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HomeMy WebLinkAbout2009-08-18; City Council; 19953; Approve Delsalinated Water Supply Delivery Points and Delivery Regime, Prepare Agreement for Costs Associated with MWD Rebate, Establish Right of Way Use Fee for Appurtenant Facilities and Prepare Variance to DevelopmentCITY COUNCIL AND CARLSBAD MUNICIPAL WATER DISTRICT - AGENDA BILL 16 AB# 19,953 MTG. 08/18/09 DEPT. ENG APPROVE DESALINATED WATER SUPPLY DELIVERY POINTS AND DELIVERY REGIME, PREPARE AGREEMENT FOR COSTS ASSOCIATED WITH MWD REBATE, ESTABLISH RIGHT OF WAY USE FEE FOR APPURTENANT FACILITIES, AND PREPARE VARIANCE TO DEVELOPMENT FEES DEPT. HEAD CITY ATTY. CITY MGR. ///—- RECOMMENDED ACTION: Board of 1372 Directors of the Carlsbad Municipal Water District (CMWD) Adopt Resolution No. approving the Delivery Points and Delivery Regime for the desalinated water supply and directing staff to provide Poseidon Resources with annual desalinated water demands. Board of 1373 Directors of the Carlsbad Municipal Water District (CMWD) Adopt Resolution No. directing staff to return with a draft agreement between the Carlsbad Municipal Water District and Poseidon Resources (Channelside) LLC formalizing the process for collecting, monitoring and analyzing the desalinated water production data necessary to satisfy the eligibility requirements for the Metropolitan Water District's (MWD) $250 per acre-foot incentive. City Council of the City of Carlsbad Adopt Resolution No.2009-224 directing staff to return with the documents necessary to establish a Right of Way Use fee for third party water deliveries over a period of five years after the projected commencement date of the Seawater Desalination project. City Council of the City of Carlsbad and Board of Directors of the Carlsbad Municipal Water District Adopt Resolution No. 2009-225 approving a variance to the Method of Invoicing and Collecting Development Processing Fees for Seawater Desalination facilities. ITEM EXPLANATION: Poseidon Resources LLC (Poseidon) proposes to construct a 50 million gallon per day (MGD) seawater desalination facility at the Encina Power Station and construct a 54-inch diameter transmission main to convey the desalinated water to nine agencies including Carlsbad Municipal Water District (CMWD). There are four items that staff requires direction which impacts the design of the 54" transmission main and impacts the cost of the desalinated water for CMWD. The four items include: 1. Determining the location(s) where the desalinated water will be delivered (Delivery Points), and how much will be delivered (Delivery Regime). 2. Determining which agency will prepare the required documentation to be submitted to the Metropolitan Water District of Southern California (MWD) to receive their desalinated seawater incentive payment of $250 per acre-foot on the annual amount of water sold by Poseidon. 3. Consideration of establishing a Carlsbad Right of Way Use Fee for the 54" transmission main. 4. Consideration of an option establishing a new fee class to invoice and collect Development Processing fees for seawater desalination facility projects. DEPARTMENT CONTACT: Bill Plummer 760-602-2768 bill.plummer@carlsbadca.gov FOR CITY CLERKS USE ONLY BOARD ACTION: APPROVED DENIED CONTINUED WITHDRAWN AMENDED D D D D CONTINUED TO DATE SPECIFIC CONTINUED TO DATE UNKNOWN RETURNED TO STAFF OTHER -SEE MINUTES D D D D Page 2 The following is a discussion of each item: On September 28, 2004, by Resolution No. 1226, the Board approved a Water Purchase Agreement (WPA) between CMWD and Poseidon for the purchase of up to 25 MOD of desalinated water from the proposed seawater desalination facility. The WPA contains a number of conditions that must be satisfied prior to CMWD having an obligation to purchase water from Poseidon. Two of the conditions (Delivery Points and Delivery Regime) need to be addressed at this time. Delivery Points Poseidon is designing the Appurtenant Facilities, which include a pumping station at the seawater desalination facility and a 54-inch diameter transmission main extending from the pumping station east to Rancho Santa Fe Road, where the transmission main would connect to the San Diego County Water Authority's (SDCWA) pipelines No. 3 and No. 4 on their Second Aqueduct. The WPA provides the option for the CMWD (or a Joint Powers Authority) to own the Appurtenant Facilities any time after they are completed. At this time, staff is recommending that Poseidon own, operate, and maintain the Appurtenant Facilities upon completion, for a period of at least three to five years from the beginning of water deliveries. After this initial operating period, CMWD, or a Joint Powers Authority, may exercise its option to acquire the Appurtenant Facilities. This will provide sufficient time for any unforeseen circumstances to be corrected and for staff to verify that the Appurtenant Facilities are fully functioning prior to the Board giving consideration to purchasing the Appurtenant Facilities. The WPA stipulates that if Poseidon owns the Appurtenant Facilities, then the desalinated water Delivery Points will be at locations specified by CMWD. The analysis performed in selecting the Delivery Points considered the facilities required to reach all four existing SDCWA connections currently supplying water to CMWD, referred to as CWA No. 1, CWA No. 2, TAP No. 3, and TAP No. 4. This approach maintains the existing operation of CMWD's water supply system and keeps modifications to the CMWD water supply system at a minimum. The amount of water to be supplied from each of the four connections was determined in the Water Master Plan Update completed in 2003, which also considered full implementation of the Phase I and Phase II recycled water system. Table 1 shows the ultimate maximum day supply required at each connection. Table 1 Maximum Day Supply Requirement for CMWD's Ultimate Water System SDCWA Connection CWA No. 1 (Palomar Airport Road Connection CWA No. 2 (Alga Road Connection) TAP No. 3 (Maerkle Reservoir Connection) TAP No. 4 (TAP Reservoir Connection) Totals Maximum Day Supply Required 16.2 MGD 8.6 MOD 11.0 MGD 6.1 MGD 40.9 MGD Three Delivery Point options were developed by staff in coordination with Poseidon and the Desalination Partners (eight other agencies which entered into separate water purchase agreements with Poseidon). The three options are presented below for the Board's consideration. In reviewing the options, the Board is asked only to make a decision regarding the Delivery Points at this time and not the related pipelines or details about them as described below. Descriptions of the pipeline alignments provided below are subject to change, Furthermore, all aspects of the pipelines that would connect to the Delivery Points or that are part of the Appurtenant Facilities have not been finalized or approved and still require environmental review. Option 1: This was developed to meet the objective outlined in the WPA of providing desalinated water to 100% of CMWD's service area. As shown on Exhibit 1, pipelines are located to deliver desalinated water to all four existing SDCWA connections. Option 1 facilities include: > A connection to Poseidon's 54" transmission main near the intersection of Melrose Drive and Faraday Avenue within the City of Vista. From this connection, a 36" diameter transmission main, approximately 3.9 miles in length, would be constructed proceeding north in Melrose Drive to reach TAP No. 3 and TAP No.4. The 36" transmission main would be used to convey desalinated water to both CMWD and the City of Oceanside. CMWD's cost share of the connection point, the transmission main, and flow control facilities is approximately $10 million. > A second connection would be made on Poseidon's 54" transmission main at the intersection of Melrose Drive and Lionshead Avenue located in Carlsbad. From this connection a 24" diameter transmission main would be constructed proceeding south to Alga Road, a distance of approximately 2.2 miles, to reach CWA No. 2. The 24" transmission main was sized to convey desalinated water to CMWD, Olivenhain Municipal Water District (OMWD), and Vallecitos Water District (VWD). If OMWD and VWD elect not to fund their share of the 24" transmission