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Memorandum of Mediation Agreement in Principle On January 29, 2008, party representatives participated in mediation of disputes that gave rise to four consolidated appeals now pending before the Washington Pollution Control Hearings Board as Case Nos. 07-156, 07-157, 07-158, 07-159. In an effort to avoid the cost and uncertainty of further litigation, party representatives have reached an agreement in principle as set forth in the attached Settlement Agreement. It is understood that the attached Settlement Agreement is not binding upon any party unless or until it has been duly approved and executed by the parties thereto. The undersigned party representatives do agree and commit to present the attached Settlement Agreement to their respective entities for consideration. Walter Steed, Council Member City of Moscow 2008-05 ---PAGE BREAK--- SETTLEMENT AGREEMENT This Settlement Agreement is entered into by and between the City of Moscow, a municipal corporation of the State ofldaho ("City"), and Hawkins Companies LLC of Boise, Idaho ("Hawkins") as of Febr-uo,v-,j .Lf, 2008. RECITALS WHEREAS, the City and Hawkins are each committed to conservation of the limited water resource in the Palouse Basin. WHEREAS, Hawkins has the right to purchase approximately 204 acres in Whitman County, Washington that abuts the Idaho-Washington state line adjacent to the City ("Property"). WHEREAS, Hawkins intends to develop a commercial retail project on a portion of the Property that will consist of approximately 714,000 square feet of building space and associated acres of irrigated outdoor xeriscaped landscaping ("Stateline Project"). WHEREAS, Hawkins applied to the Whitman County Water Conservancy Board and the Washington State Department of Ecology ("Ecology") to change and transfer three water rights for withdrawal and use at the Stateline Project and one water right for withdrawal and use at the Town of Colton, Washington ("Colton"). WHEREAS, Ecology denied the application to change and transfer to the Stateline Project of Water Right Certificate No. 6030, and Hawkins has appealed said denial to the Pollution Control Hearings Board ("PCHB"). Said appeal is PCHB No. 07- 159. WHEREAS, Ecology approved the applications to change and transfer to the Stateline Project of Water Right Certificate Nos. 5197-A(A) and 5197-A(B), and the City has appealed said approvals to the PCHB, which appeals are PCHB Nos. 07-157 and 07- 158 respectively. WHEREAS, Ecology approved the applications to change and transfer to Colton of Water Right Certificate No. 1412-A, and the City has appealed said approval to the PCHB, which appeal is PCHB No. 07-156. Hawkins and Colton entered an agreement under which Colton assigned its rights to purchase Water Right Certificate No. 5197- A(A) to Hawkins in exchange for Hawkins acquiring Water Right Certificate No. 1412-A on behalf of Colton. WHEREAS, the City holds Idaho water rights and owns and operates a municipal water supply system sufficient to serve the water demand of the Stateline Project. ---PAGE BREAK--- WHEREAS, Hawkins and the City wish to avoid litigation and to resolve the above appeals through this Settlement Agreement. The Parties intend for the City to provide water supply and sanitary sewer treatment service to the Stateline Project upon fair and reasonable terms. NOW, THEREFORE, in consideration of the above recitals, which are incorporated herein, the parties agree as follows: 1. City Application to IDWR. The City shall make prompt application to the Idaho Department of Water Resources ("IDWR") for a determination that authorizes the City to supply water to the Stateline Project in Washington ("Application"). The City shall prosecute said Application with diligence and all reasonable efforts at its sole cost and expense. Hawkins shall cooperate with the City and shall support said Application, and shall bear its own costs. The City shall provide a draft of the Application for Hawkins' review and comment before submittal. Hawkins is the intended third-party beneficiary of the Application. "Final IDWR Approval" herein means an order, or other written determination by IDWR that constitutes final agency action, approving the Application and that is not subject to any appeal and is beyond the time for filing any further appeals. 