To: Honorable Mayor and Members of Town Council
From: Mark Marlowe, P.E., Utilities Director
Title
Discussion/Direction: Draft Intergovernmental Agreement for Water Service between the Town of Castle Rock and Dominion Water and Sanitation District
Body
________________________________________________________________________________
Executive Summary
The purpose of this memo is to update Town Council and seek direction on a draft intergovernmental water service agreement between Town of Castle Rock and Dominion Water and Sanitation District (Dominion). The goal of the agreement is to efficiently use existing and future infrastructure to provide for the optimum conjunctive use of groundwater and renewable water supplies and the most efficient and cost effective service to the customers of Castle Rock Water and Dominion.
Dominion is requesting that the Town take ownership of and treat and deliver 400 acre-feet (AF) per year (on average) of Denver Basin groundwater that Dominion currently owns as a backup to their renewable WISE supplies. This agreement to take ownership of and treat and deliver that water would be an extension of the agreement that the Town and Dominion already have. In the existing agreement, the Town will move up to 4 million gallons per day (MGD) of Dominion’s WISE water and other supplies of water through our existing system from their source(s) to a connection point on the northwest side of Castle Rock. Attachment A shows the likely connection points between Dominion and Castle Rock.
This agreement would work in conjunction with the existing agreement. When Dominion does not have WISE supplies or other northern supplies to move through Castle Rock’s system, then Dominion could request that the Town treat and deliver this Denver Basin groundwater. Key aspects of the draft agreement include:
• The Denver Basin groundwater supply that Castle Rock will treat and deliver to Dominion is new supply that Dominion would dedicate to the Town in the amount of 400 AF with a banking aspect that allows them to bank water in the aquifer up to three years.
• Average deliveries over ten years will not exceed 315 AF and based on modeling will be closer to 230 AF per year.
• Maximum deliveries in any one year would be 700 AF per year and only occur when no WISE supplies are available.
• Dominion could dedicate future Denver Basin groundwater rights to replace any decreases in the initially dedicated supply or pay the Town’s renewable water fee plus a 25 percent surcharge to replace those decreases.
• The Town will not use any of its existing Denver Basin groundwater rights or renewable water rights to provide service to Dominion but will use its existing distribution, storage, and treatment systems to provide service essentially creating a way for Dominion to store WISE water without purchasing any reservoir capacity.
• Dominion will provide a capital investment into the Town’s infrastructure to increase the delivery capabilities and aquifer storage and recovery capabilities of approximately $3,000,000 with the final investment being whatever is required to improve the delivery systems to meet the Town’s commitment.
• Dominion will provide a capital investment of $2,200,000 over ten years to pay for excess treatment capacity the Town currently owns and does not currently use.
• Because Dominion will be required to use 700 acre feet of WISE water first, there will be excess delivery capacity in the infrastructure for which Dominion provides the capital investment, and the Town can use that excess capacity when it is not needed to provide service to Dominion.
• It is a perpetual agreement.
• Dominion will pay a rate above the standard Town retail rate since the Town will be providing extraterritorial service and that rate will be adjusted annually.
• Dominion will not likely start moving water until 2018 or 2019, again providing the Town with the infrastructure for our use for several years free and clear.
• Based on modeling, the Town would receive 66 AF on average of additional renewable water each year.
• The Town will get first right of refusal on any additional WISE water Dominion cannot use.
A mutual benefit of this agreement is that the Town will essentially provide storage of Dominion’s WISE water using our existing system. This will allow Dominion to use its full WISE subscription without a large capital investment in storage. In exchange, Castle Rock will receive 10% of Dominion’s WISE water that is stored in the system.
The benefits to the Town of Castle Rock include:
• Provides the Town with a large capital investment into our existing water infrastructure that will have excess capacity that can be used by the Town.
• Provides the Town with a large capital investment into aquifer storage and recovery (ASR) infrastructure that can be used to store renewable water.
• Recovers costs of extra capacity within the Town’s existing infrastructure that is not currently utilized (economies of scale) and charges a higher rate for extraterritorial service of $5.14 per thousand gallons based on the current estimated rates (calculation proposed in agreement is (0.6xTier1+0.4xTier2)x1.35).
• Results in annual excess revenues of around $100,000 due to the extraterritorial service charge with total revenues of $384,000 based on the current calculated rate and estimated actual likely usage based on the projected availability of WISE water.
• Reinforces our regional water partnership with Dominion a partner that is sharing in new infrastructure capital costs associated with the WISE local infrastructure see Attachment B.
• Reduces the long term costs of water to our customers by utilizing partnerships to share in infrastructure costs and obtain economies of scale with infrastructure that is built.
• Ensures Castle Rock and Dominion are viewed in a positive light at the County and State level.
• Helps move regional entities away from relying solely on nonrenewable groundwater by creating more conjunctive use, which is to optimize the use of Denver Basin groundwater with renewable resources.
The disadvantages include:
• May require components of our system to be incrementally upsized sooner than anticipated to serve potential future retail customers, however, we have not identified any infrastructure that must be upsized to accommodate Dominion’s deliveries.
Utilities Commission reviewed the draft terms of the agreement on July 27, 2016. While the
Commission did not have a quorum during this presentation, the general consensus of the
Commissioners present was to recommend Council support this agreement. Staff recommends
finalizing the draft water service agreement with Dominion Water in the form attached and bringing
final agreement back to Council for approval in September.
