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12/14/2005 - Packet Completeness Review _ for Boards, Commissions and Committee Records CITY OF TIGARD i Intergovernmental Water Board Name of Board, Commission or Committee Ll.c P—rn be.r 1 yes Date of Meeting To the best of my knowledge this is the complete meeting packet. I was not the meeting organizer nor did I attend the meeting; I am simply the employee preparing the paper record for archiving. This record came from Greer Gaston's office in the Public Works Building. Kristie Peerman Print Name /��- - a Signature '/- /R ka Date Intergovernmental Water Board Meeting Serving Tigard, King City, Durham and Unincorporated Area AGENDA Wednesday,December 14, 2005 5:30 p.m. 1. Call to Order,Roll Call and Introductions Motion to call meeting to order,staff to take roll call. 2. Approval of Minutes—November 9,2005 Motion from Board for minute approval. 3. Portland Contract—Portland's Commissioner Randy Leonard(30 minutes) 4. Long Term Water Supply Update—Dennis Koellermeier(20 minutes) S. Status Report on the Tigard Water Building-Dennis Koellermeier(10 minutes) 6. Informational Items—Dennis Koellermeier Items will be discussed briefly if time allows—otherwise printed information will be distributed. 7. Public Comments Call for any comments from public. 8. Non Agenda Items Call for non-agenda items from Board. 9. Next Meeting— Wednesday,January 11,2006, 5:30 p.m. — Water Auditorium Also: Joint Meeting with Tigard City Council Tuesday,December 20, 2005, Town Hall(time to be announced) 10. Adjournment—Approximate Time 7:00 p.m. Motion for adjournment. A light dinner will be provided. Executive Session: The Intergovernmental Water Board may go into Executive Session under the provisions of DRS 192.660(1)(d), (e), (f)&(h)to discuss labor relations,real property transactions,current and pending litigation issues and to consider records that are exempt by law from public inspection. All discussions within this session are confidential;therefore nothing from this meeting may be disclosed by those present.'Representatives of the news media are allowed to attend this session,but must not disclose any information discussed during this session. Intergovernmental Water oar Serving Tigard, King City, Durham and Unincorporated Area NOTICEMEETING Wednesday, December 14, 2005 5:30 p.m. City of Tigard Water Auditorium 8777 SW Burnham Street Tigard, Oregon 97223 Agenda Item No.: 2— IWB Meeting Date: Intergovernmental Water Board Meeting Minutes December 14, 2005 Members Present: Patrick Carroll, Dick Winn, Tom Woodruff and Janet Zeider (TWD Alternate) Members Absent: Beverly Froude and Bill Scheiderich Staff Present: Dennis Koellermeier, Brian Rager, John Goodrich, Greer Gaston, and Twila Willson Visitors: Henrietta Cochrun, Paul Owen, Gretchen Buehner, Portland staff: Commissioner Randy Leonard, Eddie Campbell, David Schaff, David Hassett 9. Call to Order, Roll Call and Introductions The meeting was called to order at 5:32 p.m. 2. Approval of Minutes—November 9, 2005 Commissioner Janet Zeider motioned to approve the minutes, Commissioner Dick Winn seconded the motion and the board voted to approve the November 9, 2005, minutes as presented; Commissioner Tom Woodruff abstained from voting as he did not attend the November meeting. Dennis Koellermeier introduced Greer Gaston and John Goodrich, both new employees to Public Works. 3. Portland Contract— Portland's Commissioner Randy Leonard Portland staff, Eddie Campbell, David Schaff, David Hassett and Commissioner Randy Leonard made a presentation and explained the materials they brought as part of their presentation. (Hard copies of the PowerPoint presentation and handouts are available in the Public Works Office.) The following items were points of interest: • Portland has provided drinking water to wholesale customers for nearly 100 years • Water is sold with guidelines (water sales agreements) which describe the terms for providing water • Historically Portland has provided water to the region, wholesale customers and residents • The current agreement negotiations have been underway since 2003 • A model agreement serves as the basis for individual agreements between Portland and each wholesale customer • Portland has had two community meetings this year and more will follow next year • Contract agreement is available to be reviewed until March 2006 • There are 19 wholesale customers • Wholesale customer rates include cost of maintaining facilities that provide water including dams, treatment facilities, storage reservoirs, well fields Intergovernmental Water Board December 14,2005 DRAFT 1 • Rate structure follows the AWWA standard • Rate model being implemented and will be completed in early 2006 to reflect the proposed agreement • Finished rate model will produce exact rates for wholesale customers • There will be no impact to retail rates if all the wholesale customers sign the new agreement • The current agreement differs from the proposed agreement- a take or pay agreement • Wholesale customers select a fixed amount of water they want to purchase each year, but by mutual agreement the guaranteed purchase amount can be increased • Periodically interruptible water will be available to sell to the wholesalers at a discounted price after the in-city demand is met • Projected growth demands can be negotiated for future agreement additions • Term of Agreement— 20 years for the initial term with 10-year renewals; 5-year notice for non-renewal by either party • Aiming for the new agreement to be effective July 1, 2006 • Water Managers Advisory Board (made up of representatives from the wholesale customers and Portland) coordinate operational functions and provide a forum • Portland and wholesale customers will conform to state water planning/conservation standards • Joint curtailment plan (Emergency Interruption of Supply) to be developed by Portland and wholesale customers for approval • Key dates — March 1 — rate model completed 3rd public forum and presentation of agreement to Portland City Council May 22 deadline date • Website: www.portlandonline.com/water • Comments: comments(a)-water.ci.portland.or.us PUBLIC COMMENT: Gretchen Buehner distributed a letter addressed to the Intergovernmental Water Board (available in Public Works Office files) and stated she has had a long history with the Bull Run through her grandfather and previous personal history serving on the IWB. She addressed the board about the Willamette River and past voter results; she referred to Commissioner Sten and changes in Portland's direction. She said the IWB has looked at the Joint Water Commission (JWC) and Lake Oswego in the past, but thought going to the Willamette River would be cheaper than to go with Portland. She sees a move toward Portland repeating what they have done in the past and urged the board to be cautious so history would not be repeated. No further public comments were made. Commissioner Tom Woodruff thanked Portland staff and Commissioner Leonard for their presentation. He stated that there was a growing concern about the cost for water and a continued interest by citizens in the Tigard Water System area to obtain ownership of water. Tigard has been looking for water at reasonable rates and with flexibility in the agreement. Other options may become available to Tigard in the future and he was hesitant to make recommendations to Council. Commissioner Leonard said the Portland retail and wholesale customers have both been unhappy about Portland Water Bureau administration results. He does not think going to the Willamette River is a bad thing at all and it creates diversity. He also sees the concerns Intergovernmental Water Board December 14,2005 DRAFT 2 wholesale customers have about the length of the proposed contract. He invited the board to tour the watershed area, stating the best water in the world comes from the Bull Run. Mr. Koellermeier said there are no peaking penalties in the new Portland contract; the trade for peaking penalties was the take or pay contract. Interruptible water possibilities could keep the prices down. Commissioner Patrick Carroll said the peaking penalties have cost Tigard $1 m in the past, which he viewed as an immoral arrangement. Tigard only has prior history to judge Portland by even though some issues were traded in the new contract. Eddie Campbell said the new concept came about from the wholesale customers being concerned about fluctuating prices and there would be more predictability with this concept. Commissioner Woodruff stated it was not unreasonable for a 5-year period, but it was unreasonable for a 10-year period or more. Commissioner Leonard stated Portland was not interested in aggressively acquiring more wholesale customers. Their goal was to provide water to their current wholesale and retail customers. Portland is also interested in interconnecting for other water sources. He reiterated that Portland is not interested in expanding beyond who their current wholesale customers are. He was very understanding as to why Tigard was interested in other options as water sources. Commissioner Woodruff said it appeared the incentive to wholesalers was to buy as little as possible with the option to purchase interruptible water at the lower price and expand on the amount. Eddie Campbell said there were incentives built into the agreement that would allow for long-term certainty. Portland needs to make it clear what percentage they require to meet their requirements. If all the wholesale customers were to leave, it would cause about a 20% increase to their retail customer's rates. The presentation Portland made to Tualatin Valley reflected similar concerns as those that have been expressed by the IWB. Commissioner Woodruff asked if this was a take it or leave it agreement and David Schaff said it was not, the wholesaler's perspective was important to them, and bargaining was still possible. Commissioner Leonard stated that many of Portland's retail customers think that the whole- sale customers are getting too good a deal now and some do not want any agreement at all. Commissioner Woodruff stated that if it came down to a battle with residents and whole- salers, the residents should be served. The board once again thanked Portland for their presentation. Commissioner Leonard again invited the board for tour of the Bull Run, perhaps when the weather gets warmer. Commissioner Carroll requested an item by item discussion of proposed contract to review pros and cons or each item. Mr. Koellermeier said this request would be covered in the future as an item on the agenda. Intergovernmental Water Board December 14,2005 DRAFT 3 4. Long Term Water Supply Update— Dennis Koellermeier Dennis Koellermeier proposed a schedule to meet the upcoming deadlines. May 22n" was the focused deadline for Portland as well as the other source options. He did not think there was any point in a thorough review until the Portland Rate Model is completed in March. Dennis Koellermeier stated he was planning to have the JWC make a presentation to the board in January and the City of Lake Oswego in February. In April Tigard would present a cost comparison and review methodology. The board discussed the need to look to the future and fix a low water demand amount for the Portland agreement. Tualatin Valley will be asking their voters to use the Willamette River in the next election. Lake Oswego staff is trying to get negotiations with Tigard presented to their Council. The Joint Water Commission will have both dam comparisons completed in April. At the Joint meeting with council next week, staff will propose working on criteria. If ownership is the main issues, staying with Portland is futile. Mr. Koellermeier thinks a bridge contract would be a possibility if the deadline with Portland is not met. 5. Status Report on the Tigard Water Building—Dennis Koellermeier (This item was skipped over and will be presented at the January meeting.) 6. Informational Items—Dennis Koellermeier 7. Public Comments Henrietta Cochrun expressed concerns with the Portland filtration plant issues. 8. Non Agenda Items 9. Next Meeting- Wednesday, January 11, 2006, 5:30 p.m. — Water Auditorium Also: Joint Meeting with Tigard City Council Tuesday, December 20, 2005, Town Hall (time to be announced) The scheduled time on the agenda for the joint meeting with Tigard City Council is at about 8:30 or 9:00 p.m. 10. Adjournment—Approximate Time 7:00 p.m. Commissioner Dick Winn motioned to adjourn, Commissioner Janet Zeider seconded the motion and the board voted unanimously to adjourn at 7:13 p.m. Intergovernmental Water Board December 14,2005 DRAFT 4 Sign-in Sheet for Intergovernmental Water Board Meeting December 14, 2005 Name (Please Print) Do you want to speak to the Board? Ct -p Fz- AJ 41 �� A G R E E M E N T THIS AGREEMENT is entered into by and between herein called "Purchaser", and the CITY OF PORTLAND, a municipal corporation of the State of Oregon, herein called "City". The parties recite: A. Purchaser is a municipal corporation of the State of Oregon, and is authorized by its charter or by state law, or both, to operate a municipal water system. B. City is a municipal corporation of the State of Oregon, and is authorized by Chapter XI of the Charter of the City of Portland to maintain water works for the furnishing of water to the city, its property, its inhabitants, and the places and people along or in the vicinity of the pipes, conduits or aqueducts constructed or used for that purpose. The Council of the City is further authorized to enter into contracts for the supply of water by the City, and to sell surplus water to persons, public and private, outside the city, on terms and conditions the Council finds appropriate. C. City is further authorized by Section 2-105(a) 4 of its Charter to enter into agreements, without limitation as to term, as the Council finds appropriate for cooperation, consolidation and maintenance of services with any other public corporation or unit of government. D. ORS. 190.003 to 190.110 authorizes units of local government to enter into intergovernmental agreements for the performance of their duties or for the exercise of powers conferred upon them. E. City has determined that it is in the best interest of its rate-payers for the City to enter into contracts for the sale of water. Benefits are derived for Portland water consumers by spreading the fixed overhead of the system over a wider rate base. F. Parties agree that execution of a long-term agreement for the sale of water from City will provide greater likelihood of water supply at less cost and of a higher quality than would otherwise be possible. G. The service and commodity provided by City are a special contract service and are not provided by City as a common utility service. 1 r SECTION 1 NATURE OF THE SERVICE City agrees to furnish and sell, and Purchaser agrees to purchase, a firm supply of potable surplus water on an annual basis for the life of this agreement. Purchaser recognizes and agrees that it is the duty of the City to furnish water at a normal volume and pressure to the City and its inhabitants before selling water to Purchaser. Historically, however, water sources available to City have been sufficient to meet the City's needs, and to provide surplus water for sale to Purchaser and others. City agrees to exercise reasonable diligence and foresight to repair, replace and maintain its collections and distribution system so as to provide a normal volume and pressure flow of water at the point of the Purchaser's connection during the life of this agreement. City also agrees that Purchaser's supply of surplus water shall be reduced or terminated only in the event that the water supply to City residents would otherwise be inadequate. Purchaser further recognizes and agrees that no liability for damages shall attach to City hereunder on account of any failure to accurately anticipate availability of water supply, or because of an actual failure of supply due to inadequate run- off or occurrence beyond the reasonable control of the City. Purchaser agrees to sell no water to any other distributing agency without the prior written approval of the Administrator of the City Bureau of Water Works. Such sales shall be subject to such conditions as the Administrator of the City Bureau of Water Works may impose. In the event Purchaser makes such sales without such approval, the City may make corresponding reductions in the amount of water supplied to Purchaser or may impose rate penalties as deemed appropriate by the Administrator of the City Bureau of Water Works and the Commissioner-in-Charge. 2 SECTION 2 WATER REGULATIONS Purchaser hereby agrees to abide by and be bound by the terms and provisions of Chapter 21.28 of the Code of the City of Portland, Oregon, as it presently exists or may hereafter be amended by the Council of the City of Portland, during the life of this agreement, to the extent to which such terms and provisions do not conflict with any material provisions of this agreement. 3 SECTION 3 PRICING City agrees that rates and charges shall be based on: A. Determination of revenue requirements using the utility enterprise method of accounting which includes return of invested capital to the City and depreciation where: 1. Invested capital is defined as the original cost value of all capital assets including construction work in progress, less accumulated depreciation expense and contributions, plus operating contingencies and inventories; 2. The rate of return to be applied to the invested capital is derived from a five-year average risk-free rate computed from treasury notes plus a risk factor computed from the average yield of traded water companies and the risk-free rate, as described in Exhibit A; 3. The annual depreciation expense is calculated by multiplying an amortization rate reflecting the remaining useful life of each asset times the replacement value of the asset; 4 . Operation, maintenance and general administrative expenses are as presented in the annual budget of the City Bureau of water Works; and B. Allocation of revenue requirements among all water users based on all costs of providing water service as defined in A. above, computed in accordance with accepted practices regarding cost of service allocation, where revenue requirements are allocated among customers and customer classes proportional to their use of the system. 4 SECTION 4 COMMUNICATION BETWEEN THE CITY AND PURCHASER In order to ensure that all water purchasers are notified in a timely manner of proposed changes in rates, charges and rate design and provided an opportunity to evaluate such proposals and be heard before the City Council, the City agrees that the following steps shall be taken annually: A. In early February, the City Bureau of Water Works shall invite Purchaser to attend a presentation of its budget request and financial plans for the following fiscal year. B. In early April, the City Bureau of Water Works shall advise the Purchaser in writing of significant changes in the proposed City budget having a potential impact on the purchasers. C. In the middle of May, the City Bureau of Water Works shall forward to the Purchaser a copy of the rate ordinance filed with the City Attorney, accompanied by a letter giving the dates on which the City Council is scheduled to consider rates. The hearing dates shall also be published in one or more local newspapers of general circulation. D. Above steps may be changed by mutual agreement with a memorandum of understanding. 5 i SECTION 5 PAYMENT Purchaser agrees to pay monthly to City for all City water supplied by City to Purchaser at the rates and charges which may be established by the City Council from time to time pursuant to Section 3. Statements for water used by Purchaser shall be computed and rendered monthly to Purchaser by City. Should any meter fail to measure accurately the water passing through said meter, the charge for water used during the time the meter is out of service shall be based on the estimated volume of water supplied as the City may determine by usage averages and statistics for prior periods. Payment shall be made by Purchaser to City on or before the thirtieth day after issuance of the statement. 6 SECTION 6 CONNECTIONS AND METERING Purchaser agrees to provide on its main, at a point near the connection with the City's main, a water meter or meters of type and pattern approved by the City Bureau of Water Works which will at all times measure the water supplied by City to Purchaser. City shall maintain the meter or meters in proper working condition at Purchaser's expense. City agrees to notify Purchaser prior to repairing the meter. City agrees to the continuance of the connections (or a new connection between City's water system and Purchaser's system located as follows: (Size and location of meters) 7 SECTION 7 MINIMUM PURCHASE A. In consideration of the agreement of the City to provide a firm supply of surplus water, Purchaser agrees to maintain its level of purchases for the term of this agreement so as not to diminish the ratio of City water used to the total water used by Purchaser. The ratio shall be re-calculated annually and shall be the average level of purchases during the five (5) fiscal years next preceding the year of calculation, divided by the average level of total water use by Purchaser during that period. If in any fiscal year, the Purchaser increases its percentages of water usage from sources other than City, so that the percentage of City water purchased is less than the guaranteed purchase ratio, Purchaser shall pay to City the sum which compensates City for the reduction in usage of City water. For example, if Purchaser agreed to purchase 70 percent of its water from City but during the fiscal year purchased only 65 percent of its water from City, under this section, Purchaser shall pay to City at existing rates an additional amount, equal to 5 percent of its total water usage. Payment shall be made annually by Purchaser to City on or before July 1 of the succeeding fiscal year. B. The calculation of Purchaser's guaranteed purchase ratio shall not include water used by Purchaser in the following circumstances: 1. Purchaser shall be allowed to use alternate water sources incase of emergency such as major fire or drought conditions, and as otherwise mutually agreed upon. 2. If any of the curtailments specified in Section 9 of this contract are invoked, purchaser shall be allowed to use alternate water sources during the time curtailments are in effect. C. If Purchaser's service area is changed through annexation or withdrawal, Purchaser's guaranteed purchase ratio shall be adjusted where appropriate. D. City shall, as soon as reasonably possible, inform the Water Manager's Advisory Board, for purposes of their review, of all such exceptions allowed under B. and C. above. 