2017-2018 BUDGET AND CAPITAL IMPROVEMENTS PLAN - LOTT Clean ...

 
2017-2018 BUDGET AND CAPITAL IMPROVEMENTS PLAN - LOTT Clean ...
2017-2018 BUDGET
           AND
  CAPITAL IMPROVEMENTS PLAN
2017-2018 BUDGET AND CAPITAL IMPROVEMENTS PLAN - LOTT Clean ...
2017-2018 BUDGET AND CAPITAL IMPROVEMENTS PLAN - LOTT Clean ...
Table of Contents

                    Executive Summary  1

                    Financial Planning  3

                    Capital Budget and
                    Capital Improvements Plan  13

                    Operating Budget  55
2017-2018 BUDGET AND CAPITAL IMPROVEMENTS PLAN - LOTT Clean ...
Executive Summary
The LOTT Clean Water Alliance provides wastewater                        Many of these projects are large-scale, span multiple
treatment and reclaimed water production services                        years, and require substantial investment. At the
for the urban areas of Lacey, Olympia, and Tumwater                      same time, LOTT must operate its treatment facilities
in north Thurston County. LOTT’s complex system of                       24 hours a day, 7 days a week, 365 days a year, to
treatment and conveyance facilities represents one of                    ensure that wastewater is properly treated and
our communities’ largest regional investments, worth                     cleaned before it is released into the environment. To
an estimated $750 million.                                               support all this, LOTT must carefully manage financial
                                                                         resources, planning ahead with a long-term view that
                                                                         provides flexibility to adjust to changing conditions,
                                                                         while minimizing impacts to ratepayers.

                                                                         LOTT uses a six-year financial planning period, and 2017
                                                                         and 2018 represent the last two years of the current
                                                                         planning cycle. For 2017 and 2018, LOTT is preparing
                                                                         a biennial budget. LOTT’s Board of Directors approved
                                                                         the shift to a biennial budget format in 2016.

                                                                         This document outlines LOTT’s two budgets for
                                                                         the 2017-2018 biennium – a Capital Budget and an
                                                                         Operating Budget. The Capital Budget includes costs
                                                                         to replace, upgrade, or rehabilitate existing facilities
                                                                         and to build new system capacity. These projects
LOTT’s complex system of treatment facilities represents one of
our communities’ largest regional investments.                           are described in the Capital Improvements Plan, also
                                                                         included in this document. The Operating Budget
To sustain the communities' investment in the existing                   contains all the costs necessary to operate LOTT’s
system and accommodate future service needs,                             facilities and provide related services. The following
LOTT operates under a continual cycle of planning,                       table shows a combined summary of both operating
designing, and completing numerous capital projects.                     and capital revenues and expenses for 2017-2018.

                  Overall Budget Summary 2017-2018

                  REVENUE                                          2017-2018 Budget        2016 Budget (x2)*   % Change

                  Wastewater Service Charge                              $54,873,484             $52,052,290      5.4%
                  Capacity Development Charge                            $10,342,772              $9,501,886      8.8%
                  Miscellaneous Revenue                                     $930,000              $1,168,282    (20.4)%
                  Net Revenue from Rates and Charges                    $66, 146, 256           $62,722,458       5.5%
                  (Increase)/Decrease in Cash                            $16,223,043             $17,160,972     (5.5%)
                  Estimated Debt and Grants                               $1,050,000                      $0      0%
                  Total Resources                                       $83,419,299             $79,883,430       4.4%

                  EXPENSES                                         2017-2018 Budget         2016 Budget (x2)   % Change

                  Net Operating Expense                                  $24,733,548             $23,619,274      4.7%
                  Debt Service                                           $18,043,479             $17,882,316      0.9%
                  Capital Expense                                        $40,642,272             $38,381,840      5.9%
                  Total Expenses                                        $83,419,299             $79,883,430       4.4%

               * Sums from the 2016 Budget were doubled for comparison with the biennial 2017-2018 figures.

                                                                    1
2017-2018 BUDGET AND CAPITAL IMPROVEMENTS PLAN - LOTT Clean ...
Capital Budget                                                  • Wastewater Service Charge – The monthly rate in
                                                                  2017 will be $37.88, increasing by $0.74 from the
Capital costs are based on LOTT’s Capital                         2016 rate. An inflationary rate increase of 3% had
Improvements Plan (CIP), which will now be reviewed               previously been planned, however, LOTT’s Board
and updated each biennium. The projects identified                of Directors identified several cost saving and cost
in the CIP are necessary to ensure LOTT sustains the              deferral measures to reduce the adjustment to 2%.
existing wastewater treatment system and provides
needed new system capacity. The CIP is divided into             • Capacity Development Charge – The fee for new
two sections – a detailed six-year plan through 2022,             connections in 2017 will be $5,579.31, increasing
and a summary long-term plan for 2023 through                     from $5,354.57 in 2016. The 2017 rate includes the
2050. The Capital Budget includes costs for projects              3% inflationary increase, and an additional $64.10
on the short-term CIP that LOTT expects to spend                  increase that occurs annually through 2019.
within the calendar years 2017 and 2018. It is up               • Service Charges – LOTT also receives revenues
about 5.9% over the 2016 Capital Budget due to                    such as disposal fees from waste haulers. Rates
several large-scale projects needed to upgrade                    for disposal of septage, vactor, and similar non-
portions of the Budd Inlet Treatment Plant.                       septage wastes are automatically adjusted in
                                                                  conjunction with the Wastewater Service Charge.
Operating Budget
The Operating Budget includes three categories of               Revenues
expense – personnel, direct operating expense, and              Throughout the past several budget cycles, monthly
general expense. Overall operating expenses for                 Wastewater Service Charge (WSC) revenues have
2017-2018 have increased approximately 4.7%                     seen stable growth as new customers are added to
over the previous Operating Budget.                             the system. This natural growth in WSC revenues
                                                                                              funds the increased
Rates                                                                                         expenses associated
                                                                                              with the Operating
LOTT has two primary                                                                          Budget. Growth in the
rates – a monthly rate for                                                                    number of Capacity
LOTT sewer service and a                                                                      Development Charge
one-time connection fee.                                                                      (CDC) connection fees
The monthly rate is called                                                                    has been modest in the
the Wastewater Service                                                                        last few years, however,
Charge (WSC). Revenue                                                                         there are indications
from the WSC is used to                                                                       that the local housing
pay for costs of sustaining                                                                   market, and associated
and operating the existing                                                                    new connections, are
wastewater treatment                                                                          on the upswing. LOTT
system. The connection                                                                        continues to take a
fee is referred to as the                                                                     conservative approach
Capacity Development                                                                          to revenue forecasting
Charge (CDC). Revenue                                                                         and anticipates modest
from the CDC pays for                                                                         growth in the 2017-
costs associated with                                                                         2018 WSC and CDC.
building new system
capacity to serve
new customers.                The Capacity Development Charge is the fee for new connections to
                              the wastewater treatment system.

