SLVWD Board Meeting Summary
February 2, 2023
Mark Dolson
Highlights:
Redwood Park Pipeline
Rate Study Request for Proposals
District Manager Succession Planning
Lyon and Big Steel Pipeline Bid Award
Next Board meeting is at 6:30 PM on February 16th
Preliminaries
There were no actions to report from Closed Session.
Director Ackemann was not present due to an excused absence.
Five members of the public were present. There was no non-agenda-related public comment.
There was no President’s Report.
Unfinished Business
Redwood Park Pipeline
District Engineer Josh Wolff introduced this agenda item. He reported that the District received four bids for construction of approximately 1,350 feet of 8” iron pipeline along Country Club Drive and Woodland Drive in Ben Lomond to replace an undersized main. This is in anticipation of a new storage tank that will be built as part of a future project. Staff recommended accepting the low bid of $547,601 from Casey Construction.
President Smolley noted that the Engineering and Environmental Committee had not reviewed the bids. Director Fultz asked what Josh had learned about Casey Construction’s past performance. Josh said they were new to the District, but they had lots of experience with projects involving Caltrans, one of which presented some similar issues.
Director Fultz was satisfied with this response and noted that $400 per lineal foot sounded about right. He asked if the pipe itself was currently available. Josh said nobody has pipe available. He contacted two supply houses, and both estimated 50 weeks of delay.
Director Hill said Casey Construction’s prior experience looked good to him. President Smolley felt comfortable that the next lowest bid of $597,930 was within 10%. He asked when cost escalation factors would take effect. Josh said Casey Construction could quote a new cost when they receive the materials if the actual costs don’t match those in their bid. The District will validate the new cost by comparing it to changes in scrap steel cost.
President Smolley moved to direct the District Manager to enter into a contract with Casey Construction for $547,601. There was no public comment. The motion passed 4-0.
New Business
Rate Study Request for Proposals
Finance Manager Kendra Reed introduced this agenda item. She said rate studies are usually done every three to five years. The District completed a rate study in 2017 that resulted in a rate increase over the next five years. A new rate study was budgeted in the FY21-23 Biennial Budget and will include a cost of service analysis as required by Proposition 218. The last cost of service analysis was performed in 2016, and there have been significant changes in the water system since that time.
A draft Request for Proposals (RFP) was reviewed in December by the Budget and Finance Committee. Director Mahood (Chair of the Budget and Finance Committee) noted that a second draft was reviewed by the committee on January 18th to incorporate input from two newly appointed public members. The committee unanimously approved bringing this RFP to the Board for additional comment and for Board approval. Director Hill (also on the Budget and Finance Committee) concurred with this summary.
Director Fultz observed that a response to the RFP was due March 6th, and he asked when the consultant would start work. Kendra said the consultant would be selected at the April 6th Board meeting and could start work immediately thereafter.
Director Fultz asked if this rate study would also include a five-year operating and capital budget for the District so the community will know exactly where their money is going. Kendra confirmed that this was specified in the RFP. Director Fultz asked about the expected level of detail, and Kendra said it was expected to be similar to the five-year look-ahead budget prepared a few years ago. Director Fultz asked about the impact of the current contract negotiations, and Kendra said this would depend on when these are finalized.
Director Fultz recalled that the rationale for moving to a flat rate five years ago was that general tiered rates were not allowed due to a recent court case which required that volumetric rates be justified by corresponding costs. Director Mahood said the timing of the court decision strongly colored the 2017 rate study decision. It has subsequently become clear that higher volumes of water use directly lead to higher costs, and tiered rates have become common in our region. There are also ways to deal with large consumers like schools. Tiered rates have been demonstrated to effectively limit consumption and can also enable the lowest tier to be priced more favorably for lower-income ratepayers. A flat rate can be more regressive. Director Hill added that including tiered rates in the scenarios under study doesn't predetermine the introduction of tiered rates.
