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HomeMy WebLinkAboutCC 2026-01-13_09g Water Wheeling Agreement_OCSDItem 9.g. MEMORANDUM TO: City Council FROM: Bill Robeson, Assistant City Manager/Public Works Director BY: Shane Taylor, Utilities Manager SUBJECT: Water Wheeling Agreement Between the City of Arroyo Grande and the Oceano Community Services District DATE: January 13, 2026 RECOMMENDATION: Adopt a Resolution granting a Water Wheeling Agreement between the City of Arroyo Grande and the Oceano Community Services District. IMPACT ON FINANCIAL AND PERSONNEL RESOURCES: Under the proposed Water Wheeling Agreement, the City will charge the Oceano Community Services District (OCSD) standard City wheeling fees for water transported through the City’s water system. Wheeling fees will be billed bi-monthly based on metered water deliveries to the subject property, 1243 Huasna Road, Arroyo Grande, within unincorporated San Luis Obispo County. OSCD will also reimburse the City for actual administrative costs incurred to negotiate and prepare the Agreement, as well as any City costs associated with pumps, meters, and/or connections necessary to perform the Agreement. City staffing impacts are expected to be limited to routine administration, meter reading, and billing activities. BACKGROUND: OCSD receives water pursuant to a series of agreements referred to as the Water Contracts, more particularly defined in Attachment 1. The owners of property located at 1243 Huasna Road in the unincorporated area of San Luis Obispo County, just outside City limits, currently rely on a domestic well for potable water. According to the property owners, the well is unable to reliably produce water that meets minimum health standards. The property includes a primary single -family residence and an accessory dwelling unit. Page 78 of 621 Item 9.g. City Council Water Wheeling Agreement Between the City of Arroyo Grande and the Oceano Community Services District January 13, 2026 Page 2 The property owners seek a permanent potable water supply from OCSD. OCSD is prepared to provide water allocated to it under the Water Contracts, and the City is prepared to wheel/transport that water through the City’s water system to t he property, subject to the terms of a Water Wheeling Agreement between the City and OCSD and a separate service agreement involving OCSD and the property owners. The City has several water wheeling agreements in place for properties outside City limits. ANALYSIS OF ISSUES: The proposed Water Wheeling Agreement establishes the terms under which the City will transport (“wheel”) water allocated to OCSD under the Water Contracts to the subject property. Key provisions include: Water Source and Quality: OCSD is responsible for confirming its legal authority to deliver water under the Water Contracts. Wheeled water must be potable and subject to all applicable Water Contract terms. The City makes no warranties regarding water quality or suitability. Quantity: The initial allocation is estimated to be 0.33 acre-feet per year. Deliveries will be periodically reviewed and adjusted to balance actual property consumption with OCSD allocations and City system capacity. Infrastructure: OCSD’s water will be delivered through a future metered connection to the City’s existing water main, which extends and terminates in front of the subject property. All costs associated with that connection are the responsibility of the property owners pursuant to a separate agreement. Fees and Costs: OCSD will pay the City’s standard wheeling fees in effect at the time water is transported and will reimburse the City for administrative and infrastructure-related costs. Term and Contingencies: The Agreement becomes effective only after satisfaction of specified contingencies, including compliance with applicable law, environmental review, required agency approvals, and completion of obligations under the service agreement. If contingencies are not met by December 31, 2026, the Agreement expires automatically. Risk Allocation: OCSD agrees to indemnify and defend the City against claims arising out of the Agreement, except for claims resulting from the City’s active negligence. Page 79 of 621 Item 9.g. City Council Water Wheeling Agreement Between the City of Arroyo Grande and the Oceano Community Services District January 13, 2026 Page 3 ALTERNATIVES: 1. Adopt the Resolution as recommended; 2. Modify and adopt the Resolution; or 3. Decline to approve the Agreement and provide alternative direction to staff . ADVANTAGES: Approval of the Water Wheeling Agreement allows the City to; (1) facilitate a long-term potable water solution that does not reduce