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HomeMy WebLinkAbout11-06-19 Board Packet 1 OTAY WATER DISTRICT AND OTAY WATER DISTRICT FINANCING AUTHORITY BOARD OF DIRECTORS MEETING DISTRICT BOARDROOM 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA WEDNESDAY November 6, 2019 3:30 P.M. AGENDA 1. ROLL CALL 2. PLEDGE OF ALLEGIANCE 3. OBSERVE A MOMENT OF SILENCE IN HONOR OF THE LATE UNITED STATES HOUSE OF REPRESENTATIVE ELIJAH CUMMINGS 4. APPROVAL OF AGENDA 5. APPROVE THE MINUTES OF THE REGULAR BOARD MEETING OF JULY 3, 2019 6. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JURIS- DICTION BUT NOT AN ITEM ON TODAY'S AGENDA CONSENT CALENDAR 7. ITEMS TO BE ACTED UPON WITHOUT DISCUSSION, UNLESS A REQUEST IS MADE BY A MEMBER OF THE BOARD OR THE PUBLIC TO DISCUSS A PARTICU- LAR ITEM: a) AWARD TWO (2) PROFESSIONAL SERVICE CONTRACTS FOR AS-NEEDED ENVIRONMENTAL SERVICES WITH HELIX ENVIRONMENTAL PLANNING, INC. AND ICF JONES & STOKES, INC., EACH IN THE AMOUNT NOT-EXCEED $500,000; THE TOTAL AMOUNT OF THE TWO (2) CONTRACTS WILL NOT EXCEED $500,000 DURING FISCAL YEARS 2020-2022 (ENDING JUNE 30, 2022) b) AWARD A CONSTRUCTION CONTRACT WITH PIPERIN CORPORATION FOR THE 1200 PRESSURE ZONE IMPROVEMENTS – PHASE I PROJECT IN AN ANOMUNT NOT-TO-EXCEED $151,990 2 c) AWARD TWO (2) PROFESSIONAL SERVICE CONTRACTS FOR AS-NEEDED HYDRAULIC MODELING SERVICES WITH WOOD RODGERS AND WATER SYSTEMS CONSULTING, INC., EACH IN AN AMOUNT NOT-TO-EXCEED $175,000 FOR FISCAL YEARS 2020 AND 2021; THE TOTAL AMOUNT OF THE TASKS UNDER THE TWO CONTRACTS WILL NOT EXCEED $175,000 d) APPROVE CHANGE ORDER NO. 1 TO REDUCE THE CONSTRUCTION CONTRACT WITH ADVANCED INDUSTRIAL SERVICES, INC. IN THE AMOUNT OF $261,330.20 FOR THE 803-2 RESERVOIR INTERIOR/EXTERIOR COATINGS AND UPGRADES PROJECT e) REJECT ALL BIDS FOR THE CONSTRUCTION OF THE 850-1 RESERVOIR (P2543) AND RECYCLED WATER STORAGE TANK (R2120) INTERIOR/EXTERIOR COATINGS AND UPGRADES PROJECT f) APPROVE CHANGE ORDER NO. 4 TO THE EXISTING CONSTRUCTION CONTRACT WITH PACIFIC HYDROTECH CORPORATION IN THE AMOUNT OF $49,157.89 FOR THE 870-2 PUMP STATION REPLACEMENT PROJECT g) APPROVE AN INCREASE TO THE BUDGET OF CIP P2574 (VISTA VEREDA WATERLINE REPLACEMENT PROJECT) IN AN AMOUNT NOT-TO-EXCEED $145,000 (FROM $1,640,000 TO $1,785,000); AND, APPROVE CHANGE ORDER NO. 2 TO THE EXISTING CONSTRUCTION CONTRACT WITH CASS CONSTRUCTION, INC. dba CASS ARRIETA IN AN AMOUNT NOT-TO-EXCEED $115,213.59 FOR THE VISTA VEREDA AND HIDDEN MESA ROAD WATER LINE REPLACEMENT PROJECT h) APPROVE THE 2019 FIVE-YEAR UPDATE OF THE DISTRICT’S SEWER SYSTEM MANAGEMENT PLAN i) APPROVE THE PURCHASE OF FIVE (5) FLEET VEHICLES THROUGH VARIOUS SOUTHERN CALIFORNIA CAR DEALERSHIPS IN THE AMOUNT OF $223,353.94 j) APPROVE THE ISSUANCE OF A PURCHASE ORDER TO VOLVO CONSTRUCTION EQUIPMENT IN AN AMOUNT NOT-TO-EXCEED $145,155 FOR THE PURCHASE OF ONE (1) PORTABLE EMERGENCY GENERATOR k) APPROVE A TWO-YEAR AGREEMENT, PLUS THREE (3) ONE-YEAR OPTIONS, WITH PAYMENTUS TO PROVIDE PHONE PAYMENT SERVICES IN AN AMOUNT NOT-TO EXCEED $250,000 ($50,000 ANNUALLY) l) ADOPT RESOLUTION NO. 4372 ESTABLISHING POLICY 54, DISCONTINUATION OF WATER SERVICE FOR DELINQUENT ACCOUNTS; AND, ADOPT ORDINANCE NO. 576 TO AMEND SECTION 34, ISSUANCE AND PAYMENT OF WATER BILLS AND APPENDIX A OF THE DISTRICT’S CODE OF ORDINANCES EFFECTIVE JANUARY 1, 2020 3 ACTION ITEMS 8. FINANCE AND ADMINISTRATION a) APPROVE THE AUDITED FINANCIAL STATEMENTS, INCLUDING THE INDE-PENDENT AUDITORS’ UNQUALIFIED OPINION, FOR THE FISCAL YEAR ENDED JUNE 30, 2019 (DYCHITAN) b) ADOPT RESOLUTION NO. 4373 APPROVING THE EXECUTION OF CERTAIN DOCUMENTS AND AUTHORIZING CERTAIN ACTS IN CONNECTION WITH THE ISSUANCE BY THE OTAY WATER DISTRICT FINANCING AUTHORITY OF ITS 2019 WASTEWATER REVENUE BONDS IN AN AMOUNT NOT-TO-EXCEED $3,500,000 (FAKHOURI) 9. RECESS OTAY WATER DISTRICT BOARD MEETING 10. CONVENE OTAY WATER DISTRICT FINANCING AUTHORITY BOARD MEETING a) ADOPT RESOLUTION NO. 2019-01 APPROVING THE EXECUTION OF CER-TAIN DOCUMENTS AND AUTHORIZING CERTAIN ACTS IN CONNECTION WITH THE ISSUANCE OF 2019 WASTEWATER REVENUE BONDS IN AN AMOUNT NOT-TO-EXCEED $3,500,000 (FAKHOURI) 11. ADJOURN OTAY WATER DISTRICT FINANCING AUTHORITY BOARD MEETING 12. RECONVENE OTAY WATER DISTRICT BOARD MEETING 13. ENGINEERING AND WATER OPERATIONS a) APPROVE THE SEPTEMBER 24, 2019 PURCHASE AGREEMENT FOR $508,000 FOR THE CAMPO ROAD AND HILLSIDE DRIVE PROPERTY IN JAMUL (KENNEDY) b) REPORT ON FORMING A WORKING GROUP BETWEEN OTAY WATER DIS-TRICT AND SWEETWATER AUTHORITY TO EXPLORE THE POTENTIAL AND FEASIBILITY OF USING RECYCLED WATER TO AUGMENT EXISTING LOCAL SUPPLIES AVAILABLE TO OUR MUTUAL CUSTOMERS (KENNEDY) 14. BOARD a) APPROVE AN AGREEMENT WITH THE LAW FIRM OF ARTIANO SHINOFF ABED BLUMENFELD CARELLI SLEETH & WADE, A PROFESSIONAL CORPO-RATION, FOR A TERM OF TWO (2) YEARS THROUGH DECEMBER 31, 2021, TO PROVIDE GENERAL COUNSEL SERVICES TO THE DISTRICT (WATTON) b) DISCUSS THE 2019 AND 2020 BOARD MEETING CALENDARS 4 INFORMATIONAL ITEMS 15. THE FOLLOWING ITEM IS PROVIDED TO THE BOARD FOR INFORMATIONAL PUR-POSES ONLY. NO ACTION IS REQUIRED ON THE FOLLOWING AGENDA ITEM: a) REPORT ON THE LATEST ACTUARIAL VALUATION, AS OF JUNE 30, 2019, PERFORMED ON THE NET COST OF THE ENHANCEMENT OF THE RETIREE HEALTHCARE BENEFITS; AND, THE ACTUARIAL EVALUATION DETERMIN-ING THE NET COST OR SAVINGS OF THE OTHER POST EMPLOYMENT BEN-EFIT PLAN ENHANCEMENT VERSUS THE INCREASED EMPLOYEE CONTRI- BUTION TO THE CALIFORNIA PUBLIC EMPLOYEE RETIREMENT SYSTEM (FAKHOURI) REPORTS 16. GENERAL MANAGER’S REPORT 17. SAN DIEGO COUNTY WATER AUTHORITY UPDATE 18. DIRECTORS' REPORTS/REQUESTS 19. PRESIDENT’S REPORT/REQUESTS RECESS TO CLOSED SESSION 20. CLOSED SESSION a) PUBLIC EMPLOYMENT [GOVERNMENT CODE §54957] TITLE: GENERAL MANAGER b) LIABILITY CLAIMS [GOVERNMENT CODE §54956.95] CLAIMANT: FRANCISCO MONTES DE OCA AGENCY CLAIMED AGAINST: OTAY WATER DISTRICT c) CONFERENCE WITH LEGAL COUNSEL – POTENTIAL LITIGATION [GOVERN-MENT CODE §54956.9] 1 CASE d) CONFERENCE WITH LEGAL COUNSEL – PENDING LITIGATION [GOVERN-MENT CODE §54956.9] OTAY WATER DISTRICT v. CITY OF SAN DIEGO; CASE NO. 37-2017-00019348-CU-WM-CTL 5 RETURN TO OPEN SESSION 21. REPORT ON ANY ACTIONS TAKEN IN CLOSED SESSION. THE BOARD MAY ALSO TAKE ACTION ON ANY ITEMS POSTED IN CLOSED SESSION 22. ADJOURNMENT 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 Secretary by contacting her at (619) 670-2280. If you have any disability which would require accommodation in order to enable you to partici-pate in this meeting, please call the District Secretary at (619) 670-2280 at least 24 hours prior to the meeting. Certification of Posting I certify that on November 1, 2019 I posted a copy of the foregoing agenda near the regu- lar meeting place of the Board of Directors of Otay Water District, said time being at least 72 hours in advance of the regular meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley, California on November 1, 2019. /s/ Susan Cruz, District Secretary 1 MINUTES OF THE BOARD OF DIRECTORS MEETINGS OF THE OTAY WATER DISTRICT AND OTAY WATER DISTRICT FINANCING AUTHORITY July 3, 2019 1.The meeting was called to order by President Thompson at 3:34 p.m. 2.ROLL CALL Directors Present: Croucher, Gastelum, Robak, Smith and Thompson Staff Present: General Manager Mark Watton, Attorney Jeanne Blumenfeld, Chief of Engineering Rod Posada, Chief Financial Officer Joe Beachem, Chief of Administration Adolfo Segura, Asst. Chief of Engineering, Dan Martin, Asst. Chief of Operations Jose Martinez, Asst. Chief of Finance Kevin Koeppen, District Secretary Susan Cruz and others per attached list. 3.PLEDGE OF ALLEGIANCE 4.APPROVAL OF AGENDA A motion was made by Director Smith, and seconded by Director Gastelum and carried with the following vote: Ayes: Directors Croucher, Gastelum, Robak, Smith and Thompson Noes: None Abstain: None Absent: None to approve the agenda. 5.PRESENTATION OF THE WATERSMART LANDSCAPE CONTEST “BEST IN DISTRICT” AWARD TO BOB AND SHAN CISSELL Director Robak presented this year’s WaterSmart Landscape Contest award for, Best in District, to Bob and Shan Cissell of La Mesa. He stated that Mr. & Mrs.Cissell indicated that they drew a lot of their inspiration for their landscape project from the Water Conservation Garden (WCG) located on the campus of Cuyamaca College in El Cajon. They converted 2500 square feet of grass into a water efficientlandscape which has decreased its water use by an average of 33% and hasreduced their water bill by 25% to 30%. They were presented with a certificate ofrecognition, a gift card for $250 to a Garden Nursery of their choice, and a bag of gardening tools. Ms. Cissell thanked the District for the award. She shared that her husband took agardening class at the WCG where he was inspired to develop a plan to converttheir landscape to a low water use landscape. He implemented his plan himself and AGENDA ITEM 4 2 repurposed items in their garden. For example, the roots that were growing underground in pipes in their yard were used in the arches in the pergola. She stated that the conversion of their garden is still ongoing. 6. APPROVE THE MINUTES OF THE REGULAR BOARD MEETING OF APRIL 3, 2019 A motion was made by Director Robak, and seconded by Director Gastelum and carried with the following vote: Ayes: Directors Croucher, Gastelum, Robak, Smith and Thompson Noes: None Abstain: None Absent: None to approve the minutes of the regular meeting of April 3, 2019. 7. 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 No one wished to be heard. President Thompson presented a certificate of recognition to General Manager Watton. He thanked him for his fifteen (15) years of dedicated service to the District and each member of the board thanked General Manager Watton for his service and leadership to the District. CONSENT CALENDAR 8. ITEMS TO BE ACTED UPON WITHOUT DISCUSSION, UNLESS A REQUEST IS MADE BY A MEMBER OF THE BOARD OR THE PUBLIC TO DISCUSS A PARTICULAR ITEM: A motion was made by Director Smith, and seconded by Director Croucher and carried with the following vote: Ayes: Directors Croucher, Gastelum, Robak, Smith and Thompson Noes: None Abstain: None Absent: None to approve the following consent calendar items: a) APPROVE AN INCREASE TO THE CIP P2619 BUDGET IN THE AMOUNT OF $300,000 AND AWARD A CONSTRUCTION CONTRACT TO THARSOS, INC. FOR THE TEMPORARY LOWER OTAY PUMP STATION REDUNDANCY PROJECT IN AN AMOUNT NOT-TO-EXCEED $1,647,000 3 b) APPROVE THE ISSUANCE OF A PURCHASE ORDER TO CORTECH ENGINEERING FOR THE PURCHASE OF A PORTABLE TRAILER MOUNTED VARIABLE FREQUENCY DRIVE PUMP IN AN AMOUNT NOT-TO-EXCEED $453,000 ACTION ITEMS 9. BOARD a) DISCUSSION OF 2019 BOARD MEETING CALENDAR There were no changes to the board meeting calendar. INFORMATIONAL ITEMS 10. THIS ITEM IS PROVIDED TO THE BOARD FOR INFORMATIONAL PURPOSES ONLY. NO ACTION IS REQUIRED ON THE FOLLOWING AGENDA ITEM. a) CONSERVATION PROGRAM UPDATE Communications Officer Tenille Otero reviewed the various conservation programs and services offered through the District, the San Diego County Water Authority (CWA) and the Metropolitan Water District of Southern California (MWD). Please reference attachment A to the staff report for the details of Ms. Otero’s presentation. Director Smith indicated that MWD noted that disadvantaged communities throughout the MWD service area were not taking advantage of the rebate for low-flush toilet replacement. MWD decided to provide a new program which provides a $250 incentive for toilet replacement specifically for those disadvantaged based on income. He stated that all the rebate vouchers were spoken for within 18 minutes of being posted on MWD’s website. There was discussion that disadvantaged homeowners did not receive the benefit of the rebates which was the objective of the new program. The rebates, instead, went to apartment owners in disadvantaged communities. It was suggested that possibly a recommendation for a policy change can be proposed to MWD to reserve such rebates for low income homeowner occupants in the first 60-days of posting (with a limit per person) to allow homeowner occupants an opportunity to take advantage of the vouchers. It was noted that the rebate vouchers were utilized by several disadvantaged communities in San Diego. The Otay WD service area does not have communities that would qualify as disadvantaged. REPORTS 11. GENERAL MANAGER’S REPORT General Manager Watton reviewed handouts that were provided on the dais for each member of the board (see attached). He also presented information from his report which included an update on the financial advisor/consultant for the deferred compensation plan, deferred compensation plan review, security enhancements to 4 customer services, public services conference room and lobby areas, City of Chula Vista sewer billing, and water sales and purchase. Staff responded to comments and questions from the board. 12. SAN DIEGO COUNTY WATER AUTHORITY UPDATE Director Smith reported that CWA approved their budget of $1.687 billion for fiscal years 2020-2021. He stated the rate increase for untreated water has been determined to be 4.8% and the increase for treated water will be 4.3%. CWA utilized $38 million from their rate stabilization fund which reduced the water rate increase by $95/acre foot. He also shared that CWA will not need to purchase carbon credits and that CWA does sell its carbon credits because of its hydro facility in Rancho Penasquitos. He indicated with regard to MWD that the focus is no longer on the WaterFix project, but on Governor Newsom’s Water Portfolio Plan. He stated that the plan is a big change in the State’s water future and each of the agencies are reviewing their water resources plans and he feels that CWA is ahead in this area. He stated that they have also selected an Ethics Officer and have updated all their ethics policies. Lastly, he reported on the possibility of member agencies utilizing MWD’s pipes during an emergency to transport water to another member agency when there are waterline breaks from natural disasters. It was discussed that this is something that is usually accomplished through agreements. Some agencies are hesitant in doing this because of liability and water quality issues, but it is something that should be discussed. Director Croucher added to the CWA report that settlement discussions with MWD are continuing and that they have received a thirty-day extension. He stated that CWA hosted an event celebrating their 75th Anniversary and there will be continued highlights of this milestone throughout the year. He stated that CWA will be meeting with California Governor Newsom’s office to discuss his Water Portfolio Plan and shared that AB1588, a bill sponsored by Otay WD and CWA to provide Veterans credit for their military experience and education towards water industry certification requirements, has cleared MWD’s objections. He noted that the proposed legislation on the water tax has failed once again, but there are still legislators who are supportive of implementing some type of tax. He reported that CWA’s AAA financial rating has been reaffirmed by Standard & Poor’s and lastly shared that the recruitment process for a new CWA general manager is ongoing and Avery and Associates has been engaged to assist with the recruitment process. 13. DIRECTORS' REPORTS/REQUESTS Director Smith indicated that he attended the District’s regular board meeting, the Engineering Operations & Water Resources Committee, and the East County Caucus meeting. Director Croucher stepped off the dais at 5:04 p.m. and Director Smith exited the meeting at 5:06 p.m. 5 Director Gastelum reported that he attended the Albondigas monthly meeting, Chula Vista Chamber of Commerce meeting where they discussed utilities, Council of Water Utilities meeting and his regular District meetings. Director Croucher stepped back on the dais at 5:07 p.m. Director Robak indicated that he attended the South County Albondigas meeting where CWA board chair, Mr. Jim Madaffer, spoke about the proposed North Pipeline Project. He also shared that he attended CWA’s 75th Anniversary Celebration where he had the opportunity to speak with Ms. Amy Chen, MWD’s representative at CWA. He indicated that he listened to a CWA committee meeting online and he heard Otay WD Director Smith, who is a member of the committee, asking some very good questions. 14. PRESIDENT’S REPORT President Thompson’s report is attached. He also shared that the General Managers and Presidents of the south agencies meet periodically, and he has asked General Manager Watton if he could invite a CWA representative to present information on the Imperial Valley Pipeline to this group. He lastly shared that one of the roles of the board is to perform the General Manager’s evaluation. He stated that he has started that process and that the board should be receiving the evaluation materials in the next few days. OTAY WATER DISTRICT FINANCING AUTHORITY 15. NO MATTERS TO DISCUSS There were no items scheduled for discussion for the Otay Water District Financing Authority board. 16. ADJOURNMENT With no further business to come before the Board, President Thompson adjourned the meeting at 5:26 p.m. ___________________________________ President ATTEST: District Secretary 6 President’s Report Mitch Thompson July 3, 2019 Board Meeting # Date Meeting Purpose 1 4-Jun SCEDC Board Meeting Represented the District at their Monthly Meeting 2 5-Jun OWD Regular Board Meeting Monthly Board Meeting 3 14-Jun Committee Agenda Briefing Met w/ General Manager Watton to review items that will be presented at the June committee meetings 4 20-Jun Mexican American Business Professionals Association Monthly Meeting Represented the District at the monthly meeting 5 21-Jun Otay Mesa Chamber Member Breakfast Provided a presentation on Otay Water District and AB1588 6 26-Jun Chula Vista Chamber Infrastructure Committee Meeting Represented the District at the meeting 7 27-Jun Board Agenda Briefing Met with General Manager Watton and General Counsel Shinoff to review items that will be presented at the July Board Meeting STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Lisa Coburn-Boyd Environmental Compliance Specialist PROJECT: Various DIV. NO. All APPROVED BY: Bob Kennedy, Engineering Manager Dan Martin, Assistant Chief, Engineering Rod Posada, Chief, Engineering Mark Watton, General Manager SUBJECT: Award of Two (2) Professional Services Contracts for As-Needed Environmental Services to Helix Environmental Planning, Inc. and ICF Jones & Stokes, Inc. for Fiscal Years 2020-2022 GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) award two (2) professional service contracts for As-Needed Environmental Services and to authorize the General Manager to execute two agreements with Helix Environmental Planning, Inc. (Helix) and ICF Jones & Stokes, Inc. (ICF), each in an amount not-to- exceed $500,000. The total amount of the two (2) contracts will not exceed $500,000 during Fiscal Years 2020-2022 (ending June 30, 2022). COMMITTEE ACTION: Please see Attachment A. PURPOSE: To obtain Board authorization for the General Manager to enter into two (2) professional services contracts for As-Needed Environmental Services with Helix and ICF, with each contract in an amount not-to- exceed $500,000 for Fiscal Years 2020-2022. The total amount of the two (2) contracts will not exceed $500,000 during Fiscal Years 2020- 2022. AGENDA ITEM 7a 2 ANALYSIS: The District will require the services of two (2) professional environmental consultants on an as-needed basis in support of Capital Improvement Program (CIP) and Operations and Maintenance projects for Fiscal Years 2020-2022. It is more efficient and cost effective to issue as-needed contracts for environmental services, which will provide the District with the ability to obtain consulting services in a timely and efficient manner. This concept has also been used in the past for other disciplines, such as engineering design, construction management, geotechnical, and electrical services. The District staff will identify tasks and request cost proposals from the two (2) consultants during the contract period. Each consultant will prepare a detailed scope of work, schedule, and fee for each task order, with the District evaluating the proposals based upon qualifications and cost. The District will enter into negotiations with the consultants, selecting the proposal that has the best value for the District. Upon written task order authorization from the District, the selected consultant shall then proceed with the project, as described in the scope of work. The table below lists several projects that are estimated to require as-needed environmental services for Fiscal Years 2020-2021: CIP DESCRIPTION ESTIMATED COST P2460 I.D. 7 Trestle & Pipeline Demolition CEQA Compliance $25,000 R1253 RWCWRF Industrial General Permit Level 2 ERA Compliance Technical Report $12,000 P2494 CEQA/NEPA Compliance for OWD Habitat Conservation Plan $15,000 P1253 As-needed Bird Surveys during Breeding Season $10,000 P1253 Biological & Cultural Resources Monitoring for District O&M Projects $12,000 P2083 Restoration of Temporary Construction Vegetation Impacts at 870-2 PS Site $10,000 P1253 Annual Forcemain Road & Air-Vac Vegetation Maintenance & Low-effect HCP Report for USFWS $10,000 TOTAL: $94,000 3 Staff believes that a $500,000 cap on each of the As-Needed Environmental Services contracts is adequate for upcoming projects, while still providing a buffer for any unforeseen tasks. Some examples of unforeseen tasks that have cropped up in the past are the environmental compliance (monitoring & regulatory agency coordination) for pipeline breaks, studies to investigate process control or regulatory issues at the Ralph W. Chapman Water Reclamation Facility, Air Pollution Control District permitting issues, and preparation of SWPPP’s (stormwater pollution prevention plans) for District construction projects. The As-Needed Environmental Services contracts do not commit the District to any expenditure until a task order is approved to perform the work. The District does not guarantee work to the consultants, nor does the District guarantee to the consultants that it will expend all the funds authorized by the contract on professional services. The District solicited environmental services by placing an advertisement on the Otay Water District’s website and using BidSync, the District’s online bid solicitation website on July 8, 2019. The advertisement was also placed in the Daily Transcript. Ten (10) firms submitted a Letter of Interest and a Statement of Qualifications. The Request for Proposal (RFP) for Environmental Services was sent to all ten (10) firms resulting in six (6) proposals received on August 8, 2019. They are as follows: • Chambers Group (San Diego, CA) • Environmental Intelligence (San Diego, CA) • Helix Environmental Planning (La Mesa, CA) • ICF (San Diego, CA) • RECON Environmental (San Diego, CA) • Rincon Consultants (San Diego, CA) Firms that submitted Letters of Interest (LOI), but did not propose, were The Altum Group, Gutierrez-Canales Engineering, PC, KMEA, and PaleoWest. In accordance with the District’s Policy 21, staff evaluated and scored all written proposals and interviewed the top four (4) firms on September 24, 2019. Helix and ICF received the highest scores based on their experience, understanding of the scope of work, proposed method to accomplish the work, and their composite hourly rate. Both consultants have provided similar services to the District in the past as well as to other local agencies and are readily available to provide the services required. A summary of the complete evaluation is shown in Attachment B. 4 Helix and ICF submitted the Company Background Questionnaire, as required by the RFP, and staff did not find any significant issues. In addition, staff checked their references and performed an internet search on the company. Staff found the references to be excellent and did not find any outstanding issues with the internet search. FISCAL IMPACT: Joe Beachem, Chief Financial Officer The funds for these contracts will be expended on a variety of projects, as previously noted above. These contracts are for as- needed professional services based on the District's need and schedule, and expenditures will not be made until a task order is approved by the District for the consultant's services on a specific CIP or Operations & Maintenance project. Based on a review of the financial budget, the Project Manager anticipates that the budgets will be sufficient to support the professional as-needed consulting services required for the CIP and Operations & Maintenance projects noted above. The Finance Department has determined that the funds to cover these contracts will be available as budgeted for these projects. STRATEGIC GOAL: This Project supports the District’s Mission statement, “To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsible manner” and the General Manager’s Vision, "To be a model water agency by providing stellar service, achieving measurable results, and continuously improving operational practices." GRANTS/LOANS: Not applicable. LEGAL IMPACT: None. LC-B/BK/DM/RP:jf P:\WORKING\As Needed Services\Engineering Design\FY 2020-2022\Staff Report\BD_11-06-2019_Staff Report_Award of As-Needed Environmental Services (LCB-BK).docx Attachments: Attachment A – Committee Action Attachment B – Summary of Proposal Rankings ATTACHMENT A SUBJECT/PROJECT: Various Award of Two (2) Professional Services Contracts for As- Needed Environmental Services to Helix Environmental Planning, Inc. and ICF Jones & Stokes, Inc. for Fiscal Years 2020-2022 COMMITTEE ACTION: The Engineering, Operations, and Water Resources Committee (Committee) reviewed this item at a meeting held on October 23, 2019, and the following comments were made: • Staff recommended that the Board authorize the General Manager to execute two contracts for as-needed environmental services, with ICF and Helix Environmental, for an amount not-to-exceed $500,000 for each firm over a period of three fiscal years (FY 2020-2022) ending June 30, 2022. • Staff stated that the District began using an as-needed environmental consultant about fourteen years ago and it has proven to be an efficient and effective way to address environmental issues, particularly those that are time- sensitive. It was noted that having two firms under contract will further increase cost-effectiveness as each firm will submit proposals for task orders. • Staff discussed the selection process and indicated that ICF and Helix Environmental received the highest overall scores. Although each firm will be awarded a contract for $500,000, the amount expended between the two firms for the three-year period of the contracts will not exceed that budgeted amount. • In response to a question from the Committee, Legal Counsel confirmed that it is appropriate to consider qualifications and rates when evaluating consultant proposals and to seek the best value for the District. • The Committee requested that staff clarify the $94,000 for Fiscal Year 2020-2021 as the overall recommendation is to award a $500,000 contract for three fiscal years (2020-2022) ending 6 June 30, 2022. Staff stated that the $94,000 is for work that has already been identified in the first fiscal year of the contract. However, staff recommended a $500,000 contract for three fiscal years to cover additional funds for any unforeseen project issues or emergencies that may occur annually. It was noted in the staff report that the As-Needed Environmental Services contracts do not commit the District to any expenditure until a task order is approved to perform the work. • In response to a comment from the Committee regarding the process in rating fees, staff provided a brief description of how the fees scoring have evolved since 2007. It was discussed that at a later date, staff will provide a discrete presentation of the District’s fees scoring process to the Committee. Following the discussion, the committee supported staff’s recommendation and presentation to the full board as a consent item. Qualifications of Team Responsiveness, Project Understanding Technical and Management Approach INDIVIDUAL SUBTOTAL - WRITTEN AVERAGE SUBTOTAL - WRITTEN Proposed Fee*Consultant's Commitment to DBE AVERAGE TOTAL WRITTEN Additional Creativity and Insight Strength of Project Manager Presentation, Communication Skills Quality of Response to Questions INDIVIDUAL TOTAL - ORAL AVERAGE TOTAL ORAL 30 25 30 85 85 15 Y/N 100 15 15 10 10 50 50 150 Poor/Good/ Excellent Lisa Coburn-Boyd 26 22 25 73 Jeff Marchioro 27 21 25 73 Kent Payne 25 20 23 68 Chad Thompson 25 20 23 68 Jake Vaclavek 25 23 26 74 Lisa Coburn-Boyd 26 21 24 71 Jeff Marchioro 27 20 24 71 Kent Payne 25 21 23 69 Chad Thompson 25 21 22 68 Jake Vaclavek 26 23 26 75 Lisa Coburn-Boyd 29 24 29 82 14 14 9 9 46 Jeff Marchioro 29 24 29 82 14 15 10 9 48 Kent Payne 28 24 27 79 13 14 9 9 45 Chad Thompson 28 23 27 78 13 13 9 8 43 Jake Vaclavek 28 24 27 79 13 13 8 8 42 Lisa Coburn-Boyd 29 24 29 82 14 15 10 10 49 Jeff Marchioro 28 24 29 81 14 15 10 10 49 Kent Payne 28 24 27 79 14 14 9 9 46 Chad Thompson 28 23 27 78 14 13 9 8 44 Jake Vaclavek 28 24 27 79 14 14 9 9 46 Lisa Coburn-Boyd 27 24 27 78 12 12 8 8 40 Jeff Marchioro 27 23 26 76 12 13 8 8 41 Kent Payne 27 23 25 75 11 12 8 7 38 Chad Thompson 26 23 24 73 12 12 7 7 38 Jake Vaclavek 27 24 26 77 12 11 7 7 37 Lisa Coburn-Boyd 27 23 26 76 11 10 6 7 34 Jeff Marchioro 27 22 26 75 11 12 8 7 38 Kent Payne 26 24 26 76 10 10 7 7 34 Chad Thompson 26 22 25 73 11 11 6 7 35 Jake Vaclavek 27 24 27 78 12 12 8 8 40 Firm RECON Helix Rincon ICF Env. Intel.Chambers Fee $135 $114 $124 $126 $126 $118 Score 1 15 9 7 7 13 Note: The fees were evaluated by comparing rates for seven (7) positions. The sum of these rates are noted in the above table. 7 Excellent140Y158095 RATES SCORING CHART Excellent13447 116 121Rincon769Y8536 ORAL RECON 76 1 Y 77 39 Y 45 Chambers Group MAXIMUM POINTS 71 EI Y 78 84 ICF Helix 8780 REFERENCES 13 7 WRITTEN 84 71 ATTACHMENT B Y 78 TOTAL SCORE FIRM NOT INTERVIEWED FIRM NOT INTERVIEWED SUMMARY OF PROPOSAL RANKINGS As-needed Environmental Services 2020-2022 P:\Working\As Needed Services\Environmental\FY2020-2022\Selection Process\Summary of Proposal Rankings - 2020-2022 As-Needed Environmental Services STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Jeff Marchioro Senior Civil Engineer PROJECT: P2653- 001103 DIV. NO. 5 APPROVED BY: Bob Kennedy, Engineering Manager Dan Martin, Assistant Chief of Engineering Rod Posada, Chief, Engineering Mark Watton, General Manager SUBJECT: Award of a Construction Contract to Piperin Corporation for the 1200 Pressure Zone Improvements – Phase I Project GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) authorize the General Manager to execute a construction contract with Piperin Corporation (Piperin) for the 1200 Pressure Zone Improvements –Phase I Project in an amount not-to-exceed $151,990 (see Exhibit A for Project location). COMMITTEE ACTION: Please see Attachment A. PURPOSE: To obtain Board authorization for the General Manager to enter into a construction contract with Piperin for the 1200 Pressure Zone Improvements – Phase I Project in an amount not-to-exceed $151,990. ANALYSIS: On July 3, 2019, the District awarded a purchase order to Cortech Engineering located in San Diego, California teamed with PremierFlow AGENDA ITEM 7b 2 located in Tulsa, Oklahoma to build a Portable Trailer Mounted Variable Frequency Drive (VFD) Pump. The trailer build is currently in the submittal and shop drawing phase. Cortech/PremierFlow anticipates delivery of the trailer to the District in February 2020. The first deployment of the Portable Trailer Mounted VFD Pump will be at the 1200-1 Pump Station/978-1 Reservoir site in support the 1200-1 Reservoir Interior & Exterior Coating Project (CIP P2533) starting late fall next year. The trailer pump is needed because the 1200 Pressure Zone will be temporarily operated as a closed hydropneumatic system while the 1200-1 Reservoir will be offline for approximately six (6) months. The 1200-1 Reservoir is the sole Reservoir serving the 1200 Pressure Zone without redundancy. The first phase of the 1200 Pressure Zone Improvements Project includes connections for the Portable Trailer Mounted VFD Trailer Pump at the 1200-1 Pump Station/978-1 Reservoir site. Also, the existing driveway will be widened, and an existing vault will be demolished to provide access and a location to operate the trailer pump at the site. Staff prepared the bid documents in-house. On September 18, 2019, the Project was publicly advertised for bid using BidSync, an online bid solicitation website. The Project was also advertised in the Daily Transcript. BidSync provided electronic distribution of the Bid Documents, including specifications, plans, and addendum. A Pre-Bid Meeting was held on September 25, 2019, which was not attended by any contractors. Two addenda were sent out to all bidders and plan houses to address questions and clarifications to the contract documents during the bidding period. Staff reached out to twenty-five (25) contractors directly via email and telephoned several contractors to encourage them to submit a bid. Bids were publicly opened on October 9, 2019, with the following results: CONTRACTOR TOTAL BID AMOUNT 1 Piperin Corporation (Escondido, CA) $151,990.00 2 Tharsos, Inc. (La Mesa, CA) $169,000.00 3 Charles King Company (Signal Hill, CA) $183,798.00 The Engineer’s Estimate is $150,000. 3 A review of the bids was performed by District staff for conformance with the contract requirements and determined that Piperin was the lowest responsive and responsible bidder. Piperin holds a Class A, General Engineering, Contractor’s License in the State of California, which meets the contract document’s requirements, and is valid through August 31, 2021. The reference checks indicated a very good to excellent performance record on similar projects. An internet background search of the company was performed and revealed no outstanding issues with this company. Staff verified that the bid bond provided by Piperin is valid. Staff will also verify that Piperin’s Performance Bond and Labor and Materials Bond are valid prior to execution of the contract. The second phase of the 1200 Pressure Zone Improvements Project includes replacement of the existing 1200-1 Pump Station below grade discharge header and other existing pump station improvements facilitated by deployment of the Portable Trailer Mounted VFD Pump at the 1200-1 Pump Station/978-1 Reservoir site next year. The second phase will be bid separately on a schedule similar to the 1200-1 Reservoir Interior & Exterior Coating Project (CIP P2533). FISCAL IMPACT: Joe Beachem, Chief Financial Officer The total budget for CIP P2653, as approved in the FY 2020 budget, is $325,000. Total expenditures, plus outstanding commitments and forecast including this contract, are $213,632. See Attachment B for budget detail. Based on a review of the financial budgets, the Project Manager anticipates that the budget for CIP P2653 is sufficient to support the Project. The Finance Department has determined that, under the current rate model, 100% of the funding is available from the Betterment Fund. GRANTS/LOANS: Engineering staff researched and explored grants and loans and found none available for this Project. STRATEGIC GOAL: This Project supports the District’s Mission statement, “To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsible manner” and the General Manager’s Vision, "To be a model water agency 4 by providing stellar service, achieving measurable results, and continuously improving operational practices." LEGAL IMPACT: None. JM/BK:jf P:\WORKING\CIP P2653 1200 PZ Improvements\Staff Reports\BD 11-06-19 Staff Report 1200PZ Phase I.docx Attachments: Attachment A – Committee Action Attachment B – Budget Detail Exhibit A – Location Map ATTACHMENT A SUBJECT/PROJECT: P2653-001103 Award of a Construction Contract to Piperin Corporation for the 1200 Pressure Zone Improvements – Phase I Project COMMITTEE ACTION: The Engineering, Operations, and Water Resources Committee (Committee) reviewed this item at a meeting held on October 23, 2019, and the following comments were made: • Staff recommended that Board authorize the General Manager to execute a construction contract with Piperin Corporation (Piperin) for the 1200 Pressure Zone Improvements – Phase I Project in an amount not-to-exceed $151,990. • In response to a question from the Committee, staff stated that Piperin has performed work with the City of San Diego and the Olivenhain Water District. Staff performed reference checks, which indicated a very good to excellent performance record. • It was noted that Piperin built the Cuyamaca College Water/Wastewater Outdoor Water Distribution System. Following the discussion, the committee supported staff’s recommendation and presentation to the full board as a consent item. ATTACHMENT B – Budget Detail SUBJECT/PROJECT: P2653-001103 Award of a Construction Contract to Piperin Corporation for the 1200 Pressure Zone Improvements – Phase I Project 10/9/2019 Budget 325,000 Planning Standard Salaries 28,850 28,850 - 28,850 Total Planning 28,850 28,850 - 28,850 Design 001102 Standard Salaries 3,913 1,913 2,000 3,913 Total Design 3,913 1,913 2,000 3,913 Construction 151,990 - 151,990 151,990 Piperin 6,080 - 6,080 6,080 CM @4% 7,600 - 7,600 7,600 Inspection @5% 7,600 - 7,600 7,600 Staff Time @5% 7,600 - 7,600 7,600 Contingency @5% Total Construction 180,870 - 180,870 180,870 Grand Total 213,634 30,764 182,870 213,634 Vendor/Comments Otay Water District p2653-1200 Pressure Zone Improvements Committed Expenditures Outstanding Commitment & Forecast Projected Final Cost OTAY WATER DISTRICT1200-1 PRESSURE ZONE IMPROVEMENTSLOCATION MAP EXHIBIT A CIP P2653F P:\ W O R K I N G \ C I P P 2 6 5 3 1 2 0 0 P Z I m p r o v e m e n t s \ G r a p h i c s \ E x h i b i t s - F i g u r e s \ E N V I R O N M E N T A L - N O E L O C A T I O N P L A N . m x d 0 730365 Feet 1200-1PUMP STATION CANTA LOMAS VI S T A G R A N D E R D PENCE DR V I S T A S I E R R A D R !\ VICINITY MAP PROJECT SITE DIV 5 DIV 1 DIV 2 DIV 4 DIV 3 ÃÅ54 ÃÅ125 ÃÅ94 ÃÅ905 §¨¦805 CANTA LOMAS VISTA G R A N D E R D F NTS STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Stephen Beppler Senior Civil Engineer PROJECT: Various DIV. NO. All APPROVED BY: Bob Kennedy, Engineering Manager Dan Martin, Assistant Chief, Engineering Rod Posada, Chief, Engineering Mark Watton, General Manager SUBJECT: Award of Two (2) Professional Services Contracts for As-Needed Hydraulic Modeling Services for Fiscal Years 2020 and 2021 GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) award two (2) professional service contracts for As-Needed Hydraulic Modeling Services and to authorize the General Manager to execute two (2)agreements with Wood Rodgers and Water Systems Consulting Inc. (WSC), each in an amount not-to-exceed $175,000 for Fiscal Years 2020 and 2021. The total amount of the tasks under the two contracts will not exceed $175,000. COMMITTEE ACTION: Please see Attachment A. PURPOSE: To obtain Board authorization for the General Manager to enter into two (2) professional services contracts for As-Needed Hydraulic Modeling Services with Wood Rodgers and WSC, each in an amount not- to-exceed $175,000 for Fiscal Years 2020 and 2021 (ending June 30, 2021). The total amount of tasks under the two contracts will not exceed $175,000. AGENDA ITEM 7c 2 ANALYSIS: The District will require the professional services of two (2) hydraulic modeling consultants on an as-needed basis in support of Capital Improvement Program (CIP) projects, developer funded studies, engineering planning studies, and Information Technology studies for Fiscal Years 2020 and 2021. These services will also be used to integrate GIS updates into the existing model and support Operations in the field. The As-Needed Hydraulic Modeling Services contracts will provide the District with the ability to obtain consulting services in a timely and efficient manner and on an as-needed basis. The District will require the expertise of hydraulic modeling consultants to maintain the current potable water, recycled water, and sanitary sewer hydraulic models already developed and updated under the Water Resources Master Plan. This will include integrating new facilities or GIS updates into the model and performing planning studies for the Engineering, Operations, and Information Technology departments. The consultants will perform fire flow calculations in support of new or existing developments and prepare developer funded studies. It is more efficient and cost effective to issue contracts on an as- needed basis. This concept has also been used in the past for other disciplines like civil engineering design, geotechnical, electrical, and environmental services. The District staff will identify tasks for specific projects and request cost proposals from the two (2) consultants during the contract period. Each consultant will prepare a detailed scope of work, schedule, and fee for each task order, with the District evaluating the proposals based upon qualifications and cost. The District will enter into negotiations with the consultants, selecting the proposal that has the best value for the District. Upon written task order authorization from the District, the selected consultant shall then proceed with the project as described in the scope of work. The CIP projects that are estimated to require hydraulic modeling services for Fiscal Years 2020 and 2021, at this time, are listed below: CIP DESCRIPTION ESTIMATED COST P2453 SR-11 Utility Relocations $15,000 P2639 Vista Diego Hydro-pneumatic Pump Station Replacement $15,000 3 P2640 Portable Trailer Mounted VFD Pumps $20,000 P2652 520 to 640 Pressure Zone Conversion $20,000 R2123 Repurpose Otay Mesa Recycled Water Lines $15,000 S2069 Cottonwood Sewer Pump Station Expansion $15,000 TOTAL: $100,000 The hydraulic modeling services scopes for the above projects are estimated from preliminary information and past projects. Staff believes that a $175,000 cap on each of the As-Needed Hydraulic Modeling Services contracts is adequate, while still providing a buffer for unforeseen tasks. Fees for professional services will be charged to the CIP projects or to the Fiscal Year Operations budget. The As-Needed Hydraulic Modeling Services contracts do not commit the District to any expenditure until a task order is approved to perform the work. The District does not guarantee work to the consultants, nor does the District guarantee to the consultants that it will expend all the funds authorized by the contract on professional services. The District solicited hydraulic modeling services by placing an advertisement on the Otay Water District’s website and using BidSync, the District’s online bid solicitation website, on July 30, 2019. The advertisement was also placed in the Daily Transcript. Six (6) firms submitted a Letter of Interest and a Statement of Qualifications. The Request for Proposal (RFP) for Hydraulic Modeling Services was sent to all six (6) firms resulting in five (5) proposals received on September 12, 2019. They are as follows: • Akel (Fresno, CA) • Hazen and Sawyer (San Diego, CA) • Mission Consulting Services (Santee, CA) • Wood Rodgers (San Diego, CA) • Water Systems Consulting, Inc. (San Diego, CA) In accordance with the District’s Policy 21, staff evaluated and scored all written proposals. Wood Rodgers and WSC received the highest scores based on their experience in hydraulic modeling, understanding of the scope of work, proposed method to accomplish the work, and their composite weighted hourly rate [this rate is obtained by adjusting their rates for the five requested positions proportionally by the percentage indicated for Principal-in-Charge (5%), Project Manager (35%), Hydraulic Modeler (40%), GIS Technician (15%) and Office Support (5%)]. Wood Rodgers and WSC were the most qualified consultants with the best overall proposals. WSC currently holds one of the District’s as-needed hydraulic modeling contracts 4 and has performed very well. The District has not previously worked with Wood Rodgers on any projects, but they provide similar services to other water agencies in California and their project manager has prior District experience while with another engineering firm. Both consultants are readily available to provide the services required. A summary of the complete evaluation is shown in Attachment B. Wood Rodgers and WSC submitted the Company Background Questionnaire, as required by the RFP, and staff did not find any significant issues. In addition, staff checked their references and performed an internet search on the company. Staff found the references to be excellent and did not find any outstanding issues with the internet search. FISCAL IMPACT: Joe Beachem, Chief Financial Officer The funds for these contracts will be expended from a variety of projects, as previously noted above, and from the FY 2020 and FY 2021 operating budgets. These contracts are for as-needed professional services based on the District’s need and schedule, and expenditures will not be made until a task order is approved by the District for the consultant’s services on a specific CIP or operating project. The total amount of tasks under the two contracts will not exceed $175,000. Based on a review of the financial budget, the Project Manager anticipates that the budgets will be sufficient to support the professional as-needed consulting services required for the CIP and operating projects noted above. The Finance Department has determined that the funds to cover these contracts will be available as budgeted for these projects. STRATEGIC GOAL: This project supports the District’s Mission statement, “To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsible manner” and the General Manager’s Vision, "To be a model water agency by providing stellar service, achieving measurable results, and continuously improving operational practices." GRANTS/LOANS: Not applicable. 5 LEGAL IMPACT: None. SB/BK:jf P:\WORKING\As Needed Services\Hydraulic Modeling\Fiscal Year 20-21\Staff Report\BD_11-06-2019_Staff Report_Award of As-Needed Hydraulic Modeling Services (SB-BK).docx Attachments: Attachment A – Committee Action Attachment B – Summary of Proposal Rankings ATTACHMENT A SUBJECT/PROJECT: Various Award of Two (2) Professional Services Contracts for As- Needed Hydraulic Modeling Services for Fiscal Years 2020 and 2021 COMMITTEE ACTION: The Engineering, Operations, and Water Resources Committee (Committee) reviewed this item at a meeting held on October 23, 2019, and the following comments were made: • Staff recommended that the Board award two (2) professional service contracts for As-Needed Hydraulic Modeling Services and to authorize the General Manager to execute two (2) agreements with Wood Rodgers and Water Systems Consulting Inc. (WSC), each in an amount not-to-exceed $175,000 for Fiscal Years 2020 and 2021. The total amount of the tasks under the two contracts will not exceed $175,000. • In response to a question from the Committee, staff discussed the Review Panel’s qualifications and knowledge of evaluating and scoring the project’s written proposals. The Review Panel consisted of District staff members from various departments as follows: o Ming Zhao, GIS Manager o Eid Fakhouri, Finance Manager, Treasury & Accounting Services o Juan Tamayo, Recycled Water Program Supervisor o Steve Beppler, Senior Civil Engineer o Charles Mederos, Water Systems Supervisor • The Committee inquired about the Project Manager’s eligibility to participate in the Review Panel. Staff indicated that Policy 21, Section IV.A.3 states the following: o “…The Project Manager may be part of the review panel, if the General Manager or his/her designee (other than the Project Manager) opens and scores the cost proposal.” 7 Following the discussion, the committee supported staff’s recommendation and presentation to the full board as a consent item. ATTACHMENT B – Summary of Proposal Rankings SUBJECT/PROJECT: Various Award of Two (2) Professional Services Contracts for As- Needed Hydraulic Modeling Services for Fiscal Years 2020 and 2021 WRITTEN REFER- ENCES Qualifications of Team Responsiveness and Project Understanding Technical and Management Approach INDIVIDUAL SUBTOTAL - WRITTEN AVERAGE SUBTOTAL - WRITTEN Proposed Fee* Consultant's Commitment to DBE TOTAL - WRITTEN MAXIMUM POINTS 30 25 30 85 85 15 Y/N 100 Poor/Good/ Excellent Akel Ming Zhao 22 24 22 68 67 1 Y 68 Eid Fakhouri 25 20 22 67 Juan Tamayo 25 20 23 68 Steve Beppler 25 18 24 67 Charles Mederos 23 20 22 65 Hazen Ming Zhao 23 24 23 70 66 7 Y 73 Eid Fakhouri 22 22 24 68 Juan Tamayo 22 20 22 64 Steve Beppler 21 20 22 63 Charles Mederos 22 22 20 64 MCS Ming Zhao 22 23 22 67 67 15 Y 82 Eid Fakhouri 22 21 23 66 Juan Tamayo 23 21 24 68 Steve Beppler 20 22 23 65 Charles Mederos 22 23 22 67 Wood Rodgers Ming Zhao 26 22 26 74 77 9 Y 86 E Eid Fakhouri 27 25 28 80 Juan Tamayo 27 25 28 80 Steve Beppler 27 23 27 77 Charles Mederos 24 24 26 74 WSC Ming Zhao 27 25 26 78 80 7 Y 87 E Eid Fakhouri 29 25 29 83 Juan Tamayo 28 25 29 82 Steve Beppler 29 24 28 81 Charles Mederos 26 25 26 77 RATES SCORING CHART Firm Akel Hazen MCS Wood Rodgers WSC Wt Hr Fee $168 $154 $135 $149 $155 Score 1 7 15 9 7 *Note: Review Panel does not see or consider proposed fee when scoring other categories. The proposed fee is scored by District staff not on the Review Panel. STAFF REPORT TYPE MEETING:Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY:Dan Martin Assistant Chief of Engineering PROJECT: P2565-001103 DIV. NO.5 APPROVED BY: Rod Posada, Chief, Engineering Mark Watton, General Manager SUBJECT:Approval of Change Order No. 1 to reduce the Construction Contract with Advanced Industrial Services, Inc. in the amount of $261,330.20 for the 803-2 Reservoir Interior / Exterior Coatings & Upgrades Project GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) approve Change Order No. 1 to reduce the construction contract with Advanced Industrial Services, Inc. in the amount of $261,330.20 for the 803-2 Reservoir Interior / Exterior Coatings & Upgrades Project (see Exhibit A for Project Location). COMMITTEE ACTION: Please see Attachment A. PURPOSE: To obtain Board authorization for the General Manager to execute Change Order No. 1 to reduce the construction contract with Advanced Industrial Services, Inc. in the amount of $261,330.20 for the 803-2 Reservoir Interior / Exterior Coatings & Upgrades Project. AGENDA ITEM 7d 2 ANALYSIS: The 803-2 Reservoir is a 2.0 million gallon potable water storage facility that serves portions of Rancho San Diego. It is one of three (3) steel tanks in the 803 pressure zone. The 803-2 Reservoir was originally constructed in 1980, and was last recoated on both interior and exterior in 2000. The District’s Corrosion Control Program (CCP) reservoir maintenance schedule identified that the 803-2 Reservoir was due to be recoated on both the interior and exterior surfaces. An in-service internal and external inspection, which was performed by CSI Services, Inc., confirmed the need to replace the interior and exterior Reservoir coatings. The inspection of the Reservoir’s interior also indicated the potential for significant structural repairs to the rafter and girder system that supports the Reservoir’s roof. It has been noted on previous reservoir coating projects that the existing coatings mask the condition of the structural elements and that the blast inspection that is performed as part of the coating project reveals the extent of structural repair required. Staff developed plans and specifications and advertised a construction contract on September 4, 2018 to complete the interior and exterior coating work. This construction contract also included structural allowance items to address risk associated with structural repairs of the roof’s support system. At the November 7, 2018 Board meeting, the Board awarded a construction contract in the amount of $951,690.00 to Advanced Industrial Services, Inc. As a first order of work on the Reservoir’s interior the contractor performed an inspection blast on the Reservoir’s rafters and girders. A detailed inspection by the District’s consultant structural engineer revealed that the Reservoir’s rafters and girders were in good condition and that fewer than anticipated structural repairs were required. Structural work performed on the Project included the installation of a new center halo support, replacement of twenty-five of the outer rafter supports in the area where the ceiling connects to the Reservoir shell, and trimming of the inner rafters in the area of the Reservoir’s center vent to remove corrosion and allow for proper coating. As a result, a significant portion of the planned structural allowance work was not required. Change Order No. 1 (Exhibit B), which serves to close out the construction contract and is the subject of this staff report, includes the following eleven (11) items: 3 1.Provides 47 calendar day time extension for work performed under the contract’s Bid Item 17 Structural Modification Allowance; 2.Deletion of Bid Item 12 work associated with 30 outer rafters; 3.Deletion of Bid Item 13 work associated with 10 inner rafters; 4.A decrease to Bid Item 17 Structural Modification Allowance; 5.Deletion of Bid Item 18 work associated with 5 girders; 6.Deletion of Bid Item 19 work associated with 15 8-inch diameter steel patches; 7.Installation of a stabilized construction entrance at the access gate road; 8.Surface preparation and coating to the Reservoir drain gate valve (provides 11 calendar days); 9.Reimbursement for removal and replacement of damaged asphalt concrete pavement; 10.Reimbursement for additional inspection costs outside normal work hours; 11.Provides 32 calendar day time extension due to weather/site access impacts. In total, the credit associated with the items in Change Order No. 1 is $261,330.20. Time impacts associated with this change are also provided in Exhibit B. In total, the ninety (90) additional days added to the contract will result in a revised total contract duration of 263 calendar days. The 803-2 Reservoir was placed back into service on September 6, 2019. FISCAL IMPACT: Joe Beachem, Chief Financial Officer The total budget for CIP P2565, as approved in the FY 2019 budget, is $1,200,000. Total expenditures, plus outstanding commitments and forecast, are $991,757. See Attachment B for the budget detail. Based on a review of the financial budget, the Project Manager anticipates that the Project will be completed within the budget amount of $1,200,000. The Finance Department has determined that, under the current rate model, 100% of the funding is available from the Replacement Fund. STRATEGIC GOAL: This Project supports the District’s Mission statement, “To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsible 4 manner” and the General Manager’s Vision, "To be a model water agency by providing stellar service, achieving measurable results, and continuously improving operational practices." LEGAL IMPACT: None. DM/RP:jf P:\WORKING\CIP P2565 803-2 Reservoir Int-Ext Coating & Upgrades\Staff Reports\BD 11-06-19\BD 11-06-19 Staff Report CO No 1 for 803-2 Reservoir Coating Project.docx Attachments: Attachment A – Committee Action Attachment B – Budget Detail Exhibit A – Project Location for 803-2 Reservoir Exhibit B – Change Order No. 1 ATTACHMENT A SUBJECT/PROJECT: P2565-001103 Approval of Change Order No. 1 to reduce the Construction Contract with Advanced Industrial Services, Inc. in the amount of $261,330.20 for the 803-2 Reservoir Interior/ Exterior Coatings & Upgrades Project. COMMITTEE ACTION: The Engineering, Operations, and Water Resources Committee (Committee) reviewed this item at a meeting held on October 23, 2019, and the following comments were made: •Staff provided an analysis of the project’s scope of work and noted that a significant portion of the planned structural allowance work was not required. Page 2 of the staff report provides details of the project’s analysis. •Staff indicated that Change Order No. 1 serves to close out the construction contract and includes eleven (11) items. Page 3 of the staff report provides details of each item. In total, the credit associated with Change Order No. 1 is $261,330.20. Following the discussion, the committee supported staff’s recommendation and presentation to the full board as a consent item. ATTACHMENT B – Budget Detail SUBJECT/PROJECT: P2565-001103 Approval of Change Order No. 1 to reduce the Construction Contract with Advanced Industrial Services, Inc. in the amount of $261,330.20 for the 803-2 Reservoir Interior / Exterior Coatings & Upgrades Project. 9/23/2019 Budget 1,200,000 Planning Standard Salaries 8,918 8,918 -8,918 Service Contracts 2,695 2,695 -2,695 CSI SERVICES 3,140 3,140 -3,140 ICF JONES & STOKES INC 50 50 -50 PETTY CASH CUSTODIAN Total Planning 14,803 14,803 -14,803 Design Standard Salaries 21,067 21,067 -21,067 Service Contracts 87 87 -87 DAILY JOURNAL CORP Equipment Charge -- Total Design 21,154 21,154 -21,154 Construction Standard Salaries 140,000 123,897 16,103 140,000 Construcion Contract 951,690 595,740 355,950 951,690 ADVANCED INDUSTRIAL SERVICES, INC. (261,330) - (261,330) (261,330) CHANGE ORDER NO. 1 Service Contracts 30,240 20,160 10,080 30,240 ALYSON CONSULTING 50,000 46,464 3,536 50,000 CSI SERVICES INC. 1,800 1,080 720 1,800 GEOCON INC. 20,240 8,240 12,000 20,240 WATCHLIGHT 948 948 -948 MAYER REPROGRAPHICS 5,018 5,018 -5,018 NV5 INC. 2,000 688 1,312 2,000 CLARKSON LABORATORY 5,195 5,195 -5,195 CORE & MAIN LP 595 - - - Project Contingency 10,000 - 10,000 10,000 CONTINGENCY Total Construction 955,800 807,429 148,371 955,800 Grand Total 991,757 843,386 148,371 991,757 Vendor/Comments Otay Water District P2565 - 803-2 Reservoir Interior/Exterior Coating Committed Expenditures Outstanding Commitment & Forecast Projected Final Cost OTAY WATER DISTRICT803-2 Reservoir Interior/Exterior Coating & UpgradesLocation Map EXHIBIT A F P: \ \ W O R K I N G \ C I P P 2 5 6 5 - 8 0 3 - 2 R e s e r v o i r I n t - E x t C o a t i n g \ G r a p h i c s \ E x h i b i t s - F i g u r e s \ L o c a t i o n M a p - 8 0 3 - 2 . m x d CIP P2565 803-2Reservoir ACC E S S R D COTTONWOODGOLF COURSE !\ VICINITY MAP PROJECT SITE NTSDIV 5 DIV 1 DIV 2 DIV 4 DIV 3 ·|}þ905 ·|}þ125 ·|}þ94 F 944-1R 980-1 927-1R WILLOW GLEN D R I V E ACCESS RDWILL O W G L E N D R I V E Contract / P.O. Change Order No. 1 page 2 of 4 Description of Work Description Increase Decrease Time Item No. 1: This Change Order provides for time related to the use of Bid Item 17 – Structural Modification Allowance associated with the structural repairs per BI 17 – Work Order 01. $0.00 $0.00 47 Item No. 2: This Change Order decreases the amount allocated for Bid Item 12, Outer Rafter & Roof to Shell Connection Replacement by $99,000.00 to a new authorized amount of $0.00. (Delete 30 EA at $3,300.00/EA) $99,000.00 0 Item No. 3: This Change Order decreases the amount allocated for Bid Item 13, Inner Rafter Replacement by $23,000.00 to a new authorized amount of $23,000.00. (Delete 10 EA at $2,300.00/EA) $23,000.00 0 Item No. 4: This Change Order decreases the amount allocated for Bid Item 17, Structural Modification Allowance by $10,250.00 to a new authorized amount of $69,750.00. $10,250.00 0 Item No. 5: This Change Order decreases the amount allocated for Bid Item 18, Girder Replacement by $125,000.00 to a new authorized amount of $0.00. (Delete 5 EA at $25,000.00/EA) $125,000.00 0 Item No. 6: This Change Order decreases the amount allocated for Bid Item 19, 8-inch Diameter 5/16-inch Thick Steel Patches by $9,000.00 to a new authorized amount of $0.00. (Delete 15 EA at $600.00/EA) $9,000.00 0 Item No. 7: This Change Order provides for installation of a stabilized construction entrance at the access road gate. $10,830.00 0 Item No. 8: This Change Order provides for surface preparation and coating application to a new tank drain gate valve. $750.00 11 Item No. 9: Reimbursement for grinding removal ($1.50/SF) and replacement ($15.00/SF) of damaged asphalt concrete paving at the 803-2 Reservoir. (Credit 335 SF at $16.50/SF) $5,527.50 0 Item No. 10: Reimbursement for additional inspection costs outside normal work hours per Section 00800-1.2 at the 803-2 Reservoir. $1,132.70 0 Item No. 11: Add 32 calendar days due to weather impacts per Contract Specifications 00700-8.5 $0.00 $0.00 32 Sub Total Amount $11,580.00 $272,910.20 90 Total Net Change Order Amount $261,330.20 Contract / P.O. Change Order No. 1 page 3 of 4 Revisions to: BID SCHEDULE Item # Description Quantity Unit Unit Price Amount 12 Outer Rafter & Roof to Shell Connection Replacement 0 EA $3,300 $0.00 13 Inner Rafter Replacement 10 EA $2,300 $23,000.00 17 Structural Modification Allowance 1 LS LS $69,750.00 18 Girder Replacement 0 EA $25,000 $0.00 19 8-inch Diameter 5/16-inch Thick Steel Patches 0 EA $600 $0.00 Reason: Item No. 1: The Contract Bid Item No. 17, Structural Modification Allowance, was utilized to account for additional scope associated with structural repairs. Costs were accounted via the Contractual Allowance; however, it was agreed that the added scope resulted in a 47 (forty-seven) calendar day extension to the Contract. This change is necessary to provide the time extension agreed upon to resolve all costs associated with relevant Contractor Change Order Requests. Item No. 2: The Contract Bid Item No. 12, Outer Rafter to Shell Connection Replacement, required a quantity adjustment resulting from field conditions. Item No. 3: The Contract Bid Item No. 13, Inner Rafter Replacement, required a quantity adjustment resulting from field conditions. Item No. 4: The Contract Bid Item No. 17, Structural Modification Allowance, was used to the maximum extent practical and is no longer required. Item No. 5: The Contract Bid Item No. 18, Girder Replacement, required a quantity adjustment resulting from field conditions. Item No. 6: The Contract Bid Item No. 19, 8-inch Diameter 5/16-inch Steel Patches, required a quantity adjustment resulting from field conditions. Item No. 7: During initial winter storms concern was raised regarding the potential to track mud from the unimproved access road on to the County roadway. This concern resulted in the determination to stabilize the access road entrance with geofabric and 3-inch minus rock. This change order is required to provide for the additional scope. Item No. 8: During punchlist development it was determined to replace the existing discharge gate valve. The valve replacement was performed by District forces however it was provided with only a shop coating. To provide a consistent coating service life it was determined to incorporate surface preparation and coating application to the new valve. This change order is required to provide for the additional scope. Item No. 9: The Contractor damaged existing asphalt concrete paving at the 803-2 Reservoir. In lieu of replacing the damaged asphalt concrete paving the contractor elected to utilize the District’s FY2018 As-Needed Asphaltic Concrete Paving Services Contract pricing to reimburse the District for the associated repair cost. This change order is required to reimburse the District for costs associated with damaged asphalt concrete replacement at the 803-2 Reservoir. Item No. 10: Contract Documents Section 00800-1.2 provides for reimbursement of additional expenses of Owner’s personnel and inspection services resulting from work outside normal working hours. The Contractor requested and was granted authorization to work overtime with the provision for reimbursement of additional inspection costs. The average delta between overtime and regular time inspection costs is $17.70/hr. A total of 64 hours of overtime inspection was provided requiring premium time reimbursement. This change order is required to reimburse the District for additional costs associated with providing inspection outside normal working hours as requested by the Contractor. Contract / P.O. Change Order No. 1 page 4 of 4 Item No. 11: Contract Documents Section 00700-8.5 provides for no cost time extensions due to weather impacts on the project progress. On February 14, 2019 Sweetwater Authority began releasing water from Loveland Reservoir to flow into Sweetwater Reservoir. This release impacted the contractor’s ability to access the project site as the project access road traversed the creek carrying the Loveland Reservoir release flows. The condition ended on March 13, 2019 resulting in a 32 (thirty-two) calendar day weather impact. 803-2 Reservoir Interior/Exterior Coating & Upgrades Project: P2565 Consultant/Contractor: Advanced Industrial Services Subproject: 001103 APPROVED C.O. AMOUNT BY DATE DESCRIPTION TYPE C.O. 1 ($261,330.20) GM Close out change order to credit District for unused allowances, payment for a stabilized construction entrance, and add 90 days for structural work and weather impacts. Contractor 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1920 Total C.O.'s To Date: ($261,330.20) -27.5% Original Contract Amount:$951,690.00 Current Contract Amount:$690,359.80 Month Net C.O.$Limit Authorization Absolute C.O.