HomeMy WebLinkAboutAgenda Packet - EVWD Board of Directors - 06/21/2005East Valley
mL*DWater District
SPECIAL MEETING
JUNE 21, 2005 - 9:00 a.m.
EAST VALLEY WATER DISTRICT
3654 E. HIGHLAND AVE., SUITE 12, HIGHLAND, CA.
AGENDA
CALL TO ORDER
PLEDGE OF ALLEGIANCE
1. Public Comments
2. Discussion and Possible action regarding Renewal of the District's Workers'
Compensation Package.
3. East Valley Water District's Urban Water Management Study/ Conservation
Goals.
4. Discussion and Possible action regarding Estoppel Certificate received from
Highlands Star Group, LLC.
5. Discussion and Possible action regarding East Valley Water District's 2005-
2006 Budget.
6. ADJOURN
Pursuant to Government Code Section 54954.2(a), any request for a disability -related
modification or accommodation, including auxiliary aids or services, that is sought in order to
participate in the above-agendized public meeting should be directed to the District's
Administrative Assistant at (909)885-4900 at least 24 hours prior to said meeting.
Post: 06/17/05
LILBURN
CORPORATION Strategic Planning & Environmental Services
Cry, --i
May 13, 2005 =2'
�u
4,
Mr. Paul Dolter
District Engineer
East Valley Water District
1155 Del Rosa Avenue
San Bernardino, CA 92413
SUBJECT: Proposal to Prepare 2005 Update of the EVWD Urban Water Management
Plan
Dear Paul:
Per your request, Lilbum Corporation has reviewed the California Department of Water
Resources' "Guidebook to Assist Water Suppliers in the Preparation of a 2005 Urban Water
Management Plan" and prepared the enclosed proposal for the District's 2005 UWMP Update.
Plans are to be submitted to DWR no later than December 31, 2005.
Lilbum Corporation prepared the District's latest UWMP Update for the year 2000; we will use
that document as the basis for preparing the 2005 update. A review of the Guidelines document
indicates minor changes to the content of the plans but a major change to the overall document
format. Additionally, the Guidelines indicate that "suppliers that are not California Urban
Water Conservation Council signatories will show Demand Management Measures
implementation or scheduled implementation in the DMM section of their UWMP". We are
therefore recommending a broader analysis of the WDMMs than has been provided in previous
East Valley Water District UWMPs (see section 7.0 of the 2000 Update). To meet the intent of
the Guidelines, this will include items listed below.
• A discussion of each of the 14 DMMs
• For those being implemented, discuss schedule and methods used to evaluate measure's
effectiveness
• For those scheduled for implementation, describe program, schedule, and methods
proposed for effectiveness evaluation
• For those DMMs not currently implemented, or scheduled for implementation, evaluate
the incremental cost taking into account economic and non -economic factors
(environmental, social, health, customer impact, and technological factors) as well as
total benefits and total costs.
IQni P--:n01AM . ons 4on_1414 . C— ono_IlorLLQM --- --
Mr. Paul Dolter
May 13, 2005
Page 2
We have prepared a complete Scope of Work, detailed in the enclosed proposal.
As in the past, we will rely on District staff to provide much of the required data concerning
customers, water supply sources, use and demands, finances, administrative costs and rate
structures, and programs to assist in water demand management (conservation). We recommend
a start date of mid-June, 2005 so that information from the District's 2004-05 Fiscal Year and
2005-06 Budget can be incorporated into the plan. This will allow sufficient time to provide for
review and input by the public and other agencies of a Draft document, adoption by the Board,
provision of copies to surrounding cities and agencies, and submittal to DWR by December 31,
2005.
Our total estimated not -to -exceed cost for completion of the UWMP Update for 2005 is
$14,500.00. This cost will include the completion of all tasks identified in the attached Scope of
Work.
Please call me if you have any questions or concerns.
Sincerely, ,
Cheryl G —
l A. Tubbs
�Z
Vice President of Operations
cc: Bob Martin, General Manager (w/out attachments)
LILBURN
CORPORATION
Statement
"`sranding of the project
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and to - °f reliability - its regu. that eve as adopted as
all Public and private water su plement effective water water service sufficient to every
urban walter
mens or that provide more than 3 that Provide water fornagement strategies, The eet de ands
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(endingin five are nd sub - u
December 3 and zero), and sub update their Urban
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elfa plan gement ed by DWR staff to de rmineo oWaterReso every ears
gible inthho °prPorates 9Act, results are urces (DWR) by
any comments Provided evieteness puls�t to the
drought assistance and/or other received from D tR ugh a review letter.
The cu WR fun qualifies the w completeness
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District. T1i�keds' and dem Piled for the past five p1ePn8the Year 2005
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Meet the intent of the Guidelines, gV Population
Management Meas WD s 2005 Plan
include at a ures, as identified in the will be supplemented Districtminimum, a discussion o to ad
intends to - f each D Guidelines. Itis envisioned that dress Demand
scheduled for ' plement °f the 14 D
the measures t Implementation the doImplemented, For e ll d a description Of the pin will
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Customer impact and technolo n°mio evaluation of the y Implemented, or
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Scope of Work ) as well as total benefits and of (environmental social, health,
The following tasks will be performed in
P1n;
updating the District's current Urban Water Dina
Task 1: Pro•ect
Kick-off Meetin gement
An initial Project sco
cooperativeI Ping meeting will be
Y determine the need for c held with the
the District conce �
mind ollecting additional data in oto evaluate available
Programs, = the current water co
water supply and de nsery data and
muni data, er ation po r t, 'On will be gathered from
P°pulation/land)' rate structures, public education
use data. A review of potential
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concerns of customers and the general public will also be conducted. The intent of the meeting will
be to ensure all issues are understood prior to undertaking any data collection efforts. DWR has
compiled a checklist for their use in plan reviews; this will be used as the basis for data collection
needs.
The District may wish to notify the public that the plan update is underway and that comments
regarding long-range water supply planning and water conservation may be accepted. We will also
identify agencies to be involved in the planning process, and/or that will provide relevant water
supply and planning data (e.g. City of San Bernardino, City of Highland, San Bernardino Valley
Municipal Water District).
Task 2: Prepare Draft UWMP
The UWMP will be updated to the current year and provide for a 2005 Plan, with a 20 -year planning
horizon (optional 25 -Year). Information required in the current DWR Guidelines will be compiled
by section as listed below.
Section 1: Agency Coordination
This section of the Plan will discuss information regarding participation in area, regional, watershed
or basin -wide plans and the anticipated benefits. We will contact other water suppliers, water
management agencies and other relevant public agencies to request input to the Plan's development.
In accordance with the Guidelines, others will be notified when the Draft UWMP is available for
review. Water management tools (e.g. participation in or use of other regional plans) to maximize
resources and reduce reliance on imported water will be discussed.
Section 2: Service Area Information and Proiections
A discussion of the District's service area population, with projections for 20 years at 5 -year
increments will be provided. We will use information provided by the City of Highland and the
Southern California Association of Governments (SCAG). Other demographic data affecting water
management such as housing density, projected land use growth, and income levels should be
included and will be collected from the City of Highland and County of San Bernardino. This section
will also include a discussion of climatic conditions (e.g. temperature, ETo, and rainfall); data will be
gathered from the County and any records kept by the District.
Section 3: Water Sources
This section will include an identification of existing and planned water supply sources, with
projections for 20 -years at 5 -year increments. Since the District's primary source of water is
groundwater,.the following shall also be included:
• Describe groundwater basin and whether in overdraft
• Identify any groundwater management plans
• Describe and analyze location, amount, and sufficiency of groundwater produced over past
five years
• Describe and analyze location, amount, and sufficiency of groundwater projected to be
produced
Section 4: Reliability of Supply
We will use historic records to determine single -dry and multiple -dry periods for each watershed
from which the District receives a water supply (e.g. Santa Ana River watershed and State Project
Water). The intent is to show reliability (or vulnerability) of the supplies based on seasonal or
climatic shortages. If shortages are identified, the Plan will include actions and quantities required
for replacing or supplementing existing water supplies.
Section 5: Transfer and Exchange Opportunities
A description of opportunities for water exchanges and transfers will be included. The quantities
associated with any proposed agreements as well as the terms of the agreements) will be addressed.
This may also include exchanges for purposes of improved water quality or cost reductions. The
UWMP Act encourages suppliers to explore how transfers/exchanges could improve the reliability,
quality, financial health, or other factors of their water supply.
Section 6: Water Use by Customer Type
The past, current, and projected water uses by customer type will be shown to indicate growth
pattems and assist in projecting future water demands. General Plan and zoning data from the City of
Highland will be used for the 5 -year incremental projections. This section will also quantify sales to
other agencies, unaccounted for water, and additional uses and losses.
Section 7: Demand Management Measures
This section will include a description of the fourteen Demand Management Measures compiled by
DWR and discuss whether they are being implemented, or proposed for implementation by the
District. We propose to complete a spreadsheet for any DMMs that could feasibly by considered by
EV WD in the future as well as for those presently being implemented.
Justification for not considering certain of the DMMs will be provided in this section. Justification
takes into account economic and non -economic factors, including environmental, social, health,
customer impact, and technological factors.
.�d., •'°pix ±,�'. .
Section 8: Planned Water Supply Proiects and Programs
This section will document any water supply projects/programs that will assist the District in meeting
the total projected water use. These will be programs identified in addition to any DMMs. Any
programs under consideration will include projected water supply increases, schedules, and costs.
Section 9: Development of Desalinated Water
Any opportunities for the development of brackish water or groundwater requiring desalination for
potable use or irrigation use will be identified and supplies quantified
Water Shortage Contingency Plan
The UWMP is also required to include an urban water shortage contingency analysis and an
evaluation of alternative measures and water supply improvement actions in order to ensure a long-
term reliable water supply. Lilburn Corporation will include EVWD's current Contingency Plan
along with any updates that may have occurred during the past five years.
Recycled Water Plan
To the extent any recycled water supply opportunities may exist with the San Remardino Regional
Wastewater Treatment Plant, these supplies will be identified and quantified.
Water Oualitv Impacts on Reliability
Any future impacts to the water supply, from water quality will be projected, in five-year increments.
Task 4: Prepare Draft UWMP
A preliminary Draft UWMP to be reviewed by the District will be prepared. Staffcomments will be
incorporated into the Draft document that will then be available for a public hearing.
Task 5: Public Hearing
A public hearing will be scheduled by the District's Board of Directors prior to the Plan's adoption.
We will attend the hearing and if requested, summarize the findings, conservation measures
proposed, and associated costs and other impacts.
Task 6: Prepare Final Plan
Following the public hearing, we will meet with District staff and discuss any necessary changes to
the plan. A Final UWMP will be prepared for the Board's adoption. The Final UWMP should be
filed with DWR within 30 days of adoption.
0
Schedule and Milestones
We recommend a start date of mid-June, 2005 so that information from the District's 2004-05 Fiscal
Year and the FY 2005-06 Budget can be incorporated into the plan. This will allow sufficient time to
provide for review and input by the public and other agencies of a Draft document, adoption by the
Board of Directors, provision of copies to surrounding cities and agencies, and submittal to D WR by
December 31, 2005. We anticipate a draft document to be completed by September 16, 2005. The
timeline between data collection and completion of a draft document is extended to provide
sufficient staff time to compile data, during the summer months when schedules often include
holiday/vacation time.
PROJECT SCHEDULE — MILESTONE DATES
Authorization to Proceed
June 13, 2005
Kick-off Meeting/Begin Data Collection
June 27, 2005
Meeting with Other Agencies
July 20, 2005
Complete Preliminary Draft of UWMP
September 16, 2005
Staff Review Completed
October 5, 2005
Incorporate Staff Comments
October 14, 2005
Review Complete By Other A encies
October 31, 2005
Incorporate Agency Comments
November 11, 2005
Complete Final UWMP
November 21, 2005
Public Hearing
December 6, 2005
File UWMP With DWR
December 20, 2005
Project Cost
Our total proposed not -to -exceed cost for completing EV WD's 2005 Urban Water Management Plan
Update is Fourteen Thousand Five Hundred Dollars ($14,500.00). Details of labor and expense costs
are provided below.
Staff
Labor/Expense
Classification
Total
Hours
Rate/Hour
Total Cost
Cheryl Tubbs
Principal
76
$170
$12,920.00
Troy Goodwalt
Graphic Design Manager
6
$85
510.00
Mary Jones
Document Production Mgr.
12
$58
696.00
Other Direct Costs
374.00
TOTALS
106
$14,500.00
Hours include preparation of Draft and Final documents, attendance at EVWD staff meetings
(includes two), attendance at one public hearing, and meetings with other agencies (includes two).
Other Direct Costs will include travel expenses for meetings with staff and other agencies, document
production, and mailing.
DATA REQUESTED FOR PREPARATION OF 2005 UWMP UPDATE
Current Service Area Population
Map of Sphere of Influence and Current Service Area
Boundaries
Rainfall Records Kept
-Any
Current & Projected Water Supplies
Groundwater Management Plans
-Regional
Groundwater Production from Past 5 Years
Available Groundwater/Surface Water Supplies
for Water Exchanges and Transfers
-Opportunities
Water Use by Customer/Meter Type for Past 5 Years
Sales to Other Agencies for Past 5 Years
Unaccounted for Water for Past 5 Years
Other Uses or Losses for Past 5 Years
-Any
Planned Water Supply Projects and Programs (Schedules &
Costs
Water Shortage Contingency Plans or Ordinances
Water Ouality Impacts on Water Supply Projections
Current FY Budget and CIP
DEMAND MANAGEMENT MEASURES.
IMPLEMENTATION
Yes
No
or those implemented, need description & cost data
1. Residential Water Survey Programs
2. Residential Plumbing Retrofit Programs
3. System Water Audits/Leak Detection & Repair
4. Metering with Commodity Rates for New & Retrofit
Connections
5. Large Landscape Conservation Programs or Incentives
6. High -efficiency Washing Machine Rebate Programs
7. Public Information Programs
8. School Education Programs
9. Commercial, Industrial & Institutional Customer Conser-
vation Programs
10. Wholesale Agency Preograms
11. Conservation Pricing
12. Water Conservation Coordinator
13. Water Waste Prohibition
14. Residential Ultra-low Flush Toilet Replacement
-Program
OTHERS
Desalinated Water Programs Proposed
Recycled Water Programs Proposed
Yucaipa Valley Water District
12770 Second Street, Yucaipa, California 92399
Water; Sewer and' Recycled Water
Rate Analysis
April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
Table of Contents
ExecutiveSummary ......................................................................................................................3
1. Introduction.......................................................................................................................5
1.1.
Overview of the Yucaipa Valley Water District......................................................6
1.1.1. Land Use Within the District......................................................................6
1.1.2. Governance and Management..................................................................6
1.1.3. Development Impact Fee Overview...........................................................8
1.1.4. Supplemental Water Purchases in 2004 and 2005 ...................................9
1.2.
