Committee Hearing, June 3, 2008

COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON FINANCE - - - Room 400, City Hall Philadelphia, Pennsylvania Tuesday, June 3, 2008 10:20 a.m. - - - PRESENT: COUNCILWOMAN MARIAN B. TASCO, CHAIR COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN COUNCILMAN WILLIAM GREENLEE COUNCILMAN BRIAN J. O'NEILL COUNCILWOMAN BLONDELL REYNOLDS BROWN BILL 080495 - An ordinance authorizing the Philadelphia Municipal Authority, incorporated pursuant to the "Municipality Authorities Act of 1945," P.L. 382, as amended (the "Act"), to design, build, finance, own, operate, maintain, and lease facilities and equipment, and provide related services, for the management of the City's wastewater treatment solids... BILL 080498 - An ordinance authorizing the Water Commissioner and the Procurement Commissioner, on behalf of the City of Philadelphia, to enter into a Service Contract with the Philadelphia Municipal Authority... V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 2

Good morning. The Committee on Finance will now come to order. I would note that we do have a quorum in the presence of Councilman William Greenlee, William Green, Wilson Goode, Frank DiCicco and President Verna and Blondell Reynolds Brown. We would have the Clerk please read the bill.

An ordinance 13 authorizing the Philadelphia Municipal Authority, incorporated pursuant to the "Municipality Authorities Act of 1945," as amended (the "Act"), to design, build, finance, own, operate, maintain, and lease facilities and equipment, and provide related services, for the management of the City's wastewater treatment solids; all under certain terms and conditions. An ordinance authorizing the Water Commissioner and the Procurement Commissioner, on behalf of the City of 3 6/3/08 - FINANCE - BILLS 080495 and 080498 Philadelphia, to enter into a Service Contract with the Philadelphia Municipal Authority, pursuant to which the City will assume certain obligations under an agreement that the Authority will enter into with Philadelphia Biosolids Services, LLC to design, finance, build, own and maintain facilities and equipment, and provide operating services for the management of the City's wastewater treatment solids; all under certain terms and conditions.

Thank you very much. The Chair calls to testify from the Administration Mr. Bernard Brunwasser, Debra McCarty, John Donovan and Pamela Racey from Synagro. (Witnesses approached witness table.) COMMISSIONER BRUNWASSER: Good morning, Councilwoman Tasco, Council President Verna and members of the Finance Committee. My name is Bernard 4 6/3/08 - FINANCE - BILLS 080495 and 080498 Brunwasser and I am the Acting Water Commissioner. With me today is Debra McCarty, Deputy Water Commissioner for Operations; Mr. John Donovan, Vice-President with the international environmental engineering firm of Camp, Dresser, McKee where he serves as a recognized national expert in residuals and biosolids management. Finally, we have Ms. Pam Racey of Synagro available to answer questions about her company or the proposed biosolids project. We're all here today to testify on behalf of Bill Nos. 080495 and 080498. These bills will authorize the City of Philadelphia, acting through the Philadelphia Municipal Authority, to engage in a long-term contract with Philadelphia Biosolids Services for the operation of the City's Biosolids Recycling Center. I believe that this major project will result in a number of significant benefits to the City, its water ratepayers and particularly the 5 6/3/08 - FINANCE - BILLS 080495 and 080498 neighboring community in Southwest Philadelphia. Hopefully you've had an opportunity to review my formal testimony and that of Mr. Donovan that was submitted earlier. Rather than reading those testimonies here this morning, I am requesting that they be entered in as part of the record. I will take a few moments to highlight some of the major benefits of this outstanding project. First of all, the project will save the water ratepayers nearly $200 million over the 23-year period of the contract. The numbers are compelling, and as Water Commissioner, I have a fiduciary responsibility to preserve and strengthen the finances of this utility. The current 72-acre site will be cleared of all outdoor-stored biosolids products, assuring citizens and visitors an end to odors emanating from the plant. Carbon monoxide, nitrogen oxide, carbon dioxide, volatile organic 6 6/3/08 - FINANCE - BILLS 080495 and 080498 compounds and particulates in the air will be greatly reduced. Truck traffic to and from the site will be reduced by 7,000 truck trips annually. All produced final product will be Class A biosolids, which is a pathogen-free product regulated as fertilizer. A new aesthetically pleasing plant, with state-of-the-art air pollution controls, will be financed, designed, built, owned and operated by Philadelphia Biosolids Services. All risk of final biosolids disposition transfers from the City to Philadelphia Biosolids Services. Synagro, the guarantor of the contract, is the largest biosolids handler in the United States and has broad markets for all of its products. Finally, and perhaps most importantly, no City employee will lose his or her job. Each employee will be placed in equivalent positions in other units of the Water Department. No one 7 6/3/08 - FINANCE - BILLS 080495 and 080498 will be demoted or suffer any loss in longevity or status. For all of these reasons, I believe this is the best and most compelling project I have seen in my long years with the Water Department. I urge the Committee to approve this legislation and to suspend the rules so as to allow first reading at the next Council session. Thank you. Now, before Deputy Commissioner McCarty takes you through our presentation booklet, I want to reintroduce Mr. John Donovan of Camp, Dresser, McKee, who served as the City's expert in helping us to evaluate all of the technology in the biosolids industry. I believe you've all received a copy of his brief testimony. John.

Thank you, Bernie. Good morning, Councilwoman 8 6/3/08 - FINANCE - BILLS 080495 and 080498 Tasco and members of the Finance Committee. I work for CDM. I have for nearly 35 years, and most of my efforts over those years have been in wastewater and biosolids projects. A little bit of what CDM has been asked to do for the Water Department: Starting five years ago, we assisted the Water Department in both the RFQ and RFP phases. That means we set minimum standards in those documents for the financial strength of the proposer, the technical experience, DBE participation and technology guidelines, which I'll refer to in just a moment. We also set standards for selection criteria so it is very clear how the Water Department is going to select a firm. So CDM was requested to do two primary things: One, to recommend a technology which would be appropriate for the Water Department and later on to review the Local 394 proposal, which I'll get to in a moment. 9 6/3/08 - FINANCE - BILLS 080495 and 080498 With regard to technology, we first looked at where the product is going. These are waste products, so we wanted the absolute best product, because public acceptance is a big issue. So we wanted a product that had established markets. We also wanted a product that could be produced at BRC in a way that would be okay for the neighbors; namely, inside a factory-type building with total odor control. And coming out of that analysis we selected two technologies, composting, which the Water Department has experience with, and thermal drying, is acceptable at the BRC. We required the composting to be inside a complete building, as well as the thermal drying. We also gave the proposers the opportunity to suggest other technologies if they were going to process the biosolids at some other site other than the one the Water Department owned. The Synagro proposal that it's 10 6/3/08 - FINANCE - BILLS 080495 and 080498 received did in fact select thermal drying and the marketing of a pellet. Now, what about these pellets. Why is that a good product? First of all, the products are Class A. They meet all federal and state standards. There's essentially no moisture left in the product. That means it can be stored and transported easily, with reduced truck traffic, and that's in comparison to the present Class B product, which has nearly 70 percent moisture and, of course, requires much more trucking. These products, these pellet products, have an established national market on farmlands, on golf courses and to fertilizer blenders, and, interestingly, these products are being discovered now as a fuel. This is somewhat ironic since these pellets have been used for over 20 years in Europe as a fuel. But just a few years ago, the Baltimore pellet, which is produced by Synagro, was started to be used as a fuel 11 6/3/08 - FINANCE - BILLS 080495 and 080498 and a cement count, and I expect that trend to continue in the future. So that's the product. What about the processing? The processing is through a thermal dryer, and Synagro has proposed an Andritz dryer. One of the tasks the Department asked us to do was to call around to Synagro entities where Synagro is running a major municipal operation for a city and basically check references. We talked to the operators who actually deal with Synagro, and to a person. They basically said that they got good cooperation, Synagro worked well with their staff, and they thought it was a good relationship. The technology itself has been around for many years. S. cities. It's at Boston, it's in New York, it's in Baltimore, Tampa and coming online in Chicago. The last point that I'll make is with regard to the Local 394 proposal. Last year, we were asked to look at that 12 6/3/08 - FINANCE - BILLS 080495 and 080498 proposal. In our opinion, the proposal has numerous serious deficiencies. It's likely to be more odorous, both at the BRC and for the products that are disposed on land.

It's going to generate higher truck traffic trips because there's more moisture in that product, and, of course, it costs more. But, most importantly, of the three processes proposed, two are unproven without any long-term demonstrated experience. So just in the way of a summary, the Synagro proposal has been thoroughly reviewed. We've worked closely with your department. We have a very good contract, one that looks at the financial costs and other aspects and properly shifts risk to the private sector. That proposal is better than the current operations at the BRC and is superior to the Local 394 proposal. There are three things going for this proposal: One, it's from a well-established company, Synagro; two, 13 6/3/08 - FINANCE - BILLS 080495 and 080498 it is produced in a tried and true thermal dryer; and, three, the marketing plan is sound. It is our opinion that that is a process which is going to last the City for years. Thank you. )

Please. We ask your cooperation as we have this hearing and that we know and feel your passion for this issue, but hopefully -- (Audience yelling.)

Would you please proceed with your testimony. DEPUTY COMMISSIONER McCARTY: Thank you, Councilwoman Tasco, and good morning, Committee. My name is Debra McCarty. I'm the Deputy Commissioner of the Water Department and -- (Audience booing.) DEPUTY COMMISSIONER McCARTY: Apparently many of my employees aren't happy with me today, but I'm going to try to get through -- 14 6/3/08 - FINANCE - BILLS 080495 and 080498 (Audience yelling.)

Would you please. We're going to ask you to give respect to the people who are testifying. No matter how you may feel about that person, they're here to present testimony before this Committee and we do ask for your cooperation. Thank you very much. Proceed. DEPUTY COMMISSIONER McCARTY: I'm going to try to quickly go through the PowerPoint presentation that you all have. We go to the first page. Right now we're producing 100 percent Class B biosolids cake, and so that's -- what you see on that first picture is the cake as we store it on site and move it around to make high piles until we can move it off site to our many outlets that I'll get into in a minute. The next page, , is an artist's rendition of the heat-drying facility built onto our current facility 15 6/3/08 - FINANCE - BILLS 080495 and 080498 where it would take the sludge right from our current facility and into the heat dryers. And the bridge in the back, that's the George Platt Bridge if you want to get your bearings. The history of the biosolids, believe it or not, we used to ocean dump, as well as a lot of other folks, but we did stop that in 1980, and currently the facility at BRC was brought online around 1986 and in its final stages in 1988. The facility is on . You see an overview. At the top, that road above is 95 and then the diagonal from the right to the left is the George Platt Bridge again. And it's a 72-acre site close to the airport. And at this facility, this is our main facility for processing the biosolids or sludge, if you will, from our three wastewater treatment plants. A hundred percent of that material, again, is Class B right now. Now, Class B contains pathogens and it's 16 6/3/08 - FINANCE - BILLS 080495 and 080498 not as accepted by the public at its various outlets as is Class A. Class A is pathogen-free, or disease-causing origin pathogens. Additionally, Class B is regulated as a solid waste and Class A is considered a fertilizer. The current operations at BRC, we stopped composting, which was our only Class A product, in 2007, and the reason we did that is because it was a large generator of odors in the community beyond our fence line and consequently, though, we are now 100 percent Class B. Currently, we produce about 220 tons a year of this -- 220,000 -- I always forget those other three zeroes -- of Class B product, and that includes a labor-intensive process that has 68 employees budgeted, 60 of which are members or can be members of District Council 33, Local 394. 5 million. So it's a cost savings of about four and a half million dollars annually for the current cost. Now, the problems we're facing at the facility are the odors beyond our fence line. We're not compliant with the air management regulations. Site aesthetics, we do at times store a lot more material than at other times because of the nature of our outlets. The uncertain future of Class B biosolids, more and more the public does not want to see that in their backyard, if you will, in the farm next door to them, and that is one of the reasons we look to go to 100 percent Class A and move forward with this project. The other outlet for us is, in addition to agricultural application, is landfill, and landfill costs are uncontrollable and we're somewhat at the mercy of whatever is going on with landfills. So that's an uncertain future 18 6/3/08 - FINANCE - BILLS 080495 and 080498 for us. And then, of course, fuel costs related to those 10,000 trucks per year in and out of the facility. So the project objectives for moving forward with 100 percent Class A was to ensure long-term integrity and sustainability of our processing for beneficial use. Landfill is not considered beneficial use. And we believe we do have a good product. We want to eliminate the odors. I can't emphasize that enough. I talked to community folks. They're very anxious to see things change out there. And we don't like to be bad neighbors either.

