WAI-20 Reso 24-47 RESOLUTION 24-47, AUTHORIZING THE MAYOR TO ENTER INTO A WATER SOURCE DEVELOPMENT AGREEMENT WITH FREE MARKET VENTURES, LLC., PURSUANT TO CHAPTER 14.01 MAUI COUNTY CODE (WAI-20)
Date: March 12, 2024
To: Members of the Water and Infrastructure Committee
From: Jeff Eng
Subject: WAI-20 Reso 24-47, Proposed Water Delivery Agreement Between Maui DWS and Free Market Ventures, LLC
I have reviewed the subject agreement and the foremost question in my mind is what is this water actually going to cost the DWS? From what I can discern, the initial price will be comprised of the following three components:
1. Water Price: $5.95/TG
2. Energy Price @ $0.33/KWH, which Carl Freedman estimates will work out to be $4.62/TG, due the extremely high elevation of the proposed well. I concur with his estimated cost.
3. 50% of all User Charges within the upcountry water distribution system. For a rough estimate of what this amounts to I looked at DWS' FY2022 total User Charge revenues from upcountry ratepayers. 50% of such revenues amounted to $1,450,572. I then estimated the quantity of water produced from the proposed well as 1.2 MGD x 365 days x 80% operational time = 350,400 TG/year.
Therefore, the estimated 50% of all User Charges Price = $1,450,572/350,400TG = $4.14/TG.
Hence, the total initial estimated water price would $5.95 + $4.62 + $4.14 = $14.71/TG. Extremely expensive, but there obviously is lots of room here for the DWS to negotiate a realistic price.
However, I would like to point out that Free Market Ventures offers an option to avoid the payment of 50% of all User Charges. In lieu of the 50% of all User charges, the DWS can make a one-time buyout payment of $12,000,000! This "wonderful" offer applies to not just the first well but also to any future wells.
I would like to reiterate Carl Freedman's comment on water meter issuance. Based on State of Hawaii Water System Standards, one stand alone well without a backup source may not allow for the issuance of new water meters. Water systems must have redundancy in water source. In fact, the proposed new well could, therefore, be viewed as a backup water source to the existing upcountry water system.
Another issue I have is on the references to water quality in the agreement. The term "Extracted Water Quality Standards" must be defined as the current water quality standards of the U.S.E.P.A. and the Hawaii DOH.
Lastly, the agreement should include a minimum well pumping capacity that would be acceptable to the DWS in the event the completed well is not as productive as proposed.
Thank you for allowing me to share my concerns.
TG = thousand gallons
MGD = million gallons per day
KWH = kilowatt-hours
While watching the WAI committee meeting n WAI-20 Resolution 24-47, I was initially very excited hearing about a proposal for a private entity to develop a new water source for the upcountry. I know that such an undertaking is both an expensive and uncertain investment. And that an agreement with the County to purchase the water would likely be necessary for any developer to move forward. But after watching the Department’s presentation and reading the proposed contract, I can unquestionably say that this would be a bad contract to enter into and I stand wholly opposed to this resolution as proposed.
Reading the written testimony from Mr. Carl Freedman, it is clear that there are many aspects of this contract that are adverse to the County’s interest. I do not have the knowledge and experience that Mr. Freedman has, but I support the conclusions he has drawn and would wish to see all of his questions adequately answered before giving ANY consideration to this proposal. I would also encourage the County to enlist more expertise in the evaluation of this, or any revised contract for water supply, before entering into such an agreement.
What bothers me significantly about this contract is that it involves the County essentially entering into a power purchase agreement, in addition to a water purchase agreement. If the water development entity wants to develop a water source and then offer it to the County on the basis of a price per million gallons, it could be considered. But the County should NOT be paying a fee for the power generated to deliver the water at a price that far exceeds the developers power generation costs. I support the idea of using photovoltaic power to deliver the water. But the cost of installing and maintaining the photovoltaic system should be the responsibility of the water supplier and the County should not be paying an ever escalating fee for the power generated by this system. The County should only be responsible for a negotiated fee for the delivered water.
As for the fair price for that delivered water, the County MUST consider this price relative to the fees it collects and subsidies it provides to various users. If I understand correctly, the total costs proposed for this water are as much as $12.50/1000 gallons. And the upcountry water system currently provides as much as half it supply to agricultural water users for $1.19/1000 gallons. This means that the water provided through this contract would be subsidized by as much as $11.31/1000 gallons to agricultural users. I would suggest estimating this subsidy for the top 100 upcountry agricultural users and what the effect might be if more agricultural water users were added. I suspect a subsidy this large would be unsustainable and a bad use of funds.
