HomeMy WebLinkAbout10-23-12 FA&C Committee PacketOTAY WATER DISTRICT
FINANCE, ADMINISTRATION AND COMMUNICATIONS
COMMITTEE MEETING
and
SPECIAL MEETING OF THE BOARD OF DIRECTORS
2554 SWEETWATER SPRINGS BOULEVARD
SPRING VALLEY, CALIFORNIA
BOARDROOM
TUESDAY
October 23, 2012
11:30 A.M.
This is a District Committee meeting. This meeting is being posted as a special meeting
in order to comply with the Brown Act (Government Code Section §54954.2) in the event that
a quorum of the Board is present. Items will be deliberated, however, no formal board actions
will be taken at this meeting. The committee makes recommendations
to the full board for its consideration and formal action.
AGENDA
1. ROLL CALL
2. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC
TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE
BOARD'S JURISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA
DISCUSSION ITEMS
3. ADOPT RESOLUTION NO. 4205 TO AUTHORIZE THE GENERAL MANAGER
TO IMPLEMENT REQUIREMENTS OF THE CALIFORNIA PUBLIC
EMPLOYEES’ PENSION REFORM ACT OF 2013, WHICH WILL BECOME
EFFECTIVE JANUARY 1, 2013, AND ADOPT RESOLUTION NO. 4206 TO
AMEND RETIREE HEALTH BENEFITS FOR UNREPRESENTED EMPLOYEES
HIRED ON OR AFTER JANUARY 1, 2013 (WILLIAMSON) [5 minutes]
4. ADOPT ORDINANCE NO. 536 AMENDING THE DISTRICT’S CODE OF
ORDINANCES SECTION 2.01, AUTHORITY OF THE GENERAL MANAGER,
TO FORMALIZE THE GENERAL MANAGER’S OR DESIGNEE’S AUTHORITY
TO MANAGE COLLECTION ACTIVITIES (MENDEZ-SCHOMER) [5 minutes]
5. APPROVE THE DISTRICT’S AUDITED FINANCIAL STATEMENTS,
INCLUDING THE INDEPENDENT AUDITORS’ UNQUALIFIED OPINION, FOR
FISCAL YEAR ENDED JUNE 30, 2012 (KOEPPEN) [5 minutes]
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6. APPROVE A 3-YEAR O&M AGREEMENT WITH SOFTCHOICE
CORPORATION FOR MICROSOFT SOFTWARE LICENSE SUPPORT IN THE
AMOUNT OF $250,638.00, CONSISTING OF THREE (3) ANNUAL PAYMENTS
OF APPROXIMATELY $83,546.00 (STEVENS) [5 minutes]
7. APPROVE THE ISSUANCE OF A PURCHASE ORDER TO HAAKER
EQUIPMENT COMPANY IN THE AMOUNT OF $366,118.33 FOR THE
PURCHASE OF ONE (1) NEW VACTOR MODEL 2110 PLUS JET RODDER
TRUCK; AND DECLARE UNIT 110, A 1999 VACTOR JET RODDER TRUCK
SURPLUS TO THE DISTRICT’S NEEDS AND AUTHORIZE FOR DISPOSAL IN
ACCORDANCE WITH THE DISTRICT’S ESTABLISHED SURPLUS DISPOSAL
PROCEDURES (MARTINEZ) [5 minutes]
8. UPDATE INFORMATIONAL REPORT ON THE PROPOSED APPLICATION TO
THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
(CPUC) BY SAN DIEGO GAS & ELECTRIC (SDG&E) FOR THE AUTHORITY
TO UPDATE MARGINAL COSTS, COST ALLOCATION, AND ELECTRIC RATE
DESIGN (KENNEDY) [5 minutes]
9. ADJOURNMENT
BOARD MEMBERS ATTENDING:
Jose Lopez, Chair
Mitch Thompson
All items appearing on this agenda, whether or not expressly listed for action, may be
deliberated and may be subject to action by the Board.
The Agenda, and any attachments containing written information, are available at the
District’s website at www.otaywater.gov. Written changes to any items to be considered
at the open meeting, or to any attachments, will be posted on the District’s website.
Copies of the Agenda and all attachments are also available through the District Secre-
tary by contacting her at (619) 670-2280.
If you have any disability which would require accommodation in order to enable you to
participate in this meeting, please call the District Secretary at 670-2280 at least 24
hours prior to the meeting.
Certification of Posting
I certify that on October 19, 2012 I posted a copy of the foregoing agenda near
the regular meeting place of the Board of Directors of Otay Water District, said time be-
ing at least 24 hours in advance of the meeting of the Board of Directors (Government
Code Section §54954.2).
Executed at Spring Valley, California on October 19, 2012.
______/s/_ Susan Cruz, District Secretary _____
STAFF REPORT
TYPE MEETING: Regular Board
MEETING DATE: November 7, 2012
SUBMITTED BY:
Kelli Williamson
Human Resources Manager
PROJECT: Various DIV. NO. ALL
APPROVED BY:
Rom Sarno, Chief of Administration
German Alvarez, Asst. General Manager
Mark Watton, General Manager
SUBJECT: ADOPT RESOLUTION #4205 TO AUTHORIZE THE GENERAL MANAGER TO
IMPLEMENT THE REQUIREMENTS OF THE CALIFORNIA PUBLIC EMPLOYEES’
PENSION REFORM ACT OF 2013 AND ADOPT RESOLUTION #4206 TO AMEND
RETIREE HEALTH BENEFITS FOR UNREPRESENTED EMPLOYEES HIRED ON
OR AFTER JANUARY 1, 2013
GENERAL MANAGER’S RECOMMENDATION:
Adopt Resolution #4205 to authorize the General Manager to implement
the requirements of the California Public Employees’ Pension Reform
Act of 2013 which will become effective January 1, 2013 and
Resolution #4206 to amend Retiree Health Benefits for Unrepresented
Employees hired on or after January 1, 2013.
COMMITTEE ACTION:
See Attachment A.
PURPOSE:
To request that the Board of Directors authorize the General Manager
to take steps necessary to implement the requirements of the
California Public Employees’ Pension Reform Act of 2013.
AGENDA ITEM 3
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ANALYSIS:
The California Public Employees’ Pension Reform Act of 2013 (PEPRA)
was signed into law on September 12, 2012 and will become effective
on January 1, 2013. The purpose of the law is to lower the overall
cost of pensions in California.
The following is a summary of some of the key provisions of the new
law:
New members are defined as any employee new to any public
retirement system on or after 1/1/13, an individual who moved
between retirement systems without reciprocity, or an individual
who moved between retirement systems with more than a six month
break in service
New members will have the following Pension Plan effective
1/1/13:
o 2% @ 62, up to 2.5% @ 67, early retirement 1% @ 52
o Final compensation based on highest 36 months of employment
o Cap based on the social security limit (2012 limit is
$110,100)
o Requires that all new members are offered the same retiree
health benefits vesting schedule
o New members must pay at least 50% of the Normal Cost of
Benefits
Requires employer to contribute the same percentage for all
employees (upon negotiating a new labor agreement)
Prohibits purchase of non-qualified service after 12/31/12,
retro-active Pension increases, and enhanced supplemental
Defined Benefit Plans
Sets limits to Post-Retirement Public Employment
Certain Felony convictions forfeit pension benefits
CalPERS is working to get information to the employers as soon as
possible, given that the law goes into effect on January 1, 2013.
Because of the fast-approaching effective date of the new provisions,
the General Manager requests that the Board of Directors authorize
the General Manager to take any and all steps necessary to implement
the requirements of the California Public Employees’ Pension Reform
Act of 2013 to be in compliance with the law on January 1, 2013
including, but not limited to, executing documents required by
CalPERS, implementing Memorandum of Understanding Side Letter
Agreements, and instituting a uniform retiree health vesting schedule
for all employees hired after January 1, 2013.
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Resolution #4205
This Resolution authorizes and directs the General Manager to take
any and all actions necessary to implement the required changes,
including, but not limited to, adopting resolutions required by
CalPERS, and entering into a Side Letter Agreements with the
District’s Represented Employees.
Resolution #4206
This Resolution authorizes an amendment to the Retiree Health
Benefits for Unrepresented Employees hired on or after January 1,
2013 pursuant to the California Public Pension Reform Act of 2013.
The current Memorandum of Understanding states that the District’s
Represented Employees require 20 years of employment, while the
District’s Unrepresented Employees, Resolution #4183, require 15
years of employment in order to receive Retiree Health Benefits at
retirement. In order to provide an equal vesting schedule for all
employees hired on or after January 1, 2013, newly-hired
Unrepresented Employees will require 20 years of employment in order
to receive Retiree Health Benefits.
Employee Association
The District will meet and discuss the required new provisions with
The Otay Water District Employees Association as necessary and
implement any required Side Letter Agreements.
FISCAL IMPACT: Joe Beachem, Chief Financial Officer
There will be no reduction to the existing unfunded liability for the
Pension. There will be small savings in the Annual Required
Contribution in the short term; however, it will take time for any
material savings to appear depending on how much turnover agencies
have. Representatives from CalPERS indicate that it will be 25-30
years to realize significant savings.
With regard to Retiree Health Benefits, the increase in vesting
period for Unrepresented Employees hired after January 1, 2013 will
be provided to the Actuary and included in future actuarial studies
that are conducted every two years. The change is also likely to be
small in the short term and will increase over time.
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STRATEGIC GOAL:
N/A
LEGAL IMPACT:
N/A
Attachments: Attachment A – Committee Action
Attachment B – Resolution #4205
Attachment C – Resolution #4206
Attachment D – Powerpoint Presentation
ATTACHMENT A
SUBJECT/PROJECT:
ADOPT RESOLUTION #4205 TO AUTHORIZE GENERAL MANAGER TO
IMPLEMENT REQUIREMENTS OF THE CALIFORNIA PUBLIC EMPLOYEES’
PENSION REFORM ACT OF 2013 WHICH WILL BECOME EFFECTIVE
JANUARY 1, 2013 AND RESOLUTION #4206 TO AMEND RETIREE
HEALTH BENEFITS FOR UNREPRESENTED EMPLOYEES HIRED ON OR
AFTER JANUARY 1, 2013
COMMITTEE ACTION:
The Finance, Administration and Communications Committee met on
October 23, 2012, to review this item. The Committee supports
presentation to the full Board for their consideration.
NOTE:
The “Committee Action” is written in anticipation of the Committee
moving the item forward for Board approval. This report will be sent
to the Board as a committee approved item, or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full Board.
Attachment B
RESOLUTION NO. 4205
RESOLUTION OF THE BOARD OF DIRECTORS
OF OTAY WATER DISTRICT TO AUTHORIZE
THE GENERAL MANAGER TO IMPLEMENT
REQUIREMENTS OF CALPERS RELATED TO CALIFORNIA
PUBLIC EMPLOYEES’ PENSION REFORM ACT OF 2013
WHEREAS, the California state legislature recently enacted the
California Public Employees’ Pension Reform Act of 2013 (the
“Act”); and
WHEREAS, the Act goes into effect on January 1, 2013 and
requires a number of changes to the employee benefits provided
by the Otay Water District (“District”) to both new and existing
employees; and
WHEREAS, in order to comply with the January 1, 2013 effective
date for some of the changes required by the Act, a number of
actions will likely be required, including, but not limited to,
adopting resolutions required by CalPERS, and entering into side
letter agreements with the District’s Represented Employees,
prior to January 1, 2013,
NOW, THEREFORE, BE IT RESOLVED that the Board of Directors of
the Otay Water District authorizes and directs the General
Manager to take any and all actions necessary to implement the
changes required by the California Public Employees’ Pension
Reform Act of 2013.
President
ATTEST:
Secretary
Attachment B
APPROVED AS TO FORM:
District Counsel
I HEREBY CERTIFY that the foregoing Resolution No. 4205 was duly
adopted by the BOARD OF DIRECTORS of the OTAY WATER DISTRICT at
a regular meeting thereof held on the 7th day of November, 2012
by the following vote:
Ayes:
Noes:
Abstain:
Absent:
District Secretary
Attachment C
RESOLUTION NO. 4206
RESOLUTION OF THE BOARD OF DIRECTORS OF THE
OTAY WATER DISTRICT TO AMEND
RETIREE HEALTH BENEFITS FOR UNREPRESENTED
EMPLOYEES HIRED ON OR AFTER JANUARY 1, 2013,
PURSUANT TO THE CALIFORNIA PUBLIC EMPLOYEES’
PENSION REFORM ACT OF 2013
WHEREAS, in July and August of 2011, the Otay Water District
(“District”) approved changes to the level of Retiree Health Benefits
for both Unrepresented and Represented Employees; and
WHEREAS, subsequent to the approval and implementation of said
retiree health benefits, the California Public Employees’ Pension
Reform Act of 2013 (the “Act”) was enacted; and
WHEREAS, the District endeavors to comply with the Act,
including newly added Government Code section 7522.40 relating to
health benefit vesting schedules; and
WHEREAS, the District’s Represented Employees require 20 years
of employment under the current Memorandum of Understanding while the
District’s Unrepresented Employees require 15 years of employment
under the current resolution in order to receive Retiree Health
Benefits at retirement and, in order to provide an equal health
benefit vesting schedule for all employees hired after January 1,
Attachment C
2013, Unrepresented Employees hired on or after January 1, 2013 will
all require 20 years of employment; and
WHEREAS, this Resolution is intended only to identify the above
changes to the Unrepresented Employees’ Retiree Health Plan and is in
no way intended to nor shall it affect all other compensation and
benefits for Unrepresented Employees, as documented in other
policies, procedures, resolutions and other documents which
specifically identify such compensation and benefits, and which
compensation and benefits shall remain in full force and effect
unless specifically set forth herein,
NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the
Otay Water District as follows:
1. That the Board of Directors hereby approves the changes to
retiree health benefits for any Unrepresented Employees hired on or
after January 1, 2013. These employees will be required to have 20
years of service instead of 15 years of service in order to receive
the Retiree Health Benefits; and
2. The effective date of this resolution shall be November 7,
2012.
BE IT FURTHER RESOLVED that the Board authorizes and directs the
appropriate staff of the District to take any and all actions
necessary to implement the above-referenced changes.
Attachment C
PASSED, APPROVED AND ADOPTED by the Board of Directors of the
Otay Water District at a regular meeting held this 7th day of
November, 2012.
_________________________
President
ATTEST:
__________________________
Secretary
APPROVED AS TO FORM:
District Counsel
I HEREBY CERTIFY that the foregoing Resolution No. 4206 was duly
adopted by the BOARD OF DIRECTORS of the OTAY WATER DISTRICT at a
regular meeting thereof held on the 7th day of November, 2012 by the
following vote:
Ayes:
Noes:
Abstain:
Absent:
District Secretary
October 2012
Will go into effect January 1, 2013
Objective is to lower the overall cost of
pensions in California
More impact on new employees/members
than current employees/members
New members defined as:
New to any public retirement system on or after
1/1/13; or
An individual who moved between retirement
systems without reciprocity; or
An individual who moved between retirement
systems with more than six months break in service
Reduced Benefit Formulas and Increased
Retirement Ages (New Members)
2% at age 62 up to max of 2.5% at age 67
New minimum retirement at age 52 with 1%
(Current Members - 2.7% at age 55 with
minimum retirement at age 50 with 2%)
Requires Three-Year Final Compensation (New
Members)
Final compensation based on the highest
three-year average for New Members
(Current Members - Final compensation
based on the highest single year average)
Cap Compensation Earnable for Calculating Pension
Benefits (New Members)
For 2012 cap is $110,100 for those in Social Security
For 2012 cap is $132,120 for those not in Social
Security
Up to 2% COLA each year is allowed
(Current Members – Cap at $250,000; Up to 2%
COLA each year unless Agency contracts for higher
level)
Requires all New Members to pay at least 50%
of the Normal Cost of Benefits
Requires employer to contribute the same
percentage for all employees (upon negotiating
a new labor agreement)
Requires that all New Members are offered the
same retiree health benefits vesting schedule
Current Members
Unrepresented – 15 years
Represented – 20 years
New Members – 20 years for
Represented/Unrepresented
Additional Provisions that Apply to All Members:
Prohibits Purchase of Non-qualified Service after
12/31/12 (“Air Time”)
Prohibits Enhanced Supplemental Defined Benefit
Plans
Prohibits Retroactive Pension Increases
Sets Limits to Post-Retirement Public Employment
Certain Felony Convictions Forfeit Pension Benefits
The District will meet and discuss the required
new provisions with the Association as
necessary and implement any required Side
Letter Agreements.
Authorize the General Manager to implement
requirements of the California Public
Employees’ Pension Reform Act of 2013
Adopt Resolution #4205 to authorize the General
Manager to implement requirements of the Act
which will become effective January 1, 2013
Adopt Resolution #4206 to amend Retiree Health
Benefits for Unrepresented Employees hired on or
after January 1, 2013
STAFF REPORT
TYPE MEETING: Regular Board
MEETING DATE: November 7, 2012
SUBMITTED BY:
Alicia Mendez Schomer,
Customer Service Manager
PROJECT: DIV.
NO.
All
APPROVED BY:
Joseph R. Beachem, Chief Financial Officer
German Alvarez, Assistant General Manager
Mark Watton, General Manager
SUBJECT: Adopt Ordinance No. 536 Amending the District’s Code of
Ordinances Section 2.01, Authority of the General Manager, to
Formalize the General Manager’s or Designee’s Authority to
Manage Collection Activities
GENERAL MANAGER’S RECOMMENDATION:
That the Board adopt Ordinance No. 536 amending the District’s Code
of Ordinances Section 2.01, Authority of the General Manager, to
formalize the General Manager’s or designee’s authority to manage
collection activities.
COMMITTEE ACTION:
See Attachment A.