                                                            2
2017-2018 BUDGET AND CAPITAL IMPROVEMENTS PLAN - LOTT Clean ...
FINANCIAL PLANNING
2017-2018 BUDGET AND CAPITAL IMPROVEMENTS PLAN - LOTT Clean ...
Overview
The LOTT Clean Water Alliance operates a                               With large-scale capital project
complex system of facilities worth an                                      commitments, the Board of Directors
estimated $750 million. The LOTT                                             must consider budget decisions based
                                                                 Net
system includes the Budd Inlet                               Operating         on long-term financial planning.
Treatment Plant, Budd Inlet                                   Expense           LOTT uses a customized finance
Reclaimed Water Plant, Martin Way                                30%             planning tool to track anticipated
                                             Capital
Reclaimed Water Plant, Hawks                                                     expenses into the future, develop
                                            Expense
Prairie Reclaimed Water Ponds                                                    a capital finance plan that provides
                                              49%
and Recharge Basins, three major                                                 sufficient funds for capital projects,
                                                               Debt
pump stations, 22 miles of sewer                                                and balance the source of funds
                                                              Service
interceptor lines, and 11 miles of                                             between rate income and borrowed
                                                                21%
reclaimed water pipelines. The Budd                                           dollars. Continual efforts are made
Inlet Treatment Plant is over 60 years old,                                to identify and implement cost-saving
and major upgrades to the plant have been                             measures, and savings realized help to
ongoing for the past several years.                             minimize LOTT’s debt, reducing costs to ratepayers
                                                             from interest and other expenses associated with
To sustain the Budd Inlet Treatment Plant and other          borrowing money. The results of this approach
facilities, LOTT operates under a continual cycle of         have been excellent. LOTT’s service charge remains
planning, designing, and completing numerous                 below the average for the Puget Sound area, and the
capital projects. Many of these projects are large-          percentage increase in rates is consistently below
scale, span multiple years, and require substantial          regional and national averages.
investment. LOTT revenue needs are driven primarily
by the cost of this capital construction. Of the three       The Projected Budget Summary table shows
cost centers shown in the chart, two – debt service          anticipated expenses for each biennium over the
and capital expense – exist to fund the total cost of        next six years. One objective over this timeframe is
capital construction. For 2017-2018, LOTT’s combined         to reduce LOTT’s overall debt, which would reduce
infrastructure investment (debt service plus capital         costs related to interest payments and help prepare
costs) represents 70% of total expense, with                 the utility for the possibility of new loans or bonds
operating costs representing 30%.                            that may be needed to respond to changing
                                                             regulatory requirements.

                                                                                    Continual efforts are made to identify
                                                                                    and implement cost-saving measures.

                                                         4
2017-2018 BUDGET AND CAPITAL IMPROVEMENTS PLAN - LOTT Clean ...
Projected Budget Summary 2017-2022

                                                            2017-2018                 2019-2020                2021-2022
REVENUE
                                                             Budget                    Budget                   Budget
Wastewater Service Charge                                   $54,873,484               $59,746,684               $65,355,572
Capacity Development Charge                                 $10,342,772               $11,496,994               $12,576,422
Miscellaneous Revenue                                          $930,000                  $709,109                     $745,544
Net Revenue from Rates and Charges                          $66,146,256               $71,952,788              $78,677,537
Debt Funding                                                  $1,050,000               $1,050,000               $10,000,000
(Increase)/Decrease in Cash                                 $16,223,043                $1,301,455               ($3,001,014)
Total Resources                                             $83,419,299               $74,304,243              $85,676,524

                                                            2017-2018                 2019-2020                2021-2022
EXPENSES
                                                             Budget                    Budget                   Budget
Net Operating Expense                                       $24,733,548               $30,480,321               $34,847,082
Debt Service                                                $18,043,479               $18,175,128               $18,867,252
Capital Expense                                             $40,642,272               $25,648,794               $31,962,190
Total Expenses                                              $83,419,299               $74,304,243              $85,676,524

               With large-scale capital project commitments, the LOTT Board must consider budget decisions based on
               long-term planning.

                                                               5
2017-2018 BUDGET AND CAPITAL IMPROVEMENTS PLAN - LOTT Clean ...
Revenue, Rates, and Fee Summary
LOTT’s primary sources of revenue are the monthly service rate, known as the Wastewater Service Charge, and
a new connection fee, known as the Capacity Development Charge. LOTT also receives miscellaneous revenues
from other sources.

Wastewater Service Charge                                        CDC Adjustment – The fee for new connections in
The Wastewater Service Charge (WSC) is used to pay               2017 will be $5,579.31, increasing from $5,354.57
most of the cost for repairs or upgrades to the existing         in 2016. This reflects a 3.0% increase for inflation, in
wastewater treatment system, loan payments for                   addition to a $64.10 increase that occurs annually
system-related capital costs, and operating costs.               through 2019. This separate non-inflationary
The WSC is assessed based on the equivalent                      adjustment was put into place in 2002 to allow for
residential units (ERUs). The LOTT charge is included on         incremental adjustment of the CDC over nearly
the customers’ utility bills, which are sent out by LOTT’s       20 years, rather than applying a major one-time
partner cities. Each city also assesses a separate charge        increase early on. The revenue from this adjustment
on utility bills for costs associated with maintaining           accounts for the cost of initial projects associated
their city-owned sewer collection systems.                       with implementation of LOTT’s Wastewater Resource
                                                                 Management Plan.
Because 70% of LOTT’s expenses are related to
capital construction, a 3% inflationary adjustment               Miscellaneous Revenue
based on construction industry data was planned                  LOTT also earns interest on cash deposits and
to apply to both the WSC and the CDC rates                       receives revenues from miscellaneous other sources
each year of the 2013-2018 planning period. The                  such as disposal fees from waste haulers. Rates for
adjustment was established by the LOTT Board of                  disposal of septage, vactor, and similar non-septage
Directors in 2012 as part of a comprehensive capital             wastes are automatically adjusted in conjunction with
finance plan to ensure the utility keeps pace with               the Wastewater Service Charge.
escalating construction costs over time and is able
to adequately fund LOTT’s capital improvements                   Service Charge Adjustments – The adjusted rate
plan. In 2016, in response to pressures to minimize              for septage disposal will change to $15.63 per 100
utility rate increases, the LOTT Board initiated a               gallons in 2017. The rate for vactor and similar non-
thorough reevaluation of planned expenditures                    septage disposal will change to $4.05 per 100 gallons.
in an effort to reduce the adjustment to the WSC.
Several cost savings and cost deferral measures were
identified, which allowed the Board to lower the WSC             Revenue Projections and
adjustment for 2017 to 2%, instead of 3%. In 2017,               Analysis
the Board will consider a similar reduction in the WSC
adjustment for 2018.                                             Throughout the past several budget cycles, WSC
                                                                 revenues have seen slow but stable growth, while
WSC Adjustment – For 2017, the monthly charge will               growth in CDC revenue dropped during the recession
be $37.88, increasing $0.74 from the 2016 rate.                  and is now showing signs of recovery. In 2013, LOTT
                                                                 lowered the growth rate for the WSC to stay in line
                                                                 with the actual pace of growth. While the level of
Capacity Development Charge                                      growth may eventually return to rates closer to
The Capacity Development Charge (CDC), also                      the historical average, LOTT continues to take a
described as a connection fee or hook-up fee, is                 conservative approach to revenue forecasting and
used to build projects that add new capacity, such               anticipates modest growth in both the WSC and the
as satellite reclaimed water plants, larger sewer lines,         CDC for 2017 and 2018.
and other projects that increase LOTT’s ability to
serve new customers. The CDC is also assessed based
on equivalent residential units.

