HomeMy WebLinkAboutMemo - Mail Packet - 8/22/2017 - Memorandum From Donnie Dustin Re: Letter From John Bartholow Regarding Changes To The Utilities Raw Water Requirements (Ordinance No. 116, 2017 To Be Considered At The August 22 Adjourned City CouncilUtilities
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PO Box 580
Fort Collins, CO 80522
970.221-6700
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utilities@fcgov.com
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MEMORANDUM
DATE: August 16, 2017
TO: Mayor Troxell and Councilmembers
FROM: Donnie Dustin, P.E., Water Resources Manager
THROUGH: Darin Atteberry, City Manager
Kevin R. Gertig, Utilities Executive Director
RE: Letter from John Bartholow Regarding Changes to the Utilities Raw Water
Requirements (Ordinance No. 116, 2017 to be considered at the August 22
Adjourned City Council meeting)
Bottom Line:
This memo addresses issues raised in the attached letter to City Council from Mr. John
Bartholow, dated August 9, 2017 (“Letter”), regarding the proposed changes to the Utilities’ raw
water requirements (“RWR”) and associated cash-in-lieu (“CIL”) rate. In addition, this memo
addresses comments made by Mayor Pro Tem Gerry Horak during the August 14 meeting of the
City’s Leadership Planning Team.
Discussion:
Utilities staff appreciates Mr. Bartholow’s comments made in the Letter. The following
summarizes issues raised in the Letter, followed by staff comments on those issues:
x The Letter suggests increasing the proposed CIL rate to repay existing customers for the
use of the supplies they are not using.
o The proposed CIL rate of $16,700 includes a component that represents a “buy-
in” by new customers for use of the existing water supply assets that will be used
to serve the new development. The revenue generated from this portion will
reduce future costs associated with upkeep of the water supply system and ensures
that a portion of the Utilities Water Fund reserves are replenished for water
system improvements that help to reduce future rate increases for all customers by
offsetting the impacts on the existing water supplies and infrastructure from the
new development. Staff believes the proposed CIL rate of $16,700 (which is
proposed to be reviewed for any necessary changes every two years) will cover all
of the costs of future infrastructure and water right needs, plus covers an adequate
amount to offset the impacts from the new development on the existing water
supply system.
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x The Letter mentions the CIL rate should be set to include all costs of storing and using
the water supplies, including for mitigating environmental impacts from the development
and use of the water. In addition, the Letter mentions the increasing costs of the Halligan
Water Supply Project (“Halligan Project”).
o The proposed CIL rate of $16,700 includes an infrastructure component that
mostly represents the cost of the Halligan Project. The costs used in this
component are based on the current projected costs of approximately $46 million
to permit and construct an enlargement of Halligan Reservoir. This cost includes
about $2.4 million for anticipated mitigation, and enhancement measures, which
equates to 10% of the projected Halligan construction cost. Under the proposed
changes to the RWR and CIL rate, costs of the Halligan Project and other planned
infrastructure will be reviewed every two years, which may result in
modifications to the CIL rate by City Council.
o In addition to the actual cost of the Halligan Project, the infrastructure component
of the proposed CIL rate includes a contingency increase of 25 percent to
recognize that the City may not get a Clean Water Act Section 404 permit to
enlarge Halligan Reservoir, and may instead get such a permit for a more
expensive water supply.
CC: Carol Webb, Water Resources and Treatment Operations Manager
Lance Smith, Utilities Strategic Finance Director
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Dear Mayor Troxell and Council Members – 8/9/2017
I am writing to urge you to increase staff’s recommended cash-in-lieu of water rights rate at your August 15 meeting. I
applaud many things about staff’s proposed changes to this specific water policy, but the proposed cash-in-lieu (CIL)
rate is, I believe, too low. The bottom line: we need to get closer to charging for the true cost of water today and in the
future, and pay back both existing customers and the environment for overcharging in the past. Please let me explain
and offer a specific proposal.
From what I have seen, your briefing will surely include options for updating the CIL rate by bracketing it somewhere
between the per acre foot “status quo” ($6,500) and an “equity buy-in” ($33,800). Given that the City is transitioning
towards a “build-out” condition, a “hybrid” approach that splits the difference between the “incremental cost” method
and the “equity buy-in” method makes a lot of sense. The consultants hired by the Utility, BBC Research and Consulting,
came up with a “hybrid” rate of $16,700 but did not, in my opinion, rigorously justify their methodology on how to
equitably apportion the CIL rate between the two bookend assessments. Though I support a hybrid approach, I lean far
more toward a full “equity buy-in” price for several reasons:
1. Equity to Existing Customers. The city has long embraced a policy that growth should pay its own way. However, a
strong case can be made that existing water users have been subsidizing growth already and growth should "repay" that
subsidy. Why? As the staff report describes, our policies establishing CIL and water rights dedications have generated
more water than is actually used given the city’s successful water conservation programs. If memory serves, when I
moved to Fort Collins in 1973, a typical unmetered household used in excess of 200 gallons per capita per day. Now we
are using closer to 140 and are on the way to 130 gpcd. Thus existing Utility customers paid for (or brought to the
Utility) more water than we actually use.
Those “excess” water rights already owned by the Utility therefore reduce the amount of water that Growth must
purchase for its "buy in". The BBC report elaborates (page 10) that any method of calculating the CIL rate short of full
equity buy-in means that “costs are being reduced by leveraging the excess capacity in the existing water rights portfolio
that is the result of effective water conservation from existing customers,” thus understating the full cost of new
development. I believe that growth should, in effect, repay existing users for that subsidy and do so through a higher CIL
rate. This would be analogous to the City building a new road that development would eventually repay for using.
Repayment could be accomplished in many ways but perhaps most easily by postponing water rate increases.
2. Cover All Costs. The cost of buying or converting water rights for domestic use should really include all the
externalities of storing or using that water over the long term. Thus, it is not sufficient to just consider the purchase
price. The full cost must include legally changing agricultural water rights for urban use as well as for other purposes
including river augmentation and floodplain restoration, recreational use, and protection of ecological functions, etc..
Such an enlightened program would use the revenue from a portion of the CIL funds to partially mitigate impacts we
have already accrued.
3. More Accurate Cost Recovery for Future Infrastructure & Water Purchases. All water costs including open
market purchases, reservoir construction, and water court are accelerating far faster than inflation. Again, if memory
serves, Halligan expansion was initially estimated at $26 million; now we’ll be lucky if we can replace the dam for double
that amount. We will need the money, lots of it.
Proposal: BBC said (page 10) that the Utility would be “justified in charging as much as the full buy-in value for the
completed water system (e.g. between $33,800 and $39,200 per acre-foot of firm yield requirements).” At the very
minimum, we should use the consultant’s estimate of full “equity buy-in” cost ($39,200) instead of their low estimate
($33,800), and increase the “hybrid” CIL proposal proportionately from $16,700 to $19,370. As BBC clearly stated, this
higher assessment would be more than fully justified and still be far below the CIL rate for most of our neighboring
water utilities.
We can, and should, use our investment in water conservation wisely and not spend it subsidizing growth.
Thank you for considering my long comments on this complex topic.
John Bartholow, 970-219-4093 (served 12 years on the Water Board, 7.6 years on the NRAB)
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