PURPOSE:
To clarify the General Manager’s or designee’s authority to waive
payments, reduce payments, or extend payment plans for amounts due
the District. These collection efforts are authorized only when it
is in the best interest of the District. This change does not apply
to or limit corrections for billing or meter reading errors, as
outlined in Section 33.07 Adjustment for Meter Inaccuracies.
ANALYSIS:
The General Manager has broad authority to control the
administration, maintenance, operation and construction of the water
AGENDA ITEM 4
and sewer systems and facilities of the District in an efficient
manner. The inclusion of this language in Section 2.01, Authority of
the General Manager, ensures that the Code of Ordinances expressly
provides authority to the General Manager or his designee to oversee
the collection efforts of all amounts due the District. These
efforts are already a part of the District’s collection efforts and
this recommended code change only memorializes the authority in a
more direct fashion. In the sections below, the internal and
external collection efforts are described, along with the existing
payment arrangement process.
Internal Collection Efforts
Partnered to every billing process is the collection effort. The
District’s finance department, more specifically the customer service
division, has been responsible for the collection efforts since the
District’s inception. The District has had great success in the area
of collections due in large part to the ability of the District to
shut-off water service. This level of success is shared by most
utilities. Below is a listing of the various collection efforts used
by the District:
1. Late Penalty Section 34.02 of the Code of Ordinances
authorizes a late payment charge of 5% of the total delinquent
amount. This charge is applied if full payment is not made on
or before the due date as printed on the customer’s bill. In
FY2012, Otay collected $763,578.00 in late fees.
2. Lock Process
Late notice message on current bill
Post card mailed
Courtesy call made (one call or two)
Account locked
Otay has approximately 50,000 accounts. On average, staff mails
1,750 postcards per month. The approximate cost of each
postcard is $0.74, which includes printing, mailing and
preparation by customer service representatives. An automated
courtesy call is made after the postcard is sent and prior to
the lock day. There is no additional fee to the District for
making this call as it is a standard feature of our phone
system. The District makes approximately 900 of these automated
calls a month. An average of 370 accounts are locked per
month. The cost of locking is offset by the $35 lock fee
assessed to the customer.
Based on these numbers, about 3.5% of Otay’s customers are sent
a delinquent postcard each month and .74% of customers are
locked every month. Over 80% of customers sent a postcard pay
their past due balance before they are locked.
3. Lien Process
Owners who have closed accounts and have a balance greater than
$100 are put into the lien process. In addition, any locked
owner accounts (still active in our system) with a past due
amount of more than $100 are added to this process. These
owners are first sent an “Intent to Lien” letter requesting
payment. If their payment is not received in 30 days, staff
files a lien with the County.
Each lien processed costs the District approximately $8.00 in
staff time and postage. Otay processes between 130 and 185
“Intent to Lien” letters a year and about 30% of customers pay
after receiving this letter. The District collects on
approximately 90% of its liens.
4. Collection via Property Tax Bills
Using the same criteria as the regular lien process, Otay
recovers outstanding owner balances through the property’s
annual tax bill. This listing is mainly comprised of three
groups of customers: (1) Unpaid sewer only accounts (2)
Customers with wells on their property who fail to pay the
monthly flat fee service, and (3) Owners with unpaid balances
and no current account. On May 31st of each year, Otay compiles
a list of owner accounts that are either closed or locked with a
balance greater than $100. These owners are sent a letter
stating that the account balance must be paid in 30 days or the
balance will be rolled over to their property tax bill. In
early July, owners that have not paid are sent a second letter
notifying them that the balance has been sent to the County and
will appear on their next property tax bill. In 2011, Otay sent
112 accounts totaling $35,231.76 in outstanding balances to the
County. To date, the District has received $34,102.72. This is
a collection rate of almost 97%. The cost of processing the tax
liens is approximately $2.30 per account in staff time and
postage.
5. Late Notices for Closed Accounts
Working with IT, customer service staff developed a new notice
to send to customers after their account has been closed and a
balance remains. This process began March 1st. Customers who
have closed their accounts and have not paid their balance by
the due date are sent a final bill. Currently, over 70% of
customers pay after receiving this notice. The cost of this
notice is approximately $1.10 in staff time and postage.
Because this process was recently implemented, the full impact
to the collection process cannot be determined. Based on
preliminary results, staff anticipates that it will reduce the
number of accounts being sent to outside collection agencies.
Prior to this process being implemented, staff would review
reports and manually send copies of closing bills to customers
with outstanding balances 30 days after their account had
closed. This new notice is more than just a copy of an old bill,
it states that the account is delinquent and payment is needed
immediately to avoid further action.
External Collection Efforts
The District uses two external collection agencies. TekCollect is
used for closed accounts that have provided a forwarding address.
They provide what they call their Phase I collection activity.
TekCollect will send three letters to attempt collection of the
balance and do automated calling if the phone numbers the District
provides are valid. They also report to credit bureaus for any
balance over $100.00. TekCollect charges the District $7.00 per
account for this service. Otay sends approximately 70 accounts to
TekCollect each month. The District sent $139,960.89 in uncollected
accounts to TekCollect from April 2011 to March 2012 and recovered
$44,524.40. This is a recovery rate of 31.81%. If the fee of $7.00
is deducted from the collection, the collection percentage is 27.39%.
Continental is used for closed accounts that have not provided a
forwarding address, residential accounts with high balances, or
commercial accounts. These accounts require a greater effort to
locate and the service uses skip tracing, live calling, and internet
research. Like TekCollect, they report to credit bureaus any balance
greater than $100. Continental Credit takes 40% of whatever they
collect and reimburses Otay 60%. Staff sends approximately 60
accounts to Continental a month. From April 2011-March 2012,
$136,006.62 was sent to Continental. Total recovery was $21,198.32
or 15.59%. From that total the 40% fee was kept by Continental,
making Otay’s recovery $12,718.99 or 9.35%.
Current Payment Arrangement Process
If the customer contacts the District during any of the above steps
in the collection process and offers to pay any portion of the amount
that is outstanding, standard industry accepted principals are used
to maximize the collections success. These tools include waiving
payments, reducing payments, and extending payment plans. These are
only used when in the best interest of the District to increase the
likelihood of collection.
As a matter of procedure, waivers or adjustments of fees and charges
up to $25 can be handled by any Customer Service Representative
(CSR). Customer Service Representative II’s and the Senior
Representatives are given authority to handle amounts up to $200.
Waivers or adjustments through this level are executed by the CSRs
and are all reviewed on a weekly basis by one of the Customer Service
Managers. Amounts greater than $200 but less than $1,000 are verified
and authorized by a Customer Service Manager prior to implementation.
On a weekly basis, the Chief Financial Officer reviews amounts
greater than $200 but less than $1,000. The General Manager
authorizes amounts greater than $1,000 but not more than $10,000.
Whenever possible, outstanding amounts due the District are put on
the customer’s water or sewer account making the charges inseparable
from the bill. This effort is the most cost effective as the
collection process is in place for customer accounts.
Neighboring agencies all follow similar methods for collection
recovery which are outlined in California Government Code sections:
Section 60373 Notification prior to disconnect.
Section 72101 Request for satisfactory payment arrangements.
Section 72102 Authority to lien property for delinquent charges.
Code of Ordinances
The addition to Section 2.01 of the Code memorializes the existing
process of collection. This clarifies the General Manager’s or
designee’s authority to waive payments, reduce payments, or extend
payment plans for amounts due the District. These collection efforts
are authorized only when it is in the best interest of the District
and ensures the efficient administration of the District’s
collections and claims activities.
FISCAL IMPACT:
None.
STRATEGIC GOAL:
Streamline customer service business processes.
LEGAL IMPACT:
None.
Attachments: Attachment A – Committee Action
Attachment B – Ordinance No. 536
Exhibit I – Strike-through Section 2.01
Exhibit II – Proposed Section 2.01
ATTACHMENT A
SUBJECT/PROJECT:
Adopt Ordinance No. 536 Amending the District’s Code of
Ordinances Section 2.01, Authority of the General Manager,
to Formalize the General Manager’s or Designee’s Authority
to Manage Collection Activities
COMMITTEE ACTION:
The Finance, Administration and Communications Committee recommends
that the Board adopt Ordinance No. 536 amending the District’s Code of
Ordinances Section 2.01, Authority of the General Manager, to
formalize the General Manager’s or designee’s authority to manage
collection activities.
NOTE:
The “Committee Action” is written in anticipation of the Committee
moving the item forward for board approval. This report will be sent
to the Board as a committee approved item, or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full board.
1
ORDINANCE NO. 536
AN ORDINANCE OF THE BOARD OF DIRECTORS OF
THE OTAY WATER DISTRICT
AMENDING SECTION 2.01, AUTHORITY OF THE GENERAL MANAGER
BE IT ORDAINED by the Board of Directors of Otay Water
District that the District’s Code of Ordinances Section 2.01,
Authority of the General Manager, be amended as per Exhibit I
(attached).
NOW, THEREFORE, BE IT RESOLVED that the new proposed
Section 2.01, Authority of the General Manager (Exhibit II) of
the Code of Ordinances shall become effective November 7, 2012.
PASSED, APPROVED AND ADOPTED by the Board of Directors of
the Otay Water District at a regular meeting duly held this 7th
day of November 2012, by the following roll call vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
________________________________
President
ATTEST:
_____________________________
District Secretary
Attachment B
CHAPTER 2 ADMINISTRATION OF THE DISTRICT
SECTION 2 MANAGEMENT OF THE DISTRICT
2.01 AUTHORITY OF THE GENERAL MANAGER Pursuant to Sections 71362 and 71363 of the California Water
Code, and other applicable laws of the State of California, the
General Manager shall, subject to the approval and direction of the Board of Directors, operate and manage the affairs of the
District. The General Manager shall have the following
specifically enumerated powers and authority:
A. To control the administration, maintenance, operation
and construction of the water and sewer systems and facilities of
the District in an efficient manner. B. To employ and discharge all employees and assistants,
other than those referred to in Section 71340 of the California
Water Code, and to prescribe their duties and promulgate specific rules and regulations for such employees and assistants.
C. To promulgate policies and procedures necessary to enhance the security of the District and increase the transparency of District operations, including provisions for the
disclosure of conflicts of interest by employees.
D. To establish the terms and conditions for collection of
receivables, thereby facilitating the efficient administration of
the District’s receivables. The General Manager or designee is
given this authority as well as the authority to waive, adjust, or reduce any receivable for amounts up to $10,000.
DE. To execute agreements, contracts, other documents, or commitments on behalf of the District where the amount involved does not exceed $50,000, provided that Public Works Contracts
shall be awarded in compliance with applicable laws.
EF. To approve change orders to agreements, contracts, or
other commitments on behalf of the District. If the underlying
contract is awarded by the General Manager pursuant to paragraph 2.01-DE above, the cumulative value of the approved change orders and the underlying agreement, contract, or commitment shall not
exceed the General Manager’s signatory authority established
above. If the underlying contract is awarded by the Board, the General Manager may approve change orders thereto in an aggregate
amount not exceeding the General Manager’s signatory authority
established above.
FG. To approve plans, specifications, maps and agreements,
and any other documents involving land development projects
within the District.
Exhibit I
Formatted: Indent: First line: 0.5"
GH. To authorize the use of District Real Property by third
parties if all the following conditions are met: (a) the
consideration is less than the General Manager’s authority; and
(b) the proposed use consists of an easement, license, access
permit or other use of a portion of the District Real Property
that will not interfere with the existing or anticipated uses of
the District Real Property for District purposes; and (c) either
(i) the term of the proposed use is 10 years or less, or (ii) the
entity proposing to use the District Real Property is a regulated
utility, governmental entity or not-for profit organization. All
uses of District Real Property not contemplated herein or
specifically authorized in other sections of this Code of
Ordinance shall be presented to the Board of Directors for
consideration.
1. The General Manager may establish terms and
conditions for the use of and access to District Real Property
contemplated herein, including administrative charges.
2. The use of any District Real Property shall
require consideration satisfactory to the General Manager, which
may be monetary compensation in an amount equal to the fair
market value of the proposed use plus an administrative charge or
may be in the form of a real property interest or other
equivalent compensation or use.
3. “District real property” means and includes real
property and interests thereon, such as fee interests, easements,
licenses and other such interests acquired for various District
purposes including but not limited to the construction,
operation, access or maintenance of pipelines or other facilities
necessary or convenient to the full exercise of the District’s
powers.
HI. To declare an emergency and, in such event, to have the
additional powers specified in the District’s emergency management plan, referred to as the National Incident Management
System (NIMS), and below, pursuant to California Contract Code
Section 22050. An emergency is a sudden, unexpected occurrence that poses a clear and imminent danger, requiring immediate action to prevent and mitigate the loss or impairment of life,
health, property, or essential public services.
1. In a declared emergency, the General Manager may
direct employees, take action to continue or restore service
capability, and execute any contracts for necessary equipment,
services, or supplies directly related and required by the emergency. Notwithstanding the limits imposed in the prior
paragraphs of this Section 2.01, or by any other policy or
guideline of the District, in an emergency, the General Manager may award and execute contracts for goods, services, work,
facility or improvement, without bidding and without regard to
said limits, provided that the goods, services, work, facilities or improvements acquired or contracted for are of an urgent
nature, directly and immediately required by the emergency. Any
contract for goods or services with a value of more than $250,000 shall be subject to ratification by the Board at its first regularly scheduled meeting following the declaration of the
emergency to which the contract relates. Any contract for work,
facilities or improvements with a value of more than $500,000 shall be subject to ratification by the Board at its first
regularly scheduled meeting following the declaration of the
emergency to which the contract relates.
2. The General Manager shall report to the Board not
later than 48 hours after the emergency action or at the next
regularly scheduled meeting, whichever is earlier. The report shall include the details of the emergency and reasons justifying the actions taken, and provide an accounting of the funds
expended or yet to be expended in connection with the emergency.
3. If the emergency action continues for seven days
and a regularly scheduled meeting will not occur within 14 days
from the day the emergency action was taken, the General Manager shall request that the Board review the emergency action and determine by formal action if the need to take emergency action
continues.
4. At each regularly scheduled meeting following the
declaration of an emergency the Board may, by formal action and
pursuant to a vote as required by Section 22050 of the Public
Contract Code, determine if there is a need to continue the emergency action. If the Board does not determine that the
emergency continues, the power to operate under emergency
conditions will terminate and any new work, goods or services not yet procured shall be contracted or acquired in accordance with applicable provisions of this Code.
2.02 ORDER OF SUCCESSION
When the General Manager is going to be absent from the Dis-
trict, the General Manager is authorized to designate an Asst.
General Manager to act on his behalf and said person shall have
the same authority as the General Manager. Any long-term
vacancies (over 30 days) shall be filled by vote of the majority
of the Board.
CHAPTER 2 ADMINISTRATION OF THE DISTRICT
SECTION 2 MANAGEMENT OF THE DISTRICT
2.01 AUTHORITY OF THE GENERAL MANAGER
Pursuant to Sections 71362 and 71363 of the California Water
Code, and other applicable laws of the State of California, the
General Manager shall, subject to the approval and direction of
the Board of Directors, operate and manage the affairs of the
District. The General Manager shall have the following
specifically enumerated powers and authority:
A. To control the administration, maintenance, operation
and construction of the water and sewer systems and facilities of
the District in an efficient manner.
B. To employ and discharge all employees and assistants,
other than those referred to in Section 71340 of the California
Water Code, and to prescribe their duties and promulgate specific
rules and regulations for such employees and assistants.
C. To promulgate policies and procedures necessary to
enhance the security of the District and increase the
transparency of District operations, including provisions for the
disclosure of conflicts of interest by employees.
D. To establish the terms and conditions for collection of
receivables, thereby facilitating the efficient administration of
the District’s receivables. The General Manager or designee is
given this authority as well as the authority to waive, adjust,
or reduce any receivable for amounts up to $10,000.
E. To execute agreements, contracts, other documents, or
commitments on behalf of the District where the amount involved
does not exceed $50,000, provided that Public Works Contracts
shall be awarded in compliance with applicable laws.
F. To approve change orders to agreements, contracts, or
other commitments on behalf of the District. If the underlying
contract is awarded by the General Manager pursuant to paragraph
2.01-E above, the cumulative value of the approved change orders
and the underlying agreement, contract, or commitment shall not
exceed the General Manager’s signatory authority established
above. If the underlying contract is awarded by the Board, the
General Manager may approve change orders thereto in an aggregate
amount not exceeding the General Manager’s signatory authority
established above.
G. To approve plans, specifications, maps and agreements,
and any other documents involving land development projects
within the District.
Exhibit II
H. To authorize the use of District Real Property by third
parties if all the following conditions are met: (a) the
consideration is less than the General Manager’s authority; and
(b) the proposed use consists of an easement, license, access
permit or other use of a portion of the District Real Property
that will not interfere with the existing or anticipated uses of
the District Real Property for District purposes; and (c) either
(i) the term of the proposed use is 10 years or less, or (ii) the
entity proposing to use the District Real Property is a regulated
utility, governmental entity or not-for profit organization. All
uses of District Real Property not contemplated herein or
specifically authorized in other sections of this Code of
Ordinance shall be presented to the Board of Directors for
consideration.
1. The General Manager may establish terms and
conditions for the use of and access to District Real Property
contemplated herein, including administrative charges.
2. The use of any District Real Property shall
require consideration satisfactory to the General Manager, which
may be monetary compensation in an amount equal to the fair
market value of the proposed use plus an administrative charge or
may be in the form of a real property interest or other
equivalent compensation or use.
3. “District real property” means and includes real
property and interests thereon, such as fee interests, easements,
licenses and other such interests acquired for various District
purposes including but not limited to the construction,
operation, access or maintenance of pipelines or other facilities
necessary or convenient to the full exercise of the District’s
powers.
I. To declare an emergency and, in such event, to have the
additional powers specified in the District’s emergency
management plan, referred to as the National Incident Management
System (NIMS), and below, pursuant to California Contract Code
Section 22050. An emergency is a sudden, unexpected occurrence
that poses a clear and imminent danger, requiring immediate
action to prevent and mitigate the loss or impairment of life,
health, property, or essential public services.