We wanted a reliable product, Class A pathogen-free again, and we want to comply with all air management regulations, site aesthetics, and then the icing on the cake is the long-term cost savings. Criteria for a proven technology -- and that was very important for us to have a proven technology. We 19 6/3/08 - FINANCE - BILLS 080495 and 080498 don't want Philadelphia and our citizens, the ratepayers, to be beta test cases -- is to have an established technology, which is -- EPA has different definitions for established and innovative and embryonic. "Embryonic" are technologies in demonstration or on bench-scale operation, and they're really not -- some of them are demonstrated overseas, but there's really nothing full scale in this country. "Innovative," there is a full-scale operation, but it's been less than facilities and it's been around 16 for less than five years. S. So we're going again 20 with the established technology. And 21 that's for soundness of the proposal and 22 our future. The thermal drying system 23 then, of course, is the established 24 technology. 25 Now, as Mr. Donovan pointed 20 6/3/08 - FINANCE - BILLS 080495 and 080498 out, there was a lot of qualifications to meet the criteria to be able to even submit a proposal to the Department. You had to have designed at least two facilities that had dry tons per day 7 of the proposed technology that you're 8 submitting. You had to have constructed 9 two projects greater than $25 million, 10 and you had to operate and maintain a 11 facility of 20 dry tons a year or -- tons 12 per day or greater for at least five 13 years. And the primary contractor had to 14 have five years of direct biosolids 15 operation and maintenance experience. 16 They also needed to have minority 17 participation. We have at least ten 18 percent minority equity for minority 19 business enterprise and five percent for 20 women business enterprises. And they had to have -- financially they had to be very sound, and that is key if we're going to enter into a long-term relationship with this company. And, again, Synagro met that qualifications. 21 6/3/08 - FINANCE - BILLS 080495 and 080498 The procurement process for the request for qualifications and the request for proposals, the team was made up of, in addition to folks from the Water Department, Procurement, Law Department, Minority Business Enterprise Council, City Council staff, technical staff, and our consultant, Camp, Dresser and McKee. The RFQ was issued in June of 2003 and we got the RFP issued in May of 2004. PBS, Philadelphia Biosolids, was the only proposal that was submitted as responsive and -- responsive. Three other firms did not either meet the qualifications or did not submit a proposal. The Philadelphia Biosolids Services is -- the main guarantor, as previously mentioned, is Synagro, and McKissack and McKissack is the design and construction. They're our 20 percent WBE equity member, and Len Parker Associates, the general contractor, is our ten 22 6/3/08 - FINANCE - BILLS 080495 and 080498 percent MBE equity member. Andritz-Ruther will be the thermal drying equipment, and CH2MHill will be the design consultant for this company. The Synagro qualifications, again, our prime contractor, they're one of the nation's largest biosolids management company. They have over 600 municipal contracts whose material they handle. They operate all of the proven biosolids processing and recycling technologies that are out there. They maintain the largest product marketing/distribution channels in the industry. And the good thing is, they're technology neutral. They didn't say, Oh, Philadelphia, we're aligned with this company, so that's why we want to go this way. They looked at what would be best for our site for the community to meet all of our objectives, and that's why they came up with the heat dryer. The proposal is for a period of about three to five years.

They'll 23 6/3/08 - FINANCE - BILLS 080495 and 080498 maintain the current operation of Class B biosolids and moving that material off site to their many outlets while they finance, design, build and start up the Class A thermal drying facility for 7 years. They will operate that. And 8 there's also a five-year extension if all 9 goes well, at the City's sole discretion, 10 of course. 11 Basically, the thermal drying 12 process is a big heat dryer. And I did 13 bring some, if anybody wants any. Here 14 are the pellets. They're essentially 15 odorless. We have more if anybody wants 16 them. But very dry. And if you open the 17 packet, I think -- they might be a little 18 smaller than some folks had expected, but 19 that's what they are. 20 This project benefits us in many ways. It saves the water ratepayers nearly $200 million over the 23-year life of the contract, which should minimize future rate increases. It eliminates the odors and achieves compliance with our 24 6/3/08 - FINANCE - BILLS 080495 and 080498 air management regulations. It reduces emissions of greenhouse gases, and it's 100 percent Class A pathogen-free biosolids as opposed to in the long run, after the three to five years, the Class B biosolids product would be discontinued. It's a proven and reliable technology operated by Synagro for many years, and the new enclosed processing facility will have state-of-the-art air pollution controls on anything that could enter into the atmosphere. There will ultimately be no stored biosolids on site, and truck traffic is reduced from 10,000 trips a year to 3,000, and the risk of ultimate disposition of this material transfers to the vendor, PBS. 5 million a year during that interim period and while they're financing and raising the $70 million to build this new state-of-the-art facility. And after that, when the heat drying is online, we 25 6/3/08 - FINANCE - BILLS 080495 and 080498 will be paying them $26 million a year for the heat drying and ultimate disposition of that material. The chart shows the anticipated or projected cost of continuing with our current operation compared to what the PBS project would be, which is, again, about $194 million. The labor issues, this is a difficult one for me because these folks work for me, but it's very important to understand that there will be no layoffs or demotions, and that's an important key to this project for us. All of the employees will be transferred to other positions in the Department, will maintain their job titles and their pay for that job. The staff may also seek jobs with PBS if they so choose. And we have been meeting with DC 33, Local 394 for a few years, since January of '05. And, additionally, this does create 75 construction jobs during the construction and then 30 long-term jobs with the 6/3/08 - FINANCE - BILLS 080495 and 080498 company, PBS. So we do believe this is an excellent project for the City, with many benefits. It's good for the environment, the community, the ratepayers and keeps City workers employed with the City, and we are hoping that we can move forward with this project so we can realize these savings and benefits. Thank you very much. )

All right. Moving right along. COMMISSIONER BRUNWASSER: Chairwoman Tasco, I just wanted to repeat that we're asking for the suspension of the rules so as to allow first reading at the next Council session, and we're now prepared to answer questions.

Thank you very much. (Audience yelling.)

According to this proposal, the City will be 27 6/3/08 - FINANCE - BILLS 080495 and 080498 responsible for paying $6 million per year in energy costs after the new facility is completed. Do these costs include water and wastewater services? (Audience yelling "no.") DEPUTY COMMISSIONER McCARTY: That was factored into the price.

Excuse me, please. Now, we have people at the table who are testifying. We can't hear them if you're going to constantly interrupt. So we appreciate your respect for the people at the table, no matter how you agree or disagree, or mostly disagree with them and their answers. We have to have this hearing, and we would like to have it in an orderly fashion. So we thank you for being here and understand your passion, as I said before, but we need to have this discussion. Thank you. (Witness yelling "point of order for a question.")

You cannot 28 6/3/08 - FINANCE - BILLS 080495 and 080498 have a question. This is not for the public at this time. You can come when we open the floor for discussion by other parties after this panel is finished. DEPUTY COMMISSIONER McCARTY: Councilwoman, that was factored into the price. In the proposal, the RFP, it was stated that the successful vendor would not have to pay for water and wastewater services. I mean, it's a -- (Audience yelling.)

When you have an opportunity to testify, you will have the opportunity to dispute whatever is being said. We will be here until this hearing is completed. So I ask your indulgence. I ask you to respect the people at the table and I ask you to respect this Committee. Thank you. DEPUTY COMMISSIONER McCARTY: If we had them pay for it, then they would just put it in their price and we would pay for it again. So it's pretty 29 6/3/08 - FINANCE - BILLS 080495 and 080498 much a wash.

What is the annual cost for water and wastewater services? (Audience yelling.) DEPUTY COMMISSIONER McCARTY: I don't know off the top of my head. We could get you the price. (Audience yelling.) DEPUTY COMMISSIONER McCARTY: If it's $100,000 and the -- so we say, Okay, Vendor, you owe us $100,000, that's going to be in their cost when they charge us for the service that they charge us for. So we'll either pay when we charge them for it because they're going to charge us back or if we -- the way we handled that was to -- (Audience yelling.)

So you say the cost is built in the -- DEPUTY COMMISSIONER McCARTY: Exactly.

-- in the 30 6/3/08 - FINANCE - BILLS 080495 and 080498 total cost of the proposal? DEPUTY COMMISSIONER McCARTY: Yes, ma'am.

Can you explain how the City will be saving money under this proposal when the energy costs can increase during the contract?

Synagro --

Would you identify yourself for the record.

I'm Pam Racey with Synagro. Our contract requires that we guarantee a maximum consumption rate of natural gas. So if we consume more than that, we have to pay for it ourselves. The City does not have to pay anything over our maximum guarantee. In addition, the City is giving digester gas that's currently being flared off at the wastewater treatment plant, which is a big contributor to greenhouse gas emissions. We are going to take that digester gas, pipe it over 31 6/3/08 - FINANCE - BILLS 080495 and 080498 and use it so that we don't have as much natural gas consumption. And, in fact, John talked about how we're working with both cement companies and electric companies using the pellets as a fuel source to replace coal. The BTU value of the pellets we produce is twice as much as energy as we consume in the project. So overall, the project is a net green energy, renewable energy gain.

You talked about natural gas when you build this facility. Will it be fueled by natural gas and where do you -- who will you have your agreement with to provide the gas?

It's going to be partially fueled by natural gas, partially by digester gas. We also have the ability to take a third fuel source. If, for example, No. 2 diesel or reclaimed oil becomes more cost effective, we have a three-fuel burner and can use any of those. But our normal plan of operation would be to fire 32 6/3/08 - FINANCE - BILLS 080495 and 080498 partially with digester gas and partially with natural gas, which we would be buying from the Philadelphia Gas Works.

Councilwoman Blackwell has a follow-up question relative to the gas.

Good morning. I understand that the City will provide the new plant with 85 decatherms of gas per year. How much would that cost?

That's not a correct number. That's the total amount of decatherms that the plant will use. As I said, a portion of it, like 35 percent of that, will come from digester gas. And when they did the savings calculations, I think they assumed $10, and then they did sensitivities that showed if it went double and triple that cost, it still would not be more expensive than what the City is spending now. So that analysis was done.

Well, 33 6/3/08 - FINANCE - BILLS 080495 and 080498 has PGW been involved in estimating what this cost would be at its current and projected levels?

Pardon me, Councilwoman. I didn't --

Has PGW been involved in determining costs and projected costs, current and projected costs? COMMISSIONER BRUNWASSER: Yes. There were discussions with PGW.

Well, PGW tells us they haven't visited this issue in years. (Applause.)

And our concern is that this estimated 4.5 million, that should be less. If there's no real, legitimate estimate, it could be doubled or tripled, and it's a real factor in terms of the savings that you say we have. (Witness approached witness table.) 34 6/3/08 - FINANCE - BILLS 080495 and 080498

Good morning. I'm Jim Bolno. I'm with the Finance Division of the Water Department. I've worked on a number of these cost estimates and cost-benefit analyses. We did meet with PGW back when the project was initially proposed to City Council. We determined with PGW that the best way, on their advice, the best way to provide the gas needed for this project would be to purchase the gas at the well head and to transport it through the PGW system, paying them for the transportation, not for the cost of the gas. We did assume about a $10 price per million BTU for the gas, which at the time we were doing most of these analyses was a very conservative number. And we did do sensitivity analysis to see what would happen to the project, how would the project be affected if the cost of gas were to increase, and we found that the price of gas would have to triple 35 6/3/08 - FINANCE - BILLS 080495 and 080498 over the next three years to $25 or $30 per million BTU in order for the project savings as estimated to begin -- to be eroded. And even under that scenario, this is extremely conservative because it only looked at an increase in the gas to the thermal drying system. It didn't account for the fact that if gas were to increase by that amount, it would also have a substantial increase on the current operation. So we feel comfortable, given the risk-mitigating factors of the contract that have been mentioned here, the efficiency parameters, the incentives for the efficient use of natural gas, the fact that percent of the gas will be 19 coming from a by-product of the 20 wastewater treatment process, which is 21 what we call digester gas, and the fact 22 that we have carefully looked at the 23 price, at how the price is going to 24 affect the overall economics. We feel 25 that this is a reasonable risk to take 36 6/3/08 - FINANCE - BILLS 080495 and 080498 moving forward with this project.

Madam Chair, my last point on this is that we would like to, since there are some concerns, we would like to hear directly from PGW their assessments on this, especially to confirm current and projected costs and how that affects this whole issue of money and what the City saves. (Audience member yelling.)

As we move through this hearing, we will ask someone from PGW to come and be prepared to testify.

Thank you.

Councilwoman Brown.

Yes. Thank you, Madam Chair. Good morning. I have a number of questions that are really all over the place. Let's start with what some might 37 6/3/08 - FINANCE - BILLS 080495 and 080498 view is the primary issue around this. On of your testimony under Labor Issues, you mention, and I quote, "All current BRC employees will be transferred to equivalent positions." Define "equivalent." Does that equal equivalent in terms of staff duties or equivalent in terms of salary? What exactly does that mean? DEPUTY COMMISSIONER McCARTY: It means that if you're a heavy equipment operator 1 right now at BRC, you'll be transferred somewhere else in the department as a heavy equipment 1 operator. So you'll keep your same job title, your same responsibilities and you'll be operating heavy equipment that a heavy equipment operator would operate. Yes. So you'll keep your job title and you'll be moved to another job where you would be doing the same sorts of job --

Point of order, if I might, Councilwoman.

