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HomeMy WebLinkAboutMINUTES - 05211991 - 1.76 i 1 076 TO: REDEVELOPMENT AGENCY F.t'-..-•.o FROM: Phil Batchelor r Contra Executive Director DATE: May 21, 1991 C`-"u "1 SUBJECT: West Pittsburg Water Distribution Improvements SPECIFIC REQUEST(S) OR RECOMMENDATIONS (S) & BACKGROUND AND JUSTIFICATION RECOMMENDATIONS Approve . :the recommendation of the West Pittsburg 'Project Area Committee to provide a preliminary financial commitment of $1.5 million over 15 years to the Contra Costa Water District for water distribution improvements. FISCAL. IMPACT The recommendation involves Redevelopment Agency tax increments only. No General Fund monies are involved. The use of Redevelopment'Agency tax increments -for water distribution- system improvements will present opportunity costs for the Agency because it would divert funds that could be .used for other improvements. BACKGROUND/REASONS FOR RECOMMENDATIONS The Contra Costa Water District has been evaluating options under which the District may be able to provide wholesale or retail treated water service to West Pittsburg. Among the options is acquisition of the West Pittsburg water system which is owned and operated by the Southern California Water Company .(Cal Cities Water) . Investigations of CCWD have been driven by a perception that West Pittsburg customers want improved water service, and * that CCWD is the best party to provide it; and that the cost of service is. too high when compared to the value of services received. CONTINUED ON ATTACHMENT: X YES SIGNATURE: . ate° i RECOIMMENDATION OF EXECUTIVE DIRECTOR RECOMMENDA OF AGEN Y COMMI E APPROVE OTHER SIGNATURE(S) :. ACTION OF AGENCY ON May 21, 1991 APPROVED AS RECOMMENDED X' OTHER VOTE OF COMMISSIONERS I HEREBY CERTIFY THAT THIS IS A X UNANIMOUS (ABSENT ) TRUE AND CORRECT COPYOFAN AYES: NOES: ACTION TAKEN AND ENTERED ON THE ABSENT: ABSTAIN: MINUTES OF THE REDEVELOPMENT AGENCY ON .THE DATE SHOWN. cc: Community Development County Administrator ATTESTED May 21, 1991 .County. Counsel PHIL BATCHELOR, Redevelopment Agency AGENCY SECRETARY (via Redevelopment Agency) West Pittsburg Project Area Committee Contra Costa Water District BY , DEPUTY California Cities Water SRA14/jb/wtrimprv.bos Recently there have been several material changes that gave cause to CCWD to evaluate alternatives. Changes both in the availability of funds for financing, and the availability of water from CCWD have occurred. In re-evaluating the acquisition opportunities, CC14D considered the following new information: 1. Contra Costa County is in the . process of completing the planning and engineering for a new Bailey Road interchange. The construction of the interchange will require relocation and demolition of Cal Cities Water Madison Treatment Plant. The County will have to pay an estimated $3? - $4k million for relocation of said facility. This amount could be made available to finance a pipeline for treated water from CCWD, obviating the need for a new treatment plant in West Pittsburg; 2. CCWD now has the Randal/Bold Treatment Plant under construction and is actively pursuing options for supplying treated water to areas not currently provided treated water by CCWD. West Pittsburg is a potential customer for this treated water; and 3 . A portion of the West Pittsburg area is part of a County Redevelopment Area. The Redevelopment Agency is a prospective source of funds to finance improvements to the water distribution system in order to improve the quality of service. CCWD is currently analyzing three options for detailed analysis and consideration. These options are: 1. No action; 2 . Sale of wholesale treated water to Cal Cities Water; and 3 . The purchase of the Cal Cities water system by CCWD. The attached March 13 preliminary analysis of West Pittsburg Service Options details the options and their impact on water rates and the District's rate payers. CCWD preliminary analysis indicates that acquisition of the current privately owned water system can be achieved with no increase in rates to West Pittsburg rate payers under the following assumptions: 1. Acquisition costs equal $8 million; 2 . CCWD is able to secure the County location funds from the Bailey Road interchange project; and 3 . The Redevelopment Agency finances approximately $1.5 million improvement in a water distribution system improvements over 15 years. In order to provide structure to their acquisition discussions, CC14D requested that the Redevelopment Agency provide a preliminary commitment of $1.5 million over 15 years for water distribution system