8 SECTION 8 GROWTH NOTE : ( Section 8 was eliminated by mutual agreement in February 1995) A. To recover costs for accelerating capacity expansion facilities, City shall assess Purchaser annually after June 30, 1981, a growth impact charge if the Purchaser's growth rate exceeds the average growth rate. Growth impact charge, Purchaser's growth rate and average growth rate are used as defined in Exhibit B. Payment shall be made annually by Purchaser to City on or before July 1 of the succeeding fiscal year. B. Purchasers contracting to buy water from the City for the first time after December 31, 1979, or Purchasers presently purchasing water from City and not renewing any existing purchase contract within 60 days following the fifth anniversary of the execution of such existing contract, will be assessed a sum commensurate with the costs of accelerating capacity expansion facilities resulting from Purchaser's demands at time of contract execution. C. All charges and interest pursuant to this Section shall be reserved by the City exclusively for expansion of the total system capacity. D. No growth impact charges shall be made for •increased water usage by Purchaser caused by annexation or transfer of service areas previously receiving City water, except to the extent that growth impact charges otherwise would be chargeable to such annexed or transferred areas for growth in those areas. 9 SECTION 9 WATER CURTAILMENT In times of shortage, water use will be curtailed to the extent permitted by law and in the following order: A. Restriction of uses which can be accomplished without serious injury to person or property, and prohibition of non-essential uses. B. Prohibition of irrigation except for commercial green-houses. C. Prohibition of every use except for domestic use and for essential commercial enterprises and industry. D. Prohibition of all use outside the City except domestic uses. E. Prohibition of all use inside the City except domestic uses. The curtailment contemplated by Items A., B., and C. above will be applied uniformly to all users. 10 SECTION 10 PURCHASER SUPPLIED WATER TO CITY RESIDENTS To the extent permitted bylaw, Purchaser agrees to provide water supply to City residents in areas adjacent to Purchaser's water mains, said water to be metered by City. The total volume of such metered water, plus 12 percent, will be credited to Purchaser by City, this percentage subject to alteration by mutual agreement between Purchaser and City Bureau of Water Works. Such water will not be included in the calculation of total water purchases per establishment of the guaranteed purchase ratio under Section 7. 11 SECTION 11 FINANCING PURCHASER SPECIFIC CAPITAL Financing of assets for benefit to specific Purchaser(s) shall be such Purchaser(s) responsibility, except to the extent the assets benefit the City. However, the City may bond such facilities if any or all such Purchaser(s) guarantee payment of the portion of annual debt service not related to the benefit to the City for the duration of such City bonds. 12 SECTION 12 INFORMATION TO BE FURNISHED BY PURCHASER A. On or before July 31 of each year, Purchaser agrees to furnish to the Administrator of the City Bureau of Water Works a legal description or map of the Purchaser's service area, at a scale no smaller than 1000 feet to the inch showing the boundaries of the area supplied or to be supplied by its distribution system and, in addition, a map or maps showing all existing mains and those proposed to be installed within the next 12 months, the location, capacity, and overflow elevation of all storage tanks and reservoirs, as well as connections to other sources of water supply, whether such supply is owned by the Purchaser or obtained from others. B. Purchaser shall furnish to the administrator of the City Bureau of Water Works within ten (10) days after the end of each month a statement showing the number of cubic feet of water sold by each source. C. Purchaser shall report, on or before July 31 of each year, the origin, capacity, usage and quality of each alternate source of water supply. D. Purchaser shall also furnish on or before July 31 and January 31 of each year, a detailed list of the total number of new water service connections and locations segregated into the categories of single-family dwellings, duplexes, dwellings of three or more units, commercial, industrial, and private fire line services and the size of the meter for each service installed during the previous six (6) months as of June 30 and December 31. E. Purchaser further agrees to furnish, not later than July 31 of each year, a statement listing both the total active and inactive services supplied directly and indirectly by Purchaser through other distributors as of June 30. 13 SECTION 13 ROLE OF THE WATER MANAGER'S ADVISORY BOARD A Water Manager's Advisory Board shall be established and will continue during the term of the contract. Purchaser is eligible for participation in the Water Manager's Advisory Board. This group shall meet regularly to communicate with and make recommendations to the City Bureau of Water Works and the Commissioner-in-Charge thereof regarding matters relating to the City's sale of water pursuant to the terms of this contract, including but not limited to review of those portions of the annual budget and capital improvement program that affect outside City Purchasers. This group shall be governed by By-laws which are attached hereto and are marked as Exhibit C. 14 SECTION 14 LENGTH OF CONTRACT This contract shall become effective shall be in full force and effect for a period of 25 years from and after its date of execution, and will supersede all other agreements presently in effect. NOTE : The following clause eliminated by City Council June 30 , 3004 This contract shall be automatically renewed for an additional 25-year term unless either party gives written notice to the other that such party elects not to renew the contract. The required written notice must be delivered to the other party not less than three years prior to the date of expiration of the original term. 15 SECTION 15 SUPPLEMENTAL AGREEMENTS It is acknowledged by the parties that there may be circumstances which require supplemental agreements between City and Purchaser. To the extent that any such supplemental agreements are not inconsistent with the terms of this contract, then City and Purchaser may enter into such agreements to implement the provisions of this contract. 16 IN WITNESS WHEREOF, Purchaser has, pursuant to official action of its governing body on the day of , 19_, duly authorizing the same, caused its proper officers to execute this instrument on its behalf and its corporate seal to be affixed hereto, and City, pursuant to Ordinance No. 130672, Title 21, Water Regulations, of the Code of the City of Portland, Oregon, has caused this instrument to be signed by its Mayor and Commissioner-in-Charge of the Bureau of Water Works, all of which is in triplicate. Purchaser (Corporate Seal) By (Title) Attest (Title) CITY OF PORTLAND By (Mayor) Approved as to form: By Commissioner-in Charge of the Bureau of Water Works Date 17 EXHIBIT A: CALCULATION OF A RATE OF RETURN CALCULATION OF A DEBT-EQUITY RATIO 1) Debt Balance, outstanding at year end, is the sum of outstanding bonded debt at the beginning of the year and new debt issued during the current year, less any redemptions of outstanding debt during the current year. 2) Equity Balance, at year end, is the sum of equity at the beginning of the year and principal payment on debt in the current year and investment in assets from current revenues, less any contributions of assets. 3) Total Value is the sum of the debt balance and the equity balance. 4) Debt Ratio is the debt balance divided by the total value; Equity Ratio is the equity balance divided by the total value. CALCULATION OF A RATE OF RETURN ON EQUITY 1) Market Rate is the sum of yield and five-year average increase in earnings of traded water companies, as listed in "Public Utilities Fort-nightly", or other comparable industry publication. Note: Any observations beyond two standard deviations of the mean are excluded as extreme cases. 2) Risk Free Rate is the average annual yield of U.S. Treasury Bonds (maturing in the same month) for the forthcoming five-year period, as reported in the "Wall Street Journal" or other industry publication. 3) Risk Factor is the market rate less the risk free rate, their difference divided by the variance of the market rate. 4) Rate of Return on Equity is the risk free rate plus the risk factor. CALCULATION OF A RATE OF RETURN ON DEBT 1) Rate of Return on Debt is the embedded cost of debt as measured by the (Weighted) interest rates of all outstanding debt issues. The computation of the embedded cost of debt is provided by the Municipal Debt Advisory Service within the Oregon Treasurer's office. CALCULATION OF A COMPOSITE RATE OF RETURN 1) Weighted return on equity is the equity ratio multiplied by the rate of return on equity. 2) Weighted return on debt is the debt ratio multiplied by the rate of return on debt. 3) Composite rate of return, applied to the rate base, is the sum of the weighted return on equity and the weighted return on debt. 18 EXHIBIT C: BY-LAWS OF THE WATER MANAGER'S ADVISORY BOARD PURPOSE: The Advisory Board will communicate with and make recommendations to the City Bureau of Water Works and the Commissioner-in-Charge thereof regarding any matters relating to City's sale of water to outside the City purchasers. MEETINGS: The Chairman of the Advisory Board shall cause the Board to meet regularly and at least monthly. OFFICERS: Members of the Advisory Board shall elect annually in June a Chairman and Vice-Chairman who will preside over the meetings, for a term of one year beginning July 1 and ending June 30th. MEMBERSHIP: (1) The Advisory Board shall be composed of eight (8) members, each having one equal vote. (2) Each member shall be an executive in charge of water for the purchaser represented. (3) Each member shall designate an alternate member who shall, during the absences of the regular member, represent their respective Service Area(s) and shall have one vote. (4) The representation will be as follows: Two members from the City Bureau of Water Works; one member elected from the purchasers in Service Area III; one member from the largest purchaser in Service Area I; one member elected from the purchasers in Service Areas II and IV; one member from the largest purchaser in Service Area V; and one member elected from the purchasers in Service Area V. None of the elected members can be from purchasers already represented by virtue of their being the largest in Service Areas I and V. The Service Areas are described in the attached Exhibit C (1) . TERM OF OFFICE FOR MEMBERS: Elected members of the Advisory Board and their designated alternates shall serve for a term of two years beginning July 1 and ending June 30. Election to be held prior to the April meeting. Members who do not attend three consecutive Advisory Board meetings may lose their membership and the Chairman shall appoint a replacement in accord with the distribution of representation outlined in the membership section. QUORUM: A quorum of the Advisory Board shall be deemed to be a majority of the members (5) . REPORTS: Any actions of the Advisory Board taken by majority vote shall be reported to all outside City purchasers. AGENDA: The agenda for the Advisory Board meeting shall be set by the Chairman or Vice-Chairman. Any member may submit agenda items to the Chairman. STAFF: The Advisory Board at the request of the Chairman shall be provided secretarial staff by the City Bureau of Water Works. The expense shall be incorporated in the general overhead of the Bureau. EXPENSES: Minor operating expenses of the Advisory Board shall be provided by the City Bureau of Water Works. The expense shall be incorporated in the general overhead of the Bureau. 19 AMENDMENT OF BY-LAWS: The By-laws of the Advisory Board may be amended by five members, except for the provisions relating to membership representation which shall require unanimous consent of all eight members. AC:sms COT:25YEAR.AGR 20 r f'u�icouver W." Soo � Lake P d Burlington r HW - Water District 4 Washougal River D l !� Sr Ci y of Portland Retai �IN Ll RD Q City of Portland �/ R T Y WD BURNSIDE ST 'y p Drinking Water Supply System y Roc d PUD - AR ���'" R Retail and Wholesale Service Areas �R -va eyVie PO "TA,NRD W.D. p Wholesale Water Providers _ BEAVERTON HIUSOq�F orna n G Luste _ I le' h W.D. W.D. Burlington Water Dist. Pleasant Home W.D. Fri'"' �L �'. Fos R Gresha f_I� �V. Cit of Gresham } Pleasant - Green Valley J Water Co. Y Raleigh Water Dist. $ Home W.D. D Palatin H II wo Rivers Water Assoc City of Tualatin Rockwood PUD - S W. Hideaway SUMV GNR Corp. Skyview Acres Water Co. "Of Ls FERRY Hills f f Green Valle Water Co. Tigard La e G ' I 2tz qP Ater GNR Y Tigard Water District HM 212-224r p. Hideaway Hills Water Co. Tualatin Valley W.D. Skyview Tualati ' S Water Acres Lake Grove W.D. Two Rivers Water Assoc. s Lorna Water Co. Valley View W.D- P {1 Lusted Water Dist. S West Slope Water Dist. Palatine Hills W.D. Note: Service area boundaries are delineated based on t� information supplied by water providers and are approximate. HENR`` 9P L1`lL�`�i'�t IZiti'L'' t Creek i 0 0.5 1 2 3 4 Miles o J September, 2005 - GRETCHEN E. BUEHNER ATTORNEY AT LAW P.O. Boa 1233 Portland,Or 97207-1233 TIGARD (503)6$4-1031 FAX(503)590-4205 December 14, 2005 Intergovernmental Water Board Re: long term water source Dear Board Members: I began attending water district meetings in late 1995. I served on the Tigard Water District Board from 1997 through January, 2001, when I moved into the City of Tigard. During my term Beverly Froude and I served as the representatives on the IWB. Discussions with Lake Oswego had just broken down because of West Linn's refusal to allow the Lake Oswego treatment plant to be expanded. I was involved in the discussions regarding a long term water source from the beginning of the look at the Willamette River as a source. When preliminary studies indicated that the Willamette was a viable and cost effective option for Tigard, Commissioner Eric Sten, then commissioner in charge of the Portland Water Department, began an intense campaign to talk the District out of looking to the Willamette. He promised discussions about an ownership interest in the Bull Run system, if Tigard continued with Bull Run. Based upon a 2002 plant opening, cost estimates indicated that continuing with Portland would be significantly more expensive by 2010 and would continue to escalate over the remaining estimate period. Supporters of Bull Run became actively involved with the Citizens for Safe Water force an election on the issue of whether the Tigard City Council had the authority to make a decision to go to the Willamette. There was a tremendous volume of misinformation disseminated, which was designed to frighten the voters into voting for a charter change. The charter change passed. Tigard did not make a decision to go to the Willamette. As soon as the Willamette option failed, Commissioner Sten did an about face. Portland said that Tigard could never have an ownership interest in Bull Run and wholesale water rates began to skyrocket. Portland has been difficult to negotiate with over the intervening years. Tigard began discussions with the South Fork Water District to look at water from the Clackamas. That option ultimately failed mostly because of West Linn's refusal to allow pipes through the City to Tigard. You are all aware of the still continuing negotiations, plans and contracts for water from the Tualatin. New negotiations with Lake Oswego are currently in progress. c The Wilsonville plant (phase 1) was built and Wilsonville has been getting its water from the Willamette for a number of years. Plant costs and water quality turned out as predicted. Sherwood just voted to investigate getting water from the Willamette. We are now near the 2007 deadline for water from the City of Portland. Because some of the other wholesale customers are planning for water from other sources, Portland needs to raise wholesale rates to protect Portland rate payers. It is critical that the MIB keep a very jaundiced eye upon any feelers from the City of Portland. Portland is motivated to sound reasonable only if Tigard maintains its options to get water from the Willamette. Even with the tremendously higher costs which going to the Willamette would entail today, it is still a much more cost effective option than continuing on a long term basis with the City of Portland. Please remember the history I have outlined as you proceed in this process. Very truly yours, Gretchen E. Buehner City of Portland Proposed Wholesale Water Sales Agreement Last Updated:December 13,2005 History of Water Sales • Portland has provided drinking water to wholesale customers for nearly 100 years. Water is sold under the guidelines of water sales agreements which describe the terms for providing water. Current agreements were developed in the 1970's — most will expire in July, 2007. 1 Why Does Portland Sell Wholesale Water? • History — Portland Water System's Role in Region — Efficient use of regional water resources — Many wholesale customers are city residents • Revenues -- About $16 million annually — Spreads costs of maintaining infrastructure which helps reduce water rates for Portland customers. — Makes best financial use of Portland water system-- Portland's sources regularly produce more water than is needed by Portland alone. Updating the Water Sales Agreement • Updating agreement mentioned first in mid1990's. Negotiations to update the current agreement began in 2003. • Portland and the wholesale partners use a model agreement that serves as the basis for individual agreements between Portland and each customer. • The proposed agreement is available for public review through early March, 2006. Portland's 19 Wholesale Customers • Burlington Water District • Pleasant Home Water District • City of Gresham • Raleigh Water District • City of Tualatin • Rockwood Water People's • GNR Corporation Utility District • Green Valley Water • Skyview Acres Water Company Company • Tigard Water District • Hideaway Hills Water • Tualatin Valley Water District Company • Two Rivers Water Association • Lake Grove Water District • Valley View Water District • Lorna Water Company • West Slope Water District • Lusted Water District • Palatine Hills Water District Wholesale vs. Retail • Wholesale customer rates include the cost of maintaining facilities that provide them with water including: — The Bull Run dams and treatment facilities — Storage reservoirs at Powell Butte — Columbia South Shore Well Field • Wholesale customers do not pay for facilities and parts of the Portland water system that serve only City of Portland residents such as: — customer service — in town storage — and local pipelines mains and meters. Proposed Agreement Key Provisions Rates • Agreement bases rate structure on American Water Works Association industry standard. • Rate Model to implement the the proposed agreement will be completed in early 2006. • Finished rate model will produce exact rates for wholesale customers. • If all wholesalers sign new agreement, no impact to retail rates from wholesale agreement. r Proposed Agreement Key Provisions Guaranteed Purchase Quantity • Fixed volume of water purchased each year by a wholesale customer. • By mutual agreement, guaranteed purchase quantity can increase. • If Portland fails to meet supply needs more than once in 10 years, guaranteed purchase quantity may be reduced by up to 10% per year • Wholesale customers can trade guaranteed purchase quantities among each other and resell water purchased from Portland. -t Proposed Agreement Key Provisions Interruptible Water • Water that Portland periodically has available to sell after it has met in-city demand and guaranteed purchases. • Portland has discretion to sell interruptible water at a discount if it is available. • Interruptible water sales could periodically provide additional rate relief to Portland ratepayers and less expensive water to wholesale customers. Proposed Agreement Key Provisions Reserve Capacity • A commitment by Portland to make a certain amount of water available to a wholesale customer at a specified future date. • Available only through a separate agreement requiring specific authorization from each governing board or city council. Proposed Agreement Key Provisions Joint Funding Agreements • Draft agreement maintains the current option for Portland and the wholesalers to consider future joint funding arrangements for new infrastructure. • Possible only through separate agreements requiring specific authorization from the governing board or city council of each participating agency. Proposed Agreement Key Provisions Term of Agreement • 20 year initial term with 10-year renewals. • 5 year notice for non-renewal by either Portland or the wholesale purchaser. • New agreement proposed to go into effect July 1, 2006. Proposed Agreement Key Provisions Water Managers Advisory Board • Made up of representatives of all the wholesale customers and Portland. • Purpose is to coordinate operational functions among the affected water systems and to provide a forum for the wholesalers to provide input to budget and capital improvements. • New role in joint conservation planning and emergency curtailment of supply. Proposed Agreement Key Provisions Conservation and Curtailment • Both Portland and wholesale water customers will conform to state water planning and conservation standards. • Joint curtailment (Emergency Interruption of Supply) plan to be developed by Portland and the Wholesale Customers for Water Bureau approval. Benefits of Proposed Agreement Comparison to Current Contract Key Differences: • Rate Methodology • Water Quantities (guaranteed purchase quantity vs. minimum purchase) • Interruptible Water • Resale of Water See handout for more detailed comparison Public Review & Comment 10/3/2005 Begin Public Comment 10/20/2005 Portland Utility Review Board Briefing 10/25/2005 Open House#1 11/16/2005 Open House #2 3/1/2006 Rate Model Completed 3/2006 Third Public Forum: Q&A 3/2006 Draft Water Sales Agreement to Portland City Council 5/22/2006 Wholesaler Customer Responses Due 6/2006 Contracts Executed by Portland Public Review & Comment Website: www.portlandonline.com/water Comments: comments@water.ci.portland.or.us Questions: Sarah Murphy, Portland Water Bureau (503) 823-7444 9 Portland Wholesale Water Sales Agreement Background/History September 29, 2005 Portland has agreements to sell drinking water to 19 water providers in the region. This includes Gresham and the Rockwood People's Utility District in East Portland, Tualatin, Tigard and the Tualatin Valley Water District (TVWD) west of the Willamette River. Attached is a list of the wholesale water providers and a map of the various service areas. The current agreements were negotiated in the late 1970's and are now beginning to expire. Most of the agreements will end in 2007. Portland has provided drinking water to some of these customers for over 100 years. Portland's water sources—the Bull Run watershed in the foothills of the Cascade Mountains