2. City Water Supply Service to Stateline Project. a) Timing. After IDWRFinal Approval, the City shall commence water delivery to the Stateline Project, and Hawkins shall accept delivery and become a water utility customer of the City. b) following: Quantity. The City shall provide to the Stateline Project the i) water supply for indoor use, which is not to exceed 45 acre-feet annually (which is the total annual quantity under Water Right Certificate Nos. 5197-A(A) and 5197-A(B)); ii) irrigation water, which is not to exceed 20 acre-feet annually (unless Hawkins uses reclaimed water for irrigation under paragraph and iii) fire flow for the Stateline Project, which is estimated to be approximately 2500-3000 gallons per minute. c) Cost of Service. The City agrees that the cost for delivery of water utility service provided to the Stateline Project under this Settlement Agreement shall be fair and reasonable and consistent with rates and charges set for similarly situated customers of the City. This paragraph is not intended to constrain the City's authority to establish appropriate fee categories. Page 2 ---PAGE BREAK--- d) Water General Facilities Charge. Hawkins agrees that the Stateline Project will be subject to payment of General Facilities Charges in accordance with the City's adopted fee schedule. Payment will be made at the time of connection of the Stateline Project infrastructure to the City system. The assessment of the General Facilities Charges shall be based upon the following formula regarding meter size and capacity: Meter Size 5/8" meter 2" meter 4" turbine meter 6" turbine meter Capacity 20 gallons/minute 160 gallons/minute 1 OOOgallons!minute 2000 gallons/minute Meter Equivalent meter equivalent = I. 0 meter equivalent = 8. 0 meter equivalent= 50.0 meter equivalent= 100.0 e) Delivery Point. The City shall deliver and Hawkins shall accept water at one or more master meter(s) to be installed on the Property at or near the state line ("Delivery Point"). The City shall own, operate, and maintain the master meter(s), the pipeline, and facilities upstream of the Delivery Point. Hawkins shall own, operate, and maintain the facilities of the Delivery Point. Hawkins shall be responsible for supplying water to Stateline Project end users and for collecting payment for such service. f) Cost of Facilities. Hawkins shall pay all capital costs related to the master meters, extending water conveyance facilities to the nearest adequately sized City water mains, and associated facilities necessary for the City to deliver water under paragraph 2(b) above. In its sole discretion, Hawkins may elect to install an on-site water storage tank to meet fire flow, in which case the City will not be obligated to provide fire flow water under paragraph 2(b )(iii) and Hawkins shall not be obligated to pay for water system improvements to meet fire flow needs. 3. Withdrawal of All Appeals. Within 5 business days of mutual execution and delivery of this Settlement Agreement, the City shall file with the PCHB a request for dismissal with prejudice of its appeal in PCHB Nos. 07-156, 07-157, and 07-158 and Hawkins shall file with the PCHB a request for dismissal with prejudice of its appeal in PCHB No. 07-159. 4. Water Rights Use: Relinquishment. In its sole discretion, Hawkins may drill wells and exercise Water Right Certificate Nos. 5197-A(A) and 5197-A(B) until such time as Final IDWR Approval is obtained and City water service commences. Within 30 days after Final IDWR Approval and City water service commences to the Stateline Project, Hawkins shall voluntarily relinquish Water Right Certificate Nos. 5197- A( A) and 5197-A(B) by submitting to Ecology a voluntary relinquishment form for each certificate. Page3 ---PAGE BREAK--- 5. Sanitary Sewer Treatment Service. The City offers to provide sanitary sewer treatment service to the Stateline Project on fair and reasonable terms and conditions and consistent with rates and charges set for similarly situated customers of the City. Hawkins shall provide Notice to the City within 90 days after the mutual execution and delivery of this Settlement Agreement whether it elects to accept sanitary sewer treatment service from the City. This paragraph is not intended to constrain the City's authority to establish appropriate fee categories. a) In the event Hawkins accepts sanitary sewer treatment service from the City, then i) Hawkins will pay for all costs related to extending sewage conveyance facilities to the nearest adequately-sized and located City sewer main, ii) Hawkins and the City will exercise all reasonable efforts to acquire easement or access rights for said facilities, and iii) the City will supply indoor and irrigation water pursuant to paragraph 2(b b) In the event Hawkins accepts sanitary sewer treatment service from the City, Hawkins agrees