November 1, 2010
VALLEY CENTER MUNICIPAL WATER DISTRICT
Regular Board Meeting
Monday, November 1, 2010
Time: 2:00 P.M.
Place: Board Room
29300 Valley Center Road
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.
ROLL CALL
Board members present were: Directors Broomell, Polito, Aleshire and Haskell. Director Stone was absent. Staff members present were: General Manager Arant, General Counsel de Sousa, District Engineer Grabbe, Director of Finance Jeffrey, Director of Operations Hoyle, Board Secretary Stetson, Information Technology Specialist Pham, Manager of Accounting Pugh, Wastewater Systems Supervisor Beath and Wastewater Systems Technician Truesdale. There were no spectators present.
CONSENT CALENDAR
1. Upon motion by Polito, seconded by Aleshire and unanimously carried, the following consent calendar items were approved:
• Minutes of the Board meeting held October 18, 2010
• Annual report on deferrals from water availability charges as of June 30, 2010
• Audit demand check numbers 127117 through 127227
ACTION AGENDA
2. Water Rate Survey, Updated:
A water rate survey of the twenty-one San Diego County retail water agencies based on data compiled as of August 31, 2010, was reviewed. The results were summarized as shown below:
District’s Ranking
Domestic Rate:
All agencies 4th Lowest
Agencies with same cost basis Lowest
IAWP Agricultural Rate:
All agencies 2nd Lowest
Agencies with same cost basis Lowest
Domestic Rate with Average Pump Zone Charge:
All Agencies 7th Lowest
Agencies with Same cost basis 3rd Lowest
IAWP Agricultural Rate with Average Pump Zone Charge:
All agencies 5th Lowest
Agencies with same cost basis Lowest
Monthly Meter Service Charge:
All agencies 11th Lowest
Agencies with same cost basis 8th Lowest
General Manager Arant explained that the comparison of agencies with the same cost basis is with those retail water agencies in San Diego County with supplies of 100% treated imported water and pay all the San Diego County Water Authority fixed charges as does the District. The survey rankings show that the District has been diligent in controlling its costs.
3. Review of Proposed Pass-Through of Wholesale Water Rate Increases and Increase in the Lower Moosa Canyon Wastewater Service Charges:
Director of Finance Jeffrey reported that effective January 2011, the wholesale water costs from the Metropolitan Water District and San Diego County Water Authority will increase as follows:
Domestic/Commercial – 14.7% from $2.3329 to $2.6758/HCF
Special Agricultural Water Rate (SAWR) – 9.7% from $2.0272 to $2.2233
Interim Agricultural Water Program (IAWP) – 15.6% from $1.7860 to $2.0638
The total SAWR increase is less than the domestic increase as it does not benefit from nor pay for the Emergency Storage charge. The IAWP increase includes the continued phase-out of the ag. discount. Components of Metropolitan Water District’s and the San Diego County Water Authority’s wholesale water rates to the District include fixed charges for Capacity Reservation, Customer Service and Emergency Storage. The District calculates the per acre foot rate equivalent for these charges by dividing the charges by the projected water sales. Director of Finance Jeffrey noted that in Fiscal Year 2009-10, the District did not recover $247,000 of these fixed charges from the commodity rate as actual water sales were less than projected and that affected the calculated rate equivalent for the commodity charge. Therefore, due to expected reductions in water deliveries, the rate equivalent to recover the wholesale water suppliers’ fixed charges will be calculated based on 24,000 acre feet of water sales, which is 20% less than budgeted sales. Staff noted that the fixed charges for Capacity Reservation, Customer Service and Emergency Storage are based on combined years of historical average water sales. As such, these fixed charges will adjust over time and reflect the District’s reduced water sales.
The District’s Ordinance No. 2009-08 provides for a pass-through of wholesale water increases through September 1, 2014, and for increases in the local component of the water rate and the meter service charge of no more than the cumulative percentage increase in the wholesale rate. The maximum percentage increase of the local component of the District’s water rates is 33.6% with the wholesale water rate increases effective January 2011. A 33.6% increase in the District’s local share of the water rates would result in the local share being 10.2% of the total water commodity cost which meets the Strategic Plan Performance Standard.
