GRESHAM CITY COUNCIL AGENDA ITEM TYPE: POLICY DIRECTION

Transcription

1 GRESHAM CITY COUNCIL AGENDA ITEM TYPE: POLICY DIRECTION Operation and Maintenance of the Wastewater Treatment Plant Meeting Date: September 13, 2016 Agenda Item Number: 4 Service Area: Environmental Services Service Area Manager: Steve Fancher REQUESTED COUNCIL ACTION Provide direction regarding the City s method of operation and maintenance for the Wastewater Treatment Plant beginning July 1, PUBLIC PURPOSE AND COMMUNITY OUTCOME The objective of this item is to find the best and most economical option for continued wastewater treatment plant operation and maintenance beyond the current professional services contract, which expires on June 30, BACKGROUND The City of Gresham owns a wastewater treatment plant (WWTP) that processes up to 20 million gallons of wastewater per day (13 million gallons per day on average) and serves over 115,000 customers in Gresham, Wood Village, Fairview, and portions of Portland. Gresham s Wastewater Treatment Plant at the Sandy Boulevard location was first constructed in 1954 and was initially operated by City staff. The plant was staffed by City personnel until 1980, when the City entered into a contract with a private contractor (EOS) for operation. EOS operated the plant until 1985, when OMI was hired. OMI operated the plant until 2005, when Veolia Water North America, Inc. (Veolia) won the contract. The contract with Veolia was extended in 2012, and expires on June 30, Thirty-five years since first contracting the operations of the WWTP, and several improvements later, it is now capable of treating up to 20 million gallons per day and is staffed by 17 Veolia employees and 3 City employees with a FY 2015/16 Veolia contract cost of over $4 Million. City staff manage the WWTP program and the contract with Veolia. In addition, City staff manage all of the capital planning, capital design work and construction projects, as well as all of the permitting requirements for wastewater, stormwater, and air discharges from the WWTP. The City owns all of the assets at the WWTP, including all of the major rolling stock provided to Veolia for their use. Veolia provides two vehicles for their own on-site staff use. The City completed a third-party Assessment of Current Operations in May of 2015, and an Evaluation of WWTP Operations Alternatives in June of The reports were completed by the Eisenhardt Group who evaluated the operations of Veolia over the life of the contract, and evaluated costs as they relate to potential City operation. The results of the studies concluded that Veolia has done above average in complying with the terms of the contract, but that the service fees and other costs appeared to be higher than if the City were to operate the WWTP. 1

2 The study recommended that the City take a more detailed look at the costs and potential risks of City operation of the WWTP to confirm expected cost savings and evaluate the impact on City systems and processes. City staff followed this recommendation and evaluated costs and potential risks in detail, generating cost data for City plant operations. This data was then reviewed by another third party in January of 2016 that specializes in wastewater treatment (Brown and Caldwell), which confirmed the cost estimates by comparing with other municipally-operated wastewater treatment plants in Oregon. All of this information is included in the attached Operation and Maintenance Alternatives for the City of Gresham WWTP memorandum from Alan Johnston, dated February 2, This information was also presented to Council as a policy discussion at the March 1, 2016 meeting. COST COMPARISONS In developing the detailed budget of City wastewater treatment plant operations, staff utilized the expertise of internal departments in the City and outside consultants to ensure the budgetary assumptions and calculations by staff were as accurate as possible. The City s Human Resources Department surveyed Oregon wastewater treatment plants of similar size and complexity in order to determine salary ranges for full-time equivalent positions. The salary results are included in the attached analysis. Staff also met several times with Veolia, who presented a Best and Final Offer for their continued operation of the treatment plant. The offer included a reduction in service fee of $700,000, but also shifted maintenance costs to the City for items that cost less than $5,000 each, eliminated the 17 employee minimum staffing requirement, and changed a number of other contract terms to shift risk and potential costs from Veolia to the City. The history of costs for minor maintenance items provided by Veolia for only materials and externally-contracted services averages roughly $250,000 per year. Other maintenance tasks are currently accomplished by on-site Veolia operations staff, so it is not possible to accurately estimate how much this could add to City costs if Veolia contracts these items out to external vendors or bills the City for this staff time. Because of the inability to accurately estimate how Veolia s offer would shift costs to the City, and the desire to retain current service levels, in June City staff requested that Veolia provide an alternate offer that specifies a new service fee but keeps the terms and conditions of the existing contract intact. A meeting with Veolia was held on July 26, at which Veolia indicated their reluctance to provide an alternate offer that reduced the service fee without changing contract terms to shift risk from Veolia to the City. As of the date of the writing of this report, Veolia has not provided an alternate offer. Cost and Service Comparison Estimates for Fiscal Year 2017/18 The attached Table 1 summarizes the comparison of estimated costs between the existing Veolia contract, Veolia s Best and Final Offer, and City operation of the plant. As you can see, City operation of the plant is estimated to be the least-cost option. It should also be noted that while Veolia s Best and Final Offer includes a reduction in their annual service fee of $700,000, other proposed changes will either cost the City more money or add risk. These include: 2

