Operating Budget Spent as Percent of Approved

Transcription

1 Operating Budget ($ Mil) Metropolitan Sewer District of Greater Cincinnati Discussion Regarding Operating Budget The 2014 Operating Budget recommendation represents the Metropolitan Sewer District of Greater Cincinnati (MSD s) estimate of the resources necessary to carry out its authorized mission and meet regulatory requirements in a cost effective manner. Public health is an essential, but expensive endeavor and water quality is at the heart of what we do. MSD operates its facilities and implements projects to protect public health, meet all permit limits and obligations under the federal Clean Water Act. The recommended 2014 operating budget and proposed rates provide for the resources necessary to implement these central responsibilities and maintain critical service levels. Historically, the utility has been very successful in providing these services while executing budgets within an average of 94%. The 2014 budget request is in line with this trend, driven by debt service increases necessitated by the large, mandated CIP. 130,000, ,000, ,000, ,000,000 90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 92% 96% Operating Budget Spent as Percent of Approved 94% 94% Approved Budget Actual Spending (incl. open Enc) Total Budget Request Projected year Average with capital In developing the budget, MSD reviewed all current activities; operating savings generated from the joint utility management shared services, and projected inflation for items such as chemicals, power, gas and labor costs. It should be noted that the 2012 budget was originally reduced to a low, unsustainable level and was later amended upward to reflect the increased requirements. A portion of this 2014 request will restore funds needed for maintenance/repair activities that were deferred under the low 2012 budget. The 2014 MSD Operating Budget recommendation is comprised of two main components: the collection and treatment of wastewater necessary to ensure public health accounts for 38% of the recommended budget; and payment of debt service associated with a large capital improvement program accounts for 46% of the recommended budget. The 2014 budget is close to the approved 2013 budget level, with the primary increase ($10.7M) associated with the cost of repayment of municipal bonds and loans necessary for the financing of the CIP. Increased debt service accounts for nearly 70% of the projected change. However, after reviewing the bond debt service and the OWDA loan repayment requirements, Page 1 of 16

2 MSD is comfortable with a revised 2014 budget level of $102M if the County believes that 2014 bond issuances can be made within rate estimations. The cost of routine operating and maintenance (O&M such as personnel, treatment operations, sewage collection, etc.), are projected to increase slightly, (about 1.8% or $1.9M); offset by other major, ongoing MSD cost saving initiatives already mentioned. Included within this budget is an accounting adjustment made in coordination with the County monitors that reclassifies certain items out of the capital budget and adds them to the operating budget. Also, additional costs associated with watershed operations required for the implementation of Consent Decree Wet Weather Improvement Plan (WWIP) have been included within the equipment and technology budget category. Coupled with additional funding for the restoration of maintenance funds necessary to ensure replacement parts and equipment, (previously removed from the budget in 2012), the OTEA category required increase is $3M Operating Budget ($230.4M) by division Debt Service 46% Other 5% Industrial Waste 3% Office of the Director 2% Wastewater Administration 7% Wastewater Collection 10% Watershed Operations 4% Wastewater Treatment 20% Wastewater Engineering 3% Page 2 of 16

3 Discussion Regarding Personnel Budget MSD s recommended budget for personnel is $33.7M. This budget funds the following: 575 current filled staff positions at 2013 salaries (Note: one position was discontinued in 2013 due to a retirement and 24 positions were eliminated from the 2014 budget due to shared services.) 2014 pay increases and longevity & potential lump sum payments for retirements (Note: 30% of MSD s workforce is eligible to retire). City personnel estimates assume COLAs of 2% for MSD has assumed 1.5% as not all employees will receive an increase. The City pension costs increased in 2014 from 20% to 24% (effective 1/1/2014) due to higher employer contributions. Overtime pay Current vacant positions that may be filled next year (majority within Treatment and Collections Divisions) minus $2.8M in position vacancy allowance to account for the positions that may not be filled or only filled for a partial year minus $6M for reimbursements for capitalized labor. Capitalized labor is realized as $2 million under the Program Management Allowance and $4 million under specific project IDs. Total 2014 Request $33.7 million Reducing the budget below the request would require reduction in current staffing plans. Reducing personnel costs below $32.2 million will not support current head count and vacancies required to be filled. MSD has a forecast of potential retirements for the remainder of the year and into 2014 but it would be inappropriate to remove budget for these employees at this time. The table below summarizes the recommended budget as compared to the 2013 estimated expenditures. MSD cannot sustain current staffing needs with less than $32.2 million of personnel costs. Personnel 2014 Request 2013 Forecast 33,649,727 30,807,153 Page 3 of 16