Please. 38 6/3/08 - FINANCE - BILLS 080495 and 080498

That's one of our concerns, because we have been told that there are hires that have never been made and that they're not hiring in many of these same positions. So if they lose their jobs, there's no place to transfer them to since they're not hiring. (Applause.)

That's an important, very important point. DEPUTY COMMISSIONER McCARTY: Well --

If you're not hiring a person doing that job, how will these people be made whole? DEPUTY COMMISSIONER McCARTY: We, like some other departments, struggle with filling our vacancies, and we will be filling our vacancies with some of these folks, as well as continuing to hire and promote from within. There's been no --

That 39 6/3/08 - FINANCE - BILLS 080495 and 080498 does not answer the question. (Applause.) DEPUTY COMMISSIONER McCARTY: We are not eliminating -- COMMISSIONER BRUNWASSER: Councilwoman, can you please repeat the question again?

I think the question came from Councilwoman Brown. Councilwoman Blackwell has a point of order. You want to ask your question again?

Continue with my line of questioning. So equivalence also equals salaries, correct? COMMISSIONER BRUNWASSER: Correct.

You state in your testimony that BRC staff may seek jobs with PBS. Any provisions in any of their proposals that you're going to allow opportunities for training for 40 6/3/08 - FINANCE - BILLS 080495 and 080498 prospective City employees who want the opportunity to be skilled enough to seek these jobs? So the question is, is there any training at all for employees who want to become acquainted with this type of technology?

When we start a new plant, typically what we do is, we would bring in an experienced manager from another facility so that we're sure someone with the technical skills is overseeing, and then we would look to hire local. Some positions require expertise right off the bat; others can be trained from the ground up. And we are certainly looking for local hires. We're more than happy to talk to the folks that are currently working there, would love to have some people that are experienced come on board.

So that is in the body of the proposal? COMMISSIONER BRUNWASSER: Yes. Now, the department has training for 41 6/3/08 - FINANCE - BILLS 080495 and 080498 many -- a lot of trades training, and we certainly would help where we can, but what I'm saying -- what I've told the union -- and I'll go on record as saying this today -- is if any DC 33 employee at the Biosolids Center does choose to go and work for Philadelphia Biosolids, Inc., they have a full year to try it and if they don't like it for any reason, the Water Department guarantees them a job back with them.

Okay. COMMISSIONER BRUNWASSER: With us. (Audience talking.)

Please, please, please.

You're saying that's on the record. So you're telling me that that is in writing someplace in the text of all this paperwork we have? And I'm speaking purely from my stadium experience in my first year here. If it's not in writing, 42 6/3/08 - FINANCE - BILLS 080495 and 080498 it doesn't exist. So -- (Applause.)

So -- COMMISSIONER BRUNWASSER: I will be glad to put it in writing today.

All right. Let me continue, Madam Chair. (Audience talking.)

Let the Councilwoman continue her line of questioning, please.

On this you talked about the digested gas, that that will be used. Can you just share briefly how that will be used, this term called "digester gas," please.

Right. Digester gas is produced as part of the wastewater treatment process. There's giant vessels that actually act like a stomach and break down the material into smaller components, and just like a stomach, that process produces gas. This is methane gas that is compatible with the process 43 6/3/08 - FINANCE - BILLS 080495 and 080498 we're using. Right now it's just being burnt off in a flare and the energy from that is not being used or captured and -- well, a portion of it. A portion of it is used to preheat the digesters and some heat at the wastewater treatment plant, but there's excess amount of gas available. We're going to build a pipeline over from the wastewater treatment plant to the BRC and use that gas as part of the process.

Finally for this round, you talk about MBE/WBE enterprises, or at least opportunities for MBE/WBE enterprises. Elaborate on that. What does that mean?

Well, Philadelphia Biosolids Services is made up of three companies. So right from the get-go, the entity that holds the contract is 30 percent minority owned. With us, McKissack and McKissack and Len Parker Associates. So they're an equity participant in the project. 44 6/3/08 - FINANCE - BILLS 080495 and 080498

Okay.

In addition, both the construction portion of the work, which we expect to be in that $70 million range, will have minimum minority and woman business participation requirements. They range, depending on the category, from five to 30 percent. Like disadvantaged may be five, women may be ten and minority, 20. And then the long-term operating agreement has the same requirements. So the fulfillment of this contract and the carrying out over years does have mandatory required participation goals for the life of the contract.

That's it for this round, Madam Chair, because there may be other questions.

Let me just go back to one question that both Councilwoman Brown and Councilwoman Blackwell raised, and certainly 45 6/3/08 - FINANCE - BILLS 080495 and 080498 Councilwoman Blackwell may have some more input on this issue. There are 60 employees presently involved with this process at the plant currently now, and your statement is that these employees will not lose their jobs. They would be transferred someplace else. Now, did you calculate the -- I guess at the end of the day, you have the cost of running the plant over here and suppose none of the 60 decide to go with this company. What is the impact and do you get the savings if you have to continue to keep 60 employees? COMMISSIONER BRUNWASSER: Well, what we are, in effect, doing is filling vacancies that we have appropriated funds for. So the dollar amount that we spend does not immediately go down, but what it does, it gets transferred to the operations that we want to fill positions in anyway. So what we're doing is, we're using our appropriation power in these 46 6/3/08 - FINANCE - BILLS 080495 and 080498 other units to fill positions.

But the question I have, if you have these positions that you have wanted to fill, what has been the delay in filling the positions? COMMISSIONER BRUNWASSER: Well, a lot of it is the process itself, and you know, it's gotten a lot of -- the Mayor has gone on record as saying he was not pleased with the speed of filling of positions within the City. I know we now have a new Personnel Director and I think he's been given a mandate to improve the process of filling positions. And this is a way -- I mean, we are filling positions that we have appropriated money for and are approved in our budget. What we're doing is, the BRC process is just as we've outlined here. On the other part -- in the other part of the utility, we're actually filling vacancies. That's all we're doing. And so we will be spending more money than we 47 6/3/08 - FINANCE - BILLS 080495 and 080498 otherwise would in wastewater treatment, water treatment, distribution, sewer maintenance and like cleaning all these other areas of the Water Department. We actually will be spending the money closer to the way Council allowed us to appropriate the money so that we will be able to perform these tasks.

Now, will these employees be qualified for some of the positions that you have open and at the level of status that they currently have? COMMISSIONER BRUNWASSER: Absolutely. Absolutely.

When we dealt with the reorganization of the Redevelopment Authority, it seemed to me that a lot of those people were not satisfied as we were told they would be. (Applause.)

And while we're concerned with the overall economic condition of the City, we do have 60 48 6/3/08 - FINANCE - BILLS 080495 and 080498 people who contribute to the fiber of this City and are employees and pay taxes and purchase and shop. So they're 60 important people to us in this City and don't want to see them out of work. COMMISSIONER BRUNWASSER: Councilwoman, one of the ordinances before you actually has language in there that embodies exactly this fact, that we will not lay anyone off and that they will be offered positions within the Water Department.

And that's real broad, because if I'm doing one job and other offerings come available, do I qualify? See, will they qualify for the positions that you have available to fill? That is the other issue. I mean, we vote for this and the 60 people decide they don't want to be employed with this company, don't want to work on this and you have 60 slots to fill, how do we fill them with the -- do the skill sets match the employees who 49 6/3/08 - FINANCE - BILLS 080495 and 080498 are being removed to the positions that you have waiting to be filled? COMMISSIONER BRUNWASSER: The skill set that many of the employees; in fact, most, if not at all, the employees have at BRC are the same types of skill sets that we employ in other sections of the Water Department. Again, people move in and out of various units of the Water Department all the time by getting promoted or even through transfer. Now, these are City employees. They're part of the civil service system. They are also eligible to be hired by places like the Streets Department or L&I and other areas. But we are not counting on anyone else. We are saying that we have sufficient positions of the type that these folks are qualified for, well qualified for, within our own organization. So we have the ability to keep and hold on to each one of them. They are valuable employees to us, and we understand that, believe me. 50 6/3/08 - FINANCE - BILLS 080495 and 080498 The one key thing in this whole process from the time it started five or six years ago was, this was a non-starter if there would be any layoffs at all. This would have been a non-starter with us in the Water Department. We are here to transfer and keep these employees, offer them additional training with our own staff and --

Point of information. COMMISSIONER BRUNWASSER: -- help them make the change. Change is difficult. Change is difficult for anybody, and we understand that, but we want to hold on to these employees. We want them to be gainfully employed within the Water Department. We have a lot of pride in the Water Department, all of us do, and this -- there shouldn't be any major concern about this. I understand at first it's difficult, but we'll see this thing through, and we look to work 51 6/3/08 - FINANCE - BILLS 080495 and 080498 with the DC 33 leadership in the best way to manage this changeover. We had composting people. We have people --

Point of information. COMMISSIONER BRUNWASSER: When the composting process stopped at the plant last year, we worked very closely with DC 33 and our HR people in shifting those people to positions that they wanted. We wanted to work very closely with DC 33 on it, and we always want to work closely with DC 33 on all our issues.

There are two points of information, one from Councilwoman Blackwell and a point of information from Councilman Goode. Councilwoman Blackwell.

Thank you. Thank you. But, Commissioner, some people who have worked with the City for many years are overqualified. They don't have 52 6/3/08 - FINANCE - BILLS 080495 and 080498 jobs for which -- even in our union leadership, they don't have those positions available with this other new operation. So what happens to them? We have some people even are overqualified and who have been in the City many, many years. What about them? (Applause.)

And I might add that we went through some eight hearings with the housing reorganization, and we know those people -- I still have people coming to my office with degrees who were not hired. And not only did it hurt the employee, everybody at this table knows for several years we haven't had our projects move in housing. And now with this NTI debacle, it's worse. (Applause.)

Everybody suffers. The employees suffer, the City suffers and the people we are elected to represent. Everybody suffers, because everything stops. 53 6/3/08 - FINANCE - BILLS 080495 and 080498 (Applause.) COMMISSIONER BRUNWASSER: Councilwoman, we were successful in transferring the folks who worked in composting at that site. We believe we'll be successful going forward.

Councilman Goode.

Thank you, Madam Chair. Commissioner, in response to Councilwoman Reynolds Brown, you said you'd be willing to put something in writing; is that correct? COMMISSIONER BRUNWASSER: Correct.

And in response to Councilwoman Tasco, you said it was already contained within the legislation. COMMISSIONER BRUNWASSER: No. 23 There were two separate --

I don't believe they were. You can explain how 54 6/3/08 - FINANCE - BILLS 080495 and 080498 they were two separate issues. COMMISSIONER BRUNWASSER: Okay. In the ordinance itself, we have committed -- the City has committed that there will be no layoffs.

Where in the ordinance does it say that? COMMISSIONER BRUNWASSER: Councilman, the no layoff, no demotion is in the "whereas" clause of Bill 080498.

And what does it say? COMMISSIONER BRUNWASSER: "Whereas, the City, acting through the Water Department, has committed to the collective bargaining representative" --

Commissioner, that's before it says "the Council of the City of Philadelphia hereby ordains"; is that correct? COMMISSIONER BRUNWASSER: I'm not sure.

In the body of the bill, that comes before it says 55 6/3/08 - FINANCE - BILLS 080495 and 080498 "the Council of the City of Philadelphia hereby ordains." That's actually not in the -- that actually would not go inside the Code. COMMISSIONER BRUNWASSER: We would be glad to -- if someone would amend -- would offer an amendment to put it in -- (Audience yelling.) COMMISSIONER BRUNWASSER: We would be glad for a Councilperson to --

But I'm still waiting for you to explain to me how your two answers were related to two separate issues. Councilwoman Reynolds Brown asked you a question. You said you'd be willing to put something in writing. What was that you were willing to put in writing? COMMISSIONER BRUNWASSER: Councilwoman Reynolds Brown, I believe, asked about the provision for the Water Department to take back any worker who had gone over to work for the PBS 56 6/3/08 - FINANCE - BILLS 080495 and 080498 contractor within one year.

So you didn't assume that she wanted all the labor issues put in writing? COMMISSIONER BRUNWASSER: Yes.

So you did assume she wanted all the labor issues put in writing? COMMISSIONER BRUNWASSER: Yes. I'll be glad to do that.

But then in response to Councilwoman Tasco, you said it was already in the ordinance, and it is not. COMMISSIONER BRUNWASSER: That was -- well, in the ordinance it's no 18 layoffs, no demotions.

