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HomeMy WebLinkAboutStaff Report 13972 City of Palo Alto COLLEAGUES MEMO January 31, 2022 Page 1 of 2 (ID # 13972) DATE: January 31, 2022 TO: City Council Members FROM: Council Member Cormack, Council Member Burt SUBJECT: COLLEAGUES MEMO: CONSIDER SALE OF UP TO 1 MILLIONS GALLONS PER DAY (MGD) OF INDIVIDUAL SUPPLY GUARANTEE (ISD) Situation The Bay Area Water Supply and Conservation Agency (BAWSCA) is composed of 26 member agencies, both municipalities and private water agencies, and its mission is to provide a reliable source of high quality water at a fair price. The San Francisco Public Utilities Commission (SFPUC) has a perpetual obligation to provide 184 MGD (million gallons per day) of water to these 26 member agencies. BAWSCA members have agreed on the allocation of that 184 MGD among themselves. Palo Alto’s current allocation (which is called an individual supply guarantee, or ISG) is 16.58 MGD and our projected purchases in FY2027-28 are 10.10 MGD. The projected number comes from our recently adopted Urban Water Management Plan and reflects the future growth in people and houses that ABAG has assigned to Palo Alto. Multiple entities within BAWSCA desire to increase their ISG either because they currently use their ISG amount or because they plan to build additional housing and/or mixed-use developments and require additional water supplies to do so. Given that Palo Alto is highly unlikely to need its full allocation in the future, this is an appropriate time to contemplate selling a small portion of our unused ISG to one or more BAWSCA members. There is no established market for the pricing and sale of this valuable asset. In 2018, Palo Alto transferred 0.5 MGD to East Palo Alto, in recognition of the fact that our neighboring community was not independently established when the allocations were made and received an unfairly low ISG at that time. Since that time, ISG transfers have been a topic of discussion among BAWSCA agencies with a range of interested parties. Our current opportunity is quite different and more transactional in nature than our prior transfer. While we expect that 1 MGD could be worth tens of millions of dollars given its scarcity and desirability, staff will need to engage with the interested parties to determine an appropriate price. Potential benefits January 31, 2022 Page 2 of 2 (ID # 13972) The proceeds from the sale of some portion of our ISG could be used to make our water supply more sustainable, by further increasing the purification of recycled water, extending the pipelines of recycled water to other locations in the city, and/or preparing for direct reuse of recycled water. The impacts of climate change and state regulations on our storage-dependent water system are likely to be significant over time and it would be wise to begin focusing on reuse of water at a larger scale than we currently operate. These are expensive projects that could cost hundreds of millions of dollars and will otherwise need to be paid for by ratepayers. Resource impact Staff estimates that consultant assistance and roughly 120 hours of a Senior Resource Planner’s time is needed to accomplish this work, as well as involvement by management and the City Attorney’s Office. Work on this task would compete with resources dedicated to water supply planning and developing the One Water Plan integrating potable and recycled water resources; however, since funding for projects identified in the plan will be a key element of the plan, much of the work involved with addressing ISG transfers can be complementary. Staff anticipates that a report that includes a description of the unique characteristics of and contractual terms that apply to ISG, an estimated sales price, and a list of potential water supply projects that could be funded or partially funded by the proceeds from a sale can be developed in consultation with the UAC and scheduled for Council review in June 2022. Subject to Council feedback, staff anticipates that an ISG sale policy can be scheduled for Council consideration in Fall 2022. Next steps We ask that Council direct staff to develop a policy to guide the evaluation of prospective ISG transfers. This policy could address issues such as the method through which the amount(s) available for transfer is determined, the criteria for determining specific elements of a desirable transfer, appropriate uses of any revenue generated, and the decision-making process involved. We recommend that the development of this policy include the Utilities Advisory Commission and the Finance Committee to allow for the public’s participation and a thorough review of the concept. During the development of this policy, we suggest that staff continue to communicate with BAWSCA to understand the benefits and impacts of potential transfers and to keep the SFPUC and Valley Water informed about the concept. In parallel, we recommend that staff initiate a preliminary exploration of a transaction with parties who are interested in securing additional water supply guarantees, and return to Council with information about the feasibility of a sale, likely price range for up to 1 MGD, brief description of what the other parties might use the water for, and an overview of what types of valuable projects could be initiated or accelerated with the additional revenue.