3 Transfer of maintenance costs of items less than $5,000 each to the City. Over the past 11 years, these items have averaged roughly $250,000 per year for materials and externally-contracted services only. Additional costs could be transferred to the City from maintenance activities that have been accomplished by on-site Veolia operations staff members in the past, which the City has no way of accurately estimating; Elimination of Veolia s requirement to employ at least 17 full-time employees; Elimination of the City s diesel fuel cost cap; and Elimination of Veolia penalties for failing to keep the co-generators online at least 85% of the time throughout the year. How May Future Cost Escalations Compare? The City s wastewater utility rates were adjusted 7 of the last 10 years, resulting in an annual average increase of 2.7%. Under the existing contract, payments to Veolia over the last 10 years increased by an average of 3.4%, or $114,000 per year for operation and maintenance of the WWTP. Under the current contract, the Veolia Service Fee is escalated at 124% of Consumer Price Index (CPI) each year, while the City has stayed below CPI on average for its overall wastewater rate increases. The Veolia contract amounts to approximately one-third of the entire Wastewater Utility operating budget. The majority of the budget and the largest impacts to utility rates are related to capital expenses, which are largely driven by wastewater infrastructure system replacements. The workforce for Veolia is unionized, with salaries and benefits comparable to City staff. New public sector employees join the Oregon Public Service Retirement Plan (OPSRP) pension system. Personnel costs make up roughly half of the current total contract expense - other costs (materials, fuel, electricity, etc.) would be expected to remain consistent between the options. RECOMMENDATION AND ALTERNATIVES Alternatives: Direct staff to: Take necessary actions in order to begin City operation and maintenance of the WWTP as of July 1, Council is scheduled to make a final decision on operation of the WWTP at the October 4, 2017 Council meeting. Accept the basic terms of Veolia s Best and Final Offer and continue negotiating detailed contract terms for an operational period of up to 8 years. Provide Veolia with a maximum 2017/18 service fee and annual indexing offer that keeps the other basic terms of the existing contract, and require acceptance or rejection by a specified date within calendar year If the offer is rejected, the City will resume direct responsibility for operation and maintenance of the Wastewater Treatment Plant beginning on July 1, BUDGET / FINANCIAL IMPACT Transition to City operations or renegotiation of a contract with the current service provider is expected to result in cost savings over the existing contract. With transition to City operations, a supplemental budget adjustment may be necessary in order to facilitate the transition prior to the end of fiscal year 2016/17. 3

4 PUBLIC INVOLVEMENT This item was presented for policy discussion at the March 1, 2016 Council meeting. NEXT STEPS Staff will implement Council s preferred alternative for future Wastewater Treatment Plant operation and maintenance, and will return to the October 4 Council Business meeting if necessary to formalize the decision. ATTACHMENTS A. Table 1: Comparison of Estimated Costs B. Operation and Maintenance Alternatives for the City of Gresham WWTP (Feb. 2, 2016) C. Veolia Offer Letter dated June 28, 2016 FROM: Steve Fancher, Director, Department of Environmental Services Alan Johnston, PE, Senior Engineer REVIEWED THROUGH: Sharron Monohon, Budget & Financial Planning Director David R. Ris, City Attorney Office of Governance and Management FOR MORE INFORMATION Staff Contact: Alan Johnston Telephone: Staff alan.johnston@greshamoregon.gov Website: 4

5 Attachment A Table 1: Comparison of Estimated Costs Expense Category City Costs w/veolia Contract Budget FY 17/18 City Costs w/veolia Best & Final Offer Budget FY 17/18 Estimate of City Staff Operation Budget FY 17/18 1 Veolia Service Fee $3.6 M $2.9 M $0 Personnel (w/benefits) Included in Fee 2 Included in Fee 3 $1.85M 4 Materials and Services Included in Fee Included in Fee $625k Corporate Support Services Included in Fee Included in Fee NA Overhead and Profit Included in Fee Included in Fee NA Contract Incentives 5 $30k $0 NA Pass-Through Operational Costs (electricity, natural gas, water utilities, solids hauling, co-generator maintenance) $400k $400k $400k Pass-Through Repair of Assets > $5,000 $300k $300k $300k Repair of Assets < $5,000 Included in Fee $250k+ 6 $250k+ 6 Increased Internal Service Costs 7 NA NA $100k Totals: $4,330,000 $3,850,000 $3,525,000 Notes: 1) The Estimate of City Staff Operation is the cost to the City of allowing the Veolia contract to expire and assuming all responsibilities of plant operation and maintenance. 2) The current minimum staffing level required by the contract is 17 full-time employees. 3) The Veolia Best and Final Offer eliminates the minimum staffing level requirement, allowing Veolia to employ less than 17 employees at the plant. 4) The City operation option assumes 17 full-time employees for costing purposes. 5) Contract Incentives are payments made to Veolia based on meeting or exceeding established performance measures. 6) Veolia s 11-year average cost to repair and maintain items of less than $5,000 each includes approximately $250,000 per year for materials and externally-contracted services only, and an undisclosed amount of on-site Veolia staff time, and is currently included as a cost of Veolia s service fee. Under Veolia s Best and Final Offer, this cost would be transferred to the City as a pass-through expense. Future costs are anticipated to exceed the $250,000 average for materials and externally-contracted services. 7) Increased Internal Service Costs include increased costs to Human Resources, Legal, and IT as a result of having more City employees, as well as additional worker s comp expenses.

6 Attachment B To: From: Steve Fancher, Environmental Services Director Brian Stahl, Water Resources Manager Alan Johnston, Senior Engineer Date: February 2, 2016 Subject: Operation and Maintenance Alternatives for the City of Gresham WWTP I. INTRODUCTION The City of Gresham owns a 20 million gallon per day (mgd) secondary, activated sludge wastewater treatment plant (WWTP). Treated wastewater (13 mgd annual average) is discharged to the Columbia River. Anaerobic digesters treat and stabilize biosolids which are beneficially applied to agricultural land as fertilizer. The biogas generated in the digesters is used to power two cogeneration engines which provide all of the electric power needed to operate the WWTP. City staff maintain all the operating permits for the WWTP, including the NPDES Permit for operation of the wastewater Treatment Plant. The NPDES permit includes requirements for water quality discharge criteria, operator training requirements, wastewater sampling and analysis, and many other parameters. Operations and maintenance of the WWTP is currently being performed by a private contractor, Veolia Water North America, Inc. (Veolia). Veolia provides operation and maintenance services for the City of Gresham WWTP. Veolia is an international company with their North America division headquartered in Chicago, Illinois. The City and Veolia entered into a 7-year contract in 2005 with an optional 5 year extension. On February 21, 2012, council approved extending the contract another 5 years to June 30, The objective of this report is to present an evaluation of options for continued treatment plant operation and maintenance beyond the current professional services contract which expires on June 30, Scope of the work effort included evaluation of operations alternatives, including, 1) negotiating a contract extension with Veolia, 2) issuing a formal RFP for operating services and 3) City staffed operation of the WWTP. II. BACKGROUND The Wastewater Treatment Plant was first constructed in 1954 as a primary wastewater treatment plant and was initially operated by City staff. Major capacity related WWTP capital upgrades occurred in 1970, 1982, 1990 and The plant was staffed by City personnel until In 1980, the City entered into a contract with Environmental Operating Services, a private contractor, for operation of the WWTP. In 1985, the City requested competitive proposals for operating services and selected Operations Management International (OMI), which at the time was a subsidiary of CH2MHill Engineers. On March 21, 1989, the City Council evaluated OMI s performance and renewed their Agreement through June 30, In 1995, OMI s contract was extended to June 30, In 2004, the City solicited an

