Memorandum

City of Lawrence

Legal Services Department

TO:	David L. Corliss, City Manager
FROM:	Toni Wheeler, Director of Legal Services Mike Lawless, Assistant Director of Utilities
CC:	Diane Stoddard, Assistant City Manager Dave Wagner, Director of Utilities
Date:	September 19, 2008
RE:	Proposed Agreement with Douglas County Rural Water District No. 5 for the Treatment and Transmission of Water and the Sale of Water

Please include the attached proposed agreement with Rural Water District No. 5 for the treatment and transmission of water and the sale of water on the City Commission agenda for consideration.

Background

Rural Water District No. 5, located generally south of the City limits and generally west of Highway 59 in Douglas County (hereinafter “the District”), is organized and established pursuant to K.S.A. 82a-612 et seq. for the purpose of operating a water supply distribution system to serve water users within the District’s area.  The City and the District first entered into an agreement on June 11, 1974, for the treatment and transmission of water from the City to the District to serve a portion of the District’s treated water needs.

The current agreement between the City and the District was entered into on December 21, 1998 and expires on December 31, 2013.  A copy of the existing agreement is attached.  Under the current agreement, the City provides for the sale of water treatment and water transmission only.  It does not include the sale of water itself.  The current agreement also includes a limitation on the number of service connections (meters) including connections made onto the District’s system, connections made inside the District’s Service Area, and all connections made immediately following the master meter location as defined in the 1998 Agreement. 

The District approached the City and requested a new Agreement that removes the meter limitation and provides for the sale of water in addition to the sale of water treatment and water transmission. City staff and District representatives have been negotiating an agreement for several months. 

The significant or new terms of the proposed agreement include:

Issue	Description
Meter Limits	The meter limitation is removed.
Contract Quantity	The City agrees to treat and deliver a maximum quantity of water of 226,800,000 gallons per year.  The City and District agree that the quantities per year will gradually increase to the maximum quantity (226,800,000 gal/yr).  In 2007, the City treated and transported 71,994,245 gallons of water to the District.  During the current contract, the largest volume of water treated and transported to the District was 80,132,663 gallons in 2006.
Projections Table	The District agrees to provide accurate five-year projections of the maximum quantities of water the District seeks the City to treat and deliver to it.  The projections will be updated annually.  Accurate projections are critical to ensure the City has adequate facilities to provide the water under the Agreement.  If the District withdraws quantities of water in excess of the quantities set forth in the projections, the City will charge the District a premium billing rate equal to two times the regular billing rate until the District returns to the levels set forth in the projections.
Sale of Water	The City agrees to sell water to the District over the term of the Agreement to supplement the District’s allotment through the District’s agreement with the Kansas Water Office, unless the Kansas Water Office reduces either the District’s or the City’s allotment, or both, from the Clinton Reservoir.  The amount of additional water the City agrees to sell the District represents less than 0.5% of the City’s total allotment and/or rights for water.  City staff believes the sale of this small amount of water will not adversely affect the City’s supply of water to serve the City’s needs during the term of the Agreement.
Billing Rate	The agreement provides that the City shall annually establish the billing rate for the treatment and transmission of water.  The Agreement provides that the 2009 rate is $3.25 per 1000 gallons.  When the City sells water to the District, the District will pay the prevailing cost for marketing water multiplied by the quantity of water purchased, in addition to the applicable billing rate for the treatment and transmission of the water.
Demand Contract Charge for Early Termination of Agreement	Since the City will make significant investment in its water infrastructure over the term of the Agreement to ensure the City can deliver the water and satisfy its contractual obligations to the District, the District will pay the City a certain sum if it terminates the agreement early.  The sum agreed upon is equal to the total revenue paid by the District to the City for the two years immediately preceding the effective date of the termination of the agreement.  This payment replaces the demand contract charge that exists in the existing agreement with the District.  Under the existing demand contract charge the District would pay $50,000 per year through the expiration of the existing agreement if the District terminated the agreement early. The Demand Contract Charge will not apply under the proposed agreement if the termination occurs because the City and the District execute a separate agreement for Public Wholesale Water Supply District No. 25.
Conservation Measures During Water Emergencies	This new provision requires the District to adopt, observe and enforce conservation measures that achieve equivalent results of the water conservation measures imposed on Lawrence water customers during water emergencies.
Term	The Agreement expires on Dec. 31, 2040.

Public Wholesale Water Supply District No. 25, comprised of Douglas County Rural Water District Nos. 2 and 5, and Osage County Rural Water District No. 5, is a group organized to resolve common regional water supply issues through a cooperative approach.  PWWSD No. 25 recently requested the City of Lawrence consider becoming a regional provider of water to it.  If PWWSD No. 25 pursues its request, the City Commission will have an opportunity to consider the issue at a later date. 

Action:  Staff requests the City Commission authorize the Mayor to execute the agreement with Rural Water District No. 5, if appropriate.