$ C.O. % 9/19 ($261,330.20) $2,000 Insp ($261,330.20) -27.5% $5,000 PM/Sr. Engr.0.0% $10,000 DivM 0.0% $20,000 Chief 0.0% $75,000 GM 0.0% >$75000 Board 0.0% CHANGE ORDER LOG P:\WORKING\CIP P2565 803-2 Reservoir Int-Ext Coating & Upgrades\Construction\Change Orders\190924_COLOG 1 9/26/2019 STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Kevin Cameron Associate Civil Engineer PROJECT: P2543-001103 R2120-001103 DIV. NO. 3 APPROVED BY: Bob Kennedy, Engineering Manager Dan Martin, Assistant Chief of Engineering Rod Posada, Chief, Engineering Mark Watton, General Manager SUBJECT: Reject all Construction Bids for the 850-1 Reservoir & Recycled Water Storage Tank Interior/ Exterior Coatings & Upgrades Project GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) reject all bids for the construction of the 850-1 Reservoir (P2543) & Recycled Water Storage Tank (R2120) Interior/Exterior Coatings & Upgrades Project (see Exhibit A for Project location). COMMITTEE ACTION: Please see Attachment A. PURPOSE: To obtain Board authorization for the General Manager to reject all bids for the construction of the 850-1 Reservoir (P2543) & Recycled Water Storage Tank (R2120) Interior/Exterior Coatings & Upgrades Project. ANALYSIS: The 850-1 Reservoir is a 1.15 million gallon potable water storage facility that serves portions of Spring Valley. It is one of four AGENDA ITEM 7e 2 (4) steel tanks in the 850 Pressure Zone. The 850-1 Reservoir was originally constructed in 1959 and was last recoated on the interior in 2003 and the exterior in 1995. The Recycled Water Storage Tank is a 430,000-gallon steel tank and located at the Ralph Chapman Water Recycling Facility. The tank has a concrete floor, welded steel shell, and a floating cover. The tank, built in 1979, has had only coating spot repairs performed over the years, most recently in March of 2015. The District’s corrosion consultant maintains a Corrosion Control Program (CCP) that addresses the installation, maintenance, and monitoring of corrosion protection systems for the District’s steel reservoirs and buried metallic piping. The CCP included a reservoir maintenance schedule that showed the 850-1 Reservoir was due to be recoated on both the interior and exterior surfaces. In addition to replacing the coatings of the reservoirs, structural upgrades will be added to comply with the current American Water Works Association (AWWA) and the Occupational Safety and Health Administration standards for both Federal (OSHA) and State (Cal-OSHA) levels. The Recycled Water Storage Tank was evaluated in 2015 by HDR. Spot repairs were performed at that time, but as noted in the report, these were a temporary solution until a more extensive coating rehabilitation could be performed. HDR recommended complete removal and replacement of the internal and external coatings. Structural upgrades were also recommended for the overflow and drain pipe. The Project was advertised on September 10, 2019 using BidSync, the District’s online bid solicitation website, on the Otay Water District’s website, and in the Daily Transcript. A Pre-Bid Meeting was held on September 19, 2019, which was attended by four (4) contractors and vendors. Four (4) addenda were sent out to all bidders and plan houses to address questions and clarifications to the contract documents during the bidding period. Bids were publicly opened on October 3, 2019, with the following results: CONTRACTOR TOTAL BID AMOUNT 1 Advanced Industrial Services, Inc. Los Alamitos, CA $1,426,900.00 2 Paso Robles Tank, Inc. Hemet, CA $1,666,000.00* *Non-Responsive See below The Engineer's Estimate is $1,017,000. 3 A review of the bids was performed by District staff for conformance with the contract requirements. During the review of the bids, staff found that Bid List Page 00400-4 was missing from Paso Robles Tank’s (PRT) bid and only Bid List Pages 00400-5 & 00400-6 were provided. The missing page contained costs for bid items related to the 850-1 Reservoir. Staff determined that PRT’s bid is non-responsive. After analyzing the lowest bid submitted by Advanced Industrial Services, Inc. (AIS), staff noted that the cost for the coating work was higher than expected. The Engineer’s Estimate for the coating work was based on bids over the previous four years on this type of work. Coating costs over that period have averaged $9.10 per square foot for interior work, and $7.60 per square foot for exterior work. The low bid cost for this project was $21.40 per square foot for the interior and $23.55 per square foot for exterior work. AIS stated that the higher prices are a result of higher labor costs in order to retain qualified craftsman and higher material costs. This project was bid later in the year, and staff believes many contractors were already committed to other projects, which may have resulted in receiving only 2 bids. Staff believes that rebidding the project earlier next calendar year will induce more competitive bids. Delaying the recoating of the two tanks will not adversely affect the integrity of the facilities. The coatings, while in poor condition, will still protect the facilities in the short-term. Staff is recommending to reject all bids since the second bid was nonresponsive, and the low bid price was twice as high per square foot as previous contracts. FISCAL IMPACT: Joe Beachem, Chief Financial Officer None GRANTS/LOANS: Engineering staff researched and explored grants and loans and found none available for this Project. STRATEGIC GOAL: This Project supports the District’s Mission statement, “To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsible manner” and the General Manager’s Vision, "To be a model water agency 4 by providing stellar service, achieving measurable results, and continuously improving operational practices." LEGAL IMPACT: None. KC/BK:jf P:\WORKING\CIP P2543 - 850-1 Reservoir Int-Ext Coating\Staff Reports\11-6-19, Staff Report Reject All Bids for 850-1 Reservoir & Recycled Tank Coating_kc-bk .docx Attachments: Attachment A – Committee Action Attachment B-1 – Budget Detail for P2543 Attachment B-2 – Budget Detail for R2120 Exhibit A – Project Location Map ATTACHMENT A SUBJECT/PROJECT: P2543-001103 R2120-001103 Reject all Construction Bids for the 850-1 Reservoir & Recycled Water Storage Tank Interior/ Exterior Coatings & Upgrades Project COMMITTEE ACTION: The Engineering, Operations, and Water Resources Committee (Committee) reviewed this item at a meeting held on October 23, 2019, and the following comments were made: • Staff discussed the project’s background and bidding process. It was indicated that the District received two (2) bids; one from Advanced Industrial Services (AIS) and one from Paso Robles Tank (PRT). A summary of the bids is shown on page 2 of the staff report. • Staff stated that AIS submitted the lowest bid. The PRT bid was missing the first page of the bid list; therefore, staff determined their bid to be unresponsive. • As stated in the staff report, after analyzing the lowest bid submitted by AIS, staff noted that the cost for the coating work was significantly higher than the Engineer’s Estimate. Details of the Engineer’s Estimate and AIS’ estimate is provided on page 3 of the staff report. • Staff recommended to reject all bids since PRT’s bid was nonresponsive, and the low bid price from AIS was twice as high per square foot as previous contracts. • Staff believes that rebidding the project earlier next calendar year will induce more competitive bids. • The Committee commented that contractors invest a lot of time, effort, and money to submit bids and shared their concerns of the District rejecting all bids at this time. This action may discourage other contractors to submit bids to the District in the future. In response, staff believes that contractors would submit bids in the future as the Otay Water District has a positive reputation for being a responsible and excellent agency/vendor. • The Committee inquired if the District anticipates an increase in future project budgets as a result of the current bidding climate. Staff stated that they are looking at all of the budgets to see if adjustments need to be made, but it is anticipated that there will be a larger pool of competition and a better response from contractors for these two CIP projects that may result in a lower price. • The Committee recommended that staff re-bid this project in spring as it would give the District enough time to evaluate the bidding climate and the impact on next year’s CIP budget. • In response to a question from the Committee, staff stated that the cost to re-bid this project is approximately $5,000. Following the discussion, the committee supported staff’s recommendation and presentation to the full board as a consent item. ATTACHMENT B-1 – Budget Detail for P2543 SUBJECT/PROJECT: P2543-001103 R2120-001103 Reject all Construction Bids for the 850-1 Reservoir & Recycled Water Storage Tank Interior/ Exterior Coatings & Upgrades Project 9/25/2019 Budget 940,000 Planning Standard Salaries 10,000 9,571 429 10,000 Service Contracts 1,850 1,850 - 1,850 HDR Total Planning 11,850 11,421 429 11,850 Design Standard Salaries 22,000 8,106 13,894 22,000 Service Contracts 2,090 2,090 - 2,090 WATER SYSTEMS CONSULTING, INC Total Design 24,090 10,196 13,894 24,090 Construction Standard Salaries 100,000 125 99,875 100,000 Construcion Contract 621,250 - 621,250 621,250 CONSTRUCTION CONTRACTOR (Engineer's Estimate) Service Contracts 32,000 - 32,000 32,000 CONSTRUCTION MANAGEMENT 45,000 - 45,000 45,000 COATING INSPECTION 1,500 - 1,500 1,500 WELDING INSPECTION 20,000 - 20,000 20,000 SECURITY 1,000 - 1,000 1,000 MAYER REPROGRAPHICS 5,000 - 5,000 5,000 STRUCTURAL ENGINEER 750 - 750 750 CLARKSON LABORATORY Project Closeout 3,000 - 3,000 3,000 CLOSEOUT Project Contingency 31,063 - 31,063 31,063 5% CONTINGENCY Total Construction 860,563 125 860,438 860,563 Grand Total 896,503 21,742 874,761 896,503 Vendor/Comments Otay Water District P2543 - 850-1 Reservoir Interior/Exterior Coating Committed Expenditures Outstanding Commitment & Forecast Projected Final Cost ATTACHMENT B-2 – Budget Detail for R2120 SUBJECT/PROJECT: P2543-001103 R2120-001103 Reject all Construction Bids for the 850-1 Reservoir & Recycled Water Storage Tank Interior/ Exterior Coatings & Upgrades Project 9/26/2019 Budget 575,000 Planning Standard Salaries 5,000 968 4,032 5,000 Total Planning 5,000 968 4,032 5,000 Design Standard Salaries 35,000 27,377 7,623 35,000 Service Contracts 11,371 11,371 - 11,371 PSOMAS Total Design 46,371 38,748 7,623 46,371 Construction Standard Salaries 45,000 - 45,000 45,000 Construcion Contract 395,750 - 395,750 395,750 CONSTRUCTION CONTRACTOR (Engineer's Estimate) Service Contracts 15,000 - 15,000 15,000 CONSTRUCTION MANAGEMENT 20,000 - 20,000 20,000 COATING INSPECTION 1,500 - 1,500 1,500 WELDING INSPECTION 20,000 - 20,000 20,000 SECURITY 500 - 500 500 MAYER REPROGRAPHICS 750 - 750 750 CLARKSON LABORATORY Project Closeout 3,000 - 3,000 3,000 CLOSEOUT Project Contingency 19,788 - 19,788 19,788 5% CONTINGENCY Total Construction 521,288 - 521,288 521,288 Grand Total 572,659 39,716 532,943 572,659 Vendor/Comments Otay Water District R2120 - RWCWRF Filtered Water Storage Tank Improvements Committed Expenditures Outstanding Commitment & Forecast Projected Final Cost OTAY WATER DISTRICT850-1 RESERVOIR & RECYCLED WATER STORAGE TANKINTERIOR/EXTERIOR COATINGS & UPGRADESLOCATION MAP EXHIBIT A CIP R2120 F P: \ W O R K I N G \ C I P P 2 5 4 3 - 8 5 0 - 1 R e s e r v o i r I n t - E x t C o a t i n g \ G r a p h i c s \ E x h i b i t s - F i g u r e s \ E x h i b i t A - 2 . m x d 0 1,100550 Feet !\ VICINITY MAP DIV 5 DIV 1 DIV 2 DIV 4 DIV 3 ÃÅ54 PROJECT SITES ÃÅ125 ÃÅ94 ÃÅ905 §¨¦805 FNTS 850-1 RESSITE SR-94 / CAMPO RD CIP P2543 JAMAC H A B L V D RECYCLED WATER STORAGE TANK SITE PO I N T E PK W Y LAKEVIEWHOA SKYLINECHURCH R. W. CHAPMANWATER RECYCLINGFACILITY OWDHEADQUARTERS STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Dan Martin Assistant Chief of Engineering PROJECT: P2083-001103 P2562-001103 DIV. NO.2 APPROVED BY: Rod Posada, Chief, Engineering Mark Watton, General Manager SUBJECT: Approval of Change Order No. 4 to the Construction Contract with Pacific Hydrotech Corporation for the 870-2 Pump Station Replacement Project GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) approve Change Order No. 4 to the existing construction contract with Pacific Hydrotech Corporation (Pacific Hydrotech) in the amount of $49,157.89 for the 870-2 Pump Station Replacement Project (Project) (see Exhibits A and B for Project location). COMMITTEE ACTION: Please see Attachment A. PURPOSE: To obtain Board authorization for the General Manager to execute Change Order No. 4 in the amount of $49,157.89 to the construction contract with Pacific Hydrotech for the 870-2 Pump Station Replacement Project. AGENDA ITEM 7f 2 ANALYSIS: The District’s existing High Head (870-1) and Low Head (571-1) Pump Stations constructed in 1962 and 1966, respectively, have reached the end of their useful lives. The 870-2 Pump Station Project will replace these facilities and includes replacement of existing Reservoir inlet/outlet piping, construction of recirculation system pumps, and a chloramine disinfection booster system. Improvements of the access road and the installation of utilities for electrical, gas, sewer, and communication services are also included. The 870-2 Pump Station Replacement Project also includes the replacement of the 571-1 Reservoir (36.7 MG) floating cover and liner. The 571-1 Reservoir was originally built in 1967. In 1993 the District retrofitted the existing Reservoir to install a reservoir liner and floating cover. The existing liner and floating cover were more than 24 years old and nearing the end of their useful lives. As part of the overall Project, the existing Reservoir outlet stub-out piping located beneath the Reservoir was replaced, which will allow the new 870-2 Pump Station to simultaneously perform its primary function (pump from the 571-1 Reservoir to the 870-1 Reservoir), recirculate the 571-1 Reservoir, and also achieve a future function (pump from the 571-1 Reservoir to the 624 Pressure Zone). The replacement of the cover and liner under this Project mitigates having to take this critical Reservoir out of service a second time within the next few years. The demolition of the Low Head and High Head Pump Stations will be completed at a later date (not part of this Project) when the new 870-2 Pump Station has been brought on line and completed its warranty period. At the July 5, 2017 Board Meeting, the Board awarded a construction contract in the amount of $16,925,900.00 to Pacific Hydrotech. Since the award of the construction contract, three (3) change orders have been approved. Change Order No. 1, which totaled $26,269.83, compensated the contractor for changes associated with the 571-1 Reservoir cover and liner improvements. These changes included provisions for additional cover buoyancy floats; replacement of existing unsalvageable batten bar anchor bolts; contractor reservoir disinfection in lieu of contract specified District disinfection; weather related days; and an adjustment to the contract milestone date for the 571-1 Reservoir. In total, Change Order No. 1 added 27 days to the contract. 3 Change Order No. 2, which totaled $48,698.12, compensated the contractor for changes including the following: modifications to the new electric meter room to accommodate San Diego Gas & Electric accessibility requirements; modifications to provide two (2) 250- gallon aqueous ammonia tanks in lieu of one (1) 550-gallon tank to better serve station operations; provisions for two (2) 30-inch magnetic flow meters in lieu of ultrasonic flow meters to provide more resiliency and flexibility with anticipated flow conditions; and repairs to an existing rectifier electrical conduit adjacent to the access road. Change Order No. 2 also addressed contract time including weather days. In total, Change Order No. 2 added 16 days to the contract. Change Order No. 3, which totaled $64,864.00, compensated the contractor for several changes including the following: modifications to the dimensions of the backup generator concrete foundation pad; addition of structural support members for the heating, ventilation, and air-conditioning (HVAC) equipment and emergency generator muffler; revisions to the stations louvers and associated masonry; installation of door louvers for the compressor room doors; increasing the discharge piping on the 570 zone (recirculation) pumps to 18-inches; revisions to provide a sewn protective thermal insulation jacket with clips for the emergency generator muffler and exhaust piping; modifying the emergency generator exhaust roof penetration to simplify future muffler removal/servicing; and consolidation of exterior lighting controls in a new contactor and control panel. Change order No. 3 also addressed contract time including weather days. In total, Change order No. 3 added 25 days to the contract. Change Order No. 4, which is the subject of this staff report, provides for the following twenty-eight (28) items as detailed in the attached Exhibit C: 1. Modifying the existing cathodic rectifier to support the needs of the new station 2. HVAC modifications to the restroom and compressor room 3. An additional 4-inch gate valve on the fence irrigation system 4. Surge protection for station’s indoor devices 5. Modifications to the surge tank concrete foundation pad 6. Single face Type G LED exit light fixtures 7. A chemical resistant coating in the chemical metering pump containment area 8. Surge protection for Lighting Control Panel No. 1 9. Additional pipe supports for above ground piping within the station 10. Additional Pump Room exhaust fan 11. Spare pump engine catalysts 12. Dimensional adjustments to the steel suction pipe transitions between cement mortar lined pipe and epoxy lined pipe 13. Addition of lighting within the SDG&E service entrance room 4 14. Provisions for additional roof drains in lieu of scuppers above the generator room 15. Modifications to HVAC duct work within the electrical room 16. Modifications of busduct routings between the electrical equipment and the backup generator equipment 17. Relocation of the chemical analyzers from the main pump room to the sodium hypochlorite room 18. Installation of two 2-inch pressure reducing valves at the building entrance for potable and non-potable waterlines 19. Installation of additional disassembly flanges for the in-line heat exchanger 20. Installation of a cove base between the drywall and the floor in the bathroom 21. Installation of flexible connections between all coolant and natural gas connections for both engines 22. Installation of gusset plates in lieu of knee bracing for the suction header walkway 23. Installation of a 1-hour fire rating door between the generator room and the pump room 24. Fireproofing pipe and construction openings between all rooms of the station 25. Additional R-Value testing of Alta Road soils and a structural paving section recommendation as required by the County of San Diego 26. Adjustments to contract time for weather (8 days) 27. Credit for unused Environmental/Regulatory Compliance allowance 28. Credit for unused Reservoir Improvement Allowance In total, the cost associated with the items in Change Order No. 4 is $49,157.89. Time impacts associated with this change are also provided in Exhibit C. In total, the forty-four (44) additional days added to the contract will result in a revised total contract duration of 912 calendar days. FISCAL IMPACT: Joe Beachem, Chief Financial Officer The total budget for CIP P2083, as approved in the FY 2020 budget, is $18,950,000. Total expenditures, plus outstanding commitments and forecast, including this contract, are $18,949,826. See Attachment B-1 for the budget detail. The total budget for CIP P2562, as approved in the FY 2019 budget, is $2,900,000. Total expenditures, plus outstanding commitments and forecast, including this contract, are $2,898,236. See Attachment B- 2 for the budget detail. Based on a review of the financial budget, the Project Manager anticipates that the budgets are sufficient to support the Project. 5 The Finance Department has determined that, under the current rate model, 100% of the funding will be available from the Replacement Fund for CIP P2083 and for CIP P2562. STRATEGIC GOAL: This Project supports the District’s Mission statement, “To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsible manner” and the District’s Vision, “To be a model water agency by providing stellar service, achieving measurable results, and continuously improving operational practices.” LEGAL IMPACT: None. DM:jf P:\WORKING\CIP P2083 870-2 Pump Station Replacement\Staff Reports\BD 11-06-19\BD 11-06-19 Staff Report CO No. 4 for 870-2 PS.docx Attachments: Attachment A – Committee Action Attachment B1 – P2083 Budget Detail Attachment B2 - P2562 Budget Detail Exhibit A – 870-2 Pump Station Project Location Exhibit B - 870-2 Pump Station Project Detail Map Exhibit C – Change Order No. 4 ATTACHMENT A SUBJECT/PROJECT: P2083-001103 P2562-001103 Approval of Change Order No. 4 to the Construction Contract with Pacific Hydrotech Corporation for the 870-2 Pump Station and the 571-1 Reservoir Floating Cover and Liner Replacement Projects COMMITTEE ACTION: The Engineering, Operations, and Water Resources Committee (Committee) reviewed this item at a meeting held on October 23, 2019, and the following comments were made: • Staff discussed the background of the project and recommended that the Board approve Change Order No. 4 to the existing construction contract with Pacific Hydrotech Corporation (Pacific Hydrotech) in the amount of $49,157.89 for the 870-2 Pump Station Replacement Project. • Details of Change Order Nos. 1-3 are provided on pages 2 and 3 of the staff report. • Staff discussed Change Order No. 4. See pages 3 and 4 of the staff report for details. Staff stated that in total, there were twenty-eight (28) items and the cost associated with the items in Change Order No. 4 is $49,157.89. It was noted that time impacts associated with this change are provided in Exhibit C. There were forty-four (44) additional days added to the contract, which will result in a revised total contract duration of 912 calendar days. • The Committee commented that Change Order No. 4 had an increase in the project’s design. Staff indicated that the station’s change order revisions were to primarily enhance future operations and maintenance. It was noted that staff has discussed station design issues associated with the exterior yard piping with the project’s design firm and that the District will receive credit associated with those items. Following the discussion, the committee supported staff’s recommendation and presentation to the full board as a consent item. ATTACHMENT B-1 – P2083 Budget Detail SUBJECT/PROJECT: P2083-001103 P2562-001103 Approval of Change Order No. 4 to the Construction Contract with Pacific Hydrotech Corporation for the 870-2 Pump Station and the 571-1 Reservoir Floating Cover and Liner Replacement Projects Date: 10/02/19 Budget 18,950,000 Planning Consultant Contracts 80,000 59,391 20,609 80,000 HELIX ENVIRONMNTL PLANNING INC 17,094 17,094 - 17,094 JONES & STOKES ASSOCIATES INC 211,034 211,034 - 211,034 ICF JONES & STOKES INC Regulatory Agency Fees 2,109 2,109 - 2,109 CA DEPT OF FISH & WILDLIFE 720 720 - 720 CALIFORNIA REGIONAL WATER 1,570 1,570 - 1,570 SAN DIEGO COUNTY WATER AUTH 1,760 1,760 - 1,760 STATE WATER RESOURCES Service Contracts 2,260 2,260 - 2,260 COUNTY OF SAN DIEGO 164 164 - 164 SAN DIEGO DAILY TRANSCRIPT 505 505 - 505 THE SAN DIEGO UNION-TRIBUNE Standard Salaries 210,000 197,612 12,388 210,000 Fixed Asset 580,444 580,444 - 580,444 Total Planning 1,107,661 1,074,664 32,997 1,107,661 Design 001102 Consultant Contracts 136 136 - 136 THE WATCHLIGHT CORPORATION 4,850 4,850 - 4,850 BURKETT & WONG ENGINEERS INC 14,068 14,068 - 14,068 SOUTHERN CALIFORNIA SOIL 3,034 3,034 - 3,034 RICK ENGINEERING COMPANY 4,625 4,625 - 4,625 ROGER B WOODHULL 22,149 22,149 - 22,149 NINYO & MOORE GEOTECHNICAL AND 10,484 10,484 - 10,484 HUNSAKER & ASSOCIATES 6,086 6,086 - 6,086 HDR ENGINEERING INC 682,870 682,870 - 682,870 CAROLLO ENGINEERS INC 7,974 7,974 - 7,974 AEGIS ENGINEERING MGMT INC Regulatory Agency Fees 3,694 3,694 - 3,694 SAN DIEGO GAS & ELECTRIC 20,000 18,348 1,652 20,000 COUNTY OF SAN DIEGO Service Contracts 98 98 - 98 DAILY JOURNAL CORPORATION Standard Salaries 677,054 677,054 - 677,054 Supplier Contracts 5,350 5,350 - 5,350 INLAND AERIAL SURVEYS INC Total Design 1,462,472 1,460,820 1,652 1,462,472 Construction Construction Contracts - - - 13,796,719 11,285,751 2,510,968 13,796,719 PACIFIC HYDROTECH CORPORATION 50,368 - 50,368 50,368 Pacific Hydrotech Co. CO No. 4 726,143 593,987 132,156 726,143 PACIFIC WESTERN BANK Consultant Contracts 418,010 395,413 22,597 418,010 CAROLLO ENGINEERS INC 1,319 1,319 - 1,319 NINYO & MOORE GEOTECHNICAL AND 9,225 9,225 - 9,225 NV5 INC 17,623 17,623 - 17,623 RBF CONSULTING 780,772 653,858 126,914 780,772 MICHAEL BAKER INT'L INC 438 438 - 438 NINYO & MOORE GEOTECHNICAL OTHER AGENCY FEES 15,000 6,731 8,269 15,000 COUNTY OF SAN DIEGO 164,774 164,774 - 164,774 SAN DIEGO GAS & ELECTRIC Professional Legal Fees 276 276 - 276 ARTIANO SHINOFF 280 280 - 280 STUTZ ARTIANO SHINOFF Service Contracts 3,628 3,628 - 3,628 MAYER REPROGRAPHICS INC 119 119 - 119 SAN DIEGO DAILY TRANSCRIPT Standard Salaries 210,000 169,016 40,984 210,000 20,000 - 20,000 20,000 Security System 20,000 - 20,000 20,000 AT&T Connection Contingency 145,000 - 145,000 145,000 1.0% of Construction Contract Total Construction 16,379,693 13,302,436 3,077,257 16,379,693 Grand Total 18,949,826 15,837,920 3,111,906 18,949,826 Vendor/Comments Otay Water District p2083-PS -870-2 Pump Station Committed Expenditures Outstanding Commitment & Forecast Projected Final Cost ATTACHMENT B-2 – P2562 Budget Detail SUBJECT/PROJECT: P2083-001103 P2562-001103 Approval of Change Order No. 4 to the Construction Contract with Pacific Hydrotech Corporation for the 870-2 Pump Station and the 571-1 Reservoir Floating Cover and Liner Replacement Projects Date: 10/02/2019 Budget 2,900,000 Planning Regulatory Agency Fees 50 50 - 50 PETTY CASH CUSTODIAN Total Planning 50 50 - 50 Design 001102 Standard Salaries 51,320 51,320 - 51,320 Total Design 51,320 51,320 - 51,320 Construction Standard Salaries 30,000 15,916 14,084 30,000 150,000 129,300 20,700 150,000 MICHAEL BAKER INT'L INC (1,210) - (1,210) (1,210) Pacific Hydrotech Co. CO No. 4 2,415,726 2,384,358 31,368 2,415,726 PACIFIC HYDROTECH CORPORATION 127,143 125,493 1,651 127,143 PACIFIC WESTERN BANK 206 206 - 206 CLARKSON LAB & SUPPLY 125,000 - 125,000 125,000 Project Contingency 4.9% Total Construction 2,846,866 2,655,273 191,593 2,846,866 Grand Total 2,898,236 2,706,643 191,593 2,898,236 Vendor/Comments Otay Water District p2562-Res - 571-1 Reservoir Cover/Liner Replac Committed Expenditures Outstanding Commitment & Forecast Projected Final Cost OTAY WATER DISTRICT870-2 PUMP STATIONLOCATION MAP EXHIBIT A CIP P2083F P: \ W O R K I N G \ C I P P 2 0 8 3 8 7 0 - 2 P u m p S t a t i o n R e p l a c e m e n t \ G r a p h i c s \ E x h i b i t s - F i g u r e s \ E x h i b i t A , L o c a t i o n M a p , M a y 2 0 1 6 . m x d ROLLRESERVOIR(571-1) LOW HEADPUMP STATION HIGH HEADPUMPSTATION FOR PROJECT DETAILSEE EXHIBIT B ACCESS FROMALTA RD OWD PROPERTY LINE(APPROX) FirearmsTrainingFacility VICINITY MAP PROJECT SITE NTSDIV 5 DIV 1 DIV 2 DIV 4 DIV 3 !\ ?ò Aä ?Ë ;&s ?p F 0 250125 Feet OTAY WATER DISTRICT870-2 PUMP STATIONPROJECT DETAIL MAP EXHIBIT B CIP P2083F P: \ W O R K I N G \ C I P P 2 0 8 3 8 7 0 - 2 P u m p S t a t i o n R e p l a c e m e n t \ G r a p h i c s \ E x h i b i t s - F i g u r e s \ E x h i b i t B , P r o j e c t D e t a i l M a p , M a y 2 0 1 6 . m x d 0 10050 Feet Legend ExistingEasementOWD ExistingParcelOWD ExistingEasementSDGE ProposedStructure ProposedWater ProposedStormDrain ProposedSewer ProposedGas ProposedSiteCivil ExistingWaterOWD Contract / P.O. Change Order No. 4 page 2 of 6 Description of Work Description Increase Decrease Time Item No. 1: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides for modifications to the cathodic system per COR 14 and RFP 005. $39,606.00 0 Item No. 2: Charges attributable to the 870-2 PS (CIP 2083). The Change Order provides for HVAC modifications to the restroom and compressor room per RFI 138 and COR 46. $3,953.00 1 Item No. 3: Charges attributable to the 870-2 PS (CIP 2083). The Change Order provides an additional 4-inch gate valve on the fence irrigation system per COR 48. $1,028.00 1 Item No. 4: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides surge protection for indoor devices per COR 49. $34,253.00 0 Item No. 5: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides for modifications to the surge tank concrete foundation pad per COR 50. $3,079.00 1 Item No. 6: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides single face Type G LED exit light fixtures per COR 53. $1,681.00 0 Item No. 7: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides a chemical resistant coating in the chemical metering pump containment area per COR 58. $7,536.00 4 Item No. 8: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides modifications to lighting controller LC-1 per COR 60. $832.00 0 Item No. 9: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides additional pipe supports in the pump room per COR 61. $18,305.00 2 Item No. 10: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides for the addition of exhaust fan EF-4 to the Pump Station per COR 62. $19,206.00 3 Item No. 11: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides spare gas engine exhaust catalyst and make-up oil storage tanks per COR 63. $25,256.00 3 Item No. 12: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides for modifications to the sizes of specified Victaulic couplings on the suction piping per COR 64. $37,576.00 5 Item No. 13: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides additional Type A fixtures to the electrical service entrance (SES-1) room per COR 65. $3,124.00 0 Item No. 14: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides for incorporation of two primary roof drains and two overflow roof drains per COR 66. $4,748.00 1 Contract / P.O. Change Order No. 4 page 3 of 6 Item No. 15: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides for relocation of the HVAC ductwork in the electric room per COR 67. $2,102.00 1 Item No. 16: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides for reorientation of the electrical busway in the emergency generator room per COR 68. $9,557.00 2 Item No. 17: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides for relocation of two chemical analyzers per COR 69. $12,347.00 2 Item No. 18: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides two 2-inch pressure reducing valves per COR 70. $4,059.00 1 Item No. 19: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides for additional disassembly flanges on pump engine coolant piping per COR 71. $12,599.00 3 Item No. 20: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides a cove base in the restroom per COR 72.$1,138.00 0 Item No. 21: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides flexible connections for engine coolant and natural gas piping to the pump engines per COR 73. $7,250.00 2 Item No. 22: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides support gussets on the aluminum platform above the suction piping per COR 74. $2,913.00 1 Item No. 23: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides 1-hour fire labeling at the generator room interior door per COR 75. $2,392.00 0 Item No. 24: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides firestopping between the chemical rooms and generator room and adjacent rooms per COR 76. $9,679.00 3 Item No. 25: Charges attributable to the 870-2 PS (CIP 2083). This Change Order provides for additional testing to perform an R-value analysis of existing soil and pavement section recommendation to the County per COR 77. $540.00 0 Item No. 26: Add eight (8) calendar days due to weather impacts per Contract Specifications 00700-8.5. $0.00 $0.00 8 Item No. 27: Charges attributable to the 870-2 PS (CIP 2083). This Change Order decreases the amount allocated for Bid Item 19, Environmental/Regulatory Compliance Allowance by $135,179.00 to a new authorized amount of $14,821.00. $135,179.00 0 Item No. 28: Charges attributable to the 571-1 (CIP 2562). This Change Order decreases the amount allocated for Bid Item 23, Reservoir Improvement Allowance by $1,210.00 to a new authorized amount of $48,789.89. $1,210.11 0 Contract / P.O. Change Order No. 4 page 4 of 6 Sub Total Amount $225,153.00 $175,995.11 44 Total Net Change Order Amount $49,157.89 Revisions to: BID SCHEDULE Item # Description Quantity Unit Unit Price Amount 19 Environmental/Regulatory Compliance Allowance 1 LS LS $14,821.00 23 Reservoir Improvement Allowance 1 LS LS $48,789.89 Reason: Item No. 1: During submittal review it was determined that the existing cathodic rectifier can provide adequate cathodic protection to the new piping with modifications. This Change Order is required to realize the credit for deleting the contractual deep well and rectifier while adding modifications to allow the existing rectifier to provide required cathodic protection resolving all costs associated with COR 14 and RFP 005. Item No. 2: The Contract did not provide supply air for the compressor room necessary to avoid generating negative pressure in the room or restroom necessary to provide a source of ventilation. This change order provides for the needed ventilation modifications resolving all costs associated with RFI 138 and COR 046. Item No. 3: The Contract did not include a below ground gate valve on the 4-inch fence irrigation system. It was determined to incorporate a below grade gate valve at the connection to the buried pipe to facilitate maintenance and redundancy of the above grade isolation valve. This change order provides for the added valve resolving all costs associated with COR 048. Item No. 4: During submittal review it was determined that incorporation of surge protection for indoor devices was required. This change order is required to provide the additional instrumentation surge protection as identified in Submittal 112 resolving all costs with COR 019. Item No. 5: The Contract included a 15-foot by 10-foot structural concrete foundation pad for the surge tank. Subsequent to submittal approval it was determined that a 20-foot by 11-foot structural concrete foundation pad was required to support the surge tank and provide required anchor bolt edge distances. This change order provides for the required structural concrete foundation pad size revision resolving all costs with COR 050. Item No. 6: The Contract Documents specified double sided exist signs by model number in locations where mounting to a wall was required. RFI 178 was issued to clarify the requirements resulting in the determination to order single sized exit signs for installation and provide the District with the purchased double-sided exit signs. This change order is required to provide and install the single sided exist signs and resolve all costs associated with RFI 178 and COR 053. Item No. 7: The Contract Documents did not provide a chemically resistant coating inside the chemical rooms. It was determined to incorporate a chemical resistant coating in the containment area beneath the chemical metering pumps to facilitate maintenance while increasing the concrete service life. This change order is required to implement the modification and resolve all costs associated with COR 030. Item No. 8: During the review of Submittal 201 comments were returned resulting in scope modifications. Modifications to lighting control panel LC-1 included addition of a surge protection device, circuit breaker and wiring modifications. This change order is required to implement the modification and resolve all costs associated with COR 060. Contract / P.O. Change Order No. 4 page 5 of 6 Item No. 9: The Contract Documents included pipe supports necessary for structural support of above ground piping within the pump station. During construction it was determined that additional supports were required to facilitate removal of serviceable valves and pump control valves resulting in the determination to install additional supports necessary to support future maintenance activities. This change order is required to implement the modification and resolve all costs associated with COR 061. Item No. 10: After review of pump motor and angle drive heat loads the designer issued design clarification 03 to incorporate an additional exhaust fan in the pump room to mitigate heat gain during summer months in the pump room resulting in structural, roofing, electrical and mechanical modifications associated with incorporation of exhaust fan EF-4. This change order is required to implement the modification and resolve all costs associated with RFP 010 and COR 62. Item No. 11: Resulting from regulatory requirements and review of start-up procedures a risk of fouling new pump engine catalysts was determined to be a possibility and catalyst replacement lead time would detrimentally impact the required start-up schedule. This realization resulted in the determination to order a spare set of catalyst for both engines prior to start-up. Additionally, it was determined that incorporation of make-up oil tanks would simplify future maintenance activities. This change order is required to implement the modification and resolve all costs associated with COR 63. Item No. 12: During submittal review concern was raised with suction piping flow characteristics. Resulting from discussions and submittal reviews, steel pipe dimensions were adjusted to ensure that internal dimensions between cement mortar lined pipe and epoxy pipe transitioned as smoothly as possible. These dimensional adjustments resulted in increasing the specified sizes of required Victaulic couplings for all 870 and 570 zone pumps. This change order is required to implement the modification and resolve all costs associated with COR 64. Item No. 13: During an inspection by San Diego Gas & Electric, lighting was required to be installed in the service entrance room (SES-1) prior to establishment of electrical service resulting in the requirement for additional conduit, wire and an additional Type A light fixture. This change order is required to implement the modification and resolve all costs associated with COR 65. Item No. 14: The Contract provided two roof scuppers for roof drainage including overflow protection above the generator room. It was determined to convert the scupper design to two new primary and two overflow roof drains providing consistency with other locations on the pump station roof. This change order is required to implement the modification and resolve all costs associated with COR 66. Item No. 15: The Contract provided new HVAC ductwork centered in the new electric room. Subsequent to electric cable tray installation it was realized that the new ductwork impacted safe working conditions at the new cable tray. This realization resulted in the determination to relocate the new ductwork away from the cable tray providing the needed workroom. This change order is required to implement the modification and resolve all costs associated with COR 67. Item No. 16: The Contract provided busduct conductor routings between the electrical equipment and backup generator equipment. Subsequent to installation of the emergency generator muffler concern was raised with the proximity between the busduct routing and muffler due to generated heat during extended engine operation. The concern resulted in the determination to relocate the busduct to mitigate potential heat impacts ensuring the long-term serviceability of the electrical connection. This change order is required to implement the modification and resolve all costs associated with COR 68. Item No. 17: The Contract provided for chemical analyzers to be located in the main pump room. Field review with District personnel resulted in a request to relocate the analyzers to the sodium hypochlorite room to simplify access and maintenance activities. This change order is required to implement the modification and resolve all costs associated with COR 69. Item No. 18: The Contract did not provide for pressure reducing valves (PRV) on the new potable and non-potable waterlines inside the pump station resulting in the determination to incorporate two new 2-inch PRVs at the entrance to the building to increase the service life of the new building interior water distribution piping. This change order is required to implement the modification and resolve all costs associated with COR 70. Item No. 19: The Contract provided a single disassembly flange on each pipe to the in-line heat exchanger. During installation it was determined that an additional disassembly flange was needed on each pipe due to the required pipe configuration to facilitate future removal of the in-line heat exchanger. This change order is required to implement the modification and resolve all costs associated with COR 71. Contract / P.O. Change Order No. 4 page 6 of 6 Item No. 20: The Contract did not provide a transition between the bottom of the drywall and floor in the bathroom. It was determined to incorporate a cove base material to mitigate moisture damage to the walls during bathroom floor cleaning. This change order is required to implement the modification and resolve all costs associated with COR 72. Item No. 21: The Contract did not provide flexible connections between the pump engines and steel pipe carrying engine coolant and natural gas. Resulting from a concern regarding how engine vibration would impact the long-term serviceability of the steel piping a determination was made to incorporate a flanged flexible connection between all coolant and natural gas connections to both engines. This change order is required to implement the modification and resolve all costs associated with COR 73. Item No. 22: The Contract specified knee bracing to stabilize the aluminum walkway above the suction piping. Suction header piping conflicts precluded the installation of knee braces resulting in the need to install gusset plates. This change order is required to implement the modification and resolve all costs associated with COR 74. Item No. 23: The Contract specified a 1-hour fire wall surrounding the generator room and chemical rooms. The door between the generator room and pump room was not specified with a 1-hour rating as required to achieve the required fire separation resulting in the requirement to secure a third-party fire rating stamp on the door and frame. This change order is required to implement the modification and resolve all costs associated with COR 75. Item No. 24: The Contract specified a 1-hour fire wall surrounding the generator room and chemical rooms. Details for fireproofing pipe and construction openings between the rooms was not specified resulting in the requirement to secure a fire proofing subcontractor to provide and install fireproofing materials to ensure the separation requirements are achieved. This change order is required to implement the modification and resolve all costs associated with COR 76. Item No. 25: The County inspector required a R-value test of Alta Road soils and a recommendation of a structural paving section for required paving repair work from the Contractor’s soils firm. This change order is required to implement the modification and resolve all costs associated with COR 77. Item No. 26: Contract Documents Section 00700-8.5 provides for no cost time extensions due to weather impacts on the project progress. Weather impacted the project eight (8) days between March 1, 2019 and August 31, 2019. The project was impacted on March 14, April 29, 30, May 10, 16, 20, 21 and 22, 2019 due to weather. Item No. 27: The Contract Bid Item No. 19, Environmental/Regulatory Compliance Allowance, has been used to the maximum extent practical and is no longer required. Item No. 28: The Contract Bid Item No. 19, Reservoir Improvement Allowance, has been used to the maximum extent practical and is no longer required. 870-2 Pump Station Replacement Project Project: P2083/P2562 Consultant/Contractor: Pacific Hydrotech Corporation Subproject: 001103 APPROVED C.O. AMOUNT BY DATE DESCRIPTION TYPE C.O. 1 $26,269.83 GM 5/18/2018 Change order provides for additional buoyancey floats, anchor bolts, and a modified disinfection procedure for the 571-1 Reservoir. Also addresses contract time for weather. Contractor 2 $48,698.12 GM 1/29/2019 Electric service room modifications; ammonia storage modifications; replace ultrasonic flow meters with magnetic type; relocate existing rectifier power conduit; and weather days Contractor 3 $64,864.00 Board 4/4/2019 Bathroom fixtures; backup generator concrete foundation pad modifications; HVAC muffler support structural members; louver and pilaster modifications; door louvers; increase pump discharge pipe size to 18-inch; modify emergency generator thermal insulation; emergency generator exhaust roof penetration; esterior lighting controls modifications; weather days. Contractor 4 $49,157.89 Board Change order addresses 28 specific items including but not limited to surge protection for indoor devices, additional pipe supports, exhaust fan for EF-4, spare exhaust catalyst, modifications to victaulic couplings, relocation of chemical analyzers. Also includes time adjustments and weather days. Contractor 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1920 Total C.O.'s To Date: $188,989.84 1.1% Original Contract Amount:$16,925,900.00 Current Contract Amount:$17,114,889.84 Month Net C.O.$ Limit Authorization Absolute C.O.$ C.O. % 10/19 $49,157.89 $2,000 Insp $49,157.89 0.3% $5,000 PM/Sr. Engr. 0.0% $15,000 Asst. Chief 0.0% $20,000 Chief 0.0% $75,000 GM 0.0% >$75,000 Board 0.0% CHANGE ORDER LOG P:\WORKING\CIP P2083 870-2 Pump Station Replacement\Construction\Change Orders\COLOG_1910011 10/2/2019 STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Dan Martin Assistant Chief of Engineering PROJECT: P2574-001103 P2625-001103 DIV. NO. 5 APPROVED BY: Rod Posada, Chief, Engineering Mark Watton, General Manager SUBJECT: Approval to Increase the Overall Budget for CIP P2574 in an amount not-to-exceed $145,000.00 and Approval of Change Order No. 2 in an amount not-to-exceed $115,213.59 to the Construction Contract with Cass Arrieta for the Vista Vereda (CIP P2574) and Hidden Mesa Road (CIP P2625) Water Line Replacement Project GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board): 1.Approve to increase the CIP P2574 budget (Vista Vereda Waterline Replacement Project) in an amount not-to-exceed $145,000.00 (from $1,640,000.00 to $1,785,000.00). 2.Approve Change Order No. 2 to the existing construction contract with Cass Construction, Inc. dba Cass Arrieta (Cass Arrieta) in an amount not-to-exceed $115,213.59 for the Vista Vereda and Hidden Mesa Road Water Line Replacement Project (see Exhibit A for Project location). COMMITTEE ACTION: Please see Attachment A. PURPOSE: To approve to increase the overall CIP P2574 project budget in an amount not-to-exceed $145,000.00 and to obtain Board authorization for the General Manager to execute Change Order No. 2 in an amount not-to-exceed $115,213.59 to the construction contract with Cass Arrietta for the Vista Vereda and Hidden Mesa Road Water Line Replacement Project. AGENDA ITEM 7g 2 ANALYSIS: The District provides water distribution service and sanitary sewer collection service in the Jamacha drainage basin located in the northern area of the District. The existing 12-inch Cement Mortar Lined and Coated (CML&C) Steel pipe that serves as the distribution main for the western portion of the 978 Pressure Zone along Vista Vereda to Hidden Mesa Road was constructed in 1959. Several water main breaks have occurred in the area that have led to a determination that the pipeline has reached the end of its useful life and should be replaced. The original pipeline was constructed in easements prior to any development in the area. Over the years, with the subdivision of properties and construction of homes, the difficult to access easements are no longer a desirable location for placing an important transmission water main. This project moves the transmission main for this area into Hidden Mesa Road. The project scope of work generally consists of construction along Vista Vereda and Hidden Mesa Road of approximately 3,700 linear feet of 12-inch Polyvinyl chloride (PVC) water line and 400 linear feet of 8-inch PVC water line, including appurtenances, restoration of services, surface restoration, traffic control, and all testing and inspection as required by the Contract Documents. At the November 7, 2018 Board Meeting, the Board awarded a construction contract in the amount of $2,848,364.00 to Cass Arrieta. Since the award of the construction contract, there has been one (1) Change Order approved under the authority of the General Manager for the contract. Change Order No. 1, which totaled $45,750.67, compensated the contractor for several items associated with the Hidden Mesa Water line construction including: additional cut and cap of the existing mainline to minimize future customer impacts; realignment of the planned main to resolve utility conflicts; additional asphalt paving as required by the County permit; and reconciliation of unused allowance items. Contract time was also adjusted for weather impacts and for impacts due to the added work. In total, Change Order No. 1 added twenty-nine (29) calendar days to the contract. Change order No. 2 (Exhibit B), which is the subject of this staff report includes the following ten (10) items: 1. Mainline grade revisions to the profile of the planned water main within Vista Vereda due to existing utilities. 3 2. Revisions to the alignment, profile, and sequence of connection for the planned water main tie-in at the Vista Vereda/Vista Grande intersection. This change also included encasement of the existing sewer to meet the State Water Resource Control Board – Division of Drinking Water separation requirements. 3. Adjusting Bid Item Bid Item 47, Rock Removal by Hydraulic Breaker Method due to field conditions. 4. Adjusting Bid Item 48, Rock Removal by Chemical Breaking Method due to field conditions. 5. Adjusting Bid Item 49, Caving Soil Over-Excavation due to field conditions. 6. Adjusting Bid Item 50, Additional Potholes due to field conditions. 7. Adjusting Bid Item 51, Utility Crossings Not Identified on Plans Greater Than 4-Inch in Diameter due to field conditions. 8. Adjusting Bid Item 52, Relocated/Reconstruct Sewer Laterals due to field conditions. 9. Adjusting Bid Item 53, Dewatering to Sewer System due to field conditions. 10. Adjusting Bid Item 54, Unknown or Unidentified Utilities Allowance due to field conditions. In total, the cost associated with the items in Change Order No. 2 is $115,213.59. Time impacts associated with this change are also provided in Exhibit B. In total, the ninety-three (93) additional calendar days added to the contract will result in a revised total contract duration of 332 calendar days. As of October 1, 2019, the Vista Vereda and Hidden Mesa Road Water Line Replacement Project is approximately 92% complete. It is anticipated that additional Change Orders for unforeseen items may occur during the completion of the remaining 8% of the construction contract work. The budget increase of $145,000.00 is requested to fund Change Order No. 2, provide for Project support, and reestablish a project contingency in anticipation of unforeseen items. If additional unforeseen items are encountered that result in a Change Order, staff will bring the Change Order forward for Board approval. 4 FISCAL IMPACT: Joe Beachem, Chief Financial Officer The total budget for CIP P2574, as approved in the FY 2019 budget, is $1,640,000. Total expenditures, plus outstanding commitments and forecast including this contract, are $1,784,176. See Attachment B1 for budget detail. Based on a review of the financial budgets, the Project Manager anticipates that with a budget increase of $145,000, CIP P2574 will be completed within the new budget amount of $1,785,000. The total budget for CIP P2625, as approved in the FY 2019 budget, is $2,210,000. Total expenditures, plus outstanding commitments and forecast including this contract, are $2,207,579. See Attachment B2 for budget detail. Based on a review of the financial budget, the Project Manager anticipates that CIP P2625 will be completed within the budget amount of $2,210,000. The Finance Department has determined that 100% of the funding for CIP P2574 and CIP P2625 will be available in the Replacement Reserve. STRATEGIC GOAL: This Project supports the District’s Mission statement, “To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsive manner” and the District’s Vision, “To be a model water agency by providing stellar service, achieving measurable results, and continuously improving operational practices.” LEGAL IMPACT: None. DM/RP:jf P:\WORKING\CIP P2574 12-Inch PL Replacement, 978 Zone, Vista Vereda\Staff Reports\Board 11-06-19\BD 11- 06-19 Staff Report Vista Vereda-Hidden Mesa CO 2.docx Attachments: Attachment A – Committee Action Attachment B1 – P2574 Budget Detail Attachment B2 – P2625 Budget Detail Exhibit A – Location Map Exhibit B – Change Order No. 2 ATTACHMENT A SUBJECT/PROJECT: P2574-001103 P2625-001103 Approval to Increase the Overall Budget for CIP P2574 in an amount not-to-exceed $145,000.00 and Approval of Change Order No. 2 in an amount not-to-exceed $115,213.59 to the Construction Contract with Cass Arrieta for the Vista Vereda (CIP P2574) and Hidden Mesa Road (CIP P2625) Water Line Replacement Project COMMITTEE ACTION: The Engineering, Operations, and Water Resources Committee (Committee) reviewed this item at a meeting held on October 23, 2019, and the following comments were made: • Staff provided a background of the project and discussed Change Order No. 1. Details of Change Order No. 1 are provided on page 2 of the staff report. • Staff also discussed Change Order No. 2. Details of this change order are provided on pages 2 and 3, and Exhibit B, of the staff report. In total, the cost associated with the ten (10) items in Change Order No. 2 is $115,213.59. Staff noted that time impacts associated with this change are also provided in Exhibit B. In total, ninety-three (93) additional calendar days were added to the contract and will result in a revised total contract duration of 332 calendar days. • As noted in the staff report, the budget increase of $145,000 for CIP P2574 is requested to fund Change Order No. 2, provide for Project support, and reestablish a project contingency in anticipation of unforeseen items. • In response to a question from the Committee regarding mainline pipe grade revisions, staff stated that the as-built location for the existing 16” main elevation was higher than anticipated. Staff determined it was necessary to encase the existing sewer and modify the new pipeline profile by increasing the depth to meet the State Water Resources Control Board – Division of Drinking Water separation requirements. Following the discussion, the committee supported staff’s recommendation and presentation to the full board as a consent item. ATTACHMENT B1 – P2574 Budget Detail SUBJECT/PROJECT: P2574-001103 P2625-001103 Approval to Increase the Overall Budget for CIP P2574 in an amount not-to-exceed $145,000.00 and Approval of Change Order No. 2 in an amount not-to-exceed $115,213.59 to the Construction Contract with Cass Arrieta for the Vista Vereda (CIP P2574) and Hidden Mesa Road (CIP P2625) Water Line Replacement Project 10-Oct-19 Budget 1,640,000 Planning Consultant Contracts 1,224 1,224 - 1,224 HELIX ENVIRONMNTL PLANNING INC 1,121 1,121 - 1,121 ICF JONES & STOKES INC 1,900 1,900 - 1,900 WATER SYSTEMS CONSULTING INC Regulatory Agency Fees 2,331 2,331 - 2,331 COUNTY OF SAN DIEGO 50 50 - 50 PETTY CASH CUSTODIAN Service Contracts 154 154 - 154 STAR-NEWS PUBLISHING CO Standard Salaries 80,799 80,799 - 80,799 Total Planning 87,579 87,579 - 87,579 Design 001102 Consultant Contracts 147,150 147,150 - 147,150 RICK ENGINEERING COMPANY 3,487 3,487 - 3,487 NINYO & MOORE GEOTECHNICAL 28,582 28,582 - 28,582 NINYO & MOORE GEOTECHNICAL AND 2,612 2,612 - 2,612 HUNSAKER & ASSOCIATES 12,559 12,559 - 12,559 C BELOW INC - - - - Service Contracts 40 40 - 40 DAILY JOURNAL CORPORATION 1,000 1,000 - 1,000 CHICAGO TITLE COMPANY Standard Salaries 137,099 137,099 - 137,099 Total Design 332,529 332,529 - 332,529 Construction Construction Contracts 5,000 1,094 3,906 5,000 CLARKSON LAB & SUPPLY INC 1,037,954 792,342 245,612 1,037,954 CASS CONSTRUCTION INC 115,214 - 115,214 115,214 CHANGE ORDER NO 2 Consultant Contracts 10,000 6,860 3,140 10,000 RICK ENGINEERING COMPANY 16,000 - 16,000 16,000 ALYSON CONSULTING Regulatory Agency Fees 4,000 - 4,000 4,000 COUNTY OF SAN DIEGO Service Contracts 900 900 - 900 MAYER REPROGRAPHICS INC Standard Salaries 125,000 114,995 10,005 125,000 50,000 - 50,000 50,000 Contingency (4.8%) Total Construction 1,364,068 916,191 447,876 1,364,068 Grand Total 1,784,176 1,336,300 447,876 1,784,176 Vendor/Comments Otay Water District P2574 - PL 12" 978 Zone, Vista Vereda Committed Expenditures Outstanding Commitment & Forecast Projected Final Cost ATTACHMENT B2 – P2625 Budget Detail SUBJECT/PROJECT: P2574-001103 P2625-001103 Approval to Increase the Overall Budget for CIP P2574 in an amount not-to-exceed $125,000.00 and Approval of Change Order No. 2 in an amount not-to-exceed $115,213.59 to the Construction Contract with Cass Arrieta for the Vista Vereda (CIP P2574) and Hidden Mesa Road (CIP P2625) Water Line Replacement Project 10-Oct-19 Budget 2,210,000 Planning Standard Salaries 815 815 - 815 Total Planning 815 815 - 815 Design 001102 Consultant Contracts 12,559 12,559 - 12,559 C BELOW INC - - - 2,612 2,612 - 2,612 HUNSAKER & ASSOCIATES 118,540 118,540 - 118,540 RICK ENGINEERING COMPANY Service Contracts 40 40 - 40 DAILY JOURNAL CORPORATION Standard Salaries 65,824 65,824 - 65,824 Total Design 199,575 199,575 - 199,575 Construction Construction Contracts 1,856,161 1,759,225 96,936 1,856,161 CASS CONSTRUCTION INC 4,416 4,416 - 4,416 CLARKSON LAB & SUPPLY INC Consultant Contracts 3,679 3,679 - 3,679 RICK ENGINEERING COMPANY 60,000 59,115 885 60,000 ALYSON CONSULTING For Ops Only - Contracted Services 2,000 2,000 - 2,000 RICK POST WELD & WET TAPPING Regulatory Agency Fees 10,034 10,034 - 10,034 COUNTY OF SAN DIEGO Service Contracts 900 900 - 900 MAYER REPROGRAPHICS INC Standard Salaries 40,000 34,565 5,435 40,000 30,000 - 30,000 30,000 Contingency (1.6%) Total Construction 2,007,190 1,873,934 133,256 2,007,190 Grand Total 2,207,579 2,074,323 133,256 2,207,579 Vendor/Comments Otay Water District P2625 - PL - 12" 978 Zone in Hidden Mesa Road Committed Expenditures Outstanding Commitment & Forecast Projected Final Cost Contract / P.O. Change Order No. 2 page 2 of 3 Description of Work Description Increase Decrease Time Item No. 1: This Change Order provides for mainline pipe grade revisions per RFI 005 and COR 006. (CIP 2574) $24,185.09 3 Item No. 2: This Change Order provides for alignment, profile, sewer encasement and connection revisions per RFI 008 and COR 006. (CIP 2574) $151,710.50 90 Item No. 3: This Change Order decreases the amount allocated for Bid Item 47, Rock Removal by Hydraulic Breaker Method by $900.00 to a new authorized amount of $95.00. (Delete 180 CY at $5.00/CY) (CIP 2574) $900.00 0 Item No. 4: This Change Order decreases the amount allocated for Bid Item 48, Rock Removal by Chemical Breaking Method by $700.00 to a new authorized amount of $0.00. (Delete 100 CY at $7.00/CY) (CIP 2574) $700.00 0 Item No. 5: This Change Order decreases the amount allocated for Bid Item 49, Caving Soil Over-Excavation by $32,000.00 to a new authorized amount of $0.00. (Delete 400 CY at $80.00/CY) (CIP 2574) $32,000.00 0 Item No. 6: This Change Order decreases the amount allocated for Bid Item 50, Additional Potholes by $510.00 to a new authorized amount of $2,295.00. (Delete 2 EA at $255.00/EA) (CIP 2574) $510.00 0 Item No. 7: This Change Order decreases the amount allocated for Bid Item 51, Utility Crossings Not Identified on Plans Greater Than 4-Inch in Diameter by $6,240.00 to a new authorized amount of $4,160.00. (Delete 6 EA at $1,040.00/EA) (CIP 2574) $6,240.00 0 Item No. 8: This Change Order decreases the amount allocated for Bid Item 52, Relocated/Reconstruct Sewer Laterals by $6,900.00 to a new authorized amount of $0.00. (Delete 2 EA at $3,450.00/EA) (CIP 2574) $6,900.00 0 Item No. 9: This Change Order decreases the amount allocated for Bid Item 53, Dewatering to Sewer System by $200.00 to a new authorized amount of $0.00. (Delete 200 LF at $1.00/LF) (CIP 2574) $200.00 0 Item No. 10: This Change Order decreases the amount allocated for Bid Item 54, Unknown or Unidentified Utilities Allowance by $13,232.00 to a new authorized amount of $4,561.00. (CIP 2574) $13,232.00 0 Sub Total Amount $175,895.59 $60,682.00 93 Total Net Change Order Amount $115,213.59 Contract / P.O. Change Order No. 2 page 3 of 3 Revisions to: BID SCHEDULE Item # Description Quantity Unit Unit Price Amount 47 Rock Removal by Hydraulic Breaker Method 19 CY $5.00 $95.00 48 Rock Removal by Chemical Breaking Method 0 CY $7.00 $0.00 49 Caving Soil Over-Excavations 0 CY $80.00 $0.00 50 Additional Potholes 9 EA $255.00 $2,295.00 51 Utility Crossing Not Identified on Plans Greater Than 4-Inch in Diameter 4 EA $1,040.00 $4,160.00 52 Relocate/Reconstruct Sewer Laterals 0 EA $3,450.00 $0.00 53 Dewatering to Sewer System 0 LF $1.00 $0.00 54 Unknown or Unidentified Utilities Allowance 1 LS LS 4,561.00 Reason: Item No. 1: Subsequent to evaluating pothole information on Vista Vereda, RFI 005 was issued to requesting information on resolution of utility conflicts. The additional utility information resulted in the determination to modify the pipeline profile increasing the depth as shown in the RFI response. This Change Order is necessary to resolve all costs and time associated with implementation of this work scope. Item No. 2: Subsequent to pothole information in Vista Grande Road utility conflicts with the proposed new pipeline profile were revealed requiring revisions to the planned profile and alignment per the response to RFI 008. The needed revision also adjusts a connection location requiring additional pipe to be installed and alters the sequence of work resulted in the requirement to test the Vista Grande pipe as a separate section resulting in added costs. The pipeline revisions required contact with the State Water Resource Control Board – Division of Drinking Water (DDW) for resolution to pipeline separation requirements. The DDW requirements incorporated a reinforced concrete encasement of a section of sewer pipe facilitating installation of the new waterline. This Change Order is necessary to resolve all costs and time associated with implementation of this work scope. Item No. 3: The Contract Bid Item No. 47, Rock Removal by Hydraulic Breaker Method, required a quantity adjustment resulting from field conditions. Item No. 4: The Contract Bid Item No. 48, Rock Removal by Chemical Breaking Method, required a quantity adjustment resulting from field conditions. Item No. 5: The Contract Bid Item No. 49, Caving Soil Over-Excavations, required a quantity adjustment resulting from field conditions. Item No. 6: The Contract Bid Item No. 50, Additional Potholes, required a quantity adjustment resulting from field conditions. Item No. 7: The Contract Bid Item No. 51, Utility Crossing Not Identified on Plans Greater Than 4-Inch in Diameter, required a quantity adjustment resulting from field conditions. Item No. 8: The Contract Bid Item No. 52, Relocate/Reconstruct Sewer Laterals, required a quantity adjustment resulting from field conditions. Item No. 9: The Contract Bid Item No. 53, Dewatering to Sewer System, required a quantity adjustment resulting from field conditions. Item No. 10: The Contract Bid Item No. 54, Unknown or Unidentified Utilities Allowance, required a quantity adjustment resulting from field conditions. 870-2 Pump Station Replacement Project Project: P2574/P2625 Consultant/Contractor: Cass Construction, Inc. dba Cass Arrietta Subproject: 001103 APPROVED C.O. AMOUNT BY DATE DESCRIPTION TYPE C.O. 1 $45,750.67 GM 10/8/2019 Change order No. 1 addresses 13 items including the cut and cap of mainline, several minor field modifications, interconnect piping revisions west of Hidden Mesa Trail, additional trench resurfacing as required by the County of San Diego, credits for unused allowances, and adjustments in contract time due to changes and weather. Contractor 2 $115,213.59 Board Change Order No. 2 addresses 10 items including revisions to the alignment due to utility conflicts in Vista Vereda; utility conflicts at the intersection of Vista Vereda and Vista Grande; and credits for unused allowances. The change order also provides an adjustments in contract time. Contractor 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1920 Total C.O.'s To Date: $160,964.26 5.7% Original Contract Amount:$2,848,364.00 Current Contract Amount:$3,009,328.26 Month Net C.O.$ Limit Authorization Absolute C.O.