HomeMy WebLinkAbout09/16/2021 - Planning and Zoning Commission - SUPPLEMENTAL DOCUMENTS - Regular Meeting
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Utilities
electric · stormwater · wastewater · water
PO Box 580
Fort Collins, CO 80522
970.212.2900
V/TDD: 711
utilities@fcgov.com
fcgov.com/utilities
MEMORANDUM
TO: Planning & Zoning Commission
FROM: Donnie Dustin, P.E., Water Resources Manager
DATE: September 10, 2021
SUBJECT: Proposed Changes to the Utilities Water Supply Requirements Cash-in-Lieu Fee
The purpose of this memo is to inform the Planning & Zoning Commission of proposed changes
to a key Utilities water development fee. No action is required, but input could be provided to
Utilities staff (ddustin@fcgov.com). If desired after review of this memo, this issue could be
presented at a future Planning & Zoning Commission meeting.
EXECUTIVE SUMMARY:
The Water Supply Requirements (“WSR”) and its associated Cash-in-Lieu (“CIL”) Fee generate
the revenue used to ensure that adequate water supplies and associated infrastructure are
available to reliably serve the water needs of development within the City of Fort Collins
Utilities (“Utilities”) water service area. Starting in 2017, the CIL is being reviewed at least
every 2 years. Staff is proposing significant changes to the WSR volume calculations to improve
the precision of how we estimate the water demand of development, which were presented at the
May 11 City Council work session and will be considered for adoption on September 21. In
addition, there have been significant cost increases to the Halligan Water Supply Project and
other water rights required for providing reliable water supplies as growth continues. Unlike
most other fees, the CIL fee increase is a function of unprecedented inflation in costs. Staff
proposes the CIL fee be increased approximately 60% to $68,200 per acre-foot of use at the tap
to reflect these changes, which will be presented to City Council for action in November and
become effective on January 1, 2022.
BACKGROUND:
Developing water supplies in Northern Colorado is complex, dynamic, and full of uncertainty.
Climate change, increased competition, permitting issues, and changing growth make developing
these supplies and assessing the cost to do so quite complex. The Utilities’ Water Supply and
Demand Management Policy provides guidance for addressing these uncertainties through
multiple means like developing additional supplies (e.g., Halligan Water Supply Project, etc.),
continued water conservation efforts, and adjusting the WSR and associated CIL fee as needed to
reflect changes in costs. The purpose of this agenda item is to describe the proposed changes to
the CIL fee.
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Water Service Providers in Fort Collins:
Utilities water service area covers the central portion of Fort Collins. Utilities supplies water to
approximately 75% of residents and businesses within the Fort Collins city limits. Water service
in the surrounding areas is provided by other water providers, mainly the East Larimer County
(ECLO) and Fort Collins-Loveland (FCLWD) water districts (see Attachment 1). Each water
service provider has their own drivers (source of supply, development patterns) that determine
their WSR calculations and CIL fee. The proposed CIL fee changes only apply to the Utilities
water service area.
Water Development Fees:
There are three water-related development fees assessed on development in the Utilities water
service area. The first is the WSR and associated CIL fee which assesses the cost to provide
reliable water resources for the new water demand. The second is the water plant investment fee
(“PIF”) which assesses the cost of the treatment and distribution infrastructure required to
process and transport the treated water. Lastly is the tap fee, which assesses the cost of the meter
and connection to the new development. The focus of this agenda item is on the WSR and CIL
fee.
Key Terms and Definitions:
The following are definitions of the WSR and CIL fee. A complete list of terms and definitions
can be found in Attachment 2.
Developers, including greenfield development and redevelopment, must meet a Water
Supply Requirement:
• Water Supply Requirements (“WSR”): A requirement for water service from Utilities.
A WSR accounts for the additional water demand, defined in gallons or acre-feet of
water, brought into the Utilities water service area by a new development or
redevelopment. The developer satisfies a WSR by dedicating water rights or paying cash-
in-lieu of water rights to Utilities. This provides the revenue to develop reliable water
resources for the development, including water rights and associated infrastructure.