Background
Dominion is a quasi-municipal corporation and political subdivision of the State, serving the Sterling Ranch subdivision located in Douglas County south of Chatfield State Park and north of Roxborough State Park as shown on Attachment B. Like the Town of Castle Rock, Dominion is also a member of South Metro WISE Authority and is a participant of the WISE project. Dominion currently does not have the necessary infrastructure or facilities to obtain water from the WISE project.
Dominion entered into an intergovernmental service agreement with the Town of Castle Rock as part of the first phase of the WISE project that allows Dominion to use Castle Rock’s existing system to move WISE water from the northeast corner of Castle Rock to the northwest corner of Castle Rock. Dominion is entering into at least two other agreements with Castle Rock to share in what is known as the WISE local infrastructure. All of these agreements are creating economies of scale and using regional infrastructure in the most efficient way for the benefit of all of the customers. This agreement would continue the strategy of reducing duplication of facilities and operations, and therefore reduce costs for both the Town’s citizens and Dominion’s customers. This agreement would create a cooperative regional water supply partnership that would encourage the conjunctive use of new renewable water infrastructure with deep groundwater infrastructure including providing facilities for the recharge of deep groundwater.
Discussion
Dominion is requesting that the Town take possession of deep groundwater rights they own and treat and deliver that water for them as a backup supply to their WISE water. WISE is an interruptible supply so this concept of having a backup supply is critical to the long term success of the WISE project. The Town already has a backup supply in place, but Dominion does not. In exchange for Dominion’s requested service, Dominion will give the Town the water rights and the ability to use the water rights when they do not need them, something which will occur often since under the agreement they would be required to use all their WISE water before taking a drop of groundwater. In addition, Dominion will fund significant new infrastructure in the Town’s existing deep groundwater system and renewable water system. Attachment C provides an overview of the infrastructure that Dominion will fund. The infrastructure includes two new deep wells located close to the Founders Water Treatment Plant and upgrading of two existing deep wells located at the Ray Waterman Treatment Plant to allow them to be used for aquifer storage and recovery (ASR). Placing ASR wells at Ray Waterman Treatment Plant will allow northern renewable water supplies including WISE and potentially Box Elder to be put into deep aquifer storage when we have excess renewable supplies coming into the system since the WISE local infrastructure pipeline comes directly to the Ray Waterman Treatment Plant.
Dominion is a member of the WISE Authority with a subscription of 1,325 acre-feet. Members and their subscriptions are shown below.
|
Authority Member |
Subscription Amount |
Board Member |
|
Dominion |
1,325 |
Asst. Secretary/Treasurer |
|
Parker |
1,200 |
President |
|
Castle Rock |
1,000 |
Vice President |
|
Centennial |
1,000 |
|
|
Pinery |
500 |
Treasurer |
|
Stonegate |
500 |
Asst. Secretary/Treasurer |
|
Rangeview |
500 |
|
|
Inverness |
500 |
|
|
Cottonwood |
400 |
|
|
Meridian |
300 |
|
|
TOTAL |
7,225 |
|
Dominion has previously entered into an agreement with the Town to move their WISE water through our system. This agreement, the Intergovernmental Agreement for Water Service between Dominion Water and Sanitation District, Acting in its Capacity as a Water Activity Enterprise, and the Town of Castle Rock Acting through the Town of Castle Rock Water Enterprise, was consummated in January of 2014 (see Attachment D). The agreement under consideration in this memorandum works in concert with the 2014 agreement.
In the 2014 agreement, Dominion anticipated that it would provide the Town with other water supplies that could be treated at the well or at a treatment facility shared by the Town and Dominion at the south side of the Town’s system or at a potential future delivery location such as the future Plum Creek diversion. It was further anticipated the treated water from other sources would then be sent through the Town’s system and delivered to Dominion at a maximum delivery rate of 4 million gallons per day (MGD) and adjusted to account for 5 percent losses through the Town’s system as outlined in the 2014 agreement.
Key aspects of this draft agreement which compliments the 2014 agreement were included in the Executive Summary. There are many benefits and very few disadvantages to the Town in entering into this additional service agreement with Dominion. This agreement will provide a long term benefit for both parties’ customers. Specific benefits and disadvantages were outlined in the Executive
Summary. Attachment D provides a summary of all of the various agreement the Town has completed or is working to complete with Dominion to provide an overall view of the benefits on the Town’s partnership with Dominion.
Budget Impact
There is a positive impact to both the capital budget for the water and water resources fund assuming the agreement is executed in 2016. In future years, there will be a positive impact to the operational budget for the water enterprise as well. The Town will receive revenues in excess of costs for treating and delivering water to Dominion in accordance with this agreement. Dominion will be dedicating water rights to the Town and providing capital investments to fund the construction of two, new Denver Basin wells and conversion of two existing Denver Basin wells to aquifer storage and recovery (ASR), a value of at least $3,000,000. This infrastructure will have excess capacity that can reduce needed capital investments by the Town in groundwater and ASR infrastructure. Dominion will also be paying system development fees for treatment capacity in one of our groundwater treatment plants in the amount of approximately $2,200,000 over a ten year period. Once Dominion starts taking water, the Town’s budget will benefit from the surcharge on the sale of the treated water as well as the additional renewable water the Town will receive through the agreement.
Staff Recommendation
Staff recommends finalizing the draft service agreement with Dominion Water and Sanitation District and bringing the final agreement back to Council for approval.
Attachments
Attachment A: Connection points map
Attachment B: WISE Partnership Map
Attachment C: Partnership Benefit Matrix
Attachment D: 2014 Agreement