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HomeMy WebLinkAbout11-06-17 City Commission Packet Materials - C10. PSA with AE2S Nexus for Water and Wastewater Rate Study Commission Memorandum REPORT TO: Honorable Mayor and City Commission FROM: Kristin Donald, Finance Director Craig Woolard, Director of Public Works SUBJECT: Professional Services Agreement with AE2S Nexus LLC for water and Wastewater Rate Study. MEETING DATE: November 6, 2017 AGENDA ITEM: Consent RECOMMENDATION: Authorize the Interim City Manager to sign the Professional Services Agreement with AE2S Nexus, LLC for rate study of the Water and Wastewater operations. BACKGROUND: The capital improvement plan and budget included this rate study to be performed. The last rate study for the water and wastewater fund was in April 2007. In august 2017, the City put out a request for proposals and the AE2S Nexus, LLC was selected. The expenditures will be funded from the Water and Wastewater funds as outlined in the budget. ALTERNATIVES: As suggested by the commission FISCAL EFFECTS: Approved in CIP and Budget\provide funding for this rate study. Attachments: Professional Services Agreement Scope of Services Report compiled on October 24, 2017 86 PROFESSIONAL SERVICES AGREEMENT THIS AGREEMENT is made and entered into this _____ day of ____________, 201__, by and between the CITY OF BOZEMAN, MONTANA, a self governing municipal corporation organized and existing under its Charter and the laws of the State of Montana, 121 North Rouse Street, Bozeman, Montana, with a mailing address of PO Box 1230, Bozeman, MT 59771, hereinafter referred to as “City,” and, AE2S Nexus, LLC, hereinafter referred to as “Contractor.” In consideration of the mutual covenants and agreements herein contained, the receipt and sufficiency whereof being hereby acknowledged, the parties hereto agree as follows: 1.Purpose: City agrees to enter this Agreement with Contractor to perform for City services described in the Scope of Services attached hereto as Attachment “A” and by this reference made a part hereof. 2.Term/Effective Date: This Agreement is effective upon the date of its execution and will terminate upon completion of the work included in the Scope of Services of Exhibit A. 3.Scope of Work: Contractor will perform the work and provide the services in accordance with the requirements of the Scope of Services. For conflicts between this Agreement and the Scope of Services, unless specifically provided otherwise, the Agreement governs. 4.Payment: City agrees to pay Contractor the amount specified in the Scope of Services. Any alteration or deviation from the described services that involves additional costs above the Agreement amount will be performed by Contractor after written request by the City, and will become an additional charge over and above the amount listed in the Scope of Services. The City must agree in writing upon any additional charges. In addition to payment methods see disclosure in Exhibit B. 5.Contractor’s Representations: To induce City to enter into this Agreement, Contractor makes the following representations: a.Contractor has familiarized itself with the nature and extent of this Agreement, the Scope of Services, and with all local conditions and federal, state and local laws, ordinances, rules, and regulations that in any manner may affect cost, progress or performance of the Scope of Services. b.Contractor represents and warrants to City that it has the experience and ability to perform the services required by this Agreement; that it will perform said services in a professional, competent and timely manner and with diligence and skill; that it has the power to enter into and perform this Agreement and grant the rights granted in it; and that its performance of this Agreement shall not infringe upon or violate the rights of any third Professional Services Agreement For Water and Wastewater Rate Study 1 87 party, whether rights of copyright, trademark, privacy, publicity, libel, slander or any other rights of any nature whatsoever, or violate any federal, state and municipal laws. The City will not determine or exercise control as to general procedures or formats necessary to have these services meet this warranty. 6.Independent Contractor Status/Labor Relations: The parties agree that Contractor is an independent contractor for purposes of this Agreement and is not to be considered an employee of the City for any purpose. Contractor is not subject to the terms and provisions of the City’s personnel policies handbook and may not be considered a City employee for workers’ compensation or any other purpose. Contractor is not authorized to represent the City or otherwise bind the City in any dealings between Contractor and any third parties. Contractor shall comply with the applicable requirements of the Workers’ Compensation Act, Title 39, Chapter 71, MCA, and the Occupational Disease Act of Montana, Title 39, Chapter 71, MCA. Contractor shall maintain workers’ compensation coverage for all members and employees of Contractor’s business, except for those members who are exempted by law. Contractor shall furnish the City with copies showing one of the following: (1) a binder for workers’ compensation coverage by an insurer licensed and authorized to provide workers’ compensation insurance in the State of Montana; or (2) proof of exemption from workers’ compensation granted by law for independent contractors. Contractor shall indemnify, defend, and hold the City harmless from any and all claims, demands, costs, expenses, damages, and liabilities arising out of, resulting from, or occurring in connection with any labor problems or disputes or any delays or stoppages of work associated with such problems or disputes and for any claims regarding underpaid prevailing wages. 