WSRs are in line with the City’s approach that development pays for itself.
• Cash-in-lieu (“CIL”) Fee: A developer can meet a WSR by paying cash, instead of
providing water rights. The CIL fee is based on the cost to meet future water needs and
includes the expected cost to acquire water rights and associated infrastructure. The
current cost is $42,518 per 325,851 gallons (1 acre-foot) of use at the tap and the CIL fee
is updated at least every two years.
Goals, Outcomes and Drivers:
The WSR and CIL fee help Utilities follow the City’s strategic plan object ENV 4.4: Provide a
reliable, high-quality water supply, as well as guidance from the City’s Water Supply and
Demand Management Policy, by assuring cash is collected to pay for additional infrastructure or
water rights needed to increase the reliable yield of the Utilities’ water supply system. Utilities is
responsible for ensuring our customers have enough water today and into the future, while
upholding the City approach that development and redevelopment pay their own way. As the
costs of acquiring and developing water resources have increased, the cost to secure water for the
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additional demand have increased too. Since 2018, there has been a significant increase in the
costs to develop water supplies. This is not unique to Utilities – all water providers across the
Front Range are facing a significant increase in costs. Most water providers are shifting to plan
for populations much larger than previously expected, and at the same time, climate change is
dramatically increasing the variability in water availability from year to year. Responsible water
management is essential to meet the needs of Fort Collins today, and to maintain our quality of
life into the future.
Water Supply Requirements (“WSR”):
Although not part of this agenda item, Staff is proposing significant changes to the WSR
calculations to reflect water demands more granularly across varied types of development and to
encourage efficient water use in new development. The key WSR changes include:
• Commercial WSR being based on business type and size versus just tap size
o Better reflects actual use (higher use pays more; lower use pays less)
• Separating indoor and outdoor water needs
o Incentivizes low water use landscapes
• Elimination of the Water Supply Factor from the WSR calculations
o Recognizes that elements of the factor are represented in updated yield modeling
o Reduces confusion for customers who increase their water allotment
The proposed WSR changes mentioned above were described in detail for the May 11, 2021 City
Council Work Session (see link below for materials) and will be presented for action at the
September 21, 2021 City Council regular meeting.
https://citydocs.fcgov.com/?cmd=convert&vid=72&docid=3524135&dt=AGENDA+ITEM&doc
_download_date=MAY-11-2021&ITEM_NUMBER=03
Cash-in-Lieu (“CIL”) Fee:
Once the amount of water needed for a development is determined via the WSR calculations, the
total cost can be calculated via the CIL fee (if the developer does not provide “wet” water rights,
which most do not). In 2017, City Council adopted significant changes to the CIL fee
methodology that became effective in 2018. Prior to that, the CIL fee had not been updated since
2001. With guidance from BBC Research & Consulting (specializing in utility fees and rates),
the methodology adopted was a hybrid between incremental cost and equity buy-in approaches.
An incremental cost approach only considers the additional costs needed to increase its water
supply system capacity to serve new development. An equity buy-in approach places an overall
value on both the existing and future water supply system to determine the CIL fee. A hybrid
combination of both these methods was used since adding capacity to the water supply system
depends on the addition of storage (incremental costs) and use of the existing portfolio of water
supplies (buy-in portion) to make the additional capacity. Each utility determines its approach
based on its own unique factors. For example, East Larimer County Water District’s (ELCO) has
more of an incremental approach, Fort Collins-Loveland Water District (FCLWD) has a hybrid
approach, and the City of Greeley has a full equity buy-in approach.