or rely upon City water allotments but instead uses existing regional/OCSD water allocations, (2) recover administrative and operational costs associated with water wheeling; and (3) clearly allocate responsibilities and risks between the City and OCSD for wheeling water to a customer. DISADVANTAGES: If approved, the Agreement requires ongoing administrative coordination and billing by City staff. However, no significant disadvantages have been identified given the cost recovery provisions and defined scope of City responsibilities. ENVIRONMENTAL REVIEW: Approval of the Resolution to approve a water wheeling agreement between the City and OCSD is not committing to or approving any development plans at this time, including the future connection between the City’s water main system and the property. The water wheeling agreement becomes effective only after satisfaction of certain contingencies set forth in the agreement, including satisfactory completion of environmental review in compliance with the California Environmental Quality Act ("CEQA"). This water wheeling agreement does not bind any party, or commit to any definite course of action, prior to CEQA compliance. It does not restrict the lead agency responsible for the future connection to the City’s water main from considering any feasible mitigation measures and alternatives, including the “no project” alternative. This agreement shall also not restrict the lead agency for CEQA review of such future connection to the water main from denying the approval of such connection to the water main. No environmental review is required for this item. PUBLIC NOTIFICATION AND COMMENTS: The Agenda was posted at City Hall and on the City's website in accordance with Government Code Section 54954.2. ATTACHMENTS: 1. Resolution with Exhibit A - Water Wheeling Agreement Page 80 of 621 ATTACHMENT 1 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ARROYO GRANDE GRANTING A WATER WHEELING AGREEMENT BETWEEN THE CITY OF ARROYO GRANDE AND THE OCEANO COMMUNITY SERVICES DISTRICT WHEREAS, California Water Code sections 1810 through 1814 authorize a public agency that owns or operates a water conveyance facility to transport water for another public agency or person, subject to reasonable terms and conditions and the recovery of costs associated with such transportation; and WHEREAS, the City of Arroyo Grande owns and operates a municipal water system and is authorized under state law to provide water wheeling services using that system, provided such services do not impair the City’s ability to serve its own customers; and WHEREAS, the Oceano Community Services District (OCSD) has requested that the City wheel water from the District through the City’s water system to serve property located at 1243 Huasna Road, Arroyo Grande; and WHEREAS, the Water Wheeling Agreement provides for the transportation of water allocated to OCSD under existing water supply contracts and requires payment of the City’s applicable wheeling fees and reimbursement of City costs, consistent with California Water Code sections 1810 et seq; and WHEREAS, the City and OCSD have negotiated a Water Wheeling Agreement that establishes the terms and conditions under which the City will transport OCSD water, including provisions addressing quantity, fees, infrastructure responsibilities, indemnification, and contingencies; and WHEREAS, approval of the water wheeling agreement between the City and OCSD is not committing to or approving any development plans at this time, including the future connection between the City’s water main system and the property. The water wheeling agreement becomes effective only after satisfaction of certain contingencies set forth in the agreement, including satisfactory completion of environmental review in compliance with the California Environmental Quality Act ("CEQA"). This water wheeling ag reement does not bind any party, or commit to any definite course of action, prior to CEQA compliance. It does not restrict the lead agency responsible for the future connection to the City’s water main from considering any feasible mitigation measures an d alternatives, including the “no project” alternative. This agreement shall also not restrict the lead agency for CEQA review of such future connection to the water main from denying the approval of such connection to the water main. No environmental revi ew is required for this item; and Page 81 of 621 RESOLUTION NO. PAGE WHEREAS, staff recommends granting a water wheeling agreement between the City of Arroyo Grande and OCSD; and NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Arroyo Grande, California, as follows: 1. RECITALS. The foregoing recitals are true and correct and are incorporated herein. 