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Home My WebLink AboutCOUNCIL - AGENDA ITEM - 03/24/2009 - RESOLUTION 2009-029 ESTABLISHING RENTAL RATES AND ITEM NUMBER: 15 AGENDA ITEM SUMMARY DATE: March 24, 2009 FORT COLLINS CITY COUNCIL STAFF: Susan Smolnik SUBJECT Resolution 2009-029 Establishing Rental Rates and Delivery Charges for the City's Raw Water for the 2009 Season. RECOMMENDATION Staff recommends adoption of the Resolution. Each year prior to the irrigation season,Water Board makes a recommendation to Council regarding the raw water charges. The Board discussed the proposed rates and charges at its February 23,2009 meeting and unanimously voted to recommend adoption of the proposed rates and charges. FINANCIAL IMPACT The revenue from the City's delivery of raw water is expected to be approximately $500,000 for 2009. EXECUTIVE SUMMARY This Resolution approves rates for the rental and use of the City's raw water supplies. The Water Utility uses these rates to assess charges for agricultural use, for various contractual raw water obligations and for raw water deliveries to other City departments. The proposed rate for each type of water is based on several factors including market conditions and assessments charged by irrigation companies. BACKGROUND The City is a shareholder in several local irrigation companies. Part of the water available from these companies is typically used to meet raw water obligations of the City. To the extent there is surplus raw water, it can be rented to others for their use. The City will continue to closely monitor its supplies when making surplus raw water available for rental this year. The first priority will be to insure that adequate supplies will be carried over into 2010. Even though conditions are drier than normal, current projections indicate that the City will have at least some surplus supplies available for rental this year. In 2008, the City rented about 25,700 acre-feet of surplus water for just under$1,000,000. It was an unusual year in that for the first time the rental revenue exceeded the assessments paid by the Utility. March 24, 2009 -2- Item No. 15 The Water Utility uses its annual rates set by City Council to charge agricultural water renters, contractual water users and City departments that use raw water. The water rates are separated into two categories. The first category includes only those sources for which an active rental market exists. The second category includes sources with a limited rental market or which are used primarily to irrigate City facilities (parks, golf courses, etc.). With the exception of water from the Colorado Big Thompson Project(CBT),Joe Wright Reservoir and Reusable Effluent, water cannot be rented from one irrigation company system into another. Therefore,for most systems,the rental market is limited to individuals under each ditch system and the price is largely dependent upon the supply and demand within each irrigation system. This results in considerable variation in prices per acre-foot among the various supply sources. Active Rental Market Those sources with active markets include the Colorado Big Thompson Project (CBT), North Poudre Irrigation Company (NPIC), and Water Supply and Storage Company(WSSC). For these sources the proposed rates are based on expected rental market conditions. Fort Collins has some 2008 water remaining in the Colorado Big Thompson Project(CBT) system for use in 2009. This carryover,along with a minimum 2009 quota of 60%, means there will likely be CBT water available for rental to the agricultural sector this summer. Staff recommends that agricultural rentals of CBT water be made at the rate of$35 per acre foot. Staff further proposes that CBT water rented for municipal or industrial (M&I) purposes be charged at $54 per acre foot in 2009 to reflect higher assessments charged to M&I shareholders. Each share of North Poudre Irrigation Company has an "agricultural" component and a"multiple use"component. The"ag"component can only be used for agricultural purposes on land served by the NPIC system. Therefore,this component of each NPIC share is of limited usefulness to the City and will likely be made available for rental in 2009. The multiple use portion of each NPIC share will be available for the City's use but