1. True-Up Service Fee Adjustment with OMI/Thames January 10, 2006

2. Background Service contract for operations and maintenance (O&M) with OMI/Thames – February 2003. O&M covers the water, wastewater and stormwater systems. City pays a base annual service fee that adjusts each year by CPI. Contract provides for fee adjustment for system expansion and new infrastructure.

3. Fee Adjustment Request In November 2004, OMI/Thames submitted a request for fee adjustment. Categories of adjustments included: –Salary –Uncontrollable circumstances –Out-of-scope work –Changes in law –Growth –Materials costs

4. City Response Initially denied all requests for adjustments. Subsequently, agreed to pay two utility bill payments and to discuss the eligibility of several of the other requests including growth.

5. Issue Resolution The city and OMI/Thames met numerous times. Reached resolution on 6 issues. The team decided to concentrate on the growth adjustment provided for in the contract. With agreement on a growth adjustment, the remaining request for adjustment issues would be withdrawn.

6. Growth Since the beginning of the contract, the water, wastewater and stormwater systems have expanded and added new infrastructure and new connections. OMI/Thames has operated and maintained the new infrastructure as it becomes operational.

7. Growth Adjustment Section 5.21(B) of the contract provides for an adjustment to the service fee for increased O&M costs resulting from changes in the infrastructure of the utility systems. The contract calls for the service fee adjustment to be negotiated between the City and OMI/Thames. The contract does not indicate how the service fee should be adjusted.

8. Proposed True-Up Adjustment OMI/Thames would receive additional compensation for each net new connection to the water, wastewater stormwater system. Initial per annual connection fee compensation: –Wastewater:$131.00 –Water:$109.00 –Stormwater:$ 12.00 A CPI factor would apply to the water and wastewater fee. There would be no CPI adjustment for the stormwater fee.

9. Proposed True-Up Adjustment The true-up fee adjustment would include: –All facilities –Increased labor costs –Growth impacts on operations –Energy costs –Capital cost increases due to materials –Vehicle costs The per connection service fee adjustment is lower than the average per connection fee at the beginning of the contract. Other adjustment requests are withdrawn.

10. Outcome No utility rate increases for customers other than the annual CPI adjustment. Simplifies the true-up service fee adjustment for growth. Assists both the City and OMI/Thames in budget planning. Reduces other claims for adjustments. Revenues cover all costs including fee, reserves and known capital costs.

11. Recommendations Authorize the City Manager to pay the O&M true-up fee adjustment. –The initial payment for the period from the start of the contract until July 2005 will be $2,975,846 plus a prorated portion for current contract year three payment. Authorize the City Manager to transfer funds from the utility reserve funds to cover the costs of the true-up service adjustment.

12. Recommendations Authorize the City Manager to apply the compensation formula, during the term of the contract, to compensate OMI/Thames for net new utility connections attributable to expansion of the City’s utility systems.