1. In a declared emergency, the General Manager may
direct employees, take action to continue or restore service
capability, and execute any contracts for necessary equipment,
services, or supplies directly related and required by the
emergency. Notwithstanding the limits imposed in the prior
paragraphs of this Section 2.01, or by any other policy or
guideline of the District, in an emergency, the General Manager
may award and execute contracts for goods, services, work,
facility or improvement, without bidding and without regard to
said limits, provided that the goods, services, work, facilities
or improvements acquired or contracted for are of an urgent
nature, directly and immediately required by the emergency. Any
contract for goods or services with a value of more than $250,000
shall be subject to ratification by the Board at its first
regularly scheduled meeting following the declaration of the
emergency to which the contract relates. Any contract for work,
facilities or improvements with a value of more than $500,000
shall be subject to ratification by the Board at its first
regularly scheduled meeting following the declaration of the
emergency to which the contract relates.
2. The General Manager shall report to the Board not
later than 48 hours after the emergency action or at the next
regularly scheduled meeting, whichever is earlier. The report
shall include the details of the emergency and reasons justifying
the actions taken, and provide an accounting of the funds
expended or yet to be expended in connection with the emergency.
3. If the emergency action continues for seven days
and a regularly scheduled meeting will not occur within 14 days
from the day the emergency action was taken, the General Manager
shall request that the Board review the emergency action and
determine by formal action if the need to take emergency action
continues.
4. At each regularly scheduled meeting following the
declaration of an emergency the Board may, by formal action and
pursuant to a vote as required by Section 22050 of the Public
Contract Code, determine if there is a need to continue the
emergency action. If the Board does not determine that the
emergency continues, the power to operate under emergency
conditions will terminate and any new work, goods or services not
yet procured shall be contracted or acquired in accordance with
applicable provisions of this Code.
2.02 ORDER OF SUCCESSION
When the General Manager is going to be absent from the Dis-
trict, the General Manager is authorized to designate an Asst.
General Manager to act on his behalf and said person shall have
the same authority as the General Manager. Any long-term
vacancies (over 30 days) shall be filled by vote of the majority
of the Board.
STAFF REPORT
TYPE MEETING: Regular Board MEETING DATE: November 7, 2012
SUBMITTED BY:
Kevin Koeppen, Finance
Manager
PROJECT: DIV. NO. All
APPROVED BY:
Joseph R. Beachem, Chief Financial Officer
German Alvarez, Assistant General Manager
Mark Watton, General Manager
SUBJECT: Approve the District’s Audited Financial Statements for the
Fiscal Year Ended June 30, 2012
GENERAL MANAGER’S RECOMMENDATION:
That the Board approve the District’s Audited Financial Statements
(Attachment B), including the Independent Auditors’ unqualified
opinion, for the fiscal year ended June 30, 2012.
COMMITTEE ACTION:
See Attachment A.
PURPOSE:
To inform the Board of the significant financial events which
occurred during the fiscal year ended June 30, 2012 as reflected in
the audited financial statements.
ANALYSIS:
Diehl, Evans & Company, LLP, performed the audit and found that, in
all material respects, the financial statements correctly represent
AGENDA ITEM 5
2
the financial position of the District. They found no material
errors in the financial records or statements and had no comments
concerning internal controls, which is presented in their “Management
Letter” (Attachment C). A few financial statement adjustments were
made during the audit and presented in their “Audit Committee Letter”
(Attachment D).
Total Assets:
Total assets decreased by $6.3 million or 1.05% during Fiscal Year
2012, to $592.3 million. Below is a summary of the decrease in total
assets.
$3.2 million Payment of long-term debt
$1.0 million Reduction in grant funds received
$1.4 million Write-off of CIP expenses consisting primary of:
o $737,000 Dorchester demolition
o $251,000 24” Sweetwater Perdue pipeline project
o $141,000 Funding conversion of Potable to recycled meters
$0.7 million All other items
Total Liabilities & Net Assets:
Total liabilities decreased by approximately $3.1 million or 2.22%
from the previous fiscal year, to $135.9 million. This is
attributable to a decrease in long-term debt of $3.2 million.
The decrease in total assets of $6.3 million, along with the decrease
in total liabilities of $3.1 million, yields a decrease in net assets
(equity) of $3.2 million or 0.70%, to $456.4 million.
Capital Contributions:
Capital contributions totaled $6.8 million during Fiscal Year 2012, a
decrease of $1.0 million or 13.22% from Fiscal Year 2011
contributions. This decrease is mainly due to the District receiving
more federal grant monies than expected in the prior year, as a
result of last minute availability of funds from the federal budget.
Results of Operations:
Operating revenues increased $5.2 million or 8.22%, mainly as a
result of the overall increase in water rates from the prior fiscal
year.
While cost of water sales increased $4.1 million or 9.70% due to the
increase in CWA water costs, cost savings achieved in other areas
3
were sufficient to keep total operating expenses from rising
significantly compared to the prior fiscal year.
Non-Operating Revenues & Expenses:
Non-operating revenues increased $0.4 million or 4.36%, to $9.1
million for 2012. While there was a decrease in investment income of
almost $400,000 due to a continuing drop in rates of investment
securities, this was offset by income received from the federal
subsidy of interest expenses related to the 2010 Water Revenue Bonds.
Additional Audit Correspondence:
As a part of completing the audit engagement, the audit firm also
provides the following letters summarizing their observations and
conclusions concerning the District’s overall financial processes:
Management Letter: The auditors did not identify any specific
deficiencies in accounting procedure internal controls that
they considered to be material weaknesses. See Attachment C.
Audit Committee Letter: This letter describes overall aspects
of the audit, to include audit principles, performance,
dealings with management, and significant findings or issues.
The auditors proposed three journal entry adjustments during
the audit to ensure the financial statements were in
conformity with all generally accepted accounting principle
(GAAP) guidelines, all of which were completed by management
and incorporated in the final account balances at June 30,
2012.
There were no disagreements with management concerning
financial accounting, reporting, or auditing matters, and
there were no significant difficulties in dealing with
management in performing the audit. See Attachment D.
Report on Applying Agreed-Upon Procedures: A review of the
District’s investment portfolio at year end, and a sample of
specific investment transactions completed throughout the
fiscal year, disclosed no exceptions to compliance with the
District’s Investment Policy. See Attachment E.
4
FISCAL IMPACT:
None.
STRATEGIC GOAL:
The District ensures its continued financial health through long-term
financial planning, formalized financial policies, enhanced budget
controls, fair pricing, debt planning, and improved financial
reporting.
LEGAL IMPACT:
None.
Attachments:
A) Committee Action Form
B) Audited Annual Financial Statements
C) Management Letter
D) Audit Committee Letter
E) Report on Applying Agreed-Upon Procedures
ATTACHMENT A
SUBJECT/PROJECT:
Approve the District’s Audited Financial Statements for the
Fiscal Year Ended June 30, 2012
COMMITTEE ACTION:
The Finance, Administration, and Communications Committee recommend
that the Board accept the District’s audited financial statements,
including the Independent Auditor’s unqualified opinion, for the
Fiscal Year Ended June 30, 2012.
NOTE:
The “Committee Action” is written in anticipation of the Committee
moving the item forward for board approval. This report will be sent
to the Board as a committee approved item, or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full board.
OTAY WATER DISTRICT
FINANCIAL STATEMENTS
WITH REPORT ON AUDIT BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
JUNE 30, 2012 AND 2011
TABLE OF CONTENTS
JUNE 30, 2012 and 2011
Page
Number
Independent Auditors’ Report 1 - 2
Management’s Discussion and Analysis (Required Supplementary Information) 3 - 7
Basic Financial Statements:
Statements of Net Assets 8 - 9
Statements of Revenues, Expenses and Changes in Net Assets 10
Statements of Cash Flows 11 - 12
Notes to Financial Statements 13 – 37
Required Supplementary Information:
Schedule of Funding Progress for PERS 38
Schedule of Funding Progress for DPHP 38
2965 Roosevelt Street, Carlsbad, CA 92008-2389 • Tel: 760.729.2343 • Fax: 760.729.2234
Offices located in Orange and San Diego Counties
INDEPENDENT AUDITORS' REPORT
Board of Directors
Otay Water District
Spring Valley, California
We have audited the accompanying basic financial statements of Otay Water District as of and for the years
ended June 30, 2012 and 2011, as listed in the table of contents. These basic financial statements are the
responsibility of the Otay Water District’s management. Our responsibility is to express opinions on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America, the State Controller’s Minimum Audit Requirements for California Special Districts, and the standards
applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of
the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal
control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinions.
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the
financial position of the Otay Water District as of June 30, 2012 and 2011, and the respective changes in
financial position and cash flows for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report dated October 15, 2012 on
our consideration of the District’s internal control over financial reporting and our tests of its compliance with
certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report
is to describe the scope of our testing of internal control over financial reporting and compliance and the results
of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance.
That report is an integral part of an audit performed in accordance with Government Auditing Standards and
should be considered in assessing the results of our audit.
1
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis, PERS Defined Benefit Pension Plan – schedule of funding progress, and other post-
employment benefit plan – schedule of funding progress, as identified in the accompanying table of contents be
presented to supplement the basic financial statements. Such information, although not a part of the basic
financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an
essential part of financial reporting for placing the basic financial statements in an appropriate operational,
economic, or historical context. We have applied certain limited procedures to the required supplementary
information in accordance with auditing standards generally accepted in the United States of America, which
consisted of inquiries of management about the methods of preparing the information and comparing the
information for consistency with management’s responses to our inquiries, the basic financial statements, and
other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or
provide any assurance on the information because the limited procedures do not provide us with sufficient
evidence to express an opinion or provide any assurance.
October 15, 2012
Carlsbad, California
2
Management’s Discussion and Analysis
3
As management of the Otay Water District (the “District”), we offer readers of the District’s financial statements this
narrative overview and analysis of the District’s financial performance during the fiscal year ending June 30, 2012. Please
read it in conjunction with the District’s financial statements that follow Management’s Discussion and Analysis. All
amounts, unless otherwise indicated, are expressed in millions of dollars.
Financial Highlights
• The assets of the District exceeded its liabilities at the close of the most recent fiscal year by $456.4 million
(net assets). Of this amount, $70.0 million (unrestricted net assets) may be used to meet the District’s ongoing
obligations to citizens and creditors.
• Total assets decreased by $6.3 million or 1.05% during Fiscal Year 2012, to $592.3 million, due primarily to the
write-off of CIP projects that were no longer viable as a part of the District’s long range plans for growth and
improvements to infrastructure. Other significant factors were the annual payment of long-term debt and a
reduction in grant funds received.
Overview of the Financial Statements
This discussion and analysis is intended to serve as an introduction to the District’s basic financial statements, which are
comprised of the following: 1) Statement of Net Assets, 2) Statement of Revenues, Expenses and Changes in Net Assets,
3) Statement of Cash Flows, and 4) Notes to the Financial Statements. This report also contains other supplementary
information in addition to the basic financial statements.
The Statement of Net Assets presents information on all of the District’s assets and liabilities, with the difference between
the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether
the financial position of the District is improving or weakening.
The Statement of Revenues, Expenses and Changes in Net Assets presents information showing how the District’s net
assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event
giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported
in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and
earned but unused vacation leave).
The Statement of Cash Flows presents information on cash receipts and payments for the fiscal year.
The Notes to the Financial Statements provide additional information that is essential to a full understanding of the data
supplied in each of the specific financial statements listed above.
In addition to the basic financial statements and accompanying notes, this report also presents certain required
supplementary information concerning the District’s progress in funding its obligation to provide pension benefits to its
employees.
Financial Analysis
As noted, net assets may serve over time as a useful indicator of an entity’s financial position. In the case of the District,
assets exceeded liabilities by $456.4 million at the close of the most recent fiscal year.
By far the largest portion of the District’s net assets, $381.7 million (84%), reflects its investment in capital assets, less any
remaining outstanding debt used to acquire those assets. The District uses these capital assets to provide services to
citizens; consequently, these assets are not available for future spending. Although the District’s investment in its capital
assets is reported effectively as a resource, however, it should be noted that the resources needed to repay the debt must be
provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.
Management’s Discussion and Analysis
4
Statements of Net Assets
(In Millions of Dollars)
2012 2011 2010
Assets
Current and Other Assets $ 111.5 $ 124.1 $ 135.3
Capital Assets 480.8 474.4 469.2
Total Assets 592.3 598.5 604.5
Liabilities
Long-Term Debt Outstanding 111.2 114.5 117.7
Other Liabilities 24.7 24.4 25.5
Total Liabilities 135.9 138.9 143.2
Net Assets
Invested in Capital Assets
Net of Related Debt 381.7 377.7 375.9
Restricted for Debt Service 4.7 4.9 5.2
Unrestricted 70.0 77.0 80.2
Total Net Assets $ 456.4 $ 459.6 $ 461.3
While the District’s operations and population continue to grow, albeit at slower rates than in prior years, the pattern of
reduced growth of the District’s Net Assets is indicative of the reduction in new development projects within the District.
This reduction is a result of the ongoing national housing slump and financial crisis.
In FY-2012 the District continued its use of the $51.2 million of proceeds from the issuance of its 2010 Water Revenue
Bonds program (See Note 5 in the Notes to Financial Statements) for its CIP program (See Note 3 in the Notes to Financial
Statements), as seen by the decrease in Current and Other Assets of $12.6 million, which was partially offset by a
corresponding increase in Capital Assets of $6.4 million. The District also saw a decrease in Long-Term Debt of $3.3
million due to the annual payments of long-term debt.
In response to the prolonged business slowdown, during FY-2011 the District performed a review of Fixed Assets throughout
the system and wrote off $2.9 million of fully depreciated Property, Plant & Equipment that was no longer serviceable or
functioning efficiently. Additionally, the Engineering Department completed an analysis of several Construction-in-Progress
projects that were still in the developmental stages and determined they were no longer viable as a part of the District’s long
range plan for growth and improvements to infrastructure. This resulted in FY-2011 expenses of $1.2 million and FY-2010
expenses of $1.3 million.
For the entire financial reporting period, Fiscal Years 2012 and 2011, total Net Assets decreased approximately $3.2 million
for FY-2012, to $456.4 million, as compared to FY-2011 when Net Assets decreased by $1.7 million. At the end of FY-2012
the District is able to report positive balances in all categories of net assets. This situation also held true for the prior two
fiscal years.
Management’s Discussion and Analysis
5
Statements of Revenues, Expenses, and Changes in Net Assets
(In Millions of Dollars)
2012 2011 2010
Water Sales $ 63.8 $ 58.3 $ 56.3
Wastewater Revenue 2.4 2.4 2.3
Connection and Other Fees 2.2 2.5 2.1
Non-operating Revenues 9.1 8.8 8.9
Total Revenues 77.5 72.0 69.6
Depreciation Expense 15.2 13.9 13.3
Other Operating Expense 66.5 63.4 59.8
Non-operating Expense 5.8 4.3 3.0
Total Expenses 87.5 81.6 76.1
Loss Before Capital
Contributions (10.0) (9.6) (6.5)
Capital Contributions 6.8 7.9 8.8
Change in Net Assets
Prior Period Adjustment
(3.2) (1.7) 2.3
(1.3)
Beginning Net Assets 459.6 461.3 460.3
Ending Net Assets $ 456.4 $ 459.6 $ 461.3
Water Sales increased by $2.0 million in FY-2011 and $5.5 million in FY-2012, mainly due to rate increases in both years.
The slowdown in growth throughout the District was also reflected in the modest increase in Connection and Other Fees of
$0.4 million in FY-2011, followed by a slight decrease of $0.3 million in FY-2012.
Other Operating Expense has increased predominantly due to the increase in Cost of Water Sales, from a combination of the
increased price-per-acre-foot of water obtained from Los Angeles Metropolitan Water District of 7.50%, and 9.97% from San
Diego County Water Authority, brought on by the high cost of supply programs as well as higher energy and operating costs.
The slowdown in the economy appears to have leveled off. However, due to the nationwide housing mortgage crisis
throughout the last several years, developers have either slowed-down or totally stopped work on many projects until
economic conditions improve and the demand for growth returns. This has resulted in Capital Contributions remaining low
over the last 3-years, compared to the extended growth of the previous 10-years. While this slowdown now appears to have
stabilized, the District was aided in its Capital Contributions through the receipt of additional federal grant monies of $1.6
million in FY-2011, and $935,000 in FY-2012.
Management’s Discussion and Analysis
6
Non-operating Revenues
Non-operating Revenues by Major Source
(In Millions of Dollars)
2012 2011 2010
Taxes and assessments $ 3.5 $ 3.9 $ 4.0
Rents and leases 1.2 1.2 1.1
Other Non-operating Revenue 4.4 3.7 3.8
Total Revenues 9.1 8.8 8.9
The District’s non-operating revenues decreased by $0.1 million in FY-2011 and grew $0.3 million in FY-2012. The
increase in FY-2012 was primarily a result of increased miscellaneous income offset by decreases in investment income as
well as taxes and assessments.
Capital Assets and Debt Administration
The District’s capital assets as of June 30, 2012, totaled $480.8 million (net of accumulated depreciation).
Included in this amount is land. The total increase in the District’s capital assets was 1.1% for FY-2011 and 1.4% in
FY-2012.
Capital Assets
(In Millions of Dollars)
2012 2011 2010
Land $ 13.7 $ 13.6 $ 13.6
Construction in Progress 17.5 17.9 35.2
Water System 452.1 441.9 409.5
Recycled Water System 108.0 98.3 97.7
Sewer System 37.8 37.7 37.4
Field Equipment 8.6 9.8 9.5
Buildings 18.6 18.5 18.5
Transportation Equipment 3.2 3.2 3.3
Communication Equipment 2.5 2.4 1.3
Office Equipment 17.2 17.3 18.4
679.2 660.6 644.4
Less Accumulated
Depreciation (198.4) (186.2) (175.2)
Net Capital Assets $ 480.8 $ 474.4 $ 469.2
As indicated by figures in the table above, the majority of capital assets added during both fiscal years were related to the
potable and recycled water systems. In addition, the majority of the cost of construction-in-progress is also related to these
water systems. Additional information on the District’s capital assets can be found in Note 3 of the Notes to Financial
Statements.