may or may not be needed this year. When users under the NPIC system rent either"ag"or"multiple use"water, it is run through the North Poudre System in the same way. Therefore, it is proposed that the"ag"water and any excess"multiple use"water be made available at$35 per acre foot. In some years there is a special class of NPIC water available for agricultural users for a very limited time early in the irrigation season. If this "early ag" water is available in 2009, staff proposes a rental rate of$14 per acre foot to reflect its very limited use. The decreed use of the City's Water Supply and Storage Company shares remains agricultural at this time and, except for a special exchange that may be exercised in some situations, these shares are not available for diversion by the City of Fort Collins. These shares will be made available to irrigators under the WSSC system in 2009. This has historically been a very active rental market and the rental price of WSSC water is expected to be about $3,200 per share again this year. In addition, it is anticipated that WSSC's reusable return flow rental program will generate revenues of approximately$1,300 per share. March 24, 2009 -3- Item No. 15 Limited Rental Market The second category is for those sources that have a limited rental market. This category includes the Pleasant Valley and Lake Canal Company(PV&L)shares,other"Southside Ditches"shares and the City's reusable sources (primarily Joe Wright Reservoir or reusable effluent). There are few agricultural renters that remain in the areas irrigated by these companies. These shares are used primarily on City facilities, such as parks and golf courses,or by other entities that have turned over raw water or otherwise met the City's raw water requirements for their properties. The objective of the Utility for this latter group of users is to recover the costs associated with delivering this water. Consistent with the last several years,it is proposed that the charges for most sources be set at a rate that is 20% above the assessments charged to the City by the various irrigation companies. For example,the assessment rate for PV&L water has been set at$175 per share. Based on this method, the charges would be set at $175 x 1.2 = $210 per share. For users that have not satisfied the City's raw water requirements, staff is proposing that the rental rates be set to reflect the value of that water. For example, Pleasant Valley and Lake Canal water has a very early priority on the river and has been decreed in water court for use by the City's treated water customers. Although assessments are only$175 per share for this water, a rental rate of$550 is estimated to be more consistent with its value. For several companies,the difference between the above two methods of calculating the raw water rate is significantly different. For example, the Arthur Irrigation Company has a very low assessment resulting in a low price for those having satisfied the City's raw water requirements. When based on the yield, the price is much higher but is in line with the prices for the other southside ditches. The City has seen an increase in demand for its reusable sources to satisfy state requirements for substitute supply plans and augmentation plans. The City also has a few ongoing obligations for reusable water, primarily for City facilities. The City's primary reusable sources are Joe Wright Reservoir water and reusable effluent from the City's water reclamation facilities. It is proposed that the rental price for these sources be $500 per acre-foot in 2009. The City has obligations for small amounts of reusable water on lands where the City's raw water requirement has been met. However,there is no annual assessment upon which to base a charge as occurs in such cases within the limited rental market. In this situation it is proposed that a fee of $100 per acre-foot be charged to help offset operation and administrative costs. March 24, 2009 -4- Item No. 15 At its February 23, 2009 meeting, the Board unanimously recommended that the following rental rates and charges be adopted: Type of Water Proposed 2009 Rental Rates/Charges(1) RWR Not Satisfied RWR Satisfied Active Rental Market NCWCD Water(CBT)-Ag $ 3 5.00/ac-ft n/a NCWCD Water(CBT)—M&I $ 54.00/ac-ft n/a North Poudre