4 Discussion Regarding Expert Services Budget This budget category is utilized for activities such as special projects (such as benchmarking, legal services, technical or regulatory studies or efforts) and Consent Decree requirements for sewer back up prevention. The 2014 operating budget request of $22M for Expert Services has a slight increase of approximately 4% (or $935k). The chart below indicates where adjustments have been made between divisions. The 2014 request incudes approximately $10M in expert services are requested for 2014 to support the Watershed Operations Division (470) and the system inspection collaboration efforts with Duke Energy. As reflected in the table, these costs have been redistributed from the Office of the Director (410) to Collections (450) and Watershed Operations (470). An additional $1M has been reallocated from capital (WWT Asset Renewal Allowance) to the Treatment operating budget (441 & 442) to better capture costs for expert services including, but not limited to, manual development, training and process studies, and optimization and reliability maintenance studies. DEPT. # DEPT. NAME 2013 Approved Budget 2014 Approved Budget 410 Office of Director $12,465,030 $2,000, MSD WW Engineering $44,320 $500, MSD Proj Delv $190,672 $209, MSD WW Administration $70,000 $71, MSD Information Technology $872,590 $380, MSD Treatment Superindt $337,160 $1,000, MSD Treatment Millcreek $377,500 $767, MSD Treatment Little Miami $54,475 $54, MSD Treatment Muddy Creek $50,000 $50, MSD Treatment Sycamore $18,000 $15, MSD Treatment Taylor Creek $50,000 $50, MSD Treatment Polk Run $40,000 $20, MSD Treatment Central Maint $345,140 $600, MSD WW Collection $2,810,040 $8,142, MSD Industrial Waste $0 $300, MSD Sewer Backup $3,353,170 $7,853,000 In general, Expert Services (7289) is used by MSD to for activities such as system repairs, benchmarking, internet services, financial advisors, operational process engineering and reliability maintenance studies, flow monitoring, sewer back-up services, document storage, and collection system inspection collaboration with Duke Energy. Often times Expert Services are needed to address unforeseen issues or needs that arise and require budget given the highly technical and regulatory basis of MSD s operations. Page 4 of 16

5 Discussion Regarding OTEA Recommendation The table below summarizes the recommended budget as compared to the 2013 estimated expenditures. OTEA 2014 Request 2013 Forecast 5,000,000 $2,399,500 MSD presents the capital equipment budget with the operating budget legislation. This fund is used across the Department for items such as lab equipment, computers, pumps and motors. The 2013 OTEA budget was based upon funding the following needs: $100,000 = Lab Equipment $288,000 = WWC vacuum and TV truck equipment & safety equipment $400,000 = Pump station monitors $500,000 = Watershed Operations data sensors $880,000 = Computers & peripherals MSD has been working with the County monitor team throughout 2013 to better allocate costs to the operating budget that have historically been allocated to the capital budget. As such, we requested a larger 2014 OTEA budget to address the following needs: $1,500,000 = purchase and installation of data sensors throughout MSD s service area to support its Watershed Operations Division (refer to discussion on pages 8-12) $1,500,000 = routine equipment replacement for Wastewater Treatment. The 2014 OTEA increase includes shifting from the WWT Asset Renewal Allowance (refer to discussion on page 17). This is a reasonable request given the number and size of the facilities that are maintained by the Treatment Division. Operating a wastewater collection system including 100 pump stations and seven treatment plants relies upon thousands of moving parts to function properly. It is normal for mechanical equipment to need to be replaced or modified as part of MSD s ongoing preventative and corrective maintenance programs. During 2013, our preventative maintenance program saved $750,000 in operating expenses. This budget is anticipated to cover costs for items such as transformers, exhaust fans, vfds, grinders, shutoff valves, air release valves, contactors, hoppers, centrifuges, drains, impellers, mixers, and tanks. Reduction from the MSD recommended budget will result in the elimination of the Watershed Operations program and a reduced level of equipment replacement at the treatment and/or pumping facilities. Page 5 of 16