2. GRANTING AN AGREEMENT. The City Council approves a Water Wheeling Agreement between the City of Arroyo Grande and OCSD, incorporated herein as Exhibit A, and authorizes the City Manager to execute the Water Wheeling Agreement, subject to minor clerical, technical or non -substantive changes approved by the City Manager in consultation with the City Attorney. On motion of , seconded by , and on the following roll call vote, to wit: AYES: NOES: ABSENT: The foregoing Resolution was passed and adopted this 13th day of January, 2026. Page 82 of 621 RESOLUTION NO. PAGE _________________________________________ CAREN RUSSOM, MAYOR ATTEST: ________________________________________ JESSICA MATSON, CITY CLERK APPROVED AS TO CONTENT: ________________________________________ MATTHEW DOWNING, CITY MANAGER APPROVED AS TO FORM: ________________________________________ ISAAC ROSEN, CITY ATTORNEY Page 83 of 621 RESOLUTION NO. PAGE EXHIBIT A WATER WHEELING AGREEMENT Page 84 of 621 WATER WHEELING AGREEMENT THIS WATER WHEELING AGREEMENT, (the “Agreement”) is made and entered into as of February ___, 2026 between the City of Arroyo Grande, a municipal corporation, (the “City”) and the Oceano Community Services District, a community services district organized and existing pursuant to California state law, (the “District”) (collectively the “Parties”), with reference to the following facts: A. The District, City, and San Luis Obispo County Flood Control and Water Conservation District (the “SLOFCD”) have previously entered into a variety of contracts relating to the supply of water (collectively the “Lopez Contracts”). B. Both the District and the City receive water from SLOFCD and are allocated certain amounts of water through the Lopez Contracts. C. Karina and Will Marchese (the “Property Owners”) are the owners of certain real property located at 1243 Huasna Road, Arroyo Grande, CA in the unincorporated area of San Luis Obispo County, California described as set forth on the attached Exhibit A (the “Property”). D. The Property consists of a lot that totals 4.86 acres in area. There's currently one (1) single family home that is 2400 SF (“Primary Home”) and one (1) accessory dwelling unit that is 1200 SF (“Secondary Unit”). The Primary Home is 3 beds, 3 baths, and includes 1 bathtub, 1 bath shower combo, 2 showers, 4 faucets. The kitchen has 2 faucets. E. The Property has historically obtained potable water from an existing domestic water well but according to the Property Owners, the Property Owners are currently unable to pump potable water that meets minimum health standards. F. The Property obtained potable water from an existing domestic water well but according to the Property Owners, the Property Owners are currently are unable to pump potable water that meets minimum health standards and the same constitutes an existing or impeding threat to the public health or safety of the property owners within the meaning of Government Code Section 56133 and the Property Owners desire to acquire a better water source from the District. G. The Property Owners desire to acquire a permanent water supply source from the District and the City is prepared to deliver the District’s water by wheeling District water, subject to separate agreement between the District and the Property Owners (“Service Agreement”) and the completion of certain infrastructure requirements. NOW THEREFORE, in consideration of the mutual promises, covenants and conditions contained herein, the parties hereto agree as follows: Page 85 of 621 1. TRUTH OF RECITALS. According to the Parties’ best knowledge, all the matters specified in the Recitals above are true and correct as of this Agreement’s date; however, the City and the District have no actual knowledge and make no representations as to the actual status of the Property Owners’ wells, water quality, or supply and the City has no actual knowledge as to whether the District has sufficient supply to provide water to the Property. 2. DISTRICT WATER RIGHTS AND QUALITY. a. The District is entitled to water through the Lopez Contracts and is also entitled to water through a State water subcontract, collectively herein referred to as “Water Contracts.” b. The District’s water delivered to the City shall be potable water not less in quality as water otherwise delivered pursuant to the Water Contracts and subject to all the Water Contracts’ terms and conditions. c. The City shall wheel the water used by the Property that the District is entitled to under the Water Contracts or any other source the City deems appropriate (“Wheeled Water”) to the Property on the terms and conditions stated in this Agreement. 