Irrigation Co. —Early Ag Use $ 14.00/ac-ft n/a North Poudre Irrigation Co. -Ag Use $ 35.00/ac-ft n/a North Poudre Irrigation Co. —Multiple Use $ 35.00/ac-ft n/a Water Supply and Storage Co. $ 3,200.00/share n/a RWR Not Satisfied RWR Satisfied(2) Limited Rental Market Arthur Irrigation Co. $ 60.00/share $ 17.00/share Larimer County Canal No. 2 $ 600.00/share $ 540.00/share New Mercer Ditch Co. $ 600.00/share $ 570.00/share Pleasant Valley& Lake Canal Co. $ 550.00/share $ 2 10.00/share Warren Lake Reservoir Co. $ 400.00/share $ 380.00/share Sherwood Res. Co. $ 10.00/share $ 8.40/share Sherwood Irrigation Co. $ 750.00/share $ 720.00/share Reusable Sources $ 500.00/ac-ft $ 100.00/ac ft Notes: (1) Rental rates may be adjusted to reflect the remaining yield or the prevalent market price of the water stock being rented. (2) Charges for those who have satisfied the City's raw water requirements are set at approximately 120%of the assessments charged by that company. ATTACHMENTS 1. Water Assessments Table. 2. Water Rental Rates/Charges Table. 3. Excerpts for the February 23, 2009 Water Board Meeting. ATTACHMENT 1 Table 1 Water Assessments Source 2006 2007 2008 2009 Active Rental Market CBT (NCWCD, $/unit) 21.80 22.80 23.60 24.32 North Poudre Irrigation Co. ($/sh) 95.00 85.00 90.00 100.00 Water Supply& Storage Co. ($/sh) 21100.00 2,100.00 2,300.00 2,300.00 Limited Rental Market Arthur Irrigation Co. ($/sh) 10.00 8.00 14.00 14.00 Larimer County Canal #2 ($/sh) 350.00 350.00 350.00 450.00 New Mercer($/sh) 325.00 325.00 425.00 475.00 Pleasant Valley & Lake Canal ($/sh) 150.00 150.00 175.00 175.00 Warren Lake ($/sh) 300.00 350.00 300.00 300.00 Sherwood Reservoir ($/sh) 7.00 7.00 7.00 7.00 Sherwood Irrigation ($/sh) 855.00 855.00 855.00 600.00 Reusable Sources ($/ac-ft) n/a n/a n/a n/a ATTACHMENT 2 Table 2 Water Rental Rates/Charges Source 2006 2007 2008 2009(1) Active Rental Market CBT Agriculture ($/ac-ft) 28.00 30.00 35.00 35.00 CBT Municipal/Industrial ($/ac-ft) 50.00 52.00 54.00 54.00 NPIC Early Ag ($/ac-ft) 12.00 12.00 14.00 14.00 NPIC Agriculture ($/ac-ft) 28.00 30.00 35.00 35.00 NPIC Multiple Use ($/ac-ft) 28.00 30.00 35.00 35.00 Water Supply& Storage Co. ($/sh) 3,200.00 3,200.00 3,200.00 3,200.00 Limited Rental Market(RWR Not Satisfied) Arthur Irrigation Co. ($/sh) 60.00 60.00 60.00 60.00 Larimer County Canal #2 ($/sh) 500.00 500.00 500.00 600.00 New Mercer ($/sh) 500.00 500.00 550.00 600.00 Pleasant Valley & Lake Canal ($/sh) 500.00 500.00 550.00 550.00 Warren Lake ($/sh) 360.00 380.00 400.00 400.00 Sherwood Reservoir ($/sh) 10.00 10.00 10.00 10.00 Sherwood Irrigation ($/sh) 900.00 900.00 900.00 750.00 Reusable Sources ($/ac-ft) 400.00 400:00 500.00 500.00 Limited Rental Market(RWR Satisfied)(2) Arthur Irrigation Co. ($/sh) 12.00 10.00 17.00 17.00 Latimer County Canal #2 ($/sh) 420.00 420.00 420.00 540.00 New Mercer ($/sh) 360.00 360.00 510.00 570.00 Pleasant Valley & Lake Canal ($/sh) 180.00 180.00 210.00 210.00 Warren Lake ($/sh) 360.00 360.00 380.00 380.00 Sherwood Reservoir ($/sh) 8.40 8.40 8.40 8.40 Sherwood Irrigation ($/sh) 900.00 900.00 900.00 720.00 Reusable Sources (RWR Satisfied $/ac-ft) 100.00 100.00 100.00 100.00 Notes: (1)Rates may be adjusted to reflect the remaining yield or the prevalent market price of the water stock being rented. (2) Charges for those who have satisfied the City's raw water requirements are set at approximately 120%of the assessments charged by that company. ATTACHMENT 3 DRAFT WATER BOARD MINUTES OF MEETING February 23, 2009 Note:Board Member Gessler left the meeting at 4:25pm and did not vote on this motion. However, there was still a quorum for the vote. Raw Water Rental Rates and Delivery Charges Water Resource Engineer Susan Smolnik provided the annual presentation on this topic to the Board and sought the Board's recommendation for adoption of this year's rental rates and charges. The Water Resources Division's primary function is to ensure there is an adequate water supply to meet the needs of the City's treated water customers. In most years, the City has surplus water available to put on the rental market. Rentals can help offset raw water assessments. The assessments are fees associated with the City's ownership of irrigation company shares. Last year, for the first timejental revenue exceeded these costs. The