A2410.SR.JD
AGENDA ITEM NO.
9D
CITY OF SIMI VALLEY
MEMORANDUM
F
ebruary 12, 2024
TO
: City Council/ Board of Directors, Ventura County Waterworks District No. 8 F
ROM: Department of Public Works
S
UBJECT: AUTHORIZATION TO EXECUTE A LETTER OF INTENT WITH IDS REAL
ESTATE GROUP FOR RECYCLED WATER DELIVERY
STAFF RECOMMENDATION
I
t is recommended that the City Council/ Board of Directors authorize the City/District Manager to execute a Letter of Intent with IDS Real Estate Group regarding the potential sale of recycled water.
BACKGROUND AND OVERVIEW
Th
e City/District staff have been engaged in discussions with a private party regarding the availability of recycled water. IDS Real Estate Group (IDS) has sought a commitment from the City for 1,200 acre feet of water for a proposed orchard development located within and west of the City limit. The proposal by IDS (Attachment A, page 5) requests a rate that would be less than the City’s current established rate for recycled water however after discussions with staff, the 2024 recycled rate would be the initial rate. Although final agreement language remains to be drafted, staff does not oppose the execution of a non-binding Letter of Intent (LOI) to provide recycled water to IDS, which the LOI would authorize further negotiations by the parties. Staff recommends the City Council/District Board authorize the City/District Manager to execute the draft LOI.
FINDINGS AND ALTERNATIVES
I
DS Capital Acquisitions, LLC is in the process of acquiring approximately 587 acres located both within the City of Simi Valley and just west of the City limits. Post-acquisition, IDS proposes to use the majority of the property for agriculture, specifically the growing of avocados. Although the majority of the land to be serviced is located outside the City limits and the District’s service area, Government Code Section 56133(e)(2) allows for the delivery of non-potable water outside the City’s jurisdictional boundary.
C
onceptually, the City/District would provide a location at the WQCP for IDS to connect their infrastructure to move the water to their site, which is located adjacent to the WQCP.
All conveyance and storage infrastructure, as needed, would be borne by IDS. As proposed, the LOI would include:
A2410.SR.JD
• The sale of recycled water is expected to commence in calendar year 2026; • The term of the agreement would be 30 years with two five-year mutual extensions; • The price for recycled water would be tiered with the first 300 acre-feet charged at a rate of $3.45/Billing Unit and $1.22 per Billing Unit after 300 and up to 1,200 acre feet;
• The prices would be adjusted for CPI increases January 1 of each year; • The limit on water deliveries would be 1,200 AFY (522,800 Billing Units).
The City has some hi story with attempts to sell recycled water. In 2016, the City Council/District Board authorized staff to negotiate an agreement with Simpatica Farmland Acquisitions for the sale of recycled water. At the time, Simpatica was negotiating with Waste Management to establish an orchard on land east of the Simi Valley Landfill. While the City/District had an executed LOI similar to the one proposed with IDS, Simpatica failed to acquire the rights to the Waste Management property and, due to economics, elected not to pursue an agreement for recycled water.
Prior to Simpatica, the City/District discussed the sale of recycled water to another avocado farmer. While discussions progressed, they did not result in an agreement.
There has been some concern expressed by both previous avocado interests that the price of recycled water may not be economically viable for their application.
For the past several years, the City/District staff have engaged in discussions with other government and quasi -government entities regarding the availability of recycled water from the WQCP. These discussions have focused on the acquisition of rights to the effluent from the City’s WQCP, ensuring the discharge from the WQCP continues, which recharges groundwater basins downstream. Additionally, similar discussions have occurred which would make the City’s recycled water available for further treatment into potable water. While these discussions have been fruitful, no reasonable offer for the purchase of recycled water has been received.
In 2023, t he City’s WQCP produced approximately 7,800 acre feet per year (AFY) of treated effluent, of which 4,700 AFY may be recycled under a State permit. Currently, 100 AFY of recycled water is being used at the City's Public Services Center and the Simi Valley Landfill. The proposal from IDS would commit 1,200 AFY, leaving 3,500 AFY available for the City to make available to others.