Common Questions and Answers.........................................................................9
2. Economic Assessment....................................................................................................13
2.1.
The Economic Nature of Utility Operations.........................................................13
2.2.
Basis of Accounting in Utility Operations.............................................................13
2.3.
Fiscal Year 2004 Audited Financial Statements..................................................14
2.4.
Evaluation of Current Financial Condition...........................................................16
2.4.1. Net Operating Revenue Analysis.............................................................16
2.4.2. Capitalization Ratio Analysis...................................................................16
2.4.3. Rate of Return Analysis...................:.......................................:................16
2.4.4. Depreciation Analysis..............................................................................17
2.4.5. Comparison of Capital Assets.................................................................18
3. An Assessment of Projected Revenue Requirements....................................................19
3.1.
Current and Projected Customer Base................................................................19
3.2.
Evaluation of Water Demands.............................................................................21
3.3.
Operating Expense Projections...........................................................................22
3.3.1. Water Division Expense Projections........................................................23
3.3.1.1. Cost of Supplemental Water Supply - SBVMWD...................23
3.3.1.2. Cost of Supplemental Water Supply — SGPWA.....................24
3.3.2. Wastewater Division Expense Projections..............................................24
3.3.3. Recycled Water Division Expense Projections........................................25
3.4.
Capital Expenditures and Debt Service Obligations............................................25
3.4.1. Water Division Capital Improvement Projects.........................................25
3.4.1.1. Yucaipa Valley Regional Water Filtration Facility...................25
3.4.1.2. Non -Potable Water System Improvements ............................26
3.4.1.3. Potable Water Distribution System - Storage Reservoirs ......26
3.4.1.4. Potable Water Distribution System - Pumping Facilities ........ 26
3.4.1.5. Potable Water Distribution System - Transmission Pipelines 26
3.4.1.6. Potable Water Distribution System - Distribution Pipelines....
27
3.4.1.7. Potable Water Distribution System - Wells ............................27
3.4.2. Wastewater Division Capital Improvement Projects................................27
Page 1 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
3.4.2.1. Wastewater Treatment...........................................................28
3.4.2.2. Western Regional Interceptor Facilities.................................28
3.4.2.3. Lit Station Improvements......................................................28
3.4.2.4. Wastewater Collection System..............................................28
3.4.3. Debt Service Obligations.........................................................................29
3.5. ERAF III and the Implications for YVWD.............................................................29
3.5.1. California Property Tax Overview............................................................29
3.5.2. Educational Revenue Augmentation Fund III (ERAF III) .........................30
3.5.3. Overview of Property Tax Revenues for YVWD......................................32
4. Summary of Rate Structure Changes.............................................................................34
4.1. Assembly Bill 2115 — Property Tax Shift.............................................................34
4.2. Water and Wastewater Overview........................................................................34
4.2.1. Water Division..............................................................................:...........36
4.2.2. Wastewater Division................................................................................36
4.3. The YVWD Financial Rate Projection Model.......................................................37
4.3.1. Future Conditions and Projected Parameters..........................................38
4.3.2. Water Division Analysis...........................................................................38
4.3.3. Wastewater Division Analysis..................................................................39
4.3.4. Recycled Water Division Analysis...........................................................39
4.3.5. Important Elements Included and Not Included in Rate Analysis ............
39
5. Attachments:
Attachment A Proposed Resolution No. 13-2005 ............................................40
Attachment B Resources & Citations Utilized in the Preparation of this
RateAnalysis............................................................................54
Attachment C H.R.1008..................................................................................55
Attachment D State and City Gives & Takes since Proposition 13 ..................59
Attachment E ERAF III Shift Confirmation.......................................................65
Attachment F Water Related Regulations.......................................................67
Page 2 April 29,
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
Executive Summary
At the board workshop on November 8, 2004, the District staff presented a proposed
supplemental water rate structure for the purpose of purchasing imported water from San
Bernardino Valley Municipal Water District and San Gorgonio Pass Water Agency. Upon
discussing this proposed rate structure, the Board recommended that District staff prepare a
more comprehensive rate analysis that takes into consideration, not only supplemental water,
but also all proposed projects, regulatory requirements, inflation, customer growth, system
demands, and other related issues. District staff completed the comprehensive financial report
and rate analysis which was provided to the board and the public at a workshop on March 23d.
This rate analysis was further refined with input from the public and board members at
subsequent workshops on March 28"', April 7d', April 11d', April 18d', April 25th and May 2nd.
The reason for preparing this comprehensive rate analysis is primarily due to the following
significant financial issues experienced by the District:
• The District lost over $2.2 million in property tax revenue to the State of California as a
result of ERAF III in fiscal years 2005 and 2006. While the District is pursuing legislation
for the early reinstatement of property taxes in fiscal year 2006, the District is
anticipating a total loss of $2.2 million with the return of the property tax increment
beginning again in fiscal year 2007.
• The District is purchasing supplemental water supplies from San Bernardino Valley
Municipal Water District and the San Gorgonio Pass Water Agency to offset current
groundwater, production as a method of making our water resources more reliable.
During 2005 and 2006, the District will operate an interim water filtration facility to help
meet projected water demands.
• The District is required to upgrade the wastewater treatment plant to meet stringent
nitrogen limits and to prepare for the addition of reverse osmosis technology pursuant to
the basin plan adopted in late 2004. The facilities necessary to meet the new nitrogen
requirements are expected to cost $27 million. The District has not budgeted for the
costs associated with the reverse osmosis facility that will be required in the future.
• The District is experiencing significant overall increases in expenses such as prevailing
wages, concrete, steel, fuel, workers compensation, pension payments, etc...
► The District's workers compensation expenses have increased from $52,666 in 2001
to $335,297 in 2004. This represents an overall increase of 537%.
► At the wastewater treatment plant, the District has experienced:
• A 9% annual increase in biosolid disposal rates over the past five years; and
• A 17% annual increase in the cost of disinfection related chemicals.
• The District is required to construct facilities to remove water from San Timoteo Creek to
meet the basin plan requirements. This pipeline project is estimated to cost $17.5
million. This pipeline will allow the District greater access to recycled water and
minimize future NPDES related costs.
This rate analysis is intensely comprehensive due to the fact that it incorporates the
implementation of numerous financial, environmental, regulatory and long-term visionary
policies into one document that can be used as a tool to communicate with the public.
Specifically, this document includes numerous policy discussions that are presented in such a
manner that allows the public to understand the broad concepts and how each issue is
intertwined with other issues in the general operation of the District. It is not the intent of this
document to secure or promote full funding for all policies discussed. Rather, the intent is to
Page 3 April 29,
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
show that the District is a complex and multifaceted business with the responsibility of protecting
and enhancing the infrastructure that is required to promote the local and regional economy and
overall quality of Iffe of our customers. Throughout this document, the following policies will be
addressed:
• Maximization of the protection of the groundwater basins with respect to quality and
quantity of available water;
• Development of a regional recycled water project with the capability to integrate
additional water supplies to enhance the drought tolerance of the entire community;
• Implementation of reasonable depreciation planning consistent with the requirement of
asset management included in GASB 34;
• Implementation of methods for increasing the reliability and redundancy of various local
water resources;
• Achievement of full compliance with the Regional Water Quality Control Board and State
Water Resources Control Board basin plan objectives and maximum benefit analysis;
• Ability to implement a wireless grid for interactive facility control and customer meter
monitoring;
• Establishment of methods to improve communications with customers;
• Clearly identified classifications for development impact fee scenarios based on the type
of development;
• Implementation of alternative customer payment methods;
• Implementation of rate stabilizing alternatives;
• Construction of regional recycled water facilities which will minimize the future cost
impacts associated with environmental regulations and NPDES permits;
• Full recovery of costs associated with delinquent payment liens; and
• The establishment of benchmarking tools to cgntinuously evaluate the financial health of
the organization.
In summary, the goal of the District is to provide a fair and reasonable financial plan that invests
in the community we serve. Perched in the upper portion of the Santa Ana Watershed between
the San Andres and San Jacinto fault lines, we are constantly reminded that the region we
serve is both beautiful and unique. The challenges we face are not the same, or in some cases
even remotely similar, to our neighboring agencies. Therefore, it is incumbent upon the
leadership of the Board and management staff to direct the District in such a manner to remain
committed to professionally manage the precious water, wastewater and recycled water
resources of the Yucaipa Valley in a reliable, efficient and cost effective manner in order to
provide the finest service to our customers.
Joseph B. Zoba
General Manager
Page 4 Aprll 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
1.0 Introduction
The Yucaipa Valley Water District is made up of a proactive and diverse group of elected
officials and employees dedicated to providing reliable water and wastewater service in an
efficient, cost effective manner that provides a high level of customer satisfaction. On May 1,
2002, the Board of Directors adopted the following mission statement to clearly reflect the vision
and principles that guide the dedicated elected officials and employees of the District.
Yucaipa Valley Water District is committed to professionally managing the
precious water, wastewater and recycled water resources of the Yucaipa Valley
in a reliable, efficient and cost effective manner in order to provide the finest
service to our customers, both present and future.
We are entrusted to serve the public for the benefit of the community.
We believe in responsive, innovative and aggressive service, and take pride in
getting the job done right the first time.
We encourage a work environment that fosters professionalism, creativity,
teamwork and personal accountability.
We treat our customers and one another with fairness, dignity, respect and
compassion and. exhibit the. utmost integrity in all we do.
We believe in enhancing the environment by following a general philosophy of
eliminating waste and maximizing recycling and reuse of our natural resources. '
We are committed to using the following operating principles as a guide to
accomplishing our mission:
• We are proactive in our approach to issues.
• We are committed to integrity and consistently high ethical standards in
all our business dealings.
• We use the strategic planning process to focus our efforts and minimize
our crisis management mode.
• We make informed, rational and objective decisions.
• We aggressively pursue technological solutions to improve operations.
• We are inclusive in our decision making and delegate responsibility
whenever possible.
• We design our services around customer wants and needs to the degree
possible within our financial and regulatory constraints.
• We cultivate widespread commitment to common goals.
We believe our success depends on every employee knowing and sharing these
values and principles
This comprehensive Water, Wastewater and Recycled Water Rate Analysis has been prepared
with the District's mission statement in mind to link the financial health of the District with our
commitment to professionally manage the precious water, wastewater and recycled water
Page 5 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
resources of the Yucaipa Valley in a reliable, efficient and cost effective manner in order to
provide the finest service to our customers, both present and future.
To meet the mission of the District, the Board and staff members continue to proactively focus
on water quality issues, water supply issues, infrastructure deficiencies, maintenance of existing
systems and compliance with increasingly stringent regulatory requirements.
1.1 Overview of the Yucaipa Valley Water District
The Yucaipa Valley Water District was formed as part of reorganization, pursuant to the
Reorganization Act of 1965, being Division I of Title 6 of the Government Code of the State of
California. This reorganization consisted of the formation of the District, dissolution of the Calimesa
Water District and formation of Improvement District No. 1 of the District as successor -in -interest,
and dissolution of Improvement District "A" of the San Bernardino Valley Municipal Water District
and the formation of Improvement District "A" of the District as successor -in -interest. On
September 14, 1971, the Secretary of State of the State of California certified and declared
formation of the Yucaipa Valley County Water District. The District operates under the County
Water District Law, being Division 12 of the State of California Water Code (the "Act"). Although
the immediate function of the District was to provide water service, the District has assumed
responsibility for providing recycled water and wastewater service in Yucaipa Valley.
The District is located about 70 miles east of Los Angeles and 20 miles southeast of San
Bernardino in the foothills of the San Bernardino Mountains and has a population of approximately
48,350. The District is situated in both San Bernardino County and Riverside County.
1.1.1 Land Use Within the District
The altitude of the District rises from about 2,000 feet above sea level at the western end of the
valley to about 5,000 feet at the eastern end, with average elevation of roughly 2,650 feet. The
topography of the area is characterized by rolling hills separated by deeply entrenched stream
beds, namely, the Yucaipa and Wilson Creeks. The District includes the incorporated cities of
Yucaipa and Calimesa which are in San Bernardino and Riverside Counties respectively.
The District projects that the undeveloped land within its boundaries will continue to be developed
consistent with the general plans as provided by the City of Yucaipa and the City of Calimesa. The
projected population of the District in the year 2030 will be approximately 94,800, which reflects
buildout of the City of Calimesa and the Oak Valley development. Although approximately 49.8%
of the land within the boundaries of the District is currently undeveloped, less than 1% of District
water sales are to agricultural water users.
1.1.2 Governance and Management
The District is governed by a 5 -member board of directors (the "Board"), the members of which are
elected from five separate divisions of the District for staggered 4 -year terms.
Page 6 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recyded Water Rate Analysis
(SetwY/In
Division Boundaries
yr
`iy^ti'4S',v,`•,Kii....�-%=r<>_�.c +�y r,"+1. t"'F' -'J,J�
:�; int • .�. - -r.'{ "`14f c�r: " - � � ' �. ..._
'•`:-:•, �`'i:'?��".-ttt,�
The current Board members and their occupations are provided below.
Member of the
Division
Initial Date
Occupation
Board of Directors
Geno Gasponi
of Service
Conrad Nelson
Bruce Grenlund, President
Two
12/23/1998
Senior District Attorney Investigator
David Lesser, Vice President
Three
11/28/1989
Engineer
Tom Shalhoub, Director
One
1210511997
Retired Entrepreneur
Henry Wochholz, Director
Five
11/03/1971
Retired Bank Executive
The following individuals have served as President of the Board since the District was created in
1972.
Yucaipa Valley Water District
December 1973 to November 1975
Hank Wochholz
January 1992 to November 1993
David Lesser
December 1975 to October 1977
Geno Gasponi
December 1993 to December 1995
Conrad Nelson
November 1977 to November 1979
Eve Kraft
December 1995 to December 1998
Steve Copelan
December 1979 to December 1983
Pete Squires
January 1999 to November 2002
Conrad Nelson
January 1984 to December 1987
Fred Childs
December 2002 to Present
Bruce Granlund
January 1988 to November 1989
Georce Sardeson
Page 7 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
Day-to-day management of the District is delegated to the General Manager who works closely
with an executive team who ultimately oversee all of the District's services and functions.
Directors DMslon 1 N Ohectw-MyWIW ]' I gretla-ONbbn 7 I I Dhecror DMebn 4 0 Obedw
Joeapb Zoba
Geearel Manage
Karan Het
ExewlNe sawetey
Jack Nalece
Asslebd General
Manage
De" Manage - Water
Rewurces
Vkky E6Mda
DisMd Conta ge
Charge Bale'
OpWagons Manage
Anton
E enerhp Naiad
Manager
• Water Produatlon
. Ac ntfing
• llUdty Sev
. rAnsbYCtiM
• Water TreeMee
• Cue,hxrarsedoa
. Meter Services
Manapenara
• Web GuaMy
• Paymn services
• Valve Mahaenanoe
• Pa7ect PlenNng
. VFadewakr TruMent
. Ansat Mersrsenerd
• Hydrant M•bBenanee
• Devalopnent Phmlag
• Recyded Water
• Envhenn,emd Sneaa
• OISIModMng
• Reauierey Cwraearae
g0
. MWOUNUU a of Water.
