Subject: SILVER
CREEK ALIGNMENT RECYCLED WATER FINANCING PLAN
(METCALF ENERGY CENTER)
RECOMMENDATION
Adoption of a resolution:
1) Approving the attached financing plan for the South Bay Water Recycling (SBWR) Silver Creek Alignment to provide recycled water to Metcalf Energy Center (MEC) and other potential users along the new alignment; and
2) Authorizing the City Manager to negotiate and execute agreements with the City of Santa Clara, the Treatment Plant Tributary Agencies, Calpine/Bechtel and associated entities, and the Santa Clara Valley Water District (Water District) to implement the financing plan.
On June 26, 2001, City Council
approved the Cooperation Agreement regarding the MEC which included the requirement
to deliver recycled water during
the summer months to
provide cooling water for energy generation.
The MEC is expected to use an average of 3.3 million gallons per day
(mgd) and up to 5 mgd peak demand of recycled water. The recycled water will be delivered using the SBWR system, which
began construction in 1996, to reduce San José/Santa Clara Water Pollution
Control Plant (Plant) discharges to the local salt marsh, a habitat sensitive
to excessive fresh water flows during summer months. On June 19, 2001, Council accepted a Status Report and
Assessment on the Revised South Bay Action Plan Programs (Status Report, June
2001), which presented the results of a cost benefit analysis of both flow
reduction and diversion programs and included a recommendation to proceed with
the implementation of a Phase 2a expansion of the SBWR system at an estimated
cost of $82.5 million.
Council approval of the Cooperation Agreement was contingent on approval of a financing plan to pay for the SBWR improvements necessary to serve the MEC. The actions recommended in this memorandum, if approved by the City Council, will commit the Plant to providing funding to the improvements necessary to serve recycled water to the MEC, and will delegate authority to the City Manager to negotiate and execute all agreements necessary to implement the financing plan and fulfill this funding commitment.
Due to changes resulting from engineering analysis and on-going negotiations that have occurred since the Cooperative Agreement was signed in June 2001, this project is different than the recycled water project originally proposed to deliver water to the MEC under that Agreement; however, the Silver Creek alignment is consistent with the purpose of the Agreement. Due to the timing of the MEC agreement, the Silver Creek alignment project was not included in the scope of SBWR Phase 2a projects approved as part of the Status Report, but is now being recommended for funding using part of the funding previously identified for Phase 2a. The attached financing plan includes discussion of the Silver Creek alignment project, the proposed financing options and the potential scheduling impacts to the Phase 2a projects that will be deferred or not be built if Council approves this financing plan for the Silver Creek alignment.
The Silver Creek alignment
pipeline and the new Zone 3 reservoir (one of the Phase 2a improvements) are
necessary to deliver water to the MEC (see Figure 1 of the attached Financing
Plan). The Silver Creek pipeline
alignment is proposed as a 30-inch pipeline project consisting of approximately
9 miles of pipeline with the capacity to deliver 5 mgd peak demand to the MEC
and up to an additional 10 mgd to future customers in the South Valley. An existing SBWR 16-inch pipeline delivers
water to the Silver Creek Country Club.
The new 30-inch Silver Creek pipeline, required to deliver recycled
water to the MEC, will be constructed parallel to the existing 16-inch pipeline
for approximately 3.6 miles. At this
time, no additional customers other than MEC have been identified for service
from the new pipeline, but negotiations with the
Water District has indicated an interest in funding and supplying recycled
water distribution to customers south of the MEC.
A
cost-benefit analysis was completed on SBWR Phase 2a as part of the Status
Report. A cost-benefit analysis for the
Silver Creek alignment was not included as part of that report, because this
project was not under consideration at the time the report was completed.
Since approval of the
Status Report, the same cost-benefit methodology has been applied to the Silver
Creek alignment. The benefit to cost
ratio is approximately 1.4 using the more conservative estimate of 3.3 mgd average
monthly recycled water usage by the MEC. A benefit to cost ratio greater than 1
indicates that the benefits are greater than the costs for a given project. As Council may recall, the
benefit to
cost ratio for the Phase 2a improvements was 1.2.