main then the pipe size would be reduced to 16-inches in diameter for CMWD's use only. CMWD's cost share of the connection, the 24" transmission main, and flow control facilities is estimated at $5 million. > A third connection would be made at the intersection of Lionshead Avenue and Business Park Drive in the City of Vista. At this point, a 30" transmission main would be constructed proceeding south to Sea Way, a distance of approximately 0.3 miles, to deliver desalinated water to CMWD's existing 36" diameter transmission main to reach CWA No. 1. The cost of the connection, the 30" transmission main, and flow control facility is estimated at $1 million. Option 1 has the following policy implications: > The desalinated water supply to CMWD is maximized by achieving delivery to 100 percent of the service area. > Water supply reliability is optimized because both desalinated water and imported water can be provided to all locations in CMWD's service area. > Operational flexibility is increased by allowing the supply to be either desalinated water or imported water or a blend of both. > The water supply to the customer could become consistent throughout the year depending on which of the two water supply sources CMWD orders from each day and the time of year the demand was occurring. > The environmental impact report did not include the 24" transmission main extension in Melrose Drive to reach CWA No. 2. The 24" transmission main extension is now being added to the environmental impact report by the City's Planning Department through an Addendum. > This option has the highest capital cost, as it requires the largest quantity of transmission main pipelines to enable delivery of desalinated water directly to the entire CMWD service area. The total estimated cost of the transmission mains, excluding Poseidon's 54" transmission main, is estimated at approximately $16 million. > Option 1 would allow CMWD to avoid financially participating in the cost of Poseidon's 54" transmission main easterly of Business Park Drive, a length of approximately 2.3 miles. CMWD's cost share of the 54" transmission main is unknown at this time, but previous studies indicated CMWD's share at approximately $36 million for the entire 9.8 miles. The approximate cost savings for CMWD for the transmission main east of Business Park Drive, could therefore, be on the order of $8.5 million. The net effect of this option is an increase of $7.5 million in pipeline construction costs, which Poseidon would factor into the cost of water. However, at no time would CMWD rate payers pay more for water than they would have otherwise paid SDCWA for an equal amount of water. Page 4 Option 2: This option is essentially the same as the pipeline alignment shown in the environmental impact report by constructing pipelines to CWA No. 1, TAP No. 3 and TAP No. 4. It provides desalinated water to approximately 80 percent of the CMWD service area, based on historical annual demand data. The southerly area of CMWD, served by CWA No. 2, would be provided a blend of imported water and desalinated water through SDCWA's Second Aqueduct (refer to Exhibit 2). Option 2 includes the same facilities as Option 1, except the 24" transmission main located in Melrose Drive south of Lionshead Avenue is deleted. CMWD's estimated cost share of Option 2 is $11 million. Option 2 has the following policy implications: > It will not meet the objective outlined in the WPA to deliver desalinated water to 100% of the CMWD service area; however, it significantly increases the water supply reliability above current conditions by enabling desalinated water to be supplied to 80% of the service area, and through the interconnection with SDCWA's Second Aqueduct, a blend of desalinated water and imported water can be supplied to the remaining 20% of the area through CWA No. 2. > It will not provide 100% independence from the SDCWA imported water supply. > The proposed pipelines and appurtenances for CMWD match the description of facilities reviewed in the environmental impact report. > Compared to Option 1, there is a reduction in the construction cost share for CMWD from $16 million down to approximately $11 million by eliminating the 24" transmission main located in Melrose Drive south of Lionshead Avenue. The cost of the remaining transmission mains can be paid for, over time, through the rate charged by Poseidon for the desalinated water. > The capacity required in Poseidon's 54" transmission main for CMWD would be significantly reduced east of Business Park Drive. The approximate cost savings for CMWD for that portion of the 54" transmission main could be on the order of $7.9 million. The net effect of this option is an increase of $3.1 million in pipeline construction costs (i.e. $11 million minus $7.9 million), which Poseidon would factor into the cost of desalinated water; however, at no time would CMWD rate payers pay more for water than they would have otherwise paid SDCWA for an equal amount of water. > The source of the water supply to the customer, would be different within CMWD's service area, and probably would vary depending on the time of year demand was occurring. > The SDCWA "wheeling charge" would apply to the amount of desalinated water placed in the Second Aqueduct that would be conveyed south to CWA No. 2. The wheeling charge is $85/acre-foot presently, and is projected to increase to $125/acre-foot by 2018. Assuming that 4,000 acre-feet per year is conveyed in the Second Aqueduct for CMWD, the wheeling charge is estimated at $500,000/year by 2018. This amount would be paid by CMWD to Poseidon throughout the term of the WPA. Option 3: CMWD's desalinated water supply would be delivered directly to the Second Aqueduct, where it would be blended with the imported water supply and delivered to the four existing CMWD connections to the Second Aqueduct. As shown on Exhibit 3, it is proposed that one backup connection would be made on the 54" transmission main, to deliver desalinated water directly to CMWD, in the event the Second Aqueduct is taken out of service. The backup supply would not be sufficient to meet CMWD's peak water demands, but the desalinated water could be distributed to CMWD's customers on a reduced flow basis. The connection to Poseidon's 54" transmission main would be made at the intersection of Lionshead Avenue and Business Park Drive, plus a 30-inch diameter transmission main would be installed to deliver desalinated water to CMWD's existing 36" transmission main located at Sea Way. The estimated construction cost for the 30" transmission main is approximately $1 million. Pages Option 3 has the following policy implications: > A blend of desalinated water and imported water would be provided to CMWD through the existing four connections on the Second Aqueduct. Therefore, the water supplied to all four connections would be the same. > This option has the lowest construction cost for CMWD because no additional transmission mains are required, other than the backup connection at the intersection of Lionshead Avenue and Business Park Drive (estimated at $1 million). As in the options above, this cost would be factored into the cost of water, and rate payers would pay no more than they would have otherwise paid for water to SDCWA for an equal amount of water. > The backup pipeline for CMWD was included in the environmental impact report. > The SDCWA wheeling rate would be applied to the full amount of desalinated water delivered to CMWD. Assuming an average annual demand of 24,000 acre-feet per year at buildout, the wheeling rate would be $3 million/year by 2018. This amount would be paid by CMWD to Poseidon throughout the term of the WPA. > Reliability is significantly increased over current conditions, when considering any reduction in the imported water supply would be made up for by the desalinated water supply. > If both pipelines 3 and 4 of the Second Aqueduct are simultaneously removed from service for repairs or maintenance, CMWD would be dependent upon water in its storage reservoirs to supply potable water to its customers. However, the connection on the 54" transmission main at the intersection of Lionshead Avenue and Business Park Drive could be activated to provide desalinated