VALLEY CENTER MUNICIPAL WATER DISTRICT
Regular Board Meeting
Monday, February 6, 2006
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.
Board members present were: Directors Broomell, Polito, Aleshire, Stone and Haskell. Staff members present were: General Manager Arant, General Counsel Cowett, Director of Finance Jeffrey, District Engineer Grabbe, Director of Operations Hoyle, Board Secretary Stetson, IT Specialist Rivard, and Manager of Accounting Pugh. Spectators present were: Mrs. Harber and Messrs. Lanspery (SDCWA), Simpson and Glavinic (Valley Center Planning Group) and Ross (Valley Roadrunner Newspaper).
1. Water Use Restrictions During Aqueduct Shutdown:
Mrs. Ruth Harber of 11332 San Antonio Way asked for clarification regarding the February 4 through 16 prohibition of outside water usage noting that residents within the Fallbrook PUD and Rainbow MWD have only been asked to conserve water during the aqueduct shutdown. General Manager Arant responded that the treated aqueducts serving the District as well as Fallbrook PUD and Rainbow MWD have been shutdown for maintenance, repair and inspection. In order to preserve an adequate supply for domestic in-home (health) use and for fire protection, the District notified its customers in advance of the shutdown and that provisions of its water emergency plan would be implemented which include the prohibition of outside water usage except for livestock watering. Other water agencies affected by the aqueduct shutdown have different circumstances such as local water sources, less agricultural demands and high levels of water storage which affected the method implemented by each agency to maintain adequate water supplies for the shutdown period. However, some agencies that had requested conservation during the shutdown period have had to implement a more aggressive policy on allowable water usage. This became necessary when the agencies’ water storage levels dropped significantly during the first 2 days of the shutdown.
General Manager Arant clarified that the improvement project at Metropolitan’s Skinner Treatment Plant, which will add 110 million gallons of treated supply to our
region, required the shutdown of the aqueducts. Such shutdowns are scheduled near or around February to coincide with the rainy season and cooler weather. Postponement of the shutdown was considered due to the unseasonably warm weather and lack of rainfall, but doing so would have further delayed the needed improvements at the Skinner Treatment Plant and the targeted completion date of 2007.
The District has given variances to allow some nurseries that need to water seedlings and small potted plants to irrigate and has been working with customers with other special circumstances. General Manager Arant noted that the cost of increasing the District’s water storage to 10 days supply, or adding 280 million gallons of storage, would cost approximately $140 million or $250/ac. ft. increase in the water rates. The District’s current storage capacity allows for a balance between operational storage and meeting emergency situations with the assistance of its customers. An adequate supply of water will be maintained in the District’s system through the continued cooperation of its customers.
2. Upon motion by Polito, seconded by Stone and unanimously carried, the following consent calendar items were approved:
• Minutes of the Board meeting held January 17, 2006
• Audit demand check numbers 107234 through 107549
• Treasurer’s Report and Financial Statements for the period ended December 31, 2005
• Board of Director’s request for per diem compensation and reimbursement of expenses.
3. Two-Year Budget Cycle Proposal:
General Manager Arant reviewed that the proposal to implement a two-year budget cycle had been presented to the Board at the last meeting in which advantages had been cited including an environment that fosters longer-term planning, time frame that more closely aligns with capital improvement projects and a reduction in staff time in developing and producing the budget and would permit other projects and analyses to be undertaken in the off year.
Mr. Paul Lanspery, Deputy General Manager of the San Diego County Water Authority, was invited to present to the Board information on the two-year budget
process which had been implemented at the Authority. Mr. Lanspery stated that the two-year budget cycle provides the benefit of saving money, the time frame is more consistent with the Authority’s strategic plan and that it saves time. He stated that one of the most significant advantages of a two-year budget is that during the off-year, the time saved is directed toward other projects which the Authority refers to as “continuous improvement efforts”.
The San Diego County Water Authority’s two-year budget appropriates funds for the two-consecutive fiscal years and provides that after the first fiscal year the Board will be presented with a mid-year budget update in which adjustments are discussed. Mr. Lanspery reported that the mid-year budget report to the Board had contained a few changes relative to appropriation levels. The two-year roll-over budget was incorporated by the Authority whereby unused appropriations within a department are rolled over to the next year’s budget
Director Aleshire questioned if a two-year budget provides savings to a department. He acknowledged that there would be savings compared to annually compiling the data and producing the document. In response to Director Aleshire’s inquiry as to where the savings are to the department in documenting budget needs which should be known beyond a one-year planning horizon, District Engineer Grabbe stated that preliminary design reports are prepared for large projects which tend to be multi-year projects The two-year budget will allow preparation of the preliminary design reports for projects to be budgeted and, therefore, provide documentation for more accurate appropriation budget requests. Also, during the off budget year, time savings realized allow studies or analysis to be completed.