                                                             6
2017-2018 BUDGET AND CAPITAL IMPROVEMENTS PLAN - LOTT Clean ...
Wastewater Rate Comparisons
The LOTT Clean Water Alliance is frequently asked why its rates are so high. Concern about the cost of wastewater
services is often expressed by residents who are comparing the cost of wastewater and drinking water services,
which can appear on the same utility bill, or by new residents to the community who have moved here from
areas of the country with lower utility costs.

Wastewater treatment is, in                                                                    LOTT is a recognized leader
general, an expensive business.                                                                in wastewater treatment
LOTT treats an average of 13                                                                   in the state. The Budd Inlet
million gallons of wastewater                                                                  Treatment Plant remains one
each day. The water must be                                                                    of the only treatment plants
treated to high standards to                                                                   employing biological nutrient
meet state permit requirements                                                                 removal on Puget Sound. This
and be safely released into the                                                                advanced nitrogen removal
environment. This requires a                                                                   technology is likely to be
complex system of infrastructure                                                               required of most major plants
– pipelines, pump stations,                                                                    along Puget Sound in the
treatment plants, and related                                                                  future, potentially resulting
equipment – that must be up                                                                    in major rate increases for
and running 24 hours a day,                                                                    those communities. LOTT
7 days a week.                   Drinking water services are considerably less                 also operates an advanced
                                     expensive due to a stable supply of high quality          membrane biological reactor
                                     groundwater and complexity of treatment involved.
By contrast, drinking water                                                                    system at the Martin Way
services are considerably less                                                                 Reclaimed Water Plant,
expensive. This is due to the fact that our region                 which    was  one  of the first membrane plants in the
enjoys a stable supply of high quality groundwater to              state producing Class A Reclaimed Water. This same
meet drinking water needs. This water requires only                technology is now being developed by several
minimal treatment. Rates for drinking water and for                communities in our region to meet ever more
wastewater services can seem disproportionate, but                 stringent treatment requirements, and will likely
are mainly due to the vast differences in the amount               require significant increases to their rates.
and complexity of treatment involved in each.
                                                                   LOTT conducts an informal survey every few years
Part of the cost of wastewater treatment comes from                to see how its residential rates compare with other
our communities’ location along Puget Sound. The                   communities. Some utilities, like LOTT, use a flat rate
U.S. Environmental Protection Agency (EPA) requires                structure and others use a volume-based structure. To
states to comply with the federal Clean Water Act                  even out the different structures, all of the surveyed
by identifying water bodies that do not meet water                 rates were compared using LOTT’s basis for an
quality standards and developing action plans to                   equivalent residential unit, which is defined
bring those waters into compliance. Puget Sound,                   as 900 cubic feet (or 6,732 gallons) of wastewater
and more specifically, Budd Inlet, are water quality               per month. The current survey, conducted in 2016,
impaired. The Washington Department of Ecology has                 shows that our monthly charges are lower than
placed stringent requirements on LOTT to reduce the                the average. Given LOTT’s lower than average rates,
amount of nitrogen and biochemical oxygen demand                   and the advanced treatment already provided,
(BOD) discharged into Budd Inlet. LOTT was the first,              LOTT ratepayers are receiving a high value for the
and until recently, the only plant along Puget Sound               investments they are making. LOTT strives to ensure
that was required to treat wastewater to advanced                  its service charges are reasonable and affordable, and
secondary standards to remove additional nitrogen                  is meeting that objective when compared to other
from the water. This high level of treatment adds                  utilities in the region.
technological complexity and cost to the operation of
LOTT’s main treatment facility.

                                                             7
Wastewater Rate Comparisons

                                        2016      2014     2-year annualized    Flat or   2016   2014
                                        Rate      Rate         increase        Volume     Rank   Rank
City of Shelton                        $124.69   $103.02         10.5%            V        1      4
Tamoshan                               $115.70   $115.70          0.0%            F        2      1
City of Chehalis (in city limits)      $111.36   $105.09          3.0%            V        3      3
City of Seattle                        $110.43   $105.75          2.2%            V        4      2
City of Tenino                          $94.00    $94.00          0.0%            F        5      5
City of Bellevue                        $87.57    $79.03          5.4%            V        6      9
Olympic View                            $86.81    $82.68          2.5%            F        7      6
City of Bonney Lake                     $84.33    $75.78          5.6%            V        8      12
City of Centralia (in city limits)      $84.07    $82.58          0.9%            V        9      7
Boston Harbor                           $82.14    $82.14          0.0%            F        10     8
City of Longview (in city limits)       $80.23    $75.69          3.0%            V        11     13
City of Sumner                          $78.01    $76.09          1.3%            V        12     10
Grand Mound                             $75.81    $75.81          0.0%            F        13     11
City of Bremerton (in city limits)      $75.55    $71.08          3.1%            V        14     14
City of Renton                          $70.26    $68.60          1.2%            F        15     18
Average                                $67.19    $63.36
City of Auburn                          $66.32    $62.91          2.7%            F        16     15
City of Puyallup                        $64.82    $61.63          2.6%            V        17     16
City of Tacoma                          $61.49    $54.66          6.2%            V        18     19
City of Everett                         $59.87    $49.50         10.5%            F        19     26
City of Olympia                        $57.79    $54.29          3.2%             F        20     21
City of Yelm                            $57.37    $53.04          4.1%            F        21     22
City of Kelso                           $57.24    $54.48          2.5%            F        22     20
City of Mount Vernon                    $56.30    $56.30          0.0%            V        23     17
City of Lacey                          $55.95    $52.51          3.3%             F        24     23
Lakehaven Sewer District (KC Metro)     $53.81    $50.78          3.0%            V        25     24
City of Tumwater                       $53.02    $50.03          3.0%             F        26     25
Lakehaven Sewer District (Pierce Co)    $49.58    $48.26          1.4%            V        27     27
City of Vancouver                       $46.70    $43.97          3.1%            V        28     28
Pierce County Sewer                     $45.64    $42.82          3.3%            F        29     29
City of Snoqualmie                      $44.51    $42.16          2.8%            F        30     30
City of Orting                          $42.59    $40.15          3.0%            F        31     31
City of Bellingham (in city limits)     $39.47    $35.07          6.3%            F        32     33
City of Hoquiam                         $39.44    $38.14          1.7%            F        33     32
City of Aberdeen                        $36.78    $34.68          3.0%            F        34     35
Lakehaven Sewer District                $35.81    $34.85          1.4%            V        35     34
City of Edmonds                         $33.25    $27.73         10.0%            F        36     36