San Diego County Water Authority’s Infrastructure Access Charge (IAC) will increase effective January 1st by $0.47 to $2.49 per month for a ¾” meter and by $24.55 to $129.48 per month for an 8-inch meter. The IAC is assessed by the SDCWA as a fixed charge based on the number and size of the active meters within the District. The charge is passed through and collected on the water bills.
The budget for the Moosa Wastewater Treatment Fund has an $8,625 operating loss and a reduction of $182,258 in the Replacement Fund. The adopted Ordinance No. 2009-08 in compliance with Proposition 218 provides for an increase in the wastewater service charges of up to 10% annually. Staff recommended the Moosa Wastewater Service Charge be increased by $2.00 per month/EDU to $46.50/month/EDU to eliminate the deficit and begin restoring the Replacement Fund. In addition, it was proposed to increase the Capacity Reservation Fee by $1.00 to $23.25/month/EDU and the STEP Surcharge by $1.65/month/EDU to $38.40/month/EDU.
An ordinance for the pass-through of the proposed wholesale water rate increases, and water and wastewater service charges will be presented for the Board’s consideration at the next meeting.
4. Water Revenue Strategy:
General Manager Arant reviewed that during the Fiscal Year 2010-2011 budget review period, the District’s capital improvement expenditures and reserve levels were questioned. An analysis of reserve levels from FYs 2004-05 through 2009-10 revealed that reserve levels had fallen from $17.96 million to $12.03 million, a 33% reduction. Also, the investments in Capital Improvement Replacement Projects had averaged approximately two-thirds of the $3.0 million of annual investment that had been identified in the District’s Long-Range Financial Plan. The Board had directed staff to develop a strategy to initiate the process to restore reserve levels and provide adequate funding for the District’s capital replacement needs.
For Fiscal Year 2010-2011, the District’s General Fund deficit is $2.29 million which was funded by general property taxes ($1.852 million) and reserves ($.438 million). The General Manager noted that if increases to O&M expenses are not offset with adjustments to the District’s local rate, the General Fund deficit will continue to increase. Cost containment measures have been implemented and will continue, but costs are increasing and water sales have steeply declined.
A Revenue Strategy Goal presented is to “Establish a rate setting policy and procedure which ensures that annual operating revenues fully fund water operations expenses, stabilize operating reserves, and allow the 1% General Property Tax and Water Availability/Standby Charge revenues to be dedicated entirely to funding Capital Improvement Projects either through direct cash expenditure or used to fund debt service.”
Proposed alternative strategies to increase revenue to meet the projected range of deficits by FY 2012-2013 from the District’s two main sources of non-property tax operating revenue, the monthly meter service charge and water commodity rate, were presented and reviewed as noted below:
5% Inflation
10% Inflation
Alternate 1
Full increase to the monthly service charge +$32.00/mo +$42.67/mo.
Alternate 2
Full increase to water rate +$112.40/AF +150.23/AF
Alternate 3
One-half to monthly service charge +$16.00/mo. +$22.00/mo.
One-half to water rate +$56.20/AF +$75.12/AF
Alternate 4
One-third to monthly service charge +$11.00/mo. +$14.50mo.
Two-thirds to water rate +$75.31/AF +$100.16/AF
An analysis of Alternate 4 with one-third of the projected deficit met with an increase in the monthly service charge and two-thirds through an increase in the water rates resulted in the following increases over a 3-year period with 5% and 10% growth rates:
5% Growth Rate
10% Growth Rate
Monthly Service Charge +$11.00 +$14.50
Water Rate +$75.00/AF +$100.00/AF
Proposition 218 notifications and the District’s adopted ordinance (July 2009) approving rate changes in compliance with Proposition 218 allows five-years of pass-throughs and increases to the local rate by the same percentage of the wholesale rate increase pass-throughs. Therefore, the District’s local rate can be increased by 33.6% as of January 2011.
Implementation recommendations to achieve the stated Revenue Strategy Goal were presented, as follows:
▪ Limit annual O&M increases to no more than 5% per year.