water to portions of the CMWD service area in the event the Second Aqueduct pipelines were out of service. > The full cost of CMWD's share of Poseidon's 54" transmission main is unknown at this time, but previous studies have estimated a cost of $36 million. Summary of Delivery Point Options Table 2 shows the present worth analysis of all three Delivery Point options, including CMWD's cost share of Poseidon's 54" transmission main which could be on the order of $36 million. Table 2 Present Worth Cost of Delivery Point Options OPTION 1 2 3 Annual SDCWA Wheeling Cost (a) -0- $0.4 million $2.5 million Present Worth of Annual Wheeling Cost (b) -0- $ 5.7 million $32.5 million CMWD's Cost Share of Poseidon's 54" Pipe $27.5 million $28.1 million $36.0 million CMWD's Cost Share of Delivery Pipelines $16 million $11 million $1 million Total Present Worth Cost $43.5 million $44.8 million $69.5 million (a) The SDCWA wheeling rate in 2008 was $85/AF and will increase to $125/AF by 2018. Prorating this rate to the year 2014 shows it will increase to $109/AF, which was used in the analysis. The annual wheeling cost in 2014 would be $436,000 (i.e. 4,000 AF x $109/AF). (b) The present worth of the annual wheeling cost assumes a period of 20-years beginning in the year 2014, and uses a discount rate of 4.5 percent. Page 6 The Board should consider selecting Option 1 if the intent is to supply desalinated water to the entire CMWD service area. Option 1 provides the CMWD with operational flexibility to supply desalinated water or imported water to any location in its service area. Option 1 has the highest net construction cost of the three options for CMWD, estimated at $7.5 million, but the lowest total present worth cost. Option 2 should be selected if the preference is to reduce CMWD's share of the construction cost, when compared to Option 1 (see Table 2). Option 2 assumes that desalinated water is provided throughout the year to the northerly 80 percent of the service area, and a blend of imported water and desalinated water is supplied to the remaining southerly 20 percent of the service area. The SDCWA wheeling rate would apply to only the amount of desalinated water conveyed to CWA No. 2. The wheeling rate would be approximately $500,000/year by 2018. Customers in the service area may notice some differences in the source water at various times throughout the year. Option 3 provides for a blend of desalinated water and imported water to the existing four connections on the Second Aqueduct. Option 3 has the lowest construction cost of the three options, but involves paying a wheeling rate (estimated at $3 million per year by 2018) to obtain the desalinated water through SDCWA's Second Aqueduct. Water quality would be similar at all four supply connections. Based on the analysis, staff is recommending Option 1. Delivery Regime The Board is asked to select the ratio of desalinated water supply to be furnished by Poseidon, and imported water to be furnished by SDCWA. The WPA originally contemplated the delivery of 100% of CMWD's annual potable water demand from the desalinated water supply; however, staff recommends obtaining 20 percent of the water supply from the imported water source to provide CMWD flexibility in case the desalinated water supply is reduced as a result of operational or regulatory issues. In addition, an 80/20 supply ratio provides CMWD's service area with a drought resistant supply mix and maintains CMWD's ability to obtain imported water from the SDCWA. The Table 3 Percent Reliability in Water Supply Under Average Day Demand Conditions Percent of Desalinated Water Supplied to CMWD 100% 90% 80% 70% 60% 50% Imported Water Supplies "Cutback" 0% 100% 100% 100% 100% 100% 100% 10% 100% 99% 98% 97% 96% 95% 20% 100% 98% 96% 94% 92% 90% 30% 100% 97% 94% 91% 88% 85% 40% 100% 96% 92% 88% 84% 80% 50% 100% 95% 90% 85% 80% 75%Net CMWD Supply Reliability Page 7 CMWD Board could determine a different supply mix as outlined in Table 3, depending on the level of reliability sought. However, a mix of 80% desalinated water and 20% imported water during a severe drought that required a cutback of 50% of the imported supplies, would result in a water supply reliability of at least 90 percent for the CMWD service area. With reference to Table 3, it is noted that CMWD's share of the desalinated water supply is limited to a maximum of 25 MOD. However, maximum day demands presently exceed 25 MGD during the summer months. In 2008 this occurred on 39 days. At buildout it is expected that maximum day demands will be as high as 35 MGD and will exceed 25 MGD for more days than in the past. To meet maximum day demand at build-out will require either additional storage to be constructed by CMWD, in order to make up the difference between the customer demand and the desalinated water supply, or increased use of recycled water. The buildout water demand projections assumed full operation of the Phase I and Phase II recycled water system, which should be achieved by 2011. Future expansion of the recycled water system beyond Phase II would greatly assist in reducing the potable water demand, especially at peak demand periods. If storage capacity is not increased, or the recycled water system is not expanded, then imported water would be required to supplement the supply during the summer months under all desalinated water supply percentage scenarios listed in Table 3. Metropolitan Water District Subsidy Under Section 3.1.2 of the WPA, both CMWD and Poseidon agreed to use commercially reasonable efforts to obtain either; A subsidy from the Metropolitan Water District of Southern California (MWD) under its Seawater Desalination Program in an amount not less than Two Hundred Fifty Dollars ($250) per acre-foot for CMWD's purchase of Desalinated Water, or Through the financial support of a third party this provides the CMWD with the economic equivalent of not less than Two Hundred Fifty Dollars ($250) per acre-foot for the purchase of Desalinated Water. To qualify for the subsidy, the CMWD and Poseidon must satisfy MWD's reporting requirements. These requirements include specifying the public agency within MWD responsible for record keeping and auditing functions for all water produced from the project. Staff recommends that CMWD (or any subsequent JPA) be the responsible agency. From the beginning, CMWD's goal has been that no additional financial burden be placed on CMWD's rate payers for purchasing desalinated water from the seawater desalination facility. To that end, and to satisfy the requirements of MWD's subsidy, the Board has three options with regard to obtaining the MWD subsidy: 1. The Board could determine that the CMWD is willing to take on additional financial obligations and direct staff to take responsibility for the reconciliation process and performing all the record keeping and auditing functions necessary to satisfy the MWD requirements to obtain the $250 subsidy. This option would require additional staff (1 FTE), and would place the financial burden of any reporting inaccuracies on CMWD. This additional financial burden is not consistent with the Board's previous direction that CMWD pay any more for water than it otherwise would have with SDCWA. Pages 2. Determine that a Joint Powers Authority (JPA) be established to take responsibility for the reconciliation process and performing all the necessary functions to satisfy the MWD requirements to obtain the $250 per acre-foot subsidy. The JPA would consist of representatives from the nine Desalination Partners currently contracted to purchase product water from Poseidon. Each member agency would proportionally share in the costs associated with the JPA, and the CMWD would serve as the lead agency performing the functions necessary to satisfy the MWD requirements to obtain the $250 per acre-foot subsidy. The Board could direct staff to draft a basic agreement to form a JPA for Board consideration at a future date. This option would place the financial burden of any reporting inaccuracies on the nine Desalination Partners. Although the distribution of costs within the JPA would be determined at the time the JPA is formed, Carlsbad's share of costs could be as much as one- half of any costs, if the distribution were made on the basis of water purchased. This option also has the potential to increase the cost of water above that which CMWD would have otherwise paid SDCWA. 