Water Utility Commission

MINUTES
ORO VALLEY WATER UTILITY COMMISSION
REGULAR SESSION
Monday, September 14, 2009
HOPI CONFERENCE ROOM
11000 N. LA CAÑADA DRIVE

CALL TO ORDER At 6:05

ROLL CALL

PRESENT:
David Powell, Chair
Winston Tustison, Vice Chair
Rick Davis, Commissioner
Robert Milkey, Commissioner
Elizabeth Shapiro, Commissioner
John Hoffmann, Commissioner
Richard Reynolds, Commissioner

PRESENT:

David Powell, Chair
Winston Tustison, Vice Chair
Rick Davis, Commissioner
Robert Milkey, Commissioner
Elizabeth Shapiro, Commissioner
John Hoffmann, Commissioner
Richard Reynolds, Commissioner

STAFF PRESENT: Philip C. Saletta, Water Director
                         Shirley Seng, Utility Administrator
                         Jim Peterson, Water Utility Regional Coordinator

OTHERS PRESENT: Mayor, Paul C. Loomis
Vice Mayor, K.C. Carter
Stacey Lemos, Finance Director

CALL TO AUDIENCE - No Speakers

1.	ELECTION OF WATER UTILITY COMMISSION OFFICERS (P. Saletta)

Mr. Saletta explained the process for Election of Officers and nominations. The first motion would be for Chair and Vice Chair of the Commission.

There were no discussions by the Commission. Mr. Saletta opened the Elections for Officers. Vice Chair Tustison respectfully withdrew his nomination as Vice Chair in order to give other Commissioners the opportunity to serve in his place.

MOTION FOR NOMINATIONS:

MOTION: A motion was made by Commissioner Shapiro and seconded by Commissioner Tustison nominate Dave Powell as Chair.

MOTION carried, 7-0.

MOTION: A motion was made by Commissioner Shapiro and seconded by Commissioner Milkey Cease Nominations and elect Dave Powell as Chair of the Water Utility Commission.

MOTION carried, 7-0.

Mr. Saletta opened nominations for the Vice Chair.

MOTION: A motion was made by Commissioner Hoffmann and seconded by Commissioner Tustison nominate Richard Davis as Vice Chair of the Water Utility Commission.

MOTION: A motion was made by Commissioner Tustison and seconded by Chair Powell Cease Nominations:
Moved to cease nominations and elect Richard Davis as Vice Chair of the Water Utility Commission.

MOTION carried, 7-0.

Mr. Saletta welcomed Mr. Davis as Vice Chair and expressed his appreciation to Commissioner Tustison for serving as Vice Chair of the Water Utility Commission during the past few years.

2.	APPROVAL AUGUST 10, 2009 MINUTES

MOTION: A motion was made by Commissioner Shapiro and seconded by Commissioner Tustison approve the minutes as amended.

MOTION carried, 7-0.

Click here for Item #2

3.	WATER RATES ANALYSIS

Click here for Item #3A

Click here for Item #3B

Click here for Item #3C

Ms. Seng discussed the Proposed Work Schedule, she also mentioned that staff was on schedule with moving forward with the Notice of Intent to Council as shown on the schedule.

Mr. Saletta mentioned that the 9/30/09 Council Study Session was cancelled.
-Staff will move forward with the October 7th NOI and have the Study Session between the NOI and the final adoption of the Water Rates if Council agreed. Mr. Saletta will speak with both the Assistant Town Manager and Town Manager.

-A Special Meeting of the Water Utility Commission will take place on September 28, 2009
-Mayor Loomis was present and did not foresee a problem with scheduling a Council Study Session on water rates for October 14th.

There being no objections from the Commission, Mr. Saletta will move forward with the proposed schedule, the Special Meeting on September 28th and with the suggested Council Study Session on October 14th. All of the Commissioners will be present on September 28th with the exception of Chair Powell.

Ms. Seng reviewed the Key Assumptions used for all scenarios including the baseline.

-Growth rates -Inflation Rates -Interest Rates -Vacant Accounts -Personnel Costs --O&M costs -Capital Improvements -Central Arizona Project Capital Costs -Central Arizona Project Recharge Costs -Central Arizona Groundwater Replenishment District

All Key Assumptions are consistent with the financial planning for the Town’s General Fund.

