Ten Year Capital Improvement Program. For Fiscal Years

Transcription

1 Ten Year Capital Improvement Program For Fiscal Years

2 Contra Costa Water District Ten-Year Capital Improvement Program For Fiscal Years Board of Directors Joseph L. Campbell, President Lisa Borba, Vice President Bette Boatmun John A. Burgh Connstance Holdaway Jerry Brown, General Manager

3 Project Team Kimberly Lin, Senior Engineer Celia Cheung, Rate and Financial Analyst Lars Sandberg, Project Controls Manager Jeff Quimby, Director of Planning Desiree Castello, Director of Finance

4 Table of Contents I. Executive Summary... I CIP Update... I-1 CIP Structure... I-3 Program Highlights... I-4 Operation and Maintenance Costs. I-9 Financial Plan Highlights... I-9 II. Background... II-1 District Mission and Goals... II-1 Existing Facilities and Operations... II-2 III. CIP Context and Structure.... III-1 Financial Planning Context... III-1 CIP Structure... III-2 Development of the CIP and Financial Plan... III-5 IV. Program Summary... IV-1 Administrative, Support and Maintenance Facility Improvement Program... IV-3 Delta Projects... IV-5 Equipment and Other Capital Purchases Program... IV-7 Expansion of Services Program... IV-9 Future Water Supplies Program... IV-11 Los Vaqueros Watershed and Recreation Program.. IV-13 Treated Water Distribution and Storage Facilities Program.... IV-15 Untreated Water Supply and Transport Program... IV-18 Water/Energy Demand Reduction Program... IV-21 Water Treatment Facility Improvements Program... IV-23 1

5 V. Operating Cost Impacts of the Capital Improvement Program V-1 Background... V-1 Summary of Operating Cost Impacts... V-2 VI. Financial Plan... VI-1 Key Planning Assumptions... VI-2 Projected Revenues... VI-7 Projected Expenditures... VI-11 Capital Project Impacts on Revenue Requirements... VI-14 VII. Project Summaries... VII-1 Administrative, Support and Maintenance Facility Improvement... VII-1 Delta Projects... VII-3 Equipment and Other Capital Purchases... VII-6 Expansion of Services... VII-14 Future Water Supplies... VII-16 Los Vaqueros Watershed and Recreation... VII-20 Treated Water Distribution and Storage Facilities... VII-22 Untreated Water Supply and Transport... VII-32 Water/Energy Demand Reduction... VII-43 Water Treatment Facility Improvements... VII-46 VIII. Exhibits... VIII-1 List of Abbreviations... VIII-1 Glossary... VIII-3 IX. Index... IX-1 APPENDIX... A-1 2

6 Section I: Executive Summary The Ten-Year Capital Improvement Program (CIP) and Financial Plan identifies and prioritizes the capital assets and financial tools required over the next ten years for Contra Costa Water District (CCWD or District) to successfully carry out the District's mission to "...strategically provide a reliable supply of high quality water at the lowest cost possible, in an environmentally responsible manner." The CIP includes the Ten-Year Financial Plan that projects revenue requirements to fund the proposed projects and anticipated operating costs. The CIP and Financial Plan are updated annually as part of an ongoing financial planning cycle that includes bi-annual budgets and annual rate reviews CIP Update The proposed CIP for fiscal years (2017 CIP) includes 52 projects with a total estimated cost of approximately $650.6 million. CIP projects are ranked in three priority levels. The Financial Plan assumes that priority level 1 and 2 projects totaling $281.6 million are funded. This funded level is $47.6 million lower than the 2016 CIP funded level of $329.2 million. The change is the net result of adjusting cost estimates and schedules and progress on projects. The CIP and Financial Plan reflects the recent decline in water sales due to drought conditions and State-mandated water use reductions. The previous CIP was completed prior to the Governor s order mandating statewide water conservation and assumed a gradual rebound in water sales based on observed trends and the District s water supply situation. As part of this CIP update, the District evaluated a range of scenarios for its water sales projections and incorporated a scenario into the Financial Plan assumptions that reflects the mandatory conservation requirements and a slower rebound in water sales until 2021, where they level off. The anticipated water sales in 2021 and beyond account for long-term water use reductions required by Senate Bill X7-7 (20x2020). Thus, water sales are not expected to reach historical normal levels, but rather a new normal that is reflective of permanent per capita water use reductions. The adjustments to water sales due to the drought result in a $51.8 million deficit compared to the 2016 CIP, which is addressed in part through use of the District s Drought Reserve, operating cost reductions, and capital project delays, while maintaining acceptable levels of service to the District s customers. Moderate revenue increases compared to the 2016 CIP are included in the first two years of the CIP to address critical infrastructure needs and maintain a secure financial plan. Compared to the previous CIP projections for Fiscal Year (FY2016), the District s water sales are anticipated to be reduced by approximately 25% due to mandatory conservation requirements, and the level and timing of rebound is uncertain. The 2017 CIP includes an Appendix that explores an alternative scenario in which water sales do not return to anticipated levels, resulting in greater revenue impacts in the future. The Appendix presents an analysis of the potential magnitude of the financial impact and ways in which the District could address further reductions in water sales revenues. The District reviews its water sales projections annually, and will consider implementing the financial tools presented in the Appendix depending on circumstances influencing future water sales and observed trends. This CIP and Financial Plan continues the planned investments in infrastructure projects to ensure the District can maintain the reliability and quality of its existing treated and untreated water systems. To accommodate the financial impact of reduced water sales, some capital projects with I-1

