To: Honorable Mayor and Members of Town Council
From: Mark Marlowe, P.E., Utilities Director
Matt Benak, P.E., Water Resources Manager
Title
Direction/Discussion: Effluent Water Leases
Body
________________________________________________________________________________
Executive Summary
Castle Rocks owns the right to use a significant portion of its water to extinction. This means water used by customers and collected and treated by the Town can be recaptured in Plum Creek and reused until it has been fully consumed. Long term, the Town plans to reuse all of this water. Since 2001, the Town has exclusively leased this water for reuse by Centennial Water & Sanitation District (CWSD). The rate set in 2001 was $120 per acre-foot, and the average value of the leases with CWSD has been about $149,000 per year. The Town, last year, had over 2,700 acre-feet available for lease and CWSD has only leased 77 acre-feet for $9,318. The value of this water has gone up significantly since 2001, and staff believes based on the market $350 per acre-foot is more appropriate now. Further, other entities, including Dominion Water and Sanitation District (Dominion), have shown interest in leasing this water at the new proposed rate. Staff proposes to terminate the existing exclusive lease, and open up the potential for not only CWSD to lease the water but others, like Dominion to do so as well on a first-come, first-serve basis. Staff also proposes a new rate of $350 per acre-foot that can be adjusted annually based on review of market conditions. Revenues from these leases are invested back into the long term water plan. Utilities Commission supports the changes recommended by staff. If Council also supports these recommendations, staff would terminate the lease and develop a non-exclusive lease agreement to bring back for Council consideration in July.
Discussion
Water that the Town of Castle Rock treats and distributes to our customers is used for many purposes: domestic, commercial, light industrial, irrigation, recreation, etc. The majority of this water that is used indoors makes it into our sanitary sewer system and is then treated at the Plum Creek Water Reclamation Authority (PCWRA). This treated effluent is then discharged to East Plum Creek. At the present time, the Town is able to ‘use’ a small portion of this water to augment the operations of our alluvial wells; however, the Town does not currently have a way to physically return the majority of the treated effluent back to the Plum Creek Water Purification Facility (PCWPF). One option the Town does have available for this water is to lease it to other entities for their beneficial use.
The Town has had a Water Lease agreement with Centennial Water and Sanitation District (Centennial) since 2001 giving them the ability to lease the water, but limiting our flexibility to lease our water to other interested parties. Additionally, the Town has not adjusted the unit pricing structure of our water since 2001.
The Town has been approached by other entities who have expressed interest in leasing our available return flows in Plum Creek. Thus, staff would like to terminate the existing agreement with Centennial and open up our fully consumable return flow to a wider market. Per the terms of the existing Water Lease Agreement, the Town (or Centennial) is able to terminate the agreement, for any reason, with 10 days advance written notice.
In 2014, approximately 3,646 acre-feet of the Town’s water was treated at PCWRA and released back into East Plum Creek. Approximately 2,791 acre-feet was excess water that could have theoretically been leased. Centennial leased only 77.65 acre-feet in 2014. In previous years, Centennial had leased much higher quantities of water (between approximately 800 to 1,800 acre-feet annually), and, over the Water Lease Agreement period, has leased a total of 13,808 acre-feet, bringing in about $149,000 on average each year for a total of $1,656,966 in revenue since 2003.
The Town set a lease rate of $120 per acre-foot in the initial agreement and has not adjusted this value since. A staff review of spot water prices available in the South Platte River Basin shows that entities are paying between $250 to $800 per acre-foot.
Given this data, staff believes that we should increase our contract price to $350 per acre-foot.
The next steps in this process will be to inform Centennial of our intent to terminate the existing agreement and to inform them of the new offer price.
Additionally, we will inform other potentially interested parties of the new offer price and of quantities of water that would likely be available for lease in given months.
History of Past Town Council, Boards & Commissions, or Other Discussions
This item was presented to Utilities Commission on May 27, 2015. The commission unanimously supported the recommendation to Town Council to proceed with termination of the existing water lease with Centennial and develop a non-exclusive, first-come, first-serve lease agreement for use with Centennial and/or other entities.
Budget Impact
Depending on the interest from other parties in our leased water program, the maximum amount the Town could receive in revenue is between $80,000 and $90,000 per month, or around $950,000 annually based on 2014 data. Leased water revenue will be possible at these higher volumes until the Town constructs and begins operating a surface diversion on Plum Creek that will give us the ability to pump back our fully reusable water for treatment at PCWPF.
Staff Recommendation
Staff recommends that Town Council direct staff to proceed with termination of the existing Water Lease with Centennial and develop a non-exclusive, first-come first-serve lease agreement for use with Centennial and/or other entities, and inform other potentially interested entities of our new offer price and water delivery schedule.
Attachments
None