                                                 8
Cost Allocation
Operating costs are paid out of Wastewater Service              LOTT is currently conducting a cost of service
Charge (WSC) revenue; capital projects and debt                 analysis to update the basic unit of measurement, the
service are paid from both WSC and Capacity                     equivalent residential unit (ERU), and to review the
Development Charge (CDC) revenues. The allocation               cost centers and cost allocations currently employed
between these funds depends on the type of project              in LOTT’s accounting practices. LOTT’s partner
involved, as specified by the Interlocal Cooperation            communities are using more reclaimed water than
Act Agreement for Wastewater Management.                        ever before, and have high interest in using more
                                                                water than LOTT currently produces. As a result, future
The primary purpose of the CDC is to pay for new                Capital Improvements Plans may include projects
capacity in the system and to ensure that growth pays           that are demand-driven, rather than strictly capacity-
for growth. This was one of the guiding principles in           driven, and adjustments in LOTT’s cost allocations may
the development of the interlocal agreement. The                be needed to accommodate this “new” type of project.
LOTT Board determined that the costs assigned to the            Results of the current cost of service analysis will be
CDC should reflect the full spectrum of construction,           integrated into future budgets and CIPs.
interest on debt, costs for staff, and related ancillary
costs to support new capacity development. Because
LOTT develops new capacity “just in time,” the utility
                                                                Emergency Reserves
invests significant staff time and other resources in           As stated in LOTT’s Performance Plan, the LOTT Board
ongoing activities, such as planning, engineering, land         maintains six months of operating expenses and
acquisition, permit acquisition, public involvement,            $3.0 million for emergency capital expenditures in
and other project-related activities.                           reserve. These amounts are separate from, and in
                                                                addition to, reserves required by debt covenants. For
It is important to recognize that the CDC is adjusted           2017 and 2018 emergency reserves will include:
over the life of the Capital Improvements Plan (CIP),
                                                                • $3.0 million for emergency capital expenditures
currently projected to 2050, and is not used for short-
term revenue adjustments. When conditions require               • $7.8 million (approximately) in emergency
short-term revenue adjustments for capital projects,              operating reserves
the WSC must be raised to meet costs as required
by the interlocal agreement.
Over time, the two funds
are reviewed to ensure
that system costs and new
capacity costs are applied to
the appropriate projects. The
estimated costs and revenues
are balanced over the life of
the Capital Improvements
Plan, and the Board of
Directors reviews these costs
each biennium to determine
if adjustments are needed.

                                Future Capital Improvements Plans may include projects that are demand-driven, rather than
                                capacity-driven.

                                                            9
LOTT works to make the most of staffing levels, realigning workloads and resources to create efficiencies.

Cost Control
LOTT operates under a set of core values that includes managing financial resources in a responsible, sound,
economical, and equitable manner. Toward that goal, LOTT actively manages projects and programs to identify
efficiencies and cost-savings, minimize expenses, and limit the need to increase rates. Cost control takes vigilance
and effort, and is an integral aspect of how LOTT does business. LOTT cannot prevent the rising cost of supplies
and labor, but makes every effort to minimize capital and operational costs through a variety of efforts, including:
• Asset Management – The Asset Management                                • Energy Reduction Efforts – LOTT is working
  Program inventories LOTT’s equipment, processes,                         toward a goal of 5% reduction in total energy
  and systems to proactively identify and schedule                         use by 2018, and is well on the way to meeting
  needed repairs and replacements. This program                            that goal. Through extensive work with Puget
  protects LOTT’s assets and extends their useful life.                    Sound Energy, Cascade Energy, and Washington
                                                                           State University, several energy audits have
• Finance Management – LOTT seeks out grants and
                                                                           been conducted to identify ways to optimize
  low interest loans, and has kept average interest
                                                                           energy usage throughout LOTT’s facilities. LOTT
  rates below 3.1% for all outstanding debt. Large-
                                                                           has also developed an incentive program to
  scale projects are awarded based on competitive
                                                                           recognize employee-generated ideas for energy-
  bidding. Other contracts, such as services, are
                                                                           saving projects.
  actively negotiated to obtain the best pricing.
                                                                         • Human Resource Management – LOTT works
• Business Case Evaluation – Value engineering
                                                                           to make the most of staffing levels, realigning
  by a diverse team of technical staff ensures that
                                                                           workloads and resources to create efficiencies.
  each project is designed and built efficiently and
                                                                           Investment in a proactive knowledge management
  effectively. Projects are scheduled over time, and
                                                                           program is helping create training tools and
  rearranged on the CIP, so as not to exceed available
                                                                           succession plans to effectively prepare future
  financial and staffing resources.
                                                                           employees with the specialized technical
                                                                           knowledge needed in the industry.

                                                                    10
Capital Improvements Planning
LOTT operates under a National Pollution Discharge            equipment assets that must be maintained properly
Elimination System (NPDES) permit that is issued              to keep the plant running. Asset management is a
by the Washington State Department of Ecology                 proactive approach to sustaining the plant and LOTT’s
for the U.S. Environmental Protection Agency (EPA).           other infrastructure, allowing the utility to keep ahead
LOTT must meet all permit requirements, as well as            of needed maintenance and avoid unexpected, and
expectations of federal and state agencies regarding          potentially catastrophic, system failures.
responsible utility management. The EPA has
developed the Capacity, Management, Operation, and            Capacity-related data is modeled in a geographic
Maintenance Performance Program Plan, requiring               information system (GIS) to develop population
wastewater utilities to demonstrate that they have            growth forecasts and predict associated wastewater
a comprehensive, long-term plan for maintaining               flows and loadings spatially throughout the system.
existing utility infrastructure and meeting future            This information is used to develop a three-part
system needs. LOTT meets that expectation through             Capacity Report, which helps identify and prioritize
development of an organizational Performance Plan             capital projects for inclusion in the Capital
every six years, and through continual review and             Improvements Plan. Based on this report, LOTT
adjustment of the Capital Improvements Plan. The              identifies needs within the system and develops
Capital Improvements Plan, prepared each biennium,            projects to meet those needs.
is submitted annually to the Department of Ecology,
along with a three-part Capacity Report, as part of           All this information funnels into the Capital
permit requirements.                                          Improvements Plan, which lists projects anticipated
                                                              over the short- and long-term.
Continuous planning is key to this process and
allows LOTT to sustain existing infrastructure and
build new infrastructure to meet projected future
capacity needs. One of the first steps in planning                         Capacity Report
capital improvements is gathering information
about the condition of existing infrastructure, repair            LOTT's Capacity Report is updated annually,
and replacement needs, current system capacity,                   and is available on LOTT’s website at
and needs for additional capacity in the future. Data             www.lottcleanwater.org. The report contains
gathered includes:                                                three sections:
• Asset management data, such as system condition,                Flows and Loadings Report analyzes
  criticality, and useful life                                    residential and employment population
• Population forecasts from the Thurston Regional                 projections within the urban growth area, and
  Planning Council                                                estimates the impact on wastewater flows
                                                                  and loadings in the LOTT wastewater system.
• Recently added sewer pipelines
• Anticipated septic tank conversions to the                      Inflow & Infiltration and Flow Monitoring
  sewer system                                                    Report uses dry and wet weather sewer flow
                                                                  monitoring results to quantify the amount of
• Flow monitoring results                                         unwanted surface stormwater (inflow) and
• Planned development                                             subsurface groundwater (infiltration) entering
                                                                  the sewer system, and prioritizes sewer line
The asset management data is used to identify and                 rehabilitation projects.
prioritize projects necessary to sustain existing
treatment, conveyance, and discharge equipment                    Capacity Assessment Report analyzes
and facilities. LOTT’s primary treatment facility, the            system components to determine when
Budd Inlet Treatment Plant, is over 60 years old, and             limitations will occur and provides a timeline
involves a complex maze of piping and thousands of                for new and upgraded system components.