-Debt Service Coverage Ratio -Based on discussions between Mr. Saletta and Ms. Lemos, Finance Director, the required Debt Service Coverage Ratio on all Excise Tax Bonds will be met by the General Fund; however, a 1.0 debt service coverage ratio will be maintained by the Water Utility on the Excise Tax Bonds and the Water Utility will pay the annual debt service. The Utility will meet the required debt service coverage ratio of 1.30 on all Senior Lien Revenue Bonds and the WIFA loan.

Ms. Lemos reported that she would meet with the financial advisor and Bond Council and provide documentation to Council and the Commission confirming that this debt service coverage ratio was a safe assumption. She gave a brief explanation on the three other Excise Tax Bond eries pledged by the Town’s Excise taxes. She explained that the General Fund had sufficient capacity to provide coverage legally for those bonds, however it does not relinquish the Water Utility’s responsibility from making the actual debt service payments. Ms. Lemos explained she would have an answer sometime this week.

Mr. Saletta gave a brief explanation about the Water Utility’s 1.0 debt service coverage ratio and bond coverage. He expalined that as long as the General Fund has the coverage for those bonds backed by Excise Tax Bonds the Utility will be covered in accordance with the bond requirements. This is a very critical financial piece for the Water Utility this year. Mr. Saletta gave a brief update regarding several consultants financial analysis stating that it was not necessary for the Utility to maintain a 1.3 debt service coverage ratio for all bond debt because some are backed by excise tax not water revenues.

He mentioned that Ms. Lemos will provide a brief explanation of this to the Water Rates Analysis Report.

A question and answer session occurred:

Commissioner Milkey questioned the Water Utility’s O&M expenditure and significant electrical costs. Does the general inflation factor constitute a potential risk against these costs? Ms. Seng explained that TEP had a rate freeze for 10 years however last year the Utility budgeted an 18% increase but only a 12% increase occurred. Mr. Saletta explained that Arizona Corporation Commission regulated TEP rates, and he felt comfortable applying reasonable inflationary rates.

Ms. Seng indicated she was not aware of any future TEP rate increases and given that the Utility’s rates are re-evaluated every year, we would have an opportunity to adjust projections next year.

Commissioner Hoffmann had a question regarding CAP’s Recharge Costs assumption and reduction to 2,500 acre feet per year. Ms. Seng explained that a lot of the recharge water involves buying incentive priced water and in years FY 11-12, 12-13 & 13-14 there would not be any incentive priced water available, secondly there is also the possibility of using CAP water through the interim City of Tucson agreement and later through Oro Valley’s own treatment and delivery system.

Mr. Saletta explained that Oro Valley would not be using the full 4,000 af as stated in the City of Tucson’s agreement phasing it out reduces our need for recharge water. The intent is saving dollars for paper water because groundwater extinguishment credits were cheaper than purchasing CAP water and associated recharge.

Ms. Seng reviewed Key assumptions on Specific Financial Scenarios
-Correction: WIFA Loan Scenario A-1 FY 09-10 =$3.4m @ 4.25% for 20 years
-Reviewed: GPF increases in all scenarios for Potable & Reclaimed with exception to the baseline

-Schedule with Summary of Financial Scenarios
Reviewed: Key Assumptions/ Results and Baseline for all the financial scenarios A, A-1, B, and C.
Reviewed: FY 09-10 thru FY 13-14 Debt Service Coverage Ratio, Impact to Average Customer, Enterprise Ending Cash, AWRDIF Ending Cash, PWSDIF Endind Cash.

Ms. Seng indicated that Staff discussed possibly lowering the GPF to $0.75 cents minimizing the impact to customers, as long as there wasn’t a large impact to the AWRDIF cash balances.

A question and answer session occurred:

-Is there a potential for a Scenario D? (Chair Powell). Ms. Seng indicated there could be a Scenario C-1 or D based on the lowered GPF.
-Currently O.V. is experiencing Stage 1 Drought (10% water reduction) if Stage 2 goes into effect will it have a lower revenue effect on the Utility? (Commissioner Davis). Mr. Saletta explained that conservation will have a financial critical impact on all utilities whether gas or water.

Ms. Seng also explained that water conservation was taken into consideration with regard to the revenue projections.

Commissioner Milkey commented that dropping the GPF as example to Scenario C in the earlier years seemed favorable. Ms. Seng indicated that it could help levelize rates a little better.

Mr. Saletta felt that Scenario C had all the standards, levelizing rates and avoiding rate shock. It has the Utility borrowing at key times financially, and yet the Enterprise Ending Cash balance is still decreased but has no problems. It is important for the ending cash balance not go below 2 million dollars. Additionally, one of the key element to levelizing rates is borrowing at the right time. Mr. Saletta felt using a C-1 Scenario and levelizing rates would be a good alternative.

