To: Honorable Mayor and Members of Town Council
From: Mark Marlowe, Utilities Director
Matt Benak, Water Resources Manager
Kurtis Cotten, Water Resources Program Analyst
Title
Resolution Approving an Intergovernmental Water Infrastructure Cost Sharing and Capacity Allocation Agreement [Outter Marker Road Waterline]
Body
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Executive Summary
An important component of Castle Rock’s long term water portfolio is the completion of the WISE project infrastructure and a key part of that infrastructure is a pipeline section from Outter Marker Road to the Ray Waterman Regional Water Treatment Center. The purpose of this memorandum is to request Town Council approval of a Resolution (see Attachment A) approving the Pipeline Capacity License Option Agreement with Dominion Water and Sanitation District (Dominion) to provide a mechanism for Dominion to purchase their share of the capacity in the Outter Marker Road Pipeline. The construction of this infrastructure is being managed by Castle Rock Water and built by Garney Companies, Inc. The Town will initially fund Dominion’s portion of the pipeline capacity and associated appurtenances, and lease it back to Dominion over a five year period. The benefits of the proposed Pipeline Capacity License Option Agreement include additional funds from Dominion to help offset future capital costs, a slight reduction in future needed rate increases, access to additional pipeline capacity for the next five years, and strengthening of a partnership which has the potential to save Castle Rock Water and its customers even more money going forward. Staff and the Castle Rock Water Commission have reviewed the benefits of this Pipeline Capacity License Agreement and recommend Council approve this agreement.
The Pipeline Capacity License Option Agreement with Dominion for the Outter Marker Road Pipeline is provided in Attachment B. Key terms of the final Pipeline Capacity License Option Agreement with Dominion are below:
• Town will initially fully fund the construction of the pipeline. Under normal flow conditions the total capacity of the pipeline is 14.3 million gallons per day (MGD) with Castle Rock owning 10.1 MGD (70.63%) of the capacity in the long term and Dominion lease purchasing the remaining 4.2 MGD (29.37%) of capacity back over a five-year period.
• Dominion will make an up-front payment in the amount of $678.960. At the end of the first quarter, Dominion will make a principal plus interest payment to the Town in the amount of $220,025. These payments will continue each quarter for the five-year period.
• Dominion will pay interest at one percent over Castle Rock Water’s carrying costs providing $412,241 over the five-year period in interest to the benefit of our customers.
• The financing deal will provide the Town with potential additional capacity in the Outter Marker Road Pipeline when Dominion is not using it, which will be most of the time. This will allow us to move additional water to the Town if necessary during the five-year period.
• Any default by Dominion will result in the Town keeping all lease payments to date as well as getting full title to the additional pipeline capacity.
• Castle Rock Water will charge Dominion a ½-percent administrative fee for managing the construction of the pipeline.
History of Past Town Council, Boards & Commissions, or Other Discussions
On June 17, 2014, Town Council approved the execution of the Western Pipeline Purchase Agreement by the South Metro WISE Authority.
On September 16, 2014, Town Council approved the execution of the Modifications Agreement, key terms of the Operations Agreement, key terms of the Joint Use Agreement, and associated costs for other key WISE Project components which included design of the Ridgegate Infrastructure.
On October 22, 2014, staff provided the Castle Rock Water Commission with an update of the Alternate Source of Supply Projects which included an update regarding the Ridgegate infrastructure.
On November 18, 2014, Town Council approved Resolution 2014-92: Execution of the Ridgegate Line and Rueter-Hess WISE Infrastructure Design Intergovernmental Agreement
On February 13, 2015, Town Council approved the First Amendment to the IGA regarding the Ridgegate Line and Rueter-Hess WISE Infrastructure Design Intergovernmental Agreement dated November 19, 2014, which reduced Castle Rock’s cost by $169,580 due to the design contract being substantially less than originally estimated.
On January 5, 2016, staff provided Town Council an update regarding the Alternate Source of Supply Projects which included an update regarding the progress on the Ridgegate infrastructure design.
On April 19, 2016, Town Council approved the execution of an Intergovernmental Water Infrastructure Cost Sharing, Construction and Capacity Allocation Agreement between the Town of Castle Rock and Parker Water and Sanitation District for the Ridgegate Line portion of the WISE infrastructure.
On May 17, 2016, staff provided Town Council an update regarding the Alternate Source of Supply Projects which included an update regarding the progress of WISE core and local infrastructure progress.
On August 16, 2016, Town Council approved Ordinance 2016-018 approving the fourth amendment to the 2016 budget, a portion of which authorized a supplemental appropriation for WISE local infrastructure.
On August 16, 2016, Town Council approved Resolution 2016-078 approving the Town of Castle Rock/Dominion Water and Sanitation District Canyons Pipeline Capacity License Agreement.
