Monterey Peninsula Regional Water Authority

MINUTES MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA) Regular Meeting 7:00 PM, Thursday, December 27, 2012 COUNCIL CHAMBER FEW MEMORIAL HALL OF RECORDS MONTEREY, CALIFORNIA Directors Present: Burnett, Edelen, Kampe, Pendergrass, Rubio, Alternate Director Talmage, Della Sala Directors Absent: None Staff Present: Interim Executive Director, Legal Counsel, Authority Clerk ROLL CALL Alternate Director Talmage identified that Director Burnett would be late to the meeting and he will participate until Director Burnett arrives. PLEDGE OF ALLEGIANCE PUBLIC COMMENTS President Della Sala invited public comment for items not on the agenda. Tom Rowley spoke to comments made at the December 13, 2012 meeting and expressed frustration for the unrepresented Cal Am ratepayers that the answer from the Office of the Attorney General could take up to one year. He encouraged the Authority to request a response as soon as possible. Doug Wilhelm spoke about the proposed Cal Am surcharge, questioned how much would be profit for Cal Am and expressed concern over the risk of stranded costs. He then requested to agendize a discussion of the surcharge at a future meeting. With no further requests to speak, President Della Sala closed public comment and asked Legal Counsel Freeman to respond to Mr. Rowley’s comments. Mr. Freeman indicated that in order to receive a formal opinion from the State of California Attorney General it is similar to a court process could take up to a year. However due to the sensitive nature of the Authority decisions, the Directors have been requesting an expedited response letter by the end of 2012. He also indicated that a letter does not have the same force and effect as a full opinion. APPROVAL OF MINUTES 1. November 14, 2012 Action: Approved Director Kampe questioned if the Authority should adopt action minutes as to alleviate the burden of detailed records. Interim Executive Director Meurer spoke to Director Kampe’s comments that there is no stated policy and since the meetings are not televised, the intent is to be as complete as possible due to the public interest. Mr. Meurer recommended to continue publishing comprehensive minutes until the meetings are televised. On a motion by Director Pendergrass and seconded by Director Edelen and passed by the  MPRWA Minutes Thursday, December 27, 2012 following vote, the MPRWA voted to approve the minutes of November 14, 2012. AYES: 3 DIRECTORS: Edelen, Pendergrass, Della Sala NOES: 0 DIRECTORS: None ABSENT: 0 DIRECTORS: None ABSTAIN: 3 DIRECTORS: Talmage, Kampe, Rubio RECUSED: 0 DIRECTORS: None 2. December 10, 2012 Action: Approved On a motion by Director Pendergrass and seconded by Director Edelen and passed by the following vote, the MPRWA voted to approve the minutes of December 10, 2012. AYES: 3 DIRECTORS: Edelen, Kampe, Pendergrass, Rubio, Della Sala NOES: 0 DIRECTORS: None ABSENT: 0 DIRECTORS: None ABSTAIN: 3 DIRECTORS: Talmage RECUSED: 0 DIRECTORS: None 3. December 13, 2012 Action: Approved On a motion by Director Pendergrass and seconded by Director Edelen and passed by the following vote, the MPRWA voted to approve the minutes of December 13, 2012. AYES: 3 DIRECTORS: Edelen, Pendergrass, Rubio, Della Sala NOES: 0 DIRECTORS: None ABSENT: 0 DIRECTORS: None ABSTAIN: 3 DIRECTORS: Talmage, Kampe RECUSED: 0 DIRECTORS: None Director Burnett arrived at the meeting and replaced Alternate Director Talmage AGENDA ITEMS 4. Discussion of Financial Advisory Services Discussed and Authorized Director Burnett introduced the item proving background information on the Authority process for requesting Cal Am to consider public governance and financing structure for their proposed Monterey Peninsula Water Supply Project. The Authority is requesting Cal Am be required to accept public financing in order to reduce the cost to rate payers indicating that financing options are possibly the largest variable with the proposed project Cal Am has requested the Authority to submit a revised proposal regarding public governance and financing structure. Director Burnett acknowledged that in order to respond with a revised proposal, it is in the best interest of the Authority to consider obtaining outside professional public expertise to determine a variety of financial factors including, how the Monterey Regional Monterey Peninsula Regional Water Authority Regular Meeting Minutes - Thursday, December 27, 2012 2 MPRWA Minutes Thursday, December 27, 2012 Water Management District would raise the finances and how public financing would reflected in a way so that is not recorded as debt on the Cal Am books. Director Burnett clarified that the Authority has not taken a position of support for the MPWSP but discussions and actions regarding it are due to the CPUC application for the MPWSP. He then indicated TAC Member Dave Stoldt has been researching this type of professional service and has and concluded the current estimate for services would be less than $25,000. Director Burnett recommended the Authority share the cost, not to exceed $12,500. This would provide a capital financing consultant which could provide information to incorporate into the February 2013 testimony and would be available for testimony at the CPUC hearing if necessary. Director Burnett then answered questions from the Directors. President Della Sala asked why the Authority should share the cost with MPWMD. Director Burnett responded that it would be beneficial for the public for both entities to be working together as well as to have the ability to engage the consultant individually regarding Authority needs in the event they differ from that of MPWMD. Legal Counsel Freeman indicated it would be a professional services agreement where MPWMD would secure the