Upon motion by Aleshire, seconded by Stone and unanimously carried, a rolling 2-year budget process was adopted for the Fiscal Years 2006-07 and 2007-08.
4. Status Report on the Development of a Policy for the Provision of Wastewater Services:
A draft policy for the provision of wastewater services had been presented to the Board in September and staff had been directed to forward copies of the proposed policy to the Valley Center Planning Group (VCPG) and the County of San Diego Department of Planning and Land Use (DPLU). The policy language established that the land use policy was appropriately the purview of the general purpose governments and the District’s role is to facilitate the development of infrastructure supporting the land use determinations.
The VCPG formed a subcommittee to develop input on the draft policy and staff gave a presentation at a VCPG regular meeting as well as a subcommittee meeting. Recommendations from the VCPG were that wastewater service should be available only to those within the 2005 village limit lines as depicted on the June 2005
GP 2020 village maps or the then current final and adopted GP 2020 map. Comments from the DPLU were that the wastewater policy should be used to implement the GP 2020 land use plan and the Valley Center Community Plan and that the provision of wastewater services within the two village nodes should be the primary goal of the District’s wastewater service policy. A second letter from the DPLU commented that in the case of exceptions for providing wastewater services outside of the planned villages (public facilities, existing specific plan areas and conservation subdivisions), the intent of the GP 2020 land use framework is to restrict the size of service lines to that needed for a particular development to limit the wastewater service availability.
Considering the input received, the District’s draft policy for the provision of wastewater services was revised to read:
Statement of General Policy - Sewer system planning and development shall be conducted based upon input from the various community and governmental planning entities and the public, but ultimately in compliance with applicable state law and enforceable local land-use policies. Actual sewer service will be extended to properties able to demonstrate specific qualification for and level of service from the appropriate general purpose governments.
All costs associated with sewer system planning, environmental review, permitting, design, development, construction, ongoing operation, maintenance and replacement will be born by the proponents and beneficiaries.
Financial safeguards shall be implemented to protect the District's general revenues from any potential negative impacts associated with the development, operation and maintenance of the proposed sewer systems.
General Manager Arant mentioned that a ruling may need to be obtained regarding the I-78 Policy; specifically, that all sewer facilities must be contained within the existing country town or village boundary. The VCPG members indicated that the term “facility” encompasses all aspects of the sewer systems including the collection lines, treatment facility, reclaimed water distribution lines, wet-weather storage sites and disposal sites.
Valley Center Planning Group Chairman Keith Simpson and Vice Chairman Larry Glavinic addressed the Board and extended their thanks for the opportunity to review and comment on the proposed wastewater service policy and incorporating their concerns in the revised draft policy. Mr. Simpson explained that during the GP 2020 process, the county had indicated that wastewater service would not be allowed outside of the village limit line and the Valley Center Community Plan was drafted
accordingly. Mr. Simpson expressed that sewer service within the village areas will have greater impact on the community than the adopted Valley Center Community Plan and that containing sewer to the village areas will retain
’s rural character. Mr. Simpson requested a modification to the revised draft policy for wastewater services to state that sewer service will be extended to properties able to secure written authorization from the appropriate general purpose government upon demonstrating specific qualification for sewer service rather than to properties able to demonstrate specific qualification for the service. The Board concurred with this proposed modification and directed staff to forward the revised draft policy for wastewater services to the Valley Center Planning Group and County Department of Planning and Land Use for comments with said policy to be considered for adoption at the February 21, 2006, regular Board meeting.
5. Financial Analysis of the Solar Electric Power Proposal:
Board approval to apply for funding under the California Public Utilities Commission Self Generation Incentive Program (CPUC-SGIP) pursuant to the proposed solar electric power project had been granted at the January 17th meeting subject to further financial analysis. An application process will cost approximately $14,000 in which the initial date to apply for the limited funds of the Self Generation Incentive Program was
February 1, 2006
. General Manager Arant reported that the CPUC-SGIP application date was extended to February 10th which provided staff the opportunity to complete an in-depth financial analysis of the proposed solar project. Also, an invoice for payment is not issued until approximately 30 days following filing of the application for funding under the SGIP. Therefore, an option is to process and mail the application, and continue to evaluate the proposed solar project until the invoice is received at which time the District could elect to move forward with the project or not pay the invoice and the District’s application would become void.
Director of Finance Jeffrey developed a financial model analyzing the costs which was reviewed by WorldWater and Power, financial analysis consultant for the proposed solar project. Mr. Slominski of WorldWater and Power has concurred with staff’s financial analysis. Staff’s analysis assumes securing California Renewable Energy Bonds which provides the District interest free funding for the solar project. Additional assumptions were power cost increases of 5% per year, annual operating expenses of $15,000 plus replacement of the invertor at $80,000 every 10 years. Renewable energy credits would be available to the District to sell which could generate 2.5¢/kWh. Total price of the solar system is $8,850,000 less rebates from the PUC’s Self Generation Incentive Program for a net system price of $6,052,520.