improvements. With a preliminary commitment, the CCWD staff could pursue the various alternatives outlined with a preliminary indication of those funds being available. The CCWD Board of Directors had not authorized acquisition of the Cal Cities Water system in West Pittsburg. The CCWD Board has only authorized its staff to discuss the potential friendly sale of the water system or the sale of treated water to Cal Cities (rather than the current situation in which untreated is sold to Cal Cities) . California Cities Water Company has indicated it is not a willing seller. Cal Cities Water has indicated it's desire to stay in the water treatment and water distribution business in West Pittsburg. To that end, Cal Cities had recently submitted a request to the Agency for financing of water distribution system improvements of its privately owned system. Acier.da Item f:o. b _eS®0�& CONTRA COSTA WATER DISTRICT Meeting Date.: Mar . 13 , 1991 Resolution : O Yes (X) No AGRNDA DOCKET FORM . SUBJECT : West Pittsburg Service Options SUMMARY : Staff has been studying the options under which CCWD may- be able to provide retail or wholesale treated water service to West Pittsburg. The County planned relocation of Bailey Road will result in the abandonment of Southern California Water Company ' s Madison Plant and county funds would be available to compensate for the impacts upon the system. . Attached is a report on the staff investigation of the options for providing service to West Pittsburg. At the Board meeting, staff will review the report and seek` Board direction on how to proceed. FISCAL IMPACT: Unknown at this time. Total Cost Project Life : Current Budget Revenue This FY: Account Number: Comments : RECOMMENDED ACTION: None Prepared by: Department Appr A p .o ed: Engineering Department DaVid A. e ua, G Director of Engineering Asst . General Manager List one item only. Attach background material if required. Submit to District Secretary no later then 12 noon on the Wednesday prior to the Board meeting. /el Attachments: (X) Yes ( ) No File: V WEST PITTSBURG ACOU:ISITION ANALYSIS INTRODUCTION : Several times, Contra Costa Water District (CCWD) Staff has investigated the feasibility of acquiring the West Pittsburg water system, which is owned and operated by the Southern California Water Company (Cal Water) . These investigations have been driven, in large part, by the perception of the customers of Cal Water that the water quality, facilities and service are inferior to . CCWD ' s and that -the cost of service is too high when compared to the value of service received. Since the last investigation, there have been several material changes both in the availability of funds. for financing and the availability of water from CCWD . The purpose of this investigation is to reevaluate the acquisition opportunities considering the new information. NEW CONSIDERATIONS : Contra Costa County is in the process of completing the planning for a new Bailey Road Interchange . The construction of the interchange will require relocation and demolition of Cal City' s Madison Treatment Plant . The County will have to put up $3 . 5 to $4 . 5 - million :in funds to pay for this relocation . This amount may be available to finance a, pipeline for treated water from CCWD . A portion of the West Pittsburg area is undergoing redevelopment . The redevelopment agency will consider making redevelopment funds available for improvements to the distribution system for the purpose of improved quality and service . Depending upon the impact on rates , the redevelopment agency will consider. funding of 550, 000 to $150, 000 per year for 15 years . CCWD now has the. Randa'_1 Bold plant under construction and is actively pursuing options for supplying . treated water to areas other than Oakley and Improvement District No . 1 (ID- 1) . West Pittsburg is a potential customer and represents 7 percent of the current treated water service area . s OPTIONS : After preliminary analysis of a number of options, staff has focused on three options for detailed analysis and considerations as follows : Option '1 : No action Option 2 • Sale of wholesale r ated water *o C'al Water Option 3 Purchase of Cal Water System by CCWD To facilitate evaluation of the options, an economic model was constructed to. evaluate the impact on water rates and to evaluate the sensitivity . of rates to the . various cost components . This model was based upon the policy that the treated water rate will be the same for all CCWD customers . In addition, because of . the close proximity of West Pittsburg to Improvement District No . l, the model was based upon distribution system operations and maintenance being the same cost as ID 1 . The following Table 1 - West Pittsburg Cost Analysis is one run of the model showing the costs, income and resulting rates . Attached is a description of each line item contained within the table. DISCUSSION : This section provides a general discussion of the advantages, -- disadvantages, risks and constraints associated with each option . This discussion is based .upon the rate model and meeting with District Staff, County Staff, Redevelopment Agency Staff, Supervisor Torlakson and members of the West Pittsburg Community Association . Option 1 : No Action This option has no financial risk for CCWD, but does not, provide any advantages either . Not taking any action may result in a negative image impact on CCWD by the residents of West Pittsburg as many people perceive that quality and service would be better with CCWD . Not taking any action would also foreclose an opportunity for CCWD to sell more treated water in lieu of raw water. If the No Action Alternative is implemented, the County will provide funds to . Cal Cities for the relocation of the Madison Plant . The funds will be used by Cal Cities to expand and modernize the Hill Street plant to meet the total future needs of West Pittsburg . Once modernized, the Hill Street Plant will be capable of producing water, equivalent in quality to facilities planned by CCWD . However, the actual achievement of the proposed water quality will depend upon how well the plant is operated. Variations in operation may contribute to water quality complaints . Cal Cities Water has a 5-year plan to upgrade the distribution system that will not be affected by the N-a Action Alternative . However, it is not known if Cal Cities has any plans for dealing with customer concerns related to water quality problems resulting from deteriorated or inadequate house plumbing. Option 2 : Wholesale Treated Water Implementation of this option requires the construction of a pipeline from ID 1 to West Pittsburg for the delivery of water . Depending upon` the'.result:s of the Joint Utilization Study currently underway,. this pipeline could be one leg of the intertie between the Randall-Bold Plant and ID 1 . If this pipeline is part of the intertie, the financial risk is less because the portion of cost of the intertie allocated to West Pittsburg is less than the cost of a single purpose pipeline . As can be seen from reviewing Table 1, the cost of the single purpose pipeline is about equal to the relocation funds from the County . Under this Option, CCWD would recognize an increase in income of $450, 000 per year while West Pittsburg customers would enjoy a rate decrease of $4 .74 per month from $33 .77 to $29 . 03 . In reality, the excess revenue to CCWD would be incorporated into the overall District rate structure, reducing the cost of treated water to all customers, including West Pittsburg. The financial risk area is the balance between the cost of the pipeline and the relocation funds from the County . However, adequate funds are available to finance $4 .5 million over the relocation funds before there would be a negative cost impact on CCWD . In addition, a surcharge could fund another $3 . 5 million before the average West Pittsburg water bill would equal the current bill . This uncertainty could be- eliminated by negotiating with the County to pay -the actual cost of the pipeline. One uncertainty in the model is the Cal Cities Base . Staff is not sure of the profit allowance the PUC would allow Cal Cities on the cost of wholesale treated water from CCWD. The _ Cal Cities base could range from the $6 .30 per month based upon a 0 percent markup to $8 . 73 per month- based upon a 12 percent markup. The rate to a West Pittsburg resident would range from $26 . 60 to $29 . 03 depending on the markup. The advantage of this option to CCWD is that the treated water base would be increased by 7 percent, reducing the overall unit cost of treated water. The disadvantage is that the West Pittsburg residents may expect an improvement in U water quality that may - not be realized due to CCWD not having control of the distributing system and the ability to make improvements or operational changes.: CCWD would not have the risk and expectations of maintaining the distribution system, but may be blamed for poor water quality with no way to react . West Pittsburg residents would still have the same Cal Cities time table for main replacements and no program to assist with in-house water quality problems . However, there is an opportunity for CCWD or others to facilitate a plan between Cal Cities and West Pittsburg to accelerate main replacement and/or develop an in-house assistance program with the $4 . 