Mr. Saletta also indicated that all the other funds were in good shape. He mentioned that if the Commission required copies of the scenarios staff would be able to provide them in pdf format.

Ms. Seng ended her report and indicated that No Action was Required on this Item. However, she would schedule another Finance Subcommittee meeting next week at 5:30 p.m. at the Water Utility Conference room. The Commission will be presented with all of the financial scenarios including a preferred and alternate scenario at the September 28th Special Meeting.

Commissioner Tustison was concerned about increasing debt and indicated that Scenario A-1 clearly did not solve all the problems by having a WIFA loan for $3.4 million or $5.9 million. He was certain not if the Utility had to experience more debt and wondered if the Commission was concerned. He asked for some feedback from the Commission.

Commissioner Milkey stated that by forecasting for the next five years what the debt could be would be beneficial. He indicated that borrowing $5.9 or $6.0 million in future years could be a problem and could accumulate a larger debt. Mr. Milkey pointed out, there are more major capital maintenance projects which might be necessary driving further borrowing at the end of this period or shortly after.

Commissioner Shapiro commented, we must consider that interest rates are very low now and at some point we do not know what could happen financially. If interest rates and construction costs are low this might be the most opportunistic time to do it.

Chair Powell agreed that increasing debt was a major concern, but he relied on staff’s expertise, guidance and stewardship with regards to the debt assumptions.

Mr. Saletta appreciated the Commission’s feedback. He gave a brief explanation regarding the Utility’s Potable Water System Master Plan completed in 2006, capital replacement infrastructure and high interest rate payments.

Ms. Seng reported there were other service fees and charges the Utility would be looking to updating: security deposits, backflow permit fees, reconnection fees, new service establishment fees. These fees are charged strictly for cost recovery purposes. All of the documentation will be presented on September 28th.

There were no further discussions.

6.	WIFA LOAN AGREEMENT (P. Saletta)

Click here for Item #6

Chair Powell moved item #6 as the next agenda item for discussion. There were no objections.

Mr. Saletta reported the following:

-Packet: WIFA Loan Draft Resolution discussed at the 9/11/09 Finance Subcommittee meeting. WIFA’s loan amount is for $3,403,000; all of the documents have been received by WIFA.

Based upon the financial scenarios presented this evening, it is important to move forward with this loan. To our knowledge WIFA has borrowed at an interest rate of about 3.9% and we could get a subsidized loan rate at 3.3%.

Our financial advisors claim that if we close this loan within the next month there will be little chance for WIFA to close at 5%. Staff believes that the loan could close as low as 4% or 3.5%.

Staff supports moving forward with the WIFA Loan document in order to execute some of the projected Capital Improvement Projects.

A Draft Resolution has been attached authorizing the Finance Director and Water Utility Director to implement and execute the loan agreement. The Finance Director will sign on behalf of the Town.

The Finance Subcommittee has reviewed this document and there was consensus to make a motion to move forward with the loan. Staff also concurs with the Finance Subcommittee and the $3,403,000 WIFA loan.

MOTION: A motion was made by Commissioner Tustison and seconded by Commissioner Shapiro forward the Water Infrastructure Finance Authority Loan Agreement Resolution to the Town Council for their consideration, and with the Water Utility Commission's recommendation for approval.

MOTION carried, 7-0.

Mr. Saletta indicated the Resolution would be presented to Council October 7th.

4.	NW WATER PROVIDERS CAP WATER TREATMENT AND DELIVERY SYSTEM (P. Saletta)

Mr. Saletta gave the following update:

Issues:
-Draft IGA discusses governance and language, and what will be the governing body, a Management or Steering Committee. The NW Water Providers will meet on September 29 to discuss these issues.

-Staff met with the Town of Marana to discuss the facility’s location within their Town boundaries. The meeting included their Parks Department, Planning & Zoning, Public Works and Management staff. Oro Valley’s Assistant Town Manager J. Watson attended along with Staff.

-Reviewed: location options, aesthetcs, land availability and recreational possibilities.

-A future meeting with the U.S. Bureau of Reclamation is planned to discuss the proposed design of the reservoir. Conceptual Design Goal - build a facility that is aesthetically pleasing and environmentally minded that meets all the technical criteria and operates efficiently delivering water to our various communities.

-9/15/09 meeting with the Bureau of Reclamation and Central Arizona Water Conservation District CAP Staff. Topic: focus on the Bureau of Reclamation draft cost estimate and
federal budgeting. Last cost estimates for the reservoir were $60 million.

