UPDATEs

Summary

• Sallal and North Bend have signed this water supply agreement.
• This contract allows our water rates to remain the same, except for inflation.
• Sallal can now avoid the impending moratorium.
• Sallal remains independently owned and governed, now enabled to continue business as usual.
• Over the next 1-2 years, Sallal will construct an intertie near the former mule pasture to connect to the City’s water supply, to be paid for by a grant from the Department of Health, sponsored by Senator Mark Mullet.
• This connection will give Sallal access to all the water it needs to serve new members in the urban growth area for many years to come.

WATER SUPPLY AGREEMENT WITH THE CITY OF NORTH BEND

                Sallal’s Board of Trustees, by a five to two vote at its June 5, 2023, special Board meeting, approved the water supply agreement with the City of North Bend. The agreement was approved the next evening by the City Council and then signed by the City Mayor and Sallal’s President.  The fully signed agreement can be found here: Water Supply Agreement

                The agreement is the culmination of 15 years of negotiations.  There were many starts and stops over the years with many unsuccessful attempts at developing mutually satisfactory water supply arrangements. In a nutshell, the agreement requires Sallal to provide not more than 100-acre feet per year of untreated water from its wells at Rattlesnake Lake which the City will convey to Boxley Creek for instream flow mitigation. The City must return that quantity of water (or Sallal can draw it down in advance) on the valley floor each year so that there is no net reduction of Sallal’s water rights.  In exchange and in addition, Sallal gets the shared use of over 3,000 annual acre feet of the City’s water rights for use within the City’s urban growth area.  Two new interties will be needed to make all of this happen, the cost of which has been set aside in a $1.5M State grant sponsored by Senator Mark Mullet. The agreement requires Sallal to adopt enhanced water conservation measures. The duration of the contract is 40 years.

                The City annexed into Sallal’s service territory in 2009 and extended its sewer system resulting in growth which effectively consumed Sallal’s annual water rights.  Sallal has substantial amounts of instantaneous water rights measured in gallons per minute but limited annual water rights.  The City, on the other hand, needed an additional source of mitigation water (which Sallal’s Rattlesnake wells are positioned to provide) and its Centennial Well was sized and permitted to provide wholesale water to Sallal to serve the annexation area. Without Sallal, the City would have to install duplicate and very expensive pumping, transmission and storage facilities in the annexation area.  The City was prepared to do so but from a water system planning perspective, it was logical and in the interests of all concerned for the two systems to cooperate to avoid wasting public resources.  State agencies (DOE and DOH) encouraged this agreement. Sallal’s lender, the United States Department of Agriculture, approved the agreement too, which was critical because Sallal’s loan covenants contain a rigorous requirement to serve new connections, and conversely, required the USDA’s permission if Sallal desired to abandon that obligation. 

The issue facing Sallal was existential.  Sallal’s annual acre allotment of water rights were at their limit.  Being unable to serve new connections (referred to as a moratorium) means that parcels wherever located in Sallal’s service territory would be denied from accessing water even if they abutted a water main.  Revenues from new connections would be lost.  The cost of maintaining and replacing aging infrastructure would have to be covered by existing customers. Monthly water rates would have to increase substantially just to cover capital costs. Water utilities are capital intensive operations and often rely on loans to construct facilities, but Sallal’s financing options would be severely limited if it entered moratorium.  If Sallal turned down available water, it would face legal claims from stranded property owners.  The availability of insurance to protect Sallal and its Board would be compromised.  Sallal had already suffered an insurance non-renewal notice when it entered into a temporary moratorium last year.  The unavailability of insurance and financing, by themselves would doom Sallal. 

Much has been spoken about the anti-assumption protection provided by a federal statute that protects USDA borrowers, but it was not clear whether that protection would apply if Sallal entered moratorium. An element of the statute is that the federal borrower must have the ability to serve. Regardless, all USDA would have to do is call in Sallal’s loans or sell them to avoid the federal statute.  A large water purveyor in moratorium serving a growing city would be a highly unusual and unfavorable situation. The chances of Sallal remaining in existence in that situation were not assured.  

Sallal’s Board made the judgment call that it was better for the organization and its members to lend a limited amount of water to the City for stream flow mitigation in order to obtain access to the City’s substantial water rights.  The price was enhanced conservation but the alternative of being in moratorium or going out of existence altogether would have meant a whole different level of conservation (and cost).

Now that a supply contract is in place, Sallal can resume the normal business of a water purveyor.  Incoming customers will pay membership fees used to replace aging infrastructure and help carry the load of operations.  Sallal will be able to service its debt and remain in compliance with loan covenants.  The anti-assumption protection afforded by the federal statute should now be secure because Sallal can now fulfill the water availability requirement. 

Current Water Service Map

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