Management’s Discussion and Analysis
7
At June 30, 2012, the District had $111.2 million in outstanding debt (net of $3.3 million of maturities occurring in fiscal
year 2013), which consisted of the following:
General Obligation Bonds $ 5.8
Certificates of Participation 55.9
Revenue Bonds 49.5
Total Long-Term Debt $ 111.2
Additional information on the District’s long-term debt can be found in Note 5 of the Notes to Financial Statements.
Fiscal Year 2012-2013 Budget
Economic Factors
Growth in the San Diego area has declined over the last 4 years, but is slowly improving. This modest shift is also being
reflected in the demand for housing. Although San Diego received less than normal rainfall in Fiscal Year 2012, the
District is expecting that San Diego’s rainfall will return to its average pattern and volume in the coming years. Water
sales volumes are expected to increase slightly as the economy is slowly improving, but will be partially offset by
expanded efforts to promote water conservation. The coming years will continue to pose challenges for those in
California’s water community. It is uncertain if the challenges facing the Sacramento-San Joaquin Bay Delta, the source of
30% of Southern California’s water supply, will be addressed. In addition, weather and rainfall always bring a level of
uncertainty to the delivery of water to customers in the arid southwestern states. The combination of these factors add to
the cost of providing a stable supply of water as water providers look to new and more costly sources of water.
The District currently provides water service to about 73% of its projected ultimate population, serving approximately
208,000 people. Long-term, this percentage should continue to increase as the District's service area continues to develop
and grow. Ultimately, the District is projected to serve approximately 285,000 people, with an average daily demand of 46
million gallons per day (MGD). Currently, the District services the needs of this growing population by purchasing water
from CWA, who in turn purchases its water from MWD and the Imperial Irrigation District (IID). Otay takes delivery of
the water through several connections of large diameter pipelines owned and operated by CWA. The District currently
receives treated water from CWA and the Helix Water District (HWD), by contract with CWA. In addition, the District
has an emergency agreement with the City of San Diego to purchase water in the case of a shutdown of the main treated
water source. The City of San Diego also has a long-term contract with the District to provide recycled water for
landscape and irrigation usage. Through innovative agreements like this, benefits can be achieved by both parties by using
excess capacity of another agency, and diversifying local supply, thereby increasing reliability.
Financial
The District is projected to deliver approximately 28,925 acre-feet of potable water to 48,860 potable customer accounts
during Fiscal Year 2012-2013. Management feels that these projections are realistic after accounting for low growth,
supply changes, and a focus on conservation. Current economic conditions throughout America have created an
unprecedented uncertainty for business and economic projections in the current fiscal year. The nationwide housing
mortgage crisis has leveled off, but continues to result in foreclosures within the District. Additionally, the crisis in the
banking and financial industry has had a ripple effect resulting in continued levels of high unemployment. One of the
subsequent results of these two broad events is the relocation of many homeowners and renters into new housing
arrangements throughout San Diego County. Even with the various challenges, people’s need for water remains an
underlying constant. Staff continues working diligently on developing new water supplies as they work through the
financial impacts of conservation and the modest economic turnaround.
Management is unaware of any other conditions that could have a significant impact on the District’s current financial
position, net assets, or operating results.
Contacting the District’s Financial Management
This financial report is designed to provide a general overview of the Otay Water District’s finances for the Board of
Directors, taxpayers, creditors, and other interested parties. Questions concerning any of the information provided in the
report or requests for additional information should be addressed to the District’s Finance Department, 2554 Sweetwater
Springs Blvd., Spring Valley, CA 91978-2004.
2012 2011
ASSETS
Current Assets:
Cash and cash equivalents (Notes 1 and 2) 31,075,455$ 48,563,129$
Restricted cash and cash equivalents (Notes 1 and 2) 4,057,726 5,239,430
Investments (Note 2) 37,069,853 28,691,752
Restricted investments (Notes 1 and 2) 16,124,042 20,622,679
Accounts receivable, net 10,575,970 9,235,138
Accrued interest receivable 106,375 180,113
Taxes and availability charges receivable, net 481,955 454,948
Restricted taxes and availability charges receivable, net 57,313 75,588
Inventories 789,769 835,321
Prepaid expenses and other current assets 1,226,703 1,189,206
Total Current Assets 101,565,161 115,087,304
Noncurrent Assets:
Net OPEB asset (Note 8) 8,321,902 7,416,346
Deferred bond issuance costs (Note 4)1 532 857 1 618 069
STATEMENTS OF NET ASSETS
JUNE 30, 2012 AND 2011
Deferred bond issuance costs (Note 4)1,532,857 1,618,069
Capital Assets (Note 3):
Land 13,703,463 13,636,663
Construction in progress 17,452,274 17,909,282
Capital assets, net of depreciation 449,674,352 442,881,020
Total capital assets, net of depreciaton 480,830,089 474,426,965
Total Noncurrent Assets 490,684,848 483,461,380
Total Assets 592,250,009 598,548,684
(Continued)
See accompanying independent auditors' report and notes to financial statements. 8
2012 2011
LIABILITIES
Current Liabilities:
Current maturities of long-term debt (Note 5) 3,320,000 3,146,010
Accounts payable 10,478,366 13,000,560
Accrued payroll liabilities 2,591,272 2,932,277
Other accrued liabilities 3,932,442 739,868
Customer deposits 1,863,992 2,105,187
Accrued interest 1,639,681 1,656,826
Liabilities Payable From Restricted Assets:
Restricted accrued interest 81,354 86,405
Total Current Liabilities 23,907,107 23,667,133
Noncurrent Liabilities:
Long-term debt (Note 5):
General obligation bonds 5,819,027 6,298,577
Certificates of participation 55 886 449 57 865 531
STATEMENTS OF NET ASSETS (CONTINUED)
JUNE 30, 2012 AND 2011
Certificates of participation 55,886,449 57,865,531
Revenue bonds 49,521,421 50,395,822
Other noncurrent liabilities 721,626 715,037
Total Noncurrent Liabilities 111,948,523 115,274,967
Total Liabilities 135,855,630 138,942,100
NET ASSETS
Invested in capital assets, net of related debt 381,725,015 377,656,762
Restricted for debt service 4,715,904 4,915,555
Unrestricted 69,953,460 77,034,267
Total Net Assets 456,394,379$ 459,606,584$
See accompanying independent auditors' report and notes to financial statements. 9
2012 2011
OPERATING REVENUES
Water sales 63,830,272$ 58,293,184$
Wastewater revenue 2,400,313 2,396,385
Connection and other fees 2,169,764 2,514,647
Total Operating Revenues 68,400,349 63,204,216
OPERATING EXPENSES
Cost of water sales 46,106,403 42,029,819
Wastewater 2,547,929 2,592,823
Administrative and general 17,926,430 18,763,380
Depreciation 15,214,704 13,880,206
Total Operating Expenses 81,795,466 77,266,228
Operating Income (Loss) (13,395,117) (14,062,012)
NONOPERATING REVENUES (EXPENSES)
Investment income 436,596 854,440
Taxes and assessments 3,502,155 3,895,938
A il bili h 696 863 653 012
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
Availability charges 696,863 653,012
Gain (loss) on sale of capital assets (278,540) 55,300
Miscellaneous revenues 4,788,711 3,304,963
Donations (121,617) (120,648)
Interest expense (3,899,927) (3,877,531)
Miscellaneous expenses (1,767,226) (312,649)
Total Nonoperating Revenues (Expenses) 3,357,015 4,452,825
Income (Loss) Before Capital Contributions (10,038,102) (9,609,187)
Capital Contributions 6,825,897 7,866,190
Changes in Net Assets (3,212,205) (1,742,997)
Total Net Assets, Beginning 459,606,584 461,349,581
Total Net Assets, Ending 456,394,379$ 459,606,584$
See accompanying independent auditors' report and notes to financial statements. 10
2012 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 64,648,558$ 60,372,625$
Receipts from connections and other fees 2,169,764 2,514,647
Other receipts 3,566,651 2,119,390
Payments to suppliers (46,620,831) (47,028,888)
Payments to employees (20,521,468) (19,439,549)
Other payments (1,724,744) (269,198)
Net Cash Provided (Used) by Operating Activities 1,517,930 (1,730,973)
CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES
Receipts from taxes and assessments 3,493,423 3,918,750
Receipts from property rents and leases 1,222,060 1,185,573
Net Cash Provided (Used) by Noncapital
and Related Financing Activities 4,715,483 5,104,323
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Proceeds from capital contributions 3,363,090 7,386,617
Proceeds from sale of capital assets 28,128 81,220
Proceeds from debt related taxes and assessments 696,863 653,012
Principal payments on long-term debt (3,146,010)(2,668,734)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
Principal payments on long term debt (3,146,010) (2,668,734)
Interest payments and fees (5,199,488) (4,696,309)
Acquisition and construction of capital assets (17,276,246) (17,474,142)
Net Cash Provided (Used) by Capital
and Related Financing Activities (21,533,663) (16,718,336)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received on investments 580,872 945,888
Proceeds from sale and maturities of investments 108,410,000 114,918,280
Purchase of investments (112,360,000) (110,029,066)
Net Cash Provided (Used) by Investing Activities (3,369,128) 5,835,102
Net Increase (Decrease) in
Cash and cash equivalents (18,669,378) (7,509,884)
Cash and cash equivalents, Beginning 53,802,559 61,312,443
Cash and cash equivalents, Ending 35,133,181$ 53,802,559$
(Continued)
See accompanying independent auditors' report and notes to financial statements. 11
2012 2011
Reconciliation of operating income (loss) to net cash flows provided
(used) by operating activities:
Operating income (loss) (13,395,117)$ (14,062,012)$
Adjustments to reconcile operating income
to net cash provided (used) by operating activities:
Depreciation 15,214,704 13,880,206
Miscellaneous revenues 3,566,651 2,119,390
Miscellaneous expenses (1,724,744) (269,198)
(Increase) decrease in accounts receivable (1,340,832) (275,771)
(Increase) decrease in inventory 45,552 118,686
(Increase) decrease in net OPEB asset (905,556) (632,961)
(Increase) decrease in prepaid expenses and other current assets (37,497) (562,785)
Increase (decrease) in accounts payable (2,522,194) (2,326,805)
Increase (decrease) in accrued payroll and related expenses (341,005) 188,869
Increase (decrease) in other accrued liabilities 3,192,574 101,853
Increase (decrease) in customer deposits (241,195) (41,173)
Increase (decrease) in prepaid capacity fees 6,589 30,728
Net Cash Provided (Used) By Operating Activities 1,517,930$ (1,730,973)$
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
Schedule of Cash and Cash Equivalents:
Current assets:
Cash and cash equivalents 31,075,455$ 48,563,129$
Restricted cash and cash equivalents 4,057,726 5,239,430
Total Cash and Cash Equivalents 35,133,181$ 53,802,559$
Supplemental Disclosures:
Non-cash Investing and Financing Activities Consisted of the Following:
Contributed Capital for Water and Sewer System 3,462,807$ 479,573$
Change in Fair Value of Investments and Recognized Gains/Losses (127,662) (73,092)
Amortization Related to Long-Term Debt 164,101 164,101
See accompanying independent auditors' report and notes to financial statements. 12
NOTE DESCRIPTION PAGE
1 Reporting Entity and Summary of Significant Accounting Policies..… 13 – 15
2 Cash and Investments…………………………………………..……... 16 – 20
3 Capital Assets…………………………………………………..……... 21 – 22
4 Other Noncurrent Assets…………………………………………….. 22
5 Long-Term Debt………………………………………………….…… 23 – 27
6 Net Assets…………………………………………………………….. 27
7 Defined Benefit Pension Plan…………………………………………. 27 – 28
8 Other Post Employment Benefits………………………..…………..... 29 – 31
9 Water Conservation Authority………………………………………... 31
10 Commitments and Contingencies…………………………………….. 32
11 Risk Management…………………………………………………….. 32 – 33
12 Interest Expense……………………………………………………..... 33
13 Segment information……………………………………………..... 34 – 36
Required Supplementary Information:
1 Schedule of Funding Progress for PERS………………………………38
2 Schedule of Funding Progress for DPHP……………………………...38
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 13
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) Reporting Entity
Otay Water District (the “District”) is a public entity established in 1956 pursuant to the Municipal Water District Law of
1911 (Section 711 et. Seq. of the California Water Code) for the purpose of providing water and sewer services to the
properties in the District. The District is governed by a Board of Directors consisting of five directors elected by
geographical divisions based on District population for a four-year alternating term.
B) Measurement Focus, Basis of Accounting and Financial Statement Presentation
Measurement focus is a term used to describe “which” transactions are recorded within the various financial
statements. Basis of accounting refers to “when” transactions are recorded regardless of the measurement focus
applied. The accompanying financial statements are reported using the economic resources measurement focus, and
the accrual basis of accounting. Under the economic measurement focus all assets and liabilities (whether current or
noncurrent) associated with these activities are included on the Statement of Net Assets. The Statement of Revenues,
Expenses and Changes in Net Assets present increases (revenues) and decreases (expenses) in total net assets. Under
the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is
incurred, regardless of the timing of related cash flows.
The District reports its activities as an enterprise fund, which is used to account for operations that are financed and
operated in a manner similar to a private business enterprise, where the intent of the District is that the costs
(including depreciation) of providing goods or services to the general public on a continuing basis be financed or
recovered primarily through user charges.
The basic financial statements of the Otay Water District have been prepared in conformity with accounting principles
generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the
accepted standard setting body for governmental accounting financial reporting purposes.
Net assets of the District are classified into three components: (1) invested in capital assets, net of related debt, (2)
restricted net assets, and (3) unrestricted net assets. These classifications are defined as follows:
Invested in Capital Assets, Net of Related Debt
This component of net assets consists of capital assets, net of accumulated depreciation and reduced by the
outstanding balances of notes or borrowing that are attributable to the acquisition of the asset, construction, or
improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt
attributable to the unspent proceeds are not included in the calculation of invested in capital assets, net of related debt.
Restricted Net Assets
This component of net assets consists of net assets with constrained use through external constraints imposed by
creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or
constraints imposed by law through constitutional provisions or enabling legislation.
Unrestricted Net Assets
This component of net assets consists of net assets that do not meet the definition of “invested in capital assets, net of
related debt” or “restricted net assets”.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 14
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
B) Measurement Focus, Basis of Accounting and Financial Statement Presentation - Continued
The District distinguishes operating revenues and expenses from those revenues and expenses that are nonoperating.
Operating revenues are those revenues that are generated by water sales and wastewater services while operating
expenses pertain directly to the furnishing of those services. Nonoperating revenues and expenses are those revenues
and expenses generated that are not directly associated with the normal business of supplying water and wastewater
treatment services.
The District recognizes revenues from water sales, wastewater revenues, and meter fees as they are earned. Taxes and
assessments are recognized as revenues based upon amounts reported to the District by the County of San Diego, net of
allowance for delinquencies of $57,465 and $58,948 at June 30, 2012 and 2011, respectively.
Additionally, capacity fee contributions received which are related to specific operating expenses are offset against
those expenses and included in Cost of Water Sales in the Statement of Revenues and Expenses and Changes in Net
Assets.
When both restricted and unrestricted resources are available for use, it is the District’s practice to use restricted
resources first, then unrestricted resources as they are needed.
C) Statement of Cash Flows
For purposes of the Statement of Cash Flows, the District considers all highly liquid investments (including
restricted assets) with a maturity period, at purchase, of three months or less to be cash equivalents.
D) Investments
The District’s investments are stated at fair value, except for short-term investments, which are reported at cost,
which approximates fair value. Investments in governmental investment pools are reported on the fair value per
share of the pool’s underlying portfolio.
E) Inventory and Prepaids
Inventory consists primarily of materials used in the construction and maintenance of the water and sewer system and
is valued at weighted average cost. Both inventory and prepaids use the consumption method whereby they are
reported as an asset and expensed as they are consumed.
F) Capital Assets
Capital assets are recorded at cost, where historical records are available, and at an estimated historical cost where no
historical records exist. Infrastructure assets in excess of $20,000 and other capital assets in excess of $10,000 are
capitalized if they have an expected useful life of two years or more. The District will also capitalize individual
purchases under the capitalization threshold if they are part of a new capital program. The cost of purchased and self-
constructed additions to utility plant and major replacements of property are capitalized. Costs include materials, direct
labor, transportation, and such indirect items as engineering, supervision, employee fringe benefits, overhead, and
interest incurred during the construction period. Repairs, maintenance, and minor replacements of property are
charged to expense. Donated assets are capitalized at their approximate fair market value on the date contributed.
The District capitalizes interest on construction projects up to the point in time that the project is substantially
completed. Capitalized interest for fiscal year ending June 30, 2012 of $1,185,443 is included in the cost of water
system assets and is depreciated on the straight-line basis over the estimated useful lives of such assets.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 15
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
F) Capital Assets - Continued
Depreciation is calculated using the straight-line method over the following estimated useful lives:
Water System 15-70 Years
Field Equipment 2-50 Years
Buildings 30-50 Years
Communication Equipment 2-10 Years
Transportation Equipment 2-4 Years
Office Equipment 2-10 Years
Recycled Water System 50-75 Years
Sewer System 25-50 Years
G) Compensated Absences
It is the District’s policy to record the cost of paid time off (vacation and sick leave) as it is earned. Paid time off is
payable to employees at the time it is taken or upon termination of employment. As of June 30, 2012 and 2011,
total accrued paid time off was $1,991,841 and $2,162,352, respectively.