• Plan Cbek a
• Indusobl PabmNunt
Wed aea and
ReLycw web
Inspection
per year. This annual
60
1.1.3 Development Impact Fee Overview
The District charges each new unit a development impact fee for water, wastewater and
recycled water service. This fee is used to offset the capital cost of the water, wastewater and
recycled water facilities needed to provide service all new customers regardless of their
classification — residential, schools, parks, or businesses. The development impact fee is
calculated based on a common residential unit, therefore it is common to see in this report
references to equivalent dwelling units, which takes all users and equates their demand on the
infrastructure as the equivalent of one or more dwelling units.
Over the past three years, the pace of new development within the District has continued at a
moderate pace, not as fast as other local areas such as Beaumont and Fontana. The pace of
development over the past 36 months has averaged 45 water equivalent dwelling units per
month and 48
wastewater
140
equivalent dwelling
120
units per month. This
development pace
too
results in a total of
w
g0
540 to 576 dwellings
per year. This annual
60
rate of development
40
may be sustainable
based on the future
20
growth rate within the
o
District consideringN
s
N N N N N
a o g g g q a,
1 M M M M ) V a p
g 4 q g g, g 4;
the current state of
ae
ae
the Oak Valley
(0z 2 rn z
rn z
®# of Water EDUs Paid
®# of Wastewater EDUs Paid
April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
Project, JP Ranch and the remainder of the Chapman Heights Development.
For fiscal year 2004, ending June 30, 2004, the District received $1,706,991 in water
development fees for 617 Equivalent Dwelling Units (EDUs) and $2,608,454 in wastewater
development fees for 621 Equivalent Dwelling Units (EDUs).
600
500
400
300
200
100
Water Development Impact
Fees Received In FY 2004
Ummmm# of EDU§ Paid per Moth
Cummulative # of Fees Collected
- - - 242 Water Fees Collected In FY2001
591 Water Fees Collected In FY2002
535 Water Fees Collected in FY2003
Wastewater Development
Impact Fees Received in FY 2004
800
500
400
300
200 - - -
100
0'
# of EDU's Paid per Month
Cummulahv # of Fees Collected
- - - 238 Sewer Fees collected in FY2D01
—470 Sewer Fees Collected in FY2002
558 Sewer Fees Conecled in FY2003
1.1.4 Supplemental Water Purchase in 2004 and 2005
In 2004, the District purchased supplemental water from San Bernardino Valley Municipal Water
District for direct delivery (in the recycled water system) and for spreading activities. The
District purchased 1,200 acre feet of water for direct delivery into the non -potable water system
at a cost of $125.80/AF, or $150,960 which was paid for by the District's recycled water
customers. An additional 1,800 acre feet of imported supplemental water was purchased for
recharge of our groundwater basin at a cost of $118.40/AF, or $213,120.
In 2005, the District purchased 2,140 acre feet of supplemental water from San Bernardino
Valley Municipal Water District for a sum of $269,212 and 555 acre feet of supplemental water
from the San Gorgonio Pass Water Agency for $77,145.
1.2 Common Questions and Answers
This comprehensive Water, Wastewater, and Recycled Water Rate Analysis has been prepared
to evaluate the overall rate structure and components for the services provided by the District.
Specifically, the services of drinking water, sanitary sewers and non-potable/recycled water will
have been reviewed for all users in the residential, commercial, institutional and industrial
sectors. Funding for these critical services within the Yucaipa Valley are recovered from those
who use the service - that is, a "user pay" basis. Use is measured by the water meters (both
potable and recycled) installed on the water supply to your home/business and on a fixed basis
for those customers connected to the sanitary sewer. The following questions and answers
have been prepared to help explain how the future rates will need to address system growth,
regulatory changes and full cost accounting principles applied to the District and commonly
Page 9 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
used for governmental agencies even though the District is managed and operated more like a
private business.
Why change the existing rate structure?
The District maintains a very cost effective rate structure designed with our customers in mind.
Unfortunately, the District has recently encountered a series of local, regional and statewide
issues that require the District to complete a comprehensive analysis of our current rate
structure. In summary, some of the issues pressuring the District's existing rate structure
include:
• Statewide Issues — ERAF III diverted over $2.2 million in local property taxes previously
received by the District to balance the budget of the State of California. See Section 3.5
for additional information.
• Regional Issues — In 2004, the State Water Resources Control Board approved the
Basin Plan for the Santa Ana Region of the Water Quality Control Board. This regulation
requires the District to maintain groundwater quality similar to the quality that existed in
the late 1960's and early 1970's. In the near-term, this regulation will require the District
to implement nitrogen and TDS reduction strategies immediately on water supplies and
wastewater discharges. In the next decade, the District will be required to construct
facilities necessary to remove salt molecules from the water and wastewater supply to
protect the local groundwater supplies.
• Local Issues — The District continues to experience accelerated costs associated with
the operation.and maintenance of the water, wastewater and recycled water systems.
Specifically, the District's finances have been negatively impacted by accelerated steel
costs, fuel costs, construction costs, biosolids handling costs, and supplemental water
purchases.
In summary, as a result of stringent regulatory requirements placed upon the District's
wastewater treatment process and water filtration process, and the integrated approach to solve
water/wastewater quality and quantity issues with an aggressive investment in local
infrastructure, the District has determined that it is necessary to adjust the water, wastewater
and recycled water rates.
What will be accomplished by adjusting the rates?
The District has designed the proposed rate structure and full-sized billing to accomplish the
following goals:
• Improve overall revenue stability of the District;
• Enhancement of the ability to discuss the complex issues of the District with our
customers by providing details to allow our customers to better understand the individual
cost elements included in the water, wastewater, and recycled water rates;
• Modification of the billing units and fixed costs to allow for a more natural system based
on the cost per day and cost per 1,000 gallons for services provided by the District.
Why are the Yucaipa Valley Water District's water rates different from other
municipalities?
Water and wastewater rates are a function of costs and how those costs are recovered. There
are specific characteristics unique to each municipality's utility operations and differing
regulatory requirements based on geographical location and service population. Yucaipa Valley
District currently draws water from local groundwater wells but is progressing towards a more
Page 10 ApH129,2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
diversified water supply system relying on groundwater, local surface water, recycled water and
supplemental water supplies. This resource mix has been planned for over the past forty years
and is now coming to fruition to provide our local community with the highest quality water
resources available in a cost effective and reliable manner.
Additionally, the District operates a water and recycled water system over a very unique
topographical area. Consider for a moment that the District office on Second Street is
approximately 70 miles inland from the Pacific Ocean and at an elevation of 2,000 feet above
sea level. If you compress this 70 mile distance into a five mile distance keeping the 2,000 feet
in elevation change the same, this would represent the working conditions of our water supply
system. It takes a great deal of non-renewable energy to move water up in elevation, and
likewise, it takes a great capital investment to collect surface water from the upper elevations of
the District (when available) and transport this local water supply to the area of water demand.
Overall, the District operates a truly unique water delivery system that is more complex than
most other water providers in the region.
Why are the Yucaipa Valley Water District's wastewater rates different from other
municipalities?
The District discharges wastewater and utilizes recycled water in the Yucaipa and San Timoteo
Water Management Zones as defined by the basin plan adopted on October 2004 by the State
Water Resources Control Board and the maximum benefit analysis approved by the Regional
Water Quality Control Board Ili April 2005. Located ,at the top of the Santa Ana Watershed,
these management zones, or groundwater basins, are highly coveted as superior groundwater
quality that must remain pristine.under the Porter -Cologne Act. This means our wastewater
treatment requirements are more stringent than most, if not all other municipalities in southern
California. While some communities achieve an economy of scale by having fewer, larger
wastewater treatment plants, the District needs to maintain smaller, sub -regional facilities to
effectively deal with the severe topography of the area. There are many other variables
included in the District's wastewater costs, but the examples above highlight some unique
aspects of the District's operations.
What factors does the District consider when setting water, wastewater and recycled
water rates?
Since the District acts more like a business than a classical government bureaucracy, cost
recovery is a key consideration in our rate review. Other factors in the proposed rate structure
include revenue stability, conservation, fairness, economic development, competitiveness,
financial sufficiency, cost recovery, ease of implementation and understanding. As the focus or
importance of these factors change, the rate structure will be changed as well.
When would the new rate structure likely take effect?
The proposed rate structure requires Board approval. To ease the impact on property owners,
tenants, and businesses and allow customers time to plan for rate adjustments, the structure
includes adjustments over a long period of time, starting on June 1, 2005.
Why is there a multi-level rate structure on water rates for customers?
The main objectives of the multi-level rate structure is to:
Page 11 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
• encourage conservation; and,
• recover the costs associated with peak use from customers who place a heavier
demand on the system.
The average residential customer consumes about 33 hundred cubic feet or 25,000 gallons of
water per month. The multi-level rate structure includes rates that are increased for excess
consumption which affects the above average users as well as lower tiers designed to benefit
water users who practice effective conservation.
How would the current and proposed rate structure compare for residential customers?
There are two components to the proposed water and wastewater rate structure.
Fixed Charges - A monthly fixed charge has been established to cover the fixed costs
regardless of the amount of water consumed or wastewater discharged. These fixed costs in
the water division represent a small percentage of the overall Districts water revenues, currently
15%. The wastewater monthly charge is a fixed fee since the operation of the biological,
mechanical and filtering systems of the wastewater treatment plant must continue to operate 24
hours per day 7 days per week regardless of whether a customer is home, at work or on
vacation.
Consumption Based Charges — A consumption based charge on water and recycled water
service has been adopted to charge customers proportionally to the amount of water they use.
This multi -tiered consumption charge is used to assist in conservation and fairly allocate the
cost of water based on consumption.
Will the District reevaluate the costs included in this proposal?
The District staff will be reviewing the information in this document at least twice per year. The
first review begins in late winter/early spring and concludes with the adoption of the District's
budget in June. The second review occurs with the completion of the financial audit report
prepared during the summer with Board review and adoption in September.
How can I become more Involved In the activities of the District?
As a consumer, resident or business owner, the best way to become involved in the activities of
the District is to subscribe to our regular meeting agendas. This can be done through our
website at www.vvwd.dst.ca.us. The regular committee meetings, workshops, and board
meetings are conducted as public meetings and scheduled late in the day and evenings to
encourage pubic participation. Also, local government is one of the most effective forms of
government since your elected officials and the majority of District employees are also your
neighbors. Please feel free to provide us with questions, comments or concerns.
April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
2.0 Economic Assessment
An important component in the economic evaluation of a municipal service provider is to begin
by understanding and evaluating the overall financial health of the District. This section briefly
reviews and evaluates the historical and future economic assessment for providing service to
the community.
2.1 The Economic Nature of Utility Operations
Public utility operations, such as the District's water, wastewater and recycled water operations,
provide a service to the community which is essential to public health, protection of the
environment, and the local economy. Public utility operations differ from most other types of
business entities in that they are highly capital intensive; in capital construction; capital
operation/maintenance; and capital replacement. This means that a large amount of capital
investment is required to begin and operate a utility compared to most other businesses.
The large amount of capital required to fund a utility, combined with operating labor, insurance
and other costs of operation which do not vary with consumption of water consumed, means
that a majority of the costs incurred by a utility (typically 70 to 90 percent) are fixed. Fixed costs
are incurred whether or not customers consume water or dispose of wastewater, and are
associated with providing the availability of service at the point of consumer use. A smaller
proportion of a utility system's cost is variable and changes with the volume of water consumed
or quantity of wastewater treated (i.e. the cost of chemicals, power for treatment and pumping,
etc.). Due to the large amount of capital required to build and operate a water, wastewater and
recycled water utility, most public utilities are monopolies in their service areas.
Financing is often required to construct facilities; those providing the capital should receive a fair
return on invested funds. Public policy has been established to provide a fair return on invested
funds to customers of a pubic utility through relatively low water, wastewater and recycled water
rates. These lower rates generally result from the fact that: 1) public utilities do not pay federal
income taxes; 2) public utilities receive lower interest rates on financing through tax-exempt
bonds; and 3) public utilities do not have to pay dividends to stockholders. Operating funds of a
public utility in excess of operating expenses and debt service on financing can be re -invested
in the utility system. This reduces the need to finance additional capital and, thus, allows utility
rates to be set at a lower level.
2.2 Basis of Accounting in Utility Operations
Significant differences exist between the cash and accrual basis of accounting in utility
operations. Many public utilities prefer to set rates on the basis of cash requirements. This
helps to keep rates at lower levels in the short term. The cash basis includes only cash
expenditures of a utility and does not include an allowance for depreciation expense.
Depreciation, however, is a significant means of developing cash reserves for future payas-
you-go capital investment and replacement. Publicly owned utilities generally use the accrual
basis of accounting for financial reporting. This method includes depreciation as an operating
expense, and identifies an appropriate rate of return which the utility can earn on its investment
in the system assets. Under the accrual basis, depreciation expense (a non-cash item) is
included as an operating expense.
Page 13 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
The District's Audited Financial Statement is conducted on an accrual basis in accordance with
the Generally Accepted Accounting Principals (GAAP) and standards promulgated by the
Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards
Board (GASB). However, because the District prepares its budgets and long-range capital
planning on a cash basis, a cash basis is utilized for this study.
2.3 Fiscal Year 2004 Audited Financial Statements
Historical income and expense data for the District have been compiled from the Audited
Financial Statements for FY 2004. A couple of brief notes may help to explain this financial
summary to customers not familiar with the District's operating statement.
• Depreciation Expense - The following financial statement is provided with depreciation
listed as an operating expense, both funded and unfunded portions. Most utilities when
they examine this type of information do not always list depreciation as an expense
since it is a non-cash expense. However, in order to be perfectly truthful, honest and fair
to our customers, it is important to convey the fact that not all of the appropriate
depreciation is listed. This will result in higher costs in the future when the District will
need to replace aged assets without appropriate funds set aside. A summary of the
District's recent financial performance is provided in the following table.
• 1995 Revenue Bond Payoff - In FY 2004, the District paid off the balance of the 1995
Refunding Revenue Bonds which incurred additional expenses not anticipated in the
beginning of the fiscal year.
• Capital Contribytions - Capital contributions are appropriately listed in the District's
audited financial statements as a non-operating revenue. For this analysis, the capital
contributions are not included as part of net income.
• Assessment Districts : In preparation of the 2004A Series Revenue Bonds, the Districl
closed all remaining assessment districts.