7 RFP for operating services of the WWTP and received 2 proposals, one from OMI and one from Veolia. On March 15, 2005, Council approved awarding the contract to Veolia. Veolia s existing contract will expire on June 30, In 1980, the WWTP was designed to treat 10 mgd and was staffed by 10 EOS personnel at an annual cost of $604,872 per year. 35 years later, in 2015, the WWTP is designed to treat 20 mgd and is staffed by 17 Veolia FTE and 3 City FTE with a FY 2014/15 Veolia cost of $4,038,751. The City staff manage the WWTP program and the contract with Veolia. In addition, City staff manage all of the capital planning, capital design work and construction projects, as well as all of the permitting requirements for wastewater, stormwater and air discharges from the WWTP. The City owns all of the assets at the WWTP, including all of the major rolling stock provided to Veolia for their use. Veolia does provide two vehicles for their own on site staff use. The City of Gresham WWTP is currently the only medium size or larger WWTP in Oregon that has private operation. Similarly sized or larger WWTP s in Oregon with municipal operation include Portland (Columbia Blvd WWTP), Salem (Willow Creek WWTP), Clackamas County (Tri-Cities WWTP and Kellogg WWTP), Eugene/Springfied WWTP, Clean Water Services (Durham WWTP and Rock Creek), Corvallis WWTP and others. The Vancouver WWTP in Washington just recently issued an RFP for WWTP operating Services and transitioned to CH2MHill from Veolia for private operation of their WWTP. The Vancouver WWTP is the only WWTP in the region of a similar size that has contracted operation & maintenance services. III. EXISTING CONDITION Veolia currently has an agreement with the City to provide operating services at the WWTP through June 30, Major elements of the Agreement include: WWTP operations to meet NPDES permit requirements. WWTP maintenance and repair. Biosolids management and biosolids application on agricultural sites. Industrial Pretreatment sampling and analysis. Operation and maintenance of 9 sewage pump stations. Annual CPI Service Fee escalations. Reimbursement to Veolia for equipment repair or replacement costs over $5,000. The City of Gresham/Veolia Agreement provides for payment to Veolia of a Service Fee of $3,438,148 for fiscal year 2015/16. It is anticipated there will be another 3% CPI increase to their Service Fee for the last year of their contract in FY 2016/17 to an amount of $3,541,292. WWTP Operations Evaluation The City completed a third party evaluation of WWTP Operations Alternatives in June, 2015 (Appendix C). The report completed by the Eisenhardt Group evaluated the operations of Veolia over the life of the contract and evaluated costs as they relate to City operation. The results of the study concluded that Veolia had done above average in complying with the terms of the contract, but that the Service Fees and other costs appeared to be $400,000 to $800,000 higher than if the City were to operate the WWTP. The study recommended that the City take a more detailed look at the costs and risks of City operation of the WWTP to confirm the expected cost savings and evaluate the impact on City systems and processes. Page 2 of 13

8 The City staff followed the recommendation of the report and evaluated in detail the costs, risks, advantages and disadvantages associate with City staff operation of the WWTP. The results of that evaluation are presented in Alternative 3: City Operation of the WWTP in this report. IV. ALTERNATIVE EVALUATION Wastewater treatment is one of the basic public services provided by the City of Gresham. In order to continue those services, the City must provide staffing, planning, engineering, operation, and maintenance functions at the WWTP. This can be accomplished by one of the following three alternatives: 1. Continue with Veolia as contract operator by extending the existing Agreement, 2. Request competitive proposals for operating services, or 3. Hire and use City of Gresham staff to operate and maintain the WWTP. A discussion of each of three alternatives with advantages and disadvantages follows: 1. CONTINUE WITH VEOLIA AS CONTRACT OPERATOR. Veolia currently staffs the Gresham WWTP (20 mgd annual average design) with 17 full time employees and the City staffs the WWTP with an engineering group of 3 full time employees. The Veolia staffing includes 3 managers, 1 administrative person, 5 operating personnel, 4 maintenance personnel, 2 biosolids coordinators and 2 laboratory personnel as detailed in Appendix A. A summary of Veolia s contractual Service Fee costs for FY 2005/06 and FY 2015/16 is shown in the following chart. The WWTP operation and maintenance annual Service Fee amounts increased by 124% of the consumer price index. The annual Service Fee escalated an average of 2.8% per year for a total increase of $827,675 compared to year 1 of the contract. $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 Veolia Service Fee $2,610,473 $3,438, / /16 In addition to the Service Fee, the City pays Veolia monthly for Pass thru costs, Incentives and Repair and Replacement costs. Pass through costs include utility costs, such as electricity, natural gas, gasoline and diesel fuel costs, and cogeneration repairs and service. Incentives are paid for meeting certain performance excellence benchmarks and include, no NPDES permit violations, cogeneration uptime, staff certifications, no lost time accidents and minimizing biosolids storage volumes. Repair and Replacement costs are those costs over $5,000 for any one asset and are reimbursed to Veolia at cost. The following chart summarizes those 4 annual costs through FY 2014/15. The annual total contractual costs have increased from $2,980,280 in year 1 of the contract to $4,038,751 in Year 10, an average annual increase of 3.4% or $1,058,471 compared to year 1 of the contract. Page 3 of 13

