UPDATEs

No Contract = Increase in your Rates

5/4/23 – Rebuttal to opinions of two dissenting board members.

4/19/23 – Sallal/City Contract Considerations

Summary: The contract is the best way to keep Sallal in business, independent, our system in good condition, and our rates low. It also gives the river a more reliable source of mitigation water when it’s needed. A supply contract with the City is recommended by a majority of the Board of Trustees, Sallal’s management, our legal counsel, and engineer. Without the contract, Sallal will go into moratorium and may not survive. For more details, see this document created by Sallal’s negotiation committee and counsel.

Two dissenting board members have been given the opportunity to create a rebuttal to the document linked above. rebuttal document and powerpoint presentation

This preliminary rate assessment from the updated 10-year Capital Improvement Projects (CIP) shows the potential impact on members rates with a contract (average $6/month per member) and without a contract (average $39/month per member) because capital improvement projects will have to be funded by current members instead of future development. (This evaluation does not include inflation, legal fees in the event of condemnation, nor any potential increase in operating costs.) The prioritized pipe replacement plan that supports the CIP can be seen here.

Senator Mullet has secured the full $1,507,000 to cover our entire costs of building the intertie with the City for the contract, which includes $300,000 more than this original estimate to upgrade to an above ground structure instead of a vault. The finalized budget that includes this funding for Sallal can be found here on page 91.

The main terms of the contract are summarized here.

The City has provided an updated FAQ here.

Sallal/City Contract Engineering Reports

North Bend/Sallal Intertie and Mitigation Operational Considerations: This PowerPoint Presentation was created jointly by Sallal and the City’s engineers from Gray & Osborne, Inc. and will be presented at both the April 24 and May 24 informational meetings.

The three engineering reports below from Sallal’s Gray & Osborne, Inc. engineer use hydraulic modeling to assess the ability of Sallal to receive water from the City while providing mitigation water from Sallal to the river on behalf of the City and outlines the infrastructure necessary.

Task 1: Water Use Data

Task 2: Hydraulic Analysis (Please note – this report uses 243.6 acre feet per year as the mitigation requirement, but the City subsequently reduced its mitigation demand to 100 acre feet per year.)

Task 3: Identification of Infrastructure Needs (Please note – an updated cost estimate is available here.)

For more information, check out this ‘counsel approved’ member Q&A with our engineer.

4/13/23 – Why Do We Need This Contract Now?

Sallal has no time to waste in obtaining additional water supply. It is almost out of water rights capacity.
Sallal has received a request to relinquish a portion of its water service area for a≈ 48 unit multifamily/cottage development. Based on present day uncertainties, Sallal may have to concede to that request if a supply contract with the city is not approved. This is just one example of what will happen if Sallal does not obtain additional water. Service area will be lost along with loss of membership fees that would otherwise be used to replace aging infrastructure.
Based on existing growth trends and if no supply contract is approved, Sallal will have to shortly re-enter a moratorium. But this time, the moratorium will be long term. Sallal has no other options to get water.
If Sallal re-enters a moratorium, negotiation leverage with the City will be lost. This may be our last chance to negotiate a supply contract that benefits Sallal, its members and property owners in Sallal’s mostly rural service area that wish to build on their land.
Attempts by some to slow down the contract review and approval process are a thinly disguised attempt to derail the contract in order to stop growth in the upper valley. As a utility with duty to serve the public with potable water, Sallal cannot take positions on growth. We recognize that others have sincere concerns about contract terms, but six weeks is plenty of time to review the contract. It is 16 pages including boilerplate provisions and exhibits. During this six-week period, Sallal will respond to the various questions and concerns presented.

Check back here on April 19^th for more information about the contract.

2/16/23 – Sallal hired WestWater Research to appraise the value of our water rights. WestWater Research is the recognized regional and national leader in market research, pricing and valuation of water rights. They have finished the appraisal and it is now available for review here.

Thanks to our significant progress on the water supply contract negotiations, Senator Mark Mullet does not intend to issue a legislative bill to help the City condemn Sallal’s water system. In fact, he has budgeted $2M to help pay for our costs and the City’s costs to create interties between the two systems if a supply contract can be mutually agreed upon. Senator Mullet has been instrumental in keeping contract negotiations moving forward with reasonable terms. He has stayed in the loop, requested updates along the way from both parties, and encouraged both parties to negotiate in good faith. Without his support, negotiations would likely have not progressed, and we certainly wouldn’t be able to carry out this proposed arrangement without having to utilize our capital reserves. We still have more work to do on the contract, but are optimistic. The Sallal negotiating team wishes to express their sincere gratitude to Senator Mullet for all his assistance.

