To: Honorable Mayor and Members of Town Council
From: Mark Marlowe, P.E., Utilities Director
Matt Benak, P.E., Water Resources Manager
Sheri Scott, P.E., Water Resources Program Analyst
Title
Discussion/Direction: Chatfield Reallocation Project - Updated Estimated Project Costs
Body
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Executive Summary
Renewable water storage is a key component of the long-term water plan puzzle and participation in the Chatfield Reallocation Project gives the Town unique access to additional renewable water sources. The purpose of this memorandum is to provide Town Council with an update on the project including the updated preliminary project cost estimate and to elicit direction from Council on continued participation in the project.
The project’s Program Manager, CDM-Smith, has been directing various project design activities since being retained by the Chatfield Reservoir Mitigation Company (CRMC) in November 2015. These design activities include the technical review of environmental functional units or EFUs (EM1); the onsite mitigation to account for State and Federal requirements (EM2); mitigation along Sugar Creek in Douglas County (EM3); offsite environmental mitigation (EM5); marina relocation design (RM1); and onsite recreational mitigation (RM2). The CRMC has also recently (April 2016) formed a Technical Advisory Committee (TAC) to provide assistance and advisement on various technical issues. This group consists of members from the water providers, the State, Federal Agencies such as the U.S. Army Corps of Engineers and U.S. Fish and Wildlife Service, Douglas County and other stakeholders. The Town is represented on the TAC by Matt Benak, Water Resources Manager.
The original preliminary cost estimate in the Water Storage Agreement (WSA) between the U.S. Army Corps of Engineers and the State of Colorado for the project was $134 million ($9.8 million for the Town at our full 1,500 acre-foot subscription). The WSA provided the State and the participants with an opportunity to re-evaluate the preliminary cost estimate for the project. If the new cost estimate exceeded ten percent of the $134 million original estimate, the agreement provides an “off-ramp” for the participants to exit the project.
The project’s design consultants have recently completed the new preliminary cost estimate, and it is more than ten percent above the original preliminary estimate. The new estimate is $184 million ($13.4 million for the Town, again assuming a 1,500 acre-foot subscription). Staff recommends staying in the project despite the increase. Chatfield Reservoir is an on-stream reservoir located on the South Platte River and Plum Creek. The cost to build a similar reservoir today on the South Platte would undoubtedly be much greater. Recently, Castle Rock successfully completed a Water Court case that will allow us to exchange water stored in Chatfield back to the Town. The Town also has an option agreement with the State that allows us to spread out the costs of our investment in Chatfield over a 15 to 20 year period with no interest. Despite the increased cost estimate, staff is considering bringing Council an amendment to our Option Agreement to add another 500 shares as the value of this asset to Castle Rock is increasing now that our water rights case is settled. Finally, the Town has a South Platte water right that we will be able to use now that Chatfield is moving forward.
It is important to keep in mind that this is still just a cost estimate as the reallocation project design is only 15 percent complete and the accuracy of this estimate is deemed to be -30 percent to +50 percent (Class 4 cost estimate according to AACE International Guidelines). Staff will keep Council updated as the design moves along and more definitive cost information becomes available. Because the Town has an option agreement with the State, we have the flexibility to reduce our participation further if costs increase too much. This flexibility allows us to ensure our level of participation in the project will be consistent with our long term financial capacity.
History of Past Town Council, Boards & Commission, or Other Discussions
In 2004, the Town Council approved a resolution consenting to the South Metro Water Authority (currently the South Metro Water Supply Authority) reserving 1,400 acre-feet of the storage capacity on behalf of its members. The Town’s current share of that capacity is 34.8 percent (34.8%) or 487.2 acre-feet.
In 2005, the Town signed a Letter of Commitment between the Town of Castle Rock and the Colorado Water Conservation Board (CWCB) to reserve permanent storage space in Chatfield Reservoir if the storage becomes available as a result of this project. The Town’s current reserved capacity is 1,013.2 acre-feet.
In September 2012, Town Council approved a resolution to submit a letter to the US Army Corps of Engineers in support of the Chatfield Reallocation Project.
Utilities Commission was updated on the status of the project on June 26 and July 24, and October 22, 2013.
Town Council was updated on the status of the project in October 2013.
The Water Resources Committee reviewed this project on May 6, 2014.
On May 28, 2014, Utilities Commission was updated on the status of the recommended reduced participation level of 200 acre-feet. Utilities Commission voted 5-1 approving the recommended reduced participation level with one Commission stating that participation at a higher level is preferred.
