Next week the Wichita City Council will consider a major step in proceeding with a new Wichita water plant.
The central water plant in Wichita is old, and the city has been planning a new plant. The new facility is called the Northwest Water Treatment Facility (NWWTF). Much information is available in the agenda packet for the July 10, 2018 city council meeting.
The city plans to issue a letter of interest (LOI) to apply for a Water Infrastructure Finance and Innovation Act of 2014 (WIFIA) federal loan for up to 49 percent of the project cost, which at this time is estimated as $524,200,000.
The Environmental Protection Agency says that “Based on the information provided in the letter of interest, EPA will invite selected prospective borrowers to submit an application for WIFIA credit assistance.” This will not be the first time the city has attempted to use this financing source, according to city documents: “The City submitted a WIFIA LOI in 2017 but was not invited to apply.”
For the balance of the financing, the city says it intends to apply for a loan from the Kansas State Revolving Loan Fund (SRLF). The advantage to using these government financing sources, says the city, is “Both programs offer low, fixed interest rates and have less expensive financing costs compared to traditional revenue bonds. Repayment of WIFIA is not required until five years after construction is completed and repayment of SRLF begins two years after the first disbursement is received. The delayed repayment allows rates to be smoothed over time to minimize customer impacts, and the low cost of financing keeps the overall project cost down.”
Of note, the city intends to use an acquisition process that is different from the usual:
City staff have analyzed different project delivery methods and determined that a Hybrid DBo is the most beneficial approach. It pairs the lowest cost source of financing, which is available exclusively to the City, with the cost containment and project quality that can be delivered under a public-private partnership. This expertise also provides value-added engineering and access to advanced technologies that may lower total project costs. The key to getting the best of both approaches is to hire a Construction Management company with expertise in constructing similar treatment facilities. The City will also issue an RFP to select a Construction Management company that will oversee the selected DBo team.
In the LOI to the EPA, the city included this:
The City has considered and evaluated multiple project delivery approaches, including a range of possibilities from traditional design-bid-build to full privatization through a design-build-own- finance-operate and maintain model. Through these deliberations, the City has concluded that design-build with short-term operations presents the least risk and highest value. The City refers to this delivery approach as DBo, in which the operations component is a relatively short term of up to 5 years, including transitioning operations to the City. The City has selected a DBo approach for the following reasons:
- Accelerated project delivery by overlapping design, permitting, and equipment procurement tasks (see Attachment 6, Project Schedule).
- Optimal risk allocation by assigning risk to the party or parties that can best control those risks (see Table A-1).
- Early cost certainty.
- Highest value for money derived by leveraging the experience and capability of the designer, builder, and operator to achieve the optimal balance of capital and lifecycle costs.
- Ability to “staff up” through the use of a contract operator during startup and commissioning of the NWWTF.
- Ability to prepare for transition to City operation through robust training of the City’s operations leadership.
- Ability to “staff down” once the City’s own operations forces are trained and available
Wichita water users need to follow this process carefully. The ASR project — a $247 million Wichita water project — has been underperforming by a large amount.