9 Veolia Service Fee, Pass thru, Incentives and R&R Reimbursement $4,500,000 $4,038,751 $4,000,000 $3,500,000 $2,980,280 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 2005/ /15 R&R $39, $259, Incentives $5, $31, Pass thru $323, $383, Service Fee $2,610, $3,360, The following summarizes the advantages and disadvantages of continuing with Veolia as contractoperator; Advantages: Veolia staff are familiar with the Gresham WWTP and Veolia would not have any mobilization or transition costs associated with a new contract or contract extension. Veolia implements Gresham s biosolids management program and identifies land application sites. If Gresham or another contractor were to assume that role, they would have to contact land owners and reestablish landowner agreements for Biosolids application sites. NPDES Permit compliance for discharge requirements is shifted to the contractor; the contractor provides internal quality control checks and accountability can be maintained through reporting requirements. As part of the costs of Veolia s Service Fee, they provide the following support services; safety audits, Operations Plan and Process Control (Solids Balance), laboratory and QA/QC support, Asset Management System software support and training, Pretreatment Program support (Industry sampling and analysis) and others. Disadvantages: The City is paying approximately $500,000 per year more than if the City operated the WWTP at a similar level of service. Many critical financial and operational decisions are made by Veolia staff that may not be in the best interest of the City. Local Veolia staff must comply with Veolia corporate structure and policies. The City reimburses Veolia for all equipment repairs over $5,000. In addition, all the maintenance and repairs, regardless of cost, for the cogeneration system is reimbursed to Veolia. Most of the Page 4 of 13

10 financial risk for major equipment failure is on the City. Veolia has their own administrative staff, such as, payroll, human resources, purchasing, and other administrative systems that they need to use. This makes it difficult to integrate asset management systems and new software processes with Veolia systems. Regardless of the budgetary status of the WWTP program and projected revenues from rates, the City must pay Veolia a guaranteed annual Service Fee increase of 124% of CPI. This has caused the City to reduce other programs and staff in order to ensure payment to Veolia. Veolia has their own IT structure and standards that are not the same as the City s. For example, they use google systems, and we have standardized on Office 365. This requires Veolia and City staff to try and integrate both systems in order to use the City s as well as Veolia s as efficiently as possible. The City is relying on outside assistance for operation of a large complex facility. If Veolia should get out of the treatment business, the City would have to move quickly to cover plant operations. History has shown that there are only 2 companies that most likely would be interested in operating the WWTP in Gresham. The City would not be getting a competitive bid for operations, so it would be difficult to negotiate a long term agreement with Veolia, that City staff knew was the best value possible for rate payers. 2. REQUEST COMPETITIVE PROPOSALS FOR WWTP OPERATING SERVICES. In 2004, the City last issued a competitive RFP for operation of the WWTP. At that time, the City received a proposal from OMI and Veolia and ultimately hired Veolia to operate the WWTP for 7 years with an optional 5 year extension. The first year costs from Veolia were 9% higher than the year previous after the RFP process. The City could again issue an RFP in 2016 for operating services and it is believed that most likely, once again, CH2MHill and Veolia would be interested in providing a proposal. CH2MHill is now the former OMI who operated the WWTP prior to Veolia. There is a risk that after investing time, resources and funding in the process, that the Service Fee and annual escalators would be similar or higher than now. This process would however ensure that whatever proposals we do receive are competitive. The following summarizes the advantages and disadvantages of requesting competitive proposals for WWTP operator services; Advantages: Requesting competitive proposals may reduce overall cost of operation and maintenance of the WWTP. The Service fee and other direct costs would be expected to be comparable since personnel required to operate a plant should be comparable. Savings may result from adjustment of overhead and profit markup or annual CPI escalator. The winning contractor may provide a better level of service at a similar cost. Page 5 of 13

11 Disadvantages: It would be difficult for the City to ensure that a lower competitive bid would provide the same level of service to the City. There is a risk that the proposals may be more than the cost of the existing agreement with Veolia or that only one or no contractors propose. High degree of cost risk versus potential cost savings to the City. Replacement of Veolia with a new contractor unfamiliar with the WWTP has innate inefficiencies, including a lack of knowledge of history of repairs, operation of the plant and required maintenance could potentially result in increased costs to the City for equipment failures and repairs. Biosolids land application sites may be reduced due to current Veolia relationship with landowners. The new operators would need to develop working relationship with landowners and possibly impact current status. The City would have considerable costs in developing request for Statement of Qualifications, qualifications review, development of scope of work, Request for Proposal development, advertisement, Proposal evaluation, Agreement negotiation, council review and action, contractoperator transition, etc. It is expected that overall benefit of change of contractor would not be substantial as our evaluations indicate that the WWTP costs and staffing levels are currently reasonable and there isn t a lot of room for staff cutting measures that would ultimately lower the WWTP operational Service fee. 3. CITY STAFF OPERATION OF WWTP. The City hired a third party to evaluate current Veolia WWTP operations for the City of Gresham and the report indicated there could potentially be a $400,000 to $800,000 cost savings to the City for City staff operation of the WWTP. The report is located in Appendix C. The report recommended that the City more closely evaluate City operational cost savings and risks and determine whether they are significant enough to warrant City staff operation of the WWTP. The City followed up with that recommendation by developing a detailed cost budget and staffing plan that staff has determined would provide a similar or better level of service as the current Veolia operational agreement that expires on June 30, 2017 at a significant savings to the City. A detailed WWTP program line item budget for FY 2015/16 was developed assuming that the WWTP was operated with City staff. This allowed a comparison of the budgetary costs of City operation versus Veolia operation of the WWTP. It was determined that the City would need to hire 19 City staff to complete the level of service that Veolia was providing with 17 Veolia FTE. The 2 additional City staff would complete the tasks supported by Veolia administrative and corporate support services that is included in their Service Fee. The non supervisory staff would need to be union staff similar to the existing Veolia union staff. The anticipated WWTP City staffing plan is shown in Appendix A. Although the costs would be less to operate the WWTP with City staff, the City would take on the risks associated with meeting NPDES and other permit compliance. Historically, the risk of non-compliance has been low, mainly because the City has properly invested in the WWTP and pump stations and they Page 6 of 13