$ C.O. % 10/19 $115,213.59 $2,000 Insp $115,213.59 4.0% $10,000 PM/Sr. Engr. 0.0% $20,000 DivM 0.0% $25,000 Chief 0.0% $35,000 AGM 0.0% $75,000 GM 0.0% >$75,000 Board 0.0% CHANGE ORDER LOG P:\WORKING\CIP P2574 12-Inch PL Replacement, 978 Zone, Vista Vereda\Construction\Change Orders\COLOG 1 10/10/2019 STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Lisa Coburn-Boyd Environmental Compliance Specialist PROJECT: S1210- 025000 DIV. NO. 3,5 APPROVED BY: Bob Kennedy, Engineering Manager Dan Martin, Assistant Chief, Engineering Rod Posada, Chief, Engineering Mark Watton, General Manager SUBJECT: Statewide General Waste Discharge Requirements for Sanitary Sewer Systems – Approval of the 2019 Five Year Update of the Otay Water District’s Sewer System Management Plan GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) approves the 2019 five Year update of the District’s Sewer System Management Plan (SSMP). COMMITTEE ACTION: Please see Attachment A. PURPOSE: The California State Water Resources Control Board Order No. 2006- 003-DWQ, Statewide General Waste Discharge Requirements for Sanitary Sewer Systems requires a five year update and re-certification of the SSMP developed for the District under the Order. AGENDA ITEM 7h 2 ANALYSIS: On May 2, 2006, the State Water Resources Control Board (SWRCB) issued Order No. 2006-003, the Statewide General Waste Discharge Requirements (WDRs) for sanitary sewer systems. These WDRs are the regulatory mechanism for all agencies that own or operate sanitary sewer collection systems greater than one mile in length that collect and/or convey untreated or partially treated wastewater to a publicly owned treatment facility. The ultimate goal of the WDRs is to reduce the frequency and volume of sanitary sewer overflows (SSO’s) by requiring Districts, sewer agencies, cities, and other entities to properly operate, maintain, and manage their wastewater collection system. According to the WDRs, each agency must develop and implement a system-specific SSMP and re-certify the document every five (5) years. The District’s SSMP was finalized and approved by the Board on July 1, 2009. The Board of Directors approved the first five-year re-certification of the SSMP on January 7, 2015. This is the second five-year recertification. The SSMP has been updated with new exhibits and the most recent CIP sewer project list. Many of the supporting documents for the SSMP are now kept on the District’s intranet for quick and easy access. The WDR’s also require internal bi-annual audits of the SSMP to identify deficiencies and evaluate the effectiveness of the plan. The most recent audit was completed in April, 2018. Staff concluded that the SSMP continues to be effective and incorporated minor updates to the SSMP as a result of this audit. The next audit will occur in April, 2020. Staff recommends that the Board approve the 2019 update of the District’s SSMP which satisfies the state Waste Discharge Requirements of recertification every five years. The completed SSMP is included as Attachment B. FISCAL IMPACT: Joe Beachem, Chief Financial Officer None. STRATEGIC GOAL: This Project supports the District’s Mission statement, “To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsible manner” and the General Manager’s Vision, "To be a model water agency by providing stellar service, achieving measurable results, and continuously improving operational practices." 3 GRANTS/LOANS: Not applicable. LEGAL IMPACT: None. LC-B/BK:jf P:\WORKING\CIP S1210 (SSMP & WWMP)\Subproject 025000 - SSMP\Staff Reports\BD 11-06-19_SSMP Update Recert. Staff Report (LCB-BK).docx Attachments: Exhibit A – OWD Sewer System Map Attachment A – Committee Action Attachment B – 2019 SSMP Update ATTACHMENT A SUBJECT/PROJECT: S1210-025000 Statewide General Waste Discharge Requirements for Sanitary Sewer Systems – Approval of the 2019 Five Year Update of the Otay Water District’s Sewer System Management Plan COMMITTEE ACTION: The Engineering, Operations, and Water Resources Committee (Committee) reviewed this item at a meeting held on October 23, 2019, and the following comments were made: • Staff provided a background of the District’s Sewer System Management Plan (SSMP). It was noted that in 2006, the State Water Resources Control Board issued Statewide General Waste Discharge Requirements (WDR) for sanitary sewer systems. Page 2 of the staff report provides details of the SSMP background. • As stated in the staff report, the District’s SSMP was finalized and approved by the Board in 2009. The first five-year re- certification of the SSMP was approved by the Board on January 7, 2015. • Staff indicated that the most recent update of the SSMP includes new and updated exhibits and the most recent CIP sewer project list. • It was noted that internal bi-annual audits of SSMPs are required to identify deficiencies and evaluate the effectiveness of the plan. Staff stated that the most recent audit of the District’s SSMP was completed in April 2018. It was determined that the SSMP continues to be effective and incorporated minor updates to the plan as a result of the audit. • Staff recommended that the Board approve the 2019 update of the District’s SSMP, which satisfies the WDR of recertification every five years. Following the discussion, the committee supported staff’s recommendation and presentation to the full board as a consent item. Exhibit A SEWER SYSTEM MANAGEMENT PLAN for the OTAY WATER DISTRICT 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA 91978-2004 www.otaywater.gov Version VII October, 2019 ATTACHMENT B 2 Table of Contents Section SSMP Component Page I .....................................Goals 3 II.....................................Organization 5 5 III....................................Legal Authority 10 IV ...................................Operations and Maintenance Program 14 V ....................................Design and Construction Standards 25 VI ...................................Emergency Response Plan 26 VII ..................................FOG Control Plan 34 VIII.................................System Evaluation and Capacity Assurance 38 IX ...................................Monitoring, Measurement and Program 42 X. ...................................Program Audits 45 XI.………………………………..Communication Program 52 XII.……………………………….Documents and Procedures 57 XIII……………………………….Record of Revisions 64 Exhibits II-A..................................District Organizational Chart 8 II-B..................................SSO Response & Reporting Work Flow Plan 9 5 IV-A.................................OWD Sanitary Sewer System 17 IV-B.................................OWD Facility Map Example 18 IV-C.................................POSM Report 19 VI-A.................................SSO Response & Reporting Work Flow Description 28 VI-B.................................SSO Response & Reporting Work Flow Plan 31 VII...................................Warm Spot Maintenance Sites 36 VIII..................................OWD CIP Budget & Schedule 41 X.…………………………………..Audit Checklist 47 XI..…………………………………Communication & Media Examples 55 3 SECTION I - GOALS The Requirement The goal of the SSMP is to provide a plan and schedule to properly manage, operate, and maintain all parts of the sanitary sewer system. This will help to reduce and prevent sanitary sewer overflows (SSOs), as well as mitigate any SSOs that do occur. Goals 1. Properly manage, operate and maintain all parts of the wastewater collection system to provide reliable and uninterrupted service 99% of the time. 2. Provide adequate capacity for the Otay Water District (District) to convey peak flows and reduce annual inflow and infiltration in the collection system. 3. Take all feasible steps to eliminate or reduce SSOs to less than two (2) per year, declining over time to zero. 4. Mitigate the impact of SSOs utilizing safe, practical, proven and effective methods. 5. Set up Overflow Emergency Response Program and provide Operations and Maintenance (O & M) training for all personnel who are involved in responding to Sewer System Overflows. DISTRICT BACKGROUND Sanitary Sewage Collection, Treatment and Disposal The District provides sewer service to approximately 15,000 customers located in the northern section of the District. The District operates and maintains the sewage collection system serving Rancho San Diego, Singing Hills and portions of Mount Helix within the Middle Sweetwater River Basin, also known as the Jamacha Basin. Residential customers comprise 97.5% of the customer base. Commercial accounts, including restaurants comprise 2.5% of the sewer customer base. Growth per year is anticipated to be less than 1% in future years. Wastewater collection within the Jamacha Basin is provided by two agencies: the Otay Water 4 District and the County of San Diego Sanitation District. Customers in the basin, not served by either agency, dispose of their sewage through septic tanks. After the sewage has been collected by the District, iabout 80% of the wastewater is sent to the District’s Ralph W. Chapman Water Recycling Facility (RWCWRF) treatment plant where the District produces recycled water. The solid by-product of this treatment process is called sludge and it is discharged by the District to the San Diego Metropolitan Wastewater (Metro) and the County of San Diego Sanitation District systems. Sanitary Sewage Overflow Reduction The District is fully committed to reducing SSOs in order to decrease the risk to both human health and the environment. The number and size of SSOs generally can be reduced, if not prevented, through the application of sound and appropriate operation, infrastructure maintenance, and management principles to wastewater collection systems. In accordance with SWRCB, Order No. 2006-0003 of May 2006 entitled, and associated supplements and regional requirements to, “Statewide General Discharge Requirements for Sanitary Sewer Systems,” all sanitary sewer systems over one mile in length are required to implement a Sanitary Sewer System Management Plan (SSMP). The District took formal board action on November 7, 2007 to approve their Plan and Schedule to implement their District-wide Sewer System Management Plan (SSMP). In addition, the District will follow the requirements of the San Diego Region’s supplements to the “Statewide General Discharge Requirements” pursuant to their letter of March 2007. The District has developed and will implement this District-wide SSMP. It includes the applicable elements that provide for the proper and cost effective management, operation, and maintenance of its collection systems, while taking into consideration risk management and cost benefit analysis. The District has already implemented measures to reduce SSOs, and utilizes the statewide electronic reporting system for SSOs. 5 SECTION II - ORGANIZATION Requirement The referenced State Order requires the following: (a) The name of the responsible or authorized representatives as described in Section J of the May 2006 Order. (b) The names and telephone numbers for management, administrative, and Maintenance positions responsible for implementing specific measures in the SSMP program. The SSMP must identify lines of authority through an organization chart or similar document with a narrative explanation; and (c) The chain of communication for reporting SSOs, from receipt of a complaint or other information, including the person responsible for reporting SSOs to the State and Regional Water Board and other agencies if applicable (such as County Health Officer, County Environmental Health Agency, Regional Water Board, and/or State Office of Emergency Services (OES)). Supporting Documents A narrative of the organizational responsibilities, a list of the key staff members and an organizational chart is included in this section. a. List of responsible staff members in the District and the Operations Department. List of Management and Responsible District Staff District Organizational Chart of Operations Department b. Phone list of responsible staff members. Phone List of Responsible District Staff and Management c. The chain of communication for reporting SSOs. Otay Water District Sanitary Sewer Overflow Response and Reporting Work Flow Plan. 6 Otay Water District Operations Department List of Management and Responsible District Staff: General Manager is responsible for the overall operation of the District and all of its employees, finances, functions and operations. Reports directly to the District’s Board of Directors. Chief, Water Operations and/or Assistant Chief, Water Operations will ensure that new and rehabilitated assets meet required standards, will assure that staff is trained as required by SSMP standards, will prepare for working with District field crews to handle emergencies when contractors are involved and provide verbal reports to the Board and General Manager’s office. Utility Maintenance Supervisor and/or Reclamation Plant Supervisor manages field operations and maintenance activities, provides relevant information to agency management, prepares and implements contingency plans, leads emergency response, investigates and reports SSOs and trains field crews Assistant Chief, Water Operations and/or Systems Operations Manager oversees all work needed to complete the operations training required by the SSMP, compiles and includes the updated operations information into the SSMP and coordinates with the assigned Engineering Staff, oversees all field operations, responses, activities and reports to the Chief, Water Operations. Lead Reclamation Plant Operator staffs preventive maintenance activities, mobilizes and responds to notification of stoppages and SSOs (mobilizes sewer cleaning equipment, bypass pumping equipment, and portable generators). Reclamation Plant Operator(s) responding to a spill is responsible for applying best management practices for spill containment until the Utility Workers arrive with collection system maintenance equipment. The Reclamation Plant Operator provides the Utility Workers with any additional information on the spill obtained after they arrive on site. The plant operator also operates/troubleshoots lift station equipment and/or uses blockage-removal hand tools to remove the cause or lessen the severity of the spill. Additionally, the plant operator captures all field data used for reporting and forwards it to the Lead Operator and/or Plant Supervisor Utility Crew Workers assigned to the collection system on a long-term basis are responsible for responding to the spill when notified, removing blockages, and determining the cause of the spill. After normal working hours the standby Reclamation Plant Operator directly notifies the standby-duty Utility Crew Leader who will then call their standby Utility Worker crew to respond to the overflow site. 7 Customer Service Staff who receive a call about a spill or potential spill from an outside or inside source during normal working hours, creates a CMMS work request for the Reclamation Plant Supervisor, and makes immediate contact with the supervisor or Lead Reclamation Plant Operator, or any available Reclamation Plant Operator. After normal business hours the answering service receives a call from an outside source and notifies the standby duty Reclamation Plant Operator The names and telephone numbers for management, administrative, and maintenance positions responsible for implementing specific measures in the SSMP program are listed below followed by an organization chart (Exhibit II-A) which identifies lines of authority. A work flow plan (Exhibit II-B) is also included to identify the correct response to a spill. Phone List of Responsible District Staff and Management General Manager 619-670-2280 Chief, Water Operations 619-670-2224 Asst. Chief, Water Operations 619-670-2235 Systems Operations Manager 619-670-2230 Utility Maintenance Supervisors 619-670-2285 619-670-2229 Reclamation Plant Supervisor 619-670-2271 Lead Reclamation Plant Operator 619-670-2272 Customer Service 619-670-2222 24-hour Phone 619-670-2207 8 EXHIBIT II-A District Organizational Chart of Operations Department Otay Water District Board of Directors General Manager Chief, Water Operations ------------------------------------- Asst. Chief of Operations Asst. Chief of Operations ------------------------------------- System Operations Manager Reclamation Plant Supervisor ------------------------------------- Utility Maintenance Supervisor Reclamation Plant Operator --------------------------------- Utility Workers 9 CMMS Work Request Forwarded EXHIBIT II-B Sanitary Sewer Overflow Response and Reporting Work Flow Plan OR OR CUSTOMER SERVICE Creates a CMMS Work Request Outside Source or Operations/Field Staff Observes Sewer Spill REC PLANT SUPERVISOR LEAD REC PLANT OPERATOR RECLAMATION PLANT OPERATOR SYSTEM OPERATIONS MANAGER and UTILITY SERVICES MANAGER and/or CHIEF OF OPERATONS LEAD / REC PLANT OPERATOR Monitors capture of overflow report data UTILITY CREW LEADER and/or UTIITY MAINTENANCE SUPERVISOR calls in their stand-by UTILITY WORKERS to respond to the overflow DESIGNATED REGULATORY AGENCIES NOTIFIED LEAD/REC PLANT OPERATOR – Creates an internal preliminary report REC PLANT SUPERVISOR Reviews internal preliminary report LEAD/REC PLANT OPERATOR Enters data in CIQWS under the “submit data” status SYSTEM OPERATIONS MANAGER and/or CHIEF OF OPERATIONS Reviews and accepts report data submitted and updates the report status to “ready to clarify” After Hours Answering Service Notifies Stand-by Crew Dispatched to SSO Informs OPS of SSO Updates Supvsr of SSO Spill Reported 10 SECTION III – LEGAL AUTHORITY Requirement Each Enrollee must demonstrate, through sanitary sewer system use ordinances, service agreements, or other legally binding procedures, this it possesses the necessary legal authority to: (a) Prevent illicit discharges into its sanitary sewer system; (b) Require that sewers and connections be properly designed and constructed; (c) Ensure access for maintenance, inspection, or repairs for portions of the lateral owned or maintained by the Public Agency; (d) Limit the discharge of fats, oils, and grease and other debris that may cause blockages, and (e) Enforce any violation of its sewer ordinance. Existing Legal Authority The District possesses the necessary legal authority to prevent, require, ensure, limit and enforce specific features and operations required by the State Order. A summary of the relevant sections of the District Code of Ordinances and other adopted documents is shown in the table below. Legal Authority to: Existing Authority: a. Prevent illicit discharges into sanitary sewer system CO: § 52.04 & b. Requires that sewers and connections be properly designed and constructed CO: § 60.08 c. Ensures access for maintenance, inspection or repairs for all portions served by the District, and to determine if they are complying with the rules of the District concerning sewer services CO: § 51.03 d. Limit the discharge of fats, oils and grease and other debris that may cause blockages CO: § 52.06 e. Enforce any violation of District sewer policies CO: § 52.03 11 OTAY WATER DISTRICT CODE OF ORDINANCE 52.04 PROHIBITIONS AGAINST DISCHARGE OF OBJECTIONABLE WASTES It shall be unlawful for any person to discharge or permit the discharge of any substance into the District sewer system that could cause a public nuisance or hazard to life, or that could be harmful to the District sewer system or its wastewater reclamation facilities or processes. Discharge of the following into the District sewer system is expressly prohibited:  gasoline, cleaning solvent, fuel, oil;  ashes, sand, cinders, rocks;  tar, plastics, other water insoluble viscous materials;  mineral oils, lubricating oils;  feathers, hair;  rags, sanitary napkins, disposable diapers;  broken glass, metal, wood and plastic shavings;  unground garbage;  swimming pool drainwater;  wastes which contain or result in the production of toxic, corrosive and explosive gases;  animal or dairy waste;  cesspool and septic tank wastes;  or any other substance, material or liquid that could be harmful to the District sewer system. 52.05 GUIDELINES TO DETERMINE ACCEPTABILITY OF WASTES The following provisions and the values set forth herein are not to be regarded or construed as regulating or limiting the quantity or characteristics of any specific wastes which may be received into the sewer system, but such shall serve as a guide in implementing this Section for regulation of the use of the District sewer system and for determination of acceptability of waste into the sewer system. In considering the following sewage characteristics, the dilution effect of the sewage at the point of discharge or any affected part of the system, and whether or not unusual attention or expenses would be required to handle such material in the sewer system, shall be taken into consideration: A. The discharge into the District sewer system of any water or waste having an average daily flow greater than one percent (1%) of the average daily flow at the sewage treatment plan shall be subject to review. B. The temperature of industrial waste discharged into the sewer system should not exceed 140 degrees Fahrenheit. C. Industrial wastes having a grease and oil concentration in excess of 200 ppm will be considered on a case-by-case basis to determine if the sewer system can 12 safely receive said wastes. D. Industrial discharge of toxic or radioactive wastes into the sewer system will be considered on a case-by-case basis. E. Industrial discharge of wastes having a biochemical oxygen demand (BOD) in excess of 300 ppm will be considered on a case-by-case basis to determine if the sewer system can safely receive said wastes. F. Industrial discharge of wastes having suspended solids in excess of 300 ppm will be considered on a case-bycase basis to determine if the sewer system can safely receive said wastes. To make such determination, the following procedures shall apply: 1. Where warranted, installation of an appropriate manhole for purposes of sampling the final industrial waste discharge may be required. 2. The source to be used for the chemical and bacteriological analysis shall be the "Standard Methods for the Examination of Water and Sewage," latest edition, approved by the Joint Committee of the Public Health Association, Federation of Sewage and Industrial Waste Association and American Water Works Association. 60.08 REQUIREMENT FOR APPROVED PLANS AND CONSTRUCTION AGREEMENT A. Developer shall prepare detailed engineering drawings for construction of the proposed system shown on the tentative map and submit such drawings to the District for review and approval. Each system shall provide for water service and/or sewer service, where applicable, to each lot in a subdivision and to each parcel in a parcel map development. The utility system proposed shall not be detrimental in any way to operation of the District utility system and shall conform to the requirements of the approved SAMP. B. The General Manager shall review the construction drawings and either accept, reject, or revise them for compliance with District standards and specifications. Upon approval of the drawings, the General Manager shall return them to the Developer with the following: (i) District estimates for construction costs and the amount of additional District deposit; (ii) the required standard District agreement for installation of water or sewer facilities; and (iii) the amount of security required to guarantee performance of the agreement. C. Developer shall return to the District the revised drawings, if required, the executed subdivision construction agreement, together with the required deposits and security, either cash, surety bond, or letter of credit, acceptable to the General Manager, and the grant of easements or rights-of-way that may be required. If such are complete, and the proposed subdivision has been annexed into an Improvement 13 District, the Construction Agreement for the project will be authorized by the General Manager. D. Upon approval of the construction agreement by the General Manager, the Developer shall submit the mylar construction plans for signature by the General Manager. 51.03 INSPECTION OF CUSTOMER PREMISES Authorized District personnel shall have unrestricted access at reasonable hours to all premises served by District sewers for inspection and testing purposes, and to determine whether the customer is complying with the rules, regulations and ordinances of the District concerning sewer services. 52.06 DISCHARGE OF INDUSTRIAL WASTE Any person or governmental agency desiring to discharge industrial wastes into the District sewer system shall obtain a permit from the District for the discharge of said wastes. The District may require installation of on-site facilities by the discharger for purposes of pretreatment of sewage before industrial waste can be discharged into the District sewer system. 52.03 ENFORCEMENT OF DISTRICT RULES AND REGULATIONS The General Manager shall enforce rules and regulations set forth in this Code relating to District sewer service. The General Manager shall be authorized to take such action as he deems necessary for preservation of public health or safety, or for the protection of public or private property. The General Manager may suspend sewer service to any customer using the District sewer system in a manner that would endan- ger the public health or safety, or public or private property. In suspending such service, the Customer's connection to the District sewer system may be severed. If danger is imminent, the General Manager may act immediately to suspend sewer service coincident with giving notice or warning to the customer. 14 SECTION IV – OPERATIONS AND MAINTENANCE PROGRAM Requirement (a) Maintain an up-to-date map of the sanitary sewer system, showing all gravity line segments and manholes, pumping facilities, pressure pipes and valves, and applicable stormwater conveyance facilities; (b) Describe routine preventative operation and maintenance activities by staff and contractors, including a system for regular maintenance and cleaning of sanitary sewer system with more frequent cleaning and maintenance targeted at know problem areas. The Preventative Maintenance program should have a system to document scheduled and conducted activities, such as work orders; (c) Develop a rehabilitation and replacement plan to identify and prioritize system deficiencies and implement short-term and long-term rehabilitation actions to address each deficiency. The program should include regular visual and TV inspections of manholes and sewer pipes, and a system for ranking the condition of sewer pipes and scheduling rehabilitation. Rehabilitation and replacement should focus on sewer pipes that are at risk of collapse or prone to more frequent blockages due to pipe defects. Finally, the rehabilitation and replacement plan should include a capital improvement plan that addresses proper management and protection of the infrastructure assets. The plans shall include a time schedule for implementing the short- and long-term plans plus a schedule for developing the funds needed for the capital improvement plan; (d) Provide training on a regular basis for staff in sanitary sewer system operations and maintenance, and require contractors to be properly trained; and (e) Provide equipment and replacement part inventories, including identification of critical replacement parts. 15 Supporting Documents A summary of the District’s measures and activities related to this section and the supporting official documents are shown in Table IV. Table IV – Operations & Maintenance Program Supporting Documents Items Required Supporting Documents a. Maintain an up-to-date map of the sanitary sewer system Water and Sanitary Sewer Facility Maps Created via GIS Maintained by In- House Engineering Department. Note: These documents are updated as necessary to reflect modifications and additions to the utility system. b. Describe routine preventative operation and maintenance activities by staff and contractors Otay Water District Operation and Maintenance Procedures—Preventative Maintenance Schedule set up to address wastewater conveyance facilities requiring more maintenance than normal based upon past District records. c. Develop a rehabilitation and replacement plan to identify and prioritize system deficiencies and implement short-term and long term rehabilitation actions to address each deficiency The District’s yearly Capital Improvement Program includes planned short term and long term rehabilitation and replacement wastewater facilities improvements that reflect the prioritized needs of the District over the planning horizon. d. Provide training on a regular basis for staff in sanitary sewer system operations and maintenance, and require contractors to be properly trained Otay Water District Operation and Maintenance Procedures—Training per Collection System Procedures Manual. Conduct regular training of contractors/vendors. e. Provide equipment and replacement part inventories, including identification of critical replacement parts. Otay Water District Operation and Maintenance Procedures - Equipment and Parts Inventory. 16 Sanitary Sewer System Mapping The District’s Sanitary Sewer System is maintained on a modern Geographic Information System (GIS), capable of providing a wireless link from the District’s computer server to operations crews located throughout the District’s service area. In addition, each crew has the District’s sewer system loaded on their laptop computers in the rare event that they are out of range of the wireless connections. The District’s Sanitary Sewer System is shown in Exhibit IV-A. This exhibit includes the District’s primary collection mains, lift stations, force mains and 1.3 MGD water reclamation plant. Exhibit IV-B is a typical 400 scale Facility Map sheet that has been completed for the entire District Sewer System. These sheets provide a hard copy of the District’s sewer system to assist Operations staff in servicing the wastewater collection system’s and the District’s customers’ needs. Routine Preventative Maintenance Activities In order to proactively reduce repairs and the chance for SSO events within the District’s service area, the Operations Department staff has developed a detailed list of preventative maintenance procedures for their wastewater collection and treatment system. All preventative and corrective maintenance of the collection system are captured at the asset level by utilizing Computerized Maintenance Management System (CMMS) work orders. The District also uses Pipeline Observation System Management (POSM) data collection software to track any closed circuit television (CCTV) observations and cleaning of the sewer collection system. An example of a POSM report is included as Exhibit IV-C. Specific elements of the preventative maintence procedures includes the following elements: Sewer Main Cleaning The objective of the sewer main cleaning program is to clean the entire system once every two years using a Vactor brand high-velocity combination truck. Each appurtenance in the sewer collection system is assigned a unique asset number. All preventative and corrective maintenance of the collection system is captured at the asset level by utilizing CMMS work orders. 17 Exhibit IV – A Otay Water District Sanitary Sewer System 18 Exhibit IV – B Otay Water District Facility Map Example 19 Exhibit IV-C POSM Report 20 Exhibit IV-C POSM Report, continued 21 Manhole Inspection Regular high-velocity cleaning of gravity sewer mains and inspections of manholes is scheduled by utilizing CMMS work order templates that have been created for the entire system. These work order templates are organized into groups in the order in which cleaning should take place throughout the three sections of the system, Calavo Gardens, Hidden Mountain, and Rancho San Diego. All manholes are inspected as the sewer main is cleaned. Work orders are manually created by the operators as maintenance is completed. Preventative maintenance and inspection of manholes in remote easements and environmentally sensitive areas as well as the five lift stations have been scheduled with a higher frequency. Work orders are automatically generated for these assets by the CMMS. Maintenance activities for lift station include valve and pump component replacements, oil and belt changes, and wet well cleaning. Maintenance for manholes includes overall condition assessment, debris removal, herbicide application, and minor structural repairs. Additional Cleaning for High Maintenance Areas Regular cleaning of enhanced maintenance areas is scheduled and determined by conditions observed during past inspections and preventative and corrective maintenance conducted in the field. Work orders for these areas are automatically generated by the CMMS on a weekly, monthly, semi-annual, and annual basis. A list of these sewer mains and manholes is continuously updated and evaluated by the operators as maintenance is performed throughout the system. Force Main Inspection and Cleaning Conditions of force mains are determined by routine lift station calibration on a yearly basis to identify changes in capacity and discharge head pressure. Work orders for these activities are automatically generated by the CMMS. Treatment Plant Preventative Maintenance The preventative maintenance program for the Sewage Treatment (Reclamation) Plant is documented through automatically generated CMMS work orders scheduled on a weekly, bi-weekly, monthly, semi-annual, and yearly basis. Rehabilitation and Replacement Prioritization The District’s yearly Capital Improvement Program (CIP) includes detailed planned short term and long term rehabilitation and replacement of wastewater facilities improvements that reflect the prioritized needs of the District over the planning horizon. 22 Project are described and funded each year so that they can be designed in-house or out-sourced for design and constructed prior to a sewer facility failure occurring and resulting in a SSO event. CIP projects are prioritized upon immediate need and the consequences of failure, on a scale of 1 to 10, with a score of 10 reflecting the highest priority and in the most immediate need of replacement. Short term and long term rehabilitation and replacement plans are reflected in the CIP effort as a wide range of projects, ranging from immediate and high priority projects to low priority, long range projects. The process to determine whether to rehabilitate versus replace is included within each project’s Preliminary Design Report phase (30% complete phase). The primary decision is the impact of a facility failure and threat of a SSO event if the facility is not rehabilitated or replaced within a certain period of time. Manholes identified as needing minor repairs after inspection, (i.e. grade elevation, cover/ring and exterior re-grouting, cover replacement, minor bench and channel repairs and inflow issues) are performed by the collection system and utility maintenance section staff. Manhole repair work with factors such as high traffic areas, deep manholes, and accessibility issues are considered for contracting to an outside service. Manholes with more critical conditions are identified and placed on a list for outsourced rehabilitation by a contracted service. Condition defects such as internal grouting needs, concrete degradation, infiltration, and manholes which need to be replaced fall into this category. All work is documented at the asset level in the CMMS. Funds are budgeted on a yearly basis to cover the costs of these manhole rehabilitation options. Gravity sewer pipeline and manhole conditions are observed and documented during the course of the District’s CCTV inspection program. Televised sewer main and manhole inspection records are downloaded into the District’s GIS and CMMS applications. The engineering department evaluates these records to determine which appurtenances will be addressed in-house or entered into a replacement CIP program for the following year. Regular Training for Sanitary Sewer System Staff Collection System and Reclamation Plant section staff responsible for maintaining the sewer mains and lift stations are regularly trained in both maintenance procedures and general safety policies and procedures. Training is provided by section supervisors and leads, the District Safety and Security Administrator, other designated employees, and by outsourced training facilities. Additional training is also required through a District- contracted online training firm. Examples of some of the regular training courses are listed below:  Confined Space Entry General Safety (Initial before entry) [Refresher every 2 years] 23  AC Pipe & Annual Refresher - (Annual refresher course)  Trenching & Shoring - Competent Person - (Initial seminar before working in trenches < 4') [Refresher every 3 years + periodic on-line refresher]  Vehicle Incident Reporting Procedure, Report Form, and Fleet-Vehicle Driving & Parking - (Annual Review - Supervisor's call) Utility Worker II positions assigned to the collection system section on a long-term basis are required to maintain a Collection System Maintenance Grade I certification administered by the California Water Environment Association (CWEA). All collection system and reclamation plant section staff are trained in all written procedures related to the collection system as appropriate for their job responsibilities. Staff also utilizes industry standard training manuals, vendor and CWEA training events, and manufacturer equipment manuals. Routine safety training for maintenance-related activities is scheduled by the Safety and Security Administrator and the Reclamation Plant and Utility Maintenance section supervisors according to regulatory and District requirements. Additional on-the-job maintenance and operation training is provided to a new section member by a more experienced operator. Additionally, details describing methods and techniques needed for specific recurring maintenance activities in the collection system are listed in the CMMS work order templates for sections in which they will need to be applied. All training records for District staff and required proof of certification are maintained on the District’s Intranet system and are available upon request. Vendors are required to adhere to all Cal-OSHA safety standards when contracted for work by the District. In some circumstances, such as confined space entries and working within the reclamation plant, District policy requires that vendors receive additional documented safety training prior beginning their work. Additionally, staff is trained in collection system-specific activities using procedures located electronically on the Otay Information System (OIS) and as hardcopy in the Collection System Procedures Manual. Equipment and Replacement Part Inventories Materials used for emergency response and repairs are available at the Sewage Treatment (Reclamation) Plant, the Operations Warehouse, and the Operations Main Storage Yard. Materials are routinely inventoried to verify adequate supplies. Equipment used for emergency response is in use or stored at the District’s Reclamation Plant and Operations Main Yard. Routine preventative maintenance is performed for all equipment and is documented in CMMS. Other resources which can be used to respond to a sewage spill include contractors who are able to provide repairs and services and suppliers to provide repair supplies. 24 Additionally, the District has entered into a Shared Services Agreement with surrounding local water and wastewater agencies to provide equipment and personnel in the event of an emergency. Agency and vendor contact information is included in approved response procedures where appropriate. A list of all equipment, materials, and supplies used for preventative and corrective maintenance in the collection system is maintained on the Districts intranet system and updated periodically. This comprehensive inventory of equipment used accounting of equipment used and also includes a list of traffic equipment . The sewer pipeline and lift station inventory items are considered critical replacement parts. 25 SECTION V - DESIGN AND CONSTRUCTION STANDARDS Requirement a. Design and construction standards and specifications for the installation of new sanitary sewer systems, pump stations and other appurtenances; and for the rehabilitation and repair of existing sanitary sewer systems; and b. Procedures and standards for inspecting and testing the installation of new sewers, pumps, and other appurtenances and for rehabilitation and repair projects. Supporting Documents The District has adopted the Water Agency Design Guidelines (WASD) and the Water Agency Standards (WAS) as the District’s design and construction standards, and specifications for construction details to install, rehabilitate, repair, test and inspect new and existing sewers and pump stations constructed within the District’s service area. These design and construction standards can be found online, on the website, San Diego Water Agency Standards (www.sdwas.org). Each design guideline document, standard design drawings and standard specifications can be found at the following locations on the website: Design Guidelines Gravity Sewer Pipeline: sdwas.org/Design-Guidelines#Sewerdesign (Sect. 6.1) Sewer Manholes and Cleanouts: sdwas.org/Design-Guidelines#Sewerdesign (Sect. 6.2) Sewer Laterals: sdwas.org/Design-Guidelines#Sewerdesign (Sect. 6.3) Pressure Systems (Force Mains): sdwas.org/Design-Guidelines#Sewerdesign (Sect. 6.4) Standard Specifications Standard Specifications for Potable Water, Recycled Water and Sewer Facilities: sdwas.org/Standard-Specifications Standard Drawings Standard Drawings for Potable Water, Recycled Water and Sewer Facilities: sdwas.org/Standard-Drawings/Standard-Drawings-Sewer 26 SECTION VI - EMERGENCY RESPONSE PLAN Requirement Each Enrollee shall develop and implement an overflow emergency response plan that identifies measures to protect public health and environment. At a minimum, this plan must include the following: (a) Proper notification procedures so that the primary responders and regulatory agencies are informed of all SSOs in a timely manner; (b) A program to ensure an appropriate response to all overflows; (c) Procedures to ensure prompt notification to appropriate regulatory agencies and other potentially affected entities (e.g. health agencies, Regional Water Boards, water suppliers, etc.) of all SSOs that potentially affect public health or reach the waters of the State in accordance with the MRP. All SSOs shall be reported in accordance with this MRP, the California Water Code, other State Law, and other applicable Regional Water Board WDRs or NPDES permit requirements. The SSMP should identify the officials who will receive immediate notification; (d) Procedures to ensure that appropriate staff and contractor personnel are aware of and follow the Emergency Response Plan and are appropriately trained; (e) Procedures to address emergency operations, such as traffic and crowd control and other necessary response activities; and (f) A program to ensure that all reasonable steps are taken to contain and prevent the discharge of untreated and partially treated wastewater to waters of the United States and to minimize or correct any adverse impact on the environment resulting from the SSOs, including such accelerated or additional monitoring as may be necessary to determine the nature and impact of the discharge. 27 Supporting Documents The Otay Water District has developed the enclosed narrative entitled “Exhibit VI-A Sanitary Sewer Overflow Response and Reporting Work Flow Description” describing the roles and duties of each staff member during a SSO event. In addition the District developed their own “Sanitary Sewer Overflow Response and Reporting Work Flow Plan”, included here as Exhibit VI-B. District Operations staff have been instrumental in the development of the plan since its inception in 2004 through its initial October 2007 revision, the May 2009 revision, and continues to present day. The plan contains all of the elements required by the SSMP. The policy requires that District employees report all wastewater overflows found and to take the appropriate action to secure the wastewater overflow area, relieve the cause of the overflow, and ensure that the affected area is cleaned as soon as possible to minimize health hazards to the public and protect the environment. The District’s goal is to respond to sewer system overflows during the regularly scheduled workday within 30 minutes. After hours response time is dependent on the location of the assigned stand-by personnel but the typical response time is generally less than one hour. 28 Exhibit VI—A Sanitary Sewer Overflow Response and Reporting Work Flow Description Customer Service: During normal working hours Customer Service receives a call from an outside or inside source and creates a CMMS work request to the Reclamation Plant Operators. After normal business hours the answering service receives a call from an outside source and notifies the standby duty Reclamation Plant Operator Reclamation Plant Supervisor: The supervisor dispatches Lead/Reclamation Plant Operator to the site and informs the Utility Maintenance Supervisor(s), System Operations Manager and/or the Chief of Operations. The Lead/Reclamation Operators on site inform the Reclamation Plant Supervisor of the characteristics of the spill in order to assess the need for additional District resources or if outside services may be needed. The Reclamation Plant Supervisor monitors the capture of overflow report data and supervises the compilation of a draft report. The Supervisor notifies the designated regulatory agencies as required by the waste discharge permit reporting program’s classification of spills. The supervisor reviews the preliminary report data with the Lead Operator prior to online reporting via the State Water Resources Control Board’s online California Integrated Water Quality System (CIWQS). The Reclamation Plant Supervisor and the Lead Reclamation Plant Operator are authorized CIWQS data-submitters Lead Reclamation Plant Operator: The Lead Reclamation Plant Operator monitors the capture of overflow report data in the field and updates the Reclamation Plant Supervisor with the current status of the spill so that the need for additional District resources and/or outside services can be determined. The Lead Reclamation Plant Operator creates an internal preliminary report and enters the data into the CIQWS under the “submit data” status after review with the Reclamation 29 Plant Supervisor and/or the Utility Maintenance Supervisor(s). Additionally the lead operator is responsible for performing all spill response activities of the Reclamation Plant Supervisor in his/her absence or as directed. Reclamation Plant Operator: The Reclamation Plant Operator(s) responding to the spill is responsible for applying best management practices for spill containment until the Utility Workers arrive with collection system maintenance equipment. The Reclamation Plant Operator provides the Utility Workers with any additional information on the spill after they arrive on site. The plant operator also operates/troubleshoots lift station equipment and/or uses blockage-removal hand tools to remove the cause or lessen the severity of the spill. Additionally, the plant operator captures all field data used for reporting and forwards it to the Lead Operator and/or Plant Supervisor Utility Worker: The Utility Workers assigned to the collection system on a long-term basis are responsible for responding to the spill when notified, removing blockages, and determining the cause of the spill After normal working hours the standby Reclamation Plant Operator directly notifies the standby-duty Utility Crew Leader who will then call their standby Utility Worker crew to respond to the overflow site System Operations Manager: The System Operations Manager reviews report data submitted by the Lead Reclamation Plant Operator and/or the Reclamation Plant Supervisor prior to updating the report status to “ready to certify.” The System Operations Manager is a Legally Responsible Official for the District and certifies all sanitary sewer overflow reports in the CIWQS after the report has been submitted for certification by the Reclamation Plant Supervisor or the Lead Reclamation Plant Operator Chief/Asst. Chief of Operations: The Chief/Asst. Chief of Operations is also a Legally Responsible Official for the District and may certify final 30 reports in the CIWQS in the absence of the System Operations Manager General Manager: The General Manager is a Legally Responsible Official. The Chief of Operations and System Operations Manager are duly authorized representatives of the General Manager. 31 CMMS Work Request Forwarded Exhibit VI—B Sanitary Sewer Overflow Response and Reporting Work Flow Plan OR OR CUSTOMER SERVICE Creates an CMMS Work Request Outside Source or Operations/Field Staff Observes Sewer Spill REC PLANT SUPERVISOR LEAD REC PLANT OPERATOR RECLAMATION PLANT OPERATOR SYSTEM OPERATIONS MANAGER and/or CHIEF OF OPERATONS and/or ASST. CHIEF OF OPERATIONS LEAD / REC PLANT OPERATOR Monitors capture of overflow report data UTILITY CREW LEADER calls in their stand-by UTILITY WORKERS to respond to the overflow DESIGNATED REGULATORY AGENCIES NOTIFIED LEAD/REC PLANT OPERATOR – Creates an internal preliminary report REC PLANT SUPERVISOR Reviews internal preliminary report LEAD/REC PLANT OPERATOR Enters data in CIQWS under the “submit data” status SYSTEM OPERATIONS MANAGER and/or CHIEF OF OPERATIONS Reviews and accepts report data submitted and updates the report status to “ready to clarify” After Hours Answering Service Notifies Stand-by Crew Dispatched to SSO Informs OPS of SSO Updates Suprvisr of SSO Spill Reported 32 (d) Emergency Response Plan Training for Staff: Training for sanitary sewer overflow response is provided regularly to prepare participants for the conditions of an emergency, to visualize and practice response roles and to address procedural conflict and difficulties. Training includes the following techniques:  Tabletop Exercise: After review and discussion of established spill response procedures, a sewage spill event is simulated without the use of equipment or deployment of resources. A facilitator verbally explains the steps taken. Exercise effectiveness is determined by feedback from participants and impact on revisions to plans, procedures, and systems.  Emergency Response Drills: A sewage spill event is simulated with the use of equipment and deployment of resources. Controllers monitor and record actions. This type of exercise not only allows for the re-evaluation of response procedures, but it also tests equipment, response time, training, resource and staff capabilities. All drills have follow-up meetings to critique strength and weaknesses and to recommend improvements. (e) Procedures to Address Traffic and Crowd Control During SSO Events: Traffic control equipment will be employed whenever there is a need to divert traffic around a sewer spill. Traffic control equipment is stored at the reclamation plant and operations main yard. Equipment includes barricades, delineators, lighted sign-boards, traffic cones, lighted signs, flashers, and utility vehicles. Assistance with traffic control has been set up in advance with contracts with vendors to be used during responses to spills such as televised inspection contractors, pumping service vendors, and nearby agencies that participate in the District’s Shared Services Agreement. Crowd control can be handled similar to traffic control with the additional use of sewer spill notification signs, caution tape, and materials to rope-off an area affected by the spill until cleanup is completed. (f) Program to Contain and Prevent the Discharge of Wastewater to Waters of the United States: The District’s primary objective in sewer spill response is to protect the public health and the environment. Materials and equipment used for sewer spill response for the prevention of wastewater reaching Waters of the United States are stored at the reclamation plant in a designated area for sewer system maintenance and emergencies. Methods used to divert, contain and recover sewer flow from storm drains and bodies of water are listed in the Collection System Sewer Spill & Response procedure. Some of these methods and material include: 1. Use sandbags, fiber rolls and/or straw waddles to reduce spill volume to storm drains and bodies of water. 2. Dig diversion trenches and/or install silt fences to direct flow away from storm drains and bodies of water. 33 3. Build earth dams and detention ponds to contain wastewater flow until it can be recovered. 4. Use vactor truck to recover spill volume where possible. 5. Use pumps to transfer flow away from storm drains and bodies of water. The operation and maintenance training program ensures that these best management practices are reviewed, rehearsed, and updated during table-top exercises and emergency drills, and any time there is a significant change in equipment or operation of the collection system. Additionally, an CMMS-generated work order has been created for the annual review of spill-response procedures. 34 SECTION VII—FOG CONTROL PLAN Requirement Each Enrollee shall evaluate its service area to determine whether a FOG control program is needed. If an Enrollee determines that a FOG program is not needed, the Enrollee must provide justification for why it is not needed. If FOG is found to be a problem, the Enrollee must prepare and implement a FOG source control program to reduce the amount of these substances discharged to the sanitary sewer system. This plan shall include the following as appropriate: (a) An implementation plan and schedule for a public education outreach program that promotes proper disposal of FOG; (b) A plan and schedule for the disposal of FOG generated within the sanitary sewer system service area. This may include a list of acceptable disposal facilities and/or additional facilities needed to adequately dispose of FOG generated within a sanitary sewer system service area; (c) The legal authority to prohibit discharges to the system and identify measures to prevent SSOs and blockages caused by FOG; (d) Requirements to install grease removal devices (such as traps or interceptors), design standards for the removal devices, maintenance requirements, BMP requirements, record keeping and reporting requirements; (e) Authority to inspect grease producing facilities, enforcement authorities, and whether the Enrollee has sufficient staff to inspect and enforce the FOG ordinance; (f) An identification of sanitary sewer system sections subject to FOG blockages and establishment of a cleaning maintenance schedule for each section; and (g) Development and implementation of source control measures for all sources of FOG discharged to the sanitary sewer system for each section identified in (f) above. 35 FOG Control Program The Fats Oil and Grease (FOG) Program is normally a component of a SSMP for a wastewater collection agency with a large number of commercial customers and/or a history of FOG SSO events. The Otay Water District has carefully evaluated its service area and has determined that a FOG Control Program is not necessary for the District at this time based upon its SSO history and customer profile. The County of San Diego, whose sewer system (Spring Valley Sanitation District) intermingles with the District’s sewer system has also determined that a FOG Control Program is not necessary.1 The District has not had any SSO events due to FOG since before work began on the SSMP in 2007. The District has a total of 125 non-residential sewer customers and of those customers, only 26 are related to the food business. These 26 food-related sewer customers consist of a range of commercial customers from small convenience stores to a shopping center with a large grocery store and several small restaurants. Only six of the food-related businesses are actual restaurants. FOG may also be contributed by residential customers and several residential areas within the District system have historically experienced grease build-ups due to suspected catering operations being operated out of residences. Identification of “Warm Spots” and Schedule of Maintenance District Operations staff has reviewed its customer base and have identified specific locations where FOG is more likely to be contributed to the wastewater collection system. Historical records of the locations where FOG has caused problems in the past have also been used for this effort. This information is used to specify the locations, referred to as “warm spots” , that are in need of increased maintenance in order to better avoid the chance of a SSO event. Exhibit VII details the locations of these identified warm spots and the schedule for their maintenance. Conclusion The District’s efforts for addressing FOG related issues has been through the identification of areas where these issues could be a problem and a proactive preventative maintenance program with routine cleaning to prevent any SSO’s related to FOG. Sewer customer communication regarding FOG issues through billing inserts and the Ditrict’s website have also been used. Therefore, a formal FOG Program will not be included in this SSMP at this time until more evidence of SSO events and increased maintenance due to FOG are experienced by the District. If and when that occurs, the District will draft, adopt and implement a FOG Program as part of their SSMP. 1 County of San Diego, Sewer System Management Plan, June 2015: https://www.sandiegocounty.gov/content/dam/sdc/dpw/SAN_DIEGO_COUNTY_SANITATION_DISTRICT/SDCSD_SSM P_2015.pdf 36 Exhibit VII WARM SPOT MAINTENANCE SITES 37 Exhibit VII WARM SPOT MAINTENANCE SITES – Cont. 38 SECTION VIII—SYSTEM EVALUATION AND CAPACITY ASSURANCE PLAN Requirement Each Enrollee shall prepare and implement a capital improvement plan (CIP) that will provide hydraulic capacity of key sanitary sewer system elements for dry weather peak flow conditions, as well as the appropriate design storm or wet weather event. At a minimum, the plan must include: (a) Evaluation: Actions needed to evaluate those portions of the sanitary sewer system that are experiencing or contributing to an SSO discharge caused by hydraulic deficiency. The evaluation must provide estimates of peak flows (including flows from SSOs that escape from the system) associated with conditions similar to those causing overflow events, estimates of the capacity of key system components, hydraulic deficiencies (including components of the system with limiting capacity) and the major sources that contribute to the peak flows associated with overflow events; (b) Design Criteria: Where design criteria do not exist or are deficient, undertake the evaluation identified in (a) above to establish appropriate design criteria; and (c) Capacity Enhancement Measures: The steps needed to establish a short- and long-term CIP to address identified hydraulic deficiencies, including prioritization, alternatives analysis, and schedules. The CIP may include increases in pipe size, I/I reduction programs, increases and redundancy in pumping capacity, and storage facilities. The CIP shall include an implementation schedule and shall identify sources of funding. (d) Schedule: The Enrollee shall develop a schedule of completion dates for all portions of the capital improvement program developed in (a)-(c) above. This schedule shall be reviewed and updated consistent with the SSMP review and update requirements as described in Section D. 14. 39 System Evaluation The District completed a Sewer Model Calibration Capacity Analysis and System Assessment in 2006. This study involved open channel flow metering for H20MAP- Sewer model calibration and a capacity assessment for present as-built conditions as well as build-out conditions. The study determined capacity issues and prioritized areas for closed circuit television inspections. The District has had engineering consulting firms under contract since 2007 for the inspection and condition assessment of the District’s entire sewer system. The consultants have performed field evaluations of the District’s existing system by performing Sanitary Sewer CCTV Inspection and Condition Assessment for pipelines identified as priorities (1) and (2) in the 2006 Sewer Model and System Assessment study. Televised inspection of sewer lines, investigation and analysis of the existing sewer system, rehabilitation recommendations for operational improvements, and rehabilitation prioritizing of the District’s sewer pipelines and associated manholes has been performed. A rehabilitation priority list has been created and is being used by the District to develop an annual “Rehabilitation and Replacement Program”. Design Criteria The system evaluation conducted in the 2006 Sewer Model Capacity Analysis and System Assessment and the results of the District’s ongoing CCTV Inspection and Condition Assessment have provided the design criteria necessary to address any deficiencies in the District’s sewer system that could result in or contribute to an SSO discharge. Capacity Enhancement Measures Projects to address hydraulic deficiencies in the District’s system have been identified based on the results of the two studies discussed above. These deficiencies have been incorporated into a table that prioritizes them on the basis of most critical to least. A number of the projects will be completed by Operations staff as maintenance projects. The larger and more complex projects are designated as CIP projects. The sewer projects have been included into the District’s CIP program which covers a six-year time frame and is updated annually. The projects designated as most critical are either in construction or under development. All of the identified deficiencies will be corrected through either the Operations maintenance program or the District’s CIP program. Although this may take several years, the District is committed to making the changes necessary to increase the reliability of the system. The existing schedule for sewer project implementation is included as Exhibit VIII. In 2013, The District prepared a Wastewater System Master Plan (WWMP). This comprehensive examination of all aspects of the District’s wastewater system 40 incorporates the information from the CCTV Inspection and Condition Assessment and updated the 2006 Sewer Model Analysis. The 2013 WWMP included recommendations that have been incorporated into the rehabilitation and replacement projects of the District’s ongoing CIP program. Schedule The schedule for completion of all sewer project components of the CIP program is included as Exhibit VIII. 41 Exhibit VIII – Otay Water District CIP Budget and Schedule - FY 2020-2026 CIP Number Project Title Start End Cost (X1000) S2024 Campo Road Sewer Main Replacement Planning 7/1/10 12/31/14 $170 Design 1/1/15 6/30/17 $1,330 Construction 7/1/17 6/30/21 $9,030 S2045 Fuerte Drive Sewer Relocation Planning 7/1/16 7/29/16 $5 Design 8/1/16 7/31/17 $65 Construction 8/3/17 6/30/20 $300 S2048 Hillsdale Road Sewer Repairs Planning Design 7/1/16 7/29/16 $50 Construction 7/1/17 6/30/20 $670 S2049 Calavo Basin Sewer Rehabilitation - Phase 2 Planning 7/1/16 9/30/19 $30 Design 10/1/19 1/31/21 $120 Construction 2/1/21 6/30/23 $850 S2050 Rancho San Diego Basin Sewer Rehabilitation - Phase 2 Planning 7/1/18 6/30/23 $30 Design 7/1/23 8/31/24 $200 Construction 9/1/24 6/30/27 $820 S2054 Calavo Basin Sewer Rehabilitation - Phase 3 Planning 7/1/23 6/30/26 $20 Design 7/1/26 6/30/27 $180 Construction 7/1/27 6/30/30 $900 S2066 Rancho San Diego Basin Sewer Rehabilitation - Phase 3 Planning 7/1/24 6/30/27 $40 Design 7/1/27 6/30/28 $160 Construction 7/1/28 6/30/30 $700 S2069 Cottonwood Sewer Pump Station Renovation Planning 7/1/19 12/31/20 $30 Design 1/1/21 6/30/22 $420 Construction 7/1/22 6/30/25 $1,350 S2070 Hidden Mtn. Sewer Pump Station Wet Well Renovation Planning 7/1/19 9/30/19 $5 Design 10/1/19 12/31/19 $25 Construction 1/1/20 6/30/21 $150 42 SECTION IX—MONITORING, MEASUREMENT, AND PROGRAM MODIFICATIONS Requirement The Enrollee shall: (a) Maintain relevant information that can be used to establish and prioritize appropriate SSMP activities; (b) Monitor the implementation and, where appropriate, measure the effectiveness of each element of the SSMP; (a) Assess the success of the preventative maintenance program; (b) Update program elements, as appropriate, based on monitoring or performance evaluations; and (c) Identify and illustrate SSO trends, including: frequency, location, and volume. 43 Process The following describes the process and methods by which the District will monitor the effectiveness of the SSMP program and implement necessary modifications to the Plan. Maintain, Monitor and Measure SSMP Elements The District will track a number of performance indicators in order to evaluate the long- term effectiveness of SSMP elements and for reporting to the Water Board in the Annual SSO Report. These performance indicators are listed below in Table IX. As the historic record grows, future annual reports to the Water Board will include trend plots for key measures. Performance measures related to maintenance activities will be tabulated and charted in the annual collection system report. Table IX. SSMP Performance Indicators Indicator Number of SSO’s (by season) Wet season Dry season Number of SSO’s (by volume) <10 gal. 10-99 gal. 100-999 gal. >1000 gal. SSO Volume Total Recovered Total volume conveyed to plant Total vol. SSO/ Total vol. conveyed to plant Cause of SSO #SSO’s per mile of sewer per year Vol. SSO’s per mile per year Avg. Emergency Response Time Number of SSO’s (by volume) Business hours Non-business hours Maintenance Activities (lineal ft/yr) Televised Inspection Top-down Cleaning Smoke Inspection 44 It should be noted that in measuring an outcome that is characterized by a relatively small number of events (e.g. number of annual wet weather SSOs), it is important to recognize that statistical variability may dominate short-term trends and that true causal relationships are likely to be evident only over the long term. Assessment of Preventative Maintenance Program Sewer system maintenance activities are tracked in the District’s CMMS system. This data can be retrieved and assembled into report form to identify trends and help to evaluate effectiveness of the program. On an annual basis, the District shall evaluate the effectiveness of its preventative maintenance program and adjust the program as needed. Update Program Elements It is the District’s intention that the SSMP remain a living document and that it be regularly updated to reflect program or organizational changes, new regulatory requirements, and other changing conditions. District staff will review the SSMP on a regular basis and update the document with any significant changes. Identify and Illustrate SSO Trends The District maintains information related to actual SSO’s in its CMMS system. When an actual SSO event occurs, a detailed report is completed and the information is entered into CMMS. This enables District staff to analyze the information as necessary to identify any SSO trends. SSMP Modifications The District will update the SSMP periodically to ensure that the information maintained in the plan is current. In particular, routine updates will be made to the contact names and phone numbers for District Staff responsible for the implementation of specific SSMP programs. The SSMP will also be modified as necessary to maintain program effectiveness and continual compliance with the Waste Discharge Requirements. The SSMP will be officially updated on an annual basis and a comprehensive update and re-certification will occur every five (5) years. 