HomeMy WebLinkAboutAgenda Statement 1984/12/04 Item 9a-b COUNCIL AGENDA STATEMENT
Item 9a
Meeting Date 12/04/84
ITEM TITLE: Resolution /I":'$3? Approving Agreement with Spring Valley
Sanitation District relating to transfer of Metropolitan
Sewerage System capacity
SUBMITTED BY: Director of Public Works/City Engineer (4/5ths Vote: Yes No x )
REVIEWED BY: City Manage r 9Y11-/
The City Council has authorized sale of up to 5.0 million gallons per day
(mgd) of Metropolitan Sewerage System capacity rights held by the City. To
date, capacity sales have totalled 3. 9 mgd. It is proposed that an additional
1 .0 mgd be sold to the Spring Valley Sanitation District. An agreement
formalizing that intent has been approved by the Board of the Sanitation
District. That agreement was prepared jointly by City and County staff
personnel.
RECOMMENDATION: That Council approve the agreement and authorize the Mayor
to execute in behalf of the City.
BOARDS/COMMISSIONS RECOMMENDATION: Not applicable.
DISCUSSION:
In May 1978, Engineering staff prepared a report on "Projected Capacity Needs
in the Metropolitan Sewerage System" which recommended sale of 5.0 million
gallons per day (MGD) in Metro System capacity rights from the total City
capacity reservation of 22.1 MGD. That report was subsequently submitted to
City Council and on January 25, 1979, the City Council unanimously adopted a
motion "that the staff recommendation be adopted to consider sale of up to
five million gallons per day of the current capacity reservation in the
Metropolitan Sewerage System, which includes the one million gallons in the
process of being sold."
The City Engineer subsequently investigated the interest among local agencies
in purchasing such capacity and developed a methodology of determining the
price at which the capacity would be offered. The recommended method of price
determination and the then-current prices were presented to council on
August 18, 1981 , along with a recommendation that Council "reiterate its
intent to sell up to an additional 4 MGD in capacity rights. "*
*NOTE: One MGD in rights had been sold subsequent to the January 25, 1979,
authorization to sell up to 5 MGD. Hence, an "additional 4 MGD"
remained to be sold from that initial authorization.
Page 2, Item 9a
Meeting Date 12/04/84
Council unanimously determined "to accept the report and staff's
recommendation."
The method of determining selling price as proposed in the City Engineer's
August 18, 1981 , report essentially duplicates that used by the City of San
Diego. Through using a similar methodology as that agency, we can establish a
price at any time which is closely comparable to that which would be quoted by
San Diego. Since purchasers have the option of buying capacity directly from
San Diego, it is important that our price be competitive with what San Diego
would offer. If our price is above theirs, we are not likely to make any
sales. If our price is significantly less than San Diego' s, then we are
missing out on potential revenue to the City.
The San Diego method of price determination includes the initial Metro System
construction cost, interest for 40 years on that initial construction, and the
current estimated cost of certain deferred construction. The resultant cost
per year per MGD is then adjusted to reflect a portion of the inflation in
construction costs (per Engineering News Record magazine) between September
1963 and the time of price determination, plus a 10% surcharge. The
methodology appears to be based on the cost of completing the Metro System
(plus a surcharge) rather than reflecting the current replacement cost. Even
though the method is moderately vague, it has been consistently used by San
Diego and hence appears to be practical for Chula Vista use in calculating a
selling price.
The total price per MGD calculated on the San Diego basis in June 1984 was
$63,026. Chula Vista pays $12,098 per year per MGD to San Diego for capacity
rights and this obligation must be assumed through formal agreement by any
purchaser of Chula Vista 's capacity. Consequently, Chula Vista's direct
revenue from this current sale of capacity will be $63,026 - $12,098 = $50,928
per year. Such payments will continue through February 2004 during which time
18 full annual payments and 2 partial year payments (for first and last years)
are scheduled to be made. An indirect benefit to Chula Vista will be the
elimination of the obligation to pay San Diego $12,098 per year.
The following is a comparison of prices per MGD for Metro capacity sold by
Chula Vista in recent years:
YEAR TOTAL PRICE PER MGD*
1982 $44,950
1983 $57,266
1984 (Proposed) $63,026
* NOTE: The prices shown include the amount of $12,098 per MGD due to the
City of San Diego. Annual amount due to Chula Vista is total price minus
$12,098.
