HomeMy WebLinkAbout02/10/2004, B1 - NACIMENTO WATER SUPPLY PROJECT PARTICIPATION Mr. Mayor, and members of the City Council. My name is Carl
Dudley and I'm a resident of the City of San Luis Obispo. Tonight I'm
here as a board member of the San Luis Obispo Chamber of
Commerce.
Our Chamber policy states that "securing an adequate water supply is
one of the most important challenges faced by the City of San Luis
Obispo." The work of the County staff in preparing the EIR and its
subsequent certification by the Board of Supervisors, as well as the
City of Paso Robles now comes to you for your approval of the
Nacimiento Water Supply Project. The Chamber and I urge you to do
so.
Other water projects have either become environmentally difficult
and/or too costly. Thus this becomes our last reliable source of water. I
need to note that this source is in addition to the gains made through
conservation and the water reuse programs currently being practiced.
The Nacimiento project will be a great addition to these multi-use
water projects as it offers us a reliable water supply for the future to
fend against drought, and other unknowns.
Certainly cost is a factor. The proposed hybrid cost allocation offers
an economic common.sense approach that the community can support.
The operating flexibility and reliability is well worth the investment.
The Chamber feels that we must invest in water resources and if you
were to pass on this great opportunity, the costs in the future will be
even more significant.
Your positive support on the City's participation in the project will
offer residents a water supply predictability and stability for future
generations. -
council °m
Feb.. 10 2004.
acEnba uEpont
CITY OF SAN LUIS OBISPO
FROM: John E.Moss,Utilities Dire
Prepared by: John E. Moss, Gary Henderson, Dan Gilmore, Sue Baasch and. Ron
Munds
SUBJECT: NACIMIENTO WATER SUPPLY PROJECT PARTICIPATION
CAO RECOMMENDATION
1. Review and discuss policy and fiscal impacts regarding the City's possible participation in the
Nacimiento Pipeline Project, and direct staff to return to Council on March 9`s with
recommended policy language to support Council's direction relative to the project.
2. Direct staff to express the City's support for a hybrid cost allocation methodology for the
project to the extent that it makes overall economic sense and will support increased
participation in the project.
REPORT IN BRIEF
The County of San Luis Obispo has developed the Nacimiento Water Supply Project to a point
where potential participating agencies must provide the County with their intended commitment to
the project and estimated level of participation. Staff has recommended, and Council has endorsed,
a process to consider the City's participation in the project. This report is the second in a series of
three reports intended to evaluate the City's participation in the Nacimiento project from a variety
of contractual,policy and fiscal perspectives.
On January 13, 2004, Council considered information regarding the current project status, the draft
participation agreement as prepared by the County, cost allocation methodologies and the proposed
process for further consideration of the City's participation in the project. This report discusses in
some detail the areas of City water supply policy, alternative water supply projects, water rate and
development fee impacts, and recommends direction on a preferred cost allocation methodology.
Advantages and Disadvantages
Based on the analysis provided in this report, and from the perspective of securing adequate water
resources for the City, it is staff's opinion that participation in the project may be positively
considered from both a policy and fiscal perspective. There are a number of key policy objectives
that would be enhanced through participation in the project. At the same time the primary
disadvantage of participation in the Nacimiento project is cost. However,cost should be considered
in the,context of alternative supply options and impacts to rates and development impact fees. As
provided in greater detail below, the following summarizes the key advantages and disadvantages
of participating in this project:
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Advantages
1. Significantly improves the City's operating and peak flow delivery capabilities.
2. Provides a very reliable water source.
3. Strengthens our multi-source supply policy.
4. Provides flexibility in meeting future unknown needs.
5. Recognizes that this is the last, viable,fresh water supply option available to us.
6. Participation as an initial participant in the project provides significant fiscal incentives over
attempting to buy-in to the project at a later date.
Disadvantages
1. Cost: Based on staff analysis of the most likely participation option and the best cost.
information available to us at this time, funding this project will require a general rate increase
of 48% over a 7 years, and an increase in water development impact fees of 36% (about$3,000
per"equivalent dwelling unit.") The general purpose rate increase can be mitigated by phasing
it in over time, such as 6.5% per year over the next 6 years,with a resulting monthly cost for an
average single family residence ($42.57) that is still very reasonable compared with other
agencies and utilities. Viewed over a 17 year period (current rates are at the 1994 level) this
equates to roughly 2.5% per year increase, roughly equivalent to cost of living increases over
that same time period. The projected water development impact fee of $11,258 per single
family dwelling unit is also not out of line with that of other cities across the state.
Policy Issues and Concerns
General Plan Policy: Within the Water Management Element of the General Plan there are a
number of policies which guide our development and use of water supplies. Policies considered in
this report include water demand projections, siltation, supplemental water requirements and our
multi-source water supply policy. This report considers the Nacimiento project in the context of
these policies.
Growth: Developing supplies in excess of the minimum needed to serve the General Plan can be
potentially growth inducing. This can be mitigated through the development and.implementation of
water management policies that work in concert with our land use and growth management
policies.
Cost Allocation Methodology
Staff recommends that the City support a hybrid cost allocation methodology. The hybrid
methodology will support and encourage increased participation in the project, thus controlling the
cost impacts to all participating agencies. If the City does decide to participate in the project, this
cost allocation methodology will serve to significantly reduce the City's cost and provide an
economy of scale for upstream participants.
Summary
From a strictly water operations and planning perspective, going forward with participation in
this project is clearly the correct course of action for the City. However, cost and other policy
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considerations make this a more complex decision to make. The task in front of the Council is
balancing the pros and cons, and arriving at the best decision for the community in the long run.
Based on Council's analysis and direction provided following this report, staff will prepare a final
recommendation with supporting information to be considered by Council at a meeting scheduled
for March 9, 2004.
Following up on an interest that Council expressed at the January 13`s meeting, staff has made
several efforts to alert the community to this issue,including through a mailing to interested groups,
notification via ECOSLO's "clearinghouse" service, notification in City Resource (mailed to every
home in the community), and newspaper notice.
DISCUSSION
Background
The Nacimiento Pipeline Project has reached that stage in its development where participating
agencies will be defining their final participation in the project and will be considering project
participation offers by the County within the next several months. The City of San Luis Obispo is
considering the project over a series of public meetings intended to ultimately determine if the City
will participate in the project, and if so, at what level.
On January 13, the Council considered information provided by both City and County staff
regarding the current project description, draft participation agreements, cost allocation
methodologies, and future meetings scheduled for determining the City's participation. Tonight's
meeting is intended to continue the discussion with the focus shifting to:
1. City water supply policy that may influence the Council's decision to participate
2. Review of alternative water supply opportunities
3. Rate and development impact fee analysis of the proposed project at varying levels of
participation
Additionally, staff is seeking Council's concurrence with forwarding a recommendation to the
Board of Supervisors supporting the hybrid cost allocation methodology previously presented to
Council on January 13, 2004. Following this meeting, staff will further develop the policy direction
provided by Council relative to the City's participation in the project, and return on March 9, 2004,
seeking final direction on the City's interest in participating in this project, and if so,the most likely
level.
Water Supply Planning and Policy
There are a number of water supply policies contained in the Water Management Element of the
General Plan intended to guide the City in its development of additional supplies and ensuring the
City has adequate supplies for meeting the needs of both existing residents and the future goals of
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the General Plan. The policies contained in the Water Management Element (WME) not only
guide the amount of additional water supply that may be required, but how we go about achieving
those additional supplies, and their intended use (such as siltation reserve, operating reserve or
supplying new demand).
Sometimes within these policies are policy assumptions that may also be considered in these
discussions by Council. An example of this would be the City's adopted per capita use rate of 145
gallons per capita per day (gpcd). This number has been.set at a level which exceeds our actual use
rate and is intended to ensure some buffer exists between actual water use and defined water use,
and is used for the purpose of determining water available for allocation to new development.
The following discussion of WME Policies focuses on those key policies which directly influence
the amount of water the City will require, how we acquire it and its intended use. Each policy is
presented as included in the WME. The basis for the policy is described, followed by a brief
discussion of how the policy may be modified (if necessary) to support the direction of the Council
relative to the Nacimiento project. It would be appropriate for Council to discuss each policy as it
is presented in order to develop a thorough understanding of the City's existing policies, how and
why they were adopted as currently written, and what modifications may be appropriate.
If the Council's direction is to modify our WME policies in any way, staff will proceed with the
General Plan amendment process required to do so and will complete the amendment(s) prior to
Council's approval and execution of the final participation agreement. This will ensure that any
final Council action is consistent with the General Plan and will allow for additional input from the
Planning Commission and the public on the proposed policy changes.
