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HomeMy WebLinkAboutCouncil Presentation - Water Supply Acquisition Strategy UpdateTown Council Retreat I March 15, 2023 All Rights Reserved © WestWater Research |Privileged and Confidential Photo: www.maranaaz.gov Town of MaranaWater Supply Acquisition Strategy Update Background and Purpose •Town of Marana is exploring long -term water resource acquisition opportunities and developing a water resource acquisition strategy guided by a dedicated Task Force of Town representatives. •Current water supply portfolio is secure and sufficient to accommodate near - term growth (2-3 years),although reliance on replenished groundwater may be necessary within 10 years absent new renewable supplies. •Evaluating long-term,reliable,renewable water supplies to avoid future supply gaps and reliance on higher-cost water/groundwater . All Rights Reserved ©WestWater Research 2 Town of Marana Project Scope All Rights Reserved ©WestWater Research 3 •Phase 1: Task Force Coordination and Preliminary Needs Assessment •Information Review -Complete •Task Force Coordination –Complete •Preliminary Needs Assessment –Complete •Phase 2: Water Acquisition Strategy Development •Objective: Develop a cost-effective and implementable water acquisition strategy to address Marana’s water supply requirements identified in Phase 1. •Development of water asset inventory, valuation and cost analysis, and evaluation framework to determine priority supplies –Complete •Development of budget and financing approaches, and acquisition strategy recommendations -Ongoing Town of Marana Task Force Motivations, Goals & Objectives •Water Resource Acquisition Task Force organized under the direction of Marana’s Water Director. •Consists of Core Members and Advisory Members,all of whom represent and support the Town’s interests. •Task Force identified several motivations,goals &objectives for developing a water acquisition strategy. All Rights Reserved ©WestWater Research 4 Town of Marana Motivations Goals & Objectives Decreasing reliability of surface water supplies. Cushion Marana water supply portfolio with other long- term renewable sources prior to more severe CO River shortage conditions. Projected growth requires DAWS modification/expansion and greater reliance on groundwater in the long term. Identify feasible sources of available supplies, prioritize/narrow supply options, and establish streamlined policies/methodologies to assess opportunities and develop financial resources for acquisitions. CAGRD replenishment services are expensive and future costs are uncertain. Avoid reliance on excess groundwater. Begin acquiring renewable supplies soon to avoid competition for supplies and price inflation. Target Volumes and Timeline •Target acquisition volume based on avoiding CAGRD reliance through buildout (2041 ). •Low-End Target Volume =9,000 AF/yr (supplies include current and projected effluent capacity,CAP M&I at 100 %availability,CAP NIA at 47%availability,and groundwater not subject to replenishment) •High-End Target Volume =11,000 AF/yr (supplies include current effluent capacity,CAP M&I at 100%availability,and groundwater not subject to replenishment) •Timeline:phase-in period beginning no later than 2025. •Secure supplies soon.Competition will increase and drive up prices .There will be fewer opportunities in the future particularly if severe drought conditions continue. •Phase -in period needed.Smooths budgetary impacts .Allows time for negotiations,to develop agreements,consult with Council and obtain Council approval . •Target 2,000 AF/yr –4,000 AF/yr near-term based on projected CAGRD reliance through 2030. All Rights Reserved ©WestWater Research 5 CAP modeling results indicate mean NIA availability of 47% for all modeled traces (CAP, March 2021). Assumption is consistent with Marana Water Facilities Infrastructure Improvements Plan (Marana & WestLand, September 2022). Town of Marana Target Volumes and Timeline All Rights Reserved ©WestWater Research 6 Low-End Target Volume –CAP NIA & Projected Effluent Added to DAWS High-End Target Volume –CAP NIA & Projected Effluent Not Added to DAWS 1,812 4,029 10,991 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Volume (AF)DAWS Scenario 1 (Current Sources)Acquisition Volume Scenario 1 DAWS Modification Demand 1,354 1,890 8,852 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Volume (AF)DAWS Sources Scenario 2 (Added Sources)Acquisition Volume Scenario 2 DAWS Modification Demand Town of Marana Potentially Acquirable Water Supplies •Colorado River entitlements used for irrigation are considered potentially available for acquisition throughrotationalfallowingorsomeotherreductionofconsumptiveuse,or through a sale and transfer . •CAP entitlements are potentially available through forward LTSC purchase agreements with M&Isubcontractorsellers,short-term (1-5 years)lease agreements with Tribal sellers,medium -term (6-50 years)lease agreements with Tribal sellers,or long-term (100-year)lease agreements with Tribal sellers. •Effluent is potentially available through short-term (1-5 years)or medium-term (6-50 years)leaseagreements. •Imported groundwater is potentially available through a sale of 100-year supply .Arizona statute permitstheexportofgroundwaterfromMcMullenValley,Butler Valley,and the Harquahala Irrigation Non-Expansion Area (INA). •LTSC could be purchased through short-term (1-5 years)purchase agreements or medium-term (6-50years)purchase agreements. •Direct potable reuse (DPR)and desalination are potential sources to evaluate,however these supplies areinfrequentlytraded. •Supplies considered not feasible for acquisition include Santa Cruz River surface water rights and