12 have been properly engineered and constructed to efficiently meet the current NPDES permit requirements. In addition, the City invests effectively in repair and replacement of assets to ensure the risk of equipment failure is low. A comparable WWTP Program 4596 operating budget with City staffed operation for FY 2015/16 is shown in Appendix B. The City WWTP operating budget with City staff operation would be $477,000 to $824,000 (9% to 15%) per year less than with Veolia operation. The line item detail in Appendix B shows the anticipated line item cost differences. As a follow up to the WWTP City Staffing budget prepared in Appendix B, the City hired Brown and Caldwell to prepare a side by side budget to determine whether the City may have missed something while preparing the budget estimate. Brown and Caldwell s Budget Review report is shown in Appendix D and determined that the City budget prepared and the staffing level presented would be adequate to Operate and Maintain the WWTP with City staff. The report also indicated a similar range of savings of between $283,000 and $787,000 per year. In order to properly understand the financial impacts of additional WWTP City staff on City resources, an analysis was also completed on the impacts to the wastewater administrative support services budget 4516, including human resources, finance, City attorneys office, insurance, etc. These City internal support services would need to provide support to the 19 additional city staff. An evaluation of those service costs indicated it would add an additional $63,000 to $123,000 to the WWTP program operating budget. At this time, it is not believed that additional Internal Support Services staff would need to be hired to support the additional WWTP City staff, but this most likely would have an impact on the timeing of future staffing needs for these services. The chart below shows the overall budgetary savings between Veolia operations and a WWTP staffed with City personnel using the FY 2015/16 adopted budgets as a comparison. The range of savings is between $357,000 and $761,000 depending on the experience of City staff hired and their salary ranges that are negotiated. A conservative cost savings of $560,000 per year is anticipated. WWTP Annual Budget Savings $761,180 $800,000 $559,342 $700,000 $600,000 $357,503 $500,000 $400,000 $300,000 $200,000 $100,000 Low Middle High $0 A formal transition plan and staffing plan would be put together and one time costs of around $324,000 would be needed to purchase certain capital items that Veolia currently provides. These include 2 vehicles for staff, operational software packages and consultant support. This cost in included in the proposed City staffed WWTP Budget presented in Appendix B. Page 7 of 13

13 The following summarizes the major advantages and disadvantages of City staff operation of the WWTP; Advantages: City has direct control of plant operation, plant maintenance and personnel decisions. Those decisions will always be in the best interest of the City and ratepayers. City does not have to pay for the overhead and profit margins of a private contractor. City Staff time would more efficiently be devoted to City systems, operations, maintenance and planning efforts and a long range vision. Thi is particularly beneficial for the asset management program. All financial decisions and project prioritrization activities wil be made in the best interest of the City. Double payment of insurance and risk for on site assets and vehicles would be eliminated. The City can invest any cost savings into asset repair and refurbishment projects that extend the life of assets and save long term funding requirements. The City could partner more closely with wastewater collection staff and other City staff and work as a team to share staff during periods of increased work loads or emergencies. Disadvantages: The City would now coordinate all the operation, maintenance and management work at the WWTP, increasing work load. The City would need to hire approximately 19 WWTP engineering, administrative, operation and maintenance personnel. Hiring of experienced plant management would be required as State law requires Grade IV certified operators to manage the WWTP. Most likely, a majority of current staff would want to join the City during a transition period. Increased City management and supervision responsibility. Liability for NPDES permit compliance would shift to the City with fines as much as $10,000 per day for non-compliance caused by operator error. Historically, these kinds of operating violations are rare and the risk of a financial impact is small. Increased internal support services impacts for human resources, payroll, benefits, etc., it has been determined that these impacts are approximately $100,000 per year. VI. SUMMARY AND CONCLUSIONS The following summarizes the alternatives discussion. Alternative 1: Continue with Veolia as Contract Operator: Continuing with Veolia as contract operator would provide satisfactory performance to the City over the life of a new Agreement. It would be difficult to determine whether the negotiated agreement would provide a similar level of service Page 8 of 13

14 without competitive proposals. Veolias processes and systems would continue to be invested in by the City. Alternative 2: Request Competitive Proposals: This process would be extensive and require an investment in resources to prepare an RFP, evaluate the proposals, negotiate a contract and select a contractor. The City would then again be investing in a contractors processes and systems and be at a risk of a higher annual Service Fee and CPI cost escalator. Alternative 3: City Staff Operation of the WWTP: The City completed an independent study of the current operational costs of the WWTP and determined that a more detailed analysis of potential City staff operation should be completed since it appeared there may be significant cost savings. The city has since completed a detailed study of City operations, looked at City staffing levels and put together a detailed budget and staffing plan that shows that the City could save approximately $560,000 per year the first year in operation and maintenance costs at the same level of service as Veolia. This would also allow the City to modify the budget and make staffing decisions as needed to comply with council wastewater rate decisions. This would also allow the City to have a more transparent WWTP operation and maintenance program that will allow the City to better manage costs and share resources across all utilities. VII. STAFF RECOMMENDATION Based on the following: Veolia has provided an above average level of service over the last 10 years, but their costs appear to be higher than City staff operation of the WWTP and it is difficult to integrate the City s business systems with Veolia s. City operation of the WWTP would allow more transparent operation, maintenance and management decisions at a reduced annual budget of approximately $560,000. The City s processes and systems would be integrated throughout the entire WWTP program creating a much more efficient business with a single business system, including IT, financial, asset management, human resources and other administrative processes and systems. After 35 years of private operation of the WWTP, growing from a staff of 10 FTE in 1980 to a staff 20 FTE in 2016, the City s staff, resources and systems can now more cost effectively and efficiently operate and maintain the WWTP at a lower cost while providing the same or better level of service. Staff recommends City staff operation of the WWTP beginning in Fy 2017/18. VIII. NEXT STEPS The City will prepare a detailed transition plan that includes a staffing plan and detailed budget, including one time transition costs for the first year. Page 9 of 13