Policy 3.0 Water Demand Projections
Policy 3.1.2 establishes 145 gallons per person per day (gpcd) as the water use rate for planning
purposes. Policy 3.1.3 identifies the overall projected demand at future City build-out by
applying the water use rate (145 gpcd) to the estimated future population of 56,000. Based on
these policies, the future projected City water demand at build-out is 9,096 acre feet per year.
The 145 gpcd figure was established based on significant discussions by the Council. Prior to the
drought of 1986-91, the City experienced several years of water use as high as 182 gpcd.. Based
on the City's water conservation efforts and the community's change in water use habits, the 145
figure represents a long term 20% reduction from historic levels and was selected for projecting
future water supply needs and for determining the water that is available for development based
on current water supplies. Following the drought,per capita water use increased from a drought
period low of 86 gpcd to a high of 133 gpcd in 1997, but has since stabilized around 120 gpcd for
the past three years. Annual water use is affected by rainfall amounts, and timing. Annual
fluctuations in the per capita use rates are anticipated.
The per capita planning figure is one of the key factors dictating the amount of water that the
City needs to meet future water demands. In addition, the future population figure used to
project water demands also directly affects the amount of water needed. Increasing or decreasing
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either of these numbers will correspondingly increase or decrease the amount of water that the
City needs to acquire from supplemental sources. Providing a smaller "buffer" between actual
water use by lowering the planning per capita use rate, (145 gpcd) could be a policy change that
would decrease the amount of water that the City needs to acquire. Decreasing the per capita use
rate would also increase the amount of water currently available for new development based on
the current policies. Conversely, an increase in the planning per capita use rate would increase
the amount of water necessary to serve build-out and reduce the amount of water currently
available to serve new development.
Policy 5.0 Siltation at Salinas and Whale Rock Reservoirs
The existing policy relative to siltation was modified in May of 2000 to account for siltation by
annually reducing the adopted safe annual yield. The City currently estimates that siltation at
both reservoirs combined, results in an average annual reduction in safe annual yield of 10 acre
feet per year (afy). The analysis of the reduction was based on limited information from studies
for Salinas Reservoir. No siltation studies have been prepared for Whale Rock Reservoir, so the
analysis assumed similar siltation estimates from the Salinas studies. Therefore, the estimate of
10 acre feet per year loss is a rough.estimate and may be more or less in any given year.
Accounting for siltation losses which are known to occur at reservoirs is a prudent policy which
many other agencies do not address in their water resources planning. While the amount of loss
(10 afy) that occurs over time may be more or less than the current estimate, staff would not
recommend modifying the annual loss estimate until such time that additional information
supports reanalysis of the long term siltation rates. Additionally, the current method of
accounting for siltation provides only for protecting against over-allocation of our existing
resources, but does little to plan for and direct the development of additional supplies to address
the loss. Since siltation is a long term, ongoing situation, the planning horizon for siltation
impacts warrants further consideration, especially in the context of developing a new supply
resource. The Nacimiento project would not be subject to siltation loss based on the contract
with Monterey County. Providing for siltation is further discussed in the next section,Policy 6.0,
Supplemental Water Requirements..
Policy 6.0 Supplemental Water Requirements
Policy 6.1.1 states that: "The City shall develop additional water supplies to meet the projected
demand at build-out of the City's General Plan and to offset loss of water yield due to siltation."
Table 7 in the Water Management Element uses the year 2025 as the planning horizon for
siltation. The year 2025 was selected back in the early 1990's based on the estimated date for
build-out of the General Plan. It is acknowledged that siltation will continue to occur after 2025.
Therefore, a longer planning horizon could be considered which would increase the amount of
supplemental water needed. A planning horizon of 50 or more years may not be unreasonable
relative to accounting for anticipated losses at the reservoirs due to siltation.. Current
supplemental water requirements identify that the City needs to develop an additional 1,806 acre
feet per year of yield, of which 1,576 of is to supply new development to 2025 and 230 of is to
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offset the loss due to siltation to 2025. The current supplemental water requirements do not
identify any reserve objectives nor do they provide for planning and yield beyond the 2025
planning horizon.
7.0 Multi-Source Water Supply
Policy 7.1.1 states that: "The City shall continue to develop and use water resource projects to
maintain multi-source water supplies, and in this manner, reduce reliance on any one source of
water supply and increase its supply options in future droughts or other water supply
emergencies." This policy supports development of additional supplies which would provide an
additional/independent source of supply to the City.
Along these lines, the Nacimiento project provides a unique opportunity to strengthen the
operational reliability of the City's water supply resources. As an example, at full build-out of
the City's General Plan the City's projected peak water demand (summertime) is estimated to
approach 16.0 million gallons per day (mgd). It is not currently operationally possible to meet
this daily demand figure without both the Salinas and Whale Rock conveyance systems operating
at near capacity. If either Salinas or Whale Rock Reservoirs reached minimum storage pool,
which occurred at Salinas during the last drought, or should the City encounter a problem with
either conveyance system, the City would not be able to meet peak daily demand in the summer.
This could result in significant water use restrictions to the community. Having a third water
supply source such as Nacimiento would allow the City operational flexibility in meeting future
water demands. Additionally, based on the current proposed contract there would be the
opportunity to peak from the pipeline during emergencies or other water shortage periods.
The contracts for the Nacimiento Project are currently written to insure delivery of the full
agency allocation through the pipeline. The Nacimiento Project will be designed to convey the
total available water(16,200 acre feet) from the lake, but the initial participation in the project is
likely to be substantially less than this amount. The contracts will allow participating agencies to
purchase additional unallocated water on a yearly basis which could meet temporary emergencies
or other water shortage situations. In addition, as_long as there is pipeline capacity, agencies can
utilize that capacity to meet short term peaking needs. While these conditions will not guarantee
the City the right to additional water above our participation request, it is very likely that full
participation in the project will not occur for many years.
The contracts also allow participating agencies to take their annual entitlement at rates greater
than the annual average flow rate, or in less than a year's time, at little or no additional cost. This
peaking flexibility can be used to meet a variety of an agency's emergency and planned
operational needs. For example, if the City were to lose the Whale Rock pipeline to another
landslide, we'would be able to receive additional flow from the Nacimiento project at a higher
flow rate than contracted for to make up for the loss of delivery from Whale Rock until the
pipeline could be repaired. Additionally, some projects such as the valve repair project at Whale
Rock, which had to be completed in the off (winter) season due to reduced demands, could be
completed at any time without impact to our ability to meet our daily demand.
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The City Council could consider contracting for additional water from Nacimiento to provide for
operational capacity and flexibility. Council could rely on the initial contracted entitlement to
provide all of the desired flexibility, or consider purchasing additional water from the County's
unallocated reserves on a year to year basis while available. The Council could choose to
establish an operating reserve under the multi-source water policy to provide additional supply
flexibility. This amount could be dedicated to operating needs, drought emergency, or future
changes in our General Plan (discussed below) and need not be added to the City's adopted safe
annual yield.
Changing Land Use
The current Draft Housing Element being considered by Council includes geographic areas of the
City identified for possible intensification. Other minor zoning and land use changes have also
occurred which will increase the density of development and thus the long term water requirements
of the City.
Staff recognizes that this is a very delicate community subject, yet it would be inappropriate not to
give this subject some mention and consideration in this report. With the Nacimiento project being
perhaps the last significant local fresh water resource available to the County and City,
consideration should be given to our responsibility to the future residents of San Luis Obispo
relative to actions which could result in significant hardship or cost to those residents.
Resource limitation has not been an overly effective tool in managing the growth of communities.
Adequate and well planned resource development can work in concert with the growth
management policies and objectives of communities. In an ideal world, we would be able to pace
resource development with the needs of the community. However, to be cost effective, water
resource project development is typically done in large amounts. One advantage the Nacimiento
project may provide over other supply project options is that it may be possible to participate at a
level that is appropriate for today, with the opportunity for future Councils to expand our
participation if dictated by the demands of the General Plan at that time, assuming unallocated
reserves remain available.
Policy Summary _
Given the above discussion of City policy as it relates to developing new supplies, it is possible to
modify any of these policies to support City participation in the Nacimiento project. However, staff
would prefer considering modifications to our policies for siltation, operating flexibility and
enhancing our multi-source supply protections, and avoid changing our per-capita planning rate.
The current per-capita planning rate allows for some seasonal/annual variability in water use by the
community without triggering additional water use restrictions by the City. We have currently only
planned for siltation to the year 2025, and we have little operational flexibility in the delivery of
water from our two supply sources during our peak demand periods. This lack of operational
flexibility will worsen as development, and hence demand, increase over time.