6 Discussion Regarding Rate Recommendation of 6% Like most utilities across the country, MSD has increased rates over the last 10 years in order to meet stringent environmental regulations, maintain public health, re-investment in public assets and support economic development. In September 2012, a USA Today article noted that water and sewer (resources long taken for granted) utility bills have been rising over the last 10 years and will continue to rise due to the looming need to upgrade or repair pipes and treatment plants as well as comply with various federal regulations and mandates. MSD is no exception. Given the large infrastructure investments that must be made under the federal Consent Decrees, as well as the associated operating costs that will rise in order to operate and maintain these new facilities, sewer rates will continue to rise each year into the foreseeable future. The following chart is a snapshot of sewer rate increases faced by other regional utilities with Consent Decrees in MSDGC Louisville St. Louis Columbus Cleveland 5.0% 5.78% 12.54% 5.80% 11.90% To ensure fair and equitable rates, MSD conducts a cost-of-service study periodically (usually every 2 years) to review all costs and ensure that the sewer rates are appropriate for the services that are provided. An independent consultant is hired to perform this study and to assist in the recommendation of new rates and fees as appropriate. The study follows national standards and guidance on allocation of costs and development of utility rates. The recommended general rate increase is 6% over the 2013 approved level. As noted, this increase is necessary to support the increased debt service for the large capital program as well as to fund new operations required for implementation of the WWIP. While no rate increase is ever pleasant, it is necessary to identify resources to sustain the 24/7 operations that ensures public health, supports economic development, provides for prioritized re-investment of the assets, meets all permit requirements and complies with all federal mandates. MSD continues to exercise its stewardship and has identified efficiencies that offset normal operating increases. These efficiencies are beginning to bear fruit and are generating personnel savings that are mitigating the national O&M increases seen elsewhere for chemical costs, personnel increases, power costs, gas and the like. These efficiencies are the reason that the O&M increase is less than 2% and impacts the recommended rate increase by such a small percentage (see pie chart below). Page 6 of 16

7 OTEA O&M Debt Service Implementation of the WWIP is driving the issuance of new bonds, which increases debt service and will continue to add new operating requirements that will drive future costs and rates. The following diagram illustrates the strain on the operating budget (and thus rates) that results from the rapid increase in capital investment and its debt financing. ACTUAL CAPITAL SPENDING HAS INCREASED DRIVEN BY CONSENT DECREE (projected) 2014 (requested) $ - $ 69,026 $ 59,454 $ 61,094 $ 67,418 $ 109,594 $ 134,365 $ 143,128 $ 154,957 $ 159,437 $ 135,156 $194,800 DEBT SERVICE TO PAY FOR INCREASING CAPITAL WILL TRIPLE (projected) 2014 (estimated) $39,059 $ 43,857 $ 45,792 $ 52,340 $ 58,176 $ 64,536 $ 64,169 $ 72,729 $ 77,652 $ 80,587 $ 91,100 $105,700 DEBT SERVICE INCREASES CONTINUE TO PUSH RATE ADJUSTMENTS (Debt as a % of Total Operating continues to rise) $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $- 33% 33% 33% 34% 36% 39% Net Operating Expenses 39% 41% 41% Principal & Interest 46% 44% 46% projected Routine operating costs (O&M) have increased an average of 3% annually over the 10 year period; Debt service has increased 11% on average over the same period. Page 7 of 16

