HomeMy WebLinkAbout09-15-2015 Item 17 - Authorization to Pursue Full Allocation of Nacimiento Project Water
Meeting Date: 9/15/2015
FROM: Carrie Mattingly, Utilities Director
Prepared By: Aaron Floyd, Utilities Deputy Director – Water
Dean Furukawa, Water Treatment Plant Supervisor
SUBJECT: AUTHORIZATION TO PURSUE FULL ALLOCATION OF NACIMIENTO
PROJECT WATER
RECOMMENDATION
Authorize the City Manager to sign the application of intent to acquire additional delivery
entitlement of Nacimiento Project Water.
DISCUSSION
Nacimiento Water Project History
In 1959, the San Luis Obispo County Flood Control and Water Conservation District (District)
entered into an agreement with Monterey County Flood Control and Water Conservation District
(now Monterey County Water Resources Agency) to secure rights to 17,500 acre-feet of water
per year from Nacimiento Reservoir. The reservoir has a storage capacity of 377,900 acre-feet
and, in addition to providing water to San Luis Obispo County, serves various purposes, such as
flood protection, recreational opportunities, and groundwater recharge for the Salinas Valley.
After many years of negotiations and in collaboration with Paso Robles, Templeton and
Atascadero Mutual Water Company (known collectively as “project participants”), the City
Council adopted a resolution on July 29, 2004, approving an agreement with the District for the
design, construction and operation of facilities required to deliver the water from Nacimiento
Reservoir to participants. Through these initial negotiations, the District agreed to contribute a
portion of its general ad valorem taxes to offset project debt service costs until such time as the
total project entitlement to water was allocated and subscribed to by all of the project
participants.
The project was completed at a cost of approximately $173 million. The City’s share of this
capital cost is currently just under $74 million. The City’s budgeted project costs for 2015 -16 are
$6,552,743. This amount includes $4,698,580 debt service and $1,854,163 for operations,
maintenance and capital reserve.
Proposal for Full Allocation of the Nacimiento Water Project
Current project participants have subscribed to 11,405 acre-feet of the 17,500 acre-feet available.
6,095 acre-feet remain unallocated or in “reserve.” Reserve water is the water available above
what is currently allocated among the project participants.
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It was anticipated once the pipeline project was built, other entities would come forward to
purchase a permanent allocation from the reserve water. Other entities purchasing a permanent
allocation would begin carrying a commensurate proportion of debt service cost and reimburse
that proportion of carrying costs since debt service inception to the original project participants.
Although there have been inquiries, no entity has come forward to-date to purchase a permanent
allocation from the available reserve water. The current participants, off-set by the District’s ad
valorem tax contribution, pay the full cost of all debt service as well as all other costs associated
with the project.
Since no entities have stepped forward to permanently purchase water since deliveries began,
even in these extraordinary drought conditions, the Nacimiento Project Partners have conducted
an analysis which concludes that the full allocation of the reserve water to the current
participants as the best opportunity to manage the project’s assets (infrastructure and water) to
maximum benefit.
Article 29 of the Nacimiento Agreement contract provides a method for the participants to obtain
the additional water. This Article requires a 60-day notice to existing participants of the request
for additional entitlement. Attachment A is the draft letter which all the project partners would
sign requesting full allocation of the reserve water.
Should other entities come forward to purchase reserve water during the 60 -day period stipulated
in the contract, the project partners would support the allocation to come from the 6,095 acre-feet
currently in reserve, with the remainder going proportionately to the project partners.
Benefits of Full Allocation
With uncertainty of future climatic conditions, regulation and aging infrastructure, adding more
Nacimiento water to the City’s portfolio
will reduce pressure on use of water
supplies in the relatively small Whale
Rock and Salinas reservoirs. It would serve
to extend these stored supplies during
future critical water shortage periods.
Full allocation of the Nacimiento Project
would potentially be of regional benefit in
northern San Luis Obispo County. The
Nacimiento Agreement allows for
temporary water sales of ‘surplus’ water.
This surplus water, created only when the
reserve water has been fully allocated,
may be sold at market pricing on a
temporary basis under certain
circumstances.
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Fully allocating the reserve water results in the quickest and most economical path forward to
put the entire yearly allocation of Nacimiento Project water to beneficial use. Sales of surplus
water would also provide an opportunity for a revenue stream for the project participants which
would help to off-set additional costs.
Contract provisions allow for the marketing of surplus water by the District. The partners desire
to work cooperatively on pricing and water sales to the benefit of all participants.
CONCURRENCES
The cities of San Luis Obispo and Paso Robles, Atascadero Mutual Water Company and
Templeton Community Services District desire to partner with one another and concurrently
request the full allocation of reserve water to these original project participants.
ENVIRONMENTAL REVIEW
The District was the Lead Agency in the Nacimiento Project’s final environmental impact report
(2003). This EIR contemplated full allocation of the project’s 17,500 acre-feet of water.
A section of this EIR focused on reviewing the environmental impacts of providing the City of
San Luis Obispo with 3,380 acre-feet of water annually. Due to the original intent of including
future partners, the original EIR did not consider the currently proposed additional delivery of
approximately 2,139 acre-feet of water being delivered to San Luis Obispo. This additional
amount is intended to be used to protect the City’s existing water supplies and could be utilized
outside the City for short-term beneficial uses. Uses that were not initially studied during the
project’s initial EIR would require a supplemental study.
