November 19, 2001

Regular Board Meeting

Monday, November 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

Director Aleshire at 2:00 P.M.

Board members present were: Directors Aleshire, Stone and Haskell. Director Broomell arrived

at 2:30 p.m. Director Polito was absent. Staff members present were: General Manager Arant,

General Counsel Strand, District Engineer Jewell, Director of Finance Jarrell, Director of

Operations Dacus, Pump & Motor Facilities Supervisor Stetson, and Board Secretary Stetson.

Spectators present were: Messrs. Weinberg, Willet, Pyle, Meyer and Mr. Ross.

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Metropolitan Water District of Southern California’s New Rate Structure

Scott Willet, Sr. Water Resource Specialist, provided background information on MWD’s rate

structure process which began with the adoption of its Strategic Plan in 1997. In

December 2000, Strategic Plan Policy Principles and a Rate Structure Action Plan were

adopted and a new rate structure adopted by the MWD Board in October of 2001.

Metropolitan’s rate structure will consist of an unbundled system of rates and charges for firm

water, a bundled rate for non-firm supplies, with most costs recovered based on annual water

purchases. Pricing for agricultural water and storage replenishment supplies will be set by

the Metropolitan Board which is proposed to be a bundled rate. As proposed, some incentive

rates will be replaced by penalty and disincentive rates. Components of Metropolitan’s new

rate structure (Supply Rate, System Access Rate, Water Stewardship Rate, System Power

Rate, Treatment Surcharge, Capacity Reservation Charge, and RTS Charge) were reviewed

as outlined on the attached Exhibit “A”.

Mr. Willett explained that a Tier I and Tier II system will be implemented for the pricing of firm

water supplies. Purchase orders will be the mechanism used to define Tier I purchases under

a 10-year purchase agreement. The base firm demand for member agencies of Metropolitan

is established on previous 10 years’ water demands. The agreement commits payment for

60% of the base firm demand. Water purchases will be priced at Tier I prices for 60% of base

without purchase order, and 90% of base with purchase order (10 year purchase agreement).

Tier II purchases include the cost of Tier I supply plus an additional cost to fund new supply

acquisition of approximately $100 to $125 per acre foot. The San Diego County Water

Authority’s base firm demand determined by a maximum water use year of firm supply during

the previous 10 years is 496,706 ac. ft. If water usage increases above the established

base, the base correspondingly increases. With the SDCWA’s base of 496,706 ac. ft., Tier I

purchases of 90% are 447,035 ac. ft. and 298,024 ac. ft. at 60% of the SDCWA’s base. If

a 10-year purchase order agreement is signed by the SDCWA, Tier I rate purchases would

be from 2.98 MAF to 4.47 MAF. It was noted that the SDCWA’s firm water purchases from

Metropolitan may be less than 60% of its base near the end of the 10-year agreement when

200,000 ac. ft. of water supplies are expected to be transferred from the Imperial Irrigation

District. However, in the initial years of the 10-year agreement, firm water purchases are

expected to exceed the 60% level which will result in an amount of firm water deliveries over

the 10 year period exceeding 60% of the base level. Therefore, the SDCWA will need to

analyze entering into a 10-year agreement for firm water deliveries from Metropolitan in 2011

when the initial 10-year agreement terminates.

Following public hearings on Metropolitan’s revised rate structure scheduled for

February 2002, the Board is expected to adopt rates and charges in March with purchase

order agreements due by July 2002. The revised rate structure will become effective

January 2003.

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San Diego County Water Authority’s Rate Reform Process

Mr. Ken Weinberg, Director of Water Resources of the SDCWA, addressed the Authority’s

rate reform process noting that the rate structure has been analyzed concurrently with

Metropolitan’s rate reform. A revenue and rate structure study was completed in January of

2000 containing various rate structure models including the Economic Study Group’s

alternative. A Rate Study Subcommittee analyzed various methods to allocate the benefits

of the major service categories including the transportation system. As of November 2001,

the Board has delayed a decision on its rate reform pending resolution of seasonal shift

program issues. This issue is to address the benefit to the system provided by storage

agencies.