7 flexibility in timing of implementation were moved from the early years to the outer years of the CIP. However, over the ten-year CIP period, the level of investments in infrastructure is consistent with the 2016 CIP. The District has kept this level of funding in the CIP in anticipation of the rising needs and costs of maintaining its aging infrastructure, as reflected in planning studies. Also consistent with the previous CIP is a significant multi-year project to modernize the Contra Costa Canal (Canal) facilities, which have served as the backbone to the District s water delivery system for nearly 80 years. The last CIP identified this project as the Canal Modernization Project. The 2017 CIP separates the Canal Modernization Project into two projects: the Main Canal from Oakley to Clyde which provides the District s primary water conveyance for all customers, and the Loop Canal from Clyde to Martinez which mainly provides water conveyance to the City of Martinez. This distinction helps more appropriately focus the funding and engineering efforts required for each section of the Canal system. This CIP reflects the District s continued commitment to sound financial management and is proposing to address the revenue impacts through a balanced approach of cost reductions, capital project delays, use of reserves, and modest revenue increases. This approach enables the District to maintain a strong financial position in the face of uncertain times in which water sales are in flux and the maintenance needs and costs of its aging infrastructure are increasing. Compared to the last CIP, the District has been able to achieve operational cost savings of $31.8 million over the ten-year period in this CIP, despite significant increases in the cost of Central Valley Project (CVP) water. These operational cost savings are a result of decreased variable costs of producing water due to lower water sales, cost control measures (for example, medical plan cost reduction and re-evaluation of staffing levels), and optimization of the District s assets. The District also leveraged the flexibility of the CIP s programmatic approach to delay certain capital projects to accommodate the revenue impacts. Lastly, the District incorporated a modest revenue increase in the first two years of the CIP, which is necessary to ensure the District is prepared to handle the current and future challenges of maintaining its infrastructure. This recommended approach keeps the rates and reserves within the Board s policy, while ensuring adequate funds to provide continued reliable service to its customers. All of the priority level 1 and 2 projects in the 2017 CIP can be funded and all operating costs and debt service obligations met with the planned revenue increases over the ten-year CIP planning period. This CIP includes $281.6 million of priority level 1 and 2 capital projects with no additional rate-funded O&M costs and no additional staff. This CIP also includes funding for long-term obligations including pensions and Other Post Employment Benefits (OPEB). This CIP reflects employee s contributions to OPEB and reflects $15.0 million of District funding in the outer years of the CIP towards the OPEB unfunded liability, as the District fully incorporates annual funding into the Financial Plan and moves away from partial reliance on positive year-end financial results. Annual inflation is assumed to increase at an average rate of 3.5% for operational costs and 4.0% for capital costs. The District s CVP water costs are projected to increase by 30% in the first year of the CIP based on the Bureau of Reclamation s (Reclamation) water rate forecast. Reclamation is increasing its charges for water due to reduced water sales resulting from the drought and an increase in contracted energy rates for pumping. CVP water costs are projected to increase 7% annually thereafter based on Reclamation s rate setting policies. The projected annual revenue increases over ten years range between 3.75% and 4.50%. The District is able to achieve these consistently modest increases by reducing operating costs; obtaining outside sources of funding such as federal and state grants; improving support facilities and equipment; obtaining low cost financing; and use of reserves to meet the Board s reserve policy levels over the ten-year CIP. I-2

8 CIP Structure The CIP is organized into ten separate program areas, each representing a different function of the District. Organizing projects by function allows the CIP to be viewed as a series of programs for improvements in specific areas of District responsibility. The ten programs are: Administrative, Support and Maintenance Facility Improvement Delta Projects Equipment and Other Capital Purchases Expansion of Services Future Water Supplies Los Vaqueros Watershed and Recreation Treated Water Distribution and Storage Facilities Untreated Water Supply and Transport Water/Energy Demand Reduction Water Treatment Facility Improvements Significant elements of each of the ten program areas are summarized in the Program Highlights section later in this Executive Summary. A more detailed description of the programs is included in Section IV: Program Summary, and individual sub-programs and projects are described in Section VII. Within each program area, projects are prioritized according to a standard set of criteria that measure the relative importance of a project based upon factors such as protection of health and safety, legal requirements, relationship to District goals, and rate of return on the District's investment. The priority levels provide a basis for deciding which projects should be done in any given year. They also provide a basis for scheduling projects over the ten-year span of the CIP. The following three levels are used to reflect a range of priorities from high to low: Priority Level 1 -- These are the highest priority capital projects. They include projects already under construction and those required by legislation, regulation, contract, or for protecting health and safety. Priority level 1 also includes applicant and grant-funded projects. Priority Level 2 -- These are projects that provide measurable progress toward achieving the District s goals, but over which the District has a moderate level of control as to when they should be performed. Where return on investment is a determining factor, projects in this priority level will have a payback of less than five years. Priority Level 3 -- These are projects that are projected to be needed, but over which the District has a significant level of control as to when they should be performed, the District is awaiting response to a grant application, or the project is dependent upon the decision of an outside entity to proceed (for example, another agency's decision to proceed with a project, or a developer's decision to proceed with a development). Where return on investment is a determining factor, projects in this priority level will generally have a payback of greater than five years. A more detailed description of the prioritization system is provided in Section III: CIP Context and Structure. I-3