45 SECTION X—SSMP PROGRAM AUDITS Requirement The Enrollee shall: Conduct periodic internal audits, appropriate to the size of the system and the number of the SSO’s. At a minimum, these audits must occur every two years and a report must be prepared and kept on file. This audit shall focus on evaluating the effectiveness of the SSMP and the Enrollee’s compliance with the SSMP requirements, including identification of any deficiencies in the SSMP and steps to correct them. 46 SSMP Audit Program The District’s plan is to conduct bi-annual audits of its SSMP in conjunction with the bi-annual review and update of the SSMP. Each audit will use the Audit Checklist (Exhibit X). The audit will include, but not be limited to the following: 1. Review of the progress made on the development of SSMP elements 2. Review of the status of any SSMP programs implemented 3. Identifying the success of any SSMP programs implemented 4. Description of system improvements made within the two-year audit period 5. Description of planned system improvements for the upcoming two years 6. Review of the data for any SSO occurrences. The results of the bi-annual audit using the will be compiled in a report and kept on file. 47 Exhibit X – AUDIT CHECKLIST SSMP Evaluation Checklist for FY 20_ SSMP Section Yes No Update Needed in SSMP Actions & Notes Section I - Goals Are the goals stated in the SSMP still appropriate and accurate? Was service reliable & uninterrupted 99% of the time over the period? Were SSO’s less than two (2) per year? Section II - Organization Is the District’s organizational chart current? Is the chain of communication for SSO response current? Is the SSMP phone list up-to- date and accurate? Section III – Legal Authority Does the SSMP contain up-to- date information about the District’s legal authority? Does the District have sufficient legal authority to control sewer use and maintenance? Section IV – Operations and Maintenance Program Mapping Does the SSMP reference the current process and procedures for maintaining the District’s sewer collection system maps? 48 Resources Does the District allocate sufficient funds for the effective operation, maintenance and repair of the wastewater collection system and is the current budget structure documented in the SSMP? Preventative Maintenance Does the SSMP describe the current preventative maintenance activities and the system for prioritizing the cleaning of sewer lines? Were all of the preventative maintenance activities generated by the District’s IMS completed as scheduled? Are the District’s preventative maintenance activities sufficient and effective in minimizing SSO’s and blockages? Rehabilitation and Replacement Has the District’s scheduled inspections and condition assessment system been effective in locating, identifying, and addressing any system deficiencies? Have the CIP sewer rehabilitation and replacement projects begun design and/or construction as scheduled? Maintenance Equipment Are contingency equipment and replacement parts sufficient to respond to emergencies and properly conduct regular maintenance? 49 Training and Certification Is adequate training being provided to staff to maintain a knowledgeable and safe workplace? Are the training procedures and logs for the staff up-to-date in the SSMP? Are Operations and Maintenance personnel properly certified by CWEA to perform their work and is this documented in the SSMP? Section V – Design and Construction Standards Does the SSMP contain up-to- date information about the District’s design and construction standards and specifications? Are the design and construction standards and the testing and inspection standards for new and rehabilitated facilities sufficiently up-to-date and comprehensive? Section VI – Overflow Emergency Response Plan Is the District’s SSO Emergency Response Plan, that establishes procedures for emergency response, notification, and reporting, effective and current? Has the District staff been properly trained on the procedures of the SSO Emergency Response Plan? Based on recent experience, has the Emergency Response Plan been effective in handling SSO’s and safeguarding public health and the environment? 50 Section VII – Fats, Oils, and Grease (FOG) Program Does the District SSMP identify sections of the collection system subject to FOG blockages, establish a cleaning schedule and address source control measures to minimize these blockages? Does the District have sufficient legal authority to prohibit discharges to the collection system and to inspect grease- producing facilities? Section VIII – System Evaluation and Capacity Assurance Plan Has the District evaluated the hydraulic deficiencies in the system, established sufficient design criteria and recommended both short and long term capacity enhancement and improvement projects? Does the District’s CIP establish a schedule of approximate completion dates for both short and long-term improvements and is the schedule reviewed and updated to reflect current budgetary capabilities and activity accomplishments? Section IX – Monitoring, Measurement, and Program Modifications Are the performance parameters shown for each of the SSMP elements adequate for monitoring the effectiveness of these elements? Are the methods for measuring each of the performance parameters sufficient to properly evaluate the success of each SSMP element? Does the description of the process for modifying the SSMP continue to be valid? Section X – SSMP Audits Will the SSMP audit be conducted every two years as required? 51 Are the results of the audit compiled in a report and the information utilized to improve the performance of the SSMP? Section XI – Communication Program Does the SSMP contain up-to- date information about the District’s public outreach activities? Has the District effectively communicated with the public and other agencies about the SSMP and addressed any feedback? Date Completed: _____________________________ By: _________________________________________ Title: _______________________________________ 52 SECTION XI—COMMUNICATION PROGRAM Requirement The Enrollee shall: (a) Communicate on a regular basis with the public on the development, implementation, and performance of its SSMP. The communication system shall provide the public the opportunity to provide input to the District as the program is developed and implemented. (b) The District shall also create a plan of communication with systems that are tributary and/or satellite to the District‘s sanitary sewer system. 53 Public Education and Outreach Purpose This section of the SSMP discusses the District’s efforts to educate and inform the public regarding the proper use of the District’s sanitary system. The goal of these communication efforts is to facilitate public awareness of sanitary sewer system issues and to provide the public with the opportunity to provide input to the District’s SSMP as it is developed and implemented. Communication System The following is a summary of the District’s efforts to educate, inform and engage the public’s participation in the proper utilization of the District’s sanitary sewer system and comply with the SSMP requirements. Otay Water District Official Website The District has a website (www.otaywater.gov) that is used to inform the public about District activities. The main page provides access to diverse information and includes a link to information about the sanitary sewer system. There is a link on the website to access selected District publications where the public is able to view the SSMP document and another link for providing comments to the District. Additionally, the main page has a section for announcements which will be utilized to notify the public of any important activities related to sewer system management. Public Meetings The District holds a Board of Directors meeting on the first Wednesday of each month. These meetings are held in the Board Room at the District’s headquarters at 2554 Sweetwater Springs Boulevard, Spring Valley, California, 91978, and the public is invited and encouraged to attend. The Board meetings provide a forum for citizens to provide input on particular programs within the District during the Public Participation portion of the meeting. Copies of the Board Meeting Agenda are made readily available to the public from the District’s website. Certification and subsequent re-certification of the completed SSMP is required by the Board of Directors during a public Board of Directors meeting. Project specific meetings may also be convened with community leaders, community groups and other citizens to discuss sewer related projects and efforts. These meetings provide citizens with the opportunity to learn about the District’s activities, voice any concerns they may have, and receive clarification on a variety of issues. Project specific meetings are usually arranged by the District’s specific Project Manager for each sewer project. 54 Other Outreach Media Efforts The District also uses several additional forms of media to educate and inform the public regarding impacts to the District’s sanitary sewer system. These include the following: 1. Instagram (#otaywater) and twitter (@OtayWater) posts 2. District newsletter mailed quarterly to customers 3. Brochures distributed at community events 4. Bill stuffers 5. Sewer project construction signs located near construction areas. 6. Door hangars Examples of the website, newsletter articles and a project construction sign are included in Exhibit XI. Communication with Tributary and/or Satellite Collection Systems The District communicates regularly with the agencies that operate the collection systems tributary to the District’s collection system (County of San Diego, Padre Dam Water District). 55 Exhibit XI - COMMUNICATION MEDIA EXAMPLES Sewer Construction Project Sign Sewer System Information on District Website 56 Customer Newsletter Articles 57 SECTION VIII— DOCUMENTS & PROCEDURES A. SPILL NOTIFICATION 1. Collection System Sewer Spill Response & Notification 2. Sewer Overflow Notification Guidelines 3. OES Requested Spill Information 4. Sanitary Sewer Overflow Water Quality Monitoring Program (All of the following documents, as listed below, are available on the District’s Intranet) B. SAFETY 1. Vactor Truck Safety 2. Treatment Plant Entry and Exit 3. Directions to Cottonwood Meadows Lift Station 4. Directions to Hidden Mountain Lift Station 5. Directions to Russell Square Lift Station 6. Directions to Steele Canyon Lift Station 7. Directions to Calavo Gardens Lift Station C. COLLECTION SYSTEM & T-PLANT ALARM SYSTEMS 1. Acknowledging Lift Station Auto Dialer Alarms 2. Lift Station Communications Failures 3. Scada Network System Failure D. COLLECTIONS & EQUIPMENT OPERATIONS 1. CCTV Operation 2. Vactor Lubrication & Maintenance 3. Steele Canyon Lift Station Periodic Inspection 4. Cottonwood Meadows Lift Station Periodic Inspection 5. Cottonwood Meadows Emergency Contingency Plan 6. Hidden Mountain Lift Station Periodic Inspection 7. Russell Square Lift Station Periodic Inspection 8. Calavo Gardens Lift Station Weekly Inspection 9. Silverado Emergency Sewer Lift Station Activation 10. Refilling Bioxide Tanks 58 A. SPILL NOTIFICATION 1. Collection System Sewer Spill Response & Notification Water Operations Department Department Procedures – Section 3244 Page 1 of 5 No. RWCWRF – Collection System Sewer Spill Response & Notification Approval Date: August 23, 2001 Latest Revision Date: March 28, 2019 Purpose: In accordance with the “California Regional Water Quality Control Board, San Diego Region, Monitoring and Reporting Program No. 2006-0003-DWQ as revised by order No. WQ 2008- 0002-EXEC, Sanitary Sewer Overflow Reporting Procedures for Sewage Collection Agencies,” the District is required to report to certain agencies any spills that reach reportable quantities or fall within special circumstances through the California Integrated Water Quality System (CIWQS). Although reportable quantities and special circumstances are summarized herewith, it is important that the reader becomes well acquainted with the Monitoring and Reporting Program No. 2006-0003-DWQ, as amended in 2013 under Order No. WQ 2013-0058-EXEC. Procedure: 1. Otay Water District reclamation staff will conduct initial response and evaluation of any report of a sanitary sewer discharge within its sewer jurisdiction. 2. District staff must utilize all appropriate PPE prior to any physical investigation. 3. If discharge is confirmed, staff will identify sewer overflow jurisdiction.  If spill is not within District jurisdiction, notify the responsible agency and document the time and contact information into the appropriate IMS work order.  If the spill is within District jurisdiction, note if the actual blockage is occurring from a District, County-owned or private appurtenance. Consider that a blockage in a nearby County-owned manhole could cause a backup in the District collection system. 4. Contact immediate Supervisor and:  If the overflow is caused by a blockage or lift station equipment failure, follow the standby duty notification protocol for the Utility Maintenance and/or Pump/Electrical sections.  The Utility Workers assigned to the collection system section may be called to respond in lieu of the Utility Maintenance standby personnel if available for immediate response.  If possible, use special tools such as a grabber or clam shell to open the channel and allow flow through blockage until the Vactor crew arrives. 59 5. Visually estimate the amount of spill utilizing the spill picture guide, or use pumping hours at pump station if appropriate. 6. The Reclamation Supervisor or Lead Reclamation Plant Operator will notify the appropriate agencies as described in the attached notification guide. 7. Contain spillage if possible. Use sand bags and/or dirt to dam up sewage until Vactor truck can vacuum it up. 8. If any amount of spill impacts the creek and/or storm drains, the Lead Reclamation Plant Operator or Supervisor will notify the environmental authorities per the attached notification guidelines. 9. Disinfection: If public contact is probable receive direction from the Department of Environmental Health (DEH) on how to proceed. 2. Sewer Overflow Notification Guidelines Sanitary Sewer Overflow Reporting Categories Category 1 - Discharges of untreated or partially treated wastewater of any volume resulting from an enrollee’s sanitary sewer system failure or flow condition that:  Reach surface water and/or reach a drainage channel tributary to a surface water; or  Reach a Municipal Separate Storm Sewer System (MS4) and are not fully captured and returned to the sanitary sewer system or not otherwise captured and disposed of properly. Any volume of wastewater not recovered from the MS4 is considered to have reached surface water unless the storm drain system discharges to a dedicated storm water or groundwater infiltration basin (e.g., infiltration pit, percolation pond). Category 2 - Discharges of untreated or partially treated wastewater of 1,000 gallons or greater resulting from an enrollee’s sanitary sewer system failure or flow condition that do not reach surface water, a drainage channel, or a MS4 unless the entire SSO discharged to the storm drain system is fully recovered and disposed of properly. Category 3 - All other discharges of untreated or partially treated wastewater resulting from an enrollee’s sanitary sewer system failure or flow condition. Private Lateral Sewage Discharge (PLSD) - Discharges of untreated or partially treated wastewater resulting from blockages or other problems within a privately owned sewer lateral connected to the enrollee’s sanitary sewer system or from other private sewer assets. PLSDs that the enrollee becomes aware of may be voluntarily reported to the California Integrated Water Quality System (CIWQS) Online SSO Database. 60 Notification Requirements Category 1 1. For any Category 1 SSO greater than or equal to 1,000 gallons that results in a discharge to a surface water or spilled in a location where it probably will be discharged to surface water, either directly or by way of a drainage channel or MS4, the enrollee shall, as soon as possible, but not later than two (2) hours after (A) the enrollee has knowledge of the discharge, (B) notification is possible, and (C) notification can be provided without substantially impeding cleanup or other emergency measures, notify the Cal Office of Emergency Services (OES) and obtain a notification control number. The information that may be requested by OES is provided below (after Agency Contact information). 2. Following the initial notification to Cal OES and until such time that an enrollee certifies the SSO report in the CIWQS Online SSO Database, the enrollee shall provide updates to Cal OES regarding substantial changes to the estimated volume of untreated or partially treated sewage discharged and any substantial change(s) to known impact(s). 3. PLSDs: The enrollee is strongly encouraged to notify Cal OES of discharges greater than or equal to 1,000 gallons of untreated or partially treated wastewater that result or may result in a discharge to surface water resulting from failures or flow conditions within a privately owned sewer lateral or from other private sewer asset(s) if the enrollee becomes aware of the PLSD. Reporting Requirements Category 1 and Category 2 1. Submit the draft report into CIWQS as soon as possible but no later than 3 business days after becoming aware of SSO and certify report within 15 calendar days of SSO end date. 2. In the event of a Category 1 SSO in which 50,000 gallons or greater are spilled to surface waters, a SSO Technical Report must be submitted within 45 calendar days after the end date of the SSO. The details required in the SSO technical report are detailed in the MMR, Order No. WQ 2013-0058-EXEC. Category 3 1. All SSOs that meet the criteria above for Category 3 SSOs shall be reported to the CIQWS online database and certified within 30 calendar days after the end of the calendar month in which the SSO occurs (example; all Category 3 SSO’s occurring in the month of February must be entered into the database and certified by March 30) Private Lateral Sewage Discharges 1. All other sewer discharges that are caused by blockages or other problems within a privately owned lateral may be reported to the Online SSO Database based upon the Enrollee’s discretion. 2. If the Private Lateral sewage discharge is recorded in the SSO Database, the Enrollee must identify the sewage discharge as occurring and caused by a private lateral, and the 61 responsible party (other than Enrollee) should be identified, if known. Certification of PLSD reports is not required. Water Quality Monitoring Requirements Category 1 1. In the event of a Category 1 SSO in which 50,000 gallons or greater are spilled to surface waters, water quality sampling must be conducted within 48 hours after initial SSO notification. The sampling will be conducted according to the enrollees SSO Water Quality Monitoring Program. 2. Water Quality results are required to be uploaded into CIQWS. Agency Contact Numbers in the Event of a Spill  Office of Emergency Services (OES) Emergency Notification Controller: (800) 852-7550 Fax: (916) 845-8910 www.oes.ca.gov/Operational/OESHome.nsf/1?OpenForm  County of San Diego/Dept. of Environmental Health Services (DEH) Keith Kezer, Proposition 65 Coordinator: (858) 495-5579 Normal Working Hours (Monday - Friday 8:30 am to 5:00 pm) Emergency after hours: (858) 565-5255 Fax: (858) 694-3670 Keith.kezer@sdcounty.ca.gov P.O. Box 129261 San Diego, CA 92112-9261  Sweetwater Authority When a sewage spill occurs that has the potential to impact the Sweetwater Reservoir, make phone calls in the order listed below until contact is made. Leave voicemails until contact is made and follow-up with e-mails to all of the contacts on the list. Contact Title E-mail Address Office Phone Cell Phone Justin Brazil Dir. Water Quality jbrazil@sweetwater.org 619-409-6812 619-729-7346 Plant Operator Plant Operators 619-409-6800 Giovanni Outlaw Plant Supervisor goutlaw@sweetwater.org 619-409-6803 619-980-6829 Davis Doane Maint. Supervisor ddoane@sweetwater.org 619-409-6807 619-322-4758 Mark Hatcher Lab Supervisor mhatcher@sweetwater.org 619-409-6813 619-797-0630  California Regional Water Quality Control Board (CRWQCB) Office: (619) 516-1990 Fax: (619) 516-1994 62  CA Regional Water Quality Control Board (CRWQCB) – Electronic Reporting SSO-WDR Compliance Electronic Reporting on California Integrated Water Quality System (CIQWS) file path www.CIWQS 1. CIWQS login 2. Specify Sanitary System 3. Reporting New SSO 4. Enter Information 5. Label as “work in progress”, “draft”, ”ready to certify” or “certified”. The CIQWS SSO database will automatically generate an e-mail notification with customized information about the SSO upon initial reporting of the SSO and final certification for all Category 1 SSO’s E-mails will be sent to the appropriate Regional Water Board. 3. OES Requested Spill Information To satisfy notification requirements for each applicable SSO, the enrollee shall provide the information requested by Cal OES before receiving a control number. Spill information requested by Cal OES may include: i. Name of person notifying Cal OES and direct return phone number. ii. Estimated SSO volume discharged (gallons). iii. If ongoing, estimated SSO discharge rate (gallons per minute). iv. SSO Incident Description: a. Brief narrative. b. On-scene point of contact for additional information (name and cell phone number). c. Date and time enrollee became aware of the SSO. d. Name of sanitary sewer system agency causing the SSO. e. SSO cause (if known). v. Indication of whether the SSO has been contained. vi. Indication of whether surface water is impacted. vii. Name of surface water impacted by the SSO, if applicable. viii. Indication of whether a drinking water supply is or may be impacted by the SSO. ix. Any other known SSO impacts. x. SSO incident location (address, city, state, and zip code). 63 4. Sanitary Sewer Overflow Water Quality Monitoring Program This monitoring program will be implemented for a Category I SSO in which 50,000 gallons or greater are spilled to surface water and must be conducted as soon as possible but no later than 48 hours after initial SSO notification. Sanitary Sewer Overflow Sampling Procedure Obtain SSO field sampling kit from the RWCWRF laboratory. Determine the point where the spill entered waterway and photograph location if possible. Don the PPE from the sample kit in preparation for taking samples. Grab samples will be collected by submerging a properly cleaned sample collection container provided by the laboratory directly in the sewerage flow. Collected sewerage will be transferred from the collection container to the preserved Laboratory-supplied sample bottles being careful not to overfill the bottles so as not to flush out any preservative. To maintain sample integrity and prevent cross-contamination, sample collection personnel will abide by the following protocols: • Collect samples (for laboratory analysis) only in laboratory-provided sample containers and remove the cap from each bottle immediately before collecting a sample; • Wear clean, powder-free nitrile gloves when collecting samples; • Change gloves whenever something not known to be clean has been touched and between sites. The most important aspect of grab sampling is to collect a sample that represents the entire sewerage overflow stream. Collect samples well away from the bank (preferable where water is visibly flowing) and 6” below the surface. Avoid sampling debris or scum layer from the surface or disturbing bottom sediment. Typically, samples are collected by dipping the collection container in the sewerage flow paths and streams as noted below.* • For small sewerage streams and flow paths, simply dip the bottle facing upstream until full. • For larger stream that can be safely accessed, collect a sample in the middle of the flow stream by directly dipping the mouth of the bottle. Once again making sure that the opening of the bottle is facing upstream as to avoid any contamination by the sampler. • For larger sewerage streams that cannot be safely waded, pole-samplers may be needed to safely access the representative flow. • Avoid collecting samples from ponded, sluggish or stagnant water. • Do not stand upstream of the sampling point within the flow path. Once samples have been collected, take a photograph of the sampling location if possible. * Note that depending upon the specific analytical test, some containers may contain preservatives. These containers should never be dipped into the stream, but filled indirectly from the pole sampler. 64 Record of Revisions Version Date Notes I - Initial 07/01/2009 II -After 2 year audit 10/12/2012 Minor revisions & updates III- 5-year Update 10/01/2014 Minor revisions & updates IV - After 2 year audit 01/29/2016 Removed training records, maintained electronically. V - After 2 year audit 04/20/2018 Removed appendices, maintained electronically. VI – After SSO event 04/02/2019 Updated Spill response procedure to include Sweetwater Authority contact numbers. VII – 5-year Update 10/03/2019 Update of exhibits and CIP projects STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Jose Martinez, Assistant Chief of Water Operations PROJECT: P2282 DIV. NO. All APPROVED BY: Pedro Porras, Chief Water Operations Mark Watton, General Manager SUBJECT: AUTHORIZE THE PURCHASE OF FIVE (5) FLEET VEHICLES GENERAL MANAGER’S RECOMMENDATION: Authorize the General Manager to issue purchase orders to: •Fairview Ford in the amount of $39,873.02 for the purchase of one (1) 2020 Ford F-250 Pick-up Truck; •Ford of Chula Vista in the amount of $127,424.06 for the purchase one (1) 2020 Ford F-550 Class 5 Dual Rear Wheel Truck and two (2) 2020 Ford F-150 Pick-up Trucks; and, •Penske Ford in the amount of $56,056.86 for the purchase of one (1) 2020 Ford F-450 Truck Cab and Chassis. For a total of five (5) fleet vehicles and a total cost of $223,353.94. COMMITTEE ACTION: See Attachment “A.” PURPOSE: To obtain Board authorization to purchase five (5) fleet replacement vehicles from the vendors specified with the lowest responsive quotes. ANALYSIS: There are eight (8) vehicles included in the approved FY20 budget. The requested five (5) vehicles will replace the following units: AGENDA ITEM 7i • #83 (1992 Ford F-800 Flat Bed Truck – 80,300 miles) • #120 (2001 Ford F-550 Cab & Chassis – 75,540 miles) • #149 (2003 Ford E-350 Utility Van – 68,400 miles) • #169 (2007 Ford F-150 Water System Truck – 100,500 miles) • #200 (2010 Ford F-150 Water System Truck – 95,248 miles) These vehicles have met the District’s vehicle replacement program criteria of seven (7) years and/or 100,000 miles. The replacement for Unit #83 will support staff in Utility Maintenance as a flat-bed transport or for larger materials and equipment. Unit #120 is utilized by Fleet Maintenance staff to perform field maintenance on generators and engines located throughout the District’s service area, primarily at pump stations. Unit #149 is utilized by SCADA Instrumentation staff to perform field maintenance on all field instrumentation and PLCs. Lastly, Units #169 & #200 are assigned to Water Systems Operators tasked with operating the water distribution system and when responding to emergencies. Quotes were solicited for five (5) vehicles via BidSync, the District’s purchasing solicitation system. Multiple quotes were received and are shown below. Prices received include all applicable fees, taxes, and delivery. Funding for these purchases is included in CIP P2282, Vehicle Capital Purchases Program. Two (2) 2020 Ford F-150 Trucks Dealer Bid Price Ford of Chula Vista – Chula Vista, CA $65,132.98 Penske Ford – La Mesa, CA $70,679.41 Wayne Gossett Ford dba Encinitas Ford – Encinitas, CA $70,686.85 Fritts Ford – Riverside, CA $72,809.09 Fairview Ford – San Bernardino, CA No Bid Theodore Robbins Ford – Costa Mesa, CA No Bid One (1) 2020 Ford F-250 Truck Dealer Bid Price Fairview Ford – San Bernardino, CA $39,873.02 Theodore Robbins Ford – Costa Mesa, CA $39,930.13 Ford of Chula Vista – Chula Vista, CA $41,107.83 Fritts Ford – Riverside, CA $42,028.02 Wayne Gossett Ford dba Encinitas Ford – Encinitas, CA $46,226.17 Penske Ford – La Mesa, CA $47,210.52 One (1) 2020 Ford F-450 Truck Cab & Chassis Dealer Bid Price Penske Ford – La Mesa, CA $56,056.86 Ford of Chula Vista – Chula Vista, CA $58,464.88 Wayne Gossett Ford dba Encinitas Ford – Encinitas, CA $61,420.67 Fairview Ford – San Bernardino, CA No Bid Fritts Ford – Riverside, CA No Bid Theodore Robbins Ford – Costa Mesa, CA No Bid One (1) 2020 Ford F-550 Class 5 Dual Rear Wheel Truck Dealer Bid Price Ford of Chula Vista – Chula Vista, CA $62,291.08 Fairview Ford – San Bernardino, CA $63,579.77 Wayne Gossett Ford dba Encinitas Ford – Encinitas, CA $64,006.67 Fritts Ford – Riverside, CA $64,493.11 Penske Ford – La Mesa, CA $66,461.20 Theodore Robbins Ford – Costa Mesa, CA No Bid FISCAL IMPACT: Joe Beachem, Chief Financial Officer The total cost for the five (5) vehicles is $223,353.94, which will be charged against the Vehicle Capital Purchases CIP P2282. The total cost will not exceed budgeted funding. The Finance Department has determined that 100 percent of the funds are available in the replacement fund. The following expenditure summary shows the eight (8) vehicles which were budgeted in CIP P2282 for FY20, including the five (5) vehicles being requested in this staff report: Total CIP P2282 Vehicle Replacements FY20 Budget: $439,000.00 Five (5) Fleet Trucks - Proposed $223,353.94 Two (2) Compact Trucks - Purchased $58,993.66 One (1) Class 5 Bucket Truck - Budgeted $130,000.00 Projected CIP P2282 FY20 Under Budget: $26,652.40 STRATEGIC GOAL: Operate the system to meet demand twenty-four (24) hours a day, seven (7) days a week. LEGAL IMPACT: None. Attachment A - Committee Action Attachment B – Photos of Vehicles ATTACHMENT A SUBJECT/PROJECT: AUTHORIZE THE PURCHASE OF FIVE (5) FLEET VEHICLES COMMITTEE ACTION: The Finance and Administration Committee reviewed this item at a meeting held on October 23, 2019 and the following comments were made: • Staff is requesting that the board approve the purchase of five (5) fleet vehicles through various Southern California Car dealerships in the amount of $222,353.94. • Staff reviewed information in the staff report. • Staff indicated, in response to an inquiry from the Committee, that the vehicles meet the District’s vehicle replacement criteria which staff determined, based on maintenance costs, resale value and usable life. Based on a joint review by Operations and Finance staff of District’s actual historical maintenance costs, staff have determined at seven (7) years and/or 100,000 miles, the District can get the best value in terms of resale and vehicles are replaced before they require higher cost maintenance for non-commercial vehicles. • It was indicated in response to another inquiry from the Committee, that the District utilizes Ford for mid-sized truck needs as they have proven to be reliable and it standardizes the fleet, reducing the number of spare parts the District needs to stock, which keeps costs down. Upon completion of the discussion, the committee supported staff’s recommendation and presentation to the full board on the consent calendar. Ford F-550 Dual Rear Wheel Flat Bed ATTACHMENT B Ford F-450 Cab & Chassis Ford F-150 Ford F-250 STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Jose Martinez, Assistant Chief of Water Operations PROJECT: P2286 DIV. NO. All APPROVED BY: Pedro Porras, Chief Water Operations Mark Watton, General Manager SUBJECT: APPROVAL TO PURCHASE ONE (1) PORTABLE EMERGENCY GENERATOR GENERAL MANAGER’S RECOMMENDATION: That the Board authorize the General Manager to issue a purchase order to Volvo Construction Equipment in the amount not-to-exceed $145,155.00 for the purchase of one (1) portable emergency generator. COMMITTEE ACTION: See Attachment “A.” PURPOSE: To obtain Board authorization to purchase one (1)portable emergency generator. ANALYSIS: Included in the approved FY20 budget, as item 12 under Capital Purchases, is one (1) portable emergency generator. This generator is designed to operate as a back-up power source for the District’s new Portable Trailer Mounted VFD Pumps. The generator will prevent disruption of water service when critical facilities are off-line for extended periods of time, such as the 1200-1 Pump Station. Additionally, the generator can be deployed at four (4) existing Hydropneumatic Pump Stations and two (2) existing small AGENDA ITEM 7j Pump Stations, each supplying a pressure zone fed by a single gravity reservoir with no redundancy. The portable emergency generator is designed to operate as a back- up power source for the District’s various critical facilities, including, but not limited to: Pump Stations, Hydropneumatic Stations, Lift Stations, and the Emergency Operations Center (EOC). The generator supports the District’s Strategic Key Performance Indicators (KPIs) associated with emergency preparedness. This purchase will be made in accordance with the District’s Purchasing Manual Section 6.2.3 Cooperative/Joint Purchases through Sourcewell (formerly known as National Joint Power Alliance) contract with Doosan Portable Power, which was competitively awarded. Sourcewell is a service cooperative government agency that performs cooperative purchasing on behalf of its member agencies. A quote was received for $145,155.00 from Volvo Construction Equipment, Doosan Power Equipment’s authorized dealer, for one (1) new Doosan Model G325WCU portable generator, which includes all applicable fees, taxes, delivery, testing, and training. FISCAL IMPACT: Joe Beachem, Chief Financial Officer Based on preliminary research, the projected purchase budget for the one (1) portable generator is $145,000.00. Although the quote received was $155.00 higher than projected ($145,155.00), this will not exceed the total CIP P2286’s budget as a result of savings in other charges on this CIP. The total FY20 project budget for CIP P2286 Field Equipment Purchases is $203,000.00. Existing expenditures and current encumbrances for the CIP, including the portable generator, are $202,083.00. Based on the evaluation, CIP P2286 budget is enough to complete the budgeted purchase. The Finance Department has determined that 100 percent of the funds are available in the replacement fund. Expenditure Summary: CIP P2286 FY20 Field Equipment Budget $203,000.00 Proposed - One (1) portable generator $145,155.00 Purchased - Two (2) 460 Gallon Diesel Fuel Trailers $33,928.00 Budgeted - Chemical Pump Skid for the 640 Disinfection System $11,000.00 Budgeted - Replacement Flow Meter for Recycled System Force Main $12,000.00 Total Projected CIP P2286 FY20 Under Budget: $917.00 STRATEGIC GOAL: Operate the system to meet demand twenty-four (24) hours a day, seven (7) days a week. LEGAL IMPACT: None. Attachments: Attachment A - Committee Action Attachment B – Photo of Generator ATTACHMENT A SUBJECT/PROJECT: APPROVAL TO PURCHASE ONE (1) PORTABLE EMERGENCY GENERATOR COMMITTEE ACTION: The Finance and Administration Committee reviewed this item at a meeting held on October 23, 2019 and the following comments were made: • Staff is requesting that the Board approve the issuance of a purchase order to Volvo Construction Equipment in the amount not- to-exceed $145,155 for the purchase of one (1) portable emergency generator. • Staff reviewed information in the staff report. • Staff indicated that the Doosan generator was selected as it standardizes the District’s portable generator suite. Its layout and operations will be similar to the District’s two (2) existing Doosan emergency gensets and additional training will not be required for its operation and maintenance. Fleet shop staff is also familiar with the Cummins Diagnostic and Maintenance Principles for the engines. • Staff noted that the existing Doosan generators have performed well during planned and unplanned events. • In response to an inquiry from the Committee, staff indicated that the anticipated usable life of the generator is approximately 15 years as it will only be utilized as standby for emergencies. Upon completion of the discussion, the committee supported staff’s recommendation and presentation to the full board on the consent calendar. Doosan G325WCU Portable Generator ATTACHMENT B STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Andrea Carey Customer Service Manager PROJECT: DIV. NO. All APPROVED BY: Joseph R. Beachem, Chief Financial Officer Mark Watton, General Manager SUBJECT: Authorize the General Manager to Negotiate and Enter into an Agreement with Paymentus for Phone Payment Services GENERAL MANAGER’S RECOMMENDATION: That the Board authorize the General Manager to negotiate and enter into a two-year agreement, plus three (3) one-year options, with Paymentus to provide phone payment services in an amount not to exceed $250,000 ($50,000 annually). COMMITTEE ACTION: See Attachment A. PURPOSE: Authorize the General Manager to negotiate and enter into a two-year agreement, plus three (3) one-year options, with Paymentus to provide phone payment services in an amount not to exceed $250,000 ($50,000 annually). ANALYSIS: The District accepts approximately 2,700 payments per month through the automated phone system. The contract for the District’s current vendor, Paymentus, will expire in March 2020. In preparation, staff sent out a Request for Proposal (RFP)through the District’s online solicitation portal, BidSync. Nine responses were received and all were evaluated on background and experience; ability to perform the required services; implementation, training, and support; and estimated monthly cost. The ratings for all items, excluding cost, are below: AGENDA ITEM 7k Vendor Overall Service Rating (70 pts Max) Paymentus 68 Forte Payment Systems 62.33 Value Payment Systems 62 MTI 59 AutoScribe Corporation 58 Infosend, Inc 56.01 JPMorgan Chase 55.67 [JB1] Two additional vendors were not qualified based on the information provided and, after the initial review, were not included in the final cost comparison evaluation. In order to evaluate all qualified vendors, staff based the monthly cost on current payment volumes and averages. Below is the average monthly cost, from lowest to highest, of each vendor based on costs presented in the RFP: Vendor Monthly Cost Paymentus $3,624.50 MTI $4,185.00 Value Payment Systems $5,647.50 Infosend, Inc $5,803.75 Forte Payment Systems $6,068.00 JPMorgan Chase $6,165.03 AutoScribe Corporation $6,215.13 Paymentus scored the highest in overall service rating and affordability. Paymentus has agreed to keep the fees for credit and debit cards the same as the previous contract and is offering a reduction in their transaction fees for bank withdrawals from $.25 to $.20. They are also offering to keep their prices fixed throughout the length of the contract. District staff that works closely with Paymentus report excellent service and the District has not received negative feedback from District customers using the phone payment service. Paymentus currently handles payment processing for over 200 companies in California including Sweetwater Authority, Padre Dam, and Olivenhain. Staff has reached out to these local agencies and all expressed satisfaction with Paymentus. FISCAL IMPACT: Joe Beachem, Chief Financial Officer The annual cost for Paymentus services is expected to be approximately $46,000 this year, which has been fully budgeted[JB2]. Based on historical numbers, staff expects an increase in phone payment volume and credit card use. This will increase the overall charges but will not exceed the average annual contract limit of $50,000. STRATEGIC GOAL: Evaluate the most cost effective and efficient processes and tools to communicate service related issues to customers. LEGAL IMPACT: None. Attachments: A) Committee Action ATTACHMENT A SUBJECT/PROJECT: Authorize the General Manager to Negotiate and Enter into an Agreement with Paymentus for Phone Payment Services COMMITTEE ACTION: The Finance and Administration Committee reviewed this item at a meeting held on October 23, 2019 and the following comments were made: • Staff is requesting that the Board approve a two-year agreement, plus three (3) one-year options, with Paymentus to provide phone payment services in an amount not-to-exceed $250,000 ($50,000 annually). • Staff presented information in the staff report. • In response to an inquiry from the Committee, staff indicated should the board approve this agreement with Paymentus, they are delegating the three (3) one-year renewal options to the General Manager. Upon completion of the discussion, the committee supported staff’s recommendation and presentation to the full board on the consent calendar. STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Andrea Carey Customer Service Manager PROJECT: DIV. NO. All APPROVED BY: Joseph R. Beachem, Chief Financial Officer Mark Watton, General Manager SUBJECT: Adopt Resolution No. 4372 establishing Policy 54, Discontinuation of Water Service for Delinquent Accounts; and Adopt Ordinance No. 576 to amend Section 34, Issuance and Payment of Water Bills and Appendix A of the District’s Code of Ordinances effective January 1, 2020 GENERAL MANAGER’S RECOMMENDATION: That the Board adopt Resolution No. 4372 establishing Policy 54, Discontinuation of Water Service for Delinquent Accounts; and adopt Ordinance No. 576 to amend Section 34, Issuance and Payment of Water Bills and Appendix A of the District’s Code of Ordinances effective January 1, 2020. COMMITTEE ACTION: See Attachment A. PURPOSE: To comply with recently adopted legislation created by Senate Bill 998, requiring a written policy for the District’s disconnection for non-payment procedures. ANALYSIS: In September 2018, Governor Jerry Brown signed Senate Bill 998 establishing the addition of Chapter 6, Discontinuation of Residential Water Service, to Part 12 of Division 104 of the Health and Safety Code. In addition to already existing state law regarding disconnection of water service, there are additional regulations set forth within this new Chapter. As an urban water supplier, the District is required to comply with these new regulations on and after February 1, 2020. AGENDA ITEM 7l Currently, the District’s disconnection procedures, located in Section 34 of the District’s code of Ordinances, were adopted based on requirements set forth in California Government Code Sections 60370-60375.5. With the changes made to the Health and Safety Code, the District will now need to ensure its disconnection procedures meet the requirements of both Codes. The following are items within Chapter 6 of the Health and Safety Code that will require a change to the District’s existing procedures: 1) The District is now required to have a written policy on the discontinuation of residential service for nonpayment available in English, Spanish, Vietnamese, Chinese, Tagalog, Korean, and any other language spoken by more than 10 percent of the customers in the District’s service area. The policy must be posted on the District’s website. 2) The District must post the number of annual discontinuations on its website and report that number to the State Water Resources Control Board. 3) The District shall not discontinue residential water service for nonpayment until a payment by a customer has been delinquent for 60 days. Currently, this requirement is 45 days. 4) The District must contact the customer named on the account by telephone or mailed written notice no less than seven business days before discontinuation of residential service for nonpayment. Currently, the requirement is to give at least 48 hours notification prior to service termination either via telephone or mailed notice. 5) If the District is unable to make contact via telephone or if the mailed written notice is returned as undeliverable, the District must visit the residence and leave, in a conspicuous place, notice of imminent discontinuation of residential service for nonpayment and the District’s written policy on the discontinuation of service. 6) The District cannot discontinue water service for nonpayment to a residential service if all the following conditions are met: a. The customer, or tenant of the customer, submits to the District the certification of a primary care provider that discontinuation of water service will be life threatening to, or pose serious threat to the health and safety of, a resident of the premises where residential service is provided. b. The customer demonstrates that he or she is financially unable to pay for residential service within the District’s normal billing cycle. The customer shall be deemed financially unable to pay if any member of the customer’s household is a current recipient of CalWORKS, CalFresh, general assistance, Medi-Cal, Supplemental Security Income/State Supplementary Payment Program, or California Special Supplemental Nutrition Program for Women, Infants, and Children, or the customer declares that the household’s annual income is less than 200 percent of the federal poverty level. c. The customer is willing to enter into an amortization agreement, alternative payment schedule, or a plan for deferred or reduced payment as determined by the District. 7) If, after 60 days, the customer fails to comply with the payment arrangement described in #6c or does not pay his or her current bill for at least 60 days, the District will need to post a final notice of intent to disconnect service at a conspicuous location at the property. Disconnection cannot occur any earlier than five days from the posting of this notice. 8) All written notices required in Chapter 6 of the Health and Safety Code shall also be provided in English, Spanish, Vietnamese, Chinese, Tagalog, Korean, and any other language spoken by more than 10 percent of the customers in the District’s service area. 9) For a customer that demonstrates household income below 200 percent of the federal poverty line, a reconnection fee cannot exceed fifty dollars ($50), with an annual adjustment for changes in the Consumer Price Index beginning January 1, 2021. In order to comply with the above requirements, Policy 54, Discontinuation of Water Service for Delinquent Accounts, has been created and Section 34, Issuance and Payment of Water Bills, and Appendix A have been modified. Based on input from the District’s Legal Counsel, Section 34 has been modified to only include a brief outline of the District’s billing and collection procedures. Policy 54 is a comprehensive document detailing the District’s billing, collection, and discontinuation procedures as required by the Health and Safety Code. Although SB 998 pertains solely to residential accounts, the District has historically maintained the same disconnection procedures for both residential and commercial accounts. Policy 54 maintains the disconnection procedures previously defined in Section 34 and adds the additional requirements for residential customers. Modifications to current notices will be made to ensure all conform to these new regulations. Staff will be working with a translation company to have all required written notices translated into the required languages. Staff is recommending one fee associated with this process, the delinquency tag fee, which is charged when a Field Technician is required to visit the property to hand-deliver a disconnection notice, be changed from $15 to $25 to reflect current staffing costs and additional notices that will need to be delivered. A visit to the property is rare as the District uses phone calls and/or mailed postcards as the official notification format. Under the new regulations, a copy of Policy 54 will need to be included with any hand delivered notices. Although these changes add complexity to the disconnection process, staff does not feel it will significantly impact the District’s ability to collect. Currently, District customers are given multiple notifications about delinquent balances (texts, emails, phone calls, and, if necessary, mailed post cards). Customer Service makes every effort to assist any customer who calls prior to disconnection with appropriate payment extensions or arrangements, and customers with a note from a medical professional stating water is necessary for health are given additional time to pay as needed. Bad debt expense will be the financial area primarily impacted by the new legislation. In FY 2019, residential bad debt expense was approximately $75,000 or 0.1% of the potable operating budget. Currently, most residential customers are disconnected between 50 and 55 days delinquent. Under the new legislation, customers will be disconnected at 60 days delinquent, which equates to an additional 5 to 10 days of water use. Staff estimates that these additional days will result in a $12,000 proportionate increase in annual bad debt expense. Translation services are estimated to be a one-time cost of $4,000. FISCAL IMPACT: Joe Beachem, Chief Financial Officer The changes mentioned in this report go into effect in January 2020, and staff has incorporated the projected financial impact in the FY 2020 budget and six-year rate model. STRATEGIC GOAL: Commitment to customer-centered service is our highest priority. LEGAL IMPACT: None. Attachments: A) Committee Action B) Resolution No. 4372 Exhibit 1 – Policy No. 54 C) Ordinance No. 576 Exhibit 1 – Section 34 Strike-through Exhibit 2 – Section 34 Proposed Exhibit 3 – Appendix A Strike-through Exhibit 4 – Appendix A Proposed ATTACHMENT A SUBJECT/PROJECT: Adopt Resolution No. 4372 establishing Policy 54 Discontinuation of Water Service for Delinquent Accounts; and Adopt Ordinance No. 576 to amend Section 34, Issuance and Payment of Water Bills and Appendix A of the District’s Code of Ordinances effective January 1, 2020 COMMITTEE ACTION: The Finance and Administration Committee reviewed this item at a meeting held on October 23, 2019 and the following comments were made: • Staff is requesting that the Board adopt Resolution No. 4372 establishing Policy 54, Discontinuation of Water Service for Delinquent Accounts; and adopt Ordinance No. 576 to amend Section 34, Issuance and Payment of Water Bills and Appendix A of the District’s Code of Ordinances effective January 1, 2020. • Staff presented information in the staff report. • In response to an inquiry from the Committee, staff indicated the new statute states that a customer’s water service cannot be shut off if the customer has certification from their primary care provider that it would be life threatening or pose a serious threat to the health and safety of a resident of the premises. The new requirements also indicates that customers not only need documentation from a primary care provider, but they must also show that they are in one of the financial positions listed on the bottom of page 6 and top of page 7 in Exhibit 1 of the staff report. Staff indicated that it is very rare that the District receives such a certification/documentation. • Staff indicated that the changes in Exhibit 1 provides the District the ability to ask for documentation from the customer’s primary care provider if a customer claims it would be life threatening or pose a serious threat to the health and safety of a resident on their premises. The District, however, would not necessarily require the medical documentation unless the situation requires it. The District generally would move directly to working with customers on a payment plan when they are having difficulty paying their water bills. • Staff indicated that customers must still pay their water bill and the District will work with customers on a payment plan. If they do not honor their payment plan, the District can shut their water service off. Upon completion of the discussion, the committee supported staff’s recommendation and presentation to the full board on the consent calendar. Page 1 of 2 RESOLUTION NO.4372 WHEREAS, Senate Bill No. 998, establishing the addition of Chapter 6, Discontinuation of Residential Water Service, to Part 12 of Division 104 of the Health and Safety Code, establishes the requirement of a written policy on discontinuation of residential service for nonpayment; and WHEREAS, prior to the passage of Senate Bill No. 998, Chapter 6, Discontinuation of Residential Water Service, to Part 12 of Division 104 of the Health and Safety Code, a policy on discontinuation of residential service for nonpayment was not required; and WHEREAS, the Otay Water District Board of Directors has been presented with Policy No. 54 Discontinuation of Water Service for Delinquent Accounts, to establish a policy for discontinuation of service for nonpayment; and WHEREAS, Policy No. 54 has been reviewed and considered by the Board, and it is in the interest of the District to adopt Policy No. 54; WHEREAS, a copy of the proposed policy is attached as Exhibit 1 to this resolution; and A RESOLUTION OF THE BOARD OF DIRECTORS OF THE OTAY WATER DISTRICT TO COMPLY WITH SENATE BILL No. 998 BY ADOPTING POLICY NO.54 DISCONTINUATION OF WATER SERVICE FOR DELINQUENT ACCOUNTS OF THE DISTRICT’S CODE OF ORDINANCES Page 2 of 2 WHEREAS, staff plans to start complying with Senate Bill No. 998 on January 1, 2020. NOW, THEREFORE, BE IT RESOLVED, DETERMINED AND ORDERED by the Board of Directors of the Otay Water District that the proposed Discontinuation of Water Service for Delinquent Accounts policy, incorporated herein as Exhibit 1, shall become effective on January 1, 2020. PASSED, APPROVED AND ADOPTED by the Board of Directors of Otay Water District at a board meeting held this 6th day of November 2019, by the following vote: Ayes: Noes: Abstain: Absent: _______________________ President ATTEST: ____________________________ District Secretary OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised DISCONTINUATION OF WATER SERVICE FOR DELINQUENT ACCOUNTS 54 Page 1 of 8 I.PURPOSE This Discontinuation of Water Service for Delinquent Accounts Policy (Policy) has been established to adhere to the laws regarding discontinuation of water service for residential customers due to non- payment of their water bill as required by Government Code § 60370 et seq. and Health & Safety Code § 116900 et seq. (California Senate Bill No. 998). II.BACKGROUND California Senate Bill No. 998 requires an urban or community water system, that supplies water to more than 200 service connections, to have a written policy that provides for discontinuation of residential water service for nonpayment. In the event that a water bill becomes delinquent, the District will apply this Policy for the collection of delinquent accounts, including notifications, fee assignments, and discontinuation of service. The District can be contacted by phone at (619)670-2222 to discuss options for avoiding discontinuation of water service for nonpayment under the terms of this policy. III.POLICY ISSUANCE, DUE DATE, AND FINAL PAYMENT DATE OF STATEMENT OF CHARGES FOR SERVICE A.Issuance of Statements. Statements for water service or other charges will be mailed or presented as soon as practicable after the water meter has been read and the applicable charges have been determined. B.Due Date. Each statement issued by the District for such charges shall be due and payable on the date of mailing or other presentation to the customer. C.Final Payment Date. All charges in each statement must be paid on or before the final payment date shown on the statement, which shall be at least 20 calendar days following the date of mailing or presentation of the statement. D.Payment of Charges. 1.Place of Payment. Payments shall not be credited to a customer's account until cash, check, credit card, draft, electronic funds transfer, money order, or any other OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised DISCONTINUATION OF WATER SERVICE FOR DELINQUENT ACCOUNTS 54 Page 2 of 8 acceptable form of payment that will be honored by a bank, has been received by the District at the District business office during regular office hours. Deposit of payment in the mail or at a location other than the District business office shall not be credited to a customer's account until it is received at the business office. 2. Returned Check Charges. A returned payment charge (see Appendix A, 34.01 D.2. for charge) shall be added to a customer's account in each instance where payment has been made to the District with a check, draft, credit card, or any other acceptable form of payment that has not been honored upon presentment to the bank upon which it is drawn. DELINQUENT ACCOUNTS A. For Non-Payment of Charges. If full payment of a statement for a water service account is not received at the District business office on or before the final payment date, the account shall become delinquent on the day following the final payment date. B. Late Payment Charge. A late payment charge (see Appendix A, policy 54 for charge) shall be added to a delinquent account as of the date the account becomes delinquent, and such charge(s) shall become an inseparable part of the amount due as of that time. A late payment charge shall not be added to any account that has no outstanding delinquencies. C. Notice of Delinquency. A Delinquency Notice shall be mailed to each customer whose account is delinquent. The Delinquency Notice shall notify the customer that service will be turned off and discontinued unless payment is made. The Delinquency Notice shall indicate the amount due, including late payment charges, and that the total amount must be paid within thirty (30) calendar days from the date of mailing or presentation of the Delinquency Notice to the customer, or service will be discontinued. D. Record of Delinquent Accounts. The District maintains records of delinquent accounts. Each year one delinquency shall be removed from the record of each account that has one or more delinquencies. E. Partial Payment on Delinquent Account. A partial payment on a delinquent account may be accepted and credited to a customer's account. However, the partial payment shall not cause removal of the account from a delinquent status and OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised DISCONTINUATION OF WATER SERVICE FOR DELINQUENT ACCOUNTS 54 Page 3 of 8 furthermore, the partial payment shall not preclude the meter from being turned off for delinquency. F. Financial Arrangements for Delinquent Accounts. 1. Continuation of Service. The General Manager, Chief Financial Officer, or any person delegated by the General Manager, may authorize continuation of service for a delinquent account if financial arrangements, satisfactory to the District, have been established. 2. Requirement of Deposit Due to Repeated Delinquencies. If payments on a customer account have become delinquent five or more times, or if a meter has been turned off three or more times for non-payment of charges, the General Manager, Chief Financial Officer, or any person delegated by the General Manager, shall be authorized to require the customer to make a deposit with the District in cash, or any other form satisfactory to the General Manager. The deposit amount shall be established at the discretion of the General Manager and the Chief Financial Officer but shall not exceed two times the highest monthly bill during the twelve (12) months preceding the date of demand for a deposit. a. Handling of Deposit. A deposit for a delinquent account shall not earn interest and shall only be applied to reduce or satisfy amounts due the District in the event of termination of service. A deposit does not constitute payment for service bills and the customer shall be required to comply with bill payment requirements to continue receiving service. b. Refund of Deposit. A deposit required under this Section shall be refunded to the customer as provided in Section 25.04.A. G. Liens against Property for Delinquent Charges Upon written notice to the property owner, a lien against the property may be secured for unpaid bills. One or both of the following lien procedures may apply: 1. Judgement Lien. In case any charges for water or other services remain unpaid, the amount of the unpaid charges may in the discretion of the District be secured at any time by filing for recording in the office of the county recorder, a certificate specifying the amount of such charges and the OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised DISCONTINUATION OF WATER SERVICE FOR DELINQUENT ACCOUNTS 54 Page 4 of 8 name and address of the person liable therefor. The lien acquired thereby shall attach to all property within the County that is owned or thereafter acquired by the person with the delinquent account. Such lien shall have the force, priority, and effect of a judgment lien, and shall continue for 10 years from the filing date, unless released or discharged sooner. The lien may be extended, within 10 years from the filing of the certificate or within 10 years from the date of the last extension of the lien, by filing a new certificate in the office of the county recorder. A lien processing fee will be applied to any account against which a lien is filed (see Appendix A, policy 54 for charge). 2. Tax Lien. Any unpaid charges or fees that are at least 60 days past due on July 1, may become part of the annual taxes levied upon the property upon which service is provided. In addition, if the charges remain unpaid by July 1, the outstanding charges, plus a delinquent tax roll fee (see Appendix A, policy 54 for the charge) will be added to the “secure tax roll” of the County of San Diego for collection. These lien procedures shall be in addition to any termination of service procedures. H. Termination and Reinstatement of Water Service for Delinquent Accounts 1. Termination of Service. If payment is not made in accordance with a Delinquency Notice, and the account remains unpaid for at least 60 days, residential service may be discontinued. The water meter or meters for said delinquent account may be turned off and locked. a. The District shall contact the customer(s) named on the account by telephone or written notice no less than seven (7) business days before discontinuation of termination service. b. The District shall make a reasonable, good faith effort to contact an adult person residing at the premises identified on the account by telephone or in person, at least 48 hours prior to any termination of service. A delinquency tag fee will be charged (see Appendix A, policy 54 for charge) to the bill for a contact made in person. 2. Procedures for Occupants or Tenants to Become Customers of the District OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised DISCONTINUATION OF WATER SERVICE FOR DELINQUENT ACCOUNTS 54 Page 5 of 8 a. Scope. This section only applies when a property owner, landlord, manager, or operator of a residential service address is listed as the customer of record and has been issued a notice of intent to discontinue water service due to nonpayment. b. Where an owner or manager is listed by the Dis- trict as the customer of record of the service, the District shall, in good faith, make every effort to inform the actual users of the services when the account is in arrears by means of a Notice of Termination of Service that service will be terminated in ten days. c. Agreement to District Terms and Conditions of Service. The District will make service available to the actual residential occupants if each occupant agrees to the terms and conditions of service and meets the requirements of the District’s rules and regulations. Notwithstanding, if one or more of the occupants are willing and able to assume responsibility for the subsequent charges to the account to the satisfaction of the District, the District will make service available to the occupants who have met those requirements. d. Verification of Tenancy. In order for the amount due on the delinquent account to be waived, an occupant who becomes a customer will verify that the delinquent account customer of record is or was the landlord, manager, or agent of the dwelling. Verification may include, but is not limited to, a lease or rental agreement, rent receipts, a government document indicating that the occupant is renting the property, or information disclosed pursuant to Section 1962 of the Civil Code, at the discretion of the District. 