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Home My WebLink About8A - SMSC Water Purchase Agreement Oi PRI% v 4646 Dakota Street SE Prior Lake, MN 55372 so* CITY COUNCIL AGENDA REPORT MEETING DATE: March 10, 2014 AGENDA #: 8A PREPARED BY: Frank Boyles, City Manager and Katy Gehler, Public Works /Natural Resources Director PRESENTED BY: Katy Gehler, Public Works /Natural Resources Director AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION APPROVING A WATER PURCHASE AGREEMENT AND AN ESCROW AGREEMENT BETWEEN THE CITY OF PRIOR LAKE AND THE SMSC AND AUTHORIZING THE MAYOR AND CITY MANAGER TO EXECUTE SAME ON BEHALF OF THE CITY DISCUSSION: Introduction The purpose of this agenda item is to determine whether the City Council is prepared to enter into a Water Purchase Agreement and Escrow Agreement with the SMSC. History The City and SMSC both require additional quantities of domestic water to serve their respective growing communities. Approximately two years ago an engineering report was prepared evaluating the comparative advantages in developing well 10 versus developing a joint well /water plant with the SMSC. The conclusion was that we should begin by developing a joint facility. Work on the SMSC well addition and plant expansion is nearly complete. The target date for pumping water is June 1, 2014. The development of an acceptable Water and Escrow Agreement to both parties has proved to be more complex and time consuming than anyone originally contemplated. We have agreed to the attached Agreements including the attorneys representing each entity. Both agreements will be added to the drop box by Friday night or this item will be removed from the agenda. Current Circumstances The Water Agreement confirms that the water facility is wholly owned and operated by the SMSC. The City does have access and inspection rights given that the City's system and SCADA terminate at this location so the City and SMSC systems are automated to work with one another. The Agreement provides that the City may purchase water commencing on June 1, 2014, at a cost of $.91 per 1,000 gallons. No annual minimum water purchase is required by the Agreement. The Agreement does limit the total purchase to no more than 1,000 gallons per minute for 24 hours Phone 952.447.9800 / Fax 952.447.4245 / www.cityofpriorlake.com per day for 365 days per year. This amounts to 1,440,000 gallons per day not to exceed 525,600,000 gallons per year for up to 25 years. The Agreement can be terminated by either party upon submission of a four year written notice to the other. If the SMSC fails to deliver water under the terms of the Agreement (except for instances of force majeure) or terminates the Agreement inconsistent with the four year termination provision, then the City may demand an escrow amount of up to $500,000 which is called for by a the Escrow Agreement (attached). The escrow agreement is managed by an escrow agent. The SMSC may challenge the City's right to the escrow amount in the State Courts. To do so requires them to waive sovereignty — at least for this limited purpose. The cost per thousand gallons will be fixed for the first four years. After the fourth year, operational and use data will be evaluated against the initial assumptions and potentially adjusted based upon actual experience. Starting in year 5 the annual cost of water will be adjusted up or down based upon the Minneapolis - St. Paul Consumer Price Index for all urban consumers (CPI -U). The SMSC will bill monthly for the City's water consumption. Conclusion The City Council should determine if the City should enter into the Agreements so we can purchase water from the SMSC. ISSUES: The SMSC would sell the City water without an Agreement if we desire. The problem with such a proposal is the water could go to the highest bidder eliminating any longer term dependability associated with an agreement. Staff and the City Attorney's Office believe that the 25 year term of the Agreement with a four -year termination clause (the approximate length of time for the City to construct a new well) is better for the City as it provides greater dependability of water availability barring an act of God. Our expectation is that we will purchase enough water to address our needs during the thirty day +1- peak usage period each year. The number of days and gallons consumed are expected to increase as our community grows or as impacted annually by Mother Nature. If the City purchased the maximum number of gallons available under the Agreement, the annual cost would be $478,296. If everything remained the same for the 25 years of the Agreement, the total cost of water would be $11,957,400. Because the initial rate per thousand gallons exceeds our cost by about 20 cents per thousand we do not see a significant impact upon citywide sewer and water rates. On the other hand by using SMSC capital, the city can avoid bonding with the associated costs for at least one well. Inflationary pressures or increasing water demands could alter that projection. Our water needs projections call for a new well in 2015, and an additional water treatment plant in 2019. To assure that the City continues to have domestic water to serve our growing community we intend to take the following actions in addition to entering into these cooperative agreements with the SMSC: • Proceed to develop well 10 with completion in 2015. • Encourage use of water from the lakes for irrigation of riparian properties. • Enter into a new agreement with the City of Savage for emergency water connection. • Maintain and repair existing wells to maximize their productivity and dependability. • Update the City's water plan to assure our projections with respect to system needs, water usage and rates are accurate. The SMSC staff have worked to keep the business council apprised with the key policy issues which this collaboration entails. To the best of our knowledge they are prepared to approve both agreements at their next meeting. This is the level of collaboration is unique and indicative of the many collaborative fruits born by our participation in SCALE. It is staff's hope that we can expand upon this template. FINANCIAL The financial impact will be incorporated in the Capital Improvement IMPACT: Program and where appropriate the 2015 budgets. ALTERNATIVES: 1. Approve the attached Resolution which approves the Water Purchase and escrow Agreements. 2. Take no action and provide direction to the staff. RECOMMENDED Alternative #1. MOTION: c oi 4646 Dakota Street SE Prior Lake, MN 55372 RESOLUTION 14 -XXX A RESOLUTION TO APPROVE A WATER PURCHASE AND ESCROW AGREEMENT WITH THE SHAKOPEE MDEWAKANTON SIOUX COMMUNITY AND AUTHORIZING THE MAYOR AND CITY MANAGER TO EXECUTE THE SAME Motion By: Second By: WHEREAS, The City of Prior Lake and the Shakopee Mdewakanton Sioux Community (hereafter "SMSC ") are both in need of additional domestic water to serve the needs of their respective populations; and WHEREAS, The SMSC has expanded its well and water treatment plant so that water capacity is available for both parties; and WHEREAS, The parties have prepared and agreed upon the terms and conditions of a Water Purchase Agreement and an Escrow Agreement which provides for both party's use of the water made available through the well and treatment plant expansion program. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. The Water Purchase and Escrow Agreements dated March 10, 2014 are hereby approved. 3. The Mayor and City Manager are hereby authorized to execute both Agreements on behalf of the City. PASSED AND ADOPTED THIS 10TH DAY OF MARCH, 2014. YES NO Hedberg Hedberg Keeney Keeney McGuire McGuire Morton Morton Soukup Soukup Frank Boyles, City Manager 1