7.Indemnity/Waiver of Claims/Insurance: For other than professional services rendered, to the fullest extent permitted by law, Contractor agrees to release, defend, indemnify, and hold harmless the City, its agents, representatives, employees, and officers (collectively referred to for purposes of this Section as the City) from and against any and all claims, demands, actions, fees and costs (including attorney’s fees and the costs and fees of and expert witness and consultants), losses, expenses, liabilities (including liability where activity is inherently or intrinsically dangerous) or damages of whatever kind or nature connected therewith and without limit and without regard to the cause or causes thereof or the negligence of any party or parties that may be asserted against, recovered from or suffered by the City occasioned by, growing or arising out of or resulting from or in any way related to: (i) the negligent, reckless, or intentional misconduct of the Contractor; (ii) any negligent, reckless, or intentional misconduct of any of the Contractor’s agents; or (iii) the negligent, reckless, or intentional misconduct of any other third party. Professional Services Agreement For Water and Wastewater Rate Study 2 88 For the professional services rendered, to the fullest extent permitted by law, Contractor agrees to indemnify and hold the City harmless against claims, demands, suits, damages, losses, and expenses, including reasonable defense attorney fees, to the extent caused by the negligence or willful misconduct of the Contractor or Contractor’s agents or employees. Such obligations shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity that would otherwise exist. The indemnification obligations of this Section must not be construed to negate, abridge, or reduce any common-law or statutory rights of the indemnitee(s) which would otherwise exist as to such indemnitee(s). Contractor’s indemnity under this Section shall be without regard to and without any right to contribution from any insurance maintained by City. Should any indemnitee described herein be required to bring an action against the Contractor to assert its right to defense or indemnification under this Agreement or under the Contractor’s applicable insurance policies required below the indemnitee shall be entitled to recover reasonable costs and attorney fees incurred in asserting its right to indemnification or defense but only if a court of competent jurisdiction determines the Contractor was obligated to defend the claim(s) or was obligated to indemnify the indemnitee for a claim(s) or any portion(s) thereof. In the event of an action filed against City resulting from the City’s performance under this Agreement, the City may elect to represent itself and incur all costs and expenses of suit. Contractor also waives any and all claims and recourse against the City or its officers, agents or employees, including the right of contribution for loss or damage to person or property arising from, growing out of, or in any way connected with or incident to the performance of this Agreement except “responsibility for his own fraud, for willful injury to the person or property of another, or for violation of law, whether willful or negligent” as per 28-2-702, MCA. These obligations shall survive termination of this Agreement and the services performed hereunder. In addition to and independent from the above, Contractor shall at Contractor’s expense secure insurance coverage through an insurance company or companies duly licensed and authorized to conduct insurance business in Montana which insures the liabilities and obligations specifically assumed by the Contractor in this Section. The insurance coverage shall not contain any exclusion for liabilities specifically assumed by the Contractor in subsection (a) of this Section. Professional Services Agreement For Water and Wastewater Rate Study 3 89 The insurance shall cover and apply to all claims, demands, suits, damages, losses, and expenses that may be asserted or claimed against, recovered from, or suffered by the City without limit and without regard to the cause therefore and which is acceptable to the City and Contractor shall furnish to the City an accompanying certificate of insurance and accompanying endorsements in amounts not less than as follows: •Workers’ Compensation – statutory; •Employers’ Liability - $1,000,000 per occurrence; $2,000,000 annual aggregate; •Commercial General Liability - $1,000,000 per occurrence; $2,000,000 annual aggregate; •Automobile Liability - $1,000,000 property damage/bodily injury; $2,000,000 annual aggregate; and •Professional Liability - $1,000,000 per claim; $2,000,000 annual aggregate. The above amounts shall be exclusive of defense costs. The City of Bozeman, its officers, agents, and employees, shall be endorsed as an additional or named insured on a primary non- contributory basis on both the Commercial General and Automobile Liability policies. The insurance and required endorsements must be in a form suitable to City and shall include no less than a sixty (60) day notice of cancellation or non-renewal. The City must approve all insurance coverage and endorsements prior to the Contractor commencing work. Contractor shall notify City within two (2) business days of Contractor’s receipt of notice that any required insurance coverage will be terminated or Contractor’s decision to terminate any required insurance coverage for any reason. The City must approve all insurance coverage and endorsements prior to the Contractor commencing work. 8. Termination for Contractor’s Fault: a.If Contractor refuses or fails to timely do the work, or any part thereof, or fails to perform any of its obligations under this Agreement, or otherwise breaches any terms or conditions of this Agreement, the City may, by written notice, terminate this Agreement and the Contractor’s right to proceed with all or any part of the work (“Termination Notice Due to Contractor’s Fault”). The City may then take over the work and complete it, either with its own resources or by re-letting the contract to any other third party. b.In the event of a termination pursuant to this Section 8, Contractor shall be entitled to payment only for those services Contractor actually rendered. Professional Services Agreement For Water and Wastewater Rate Study 4 90 c.Any termination provided for by this Section 8 shall be in addition to any other remedies to which the City may be entitled under the law or at equity. d.In the event of termination under this Section 8, Contractor shall, under no circumstances, be entitled to claim or recover consequential, special, punitive, lost business opportunity, lost productivity, field office overhead, general conditions costs, or lost profits damages of any nature arising, or claimed to have arisen, as a result of the termination. 