8 Discussion Regarding Watershed Operations Division MSD has a need to comply with the requirements of the Federal Consent Decrees, a desire to demonstrate water quality improvements at the lowest cost to the ratepayers, and a goal to be on the forefront of water management practices. As its first response, MSD developed an innovative planning process that resulted in the EPA-approved sustainable watershed approach (SWEPP) and business case evaluations to drive its capital improvements. This process has been fully implemented at MSD. However it is imperative for the protection of public health and the environment that MSD not only plan for a sustainable watershed, but also operate and maintain its system in a sustainable, watershedcentric way. Therefore MSD s second response is to implement an innovative approach for operations as well, one which can leverage data and technology to maximize the performance of its assets and minimize their impacts on receiving streams. This approach picks up where innovative planning leaves off: it demonstrates MSD s compliance with the Consent Decrees, quantifies performance and costs, and provides feedback to the planning process for the next round of capital improvements. LINK WITH TELEMETRY SYSTEM INFRASTRUCTURE It is a common utility industry practice to use a telemetry system to monitor operation and status of remote system components as noted in chapter 40, section 46 of the Ten States Recommended Standards for Wastewater Facilities states Pumping station alarms including identification of the alarm condition shall be transmitted to a municipal facility that is staffed 24 hours per day. Since 1993 MSD has used a VHF radio-based telemetry system to monitor on/off conditions at its pump stations. The system operates over an unsecured 900-MHz frequency used by multiple entities. A direct line of sight is required between towers. Depending on the location of each pump station, the radio signal must traverse multiple towers before it arrives at the Mill Creek Facility. Historically, the travel time for signals has been as fast as 90 seconds to as slow as several hours. This lag has impaired MSD s ability to respond to real-time conditions and station overflows in a timely manner. While the system has served MSD well for over 20 years, the original radio based equipment has become obsolete. Since the equipment cannot be replaced, failure would severely limit access to data and impact emergency response. This reality ultimately led to the need to replace the antiquated system. In 2007 MSD retained the expert services of HNTB for a telemetry system replacement project to replace the system with in-kind equipment. During the project preliminary design phase, MSD elected to evaluate the viability of other technologies that would be more adaptable for future network changes. A digital radio system would likely require multiple repeater towers that may or may not remain up-todate as technology continues to advance. An internet or cellular based system was considered in lieu of the radio-based system. Cellular providers continue to invest billions of dollars in the maintenance, Page 8 of 16

9 expansion, an upgrade of their networks. Replacing the telemetry system with a system that could fit future network infrastructure was intuitively thought to result in savings to ratepayers. In 2013 MSD completed a pilot of a cellular based telemetry system at three pump stations and one RTC. This pilot was performed to evaluate the feasibility of implementing a cellular based telemetry system throughout the District. At the same time the pilot work was being completed, MSD identified concurrent needs that would benefit from a system-wide telemetry system. Coordinating the new telemetry system with a holistic system operational strategy will greatly benefit the Utility. DESCRIPTION OF WATERSHED OPERATIONS The Watershed Operations Division was created this year to champion a new approach to operations. Its vision is a wastewater collection and treatment system that is operated in a cohesive fashion to maximize the protection of public health and minimize the impact on receiving stream water quality. Watershed Operations will be working between and among the other operational divisions to achieve its mission to use operational optimizations to improve water quality at the lowest cost. Since the greatest impacts to public health and water quality are experienced during wet weather, this Division focuses its attention on the operation and maintenance of assets built to handle wet weather flow, specifically high-rate treatment facilities, real-time control facilities, and green infrastructure installations, with the has identified ultimate objective of lowering the total life-cycle cost of ownership for the ratepayer. The following strategies have been identified: Monitor existing assets to demonstrate performance against design criteria Use real-time data and global control algorithms to optimize performance of entire system during wet weather Apply industry best practices to the maintenance of wet weather assets Collaborate with stakeholders to improve the health of the watersheds Engage innovators to find new technology solutions to the CSO challenge ROADMAP FOR THE DIVISION The concept of watershed operations is new, and therefore this Division will form in phases. Over the past several months MSD has been focused on the identifying key short-term needs and developing a framework to implement the following key objectives for the new Division. 1. Inventory Watershed Data collect data from multiple sources 2. Visualize Watershed Conditions present data graphically and monitor conditions 3. Perform Analytics apply data analytics for decision making 4. Recommend Watershed Based Assets develop assets to store and treat flows 5. Control System-Wide Flows optimize control of watershed assets to reduce overflows and utilize available system capacity Page 9 of 16