H) Restricted Assets and Liabilities
Certain current liabilities have been classified as current liabilities payable from restricted assets as they will be
funded from restricted assets.
I) Allowance for Doubtful Accounts
The District charges doubtful accounts arising from water sales receivable to bad debt expense when it is probable that
the accounts will be uncollectible. Uncollectible accounts are determined by the allowance method based upon prior
experience and management’s assessment of the collectability of existing specific accounts. The allowance for
doubtful accounts were $14,461 and $148,047 for 2012 and 2011, respectively.
J) Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
K) Property Taxes
Tax levies are limited to 1% of full market value (at time of purchase) which results in a tax rate of $1.00 per $100
assessed valuation, under the provisions of Proposition 13. Tax rates for voter-approved indebtedness are excluded
from this limitation.
The County of San Diego (the “County”) bills and collects property taxes on behalf of the District. The County’s tax
calendar year is July 1 to June 30. Property taxes attach as a lien on property on January 1. Taxes are levied on July 1
and are payable in two equal installments on November 1 and February 1, and become delinquent after December 10
and April 10, respectively.
L) Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 16
2) CASH AND INVESTMENTS
The primary goals of the District’s Investment Policy are to assure compliance with all Federal, State, and Local laws
governing the investment of funds under the control of the organization, protect the principal of investments entrusted, and
generate income under the parameters of such policies.
Cash and Investments are classified in the accompanying financial statements as follows:
Statement of Net Assets:
Current Assets 2012 2011
Cash and Cash Equivalents $ 31,075,455 $ 48,563,129
Restricted Cash and Cash Equivalents 4,057,726 5,239,430
Investments 37,069,853 28,691,752
Restricted Investments 16,124,042 20,622,679
Total Cash and Investments $ 88,327,076 $ 103,116,990
Cash and Investments consist of the following:
2012 2011
Cash on Hand $ 2,950 $ 2,950
Deposits with Financial Institutions 1,519,979 981,696
Investments 86,804,147 102,132,344
Total Cash and Investments $ 88,327,076 $ 103,116,990
Investments Authorized by the California Government Code and the District’s Investment Policy
The table below identifies the investment types that are authorized for the District by the California Government Code (or
the District’s Investment Policy, where more restrictive). The table also identifies certain provisions of the California
Government Code (or the District’s Investment Policy, where more restrictive) that address interest rate risk, credit risk,
and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are
governed by the provisions of debt agreements of the District, rather than the general provisions of the California
Government Code or the District’s Investment Policy.
Maximum Maximum
Authorized Maximum Percentage Investment
Investment Type Maturity Of Portfolio(1) In One Issuer
U.S. Treasury Obligations 5 years None None
U.S. Government Sponsored Entities 5 years None None
Certificates of Deposit 5 years 15% None
Corporate Medium-Term Notes 5 years 15% None
Commercial Paper 270 days 15% 10%
Money Market Mutual Funds N/A 15% None
County Pooled Investment Funds N/A None None
Local Agency Investment Fund
(LAIF)
N/A None None
(1) Excluding amounts held by bond trustee that are not subject to California Government Code restrictions.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 17
2) CASH AND INVESTMENTS - Continued
Investments Authorized by Debt Agreements
Investments of debt proceeds held by the bond trustee are governed by provisions of the debt agreements, rather than the
general provisions of the California Government Code or the District’s Investment Policy.
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment.
Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest
rates. One of the ways that the District manages its exposure to interest rate risk is by purchasing a combination of shorter
term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or
coming close to maturity evenly over time, as necessary, to provide the cash flow and liquidity needed for operations.
Information about the sensitivity of the fair values of the District’s investments to market interest rate fluctuations are
provided by the following tables that show the distribution of the District’s investments by maturity as of June 30, 2012
and 2011.
June 30, 2012
12 Months 13 to 24 25 to 60 More Than
Investment Type Or Less Months Months 60 Months
U.S. Government Sponsored Entities $ 53,100,166 $ 5,744,244 $24,995,670 $22,360,252 $ -
Local Agency Investment Fund
(LAIF) 11,614,981 11,614,981 - - -
San Diego County Pool 22,089,000 22,089,000 - - -
Total $ 86,804,147 $39,448,225 $24,995,670 $22,360,252 $ -
Remaining Maturity (in Months)
June 30, 2011
12 Months 13 to 24 25 to 60 More Than
Investment Type Or Less Months Months 60 Months
U.S. Government Sponsored Entities $ 49,263,245 $ - $21,821,835 $27,441,411 $ -
Local Agency Investment Fund
(LAIF) 35,876,620 35,876,620 - - -
Corporate Medium-Term Notes - - - - -
San Diego County Pool 16,992,479 16,992,479 - - -
Total $102,132,344 $52,869,099 $21,821,835 $27,441,411 $ -
Remaining Maturity (in Months)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 18
2) CASH AND INVESTMENTS - Continued
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment.
This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is
the minimum rating required by (where applicable) the California Government Code or the District’s Investment Policy, or
debt agreements, and the Moody’s ratings as of June 30, 2012 and 2011 for each investment type.
June 30, 2012
Minimum
Legal Not
Investment Type Rating AAA AA Rated
U.S. Government Sponsored Entities $ 53,100,166 N/A $53,100,166 $ - $ -
Local Agency Investment
Fund (LAIF) 11,614,981 N/A - - 11,614,981
San Diego County Pool 22,089,000 N/A - - 22,089,000
Total $ 86,804,147 $53,100,166 $ - $33,703,981
Rating as of Year End
June 30, 2011
Minimum
Legal Not
Investment Type Rating AAA AA Rated
U.S. Government Sponsored Entities $ 49,263,245 N/A $49,263,246 $ - $ -
Local Agency Investment
Fund (LAIF) 35,876,620 N/A - - 35,876,620
San Diego County Pool 16,992,479 N/A - - 16,992,479
Total $102,132,344 $49,263,246 $ - $52,869,099
Rating as of Year End
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 19
2) CASH AND INVESTMENTS - Continued
Concentration of Credit Risk
The investment policy of the District contains various limitations on the amounts that can be invested in any one type or group
of investments and in any issuer, beyond that stipulated by the California Government Code, Sections 53600 through 53692.
Investments in any one issuer (other than U.S. Treasury securities, mutual funds, and external investment pools) that represent
5% or more of total District investments as of June 30, 2012 and 2011 are as follows:
June 30, 2012
June 30, 2011
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government
will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside
party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-
dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in
the possession of another party. The California Government Code and the Entity’s investment policy do not contain legal or
policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following
provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or
local government units by pledging securities in an undivided collateral pool held by a depository regulated under state law
(unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at
least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure
deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits.
As of June 30, 2012, $1,720,135 of the District’s deposits with financial institutions in excess of federal depository insurance
limits were held in collateralized accounts. As of June 30, 2011, $1,308,661 of the District’s deposits with financial
institutions in excess of federal depository insurance limits were held in collateralized accounts.
Issuer Investment Type Reported Amount
Federal Home Loan Bank U.S. Government Sponsored Entities $ 17,991,270
Federal Home Loan Mortgage Corp
Federal National Mortgage Association
Federal Farm Credit Banks
U.S. Government Sponsored Entities
U.S. Government Sponsored Entities
U.S. Government Sponsored Entities
15,753,834
14,993,400
4,361,662
Issuer Investment Type Reported Amount
Federal Home Loan Bank U.S. Government Sponsored Entities $ 17,791,131
Federal Home Loan Mortgage Corp
Federal National Mortgage Association
U.S. Government Sponsored Entities
U.S. Government Sponsored Entities
25,827,735
5,644,380
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 20
2) CASH AND INVESTMENTS - Continued
Local Agency Investment Fund (LAIF)
The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California
Government Code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the
District’s investment in this pool is reported in the accompanying financial statements at amounts based upon District’s pro-
rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio).
The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an
amortized cost-basis.
San Diego County Pooled Fund
The San Diego County Pooled Investment Fund (SDCPIF) is a pooled investment fund program governed by the County of
San Diego Board of Supervisors, and administered by the County of San Diego Treasurer and Tax Collector. Investments in
SDCPIF are highly liquid as deposits and withdrawals can be made at anytime without penalty.
The County of San Diego’s bank deposits are either Federally insured or collateralized in accordance with the California
Government Code. Pool detail is included in the County of San Diego Comprehensive Annual Financial Report (CAFR).
Copies of the CAFR may be obtained from the County of San Diego Auditor-Controller’s Office – 1600 Pacific Coast
Highway – San Diego, CA 92101.
Collateral for Deposits
All cash is entirely insured or collateralized.
Under the provisions of the California Government Code, California banks and savings and loan associations are required to
secure the District's deposits by pledging government securities as collateral. The market value of the pledged securities must
equal at least 110% of the District's deposits. California law also allows financial institutions to secure District deposits by
pledging first trust deed mortgage notes having a value of 150% of the District's total deposits.
The District may waive the 110% collateral requirement for deposits which are insured up to $250,000 by the FDIC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 21
3) CAPITAL ASSETS
The following is a summary of changes in Capital Assets for the year ended June 30, 2012:
Beginning Balance Additions Deletions Ending Balance
Capital Assets, Not Depreciated
Land 13,636,663$ 66,800$ -$ 13,703,463$
Construction in Progress 17,909,282 19,086,698 (19,543,706) 17,452,274
Total Capital Assets Not Depreciated 31,545,945 19,153,498 (19,543,706) 31,155,737
Capital Assets, Being Depreciated
Infrastructure 577,926,518 20,908,862 (940,451) 597,894,929
Field Equipment 9,847,809 149,661 (1,395,410) 8,602,060
Buildings 18,451,132 198,077 - 18,649,209
Transportation Equipment 3,177,687 221,872 (178,310) 3,221,249
Communication Equipment 2,359,043 155,108 - 2,514,151
Office Equipment 17,332,966 681,123 (812,669) 17,201,420
Total Capital Assets Being Depreciated 629,095,155 22,314,703 (3,326,840) 648,083,018
Less Accumulated Depreciation:
Infrastructure 157,565,903 12,330,306 (637,807) 169,258,402
Field Equipment 8,619,183 149,708 (1,395,410) 7,373,481
Buildings 6,911,291 436,529 7,347,820
Transportation Equipment 2,250,422 234,188 (178,310) 2,306,300
Communication Equipment 644,017 391,829 1,035,846
Office Equipment 10,223,319 1,672,144 (808,646) 11,086,817
Total Accumulated Depreciation 186,214,135 15,214,704 (3,020,173) 198,408,666
Total Capital Assets Being Depreciated, Net 442,881,020 7,099,999 (306,667) 449,674,352
Total Capital Assets, Net 474,426,965$ 26,253,497$ (19,850,373)$ 480,830,089$
Depreciation expense for the years ended June 30, 2012 and 2011 was $15,214,704 and $13,880,206, respectively.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 22
3) CAPITAL ASSETS (Continued)
The following is a summary of changes in Capital Assets for the year ended June 30, 2011:
Beginning Balance
(As Restated) Additions Deletions Ending Balance
Capital Assets, Not Depreciated
Land 13,620,963$ 15,700$ -$ 13,636,663$
Construction in Progress 35,179,104 18,141,296 (35,411,118) 17,909,282
Total Capital Assets Not Depreciated 48,800,067 18,156,996 (35,411,118) 31,545,945
Capital Assets, Being Depreciated
Infrastructure 544,533,985 33,440,219 (47,686) 577,926,518
Field Equipment 9,529,558 489,019 (170,768) 9,847,809
Buildings 18,451,132 - - 18,451,132
Transportation Equipment 3,278,692 347,077 (448,082) 3,177,687
Communication Equipment 1,335,820 1,023,223 - 2,359,043
Office Equipment 18,430,388 1,123,775 (2,221,197) 17,332,966
Total Capital Assets Being Depreciated 595,559,575 36,423,313 (2,887,733) 629,095,155
Less Accumulated Depreciation:
Infrastructure 146,106,000 11,507,589 (47,686) 157,565,903
Field Equipment 8,685,579 104,372 (170,768) 8,619,183
Buildings 6,475,141 436,150 - 6,911,291
Transportation Equipment 2,477,854 203,715 (431,147) 2,250,422
Communication Equipment 468,548 175,469 - 644,017
Office Equipment 10,982,620 1,452,911 (2,212,212) 10,223,319
Total Accumulated Depreciation 175,195,742 13,880,206 (2,861,813) 186,214,135
Total Capital Assets Being Depreciated, Net 420,363,833 22,543,107 (25,920) 442,881,020
Total Capital Assets, Net 469,163,900$ 40,700,103$ (35,437,038)$ 474,426,965$
Depreciation expense for the years ended June 30, 2011 and 2010 was $13,880,206 and $13,297,497, respectively.
4) OTHER NONCURRENT ASSETS
Deferred bond issue costs totaled $1,532,857 and $1,618,069, net of accumulated amortization of $466,081 and $380,418 as
of June 30, 2012 and 2011, respectively. The costs are amortized on the straight-line method based on the estimated term of
the related bond debt. Amortization expense of $85,212 and $85,212 for the years ended June 30, 2012 and 2011 is included
in miscellaneous non-operating expenses.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 23
5) LONG-TERM DEBT
Long-term liabilities for the year ended June 30, 2012 are as follows:
Beginning
Balance Additions Deletions
Ending
Balance
Due Within
One Year
General Obligation Bonds:
Improvement District No. 27 - 2009 $ 7,260,000 $ - $ 505,000 $ 6,755,000 $ 520,000
Unamortized Bond Premium 182,626 - 16,355 166,271 -
Deferred Amount on Refunding (639,049) - (56,805) (582,244) -
Net General Obligation Bonds 6,803,577 - 464,550 6,339,027 520,000
Certificates of Participation:
1996 Certificates of Participation 11,300,000 - 400,000 10,900,000 500,000
2004 Certificates of Participation 9,245,000 - 565,000 8,680,000 580,000
2007 Certificates of Participation 39,550,000 - 885,000 38,665,000 920,000
1996 COPS Unamortized Discount (11,923) - (745) (11,178) -
2007 COPS Unamortized Discount (232,131) - (9,044) (223,087) -
2004 COPS Unamortized Premium 14,170 - 1,165 13,005 -
2004 COPS Deferred Amount on
Refunding (149,585) - (12,294) (137,291) -
Net Certificates of Participation 59,715,531 - 1,829,082 57,886,449 2,000,000
Revenue Bonds:
2010 Water Revenue Bonds Series A 13,840,000 785,000 13,055,000 800,000
2010 Water Revenue Bonds Series B 36,355,000 - 36,355,000 -
2010 Series A Unamortized Premium 985,822 74,401 911,421 -
Net Revenue Bonds 51,180,822 - 859,401 50,321,421 800,000
Notes Payable:
State Water Resource Control Board 6,010 - 6,010 - -
Total Long-Term Liabilities $117,705,940 $ - $ 3,159,043 $114,546,897 $3,320,000
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 24
5) LONG-TERM DEBT – Continued
General Obligation Bonds
In June 1998, the District issued $11,835,000 of General Obligation Refunding Bonds. The proceeds of this issue, together
with other lawfully available monies, were to be used to establish an irrevocable escrow to advance refund and defease in
their entirety the District’s previous outstanding General Obligation Bond issue. In November 2009, The District issued
$7,780,000 of General Obligation Refunding Bonds to refund the 1998 issue. The proceeds from the bond issue were
$7,989,884, which included an original issue premium of $209,884. An amount of $7,824,647, which consisted of unpaid
principal and accrued interest, was deposited into an escrow fund. Pursuant to an optional redemption clause in the 1998
bonds, the District was able to redeem the 1998 bonds, without premium at any time after September 1, 2009. On December
15, 2009 the 1998 bonds were refunded.
The savings between the cash flow required to service the old debt and the cash flow required to service the new debt is
$1,099,110 and represents an economic gain on refunding of $640,925.
These bonds are general obligations of Improvement District No. 27 (ID 27) of the District. The Board of Directors has the
power and is obligated to levy annual ad valorem taxes without limitation, as to rate or amount for payment of the bonds and
the interest upon all property which is within ID 27 and subject to taxation. The General Obligation Bonds are payable from
District-wide tax revenues. The Board may utilize other sources for servicing the bond debt and interest.
The refunding of the 1998 bonds resulted in a deferred amount of $728,989 which is being amortized over the remaining life
of the refunded debt. Amortization for the year ended June 30, 2012 was $56,805 and is included in miscellaneous non-
operating expenses. As of June 30, 2012, the unamortized deferred amount of refunding is $582,244.
The 2009 General Obligation Bonds have interest rates from 3.00% to 4.00% with maturities through Fiscal Year 2023.
Future debt service requirements for the bonds are as follows:
For the Year Ended
June 30, Principal Interest Total
2013 $ 520,000 $ 236,262 756,262$
2014 535,000 220,437 755,437
2015 550,000 204,162 754,162
2016 570,000 187,362 757,362
2017 585,000 169,306 754,306
2018-2022 3,275,000 481,300 3,756,300
2023 720,000 14,403 734,403
$ 6,755,000 $ 1,513,232 $ 8,268,232
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 25
5) LONG-TERM DEBT - Continued
Certificates of Participation (COPS)
In June 1996, COPS with face value of $15,400,000 were sold by the Otay Service Corporation to finance the cost of design,
acquisition, and construction of certain capital improvements. An installment purchase agreement between the District, as
Buyer, and the Corporation, as Seller, was executed for the scheduled payment of principal and interest associated with the
COPS. The installment payments are to be paid from taxes and “net revenues,” as described in the installment agreement.
The certificates bear interest at a variable weekly rate not to exceed 12%. The variable interest rate is tied to the 30-day
LIBOR index and the Securities Industry and Financial Markets Association (SIFMA) index. An irrevocable letter of credit
facility is necessary to market the District’s variable rate debt. This facility is with Union Bank and covers the outstanding
principal and interest. The facility expires on June 29, 2014.The interest rate at June 30, 2012 was 0.15%. The installment
payments are to be paid annually at $350,000 to $900,000 from September 1, 1996 through September 1, 2026.
