TO:
Honorable Mayor Powell and Members of the City Council
THROUGH:
David N. Carmany, City Manager
FROM:
Jim Arndt, Public Works Director
Raul Saenz, Utilities Manager
SUBJECT: Title
Three-Year Lease Agreement of Groundwater Rights from Chevron U.S.A. Inc.
APPROVE
Body
__________________________________________________________________
RECOMMENDATION: Staff recommends that the City Council authorize the City Manager to execute a three year agreement with Chevron U.S.A, Inc. to lease 950 acre feet of water for each of the Water Years 2012/2013, 2013/2014 and 2014/2015.
FISCAL IMPLICATIONS:
The first year's cost to the City will be $107 per acre foot, plus a proportional share of Chevron's annual Water Master Service fee budget, amounting to approximately $3 per acre foot of leased water. The total combined cost of the first year's lease agreement is $104,500. The subsequent two year's increase will be adjusted according to the United States Department of Labor Bureau of Economic Statistics Consumer Price Index (CPI).
BACKGROUND:
The City's water system currently consists of four pump stations, two storage reservoirs, one elevated storage tank, two water supply wells and approximately 112 miles of water distribution pipelines. There are currently three available water supply sources: (1) Metropolitan Water District-treated surface water provided by the West Basin Municipal Water District; (2) groundwater provided by a City-owned and operated well, and (3) reclaimed water supplied for landscaping irrigation from West Basin MWD. The City obtains approximately 80 percent of its water supply from MWD surface water, 17 percent from groundwater, and three percent from recycled water. These three water sources have been, and continue to be, adequate to meet the total water demands of the City.
Staff has taken action to offset the cost of water by purchasing available groundwater rights leases within the West Coast Basin (WCB) in lieu of more costly Metropolitan Water District water. Through participation in formal bidding processes initiated by within the WCB, the City has leased groundwater rights from the same water purveyor for three consecutive fiscal years as follows:
2009/2010 - 1,051 acre feet at $100 per acre foot.
2010/2011 - 953 acre feet at $105 per acre foot
2011/2012 - 953 acre feet at cost of $106 per acre foot
Furthermore, in an attempt to solicit offers of groundwater rights from local groundwater purveyors within the WCB, the City issued a "reverse bid" on June 2, 2011. No offers were received.
While substantial savings were realized through formal bidding process, Staff has concluded that a negotiated approach to attaining leased water rights over multiple years would yield greater savings and guarantee a fixed, reliable source of water for the term of the negotiated agreement. As such, Staff initiated discussions with Chevron U.S.A., Inc. and has come to terms on a three year agreement with the first year's cost at $107 per acre foot and the subsequent two years reflecting an increase consistent with each year's CPI.
DISCUSSION:
The cost of MWD water is $1,063 per acre foot. The estimated cost to the City of groundwater production and delivery is $535 per acre foot, which costs include leased water, replenishment fees to the Water Replenishment District, electricity for running wells, booster pumps, disinfections, amortization of programmed maintenance and Watermaster Service fees. Thus, the estimated savings from leasing groundwater versus purchasing MWD water is $528 per acre foot.
Entering into a three-year lease agreement with Chevron U.S.A., Inc. will result in an estimated savings in Metropolitan Water District (MWD) purchased water costs of $501,000 in the first year. The subsequent two years will result in similar savings based upon the City's groundwater and MWD water cost increases; and the CPI being factored into the leased groundwater from Chevron U.S.A, Inc.