 million. The contractor has provided a letter to the Department committing to build two more ditches for $3.5 million. The difference is due to savings attributable to mobilization and setup, site preparation, engineering interfaces, design review, and regulatory review. The contractor has committed to stay at the plant and complete the additional work through a Change Order issued by the City. The City has the authority to issue the order, as provided below. A delay in responding to the contractor's offer will ultimately cost the City, and the ratepayer, more and could result in the loss of Unit 1 at any time. Waiting until Unit 1 fails, of course, will have the result: additional capacity through expansion. However, the City would then have to suffer the time to bid the project, undertake alI of the actions that create the savings previously noted, and include any inflation. The estimated costs would exceed the $6 million spent during this phase of construction. In order to move forward with the rate change, the City Council will have to commit to the concept of a future rate increase sufficient to pay operational and debt service costs. Second, the Department will have to issue revenue bonds in an amount to provide net proceeds of $3.5 million. The financing cannot be secured without the commitment to a future rate increase to meet all of the bond covenants in terms of revenue requirements. It is difficult to precisely give a number as to the required rate increase. Using best estimates, it is projected to be in the range of 35%. This would equate to about a$6 per month increase to a residential customer. That would raise the rate from $18.50 per month to about $24.50 per month. This is only an estimate; it could vary depending on the interest rates and terms of the revenue bond. As mentioned earlier in this presentation, the financial plan that was adopted along with the rate increase in July, 1998, clearly indicated that a subsequent rate adjustment would be required. At that time, those rates were projected to be set at $22.54 per month for a residential customer. The recommended change here, would add approximately $2.00 a month over the projected rates, and fix a problem that will not have to be addressed for many years. The ability of the City Council to move forward with the additional 2 MGD or plant expansion is based upon the emergency facing the City at the Treatment Plant. That is, the immediate threat that Unit 1 could fail at any time due to age or a catastrophic event. The Ciry also has the authority to move forward by change order since there would be no competitive advantage to be gained by bidding this work given the fact that Americon Constructor's Inc., the lowest bidder on the current $6 million, 2 MGD project, has offered to