Form revised February 6, 2008

Form revised: December 14, 2010

FISCAL NOTE FOR NON-CAPITAL PROJECTS

Department:	Contact Person/Phone:	CBO Analyst/Phone:
Seattle Public Utilities	Judy Gladstone/4-4642	Karen Grove/4-5805

Legislation Title: An ordinance relating to Seattle Public Utilities; authorizing the Director of Seattle Public Utilities to enter into long-term full and partial requirement contracts and emergency intertie agreements with wholesale customers that have expiring water supply contracts with Seattle, and ratifying and confirming certain prior acts.

Summary of the Legislation: The legislation authorizes the Director of SPU to enter into long- term water supply contracts or emergency intertie agreements with eight wholesale customers that are currently being served under contracts that expire at the end of 2011.

Background: Seven wholesale customers purchase water from Seattle under contracts signed in 1982. These utilities include: Water Districts 49, 90, 119, and Lake Forest Park Water District; and the cities of Bothell, Duvall, and Edmonds. An eighth wholesale customer, the City of Renton, later signed a similar contract, with provisions specific to its circumstances. All of these contracts expire at the end of this year.

The six full or partial requirements contracts authorized by this ordinance are substantially the same as the full and partial requirements contracts authorized in 2001 by Ordinance 120362. They differ mostly in how they transition from the old to the new contract, and other small refinements. One of the partial requirements contracts, with the City of Renton, will also differ by including alternative provisions to recover costs for providing regional conservation services or other new supply in lieu of facilities charges or new supply rates to accommodate its interest in having SPU provide conservation services throughout its retail service area even though Seattle provides a small portion of its overall water supply. All of these contracts extend until 2062, which is when the existing full and partial contracts end, and have opportunities to amend the contract in 2021 and 2041.

The remaining two wholesale customers would be served under emergency intertie agreements since their future water supply needs are limited to emergency purposes only. These agreements are more limited in scope and have a different fee structure, but will similarly extend to 2062. These utilities will not participate in the Operating Board.

____ This legislation does not have any financial implications.

_X_ This legislation has financial implications.

Anticipated Revenue/Reimbursement: Resulting from this Legislation:

Fund Name and Number	Department	Revenue Source	2011 Revenue	2012 Revenue
Water Fund 43000	Seattle Public Utilities	Wholesale Water Sales	$ (463,000)	$0
Water Fund 43000	Seattle Public Utilities	Facilities Charges	$ 34,000	$ 0
Water Fund 43000	Seattle Public Utilities	Other Purveyor Credits	$ 666,000	$ (60,000)
TOTAL			$ 237,000	$ (60,000)

Revenue/Reimbursement Notes:

Full and Partial Contracts

The Full and Partial Requirements contracts contain several transition mechanisms for customers moving from the 1982 contract to a full or partial requirements contract. The full and partial requirements contract rates will be effective for these utilities in 2011, meaning SPU will receive approximately $463,000 less rate revenue in 2011 than if it allowed the 1982 contract to expire at the end of 2011. This revenue loss is offset by the following payments from the utilities that are signing new full or partial contracts:

Approximately $34,000 in Facilities Charges, which were not required under the 1982 contracts.

A one-time payment in 2011 of $100,000 to Seattle as an early contract signing fee (prorated among the utilities).

A one-time payment in 2011 of approximately $563,000 to retire a deficit in the running balance under the annual true-up mechanism in the expiring contracts.

A one-time transaction charge of $3,000 related to the Emergency Intertie Agreements, as described below.

The 2012 revenues displayed in the 2011 Adopted and 2012 Endorsed Budget in the Water Fund Revenue table already assumed that these contracts would be signed and effective in 2012, so there is no further change to the Wholesale Water Charges or Facilities Charges revenue items. Not yet included in the 2012 revenue table is a discount in 2012 to promote equity for the six new full or partial requirements contract customers who will be joining the existing full and partial requirements contract customers at a time when they have a deficit in the running balance under the annual true-up mechanism in the contracts, estimated at $60,000.

Emergency Intertie Agreements

The revenue impact of these agreements is minor since the wholesale customers who will have these agreements do not currently purchase water in any significant quantities. The annual fee under the emergency intertie, which covers the cost of administration and a minor allowance of water to be used for administrative purposes (e.g. meter testing, keeping the water fresh), will result in approximately the same revenue as the monthly meter charges under the 1982 contract. Any water used for emergencies above the administrative allowance will be billed at the then current average of full and partial requirements contract peak and off-peak rates. The table above does include a one-time transaction fee to Seattle of $3,000 in 2011 under Other Purveyor Credits.

Spending/Cash Flow Notes: N/A

What is the financial cost of not implementing the legislation?

The main cost of not implementing this legislation is related to the ambiguity caused by lack of a contract when the existing water supply contracts expire and the continuation of having to administer more than one contract relationship structure with various wholesale customers. This would cause inefficiencies such as multiple rate structures, multiple audit and monitoring procedures, etc. The new contracts will provide certainty for all parties surrounding issues such as:

- Water quality requirements, including limits on SPU’s responsibilities

- Conditions of service, e.g. limits on the quantity and pressure of water at service connection, allocation of responsibilities for metering equipment, etc

- Consistent cost allocation and rate-making principles and procedures

- Coordination of water supply planning

- Dispute resolution procedures, including participation by the Operating Board

- Commitment to participate in the regional conservation program in accordance with the Muckleshoot Settlement Agreement

The risk costs are difficult to estimate in monetary terms.

Does this legislation affect any departments besides the originating department?

What are the possible alternatives to the legislation that could achieve the same or similar objectives?

None

Is the legislation subject to public hearing requirements?

Other Issues:

The contracts will be in effect until 2062, so the long term effect is certainty about roles and responsibilities of all parties and administrative efficiency for Seattle’s contract management as a regional supplier of water.

List attachments to the fiscal note below:

None