March 19, 2001

Regular Board Meeting

Monday, March 19, 2001

Time: 2:00 P.M.

Place: Board Room

29300 Valley Center Rd.

Valley Center, CA 92082

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

President Broomell at 2:00 P.M.

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

members present were: General Manager Arant, General Counsel Strand, District Engineer

Jewell, Director of Finance Jarrell, Water Facilities Supervisor Stetson, Project Engineer Grabbe,

Manager of Human Resources Hale, and Board Secretary Stetson. Spectators present were:

Messrs. Ross and Weitzman.

1.

2. Approval of Triple “J” Road Pipeline Replacement Project and Budget Adjustment:

Road work to commence pursuant to Parcel Map #13991, a 4-lot subdivision in the West Lilac

area, provides an opportunity to replace and relocate approximately 800 feet of water main

in the proposed new Triple “J” Road. The existing water line, which had been obtained from

the Rainbow M.W.D., is located outside of the District’s easement. Staff recommended

approving the Triple “J” Road Pipeline Replacement project and a budget adjustment to

appropriate $125,000 for this project noting that this section of pipe was identified for

replacement in the District’s Master Plan as a Priority “D” (implementation of such

improvements should be considered when replacing adjacent facilities or when deemed

appropriate). If the pipeline replacement project is completed prior to the subdivision’s road

paving, the District will not have to pave the pipeline trench, but rather it will be paved by the

developer’s contractor.

3. Betsworth Pump Station Natural Gas Engines Replacement #3 and #4 - Award of Contract

and Budget Adjustment:

Bids were opened on February 27

3 3/19/2001

4. Resolutions Pursuant to Entering into an Agreement with the California Public Employees’

Retirement System, Approval of Additional Life Insurance Coverage and an Update on

Dissolution of the Current Retirement Plan:

In accordance with the procedures to become a participant in the California Public

Employees’ Retirement System (Cal-PERS), Resolution No. 2001-20 was presented for the

Board’s consideration which approves a notice of intention to approve a contract between

Cal-PERS and the District for participation in said retirement system. The Board was also

requested to consider adoption of the agreement (Resolution No. 2001-21) to provide 1959

survivor benefits assets and liabilities, a resolution (No. 2001-22) approving termination of

the investment management contracts for the District’s current retirement plan, purchase of

employees’ outstanding loans against the current retirement plan, and the purchase of

additional life insurance coverage for employees.

Following adoption of the resolution of intention approving a contract for the District’s

participation in Cal-PERS, an employees’ election will be conducted between March 21-23,

2001, for approval of the contract. If the election is successful, a resolution to approve

entering into a contract with Cal-PERS will be presented at the April 16

4 3/19/2001

In conjunction with implementation of Cal-PERS benefits, the District will match employees’

deferred compensation contributions with the limitations of a $38,400 matching pool not to

exceed $100 per employee per month and limited to employees hired on or before the

effective date of commencement of participation in Cal-PERS. The District’s current cost to

provide this benefit is 1.203% of payroll and will terminate once all eligible employees have

left employment with the District.

If the employees’ election for participation in Cal-PERS is successful, initial steps will be

taken to terminate the investment management contracts for the existing employees’

retirement plan with Regent Investor Service and Allegiance Capital, Inc. The assets of the

existing defined contribution retirement plan will need to be liquidated and distributed to the

Plan’s participants. This must be accomplished, per IRS rules, within one year of entering

into the contract for CAL-PERS benefits or by June 2, 2002. Because of the recent down-turn

of the stock market, liquidation of the existing retirement plan funds over the year allotted will

be considered. The funds can be rolled into employees’ individual IRAs in which it has been

arranged that for one year there will be no set-up, termination or transfer fees assessed.

Resolution No. 2001-22 provides for the termination of the investment managers, Regent

Investor Service and Allegiance Capital Inc., for the existing employees’ retirement plan, and

approves the appointment of the Retirement Plan Advisory Committee to act as investment

manager of the trust fund. The Advisory Committee would have the authority to liquidate the

trust funds for ultimate distribution to the established employees’ IRA accounts after

commencement of membership in Cal-PERS. During the conversion period, retirement funds

that are liquidated could be deposited in the Local Agency Investment Fund (LAIF).

Two issues that need to be resolved prior to liquidation of the existing retirement plan funds

are the optional life insurance coverage and loans against an employee’s retirement plan side

fund. Currently, approximately 34 employees have elected the life insurance coverage

offered through the existing retirement plan. A percentage of the District’s retirement plan

contribution for these employees funds their life insurance premium. These life insurance

plans could be terminated and the cash value rolled into the employee’s retirement plan side

fund and ultimately rolled into the employee’s IRA. Another option is for the employee to

receive the life insurance policy in which the cash value distributed would be taxable to the

employee and subject to 10% federal and 2% state penalties . To replace the life insurance

policies that had been provided employees through the existing retirement plan, the purchase

of additional term life insurance in the amount of approximately 2 times an employee’s annual

salary was proposed. The cost for this additional life insurance would be approximately

$20,000 per year which, combined with the total Cal-PERS package, results in a total cost

which is less than 28% of payroll. This life insurance would supplement the existing coverage

provided employees in the amount of 2 times annual salary plus $85,000.