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Page 3, Item 9a
Meeting Date-17704784
At the request of the Spring Valley Sanitation District, the agreement also
includes a provision which would permit the remaining indebtedness to Chula
Vista to be paid in full at any time of the District's choosing. The amount
of this lump sum payment would be based on a present worth calculation using
an 8% interest rate.
Of the 5.0 MGD initially "authorized" for sale in January 1979, a total of 3.9
MGD has been sold. When added to such previous sales, this one (1 .0 MGD) will
bring the total sales to 4.9 MGD and leave Chula Vista with a total Metro
capacity reservation of 17.2 MGD.
The following is a summary of sales related to the 5.0 MGD "authorization" in
January 1979:
YEAR PURCHASER QUANTITY
1979 Spring Valley Sanitation District 1 .0 MGD
1982 Spring Valley Sanitation District 1 .7 MGD
(for Rancho San Diego area usage)
1983 Otay Water District 1 .2 MGD
1984 (Proposed) Spring Valley Sanitation District 1 .0 MGD
TOTAL 4.9 MGD
The total amount paid (principal plus interest) by Chula Vista through 6-01-84
for the 1.0 MGD being sold is $252,003. If the proposed purchase is completed
via annual payments, Chula Vista will receive a maximum of $980,364 in cash
and be relieved of annual payments to San Diego ($12,098 each) totaling
$231 ,917 (maximum). If the District were to choose to make a lump sum present
worth payment at the outset of the agreement, then Chula Vista would receive
$491 ,837. Under this method of payment, the purchaser would still be
responsible for annual payments of $12,098 each to San Diego, and Chula Vista
would be relieved of such payments in the total amount of $231 ,917 (maximum) .
The method of computing a price for Metro capacity used herein is intended to
match San Diego's as closely as possible. The advantage to the purchaser of
Chula Vista capacity rights is exemption from future possible cost increases
for "deferred" construction. Capacity purchased from San Diego would,
conversely, bear such a liability.
The agreement herewith submitted for Council consideration was drawn up
through the joint efforts of City and District staffs. The agreement has been
approved by the Board of Directors of the Spring Valley Sanitation District.
Terms of the sale are summarized as follows:
1 . The District will make annual payments in the amount of $50,928 to Chula
Vista and $12,098 to the City of San Diego through February 2003 plus a
partial-year payment in February 2004.
Page 4, Item 9a
Meeting Date 12/04/84
2. The first payment is to be made within 30 days after approval of the
transfer of capacity by the City of San Diego.
3. The District at any time during the life of the agreement may elect to
make a lump sum payment to Chula Vista representing the then-current worth
of the remaining unpaid annual payments to Chula Vista. Such action shall
not relieve the District of its ongoing obligation to the City of San
Diego.
4. The sale is conditioned upon approval of the transfer of capacity rights
by the City of San Diego. If such approval is not gained then Chula Vista
is obligated to return any payments made by the District.
FISCAL IMPACT: Direct income to the City will be either $50,928 per year
for approximately 19 years or one lump sum payment representing then-current
worth. This latter figure will vary with time and will be dependent upon how
much time is left on the agreement. The money derived from the sale will be
placed in a special fund previously created by the Finance Department pending
final determination by Council regarding use of that fund in the future. This
sale will reduce the City's annual payment for Metro System capacity by
approximately $12,100 to an annual total of approximately $195,400.
WEH:nr/KY060-7
WPC 1157E
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,,....._ ,,...,„/,.. - ..,-,:,, {�_. ,9� � Y The City of Chub Vista
�. Engineering Department 691 -5021
December 10 , 1984
� t File : KY 060-7
City Operations Building
1222 First Avenue
San Diego, CA 92101
Attention : Charles Yackley , M.S. 401
AGREEMENT RE . METRO CAPACITY TRANSFER ( 1 .0 M.G.D. ) BETWEEN CHULA VISTA
AND SPRING VALLEY SANITATION DISTRICT
Enclosed are three copies of the subject agrement, each executed by
both Chula Vista and the Spring Valley Sanitation District . Attached
to each is a copy of Chula Vista 's Resolution No. 11859.
You are requested to do the following :
1 . Process the document for approval of the transfer by proper San
Diego authority.
2 . Initiate the appropriate modifications to the Sewage Disposal
Agreement of 1960 for each agency.
