Agenda Number 2.

CONTACT: Laura Grignano 623-869-2113lgrignano@cap-az.com

Perri Benemelis 623-869-2182pbenemelis@cap-az.com

MEETING DATE: Thursday, October 18, 2018

AGENDA ITEM: Discussion of Potential Water Acquisition between CAGRD and Gila River Indian Community (GRIC) and Gila River Water Storage LLC (GRWS) - Grignano

LINKAGE TO STRATEGIC PLAN, POLICY, STATUTE OR GUIDING PRINCIPLE: CAWCD Board of Directors 2016 Strategic Plan • Replenishment: Obtain Sufficient Water Supplies to Meet Long-Term Replenishment Obligations

PREVIOUS BOARD ACTION/ACTIVITY: None

ISSUE SUMMARY/DESCRIPTION: CAGRD and the Gila River Indian Community (GRIC) and Gila River Water Storage have reached agreed to terms on a potential water supply acquisition. This acquisition would provide a substantial water supply to the CAGRD over the next 25 years and would secure a substantial portion of water that the CAGRD needs to meet its replenishment obligations under the 2015 Plan of Operation even under shortage conditions.

See attachments

SCHEDULED BOARD ACTION: Discussion and Consideration of Action to Approve at November Board Meeting.

ATTACHMENTS: 1. 2018 CAGRD Term Sheet Final_10.04.2018 4843-5223-0004, 52. CAGRD-fact-sheet-final-1003183. GRWS acquisition portfolio impacts v24. Copy of All-In Costs GRIC-CAGRD Agreements Updated 10-10-185. GRWS Average Pricing Comparison 10.9.18

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Term Sheet Proposed Water Supply Agreements

Among the Central Arizona Groundwater Replenishment District, Gila River Indian Community and Gila River Water Storage, LLC

(October 3, 2018)

This Term Sheet reflects the verbal agreement reached on October 3, 2018. The recipient acknowledges and agrees that consummation of the proposed transaction is subject to, among other things, the negotiation and execution of such definitive written agreements that the parties may deem necessary (collectively, the “Agreements”) and approval of the Agreements by the Gila River Indian Community Council, Board of Managers of Gila River Water Storage, LLC, as well as approval by the Board of Directors of the Central Arizona Water Conservation District. This Term Sheet is intended to reflect the basic terms of the transactions, which terms are intended to be incorporated into and more fully developed in the Agreements based on good faith negotiations of the parties, but this Term Sheet is not itself intended and does not constitute a binding or legally enforceable agreement.

Introduction This term sheet contains four separate, but linked, water supply agreement proposals for the Central Arizona Groundwater Replenishment District (CAGRD). These agreements include the following: (1) a purchase of Long-Term Storage Credits (LTSC) from the Gila River Water Storage, LLC (GRWS), (2) a recovery and exchange agreement with the Gila River Indian Community (Community) pertaining to the recovery and delivery of Pinal AMA LTSC, (3) a contribution towards well infrastructure on Community land, and (4) a lease of the Community’s NIA CAP water supplies. Described below are the basic terms of this agreement.

Agreement Terms

1. CAGRD Long-Term Storage Credit Purchase

Parties: CAGRD and GRWS.

Quantity of Water: 375,000 acre-feet total of existing LTSCs stored in the Pinal AMA.

70,375 acre-feet total of existing LTSCs store in the Phoenix AMA.

Price: A total purchase price of $95,000,000 under the following purchase schedule.

Agenda Number 2. Attachment 1.

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LTSC Transfer Payment An Initial Payment within 30-days of fully executed GRWS LTSC Purchase Agreement

$65,000,000

Final Payment on or before May 1, 2019 445,375 acre-feet $30,000,000

TOTAL 445,375 acre-feet $95,000,000

CAGRD may elect to make the Final Payment, with 0.75% monthly interest, after May 1, 2019, but no later than December 31, 2019. CAGRD shall be free to pay a portion or portions of the Final Payment at any time or times without penalty.

For example, if CAGRD elects to make the Final Payment after May 1, 2019, and did not make any partial payment, the Final Payment amount would be the amount that corresponds with the payment date set forth under the following schedule:

Conditions: The cost of transferring the long-term storage credits is borne by the buyer and is currently set by ADWR at $250 per transaction. In the event CAGRD wishes to re-sell the long-term storage credits, GRWS has first right of refusal to buy back the credits at the original purchase price plus a negotiated rate of interest.