On June 17, 2014, Town Council approved a resolution to reduce participation in the Chatfield Reallocation Project from 1,500.3 acre-feet to 200 acre-feet.
On November 18, 2014, Town Council approved the execution of the articles and bylaws of the Chatfield Reservoir Mitigation Company, the Water Storage Agreement, the Escrow Agreement, and the Water Provider Agreement for the Chatfield Reallocation Project.
On April 21, 2015, the Town Council was provided with a discussion of the salient points of a draft option agreement with CWCB.
On May 27, 2015 the Utilities Commission unanimously supported the recommendation to Town Council to proceed with entering into an agreement with CWCB for the acquisition of additional project shares over a multi-year period.
On June 16, 2015, Town Council approved the option agreement for acquisition of additional Chatfield Reservoir project shares from the State of Colorado over time.
On October 5, 2015, the Mayor was presented with execution instructions and original forms for the:
• Articles of Incorporation and Bylaws of Chatfield Reservoir Mitigation Company, Inc.
• Water Provider Agreement
• Escrow Agreement
The Chatfield Storage Reallocation Project refined cost estimate was presented to Utilities Commission on April 27, 2016. The commissioners unanimously recommended that the Town continue its participation in the project.
Discussion
The Chatfield Reallocation Project is a project to reallocate flood storage space in the existing Chatfield Reservoir located in northwest Douglas County to space that can be used for storing renewable water supplies. The Town of Castle Rock is currently, and has been since 2004, a participant in the Chatfield Reallocation Project. On June 7, 2014, Town Council approved a resolution to reduce the current participation in the Chatfield Reallocation Project from 1,500.3 acre-feet (AF) to 200 AF based on staff’s recommendations of the current need for storage and benefits in Chatfield by the Town. On June 16, 2015, Council approved an option agreement with the State of Colorado to reserve additional future shares (1,300 AF) at today’s costs. This agreement allows the Town to buy smaller tranches of storage capacity in the reservoir over a 15-20 year period, thus spreading out the cost impact. This option made purchasing more storage much more attractive. Since 2015, Castle Rock has settled a water rights case and progressed our overall renewable water program making Chatfield a much more beneficial piece of the program.
The Chatfield Reservoir Mitigation Company (CRMC), who is the managing entity for the reallocation project, retained CDM-Smith as the Program Manager for the reallocation project. CDM-Smith has been working with various design consultants over the past several months to review and refine the original cost estimate of $134 million that was presented in the Water Storage Agreement (WSA), dated October 9, 2014. As part of the WSA between the U.S. Army Corps of Engineers (USACE) and State of Colorado, within eighteen months of the effective date of the agreement, the total costs of the project were to be reexamined and notice was to be given to USACE. Both of these tasks were completed, as shown in the memorandum from CDM-Smith dated April 12, 2016 (Attachment A) detailing the refined costs and in the letter to USACE (Attachment B), that gives notice that costs exceed the original cost estimate by 10-percent or more.
CDM-Smith’s analysis of the project costs shows a 37 percent increase from the original cost estimate, or in terms of dollars, $183,817,198. The sub-categories where cost increases were noted included Recreation Facilities Mitigation (88 percent increase); Marina (73 percent increase); Tree Management (19 percent increase); and Environmental Mitigation (9 percent increase).
While this cost increase is significant, staff believes that continued participation in the project makes sense, as noted in the Executive Summary.
Budget Impact
The Town purchased its initial 200 AF storage capacity investment for $6,408 per acre-foot and an additional 87 AF from the State of Colorado in 2015 for $7,000 per acre-foot. With the new project cost estimate, the price per storage unit would be on the order of $8,900 per acre-foot. If the new estimate ends up being more accurate, the Town will have to provide an additional $664,300 for storage we have already purchased. Staff is and will continue to use the most recent cost estimate for budgeting for 2017 and beyond. Additional funds may be required of the project participants when the true reallocation costs are known well into the construction phase. If costs end up being less that the original estimate or the current estimate, final contributions by participants will be calculated and any refunds to participants provided as appropriate adjustments will then be made within Account Number 211-4375-443.77-29, Chatfield Reallocation. Staff will continue to monitor the financial changes to this project and adjust the project budget accordingly under the assumption that we will continue to participate in our full optioned shares.
Staff Recommendation
Staff recommends that the Town continue its participation in the Chatfield Reallocation Project.
Proposed Motion
I move to direct staff to continue with the Town’s participation in the Chatfield Reallocation Project.
Attachments
Attachment A: Letter CDM-Smith
Attachment B: Letter Colorado Department of Natural Resources