9 Program Highlights Each of the ten programs addresses a specific area of capital investment. Highlights of each program, including the planning basis, significant projects or capital improvements, and expected contributions to meeting the District s goals, are presented below. Administrative, Support and Maintenance Facility Improvement -- Buildings and facilities not directly involved in the treatment, transmission, or storage of water are organized within this program. The planning basis is the Facilities Master Plan. Estimated funding for this program is approximately $4.7 million over the ten-year CIP period. The Annual Building and Facility Improvements (priority level 1) project provides for capital replacement of and improvements to existing District buildings and grounds with an estimated funding requirement of $4.5 million over the ten-year CIP period. This program also includes $0.2 million to complete the construction of seismic and other improvements at the District Center, which is $3.9 million less than the previous CIP due to progress on this project. Delta Projects -- This program includes water quality and reliability improvement projects being managed by the District under contract with State/Federal agencies, or projects that implement Delta improvement objectives. Estimated funding for this program is $12.9 million over the tenyear CIP period. Sources of funding may include State and Federal agencies, District debt and revenues, and other local agencies. The projects within this program are: Los Vaqueros Reservoir Federal/State Studies (Phase 2 expansion) (priority level 3, $3.6 million) Los Vaqueros Reservoir Expansion Implementation (Transfer Station Pump Replacement) (priority level 3, $9.2 million) Byron Bethany Irrigation District (BBID) Regional Intertie (priority level 2, $0.1 million) The Los Vaqueros Reservoir Federal/State Studies continue to evaluate a next phase of expansion that would be fully funded by State or Federal agencies. Continued studies will depend on the level of participation by other Bay Area water agencies, Reclamation, and the Department of Water Resources. The BBID Regional Intertie provides an interconnection between the agencies untreated water distribution systems to enhance reliability. Equipment and Other Capital Purchases -- The District has an ongoing need to invest in new or replacement capital equipment. Equipment replacement schedules are based on useful life, or when it is most cost-effective based on anticipated future operating and repair costs. This program includes eight projects for purchases of capital equipment totaling $21.3 million. Significant projects include: Replacement of Fleet Vehicles, Heavy Equipment and Rental Boats (priority level 2, $8.1 million) Replacement/Upgrade of Computer Systems (priority level 2, $6.5 million) Replacement of Laboratory Equipment (priority level 2, $0.9 million) Replacement/Upgrade of Network Systems and Hardware (priority level 2, $1.5 million) Replacement/Upgrade of SCADA Equipment (priority level 2, $1.2 million) Replacement/Upgrade of Telecommunications Equipment (priority level 2, $1.2 million) I-4

10 The Fleet Vehicle and Heavy Equipment Replacement Program is funded from the Vehicle Replacement Fund. The Vehicle Replacement Fund is a reserve fund with consistent annual contributions reflected in the ten-year Financial Plan. Higher vehicle costs are anticipated based on recent trends. The Replacement/Upgrade of Computer Systems (Financial, Customer Information, and Human Resources Information Systems) is scheduled to be completed every seven to eight years based on hardware and software life cycles, and this CIP includes two major upgrades during the ten-year period. Funding of approximately $1.6 million is also included to perform a major upgrade to the District s Computerized Maintenance and Management System (CMMS) software to improve efficiency of preventative maintenance and better integrate with the District s asset management program. Expansion of Services -- The purpose of this program is to increase the competitiveness of the District through expanding services. Service expansion diversifies revenue sources and increases efficiencies through improved utilization of existing assets (e.g., sharing water treatment plant [WTP] facilities). This program totals $74.6 million and currently includes the following projects: WTP Expansion - Brentwood (priority level 3, $47.7 million) WTP Expansion - Randall-Bold (priority level 3, $26.9 million) The City of Brentwood WTP expansion will serve the ultimate needs of the City of Brentwood and will be fully paid for by the City. A $26.9 million placeholder project is included to expand the Randall-Bold WTP on behalf of Diablo Water District (DWD). The schedule and costs of the expansion are based on DWD planning studies and the project will be fully paid for by DWD in accordance with the Joint Exercise of Powers Agreement. The WTP expansions have been moved from priority level 1 to priority level 3 due to the uncertainty of the timing of these expansions in light of the recent reductions in water demand. The priority level 3 $80 million placeholder previously included for potential implementation of Regional Capacity Study recommendations has been removed based on the outcome of the study, which included recommendations for several regional interties but no significant capital project. Future Water Supplies -- This program includes $3.1 million in projects related to meeting future water supply requirements except conservation projects, which are in the Water/Energy Demand Reduction Program. These projects help meet the District s goals for improved water supply reliability at the lowest possible cost. The program includes the following projects: Future Water Supply Study Updates (priority level 2, $0.7 million) Future Water Supplies Placeholder (priority level 1 and 2, $1.9 million) Facility Reserve Charge Study Update (priority level 2, $0.3 million) East Contra Costa County (ECCC) Integrated Regional Water Management Plan (IRWMP) Update (priority level 2, $0.2 million) Periodic updates to the Future Water Supply Study are needed to ensure the plan accurately reflects current demand and supply conditions. The Future Water Supplies Placeholder reflects the initial efforts needed to secure supplemental water supplies that the District anticipates it will need in the long-term future. The timing of the large water supply purchase was delayed one year in this CIP considering reduced water demand projections. The Facility Reserve Charge (FRC) Study, which evaluates and updates the District s untreated and treated water connection fees, was recently updated and funding is included to perform future updates of the FRC Study. The District I-5