The four components of the SDCWA’s rate structure service are: Storage, Supply Service,

Customer Service and Transportation. Cost of Service Allocation Model (COSAM) is the

method of computing future shares of the Authority’s revenues, by agency, for all 4 service

components. The methodology estimates how much each agency uses the system relative

to how much other agencies utilize the system. The four components were reviewed as

summarized on the attached Exhibit “B”.

Non-commodity charges (property tax, infrastructure access charge (IAC), standby charge

and Capacity Charges) are collected on a regional level and represent fixed revenue which

is allocated toward payment of commodity charges to reduce revenue requirements. Issues

that remain include the collection of non-commodity revenues from agencies that do not use

Authority facilities (Fallbrook PUD and Rainbow MWD), peaking and the regional benefit of

seasonal shifting, as well as implementation of the new rate structure.

IID/SDCWA Water Conservation and Transfer Agreement

The water transfer agreement between the Imperial Irrigation District (IID) and the San Diego

County Water Authority to transfer conserved agricultural water to the Authority is for a

maximum of 200,000 ac. ft. and a minimum of 130,000 ac. ft. The water is proposed to be

conserved through on-farm conservation methods. An exchange agreement between the

SDCWA and Metropolitan was executed for transportation of the water from IID to the

Authority which is for a 30-year period. A new aqueduct is being explored to transfer the

water.

A certified environmental document must be completed. A draft of this report will be released

in a few months. The main issue is mitigation and the habitat conservation plan which

focuses on the impacts upon the Salton Sea. Conserving water on the Imperial Valley farms

will lessen flows into the Salton Sea and increase its salinity. Federal and State funds to

address issues pertaining to the Salton Sea have been pursued. U.S. Representative

Calvert has introduced legislation which includes provisions ($60 million) for restoration of

the Salton Sea. State legislation is also being pursued that will address the impacts of the

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water transfer from IID to the SDCWA upon endangered species. It was noted that this

process needs to move forward in concert with Coachella Valley, Imperial and Metropolitan

as the SDCWA/IID water transfer is a cornerstone of California’s 4.4 Plan to achieve certainty

in the Colorado River supply.

Seawater Desalination Projects

Removal of the salt in seawater can be through a thermal process, or membrane process

(reverse osmosis). Currently, the membrane processes are being utilized worldwide.

Reverse osmosis is being used in the county to reduce salinity of groundwater. Desalination

has become more cost effective as production of membrane production has increased with

substantial technology improvements along with an 86% decline in membrane cost. A

seawater desalination project in Tampa Bay, Florida will be completed in late 2002 with an

estimated cost for the water at $600 per ac. ft. It was noted that the Tampa Bay seawater

salinity averages 26,000 mg/l compared to the San Diego region’s seawater which has

average total dissolved solids of 35,000 mg/l.

Locations of planned seawater desalination projects in Southern California are: Long Beach,

Huntington Beach, Carlsbad and South Bay. The Carlsbad and South Bay projects are both

located near coastal power plants which have intakes for seawater and discharge outfalls.

At the Carlsbad desalination plant, the discharge channel could accommodate approximately

100,000 MGD. However, the amount of salt in the discharge zone would need to be

monitored.

Distribution pipelines from the proposed Carlsbad desalination facilities are connection to a

reservoir in Carlsbad with distribution pipelines to connect to the Tri-agency pipeline and into

the 2

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SDCWA Regional Water Facilities Master Planning Process

Mr. Richard Pyle, Project Manager for the SDCWA’s Master Plan, explained that the purpose

of the Plan is to develop a planning document to meet demands through to year 2030 to cost

effectively and reliably meet member agencies’ demands. Goals of the Master Plan

document are to:

• Develop alternatives for future facilities;

• Evaluate and compare alternatives;

• Select an alternative as the roadmap for construction of future facilities; and

• Maintain the ability to alter or adjust the selected alternative to adapt to changes in

need.

The Master Plan process has been to assess the system, test solutions and present results.

This process is being overseen by a member agency panel (member agency managers,

engineers and operators), an Ad-hoc Committee and through Board workshops.

Average water demand forecasts in the SDCWA’s service area from 2000 - 2030 are

600,000 ac. ft. (current) to 860,000 ac. ft. in 2030. The Master Planning process is evaluating

the probability and costs of meeting forecasted high demands. Local supplies of surface

water, groundwater and recycled water are considered a reduction in system demands.