The City/District’s 2024 water rate for recycled water is $3.45 per billing unit (BU). The tiered rate proposed in 2016 with Simpatica started at the City/District rate of $2.60/BU for the first 300 BUs, and was reduced to $1.22/BU for the remaining water delivered up to the maximum per year of 2,600 AFY. IDS is proposing the same structure , with the first 300 BUs at the City’s 2024 recycled water rate of $3.45 and $1.22/BU between 301 – 1,200 ACY, with annual CPI increases to the rates in January. This rate is adjusted to begin at the current recycled water rate as opposed to the proposal submitted by IDS to start at $2.60/BU . Due to the high volume of recycled water that IDS estimates purchasing from the City/District, and the challenges the City has encountered from previous attempted sales of recycled water and water rights, a reduced negotiated rate 2 A2410.SR.JD
could be economically viable for the City/District in light of no other users seeking recycled water at the City/District’s rate.
Although the proposed rate is discounted from the current recycled water rate, the proposed LOI places the obligation of all infrastructure costs with IDS. This would include the cost of infrastructure required at the WQCP as well as off-site infrastructure to convey the recycled water to its destination. This obligation is expected to offset the discounted recycled water rate.
The recycled water usage by IDS would vary through the years, depending upon rainfall and the age of the orchard. At the proposed initial rate and upon maximum usage, the City would receive approximately $930,000 in recycled water charges. Per the IDS proposal, the rates would be adjusted annually with the CPI.
A Letter of Intent was drafted by staff and is attached on page 6. The parties agree that there remains no obligation upon either party at this point and that the LOI is non-binding upon either party. If the LOI is approved, the City/District and IDS would draft a final agreement for City Council/Board consideration.
The following alternatives are available to the Board of Directors:
1. A uthorize the City/District Manager to execute a Letter of Intent (Attachment B , page 6) with IDS Real Estate Group regarding the potential sale of recycled water.
2. Modify and a uthorize the City/District Manager to execute a Letter of Intent with IDS Real Estate Group regarding the potential sale of recycled water.
3. Provide staff with other direction.
Staff recommends Alternative No. 1.
SUGGESTED BOARD MOTION
I move to authorize the City/District Manager to execute a Letter of Intent with IDS Real Estate Group regarding the potential sale of recycled water.
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SUMMARY
The City/District staff have been engaged in discussions with a private party regarding the availability of recycled water. IDS Real Estate Group (IDS) has sought a commitment from the City for 1,200 acre feet of recycled water for a proposed orchard development located within and west of the City limits. The proposal by IDS requests a rate that would be less than the City’s current establish rate for recycled water. Although final agreement language remains to be drafted, staff does not oppose the execution of a non- binding Letter of Intent (LOI) to provide recycled water to IDS, which LOI would authorize further negotiations by the parties. Staff recommends the City Council/District Board authorize the City/District Manager to execute the draft LOI.
____________________________________
Ronald K. Fuchiwaki, Director
Department of Public Works
INDEX Page
Attachment A - Letter from IDS Real Estate Group ......................... 5 Attachment B - Draft Letter of Intent ............................................... 6
4 515 S. Figueroa Street, 16th Floor, Los Angeles, California 90071-3337 T 213.362.9300 / F 213.627.9937 / W www.idsrealestate.com January 16, 2024
Mr. Brian Paul Gabler
City Manager
City of Simi Valley
2929 Tapo Canyon Road
Simi Valley, CA 93063-2199
Re: Non-binding Letter of Intent between Ventura County Waterworks District No. 8 (District) and IDS Capital Acquisitions, LLC
Dear Mr. Gabler:
IDS Capital Acquisitions, LLC is in the process of acquiring the approximately 587-acre Butler Ranch property. Our intention is to plant and grow avocados on approximately 400 acres of the site. One of the conditions to acquiring the site is securing the rights to reclaimed water in sufficient quality and quantity to enable the orchard to flourish.