11 collaborates with other ECCC water purveyors on water resource projects and to pursue grants. Funding is included for regular updates to the ECCC IRWMP. Los Vaqueros Watershed and Recreation -- The projects in this program total $5.9 million and provide for renewal and replacement of Recreation Facilities and Equipment (priority level 2, $0.4 million) and Watershed Improvements (priority level 2, $5.5 million). Projects within this program are based on the recommendations of the Watershed Facilities Master Plan. Future projects include trail and road maintenance, fencing, and buildings and recreation improvements. The Watershed projects are focused on meeting regulatory permit requirements and helping to maintain water quality in the reservoir. This program also includes funding for projects that may increase the value of District lands where there is sufficient business case to do so, as well as capital projects required to meet permit requirements on conservation lands acquired by the District for the Los Vaqueros Reservoir Expansion Project. Treated Water Distribution and Storage Facilities -- This program is vital to maintaining the level of service, quality, and safety of the District's existing treated water system, as well as providing for expansion to meet future needs. The program relies on the following planning studies: 1) the Treated Water Master Plan (TWMP), which was updated in FY2015; and 2) the Treated Water Renewal and Replacement Study, which was updated in FY2011. Investments of $138.8 million over the ten-year CIP period are projected for this program. Approximately $59.5 million is for upgrades to existing facilities investments that directly advance the goals of increasing system reliability and improving delivered water quality. The Subzone 34 Reservoir project has been delayed to outside the ten-year CIP period due to water demand reductions. Included in the program is $1.8 million for a Port Chicago Highway Pipeline Phase II, which adds reliability and redundancy to key areas of the treated water system, and $14.6 million for applicantfunded projects. This program also includes $48 million in priority level 3 placeholder projects for the initial phases of the Concord Community Reuse Plan (CRP) development of the former Concord Naval Weapons Station site. The CRP facilities would be primarily developer-funded and development is anticipated to begin in FY2019, however the timing is uncertain. Development of this area will include both potable and recycled water facilities and these placeholder projects will be updated in the future as final plans for the CRP are developed. Significant projects within this program include the following: Distribution Facilities - Developer Projects (priority level 1, $14.6 million) Pipeline Renewal/Replacement (Main Replacements) (priority level 2, $32.3 million) Port Chicago Highway Pipeline Phase II (priority level 2, $1.8 million) Treated Water Facilities Improvements (priority level 2, $27.2 million) Concord Community Reuse Plan Potable Water Facilities (priority level 3, $20.0 million) Concord Community Reuse Plan Recycled Water Facilities (priority level 3, $28.0 million) CCWD/EBMUD Treated Water Regional Intertie (priority level 3, $10.8 million) Funding for rehabilitation projects is from treated water rate revenues. Funding for new facilities is split between treated water FRCs and water rate revenues, depending on whether the facility is for growth or to improve reliability. Funding for construction of water facilities for the CRP would come directly from its developers. I-6

12 Untreated Water Supply and Transport -- The projects in this program serve to improve source water quality and to replace, expand, and improve the District's untreated water facilities, including the Contra Costa Canal. The funding estimate for this program is $270.2 million. Significant projects within this program include the following: Untreated Water Facilities Improvements (priority level 2, $34.1 million) Canal Modernization Main Canal (priority level 2, $18.1 million; level 3, $61.5 million) Canal Modernization Loop Canal (priority level 2, $0.4 million; level 3, $74.5 million) Canal Replacement Project (priority level 1, $18.9 million; level 2, $11.1 million; level 3, $31.7 million) Shortcut Pipeline Refurbishments (priority level 2, $6.9 million) The Untreated Water Facilities Improvement Projects (UWFIP) funds renewal and replacement of pumping and conveyance facilities and includes such activities as canal lining replacement and pump station rehabilitation to proactively maintain the existing untreated water system. Funding for the UWFIP was increased by $8.9 million in the 2016 CIP to address the increased cost of maintaining the District s aging infrastructure based on recent maintenance needs, and this CIP maintains that same level of funding. The Untreated Water Pipeline placeholder, which would increase capacity in a specific section of the Canal, was previously included but has been delayed to outside the ten-year CIP period due to reduced water demand. The previous CIP included a project to modernize the Canal facilities, which are approaching 80 years of continuous service. This CIP separates the Canal Modernization project into two projects to address the two key sections of the Canal system, the Main Canal and the Loop Canal. The Canal Modernization Main Canal project includes priority level 2 funding of $18.1 million to address initial phases of the project, and a priority level 3 placeholder of $61.5 million to reflect start of construction in the outer years of the CIP window. The Canal Modernization Loop Canal project includes priority level 2 funding of $0.4 million to begin the planning and feasibility stages of the project and a priority level 3 placeholder of $74.4 million to reflect start of construction in the outer years. The Canal Replacement Project improves source water quality, flood protection, and enhances public safety in areas adjacent to the unlined canal. This project will ultimately replace the four miles of unlined Canal from the Rock Slough intake to Pumping Plant 1 with a buried pipeline. The District has already completed approximately 1.5 miles of this project. The District recently received a $14 million grant under the Department of Water Resources Proposition 84 program to construct the next phase of the project. The District has included a local cost share of $5.9 million, bringing the total priority level 2 funding for the next phase of the project to $18.9 million. In addition, priority level 2 funding of $11.1 million for future phases of the project is included, and timing will be based on new development and available outside funding. Costs for the Canal Replacement Project are shared by the District, developers, City of Brentwood, and grant funding. This program also includes the Shortcut Pipeline Refurbishments project which is a phased approach to providing access to and rehabilitating the pipeline that was originally constructed in the 1970s. Mitigation to address the environmental impacts of the project was implemented in FY2016, and the next phase of construction is anticipated to begin in FY2017. I-7