3. The CMWD Board of Directors could determine that an agreement between CMWD (or a subsequent JPA) and Poseidon be developed requiring Poseidon to produce all the necessary documents to satisfy MWD's reporting requirements. The agreement would be structured such that all financial responsibility for accurate reporting would be the burden of Poseidon. The Board could ask staff to draft an agreement requiring Poseidon to fulfill all the reporting necessary to satisfy MWD's requirements. This option places the financial burden of any reporting inaccuracies on Poseidon, without recourse to CMWD (or a subsequent JPA). Staff recommends Option 3 because it will allow the Board to have an agreement in place to meet the MWD requirements to obtain the $250 per acre-foot subsidy, and satisfy the conditions of the WPA. In practice, the process would require Poseidon to prepare the necessary reports, which would then be submitted to CMWD for concurrence. CMWD would then submit the reports to MWD. Right of Way Access Fee Section 5.3 in the Development Agreement between Poseidon and the City of Carlsbad describes the City's obligation to provide Poseidon with free access to public rights of way owned by the City or any of the governmental agencies under its control (CMWD). However, this section only applies to that portion of the project that is constructed to provide CMWD with its share of the desalinated water. Any portion of the project that is constructed to provide desalinated water to other agencies could be subject to a Right of Way Access fee. The City Council has three options regarding the Right of Way Access Fee: 1. The City Council could determine that no Right of Way Access Fee is to be charged to any other agency. This action could be based on the assumption that the 54-inch diameter pipeline to be constructed across Carlsbad will not impose any costs or damage to City infrastructure, now or in the future or that the public benefit provided by the project is so significant that no fee or assessment should be placed on the use of the public right of way. Although this is a possible scenario, it is likely that a pipeline of this size will have some impact on City streets or other infrastructure assets. 2. The City Council could determine that it is possible that a Right of Way Access Fee will be required in the future, direct the staff to return with the documents necessary to establish a fee that would initially be set at $0.00 per acre-foot, or other unit of measure. This action would be based on the assumption that it is possible that the pipeline and related facilities will create some burden on, or impose some cumulative damage to City assets, however, the exact amount of this burden cannot be determined at this time. Council would direct staff to return periodically to review whether or not a fee is necessary to offset any costs being borne by the City, related to the seawater desalination facility or the Appurtenant Facilities. 0 Page9 3. The City Council could determine that a Right of Way Access Fee is warranted due to anticipated burdens related to the seawater desalination facility and Appurtenant Facilities. Staff would be directed to return with the documents necessary to establish a fee of a specific amount. Although staff does not have an estimate of the costs that might be borne by the City, Council could ask staff to determine a typical Right of Way Access Fee based on the experience of other agencies. These options would be presented to Council at the time that the fee is considered for adoption. Staff recommends that the Council select Option 2 outlined above. Development Processing Fee Payment Modification The City Council adopts development processing fees to cover the costs of staff review, inspection and permit processing. These fees are based on conventional land development projects and industrial/commercial buildings, and generally utilize estimated construction cost multiplied by a specified percentage in determining the various fee amounts. A preliminary estimate of the fees for the seawater desalination project is shown in Table 4. Table 4 Preliminary Estimate of Development Processing Fees for Seawater Desalination Project Item Unit Fee Estimated Amount of Fee 54" Transmission Main (assumed value is $80 million) Encroachment Agreement Processing Fee Right-of-Way Permit Improvement Plan Check improvement Inspection Haul Route Permit Oversize Load Permit $313 $687 $12,682 + 0.75% of value $14,993 for first $1 million + $105 per $10,000 of additional value $0 $90/year Total $313 $687 $573,552 $844,493 $0 $180 $1,419,225 Seawater Treatment Facility (assumed value $220 million) Demolition Fee Grading Plan Check fee Grading Permit Building Permit Landscape Plan Check Fee Landscape Inspection fee $65 $9,058 + $130/100,000 CY over 200,000 CY Based on volume $3,645 + $2.05/$1,000 of value at 10% of total $3,413 $1,548 Total $65 $10,098 $16,544 $45,259 $3,413 $1,548 $76,927 Normally, the fees are invoiced and collected upfront by the City. However, Poseidon is developing a large industrial facility which includes the seawater desalination facility and the 54" transmission main using a design/build approach, and as such, the project approvals by the City will need to be performed in phases rather than as one complete project. In addition, not all aspects of the desalination facility, such as the proprietary processing equipment, will be plan checked and inspected by the City and the value of those improvements will not be included in determining the fee amount. Staff recommends creating a new class of fees to recover the cost of the City and CMWD expenses for Engineering improvement plan check and inspections, because of the approach that Poseidon is using on this project, the special expertise required, and the complexity associated with Seawater Page 10 Desalination Projects, other processing fees would remain unchanged. The items in Table 4 shown in bold with (*) would be the fees revised to recover the true cost to the City. The City would be reimbursed and/or paid for the fully burdened cost of employees, consultants, and any other costs incurred by the City. The details of a new fee schedule have not yet been developed. If Council is interested in pursuing a new fee class, staff should be directed to come back at a future Council meeting with the appropriate documents to establish this new development processing fee. ENVIRONMENTAL IMPACT: The proposed actions themselves will not have any adverse physical environmental impacts. Instead, the actions are to: 1. Accept the Delivery Points for the desalination pipeline system and Delivery Regime for the delivery of the desalinated product water. 2. Establish a City of Carlsbad Right-of-Way fee of $0 for the delivery of third party water deliveries for a period of five years after the Projected Commencement date Desalination project. 