9. Termination for City’s Convenience: a.Should conditions arise which, in the sole opinion and discretion of the City, make it advisable to the City to cease performance under this Agreement City may terminate this Agreement by written notice to Contractor (“Notice of Termination for City’s Convenience”). The termination shall be effective in the manner specified in the Notice of Termination for City’s Convenience and shall be without prejudice to any claims that the City may otherwise have against Contractor. b.Upon receipt of the Notice of Termination for City’s Convenience, unless otherwise directed in the Notice, the Contractor shall immediately cease performance under this Agreement and make every reasonable effort to refrain from continuing work, incurring additional expenses or costs under this Agreement and shall immediately cancel all existing orders or contracts upon terms satisfactory to the City. Contractor shall do only such work as may be necessary to preserve, protect, and maintain work already completed or immediately in progress. c.In the event of a termination pursuant to this Section 9, Contractor is entitled to payment only for those services Contractor actually rendered on or before the receipt of the Notice of Termination for City’s Convenience. d.The compensation described in Section 9(c) is the sole compensation due to Contractor for its performance of this Agreement. Contractor shall, under no circumstances, be entitled to claim or recover consequential, special, punitive, lost business opportunity, lost productivity, field office overhead, general conditions costs, or lost profits damages of any nature arising, or claimed to have arisen, as a result of the termination. 10.Limitation on Contractor’s Damages; Time for Asserting Claim: a.In the event of a claim for damages by Contractor under this Agreement, Contractor’s damages shall be limited to contract damages and Contractor hereby expressly waives any right to claim or recover consequential, special, punitive, lost business Professional Services Agreement For Water and Wastewater Rate Study 5 91 opportunity, lost productivity, field office overhead, general conditions costs, or lost profits damages of any nature or kind. b. In the event Contractor wants to assert a claim for damages of any kind or nature, Contractor shall provide City with written notice of its claim, the facts and circumstances surrounding and giving rise to the claim, and the total amount of damages sought by the claim, within thirty (30) days of the facts and circumstances giving rise to the claim. In the event Contractor fails to provide such notice, Contractor shall waive all rights to assert such claim. 11. Representatives: a. City’s Representative: The City’s Representative for the purpose of this Agreement shall be City Finance Director, or such other individual as City shall designate in writing. Whenever approval or authorization from or communication or submission to City is required by this Agreement, such communication or submission shall be directed to Kristin Donald as the City’s Representative and approvals or authorizations shall be issued only by such Representative; provided, however, that in exigent circumstances when City’s Representative is not available, Contractor may direct its communication or submission to other designated City personnel or agents as listed above and may receive approvals or authorization from such persons. b. Contractor’s Representative: The Contractor’s Representative for the purpose of this Agreement shall be Shawn Gaddie or such other individual as Contractor shall designate in writing. Whenever direction to or communication with Contractor is required by this Agreement, such direction or communication shall be directed to Contractor’s Representative; provided, however, that in exigent circumstances when Contractor’s Representative is not available, City may direct its direction or communication to other designated Contractor personnel or agents. 12. Permits: Contractor shall provide all notices, comply with all applicable laws, ordinances, rules, and regulations, obtain all necessary permits, licenses, including a City of Bozeman business license, and inspections from applicable governmental authorities, and pay all fees and charges in connection therewith. Professional Services Agreement For Water and Wastewater Rate Study 6 92 13 Laws and Regulations: Contractor shall comply fully with all applicable state and federal laws, regulations, and municipal ordinances including, but not limited to, all workers’ compensation laws, all environmental laws including, but not limited to, the generation and disposal of hazardous waste, the Occupational Safety and Health Act (OSHA), the safety rules, codes, and provisions of the Montana Safety Act in Title 50, Chapter 71, MCA, all applicable City, County, and State building and electrical codes, the Americans with Disabilities Act, and all non- discrimination, affirmative action, and utilization of minority and small business statutes and regulations. 14.Nondiscrimination: The Contractor agrees that all hiring by Contractor of persons performing this Agreement shall be on the basis of merit and qualifications. The Contractor will have a policy to provide equal employment opportunity in accordance with all applicable state and federal anti-discrimination laws, regulations, and contracts. The Contractor will not refuse employment to a person, bar a person from employment, or discriminate against a person in compensation or in a term, condition, or privilege of employment because of race, color, religion, creed, political ideas, sex, age, marital status, national origin, actual or perceived sexual orientation, gender identity, physical or mental disability, except when the reasonable demands of the position require an age, physical or mental disability, marital status or sex distinction. The Contractor shall be subject to and comply with Title VI of the Civil Rights Act of 1964; Section 140, Title 2, United States Code, and all regulations promulgated thereunder. The Contractor shall require these nondiscrimination terms of its sub-Contractors providing services under this agreement. 