Page 14 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
.............. FISCAL YEAR 2004 -•------------
Sources and Uses of Funds Water Wastewater Recycled Assessment Total
Water Districts
Operating Revenues:
Property Taxes
Charges for Current Services
Other Revenue
Operating Revenues
Operating Expenses:
Salaries and Wages
Electrical Power
Water Purchases
Administrative Services
Operating Supplies
Maintenance and Repairs
Depreciation/Amortization, Funded'
Depreciation/Amortizaton, Unfunded2
Insurance, Professional Fees 8 Other
Total Operating Expenses
816,588
766,851
114,280
-- 1,697,719
5,772,260
4,663,119
127,624
-- 10,563,003
767,664
34,168
- •
801,722
7,356,412
5,464,128
241,904
•- 13,062,444
2,806,457
1,396,428
--
-- 4,202,885
1,398,494
421,710
--
-- 1,820,204
214,839
--
165,023
-- 379,862
376,321
825,604
891
-- 1,202,816
233,143
721,022
869
-- 955,034
310,579
424,991
4,539
-- 740,109
1,000,000
725,000
--
-- 1,725,000
348,780
1,179,820
10,712
-- 1,539,312
720,837
231,169
4,223
956,229
7,409,450
5,925,744
186,257
-• 13,521,451
Net Operating Revenue
(53,038)
(461,616)
55,647
--
(540,993)
Not Operating Revenue as a Percentage
(0.7%)
(8.4%)
23.0%
- •
(4.1°k)
of Operating Revenue
Non -Operating Revenue (Expenses):
Interest Income
121,842
168,417
238
590
291,087
Other Income
8,710
--
15,580
14,980
39,270
Loss on Disposal of AssetsGond Costs
(389,512)
(137,257)
- -
--
(526,769)
Interest 8 Other Expense
(59,368)
(641,030)
(600,398)
Total Non -Operating
(318,328)
(509,870)
15,818
15,570
(796,810)
Net Income (Loss)
(371,366)
(971,486)
71,465
15,570
(255,817)
Interfund Transfer In (Transfers Out)
--
206,662
--
(206,662)
0
Capital Contributions
7,882,819
4,588,081
4,530,246
--
17,001,146
Change in Net Assets
7,511,453
3,823,257
4,601,711
(191,092)
15,745,329
Not Assets -June 30, 2004
56,340,921
76,596,478
6,441,380
•.
139,380,779
As shown in the table above, the percentage of net operating revenue to total operating revenue
is negative 0.7% for the water, negative 8.4% for the wastewater division, and a positive 23%
for the recycled water division. These low net operating revenues are due primarily to including
the unfunded depreciation/amortization in these divisions. If depreciation/amortization was not
included in the financial summary above, the District would show the percentage of net
operating revenue to total operating revenue in the water, wastewater and recycled water
divisions of 17.6%, 26.4%, and 27.4%, respectively.
' The FY 2004 Operating Budget did not Include full funding for the depreciation of the assets used by the existing
ratepayers. In FY 2004, the District funded a total of $1,725,000 with a total of $1,539,312 in unfunded depredation.
As discussed in Section 2.3.4, depreciation Is Identified by the District as an expenses even though it represents an
estimate of the annual cost of using the assets. Other agencies may not identify depreciation in their rate analyses
since a cost is not incurred, but by showing this expense, the District is able to evaluate our economic condition both
with the funded portion of depreciation and the total depreciation.
Y In the FY 2004 Audited Financial Statements, depreciationlamortization for the water division is $1,348,780,
depreciation/amortization for the wastewater division Is $1,904,820 and the and depreciation/amortzation for the
recycled water division is $10,712.
Page 15 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
2.4 Evaluation of Current Financial Condition
The financial condition of the District can be evaluated by applying several of the economic
parameters. Among these methods is the percentage of net -to -total operating revenues,
capitalization ratio, rate of return, and the funding/depreciation policy. Each of these
parameters provides valuable information when assessing the District's financial adequacy.
2.4.1 Net Operating Revenue Analysis
Net operating revenues represent the amount of funds remaining after day-to-day operating
expenses are subtracted from operating revenues. Net revenues provide for debt service
payments and revenue -paid capital expenditures. Since a positive cash flow is required for debt
payments, net operating revenues should always be positive, and should be 20 to 40 percent of
total operating revenues. This range depends largely on the level of net non-operating
revenues and expenses, such as interest earnings, debt service, and in -lieu taxes. If net
operating revenues are negative, revenues collected are not providing for ongoing operating
costs and are not contributing to payment of utility capital costs.
As indicated previously, while the District is appropriately covering the daily operating expenses,
the District is not generating a sufficient level of operating revenues to fully fund depreciation.
2.4.2 Capitalization Ratio Analysis
The capitalization ratio is a measure of the amount of the utility plant in service which is owned
and has been paid for by the ratepayers and the amount of the utility assets which has been
financed. The capitalization ratio for a utility system relates the' amount of debt outstanding
relative to the present depreciated cost of the utility assets, and equals one minus the debt ratio,
where the debt ratio is the total debt divided by the total value of the fixed assets. Under normal
financial conditions, utility operations are considered financially sound if the capitalization ratio is
at least 30 percent.
Capitalization _ Ratio =1— Debt _ Ratio Debt -Ratio = Total- Outsanding -Debt
Depreciated - Fixed _ Assets
If net operating revenues are positive by an appropriate amount, a utility will have funds to pay
for new capital projects and the capitalization ratio for the utility will remain at the same level or
increase. If net operating revenues are less than sufficient to maintain the utility's capitalization
ratio, the ratio will decline. A declining capitalization ratio indicates revenues are not providing
for the same proportion of paid capital expenditures (equity) as had occurred in the past and
that the debt ratio is increasing.
Since the District was essentially without capital debt during FY 2004, the capitalization ratio
analysis is not appropriate as a measure of economic health. This tool will be applied in future
rate studies as an economic indicator of the District.
2.4.3 Rate of Return Analysis
Utilities that finance all capital requirements should have a computed rate of return which is
equal to the interest cost on its debt. Normally, utilities which use financing to a large extent
own 10 to 40 percent of the utility's assets. The rate of return for these utilities typically ranges
Page 16 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
from 5 to 8 percent. When 40 to 70 percent of the assets are owned, a rate of return allowance
of 8 to 11 percent is generally common, if the utility desires to maintain a capitalization ratio in
this range. For utilities which are 70 to 100 percent owned, rates of return ranging from 12 to 16
percent are required if the utility desires to continue to pay for all or most of additional capital
expenditures from revenues.
From the proceeding, it is concluded that with greater ownership in the utility, a higher rate of
return on investment is required to maintain or improve the equity position of the utility and to
maintain or improve its bond rating. Rate levels should be set so that the rate of return
allowance is positive and adequate debt service coverage is provided.
The District's rate of return is indicated by the ratio of net operating revenues (total operating
revenues minus total operating expenses) to the District's rate base (property, plants and
equipment asset value). The District's property, plants and equipment totals $120,315,329. A
summary is provided below for each division for the purposes of calculating the rate of return.
2.4.4 Depreciation Analysis
Depreciation is a source of internal cash, used for financing normal system replacements or
increasing ratepayer's equity in a utility system. Depreciation expense is, in utility financial
statements, an estimate of the annual cost of using an asset. Wear and tear, corrosion, action of
the elements on a utility asset, and obsolescence are reasons why depreciation expense is
recorded as a cost of utility operation. Since depreciation does not normally incur a cost which
requires an immediate cash outlay on a day-to-day basis, it is considered a non-cash expense.
Cash generated by the recognition of a non-cash expense, such as depreciation, is usually a
source of internal financing which allows the utility to pay for and preserve its original
investment. In other words, it pays for capital projects involving system renewals and
replacements, and funds the retirement of bond debt service. Cash retained should be used in
such a manner as to minimize or reduce future capital costs.
An example of depreciation funded projects includes the following examples:
A. Water Service Line Replacement Program - Consider the 10,000 water service lines
currently maintained by the District with a 40 year service line life would require
replacement of 250 service lines per year. At a replacement cost of $1,000 per service
line, this program requires an annual budget of $250,000.
Page 17 April 29, 2005
Water
Division
wastewater
Division
Recycled water
Division
Property, Plants and Equipment
$49,846,148
$63,526,473
$6,942,708
Net Operating Revenue
(53,038)
(461,616)
55,647
With Full Depredation
Rate of Return
(0.1%)
(0.7%)
0.8%
Net Operating Revenue
295,742.
718,204
88,359
Without Unfunded Depredation
Rate of Return
0.6%
1.1%
1.0%
Net Operating Revenue
1,295,742
1,443,204
68,359
Without Depredation
Rate of Return
2.6%
2.3%
1.0%
2.4.4 Depreciation Analysis
Depreciation is a source of internal cash, used for financing normal system replacements or
increasing ratepayer's equity in a utility system. Depreciation expense is, in utility financial
statements, an estimate of the annual cost of using an asset. Wear and tear, corrosion, action of
the elements on a utility asset, and obsolescence are reasons why depreciation expense is
recorded as a cost of utility operation. Since depreciation does not normally incur a cost which
requires an immediate cash outlay on a day-to-day basis, it is considered a non-cash expense.
Cash generated by the recognition of a non-cash expense, such as depreciation, is usually a
source of internal financing which allows the utility to pay for and preserve its original
investment. In other words, it pays for capital projects involving system renewals and
replacements, and funds the retirement of bond debt service. Cash retained should be used in
such a manner as to minimize or reduce future capital costs.
An example of depreciation funded projects includes the following examples:
A. Water Service Line Replacement Program - Consider the 10,000 water service lines
currently maintained by the District with a 40 year service line life would require
replacement of 250 service lines per year. At a replacement cost of $1,000 per service
line, this program requires an annual budget of $250,000.
Page 17 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
B. Water Meter Replacement Program - Consider 10,000 water meters with a 15 year life
expectancy would require replacement of 667 water meters per year. At a replacement
cost of $325 per water meter, this program requires an annual budget of $216,775.
These examples of asset replacement are required as part of the GASB 34 Asset Management
requirements to ensure the District adequately maintains the extensive assets under our control.
2.4.5 Comparison of Capital Assets
Another useful financial measurement tool is a comparison of capital assets. As shown below,
the capital assets of the District have increase steadily over the past fifteen years. Since 1989,
the total capital assets have increased 115% percent to exceed $120 million.
$120
$100
$80
m
$60
$40
$20
$0
Historical Accumulation of Assets
— 0 Audited Property, Rant & Equipment
9? O V S q uo S2 tt m Cl O N 0 5
The amount of capital assets is a useful tool to quickly understand the complexity,
responsibilities and obligations of an agency. The table below is provided to understand how
the District compares to other local water and wastewater providers.
Fiscal Reported Capital Assets
South Mesa Mutual Water Company
2003
$4,765,953
Western Heights Mutual Water Company
2003
$7,723,732
Beaumont Cherry Valley Water District
2004
$25,554,215
Palmdale Water District
2002
$67,840,979
San Bernardino Valley Municipal Water District
2004
$69,534,640
East Valley Water District
2004
$78,030,065
Yucaipa Valley Water District
2004
$120,315,329
Santa Ana Watershed Project Authority
2004
$135,532,622
Padre Dam Municipal Water District
2002
$142,113,000
Western Municipal Water District
2004
$143,939,223
Helix Water District
2004
$180,500,000
Cucamonga County Water District
2003
$200,847,000
Eastern Municipal Water District
2004
$849,597,359
Page 18 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
3.0 An Assessment of Revenue Requirements
In order to properly assess the District's future revenue requirements, one must first evaluate
and understand trends within four specific areas. These areas are: 1) current customer base
and projected changes; 2) evaluation of water demands, 3) significant changes in operating
expenses including water filtration and wastewater treatment costs, and 4) capital expenditures
and debt service obligations. The following is a brief discussion on the impact of these factors
on the District's revenue requirements.
3.1 Current and Projected Customer Base
A fundamental element for developing service projections is the quantification of customer
demand characteristics and the revenues derived from the current schedule of utility charges.
This information provides the foundation for integrating projected changes in demands and
customer unit rate adjustments.
As of June 30, 2004, the District's customer base consisted of the following:
• Water service was provided through 10,674 water service connections to a total of 15, 674
Equivalent Dwelling Units.
• Wastewater service was provided through 11,844 service connections to 18,671
Equivalent Dwelling Units.
• Recycled water service was provided to a total of 26 service connections.
The table below contains a detailed breakdown of service connections and EDUs served by each
customer. The difference between the number of service connections and the number of dwelling
units is represented by multiple units on a property and larger meter sizes for commercial, industrial
and institutional customers. The detailed rate analysis focuses on dwelling units for the water
division and service connections for the wastewater division.
Customer Type
Single Family
Multiple Units
Commercial
Institutional
Industrial
Irrigation
Fire Detectors
Construction
Total
Water Utility
Wastewater Utility
Non-Potable/Recycled
Water Utility
Number of
Number
Number of
Number
Number of
Connections
of Units
Connections
of Units
Connections
9,732
9,732
10,924
10,924
0
491
5,166
641
7,317
0
193
294
220
326
0
57
67
51
65
0
21
25
8
39
0
78
78
0
0
23
56
560
0
0
46
46
0
0
3
10,674 15,464 11,844 18,671 26
The detailed description of the existing customer base is used as a starting point to project the
number and rate of new customers. The chart below illustrates the number of EDUs added to the
District's water and wastewater system each year. Notice the slow development period for a five-
year period in the early to mid -1990's is part of the economic cycle which will return at some point
in time.
Page 19 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
Even with several large
residential and
t000
commercial development
projects prepared to
800
initiate construction at a
o
potentially rapid pace, like
Summerwind Ranch,
s 600
Mesa Verde Estates and
JP Ranch, the District will
z 400
not over estimate this
development potential in
this rate study. Several
200
municipalities fell into this
trap in the late 1980s and
0
early 1990s and a rapid
s
pace of development was
believed to be normal.
When development
Mater Development Fees Collected
❑wastewater Development Fees Collects
stopped, many agencies
found themselves financially over extended since they relied
so heavily on the steady cash flow of
development impact fees and charges from new growth.
Instead, this comprehensive financial report will use the data represented in the graph above as
a standardized growth cycle covering a period of fifteen years. This development cycle resulted
in an average long-term growth rate of the District is 2.8% per year with the past three years in
excess of 5% per year.
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Annual Percentage Change In Service Connections
} } } } T } N N }N yNy }N}
—% Water —% Sewer —2.8% Long -Term Annual Change
In summary, customer growth affects the District's revenue requirements in two ways. First, it
increases the customer base, which provides additional accounts subject to user charges.
Secondly, it increases operating costs associated with the delivery and provision of utility
Page 20 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
services. The growth projection within the rate analysis model includes a growth projection of
2.8%, which is equivalent to approximately 440 dwelling units in FY 2005.