2/7/2023 – At the February 6, 2023 Special Board Meeting, the Sallal Board voted this draft contract to be generally acceptable by the majority of Sallal’s Board and submitted it to the City of North Bend on February 7, 2023. It is NOT the final version and more minor edits will be needed as negotiations continue on the less significant details. Sallal believes it to be a reasonable agreement in which both parties get what they need, if not everything they want.

1/18/2023 – Sallal has hired an appraiser to determine the value of our water rights. We expect to be able to release the appraisal report on our website soon.

The City has been working with Senator Mark Mullet and Representative Keith Goehner on changing a state law that would apparently make it easier for a City such as North Bend to assume/condemn a water association such as Sallal, as well as provide state funding to pay for the acquisition. We have not yet seen the draft legislation. The Legislature is now in session and legislative bills will soon be circulating. We will post a copy of the legislative bill on our website if/when it becomes public information.

Both the City and Sallal met with Senator Mullet and Representative Goehner in late December, which resulted in a consensus that the easiest path forward for the City and Sallal is to continue negotiations for a water supply agreement between the City and Sallal, rather than changing the state law to encourage a hostile takeover by the City. No one wants to engage in an expensive court battle.

The City and Sallal met in mid-January to discuss a recent draft contract for water supply to Sallal and mitigation supply to the City and made some progress. We came away with two main obstacles – which were the City’s expectation that Sallal would not remain autonomous and that Sallal would change its rates and connection fees to be in line with the City’s. We all agreed that Sallal would propose edits to deal with those obstacles and other issues and send back to the City for further consideration.

The exchange of draft contract text and edits are all preliminary at this point. If the negotiation teams are able to produce a final document, it will have to be approved by the City Council and Sallal’s Board. And, we have not forgotten about providing member information meetings to present whatever final document that the Board wishes to act on.

Senator Mullet has stayed in close contact with both parties with the stated intention of ensuring that both sides are negotiating in good faith, which we have appreciated. Additionally, Senator Mullet has told us that there is a possibility of receiving state funds to help cover the costs for both Sallal and the City to build the necessary infrastructure for the interties to make the supply agreement work.

Sallal Survey Results

Next Steps:

RCW 24.06.240 effectively puts the Board in a position of having to initially screen any purchase offer.
If and when an offer is received, the Board will evaluate it and report its findings to the members.
If the Board’s evaluation of the offer is negative, that will conclude the matter (although a negative evaluation will not preclude the City from attempting condemnation).
If the Board’s evaluation is positive, then the statute requires the Board to submit the matter to the members for approval.

Pros & Cons of Issues Before Sallal

Sallal’s FACTs – Rebuttal to City (updated 10-12-22)

City of North Bend’s Offer to Buy Sallal

The City of North Bend’s Mayor announced an offer to purchase the Association at our public meeting regarding our emergency moratorium on August 16, 2022. This announcement came as a complete surprise to the Sallal Board of Trustees and its management.

Members of the Sallal Board have been discussing water supply contract terms with the City for several years and had just received a response from the Mayor the day before the public meeting. His August 15^th response continued to express the City’s interest in continued negotiations. Not once did that letter indicate the City was preparing to make a purchase offer and this subject did not come up in previous negotiations.

The Sallal Board believes this offer ignores the will of Sallal members. The Mayor seemed to think that Sallal’s Board could decide to sell the system. The fact is that state laws governing non-profit cooperatives require a vote of the members to approve any sale.

Note that a municipality’s offer to buy often precedes an eminent domain proceeding. In other words, this offer is likely window dressing. An eminent domain proceeding would be an end-around attempt to remove the voting rights of Sallal’s members. Sallal’s Board has been aware of the possibility of a hostile attack from the City for several years and have received legal advice from specialists as to the rights of Sallal and its members. All we can say at this point is that Sallal has viable defenses to a hostile take-over and ultimately, a court may have to decide whether the City has that right.

City of North Bend Motives

We understand the City will need to invest substantial amounts of City taxpayers’ money to extend a large water main up North Bend Way from the Mule Pasture to serve the future National Guard site near Truck Town. The last estimate we heard from the Mayor was more than $17 million for that work. While the National Guard will commit $6M and Puget Western will commit $3M, the taxpayers will need to fund the remaining $8M in project costs to build out and supply water to that area. This cost will likely grow larger as the City designs the improvements. This attempt to purchase Sallal’s assets is a clear strategy to solve their infrastructure problem.

