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The Vallejo Lakes Water System [LWS]

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Presentation on theme: "The Vallejo Lakes Water System [LWS]"— Presentation transcript:

1 The Vallejo Lakes Water System [LWS]
History and Current Issues January 26, 2014

2 LWS Was Originally Developed as a New Water Supply for Vallejo
Vallejo bought property above Green Valley around 1892, to develop a new water supply for the City A dam was created on Wild Horse Creek and a 14-inch transmission pipeline (Green Line) was installed to bring this water to the City of Vallejo 1894: Lake Frey created 1908: Lake Madigan created 1925: Lake Curry built, along with a 24-inch transmission pipeline (Gordon Valley Line) to bring additional water to Vallejo Vallejo obtained pipeline easements and riparian water rights by trading for free water.

3 Vallejo Obtained Additional Water From New Sources to Meet Demands
Vallejo acquired new water supplies from the Sacramento River Delta (Cache Slough) and Lake Berryessa in the 1950’s New pump stations and pipelines were completed to convey this water to a new treatment plant (Fleming Hill WTP in Vallejo) Water from these sources was: Cheaper More abundant and dependable Better quality In 1988, Vallejo began receiving additional water from the State Water Project, through the North Bay Aqueduct With these multiple sources Vallejo no longer needed LWS water

4 New Drinking Water Regulations Changed the LWS Operation
1992-Present 1992: The Critical Year Vallejo was compelled to cease delivering water from Lake Curry to domestic users because of new water treatment requirements Due to this, Gordon Valley pipeline could no longer deliver Lake Curry potable water to customers along that route Treated water from Green Valley was fed “backwards” into Gordon Valley to serve former Lake Curry customers After Lake Curry was abandoned, and for the first time in almost 100 years, Vallejo received no water from the LWS. Vallejo decided to make the 809 LWS customers pay all system costs (instead of the 30,000 Vallejo customers).

5 New Green Valley WTP Built to Meet EPA and State Requirements
In January, 1994 the Dept. of Health Services ordered Vallejo to add a modern treatment plant to replace the old pressure filter plant A LWS Master Plan was developed and, together with the Green Valley Landowners Association (GVLA), it was decided to construct a new 1 million gallon per day water treatment plant and reservoir in Green Valley Vallejo added an $80 bi-monthly surcharge on to the water bills to pay for these facilities

6 Improvements Added to Meet New Requirements
In 2004, EPA ordered Vallejo to reduce the level of trihalomethanes (THMs) in the treated water A MIEX ion exchange process was added in 2006 The Green Valley Water Treatment Plant now receives about 75% of its water from the Solano Irrigation District (SID - Berryessa Water) and the remainder from Lakes Frey and Madigan. The blended water from the two sources improves water quantity, quality, and simplifies treatment plant operation

7 The Cost of LWS Water Has Changed Dramatically Since 1991

8 The Cost of LWS Water Has Changed Dramatically Since 1991

9 The LWS Today: What Does it Consist Of?
Over 50 miles of pipeline; the pipeline “backbone” consists of two lines: the Green Valley Line and the Gordon Valley Line, an aging, fragile and inadequate distribution system, which cannot reliably meet potable water or fire flow needs Reservoirs and pump stations A 1 million gallon/day water treatment plant (the Green Valley Water Treatment Plant) Serves Upper Green Valley, Gordon Valley, Old Cordelia, Willotta Oaks, Spurs Ranch, Solano JC, and others

10 The LWS is Different Than Many Small Water Systems
The source for the LWS is surface water rather than wells or purchased treated water Surface water requires treatment to meet the Federal and State Safe Drinking Water Standards The LWS was originally designed to supply water to the City of Vallejo but now only needs to deliver treated water to a comparatively small number of customers

11 The LWS Infrastructure Cost is Very High
Our infrastructure cost per customer is higher than typical small water systems Lakes Water System = $11,220 per customer Typical Small System= $925 per customer LWS Infrastructure Cost is More Than Ten Times that of Other Systems

12 Vallejo Has Given Indications That it Plans to Sell the LWS
The City no longer wants the Lakes System water supply The LWS is physically separated from the City of Vallejo The LWS is expensive to operate and maintain There are significant liability issues for Vallejo due to the age and extent of the system infrastructure The only reason Vallejo continues to operate and maintain the LWS is because they have an on-going responsibility to serve the customers.

13 The Existing LWS Pipeline Infrastructure is a Liability
The first pipeline (14-inch Green Line) was installed in about 1900 Over 74% of the LWS pipeline assets have been in service for over 30 years beyond their useful life. Useful life is about years. The replacement cost for all LWS pipelines that have reached the end of their useful life is about $24.1 mil The balance of the distribution pipelines in Green Valley will reach the end of their useful life in the next 10 years. Replacement cost for these pipes is about another $6.0 mil Total Infrastructure Liability is about $30 million

14 The Pipeline Liability Represents a Huge Potential Impact on our Rates
Many pipelines will need to be replaced/upgraded over the next 10 years New pipelines and pumps will need to be larger to meet fire flow requirements Replacement costs may be more than $30 mil (2012 $$) This represents a potential cost of over $37,000 per household