and the Columbia South Shore Wellfield—regularly produce more water than is needed by Portland city customers. The sale of water to the wholesale customers has benefited both Portland's in-city retail ratepayers and the wholesale customers. The arrangement has provided revenue to the city, reducing costs for in-city customers. The wholesale customers have benefited from access to a very reliable, high quality drinking water source. The wholesale customers constitute a significant portion of the City's water demand. They represent roughly 38% of the demand for water from the Portland supply system. The wholesale customers pay Portland for the use of the drinking water supply facilities that provide them with water, such as the large dams and treatment facilities in the Bull Run Watershed, the storage reservoirs at Powell Butte and the Columbia South Shore groundwater facilities. The wholesale customers do not pay for facilities and parts of the Portland water system that serve only City of Portland residents such as customer service, in town storage and local pipelines and meters. Overall, the wholesale customers pay about $16.4 million to Portland each year, roughly 21% of the city's total water rate revenues. In May 2003, Portland and the major wholesale customers including Gresham, Rockwood PUD, Tigard, Tualatin, TVWD, and the West Slope Water District began negotiations for a new wholesale agreement. Portland formed a negotiations team that includes active participation by the City Attorney's Office, the Office of Management and Finance and the Office of the Commissioner-in-Charge. The negotiations have been a collaborative process involving key staff for all of the participating parties. The challenge of constructing an agreement that works for the several very different and distinct participating agencies has required several months of discussion, analysis and problem solving. Throughout the negotiations, all of the participating parties have regularly briefed board members, local decision makers and key stakeholders to the agreement regarding the content and progress of the discussions. Portland has briefed the City Council, a designated Portland Utility Review Board member and, more recently, an appointed citizen participant from the Friends of the Reservoirs. The negotiations teams from Portland and the wholesale customers have reached agreement on a draft version of a new sales agreement. All the participating parties support the current draft of the agreement and are ready to share and discuss it with the public and interested stakeholders to obtain feedback before taking formal action. Portland and the wholesale customers plan to begin a public review process for the draft agreement in October. City staff will be working with wholesale representatives to post the draft agreement and support documents on the Internet, provide informational briefings to interested stakeholders within the city including the Portland Utility Review Board and Friends of the Reservoirs and hold a City Council work session to brief the Council. Following this series of briefings, Portland staff and the wholesale customers will reconvene to discuss the public input. The wholesale entities plan to conduct individual public review processes in their own jurisdictions during that same period. Portland anticipates completing the city's public review process and offering a formal agreement to the wholesale customers through City Council action by March 1, 2006. If the wholesale customers accept the new agreement, the new terms will be incorporated into Portland's annual rate ordinance in late spring 2006 and go into effect starting July 1, 2006. Portland Wholesale Water Sales Agreement Draft Agreement Main Provisions September 29, 2005 The draft agreement is a model agreement that would serve as the basis for individual agreements between Portland and each wholesale customer. The agreement describes the terms and costs for a firm supply of drinking water for the wholesale customers from Portland's drinking water sources. The draft agreement has an initial term of 20 years with 10-year renewals thereafter. Either party must provide 5 years notice if it plans not to renew the agreement. The parties propose implementing the new agreement beginning in FY 2006-07. The draft agreement maintains and further clarifies the role of the Water Managers Advisory Board made up of representatives of all the wholesale customers and Portland to coordinate operational functions among the affected water systems and to provide a forum for the wholesalers to provide input on key items including budget and capital improvement program development. Under the draft agreement wholesalers would be responsible for the purchase of a specific volume of water from Portland each year called a guaranteed purchase quantity. Portland would be responsible to provide this quantity of water to the wholesale customer reliably for the life of the agreement. By mutual agreement, the guaranteed purchase quantity could increase but not decrease over the life of the agreement except under special circumstances. The draft agreement would allow wholesalers to resell water purchased from Portland and to trade guaranteed purchase quantities among other wholesale customers It would allow Portland to sell interruptible supplies of water to the wholesale customers at its discretion and at a discount. Interruptible water is water that Portland periodically has available to sell after it has satisfied the water needs of city residents and the guaranteed purchase quantities of the wholesaler customers. Interruptible water is almost always available each winter during the rainy season and is sometimes available in the summer. If Portland is able to sell this water when it is available, it will provide additional rate relief to Portland ratepayers and provide some relatively less expensive water to existing wholesale customers from time to time. The agreement would also allow Portland, to sell reserve capacity at the City Council's discretion, to wholesale customers interested in buying additional water from the city in the future. Such an arrangement could only occur through a separate agreement requiring specific authorization from the participating agencies' governing board or city council. Reserve capacity is a commitment by Portland to make a certain amount of water available to a wholesale customer at a specified future date. The wholesale customer would pay the city for the commitment during the intervening years. The city would retain full use of the amount of water reserved through such an agreement, including the right to sell the water to other wholesale customers, until the date specified. The draft agreement includes clearly defined descriptions of the proposed wholesale rate methodology that is based on the American Water Works Association industry standard. A requirement for participants to conform to state conservation planning and program requirements and details about the process by which emergency curtailment of supply shall be implemented are in the draft agreement. A dispute resolution process is also described. The draft agreement maintains the current option for Portland and the wholesalers to consider future joint funding arrangements for new water system facilities through separate agreements requiring specific authorization from the governing board or city council of each participating agency. See the comparison table in section 4 for a brief comparison of major provisions between the existing and proposed water sales agreements. Portland Wholesale Water Sales Agreement Benefits of Draft Agreement to Participating Parties September 29, 2005 Wholesaler Benefits Portland Benefits Benefits to Both • Guaranteed firm supply of water • No increase in retail rates • Improved rate stability and • Anticipated reduction in unit assuming current wholesale predictability from year to year rate (in most cases) customers sign new agreement . Ability to share financial • Flexibility in managing demand • Guarantee of specific income responsibility for specific capital and financial obligations and customer base for 20 years projects in the future with City through trade of purchase • Opportunity to sell interruptible Council and Board approval obligations, interruptible water water and reserve capacity (if • Standard, industry-recognized purchases and resale of available) for additional rate methodology Portland water revenues and retail rate benefit • Adequate "ramping off' period • Opportunities to purchase • No mandate to expand system to end relationship reserve quantities to plan for or build specific infrastructure • Shared requirements for future demand • Adequate supply for Portland conservation and water • Increased definition of and its forecasted growth efficiency wholesaler role in water system maintained planning • Maintain the right to add • Defined cost control additional wholesale customers mechanism for retail (and wholesale) rate • Reliability "guarantee" with benefit prescribed remedies Portland Water Sales Agreement Comparison Table Between Current and Proposed Model Wholesale Agreement September • 2005 Significant Provisions Current Agreement Proposed Nature of service • Water sold by Portland to wholesalers • Water sold by Portland to wholesalers described considered "surplus" and defined as "firm supply" Length of agreement . 25 years with automatic 25-year renewal 0 20 years with automatic 10-year renewal • 3-year notice for non-renewal • 5-year notice for non-renewal by either party Joint operational guidelines (how the 0 Determined solely by Portland 0 Guidelines established jointly by Portland and wholesale customers and Portland wholesalers through Water Managers Advisory cooperate in operating their respective Board, reviewed, amended (if necessary) and water systems) adopted by Water Bureau Administrator Water Managers Advisory Board • Review of budget and CIP 0 Establish joint operational and data guidelines • Participate in budget and CIP development/review processes, input to City Council Water quantities . Minimum purchase based on percentage of • Guaranteed purchase quantity-- a specific, overall water supply, five-year average committed volume to be purchased from Portland • Can buy out of agreement over five years by 0 May be increased but not decreased except paying minimum purchase "penalty" under special circumstances • No buy out Sale of water to other entities 0 Prohibited unless authorized by Portland • Allowed, unless it creates undue risk to the Portland waters stem Reliability of supply • No obligation • If Portland fails to meet supply needs more than once in 10 years, purchaser may reduce purchase commitment by up to 10% per year Interruptible water . No provisions • Available at Portland discretion • Summer and Winter interruptible water priced at 45%, 20% of regular rate respectively if available Rates 0 Rate methodology not described in complete • Specific methodology based on American Water detail Works Association M1 Manual and Cost of Service Principles • Costs allocated based on customers' use of water system • O&M cost control mechanism Water conservation 0 No reference • Water management and conservation plans to conform to State regulations Joint funding for capital improvements . Allowed through agreement in which purchaser • Allowed for new facilities or for major pays its portion of bonded debt for new asset improvements to existing facilities by separate agreement • All terms related to joint funding arrangements determined by separate agreement Dispute resolution None Three steps: 1) Negotiation, 2) Mediation, 3) Arbitration/litigation Regional Water Sales Agreement October 3, 2005 Page i REGIONAL WATER SALES AGREEMENT TABLE OF CONTENTS Page SECTION 1 —NATURE OF SERVICE............................................................................................ 2 SECTION 2—WATER REGULATIONS......................................................................................... 3 SECTION 3 —DURATION OF AGREEMENT AND RENEWAL................................................. 4 SECTION 4—WATER MANAGERS ADVISORY BOARD.......................................................... 6 SECTION 5 —GUARANTEED PURCHASE WATER QUANTITIES......................................... 10 SECTION 6 - INTERRUPTIBLE WATER.................................................................................... 18 SECTION 7—RATES AND CHARGES FOR GUARANTEED PURCHASE WATER QUANTITY............................................................................................................. 20 SECTION 8 - RATES AND CHARGES FOR INTERRUPTIBLE WATER.................................30 SECTION 9 -WATER SYSTEM PLANNING AND COOPERATION.......................................31 SECTION 10 - RESERVATION OF SYSTEM CAPACITY......................................................... 32 SECTION l l - CONNECTIONS AND METERING..................................................................... 33 SECTION 12 - PURCHASER-SUPPLIED WATER TO CITY RESIDENTS............................... 34 SECTION 13 - WATER RESOURCE CONSERVATION............................................................35 SECTION 14—WATER CURTAILMENT AND PROTECTION OF THE WATER SYSTEM.. 38 SECTION 15—BILLING AND PAYMENT.................................................................................. 40 SECTION 16—JOINT FUNDING OF CAPITAL IMPROVEMENTS.......................................... 42 SECTION 17—DISPUTE RESOLUTION..................................................................................... 43 SECTION 18—WASHINGTON COUNTY SUPPLY LINE......................................................... 45 Draft Regional Water Sales Agreement October 3, 2005 Page ii EXHIBITS EXHIBIT 1 —GUARANTEED PURCHASE QUANTITY, SEASONAL PEAKING FACTOR, DAILY PEAKING FACTOR, AND PRESSURES EXHIBIT 2—DEFINITION OF WATER SERVICE CHARACTERISTICS EXHIBIT 3 —RATE BASE ASSETS EXHIBIT 4—FUNCTIONAL ASSET GROUPS Draft Regional Water Sales Agreement October 3, 2005 Page 1 THIS AGREEMENT is entered into by and between , herein called "Purchaser," and the CITY OF PORTLAND, a municipal corporation of the State of Oregon, herein called"City." The parties recite: A. Purchaser is a municipal corporation of the State of Oregon and is authorized by its charter or by state law or both to operate a municipal water system. B. City is a municipal corporation of the State of Oregon and is authorized by Chapter XI of the Charter of the City of Portland to maintain water works for the furnishing of water to the city, its property, its inhabitants, and the places and people along or in the vicinity of the pipes, conduits or aqueducts constructed or used for that purpose. The Council of the City is further authorized to enter into contracts for the supply of water by the city and to sell water to persons, public and private, outside the city, on terms and conditions the Council finds appropriate. C. City is further authorized by Section 2-105(a)4 of its Charter to enter into agreements, without limitation as to term, as the Council finds appropriate for cooperation, consolidation and maintenance of services with any other public corporation or unit of government. D. ORS 190.003 to 190.110 authorize units of local government to enter into intergovernmental agreements for the performance of their duties or for the exercise of powers conferred upon them. E. The service and commodity provided by City pursuant to this Agreement are a special contract service and are not provided by City as a common utility service. Draft Regional Water Sales Agreement October 3,2005 Page 2 SECTION 1 —NATURE OF SERVICE A. Subject to the terms and conditions contained herein, City agrees to furnish and sell, and Purchaser agrees to purchase a firm supply of potable water on an annual basis for the life of this Agreement. The City further agrees to fi -nish and sell an interruptible supply of water to be made available for purchase at the City's discretion subject to terms of this agreement. B. Water is to be delivered to the purchaser at the place or places, at such pressure or pressures, and at such flow rate or flow rates as are set forth on Exhibit 1. Provided that the City is not obligated to meet Purchaser's demands for water during any period of time that Purchaser operates its system not in compliance with operational rules established pursuant to Section 4.D.1. C. The City shall deliver water to the purchaser from the same source or sources of water that City delivers to City inhabitants. The City shall meet all applicable drinking water regulatory requirements up to the purchaser's point of delivery. D. Purchaser's supply of water shall be reduced or terminated only in accordance with the terms of this agreement. E. Purchaser recognizes and agrees that no liability for damages shall attach to the City on account of any failure of supply or changes in pressure, flow rate, or water quality due to circumstances beyond the reasonable control of the City acting in accordance with standards of care common and usual in the municipal water supply industry. Examples of such circumstances include, but are not limited to,natural events such as earthquakes, landslides and floods, and human-caused events such as terrorism, malevolent acts, contamination of the water supply, and acts of war. F. The parties agree and acknowledge that the City of Portland is the owner and operator of the water supply, storage,transmission,and treatment system, and all facilities and infrastructure associated with the storage, treatment,transmission, and distribution systems used in its utility operations. The purchase of water or any other commodity or service under this agreement shall not constitute purchase of ownership rights to water or any portion of the water system owned and operated by the City, except as may be specified herein or may be established by separate agreement. Nothing in this agreement shall preclude the parties from entering separate agreements involving joint ownership or joint operation of system elements. Draft Regional Water Sales Agreement October 3, 2005 Page 3 SECTION 2 —WATER REGULATIONS A. Purchaser hereby agrees to abide by and be bound by the terms and provisions of Chapter 21.28 of the Code of the City of Portland, Oregon, as it presently exists or as may be amended to comply with federal and state law, during the life of this agreement, to the extent to which such terms and provisions do not conflict with any material provisions of this agreement. Draft Regional Water Sales Agreement October 3, 2005 r Page 4 SECTION 3—DURATION OF AGREEMENT AND RENEWAL A. Initial Term This agreement shall become effective on July 1 of 2006 and shall continue in effect thereafter under the terms of this section, unless terminated as provided herein. Each"contract year"shall run from July 1 through June 30. B. Initial Five Year Non-Renewal Notice At any time during the five-year period from July 1, 2021,through June 30, 2026, either party may give a written notice of non-renewal. If such notice is issued, the contract will terminate on the next June 30 at least five years but not more than six years from the date of the notice. C. First Renewal in 2026 If neither party gives notice of non-renewal on or after July 1, 2021, and prior to July 1, 2026, the contract shall continue for another ten years, through June 30, 2036. D. Subsequent Renewals After June 30, 2036 If this contract is renewed pursuant to Subsection 3.C. above, then the contract shall also be repeatedly renewed for ten year intervals after June 30, 2035, and every ten years thereafter, unless one of the parties gives a notice of non-re6ewal under the terms of Subsection E below. E. Five-Year Non-Renewal Notice Either party may provide a written non-renewal notice any time during the second five years of each ten-year renewal period. If either party gives a notice of non-renewal during the non- renewal notice period,the contract will terminate on the next June 30 at least five years but not more than six years from the date of the notice. For example, if this contract is renewed through June 30,2036, pursuant to Subsection C above, then the non-renewal notice period during that term of the contract shall run from July 1, 2031, through June 30, 2036. If either party gives written notice of non-renewal during that period of time,the contract shall terminate on the next June 30 five years or more but less than six years from the date of the notice. If no party gives notice of non-renewal during that period, the contract will be automatically extended through June 30,2046. If the contract is extended to June 30, 2046, the next non-renewal notice period would then run from July 1,2041, through June 30, 2046. Dran' _ Regional Water Sales Agreement October 3, 2005 Page 5 SECTION 3—(Continued) F. Effect of Renewals on Cost Cap and Supply Reliability The five-year period used to judge the City's compliance with the cost cap established by Subsection 7.I. shall be restarted at each renewal of this contract. The ten-year period used in calculating the City compliance with its reliability obligations described in Section 5.E.2 shall be restarted at each renewal of this contract. Draft r Regional Water Sales Agreement October 3, 2005 + Page 6 SECTION 4—WATER MANAGERS ADVISORY BOARD A. General A Water Managers Advisory Board(WMAB)shall be established no later than thirty(30)days after five or more Purchasers have approved a Water Sales Agreement with the City that includes this provision, and will continue during the term of this agreement. Purchaser is eligible for participation in the WMAB. The WMAB shall consist of two representatives of the City Bureau of Water Works, to be named by the Administrator,and one representative of each participating entity that has signed a contract to purchase water from the City containing a provision allowing its participation on the WMAB. The City of Portland Water Bureau will provide staff support to the WMAB and will be responsible for keeping the official records. B. Meetingsylaws The WMAB shall meet regularly to communicate with and make recommendations to the Administrator regarding matters relating to the City's sale of water to participating purchasers. The WMAB may adopt such bylaws concerning its organization and governance as a majority of the membership shall see fit. The role of this Board is advisory in nature and, except as specified herein, no rule,bylaw, or action of the WMAB may alter any term of this agreement. C. Committees The WMAB shall be responsible for establishing committees as needed to address ongoing needs, which may include: 1. Water Resource Conservation—Possible responsibilities for such a committee are outlined in Section 13 —Water Resource Conservation; 2. Operations Coordination—Possible responsibilities for such a committee may include coordinating supply system routine and emergency operations among the City and its wholesale Purchaser with the goal of providing efficient and cost- effective system operations; and 3. Other committees, as identified by the WMAB. D. Creation of Operating and Information Standards 1. The WMAB shall recommend to the Administrator standard water system operating practices necessary or advisable to enhance the efficiency,reliability, and cost-effectiveness of the supply, transmission, and storage of water provided under this agreement. These standard operating practices will address issues such as,but not necessarily limited to,forecasting seasonal demands, forecasting peak demands, managing the system to minimize the impact of peak demand periods, Draft Regional Water Sales Agreement October 3, 2005 Page 7 SECTION 4—(Continued) security and emergency management,use of storage,and timing of deliveries of water. Pending recommendations from the WMAB, the Administrator shall adopt interim operating practices and upon receipt of the recommendations, the Administrator shall adopt the recommendations,with such alterations as he or she deems necessary or advisable. The Purchaser agrees to operate its system in a manner consistent with such established operating practices and in keeping with responsible use of the City's water supply system. 