Our Tier 1 supply alternatives discussed below, will provide some additional operational flexibility,
but not to the extent that a third potable supply such as the Nacimiento project can. Creating policy
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relative to an operating reserve will provide the City with the reliability and operating protections
needed without affecting General Plan Growth policies. When staff returns to Council on March
9'h with policy to support Council's direction relative to the project, staff will also review with
Council other General Plan policies relative to growth management.
Alternative Water Supply Projects
In considering the City's participation in the Nacimiento project, it is appropriate to consider the
alternatives to the Nacimiento project that may also meet the goals of Council and our General
Plan.The Council's most recent action on the alternative water supply projects available to the City
placed the projects in three tiers based on feasibility, cost and fit with other City objectives. Tier 1
projects include the Water Reuse project, increasing groundwater yield, and expanded conservation
programs. The Nacimiento project is included in Tier 2 along with desalination, and our Tier 3
project option is the Salinas Reservoir Expansion Project.
The following discussion of the alternative watersupply projects will follow a format.similar to that
used in our Annual Water Resources Status Report, which includes a discussion of the project
description and potential yield, issues confronting its completion, reliability and cost. In general
terms, all of the Tier 1 projects are moving forward and are anticipated to be successfully completed
with only some variability in projected yield Of the Tier 2 projects, only the Nacimiento project
has completed preliminary design and environmental review. As previously discussed with
Council,project participation and cost remain the only likely barriers to completion. Whereas, with
desalination, the barriers to completion are largely unknown at this time since the City has not
defined a project,prepared a preliminary design or completed any level of environmental review.
Tier I Water Supply Projects
Water Reuse Project Construction of the City's Water Reuse Project began in August of 2003.
The construction of the project involves two contracts proceeding simultaneously. The first
contract, valued at over $5.4 million, will make necessary improvementsto the City's Water
Reclamation Facility (WRF). The second contract is for just over $5 million, and involves the
construction of the distribution pipelines and related facilities.
Water Recycling became economical in 1994, after the City completed a$25 million upgrade of the
WRF to comply with requirements for discharge to San Luis Obispo Creek. The treatment
processes required to allow continued discharge to the creek resulted in a plant effluent that meets
Title 22 Standards for Reclaimed Water. The treated wastewater is of such quality that it is
approved for the irrigation of parks,playgrounds, agricultural crops, and landscaping. The recycled
water may also be used in industrial processes,for construction,and many other non-potable uses.
Once construction of this initial phase is complete in the Fall of 2004,the Water Reuse project will
deliver high quality reclaimed water to existing turf, park, and landscape areas,offsetting the use of
about 130 afy of potable water. The WRF produces enough recycled water to provide an ultimate
yield of 1,233 afy for non-potable uses.
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Though the WRF produces considerably more effluent, the ultimate yield of the project to the City
is limited by the requirement to dedicate a certain amount of water to the maintenance of in-stream
habitat as an environmental mitigation for the overall project. Current negotiations with the
National Marine Fisheries Service could result in a higher amount of in-stream dedication, which
could reduce the overall yield of the Water Reuse Project.
Recycled water will provide a reliable long-term source of water for the City. Since drought
conditions have very little impact on this source of supply, the irrigation of crops, parks,
playgrounds, and other landscape areas can be served by the project even during extended periods
of below average rainfall.
Favorable bids, the$3.39 million dollar State grant, and the State Revolving Fund low interest loan
will all contribute to a lower level of overall cost for the project than originally anticipated.
Because of phased implementation of the project and modest levels of initial participation, it is
difficult to estimate the cost of reclaimed water on a per acre-foot basis..
A Water Reuse Master Plan is currently being developed to plan for the logical expansion of the
water reuse distribution system beyond this initial phase. The draft Water Reuse Master Plan
indicates that there are adequate potential user sites to utilize nearly the entire projected yield of the
Reuse Project. The final yield from the Water Reuse project is estimated to be 1,000 to 1,200 acre
feet per year.
Groundwater The City's Safe Annual Yield (SAY) Model identifies 500 afy of our water
resources as being contributed from groundwater. However, actual groundwater pumped over
the past few years has been around 250 afy. This is due to several of the City's wells being taken
off-line as a result of rising levels of certain contaminants. Expansion of the City's groundwater
production is considered to be a cost effective water supply option.
San Luis Obispo's groundwater basin is relatively small with limited yield. In addition to issues
with nitrate and PCE contamination, pumping additional groundwater may impact the underflow
to San Luis Obispo Creek, resulting in environmental concerns. The best groundwater producing
area of town is within and near the Dalidio family farm and the proposed Marketplace
development. It is believed that additional groundwater pumping could be accomplished with no
net impact to the creek if completed in concert with the development of the Marketplace project,
since the development would take the place of a portion of the existing farming operation on the
property and continuing agriculture could utilize reclaimed water in exchange for the
groundwater that is currently being used for irrigation.
The City is currently pursuing expansion of the groundwater program through a contract with
Stetson Engineers. In the first phase of their contract, Stetson will provide a preliminary
evaluation of the various treatment processes available to remove the contaminants, an
evaluation of potential well sites, a preliminary environmental evaluation, evaluation of
alternatives and an evaluation of possible sites for locating treatment facilities. Staff anticipates
completion of this preliminary evaluation by May 2004.
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In the second phase of their contract, Stetson will take appropriate direction from Council and
prepare preliminary design and final environmental documentation. The third phase of the
contract with Stetson will include final design and the production of plans and specifications for
bidding and construction of the project..
The maximum projected yield from groundwater is expected to be limited to around 1,000 afy,
including the 500 afy that is already included in the City's SAY model.
Conservation As part of the 2003-2005 Financial Plan, Council approved funding necessary to
expand the water conservation program to include a more aggressive outdoor landscape program,
which would have an irrigation efficiency component; and a broadened commercial conservation
program. The following table summarizes the estimated water savings the expanded programs
will yield.
Estimated Water
I)escril)tion -SaNings in Acre Feet V Year Goal
Landscape Program 270 90
Non-residential 70 to 75 20 to 25
Program -
Total 340 to 345 110 to 115
In the first year of the program, we estimate that a little over 100 acre feet in water savings would
be achieved, with about 80% of the savings coming from the landscape component. Utilities
Conservation staff have developed a landscape program which will focus primarily on residential
irrigation efficiency. Using a combination of technology and field work, staff is planning on
implementing the program in the Spring of 2004. A monitoring system has been developed to
track the program's effectiveness. Since the typical irrigation season is from April through
October, it will probably be late 2004 before staff can analyze the effectiveness of the program.
About half of the estimated water savings of the non-residential program is going to involve a
pending cooperative grant proposal submitted to the California Public Utilities Commission
(CPUC) by the California Urban Water Conservation Council (CUWCC). The requested funds
would offset the cost of replacing restaurant spray rinse valves with low water using models.
The new low flow valves save about 200 gallons of water per day per valve. If approved by the
CPUC, the program should kick-off sometime in the late spring.
Tier 2 Water Supply Projects
Desalination In 1989, the City was experiencing a significant drought and as such was pursuing
the construction of a temporary (5 year) desalination facility located on PG&E (now Duke)
power plant property in Morro Bay. The idea was to utilize the existing intake and outfall
facilities from the plant to minimize potential impacts associated with the construction and
operation of a desalination plant. PG&E was not interested in a long-term agreement for use of
the facilities and construction of the desalination facility on their property, but were willing to
allow a short-term lease due to the serious water shortage facing the City of San Luis Obispo.
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With the "-Miracle March" rains of 1991, the City was able to curtail work on this project, which
was estimated to have cost over $20 million and would have only been used for five years. At
that time, water from desalination was expected to cost around$2,000 to$2,800 per acre-foot.
On February 19, 2002, the San Luis Obispo City Council considered the concept of working with
the City of Morro Bay to allow cooperative use of the existing Morro Bay desalination facility..
The current capacity of the facility is approximately 645 afy but the facility was designed to
allow expansion up to approximately 1,550 afy. Several events affecting their water supply
situation resulted in a determination by Morro Bay that the joint use of their desalination facility
was not in their best interest.
Recently, the City has been approached by Parsons-Brinkerhoff, a Southern California based
company with an idea to build a local, for-profit desalination facility. They have prepared a
feasibility study that indicates the project can be constructed and water delivered throughout San
Luis Obispo County at reasonable rates. There are a number of assumptions that may not be
valid and could result in higher costs than indicated in the feasibility study. Many of the detailed
costs and environmental impacts for such a large scale desalination project have yet to be
determined. By comparison, the County has held its entitlement to Nacimiento water since 1959
and completed the initial feasibility study for the Nacimiento Project over twelve years ago.
Preliminary design has been completed and the project ER has been certified by the County
Board of Supervisors.
