MWD approves Conjunctive Use Project subsidy

The Metropolitan Water District of Southern California has a subsidy program for projects which produce local supply and the projects MWD will fund now include the Santa Margarita River Conjunctive Use Project.

MWD’s board vote Sept. 10 approved the agreement with the San Diego County Water Authority and the Fallbrook Public Utility District. FPUD is expected to receive $23,637,500 in incentive payments over a 25-year period.

“It is essentially a rebate,” FPUD general manager Jack Bebee said. “It provides a rebate on water purchased from the project that helps reduce the overall cost of water.”

The rebate will be paid on an annual basis, and the amount will be based on the production from the Conjunctive Use Project.

The Santa Margarita Conjunctive Use Project being pursued by FPUD, U.S. Marine Corps Base Camp Pendleton and the U.S. Bureau of Reclamation will enhance groundwater recharge and recovery capability within the lower Santa Margarita River basin and develop a program which will increase available water supplies for FPUD and Camp Pendleton.

The amount of water FPUD will obtain is dependent upon weather conditions. In a normal hydrological year, based on the average over the past 50 years, FPUD will receive 3,100 acre-feet.

MWD’s local resources program includes financial incentives to MWD agencies, which can pass through those incentives to their own member agencies, for the development of local supplies which increase supply reliability and reduce imported water demands. The SDCWA is one of MWD’s member agencies, and FPUD is one of the CWA’s member agencies.

The local resources program has three options: sliding scale incentives subsidizing up to $340 per acre-foot over 25 years, sliding scale incentives providing up to $475 per acre-foot over 15 years or fixed incentives of up to $305 per acre-foot for 25 years with the fixed incentive amount being negotiated so that MWD’s financial obligation does not exceed 90% of what the first sliding scale option would subsidize.

The agreement between MWD, the CWA and FPUD will provide fixed incentives of $305 per acre-foot over 25 years. The incentive payments will only be provided for treated groundwater delivered by the project for beneficial use and MWD’s commitment will be reduced if production falls short of the targets measured in four-year intervals throughout the agreement term.

The incentive contract will also be terminated for nonperformance if construction does not commence within two years of the agreement execution of if recovered groundwater deliveries are not realized within four years of the agreement execution, although FPUD’s July 22 board meeting included award of a construction contract for the Conjunctive Use Project, and Bebee expects the project to be delivering water by 2021.

Based on the average of 3,100 acre-feet the project will reduce imported water needs by 77,500 acre-feet over the 25-year period.

The State Water Resources Control Board has a state revolving fund loan program and FPUD will be funding the Conjunctive Use Project through a state revolving fund loan. A funding agreement finalized June 20 will provide a loan for $53,334,000 to be repaid over 30 years at an interest rate of 1.9%.

The loan agreement was finalized before the receipt of bids and assumed a $51 million construction cost along with $2,334,000 for construction management and supervisory control and data acquisition system integration, but the low bid amount was $54,398,232 and FPUD is working with the State Water Resources Control Board to amend the agreement so that the additional $3.4 million can also be funded by the state revolving fund loan.

The MWD funding will not affect the state revolving fund loan amount.

“The loan agreement’s still the loan agreement,” Bebee said.

The state loan will create debt service as an expense for the project, which will also have operating expenses. The local resources program funding can be used to pay any legitimate expense associated directly with the Conjunctive Use Project.

“You’ve got debt service and operating costs. It can be used to offset either one,” Bebee said.

FPUD’s board approved the local resources program agreement on a 5-0 vote, July 22, and the CWA board approved the agreement July 25.