On August 16, 2016, Town Council approved Resolution 2016-077 approving the Town of Castle Rock and Parker Water and Sanitation District Intergovernmental Water Infrastructure Cost Sharing, Design, Construction and Capacity Allocation Agreement.
On September 20, 2016, Town Council approved Resolution 2016-087 approving an 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.
On October 26, 2016, the Castle Rock Water Commission unanimously recommended that Town Council approve the Town of Castle Rock / Dominion Water and Sanitation District Outter Marker Road Pipeline Capacity License Agreement.
Discussion
One of the key pieces of the Town’s long-term water supply strategy is the incorporation of new, renewable imported supplies. Water from the WISE project will help us meet this goal and partnerships with other providers helps to lessen the financial impact to our customers. The Outter Marker Road Pipeline is a key part of the infrastructure required to convey WISE water, as well as other imported supplies, to the Town. The Outter Marker Road Pipeline consists of 27,800 linear feet of 36-inch pipe, 1,200 feet of 24-inch pipe, approximately 1,100 feet of 48-inch trenchless steel casing, 2,750 feet of 36-inch horizontal directional drilled pipe, valves, vaults, appurtenances, cathodic protection systems, water sampling and chemical feed, and all incidental items that will deliver water from the Canyons Pipeline to the Town’s Ray Waterman Regional Water Treatment Center. The Town is entering into this License Option Agreement with Dominion that covers cost sharing for the design, construction and capacity allocation of the infrastructure. The construction work is being performed by Garney Companies, Inc.
Dominion Water and Sanitation District, with whom the Town is in partnership on other WISE infrastructure (Western Pipeline, Infrastructure Capacity, Canyons Pipeline), has requested that the Town consider a Pipeline Capacity License Agreement arrangement to initially fund Dominion’s share of the Outter Marker Road infrastructure. Basically, the Town will construct Dominion’s capacity in this pipeline and lease it back to Dominion over a five-year period. The benefits of the proposed Pipeline Capacity License Agreement include additional funds from Dominion to help offset future capital costs, a slight reduction in future needed rate increases, access to additional pipeline capacity for the next five years, and strengthening of a partnership which has the potential to save the Utilities Department and customers even more money going forward.
The Town’s estimated cost based on our contract with Garney for constructing this pipeline is $13,448,015, plus a Town-managed contingency of $624,400, for a total project cost of $14,072,415. The final cost and amount of the Pipeline Capacity License Agreement will be adjusted based on actual construction costs upon the completion of the Outter Marker Road Pipeline construction project. Staff will report back to Council on final construction pricing. A portion of this cost (29.37%) will be covered by Dominion Water and Sanitation District under this Pipeline Capacity License Option Agreement over a five-year period.
The Pipeline Capacity License Agreement with Dominion would be at an interest rate of 3.55% which is the average of our combined interest rates for all of Castle Rock Water’s outstanding debt, plus one (1) percent, for a term of five years. During this period, the Town would control Dominion’s capacity in the line until they have paid their portion of the full construction price plus interest back to the Town. Key terms of the Pipeline Capacity License Agreement with Dominion were summarized in the Executive Summary.
There are several benefits to the Town constructing the Outter Marker Road Pipeline and entering into a license option arrangement with Dominion:
1. By financing Dominion, this would provide the Town additional capacity in the Outter Marker Road Pipeline which would allow us to move additional water to the Town if necessary during the five year period of the lease.
2. With an interest rate of 3.55%, the Town would earn interest on the financed funds at around 7.9 times the current rate (the Town’s current rate of return on funds is less than 0.45%). The total interest earned would be approximately $412,241 based on a quarterly payment schedule.
3. Dominion Water and Sanitation District does not need this water for several years. This business deal does not injure either party from a water usage standpoint.
4. The Town has the financial capabilities to purchase the additional capacity and lease it back for the next five years.
5. Any default by Dominion would result in the Town keeping all lease payments to date as well as getting full ownership of the additional infrastructure capacity.
6. A review of the Town’s current financing indicates that there are no restrictions that would prevent the Town from doing this deal.
7. This agreement continues our partnership with Dominion on the infrastructure for the WISE project.
Budget Impact
Funds for construction phase project payments will be taken from account number 211-4375-443.77.72 <WRCRDI>. This account has adequate funds available for the construction of the Outter Marker Road pipeline - part of our WISE local infrastructure.
The quarterly principal and interest payments that Dominion is required to pay as part of the Pipeline Capacity License Agreement will be made into account number 211-4375-393.70-00 (Water Resources Fund - Dominion Capital Lease Payments).
Staff Recommendations
Staff recommends approval of the Town of Castle Rock / Dominion Water and Sanitation District Outter Marker Road Pipeline Capacity License Agreement.
Proposed Motion
“I move to approve the Resolution as introduced by title.“
Attachments
Attachment A: Resolution
Attachment B: Agreement