At present, 9 employees have outstanding loans against their retirement plan funds (total

value of approximately $149,000) which must be addressed within one-year from the date

membership in Cal-PERS commences per IRS rules. Two available options are to call the

loans as due and payable, or, if the loans are not paid, the outstanding balance of the loan

would be considered a distribution to the employee and would be subject to taxes and

penalties. All outstanding loans on the existing retirement plan will be paid in full by

5 3/19/2001

October 2005. One other option allowed by the IRS is that the employer can purchase the

loans. If the District were to buy these loans from the retirement plan, the employee would

owe the outstanding balance to the District. In this manner, the District would receive the

interest payments on the loans. Staff recommended that the District elect this option to buy

the employees’ loans still remaining against the retirement plan before June 2, 2002. At this

time, the total loan amount outstanding against the employees’ retirement plan side funds is

expected to be under $100,000 and reduced to 7 loans. Employees will be requested to

provide collateral for these loans which could affect the interest rate on the loan to be

determined by the Advisory Committee. Currently, the interest rate on these loans is 4% over

the prime rate.

6 3/19/2001

5. Resolution Setting Forth the Proposed Schedule for the FY 2001-2002 Water Availability

Charge and Establishing the Date for the Public Hearing:

The District-wide water availability charge proposed to be established for Fiscal Year 2001-

2002 is $10.00 per acre, $10.00 per parcel minimum, which is a continuation of this charge

levied since FY 1995-96. This proposed assessment would raise approximately $584,000

and would be allocated as follows:

Revenue Debt Service $ 98,221

Ongoing Capital Requirements 135,379

To meet a portion of Metropolitan’s 350,400

ready-to-serve charge

Metropolitan’s ready-to-serve (RTS) charge assessed the District is expected to be

$1,847,003 for FY 2001-2002. Of this amount, approximately $673,297 will be collected by

Metropolitan through its stand-by charge ($11.51 per acre) assessed property within the

District and collected through the property tax bills. Earmarking $350,400 of the District’s

water availability charge proceeds toward the RTS charge leaves a remaining balance of

$823,306, which is funded through the $23.50/ac. ft. charge that is a component of the

District’s water rate.

Adoption of Resolution No. 2001-12 to establish June 4, 2001, at 2:00 p.m. as the date and

time of the public hearing to receive comments on the proposed FY 2001-2002 water

availability charge was recommended. In accordance with the Water Code, a Notice of the

Public Hearing will be published (Valley Roadrunner Newspaper) once a week for two

successive weeks and mailed to property owners that have changed ownership since the levy

of the Fiscal Year 2000-2001 water availability charge.

7 3/19/2001

6. Current Status of Electrical Deregulation:

Director of Finance Jarrell reported that beginning at 11:46 a.m. that morning the State of

California entered into a rolling blackout which may be the first of many this spring and

summer. Electricity supplies are not expected to meet demands during most of the summer

2001.

A fire shut down a major generation facility which resulted in the loss of 1400 megawatts of

electricity. Deliveries could not be met and, hence, rolling black-outs were initiated to

conserve electrical supplies. Within San Diego Gas & Electric’s service area, 37 megawatts

were “dropped off” with the possibility of an additional 37 megawatts later in the day. The

rolling black-outs may affect 19 grids in San Diego County in which electrical outages will last

for 1 hour. Cities affected thus far have been Escondido, Oceanside, Santee, and downtown

San Diego.

Generating facilities referred to as qualifying facilities with generating capacity of

3,000 megawatts are off-line as the owners of these plants have not been paid by the utilities

for electricity delivered prior to February 7, 2001. The drought in the Pacific Northwest is

expected to cause a curtailment of electricity generated in that region.

Senator Alpert introduced Senate Bill 43X which, if adopted, will roll back the commodity

prices in San Diego Gas & Electric’s service area to near the same level that the residential

customer is paying. If passed as currently written, the District’s electrical rate would be

approximately $0.11 to $0.12 per kWh and would be applied retroactively to February 7,

2001. S.B. 43X is an urgency measure and will be implemented immediately upon approval

by the Governor. Businesses affected by this measure will communicate their strong support

for passage of S.B. 43X.

The projected electrical rates will necessitate an additional increase in the District’s pump

zone rates of between 10 to 25%. This anticipated increase is in addition to the increases

in the pump zone rates of 25% approved in January and 25% approved for April 2001.

The deficit associated with the Department of Water Resources purchases of electricity is

accumulating which has been proposed to be repaid through the future sale of bonds. As

such, payment will eventually come from the ratepayers. San Diego Gas & Electric has

acknowledged that those accounts not under the tariff cap, such as the District, should not

be assessed for the repayment of bonds sold to fund the deficit resulting from the cap on

electrical prices.

8 3/19/2001

7. Review of Miscellaneous Informational Items:

8. Chatham Brothers Recycling Yard Clean-Up Project:

General Counsel Strand reported that the Department of Toxic Substance Control refunded

approximately $2 million that had been put into an escrow as a result of the initial consent

decrees pursuant to the Chatham Brothers Recycling Yard Clean-Up Project. These funds

will be applied against future calls. Also, a de minimis settlement appears to be imminent for

certain potentially responsible parties such as the District. This will relieve the District of

future liability in the clean-up efforts. The District’s payment to participate in the de minimis

settlement should be less than $5,000 which includes the downgrade remedy.

Pursuant to cost recovery litigation, settlement agreements may soon be executed with other

potentially responsible parties in which their payment (approximately $1 million) will be used

to offset costs.

9 3/19/2001

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

President Broomell reported that at the Authority’s February 22

10. A Closed Session was called by President Broomell at 3:45 p.m. pursuant to:

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

Litigation Number of potential cases: 1

• 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 4:01 p.m. No action was reported.

11.