A financial analysis using energy inflation at 5% per year with the Renewable Energy Credits and without borrowing funds indicates a payback in 18 years over the 25 year life of the project, but there are deficits for the first ten years of the project. The net
cash flows would be $3,457,654 with an internal rate of return of 3.35%. Without the Renewal Energy Credits, the net cash flows would be $2,094,693 with an internal rate of return of 2.08%.
Director of Finance Jeffrey noted that current interest earnings with LAIF are 4%, and an expenditure of capital funds for this project would accelerate the need to issue debt for planned capital improvement projects such as the
Valley Center Road
pipeline and Couser Pump Station. Therefore, it would not be prudent to utilize capital reserves to fund the project upfront. Rather, with interest free financing (Calif. Renewable Energy Bonds) a positive return of $650,638 is realized with a 4% discount rate, or a return of 5.95%. Without the Renewable Energy Credits, the rate of return on the investment is 3.47%. A calculation of costs if the solar project were to be funded through a loan with interest shows that the payback of the loan is greater than the savings from the solar project.
A cash flow analysis assuming securing funding for the project with California Renewable Energy Bonds (interest free), indicates there is a negative cash flow of $340,027 the first year and a negative cash flow continues for the first ten years of the project’s 25 year life. The cash flow analysis is attached hereto as “Exhibit A”. To fund the deficit of $340,027 though the pump zone charges would necessitate an increase of 6.3%, or an increase of $2.15 per ac. ft. in pump zone 1 to $19.22 per ac. ft. in pump zone 10.
General Manager Arant summarized that the analysis of the financial feasibility of the proposed solar project does not support pursuing the project, however, a solar project would provide a reliable source of power and electrical costs may rise faster than anticipated. Also, solar power would allow the District to avoid using its natural gas engines as natural gas costs have significantly increased.
The Board directed staff to apply for funding for the proposed solar electric project at the District’s Lake Turner property and Betsworth Pump Station to the California Public Utilities Commission Self-Generation Incentive Program by the due date of February 10, 2006, and provide the Solar Electric Power Study completed by WorldWater and Power and the District’s financial analysis to Dr. Lon House for further evaluation with the Board to determine at a subsequent meeting if the payment for the application for funding (approximately $14,000) will be approved.
6. Governor’s Strategic Growth Plan:
Legislation has been introduced (AB 1839 and SB 1166) to implement the Flood Protection and Water segments of the Governor’s $221 billion Strategic Growth Plan. Within the Strategic Growth Plan, it is proposed that a total of $35 billion be invested over the next 10 years in flood control and water infrastructure improvements. An assessment on water meter services throughout the state (Water Infrastructure
Fund) proposed for a revenue source for the improvements may be withdrawn, but Senator Perata has proposed that it be considered in a hearing. ACWA’s position concerning the Governor’s bond issue is to wait and work toward modifying the legislation to secure more favorable provisions for the water industry.
7. Aqueduct Shutdown and Water Use Restrictions:
General Manager Arant reviewed that the aqueducts providing the District’s water supply are shutdown from February 4th to February 16th by Metropolitan Water District to complete a phase of the improvement project to install module 7 at the Lake Skinner Treatment Plant which will add increased capacity to our region. Also, the San Diego County Water Authority will complete maintenance and inspection of its aqueducts during the shutdown period. All customers were mailed a “Water Alert” explaining the need for the shutdown and that the provisions of the District’s Emergency Water Management Plan would be implemented in which outside water usage is prohibited.
The District’s reservoir levels are continuing to be monitored during this shutdown period and as of 1:00 p.m. on February 6th, the percentage of storage was 76.9% of capacity or 95.5 million gallons. Staff has been patrolling the District’s service area to ensure compliance with the prohibition on outside water usage. Variances have been granted, upon request, to nurseries and other exceptions allowed such as newly planted sod. All construction meters have been locked off as well as the meters serving homeowners’ association irrigation meters. Water can be pumped from Lake Turner into water trucks, if requested. Updates on the water shutdown will be maintained on the District’s web page and residents have been encouraged to continue to check it.
GENERAL COUNSEL’S AGENDA
8. Ethics Training Per AB 1234:
General Counsel stated that a proposed policy will be presented to the Board at the next meeting concerning an ethics training policy in compliance with the provisions of AB 1234. He noted that Best, Best & Krieger will be conducting ethics training sessions and on-site training can be arranged for the Board members and key employees to comply with the provision that ethics training be completed no later than January 1, 2007, and thereafter two hours of ethics training every two years.
9. Upon motion by Aleshire, seconded by Polito and unanimously carried, the meeting was adjourned at