that the Stateline Project will be subject to payment of General Facilities Charges in accordance with the City's adopted fee schedule. At the time of connection of the Stateline Project infrastructure to the City system, Hawkins will make a payment for 500, 750, or 1000 PFU (plumbing fixture units) at its option ("Initial GFC Payment"). At full buildout or five years after the Initial GFC Payment, whichever comes first, there shall be a review and reconciliation of the final General Facilities Charges applicable to the Stateline Project. The General Facilities Charges in effect at the time of the Initial GFC Payment shall apply to the reconciliation and determination of final General Facilities Charges. The City shall refund any overage, or Hawkins shall pay any underage, as to Initial GFC Payment. c) In the event Hawkins does not accept sanitary sewer treatment service from the City, i) Hawkins will construct a sewage treatment facility on the Property, ii) Hawkins will use reclaimed water generated from such facility for irrigation, and iii) the City will supply indoor water, but would not be obligated irrigation water, pursuant to paragraph 2(b 6. Reclaimed Water from City. In the event that Hawkins accepts sewer service from the City, the City shall provide potable water for irrigation use at the Stateline Project pursuant to paragraph 5(b) above; provided, that when the City has reclaimed water supply available for irrigation purposes, the parties intend for the Stateline Project to use reclaimed water for irrigation. At such time, the parties shall negotiate in good faith an agreement for reclaimed water delivery, supply, storage, and use at the Stateline Project, and obtaining necessary approvals for the same. 7. No Protest. The City shall not directly or indirectly protest, contest, or appeal any permits or governmental approvals sought by Hawkins for the Stateline Project. Neither party shall directly or indirectly protest, contest, or appeal any permits or governmental approvals sought for projects or actions necessary to implement this Page4 ---PAGE BREAK--- Settlement Agreement. Hawkins shall not directly or indirectly protest, contest, or appeal any permits or governmental approvals sought by the City for its planned well# I 0. This paragraph does not prohibit any party from a protest, contest, or appeal of any such permits or governmental approvals based on public safety or nuisance. 8. Duration of Utility Services. The parties contemplate a time when a municipal corporation of the State of Washington may be in position to take over the provision of such services. In that event, the parties agree to engage in good faith negotiations to establish the terms and conditions for termination of any utility services provided as a result of this agreement under, which terms and conditions shall be based upon reasonable commercial factors and shall include adequate notice. 9. Covenant to Cooperate. The parties agree to cooperate in good faith to effectuate the implementation of this Settlement Agreement consistent with paragraph 7 above and its stated intent, including but not limited to sharing of information, the working out of technical details, and the preparation, review or execution of documents necessary to further the intent of this Settlement Agreement. I 0. Time of the Essence. Time is of the essence in this Settlement Agreement. 11. Successors and Assigns. This Settlement Agreement shall be binding upon and inure to the benefit of the parties' successors and assigns. 12. Notice. All notices hereunder shall be in writing and shall be effectively given when delivered personally, sent by reputable overnight courier, or sent by United States certified or registered mail ("Notice"). For purposes of notice, the addresses of the Parties shall be: To Hawkins: Jeffrey A. DeVoe Hawkins Companies LLC 855 Broad Street Suite 300 Boise, ID 83 702 With a copy to: Jason Hawkins Hawkins Companies LLC 85 5 Broad Street Suite 300 Boise, ID 83702 To the City: Office of the Mayor 206 E. Third Street P.O. Box 9203 Moscow, ID 83843 With a copy to: City Attorney 206 E. Third Street P.O. Box 9203 Moscow, ID 83843 Any changes to a party's representatives shall be made by Notice. Page 5 ---PAGE BREAK--- 13. Severability. Should any provision of this Agreement be found unenforceable by a court of competent jurisdiction, the remaining terms and conditions shall remain in full force effect. 14. Countemarts. This Settlement Agreement may be executed in counterparts. CITY OF MOSCOW C>eclo 'fc l u ntct+, By: _r.JL::.f:t4<. 1/Y+- HAWKINS COMPANIES LLC Page6