74 differential between current rates and proposed rates or with redevelopment funds. Option 3 : Acquisition of West Pittsburg Acquisition of West Pittsburg would require the same construction of treated water transmission facilities as Option 2 . However, in this option, CCWD would undertake an accelerated $1 . 5 million main replacement program. In addition, staff would recommend an assistance program for West Pittsburg residents whereby CCWD would provide an in- house plumbing review and recommendation to residents to improve water quality . The largest financial risk in this Option is the purchase price of the system. The $8 million figure shown in Table 1 i-s based upon two separate assessments done by outside consultants and the method for valuing systems used by the PUC . Viability of this alternative depends upon the ability to negotiate a purchase price with Cal Cities, if Cal Cities would even consider selling. In a recent meeting with Cal _ Cities,, they indicated that they would not willingly sell the system. However_ , there was no offer on the table to be considered. The Option would be condemnation which will be discussed in a subsequent section . A second financial risk is the allocation of redevelopment funds . The redevelopment agency has already expressed a preliminary opinion that they would not reallocate funds for pipeline replacement . However, that decision was based in part upon the fact that they did, not have any analysis of the impact upon rates or any expression of intent by CCWD . If the District is interested, this funding source would have to be further pursued. Even if the funds are allocated they will be at risk as they depend upon annual tax revenues . If tax revenues decline over the time period committed, funds may not be forthcoming to CCWD. This risk can be- offset with a surcharge to West "Pittsburg rate payers , A surcharge of $0 . 90 per month would offset redevelopment funds of $100, 000 per year for 15 years and West Pittsburg residents would still enjoy a reduced water bill . The advantage of acquisition for CCWD would be control of all the elements of the system and a better .chance of improving water quality and service as sought by the West Pittsburg residents . CCWD would also enjoy the - increased rate base as in Option 2, but because of greater financial uncertainties may not enjoy a significant increase in income to positively impact District-wide rates . The disadvantage to CCWD would be the problem associated with servicing the distribution system and living up to the residents ' expectation for improved service and water quality. Option 3 would provide West Pittsburg residents all the benefits they perceive they would receive by having CCWD responsible for all aspects' of water system. CONDEMNATION: If Cal Cities does not agree to the sale of the West Pittsburg system, CCWD may want to consider condemnation of the system. This option has been preliminarily discussed with legal staff and it is possible for CCWD to pursue this option, but there are several risks to be considered. If CCWD begins the condemnation process, they can either take immediate possession .or delay possession until a final price is awarded . At any time in the process, CCWD may withdraw by paying all court costs . A major risk exists in the condemnation process because private water companies enjoy a unique .nitch in California Law. The value may be determined based upon the purchase price of other systems in the State rather than actual value. As there are a number of systems that have been purchased at an inflated value, CCWD may be at risk in a final -settlement . Each $1 million increase in the purchase price requires a $1 .40 per month surcharge on the average West Pittsburg bill . If the purchase price increases by $2 . 