othergroundwaterrightsbecauseofavailabilityuncertaintyandpublicobjection. All Rights Reserved ©WestWater Research 7 Town of Marana •Water asset inventory was developed to quantify the potentially available supplies identified in the Needs Assessment. •Scoring criteria reflecting Marana’s objectives and the attributes of available water assets,including seller receptivity,available volumes,transaction costs,priority,location, regulatory,and timing,was applied to assign a relative score to individual water assets within each asset class. •Cost estimates were developed for each asset class based on transactions data obtained from WestWater’s proprietary Waterlitix™database,the most comprehensive and up-to - date source of water asset transactions in Arizona. •Valuation analysis was completed including upfront water supply acquisition costs and additional ongoing costs to develop and convey water assets to Marana.Total costs are compared within and across asset classes. All Rights Reserved ©WestWater Research 8 Town of MaranaInventory, Cost Analysis, and Evaluation Framework All Rights Reserved ©WestWater Research 9 Supply Type Renewable Supply? Potentially Available (AF/year, 100 yrs) Transaction Structure DAWS Duration Relative Acquisition Cost Relative Delivery Costs Risk Factors Effluent 18,000 Temporary Lease 1-50 Years Low Low-Mid Uncertain long-term market supply/May require infrastructure development LTSC × 2,000 Single-Use / Forward Purchase 1-50 Years Low Low Uncertain long-term market supply /Annual execution risk/Risk of supply exhaustion CAP 249,000 Temporary Lease 1-50 Years Low Low Subject to CO River Shortage/Competition from system conservation programs 100-Year Lease 100 Years High Mid Subject to CO River Shortage/Uncertain seller receptivity Imported Groundwater × 54,000 Permanent Transfer 100 Years High High Risk of supply exhaustion/Regulatory approvals pending Colorado River 80,000 Temporary Lease 1-50 Years Low Mid Subject to CO River Shortage/Competition from system conservation programs/Requires landowner participation & approval/Unproven transaction structure Permanent Transfer 100 Years High Mid-High Subject to CO River Shortage/Limited pool of permanent transfer supplies High -Priority Supplies Town of Marana Potentially available volume from high-priority individual assets within each supply type =403,000 AF/year All Rights Reserved ©WestWater Research 10 Cost Comparison Town of Marana Cost Category Unit Cost ($/AF) Colorado River GSC Farm – Queen Creek (2018) Harquahala Valley Groundwater – Queen Creek (2021) Harquahala Valley Groundwater – Buckeye (2023) CAP 100-Year Lease GRIC- Chandler (2016) 500+ Plan (2023) Lower CO Conservation & Efficiency Program (2023) Upfront Acquisition Payment Upfront Sale Price $10,000 $6,000 $13,500 $13,100 -- CPI-Adjusted to January 2023 $11,800 $6,500 $13,500 $16,400 -- Infrastructure Capital Costs -$3,400 $3,400 --- Total Upfront (2023)$11,800 $9,900 $16,900 $16,400 -- Annualized Acquisition Payment Total Upfront Payment Annualized / Annual Lease Price $401 $337 $575 $558 $269 $400 Upfront & Annual Wheeling – 2023 Value Upfront System Improvement Fee Annualized $51 $51 $51 --- Annual System Improvement Rate $20 $20 $20 --- Annual CAP Capital Equivalency Charge $53 $53 $53 --- Annual CAP Delivery 2023 Value Annual Fixed OM&R $162 $162 $162 $162 $162 $162 Annual Pumping Energy $65 $65 $65 $65 $65 $65 Total Annual (2023)$752 $688 $926 $785 $496 $627 Upfront Acquisition Payments and Upfront System Improvement Fee are annualized using a 3.4%discount rate . System Improvement Fee is a one-time,upfront fee estimated to be $1,500 /AF charged by Central Arizona Water Conservation District to the buyer for wheeling non-CAP water through the CAP Canal. HVWP Infrastructure Capital Costs are based on estimates provided by HVWP in September 2021 for Phase 1. Implementation Recommendations Based on the supplies identified as high priority,the cost analysis,and initial acquisition timeline and budget estimates,WestWater developed the following initial water acquisition strategy implementation recommendations for the Town. 1.Target near-term acquisition volumes of 2,000 AF to 4,000 AF per year through 2030 .This range meets Marana’s objective of avoiding CAGRD reliance while longer -term supplies are pursued (100-year)and while growth projections are realized . •Reevaluate target acquisition volumes and water market evolution at least every 2 years. 2.Prioritize LTSC to achieve near -term targets.Transactions of LTSC are straightforward,relatively low -cost,and low -risk.Acquisitions could be available for recovery and use as early as 2024 through 2030 .Tucson AMA LTSC can also be transferred directly to CAGRD to avoid replenishment obligations. All Rights Reserved ©WestWater Research 11 Town of Marana Implementation Recommendations 3.Pursue acquisitions of effluent supplies.Local effluent owners are actively marketing Tucson AMA supplies and looking to advance certain priorities in the Tucson AMA, which may present opportunities for mutually advantageous partnerships. 4.Monitor opportunities to acquire long-term,reliable supplies and prepare to conduct outreach to potential sellers.The volume of acquired supplies will depend largely upon a)buildout and ADWR recognition of Marana’s effluent supplies, b)Marana’s budget,and c)market availability.To avoid CAGRD reliance through 2041 , the target volume is currently projected to range from 9,000 AF to 11,000 AF. •Prepare to conduct outreach to high-priority supply holders . •Monitor State of AZ participation in new augmentation projects . All Rights Reserved ©WestWater Research 12 Town of Marana Thank You Jessica Fox 13 fox@waterexchange.com 4747 N 7th St #412 Phoenix, AZ 85014 (602) 595 -7009 waterexchange.com