After the necessary signatures have been obtained , please return one
fully executed copy to each of the following:
County Operations Center
555 Overland Avenue, Building #1
San Diego , CA 92123
Attention : Mr. Joseph Barry, M.S. 0384
City of Chula Vista
Engineering Department
P. 0. Box 1087
Chula Vista, CA 92012
Attention : Mr. William Harshman
Thank you for your prompt attention . I can be reached at 691-5119 if
you have any questions.
X46
WILLIAM E. H , RSHMAN
SENIOR CIVIL ENGINEER
WEH : av
(B8 :YACKLEY)
276 Fourth Avenue Chula Vista,California 92010
.....SM/___ _ __,.._ _
COUNCIL AGENDA STATEMENT
Item 9b
Meeting Date 12/4/84
ITEM TITLE: Resolution // d Approving Agreement with Lakeside
Sanitation District relating to transfer of Metropolitan
Sewerage System capacity
SUBMITTED BY: Director of Pub is Works/City Engineer (4/5ths Vote: Yes No x )
REVIEWED BY: City Manager �.
The City Council has authorized sale of up to 5.0 million gallons per day
(mgd) of Metropolitan Sewerage System capacity rights held by the City. To
date, capacity sales have totaled 4.9 mgd. It is proposed that an additional
0.1 mgd be sold to the Lakeside Sanitation District. An agreement formalizing
that intent has been prepared jointly by City and County staff personnel .
Because of the press of time the County staff has requested that City Council
action preceed approval by the Sanitation District Board.
RECOMMENDATION: That Council approve the agreement and authorize the Mayor
to execute in behalf of the City.
BOARDS/COMMISSIONS RECOMMENDATION: Not applicable.
DISCUSSION:
In May 1978, Engineering staff prepared a report on "Projected Capacity Needs
in the Metropolitan Sewerage System" which recommended sale of 5.0 million
gallons per day (MGD ) in Metro System capacity rights from the total City
capacity reservation of 22.1 MGD. That report was subsequently submitted to
City Council and on January 25, 1979, the City Council unanimously adopted a
motion "that the staff recommendation be adopted to consider sale of up to
five million gallons per day of the current capacity reservation in the
Metropolitan Sewerage System, which includes the one million gallons in the
process of being sold."
The City Engineer subsequently investigated the interest among local agencies
in purchasing such capacity and developed a methodology of determining the
price at which the capacity would be offered. The recommended method of price
determination and the then-current prices were presented to council on
August 18, 1981 , along with a recommendation that Council "reiterate its
intent to sell up to an additional 4 MGD in capacity rights. "*
*NOTE: One MGD in rights had been sold subsequent to the January 25, 1979,
authorization to sell up to 5 MGD. Hence, an "additional 4 MGD"
remained to be sold from that initial authorization.
Page 2, Item 9b
Meeting Date 1Z/4/84
Council unanimously determined "to accept the report and staff's
recommendation."
The method of determining selling price as proposed in the City Engineer's
August 18, 1981, report essentially duplicates that used by the City of San
Diego. Through using a similar methodology as that agency, we can establish a
price at any time which is closely comparable to that which would be quoted by
San Diego. Since purchasers have the option of buying capacity directly from
San Diego, it is important that our price be competitive with what San Diego
would offer. If our price is above theirs, we are not likely to make any
sales. If our price is significantly less than San Diego's, then we are
missing out on potential revenue to the City.
The San Diego method of price determination includes the initial Metro System
construction cost, interest for 40 years on that initial construction, and the
current estimated cost of certain deferred construction. The resultant cost
per year per MGD is then adjusted to reflect a portion of the inflation in
construction costs (per Engineering News Record magazine) between September
1963 and the time of price determination, plus a 10% surcharge. The
methodology appears to be based on the cost of completing the Metro System
(plus a surcharge) rather than reflecting the current replacement cost. Even
though the method is moderately vague, it has been consistently used by San
Diego and hence appears to be practical for Chula Vista use in calculating a
selling price.
The total price per MGD calculated on the San Diego basis in November 1984 was
$64,805. Chula Vista pays $12,098 per year per MGD to San Diego for capacity
rights and this obligation must be assumed through formal agreement by any
purchaser of Chula Vista's capacity. Since the proposed sale involves only
0.1 MGD, the total price will be $6,480 and the amount due to San Diego will
be $1 ,210 per year. Consequently, Chula Vista's direct revenue from this sale
of 0.1 MGD capacity will be $6,480 - $1 ,210 = $5,270 per year. Such payments
will continue through February 2004 during which time 18 full annual payments
and 2 partial year payments (for first and last years) are scheduled to be
made. An indirect benefit to Chula Vista will be the elimination of the
obligation to pay San Diego $1 ,210 per year.