In July 2004, Refunding Certificates of Participation (COPS) with a face value of $12,270,000 were sold by the Otay Service
Corporation to advance refund $11,680,000 of outstanding 1993 COPS. An installment agreement between the District, as
Buyer, and the Corporation, as Seller, was executed for the scheduled payment of principal and interest associated with the
COPS. The installment payments are to be paid from taxes and “net revenues,” as described in the installment agreement.
The certificates are due in annual installments of $445,000 to $895,000 from September 1, 2005 through September 1, 2023;
bearing interest at 3% to 4.625%.
In March 2007, Revenue Certificates of Participation (COPS) with face value of $42,000,000 were sold by the Otay Service
Corporation to improve the District’s water storage system and distribution facilities. An installment purchase agreement
between the District, as a Buyer, and the Corporation, as Seller, was executed for the scheduled payment of principal and
interest associated with the COPS. The installment payments are to be paid from taxes and “net revenues,” as described in the
installment agreement. The certificates are due in annual installments of $785,000 to $2,445,000 from September 1, 2007
through September 1, 2036; bearing interest at 3.7% to 4.47%.
There is no aggregate reserve requirement for the COPS. Future debt service requirements for the certificates are as follows:
For the Year
Ended June 30,Principal Interest* Principal Interest Principal Interest
2013 $ 500,000 $ 15,725 $ 580,000 $ 349,566 $ 920,000 $ 1,589,020
2014 500,000 14,975 600,000 328,906 955,000 1,553,864
2015 500,000 14,225 625,000 306,388 995,000 1,517,301
2016 600,000 13,350 650,000 281,994 1,035,000 1,479,239
2017 600,000 12,450 675,000 255,819 1,075,000 1,439,408
2018-2022 3,500,000 47,225 3,795,000 828,394 6,020,000 6,529,600
2023-2027 4,700,000 16,325 1,755,000 81,441 7,360,000 5,181,071
2028-2032 - - - - 9,070,000 3,453,857
2033-2037 - - - - 11,235,000 1,271,265
$10,900,000 $ 134,275 $ 8,680,000 $ 2,432,508 $38,665,000 $ 24,014,625
1996 COPS 2004 COPS 2007 COPS
* Variable Rate - Interest reflected at June 30, 2012 at a rate of 0.15%.
The three COP debt issues contain various covenants and restrictions, principally that the District fix, prescribe, revise and
collect rates, fees and charges for the Water System which will be at least sufficient to yield, during each fiscal year, taxes
and net revenues equal to one hundred twenty-five percent (125%) of the debt service for such fiscal year. The District
was in compliance with these rate covenants for the fiscal year ended June 30, 2012.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 26
5) LONG-TERM DEBT - Continued
Water Revenue Bonds
In April 2010, Water Revenue Bonds with a face value of $50,195,000 were sold by the Otay Water District Financing
Authority to provide funds for the construction of water storage and transmission facilities. The bond issue consisted of two
series; Water Revenue Bonds, Series 2010A (Non-AMT Tax Exempt) with a face value of $13,840,000 plus a $1,078,824
original issue premium, and Water Revenue Bonds Series 2010B (Taxable Build America Bonds) with a face value of
$36,255,000. The Series 2010A bonds are due in annual installments of $785,000 to $1,295,000 from September 1, 2012
through September 1, 2025; bearing interest at 2% to 5.25%. The Series 2010B bonds are due in annual installments of
$1,365,000 to $3,505,000 from September 1, 2026 through September 1, 2040; bearing interest at 6.377% to 6.577%. Interest
on both Series is payable on September 1, 2010 and semiannually thereafter on March 1st and September 1st of each year until
maturity or earlier redemption. The installment payments are to be made from Taxes and Net Revenues of the Water System
as described in the installment purchase agreement, on parity with the payments required to be made by the District for the
1996, 2004 and 2007 Certificates of Participation described above.
The proceeds of the bonds will be used to fund the project described above as well as to fund reserve funds of $1,030,688
(Series 2010A) and $2,707,418 (Series 2010B). $542,666 was used to fund various costs of issuance.
The original issue premium is being amortized over the 14 year life of the Series 2010A bonds. Amortization for the year
ending June 30, 2012 was $74,402 and is included in interest expense. The unamortized premium at June 30, 2012 is
$911,421.
The 2011 Water Revenue Bonds contains various covenants and restrictions, principally that the District fix, prescribe,
revise and collect rates, fees and charges for the Water System which will be at least sufficient to yield, during each fiscal
year, taxes and net revenues equal to one hundred twenty-five percent (125%) of the debt service for such fiscal year. The
District was in compliance with these rate covenants for the fiscal year ended June 30, 2012.
The total amount outstanding at June 30, 2012 and aggregate maturities of the revenue bonds for the fiscal years subsequent to
June 30, 2012, are as follows:
For the Year
Ended June 30,Principal Interest Principal Interest
2013 $ 800,000 $ 553,838 $ - $ 2,371,868
2014 820,000 533,538 - 2,371,868
2015 845,000 508,563 - 2,371,868
2016 870,000 478,488 - 2,371,868
2017 900,000 443,088 - 2,371,868
2018-2022 5,115,000 1,584,988 - 11,859,342
2023-2027 3,705,000 291,969 2,815,000 11,682,539
2028-2032 - - 8,760,000 9,631,794
2033-2037 - - 12,005,000 6,275,280
2038-2042 - - 12,775,000 1,747,344
$ 13,055,000 $ 4,394,470 $ 36,355,000 $ 53,055,639
2010 Water Revenue Bond Series A 2010 Water Revenue Bond Series B
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 27
5) LONG-TERM DEBT - Continued
Note Payable
In December 1990, the District entered into a 3.5% note payable to the State Water Resources Control Board. This note is
unsecured and payable in annual installments of $366,325 including principal and interest from 1992 through 2012. The note
was paid off during the year.
6) NET ASSETS
Designated Net Assets
In addition to the restricted net assets, a portion of the unrestricted net assets have been designated by the Board of Directors
for the following purposes as of June 30, 2012 and 2011:
2012 2011
Designated Betterment $ - $ 13,221,595
Expansion Reserve 17,943,825 13,216,223
Replacement Reserve 15,911,850 30,156,082
Designated New Supply Fund 1,593,571 -
Employee Benefits Reserve 1,660,369 4,526,516
Total $ 37,109,615 $ 61,120,416
7) DEFINED BENEFIT PENSION PLAN
Plan Description
The District’s defined plan, (the “Plan”), provides retirement and disability benefits, annual cost-of-living adjustments, and
death benefits to plan members and beneficiaries. The Plan is part of the Public Agency portion of the California Public
Employees’ Retirement System (CalPERS), an agent multiple-employer plan administered by CalPERS, which acts as a
common investment and administrative agent for participating public employers within the State of California. A menu of
benefit provisions as well as other requirements is established by State statute within the Public Employees’ Retirement Law.
The Plan selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits
through District resolution. CalPERS issues a separate Comprehensive Annual Financial Report. Copies of the CalPERS’
annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California 95814.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 28
7) DEFINED BENEFIT PENSION PLAN - Continued
Funding Policy
Active members in the Plan are required to contribute 8% of their annual covered salary. By agreement between the employee
union and the District, the represented employees paid 5.25% of covered salaries beginning August 15, 2011. Also by
agreement, the unrepresented employees began paying 4.5% of covered salaries as of July 15, 2011. Prior to these
agreements all employees paid 1% of covered salaries. In these same agreements, all employees, after June 30, 2012 will pay
an additional 3.5% of covered salaries. The District is required to contribute the actuarially determined remaining amounts
necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the
CalPERS Board of Administration. The required employer contribution rate for the fiscal year ended June 30, 2012 was
23.428%. The contribution requirements of the Plan members are established by State statute and the employer contribution
rate is established and may be amended by the CalPERS.
Annual Pension Costs
For the fiscal year ended June 30, 2012, the District’s annual pension cost and actual contribution was $2,951,409. The
required contribution for the fiscal year ended June 30, 2012 was determined as part of the June 30, 2009 actuarial valuation.
The following is a summary of the actuarial assumptions and methods:
Valuation Date June 30, 2009
Actuarial Cost Method Entry Age Actuarial Cost Method
Amortization Method Level Percent of Payroll
Average Remaining Period 21 Years as of the Valuation Date
Asset Valuation Method 15 Year Smoothed Market
Actuarial Assumptions:
Investment Rate of Return 7.75% (Net of Administrative Expenses)
Projected Salary Increase 3.55% to 14.45% Depending on Age, Service, and Type of Employment
Inflation 3.00%
Payroll Growth 3.25%
Individual Salary Growth A merit scale varying by duration of employment coupled with an assumed
annual inflation component of 3.00% and an annual production growth of 0.25%.
Initial unfunded liabilities are amortized over a closed period that depends on the Plan’s date of entry into CalPERS.
Subsequent Plan amendments are amortized as a level percentage of pay over a closed 20-year period. Gains and losses that
occur in the operation of the plan are amortized over a rolling period, which results in an amortization of 6% of unamortized
gains and losses each year. If the plan’s accrued liability exceeds the actuarial value of the plan assets, then the amortization
payment of the total unfunded liability may be lower than the payment calculated over a 30-year amortization period.
THREE-YEAR TREND INFORMATION FOR PERS
Fiscal Annual Pension Percentage of Net Pension
Year Cost (APC)APC Contributed Obligation
6/30/12 $ 2,951,409 100% $ 0
6/30/11 $ 2,427,744 100% $ 0
6/30/10 $ 2,240,538 100% $ 0
Funded Status and Funding Progress
As of June 30, 2010, the most recent actuarial valuation date, the plan was 70.9% funded. The actuarial accrued liability (AAL)
for benefits was $81,306,934, and the actuarial value of assets was $57,613,987, resulting in an unfunded actuarial accrued
liability (UAAL) of $23,692,947. The covered payroll (annual payroll of active employees covered by the plan) was $12,140,989,
and the ratio of the UAAL to the covered payroll was 195.1%.
The schedule of funding progress, presented as required supplementary information following the notes to the financial
statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over
the time relative to the actuarial accrued liability for benefits.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 29
8) OTHER POST EMPLOYMENT BENEFITS
Plan Description
The District’s defined benefit postemployment healthcare plan, (DPHP), provides medical benefits to eligible retired District
employees and beneficiaries. DPHP is part of the Public Agency portion of the California Employers’ Retiree Benefit Trust
Fund (CERBT), an agent multiple-employer plan administered by California Public Employees’ Retirement System
(CalPERS), which acts as a common investment and administrative agent for participating public employers within the State
of California. CalPERS issues a separate Comprehensive Annual Financial Report. Copies of the CalPERS’ annual financial
report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California 95814.
Prior to the plan agreements signed in 2011 the eligibility in the plan was broken into 3 tiers, employees hired before
January 1, 1981, employees hired between January 1,1981 and July 1, 1993 and employees hired on or after July 1, 1993.
Board Members elected before January 1, 1995 are also eligible for the plan. Eligibility also includes age and years of
service requirements which vary by tier. Benefits include 100% medical and dental premiums for life for the retiree for
Tier I, II or III employees, and up to 100% spouse premium for life and dependent premium up to age 19 depending on the
tier. The plan also includes survivor benefits to Medicare.
Subsequent to the agreements in 2011 the represented employees are eligible for the plan after 20 years of consecutive
service while unrepresented employees are eligible after 15 years. Survivor benefits are covered beyond Medicare.
Funding Policy
The contribution requirements of plan members and the District are established and may be amended by the Board of
Directors. DPHP members receiving benefits contribute based on their selected plan options of EPO, HMO or Gold and if
they are located outside the State of California. Contributions by plan members range from $0 to $146 per month for
coverage to age 65, and from $0 to $147 per month, respectively, thereafter.
Annual OPEB Cost and Net OPEB Obligation/Asset
The District’s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC),
an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level
of funding that, if paid on an ongoing basis is projected to cover the normal annual cost. Any unfunded actuarial liability
(or funding excess) is amortized over a period not to exceed thirty years. The current ARC rate is 10.5% of the annual
covered payroll.
The following table shows the components of the District’s annual OPEB cost for the year, the amount actually
contributed to the plan, and changes in the District’s net OPEB obligation/asset:
2012 2011
Annual Required Contribution (ARC) 1,304,000$ 289,000$
Interest on net OPEB asset (537,685) (525,712)
Adjustment to Annual Required Contribution
(ARC) 473,000 646,000
Annual OPEB cost (expense) 1,239,315 409,288
Contributions made 2,144,871 1,042,249
Increase in net OPEB asset (905,556) (632,961)
Net OPEB asset - beginning of year (7,416,346) (6,783,385)
Net OPEB asset - end of year (8,321,902)$ (7,416,346)$
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 30
8) OTHER POST EMPLOYMENT BENEFITS - Continued
For 2012, in addition to the ARC, the District contributed cash benefit payments outside the trust (healthcare premium
payments for retirees to Special District Risk Management Authority (SDRMA) ) in the amount of $749,871, which is
included in the $2,144,871 of contributions shown above. For 2011 this amount was $654,250, which is included in the
$1,042,249 of contributions shown above.
The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB
obligation/asset for the fiscal years 2012, 2011 and 2010 were as follows:
Fiscal Annual OPEB Percentage of Net OPEB
Year Cost (AOC) OPEB Cost Contributed Asset
6/30/2012 1,239,315$ 173%(8,321,902)$
6/30/2011 $ 409,288 255% $ (7,416,346)
6/30/2010 $ 455,122 227% $ (6,783,385)
THREE-YEAR TREND INFORMATION FOR CERBT
Funded Status and Funding Progress
The funded status of the plan as of June 30, 2011, the most recent actuarial valuation date, was as follows:
Actuarial Accrued Liability (AAL) $ 18,289,000
Actuarial Value of Plan Assets $ 7,893,000
Unfunded Actuarial Accrued Liability (UAAL) $ 10,396,000
Funded Ratio (Actuarial Value of Plan Assets/AAL) 43.16%
Covered Payroll (Active Plan Members) $ 12,429,000
UAAL as a Percentage of Covered Payroll 83.64%
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the
probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality,
and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required
contributions of the employer are subject to continual revision as actual results are compared with past expectations and
new estimates are made about the future. The schedule of funding progress, presented as required supplementary
information following the notes to the financial statements, presents multi-year trend information about whether the
actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for the
benefits.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 31
8) OTHER POST EMPLOYMENT BENEFITS - Continued
Actuarial Methods and Assumptions
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the
employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical
pattern of sharing of benefit costs between employer and plan members to that point. The actuarial methods and
assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued
liabilities and the actuarial assets, consistent with the long-term perspective of the calculations.
The following is a summary of the actuarial assumptions and methods:
Valuation Date June 30, 2011
Actuarial Cost Method Entry Age Normal Cost Method
Amortization Method Level Percent of Payroll
Remaining Amortization Period 26 Year fixed (closed) period as of the Valuation Date
Asset Valuation Method 15 Year Smoothed Market
Actuarial Assumptions:
Investment Rate of Return 7.25% (Net of Administrative Expenses)
Projected Salary Increase 3.25%
Inflation 3.00%
Individual Salary Growth CalPERS 1997-2007 Experience Study
Healthcare Cost Trend Rate Medical: 10% per annum graded down in approximately
one-half percent increments to an ultimate rate of 5%.
Dental: 4% per annum.
9) WATER CONSERVATION AUTHORITY
In 1999 the District formed the Water Conservation Authority (the “Authority”), a Joint Powers Authority, with other local
entities to construct, maintain and operate a xeriscape demonstration garden in the furtherance of water conservation. The
authority is a non-profit public charity organization and is exempt from income taxes. During the years ended June 30, 2012
and 2011, the District contributed $121,617 and $120,648, respectively, for the development, construction and operation costs
of the xeriscape demonstration garden.
A summary of the Authority’s June 30, 2011 audited financial statement is as follows (latest report available):
Assets $ 1,815,887
Liabilities 85
Net Assets $ 1,815,802
Revenues, Gains and Other Support $ 370,012
Expenses (597,808)
Transfer of Assets (367,946)
Changes in Net Assets $ (595,742)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 32
10) COMMITMENTS AND CONTINGENCIES
Construction Commitments
The District had committed to capital projects under construction with an estimated cost to complete of $3,151,775 at June 30,
2012.
Litigation
Certain claims, suits and complaints arising in the ordinary course of operation have been filed or are pending against the
District. In the opinion of the staff and counsel, all such matters are adequately covered by insurance, or if not so covered, are
without merit or are of such kind, or involved such amounts, as would not have a significant effect on the financial position or
results of operations of the District if disposed of unfavorably.
Refundable Terminal Storage Fees
The District has entered into an agreement with several developers whereby the developers prepaid the terminal storage fee in
order to provide the District with the funds necessary to build additional storage capacity. The agreement further allows the
developers to relinquish all or a portion of such water storage capacity. If the District grants to another property owner the
relinquished storage capacity, the District shall refund to the applicable developer $746 per equivalent dwelling unit (EDU).
There were 17,867 EDUs that were subject to this agreement. At June 30, 2011, 1,751 EDUs had been relinquished and
refunded, 14,663 EDUs had been connected, and 1,453 EDUs have neither been relinquished nor connected. At June 30,
2012, 1,751 EDUs had been relinquished and refunded, 15,026 EDUs had been connected, and 1,090 EDUs have neither
been relinquished nor connected.
Developer Agreements
The District has entered into various Developer Agreements with developers towards the expansion of District facilities. The
developers agree to make certain improvements and after the completion of the projects the District agrees to reimburse such
improvements with a maximum reimbursement amount for each developer. Contractually, the District does not incur a
liability for the work until the work is accepted by the District. As of June 30, 2012, none of the outstanding developer
agreements had been accepted, however it is anticipated that the District will be liable for an amount not to exceed $56,000 at
the point of acceptance. Accordingly, the District has accrued a liability as of year end.