That is not in the bill. COMMISSIONER BRUNWASSER: Okay. Well --

In terms of what would actually go in the Code. It's simply in the "whereases." That's not 57 6/3/08 - FINANCE - BILLS 080495 and 080498 what would go in the Code. It would not become law. It's not what this Council would ordain in passing the bill, and you are aware of that. I'm sure you're aware of it because you responded to Councilwoman Tasco second by saying it was already there, but before that, you said you're willing to put something in writing, which means you knew it was not already in writing. COMMISSIONER BRUNWASSER: The -- (Applause.) COMMISSIONER BRUNWASSER: The second point. We'll be glad to put everything in writing to the satisfaction of City Council.

So it was not already in legislation. It was not already legally taken care of. COMMISSIONER BRUNWASSER: We believed that it was, yes.

And how is it legally taken care of if it doesn't go 58 6/3/08 - FINANCE - BILLS 080495 and 080498 in the portion of the bill that actually becomes law? COMMISSIONER BRUNWASSER: I'm not --

See, you chose to first say that you would put it in writing. Then you chose to try to slip in there it's already in the bill, which is not true. COMMISSIONER BRUNWASSER: No. 12 There are two different issues, Councilman.

No. What this Council, in particularly this Committee, would require is that all the labor issues be put in writing in something that is attached to the bill 19 that actually will become law. COMMISSIONER BRUNWASSER: Okay.

Do you understand that? COMMISSIONER BRUNWASSER: Okay.

Thank you, Madam Chair. 59 6/3/08 - FINANCE - BILLS 080495 and 080498 (Applause.)

The Chair recognizes Councilman Green.

Thank you, Madam Chair. Deputy Commissioner McCarty, I can't find in your testimony, but somewhere I heard you mention or referring to this PowerPoint that the technologies have been in place for only five years compared to this pellet technology, which is older. Do you recall -- DEPUTY COMMISSIONER McCARTY: That was in the --

When you were comparing technologies. DEPUTY COMMISSIONER McCARTY: Well, I said that was part of the qualifications for someone to be allowed to bid on the project, had to have operated the technology for five years. Whatever they submitted to say, Hey, I'm going to -- I'll do this for you, 60 6/3/08 - FINANCE - BILLS 080495 and 080498 Philadelphia, and this is what I'm going to use, I'm going to use heat dryer. Well, that company had to have operated and maintained heat drying for at least five years.

But those were qualifications for the two technologies that were identified by Mr. Donovan. They weren't general qualifications for any technology that was available; is that correct? In other words, the RFQ and RFP were limited to two specific technologies, which basically were a single source for Synagro; is that correct or not? (Applause.) DEPUTY COMMISSIONER McCARTY: The proposer could only bid in vessel composting or thermal drying on site. If they wanted to submit something for off site, I believe Mr. Donovan's testimony said that they could, but, again, part of the qualification would be that they had to have done it for five years. 61 6/3/08 - FINANCE - BILLS 080495 and 080498

So, Mr. Donovan, in your testimony you said that -- and I'm paraphrasing because I probably can't recall exactly, but you said that of all the other technologies that you looked at in this entire process, there is not one that currently has an operating plant. In fact, I think you say in your testimony that it's currently -- there's only currently one new facility under construction for a new technology and so, therefore, it didn't meet the RFP/RFQ criteria. Is that correct? Is that your testimony?

I did not say that. What I said is, of the Local 394 proposal, they basically proposed three technologies: composting, tried and true, the department did it for many years; a slurry carb technique, which, as you know, that facility is presently under construction; and a lime stabilization technique. Both of those two technologies do not have long-term 62 6/3/08 - FINANCE - BILLS 080495 and 080498 experience.

Okay. And so why were -- is the one you mentioned plasma arc? Are you familiar with that technology?

Yes, I am, sir.

And was that technology one of the three mentioned by 394?

It was not.

And so why did we not have an RFQ that just said, Hey, propose any kind of solution to us and we'll look at it, rather than narrowing it down in the beginning of the process? (Applause.)

Sir, that is an excellent question and it's the question that we were asked in 2003, and we were asked again recently about that question, and it all relates to this particular site. This site when the facility was put in in the mid '80s, it was a good 63 6/3/08 - FINANCE - BILLS 080495 and 080498 technology, and what the City found is that they could not control odors. The City went to a land application scheme and a landfill scheme, and just because of trucking and seasonal nature of those projects, they had to start stockpiling thousands of yards of product outside to the detriment of the neighborhood.

I understand, but you're not answering my question.

No. I'm getting to the question. So the charge that we were given is, what technologies is the City going to be able to live with and be able to tell the public that they're not going to have odor problems at BRC, and the two technologies we came up with is, you can build composting there and enclose it or you can build thermal drying. And as I said earlier, if a proposal came in from a site other than BRC, we said we would evaluate that. But at BRC we wanted to 64 6/3/08 - FINANCE - BILLS 080495 and 080498 make sure that that was done in a way to satisfy the neighbors.

I'm not satisfied that you've answered my question. Why was it limited to those two technologies as opposed to just saying, Hey, here's our problem, every company out there in the business, if you're interested, give us a proposal on how you would solve this problem, and letting the marketplace tell us what technologies are out there and getting all the information possible rather than narrowing it down to the point where really only one company was going to be able to -- (Applause.)

Well, certainly you understand that we made a judgment to narrow it.

In 2003.

What's that?

In 2003.

Yes. And again 65 6/3/08 - FINANCE - BILLS 080495 and 080498 when we looked at it recently, we came to the same conclusion. There are scores of technologies out there, sludge to oil, been used all around the country. There are many, many facilities which have failed, Los Angeles, Camden County, right up the road in Trenton. And so the Department charged us with make sure if they're going to spend $50, $60, $70 million, if they're going to get somebody in for a 25-year term, to make sure it worked.

I'm confused.

That was the charge.

I'm confused. I understand the Department to be saving a hundred million dollars, not spending any money as a result of us entering in this contract, so --

I understand that over the term of this contract the City 66 6/3/08 - FINANCE - BILLS 080495 and 080498 saves nearly 200,000.

Not according to the City Controller. It saves a hundred million dollars over the course of this contract. So I'm going to rely on the Controller rather than the Water Department as to what the savings are. (Applause.)

I'm sorry. I couldn't hear what you just whispered to Mr. Donovan that caused him to laugh. Would you please say it out loud? COMMISSIONER BRUNWASSER: We do disagree with the Controller's analysis, but still in all, if you agree with the Controller, it's still a very significant amount of money.

And what's funny about that, Mr. Donovan? (Applause.)

There's nothing funny about a hundred million dollars, sir. 67 6/3/08 - FINANCE - BILLS 080495 and 080498

If you have something to say, please say it for the record rather than whispers resulting in chuckles. That's inappropriate. You're before this body, City Council. Please show us the due respect that we deserve. (Applause.)

Councilman, could I also add to the answer on the last question?

Please do.

Thank you. As described about our company, Synagro is not a company that has just one technology. We offer all proven commercially operating type biosolids management. In fact, we've been providing Class B services to Philadelphia for over 15 years. And every time there's a new technology that comes out, the first place that those people with the new technology come is to Synagro to say, Hey, are you interested in buying our technology, are you 68 6/3/08 - FINANCE - BILLS 080495 and 080498 interested in partnering with us, because they know we have a 600 municipal base, customer base, and that we have credibility with the customers and that we've performed. What we see across the country, not just in Philadelphia, is that particularly on a large project like this, which is 200,000 tons -- I mean, this is one of the top sized projects 12 in the country. Trying something new 13 typically isn't done unless you get grant 14 money from the EPA. A lot of the 15 projects Mr. Donovan referred to were 16 innovative technologies that the EPA used 17 to give out millions and millions of 18 dollars, and they're now with EPA grant 19 money dolled out taxpayer dollars of 50, 20 80 million and they never worked. And so this city, along with many other cities, when they're doing a big project, wants to avoid something that doesn't have a track record. Usually as new things come, they start 69 6/3/08 - FINANCE - BILLS 080495 and 080498 smaller and then they work up from there. And that was really the mindset that I see not only here, but at many other places across the country.

Is there a project this size that uses this technology currently?

Yes. In Nashville, Tennessee and Louisville, Kentucky and then there's many over in Europe.

So I'm still really not satisfied that we have the answer to the question that I first posed to Mr. Donovan, and I just want to make sure that there are no conflicts of interest here. Mr. Donovan, does your company advise other municipalities in areas on matters such as this? Are you primarily a consulting company?

Yes. That's correct, sir.

And have you recommended different technologies other 70 6/3/08 - FINANCE - BILLS 080495 and 080498 than a Synagro-type solution to other municipalities?

That's correct.

You have?

Yes.

Of all the people trying to solve the problem we have, have you ever recommended a different company or a different technology?

Absolutely.

Could you go into what some of those are?

We've recommended incineration in some instances. We've recommended landfilling when there's no 18 capital available for further processing and there's inexpensive and capacity landfills available. We've recommended land application, composting, lime stabilization. We serve literally thousands of municipalities throughout the country. We have 4,000 employees. We've served -- 71 6/3/08 - FINANCE - BILLS 080495 and 080498 I'm working right now with the City of New York. They are very concerned about their biosolids disposal techniques, because they're transporting biosolids halfway across the country. So they're looking for advice on how to be more sustainable.

And what have you recommended to them?

We haven't got to a recommendation yet, but it probably will be a combination of improving the thermal drying they have now as well as perhaps eliminating their Class B program.

And replacing it with?

Haven't got a recommendation yet for them. They have 14 wastewater treatment facilities. They process biosolids by various means, including hauling Class B material as far as Colorado. And they know they're in a difficult position with the gas prices 72 6/3/08 - FINANCE - BILLS 080495 and 080498 and everything else, and the trend we're seeing, and Pam touched on it, is every city the size of Philadelphia has the same dilemma, and I think, to reiterate, that this thermal dryer is a good solution for the City.

I'd just like to get a couple things on the record so we're clear. Has your company ever been paid by Synagro?

Yes, we have.

How much of your annual revenues come from Synagro?

Less than one percent in any one year. We've done two small projects for them where we've installed equipment in facilities that they operate. And we serve all of their major competitors as well. We're a full-service company.

Okay. I just think it's important to have those conflicts reflected. 73 6/3/08 - FINANCE - BILLS 080495 and 080498

I agree.

I would like for the record to know what the City's energy costs are capped at? There was a statement made earlier that the City's energy costs are capped. What number are they capped at and how does that compare to the model that you've shown us?

The energy usage for the facility, according to the contract, is capped at 85 therms per dry ton.

That's a different statement than our costs are capped, because what you're saying is they'll just stop burning gas once they've reached 85 therms and then we'll have sludge mess.

No. Well --

Are the costs capped or is the amount of gas used capped?

Well, I'm addressing the amount of use now. 74 6/3/08 - FINANCE - BILLS 080495 and 080498 Anything over 85 therms would be paid for by Synagro as a deduct from their service fee.

So that's not really --

Well, we wanted to make sure that they weren't inefficient in their process, so we felt that we needed to have --

So really the City is paying for all the gas that Synagro is expected to use. It is not capped, as you were earlier implying or as was earlier implied; is that correct? I mean, let's get these things correctly on the record so that we understand.

There is only a cap on the energy usage, not on the cost.

Right. And who pays the cost?

The City pays for all of the energy costs for the project.

That's right. Thank you. 75 6/3/08 - FINANCE - BILLS 080495 and 080498 (Applause.)

May I add a comment, please? I just want to state for the record that all of the energy costs are included in the figures that are provided in our economic analysis.

At what dollar amount per BTU, or whatever, per therm?

We assumed $10 per million BTU.

And what's the price of natural gas right now?

It's probably about $11 per million BTU. We did a sensitivity analysis and looked at the gas prices up to $30 per million BTU, and the prices would have to increase over the next three years --

Now change that to a hundred million savings, not 200 million. In other words, the figures you're quoting, they'd have to triple in order for us to not break even here, but 76 6/3/08 - FINANCE - BILLS 080495 and 080498 the fact of the matter is, the City Controller says you're only saving net present value $42 million with these savings or about a hundred million over the 20-year life versus the 200 million over the 20-year life you're saying. So you've only got net present value 42 million of savings that you're playing with. So I just want you to be very, very clear so that when we vote on this, we know exactly what we're voting on, because so far, I haven't gotten clear answers to questions.

Well, I think that the Water Department disagrees with the Controller's analysis. The Controller estimated that we would only have to spend a very minimal amount on an annual basis for the renewal and replacement of equipment at the Biosolids Recycling facility, and the Water Department does not agree with that and --

Since the 77 6/3/08 - FINANCE - BILLS 080495 and 080498 Controller issued his report -- I checked with him this morning -- he's received no 4 new information from the Water Department that would challenge it or refute it, and basically he stands by it.

Well, that's fine. DEPUTY COMMISSIONER McCARTY: If I --

Madam Chair, if I might make a point of order on that issue. Not only does the -- not only -- the Controller's report figures and savings are also those that the union agrees with we can make. So you may not agree, but we have the Controller of our City and the union who agree we can make these cost savings as is. (Applause.) DEPUTY COMMISSIONER McCARTY: If I may.

