JOFOC Seawater MMA - MDV signed FE_Redacted.pdf

NFFR7700-22-00344

infrastructure (pumps, filters, pipes, valves, holding tanks) was installed at the time of construction and operation of the system was assumed by SIO.

No other entity has the resources to provide seawater on the SIO campus. The seawater pumping arrangement is exclusive to the UCSD and NOAA and in accordance with the Ground Lease and associated Seawater Agreement between NOAA and SIO (see attached agreements).

6. Description of efforts made to ensure that offers are solicited from as many potential sources as practicable, including whether a notice was or will be publicized as required by FAR Subpart 5.2 and, if not, which exception under FAR 5.202 applies.

Given the exclusive nature of the associated infrastructure and agreements between the Regents of the University of California (UCR) and NOAA, further market research such as a sources sought notice or request for information was not undertaken. A notification will be posted on SAM.gov to inform the public that the Government is intending to award a Sole Source contract to UCR along with the approved Sole Source Justification for viewing. Any responses received from the notification will be taken into consideration by the Contracting Officer.

7. Determination by the contracting officer that the anticipated cost to the Government will be fair and reasonable.

The Contracting Officer determines that the anticipated price(s) will be fair and reasonable based on historical pricing from the previous contract, and the pricing information detailed in the DOC NOAA Independent Verification and Validation of Scripps Institution of Oceanography Seawater System Evaluation and Billing Rates for NOAA facility at the Southwest Fisheries Science Center La Jolla, CA Final Report. Prior to award of the proposed contract, price information shall be obtained from the Contractor and a price analysis will be performed and documented to sufficiently determine that the cost to the Government will be fair and reasonable. If a price reasonableness determination cannot be made, no contract will be awarded.

8. Description of the market research conducted (see Part 10) and the results or a statement of the reason market research was not conducted.

In depth market research was not conducted for this procurement. No other entity has the permission to provide seawater on the SIO campus. Pumping seawater directly from the ocean is the most cost effective approach versus trucking in seawater to the facility. Furthermore, under section 9 in the Rate Schedule of the Seawater Agreement, the Landlord (USCSD) annually establishes a draft rate schedule inclusive of seawater and proportionate share of maintenance and replacement of facilities costs. The Tenant (NOAA SWFSC) and Landlord review, adjust and approve the seawater flow rates, and the Tenant pays the Landlord based upon the approved rates.

9. Any other facts supporting the use of a sole source (including brand name), such as:

The existing SIO seawater system is the only supplier capable of providing continuous seawater flow to the SWFSC La Jolla Laboratory. The infrastructure to provide the seawater, including intakes, pumps, piping, valves, filters, storage tanks, and control system is valued at $50 million and is owned by UCR.

The costs to replace the structure with one owned by SWFSC and the time it would take to construct such a structure would have a significant negative impact on operations.

NFFR7700-22-00344

10. List of the sources that expressed a written interest in the acquisition.

No sources have been identified at this time.

11. A statement of the actions, if any, the agency may take to remove or overcome any barriers to competition before any subsequent acquisition for the supplies or services required.

There are no other sources available to provide the SWFSC with seawater, and barriers to competition will likely always exist, but market research will be conducted to determine the possibility for any future requirements.

12. Technical/Requirements Representative Certification

I certify that this requirement constitutes the Government’s minimum needs and the supporting data provided herein is accurate and complete to the best of my knowledge and belief.

Matthew Vogel, Facility Manager Date Southwest Fisheries Science Center

13. Office of General Counsel Concurrence

Concur

Rebecca Jacobsen Date Office of General Counsel

14. Contracting Officer’s Certification and Approval

I certify this justification is accurate and complete to the best of my knowledge and belief.

Approve

Mona Ash Date Contracting Officer

VOGEL.MATTHEW.

DAVID.1407855996

Digitally signed by

VOGEL.MATTHEW.DAVID.140785599

Date: 2022.03.23 12:59:38 -07'00'

ASH.MONA.M.1231286574 Digitally signed by ASH MONA.M.1231286574 Date: 2022.03.23 13:12:22 -07'00'

REBECCA JACOBSEN Digitally signed by REBECCA JACOBSEN Date: 2022.03.30 15:29:36 -04'00'

U.S. Department of Commerce National Oceanic and Atmospheric Administration

Office of the Chief Administrative Officer

Independent Verification and Validation Of

Scripps Institution of Oceanography Seawater System Evaluation and Billing Rates

For NOAA facility at the Southwest Fisheries Science Center La Jolla, California

FINAL REPORT

March 28, 2014

EXECUTIVE SUMMARY

NOAA Planning and Administration (P&A) commissioned this report as an Independent Verification and Validation of the seawater billing rate proposed by Scripps Oceanographic Institute (SIO) for seawater provided to the new NOAA Southwest Fisheries Science Center (SWFSC) at the SIO campus in La Jolla, California. The scope of the work includes two objectives: 1) validate the Seawater Billing Rate Evaluation report prepared by Nasland Engineering and commissioned by SIO, and other supporting information, and, 2) develop an independent estimate of the fair and reasonable range for seawater billing rate purposes using SIO/Nasland data and reports and industry benchmark data.