Director Fultz suggested that increasing costs have had a damping effect on consumption directly, and he also observed that the proposal calls for changing the mix of revenue from more variable to more fixed. He further noted that the implication of distinguishing between different pressure zones is that different customers might end up paying more for the same amount of water. Directors Hill and Mahood reiterated that the goal at this point is simply to study a number of different, potentially relevant scenarios. Director Mahood said her personal guess was that the District would not elect to implement, for example, pressure zones which would punish people for living at higher elevations. The goal is to better understand the District’s costs and what is driving increases in these costs.
Director Fultz said the consultant was being asked to build a fairly robust financial model analogous to what was done for the Master Plan. This would allow the District to readily model various possible changes in expenses as well as rates for planning purposes. He saw this as beneficial and definitely a worthwhile objective, but he asked how the District could guarantee that this would be one of the outcomes.
Director Hill said the RFP specifies that the consultant will build a model that the District can use on a continuing basis. Director Fultz commented that, having built a fairly rudimentary financial model for the District himself, he didn’t think this should be too difficult. It should include compensation, power costs, etc. He noted that the previous rate study included a much lower estimated annual operating cost increase than the District actually ended up experiencing. His ultimate question was how the District could guarantee that it would get the desired financial model from the consultant.
Director Mahood offered a proposed solution in the form of a motion that the Board approve the draft RFP with the provision that the RFP should incorporate two additional sentences to be provided by Director Fultz more specifically describing the model the consultant should provide. Director Fultz agreed to deliver this by February 6th. District Manager Rick Rogers added a caution that the data required for the model should be fairly readily available and shouldn’t require a major Staff investment.
President Smolley asked if the District would be able to include all existing and forward-looking CZU-Fire-related costs. Rick said the District would be able to give some good estimations. The Cross-Country Pipeline Replacement and the Lyon Slide will be the two hardest project costs to estimate. Director Fultz argued that capital costs like these are in a different bucket and have supposedly already been handled by the Five-Year Fire Surcharge and FEMA. He said additional capital costs would fall outside of the rate study. Director Mahood countered that these costs were only being included to provide context, but Director Fultz felt that making it sound like these costs are associated with a new rate increase would send a mixed message to the community.
Two members of the public offered input. Jim Mosher said he appreciated the Board’s discussion. As a member of the Budget and Finance Committee, he affirmed what Director Mahood had said. The legal decision made just prior to the last rate study led to a lot of subsequent discussion and analysis, and a lot of districts now have tiered rates. He requested further clarification on the goal of the two additional sentences to be added to the RFP by Director Fultz. President Smolley said he understood that the model was less well-specified than Director Fultz was seeking, so Director Fultz would offer verbiage to specify further details. Director Fultz added that the model is to help the District communicate to the community in a Proposition 218 process to explain why rates are going up. His goal was to avoid all the community dissatisfaction the District experienced in 2017.
Cynthia Dzendzel said it seemed unreasonable to assume that the District could take on all these new capital projects without associated administrative and operating costs unless all these costs are included in the bids. Rick said the majority of these costs would be assumed by the contractors, and support Staff time will be charged as capital expenditures as well. Kendra clarified that the District can only capitalize labor in support of construction; administrative costs incurred by the District are expensed in the operating budget. Director Fultz asked if any of the administrative costs were reimbursable by FEMA, and Kendra said FEMA has a category to cover submission costs, but she didn’t know the cost share or threshold.
The motion passed 4-0.
District Manager Succession Planning
District Manager Rick Rogers introduced this agenda item. He explained that his employment contract expires in August, 2024, and he intends to retire. Staff recommended that the Board establish a two-member ad hoc committee to develop a process to be approved by the Board for selecting a new District Manager. The ad hoc committee would have a one-year time limit and be solely devoted to preparing recommendations for a succession plan and a related recruitment process.
President Smolley proposed that Directors Ackemann and Hill be the two ad hoc committee members. He said Director Ackemann was agreeable to this. Director Hill said he would be happy and honored to take on this responsibility. He said he had a lot of successful hiring experience, and he thought this was the right way to proceed.
Director Mahood expressed her support. She thought it was a good plan, but she asked when the first recommendation would be available because she thought it could take quite a while to find someone. Rick said he expected the ad hoc committee to start immediately and keep things moving. He pictured a six-to-twelve month process with a lot of Board interaction along the way. Director Mahood said she hoped there could be a fair amount of overlap between Rick and the new person.
