June 4, 2001

Regular Board Meeting

Monday, June 4, 2001

Time: 2:00 P.M.

Place: Board Room

29300 Valley Center Rd.

Valley Center, CA 92082

The Valley Center Municipal W ater District Board of Directors’ meeting was called to order by

President Broomell at 2:00 P.M.

Board members present were: Directors Broomell, Polito, Aleshire and Stone. Director Armstrong

was absent. Staff members present were: General Manager Arant, General Counsel Cowett,

District Engineer Jewell, Director of Finance Jarrell, Director of Operations Dacus, Manager of

Accounting Jeffrey, and Board Secretary Stetson. Spectators present were: Messrs. House, Groh,

Rogers, Davis, Baumgart, Nona, Fercita, Dovel, Klingerman, Mrses. Ferlita, Davis and Mason and

Mr. Ross, Valley Roadrunner Newspaper and Christine Mallay, San Diego Union-Tribune.

1.

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$10.00 per acre, $10.00 per parcel minimum since Fiscal Year 1995-96. A District-wide

availability charge of $4.00 per acre had been assessed between Fiscal Years 1984-85 and

1994-95.

The public hearing on the proposed water availability charge was opened at 2:03 p.m. The

proposed $10.00 per acre water availability charge for Fiscal Year 2001-02 will be allocated

as follows:

MWD Ready-to-Serve Charge $350,400

Revenue Debt Service 95,384

Capital Construction 138,216

Total $584,000

Metropolitan’s Ready-to-Serve charge assessed the District will be $1,847,000 in FY 2001-

02. This will be funded through a fixed charge special assessment collected by Metropolitan,

$350,400 collected from a portion of the proposed water availability charge and a $23.50 per

acre foot charge which is a portion of the District’s commodity rate. The proposed water

availability charge is the equivalent of a $15.78 per acre foot increase in the selling price of

water.

Notices of the public hearing on the proposed water availability charge had been published,

posted and new property owners since the assessment of this charge for Fiscal Year 2000-

2001 received notification by direct mail. No written communication on the proposed water

availability charge was received and there were no comments from the audience on this

matter. The public hearing was closed at 2:06 p.m. (A letter was received via fax at 4:48 p.m.

on June 5, 2001, from Henry P. Rupp III, protesting the proposed water availability charge on

Assessor’s Parcel Numbers 240-061-04-00, 190-120-15-00, 190-120-14-00 and 190-120-05-

00).

A deferment from the District’s water availability charge is available if the property has a

separate parcel number and is permanently dedicated to open space or it is not now using

and there is no intention to use water purchased from the District.

Director Stone stated that the proposed water availability charge collected on the property

taxes is a land-based fee which subsidizes the commodity rate. However, it is a means to

collect funds from all property owners – those that currently receive water service and

property owners with undeveloped land that benefit from an available and reliable water

system. The nexus between the benefit received from the availability of water service and

the availability charge assessed is difficult to quantify. Director Stone stated that because

the assessment of an availability charge is specifically set forth in the Water Code and it has

been tested in the courts, he will reluctantly approve the proposed assessment but stated he

is opposed to the assessment of a tax on property without real justification.

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3. Alternative Proposals for Electrical Generation:

Following direction from the Board at the May 21

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• The retail price for electricity will remain high as the state has entered into long-term

contracts for electricity at high prices. Rates charged electrical and natural gas

consumers by the utility companies will need to be set to include recovery of the net-short

revenues (approximately $18-$20 billion) that have accumulated as a result of the caps

that were placed on rates.

• The District’s goal should be to stabilize and reduce its energy prices and improve the

reliability of its electrical source to minimize the District’s exposure to blackouts.

• Options available to the District are to stay with SDG&E for its energy, purchase from an

energy service provider or local generation of electricity.

• Local generation of electricity to displace retail costs include renewables such as solar,

microturbines and generation through ownership, lease or power purchase

arrangement (PPA). There is a firm that is looking for test cases for its 400 kW

microturbine.

• A power purchase arrangement (PPA) was recommended for the District as it is similar

to purchasing electricity from an energy source provider except the facility is on District

land in which there is a lease contract in addition to a power contract. The advantages

include no District capital outlay, risk assumed by others and a reduction in electricity

costs.

• Arrangements with private party investors are available, in which, through contracts with

private investors, photovoltaics can be constructed for an alternative energy source.

