October 18, 2010
VALLEY CENTER MUNICIPAL WATER DISTRICT
Regular Board Meeting
Monday, October 18, 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 and Aleshire. Directors Stone and Haskell were 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, Manager of IT Pilve and Manager of Accounting Pugh. Spectators present were: Mr. Brian Thomas, Metropolitan Water District, Mr. Dennis Cushman, San Diego County Water Authority, and Mr. Dave Ross, Roadrunner Newspaper.
APPROVAL OF AGENDA
Upon motion by Aleshire, seconded by Polito and unanimously carried, the agenda was amended to add consideration of an adjustment of the Metropolitan Water District’s Interim Agricultural Water Program allocations for November and December 2010 in order to notify customers in a timely manner and the matter came to the attention of staff following completion of the agenda.
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 4, 2010
• Audit demand check numbers 126990 through 127116 and wire disbursements for September 2010
• Quarterly report of employees’ expense reimbursements for the quarter ended September 30, 2010
ACTION AGENDA
2. Presentations from the Metropolitan Water District and San Diego County Water Authority Regarding the Wholesale Water Rate Projections:
Mr. Brian Thomas, Chief Financial Officer of the Metropolitan Water District of Southern California, and Mr. Dennis Cushman, Assistant General Manager of the San Diego County Water Authority, gave presentations on the projected wholesale water rates.
Mr. Thomas reviewed that water rates are rising due to many factors; but mainly affected by environmental actions which restricted State Water Project pumping when fish are present. The reduced supplies have resulted in lower water sales. Agricultural water sales were reduced by 30% beginning in 2008 and full-price customers are restricted in their water consumption by the Level 2 Water Supply Allocation levels. Mr. Thomas reported that water sales in 2009-10 are approximately 400,000 ac. ft. less than 2 years earlier which resulted in more than $200 million less revenue. He noted that conservation is needed, but Metropolitan Water District’s fixed costs must be funded. Fixed costs amount to about 80% of Metropolitan’s expenses that include debt service, obligations to the State Water Project and O&M. However, the bulk of Metropolitan’s revenue is from the sale of water. In addition, water supply costs and capital costs have increased in the last 4 to 5 years as noted below:
Water supply programs - $87 million higher than in 2006-07
State Water contract - $109 million higher than in 2006-07
Debt service - $70 million higher than in 2006-07
In order to reduce the level of water rate increases, capital projects funded through the revenue stream have been reduced by debt financing a larger portion of the CIP costs though there will be higher debt service in the future. Met’s District O&M (salary and benefits and outside services) costs have been lowered and represent about 15% of the total budget. Other actions taken to reduce the financial impact to the customer have been to defer capital expenditures where possible, and reduced pay-as-you-go expenditures, outside service contracts, workforce size (20% reduction in positions over the last 10 years) and renegotiated outside contracts to reduce fees.
Addressing the lawsuit filed by the San Diego County Water Authority challenging Metropolitan’s rate structure, Mr. Thomas stated that whether or not all water that Metropolitan moves (wheeled, exchanged or otherwise) should carry the cost of Demand Management Programs is being questioned. These Demand Management Programs are funded through the Water Stewardship rates and currently assessed on all water through Metropolitan’s system as the programs reduce demands on the system and costs as the need for system expansion is reduced.
Mr. Thomas stated that Metropolitan’s Integrated Resources Plan’s strategy is to use water as effectively as possible in order to deal with the uncertainties of the imported water supplies and achieve the 20% by 2020 mandate. The average annual rate increases from Metropolitan Water District are estimated at 6% over ten years. The increased rates will be due to higher cost of water supply (transfers, desalination, Delta improvements), necessary capital improvement infrastructure projects, and compliance with increasingly stringent regulations. Metropolitan’s water rates will increase by 7.5% on January 1, 2011, and January 1, 2012.