15.Intoxicants; DOT Drug and Alcohol Regulations/Safety and Training: Contractor shall not permit or suffer the introduction or use of any intoxicants, including alcohol or illegal drugs, by any employee or agent engaged in services to the City under this Agreement while on City property or in the performance of any activities under this Agreement. Contractor acknowledges it is aware of and shall comply with its responsibilities and obligations under the U.S. Department of Transportation (DOT) regulations governing anti-drug and alcohol misuse prevention plans and related testing. City shall have the right to request proof of such compliance and Contractor shall be obligated to furnish such proof. The Contractor shall be responsible for instructing and training the Contractor's employees and agents in proper and specified work methods and procedures. The Contractor shall provide continuous inspection and supervision of the work performed. The Contractor is responsible for instructing his employees and agents in safe work practices. 16.Modification and Assignability: This Agreement may not be enlarged, modified or altered except by written agreement signed by both parties hereto. The Contractor may not subcontract or assign Contractor’s rights, including the right to compensation or duties arising Professional Services Agreement For Water and Wastewater Rate Study 7 93 hereunder, without the prior written consent of City. Any subcontractor or assignee will be bound by all of the terms and conditions of this Agreement. 17.Reports/Accountability/Public Information: Contractor agrees to develop and/or provide documentation as requested by the City demonstrating Contractor’s compliance with the requirements of this Agreement. Contractor shall allow the City, its auditors, and other persons authorized by the City to inspect and copy its books and records for the purpose of verifying that the reimbursement of monies distributed to Contractor pursuant to this Agreement was used in compliance with this Agreement and all applicable provisions of federal, state, and local law. The Contractor shall not issue any statements, releases or information for public dissemination without prior approval of the City. 18.Non-Waiver: A waiver by either party any default or breach by the other party of any terms or conditions of this Agreement does not limit the other party’s right to enforce such term or conditions or to pursue any available legal or equitable rights in the event of any subsequent default or breach. 19.Attorney’s Fees and Costs: That in the event it becomes necessary for either Party of this Agreement to retain an attorney to enforce any of the terms or conditions of this Agreement or to give any notice required herein, then the prevailing Party or the Party giving notice shall be entitled to reasonable attorney's fees and costs, including fees, salary, and costs of in-house counsel to include City Attorney. 20. Taxes: Contractor is obligated to pay all taxes of any kind or nature and make all appropriate employee withholdings. 21.Dispute Resolution: a.Any claim, controversy, or dispute between the parties, their agents, employees, or representatives shall be resolved first by negotiation between senior-level personnel from each party duly authorized to execute settlement agreements. Upon mutual agreement of the parties, the parties may invite an independent, disinterested mediator to assist in the negotiated settlement discussions. b.If the parties are unable to resolve the dispute within thirty (30) days from the date the dispute was first raised, then such dispute may only be resolved in a court of competent jurisdiction in compliance with the Applicable Law provisions of this Agreement. Professional Services Agreement For Water and Wastewater Rate Study 8 94 22. Survival: Contractor’s indemnification shall survive the termination or expiration of this Agreement for the maximum period allowed under applicable law. 23. Headings: The headings used in this Agreement are for convenience only and are not be construed as a part of the Agreement or as a limitation on the scope of the particular paragraphs to which they refer. 24.Severability: If any portion of this Agreement is held to be void or unenforceable, the balance thereof shall continue in effect. 25.Applicable Law: The parties agree that this Agreement is governed in all respects by the laws of the State of Montana. 26.Binding Effect: This Agreement is binding upon and inures to the benefit of the heirs, legal representatives, successors, and assigns of the parties. 27.No Third-Party Beneficiary: This Agreement is for the exclusive benefit of the parties, does not constitute a third-party beneficiary agreement, and may not be relied upon or enforced by a third party. 28.Counterparts: This Agreement may be executed in counterparts, which together constitute one instrument. 29. Integration: This Agreement and all Exhibits attached hereto constitute the entire agreement of the parties. Covenants or representations not contained therein or made a part thereof by reference, are not binding upon the parties. There are no understandings between the parties other than as set forth in this Agreement. All communications, either verbal or written, made prior to the date of this Agreement are hereby abrogated and withdrawn unless specifically made a part of this Agreement by reference. Professional Services Agreement For Water and Wastewater Rate Study 9 95 IN WITNESS WHEREOF, the parties hereto have executed this instrument the day and year first above written. CITY OF BOZEMAN, MONTANA AE2S Nexus LLC BY _____________________________ By _______________________________ Dennis Taylor, Interim City Manager Print Name: _______________________ Print Title: ________________________ APPROVED AS TO FORM: By_______________________________ Greg Sullivan, Bozeman City Attorney Professional Services Agreement For Water and Wastewater Rate Study 10 96 Attachment A Scope of Services and Fee Proposal for Water and Wastewater Rate Study The attached is the project proposal submitted by AE2S Nexus, LLC in response to the Request for proposals Issued by the City of Bozeman along with the scope of hours and fees. Professional Services Agreement For Water and Wastewater Rate Study 11 97 5WORK SUMMARY AE2S CITY OF BOZEMAN WATER AND WASTEWATER UTILITY SYSTEM COST OF SERVICE & RATE DESIGN STUDY PROPOSAL 5.1 5 