Form revised August 4, 2003

FISCAL NOTE FOR NON-CAPITAL PROJECTS

Department:	Contact Person/Phone:	DOF Analyst/Phone:
Seattle Public Utilities	Guillemette Regan 3-5008 Chris Potter 6-1576	Cameron Keyes 4-8048

Legislation Title: AN ORDINANCE relating to Seattle Public Utilities; authorizing the Director to enter into a 50-Year Declining Block Water Supply Agreement between The City of Seattle and The Cascade Water Alliance.

· Summary of the Legislation:

This legislation authorizes SPU to sign a contract to supply the Cascade Water Alliance with water. Under the contract, SPU will supply water up to a contract ceiling for a set annual price. This ceiling is an average of 30.3 million gallons per day (MGD) until the end of 2029, and declines gradually to 5.3 MGD in 2045 where it remains until the end of the contract term.

· Background: (Include brief description of the purpose and context of legislation and include record of previous legislation and funding history, if applicable):

Cities and utility districts surrounding Seattle purchase water from SPU under long-term wholesale supply contracts. Water supply contracts were originally signed in the early 1980’s and expire in 2011, and a new 60-year contract has been signed by nine of these original customers. Other current customers are also negotiating with SPU in order to secure their water supply beyond 2011.

Eight utilities (five of which are customers of Seattle) have chosen to form a new agency, called the Cascade Water Alliance (Cascade). Cascade’s intent is to develop a source of supply separate from SPU, and to negotiate a common interim water supply contract with SPU. These customers comprise about 20% of the water demand served by SPU. This contract assures Cascade members of a continuing supply of water from SPU during the time their independent source of supply is under construction. SPU’s deliveries to Cascade will then ramp down over a 20-year period.

· Please check one of the following:

____ This legislation does not have any financial implications. (Stop here and delete the remainder of this document prior to saving and printing.)

__X_ This legislation has financial implications. (Please complete all relevant sections that follow.)

Appropriations: (Please only reflect the dollar amount actually appropriated by this legislation.)

Fund Name and Number	Department	Budget Control Level*	2003 Appropriation	2004 Anticipated Appropriation
Water 43000	SPU	N/A	N/A	N/A
TOTAL

* This is line of business for operating budgets, and program or project for capital improvements

Notes: The budget for providing water to wholesale and retail customers is provided through the annual budget process. Because Cascade’s purpose is managing the water supply and demands of its customers, Cascade will provide conservation and new source development services instead of SPU. Over time, this will result in a smaller water conservation budget in SPU, which will be proposed as part of the normal budget process. In the future, Cascade will also not share the cost of (or the financial risk associated with) SPU’s new source development efforts.

The new contract states that conservation services provided by SPU’s 1%-Program and associated charges end upon the effective date of the agreement. However, a transition period is necessary and Cascade has not determined how it will deliver conservation services within its service area. As a result, it is discussing options to contract with SPU to provide conservation services during a transition period. The 2004 budget assumes SPU will continue to provide all existing conservation services to Cascade. In the event that Cascade chooses not to pay SPU to provide conservation services, the conservation CIP may be reduced by up to 20%. SPU will not make any expenditures in 2004 within CWA service territory without a new financial agreement with CWA.

Anticipated Revenue/Reimbursement: Resulting From This Legislation:

Fund Name and Number	Department	Revenue Source	2003 Revenue	2004 Revenue
Water 43000	SPU	Wholesale water rates.	$0	<3.3 million>
TOTAL			$0	<3.3 million>

Notes: The proposed contract is expected to reduce SPU’s wholesale water revenues by $3.3 million. This reduction is caused by a change in the way the costs of excess water supply are recovered. Currently, the water system can supply 171 millions of gallons of water per day (MGD) on an average annual basis. Current water demand is about 139 MGD, or 81% of this supply capacity. All current customers bear the cost of the unused 32 MGD in their rates because, as a region, we will grow into this unused capacity. It is expected that the Water Fund can accommodate the reduced level of revenue and still accomplish its financial targets in 2004, because SPU has made cuts in CIP and O&M.

The proposed contract limits Cascade’s demand to 30.3 MGD, which is very close to its current demand (requiring Cascade to continue conservation programs or find other sources of water). Because Cascade is not entitled to receive more than 30.3 MGD without paying a penalty, it will not pay the $3.3 million for excess system capacity that is currently embedded in wholesale rates. Seattle and its non-Cascade customers will instead pay this $3.3 million. An alternative way of looking at this is that the non-Cascade users of the water system are “purchasing” the opportunity to grow into almost the entire excess capacity of the water system, and are paying somewhat more in order to make the purchase.

Total Regular Positions Created Or Abrogated Through This Legislation, Including FTE Impact:

Position Title*	Part-Time/ Full Time	2003 Positions	2003 FTE	2004 Positions**	2004 FTE**
TOTAL	N/A

· Fund Name and Number: This legislation is not expected to affect employment.

· Department: ___________________________________________________

* List each position separately

** 2004 positions and FTE are total 2004 position changes resulting from this legislation, not incremental changes from 2003.

· Do positions sunset in the future? (If yes, identify sunset date):

Spending/Cash Flow: (Please complete this section only in those cases where part or all of the funds will be spent in a different year than when they were appropriated (e.g., as in the case of certain grants and capital projects.)

Fund Name and Number	Department	Budget Control Level*	2003 Expenditures	2004 Anticipated Expenditures
TOTAL

* This is line of business for operating budgets, and program or project for capital improvements

Notes:

· What is the financial cost of not implementing the legislation? (Estimate the costs to the City of not implementing the legislation, including estimated costs to maintain or expand an existing facility or the cost avoidance due to replacement of an existing facility, potential conflicts with regulatory requirements, or other potential costs if the legislation is not implemented.)

The principal benefit to Seattle of implementing this legislation is increasing certainty for meeting long-term demand on the water system and reducing Seattle’s costs for development of future water supply. Expected demand drives investment in demand management and new sources of supply. New sources of supply have a higher per-unit cost than existing sources of supply. The new contract will postpone the need to invest in new water supplies because it caps, and then reduces, the demand on Seattle from Cascade members.

· What are the possible alternatives to the legislation that could achieve the same or similar objectives? (Include any potential alternatives to the proposed legislation, such as reducing fee-supported activities, identifying outside funding sources for fee-supported activities, etc.)

No other vehicle exists to cap Cascade’s demand from the Seattle water system.

· Is the legislation subject to public hearing requirements: (If yes, what public hearings have been held to date, and/or what plans are in place to hold a public hearing(s) in the future.)

No.

· Other Issues (including long-term implications of the legislation):