January 15, 2001

Regular Board Meeting

Monday, January 15, 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 Cowett, District Engineer

Jewell, Director of Finance Jarrell, Director of Operations Dacus, Information Systems Technician

Learue and Board Secretary Stetson. Spectators present were: Mr. Scott, Messrs. Vondle and

Taylor of Strategic Energy, LLC, Mr. Ross, Valley Roadrunner Newspaper, and Yadira Galindo,

North County Times Newspaper.

1.

3. Public Hearing to Consider Proposed Increase in the Lower Moosa Canyon Wastewater

Treatment Plant’s Monthly Sewer Service Charge from $19.50 per EDU to $25.00 per EDU:

Notices had been mailed to customers served by the Moosa Sewer Treatment Facility

providing notification of the proposed increase in the monthly sewer service fee from

$19.50/EDU to $25.00/EDU to be effective February 15, 2001. The budget adopted for Fiscal

Year 2000-2001 had anticipated an increase in the sewer service charge to $21.00 per

month/EDU due to increased operating costs, but an increase in the charge to $25.00 per

month per EDU due to additional electricity costs was recommended. Letters were received

from two customers opposing the proposed increase citing financial constraints.

Director of Finance Jarrell reviewed electrical expenses incurred for operation of the Moosa

Sewer Treatment Facility and increased operation and maintenance expenditures as follows:

Electricity budgeted for FY 2000-01 ($.07/kWh) $76,000

Electricity cost increases (avg. $.09/kWh) 46,500

EDU Increase Required $4.66/month

Increases In:

Labor $24,700

Plant maintenance 15,000

Additional chemicals 8,200

EDU Increase Proposed $0.84/month

Total Proposed EDU Increase $5.50/month

In order to fund the increased operation and maintenance costs at the plant, it was

recommended that the contribution to the Moosa Replacement Reserve ($96,798) be waived

and to utilize these funds to meet O&M costs at the treatment plant and to offset further

increases in electricity expenses that may be incurred.

An itemization on the District’s bill of the components of the monthly sewer service charge

(ex. electrical costs) will be investigated to better inform customers.

The public hearing on the proposed $5.50/EDU per month increase in the Moosa sewer

service charge to $25.00/EDU/month was opened at 2:15 p.m.

Mr. Jim Scott of 8611 Circle R Valley Lane, representing the Circle R Homeowners

Association, stated he is concerned about the increasing costs in sewer service. He noted

that, in the last five years, the monthly sewer service charge has increased 61%, as in 1996,

the charge was $15.50/EDU. During preliminary meetings for the treatment plant’s

expansion project in 1996, he had been assured that lower costs would result due to the

economy of scale. Mr. Scott stated he is aware of the rising cost of electricity, but the

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monthly sewer service charge for the Circle R Townhomes has increased from $2263 in 1996

to the current charge of $3650. Staff responded that capital costs associated with the

treatment plant’s expansion project will be borne by new developments. It is anticipated

that, as planned developments within the sewer service area hook into the sewer system,

operation and maintenance costs will be spread to a broader base, therefore, lowering

customer costs. A large portion of the increases in the monthly sewer service charge is a

result of the power cost increases which had not been anticipated. Operational costs have

also risen (labor and chemical costs), as well as maintenance of a facility constructed nearly

30 years ago that has required upgrades. It was noted that the newly installed odor control

equipment is more costly to operate but will substantially improve operations. Mr. Scott was

encouraged to contact staff to discuss this matter in further detail.

The public hearing on the proposed increase in the Moosa Treatment Plant’s sewer service

charge was closed at 2:27 p.m.

4. Administrative Code Amendment to Provide for an Increase in the District’s Pump Zone

Charges:

Increases in the District’s water pump zone charges as a result of increases in the cost of

electricity and natural gas were presented for consideration. The following data was

reviewed:

4 1/15/2001

Electric Commodity Cost:

Average all of FY 1999-2000 $.0708/kWh

Average-first 5 months in FY 2000-01 $.1716/kWh

December 2000 $.1929/kWh

Electrical and Natural Gas Expenditures:

Fiscal Year 1999-2000 $2,469,298

First 5 months of FY 2000-01 $2,678,986

The difference between the funds collected from the existing pump zone charges and the

electrical and natural gas expenditures for water pumping has been funded from the Pumping

Stabilization Reserve which, on July 1, 2000, had a balance of $1,157,203, but now has a

zero balance. Staff recommended increasing the pump zone charges by 25% to be effective

immediately with an additional 25% increase to be effective with the billing of April 15, 2001

by adoption of Ordinance No. 2001-02 to amend the District’s Administrative Code.

Implementation of this two-step increase will result in an overall cost impact of 1.8% to

customers in Pump Zone 1 and up to 16% for those in Pump Zone 10. The proposed

increases will not fully cover electrical and natural gas expenditures with the current rates that

have been experienced. As such, the District’s water ratepayers will be subsidizing pumping

costs, however, this action is considered prudent so that the initial impact upon District

customers is minimized and also recognizes the instability of the energy market in which

conditions could improve. At this time of the year, the District is experiencing lower water

sales and the District’s pump zone charges will be reexamined in the spring during the

preparation of the Fiscal Year 2001-02 budget.

5 1/15/2001

5. Update on Electricity Deregulation and Proposal for Purchase of Electricity from an Energy

Service Provider:

Director of Finance Jarrell reported that staff has been in contact with three energy service

providers regarding a contract to supply electricity to the District. Proposals received are for

three year contracts that are subject to change at the time of execution of the contracts. The

proposals for the three year contracts are as follows:

New Energy $.11688/kWh

Enron $.13500/kWh

Strategic Energy $.12900/kWh

New Energy would contract to supply electricity to the District’s 27 largest meters

(approximately 25 million kWh per year). Proposals from New Energy and Enron have collars

in which energy provided within a specified limit is sold at the quoted price. Overage or under

usage is charged at market price with the potential for a refund for energy not used if resold.