WORK SUMMARY It is our primary objective to help you meet your rate-planning and financial management objectives efficiently and effectively. To facilitate construction of a work plan designed to do just that, we have prepared a comprehensive Task List (see below). It should be noted that the scope of services can be further refined to include/exclude additional components. We want to put together the scope of work best suited to meet your needs, and would be happy to discuss the detailed scope with you. The discussion that follows provides an overview of the proposed Tasks. AE2S Nexus follows the recommended approach as outlined in the American Water Works Association M-1 Manual - Principles of Water Rates, Fees, and Charges and the Water Environment Federation Manual of Practice 27 - Financing and Charges for Wastewater Systems. PROJECT APPROACH TASKS Task 1: Project Kickoff and Data Review Task 2: Cost of Service Analysis (COSA) Task 3: Integrated Financial Policy & Planning Task 3a. Financial Implications of Conservation Task 3b. Capital Financing Policies and Procedures Task 3b. Reserve and Fiscal Policies Task 4: Rate Design Task 4a. Rate Structure Recommendations Task 4b. 5-Year Revenue Adequacy Task 4c. Alternative Revenue Forecasting (Other Fees & Charges) Task 5: Documentation & Presentation of Results Professional Services Agreement For Water and Wastewater Rate Study 12 98 5WORK SUMMARY AE2S CITY OF BOZEMAN WATER AND WASTEWATER UTILITY SYSTEM COST OF SERVICE & RATE DESIGN STUDY PROPOSAL 5.2 Task 1 – Project Orientation and Kickoff Under this task, AE2S Nexus will perform project administration and monitoring, project planning, and scheduling. These activities include maintaining contact and liaison with City staff and internal project staff to ensure that the needs of the City are met in a timely manner. To kick off the project, we will develop a detailed information needs request for completion of the Study. In general, this request will include relevant water and wastewater system operational, capital, and financial data and established City policies. Upon receipt and review of the information, we will coordinate a study kickoff meeting. Depending on the City’s preference, this meeting can be conducted either via electronic meeting or our key financial team members will be available to travel to Bozeman. One goal of the kickoff meeting is to confirm the proposed approach and project schedule. Communications and review protocols will be confirmed and any questions related to the information request will be addressed at this time. Task 2 – Cost of Service Analysis A detailed Cost of Service Analysis (COSA) will provide the City with an understanding of the portion of the total systems costs that are attributable to each user class currently served by the water and wastewater systems. A COSA is an industry standard evaluation used to determine whether costs allocated to the various customer classes correspond to the level of service provided. The overall process includes incorporating proposed capital improvements, historic revenues and expenses, and base user profiles to create a representative test year. As we understand some of the critical issues serving users in the area, we will build our COSA model, and Test Year, to highlight the unique circumstances of how significant large users, like Montana State University, are served, as well as how the new growth areas may differ in service characteristics from the historic City. The Test Year is then used to model how both costs and revenues are realized and demonstrate equitability among user classes, a critical aspect to maintaining compliance with State law. AE2S Nexus will work closely with you to determine the most appropriate approach for your circumstances. In the case of Bozeman, how conservation is represented in the Test Year is critical to providing a comprehensive product. As a result, the analysis will incorporate a conservation approach further outlined in Task 3. With an established “Test Year” budget, the industry standard COSA typically consists of a three step procedure of 1) Functionalization, 2) Classification, and 3) Allocation to assign utility costs across customer classes to support equitable and defendable utility rates, equal to the cost of service provided. Another key consideration in the performance of the COSA is determining whether to perform the analysis on a “Cash” or “Utility” basis. This decision is often dependent upon the specific goals of the City as it relates to the charges established for outside City water and wastewater customers. We have extensive experience in both methodologies and will work with the City to determine the most appropriate approach. Upon completion of a draft Cost of Service Analysis, a Progress Meeting to review the results will be conducted. Professional Services Agreement For Water and Wastewater Rate Study 13 99 5WORK SUMMARY AE2S CITY OF BOZEMAN WATER AND WASTEWATER UTILITY SYSTEM COST OF SERVICE & RATE DESIGN STUDY PROPOSAL 5.3 Task 3 – Integrated Financial Planning As we evaluated the specific items identified in the RFP from the City, and based on our knowledge from previous projects with the City, a key theme emerged: Smart Utility Financial Planning. This theme was woven throughout all tasks of the RFP. We recognized this in how the City requested specific consideration in the analysis regarding growth forecasts and impact fees. We also saw this in the stated requirement that the rate structure must account for the nuances of how users are served and how conservation planning and issues around water rights play an important role. Lastly, this theme was apparent in how the City requested specific advice on how to set policy and establish appropriate precedent moving forward. To better serve you, we will dedicate time to helping you frame and think through these issues so you have a consistent and practical approach to your financial planning process, an approach that reflects how you, as a community, want to serve your existing customers, as well as plan for new customers on your system. The final plan will provide the necessary flexibility and tools required to maintain a best-in-class utility for years to come. This task will look in-depth at three key issues: As we look to integrate water conservation and