City does not make a profit from the rentals, but tries to offset its costs. Questions from the Board: Why was the rental revenue so high last year? The Joe Wright Reservoir/Michigan Ditch system produced more water, and the Colorado-Big Thompson (CBT) allotment was higher than average. What happened to carryover supply from CBT last year? The City can store water in the CBT system for about a year until the end of the next irrigation season. There are limitations on quantity. Why are raw water rates remaining the same as last year? Did the treated water rates increase this year? Should there be a relationship? Raw water rates are market driven, and treated water rates are designed to cover the Utility's costs. What happens to the water if we set the rental rates too high and don't succeed in renting the water? It depends on the type of water. With CBT-system water, it would likely go back into their system for reallocation the following year. In the case of North Poudre water, it would be delivered to their system, may be reallocated and added for their shareholders. For other sources, it would go to the systems, and the City would not receive compensation for it. Are there any intentional factors in decision-making on rates, such as a "good neighbor policy"? Rates are market driven. Utilities Executive Director Brian Janonis added that our mission is to benefit ratepayers. How did it work out with the North Poudre renters this past year? All North Poudre rental requesters received some water and had some of their irrigation needs met rather than a few individuals receiving all of the supply that they needed. Positive feedback on this approach was received. Motion: Board Member Wockner motioned that the Board approve adoption of the staff- recommended table of rental rates and delivery charges. Vice Chairperson Balderson seconded the motion. There was no discussion on the motion. Vote on the Motion: It passed unanimously. RESOLUTION 2009-029 OF THE COUNCIL OF THE CITY OF FORT COLLINS ESTABLISHING RENTAL RATES AND DELIVERY CHARGES FOR THE CITY'S RAW WATER FOR THE 2009 SEASON WHEREAS, each year prior to the irrigation season, the City Staff and the Water Board ("the Board") make a recommendation to the Council regarding rental rates and delivery charges for the use of the City's raw water; and, WHEREAS, the Water Utility uses these rates to assess charges for agricultural rental water, for various contractual raw water obligations and for raw water deliveries to other City departments; and WHEREAS, on February 23, 2009,the Board discussed the rental program and the use of raw water and recommended the following rates for the 2009 irrigation season: Type of Water 2009 Rental Rates/Charges (1) RWR Not Satisfied RWR Satisfied Active Rental Market NCWCD Water (CBT) - Ag $ 35.00 /ac-ft n/a NCWCD Water(CBT)—M&I $ 54.00/ac-ft n/a North Poudre Irrigation Co. —Early Ag Use $ 14.00/ac-ft n/a North Poudre Irrigation Co. - Ag Use $ 35.00 /ac-ft n/a North Poudre Irrigation Co. —Multiple Use $ 35.00 /ac-ft n/a Water Supply and Storage Co. $ 3,200.00/share n/a RWR Not Satisfied RWR Satisfied (2) Limited Rental Market Arthur Irrigation Co. $ 60.00/share $ 17.00/share Larimer County Canal No. 2 $ 600.00 /share $ 540.00/share New Mercer Ditch Co. $ 600.00 /share $ 570.00/share Pleasant Valley& Lake Canal Co. $ 550.00/share $ 210.00/share Warren Lake Reservoir Co. $ 400.00/share $ 380.00/share Sherwood Res. Co. $ 10.00 /share $ 8.40/share Sherwood Irrigation Co. $ 750.00 /share $ 720.00/share Reusable Sources $ 500.00/ac-ft $ 100.00/ac-ft Notes: (1) Rates may be adjusted to reflect significant changes in the remaining yield or the prevalent market price of the water stock being rented. (2) Charges, for renters that have satisfied the City's raw water requirements are set at approximately 120% of the assessments charged by the water provider. NOW THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF FORT COLLINS that the rental rates and charges as set forth above are hereby approved as the City's raw water rates for 2009 and the Utilities Executive Director is authorized to rent or deliver such raw water at said rates. Passed and adopted at a regular meeting of the Council of the City of Fort Collins this 24th day of March A.D. 2009. Mayor ATTEST: City Clerk