2. 25 Year Recovery and Exchange Agreement

Parties: CAGRD and Community

Annual Volume of 15,000 acre-feet of Community CAP M&I Priority Water that the

Payment Date Final Payment Amount May 2 - June 1 $ 30,225,000 June 2 - July 1 $ 30,451,688 July 2 - August 1 $ 30,680,075 August 2 - September 1 $ 30,910,176 September 2 - October 1 $ 31,142,002 October 2 - November 1 $ 31,375,567 November 2 - December 1 $ 31,610,884 December 2 -December 31 $ 31,847,965

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Exchange Water: Community will schedule, on behalf of CAGRD, for delivery to storage facilities of CAGRD’s choosing for the benefit of CAGRD. CAGRD shall be solely responsible for maintaining the necessary water storage permits and agreements.

Annual Volume of 15,000 acre-feet of Pinal AMA LTSCs that CAGRD will recover in Recovered LTSCs: wells located on the Community Reservation for the Community’s

use.

Term: 25 years beginning on January 1, 2020.

CAP Delivery Charges: Paid by CAGRD

USF Storage: Applicable underground water storage O&M and capital charges shall be paid by CAGRD.

GSF Storage: Applicable GSF partner cost-share payments shall benefit CAGRD.

LTSC Recovery CAGRD will pay an annual LTSC Recovery Charge that shall be based Charge: on the Community’s actual costs to recover LTSCs by adding the per-

acre-foot electrical cost and the per-acre-foot O&M Cost and multiplying the sum by the number of Stored Water Credits recovered in a year. (Approximately $27 per acre-foot.)

3. Contributed Funds for Well Infrastructure Agreement

Parties: CAGRD and Community

Responsibilities: CAGRD will make a one-time payment for the development of infrastructure on the Community’s Reservation to facilitate the Community’s recovery of long-term storage credits it receives under the 25 Year Recovery and Exchange Agreement.

Community: Upon receipt of the contribution of funds, be solely responsible for the development of infrastructure on its Reservation.

Payment: CAGRD will make a one-time payment of $2,500,000 no later than December 31, 2019.

4. 25 Year CAP NIA Water Lease

Parties: CAGRD and Community.

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Volume: 18,185 acre-feet per year. CAGRD shall order all 18,185 acre-feet unless there is a reduction due to shortage. In the event of a shortage, CAGRD shall order 18,185 acre-feet reduced by the same proportion that the Community’s unfirmed NIA supply is reduced by shortage.

Term: 25 years beginning on January 1, 2020.

Price: Annual starting price of $150 per acre-foot. CAGRD shall only pay for water available for delivery, which may be less than 18,185 acre-feet per year during shortage operations as described above. Price will be escalated annually by 3% or CPI, whichever is higher.

CAP Delivery Charges: Paid by CAGRD.

Storage: Stored at Community Phoenix AMA USFs when there is available capacity with a $5 per acre-foot OM&R charge. CAGRD may store elsewhere in the event Community Phoenix AMA USFs do not have sufficient capacity in a given year.

Shortage Sharing: Pro-rata with GRIC’s unfirmed CAP NIA water.

KEY POINTS

Potential Water Acquisition between CAGRD and Gila River Indian Community (GRIC) and Gila River Water Storage LLC (GRWS)

Provides a substantial wet water supply to the CAGRD over the next 25 years

Provides 15,000 AF/yr of Indian priority water through an exchange and 18,185 AF/yr of IndianNIA priority water through a lease for a total water acquisition of 33,185 AF/yr (excludingshortage reductions) plus an additional 70,375 AF Phoenix AMA LTSCs

Secures a substantial portion of the water that the CAGRD needs to meet its replenishmentobligations under the 2015 Plan of Operation even under shortage conditions (attached chart)

Creates a pioneering way to use Pinal AMA LTSCs in the Phoenix AMA

Establishes a historic partnership between GRIC/GRWS and the CAGRD

May counter recent concerns from on-River communities that CAGRD is focused primarily onon-river transfers and leases

Provides a substitute NIA priority water supply (of equal volume) if the NIA reallocation isdelayed further or there are DCP impacts

Could ease concerns from Developers and Home Builders of the negative impact to the CAGRDfrom DCP and pending shortages

A large portion of the upfront cost would be paid with existing monies from the I&WR fund

Additional financing would be secured to pay the remaining portion. Short-term financingoptions are currently being evaluated.