water supply, we understand that people’s habits may change in response to both positive and negative outside factors. One example of a positive factor would be programs that provide free or reduced cost low- flow fixtures to replace existing fixtures and lower water use (similar to the City’s existing program). Alternatively, price increases are often seen as a negative factor. There are many other measures that can be used to help craft water conservation and supply plans that take into account the utility as a whole and provide options for consumers. Our background understanding means that we can start to build a long- term plan for the City that will effectively identify goals for water conservation in light of both the growth the City is experiencing and the capital planning process. As this is incorporated in the rate study, our primary focus will be on how rates will impact this planning. We will provide multiple scenarios to demonstrate what the potential effects of pricing are on usage and the subsequent effect on capital planning. Capital Financing and Long- Term Capital Planning: As the City has traditionally avoided debt service for utility capital infrastructure, many staff may not be intimately familiar with the process or nuances of incorporating it into long-term capital and rate planning. As registered Municipal Advisors, our team has the experience and knowledge to guide you through the process and avoid pitfalls. We can explain the types of financing available and provide the background information necessary to really understand how financing projects can benefit generational equity and the utility as a whole. While every issuance is a unique circumstance, we will outline the commonalities with debt issuance and allow the City to frame out a style of funding projects that fits with governance style. We will codify this into a policy that will then be applied throughout the remainder of the study to set forth a sustainable long-term capital plan. Better Understanding, Better Planning: Our work on the recently adopted Drought Management Plan shows the current water supply forecast cannot sustain growth in the City at existing per capita water use. This means action must be taken to ensure the City is properly positioned to continue to grow and prosper. How can the City integrate conservation and water supply planning into its rate structure? What is the best way to integrate financing into long-term capital planning? What are appropriate reserves for system renewal and replacement and what other practical steps should the community take for a sustainable utility? Professional Services Agreement For Water and Wastewater Rate Study 14 100 5WORK SUMMARY AE2S CITY OF BOZEMAN WATER AND WASTEWATER UTILITY SYSTEM COST OF SERVICE & RATE DESIGN STUDY PROPOSAL 5.4 Reserves and Reasonable Fiscal Policies: Related to debt financing for long-term capital improvements, this task will include providing recommendations and crafting policies that the City can use to develop replacement policies, set reserve levels, manage and track spending, and meet coverage or other covenants (on new bonds). As the City looks to finance capital improvements with debt, having well- defined fiscal policies can provide utility managers and City administrative staff with the baseline for tracking overall fiscal health and can help reduce the overall cost of borrowing when not using state-sponsored programs. Debt service isn’t the only consideration when setting reserves for a system. Often, repair and replacement of existing assets is a more pressing need to establish and fund reserves, but one that is quite a bit more complicated to determine. In consideration of reserve account funding, a desktop reserve funding analysis based on a comprehensive review of the City’s fixed asset database can be performed to determine how to appropriately balance capital spending and contributions to reserves considering system age, materials, size, and forecasted renewal rates. To forecast system renewal needs and associated revenue requirements, AE2S Nexus technical experts will develop a customized water and wastewater system renewal and replacement financial forecasting model based on statistical infrastructure failure rate distributions to evaluate appropriate annual budgetary amounts for contributions to reserves and rate funded capital. All of this will be conducted in a constructive manner with City staff. As industry experts, we will bring our knowledge and experience to your service and provide you with the information needed to make an informed decision. We will hold detailed meetings with City staff to get to the heart of your philosophy and issues and then provide recommendations with detailed rationale so you can make well-founded decisions. Professional Services Agreement For Water and Wastewater Rate Study 15 101 5WORK SUMMARY AE2S CITY OF BOZEMAN WATER AND WASTEWATER UTILITY SYSTEM COST OF SERVICE & RATE DESIGN STUDY PROPOSAL 5.5 Task 4 – Rate Design The Rate Design task has two core components to it: 1) determining the rate structure as a whole reflects the approach the City wants to take to recouping costs from the variety of users on the system, and 2) ensuring the rates charged are sufficient to recoup all the costs to actually run a sustainable utility over the 5-year projection period. To evaluate the rate structure itself, the results of the COSA, which will identify what portions of the costs are caused by each user or user class, will provide a basis for determining appropriate methods for charging individual user classes. By seeing how they use the system, we will be able to pinpoint what type of charges (fixed monthly versus volumetric) make the most sense as a baseline approach. However, our approach will also take into consideration the variability that comes with water (and subsequent wastewater) use and the price elasticity that results in changes to consumption as costs change. This will be done through a probabilistic revenue forecasting model that takes into account historic weather data, as well as historic rates and rate structures to provide insights into the effects of conservation and the likelihood of meeting revenue targets. Once we have established a base rate scenario, we will work with the City to approach the question of