11) RISK MANAGEMENT
The District is exposed to various risks of loss related to torts, theft, damage and destruction of assets, errors and
omissions, and natural disasters. Beginning in July 2003, the District began participation in an insurance pool through the
Special District Risk Management Authority (SDRMA). SDRMA is a not-for-profit public agency formed under
California Government Code Sections 6500 et. Seq. SDRMA is governed by a board composed of members from
participating agencies. The mission of SDRMA is to provide renewable, efficiently priced risk financing and risk
management services through a financially sound pool. The District pays an annual premium for commercial insurance
covering general liability, excess liability, property, automobile, public employee dishonesty, and various other claims.
Accordingly, the District retains no risk of loss. Separate financial statements of SDRMA may be obtained at Special
District Risk Management Authority, 1112 “I” Street, Suite 300, Sacramento, CA 95814.
General and Auto Liability, Public Officials’ and Employees’ Errors and Omissions and Employment Practices Liability:
Total risk financing limits of $10 Million combined single limit at $10 Million per occurrence, subject to the following
deductibles:
$500 per occurrence for third party general liability property damage;
$1,000 per occurrence for third party auto liability property damage;
50% co-insurance of cost expended by SDRMA, in excess of $10,000 up to $50,000, per occurrence, for employment
related claims. However, 100% of the obligation will be waived if certain criteria are met, as provided in the
Memorandum of Coverage.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 33
11) RISK MANAGEMENT (Continued)
Employee Dishonesty Coverage: Total of $400,000 per loss includes Public Employee Dishonesty, Forgery or Alteration and
Theft, Disappearance and Destruction coverage’s effective July 1, 2011.
Property Loss: Replacement cost, for property on file, if replaced, and if not replaced within two years after the loss, paid on
an actual cash value basis, to a combined total of $1 Billion per occurrence, subject to a $2,000 deductible per occurrence,
effective July 1, 2011.
Boiler and Machinery: Replacement cost up to $100 Million per occurrence, subject to a $1,000 deductible, effective July 1,
2011.
Public Officials Personal Liability: $500,000 each occurrence, with an annual aggregate of $500,000 per each
elected/appointed official to which this coverage applies, subject to the terms, conditions and exclusions as provided in the
Memorandum of Coverage’s, deductible of $500 per claim, effective July 1, 2011.
Comprehensive and Collision: on selected vehicles, with deductibles of $250/$500 or $500/$1,000, as elected; ACV limits;
fully self-funded by SDRMA; Policy No. LCA - SDRMA - 201111, effective July 1, 2011.
Workers’ Compensation Coverage and Employer’s Liability: Statutory limits per occurrence for Workers’ Compensation and
$5.0 Million for Employer’s Liability Coverage, subject to the terms, conditions and exclusions as provided in the
Memorandum of Coverage, effective July 1, 2011.
Health Insurance
Beginning in January 2008, the District began providing health insurance through SDRMA covering all of its employees,
retirees, and other dependents. SDRMA is a self-funded, pooled medical program, administered in conjunction with the
California State Association of Counties (CSAC).
Adequacy of Protection
During the past three fiscal (claims) years none of the above programs of protection have had settlements or judgments
that exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability
coverage from coverage in the prior year.
12) INTEREST EXPENSE
Interest expense for the years ended June 30, 2012 and 2011, is as follows:
2012 2011
Amount Expensed $ 3,899,927 $ 3,877,531
Amount Capitalized as a Cost of
Construction Projects 1,185,443 1,215,476
Total Interest $ 5,085,370 $ 5,093,007
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 34
13) SEGMENT INFORMATION
During the June 30, 2011 fiscal year, the District issued Revenue Bonds to finance certain capital improvements. While water
and wastewater services are accounted for jointly in these financial statements, the investors in the Revenue Bonds rely solely
on the revenues of the water services for repayment.
Summary financial information for the water services is presented for June 30, 2012.
Water Services
ASSETS
Current Assets 102,545,752$
Capital Assets 464,947,634
Other Assets 9,854,759
Total Assets 577,348,145
LIABILITIES
Current Liabilities 22,900,886
Long-Term Liabilities 111,941,023
Total Liabilities 134,841,909
NET ASSETS
Invested in capital assets, net of related debt 365,842,560
Restricted for debt service 4,715,904
Unrestricted 71,947,772
Total Net Assets 442,506,236$
Condensed Statement of Net Assets
June 30, 2012
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 35
13) SEGMENT INFORMATION - Continued
Water Services
Operating Revenues
Water sales 63,803,099$
Connection and other fees 1,993,555
Total Operating Revenues 65,796,654
Operating Expenses
Cost of Water Sales 46,106,403
Administrative and General 17,901,008
Depreciation 14,367,787
Total Operating Expenses 78,375,198
Operating Income (Loss) (12,578,544)
Nonoperating Revenues (Expenses)
Investment income 416,045
Taxes and assessments 3,487,954
Availability charges 646,278
Gain (loss) on sale of capital assets (278,540)
Miscellaneous revenues 4,788,711
Donations (121,617)
Interest expense (3,899,927)
Miscellaneous expenses (1,755,782)
Total Nonoperating Revenues (Expenses) 3,283,122
Income (Loss) Before Capital Contributions (9,295,422)
Capital Contributions 6,942,986
Changes in Net Assets (2,352,436)
Total Net Assets, Beginning 444,858,672
Total Net Assets, Ending 442,506,236$
For The Year Ended June 30, 2012
and Changes in Net Assets
Condensed Statement of Revenues, Expenses
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 36
13) SEGMENT INFORMATION - Continued
Water Services
Net Cash Provided by Operating Activities 1,295,193$
Net Cash Provided by Noncapital and Related
Financing Activities 3,944,795
Net Cash Provided (Used) by Capital and Related
Financing Activities (20,519,687)
Net Cash Used by Investing Activities (3,389,679)
Net Increase (Decrease) in Cash and Cash
Equivalents (18,669,378)
Cash and cash equivalents, Beginning 53,802,559
Cash and cash equivalents, Ending 35,133,181$
Condensed Statement of Cash Flows
For The Year Ended June 30, 2012
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012 AND 2011
REQUIRED SUPPLEMENTARY INFORMATION
REQUIRED SUPPLEMENTARY INFORMATION
REQUIRED SUPPLEMENTARY INFORMATION
YEARS ENDED JUNE 30, 2012 AND 2011
See independent auditors’ report. 38
Schedule of Funding Progress for PERS
Actuarial
Accrued UAAL as a
Actuarial Actuarial Liability Unfunded Percentage of
Valuation Value of (AAL) Entry AAL Funded Covered Covered
Date Assets Age (UAAL)Ratio Payroll Payroll
(A) (B) (B - A) (A/B) (C) [(B-A)/C]
6/30/10
Miscellaneous $ 57,613,987 $ 81,306,934 $ 23,692,947 70.9%$ 12,140,989 195.1%
6/30/09
Miscellaneous $ 53,736,612 $ 75,300,790 $ 21,564,178 71.4%$ 11,880,481 181.5%
6/30/08
Miscellaneous $ 49,712,016 $ 65,542,736 $ 15,830,720 75.8%$ 11,174,528 141.7%
Schedule of Funding Progress for DPHP
Actuarial
Accrued UAAL as a
Actuarial Actuarial Liability Unfunded Percentage of
Valuation Value of (AAL) Entry AAL Funded Covered Covered
Date Assets Age (UAAL)Ratio Payroll Payroll
(A) (B) (B - A) (A/B) (C) [(B-A)/C]
6/30/11
Miscellaneous $ 7,893,000 $ 18,289,000 $ 10,396,000 43.16%$ 12,429,000 83.64%
6/30/09
Miscellaneous $ 6,273,000 $ 10,070,000 $ 3,797,000 62.29%$ 11,878,000 31.97%
6/30/08
Miscellaneous $ 5,649,000 $ 11,581,000 $ 5,932,000 48.78%$ 11,307,000 52.50%
REQUIRED SUPPLEMENTARY INFORMATION
YEARS ENDED JUNE 30, 2012 AND 2011
2965 Roosevelt Street, Carlsbad, CA 92008-2389 • Tel: 760.729.2343 • Fax: 760.729.2234
Offices located in Orange and San Diego Counties
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER
MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS
Board of Directors and Management
of Otay Water District
Spring Valley, California
We have audited the financial statements of the Otay Water District as of and for the year ended June 30, 2012, and have
issued our report thereon dated October 15, 2012. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
Management of Otay Water District is responsible for establishing and maintaining effective internal control over financial
reporting. In planning and performing our audit, we considered the Otay Water District’s internal control over financial
reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the Otay Water District’s internal
control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Otay Water
District’s internal control over financial reporting.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees,
in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely
basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a
reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and
corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of
this section and was not designed to identify all deficiencies in internal control over financial reporting that might be
deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over
financial reporting that we consider to be material weaknesses, as defined previously.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Otay Water District’s financial statements are free of material
misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant
agreements, noncompliance with which could have a direct and material effect on the determination of financial statement
amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and
accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other
matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of management, Board of Directors, others within the entity, and
federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than
these specified parties.
October 15, 2012
Carlsbad, CA
1
- 1 -
2965 Roosevelt Street, Carlsbad, CA 92008-2389 • Tel: 760.729.2343 • Fax: 760.729.2234
Offices located in Orange and San Diego Counties
Board of Directors
Audit Committee
Otay Water District
Spring Valley, California
We have audited the financial statements of the Otay Water District for the year ended June 30, 2012.
Professional standards require that we provide you with information about our responsibilities under
generally accepted auditing standards (and, if applicable, Government Auditing Standards), as well as
certain information related to the planned scope and timing of our audit. We have communicated such
information in our letter dated January 30, 2012. Professional standards also require that we
communicate to you the following information related to our audit.
Significant Audit Findings:
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the Otay Water District are described in Note 1 to the financial statements.
No new accounting policies were adopted and the application of existing policies was not changed
during the year ended June 30, 2012. We noted no transactions entered into by the Otay Water District
during the year for which there is a lack of authoritative guidance or consensus. All significant
transactions have been recognized in the financial statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management’s knowledge and experience about past and current events and assumptions
about future events. Certain accounting estimates are particularly sensitive because of their
significance to the financial statements and because of the possibility that future events affecting them
may differ significantly from those expected. The most sensitive estimates affecting the financial
statements were:
a. Management’s estimate of the fair market value of investments which is based on market
values by outside sources.
b. The estimated useful lives for capital assets and depreciation expense which are based on
industry standards.
- 2 -
Significant Audit Findings (Continued):
Qualitative Aspects of Accounting Practices (Continued)
c. The annual required contribution for the District’s Other Post-Employment Benefits was
prepared by an outside consultant.
d. The funded status and funding progress of the public defined benefit plan with CalPERS
which are based on actuarial valuations.
We evaluated the key factors and assumptions used to develop these estimates in determining that they
are reasonable in relation to the financial statements taken as a whole.
Certain financial statement disclosures are particularly sensitive because of their significance to
financial statement users. The most sensitive disclosures affecting the financial statement were
reported in Note 7 regarding the defined benefit pension plan and in Note 8 regarding the District’s
other post-employment benefit plan. The financial statement disclosures are neutral, consistent, and
clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing
our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during
the audit, other than those that are clearly trivial, and communicate them to the appropriate level of
management. Management has corrected all such misstatements. The following misstatements
detected as a result of audit procedures were corrected by management:
a. During the course of the audit it was determined that the District had decreased the balance
in the Construction in Process account by $442,015 by removing the balance directly from
an equity account. The District had determined that capital expenditures from a prior year
project (in Construction in Process at the start of the year) were no longer capitalizable.
Rather than expensing the amount in the current year the District had booked the change
directly to equity. An audit adjustment was made to record the $442,015 as a non-operating
expense of the current year.
b. During the course of the audit, it was determined that $108,655 of project costs which the
District had capitalized as infrastructure should have been expensed. An audit adjustment
was made to remove the capital asset and to record the $108,655 as a non-operating
expense of the current year. To match funding revenues to the non-operating expenses
adjusted above, reclassifications were made between capital contributions and non-
operating revenue in the amount of $546,326.
- 3 -
Significant Audit Findings (Continued):
Corrected and Uncorrected Misstatements (Continued)
c. During the course of the audit it was determined that $463,306 of costs which had been
expensed by the District should have been capitalized. An audit adjustment was made to
decrease the non-operating expense and increase capital assets. To match funding sources
to the capital assets, $463,306 was reclassified from non-operating revenue to contributed
capital.
Disagreements with Management
For the purposes of this letter, a disagreement with management is a financial accounting, reporting, or
auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial
statements or the auditors’ report. We are pleased to report that no such disagreements arose during the
course of our audit.
Management Representations
We have requested certain representations from management that are included in the management
representation letter dated October 15, 2012.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation
involves application of an accounting principle to the governmental unit’s financial statements or a
determination of the type of auditor’s opinion that may be expressed on those statements, our
professional standards require the consulting accountant to check with us to determine that the
consultant has all the relevant facts. To our knowledge, there were no such consultations with other
accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and
auditing standards, with management each year prior to retention as the governmental unit’s auditors.
However, these discussions occurred in the normal course of our professional relationship and our
responses were not a condition to our retention.
****
This information is intended solely for the use of the Board of Directors, Audit Committee and
management of the Otay Water District and is not intended to be, and should not be, used by anyone
other than these specified parties.
October 15, 2012
Carlsbad, CA
2965 Roosevelt Street, Carlsbad, CA 92008-2389 • Tel: 760.729.2343 • Fax: 760.729.2234
Offices located in Orange and San Diego Counties
INDEPENDENT ACCOUNTANTS’ REPORT
ON APPLYING AGREED-UPON PROCEDURES
Mr. Joseph Beachem
Chief Financial Officer
Otay Water District
Spring Valley, CA
We have performed the procedures enumerated below, which were agreed to by the Otay Water District
(the “District”) solely to assist the District’s senior management in evaluating the investments of the
District for the fiscal year ended June 30, 2012. The District’s management is responsible for the
evaluation of the investments of the District. This agreed-upon procedures engagement was conducted in
accordance with attestation standards established by the American Institute of Certified Public
Accountants. The sufficiency of these procedures is solely the responsibility of those parties specified in
the report. Consequently, we make no representation regarding the sufficiency of the procedures
described below either for the purpose for which this report has been requested or for any other purpose.
Our procedures and findings are as follows:
1. Obtain a copy of the District’s investment policy and determine that it is in effect for the fiscal
year ended June 30, 2012.
a. Findings: At June 30, 2012, the current investment policy (Policy #27) is dated August
10, 2011. This policy was reviewed and approved for the 2011/2012 fiscal year as
Action Item #12 at the August 10, 2011 Regular Board Meeting. Therefore the
investment policy is in effect for the time period under review.
2. Select 4 investments held at year end and determine if they are allowable investments under the
District’s Investment Policy.
a. Findings: Four investments chosen were FHLB – Maturity 12/19/2013, FHLMC –
Maturity 6/4/2014, FNMA – Maturity 9/26/2014, and FFCB – Maturity 2/27/2015
CUSIP 3133EAEG9. All four investments are allowable and within maturity limits as
stated in the District’s Investment Policy at June 30, 2012.
1
Mr. Joseph Beachem, CFO
Otay Water District Page 2
3. For the four investments selected in #2 above, determine if they are held by a third party
custodian designated by the District.
a. Findings: Per discussion with District management and evidenced by Union Bank of
California confirmation, Union Bank does not act as a broker dealer for the District but
acts as a custodial agent of the District holding the investment in a trust department. The
four investments examined are held by a third party custodian designated by the District
in compliance with District Policy.
4. Confirm the par or original investment amount and market value for the four investments selected
above with the custodian or issuer of the investments.
a. Findings: Investment values confirmed with Union Bank of California at June 30, 2012
with no exceptions.
5. Select two investment earnings transactions that took place during the year and recompute the
earnings to determine if the proper amount was received.
a. Findings: Investment earnings recalculated with no exceptions for two transactions
selected.
6. Trace amounts received for transactions selected at #5 above into the District’s bank accounts.
a. Transactions traced into District’s Union Bank of California Money Market account with
no exceptions for the two transactions selected.
7. Select five investment transactions (buy, sell, trade or maturity) occurring during the year under
review and determine that the transactions are permissible under the District’s investment policy.
a. Findings: Reviewed five investment transactions. All transactions were permissible
under the District’s Investment Policy.
8. Review the supporting documents for the five investments selected at #7 above to determine if
the transactions were appropriately recorded in the District’s general ledger.
a. Findings: Five investments selected at #7 above were appropriately recorded in the
District’s General Ledger without exception.
We were not engaged to, and did not, conduct an audit, the objective of which would be the expression of
an opinion on the investments of the District for the fiscal year ending June 30, 2012. Accordingly, we
do not express such an opinion. Had we performed additional procedures, other matters might have come
to our attention that would have been reported to you.
This report is limited solely for the information and use of the Board and senior management of the Otay
Water District and is not intended to be and should not be used by anyone other than those specified
parties.
October 15, 2012
Carlsbad, California
STAFF REPORT
TYPE MEETING: Regular Board MEETING DATE: November 7, 2012
PROJECT: Various DIV. NO. ALL
SUBMITTED BY: Geoff Stevens, Chief Information Officer
APPROVED BY:
German Alvarez, Assistant General Manager
Mark Watton, General Manager
SUBJECT: RENEWAL OF MICROSOFT ENTERPRISE SOFTWARE LICENSE
GENERAL MANAGER’S RECOMMENDATION:
That the Board authorize the General Manager to enter into a three-
year (3) O&M service agreement with Softchoice Corporation in the
amount of $250,638, consisting of three (3) annual payments of
approximately $83,546.
COMMITTEE ACTION:
Please see “Attachment A”.
