Water Contract Operator Procurement Process Overview

CITY OF RAHWAY WATER CONTRACT OPERATOR PROCUREMENT PUBLIC HEARING January 26, 2017 NW Financial Logo Bohler Engineering

Agenda Brief Discussion of Procurement Process to date Explanation of Selection Process for Negotiations Summary of Negotiation Process Overview of Negotiated Terms and Conditions Rate and Economic Terms / Information General Summary of Benefits City Initiatives Next Steps / Schedule 2

City of Rahway Overall Goal Obtain a new Operation and Management Services Agreement with a highly qualified firm that incorporates a modern and cost effective scope of services that, when combined with on- going efforts of the City to construct a new water supply interconnect and a new water filtration system at its water supply and treatment facility, will provide the residents of Rahway with reliable and efficient water supply infrastructure while maintaining a reasonable and affordable rate structure. 3

Procurement Process To Date Event Date 1 Retain Professional Team and Develop RFP/RFQ document April 2014 to April 2015 2 Issue RFQ/RFP April 30, 2015 3 Pre-Proposal Conference May 14, 2015 4 Site Tours May 14 & 15, 2015 5 Development of Evaluation Matrix May 14, 2015 6 Receipt of Proposals August 7, 2015 7 Interviews of Respondents August 31, 2015 8 Selection of Suez for Negotiations September 29, 2015 9 Negotiations October 2015 10 Completion of Negotiation Process May 2016 11 Issue Notice of Public Hearing January 11, 2017 4

Proposal Options Proposal Option 1 Respondents MUST propose on Options 1 and 2. The scope of Services to be provided under Proposal Option 1 shall include the management, operation, maintenance and repair of the Water Supply System only. Proposal Option 2 Respondents MUST propose on Options 1 and 2. The scope of Services to be provided under Proposal Option 2 shall be the same as Proposal Option 1, except that the Successful Respondent shall also be responsible for the Sewer Collection System. 5

Benefits of Procurement Process Collaborative RFQ/RFP process resulted in proposals from two (2) highly qualified contract services firms Suez (formerly United Water) Middlesex Water Company Provided the City with the opportunity to explore multiple service contract options and terms simultaneously Provided for an apples to apples comparison of service providers 6

Selection Process for Negotiation Phase Proposal Evaluation Matrix Structure Phase I RFQ/RFP Proposal Checklist Phase II Minimum Criteria set forth in Section 4 of the RFQ/RFP Phase III Proposal Evaluation based upon and criteria set forth in Section 7 of the RFQ/RFP Phase IV Interview/Presentation 7

Suez Qualifications Operates 20 water and 5 wastewater facilities throughout New Jersey, with 84 contracts nationwide; Proven capability in operating water supply systems, including membrane filtration systems; Financial strength net worth of over $1 billion and consolidated revenue of $750 million in 2014; Performed successfully in Rahway since 1999; Low transition risk; Thoughtful approach to operation, maintenance and repair Best Management Practices. 8

Summary of Negotiation Process The City and its professional team undertook 6 months of direct face to face negotiations and drafting the Services Agreement, Agreement Schedules and the Scope of Services with Suez s team of representatives. Significant focus on (1) ensuring a modern and comprehensive scope of services, and (2) examining and negotiating Suez s fee structure. 9

Overview of Negotiated Terms and Conditions Term of Services Agreement 20 years Scope of Services Water Supply System, including the upgraded water filtration system being installed at the water treatment plant Scope of Services also includes Water and Sewer billings and collections Annual savings of $108,000 from prior Sewer billings and collections contract Scope of Services includes enforceable performance standards Fee Annual Fixed Fee paid monthly, escalated each year via a formula tied to established indices and Annual Fee includes a portion related to an Annual Maintenance Cap Annual Maintenance Cap Assures that regular maintenance and repair work will be performed by the Operator without additional cost to the City $500K in Year 1; $651K in years 2-20, adjusted for inflation 10

Overview of Negotiated Terms and Conditions, cont. City maintains full control over and ownership of its water supply system City maintains control over water rates Annually Renewable Performance Bond and Labor and Materials Payment Bond Parent Guaranty Provided by Suez Water, Inc. Full complement of insurance Significantly modernized and expanded scope of services 11