The following is a comparison of prices per MGD for Metro capacity sold by
Chula Vista in recent years:
YEAR TOTAL PRICE PER MGD*
1982 $44,950
1983 $57,266
1984 (Current sale to Spring Valley S.D. ) $63,026**
* NOTE: The prices shown include the amount of $12,098 per MGD due to the
City of San Diego. Annual amount due to Chula Vista is total price minus
$12,098.
** NOTE: The sale of 1 .0 MGD to the Spring Valley Sanitation District is in
process as of the time of preparation of this Council agenda statement.
That sale is assumed herein to have been consummated.
\\$fib
Page 3, Item 9b
Meeting Date 12/4/84
At the request of the Lakeside Sanitation District, the agreement also
includes a provision which would permit the remaining indebtedness to Chula
Vista to be paid in full at any time of the District's choosing. The amount
of this lump sum payment would be based on a present worth calculation using
an 8% interest rate.
Of the 5.0 MGD initially "authorized" for sale in January 1979, a total of 4.9
MGD has been sold. When added to such previous sales, this one (0.1 MGD) will
bring the total sales to 5.0 MGD and leave Chula Vista with a total Metro
capacity reservation of 17.1 MGD.
The following is a summary of sales related to the 5.0 MGD "authorization" in
January 1979:
YEAR PURCHASER QUANTITY
1979 Spring Valley Sanitation District 1 .0 MGD
1982 Spring Valley Sanitation District 1 .7 MGD
(for Rancho San Diego area usage)
1983 Otay Water District 1 .2 MGD
1984 Spring Valley Sanitation District 1 .0 MGD
1984 (proposed) Lakeside Sanitation District 0.1 MGD
TOTAL 5.0 MGD
The total amount paid (principal plus interest) by Chula Vista through 6-01-84
for the 0.1 MGD being sold is $25,200. If the proposed purchase is completed
via annual payments, Chula Vista will receive a maximum of $100,000 in cash
and be relieved of annual payments to San Diego ($1 ,210 each) totaling $23,000
(maximum) . If the District were to choose to make a lump sum present worth
payment at the outset of the agreement, then Chula Vista would receive
approximately $50,400. Under this method of payment, the purchaser would
still be responsible for annual payments of $1 ,210 each to San Diego, and
Chula Vista would be relieved of such payments in the total amount of $22,790
(maximum) .
The method of computing a price for Metro capacity used herein is intended to
match San Diego's as closely as possible. The advantage to the purchaser of
Chula Vista capacity rights is exemption from future possible cost increases
for "deferred" construction. Capacity purchased from San Diego would,
conversely, bear such a liability.
The agreement herewith submitted for Council consideration was drawn up
through the joint efforts of City and District staffs. The agreement has not
yet been approved by the Board of Directors of the Lakeside Sanitation
District. The Board considers such matters only once each month. County
staff requests first consideration by the Chula Vista City Council to be
followed by Board consideration on December 18, 1984.
Terms of the sale are summarized as follows:
1. The District will make annual payments in the amount of $5,270 to Chula
Vista and $1 ,210 to the City of San Diego through February 2003 plus a
partial year payment in February 2004.
Page 4, Item 9b
Meeting Date 12/4/84
2. The first payment is to be made within 30 days after approval of the
transfer of capacity by the City of San Diego.
3. The District at any time during the life of the agreement may elect to
make a lump sum payment to Chula Vista representing the then-current worth
of the remaining unpaid annual payments to Chula Vista. Such action shall
not relieve the District of its ongoing obligation to the City of San
Diego.
4. The sale is conditioned upon approval of the transfer of capacity rights
by the City of San Diego. If such approval is not gained then Chula Vista
is obligated to return any payments made by the District.
FISCAL IMPACT: Direct income to the City will be either 35,270 per year for
approximately 19 years or one lump sum payment representing then-current
worth. This latter figure will vary with time and will be dependent upon how
much time is left on the agreement. The money derived from the sale will be
placed in a special fund previously created by the Finance Department pending
final determination by Council regarding use of that fund in the future. This
sale will reduce the City 's annual payment for Metro System capacity by
approximately $1 ,210 to an annual total of approximately $194,190.
WEH:n r/KY060-7
WPC 1157E
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