13 Water/Energy Demand Reduction -- This program includes activities related to planning and implementation of water conservation and energy demand reduction projects in recognition of the significant linkages between water conservation and energy demand reduction. Energy is needed to pump, treat, transport, use (heat, cool, or pump) and to treat water again as wastewater. Water conservation programs result in significant energy savings and environmental benefits, including reductions of greenhouse gases such as carbon dioxide. Water conservation projects are being implemented to meet future water needs and the Best Management Practices (BMPs) required by the Central Valley Project Improvement Act (CVPIA), the State Memorandum of Understanding regarding urban water conservation, and the requirements of 20x2020. Consistent with the last CIP, a Water Use Efficiency project with priority level 2 funding of $25.6 million is included in this CIP to implement water use efficiency projects in compliance with 20x2020. The District estimates that 3,000 6,000 acre-feet per year of water savings will be required by 2020, depending on the level of customer water use rebound and growth. This savings will be achieved through a combination of conservation and cost-effective recycled water projects. The Water Use Efficiency project schedule has been adjusted to reflect two phases of implementation. An initial phase will be implemented in FY2017-FY2018, followed by a second phase in FY2020-FY2021. Unit costs for water use efficiency projects range from $500/acre-foot to $700/acre-foot. The funding estimate for this program is $40.7 million. Projects within this program include the following: Water Conservation Incentives (priority level 1, $11.1 million) Water Use Efficiency for 20x2020 (priority level 1, $25.6 million) Energy Master Plan and Implementation Placeholder (priority level 3, $4.0 million) Water Treatment Facility Improvements -- This program contains capital improvements related to the District's water treatment facilities. The projects were identified in the 2011 WTP Master Plan update. Estimated costs for the program are $78.2 million, including $35.6 million in priority level 1 and 2 projects to perform safety projects and renew, replace, and enhance existing treatment facilities. Funding has been included in this CIP for annual chemical tank rehabilitations, based on results of condition assessments. These projects result in improved drinking water quality and increased system reliability. The cost of Brentwood WTP improvements are reimbursed by the City of Brentwood. Significant projects include: WTP Improvements - Bollman (priority level 1 and 2, $17.3 million; level 3, $26.1 million) WTP Improvements - Brentwood (priority level 1 and 2, $4.7 million) WTP Improvements - Randall-Bold (priority level 1 and 2, $9.8 million; priority level 3, $16.5 million) WTPMP Update and Implementation Placeholder (priority level 2, $3.8 million) Operation and Maintenance Costs The Financial Plan considers total District operating costs in its analysis, including current operating costs inflated over time, as well as future costs related to implementing the CIP projects. Projected operating costs during the first year (FY2017) of the 2017 CIP are $87.7 million. This is $3.7 million lower than the projected FY2017 operating cost of $91.4 million in the 2016 CIP. Additionally, costs are anticipated for FY2017-FY2019 to refill the Los Vaqueros Reservoir, following the drawdown in storage to meet water demand during drought conditions. Refilling Los I-8