10 Over the last six months the vision for the Watershed Operations Division has taken form. The confluence of 1) MSD's need to upgrade the telemetry system serving both Treatment and Collections and 2) MSD's need to collect, analyze, and monitor real-time system operations data; led to finding the most cost effective manner to accomplish both objectives. The heart of the savings lies with finding a software platform that is compatible with current data collection tools in use by MSD s Treatment, Collections, and Engineering Divisions; modern cellular based telemetry systems; cloud data warehousing, GIS visualization of data throughout the system; and the complex analytics required to make real-time operational decisions (where to direct flow during wet weather events, how to best bypass areas under construction, when to activate systems, etc.). Concurrent investigations have been on-going over the last six months by multiple MSD divisions including: Treatment Division pilot tested four locations with a lower cost data sensor to verify the accuracy and reliability of the technology. Collections Division identified areas with problems receiving tower-based telemetry signals in a timely manner. Collections Division finished installation of Telog units at every SSO and CSO throughout MSD's system. MSD issued an RFP for innovative watershed operations technology - including low cost realtime monitors for pressure, flow, depth, and level. Engineering Division continued to collect flow monitoring data to support model updates, project design, and system operations. Need for a centralized data warehouse was determined to be a high priority. Treatment/Collections/Engineering Divisions each have a role with operation of RTCs - this is not a practical or sustainable approach. One asset owner needs to be defined with support from other divisions as needed. IT Division consolidated list of current operations software in use throughout the utility Operations worked to develop a plan that meets all the Watershed Operations and Telemetry System Upgrade needs. Watershed Operations Division has been preparing supporting documentation and program descriptions over the past 60 days for development of a business plan approach to support a capital investment to assure successful program development. WATERSHED OPERATIONS OPERATING BUDGET MSD s requested 2014 operating budget reflects $7.85 million of funds needed to advance the Watershed Operations Division s objectives through: Expert Services ($7.85 million) were allocated to this Division to fund the sewer backup program ($3.35 million); conduct flow monitoring ($3.9 million) for model calibration & validation, project specific design criteria, post-construction flow monitoring, operational issues, and regulatory requirements; develop protocols, formulate division implementation strategies, Page 10 of 16

11 evaluate the quantity and quality of existing data, and recommend additional sources of data required to successfully operate the Division ($600,000). OTEA funds ($1,500,000) were allocated to this Division to purchase real-time sensors to be installed at hundreds of locations throughout MSD s service area to collect local data for level, flow, pressure, etc. Personnel costs were allocated to this Division for one Superintendent, one Senior Engineer, and an Engineering Technician WATERSHED OPERATIONS - CAPITAL BUDGET NEEDS In 2013, MSD began assessing available software to determine which are compatible with cellular based telemetry systems, with other existing software in use throughout the Utility, and which would offer a decision making tool for the new Division. MSD has been standardized on industrial software platform to provide the backbone to its critical telemetry systems throughout its Collections and Treatment Operating Divisions. Telemetry systems are the underpinning of operational optimization because they are designed to manage large volumes of data, provide information on the operational state and condition of equipment, and control equipment either manually or through automation. At present, MSD s telemetry systems are predominantly used for treatment plant and pump station operations. They are licensed to cover a specific number of data collection points and provide functions specific to the operation of these facilities. Operational optimization of wet weather assets requires telemetry systems to manage a larger volume of data and perform complex functions that are specific to wet weather assets. MSD staff has identified 10 trial sites to be used during 2014 to fully implement a watershed-based telemetry and decision-making system. The final step with initiating this program is purchasing the suite of software which includes tech support services budgeted at $2.9 million. Total savings with MSD s recommended decision making tool are projected to be nearly $1.8 million. Rolling out this program to an estimated 90 additional sites will require an estimated $3.6 million of future CIP funds. MSD has requested the funds for this critical foundation for data storage, analysis, and operational decision support functions. This program cannot advance without $2,856,000 of capital funds. This program will also serve to further the Board s directive regarding verification of performance of the LMCPR projects as they come on-line as well as other wet weather projects. Page 11 of 16

