Town Council Regular Session


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  Item # 5.       
Meeting Date: 12/03/2014  
Submitted By: Philip Saletta, Water
Department: Water  

Information
SUBJECT:
RESOLUTION NO. (R)14-62, AUTHORIZING AND APPROVING THE PURCHASE OF LONG-TERM STORAGE CREDITS FROM THE BUREAU OF RECLAMATION
RECOMMENDATION:
The Water Utility Commission and Water Utility staff recommend approval.
EXECUTIVE SUMMARY:
The U.S. Bureau of Reclamation has sent a letter to water providers in the Tucson Active Management Area soliciting offers to purchase Long-Term Storage Credits (LTSCs).  In recent years, the Water Utility has used some of its LTSCs to replace groundwater used from our wells.  Additional purchases of LTSCs will build our accounts back up and provide for additional credits that can be used for future demands, and protect against any possible shortages from drought conditions.

The Water Utility is requesting Council's approval to make an offer to purchase these LTSCs from the Bureau of Reclamation in accordance with their attached letter dated October 27, 2014.  The offer to purchase would be for 4,000 acre feet of LTSCs per year for three (3) years at $140.00 per acre foot.  This is a total of 12,000 acre feet of LTSCs for a total cost of $1,680,000.00 for the entire three (3) year period.  The cost to purchase credits is budgeted in the Water Utility FY 2014-15 Budget under Water Resource Management for $450,000.00.  

The purchase of these credits provides a benefit to the Town at a cost lower than the purchase of our Central Arizona Project water.  If our offer is accepted by the Bureau of Reclamation, the proposed resolution authorizes the Water Utility to proceed with a purchase agreement for up to 12,000 acre feet of LTSCs.
BACKGROUND OR DETAILED INFORMATION:
The U.S. Bureau of Reclamation (Reclamation) stores water under the Lower Santa Cruz Managed In-Channel Recharge Project and accrues Long-Term Storage Credits (LTSCs).  These LTSCs are from treated wastewater effluent owned by Reclamation and are discharged from the local wastewater treatment plants to the Santa Cruz River.  The LTSCs are recharged into the groundwater aquifer along the Santa Cruz River below the waste water plants and within the Tucson Active Management Area.  If these LTSCs are not used, Reclamation can sell these credits.  Reclamation has sent the attached letter dated October 27, 2014, soliciting offers from water providers to purchase water.

These credits are similar to credits that Oro Valley can also store under our permit in the same project.  However, since Oro Valley Water Utility uses all of its wastewater effluent directly in our reclaimed water system, we are not currently storing any credits under this project.  We do continue to store any unused balance of our purchased CAP water.  An additional purchase of these LTSCs will further increase our account balances for the future. 

The credits we will purchase under the agreement will benefit the Town by increasing the balances in our Long-Term Storage Accounts, which can be used to replace groundwater pumping from our recovery wells in the Tucson Active Management Area.  These credits will be used to meet future demands and protect against drought conditions and possible shortages or curtailment of CAP water deliveries. 

Purchase of these credits is timely since we have used some of our credits in recent years to replace groundwater pumping and to wheel our CAP water delivered through the Tucson water system.  The Water Utility recommends purchasing 4,000 acre feet per year of these LTSCs for three (3) years.  The cost offered will be $140.00 per acre foot which is lower than the current cost of $172.00 per acre foot to purchase and store our CAP Water.  Building up our accounts by an additional 12,000 acre feet would increase our LTSC account balances close to the amounts we held in 2010.  The credits would be transferred from Reclamation accounts to the Town of Oro Valley Long-Term Storage Accounts through the Arizona Department of Water Resources.

The cost to purchase credits is budgeted in the Water Utility FY 2014-15 Budget under Water Resource Management for $450,000.00.  The costs are also included in the recent 5-year projection in our Water Rates Analysis. 

The Water Utility Commission reviewed this proposed purchase at their meeting on November 10, 2014, and unanimously recommended that Council approve the purchase of up to 12,000 acre feet of these LTSCs at a total cost of $1,680,000.00 for the three (3) year purchase period.
FISCAL IMPACT:
The purchase of the Long-Term Storage Credits would cost $1,680,000.00 over the next three (3) years, approximately $560,000.00 per year.  The purchase is for up to 4,000 acre feet per year for three (3) years, which totals up to 12,000 acre feet.  Funds are budgeted under Water Resource Management in FY 2014-15 and are also included in the 5-year projection in the recent Water Rates Analysis.  The cost is $140.00 per acre foot for these LTSCs, which is lower than the current $172.00 per acre foot cost to store our CAP water.  The cost to purchase credits is budgeted in the Water Utility FY 2014-15 Budget under Water Resource Management for $450,000.00.
SUGGESTED MOTION:
I MOVE to (approve or deny) Resolution (R)14-62, authorizing and approving the purchase of Long-Term Storage Credits from the Bureau of Reclamation.
Attachments
(R)14-62 Purchase of Long-Term Storage Credits
Exhibit A-USBR Letter


    

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