While this is a 70% decrease from comp°°ite Index or 10 Leading Indicators
xesesa°."Matopwlad less-1so
the development activity in 2003
and 2004, the District staff Composite Index of 10 Leading Indiwtars
believes that the economy is '' 118
prepared to soften based on
leading economic indicators that e.g. 11e
fell 0.4% in March 2005. This is
the biggest decline in the e., 114
composite index since 2001.
While the current weakness of the
index of leading economic ° ° 72
indicators in part reflects the
effects of higher energy costs, 0•4 110
there were eight of the ten
indicators that were negative s.. 1°e
contributors to the index in March.
Specifically, these negative eauru: me eo°mesu aeerd nuur u n%wx 044,45
indicators included, jobless claims, vendor performance, building permits, average factory
workweek, money supply, consumer expectations, stock prices and non-defense capital goods
ordered. The only two positive contributors were the yield curve and consumer goods ordered.
3.2 Evaluation of Water Demands
The District only produces potable water sufficient to meet the demands of the community. If
there is a large demand for water, like in the summer season, the District will activate most of
our water sources to meet the demands. When analyzing the amount of potable water
produced on a monthly basis, the seasonality of the water demands becomes readily apparent.
4,000
� 3,500
a
yE 3,000
G N
2,500
m m
2,000
0 0
a = 1,500
m 1,000
500
U
`m
it f Q Q rn� Z 0
—2001 —2002 -2003 —2004
The diagram below illustrates a historical perspective of potable water consumption each year.
This chart illustrates the generally increasing trend of water consumption that continues to occur
over time. In 2004, the District produced 5.4% more water than in FY 2003 and 3.2% more
Aph129,2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
potable water than in FY 2002. Since 1988, the District has averaged an annual water demand
increase of 5.5%.
3,500
3,000
S 2,500
0 2,000
1,500
1,000
500
LL � LL LL � LL � LL W LL � LL 4 LL LL LL LL
IMM Prior Year Water Consumption
O Water consumption (Year -to -Date)
—Linear Trendline based on Water Consumption of Prior Yeats
The District has been working diligently to expand the non -potable water distribution system
throughout the Yucaipa Valley. The chart to the right illustrates how the potable water demands
have been held relatively constant with the introduction of non -potable water in August 2002.
This chart to the right
illustrates the 15.0%
percentage of non -
potable water demand 12.5%
as a percentage of total
water demand [potable 10.0%
plus non -potable water
demands]. The District 7.5%
has set a goal of
exceeding a 10% non- 5.0%
potable water demand
which was achieved in 2.5%
June 2003 and has
roughly been
essential) achieved 0.0%
each summer. This o
goal has been
significant for the
0
District, since the quantity of non -potable water demand removed as a demand on the potable
water system is equivalent to a large production well producing 1,000 gallons per minute 24
hours per day, seven days a week.
3.3 Operating Expense Projections
The main component to project revenue requirements is to provide an estimate of operating
expense projections for each District division.
Page 22 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
3.3.1 Water Division Expense Projections
The primary cost component of the District's water utility is water supply -related expenses. The
elements of these expenses are generally categorized as water purchases, labor, treatment,
power/pumping, and debt obligations. Since each of the District's sources of supply incur
different costs, the water supply plan will significantly impact utility revenue requirements.
Currently, the District's available water supplies consist of three primary sources, local
groundwater supplies, Oak Glen surface water supplies and supplemental water supplies. The
costs associated with the groundwater supplies and Oak Glen surface water supplies are fairly
stable from a perspective of available supply and operating expense. The quantity of water
available from Oak Glen surface water sources has been limited by agreement with residents in
the community of Oak Glen to 500 gpm, when it is available. Local groundwater sources have
been heavily relied upon to deliver the majority of the District's water supply. This supply is also
limited, but well managed to provide a stable and reliable source of water.
Recent drought conditions have resulted in the District shifting our production capabilities away
from local surface water supplies in favor of additional groundwater production. This has
increased water related expenses due to the additional groundwater pumping and booster
pumping to replace the relatively inexpensive local surface water sources. To properly manage
our groundwater supplies, the District has purchased supplemental water from San Bernardino
Valley Municipal Water District to recharge the local groundwater supplies and has constructed
non -potable water facilities to alleviate the gpantity of groundwater production within the region.
The non -potable water facilities provide a benefit to both our potable water customers with
improved reliability and provided our non -potable water customers with an untreated water
supply which is more appropriate for non -potable uses. Both the non -potable water system and
the purchase of supplemental water have resulted in additional water expenses not previously
incorporated into the water division rate structure.
3.3.1.1 Cost of Supplemental Water Supplies - SBVMWD
The District receives supplemental water from the San Bernardino Valley Municipal
Water District and the San Gorgonio Pass Water Agency. Both agencies have
established a rate structure for water delivered from the East Branch Extension that
includes foxed, variable and marginal components.
On November 18, 2002, the San Bernardino Valley Municipal Water District adopted
revised rules and regulations for the sale and delivery of water. The adopted water rates
consist of a $108/AF energy charge and a $40/AF conveyance charge for a total base price
of $148/AF. The following chart illustrates the discounts and surcharges that apply to
supplemental water purchases.
Criteria
mWater ordered prior to
December 31' for delivery
F c in the following calendar
m year.
a
Payment Method
Option i - Payment for 1n a of the water
ordered due at the end of each month for
the base price.
Option 2 - Payment in full by January 31"
for discounted rate.
Discount/ Water Rate
0% Discount of $148/AF
base water rate
15% Discount of $125801AF
base water rate
Page 23 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
Overall, SBVMWD offers the best water rates for planning ahead and paying for the
requested water delivery within the first month of the year. However, there is no guarantee
with respect to receiving water ordered and paid for at the beginning of the year. It is
possible that operational issues with the State Water Project, not the fault of YVWD, and/or
lack of rainfall in northern California can result in less water being delivered than paid for by
the Yucaipa Valley Water District.
For 2005, the Yucaipa Valley Water District has requested the purchase of 2,140 acre
feet of supplemental water from San Bernardino Valley Municipal Water District at a cost
of $269,212. This supplemental water purchase includes water for direct delivery
processed by the Interim Water Filtration Facility and non -potable water for the recycled
water system.
3.3.1.2 Cost of Supplemental Water Supplies - SGPWA
On February 7, 2005, the San Gorgonio Pass Water Agency adopted rules and regulations
for the sale and delivery of supplemental water within their service area. The Yucaipa
Valley Water District subsequently purchased 555 acre feet of supplemental water from the
San Gorgonio Pass Water Agency in 2005 at a cost of $77,145. This supplemental water
purchase includes water for direct delivery processed by the Interim Water Filtration Facility
and non -potable water for the recycled water system.
3.3.2 Wastewater Division Expense Projections
The expenses for the wastewater division are anticipated to increase as a result of new
regulatory requirements, specifically nitrogen and TDS. These regulatory requirements Will add
new treatment technology at both facilities in order to meet the low stringent limits established
by the Regional Board.
Within the next five years the District anticipates receiving grant funding for the brineline
construction. This will require a local match that will be made up of state grant funding and local
funds. This projection is not included in the wastewater rates at this time since the amount of
local participation is unknown.
Page 24 April 29, 2005
water ordered for
option 1 - Payment for 15° of the water
0% Discount of
-a a
groundwater recharge prior
is due at the end of each Tier II month for
base water rate
$148fAF
a o
to December 31° for
the base price.
F o g
delivery during January
W rn
through May of the folkwing
Option 2 -Payment in full by January 310
20% Discount of
$118.40/AF
year.
fordiscountedrate.
base water rate
Wafer ordered at any time
25%
during the calendar year for
Payment method pursuant to Section
f base ��e
$1851AF
x E'
delivery in the same
4.07 of the Rules and Regulations.
rate
calendar year.
Water purchased from
Payment method pursuant to Section
SBVMWD for use outside of
4.07 of Bre Rules and Regulations. Rate
--
$378.MAF
the boundary of SBVMWD.
based on DWR Bulletin 132 Appendbc B.
Overall, SBVMWD offers the best water rates for planning ahead and paying for the
requested water delivery within the first month of the year. However, there is no guarantee
with respect to receiving water ordered and paid for at the beginning of the year. It is
possible that operational issues with the State Water Project, not the fault of YVWD, and/or
lack of rainfall in northern California can result in less water being delivered than paid for by
the Yucaipa Valley Water District.
For 2005, the Yucaipa Valley Water District has requested the purchase of 2,140 acre
feet of supplemental water from San Bernardino Valley Municipal Water District at a cost
of $269,212. This supplemental water purchase includes water for direct delivery
processed by the Interim Water Filtration Facility and non -potable water for the recycled
water system.
3.3.1.2 Cost of Supplemental Water Supplies - SGPWA
On February 7, 2005, the San Gorgonio Pass Water Agency adopted rules and regulations
for the sale and delivery of supplemental water within their service area. The Yucaipa
Valley Water District subsequently purchased 555 acre feet of supplemental water from the
San Gorgonio Pass Water Agency in 2005 at a cost of $77,145. This supplemental water
purchase includes water for direct delivery processed by the Interim Water Filtration Facility
and non -potable water for the recycled water system.
3.3.2 Wastewater Division Expense Projections
The expenses for the wastewater division are anticipated to increase as a result of new
regulatory requirements, specifically nitrogen and TDS. These regulatory requirements Will add
new treatment technology at both facilities in order to meet the low stringent limits established
by the Regional Board.
Within the next five years the District anticipates receiving grant funding for the brineline
construction. This will require a local match that will be made up of state grant funding and local
funds. This projection is not included in the wastewater rates at this time since the amount of
local participation is unknown.
Page 24 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
Depreciation continues to be under funded in this division.
3.3.3 Recycled Water Division Expense Proiections
The new recycled water division has received matching funds from the water and wastewater
divisions. This inter fund transfer is based on the fact that the new recycled water system
provides a direct regional benefit to both the water and wastewater divisions. There are no
unusual expenses related to this division in this rate analysis.
3.4 Capital Expenditures and Debt Service Obligations
Capital expenditures and debt service obligations are projected to comprise a significant
component of the District's water and wastewater utility revenue requirements in the future. The
majority of the District's capital expenditures are driven by water supply issues, wastewater
treatment requirements, and regulatory issues. A projection of the anticipated capital
improvement expenditures and each project's funding source is included in the annual budgets.
3.4.1 Water Division Capital Improvement Projects
The Water Division Capital Improvement Program (Water - CIP) has been developed to
accommodate facility upgrades and system enhancements that have been identified in the 2002
Water Master Plan. Overall, the Water - CIP has identified over $193 million in proposed
projects. The proposed Water - CIP has been divided into four phases over the next twenty
years. An annual breakdown by fiscal year (FY) is provided for Phase 1 that covers FY 2003
(July 2002 - June 2003) through FY 2007 (July 2006 - June 2007). Phase 2 covers the time
period from FY 2008 through FY 2012; Phase 3 covers FY 2013 through FY 2017; and Phase 4
covers FY 2018 through FY 2022. Future phases extend from 2023 through 2050. Periodic
updates to this Water - CIP will be necessary to readjust priorities and confirm recommended
expenditures.
A major expenditure over the next five years is required for design and construction of the new
Yucaipa Valley Regional Water Filtration Facility. Other major expenditures include potable
water transmission mains to convey water from the new filtration facility, potable water storage
reservoirs, and the non -potable water system. Additional identified projects are needed to
improve the existing system to continue to provide adequate service to the existing customers in
the water service area. Some improvements are also needed to provide service for anticipated
future development.
3.4.1.1 Yucaipa Valley Regional Water Filtration Facility
The first phase of the Yucaipa Valley Regional Water Filtration Facility will involve the
construction of a 12.0 mgd state of the art filtration facility with site planning and layout
provisions for the future expansion to an ultimate capacity of 36.0 MGD. This project is
being constructed to provide a redundant potable water supply to the existing community
and future development, with the goal of eliminating the overdraft on the existing
groundwater basin and maximizing the management of the local water resources.
April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
3.4.1.2 Non -Potable Water System Improvements
The District is developing facilities to use non -potable water to meet a portion of the
water demands of the region. The objective of the non -potable system is to supplement
the local potable supply in the most cost effective and efficient manner possible. This
project is being constructed to:
• Reduce dependence on local groundwater supplies;
• Minimize imported water from Northern California;
• Reduce groundwater overdraft conditions;
• Reduce costs associated with construction and operation of the regional water
filtration facility; and
• Provide a fully integrated water supply for the Yucaipa Valley.
3.4.1.3 Potable Water Distribution System - Storage Reservoirs
It is recommended that the District construct eleven reservoirs by the year 2050 (one 4
mg reservoir currently under construction), three additional reservoirs by 2020 and
seven additional reservoirs by 2050. This will add 21.5, 5.0 and 17.0 million gallons of
storage respectively, for a total added capacity of 43.5 million gallons. The reservoir
construction recommendations are based on design criteria for fire, operational and
reserve storage capacity on a zone by zone basis. Storage capacity requirements are a
function of average daily flow and thereby increase as new development occurs.
Additional rehabilitation or replacement projects are also included to maintain existing
facilities and preserve system reliability.
3.4.1.4 Potable Water Distribution System - Pumoinb Facilities
The improvements and new facilities needed for booster pumping are summarized on
the CIP summary sheets located in the master planning document. Five existing
facilities require rehabilitation and upgrade including such modifications as pumping
equipment replacement, electrical system and/or SCADA upgrade, and miscellaneous
modifications. These modifications are required to maintain system reliability. Five new
booster pump facilities are required to serve the needs of new development.
3.4.1.5 Potable Water Distribution System - Transmission Pipelines
Transmission system projects are required to convey water from the regional water
filtration facility to distributed zones in the service area. Major transmission project by
phase are as follows:
Transmission Pipeline Projects
CIP Phase -LLPipe Sizes- - ` Tota Length To•tal^Cost
Phase 1 - FY 2006 16, 20, 24, 30 $ 5,581
Phase 1 - FY 2007 16, 20, 24, 30 $ 51581
Phase 2 FY 2008-2012 10, 12, 16, 24, 36 102,775 $22,138
Page 26 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
3.4.1.6 Potable Water Distribution System - Distribution Pipelines
Distribution pipelines projects are necessary to address growth and operational
deficiencies. Major projects by CIP phase are as follows:
Distribution Pipeline Projects
CIP Phase Pipe Sizes Total Length Total Cost
Phase 1- FY 2004 16, 20, 24, 30 $1,675
Phase 2 FY 2008-2012 12,16, 20 29,673 $ 5,710
Phase 4 16,18,20 10729 $ 2,202
3.4.1.7 Potable Water Distribution System - Wells
The CIP includes several well projects to rehabilitate existing facilities as required to
maintain reliable groundwater supply. This new groundwater supply source is necessary
to replace other well facilities that are reaching the end of their useful life. Due to the
age of most of the District's wells, the District should embark on depreciation funded
capital improvement projects to re -drill and re-equip the older water production wells.