12 Discussion Regarding Program Management Allowance MSD s continued use of Program Management Services is crucial for maintaining the current momentum required to complete Phase 1 of the Wet Weather Improvement Program, streamline the Asset Management Program, and develop Phase 2 (and future phases) of the Program. The County s November 8 th CIP recommendation confirmed average annual spending under this allowance has been $13.5 million. Figure 1 Breakdown of 2014 Requested vs. Recommended Program Management Services Funding 2014 Request $13.5 million Nov 8th Recommendation $8 million MSD Labor $1.8M 14% Legal Services $1.1M 9% Phase 2 $0.8M 6% Enterprise Management $3.2M 25% Program Controls $2.8M 22% County Monitor $2.5M 20% Legal Services $0.9M 12% MSD Labor $1.8M 23% Enterprise Management $1.1M 14% Program Controls $1.5M 19% County Monitor $2.5M 32% IMPACT OF $5 MILLION REDUCTION Program Controls: eliminates cost estimating group; reduces schedule team in half; eliminates manager. Enterprise Management: eliminates QA inspectors, above-ground construction manager & engineer, and technical expertise services. Legal Services: reduces legal assistance for procurement and contracts. Phase 2 Development Assistance: eliminates external resources to support MSD staff. MSD does not recommend a reduction to Program Management Services for MSD is reporting out on approximately 300 projects every month. This level of activity requires a contingent of program controls specialists to monitor projects with respect to estimates, budgets, and schedules. Page 12 of 16

13 Phase 1 of the WWIP is ramping up to a peak status in MSD is working to reduce program management costs with the following activities: o o o o Replacing supplemental staff filled positions with City positions. This process is already underway for Document Control and will initiate for QA inspectors, cost estimators and schedulers during Several large-scale projects are currently active and will remain under construction at the treatment plants during 2014, and as such, we have been relying upon supplemental staffing for the above-ground construction manager and the assistant manager. Given the large number of large scale projects, supplemental staffing is anticipated to be relied upon for 2014 and MSD is gearing up to kick-off development of the Phase 2 Wet Weather Improvement Plan in To ensure the systematic approach used with the technical expertise MSD benefitted from during development of the LMCPR in order to ground the program and establish a path that prioritizes capital needs, considers affordability, and addresses issues of importance to the Regulators. Alternatively, MSD can legislate Phase 2 Capital Planning under a separate project ID for the consideration by the BoCC. The Shared Services initiative combined the technical resource pools of MSD with GCWW. This facilitated eliminating $1 million of supplemental staff positions across the Utility, including Project Managers supporting capital projects. MSD labor related to capital projects is capitalized. Page 13 of 16

14 Discussion Regarding Flow and Water Quality Modeling Allowance The Board s resolution dated June 26, 2013 directed MSD to continuously update and refine information to support the assumptions used for stormwater BMPs and its hydraulic model. MSD is committed to ensuring its model meets the latest standards and provides the best available tool for assessing, planning, and designing MSD s infrastructure. The 2014 funding request was based on the following activities: Quality Assurance & Quality Control of MSD s model deliverables and standards o 5% of 2014 funding request o $140,000 Updates for wastewater treatment plant process & hydraulic models o 11% of 2014 funding request o $280,000 MSD labor for modeling capital projects o 37% 2014 funding request o $960,000 Water quality model development o 33% 2014 funding request o $870,000 The $1 million funding recommended by the County will only cover MSD labor costs and will not allow the District to complete independent QA/QC activities or develop its water quality model. MSD respectfully requests the County reconsider funding this allowance at $2 million. This request is a $600,000 reduction from the original request in that peak workload services and annual license renewal amounts have been removed. Page 14 of 16