15 Appendix A Proposed WWTP City Staffing Plan Veolia Contract Proposed City Staff Operation FY 2015/16 FY 2015/16 Position Position City Class City Salary Low Salary High Salary Low Salary High Salary Title Title Spec Grade with benefits * City of Gresham City of Gresham, Exisiting Senior Engineer WWTP Program ManagerSenior Engineer N19 $77,844 $101,172 $106,477 $129,805 Civil Engineer I/II Civil Engineer I/II Civil Engineer II N17 $70,284 $91,320 $98,917 $119,953 Civil Engineer I/II Civil Engineer I/II Civil Engineer II N17 $70,284 $91,320 $98,917 $119,953 Veolia Water Inc. City of Gresham, New Project Manager WWTP Manager WWTP Manager NEW N17 $70,284 $91,320 $98,917 $119,953 Assistant Project Manager Operations Manager PW Superintendent N16 $65,448 $85,080 $95,795 $119,709 Asset Manager Asset Manager PW Superintendent N16 $65,448 $85,080 $95,795 $119,709 Admin Specialist II Admin Assistant II Admin Assistant III G09 $45,144 $57,588 $71,063 $86,221 O&M Lead O&M Supervsior PW Field Ops Super. G13 $56,892 $72,264 $85,695 $104,474 O&M Tech II O&M Tech I/II Shift Operator I/II NEW G09 $46,644 $59,088 $73,176 $88,377 O&M Tech II O&M Tech I/II Shift Operator I/II NEW G09 $46,644 $59,088 $73,176 $88,377 O&M Tech II O&M Tech I/II Shift Operator I/II NEW G09 $46,644 $59,088 $73,176 $88,377 O&M Tech I O&M Tech I/II Shift Operator I/II NEW G09 $46,644 $59,088 $73,176 $88,377 Maint Tech Lead Maintenance Supervisor Facilities Maintenance Coo G13 $56,892 $72,264 $85,695 $104,474 Main Tech II Maintenance Tech I/II Vehicle Mechanic II G11 $50,040 $63,876 $77,324 $94,227 Main Tech II Maintenance Tech I/II Vehicle Mechanic II G11 $50,040 $63,876 $77,324 $94,227 Utility Worker Maintenance Tech I/II Vehicle Mechanic I G07 $40,740 $52,008 $49,295 $62,930 Biosolids Supervisor Biosolids Supervisor Senior Public Utility Worke G13 $56,892 $72,264 $85,695 $104,474 Biosolids Equ Op I O&M Tech I/II Shift Operator I/II NEW G09 $46,644 $59,088 $73,176 $88,377 Lab Supervisor Laboratory Supervisor Environmental Specialist IV N16 $65,448 $85,080 $95,795 $119,709 Lab Tech II Laboratory Analyst Environmental Specialist II G11 $50,040 $63,876 $77,324 $94, total FTE Existing 2 additional FTE to provide support services previously provided by Veolia Operations Specialist Civil Engineer I/II N17 $70,284 $91,320 $98,917 $119,953 Maintenance Specialist Civil Engineer I/II N17 $70,284 $91,320 $98,917 $119, Total FTE City Operation Total 19 Additional Personnel $1,047,096 $1,342,656 $1,559,431 $1,906,125 $1,732,778 Average used for Budget Estimate *Estimates based on OPSRP, Health and Dental E+2 Page 10 of 13

16 Appendix B WWTP City Staff Operation Budget Comparison Page 11 of 13

17 Appendix B: WWTP Program Budget Comparison with City Staff Operation Veolia Operation City Staff Operation FY14/15 FY15/16 FY15/16 FY15/16 Adopted Adopted Proposed Proposed ACCOUNT DESCRIPTION Budget Budget Low High Comments FUND 550 Wastewater 4516 Support Services 1109 PERS Pension Bond Pymt 73,493 77, , ,058 Increased based on Payroll budget 1127 Workers' Comp 78,120 90, , ,916 Increased based on Payroll budget do we need any add'l cos * Employee Benefits 151, , , , Property Management 182, , , ,004 Included Landscaping & Janitorial in M&S 2906 Vehicle Maintenance 47,626 49,540 49,526 49,512 Already included in the FTE & M&S 2907 Vehicle Fuels 44,395 37,009 37,009 37,009 Already included in the M&S 2908 Equipment Replacement 315, , , ,171 Increased for new vehicles 2911 Computer Replacement Chg 22,658 23,979 24,888 24,888 Increased based on 2 new computers 2912 Information Services 351, , , ,359 Increase based on 2 comps & 2 phones, and all add'l FTE 2918 Utility Financial Svcs 1,003,935 1,039,312 1,038,392 1,037,781 Reduced based on cost savings on operating budget 2919 Code Enforcement Charge 70,642 83,227 74,845 77,956 Reduced based on cost savings on operating budget 2920 Economic Development Chg 58,989 57,719 51,906 54,063 Reduced based on cost savings on operating budget 2921 Liability Mgmnt Charge 311, , , ,341 Reduced based on cost savings on operating budget 2922 Legal 64,889 73,752 80,014 86,140 Aniticpated add'l hours for legal 2924 City Administration 155, , , ,515 Reduced based on cost savings on operating budget 2925 Financial Services 122, , , ,286 Reduced based on cost savings on operating budget 2927 General Support Services 58,282 63,880 57,326 59,724 Reduced based on cost savings on operating budget 2929 City Wide Services 352, , , ,781 Reduced based on cost savings on operating budget * Internal Service Charge 3,162,938 3,266,750 3,252,702 3,293,530 ** Support Services 3,314,551 3,434,602 3,497,520 3,554,504 Internal Service Charge Increase 62, ,902 Estimate ISC increase at $100,000 for City Staff Operation FUND 550 Wastewater 4596 Wastewater Treatment 1001 Full Time Employees 485, , , , Part Time Employees 27, ,408 27,408 Summer Staff 1003 Overtime 1,000 1,000 50,000 50,000 Alarm Call outs 1016 On Call 10,000 10,000 On Call premium Pay 19 additional FTE 1,047,096 1,342, Additional FTE (See Appendix A) * Personnel Services 513, ,762 1,666,266 1,961, FICA 39,053 40,589 40,589 40, Tri Met Payroll Tax 3,667 3,857 3,857 3, PERS ER 45,821 46,861 46,861 46, PERS EE 30,814 31,965 31,965 31, Health Insurance 104, , , , Dental Insurance 12,465 11,831 11,831 11, Life Insurance Long Term Disability 1,487 1,542 1,542 1, FSA Admin Fee HRA/VEBA 7,701 7,775 7,775 7, additional FTE 512, , Additional FTE (See Appendix A) * Employee Benefits 245, , , , Professional Services 1,000 1, , ,000 Process modelling, drafting and other support services 2015 Outsourced Serv & Labor 4,504,824 4,542, , ,929 Veolia Budget Removed, other outside services remain 2020 Permits and Licenses 57,775 57,775 57,775 57, Assessments and Fees 2,250 5,000 5,000 5, Utility Services 1,500 1, , ,313 Electricity, Natural Gas, Garbage, etc Telephone/Cell Phone 12,500 13,000 24,000 24,000 Increase for new City Staff telephones 2120 Building R and M , ,000 Mechanical, painting, hvac, electrical services 2121 Equipment R and M 4,000 1, , ,000 Equipment Mechanical parts 2123 Com Systems R and M Equipment Rent/Lease 2,400 3,000 5,000 5,000 Increased costs for copiers, etc Photographic/Art Printing 1, Advertising Dues and Memberships 27,500 27,500 27,500 27,500