The documents provided by NOAA and SIO were reviewed per the scope of work. The review focused on the assumptions and calculations presented in the Seawater System Upgrade and Renovation Evaluation and Recommendation Report, the Seawater Billing Rate Evaluation, and the stipulations in the UCSD- DOC/NOAA Lease Exhibit F: Seawater Agreement. Coordination meetings were held in June, August, and December of 2013 to clarify the information and discuss preliminary findings. Additional and revised information was submitted by SIO as a result of these meetings.

The technical reports, using the assumptions stated within, are accurate in the calculations, projection of costs, and annual reserve deposits. However, the assumption that the proposed system upgrade and renovation is required to deliver design flows could not be validated. In fact, the existing system is providing the Standard Flow Rate stipulated in the Seawater Agreement currently. Cost estimates for replacing the seawater system piping also could not be validated, although SIO has experience they believe justifies the 300+% increase over the standard estimates identified through this report. This experience could not be validated.

The effort to determine a fair and reasonable range for the seawater billing rate also included research of market rates for the provision of on-site generation of seawater, and documentation of costs currently charged at other NOAA sites for the provision of seawater. This research indicated that the use of pipeline systems is significantly cheaper than trucking fresh seawater or creating it on-site by the addition of nutrients and minerals. It also indicated that NOAA is currently paying rates similar or lower to the rate proposed by SIO for Utilities and Operation and Maintenance at similar sites. However, the rates charged at these locations do not include capital equipment planning, which represents 81% of the proposed seawater billing rate by SIO.

Based on the document review, updated cost estimates from SIO during the validation and review, and proposed requirements for the system specifications, the fair and reasonable ranges for seawater delivered from the SIO conveyance systems fall into two ranges based on whether NOAA participates in capital expense planning proposed by SIO for future system upgrades. If NOAA and SIO enter into mutual written agreement with regard to the future system upgrades proposed by SIO, as described in the Seawater Billing Rate Evaluation report, a fair and reasonable rate is $1.04 per 100 gallons. In the absence of a mutual written agreement with regard to the future system upgrades proposed by SIO, a fair and reasonable rate is within the range of $0.23-0.34 per 100 gallons.

March 28, 2014 1

PROJECT BACKGROUND

On June 17, 2009 the Department of Commerce, National Oceanic and Atmospheric Administration (NOAA) as tenants of The Regents of the University of California at San Diego (UCSD), signed a “Seawater Agreement” under which the landlord – Scripps Institute of Oceanography (SIO) – shall deliver seawater to the tenant (NOAA) and discharge the seawater under certain terms and conditions including reimbursement of certain costs.

Additionally as part of the Seawater Agreement, the landlord is committed to establish a “Rate Schedule” for seawater delivered and discharged by the tenant. The landlord employed Nasland Engineering, in consultation with R&A Engineering Solutions, Inc. to provide a Seawater System Upgrade and Renovation Evaluation and Recommendations report “…to evaluate the operation of the Scripps Institute of Oceanography (SIO) seawater system in its current condition and to establish the requirements to expand the system to accommodate the new NOAA Southwest Fisheries Science Center”. This information was subsequently updated by Nasland Engineering, under contract by the landlord, in the preparation of a Seawater Billing Rate Evaluation report that is being used by the landlord to assess seawater usage fees at Southwest Fisheries Science Center (SWFSC).

Upon publication and review of the seawater evaluation and billing rates, NOAA HQ and SWFSC employees reviewed the reports and issued several general and specific comments and questions with regard to the assumptions, data, and calculations supporting the evaluation and rates. Based upon these comments and questions, and in the interest of negotiating fair and reasonable range for seawater billing rates, NOAA is pursuing an Independent Verification and Validation (IV&V). SIO has been briefed and they are supportive of NOAA’s intent to procure this IV&V report.

