2012 2:00:00 PM

Monday, October 8, 2012 2:00 PM
Sparks Legislative Building, 745 E. 4th Street, Sparks, NV 89431

General Business: 6.6

Title: Consideration and possible approval of termination of the Master Service Agreement for Treated Effluent with Kiley Ranch Communities, Agreement A-3642, for failure to pay amount due within sixty (60) days.

Petitioner/Presenter: John Martini, P.E., Assistant Community Services Director/Andrew Hummel, P.E., Utility Manager

Recommendation: Staff recommends the approval of termination of the Master Service Agreement for Treated Effluent with Kiley Ranch Communities, Agreement A-3642, for failure to pay amount due within sixty (60) days.

Financial Impact: Impact is limited as the City retains the ability to enter into effluent sales agreements as allowed under Sparks Municipal Code (Title 12.85) using the treated effluent liberated by the termination of this Master Service Agreement. $441,667 in reservation fees and $551,758 of connection fee principal and interest will be written of of the City books upon the termination of this agreement.

Business Impact (Per NRS 237):
A Business Impact Statement is not required because this is not a rule.

Agenda Item Brief: On March 17, 2008, the City entered into contract (Agreement A-3642) with Kiley Ranch Communities for a Master Service Agreement for Treated Effluent at Kiley Ranch. This agreement provided effluent service capacity reservation for the Kiley Ranch Development of up to 473.72 acre-feet of effluent to be used by future customers, subject to meter, connection, and an annual reservation fee. Payment has not been received since December 1, 2009. Per section 10.B.iii of the agreement, the City may terminate the Agreement upon 30 days notice for failure to pay within 60 days. Staff recommends approval of this item.

Background: On March 17, 2008, the City entered into a Master Service Agreement with Kiley Ranch Communities for treated effluent service. This Agreement provided a mechanism for Kiley Ranch Communities to reserve 473.72 acre-feet of effluent for future customers within the Kiley Ranch Development, subject to connection, meter, and annual reservation fees. The intent of the Agreement was that as Customers were added (through a Service Agreement); the reservation fee would reduce by an amount equivalent to that Customer’s demand. The reservation fee was calculated based on the current usage fee multiplied by the 473.72 acre-feet reservation (or remaining fraction) on an annual basis. It’s important to note that this reservation fee (as allowed by the signed agreement) was charged regardless of usage. Two Customers have initiated service under the Master Services Agreement – Belimo Americas (July 21, 2009) and Kiley Ranch Perservancy Foundation (November 23, 2009). Belimo Americas is a “standard” Customer envisioned by the agreement with a maximum demand of 1.914 acre-feet. The Kiley Ranch Perservancy Foundation sub-agreement provided for commencement of service for 70 acre-feet at the proposed Kiley Ranch Conservancy site at the time of either: expiration of the 11 year effluent lease with Kiley Ranch Communities (June 23, 2020) OR termination of the Master Service Agreement between the City and Kiley Ranch Communities. Kiley Ranch Perservancy Foundation paid the connection fee as established in the sub-agreement, and is a valid non-profit corporation. If this agenda item is approved, they will be provided notice that the Master Service Agreement has been terminated and service under the Kiley Ranch Preservancy Foundation sub-agreement will be commencing. Kiley Ranch Communities paid the monthly meter and connection fees outlined in the Master Services Agreement until December of 2009. No reservation fee was assessed prior to this date. Around that timeframe, the development began to fall on financial difficulties due to the recession. Subsequently, no further payments were received after December 1, 2009. Kiley Ranch Communities went into bankruptcy, and ultimately the Kiley Ranch Development was sold through auction in November of 2011. Kiley Ranch Communities is still a valid Domestic Corporation, and is still the holder of the Master Services Agreement. Notification of possible termination was provided to Kiley Ranch Communities via letter on May 11, 2010 and recently on September 7, 2012 (via certified mail).

Analysis: Termination of the Master Services Agreement with Kiley Ranch Communities will result in the City having the ability to resell the effluent reserved by the Master Services Agreement (excluding the amounts already assigned to sub-customers as noted above). It is important to note that a large portion of the fees in question were for reservation of water, with no actual product (i.e. effluent) delivered in exchange. The infrastructure constructed for the development (by the developer) is still in place, and is available for use by future customers. This will allow the City to continue to provide service to potential customers within the Kiley Ranch development area as development continues. Since the original Master Service Agreement (2008) was entered into, the connection fee structure (Title 13.85) has changed. Given this, the water rights liberated by termination of the Master Services Agreement will have more value to the City of Sparks under current Municipal Code rates.

Alternatives: 1. City Council could approve the Termination as outlined by Staff. 2. City Council could reject the Termination and provide direction to the City Manager.

Recommended Motion: I move to approve termination of the Master Service Agreement for Treated Effluent with Kiley Ranch Communities, Agreement A-3642, for failure to pay amount due within sixty (60) days.

Attached Files:

Notice1.pdf

Notice2.pdf

Master Services Agreement.pdf

Kiley Ranch Corp Status.pdf

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