Notes from Becky Steinbruner

Greetings, All,

The Soquel Creek Water District Board met last night at the District Office for a Special Meeting to discuss with Brown and Caldwell consultants the PureWater Soquel Project delivery plan. District Finance Director Ms. Leslie Strohm also presented information about how the District would finance the Project and led a discussion about how it would affect customer rates.

Gary and I attended, and Bruce Tanner video recorded the meeting. It should be noted that Bruce arrived at exactly 6 p.m. and the meeting and consultant presentation had already begun, Bruce having apparently missed the Public Comment item on the agenda.(I have asked Bruce to submit a letter for Public Record that the meeting began before the noticed 6 p.m. start time.)

Gary arrived at about 6:15 and I got there about 6:20. There were no other members of the public there, but the room was FULL of District staff, Board members and Brown and Caldwell consultants (four, I think).

Here is a link to the Agenda: https://www.soquelcreekwater.org/sites/default/files/documents/board-meeting/agendas/07-24-18%20Special%20Meeting%20-%20Workshop%20Agenda_final.pdf

This was the FIFTH Special Meeting the Board has held (other dates were 5/1, 5/29, 6/19, 6/26).

PLEASE BE ADVISED THAT THE NEXT SPECIAL BOARD MEETING WILL BE ON AUGUST 21 AT 5 P.M. AND WILL PRECEDE THE REGULAR DISTRICT BOARD MEETING AT 6 P.M., BOTH IN THE CAPITOLA CITY COUNCIL CHAMBERS. The Special Meetings are NOT video recorded there by Community Television, but I will make sure it is video recorded and put up on public YouTube.

Here are my notes from the point I entered:

The Brown & Caldwell consultant was discussing the different delivery models for how to put the PureWater Soquel Project out to bid, built and operational in the fastest way possible. All models for the two treatment facilities (tertiary and Advanced Water Treatment) included having the builder be the designer of the Project (Design/Build or DB).

1.) Fixed Price Model

This model would have the construction company/designer issue a fixed price for the Project. That would mean the District would have to clearly specify quality aspects or run the risk of the builder taking short-cuts to save money that could negatively affect quality of the system operation. It would require the District to specify the “rules” to include about how the system be built to ensure necessary quality operation and safety redundancy.

Tom LaHue commented that the technology is common. Brown and Caldwell replied yes, but the specifications can vary and by requiring ONLY a 20% Design of the system by the contractor, it leaves much to the District to define specific redundancy components. The idea of a 20% Design is to get the contractor chosen and on-board with the Project “shovel-ready” very quickly.

By putting the Project out for proposal to a number of contractors/designers, it becomes a design competition but does not offer collaboration process for the District. The tertiary and Advanced Water Treatment (AWT) plant would be treated as two procurements, i.e., two separate projects so that Santa Cruz can weigh in more on the tertiary plant project but not necessarily the AWT facility, which could be at the West Annex or Chanticleer location (apparently not yet determined).

This model process would take seven months and is costly for contractors to submit such a proposal. The market is hot right now, so contractors are favoring large projects; PureWater Soquel is a small to medium project, so may not attract much interest. The time-line goal would be to get a design by mid-2020, and that is when the District would know the fixed cost to build the treatment facilities. This was issued as a “slow start” by Brown and Caldwell.

The District would have to pay out of pocket for the planning and procurement process, with planning done by October, 2019, and choosing a contractor/design by July 2020.

2.) Progressive Price DB

This model could allow combining or separating the treatment facilities. Sometimes there are cost savings that occur during construction, so this model allows for the savings to either be re-invested in other District projects or split with the contractor.

Taj Dufour asked if the District got grant funding, would the procurement and planning costs for each facility have to be documented separately?

Brown and Caldwell(B/C) responded that everything is all documented and there must be a mutual agreement.

Bruce Daniels stated that the District would have to clearly define system quality up front.

