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John Jermanis February 11, 2002 Page 3 The discussion in this Memorandum relates only to the October 24, 2001 letter and the series of technical discussions that immediately preceded that letter. Analysis The proposal from EBMUD contemplates that the City would send its untreated wastewater from the WPCP headworks at the foot of Davis Street to the District's Oak Street Facility. For treatment of this wastewater, the City would pay a fee to EBMUD. Included in the fee would be the debt service costs associated with the cost for a force main from the headworks to an existing EBMUD collection main. The estimated cost of this line is $16 million and the annual payments would be approximately $1,220,000. Cut -over to EBMUD treatment would commence upon completion of the line, or approximately two years after approval of an agreement. Importantly, the City would continue to set rates, collect sewer charges and manage the collection system (including the pre-treatment program). In negotiating terms of the proposal EBMUD agreed to the following special provisions: 1. That EBMUD would facilitate the City's continued access to recycled water at cost. (During earlier discussions, EBMUD indicated that they were planning to charge much higher potable water rates for recycled water.) 2. That EBMUD would backfill City WPCP vacancies until the cut -over (at City expense). 3. That the lease would cover only the headworks at the current WPCP allowing the City to use as it sees fit the balance of the site (with the possible exception of some holding ponds to store extraordinary wet weather flow). Economic Factors of the EBMUD Proposal The cost to provide treatment service would be established initially at a level that the City and District agreed would keep San Leandro at the same annual cost as it pays today for wastewater treatment. This cost would be maintained for five years, except that $100,000 would be added to the contract each year for seven years to ultimately offset the approximate $700,000 overhead charge paid by the WPCP to the General Fund. (This is the one area of the EBMUD proposal where City staff and EBMUD staff did not agree on an "apples to apples" comparison of City Plant operation versus contract costs. City staff maintains that a $700,000 reduction in General Fund revenue is real money to the City, and therefore, should be included in the economic analysis.) C