2. The WMAB shall recommend to the Administrator what information and data he or she shall require each participating Purchaser to provide, in order to allow efficient,reliable, and cost-effective provision of water under this Agreement. The Administrator shall adopt these recommended information requirements,with such alterations as he or she deems necessary or advisable. Such information may include,but is not necessarily limited to: (a) System maps with mains,pump stations, tanks, and supply connections; (b) Connections and usage from other supply sources; (c) Total existing and new service connections by category; (d) Key benchmarks to be identified by the Operations Group such as but not limited to standards for operational norms, notification deadlines, protocols for communication; (e) Water quality data; (f) Purchaser facilities' standards for operation to minimize peak and emergency events; and (g) Emergency contact information for each provider and any agreements that have been signed by individual providers to address emergency response. 3. The WMAB shall periodically evaluate Purchasers' compliance with the information requirements and standard operating procedures and shall provide the Water Bureau Administrator with findings and recommendations to assure ongoing compliance. E. Rate Review Fn-) faL DrM Regional Water Sales Agreement October 3, 2005 Page 8 SECTION 4—(Continued) In order to provide timely notification to Purchaser of proposed changes in rates, charges, and rate design and an opportunity for Purchaser to evaluate such proposals and be heard before the City Council, City agrees that the following steps shall be taken annually. 1. Capital Improvement Program. (a) On an annual basis, Purchaser, through the WMAB, shall be invited to participate in development of that portion of the Water Bureau's Capital Improvement Plan addressing capital improvements used to serve Purchaser or other participating Purchasers; (b) Capital planning will take place in a manner sufficiently timely to ensure Purchaser effective participation in the City's capital budget deliberations each year; (c) City and WMAB will identify criteria to be considered in prioritizing capital improvement projects. City will also share its proposed ranking of projects for funding and completion and its proposed schedule for such capital improvements. Purchaser will be provided reasonable opportunity to present suggestions and recommendations for changes to the proposed Capital Improvement Plan, specific capital projects, and for improvements in the capital planning and financing process; (d) At a minimum, the City will host at least one meeting a year to discuss the Water Bureau's Capital Improvement Plan on a schedule sufficient to allow Purchaser participation in the City's capital budget deliberations each year. 2. Operation& Maintenance Budget (a) On an annual basis, Purchaser, through the WMAB, shall participate in review of the Water Bureau's Operations and Maintenance budget for the water supply system used to serve Purchaser or other participating Purchasers; (b) Water Bureau O & M budget development and review will take place in a manner sufficiently timely to ensure Purchaser effective participation in the budget deliberations each year; (c) The WMAB will be provided the opportunity to participate in the budget development and review process, including steps such as: Draft _ Regional Water Sales Agreement October 3, 2005 Page 9 SECTION 4—(Continued) (i)The Administrator will report to WMAB at the commencement of annual financial plan and budget preparation, and report each month to the WMAB on progress in the budget preparation and any particular budgetary issues or concerns related to that part of the water supply system used to serve the Purchaser and other members of the WMAB. Reports may be in writing or at WMAB meetings. (ii) A reasonable time, but no less than two weeks, prior to submission of the Water Bureau budget to the Mayor, the Administrator shall report to the WMAB on the current state of budget and financial plan preparation and provide his or her best estimate of the final budget for submission to the Mayor related to that part of the water supply system used to serve the Purchaser and other members of the WMAB and shall consult with the WMAB about the budget to be proposed to the Mayor. (iii)The Administrator will provide WMAB a presentation concerning the Water Bureau budget request to the Mayor and the Water Bureau financial plan for the following fiscal year and provide copies of the budget request and financial plan for review and comment. The budget request and the financial plan will be made available to WMAB on or as soon as reasonably possible after the date they are submitted to the Mayor. (iv) The City will advise Purchaser in writing of significant changes in the proposed Water Bureau Budget after its submission to the Mayor. (v) When the City Bureau of Water Works files its annual rate ordinance with the City Council Clerk, a copy of said ordinance will be forwarded to Purchaser, accompanied by a letter giving the dates on which the City Council is scheduled to consider rates. 3. Purchaser, through the WMAB, may offer comments on the annual rate ordinance in writing or in personal testimony before the City Council. F. Protection of Confidential Information Information submitted to or produced by the WMAB or otherwise exchanged by the parties to this Agreement and similar wholesale water agreements may include documents related to the vulnerability or security of water supply systems. The parties agree that if either receives a public document request for such information, the party receiving that request shall, prior to release of any documents, expeditiously notify the entity about whose system information is sought and shall, in addition, assert all applicable exemptions to release of the documents available under the Oregon Public Records Law. Dran Regional Water Sales Agreement October 3,2005 Page 10 SECTION 5—GUARANTEED PURCHASE WATER QUANTITIES A. General Guaranteed Purchase Payment Obligations Unless excused by some other provision of this Contract, Purchaser agrees to pay City each year a sum of money(its "guaranteed purchase payment")equal to the annual water rate applicable to Purchaser for that year times the Purchaser's "guaranteed purchase"quantity of water. Payments shall be made as provided in Section 15, Billing and Payment. B. Guaranteed Purchase Quantities And Peaking Factors 1. Guaranteed Purchase Quantity. For purposes of calculating annual rates and determining Purchaser's minimum payment,Purchaser's guaranteed purchase quantity(expressed in annual average daily demand and in total monthly demands) shall be the quantity identified in Exhibit 1 to this contract, unless changed pursuant to the terms of this contract. 2. Seasonal Peaking Factor. For purposes of calculating monthly demands and annual rates and determining Purchaser's minimum payment,Purchaser's "seasonal peaking factor" shall be the seasonal peaking factor identified in Exhibit I to this contract unless changed pursuant to the terms of this contract. "Seasonal peaking factor"is the ratio of the Purchaser's guaranteed purchase average daily demand placed on the City system during the"peak season"to the Purchaser's guaranteed purchase annual average daily demand. For this calculation"peak season" is the period of time from July 1 through September 30. For purposes of ratemaking and calculating monthly demands, the seasonal peaking factor excludes purchases of interruptible water. 3. Daily Peaking Factor. For purposes of calculating annual rates and determining Purchaser's minimum payment, Purchaser's"daily peaking factor" shall be the daily peaking factor identified in Exhibit 1 to this contract unless changed pursuant to the terms of this contract. "Daily peaking factor" is the ratio of the daily average derived from the Purchaser's highest three consecutive days of purchases to its annual average daily demand for the contract year. For purposes of ratemaking and calculating monthly demands, the daily peaking factor excludes purchases of interruptible water. C. Changes In Guaranteed Purchase Ouantities 1. Reductions In Guaranteed Purchase Quantities Except as specifically provided for in this contract, Purchaser's guaranteed purchase quantity may not be reduced during the term of this contract except by a contract amendment. Draft Regional Water Sales Agreement October 3, 2005 Page 11 SECTION 5— (Continued) 2. Increases in Guaranteed Purchase Quantities On any March 15 during the term of this contract, Purchaser may request that its guaranteed purchase quantity be increased. The Administrator may accept or reject such request, in whole or in part. The Administrator shall respond to any request for an increase in guaranteed purchase by May 1 of the same year the request is made. Unless otherwise agreed by Purchaser and the City, any increases in guaranteed purchase agreed to under this provision shall be effective for the remaining term of the contract. If on any March 15, more than one Purchaser under a similar wholesale water agreement requests an increase in guaranteed purchase and the Administrator determines that he or she can prudently approve some increase in guaranteed purchases,but cannot approve all pending requests in total, then the Administrator may grant such overall increase in guaranteed purchase as he or she deems prudent,provided that when granting partial approvals of more than one request, the Administrator shall grant such approvals in proportion to the then existing guaranteed purchase quantity of each requesting Purchaser compared to the total of then existing guaranteed purchase quantities of all requesting Purchasers. If the Administrator cannot grant Purchaser's original request in total, the Purchaser may elect to withdraw its requested increase in guaranteed purchase quantity. All increases in guaranteed purchase quantities shall be confirmed in writing and signed by both parties. 3. Transfers of Guaranteed Purchase Quantities With approval of the Administrator, which shall not be unreasonably withheld, Purchaser may alter its guaranteed purchase quantity(and its guaranteed purchase obligation)by transferring all or some of its guaranteed purchase quantity to another municipal entity with a valid similar wholesale water agreement with the City. Withholding approval shall be deemed reasonable in the following circumstances only: the Administrator determines that the transfer would require changes in the City water system infrastructure or reduce the reliability of the water supply system. In these two circumstances, nonetheless, the Administrator shall endeavor to approve transfers with such conditions as he or she deems necessary or advisable to avoid the need to make changes in the City water system infrastructure or reduction in the reliability of the water supply system. 4. Sale of Guaranteed Purchase Water Purchaser may sell water purchased from the City as part of its guaranteed purchase quantity to other water suppliers,upon approval of the Administrator, which will not be unreasonably withheld. Withholding approval shall be deemed reasonable in the following circumstances only: the Administrator determines that the transfer would require changes in the City water system infrastructure, or reduce the reliability of the water supply system. In these two circumstances,nonetheless,the Administrator shall endeavor to approve sales of water with such FF-)) Dra Regional Water Sales Agreement October 3, 2005 Page 12 SECTION 5—(Continued) conditions as he or she deems necessary or advisable to avoid the need to make changes in the City water system infrastructure, or reduction in the reliability of the water supply system. D. Changes in Seasonal Peaking Factor 1. Requested Changes to Seasonal Peaking Factor Subject to limitations of Section 5.D.2(a)below, at any time prior to December 1 of each year of the second through fifth year of this contract, Purchaser may request in writing that its seasonal peaking factor for Years 3 through 6 of this Contract be changed from that identified for Year 1, as set out in Section 5.B.l(b) above. Purchaser's requested seasonal peaking factor shall be no less than the average of the Purchaser's actual seasonal peaking factor for the previous years under this contract. Prior to December 1 of Contract Year 6 and every year thereafter, Purchaser may request in writing a change in Purchaser's seasonal peaking factor. Any requested change shall take effect on the first day of the next contract year and shall continue as Purchaser's seasonal peaking factor thereafter unless changed pursuant to the terms of this contract. Purchaser's requested seasonal peaking factor shall be no less than the average of the Purchaser's actual seasonal peaking factor for the five previous years under this contract. Upon receiving such a request, the City shall adjust the Purchaser's seasonal peaking factor unless the Administrator determines that to do so would reduce the reliability of the water supply system. 2. Excess Seasonal peaking factors (a) Except as provided in Section 5.D.2(b)below, if in any year Purchaser's actual seasonal peaking factor exceeds by more than 10%the seasonal peaking factor set by the terms of this contract for the purposes of calculating rates in that year, the Administrator shall recalculate the year's rates and in the next available contract year shall impose on the Purchaser a surcharge equal to the difference in the Purchaser's guaranteed purchase payment under the original rates and the Purchaser's guaranteed purchase payment under the rates as recalculated using the Purchaser's actual seasonal peaking factors. When calculating rates for the year in which the surcharge is to be collected,the City shall treat the surcharge as an offset to the otherwise estimated annual revenue requirements for all wholesale and retail customers of the system. The Administrator may also increase the Purchaser's seasonal peaking factor to the actual excessive seasonal peaking factor for the purpose of calculating rates for a period of five years and the Purchaser shall not be entitled to reduce its seasonal peaking factor as described in Section 5.D.1 during this same five year period. If DD raft Regional Water Sales Agreement October 3, 2005 Page 13 SECTION 5— (Continued) the Administrator determines that honoring Purchaser's actual excessive seasonal peaking factor for the five year period would reduce the reliability of the system or threaten the water supply of any other wholesale purchaser of water from the City,he or she may refuse to honor the increased seasonal peaking factor and take steps he or she deems necessary or advisable to protect the system and other Purchasers, as provided in Section 5.17, Excess Demand. (b) The provisions of Section 5D.2(a) shall not apply if the excess seasonal peaking factor resulted from the direct result of Acts of God, malevolent acts, contamination of the water supply, or events beyond the Purchaser's control if the consequences of any such circumstance or event could not have been avoided through the exercise of the standards of care common and usual in the municipal water supply industry. E. Changes In Daily PeakingFactor actor 1. Daily Peaking Factors For Contract Years 2 Through 5 (a) Except as it is changed upon Purchaser's request as provided in Section 5.E.I(b), for rate-making purposes in the second through fifth contract year,Purchaser's peaking factor shall be the average of its actual daily peaking factor for all previous contract years, based on demand data collected by the City. (b)At any time prior to December 1 of the first through fourth contract years, Purchaser may request that its daily peaking factor for the next year, as calculated in Section 5.E.1.(a),be altered up or down by no more than 20 percent. Except as provided in Section 5.E.3, for ratemaking purposes in the next year,the City shall use the daily peaking factor identified by the Purchaser consistent with this section, unless the Administrator determines that honoring the requested peaking factor would reduce the reliability of the system or threaten the water supply of any other wholesale purchaser of water from the City. 2. Daily Peaking Factors For Contract Years 6 And Thereafter (a) Except as it is changed upon Purchaser's request as provided in Section 5.E.2.(b), for rate-making purposes in the sixth and subsequent contract years, Purchaser's peaking factor shall be the average of its actual daily peaking factor for the five preceding years,based on demand data collected by the City. (b)By December 1 of the fifth contract year and each year thereafter, Purchaser may request that its daily peaking factor for the next year, as calculated in Section 5.E.2.(a) ,be altered up or down by no more than 10 percent. Except as provided in Section 5.E.3., for ratemaking purposes in the next year, the City shall use the daily peaking factor identified by the Draft Regional Water Sales Agreement October 3, 2005 Page 14 SECTION 5—(Continued) Purchaser consistent with this section, unless the Administrator determines that honoring the requested peaking factor would reduce the reliability of the system or threaten the water supply of any other wholesale purchaser of water from the City. 3. Excess Daily Peaking Factors (a) Beginning in contract year 3, and for each year thereafter,except as provided in Section 5.E.3(b)below,if in any year Purchaser's actual daily peaking factor exceeds by more than 20%the daily peaking factor set by the terms of this contract for purposes of calculating rates in that year, the Administrator shall recalculate the year's rates and in the next available contract year shall impose on the Purchaser a surcharge equal to the difference in the Purchaser's guaranteed purchase payment under the original rates and the Purchaser's guaranteed purchase payment under the rates as recalculated using the Purchaser's actual daily peaking factors. When calculating rates for the year in which the surcharge is to be collected,the City shall treat the surcharge as an offset to the otherwise estimated annual revenue requirements for all wholesale and retail customers of the system. In addition, for five years after the year in which the Purchaser's actual daily peaking factor exceeds by more than 20%the daily peaking factor set by the terms of this contract for purposes of calculating rates in that year,the Administrator need not honor any request by Purchaser to alter the Purchaser's calculated daily peaking factor pursuant to Sections 5.E.I(b) or 5.E.2(b). (b) The provisions of Section 5E.3(a)shall not apply if the excess daily peaking factor resulted from the direct result of Acts of God,malevolent acts, contamination of the water supply, or events beyond the Purchaser's control if the consequences of any such circumstance or event could not have been avoided through the exercise of the standards of care common and usual in the municipal water supply industry. F. Release Of Purchaser From Guaranteed Purchase Obligations 1. Changes in Guaranteed Purchase Quantities In Case Of Short-Term Curtailment (a) Reduction or Shift of Guaranteed Purchase Quantity Purchaser's guaranteed purchase quantity(and, as appropriate, its guaranteed purchase annual payment) shall be altered, at Purchaser's request, for any year in which the Purchaser acts on a request by the City to reduce or curtail demand below its established guaranteed purchase quantity for more than five consecutive days. Any request must be made in writing to the City within 30 days after the Purchaser is no longer Draft Regional Water Sales Agreement October 3, 2005 Page 15 SECTION 5—(Continued) reducing or curtailing demand upon the City's request. At Purchaser's option, the quantity of water it did not purchase during a reduction or curtailment period of more than 5 consecutive days shall either: (a)be excluded from that year's guaranteed purchase quantity or(b)be shifted to another time of the year when curtailment is not in effect. Provided, however, that the Administrator need not honor a request to shift quantities to other times if he or she determines that to do so would threaten the reliability of the water system. (b) Quantification of Reduction or Shift in Guaranteed Purchase Quantity For purposes of Section 5.F.1, the Administrator shall calculate the reduction in water used by the Purchaser(and, therefore, the amount of the guaranteed purchase quantity reduction or shift)by considering the difference between the Purchaser's actual water usage during the period of curtailment or water use reductions and the Purchaser's guaranteed purchase demand projections for the same period and such other information available to the Administrator that he or she determines can be used to assist in making the calculations. (c) Seasonal Peaking Factor Effects Reductions or shifts of guaranteed purchase quantities pursuant to Section 5.F.1 shall not alter the Purchaser's seasonal or daily peaking factors for purposes of future ratemaking. 