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07-07-10 JWC Agenda Packet AGENDA JOINT WATER COMMISSION 1 :30 pm - July 7, 2010 Council Conference Room Golden Valley City Hall 1. Call to Order 2. Approval of Minutes - June 2,2010 3. Letter to Minneapolis - Burt 4. CitiLink's Request for Equipment on North New Hope Water Tower - McDonald 5. Adjournment JOINT WATER COMMISSION MINUTES Golden Valley - Crystal - New Hope Meeting of June 2 2010 The Golden Valley - Crystal - New Hope Joint Water Commission meeting was called to order at 1 :30 pm, in the City of Golden Valley Council Conference Room. Commissioners Present Tom Burt, City Manager, Golden Valley Anne Norris, City Manager, Crystal Kirk McDonald, City Manager, New Hope Staff Present Sue Virnig, Finance Director, Golden Valley Bert Tracy, Public Works Maintenance Manager, G Dave Lemke, Utilities Maintenance Supervisor, G Bernie Weber, Utilities Maintenance Superviso Tom Mathisen, Director of Public Works, Cry Jeannine Clancy, Director of Public Works, Go Guy Johnson, Director of Public Works, New Hop Minutes of May 5. 2010 nimously to approve the A reement For Pro Rehabilitation Pr ion carried unanimously to approve the Ith Bolton and Menk for $34,500 for the for Generator Maintenance to Golden Valle MOVED b quote for a 3- pump maintena y McDonald and motion carried unanimously to approve the upport Agreement with Ziegler Power Systems to perform mount of:. $4206.00 - Ge erator PM Service, annually $2148.00 - Pointguard Monitoring, annually $2268.00 - Load Bank Testing - every other year Broadband Solutions Interest to Lease Space on New Hope North Water Tower for Two Microwave Dishes McDonald wanted to inform the Commission that New Hope is working with Broadband Solutions regarding the lease rates and timing. Joint Water Commission Page 2 of 2 Next Meetina The next meeting will be July 7,2010. Adiournment The meeting was adjourned at 1:15 pm. Christine Columbus, Administrative Assistant ATTEST: Golden Valley w Crystal w New Hope Joint Water Commission 7800 Golden Valley Road Golden Valley, Minnesota 55427 763w593w8000 June 24, 2010 Mr. Steve Kotke, Director of Public Works City of Minneapolis City Hall, Room 203 350 South 5th Street Minneapolis, Minnesota 55415-1315 Minneapolis Water Purchase Agreement Dear Mr. Kotke: The Joint Water Commission (JWC) recently completed a multi-year collaborative process with the City to review specific issues set forth in the Agreement. These included: 1) consideration of a backup City water supply, 2) expanded JWC oversight and governance, 3) emergency interconnections with neighboring cities, and 4) supplemental groundwater supply. The overarching purpose of these discussions was to secure a high quality, reliable and sustainable water supply for JWC residents. The JWC is pleased having secured from Minneapolis the ability to develop emergency interconnections with its neighboring water suppliers. The Water Advisory Board also expanded the JWC's advisory input into City water works operations and water system capital investment. However, little progress is being made on the development of a backup water supply, construction of a critical interconnection with St. Paul, and investment of sufficient funds into ongoing renewal and replacement of the City water system. Due to the apparently dire financial condition of the City Water Fund, cancellation of the planned Fridley membrane treatment facility, and continued very large transfers of water revenue to the General Fund, at this point the JWC is compelled to re-engage you and your staff in a focused discussion as to the rates paid for City water and other matters affecting the long-term viability of the Ag reement. The next five-year cost of service adjustment in JWC rates is due to take effect in 2013. The JWC is seeking to re-negotiate its Agreement prior to that time. We would appreciate a response to our concerns by mid-July. Mr. Steve Kotke June 24, 2010 Page 2 Water Purchase Agreement Payment Provisions The Water Purchase Agreement between the JWC and the City sets forth a specific methodology for determining the rate to be paid by the JWC for wholesale potable water service. The agreement sets forth a five-year cycle of cost of service adjustments to the rates. The last such adjustment went into effect 1 January 2009 and will remain so until 31 December 2013. Base - Extra Capacity Method The Agreement specifies that a "Base - Extra Capacity" analysis of City water works operating expenses, allowance for depreciation and return on capital be conducted every five years to determine the ratio between inside-city residential customers and the rate to be paid by the JWC for wholesale city drinking water for the next five years. The Agreement specifies that the City use the American Water Works Association (AWWA) Base - Extra Capacity method to identify and allocate costs between City retail customers, the JWC and other suburban wholesale customers. Section 1.F of the Agreement specifies that the AWWA method be used, but that the JWC only be allocated a share of operating expenses and depreciation allowance with zero return on capital. Table 1 below sets forth the summary of the 2008 analysis that developed the JWC's current wholesale water rates. TABLE 1 - Minneapolis Cost of Service