Dr. House concluded his presentation recommending that the District first complete a

comprehensive review of the efficiency of its energy use. He noted that there is grant money

available to improve the efficiency of pumps. Renewable energy (ex. solar) should be

evaluated and other generation options explored. Dr. House reiterated his recommendation

that the District enter into a power purchase arrangement to secure the purchase of electricity

through a lease contract in which the power plant is constructed, maintained and operated

by the power provider. He added that such an arrangement indexed to the price of natural

gas will minimize the risk of an unfavorable contract in the future should changes in energy

prices occur.

Concerning the question of whether the District should pursue a power purchase arrangement

with California Power Partners as a single source provider or solicit proposals from additional

providers for generation of electricity, Dr. House recommended that a limited number (3-5)

of providers be requested to submit proposals, and an analysis of the efficiency of the

District’s energy use and renewable energy sources should be undertaken.

General Counsel Cowett stated that AB 1X, as adopted, contains the provision which would

prohibit the District from entering into long-term power contracts with alternative providers.

For that provision to become effective, the PUC must implement the prohibition. Thus far, the

PUC has not implemented this provision. If a contract were to be entered into for power

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purchases and the PUC at a later date implemented the prohibition of power contracts with

alternative providers, General Counsel opined that the contract would not be invalidated and

it would be enforceable.

It was reported by General Manager Arant that the San Diego County Water Authority has

exercised its legislative authority to secure power resources for conveyance to its member

agencies. California Power Partners has terminated its discussion with the City of Escondido

regarding the proposed 49.9 megawatt power plant. The reason cited is technical difficulties

in securing water and infrastructure support for the plant though it is felt that the changing

economic environment for utilities was a factor. At this time, it is unknown if CPP’s alliance

with the Hanover Company, a gas compression company, is still in effect.

Spectators addressed the Board on the proposal to site a power plant on the District’s

property on Betsworth Road. Their comments are summarized as follows:

~ Keith Davis (11534 Betsworth Road). He thanked the Board for retaining the services

of Dr. House, an expert in the energy field, as it is felt that there are available alternative

energy sources. Mr. Davis expressed his concerns for the health of his family should the

power plant be constructed near his residence. Citing the availability of grants,

Mr. Davis requested that renewable energy be further investigated. Mr. Davis also

extended his gratitude to General Manager Arant for discussing this matter with him and

other neighbors and the informative responses they received.

Mr. Davis stated he is the representative of the Valley Center Coalition (web site of vccoalition.

org), an organization formed to gather data and respond to the proposal of

constructing a power plant on Betsworth Road. He suggested involvement of a coalition

member in a committee comprised of a District representative and consultant to evaluate

power source alternatives. Mr. Davis emphasized that he wants to be involved in the

decision.

In response to Mr. Davis’ question concerning the sign at the District’s Betsworth

Pumping Station, Director of Operations Dacus explained that, as required by law, a

Hazardous Material Classification placard is displayed for notification of the presence of

regulated substances. These substances at the Betsworth Pump Station include

propane, motor oil and calcium hypochlorite. At present, the health rating is 3-extremely

hazardous to health, fire is 4-material which are very flammable, Reactivity is 1-normally

stable, and the specific hazard is oxidizer. Gaseous chlorine cylinders have been

removed from the District’s facilities because of the high hazardous risk and were

replaced with chlorine tablets. The propane tank will be removed from the Betsworth site

in the near future, reducing the fire rating to 1 or materials which must be pre-heated

before they will burn.

~ Will Rogers (11402 Betsworth Road). Mr. Rogers stated he has been a resident of

Valley Center for 13 years and moved here for the peace and quiet. As a landscape

architect and city planner, he is unaware of a more non-compatible use as the proposal

to construct and operate a power plant within the residential area of Betsworth Road. He

stated this proposal to place an industrial usage adjacent to a residential zone is contrary

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to all planning principles. Mr. Rogers voiced that the properties near the proposed site

for the power plant will be negatively impacted by the noise level and operational hazards

such as use of ammonia. Mr. Rogers expressed that the solution to insufficient power

supplies is not the responsibility of the water district, but rather the utility companies. He

asked that the site selection for the proposed power plant be reconsidered as well as the

alternatives for energy sources.

~ Asher Nona (29089 Yellow Brick Road). Mr. Nona stated he first became aware of the

proposed power plant in Valley Center from a flyer distributed at the recent Western Days

festival. He expressed his frustration concerning the lack of information on the proposed

power project and difficulty in contacting the individuals that had prepared the flyer.