▪ Pass-through the wholesale water rate increases and, effective January 2011, increase the local commodity rate the maximum amount allowed under the current 218 notification or 33.6% increase
▪ Increase the Local Commodity rate component January 2012 by a minimum of $0.0500/HCF plus a factor for O&M inflation and again in January 2013.
▪ Effective January 2011, increase the monthly meter service charge for a ¾” meter from $20.50 to $24.50 with commensurate increases in the meter service charges for larger meters. On January 1, 2012, increase the monthly meter service charge to $28.00 and on January 1, 2013 to $31.50.
▪ Each year thereafter, increase both the local commodity rate component and the meter service charges to offset O&M increases.
Staff reiterated that the alternative proposals to fund operating expenses, stabilize operating reserves and allocate the general property tax funds and Water Availability/Standby Charge revenue to capital improvement projects require that the District’s water rate structure be adjusted annually to capture all fixed and variable wholesale rate increases from Metropolitan Water District and the San Diego County Water Authority. The assumptions presented were based on water sales of 27,500 ac. ft. which will continue to be evaluated considering the expected trend of lower water sales. Staff will review the projected water sales figures for calculation of the rate structure and the District’s Proposition 218 rate limitations. The proposed rate increases, including the pass-through of the wholesale water rate increases, will be presented for the Board’s consideration at the November 16th Board meeting.
5. Report on Certification of Moosa Reclamation Treatment Facility’s Laboratory:
Director of Operations Hoyle reported that the microbiology laboratory at the District’s Lower Moosa Canyon Reclamation Treatment Facility received accreditation from the State of California. The laboratory’s accreditation will allow the District to reduce its laboratory testing outsourcing costs and lessen the duration in which sampling data is received.
Director of Operations Hoyle explained that there are increasingly a number of regulatory samples that must be monitored, tested and recorded at the Lower Moosa Canyon Reclamation Facility and requirements for daily, monthly, quarterly and annual sampling at the Woods Valley Reclamation Facility. With the accreditation from the State and laboratory certification of the Wastewater personnel, the daily reclaimed water and weekly potable water sampling requirements will be completed by staff in the Moosa laboratory. This in-house testing will save the District approximately $20,000 annually. An expansion of the sampling in-house, proposed upon increased experience and developing necessary Standard Operating Procedures, it is estimated that there will be additional savings realized of nearly $14,000 per year which does not include the savings in labor, vehicle usage and fuel consumption. In addition, it was reported that there is the prospect to generate revenue with the use of the laboratory to test other reclamation facilities’ samples, if approved by the District’s insurance carrier. Wastewater Supervisor Beath, Wastewater Systems Technician Truesdale and the Wastewater division personnel were commended for the tenacity and drive to successfully obtain State accreditation of the Moosa Reclamation Facility’s laboratory.
6. Update of the Allocation Transfer Concept:
General Manager Arant reviewed that at the August 2nd Board meeting, the proposed “Water Demand Offset Program Concept” had been evaluated. The concept of a mechanism or a “Water Allocation Transfer Program” to reallocate surplus water allocation from properties to those properties in need of water allocation for development was discussed, and the legality of water allocation as a property right was questioned.
Legal Counsel has opined that “Inasmuch as property owners do not have any property right or interest or quasi property right or interest in the water allocations assigned to their properties, they do not have any right to sell, exchange, or otherwise transfer any portion of their water allocation to any other property, property owner, or member agency of the San Diego County Water Authority.” As such, the District cannot use a form of compensated exchange to transfer unused allocation from one property to another.
The County Board of Supervisors adopted and the Department of Planning and Land Use administer the provisions of the Landscape Ordinance in which a Maximum Applied Water Allowance (MAWA) is established for each new single family home, minor or major subdivision and commercial developments. The MAWA is assigned a property with the information from the water conservation landscape design for the property completed by a licensed landscape architect in which approved plantings appropriate for the region are utilized and there are limitations on the amount of turf allowed. General Manager Arant stated that the MAWA calculation for properties could be utilized by the District for those properties required to complete a “Water Conservation and Water Supply Demand Analysis” to determine the imported water needs of the development. It is anticipated that properties in the District converting from agricultural usage to residential or commercial use will generate surplus allocation available for other developments under the County’s landscape ordinance requirements including those properties without a prior usage based allocation. Also, the MAWA data could be used to formulate a water budget for individual residential homes and commercial units that, as proposed, would be advisory but could become mandatory during periods of water restrictions.