TECHNICAL DOCUMENTS FOR VERIFICATION AND VALIDATION

Exhibit A - UCSD-DOC/NOAA Lease Exhibit F: Seawater Agreement – June 17, 2009

Exhibit B - Scripps Seawater System Upgrade and Renovation Evaluation Report - April 2, 2010

Exhibit C - SIO Seawater Rate Evaluation - Nov. 30, 2012/Update March 11, 2013 (Updated October 21, 2013, November 13, 2013, March 11, 2013; and January 24, 2014)

FOCUS OF VERIFICATION AND VALIDATION

The Independent Verification and Validation Scope of Work specifically required Cardno TEC to review and provide recommendations relating to fair and reasonable seawater usage rates charged to NOAA SWFSC by the Scripps Institution of Oceanography (SIO), and established the following key tasks:

1. Validation that underlying assumptions within the Seawater System Upgrade and Renovation Evaluation Report are accurate and comprehensive.

2. Validation that underlying analysis within the Seawater Rate Evaluation is accurate and free of calculation errors.

3. Compare SIO seawater system evaluation and rate evaluation assumptions and data to benchmark standards (as available).

March 28, 2014 2

4. Establish a basis for comparison that validates SIO assumptions and/or provides alternative recommendations where appropriate.

RESULTS OF KEY TASKS

1. VALIDATION THAT UNDERLYING ASSUMPTIONS WITHIN THE SEAWATER SYSTEM UPGRADE AND

RENOVATION EVALUATION REPORT ARE ACCURATE AND COMPREHENSIVE.

The assumption that system upgrades and creation of a “charged loop” system, as described in the Seawater System Upgrade and Renovation Evaluation Report, are required to deliver seawater to the NOAA SWFSC is not accurate.

The new NOAA SWFSC is currently receiving water from the existing conveyance system at rates up to 90 gpm, and SIO does not consider this an “interim measure”1. This does not fulfill the NOAA request for annual one-time flows as high as 150 gpm (on request) to fill the acoustical tank, but meets the NOAA need for a constant supply of 50 gpm. System modeling performed in this report indicates that the 50 gpm design flow to the new NOAA NWFSC, when combined with the other needs of the lower level system (which will expand when the old NOAA SWFSC building resumes consumption), will create additional wear and tear on the system and increase O&M costs as a result.

There is no evidence that an analysis of alternative methods to provide the design flows other than the recommended loop system was performed. This was discussed in the June 11, 2013 call with SIO and no additional information was provided with regard to alternative analyses. It is reasonable to assume that alternate, less expensive options, not requiring approximately 2,000 additional lineal feet of piping to create the loop, and other associated equipment upgrades (e.g. an additional upper level tank), should be evaluated as alternatives.

The assumption that system deficiencies, such as undersized pipes and pumps, are the primary driver for upgrade and renovation (including expansion of capacity) of the seawater conveyance system appears reasonable.

The system modeling tests performed by R&A Engineering Solutions indicate that, under the basic requirement that the system operate at or below 50% of its rated capacity in order to minimize wear and tear and associated O&M costs, it is insufficient to meet the design flows.

While validation of the system modeling tests was outside the scope of this report, it appears that the tests were comprehensive of the entire system and were performed by a qualified engineering firm such that they can be considered accurate. It is difficult, if not impossible, to predict the relationship between O&M costs and the percent of capacity the system is expected to run at on a routine basis. The assumption that the system should run at 50% of the design capacity could not be validated, although this follows heuristic “rule of thumb” best practice for the operation of water conveyance systems in general.

1 UCSD/SIO written response to questions, December 18, 2013 – provided as appendix A March 28, 2014 3

It is further reasonable to assume that the SIO seawater system, originally constructed in the 1950’s, requires a comprehensive renovation that will include replacement of the pipes and some level of overall redesign to address system needs that were not anticipated in the original construction. Evaluation of value engineering opportunities within the proposed upgrade and renovation approach was outside the scope of this report.

The assumption that $17,484,860 of the costs required to upgrade and renovate the system (over 68% of the estimated $25,462,450 total cost) are required solely to accommodate the new NOAA SWFSC is not accurate.

As noted above, the current provision of seawater from the existing system to the new NOAA SWFSC demonstrates that the upgrade and renovation described in this report are not required solely to deliver design flows. The costs described in the report represent a single approach to the system upgrade and renovation without consideration for other alternatives based on comprehensive SIO priorities for the overall system. The benefits of this approach – specifically the piping and upgraded equipment required to create the loop system which are attributed to the new NOAA SWFSC in the report – will benefit all seawater system users through a more robust overall system that SIO can maintain and operate with greater reliability. It should be noted that NOAA is not being asked to pay these fees in the proportion stated in this report, that these costs were subsequently revised in the Seawater Billing Rate Evaluation, and that the SIO approach to developing a Seawater Billing Rate spreads the total upgrade and renovation costs evenly across the total production of the system through a “per gallon” rate.

2. VALIDATION THAT THE UNDERLYING ANALYSIS WITHIN THE SEAWATER RATE EVALUATION IS ACCURATE

AND FREE OF CALCULATION ERRORS.