15 Example of LWS Pipeline

16 If Vallejo Sells the LWS Who Would Buy it?
Investor Owned Utility (IOU) A for-profit company Regulated by the CPUC Examples: PG&E, California American Water (Cal Am) Community Services District (CSD) A non-profit public agency (Special District) Governed by a locally elected board of directors Example: Solano Irrigation District (SID)

17 Vallejo Had an Appraisal of the LWS Prepared in Anticipation of Sale
The LWS appraisal, by FCS Group, was completed in March 2013 The report concluded that the Fair Market Value of the LWS was estimated to be $9,077,000, without including any land or any water rights The GVLA review of the appraisal indicates that it is deeply flawed and did not consider the infrastructure liability It appears that the Fair Market Value of the LWS was grossly overestimated

18 The Appraisal Report Also Analyzed Purchase by Both an IOU and CSD
Purchase by an investor-owned utility (IOU) would result in higher rates than if a Community Service District (CSD) owned and operated the LWS IOU -- 54% initial increase in rates CWD – 10% initial increase in rates Interest rates are more favorable for CWD financing compared to an IOU An IOU is allowed to make a return on its investment (profit) where a CWD is non-profit

19 What is Vallejo Likely to Do?
Vallejo’s stated intention is to sell the LWS to a private utility. Vallejo is allegedly in discussions with California American Water (Cal Am), and others, to sell the LWS. A private utility is allowed to recover from consumers: The price it paid for the system The cost of all operations The price of any improvements to the system Plus a reasonable rate of return (i.e. profit) Highest rates will occur with an Investor Owned Utility

20 What Will Future Water Rates Be?
Rates will depend on who buys or operates the LWS: an IOU or a CSD With financing by an IOU, the rate increase would be about $640/2-mo average per customer or: An average total bi-monthly cost of $1,150 per customer (approximately three times your present water bill) One thing is guaranteed: Without action, all operating, maintenance and deferred capital improvement costs associated with the LWS will be shared by no more than our 809 connections.

21 What Will Vallejo Likely do if We Do Nothing?
Raise rates pursuant to a new 5-year study beginning in June, 2014 Continue to pass the full cost of the LWS to the LWS customers Continue to defer needed infrastructure replacement and system reconfiguration Likely carry out its stated intention of selling some or all of the LWS to a privately regulated utility (who will pass on the full cost, plus profits, to the LWS customers) Possibly sell some or all of the water and non-watershed lands (while pocketing the proceeds for itself)

22 Recent Actions On December 4, 2014, the GVLA sent Vallejo:
A formal claim under the Government Claims Act; A detailed demand letter; and A detailed response to the flawed appraisal of the LWS. The GVLA offered to mediate the dispute; Vallejo ignored the offer. On January 22, 2014, the GVLA filed a class action complaint on behalf of all LWS Customers against Vallejo.

23 What Does the Class Action Lawsuit Allege?
The class action lawsuit alleges that Vallejo has a contractual, fiduciary and legal obligation to share in the cost of the LWS (just as it had for the first 100 years). The class action lawsuit alleges that Vallejo is obligated to pay at least 98% of the cost of operating the LWS.

24 What Does the Class Action Lawsuit Seek?
Damages (of approximately $12 million) stemming from the rate increases which first went into effect in 2009. An order prohibiting Vallejo from selling the LWS to an IOU or any other party. An order compelling Vallejo to continue to share in the cost of the LWS, including: Maintenance and operational costs Deferred Capital improvement costs

25 How Does a Class Action Lawsuit Work?
The GVLA is the “named plaintiff” – the plaintiff who brings the lawsuit on behalf of the class. The “class” members consist of all LWS customers between 2009 and 2014. Class actions lawsuits are binding on all class members unless you “opt out” of the class. Any settlement must be approved by the court. Class members may object to a settlement.

26 What Else is Being Done? In an abundance of caution, the GVLA is beginning the process of forming a Community Services District (CSD). The Community Services District could take title to the LWS in the event a settlement is reached (on acceptable terms), whereby the LWS is transferred to the customers. Unlike Vallejo, a Community Services District would be run by a locally-elected board of directors, responsible to the customers. In all likelihood, the District ‘s system would be operated by a third party operator, such as SID.

27 How Does the CSD Process Work?
The GVLA will submit a “Notice of Intent” to form a CSD with the Solano County Local Agency Formation Committee (“LAFCO”). 10% of all users of the LWS will need to sign a petition to form the CSD. Thereafter, an application and the signatures will be filed with LAFCO. If approved by LAFCO, a majority of the users need to vote to approve the formation of the new CSD.

28 What if I receive “free water”?
The lawsuit does not challenge the right of certain owners to continue to receive free water. The water rights these owners obtained are vested and run with the land. However, the lawsuit does seek to recoup damages from Vallejo attributable to the increased cost the remaining customers bear in order to provide the free water.

29 What Can I Do? Contribute to the cause.
Litigation is expensive; Forming a CSD is expensive; PR efforts are expensive. The minimum recommended donation is an amount equal to one bi-monthly water bill. Tell others, spread the word and stay informed. Follow and circulate local and regional news stories Help draft and submit letters to the editor

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