18 Appendix B: WWTP Program Budget Comparison with City Staff Operation Veolia Operation City Staff Operation FY14/15 FY15/16 FY15/16 FY15/16 Adopted Adopted Proposed Proposed ACCOUNT DESCRIPTION Budget Budget Low High Comments 2214 Training and Education 4,800 5,600 16,000 16,000 Increased for 19 additional staff 2224 Meals ,300 2,300 Increased for 19 additional staff 2225 Mileage Promo/Incentive Programs 30,000 30,000 30,000 30, Lodging 2,000 3,200 4,800 4,800 Increased for 19 additional staff 2229 Airfare 1,600 3,200 4,800 4,800 Increased for 19 additional staff 2301 Office Supplies ,000 2,000 Increased for 19 additional staff 2302 Copier/Printer/Fax Supp Paper Increased for 19 additional staff 2310 Gas, Oil, Lubricants , ,000 Diesel, gasoline, polymer and disinfection chemicals 2314 Minor Equip and Tools Operating/Tech/Scientific First Aid and Safety ,000 2, Other Operating Protective Equip/Uniforms ,000 2, R and M Supplies ,000 20, Books and Publications Post/Pack/Del/Courier Comp Equip/Software/Maint 24,200 26,000 70,500 70,500 Increased for new asset management, process and lab SW * Supplies 4,683,299 4,734,005 2,199,267 2,199, Equipment 3010 Vehicle ,800 64,800 Cost for new vehicles over 5 years Captial Outlay 64,800 64,800 $324,000 ammortized 5 years ** WWTP Program ,442,802 5,514,131 4,690,033 5,036,726 WWTP Program 4596 Only 824, ,405 WWTP Budget 4596 Savings City Staff Operation 15% 9% WWTP Budget 4596 Savings City Staff Operation WWTP Program 096 w/isc's 8,757,353 8,948,733 8,187,553 8,591,230 Difference with ISC's 761, ,503 Savings including ISC cost increase 9% 4% Savings including ISC cost increase

19 Appendix C Eisenhardt Group WWTP Operational Alternatives Report June 24, 2015 Page 12 of 13

20 City Of Gresham Wastewater Treatment Plant Operational Alternatives Final Report June 24,

21 TABLE OF CONTENTS 1.0 Background Final Report Objectives Summary of Results Obtained Summary of Recommendations... 4 ACKNOWLEDGEMENTS Prepared by: Paul Eisenhardt Brad Musick 5.0 Analysis in Support of Recommendations Appendices Appendix 1 - Assessment Summary for Current Operations 8 Appendix 2 - Professional Profiles. 9 Under the Direction of: Alan Johnston 2

22 Wastewater Treatment Plant Operational Alternatives Final Report 1.0 Background This report provides Eisenhardt Group, Inc. (EGI s) recommendations for future staffing and operational pathways for the City s wastewater treatment facility and its operation. City staff, under the management and leadership of Alan Johnston, provide excellent overview and management of the Veolia Water contract operations & maintenance program. In this role, the City staff also provides engineering and utility management services for the wastewater treatment facilities. Current City staff is very capable and performs well in their assigned roles. Earlier reports submitted by EGI have addressed the two identified options: 1) continue with the Veolia contract O&M program; 2) transition to City staffing and City O&M of the wastewater facility. These reports are titled: Wastewater Treatment Plant Assessment of Current Operations dated 5/7/15; 2) Wastewater Treatment Plant City Operations Alternative Final dated 6/10/15. The reports are incorporated by reference. 2.0 Final Report Objectives Based upon the assessments performed and the reports developed, EGI is to provide recommendations on how to proceed. EGI s role and workscope was to assess the current operations under the Veolia contract ops. program and to review and assist City staff with the development of a City staffing alternative. City staff developed, and EGI reviewed, the staffing levels and operational budgets developed by City staff for the City staff & operations alternative. At project onset, the desired outcome was a definitive set of recommendations supported by assessments and analysis. 3.0 Summary of Results Obtained As developed with City staff, the initial assessments used for the EGI Reports were designed to provide a high level (30,000 feet) review. As done, both assessments (Veolia Ops and City Staffing & Ops) identify opportunities for continued improvement. Budgetary costs for the current Veolia operation are well known and well documented. EGI s assessment work for the Veolia program did not include the costing of the option as these costs are documented and known to the City. As a result, EGI focused on an Assessment of the current operations. Overall, the assessment found that the Veolia operations are well above average and Best in Class in areas. The City staff development of budgetary costs for City staffing and operations were reviewed by EGI. Potential savings identified in this high level, preliminary assessment of City Staffing & Operations indicate the potential for annual savings in the range 7% of the total wastewater budget. These potential savings of $ 600,000 per year require significant resources for one-time transition costs ($ 600,000 estimate per City staff spreadsheet) and 3