There is the potential for the City of San Luis Obispo to consider building a desalination facility
on its own to meet projected water needs, if other water supply projects currently being pursued
are not successful or end up being too costly. The desalination facility could potentially be
located at or near the Duke Power Plant to utilize existing outfall facilities or it could be located
in other areas nearby such as Whale Rock Reservoir property. Subject to the maximum capacity
of any intake and outfall structures, additional treatment modules could be added to increase the
total yield of the desalination facility.
Pursuit of a new desalination facility, especially one that requires new intake and outfall
facilities, would necessitate significant study and analysis prior to construction. Impacts
associated with the project would need to be thoroughly evaluated and numerous regulatory
permits would be required. Staff does not anticipate that this would be an easy process and
would expect a number of political and environmental issues associated with construction of a
desalination facility within the coastal zone, and in Estero Bay.
Tier 3 Water Supply Projects
Salinas Reservoir Expansion The Salinas Reservoir Expansion Project is currently identified
by the City Council as a Tier 3 project and work associated with this project has been placed on
hold for the past several years. The project would expand the reservoir storage capacity by
installing the originally planned spillway gates which would raise the maximum water level in
the lake by 19 feet. This would increase the storage capacity from 23,843 acre feet(af)to 41,792
af. The additional storage capacity results in an estimated increase in safe annual yield of 1,650
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afy. The last cost estimate prepared for the project estimated the total project cost at
approximately $30 million. This included $10 million for environmental mitigations and $10
million for dam strengthening to meet the State Division of Safety of Dams'requirements. The
costs would likely be higher in the future if this project were initiated. At a total project cost of
$30 million, the cost per acre foot of additional yield would be approximately $1,800 per acre
foot.
Relative to the City's water rights permit for Salinas Reservoir, the State Water Resources
Control Board granted the City's permit time extension for completion of the expansion project
to the year 2010. If the Council wished to proceed with this project, the City would need to
proceed very quickly to meet this deadline. The numerous issues to be resolved (environmental,
permitting, design, etc.) and potential litigation by opponents to the project would make this
schedule very difficult to achieve.
Alternative Supply Project Summary
The above analysis of our other water supply options does show that with our Tier 1 projects,which
are assumed to be moving forward to successful completion,we will approach the numeric goal for
additional water supplies identified in Table 7 of the WME of 1,806 afy. This numeric goal is
based on a 2025 planning horizon. When originally established in 1994, a 2025 planning horizon
seemed reasonable. Today it seems short range,i.e. only 20 years from now. At the same time, our
historical record, upon which we base our safe annual yield, may also be viewed as short, as it
extends only back to the 1940's.
The additional projects identified in Tier 1 are fundamental projects to the overall strengthening of
the City's supplies. Water recycling is a drought tolerant component of our supply future, although
it is not a potable resource. Groundwater is available and should be developed by providing the
treatment facilities which will allow us to maximize our benefits from this resource but may be
limited by impacts to the basin or stream flows. Maximizing our use of groundwater through
exchange programs with recycled water ensures our resources are used for their highest appropriate
purpose. Conservation continues the community's ethic for wise and effective use of our resources.
Conservation should remain a key component of our water supply planning to the extent that it can
be reasonably and cost effectively achieved.
Of the Tier 2 options, only Nacimiento has been developed such that it may be considered an
achievable option. Desalination has been considered and approached in a couple of ways, at
different times, however has not yielded a feasible project for San Luis Obispo. The for profit
group attempting to develop a desalination project has presented a conceptual project that on its
surface appears to be feasible. However, to consider this project option on par with Nacimiento
would require it to attain the same stage of preliminary design, environmental study and permitting
as Nacimiento. These are all considerable hurdles to overcome in developing a water supply
resource.
The Salinas Reservoir expansion (Tier 3) would require immediate and aggressive action to
complete the project in the time provided by the State Water Resources Control Board. Its success
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Nacimiento Water Supply Project Participation Page 13
may largely depend on the actions of others, i.e. environmental and legal challenges. The cost per
unit of yield is likely comparable to or greater than our current estimates for Nacimiento. If the City
does not pursue Salinas, it is possible that the State Water Resources Control Board will not grant
the City another time extension beyond 2010 for-developing the expanded capacity of the reservoir.
Should the City participate in the Nacimiento project, it is conceivable that an argument could be
made that we chose to pursue the regional effort for the betterment of the overall water resources of
the county and avoid legal conflict over Salinas, and that our permit time extension should not be
jeopardized by our efforts to cooperate regionally. Whether this argument would resonate with the
State Board is debatable.
Based on the above analysis of our water supply alternatives, it appears that should Council
determine that additional supplies are needed for planning, siltation, reserve, or other needs beyond
the current minimum identified in the WME, then Nacimiento would be a superior alternative in
that it has completed its preliminary design, and environmental review, offers regional benefits, has
secure water rights and is ready to move forward today.
Rate and Impact Fee Analysis
The Nacimiento pipeline project final costs are related to particular participation levels and
scenarios and cannot be accurately determined until project participation is better defined by the
participating agencies. However, to offer Council and the community a framework for
understanding how participation and these various scenarios could affect the City's water rates
and water impact fees, staff has analyzed cost information provided by the County and has
summarized this analysis in Tables 1 and 2 below. Attachment 1 to this report shows additional
detail about the development of the cost summaries.
For the purpose of this analysis, it is assumed the base City water sales without participation in
the Nacimiento project would generate about $7,850,000 in revenues in 2010. This assumes no
rate increases in the next six years. The most recent water fund analysis in May 2003 showed
that the current level of operations and approved capital projects could be funded for the next few
years without an increase in rates, assuming water sales continued at the projected level. This
projection includes completion of the Water Reuse project, completion of significant master plan
improvements at the water treatment plant, initial development of groundwater treatment
facilities and continued water system improvements made_-all within the current water rates.
(Note: Water sales in 2003 were 8% lower than projected. At this point at 50% of fiscal year
2004, water sales are right on target. Staff will monitor this and update Council in the May 2004
Water Fund analysis.)
In Table 1 below, five scenarios are listed showing the City's allocation, total annual cost and
cost per acre foot. The total annual cost includes both debt service payments and charges for
operations and maintenance. Attachment 1 provides the County's break out between operations
and maintenance costs and debt service costs for each of the scenarios, and includes the County's
agency participation assumptions for each one. Attachment 1 then explains how these costs were
apportioned between rate payers and new development based on the City of San Luis Obispo's
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Nacimiento Water Supply Project Participation Page 14
General Plan growth policies that new development pays its fair share for the new water sources
required to serve it. This "fair share" is collected through development impact fees.
The analysis provided assumes either the Specific Identification of Facilities (railroad ticket)
methodology or the Hybrid methodology, as noted. The participation levels assume a medium
level of participation by all agencies and is what staff believes represents the most likely
participation scenario for other agencies,based on our discussions with other agency staff.
Nacimiento Participation Scenarios 1,2 Table 1
Allocation Annual Annual Cost
!Cast Per Acre Foot
a SLO Wheeling-Low(3) 500 $ 3,696230 $ 7,392
b SLO Wheeling-Medium Hybrid 2000 $ 4,547,099 $ 2,274
c SLO Wheeling-Medium(3) 2000 $ 5,658;746 $ 2,829
d SLO Wheeling-Medium Hybrid 3380 $ 5,832,345 $ 1,726
e SLO Wheeling-Medium(3). 3380 $ 6,831,189 $ 2,021
Notes:
(1) Costs are based on County of SLO Analysis identifying.allocation and cost summaries.
(2) SLO Wheeling assumes no pipeline facilities extension beyond the City and CSA 22 and Fiero Lane
are included in the City's allocation request.
3 Specific Identification of Facilities railroad ticket methodology.
Table 2 summarizes the total rate increases, annual rate increases, estimated monthly water
charges in 2010 (based on 10 units per month) and the impact fee increases associated with each
of the five scenarios. It must be emphasized that this information is provided to give an order of
magnitude look at the impact to rates and impact fees. This information will be refined, if the
City should decide to proceed, as participation in the project is further defined.
Nacimiento Participation Scenarios Table 2
Total Rate Annual Rate Cost Per Month(3) Impact Fee
Increase(1)_ Increase(2) _. 2004 _-- Esti-2010 Increase
a SLO Wheeling-Low 38% 5% $ 28.30 $ 37.92 $ 2,699
b SLO Wheeling-Medium Hybrid 48% 7% $ 28.30 $ 42.47 $ 2,999
c SLO Wheeling-Medium 59% 8% $ 28.30 $ 44.91 $ 3,872
d SLO Wheeling-Medium Hybrid 62% 8% $ 28.30 $ 44.91 $ 3,720
e SLO Wheeling-Medium 72% 9% $ 28.30 $ 47.46 $ 4,504
Notes:
(1) Assumes base sales in 2010 of$7,850,000;increased revenue needs are added to this base.
