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08-03-1999 - Special Meeting - MinutesMINUTES SPECIAL MEETING OF THE WEST COVINA CITY COUNCIL AUGUST 3, 1999 The special meeting of the West Covina City Council was called to order by Mayor Howard at 4:40 pm in the City Hall Council Chambers, 1444 W. Garvey Avenue, West Covina. ROLL CALL Mayor Howard, Mayor Pro Tem Melendez (arrived at 5:00 pm), Councilmember Herfert (arrived at 6:00 pm), Councilmembers Touhey and Wong Others Present: Hobbs, Fields, Martyn, Collier, King, Briley, Dove, Mayer, Tucker, Pidgeon, Berry STUDY SESSION CONSIDERATION OF SALE OF WEST COVINA'S WATER SYSTEM TO SUBURBAN WATER SYSTEMS City Manager Hobbs presented evaluation factors and the top reasons for retaining the City's water system and the top reasons for selling it to Suburban Water Systems. Public Services Director Collier presented the staff report, commencing with the history of the City's water system covering relevant statistics and the evaluation process, and concluding with options available to the City Council. Mayor Pro Tem Melendez arrived at 5:00 pm. Finance Director Tucker presented the financial aspects of the water system as well as the components of the sale. She discussed bonded indebtedness, stranded costs and other costs impacting the General Fund. Public Services Director Collier discussed the impact on the City's organization. Because the potential sale of the City's water system has been discussed for several years, the City has not filled vacancies in the Maintenance Department, for those employees effected by the sale will be transferred to those positions. There is one account clerk position that is proposed for elimination. Harold Morgan Harold Morgan of Bookman-Edmonston, the City's consultant who participated in the evaluation and negotiations on behalf of the City, gave his expert opinion on the terms of the potential sale. He presented his credentials and his association with appraising large and small water systems. Mr. Morgan opined the proposal is fair to both the City and the ratepayers and is a fair market sale. He stated three overriding .� • benefits to the City: 1) Suburban has alternative water sources, which gives an economic flexibility to Suburban in times of emergency which the City doesn't have. 2) From a system of 7,600 connections to a system of 77,000 connections will result in a gain of economic, operational efficiencies. Council Minutes of 8/3/99 11 3) Suburban has the expertise for state -of -the art operation and management, which the City being much smaller, does not possess. Councilmember Touhey spoke as a member of the City Council ad hoc committee and commented on several issues: * Suburban Water Systems has rights to transfer water between water basins, whereas the other bidders did not. * Where the City has a maximum amount of water it can purchase from Covina Irrigation, Suburban is not restricted. * Both Mayor Howard and he agreed and recommended to the remaining City Council that the City enter into an Exclusive Negotiation Agreement with Suburban. *, BKK has decided to leave the City's water system to obtain reclaimed water for the landfill landscape maintenance. This amounts to an 11% loss in gross revenues. BKK has a signed M.O.U. with the City of Industry. * The City's system is currently at its peak and the value of the system may begin to drop. The ad hoc committee felt moving forward with the sale at this time would yield the maximum value from the water system. Councilmember Touhey stated that the ad hoc committee's recommendation to the City Council is to move forward with placing the matter on the ballot for a vote of the ratepayers and to approve the Letter of Intent to sell the water system to Suburban. Public Comments Mayor Howard stated that this was time to take comments from the audience. Letter from Michael Miller Before the first•person spoke, Mayor Howard read a letter dated August 2, 1999 submitted by Michael Miller, 735 E. Herring Avenue, expressing his concerns and questions about the potential sale. In Favor Tony Gamier Tony Gamier, President of Southwest Water, the company that owns 100% of Suburban Water Systems, addressed Council as the spokesman for Suburban. He complimented the thoroughness of the staff report and not wishing to be redundant, cut his remarks short. Mr. Gamier introduced Mike Quinn and Reg Stone, president and vice president, respectively, of Suburban Water Systems. In Opposition Robert Nationales Tafoya Robert Nationales Tafoya, 2214 Calle Jalapa, founder of "Citizens Against the Water Sale." He stated that his group is against the . sale of the water system because they felt it was not in the best interest of the City. He said the City is offering a 10% decrease on the commodity charges and the standby charges to both the City's ratepayers as well as the Walnut ratepayers. Suburban, on the other hand, is offering a 10% reduction solely to the City's ratepayers. He then addressed the reserve fund of $9 million. He noted that the appraisal of the water system was determined to be $12 million. That makes a 75% reserve fund and a 15% reserve fund would be sufficient. He felt the water rates have been kept artificially high because of the potential sale. Therefore, if the City were to reduce the reserve fund, it could reduce the water rates paid currently by the residents. He also suggested that Suburban may very well increase its rates because of a contaminant found in the San Gabriel Valley Basin, which will cost millions of dollars to clean up. The ratepayers will be charged for the contamination cleanup. K, Council Minutes of 8/3/99 Quoting from the June 25th Southwest Company's Quarterly Report to the CPUC, he notes that the company states that there will be future construction expenses and operational costs which may result in rate increases. Herfert arrived at 6:00 pm. Mr. Nationales Tafoya opposed the sale too for the loss of City set - vices. He said the CPUC is a large bureaucracy and unresponsive to citizens. He concluded his remarks by suggesting Council postpone any decision on this issue and conduct neighborhood meetings. Jeff Parker Jeff Parker, City Manager of the City of Walnut, noted that he was not speaking in opposition but did have questions posed to him by Walnut residents. He spoke favorably of the Walnut rate payers who have contributed to the City's reserve fund for the last ten years. They have been good neighbors and should be offered the same 10% rate reduction as that being offered to the West Covina resident/rate payers. In relation to the reserve fund, if the City Council decides to sell the water system, he suggested some dis- cussion on the impact of the reserve fund on the Walnut residents. Finally, he supported more forums or meetings for all the rate payers, including Walnut, to learn more about the issue. Councilmember Touhey noted that the other residents in Walnut are served by the Walnut Valley Water Company and he asked Mr. Parker if his City would be seeking a reduction with Walnut Valley to match Suburban's, if that actually happened. Mr. Parker stated that that would be the time an analysis of the various rates would be conducted. Royal Brown Royal Brown, 2153 Aroma Drive, asked several questions made several statements. a) Does the proposal include selling a portion of the City's maintenance yard. b) A refund to West Covina was not passed along to the ratepayers. c) There was a glaring omission on the first page of the staff report. The value of the assets listed on page one was not included in the appraisal total. d) Will the area east of Galster Park going to be able to vote on this issue. Adjournment Council concurred on discussing the matter during the regular Council meeting scheduled for 7:30 pm. Additional comments might be received from the audience and staff can respond to those as well as the questions/comments offered at this meeting. Mayor Howard adjourned this meeting at 6:25 pm. Attest: City Clerk.Janet Ber • R: