VIRGIN VALLEY WATER DISTRICT REGULAR BOARD MEETING
VIRGIN VALLEY WATER DISTRICT OFFICE
SEPTEMBER 21, 2010

Minutes of a Regular Board Meeting of the Virgin Valley Water District Board held on September 21, 2010, at the Virgin Valley Water District Office at 5:00 p.m. Attending were President John Paul, Vice-President Karl Gustaveson, Secretary-Treasurer Kenyon Leavitt, and Board Members Ted Miller and Mark McEwen. Also present were Ken Rock District General Manager, Bo Bingham District Legal Counsel, John Gleave District CFO and Mary Johnson taking minutes and other interested parties of agenda items.

President John Paul called the meeting to order at 5:00 p.m.

Mark McEwen offered a Prayer and Karl Gustaveson led the pledge.

Public Comment – George Michnick wanted to personally welcome Ken Rock as the new general manager and wish him luck in his endeavors.

Discussion: Board Comments – Ted commented that he had been approached by a customer regarding his water usage and that his bill has doubled. Ted called the office and he was informed that this individual had been notified by staff working in the office a couple times that his water bill had increased, the meter was spinning and he should check for leaks. The individual did have a couple leaks that were eventually fixed; and Ted wanted to thank and commend the billing department staff for watching out for the rate payers.
Karl stated that he was in favor of moving the meetings to 5:00 instead of 3:00, giving more opportunity for the public to attend the meetings and hopefully see more public attend meetings in the future.
President of Board Comments - None

CONSENT AGENDA:

Kenyon Leavitt made a motion to approve the consent agenda, items 1 through 4, as listed below. Karl Gustaveson seconded this motion and it was unanimously carried. 5-0

1. Discussion & Action - Approve Agenda

2. Discussion & Action – Approve Minutes from 8/30/10 Work Session

3. Discussion & Action – Approve Minutes from 9/17/10 Regular Board Meeting

4. Discussion & Action – Approve Bills Paid - $767,692.18

** End of Consent Agenda**

 

5. Discussion & Possible Action – Consideration of a resolution authorizing the legal defeasance to pay principal and interest on the 2008 Bonds in the amount to legally defease of approximately $11 million of the 2008 Bond with proceeds of the 2008 Bonds to pay off principal and interest on the bond and thereby to increase the District’s debt service coverage ratio by reducing the amount of outstanding bonds

Ken began by stating that we thought we had 10.8 million dollars, but after an ACOE reimbursement, we actually have 11 million dollars available to defease for the 2008 Bonds. Karl stated that he thought it would be beneficial for Ken to take us through this item and explain it again since public was present that has not heard what was discussed in the work session. Ken explained that a bond is like a covenant/agreement. The District essentially receives money from people who purchase the bonds and the District agrees to pay back a certain percentage of that money each year of the bond’s life, which can be 10, 20 or 30 years. The 2008 Bonds are for 30 years at 4.7% interest and we cannot revoke that promise even if we do not use all the money. The 2008 Bonds were to be used for arsenic, a new facility and assistance in drilling well #34. The District does not need the remaining $11 million since they have decided to stop large capital improvement projects (CIP) at this time. The Board has decided to legally defease the 2008 Bonds. By defeasing, money will go into an impound account which will pay off the interest and the District will not have legal liability for the money, so it is not a debt. By setting aside this $11 million the District will save approximately $8 million interest over the life of the bond and pay off the bond 5 years sooner.

Karl commented that we were doing this to get our debt load down as much as possible to avoid raising rates significantly higher than what is anticipated.
John Gleave commented that the bond resolution states that the maximum to be defeased is $11 million and that should probably be stated in the motion.

Kenyon Leavitt made a motion to legally defease a maximum of $11 million or a lesser amount of the 2008 Bonds with proceeds of the 2008 Bonds to pay off principal and interest on the bond. Ted Miller seconded this motion and it was unanimously carried. 5-0

6. Discussion & Possible Action – Consideration to begin steps to call in the 2001 Bonds for redemption and refinance at a lower interest rate to increase the District’s debt service coverage and save approximately $250,000 in interest

Ken stated that Marty Johnson with JNA Consulting had advised him that a resolution would need to be adopted on the 2001 Bond refunding and if his services are adopted in item #7, then he would bring the wording and details back to the board for approval at the October 5, 2010 meeting.

 

Karl Gustaveson made a motion to begin steps to call in the 2001 Bonds for redemption and refinance at a lower interest rate to increase the District’s debt service coverage and save approximately $250,000 in interest. Kenyon Leavitt seconded this motion and it was unanimously carried. 5-0

7. Discussion & Possible Action – Consideration to approve professional services by Martin Johnson with JNA Consulting Group, LLC for the refunding of the 2001 Bonds and defeasance of the 2008 Bonds

Kenyon stated that this was just giving Marty the Board’s approval to go ahead with the previous two items. Ted commented that when approving the 2008 Bond that he and another board member were against the $11 million to build executive suites. Ted further stated that they were informed by JNA that if they didn’t take all the money at once, that they would have to pay the fees twice, which were around $60,000. Ted feels that they were led to believe by JNA Consulting that the District had to take out all the money at once, but then they wouldn’t have to use all the money and Ted feels that JNA caused part of this problem and that they should waive their fees.

John Gleave stated that Marty Johnson was under direction of the general manager at that time, as was he and Kendra (bond counsel). John further stated that some of the comments Ted made were not correct. There continued to be discussion regarding the past and Karl called for a point of order stating that they were getting off the agenda item and things that happened in the past could not be changed now and we should call for a vote.

Mark McEwen stated that he did not like amounts between zero and something and feels that a finance person as Marty Johnson should have a more direct amount in fees. Kenyon stated that the fees were based on rates and that the rates today might not be the same rates when the defeasement actually happens so Marty cannot give an exact amount of what fees will be.

Mark McEwen made a motion to approve professional services by Martin Johnson with JNA Consulting Group, LLC for the refunding of the 2001 Bonds and defeasance of the 2008 Bonds. Karl Gustaveson seconded this motion and it was passed by a vote of 4-1 with Ted Miller opposed.

8. Discussion & Possible Action – Presentation by Bowen, Collins & Associates, Inc. and the District’s General Manager of the functional and economical evaluation of Well #30, and possible action on its continued operation and maintenance

Ken led in by pointing out well #30’s location on the map and stated that he had compared costs to build, operate, maintenance and efficiency to other wells in a handout distributed with the breakdown of these costs. Mike Chandler with Bowen, Collins & Associates, Inc. (B&C) explained the analysis provided in the handout for a 9 year average comparing the District’s wells, their production, percentage of each of the wells annual production for the system, and power costs per acre foot produced. Mike stated that as they looked at well #30, one concern they had was the viability or reliability of that well moving forward. On the second page, wells 30, 31, 32 and 33
costs were compared for capital improvement costs for drilling and power installation, excluding the pipelines and reservoirs. Mike further explained the history of well #30; why it was drilled; maintenance and rehabilitation costs. The approach B&C took was to see if the District had sufficient resources with the other wells; and within its past operating history with its distribution system, to cover the demands that would be necessary if we should have any kind of a problem with well #31, since that was the intent or initial teaming of those two wells. After lengthy discussions with operations staff, the general manager and within their own economical analysis, they found that the costs to rehabilitate well #30 cannot be seen as a viable or crucial asset to the system. After their analysis was done, they found that there are more affordable and more reliable alternatives within the system than pursuing well #30 and would recommend that the District pursue these other alternatives.

Mike answered questions from the board and public regarding Well #30, other wells and the arsenic plants.

It was discussed whether a motion was needed and Ken stated that he didn’t know if we needed a motion, but an understanding that no more money would be put into well #30. John Paul stated that to keep transparency, we may want a motion and Karl agreed.

Karl Gustaveson made a motion directing the general manager not to spend any additional money for maintenance of well #30 until further research had been completed and a final decision was made. Kenyon Leavitt seconded this motion and it was unanimously carried. 5-0

9. Discussion – Public presentation by District’s General Manager on the District’s budget and financial concerns leading to a recommended rate increase of approximately 36%

Ken had revised a couple of his previous presentations so that they would be more relevant to the public. Ken reviewed the condition of the Water District and explained that it was time for a fiscal strategy and shift. He went through the previous strategy, today’s realities, what to stop start and keep and suggested actions. Ken explained what a depreciation fund was and why the District should have this fund. Ken further reviewed the District’s debt overview, bond details, annual debt service, debt service coverage and the impact of the District’s current situation. Ken reviewed how defeasing the 2008 Bonds would affect the District and how and when a repair and replacement or depreciation fund would be achieved. Ken then explained the District’s economizing strategies, the District’s new directions, coverage restoration plan and the bad and good news conclusions. Ken had included a rate comparison study in the handout with six other water purveyors within a hundred miles of the District; and with the District increasing rates 36%, they would still be competitive and reasonable.

Jean Johnson questioned if every business would be affected and if the wells located in Lincoln County were going to service the Toquop Energy Plant. Ken stated that everyone who is serviced by the VVWD would be affected and Wade Poulsen, General Manager of the Lincoln County Water District (LCWD), explained that LCWD was planning on servicing the Toquop Energy Plant.

Another individual stated that the District should have consumer campaigns on how to water more efficiently and that the golf courses should cut down on their greens. A discussion ensued on conservation and the tiered rate schedule.

Bo suggested that we move to item #10 for the public comments, but Mark stated that he had some questions. John Paul stated that we would have Mark ask his questions and then move to the next item. Mark McEwen questioned the updating of the rate study and Mike Chandler explained that about 95% was completed and whatever action was taken by the board tonight would affect the remaining portion. Mark also questioned CIPs and Ken stated that we were not planning on any large CIPs, but can’t say that there won’t be any smaller ones. There continued to be a lengthy discussion on the depreciation fund.

10. Discussion – Public Hearing on District’s anticipated rate increase

Don Paff stated that he saw this increase as a lack of growth and a lack of impact fees is gone and now we are doing this to the current customers. His example is that the arsenic plants were overbuilt for continued growth in the community. Now, with growth stopped, the customers have to pay for this. Don further stated that this doesn’t mean it’s bad, but the only way to deal with it now; but then there is the future. Don further asked how the board will deal with this when the new growth comes along. Don stated that the board has stated that growth will pay for growth, when in fact; current customers are now supporting that growth future and asked if the board was going to change their connection fees and would they be recognized within the forecast of the District’s revenues. Ken stated that there was some truth to this in that we did build more arsenic treatment facilities than is currently needed, because when they were designed, they were anticipating rapid growth. Ken further stated that B&C were looking at the connection fees and that growth would pay for their portion. Mike Chandler stated that he thought he understood Don in that typically ongoing operating costs should be supported by the current customer base and anything dealing with growth, or expansion of services, is intended to be covered by impact fees. Mike further stated that for a long time, the District was actually subsidized by the impact fees. Mike also stated that the current situation was actually the result of growth subsidizing current customers. Mike explained further that B&C was looking at the future and to make sure that growth pays for growth and that the current customers are not unduly burdened; and that the District, in the short and medium term to stay solvent. Don further stated that he thought it was right for the board to take an action to keep the integrity of the Water District financially and every other way. Don further stated that he would implore the board to establish a two-year minimum time to examine the very function of growth related versus cost of customer related issues; or rather the cost of service and not listen to developers as they come in and complain about the cost of connection fees. He feels that the board should establish a policy of review, specifically for the purpose of seeing the balancing of the revenues versus the service requirements.

George Michnick asked if the District was completely in compliance in regards to all federal, state and environmental agencies water quality sampling and he was informed that we were.

Robert “Bubba” Smith stated that he does see this rate increase paying for the future, but not necessarily growth. Bubba also stated that he agrees with Don in that the board needs to continue to re-evaluate and that he supported the board in their decision.

Mary Lane stated that her concern was with the hardship the increase would have on people who have lost jobs, others on fixed incomes, and wondered if the rates should not be so generous with the larger water users. John Paul thanked her for her comment and stated that the board was not completely finished with the tier structure examination and would continue to examine if what they do is the right thing to do for all the people.

Ken stated that maybe it was time for a brief recess.

Mark McEwen made a motion for a short recess and to reconvene at 7:35. Karl Gustaveson seconded this motion and it was unanimously carried. 5-0

Meeting was reconvened at 7:35

11. Discussion & Possible Action – Consideration of a potential 36% rate increase, including but not limited to, amount of increase, effective date of increase and number of steps to implement potential rate increase

Ted questioned the start date of the increase and Ken stated that we would give two weeks’ notice in the newspapers and that we could not start in the middle of the month, but could begin November 1, 2010; and the increase would be noticed on the December billing statements. The board asked Mike Chandler if 36% was the number that we needed and Mike stated that it was. He further stated that if the board implemented the increase in one step, there would be some extra money; but if it was implemented in steps, that the District would have to use their reserve funds.