And that's without firing all these people. We can maintain that savings and keep the union people employed. 78 6/3/08 - FINANCE - BILLS 080495 and 080498 (Applause.) DEPUTY COMMISSIONER McCARTY: If I may, no one will be fired. That's not the intent of this. But to get back to what Councilman Green was saying, we did not go into this project because of the cost savings. The cost savings was an added benefit. We went into it because we needed a Class A product and we need a tried and true technology. Cost savings is an added benefit and it's something that we can't ignore.

The testimony is focusing on cost savings and technology and -- (Applause.)

-- and the number one priority that people are focusing on here is eliminating odor as one of the reasons that Synagro -- I'll get it right eventually -- one of the reasons that Synagro's technology was one of only two we could use in terms of solving this problem, was because of the 79 6/3/08 - FINANCE - BILLS 080495 and 080498 odor problem. DEPUTY COMMISSIONER McCARTY: Right. That's a very important part of this whole project.

Has the Water Department in terms of sustainability, which was also mentioned as a goal, has the Water Department compared the effect on replacing VOCs with greenhouse gas emissions from burning 85 therms of natural gas in Southwest Philadelphia and the impact that's going to have on the local community and compared the greenhouse gas emissions that will be burned versus the trucking costs? If maybe Synagro can answer that question.

We absolutely did that analysis, and it is by far less greenhouse gas emitting to move forward with the process.

When you say "by far," can you provide specific information? 80 6/3/08 - FINANCE - BILLS 080495 and 080498

I have a chart that I'd be happy to provide you afterwards from one of my folks where we --

Could you please provide that to the Chair so it's part of the record?

-- when we went through the Council. Sure. But you have to remember that if the material isn't being processed on site, it's going to be trucked off site and it's going to be applied to farm fields and put in the landfills. Landfills are pretty big emitters of greenhouse gases because they produce a lot of methane. Methane has times the 18 impact on greenhouse gas emissions as CO2 19 does. 20

Unless it's 21 captured like the Philadelphia Water Department's plant or this facility currently captures methane, and you can burn it and use it.

That's assuming a 81 6/3/08 - FINANCE - BILLS 080495 and 080498 landfill that has methane capture. Because even if you have methane capture -- I'm talking about the landfill, not at the wastewater treatment plant.

Okay.

Because no matter what you do with biosolids, you use fossil fuels in every option. So you have to add together the fossil fuel impact of driving it away --

Do you use fossil fuels in plasma arc?

John, I'm not familiar with plasma arc. But plasma arc isn't operating anywhere in the world with biosolids. It's not a proven technology.

Okay.

Your time is up.

My time is up?

Yes, your 82 6/3/08 - FINANCE - BILLS 080495 and 080498 time is up. You can come back. The Chair recognizes Councilman Greenlee.

Thank you, Madam Chair. Just a little bit on the same lines of Councilman Green's, particularly his earlier questions. Mr. Donovan, just so I'm clear for the record, I know you said you looked at this in, what, 2003 originally?

Right.

And then you said was it this year or the end of last year did you say? I'm sorry.

I believe it was early this year, sir.

And during that time, your testimony is really nothing changed as far as what could be done, in your opinion, at this site?

That's correct.

And so 83 6/3/08 - FINANCE - BILLS 080495 and 080498 these other technologies, none of them grew enough, in your opinion, or there was no proof that any of them worked?

There were many reasons, sir. Grew is a good term. They weren't run at the scale of this facility. Some of them were in demonstration. But we did look at various methods, and we could not identify a single new one that met all of the criteria we had established in 2003.

And I know you in your written testimony say two to three proposed technologies was unproven without any long-term demonstrated experience. Long term was the five years, I think we were -- is that what you were calling long term? What was long term?

Long term -- five would be a good definition of that. Yes, I agree with that.

Because I know the Deputy Commissioner, I think it 84 6/3/08 - FINANCE - BILLS 080495 and 080498 was you, mentioned a five-year window. So, in your opinion, nothing has changed there. Ms. Racey, just one question. I know this came up at previous hearings last year. One of your sites, I think it's the one in New York, there were allegations at least or reports that there were some problems in it.

Right.

Could you describe that and tell us what they were?

Sure. Synagro acquired a company in 2001 that already had an existing ESP heat drying and pelletization facility in New York.

Is that what this is?

This is an Andritz system. So they're in the same category, but they're different manufacturers and different generations of the technology. And, in fact, this is a great example of why you want to go with something that's 85 6/3/08 - FINANCE - BILLS 080495 and 080498 been operating for a while. Because when something first comes out, it gets better. You get it working and you figure out how to make it better and then it's perfected. So this is an older version of a heat drying and pelletization system. It has a lot higher emissions because it doesn't recirculate the air, a lot lower energy efficiency, and this particular facility had some design flaws in the odor control system from the get-go. What Synagro did is, they came in, assessed the situation, worked with the community to figure out some of the issues and what we could do to solve the odor issues, and we spent $5 million of our own money, with no reimbursement from New York City, to enclose the truck-receiving bay, put in odor scrubbing and retrofit some of the trains with air recirculation. And this has greatly improve the situation there. We've gotten a positive response from the 86 6/3/08 - FINANCE - BILLS 080495 and 080498 community. And, in fact, we have just started discussions with the city about taking the final step to really make it as good as it can get and ripping out the old equipment and putting in the Andritz, what we're proposing here for Philadelphia. The city is very interested in taking that step to bring that first-generation technology up to snuff with the current available technology.

Thank you. And one last question. Again, back to Mr. Donovan, on one of the proposed technologies by Local 394, just so I'm clear by your testimony, you're saying the biggest problem with that is the odor issue if it was proposed for this site?

Which technology?

Well, let's see. Because you say, most importantly, two of the three proposed technologies are unproven. The one that's proven. There must be -- 87 6/3/08 - FINANCE - BILLS 080495 and 080498

The one that's proven -- yes, sir. The one that's proven is the composting process.

Right. That's the composting.

Obviously the Water Department has had many years of experience with that out of doors. The company that has been proposed by Local 394 would haul the cake long distance to existing composting facilities, and then at a point in time they would build on-site facilities. Now, the details of their proposal weren't enough so we knew whether or not all of the on-site facilities would be totally enclosed. But one of the things we were asked to do is to speculate what would be the reaction of long distance hauling, and their facilities are in rural Virginia and North Carolina, and in our analysis of it, we said that that might well be problematic, to bring Philadelphia biosolids to those locations. And as I 88 6/3/08 - FINANCE - BILLS 080495 and 080498 just said, we weren't sure whether all of the facilities would be enclosed. In order to conduct composting, you need acres and acres of buildings, and it's very cost prohibitive to treat all the air, and that's really why Synagro chose not to propose composting. Not that it's not allowed and not that it's not a good process, but just massive costs in order to do it properly.

I was going to say what was the cost factor in that.

Much more than 70 million.

We actually, Councilman, if I may, we have indoor compost facilities and, in fact, over in Burlington County, New Jersey, we operate an enclosed composting facility, and we did an analysis of that, because it was allowed here. So what we said is, what can we do? Should we do all composting enclosed, all drying enclosed or one of 89 6/3/08 - FINANCE - BILLS 080495 and 080498 each, split the baby, and what we found in our analysis -- we hired an outside odor expert to work with us, Odor Science & Engineering -- is that the best odor control and the best cost could be attained with the single heat drying system, and that's why --

The thermal drying? Okay. I saw Ms. Cutler. Were you going to address -- DEPUTY

I have a response to your question. I'll wait until you're finished, Councilman.

No. That was it. DEPUTY

May I?

That's it for me. Thank you, Madam Chair.

The Chair recognizes Ms. Cutler. Would you state your name for the record, please. DEPUTY

For the 90 6/3/08 - FINANCE - BILLS 080495 and 080498 record, Rina Cutler, Deputy Mayor for Transportation and Utilities. I've been listening to the hearing since it began, and I guess I'd like to clarify a few points, if I may. When the new Administration came in, we also had many of the same questions that have been raised today by both the employees as well as the Councilpeople. So I want to just give you a perspective that I have as to how we got back in front of you today. The first piece that I want to talk about is really the employees of the Water Department. This is not an attack on those employees. In fact, many of the employees, particularly here but also back at work, have spent the majority of their life working for the Water Department, and this is family for them. This is not something that has been viewed as an attack on those employees in any way. In fact, we think the employees of the Water Department are some of the 91 6/3/08 - FINANCE - BILLS 080495 and 080498 best employees in the country, and we applaud them for the work they've put into the Water Department in the past 30 years. So I don't want this to be viewed as, first of all, an attack on those employees. They've done a great job. We expect to continue to have them do a great job. And so I want to be clear on that. Secondarily, we also had the same major issue, which is what happens to the employees in question here. I don't want to leave their impression on the record that in any way are these employees to be harmed, either economically or in terms of their work set. We met with the union recently, the Mayor, myself, and I met with the union prior to that. They absolutely have the Administration's commitment that they will not be harmed. And I have someone, I believe, now going to draft that in response to Councilman Goode's issue. I 92 6/3/08 - FINANCE - BILLS 080495 and 080498 agree, if it isn't in writing, it doesn't exist, and we will put that in writing. There is no way we are going to sacrifice those employees. Secondarily, I want to talk for a minute about the issue that's been raised here which is the Water Department's contention that it's a $200 million savings versus the Comptroller's assertion that it's a hundred million dollar savings. First of all, a hundred million dollar savings -- I will stand by the Comptroller's number for the first part of this discussion -- is an amazing amount of money, and that money, frankly, saves the ratepayers money. As you know, we are going through a rate increase piece right now for water rates. While I have no idea and do not wish to get involved in that process, as it is a legal one, it is certainly our belief that saving dollars, whether it's a hundred million or 200 million, is in the best interest of the ratepayers of 93 6/3/08 - FINANCE - BILLS 080495 and 080498 Philadelphia. But the distinction between that hundred million, at some point we are going to argue -- and I will do it to some degree. The hearing is the opportunity for us to present why we believe those numbers are not accurate, and at the point the Comptroller put that together, one of the pieces I'd like to point out -- and I do concede I'm new at this, so please bear with me. The cost of gasoline at the point that argument was made several years ago is not at all relevant to what it is today. So whether it's a hundred million dollar savings or whether it's a 200 million dollar savings, it's a great deal of money, and while it isn't the driving force behind this, even if we concede we agree with the hundred million dollar number, it would not be fair of us to deal with the ratepayers and say that is not significant to people who pay water bills.

94 6/3/08 - FINANCE - BILLS 080495 and 080498 And the third piece I want to talk about here a minute is really the issue of where do we go in the future, because the current process for all of its use and for a long time it was acceptable, albeit with a lot of problems in the community, the union is absolutely correct that since the City stopped composting, there is a severe reduction in odor, and they are absolutely correct. It is not at all what it was five years ago. ) DEPUTY

It does not mean, however, that there are, A, no 17 odors nor, B, that we are using a process that is sustainable in the future. So when we have a company coming in saying we've looked at the technology, when we have one of the utmost expert companies in the field tell us that they have also looked at the technology, we would not be managing our responsibilities if we did not deal with only acceptable, proven 95 6/3/08 - FINANCE - BILLS 080495 and 080498 technology. We cannot afford it. We cannot afford for there to be a mistake ten years from now or five years from now, and we are in fact planning for the future of technology. We're looking to go into a sustainable model for how we manage waste, and that is, as been pointed out by a number of Councilpeople as well as a number of people at this table, a problem that almost every major municipality in the country is facing. So the issue here is really do we have a proven technology that we believe is sustainable and, that is, sustainable not only in terms of the environment but also in terms of risk and liability. One of the issues that exists currently is that all of the product that we currently manage in the Water Department makes the City liable for it cradle to grave. Wherever it gets deposited, whatever process is used for it, it is our liability cradle to grave. What the new contract allows is 96 6/3/08 - FINANCE - BILLS 080495 and 080498 in its entirety that liability to be shifted to the vendor. If we do not touch the product, that liability is not the City's. And so going forward, that is a fairly big deal as to how we got here. Please understand, even though the new Administration has only been in for several months, we did the due diligence here, because our initial inclination was why would we move this proposal forward, and in doing that due diligence, while we did not agree with all of the previous assessments that had been done, we really believed both from an aesthetic perspective, from an environmental perspective, for a long-term issue in terms of protecting the work of our employees and in terms of finances and in terms of liability, that this is the best deal we could find for the City. I thank you.

Don't 97 6/3/08 - FINANCE - BILLS 080495 and 080498 leave the table. I want to recognize Councilman DiCicco, because he has his light on. But I do understand that Councilman Goode and Councilman Green have questions for you. Is your question for --

My light has been on, too.

Oh, I'm sorry. COUNCILMAN DiCICCO: I'll yield to the President.

Councilman DiCicco yields to the President. I'm sorry. I thought the light was for Councilman DiCicco.