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The current CIL fee method calculates the cost to increase reliable yield as the sum of:
1. Cost of future infrastructure (e.g., Halligan Water Supply Project, etc.)
2. Cost of future water rights (e.g., local ditch shares)
3. Buy-in to existing water supplies
Using this methodology, the CIL fee was increased by 166% in 2017 (effective in 2018) after
having not been updated since 2001. Staff committed to reviewing and updating the CIL at least
every two years. A 24% increase was adopted in 2019 (effective in 2020). A standard
inflationary 3% increase was adopted (with other Utility fees) in 2020 (effective in 2021).
Over the last few years, there have been significant increases to the expected costs of the
Halligan Water Supply Project (“Halligan”) and the cost of local water rights. Halligan costs
have increased due to permitting length and complexity, rising construction costs, mitigation
needs and access issues. Also, the cost of water rights has increased as much as 22 percent per
year due to competition for these dwindling resources and booming development across the
Front Range. The following presents the three components that go into the CIL fee methodology.
1. Cost of future infrastructure ($201.8M):
Adding storage to the Utilities water supply system (via the Halligan project) will help meet a
majority of the projected future needs by storing existing and future water rights at times of
surplus (e.g., wet years) for use in drought years when other water supplies are diminished. The
Halligan cost used in the 2019 CIL fee update was $74.1M. A Halligan cost update completed in
late 2019 (after outreach on the updated CIL fee) projected a range of costs between $100M and
$150M. A 30 percent design analysis of Halligan is currently being conducted (due for
completion in early 2022). Early indications are that the costs will increase. Therefore, staff
recommends using the upper portion of the 2019 cost analysis range ($150M). For comparison,
alternatives described in the permitting for the Halligan Water Supply Project are up to 4.5 times
more expensive. In addition to Halligan, there are about $5.2M of additional long-term
infrastructure needs. Applying a standard 30% engineering contingency to these needs, the total
estimated future infrastructure costs are $201.8M.
2. Cost of future water rights ($53.4M):
Although the Halligan project is expected to address most of the Utilities water supply needs,
additional water rights are required to meet projected future demands. Utilities currently plans to
acquire about 150-200 additional shares in the North Poudre Irrigation Company (“NPIC”) and
about 300 acre-feet of shares in other local ditch companies (referred to as the Southside Ditches
or “SSD”). Costs for these shares have increased between 11-22% per year in recent years,
roughly doubling their projected costs over the past five years. For example, North Poudre
Irrigation Company shares have gone from $88,000 to $200,000 per share from 2017 to the
present. Applying these market increases and a 30% contingency results in a total estimated
future water right costs of $53.4M.
3. Buy-in to Existing Water Supplies ($264.7M):
New development will be buying into and benefitting from the existing water supply portfolio
that includes valuable and reliable senior direct Poudre flow rights, Colorado-Big Thompson
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Project units and other Horsetooth Reservoir sources. Utilities’ plan for generating new water
supplies requires two main components: infrastructure and wet water. Building a new or larger
“bucket” isn’t valuable without water to store in that bucket. In some years our water rights yield
more water than we use and therefore without storage we underutilize our portfolio. The
majority of the ‘wet water’ used to generate additional supply to meet future demands will come
from using the existing customers’ water supply portfolio in conjunction with the additional
storage. We currently model and estimate the amount to be about 2,645 acre-feet. BBC Research
& Consulting estimated that the Utilities’ water supply portfolio is worth about $3.17B, or about
$100,100 per acre-foot of reliable yield. Applying this amount to the to 2,645 acre-feet of water
used from existing customers water supply portfolio, the value of use of the existing portfolio is
estimated to be $264.7M.
Factor of Safety (20%):
There are many uncertainties in developing water supplies and assessing future growth within
the Utilities service area, including potential impacts of climate change, uncertainty in the
ultimate costs of developing water supplies, the amount and type of development, etc. The
current WSR calculations include a 1.92 water supply factor that among other things, included a
20 percent factor of safety that recognized these uncertainties. The 1.92 factor will be removed
from the WSR calculations due to updated modeling that more accurately captures other
variables included in the factor. This simplifies the calculation and makes it more transparent.