Kenyon Leavitt made a motion to increase the District’s rates 36%, effective November 1, 2010 and to take Don’s recommendation and have it reviewed in two years from this date to see where we are at. Ted Miller seconded the motion and it was unanimously carried. 5-0

12. Discussion & Possible Action – Presentation by the General Manager on values and approximate costs of water transmission lines as part of the exit 120 interchange construction. The Board may reject, approve, or modify the General Manager’s recommendations, or ask for additional work before making a decision

Ken gave the board handouts with information of pipe comparisons for 1,300’ of 16”, 18” and 24” pipe for the 120 exit. Ken compared the sizes against cost, flow, possible uses, and cost between boring and trenching. Ken suggested he was looking toward having an 18” and 24” line trenched for future uses. There was discussion regarding the different uses and what size pipe we may need. Mike Chandler commented on the pricing of jack and boring and just laying the pipe in the trench and stated if you had the chance to definitely go with trenching because it was much cheaper. Mike further stated that UDOT requires that a carrier pipe at least be laid in the trench for future use; and then you could put whatever size pipe through when your plans required it. Mike suggested laying 30” carrier piping, which would hold any of the sizes of pipe we would be looking at in the future. Kenyon stated that he believed NDOT also required a carrier pipe laid on another interchange.

Karl questioned if any grant money had been sought and that the interchange was being constructed with federal and state money. There was further discussion regarding the future, looking into possible grants for the project and scheduling of construction.

Karl Gustaveson made a motion to give the General Manager, Ken Rock, direction to pursue laying two pipes under the new interchange at 120, collecting information and seeing if there are grants available and bring this back to us as a possible action item on the 19th of October. Kenyon Leavitt seconded the motion and it was unanimously carried.  5-0

13. Discussion & Possible Action – Consideration to adopt Resolution 2010-03 to change the time of regular board meetings to begin at 5:00 p.m. in lieu of 3:00 p.m.

Kenyon Leavitt made a motion to adopt Resolution 2010-03 and change the time of regular board meetings to begin at 5:00 p.m. in lieu of 3:00 p.m. Karl Gustaveson seconded the motion and it was carried unanimously. 5-0

14. General Manager’s Report

Ken had included a written report and stated that he would like the board to note this report without having to go over it with them. In short, he has had several meetings with helpful people to help him make decisions.

Ken stated that he would like to move forward with a couple items. The first one is to deal with well inefficiencies. Ken referred back to the handout distributed earlier for item #8. After a brainstorming session, they came up with a sequence of steps to reduce costs and make the system more reliable and efficient. It was decided earlier to not put any more money into #30. Ken pointed out on the map that he feels the wells currently operational will suffice for the short and medium term. We are going to test pump well #32 using the VFD (variable frequency drive) to adjust the speed of the pump for the next month and see what the well can sustain. Ken stated that the motor and pump are too large for this well; it was sized for what they hoped it would pump, not for what it actually pumps. Ken stated that he thought with changing out the pump and VFD we could save $45-$60,000 in power and treatment and that this would pay for a new pump.

They evaluated the south side also and believe that moving reservoirs and utilizing other wells through the arsenic plant would help the distribution system and would not require having to drill another well. These costs would be nominal compared to having to drill another well.  There was other discussion regarding different options to make the system more economical and sustainable.

Ken also informed the board that Marty Johnson has informed us that our bond insurer has failed. There are only a couple bond insurers, so basically we cannot get another one. Ken explained that this is not our fault. We now have to cover the entire reserve fund with our own cash. Ken stated that we have enough cash to do that. We would need $2 million in reserves, but we currently have a $1.4 million shortfall. We could make up the shortfall in a year if we add $116,000 per month. Also, when the 2001 Bonds are called in, we would only need $1.5 million in reserves. Ken stated that he would bring this back to the board at the October 5th meeting for a resolution or alternatives.

15. Public Comment

There was no public comment at this time.

16. Adjournment

President John Paul adjourned the meeting at 8:35 p.m.

NOTE): The minutes of this meeting have been tape-recorded and will remain on file in the District office for a one-year period for public examination.

•  Board Meeting Minutes: 2010-09-21 (.pdf 29.K)