CITY OF SIMI VALLEY MEMORANDUM. TO: Board of Directors, Ventura County Waterworks District No. 8

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1 CITY OF SIMI VALLEY MEMORANDUM AGENDA ITEM NO. 8A September 19, 2016 TO: Board of Directors, Ventura County Waterworks District No. 8 FROM: Department of Public Works SUBJECT: AUTHORIZATION TO EXECUTE A LETTER OF INTENT WITH SIMPATICA FARMLAND ACQUISITIONS, LLC FOR RECYCLED WATER DELIVERY STAFF RECOMMENDATION It is recommended that the Board of Directors authorize the District Manager to send a Letter of Intent (Attachment B, page 5) to Simpatica Farmland Acquisitions, LLC (Simpatica), regarding the potential sale of recycled water to an orchard development. DISTRICT MANAGER S RECOMMENDATION The District Manager recommends approval of the Letter of Intent. BACKGROUND AND OVERVIEW On March 21, 2016, the Board of Directors authorized the District Manager to enter into discussions with Simpatica to develop and outline a conceptual plan to provide recycled water for an avocado orchard east of the Simi Valley Landfill. Staff and Simpatica have met on several occasions resulting in a formal request from Simpatica (Attachment A, page 4) and a draft Letter of Intent (Attachment B, page 5), including conceptual terms to supply recycled water, which will be executed by both parties. FINDINGS AND ALTERNATIVES The proposed development is 1,000 acres of property to be planted with orchards, primarily avocados, located on Waste Management s property adjacent to, and east of, the Simi Valley Landfill and farmed by Simpatica. District staff has met with Simpatica s principals, along with Waste Management staff, and developed a concept for the District to provide recycled water to the landfill property line, and Simpatica/Waste Management would develop the conveyance and storage infrastructure to deliver the water to the orchard. WATER\RECYCLED WATER\SIMPATICA\SIMPATICA LOI-final.SR

2 2 Other significant items include: The sale of recycled water is expected to commence in 2019, with at least 600 acre-feet per year (260,000 billing units or BU) delivered/used; The term of the ultimate agreement would be 30 years; The price for recycled water would be tiered to maintain the current $2.60/BU for the first 300 acre-feet (equivalent to 130,680 BU) used and would be discounted for greater use with the expected equivalent price of $600/acre-foot at the maximum limit available to reflect the efficiencies gained in recycled water with greater volumes; The price would be adjusted for CPI increases starting in 2018; The District would assure water quality and would assure flow (potable water backup supplies); and The limit on water deliveries/use would be 2,600 AFY (1.13 million BU). A Letter of Intent was drafted by staff. It cites the conceptual elements of the agreement that both parties would attempt to finalize. The parties would agree that there remains no obligation upon either party at this point and that the letter is nonbinding upon either party. The final agreement, if reached, would be voluntary and negotiated as discussed between the District and Simpatica, and subject to the Board of Directors approval. Furthermore, the financial aspects of the proposal are conceived and would be constructed to avoid any subsidy from the revenues for services from other enterprise sources or other recycled water users to fund this operation. The revenue projections based upon the costs to the District for capital development, including purchasing the assets currently owned by Calleguas Municipal Water District, are favorable. The expected payback on the capital based upon projected revenue would occur before the assets are due for replacement. The following alternatives are available to the Board of Directors: 1. Authorize the District Manager to send a Letter of Intent (Attachment B, page 5) to Simpatica Farmland Acquisitions, LLC, regarding the potential sale of recycled water to an orchard development. The Letter of Intent will not be in effect until Simpatica signs the LOI as presented or with minor modifications. 2. Provide staff with other direction. Staff recommends Alternative No. 1. SUGGESTED BOARD MOTION I move to authorize the District Manager to send a Letter of Intent to Simpatica Farmland Acquisitions, LLC, regarding the potential sale of recycled water to an orchard development. WATER\RECYCLED WATER\SIMPATICA\SIMPATICA LOI-final.SR