to the JWC, 2008 Planl Value Allocation 36,763,760 319,055.894 11.5% Return on Investment Depreclallon 1.517,056 12.985,984 11.7% TOTAL CAPITAL COST 1,517,056 Bond Payment 12.938,274 O&M 4,021,293 35,431,549 11.3% Billing and Accounting 1.500 TOTAL OPERATING EXPENSE 4,022.793 Credits TOTAL 5,539.849 2007 Water Used (Gallons) 2,649,000,000 20.946.000,000 12.6% Cost per Million Gallons 2,091.30 Cost per Thousand Gallons 2.09 3.58 58.4'Yo Cost per 100 Cubic Feet 1.56 2.67 58.4% Cost of Service to Serve the Joint Water Commission, peE, September 2008 Mr. Steve Kotke June 24, 2010 Page 3 Position. It is our position that the City has generally followed the AWWA Base - Extra Capacity methodology with regard to defining cost categories, cost allocation factors, and water demands. As called for in the Agreement, the analysis properly excludes a return on investment cost component. The 2008 analysis includes forecasted 2009-2013 capital improvements to derive a $13.0 million estimate of an allowance for depreciation. Almost half of this estimate is based on projected 2009-2013 capital improvements, some of which have been cancelled or deferred indefinitely. It should also be noted that the depreciation estimates included in the 2008 analysis were developed specifically for the 2008 analysis and cannot be reconciled with the City's 2007 Comprehensive Annual Financial Report (CAFR). Please provide to the JWC a revised cost of service analysis with adjusted allowance for depreciation estimate reflecting changes that have been made to the 2009-2013 capital improvement plan and adjust JWC rates accordingly. Fair and Equitable Rates Section 6.B of the Agreement stipulates that rates established for the JWC in 2008 should be "fair and equitable." Position. It is our position that the City has an obligation to establish a common cost of service framework to be applied prospectively and consistently in setting rates for new wholesale customers and for future adjustments in rates for retail customers. In 2009, the City prepared a cost of service analysis of retail potable water rates for the Minneapolis-St. Paul Airport (MSP). The analysis, evidently prepared using the AWWA Base - Extra Capacity methodology, concluded that rates to MSP should be significantly lower than those charged the JWC. MSP has an internal, small diameter water distribution system and would receive water from the City via large diameter water mains, similar to those serving the JWC. However, MSP is an "on-demand" customer that does not have its own storage or oft- peak delivery requirements like the JWC. Therefore, operating expenses, and rates, should be higher to meet MSP's higher peak demands and storage service needs. A cost of service analysis of such a customer would reasonably conclude that a fair and equitable rate for the MSP should be somewhat higher than the JWC, and somewhat lower than inside city retail rates. Either MSP is being charged too Iowa rate, or the JWC is being charged too much. Please provide to the JWC a cost of service analysis that demonstrates that JWC and MSP rates have been developed on a consistent cost of service basis. Costs Which Are Not Incurred Section 6.B of the Agreement stipulates that "all costs of service which are incurred to provide water to other customers but which are not incurred in providing water to the JWC should be set aside." This provision is interpreted to mean that costs that are either not incurred or not allocable to the JWC should not be included in the cost basis of JWC rates. Mr. Steve Kotke June 24. 2010 Page 4 Position. It is our position that the City has an obligation to clarify its 2008 cost of service analysis and demonstrate that the estimated $4.75 million in Ultrafiltration Program depreciation expense is indeed related to assets that will be put in service by 2013. Due to the cancellation of the Fridley Membrane Project, it is unclear whether the depreciation expense related to 2009-2013 improvements will increase by such a significant amount. If it cannot be shown that these assets will be put in service during this period of time, then the 2008 Cost of Service analysis of JWC rates should be revised and these costs "set aside" for purposes of a new JWC rate. Extraordinary Transfers Section 1.C of the Agreement defines an extraordinary transfer as "the transfer of funds from the Water Works Fund to any other fund of the City of Minneapolis without the receipt of services in return therefore...." A pro forma forecast prepared by City staff and distributed to the JWC in the fall of 2009 indicated that annual transfers to the General Fund are expected to average about 25 percent of annual operating expense over the next ten years. These transfers are divided into two line items in the forecast: "Transfers to General Fund" and "General Fund Services". It should also be noted that the Agreement stipulates a $1,500.00 annual metering and billing expense. This expense is included as a line item in the 2008 Cost of Service analysis. Position. Please demonstrate that transfers to the General Fund both in the current budget period and forecasted through 2013 are directly related to a "receipt of services" as stipulated in the Agreement. In our experience with utility budgeting and finance, General Fund transfers of 