Facility considerations being planned are repair/rehabilitation of existing pipelines and new

facilities for future demands. Based on a rehabilitation schedule of the SDCWA’s pipelines,

repair or replacement costs of pipeline facilities may be needed as follows:

5-Year Increment Miles of Pipeline Approximate Cost (million)

2000 to 2005 5 $4.8

2005 to 2010 33 $32.9

2010 to 2015 8 $8.7

2015 to 2020 4 $4.3

2020 to 2025 9 $9.5

2025 to 2030 6 $5.5

After 2030 10 $11.1

Primary alternatives for conveyance of new supplies into the region from the North, West and

East were reviewed as summarized on the attached Exhibit “C”. The Master Plan will analyze

the total cost of alternatives and impacts upon the water rate and the investment for level of

reliability.

A Master Plan draft report is scheduled to be presented for the Board’s review in April 2002.

Prior to this presentation, workshops will be conducted on the major facility items (Regional

Colorado River Conveyance Study, Metropolitan Facilities and Local Facilities and Regional

Seawater Desalination).

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3. Review of Proposed Changes to the District’s Annexation Policy:

The District’s policy for annexation of property into the Valley Center Municipal Water

District’s service area has been reviewed by staff and proposed changes were presented for

the Board’s consideration.

District Engineer Jewell reported that currently the District’s annexation charges consist of

recovering back taxes for the property proposing to be annexed which is based on actual

back taxes if historical assessed values are known or on the current assessed value. Also,

the District-wide availability charges since the inception of this charge in Fiscal Year 1980-

1981 is applied to the net acreage of the property to be annexed. All District general

obligation bonds have been retired which eliminated the connection between taxes and

District facilities. Further, since Proposition 13, assessed valuations for similar properties can

vary greatly creating an inequity in annexation charges though the impact and benefits are

nearly the same. The current formula to calculate annexation charges cannot be applied to

property that is exempt from property taxes.

Annexation fees collected from the San Diego County Water Authority and Metropolitan

Water District of Southern California are calculated on a prorated purchase of their

infrastructure. It was clarified that properties requesting annexation to the District must also

have annexed into or be in the service areas of the Metropolitan Water District of Southern

California and the San Diego County Water Authority.

A revised formula to calculate annexation charges for properties requesting annexation into

the Valley Center Municipal Water District was presented as set forth below:

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4. Award of Contract for the Weaver Mountain Reservoir Repainting - Interior and Exterior:

Pump and Motor Supervisor Stetson reported that bids were received on November 7

5. Report of Cancer Incidents in Valley Center:

General Manager Arant stated that Channel 10 recently reported on the concern of some

residents in Valley Center of what is considered to be a high incidence of childhood cancer.

The California Cancer registry has documented six cases of childhood cancer in Valley

Center. There is no scientific evidence to demonstrate that Valley Center is experiencing a

higher than average incidence of cancer or a cancer cluster situation.

In connection with this issue, an inquiry regarding the District’s water quality was received in

which information on the constituents in the water was provided. It was explained that test

results of the District’s water supply, which monitor for the level of trihalomethanes, indicate

that water delivered by the District meets or exceeds all state and federal standards. In

addition to the District’s water quality efforts, Metropolitan Water District of Southern

California performs over 300,000 analyses each year to monitor over 115 contaminants and

characteristics of its supplies.

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County Supervisor Bill Horn will be conducting community meetings on this issue that will be

monitored by District staff.

6. Execution of De Minimus Agreement Re: Chatham Brothers Barrel Yard Clean-Up Project:

General Counsel Strand reported that the de minimus agreement has been executed with

respect to the District’s designation as a Potential Responsible Party pursuant to the second

phase of clean-up of hazardous waste at the Chatham Brothers Barrel Yard site. The

document was forwarded to common Counsel and, as such, the District will be a participant

if the de minimus agreement is accepted by the group.

7. A Closed Session was called by President Broomell at 4:50 p.m. pursuant to:

• Government Code §54956.9(a), Conference with Legal Counsel - Existing Litigation.

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

Superior Court Case GIC 760743

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

Number of potential cases: 1

The Regular Board meeting was reconvened at 5:00 p.m. No action was reported.

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