14 Vaqueros Reservoir is anticipated to occur over the three years. In FY2017, it is anticipated that $4.0 million will be needed to partially refill the reservoir, bringing the total projected operating costs to $91.7 million in FY2017. Despite significant increases in the cost of CVP water and additional costs for refilling Los Vaqueros Reservoir, the District has been able to reduce operating costs over the ten-year period, reflecting the District s commitment to reduce controllable operating costs and continued investment in productivity improvements. Over the common years of the 2017 and 2016 CIP ( ), projected operating costs are lower by $31.8 million. Significant operating costs include labor, power, purchased water, and chemicals. Inflation is assumed to increase operating costs in the Financial Plan by 3.5% annually. Other increases or decreases in variable operating cost are the result of changes in consumption. CVP water costs are assumed to increase by 30% in FY2017 based on Reclamation s water rate forecast. Reclamation is increasing its charges for water due to reduced water sales resulting from the drought and increasing costs for contracted energy (pumping) costs. CVP water costs are projected to increase 7% annually thereafter based on Reclamation s rate setting policies. Operating cost impacts resulting from capital projects are incorporated into the operating cost projections in the year the facility comes on line. Estimates of operating costs for each project are documented in the project summaries in Section VII. CIP Section V: Operating Impacts of the Capital Improvement Program includes an analysis of operating costs, including labor, specifically associated with implementing the priority level 1 and 2 projects in this CIP. Financial Plan Highlights The financial information in the CIP has been updated to include operating and capital expenditures and reserve balance projections through FY2016, and revised revenue projections and anticipated costs projected for the ten-year CIP period. The Financial Plan reflects the District s continued commitment to provide outstanding customer service while controlling costs consistent with Board policies on reserves and rates. It also reflects continued compliance with the District s bond covenants including maintaining a net revenue to debt service coverage ratio of at least 1.25 times annual debt service. As shown in Table I-1, the projected coverage ratio during the ten-year period varies between 1.25 and Table I-1 Debt Service Coverage Ratios CIP NA CIP NA The 2017 CIP reflects continued investments in system renewal and replacement programs necessary to maintain the existing level of service of the District s untreated and treated water systems. Revenue impacts of the anticipated lower water sales projections are also considered in the 2017 CIP. The updated water sales projections are reduced from the 2016 CIP to reflect the State s mandatory conservation requirements and a slower rebound in water sales until 2021 where they level off. The lower anticipated water sales have a negative financial plan impact of approximately $51.8 million, compared to the 2016 CIP. Operating cost projections are lower in this CIP compared to the 2016 CIP through continuing efforts to control costs, including reducing medical plan costs and re-evaluating staffing levels. Lower water sales also means less water produced, which also reduces operating costs. The lower I-9

15 operations and maintenance (O&M) costs result in a financial plan benefit of approximately $31.8 million over the ten-year period. During the drought, stored water in Los Vaqueros Reservoir has helped supplement the reduced CVP water allocation from Reclamation. The cost to refill the reservoir up to its full capacity is approximately $12.8 million. Additional revenue required to fund the refilling cost will be considered separately from the rate increases presented in Table I-6. This CIP and Financial Plan also reflects the substantial retirement of long-term debt issued for the original Los Vaqueros Reservoir Project beginning in The District plans to use the regained debt capacity to refinance short-term debt issued for the Middle River Intake, Los Vaqueros Expansion, and Shortcut Pipeline Refurbishment Projects. There will also be sufficient debt capacity to invest in future infrastructure projects, including the Canal Modernization project which, beginning with this CIP, is separated into two projects: the Canal Modernization - Main Canal and Canal Modernization - Loop Canal projects. All of the priority level 1 and 2 projects can be funded and all operating costs and debt service obligations will be met with orderly revenue increases over the ten-year CIP planning period. The proposed revenue increases are within the Board s rate policy. The highest projected revenue increase is 4.50%. The CIP assumes an average inflation rate of 3.5% for operating costs and 4.0% for capital costs. Highlights of the Ten-Year Financial Plan follow. Capital Projects and Funding Sources The total 2017 CIP is approximately $650.6 million, a decrease of $36.6 million from the 2016 CIP. The increase in total CIP costs is the net result of adjusting cost estimates and schedules, the addition of new project components, and progress towards completion. The Financial Plan assumes priority level 1 and priority level 2 projects are funded. Priority level 1 and priority level 2 projects total approximately $281.6 million in the 2017 CIP. As shown in Table I-2, this total is $47.6 million lower than the priority level 1 and 2 totals in the 2016 CIP. The decrease of $56.7 million in priority level 1 projects is driven primarily by a shifting of the Brentwood WTP and Randall-Bold WTP expansion placeholders from priority level 1 to priority level 3, due to the uncertainty in timing of implementation for these projects. The WTP expansion projects are outside-funded and, therefore, there are no impacts to rates from this adjustment. Funding was also added to the priority level 1 projects to address safety projects at the water treatment plants and in the untreated water and treated water facility improvement programs. The increase of $9.1 million in priority level 2 projects is due primarily to the addition of an annual chemical tank improvement program at the water treatment plants and funding for the District s share of future segments of the Canal Replacement Project. Priority level 3 projects have increased by $11.0 million due to the shift of the WTP expansion placeholders from priority level 1 to priority level 3 and an additional placeholder amount for the future Canal Modernization Loop Canal project. The District is continuing to develop planning studies that will further define the schedule, phasing, and cash flow requirements for this major project within and beyond the current ten-year window. I-10