affordability in the various rate structures. From our work as co-authors focused on Affordability in the latest updates to WEF’s MOP-27 to our work in Montana specifically assisting the City of Bozeman with updates to their low-income assistance program, we will bring this expertise to aid the City in identifying their priorities and the best ways to achieve them. A second Progress Meeting is anticipated to review and select preferred rate structure approaches for What is Probabilistic Revenue Forecasting? As the City of Bozeman takes the steps to really fine-tune your water and wastewater rates for a changing, growing community you are asking poignant and informed questions of your rate consultant. These are cross-cutting questions that will touch on every task as we look to incorporate conservation, changes to the rate structure, and consumer attitudes into a prudent rate structure. One of the key tools we will bring to this discussion is a probabilistic revenue forecasting model. This tool, originally developed by the Alliance for Water Efficiency (AWE) has proven invaluable as we incorporate it into our detailed rate studies by allowing new insights into how revenues may be realized and how water use may fluctuate over various time periods to allow policy makers to make informed decisions. incorporation into the Revenue Adequacy Evaluation. The next step of rate design will include developing a five-year revenue adequacy model that allows the City to see how rates and revenues may need to change over this time period in response to growth and system demands. We will develop a customized model that is comprehensive and tailored to the unique needs and circumstances surrounding the City. Revenue adequacy is really where the rubber meets the road, and much of the decision-making and development that has gone into a rate structure is put into practice. Throughout the revenue adequacy evaluation, we will bring the wide-ranging information from growth patterns and outside revenue streams to potential debt service and the desired rate structure and overlay the budget to see where rates need to be to have a healthy, sustainable utility. The graphic above represents a typical output from AWE sales forecasting and modeling. Professional Services Agreement For Water and Wastewater Rate Study 16 102 5WORK SUMMARY AE2S CITY OF BOZEMAN WATER AND WASTEWATER UTILITY SYSTEM COST OF SERVICE & RATE DESIGN STUDY PROPOSAL 5.6 Specifically, the Revenue Adequacy evaluation will use revenue and revenue requirement (i.e., expense) projections to ensure sufficient revenue is generated to: 1.Provide revenue stability (particularly in light of conservation efforts); 2.Track on-going cash balances and ensure that reserve targets are met; and 3.Project debt service coverage requirements for any planned debt. As we dive into the Revenue Adequacy Evaluation, we will incorporate the projected revenue requirements for the most recent budget year for each system to be analyzed. Revenue Adequacy Evaluation = Detailed Review and Incorporation of:•Water and Wastewater SystemOperations and Maintenance(O&M) Budgets;•Capital Improvements Plans(CIPs);•The Cost of Water Supply andConservation; and•Other On-Going AssetManagement Considerations O&M escalation factors will be developed to provide a basis for the multi- year pro-forma of O&M expenses and future project financing considerations will be incorporated based on CIP scenario projections. These escalation factors will be adjusted based on historic budget increases for the utility as a whole, as well as specific line items. In addition to revenue requirements, revenue projections will be developed. We will incorporate growth and associated impact fees along with other non-rate revenue sources into the model. Baseline rate revenue projections will be developed based on projected meters and flow for the current year, with a multi-year pro-forma of future projections developed based on estimated user and flow growth. We will again look to integrate the Probabilistic Revenue Forecasting tool here to review that rates will likely be sufficient over the study horizon. Recommendations for reserve accounts and target funding levels identified under Task 3 will be utilized. A series of rate planning scenarios for both Water and Wastewater will be developed for review with City staff at a third Progress Meeting. These scenarios will be presented alongside data from the Annual Rate Survey to see how your rates compare with those of other Montana communities, as well as other comparable communities throughout the region. The Revenue Adequacy models are designed to be user-friendly. An annual revenue adequacy reconciliation tool will be developed and incorporated into the Revenue Adequacy model to streamline the annual rate model reconciliation process. This tool, along with the models themselves, will be provided to the City for its continued use. Task 5 – Study Finalization and Documentation At the conclusion of all outlined project evaluations, we will prepare a report to document final results and recommendations. The draft report will be submitted to City staff for review prior to finalization. In addition, we will prepare a presentation summarizing final results and recommendations from the Rate Study for presentation to the City Commission. A fifth Progress Meeting will be conducted at this point to review and finalize the presentation materials for City Commission. As final results are presented, the AE2S Nexus Project Team, including dedicated communications specialists, is prepared to support the City in a rate education campaign designed to engage the system users in an effort to gain their “buy-in” to necessary changes to utility rates and charges. This can be accomplished through public meetings, key stakeholder meetings, website content, and the possible incorporation of informational material with utility bills to help users understand the purpose and need for any proposed changes to water and wastewater rates. With the assistance of our on-staff communications experts, we will work with the City to identify the most appropriate communication initiatives for messaging the results of the Study. $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Water Wastewater CPI-U Index To support the rate-setting efforts across the