The analysis presented in the Seawater Rate Evaluation has been verified as accurate and free of calculation errors.

Utility Expenses calculated for the system utilizes an electricity rate of $.12 per kWh, which is within the range that would be expected from the Schedule of Commercial/Industrial Rates presented on the SDG&E website.

System energy consumption was measured at 3,943 kWh per day by SIO on October 7 and 8 of 2013. Previous documentation submitted by SIO indicates a possible “high” for this value of 10,878 kWh per day based on equipment specifications.

Operational Expenses of the seawater system were estimated as $355,827 based on the 2012/2013 calendar year. Previous documentation submitted by SIO indicates a possible “high” for this value of $617,000 per year based on the 2008/2009 calendar year.

The straight-line reserve analysis calculated for the Capital Expenses was duplicated and found to be accurate and free of any errors.

The estimated Capital Expenses presented in the Seawater Billing Rate Evaluation do not match the estimates provided in the Nasland/R&A Seawater System Upgrade and Renovation Evaluation and Recommendations report, as indicated in the Seawater Billing Rate Evaluation Table 2 footnotes.

Four additional line items appear and the Purchase Costs presented are not the same.

March 28, 2014 4

During the course of this project, the estimated Capital Expenses presented in the Seawater Billing Rate Evaluation report were revised. The original Seawater Billing Rate Evaluation estimated total Capital Expense “Purchase Costs” of $27,940,800 (March 11, 2013) which, after further review and assessment, was reduced to $21,067,100 (October 21, 2013 and ahead).

These differences from the $25,462,450 provided in the Seawater System Upgrade and Renovation Evaluation and Recommendations report appear to be refinements of those estimates generated by Nasland Engineering, in conjunction with SIO, in the preparation of the Seawater Billing Rate Evaluation report. Updated source materials were provided by SIO and reviewed.

o Source material review indicates that additional items, not all of the same expected useful life (e.g. piping vs. a tank), have been grouped together in the “Upper Level Tank” assembly. The “Upper Level Tank” line item includes 1,270 feet of piping required to upgrade the Birch Aquarium connection, required electrical connections, and associated demolition and repair of surface paving, curb and gutter. This is the only line item containing additional piping, o All costs estimated in the source materials include 20% markup for “contingency”, and an additional 25% for “soft costs”. These are within industry heuristic “rule of thumb.”

Four additional items have been added at the bottom of the Capital Expense table provided in the Seawater Billing Rate Evaluation, all of which appear reasonable for inclusion in the capital expense annual reserve analysis:

o “LSST 1, 2 and 3” and the “Settling Bed Tank” are included in the system description in the Seawater System Upgrade and Renovation Evaluation and Recommendations report, but do not appear in the final recommendations or cost estimation tables. It is reasonable to add these as expenses in the more comprehensive cost analysis provided in the Seawater Billing Rate Evaluation.

o The “Emergency Generator” and “Incoming Electrical Services/Feeder Replacement” are also items that would be expected in the more comprehensive cost analysis provided in the Seawater Billing Rate Evaluation, and which did not appear in the Seawater System Upgrade and Renovation Evaluation and Recommendations report.

3. COMPARE SIO SEAWATER SYSTEM EVALUATION AND RATE EVALUATION ASSUMPTIONS AND DATA TO

BENCHMARK STANDARDS (AS AVAILABLE).

Cardno TEC took two approaches to complete this task:

a) Estimation of existing market rates for seawater both external and internal to NOAA;

b) Estimation of the costs included in the rate evaluation using standard industry estimating tool such as RS Means and personal communications with other firms.

ESTIMATION OF MARKET RATES

Estimation of market rates for delivery of seawater presented a significant challenge due to the lack of direct comparisons to the SIO seawater conveyance system, which provides the NOAA SWSFC with a constant flow of seawater at a rate of 50 gallons per minute through a large conveyance system designed to support needs across the SIO campus. However, various other estimates for the supply of seawater were developed as possible:

March 28, 2014 5

Many inland aquariums use Instant Ocean, a granular product that is combined with municipal tap water to deliver the properties of natural seawater. The Instant Ocean price list indicates a minimum retail price of $21.34 (when ordered in bulk, by the truckload) for a carton that will produce 200 gallons of “seawater”. This results in a cost of approximately $10.67 per 100 gallons before any bulk or contract-specific discounts are applied. These aquariums typically buy Instant Ocean in larger, bulk shipments to obtain the minimum price, and employ extensive seawater treatment and re-use programs to minimize this cost over time.