3.4.2 Wastewater Division Capital Improvement Proiects
The Wastewater Division Capital Improvement Program (Wastewater. - CIP) has been
developed to accommodate the facility upgrades and system enhancements that have been
identified as part of the 2001 Wastewater Master Plan. Overall, the Wastewater - CIP has
identified over $68 million in proposed projects. The proposed Wastewater - CIP has been
divided into four phases over the next twenty years. An annual breakdown is provided for
Phase 1 that covers fiscal 2001-2002 (FY 2002) through fiscal 2005-2006 (FY 2006). Phase 2
covers the time period from FY 2007 through FY 2011; Phase 3 covers FY 2012 through FY
2016; and Phase 4 covers FY 2017 through FY 2021. Future phases extend from 2021 through
2050. Periodic updates to this Wastewater - CIP will be necessary to re -adjust priorities and
confirm recommended expenditures.
A major expenditure over the next five years is required to upgrade and expand the capacity of
the existing Wastewater Treatment Plant. Modifications are required at Lift Station No. 1 to
address operation and maintenance issues. Other identified projects are needed to improve the
existing system to continue to provide adequate service to the existing customers in the
wastewater service area. Some improvements are also needed to provide service for
anticipated future development.
The costs of major facilities associated with new developments have been assumed to be
incurred by the developers. The funds for the new wastewater treatment facility and collection
system located in the Oak Valley Development will be provided by both the District and by
developers through connection fees or other financial mechanisms. The developer will provide
funding to cover the capacity needed by the Oak Valley Development. The District will
supplement the collection system and treatment facility projects to increase the capacity as
needed to serve other District connections in the southern portion of the service area.
Page 27 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
3.4.2.1 Wastewater Treatment
The Henry Wochholz Wastewater Treatment Plant currently treats all wastewater flow
collected from the Districts sewer system. A Phase I Renovation Project is being
considered as part of an overall analysis of existing WWTP and will include items such
as an Integrate Fixed Film Activated Sludge process, aeration equipment upgrades,
blower controls, addition of membrane treatment and ultraviolet disinfection. This
renovation and expansion project is scheduled to begin construction in 2006.
3.4.2.2 Western Regional Interceptor Facilities
This project involves the construction of a wastewater collection system, lift station and
force main required to serve the western portion of the service area. Construction for
this project is planned for FY 2007. It is anticipated that once this project is complete,
many of the septic systems in the area will transition from septic service to sewered
service due to the availability. Previously there has not been a major collector
constructed in this portion of the District's service area.
3.4.2.3 Lift Station Improvements
The District is anticipating the removal of several existing lift stations with the
construction of the Oak Valley MBR WWTP. The removal of these facilities will require
the construction of gravity pipelines upstream and downstream from the lift stations to
provide the necessary gravity flow conditions.
Improvements at Lift Station No. 1 are needed to provide for maintenance activities in
the wet well and force main. This facility will be relocated with the development of the
Mesa Verde Estates Project.
A new North Bench Lift Station is planned to serve Tract 14429 and will be constructed
in 2006. The project will consist of a lift station, 5,000 of parallel 6 -inch force mains and
2,600 feet of 8 -inch gravity sewer. It is anticipated that developers will construct another
lift station and 3,500 feet of parallel 6 -inch force mains to serve remaining areas. The
District's portion of the project will be funded with Development Impact Fees.
3.4.2.4 Wastewater Collection System
The collection system improvements are required to provide adequate flow capacity in
the collection system and to meet the District's design criteria. The Calimesa Blvd
collector is the highest priority collection system project. Calimesa Blvd, 4w
Street/Yucaipa Blvd/5t' Street, and Avenue L projects are all planned for Phase I of the
CIP.
The collection system hydraulic model completed as part of the master plan indicates a
need to increase the capacity of several other collectors. These needs are based on
development projections and assumed start-up timing of the new WWTP in Oak Valley
sometime after 2010. The need for these projects should be re-evaluated as actual
conditions are realized.
A series of miscellaneous projects consisting of short pipe lengths and minor
Page 28 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
improvements have also been identified. It is assumed that these projects will be
incorporated into regular District operations and maintenance activities.
3.4.3 Debt Service Obligations
The Yucaipa Valley Water District Financing Corporation was established on May, 24, 2004 as
a nonprofit public benefit corporation organized for the sole purpose of acquiring, constructing,
rehabilitating, financing and refinancing of, or providing for the sale or leasing of, facilities, land
and equipment for the use, benefit and enjoyment of the public served by public agencies in the
State of California and any other purpose incidental thereto. In June 2004, the Yucaipa Valley
Water District Financing Corporation issued $45,730,000 in revenue bonds for the construction
of water related facilities related to the Yucaipa Valley Regional Water Filtration Facility. The
District received strong financial ratings from Fitch Ratings Inc. ("Fitch") and Moody's Investors
Service, Inc. CMoody's") of "Ass" and 'AAA" respectively, based on the District's financial
strength, minimal risk of default and the issuance of commonly issued bond related insurance.
The District anticipates a similar issuance in 2005 for wastewater related improvements.
3.5 ERAF III and the Implications for YVWD
Based on the FY 2005 Budget, water fixed revenues (i.e., service charges) only comprise of
15% of the total water division revenues. Accordipgly, the District's water rate structure is highly
sensitive to water usage which causes financial instability in wet years when water consumption
is reduced or during droughts or emergencies when water deliveries are curtailed or voluntary
conservation is requested. '
Considering this variability, the District has become heavily dependent upon property taxes for
the long-range rate stability which has significantly benefited our customers. Due to the
District's intense capital improvement projects, the Board has allocated property tax dollars to
fund projects that improve the service to our customers by dedicating this funding source to
projects instead of operational costs, such as labor, pension, etc. This maximizes the benefit of
the local property taxes to the people who pay them - - our customers.
3.5.1 California Prooerty Tax Overview
California—like most other states in this country—relies extensively on local governments to
protect the public, help the needy, educate students, and respond to local concerns. For nearly
a century, California's property tax has been reserved for the exclusive use of local
governments and has served as the mainstay of local finance.
Before passage of Proposition 13, local governments and their residents controlled property tax
rates and the distribution of property tax revenues to local agencies. Proposition 13, however,
placed into the California Constitution a maximum rate for non -debt related property taxes and
specified that its revenues are to be allocated to local agencies "according to law."
Page 29 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
As Figure 1 shows, immediately after Proposition 13's passage, the Legislature established a
property tax allocation system Figure t
that reduced the share of Pro ert Tax Allocation Over Time
property tax revenues allocated p y
to educational local agencies percent of prof eriy Taxes Moca ted to Local Agencies
from a statewide average of 54
percent to 39 percent—and w%. — K-ia
increased the share of property ® counties
taxes allocated to cities, 50— - _ ...._-. — cava
-- Other Local EnUW
counties, and special districts.
(The state replaced the shifted 40 - — —
K-14 district property taxes with9-0 ...._- ----
increased state funding.)
_ _
Specific property tax allocation 20_._.... ��...
formulas then were assigned to
every area of the state, io _.. _ .._ _........----....---.._..-- ..-. - -
designating the portion of the
property tax to be allocated to
a79 z es s7s 9i sea os
each local agency serving the -00
area. These property tax eRede+elopmerd&Mda and Wedel dstrkls
allocation shares were based on Sum Boad of Dpailzatkn.
each agency's proportionate share of property taxes in the mid-1970s and are commonly
referred to as "AB 8" shares, after the bill that created this property tax allocation system—
Chapter 282, Statutes of 1979 (AB 8, L. Greene). With the exception of several relatively minor
changes, the state did not alter these AB 8 shares until the early 1990s.
Faced with significant budgetary challenges in 1992 and 1993, the state twice enacted major
changes to the state's AB 8 property tax allocation system to direct larger shares of property tax
revenues to K-14 districts - and reduce state General Fund spending for education accordingly.
These changes reduced non -educational local agencies' share of the property tax from a
statewide average of 65 percent to 48 percent. The property taxes shifted to K-14 districts
because of the 1990s property tax shift now total about $5 billion. (For context, total property tax
revenues in the current year are estimated at $29 billion.) These property tax allocation
changes commonly are referred to as "ERAF," after the name of the fund into which the shifted
property taxes initially are deposited, the Educational Revenue Augmentation Fund.
Source: Legislative Analyst's Office, Analysts of the 2004-05 Budget Bill, February 2004.
3.5.2 Educational Revenue Augmentation Fund III (ERAF III)
Proposition 98 required the State to fund education at specified levels. In order to meet this
obligation, the State enacted legislation that caused local government to bear some of the
financial responsibility for this mandate. County Auditors were directed to establish Educational
Revenue Augmentation Funds (ERAF) by transferring a portion of local property tax revenues
from local governments into the fund. ERAF supports school districts, county offices of
education, and community college districts. The first ERAF shift of $1.3 billion occurred in FY
92-93. ERAF III for FYs 04-05 and 05-06 includes $1.3 billion each year, with the burden
allocated as follows:
Page 30 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
ERAF III Annual Contribution
Counties $350 million
Cities $350 million
Special Districts $350 million
Redevelopment Agencies $250 million
Annual Totoal (04-05 & 05-06) $1.3 billion
The basis varies for determining the amount an individual county, city or district will contribute.
County contributions are based on each county's share of VLF revenues. City contributions are
based on shares of sales tax, property tax, and VLF revenues. The minimum city contribution is
2% of its general fund revenues and the maximum is 4%, as reported in the FY 01-02 State
Controller's city report.
Special district contributions have two levels: enterprise districts will contribute 40% of property
tax revenues and non -enterprise agencies will contribute 10% of property tax revenues. The
maximum contribution by any special district is 10% of total revenues. Transit districts will
contribute up to 3% of their property tax revenues. Mosquito abatement districts are exempted,
as well as fire, police, hospital/health care, library and veterans' memorial districts.
Redevelopment agencies will collectively contribute $125 million based on gross tax increment
and $125 million based on net tax increment. Agencies may be granted an extension based on
the remaining life of the redevelopment agency.
The cities and counties will make their "contribution" through a reduction in the amount they
receive from the State for "property taxes in lieu of VLF". The special districts will contribute
directly to their county's ERAF.
The Department of Finance
County Auditor -Controller will
the funds into the
ERAF. Because the
ERAF contribution is
based on property +a2c
calculates the amount each special district must contribute; the
reduce each agency's tax increment by this amount and transfer
tax revenues from +515
two years ago, there
may be instances
where a district's
current tax increment
is not sufficient to
cover the required
ERAF contribution if
revenues have
declined recently.
Local agencies will
receive their full tax
increment again
beginning in FY 06-
07.
+510
*50.5
+$0.0
$ 30.5
m
410
41.$
425
State and City Gives & Takes Since Prop 13
in constant 2004 dollars since the Ass Bailout following Prop 13
(psn dnca ,seol .
w,, Cn4In Slab Assideru and
Lein Re nueincluding ERAF
a Was Owmwal Fund Assislan m
to eiliassinee 1978
,
h'^ e
a
FY92
Page 31 Ap0129, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
3.5.3 Overview of Prooedy Tax Revenues for YVWD
Each County levies a 1% property tax on behalf of all taxing agencies in each County, including
the District. The taxes collected are allocated to taxing agencies within each County, including
the District, on the basis of a formula established by State law enacted in 1979. Under this
formula, each County and all other taxing entities receive a base year allocation plus an
allocation on the basis of °situs° growth in assessed value (new construction, change of
ownership and inflation) prorated among the jurisdictions, which serve the tax rate areas within
which the growth occurs. Tax rate areas are specifically defined geographic areas, which were
developed to permit the levying of taxes for less than countywide or less than citywide special
districts.
For 2004, the allocation received by the District of the 1% property tax is estimated to be
$1,648,334, compared to $1,476,441 in 2003. Property taxes as a percentage of the total
revenues of the District averaged 10% over the last five years.
From time to time legislation has been considered as part of the State budget to shift the share of
the 1 % property tax revenues collected by counties from special districts to school districts or other
governmental entities. While legislation enacted in connection with the 1992-93 State budget
shifted approximately 35% of many special district's shares of the countywide 1% property tax
revenues, the share of the countywide 1 % property tax revenues allocated to multicounty special
districts such as the District was exempted. While none of the State Budgets enacted since 1992-
93 have reallocated 'additional portions of the special districts' shares of the countywide 1%
property tax revenues, the State has a large budget deficit for the current Fiscal Year. Accordingly,
there can be no assurance that the allocation formula currently established by State law will be
continued in the future. If the formula is changed in the future it could have a material adverse
effect on the receipt of property tax revenue by the District. The results of the State's budget
resulted in a 10% decrease in the District's property tax base for fiscal year 2005 and 2006.
The following tables show the secured assessed valuation within the District in each County and
the amount received by the District of the 1 % property tax during the five most recent Fiscal Years.
As a result of the implementation of the tax distribution system commonly referred to as the "Teeter
Plan" by the County of San Bernardino and the County of Riverside and the participation by the
District beginning in July 1984, the District receives 100% of its share of the 1% property tax levies
without regard to delinquencies. There can be no assurance that the Teeter Plan or the
participation of the District therein will be continued indefinitely.
San Bemardino
County Total
Riverside ourt
Cty
YVWD AIIocdon
YVWD
Percentage
Fiscal Year Severed
Total Secured
of San Bernardino
Allocation of
Riverside
Total YVWD
Total Yon D
Change of
Assessed
Assessed
Valuation
Counly, Property
County Property
Property Tates
Properly Tax
Valuation
a
r_..__
Income
2001 2,733,121,447 445,931,126 1,232,593 110,693 1,343,288 4.1%
2002 2,879,981,092 485,424,330 1,272,898 117,045 1,383,591 3.0%
2003 3,123,175,768 554,852,744 1,355,673 120,768 1,476,441 6.7%
District for District Allocations
(1) Estimated based on pro -rata allocation for Fiscal Year 2001
(2) Estimated based on pro -rata allocation for Fiscal Year 2003
Page 32 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
Secured assessed valuation for the portion of the District in the County of Riverside for Fiscal Year
2003/04 as reported by the County of Riverside is $133,225, a 10.3% increase over the prior year.
Secured assessed valuation for the portion of the District in the County of San Bernardino for Fiscal
Year 2003/04 as reported by the County is $1,515,109, an 11.8% increase over the prior year.
Page 33 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
4.0 Summary of Rate Structure Changes
4.1 Assembly Bill 2115 — Property Tax Shift
On September 20, 2004, Governor Arnold Schwarzenegger signed into law AB 2115 which was
approved by the legislature to shift property tax revenue normally received by the District to the
State of California to provide the state with additional revenue to minimize the current and
ongoing financial crisis. This legislation would take a minimum of 40% of the property taxes up
to 10% of the total revenue of the special district until a total of 350 million was shifted from
special districts to the state.