Mr. Nona had contacted the District and requested information on customers who had

called the District regarding this project, however, in compliance with the District’s privacy

policy, data on our customers was not released. Mr. Nona requested that the Board give

further consideration to the proposed construction of a power plant as it will have far

reaching affects upon the community. The opportunity to receive input through a

community forum or the formation of a committee was suggested.

~ James Baumgart (11425 Betsworth Road). Mr. Baumgart stated that the Valley Center

Coalition will take vigorous action to oppose the construction of a power plant as

proposed on Betsworth Road. Consideration of other alternatives for the District to meet

its energy needs was requested.

President Broomell clarified that the District is evaluating the construction of a power plant

in response to soaring electrical and natural gas prices since deregulation of the electrical

industry in the state. Efforts to secure affordable and reliable energy for the District’s

pumping needs is being pursued for the benefit of the community. The dilemma of many

businesses with high electrical consumption and, in particular, the District’s electrical costs

that have quadrupled since deregulation of the electrical market with its extensive pumping

have been well documented in such publications as the Boston Globe, New York Times, L.A.

Times, all local newspapers and reported on the TV networks. Articles on the proposed

power plant in Valley Center have been written in the San Diego Union, North County Times

and the Valley Roadrunner as well as on many internet sites.

A specific proposal for a power plant has not been submitted to the District. The proposal

from California Power Partners was the construction, maintenance and operation of a

49.9 megawatt gas-fired turbine power plant. Potential sites for the proposed power plant are

the District’s Betsworth Pumping Station or Lake Turner property due to the close proximity

of a source for natural gas, power lines and the District’s high electrical usage at this pumping

station. The conceptual data obtained thus far on this proposed project is available for

viewing by the public and interested parties were encouraged to do so. The District

welcomes input on the proposed power plant and is sensitive to issues that may impact

residents such as visual, air quality and noise impacts. Should this proposed project be

pursued, more specifics on the power plant will be developed and environmental processes

completed along with public workshops conducted on this issue. As part of the

environmental process, verification that alternative energy sources have been evaluated will

need to be documented.

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4. Adoption of Seventh Amendment to the Retirement Plan and Termination of Said Plan:

Approval of Resolution No. 2001-26 will amend the District’s Retirement Plan to incorporate

changes in compliance with federal regulations and terminate said Retirement Plan effective

as of June 2, 2001.

5. Saddleback Road Pipeline Replacement Project:

Bids were received on May 29, 2001, for the Saddleback Road Pipeline Replacement project.

The lowest bid was submitted by SCW Contracting Corp. at $75,000. Staff recommended

award of contract for the Saddleback Road pipeline replacement project to SCW Contracting

Corp. noting that this firm has completed several projects for the District and the work has

been satisfactory.

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6. Approval of Change Order for the McNally/Oak Glen Road Water Main Replacement Project:

Excel Commercial Constructors (Excel) had been awarded the contract in August of 2000 to

replace the waterlines in McNally and Oak Glen Roads at a cost of $1,285,000. During

excavation for the waterlines, Excel discovered underground power and phone lines requiring

relocation of the pipeline to the opposite side of McNally Road. The change order submitted

by Excel totaled nearly $200,000, which was felt to be too large without obtaining competitive

bids. Approval of the change order for the McNally/Oak Glen Road water main replacement

project contract with Excel was requested to delete Lines A and D to omit the affected

sections of pipeline from the contract. The final accounting of the work Excel completed is

$757,102. Staff also recommended purchasing the materials which had been obtained by

Excel for this project at an approximate cost of $186,000. This purchase price is based on

Excel’s invoice cost for the material plus a fee for administration, bonding and insurance

costs.

7. San Diego County Water Authority’s Board of Directors’ Meeting:

President Broomell reported that the Authority adopted a $5.00 per acre foot increase in its

water rate (M&I), which will be effective January 1, 2002.

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A 60-120 megawatt hydroplant at the Olivenhain Dam Water Storage Project has been

proposed. In addition, the construction of a 49.9 megawatt gas-fired power plant is being

evaluated. A component of the Authority’s energy strategy is to acquire electrical power

assets to be sold to its member agencies.

8. A Closed Session was called by President Broomell at 4:52 p.m. pursuant to:

• Government Code §54956.9(c), Conference with Legal Counsel - Existing

Litigation

Name of case: Sweetwater Authority, et al. v. Dynegy, Inc., et al.

SDSC Case No. GIC 760743

The Regular Board meeting was reconvened at 4:57 p.m. No action was reported.

9.