Mr. Dennis Cushman, Assistant General Manager of the San Diego County Water Authority, addressed the Board noting that, for the five-year period beginning in 2008, Metropolitan Water District approved rate increases totaling 55% for Tier 1 treated supply rates. The primary drivers of the rate increases are the supply challenges including:
Lost access to surplus Colorado River supplies;
Increased reliance on higher cost and more hydrologically dependent State Water Project supplies; and
State Water Project supplies constrained significantly due to pumping restrictions
Mr. Cushman stated that Metropolitan Water District’s adopted 2010 Integrated Resources Plan (IRP) has changed Metropolitan’s fundamental mission from a wholesale water import supplier to an agency that may directly begin developing local supply projects. The Core Resources Strategy of the Metropolitan’s IRP meets 100% of retail level demand 100% of the time, or a goal of 100% reliability. An Uncertainty Buffer component of the IRP is development of one-half million acre feet of additional water supply by Metropolitan. The IRP’s Foundational Actions establishes further development or study of local resources concurrent with the IRP’s Core Resources Strategy and Uncertainty Buffer. The San Diego County Water Authority’s position regarding Metropolitan’s IRP is that it is unsustainable as it develops supplies beyond forecasted needs, the new supplies are very costly, and water sales are limited to meet the 20% by 2020 mandate. Mr. Cushman stated that there will be less opportunity to spread costs over Metropolitan’s declining sales base and Metropolitan’s rates will increase even more to cover supply development costs. Mr. Cushman added that Metropolitan’s IRP does not outline a trigger point to implement the development of additional water supplies beyond the Core Resources Strategy that meets 100% of the retail demands. Metropolitan is pursuing implementation of 200,000 ac. ft. of additional water use efficiency for added development of water supplies. The cost to develop supplies beyond forecasted needs is costly and fiscally unsustainable for Metropolitan. Further, Metropolitan’s declining sales curve will be exacerbated by regional local water supply development that will be financially feasible considering Metropolitan’s rising water rates. Metropolitan has estimated the increase in rates to implement the IRP would be inflation plus 2%.
Metropolitan Water District’s rate increases by rate category as shown on the attached Exhibit “A” were reviewed. Mr. Cushman stated that components of Metropolitan’s water rates, the wheeling charge comprised of the System Access Rate, Water Stewardship Rate and System Power Rate, will double by 2020 while the Supply Charge component of Metropolitan’s rate structure increases only 35%. The San Diego County Water Authority’s lawsuit challenging Metropolitan Water District’s rate structure is the dispute concerning supply costs being shifted to the transportation rate which has financial impact upon the San Diego County Water Authority. San Diego County Water Authority’s contention is that Metropolitan Water District’s rate structure misallocates significant water supply costs to transportation charges as 80% of Metropolitan’s State Water Project Supply costs are charged through the System Access Rate and System Power Rate onto its Transportation Rate, and local water supply development funding is allocated through the Water Stewardship Rate onto the Transportation Rate. The San Diego County Water Authority’s position is that Metropolitan is illegally charging its water supply costs on the use of its transportation system, its aqueducts. The San Diego County Water Authority has estimated that, with the current Metropolitan Water District rate structure, the Authority’s ratepayers will be overpaying between $1.3 billion and $2.1 billion (the wide variance is due to estimated range of costs for the Delta fix). Currently, the litigation against Metropolitan’s rate structure awaits assignment to a judge in San Francisco Superior Court.
The San Diego County Water Authority has a diversified regional water supply and has reduced its dependence on Metropolitan Water District’s imported water supplies, improving water reliability. By 2020, the Authority’s water supply will be from:
Metropolitan Water District – 23%
Imperial Irrigation District Transfer – 22%
All American & Coachella Canal Lining – 9%
Conservation – 11%
SBX 7-7 Additional Conservation – 6%
Seawater Desalination – 10%
Local Surface Water – 7%
Recycled Water – 6%
Groundwater – 6%
The Authority’s 2-year budget for Fiscal Years ending in 2010 and 2011 totals $1.65 billion. Three categories that account for 98% of the total budget are:
Water Purchases and Treatment (46%) - $764 million
CIP and Debt Service (46%) - $766 million
Operating Departments (6%) - $91 million
The San Diego County Water Authority’s cost of water purchases is 62.7% of its wholesale cost of water. The Water Authority’s operating and capital costs comprise 37.3% of its costs. The Authority’s actions to mitigate rate impacts have included a $2.4 million reduction in the Operating budget, reduced in-spot water purchases, a draw of rate stabilization funds and capitalized interest. Mr. Cushman reiterated that Metropolitan’s current rate structure disproportionately impacts the San Diego County Water Authority and its retail member agencies’ ratepayers, and the costs associated with implementation of their Integrated Resources Plan is financially unsustainable.