Negotiated Contract Savings Original Aug 2015 Proposed Fee1 3,860,408 $ 4,399,631 4,487,623 4,577,376 4,668,923 4,762,302 4,857,548 4,954,699 5,053,793 5,154,869 5,257,966 5,363,125 5,470,388 5,579,796 5,691,392 5,805,219 5,921,324 6,039,750 6,160,545 6,283,756 Current Proposed Fee2 3,517,017 $ 3,998,811 4,078,787 4,160,363 4,243,570 4,328,442 4,415,011 4,503,311 4,593,377 4,685,244 4,778,949 4,874,528 4,972,019 5,071,459 5,172,889 5,276,346 5,381,873 5,489,511 5,599,301 5,711,287 Contract Savings 343,391 $ 400,820 408,836 417,013 425,353 433,860 442,537 451,388 460,416 469,625 479,017 488,597 498,369 508,337 518,503 528,873 539,451 550,239 561,244 572,469 Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1Per United Water/Suez proposal dated August 5, 2015 (Scenario 2) adjusted for comparative purposes 2Per United Water/Suez proposal dated May 9, 2016 (rev. Scenario 2) 12 Total 104,350,433 $ $ 94,852,095 $ 9,498,337 Each assumes plant upgrade Yr.2 and 2% annual inflation adjustment

Projected Water Capital Expenditures City projections assume approximately $48 million in Water Capital Expenditures over contract period Approximately $33 million in Water Capital Expenditures are projected in the first 10 years of the contract 13

Projected Water Utility Projected Revenues (in $ Millions) Water Misc. Rents Revenues 6.62 $ 0.03 $ 7.06 0.03 7.42 0.03 7.79 0.03 8.18 0.03 8.59 0.03 9.01 0.03 9.47 0.03 9.94 0.03 10.44 0.03 10.96 0.03 11.50 0.03 12.08 0.03 12.68 0.03 13.32 0.03 13.98 0.03 14.68 0.03 15.42 0.03 16.19 0.03 17.00 0.03 Projected Expenses (in $ Millions) Management Water Fee Purchases 3.55 $ $ 4.00 4.08 4.16 4.24 4.33 4.42 4.50 4.59 4.69 4.78 4.87 4.97 5.07 5.17 5.28 5.38 5.49 5.60 5.71 Projected Excess Balance $ Surplus Utilized $ 0.03 0.02 0.24 Total Revenues $ 10.47 10.99 11.53 12.11 12.71 13.35 14.01 14.71 15.45 16.22 17.03 Debt Service 1.35 $ 1.78 1.74 2.03 2.11 2.47 2.66 2.68 2.69 2.59 3.57 3.65 3.72 3.79 4.06 4.19 4.26 4.76 4.76 4.96 Total Expenses 5.60 $ 6.48 6.52 6.89 7.06 7.49 7.78 7.88 7.98 7.98 9.05 9.22 9.40 9.56 9.93 10.17 10.34 10.95 11.06 11.37 Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 - - - 6.65 7.09 7.45 7.85 8.23 8.85 9.04 9.50 9.97 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 1.05 0.61 0.92 0.96 1.17 1.36 1.27 1.62 1.99 2.49 1.94 2.31 2.71 3.16 3.42 3.85 4.37 4.50 5.16 5.66 - - - - - - - - - - - - - - 222.32 $ $ 0.60 $ 0.29 223.21 $ $ 94.88 $ 14.00 63.82 $ 172.70 $ $ 50.50 Projected surplus available over 20 year period is approx. $50M 14 *Assumes new contract effective May 1, 2017; assumes plant upgrade effective Q4 2017

Existing Water Rate Comparison Rates in $ (@60,000 gallons per year) Most recent year for Rates availability Aug-15 Sep-15 Aug-15 Sep-14 2016 2016 2016 2016 2016 Population Served Monthly Quarterly Annually 257,000 2,700,000 828,000 165,000 610,000 65,000 37,000 52,500 28,000 $45.90 44.60 43.00 40.80 40.20 36.60 30.10 29.20 29.00 $137.60 133.80 128.90 122.40 120.70 109.80 90.20 87.50 87.00 $550.60 535.20 515.80 489.80 482.70 439.30 361.00 350.10 348.00 Jersey City American Water Middlesex Aqua Suez NJ Bayonne South Brunswick Hoboken Rahway $600 $551 $535 $516 $490 $483 $500 $439 $400 $361 $350 $348 $300 $200 $100 Source: Suez $- Jersey City AW NJ Middlesex Aqua NJ Suez NJ Bayonne South Brunswick Hoboken Rahway 15 Average residential bill (5,000 gallons per month or 60,000 gallons per year)

