DC Position on IMA Negotiations Presented to the Blue Plains Regional Committee September 29, 2008

1. DC Position onIMA NegotiationsPresented to the Blue Plains Regional CommitteeSeptember 29, 2008 Government of the District of Columbia Adrian M. Fenty, Mayor

2. CSO LTCP & Total Nitrogen (TN) DCWASA is poised to spend close to $1 billion over the next 5-6 years in order For the Blue Plains AWTP to meet Total Nitrogen Limits (TN) in EPA’s new NPDES permit and more than $2 billion during the coming decades to implement Combined Sewer Overflows (CSO) Long Term Control Plan (LTCP) that will meet a judicial consent decree. DC Position to BPRC on IMA Negotiations

3. DCWASA should use its best professional judgment,pending completion of Blue Plains CAOs’ reviews, to divide capital and operating costs of CSO LTCP and TN projects in: • DCWASA’s proposed FY2010 budget and Revised FY2009 budget; • DCWASA’s 10-year Financial Plan; • DCWASA billing of suburban wholesale and DC retail customers. DCWASA action on best professional judgment pending CAOs’ review DC Position to BPRC on IMA Negotiations

4. In order to save our region $500 million, engineers reduced capacity of planned TN facilities at Blue Plains and substituted some temporary storage in a tunnel. Cost of such storage capacity is a price of achieving much greater savings for all and, therefore, remains a Blue Plains cost. Suburbs and DC should share in both costs and savings. DCWASA has advised its Board’s Finance & Budget Committee that it will bill suburban and DC customers on that basis. • DC supports DCWASA’s judgment to allocate capital and operating cost shares for all elements of the TN project on the basis of the respective IMA formulas for Blue Plains because EPA’s new Chesapeake Bay program requirement goes to overall performance by the wastewater treatment plant. • DC supports DCWASA’s judgment to allocate TN capital and operating costs based on existing IMA formulas, with adjustment of capital and/or operating cost recoveries to compensate DC’s right to discharge up 4.7 mg/L in contrast to MD and VA limits of 4.0 mg/L.    Total Nitrogen Project DC Position to BPRC on IMA Negotiations

5. Required Nitrogen Removal is not Proportional to Flow (DCWASA 1.9.08)

6. The CAOs should adopt the principle that a portion of the cost of the LTCP will be borne by suburban users and consider specific apportionment or allocation options only after a presentation to be made by DCWASA to its Board of Directors (scheduled for October 2, 2008) and to the CAOs. • The IMA did not expressly address CSO LTCP costs because federal law at the time placed no limits on frequency or quantity of combined sewer overflows (in contrast to prohibition of any overflows from separate sewer systems). Congress changed the law in 1994, but it still allows some CSO system overflows. • If suburban systems (and DC’s own separate sanitary sewer systems, for that matter) did not flow into Blue Plains, EPA would forbid any overflows -- leading sewer systems to install costly equalization basins (e.g., Noman Cole WWTP).Suburban systems therefore benefit from the fact that they deliver sewage to Blue Plains because federal law treats such suburban sewage as combined sewage. • The IMA should be interpreted or amended to clarify that suburban sewer systems delivering sewage into DC’s combined sewer system will pay reasonable shares of the capital and operating costs of the CSO LTCP. • DC’s initial position is that 60% contribution from suburban wholesale customers is appropriate based on current IMA formulas for Capital Costs. CAOs’ reviews of CSO LTCP DC Position to BPRC on IMA Negotiations

7. Summary of LTCP Cost Scenarios DC Position to BPRC on IMA Negotiations

8. Summary of TNL and LTCP costs and proposed DC/suburban allocation DC Position to BPRC on IMA Negotiations

9. Assignment of regulatory rights to Nitrogen discharges into the Potomac The CAOs should be advised that DC seeks understanding among the Blue Plains AWTP community as to: How to recover permanently for Blue Plains the 4.0 mg/L times 6 MGD transferred recently by EPA Region III to WSSC’s Seneca Plant at the instance of MD State government and How to avoid such problems in the future so that we may assure that savings at Blue Plains can be used towards Nitrogen trading in the Chesapeake Basin to the advantage of all Blue Plains users. DC Position to BPRC on IMA Negotiations

10. Transfer of Blue Plains capacity to Fairfax County Upon CAOs’ resolution of CSO LTCP and Total nitrogen issues, DC will support reasonable changes in WSSC and Fairfax capacity allocations (e.g., 8.5 MGD annual average) subject to the following conditions: DCWASA must formally determine and certify to the District of Columbia that Fairfax County flows (including peak flows) will not adversely affect use of the Potomac Interceptor or downstream DCWASA facilities and DC must receive satisfactory assurances that there will be no risk of diminution of regulatory Nitrogen allocations to Blue Plains as a whole or DC flows into Blue Plains Financial terms and conditions must be fair to all DC Position to BPRC on IMA Negotiations

11. Future DC rental charges for Blue Plains land use DC reserves the right to charge DCWASA reasonable rents for use of valuable riverfront property at Blue Plains and seeks interpretation of the IMA that such rents would be divided on the basis of the capital costs formula of the IMA (rather than operating costs formula) between suburban and DC rate payer responsibility. DC Position to BPRC on IMA Negotiations

12. Other Issues DC favors continued work by DCWASA management following the recommendations of the Independent Comprehensive Budget Review on three matters. They are not ripe for CAOs’ consideration pending work by DCWASA staff in accordance with the GM’s Comprehensive Planning Document -- as previously discussed by BPRC DC Position to BPRC on IMA Negotiations

13. Assess possibility of collecting revenues from high strength surcharges. (Strength of Waste study to be completed Fall FY09; Implementation to occur in FY09) • Working with the Authority’s financial advisor and in consultation with the bond rating agencies, consider some reduction in cash reserves of the Authority with the proceeds used for rate stabilization, cash-financial capital or a combination of uses. (Recommendation to the full Board Fall FY09) DC will request through the DCWASA Board that the Authority evaluate the financial allocation of reserves to include the wholesale customers because right now the burden of maintaining the reserves for the whole Authority are entirely born by DC ratepayers. • Quantifying components of actual expenses for support services that DC provides such as fire and police protection that may properly be allocated between wholesale and retail customers. (To be reviewed upon completion of a cost of services study by the DC OCFO). Other Issues ~DC favors following the recommendations of the Independent Comprehensive Budget Review DC Position to BPRC on IMA Negotiations