Staff recommends the continuation of the 20 percent factor of safety by incorporating it into the
CIL fee calculation instead of the WSR volume calculation. The continuation of this factor is
justified considering the results of the 2019 Water Supply Vulnerability Study (“Study”)
conducted by Utilities, which identified numerous risks and uncertainties that have not yet been
incorporated into our water supply planning. For example, the Study indicated a 20-35 percent
reduction in water supply reliability from projected temperature increases alone, which suggests
this factor could even be higher than 20 %
Proposed CIL fee:
Combining the components of the CIL fee methodology mentioned above, the following is the
calculation for the proposed CIL fee:
$201.8M: Cost of future infrastructure
$53.4M: Cost of future water rights
$264.7M: Buy-in to existing water supplies
$519.9M: Total cost to increase reliability
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This results in about a 60 percent increase to the current cost per acre-foot of use (at the tap) of
$42,518. The following table shows a comparison of the values used in the current and proposed
CIL fee that briefly explains what is in the separate components and the rationale for the
changes.
Excess Water Use (“EWU”) Surcharge Rate:
Some non-residential taps (only some commercial businesses and irrigation taps), specifically
those installed after March 1984, have an allotment (annual volume of water in gallons) that is
based upon the WSR that was satisfied at the time of development or redevelopment. Non-
residential taps with allotments face the EWU surcharge if their annual water use exceeds their
Component Includes Current Proposed Rationale
1. Cost of future
infrastructure
Halligan estimate + other
minor needs $98.9M $201.8M
Uses upper cost estimate for
Halligan and increases contingency
to correctly match the design phase
2. Cost of future
water rights
NPIC and SSD shares
needed in addition to
Halligan
$28.2M $53.4M
Reflect current market prices. NPIC
shares have increased about 22%
per year in recent years
3. Buy-in to
existing portfolio
Estimate of portfolio
value, and how much
future demand will utilize
$40.5M $264.7M
Corrects approach of basing value
on least valuable water rights, and
previous CIL fees. Total portfolio
conservatively valued at $3.17B.
Total $167.6M $519.9M
Factor of Safety Considers the uncertainty
in water supply planning
1.2 (in WSR
calculation)
1.2 (in CIL fee
calcuation)
New modeling captures much of
what used to be in the 1.92 factor in
the WSR calculation. Retains the
longstanding 20% “factor of safety”.
Cost per acre-foot
of use ~$42,500*~$68,200
* - The current CIL fee includes a standard inflationary 3% increase that was adopted in 2020 (effective in 2021) without
adjustments to the CIL fee components.
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allotment, which is in addition to the standard water use rates. Customers can satisfy additional
WSR to increase their allotments. The EWU surcharge provides revenue to purchase additional
water supplies to account for the additional water demand over the allotment and therefore over
the WSR satisfied for the property. As the EWU surcharge rate is based on the CIL fee, the EWU
surcharge rate will also increase by about 60 percent from a rate of $10.39 to $16.67 per 1,000
gallons over the allotment. Utilities has programs to help customers mitigate the impact of these
costs including facility audits, fixture rebates, the Landscape Water Budget program, the
Xeriscape Incentive Program, and the Utilities’ Allotment Management Program, which provides
eligible customers a temporary waiver from the EWU surcharges if they meet certain
qualifications and submit an application detailing a project that demonstrates a long-term water
reduction. Customers potentially impacted by the proposed CIL change have already been
notified through outreach earlier this year.
Development Impacts:
The following graphs show a comparison of the current (in green) and proposed (in blue) costs
for different types of development, along with a comparison with other regional water providers.