Projected Water Rates $605 $600.00 $500.00 $474 $400.00 $384 $348 $300.00 $200.00 $100.00 $- 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 5.0% Jan. 1, 2017 per O-39-13 6.7% Apr. 1, 2017 projected 5.0% 2018-2026 projected Average residential bill (5,000 gallons per month or 60,000 gallons per year) 16

Projected Taxpayer Savings over 20 year Contract Projected Savings Current Proposal 6/13/2016 Public Hearing Surplus via Water Utility 50,501,424 $ $ 19,342,662 Available Concession Proceeds - 9,342,000 Sewer Billings Contract 2,160,000 2,160,000 Total 52,661,424 $ $ 30,844,662 Approx. $52.6M in taxpayer savings is projected over the life of the contract 17

General Summary of Benefits Increased and modernized Scope of Services Suez shall operate and maintain the water system according to the Best Management Practices (BMPs) which are established to: Protect the health and welfare of the public and the operating staff. Provide potable water that meets drinking water standards. Protect the environment. Preserve the long-term capability of the distribution system, storage, and treatment services. Protect and preserve associated equipment. Minimize operational costs to the City. City maintains full control over and ownership of its water supply system Compliance Assistance Suez is partnering with the City to comply with the new Memorandum of Agreement (MOA) between the City and the New Jersey Department of Environmental Protection (NJDEP), which allows the City to approve new water service connections during the construction of the Water Treatment Plant (WTP) filter system upgrade and various other new appurtenances. Appropriate and clear risk apportionment Targeted approach to reducing nonrevenue water 18

General Summary of Benefits, cont. Distribution System Flushing and Fire Flow Test flushing all hydrants and water mains at least one (1) time per year. Valve Maintenance 20% of the valves are exercised each year so that every valve is exercised once every five (5) years and critical valves shall be exercised on a more frequent basis with the oldest valves in the system exercised within the first 20%. Geographic Information System (GIS) Database updated version of the GIS mapping of the entire water distribution system. Capital Improvement Plan (CIP) annual CIP which shall outline the recommended capital improvements for the next five (5) year period and on a rolling basis. Asset Management Plan (AMP) prepare and submit to the City on an annual basis the AMP which should be closely coordinated with the CIP. 19

Additional Improvements Undertaken by the City Purchase of Water from Middlesex Water Company(MWC) Suez shall develop, comment on, and implement for the City s approval a standard operating plan that outlines the purchase of water from MWC in accordance with the City s current (new) agreement with MWC. New Interconnection Pipeline between MWC and the Rahway WTP Suez shall be responsible for operating the new interconnection pipeline for purposes of reducing finished water salinity, maintaining water demands during dry seasons, and for emergencies 20

Additional Improvements Undertaken by the City, cont. New membrane filter system, which will increase the Plant capacity from five (5) MGD to 7.7 MGD. Upgrade of instrumentation and control system, including the installation of a WTP-wide fiber optic self-healing loop. The existing computer servers will be upgraded to provide additional redundancy. Replace the existing residuals pond liner. New backwash transfer pumping station and force main to convey discharged backwash waters from the existing Plant and the new membrane filter system. Upgrade of electrical service and certain switch gears for the new improvements. A new emergency generator to power the entire Plant during emergencies. Currently, the Plant cannot produce water during a power outage and can only pump a one day supply of stored water. 21

Next Steps / Schedule Task Date 1 Hold New Public Hearing January 26, 2017 @ 6:30 pm 2 Hold open public comment for seven days following the public hearing February 2, 2017 3 Prepare Ordinance for City Approving Services Agreement February, 2017 4 Prepare Hearing Report February 2, 2017 5 City to introduce Ordinance February 7, 2017 6 Submit Hearing Report and applications to Agencies for Review (DEP, LFB and BPU) February 13, 2017 7 Obtain Agency Approvals March 2017 (LFB) April 2017 (DEP/BPU) 8 City to conduct Second Reading and adopt Ordinance approving Services Agreement April 2017 9 Effective Date of Services Agreement May 1, 2017 22