3. CITY DELIVERY OF DISTRICT WATER TO PROPERTY. After the last contingency set forth in Section 8 has been satisfied, the City shall accept from SLOFCD the Wheeled Water and shall wheel the Wheeled Water to the Property. In connection therewith: a. The Wheeled Water’s quantity shall be limited by the quantity supplied by SLOFCD on behalf of the District to the City. b. The Wheeled Water delivery to the City shall be effected through District instruction to the SLOFCD to deliver a portion of the District’s water delivery entitlement under the Water Contracts to the City’s facilities which receive the City’s water delivery entitlement under the Water Contracts. c. City makes no warranties or guaranties as to the quality of the water or its suitability for use by District, Property Owner, or any other party. d. The Wheeled Water shall be delivered to the Property by the City through a future connection between the City’s water main system and the Property whereby the cost of such a connection shall be the sole responsibility of Property Owner as described in the Service Agreement. e. Such water wheeling shall be consistent with the delivery schedule contained in the Water Contracts. 4. QUANTITY OF WHEELED WATER. The Parties acknowledge that the water consumption from the Property shall vary from day to day. The Parties agree Page 86 of 621 that they periodically shall meet and confer to review the data for both the water deliveries from SLOFCD to the City on behalf of the District and the water deliveries from the City to the Property. The District shall instruct SLOFCD to adjust the water deliveries to the City as necessary to assure, on average, they are in balance with the Property’s consumption and consistent with City’s available capacity. The starting water allocation is estimated to be 0.33 acre feet per year, however, the Property Owners are not limited to that amount. City shall not be responsible for any shortages resulting from any of the following: reduction or function in the water supply under the Water Contracts; drought, weather, or other water shortage conditions beyond the City’s control; emergencies, catastrophic events, acts of nature, vandalism or terrorism; impediments to ground water recharge, well failures, mechanical failures, and system servicing requirements of City; the SLOFCD and other participants in the regional water supply system; or any other events beyond the City’s control. 5. PAYMENT. a. Rates. The District will be charged the applicable standard City wheeling fee in the year, and at the time, the water is actually transported. The City’s fiscal year 2024-2025 and fiscal year 2025-2026 wheeling fees are attached as Exhibit B. Should the District not timely pay the fees, rates or charges referenced herein, the City’s duty to wheel the Wheeled Water is suspended until all fee arrearages are paid. The Parties acknowledge and agree that the rates and charges set forth in Exhibit B are consistent with Water Code Section 1810, et seq., and any updated rates or charges shall, in addition to meeting the requirements of this Agreement, comply therewith. b. Costs. The District agrees to reimburse the City for: i. The City’s actual administrative costs incurred to negotiate and prepare this Agreement. Administrative costs shall be due even if the contingencies set for in Section 8 are not fulfilled; and, ii. Any and all costs incurred by City for any pumps, connections and meters necessary to perform the obligations set forth in this Agreement. 6. ADMINISTRATION AND BILLING. Bi-monthly, the City shall read the meter, determine the volume of water delivered by the City through the meter to the Property, calculate the wheeling fees assessed for the Wheeled Water by multiplying the meter reading by the fee amount, and transmit an invoice to the District for such fee. The District shall pay all invoices submitted by the City for water deliveries under this Agreement within thirty (30) days after receipt. Page 87 of 621 7. TERM. This Agreement shall commence on the date the contingencies set forth in Section 8 hereof have been satisfied. District shall provide written notification to City that all contingencies have been satisfied not less than 30 days prior to the first date the City shall be required wheel water pursuant to this Agreement. This Agreement shall continue for as long as the City provides services to its in- city customers or until the occurrence of one of the following events: a. If the contingencies in the Service Agreement have not been satisfied by December 31, 2026, this Agreement shall automatically expire, with no further obligation on the City’s part. Upon expiration pursuant to this Section 7.a. the District shall not be relieved of its obligation under Section 5.a. of this Agreement. b. District notifies City that the Property Owners are in material breach of the Service Agreement and directs City to stop wheeling water pursuant to this Agreement. c. If this Agreement is determined to violate the provisions of the Water Contracts or any other local, state, or federal laws related to water wheeling, this agreement shall be null and void and no longer in effect. 