3. Direct the General Manager to initiate negotiations with Poseidon on the terms of a Joint Powers Agreement. The agreement would be structured such that all financial responsibility for accurate reporting would be the burden of Poseidon and with no additional financial burden being placed on the Desalination Partners through increased costs or inaccurate reporting other than those allowed by the WPA. 4. Allow changes to current development fees for recovery of City incurred costs to review the plans, specifications, calculations, and to perform inspection of the project for concurrence to City and CMWD standards. Since the actions themselves will not have any physical impact on the environment, the consideration of the actions is covered by the general rule that CEQA applies only to projects that have the potential for causing a significant effect on the environment. In this case, it can be seen with certainty that there is no possibility that the actions themselves may have a significant effect on the environment and it is not subject to CEQA pursuant to CEQA regulation 15061 (b)(3). The environmental impact report (EIR 03-05) for the seawater desalination facility, certified by the City Council in 2006, anticipated serving desalinated water to CMWD and water districts outside Carlsbad. The certified EIR analyzed an extensive pipeline network in Carlsbad, Oceanside, and Vista, and considered a blended water delivery regime. No significant impacts were identified with blending desalinated product water with imported water, however, the EIR's analysis of the project's pipeline network did not include pipelines that would connect to the Second Aqueduct in San Marcos or CWA No. 2 near the Melrose Drive and Alga Road intersection. The EIR also analyzed a maximum 48" diameter pipeline as opposed to the maximum 54" diameter pipeline now proposed by Poseidon Resources for the transmission main. Staff is preparing an environmental document that will analyze the increased pipeline size and the pipelines that would connect to the Second Aqueduct and CWA No. 2. Since the new pipelines connecting to these facilities would likely be built in existing roads or developed areas, EIR 03-05 mitigation measures may be adequate to address their potential impacts even though they are in locations not considered in the EIR. Until this document is prepared, however, a final determination regarding environmental impacts and adequacy of the existing EIR cannot be made. Later this year, staff anticipates the Council will consider this environmental document as part of a package of changes, to not only the pipeline network but also the desalination plant and the project's development agreement, proposed by Poseidon Resources (Channelside) LLC. The action requested of the Board of Directors to approve the Delivery Points does not approve any pipeline alignments or changed pipeline details not previously considered in EIR 03-05. Additionally, the WPA itself requires compliance with CEQA prior to any water purchase. It does not commit the CMWD to purchase any water or make any financial obligations or encumbrances until after that time. )0 Page 11 FISCAL IMPACT: All of the actions outlined above have important and significant fiscal impacts on the CMWD and City of Carlsbad. In summary, the major financial considerations are: 1. Delivery Points - The project will require a 54" transmission main traversing the city from west to east. Construction of a single transmission main delivering water into the SDCWA aqueduct as described in Option 3 is expected to cost $90 million and CMWD's cost share could be $36 million. If additional pipelines are constructed to deliver water directly to Carlsbad's existing supply connections, such as described in Option 1, the total cost for construction rises to $106 million; therefore, the decision to take water delivery directly from the seawater desalination facility adds approximately $16 million to the project's construction cost. The cost of the 54" transmission main would be included in the cost of water purchased by the Desalination Partners during the life of the project; consequently, a decision to construct the additional pipelines has a long term fiscal impact on the CMWD. However, due to the nature of the rate formula contained in the Water Purchase Agreement, CMWD would never pay more for water from the seawater desalination facility than it would have otherwise paid to SDCWA. The effect of adding costs for the construction of the additional pipelines noted in Option 1 and 2, increases the total cost of water in the future, although that cost would be equal to or less than the SDCWA rate. A more detailed discussion of the rate formula can be provided if the Council and Board are interested in a deeper understanding of the rate structure. A present worth analysis shows that Option 1 has the lowest present worth cost because of avoiding SDCWA's wheeling rate. 2. Delivery Schedule (Regime) - The amount of water purchased from the seawater desalination facility will have an effect on future water rates, however, the effect is generally positive, causing rates to be equal to, or lower than, the rates that would have been required if CMWD were buying water directly from the SDCWA. With the WPA establishing a ceiling on desalinated water rates at the amount that would have otherwise been paid to SDCWA for an equal amount of imported water, CMWD should be no worse off by purchasing a significant portion of its water from the seawater desalination facility, than if it purchased its water directly from SDCWA. Therefore, the percentage of water supplied from desalinated water or imported water should not make a difference in costs to CMWD. 3. Record keeping - The receipt of the MWD subsidy of the maximum $250 per acre-foot is essential to the financial success of the project. MWD has established certain accounting and reporting requirements for receipt of the funds. The cost of these accounting and reporting functions, and the requirement to repay any funds that are determined to have been incorrectly received by the project, should be placed on the project developer. The staff report provides the Board with a number of options for how these functions could be carried out. If the Board determines that CMWD, or a possible JPA, should perform the accounting functions, funding for one fulltime position, and related costs, will be required from the CMWD budget or the members of the JPA. Staff recommends Option 3, where Poseidon would prepare the documentation on behalf of CMWD and then CMWD subsequently conveys the documentation to MWD. 4. Right of Way Access Fee - The City of Carlsbad may choose to establish a right of way access fee that would generate revenue for the City's general fund. This fee could take the form of a charge placed on each acre-foot of water delivered to agencies outside of the CMWD service area. At this time, staff has not estimated the revenue that could be generated by this fee. Staff is recommending Option 2 that Council establishes the framework that allows the assessment of a right of way access fee, and establishes the current fee at $0 per acre- foot. It is estimated that approximately 30,000 to 35,000 acre-feet will be delivered annually to water agencies outside the CMWD service area, compared to CMWD's annual ultimate demand estimated at 24,000 acre-feet. Page 12 5. Development Processing Fee Payment Modification - Poseidon proposes to construct a large complex industrial facility, which will require special expertise by the City, that is not accounted for in the City Council/Board adopted Development Processing Fee schedule. In addition, the Development Processing Fee Schedule generally considers normal street improvements, utility, and building structure improvements associated with subdivisions, commercial, and industrial development projects. The seawater desalination facility and appurtenant facilities are unique and are not like typical projects reviewed and inspected by the City. Staff is recommending a new Development Processing Fee specifically for the Seawater Desalination Project for Engineering improvement plan check and inspections based on the true cost to the City. All other processing fees would remain unchanged, both in the amount and how they are collected. If staff's recommendation is accepted it is anticipated that the City will recover its cost for process the Poseidon project. EXHIBITS: 1. Delivery Point Option 1 Map. 2. Delivery Point Option 2 Map. 3. Delivery Point Option 3 Map. 4. The CMWD Board Adopt Resolution No. 1372 Approving the Delivery Points and Delivery Regime for the Desalinated Water Supply. 5. The CMWD Board Adopt Resolution No. 1373 Directing staff to return with a draft agreement between the Carlsbad Municipal Water District and Poseidon Resources (Channelside) LLC formalizing the process for collecting, monitoring and analyzing the desalinated water production data necessary to satisfy the eligibility requirements for the Metropolitan Water District's $250 per acre-foot incentive. 6. The Council Adopt Resolution No. 2009-224 Directing staff to return with the documents necessary to establish a Right of Way Use fee and establish the initial fee of $0 per acre-foot for third party water deliveries over a period of five years after the Projected Commencement date of the Seawater Desalination project. 