16 Table I-2 CIP Project Cost Comparison by Priority Priority Level 2017 CIP Costs 2016 CIP Costs Change 1 $81.7 million $138.4 million ($56.7 million) 2 $199.9 million $190.8 million $9.1 million Subtotal $281.6 million $329.2 million ($47.6 million) 3 $369.0 million $358.1 million $11.0 million Total $650.6 million $687.2 million ($36.6 million) As shown in Table I-3, of the $281.6 million in funded project costs, $218.5 million is revenue funded (77.6%), $55.9 million is funded by others (19.9%), and $7.2 million (2.6%) is debtfunded. For comparison purposes, the funding sources for the 2016 CIP are also shown. Table I-3 CIP Priority Level 1 and 2 Project Cost Comparison by Funding Source Funding Source 2017 CIP Costs 2016 CIP Costs Change Debt-funded $7.2 million $12.9 million ($5.8 million) Funded by others $55.9 million $117.5 million ($61.6 million) Revenue-funded $218.5 million $198.7 million $19.8 million Total $281.6 million $329.2 million ($47.6 million) Debt-funding of projects has decreased by $5.8 million compared to the 2016 CIP primarily driven by progress on the District Center Building Improvements project and completion of the Canal Replacement Segment 2 project. No new debt is proposed in this CIP as compared to the 2016 CIP. Funded by others has decreased by $61.6 million due to the shift in the WTP expansion placeholders from priority level 1 to priority level 3. Costs for revenue-funded projects have increased by $19.8 million due to the addition of safety projects and an annual WTP chemical tank improvement program, and a shift in funding source for water use efficiency projects to two-thirds revenue-funded (rates and water supply FRC reserves) and one-third outside-funded based on the latest update of the FRC Study. CIP funding by fiscal year for priority levels 1 and 2 projects is shown in Table I-4. For comparison purposes, the estimated costs from the 2016 CIP are also shown. There are decreases in most years compared to the last CIP. The greatest decreases in FY2022 through FY2024 are due to a shift in the WTP expansion placeholders from priority level 1 to priority level 3. Other variances are due to a shift in schedule of some capital projects from the early years to the later years of the ten-year CIP period to accommodate the revenue impacts of lower water sales. I-11

17 Table I-4 Priority Level 1 and 2 Project Costs by Fiscal Year (in millions of dollars, current dollars) TOTAL 2017 CIP NA CIP NA Projected Capital and Debt Service Expenditures The District s annual investment in capital facilities is the sum of revenue-funded capital costs and existing and future debt service costs. The District currently pays debt service for the Los Vaqueros Reservoir Project, Randall-Bold Water Treatment Plant, the Bisso Administration Building, the Multi-Purpose Pipeline, the Mallard Slough Pump Station, Los Vaqueros Reservoir Expansion, Middle River Intake Project, Shortcut Pipeline Refurbishment, District Center Building Improvements, Canal Replacement Project, and other seismic projects. Rates are set to meet capital and debt service costs as well as District operating costs. Table I-5 shows a comparison of District-funded untreated and treated water capital and debt service costs by fiscal year between the 2017 CIP and the 2016 CIP for priority level 1 and 2 projects. a) Untreated Water Table I-5 Projected Capital and Debt Service Expenditures Comparison by Fiscal Year for Untreated and Treated Water Priority Level 1 and 2 Projects (in millions of dollars, inflated dollars) TOTAL 2017 CIP NA CIP NA Note: Does not include projects funded by applicants or other agencies Projected untreated water capital and debt service expenditures have increased by $22.8 million compared to the 2016 CIP, driven primarily by additional funding for the Canal Replacement and Canal Modernization projects. b) Treated Water TOTAL 2017 CIP NA CIP NA Note: Does not include projects funded by applicants or other agencies Projected treated water capital and debt service expenditures have increased by $18.3 million compared to the 2016 CIP, primarily due to increased funding for safety and chemical tank improvement projects at the water treatment plants. Revenue Increase Projections The projected untreated and treated water revenue increases required to fund priority level 1 and level 2 projects, while covering operating costs and debt service and maintaining required reserve balances, are shown on Tables I-6 (a) and (b), respectively. For comparison purposes, projected I-12

18 water revenue increases from the 2016 CIP are also shown. These are preliminary projections only. The Board of Directors determines actual revenue increases at the time of each annual rate study. Due to the increased use of storage water from Los Vaqueros Reservoir during the drought, the estimated cost to refill the reservoir is $12.8 million. Revenues required to fund the refilling cost will be considered separately from the rate increases presented below. Table I-6(a) Projected Untreated Water Revenue Increases Comparison Priority Levels 1 and 2 Projects CIP 3.75%* 4.50% 4.50% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 2016 CIP 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% NA * Adopted by the Board in January 2016 Table I-6(b) Projected Treated Water Revenue Increases Comparison Priority Levels 1 and 2 Projects CIP 3.50%* 4.50% 4.50% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 2016 CIP 3.50% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% NA * Adopted by the Board in January 2016 Implementing the 2017 CIP will require annual untreated and treated water revenue increases over the ten-year period ranging from 3.75% to 4.50%. This is moderately higher than the 2016 CIP in the first two years, but otherwise consistent with the 2016 CIP. The District is able to achieve these consistently modest increases in the face of significant cost increases and lower water sales due to drought conditions by reducing controllable operating costs, improving support facilities and equipment, obtaining low-cost financing, and using reserves to reach the Board s reserve policy levels over the ten-year CIP. I-13