23 transfer to the City significant staffing, financial, and performance risks currently assigned to Veolia and addressed through Veolia s contract requirements and guarantees. Numerous risks and management challenges are implicit in the potential transfer to City staffing and operations. These items are further discussed in this report. The performance of the wastewater facility under the contract O&M program with Veolia Water is excellent. See the EGI Report I dated 5/7/15 titled Assessment of Current Operations. Continued achievement of such demonstrated results and performance are the operational basis for this analysis and recommendations. 4.0 Summary of Recommendations 1) The high-level review and analysis of the City staffing & operations alternative identifies potential financial savings. However, EGI strongly recommends that for the City to pursue this option further significant additional analysis and comparisons should be undertaken. Without such, sufficient information is not available and / or confirmed to establish a solid basis for the financial analysis. In addition, further identification, discussion, and assessment of the identified risks and cost exposures should occur and be part of the decision making process. These items were further identified in the 6/10/15 EGI Report titled City Operations Alternative. Having said that, the preliminary analysis does identify potential financial savings. 2) The Veolia alternative continues a public-private partnership that has delivered significant operational upgrades, new systems, and improved cost effectiveness for the wastewater operation. The current operation wins awards for its performance and is assessed as well above average / best in class for most assessment areas. Several improvement areas were also identified in the 5/7/15 report titled Assessment of Current Operations. City wastewater rates, as identified in the EGI survey, document the cost effectiveness of the program as do the very modest increases in costs over the contract time period for treating 1 MG of wastewater. 3) Looking ahead, EGI recommends that the operations and staffing decisions be made against the backdrop of future requirements and likely scenarios. For example, will nitrification requirements become part of new discharge permit requirements? If so, how will the operational and system / process capabilities be obtained for successful results. Similarly, the Gresham facilities will be entering the age when extended useful life through an aggressive maintenance / asset management program will deliver significant capital savings or deferrals. The current program with Veolia provides such capabilities. 4) Overall, it is EGI s recommendation to proceed with a two-pronged approach. One pathway would pursue discussions with Veolia on improvement areas, cost reductions, and incentive savings. The Assessment Report dated 5/7/15 identifies potential contract improvement areas. The other pathway would first assess if the identified savings are sufficient to offset the risks, financial, and management challenges and exposures transferred to the City. If yes, then a more detailed analysis should be undertaken by the City to confirm the high level ( 30,000 foot ) analysis. If 4

24 this more detailed assessment remains positive, then the City is in a position to seriously compare the updated Veolia program with the more detailed assessment of City staffing & operation. 5) It is EGI s experience that proceeding in this manner positions the City for obtaining the most favorable outcomes. With a solid basis and understanding for the City Staff & Ops alternative, the City is then in a very strong position to challenge Veolia to provide contract modifications and improvements that deliver similar or better results and continue to provide the city with significant guarantees and risk transfer. Should Veolia be unwilling or unable to do so, then the pathway forward for the City becomes quite clear proceed with the City staffing & ops. alternative. 5.0 Analysis in Support of the Recommendations A) Risk Transfer / Guarantees Provided by Veolia that Transfer to City Staffing & Ops. 1) Effluent quality and regulatory compliance responsibility 2) Bio-solids program management and regulatory compliance 3) Union negotiations and resulting outcomes 4) Provision of properly trained and certified staff and their performance 5) Responsibility for staff errors & omissions and any economic loss, damage, performance failures, etc. 6) Facility performance and asset condition 7) Proper maintenance and documentation of such; financial responsibility if not done properly or documented 8) Electric power usage and Co-Gen performance 9) Availability and cost responsibility for regional / corporate staff and systems to augment local staffing and capabilities for process & operations issues, systems development, and operational management materials 10) Financial cost guarantee (annual budget) adjusted annually by the % change in the CPI provides the City an assured cap on operational costs B) Better Integration of Wastewater Treatment, Collection System, and Storm Water While possible with a private sector partner, the ability to build an integrated team with all members from the same organization should provide the basis for increased cooperation, sharing and cost effectiveness. Similar benefits may be obtainable through a properly structured private sector partnership but will involve more coordination and cooperation. The limited scope and budget of the current project did not allow further evaluation and assessment of this item. C) Best in Class Performance As documented in the earlier EGI Report (5/7/15), the current program delivers Best in Class performance that achieves assured regulatory compliance, proper staffing and certifications, well maintained facilities, and utilization of computer based systems for reliable, cost effective operations. Several potential improvement areas were also identified in the Assessment section of the Report. Transition to City 5

25 staffing and operations must continue this excellence to deliver the cost effective results currently demonstrated. D) Certification of Staffing for Regulatory Compliance and Reporting The Gresham facility is required, by regulation, to have a responsible operator in charge with the required (highest level) of Oregon certification. Currently, Veolia Water provides such certified operator. City staffing will require the same certification. No City staff possess the certification and the requirements timeline to obtain such is measured in years not months. As a result, the City option must insure that either existing Veolia staff with such certifications transition to the City or that a properly certified replacement is recruited and on board prior to any official transfer to City operations. This staffing need exists against the backdrop of a documented shortage of Oregon operators with the needed highest certification level. E) Transition Program The budget costs for a transition to City staffing and operations ($ 600,000 one time) provide significant resources and expertise. Equally important is the ability to recruit and hire key staff a minimum of 3 6 months prior to the transition. Key staff should include: - Plant Operations Manager - Assist. Manager - Maintenance Manager - Laboratory Manager - Systems (IT) Manager These staff are essential for the successful transition of existing systems, procedures, software, report submittals, and process and maintenance requirements and records. Existing City staff, specifically Alan Johnston and civil engineers Maag and Narcelli, will need to devote significant time during this transition time period. Similarly Human Resources and City staff will need to recruit and fill all staff positions. The existing union representation will also require transition and integration into the City structure. Existing City compensation packages may also be an issue and require additional, detailed analysis before proceeding. F) Financial Comparison Summarized below is the high level financial / budget comparison developed by City Staff for the total wastewater budget (including City allocated costs) Requested with if Veolia City Ops $ 9 million $ million 6

26 Using the mid-point of the City Ops budget ($ 8.4 million) a potential savings of $ 600,000 is identified. These potential savings do not include the first year transition costs (estimated at $ 600,000) nor do they include a financial cost for the guarantees and risk components that transition to the City as a result of the City staffing and operations. These risk and guarantee items, as discussed in Report 2, are summarized in Item A on page 4 of this report. Using the above budget numbers, the 5 year comparison (in 2015 dollars) between the two alternatives becomes: Total WW budget with Veolia Ops: $ 9 million / yr x 5 yrs = $ 45 million Total WW budget with City Ops: $8.4 million / yr x 5 yrs = $ 42.0 million - One time transition costs = $ 0.6 million 0.6 million Total Budget costs $ 42.6 million 7

27 Appendix 1 Assessment Summary for Current Operations 8