AGENDA SUMMARY EUREKA CITY COUNCIL AGENDA DATE
AGENDA DATE: November 15, 2016 ITEM NO.D.2 AGENDA SUMMARY EUREKA CITY COUNCIL
TITLE:
Humboldt Bay Municipal Water District Contract Amendments
DEPARTMENT:
Public Works
PREPARED BY:
Brian Gerving, Director of Public Works
PRESENTED FOR:
☐Action
⊠Information only
☐Discussion
RECOMMENDATION 1. Receive report FISCAL IMPACT ⊠No Fiscal Impact
☐Included in Budget
☐Additional Appropriation
COUNCIL GOALS/STRATEGIC VISION
Financially Sound City Providing Effective Services
DISCUSSION The City of Eureka purchases water on a wholesale basis from Humboldt Bay Municipal Water District (HBMWD). HBMWD is currently in the process of updating its Capital Improvement Plan (CIP), which will include an analysis of funding sources. One option they will consider is to use debt to spread the varying costs for large projects over multiple years, thus reducing the need for large increases in their allocation of costs to municipal customers. To be able to implement debt financing, HBMWD would need to have contracts with its municipal customers that would last at least as long as the debt amortization period. The current contracts between HBMWD and municipal customers were adopted in 1999, and expire in 2024. There is an option to extend these contracts for an additional ten years. Since 1999, the contracts have been amended three times, to make various changes that have been mutually approved. HBMWD’s Ordinance 16, which defines the conditions of service and the process for allocating costs of operating and maintaining the regional water supply infrastructure, includes a provision that limits HBMWD capital expenditures. With HBMWD’s development and implementation of its CIP, this limit has recently been exceeded, and will likely be exceeded in the future. HBMWD is proposing a different approach to planning capital expenditures.
AGENDA DATE: November 15, 2016 ITEM NO. D.2 Proposed Revisions Ordinance 16 - Capital Expenditure Limit HBMWD proposes to change the expenditure limitation to a description of a process of updating its CIP on a quintennial schedule, starting in 2017. At each of these five year intervals, HBMWD will consult with its municipal customers and provide an estimate of projected capital expenses and their resulting cost allocations during the subsequent five years. Municipal Water Supply Contract - Contract Term HBMWD proposes to start the revised contract in July, 2017, with a term through June, 2037. The contract would include the option to renew for an additional ten years. Municipal Water Supply Contract – Hydropower Sales Revenues HBMWD and the municipal customers agreed to establish a Municipal Supplemental Reserve Account (MSRA), which consists of excess charges collected by HBMWD during 2008-09. HBMWD has established a new hydropower sales contract with PG&E that will increase the price paid by PG&E to HBMWD from $30.00/MWh to $89.30/MWh, providing an increase in annual revenue of approximately $300,000 per year. HBMWD proposes to dedicate $50/MWh in revenues to ongoing capital expenditures (via deposit in the MSRA), thus reducing the burden on municipal customers to fund these capital expenses. Prorata Cost Allocation The Sierra Pacific Industries mill in Manila closed in March of this year. Manila Community Services District notified HBMWD of the resulting change in its water sales revenues, but this change did not reach the threshold of a reduction of 25% or more, which would have triggered a revision in the peak rate allocation for all municipal customers. This allocation is normally revised every five years, with the most recent cycle occurring in 2014. HBMWD proposes restarting this revision schedule with the implementation of the new contract in 2017. Next Steps HBMWD is participating in briefings for the Boards of Directors/City Councils of its municipal customers on these issues in October and November, 2016, and plans to adopt changes to its Ordinance 16 in January, 2017. The revised water supply contracts would then be adopted by HBMWD and municipal customers prior to July 1, 2017. Sometime between January and July, staff will return with a final draft of the amended water supply contract between HBMWD and the City for Council’s consideration.