3. Residential water service shall not be terminated for non-payment in any of the following situations: a. During an investigation by the District of a customer dispute or complaint. Any residential customer who has initiated a complaint or requested an investigation within five days of receiving the disputed bill or who has, within 13 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised DISCONTINUATION OF WATER SERVICE FOR DELINQUENT ACCOUNTS 54 Page 6 of 8 days of the mailing of the notice that the customer's service will be terminated for non- payment, or made a request for extension of the payment period of a bill asserted to be beyond the means of the customer to pay in full during the normal period for payment, shall be given an opportunity for a review by the General Manager, Chief Financial Officer, or any person designated by the General Manager. The review shall include consideration of whether the customer shall be permitted to amortize the unpaid balance of the account over a reasonable period of time, not to exceed 12 months. No termination of service shall be affected for any customer who complies with an amortization agreement, if the customer also keeps the account current as charges accrue in each subsequent billing period. Any customer, whose complaint or request for an investigation has resulted in an adverse determination by the District, may appeal the determination to the Board. b. When a customer has been granted an extension of the period for payment of a bill. c. In addition, the District will not terminate water service if all the following conditions are met: 1. The customer, or a tenant of the customer, submits certification from a primary care provider, as that term is defined in subparagraph (A) of paragraph (1) of subdivision (b) of Section 14088 of the Welfare and Institutions Code, that discontinuation of water service would be life threatening or pose a serious threat to the health and safety of a resident of the premises; and a. The customer is financially unable to pay within a normal billing cycle. This can be shown by either: Demonstrating that someone in the household is a recipient of one of the following programs: • CalWorks • CalFresh OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised DISCONTINUATION OF WATER SERVICE FOR DELINQUENT ACCOUNTS 54 Page 7 of 8 • General assistance • Medi-Cal • Supplemental Security Income/State Supplementary Payment Program • California Special Supplemental Nutrition Program for Women, Infants, and Children • Or declaring under penalty of perjury that household income is less than 200% of the federal poverty level; and b. The customer is willing to enter into an alternative payment arrangement, including an extension, amortization, or alternative payment schedule with respect to the delinquent charges. c. For customers who meet conditions a. and b. above, the District will offer one of the following options, to be selected by the District in its discretion: (i) an extension for payment, (ii) amortization of the outstanding balance or (iii) an alternative payment schedule. d. Termination of service. 1. If the customer fails to comply with an amortization agreement, alternative payment schedule, payment extension for 60 days or more, or if the customer does not pay his or her current residential service charges for at least 60 days, residential service may be discontinued no sooner than five (5) business days after the District posts a final notice of intent to disconnect services in a prominent and conspicuous location at the property. A delinquency tag fee will be charged (see Appendix A, policy 54 for charge) to the bill for a contact made in person. 2. Termination of service shall not occur on any Friday, Saturday, Sunday, legal holiday, or OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Number Date Adopted Date Revised DISCONTINUATION OF WATER SERVICE FOR DELINQUENT ACCOUNTS 54 Page 8 of 8 at any time during which the business offices of the District are not open to the public. 4. Reinstatement of Service. Reinstatement of service will occur during normal business hours of Monday through Friday 8:00am and 5:00pm. Water service terminated for delinquency may not be reinstated until all amounts due and payable, including late payment charges and lock charges, have been paid at the District business office, or unless credit arrangements satisfactory to the District have been made. Accounts that have payments received at the District office after 4:30pm may not have service restored until the next business day. 5. Meter Lock Charge. A lock charge will be assessed to any account that has been terminated for non-payment. The charge to terminate service is set forth in Appendix A, 34.02 C. References A. California Water Code div. 1, ch. 1, § 106.3 B. California Health & Safety Code, div. 104, part 2, ch. 6, § 116900 et seq. (SB 998 [2018]) C. California Government Code, tit. 6, div. 1, § 60370 et seq. D. California Civil Code div. 3, part 2, title 2, § 1632 1 ORDINANCE NO. 576 AN ORDINANCE OF THE BOARD OF DIRECTORS OF THE OTAY WATER DISTRICT AMENDING SECTION 34, ISSUANCE AND PAYMENT OF WATER BILLS AND APPENDIX A OF THE DISTRICT’S CODE OF ORDINANCES BE IT ORDAINED by the Board of Directors of Otay Water District that the District’s Code of Ordinances Section 34, Issuance and Payment of Water Bills; and Appendix A be amended as per Exhibits 1, 2, 3 & 4 (attached). NOW, THEREFORE, BE IT RESOLVED that the new proposed Section 34, Issuance and Payment of Water Bills (Exhibit 2) and Appendix A (Exhibit 4) of the Code of Ordinances shall become effective on January 1, 2020. PASSED, APPROVED AND ADOPTED by the Board of Directors of the Otay Water District at a regular meeting duly held this 6th day of November 2019, by the following roll call vote: AYES: NOES: ABSENT: ABSTAIN: ________________________________ President ATTEST: ________________________ District Secretary 34-1 SECTION 34 ISSUANCE AND PAYMENT OF WATER BILLS 34.01 ISSUANCE, DUE DATE AND FINAL PAYMENT DATE OF STATEMENT OF CHARGES FOR SERVICE A.Issuance of Statements. Statements for water service or other charges will be mailed or presented as soon as practicable after the water meter has been read and the applicable charges have been determined. B.Due Date.Each statement issued by the District for such charges shall be due and payable on the date of mailing or other presentation to the customer. C.Final Payment Date. All charges in each statement must be paid on or before the final payment date shown on the statement, which shall be at least 20 calendar days following the date of mailing or presentation of the statement. D.Payment of Charges. 1. Place of Payment. Payments shall not be credited to a customer's account until cash, check, credit card, draft, electronic funds transfer, money order, or any other acceptable form of payment that will be honored by the bank has been received by the District at the District business office during regular office hours. Deposit of payment in the mail or at a location other than the District business office shall not be credited to a customer's account until received at the business office. 2.Returned Check Charges. A returned payment charge (see Appendix A, 34.01 D.2. for charge) shall be added to a customer's account in each instance where payment has been made to the District with a check, draft, credit card or any other acceptable form of payment that has not been honored upon presentment to the bank upon which it is drawn. 34.02 DELINQUENT ACCOUNTS A.For Non-Payment of Charges. If full payment of a statement for a water service account is not received at the District business office on or before the final payment date, the account shall become delinquent. 34-2 B. Late Payment Charge. A late payment charge (see Appendix A, 34.02 B. for charge) of the total amount delinquent shall be added to each delinquent account at the time any amount becomes delinquent, provided that the charge shall not be made on any account which at that time has no delinquencies of record. When a late payment charge is made, such shall be added to the delinquent account as of the date the account becomes delinquent and such charges shall become an inseparable part of the amount due as of that time. C. Notice of Delinquency. A delinquency notice shall be mailed to each customer whose account is delinquent, notifying the customer that service will be turned off unless payment is made. The notice shall indicate the amount due, including late payment charges, and that the total amount must be paid within fifteen (15) calendar days from the date of mailing or presentation of the notice to the customer, or service will be discontinued. D. Record of Delinquent Accounts. The District maintains records of delinquent accounts. Each year one delinquency shall be removed from the record of each account that has one or more delinquencies. E. Partial Payment on Delinquent Account. A partial payment on a delinquent account may be accepted and credited to a customer's account; however, the partial payment shall not cause removal of the account from a delinquent status and furthermore, the partial payment shall not preclude the meter from being turned off for delinquency. F. Financial Arrangements for Delinquent Accounts. 1. Continuation of Service. The General Manager, Chief Financial Officer, or any person delegated by the General Manager, may authorize continuation of service to a delinquent account if financial arrangements, satisfactory to the District, have been established. 2. Requirement of Deposit Due to Repeated Delinquencies. If payments on a customer account have become delinquent five or more times, or if a meter has been turned off three or more times for non-payment of charges, the General Manager, Chief Financial Officer, or any person delegated by the General Manager, shall be authorized to require the customer to make a deposit with the District, in 34-3 cash or any other form satisfactory to the General Manager. The deposit amount shall be established at the discretion of the General Manager and the Chief Financial Officer, but shall not exceed two times the highest monthly bill during the twelve (12) months preceding the date of demand for a deposit. (a) Handling of Deposit. A deposit shall not earn interest and shall only be applied to reduce or satisfy amounts due the District in the event of termination of service. A deposit does not constitute payment for service bills and the customer shall be required to comply with bill payment requirements to continue receiving service. (b) Refund of Deposit. A deposit required under this Section shall be refunded to the customer as provided in Section 25.04.A. G. Liens against Property for Delinquent Charges Upon written notice to the property owner, a lien against the property may be secured for unpaid bills. One or both of the following lien procedures may apply: 1. Judgement Lien. In case any charges for water or other services remain unpaid, the amount of the unpaid charges may, in the discretion of the District, be secured at any time by filing for record in the Office of the County Recorder, a certificate specifying the amount of such charges and the name and address of the person liable therefore. The lien acquired thereby shall attach to all property within the County that is owned or thereafter acquired by the person. Such lien shall have the force, priority and effect of a judgment lien and shall continue for 10 years from the filing date, unless released or discharged sooner. The lien may be extended, within 10 years from the filing of the certificate or within 10 years from the date of the last extension of the lien, by filing a new certificate in the Office of the County Recorder. A service charge will be applied to any account where a lien is filed (see Appendix A 34.02 G.1. for charge). 2. Tax Lien. Any unpaid charges or fees that are at least 60 days past due on July 1, may become part of the annual taxes levied upon the property upon which service is provided. In addition, if the charges remain unpaid by July 1, the outstanding charges, plus 34-4 a service charge (see Appendix A 34.02 G.2. for charge) will be added to the “secure tax roll” of the County of San Diego for collection. These lien procedures shall be in addition to any termination of service procedures. H. Termination and Reinstatement of Water Service Under Delinquent Accounts 1. Termination of Service. The water meter or meters under delinquent accounts may be turned off and locked if payment has not been made in accordance with the Notice of Delinquency. (a) Where an owner or manager is listed by the District as the customer of record of the service, the District shall make every good faith effort to inform the actual users of the services when the account is in arrears by means of a notice that service will be terminated in ten days. The notice shall further inform the actual users that they have the right to become customers of the District without being required to pay the amount due on the delinquent account. (b) Residential water service shall not be termi- nated for non-payment in any of the following situations: (1) During an investigation by the District of a customer dispute or complaint. Any residential customer who has initiated a complaint or requested an investigation within five days of receiving the disputed bill, or who has, within 13 days of the mailing of the notice that the customer's service will be terminated for non-payment, or made a request for exten- sion of the payment period of a bill asserted to be beyond the means of the customer to pay in full during the normal period for payment, shall be given an opportunity for a review. The review shall include consideration of whether the customer shall be permitted to amortize the unpaid balance of the account over a reasonable period of time not to exceed 12 months. No termination of service shall be affected for any customer complying with an amortization agreement, if the customer also keeps the 34-5 account current as charges accrue in each subsequent billing period. Any customer, whose complaint or request for an investigation has resulted in an adverse determination by the District, may appeal the determination to the Board. (2) When a customer has been granted an extension of the period for payment of a bill. (3) On the certification of a licensed physi- cian and surgeon that to do so will be life threatening to the customer and the customer is financially unable to pay for service within the normal payment period and is willing to enter into an amortiza- tion agreement to pay the unpaid balance of any bill asserted to be beyond the means of the customer over a period not to exceed 12 months. (c) The ten-day notice of proposed termination may not be sent to the customer until at least 19 days from the date of mailing of the bill for services. The ten-day period shall not com- mence until five days after the mailing of the notice. (d) The District shall make a reasonable, good faith effort to contact an adult person resid- ing at the premises of the customer by tele- phone or in person, at least 48 hours prior to any termination of service. A charge (see Appendix A, 34.02 H.1. (d) for charge) shall be added to the bill for a contact made in person. (e) Every notice of termination of service pursuant to subdivisions (a) and (c) shall include all of the following information: (1) The name and address of the customer whose account is delinquent. (2) The amount of the delinquency. (3) The date by which payment or arrangements for payment is required in order to avoid termination. 34-6 (4) The procedure by which the customer may initiate a complaint or request an inves- tigation concerning service or charges, except that if the bill for service con- tains a description of that procedure, then the notice is not required to contain that information. (5) The procedure by which the customer may request amortization of the unpaid charges. (6) The procedure for the customer to obtain information on the availability of finan- cial assistance including private, local, state or federal sources, if applicable. (7) The telephone number of a representative of the District who can provide additional information or institute arrangements for payment. (f) If a residential customer fails to comply with an amortization agreement, the District shall not terminate service without giving notice to the customer at least 48 hours prior to termi- nation of the conditions the customer is required to meet to avoid termination, but the notice does not entitle the customer to further investigation by the District. (g) Termination of service shall not occur on any Friday, Saturday, Sunday, legal holiday or at any time during which the business offices of the District are not open to the public. (h) No termination of service may be affected without compliance with this section and any service wrongfully terminated shall be restored, without charge, for the restoration of service. (See California Government Code Section 60373.) 2. Reinstatement of Service. Water service terminated for delinquency may not be reinstated until all amounts due and payable, including late payment charges and meter "turn-on" charges, have been paid at the District business office, or unless credit arrangements satisfactory to the District have been made. 34-7 3. Meter "Turn-On" Charge. A "turn-on" charge shall be made for turning on any meter which has previously been turned off for a delinquent account. The charge to turn-on a meter is set forth in Appendix A, 34.02 H.3. 34-1 SECTION 34 ISSUANCE AND PAYMENT OF WATER BILLS 34.01 ISSUANCE, DUE DATE, AND FINAL PAYMENT DATE OF STATEMENT OF CHARGES FOR SERVICE A.Issuance of Statements. Statements for water service or other charges will be mailed or presented as soon as practicable after the water meter has been read and the applicable charges have been determined. B.Due Date. Each statement issued by the District for such charges shall be due and payable on the date of mailing or other presentation to the customer. C.Final Payment Date. All charges in each statement must be paid on or before the final payment date shown on the statement, which shall be at least 20 calendar days following the date of mailing or presentation of the statement. D.Payment of Charges. 1. Place of Payment. Payments shall not be credited to a customer's account until cash, check, credit card, draft, electronic funds transfer, money order, or any other acceptable form of payment that will be honored by the bank has been received by the District at the District business office during regular office hours. Deposit of payment in the mail or at a location other than the District business office shall not be credited to a customer's account until it is received at the business office. 2.Returned Check Charges. A returned payment charge (see Appendix A, 34.01 D.2. for charge) shall be added to a customer's account in each instance where payment has been made to the District with a check, draft, credit card or any other acceptable form of payment that has not been honored upon presentment to the bank upon which it is drawn. 34.02 DELINQUENT ACCOUNTS A.If full payment of a statement for a water service account is not received at the District business office on or before the final payment date, the account shall become delinquent, a late payment charge will be assessed and the customer’s service may be terminated, the water may be turned off and locked. Please see Policy 54, Discontinuation of 34-2 Water Service for Delinquent Accounts for additional information. B. Reinstatement of Service. Reinstatement of service will occur during normal business hours of Monday through Friday 8:00am and 5:00pm. Water service terminated for delinquency may not be reinstated until all amounts due and payable, including late payment charges and lock charges, have been paid at the District business office, or unless credit arrangements satisfactory to the District have been made. Accounts that have payments received at the District office after 4:30pm may not have service restored until the next business day. C. Meter Lock Charge. A lock charge will be assessed to any account that has been terminated for non-payment. The charge to terminate service is set forth in Appendix A, 34.02 C. Section #Code #Fee Description Meter Size 9 9.04 A.1.District Annexation Processing Fee $827.54 9.04 B. Annexation Fees for Water Annexations into Otay Water District Boundaries Districtwide Annexation Fee 3/4"$2,104.11 1"$5,260.28 1-1/2"$10,520.55 2"$16,832.88 3"$33,665.76 4 $52,602.75 6"$105,205.50 8"$168,328.80 10"$241,972.65 9.04 C.4. Annexation Fees for Annexations to Sewer Improvement Districts per EDU $1,151.04 10 10.01 Waiver Request $50.00 23 23.04 Backflow Certification - Second Notification $10.00 - Third Notification $25.00 - Third Notification (hand delivered)$45.00 - Reconnection $50.00 - Reconnection (if test performed with technician present)$150.00 - Initial Filing Fee (New applicants for addition to the list of approved backflow prevention device testers)$25.00 - Renewal Filing Fee (to remain on list of approved backflow prevention device testers)Annually $10.00 25 25.03 A. Set-up Fees for Accounts $15.00 25 25.03 B. Monthly MWD & CWA Fixed System Charges (1)3/4"$15.56 1"$28.89 1-1/2"$65.31 2"$111.10 3"$236.29 Otay Water District Appendix A Charges (1)All Water used in December and billed in January 2020. EXHIBIT 3 Section #Code #Fee Description Meter Size Charges 25 25.03 B. Monthly MWD & CWA Fixed System Charges (1) (continued)4" $378.38 6" $774.56 8" $1,250.83 10" $1,800.41 25 25.03 C.1. Domestic Residential Monthly Fixed System Charges (1)3/4" $18.87 1" $26.67 1-1/2" $46.13 2" $69.49 25 25.03 C.2. Multi-Residential Monthly Fixed System Charges (1)3/4" $41.49 1" $58.59 1-1/2" $101.38 2" $152.67 3" $289.53 4" $443.54 6" $871.38 8" $1,384.73 10" $1,983.62 25 25.03 C.3. Business and Publicly-Owned Monthly Fixed System Charges (1)3/4" $39.08 1" $55.19 1-1/2" $95.50 2" $143.82 3" $272.73 4" $417.79 6" $820.82 8" $1,304.36 10" $1,868.46 25 25.03 C.4.3/4" $33.00 1" $46.61 1-1/2" $80.65 2" $121.44 3" $230.32 4" $352.85 6" $693.20 8" $1,101.58 10" $1,577.99(1) All Water used in December and billed in January 2020. Irrigation and Commercial Agricultural Monthly Fixed System Charges (1) Section #Code #Fee Description Meter Size Charges 25 25.03 C.5. - Irrigation 3/4" $33.95 1" $47.95 1-1/2" $82.97 2" $124.94 3" $236.94 4" $362.99 6" $724.02 8" $1,133.22 10" $1,623.32 25 25.03 C.6. - Commercial 3/4" $40.21 1" $56.78 1-1/2" $98.27 2" $148.00 3" $280.65 4" $429.92 6" $844.62 8" $1,342.20 10" $1,922.69 25 25.03 D.1.(b) Domestic Residential Water Rates (1)Unit Charge 1-10 $3.31 11-22 $5.91 23 or more $7.63 25 25.03 D.2.(b) Multi-Residential Water Rates - Per Dwelling Unit (1)0-4 $3.09 5-9 $5.61 10 or more $6.90 25 25.03 D.3.(b) Business and Publicly-Owned Water Rates (1)All Units $3.92 25 25.03 D.4.(c) Irrigation and Commercial Agricultural Using Potable Water Rates (1)All Units $5.72 25 25.03 D.5.(c)Recycled Irrigation Water Rates (1)All Units $4.65 25 25.03 D.6.(c)Recycled Commercial Water Rates (1)All Units $3.29 (1) All Water used in December and billed in January 2020. Recyled Monthly Fixed System Charges (1) Recyled Monthly Fixed System Charges (1) Section #Code #Fee Description Meter Size Charges 25 25.03 D.7.(b) Potable Temporary and Construction Water Service Rates (1)All Units $11.44 25 25.03 D.8.(b) Recycled Temporary and Construction Water Service Rates (1)All Units $9.30 25 25.03 D.10.(b) Tank Trucks Water Rates (1)All Units $11.44 25 25.03 D.11.(c) Application Fee for Water Service Outside District Boundaries $500.00 25 25.03 D.11.(d) Water Rate for Service Outside District Boundaries (1)All Units $11.44 25 25.03 D.12.(b) Application Fee for Water Service Outside an Improvement District $275.00 25 25.03 D.12.(c) Water Rate for Service Outside Improvement District (1)All Units $11.44 25 25.03 D.13.(c) Fire Service Monthly Charge 3" or less $22.55 more than 4"$30.38 25 25.03 D.14.(b)Government Fee Per Unit $0.42 25 25.03 D.15.(b)Interim Service Water Rate(1)All Units $11.44 25 25.03 E.Energy Charges for Pumping Water (1) Per 100 ft of lift over 450 ft per unit $0.06 25 25.04 A.Deposits for Non-Property Owners 3/4"$100.00 1"$200.00 1-1/2"$250.00 2"$400.00 3"$1,000.00 4"$1,350.00 6"$3,300.00 8"$7,000.00 10"$10,000.00 (1) All Water used in December and billed in January 2020. Section #Code #Fee Description Meter Size Charges 28 28.01 B.1.Capacity Fees and Zone Charge Districtwide Capacity Fee - All IDs excluding Triad 3/4" $7,660.34 1" $19,150.85 1-1/2" $38,301.70 2" $61,282.72 3" $122,565.44 4 $191,508.50 6" $383,017.00 8" $612,827.20 10" $880,939.10 - TRIAD 3/4" $5,746.79 1" $14,366.98 1 -1/2" $28,733.95 2" $45,974.32 3" $91,948.64 4 $143,669.75 6" $287,339.50 8" $459,743.20 10" $660,880.85 28 28.01 B.2.New Water Supply Fee - All IDs including Triad 3/4" $831.53 1" $2,078.83 1-1/2" $4,157.65 2" $6,652.24 3" $13,304.48 4" $20,788.25 6" $41,576.50 8" $66,522.40 10" $95,625.95 28 28.02 Installation and Water Meter Charges Meter Size Meter Cost Installation Total Meter Box/Vault (if Needed) - Potable (Non-Irrigation)3/4" x 7.5"$236.25 $112.11 $348.36 $95.18 3/4" x 9"$251.53 $112.11 $363.64 $95.18 1"$304.86 $112.11 $416.97 $95.18 1.5"$495.51 $112.11 $607.62 $215.76 2"$710.01 $112.11 $822.12 $215.76 3"$2,212.68 $674.99 $2,887.67 $3,848.86 4"$3,843.08 $674.99 $4,518.07 $3,848.86 6"$6,638.04 $1,066.20 $7,704.24 $3,848.86 8"$8,293.74 $1,634.92 $9,928.66 $5,521.46 10"$11,927.94 $1,634.92 $13,562.86 $5,521.46 Section #Code #Fee Description Meter Size Charges 28 28.02 - Potable/Recycled Irrigation 3/4" x 7.5"$236.25 $112.11 $348.36 $242.55 3/4" x 9"$251.53 $112.11 $363.64 $242.55 1"$304.86 $112.11 $416.97 $242.55 1.5"$495.51 $112.11 $607.62 $242.55 2"$710.01 $112.11 $822.12 $242.55 3"$1,531.40 $674.99 $2,206.39 $3,848.86 4"$2,981.40 $674.99 $3,656.39 $3,848.86 6"$5,367.49 $1,066.20 $6,433.69 $3,848.86 8"$7,150.46 $1,634.92 $8,785.38 $5,521.46 10"$10,147.04 $1,634.92 $11,781.96 $5,521.46 - Combined Fire and Domestic 4"$9,143.03 $674.99 $9,818.02 $3,848.86 6"$12,168.57 $1,066.20 $13,234.77 $3,848.86 8"$17,692.22 $1,634.92 $19,327.14 $5,521.46 10"$24,144.03 $1,634.92 $25,778.95 $5,521.46 31 31.03 A.1. Requirement of Deposit for Temporary Meters 3/4"$156.85 1"$184.78 1-1/2"$379.62 2"$2,046.00 4"$1,986.00 6"$2,465.00 - Construction Trailer Temporary Meter 2"$2,046.00 - Tank Truck Temporary Meter (Ordinance No. 372)2"$850.00 31 31.03 A.4.Temporary Meter Install & Removal 3/4" - 4" (on hydrant)$150.00 4" - 6"$806.00 8" - 10"Actual Cost 31 31.03 A.5. Temporary Meter Move Fee (includes backflow certification)3/4" - 4"(on hydrant)$150.00 4" - 6" $806.00 8" - 10"Actual Cost 33 33.07 A. Customer Request for Meter Test (Deposit)5/8", 3/4" & 1"$60.00 1-1/2" & 2 "$120.00 3" & Larger $300.00 34 34.01 D.2. Returned Check Charges $25.00 Installation and Water Meter Charges (continued) Section #Code #Fee Description Meter Size Charges 34 34.02 B.Late Payment Charge 5% of Delinquent Balance 34 34.02 G.1.Lien Processing Fee 50.00 34 34.02 G.2.Delinquent Tax Roll Fee 40.00 34 34.02 H.1.(d)Delinquency Tag $15.00 34 34.02 H.3.Meter "Turn-On" Charge $50.00 53 53.03 A.1.Sewer Capacity Fee within an ID $3,379.23 53 53.03 A.2.Sewer Capacity Fee per EDU outside an ID $5,781.67 53 53.03 B.1.Sewer Connection Fee - Russell Square $7,500.00 53 53.03 B.2.Monthly Sewer Service Charge - Russell Square $200.00 53 53.10 & 11 Set-up Fees for Accounts $15.00 53 53.10 Residential Sewer Rates (2) Rate multiplied by winter average units $2.93 53 53.10 Residential Monthly Fixed Sewer System Charges (2)5/8", 3/4" & larger $16.38 53 53.10 A.4. Residential Sewer Without Consumption History 5/8", 3/4" & larger $37.80 53 53.10 B.2.Multi-Residential Sewer Rates (2) Rate multiplied by winter average units $2.93 53 53.10 B.2. Multi-Residential Monthly Fixed Sewer System Charges (2).75"$16.38 1"$40.94 1.5"$81.88 2"$131.00 3"$245.64 4"$409.40 6"$818.79 8" $1,310.08 10"$1,883.23 (2) Sewer billed beginning January 1, 2020. Section #Code #Fee Description Meter Size Charges 53 53.10 B.3. Monthly Multi-Residential Sewer Rates without Consumption History (2) Per dwelling unit $19.20 53 53.11 Commercial and Industrial Sewer Rates Rate multiplied by Low Strength $2.93 annual avg.Medium Strength $3.64 units High Strength $5.01 53 53.11 Commercial and Industrial Monthly Fixed Sewer System Charges (2).75"$16.38 1"$40.94 1.5"$81.88 2"$131.00 3"$245.64 4"$409.40 6"$818.79 8" $1,310.0810"$1,883.23 60 60.03 Issuance of Availability Letters for Water and/or Sewer Service $75.00 72 72.04 A.1. Locking or Removing Damaged or Tampered Meters - To Pull and Reset Meter 3/4" - 2"$200.00 - Broken Curbstop or Tabs 3/4" - 1"Actual Cost - If Customer uses Jumper 3/4" - 1"Actual Cost - Broken Lock/Locking Device 3/4" - 1"$68.00 - Broken Curbstop or Tabs 1.5" - 2"Actual Cost - To Pull and Reset Meter 3"Actual Cost - To Pull and Reset Meter 4"Actual Cost - To Pull and Reset Meter 6"Actual Cost - To Pull and Reset Meter 8"Actual Cost - To Pull and Reset Meter 10"Actual Cost 72 72.05 D. Type I Fine - First Violation $100.00 - Second Violations $200.00 - Third or each additional violation of that same ordinance or requirement within a twelve-month period $500.00 (2) Sewer billed beginning January 1, 2020. Section #Code #Fee Description Meter Size Charges 72 72.05 D. Type II Fine $5,000.00 Type III Fine $500.00 Type IV Fine $500.00 State Water Code #71630 & Annual Board Resolution #4142 Water Availability/Standby Annual Special Assessment Charge $10.00 $30.00 $3.00 $3.00 State Water Code #71630 & Annual Board Resolution #4142 Sewer Availability/Standby Annual Special Assessment Charge $10.00 $30.00 Annual Board Resolution General Obligation Bond Annual Tax Assessment $0.005 Policies 5B Copies of Identifiable Public Records $0.20/page Per acre for outside I.D. & greater than one mile from District facilities. Less than one acre I.D. 18 Per acre I.D. 18 8 1/2" x 11" Per $1000 of assessed value for I.D. 27 Less than one-acre Outside I.D. and greater than one mile from District facilities. Fine up to amount specified per each day the violation is identified or continues. Fine up to amount specified per each day the violation is identified or continues. Less than one-acre all I.D.s & Outside an I.D. Per acre in I.D. 22 The cost for all other copy sizes is the direct cost of duplication. Will not exceed per each day the violation is identified or continues. Section #Code #Fee Description Meter Size 9 9.04 A.1.District Annexation Processing Fee $827.54 9.04 B. Annexation Fees for Water Annexations into Otay Water District Boundaries Districtwide Annexation Fee 3/4"$2,104.11 1"$5,260.28 1-1/2"$10,520.55 2"$16,832.88 3"$33,665.76 4 $52,602.756"$105,205.50 8"$168,328.80 10"$241,972.65 9.04 C.4. Annexation Fees for Annexations to Sewer Improvement Districts per EDU $1,151.04 10 10.01 Waiver Request $50.00 23 23.04 Backflow Certification - Second Notification $10.00 - Third Notification $25.00 - Third Notification (hand delivered)$45.00 - Reconnection $50.00 - Reconnection (if test performed with technician present)$150.00 - Initial Filing Fee (New applicants foraddition to the list of approved backflow prevention device testers)$25.00 - Renewal Filing Fee (to remain on list of approved backflow prevention device testers)Annually $10.00 25 25.03 A. Set-up Fees for Accounts $15.00 25 25.03 B. Monthly MWD & CWA Fixed System Charges (1)3/4"$15.56 1"$28.89 1-1/2"$65.312"$111.10 3"$236.29 Otay Water District Appendix A Charges (1)All Water used in December and billed in January 2020. EXHIBIT 4 Section #Code #Fee Description Meter Size Charges 25 25.03 B. Monthly MWD & CWA Fixed System Charges (1) (continued)4" $378.38 6" $774.56 8" $1,250.83 10" $1,800.41 25 25.03 C.1. Domestic Residential Monthly Fixed System Charges (1)3/4" $18.871" $26.67 1-1/2" $46.13 2" $69.49 25 25.03 C.2. Multi-Residential Monthly Fixed System Charges (1)3/4" $41.49 1" $58.59 1-1/2" $101.38 2" $152.67 3" $289.53 4" $443.54 6" $871.38 8" $1,384.73 10" $1,983.62 25 25.03 C.3. Business and Publicly-Owned Monthly Fixed System Charges (1)3/4" $39.08 1" $55.19 1-1/2" $95.50 2" $143.82 3" $272.734" $417.79 6" $820.82 8" $1,304.36 10" $1,868.46 25 25.03 C.4.3/4" $33.00 1" $46.61 1-1/2" $80.65 2" $121.44 3" $230.32 4" $352.85 6" $693.20 8" $1,101.58 10" $1,577.99 Irrigation and Commercial Agricultural Monthly Fixed System Charges (1) (1) All Water used in December and billed in January 2020. Section #Code #Fee Description Meter Size Charges 25 25.03 C.5. - Irrigation 3/4" $33.95 1" $47.95 1-1/2" $82.97 2" $124.94 3" $236.94 4" $362.99 6" $724.02 8" $1,133.22 10" $1,623.32 25 25.03 C.6. - Commercial 3/4" $40.21 1" $56.78 1-1/2" $98.27 2" $148.00 3" $280.65 4" $429.92 6" $844.62 8" $1,342.2010" $1,922.69 25 25.03 D.1.(b) Domestic Residential Water Rates (1)Unit Charge 1-10 $3.31 11-22 $5.91 23 or more $7.63 25 25.03 D.2.(b) Multi-Residential Water Rates - Per Dwelling Unit (1)0-4 $3.09 5-9 $5.61 10 or more $6.90 25 25.03 D.3.(b) Business and Publicly-Owned Water Rates (1)All Units $3.92 25 25.03 D.4.(c) Irrigation and Commercial Agricultural Using Potable Water Rates (1)All Units $5.72 25 25.03 D.5.(c)Recycled Irrigation Water Rates (1)All Units $4.65 25 25.03 D.6.(c)Recycled Commercial Water Rates (1)All Units $3.29 Recyled Monthly Fixed System Charges (1) Recyled Monthly Fixed System Charges (1) (1) All Water used in December and billed in January 2020. Section #Code #Fee Description Meter Size Charges 25 25.03 D.7.(b) Potable Temporary and Construction Water Service Rates (1)All Units $11.44 25 25.03 D.8.(b) Recycled Temporary and Construction Water Service Rates (1)All Units $9.30 25 25.03 D.10.(b) Tank Trucks Water Rates (1)All Units $11.44 25 25.03 D.11.(c) Application Fee for Water Service Outside District Boundaries $500.00 25 25.03 D.11.(d) Water Rate for Service Outside District Boundaries (1)All Units $11.44 25 25.03 D.12.(b) Application Fee for Water Service Outside an Improvement District $275.00 25 25.03 D.12.(c) Water Rate for Service Outside Improvement District (1)All Units $11.44 25 25.03 D.13.(c) Fire Service Monthly Charge 3" or less $22.55 more than 4"$30.38 25 25.03 D.14.(b)Government Fee Per Unit $0.42 25 25.03 D.15.(b)Interim Service Water Rate(1)All Units $11.44 25 25.03 E.Energy Charges for Pumping Water (1) Per 100 ft of lift over 450 ft per unit $0.06 25 25.04 A.Deposits for Non-Property Owners 3/4"$100.00 1"$200.00 1-1/2"$250.00 2"$400.00 3"$1,000.00 4"$1,350.00 6"$3,300.00 8"$7,000.00 10"$10,000.00 (1) All Water used in December and billed in January 2020. Section #Code #Fee Description Meter Size Charges 28 28.01 B.1.Capacity Fees and Zone Charge Districtwide Capacity Fee - All IDs excluding Triad 3/4" $7,660.34 1" $19,150.85 1-1/2" $38,301.70 2" $61,282.72 3" $122,565.44 4 $191,508.50 6" $383,017.00 8" $612,827.20 10" $880,939.10 - TRIAD 3/4" $5,746.791" $14,366.98 1 -1/2" $28,733.95 2" $45,974.32 3" $91,948.64 4 $143,669.75 6" $287,339.50 8" $459,743.20 10" $660,880.85 28 28.01 B.2.New Water Supply Fee - All IDs including Triad 3/4" $831.53 1" $2,078.83 1-1/2" $4,157.652" $6,652.24 3" $13,304.48 4" $20,788.25 6" $41,576.50 8" $66,522.40 10" $95,625.95 28 28.02 Installation and Water Meter Charges Meter Size Meter Cost Installation Total Meter Box/Vault (if Needed) - Potable (Non-Irrigation)3/4" x 7.5"$236.25 $112.11 $348.36 $95.18 3/4" x 9"$251.53 $112.11 $363.64 $95.18 1"$304.86 $112.11 $416.97 $95.18 1.5"$495.51 $112.11 $607.62 $215.76 2"$710.01 $112.11 $822.12 $215.76 3"$2,212.68 $674.99 $2,887.67 $3,848.864"$3,843.08 $674.99 $4,518.07 $3,848.86 6"$6,638.04 $1,066.20 $7,704.24 $3,848.86 8"$8,293.74 $1,634.92 $9,928.66 $5,521.46 10"$11,927.94 $1,634.92 $13,562.86 $5,521.46 (1) All Water used in December and billed in January 2020. Section #Code #Fee Description Meter Size Charges 28 28.02 - Potable/Recycled Irrigation 3/4" x 7.5"$236.25 $112.11 $348.36 $242.55 3/4" x 9"$251.53 $112.11 $363.64 $242.55 1"$304.86 $112.11 $416.97 $242.55 1.5"$495.51 $112.11 $607.62 $242.55 2"$710.01 $112.11 $822.12 $242.55 3"$1,531.40 $674.99 $2,206.39 $3,848.86 4"$2,981.40 $674.99 $3,656.39 $3,848.86 6"$5,367.49 $1,066.20 $6,433.69 $3,848.86 8"$7,150.46 $1,634.92 $8,785.38 $5,521.46 10"$10,147.04 $1,634.92 $11,781.96 $5,521.46 - Combined Fire and Domestic 4"$9,143.03 $674.99 $9,818.02 $3,848.86 6"$12,168.57 $1,066.20 $13,234.77 $3,848.86 8"$17,692.22 $1,634.92 $19,327.14 $5,521.46 10"$24,144.03 $1,634.92 $25,778.95 $5,521.46 31 31.03 A.1. Requirement of Deposit for Temporary Meters 3/4"$156.85 1"$184.78 1-1/2"$379.62 2"$2,046.00 4"$1,986.00 6"$2,465.00 - Construction Trailer Temporary Meter 2"$2,046.00 - Tank Truck Temporary Meter (Ordinance No. 372)2"$850.00 31 31.03 A.4.Temporary Meter Install & Removal 3/4" - 4" (on hydrant)$150.00 4" - 6"$806.00 8" - 10"Actual Cost 31 31.03 A.5. Temporary Meter Move Fee (includes backflow certification)3/4" - 4"(on hydrant)$150.00 4" - 6" $806.00 8" - 10"Actual Cost 33 33.07 A. Customer Request for Meter Test (Deposit)5/8", 3/4" & 1"$60.00 1-1/2" & 2 "$120.00 3" & Larger $300.00 34 34.01 D.2. Returned Check Charges $25.00 34 34.02 C Meter Lock Charge $50.00 Installation and Water Meter Charges (continued) Section #Code #Fee Description Meter Size Charges 53 53.03 A.1.Sewer Capacity Fee within an ID $3,379.23 53 53.03 A.2.Sewer Capacity Fee per EDU outside an ID $5,781.67 53 53.03 B.1.Sewer Connection Fee - Russell Square $7,500.00 53 53.03 B.2.Monthly Sewer Service Charge - Russell Square $200.00 53 53.10 & 11 Set-up Fees for Accounts $15.00 53 53.10 Residential Sewer Rates (2) Rate multiplied by winter average units $2.93 53 53.10 Residential Monthly Fixed Sewer System Charges (2)5/8", 3/4" & larger $16.38 53 53.10 A.4. Residential Sewer Without Consumption History 5/8", 3/4" & larger $37.80 53 53.10 B.2.Multi-Residential Sewer Rates (2) Rate multiplied by winter average units $2.93 53 53.10 B.2. Multi-Residential Monthly Fixed Sewer System Charges (2).75"$16.38 1"$40.94 1.5"$81.88 2"$131.00 3"$245.64 4"$409.40 6"$818.79 8" $1,310.08 10"$1,883.23 53 53.10 B.3. Monthly Multi-Residential Sewer Rates without Consumption History (2) Per dwelling unit $19.20 53 53.11 Commercial and Industrial Sewer Rates Rate multiplied by Low Strength $2.93 annual avg.Medium Strength $3.64 units High Strength $5.01(2) Sewer billed beginning January 1, 2020. Section #Code #Fee Description Meter Size Charges 53 53.11 Commercial and Industrial Monthly Fixed Sewer System Charges (2).75"$16.38 1"$40.94 1.5"$81.88 2"$131.00 3"$245.64 4"$409.40 6"$818.79 8" $1,310.08 10"$1,883.23 60 60.03 Issuance of Availability Letters for Water $75.00 72 72.04 A.1.Locking or Removing Damaged or - To Pull and Reset Meter 3/4" - 2"$200.00 - Broken Curbstop or Tabs 3/4" - 1"Actual Cost - If Customer uses Jumper 3/4" - 1"Actual Cost - Broken Lock/Locking Device 3/4" - 1"$68.00 - Broken Curbstop or Tabs 1.5" - 2"Actual Cost - To Pull and Reset Meter 3"Actual Cost - To Pull and Reset Meter 4"Actual Cost - To Pull and Reset Meter 6"Actual Cost - To Pull and Reset Meter 8"Actual Cost - To Pull and Reset Meter 10"Actual Cost 72 72.05 D. Type I Fine - First Violation $100.00 - Second Violations $200.00 - Third or each additional violation of that same ordinance or requirement within a $500.00 72 72.05 D. Type II Fine $5,000.00 Type III Fine $500.00 Type IV Fine $500.00 Will not exceed per each day the violation is identified or continues. Fine up to amount specified per each day the violation is identified Fine up to amount specified per each day the violation is identified (2) Sewer billed beginning January 1, 2020. Section #Code #Fee Description Meter Size Charges State Water Code #71630 & Annual Board Resolution #4142 Water Availability/Standby Annual Special Assessment Charge $10.00 $30.00 $3.00 $3.00 State Water Code #71630 & Annual Board Resolution #4142 Sewer Availability/Standby Annual Special Assessment Charge $10.00 $30.00 Annual General Obligation Bond Annual Tax $0.005 Policies 5B Copies of Identifiable Public Records $0.20/page 54 Late Payment Charge 5% of Delinquent Balance 54 Lien Processing Fee 50.00 54 Delinquent Tax Roll Fee 40.00 54 Delinquency Tag $25.00 The cost for all other copy sizes is the direct cost of duplication. Per $1000 of assessed value for Less than one-acre Outside I.D. Less than one-acre all I.D.s & Outside an I.D. Per acre for outside I.D. & greater Less than one acre I.D. 18 Per acre I.D. 18 8 1/2" x 11" Per acre in I.D. 22 STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Marissa Dychitan Senior Accountant PROJECT: DIV. NO. All APPROVED BY: Eid Fakhouri, Finance Manager Kevin Koeppen, Assistant Chief of Finance Joseph R. Beachem, Chief Financial Officer Mark Watton, General Manager SUBJECT: Approve the Audited Financial Statements for the Fiscal Year Ended June 30, 2019 GENERAL MANAGER’S RECOMMENDATION: That the Board approve the Audited Financial Statements (Attachment B)including the Independent Auditors’ unqualified opinion, for the fiscal year ended June 30, 2019. COMMITTEE ACTION: See Attachment A. PURPOSE: To inform the Board of the significant financial events which occurred during the fiscal year ended June 30, 2019 as reflected in the audited financial statements. ANALYSIS: Teaman, Ramirez & Smith, Inc., performed the audit and found that, in all material respects, the financial statements correctly represent the financial position of the District. They found no material errors in the financial records or statements (Attachment D). AGENDA ITEM 8a 2 Total Assets: Total assets decreased by $6.5 million or 1.17% during fiscal year 2019 to $548.0 million, due to depreciation and the $31.8 million advance funding to CALPERS which was partially offset by investment in capital infrastructure and Water Revenue Bond proceeds. Deferred Outflows & Deferred Inflows: Deferred outflows increased by $28.9 million or 233.57% due to advance payment to CALPERS that will be recognized as a reduction to pension liability in fiscal year 2020 while deferred inflows increased by $0.2 million or 0.01%. Total Liabilities & Net Positions: Total liabilities increased by approximately $22.1 million from the previous fiscal year, to $199.9 million. This is attributable to the issuance of 2018 Water Revenue Bonds, partially offset by the annual debt payments of $4.0 million. The net position increased by $0.1 million or 0.01% to $387.6 million as June 30, 2019. Capital Contributions: Capital contributions for fiscal year 2019 were $9.4 million. This consists of developers contributing $5.8 million in capacity fees and $2.7 million in contributed fixed assets; and $0.4 million in reimbursements from Caltrans. Ratepayers also paid $0.5 million in availability fees, which are considered a part of capital contributions. Results of Operations: Operating revenues decreased by $5.5 million or 5.66%, mainly as a result of the overall decrease in water sales volume. Cost of water sales decreased by $2.3 million or 3.62% due to decreases in water sales volume and unit purchase costs. Non-Operating Revenues & Expenses: Non-operating revenues increased by $2.6 million or 33.09% for Fiscal year 2019 due to increases in investment income, taxes and capacity fee drawdown from capital contribution to CIPs that did not qualify as capital expense. 3 Non-operating expenses increased by $3.2 million or 63.70% due to increases in interest expense and CIP expenses that did not qualify as capital expense. Conclusion: In summary the overall audit process was a success and the auditors found no material errors or misstatement in the District’s financial statements. Additional Audit Correspondence: As a part of completing the audit engagement, Teaman, Ramirez and Smith, Inc., also provided the following letters summarizing their observations and conclusions concerning the District’s overall financial processes: • Management Letter: The auditors did not identify any deficiencies in internal controls that they considered to be material weaknesses. (Attachment C). • Audit Committee Letter: This letter describes overall aspects of the audit, including audit principles, performance, dealings with management, and significant findings or issues. There were no transactions entered by the District during the year for which there was a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. 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. (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 were performed and there were no exceptions to compliance from the District’s Investment Policy. (Attachment E). FISCAL IMPACT: None. 4 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 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 Audited Financial Statements for the Fiscal Year Ended June 30, 2019 COMMITTEE ACTION: The Finance and Administration Committee reviewed this item at a meeting held on October 23, 2019 and the following comments were made: • Staff is recommending that the Board approve the District’s audited financial statements, including the Independent Auditors’ unqualified opinion for the fiscal year (FY) ended June 30, 2019. • Teaman, Ramirez & Smith, Inc. performed the audit and found that, in all material respects, the financial statements correctly represent the financial position of the District. • Staff provided a review of the District’s financials for the year ending June 30, 2019 and indicated: − Total assets decreased $6.5 million to $548 million due mainly to the $31.8 million advance payment to the CALPERS plan and depreciation, which was partially offset by Water bond proceeds and investments in capital infrastructures. − Cash and investments decreased from $89.1 million to $75.1 million. The decrease was due to lower than anticipated revenue from water sales and the advance payment to the CALPERS plan. − Total liabilities increased by $22.1 million, which is attributable to the issuance of $32.4 million Water Revenue Bonds, Series 2018 for the construction of water systems and advance refund of $6.9 million of the 1996 Certificates of Participation. This was partially offset by $4 million in principal payment of long-term debt. − Capital contributions for the year totaled $9.4 million, which consists of developers contributing $5.8 million in capacity fees and $2.7 million in contributed fixed assets, $.5 million in availability fees from ratepayers and $0.4 million from Caltrans for utility relocation reimbursements. − Operating revenues decreased $5.5 million while water costs decreased $2.3 million due to overall decrease in sales volume brought about by above average rainfall. − Depreciation decreased by $.7 million while general and administrative expenses increased by $.6 million. − The Districts Net Position as of June 30, 2019 was $387.6 million. • It was indicated that the auditors found no material errors in the financial records or statements and there were no transactions entered into by the District during the year for which there is lack of authoritative guidance or consensus. • Messrs. Joshua Calhoun, Partner, and Rick Gallo, Auditor in Charge, of Teaman Ramirez & Smith, Inc., attended the meeting and provided a review of the audit process and results of the audit: − Mr. Calhoun indicated that his firm will be issuing an “unmodified report” or clean opinion on the financial statements. Their issuance of an unmodified report indicates that they found no issues with the financial statements and they believe the statements are fairly stated. This is the highest level opinion that can be received on an audit. − GASB 75, related to Other Post Employee Benefits (OPEB), was implemented last year. Now that there are two years of information available, page 59 of the Financial Statements presents the net OPEB liability for FY’s 2018 and 2017. This portion of the financials will eventually yield up to 10 years of information and will be a good tool to see how the District’s decisions and changing assumptions and factors are impacting the District’s financial statements. − He noted that GASB is the standards setting board for accounting and on page 22 of the District’s financials, a list of upcoming GASB standards and methodologies is presented. He noted that GASB 87, related to leases, will be one of the more impactful standards as staff will need to catalogue all the District leases and develop amortization schedules in preparation for the implementation of the standard in FY 2021. − The financials also expand the standard disclosure related to the additional pension contribution of $31.8 million. Given the timing of the measurement periods of the financial statements and the valuation, this is included in the deferred outflow as it is expected to be recognized against the liability within one or two years once CalPERS comes out with their future valuation reports. − He explained on page 56 to 58 of the Financials, note number 13 was expanded this year to include a separate section for wastewater services to comply with future debt disclosure requirements for all water/wastewater related debt. − He noted along with the financial statements, the audit firm issues several reports: o Management Letter which reviews internal controls and financial compliance which is required under government auditing standards. His firm had no findings or exceptions to report. o Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements which reviews internal controls and compliance with the law. There were no issues to report on either internal controls or financial compliance. o Agreed-Upon Procedures Report indicates their firms review of investment transactions in relation to the District’s Investment Policy and State Law. His firm found no instances of non-compliance. o SAS 114 Report which provides the auditors an opportunity to report to the board what transpired on the audit; if there were problems, if staff was unresponsive, material misstatements, opinion shopping, etc. He stated that there were no issues or problems during the audit. He stated that his firm has nothing to report. • In response to an inquiry from the Committee, Mr. Calhoun indicated that their firm did request that the Finance and Administration Committee (Audit Committee) members complete a fraud questionnaire. The questions in the questionnaire are standard in all audits and each year they do ask the committee members if they are aware of any fraud occurring at the District. They do change some questions in the questionnaire every few years. • The Committee thanked Mssrs. Calhoun and Gallo for their work on the audit and complimented the Finance staff for the successful outcome of the audit. Upon completion of the discussion, the committee accepted staffs’ report and supported presentation to the full board as an action item. OTAY WATER DISTRICT FINANCIAL STATEMENTS WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS JUNE 30, 2019 and 2018 TABLE OF CONTENTS Years Ended June 30, 2019 and 2018 Page Number Independent Auditors’ Report 1 - 2 Management’s Discussion & Analysis 3 - 10 Basic Financial Statements: Statements of Net Position 11 - 12 Statements of Revenues, Expenses, and Changes in Net Position 13 Statements of Cash Flows 14 - 15 Notes to Financial Statements 16 - 58 Required Supplementary Information: Schedule of Changes in the Net OPEB Liability and Related Ratios 59 Schedule of Contributions 60 Schedule of Changes in the Net Pension Liability and Related Ratios 61 Schedule of Plan Contributions 62 ,1'(3(1'(17$8',7256 5(3257   %RDUGRI'LUHFWRUV 2WD\:DWHU'LVWULFW 6SULQJ9DOOH\&DOLIRUQLD   5HSRUWRQWKH)LQDQFLDO6WDWHPHQWV  :HKDYHDXGLWHGWKHDFFRPSDQ\LQJILQDQFLDOVWDWHPHQWVRIWKH2WD\:DWHU'LVWULFW WKH³'LVWULFW´ DVRIDQGIRUWKH\HDUVHQGHG -XQHDQGDQGWKHUHODWHGQRWHVWRWKHILQDQFLDOVWDWHPHQWVZKLFKFROOHFWLYHO\FRPSULVHWKH'LVWULFW¶VEDVLF ILQDQFLDOVWDWHPHQWVDVOLVWHGLQWKHWDEOHRIFRQWHQWV  0DQDJHPHQW¶V5HVSRQVLELOLW\IRUWKH)LQDQFLDO6WDWHPHQWV  0DQDJHPHQWLVUHVSRQVLEOHIRUWKHSUHSDUDWLRQDQGIDLUSUHVHQWDWLRQRIWKHVHILQDQFLDOVWDWHPHQWVLQDFFRUGDQFHZLWKDFFRXQWLQJ SULQFLSOHVJHQHUDOO\DFFHSWHGLQWKH8QLWHG6WDWHVRI$PHULFDWKLVLQFOXGHVWKHGHVLJQLPSOHPHQWDWLRQDQGPDLQWHQDQFHRI LQWHUQDOFRQWUROUHOHYDQWWRWKHSUHSDUDWLRQDQGIDLUSUHVHQWDWLRQRIILQDQFLDOVWDWHPHQWVWKDWDUHIUHHIURPPDWHULDOPLVVWDWHPHQW ZKHWKHUGXHWRIUDXGRUHUURU  $XGLWRU¶V5HVSRQVLELOLW\  2XUUHVSRQVLELOLW\LVWRH[SUHVVRSLQLRQVRQWKHVHILQDQFLDOVWDWHPHQWVEDVHGRQRXUDXGLW:HFRQGXFWHGRXUDXGLWLQDFFRUGDQFH ZLWKDXGLWLQJVWDQGDUGVJHQHUDOO\DFFHSWHGLQWKH8QLWHG6WDWHVRI$PHULFDDQGWKHVWDQGDUGVDSSOLFDEOHWRILQDQFLDODXGLWV FRQWDLQHGLQGovernment Auditing StandardsLVVXHGE\WKH&RPSWUROOHU*HQHUDORIWKH8QLWHG6WDWHVDQGWKH6WDWH&RQWUROOHU¶V 0LQLPXP$XGLW5HTXLUHPHQWVIRU&DOLIRUQLD6SHFLDO'LVWULFWV7KRVHVWDQGDUGVUHTXLUHWKDWZHSODQDQGSHUIRUPWKHDXGLWWR REWDLQUHDVRQDEOHDVVXUDQFHDERXWZKHWKHUWKHILQDQFLDOVWDWHPHQWVDUHIUHHIURPPDWHULDOPLVVWDWHPHQW  $QDXGLWLQYROYHVSHUIRUPLQJSURFHGXUHVWRREWDLQDXGLWHYLGHQFHDERXWWKHDPRXQWVDQGGLVFORVXUHVLQWKHILQDQFLDOVWDWHPHQWV 7KHSURFHGXUHVVHOHFWHGGHSHQGRQWKHDXGLWRU¶VMXGJPHQWLQFOXGLQJWKHDVVHVVPHQWRIWKHULVNVRIPDWHULDOPLVVWDWHPHQWRIWKH ILQDQFLDOVWDWHPHQWVZKHWKHUGXHWRIUDXGRUHUURU,QPDNLQJWKRVHULVNDVVHVVPHQWVWKHDXGLWRUFRQVLGHUVLQWHUQDOFRQWURO UHOHYDQWWRWKH'LVWULFW¶VSUHSDUDWLRQDQGIDLUSUHVHQWDWLRQRIWKHILQDQFLDOVWDWHPHQWVLQRUGHUWRGHVLJQDXGLWSURFHGXUHVWKDWDUH DSSURSULDWHLQWKHFLUFXPVWDQFHVEXWQRWIRUWKHSXUSRVHRIH[SUHVVLQJDQRSLQLRQRQWKHHIIHFWLYHQHVVRIWKH'LVWULFW¶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¶V2IILFHDQG&DOLIRUQLDUHJXODWLRQVJRYHUQLQJ6SHFLDO 'LVWULFWV Richard A. Teaman, CPA David M. Ramirez, CPA Javier H. Carrillo, CPA Bryan W͘Daugherty, CPA Joshua :͘Calhoun, CPA 4201 Brockton AveŶƵĞ Suite 100Riverside CA 92501 951.274.9500d> 951.274.7828 FAX www.trscpas.com Emphasis of Matters As described in Note 1 to the basic financial statements, as of June 30, 2019, the District adopted the provisions of Governmental Accounting Standards Board Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period. Our opinion is not modified with respect to this matter. As described in Note 1 to the basic financial statements, as of June 30, 2018, the District adopted the provisions of Governmental Accounting Standards Board Statement No. 75, Accounting and Financing Reporting for Postemployment Benefits Other Than Pensions. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and required supplementary information on pages 3-10 and 59-62 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 24, 2019, on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance. Riverside, California October 24, 2019 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, 2019. 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. 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) Statements of Net Position, 2) Statements of Revenues, Expenses, and Changes in Net Position, 3) Statements 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 Statements of Net Position presents information on the District’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources, with the difference reported as Total Net Position. Over time, increases or decreases in net positions may serve as a useful indicator of whether the financial position of the District is improving or weakening. The Statements of Revenues, Expenses and Changes in Net Position presents information showing how the District’s net position changed during the most recent fiscal year. All changes in net positions 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 Statements of Cash Flows presents information on cash receipts and payments for the fiscal year. The Notes to the Financial Statements provides additional information that is essential to a full understanding of the data supplied in each of the specific financial statements listed above. Financial Highlights  The assets and deferred outflows of resources of the District exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $387.6 million (net position). Of this amount, $28.7 million (unrestricted net position) may be used to meet the District’s ongoing obligations to residents and creditors.  Total assets decreased by $6.5 million or 1.17% during Fiscal Year 2019, to $548.0 million, due primarily to depreciation and a $31.8 million advance payment to CALPERS plan, reducing the District’s unfunded pension liability. These reductions are partially offset by Water Bond proceeds and investments in capital infrastructure. MANAGEMENT’S DISCUSSION AND ANALYSIS 4 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 retirement benefits to its employees. Financial Analysis: As noted, net position may serve, over time, as a useful indicator of an entity’s financial position. In the case of the District, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $387.6 million at the close of the most recent fiscal year. The largest portion of the District’s net position, $354.6 million (91%), reflects its investment in capital assets, plus unused debt proceeds, less any remaining outstanding debt used to acquire those assets. The District uses these capital assets to provide services to customers; consequently, these assets are not available for future spending. Although the District’s investment in its capital assets is reported effectively as a resource, 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 5 Statements of Net Position (In Millions of Dollars) 2019 2018 2017 Assets Current and Other Assets $ 89.7 $ 103.6 $ 112.9 Capital Assets 458.3 450.9 450.2 Total Assets 548.0 554.5 563.1 Deferred Outflows of Resources Deferred Amount on Refunding 0.0 0.0 0.2 Deferred Actuarial Pension Costs 39.0 10.2 10.7 Deferred Actuarial OPEB Costs 2.2 2.2 0.0 Total Deferred Outflows of Resources 41.2 12.4 10.9 Liabilities Long-Term Debt Outstanding 114.3 91.2 95.6 Net Pension Liability 48.4 49.6 45.2 Net OPEB Liability 3.4 4.7 0.0 Other Liabilities 33.8 32.4 28.2 Total Liabilities 199.9 177.9 169.0 Deferred Inflows of Resources Deferred Actuarial Pension Costs 1.2 0.9 3.8 Deferred Actuarial OPEB Costs 0.5 0.6 0.0 Total Deferred Inflows of Resources 1.7 1.5 3.8 Net Position (1) Net Investment in Capital Assets 354.6 355.6 351.0 Restricted for Debt Service 4.3 4.2 4.3 Unrestricted 28.7 27.7 45.9 Total Net Position $ 387.6 $ 387.5 $ 401.2 The District’s operations and population continue to grow, albeit at slower rates than the housing boom years. Much of this growth has and will continue to occur in the residential sector, especially in the area of multi-family dwellings, as well as in the commercial area. The District still has available land to develop unlike other parts of the County, as well as low unemployment and job creation, which has spurred the development in the service area. In FY 2019, the District’s Capital Assets increased by $18.9 million before accumulated depreciation. (See Note 4 in the Notes to Financial Statements). The District also saw an increase in long-term debt of $23.1 million due to the issuance of the 2018 Water Revenue Bonds partially offset by annual debt service payments (See Note 5 in the Notes to Financial Statements). Deferred outflows of Resources increased by $28.8 million in FY 2019 and by $1.5 million in FY 2018. The significant increase in FY 2019 is due to the $31.8 additional funding to CALPERS which will reduce the Net Pension Liability in FY 2020. MANAGEMENT’S DISCUSSION AND ANALYSIS 6 At the end of FY 2019, the District can report positive balances in all categories of net position. This situation also held true for the prior two fiscal years. Statements of Revenues, Expenses, and Changes in Net Position (In Millions of Dollars) 2019 2018 2017 Water Sales $ 86.8 $ 92.6 $ 83.7 Wastewater Revenue 3.0 2.9 3.0 Connection and Other Fees 2.2 2.0 1.8 Non-operating Revenues 10.5 7.9 10.1 Total Revenues 102.5 105.4 98.6 Depreciation Expense 16.8 17.5 17.8 Other Operating Expenses 86.9 88.3 78.8 Non-operating Expenses 8.1 5.0 7.7 Total Expenses 111.8 110.8 104.3 Loss Before Capital Contributions (9.3) (5.4) (5.7) Capital Contributions 9.4 9.5 5.6 Change in Net Position 0.1 4.1 (0.1) Beginning Net Position, As Previously Stated 387.5 401.2 401.3 Prior Period Adjustment 0.0 (17.8) 0.0 Beginning Net Position, As Restated 387.5 383.4 401.3 Ending Net Position $ 387.6 $ 387.5 $ 401.2 Water Sales decreased by $5.8 million in FY 2019 due to a decrease in units sold as the result of above average rainfall. Water Sales increased by $8.9 million in FY 2018 due to increases in units sold and water rates. Other Operating Expenses decreased by $1.4 million in FY 2019 and increased by $9.5 million in FY 2018, predominantly due to the decrease and increase in water units purchased as a result of changes in water sales volumes in FY 2019 and FY 2018, respectively. Certain planning and environmental study costs associated with capital projects, such as the North & South District Interconnection in 2019, and recycled permanent moratorium in Otay Mesa for 2018, do not qualify as capital costs under Generally Accepted Accounting Principles and are included in the miscellaneous (non-operating) expenses of the District. For FY 2019 and FY 2018, those expenses were $3.3 million and $0.9 million, respectively. Connection and Other Fees increased by $0.2 million in FY 2019 and FY 2018. Capital Contributions decreased by $0.1 million in FY 2019 brought about by the steady economy as compared to an increase of $3.9 million in FY 2018. MANAGEMENT’S DISCUSSION AND ANALYSIS 7 Non-operating Revenues Non-operating Revenues by Major Source (In Millions of Dollars) 2019 2018 2017 Taxes and Assessments $ 4.7 $ 4.5 $ 4.1 Rents and Leases 1.4 1.4 1.4 Other Non-operating Revenue 4.4 2.0 4.6 Total Non-operating Revenues $ 10.5 $ 7.9 $ 10.1 The District’s total non-operating revenues increased by $2.6 million in FY 2019 due to increases in investment earnings, taxes and transfer of capacity revenue from capital contribution to fund project expenditures that do not qualify as capital expenditures. Total non-operating revenues in FY 2018 decreased by $2.2 million due to decreases in investment income, capacity fee revenue and an increase in losses from capital asset disposals. Capital Assets and Debt Administration The District’s capital assets (net of accumulated depreciation) as of June 30, 2019, totaled $458.3 million. Included in this amount is land, which is a non-depreciable asset. The District’s net capital assets increased by 1.64% and .16% for FY 2019 and FY 2018 respectively. MANAGEMENT’S DISCUSSION AND ANALYSIS 8 Capital Assets (In Millions of Dollars) As indicated by figures in the table above, majority of capital assets added during both fiscal years were related to the water and sewer systems. In addition, majority of the cost of construction-in-progress is also related to water systems. Additional information on the District’s capital assets can be found in Note 4 of the Notes to Financial Statements. In November 2018, the District issued $32.4 million in Water Revenue Bonds, Series 2018 to provide funds for construction of water storage, treatment and transmission facilities and advance refunded $6.9 million of the 1996 Certificates of Participation. As of June 30, 2019, approximately $15.3 million of the bond proceeds remain in cash and investments. At June 30, 2019, the District had $114.3 million in outstanding debt (net of $4.7 million of maturities occurring in FY 2020), which consisted of the following: General Obligation Bonds $ 2.2 Revenue Bonds 112.1 Total Long-Term Debt $ 114.3 Additional information on the District’s long-term debt can be found in Note 5 of the Notes to Financial Statements. Prior Period Adjustment The Governmental Accounting Standards Board (GASB) issued Statement No. 75, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions - an amendment of GASB Statement No. 45”, for periods beginning after June 15, 2017. The District implemented these standards in FY 2018. The result of the implementation of these standards was to decrease the net position at July 1, 2017 by $17.8 million, which recognizes net OPEB liability, deferred outflows of resources, deferred inflows of resources, and expenses related to the OPEB plan. 2019 2018 2017 Land $ 14.4 $ 14.4 $ 14.4 Construction in Progress 33.2 17.6 14.2 Potable Water System 488.8 484.2 483.8 Recycled Water System 114.8 114.7 112.3 Sewer System 48.5 48.2 44.5 Field Equipment 8.6 8.5 9.0 Buildings 19.2 20.1 20.6 Transportation Equipment 3.5 3.4 3.3 Communication Equipment 3.4 3.5 3.4 Office Equipment 16.8 17.7 17.6 751.2 732.3 723.1 Less Accumulated Depreciation (292.9) (281.4) (272.9) Net Capital Assets $ 458.3 $ 450.9 $ 450.2 MANAGEMENT’S DISCUSSION AND ANALYSIS 9 Fiscal Year 2019-2020 Budget Economic Factors The San Diego region imports 80% of its potable supply, so factors such as local rainfall as well as weather conditions elsewhere in the western portion of the nation can affect the region. San Diego received above average rainfall in FY 2019, and the District anticipates an average rainfall pattern in the coming years. Between 2008 and 2016, the District’s water sales declined for the District by nearly 30%. This decrease was driven by many factors including the economic downturn caused by the great recession, increases in the price of imported water, State mandated cuts in potable water use due to the prolonged statewide drought, and reductions as a result of increasing conservation efforts. Decreases in water sales during this period were offset by corresponding decreases in water purchases and District managed costs such as reduced employee count and internal cost cuts, achieved through automation and streamlining of processes. Due to record rain and snowfall, the state mandated conservation ended in FY 2017. Above average rainfall has led to water sales volume decreasing 7.4% in 2019 while an increase of 9.0% in 2018 was due to the removal of state mandates, dry winters and increased development. The District is budgeting an 8.3% sales volume decrease in FY 2020 compared to the FY 2019 budget. The FY 2019 budget assumed that rainfall would be less than average and comparable to FY 2018. The FY 2020 budget is based on 3-year average sales volumes. The District continues to respond to the challenges presented by growth, State mandates, and the potential of drought, by creating new opportunities and new organizational efficiencies. By utilizing and continuing to refine its Strategic Business Plan, it has captured the Board of Director’s vision and united its staff in a common mission. The District has achieved several significant accomplishments due to its successful adherence to its Strategic Business Plan. The District is not only poised to continue successfully providing an affordable, safe, and reliable water supply for the people of its service area but is set to reap the rewards of greater efficiencies and economies of scale. The District is currently at about 69% of its projected ultimate population, serving approximately 225,000 people. Long- term, this percentage should continue to increase as the District's service area continues to develop and grow. By 2050, the District is projected to serve approximately 308,000 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 the San Diego County Water Authority (CWA), who in turn purchases its water from the Metropolitan Water District (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 directly and from the Helix Water District via a 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 these, benefits can be achieved by both parties by using excess capacity of another agency, and diversifying local supply, thereby increasing reliability. MANAGEMENT’S DISCUSSION AND ANALYSIS 10 Financial The District is budgeted to deliver approximately 26,949.2 acre-feet of potable water to 51,034 potable customer accounts during FY 2019-2020. Management feels that these projections are realistic after accounting for low growth, supply changes, and a focus on conservation. A combination of factors, including weather patterns and economic uncertainty, have created challenges in developing projections for the current fiscal year. Unemployment is currently at historical lows and there is minimal distressed activity in the commercial and residential resale market. The housing market has experienced higher demand compared to the previous years and unemployment is at record lows. District staff projects that over the next six years the District will sell another 2,600 meters which translates to 3,230 equivalent dwelling units (EDUs). This growth is estimated to increase sales volumes by an average of 1% per year over the next five years. While all these factors impact the region’s water usage, 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 position, 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, customers, 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. 