2. Changes in Guaranteed Purchase Quantities In Case of Failure of Supply (a) Except as provided in Section 5.F.2(d)below, if the City fails to supply Purchaser's guaranteed purchase demand for more than 30 consecutive days more than one time in any period of ten consecutive years, the Purchaser may declare its intention to reduce its guaranteed purchase quantity pursuant to this Subsection. (b) For purposes of Section 5.F.2, the Administrator shall determine if there has been a failure to meet guaranteed purchase obligations by considering the difference between the Purchaser's actual water usage during the period of curtailment or reduced water supply and the Purchaser's guaranteed purchase demand projections and such other information available to the Administrator that he or she believes can be used to assist in making the determination. (c) Procedure to Reduce Guaranteed Purchase Quantities Draft Regional Water Sales Agreement October 3, 2005 Page 16 SECTION 5—(Continued) i. To reduce its guaranteed purchase quantity under this Subsection, Purchaser must give written notice to the City of its intent to do so. The notice must be given any time after the 31 st day of the failure of supply,but not more than 60 days after supply has been fully reestablished. ii. Having given notice under Subsection 5.F.2(c)i, Purchaser may thereafter reduce its guaranteed purchase from the City by up to 10% of the guaranteed purchase quantity in effect the day before the failure of supply each year for the remaining years of the then current contract term and the next ten year term if the contract is renewed. To reduce its guaranteed purchase for any contract year, Purchaser must provide written notice of the reduction to the City no later than December 31 of the preceding contract year. Provided that to continue reducing its minimum quantity after any contract renewal,Purchaser must give written notice to the City of its intent on or before the date of renewal. iii. If Purchaser elects to reduce its guaranteed purchase quantities pursuant to the terms of this Subsection, all other terms of the contract shall continue in effect. (d) Purchaser shall not have the option to reduce its guaranteed purchase obligation under this Subsection if the City's failure to supply Purchaser's guaranteed purchase was caused by Acts of God,malevolent acts, contamination of the water supply, or events beyond the City's control if the consequences of any such circumstance or event could not have been avoided through the exercise of the standards of care common and usual in the municipal water supply industry. (e) The ten year period for judging this obligation shall restart at each renewal of this contract. (See Section 3.F.) G. Excess Demands 1. Reduction in Supply Should Purchaser place demands on the system in excess of that agreed to between City and Purchaser or not in compliance with the Operating Standards adopted pursuant to Section 4, VVN4AB, in a manner that jeopardizes the reliability and safety of the Portland water system or compromises the City's ability to meet its obligations to other customers, the Administrator may take such steps as are necessary or advisable to protect the system. Such actions may include, but are not limited to reducing the supply of water flowing to the Purchaser. If the water system � raa Regional Water Sales Agreement October 3, 2005 Page 17 SECTION 5—(Continued) infrastructure does not allow the Administrator to make such supply reductions, the Administrator may construct control devices as may be needed to suitably control Purchaser's demands. The cost of such improvements shall be fully recovered through a surcharge billed to Purchaser and added in equal installments to the Purchaser's monthly invoices during the four months following completion of construction. 2. Calculation of Excess Demands For purposes of Section 5.G, the Administrator shall determine whether Purchaser has imposed excess demands on the system using any information available to the Administrator that he or she determines can be used to assist in making the determination. The Administrator's determination shall be subject to review and comment by the WMAB. H. Increased System Capacity To Meet Increased Guaranteed Purchase Quantities 1. If Purchaser requests an increase in its guaranteed purchase quantity pursuant to Section 5.C.2 that, in the judgment of the Administrator,cannot prudently be granted because it exceeds the capacity of the system to deliver water to Purchaser, the Purchaser may request that the City undertake a study to determine what, if any, enhancements or alterations to the system,would produce sufficient system capacity to meet the increased guaranteed purchase quantity. 2. Upon Purchaser's written agreement to fund such a study of system enhancements or alterations, the City shall undertake the study. Provided that the City's obligation shall be contingent on the negotiation of a mutually satisfactory intergovernmental agreement between the City and Purchaser establishing the nature, timing, and funding of the study. 3. Upon completion of any system study provided for in this subsection, the Purchaser funding the study may request the City to undertake system enhancements or alterations sufficient to meet the increased Purchaser's proposed increased guaranteed purchase quantity. 4. Upon request for system enhancements or alterations,the City may agree to undertake the enhancements or alterations requested,under such terms and conditions as the City and Purchaser(or others) in writing mutually agree. The parties may utilize joint funding agreements, as provided for under Section 16 of this Agreement, or such other arrangements as are determined to be mutually beneficial at the time. Draft Regional Water Sales Agreement October 3, 2005 Page 18 SECTION 6-INTERRUPTIBLE WATER A. In General Purchaser may purchase water over and above its guaranteed purchase quantities under the terms and conditions set forth herein. Such water shall be termed interruptible water. Except as provided herein, the City is not obligated to sell interruptible water to Purchaser. Further, City may cease providing interruptible water at any time under procedures of Section 6.17 below, even after the Administrator has accepted an offer to purchase interruptible water under procedures of Sections 6.B, 6.0 and 6.1) below. B. Winter Interruptible Water From October 1 through May 31, Purchaser may offer to purchase winter interruptible water on one day's verbal or written notice to the City. The City may provide interruptible water to Purchaser if the Administrator determines it is prudent to do so and if the Administrator accepts the Purchaser's offer either verbally or in writing. C. Summer Interruptible Water 1. From June 1 through September 30, Purchaser may request to purchase summer interruptible water using the procedures established in this Section 6.C. 2. No later than March 15 of each year,Purchaser may submit to the City, in writing, its offer to purchase summer interruptible water supplies. The offer must identify the quantities of water to be purchased,by month, for the next June through September period. 3. No later than April 15, City of each year shall respond in writing to Purchaser's request for interruptible water,based on the Administrator's prudent estimates of system capacity and operational requirements. If the Administrator accepts Purchaser's offer without changes, then the Purchaser is obligated to purchase and the City is obligated to sell the designated quantity of summer interruptible water under the terms of this contract. 4. If the Administrator determines that it would not be prudent to agree to meet all timely requests for summer interruptible water from all Purchasers, he or she shall offer the total quantity of interruptible water he or she deems to be prudent to all requesting Purchasers as follows:each Purchaser shall be offered a quantity of interruptible water proportional to its guaranteed purchase quantity in comparison to the total of the guaranteed purchase quantities of all requesting Purchasers. D r a"a" Regional Water Sales Agreement October 3, 2005 Page 19 SECTION 6—(Continued) 5. If the Administrator offers to supply Purchaser less than the full amount of summer interruptible water requested by the Purchaser, Purchaser must,within 15 days of the Administrator's offer, accept or reject the offer. If Purchaser accepts the offer, then Purchaser is obligated to purchase and the City is obligated to sell that quantity of summer interruptible water under the terms of this contract. D. Additional Sales of Interruptible Water Notwithstanding the other provisions of Section 6, each contract year after the Administrator has confirmed sales of summer interruptible water under Subsection 6.C. above, the Purchaser may buy and the City, acting through the Administrator, may sell additional interruptible water at that year's summer season interruptible rate and on such other terms as are mutually agreeable. E. Confirmed Summer Interruptible Water Payment 1. Purchaser's Obligation to Make Payment Once Purchaser and the City have agreed on a quantity of interruptible water under the terms of this section, and subject to the billing provisions of Section 15 of this Contract,except as provided in Section 6.E. 2 below, the Purchaser shall pay the City for that quantity of water agreed to at the price established by Section 8 of this Contract. The amount due shall be termed the confirmed interruptible water payment. 2. Reduction in Confirmed Interruptible Water Payment If the City fails to deliver any of the confirmed quantity of interruptible water,the Purchaser shall be excused from paying a portion of its confirmed interruptible water payment equal to the quantity of water not delivered times the price of interruptible water. F. Reduction or Elimination of Interruptible Water In the event of an emergency or other condition under which continued supply of interruptible water jeopardizes the reliability of the water system, the City may cease providing interruptible water at any time on one day's written or verbal notice to the Purchaser. Under all other circumstances, the City may cease providing interruptible water at any time on 21 days written or verbal notice to the Purchaser. Draft v Regional Water Sales Agreement October 3,2005 Page 20 SECTION 7—RATES AND CHARGES FOR GUARANTEED PURCHASE WATER QUANTITY A. Rate Making In General 1. The rate structure for Purchaser's guaranteed purchase quantity of water shall consist of(a)a fixed monthly charge calculated using the cost of service of typical non-volumetric services such as,but not limited to, meter reading,billing, meter purchases,meter maintenance, and relevant overhead and(b) a volume charge calculated using volumetric rates established as provided herein times the Purchaser's guaranteed purchase quantity. 2. The City shall annually establish rates and charges for the Purchaser's fixed monthly charge and guaranteed purchase quantities that do not exceed charges calculated using the principles and standards of this Section 7. (a) Determination of revenue requirements using the utility basis of revenue requirements and cost of service principles as described in Manual of Water Supply Practices—M1. Principles of Water Rates, Fees and Charges. Fifth Edition. Denver: 2000 published by the American Water Works Association(hereafter"AWWA Manual M V) or in such updates as may occur from time to time,except for such deviations from AWWA Manual M 1 as are described or permitted by this contract. A cost of service computer model will be used to calculate the revenue requirements, cost allocations, and resulting rates. (b) The components used to determine the revenue requirements under the utility basis shall be: 1. Operation and Maintenance(hereafter"O &M") costs; 2. Return on Investment;and 3. Depreciation. (c) Purchaser shall not be charged for the costs incurred by the City that are incurred for the sole purpose of serving the City's retail customers. For the costs incurred serving both the Purchaser and the City's retail customers, Purchaser shall be charged an amount that equals its proportionate share of the cost,using standard cost-of-service principles, as generally described in AWWA Manual M1,unless stated otherwise herein. (d) The parties understand that the City may enter into similar wholesale water sale agreements with other water utilities. If the City does so, the charges to Purchaser shall continue to be based on the Purchaser's U ran Regional Water Sales Agreement October 3, 2005 Page 21 SECTION 7– (Continued) proportionate share of the cost to serve the Purchaser,based on the Purchaser's proportionate share of total demand on the system, including demand of other purchasers under similar wholesale water agreements and the City's retail customers. (e) The City shall treat surcharges collected under Section 5.13.2 of this agreement as an offset to the otherwise estimated annual revenue requirements for all wholesale and retail customers of the system. B. Cost Allocations—In General 1. Costs shall be allocated to the Purchaser in accordance with generally accepted ratemaking practices and procedures, as described in AWWA Manual M1, as it may be updated from time to time, except to the extent that the procedures specified herein may deviate from the practices and procedures of AWWA Manual M1. In general,unless specified otherwise in the agreement, costs shall be allocated based on the proportionate share of costs of the assets and other revenue requirements, as provided in AWWA Manual Ml. 2. Cost allocation for purposes of this contract shall be based on the"commodity demand"methodology, as defined in AWWA Manual M1,unless otherwise agreed to by Purchaser and the Administrator. C. O&M Cost Allocation 1. Definition For purposes of this agreement O & M expenses include the operations, maintenance, and associated overhead expenses of the City's water supply system as adopted in the City's annual budget process for the year for which the rate will be in effect except that costs for water planning studies that are expensed rather than capitalized shall be included in the O&M expenses at their actual cost rather than budgeted or anticipated costs. When use of actual costs for such studies results in a delay of recovery of costs associated with such studies, Purchaser shall also be charged interest on the funds expended from the time the costs were incurred by the City until the start of the following contract year. The interest rate shall be equivalent to the rate earned on the City's internal investment pool managed by the City Treasurer. 2. Allocations The City shall allocate O&M costs to cost functions applied in accepted cost of service rate- making contemplated by AWWA M-1, such as commodity,peak season demand(referred to as the seasonal peaking factor under this contract), peak three days system-wide demand(referred to as the daily peaking factor under this contract), customer, and equivalent meter service based Draft r Regional Water Sales Agreement October 3,2005 ' Page 22 SECTION 7—(Continued) on the City's best professional engineering judgment. The City shall then allocate O&M costs allocated to these respective cost functions to the Purchaser based on the Purchaser's proportionate share of retail demand and non-retail guaranteed purchase quantities for annual average demand,peak season demand,total annual non-retail bills,meters, and size of meters respectively. Allocations may also be based on peak day or peak three day demands,but for those purposes the City may include Purchaser's total demands on the Portland water system, including guaranteed purchase quantities and actual purchases of interruptible water. Definitions of allocation factors are found in Exhibit 2,which is hereby incorporated and made part of this Agreement. 3. Special Allocation to Avoid Cost Cap In any year that the Administrator determines that standard allocation of the O &M expenses contained in the City Budget will cause specified O&M expenses to exceed the O &M cost cap as defined in Section 7.L, the Administrator may alter the O &M component of Purchaser's rates in a manner that avoids that result. D. Capital Cost Allocations I. Capital costs are those expenditures that result in the acquisition of or addition of fixed assets that become part of the rate base. 2. Except as specifically provided herein, capital costs shall be allocated based on Purchaser's guaranteed purchase quantity in a five-step process using best professional judgment. First, system assets included in the rate base shall be allocated to functional asset groups. Second,the resulting system assets by functional asset group shall be allocated to water service characteristics. Third, the assets allocated to each water service characteristic shall be allocated to customer classes based on their respective percentages of the water demands related to each water service characteristic. The City shall classify customer classes as retail and wholesale and shall treat each wholesale customer that serve_s more than 200 service connections as an individual customer class. Fourth, the asset costs allocated to each customer shall be multiplied by the rate of return to determine the return on investment for each customer class. Fifth, the working capital component of the rate base shall be allocated to customer classes in proportion to the allocation of all other rate base assets. 3. In performing these allocations, items that solely serve the City's retail customers shall be allocated to retail customers. Items that solely serve the Purchaser and other wholesale customers shall be allocated to wholesale customers. Items that serve the City and any wholesale customers shall be allocated proportionately to the City,based upon its retail water demand, and the respective wholesale customers,based upon each customer's guaranteed purchase amount. Draft _ Regional Water Sales Agreement October 3, 2005 Page 23 SECTION 7—(Continued) 4. For the purposes of these allocations, functional asset groups are collections of common water system assets or facilities that are used to provide water service to customers. The City's functional asset group designations shall be specific enough that customer classes are not allocated costs to support assets or facilities that do not provide service or benefit to them. Definitions of functional asset groups and their allocations to customers shall be consistent with the findings contained in a document entitled Functional Asset Groups unless circumstances change,in which case the allocations will also be changed to reflect the use or benefit of assets and facilities under normal operating conditions. Any changes in definitions of functional asset groups shall be presented to the WMAB for review and comment. The Administrator shall provide a written explanation if WMAB recommendations are not implemented and consult with WMAB regarding his determination. 5. For the purposes of these allocations,water service characteristics may include such things as commodity,peak season demand,peak three days demand, customer, equivalent meter, and fire. For purposes of peak day and peak three day analysis,the City may include Purchaser's total demands on the Portland water system, including guaranteed purchase quantities and Purchaser's actual purchases of interruptible water. Definitions of these water service characteristics are provided in Exhibit 2. 6. The allocations of assets to functional asset groups and subsequently to water service characteristics may vary from time to time as changes to the system and its operation may occur. The revised allocations,if any such revisions occur, shall be used in the annual rate setting process,and if no revisions occur, then the previously adopted allocations shall be used for annual rate setting. The entire set of these allocations,including the initial allocations and any subsequent changes, shall be reviewed in the Cost Allocation Audits, as described in Section 7.E. below. E. Cost Allocation Audits 1. In Contract Year 5 and every five years thereafter during the term of this contract and any extensions, an independent third party shall be retained to conduct an audit of all steps of the then-currently employed process to allocate assets and O &M to customer classes. The expert shall be instructed, as the result of its audit, to recommend any changes necessary to ensure the continued accuracy of the cost allocations consistent with the terms of this contract and the AWWA M-1 manual. The expert shall be selected by a majority vote of the WMAB and the auditor expense shall be included in O &M expenses and allocated accordingly. The expert's report shall be completed by December 1 of the contract year in which the expert is hired. ©raft Regional Water Sales Agreement October 3, 2005 Page 24 SECTION 7—(Continued) 2. Expert recommendations for cost allocations shall be reviewed by the WMAB and shall be implemented by the Administrator in the contract year following receipt of the recommendations unless: (1) a majority of the WMAB and the Administrator concur that the recommendations should not be implemented or(2) the Administrator determines that it would be imprudent to adopt any or all of the recommendations. In case the Administrator reaches a determination of imprudence,he or she shall explain his or her determination in writing to the WMAB and consult with WMAB concerning his or her determination. F. Depreciation of Capital Assets 1. Depreciation expense shall be the annual depreciation expense on assets that are used, in total or in part,to serve the Purchaser, either directly or indirectly. Depreciation shall be calculated on the original cost of the assets and on a straight-line basis,using City accounting estimates of the useful lives of the assets in accordance with Generally Accepted Accounting Principles, which may differ from the actual useful lives of those assets. 2. The parties understand and agree that the assets being depreciated for these purposes may include backup facilities and other redundant facilities that may be idle for long periods of time,but which the City has determined still provide a service function to the system and the Purchaser by virtue of their backup and redundancy functions. 3. Depreciation shall not be charged for assets that are no longer able to provide service to the Purchaser or whose accounting life has expired,unless otherwise agreed to by the parties. G. Return On Investment Return on investment shall equal the rate of return multiplied by the value of system assets (the rate base)that serve the Purchaser. 1. Rate of Return The rate of return for each year shall be the percentage rate of the Bond Buyer Revenue Bond Index as published by the newspaper The Bond Buyer on the previous December 1 or the City Water Bureau's embedded cost of debt on the previous December 1,whichever is higher, plus one-half of one percentage point(0.5%). If the Bond Buyer Revenue Bond Index ceases to be available,the Administrator shall notify the Purchaser and consult with WMAB regarding identification of a substitute index. The substitute index shall be selected by the Administrator, in consultation with the WMAB, and shall be widely available to dealers in municipal securities, and measure the interest rate of high quality, long-term, fixed rate municipal securities. If Draft Regional Water Sales Agreement October 3, 2005 Page 25 SECTION 7—(Continued) available, an index measuring the interest rates on high quality, long-term, fixed rate municipal revenue bonds will be selected by the Administrator over a comparable general obligation bond index. Upon identification of a substitute index,the rate of return on this contract shall be the percentage rate of a substitute index plus one-half on one percentage point(0.5%). 