25 percent are extremely high. Further, please demonstrate that the transfer to the General Fund does not double count the metering and billing expense that is included in the 2008 Cost of Service Report. If indeed metering and billing expenses are included in the General Fund transfers, then the JWC is paying twice for these services. Finally, the City should reconcile in a transparent manner its 2008 cost of service analysis with the pro forma forecast distributed last fall. . We appreciate the opportunity to bring these issues to your attention and look forward to meeting with you soon to discuss their resolution. Thank you. Very Truly Yours, JOINT WATER COMMISSION Thomas D. Burt, Chair c: Anne Norris, City of Crystal Kirk McDonald. City of New Hope .' AMANDA M. FURTH GORDON L. JENSEN! ADAM J. KAUFMAN MELANIE P. PERSELLIN',' STEPHEN M. RINGQUIST' STEVEN A. SONDRALL I Real Property Law Specialist Certified By The Minnesota State Bar Association 'Licensed in Illinois/Colorado 'Qualified Neutral Mediator under Rule 114 JENSEN SONDRALL & PERSELLIN, P.A. Attorneys At Law 8525 EDINBROOK CROSSING, STE. 201 BROOKLYN PARK, MINNESOTA 55443-1968 TELEPHONE (763) 424-8811 $ TELEFAX (763) 493-5193 e-mail law@jspattorneys.com Writer's Direct Dial No,,' (763) 201-0211 e-mail sas@jspattorneys.com July 2,2010 Kirk McDonald, City Manager City of New Hope 4401 Xylon Avenue North New Hope, MN 55428 Re: CitiLink Request for Antenna on North Water Tower Our File No.: 99-10000 Dear Kirk: This letter is in follow up to the July 2nd letter you received from Carol Wirsbinski of CitiLink in connection with its requested lease on the North Water Tower. The main sticking point in our negotiation on the lease was the rent amount. CitiLink has agreed to pay annual rent of $9,000.00 As you know, we have required annual rent payments of $25,000.00 or more from other cell phone providers like T-Mobile and Sprint. However, these providers have been using the tower space for their entire network of customers. As a result, the tower rent is spread out among numerous customers. CitiLink's request for tower space is limited to a single customer; LDI. Obviously, CitiLink's tower rent will be borne exclusively by LDI. As a result, a reduced tower rent is justified in this unique case and in my opinion will not set a precedent in any future negotiations with other cell phone service providers. Also, LDI is a significant business in the City and assisting LDI to obtain better phone service thereby promoting their presence in the City is in our best interest as well. Further, CitiLink's use of the tower property will be minimal with no required special equipment. They will only require a 2 foot by 4 foot equipment box incidental to the antenna on the tower. The box is made from stainless steel and they have agreed to screen the box if we so require. In other words, they will satisfy public works and the surrounding residences of any aesthetic concerns we might have about their use ofthe tower property. I did speak to Director Johnson regarding their request. He does not have any problems with their request as long as they meet our aesthetic concerns and realize they may need to provide temporary power to the site if and when we revitalize the existing well on the site. In summary, this appears to be a reasonable proposal for the City which will generate an additional $9,000.00 in revenue the City can obviously use. Contact me if you have any further questions or comments. Very truly yours, Steven A. Sondrall cc: Guy Johnson P:lAltomeylSASII Client Filesl2 City of New Hope199-10000 City Mgrlltr K McDonald re CitiLink towerrental.doc ') cltlLink BROADBAND SOLUTIONS 7 -2-2010 City of New Hope Mr. Kirk McDonald - City Manager 4401 Xylon Ave North New Hope, MN 55428 RE: New Hope North Water Tower - Service for Liberty Diversified Industries Dear Mr. McDonald, This correspondence is to explain the need of the installation for the microwave connection to establish service for Liberty Diversified Industries. CitiLink Broadband is a wireless provider for point to point, internet and voice services. This request is only for the permission to lease space for our equipment to service LDI and not a full deployment of a broadcast tower. Our towers serving the area where LDI's main corporate office is located are unable to connect without an additional tower due to a ridge in the topography. The microwave point to point connection we are providing for LDI to connect their corporate office and their Brooklyn Park location does require line-of-site to connect. We have requested permission to lease space on the New Hope North water tower for placement of the two 2' microwave dishes. Our installation will also include a 24" base cabinet, cabling to the two dishes, and a power connection. We will be directing the dishes one to each of the following GPS coordinates. . Latitude N 45 03.250 Longitude E 24 93.400 . Latitude N 44 59.733 Longitude E 993.433 I understand the JWC will be meeting on July 7th and we look forward to receiving the final approval. Thank you for your consideration. We look forward to hearing from you at your earliest opportunity. Respectfully, Carol Wirsbinski President & CEO 952-388-0560 CitiUnk Broadband Solutions, 15322 Galaxie Avenue, Sle. 200, St. Paul, tvlN 55124-3152