B/C said yes, that is an uncertain challenge but the District can have an “off ramp” to change contractors but it might be late in the process. He said if that occurred, Brown and Caldwell or some other builder would finish the design and the construction of it would then probably go out for a hard bid. He recommended scrutinizing the contractor history and making sure that all expenditures are “open book” all along. If the District paid a lump sum, the books are closed and the project just gets built.

Bruce Jaffee asked if the cost of the project goes up with this method of using an off ramp?

B/C said it is a trade-off, but yes. The challenge is ensuring quality. This model tends to be less competitive and there is no option to incorporate brand new methods or equipment that may become available after the project design and construction is in process.

B/C said the District can package a Fixed Price DB with a less than 30% design level, use the design of their choice, and submit Requests for Proposals (RFP) to get it built. That method gets the District the Project cost earlier (1-2 months saved).

Melanie Schmacher asked if doing that would lead to more change-orders if the District decided there were something they did not like. B/C replied that having a longer collaboration period (0-60%) is too long and Santa Cruz will want to be involved early, during the 0-30% design period, so he recommended just getting to 30% and then move on.

B/C said defining the wastewater treatment plant portion could have more collaboration than would be needed for the Chanticleer or West Annex plan, and the sooner you know the Project cost, the better, but can include more contingencies. Builders may resist an early Guaranteed Maximum Price (GMP) at a 30% design but may be willing to give a fixed price bid with a less than 30% design.

Bruce Daniels asked about specifying time lines for the project?

B/C said the District can include a calendar date for the GMP to be given.

Carla Christensen asked if the consultant and District staff would advise on this process?

B/C replied yes, there is a strong need for Operations and Management help.

Bruce Daniels asked if they must express a preference for a model?

B/C said yes, and that he recommended the Progressive DB model with an early GMP at 30% design.

The Board then did a consensus check. .Bruce Jaffee felt it was “rocket science” and beyond his scope of expertise, Rachel Lather said she was comfortable with it “but I’ve never done it”, and Tom LaHue & Carla Christensen said “okay”.

3.) Design/Build/Operate Model

This model would have the builder own the operation of the treatment facilities, with a performance-based operation (PBO) model.

This is riskier because operators will want to insist on a certain design and build it. This is a rather new model on the market and was used at the Twin Oaks Valley project [here are a couple of links to info about that large project in San Marcos, but with 10% of the project being recycled water]

https://www.sdcwa.org/twin-oaks-valley-water-treatment-plant

http://www.sandiegouniontribune.com/sdut-water-treatment-plant-to-be-built-in-twin-oaks-2004nov25-story.html

B/C presented that the designer/builder brings the operator along during the design phase. Soquel Creek Water District would reach a separate agreement with an operator. If the District chose not to hire that operator to run the completed facilities, they could have their own staff operate it but would have the advantage of the consultation during design with an operator who is familiar with AWT focus. This is NOT common but brings real operators who run these plants to the design table. There are three large national operations companies that would probably be interested in participating in a Design/Build/Operate (DBO) model but this model is not generally recommended because the District would not get many bidders due to the small size of the PureWater Project. He recommended putting it out to the market and see what happens. He also said the District could pay an operator, such as American Water, to consult on the design.

Santa Cruz may not want to hire an operator but might develop their own staff, which could be sent out to assist with the AWT plant. This assistance could be included in grant funding as Professional Services Contracts.

Soquel Creek Water District would procure this operation service as a “partner” and still be involved, but the District staff would have to essentially relinquish control.

Bruce Daniels commented that if no one bids on this, the District could go back to just a DB or PDB.

The Board then did a consensus check everyone was okay with this model, with Carla Christensen commenting on the need to have Operations and Management involved early, and Bruce Daniels and Rachel Lather liking the operator involvement early in the design process.

The next portion of the PureWater Soquel Project delivery model presentation was a discussion of the PIPELINE PORTION.