                                                         11
Capital Project Categories                                    CIP Overview and
LOTT’s Capital Improvements Plan is built around              Organization
four major project categories. Understanding these
categories, and the types of projects within them, is         The Capital Improvements Plan (CIP) represents all
key to understanding how they are funded.                     major capital projects in the foreseeable future. It is
                                                              revised each biennium based on updated capacity
                                                              reports, asset management evaluations, and other
System Upgrades                                               changing conditions.
System Upgrade projects include improvements to
existing facilities. Upgrades are necessary to replace        The CIP is divided into two sections – short-term and
outdated equipment, improve efficiency, and in some           long-term. Each section is summarized in a table.
cases, to meet higher water quality standards. One            • 2017-2022 CIP – This six-year CIP groups projects
of the public values guiding LOTT’s operations is to            by category. It includes a Capital Budget column
maximize use of existing facilities before building             showing anticipated spending for 2017 and 2018
new ones. These projects are funded primarily from              for each project. Following the table, a project
monthly rates.                                                  summary page is provided for each project in the
                                                                short-term plan.
New Capacity                                                  • 2023-2050 CIP – The longer-range table divides
New Capacity projects are those that provide new                projects by operational systems, based on asset
facilities to serve added wastewater flows. Under the           management lifecycle investments needed to meet
Wastewater Resource Management Plan, also known                 the expected build-out condition of the entire
as the Highly Managed Plan, LOTT is continuously                Lacey-Olympia-Tumwater service area.
planning for new system capacity, to be built “just
in time” to ensure that future demands are met.
                                                         Capital Budget and Short-Term
For this purpose, LOTT considers three types of
                                                         CIP Summary
capacity when describing its overall operational
capacity – treatment capacity, discharge and                                             2017-2018        2017-2022
use capacity, and conveyance capacity. New                                                Budget             CIP
capacity projects are funded primarily from new          System Upgrades                 $23,106,502       $54,148,842
connection fees.
                                                         New Capacity                       $222,845        $1,147,321
                                                         Asset Management                 $3,399,889        $7,647,511
Asset Management                                         Support Services and Projects   $13,913,036       $35,309,582
(Repair, Rehabilitation, and                             Total                           $40,642 272      $98,253,256

Replacement)
When systems or equipment reach the point where
repairs are no longer cost-effective, they can be
rehabilitated (overhauled) to a usable condition or
they can be replaced.

Support Services and Projects
Support Services and Projects provide planning
information and services that support projects in all
categories. They include the ongoing flow monitoring
and flow reduction programs, property acquisition,
and special studies and projects that support LOTT’s
long-range Wastewater Resource Management Plan.
Engineering and staff costs allied with the Capital
Improvements Plan are also included in this category.

                                                         12
CAPITAL BUDGET AND
CAPITAL IMPROVEMENTS PLAN
2017-2018 Capital Budget / 2017-2022 Capital Improvements Plan
Summary                                                            Year      Year      2017-2018     2017-2022
  Page                                                             Start   Complete   Expenditure       CIP
          System Upgrade Projects                                                     $23,106,502   $54,148,842

          Budd Inlet Treatment Plant                                                  $17,715,359   $42,656,093

  16      Centrate Handling Improvements                           2016     2017         $662,423      $662,423
  17      Sludge Dewatering System Upgrade                         2015     2018      $13,148,419   $13,148,419
  18      DAFT System and Thickened Sludge Pumping Upgrade         2016     2017         $625,691      $625,691
  19      Sludge Thickening System Upgrade                         2020     2022              $0     $3,832,258
  20      Biological Process Improvements                          2018     2022       $1,899,345   $15,669,593
  21      UV System Control and Power Upgrades                     2018     2019         $509,031    $2,545,156
  22      North Odor Scrubber and Air Handling Upgrades            2022     2023         $105,967    $1,059,668
  23      Gas Utilization Upgrades                                 2019     2020              $0     $1,290,467
  24      Centrate Building Rehabilitation                         2018     2019         $764,484    $3,822,418
          Conveyance                                                                   $2,497,638    $5,007,815

  25      Influent Sewer Main Rehabilitation                       2017     2017         $468,838      $468,838
  26      Capitol Lake Pump Station Wet Well Coatings              2017     2017         $228,800      $228,800
  27      Collection System Management Program                     2008    Ongoing     $1,800,000    $4,310,176
          Martin Way Reclaimed Water Plant                                             $2,893,505    $6,484,934

  28      Reclaimed Water Plant Improvements                       2017     2019       $2,893,505    $4,822,508
  29      Membrane Filter Replacement                              2022     2022              $0     $1,662,426

          New Capacity Projects                                                          $222,845    $1,147,321

  30      Deschutes Valley Master Planning and Development         2017     2018         $222,845      $222,845
  31      Henderson Conveyance Pipeline                            2022     2023              $0       $924,476

          Asset Management Projects                                                   $3,399,889    $7,647,511

  32      General Equipment Repair and Replacement (LERF)          2009    Ongoing       $963,182    $2,804,529
  33      Instrumentation and Controls Replacement                 2012    Ongoing       $321,014    $1,022,882
  34      Budd Inlet Treatment Plant Groundwater Control           2017     2018         $417,007      $417,007
  35      Digester Building Drain Replacement                      2016     2017         $201,591      $201,591
  36      Storage Warehouse                                        2021     2022              $0       $561,787
  37      Laboratory Building Skylight Refurbishment               2016     2017         $162,010      $162,010
  38      Digester Refurbishment                                   2015     2020         $851,119    $1,702,237
  39      Budd Inlet Treatment Plant Roof Repair and Replacement   2016    Ongoing       $483,967      $775,468

                                                           14
2017-2018 Capital Budget / 2017-2022 Capital Improvements Plan (continued)
 Summary                                                                    Year        Year          2017-2018          2017-2022
   Page                                                                     Start     Complete       Expenditure            CIP
              Support Services and Projects                                                         $13,913,036         $35,309,582

     40       Annual Miscellaneous Professional Services                    2006       Ongoing           $771,000         $2,058,682
     41       Internal Engineering Support                                  2006       Ongoing         $2,365,592         $7,482,774
     42       Allied Staff Costs                                            2006       Ongoing         $4,557,535        $14,401,964
     43       Flow Monitoring Program                                       2006       Ongoing           $466,900         $1,487,734
     44       Flow Reduction Programs                                       2006       Ongoing           $600,880         $1,914,649
     45       Property Demolition                                           2019        2020                    $0          $645,530
     46       Miscellaneous Small Projects                                  2006       Ongoing           $724,000         $2,094,305
     47       Reclaimed Water Infiltration Study                            2012        2018           $2,785,728         $2,785,728
     48       Information Technology Upgrades                               2014       Ongoing           $248,000           $593,766
     49       Water Quality and Habitat Improvement                         2006       Ongoing           $916,797           $916,797
     50       Records Management System                                     2017        2018             $270,307           $270,307
     51       Energy Efficiency and Consumption Reduction Program           2014       Ongoing           $206,297           $657,345
     52       Property Acquisition                                          2017       Ongoing                  $0                 $0

              Total                                                                                   $40,642,272        $98,253,256

The multi-year Reclaimed Water Infiltration Study examines the interrelationships and issues related to reclaimed water, groundwater
infiltration, and residual chemicals.