Thank you. I want to have the record eminently clear. If for any reason there is a problem at the plant and the biosolids cannot be processed, what happens and who is financially responsible? 98 6/3/08 - FINANCE - BILLS 080495 and 080498 DEPUTY

Council President, one of the benefits of using a vendor that has 600 municipal outlets is that they can move that product anywhere they need to to dispose of it. The liability is entirely theirs and the financial problem is entirely theirs.

Thank you. I have another question, but that's for the Commissioner. Councilman DiCicco. COUNCILMAN DiCICCO: Thank you. Thank you, Madam Chair. Earlier this morning there was some concern about the fuel consumption. I believe the Chair was attempting to call someone from PGW, but they're not able to, I understand, today.

We had originally scheduled PGW to have a hearing on a bill that they have before the Council, but they couldn't appear because they're doing -- they have another project going on that involves 99 6/3/08 - FINANCE - BILLS 080495 and 080498 the Commission and the staff of PGW. So there's no one there to come here. The purpose -- I mean, there are people there, but the person to testify is not there. COUNCILMAN DiCICCO: And with that, there was also some concerns raised about -- and I think Ms. Cutler answered many of the questions or concerns I would have had -- about the differential between savings of a hundred million versus 200 million, and I think everyone would agree that a hundred million dollar savings is certainly significant, and with that, I was just wondering if we might want to consider bringing the Controller over, because I'd like to know, A, when was his last audit, how did he get to this decision that it's only a hundred million dollars as compared to 200 million dollars, and I think there's some questions that were raised earlier that he may be able to answer for us, in addition to what Ms. Cutler spoke to 100 6/3/08 - FINANCE - BILLS 080495 and 080498 about the due diligence, and I do appreciate that. But I'm wondering where he gets his knowledge and how he arrived at that number and whether he doesn't think that this is a worthwhile project because it's only saving us $100 million.

We will ask the staff to see if we could contact the Controller if the Committee would like to have him come.

Madam Chair, we have PGW coming in a week from yesterday, the 9th, for their capital budget.

We probably could get an answer from them in writing. We'll figure it out. We'll get some response from them. Councilman Green.

Thank you, Madam Chair. I have --

I'm sorry. Hold it. Hold it. Councilman Goode. I'm sorry. 101 6/3/08 - FINANCE - BILLS 080495 and 080498

Thank you, Madam Chair. Ms. Racey, would you walk through the goals for disadvantaged business participation again.

There's three components to the disadvantaged business enterprise on the project. There is an equity partnership in the ownership of the company. Philadelphia Biosolids Services is owned percent by McKissack 13 and McKissack, ten percent by Len Parker 14 Associates and 70 percent by Synagro. 15 That's the first -- and each of those 16 teams has a role in the project, which I 17 can cover, if you'd like. 18 McKissack and McKissack is the 19 owner's agent overseeing the design/build 20 portion of the work, and Len Parker Associates is going to be doing both some mechanical contracting as well as some machine maintenance support throughout the life of the project.

So that's 30 102 6/3/08 - FINANCE - BILLS 080495 and 080498 percent of what?

Thirty percent ownership of the company. It's a limited liability corporation.

Okay. In terms of the business contracting that will be done on the project.

Okay. Then the next phase where we'll be subcontracting out work, again, the project is around 60 million in construction, plus financing costs and --

You're talking in generalities. The reason why I ask the question again is because I want to know what the total project costs are and then I want to know how it's broken down in terms of participation goals.

Okay. I don't have everything memorized, but I do have also -- I have that chart you asked for.

If you don't have it memorized, does that also mean 103 6/3/08 - FINANCE - BILLS 080495 and 080498 it's not attached to the legislation?

No. It's part of our contract and the contract is part of the legislation.

So it's one of the exhibits?

Yes. And so we could get the exhibit. We also put together a more detailed booklet for the Minority Department.

The exhibit should be in the Chief Clerk's Office.

Yes, it should be.

Before the end of this hearing, I need to know specifically what the goals are for minority and women participation.

Sure. We'll get those and I can review those. Again, my memory is it's overall about 30 percent, but to give you the exact breakdown of how much is woman, how much is disadvantaged and how much is minority, I need to have the paper in front of me. 104 6/3/08 - FINANCE - BILLS 080495 and 080498 But there is a component in the construction and then in the long-term operating contract for each year of the contract. And, again, my recollection is that overall the goals are between and 7 30 percent. Let me get the exhibit so we 8 can be exact. 9

Once 10 again -- and let's leave it in 11 generalities. 30 percent of what? 12

Okay. I have the 13 chart in front of me. For example -- I 14 have the chart and I'll read right off of 15 it. For the interim ops period -- 16

What are the 17 total contract dollars that will be 18 contracted out in terms of the 19 businesses? At the end of the day, what 20 I need to know is the percentage of total contract dollars that will go to minority-owned businesses and the percentage of total contract dollars that will go to women-owned businesses, and I need it in a form that's attached to the 105 6/3/08 - FINANCE - BILLS 080495 and 080498 legislation.

I'd like to submit this for you to look at.

Is there a total there?

Yes. It's very detailed.

You can say it for the record as well.

All right. In the interim ops period, the total project costs are million. The eligible costs 14 are 5.5 million. The DBE dollars are 2.8 15 million. This is over a four-year 16 period. And it totals $11 million. The design project dollars are 2.8 million. The eligible costs are 2.8 million. The DBE dollars is a million. Our participation is 40 percent. Construction costs that don't include the Andritz equipment, because we can only --

Ms. Racey, is there a total in terms of total 106 6/3/08 - FINANCE - BILLS 080495 and 080498 contract dollars and is there a total in terms of total contract dollars that would go to minority-owned businesses?

58 million.

58 million represents what?

Well, it doesn't have a percentage on the bottom line, so I'd have to add them up.

Can you show me a copy of what you have?

Sure. Absolutely.

Thank you, Madam Chair.

The Chair recognizes Councilman Green.

Thank you, Madam Chair. I want to say, Deputy Mayor, that we, I think, are all sitting here with the full knowledge and understanding that the Administration has gone over this and reviewed what the past Administration did and, quite frankly, 107 6/3/08 - FINANCE - BILLS 080495 and 080498 given that fact, the fact that you're sitting here testifying for it and the Administration is asking for it, gives me a great deal of comfort that I would not otherwise have with this project, and I start with the disadvantage that I haven't been going through this for three or four years, so some of my questions are some of the same questions that you've been asking and I just want to try to get some of those things on the record. So has there been an opinion from the Law Department regarding the City's liability under the owner/operator Superfund law? I understand that under the contract, Synagro is required to pay for it, but if they -- I'll get it right. If they go out of business or this becomes no longer financially viable for them, who is the obligor under the contract? Is it Philadelphia Biosolids, which would have a corporate veil that couldn't be pierced, or is it the parent 108 6/3/08 - FINANCE - BILLS 080495 and 080498 company, Synagro, that is going to be responsible? And then also since we are the owner of the property, I don't think we can avoid liability under a Superfund law. All we can have is indemnification. So if we could get on the record what really our liability is, I'd appreciate that. (Witness approached witness table.) DEPUTY

Although I have been known occasionally to practice law without a license in front of my lawyers, I will add, I have asked the Law Department to come up to give you a legal answer.

Thank you.

Hi. I'm Barry Davis. I'm the Chief Deputy for Regulatory Affairs in the City's Law Department and I've actually been involved in this contract for probably about seven years, since the beginning of discussions about the RFQ. So I feel 109 6/3/08 - FINANCE - BILLS 080495 and 080498 like I've been living with this for quite some time. With regard to the liability, particularly associated with Superfund liability, one of the big differences between what will happen under this contract and what is currently the status quo at the BRC is that we are producing these Class B biosolids, which are municipal solid waste, and so when we take municipal solid waste to a landfill or to another site, there is some potential liability associated with that material. If it goes to a landfill and subsequently that landfill gets in trouble for one reason or another, we would be part of the Superfund process at that facility, one of the potentially responsible parties, as they're called.

Right.

The big difference under this contract, though, is that when you make Class A biosolids, you're not making municipal solid waste. You're 110 6/3/08 - FINANCE - BILLS 080495 and 080498 transforming that material into something that is no longer regulated as a waste material. So when that material leaves the dryer and goes out into the world, it is now fertilizer, and so it's not going out with the stigma associated with being a waste product.

So Class A biosolids don't have things like heavy metals or other things in them that could end up on people's property or in landfills?

Well, there are going to be trace amounts of metals in the pellets as well.

Wouldn't that give you Superfund liability going forward?

It's the same kind of liability that a fertilizer manufacturer would have for trace amount. I mean, it's not going to be classified --

I 111 6/3/08 - FINANCE - BILLS 080495 and 080498 understand. I'm just trying to get a clear understanding of the fact that we will continue to have owner liability under CERCLA for everything that comes out of that plant forever. Is that correct?

I would disagree, because I don't think we're the owner of a generated waste material.

We're the owner of the facility where the manufacturing process is.

Well, we're actually not -- under this -- we will be the -- it's --

We won't be the operator, but we're going to own the land.

We're not going to be the owner either, because under this contract, Synagro is the owner of the facility. I'm trying to think exactly whether there is any residual liability that we would have as the provider of the 112 6/3/08 - FINANCE - BILLS 080495 and 080498 material before processing, and I don't really think that there is. The other fact of this is that you're not going to see this material ending up in a landfill very regularly. I mean, it could potentially get into a landfill in some way or another. It could go there as cover for a landfill, but when it goes there, it's going there not as a waste material. So the liability that you could --

Other than for metals.

Other than for very small trace amounts of metals. The biosolids that the City produces is actually very low in metals. One of the reasons for that is that we have a very good industrial pre-treatment program that requires the industrial polluters to remove those kinds of pollutants before they go into the wastewater system. So one of the reasons that we had a successful composting program was 113 6/3/08 - FINANCE - BILLS 080495 and 080498 that we had very low metals and that didn't disqualify our compost from being a fertilizer.

Okay. So who is on the hook for indemnification of the City? Is it Philadelphia Biosolids or is it Synagro?

Under the agreement, Synagro is the guarantor. So there's a separate guarantee agreement which is part of the contract, which it's one of the many, many attachments to this contract, but it is an executed guarantee.

So we have the guarantee of Synagro for all of the obligations of Philadelphia Biosolids?

That's correct.

Okay. Do we have a listing down to direct ownership by individuals rather than other LLCs of who exactly will own percentage interests in biosolids?

In the -- 114 6/3/08 - FINANCE - BILLS 080495 and 080498

In Philadelphia Biosolids, the company we're entering into --

Philadelphia Biosolids Services. They're our equity part -- I guess it's an LLC. So there are equity agreements in the LLC that provide for an equity ownership to McKissack and McKissack for percent of 11 the total shares of this corporation and 12 ten percent to Len Parker Associates. 13

And they're 14 holding directly rather than through a 15 separate entity? In other words, 16 McKissack is holding directly interest in 17 Philadelphia Biosolids, Len Parker 18 Associates is holding directly in 19 Philadelphia Biosolids? 20

That's correct.

Okay. So we know who 100 percent of our partners in this project are?

That's correct, yes. 115 6/3/08 - FINANCE - BILLS 080495 and 080498

Okay. And I found it interesting that one of the advantages to having Synagro be our partner is that if there's any trouble with the process or the way things work, they are at 600 municipalities and they can take our waste elsewhere to be dealt with. I'd like some assurances from the Law Department that our contract, given the discussion about metals we just had and everything else, our contract will prevent them from bringing waste from other cities into Philadelphia to be treated here. (Applause.)

This contract does not allow Synagro to process other biosolids at the facility.

I'm sorry. Say that again.

This contract does not allow Synagro to process other biosolids at this facility.

Okay. 116 6/3/08 - FINANCE - BILLS 080495 and 080498 Great.

That actually was an issue and one that we discussed and decided that it was one that we were not interested in.

Thank you very much.

Councilman Goode.

Thank you, Madam Chair. Ms. Racey, I've reviewed the information. It is very complete. It is something that's contained within the legislation. The only question is the same question I was asking before. Do we know, not based upon this document because this document does not tell us, what percentage is actually going to minority-owned businesses and what percentage is going to women-owned businesses? It is actually combined into just a DBE goal in general, and what I find very significant about this is, it 117 6/3/08 - FINANCE - BILLS 080495 and 080498 looks as if all the firms have already been selected. And so to some extent, it suggests that we already know what the participation rates will be.

We definitely have not selected all the firms. What we've done is put in a list of qualified firms. For example, under construction, these are firms that we've talked to and that are qualified. And we will be hiring a general contractor. We haven't selected a general contractor yet, and they will be, for example, picking from the list of minorities. These minorities will have to compete for the work. Say we may take bids from four companies.

And so since the contractors have not been selected and since you have identified a pool of qualified contractors, you can set specific goals for the project.

Pardon me?

You can set specific goals for the -- 118 6/3/08 - FINANCE - BILLS 080495 and 080498

We do that all the time. We --

I'm talking about within this document.