B/C said that the District know pipe well, so they could use their usual process but the question is HOW TO SPEED IT UP?

He recommended that, due to the congested roadways where the pipeline is proposed (he did not include the possible railroad right -of-way that is discussed in the draft EIR), the District should consider trenchless operations whenever possible. He said that the project is challenging with a 2022 deadline to get 11 miles of pipeline on narrow streets, stream crossings, and utility crossings done with a project that would involve a lengthy design process.

This portion of the Project will involve lots of field investigation, with geo-tech surveys. Again, THE QUESTION WAS HOW TO SPEED THIS UP?

Some areas won’t need 100% design but the contractor would be on a fee basis, and start where they can early, connecting the more difficult segments later with the goal of having water ready to commission the treatment plant. The District can off-ramp, bid out the difficult areas. He recommended using trenchless technology when possible due to traffic considerations. He recommended using a large contractor in order to get cheap pipe prices (the impending international tariffs are problematic).

This option poses no performance risk. The designer would decide on the pipe size specifics. The pricing risk is transferred to the contractor because the District would get an earlier Project price.

Taj Dufour asked if the price would be based on the level of knowledge at the time about the conditions?.B/C replied that the District would want to select a contractor that would be knowledgeable enough to know where the problem areas would be and do “pot holed” investigations.

The Board then did a consensus check: all members said “okay”

The next component of the Project is the Injection and Monitoring Wells.

B/C said the District should do this work. One well could be constructed first, with others to follow, just to speed things up due to procurements at some sites. Permitting is also complicated.

B/C recommended the next step is to talk with Santa Cruz and get the EIR certified.

Melanie Schumacher stated that the Prop 1 Grant funding Application is going out this Friday.

Bruce Daniels then asked for Public Comment.

I asked the following:

1.) With the Fixed Price model off ramp option, would it be difficult to find another contractor that would be willing to step in on a project already begun with uncertain quality and potential problems? (B/C said it could be, but it doesn’t happen often that a project takes an off ramp option.)

2.) Who are the three big national AWT operating contractors?

(District Staff would not allow B/C to answer, but suggested I do an internet search. Staff got upset when I asked B/C for suggested search terms, but B/C answered “water treatment contract operations”).

3.) How would trenchless technology mesh in areas of sensitive archaeological areas and railroad bed areas that are contaminated?

(District staff would not allow answers but suggested I put that question as a formal one in the Draft EIR public comment. I am not sure if the EIR even addresses trenchless technology, having not read that section yet.)

THAT WAS THE END OF AGENDA ITEM 3.1 AND THE BOARD TOOK A BREAK

Item 3.2 was a presentation by District Financial Manager, Ms. Leslie Strohm. She stated that the debt financing for PureWater Soquel has not been worked into the 2018-19 District Budget, and it is outside of the scope of the current Raftelis Rate Study. The Board must decide how to cover costs for this Project’s debt financing, and suggested it could come from Reserve Funds.

The problem is that the District will not know the cost until they select a qualified proposal and have a design.

Someone asked how much this might cost?

B/C would not publicly divulge a figure but said he would contact staff later.

Leslie Strohm asked the Board to consider devoting more money to the Project from Reserves while at the meeting.

Bruce Daniels commented that the District has reserved $1 Million for the AMI (Smart Meters) project and that the Board could declare that to be a water-saving project, thereby enabling Water Demand Offset (WDO) money to be used to fund it. That would free up $1 Million for PureWater debt financing.

Leslie replied that the District could take out loans later into the Project, as late as 2020, and get quicker turn-around by reimbursement for the debt.

Bruce Daniels pointed out that the Board had to also plan for getting no grant money. He asked how much the District can borrow early and keep within the debt ratio required to maintain?.Leslie Strohm said the debt ratio requirement is 1.7 with current debt burdens, but Ron Duncan corrected her it is 1.25.