2019 2018 ASSETS Current Assets: Cash and Cash Equivalents (Notes 1 and 2)34,024,168$ 24,147,997$ Restricted Cash and Cash Equivalents (Notes 1 and 2)19,114,137 80,477 Investments (Note 2)18,951,991 30,866,180 Board Designated Investments (Note 2)2,537,589 29,879,617 Restricted Investments (Notes 1 and 2)460,060 4,166,548 Accounts Receivable, Net 11,787,954 12,109,378 Accrued Interest Receivable 341,518 295,947 Taxes and Availability Charges Receivable, Net 187,203 215,704 Restricted Taxes and Availability Charges Receivable, Net 38,070 27,480 Inventories 775,546 822,737 Prepaid Items and Other Receivables 1,493,831 1,018,820 Total Current Assets 89,712,067 103,630,885 Capital Assets (Note 4): Land 14,403,823 14,406,778 Construction in Progress 33,149,164 17,618,059 Capital Assets, Net of Depreciation 410,756,360 418,825,726 Total Capital Assets, Net of Depreciation 458,309,347 450,850,563 Total Assets 548,021,414 554,481,448 DEFERRED OUTFLOWS OF RESOURCES Deferred Actuarial Pension Costs (Note 7)39,022,818 10,186,229 Deferred Actuarial OPEB Costs (Note 8)2,209,574 2,202,004 Total Deferred Outflows of Resources 41,232,392$ 12,388,233$ Continued STATEMENTS OF NET POSITION JUNE 30, 2019 AND 2018 The accompanying notes are an integral part of this statement. 11 2019 2018 LIABILITIES Current Liabilities: Current Maturities of Long-term Debt (Note 5)4,725,000$ 4,040,000$ Accounts Payable 14,061,824 15,437,565 Accrued Payroll Liabilities 639,247 694,859 Other Accrued Liabilities 5,519,259 4,089,640 Customer and Developer Deposits 3,601,094 3,340,010 Accrued Interest 1,826,242 1,380,446 Unearned Revenues 135,223 233,251 Liabilities Payable from Restricted Assets: Restricted Accrued Interest 36,733 45,200 Total Current Liabilities 30,544,622 29,260,971 Non-current Liabilities: Long-term Debt (Note 5): General Obligation Bonds 2,156,789 2,823,143 Certificates of Participation - 6,893,293 Revenue Bonds 112,114,228 81,465,550 Net Pension Liability 48,388,906 49,582,316 Net OPEB Liability 3,415,025 4,710,492 Other Non-current Liabilities 3,337,674 3,117,705 Total Non-current Liabilities 169,412,622 148,592,499 Total Liabilities 199,957,244 177,853,470 DEFERRED INFLOWS OF RESOURCES Deferred Actuarial Pension Costs (Note 7)1,157,175 936,234 Deferred Actuarial OPEB Costs (Note 8)544,777 539,449 Total Deferred Inflows of Resources 1,701,952 1,475,683 NET POSITION Net Investment in Capital Assets 354,639,520 355,628,577 Restricted for Debt Service 4,248,007 4,247,025 Unrestricted 28,707,083 27,664,926 Total Net Position 387,594,610$ 387,540,528$ STATEMENTS OF NET POSITION - CONTINUED JUNE 30, 2019 AND 2018 The accompanying notes are an integral part of this statement. 12 2019 2018 OPERATING REVENUES Water Sales 86,756,222$ 92,595,195$ Wastewater Revenue 2,961,157 2,865,520 Connection and Other Fees 2,234,787 2,013,057 Total Operating Revenues 91,952,166 97,473,772 OPERATING EXPENSES Cost of Water Sales 60,065,964 62,321,213 Wastewater 2,784,579 2,501,240 Administrative and General 24,070,648 23,445,578 Depreciation 16,807,797 17,466,318 Total Operating Expenses 103,728,988 105,734,349 Operating Income (Loss)(11,776,822)(8,260,577) NON-OPERATING REVENUES (EXPENSES) Investment Earnings 1,978,392 723,860 Taxes and Assessments 4,671,182 4,481,719 Availability Charges 723,246 697,724 Gain (Loss) on Disposal of Capital Assets (1,058,571)(1,709,538) Rents and Leases 1,384,211 1,439,247 Miscellaneous Revenues 2,800,613 2,255,605 Donations (118,040)(123,050) Interest Expense (4,713,883)(3,941,321) Miscellaneous Expenses (3,293,055)(900,247) Total Non-operating Revenues (Expenses)2,374,095 2,923,999 Income (Loss) Before Capital Contributions (9,402,727)(5,336,578) Capital Contributions 9,456,809 9,506,192 Change in Net Position 54,082 4,169,614 Total Net Position, Beginning, As Previously Reported 387,540,528 401,186,989 Prior Period Adjustment (Note 14)- (17,816,075) Total Net Position, Beginning, As Restated 387,540,528 383,370,914 Total Net Position, Ending 387,594,610$ 387,540,528$ STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED JUNE 30, 2019 AND 2018 The accompanying notes are an integral part of this statement. 13 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers 90,299,887$ 95,612,497$ Receipts from Connections and Other Fees 2,234,787 2,013,057 Receipts from Property Rents and Leases 1,384,211 1,316,197 Other Receipts 2,702,585 2,183,296 Payments to Suppliers (63,834,433)(61,807,704) Payments to Employees (54,403,110)(21,689,670) Other Payments (3,411,095)(899,502) Net Cash Provided By (Used For) Operating Activities (25,027,168)16,728,171 CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES Receipts from Taxes and Assessments 4,689,093 4,495,002 Net Cash Provided By (Used For) Noncapital and Related Financing Activities 4,689,093 4,495,002 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from Capital Contributions 6,788,777 9,254,970 Proceeds from Sale of Capital Assets 50,119 77,684 Proceeds from Debt Related Taxes and Assessments 723,246 697,724 Proceeds from Long-Term Debt 35,145,512 - Principal Payments on Long-Term Debt (10,940,000)(3,820,000) Interest Payments and Fees (4,708,034)(4,427,336) Acquisition and Construction of Capital Assets (22,707,238)(19,388,972) Net Cash Provided By (Used For) Capital and Related Financing Activities 4,352,382 (17,605,930) CASH FLOWS FROM INVESTING ACTIVITIES Interest Received on Investments 1,932,821 643,924 Proceeds from Sale and Maturities of Investments 43,170,616 12,631,381 Purchase of Investments (207,913)(10,142,153) Net Cash Provided By (Used For) Investing Activities 44,895,524 3,133,152 Net Increase (Decrease) in Cash and Cash Equivalents 28,909,831 6,750,395 Cash and Cash Equivalents - Beginning 24,228,474 17,478,079 Cash and Cash Equivalents - Ending 53,138,305$ 24,228,474$ Continued STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2019 AND 2018 The accompanying notes are an integral part of this statement.14 2019 2018 Reconciliation of Operating Income (Loss) to Net Cash Flows Provided By (Used For) Operating Activities: Operating Income (Loss)(11,776,822)$ (8,260,577)$ Adjustments to Reconcile Operating Income to Net Cash Provided By (Used For) Operating Activities: Depreciation 16,807,797 17,466,318 Receipts from Property Rents and Leases 1,384,211 1,316,197 Miscellaneous Revenues 2,702,585 2,183,296 Miscellaneous Expenses (3,411,095) (899,502) (Increase) Decrease in Accounts Receivable 321,424 263,462 (Increase) Decrease in Inventory 47,191 (85,552) (Increase) Decrease in Prepaid Items and Other Receivables (475,011) (56,801) (Increase) Decrease in Deferred Actuarial Pension Costs (28,836,589) 494,900 (Increase) Decrease in Deferred Actuarial OPEB Costs (7,570) 82,416 Increase (Decrease) in Accounts Payable (1,375,741) 3,893,151 Increase (Decrease) in Accrued Payroll and Related Expenses (55,612) (90,637) Increase (Decrease) in Other Accrued Liabilities 1,429,619 318,137 Increase (Decrease) in Customer and Developer Deposits 261,084 (111,680) Increase (Decrease) in Prepaid Capacity Fees 219,969 43,392 Increase (Decrease) in Net OPEB Liability (1,295,467) (1,834,367) Increase (Decrease) in Net Pension Liability (1,193,410) 4,332,872 Increase (Decrease) in Deferred Actuarial Pension Costs 220,941 (2,866,303) Increase (Decrease) in Deferred Actuarial OPEB Costs 5,328 539,449 Net Cash Provided By (Used For) Operating Activities (25,027,168)$ 16,728,171$ Schedule of Cash and Cash Equivalents: Current Assets: Cash and Cash Equivalents 34,024,168$ 24,147,997$ Restricted Cash and Cash Equivalents 19,114,137 80,477 Total Cash and Cash Equivalents 53,138,305$ 24,228,474$ Supplemental Disclosures Non-Cash Investing and Financing Activities Consisted of the Following: Contributed Capital for Water and Sewer System 2,668,032$ 251,222$ Change in Fair Value of Investments and Recognized Gains/Losses (685,227) 360,248 Amortization Related to Long-term Debt 431,482 364,678 STATEMENTS OF CASH FLOWS - CONTINUED FOR THE YEARS ENDED JUNE 30, 2019 AND 2018 The accompanying notes are an integral part of this statement.15 16 NOTE DESCRIPTION PAGE 1 Reporting Entity and Summary of Significant Accounting Policies..……….. 17 - 25 2 Cash and Investments………………………………………………………... 26 - 30 3 Fair Value Measurements…………………………………………..………... 31 - 32 4 Capital Assets…………………………………………………..……………. 33 - 34 5 Long-Term Debt………………………………………………….…………. 35 - 40 6 Net Position………………………………………………………………….. 40 7 Defined Benefit Pension Plan……………………………………………….. 40 - 46 8 Other Post Employment Benefits………………………..…………............... 47 - 52 9 Water Conservation Authority………………………………………............. 52 - 53 10 Commitments and Contingencies……………………………………………. 53 11 Risk Management……………………………………………………………. 54 - 55 12 Interest Expense……………………………………………………................ 55 13 Segment Information………………………………………………..……….. 55 - 58 14 Prior Period Adjustment…………………………………………..………..... 58 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 17 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) Reporting Entity The reporting entity Otay Water District (the “District”) includes the accounts of the District, Otay Service Corporation (the “Corporation”) and the Otay Water District Financing Authority (the “Financing Authority”). The 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. The District formed the Otay Service Corporation on June 21, 1993, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California. The Service Corporation was formed to assist the District in the financing of public capital improvements. The District formed the Financing Authority on March 3, 2010 under the Joint Exercise of Powers Act, constituting Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the California Government Code. The Financing Authority was formed to assist the District in the financing of public capital improvements. The financial statements present the District and its component units. The District is the primary government unit. Component units are those entities which are financially accountable to the primary government, either because the District appoints a voting majority of the component unit’s board, or because the component units will provide a financial benefit or impose a financial burden on the District. The District has accounted for the Service Corporation and Financing Authority as “blended” component units. Despite being legally separate, the Service Corporation and Financing Authority are so intertwined with the District that they are in substance, part of the District’s operations. Accordingly, the balances and transactions of these component units are reported within the funds of the District. Separate financial statements are not issued for the Service Corporation and the Financing Authority. 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 Statements of Net Position. The Statements of Revenues, Expenses and Changes in Net Position present increases (revenues) and decreases (expenses) in total net position. 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. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 18 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B) Measurement Focus, Basis of Accounting and Financial Statement Presentation - Continued 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 position of the District is classified into three components: (1) net investment in capital assets, (2) restricted net position, and (3) unrestricted net position. These classifications are defined as follows: Net Investment in Capital Assets This component of net position 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 assets, 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 the net investment in capital assets. Restricted Net Position This component of net position consists of net position with constrained use through external constraints imposed by creditors (such as through debt covenants), grantors, contributions, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Position This component of net position consists of net position that do not meet the definition of “net investment in capital assets” or “restricted net position”. The District distinguishes operating revenues and expenses from those revenues and expenses that are non-operating. 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. Non-operating revenues and expenses are those revenues and expenses generated that are not 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 $25,030 at June 30, 2019 and $27,020 at June 30, 2018. 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 Statements of Revenues and Expenses and Changes in Net Position. Sometimes the District will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position, a flow assumption must be made about the order in which the resources are considered to be applied. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 19 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B) Measurement Focus, Basis of Accounting and Financial Statement Presentation - Continued It is the District’s practice to consider restricted - net position to have been depleted before unrestricted - net position is applied, however it is at the Board’s discretion. C) New Accounting Pronouncements Implemented as of June 30, 2019 Governmental Accounting Standard Board Statement No. 83 In November of 2016, GASB issued Statement No. 83, Certain Asset Retirement Obligations. This Statement was issued to address the criteria for the recognition and measurement of the liability and corresponding deferred outflows of resources associated with certain asset retirement obligations (AROs). An ARO is a legally enforceable liability associated with the retirement of a tangible capital asset. Statement No. 83 is effective for reporting periods beginning after June 15, 2018. Currently, this Statement has no effect on the District’s financial statements. Governmental Accounting Standard Board Statement No. 88 In March of 2018, GASB issued Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. This Statement was issued to improve the information that is disclosed in the notes to government financial statements related to debt, including direct borrowings and direct placements. This Statement requires that additional essential information related to debt be disclosed in notes to financial statements, including unused lines of credit; assets pledged as collateral for the debt; and terms specified in debt agreements related to significant events of default with finance-related consequences, significant termination events with finance-related consequences, and significant subjective acceleration clauses. Statement No. 88 is effective for fiscal years beginning after June 15, 2018. Currently, this Statement has no effect on the District’s financial statements. Governmental Accounting Standard Board Statement No. 89 In June of 2018, GASB issued Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period. This Statement was issued to (1) to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and (2) to simplify accounting for interest cost incurred before the end of a construction period. This Statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in a business-type activity or enterprise fund. Statement No. 89 is effective for fiscal years beginning after December 15, 2019. The District elected to early implement this Statement in the 2019 fiscal year which is reflected in the District’s financial statements. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 20 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued C) New Accounting Pronouncements - Continued Implemented as of June 30, 2018 Governmental Accounting Standard Board Statement No. 75 In June of 2015, GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. This Statement was issued to improve accounting and financial reporting for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by governmental employers about financial support for OPEB that is provided by other entities. This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans. The provisions of this Statement are effective for fiscal years beginning after June 15, 2017. This Statement has been implemented in the District’s financial statements. Governmental Accounting Standard Board Statement No. 81 In March of 2016, GASB issued Statement No. 81, Irrevocable Split Interest Agreements. This statement was issued to improve accounting and financial reporting for irrevocable split-interest agreements by providing recognition and measurement guidance for situations in which a government is a beneficiary of the agreement. Split-interest agreements are a type of giving agreement used by donors to provide resources to two or more beneficiaries, including governments. Split-interest agreements can be created through trusts—or other legally enforceable agreements with characteristics that are equivalent to split-interest agreements—in which a donor transfers resources to an intermediary to hold and administer for the benefit of a government and at least one other beneficiary. This Statement requires that a government that receives resources pursuant to an irrevocable split- interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. Furthermore, this Statement requires that a government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party, if the government controls the present service capacity of the beneficial interests. This Statement requires that a government recognize revenue when the resources become applicable to the reporting period. The requirements of this Statement are effective for reporting periods beginning after December 15, 2016. Currently, this statement has no effect on the District’s financial statements. Governmental Accounting Standard Board Statement No. 82 In March of 2016, GASB issued Statement No. 82, Pension Issues – An Amendment of GASB Statements No. 67, No. 68, and No. 73. This statement was issued to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Specifically, NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 21 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued C) New Accounting Pronouncements - Continued Implemented as of June 30, 2018 Governmental Accounting Standard Board Statement No. 82 - Continued this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. Prior to the issuance of this Statement, Statements 67 and 68 required presentation of covered-employee payroll, which is the payroll of employees that are provided with pensions through the pension plan, and ratios that use that measure, in schedules of required supplementary information. This Statement amends Statements 67 and 68 to instead require the presentation of covered payroll, defined as the payroll on which contributions to a pension plan are based, and ratios that use that measure. This Statement also clarifies the term deviation used in Actuarial Standards of Practice and payments made by the employer to satisfy contribution requirements. The requirements of this Statement are effective for reporting periods beginning after June 15, 2016, except for the requirements of this Statement for the selection of assumptions in a circumstance in which an employer’s pension liability is measured as of a date other than the employer’s most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017. The District has implemented GASB No. 82 which is reflected in the District’s financial statements. Governmental Accounting Standard Board Statement No. 85 In March of 2017, GASB issued Statement No. 85, Omnibus 2017. This Statement addresses practice issues that have risen from the implementation of certain GASB Statements; primarily pension and OPEB related measurement, recognition, timing, and reporting issues. Other issues include blending of component units for governments whose primary activity is business-type, goodwill reporting, classifying real estate held by insurance entities and measuring particular investments at amortized cost. This Statement is effective for reporting periods beginning after June 15, 2017. Currently, this statement has no effect in the District’s financial statements. Governmental Accounting Standard Board Statement No. 86 In May of 2017, GASB issued Statement No. 86, Certain Debt Extinguishment Issues. This Statement expands upon GASB No. 7 Advance Refundings Resulting in Defeasance of Debt which defines debt defeased in substance and the criteria for the trusts used to extinguish debt. This Statement establishes essentially the same requirements for when a government places cash and other monetary assets acquired with only existing resources in an irrevocable trust to extinguish the debt. This Statement is effective for reporting periods beginning after June 15, 2017. Currently, this statement has no effect on the District’s financial statements. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 22 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued C) New Accounting Pronouncements - Continued Pending Accounting Standards GASB has issued the following statements which impact the District’s financial reporting requirements in the future: i. GASB 84 – “Fiduciary Activities”, effective for fiscal years beginning after December 15, 2018. ii. GASB 87 – “Leases”, effective for fiscal years beginning after December 15, 2019. iii. GASB 90 – “Majority Equity Interests – an amendment of GASB Statements No. 14 and No. 61”, effective for fiscal years beginning after December 15, 2018. iv. GASB 91 – “Conduit Debt Obligations”, effective for fiscal years beginning after December 15, 2020. D) Deferred Outflows / Inflows of Resources In addition to assets, the Statements of Net Position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District has two items that qualify for reporting in this category, deferred actuarial pension costs and deferred actuarial OPEB costs are items that are deferred and recognized as an outflow of resources in the period the amounts become available. In addition to liabilities, the Statements of Net Position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and will not be recognized as an inflow of resources (revenue) until that time. The District has two items that qualify for reporting in this category. Accordingly, the items, deferred actuarial pension costs and deferred actuarial OPEB costs, are deferred and recognized as an inflow of resources in the period that the amounts become available. E) Statements of Cash Flows For purposes of the Statements 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. F) Investments Investments are stated at their fair value, which represents the quoted or stated market value. Investments that are not traded on a market, such as investments in external pools, are valued based on the stated fair value as represented by the external pool. All investments are stated at their fair value, the District has not elected to report certain investments at amortized costs. G) Inventory and Prepaid Items 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 prepaid items use the consumption method whereby they are reported as an asset and expensed as they are consumed. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 23 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued H) 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 acquisition 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 years ending June 30, 2019 of $0 (Implemented GASB 89) and June 30, 2018 of $266,959 was included in the cost of water system assets and is depreciated on the straight-line basis over the estimated useful lives of such assets. 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 2-7 Years Office Equipment 2-10 Years Recycled Water System 50-75 Years Sewer System 25-50 Years I) Compensated Absences It is the District’s policy to record vested or accumulated vacation and sick leave as an expense and liability as benefits accrue to employees. June 30, 2019 Beginning Ending Due Within Balance Additions Reductions Balance One Year Compensated Absences $ 2,807,614 $ 1,637,194 $ 1,432,953 $ 3,011,855 $ 301,186 Current portion is reflected in accrued payroll liabilities and remainder in other non-current liabilities on the Statements of Net Position. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 24 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued I) Compensated Absences - Continued June 30, 2018 Beginning Ending Due Within Balance Additions Reductions Balance One Year Compensated Absences $ 2,733,700 $ 1,596,084 $ 1,522,170 $ 2,807,614 $ 280,761 Current portion is reflected in accrued payroll liabilities and remainder in other non-current liabilities on the Statements of Net Position. J) Classification of Liabilities Certain current liabilities have been classified as current liabilities payable from restricted assets as they will be funded from restricted assets. K) 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 was $96,944 for 2019 and $223,005 for 2018. L) 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. M) Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the District’s California Public Employees’ Retirement System (CalPERS) plans (Plans) and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 25 1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued N) Other Post-Employment Benefits (OPEB) For purposes of measuring the net OPEB liability, deferred outflows/inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the District’s plan (OPEB Plan) and additions to/deductions from the OPEB Plan’s fiduciary net position have been determined on the same basis. For this purpose, benefit payments are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. Generally accepted accounting principles require that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used: 2019 2018 Valuation Date June 30, 2018 June 30, 2017 Measurement Date June 30, 2018 June 30, 2017 Measurement Period July 1, 2017 to June 30, 2018 July 1, 2016 to June 30, 2017 O) 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, deferred outflows of resources, liabilities, and deferred inflows of resources, 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. P) 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, 2019 and 2018 26 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: 2019 2018 Statements of Net Position: Cash and Cash Equivalents $ 34,024,168 $ 24,147,997 Restricted Cash and Cash Equivalents 19,114,137 80,477 Investments 18,951,991 30,866,180 Board Designated Investments 2,537,589 29,879,617 Restricted Investments 460,060 4,166,548 Total Cash and Investments $ 75,087,945 $ 89,140,819 Cash and Investments consist of the following: 2019 2018 Cash on Hand $ 2,950 $ 2,950 Deposits with Financial Institutions 1,218,516 754,437 Investments 73,866,479 88,383,432 Total Cash and Investments $ 75,087,945 $ 89,140,819 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 10% None Commercial Paper 270 days 10% 10% Money Market Mutual Funds N/A 10% 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, 2019 and 2018 27 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 investments with shorter durations than the maximum allowable under the District’s Investment Policy 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, 2019 and 2018. June 30, 2019 Remaining Maturity (in Months) 12 Months 13 to 24 25 to 60 More Than Investment Type Or Less Months Months 60 Months U.S. Government Sponsored Entities $ 31,670,612 $ 27,673,372 $ 3,997,240 $ - $ - Local Agency Investment Fund (LAIF) 41,855,272 41,855,272 - - - San Diego County Pool 281,000 281,000 - - - Money Market Funds 59,595 59,595 - - - Total $ 73,866,479 $ 69,869,239 $ 3,997,240 $ - $ - June 30, 2018 Remaining Maturity (in Months) 12 Months 13 to 24 25 to 60 More Than Investment Type Or Less Months Months 60 Months U.S. Government Sponsored Entities $ 64,967,885 $ 27,845,100 $ 27,313,861 $ 9,808,924 $ - Local Agency Investment Fund (LAIF) 11,204,070 11,204,070 - - - San Diego County Pool 12,131,000 12,131,000 - - - Money Market Funds 80,477 80,477 - - - Total $ 88,383,432 $ 51,260,647 $ 27,313,861 $ 9,808,924 $ - NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 28 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, 2019 and 2018. June 30, 2019 Minimum Rating as of Year End Legal Not Investment Type Rating AAA AA A-1 Rated U.S. Government Sponsored Entities $ 31,670,612 N/A $ 31,670,612 $ - $ - $ - Local Agency Investment Fund (LAIF) 41,855,272 N/A - - - 41,855,272 San Diego County Pool 281,000 N/A - - - 281,000 Money Market Funds 59,595 N/A - - 59,595 - Total $ 73,866,479 $ 31,670,612 $ - $ 59,595 $ 42,136,272 June 30, 2018 Minimum Rating as of Year End Legal Not Investment Type Rating AAA AA A-1 Rated U.S. Government Sponsored Entities $ 64,967,885 N/A $ 64,967,885 $ - $ - $ - Local Agency Investment Fund (LAIF) 11,204,070 N/A - - - 11,204,070 San Diego County Pool 12,131,000 N/A - - - 12,131,000 Money Market Funds 80,477 N/A - - 80,477 - Total $ 88,383,432 $ 64,967,885 $ - $ 80,477 $ 23,335,070 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, 2019 and 2018: June 30, 2019 Issuer Investment Type Reported Amount Federal Home Loan Bank U.S. Government Sponsored Entities $ 5,986,340 Federal National Mortgage Association U.S. Government Sponsored Entities $ 19,689,152 Federal Farm Credit Banks U.S. Government Sponsored Entities $ 3,995,820 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 29 2) CASH AND INVESTMENTS - Continued Concentration of Credit Risk - Continued June 30, 2018 Issuer Investment Type Reported Amount Federal Home Loan Bank U.S. Government Sponsored Entities $ 13,877,960 Federal Home Loan Mortgage Corp U.S. Government Sponsored Entities $ 13,789,744 Federal National Mortgage Association U.S. Government Sponsored Entities $ 23,423,521 Federal Farm Credit Banks U.S. Government Sponsored Entities $ 11,890,740 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 District’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, 2019, $1,570,995 and as of June 30, 2018, $555,267 of the District’s deposits with financial institutions in excess of federal depository insurance limits, were held in collateralized accounts. 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. The LAIF is a special fund of the California State Treasury through which local governments may pool investments. The District may invest up to $65,000,000 in the fund. Investments in LAIF are highly liquid, as deposits can be converted to cash within twenty-four hours without loss of interest. Investments with LAIF are secured by the full faith and credit of the State of California. The yield of LAIF for the quarter ended June 30, 2019 was 2.57%. The estimated amortized cost and fair value of the LAIF pool at June 30, 2019 was $105,633,660,465 and $105,814,483,092. The District’s share of the pool at June 30, 2019 was approximately 0.03955%. The yield of LAIF for the quarter ended June 30, 2018 was 1.90%. The estimated amortized cost and fair value of the LAIF pool at June 30, 2018 was $88,964,875,827 and $88,798,232,977. The District’s share of the pool at June 30, 2018 was approximately 0.0126%. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 30 2) CASH AND INVESTMENTS - Continued 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, determined on an amortized cash basis, the same as the fair value of the District’s position in the pool. 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 California 92101. Restricted Cash and Cash Equivalents 2019 2018 Debt Service: Water Revenue Bond Series 2010A $ 1,044,426 $ 22,024 Water Revenue Bond Series 2010B 2,743,521 58,453 Water Revenue Bond Series 2018 15,326,190 - Total $ 19,114,137 $ 80,477 Board Designated Investments Investments are Board restricted for the cost of the following District projects: 2019 2018 New Water Supply $ 2,537,589 $ 1,341,075 Replacement - 28,538,542 Total $ 2,537,589 $ 29,879,617 Restricted Investments 2019 2018 Debt Service: General Obligation Bond ID No. 27-2009 $ 460,060 $ 487,087 Water Revenue Bond Series 2010A - 1,014,684 Water Revenue Bond Series 2010B - 2,664,777 Total $ 460,060 $ 4,166,548 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 31 3) FAIR VALUE MEASUREMENTS Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurements and Application, provides the framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value with Level 1 given the highest priority and Level 3 the lowest priority. The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the organization has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include the following: a. Quoted prices for similar assets or liabilities in active markets. b. Quoted prices for identical or similar assets or liabilities in markets that are not active. c. Inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). d. Inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). Level 3 inputs are unobservable inputs for the asset or liability. Fair value of assets measured on a recurring basis at June 30, 2019 and 2018, are as follows: June 30, 2019 Significant Other Observable Inputs Fair Value (Level 2) Uncategorized U.S. Government Sponsored Entities $ 31,670,612 $ 31,670,612 $ - Local Agency Investment Fund (LAIF) 41,855,272 - 41,855,272 San Diego County Pool 281,000 - 281,000 Money Market Funds 59,595 59,595 - Total $ 73,866,479 $ 31,730,207 $ 42,136,272 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 32 3) FAIR VALUE MEASUREMENTS - Continued June 30, 2018 Significant Other Observable Inputs Fair Value (Level 2) Uncategorized U.S. Government Sponsored Entities $ 64,967,885 $ 64,967,885 $ - Local Agency Investment Fund (LAIF) 11,204,070 - 11,204,070 San Diego County Pool 12,131,000 - 12,131,000 Money Market Funds 80,477 80,477 - Total $ 88,383,432 $ 65,048,362 $ 23,335,070 Investments classified in Level 2 of the fair value hierarchy are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices. Uncategorized investments do not fall under the fair value hierarchy as there is no active market for the investments. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 33 4) CAPITAL ASSETS The following is a summary of changes in Capital Assets for the year ended June 30, 2019: Beginning Ending Balance Additions Deletions Balance Capital Assets, Not Depreciated: Land $ 14,406,778 $ - $ (2,955) $ 14,403,823 Construction in Progress 17,618,059 22,707,240 (7,176,135) 33,149,164 Total Capital Assets, Not Depreciated 32,024,837 22,707,240 (7,179,090) 47,552,987 Capital Assets, Being Depreciated: Infrastructure 647,074,001 7,980,161 (2,988,133) 652,066,029 Field Equipment 8,518,901 803,018 (749,209) 8,572,710 Buildings 20,080,216 270,320 (1,107,797) 19,242,739 Transportation Equipment 3,429,304 338,220 (241,576) 3,525,948 Communication Equipment 3,514,315 101,878 (198,275) 3,417,918 Office Equipment 17,649,987 353,273 (1,221,689) 16,781,571 Total Capital Assets, Being Depreciated 700,266,724 9,846,870 (6,506,679) 703,606,915 Less Accumulated Depreciation: Infrastructure 243,900,677 14,960,831 (1,882,398) 256,979,110 Field Equipment 6,819,064 314,198 (747,520) 6,385,742 Buildings 9,505,939 516,862 (1,107,797) 8,915,004 Transportation Equipment 2,627,069 201,495 (240,561) 2,588,003 Communication Equipment 2,860,523 252,845 (198,275) 2,915,093 Office Equipment 15,727,726 561,566 (1,221,689) 15,067,603 Total Accumulated Depreciation 281,440,998 16,807,797 (5,398,240) 292,850,555 Total Capital Assets, Being Depreciated, Net 418,825,726 (6,960,927) (1,108,439) 410,756,360 Total Capital Assets, Net $ 450,850,563 $ 15,746,313 $ (8,287,529) $ 458,309,347 Depreciation expense for the year ended June 30, 2019 was $16,807,797. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 34 4) CAPITAL ASSETS - Continued The following is a summary of changes in Capital Assets for the year ended June 30, 2018: Beginning Ending Balance Additions Deletions Adjustments1 Balance Capital Assets, Not Depreciated: Land $ 14,389,187 $ - $ - $ 17,591 $ 14,406,778 Construction in Progress 14,201,511 19,344,410 (15,927,862) - 17,618,059 Total Capital Assets, Not Depreciated 28,590,698 19,344,410 (15,927,862) 17,591 32,024,837 Capital Assets, Being Depreciated: Infrastructure 640,641,602 14,875,150 (9,312,310) 869,559 647,074,001 Field Equipment 8,988,620 60,471 (530,190) - 8,518,901 Buildings 20,576,125 635,154 (243,913) (887,150) 20,080,216 Transportation Equipment 3,286,998 278,472 (136,166) - 3,429,304 Communication Equipment 3,371,041 155,636 (12,362) - 3,514,315 Office Equipment 17,620,584 554,553 (525,150) - 17,649,987 Total Capital Assets, Being Depreciated 694,484,970 16,559,436 (10,760,091) (17,591) 700,266,724 Less Accumulated Depreciation: Infrastructure 235,280,822 15,735,932 (7,597,237) 481,160 243,900,677 Field Equipment 7,036,892 307,889 (525,717) - 6,819,064 Buildings 9,596,983 509,171 (119,055) (481,160) 9,505,939 Transportation Equipment 2,608,206 155,029 (136,166) - 2,627,069 Communication Equipment 2,627,246 245,639 (12,362) - 2,860,523 Office Equipment 15,728,569 512,658 (513,501) - 15,727,726 Total Accumulated Depreciation 272,878,718 17,466,318 (8,904,038) - 281,440,998 Total Capital Assets, Being Depreciated, Net 421,606,252 (906,882) (1,856,053) (17,591) 418,825,726 Total Capital Assets, Net $ 450,196,950 $ 18,437,528 $ (17,783,915) $ - $ 450,850,563 1 Adjustments are related to recategorization of capital assets during the fiscal year. Depreciation expense for the year ended June 30, 2018 was $17,466,318. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 35 5) LONG-TERM DEBT Long-term liabilities for the year ended June 30, 2019 are as follows: Beginning Ending Due Within Balance Additions Deletions Balance One Year General Obligation Bonds: Improvement District No. 27 – 2009 $ 3,390,000 $ - $ 635,000 $ 2,755,000 $ 650,000 Unamortized Bond Premium 68,143 - 16,354 51,789 - Net General Obligation Bonds 3,458,143 - 651,354 2,806,789 650,000 Certificates of Participation: 1996 Certificates of Participation 7,600,000 - 7,600,000 (1) - - 1996 COPS Unamortized Discount (6,707) - (6,707) - - Net Certificates of Participation 7,593,293 - 7,593,293 - - Revenue Bonds: 2010 Water Revenue Bonds Series A 7,880,000 - 975,000 6,905,000 1,015,000 2010 Water Revenue Bonds Series B 36,355,000 - - 36,355,000 - 2013 Water Revenue Refunding Bonds 4,560,000 - 685,000 3,875,000 715,000 2016 Water Revenue Refunding Bonds 31,170,000 - 1,045,000 30,125,000 1,100,000 2018 Water Revenue Bonds - 32,435,000 - 32,435,000 1,245,000 2010 Series A Unamortized Premium 465,009 - 74,400 390,609 - 2013 Bonds Unamortized Premium 496,493 - 96,097 400,396 - 2016 Bonds Unamortized Premium 3,244,048 - 178,572 3,065,476 - 2018 Bonds Unamortized Premium - 2,710,512 72,765 2,637,747 - Net Revenue Bonds 84,170,550 35,145,512 3,126,834 116,189,228 4,075,000 Total Long-Term Liabilities $ 95,221,986 $ 35,145,512 $ 11,371,481 $ 118,996,017 $ 4,725,000 (1) This amount includes a bond refunding of $6,900,000. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 36 5) LONG-TERM DEBT - Continued Long-term liabilities for the year ended June 30, 2018 are as follows: Beginning Ending Due Within Balance Additions Deletions Balance One Year General Obligation Bonds: Improvement District No. 27 – 2009 $ 3,995,000 $ - $ 605,000 $ 3,390,000 $ 635,000 Unamortized Bond Premium 84,498 - 16,355 68,143 - Net General Obligation Bonds 4,079,498 - 621,355 3,458,143 635,000 Certificates of Participation: 1996 Certificates of Participation 8,200,000 - 600,000 7,600,000 700,000 1996 COPS Unamortized Discount (7,452) - (745) (6,707) - Net Certificates of Participation 8,192,548 - 599,255 7,593,293 700,000 Revenue Bonds: 2010 Water Revenue Bonds Series A 8,820,000 - 940,000 7,880,000 975,000 2010 Water Revenue Bonds Series B 36,355,000 - - 36,355,000 - 2013 Water Revenue Refunding Bonds 5,220,000 - 660,000 4,560,000 685,000 2016 Water Revenue Refunding Bonds 32,185,000 - 1,015,000 31,170,000 1,045,000 2010 Series A Unamortized Premium 539,411 - 74,402 465,009 - 2013 Bonds Unamortized Premium 592,588 - 96,095 496,493 - 2016 Bonds Unamortized Premium 3,422,619 - 178,571 3,244,048 - Net Revenue Bonds 87,134,618 - 2,964,068 84,170,550 2,705,000 Total Long-Term Liabilities $ 99,406,664 $ - $ 4,184,678 $ 95,221,986 $ 4,040,000 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 Improvement District No. 27-2009 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. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 37 5) LONG-TERM DEBT - Continued General Obligation Bonds - Continued 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 Improvement District No. 27-2009 General Obligation Refunding 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 2020 $ 650,000 $ 97,200 2021 680,000 70,600 2022 705,000 42,900 2023 720,000 14,400 $ 2,755,000 $ 225,100 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, 2020. The installment payments are to be paid annually at $350,000 to $1,100,000 from September 1, 1996 through September 1, 2026. The interest rate at June 30, 2018 was 1.50% and during the 2019 fiscal year these COPS were advanced refunded. The COPS debt issue contain various covenants and restrictions, principally that the District fix, prescribe, revise and collect rates, fees and charges for the Water System which will at lease 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, 2019. Certificate of Participation (COPS) Advanced Refunding In November 2018, the District issued $32,435,000 in Water Revenue Bonds, Series 2018, with interest rates of 3% to 5% which a portion of the proceeds was used to advance refund $6,900,000 of the 1996 Certificates of Participation. Bond proceeds of $6,900,000 were used to advance refund the 1996 Certificates of Participation on November 1, 2018 to fully repay the obligation. The net savings and economic gain (loss) from this current advance refunding is unavailable due to the 1996 Certificates of Participation having a variable interest rate. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 38 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 $36,355,000. 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 Certificates of Participation described above and the 2013 and 2016 Water Revenue Refunding Bonds described below. 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, 2019 was $74,400 and for June 30, 2018 was $74,402. The amortizations are included in interest expense. The unamortized premium at June 30, 2019 is $390,609 and at June 30, 2018 is $465,009. The 2010 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 at least be 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 years ended June 30, 2019 and 2018. In June 2013, the 2013 Water Revenue Refunding Bonds were issued to defease the 2004 Refunding Certificates of Participation. The bonds were issued with a face value of $7,735,000 plus a $984,975 original issue premium. The bonds are due in annual installments of $660,000 to $835,000 from September 1, 2013 through September 1, 2023; bearing interest at 1% to 4%. The installment payments are to be made from taxes and net revenues of the Water System, on parity with the payments required to be made by the District for the 1996 and 2016 Water Revenue Bonds and the 2010A and 2010B described above. The original issue premium is being amortized over the 11 year life of the Series 2013 bonds. Amortization for the year ending June 30, 2019 was $96,097 and for June 30, 2018 was $96,095. The amortizations are included in interest expense. The unamortized premium at June 30, 2019 is $400,396 and at June 30, 2018 is $496,493. In May 2016, Water Revenue Refunding Bonds were issued to defease the 2007 Revenue Certificates of Participation. The bonds are due in annual installments of $1,200,000 to $2,235,000 from September 1, 2016 through September 1, 2036; bearing interest of 2% to 5%. The bonds were issued with a face value of $33,385,000 plus $3,630,950 original issue premium. The savings between the cash flow required to service, the old debt and the cash flow required to service the new debt is $5,664,140 and represent an economic gain on refunding of $4,538,175. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 39 5) LONG-TERM DEBT - Continued Water Revenue Bonds - Continued The original issue premium is being amortized over the 20 year life of the Series 2016 bonds. Amortization for the year ending June 30, 2019 was $178,572 and for June 30, 2018 was $178,571. The amortizations are included in interest expense. The unamortized premium at June 30, 2019 is $3,065,476 and at June 30, 2018 is $3,244,048. In November 2018, Water Revenue Bonds were issued to provide funds for construction of water storage, treatment and transmission facilities and to refinance the 1996 Certificates of Participation. The bonds are due in annual installments of $775,000 to $1,915,000 from September 1, 2019 through September 1, 2043; bearing interest of 3% to 5%. The bonds were issued with a face value of $32,435,000 plus $2,710,512 original issue premium. The original issue premium is being amortized over the 25 year life of the Series 2018 bonds. Amortization for the year ending June 30, 2019 was $72,765. The amortization expense is included in interest expense. The unamortized premium at June 30, 2019 is $2,637,747. The total amount outstanding at June 30, 2019 and aggregate maturities of the revenue bonds for the fiscal years subsequent to June 30, 2019, are as follows: For the Year 2010 Water Revenue Bond Series A 2010 Water Revenue Bond Series B Ended June 30, Principal Interest Principal Interest 2020 $ 1,015,000 $ 323,112 $ - $ 2,371,868 2021 1,065,000 271,112 - 2,371,868 2022 1,120,000 216,488 - 2,371,868 2023 1,175,000 159,113 - 2,371,868 2024 1,235,000 98,862 - 2,371,868 2025-2029 1,295,000 33,994 6,000,000 11,123,436 2030-2034 - - 9,925,000 8,425,226 2035-2039 - - 13,635,000 4,590,581 2040-2041 - - 6,795,000 453,977 $ 6,905,000 $ 1,102,681 $ 36,355,000 $ 36,452,560 For the Year 2013 Water Revenue Refunding Bonds 2016 Water Revenue Refunding Bonds 2018 Water Revenue Refunding Bonds Ended June 30, Principal Interest Principal Interest Principal Interest 2020 $ 715,000 $ 140,700 $ 1,100,000 $ 1,119,831 $ 1,245,000 $ 1,424,913 2021 745,000 111,500 1,155,000 1,063,456 1,310,000 1,361,038 2022 775,000 81,100 1,215,000 1,004,206 1,370,000 1,294,038 2023 805,000 49,500 1,285,000 941,706 1,455,000 1,223,413 2024 835,000 16,700 1,350,000 875,831 1,650,000 1,145,787 2025-2029 - - 7,845,000 3,300,031 7,575,000 4,471,312 2030-2034 - - 9,655,000 1,611,809 6,220,000 2,935,237 2035-2039 - - 6,520,000 286,219 6,550,000 1,596,500 2040-2044 - - - - 5,060,000 450,331 $ 3,875,000 $ 399,500 $ 30,125,000 $ 10,203,089 $ 32,435,000 $ 15,902,569 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 40 5) LONG-TERM DEBT - Continued Revenues Pledged The District has pledged a portion of future water sales revenues to repay its Water Revenue Bonds and Certificates of Participation. Total principal and interest remaining on the water revenue bonds and certificates of participation is $173,755,399 payable through fiscal year 2044. For June 30, 2019, principal and interest paid by the water sales revenues were $3,405,000 and $4,593,173, respectively. For June 30, 2018, principal and interest paid by the water sales revenues were $3,215,000 and $4,268,091, respectively. 6) NET POSITION Designations of Net Position In addition to the restricted net position, a portion of unrestricted net position, have been designated by the Board of Directors for the following purposes as of June 30, 2019 and 2018: 2019 2018 Designated Betterment $ 2,204,313 $ 2,293,440 Replacement Reserve 18,650,150 20,510,569 Designated Expansion 7,155 - Designated New Supply Fund 406,545 325,645 Employee Benefits Reserve 276,168 262,404 Total $ 21,544,331 $ 23,392,058 7) DEFINED BENEFIT PENSION PLAN A) General Information about the Pension Plans Plan Descriptions All qualified permanent and probationary employees are eligible to participate in the District’s Plan, agent multiple- employer defined benefit pension plans administered by the California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and District resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding provisions, assumptions and membership information that can be found on the CalPERS website. Benefits Provided CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 41 7) DEFINED BENEFIT PENSION PLAN - Continued A) General Information about the Pension Plans - Continued Benefits Provided - Continued The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for the plan are applied as specified by the Public Employees’ Retirement Law. The Plans’ provisions and benefits in effect at June 30, 2019 and 2018 are summarized as follows: Prior to On or After Hire Date January 1, 2013 January 1, 2013 Benefit Formula 2.7% at 55 2% at 62 Benefit Vesting Schedule 5 years service 5 years service Benefit Payments Monthly for life Monthly for life Retirement Age 50 – 55+ 52 – 67+ Monthly Benefits, as a % of Eligible Compensation 2.0% to 2.7% 1.0% to 2.5% Required Employee Contribution Rates (2019 and 2018) 8% 6.25% Required Employer Contribution Rates 2019 37.436% 37.436% 2018 34.246% 34.246% Employees Covered The following employees were covered by the benefit terms for the Plan: 2019 2018 Inactive Employees or Beneficiaries Currently Receiving Benefits 183 175 Inactive Employees Entitled to But Not Yet Receiving Benefits 131 140 Active Employees 133 134 Total 447 449 Contributions Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The District is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 42 7) DEFINED BENEFIT PENSION PLAN - Continued B) Net Pension Liability The District’s net pension liability for the Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2018 and 2017, using the annual actuarial valuations as of June 30, 2018 and 2017, respectively, rolled forward to June 30, 2018 and 2017, respectively, using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below: Actuarial Assumptions The total pension liabilities in the June 30, 2018 and 2017 actuarial valuations were determined using the following actuarial assumptions: 2019 2018 Valuation Date June 30, 2017 June 30, 2016 Measurement Date June 30, 2018 June 30, 2017 Actuarial Cost Method Entry-Age Normal Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.15% 7.15% Inflation 2.5% 2.75% Salaries Increases Varies(1) Varies(1) Mortality Rate Table CalPERS Membership Data(2) CalPERS Membership Data(4) Post Retirement Benefit Increase See Footnote(3) See Footnote(5) (1) Depending on age, service and type of employment. (2) The mortality table used was developed based on CalPERS-specific data. The table includes 15 years of mortality improvements using the Society of Actuaries Scale 90% of scale MP 2016. For more details on this table, please refer to the December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) that can be found on the CalPERs website. (3) Contract COLA up to 2% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.50% thereafter. (4) The mortality table used was developed based on CalPERS-specific data. The table includes 20 years of mortality improvements using the Society of Actuaries Scale BB. For more details on this table, please refer to the 2014 experience study report. (5) Contract COLA up to 2.75% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.75% thereafter. All other actuarial assumptions used in the valuations were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report may be accessed on the CalPERS website at www.calpers.ca.gov under Forms and Publications. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 43 7) DEFINED BENEFIT PENSION PLAN - Continued B) Net Pension Liability - Continued Change of Assumptions In the June 30, 2017 valuation, the accounting discount rate was reduced from 7.65 percent to 7.15 percent. Discount Rate The discount rate used to measure the total pension liability at June 30, 2018 and 2017 measurement dates was 7.15% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. The tests revealed the assets would not run out. Therefore, the 7.15% discount rate is appropriate and the use of the municipal bond rate calculation is not deemed necessary. The long term expected discount rate of 7.15% is applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report called “GASB 68 Crossover Testing Report” that can be obtained from the CalPERS website. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses. The following table reflects the long-term expected real rate of return by asset class. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 44 7) DEFINED BENEFIT PENSION PLAN - Continued B) Net Pension Liability - Continued Discount Rate - Continued Asset Class(a) Assumed Asset Allocation Real Return Years 1 - 10(b) Real Return Years 11+(c) 2018 2017 2018 2017 2018 2017 Global Equity 50.0% 47.0% 4.80% 4.90% 5.98% 5.38% Global Fixed Income 28.0% 19.0% 1.00% 0.80% 2.62% 2.27% Inflation Assets/Sensitive - 6.0% 0.77% 0.60% 1.81% 1.39% Private Equity 8.0% 12.0% 6.30% 6.60% 7.23% 6.63% Real Estate 13.0% 11.0% 3.75% 2.80% 4.93% 5.21% Infrasture and Forestland - 3.0% - 3.90% - 5.36% Liquidity 1.0% 2.0% - -0.40% -0.92% -0.90% Total 100% 100% (a) In the System’s CAFR, Fixed Income in included in Global Debt Securities; Liquidity is included in Short- term Investments; Inflation Assets are included in both Global Equity Securities and Global Debt Securities. (b) An expected inflation of 2.00% used for this period. (c) An expected inflation of 2.92% used for this period. C) Changes in the Net Pension Liability The changes in the Net Pension Liability for the Plan for June 30, 2019: Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Beginning Balance $ 130,809,611 $ 81,227,295 $ 49,582,316 Changes in the Year: Service Cost 2,528,271 - 2,528,271 Interest on the Total Pension Liability 9,168,092 - 9,168,092 Changes in Benefit Terms - - - Changes in Assumptions (1,312,634) - (1,312,634) Differences Between Actual and Expected Experience 461,917 - 461,917 Net Plan to Plan Resource Movement - (203) 203 Contributions - Employer - 4,441,517 (4,441,517) Contributions - Employees - 1,015,008 (1,015,008) Net Investment Income - 6,949,676 (6,949,676) Benefit Payments, Including Refunds of Employee Contributions (5,995,949) (5,995,949) - Administrative Expense - (126,575) 126,575 Other Miscellaneous Income/(Expense) - (240,367) 240,367 Net Changes 4,849,697 6,043,107 (1,193,410) Ending Balance $ 135,659,308 $ 87,270,402 $ 48,388,906 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 45 7) DEFINED BENEFIT PENSION PLAN - Continued C) Changes in the Net Pension Liability - Continued The changes in the Net Pension Liability for the Plan for June 30, 2018: Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Beginning Balance $ 119,095,572 $ 73,846,128 $ 45,249,444 Changes in the Year: Service Cost 2,556,902 - 2,556,902 Interest on the Total Pension Liability 8,836,284 - 8,836,284 Changes in Benefit Terms - - - Changes in Assumptions 7,308,486 - 7,308,486 Differences Between Actual and Expected Experience (1,208,593) - (1,208,593) Contributions - Employer - 4,105,810 (4,105,810) Contributions - Employees - 1,014,329 (1,014,329) Net Investment Income - 8,149,097 (8,149,097) Benefit Payments, Including Refunds of Employee Contributions (5,779,040) (5,779,040) - Administrative Expense - (109,029) 109,029 Net Changes 11,714,039 7,381,167 4,332,872 Ending Balance $ 130,809,611 $ 81,227,295 $ 49,582,316 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the District for the Plan, calculated using the discount rate for the Plan, as well as what the District’s net pension liability would be if it were calculated using a discount rate that is 1- percentage point lower or 1-percentage point higher than the current rate: 2019 2018 1% Decrease 6.15% 6.15% Net Pension Liability $ 66,284,590 $ 67,205,545 Current Discount Rate 7.15% 7.15% Net Pension Liability $ 48,388,906 $ 49,582,316 1% Increase 8.15% 8.15% Net Pension Liability $ 33,516,191 $ 34,980,142 Pension Plan Fiduciary Net Position Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 46 7) DEFINED BENEFIT PENSION PLAN - Continued D) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions For the years ended June 30, 2019 and 2018, the District recognized pension expense of $6,855,984 and $6,413,616. At June 30, 2019 and 2018, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following services: Deferred Outflows of Resources Deferred Inflows of Resources 2019 2018 2019 2018 Pension contributions subsequent to measurement date $ 36,665,042 $ 4,452,147 $ - $ - Differences between actual and expected experience 296,947 - (313,339) (936,234) Changes in assumptions 1,894,792 4,601,639 (843,836) - Net difference between projected and actual earnings on pension plan investments 166,037 1,132,443 - - Total $ 39,022,818 $ 10,186,229 $ (1,157,175) $ (936,234) $36,665,042 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2020. Those contributions include a $31,800,000 additional payment to reduce the District’s unfunded pension liability. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Deferred Year Ended Outflow/(Inflows) June 30 of Resources 2019 $ 2,286,620 2020 (20,789) 2021 (825,349) 2022 (239,881) 2023 - Thereafter - E) Payable to the Pension Plan At June 30, 2019 and 2018, the District reported a payable of $44,905 and $88,989, respectively, for the outstanding amount of contributions to the pension plan required for the years ended June 30, 2019 and 2018. These payables are reflected in the accrued payroll liabilities on the Statements of Net Position. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 47 8) OTHER POST EMPLOYMENT BENEFITS (OPEB) 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 on or after January 1, 1981 but before 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 up to 100% medical and/or dental premiums for life for the retiree for Tier I, II or III employees, and up to 100% spouse premium until death of retiree or age 65 whichever is greater and dependent premium up to age 19 depending on the tier. Subsequent to the agreements in 2011 and 2012 all employees are eligible for the plan after 20 years of consecutive service and unrepresented employees hired before January 1, 2013 are eligible after 15 years. Survivor benefits are covered beyond Medicare. Employees Covered As of June 30, 2018 and 2017 actuarial valuations, the following current and former employees were covered by the benefit terms under the Plan: Active employees 131 Inactive employees or beneficiaries currently receiving benefits 79 Inactive employees entitled to, but not yet receiving benefits - Total 210 Contributions The annual contribution is based on the actuarially determined contribution. For the fiscal years ended June 30, 2019 and 2018, the District’s cash contributions were $2,049,038 and $2,054,208, respectively, in payments to the trust and the estimated implied subsidy was $160,536 and $147,796, respectively, resulting in total payments of $2,209,574 and $2,202,004, respectively. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 48 8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued Net OPEB Liability The District’s net OPEB liability was measured as of June 30, 2018 and 2017 and the total OPEB liability used to calculate the net OPEB liability was determined by actuarial valuations dated June 30, 2018 and 2017 based on the following actuarial methods and assumptions: Actuarial Assumptions Discount Rate 7.00% Inflation 2.75% Salary Increases 3.0% plus merit Investment Rate of Return 7.00% Mortality Rate(1) Derived using CalPERS Membership Data for all funds Pre-Retirement Turnover(2) Derived using CalPERS Membership Data for all funds Healthcare Trend Rate 6.00% HMO/6.50% PPO decreasing to 5.00% HMO/5.00% PPO Notes: (1) Pre-retirement mortality information was derived from data collected during 1997 to 2011 CalPERS Experience Study dated January 2014 and post-retirement mortality information was derived from the 2007 to 2011 CalPERS Experience Study. The Experience Study Reports may be access on the CalPERS website www.calpers.ca.gov under Forms and Publications. (2) The pre-retirement turnover information was developed based on CalPERS specific data. For more details, please refer to the 2007 to 2011 Experience Study Report. The Experience Study Report may be accessed on the CalPERS website www.calpers.ca.gov under Forms and Publications. The long-term expected rate of return on OPEB plan investments was determined using a building block method in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the OPEB plan’s target asset are summarized in the following table for the June 30, 2018 and 2017 actuarial valuations: Long-term Target Expected Real Asset Class Allocation Rate of Return Global Equity 57.0% 5.5% REITs 8.0% 3.65% Global Fixed Income 27.0% 2.35% Commodities 3.0% 1.75% TIPS 5.0% 1.50% Total 100% NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 49 8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued Discount Rate The discount rate used to measure the total OPEB liability was 7.00% for the June 30, 2018 and 2017 actuarial valuations. The projection of cash flows used to determine the discount rate assumed that District contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the OPEB plan’s fiduciary net position was projected to be available to make all projected OPEB payments for current active and inactive employees and beneficiaries. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projects benefit payments to determine the total OPEB liability. Changes in the OPEB Liability The changes in the net OPEB liability for the Plan are as follows: June 30, 2019 Increase (Decrease) Total OPEB Liability (a) Plan Fiduciary Net Position (b) Net OPEB Liability/(Asset) (c) = (a) - (b) Balance at June 30, 2018 (Valuation Date June 30, 2017) $ 26,449,527 $ 21,739,035 $ 4,710,492 Changes Recognized for the Measurement Period: Service Cost 735,655 - 735,655 Interest 1,864,967 - 1,864,967 Changes of Assumptions - - - Contributions - Employer - 2,202,004 (2,202,004) Net Investment Income - 1,734,626 (1,734,626) Benefit Payments (1,085,586) (1,085,586) - Administrative Expenses - (11,784) 11,784 Other Expenses - (28,757) 28,757 Net Changes 1,515,036 2,810,503 (1,295,467) Balance at June 30, 2019 (Measurement Date June 30, 2018) $ 27,964,563 $ 24,549,538 $ 3,415,025 CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 50 8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued Changes in the OPEB Liability - Continued June 30, 2018 Increase (Decrease) Total OPEB Liability (a) Plan Fiduciary Net Position (b) Net OPEB Liability/(Asset) (c) = (a) - (b) Balance at June 30, 2017 (Valuation Date June 30, 2016) $ 25,037,076 $ 18,492,217 $ 6,544,859 Changes Recognized for the Measurement Period: Service Cost 687,528 - 687,528 Interest 1,764,343 - 1,764,343 Changes of Assumptions - - - Contributions - Employer - 2,284,420 (2,284,420) Net Investment Income - 2,011,985 (2,011,985) Benefit Payments (1,039,420) (1,039,420) - Administrative Expense - (10,167) 10,167 Net Changes 1,412,451 3,246,818 (1,834,367) Balance at June 30, 2018 (Measurement Date June 30, 2017) $ 26,449,527 $ 21,739,035 $ 4,710,492 Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following presents the net OPEB liability of the District if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate, for the measurement periods ended June 30, 2018 and 2017: 2019 (2018 Measurement Period) 2018 (2017 Measurement Period) 1% Decrease Net OPEB Liability $ 7,750,569 $ 8,830,538 Current Discount Rate Net OPEB Liability $ 3,415,025 $ 4,710,492 1% Increase Net OPEB Liability $ 195,486 $ 1,378,817 CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 51 8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued Sensitivity of the Net OPEB Liability to Changes in the Health Care Cost Trend Rates The following presents the net OPEB liability of the District if it were calculated using health care cost trend rates that are one percentage point lower or one percentage point higher than the current rate, for measurement periods ended June 30, 2018 and 2017: 1% Decrease (5.00% HMO/5.50% PPO Decreasing to 4.00% HMO/4.00% PPO) Current Healthcare Cost Trend Rates (6.00% HMO/6.5% PPO Decreasing to 5.00% HMO/5.00% PPO) 1% Increase (7.00% HMO/7.50% PPO Decreasing to 6.00% HMO/6.00% PPO) 2019 Net OPEB Liability (Asset) $ (550,596) $ 3,415,025 $ 8,456,194 (2018 Measurement Period) 2018 Net OPEB Liability $ 1,158,335 $ 4,710,492 $ 9,214,495 (2017 Measurement Period) OPEB Plan Fiduciary Net Position CERBT issues a publicly available financial report that may be obtained from the California Public Employees Retirement System Executive Office, 400 P Street, Sacramento, California 95814. Recognition of Deferred Outflows and Deferred Inflows of Resources Gains and losses related to changes in total OPEB liability and fiduciary net position are recognized in OPEB expense systematically over time. Amounts are first recognized in OPEB expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to OPEB and are to be recognized in future OPEB expense. The recognition period differs depending on the source of the gain or loss: Net difference between projected and actual earnings on OPEB plan investments 5 years All other amounts Expected average remaining service lifetime (EARSL) CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 52 8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB For the fiscal years ended June 30, 2019 and 2018, the District recognized OPEB expense of $(177,250) and $(39,299), respectively. As of fiscal years ended June 30, 2019 and 2018, the District reported deferred outflows of resources related to OPEB from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources 2019 2018 2019 2018 OPEB contributions subsequent to measurement date $ 2,209,574 $ 2,202,004 $ - $ - Changes in assumptions - - - - Net difference between projected and actual earnings on OPEB plan investments - - (544,777) (539,449) Total $ 2,209,574 $ 2,202,004 $ (544,777) $ (539,449) The $2,209,574 reported as deferred outflows of resources related to contributions subsequent to the June 30, 2018 measurement date will be recognized as a reduction of the net OPEB liability during the fiscal year ending June 30, 2020. Other amounts reported as deferred outflows of resources related to OPEB will be recognized as expense as follows: Deferred Year Ended Outflow/(Inflows) June 30, of Resources 2020 $ 169,910 2021 169,910 2022 169,911 2023 35,046 2024 - Thereafter - 9) WATER CONSERVATION AUTHORITY In 1999, the District formed the Water Conservation Garden 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, 2019 and 2018, the District contributed $118,040 and $123,050, respectively, for the development, construction and operation costs of the xeriscape demonstration garden. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 53 9) WATER CONSERVATION AUTHORITY - Continued A summary of the Authority’s June 30, 2018 audited financial statement is as follows (latest report available): Assets $ 1,230,627 Liabilities 34,000 Net Position $ 1,196,627 Revenues, Gains and Other Support $ 540,783 Expenses 594,203 Changes in Net Position $ (53,420) 10) COMMITMENTS AND CONTINGENCIES Construction Commitments The District had committed to capital projects under construction with an estimated cost to complete of $2,245,835 and $21,974,525 at June 30, 2019 and 2018, respectively. 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 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, 2019, 1,750 EDUs had been relinquished and refunded, 15,143 EDUs had been connected, and 974 EDUs have neither been relinquished nor connected. At June 30, 2018, 1,750 EDUs had been relinquished and refunded, 15,086 EDUs had been connected, and 1,031 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, 2019 and 2018, none of the outstanding developer agreements had been accepted. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 54 11) RISK MANAGEMENT General Liability 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. 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’ 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:  $25,000 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, as respects any employment practices claim or suit arising in whole or any part out of any action involving discipline, demotion, reassignment or termination of any employee of the member. Employee Dishonesty Coverage: Total of $1,000,000 per loss includes Public Employee Dishonesty, Forgery or Alteration and Theft, Disappearance and Destruction coverage’s effective July 1, 2017 and 2018. 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 $1,000 deductible per occurrence, effective July 1, 2017 and 2018. Boiler and Machinery: Replacement cost up to $100 million per occurrence, subject to a $1,000 deductible, effective July 1, 2017 and 2018. 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 $1,000 per occurrence, effective July 1, 2017 and 2018. 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 – 2017-18 and 2018-19, effective July 1, 2017 and 2018. 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, 2017 and 2018. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 55 11) RISK MANAGEMENT - Continued General Liability - Continued Cyber Coverage: $2,000,000 Annual Aggregate Limit of Liability for each Insured/Member for Information Security & Privacy Liability. Policy includes at $25,000 deductible per claim. 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 pooled medical program, administered in conjunction with the California State Association of Counties (CSAC). Adequacy of Protection During the past four 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, 2019 and 2018 are as follows: 2019 2018 Amount Expensed $ 4,713,883 $ 3,941,321 Amount Capitalized as a Cost of Construction Projects - 266,959 Total Interest $ 4,713,883 $ 4,208,280 13) SEGMENT INFORMATION The District has issued Water Revenue Bonds in previous fiscal years to finance certain capital improvements. While water and wastewater services are accounted for jointly in these financial statements, the investors in the Water Revenue Bonds rely solely on the revenues of the water services for repayment. CNOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 56 13) SEGMENT INFORMATION - Continued Summary financial information for the water and wastewater services is presented for June 30, 2019 and 2018: Condensed Statements of Net Position June 30, 2019 and 2018 Water Services Wastewater Services 2019 2018 2019 2018 ASSETS Cash and Investments $ 72,508,971 $ 83,936,096 $ 2,578,974 $ 5,204,723 Accounts Receivable, Net 11,577,454 11,937,362 210,500 172,016 Other Current Asset 2,801,868 2,346,388 34,300 34,300 Capital Assets 428,856,190 425,858,728 29,453,157 24,991,835 Total Assets 515,744,483 524,078,574 32,276,931 30,402,874 DEFERRED OUTFLOWS OF RESOURCES Deferred Actuarial Pension Costs 36,957,507 9,760,597 2,065,311 425,632 Deferred Actuarial OPEB Costs 2,105,670 2,098,510 103,904 103,494 Total Deferred Outflows of Resources 39,063,177 11,859,107 2,169,215 529,126 LIABILITIES Accounts Payable 13,882,636 14,537,105 179,188 900,460 Other Miscellaneous Liabilities 5,515,011 4,345,073 643,495 439,426 Other Current Liabilities 10,324,292 9,038,907 - - General Obligation Bonds 2,156,789 2,823,143 - - Certificates of Participation - 6,893,293 - - Revenue Bonds 112,114,228 81,465,550 - - Net Pension Liability 46,167,836 47,296,682 2,221,070 2,285,634 Net OPEB Liability 3,263,717 4,489,099 151,308 221,393 Other Non-current Liabilities 3,337,674 3,117,705 - - Total Liabilities 196,762,183 174,006,557 3,195,061 3,846,913 DEFERRED INFLOWS OF RESOURCES Deferred Actuarial Pension Costs 1,125,287 916,299 31,888 19,935 Deferred Actuarial OPEB Costs 519,135 514,095 25,642 25,354 Total Deferred Inflows of Resources 1,644,422 1,430,394 57,530 45,289 NET POSITION Net Investment in Capital Assets 325,186,363 330,636,742 29,453,157 24,991,835 Restricted for Debt Service 4,248,007 4,247,025 - - Unrestricted 26,966,685 25,616,963 1,740,398 2,047,963 Total Net Position $ 356,401,055 $ 360,500,730 $ 31,193,555 $ 27,039,798 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 57 13) SEGMENT INFORMATION - Continued Condensed Statements of Revenues, Expenses and Changes in Net Position For the Years Ended June 30, 2019 and 2018 Water Services Wastewater Services 2019 2018 2019 2018 Operating Revenues Water Sales $ 86,756,222 $ 92,595,195 $ - $ - Wastewater Revenue - - 2,961,157 2,865,520 Connection and Other Fees 2,222,393 2,009,084 12,394 3,973 Total Operating Revenues 88,978,615 94,604,279 2,973,551 2,869,493 Operating Expenses Cost of Water Sales 60,065,964 62,321,213 - - Wastewater - - 2,784,579 2,501,240 Administrative and General 24,070,648 23,445,578 - - Depreciation 15,973,877 16,462,306 833,920 1,004,012 Total Operating Expenses 100,110,489 102,229,097 3,618,499 3,505,252 Operating Income (Loss) (11,131,874) (7,624,818) (644,948) (635,759) Non-operating Revenues (Expenses) Investment Earnings 1,845,805 656,472 132,587 67,388 Taxes and Assessments 4,671,182 4,480,930 - 789 Availability Charges 671,428 646,323 51,818 51,401 Gain (Loss) on Sale of Capital Assets (1,030,346) (1,527,679) (28,225) (181,859) Rents and Leases 1,384,211 1,439,247 - - Miscellaneous Revenues 2,407,989 2,255,605 392,624 - Donations (118,040) (123,050) - - Interest Expense (4,713,883) (3,941,321) - - Miscellaneous Expenses (3,288,540) (893,623) (4,515) (6,624) Total Non-operating Revenues (Expenses) 1,829,806 2,992,904 544,289 (68,905) Income (Loss) Before Capital Contributions and Transfers (9,302,068) (4,631,914) (100,659) (704,664) Capital Contributions 9,416,804 9,469,083 40,005 37,109 Transfers In (Out) (4,214,411) - 4,214,411 - Change in Net Position (4,099,675) 4,837,169 4,153,757 (667,555) Total Net Position, Beginning, As Previously Reported 360,500,730 372,812,297 27,039,798 28,374,692 Prior Period Adjustment - (17,148,736) - (667,339) Total Net Position, Beginning , As Restated 360,500,730 355,663,561 27,039,798 27,707,353 Total Net Position, Ending $ 356,401,055 $ 360,500,730 $ 31,193,555 $ 27,039,798 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 58 13) SEGMENT INFORMATION - Continued Condensed Statements of Cash Flows For the Years Ended June 30, 2019 and 2018 Water Services Wastewater Services 2019 2018 2019 2018 Net Cash Provided/(Used) by: Operating Activities $ (23,286,064) $ 15,788,039 $ (1,741,104) $ 940,132 Non-capital and Related Financing Activities 474,682 4,495,002 4,214,411 - Capital and Related Financing Activities 9,584,026 (16,598,410) (5,231,644) (1,007,520) Investing Activities 42,137,187 3,065,764 2,758,337 67,388 Net Increase (Decrease) in Cash and Cash Equivalents 28,909,831 6,750,395 - - Cash and Cash Equivalents, Beginning 24,228,474 17,478,079 - - Cash and Cash Equivalents, Ending $ 53,138,305 $ 24,228,474 $ - $ - 14) PRIOR PERIOD ADJUSTMENT In the fiscal year 2018, the prior period adjustment of $17,816,075 relates to the implementation of GASB Statement 75 for postemployment benefits other than pensions. According to GASB Statement 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which was implemented by the District in the 2018 fiscal year, recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and expenses related to OPEB plan. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2019 and 2018 CREQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2019 and 2018 59 Schedule of Changes in the Net OPEB Liability and Related Ratios for Measurement Periods Ended June 30, Measurement Period 2018 2017 Total OPEB Liability Service Cost $ 735,655 $ 687,528 Interest on the Total OPEB Liability 1,864,967 1,764,343 Actual and Expected Experience Difference - - Changes in Assumptions - - Changes in Benefit Terms - - Benefit Payments (1,085,586) (1,039,420) Net Change in Total OPEB Liability 1,515,036 1,412,451 Total OPEB Liability - Beginning 26,449,527 25,037,076 Total OPEB Liability - Ending (a) $ 27,964,563 $ 26,449,527 Plan Fiduciary Net Position Contributions - Employer $ 2,202,004 $ 2,284,420 Net Investment Income 1,734,626 2,011,985 Benefit Payments (1,085,586) (1,039,420) Administrative Expenses (11,784) (10,167) Other Expenses (28,757) - Net Change in Plan Fiduciary Net Position 2,810,503 3,246,818 Plan Fiduciary Net Position - Beginning 21,739,035 18,492,217 Plan Fiduciary Net Position - Ending (b) $ 24,549,538 $ 21,739,035 Net OPEB Liability - Ending (a)-(b) $ 3,415,025 $ 4,710,492 Plan Fiduciary Net Position as a Percentage of the Total OPEB Liability 87.8% 82.2% Covered Payroll $ 12,969,485 $ 12,513,000 Net OPEB Liability as a Percentage of Covered-employee Payroll 26.3% 37.6% Notes to Schedule: Historical information is required only for measurement periods for which GASB 75 is applicable. Future years’ information will be displayed up to 10 years as information becomes available. Contributions are determined by an actuarial valuation based on eligible participants’ estimated medical and dental benefits. REQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2019 and 2018 60 Schedule of Contributions Last Ten Fiscal Years’ Fiscal Year Ended June 30, 2019 2018 Actuarially Determined Contribution (ADC) $ 1,065,019 $ 1,116,418 Contributions in Relation to the ADC (2,209,574) (2,202,004) Contribution Deficiency (Excess) $ (1,144,555) $ (1,085,586) Covered-Employee Payroll $ 13,092,319 $ 12,969,485 Contributions as a percentage of covered-employee payroll 16.88% 16.98% Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2019 were from the June 30, 2018 actuarial valuation. Methods and assumptions used to determine contributions: Actuarial Cost Method Entry Age Normal Amortization Method/Period Level percent of payroll over a closed rolling 15-year period Asset Valuation Method Market value Inflation 2.75% Payroll Growth 3.00% plus merit Investment Rate of Return 7.00% per annum Healthcare Cost-trend Rates 6.00% HMO/6.5% PPO decreasing to 5.00% HMO/5.00% PPO Retirement Age Tier 1 employees - 2.7% at 55 and Tier 2 employees - 2.0% at 62. The probabilities of Retirement are based on the 2014 CalPERS Experience Study for the period from 1997 to 2011. Mortality Pre-retirement mortality probability based on 2014 CalPERS 1997-2011 Experience Study covering CalPERS participants. Post-retirement mortality probability based on CalPERS Experience Study 2007-2011 covering participants in CalPERS. Historical information is required only for measurement periods for which GASB 75 is applicable. Future years’ information will be displayed up to 10 years as information become available. Contributions are determined by an actuarial valuation based on eligible participants’ medical and dental benefits. REQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2019 and 2018 61 Schedule of Changes in the Net Pension Liability and Related Ratios Last 10 Years1 Measurement Period2 2017-2018 2016-2017 2015-2016 2014-2015 2013-2014 TOTAL PENSION LIABILITY Service Cost $ 2,528,271 $ 2,556,902 $ 2,298,617 $ 2,250,860 $ 2,330,709 Interest 9,168,092 8,836,284 8,575,275 8,229,312 7,907,915 Changes of Benefit Terms - - - - - Changes of Assumptions (1,312,634) 7,308,486 - (1,996,819) - Difference Between Expected and Actual Experience 461,917 (1,208,593) (613,440) (981,200) - Benefit Payments, Including Refunds of Employee Contributions (5,995,949) (5,779,040) (5,448,218) (5,288,251) (4,885,406) Net Change in Total Pension Liability 4,849,697 11,714,039 4,812,234 2,213,902 5,353,218 Total Pension Liability - Beginning 130,809,611 119,095,572 114,283,338 112,069,436 106,716,218 Total Pension Liability - Ending (a) $ 135,659,308 $ 130,809,611 $ 119,095,572 $ 114,283,338 $ 112,069,436 PLAN FIDUCIARY NET POSITION Net Plan to Plan Resource Movement $ (203) $ - $ - $ - $ - Contributions - Employer 4,441,517 4,105,810 3,819,770 3,557,098 3,137,174 Contributions - Employee 1,015,008 1,014,329 1,010,337 1,007,023 1,074,954 Net Investment Income 6,949,676 8,149,097 369,214 1,601,760 10,874,999 Benefit Payments, Including Refunds of Employee Contributions (5,995,949) (5,779,040) (5,448,218) (5,288,251) (4,885,406) Administrative Expense (126,575) (109,029) (45,185) (83,511) - Other Changes in Fiduciary Net Position (240,367) - - - - Net Change in Fiduciary Net Position 6,043,107 7,381,167 (294,082) 794,119 10,201,721 Plan Fiduciary Net Position - Beginning 81,227,295 73,846,128 74,140,210 73,346,091 63,144,370 Plan Fiduciary Net Position - Ending (b) $ 87,270,402 $ 81,227,295 $ 73,846,128 $ 74,140,210 $ 73,346,091 Plan Net Pension Liability/(Asset) - Ending (a) - (b) $ 48,388,906 $ 49,582,316 $ 45,249,444 $ 40,143,128 $ 38,723,345 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 64.33% 62.10% 62.01% 64.87% 65.45% Covered Payroll $ 12,969,485 $ 12,829,415 $ 12,767,963 $ 12,451,513 $ 12,276,578 Plan Net Pension Liability/(Asset) as a Percentage of Covered Payroll 373.10% 386.47% 354.40% 322.40% 315.42% 1 Measurement period 2017-18 (fiscal year 2018-2019) was the fifth year of implementation; therefore, only five years are shown. 2 Historical information is required only for measurement periods for which GASB 68 is applicable Notes to Schedule: Benefit Changes: The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30, 2016. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes). Changes of Assumptions: For the 2019 and 2017 fiscal years, there were no changes. For the 2018 fiscal year, the accounting discount rate reduced from 7.65% to 7.15%. For the 2016 fiscal year, amounts reported reflect an adjustment the discount rate of 7.5% (net of administrative expense) to 7.65% (without a reduction for pension plan administrative expense). In 2014, amounts reported were based on the 7.5% discount rate. REQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2019 and 2018 62 E 30, 2017 and 2016 Schedule of Plan Contributions1 Fiscal Year 2018-2019 Fiscal Year 2017-18 Fiscal Year 2016-17 Fiscal Year 2015-16 Fiscal Year 2014-15 Actuarially Determined Contribution2 $ 4,865,042 $ 4,452,147 $ 4,105,810 $ 3,819,770 $ 3,557,098 Contributions in Relation to the Actuarially Determined Contribution2 (36,665,042) (4,452,147) (4,105,810) (3,819,770) (3,557,098) Contribution Deficiency (Excess) $ (31,800,000) $ - $ - $ - $ - Covered Payroll3 $ 13,092,319 $ 12,969,485 $ 12,829,415 $ 12,767,963 $ 12,451,513 Contributions as a Percentage of Covered Payroll3 280.05% 34.33% 32.00% 29.92% 28.57% 1 Historical information is required only for measurement periods for which GASB 68 is applicable. 2 Employers are assumed to make contributions equal to the actuarially determined contributions. However, some employers may choose to make additional contributions toward their unfunded liability. Employer contributions for such plans exceed the actuarially determined contributions. 3 Includes one year’s payroll growth using 3.00% payroll assumption. Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2018-19 were from the June 30, 2016 public agency valuations. Actuarial Cost Method Entry Age Normal Amortization Method/Period For details see June 30, 2016 Funding Valuation Report Asset Valuation Method Actuarial Value of Assets. For details, see June 30, 2016 Funding Valuation Report Discount Rate 7.375% Inflation 2.75% Salary Increases Varies by Entry Age and Service Payroll Growth 3.00% Investment Rate of Return 7.50% Net of Pension Plan Investment and Administrative Expenses; includes Inflation Retirement Age The probabilities of Retirement are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007 Mortality The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007. Pre-retirement and Post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. REQUIRED SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2019 and 2018 ,QGHSHQGHQW$XGLWRUV¶5HSRUWRQ,QWHUQDO&RQWURO2YHU)LQDQFLDO5HSRUWLQJDQGRQ &RPSOLDQFHDQG2WKHU0DWWHUV%DVHGRQDQ$XGLWRI)LQDQFLDO6WDWHPHQWV 3HUIRUPHGLQ$FFRUGDQFHZLWKGovernment Auditing Standards    %RDUGRI'LUHFWRUV 2WD\:DWHU'LVWULFW 6SULQJ9DOOH\&DOLIRUQLD   :H KDYH DXGLWHG LQ DFFRUGDQFH ZLWK WKH DXGLWLQJ VWDQGDUGV JHQHUDOO\ DFFHSWHG LQ WKH 8QLWHG 6WDWHV RI $PHULFDDQGWKHVWDQGDUGVDSSOLFDEOHWRILQDQFLDODXGLWVFRQWDLQHGLQGovernment Auditing StandardsLVVXHG E\WKH&RPSWUROOHU*HQHUDORIWKH8QLWHG6WDWHVWKHILQDQFLDOVWDWHPHQWVRIWKH2WD\:DWHU'LVWULFW WKH ³'LVWULFW´ DVRIDQGIRUWKH\HDUHQGHG-XQHDQGWKHUHODWHGQRWHVWRWKHILQDQFLDOVWDWHPHQWVZKLFK FROOHFWLYHO\ FRPSULVH WKH 'LVWULFW¶V EDVLF ILQDQFLDO VWDWHPHQWV DQG KDYH LVVXHG RXU UHSRUW WKHUHRQ GDWHG 2FWREHU  ,QWHUQDO&RQWURO2YHU)LQDQFLDO5HSRUWLQJ  ,QSODQQLQJDQGSHUIRUPLQJRXUDXGLWRIWKHILQDQFLDOVWDWHPHQWVZHFRQVLGHUHGWKH'LVWULFW¶VLQWHUQDOFRQWURO RYHU ILQDQFLDO UHSRUWLQJ LQWHUQDO FRQWURO  WR GHWHUPLQH WKH DXGLW SURFHGXUHV WKDW DUH DSSURSULDWH LQ WKH FLUFXPVWDQFHVIRUWKHSXUSRVHRIH[SUHVVLQJRXURSLQLRQRQWKHILQDQFLDOVWDWHPHQWVEXWQRWIRUWKHSXUSRVH RIH[SUHVVLQJDQRSLQLRQRQWKHHIIHFWLYHQHVVRIWKH'LVWULFW¶VLQWHUQDOFRQWURO$FFRUGLQJO\ZHGRQRW H[SUHVVDQRSLQLRQRQWKHHIIHFWLYHQHVVRIWKH'LVWULFW¶VLQWHUQDOFRQWURO  $deficiency in internal controlH[LVWVZKHQWKHGHVLJQRURSHUDWLRQRIDFRQWUROGRHVQRWDOORZPDQDJHPHQW RUHPSOR\HHVLQWKHQRUPDOFRXUVHRISHUIRUPLQJWKHLUDVVLJQHGIXQFWLRQVWRSUHYHQWRUGHWHFWDQGFRUUHFW PLVVWDWHPHQWVRQDWLPHO\EDVLV$material weaknessLVDGHILFLHQF\RUDFRPELQDWLRQRIGHILFLHQFLHVLQ LQWHUQDO FRQWURO VXFK WKDW WKHUH LV D UHDVRQDEOH SRVVLELOLW\ WKDWD PDWHULDO PLVVWDWHPHQWRIWKH 'LVWULFW¶V ILQDQFLDO VWDWHPHQWV ZLOO QRW EH SUHYHQWHG RU GHWHFWHG DQG FRUUHFWHG RQ D WLPHO\ EDVLV  $significant deficiency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ichard A. Teaman, CPA David M. Ramirez, CPA Javier H. Carrillo, CPA Bryan W͘Daugherty, CPA Joshua :͘Calhoun, CPA 4201 Brockton AveŶƵĞ Suite 100Riverside CA 92501 951.274.9500d> 951.274.7828 FAX www.trscpas.com Compliance and Other Matters As part of obtaining reasonable assurance about whether the District’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Riverside, California October 24, 2019  2FWREHU   %RDUGRI'LUHFWRUV 2WD\:DWHU'LVWULFW 6SULQJ9DOOH\&$   :HKDYHDXGLWHGWKHILQDQFLDOVWDWHPHQWVRIWKH2WD\:DWHU'LVWULFW WKH³'LVWULFW´ IRUWKH\HDUHQGHG-XQH 3URIHVVLRQDOVWDQGDUGVUHTXLUHWKDWZHSURYLGH\RXZLWKLQIRUPDWLRQDERXWRXUUHVSRQVLELOLWLHVXQGHU JHQHUDOO\DFFHSWHGDXGLWLQJVWDQGDUGVDVZHOODVFHUWDLQLQIRUPDWLRQUHODWHGWRWKHSODQQHGVFRSHDQGWLPLQJRI RXUDXGLW:HKDYHFRPPXQLFDWHGVXFKLQIRUPDWLRQLQRXUOHWWHUWR\RXGDWHG0D\3URIHVVLRQDO VWDQGDUGVDOVRUHTXLUHWKDWZHFRPPXQLFDWHWR\RXWKHIROORZLQJLQIRUPDWLRQUHODWHGWRRXUDXGLW  6LJQLILFDQW$XGLW0DWWHUV  Qualitative Aspects of Accounting Practices  0DQDJHPHQW LV UHVSRQVLEOH IRU WKH VHOHFWLRQ DQG XVH RI DSSURSULDWH DFFRXQWLQJ SROLFLHV  7KH VLJQLILFDQW DFFRXQWLQJSROLFLHVXVHGE\WKH'LVWULFWDUHGHVFULEHGLQ1RWHWRWKHILQDQFLDOVWDWHPHQWV$VGHVFULEHGLQ1RWH WRWKHILQDQFLDOVWDWHPHQWVWKH'LVWULFWFKDQJHGDFFRXQWLQJSROLFLHVUHODWHGWR6WDWHPHQWRI*RYHUQPHQWDO $FFRXQWLQJ6WDQGDUGV *$6%6WDWHPHQW 1RAccounting for Interest Cost Incurred Before the End of a Construction PeriodLQWKHILVFDO\HDU:HQRWHGQRWUDQVDFWLRQVHQWHUHGLQWRE\WKH'LVWULFWGXULQJWKH\HDU IRUZKLFKWKHUHLVDODFNRIDXWKRULWDWLYHJXLGDQFHRUFRQVHQVXV$OOVLJQLILFDQWWUDQVDFWLRQVKDYHEHHQUHFRJQL]HG LQWKHILQDQFLDOVWDWHPHQWVLQWKHSURSHUSHULRG  $FFRXQWLQJHVWLPDWHVDUHDQLQWHJUDOSDUWRIWKHILQDQFLDOVWDWHPHQWVSUHSDUHGE\PDQDJHPHQWDQGDUHEDVHGRQ PDQDJHPHQW¶V NQRZOHGJH DQG H[SHULHQFH DERXW SDVW DQG FXUUHQW HYHQWV DQG DVVXPSWLRQV DERXW IXWXUH HYHQWV &HUWDLQDFFRXQWLQJHVWLPDWHVDUHSDUWLFXODUO\VHQVLWLYHEHFDXVHRIWKHLUVLJQLILFDQFHWRWKHILQDQFLDOVWDWHPHQWVDQG EHFDXVHRIWKHSRVVLELOLW\WKDWIXWXUHHYHQWVDIIHFWLQJWKHPPD\GLIIHUVLJQLILFDQWO\IURPWKRVHH[SHFWHG7KHPRVW VHQVLWLYHHVWLPDWHVDIIHFWLQJWKHILQDQFLDOVWDWHPHQWVZHUH  0DQDJHPHQW¶VHVWLPDWHRIWKHIDLUYDOXHRILQYHVWPHQWVLVEDVHGRQLQIRUPDWLRQSURYLGHGE\ILQDQFLDO LQVWLWXWLRQV:HHYDOXDWHGWKHNH\IDFWRUVDQGDVVXPSWLRQVXVHGWRGHYHORSWKHIDLUYDOXHRILQYHVWPHQWV LQGHWHUPLQLQJWKDWLWLVUHDVRQDEOHLQUHODWLRQWRWKHILQDQFLDOVWDWHPHQWVWDNHQDVDZKROH  0DQDJHPHQW¶VHVWLPDWHRIFDSLWDODVVHWVGHSUHFLDWLRQLVEDVHGRQKLVWRULFDOHVWLPDWHVRIHDFKFDSLWDOL]HG LWHP¶VXVHIXOOLIH:HHYDOXDWHGWKHNH\IDFWRUVDQGDVVXPSWLRQVXVHGWRGHYHORSWKHFDSLWDODVVHWV GHSUHFLDWLRQLQGHWHUPLQLQJWKDWLWLVUHDVRQDEOHLQUHODWLRQWRWKHILQDQFLDOVWDWHPHQWVWDNHQDVDZKROH  0DQDJHPHQW¶VHVWLPDWHRIQHWRWKHUSRVWHPSOR\PHQWEHQHILWV 23(% OLDELOLW\LVEDVHGRQDQDFWXDULDO YDOXDWLRQ:HHYDOXDWHGWKHNH\IDFWRUVDQGDVVXPSWLRQVXVHGWRGHYHORS WKHQHW 23(%OLDELOLW\LQ GHWHUPLQLQJWKDWLWLVUHDVRQDEOHLQUHODWLRQWRWKHILQDQFLDOVWDWHPHQWVWDNHQDVDZKROH  Richard A. Teaman, CPA David M. Ramirez, CPA Javier H. Carrillo, CPA Bryan W͘Daugherty, CPA Joshua :͘Calhoun, CPA 4201 Brockton AveŶƵĞ Suite 100Riverside CA 92501 951.274.9500d> 951.274.7828 FAX www.trscpas.com Management’s estimation of defined benefit pension obligation is based on an actuarial valuation. We evaluated the key factors and assumptions used to develop the defined benefit pension obligation in determining that it is 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 statements were: The disclosure of the fair value of investments in Notes 2 and 3 to the financial statements represents amounts susceptible to market fluctuation. The disclosure of capital assets in Note 4 to the financial statements is based on historical information which could differ from actual useful lives of each capitalized item. The disclosure of other post employment benefits and the net OPEB liability in Note 8 to the financial statements represents management’s estimate based on an actuarial valuation. Actual results could differ depending on these key factors and assumptions used for the actuarial valuation. The disclosure of defined benefit pension plan in Note 7 to the financial statements represents management’s estimate based on an actuarial valuation. Actual results could differ depending on these key factors and assumptions used for the actuarial valuation. 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. None of the misstatements detected as of a result of audit procedures were material, either individually or in the aggregate, to the financial statements taken as a whole. Disagreements with Management For 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 auditor’s 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 24, 2019. 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 District’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 District’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to management’s discussion and analysis, Schedule of Changes in the Net OPEB Liability and Related Ratios, Schedule of Contributions, Schedule of Changes in the Net Pension Liability and Related Ratios, and Schedule of Plan Contributions, which are required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding 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 did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were not engaged to report on the introductory and statistical sections, which accompany the financial statements but are not RSI. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. As part of the audit, we assisted with the preparation of the financial statements and related notes and state controllers report preparation. However, these services, does not constitute an audit under Government Auditing Standards and are considered nonaudit services. Management has reviewed, approved, and accepted responsibility for the results of these services. Restriction on Use This information is intended solely for the use of the Board of Directors and management of the District and is not intended to be, and should not be, used by anyone other than these specified parties. Very truly yours, ,1'(3(1'(17$&&2817$176¶5(3257 21$33/<,1*$*5(('8321352&('85(6   0U-RVHSK%HDFKHP &KLHI)LQDQFLDO2IILFHU 2WD\:DWHU'LVWULFW 6SULQJ9DOOH\&$   :HKDYHSHUIRUPHGWKHSURFHGXUHVHQXPHUDWHGEHORZZKLFKZHUHDJUHHGWRE\WKH2WD\:DWHU'LVWULFW WKH ³'LVWULFW´ VROHO\WRDVVLVWWKH'LVWULFW¶VVHQLRUPDQDJHPHQWLQHYDOXDWLQJWKHLQYHVWPHQWVRIWKH'LVWULFWDVRIDQG IRUWKHILVFDO\HDUHQGHG-XQH7KH'LVWULFW¶VPDQDJHPHQWLVUHVSRQVLEOHIRUHYDOXDWLQJWKHLQYHVWPHQWV RIWKH'LVWULFW7KHVXIILFLHQF\RIWKHVHSURFHGXUHVLVVROHO\WKHUHVSRQVLELOLW\RIWKRVHSDUWLHVVSHFLILHGLQWKH UHSRUW&RQVHTXHQWO\ZHPDNHQRUHSUHVHQWDWLRQUHJDUGLQJWKHVXIILFLHQF\RIWKHSURFHGXUHVGHVFULEHGEHORZ HLWKHUIRUWKHSXUSRVHIRUZKLFKWKLVUHSRUWKDVEHHQUHTXHVWHGRUIRUDQ\RWKHUSXUSRVH  2XUSURFHGXUHVDQGDVVRFLDWHGILQGLQJVDUHDVIROORZV   2EWDLQDFRS\RIWKH'LVWULFW¶VLQYHVWPHQWSROLF\DQGGHWHUPLQHWKDWLWLVLQHIIHFWIRUWKHILVFDO\HDU HQGHG-XQH  )LQGLQJ $W-XQHWKHFXUUHQWLQYHVWPHQWSROLF\ 3ROLF\ LVGDWHG0D\ 7KLVSROLF\ZDVUHYLHZHGDQGDSSURYHGDW0D\DQGZDVODVWDPHQGHGRQ0D\ DWWKHUHJXODUERDUGPHHWLQJ3ULRUWRWKLVWKHSROLF\ZDVODVWDPHQGHGRQ0D\ 7KHUHIRUHWKHLQYHVWPHQWSROLF\LVLQHIIHFWIRUWKHWLPHSHULRGXQGHUUHYLHZ   6HOHFW  LQYHVWPHQWV KHOG DW \HDU HQG DQG GHWHUPLQH LI WKH\ DUH DOORZDEOH LQYHVWPHQWV XQGHU WKH 'LVWULFW¶V,QYHVWPHQW3ROLF\  )LQGLQJ:HVHOHFWHGWKHIROORZLQJLQYHVWPHQWV))&%0DWXULW\)+/00DWXULW\ )10$0DWXULW\DQG)10$0DWXULW\$OOIRXU LQYHVWPHQWV DUH DOORZDEOH DQG ZLWKLQ PDWXULW\ OLPLWV DV VWDWHGLQ WKH 'LVWULFW¶V LQYHVWPHQWSROLF\DW-XQH   )RUWKHIRXULQYHVWPHQWVVHOHFWHGLQDERYHGHWHUPLQHLIWKH\DUHKHOGE\DWKLUGSDUW\FXVWRGLDQ GHVLJQDWHGE\WKH'LVWULFW  )LQGLQJ 7KHIRXULQYHVWPHQWVH[DPLQHGDUHKHOGE\DWKLUGSDUW\FXVWRGLDQ8QLRQ%DQNRI &DOLIRUQLD GHVLJQDWHG E\ WKH 'LVWULFW LQ FRPSOLDQFH ZLWK WKH 'LVWULFW¶V LQYHVWPHQW SROLF\3HUGLVFXVVLRQZLWKWKH'LVWULFW¶VPDQDJHPHQWDQGHYLGHQFHGE\8QLRQ%DQNRI &DOLIRUQLD¶VVWDWHPHQW8QLRQ%DQNGRHVQRWDFWDVDEURNHUGHDOHUIRUWKH'LVWULFWEXW DFWVDVDFXVWRGLDODJHQWRIWKH'LVWULFWKROGLQJWKHLQYHVWPHQWVLQDWUXVWFDSDFLW\  Richard A. Teaman, CPA David M. Ramirez, CPA Javier H. Carrillo, CPA Bryan W͘Daugherty, CPA Joshua :͘Calhoun, CPA 4201 Brockton AveŶƵĞ Suite 100Riverside CA 92501 951.274.9500d> 951.274.7828 FAX www.trscpas.com 2 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. Finding: No exceptions were noted as a result of our procedures. 5. Select two investment earnings transactions that took place during the year and recompute the earnings to determine if the proper amount was received. Finding: Selected the following investment earnings transactions: interest earned on FANM Bond on November 19, 2018 and interest earned on FFCB Bond on June 6, 2019. No exceptions were noted as a result of our procedures. 6. Trace amounts received for transactions selected at #5 above into the District’s bank accounts. Finding: No exceptions were noted as a result of our procedures. 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. Finding: We selected the following investment transactions: FHLMC Note sold on July 18, 2018, FHLB Bond matured on August 13, 2018, FHLM Note matured on April 26, 2019, FHLB Bond matured on May 24, 2019, and FFCB Bond matured on June 6, 2019. Those transactions were permissible under the District’s investment policy. No exceptions were noted as a result of our procedures. 8. Review the supporting documents for the five investments selected at #7 above to determine if the transactions were appropriately recorded into the District’s general ledger. Finding: No exceptions were noted as a result of our procedures. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to, and did not, conduct an audit or review, the objective of which would be the expression of an opinion or conclusion, respectively, on the investments of the District for the fiscal year ending June 30, 2019. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of the Board of Directors and senior management of the Otay Water District and is not intended to be and should not be used by anyone other than these specified parties. Riverside, California October 24, 2019 STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: November 6, 2019 SUBMITTED BY: Eid Fakhouri, Finance Manager W.O./G.F. NO:DIV. NO.All APPROVED BY: Kevin Koeppen, Assistant Chief of Finance Joseph R. Beachem, Chief Financial Officer Mark Watton, General Manager SUBJECT: Otay Water District Adoption of Resolution No. 4373, Authorizing the General Manager and Chief Financial Officer to Approve the Execution of Certain Documents and Authorizing Certain Acts in Connection with the Issuance by the Otay Water District Financing Authority of its 2019 Wastewater Revenue Bonds, in an Amount Not To Exceed $3,500,000 GENERAL MANAGER’S RECOMMENDATION: That the Board adopt Resolution No. 4373 authorizing the General Manager and Chief Financial Officer to approve the execution of certain documents and authorizing certain acts in connection with the issuance by the Otay Water District Financing Authority of its 2019 Wastewater Revenue Bonds, in an amount not to exceed $3,500,000. COMMITTEE ACTION: None. PURPOSE: To obtain Board’s authorization to secure repayment of up to $3,500,000 of Otay Water District Financing Authority (“Authority”) 2019 Wastewater Revenue Bonds with Net Revenues of the Wastewater System, to fund $3.0 million of the District’s six-year Wastewater System CIP Program and authorize the President, General Manager, District Secretary, and the Chief Financial Officer to execute and deliver related documents and take other related actions necessary for the issuance of the 2019 Wastewater Revenue Bonds. ANALYSIS: AGENDA ITEM 8b The Authority was formed in 2010 to assist the District with financing capital improvements. Staff is recommending that the Authority issue Wastewater Revenue Bonds and secure the bonds with Installment Payments payable by the District to the Authority from Net Revenues of the Wastewater System. The bonds will be used to fund $3.0 million in Capital Improvement Program (CIP) expenditures of the wastewater system, which will result in the District maintaining targeted reserve levels in accordance with the District’s Reserve Policy. Staff estimates that the actual amount of the bonds will be $3,165,000 to fund $3.0 million of CIP projects, approximately $105,000 of debt issuance costs, and $60,000 of anticipated original issue discount. Staff will not issue more debt than is needed for these purposes. On April 4, 2018, the Board adopted Reimbursement Resolution No.4344 allowing for reimbursement of certain expenditures from the proceeds of tax-exempt wastewater debt. The Board adopted the FY 2020 budget in anticipation that the financing would occur in FY 2020, as the proposed wastewater bonds would be necessary to maintain wastewater reserves at targeted levels. On August 7, 2019, staff obtained approval from the Board to proceed to issue wastewater bonds to fund the recommended amount of $3.0 million, with an anticipated 2nd issue of bonds to fund a further $3.0 million in two years. This staff report describes the final actions necessary to issue the first series of bonds. The bond proceeds will be used to reimburse the District for $3.0 million of the total cost of the Campo Road Sewer replacement project (S2024). For this bond issue, the District engaged: • Harrell & Company Advisors to serve as Municipal Advisor, • Hilltop Securities to serve as the Underwriter, • Hawkins, Delafield & Wood LLP to serve as Bond and Disclosure Counsel. As part of this process, Suzanne Harrell of Harrell & Company and Robin Thomas of Hilltop Securities reviewed three debt options and analyzed the costs and benefits of each option. A summary of these options, including staff’s recommendation, and cost/benefit of each option is below: Option 1 – Non-Rated Public Offering Staff and the District’s Financial Advisor are recommending the District proceed with a non-rated public offering. Under this option the average annual debt service is $161,000. The recommendation is being made because this option provides the District with the most flexibility for the wastewater operation. Wastewater currently has no debt, but is projecting the need to issue additional debt in two years. The flexible terms established in this proposed issuance will establish the baseline for additional bond issues in the near future. The rate covenant for the non-rated issue will be lower than might be required to achieve a rating for the bonds. This is important, particularly with the wastewater system, because it will make it easier to smooth out rate increases in the event of significant cost increases. This is a real concern as much of the wastewater costs are not within the District’s direct control. This flexibility is also desirable as the customer base is relatively small and creates a dynamic where larger rate increases are more of a possibility. Due to the flat yield curve and a compressed spread between rated and non-rated utility bonds, there is very little difference in yields between a non-rated bond and a rated bond. The difference is considered worth paying for the added flexibility in rate setting going forward. One of the Board’s mandates has always been rate smoothing, and this would give the Board a tool to achieve that. Option 2 – Rated Public Offering Under this option, the net average annual debt service would be approximately $159,000. While this option is a slightly lower cost option, it provides less flexibility in rate setting than the non- rated option. As noted, having less flexibility may adversely impact future wastewater rates. This option also requires the funding of a reserve fund to secure debt payments, which would be used to offset the final bond payment in 30 years if not needed. Option 3 – Private Sale As staff noted in its August 2019 presentation to the Board, there was only one lender offering a 30-year term on a private placement. This option results in an annual average debt service of $162,000. This option was not recommended as it is the most costly, carries a risk in that specific terms of a private sale are unknown until negotiated with the lender, and there is a lack of competition to get the most beneficial terms with only one lender offering a 30-year term. Based on the recommended debt issuance and the anticipated second issuance of bonds in FY 2022, the table below shows the projected annual debt service coverage for the following four years: Fiscal Year 2021 2022 2023 2024 DSC 3.26 2.56 2.10 2.51 The District may also establish a Rate Stabilization Fund for the wastewater bonds. This is another tool that the Board can utilize to offset rate spikes generated by unanticipated costs or revenue reductions from decreased water usage. A tentative timeline of events related to the debt issuance is below. Finance Committee Approval of Financing Documents October 23, 2019 Board Approval of Financing Documents November 6, 2019 Bond Pricing/Set Interest Rate November 14, 2019 Closing Document Signing December 2, 2019 Closing December 5, 2019 Documents to be Approved The Bonds will be issued by the Authority and secured by Installment Payments payable by the District to the Authority from Net Revenues of the wastewater system. The following financing documents are approved in form by the resolution: • Installment Purchase Agreement, by and between the Authority and the District; • Preliminary Official Statement, including a Continuing Disclosure Agreement; and • Bond Purchase Agreement between the Authority, the District and the Underwriter. The General Manager and the Chief Financial Officer are authorized by the resolution to execute a Bond Purchase Agreement for the sale of the Bonds within the following parameters: (1) the par amount of the Bonds cannot exceed $3,500,000, (2) the true interest cost must be less than 3.5% and (3) the underwriters’ discount cannot exceed 0.75% of the par amount of the Bonds. The draft documents are included with this report for review by the Board. The preliminary official statement was prepared by staff and the Municipal Advisor, with input from the District’s bond counsel and disclosure counsel. The Board’s review of the description of the Wastewater System, the Metro System and the Risk Factors contained in the preliminary official statement is requested prior to printing on or about November 7, 2019. Financial Analysis The $3.0 million debt funding of the CIP will ensure the District maintains its reserves at targeted levels. The cost of the principal, plus interest payments will be $4.8 million over the thirty-year period, which equates to an average annual debt service of $161,000. In FY 2020, there will be one interest-only payment of $20,000, and in FY 2021, there will be 2 interest-only payments totaling $86,000, to give the District an opportunity to smooth rate increases in preparation for the full annual debt service together with the projected debt service of the planned 2nd issue in 2 years. The following table provides the anticipated size of the bond issue, including funding of the costs of issuance. Cost of Issuance $ 105,000 Project Fund (Net Proceeds) 3,000,000 Total Bond Proceeds 3,105,000 Original Issue Discount 60,000 Par Amount of Bonds Issued $3,165,000 Costs of issuance include bond counsel fees, municipal advisor fees, disclosure counsel fees, underwriting costs, and trustee fees. All upfront costs associated with the Bonds will be paid out of Bond proceeds. The estimated par amount will be subject to prevailing market conditions at the time of sale. Therefore, a par amount of $3,165,000 is being estimated but the actual issue size may be higher if the Bonds are priced with a higher original issue discount or with an original issue premium based on investor preference at the time of sale. Conclusion That the Board adopt Resolution No. 4373 authorizing the General Manager and Chief Financial Officer to approve the execution of certain documents and authorizing certain acts in connection with the issuance by the Otay Water District Financing Authority of its 2019 Wastewater Revenue Bonds, in an amount not to exceed $3,500,000. The Authority Board has separately been presented with a resolution approving documents and its actions relating to the Bonds. FISCAL IMPACT: Joe Beachem, Chief Financial Officer All bond costs will be paid by the bond proceeds. Estimated annual debt service has been incorporated into the District’s budget rate model so this debt issuance does not put any added rate pressure other than what has already been incorporated into the rate projections. STRATEGIC GOAL: The District ensures its continued financial health through long-term financial planning and debt planning. LEGAL IMPACT: None. Attachments: A) Authority Resolution No. 4373 B) Indenture of Trust C) Installment Sale Agreement D) Preliminary Official Statement E) Bond Purchase Agreement ATTACHMENT A SUBJECT/PROJECT: Otay Water District Adoption of Resolution No. 4373, Authorizing the General Manager and Chief Financial Officer to Approve the Execution of Certain Documents and Authorizing Certain Acts in Connection with the Issuance by the Otay Water District Financing Authority of its 2019 Wastewater Revenue Bonds, in an Amount Not To Exceed $3,500,000 COMMITTEE ACTION: The Finance and Administration Committee reviewed this item at a meeting held on October 23, 2019 and the following comments were made: • Staff is recommending that the Board adopt Resolution No. 4373 authorizing the General Manager and Chief Financial Officer to approve the execution of certain documents and authorizing certain acts in connection with the issuance by the Otay Water District Financial Authority of its 2019 Wastewater Revenue Bonds, in an amount not-to-exceed $3,500,000. • Staff reviewed information in the staff report. • Currently, the Wastewater System does not have outstanding debt. With this issuance, the District will have an estimated debt coverage covenant of 115%, and a target ratio of 150%. Based on the recommended debt issuance and the projected rate increases, the District will be in compliance with the debt coverage covenant. • The estimated timing for the closing of the bond issuance is currently December 5th, 2019. • Staff introduced the District’s Municipal Advisor, Ms. Suzanne Harrell of Harrell & Company Advisors. Ms. Harrell indicated in August 2019, the Board had directed staff to pursue $6 million of financing for the sewer CIP with $3 million issued today and another $3 million to be issued in two (2) years allowing the District time to smooth its sewer rates. • Ms. Harrell and Ms. Robin Thomas of Hilltop Securities, who serves as the District’s Underwriter for this issuance, identified three (3) possible debt options. Ms. Harrell reviewed the three possible debt options and their cost/benefit (please reference page 3 of the staff report). • Staff is proposing Option 1, a non-rated public offering, which would allow the District to meet emergency costs with flexibility on rates as it allows the District to maintain a lower debt coverage ratio (115% versus 120%). • Staff noted that the District is also performing a Cost of Service Study on sewer services and will be proposing a change in how bills are calculated to make sewer revenues more stable and not as subject to changes in annual rainfall. • In response to an inquiry from the Committee, it was indicated that the interest rate on the bond would be approximately 3.20% for a rated bond and 3.30% for a non- rated bond, which would be about $2,000 per year in debt service. • It was indicated that the draft documents for the issuance are included with the staff report and it is requested that the board review the Official Statement, particularly the description of the wastewater system and the risks. • It was noted that a redemption provision has been included in the bond documents to allow the District the option to redeem the bonds should its sewer system be sold/consolidated with another provider. The District has no expectation that its sewer system will be sold/consolidated, the provision just provides the District the option/ability to redeem the bonds within the first ten-years of issuance as the bonds are not subject to redemption during that period. There would be a redemption premium and, thus, the provision would not have a price impact on the bonds. • In response to an inquiry from the Board, it was indicated that the District is not designating this issuance as a Bank Qualified, Section 265 Bond, because the target buyers of this bond will not be banks as the issuance will be a non-rated issuance. It was indicated in response to another inquiry from the Committee that a Bank Qualified Bond would be similar to a private placement bond. Ms. Harrell estimated that, thus, the rate for a Bank Qualified Bond issuance with a 15-year term would be approximately 2.7% for a AA rated organization. It was noted that the District’s sewer financials would likely earn a rating of BBB+. • At the Committee’s request, staff reviewed the criteria for selecting Hilltop Securities to serve as the District’s Underwriter. Staff indicated that they reviewed the firm’s presence in the municipal bond market segment, the qualifications of the individual team members, and, because this is a small issuance, the firm’s ability to sell the bonds in the retail market. Additionally, Hilltop Securities has a wide breadth in terms of tier 1 and 2 bond buyers; and provided the best pricing overall. • Staff also reviewed the selection process for Hawkins Delafield & Wood LLP (HDW) to serve as Bond and Disclosure Counsel. It was indicated that staff issued an RFP and received five responses. The proposals were reviewed for public sector expertise (wastewater in particular), beadth of the team, expertise in tax laws, the number of years the firm has been performing the services, location of their offices to assure they could attend the District’s meetings, and references. They met all the qualifications and were the lowest qualified bidder. HDW has offices nationwide, with three offices in California (Los Angeles, San Francisco and Sacramento). Ms. Christina Togle of HDW, Bond Counsel, was in attendance of the meeting. • It was indicated in response to another inquiry from the Committee that the bonds would likely be sold in the retail market to California individuals in the first 15 years of the issuance, and the remainder would go to separately managed accounts because the size of the issuance is very small. Upon completion of the discussion, the committee supported staffs recommendation an presentation to the full board as an action item. Hawkins Delafield & Wood LLP 10/17/2019 3394470.9 043520 RSIND RESOLUTION NO. 4373 RESOLUTION OF THE BOARD OF DIRECTORS OF OTAY WATER DISTRICT APPROVING, AUTHORIZING AND DIRECTING EXECUTION OF CERTAIN FINANCING DOCUMENTS AND DIRECTING CERTAIN RELATED ACTIONS IN CONNECTION WITH FINANCING CERTAIN IMPROVEMENTS TO THE DISTRICT’S WASTEWATER SYSTEM WHEREAS, for the purpose of raising funds necessary to finance certain public, capital improvements (the “Improvements”) to the wastewater system of the Otay Water District (the “District”), the District will authorize the issuance by the Otay Water District Financing Authority (the “Authority”) of wastewater revenue bonds under the provisions of Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the “Act”), to be designated as the Otay Water District Financing Authority 2019 Wastewater Revenue Bonds (the “Bonds”); WHEREAS, the Bonds will be issued pursuant to the terms of an Indenture of Trust by and between the MUFG Union Bank, N.A. as trustee (the “Trustee”) and the Authority (the “Indenture”); WHEREAS, pursuant to an Installment Sale Agreement by and between the District and the Authority (the “Installment Sale Agreement”), the District will make installment payments to the Authority as the purchase price for the Improvements, and the Authority will use the installment payments made by the District to the Authority pursuant to the Installment Sale Agreement to pay debt service on the Bonds; WHEREAS, there has been prepared a draft of a Preliminary Official Statement containing information to be used in connection with the offering and sale of the Bonds; WHEREAS, there has been prepared a draft of a Bond Purchase Agreement for the sale and purchase of the Bonds by and among the District, the Authority and Hilltop Securities Inc. (the “Underwriter”); WHEREAS, in order to assist the Underwriter of the Bonds in complying with Rule 15c2-12 of the Securities and Exchange Commission, the District will undertake certain continuing disclosure obligations pursuant to a continuing disclosure agreement to be executed by the District (the “Continuing Disclosure Agreement”); WHEREAS, the District has duly considered such transactions and wishes at this time to approve certain matters relating to these transactions in the public interest of the District; WHEREAS, pursuant to Section 5852.1 of the Government code of the State of California, the District has received certain representations and good faith estimates from the District’s municipal advisor, Harrell & Company Advisors, LLC (the “Municipal Advisor”), and the District has disclosed such good faith Estimates as set forth on Exhibit A attached hereto; 2 3394470.9 043520 RSIND NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of Otay Water District, as follows: Section 1. Significant Public Benefits. Pursuant to the Act, the Board of Directors hereby finds and determines that the issuance of the Bonds and the transactions related thereto will result in significant public benefits within the contemplation of Section 6586 of the Act. Section 2. Approval of Installment Sale Agreement and Indenture. The Board hereby approves the form of the Installment Sale Agreement on file with the Secretary of the Board, with such additions thereto and changes therein as the President of the Board, Vice President of the Board, District General Manager or District Chief Financial Officer (each, a “Designated Officer”), may deem necessary, desirable or appropriate upon consultation with the bond counsel, the execution of which by the District shall be conclusive evidence of the approval of any such additions and changes. The Designated Officers, each acting alone or in combination, are hereby authorized and directed to execute, and the Secretary of the Board is hereby authorized to attest, as appropriate, the Installment Sale Agreement and such other agreements, documents and certificates as may be necessary or desirable to effectuate the purposes of this resolution and the financing herein authorized, including, without limitation, such other agreements, documents and certificates as may be required by the Installment Sale Agreement. The Board hereby authorizes the performance by the District of its obligations under the Installment Sale Agreement and approves the form of the Indenture. Section 3. Maximum Bond Parameters. The Board hereby approves the issuance of the Bonds by the Authority and the District’s obligation to pay installment payments equal to the debt service on the Bonds; provided that the principal amount of Bonds may not exceed $3,500,000 the maximum true interest cost of the Bonds may not exceed 3.5% per annum, and the final maturity of the Bonds may not exceed September 1, 2049. Section 4. Approval of Preliminary Official Statement. The Board hereby approves the preparation of, and hereby authorizes the Designated Officers, each acting alone, to deem final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934, as amended (except for permitted omissions), the preliminary form of the Official Statement describing the Bonds (the “Preliminary Official Statement”) on file with the Secretary of the Board, together with such changes or additions as the Designated Officer may deem necessary, desirable or appropriate upon consultation with bond counsel. The Board hereby approves the distribution of the Preliminary Official Statement. The Designated Officers, each acting alone or in combination, are hereby authorized to execute the final form of the Official Statement with such changes or additions as the Designated Officers deem necessary, desirable or appropriate upon consultation with bond counsel, and the execution of the final Official Statement by the District shall be conclusive evidence of the approval of any such additions and changes. The Board hereby authorizes the distribution of the final Official Statement. Section 5. Approval of Continuing Disclosure Agreement. The Board hereby approves the Continuing Disclosure Agreement in the form attached as an Appendix to the Preliminary Official Statement on file with the Secretary of the Board, together with such changes thereto as the Designated Officers deem necessary, desirable or appropriate upon 3 3394470.9 043520 RSIND consultation with bond counsel, the execution of which by the District shall be conclusive evidence of the approval thereof. The Designated Officers, each acting alone or in combination, are hereby authorized and directed to execute the Continuing Disclosure Agreement, with such changes, insertions and omissions as may be approved by the Designated Officer executing the Continuing Disclosure Agreement. Section 6. Approval of Negotiated Bond Sale; Bond Purchase Agreement. The Board hereby approves the negotiated sale of the Bonds to the Underwriter in the form of the Bond Purchase Agreement by and among the Underwriter, District and Authority on file with the Secretary, together with such additions thereto and changes therein as the Designated Officers deem necessary, desirable or appropriate upon consultation with bond counsel to the Authority, the execution of which by the Authority shall be conclusive evidence of the approval of any such additions and changes. The Designated Officers, each acting alone, are hereby authorized and directed to execute, and the Secretary is hereby authorized and directed to attest, the final form of the Bond Purchase Agreement for and in the name of and on behalf of the District; provided that the principal amount of the Bonds shall not exceed $3,500,000 and the underwriter's discount (exclusive of any original issue discount) may not exceed 0.75%. The District hereby authorizes the performance by the Authority of its obligations under the Bond Purchase Agreement. Section 7. Further Actions. The Designated Officers, the Secretary and any and all other officers of the District, each acting alone or in combination, are hereby authorized and directed, for and in the name of and on behalf of the District, to do any and all things and take any and all actions, including selecting and appointing a bond trustee, execution and delivery, or acknowledgement and agreement, of any and all documents, assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and documents, which they, or any of them, may deem necessary or advisable in order to consummate the lawful issuance and sale of the Bonds and the consummation of the transactions as described herein. Section 8. Effective Date. This Resolution shall take effect from and after the date of its passage and adoption. 4 3394470.9 043520 RSIND PASSED, APPROVED AND ADOPTED by the Board of Directors of Otay Water District at a special board meeting held the 6th day of November 2019, by the following vote: AYES: NOES: ABSTAIN: ABSENT: ______________________________ President of the Board ATTEST: ______________________________ Secretary of the Board 5 3394470.9 043520 RSIND EXHIBIT A OTAY WATER DISTRICT FINANCING AUTHORITY 2019 WASTEWATER REVENUE BONDS GOOD FAITH ESTIMATES Pursuant to Section 5852.1 of the Government Code of the State of California, the following information was obtained from Harrell & Company Advisors, LLC, as the municipal advisor of the bonds defined above (the “Bonds”), for consideration prior to the authorization in the foregoing Resolution of the proposed Bonds: 1. True Interest Cost of the Bonds. Assuming an aggregate principal amount of the Bonds in the amount of $3,165,000 is sold to effectuate the financing and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the true interest cost of the Bonds, which means the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the Bonds, is 3.08%. 2. Finance Charge of the Bonds. Assuming such a principal amount of the proposed Bonds is sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the Finance Charge of the Bonds, which means the sum of all fees and charges paid to third parties (or costs associated with the issuance of the Bonds), from proceeds of the Bonds, is $105,000. 3. Amount of Proceeds to be received. Assuming such aggregate principal amount of the proposed Bonds required to effectuate the financing is sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the amount of proceeds expected to be received by the District for sale of the Bonds less the Finance Charge of the Bonds described in 2 above and any reserves or capitalized interest paid or funded with proceeds of the Bonds, is $3,000,000. 4. Total Payment Amount. Assuming such aggregate principal amount of the proposed Bonds are sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the total payment amount, which means the sum total of all payments the issuer will make to pay debt service on the Bonds calculated to the final maturity of the Bonds, is $4,782,000 and the annual cost to administer the Bonds not paid with the proceeds of the Bonds, calculated to the final maturity of the Bonds, is $125,000. Attention is directed to the fact that the foregoing information constitutes good faith estimates only. The actual interest cost, finance charges, amount of proceeds and total payment amount may vary from the estimates above due to variations from these estimates in the timing of Bond sales, the amount of Bonds sold, the amortization of the Bonds sold and market interest rates at the time of each sale. The date or dates of sale and the amount of Bonds sold will be determined by the District based on need for funds and other factors. The actual interest rates at which the Bonds will be sold will depend on the bond market at the time of sale. The actual amortization of the Bonds will also depend, in part, on market interest rates at the time of each sale. Market interest rates are affected by economic and other factors beyond the District’s control. Hawkins Delafield & Wood LLP Draft of 10/15/2019 3394469.7 043520 RSIND INDENTURE OF TRUST Dated as of __________, 2019 By and between OTAY WATER DISTRICT FINANCING AUTHORITY and MUFG UNION BANK, N.A., as Trustee Relating to the $[Par Amount] Otay Water District Financing Authority 2019 Wastewater Revenue Bonds (i) 3394469.7 043520 RSIND TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION Section 1.01. Definitions..........................................................................................................2 Section 1.02. Authorization ...................................................................................................13 Section 1.03. Interpretation ....................................................................................................13 ARTICLE II THE BONDS Section 2.01. Authorization of Bonds ....................................................................................13 Section 2.02. Terms of the Bonds ..........................................................................................15 Section 2.03. Form and Execution of Bonds .........................................................................16 Section 2.04. Transfer and Exchange of Bonds .....................................................................16 Section 2.05. Book-Entry System ..........................................................................................17 Section 2.06. Registration Books ...........................................................................................19 Section 2.07. Bonds Mutilated, Lost, Destroyed or Stolen ....................................................19 Section 2.07. CUSIP Numbers...............................................................................................19 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the Bonds ......................................................................................20 Section 3.02. Application of Proceeds of Sale of the Bonds .................................................20 Section 3.03. Establishment and Application of Costs of Issuance Fund ..............................20 Section 3.04. Project Fund .....................................................................................................21 Section 3.05. Validity of Bonds .............................................................................................21 ARTICLE IV REDEMPTION OF BONDS Section 4.01. Terms of Redemption ......................................................................................21 Section 4.02. Selection of Bonds for Redemption .................................................................22 Section 4.03. Notice of Redemption ......................................................................................22 Section 4.04. Rescission of Redemption................................................................................23 Section 4.05. Execution of New Bonds Upon Partial Redemption of Bonds ........................24 Section 4.06. Effect of Redemption .......................................................................................24 TABLE OF CONTENTS (continued) Page (ii) 3394469.7 043520 RSIND ARTICLE V REVENUES; FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Section 5.01. Security for the Bonds; Bond Fund .................................................................24 Section 5.02. Allocation of Revenues ....................................................................................25 Section 5.03. Application of Interest Account .......................................................................25 Section 5.04. Application of Principal Account ....................................................................25 Section 5.06. Application of Redemption Fund.....................................................................26 Section 5.07. Investments ......................................................................................................26 Section 5.08. Valuation and Disposition of Investments .......................................................27 ARTICLE VI COVENANTS OF THE AUTHORITY Section 6.01. Punctual Payment.............................................................................................28 Section 6.02. Extension of Payment of Bonds .......................................................................28 Section 6.03. Against Encumbrances.....................................................................................28 Section 6.04. Power to Issue Bonds and Make Pledge and Assignment ...............................28 Section 6.05. Accounting Records .........................................................................................29 Section 6.06. Limitation on Additional Obligations ..............................................................29 Section 6.07. Tax Covenants .................................................................................................29 Section 6.08. Enforcement of Installment Sale Agreement ...................................................30 Section 6.09. Waiver of Laws ................................................................................................30 Section 6.10. Further Assurances...........................................................................................30 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.01. Events of Default .............................................................................................30 Section 7.02. Acceleration; Other Remedies .........................................................................31 Section 7.03. Application of Revenues and Other Funds After Default ................................31 Section 7.04. Trustee to Represent Bond Owners .................................................................32 Section 7.05. Limitation on Bond Owners’ Right to Sue ......................................................32 Section 7.06. Absolute Obligation of Authority ....................................................................33 Section 7.07. Termination of Proceedings .............................................................................33 Section 7.08. Remedies Not Exclusive ..................................................................................34 Section 7.09. No Waiver of Default.......................................................................................34 TABLE OF CONTENTS (continued) Page (iii) 3394469.7 043520 RSIND ARTICLE VIII THE TRUSTEE Section 8.01. Appointment of Trustee ...................................................................................34 Section 8.02. Acceptance of Trusts; Removal and Resignation of Trustee ...........................34 Section 8.03. Merger or Consolidation ..................................................................................35 Section 8.04. Liability of Trustee ..........................................................................................36 Section 8.05. Right to Rely on Documents ............................................................................38 Section 8.06. Preservation and Inspection of Documents......................................................39 Section 8.07. Compensation and Indemnification .................................................................39 ARTICLE IX MODIFICATION OR AMENDMENT HEREOF Section 9.01. Amendments Permitted ....................................................................................40 Section 9.02. Effect of Supplemental Indenture ....................................................................41 Section 9.03. Endorsement of Bonds; Preparation of New Bonds ........................................42 Section 9.04. Amendment of Particular Bonds ......................................................................42 ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture .....................................................................................42 Section 10.02. Discharge of Liability on Bonds ......................................................................43 Section 10.03. Deposit of Money or Securities with Trustee ..................................................43 Section 10.04. Unclaimed Funds .............................................................................................44 ARTICLE XI MISCELLANEOUS Section 11.01. Liability of Authority Limited to Revenues .....................................................44 Section 11.02. Limitation of Rights to Parties and Bond Owners ...........................................45 Section 11.03. Funds and Accounts .........................................................................................45 Section 11.04. Waiver of Notice; Requirement of Mailed Notice ...........................................45 Section 11.05. Destruction of Bonds .......................................................................................45 Section 11.06. Severability of Invalid Provisions ....................................................................45 Section 11.07. Notices .............................................................................................................45 Section 11.08. Evidence of Rights of Bond Owners ...............................................................46 Section 11.09. Disqualified Bonds...........................................................................................47 Section 11.10. Money Held for Particular Bonds ....................................................................47 Section 11.11. Waiver of Personal Liability ............................................................................47 Section 11.12. Successor Is Deemed Included in All References to Predecessor ...................47 TABLE OF CONTENTS (continued) Page (iv) 3394469.7 043520 RSIND Section 11.13. Execution in Several Counterparts...................................................................48 Section 11.14. Payment on Non-Business Day .......................................................................48 Section 11.15. Governing Law ................................................................................................48 Section 11.16 U.S.A. Patriot Act ............................................................................................47 3394469.7 043520 RSIND INDENTURE OF TRUST This INDENTURE OF TRUST (this “Indenture”), dated for convenience as of ________________, 2019, is by and between the OTAY WATER DISTRICT FINANCING AUTHORITY, a joint exercise of powers authority organized and existing under the laws of the State of California (the “Authority”), and MUFG UNION BANK, N.A., a national banking association organized and existing under the laws of the United States of America, with a corporate trust office in Los Angeles, California, being qualified to accept and administer the trusts hereby created (the “Trustee”). WHEREAS CLAUSES: 1. Otay Water District (the “District”) presently operates facilities and property for collection of wastewater within its service area (the “Wastewater Operations”). 