Right. They're not exact, because the nature of a design/build/operate facility is that it's only percent design now. So the 10 final design, whether it ends up costing 11 us 58 million or 62 million, won't be 12 determined until we finish our design, 13 but that's our risk. Those costs are our 14 risk. So during the design -- 15

That's not my point. My point is that you can actually break it down in terms of the various disadvantaged businesses in terms of what's going to go toward minority businesses and what's going to go toward women businesses and what's going to go toward disabled businesses. You can further define the goals within here.

Right.

So since you 119 6/3/08 - FINANCE - BILLS 080495 and 080498 already know that you have a qualified pool of disadvantaged firms here, you can set specific goals within this document.

Yeah. Yes. I believe I agree with what you said. We have identified the pool. When the work comes out, we're going to bid them. At that time, we have to clear with the Minority Office our program and report what our actual achieved --

I'm not talking about actual achieved. I'm talking about goals that are set within the legislation. This is actually pretty good.

This is --

But it's not enough.

Okay.

I want it broken down more.

Into what? I'm sorry.

Do you 120 6/3/08 - FINANCE - BILLS 080495 and 080498 really want to know?

Sure.

I'd like it broken down by each racial, ethnic group, women and disabled, Philadelphia businesses versus non-Philadelphia businesses. I would like it to be comparable to what we do at the City level, which is break down each category of disadvantaged business and look at Philadelphia businesses versus non-Philadelphia businesses across the board, set goals across the board for who is going to benefit from this in terms of businesses. And MBEC should be able to provide you with that type of template, because essentially per the Charter, per an amendment that was made a couple of years ago, MBEC actually is due to submit annual participation goals for City contracting, which are not done yet, which should be done. So they know exactly what is due to us from their agency. So essentially they can provide 121 6/3/08 - FINANCE - BILLS 080495 and 080498 you the template for what we would expect.

Okay.

Thank you, Madam Chair.

Councilman O'Neill.

Madam Chair, I'd like to state for the record I hope the Administration appreciates this, as well as my colleagues. We're sitting here almost half the Council on this Committee and we have a very difficult issue, both financially, both in terms of technology and also in terms of human issues. The human issues we understand, but particularly the technology issues. I get the distinct impression -- and it's no knock on anybody in the Administration -- that you could not be presenting this testimony without a consultant and the vendor. A lot of questions are answered by them. A lot of 122 6/3/08 - FINANCE - BILLS 080495 and 080498 exchanges are made quietly to get an answer from them. And that's the way the process works. What I believe, though, is that this City Council is seriously or has seriously handcuffed itself on difficult issues that are beyond our reach where we don't have similar expertise. We don't have a consultant. We are making judgments based on what the union can tell us about technology -- and they know as much about it as we do. They don't have the range of expertise here -- and what the Controller has told us, and the Controller's information is months old almost, November of '06. 17 I think it's a flawed process, 18 us trying to decide a 25-year contract, whether it's a $200 million savings, whether it rises to 300 because of gas price increases, heaven forbid, or the 100 that is the bottom level is off by $4 million a year and there's no savings. That's really where the number gets smaller, and you divide it by 25, the 123 6/3/08 - FINANCE - BILLS 080495 and 080498 error factor becomes much larger. So I mention that because I really think in this case we should have somebody who is independent of Synagro, independent of relationships with the Water Department that can tell us this technology is the best or, as Councilman Green was alluding to and the Controller alluded to in their report very specifically, other technologies should have been considered, it shouldn't have been such a narrow window of one company's recommendations. So I find it difficult. I will try to ask some questions, but I do find this to be a very difficult process. And even for the Administration. The Administration has come in, fresh look, but they're basically relying on the same consultants and the same experts that we have and to the experts from 2003, 4, 5, 6, 7 that have done on this. And I say that to start with because I'll try to limit my questions as 124 6/3/08 - FINANCE - BILLS 080495 and 080498 much as possible to what we can understand. There's 60 employees at the plant. How many unfilled positions are at the plant right now? I guess that's a Water Department question. (Audience member yelling "zero.")

Zero? So the plant is running full levels of personnel? (Audience member speaking without microphone.)

Okay. The composting stopped a little over a year ago? DEPUTY

Councilman, I just want to clarify because I'm not sure I understood your question.

There's no 23 openings at the biosolids. DEPUTY

In the 60 jobs that are in question here, they are 125 6/3/08 - FINANCE - BILLS 080495 and 080498 all full. If you're asking me how many vacancies there are in the Water Department --

No, no. I was not asking. I understand there's a lot of vacancies. And it's a good thing probably if you're going to need spaces for people. But that would just be good planning. But something was mentioned and I guess I'm missing the point. We stopped composting in March of '07, and I understand why. There are serious community problems, and we went through this at other hearings last year. But did I hear correctly that Synagro will compost for five years? And maybe I just missed something. Synagro is going to compost for five years? DEPUTY COMMISSIONER McCARTY: No. No. They will continue with moving Class B product off site, but they will not compost. They will not start composting on the site. 126 6/3/08 - FINANCE - BILLS 080495 and 080498

Okay. I had a question no matter what the answer was, but it's a different question. If Synagro is basically for five years going to be doing what we're doing now while the plant is being constructed, why can't we be doing for five years what we're doing now? (Applause.) DEPUTY COMMISSIONER McCARTY: I'm going to pass it to --

The icing is -- you have to understand, I don't need a consultant for that question. Some of these are just basic human questions and -- DEPUTY COMMISSIONER McCARTY: Right. It's a very reasonable question and I can understand the question, and what I'd like to do is answer it and turn it over to Synagro, if that's all right. But basically the answer is that -- DEPUTY

I think I can answer it without a consultant as 127 6/3/08 - FINANCE - BILLS 080495 and 080498 well, at least I hope so. I think the majority of the reason why we wish to have Synagro take over the current process while they're building the new facility is because a portion of the current building is going to be used as part of the new facility. So it will, in essence, become a construction zone. And so part of what needs to happen is, they need to be able to get to the site unfettered, because the design and construction are going to incorporate a portion of the current site. Now, that's my understanding of that, and if there's a different answer, someone should jump in. DEPUTY COMMISSIONER McCARTY: In addition to that, they will not need to store as much cake as we currently store on site, the Class B product on site. They'll be able to move it out to the many outlets that they have more so than we can. 128 6/3/08 - FINANCE - BILLS 080495 and 080498

Okay. I can't comment. Does Synagro agree with that, since you were almost going to answer?

Yes. We're doing improvements to the de-watering building, and that's part of our construction process. And in addition, we have lots of outlets, so we intend to reduce the amount of material stockpiled on the site in the interim to bring --

Well, let's keep Synagro there for a minute. If this contract and this Water Department issuing it had said to you, Until you start construction, our people are going to continue to do the composting, would you have walked?

No. 21 DEPUTY

Not the composting, Councilman.

I know. Whatever they're doing. What used to be composting, now it's being done somewhere 129 6/3/08 - FINANCE - BILLS 080495 and 080498 else.

No, we wouldn't have, but I do want --

No, you wouldn't have what?

We would not have walked. But I do want you to understand that part of the savings you are getting involves the fact that we have those years of operation as well, and that helps us to front-end load the financing costs as we put up the money for the facility.

Right, but one of my concerns from the beginning here has been that unless absolutely necessary -- and I understand, there's a liability question later on, and the attorney spoke to it very clearly -- that we not be replacing or having our savings replacing municipal jobs, City jobs, with private jobs that are paid less. I don't know if that's the case or not, but I want to hear more about it, because even 130 6/3/08 - FINANCE - BILLS 080495 and 080498 if it's just for a five-year period built into these savings, I don't know if this city is ready to establish a policy that we want to save money on the backs of our workers. (Applause.) DEPUTY

Councilman, if I may respond to that. The Administration shares the question as well, and we do not believe that allowing Synagro to begin to operate our current facility in any way harms our employees. The savings benefit and the liability question -- although I'm not sure the liability question applies as long as we're the owner, going back to what Councilman Green had referenced earlier. So I don't know that the liability question is in play until the new facility is built. But I certainly think that the savings piece is a very big deal, and the sooner the savings can happen, the less impact there are to the ratepayers in the 131 6/3/08 - FINANCE - BILLS 080495 and 080498 City. So I don't think it is being done, however, on the backs of the employees because I believe we have crafted an agreement which, of course, we will put in writing and that there is a commitment that we will not in fact harm current employees, and I believe --

That wasn't my point. I'm sorry. DEPUTY

When you said save money on the backs of them --

No, but I think you're misunderstanding me. I absolutely and I think everyone here understands that 60 people are not going to lose their jobs. Let's get that off the table. DEPUTY

Okay.

There are 60 positions that they will fill. There's 60 positions that we won't have to hire somebody else to fill that they will fill. There will be 60 positions 132 6/3/08 - FINANCE - BILLS 080495 and 080498 that Synagro employees will be doing for five years. There are savings to Synagro and to us that was just explained because of those 60 positions that Synagro will fill rather than us. That is a savings that maybe some people think it's a strong word, but it's being done at the expense of our employees and -- (Applause.)

That may be a policy that the last Administration wanted to focus on. It may be a policy that this Administration wants to focus on. But with 60 employees in that position for a five-year period, I can show you all kinds of areas around this city that we could -- right in the Water Department, I can find cheaper people to do their work. We never think about doing that. Why are we carving out areas where we think about doing it? That's all I'm saying. You can find it in Streets, L&I. There's companies out there that just don't pay our wage 133 6/3/08 - FINANCE - BILLS 080495 and 080498 scales, have our pension benefits, our health benefits, our union benefits, and I just hate to see us go down that road even for five years, even for 60 positions if we don't have to, if this company had said, We couldn't do it otherwise. They didn't say that. They said it helps us tremendously. Well, I understand that. Any company we brought in and did the same thing would help them tremendously. They'd have work where they didn't have work otherwise. (Applause.)

But it is a policy question that I think is a serious one, I think we all have to look at. Not just are the individuals -- are we finding spaces for them. I mean, it's good management if you're doing this to make sure that you haven't been hiring so you have spaces for them, and it seems like we have plenty of spaces because we have a lot of openings, but it doesn't change the fact that 60 private company, 134 6/3/08 - FINANCE - BILLS 080495 and 080498 more than not non-residents -- certainly have no control over that -- come in and take City jobs for a period of five years. That's the only point I want to make on that. I think it's a serious one. (Applause.)

And I understand that going beyond that, we'd have liability issues if we touched the product, and that I'll leave to the lawyers that specialize. The --

Do you want her to respond to your statement?

I thought we had -- I don't know if there's any more we can talk about on this. I understand what you're saying. I hope you understand what I'm saying. DEPUTY

I do, Councilman. Just two quick points. I believe Synagro will not be replacing 60 employees. I believe it's half that. 135 6/3/08 - FINANCE - BILLS 080495 and 080498 (Audience booing.)

I can say that about some City jobs, too. DEPUTY

We could, but I just -- I guess we're going -- we can reasonably disagree on a policy perspective. That was the only other point I wish to make.

Okay. In the City Solicitor's report or analysis that we've been focusing on on the numbers and the differences in the numbers and -- City Controller. I'm sorry. The City Controller's numbers are quite different. It's more than a hundred percent overestimate of our savings, which is a lot. But still there's a lot of savings. I can't argue that point. But it's also enormous to go over a hundred percent above what the City Controller believes to be the savings. They talk about that, and I think it was Councilman Green, but I 136 6/3/08 - FINANCE - BILLS 080495 and 080498 think all of us would agree, for months to go by and for the Water Department knowing this serious issue is before us so many times in the last Administration, still coming back five months into the new Administration, to not have sat down, maybe not with the Controller, but at least have their people talk to his people, try to work out the disparities, I think would make this an easier decision to make. And I think that's an important point, because we're all supposed to be on the same team here in the end and we sound like we're wearing different uniforms when we don't talk for that period of time over some fairly simple data issues that could be maybe compromised, agreed on, whatever. And so I wish that it happened. I hope it happens in the future, because that's not a small issue, that there has been no 23 contact between those two departments over that period of time over those numbers, which leads me to another thing 137 6/3/08 - FINANCE - BILLS 080495 and 080498 that I think is more important even than the savings in the Controller's report, and, that is, the hardest thing we have to deal with, we don't have an expert right now. You guys do. And could I just ask the Water Department to tell me how much this expert has been paid up to now on this issue? I think it might be big, but that's okay. I just want a number. I think the best person probably to ask is Mr. Donovan. The lawyer usually knows and the consultant usually knows. The client necessarily doesn't.

CDM has been working continuously since 2003. I believe our contract is something in the order of a half a million dollars over that period of time.

Okay. Can you get us some specifics on that after you leave here today?

Of course.