contract and the Authority would share the cost. Director Pendergrass questioned why the Authority is allocating the amount of time and resources toward the Cal Am project. He questioned if the financing structure that the consultant will be helping develop would be able to be applied to other projects. Director Burnett affirmed that many of the questions included in the scope of the document, can be applied to any of the three projects, but the application would primarily be applicable to the investor owned projects. Director Rubio asked if the CPUC has the authority to require Cal Am to accept the Authority proposal for public governance and financing and also encouraged the scope of work be drafted to be applicable to other types of projects. Director Burnett responded that the CPUC has broad discretion to determine what is in the public interest. Director Edelen indicated that he was initially opposed but after hearing the justification is supportive of retaining the services. President Della Sala opened the item for public comment. Nelson Vega requested clarification as to why Cal Am requested the proposal in writing and expressed concern that it will create a liability for the Authority. He then expressed concerns that litigation could postpone a potential project for years and a shortage of water will affect our community. Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association in support of Mayor Pendergrass position to ensure we are not putting all support into the MPWSP and encouraged the Authority to have the consultant look at how all three projects would be financed, regardless of ownership. Jim Cullem spoke to the importance of having the consultant address ownership of the facility as well as management of the distribution of the water. Bill Reichmuth requested the consultant’s scope of work include review of all three projects from an investor’s prospective including items like, type of taxes, bonds, bond ratings and debt to equity ratio. With no more requests to speak, President Della Sala closed public comment, responded to questions asked by the public and returned the discussion back to the Directors. Director Burnett responded to the question about the 16% pre tax return rate that Cal Am may be entitled to and indicated that the TAC has begun evaluating Surcharge two. He acknowledged that the public at large is concerned that Surcharge two is the higher risk capital and indicated it is important to identify when the public contribution should be injected to achieve at the lowest cost and the lowest risk. He then spoke to Mr. Rowley and Mr. Monterey Peninsula Regional Water Authority Regular Meeting Minutes - Thursday, December 27, 2012 3 MPRWA Minutes Thursday, December 27, 2012 Pendergrass concern about the Coast Commission permits and indicated in recent conversations he supported the issuance of the permits. Director Pendergrass reminded the Directors that the Poseidon Desalination Project in Southern California is a public private partnership and that at the end of 30 years it becomes publicly owned. He encouraged the consultant’s scope of work to explore a similar public private partnership. President Della Sala recapped the discussion item and the recommendation that the Authority authorize the MPWMD to seek a professional services contract for which the Authority would pay for half of the cost of the services of a financial advisor with the maximum being $25,000. Director Rubio requested the following items be added to the scope of services : 1. Review of public contribution options broadly to be able to apply to all three projects with specific questions to directed to the MPWSP. 2. Assess the risks and the risks associated with the timing of public contribution 3. Structure and Analyze how State revolving funds can be treated as a contribution and not as debt 4. Review the relationship of Cal Am’s proposed Surcharge 2 and a public contribution 5. Develop and Analyze a Scenario where the Public Entity has the right to purchase the plant at the end of the period for a nominal fee On a Motion by Director Burnett, seconded by Director Rubio and carried by the following vote, the MPRWA authorize the expenditure to the Monterey Peninsula Water Management District to hire a financing consultant for which the Authority would pay for half of the cost of the services up to a maximum of $12,500 to include the questions outlined in the scope of services document, with the 5 additional clarifications identified and request a formal resolution be brought back to the Authority to memorialize this decision including any additions that the MPWMD may have that is consistent with the broad direction of the Authority. AYES: 6 DIRECTORS: Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala NOES: 0 DIRECTORS: None ABSENT: 0 DIRECTORS: None ABSTAIN: 0 DIRECTORS: None RECUSED: 0 DIRECTORS: None With no further business to come before the Authority during open session, President Della Sala opened public comment on the Closed Session agenda item. Libby Downey encouraged the Directors to concentrate on speaking louder. With no further requests to speak, President Della Sala closed public comment and adjourned to closed session. ANNOUNCEMENTS FROM CLOSED SESSION Monterey Peninsula Regional Water Authority Regular Meeting Minutes - Thursday, December 27, 2012 4 MPRWA Minutes Thursday, December 27, 2012 Legal Counsel Freeman announced that the Authority had provided confidential direction to staff regarding the closed session item. With no further business to come before the Authority, President Della Sala adjourned the meeting. ADJOURNMENT ATTEST: Lesley Milton, Clerk of the Authority MPRWA President Monterey Peninsula Regional Water Authority Regular Meeting Minutes - Thursday, December 27, 2012 5