A statement of overriding consideration related to significant and unavoidable impacts related to
growth inducement and air quality was adopted by the San Luis Obispo County Board of
Supervisors (as the District’s Board) when it adopted the EIR. The City, as a Responsible
Agency, also adopted a follow-up resolution including a statement of overriding consideration to
support the District’s findings.
The City of San Luis Obispo has adopted growth management and land use policies that dictate
how and how much the city will grow. An additional layer of water resource protection is found
in the City’s Charter requirement to provide a water reliability reserve. The City’s General Plan
water and wastewater management element contains a formula that details the application of the
primary and secondary water supplies as well as the reliability reserve to the City’s water
resources.
The recommended action in this report does not commit the City to receiving extra allocated
reserve water. The signing of the attached letter would start the notification process to the other
project participants and the District as defined in Article 29 of the contract. If this step is
approved, staff would return to Council after the 60-day notification period with any needed
environmental review, the final water volume to be received along with associated costs, and an
amended Nacimiento Project Water Delivery Entitlement Contract for consideration.
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FISCAL IMPACT
In order to make the project economically feasible for the original par ticipants, the District
pledged its ad valorem tax collected from properties around Nacimiento Lake. This amount was
budgeted at $1,077,250.00 in fiscal year 2015-16.
Per contract, at full allocation the District is no longer obligated to provide its ad v alorem tax
revenue toward the project’s debt service. The additional costs associated with the loss of the
District’s contribution will be allocated among the project participants following the contract
provisions. For the City of San Luis Obispo this equals approximately $377,000 annually. This
amount is estimated due to the possible purchase of reserve water during the 60-day period
following the signing of the above mentioned letter.
The impact on operating expenses will be partially offset by the savings realized by the
Nacimiento project bond refinancing that occurred in August 2015. This refinancing lowered the
debt service by approximately $92,000 in 2015-16 and $380,000 annually for the remainder of
the loan.
While not a guaranteed revenue source, it is the intent of the project participants to make any
water not needed by participants (surplus water) available for short-term sales. This would result
in revenue proportionate to the amount each participant contributed to the surplus water pool that
could be used to offset the loss of the ad valorem tax contribution and/or other operating
expenses. Since this revenue is not a certainty, no changes to the budget or Financial Plan are
recommended. Any appropriate changes will be proposed at Mid-Year or Financial Plan
Supplement next June.
ALTERNATIVES
1. The Council may choose to not pursue additional allocation of Nacimiento Project water.
Attachments:
a - Application for Additional Delivery Entitlement Sept 15
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September 16, 2015
San Luis Obispo County Flood Control & Water Conservation District CSA 10A
Attn: Wade Horton, Director of Public Works c/o Wade Horton
Department of Public Works Department of Public Works
County of San Luis Obispo County of San Luis Obispo
County Government Center County Government Center
San Luis Obispo, CA 93408 San Luis Obispo, CA 93408
SUBJECT: Application for Acquisition of Additional Delivery Entitlement
In accordance with Article 6(D) and other applicable provisions of the “Nacimiento Project Water
Delivery Entitlement Contract” dated August 17, 2004, as amended, each Initial Participant does hereby
apply for additional delivery entitlement. Specifically, Initial Participants apply to acquire the 6,095
acre-feet per year of Reserve Water and Reserved Capacity.
Attached is the revised Table 1 containing the parametric information (entitlement share, unit
percentage share, etc.) resulting from this action and as called for in accordance with the Second
Amendment to the “Nacimiento Project Water Delivery Entitlement Contract” dated August 2007.
Written notice is also hereby given to County Service Area No. 10A of the Initial Participant’s
application for additional Delivery Entitlement of Reserve Water / Reserved Capacity. In accordance
with Article 29 (B), CSA 10(A) has 60 days (i.e. November 23, 2015) to likewise apply for an additional
Delivery Entitlement of Reserve Water / Reserved Capacity.
Sincerely,
CITY OF EL PASO DE ROBLES CITY OF SAN LUIS OBISPO
______________________________________ ____________________________________
James L. App, City Manager Katie Lichtig, City Manager
ATASCADERO MUTUAL WATER COMPANY TEMPLETON COMMUNITY SERVICES DISTRICT
______________________________________ ____________________________________
John Neil, General Manager Jeff Briltz, General Manager
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Nacimiento Project Full Allocation
History
1959
377,900 acre feet
17,500 to SLO County
6 x Whale Rock and
Salinas combined!
The Project
2004 Agreement
Project Capacity
Drought
Prior Lakeside Water
Commitment 1,750 AF
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Surplus
Water
Regional Benefits
Surplus Water Rates
North County Project Partners
Secure Water Rights
Benefits to City
Climate Uncertainty
Safe Annual Yield
Source Optimization
Benefits to City
Maintenance / Repair
Fiscal Impact Ad valorem Tax ~$1.1M
City of SLO ~ $377,000
Refinanced Bond
$380,000 a Year Savings!
Short-term Sales
$ 4.7 M
$377,000
Fiscal Impact Ad valorem Tax ~$1.1M
City of SLO ~ $377,000
Refinanced Bond
$380,000 a Year Savings!
Short-term Sales
$ 4.7 M
$377,000
Next Steps
Letter of Intent
60 Day Notification
Environmental Review
Back to City Council
Questions
Recommendation
Authorize the City Manager to sign the application
of intent to acquire additional delivery entitlement of
Nacimiento Project Water.