We are interested in securing the rights to purchase up to 1200 acre-feet of reclaimed water per year from the District commencing in 2025 for an initial period of thirty (30) years with two (2) additional five (5) year option terms. The initial charge for the reclaimed water shall be $2.60 per Hundred Cubic Feet (HCF) for the first 300 acre-feet and $1.22 per HCF for any additional water purchased in a calendar year. The rate for the reclaimed water shall be adjusted each January 1 proportional to the CPI-U for the Los Angeles region commencing in calendar year 2026.
The terms and conditions of this Letter of Intent shall be memorialized in a more detailed, binding agreement including minimum purchase levels, minimum water quality standards, and infrastructure to deliver pressurized water to be drafted and executed following the City Council meeting.
We look forward to completing this transaction with you and the District.
Sincerely,
David Saeta
Executive Vice President
IDS Real Estate Group
ATTACHMENT A
5 ATTACHMENT B
February 12, 2024
Mr. David Saeta, Executive Vice President
IDS Real Estate Group
515 S. Figueroa Street, 16
th Floor
Los Angeles, CA 90071-3337
SUBJECT: NON-BINDING LETTER OF INTENT
Dear Mr. Saeta:
This Letter of Intent (LOI) is intended to memorialize the intention by the City of Simi Valley/Ventura County Waterworks District No. 8 (collectively “City”) and IDS Real Estate Group (“IDS”) to negotiate to develop acceptable terms for the potential sale and use of recycled water.
IDS initiated discussions with City staff expressing an interest in using recycled water to irrigate proposed orchards on land located within and outside the City of Simi Valley. Discussions between IDS and City staff have established a conceptual proposal based upon the following major elements:
Definitions:
• HCF: Hundred Cubic Feet, a standard measure of water sold, also called a “billing unit” (BU)
• AF: Acre Feet, the volume of 43,560 cubic feet
• AFY: Acre Feet per Year
• CPI-U: Consumer Price Index for All Urban Consumers Los Angeles -Long Beach- Anaheim, CA
Obligations of the City:
• Recycled water rate. The initial charge anticipated is $3.45 per HCF, for the first 300 acre-feet, and $1.22 per HCF for any additional water purchased in a calendar year .
The final rate for this project would be determined as part of final draft agreement. • Recycled water rates shall be adjusted annually on January 1 in accordance with the CPI-U for the Los Angeles region commencing in calendar year 2026. • City shall grant easement to IDS across adjacent City property for the installation of required recycled water line.
• Install recycled water meter at designated location at IDS property line. • Deliver a maximum of 1,200 ACY for use by IDS.
6 Mr. David Saeta, Executive Vice President
IDS Real Estate Group
February 12, 2024
Obligations of IDS:
• Purchase a minimum of 300 AFY commencing in calendar year 2025 • Construct and/or fund all costs of infrastructure to deliver pressurized recycled water from City’s Water Quality Control Plant (WQCP) to IDS property line and recycled water meter. IDS shall reimburse City for cost of WQCP infrastructure necessary to convey recycled water.
• Acquire all permits, approvals, environmental reviews, and all regulatory agency reviews for the proposed recycled water line.
• Develop a Use Site Report and attain regulatory approval, if required • Construct, operate, and maintain all on-site infrastructure to convey the recycled water from the point of delivery to the use area(s) and for storage
Mutual obligations:
• 30-year term with two 5-year options
• This Letter of Intent is non-binding upon the parties. • The City’s intent is to work with IDS to establish terms that are acceptable to both parties.
This LOI is not an agreement and does not obligate either party to enter into an agreement but instead is a statement of intent to continue to move forward with negotiations. No specific actions or commitments are required by either party as a result of entering into this LOI. Any commitment to supply recycled water, if reached, will be memorialized in separate agreement. The term of this Non-Binding LOI begins as of the date executed by the last signatory below, and continues for one (1) year.
This Non -Binding LOI shall be interpreted under California law, and venue lies in Ventura County. In case of dispute, each party shall bear its own fees and costs (including attorneys’ fees).
City of Simi Valley IDS Real Estate Group
Brian Paul Gabler, City/District Manager
Dated: Dated:
7