-Staff is moving forward with our own Service Area Water Quality and Distribution Study. Engneering firms Westland Resources and CH2M Hill have been selected to do these studies. A Scope of Work and contract is expected.

Mr. Saletta ended his report. There were no questions, No Action Required on This Item.

5.	UPDATE ON DISCUSSION WITH TUCSON WATER (P. Saletta)

Mr. Saletta reported the following:

-Concept: Use our own CAP Water allocation a portion of 10,305 af for delivery to Tucson Water facilities. Mr. Saletta gave a brief explanation of the routing and delivery through Tucson’s Water recharge facilities at central or southern Avra Valley.

-An account will be established for Oro Valley, then transferred to the groundwater table through Tucson’s Water artificial recharge facilities. Tucson will pump our CAP water through their recovery wells into their distribution system back to Oro Valley recharge facility near Naranja and Shannon. Oro Valley has an existing IGA for Effluent.

-All Northwest Water Providers (Flowing Wells, Town of Marana, Metro Water and Tucson Water), are aware of these discussions and Metro Water is also interested. Tucson Water Director, Jeff Biggs, Metro Water General Manager, Mark Stratton and staff met to discuss moving forward with a Cost Estimate Study. This Cost Study will focus on CAP delivery costs for Oro Valley and Metro Water. If the Cost Estimate Study proves to be favorable the NW Water Providers will consider moving forward with a Tucson Water Agreement .

-Oro Valley’s Delivery Amount would be about 3,000-5,000 af per year on an interim basis.
-Time Frame to get an agreement and approvals could take as long as 18 months to finalize before delivery could be achieved.

A discussion occurred regarding:
-CAP Water connections to Oro Valley’s distribution system, O.V. backup interconnect system and recharge facilities. (Commissioner Shapiro)
-Tucson Water Delivery System Capacity if exceeded 5,000 af (Commissioner Milkey)
-Water Quality & TDS levels (Commissioner Davis)
-Tucson Water Delivery Capability to all NW Water Providers (Commissoner Reynolds)

There were no further discussions or questions. Mr. Saletta ended his report. No Action Required on This Item.

7.	TOWN COUNCIL MEETINGS/COMMUNICATIONS (Vice Mayor Carter)

Vice Mayor Carter indicated that Mr. Saletta attended the League of Town and Cities forum and served on a panel to discuss Arizona's emerging water issues. Vice Mayor Carter was very pleased with Mr. Saletta's performance on this panel.

Mayor Loomis was present but had no report.

8.	SUBCOMMITTEE/COMMISSIONER REPORTS

a.
Finance Subcommittee                   (Chair Tustison)

Chair Tustison had no report.

b.
Conservation Subcommittee                (Chair Davis)

Click here for Item B

Vice Chair Davis reported that at the request of Commissioner Shapiro he would be presenting a power point presentation on the Drought Response Plan.

Update Landscape Ordinance - A meeting set on Friday, September 25th. Attendees: K. Boyce, B. Vella, B. Milkey and SAHBA representative. The Landscape Ordinance is still in Final Draft stage.

Overview Drought Response Plan
-Drought Response defined triggers: (Temperature, Precipitation, Average deline of groundwater levels, Regional U.S. Drought Monitor Level)
-Actions are implemented based on three categories of water users:
A. Single family residentia   B. Commercial users, schools, public parks, etc.   C. Reclaimed water users
-Review: Drought Stages 1-4 Table
Currently we have been at Stage 1 since October 2007 - prior to October we were in Stage 2 starting April 2007
-Review: Drought Actions Stages 1-4 Table (Categories A. Residential   B. Commercial     C. Reclaimed water users

-Issues & Concerns
-Triggers: Except for temperature all triggers are slow acting
-When CAP water is delivered, an additional trigger will be added to cover availability of CAP water e.g. (one included in Tucson’s plan).
-No monitors on availability of Reclaimed water
-Actions:
-Are levels from which reductions are to be made well documented? e.g. (Official AZMET weather station in Oro Valley)
-Do we know who has made voluntary 10% reductions in response to Stage 1? (Oro Valley has experience 10% reductions includes growth projections), (Level 3 -Enforce possible penalties taking into account customer’s history). Chair Davis felt that a tiered water structure would take care of some of these issues.

Chair Davis metioned that Karn Boyce, Conservation Specialist reviews the precipation data every two months in Oro Valley and will have a report in the near future.