The specific language of AB 2115 had a provision that would have suspended the legislation
with the passage of Proposition 65 at the general elections on November 2, 2004. Proposition
65 was originally designed to limit the ability of the State to take local revenues, however,
several associations that generally represent local governments shifted their support for
Proposition 65 in favor of Proposition 1A, which did not have the same protection. The
November general elections resulted in Proposition 65 failing and Proposition 1A being
approved by the voters. The election resulted in AB 2115 being implemented.
Proposition
1A
Pro
osition 65
For
Against
For
Against
83.7%
16.3%
37.6%
62.4%
Subsequently, the San Bernardino County and Riverside County Treasurers offices completed
their allocations of taking property taxes from the District and on February 1, 2005 notified the
District that a total of $1,135,556.39 would be withheld by the County (see Attachment "E").
While the District is considered fiscally conservative, this shift in property taxes has a significant
impact on the District's financial stability. This reputation has resulted from the District: (1)
maintaining a lean workforce with additional staff members only hired when absolutely
necessary; (2) prudently spending funds on facilities that benefit our customers by providing
reliability and redundancy; (3) maintaining competitive salaries while not adding extravagant
benefits; and (4) respecting the fact that each dollar received by the District is one less dollar
our customers are able to spend on their families and their lifestyle. The District takes our rates,
fees and charges seriously and does not take the money our customers spend on services for
granted. It is our desire that the dollars spent by the District continue to benefit and add to the
quality of life our customers enjoy in the Yucaipa Valley.
It is prudent for the District to maintain a reasonable reserve fund for unexpected situations.
While the District could utilize reserve funds for funding operational deficits, it is recommended
that the District maintain reasonable reserve funding levels adequate to provide for unexpected
and emergency situations. This is especially important since the District is one of the few
California communities located immediately adjacent to the San Andreas and San Jacinto fault
lines.
Information from the past is a reasonable way to predict the future. Projections of future
operating and capital costs have been utilized as the basis for this study as they provide the
best information to determine future rate requirements. While historical information is important,
it is only beneficial to the extent that it helps to indicate future financial needs. To meet the goal
Page 34 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
of planning for the future, expenses need to be projected with the best available information,
utilizing both engineering and accounting resources.
While the District should be commended for the hard work and dedication to improving the
infrastructure of the Yucaipa Valley, it is difficult to finance the water, wastewater and recycled
water improvements while completing extensive capital improvement projects. Every year there
are increased stresses associated with the existing infrastructure of the water and wastewater
systems. For the water division, this is primarily due to the consolidation of several mutual
water companies to form the current District service area. For the wastewater division, the
stresses are generally caused by regulatory requirements and the inflexibility of treatment
processes. The proposed rates need to account for the uncertainty that exists with the
increased pressures placed upon the aging infrastructure by funding additional depreciation.
Materials Prices Soar
Amm slmruge In sm. p metal pushed struc-
tural steel and reinforcing bar prices to record
Cement Prices
eo
75
70
9@MCF.IIW AO43'rO.tfySf•YrVNI��P" N'J,a.VfN{t
. M.i (ryi niY r}.1'H'.44�:iwm
VIM Asphalt Prices
175
160
145
130
115
100
'9d'95'90'97'98'99'00'01'02'03'04
SIN91C4"+1 y1.1: 'r.r Nn/n l:"Y•�UI�NrIr'4n
levels in 2004 OR 3/22J04 P. 2ZP sintctural
sinal pnces 7uniped 311% above October 2003',
level while teller mice, Wmbed 4396 Pricm lot
other materials also made lunge year•lo-vear grans
Vftt Lumber Prices
550 Ak
5"V\
00
450
400
300 '
'9a'95'96'97'98''J9'OU'O1'02'03'04
SOMOneP^ V M.)R'1iNRillWMi•; . pl" :li'Afr INNu1
Rr'l l•N±) a a}MII':Ifx xabpYUPY%utiu•'
smr
7011
650
600
556
506
450
Plywood Prices
400,�,95'96'97'96'7J'00'01'UZ'03'04
SWMF � V�. Cr:ryq IM31'4rNaC•rti O•P _: Pla:'nrh.i
r - �M M .1•.R.Vf1.41•:INIIwnY •'.
Source: Englneering News -Record, December 2004, p. 81.
4.2 Water and Wastewater Overview
in 2004. in iti 31% lot copper water Wblng
and 20%for WC water pipe. P iywand I'mms lcv'
eMd off after jumping 35"% In 21@3 I.umbxr pits
are up 25%,n IN last two years
axial Structural Steel Prices
34
32
30
28
26
24
22
SOME. LAN •Yh MF:I'IR.[i.IxN!• :M'f :'llrv.�YMU
.VQ rriN 11WM• M' 1.-Li.1 .W INM'
ttxnvwttanml
Ata" Reinforcing Bar Prices
36 r d
34
32
30
28
26
24
'94 '95'96'97'98'99 Y@'01 '02'63'(64
y1MCi..rN�.F1'�IMAr[A•r•9•,t'i;lr�; :•:'.5::4 I
�Nir r..p.jy}J u .i rl .•Y.'..Iu4
Water and wastewater regulations in the next five to ten years will continue to become more
stringent and contentious. The increase in regulations is compounded by the fact that a large
3 Water and wastewater regulations are included as Attachment "F".
Page 35 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
majority of California's water and wastewater facilities were installed just after World War II and
are now reaching the end of their useful life. Therefore, in addition to the costs associated with
regulatory compliance, which often includes major modifications to facilities, water and
wastewater utilities must also place a high priority on the replacement of existing facilities.
These two factors generally result in the cost of water and wastewater service increasing faster
than inflation, unless utilities experience significant customer growth .4 The District's customer
rate base is structured such that new customers will contribute to facility development and offset
this increase to some extent.
4.2.1 Water Division
The District's audited financial reports have been reviewed to provide a historical summary of
water and wastewater expenditures over the past twelve years. The graph below illustrates the
audited expenses for the water division from FY 1990 to FY 2004. .
$9,000,000
$8,000,000
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
Historical Water Related Expenses from Audited Financial Reports
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Over the past fifteen years of audited financial records, the Water Division expenses have
increased an average of 7.23% per year. The cost increases have been the result of several
factors, such as construction material, steel, concrete, power, labor, workers compensation,
etc...
4 This Is due to the use of original cost rate base and rate of return ratemaking. As pipes and reservoirs are replaced,
the rate base Increases disproportionately, because today's dollars are replacing 40 year old Wli0es.
Page 36 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
4.2.2 Wastewater Division
The figure below illustrates the audited expenses for the water division from FY 1990 to FY
2004.
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
Historical Wastewater Related Expenses from Audited Financial Reports
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Over the past fifteen years of audited financial records, the Wastewater Division expenses have
increased an average of 5.85% per year. The cost increases have been the result of several
factors, such as regulatory requirements, chemicals, biosolids disposal, power, labor, workers
compensation, etc...
4.3 The YVWD Financial Rate Projection Model
The Yucaipa Valley Water District Financial Rate Projection Model has been created to provide
a ten year projection to 2015 of revenues and expenses based on reliable information at this
point in time. The District staff has taken into consideration a wide variety of variables as the
basis for the model. These variables include: growth rates; water and power rates/demands;
and water demands.
With any model, the further the projection into the future, the less certainty exists. It is important
to bear in mind that the practical use of the model should be judged with reference to the
structure of rates into the near future. This model is not intended to be a long-term predictive
instrument. Rather, it is to be used as a tool to identify long-term financial needs in order to
establish a rate structure that provides information to our customers about our long range plans
and objectives. As such, this model will be used to establish a rate structure for the next five
Page 37 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
years with a review conducted every two years. This will allow for smaller incremental changes
in the rates rather than unplanned major fluctuations.
4.3.1 Future Conditions and Projected Parameters
The first step in using the model is to provide certain statistical elements that are used as the
basis for adjusting costs over a ten year period. Each of the following elements is included in
the model together with a conservative estimate of the annual change from 2005 to 2015.
• Growth Rates:
► Cost of Living — This projection ranged from 1.5% in 2005 to 2.0% in 2015.
► Potable Water Demand — This projection remained fixed at 4% per year.
► Supplemental Water Demand — This projection ranged from 3.0% in 2005 to 5.0% in
2015
► Percentage Change in Assessed Valuation — This projection ranged from 10.0% in
2005 to 4.0% in 2015. `
► Number of New EDUs — This projection consistently averaged 2.8% per year and
resulted in 440 homes in 2005 to 580 homes in 2015.
► Employee Salaries and Benefits — This projection remained fixed at 4.0% per year.
► Administrative Services Expenses — This projection remained fixed at 1.0% per year.
► Operating Supplies — This projection remained fixed at 2.0% per year.
► Maintenance and Repairs — This projection remained fixed at 2.0% per year.
► Insurance — This projection remained fixed at 2.0% per year.
► Professional Fees — This projection remained fixed at 3.0% per year.
► Other Expenses — This projection remained fixed at 1.5% per year.
• Water & Power Rates:
► Energy Charges'— This projection remained fixed at 2.0% per year.
• Demand Charges vs. Consumption Charges: This factor changed from 15.0% in 2005
to 20.0% in 2015.
4.3.2 Water Division Analysis
The revenue requirements for the water division have been based on property taxes, water
sales (potable water commodity charges), supplemental water sales (supplemental water
commodity charges) and fixed water service charges. The water division expenses are
categorized as labor/benefits, electrical power, water purchases, filtration expenses, debt
service coverage, and other operational costs.
The District's financial model provides for a modest rate stabilization fund to smooth future rate
changes of less than 1.0% of water revenues per year. This fund will slowly accumulate and be
expended when needed and not exceed 5.0% of the annual water division revenue.
The audited financial statements of June 30, 2004 expensed $1,348,780 of
depreciation/amortization expenses for the water division, which is expected to significantly
increase with the completion of the Yucaipa Valley Regional Water Filtration Facility and related
improvements. The funding for depreciation has been limited to $900,000 in 2005 and is
expected to attain reasonable compliance with GASB 34 requirements in 2012.
Page 38 April 29, 2005
Yucaipa Valley Water District
Water, Wastewater and Recycled Water Rate Analysis
4.3.3 Wastewater Division Analvsis
The revenue requirements for the water division have been based on only two sources property
taxes and fixed wastewater service charges. The wastewater division expenses are
categorized as labor/benefits, electrical power, treatment expenses, debt service coverage, and
other operational costs.
The District's financial model does not provide for a rate stabilization fund for the wastewater
division at this time. In the future, the Board may consider such a fund with a similar slow
growth rate and a total fund accumulation not to exceed 5.0% of the annual wastewater division
revenue.
The audited financial statements of June 30, 2004 expensed $1,904,820 of
depreciation/amortization expenses for the wastewater division, which is expected to
significantly increase with the completion of the Wochholz Wastewater Treatment Facility
improvements and the newly constructed Oak Valley Membrane Bioreactor Facility. However,
due to management's perceived financial constraints and rate sensitivity of our customers, the
funding for depreciation has been limited to $0 in 2007, $1.65 million in 2010, and $2.9 million in
2015. While this level of depreciation funding is not sufficient to fully charge current customers
for the use of the existing and proposed infrastructure in a manner consistent with the
requirements of GASB 34, the District will be making an effort to more adequately fund
wastewater division depreciation in the future.
4.3.4 Recycled Water Division Analysis
The revenue requirements for the recycled water division have been based on the recycled
water commodity charge and fixed recycled water service charges. The recycled water division
expenses are categorized as labor/benefits, water purchases, electrical power, and other
operational costs.
The District's financial model does not provide for a rate stabilization fund for the recycled water
division at this time. In the future, the Board may consider such a fund with a similar slow
growth rate and a total fund accumulation not to exceed 5.0% of the annual wastewater division
revenue.
The District anticipates fully funding the depreciation of the newly completed recycled water
facilities.
4.3.5 Important Elements Included and Not Included in Rate Analvsis
A draft copy of Yucaipa Valley Water District Resolution No. 13-2005 is provided as Attachment
"X. It is important to remember that the comprehensive rate study anticipates the return of
property taxes in Fiscal Year 2007 and does not include the anticipated costs associated with
the construction of the brineline to San Bernardino.
Page 39 April 29, 2005
Highlands Star Group, LLC
2550 S. Santa Fe Ave '}
Vista, CA 92084
Phone (760)727-2300
Fax(760)727-8032
May 26, 2005
East Valley Water District
PO Box 3427
San Bernardino, CA 92413
Dear Tenant,
We are in the process of refinancing Highland Star Group, LLC and
the bank is requiring the enclosed documents from each tenant.
The two required documents needed from each tenant are an
Estoppel Certificate and SNDA. Please make sure all information is
correct on the Estoppel Certificate before signing and dating. This
form DOES NOT need to be notarized.
The SNDA needs to have notarized signatures on page 4. On page 5
are two Certificates of Acknowledgement for the notary, one for
the tenant and one for the landlord. We will be providing a Mobile
Notary in the next week, should you require their services, at no
cost to you. I will follow up with a phone call of the exact date. If
you have any questions, please do not hesitate to contact me.
Thank you,
4M M
Ju i
l e Murray
u ay
Accounting Office
ESTOPPEL CERTIFICATE
This Certificate is given to San Diego County Credit Union, a California Corporation, ("Lender"), with the
understanding that Lender and its counsel will rely on this Certificate in connection with a proposed mortgage loan
(the'Loan' on real property commonly known as 3654 E. Highland Ave., San Bernardino, CA 92346, (the "Propertyl
and more fully described as See Exhibit "A"
The undersigned ("Lessee/Successor Lessee' hereby certifies to Lessor/Successor Lessor, Borrower, and San
Diego County Credit Union:
1. Lessee/Successor Lessee has entered into a lease dated 1/22/2004, for premises (the 'Premised located at
3654 E. Highland Ave., Suites 12, 17 & 18, San Bernardino, CA 92346. The Lessor/Successor Lessor under the
lease is Highlands Star Center, LLC, a California Limited Liability Company ("Lessor) and Highlands Star
Center, LLC, a California Limited Liability Company is/are the 'Borrower". The lease constitutes the only
agreement between Lessor/Successor Lessor and Lessee/Successor Lessee with respect to the Premises.
2. The base monthly rental is $9.300, and rent has been paid through 5/31/2005.
3. The tens of the Lease commenced on 2/1/2004.
4. The term of the Lease shall expire on 10/312005
5. The amount of the security deposit (if any) is $8.000. No other security deposits have been made.
6. There are no offsets or credits against rents, except
7. The Lease has ( ) not been amended, modified, supplemented, extended, renewed or assigned; ( X ) been
amended, modified, supplemented, extended, renewed or assigned by the following described agreement(s); _
First Lease Amendment dated Seotember 1. 2004
8. The Lease provides for no option(s) to extend or renew the Lease tern except
Three 6 -month Options to Renew
9. No person or entity other than Lessee/Successor Lessee is In possession of the Premises and, to the best of
Lessee's/Successor Lessee's knowledge, no other person or entity other than Lessor/Successor Lessor has
future right to the Premises, except Borrower as successor Lessor.
