Minutes 06/13/2017 - Laserfiche WebLink

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June 13, 2017  Portsmouth has negotiated a proposed contract with Chesapeake for the extension of bulk water sales through June, 2047.  In order to achieve this long-term commitment, a reduction in the rate and quantity of water purchased by Chesapeake is a condition of the proposed agreement.  The proposed agreement obligates Chesapeake to purchase an annual average of 2 mgd of bulk treated water at a rate of $6.245 per 1,000 gallons (the current rate is $7.125 per 1,000 gallons), with an annual rate increase of 2%. Financial Impact:  The value of the existing contract through 2026 is approximately $125,000,000.00. The proposed contract revenue through June 30, 2047 is approximately $197,000,000.00. This is a guaranteed increase in revenue of approximately $72,000,000.00  Under the proposed contract, the Department of Public Utilities will experience a short term decrease in expected revenue over the next 8 years.  Possible strategies to mitigate the timing of revenue include debt restructuring, CIP management, rate evaluation and restructuring and continued optimization of operational efficiencies.  The extension of the term of Chesapeake’s obligation to purchase water will provide crucial support for the long-term stability of the Portsmouth water system. Recommended Action:  Adoption of the proposed resolution. Next Step Following Council Action:  The City Manager will execute the contract for purchase and sale of water with the City of Chesapeake.  The Director of Public Utilities will ensure compliance with all terms and condition of the new contract. Motion by Ms. Lucas-Burke, and seconded by Ms. Psimas, to adopt the following resolution, and was adopted by the following vote: “RESOLUTION AUTHORIZING THE EXECUTION OF A CONTRACT FOR THE PURCHASE AND SALE OF WATER WITH THE CITY OF CHESAPEAKE, VIRGINIA. WHEREAS, in 1969 the City of Portsmouth and the City of Chesapeake entered into an agreement for Portsmouth to sell water to Chesapeake at bulk rates; and WHEREAS, in 1990Portsmouth and Chesapeake entered into a new agreement for the bulk rate sale of water, with a term extending through the end of 2020; and WHEREAS, in 1996 Portsmouth and Chesapeake amended the agreement to make various modifications and extend the term through the end of 2026; and WHEREAS, Portsmouth and Chesapeake have negotiated a new water agreement to replace the existing agreement in its entirety; and WHEREAS, under the terms of the proposed new agreement, Chesapeake will receive a reduction in price and the minimum amount of bulk treated water it is obligated to purchase, and in exchange Portsmouth will receive a twenty year extension of the term of the agreement through June 30, 2047; and WHEREAS, the extension of Chesapeake’s obligation to purchase water through June 2047 will provide a total guaranteed increase in revenues to the Portsmouth water system of approximately $72,000,000, and will further provide essential stability for the operation and financing of the system;