Strategic Energy is a full requirement quote.

Mr. Mike Vondle and Tim Taylor of Strategic Energy LLC were introduced. Mr. Vondle stated

that Strategic Energy has been in the energy business for 15 years procuring natural gas and

electricity to manage. Upon passage of the energy deregulation bill for California, San Diego

Gas & Electric sold its generators in a wholesale market for $456 million. Prices for energy

in California are also affected by the constraints on natural gas as pipelines delivering natural

gas are at their maximum. In addition, there are transmission constraints for delivery of

electricity to Southern California.

Mr. Vondle opined that the Governor’s prediction of procuring power at 5.5¢ to 6¢ will not be

realized. Action that will benefit the energy consumers of California is that the Governor has

implemented changes that will reduce the timely process to construct a generator in the state.

Citing the volatility of the energy market and its limited supply and constraints for delivery of

both electricity and natural gas to the San Diego region, Mr. Vondle encouraged the District

to enter into a long-term contract for the purchase of electricity. Strategic Energy’s proposal

is: 3 years at $.1290/kWh; 4 years at $.1166/kWh or 5 years at $.1083/kWh. Also, through

Strategic Energy’s management of its contracted power supplies, the electricity sold to the

District could be “managed down” and the District supplied power at a lower rate.

6 1/15/2001

6. Lower Moosa Canyon Water Reclamation Facility - Request for Capital Improvement Budget

Adjustment:

Resolution No. 2001-02 amending the Fiscal Year 2000-01 budget to appropriate $500,000

for various facility and equipment upgrades to improve the efficiency and reliability of

operations at the Lower Moosa Canyon Water Reclamation Facility was presented for

consideration. In December of 1998, the District had borrowed $1.5 million to fund a portion

of the solids handling and odor control improvements. Approximately $1 million was

expended, leaving $500,000 available for additional improvements that, per the terms of the

loan, must be spent by December 2001. The following facility and equipment upgrades for

the Moosa Treatment Plant were identified, that will provide efficiency and reliability

improvements:

Submersible aerator $ 30,500

Plant water system 14,800

Odor Control Scrubber 82,726

Chemical tanks 8,590

SCADA improvements 8,200

RAS/WAS meters 45,425

Sludge transfer pumps 10,638

RAS pumps 40,480

Centrifugal blower 16,675

Influent meter 25,000

Generator or preliminary treatment 185,000

Design, management & inspection 31,966

$500,000

Director Aleshire inquired as to an operational need for these capital improvement

acquisitions or if the funds were being expended due to the availability of the borrowed

money. Director Aleshire stated that he would like to have a tour of the Moosa Treatment

Plant in order to ascertain the need for the facility improvements in an effort to reduce costs

wherever possible. General Manager Arant explained that the Lower Moosa Canyon Water

Reclamation Facility Expansion Project is being undertaken in phased projects. The capital

improvement upgrades as recommended are necessary for future phases or identified as an

upgrade that will result in improved efficiency and reliability of the plant’s operations. These

proposed capital improvement projects for the Moosa Treatment Plant are being funded by

new sewer connection capacity charges of which there are proposed connections

representing approximately 828 EDUs, or estimated connection capacity charges of

$4,811,250 that will be collected.

7 1/15/2001

7. District’s Standard Specifications for the Construction of Water Mains and Facilities,

Amendment No. 2:

Resolution No. 2001-01 amending the District’s

8 1/15/2001

9. 2001-2003 Strategic Plan Specific Goals, 2000-01 Budget Objectives and Ongoing or Long-

Term Issues and Projects, Mid-Year Status Report:

The mid-year status report for the District’s Strategic Plan Specific Goals, current fiscal year

budget objectives and ongoing or long-term issues and projects was presented. There were

no comments or questions.

10. December 2000 Status Report:

An update on the San Diego County Water Authority’s water rate analysis was provided. In

October, a subcommittee was formed to evaluate all of the data which had previously been

analyzed for a revision of the Authority’s rate structure. It was stated that the subcommittee

was formed as the volume and complexity of the data was too extensive for the full Board to

absorb. It is speculated that the subcommittee was formed to delay the process to allow

influence in the process by the new Mayor of the City of San Diego and to possibly minimize

the influence of the member agencies’ General Managers in the process. A meeting was held

in December to review the various rate models and data. Another meeting of the

subcommittee is expected to be held in January 2001.

11. Report on the San Diego County Water Authority’s Board of Directors’ Meeting:

President Broomell reported that, at the recent San Diego County Water Authority Board of

Directors’ meeting, a modification to the Authority’s Administrative Code was proposed to

allow appointment of a representative from the Authority to the Metropolitan Board of

Directors that is not a current member of the Authority’s Board. This proposal was not

adopted when the City of San Diego’s Board members opposed the proposal 5-4 which

resulted in their votes cast as a block in opposition. This proposed amendment was

introduced as Mr. Mark Watton of the Otay Water District who, as an Authority Board

member, is a representative on the Metropolitan Board, but the Otay Board of Directors

recently took action to appoint another Board member to serve as their representative on the

Authority’s Board.

9 1/15/2001

12. A Closed Session was called by President Broomell at 4:59 p.m. pursuant to:

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

Number of potential cases: 2

• Government Code §54957.6(a) – Conference with Labor Negotiators

Designated Representatives: Gary T. Arant, Jere L. Jarrell and Linda Hale

Employee Organization: Valley Center M.W.D. Employees’ Association

Bargaining Unit

The regular meeting was reconvened at 5:43 p.m. The following action was reported:

13.