(2) Assumes six years of compounding rates to achieve increased revenue.
3 Foran averse single family residence based on 10 billing units per month(7,480gallons).
At the 2000 acre feet per year participation level, the SLO Wheeling Medium hybrid scenario
shown as "b" above,the community could expect:
1. Annual rate increases of 6% to 7% for each of the six years beginning July 2004-05.
2. Monthly water charges for an average single family residence to increase. each year by an
average of $2.36, for a total monthly water bill of about $42.47 in 2010, compared to the
current rate of$28.30,based on ten units of consumption.
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Nacimiento Water Supply Project Participation Page 15
3. Water impact fees of$11,258 for a single family residence (currently$8,259 per"Equivalent
Dwelling Unit," increased by$2,999).
This projection does not include rate increases that may be required for other reasons (see note
above about last year's reduced water sales). Many factors affect the rate analysis over time,
including reduced sales, very wet and late rainfall years, unanticipated capital projects, state
mandates,etc.
Another key factor which could impact this analysis is that the City could elect to pay for some of
the engineering and design costs with available working capital; which would serve to reduce
ongoing debt services requirements, lowering the total revenue required and the associated rate
increases. Also, the exact date of project completion could be further out than 2010, which
would allow for a longer period to raise rates to achieve the required revenue stream, lowering
the required annual increases.
Historical Perspective on Water Rates
While there were some modest rate adjustments in the late 1990's, rates were rolled back by 10%
in 1999, so the rates today. are at about the same level as in 1994. Water rates have been
unchanged since that rate roll-back. If we were to consider the rate increase based on a 17 year
time frame—average annual rate increases from 1994 (our current rate level) to 2010—we would
be looking at about a 2.5% annual increase: something very close to historic inflation.
This is compelling in light of our accomplishments. Assuming the Council chooses to participate
in the project, within cost of living allowances over the 17 year time frame we will have;
accomplished significant improvements to our water treatment and distribution facilities,
upgraded our levels of annual capital improvements, developed the Water Reuse Project; funded
the construction of groundwater treatment facilities, increased our conservation programs and
improved overall service reliability to the community through participation in the Nacimiento
Project.
Cost Allocation Methodology
At the January 13, 2004 Council meeting staff discussed with Council three alternative cost
allocation methodologies to be considered by the County for the project; Specific Identification of
Facilities (railroad ticket), Average Unit Cost, and a Hybrid of the two. Based on a desire to
maximize participation in the project,County staff is considering a recommendation to the Board of
Supervisors to support a hybrid cost allocation methodology for the project. Staff feels that the
hybrid methodology provides the greatest recognition of the project fiscal impacts to each of the
participating agencies and seeks to address those impacts fairly and equitably. While the hybrid
methodology is not the most favorable model for San Luis Obispo, neither is it the most favorable
for the North County agencies.
The preliminary cost estimates per acre foot of water for all agencies under the hybrid methodology
appear to be reasonable and would not, out of the box, eliminate participation by any agency in the
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Nacimiento Water Supply Project Participation Page 16
project. On the other hand, a strict specific identification of facilities method could create an
unreasonable unit cost of water for San Luis Obispo and thus preclude our participation in the
project. Likewise, the average unit cost methodology could create untenable rate hikes for some of
the North County agencies and preclude their participation in the project.
If any of the major agencies drop out of the project, the unit costs for all remaining agencies will
increase. The hybrid cost allocation methodology recognizes the economies of scale needed to
support the overall project and seeks to support increased participation by maintaining economic
incentives for all participants to work cooperatively. In order for the hybrid model to maintain its
economic value for all agencies, a certain minimum level of participation by each agency is
required. Preliminary analysis by County staff indicates that the minimum level of participation for
San Luis Obispo under the hybrid model would be 2,000 acre feet. Participation of less than 2,000
acre feet by San Luis Obispo would result in project unit costs for Atascadero (the next major
upstream participant)that would exceed their costs if San Luis Obispo did not participate at all.
Based on this analysis, staff recommends that Council direct staff to express to the County Board of
Supervisors the City's support for a hybrid cost allocation methodology for the project to the extent
that it makes overall economic sense.and will support increased participation in the project. This
recommendation recognizes that should the City participate at a level of less than 2,000 acre feet,
the project costs will likely be allocated via the specific identification of facilities methodology.
Additionally, should the City decide not to participate in the project at this time, County staff
intends to recommend the specific identification of facilities methodology be used for the remaining
participants. This would also clearly be the model applied to San Luis Obispo should we then
decide to participate in the future, as we would be required to fund and construct the facilities
required to deliver water south of Cuesta Grade and would also incur buy-in costs for the first phase
of the project.
Other Participating Agencies Status/Process
On January 13, 2004 Council requested information regarding the commitment of the other key
participating agencies in the project, and in particular Paso Robles,Templeton Community Services
District and Atascadero Mutual Water Company,the three other large participants.
Paso Robles The City of Paso Robles has defined their need for additional supply from
Nacimiento based on two key drivers; increasing competition for groundwater from the Paso
Robles Groundwater Basin, and a need to acquire a higher quality source water with a lower total
dissolved solids (TDS or salts) content to provide their residents a better quality water and reduce
the TDS levels in their wastewater effluent.
In recent years the Paso Robles area has seen considerable growth on its periphery both in terms of
irrigated acreage and rural residential development. In addition, the City itself has experienced
considerable growth and the General Plan provides for continued growth for some time. This
expanded development has resulted in increased competition for the groundwater resources of the
Paso Robles Basin. While the basin is very large, it has been shown to be subject to areas of
declining water levels or depressions, and a small group of landowners have banded together and
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Nacimiento Water Supply Project Participation Page 17
begun discussions of asserting water rights in the basin. This could lead to eventual adjudication of
the basin with considerable legal expense and uncertainty as to the outcome. Paso Robles
participation in the Nacimiento project would reduce the municipal component of demand on the
basin and possibly preclude any legal action. The Nacimiento project would also provide Paso
Robles a different source of supply thus strengthening their overall reliability.
Paso Robles Council will be considering their participation in the project on February 3, 2004 and
will also consider preliminary cost and rate information at that meeting. They anticipate making
their determination of intent to execute the participation agreement by March 2004.
Templeton Templeton Community Services District will be holding a study session to receive
presentation by the County on the participation agreements on February 3, 2004. The presentation
content will be similar to our January 13, 2004 meeting primarily covering the terms of the
participation agreements. Templeton will then consider a rate review of various levels of
participation on February 17, 2004. They are hopeful that they will be able to determine their
intended level of participation at that time. Templeton, like Paso Robles, currently is limited to
only a single source of supply, the groundwater basin. They are further limited by their geographic
location over the basin and limited water rights to the underflow of the Salinas River. The
Nacimiento project would substantially boost the reliability of their water supplies and aid in
meeting their planning goals.
Ataseadero Atascadero Mutual Water Company (AMWC) held a meeting to consider the
participation agreements on January 14, 2004. Their next meeting is planned for February 11, 2004
and their Board will further evaluate project participation by considering their need for additional
supplies, regional project opportunities, financial considerations, and impacts to rates and fees,
alternatives, etc. AMWC will also be seeking increased public participation and awareness through
an expanded public information program. AMWC anticipates a second meeting in early March
where they will be making their determination of intent and identifying their participation level.
Like the other North County agencies, AMWC is also limited to a single source of supply, i.e. the
Salinas River underflow and the groundwater basin it supports. Their water rights are very strong
in that they have been determined to have what are called pre-1914 rights, which are considered
superior to most others. That said,they are limited to the extent that their groundwater basin,which
is a sub-basin of the Paso Robles Basin, is smaller and provides reduced yield. Atascadero
experienced considerable drawdown of the Atascadero sub-basin in the last drought.
Other Participating Agency Summary
Based on the above information it does appear that the other key participants in the project are
following a similar path to consideration of the project as San Luis Obispo. While each of their
issues and needs may be different, each appears to have reasonable and viable needs supporting
their participation in the project. Each agency does appear to be making a good faith effort at
evaluating their participation in the project and meeting the schedule requested by the County for
indicating their intent to execute the agreement and identifying their likely participation level.
Nacimiento Water Supply Project Participation Page 18
Other Issues
Allocation of Emergency Repair Costs On January 13, 2004 Council provided direction to seek
contract/agreement modification to allocate emergency project repair projects to the Nacimiento
pipeline as overall project costs rather than costs by reach of pipeline. As overall project costs,
emergency repairs to the pipeline will be completed by the project operator and funded as a project
cost by all participating agencies. Repair costs funded by reach would only be funded by the
participants downstream of the required repair. Based on Council's request, City and County staff
have discussed the issue with other key participants who were in agreement with the requested
modification. As such,the agreement has been modified to reflect Council's requested change.