AGENDA DATE: November 15, 2016 ITEM NO. D.2
REVIEWED AND APPROVED BY:
⊠City Attorney ☐City Clerk/Information Services ☐Development Services ⊠Finance ☐Fire ☐Parks and Recreation ☐Personnel ☐Police ☐Public Works
ATTACHMENTS: 1. Draft amended water supply contract
TITLE:
Humboldt Bay Municipal Water District Contract Amendments
DEPARTMENT:
Public Works
PREPARED BY:
Brian Gerving, Director of Public Works
PRESENTED FOR:
☐Action
⊠Information only
☐Discussion
RECOMMENDATION 1. Receive report FISCAL IMPACT ⊠No Fiscal Impact
☐Included in Budget
☐Additional Appropriation
COUNCIL GOALS/STRATEGIC VISION
Financially Sound City Providing Effective Services
DISCUSSION The City of Eureka purchases water on a wholesale basis from Humboldt Bay Municipal Water District (HBMWD). HBMWD is currently in the process of updating its Capital Improvement Plan (CIP), which will include an analysis of funding sources. One option they will consider is to use debt to spread the varying costs for large projects over multiple years, thus reducing the need for large increases in their allocation of costs to municipal customers. To be able to implement debt financing, HBMWD would need to have contracts with its municipal customers that would last at least as long as the debt amortization period. The current contracts between HBMWD and municipal customers were adopted in 1999, and expire in 2024. There is an option to extend these contracts for an additional ten years. Since 1999, the contracts have been amended three times, to make various changes that have been mutually approved. HBMWD’s Ordinance 16, which defines the conditions of service and the process for allocating costs of operating and maintaining the regional water supply infrastructure, includes a provision that limits HBMWD capital expenditures. With HBMWD’s development and implementation of its CIP, this limit has recently been exceeded, and will likely be exceeded in the future. HBMWD is proposing a different approach to planning capital expenditures.
AGENDA DATE: November 15, 2016 ITEM NO. D.2 Proposed Revisions Ordinance 16 - Capital Expenditure Limit HBMWD proposes to change the expenditure limitation to a description of a process of updating its CIP on a quintennial schedule, starting in 2017. At each of these five year intervals, HBMWD will consult with its municipal customers and provide an estimate of projected capital expenses and their resulting cost allocations during the subsequent five years. Municipal Water Supply Contract - Contract Term HBMWD proposes to start the revised contract in July, 2017, with a term through June, 2037. The contract would include the option to renew for an additional ten years. Municipal Water Supply Contract – Hydropower Sales Revenues HBMWD and the municipal customers agreed to establish a Municipal Supplemental Reserve Account (MSRA), which consists of excess charges collected by HBMWD during 2008-09. HBMWD has established a new hydropower sales contract with PG&E that will increase the price paid by PG&E to HBMWD from $30.00/MWh to $89.30/MWh, providing an increase in annual revenue of approximately $300,000 per year. HBMWD proposes to dedicate $50/MWh in revenues to ongoing capital expenditures (via deposit in the MSRA), thus reducing the burden on municipal customers to fund these capital expenses. Prorata Cost Allocation The Sierra Pacific Industries mill in Manila closed in March of this year. Manila Community Services District notified HBMWD of the resulting change in its water sales revenues, but this change did not reach the threshold of a reduction of 25% or more, which would have triggered a revision in the peak rate allocation for all municipal customers. This allocation is normally revised every five years, with the most recent cycle occurring in 2014. HBMWD proposes restarting this revision schedule with the implementation of the new contract in 2017. Next Steps HBMWD is participating in briefings for the Boards of Directors/City Councils of its municipal customers on these issues in October and November, 2016, and plans to adopt changes to its Ordinance 16 in January, 2017. The revised water supply contracts would then be adopted by HBMWD and municipal customers prior to July 1, 2017. Sometime between January and July, staff will return with a final draft of the amended water supply contract between HBMWD and the City for Council’s consideration.
AGENDA DATE: November 15, 2016 ITEM NO. D.2
REVIEWED AND APPROVED BY:
⊠City Attorney ☐City Clerk/Information Services ☐Development Services ⊠Finance ☐Fire ☐Parks and Recreation ☐Personnel ☐Police ☐Public Works
ATTACHMENTS: 1. Draft amended water supply contract