10. Neither Party is In default under the Lease and Lease is in full force and effect.
11. That Lessee/Successor Lessee has accepted and is now in possession of said Premises.
12. That the building(s), improvements, and space required to be furnished according to the Lease have been
satisfactorily completed in all respects.
13. That the Lessor/Successor Lessor has fulfilled all of its duties of an inducement nature, and is not in default in
any manner in the performance of any of the term, covenants, or provisions of said Lease.
14. Lessee/Successor Lessee has no option or right of first refusal to purchase the Premises or any other part of the
property on which the Premises are located (the 'Property"). Lessee's/Successor Lessee's only interest in the
Premises or the Property is the Lease.
15. Lessee/Successor Lessee is not in default under the Lease, nor has any event occurred which, with the passage
of time, would constitute a default by Lessee/Successor Lessee under the Lease.
18. To the best of Lessee's/Successor Lessee's knowledge, Lessor/Successor Lessor is not in default under the
Lease and has not committed any breach of the Lease, and no event has occurred which, with the passage of
time, would constitute a default by Lessor/Successor Lessor under the Lease.
17. No bankruptcy or insolvency proceedings have been instituted by or against Lessee/Successor Lessee
subsequent to the date of the Lease.
18. Lessee/Successor Lessee acknowledges that San Diego County Credit Union will rely upon the information set
forth in this Certificate, that such information Is material to the making of a loan by San Diego County Credit
Union to be secured by Property and that Lessee/Successor Lessee is estopped from denying validity of
statements made herein.
Dated:
Lessee/Successor Lessee: East Valley Water District
By: _
Title:
By:
Title:
RECORDATION REQUESTED BY:
WHEN RECORDED MAIL TO:
San Diego County Credit Union
5545 Sequence Drive
San Diego, CA 92121
SUBORDINATION, NON -DISTURBANCE AND ATTORNMENT AGREEMENT
This Subordination, Non -Disturbance and Attomment Agreement (the "Agreement") is dated as of 5/12/2005 between San Diego
County Credit Union, a California Corporation ("Lender'), and East Valley Water District ('Tenant'.
RECITALS
Tenant is the tenant under a certain lease (the "Leasel dated 1/22/2004 , with Highlands Star Center. LLC. a California Limited
Liability Company ("Landlord") or its predecessor in interest, of premises described in the Lease (the "Premises' known as 3554
E. Highland Ave.. San Bernardino, CA 92345, Suites 12. 17 & 15 and more particularly described as See Exhibit "A" (hereinafter
referred to as the "Property'.
A. This Agreement is being entered into in connection with a mortgage loan (the "Loan) being made by Lender to
Landlord, to be secured by, among other things: (a) a mortgage, deed of trust or deed to secure debt on and of the Property (the
"Mortgagel to be recorded with the registry or dark of the county in which the Property is located; and (b) an assignment of rents
on the Property (the 'Assignment of Rents") to be recorded. The Mortgage and the Assignment of Rents are hereinafter
collectively referred to as the 'Security Documents."
S. Tenant acknowledges that Lender will rely on this Agreement in making the Loan to Landlord.
AGREEMENT
For mutual consideration, including the mutual covenants and agreements set forth below, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
f. Tenant agrees that the Lease is and shall be subordinate to the Security Documents and to all present or future
advances under the obligations secured thereby and all renewals, amendments, modifications, consolidations, replacements and
extensions of the secured obligations and the Security Documents, to the full extent of all amounts secured by the Security
Documents from time to time. Said subordination is to have the same force and effect as if the Security Documents and such
renewals, modifications, consolidations, replacements and extensions thereof had been executed, acknowledged, delivered and
recorded prior to the Lease, any amendments or modifications thereof and any notice thereof.
2. Lender agrees that, if the Lender exercises any of its rights under the Security Documents, including an entry by
Lender pursuant to the Mortgage or a foreclosure of the Mortgage, Lender shall not disturb Tenants right of quiet possession of
the Premises under the terms of the Lease so long as Tenant is not in default beyond any applicable grace period of any term,
covenant or condition of the Lease.
3. Tenant agrees that, in the event of a foreclosure of the Mortgage by Lender or the acceptance of a deed in lieu
of foreclosure by Lender or any other succession of Lender to fee ownership, Tenant will attorn to and recognize Lender as its
landlord under the Lease for the remainder of the term of the Lease (including all extension periods which have been or are
hereafter exercised) upon the same terns and conditions as are set forth in the Lease, and Tenant hereby agrees to pay and
perform all of the obligations of Tenant pursuant to the Lease.
4. Tenant agrees that, in the event Lender succeeds to the interest of Landlord under the Lease, Lender shall not
be:
(a) liable for any act or omission of any prior Landlord (including, without limitation, the then defaulting Landlord),
except that Lender agrees to cure any default of Landlord that is continuing as of the date Lender acquires title to the Premises
within thirty (30) days from the date Tenant delivers written notice to Lender of such continuing default, unless such default is of
such a nature reasonably to require more than thirty (30) days to cure and then Lender shall be permitted such additional time as is
reasonably necessary to effect such cure, provided Lender diligently and continuously prosecutes to cure such default., or
(b) subject to any defense or offsets which Tenant may have against any prior Landlord (including, without limitation,
the then defaulting Landlord), unless Tenant shall have delivered to Lender written notice of the default that gave rise to such
defense or affects and permitted Lender the same right to cure such default as permitted Landlord under the Lease, or
(c) bound by any payment of rent or additional rent which Tenant might have paid for more than one month in
advance of the due date under the Lease to any prior Landlord (including, without limitation, the then defaulting Landlord), or
(d) bound by any obligation to make any payment to Tenant which was required to be made prior to the time Lender
succeeded to any prior Landlord's interest, or
(e) accountable for any monies deposited with any prior Landlord (including security deposits), except to the extent
such monies are actually received by Lender, or
(f) bound by any surrender, termination, amendment or modification of the Lease not provided for in the lease made
without the consent of Lender.
5. Tenant agrees that, notwithstanding any provision hereof to the contrary, the terms of the Mortgage shall
continue to govern with respect to the disposition of any insurance proceeds or eminent domain awards, and any obligations of
Landlord to restore the real estate of which the Premises are a part shall, Insofar as they apply to Lender, be limited to insurance
proceeds or eminent domain awards received by Lender after the deduction of all costs and expenses incurred in obtaining such
proceeds or awards.
6. Tenant hereby agrees to give to Lender copies of all notices of Landlord default(s) under the Lease in the same
manner as, and whenever, Tenant shall give any such notice of default to Landlord. Lender shall have the right to remedy any
Landlord default under the Lease, or to cause any default of Landlord under the Lease to be remedied, and for such purpose
Tenant hereby grants Lender such additional period of time as may be reasonable, not to exceed 30 days, to enable Lender to
remedy, or cause to be remedied, any such default in addition to the period given to Landlord for remedying, or causing to be
remedied, any such default. Tenant shall accept performance by Lender of any term, covenant, condition or agreement to be
performed by Landlord under the Lease with the some force and effect as though performed by Landlord. Tenant shall forbear
from exercising its rights and remedies under the lease (i) as long as Lender, in good faith, shall have commenced to cure such
default within the above referenced time period and shall be prosecuting the same to completion with reasonable diligence, subject
to force majeure, or (ii) if possession of the Premises is required in order to cure such default, or if such default is not susceptible of
being cured by Lender, as long as Lender, in good faith, shall have notified Tenant that Lender intends to institute proceedings
under the Security Documents, and, thereafter, as long as such proceedings shall have been instituted and shall be prosecuted
with reasonable diligence. Lender shall have the right, without Tenant's consent, to foreclose the Mortgage or to accept a deed in
lieu of foreclosure of the Mortgage or to exercise any other remedies under the Security Documents.
7. Tenant hereby consents to the Assignment of Leases and Rents from Landlord to Lender in connection with the
Loan. Tenant acknowledges that the interest of the Landlord under the Lease is to be assigned to Lender solely as security for the
purposes specified in said assignments, and Lender shall have no duty, liability or obligation whatsoever under the Lease or any
extension or renewal thereof, either by virtue of said assignments or by any subsequent receipt or collection of rents there under,
unless Lender shall specifically undertake such liability in writing or unless Lender or its designee or nominee becomes, and then
only with respect to periods in which Lender or its designee or nominee becomes, the fee owner of the Premises. Tenant agrees
that upon receipt of a written notice from Lender of a default by Landlord under the Loan, and provided Landlord has joined in this
Agreement for the purpose of consenting to this paragraph 7, Tenant will thereafter, if requested by Lender, pay rent to Lender in
accordance with the terms of the Lease.
8. The Lease shall not be assigned by Tenant, modified, amended or terminated (except as permitted in the Lease
Without Landlord's consent) without Lenders prior written consent in each instance.
9. Any notice, election, communication, request or other document or demand required or permitted under this
Agreement shall be in writing and shall be deemed delivered on the earlier to occur of (a) receipt or (b) the date of delivery, refusal
or non-delivery indicated on the return receipt, if deposited in a United States Postal Service Depository, postage prepaid, sent
certified or registered mail, return receipt requested, or if sent via a recognized commercial courier service providing for a receipt,
addressed to Tenant or Lender, as the case may be, at the following addresses:
If to Tenant: East Valley Water District
3654 E. Highland Ave, Suite 12,17 & 18
San Bernardino, CA 92346
with a copy to
If to Lender: San Diego County Credit Union
6545 Sequence Drive
San Diego, California 92121
Attn: Business Lending
with a copy to:
10. The term °Lender° as used herein includes any successor or assign of the named Lender herein, including
without limitation, any co -lender at the time of making the Loan, any purchaser at a foreclosure sale and any transferee pursuant to
a deed in lieu of foreclosure, and their successors and assigns, and the terms "Tenant' and 'Landlord' as used herein include any
successor and assign of the named Tenant and Landlord herein, respectively; provided, however, that such reference to Tenants
or Landlord's successors and assigns shall not be construed as Lender's consent to any assignment or other transfer by Tenant or
Landlord.
11. If any provision of this Agreement is held to be Invalid or unenforceable by a court of competent jurisdiction, such
provision shall be deemed modified to the extent necessary to be enforceable, or if such modification is not practicable, such
provision shall be deemed deleted from this Agreement, and the other provisions of this Agreement shall remain in full force and
effect, and shall be liberally construed in favor of Lender.
12. Neither this Agreement nor any of the terms hereof may be terminated, amended, supplemented, waived or
modified orally, but only by an instrument in writing executed by the party against which enforcement of the termination,
amendment, supplement, waiver or modification is sought.
13. Counterparts. This Agreement may be executed in several counterparts that together shall be originals and
constitute one and the same instrument.
This Agreement shall be construed in accordance with the laws of the state in which the Property is located.
The person executing this Agreement on behalf of Tenant is authorized by Tenant to do so and execution hereof is the
binding act of Tenant enforceable against Tenant.
Witness the execution hereof [under seal] as of the date first above written.
TENANT: East Valley Water District
By:
Name:
Title:
By:
Name:
Title:
LENDER: SAN DIEGO COUNTY CREDIT UNION
By:
Marc Mathews, Vice President
The undersigned Landlord hereby consents to the foregoing Agreement and confirms the facts stated in the
foregoing Agreement.
LANDLORD: Highlands Star Center, LLC, a California Limited Liability Company
By:
Brian Hyndman, Trustee of The Brian Hyndman Family Trust,
Manager
CERTIFICATE OF ACKNOWLEDGMENT
STATE OF CALIFORNIA )
)SS
COUNTY OF SAN DIEGO )
On . 20_ before me,
personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/shefthey executed the same in his/herftheir authorized
capacity(ies), and that by his/her/their signature(s) on the Instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature
CERTIFICATE OF ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) SS
COUNTY OF SAN DIEGO )
On 20_ before me,
personally appeared
personally known to me (or proved to me on the basis of satisfactc
subscribed to the within instrument and acknowledged to me that he
capacity(ies), and that by his/her/their signature(s) on the instrument the
acted, executed the Instrument.
WITNESS my hand and official seal.
(Seal)
:e) to be the person(s) whose name(s) Ware
executed the same in his/her/their authorized
or the entity upon behalf of which the person(s)
Signature (Seal)
CERTIFICATE OF ACKNOWLEDGMENT
STATE OF CALIFORNIA )
)SS
COUNTY OF SAN DIEGO )
On before me, , personally appeared
Marc Mathews and Carlton Roark, personally known to me (or proved to me on the basis of satisfactory evidence) to be the
persons whose names are subscribed to the within instrument and acknowledged to me that they executed the same in their
authorized capacities and that by their signatures on the instrument the persons, or the entity upon behalf of which the persons
acted, executed the instrument.
WITNESS my hand and official seal.
(Seal)
:4 East Valley
Water District
June 8, 2005
To: Board of Directors
From: Robert E. Martin, General Manager
Subject: 2005-2006 Budget
Attached for your review and consideration is the revised 2005-2006 Budget (Draft)
which I finalized following the Board's Budget Workshop meeting on May 31St. Based
upon the discussion that occurred and questions that were asked, I have made several
revisions. The attached Budget includes a number of proposals for rate adjustments,
staffing changes and capital programs. A summary of these items is as follows:
1) Rate.Adjustments
a. Waier Rate - increase by $0.05 to a single water rate of $1.01/hcf
b. .. Residential Sewer —increase monthly rate by $0.60 to $21.50/month
C. Commercial Sewer — increase rate by $0.03/hcf to $1.28/hcf (Avg rate)
2) Sales Projections —I have changed the method used for projecting our
commercial sewer and water sales. Historically, these projections have been
based upon a five (5) year moving average of our existing sales. Instead, I
have used a three (3) year moving average for projecting our sales for 2005-
2006. Although this estimate is not as conservative as my previous projection,
it did yield a higher estimate of sales.
3) Staffing Changes — The Budget includes two new positions. These are as
follows:
Assistant Water Production Supervisor — Range 52
Accounting Supervisor — Range 52
These new positions will take our approved staffing level from 60 to 62
employees.
June 8, 2005
Memorandum
Page Two
4) Major Project Financing — A new debt issue had been included in the
Budget. Specifically, it has been assumed that a new financing of
approximately $5,000,000 will be approved later during this fiscal year. This
capital will fund a portion of our Perchlorate remediation project and will be
used to drill and equip a new well.
5) Water Meter Conversion — A major effort is being implemented in this
Budget to begin converting our existing meters to automated radio controlled
meters. This conversion will take 7 to 8 years at this proposed annual funding
level. This will allow for the replacement of approximately 2,000 meters.
6) State Representation — A new line item has been included to cover the cost
of State Representation in Sacramento. This cost is estimated at $40,000/year.
The Boards' review and consideration of these Budget Proposals is appreciated.
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