8. CONTINGENCES. This Agreement and all of the terms, provisions, conditions, covenants and obligations imposed on the parties hereto, are contingent upon all of the following by December 31, 2026, or this Agreement shall be no further force and effect unless extended in writing by both the City and District. a. Compliance by the Parties with all applicable law, including, but not limited to, the provisions of the California Environmental Quality Act required to enter into this Agreement; b. Application to the San Luis Obispo County Local Agency Formation Commission (LAFCO) and an amendment to the City’s sphere of influence to include the Property in the District’s sphere of influence, and subsequent annexation into the District’s boundaries; c. Written confirmation from LAFCO to the City and District that the Property Owners have met all necessary LAFCO requirements, or that the Property is exempt from LAFCO involvement for the public agencies to perform the obligations imposed by the Wheeling Agreement between them; d. The Property Owners’ completion of all required tasks in the Service Agreement; and e. The foregoing approvals shall be processed by the District, and the District shall provide written notification and proof to the City that all such approvals have been obtained not the less than 30 days prior Page 88 of 621 to the first date that the City shall be required to wheel water pursuant to the Agreement. Upon satisfaction of the contingences set forth in this Section 8, and written notification of such satisfaction by District to City, this Agreement and all of its terms, provisions, conditions and covenants hereof shall be effective and binding on the parties hereto, without any further action required. The District understands that if the use of the Property changes or if the Property is subdivided, Arroyo Grande reserves the right to impose new charges, fees, requirements, and/or connections as needed to meter the actual water delivered. 9. INDEMNIFICATION. The District shall indemnify, defend, protect and hold the City and its council members, commissioners, directors, officers, partners, agents, consultants, and employees free and harmless from and against any and all claims, causes action, demands, injuries, damage, liabilities, losses, costs, or expenses (including, but not limited to, attorneys’ fees, and court costs) to the extent arising out of or resulting from, this Agreement’s terms, provisions, conditions, and covenants, including but not limited to, any and all claims, causes of action, demands, injuries, damage, liabilities, losses, costs or expenses (including, but not limited to, attorneys’ fees, and court costs) resulting from discontinuing water wheeling service pursuant to this Agreement, except as to those arising out of the active negligence of the City and/ or its council members, commissioners, directors, officers, partners, agents, consultants, and/or employees. 10. ADDITIONAL INDEMNIFICATION. In a separate agreement between the District and the Property Owners, the District shall require that the Property Owners take all necessary measurements to assure that backflow prevention and other devices are installed, operated and maintained to assure that there is no cross-connection between the private water system on the Property and the City system, or other cross-contamination of water from the Property’s domestic wells, storage and delivery systems, into City’s system, and shall specifically indemnify City pursuant to this Agreement’s Section 9 for any such cross-contamination, and shall bear any remediation costs required City’s system or water supply. 