Project Costs Associated with Delays and Revised Project Description On January 13, 2004,
the Council also requested cost comparison information between the initial project description as
identified in the 1997 EIR and the revised project which is before us today. County staff is in the
process of preparing that analysis for the City and will present the complete information to Council
at the February 10, 2004 meeting. The information should show the cost impacts of revising the
project alignment as well as delays associated with the revised alignment and revised EIR. While
this information may seem useful, it is arguable that the initial project was not feasible due to the
construction related impacts, which in essence was the determination by the Board of Supervisors
when they directed revising the project alignment and EIR. Additionally,staff does not believe that
the timing of the project for a majority of the agencies was "right" in 1997 and the project would
have likely died due to a lack of support and participation.
Public Notification On January 13, 2004, the Council noted a lack of public participation in the
project discussions and requested the CAO to make efforts to engage the public in the subsequent
discussions and meetings. Staff has responded to this request by providing information regarding
the project and upcoming Council meetings in the Utilities Department's quarterly newsletter, The
Resource, which is mailed to all residents and businesses in the City. Additionally, the City Clerk
provides display advertising for the upcoming meetings in the local newspaper, a press release has
been distributed and staff has included project information on the front page of the City's web site
with links to the staff reports and the County's project information web site. A notice describing
the project and the upcoming discussions by the Council was also prepared and sent to our list of
over 50 parties interested in rate and fee issues of the City, such as the Chamber of Commerce,
Building Industry Association, Residents for Quality Neighbors, Sierra Club and ECOSLO (who
further distributed the notice to other interested environmental organizations and constituents).
March 9`s Meeting and Remaining Schedule
At the Council meeting currently scheduled for March 9`h, staff will provide Council with a
recommendation and policy supporting Council's desired participation in the Nacimiento Project.
The level of participation in the project is somewhat restricted by two factors, the environmental
review document and economies of scale. The range of the City's participation can be from zero to
3,380 afy. The EIR considered the City's participation at 3,380 afy. This represents the upper limit
of our possible participation, without completing an additional environmental review process. As
Nacimiento Water Supply Project Participation Page 19
previously noted participation at less than 2,000 afy will not provide the requisite economies of
scale to support a hybrid cost allocation methodology.
As noted in previous sections of this report and in the January 2004 report to the Council, there are
a number of steps ahead of us before a final commitment can be made to participate in this project,
including amending the General Plan and related environmental review. After the March 2004
meeting, the following schedule assumes Council direction to conceptually participate in the project
at some level; in the event that the Council decides not to do so, then none of the other steps after
this are applicable.
Action Date
Council decides intended level of participation in the project and directs staff to begin March 2004
processing policy amendment(s).
County prepares final cost analysis and presents offer to participate to agencies April 2004
Planning Commission considers policy amendments and environmental review May 2004
documents.
Council approves first step of phased rate increases and adopts higher development May 2004
impact fees.
Council considers General Plan amendment and environmental review documents. June 2004
Council approves final participation agreement June 2004
SUMMARY
As set forth at the beginning of this report,there are advantages and disadvantages that the Council
must weigh in determining whether or not to participate in the Nacimiento Water Supply Pipeline
project. Staff has attempted to identify these issues and address them in this report, without
"weighing in" with a formal CAO Recommendation at this stage. This is because many of the
issues involved require value judgments related to "cost" (both of terms of proceeding or not
proceeding) and a judgment about what is best for the community over the long haul (and how
much we should"risk"today,one way or the other). We need to hear more from Council regarding
these `big picture questions" during our discussion on February I& in order to prepare a
recommendation for the March 9,2004 meeting.
Staff, however, will offer this view, which evolved as we stepped through the analytics associated
with preparing this report: The advantages of pursuing the project appear to outweigh the
disadvantages. Participation in the project would yield many operational benefits to the City in
terms of reliability, operational flexibility and conjunctive use with our other water supplies. In
terms of cost feasibility, it appears that participation in the project at or around a 2,000 acre foot
level is cost-feasible and would not result in unreasonable rates for the service being provided,
especially given that our rates are equivalent to our rates 10 years ago. We can predict with some
certainty, at least, that the cost—however high it might seem today—will never be any less. On the
other hand, if participation were at a level of less than 2;000 acre feet, it appears that the City will
not be able to achieve the benefit of a hybrid cost allocation methodology and our costs will
Nacimiento Water Supply Project Participation Page 20
increase substantially. At this point, we have not identified any fatal flaws in project participation,
although it will be important to assure strong General Plan policies related to water, land use,
growth, and open space protection.
Again, however, making such determinations for the community, and weighing all the risks and
opportunities for the long term is ultimately the task of the City Council. Therefore, following
Council's consideration of information in this report, staff seeks direction in order to prepare a
formal recommendation for your meeting of March 9,2004.
FISCAL IMPACT
Potential impacts to rates and fees associated with participation in the project have been discussed
in the body of this report. Once participation levels have been determined by all agencies involved,
a revised analysis will be provided with a greater level of accuracy. The fiscal impact associated
with the recommendation to support use of a hybrid methodology of cost allocation will, should the
City participate in the project,result in decreased cost for the City.
ALTERNATIVES
1. Cost Allocation Methodology. Council could direct staff to pursue project cost allocation
methodology based on an average unit cost methodology, which would be most favorable fo the
City of San Luis Obispo. This alternative is not recommended as staff believes it would not be
feasible for our partner agencies to support the methodology: It would result in unit costs for
water for those agencies that would exceed their costs to proceed without San Luis Obispo,thus
there would be no reason for them to support the methodology.
2. Process. Staff remains open to Council direction regarding the process we are following to
determine whether or not to participate in the project and at what level.
ATTACBMENT
Attachment 1: Rate and Fee analysis worksheets
rlao
ATTACHMEW 1
NACIMIENTO PIPELINE PROJECT
PARTICIPATION SCENARIOS
CITY OF SAN LUIS OBISPO
February 10, 2004
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ATTACHMENT
City of San Luis Obispo
A Financial Analysis of Nacimiento Pipeline Project Participation
TABLE OF CONTENTS
Overview
Reliance on Existing Policies
Water Supply Financing Methodology
Table 1
Five Nacimiento Participation Scenarios
Table 2
Scenarios by Annual O&M,Debt Service and Total Cost
Table 3
Setting Percentage of Rate Payers and New Development
Table 4
Allocation of Debt Service Costs to Rate Payers and New Development
Table 5
Allocation of Debt Service and O&M Costs to Rate Payers
Table 6
Annual Growth in Equivalent Dwelling Units
Table 7
Scenarios with Associated Impact Fee Increases
Table 8
Scenarios with Associated Water Rate Increases
Key Assumptions
County of San Luis Obispo Worksheets
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ATTACHMENT
r
City of
San Luis Obisno
A Financial Analysis of the Various Participation Levels and Scenarios For
the Nacimiento Pipeline Project
OVERVIEW
This report describes the steps and assumptions in the financial analysis of the various
Nacimiento Water Supply Project participation levels and scenarios currently under
consideration by the City of San Luis Obispo. The project costs associated with the
various participation levels and scenarios were developed by the County of San Luis
Obispo.
Reliance on Eidsting Policies
Included in this Attachment 1 is a description of the assumptions and methodology used
to financially analyze each of the various participation scenarios. This methodology is
consistent with the City's policy that new development should pay its fair share of the
cost of building the facilities necessary to serve it. On the other hand, water supplies that
will benefit existing development, as well as any operations and maintenance costs,must
be funded through general purpose rates.
The City's existing General Plan policies and the most recent demographic data are the
basis for the proposed distribution of costs between rate payers and new development.
WATER SUPPLY FINANCING METHODOLOGY
Nacimiento Participation Scenarios Table 1
_._ Allocation Annual . Acre Feet
__... Cost.-_. Per Yr Cost
a SLO Wheeling-Low 500 $ 3,696,230 $ 7,392
b SIA Wheeling-Medium Hybrid 2000 $ 4,547,099 $ 2,274
C SLO wheeling-Medium 2000 $ 5,658,746 $ 2,829
d SLO Wheeling-Medium Hybrid 3380 $ 5,832,345 $ 1,726
e SLO Wheeling-Medium - - - 3380 Is 6,831,189 1 $ 2,021
There were three steps used to develop a financing strategy for the City's participation in
the Nacimiento pipeline project.
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ATTACHMENTI
Step 1.
Separate debt service from operations and maintenance charges in the total cost estimate:
Only rates can recover annual operations and maintenance charges and impact fees are
based on a proportional share of debt service.