Discussion then went to grant funding. Melanie Schumacher said the Prop. 1 application for the maximum $50 Million will be considered in August, final proposals considered in November and awards in early winter/ spring. The federal Title 16 Grant for $20 Million (that may take 10 years for reimbursement) will be considered in October or November. She stressed that these are competitive applications, and if the District does not receive an award, she would re-submit an application the following cycle, summer 2019.

Bruce Daniels pointed out that even if the District gets the grants, there is still at least $20 Million Project cost(assuming a $90 Million Project Cost) that the ratepayers have to fund.

B/C mentioned that the District could ask contractors for delayed payment options.

Leslie Strohm then showed some PowerPoint slides of possible Capital Improvement Projects currently scheduled. .I could not copy them down fast enough before they disappeared but the Board did discuss delaying certain projects involving pipeline replacements, wells and tanks. The main project discussed was whether to push out the new Quail Run storage tank in Aptos Village area. About the only decision made was to keep on track with tank inspections because it only costs about $3,000/year.

Leslie Strohm said the District could use the water capacity fees that new service connections pay, and that fund is currently about $3 Million.

Bruce Daniels suggested the Board consider bundling the Quail Run Tank and Cunnison Well projects with the PureWater Soquel Project funding request. The District has scheduled $6.3 Million in 2019-2020 for that project, and $700,000 in 2020-2021. (It has been insinuated by legal counsel for the Quail Run neighborhood that the purpose of the tank is to boost supply and fire protection for the Aptos Village Project subdivision.)

Bruce Jaffee asked about how this would affect monthly ratepayer bills?

Leslie Strohm said the discussion about RATE INCREASES will come before the Board at a September meeting.

Carla Christensen then asked about updating the Santa Cruz agreement. The discussion then went to the water purchase contract with Santa Cruz. Ron Duncan said he has been talking with Rosemary Menard, and that she has offered a range of prices. If there is lots of treatment needed for the water supplied, the price would change. It was pointed out that the contract expires December, 2020.

Bruce Daniels asked if Rosemary is still firm on the 300 AF/Y number?.Ron Duncan hesitated and replied “Uh, yeah.”.He said she has given prices of up to $1000/AF (that caused a gasp from staff). When Rachel Lather asked how the price was calculated, Ron Duncan said that the increases were justified the price by factoring in the improvements to the infrastructure.

Bruce Daniels then replied that the District could also play that game and add on major project costs to water sold to Santa Cruz. Ron Duncan replied that at some point, they have to be true to Prop 218.

The Board noted that the District can begin taking North Coast water this winter, and have the agreement to do so for two years until re-negotiating the price.

The Board then turned back for consensus check on the PureWater Soquel Project financing issues and allowing staff to determine which Capital Improvements would get delayed and how financing would develop for PureWater Project. Tom LaHue said yes, but with updates to the Board. Bruce Jaffee said he feels staff knows best what to do.

Rachel Lather and Tom LaHue both pointed out that there did not seem to be funding for storm water recharge projects on any of the District Project lists presented. .Staff replied that the District is looking for partners. The Seascape Golf Course, the area the District had selected for a storm water recharge project, is now for sale and it is uncertain whether the new owners would cooperate and whether the costs would be the same. Rachel Lather said she is interested in pursuing more storm water recharge projects because they tend to carry multiple public benefits such as flood control and pollution reduction in streams, so are good candidates for government grants. Ron Duncan said that Lydia (a grant consultant the District has hired for PureWater Soquel) is looking for grants of this nature.

Leslie Strohm said the Board will get staff recommendations at the next Special Board Meeting, August 21 at 5pm, preceding the regular Board meeting at 6pm in the Capitola City Council Chambers. (Again, only the Regular Meeting will be video recorded but I will either record it or ask Bruce Tanner to do so and put it on Public YouTube.)

The meeting was then adjourned at 8:30pm WITHOUT OPPORTUNITY FOR PUBLIC COMMENT.