6 million over the $8 estimate, the average bill in West Pittsburg will remain the .same as it is currently. The County needs to have Cal Cities begin relocation of the water plant by May 1 to complete the interchange project on . time . Therefore, either CCWD has to assume the risk of an inflated settlement through condemnation or another option has to be developed. An alternative procedure may be to have CCWD begin condemnation proceedings, but not take beneficial occupancy. The County would then put the relocation amount in an interest-bearing account and proceed with connecting the West Pittsburg system to the Pittsburg system for an estimated cost of $500, 000 . This way, West Pittsburg .would receive water from both the Hill Street Plant and Pittsburg until a settlement. is reached. When a price for the purchase of the West Pittsburg system. is established by the courts, CCWD could decide to proceed or have the County release the funds to Cal Cities for the plant relocation. This option has yet to be reviewed by legal counsel. The disadvantage of this option is that West Pittsburg residents . will have higher costs during the decision period because of the higher cost of water from Pittsburg. In addition, the residents will not know, for sometime, if the issue is resolved. CONSTRAINTS : Two time constraints exist for CCWD to make a decision . First, the County needs to know how to proceed by May 1, 1991 to avoid delay the of interchange project . Second, Pittsburg can only, serve water to West Pittsburg for 5 to 7 years without major system. improvements . • Table 1 - `VEST PITTSBURG COST ANALYSIS • OPTION 3 OPTION 2 (X1 ,000,000) (0 ,000,000 A. CAPITAL COSIS 1. Purchase $8.00 $0.00 2. Main Replacement $1.50 $0.00 3. Transmission Main $4.00 $4.00 Sub total - $13.50 $4.00 B. COUNTY RELOCATION FUNDS $4.00 $4.00 Net Capital Cost To CCWD C. ANNUAL COST 1. Bond Debt Net Capital $0.95 10.00 2. Lost Revenue $0.89 $0.89 3. 0 and M $0.38 $0.08 Sub total = $2.22 $0.97 D. ANNUAL INCOME 1. Water charge $2.15 $1.45 2. Redevelopment $0.06 $0.00 3. Surcharge $0.00 $0.00 Sub total = $2.21 $1.45 " E.(Cost)/Credit to CCWD = . F: MONTHLY CHARGE actual $ actual $ 1. W. Pittsburg Current $33.77 $33.77 2. CCWD Base $30.10 $20.30 3. Surcharge $0.00 $0.00 4. Cal Cities Base $0.00 $8.73 5. Proposed $30.10 $29.03 G. REDEVELOPMENT Annual participation $100,000 $0 Years 15 - 0 • OPTION 3 - Buy West Pittsburg, replace mains and tie into Bollman WTP. • OPTION 2 . Wholesale treated water to West Pittsburg. WEST PITTSBURG COST ANALYSIS MODEL A. Capital Cost All capital costs to implement option including administrative, legal, and engineering. 1. Purchase Estimated purchase price of system from Southern California Water Company based upon prior District appraisals would need to be verified in greater detail. 2. Main Replacement Estimated cost of replacing one half of the mains • more than 20 years of age. 3.Transmission Main Estimated cost of a new transmission main to service West Pittsburg from ID 1, including administrative, engineering,environmental, and right-of-way. B. County Funds the county will pay to Southern California Cities Water Company for the abandonment of the Madison Plant. C. Annual Cost Increases in annual cost to CCWD as a result of CCWD acquiring or providing service to West Pittsburg. 1. Bond Debt The annual cost of bonds to finance the net capital cost to CCWD at 8% for 30 years. 2 Lost Revenue The annual income to CCWD for the sale of raw water that will be lost as a result of selling treated water. 3. O&M Increased O&M cost incurred by CCWD to supply treated water to West.Pittsburg as follows: a. Treatment chemical &energy $30,000 b. Distribution pumping energy $45,000 c. Materials, meter reading, new crew $300,000 D. Annual Income Increase in annual income to CCWD as a result of CCWD acquiring or providing water to West Pittsburg. 1. Water Charge The annual income from CCWD service charge to West Pittsburg,either for wholesale treated water or the same rate as ID 1. 2. Redevelopment The annual income from redevelopment annualized from the time period over which funds are received to 30 years to match the bond indebtedness. 3. Surcharge The annual income from placing a surcharge in the uses in West Pittsburg to pay for CCWD acquisition or supplying water. E. (Cost)/Credit The annual cost or income to CCWD.The difference between Annual Cost and Annual Income. 9 F. Monthly Charge The average house hold monthly water bill to a West Pittsburg residence based on 350m gallons per day, the average annual usage in West Pittsburg. 1, W. Pittsburg Current The current average monthly water bill in West Pittsburg 2, CCWD Base The average monthly bill component due to CCWD service;charges at current rates. 3, Surcharge The monthly average surcharge component per residence to finance service from CCWD if necessary 4. Cal City Base The average monthly service charge component for Cal Cities to maintain the distribution system and still receive an appropriate level of profit. ------- . 5. Proposed The proposed average monthly bill in West Pittsburg if CCWD provides service. G. Redevelopment The annual income for a specific number of years to provide monies for system improvements.