Financing
Plan
Since approval of the Status
Report, the City, on behalf of the Plant, has been negotiating with
Calpine/Bechtel and with the Water District to develop financing options for
the Silver Creek alignment. The Silver
Creek alignment financing options discussed below would require the Plant to
provide the up-front funding for these projects out of the SBWR Phase 2a, $82.5
million budget. For both funding
options discussed below, a project cost of $38 million is assumed for
discussion and planning purposes.
However, the final cost to each of the allocation participating
parties will be based on actual project costs incurred as determined at the
conclusion of the construction project.
The percentage funding allocations discussed below for the Plant and Calpine/Bechtel
will not change. The City will will continue to
explore additional funding sources such as additional State Revolving Loan Fund
money. The following two funding
options are currently being discussed:
1) The Plant and Calpine/Bechtel fund the project cost of a 30-inch extension based on the following allocation: the Plant would pay 68% ($26 million based on the current estimate) and Calpine/Bechtel would pay 32% ($12 million based on the current estimate). This funding scenario assumes no other funding partners, and would require the Plant to advance the required funding to Calpine/Bechtel. Calpine/Bechtel would then reimburse the Plant in semi-annual payments over 30 years, at an interest rate set at the tax exempt borrowing rate applicable to the Plant (currently approximately 5%). Payments from Calpine/Bechtel to the Plant would begin at the start of Fiscal Year 2003. Implementation of the financing plan must be contingent on approval by the city councils and agency boards of Santa Clara and the Tributary Agencies in order for Plant funds to be used for this capital expansion project.
2)
In addition to the scenario discussed above, the City,
on behalf of the Plant, is also negotiating with the Water District to pay
approximately 25% of the total project costs upon completion of the
pipeline. The 68% and 32% allocation
ratio between the Plant and Calpine/Bechtel would remain the same and the Water
District’s approximate 25% share (approximately $9.5 million based on the $38
million estimate) would be paid to the Plant.
For this 25% payment, the Water District would be able to utilize the
pipeline as a distribution point to service customers south of the MEC. The Plant would be required to provide the
funding up front and the Water District would pay the 25% in a lump sum to the
Plant upon project completion, estimated at the beginning of Fiscal Year
2003. This lump sum payment would then
be used to implement some of the deferred Phase 2a projects. Staff is not recommending that implementation
of the financing plan be contingent on an agreement with the Water District; if
an agreement cannot be negotiated with the District, some Phase 2a projects may
be deferred indefinitely.
Schedule
Impacts
The financing options discussed
above require the Plant to provide the up-front funding for the Silver Creek
alignment out of the SBWR Phase 2a, $82.5 million budget identified as part of
the Status Report. Because the Silver
Creek alignment project was not originally included in the Phase 2a project
scope, it may be necessary to defer construction of some of the remaining Phase
2a projects to fund the Silver Creek alignment until the financing options and
anticipated payment schedules are finalized.
The SBWR Core Group, which includes representatives of the Tributary
Agencies, will establish priorities for the Phase 2a projects that are
currently not under construction.
Not applicable
COORDINATION
This item has been coordinated with the City Attorney’s Office. This item is scheduled to be heard at the October 11, 2001 Treatment Plant Advisory Committee meeting.
In February 1998, TPAC and the San Jose City Council approved the Financing Plan for the Revised South Bay Action Plan that included $100 million for South Bay Water Recycling projects. Funding sources identified in the Financing Plan include State Revolving Fund Loans, U.S. Bureau of Reclamation Grants (USBR), Wastewater Fund Reserves, and Tributary Agency Cash Contributions. All funding has been received with the exception of USBR grants and cash contributions from the agencies. USBR grants are on a reimbursement basis and are received after project expenditures are made.
Of the $82.5 million Phase 2a budget, approximately $22.5 million has already been appropriated to projects in Milpitas and Santa Clara, leaving a balance of approximately $60 million for the remaining Phase 2a projects. The Silver Creek extension, estimated to cost $38 million and the Zone 3 reservoir, estimated to cost $10 million, could be implemented within the remaining $60 million Phase 2a budget. This would leave approximately $12 million for implementation of Phase 2a projects not yet constructed.
CEQA: Resolution No. 64667, EIR for the San Jose Nonpotable Reclamation Project, now known as the South Bay Water Recycling Program dated June 15, 1993; including the Silver Creek Pipeline supplemental dated August 29, 2001.
CARL W. MOSHER
Director, Environmental Services Department