11. NOTICE. Any and all notices or other communications required or permitted by this Agreement or by Law to be delivered to, served on, or given to any party to this Agreement by any other party to this Agreement shall be in writing and shall be deemed properly delivered, served, or given when personally delivered to the Page 89 of 621 party to whom it is directed, or in lieu of such personal service, when deposited in the United States mail, first class, postage pre-paid, addressed to: City of Arroyo Grande Atten: City Manager City Manager / Matthew Downing 300 E. Branch St. Arroyo Grande, CA 93420 With Copy To: Attorney for City of Arroyo Grande / Isaac Rosen 300 South Grand Ave., Suite 2500 Los Angeles, CA 90071 Oceano Community Services District General Manager / Peter Brown PO Box 599 Oceano, CA 93475-0599 With Copy To: District Counsel / Robert Schultz 3940 Broad Street, Suite 7-155 San Luis Obispo, CA 93401 Any party to this Agreement may change his address for the purposes of this Section by giving written notice of such change in accordance herewith. 12. MODIFICATION. This Agreement may be amended or modified only by an instrument in writing, stating the amendment or modification, executed by Parties hereto and attached to the end of this instrument. 13. GOVERNING LAW/VENUE. This Agreement shall be governed by and construed in accordance with the laws of the State of California. In the event that it is necessary to institute any action to enforce any right granted herein or to redress any alleged breach hereof, then the exclusive venue for such action shall reside with the branch of the Superior Court of the State of California in and for the County of San Luis Obispo, California. 14. HEIRS AND SUCCESSORS. This Agreement shall be binding on and shall insure to the benefit of the heirs, executors, administrators, successors and assigns of Page 90 of 621 the parties hereto. District shall not assign its rights or obligations under this Agreement to any party without prior written consent of City. 15. SEVERABILITY. Should any portion of this Agreement be held unenforceable or inoperative for any reason, such shall not affect any other portion had to been contained herein. 16. ATTORNEY’S FEES. In the event that it is necessary for either party to this Agreement to institute an action to enforce any right granted hereunder or to redress the breach of any provision of this Agreement, then the prevailing party in such action, in addition to any other award made by the Court, shall be entitled to his attorney’s fees and costs incurred in prosecuting such action and the enforcement of any judgment entered in such action from the non-prevailing party, all in an amount to be determined by the Court. Any judgment entered in such action shall include a specific provision authorizing the recovery of the attorney’s fees and costs incurred in enforcing such a judgment. 17. COMPLETE AGREEMENT. This Agreement constitutes the full and complete Agreement of the Parties. 18. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement. 19. GOOD FAITH COOPERATION. The Parties mutually understand and agree that certain provisions of this Agreement may require cooperation to facilitate the intent of Parties, including but not limited to Sections 3, 4, 5, and 8. The Parties therefore commit to cooperate in all regards reasonable and/or necessary to effectuate the Parties’ intent of this Agreement. IN WITNESS WHEREOF the parties have executed this Agreement as of the date and year above first written. Page 91 of 621 EXHIBIT A WHEELING FACILITY CONNECTION LOCATION AND SPECIFICATIONS Point of Delivery (Wheeling Facility Connection Location and Specifications): The current connection point between the City and the Marchese’s address located at 1243 Huasna Road, Arroyo Grande, CA. Legal Description: ALL THAT PORTION OF LOT 8 OF THE RESUBDIVISION OF A PART OF THE RANCHOS CORRAL DE PIEDRA, PISMO AND BOLSA DE CHEMISAL, SURVEYED BY R. R. HARRIS, NOVEMBER 1885, IN THE COUNTY OF SAN LUIS OBISPO, STATE OF CALIFORNIA, ACCORDING TO MAP FILED FOR RECORD NOVEMBER 24, 1886 IN BOOK A, PAGE 63 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT ON THE SOUTHWESTERLY LINE OF SAID LOT 8, WHICH IS NORTH 53 1/2° WEST 20 FEET FROM POST S.29 AT THE MOST SOUTHERLY CORNER OF SAID LOT 8, SAID POINT BEING THE TRUE POINT OF BEGINNING; THENCE NORTH 44° EAST, 5.26 CHAINS PARALLEL WITH THE SOUTHEASTERLY LINE OF SAID LOT TO THE MOST SOUTHERLY CORNER OF THE PROPERTY CONVEYED TO EDWARD V. METHEVER, ET UX., BY DEED RECORDED MARCH 22, 1888 IN BOOK Z, PAGE 625 OF DEEDS; THENCE NORTH 51 1/4° WEST, 21.25 CHAINS ALONG THE SOUTHWESTERLY LINE OF THE PROPERTY SO CONVEYED TO THE MOST WESTERLY CORNER THEREOF; THENCE SOUTH 43 1/2° WEST, 5.99 CHAINS, MORE OR LESS TO THE SOUTHWESTERLY LINE OF SAID LOT 8; THENCE SOUTH 53 1/2° EAST, 21.27 CHAINS TO THE POINT OF BEGINNING. EXCEPTING THEREFROM THAT PORTION DESCRIBED IN THE DEED TO THE CITY OF ARROYO GRANDE RECORDED AUGUST 21, 1985 IN BOOK 2741, PAGE 238 OF OFFICIAL RECORDS. Page 92 of 621 EXHIBIT B CITY OF ARROYO GRANDE WHEELING CHARGE Page 93 of 621 Page 94 of 621 Page 95 of 621 Page 96 of 621 Page 97 of 621 Page 98 of 621