While I have never understood why the County has not moved more expeditiously to expand the upcountry water sources and storage, I cannot see that this proposal, as presented, is even close to a viable solution to address the many issues affecting the upcountry water system.
Date: March 12, 2024
To: Members of the Water and Infrastructure Committee
From: Jeff Eng
Subject: WAI-20 Reso 24-47, Proposed Water Delivery Agreement Between Maui DWS and Free Market Ventures, LLC
I have reviewed the subject agreement and the foremost question in my mind is what is this water actually going to cost the DWS? From what I can discern, the initial price will be comprised of the following three components:
1. Water Price: $5.95/TG
2. Energy Price @ $0.33/KWH, which Carl Freedman estimates will work out to be $4.62/TG, due the extremely high elevation of the proposed well. I concur with his estimated cost.
3. 50% of all User Charges within the upcountry water distribution system. For a rough estimate of what this amounts to I looked at DWS' FY2022 total User Charge revenues from upcountry ratepayers. 50% of such revenues amounted to $1,450,572. I then estimated the quantity of water produced from the proposed well as 1.2 MGD x 365 days x 80% operational time = 350,400 TG/year.
Therefore, the estimated 50% of all User Charges Price = $1,450,572/350,400TG = $4.14/TG.
Hence, the total initial estimated water price would $5.95 + $4.62 + $4.14 = $14.71/TG. Extremely expensive, but there obviously is lots of room here for the DWS to negotiate a realistic price.
However, I would like to point out that Free Market Ventures offers an option to avoid the payment of 50% of all User Charges. In lieu of the 50% of all User charges, the DWS can make a one-time buyout payment of $12,000,000! This "wonderful" offer applies to not just the first well but also to any future wells.
I would like to reiterate Carl Freedman's comment on water meter issuance. Based on State of Hawaii Water System Standards, one stand alone well without a backup source may not allow for the issuance of new water meters. Water systems must have redundancy in water source. In fact, the proposed new well could, therefore, be viewed as a backup water source to the existing upcountry water system.
Another issue I have is on the references to water quality in the agreement. The term "Extracted Water Quality Standards" must be defined as the current water quality standards of the U.S.E.P.A. and the Hawaii DOH.
Lastly, the agreement should include a minimum well pumping capacity that would be acceptable to the DWS in the event the completed well is not as productive as proposed.
Thank you for allowing me to share my concerns.
TG = thousand gallons
MGD = million gallons per day
KWH = kilowatt-hours
Testimony for WAI-20 Reso 24-47
From Thomas Croly
While watching the WAI committee meeting n WAI-20 Resolution 24-47, I was initially very excited hearing about a proposal for a private entity to develop a new water source for the upcountry. I know that such an undertaking is both an expensive and uncertain investment. And that an agreement with the County to purchase the water would likely be necessary for any developer to move forward. But after watching the Department’s presentation and reading the proposed contract, I can unquestionably say that this would be a bad contract to enter into and I stand wholly opposed to this resolution as proposed.
Reading the written testimony from Mr. Carl Freedman, it is clear that there are many aspects of this contract that are adverse to the County’s interest. I do not have the knowledge and experience that Mr. Freedman has, but I support the conclusions he has drawn and would wish to see all of his questions adequately answered before giving ANY consideration to this proposal. I would also encourage the County to enlist more expertise in the evaluation of this, or any revised contract for water supply, before entering into such an agreement.
What bothers me significantly about this contract is that it involves the County essentially entering into a power purchase agreement, in addition to a water purchase agreement. If the water development entity wants to develop a water source and then offer it to the County on the basis of a price per million gallons, it could be considered. But the County should NOT be paying a fee for the power generated to deliver the water at a price that far exceeds the developers power generation costs. I support the idea of using photovoltaic power to deliver the water. But the cost of installing and maintaining the photovoltaic system should be the responsibility of the water supplier and the County should not be paying an ever escalating fee for the power generated by this system. The County should only be responsible for a negotiated fee for the delivered water.
As for the fair price for that delivered water, the County MUST consider this price relative to the fees it collects and subsidies it provides to various users. If I understand correctly, the total costs proposed for this water are as much as $12.50/1000 gallons. And the upcountry water system currently provides as much as half it supply to agricultural water users for $1.19/1000 gallons. This means that the water provided through this contract would be subsidized by as much as $11.31/1000 gallons to agricultural users. I would suggest estimating this subsidy for the top 100 upcountry agricultural users and what the effect might be if more agricultural water users were added. I suspect a subsidy this large would be unsustainable and a bad use of funds.
While I have never understood why the County has not moved more expeditiously to expand the upcountry water sources and storage, I cannot see that this proposal, as presented, is even close to a viable solution to address the many issues affecting the upcountry water system.