2. Rate Base The rate base shall equal: (a) Working capital, consisting of an amount equal to an average of 45 days of operation and maintenance costs for the water system supply, transmission, storage and pumping facilities that are incurred to provide service directly or indirectly to non-retail customers. (b) The remaining un-depreciated value, i.e.,book value, of all assets that provide service,directly or indirectly, in whole or in part, to the Purchaser, including water system supply,transmission, storage, and pumping facilities, equipment, and appurtenances and any other water system assets that provide service directly or indirectly to the general water supply and transmission portion of the water system, thereby providing water supply to non-retail water customers of the City. These assets may include backup facilities and other redundant facilities that may be idle for long periods of time,but which the City has determined still provide a service to the system and Purchaser. For such assets providing water supply benefit to both retail and non-retail customers,the assets included in the rate base shall be allocated proportionately as previously described herein. (c) The assets initially included in the Rate Base, as of the date of this agreement, are listed in Exhibit 3. Each year, the City shall produce a new Rate Base asset list and provide it to Purchaser during the rate-making process as provided in Section 4, WMAB. (d) After the first year of this contract, the assets included in the Rate Base assets shall be updated each year to include all water system capital assets listed and valued in Water Bureau documents used to produce the City's most recent Comprehensive Annual Financial Report and its supporting documentation,which may include capitalized interest on some or all of the relevant assets. 3. Rate Base Exclusions The Rate Base shall exclude the following items: LJ r H n Regional Water Sales Agreement October 3, 2005 Page 26 SECTION 7—(Continued) (a) Construction work in progress. (b) Assets that are fully depreciated, even though such assets may be still in service. H. Prepayment of Capital Cost Share The Purchaser may elect to pay its share of capital cost allocations for new water system assets in a lump sum cash payment or other mutually agreed upon payment terms in lieu of paying annualized rates for depreciation and rate of return for the new facilities. If Purchaser makes such cash payment, the portion of the asset cost being prepaid by the Purchaser shall be deducted from the value of the specified assets in the rate base used to calculate the Purchaser's rates. By making such cash payment, Purchaser does not obtain an ownership interest in the specified assets unless Purchaser and the City have entered into a supplemental joint ownership agreement as specified in Section 16,Joint Funding of Capital Improvements. I. Operations And Maintenance Cost Control To help ensure stability and predictability of wholesale rates and to permit recovery of costs of service, increases in specified O & M expenses shall be subject to limitations described below. These limits do not apply to capital costs, recovery on investment, or O & M expenses that are not specified O & M expenses. 1. O & M Cost Cap The O &M Cost cap is the prior year's specified O & M expense allocated to Purchaser and all other wholesale purchasers under similar water sale agreements increased by the sum of two percentage points (2%)plus the annual rate of change of the selected CPI. (a) Selected CPI shall mean the CPI-Urban, West Urban (ref CUUR0400SAO) for January 1 of the year new rates are calculated, e.g., CPI of January 1, 2006, will be used to assess O & M increases in rates for July 1, 2006. If this referenced index ceases to be available, the Administrator shall notify the Purchaser and consult with WMAB regarding identification of a substitute index. (b) Specified O & M expenses are those City O & M expenses defined in Subsection H.3 below, Specified O & M Expenses and Exclusions. 2. Cost Cap Limitation The City may not more than once in any consecutive five year period include in the calculation of Purchaser's rates, specified O & M expenses that exceed the O & M cost cap. If, however, the Draft Regional Water Sales Agreement October 3, 2005 Page 27 SECTION 7—(Continued) City's actual O &M spending(including,but not limited to specified O &M expenses) is 90% or less than the City's budgeted O&M expenses for each of the prior four years, the increase in the fifth year shall be limited to the formula of 7.1.1 above. A new five year period shall commence at each renewal of this contract. 3. Specified O & M Expenses And Exclusions Specified O &M expenses shall be those O & M expenses, including associated overhead, incurred by the City's water system to serve directly or indirectly, in whole or in part, the Purchaser and other purchasers under similar wholesale water agreements and that are properly allocated to Purchaser and all other purchasers under similar wholesale water agreements under the terms of their contracts,except for expenses or classes of expenses excluded by this Section 7.I. The Administrator shall make a determination of specified O &M expenses and exclusions in consultation with the WMAB each year during the ratemaking processes. 4. Specified O &M expenses shall not include and shall therefore,exclude,the following expenses or classes of expenses: (a) Pass-Through Costs. These are costs that the parties agree are generally beyond the reasonable control of the City water system to influence. For purposes of this contract,pass through costs are those listed here. i. Utilities, including electricity, water, sewer, natural gas, garbage and telephone. ii. Equipment rental, such as hoists, excavators,tools and other miscellaneous equipment not included in the City's fleet. iii. Operating supplies, such as treatment chemicals, lubricants and consumables related to system operation and maintenance. iv. Communication Services, including but not limited to telephone, radio, microwave and fiber-optic transmission of data,voice,video and related information. V. Insurance or the expenses of self-insurance, other than workers compensation, including but not limited to costs for general liability,property, casualty and fleet coverage. vi. Additional costs identified by the Administrator from time to time that are beyond the control of the City to influence in a manner similar to the specific costs listed in this subsection. Provided that the City may not exempt any such additional costs from the cost Draft Regional Water Sales Agreement October 3, 2005 Page 28 SECTION 7—(Continued) cap without first presenting proposed additions to the WMAB for review and comment. (b) The costs of PERS Pension Obligation Bonds (POBs)paid by the City of Portland Water Bureau. (c) Costs In Response to Unexpected Events or Circumstances i. These are costs that arise unexpectedly or as the result of Acts of God, malevolent acts, contamination of the water supply, or events beyond the City's control, the consequences of which events or circumstances could not have been avoided through the exercise of the standards of care common and usual in the municipal water supply industry. ii. The City and Purchaser shall, within 120 days of the onset of such unexpected costs commence good faith negotiations to determine what, if any, of the costs of responding to the event or circumstances, which are otherwise excluded, should be included within the Specified O & M expense. (d) Costs Associated With Planning Studies These are costs to pay for City planning studies related to the Water Supply System including those studies in the City's Water Bureau Capital Improvement Program that are expensed rather than capitalized. (e) Costs Associated With New Facilities Or Programs i. These are first time or initial increases to O & M expenses (which may affect more than one fiscal year) associated with operation and maintenance of new facilities or the functioning of new programs. New programs may include such things as responses to new state or federal mandates or regulations, or activities to improve the efficiency, reliability, security or quality of the water supply. The WMAB will be consulted regarding initial O & M costs of new facilities and new programs. The parties understand and agree that O & M costs may increase in any given year in order to implement new programs or to operate or maintain new facilities without exceeding the cost cap. Draft Regional Water Sales Agreement October 3, 2005 Page 29 SECTION 7—(Continued) ii. Once O & M expenses for new programs or facilities are established and have become a routine part of the City's water system budget,however, those of the expenses that are not otherwise excluded from"specified O &M costs,"(pass through costs, PERS expenses listed in Subsection 2 above, costs in response to unexpected events or circumstances, or costs associated with planning studies) shall be included in future calculations of the increase in specified O &M expenses. iii. As O &M expenses for new facilities or new programs arise, the Administrator shall consult with WMAB concerning the expenses and then determine which of those expenses should be excluded from cost cap calculations as "new O & M" and which expenses should be included within the cost cap on what schedule. The Administrator shall advise Purchaser and WMAB of his determination. (f) Costs Incurred on Behalf of the Purchaser or WMAB These are costs to be paid by the City by mutual agreement of the City and Purchaser or the City and the WMAB. Draft Regional Water Sales Agreement October 3, 2005 Page 30 SECTION 8 - RATES AND CHARGES FOR INTERRUPTIBLE WATER A. Winter Interruptible Water The price of winter interruptible water shall be twenty percent(20%) of the Purchaser's rate for that year for its guaranteed purchase water quantity,plus any extra delivery costs (such as extra pumping) incurred by the City to deliver the water that are not included within the rate for the guaranteed purchase quantity. B. Summer Interruptible Water The price of summer interruptible water shall be forty-five percent(45%) of the Purchaser's rate for that year for its guaranteed purchase water quantity, plus any extra delivery costs (such as extra pumping) incurred by the City to deliver the water that are not included within the rate for the guaranteed purchase quantity. Draft Regional Water Sales Agreement October 3, 2005 Page 31 SECTION 9-WATER SYSTEM PLANNING AND COOPERATION To facilitate regional water planning and resource development, Purchaser and the City agree as follows: A. Purchaser Projected Water Usama 1. Each five years, at a minimum, starting on July 1 of Contract Year 5, Purchaser shall provide to the City estimates of the Purchaser's water demand to be purchased from the City by year, annual seasonal peaking factor, and daily peaking factor for a period of ten years including any anticipated increases in guaranteed purchase quantity. 2. In addition, in any other Contract Year in which unforeseen developments have significantly altered Purchaser's five year estimates, Purchaser shall provide the City with its revised estimates of it preferred use of Portland water for a ten year period. 3. The estimates provided for in this provision are for planning purposes only and do not commit the City or the Purchaser to either buy or supply any particular quantities of water. 4. The City shall provide WMAB a summary of the City's projected demands for all wholesale and retail demands by no later than May 1 of each year. B. City Evaluation of Capacity of Portland Water System 1. Whenever it receives revised demand and peaking factor estimates from the Purchaser,the City shall provide the Purchaser with estimates of the capacity of the Portland water system to meet all projected system loads over the ten year planning horizon. 2. If the City determines that the Portland water system cannot meet the projected demands Purchaser and others have proposed to place on it over the ten year planning horizon,the City and Purchaser(together with other Purchasers who may wish to join the discussions) may initiate negotiations to determine if and how the Portland water system could meet the projected loads, either through reduction in demand or development of additional water system capacity. 3. In no case, however, does this contract obligate the City to sell, or Purchaser to pay for,water beyond the guaranteed purchase quantities established herein. DK8� Regional Water Sales Agreement October 3, 2005 Page 32 SECTION 10-RESERVATION OF SYSTEM CAPACITY At any time during the term of this contract, Purchaser and the City may enter a separate reserve capacity agreement. A reserve capacity agreement would enable Purchaser to take a specified amount of additional water from the system at a specified future time. At a time to be specified in the reserve capacity agreement, the quantity of water reserved will be added to the Purchaser's guaranteed purchase quantity under this contract and will be used to calculate the Purchaser's guaranteed purchase payment thereafter. Unless specified otherwise in the reserve capacity agreement, costs for reserve capacity shall be charged at a rate equivalent to the rate of return on the proportionate share of the capital assets that would be used to make such capacity available, and shall be billed to the Purchaser in equal monthly installments. Purchaser will possess no right to use the additional capacity identified in its reserve agreement until the specified future time. The City may use any or all of the reserve capacity prior to the specified future time. Unless specified otherwise in the reserve capacity agreement, Purchaser shall provide the City written notice at least 90 days prior to the specified future time identifying if the Purchaser will (a) exercise its option to use the additional system capacity after the specified future time, (b) allow the reserve capacity agreement to expire without further action, or(c) request a new or amended reserve capacity agreement with a new specified future time. If a request for reserve capacity can only be met by adding new assets to the system, the City will not reserve capacity for the Purchaser until the parties have reached an agreement on the method for financing and the schedule for adding the assets to the system. Dran' Regional Water Sales Agreement October 3, 2005 Page 33 SECTION 11 - CONNECTIONS AND METERING A. Meter Ownership and Responsibility Upon execution of this agreement, all existing water meters used to measure the water supplied by the City to the Purchaser, and associated facilities such as vaults, shall become the property of the City. In addition, when a new meter or meters are required, the City shall install on Purchaser's main, at a point near the connection with the City's main, a water meter or meters that will at all times measure the water supplied by City to Purchaser. City shall maintain the meter or meters in proper working condition, including periodic testing, calibration, maintenance and replacement of the meter(s) based on generally accepted industry standards. City agrees to notify Purchaser prior to repairing the meter. B. Meter Costs The cost of replacing the meter or meters and their operations and maintenance shall be included by the City in calculating Purchaser's rates. C. Meter Access The Purchaser shall be allowed reasonable access to meters and facilities for purposes of installing and maintaining telemetry equipment or other equipment related to the metering function. Draft Regional Water Sales Agreement October 3, 2005 Page 34 SECTION 12 - PURCHASER-SUPPLIED WATER TO CITY RESIDENTS A. Water Supplies To City Residents To the extent permitted by law, Purchaser agrees, when requested by the Administrator, to provide water supply to City residents in areas adjacent to Purchaser's water mains subject to limitations of the available capacity of Purchaser's water distribution system. Water so delivered shall be metered by the City at its residents' individual services. B. Master Metering The City and Purchaser shall review each situation where such arrangements exist and attempt to reach agreement on the need and feasibility of installing a master meter or master meters to register the volume of water delivered to City residents. The Purchaser agrees the water delivered to City residents will be from the same source or sources as water that Purchaser delivers to its customers and shall meet all applicable drinking water regulatory requirements. The Purchaser may request the City install a master meter if the local distribution system is shown to have demonstrated leakage or unaccounted water losses in excess of 10% of the average day demand of the City residents served by system or by mutual agreement of the parties. Improvements to the local distribution system shall be made by mutual agreement of the parties. C. Charges For Water 1. The Purchaser may charge the City up to one hundred twenty-five percent(125%)of the guaranteed purchase wholesale water rate the City charges the Purchaser. The City will credit this amount to Purchaser. Such water will not be included in the calculation of total water purchases made by the Purchaser from the City. 2.Notwithstanding the foregoing, the Purchaser may conduct a cost-of-service study to determine the cost of serving City residents. If the cost-of-service exceeds the 125%of the wholesale water rate, Purchaser may adjust the charge to the City accordingly,but not above the actual cost of service. D ra'a Regional Water Sales Agreement October 3, 2005 Page 35 SECTION 13 -WATER RESOURCE CONSERVATION A. General 1. The obligations in this Section will apply to both the City and Purchaser. Both parties to this agreement intend that water to which the City holds water rights shall be used beneficially, efficiently, and without waste. 2. The parties encourage the development of joint conservation programs where such partnerships are of mutual benefit and produce increased efficiencies in program costs or water savings. Provided, however, that funding for joint conservation programs will be established by separate agreement between the interested parties. B. Water Managers Advisory Board The WMAB will foster and promote efficient use of water and best management practices as outlined further in this Section. It will also be the role of the WMAB to implement the provisions of this Section. In doing so, WMAB may assign tasks to a WMAB committee or to staff of participating purchasers' subject in all cases to WMAB review and approval. C. Water Conservation Obligations and Submission of a Water Conservation Plan 1. The Purchaser must operate water systems that are fully metered at the individual customer level or have an implementation program to complete installation of such meters by the end of the fifth contract year. 2. Unless Purchaser serves a population of 1,000 or less, Purchaser shall, on or before the end of the second contract year, and every five years thereafter, submit a Water Conservation Plan for its water system to the WMAB. 3. If Purchaser is a participant in the ORS 190 Agreement for the Regional Water Providers Consortium, it may submit the regional conservation programs as part of its Conservation Plan,but the Consortium programs, by themselves, do not constitute a Conservation Plan for the individual Purchaser. 4. Each Conservation Plan submitted must include programs specified in State of Oregon Water Resource Department Water Management and Conservation Plan Rules, as they are from time to time amended. D. Review of Conservation Plan 1. The WMAB may, if it deems it advisable, adopt guidelines for the submission of water Conservation Plans. DD r a"a" Regional Water Sales Agreement October 3, 2005 Page 36 SECTION 13 —(Continued) 2. Upon receipt of a Purchaser Conservation Plan, the WMAB will review the plan pursuant to the standards of this Section. In reviewing a Conservation Plan, the WMAB shall consider, at a minimum, the following factors: (a) Whether the program contains the following mandatory programs i. Leak detection and repair programs, if required by State Rule, that meet Oregon Administrative Rule (OAR) 690-86-150(4)(e) and, if applicable, Subsection(6)(a). ii. Education and outreach programs required under OAR 690-86- 150(4)(f). iii. Rate structures based on the quantity of water metered at the service connection as required by OAR 690-86-150(4)(d). iv. A meter testing and maintenance program as required by OAR 690-86-150(4)(c). V. An annual water audit as required by OAR 690-86-150(4)(a). (b) Whether the Plan includes the following discretionary programs or a showing that a particular discretionary program is neither feasible nor appropriate to the Purchaser's service area. i. Technical and financial assistance programs to encourage and aid residential, commercial and industrial customers. ii. Supplier financed retrofitting or replacement of existing inefficient water using fixtures, including distribution of residential conservation kits and rebates for customer investments in water conservation. iii. Adoption of rate structures, billing schedules, and other associated programs that support and encourage water conservation. iv. Water reuse, recycling, and non-potable water opportunities. V. Other measures identified by the water supplier that would improve water use efficiency. vi. Operation measures to reduce peak event impacts on the Portland system. Draft Regional Water Sales Agreement October 3, 2005 Page 37 SECTION 13 —(Continued) 3. Within 180 days of receipt of the Purchaser's Conservation Plan, the WMAB shall approve or disapprove the Plan and advise the Purchaser in writing of its decision. (a) A Water Management and Conservation Plan approved by and updated as required by the State of Oregon pursuant to the Department of Water Resources Water Management and Conservation Plan Rules will in all cases be deemed sufficient to meet the requirements for a Conservation Plan under this agreement. (b) If the WMAB disapproves the Purchaser's Water Conservation Plan, it shall notify the Purchaser and provide the Purchaser with comments on the Plan's deficiencies. Within 180 days thereafter, Purchaser shall submit a revised Plan for review by the WMAB. E. Periodic Conservation Plan Reporting 1. Purchaser shall report annually to the WMAB regarding the implementation of its Conservation Plan. 2. Each five years after approval of its Conservation Plan, Purchaser shall report to the WMAB the estimated actual water savings from its Conservation Plan. DD raft Regional Water Sales Agreement October 3, 2005 Page 38 SECTION 14—WATER CURTAILMENT AND PROTECTION OF THE WATER SYSTEM A. During times when water supplies are not adequate to meet the aggregate of all demands placed upon the Portland water system, the City and participating Purchasers need to have a plan in place to reduce or curtail demands so that fire, life, safety and other high priority needs are met. It is to the benefit of all of the users of the Portland water system that plans for curtailment be agreed upon in advance and that plans for curtailments