Scenarios by Annual Operations&Maintenance and
Debt Service Costs Table 2
Annual Annual Annual
O&M Debt Service *. cost
a SLO Wheeling-Low $ 247,062 $ 3,439,168 $ 3,6969,230
b SLO Wheeling-Medium Hybrid $ 725,977 $ 3,821,122 $ 4,547,099
C SLO Wheeling-Medium $ 725,977 $ 4,932,769 $ 5,658,746
d SLO Wheeling-Medium Hybrid $ 1,092,819 .$ 4,739,526 $ 5,832,345
e SLO Wheeling-Medium $ 1,092,819 1$ _ 5,738,370- $ 6,831,189
Step 2.
Allocate appropriate share of costs to rate payers and new development.
Setting Percentage of New Development and Rate Payers
Based on Current.and General Plan Build-out Population Table 3
Percent
Population of Total
Existing Users(State Population Estimate as of 1-1-03) 44,359 19.2%
New Develo went. 11,641 20.8%
Total 56,000 100.0%
Allocation of Debt Services Costs to New Develo ment and Rate Payers, Table 4
Debt Service
-New Develo _. t.. Rate Pa ers
a SLO Wheeling-Low $ 715,347 $ 2,723,821
b SLO'Wheeling-Medium Hybrid $ 794,793 $ 3,026,329
C SLO Wheeling-Medium $ 1,026,016 $ 3,906,753
d SLO Wheeling-Medium Hybrid $ 985,821 $ 3,753,765
e SLO Wheeling-Medium $ 1,193,581 $ 4,544,789
Debi Service percentage allocation . 20.8% 79.2%
- 100% - -
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ATTACHMENT
Allocation of Costs to Rate Payers Table 5
Rate Payer
Debt Service O&:M
a SLO Wheeling-Low $ 2,723,821 $ 257,062
b SLO Wheeling-Medium Hybrid $ 3;026,329 $ 725,977
c SLO Wheeling-Medium $ 3;906,753 $ 725,977
d SLO Wheeling-Medium Hybrid $ 3,753,705 $ 1,092,819
e SLO Wheeling-Medium $ 4,544,789 $ 1,092,819
Costs attributable to rates 100%
Step 3.
Develop appropriate funding strategies in financing the scenarios by:
a. Determining development impact fees for costs related to new development.
b. Determining general purpose rate increases for costs related to rate payers.
Step 3.1.
Set water impact fees attributable to new development for residential and non-residential
users based on "equivalent dwelling units". (See assumptions)
Annual Growth in Equivalent Dwelling Units EDU's) Table 6
Pop Per SFR Fisting nnnuat EDU
Household Equivalent Units EDU's yrowth @ 1%
Single Family Residential(SFR) 2.7 1.0 10,172 10,172 102
Multi-Family Residential 2.1 0.8 8,699 6,959 70
Total Residential 18,871 17,131 172
TotalNon-Residential @ 35%of Total Wates Use 93
Total Estimated Annual Growth in Equivalent Dwelling Units 265
Step 3.2.
Divide new development debt service costs by the estimated 265 equivalent dwelling
units per year to determine the impact fee increase.
Scenarios by Associated Impact Fee Increases Table.7
Annual New Development Impact
EDU's Debt Service Fee Change
a SLO Wheeling-Low 265 $ 715,347 $ 2,699
b SLO Wheeling-Medium Hybrid 265 $ 794,793 $ 2,999
C SLO Wheeling-Medium 265 $ 1,026,016 $ 3,872
d SLO Wheeling-Medium Hybrid 265 $ 985,821 $ 3,720
e SLO Wheeling-Medium 265 $ 1,193,581 $ 4,504
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ATTACHMENT
Step 3.3.
Determine the portion of the project to be paid through rates and calculate required
annual rate increases until water is projected to be delivered in 2010.
Scenarios by Associated Water Rate Increases Table 8
costs Attributable Total Rate Annual Rate -Est Mo
to Rete Payers Increase(1) Inavm(2) Bill(3)
a SLO Wheeling-Low $ 2,980,883 38% 5% $ 37.92
b SLO Wheeling-Medium Hybrid $ 3,752,306 48% 7% $ 42.47
c SLO Wheeling-Medium $ 4,632,730 59% 8% $ 44.91
d SLO Wheeling-Medium Hybrid $ 4,846,524 62% 8% $ 44.91
e SLO Wheeling-Medium 1 $ 5,637,608 72% 1 9% 1 $ 47.46
Notes:
(1) Assumes base sales in 2010 of$7,850,000;increased revenue needs are added to this base.
(2) Assumes six years of compounding rates to achieve increased revenue.
3 Assumes averse use of 10 units per month per household.
KEY ASSUMPTIONS
General Plan
1. Build-out population of 56,000.
2. 1% annual growth rate.
3. New development must pay'its fair share of the cost of facilities needed to serve
it.
4. Base sales in 2010 without participation in the Nacimiento project and any rate
increases are projected at$7,850,000.
5. Annual rates assume six years of compounding rates to achieve increase revenue
requirement.
6. Monthly water bills are based on 10 units per month consumption. (Note: the
City currently bills bimonthly.)
New Development Impact Fees
The use of impact fees is the primary method identified in this analysis for funding the
portion of new water supplies related to new development. Three steps are involved in
setting impact fees at appropriate levels:
1. Identify"equivalent dwelling units" (EDU's). Impact fees are attributable to
residential as well as non-residential uses. The concept of equivalent dwelling
units is a useful one in allocating costs between different types of uses by
establishing a"common denominator" based on a single family residential (SFR)
6 f- 2te
ATTACHMENT 1
dwelling. As set forth in Table 6, residential EDU's are based on existing single
and multi-family units and 1990 Census data for population per household. Based
on 18,871 total dwelling units,this results in 17,131 existing residential EDU's.
2. Project annual increases in residential EDU's. Based on 17,131 existing
residential EDU's annual increases are projected at 1% per the City's General
Plan growth management policies. This results in an increase of 172 residential
EDU's per year through build-out.
3. Project annual increases in non-residential EDU's. Non-residential uses
currently account for 35% of total water consumption. The annual growth in non-
residential EDU's is projected proportionately, resulting in an additional 93
EDU's annually, for a total increase in EDU's per year of 265.
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Barbara Ehrbar- Nacimento water projer Page 1 I
RECEIVED
From: "Nathalie Cox" <nacox@pacbell.net> FEB .i 0 2004
To: <slocitycouncil@slocity.org>
Date: 2/9/04 7:59PM SLO CITY CLERK
Subject: Nacimento water project
February'9, 2004
San Luis Obispo City Council Members
Mayor Dave Romero
Vice Mayor Ken Schwartz RED FILE
Council Member Allen K. Settle ME ING AGENDA
Council Member Christine Mulholland
Council Member John Ewan DATE I ITEM #
Dear City Council Members:
We have been San Luis residents for the last 35 years. We love the people
and our city and can't imagine a better place to live.
We are writing to let you know that we are in favor of the Nacimento water
project. We feel an additional water supply would help to maintain the
quality of life in San Luis Obispo that we all know and love.
Sincerely,
Ronald and Nathalie Cox
289 Almond Street --�
San Luis Obispo, CA 93405 * COUNCIL �CDD DIR
805-544-0971 X CAO 2,7-IN DIP
nacox@pacbell.net ZACAO G-FIRE CHIEF
ATTORNEY DPW DIP
J 3 CLERK/ORIG Z POLICE CHF
0 DEPT EADS j�REC DIP
UTIL DIR
— -1
}yHfl DIP
- RECEIVED
CITY OF EL PASO DE ROBLES FEB � � 2004
��aavoa.,,Eo
"Me Pass of the Oaks" SLO CITY CLERK.
9
4„qCH 11.roe
RED FILE
MEETING AGENDA
February 5, 2004 DATE'� 0 ITEM _
?-,COUNCIL TCDD DIR
� O �r.FIN DIR
County of San Luis Obispo IAO Z2 FIRE CHIEF
County Government Center,Room 207 ZATTORNEY ZPW DIR-
San Luis Obispo, CA 93405 I �-CLERK/CRI® Z'POLICE CHF
EAb8 J�'REC bIR
ZUTIL DIR
Re: Nacimiento Water Project
Dear Sirs;
At their meeting of February 3, 2004, the Paso Robles City Council reviewed the City's
participation in the Nacimiento Water Project. They passed Resolution No. 04-22
(attached), confirming the City's previous request for 4,000 acre-feet of water delivery
annually from the prospective Nacimiento Water Supply Project, and notifying the County
Flood Control District of the City's intent to participate at this rate.
The Cary looks forward to the Regional project implementation that will benefit not only
Paso Robles, but many other San Luis Obispo County Communities. The City views this
project as a key,long-term infrastructure improvement that will serve our citizens.