                                                                   15
Centrate Handling Improvements

Project Type          System Upgrade

Location              Budd Inlet Treatment Plant

Description           This is the first phase of an overall effort to upgrade the centrate management system.
                      The project involves improvements to the centrate pumping system, including new
                      pumps, instrumentation, and baffles in the basins used to store centrate.

Background            Centrate is a byproduct of the solids dewatering process. This ammonia-rich material
                      is recycled to provide food energy for microorganisms that break down pollutants
                      during the treatment process. With the completion of the east primary sedimentation
                      basins, the original basins to the west can be used to store and manage centrate. These
                      upgrades are required to repurpose the basins and better manage centrate loading to
                      the secondary treatment process.

Duration              2 years

 Start     Complete        2017-2018 Expenditure 2017-2022 CIP

 2016          2017                 $662,423                 $662,423

                                                     16
Sludge Dewatering System Upgrade

Project Type     System Upgrade

Location         Budd Inlet Treatment Plant

Description      This project involves replacing aging centrifuges with a more reliable and efficient
                 dewatering system, and upgrading the associated electrical system.

Background       The solids dewatering process removes excess moisture from digested sludge. The
                 current system includes three centrifuges, one high-speed Humbolt, and two low-speed
                 Sharples P500s. The Humbolt, installed in 2000, serves as the primary unit, processing
                 2,500 pounds per hour. The Sharples, installed in 1980, serve as back-up to the main unit,
                 each capable of processing 1,500 pounds per hour. These units are reaching the end of
                 their useful lives and are no longer supported by the manufacturer.

Duration         3 years

               Start       Complete      2017-2018 Expenditure 2017-2022 CIP

               2015          2018                $13,148,419               $13,148,419

                                                 17
DAFT System and Thickened Sludge Pumping Upgrade

Project Type     System Upgrade

Location         Budd Inlet Treatment Plant

Description      This is the first of a two-phase effort to upgrade the dissolved air flotation thickener
                 (DAFT) system. The project includes a complete system evaluation and upgrades to
                 the thickened sludge pumps. Information gathered through this phase will guide
                 development of the scope for phase two of this overall effort.

Background       The DAFT system is used to thicken primary and waste sludge before it is pumped
                 into the digesters. The DAFTs were constructed in the early 1980s and much of the
                 associated equipment is approaching the end of its useful life.

Duration         2 years

               Start       Complete       2017-2018 Expenditure 2017-2022 CIP

               2016           2017                  $625,691                   $625,691

                                                  18
Sludge Thickening System Upgrade

Project Type    System Upgrade

Location        Budd Inlet Treatment Plant

Description     This project is phase two of the overall thickening system upgrade. The scope of the
                project will be developed as part of the business case evaluation to be performed in
                phase one.

Background      The DAFT system is used to thicken primary and waste sludge before it is pumped into
                the digesters. The DAFTs were constructed in the early 1980s and much of the associated
                equipment is approaching the end of its useful life.

Duration        3 years

               Start      Complete      2017-2018 Expenditure 2017-2022 CIP

               2020         2022                     $0                  $3,832,258

                                               19
Biological Process Improvements

Project Type     System Upgrade

Location         Budd Inlet Treatment Plant

Description      This project involves optimizing the current biological treatment process at the Budd
                 Inlet Treatment Plant by reconfiguring the existing first aeration basins, and reducing
                 the energy required to accomplish biological nutrient removal. The improvements
                 include replacing oversized blowers and minimizing recycle pumping, which will
                 reduce power consumption. The project also includes optimizing methanol addition to
                 the secondary process.

Background       The first aeration basins were installed in 1994 and were originally sized to meet the
                 anticipated demands of the former brewery in Tumwater. Much of the equipment is
                 reaching the end of its useful life.

Duration         5 years

               Start       Complete     2017-2018 Expenditure 2017-2022 CIP

               2018          2022                $1,899,345               $15,669,593

                                                20
UV System Control and Power Upgrades

Project Type      System Upgrade

Location          Budd Inlet Treatment Plant

Description       This project involves upgrading the existing ultraviolet (UV) disinfection system,
                  including ultraviolet lamps, ballasts, control modules, and power supplies, and
                  refurbishing the Fiddlehead Outfall emergency gate.

Background        UV disinfection is the final treatment step prior to discharge to Budd Inlet. The existing
                  Trojan system was installed in 1993 and has an estimated useful life of 20 years.
                  Manufacturer’s support for the existing ultraviolet disinfection system equipment will
                  be discontinued in 2018.

Duration          2 years

                Start       Complete      2017-2018 Expenditure 2017-2022 CIP

                2018          2019                 $509,031                 $2,545,156

                                                  21
North Odor Scrubber and Air Handling Upgrades

Project Type          System Upgrade

Location              Budd Inlet Treatment Plant

Description           This project involves replacing the north odor scrubber with new, state-of-the-
                      art technology that is more effective in eliminating odiferous constituents and
                      more efficient in balancing airflows. The project also includes improvements to the
                      headworks, solids, and maintenance building air handling systems.

Background            The north odor scrubber equipment was originally installed in the early 1980s as
                      part of the Budd Inlet Treatment Plant construction for the secondary upgrade and is
                      reaching the end of its useful life.

Duration              2 years

 Start     Complete       2017-2018 Expenditure 2017-2022 CIP

 2022          2023                 $105,967               $1,059,668

                                                    22
                                                    30
Gas Utilization Upgrades

Project Type     System Upgrade

Location         Budd Inlet Treatment Plant

Description      This project includes the evaluation and implementation of alternatives to optimize
                 utilization of digester gas. The project may involve replacement of the cogeneration
                 engine generator, should that alternative be selected.

Background       Methane and other biogas is captured from the solids treatment process and used in
                 a cogeneration system to produce heat energy and electricity for reuse. The engine
                 generator for the cogeneration system was installed and commissioned in 2009, with
                 an estimated useful life of 10 years.

Duration         2 years

               Start       Complete     2017-2018 Expenditure 2017-2022 CIP

               2019          2020                    $0                   $1,290,467

                                                23
Centrate Building Rehabilitation

Project Type          System Upgrade

Location              Budd Inlet Treatment Plant

Description           This is phase two of the overall centrate management system upgrade, which
                      includes replacement of the roof structure, refurbishment of the interior steel beams,
                      replacement of the odor control system, electrical upgrades, and the addition of covers
                      for the centrate basins.

Background            Centrate is a byproduct of the solids dewatering process. This ammonia-rich material
                      is recycled to provide food energy for microorganisms that break down pollutants
                      during the treatment process. With the completion of the east primary sedimentation
                      basins, the original basins to the west can be used to store and manage centrate. This is
                      the second phase of work to repurpose the basins and better manage centrate loading
                      to the secondary treatment process.

