SUBJECT:
Title
A Resolution of the Town Council of the Town of Erie Authorizing the Town to Opt into and Execute Additional CWCB Loan under the Windy Gap Firming Project Allotment Contract
Body
DEPARTMENT: Utilities Department
Department
PRESENTER(S): Todd Fessenden, Utilities Director
First Name Last Name, Title
FISCAL SUMMARY:
Cost as Recommended: $4,377,131
Balance Available: Applied to Existing CWCB Loan for Project
Budget Line Item Number: 500-75-110-603500-100005
New Appropriation Required: No
POLICY ISSUES:
It is the policy of the Town to ensure adequate water supplies to meet current needs and future growth. The Windy Gap Firming Project ensures availability of the Town’s 2,000 shares of fully re-usable Windy Gap water by means of a large storage reservoir near Carter Lake (aka Windy Gap Firming Project).
STAFF RECOMMENDATION:
Recommendation
Approve the resolution opting into adding additional C&E funding to the existing CWCB loan.
End
SUMMARY AND BACKGROUND OF SUBJECT MATTER:
The requested funds are due to cost overruns on the Windy Gap Firming/Chimney Hollow Reservoir Project (WGFP). They are Erie’s share of a $65 million loan increase to the Windy Gap Firming Project Water Activity Enterprise account for various increased costs described in the attached request from Northern Colorado Water Conservancy District’s (NCWCD) Municipal Subdistrict to Colorado Water Conservation Board (CWCB). The interest rate on the CWCB loan is 2.08%.
From NCWCB Report:
Initial financing included a modest contingency fund of approximately 10% of Chimney Hollow Reservoir's 2019 construction cost estimate ($485 million). This contingency amount equated to approximately 8.5% of the entire WGFP's 2019 forward looking program cost estimate of $561 million. This included engineering, construction management, environmental & mitigation, and owner's cost associated with, and required for Chimney Hollow Reservoir construction. The contingency fund was modestly sized to minimize financing cost by not pre-funding a large contingency, which may or may not be needed, during the 4-year construction period. While best case scenarios would have seen the contingency remain unused, it was a known likelihood that additional funds could eventually be needed to bring WGFP to completion. Accordingly, the WGFP Allotment Contracts not only provided the means for the Enterprise to raise the "Initial" Project funds but pre-authorized raising "Completion" Project funds without requiring an amendment to the Allotment Contracts.
The Enterprise awarded the $485 million Chimney Hollow Reservoir construction contract to Barnard Construction Company (Barnard) in December 2019. Due to environmental litigation delays beyond our control, construction did not begin until August 2021. During that 17-month delay, in addition to ordinary fluctuations in construction costs that would have resulted in cost increases, the state of construction economics drastically changed due to COVID-19 and subsequent supply chain issues, inflation and labor shortages. This resulted in approximately $22.5 million added to the construction contract prior to issuing the notice to proceed. Barnard and the Enterprise worked diligently to mitigate the cost impacts caused by this delay, as well as to maintain good construction progress while those effects were, and still are, being felt even after construction started. Through June 2023, the Project remains generally on track for an on-time completion in August 2025.
Beyond external economic pressures, large dam and heavy civil construction projects carry an inherent cost risk due to differing or unforeseen site conditions, risks of errors and omissions in the plans and specifications, and changes in material quantities beyond contract limits. In addition to the litigation delay cost, the Enterprise has issued $21.6 million in change orders due to such variances in site conditions, owner's requested changes, design developments, and changes in material quantities. The current projection of quantity and risk variances remaining forecasts the potential for $44-$55 million in future change orders. Altogether, construction is forecasting to come in between 7.5% and 9.5% of Barnards original 2019 contract amount.
Including increases seen on the engineering and construction management related to project schedule as well as increases in the environmental & mitigation projects related to changes instituted by regulatory agencies, the total Completion funds needing to be raised is currently estimated to be between $48 and $65 million. Compared to the 2019 WGFP program cost estimate, this equates to an 18% to 20% cost increase, whereas the initial contingency was only sufficient for an 8.5% increase.
Pursuant to Northern prior staff discussions, the Enterprise seeks an amendment to its existing loan in an amount to cover the projected Completion funds required. As construction continues and project risks continue to be reanalyzed based on actual conditions, we anticipate the needed funds for Completion will fluctuate. The Enterprise will coordinate with CWCB as appropriate based on the timing of the new projections and the status of this loan increase request.
COUNCIL PRIORITY(S) ADDRESSED:
ü Prosperous Economy
ü Safe and Healthy Community
ü Effective Governance
ü Environmentally Sustainable
ü Fiscally Responsible
ATTACHMENT(S):
1. Resolution 24-121
2. Exhibit A - Allotment Contract
3. Exhibit B - Notice from Subdistrict
4. Exhibit C - 10-year Assessment Project Sheet