Aquarium of the Pacific in Long Beach, CA historically received water by truck, at an estimated cost of $200,000 per 10,000,000 gallons in recent years. This results in a comparable rate of $2.00 per 100 gallons. In 2012, the aquarium received a permit to build a pipeline to the Los Angeles River estuary to replace this supply, with an estimated equipment installation cost of $200,000. The pipeline system is significantly shorter and less complex than the SIO system and likely not directly comparable, however this illustrates the savings to be expected from a direct seawater supply.

The evidence gathered on Market Rates external to NOAA indicates that pipeline systems are significantly cheaper to operate than other seawater options, such as trucking in seawater or “making it” on site. Pumping Seawater directly from the ocean is the most cost effective approach.

The cost of this approach varies widely based on the size and complexity of the system.

Information provided by existing NOAA facilities similar to the SWFSC in Manchester, Newport, Santa Cruz and Juneau was used to generate the following table of rates for direct-draw pipeline systems currently in use by NOAA:

Table 1: NOAA Comparative Seawater Rate Estimation

Site Flow Rate

(gpm)

Appr. Total Volume (gal/yr)

Annual Costs ($) Appr. Cost ($/ 100 gal) Utilities O&M

Manchester / NWFSC 2,000 1,051,200,000 $120,000 * $0.0114 Newport / OSU 1,000 525,600,000 † $1,200,000 $0.2283 Santa Cruz / UCSC‡ 1,000 525,600,000 $30,000 $140,000 $0.0323 Juneau / Ted Stevens lab 1,800 946,080,000 $18,000 $160,000 $0.0188

* O&M Costs not available - could not be extracted from the site budget † Utility Costs not available - could not be extracted from usage summaries for the site ‡ NOAA improvements to intake station in 2003 cost approximately $2,000,000 and are not included in this estimate.

The evidence gathered with respect to other NOAA-utilized seawater conveyance systems indicates a range of potential rates, all based on the specific details of the systems in use (number of users, size and complexity of the system, etc.). Due to the integrated nature of these systems with site infrastructure and operations management, specific cost estimates for Utilities and Operation and Maintenance of the seawater system were not available in some cases. It does not appear that capital planning is included in any of the estimates provided, and that NOAA participates in capital expenses on an ad-hoc basis when necessary. Analysis of system and equipment age, or state of maintenance and repair of these other systems was outside the scope of this validation effort.

March 28, 2014 6

ESTIMATION OF COSTS

Validation of the capital expense estimates made in the Seawater System Upgrade and Renovation report was beyond the scope of this report: however, basic checks were performed where possible (e.g. the Capital expense table named a specific item and not an assembly, such as “Pump Station #1”). Independent estimation of the unit cost of installing the System Site Piping described in the Seawater System Upgrade and Renovation Evaluation Report produced the following results:

Low End - In review of directional boring for installing pvc piping to ductile iron piping RS Costworks (RS Means Estimating) provided a low end cost of $30.00 per lineal foot for directional boring in rock and cobble.

High End - In review of directional boring and opening trenching cost per lineal foot from articles, presentations and discussion with water/sewer engineers, the range was estimated from a low of $63.00 to $190.00. Taking the a conservative approach, a “high end” unit cost of $200.00 was estimated due to the rock, cobble and slope stability issues which are present in the La Jolla Area. This accounts for either open trenching or directional boring.

The estimate for installing the System Site Piping contained in the Seawater Billing Rate Evaluation utilizes an estimated cost of $600 per lineal foot2. These costs are outside the range of the benchmark industry costs described above.

It should be noted that SIO/ Nasland based these costs on previous work done recently on the SIO campus. Additional detail was provided, indicating that the previous work involved separation of a combined Storm Sewer System and required installation of separate storm water (typically large reinforced concrete pipe) and sewer pipes at depths of up to 35 feet using trenches, along with relocation of some utility lines. It was difficult to verify from the information provided how comparable to projects were, and the exact source of such a large deviation from benchmark industry costs; however, it appears site-specific conditions contributed significantly to the deviation from the benchmark industry costs.

4. PROVIDE A BASIS FOR COMPARISON THAT VALIDATES SIO ASSUMPTIONS AND/OR PROVIDES

ALTERNATIVE RECOMMENDATIONS WHERE APPROPRIATE.

In order to provide a basis for comparison, the following four scenarios were produced based on the information gathered (summarized in Table 2):

SIO Base Case: (as described in the Seawater Billing Rate Evaluation report) The proposed Upgrade and Renovation proceeds as described by SIO in the Seawater Billing Rate Evaluation and all Capital Expenses are included as stated;

Seawater System Operational Expenses follow the lower (2012/2013) estimate provided by SIO;

and Seawater System Utility Expenses follow the lower (2013) estimate provided by SIO.