Duration              2 years

 Start     Complete        2017-2018 Expenditure 2017-2022 CIP

 2018          2019                 $764,484                $3,822,418

                                                     24
                                                     30
Influent Sewer Main Rehabilitation

Project Type    System Upgrade – Conveyance

Location        Budd Inlet Treatment Plant

Description     This project involves relining the 60-inch influent sewer main that runs from Olympia
                Avenue along Adams Street to the Budd Inlet Treatment Plant.

Background      During routine inspection it was noted that the 60-inch influent sewer main is
                experiencing degradation due to hydrogen sulfide gas. An engineering report was
                completed in 2014, which evaluated various rehabilitation alternatives.

Duration        1 year

                               Start      Complete       2017-2018 Expenditure 2017-2022 CIP

                               2017          2017                 $468,838                $468,838

                                              25
Capitol Lake Pump Station Wet Well Coatings

Project Type          System Upgrade – Conveyance

Location              Capitol Lake Pump Station

Description           This project involves replacing the coatings in the Capitol Lake Pump Station wet wells,
                      which have begun to fail, creating the risk of pump blockages.

Background            Coatings of wet wells protect the concrete from degradation caused by the presence
                      of hydrogen sulfide. Wet well coatings were installed at the Capitol Lake Pump Station
                      in 1999, however, moisture from groundwater intrusion prevented proper adhesion of
                      the coatings. The new wet well coatings will increase the lifespan of the concrete in the
                      wet wells and reduce the risk of system failure during high flow situations.

Duration              1 year

 Start     Complete        2017-2018 Expenditure 2017-2022 CIP

 2017          2017                 $228,800                 $228,800

                                                     26
Collection System Management Program

Project Type     System Upgrade – Conveyance

Location         Systemwide

Description      This project involves the ongoing monitoring and rehabilitation of sewer lines and
                 manholes within the LOTT collection system. It ensures federal compliance with
                 capacity management, operations, and maintenance needs and is an integral part of
                 LOTT’s Asset Management Program. Annual activities include closed circuit televised
                 inspection and condition assessment, which is used to develop the repair and
                 replacement program.

Background       LOTT currently owns and maintains approximately 22 miles of gravity sewer lines,
                 8 miles of forcemains, and 300 manholes. In alignment with LOTT’s overall Asset
                 Management Program, a formal collection system management program is being
                 developed with engineering consultant assistance. The program will result in an
                 efficient and systematic approach to inspection, maintenance, repair, and replacement
                 of LOTT’s collection system assets.

Duration         Ongoing

               Start     Complete      2017-2018 Expenditure 2017-2022 CIP

               2008        Ongoing             $1,800,000              $4,310,176

                                               27
Martin Way Reclaimed Water Plant Improvements

Project Type     System Upgrade

Location         Martin Way Reclaimed Water Plant

Description      This project involves a number of improvements to the treatment plant, including
                 valve replacement, additional blower capacity, programming modifications, and
                 addressing limited secondary screening capacity.

Background       Since the Martin Way Reclaimed Water Plant first came on-line in 2006, a number of
                 operational challenges have been identified. Also, reclaimed water demand in the system
                 has increased significantly making continuous and reliable operation increasingly
                 important. This project will address some of the operational limitations of this facility.

Duration         3 years

               Start       Complete      2017-2018 Expenditure 2017-2022 CIP

               2017          2019                $2,893,505                $4,822,508

                                                 28
Martin Way Reclaimed Water Plant Membrane Filter Replacement

  Project Type     System Upgrade

  Location         Martin Way Reclaimed Water Plant

  Description      This project involves the periodic replacement of the membrane filters at the Martin
                   Way Reclaimed Water Plant.

  Background       The Martin Way Reclaimed Water Plant uses membrane bioreactor technology
                   to produce Class A Reclaimed Water. The membrane filters were last replaced in
                   2013. Based on the manufacture’s recommendation, the estimated useful life of the
                   membranes is 7 to 10 years. The next replacement is currently scheduled for 2022,
                   though this timeline may change based on condition and performance of
                   the membranes.

  Duration         1 year

                 Start      Complete      2017-2018 Expenditure 2017-2022 CIP

                 2022         2022                    $0                   $1,662,426

                                                 29
Deschutes Valley Master Planning and Development

Project Type     New Capacity

Location         Deschutes Valley Reclaimed Water System

Description      This project involves continued information gathering at LOTT’s Deschutes Valley
                 properties and initial site improvements, such as demolition of structures in severe
                 states of disrepair.

Background       LOTT owns over 40 acres of land in the Deschutes Valley as a potential site for future
                 treatment facilities. A master planning effort for the site began in 2014. It was suspended
                 in 2016 because of uncertainties related to future system capacity needs and the
                 timeline for developing facilities at that site. This project provides for limited initial site
                 improvements that are needed regardless of the ultimate plan and timeline for full site
                 development.

Duration         2 years

               Start       Complete       2017-2018 Expenditure 2017-2022 CIP

               2017          2018                  $222,845                   $222,845

                                                  30
Henderson Conveyance Pipeline

Project Type   New Capacity - Conveyance

Location       Deschutes Valley Reclaimed Water System

Description    This project involves design and construction of a reclaimed water pipeline from LOTT’s
               Reclaimed Water Storage Tank in Tumwater to the site of LOTT’s future Henderson North
               Recharge Basins. The pipeline will be approximately two miles in length and will include
               a connection to Pioneer Park.

Background     The Henderson North property was purchased in 2015 as a potential site for future
               recharge of reclaimed water produced at the Budd Inlet Treatment Plant.

Duration       2 years

                              Start       Complete       2017-2018 Expenditure 2017-2022 CIP

                               2022          2023                    $0                    $924,476

                                              31
General Equipment Repair and Replacement

Project Type     Asset Management

Location         Systemwide

Description      This line item provides funding for miscellaneous small repair and replacement projects.

Background       In 1987 LOTT established the LOTT Equipment Replacement Fund (LERF), which set
                 aside $1.25 from monthly service rates for equipment replacement. These funds pay for
                 implementation of LOTT’s asset management and replacement program.

Duration         Ongoing

               Start     Complete        2017-2018 Expenditure 2017-2022 CIP

               2009        Ongoing                $963,182                $2,804,529

                                                32
Instrumentation and Controls Replacement

Project Type      Asset Management

Location          Systemwide

Description       This line item provides funding for instrumentation and controls replacements
                  and upgrades.

Background        The control system receives input from a number of controls and instuments, many of
                  which are reaching the end of their useful lives and need to be replaced.

Duration          Ongoing

 Start     Complete   2017-2018 Expenditure 2017-2022 CIP

 2012       Ongoing             $321,014                $1,022,882

                                                 33
Budd Inlet Treatment Plant Groundwater Control

Project Type          Asset Management

Location              Budd Inlet Treatment Plant

Description           This project involves assessment of groundwater intrusion into facilities within the
                      Budd Inlet Treatment Plant, such as the utilidor and process tankage, and installation of
                      corrective measures, such as dewatering wells, to minimize groundwater intrusion.