7. City Council of the City of Carlsbad and Board of Directors of the Carlsbad Municipal Water District Adopt Resolution No. 2009-225 approving a variance to the Method of Invoicing and Collecting Development Processing Fees for Seawater Desalination facilities. EXHIBIT 4 1 RESOLUTION NO. 1372 2 A RESOLUTION OF THE BOARD OF DIRECTORS OF CARLSBAD MUNICIPAL WATER DISTRICT (CMWD), 3 APPROVING THE DELIVERY POINTS AND DELIVERY REGIME FOR THE DESALINATED WATER SUPPLY. 4 WHEREAS, on September 28, 2004, by Resolution No. 1226, the Board approved a 5 Water Purchase Agreement (WPA) between the Carlsbad Municipal Water District (CMWD) and 6 Poseidon for the purchase of up to 25 MGD of desalinated water from the proposed seawater 7 desalination facility; and 8 WHEREAS, Poseidon will design and construct the Appurtenant Facilities which include 9 all conveyance facilities, pipeline, pumps, pumping stations and any other infrastructure 10 necessary to deliver the product water to interconnection points on their 54-inch diameter transmission main; and12 WHEREAS, staff recommends that the Board not elect to own the Appurtenant Facilities \ O whereby, in accordance with Section 9.2 of the WPA, CMWD and Poseidon shall determine14 mutually-acceptable interconnection points for the interconnection of the Appurtenant Facilities I O with the CMWD distribution system; and16 WHEREAS, it is desired to deliver desalinated water to CMWD's four existing connections referred to as CWA No. 1 , CWA No. 2, TAP No. 3, and TAP No. 4 to the San Diego County18 Water Authority's Second Aqueduct; andi y _- WHEREAS, staff developed three options for the Delivery Points and recommends Option 21 1 which delivers desalinated water to TAP No. 3 and No. 4 through a 36" transmission main 22 proceeding north in Melrose Drive from Faraday Avenue, to CWA No. 1 through a 30" 23 transmission main proceeding south in Business Park Drive from Lionshead Avenue, and to CWA 24 No. 2 through a 24" transmission main proceeding south in Melrose Drive from Lionshead 25 Avenue; and 26 WHEREAS, to enable connections to the Delivery Points and to the Second Aqueduct in 27 the City of San Marcos, pipeline alignments and details not considered in certified EIR 03-05 are 28 1 necessary; accordingly, additional pipeline alignments and details, including an increase in the 2 diameter of the Appurtenant Facility desalinated water transmission main from 48" to 54", have 3 been proposed and are under review; and 4 WHEREAS, since pipeline alignments to serve the Delivery Points and Second Aqueduct 5 are still subject to review and environmental analysis, the Board of Director's accepting of Option 6 1 establishes its objective to provide all of the CMWD's service area with desalinated water but 7 does not approve the transmission main diameter increase or the alignments or details of these 8 pipelines; and 9 WHEREAS, Section 9.3 of the WPA stipulates that CMWD and Poseidon shall mutually 10 select a delivery regime for the delivery of Product Water from the seawater desalination facility to 11 CMWD; and 12 WHEREAS, staff recommends obtaining up to 20 percent of the CMWD water supply from 13 the imported water source through SDCWA and up to 80 percent of the CMWD water supply from 14 the desalinated water source through Poseidon; and 15 WHEREAS, the desalinated water supply would meet CMWD's water demand occurring 1^ at the beginning of operation of the desalination facility and Appurtenant Facilities and gradually 1' expand to CMWD's build-out water demand as projected in the 2003 Water Master Plan or 18 subsequent update. 1Q WHEREAS, since the action will not have any physical impact on the environment, the 20 consideration of the action is covered by the general rule that CEQA applies only to projects that 21 have the potential for causing a significant effect on the environment. In this case, it can be seen 22 with certainty that there is no possibility that the action may have a significant effect on the 93 environment and it is not subject to CEQA pursuant to CEQA regulation 15061 (b)(3). 24 NOW, THEREFORE, BE IT RESOLVED by the Carlsbad Municipal Water District Board 25 of the City of Carlsbad, California, as follows: 26 1. That the above recitations are true and correct. 27 2. That the Executive Manager is authorized to submit a letter to Poseidon stipulating 28 the Delivery Points and Delivery Regime as noted above. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PASSED, APPROVED AND ADOPTED at a Joint Special Meeting of the Carlsbad Municipal Water District and the City Council of the City of Carlsbad on the 18th day of August 2009, by the following vote, to wit: AYES: NOES: ABSENT: Board Members Lewis, Kulchin, Hall, Packard, Blackburn None None . LEWISPRESIDENT ATTEST: Jfxl LORRAINE M. MX3D/, SECRETARY Karen R. Kundtz, AssistaniSecretary (SEAL) :c/J = EXHIBIT 5 1 RESOLUTION NO.1373 2 A RESOLUTION OF THE BOARD OF DIRECTORS OF CARLSBAD MUNICIPAL WATER DISTRICT (CMWD), 3 DIRECTING STAFF TO RETURN WITH A DRAFT AGREEMENT BETWEEN THE CARLSBAD MUNICIPAL WATER DISTRICT 4 AND POSEIDON RESOURCES (CHANNELSIDE) LLC FORMALIZING THE PROCESS FOR COLLECTING, 5 MONITORING AND ANALYZING DESALINATED WATER PRODUCTION DATA NECESSARY TO DETERMINE THE 6 ELIGIBILITY REQUIREMENTS FOR THE METROPOLITAN WATER DISTRICT'S $250 PER ACRE-FOOT INCENTIVE. 7 WHEREAS, under Section 3.1.2 of the WPA, both CMWD and Poseidon agreed to use 8 commercially reasonable efforts to obtain either a subsidy from the Metropolitan Water District ofy Southern California (MWD) under its Seawater Desalination Program in an amount not less than Two Hundred Fifty Dollars ($250.00) per acre-foot for CMWD's purchase of Desalinated Water or11 through the financial support of a third party which provides the CMWD with the economic equivalent of not less than Two Hundred Fifty Dollars ($250.00) per acre-foot for the purchase of I O Desalinated Water; and WHEREAS, to qualify for the subsidy, the CMWD and Poseidon must satisfy MWD'sI O reporting requirements, and these requirements include specifying the public agency within MWD 17 to be responsible for record keeping and auditing functions for all water produced from the 18 seawater desalination project; and 1Q WHEREAS, staff recommends that CMWD be the responsible public agency, and that 2Q Poseidon prepares the required documentation on behalf of CMWD and at no additional cost to 21 CMWD for CMWD's submittal to MWD. 22 WHEREAS, since the action will not have any physical impact on the environment, the 23 consideration of the action is covered by the general rule that CEQA applies only to projects that 24 have the potential for causing a significant effect on the environment. In this case, it can be seen 25 with certainty that there is no possibility that the action may have a significant effect on the 26 environment and it is not subject to CEQA pursuant to CEQA regulation 15061 (b)(3). 27 NOW, THEREFORE, BE IT RESOLVED by the Carlsbad Municipal Water District Board of the City of Carlsbad, California, as follows: 1 1. That the above recitations are true and correct. 2 2. That staff is authorized to prepare an agreement between CMWD and Poseidon 2 formalizing the process for collecting, monitoring and analyzing desalinated water production data necessary to determine the eligibility requirements for the MWD incentive payment, and the agreement to be submitted to the Board for their consideration. 5 6 8 /// 9 /// 10 /// 11 /// 12 /// 13 /// 14 '" 11115 16 17 18 /// 19 /// 20 /// 21 /// 22 /// 23 /// 24 '" 25 '" III 26 27 28 /// 1 2 3 4 5 6 7 8 9 10 11 12 13 14 16 17 18 19 20 21 22 23 24 25 26 27 28 PASSED, APPROVED AND ADOPTED at a Joint Special Meeting of the Carlsbad Municipal Water District and the City Council of the City of Carlsbad on the 18th day of August 2009, by the following vote, to wit: AYES: NOES: ABSENT: Board Members Lewis, Kulchin, Hall, Packard, Blackburn None None ATTEST: LORRAJNE M.CW&QO, SJ0RETARY Karen R. Kundtz, Assistant Secretary (SEAL) EXHIBIT 6? 1 RESOLUTION NO. 2009-224 2 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, DIRECTING STAFF TO RETURN 3 WITH THE DOCUMENTS NECESSARY TO ESTABLISH A RIGHT OF WAY USE FEE AND ESTABLISH THE INITIAL FEE 4 OF $0 PER ACRE-FOOT FOR THIRD PARTY WATER DELIVERIES OVER A PERIOD OF FIVE YEARS AFTER THE 5 PROJECTED COMMENCEMENT DATE OF THE SEAWATER DESALINATION PROJECT. 