The acquisition will have an upward pressure on rates. Finance is currently evaluating variousoptions to minimize the impact and must consider a number of factors. Initial indications arethat this acquisition could increase rates 10-15% over the next 2-3 years.

Requires CAWCD Board, GRIC Council and Secretarial approvals & Environmental Assessment

Agenda Number 2. Attachment 2.

Partners Gila River Water Storage LLC (GRWS) Gila River Indian Community (GRIC) CAGRD

Term 25 years, starting 2020

Volumes • 15,000 AF/yr of Indian priority water through an exchangeo 375,000 AF Pinal AMA LTSC and GRIC recovery/exchange to

relocate in Phoenix AMA• 18,185 AF/yr NIA priority lease (total 454,625 AF)• 70,375 AF Phoenix AMA LTSCTotal = 900,000 AF (excluding shortage reductions)Estimate 40% reliability of NIA

Upfront Costs • $95M for LTSC @ avg $213/AF• $2.5M Infrastructure contribution• No upfront cost for NIA lease

Payment terms • $65M for LTSC due upon signing, remaining $30M due in 6-12months

• $2.5M for infrastructure due by December 31, 2019

Ongoing costs LTSC Exchange

• $27/AF for recovery (current rate)o $405,000/yr

• Storage fee at USFs (GRD’s choice), cost share if stored at GSFs

NIA Lease

• costs only paid on available water• $150/AF, escalated by 3% or CPI annually

o $2.7M/yr - if full entitlement available• $5/AF storage fee at GRIC Phx managed USFs if capacity available, if

not available GRD can deliver to other storage facilitieso $91K/yr

CAWCD Delivery Charges

• paid on exchange and leased watero $160/AF (2018 rate)

Potential GRIC/GRWS Acquisition: Water Supply ImpactsShortage Scenario: CAGRD Phoenix AMA Supplies (Existing and

Proposed) and Obligations, 2018-2034

GRIC NIA lease and M&I exchange waterincluded in CAP M&I, NIA, and Effluentsupplies (shown in blue)

Data shown assumes that GRIC NIA and M&Iexchange water is available in 2020;assumes that CAGRD and WMAT NIAsupplies are available in 2021

Schedule for shortage reductions under DCPguidelines, using April 2018 CRSS modelling(median case, stress test hydrology, withDCP) are as follows:

• 192k AF in 2019/20• 512k AF in 2021-25 and 2027 (Tier 1)• 592k AF in 2026 (Tier 2, above 1040’)• 640k AF in 2028-30 (Tier 2, 1025-

1040’)• 720k AF in 2031-34 (Tier 3)

Assumes shortage impacts to CAP M&I andGRIC M&I exchange supplies of up to 17%when shortage reductions are 640k or720k

Agenda Number 2. Attachment 3.

All-In Costs All-In CostsIn 2018 Dollars In 2018-2044 Dollars

Costs CostsNo NIA Shortage (Millions) (Millions)Upfront Costs $97.5 $97.515,000 AF/YR Pinal Credit Exchange (For 25 Years) 1/ $70.1 $110.818,185 AF/YR NIA Lease Available in Full For 25 Years 2/ $143.2 $218.2Total 25 Year All-In Costs $310.8 $426.5

Credits (af) 900,000 900,000Cost ($/af) $345 $474

Costs CostsWith NIA Shortage (Millions) (Millions)Upfront Costs $97.5 $97.515,000 AF/YR Pinal Credit Exchange (For 25 Years) 1/ $70.1 $110.818,185 AF/YR NIA Lease Available 40% over 25 Years 2/ $57.3 $87.3Total 25 Year All-In Costs $224.9 $295.6

Credits (af) 627,225 627,225Cost ($/af) $359 $471

GRIC/ GRWS/ CAGRD AgreementsALL-IN COSTS

2/ Includes CAP delivery fixed OM&R and energy costs, storage costs and GRIC NIA water lease costs.

1/ Includes CAP delivery fixed OM&R and energy costs, recovery and storage costs. Excludes Pinal credit costs, which are included in the upfront costs.

Agenda Number 2. Attachment 4.

Average Unit Costs ($/AF) Over Agreement TermOctober 9, 2018

*Assumes 40% CAP NIA water reliability, & 90% P4 supply after shortage reduction to Quartzsite & MVIDD.**Includes CAP delivery charges and system improvement fees, excludes losses and recharge costs at facilities off GRIC lands.***Future costs are not discounted.****Assumes residual land value of $34M (equivalent to purchase price) after 35 years.