Background            In 2014, after the east primary sedimentation basins were completed, excessive
                      groundwater intrusion was noted in and around the north end of the utilidor. One
                      source, a leaky pipe, was identified and addressed, but flow continued into some
                      plant structures. In recent years plant construction appears to have shifted flow from
                      area artesian springs underlying the plant and increased impacts from groundwater
                      intrusion. This assessment and construction of dewatering wells is intended to
                      alleviate the excess groundwater intrusion, protect plant infrastructure from further
                      groundwater-related degradation, and minimize related impacts on plant capacity.

Duration              2 years

 Start     Complete        2017-2018 Expenditure 2017-2022 CIP

 2017          2018                 $417,007                  $417,007

                                                      34
Digester Building Drain Replacement

Project Type          Asset Management

Location              Budd Inlet Treatment Plant

Description           This project involves replacing corroded drains and piping in the digester building that
                      runs through the equalization basins.

Background            Equalization basins 4 and 5 were constructed in 1982 and are located underneath the
                      digesters. They are used to manage high flows to the plant, storing raw wastewater
                      until it can be metered back into the treatment process. There are numerous drains
                      and utility pipes running through the basins that are corroded and need to
                      be replaced.

Duration              2 years

 Start     Complete       2017-2018 Expenditure 2017-2022 CIP

 2016          2017                 $201,591                  $201,591

                                                      35
Storage Warehouse

Project Type          Asset Management

Location              Budd Inlet Treatment Plant

Description           This project involves the design and construction of a 5,000 square foot warehouse at the
                      Budd Inlet Treatment Plant to store and manage LOTT’s extensive spare parts inventory.

Background            LOTT currently stores spare parts in 14 different locations, on and off the site of the
                      main treatment plant, making it extremely difficult to maintain proper inventories and
                      manage parts. The number of critical spare parts that need to be in stock and readily
                      accessible has increased as LOTT’s Asset Management Program has matured. This
                      storage facility will allow for tighter control over parts and supplies, enhancing cost
                      control efforts and ensuring timely repairs.

Duration              2 years

 Start     Complete       2017-2018 Expenditure 2017-2022 CIP

 2021          2022                    $0                    $561,787

                                                     36
Laboratory Building Skylight Refurbishment

Project Type          Asset Management

Location              Budd Inlet Treatment Plant

Description           This project involves replacing the skylights on the laboratory building.

Background            Skylights were originally constructed in 1979 and have reached the end of their useful
                      life. They consistently leak during rain events and are not made of tempered glass,
                      representing a potential safety issue.

Duration              2 years

 Start     Complete        2017-2018 Expenditure 2017-2022 CIP

 2016          2017                 $162,010                  $162,010

                                                      37
Digester Refurbishment

Project Type     Asset Management

Location         Budd Inlet Treatment Plant

Description      The project includes the inspection and refurbishment of aging components associated
                 with the digesters.

Background       The digesters were constructed in 1982 and much of the equipment is reaching the
                 end of its useful life. There are four digesters, with three in-service and one off-line at
                 any one time. Use of the digesters is rotated on an annual basis. This project will follow
                 the rotational schedule to complete the inspection and refurbishment of one off-line
                 digester annually.

Duration         6 years

               Start       Complete      2017-2018 Expenditure 2017-2022 CIP

               2015          2020                 $851,119                 $1,702,237

                                                 38
Budd Inlet Treatment Plant Roof Repair and Replacement

Project Type     Asset Management

Location         Budd Inlet Treatment Plant

Description      This project involves repair and replacement of facility roofs at the Budd Inlet
                 Treatment Plant. In 2017, the ultraviolet disinfection building and final effluent
                 building roofs will be replaced.

Background       As part of LOTT’s Asset Management Program, a maintenance and monitoring
                 program has been established to maximize the life of the existing roofs and ultimately
                 plan for their replacement. A number of roofing systems at the plant are reaching the
                 end of their useful lives and need to be replaced in the coming years.

Duration         Ongoing

 Start     Complete   2017-2018 Expenditure 2017-2022 CIP

 2016      Ongoing             $483,967                  $775,468

                                                 39
Annual Miscellaneous Professional Services

Project Type      Support Services and Projects

Location          Systemwide

Description       This line item provides funding for various unexpected small projects that are identified
                  during the biennium and for projects needed to respond to emergency situations.

Duration          Ongoing

 Start     Complete   2017-2018 Expenditure 2017-2022 CIP

 2006       Ongoing             $771,000                $2,058,682

                                                  40
Internal Engineering Support

Project Type     Support Services and Projects

Location         Systemwide

Description      Engineering staff provide support for current and future projects. Services include
                 facility planning, permitting, engineering design, construction management, and
                 documentation.

Duration         Ongoing

               Start     Complete       2017-2018 Expenditure 2017-2022 CIP

               2006        Ongoing               $2,365,592                $7,482,774

                                                 41
Allied Staff Costs

Project Type     Support Services and Projects

Location         Systemwide

Description      LOTT staff from throughout the organization provide support for capital projects. This line
                 item covers staff time for capital improvements support not included in the Engineering
                 Division.

Duration         Ongoing

               Start     Complete       2017-2018 Expenditure 2017-2022 CIP

               2006        Ongoing               $4,557,535               $14,401,964

                                                 42
Flow Monitoring Program

Project Type   Support Services and Projects

Location       Systemwide

Description    This line item provides funding for the collection and analysis of flow monitoring data to
               support the development of the annual three-part Capacity Report (Flows and Loadings,
               Inflow & Infiltration and Flow Monitoring, and Capacity Assessment). Annual costs include
               the monthly data collection fees, and annual calibration, relocation, and maintenance of
               flow meters.

Background     As part of LOTT’s National Pollutant Discharge Elimination System (NPDES) permit,
               LOTT is required to monitor its sewer collection basins so that each is assessed within a
               seven-year period.

Duration       Ongoing

                              Start      Complete       2017-2018 Expenditure 2017-2022 CIP

                              2006         Ongoing               $466,900                 $1,487,734

                                               43
Flow Reduction Programs

Project Type     Support Services and Projects

Location         Regional

Description      This line item funds efforts related to water conservation and education. Since the WET
                 Science Center serves as the heart of LOTT’s educational efforts, updates to WET Center
                 exhibits are also included in this program.

Background       To help maximize capacity at the Budd Inlet Treatment Plant, LOTT works with the
                 three partner water utilities on a regional water conservation program to provide
                 incentives for residential and commercial projects that cost-effectively reduce water
                 use and wastewater flows. LOTT also recognizes the importance of public education to
                 achieve behavior changes that result in water conservation and flow reduction.

Duration         Ongoing

 Start     Complete   2017-2018 Expenditure 2017-2022 CIP

 2006      Ongoing             $600,880                $1,914,649

                                                 44
Property Demolition

Project Type          Support Services and Projects

Location              Budd Inlet Treatment Plant

Description           This project involves removal of a LOTT-owned building between Washington and
                      Franklin Streets, previously owned by the Washington State Department of Fish and
                      Wildlife, which is in a severe state of disrepair.

Background            This property was purchased by LOTT in 2013 as a site for future facilities associated
                      with the Budd Inlet Treatment Plant, such as additional equalization basins or other
                      treatment process infrastructure.

Duration              2 years

 Start     Complete       2017-2018 Expenditure 2017-2022 CIP

 2019          2020                    $0                    $645,530

                                                      45
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