GENERAL MANAGER’S AGENDA
7. Review of Miscellaneous Informational Items:
General Manager Arant provided an update on miscellaneous projects/programs, as follows:
• The Institute for Research on Labor and Employment, University of California at Berkeley, published a report “The Truth about Public Employees in California: They are Neither Overpaid nor Overcompensated”. Their analysis indicates that California public employees are not overpaid as their wages are about 7% lower, on average, than wages received by comparable private sector workers. However, the analysis showed that public employees do receive more generous benefits. Director Aleshire noted that the study did not address the absolute value of compensation and how that should be addressed.
• The San Diego County Water Authority will challenge Metropolitan Water District’s rate integrity clauses within the local funding contracts with its member agencies. The rate integrity clause in the Met funding contracts for Local Projects, such as desalination and reclamation provides, provides that if an agency files litigation challenging Metropolitan’s rates, they have the right to terminate funding of the projects. The San Diego County Water Authority initiated litigation challenging Metropolitan’s water rates and charges and Metropolitan has given notice of its intent to consider termination of the incentive programs as provided by the rate integrity clause. Affected projects include San Diego County Water Authority member agencies’ reclamation projects and the proposed Carlsbad Desalination Project.
GENERAL COUNSEL’S AGENDA
8. Request for Amicus Curiae from the Yorba Linda Water District:
General Counsel de Sousa explained that a letter was received from the Yorba Linda Water District asking for an Amicus Curiae letter from the District to be sent to the California Supreme Court in support of its position on litigation related to the Freeway Complex Fire of 2008. Yorba Linda Water District has been sued for inverse condemnation by homeowners who lost their homes in the fire. The homeowners are seeking compensation from public agencies including Yorba Linda Water District on the basis of inverse condemnation in that the actions of the agency resulted in their homes being taken without just compensation. The Trial Court found that the immunities typically provided to firefighting agencies do not apply in an inverse condemnation action. A Petition for Writ of Mandate on the immunity issue was denied by the Appellate Court and a Petition for Review has been filed with the California Supreme Court. Yorba Linda Water District has requested that the District’s Legal Counsel prepare an Amicus Curiae letter in support of the Petition for Review due to the implications on all water agencies and cities providing water service for fire protection throughout the State should the plaintiffs succeed with the inverse condemnation suit.
Upon motion by Aleshire, seconded by Polito and unanimously carried, the letter submitted by General Counsel for President Broomell’s signature to the Chief Justice and Associate Justices of the California Supreme Court Re: Request for Leave to Submit Letter in Support of Petition for Writ of Mandate in Yorba Linda Water District v. Superior Court of California, County of Orange, was approved.
BOARD OF DIRECTORS’ AGENDA
9. San Diego Union Tribune’s Request for Data:
Per the public records request by Mike Lee, Reporter of the San Diego Union Tribune, data on the Board members’ compensation and expense reimbursements was provided. Director Aleshire stated that Mr. Lee contacted him in which the District’s comparatively low per diem ($100) and Board Member expenses were discussed. Director Aleshire stated he voiced to Mr. Lee that Board members of public agencies should not receive a per diem but rather reimbursement of expenses incurred while on official business. Director Aleshire suggested that Mr. Lee examine the fees charged to public agencies by their insurance brokers and informed him of the excessive brokerage fees paid by the ACWA/Joint Powers Insurance Authority.
CLOSED SESSION
10. A Closed Session was called by President Broomell at 3:40 p.m. pursuant to:
• Government Code §54956.9(c), Conference with Legal Counsel, Anticipated
Litigation
Number of potential cases: 1
RECONVENE
11. The Regular Board meeting was reconvened at 4:04 p.m. There was no reportable action.
ADJOURNMENT
12. Upon motion by Aleshire, seconded by Haskell and unanimously carried, the Board of Directors meeting was adjourned at 4:05 p.m. to Tuesday, November 16, 2010, at 2:00 p.m.
ATTEST: ATTEST:
____________________________ _______________________________
President Secretary