GRWS Quartzsite MVIDD (With Land Sale)**** MVIDD (Without Land Sale)

Total Cost Total Vol (AF)Avg Unit

Cost ($/AF) Total Cost Total Vol (AF)Avg Unit

Cost ($/AF) Total Cost Total Vol (AF)Avg Unit

Cost ($/AF) Total Cost Total Vol (AF)Avg Unit

Cost ($/AF)

Acquisition Costs $134,780,703 627,225 $215 $1,849,000 24,075 $77 $8,464,691 173,250 $49 $42,464,691 173,250 $245Infrastructure, Recovery, Delivery, Recharge Costs** $160,801,422 627,225 $256 $7,771,337 24,075 $323 $61,046,494 173,250 $352 $61,046,494 173,250 $352

All Costs*** $295,582,125 627,225 $471 $9,620,337 24,075* $400 $69,511,185 173,250* $401 $103,511,185 173,250* $597

Agenda Number 2. Attachment 5.

1

Discussion of Potential Water Acquisition between CAGRD, GRIC and GRWS

CAGRD & Underground Storage CommitteeOctober 18, 2018

Laura GrignanoManager, CAGRD

Potential Water Acquisition Partners: Gila River Indian Community (GRIC)

Gila River Water Storage LLC (GRWS)

Central Arizona Groundwater Replenishment District  (CAGRD)

Term: 25 years (starting in 2020)

Volumes:LTSC Purchase (GRWS/CAGRD)

• 375,000 AF of LTSCs (Pinal AMA)

• 70,375 AF of LTSCs (Phx AMA)

Recovery and Exchange Agreement (GRIC/CAGRD)

15,000 AF/y Pinal LTSCs recovered on GRIC land and exchanged for GRIC Indian priority water delivered to Phx AMA storage for CAGRD 

CAP NIA Priority Water Lease (GRIC/CAGRD)

18,185 AF/y

Agenda Number 2. Attachment 6. REVISED 10/17/18

2

Primary Benefits

‐ Provides a substantial wet water supply to CAGRD for 25 years (starting 2020)

‐ Provides an annual water supply of 33,185 AF/y for 25 years (excluding shortage impacts) plus 70,375 AF of Phoenix AMA LTSCs, for a total of 900,000 AF of water over 25 years.

‐ Secures a significant portion of the water that the CAGRD needs to meet its replenishment obligations under the 2015 Plan of Operation even under shortage conditions

Current Phoenix AMA Supplies: Shortage

CAGRD Phoenix AMA Supplies and Obligation (Shortage), 2018‐2034

Only existing CAGRD supplies are available to meet obligations

• Includes NIA reallocation in 2021 Schedule for shortage reductions under DCP

guidelines (median case, stress test hydrology, with DCP) are as follows:

• 192k AF in 2019• 512k AF in 2020-25 and 2027 (Tier 1)• 592k AF in 2026 (Tier 2, above 1040’)• 640k AF in 2028-30 (Tier 2, 1025-

1040’)• 720k AF in 2031-34 (Tier 3)

LTSC account is depleted by 20300

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Acre‐Feet

CAP Excess CAP M&I, NIA, and Effluent

PHX AMA LTSC PHX AMA Obligation

 ‐

 50,000

 100,000

 150,000

 200,000

 250,000

PHX AMA LTSA Balan

ce 

(AF)

3

Impact of GRIC/GRWS Acquisition: Shortage

Shortage Scenario: CAGRD Phoenix AMA Supplies (Existing and Proposed) and Obligations, 2018‐2034

GRIC NIA lease and M&I exchange water included in CAP M&I, NIA, and Effluent supplies (shown in blue)

Data shown assumes that GRIC NIA and M&I exchange water is available in 2020; assumes that CAGRD and WMAT NIA supplies are available in 2021

Schedule for shortage reductions under DCP guidelines (median case, stress test hydrology, with DCP) are as follows:

• 192k AF in 2019• 512k AF in 2020-25 and 2027 (Tier

1)• 592k AF in 2026 (Tier 2, above

1040’)• 640k AF in 2028-30 (Tier 2, 1025-

1040’)• 720k AF in 2031-34 (Tier 3)

Assumes shortage impacts to CAP M&I and GRIC M&I exchange supplies of up to 17% when shortage reductions are 640k or 720k

