DATE:
May 3, 2022
TO:
Chair and Board Members, Hesperia Water District
FROM:
Nils Bentsen, General Manager
BY:
Rachel Molina, Assistant City Manager
Tina Souza, Senior Management Analyst
SUBJECT:
Permanent Water Rights Purchase and Lease from Vanhoops Holdings, LP
RECOMMENDED ACTION
It is recommended that the Board of Directors of the Hesperia Water District authorize the purchase of 360 acre-feet (AF) of permanent Bass Annual Production water rights in the Alto Subarea from Vanhoops Holdings, LP at $6,060 per AF for $2,181,600, 234 AF of Carryover rights at $500 per AF totaling $117,000, and 198 AF of FPA at $500 per AF totaling $99,000, for a total transaction amount of $2,397,600, for the permanent and temporary assignment of water rights.
BACKGROUND
The Adjudication (City of Barstow et al, v. City of Adelanto et al) is intended to remediate overdraft in the Mojave Basin Area by limiting the amount of water produced in specific subareas. The Free Production Allowance (FPA) is the maximum amount of water a producer may pump in one year without incurring a replacement or make-up obligation. As a result of the judgment, Hesperia Water District (District) incurs replacement water obligations in the Alto Subarea when verified production amounts exceed the FPA for the water year.
The District may meet these replacement water obligations by three mechanisms: 1) assignment of Carryover right or temporary transfer of unused FPA (i.e. lease) from interested water rights owners in the respective subarea at negotiated rates (this is a cost effective short-term option to meeting the production demands); 2) purchase water from the Mojave Basin Area Watermaster (Watermaster) at the current per acre-foot (AF) water rate which is derived from the State Water Project water rates, and/or; 3) purchase permanent Base Annual Production (BAP) rights from interested parties in the Alto Subarea at negotiated rates (purchase provides a long-term solution, but is costly and difficult to acquire).
With the additional rampdown related to the Adjudication in recent years, the growing demands of the District’s service area, water availability, and the competitive nature of assignment water, the District incurs a significant replacement obligation annually and has had to meet this obligation by purchasing water from the Watermaster.
It was brought to the District’s attention that Vanhoops Holdings, LP was interested in selling 360 AF of permanent BAP rights. Due to the ramp down of 55 percent required by the Adjudication, the BAP equates to 198 AF of FPA that can be used to offset annual replacement obligations. Along with this permanent BAP, Vanhoops Holdings, LP held 234 AF of Carryover rights, which equates to 198 AF that may be applied to Water Year 2020-21 replacement obligations and 198 AF of Free Production Allowance (FPA), which equates to 198 AF that may be applied to Water Year 2021-22 replacement obligations (court ordered gradual rampdown of agricultural water in recent years makes agricultural water equitable to municipal and industrial water by Water Year 2021-22, whereas historically, agricultural water had a differential rampdown).
ISSUES/ANALYSIS
During the 2020-21 Water Year (October 2020 to September 2021), the District produced 14,942 AF of water. The District’s FPA is 7,795 AF leaving a replacement obligation of 7,147 AF. The City owns 6,736 AF which equates to 3,705 AF of FPA that can be used to offset annual replacement obligations by leasing to the District; subsequently leaving a replacement obligation balance of 3,442 AF. The purchase of permanent water rights, while costly, provides a long-term solution to the inevitable water production overrun the District faces annually.
The table below represents the City’s and District’s historical purchases of permanent water rights since 2012.
MM/YY
Purchased From
Acre-Feet Purchased
Cost per
Acre-Foot
Feb-2012
Summit Valley Ranch
40 $4,010
Jul-2012
Summit Valley Ranch
25 $4,035
Dec-2012
Rancho Las Flores (R.E. Loans)
5,971
$5,024
Mar-2014
Summit Valley Ranch
200
$5,000
May-2015
Aqua Capital
500
$5,000
*Oct-2015
Jerry Cunningham
9 $5,000
*Feb-2016
Jerry Cunningham
10 $4,700
*Oct-2016
Carron Abbott
12 $4,300
*Jul-2017
Carolyn Lounsbury
181
$4,200
*Sept-2017
Jerry Cunningham
4 $4,200
*Jul-2018
Jerry Cunningham
10 $4,200
*Oct-2018
Aqua Capital
257
$4,750
*Purchased by the Water District
Opportunities to purchase permanent water are scarce and purchasing permanent water rights when feasible is a vital component to planning for future water supply. This transaction represents an acquisition of 360 AF of permanent BAP at $6,060 per AF for a total cost of $2,181,600. In addition, to the permanent BAP, the temporary transfer of 234 AF of Carryover rights at $500 per AF totaling $117,000 and 198 AF of FPA at $500 per AF totaling $99,000 were included in the negotiations. The total transaction amount for the permanent and temporary assignment of water rights is $2,397,600.
FISCAL IMPACT
The District currently has $2,293,776 of fund balance retained for water rights purchase. Since the opportunity to purchase permanent water rights was unknown during the creation of the FY 2021-22 Budget, these funds were not included in the expenditure budget. A Final Budget Amendment (Fourth Quarter) will be presented to the Board requesting additional appropriation authority at the close of the fiscal year. Anticipated budget savings will be netted against the purchase of $2,397,600 during the fiscal year-end reconciliation, thus potentially decreasing the appropriation request for the purchase.
ALTERNATIVE(S)
Provide alternative direction to staff.
ATTACHMENT(S)
None
City of Hesperia STAFF REPORT City of Hesperia STAFF REPORT City of Hesperia
STAFF REPORT
City of Hesperia
STAFF REPORT
Staff Report to the Chair and Board Members, Hesperia Water District Permanent Water Rights Purchase and Lease from Vanhoops Holdings, LP May 3, 2022