To: HONORABLE MAYOR AND From: Carl W. Mosher

CITY COUNCIL

Subject: SEE BELOW Date: 10-29-03

SUBJECT: STATE WATER RESOURCES CONTROL BOARD GRANT FOR SOUTH BAY WATER RECYCLING SILVER CREEK PIPELINE

RECOMMENDATION

Adoption of a resolution authorizing the City Manager to execute a grant agreement to accept up to $3,654,544 in funding from the State Water Resources Control Board (SWRCB) for reimbursement of costs associated with the South Bay Water Recycling (SBWR) Silver Creek Pipeline.

BACKGROUND

The State Water Resources Control Board (SWRCB), through the Water Recycling Construction Program, offers grant funds to local public agencies to help design and construct water reclamation projects. Grant funding is available as reimbursement for up to 25% of approved project expenses. In February 2002, City Council authorized the City Manager to submit a grant application to the SWRCB for the Silver Creek Pipeline project.

In April 2002, the SWRCB approved a Water Recycling Construction Program grant commitment for the Silver Creek Pipeline pending successful completion of all application requirements.

On June 26, 2001, City Council approved the Cooperation Agreement between the City and Calpine/Bechtel related to the construction and operation of the Metcalf Energy Center (MEC). This Agreement provided for an extension of the SBWR pipeline that would serve MEC. After approval of the Cooperation Agreement, an alternative to the original proposed alignment for the extension was identified.

On October 16, 2001, City Council approved an Amendment to the Cooperation Agreement with Calpine/Bechtel and a financing plan for extension of the pipeline, identifying the Silver Creek Alignment for the provision of recycled water to MEC. The Silver Creek pipeline alignment now under construction is a 30-inch pipeline project consisting of approximately 9 miles of pipeline with the capacity to deliver 5 mgd peak demand to MEC and up to an additional 10 mgd to future customers in the South Valley.

On January 22, 2002, the City Council and the Board of Directors of the Santa Clara Valley Water District approved an Agreement, under which up to $6.8 million in Water District funding will be available to offset Silver Creek Pipeline costs, once the pipeline is built. This Agreement with the Water District was approved by the Treatment Plant Advisory Committee on February 14, 2002.

ANALYSIS

The Silver Creek Alignment financing plan approved by Council on October 16, 2001, requires the Plant to provide the up-front funding for this extension out of the SBWR Phase 2a, $82.5 million budget. Revised cost estimates indicate a project cost of $22.4 million for the design and construction of the Silver Creek Alignment. Of that amount, the SWRCB determined the reasonable and eligible cost of the project to be $14.6 million. The SWRCB has approved a maximum funding amount under this grant agreement of $3,654,544.

Under the Cooperation Agreement, Calpine/Bechtel will reimburse 32% of project costs, in payments amortized over 30 years. Under the Cooperation Agreement, any grants received by the City are to be applied to project costs, before the calculation of Calpine’s payment. The total project costs are $22.4 million and grant eligible project costs are $14.6 million. Therefore, if the City receives grant payments totaling 25% of eligible costs ($3.65 million), Calpine’s share of project costs will be calculated based on 32% of the $18.75 million net project cost.

The Agreement with the Water District does not provide for any sharing of grant or loan funds. Accordingly, the District’s share of project costs will be unaffected by the recommend grant application. The cost allocation is summarized in the table below.

Allocation of Silver Creek Alignment Cost

Participants	Total Project Cost (Millions)	Grant Proceeds (Millions)	Net Project Cost (Millions)
Plant	$9.6	$1.8	$7.8
Cal/Bechtel	$7.2	$1.8	$5.4
SCVWD	$5.6	0	$5.6
Total	$22.4	$3.6	$18.8

PUBLIC OUTREACH

The South Bay Water Recycling development plan was developed in consultation with agency representatives, including staff and elected officials of the Water District, the cities of San Jose, Milpitas and Santa Clara and other agencies tributary to the San Jose/Santa Clara Water Pollution Control Plant. Both agency and community stakeholders participated in numerous planning exercises including the Santa Clara County Medical Association, the San Jose Unified School District, the Silicon Valley Chamber of Commerce, the Homebuilders Association, the Farm Bureau and several other business, educational and environmental groups.

COORDINATION

This item has been coordinated with the Department of Public Works, the City Attorney’s Office and the City Manager’s Budget Office. This item is scheduled to be heard at the November 13, 2003 Treatment Plant Advisory Committee (TPAC) meeting.

COST IMPLICATIONS

The execution of this grant agreement with the SWRCB will result in grant revenues of $3,654,544 to be reimbursed to the Treatment Plant Capital Fund.

In accordance with the Mayor’s budget strategy, the funds provided under this agreement will not only focus on the protection of a vital core service but also provide an alternative way to deliver services through appropriate community partnerships and public-private partnerships.

BUDGET REFERENCE

Fund #	Appn #	Apn. Name	RC#	Total Appn.	Amt. for Contract	2003-2004 Adopted Capital Budget Page	Last Budget Change (Date, Ord. No.)
512	8150	Earned Revenue	N/A	$22,985,000	N/A	191	N/A

CEQA

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 Addendum dated September 5, 2001; Negative Declaration, Adopted July 12, 2000, File No. PP-00-05-072 (SBWR Phase 2).

CARL W. MOSHER

Director, Environmental Services Department