Note that the other water provider amounts are only estimates and are based on 2021 rates, not
any expected increases for 2022. The first two graphs compare costs for typical single-family
homes and typical multifamily developments, respectively. The last two graphs compare costs
for use from a ¾-inch tap for a low water use entity (office space) and a high water use
commercial entity (restaurant). Under the current system, both ¾-inch tap customers would pay
the same amount even though there are large differences in water use. The updated WSR
calculations provide more accurate assessment of the different water uses. Although future
higher water use development (like restaurants) will see a significant cost increase from the
proposed changes, these changes should result in allotments that are correctly sized and avoid
those future customers from being charged EWU surcharge fees each year because of an
undersized tap.
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$13,100
$21,100
$18,300
$18,400
$19,200
$29,000
$32,000
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000
Ft. Collins Utilities
Current (Jan 2021)
Ft. Collins Utilities
Proposed (Jan 2022)
Loveland (2021)
Greeley (2021)
Westminster (2021)
East Larimer County
(2021)
Ft. Collins Loveland
(2021)
Cost, rounded to nearest $100 ($)
Water Supply Costs for a Typical Single Family Home in
Northern Colorado
$215,700
$291,200
$240,823
$266,000
$426,400
$553,600
$873,700
$0 $250,000 $500,000 $750,000 $1,000,000
Ft. Collins Utilities
Current (Jan 2021)
Ft. Collins Utilities
Proposed (Jan 2022)
Westminster (2021)
Greeley (2021)
Loveland (2021)
East Larimer County
(2021)
Ft. Collins Loveland
(2021)
Cost, rounded to nearest $100 ($)
Water Supply Costs for Multi-Family Development in
Northern Colorado
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$38,300
$6,300
$3,600
$6,700
$39,400
$40,000
$40,200
$0 $25,000 $50,000
Ft. Collins Utilities
Current (Jan 2021)
Ft. Collins Utilities
Proposed (Jan 2022)
Westminster (2021)
Greeley (2021)
East Larimer County
(2021)
Ft. Collins Loveland
(2021)
Loveland (2021)
Cost, rounded to nearest $100 ($)
Water Supply Costs for 4,300 sqft Office or 3/4"
Commercial Taps in Northern Colorado
$38,300
$85,000
$39,400
$40,000
$40,200
$57,968
$59,000
$0 $25,000 $50,000 $75,000 $100,000
Ft. Collins Utilities
Current (Jan 2021)
Ft. Collins Utilities
Proposed (Jan 2022)
East Larimer County
(2021)
Ft. Collins Loveland
(2021)
Loveland (2021)
Westminster (2021)
Greeley (2021)
Cost, rounded to nearest $100 ($)
Water Supply Costs for 2,800 sqft Restaurant or
3/4" Commercial Taps in Northern Colorado
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Summary:
The proposed changes to the CIL fee reflect the unprecedented increasing costs of developing
water supplies, while also addressing the uncertainty in doing so. This obtains the goal of
generating adequate revenue to pay for developing reliable supplies for new development into
the future, while assuring development pays its own way and avoids impacts to current
customers. Although the CIL fee increase is significant, the WSR changes will help balance that
out by being more reflective of actual water use and other changes will enable more
opportunities for future development to lower their water use to minimize costs.
NEXT STEPS:
Staff has been and will continue conducting outreach to City boards and commissions, as well as
other stakeholders through October. Input from these entities will be shared when changes are
proposed for adoption by City Council on November 2 and 16, 2021.
Staff will continue to review and adjust the CIL fee as part of the City’s 2-year rates and fees
adjustment cycle. Although the next update would be in 2023 (effective in 2024), staff may
propose a mid-cycle adjustment depending on the outcome of the Halligan Water Supply Project
30 percent design analysis being conducted (due for completion in early 2022).
Staff is planning to update the Water Supply and Demand Management Policy (“Policy”) in
2023-2024. This effort will integrate the potential impacts of climate change and other
vulnerabilities (per the 2019 Water Supply Vulnerability Study) to determine new planning
criteria around our water supply reliability (e.g., frequency of water restrictions, etc.). The Policy
update will need to consider future water supply and conservation needs, which will likely result
in revisions to the WSR and CIL fee.
