March 10, 2016 Alpine Village Water System P.O. Box 88 Ashford, WA 98304 Re: Capital Assessment Dear Alpine Village, The following analysis estimates the amount of money needed to set aside in reserves for capital replacements and improvements. In order to save costs for the community, we have not itemized things 100%. For example, the chlorination system is handled as a single entity, even though the tank, pump, injector, and line are all separate pieces with different life expectancies. The “age” estimates are approximate weighted averages of the costs and life expectancies of the individual components. Therefore, if you notice that either the age or the replacement cost seems a little off, that is why. Also, some of the items would be replaced with different equipment. For example, if the community were to replace the hydropneumatic tank, it would be very, very expensive. Therefore, when it comes time to replace it, bladder tanks, a VFD, cycle stop valve, or some combination thereof should be used. The replacement price quoted is based on one of these alternatives (all with a similar cost). All cost estimates assume the community pays for the improvements out-of-pocket. The cost estimates are also based on previous estimates we have completed for the community. In our experience, installation costs have not changed significantly since we provided those estimates. None of the analysis accounts for the fact that the current ~40 gpm available from the well will be inadequate for a build-out condition (even a build-out of only the buildable lots). The WSDOH requires that service meters be installed prior to January 22, 2017. If these meters are installed as a separate project they typically cost $800-$1,200 each (typically $1,000). If they are installed as a part of a distribution system replacement project, then they cost about $400-$500 each. Therefore, the community may want to replace some of their older water mains at the time of installing meters, because this in effect, saves $300-$800 per meter (typically $600). The community will need to balance the value of the remaining life of the distribution pipe with the savings of doing a project all at once. The difficulty is that estimating the remaining useful life of a distribution system is very, very difficult.

Planning • Management • Engineering P.O. Box 123 • Port Orchard, WA 98366 • 888-881-0958 • 360-876-0958 www.nwwatersystems.com

Water main replacement is the largest portion of your capital replacement budget. The replacement of water mains is also the most difficult parameter to estimate. The system has had some history of leakage; however, recent leakage rates seems to have been low, and most leaks seem to be on service laterals, or have a definite cause rather than a degradation of the distribution system. Also, waterlines in flat, flood plain type geologies tend to last longer than on hillsides where the ground is more susceptible to creep and other movement that puts stress on the pipes. Our estimate of remaining useful life for the pipes is our best guess; however, it is important to tract repairs in the future so the system can continue to monitor the health of the distribution system. Fortunately, distribution systems rarely fail catastrophically and without warning (except in the case of a flood, eruption, earthquake, etc). Therefore, even if your pipes do not last the projected 23 years, they should give at least a five to ten year warning that they will need replacement soon as repairs become more and more frequent. Details are provided in the attached spreadsheets. Here is a summary of the findings: The capital reserves portion of your budget accounts for $17.14 per month of your water bill. Therefore, on average, the water system should be able to save about $16,900 per year to put towards Capital Replacement Projects. Three potential improvements were also analyzed: Providing Treatment, Constructing an Elevated Reservoir to gravity-feed the system, and installing a Back-up Power Generator. The amount of money that needs to be put away for each of these improvements depends on the amount of time over which the improvement is to be paid for and the cost of the improvement. Of course, Alpine Village has adequate reserves to complete most of these improvements right now. In that case the reserve set-aside would be the amount necessary to replenish the reserve fund for other improvements. Treatment could be paid for over a ten year period for $6.59 per month per member. An elevated reservoir would cost $5.91 per month over twenty years. Finally, a generator would cost $3.17 if paid for over a five year period. The other parameter that should be considered is that your well and part of your distribution system is in the floodway. The analysis does not take into account any natural disaster events that could incur a large capital emergency expense at any point in time. For this reason, it may be prudent to always hold about $30,000 in reserves to cover a new well, pumping system, and the associated approvals and appurtenances. If you considered $30,000 of your reserves to be “untouchable”, then the capital replacement portion of your water rate would increase to $17,400 per year for the system, or $17.67 per month per connection. Sincerely NORTHWEST WATER SYSTEMS, INC. Todd Krause, P.E. Cc: file\projects\160301\Capital Improvements Analysis

Alpine Village Capital Assessment Final Narrative.pdfAlpine Village Capital Rate ReportAlpine Village Capital Rate ReportAlpine Village Capital Rate Report.pdf