Thank you. So you can see where we're 138 6/3/08 - FINANCE - BILLS 080495 and 080498 strapped here. We have zero consultant fees and we're trying to match our knowledge and judgment against a half a million dollars of consultant fees, plus whatever Synagro has been able to add to the discussion from a value standpoint, because they've been the vendor for a long time that's been the vendor in this project. It makes it very difficult. So one of the questions we would have asked our consultant -- and if we get one, I believe we would -- is other than this drying -- what's it called? Thermal drying process which the Water Department's consultant has said, This is it, you did the right thing, we would say to our consultant hopefully, There are other municipalities out there, there are other sludge sewage treatment facilities, what are they using? What are people migrating to? What are they starting to use instead of composting where they've had a problem with that for different reasons? And surely one of them would be 139 6/3/08 - FINANCE - BILLS 080495 and 080498 the proposal in front of us today, but other than the Controller's report, we really don't have any other name. And, again, working on the same team, when the Controller says that the majority are the most popular that they scanned when they were talking to other municipalities, their staff, was thermophilic anaerobic digestion. Now, the reason I mention it as the same team versus acting like we're on different teams is, it would have been nice since this has been around for 15 months, 18 months for the Water 16 Department to have met with them, 17 explained it to them, came in today, saying, We understand there was an alternative. I mean, this is serious, serious business, and to have ignored this other more popular, 18 months ago at least, alternative to me is a failure in this process of Council deliberation and the Administration's presentation. So can somebody at least today 140 6/3/08 - FINANCE - BILLS 080495 and 080498 tell me first what thermophilic anaerobic digestion is and why it wasn't even considered for an RFQ as what may have been among other alternatives? DEPUTY

Yes. Councilman, I will turn it over to the experts to explain it to you. It is a little outside of my bailiwick.

I know they already concluded, which makes it a little more difficult. DEPUTY

But I would like to say it's agencies of the City acting on behalf of the City, which of course includes the City Council, often bring in subject matter experts. We do think we're playing on the same team and, therefore, our experts are in fact your experts. So we do not want to -- we're not going to shop consultants to try to get the answer that somebody thinks we ought to have. If we have undeniably one of the best consultants in the world on 141 6/3/08 - FINANCE - BILLS 080495 and 080498 this topic, it would seem to me that that consultant's expertise serves not only the Administration but also serves members of Council.

Yes, but there is a difference. I think we have failed, not you. They have an opinion and it's a very strong opinion. Mr. Donovan couldn't have been clearer that he firmly believes this. He may also have -- and I don't mean this in any unethical way. He may have a bias. He believes in this so much that he doesn't go too far away from it. We may get a consultant who has the same bias somewhere else or has equal opinions about whatever. I'm not going to mention that again until somebody answers me, but that could help us with this very, very serious deliberation. And, yes, the Water Department would be remiss if they didn't have a consultant. I'm just saying, I don't think we would be spending a half a million because we 142 6/3/08 - FINANCE - BILLS 080495 and 080498 would be reviewing, not going through five years of work with you. But that is just the facts, and it makes it very, very difficult. And even whether we go to -- I'll try it again -- thermophilic anaerobic digestion, we may have the same issues about the five-year period or something else. It may not be any different. It may have the same liability issue that if you touch it, it's yours, that kind of -- you break it, it's yours. But I would like to know from someone, at least to have something on the record, other than the Controller, who is not here today, but it is in that analysis what that other process is, how long it's been around, why at least the Controller may have found it popular when they were doing their scan probably 18 months to two years ago.

Thermophilic digestion was around in 2003 when we looked at the technologies. Basically 143 6/3/08 - FINANCE - BILLS 080495 and 080498 thermophilic digestion looks exactly like your current digestion process, but instead of temperatures of 100 degrees Fahrenheit in the digesters, the temperatures are in the 140, 150 range. What that accomplishes is better kill of the disease-causing pathogenic bacteria such that you get to a Class A material. You can produce a Class A material. So that technology is appropriate if you're only worried about getting to Class A. And, in fact, Los Angeles has adopted that. But our problem out in Carbon County and Schuylkill County and the rural areas this material is being brought to is not just about the fecal coliforms in the product. It is about the odor of the product and it is about the truck trips. If we didn't have those other products and we were merely looking for pathogen, that would be on the table. But there's a myriad of other issues and public concerns about biosolids, and that's the difficult part that the 144 6/3/08 - FINANCE - BILLS 080495 and 080498 Department is trying to work with.

Okay. Thank you. There is an energy cost that -- we didn't have the numbers today of what our expected costs are, but somewhere we have them and we know we're going to be paying them. So that was established today, that we're going to be paying the energy costs of this project, the City. And then it was mentioned that with that cap of the expected gas usage -- I forget what the terminology is -- it was 80-some somethings, that now digester gas, which is just going into the air, would be used and it would reduce the costs we had originally estimated without the digester gas. Is that correct? Did I hear that correctly? I have a question. How much will the savings of the digester gas mean to us per year and over the contract, however you want to say that? DEPUTY

You all 145 6/3/08 - FINANCE - BILLS 080495 and 080498 want to talk into the mikes here. I don't want Councilman Green getting upset.

Or Councilman O'Neill, for that matter. As long as nobody is laughing, I won't get upset. DEPUTY

I want you all to hear what they're talking about.

Energy costs are in the order of four and a half million dollars. Approximately percent can be 15 satisfied through the use of this 16 digester gas, which is currently being 17 flared into the atmosphere. 18

Okay. 19 That's a good number, and I appreciate 20 it. But as a Councilmember, knowing that 21 this plant has been around for a long 22 time producing digester gas that's been 23 flaring into the atmosphere, we could 24 have saved as much by reusing it up to 25 now as we're -- or can we only use it on 146 6/3/08 - FINANCE - BILLS 080495 and 080498 this project? (Applause.)

I'm just curious. That's a large number. DEPUTY COMMISSIONER McCARTY: May I speak to that?

Oh, anyone can speak to it. DEPUTY COMMISSIONER McCARTY: What is being flared is excess gas, and that might sound like a play with words, but we use a majority of the gas, and in the winter months during the heating season, we actually -- you should see those flares very infrequently, because we're typically using a hundred percent of that gas for our boilers for heating and we do use it in the -- all year round to keep those digesters, which I think Ms. Racey mentioned earlier, just like our stomachs, keep them at the temperature they need to be. So there is some gas that we can't use right now that gets flared. 147 6/3/08 - FINANCE - BILLS 080495 and 080498 We're looking at having --

But my question is -- I understand all that and I think I understood it before. DEPUTY COMMISSIONER McCARTY: Why haven't we used it --

Why have we not been taking advantage of over a million dollars of gas being blown or flared off and not using it or selling it or getting the value of it somewhere when we're so concerned about our ratepayers? I mean, that's a lot money. It's not a hundred million over, but it's pretty close to a quarter of our savings that the Controller per year says. (Applause.) DEPUTY COMMISSIONER McCARTY: We have been looking at it. We're looking at a project at our Northeast wastewater treatment facility. It is a capital investment, so we have to go cautiously. You want to make sure that you're going to get the payback you hope 148 6/3/08 - FINANCE - BILLS 080495 and 080498 to get and it makes sense financially. So --

Is the airport a potential user or it's not? DEPUTY COMMISSIONER McCARTY: That is one of the areas we're exploring.

Because they're pretty close by, and they have money. DEPUTY COMMISSIONER McCARTY: That is one of the areas that we are looking into, sir.

Other than the Water Department, they're the only other people that have money in the City because they have separate funds. Okay. You might want to talk to the airport. We have the head of the airport here. DEPUTY COMMISSIONER McCARTY: We recognize --

You're talking to the airport. DEPUTY

I'll 149 6/3/08 - FINANCE - BILLS 080495 and 080498 speak on behalf of the airport, yes. DEPUTY COMMISSIONER McCARTY: We recognize it's a resource going up in flames, if you will.

That's all I wanted to get at. DEPUTY COMMISSIONER McCARTY: And we want to harness it.

Okay. There is a provision, I understand, in the contract that the City could terminate the contract due to an extraordinary increase in cost if it would have to -- that it could terminate the contract due to an extraordinary increase in cost and it would have to sustain more than a percent increase 19 in one year. 20 Can somebody -- and then my follow-up is, do we actually project that we could have up to 20 percent a year in increased costs? The Controller might be right.

That provision was 150 6/3/08 - FINANCE - BILLS 080495 and 080498 put in to not anticipate but to protect the City in the event that there was a very, very dramatic increase in costs, particularly in the area of energy. I think as was stated earlier today, we looked in terms of the analysis on this project where the break point might be with regard to does this project have savings or doesn't it have savings, and that looks -- I think as it was presented, it looked only really at the natural gas side and didn't really factor in all the other increase in costs that would go along with increasing natural gas costs. So we all know that if natural gas prices go up, the cost of diesel fuel is going to be going up at the same time. So it's pretty difficult to do an analysis that factors in every possible cost that could be moving and potentially moving in different directions, but at any rate, we tried to do a simple study, and what we came up 151 6/3/08 - FINANCE - BILLS 080495 and 080498 with is if the price of gas were to go from what it is today, which is about, I think it was said, $11 -- it was recently 9, so it's gone up recently. If it went to and, again, not looking at all the 7 other costs that would be increasing but 8 looking at natural gas costs in 9 isolation, at that point that would zero 10 out the savings. 11 So that's -- so we felt that 12 looking at where the gas markets were, 13 looking out at gas futures, which are -- 14 it's very interesting to go -- you can go 15 online now and you can look out to, say, 16 2015 and see what's being projected in 17 terms of gas costs, and they're basically 18 in and around that $10 figure. 19 So no one right now is saying 20 that five years from now we're going to 21 be looking at gas costs that are two and 22 a half times as high as they are today, 23 but it could happen, and let's say it 24 happened in a way that other costs were 25 not also increasing and that this seemed 152 6/3/08 - FINANCE - BILLS 080495 and 080498 to be not a good deal for the City any longer. The idea was that if we had this sort of precipitous climb in these costs, that we would be able to get out of the contract.

And assuming that, assuming that we got out of the contract because of precipitous cost increases, what is in the contract in terms of what happens to the plant? Does Synagro then use it, continue to have it? Do they turn it over to the City? Do they tear it down? I mean, what can we learn about the "what if" on us cancelling?

Well, the --

I think that was a pretty clear answer. I appreciate that on the --

What we would anticipate is that if it's uneconomical for the City to use it, since our biosolids are right there, it's going to be uneconomical for anybody to use it. 153 6/3/08 - FINANCE - BILLS 080495 and 080498 And we've gone into this contract asking that they would finance this project and that they would incur the capital costs associated with it. So the buyout essentially gives the City a liability for the capital cost of the plant. If we decide that we want to abandon the plant, we buy out the then-current capital cost that's there.

So we don't just walk. It costs us a whole lot of money --

No, of course not.

-- to get out. And even with that, we could have percent increases a year without even 18 being able to make this decision. 19

Yeah. This was in the area of trying to say that we wouldn't be stuck with a facility that was not economical to run in the long term, that we could say, Okay, we're not tied into this operation, we can walk. We can pay and walk. 154 6/3/08 - FINANCE - BILLS 080495 and 080498

Okay. The last question I have is sort of a threshold question. I think I know the answer. Part of this discussion has been are we saving this, are we saving that, is the Controller right, is the Water Department right, are they both wrong and it might be a lot more because of gas costs and things. Would we be looking at this project even if it were a break-even? It seems to me we would be and that this would be presented to us as a break-even. It's nice to have projected savings, but we know how they could slip away, because I know there's other issues. I don't represent this area, but there were strong odor issues down there and I know that's why it was shut down from the composting last year, and everybody heard all about that. But would we be presenting this cost neutral just as we're presenting with savings? DEPUTY

155 6/3/08 - FINANCE - BILLS 080495 and 080498 Absolutely.

That was my strong guess. Thank you for being so straightforward with that.

Councilman Green.

Thank you, Madam Chair. Just the method that Councilman O'Neill mentioned, anaerobic digestion something, does increasing the current process to 140 to 150 degrees decrease the volume of sludge that would leave the facility and, if so, by how much?

The volume of sludge that leaves the facility compared to the originally produced at the plants is something on the order of one-third of the total solids are converted to a gas. So two-thirds is leaving the plant. There's a five or ten percent increase in that one-third if you go to a process that is higher temperature, so-called advanced digestion. You can get higher 156 6/3/08 - FINANCE - BILLS 080495 and 080498 destruction and, therefore, more gas production.

And less solid.

Correct. By five or --

Ten percent less solid?

Five or ten percent additional reduction, in that order, yes.

Even though there's more evaporation just of the water from the sludge because of the increased heat, it's only five or ten percent?

There is more gas being produced and there's, therefore, less solids leaving the plant.

Okay. But some of the gas is H2O. Are you including that in the calculation of the sludge material that's going to be transferred? 157 6/3/08 - FINANCE - BILLS 080495 and 080498

I'm sorry. I didn't follow the question, sir.

Some of the gases are H2O. Some of it is water, right? Or are those the gases you're referring to?

I'm saying that a third of it is converted to gas, correct.