ATTACHMENTS:
1. Fort Collins Area Water Districts Map (PDF)
2. Definitions and Terms (PDF)
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ATTACHMENT 1
Information current as of May 2021
Definitions and Terms related to Water Supply Requirements Update
•Acre-foot: An acre-foot is equivalent to 325,851 gallons. One acre-foot can supply around three
to four single family homes in Fort Collins per year. For comparison, the maximum volume of
Horsetooth Reservoir is about 157,000 acre-feet.
•Allotment: The volume of water a given tap can use per year before incurring Excess Water Use
surcharges. Only non-residential taps installed after 1984 have water allotments. The allotment
volume is based on the amount of Water Supply Requirement satisfied at the time of
development plus any increases to the allotment paid for after development. A customer may
increase their allotment at any time by paying cash or providing additional water rights.
•Allotment Management Program: Provides eligible Utilities water customers with a temporary
waiver from their Excess Water Use surcharges if they meet certain qualifications and submit an
application detailing a project that demonstrates long-term water reductions.
•Cash-in-lieu: The cash equivalent of the water supply required to meet the needs of
development. The cash-in-lieu fee is based off the cost to meet future water needs and includes
the expected cost to acquire water rights and associated infrastructure. The current cost is
$42,518 per 325,851 gallons and is updated every two years.
•Duplex: Residential buildings of two dwelling units.
•Dwelling Unit: One or more rooms and a single kitchen designed for or occupied as a unit by
one family for living and cooking purposes, located in a single-family or multifamily dwelling.
•ELCO: East Larimer County Water District. Water district that generally serves the northeastern
portion of the Fort Collins Growth Management Area. Map found here.
•Excess Water Use (EWU) surcharge: A volumetric charge assessed on all water used through
the remainder of the calendar year once a non-residential customer has exceeded their annual
allotment. The EWU is applied in addition to the regular utility rates. This surcharge is tied to the
cash-in-lieu fee for the Water Supply Requirements and is evaluated every two years. Revenue
from the EWU surcharge goes toward acquiring, developing and improving Utilities’ water
supplies to address the impact of customers exceeding their planned allotment. The current EWU
surcharge is $10.39 per 1,000 gallons over the allotment.
•FCLWD: Fort Collins-Loveland Water District. Water district that generally serves all areas south
of Harmony Road in the Fort Collins Growth Management Area. Map found here.
•Multifamily: Residential development with three or more dwelling units
•Non-residential: All commercial, industrial, public entity, group housing, nursing homes,
fraternities, hotels, motels, commonly owned areas, club houses, and pools, including HOA
common spaces and irrigation accounts.
•Plant Investment Fees: Water Impact Fee paid by the developer to cover the cost of
transmission, treatment, and distribution of water to a new development.
•Residential: Single-family, duplex, mobile / manufactured homes, and multi-family dwelling units,
including fraternity and sorority multifamily housing.
ATTACHMENT 2
Information current as of May 2021
• Water Impact Fees: Fees met by developers to cover the costs of acquiring water supply, the
transmission, treatment, and distribution of water, as well as installation of cost of the water
meter.
• Water Supply Factor (1.92): Factor historically included in Water Supply Requirement
calculations to account for annual variation in water right yields, different sources of supplies,
losses between water sources and the taps, and annual variations in water demands.
• Water Supply Requirements (WSR): Water Supply Requirements (WSRs) are part of the Water
Impact Fees met by developers to account for the additional demand created from new
development. WSR is a requirement for water service from Utilities. A WSR accounts for the
additional water demand, defined in gallons or acre-feet of water, brought into the Utilities water
service area by a new development or redevelopment. The developer satisfies a WSR by
dedicating water rights or paying cash-in-lieu to Utilities. This provides the revenue to develop
reliable water resources for the development, including water rights and associated infrastructure.
WSRs are in line with the approach that development pays for itself.