Mr. Brian Thomas of Metropolitan countered that its Integrated Resources Plan is an adaptive management program in which cost estimates of different planning scenarios have been analyzed and it was provided to its member agencies. He stated that Metropolitan does not have plans to initiate the development of local supply projects, but funds are budgeted to fund conservation incentives for reaching the regional target of 20% by 2020. In this manner, Metropolitan will be incentivizing innovation in water use efficiency. Mr. Thomas stated that the planned investments for the most efficient and effective use of water is considered a prudent practice. He further noted that working toward a consensus as to the water supply conditions that would trigger Metropolitan’s more aggressive actions beyond its Core Resources Strategy of the Integrated Resources Plan would be beneficial; i.e. a time frame for the Delta fix to be initiated or designated shortage levels in the storage facilities.
The Board thanked Mr. Thomas and Mr. Cushman for their informative presentations and discussion on the water rate projections.
3. Association of California Water Agencies Health Benefits Authority (HBA) Election of Board of Directors:
Board direction regarding the casting of the Association of California Water Agencies’ (ACWA) HBA Board of Directors election ballot was requested. The ACWA HBA is the entity from which the District purchases its major medical insurance and has been recently restructured. As part of the restructuring and adopted by-laws, the election of the ACWA HBA Board will be by the participating agencies rather than by appointment of the ACWA Board of Directors. The ACWA HBA Board will be comprised of elected representatives by geographical area. Nominations that were received will fill the positions for Directors representing the Northern region (agencies with less than 20 participating employees-1 nominee, and general-2 nominees), and the Southern region (agencies with less than 20 participating employees-1 nominee). For the Southern-general election of 2 members, 4 nominations were received. The candidates are:
Merle Aleshire, Valley Center Municipal Water District
Robert Moore, South Coast Water District
Randall Reed, Cucamonga Valley Water District
Howard Williams, Vista Irrigation District
Upon motion by Polito, seconded by Aleshire and unanimously carried, the Board directed the General Manager to cast the District’s vote for the Association of California Water Agencies Health Benefits Authority Board of Directors election for the Southern region-general for Merle Aleshire, Valley Center Municipal Water District, and Howard Williams, Vista Irrigation District.
4. Adjustment of Interim Agricultural Water Program Allocations for November and December 2010:
Board authorization to adjust the usage allocations for participants in Metropolitan Water District’s Interim Agricultural Water Program (IAWP) for the months of November and December 2010 was requested. For calendar year 2010, IAWP participants’ allocation reduction level is 25% of the base year. Through the end of September 2010, IAWP usage was 46% under the base year usage. As such, staff recommended that the IAWP allocation reduction level be adjusted from 25% to 0% of the base year usage or 100% of the base year usage for November and December of 2010. Staff clarified that per Metropolitan Water District’s regulations pertaining to the IAWP, all usage credits on account as of December reads cannot be rolled over into the next year’s Program, however, beginning in January 2011, the IAWP allocation reduction level will be reduced to 20% of the base year usage.
Upon motion by Polito, seconded by Aleshire and unanimously carried, the reduction level for participants in the Interim Agricultural Water Program for the remainder of the 2010 IAWP year (November and December only) was reduced from 25% to 0% of the base year usage.
5. Allocation Transfer Concept Update:
An update on the allocation transfer concept was deferred to a subsequent Board meeting.
GENERAL MANAGER’S AGENDA
6. Review of Miscellaneous Informational Items:
General Manager Arant provided an update on miscellaneous projects/programs, as follows:
• The District’s Status Report for September 2010 reports that water sales for Fiscal Year 2010-11 through September are 11,200 ac. ft., which is below the budgeted estimated sales.
• The District’s water rate survey was updated to reflect current data from the San Diego County retail water agencies. A comparison of those agencies with the same cost basis (those buying 100% treated imported water and paying all of the San Diego County Water Authority’s fixed charges) shows that the District’s water rates are the lowest. Including the average pumping charge with the District’s water rates, the District has the 3rd lowest M&I rate and the lowest agricultural (IAWP) rate compared to those agencies with the same cost basis.
GENERAL COUNSEL’S AGENDA
7. Governor’s Veto:
General Counsel de Sousa reported that a legislative measure (AB 2419) pertaining to Contractors State Licensing Law was returned without the Governor’s signature The bill as presented for the Governor’s action amended language of the State Licensing Law to remove a comma; thereby changing the word contractors from being plural possessive to only plural, and to capitalize the word Engineering. Governor Schwarzeneger questioned the time spent by legislators for these proposed amendments and the taxpayers’ money expended for this effort and conveyed that the Legislature should focus its efforts instead on California’s real problems.
ADJOURNMENT
8. The Board meeting was adjourned at 4:04 p.m.
ATTEST: ATTEST:
____________________________ _______________________________
President Secretary