The Flood Control District staff and Board of Supervisors are to be complimented for
providing this opportunity and accomplishing the project steps to bring it to this decision
point.
Sincerely,
James L.App
CiryManager
Cc: City CounCiil t5 V
Flood Control District FEB — 9 2004
Atascadero Mutual Water
Gry of San Luis Obispo CITY OF SA
Templeton Community Services District U71LIT NS is 08isp0
Atrachmem
1000 SPRING STREET 9 PASO ROBLES. CALIFORNIA 93446
RESOLUTION NO. 04-22
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PASO ROBLES
CONFIRMING THE CITY'S PARTICIPATION IN THE NACIMIENTO
WATER SUPPLY PROJECT
WHEREAS, the City's adopted General Plan calls for 11,000 acre-feet of water supplies in the year 2025
to serve the estimated population of 42-44,000;and
WHEREAS, the City's current Salinas River and groundwater basin use is approximately 7,500.acre-feet
per year; and
WHEREAS, the Nacimiento supply will provide an additional 4,000 acre-feet bringing City supply totals
to 11,500 acre-feet;and
WHEREAS, the City's 4,000 acre-feet allocation equates to an annualized cost of$5,800,000 beginning in
Fiscal Year 2007.
THEREFORE,BE IT RESOLVED AS FOLLOWS:
SECTION 1. That the City Council of the City of El Paso de Robles does hereby confirm the need for
4,000 acre-feet of water deliveries,annually, from the Nacimiento Water Supply Project.
SECTION 2. That the City Council does hereby direct staff to notify the County Flood Control District
to allocate 4,000 acre-feet of Nadmiento Water Supply Project water to the City of Paso Robles.
SECTION 3. That the City Council does hereby commit to expending the required funds at the time
needed to support the Nacimiento Water Supply Project, expected to be $5,800,000 annually for the
allocated water quantity.
SECTION 4. That the City Council does hereby direct staff to return with the Nacimiento Water Supply
Project participation agreement with the County Flood Control District for City Council review.
PASSED AND ADOPTED by the City Council of the City of Paso Robles this 3rd day of February
2004 by the following vote:
AYES: Finigan,Heggarty,Nemeth,Picanco and Mecham
NOES: None
ABSTAIN: None
ABSENT: None -
Fr R Mecham,Mayor
ATTEST:
Sha ' n M. Ryan,76uty City Clerk
RESOLUTION OF THE COUNCIL
OF THE CITY OF PASO ROBLES, STATE OF CALIFORNIA
IN THE MATTER OF: NO. 0422
Confirming the City's participation in the
Nacimiento Water Supply Project
I, Sharilyn M. Ryan, Deputy City Clerk of the City of Paso Robles, certify that the foregoing
is a full, true and correct copy of Resolution No. 04-22 proposed by Councilmember
Nemeth, seconded by Councilmember Heggarty, was duly passed and adopted by the
Council of the City of El Paso de Robles at its regular meeting on February 3, 2004, by the
following vote:
AYES: Councilmembers: Finigan,Heggarty,Nemeth, Picanco and Mecham
NOES: Councilmembers: None
ABSTAIN: Councilmembers: None
ABSENT: Councilmembers: None
41�Sharilyn M. Ry , eputy City Cl .. and
Ex-Officio Clerk of the City Council
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RECEIVED
FEB U e 1004
4), San
Luis Obispo Chamber of Commerce
1039 Chorro Street a San Luis Obispo, California 93401-3278
February 9,2004 (805) 781-2777 a FAX (805) 543-1255 a TDD (805) 541-8416
David E. Garth, President/CEO
Mayor Dave Romero
Members of the City Council
City of San Luis Obispo
990 Palm St.
San Luis Obispo,CA 93401
Re:Nacimiento Water Supply Project Participation,Special Meeting of Feb.10
Dear Mayor Romero and Council Members:
Our Chamber policy states that "securing an adequate water supply is one of the most important
challenges faced by the City of San Luis Obispo." Following upon the excellent work of County staff
in preparing the EIR and its certification by the Board of Supervisors,you now have before you the
historic opportunity to commit our city to participate in the Nacimiento Water Supply Project We
encourage you to do so.
As other projects have become environmentally difficult and/or costly,the Nacimiento Project
represents our last viable opportunity to obtain a reliable new source of water. While we appreciate
and support the water supply gains made through conservation and water reuse,the Nadmiento
Project would fit in well with your multi-use water strategy and provide a source that would
certainly be needed in the event of a drought or other circumstance unforeseen at this point in time.
Your affirmative decision on the City's participation in the project will bring a new level of
predictability and stability to our water sources. While cost is an important factor,using a hybrid
cost allocation is the kind of economic common sense approach that the community can support.
The operating flexibility and reliability is worth the investment. It is important that we develop
water resources from multiple sources and we believe that the opportunity cost incurred if the City
does not move ahead at this time is significant.
Sincerely, 14akd
COUNCI� 2-CDfD DIR--'
iJCAO e2 FIN DIR
ACAO 0FIRE CHIEF
1.:'ATTORNEY L;i1PW DIR
Laura Murphy RED FILE i'tTCLERKIORIG 2'POUCE CHF
Chairperson of the Board ME ING AGENDA ; D T HEADS 2-REC DIR
���� ,,��,,��, ��TIL DIR
DATE: 1-* ITEM # - —... _ e'Ha D_,-, --
cc: Ken Hampian,CAO
John Moss, Utilities Director
e-mail: slochamber@slochamber.org a websites: www.slochamber.org www.visitslo.com
__ .._...
Page 1�
Lee Price Dear John,
From: <cferrara@co.slo.ca.us> RECEIVED
To: "John Moss" <jmoss@ci.san-luis-obispo.ca.us>
Date: 2/10/04129PM 0 10A
Subject: Dear John,
Dear John, SLO CITY CLERK
I understand that your Council had questions regarding the changes made to
the proposed Nacimiento project since the publication of the 1997 Draft
EIR. I am writing in response to those questions and invite you to share
this information with your Council.
The pipeline project as proposed in 1997. envisioned delivery of water to
substantially the same set of participants as today, however the pipeline
followed quite a different alignment. In 1997, the proposed pipeline route.
sought to make use of existing right-of-way to the greatest extent possible
in order to minimize impacts on private property owners and to take
advantage of laying the pipe in a"disturbed corridor". The public's
reaction to that proposed alignment was clear: we're not willing to
tolerate the traffic impacts. Lakeside residents and recreators objected
to construction delays along Nacimiento Lake Drive; Paso Robles residents
objected to ugly construction along beautiful (albeit wide) Vine Street;
Templeton business owners predicted dire loss of revenue associated with
construction along Main Street; and more.
The project team's response to this was to propose new alignment--one
that impacted the traveling public to a lesser degree but one that
knowingly would a) require more easement acquisition from private property
owners;b) likely result in more disturbance to habitat; and c)be longer.
Judging by the public comment received on the 2003 Final EIR, this
re-defined project has been embraced by the public.
I characterize the 1997 to 2003 delay as responsive to the public and in
that light I am proud of our responsiveness. I would further characterize
the current project proposal as having potentially more impact on the
environment (such as 2 river crossings vs.. none before) but less intrusive
to the public during construction: The construction estimate in 1997 was
$62.3 million compared to the current construction cost estimate of$90
million. 13% of this 44%construction cost increase is associated with
inflation and the remainder is associated with the longer pipeline,
right-of-way acquisition, environmental mitigations, and river crossings. RED FILE
Total project cost differences between the 1997 approach vs.today are _ �EF�TI,NG AGENDA
estimated to be: DAT 10 0#ITEM #JL_
1997 Project.... $95.5
ENR (inflation)from 97 to mid-point construction 32.8
Increase in construction due to project scope 19.4
Increase in estimated engineering, legal, admin 13.0 ,Q
Environmental mitigation and monitoring 6.8 f COUNCIL TCDD DIR
Increase in overall contingencies . 2.0
County Reimbursements 1.6 (+) 1/CAO Rr FIN DIR
.,ACRO Z FIRE CHIEF
Increase in Right of Way 0.2 i-J ATTORNEY Z PW DIR
❑ CLERK'ORIG Z POUCE CHF
2004 Project -_Y- $171.3 1-eDEPT HEAD Z REC DIR
Z UTIL DIR
i'JB--- HR Din
Lee Price- Dear John, �
Page_2
(')The increase in project scope should decrease by$10.4 with the
deletion of facilities around the City of San Luis Obispo to entities on
its southern boundary.
(+) Subject to County policy,which could also delete the costs in
consideration of the upsizing policy decision by the County.
I hope this information addresses your Council's questions regarding the
project. I will attend tomorrow's meeting to elaborate on this or any
other aspect of the project should the need arise.
Sincerely,
Christine Ferrara
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