Commissioner Hoffmann asked if the Drought Response Plan had been revised. Chair Davis indicated that it was the existing plan, but would be revised in the future.

Chair Powell felt that the Conservation Subcommittee and Town volunteers were doing a good job with the Drought Response Plan and Landscape Ordinance.

Commissioner Hoffmann volunteered to forward the USGS website link referencing the drought areas and stream flow gaging stages above the watershed. He described some of the areas where the gages were located and explained that there were 272 gages statewide.

A discussion occurred about the Landscape Ordinance and its provisions.

There being no further discussions, Chair Davis ended his report.

c.
Renewable Water Resources Subcommittee          (Chair Hoffmann)

Chair Hoffmann will be planning an October meeting.

9.	STAFF REPORTS

a.
Customer Service Report               (S. Seng)

Click here for Item A.

Ms. Seng reported the following:

-New Payment Methods
On-line payments by credit card and telephone have been very sucessful. Several hundred payments have been received via phone 1-877 toll free number as well as online.

E-Billing: Still not available experiencing some networking issues. This option may be available in October.

Meter Installations: = 6 (all residential) in August   July total = 4
Year to date totals = 10    -Total EDUs = 11

Ms. Seng ended her report.

b.
Potable and Reclaimed Water System Report

Click here for Item B

Mr. Saletta reported the following:
August Reports
-Daily Demand Operations Report: Minimal precipitation detected, Demand Flow = 9.0 (MGD)
-Potable Water Operations Reports: -Potable Demand = 9 .0 (MGD) -Storage Capacity = 6.0 - 7.0 (MGD) Storage fluctuates primarily on a hourly basis
-Reclaimed Water Report: Usuage = 70.0 (MG)  Year to Date Total Usuage = 447(MG)    Last Year (2008) Total Usuage = 518 (MG)
-El Conquistador South Pond: The pond under went a leak test. Staff is in the process of reviewing these results. First level of testing indicates that the leaks could be located in the upper 2 feet level, however additional testing is still being conducted.

c.
Capital Projects

Click here for Item C

Mr. Saletta reported the following:

-Innovation Drive 16-Inch Water Main: Contract awarded to Arizona Underground Inc. Project scope: Installation of 2000 linear feet of 16 inch pipe. Start Date: End of September. Construction should be completed by the end of this year.

-New Well E-1 Drilling: Well location - Tangelo & West of 1st Ave.
Mr. Saletta presented several photos of the site - (Drill rig, water tank, drilling mud, wall sound barrier, sand & gravel samples, Drill rig & crane. Drilling was completed September 7th. The well casing is installed. Project Completion Date: End of October.

-La Canada 3.0 MG Reservoir: Public bid opening scheduled for Thursday, September 16th.
Project duration: 12 months  -Reservoir Description: A pre-stressed concrete buried reservoir. Location: Entrance of La Cholla Airpark

-Current Design Projects: -Lambert Lane water main relocation   -3 Pressure Reducing Valve (PRV) modifications -Sheraton Booster Station   -24-inch water main to connect (tie-in to the La Canada Reservoir)

Mr. Saletta ended his report.

10.	DIRECTOR’S REPORT

a.
Upcoming Meetings

Mr. Saletta reported on the following:

9/21 - Finance Subcommittee
9/28 - WUC Special meeting

A list of these meetings will be sent via email to all Commissioners.

Future Agenda items

-Year to Year Water Usage Comparison (Informational) -Commissioner Milkey
-Tour Well E1B Drilling Site - Commissioner Davis. Mr. Saletta will check with B. Jacklitch to schedule a tour sometime week of 9/21/09. Time: 5:00 p.m. Notice: A Notice of a Tour visit must be posted within 24 hours.
-Visit CAP Project Facility - Commissioner Shapiro Future Schedule: November or December

b.
State of the Town Address

9/29 - State of the Town - Location: Hilton El Conquistador, Packet inserts: Invitations to Commissioners included in their packets

CALL TO AUDIENCE

Mr. Peterson mentioned he was glad to be part of the Water Utility and proud of the Water Utility Commission’s performance. He was concerned about issues such as federal legislation and CAP water, conversion of the green water act, increase power costs, and CAP costs.

Chair Powell thanked Mr. Peterson for his comments.

NEXT MEETING: OCTOBER 12, 2009 LOCATION: HOPI CONFERENCE ROOM

ADJOURNMENT

MOTION: A motion was made by Vice Chair Davis and seconded by Commissioner Milkey to adjourn the meeting. Adjourned: 8:00 p.m.

MOTION carried, 7-0.