6 7 WHEREAS, Section 5.3 in the Development Agreement between Poseidon and the City of 8 Carlsbad describes the City's obligation to provide Poseidon with free access to public rights of ^ way owned by the City or any of the governmental agencies under its control such as Carlsbad 1 ° Municipal Water District (CMWD); and WHEREAS, Section 5.3 in the Development Agreement only applies to that portion of the 12 project that is constructed to provide CMWD with its share of the desalinated water, and any 13 portion of the project that is constructed to provide desalinated water to other agencies could be 14 subject to a Right of Way Access fee; and WHEREAS, staff developed three options for the City Council's consideration with regard 1 fi to a Right of Way Access Fee, and staff recommends Option 2 which stipulates that the City Council could determine that it is possible that a Right of Way Access Fee will be required in the 18 future, and direct the staff to return with the documents necessary to establish a fee that would 19 initially be set at $0.00 per acre-foot, or other unit of measure. 20 WHEREAS, this action is based on the assumption that it is possible that the Appurtenant 21 Facilities will create some burden on, or impose some cumulative damage to City assets, but the 22 exact amount of this burden cannot be determined at this time. 23 WHEREAS, Council is directing staff to return periodically to review whether or not a fee is 24 necessary to offset any costs being borne by the City related to the seawater desalination facility 25 or the Appurtenant Facilities. 26 WHEREAS, since the action will not have any physical impact on the environment, the 27 consideration of the action is covered by the general rule that CEQA applies only to projects that 28 have the potential for causing a significant effect on the environment. In this case, it can be seen 1 with certainty that there is no possibility that the action may have a significant effect on the 2 environment and it is not subject to CEQA pursuant to CEQA regulation 15061 (b)(3). 3 NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, 4 as follows: 5 1. That the above recitations are true and correct. 6 2. That staff develop a Right of Way Access Fee applicable only to other agencies that 7 are signatory to a water purchase agreement with Poseidon and receive desalinated water from 0 Poseidon, and the Right of Way Access Fee be submitted to Council for their consideration,o 9 10 11 12 /// 13 /// /// 15 /// 16 /// 17 /// 18 19 '" 20 '" III 21 22 23 24 /// 25 /// 26 /// 27 /// 28 /// 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PASSED, APPROVED AND ADOPTED at a Joint Special Meeting of the City Council of the City of Carlsbad and the Board of Directors of the Carlsbad Municipal Water District on the 18th day of August 2009, by the following vote to wit: AYES: NOES: ABSENT: Council Members Lewis, Kulchin, Hall, Packard, Blackburn None None CLAUDE A LEWIS, Mayor ATTEST: LORRAJWEMVWOOO, (%/Clerk Karen R. Kundtz, Assistant City Clerk (SEAL) RESOLUTION NO. 2009-225 2 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF 3 CARLSBAD, CALIFORNIA, AND BOARD OF DIRECTORS OF THE CARLSBAD MUNICIPAL WATER DISTRICT APPROVING A 4 VARIANCE TO THE METHOD OF INVOICING AND COLLECTING DEVELOPMENT PROCESSING FEES FOR 5 SEAWATER DESALINATION FACILITIES. WHEREAS, the City Council and the Board has adopted Development Processing Fees to pay for expenses in plan checking, and inspecting land development projects; and WHEREAS, Poseidon indicates that they are preparing plans and will be constructing their Seawater Desalination Facility and Appurtenant Facilities a complex industrial project using a 10 design/build approach requiring special expertise by the City; and WHEREAS, the method of invoicing and paying Development Processing Fees requires 12 modification for Seawater Desalination Facilities; and 13 WHEREAS, staff is recommending that the Development Processing Fees for the Engineering improvement plan check and inspection fees be revised to reflect the true cost to the 15 City and CMWD and direct staff to return with the documents necessary to establish a new 1R Development Processing Fee for Seawater Desalination Facilities; and WHEREAS, since the action will not have any physical impact on the environment, the 1 ft consideration of the action is covered by the general rule that CEQA applies only to projects that 19 have the potential for causing a significant effect on the environment. In this case, it can be seen 20 with certainty that there is no possibility that the action may have a significant effect on the 21 environment and it is not subject to CEQA pursuant to CEQA regulation 15061 (b)(3). 22 NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, 23 and the Board of Directors for the Carlsbad Municipal Water District as follows: 24 1. That the above recitations are true and correct. 25 2. That staff develop a new development processing fee for seawater desalination facilities 26 and submit the new fee program to Council and the Board for their consideration. 27 /// 28 /// 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PASSED, APPROVED AND ADOPTED at a Joint Special Meeting of the City Council of the City of Carlsbad and the Board of Directors of the Carlsbad Municipal Water District on the 18th day of August 2009, by the following vote to wit: AYES: NOES: ABSENT: Council Members Lewis, Kulchin, Hall, Packard, Blackburn None None ATTEST: LORR£JNE MrV^OpD, GlW Clerk Karen R. Kundtz, Assistant City Clerk P o JB I !> O JV R 15 S O U For the Information of the: CITY COUNCIL Asst.CH_— CA£=£C — BECSEHO^E AU6 CITYOCITYCL 17 2009 F CARLSBADERK'S OFFICE n\ L/y August 17, 2009 Mr. Skip Hammann, P.E. City of Carlsbad 1200 Carlsbad Village Drive Carlsbad, CA 92008- 1 949 RE: City Council and Carlsbad Municipal Water District Agenda Bill 1 6 - AB #1 9,953 - Desalinated Water Supply Delivery Points and Delivery Regime Date>^l 1*7 Dear Mr. Hammann, On August 18, 2009, the Carlsbad City Council and the Carlsbad Municipal Water District will consider adoption of Resolution 2009-224 directing staff to return with the documents necessary to establish a Right of Way Use fee ("Fee") for third party water deliveries from the Carlsbad Deviation Project. Poseidon has two concerns regarding the proposed Fee that we would hke to bring to your attention. Pint the proposed timing of establishment of the Fee may create substantial problems for the financing of the Project. Staff is recommending that the Council establish the framework that allows the assessment of a Fee, set the initial Fee at SO, but reserving the right to raise the Fee five years after the projected start of commercial operations of the Project. As noted in the attached letter from our Financial Advisor, deferral of the decision'as to whether to charge a Fee for the term of the financing would significantly jeopardize Poseidon s ability to finance the Project. This is due to the significant uncertainty as to what a future City Council may determine to be an appropriate Use Fee. Second we are concerned that the proposed Fee would duplicate other safeguards that are aSy in the works. The justification for possibly raising the Fee in the future is based on stairs concern that the desalinated water delivery pipeline and related facilities may create some burden on, or may impose some damage to City assets. Meanwhile, the City Attorney has proposed amendments to the Development Agreement for the Protect aimed at addressing the same concern. Section 5.3.7 of the Development Agreement requires Poseidon and its contractors to adhere to strict construction standards and practices conform to the City's bonding, insurance and licensing requirements, and be subject to detailed construction inspection requirements. The City Attorney also requires that Poseidon be responsible for the restoration and repair of City property and other public facilities and wat rant its work for the effective life of the Project. Finally, Section 5.3.8 of the amended Development Agreement provides that Poseidon pay to the City an amount equal to all costs tor all repairs to CUy property made