19 Section II: Background The Ten-Year Capital Improvement Program (CIP) and Financial Plan are annually updated as authorized under Contra Costa Water District (District) Code of Regulations Chapter B. The CIP provides a comprehensive view of the asset investments required over the next ten years to meet the mission and goals of the District. The Financial Plan projects operating costs and reserve balances, and estimates revenue requirements necessary to fund the required projects and operate the District. This comprehensive approach provides an opportunity for the District to prioritize capital investments, monitor progress toward meeting its goals, manage cash flow, diversify revenue sources, and project rates and charges over ten years. The 2017 CIP covers fiscal years and is an update of the previous CIP that covered fiscal years , adopted by the Board on February 18, Board adoption of the CIP establishes the scope and estimated costs of various capital projects designed to meet the longterm needs of the District. Adoption does not commit funds or authorize projects. Project approvals and funding are obtained through the budget process. The District s mission and goals are set forth below. Also included is an overview of existing facilities and operations to provide context for the projects and programs in the CIP. District Mission and Goals The Mission Statement represents the District s statement of purpose. The statement includes a set of seven values that govern how the District will conduct itself in meeting its mission. Ten major goals were developed to measure the success of meeting the purpose as defined by the Mission Statement, and Key Performance Measures have been developed to assess the District s progress in meeting those goals. The Mission Statement and District Goals were established by the Board and guide the development of the CIP and Financial Plan and are explained in more detail below. Mission Statement The mission of the Contra Costa Water District is to strategically provide a reliable supply of high quality water at the lowest cost possible, in an environmentally responsible manner. In fulfilling this mission, the District will: Responsibly serve the public Provide District employees a safe and healthy work environment Ensure fair and equitable rates and charges Work cooperatively with local, regional, state, and federal agencies Practice ethical behavior Ensure an open process Ensure equal opportunity and diversity in personnel matters and contracting II-1

20 District Goals The goals of the Contra Costa Water District are: 1. Ensure that the District delivers high quality and reliable water supplies for current and future needs. 2. Provide excellent customer service and high levels of customer satisfaction. 3. Plan, design, and construct high quality facilities consistent with District needs and industry standards. 4. Effectively manage the District s financial resources in conformance with Board policies. 5. Ensure that all District activities surpass all applicable laws and regulations. 6. Operate, maintain, and protect District facilities in a safe and cost-effective manner. 7. Provide leadership in water affairs. 8. Actively enhance effective community relations and public information. 9. Create and maintain a work environment that fosters teamwork and individual excellence. 10. Manage and maintain Reclamation and District natural and recreation resources, and protect public safety and water quality. Key Performance Measures The purpose of the Key Performance Measures is to provide the Board with a summary tool for assessing the District s progress in meeting its goals. The six measures are: Employee Safety: Reduce the number of calendar year recordable accidents and lost workdays to achieve frequency and severity rates for industrial injuries below the District s five-year rolling average. Customer Service: Maintain customer satisfaction ratings of good or excellent 90% of the time, on a satisfaction scale from poor to excellent. Water Production: Manage water production cost increases at less than the rate of inflation. Water Quality/Reliability: Ensure water system operations are conducted in a manner that does not result in reportable California Department of Public Health or environmental citations or violations. Manage system operations to reduce service interruptions. Capital Projects: Ensure all District costs for administration, planning, design and construction management on completed projects be less than the District s five-year rolling average without reducing quality or performance Productivity: Maintain or reduce ratio of labor cost to revenue. Maintain or increase ratio of capital assets to staff. Existing Facilities and Operations The District provides water to approximately 500,000 people in Contra Costa County. In performing this service, the District operates and maintains a complex system of water transmission, treatment, and storage facilities to supply both treated and untreated (raw) water to its customers. II-2

21 The Contra Costa County Water District was approved by the voters in 1936 as the legal entity to contract, purchase, and distribute water provided by the U.S. Bureau of Reclamation (Reclamation) through the Contra Costa Canal. (In 1981, "County" was dropped from the name, leaving Contra Costa Water District.) The 48-mile canal conveys water from the Sacramento-San Joaquin Delta, through Rock Slough, Old River, and Middle River to eastern and central Contra Costa County. The District's service area encompasses most of central and northeastern Contra Costa County, a total area of more than 140,000 acres (including the Los Vaqueros watershed area of approximately 19,100 acres). Water is provided to municipal, residential, commercial, industrial, landscape irrigation, and agricultural customers. Major untreated water municipal customers are the Cities of Antioch, Pittsburg, and Martinez. Treated water is distributed to customers living in the following communities: Clayton, Clyde, Concord, Pacheco, Port Costa, and parts of Martinez, Pleasant Hill, and Walnut Creek. In addition, the District treats and delivers water to the City of Brentwood, Golden State Water Company (serving Bay Point), Diablo Water District (DWD), and the City of Antioch. In 2008, the District entered into an agreement with the Golden State Water Company to meet 100% of the demands in the Community of Bay Point through a treated water interconnection on the Multi-Purpose Pipeline. a For the first 25 years of its existence, the District's main responsibility was the purchase and distribution of untreated water through the Contra Costa Canal. The cities and other water utilities within the District were responsible for treating water used by their customers. However, in the late 1950s, many citizens and public officials became concerned about the quality and cost of the water in the central county area. To solve this problem, the District purchased the California Water Service Company's Concord-area treatment, pumping, storage, and distribution facilities. In 1968, the District replaced the old treatment facilities with the construction of its own Ralph D. Bollman Water Treatment Plant (WTP) in Concord. The Bollman WTP and the Randall-Bold WTP built in 1992 now provide treated water to approximately 200,000 people in the central county area. The Randall-Bold WTP in Oakley is jointly owned with DWD, through a joint powers authority. The Randall-Bold WTP provides treated water to DWD, to new growth in Central County, and by contract, to the Cities of Antioch and Brentwood, and the Golden State Water Company (Bay Point). The Multi-Purpose Pipeline, constructed in 2003, transports treated water to new customers in Central County from the Randall-Bold WTP. A separate WTP facility on the Randall-Bold site was constructed in 2008 and is operated by the District for the City of Brentwood. II-3