2 Seawater Study Updated Estimate 18Oct13 – detailed Excel spreadsheet provided by SIO.

March 28, 2014 7

Scenario #1:

The proposed Upgrade and Renovation proceeds without the additional System Site Piping required to create a “loop system” (connecting the upper level tank and the new NOAA SWFSC) and extra upper level tank (required for the “loop system”);

System Site Piping Capital Expenses follow the estimate provided by SIO ($600 / lineal foot);

Seawater System Operational Expenses follow the lower (2012/2013) estimate provided by SIO;

and Seawater System Utility Expenses follow the lower (2013) estimate provided by SIO.

Scenario #2:

The proposed Upgrade and Renovation proceeds as described by SIO in the Seawater Billing Rate Evaluation;

System Site Piping Capital Expenses follow the High End estimate developed through research ($200 / lineal foot);

Seawater System Operational Expenses follow the lower (2012/2013) estimate provided by SIO;

and Seawater System Utility Expenses follow the lower (2013) estimate provided by SIO.

Scenario #3:

The proposed Upgrade and Renovation proceeds without the additional System Site Piping required to create a “loop system” (connecting the upper level tank and the new NOAA SWFSC) and extra upper level tank (required for the “loop system”);

System Site Piping Capital Expenses follow the High End estimate developed through research ($200 / lineal foot);

Seawater System Operational Expenses follow the lower (2012/2013) estimate provided by SIO;

and Seawater System Utility Expenses follow the lower (2013) estimate provided by SIO.

Scenario #4:

The proposed Upgrade and Renovation does not proceed, or Capital Expenses are not included in the NOAA Seawater Billing Rate;

Seawater System Operational Expenses follow the higher (2008/2009) estimate provided by SIO due to the lack of a capital replacement program placing increased “same-for-same” equipment replacement costs in the O&M budget.

Seawater System Utility Expenses follow the lower (2013) estimate provided by SIO.

March 28, 2014 8

Table 2: Estimation of Alternate Potential Seawater Billing Rates3 Expense Estimates SIO Base Case Scenario 1 Scenario 2 Scenario 3 Scenario 4 Annual Utility Expenses $172,682 $172,682 $172,682 $172,682 $172,682

Annual Operational Expenses

$355,827 $355,827 $355,827 $355,827 $617,431

Annual Capital Expenses $2,311,912 $2,202,053 $1,933,758 $1,876,256 $0

Cost/Gal $0.012282 $0.01181 $0.01065 $0.01040 $0.00342 Cost/100 Gal(s) $1.23 $1.18 $1.06 $1.04 $0.34

FINDINGS

The Scripps seawater conveyance system is currently able to provide delivery and disposal of the Standard Flow Rate (50 gpm) as required by NOAA in the Seawater Agreement, and has demonstrated the ability to provide flows as high as 80 gpm.

The Scripps seawater conveyance system is approximately 50-60 years old and has never been fully renovated. Replacement of system elements has been performed as necessary during ongoing Operation and Maintenance of the system.

The Scripps campus has grown to include expanded seawater uses since the seawater conveyance system was first designed and constructed, and the system is not able to support the currently desired transmission rates/volumes at the expected level of reliability and SIO-preferred “percent capacity” use of the system.

The “Base cost” for operating the SIO Seawater conveyance system is in the range of $0.23 (Base Case) to $0.34 (Scenario 4) per 100 gallons.

Future changes to the Operational Expenses required to operate the SIO seawater conveyance system could increase to as much as double the current cost (2012/2013 operating year vs.

2008/2009) or more if a system renovation is not performed, or if NOAA does not participate in UCSD/SIO Capital Expenses related to maintaining the system. Additional cost increases required to replace existing system elements at failure were not estimated; however, the Capital Expenses provided outline a possible “high end” estimate of these additional costs.

Eighty-one percent (81 %) of the proposed Seawater Billing Rate is driven by the Capital Expenses, which represent costs for replacing system elements with upgraded equipment and an approximate 1,000 lineal foot expansion to a create “charged loop” system that will provide greater reliability to all system users.

The creation of a “charged loop” system adds $0.05 to $0.19 per 100 gallons (Scenario 1 and 3) or more to the cost of the proposed system upgrade and renovation. Additional cost reductions associated to downsizing of equipment due to the removal of the loop system can reasonably be assumed to occur, but could not be estimated within the scope of this validation effort.

3 Calculations provided in Appendix B March 28, 2014 9

The costs presented for the replacement and upgrade of the System Site Piping are over 300% higher than the highest independent estimates obtained. Information supporting the inflated the additional cost which adds approximately $0.17 per 100 gallons (Scenario 2) was not available for validation.