necessary by Project operations. These provisions provide sufficient safeguards to protect City property. Poseidon Resources In summary, we respectfully request the City not defer final action on the Fee for five years. Instead, we recommend the City establish the Fee this calendar year for the entire term of the Project financing (i.e., 30 years). This approach would minimize any detrimental effects on the financing of the Project. Thank you for your consideration of this request. Sincerely, Andrew Kingman Chief Financial Officer Poseidon Resources cc: Jim Elliott $» BARCLAYS CAPITAL STEPHEN HOWARD DIRECTOR August 13,2009 Andrew P. Kingman Poseidon Resources 1055 Washington Boulevard Stamford, Connecticut 06901 Dear Andrew: I understand that on August 18, 2009, the Carlsbad City Council and Carlsbad Municipal Water District will consider establishing a right of way access fee for the Appurtenant Facilities associated with the Carlsbad Desalination Project ("Project"). Staff is recommending that the Council establish the framework that allows the assessment of a right of way access fee with the initial fee set at $0, but with the City reserving the right to raise the fee in the future. The rationale set forth in the staff report for possibly raising the fee in the future is based on the assumption that the pipeline and related facilities may create some burden on, or may impose some damage to City assets. However, we understand the Project Development Agreement already includes a mechanism for the City to recover such costs. As Poseidon's Financial Advisor on the Project, Barclay's Capital cannot impress upon you enough the degree to which the City of Carlsbad's proposed reservation of the right to charge a right of way access fee would be detrimental to the financing of the Project. The pipeline is a critical asset to the Project and not easily replaced or moved. Not knowing the certainty of the cost to use the right of way for the such a critical asset for the term of the financing is a risk that the financing parties will likely find unacceptable. We strongly recommend the City, other signatories to the water purchase agreements, and Poseidon reach agreement on a right of way access fee regime for the entire term of the financing prior to financial close. Regards, Stephen Ho Director Barclays Capital BARCLAYS CAPITAL. 7« f" AVENUE, 1!»w FLOOR NEW YORK, NY 10019 T: 212526,408} ft 2U'32D»OS6J Andrea Dykes From: Jim Elliott Sent: Monday, August 17, 2009 3:26 PM To: Andrea Dykes Subject: FW: ROW Fees Jim Elliott Deputy City Manager 799 Pine Ave, Suite 200 Carlsbad, CA 92008 Tel (760) 434-2826 Fax (760) 434-5088 If you are interested in leadership please join our discussion at: http://leadershipdiamond.blogspot.com/ From: Jim Elliott Sent: Monday, August 17, 2009 2:24 PM To: Jessica Jones; Skip Hammann; Peter M, Maclaggan Cc: Glenn Pruim; Mark Stone; Bill Plummer Subject: RE: ROW Fees Hello all On Tuesday evening I expect the council to direct staff to go develop the documents to that would allow the creation of a ROW fee, but I do not think they will be engaged in trying to work out the details of how such a fee might be imposed. As you have seen, we are recommending that the fee be set at $0 initially. I do not expect any dicussion about the amount of the fee, the term of the fee, etc. I saw the letter from Barclay's, and the letter from Andy. I understand that Poseidon will be taking care of the cost of repair and maintenance of the trench, I also understand the Council's interest in making sure the City is protected from unanticipated concequences. Council will consider all of these things when the documents come back to them for action at some point in the future. A date has not been set for the Council's consideration of the documents they are directing us to prepare. It seems to me that any ROW fee would be considered a transportation charge for the purpose of calculating the cost of water to other agencies, so I am a little confused in how this messes up the financing for the project. That is what I know as of today. Peter, I will see you tomorrow and we can talk then. Jim Jim Elliott Deputy City Manager 799 Pine Ave., Suite 200 Carlsbad, CA 92008 Delivery PointsDli RiDelivery RegimeMWD IncentiveRight‐of‐Way Access FeeDevelopment Processing Fee Delivery Points: Delivery Points: Construct Pipelines to supply desalinated water to 100% of CMWD service areaDelivery Regime: Delivery Regime: 80% Desalinated Water & 20% Imported WaterMWD Incentive: MWD Incentive: Poseidon Prepares documentation MWD Incentive: MWD Incentive: Poseidon Prepares documentation for CMWD and CMWD submits it to MWDRightRight‐‐of Way Access Fee: of Way Access Fee: Establish Fee (set initially at $0)Development Processing Fee: Development Processing Fee: Establish new fee for seawater desalination projectsseawater desalination projects. WPA Section 9.2 –Specify Points for Delivery of Desalinated Water to CMWDof Desalinated Water to CMWDStaff  Established Three Options OPTIONPresent Worth of Annual CMWD’s Cost Share of CMWD’s Cost Share of Total PresentOPTIONWheeling Cost (b)Poseidon’s 54” Pipe Delivery PipelinesPresent Worth Cost10$2 illi$16 illi$43 51-0-$27.5 million$16 million$43.5 million2$5 7million$28 1 million$11 million$44.8 2$5.7 million$28.1 million$11 millionmillion3$32.5 million$36.0 million$1 million$69.5 illi3$32.5 million$36.0 million$1 millionmillion Option 1 –Construct Transmission Mains to Supply Desalinated Water to existing SDCWA Supply Desalinated Water to existing SDCWA ConnectionsCost for Additional Transmission Mains = $16 millionCost for Additional Transmission Mains = $16 millionCost of Additional Transmission Mains to be contained in the desalinated water rate  WPA Section 9.3 –Specify the Amount of Desalinated Water to be delivered to CMWDThe WPA assumed 100% of CMWD’s demand would be from desalinated water ranging from a  MGD ii   MGD Mi10 MGD minimum to 25 MGD MaximumWater Supply Considerations:Maintain access to imported waterMaintain access to imported waterDesalinated water supply could be interruptedCMWD’s maximum day demand exceeds 25 MGDy5 Imported Water Supplies "Cutback"PtfPercent of Desalinated Water Supplied 0% 10% 20% 30% 40% 50%to CMWD100% 100% 100% 100% 100% 100% 100%80%100% 98% 96% 94% 92% 90%60%100% 96% 92% 88% 84% 80% Option 1 –80% Desalinated Seawater, and20 % Imported Water20 % Imported Water WPA Section 3.1.2 –Specify a public agency to provide required documentation for MWD incentiveprovide required documentation for MWD incentiveOptions:1.Joint Powers Agency prepares and submits documentation1.Joint Powers Agency prepares and submits documentation2.CMWD prepares and submits documentation3.Poseidon prepares documentation for CMWDRecommendation: Option 3 Poseidon would be held responsible for the accuracy and completeness of all reporting.  WPA Section 3.5.1 WPA Section 3.5.1 ––City has option to establish fee for use of its rightofwayfee for use of its right‐of‐wayOptionsOptionsN Ri htf W A F1.No Right‐of ‐Way Access Fee2.Establish Right‐of‐Way Access Fee (Set initially at $0)Dl  Sifi Ri htfW A F3.Develop a Specific Right‐of‐Way Access FeeRecommendation: Establish RightofWay Access Fee Set initially at $0Establish Right‐of‐Way Access Fee Set initially at $0 Purpose: Purpose: Plan Reviews, Traffic Control, Inspection Building Permits Project Facility FeesInspection, Building Permits, Project Facility FeesExisting Fee: Existing Fee: Bildi PFF d di it  Building, PFF, and grading permit ≅$100,000 Transmission main ≅$1.4 millionRdi Rdi Eblih   f f Recommendation: Recommendation: Establish a new fee for Seawater Desalination Facilities and Appurtenant FacilitiesFacilities Delivery Points: Delivery Points: Construct Pipelines to supply desalinated water to 100% of CMWD service areaDelivery Regime: Delivery Regime: 80% Desalinated Water & 20% Imported WaterMWD Incentive: MWD Incentive: Poseidon Prepares documentation MWD Incentive: MWD Incentive: Poseidon Prepares documentation for CMWD and CMWD submits it to MWDRightRight‐‐of Way Access Fee: of Way Access Fee: Establish Fee (set initially at $0)Development Processing Fee: Development Processing Fee: Establish new fee for seawater desalination projectsseawater desalination projects.