The City must also find a secondary source of mitigation water to remain in compliance with the 2008 water right permit from the Department of Ecology. The City appears to view the water rights held by Sallal for its wells at Rattlesnake as the solution. The City has likely decided that attempting a takeover of Sallal will solve all of the City’s significant water problems.

During our August 16, 2022 meeting, Mayor McFarland made a baseless claim that Sallal has a “failing system”. Before the end of the meeting, the City published a notice on its website about the purchase offer and claimed that “The City’s water system has shown itself to be more reliable than Sallal’s system….” This claim is debunked given the City’s multiple operating violations including mitigation violations in 2015 and 2019, excessive water withdrawals, and its very high distribution system leakage (DSL) which has exceeded 20%. The Sallal Board views this claim as another attempt by the City to deflect from the City’s mismanagement of their own water system and to cast doubt and concern in the minds of Sallal’s members about Sallal’s Water System.

Negotiations with the City for a Water Supply Contract

Recent comments in the media from the City have incorrectly claimed that we have not been acting in good faith in contract negotiations for a water supply contract. The Mayor even falsely claimed that Sallal backed out of a deal in 2009. However, the fact is that Sallal remains willing to negotiate an agreement that is fair for all involved. A brief recap of the negotiation history follows:

The Department of Ecology approved the 2008 City water permit without requiring a mitigation contract between North Bend and Sallal to be in place. The permit required North Bend to contract for a back-up source of mitigation water (the primary source being seepage from Seattle Public Utilities Cedar River impoundment). The permit also authorized North Bend to sell wholesale water to Sallal for use in the City’s Urban Growth Area (UGA). It should be noted that the City received this permit several years before the 2015 Foster Decision by the State Supreme Court that placed tighter restrictions on water rights mitigations – restrictions that are now preventing Sallal from securing a new water right.

After the 2008 permit was issued, the City engaged FCS group for financial assistance in developing a wholesale rate to charge Sallal for potable water. Based on FCS’s analysis, the City issued to Sallal cost and debt participation figures in order for Sallal to participate in the costs of the City’s water system improvements and obtaining the water right permit. The cost participation was to begin immediately even though Sallal would not need water for many years. The cost participation figures came as a shock to Sallal. They were unaffordable. This caused negotiations to collapse in 2009/2010.

Still, direct discussions resumed between Sallal’s manager and City management using water commodity charge/water trading concepts and many draft contract documents were exchanged during the next decade. The City eventually abandoned the cost/debt participation concept of the FCS report. In 2021, Sallal successfully proposed a water pricing methodology that was generally acceptable to both parties and which resolved an important part of a potential agreement. Water system design work by both parties relating to interconnection the two systems proceeded. The City extended its Boxley Creek mitigation line to the foot of Sallal’s wellfield at Rattlesnake. Sallal installed improvements to its system, at its own cost, to ensure that it could deliver untreated water to that pipeline. Sallal also studied as to how best for City water to enter Sallal’s system in the lower valley. Sallal’s system operates at higher pressures and is upgradient of the City’s water system. Also, up until recently, Sallal was unchlorinated while the City’s system was not, but that challenge has been removed because Sallal now chlorinates.

Sallal was always concerned about its ability to provide instream flow mitigation water from its wells at Rattlesnake while keeping its members in water – even though the City would eventually provide replacement water down in the valley. Therefore, Sallal’s drafts repeatedly showed that mitigation water would not be guaranteed to the City by Sallal. This proved to be a point of contention. Only recently, in May 2022, did the City explain that discharge from its wastewater treatment plant allows the City to simultaneously replenish any amount of mitigation water provided by Sallal thus alleviating the concern about a guarantee.

Once Ecology issued the 2008 permit, North Bend was allowed to come out of moratorium and commence withdrawals from the Centennial Well. The pressure was off North Bend to negotiate in good faith with Sallal. Perhaps North Bend thought that it could force terms on Sallal based on Sallal’s need for growth water to serve the UGA. With the 2008 permit having issued, perhaps it was inevitable that the parties failed to arrive at mutually acceptable terms after years of discussions. Nevertheless, Sallal remains interested in purchasing City water, but the City has been clear that it is only interested in a reciprocal arrangement that requires instream flow mitigation from Sallal’s wells at Rattlesnake.

Current Water Service Map

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