Director Fultz asked if the Board would provide input prior to development of the draft. President Smolley said he thought the ad hoc committee would develop the draft and bring it back to the Board for discussion. Director Hill agreed; he said it was important to build a structure first so as to have something specific for the Board to discuss. He said the ad hoc committee would want early input, but didn’t want to take time at Board meetings until there was something concrete to discuss.
Director Fultz suggested that the ad hoc committee take a look at the process used last time in 2014 and maybe not do the same thing. He thought Rick might have some useful input on how this worked and didn't work. Director Hill said the committee would start with some information gathering and would seek input from Directors such as Director Fultz, subject to the constraints of the Brown Act.
President Smolley made a motion to establish the ad hoc committee with Directors Ackemann and Hill as members. Director Mahood seconded. There was no public comment.
The motion passed 4-0.
Lyon and Big Steel Pipeline Bid Award
District Engineer Josh Wolff introduced this agenda item concerning bids for a major project that has been in the works for several years. The Lyon and Big Steel Zone Pipeline Improvements Project replaces approximately 12,000 feet of aged and/or undersized pipeline with 12” iron pipe. It also makes revisions to the District’s current system by eliminating an aerial river crossing, adding additional pressure reducing valves, and reconfiguring pressure zones. This additional work will improve service while simultaneously reducing maintenance requirements.
Bidding closed on January 26th with the District receiving eight bids ranging from low bids of $6.233 million (Monterey Peninsula Engineering) and $6.292 million (Granite Rock) to a high bid of $8.2 million. Director Mahood asked what led Staff to recommend Monterey Peninsula Engineering (MPE), given that the bid from Granite Rock was similar. Josh said that although Granite Rock is the larger firm, MPE has completed a number of projects in this cost range. The District has had recent experience with both companies and Josh found the MPE Project Manager to be a lot more interested in giving the District what it needed. Rick added that MPE successfully completed the very similar North/South intertie a few years ago.
Director Fultz said it was great to get all these bids. He saw the cost per foot of approximately $520 as an appropriate reflection of the larger pipe for this project. He said he was disappointed that the cost was $3.5 million over the District’s original estimate, but he also noted that the recently completed Quail Hollow project came in way under the original estimate. He asked about the current size and age of the pipe being replaced, and Josh said the size ranged from 6” in the Lyon Zone down to 2” in some areas of Boulder Creek; the age varies widely but is at least 20-25 years.
Director Fultz saw this as really good work on a part of the District’s water super-highway from north to south which will ultimately allow the District to operate much more efficiently. He asked if the Water Master Plan was helpful for developing the project, and Josh said it was.
Operations Manager James Furtado commented that the project had evolved significantly since the original engineering cost estimate, and this expansion is what drove up the costs reflected in the bids. Rick added that some of the cost will be covered by FEMA at 90% due to CZU Fire damage, but this will be only a small percentage of overall project cost.
Director Hill asked when the District expected to spend the $6.2 million and where these funds were currently located. Josh said the first payments would be made in the Spring of 2024 when materials finally start to come in. Rick added that this is part of the loan money that the District is in the process of reinvesting for a higher return.
President Smolley moved to direct the District Manager to enter into a contract with MPE for construction activities related to the Lyon and Big Steel improvement project in the amount of $6,233,100. Director Fultz seconded. There was no public comment.
The motion passed 4-0.
Consent Agenda
These items are deemed adopted if nobody pulls any of them for further discussion. There was no request to pull the previous meeting minutes.
District Manager’s Report
Rick reported that the District is currently operating completely on surface water, predominantly from Foreman Creek and Fall Creek. Also, the District received a $100,000 grant for meter replacement.
Department Status Reports
No discussion.
Committee Reports
Director Fultz sought confirmation that the District was moving some of its money in pursuit of a higher rate of return. Rick said this was being worked on. The Budget and Finance Committee reviewed and approved his request to move some of the District’s money from our LAIF account (Local Agency Investment fund run by the State) to higher-interest, relatively short-term investments.
The meeting adjourned at 7:45 PM.