be coordinated among water providers. B. By signing this agreement, Purchaser and City acknowledge that unforeseen or unavoidable circumstances may limit the amount of water available to City for sale and distribution, whether temporarily or permanently. Should the available supply fall below the aggregate of all demands placed on the City system, or should it be reasonably predicted that supply will fall below demands before other supplies are available,the Administrator of the Bureau of Water Works may declare that a water shortage is in effect. C. WMAB shall develop and recommend to the Administrator a Curtailment Plan. The Administrator shall adopt the recommended Curtailment Plan with such alterations as he or she deems necessary or advisable. The Curtailment Plan shall be designed to accomplish reductions in demand necessary, in the event of a water shortage, to protect the system's capacity to supply water for fire, life, safety, and other high priority needs. The curtailment plan shall establish procedures, as well,whereby two or more participating Purchasers may coordinate their demand reductions to accomplish,jointly, total necessary system demand reductions imposed on them, even if one or more Purchasers individually do not meet the reductions required of its separate system. D. Whenever the Administrator has declared a water shortage, any adopted Curtailment Plan shall be in effect. If there is no adopted Curtailment plan, the Administrator shall require implementation of measures he or she deems necessary or advisable to reduce all demands, retail and wholesale, proportionally based on annual retail usage for the previous contract year and on annual guaranteed purchase quantities (excluding interruptible water) furnished under this agreement for the previous contract year. E. If the Administrator declares a water shortage, Purchaser shall implement measures sufficient to meet the requirements of the Curtailment Plan(or other requirements of the Administrator for proportional reduction in demand if no Curtailment Plan has been adopted). Purchaser may do this through implementation of measures contained in the Curtailment Plan, similarly effective measures found in Purchaser's own plan adopted under OAR Division 86 or required as part of a State declared drought under ORS 536.720-740, or through agreements with other Purchasers of water under similar wholesale water agreements that result,jointly among the agreeing Purchasers, in a total reduction in system demand equivalent to that required in the Curtailment Plan or, if there is no Plan,the Administrator's order for proportional reductions. Draft Regional Water Sales Agreement October 3, 2005 Page 39 SECTION 14—(Continued) F. The City shall monitor compliance with Curtailment Plan on a schedule established in the Plan or at least every two weeks throughout the duration of the declared water shortage. G. If, after the Administrator declares a water shortage, Purchaser is unable individually, or in cooperation with other purchasers as contemplated by Subsection E. above, to achieve the required reductions in the use of water supplied under this contract, the Administrator may act to reduce the amount of water supplied to the purchaser so that it does not exceed that amount specified under curtailment measures. Dran' Regional Water Sales Agreement April 6,2005 Page 40 SECTION 15—BILLING AND PAYMENT A. Guaranteed Purchase Payment 1. Monthly Billing The City shall bill Purchaser its fixed monthly service charge plus a portion of its annual guaranteed purchase volumetric payment obligation each month. The monthly volumetric charge shall be the product of the monthly usage estimates, as determined in Sections 15.A.2(a) or(b)below,times that year's rate per unit of water. 2. Monthly Usage Estimates (a)No later than March 15 of each year, Purchaser shall submit to the City a projection of its demands for the next year,by month,which demands must total to the Purchaser's guaranteed purchase quantity and must be consistent with the Purchaser's seasonal peaking factor. It is recognized these demand projections will be estimates and actual demands may vary from projected demands but such departures from estimates do not relieve the Purchaser from obligations such as guaranteed purchase quantity and adherence to seasonal peaking factor,as specified elsewhere in this agreement. (b) If the Purchaser has not by March 15 of each year submitted its projected demands for the next year or if a timely submission is inconsistent with the Purchaser's then current contractual guaranteed purchase quantity and seasonal peaking factor, the Administrator shall consult with Purchaser to obtain new or revised projected demands. If thereafter the Purchaser does not submit projected demands that are consistent with its then current contractual guaranteed purchase quantity and seasonal peaking factors, the Administrator may use the previous year's demand projections or other projections that are consistent with Purchaser's contractual guaranteed purchase quantity and seasonal peaking factors,to make rates and to operate the system. B. Summer Interruptible Water If the Purchaser and City have agreed to the sale of summer interruptible water,the City shall bill the Purchaser for the total confirmed interruptible water payment in four equal amounts for the months of June,July,August, and September. Provided,that if the City fails to deliver interruptible water requested by the Purchaser,the Purchaser shall be excused from paying the portion of its confirmed interruptible water payment equal to the quantity of water not delivered times the price of interruptible water. C. Billing for Water Purchases Above Guaranteed Purchase Amounts and Above Confirmed Peak Season Interruptible Water Quantities Draft Regional Water Sales Agreement October 3, 2005 Page 41 SECTION 15—(Continued) Within 62 days of the end of each contract year(that is,by September 1),the City shall review the Purchaser's meter records for the previous contract year under this agreement. If the Purchaser has taken water above either its guaranteed purchase amount or its confirmed peak season interruptible water quantities, the City shall bill Purchaser for those water deliveries no later than September 30. Charges shall be calculated as follows: If the Purchaser has taken at least its annual guaranteed purchase quantity over the full contract year, then water supplied to Purchaser from October 1 to May 31 in excess of its estimated monthly guaranteed purchase quantity for those same months shall be charged the appropriate rate for winter interruptible water times the quantity of excess water taken. If the Purchaser has taken at least its annual guaranteed purchase quantity over the full contract year, then water supplied to Purchaser from July 1 through September 30 in excess of the total of its estimated monthly guaranteed purchase quantity for those same months and its confirmed summer interruptible water quantities (if any)for those same months shall be charged the appropriate standard rate applicable to its guaranteed purchase quantity times the quantity of excess water taken. D. Payment Schedule Bills are due upon receipt, and subject to a collection fee if not paid on or before the thirtieth day following the billing date. Collection fees shall be established each year in the annual City ordinance establishing rates. E. Charges In Case of Meter Failure Should any meter fail to measure accurately the water passing through said meter,the charge for water used during the time the meter is out of service shall be based on the City's estimates of the volume of water supplied based on usage patterns and statistics for prior periods. F. Disputes In the case of disputes over billings for water, Purchaser shall pay the undisputed amount when due and the disputed amount shall be resolved through Dispute Resolution. The Purchaser shall pay interest at a rate equivalent to the rate earned on the City's internal investment pool managed by the City Treasurer on any disputed amounts found through dispute resolution or litigation to be due the City. Dral Regional Water Sales Agreement October 3, 2005 Page 42 SECTION 16—JOINT FUNDING OF CAPITAL IMPROVEMENTS The City and Purchaser or group of Purchasers may enter into separate agreements for the purpose of mutually funding capital improvements where such improvements are determined to be in their mutual interest. The City and Purchasers or others involved in mutually funding capital improvements may also enter into separate agreements for the conditions and pricing of sale for water supplies derived from such mutually funded improvements. Such separate agreements may include provisions for acquisition of ownership of assets and/or capacity by Purchaser. If provided in the joint funding agreement, Purchaser may include its proportionate ownership share of such assets in its calculation of system develop charges and rates. Draft Regional Water Sales Agreement October 3, 2005 Page 43 SECTION 17—DISPUTE RESOLUTION In case of disputes arising out of this agreement, including disputes regarding the interpretation of any provision of the agreement, subject to the terms of this Section, either party may seek all remedies available at law or in equity. The parties agree, however,prior to commencement of any suit, they shall first engage in dispute resolution as provided in the Section. Step 1. Notice of Dispute Prior to commencement of litigation of a dispute, either party must first provide the other with a written notice describing the dispute and submitting the dispute to resolution under this Section. Such notice shall commence the dispute resolution process. Step 2. Negotiation Each party shall designate a person or persons to negotiate the dispute on its behalf, shall make a good faith effort to exchange information and data related to the dispute, and shall meet to negotiate a dispute resolution. If the dispute is resolved at this step, the parties will memorialize the agreement by a written determination of such resolution, signed by the designated representatives of the parties. Step 3. Mediation If the dispute has not been resolved within 45 days of the date of the notice of dispute, or such longer time as is mutually agreed by the parties, the parties shall submit the matter to mediation. The parties shall attempt in good faith to agree on a mediator. If they cannot agree,they shall request a list of five mediators from an entity or firm providing mediation services. The parties shall attempt in good faith mutually to agree on a mediator from the list provided,but if they cannot agree, each party shall select one name. The two selected shall select a thud person and the dispute shall be heard by a panel of three mediators. Any common costs of mediation, including the cost of mediation, shall be borne equally by the parties. Each party shall bear its own individual costs therefore. Mediation shall not continue more than 105 days past the initial notice of dispute unless mutually agreed by the parties. If the dispute is resolved at this step, a written determination of such resolution shall be signed by the designated representatives of the parties. Step 4. Arbitration If the dispute has not been resolved through negotiation or mediation with the time set by this agreement,within 15 days of the end of mediation, or such other time as is mutually agreed,the parties may submit the dispute to arbitration under mutually agreeable terms. In the absence of Draft Regional Water Sales Agreement October 3, 2005 Page 44 SECTION 17—(Continued) such an agreement, the dispute resolution process under this agreement shall be deemed ended and the parties shall be free to pursue other remedies. Any litigation between the parties arising under or regarding this agreement shall be conducted in the Multnomah County Circuit Court of Oregon. In any litigation, each party shall bear its own costs and attorney's fees. Dran' Regional Water Sales Agreement October 3, 2005 Page 45 SECTION 18—WASHINGTON COUNTY SUPPLY LINE [Section inserted only in certain contracts as applicable] The City and Purchaser own portions of a transmission main known as the Washington County Supply Line. Provision for ownership and use of the Washington County Supply Line shall be made by separate agreement of the affected parties. Draft Regional Water Sales Agreement October 3, 2005 Page 46 IN WITNESS WHEREOF, Purchaser has, pursuant to official action of its governing body on the day of , 20 , duly authorizing the same, caused its proper officers to execute this instrument on its behalf and its corporate seal to be affixed hereto, and City has caused this instrument to be signed by its Mayor and Commissioner-in-Charge of the Bureau of Water Works, all of which is in triplicate. PURCHASER: Purchaser By Approved as to form: (Title) Attest Purchaser's Attorney (Title) Date CITY OF PORTLAND: By Mayor Approved as to form: By Commissioner-in-Charge City Attorney Date DMR Exhibit 1 Water District Usage Characteristics Template — attach to each Purchase Agreement City of XXX or YY Water District Guaranteed Purchase Quantity AA MGD Peak Season Purchase PS MGD Seasonal Peaking Factor PS/AA Highest Three Consecutive Das HCD MGD Daily Peaking Factor HCD/AA Pressures X to Y psi Existing Connections include: Location Connection size Meter# Example Sample Water District Guaranteed Purchase Quantity AA 8 MGD Peak Season Purchase PS 12 MGD Seasonal Peaking Factor PS/AA =1.5 Highest Three Consecutive Das (HCD) 16 Daily Peaking Factor HCD/AA = 2 Pressures X to Y psi Existing Connections include: Location Connection size Meter# 123 North Road 10" 123456 456 South Street 10 444442 Exhibit 2. Definitions of allocation factors Allocation to Water Service Parameters The functionalized items shall be allocated to the water service parameters listed below by the retail customer, wholesale customer and specific groups following the Commodity-Demand method described in the AWWA's Manual M1. Commodity Items Commodity items shall be identified as described in the AWWA Manual M1. These are items whose cost varies almost entirely directly with the amount of water supplied. Customer Items allocated to customer shall be allocated based on the number of accounts for each customer class. Equivalent Meter Items allocated to equivalent meter shall be allocated based on the number of equivalent meters. The equivalent meter ratios used to relate meters by size to the number of equivalent meters shall relate to the City's estimated costs of owning and maintaining the meters. Whenever possible, the values listed in the AWWA Manual M1 shall be used. Fire Any cost related to fire (either direct fire or indirect fire) shall be allocated to the parameter of fire. Since fire-related costs are incurred solely for the City, no fire related costs, except for the cost of water passing through the purchaser's meter, shall be included in the cost of water for the purchaser. Peak Day or Peak Three-Day Demand Items that are designed to meet the peak day or peak three-day needs of the system shall be allocated as Peak Day or Peak Three-Day Demand. Peak-Season Demand Items that are designed to meet the peak-season needs of the system shall be allocated as Peak Season Demand. Exhibit 3 Rate Base Assets Sample-to be updated annually Updated: June 2003 Annual �Description Net Book Value Depreciation Arlington Heights-Distribution Storage-Arlington Heights Transmission and Reservoirs System 358,597 19,186 Arlington Heights-Pumping-Arlington Heights Transmission and Reservoirs System 15,228 3,046 Arnold-Distribution Storage-Arnold/Taylors Ferry Pump Station 183,767 9,668 Arnold-Pumping-Arnold/Taylors Ferry Pump Station 1,432,555 42,808 Burlingame 643-Distribution Storage-Westwood Reservoir 112,503 4,851 Burlingame 643-Distribution Storage-Burlingame Reservoirs 118,447 5,286 Burlingame 643-Distribution Transmission-Burlingame Distribution System 437,386 22,549 Burlingame 643-Pumping-Fulton/Carolina Pump Stations 363,922 28,584 Burlingame Regulated-Distribution Storage-Fulton/Carolina Pump Stations 146,221 8,368 Council Crest-Distribution Storage-Sam Jackson 59,913 1,724 Council Crest-Pumping-Sam Jackson 237,940 16,550 Indirect-Distribution Transmission-Indirect based on Distribution/Transmission Assets 5,710,449 816,989 Indirect-Distribution/Direct Fire-Indirect based on Distribution/Transmission Assets 1,802,686 129,823 Indirect-Indirect-Indirect Bureau Facilities 371,464 92,866 Indirect-Indirect-Rolling Stock and Labor Resource Assets 2,010,273 740,487 Indirect-Indirect-Sample Sations (Prorated) 193,100 16,652 Indirect-Indirect-Indirect based on Distribution/Transmission Assets 996,159 85,782 Indirect-Indirect-Indirect 308,313 32,634 Joint-Conduits-All Other Headworks Facilities $395 $0 Joint-Conduits-Conduit Nos. 1 and 5 Rights of Way 1,970,333 0 Joint-Conduits-Conduit Nos. 2, 3 and 4 Headworks to Powell Butte Res. 18,161,452 570,779 Joint-Customer/Billing/Meters-Customer/Billing 926,938 202,664 Joint-Equivalent Meters/Services-Wholesale User's Taps/Master Meter Facilities 27,907 3,022 Joint-Equivalent Meters/Services-Not Included in TM 3,162,724 197,396 Joint-Indirect-Water Control Center and Lab 5,151,201 580,972 Joint-Indirect-Sam Jackson 35,611 8,903 Joint-Source of Supply-Bull Run Watershed Lands 317,112 0 Joint-Source of Supply-Bull Run Dam Nos. 1 and 2 7,953,023 435,549 Joint-Source of Supply-All Other Headworks Facilities 10,259,501 325,919 Joint-Source of Supply-Sandy River Maintenance Facility 303,819 12,537 Joint-Source of Supply-Columbia River Southshore Wellfield 29,541,002 1,601,827 Joint-Terminal Storage-Powell Butte Reservoir and Properties 8,217,762 235,524 Joint-Transmission-Rolling Stock and Labor Resource Assets 60,611 1,478 Annual Description Net Book Value Depreciation Joint-Treatment-All Other Headworks Facilities 2,238,401 106,651 Joint-Treatment-Lusted Treatment Plant Site 7,887,740 358,812 Joint-Treatment-Columbia River Southshore Wellfield 241,659 22,951 Joint-Treatment-Water Control Center and Lab 4,285,715 183,073 Joint-Treatment-Residual Analyzers (Prorated) 132,770 16,070 Mt. Tabor 411-Distribution Storage-Kelly Butte Reservoir 322,239 18,174 Mt. Tabor 411-Distribution Storage-Mt. Tabor Reservoir Nos. 1 and 5 2,792,160 177,550 Mt. Tabor 411-Transmission-Transmission System from Powell Butte Reservoir to Mt. Tabor Res. 106,657 11,462 Pipe-Indirect-Transmission System from Powell Butte Reservoir to Mt. Tabor Res. 0 0 Pipe-Indirect-Indirect based on Distribution/Transmission Assets 12,000 1,500 Pipe-Pipe-Pipe 144,093,521 4,278,566 Portland Heights-Distribution Storage-Sam Jackson 179,570 7,379 Portland Heights-Pumping-Sam Jackson 3,203 283 Sam Jackson PS-Pumping-Sam Jackson 117,425 6,401 Special Vaults-Distribution Transmission-Fulton/Carolina Pump Stations 1,576 78 Special Vaults-Distribution Transmission-Vaults 88,071 4,717 Washington Park 229-Distribution Storage-Washington Park 229 851,402 32,114 Washington Park 229-Treatment-Washington Park 229 24,848 637 Washington Park 299-Distribution Storage-Washington Park Reservoir No. 3 829,082 35,705 Washington Park 299-Distribution Storage-Sam Jackson 125,315 5,228 Washington Park 299-Transmission-Transmission System from Mt. Tabor Reservoirs to Washington Park Res. 20,433 462 Washington Park Common-Distribution Storage-Washington Park Reservoir No. 3 700,680 49,166 Washington Park PS-Distribution Storage-Washington Park Reservoir No. 3 51,592 2,326 Washington Park PS-Pumping-Washington Park Reservoir No. 3 22,139 3,690 Washington Park PS-Pumping-Washington Park Pump Station Nos. 1, 2 and 3 466,286 34,397 Totals do not include assets that serve only Portland retail service area $266,542,797 $11,611,818 t Exhibit 4 Functional asset groups include the following general categories (see also Table 14 below): • Source of Supply • Terminal Storage and Conduits • Treatment • Treatment Chemicals and Power • Burlingame 643 Pumping and Storage / Power • Arnold Pumping and Storage / Power • Arlington Heights Pumping and Storage / Power • Tabor 411 Storage • Parkrose 261 Storage • Portland Heights Pumping and Storage / Power • Washington Park 229 Storage, Pumping, and Treatment / Power & Chemicals • Council Crest Pumping and Storage / Power • Calvary Pumping and Storage / Power • Burlingame Regulated Pumping and Storage / Power • Washington Park 299 Pumping and Storage / Power • Joint Equivalent Meters • Washington County Supply Line — Portland Only • Retail Direct and Indirect • Indirect Storage / Pipe • Indirect Table 14 Water Cost-of-Service Model-Commodity/Demand Method Portland Region Wholesale Water Purveyors Allocation of Water Demands by User Groups Model Version February 2005 Next planned update:Spring,2006 Sam Washington Washington Jackson Parkrose Burlingame Burlingame Park 299 Washington Park Pump Pump Portland Council Arlington Portland Customer Class Joint WCSL Tabor 411 261 643 Regulated .Arnold Trans. Park 229 Station Station Heights Crest Heights Calvary Retail Service Area 1 Water Cos, 100.0% 0.0% 0.0% 0.0% 0.00/0 0.0% 0.0% 0.0% 0.0% 0.00/0 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% City of Gresham 100.00/0 0.0% 0.0% 2.6% 0.0% 0.0% 0.00/0 0.0% 0.0% 0.00/0 0.00/0 0.0% 0.00/0 0.0% 0.0% 0.0% Lusted Water District 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0°/a 0.0% 0.0% 0.0% Pleasant Home Water District 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.00/0 0.0% 0.0% 0.01/0 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Rockwood Water PUD 100.0% 0.0% 2.5% 0.0% 0.00/0 0.0% 0.00/0 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Palatine Hill Water District 100.00/0 0.0% 100.00/0 0.0% 0.0% 0.0% 0.00/0 100.00/0 100.0% 0.00/0 0.00/0 0.0% 0.00/0 0.0% 0.0% 0.0% Burlington Water District 100.0% 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 100.00/0 100.00/0 0.0% 0.00/0 0.0% 0.0% 0.0% 0.0% 0.0% Lake Grove Water District 100.0% 0.0% 100.00/0 0.0% 100.00/0 0.0% 100.0% 1.9% 0.0% 0.00/0 0.00/0 0.0% 0.00/0 0.0% 0.0% 0.0% City of Tigard 100.0% 0.0% 100.0% 0.0% 100.00/0 0.0% 0.00/0 1.9% 0.0% 0.0% 0.00/0 0.0% 0.0% 0.0% 0.0% 0.0% Valley View 100.00/0 0.0% 100.0% 0.0% 0.00/0 0.0% 0.0% 100.0% 0.0% 4.0% 96.0% 100.0% 100.0% 0.0% 0.0% 0.0% West Slope Water District 100.0% 0.0% 100.00/0 0.00/0 0.0% 0.0% 0.00/0 100.0°/a 0.0% 100.0% 0.00/0 0.0% 0.0% 100.0% 0.0% 0.0% TVWD 100.0% 96.1% 5.8% 0.00/0 5.8% 0.0% 0.00/0 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Raleigh Water District 100.0% 100.0% 1.9% 0.0% 1.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% City of Tualatin 100.0% 100.0% 1.9% 0.0% 1.