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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. 17 Packet Pg. 327 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. 17 Packet Pg. 328 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. 17 Packet Pg. 329 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 17 Packet Pg. 330 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 17.a Packet Pg. 331 At t a c h m e n t : a - A p p l i c a t i o n f o r A d d i t i o n a l D e l i v e r y E n t i t l e m e n t S e p t 1 5 ( 1 1 1 0 : N a c i m i e n t o F u l l A l l o c a t i o n ) 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 SL O Co u n t y E n t i t l e m e n t 17 , 5 0 0 A F De l i v e r y E n t i t l e m e n t s 9, 6 5 5 A F Re s e r v e W a t e r 6, 0 9 5 A F De l i v e r y E n t i t l e m e n t s 15 , 7 5 0 A F 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.