PURPOSE:
To authorize the purchase of Microsoft software license support, from
Softchoice Corporation, for a three-year (3) period ending June, 30
2015.
ANALYSIS:
The Board may remember that in July 2012, as part of a group of
contracts valued at over $50,000 needing Board approval, the Board
approved a one-year contract extension of our enterprise license for
Microsoft Software. The cost was $83,546. Unfortunately, staff
should have identified this FY 2013 expense as the first year cost of
a three-year (3) contract extension with a total three-year value of
$250,638. The level of expenditure for FY 2013 does not change and
the item is budgeted in the O&M budget. As it is a three-year (3)
AGENDA ITEM 6
2
agreement, however, the total District commitment changes from
$83,546 for just one (1) year, to approximately $250,638 for three
(3) years.
While it is certainly possible to purchase a single year of support
for our Microsoft software licenses, the extension of the current
contract provides significant protection from further price increases
and also preserves the lower cost renewal of our existing licenses.
For example, our software license cost was reduced from $130,000 in
2008 to $75,000 in 2009 because the enterprise level contract had
reached a “maintenance status”. Failure to renew this contract as a
three-year (3) contract extension would put these savings at risk, as
well as price increases for major software upgrades.
FISCAL IMPACT: Joe Beachem, Chief Financial Officer
This project will utilize budgeted funds from the IT operating budget
of $83,546 in the current year and a total commitment of $250,638
over three (3) years. These proposed O&M expenditures are funded by
General Fund operations.
STRATEGIC GOAL:
Cost-effective enterprise software is essential to District
operations in meeting our strategic and operational objectives.
LEGAL IMPACT:
None.
Attachments: Attachment A – Committee Action Report
ATTACHMENT A
SUBJECT/PROJECT: RENEWAL OF MICROSOFT ENTERPRISE SOFTWARE LICENSE
COMMITTEE ACTION:
The Finance, Administration and Communications Committee met on
October 23, 2012, to review this item. The Committee supports
presentation to the full Board for their consideration.
NOTE:
The “Committee Action” is written in anticipation of the Committee
moving the item forward for Board approval. This report will be sent
to the Board as a committee approved item, or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full Board.
STAFF REPORT
TYPE MEETING: Regular Board MEETING DATE: October 23, 2012
SUBMITTED BY: Jose Martinez, Utility
Services Manager
W.O./G.F. NO: DIV. NO. All
APPROVED BY:
(Chief)
Pedro Porras,
Chief, Water Operations
APPROVED BY:
(Asst. GM):
German Alvarez,
Assistant General Manager
SUBJECT: Approval to Purchase Sewer Vactor Truck and Declaration of
Unit 110 as Surplus
GENERAL MANAGER’S RECOMMENDATION:
That the Board:
1) Authorize the General Manager to issue a purchase order to
Haaker Equipment Company in the amount of $366,118.33 for
the purchase of one (1) new Vactor Model 2110 Plus Jet
Rodder truck; and
2) Declare Unit 110, a 1999 Vactor Jet Rodder truck surplus
to the District’s needs and authorized for disposal in
accordance with established surplus disposal procedures.
COMMITTEE ACTION:
See Attachment “A”.
PURPOSE:
To obtain Board authorization to purchase a Sewer Vactor Truck.
ANALYSIS:
Included in the approved FY 2013 budget is one (1) new Sewer
Vactor Truck. The Sewer Vactor Truck is a replacement vehicle
for existing Unit 110 which is used exclusively for work on the
sewer collection system by the Utility Maintenance Staff.
AGENDA ITEM 7
This unit is important since the District is liable for sub-
stantial fines and clean-up costs in the event of a sewer spill
of 1,000 gallons or more, or any discharge that reaches surface
water. The District is also required to report these spills to
the following agencies: California Department of Fish and Game,
San Diego Regional Water Quality Control Board, Department of
Environmental Services, Sweetwater Authority, and the Office of
Emergency Services (O.E.S.).
Currently, the District’s essential equipment includes one (1)
sewer Vactor truck. Unit 110 is a 1999 Vactor Jet Rodder
mounted on a Sterling chassis with 13 years of service life.
This unit has 52,424 chassis miles and 10,032 operational in-
service hours on it. Due to the harsh nature of the vehicle’s
work the useful in-service life of this machine is seven to ten
years. Funding for this purchase has been included in CIP-S2042
During the last four fiscal years the District has incurred
$20,571.58 in this unit corrective maintenance costs including
structural body repairs, corrosion repairs and failed engine
components. These repairs have resulted in approximately 30
days down time.
The latest estimate to refurbish the jet rodder and debris body
on Unit 110 was provided by Haaker Equipment Company at a cost
of $223,632.51 with an out of service time of 12 weeks, during
which time a replacement unit would need to be rented. Please
note, this quote did not include rebuilding the engine and
bringing it up to current emissions specifications and/or
replacing the transmission.
Based on an evaluations of work flow by the
Construction/Maintenance supervision and management, it is
recommended that one (1) new sewer Vactor truck Model 2110 Plus
Jet Rodder be purchased for sewer collection system work and
that the older sewer Vactor truck Unit 110 be declared surplus
and disposed of in accordance with District procedures.
As required by District policy, bids were solicited for the
proposed Vactor truck. Three (3) bids were received. Prices
received include all applicable fees and taxes and delivery.
Dealer Vehicle Bid Bid Price
Haaker Equipment Company
Vactor Model 2110 Plus
Jet Rodder.
$336,118.63
Owen Equipment
Vactor Model 2110 Plus
Jet Rodder.
$384,424.00
Legacy Equipment
Vactor Model 2110 Plus
Jet Rodder.
$388,085.33
FISCAL IMPACT:
Projected purchase budget for this unit is $325,000. The
purchase of this vehicle will cost $336,118.63 which will be
charged against the Vehicle Replacement CIP-S2042. The total
cost in this account will exceed budgeted funding but will be
offset by savings in the actual costs of replacement of other
CIP budgeted items and the elimination of one replacement
vehicle that is no longer required due to changes in staffing.
The total FY13 project budget for Vehicle Replacements is
$374,000.00. Existing expenditures and current encumbrances for
the CIP, including this request if approved, are $358,279.70.
This will complete the purchases for vehicle replacements for
this fiscal year.
Based on the Utility Service Manager’s evaluation, the FY 2013
vehicle replacement budget is sufficient to complete the
budgeted purchase.
The Finance Department has determined that 100% of the funds are
available in the replacement fund.
Expenditure Summary:
Total FY13 Vehicle Replacement Budget: $374,000.00
FY13 Expenditures and Encumbrances to Date:
Vehicle Replacement of existing fleet.
$22,161.07
Proposed Sewer Vactor Truck Purchase:
$336,118.63
Projected Expenditures of Vehicle
Replacement FY13 CIP 2282 Budget: $358,279.70
STRATEGIC GOAL:
Operate the system to meet demand twenty-four hours a day, seven
days a week.
LEGAL IMPACT:
None.
General Manager
Attachment “A”, Committee Action
ATTACHMENT A
SUBJECT/PROJECT: Approval to Purchase a Purchase Sewer Vactor Truck
COMMITTEE ACTION:
The Finance Committee met on October 23, 2012 and supported staffs'
recommendation.
NOTE:
The “Committee Action” is written in anticipation of the Committee
moving the item forward for board approval. This report will be sent
to the Board as a committee approved item, or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full board.
STAFF REPORT
TYPE MEETING: Regular Board Meeting MEETING DATE: November 7, 2012
SUBMITTED BY: Bob Kennedy
Senior Civil Engineer
Ron Ripperger
Engineering Manager
PROJECT: N/A DIV. NO. All
APPROVED BY:
(Chief)
Rod Posada, Chief, Engineering
German Alvarez, Assistant General Manager
Mark Watton, General Manager
SUBJECT: Informational Item - Proposed San Diego Gas & Electric
General Rate Case Impacts on the Otay Water District
GENERAL MANAGER’S RECOMMENDATION:
That the Otay Water District (District) Board of Directors (Board)
receive as an informational item the Proposed San Diego Gas &
Electric (SDG&E) General Rate Case Impacts on the District for review
and receive a summary via PowerPoint presentation.
Committee Action:
Please see Attachment A.
PURPOSE:
To update the Board on the changes to electric rates proposed by
SDG&E to the California Public Utility Commission (CPUC) and the
potential impact on the District, as well as to report on the
District’s effort on sustainable energy.
AGENDA ITEM 8
2
ANALYSIS:
Background
On October 3, 2011, SDG&E filed an amended application with the CPUC
entitled, “Amended Application of San Diego Gas & Electric Company
(U902E) for Authority to Update Marginal Costs, Cost, Allocations,
and Electric Rate Design” to become effective January 1, 2013. If
approved, this will have a direct impact on District electric rates.
Proposed Rate Increases
SDG&E is proposing several modifications including increases to the
Basic Service Fee and moving the collection of distribution demand
charges to full recovery through non-coincident demand charges.
SDG&E testimony to the CPUC state that the PA-T rate increase can be
anywhere from 93% to 179%, with Basic Service Fee increasing 100%.
The Water Authority estimated the impact on the District’s
electricity costs and is shown on the following table. Based on
proposed electric rates with this application, an estimated 37%
increase in the cost of electricity could result from these changes.
Estimate of Rate Impact to District
SDG&E
Rate
Current Bill:
Feb 2011-Jan
2012
GRC Published
2014
% Increase
from Current
Bill to 2014
2012 - 2014
Delta
A $123,224 $143,572 17% $20,348
ALTOU $222,621 $237,792 7% $15,172
PA $84,149 $83,294 -1% $(855)
PA-T1 $275,860 $432,297 57% $156,436
PA-T1CP2 $386,781 $598,535 55% $211,755
Total $1,092,634 $1,495,490 37% $402,856
Source: Greg Olsen, San Diego County Water Authority
The Water Authority also applied the proposed rates to their annual
pumping forecast. The result was an increase of $272,500, an overall
increase of 52%. The Water Authority will pass along this increase
in electric costs to member agencies as a rate increase during the
next budget cycle. Similarly, the California Center for Sustainable
Energy did an analysis of two of its member agencies’ pumping history
with a result of the increases being 34% and 48%, as shown in the
table below.
3
PA-T Cost Comparisons
Agency
Present January
2012 Costs
SDG&E Proposed
2014 Costs
Calculated Total
Change (%)
Fallbrook $348,000 $466,300 34%
Valley Center $414,124 $614,055 48%
Water Authority $521,731 $794,288 52%
Source: San Diego County Water Authority Public Participation Hearing Testimony
for Application No. 11-10-002
The variances between each utility’s impacts are due to the different
Time-Of-Use (TOU) characteristics each agency uses to move water.
SDG&E is also proposing to change October from a Winter Peak Period
demand to a Summer Peak Period demand. The rates for October will
increase considerably as a result.
District staff is working with the District’s customer service
representative at SDG&E to look at alternative rate structures to
determine if changing rate structures would be beneficial to the
District. Five meters are currently being considered to be switched
from a PA-T1 rate schedule to a PA rate schedule as a result of this
review. Since the PA rate is not proposed to change substantially
with SDG&E’s rate proposal, this should help reduce the potential
impact if SDG&E is successful increasing the PAT-1 rate schedule.
The CPUC is considering a mediation process between SDG&E and their
stakeholders prior to making a decision on this general rate case,
however, consumer advocate groups are pressuring the CPUC to make
large users pay more for the power they receive.
Sustainable Energy
Over the last few years, the District has looked at ways to decrease
the dependency on SDG&E and develop alternative sources of self-
generated power. In 2008, the District entered into an agreement
with the County of San Diego to purchase electricity generated from
methane gas produced from the landfill adjacent to the Ralph W.
Chapman Water Reclamation Facility. The project, known as the
Jamacha Landfill Gas Utilization Project, was partially funded
through the California Center for Sustainable Energy (CCSE) and from
revenues from the sale of the electricity. At the beginning of the
project, SDG&E imposed a $1,553 per month stand-by demand charge
(SDC) which by the end of the agreement had increased to $2,014 per
month. As a result of the increased cost for the SDC, it was no
longer economical for the District to buy power generated from the
County of San Diego facility so the agreement was not renewed.
The District has also looked for solar power as a source of self-
generated power and contracted with CSE to perform an assessment on
4
several District owned property. On May 6, 2011, CCSE completed the
“Otay Water District Self-Generation Assessment Report” and concluded
it is unlikely that these projects would result in any savings and
the financial performance of such systems would be poor at current
Power Purchase Agreement prices. The rate changes proposed by SDG&E
will target these systems, further lowering their financial
performance, if SDG&E’s rate structure is approved.
Instability in the solar power industry is also a concern, as the
City of San Diego School District recently found out on 24 of their
buildings. Faulty panels installed in 2005 became corroded and posed
a possible fire risk. A repair that is very expensive. The company
that built the panels filed for bankruptcy and left the company that
sold the power directly to the school district with no resources to
service or maintain the solar panels.
The District is looking at ways to reduce power consumption through
increased energy efficiency and also to meet the requirements of
AB32. The goal of AB32 is to reduce emissions in every community an
average of 15% from today’s levels by 2020. To meet these goals, the
District will need to improve water system energy efficiency.
Increasing the use of recycled water in the District is an important
element in meeting this goal. Three CIP projects in the FY 2013
budget are projects that will reduce the District’s power
consumption.
CIP projects P2502 pump station 803-1 modifications and P2503 pump
station 850-2 modifications will result in significant electrical
energy savings due to increased available suction pressure. CIP
project R2091 pump station 927-1 upgrade will install more efficient
pumps resulting in energy savings.
FISCAL IMPACT: Joseph R. Beachem, Chief Financial Officer
No fiscal impact as this is an informational item only.
STRATEGIC GOAL:
This report supports the District’s Mission Statement, “To provide
high value water and wastewater services to the customers of the Otay
Water District in a professional, effective, and efficient manner”
and the District’s Vision, “A District that is innovative in
providing water services at affordable rates, with a reputation for
outstanding customer service.”
LEGAL IMPACT:
None.
5
BK/RR/RP:jf
P:\Bob Kennedy\Staff Report\BD 11-7-12, SDG&E Electric Rate Change (BK-RR)\BD 11-7-12, Staff Report, SDG&E Electric Rate Change, (BK-
RR).docx
Attachments: Attachment A – Committee Action
Attachment B – Presentation
ATTACHMENT A
SUBJECT/PROJECT:
N/A
Informational Item - Proposed San Diego Gas & Electric
General Rate Case Impacts on the Otay Water District
COMMITTEE ACTION:
The Finance, Administration, and Communications Committee
reviewed this item at a meeting held on October 23, 2012. The
Committee supported Staff’s recommendation.
NOTE:
The "Committee Action" is written in anticipation of the
Committee moving the item forward for Board approval. This
report will be sent to the Board as a Committee approved item,
or modified to reflect any discussion or changes as directed
from the Committee prior to presentation to the full Board.
November 7, 2012
SDG&E General Rate Case
Impacts on the
Otay Water District
SDG&E has filed an application with the
CPUC to update costs and electric rates to
include:
•Higher basic service fees
•Rate increase to the Power-
Agriculture rate known as PA-T
•Shift October time of use period from
winter to higher summer fees
•Changing the rate structure for solar,
wind, and micro turbine projects
2
Change to
Summer Pricing
3
October Change to Summer Rates
4
Estimate of Rate Impact to District
7/18/2012, by Greg Olsen, Water Authority
SDGE Rate Current Bill: Feb
2011 - Jan 2012
GRC Published
Current Rate
GRC Published
2013
GRC Published
2014
% Increase from
Current Bill to 2014 2012 - 2014 Delta
A $ 123,224 $ 135,830 $ 141,909 $ 143,572 17% $ 20,348
ALTOU $ 222,621 $ 232,772 $ 239,230 $ 237,792 7% $ 15,172
PA $ 84,149 $ 82,520 $ 84,031 $ 83,294 -1% $ (855)
PA - T1 $ 275,860 $ 288,062 $ 439,121 $ 432,297 57% $ 156,436
PA-T1CP2 $ 386,781 $ 332,615 $ 607,547 $ 598,535 55% $ 211,755
$ 1,092,634 $ 1,071,800 $ 1,511,838 $ 1,495,490 37% $ 402,856
Agency Present January
2012 Costs
SDG&E
Proposed 2014
Costs
Calculated Total
Change (%)
Fallbrook $348,000 $466,300 34%
Valley Center $414,124 $614,055 48%
Water Authority $521,731 $794,288 52%
5
Estimate of Rate Impact
to Other Agencies
SDG&E Rate Increase Drivers
•$1.1 Billion to cover wildfires cost
•Recent shutdown of San Onofre
•Deployment of smart grid technology
•System Reliability
•Consumer advocates pressuring CPUC
to have large users pay more for the
power they receive
6
Power Generation Alternatives
7
CIP P2497
California Center for
Sustainable Energy Solar
Power Assessment Report
8
•Operations Building
•Administration Building
•520 Reservoir site
•624-3 Reservoir Site
Major Findings-
May 6, 2011 Report
Administration and Operations Buildings
•“Financial performance would be
poor at current PPA prices.”
Other District Sites
•“It is unlikely that installing PV
behind any District meter will
result in any cost savings.”
9
Other Concerns:
•Future SDG&E rate changes
targeting PV systems
•Instability in the solar power
industry
•Defective equipment
Meeting AB 32 goals means reducing
emissions an average of 15% from today’s
levels by 2020.
•Reduce Non-Renewable Electricity Use for
the Treatment and Conveyance of Water
•Increase Water Recycling
District Projects
•P2502 PS 803-1 Modifications
•P2503 PS 850-2 Modifications
•R2091 PS 927-1 Upgrade
AB 32
11
Next Steps:
•CPUC considering mediation
process between SDG&E and
stakeholders
•Staff working with SDG&E
representative to look at alternate
rate structures beneficial to the
District
12 OTAY WATER DISTRICT