Town Council Study Session
October 8, 2008


Paul Loomis, Mayor
Al Kunisch, Vice Mayor
Paula Abbott, Council Member
K.C. Carter, Council Member
Helen Dankwerth, Council Member
Barry Gillaspie, Council Member
Terry Parish, Council Member

Vice Mayor Kunisch joined by telephone.

Mayor Loomis noted that Item 3 would be rescheduled for a future meeting as a representative from Tucson Electric Power was not available to attend.


Update and Discussion of Central Arizona Project Water Delivery to Oro Valley

Oro Valley Water Utility Director Philip Saletta noted the following about the Water Utility:
~Served 18,283 customers
  *Used 3.3 billion gallons of water in 2007
  *Average customer used 9,000 gallons of water per month
  *Used 2.8 billion gallons (8,600 acre feet) in 2007
~Reclaimed water
  *3 golf courses used 488 million gallons (1,500 af) in 2007
  *Phase 2 completed for an additional 326 million gallons per year (1,000 af)
  *25% of deliveries

~Water conservation
  *Key to future water resource planning
  *Free water audits - conducts 200 per year
    -Saves water and money
  *Educational programs
  *Rain sensor program
  *Member of Water Conservation Alliance of Southern Arizona (CASA) 

He discussed the needs for renewable water supply:
~Limited narrow aquifer
~Groundwater level declines greater than 4 feet per year in some wells.
~Balance in Ground Water Allowance Account is low
~Long term storage credits and recharge are not located in Oro Valley
~Creates high obligations to Central Arizona Groundwater Replenishment District 
  *$800,000 in 2008 to CAGRD
  *$380,000 for long term storage credits
  *Costs are increasing

Mr. Saletta explained that:
~The recharge facilities for water were not located near the aquifer.
~Being a member of CAGRD equated to an assured water supply.
  *CAGRD charges per acre foot
~The term "wet water" means directly delivered
  *Reclaimed water is wet water, though it qualifies for paper credit.
    -Saves money.
    -Paper credit allows the Town to pump more groundwater.

Mr. Saletta clarified that Kai Farms received water at a discounted rate for storing Central (CAP) water for the Town. He explained that it was a ground water savings facility that saved the Town $40 per acre foot in credit from CAGRD.

In response to Council Members' questions he stated that there was not an ideal place for a recharge facility in Oro Valley. He noted that based on the topography, it would be difficult to create, though it could be done.

He discussed the Reclaimed Water System:
~The Town has an Intergovernmental Agreement (IGA) with the City of Tucson
  for delivery and treatment of Reclaimed Water.
  *OVWU built and paid for Mountain View Booster Station and additional pumps
   at Thornydale Reclaimed Water Reservoir site
  *City of Tucson operated these facilities
  *OVWU pays for Operation and Maintenance (O&M) charges
  *The IGA will need to be re-negotiated by October, 2010
~OVWU built and operated 13 miles of pipeline, and additional booster station and
  1.5 MG reservoir
~Phase 2 online this month
  *2500 af per year delivered to 5 golf courses (25% Reclaimed)

Regarding CAP, Mr. Saletta noted that CAP water was not a water right, but a contract to use the amount of CAP water allocated to us. He stated that the CAP maintained the water rights.

He explained the highlights of the Northwest Reliability Reservoir:
~Assured deliveries when CAP Canal was down for maintenance or emergencies.
~Reservoir held approximately 3,000 af
~Authorized under CAP 
~Needed annual appropriation approved for studies, design and construction in
  the United States Bureau of Reclamation (USBR) Budget

Discussion noted the following:
~Oro Valley may take delivery of CAP water at Naranja Drive and Shannon Road.
~The driving costs for CAP water were that the Town is uphill and farther away
  from the pipeline.
~It is a top priority with Northwest water providers to acquire support from local
  governments and the area’s Congressional delegation to urge the USBR to build a
~Seven basin states have agreed that when there is a shortage of Colorado River water, all will share in the shortage.

Mayor Loomis called for a recess at 6:50 p.m.  The meeting resumed at 6:57 p.m. 


Water Rates, Fees and Charges for the Oro Valley Water Utility

Water Utility Director Philip Saletta explained the background of water rates:
~Notice of Intent was approved September 17, 2008
~Public Hearing date scheduled for November 5, 2008
~Water Rates Analysis Report and Addendum is available for public review

He noted the financial considerations:
~Analysis of three funds within the Utility
  *Alternative Water Resource Development Impact Fee (AWRDIF)
  *Potable Water System Development Impact Fee (PWSDIF)
~Mayor & Council Water Policies
  *Debt service coverage ratio 1.3
  *Cash reserves of 5% of budget
  *Minimize rate shock
~Existing cash reserves
~Capital expenditures
~American Water Works Association
~Original report review by Red Oak Consulting

Mr. Saletta stated that of the water rate scenarios presented, he would not recommend scenarios K, L, M, N or P because the rates were too high and created too much of an impact to the customers.

He stated that the Water Utility Commission (WUC) Finance Subcommittee recommended scenarios R and S and to consider a Volumetric Conservation Charge.

He explained the Preferred Financial Scenario:
~Base rates and commodity rates
  *5% across the board increase for potable and reclaimed water 
~Four-tier rate structure
  *Adjust usage in tiers for various meter sizes
~Increase potable construction water rate from $6.00 to $6.25 per 1,000 
~Increase reclaimed construction water rate equal to reclaimed commodity rate
~Increase meter fees
~Establish $1.50 Convenience Fee for credit card transactions by telephone and/or mail

He noted the highlights of Scenario R that were in addition to the Preferred Financial Scenario:
~No increase in base rates
~Four-tier rate structure
  *Adjust pricing in tiers to balance the "no" increase in base rate
~Commodity rate increases vary
~Scenario R2 has Volumetric Conservation Charge
~Increase potable construction water rate from $6.00 to $6.50 per 1,000 gallons

He explained that the difference between Scenarios R and S was that Scenario S had a five-tier rate structure.

Mr. Saletta presented the Water Rates Analysis:
~Base rate was needed to cover fixed costs for capacity and readiness to serve.
~Staff concurred with WUC Finance Subcommittee recommendation to focus on
  the Preferred Scenarios R and S

He explained the Conservation Charges:
~The charge would reward customers that use less water
~WUC Finance Subcommittee and Staff recommended Volumetric Conservation
  *Customers that used less than 6,000 gallons in a billing cycle would not be
  *Fee would begin at 7,000 gallons at a rate of $.04 per 1,000 gallons
  *Fee only applied to residential customers; not commercial.

He noted that by adding more tiers, it created significant increases for large multi-family, commercial and irrigation water customers.

He explained the proposed changes to the Groundwater Preservation Fee (GPF):
~Component of the rate increase
~Comprised approximately 3.7% of total increase
~Less than 1/2 of the 8.1% increase for the average customer (Preferred
  *Applied to debt service
~GPF pays for renewable water
  *Existing debt for the Reclaimed Water System
  *Future debt for CAP Water Delivery System

Discussion noted the following:
~The Preferred scenarios were good approaches as the base rates did not change
  and would be more sustainable
  *Would not have to return to customers frequently for rate increases
~The Conservation charge credit built in to the tiers was confusing
  *This could hurt all customers in this current economy


Discussion of Electrical Undergrounding and Tucson Electric Power’s Service Adequacy and Reliability

Mayor Loomis noted that Item 3 would be rescheduled for a future meeting as a representative from Tucson Electric Power was not available to attend.


MOTION: A motion was made by Council Member Carter and seconded by Council Member Gillaspie to adjourn at 7:37 p.m.

MOTION carried, 7-0.