Additional cost-benefit analysis of alternate methods of achieving the desired design flows while improving the reliability of the seawater conveyance system were not performed. This includes the following o Minimizing system upgrades and removing the requirement for a “charged loop;”

o Removing the requirement that the system run at 50% of capacity and incurring higher

Operational Expenses; and o Other currently unknown alternatives.

Alternative analysis (as described previously) are necessary to determine if the recommended system upgrade and renovation is necessary, in whole or in part, to achieve the desired outcome of providing seawater to the new NOAA SWFSC – as demonstrated by the current connection of the NOAA SWSFC to the lower level system and delivery of Standard Flow Rates described in the Seawater Agreement.

It does not appear that other NOAA partners providing shared use of a seawater conveyance system have similar capital cost projections for the continued provision of seawater, and that capital equipment planning above and beyond standard “Operations and Maintenance” is not normally included in the seawater billing rate charged to NOAA at other sites. However, no analysis of system and equipment age, nor state of maintenance and repair of these other systems was performed during this validation.

CONCLUSION

The Seawater Billing rate proposed by SIO is composed of two components; a base rate of $0.23 per 100 gallons required to operate and maintain the existing system, and the addition of proposed capital expenses for upgrade and renovation of the system introduces as much as $1.00 per 100 gallons in additional rate costs. There is no evidence that significant analysis of alternative options was performed.

However, through the performance of this validation evidence suggests that the elimination of the loop system as an alternative could reduce capital expenses by as much as $0.19 per 100 gallons.

SIO has historically demonstrated the capability of delivering the Standard Flow Rate of 50 gpm required in the Seawater Agreement through the existing conveyance system. The potential benefits of the proposed system upgrade and renovation were difficult to validate; however, SIO is concerned about the age of the system and percent of capacity it is operating at with respect to the potential for significant increases in maintenance costs and catastrophic failure. SIO has developed proposed system upgrades and renovations (with the support of contract engineering firms) that will allow it to meet current and future demands with increased reliability.

Evidence obtained with respect to other NOAA operations indicates that NOAA is not a direct participant in capital equipment budgeting through the Seawater Billing Rate, or in any manner than ad-hoc “as needed” basis, at other sites that rely on landlord-owned seawater conveyance systems. However, the age and health of these other systems was not evaluated as part of this validation. The Seawater Agreement between NOAA and SIO states in Section 5.2.2. (Future Upgrades) that, “Subject to mutual

March 28, 2014 10 written agreement by Landlord and Tenant and the Seawater System Users Group, further upgrades may be considered and funded by Landlord and Tenant to achieve greater capacity and flow rates.” No evidence of any mutual written agreement between SIO and NOAA with regard to upgrade of the system was identified.

RECOMMENDATION

If NOAA and SIO enter into mutual written agreement with regard to the future system upgrades proposed by SIO, as described in the Seawater Billing Rate Evaluation report, a fair and reasonable rate is $1.04 per 100 gallons.

In the absence of a mutual written agreement with regard to the future system upgrades proposed by SIO, a fair and reasonable rate is within the range of $0.23-0.34 per 100 gallons.

March 28, 2014 11

APPENDIX A: UCSD/SIO RESPONSE TO QUESTIONS, DECEMBER 18, 2013

The questions deferred for Rich Cota on our call are as follows:

1. It is our understanding that the new NOAA SWFSC is currently receiving seawater from the lower level supply line shown in the drawings provided by R&A in the April 2010 report as an interim measure.

RC: The new NOAA SWFSC is currently receiving seawater from the only supply line available.

The water is pumped up directly to the new NOAA building, BCF tank and the upper level storage tank. If the pump is turned off, the seawater gravity feeds from the BCF tank and or the upper level tank to the new NOAA facility. This is not an interim measure. The elevation information is within the hydraulic model. A manual valve can be adjusted to ensure the Birch Aquarium does not run dry. The valve in the vault adjacent to the new NOAA building is currently throttled down to ~90 gpm. There are no interim flow or measures being taken.

2. It is also our understanding from the R&A report that there is insufficient pressure differential between the existing BCF Tank and the new NOAA SWFSC to provide the requested design flows.

RC: I do not believe that is the case, but we should all meet on site and do some actual flow tests with different scenarios (pump on, pump off, tanks full, tanks low, etc.) to determine true existing conditions.

R&A: increasing tank capacity at the upper level tanks and looping the piping will provide significant benefits. However, it does not resolve the basic flow constraint caused by the existing 6” piping through that area. While a larger BCF tank provides buffer capacity that could be used by NOAA, the daily flow through the Biological Grade piping would need to increase significantly to serve the NOAA demand and keep the BCF tank charged. Unless the pipe size is increased, the model indicates increasing flow through the existing piping will have a negative impact on flows to other facilities, including Birch Aquarium.