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% City of Portland 100.0% 0.1% 98.00/0 3.0% 7.5% 1.3% 1.7% 25.0% 13.5% 3.7% 4.7% 1.7% 0.8% 2.9% 2.0% 100.0% V City of Portland Draft Wholesale Water Sales Agreement Frequently Asked Questions (FAQ) September 29, 2005 GENERAL Q1: What does "wholesale customer" mean? A: Wholesale customers are the cities and water districts that purchase drinking water from the City of Portland. Portland currently has 19 wholesale customers including the cities of Gresham, Tigard and Tualatin, the water districts of Raleigh, Tualatin Valley, West Slope and the Rockwood Water People's Utility District. These seven customers are the largest wholesale customers and their combined purchases constitute more than 95% of the wholesale water that Portland sells. The complete list of wholesale customers is attached to this document. The wholesale customers distribute the water they purchase from Portland through their own water systems and provide customer and billing services directly to end users within their jurisdictions. Q2: What does "retail customer" mean? A: "Retail customers" refers to City of Portland customers who receive their drinking water through Portland's water system and receive customer and billing services from the city. Retail customers include residential, business and industrial water users. 03: Why does Portland sell water to the wholesale customers? A: Portland has more drinking water capacity in its two sources, the Bull Run watershed in the foothills of the Cascade Mountains and the Columbia South Shore Well Field, than is needed to serve city customers. Since the city first tapped the Bull Run River as a primary drinking water source in 1895, it has provided drinking water to neighboring cities and water districts. The revenues the city receives from these water sales helps reduce the rates of in-city retail customers and help pay for the supply infrastructure of the Portland water system. Q4: Why are Portland and the wholesale customers entering into a new agreement? A: Most of the current water sales agreements between Portland and the wholesale customers were negotiated in the 1970's and will expire on June 30, 2007. Initial discussions regarding a new agreement took place in the late 1990's, but negotiations in earnest did not begin until spring of 2003. Staffs from Portland and the large wholesale customers have negotiated a draft model agreement over the past two years. The model agreement is proposed to be the basis for all the individual agreements that may be entered into between Portland and each wholesale customer. Portland and the wholesale customers are now ready to submit the draft model agreement to their various publics and stakeholders for review. Portland expects to offer new agreements to interested wholesalers in March of 2006 in advance of the expiration of the current agreements. Q5: What would be the potential rate impact to Portland's retail customers if all the wholesale customers stopped purchasing water from Portland? A: Although there would undoubtedly be rate impacts to retail ratepayers if all the wholesale customers stopped purchasing water from the city, it is highly unlikely that all of the wholesale customers would stop purchasing water from the city at the same time. Some wholesale customers have alternate drinking water sources, but many currently purchase all of their drinking water from Portland and would need to continue to do so in the foreseeable future. Furthermore, none of the other drinking water sources in the region currently have the capacity to supply enough water to allow the wholesale customers to stop purchasing water from Portland all at once. If the wholesale customers decide to stop purchasing water from Portland, it would likely take 3 to 10 years for the city's largest customers to develop and start using alternate sources to replace their purchases from Portland. The cumulative rate impact of this for retail ratepayers could be close to 21%; however, this rate increase would be spread over several years and would be partially offset by a small reduction in Portland's costs to supply water to the wholesale customers. The rate impact to retail ratepayers might also be offset by additional sales of water to new in-city customers or to new wholesale customers. Q6: What drinking water sources besides Portland's do the wholesale customers use? A: The west side customers of Tualatin Valley Water District and Tigard are members of the Joint Water Commission (JWC) and currently receive some of their drinking water from the JWC system. The JWC system has a combination of sources including Barney Reservoir in the Trask Basin in the Oregon Coast Range and both Hagg Lake and the Tualatin River located in the Tualatin Basin in Washington County. Tigard also receives some water from the Clackamas River via the City of Lake Oswego. The Rockwood Water People's Utility District located in East Multnomah County uses groundwater as an additional source. Gresham currently has rights to use Rockwood's wells. The Tualatin Valley Water District has been discussing the possibility of using water from the Willamette River Water Treatment Plant located in Wilsonville. Tualatin Valley Water District owns water rights and treatment capacity in the Willamette River Water Treatment Plant and could use this drinking water source if the voters of the district authorize it through a public vote and the district builds the necessary transmission infrastructure from Wilsonville to its water system. The Tualatin Valley Water District, Tigard and Tualatin have also been participating in the Tualatin Basin Water Supply Project which includes a study of raising Scoggins Dam (Hagg Lake) for additional municipal water supply and instream flow augmentation. Clean Water Services, the municipal wastewater agency for much of the Tualatin River Basin serves as the project management agency. SUPPLY 07: Does the agreement take into account the projected growth for the metro region over the next 20 years? A: Yes. The proposed agreement establishes a baseline amount of water that Portland will supply the wholesale customers that is well within the capacity of Portland's drinking water system to serve. As demand for water in the region grows as the population expands, there are several options available to both Portland and the wholesale customers for meeting this additional demand. If necessary Portland could provide the additional water from its existing drinking water system; the wholesale customers could develop alternative sources to supply future additional demand; Portland could expand its drinking water system; or Portland and the wholesale customers could enter into joint ownership agreements to fund the development of additional water supply in the Portland system. Any one or some combination of these options is possible. Q8: Will supplying the wholesale customers with drinking water under the terms of this agreement require Portland to expand the Bull Run water supply system or build particular facilities? A: No. The agreement places no obligation on the City of Portland to build additional supply or other particular facilities. The decision of whether or not to build additional facilities in the Portland water system for the purpose of providing additional drinking water or for any other purpose rests solely with the Portland City Council. The wholesale customers, as valued customers of the city, have the opportunity to provide direct input into the Water Bureau's annual budget and capital improvement program planning processes along with the citizens of Portland and all other stakeholders to the water system. 09: Will Portland's future in-city demand for drinking water require any expansion of the Bull Run water supply system? A: Based on the projected in-city growth over the next 20 years, no. Beyond this timeframe, it is difficult to offer meaningful forecasts particularly since there are no official population forecasts from Metro beyond the year 2030. . Q10: Will this agreement affect Portland's projected use of its groundwater system? A: If signed by all the current wholesale customers, the proposed agreement will not have a greater impact on Portland's use of its supplementary groundwater source than the current agreement. The city is committing to supply a baseline amount of water to the wholesale customers for the next 20 years that is consistent with the amount of water these customers have purchased from Portland over the last five years. In that time, Portland's groundwater source has been used 3 out of the 5 years to supplement summer drinking water supplies. Factors that will affect Portland's projected use of its groundwater system include potential decisions by the city to supply additional drinking water to the wholesale customers above the base, future water releases mandated by the federal government to comply with the Endangered Species Act, regular weather fluctuations and potential global climate change factors. All of these factors contribute to the likelihood of additional use of the groundwater system in future years. If not all of the wholesale customers sign the new agreement and some choose instead to stop purchasing water from Portland, the reduced demand for water from the wholesale customers would contribute to a reduced likelihood of use of the groundwater system in future years. Q11: How does water get from the Portland system to the wholesale customers? A: The east side customers, including the large customers of Gresham and the Rockwood Water People's Utility District receive drinking water from the Portland system directly from the conduits that connect the Bull Run Watershed with the city and cross through these jurisdictions. Some of the west side wholesale customers receive drinking water from Portland through a large pipeline called the Washington County Supply Line that runs from the Powell Butte Reservoir in East Portland under the Willamette River to Tualatin Valley Water District, Tualatin, and the Raleigh Water District. Other west side customers receive water through the western portion of Portland's in-city distribution system. Q12: What prevents a wholesale customer from taking more water than agreed to by Portland and the customer? A: There are both operational and contractual limits on the ability of wholesale customers to take more water than Portland has agreed to serve them. The city and the wholesale customers have established operational guidelines that govern how much a wholesale customer can increase or decrease demand on the Portland system during the summer drawdown season. In addition, the proposed agreement includes terms that create financial disincentives for wholesale customers to take more water than they have initially contracted for with Portland. These terms establish higher rates for the wholesale customers for several years if the customer takes substantially more water than has been agreed to. RATES and FINANCES Q13: In general, how will the wholesale customers be charged for water? A: By the terms of the proposed agreement, each wholesale customer will be charged the costs the City of Portland incurs to provide them drinking water. This arrangement is called "cost of service" pricing and is a standard utility pricing approach. The two biggest factors that establish the total costs for each wholesale customer are the amount of water each customer has agreed to purchase on an annual basis from Portland and the amount of Portland drinking water infrastructure is used to deliver water to each customer. Wholesale customers purchase different amounts of water from Portland and require different amounts of infrastructure to receive water. The wholesale customers also pay, proportionate to their use of the system, a share of the maintenance and the costs to replace the infrastructure required to serve them as well as a capital component based on a return on investment and depreciation. Portland is in the process of developing a rate model to incorporate the terms of the proposed agreement and the details of how much infrastructure and maintenance costs each wholesale customer requires to receive drinking water. The rate model will produce specific rates for each wholesale customer based on the proposed agreement. The rate model is scheduled to be completed early next spring prior to official consideration of the new agreement by Portland and the wholesale customers. Q14: How does this compare to how retail customers are charged for water? Retail customers are charged on a "cost of service" basis for the drinking water they receive from Portland. There are some key differences from wholesale customers. For instance, while Portland retail customers share the costs for infrastructure that collects and stores drinking water with the wholesale customers, retail customers alone pay for the additional infrastructure that stores, distributes and delivers drinking water directly to their home or business. Retail customers also pay for the customer, billing and local maintenance services that'benefit retail ratepayers only. 015: Do residents in wholesale communities that purchase water from Portland pay the same amount for water overall as Portland residents? A: No. Residents and businesses within the wholesale customer jurisdictions pay varying rates for drinking water depending on the pricing structure used by each wholesale customer for its own customers. Some of the factors influencing these circumstances include the amount of growth each community is facing, the age and replacement cycle of its local infrastructure, the cost of water from other sources and individual rate setting decisions. The following is a rough comparison of typical residential water bills for Portland and several of the largest wholesale customers: Comparison of Current Typical Residential Monthly Water Bills Local Utilities: Current Bill for 7ccf of Usage Gresham $24.70 Portland $15.10 Rockwood Water PUD $17.19 Tigard $20.13 Tualatin $18.10 Tualatin Valley Water District $18.35 West Slope Water District (2004) $23.88 Q16: Will Portland retail rates increase as a result of this agreement? A: If Portland and all of the current wholesale customers adopt the proposed agreement, there will be no increase in Portland retail rates as a result of the agreement. However, if one or more wholesale customers choose not to adopt the new agreement and either reduce or entirely eliminate their purchases from Portland, there may be a corresponding increase in retail rates as a result. How much of an increase would depend on how significant the decrease in wholesale demand would be in that situation and the timing of how such a decrease actually occurred. See the answer to Q5 above for more discussion of the potential rate impact to Portland customers if the wholesale customers reduce or eliminate their purchases. Q17: Do the wholesale customers pay for maintenance and replacement of the Portland water supply system? A: Yes. Each wholesale customer pays a portion of the costs for maintenance and replacement of the Portland water supply system according to the amount of water they purchase and how much infrastructure is required to serve them. The wholesale customers pay a proportionate share of these costs based on their actual use of the system. AUTHORITY/OWNERSHIP Q18: Does the draft agreement grant the wholesale customers shared ownership in Portland's water system? A: No. The draft agreement is a wholesale water sales agreement and does not confer ownership of City of Portland water facilities in part or in whole to the wholesale customers. The draft agreement does include a short section (#16)describing the opportunity for Portland and the wholesale customers to enter into joint funding agreements and potential shared ownership for new water system facilities and only by separate agreement with the authorization of each party's governing board or Council. For the last 20 years, the west side wholesale customers and Portland have had a joint ownership arrangement for the large pipe called the Washington County Supply Line that supplies water from the Portland system to most of the west side customers. The ownership relationships for this facility will remain the same in the proposed agreement. Q19: Will the agreement result in sale or privatization of parts of the water system? A: No. There are no provisions or terms of the agreement authorizing sale of any part of the Portland water system to any potential buyer, private or otherwise. See the answer to 018 above for more discussion of the provision relating to potential future joint funding agreements. Q20: What is the Water Managers Advisory Board (WMAB)? A: The draft agreement continues the practice of a water managers advisory board established in the current water sales agreement. Each wholesale customer designates a representative to the board (usually the district manager) and the Water Bureau Administrator designates two bureau staff to the board for the city. The purpose of the board is to meet regularly to communicate and make recommendations to the Water Bureau regarding matters related to the sale and transfer of water to the wholesale customers. The board has specific responsibilities to develop recommendations regarding joint operating procedures, information standards and a curtailment plan. In addition, the board reviews the conservation plans of participating members and provides annual recommendations to the Water Bureau regarding its budget and capital improvement plans. CONSERVATION Q21: Does the agreement address local and regional conservation efforts? A: Yes. Section 13 of the proposed agreement addresses obligations for water resource conservation for both Portland and the wholesale customers. Both the city and most of the wholesale customers are required to submit official water management and conservation plans to the State of Oregon for approval. These plans include required conservation and curtailment elements. The water managers advisory board has the responsibility to review the conservation plans for all participating members. For wholesale customers that are not required to submit conservation plans to the state, the draft agreement will require these customers to submit a plan to the water managers advisory board which will then function as a review board to recommend changes and updates to these conservation plans as necessary. Q22: Will retail or wholesale customers have to conserve to make sufficient water available to all customers? A: The conservation efforts of all the customers of the Portland water system will continue to make additional water available for current and new demand. Currently there is more than enough supply in the Portland water system to serve the needs of the city and existing wholesale customers. Part of that current supply is made available by the efforts of both Portland's customers and the customers of the wholesale providers to conserve water. Portland estimates that combined conservation efforts of the city and its wholesale customers reduce total demand on the Portland system by more than 6% of what it would otherwise be. For the next 20 years which encompass the initial term of the proposed agreement, the city projects that it will have an adequate supply with its current water system to meet both the future water demands of the city and the baseline demands established in the proposed agreement for the wholesale customers. Q23: Are the wholesale customers subject to the same conservation guidelines and requirements as Portland? A: Yes. All of the large wholesale customers and Portland are subject to State of Oregon water resource conservation requirements. The draft agreement holds smaller wholesale customers to the same standard and uses the water managers advisory board to review and modify these customers' conservation plans. See the answer to Q21 above for more discussion of the conservation section of the proposed agreement. EMERGENCY/CONTINGENCY Q24: How does the agreement affect what happens during a drought or severe emergency that affects the availability of water? A: Section 14 of the proposed agreement, Water Curtailment and Protection of the Water System, describes the general parameters that would apply in an emergency affecting the availability of water. In general, in a situation affecting the availability of water, the Water Bureau Administrator is authorized to declare a water shortage and to invoke water curtailment measures for both the city and the wholesale customers to protect the water system's capacity to supply water for fire, life, safety, and other high priority needs. The proposed agreement also establishes the Water Bureau's role to monitor and enforce any water use restrictions required during a water shortage. The proposed agreement specifies that the water managers advisory board will develop a specific water curtailment plan for the Water Bureau Administrator's consideration and modification if necessary. Q25: What is curtailment? A: Water curtailment is a mandatory restriction in the use of drinking water. This situation can occur in either severe drought or emergencies when a water utility needs to prioritize the use of available supply. Typical restrictions that can be required under curtailment are the prohibition of outdoor irrigation, car washing, and in severe situations, limited hours for residential or commercial water service. Q26: If something happens to Portland's supply, can the city obtain water from any of the wholesale customers? A: To a limited degree yes. If Portland were faced with a situation in which both of its drinking water sources were unavailable, the city could receive some water from wholesale customers with other drinking water sources if those sources were not also impacted. The amount of water that Portland could acquire in such a situation would likely be quite limited—not enough to supply the city's regular base demands. Portland and several regional water providers have plans to provide drinking water to each other in the event of significant water service interruptions. PUBLIC PROCESS Q27: How do I ask questions or provide comments on the draft agreement? A: The Portland Water Bureau has posted the draft agreement with summary and background information on its website at www.portlandonline.com/water. Interested stakeholders may submit questions and comments by email directly through the website. The agreement may also be obtained from your local water provider or located on their web site. In addition, the Water Bureau is hosting two Public Open House Workshops to present the draft agreement and allow interested stakeholders to discuss and ask questions about the draft agreement with staff from the city and the wholesale customers. Details on the public workshops are included in a flyer attached to this document and on the web at www.portlandonline.com/water. Wholesale customers will also be encouraging input from their retail customers through various public involvement opportunities. Please check with your local water provider for dates and times. Q28: When will the draft agreement be considered by the Portland City Council? A: The Water Bureau plans to allow for approximately five months of public review before taking the draft agreement to City Council for formal consideration and approval. The current schedule for bringing the draft agreement to the City Council is early March 2006. It is expected that the wholesale customers will then formally consider the agreement at each of their boards or city councils in late spring of 2006.