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Acre‐Feet

CAP Excess CAP M&I, NIA, and Effluent

PHX AMA LTSC PHX AMA Obligation

 ‐

 50,000

 100,000

 150,000

 200,000

 250,000

 300,000

 350,000

 400,000

PHX AMA LTSA Balan

ce 

(AF)

Additional Benefits

‐ Establishes a historic partnership with GRIC/GRWS and the CAGRD

‐ Creates a pioneering way to use Pinal AMA LTSCs in the Phoenix AMA (through recovery and exchange)

‐ May alleviate recent concerns that CAGRD is focused primarily on on‐River transfers and leases

‐ Provides a substitute NIA priority water supply (of equal volume) if CAGRD’s NIA reallocation is delayed further; mitigates some DCP impacts

‐ May ease concerns of developers and homebuilders of the negative impacts to the CAGRD from DCP

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Up-front Costs LTSCs◦ $95M for 445,375 AF LTSC @ Avg $213/AF

Exchange ◦ $2.5M Infrastructure contribution

Lease ◦ No upfront cost for NIA lease

Payment terms $65M for LTSC due upon signing, remaining $30M due

in 6-12 months $2.5M for infrastructure due by December 31, 2019

Annual Costs LTSC Exchange◦ $27/AF recovery fee (current rate) $405,000/y

◦ Storage fee at USFs (CAGRD’s choice), cost share if stored at GSFs

NIA Lease - costs only paid on available water◦ $150/AF, escalated by 3% or CPI annually $2.7M/y - if full entitlement available

◦ $5/AF storage fee at GRIC Phx managed USFs if capacity available, if not available GRD can deliver to other storage facilities of choice $91K/y

CAWCD Delivery Charges◦ paid on both exchange and leased water◦ $160/AF (2018 rate)

5

All-In Costs

Average Unit Costs Comparison

1 70,375 AF Phx AMA LTSCs plus 15,000 AF recovery/exchange X 25 yrs plus 18,185 AF NIA X 25 yrs X 40% reliability 2 1,070 AF X 25 yrs X 90% reliability3 5,500 AF X 35 yrs X 90% reliability4 5,500 AF X 35ys X 90% reliability5 Includes CAP delivery charges, system improvement fees, land management fees, excludes losses and recharge costs at facilities off GRIC lands.6 Future costs are not discounted.7 Assumes residual land value of $34M (equivalent to purchase price) after 35 years.

October 9, 2018 (All-In Period Costs)

GRWS Quartzsite MVIDD (With Land Sale)7 MVIDD (Without Land Sale)

Total CostTotal Vol

(AF)Avg Unit

Cost ($/AF) Total CostTotal Vol

(AF)

Avg Unit Cost

($/AF) Total CostTotal Vol

(AF)

Avg Unit Cost

($/AF) Total CostTotal Vol

(AF)

Avg Unit Cost

($/AF)

Acquisition Costs $95,000,000 627,225 $151 $1,849,000 24,075 $77 $0 173,250 $0 $34,000,000 173,250 $196

Infrastructure, Recovery, Lease, Delivery, Recharge & Other Costs5 $200,582,125 627,225 $320 $7,771,337 24,075 $323 $69,511,185 173,250 $401 $69,511,185 173,250 $401

All Costs6 $295,582,125 627,2251 $471 $9,620,337 24,0752 $400 $69,511,185 173,2503 $401 $103,511,185 173,2504 $597

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Impacts on Fees, Dues & Rates Enrollment Fee, Activation Fee and Annual Membership Dues

◦ No changes from current approved CAGRD rate schedule due to GRIC agreements. ◦ Previously planned Activation Fee discussions will occur prior to spring of 2019 rate setting.

Water Replenishment & Replenishment Reserve Rates◦ Water delivery costs increase starting in 2020 and impact 2019 rates.

Phoenix AMA combined rates (WR, RR, Admin, and I&WR) increase in total by 11%-15% over the next 2 or 3 years (e.g. At end of year 3, total average increase of $3.11 per month per home). Impacts to subsequent years are small.

Pinal AMA has no impact.

Tucson AMA may have a small impact. Rates stay at or near published rate schedule.

Administration Rate◦ No Impact

Infrastructure and Water Rights Rate◦ No change from current approved rate schedule, which is flat year over year.◦ Prior year discussions on lowering rate now on hold.

Next Steps

Discussion and Consideration of Action by CAWCD Board – November 1st

Consideration of Approval by the Gila River Indian Community (GRIC) Council – Nov 7th

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Questions