3 3 SUMMARY On March 21, 2016, the Board of Directors authorized the District Manager to enter into discussions with Simpatica Farmland Acquisitions, LLC (Simpatica) to develop and outline a conceptual plan to provide recycled water for an avocado orchard east of the Simi Valley Landfill. Staff and Simpatica have met on several occasions resulting in a formal request from Simpatica (Attachment A, page 4) and a draft Letter of Intent (Attachment B, page 5), including terms to supply recycled water, to be executed by both parties. The proposed development is 1,000 acres of property to be planted with orchards, primarily avocados, located on Waste Management s property adjacent to, and east of, the Simi Valley Landfill and farmed by Simpatica. A Letter of Intent was drafted by staff and reviewed by Simpatica. It cites the conceptual elements of the agreement that both parties would attempt to finalize. Staff recommends the Board of Directors authorize the District Manager to send a Letter of Intent to Simpatica Farmland Acquisitions, LLC, regarding the potential sale of recycled water to an orchard development. Prepared by: Joe Deakin, Assistant Director of Public Works Ronald K. Fuchiwaki, Director Department of Public Works INDEX Page Attachment A - Letter from Simpatica... 4 Attachment B - Draft Letter of Intent... 5 WATER\RECYCLED WATER\SIMPATICA\SIMPATICA LOI-final.SR

4 4 ATTACHMENT A July 18, 2016 Eric Levitt, City Manager City of Simi Valley 2929 Tapo Canyon Road Simi Valley, CA RE: Simi Water Reclaimed Water Contract Dear Mr. Levitt: During our previous meetings, we discussed the following terms, which should be included in a contract to purchase reclaimed water from the City of Simi Valley. Rate - $600 per acre foot of water used Annual CPI Rate Increases 30 Year Contract Term Maximum Annual Water Usage , , , , , ,200 Maximum Allowable Chlorides 150 PPM Maximum Allowable Total Dissolved Solids 850 PPM Estimated Delivery Schedule During Peak Periods see attached chart Reservoir Simpatica will require sufficient onsite storage for one day s supply City Requirements fund all costs and infrastructure to bring pressurized water to property line Simpatica Requirements fund all costs and infrastructure once water crosses the property line We look forward to your feedback. Respectfully, Jamie Johnson Co-Founder Bryan Berkett Co-Founder 2435 EAST VENTURA BOULEVARD, SUITE F CAMARILLO, CALIFORNIA T

5 5 ATTACHMENT B September 20, 2016 Simpatica Farmland Acquisitions, LLC 2435 East Ventura Blvd., Suite F Camarillo, CA SUBJECT: SIMPATICA NON-BINDING LETTER OF INTENT (NON-BINDING LOI) Dear Mr. Berkett and Mr. Johnson: This letter is intended to memorialize the intention by Ventura County Waterworks District No. 8 (District) and Simpatica Farmland Acquisitions, LLC to negotiate to develop acceptable terms for the potential sale and use of recycled water. Simpatica Farmland Acquisitions initiated discussions with District staff expressing an interest in using recycled water to irrigate proposed orchards on land currently owned by Waste Management, Inc. Discussions between Simpatica Farmland Acquisitions and District 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 Utilities Obligations of the Waterworks District: Base rates on two tier system. The tier rate system would reflect that with recycled water the cost of delivery goes down with the greater volume purchased. The initial charge anticipated is$2.60 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 and proposed rate for other recycled users would be determined prior to a final agreement. Adjust the commodity charge annually, on January 1 proportional to the CPI-U for the Los Angeles region commencing in calendar year 2018 Provide water quality assurances: o Chloride concentration: Target 150 milligrams per liter or less o Maximum Total Dissolved Solids concentration: 850 milligrams per liter Construct and fund all costs of infrastructure to deliver pressurized recycled water to Waste Management, Inc. property line near the existing recycled water meter Provide potable water back-up supply for recycled water service outages LOIrev-final

6 6 Simpatica Farmland Acquisitions, LLC September 20, 2016 Page 2 Obligations of Simpatica: Purchase a minimum of 600 AFY commencing in calendar year 2019 Develop a Use Site Report and attain regulatory approval Construct, operate, and maintain all on-site infrastructure to convey the recycled water from the point of delivery to the use area(s) and to store no less than the maximumday demand onsite with a high-water elevation at or below 1,030 feet above mean sea level Mutual obligations: 30-year term Annual expected volumes for planning purposes: o 2019: 1,280 AFY o 2020: 1,707 AFY o 2021: 2,133 AFY o 2022: 2,560 AFY o 2023 and beyond: 2,600 AFY o A maximum of 2,600 AFY will be used to ensure adequate water quantities for other eligible users. The District s intent is to work with Simpatica to establish terms that are acceptable to both the District and Simpatica. This letter 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 Non-Binding LOI. Any agreement to supply recycled water, if reached, will be memorialized in a separate, signed 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). Ventura County Waterworks District No. 8 Simpatica Farmland Acquisitions, LLC Dated: Dated: LOIrev-final