15 Discussion Regarding CIP Planning Allowance In June of this year MSD instituted a planning moratorium for advancing new planning nominations and projects under the CIP planning allowance. As the County noted, MSD has several competing objectives regarding the capital improvement plan and a limited budget. With more than 100 active projects we agree sufficient information was not available to determine whether these projects were correctly prioritized. During the moratorium, MSD staff completed the following activities: Development of a District-Wide Pump Station Prioritization Plan Review of existing treatment plant facility plans Coordination with Collections regarding their release of the Infomaster sewer prioritization business decision making tool Completion of the top 25 high priority BCEs. The 2014 request for $2 million for this allowance was based upon MSD staff and consultants completing the following capital planning and prioritization activities. BCEs for project nominations received from Collections BCEs for project nominations received from Treatment BCEs for source control project recommendations from Basin Plans and SWEPPs Consolidation of facility plans for all seven treatment plants Development of draft Little Miami, Mill Creek, and Muddy Creek Basin Plans It is important to note the Shared Services initiative provided an opportunity to streamline how projects are identified, prioritized, and planned. As such, ALL project planning and BCEs will be completed through the Enterprise Management and Planning Group within Engineering. Operating divisions will not be developing BCEs for capital projects outside of the Planning Group. Staff from Treatment Engineering was transferred to the Enterprise Management & Planning Group to form a new Facilities Planning working group. This change will significantly improve communication between Engineering and Treatment personnel. Projects will be prioritized from a global perspective to ensure available capital dollars are directed toward the correct projects. Capital needs at our treatment plants will be incorporated into Facility Plans, Basin Plans, and long-term Master Plans to ensure capital and revenue requirements remain in alignment. MSD recommends funding this allowance at the requested $2 million level (vs. the $1M recommendation) in order to accommodate the need to complete the work identified herein. The restructuring of the Engineering and Enterprise Management & Planning Groups warrants this level of capital investment for CIP Planning to properly prioritize assets and projects. Historical spending trends do not reflect the new direction underway with respect to CIP planning. Page 15 of 16

16 Discussion Regarding WWT System Asset Renewal Allowance Historically the Board legislated $4.5 - $5 million per year for this allowance. During the development process, WWT submitted a list of projects they wanted to fund with allowance in The list included 59 projects for a total estimated cost of $7.8 million. After reviewing the list, MSD determined funding for many these projects should be provided from operating funds, OTEA, or separate project legislation requests. As a result, MSD reduced the 2014 funding request for this allowance to $2 million in order to provide the WWT group with a means of addressing emergency situations. We intend to utilize this allowance in the same manner as the Emergency Sewer Allowance The types of emergency projects MSD envisions that would be an appropriate use of this allowance include the following: Pumping System Repairs Rotating Equipment Repairs Electrical Repairs Bypass Pumping Services Security System Repairs On-Site Buried Infrastructure Repairs HVAC System Repairs Process Equipment Repairs Repair of Roof Collapses or Breaches Repair of Sinkholes or Roadway Blockages for Delivery Vehicular Access Emergency Situation Professional Services Recognizing MSD more than $630 million of WWTP and pump station assets that will at some time require capital for repair, replacement, upgrade, or related improvements, $1.5 million of funds were moved to OTEA to offset the funds eliminated from this allowance. Treatment personnel need access to capital funds for non-emergency and non-planned infrastructure needs (OTEA). However, any change to a process or system is required to be nominated to the Enterprise Management & Watershed Planning group for development of BCE and prioritization within the Master Plan. These types of projects will be processed through the standard legislation process for evaluation and funding. MSD recommends funding of this allowance at the requested $2 million to provide an emergency use fund. Emergencies at treatment plants tend to be costly and require funding levels significantly more than those historically used under the Emergency Sewer Allowance. Page 16 of 16