region, we are proud to annually complete a survey of residential water, sewer, and stormwater charges for communities in Montana, Utah, South Dakota, North Dakota, Minnesota. Collection of this data on an annual basis allows us to provide a valuable tool to utilities across the region and to gain an understanding of rate practices for systems of various sizes in our part of the United States. Professional Services Agreement For Water and Wastewater Rate Study 17 103 City of Bozeman, Montana 2017 Water and Wastewater Rate Study Draft Scope and Fee Estimate October 10, 2017 Task 1 Project Kickoff and Data Review 1.1 Kickoff Meeting (On-Site)14 $2,884 $1,750 $4,634 1.2 Data Collection & Information Request 22 $3,436 $3,436 Task 1 Subtotal 36 $6,320 $1,750 $8,070 Task 2 Cost of Service Analysis (COSA) 2.1 Client Updates & Coordination 8 $1,648 $1,648 2.2 System & User Profiling 14 $2,432 $2,432 2.2.1 Review and Establish Test Year Budgets and Users Classes 26 $4,000 $4,000 2.3 COSA 2.3.1 Methodology Review 10 $1,608 $1,608 2.3.2 Model Development 82 $12,372 $12,372 2.3.3 Draft Review Meeting 8 $1,422 $1,422 2.4 Final Model Development 2.4.1 Model Updates 13 $2,000 $2,000 2.4.2 Results Review Meeting 8 $1,422 $1,422 Task 2 Subtotal 169 $26,904 $0 $26,904 Task 3 Integrated Financial Planning 3.1 Client Updates & Coordination 10 $2,060 $2,060 3.2 Financial Implications of Conservation 56 $9,112 $9,112 3.3 Capital Financing Policies and Procedures 32 $4,792 $4,792 3.3.1 System Renewal Modeling 18 $3,100 $3,100 3.4 Reserve and Fiscal Policies 12 $1,944 $1,944 3.5 Review Meeting 8 $1,422 $1,422 Task 3 Subtotal 136 $22,430 $0 $22,430 Task 4 Rate Design 4.1 Client Updates & Coordination 10 $2,060 $2,060 4.2 Rate Design 50 $8,184 $8,184 4.2.1 Probabilistic Forecasting 24 $3,588 $3,588 4.3 Review Meeting 8 $1,422 $1,422 4.4 Revenue Adequacy Model Development 104 $15,774 $15,774 4.5 Rate Model Software Delivery & Training 12 $1,872 $1,872 Task 4 Subtotal 208 $32,900 $0 $32,900 Task 5 Documentation and Presentation 5.1 Documentation and Report Preparation 64 $10,246 $750 $10,996 5.2 Presentation to Council 16 $3,296 $1,750 $5,046 Task 5 Subtotal 80 $13,542 $2,500 $16,042 TOTAL PROJECT HOURS/EXPENSES 629 $102,096 $4,250 $106,346 Task Description Budget Hours (All Labor Categories)Labor Fees Expenses Total AE2S Fee Professional Services Agreement For Water and Wastewater Rate Study 18 104 Disclosure of Conflicts of Interest �NEXUS The Financial Link AE2S Nexus, LLC, a registered municipal advisory firm, ("Advisor") is providing these disclosures in accordance with relevant municipal securities laws, rules, and regulations. These disclosures may, or may not, accompany rates and other types of information for securities and nonsecurities that have been provided by Advisor for informational purposes only. Provision of these disclosures does not indicate that Advisor has been retained to provide municipal adviso1y services as defined by the Dodd-Frank Wall Street Reform and Consumer Protection Act without an engagement scope of services that meets said definition. FORMS OF COMPENSATION Pursuant to applicable laws, mies, and regulations, Advisor hereby provides written disclosures about the actual or potential conflicts of interest presented by various forms of compensation. Advisor provides this disclosure unless Client has required that a particular form of compensation be used. The forms of compensation for municipal advisors va1y according to the nature of the engagement and requirements of the client, among other factors. Various forms of compensation present actual or potential conflicts of interest because they may create an incentive for an advisor to recommend one course of action over another if it is more beneficial to the advisor to do so. This document discusses various forms of compensation and the potential timing of payments to a municipal advisor. Fixed fee. Under a fixed fee form of compensation, the municipal advisor is paid a fixed amount established at the outset of the transaction. The amount is usually based upon an analysis by the client and the advisor of, among other things, the expected duration and complexity of the transaction and the agreed-upon scope of work that the advisor will perform. This form of compensation presents a potential conflict of interest because, if the transaction requires more work than originally contemplated, the advisor may suffer a loss. Thus, the advisor may recommend less time consuming alternatives, or fail to do a thorough analysis of alternatives. There may be additional conflicts of interest if the municipal advisor's fee is contingent upon the successful completion of a financing, as described below. Hourly fee. Under an hourly fee fmm of compensation, the municipal advisor is paid an amount equal to the number of hours worked by the advisor times an agreed-upon hourly billing rate. This form of compensation presents a potential conflict of interest if the client and the advisor do not agree on a reasonable maximum amount at the outset of the engagement, because the advisor does not have a financial incentive to recommend alternatives that would result in fewer hours worked. In some cases, an hourly fee may be applied against a retainer (e.g., a retainer payable monthly), in which case it is payable whether or not a financing closes. Alternatively, it may be contingent upon the successful completion of a financing, in which case there may be additional conflicts of interest, as described below. Fee contingent upon the completion of a financing or other transaction. Under a contingent fee form of compensation, payment of an advisor's fee is dependent upon the successful completion of a financing or other transaction. Although this form of compensation may be customary for the client, it presents a conflict because the advisor may have an incentive to recommend unnecessary financings or financings that are disadvantageous to the client. For example, when facts or circumstances arise that could cause the financing or other transaction to be delayed or fail to close, an advisor may have an incentive to discourage a full AE2S Nexus, LLC -Disclosures Exhibit B Professional Services Agreement For Water and Wastewater Rate Study 19 105 Professional Services Agreement For Water and Wastewater Rate Study20106