There are several approaches to providing increased flow to NOAA. Based on our assessment and modeling all effective approaches share a common performance criterion: to provide a reliable, 150 to 200-gpm seawater source to NOAA will require increasing the available instantaneous flow to the NOAA end of the campus. This can be accomplished by replacing the Biological Grade piping with larger pipes, running a parallel set of pipes along the existing Biological Grade piping, or installing piping along an alternate route. The exact method will be determined and engineered when there are sufficient funds to proceed with this work.

3. Can you resolve the apparent disagreement in statements #1 and 2 for us?

RC: It is a complex system with many inherent variables. We suggest a meeting onsite to perform actual flow testing.

4. In addition, if achievement of the design flows is a significant concern, why is the piping upgrade and replacement shown in Year 15 of the Straight Line Annual Reserve Deposit analysis and not sooner?

Scripps/UCSD would replace sooner if funds were available (~$10.7M).

March 28, 2014 12

5. Is it possible to prioritize this against other replacement items and complete the loop system sooner? Items are prioritized relative to operation and maintenance and engineering evaluations.

RC: The loop system can be completed at any time. It is not needed to supply the current amount agreed to in the Lease document, i.e., 50 gpm to NOAA. The loop system would not increase Scripps potential output it would only provide other routing options, increase reliability, increase head pressure on the system, etc. (Table, p. 3).

R&A: The take away from the hydrology model is that the existing piping system cannot support the existing flow rates to the other campus facilities AND handle the substantial increase of 100 to 200 gpm to serve the new NOAA uses. It is our understanding that the flow presently provided to NOAA using the existing 6” piping along Biological Grade is much lower (50 gpm) than the desired 150 to 200-gpm flow rate.

6. It appears from the cash flow implied by the current Straight Line Annual Reserve Deposit analysis that this could be done as early as year 10 without significant disturbance in the existing schedule.

Again, it would depend upon the O&M priorities, as well as the funds available.

The priorities of replacement of components are based upon our best judgment of when these components will fail.

5. If the completion of the loop system will not be completed for 10 or more years, will the current method of supplying the New NOAA SWFSC from the lower level supply line be adequate for that period?

Yes. There is no expected large increase in demand from Scripps/UCSD buildings, so the ability to supply 50 gpm to NOAA should not change.

a) If not, what is SIO’s plan to provide this design flow to the new NOAA SWFSC?

There will be no change in seawater flow to NOAA.

b) If so, why is the loop required to deliver design flows that the system is currently demonstrating the ability to deliver at a reliability level that has been implied as acceptable for a 10 to 15 year period?

RC: The loop is not required to provide 50 gpm. We are currently providing 80 gpm and have

March 28, 2014 13 been for the last several months. This provides more wear and tear on the system and less time to correct or recognize a problem before it becomes catastrophic for the entire system. This will likely result in unplanned replacement and increased O&M costs for some components sooner than in the capital expenditure table.

Rich Cota personally took readings of the flow at the old SWFSC building from November of 1993 to January 2000 and the flow was consistently at 32 to 38 gpm. If Merle Morrow wanted to increase above those numbers he would call UCSD FM and let us know. This would occur 2- 3 times a year, and generally for a few week time period. Providing additional flow on a temporary basis is allowed in the lease, provided the User Group is consulted and agrees to the short-term increase.

6. Finally, I believe Greg Kump was going to follow up with R&A with regard to my questions about any analysis that may have been done with respect to replacing the existing BCF tank with a new tank further uphill from the current location that would create sufficient pressure differential to meet the NOAA SWFSC design flows in a way that would not require the creation of a loop system. We are particularly interested in the potential cost reductions created by such an approach. From the satellite photos available on Google Maps, it appears there is a significant amount of open space directly east (and uphill) of the existing BCF tank along the northern boundary of the SIO/UCSD property that could be used for this purpose in the absence of plans for future use in the SIO/UCSD Master Plan, or other barriers. Cammie mentioned that Pat Masters might be able to help us understand any cultural resource concerns that could negate such an option. We are interested in this as it would create a possible method of supplying the design flows to the new NOAA SWFSC without requiring approximately 800 ft. of new piping (required to create the loop system) or the addition of a second 60,000 gallon upper level tank.

The area referred to, east of La Jolla Shores Lane and North of La Jolla Shores Boulevard, is excluded in UCSD’s Long Range Development Plan from development due to cultural resources being found in the area and because it is largely designated UCSD Parkland. This was confirmed both by Catherine Presmyk, Assistant Director Physical and Community Planning, and Dr. Patricia Masters, anthropologist and biologist, who has studied coastal paleoenvironments and the pre-historical populations in this area.

March 28, 2014 14

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