2. The Authority has been formed for the purpose, among others, of issuing its revenue bonds to finance the acquisition, construction and improvement of certain public capital improvements in and for the benefit of the District. 3. The Authority and the District desire to raise funds necessary to finance certain improvements to the Wastewater Operations. 4. In order to obtain funds for these purposes, the Authority has authorized the issuance of its Otay Water District Financing Authority 2019 Wastewater Revenue Bonds (the “Bonds”), in the aggregate principal amount of $[Principal Amount], under this Indenture and under Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 (the “Bond Law”). 5. The Bonds will be payable from Installment Payments made under an Installment Sale Agreement dated as of ______________, 2019 (the “Installment Sale Agreement”) by and between the Authority, as seller, and the District, as purchaser. 6. In order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and to secure the payment of the principal thereof, premium (if any) and interest thereon, the Authority has authorized the execution and delivery of this Indenture. 7. The Authority has found and determines, and hereby affirms, that all acts and proceedings required by law necessary to make the Bonds, when executed by the Authority, authenticated and delivered by the Trustee and duly issued, the valid, binding and legal special obligations of the Authority, and to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Indenture have been in all respects duly authorized. - 2 - 3394469.7 043520 RSIND AGREEMENT: In order to secure the payment of the principal of and the interest and redemption premium (if any) on all the Outstanding Bonds under this Indenture according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof, and for other valuable considerations, the receipt of which is hereby acknowledged, the Authority and the Trustee do hereby covenant and agree with one another, for the benefit of the respective Owners from time to time of the Bonds, as follows: ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION Section 1.01. Definitions. Unless the context clearly otherwise requires or unless otherwise defined herein, the capitalized terms set forth in this Indenture shall have the meanings assigned to them in this Section 1.01. “Additional Payments” means the amounts payable by the District under Section 4.7 of the Installment Sale Agreement. “Additional Revenues” means, with respect to the issuance of any Parity Obligations, any or all of the following amounts: (a) An allowance for Net Revenues from any additions or improvements to or extensions of the Wastewater Operations to be made with the proceeds of such Parity Obligations and also for Net Revenues from any such additions, improvements or extensions which have been made from moneys from any source but in any case which, during all or any part of the latest Fiscal Year or for any more recent consecutive 12- month period selected by the District, were not in service, all in an amount equal to the estimated additional average annual Net Revenues to be derived from such additions, improvements and extensions for the first 36-month period in which each addition improvement or extension is respectively to be in operation. (b) An allowance for Net Revenues arising from any increase in the charges made for service from the Wastewater Operations which has been adopted prior to the incurring of such Parity Obligations but which, during all or any part of the latest Fiscal Year or for any more recent consecutive 12-month period selected by the District, was not in effect, in an amount equal to the total amount by which the Net Revenues would have been increased if such increase in charges had been in effect during the whole of such Fiscal Year or 12-month period. “Annual Debt Service” means, as of the date of any calculation and with respect to the Installment Payments or any Parity Obligations, as the case may be, the sum obtained for the current or any future Fiscal Year during the Term of the Installment Sale Agreement by totaling the following amounts for such Fiscal Year: - 3 - 3394469.7 043520 RSIND (a) the aggregate amount of the Installment Payments coming due and payable in such Fiscal Year pursuant hereto, except to the extent payable from any security deposit pursuant to Section 7.1 of the Installment Sale Agreement; and (b) the principal amount of all outstanding Parity Obligations, if any, coming due and payable by their terms in such Fiscal Year. “Authority” means the Otay Water District Financing Authority, a joint exercise of powers authority duly organized and existing under the laws of the State of California. “Authorized Representative” means: (a) with respect to the Authority, its the President of the Board, Vice President of the Board, Authority Executive Director or Authority Treasurer/Auditor, each acting alone or in combination; and (b) with respect to the District, its President of the Board, Vice President of the Board, District General Manager or District Chief Financial Officer, each acting alone or in combination. “Bond Counsel” means (a) Hawkins Delafield & Wood LLP, or (b) any other attorney or firm of attorneys appointed by or acceptable to the District of nationally recognized experience in the issuance of obligations-the interest on which is excludable from gross income for federal income tax purposes under the Tax Code. “Bond Fund” means the fund by that name established and held by the Trustee under Section 5.01. “Bond Law” means the provisions of Article 4 of Chapter 5, Division 7, Title 41 of the Government Code of the State of California, commencing with Section 6584, as in effect on the Closing Date or as thereafter amended in accordance with its terms. “Bonds” means the Otay Water District Financing Authority 2019 Wastewater Revenue Bonds, in the original principal amount of $[Principal Amount]. “Business Day” means any day (i) other than a Saturday or a Sunday or (ii) any other day on which commercial banks located in the city in which the Office of the Trustee is located are authorized or required by law to close. “Closing Date” means ______________, 2019, the date of delivery of the Bonds to the Underwriter. “Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the District relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to: printing expenses; rating agency fees; filing and recording fees; initial fees, expenses and charges of the Trustee, and the Trustee’s counsel, including the Trustee’s first annual administrative fee; fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals; bond insurance and surety bond - 4 - 3394469.7 043520 RSIND premiums, if any; fees and charges for preparation, execution and safekeeping of the Bonds; and any other cost, charge or fee in connection with the original issuance of the Bonds. “Costs of Issuance Fund” means the fund by that name established and held by the Trustee under Section 3.03. “Defeasance Obligations” means the following: (a) Cash; (b) Federal Securities; (c) evidences of ownership of proportionate interests in future interest and principal payments on Federal Securities held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Federal Securities are not available to any person claiming through the custodian or to whom the custodian may be obligated; (d) pre-refunded municipal obligations rated “AAA” and “Aaa” by S&P and Moody’s, respectively; or (e) securities eligible for “AAA” defeasance under then existing criteria of S&P or any combination thereof. “Depository” means (a) initially, DTC, and (b) any other Securities Depositories acting as Depository under Section 2.05. “Depository System Participant” means any participant in the Depository’s book-entry system. “District” means the Otay Water District. “DTC” means The Depository Trust Company, and its successors and assigns. “Event of Default” means any of the events specified in Section 7.01. “Environmental Regulations” means any federal, state or local law, statute, code, ordinance, regulation, requirement or rule relating to dangerous, toxic or hazardous pollutants, Hazardous Substances or chemical waste, materials or substances. “Excess Investment Earnings” means an amount required to be rebated to the United States of America under Section 148(f) of the Tax Code due to investment of gross proceeds of the Bonds at a yield in excess of the yield on the Bonds. “Federal Securities” means: (a) any non-callable direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), for which the full faith and credit - 5 - 3394469.7 043520 RSIND of the United States of America are pledged; and (b) obligations of any agency, department or instrumentality of the United States of America, the timely payment of principal and interest on which are fully, unconditionally and directly or indirectly secured or guaranteed by the full faith and credit of the United States of America. “Fiscal Year” means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Authority as its official fiscal year period. “Fitch” means Fitch Ratings and its successors and assigns, except that if such corporation is dissolved or liquidated or no longer performs the functions of a securities rating agency, then the term “Fitch” shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority or the District. “Governmental Agency” means the State of California, and the United States of America, acting through any of its agencies, to the extent that the State of California or such agency has loaned money to the District for the Wastewater Operations. “Governmental Loan” means any loan made by a Governmental Agency to the District that is secured by a pledge of Net Revenues and incurred by the District to finance improvements to the Wastewater Operations pursuant to Section 5.9 of the Installment Sale Agreement. “Gross Revenues” means all gross charges received for, and all other gross income and receipts derived by the District from, the ownership and operation of the Wastewater Operations or otherwise arising from the Wastewater Operations, including but not limited to: (a) all amounts levied by the District as a fee for connecting to the Wastewater Operations, as such fee is established for time to time under the applicable laws of the State of California, (b) all income, rents, rates, fees, capital improvement fees, charges and other moneys derived from the services and facilities furnished or supplied through the facilities of the Wastewater Operations, (c) the earnings on and income derived from the investment of such income, rents, rates, fees, charges or other moneys to the extent that the use of such earnings and income is limited by or under applicable law to the Wastewater Operations, (d) the proceeds derived by the District directly or indirectly from the sale, lease or other disposition of a part of the Wastewater Operations as permitted hereunder, and (e) amounts transferred into the Wastewater Revenue Fund from a Rate Stabilization Fund. However, the term “Gross Revenues” does not include (i) customers’ deposits or any other deposits subject to refund until such deposits have become the property of the District, (ii) the proceeds of any ad valorem property taxes levied to pay any general obligation bond - 6 - 3394469.7 043520 RSIND indebtedness of the District with respect to the Wastewater Operations, (iii) special assessments or special taxes levied upon real property within any improvement district for the purpose of paying special assessment bonds or special tax obligations of the District, and (iv) amounts transferred from the Wastewater Revenue Fund into the Rate Stabilization Fund during a Fiscal Year, but only to the extent that any amounts transferred from the Wastewater Revenue Fund into the Rate Stabilization Fund were included in Gross Revenues for that Fiscal Year. “Hazardous Substances” means (a) any oil, flammable substance, explosives, radioactive materials, hazardous wastes or substances, toxic wastes or substances or any other wastes, materials or pollutants which (i) pose a hazard to the Project or to persons on or about the Project or (ii) cause the Project to be in violation of any Environmental Regulation; (b) asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls, or radon gas; (c) any chemical, material or substance defined as or included in the definition of “waste,” “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous waste,” “restricted hazardous waste,” or “toxic substances” or words of similar import under any Environmental Regulation including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), 42 USC §§ 9601 et seq.; the Resource Conservation and Recovery Act (“RCRA”), 42 USC §§ 6901 et seq.; the Hazardous Materials Transportation Act, 49 USC §§ 1801 et seq.; the Federal Water Pollution Control Act, 33 USC §§ 1251 et seq.; the California Hazardous Waste Control Law (“HWCL”), Cal. Health & Safety Code §§ 25100 et seq.; the Hazardous Substance Account Act (“HSAA”), Cal. Health & Safety Code §§ 25300 et seq.; the Underground Storage of Hazardous Substances Act, Cal. Health & Safety Code §§ 25280 et seq.; the Porter-Cologne Water Quality Control Act (the “Porter- Cologne Act”), Cal. Water Code §§ 13000 et seq., the Safe Drinking Water and Toxic Enforcement Act of 1986 (Proposition 65); and Title 22 of the California Code of Regulations, Division 4, Chapter 30; (d) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or agency or may or could pose a hazard to the health and safety of the occupants of the Project or the owners and/or occupants of property adjacent to or surrounding the Project, or any other person coming upon the Project or adjacent property; or (e) any other chemical, materials or substance which may or could pose a hazard to the environment. “Indenture” means this Indenture of Trust, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture under the provisions hereof. “Independent Accountant” means any certified public accountant or firm of certified public accountants appointed and paid by the District, and who, or each of whom (a) is in fact independent and not under domination of the District; (b) does not have any substantial interest, direct or indirect, in the District; and (c) is not connected with the District as an officer or employee of the District but who may be regularly retained to make annual or other audits of the books of or reports to the District. “Installment Payment Date” means, with respect to any Interest Payment Date, the __th Business Day immediately preceding that Interest Payment Date. - 7 - 3394469.7 043520 RSIND “Installment Payments” means all payments required to be paid by the District on any date under Section 4.4 of the Installment Sale Agreement, including any amounts payable upon delinquent installments and including any prepayment thereof under Section 7.2 of the Installment Sale Agreement, but does not include Additional Payments. “Installment Sale Agreement” means the Installment Sale Agreement dated as of ___________, 2019, between the District and the Authority, together with any duly authorized and executed amendments thereto. “Interest Account” means the account by that name established and held by the Trustee in the Bond Fund under Section 5.02. “Interest Payment Dates” means each March 1st and September 1st, commencing March 1st, 2020, so long as any Bonds remain unpaid. “Maximum Annual Debt Service” means, as of the date of any calculation and with respect to the Installment Payments or any Parity Obligations, as the case may be, the maximum sum obtained for the current or any future Fiscal Year during the Term of the Installment Sale Agreement by totaling the following amounts for such Fiscal Year: (a) the aggregate amount of the Installment Payments coming due and payable in such Fiscal Year pursuant hereto, except to the extent payable from any security deposit pursuant to Section 7.1 of the Installment Sale Agreement; (b) the principal amount of all outstanding Parity Obligations, if any, coming due and payable by their terms in such Fiscal Year; (c) the amount of interest which would be due during such Fiscal Year on the aggregate principal amount of all outstanding Parity Obligations, if any, which would be outstanding in such Fiscal Year if such Parity Obligations are retired as scheduled; and (d) loan payments to be made to a Governmental Agency under a Governmental Loan, if any, coming due and payable by its terms in such Fiscal Year. “Moody’s” means Moody’s Investors Service, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation is dissolved or liquidated or no longer performs the functions of a securities rating agency, then the term “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency selected by the District. “Net Revenues” means, for any period, an amount equal to all of the Gross Revenues received during such period minus the amount required to pay all Operation and Maintenance Costs becoming payable during such period. “Nominee” means (a) initially, Cede & Co. as nominee of DTC, and (b) any other nominee of the Depository designated under Section 2.05(a). - 8 - 3394469.7 043520 RSIND “Office” means the corporate trust office of the Trustee in Los Angeles, California, or such other or additional offices as the Trustee may designate in writing to the District from time to time as the corporate trust office for purposes of the Indenture; except that with respect to presentation of Bonds for payment or for registration of transfer and exchange such term means the office or agency of the Trustee at which, at any particular time, its corporate trust agency business is conducted, initially in Los Angeles, California. “Operation and Maintenance Costs” means the reasonable and necessary costs and expenses paid by the District for maintaining and operating the Wastewater Operations, including but not limited to (a) costs of utilities, including the costs of electricity and other forms of energy supplied to the Wastewater Operations, (b) the reasonable expenses of management and repair and other costs and expenses necessary to maintain and preserve the Wastewater Operations in good repair and working order, and (c) the reasonable administrative costs of the District attributable to the operation and maintenance of the Wastewater Operations; but in all cases excluding (i) debt service payable on obligations incurred by the District with respect to the Wastewater Operations, including but not limited to the Installment Payments and any Parity Obligations, (ii) depreciation, replacement and obsolescence charges or reserves therefor, (iii) capital expenditures (other than as set forth in paragraph (b) above), and (iv) amortization of intangibles or other bookkeeping entries of a similar nature. “Outstanding,” when used as of any particular time with reference to Bonds, means, subject to the last paragraph of Section 10.02 of this Indenture, all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture except: (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds with respect to which all liability of the Authority and District has been discharged in accordance with Section 10.02, including Bonds (or portions thereof) described in Section 11.09; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds have been authenticated and delivered by the Trustee under this Indenture. - 9 - 3394469.7 043520 RSIND “Overdue Rate” means the highest rate of interest on any of the Outstanding Bonds. “Owner,” whenever used herein with respect to a Bond, means the person in whose name the ownership of such Bond is registered on the Registration Books. “Parity Obligations” means the following: (a) any bonds, notes, leases, installment sale agreements or other obligations of the District payable from and secured by a pledge of and lien upon any of the Net Revenues on a parity with the Installment Payments, entered into or issued under and in accordance with Section 5.8 of the Installment Sale Agreement, and (b) any Governmental Loan that is treated as a Parity Obligation under Section 5.9 of the Installment Sale Agreement. “Parity Obligations Documents” means, collectively, the indenture of trust, trust agreement, installment sale agreement, or other document authorizing the issuance of any Parity Obligations or any securities which evidence Parity Obligations. “Permitted Investments” means any of the following which at the time of investment are determined by the District to be legal investments under the laws of the State of California for the moneys proposed to be invested therein (provided that the Trustee shall be entitled to rely upon any investment directions from the District as conclusive certification to the Trustee that the investments described therein are so authorized under the laws of the State of California): (a) Federal Securities; (b) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including: Export-Import Bank, Farmers Home Administration, General Services Administration, U.S. Maritime Administration, Small Business Administration, Government National Mortgage Association, U.S. Department of Housing & Urban Development, and Federal Housing Administration; (c) bonds, notes or other evidences of indebtedness rated AAA by S&P and Aaa by Moody’s issued by the Fannie Mae or the Federal Home Loan Mortgage Corporation with remaining maturities not exceeding three years; (d) U.S. dollar denominated deposit accounts (including those with the Trustee or with any affiliate of the Trustee), unsecured certificates of deposit, including those placed by a third party pursuant to an agreement between the Trustee and the Authority, demand deposits, including interest bearing money market accounts, trust deposits, trust accounts, time deposits, overnight bank deposits, interest-bearing deposits, federal funds and banker’s acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of A-1 or A-1+ by S&P and P-1 by Moody’s, and maturing no more than 360 days after the date of purchase; - 10 - 3394469.7 043520 RSIND (e) commercial paper which is rated at the time of purchase in the single highest classification, A-1+ by S&P and P-1 by Moody’s and which matures not more than 270 days after the date of purchase; (f) investments in a money market mutual fund rated, at the time of purchase, AAAm or AAAm-G or better by S&P, which shall exclude funds with a floating net asset value and may include funds for which the Trustee or its affiliates provide investment advisory or other management services for a fee, including serving as administrator, shareholder servicing agent, and/or custodian or sub-custodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to this Indenture, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to this Indenture may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee; (g) Repurchase and reverse repurchase agreements collateralized with Federal Securities, including those of the Trustee or any of its affiliates; (h) any pre-refunded bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (i) which are rated, at the time of purchase, based on the refunding escrow, in the highest rating category of S&P and Moody’s or (ii)(A) which are fully secured as to principal and interest and redemption premium (if any) by a fund consisting only of cash or Federal Securities, which fund may be applied only to the payment of such principal of and interest and redemption premium (if any) in such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates under such irrevocable instructions, as appropriate, and (B) which fund is sufficient, as verified by an Independent Accountant, to pay principal of and interest and redemption premium (if any) on the bonds or other obligations described in this paragraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate; (i) investment agreements, with notice to each rating agency then rating the Bonds; (j) the Local Agency Investment Fund established under Section 16429.1 of the Government Code of the State of California, provided, however, that with respect to amounts held by the Trustee hereunder, to the extent the Trustee is authorized to register such investment in its name; and (k) any other investment permitted under Section 53601 of the California Government Code. “Principal Account” means the account by that name established and held by the Trustee in the Bond Fund under Section 5.02. - 11 - 3394469.7 043520 RSIND “Proceeds Account” shall have the meaning assigned to such term in Section 3.02. “Project” means the facilities, improvements and other property described more fully in Appendix B attached to the Installment Sale Agreement, as that Appendix may be amended from time to time in accordance with the Installment Sale Agreement. “Project Costs” means, with respect to the Project, all costs of the acquisition, construction and installation thereof which are paid from moneys on deposit in the Project Fund, including but not limited to: (a) all costs required to be paid to any person under the terms of any agreement for or relating to the acquisition, construction and installation of the Project; (b) obligations incurred for labor and materials in connection with the acquisition, construction and installation of the Project; (c) the cost of performance or other bonds and any and all types of insurance that may be necessary or appropriate to have in effect in connection with the acquisition, construction and installation of the Project; (d) all costs of engineering and architectural services, including the actual out- of-pocket costs for test borings, surveys, estimates, plans and specifications and preliminary investigations therefor, development fees, sales commissions, and for supervising construction, as well as for the performance of all other duties required by or consequent to the proper acquisition, construction and installation of the Project; (e) any sums required to reimburse the District for advances made for any of the above items or for any other costs incurred and for work done which are properly chargeable to the acquisition, construction and installation of the Project; (f) all financing costs incurred in connection with the acquisition, construction and installation of the Project; and (g) the interest components of the Installment Payments allocable to the Project that come due during the period of acquisition, construction and installation of the Project. “Project Fund” means the fund by that name established and held by the District under Section 3.04. “Record Date” means, with respect to any Interest Payment Date, the 15th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day. “Redemption Fund” means the fund by that name established and held by the Trustee under Section 5.06. “Registration Books” means the records maintained by the Trustee under Section 2.06 for the registration and transfer of ownership of the Bonds. - 12 - 3394469.7 043520 RSIND “Revenues” means: (a) all amounts received by the Authority or the Trustee pursuant or with respect to the Installment Sale Agreement, including, without limiting the generality of the foregoing, all of the Installment Payments (including both timely and delinquent payments, any late charges, and whether paid from any source, but excluding any Additional Payments), prepayments, insurance proceeds, condemnation proceeds, and (b) all interest, profits or other income derived from the investment of amounts in any fund or account established pursuant to this Indenture. “S&P” means Standard & Poor’s, a division of the McGraw Hill Companies, of New York, New York, its successors and assigns, except that if such corporation is dissolved or liquidated or no longer performs the functions of a securities rating agency, then the term “S&P” shall be deemed to refer to any other nationally recognized securities rating agency selected by the District. “Securities Depositories” means The Depository Trust Company: and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses or such other securities depositories as the District designates in written notice filed with the Trustee. “Supplemental Indenture” means any indenture hereafter duly authorized and entered into between the Authority and the Trustee, supplementing, modifying or amending this Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. “Tax Agreement” means the Tax Regulatory Agreement by and among the Authority, the Trustee and the District together with the exhibits thereto, dated as of ___________, 2019, as the same may be amended or supplemented in accordance with its terms. “Tax Code” means the Internal Revenue Code of 1986 as in effect on the Closing Date or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the Closing Date, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under said Tax Code. “Term” means, when used with respect to the Installment Sale Agreement, the time during which the Installment Sale Agreement is in effect, as provided in Section 4.2 thereof. [“Term Bonds” means the Bonds maturing on _______________.] “Trustee” means MUFG Union Bank, N.A., a national banking association organized and existing under the laws of the United States of America, or its successor or successors, as Trustee hereunder as provided in Article VIII. “Underwriter” means Hilltop Securities Inc., the Underwriter of the Bonds at the negotiated sale thereof. - 13 - 3394469.7 043520 RSIND “Wastewater Operations” means the wastewater operations of the District, including but not limited to all facilities, properties and improvements at any time owned or operated by the District for the collection of wastewater from residents served thereby, and any necessary lands, rights, entitlements and other property useful in connection therewith, together with all extensions thereof and improvements thereto hereafter acquired, constructed or installed by the District. “Wastewater Revenue Fund” means the fund or funds established and held by the District with respect to the Wastewater Operations for the receipt and deposit of Gross Revenues. Currently, the District’s Sewer General Fund constitutes the Wastewater Revenue Fund. “Written Certificate,” “Written Request” and “Written Requisition” of the Authority or the District mean, respectively, a written certificate, request or requisition signed in the name of the Authority or the District by its Authorized Representative. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Section 1.02. Authorization. Each of the parties hereby represents and warrants that it has full legal authority and is duly empowered to enter into this Indenture, and has taken all actions necessary to authorize the execution hereof by the officers and persons signing it. Section 1.03. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (c) All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture; the words “herein,” “hereof,” thereby,” “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. ARTICLE II THE BONDS Section 2.01. Authorization of Bonds. The Authority has reviewed all proceedings heretofore taken and has found, as a result of such review, and hereby finds and determines that all things, conditions and acts required by law to exist, happen or be performed precedent to and in connection with the issuance of the Bonds do exist, have happened and have been performed in due time, form and manner as required by law, and the Authority is now duly empowered, - 14 - 3394469.7 043520 RSIND under each and every requirement of law, to issue the Bonds in the manner and form provided in this Indenture. The Authority hereby authorizes the issuance of the Bonds in the aggregate principal amount of $[Principal Amount] under the Bond Law for the purposes of providing funds to enable the District to acquire and construct the Project. The Bonds are authorized and issued under, and are subject to the terms of, this Indenture and the Bond Law. The Bonds are designated the “Otay Water District Financing Authority 2019 Wastewater Revenue Bonds.” [Remainder of Page Intentionally Left Blank] - 15 - 3394469.7 043520 RSIND Section 2.02. Terms of the Bonds. Payment Provisions. The Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Bonds shall mature on _________ in each of the years and in the amounts, and bear interest (calculated on the basis of a 360-day year of twelve 30-day months) at the rates, as follows: Maturity Date (September 1st) Principal Amount Interest Rate - $- -% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Interest on the Bonds is payable from the Interest Payment Date next preceding the date of authentication thereof unless: (a) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, (b) a Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date, or (c) interest on any Bond is in default as of the data of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest is payable on each Interest Payment Date to the persons in whose names the ownership of the Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest on any Bond which is - 16 - 3394469.7 043520 RSIND not punctually paid or duly provided for on any Interest Payment Date is payable to the person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee, notice of which is given to such Owner by first-class mail not less than 10 days prior to such special record date. The Trustee will pay interest on the Bonds by check mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. At the written request of the Owner of Bonds in an aggregate principal amount of at least $1,000,000, which written request is on file with the Trustee as of any Record Date, the Trustee will pay interest on such Bonds on each succeeding Interest Payment Date by wire transfer in immediately available funds to such account of a financial institution within the United States of America as specified in such written request, which written request will remain in effect until rescinded in writing by the Owner. The Trustee will pay principal of the Bonds in lawful money of the United States of America by check upon presentation and surrender thereof at the Office of the Trustee. Section 2.03. Form and Execution of Bonds. The Bonds, the form of Trustee’s certificate of authentication, and the form of assignment to appear thereon, are set forth in Appendix A attached hereto and by this reference incorporated herein, with necessary or appropriate variations, omissions and insertions, as permitted or required by this Indenture. An Authorized Representative of the Authority shall execute, and the Secretary of the Authority shall attest, each Bond. Either or both of such signatures may be made manually or may be affixed by facsimile thereof. If any officer whose signature appears on any Bond ceases to be such officer before the Closing Date, such signature will nevertheless be as effective as if the officer had remained in office until the Closing Date any Bond may be signed and attested on behalf of the Authority by such persons as at the actual date of the execution of such Bond are the proper officers of the Authority, duly authorized to execute debt instruments on behalf of the Authority, although on the date of such Bond any such person was not an officer of the Authority. Only those Bonds bearing a certificate of authentication in the form set forth in Appendix A, manually executed and dated by the Trustee, are valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee is conclusive evidence that such Bonds have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.04. Transfer and Exchange of Bonds. (a) Transfer. Any Bond may, in accordance with its terms, be transferred, upon the Registration Books, by the person in whose name it is registered, in person or by a duly authorized attorney of such person, upon surrender of such Bond to the Trustee at its Office for cancellation, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. The Trustee shall collect any tax or other governmental charge on the transfer of any Bonds under this Section. Whenever any Bond or Bonds is surrendered for - 17 - 3394469.7 043520 RSIND transfer, the Authority shall execute and the Trustee shall authenticate and deliver to the transferee a new Bond or Bonds of like series, interest rate, maturity and aggregate principal amount. The District shall pay the cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer of Bonds. (b) Exchange. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations and of the same series, interest rate and maturity. The Trustee shall collect any tax or other governmental charge on the exchange of any Bonds under this subsection (b). The District shall pay the cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any exchange of Bonds. (c) Limitations. The Trustee may refuse to transfer or exchange, under the provisions of this Section, any Bonds selected by the Trustee for redemption under Article IV, or any Bonds during the period established by the Trustee for the selection of Bonds for redemption. Section 2.05. Book-Entry System. (a) Original Delivery. The Bonds will be initially delivered in the form of a separate single fully registered bond (which may be typewritten) for each maturity of the Bonds. Upon initial delivery, the Trustee shall register the ownership of each Bond on the Registration Books in the name of the Nominee. Except as provided in subsection (c), the ownership of all of the Outstanding Bonds shall be registered in the name of the Nominee on the Registration Books. With respect to Bonds the ownership of which is registered in the name of the Nominee, neither the Authority, the District nor the Trustee has any responsibility or obligation to any Depository System Participant or to any person on behalf of which the Nominee holds an interest in the Bonds. Without limiting the generality of the immediately preceding sentence, the Authority, the District and the Trustee have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee or any Depository System Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Depository System Participant or any other person, other than a Bond Owner as shown in the Registration Books, of any notice with respect to the Bonds, including any notice of redemption, (iii) the selection by the Depository of the beneficial interests in the Bonds to be redeemed if the District elects to redeem the Bonds in part, (iv) the payment to any Depository System Participant or any other person, other than a Bond Owner as shown in the Registration Books, of any amount with respect to principal, premium, if any, or interest on the Bonds or (v) any consent given or other action taken by the Depository as Owner of the Bonds. The Authority, the District and the Trustee may treat and consider the person in whose name each Bond is registered as the absolute owner of such Bond for the purpose of payment of principal of and premium, if any, and interest on such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers of ownership of such Bond, and for all other purposes whatsoever. The Trustee shall pay the principal of and the interest and premium, if any, on the Bonds only to the respective Owners or their respective attorneys duly authorized in writing, and all - 18 - 3394469.7 043520 RSIND such payments shall be valid and effective to fully satisfy and discharge all obligations with respect to payment of principal of and interest and premium, if any, on the Bonds to the extent of the sum or sums so paid. No person other than a Bond Owner shall receive a Bond evidencing the obligation of the Authority to make payments of principal, interest and premium, if any, under this Indenture. Upon delivery by the Depository to the District of written notice to the effect that the Depository has determined to substitute a new Nominee in its place, and subject to the provisions herein with respect to Record Dates, such new nominee shall become the Nominee hereunder for all purposes: and upon receipt of such a notice the District shall promptly deliver a copy of the same to the Trustee. (b) Representation Letter. In order to qualify the Bonds for the Depository’s book-entry system, the Authority shall execute and deliver to such Depository a letter representing such matters as shall be necessary to so qualify the Bonds. The execution and delivery of such letter shall not in any way limit the provisions of subsection (a) above or in any other way impose upon the Authority or the Trustee any obligation whatsoever with respect to persons having interests in the Bonds other than the Bond Owners. In addition to the execution and delivery of such letter by the Authority, the Authority and the Trustee may take any other actions, not inconsistent with this Indenture, to qualify the Bonds for the Depository’s book-entry program. (c) Transfers Outside Book-Entry System. If either (i) the Depository determines not to continue to act as Depository for the Bonds, or (ii) the District determines to terminate the Depository as such, then the District shall thereupon discontinue the book-entry system with such Depository. In such event, the Depository shall cooperate with the District and the Trustee in the issuance of replacement Bonds by providing the Trustee with a list showing the interests of the Depository System Participants in the Bonds, and by surrendering the Bonds, registered in the name of the Nominee, to the Trustee on or before the date such replacement Bonds are to be issued. The Depository, by accepting delivery of the Bonds, agrees to be bound by the provisions of this subsection (c). If, prior to the termination of the Depository acting as such, the District fails to identify another Securities Depository to replace the Depository, then the Bonds shall no longer be required to be registered in the Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging Bonds shall designate, in accordance with the provisions hereof. If the District determines that it is in the best interests of the beneficial owners of the Bonds that they be able to obtain certificated Bonds, the District may notify the Depository System Participants of the availability of such certificated Bonds through the Depository. In such event, the Trustee will authenticate, transfer and exchange Bonds as required by the Depository and others in appropriate amounts; and whenever the Depository requests, the Trustee and the District shall cooperate with the Depository in taking appropriate action (i) to make available one - 19 - 3394469.7 043520 RSIND or more separate certificates evidencing the Bonds to any Depository System Participant having Bonds credited to its account with the Depository, or (ii) to arrange for another Securities Depository to maintain custody of a single certificate evidencing such Bonds, all at the District’s expense. (d) Payments to the Nominee. Notwithstanding any other provision of this Indenture to the contrary, so long as any Bond is registered in the name of the Nominee, all payments with respect to principal of and interest and premium, if any, on such Bond and all notices with respect to such Bond shall be made and given, respectively, as provided in the letter described in subsection (b) of this Section or as otherwise instructed by the Depository. Section 2.06. Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall upon reasonable notice as agreed to by the Trustee, be open to inspection during regular business hours by the District; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as hereinbefore provided. Section 2.07. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond is mutilated, the Authority, at the expense of the Owner of such Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. The Trustee shall cancel every mutilated Bond surrendered to it and deliver such mutilated Bond to, or upon the order of, the District. If any Bond is lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence is satisfactory and if indemnity satisfactory to the Trustee is given, the Authority, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen. The Trustee may require payment of a sum not exceeding the actual cost of preparing each new Bond issued under this Section and of the expenses which may be incurred by the Trustee in connection therewith. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen will constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of this Indenture with all other Bonds issued under this Indenture. Notwithstanding any other provision of this Section 2.07, in lieu of delivering a new Bond for which principal has become due for a Bond which has been mutilated, lost, destroyed or stolen, the Trustee may make payment of such Bond in accordance with its terms upon receipt of indemnity satisfactory to the Trustee. - 20 - 3394469.7 043520 RSIND Section 2.08. CUSIP Numbers. The District in issuing the Bonds may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Owners; provided that the Trustee shall have no liability for any defect in the “CUSIP” numbers as they appear on any Bond, notice or elsewhere, and, provided further that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Bonds or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Bonds, and any such redemption shall not be affected by any defect in or omission of such numbers. The District will promptly notify the Trustee in writing of any change in the "CUSIP" numbers. ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the Bonds. At any time after the execution of this Indenture, the Authority may execute and the Trustee shall, upon the Written Request of the District, authenticate and deliver the Bonds to the Underwriter. Section 3.02. Application of Proceeds of Sale of the Bonds. Upon the receipt of payment for the Bonds on the Closing Date, the Trustee shall receive the amount of $________ calculated as follows: • $[Par Amount] (constituting the par amount of the Bonds), • [less an aggregate original issue discount / plus an aggregate original issue premium] in the amount of $________, and • less an underwriter’s discount in the amount of $_________. which the Trustee shall deposit into a temporary account called the Proceeds Fund which the Trustee shall establish, maintain and hold in trust, and shall apply as follows (whereupon said temporary account shall be closed): (a) The Trustee shall deposit $_________ into the Costs of Issuance Fund. (b) The Trustee shall wire $_________ as directed by the District for deposit into the Project Fund to be established by the District. The Trustee may establish and maintain a temporary account or fund to facilitate and record such deposits and transfers. Section 3.03. Establishment and Application of Costs of Issuance Fund. The Trustee shall establish, maintain and hold in trust a separate fund designated as the “Costs of Issuance Fund” into which the Trustee shall deposit a portion of the proceeds of sale of the Bonds under Section 3.02(a). The Trustee shall disburse amounts in the Costs of Issuance Fund from time to time to pay the Costs of Issuance upon submission of a Written Requisition of the District stating the person to whom payment is to be made, the amount to be paid, the purpose - 21 - 3394469.7 043520 RSIND for which the obligation was incurred and that such payment is a proper charge against said fund. The Trustee may conclusively rely on the representations and certifications set forth in such Written Requisitions and shall be fully protected in relying thereon. On ____________, or upon the earlier Written Request of the District, the Trustee shall transfer all amounts remaining in the Costs of Issuance Fund to the Interest Account, and shall thereupon close the Costs of Issuance Fund. Section 3.04. Project Fund. The District shall establish and maintain a separate fund to be known as the “Project Fund” into which the District shall deposit a portion of the proceeds of sale of the Bonds transferred to the District by the Trustee pursuant to Section 3.02(b). Except as otherwise provided herein, moneys in the Project Fund will be used solely for the payment of the Project Costs. The District shall determine if amounts charged against the Project Fund are proper charges against such fund, and the District shall maintain a record of disbursed amounts from the Project Fund, including the person to whom payment was made, the amount paid, and the purpose for which the obligation was incurred. Upon the completion of the Project, the District shall transfer to the Trustee for deposit in the Interest Account held by the Trustee all amounts remaining on deposit in the Project Fund, and the District shall thereupon close the Project Fund. Section 3.05. Validity of Bonds. The recital contained in the Bonds that the same are issued under the Constitution and laws of the State of California shall be conclusive evidence of their validity and of compliance with the provisions of law in their issuance. ARTICLE IV REDEMPTION OF BONDS Section 4.01. Terms of Redemption. (a) Optional Redemption from any Source of Available Funds. The Bonds maturing on or before _________ are not subject to optional redemption prior to their respective stated maturity dates. The Bonds maturing on or after ________________, are subject to redemption in whole, or in part at the Written Request of the District among maturities on such basis as the District may designate and by lot within a maturity, at the option of the District, on any date on or after _____________, from any available source of funds, at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest to the date of redemption, without premium. The District must give the Trustee written notice of its intention to redeem Bonds under this subsection (a), and the manner of selecting such Bonds for redemption from among the maturities thereof, in sufficient time to enable the Trustee to give notice of such redemption in accordance with Section 4.03. - 22 - 3394469.7 043520 RSIND (b) [Mandatory Redemption in the Event of Conveyance of Wastewater Operations to San Diego County. The Bonds are subject to mandatory redemption prior to their respective stated maturity dates in the event the District’s Wastewater Operations are conveyed to San Diego County, from any available source of funds, at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest to the date of redemption, without premium.] (c) [Mandatory Sinking Fund Redemption. The Term Bonds are also subject to redemption, by lot, on ________ in each of the years as set forth in the following tables, from deposits made for such purpose pursuant to Section 5.02(b), at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, or in lieu thereof may be purchased pursuant to the succeeding paragraph of this subsection (b), in the aggregate respective principal amounts and on the respective dates as set forth in the following table; provided, however, that if some but not all of the Term Bonds have been redeemed pursuant to subsection (a) above, the total amount of all future payments pursuant to this subsection (b) with respect to such Term Bonds shall be reduced by the aggregate principal amount of such Term Bonds so redeemed, to be allocated among such payments in integral multiples of $5,000 as determined by the District (written notice of which determination shall be given by the District to the Trustee).] [Term Bond Maturing ____________] [Sinking Fund Redemption Date] (____________) [Principal Amount To Be Redeemed] - $- - (Maturity) - [Term Bond Maturing ____________] [Sinking Fund Redemption Date] (_________) [Principal Amount To Be Redeemed] - $- - - - (Maturity) - Section 4.02. Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of less than all of the Bonds of a single maturity of the same issue, the District shall select the Bonds of that maturity to be redeemed by lot in any manner which the District in its sole discretion deems appropriate. For purposes of such selection, the District shall treat each Bond as consisting of separate $5,000 portions and each such portion shall be subject to redemption as if such portion were a separate Bond. Section 4.03. Notice of Redemption. The Trustee shall mail notice of redemption of the Bonds by first class mail, postage prepaid, not less than 30 nor more than 60 days before any redemption date, to the respective Owners of any Bonds designated for redemption at their - 23 - 3394469.7 043520 RSIND addresses appearing on the Registration Books, and the Securities Depositories. The Trustee shall electronically file a copy of each notice of redemption with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access (EMMA) system, or such other services providing information with respect to called bonds in accordance with then-current guidelines of the Securities and Exchange Commission, or any other such services the District may designate in writing to the Trustee. Each notice of redemption shall state: (i) the date of the notice, (ii) the redemption date, (iii) the place or places of redemption, (iv) whether less than all of the Bonds (or all Bonds of a single maturity) are to be redeemed, (v) the CUSIP numbers and (in the event that not all Bonds within a maturity are called for redemption) Bond numbers of the Bonds to be redeemed and the maturity or maturities of the Bonds to be redeemed, and (vi) in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on the redemption date there will become due and payable on each of said Bonds the redemption price thereof, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered. Such redemption notices may state that no representation is made as to the accuracy or correctness of the CUSIP numbers printed therein or on the Bonds. Each notice relating to a redemption pursuant to Section 4.01(a) may be conditional, and shall further state that such redemption may be rescinded by the District on or prior to the date set for redemption. Neither the failure to receive any notice nor any defect therein shall affect the sufficiency of the proceedings for such redemption or the cessation of accrual of interest from and after the redemption date. Notice of redemption of Bonds shall be given by the Trustee, at the expense of the District, for and on behalf of the District. Section 4.04. Rescission of Redemption. The District shall have the right to rescind any redemption pursuant to Section 4.01(a) by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default hereunder. The Trustee shall mail notice of rescission of redemption in the same manner notice of redemption was originally provided. - 24 - 3394469.7 043520 RSIND Section 4.05. Execution of New Bonds Upon Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the District, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered. Section 4.06. Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the redemption price of, together with interest accrued to the date fixed for redemption on, including any applicable premium, the Bonds (or portions thereof) so called for redemption being held by the Trustee, on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption shall become due and payable, interest on the Bonds so called for redemption shall cease to accrue, said Bonds (or portions thereof) shall cease to be entitled to any benefit or security under this Indenture, and the Owners of said Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. All Bonds redeemed under the provisions of this Article shall be canceled by the Trustee upon surrender thereof and destroyed in accordance with the retention policy of the Trustee then in effect. ARTICLE V REVENUES; FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Section 5.01. Security for the Bonds; Bond Fund. (a) Pledge of Revenues and Other Amounts. Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, all of the Revenues and all amounts held in any fund or account established under this Indenture are hereby pledged to secure the payment of the principal of and interest and premium (if any) on the Bonds in accordance with their terms and the provisions of this Indenture. This pledge constitutes a lien on and security interest in the Revenues and such amounts and shall attach, be perfected and be valid and binding from and after the Closing Date, without the need for any physical delivery thereof or further act. (b) Assignment to Trustee. The Authority hereby irrevocably transfers, assigns and sets over to the Trustee, without recourse to the Authority, all of its rights in the Installment Sale Agreement (excepting only the Authority’s rights under Sections 4.7, 5.2 and 6.4 thereof and the Authority’s rights to give approvals and consents thereunder), including but not limited to all of the Authority’s rights to receive and collect all of the Installment Payments, and the Trustee hereby accepts such assignment. The Trustee is entitled to collect and receive all of the Installment Payments, and any Installment Payments collected or received by the Authority shall be deemed to be held, and to - 25 - 3394469.7 043520 RSIND have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee is also entitled to, subject to the provisions of Article VIII, take all steps, actions and proceedings which the Trustee determines to be reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the District under the Installment Sale Agreement. (c) Deposit of Revenues in Bond Fund. All Revenues shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the “Bond Fund” which the Trustee shall establish, maintain and hold in trust; except that all moneys received by the Trustee and required hereunder or under the Installment Sale Agreement to be deposited in the Redemption Fund shall be promptly deposited in such fund or account. All Revenues deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in this Indenture. Any surplus remaining in the Bond Fund, after payment in full of (i) the principal of and interest on the Bonds or provision therefore under Article X and (ii) any applicable fees and expenses of the Trustee shall be withdrawn by the Trustee and remitted to the District. Section 5.02. Allocation of Revenues. On or before each Interest Payment Date, the Trustee shall transfer from the Bond Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Bond Fund), the following amounts in the following order of priority: (a) Deposit to Interest Account. The Trustee shall deposit into the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such Interest Payment Date on all Bonds then Outstanding. (b) Deposit to Principal Account. The Trustee shall deposit into the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds coming due and payable on each _________, including the aggregate principal amount of the Term Bonds (if any) which are subject to mandatory sinking fund redemption on such _________ under Section 4.01(b). Section 5.03. Application of Interest Account. All amounts in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as it comes due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity). Section 5.04. Application of Principal Account. All amounts in the Principal Account shall be used and withdrawn by the Trustee solely to pay the principal amount of the Bonds on their respective maturity dates, including the aggregate principal amount of the Term Bonds (if any) which are subject to mandatory sinking fund redemption on such _________ under Section 4.01(b). - 26 - 3394469.7 043520 RSIND Section 5.05. Application of Redemption Fund. The Trustee shall establish (when needed) and maintain the Redemption Fund, into which the Trustee shall deposit a portion of the Revenues received representing optional prepayments of the Installment Payments, in accordance with a Written Request of the District. Amounts on deposit in the Redemption Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and premium (if any) of the Bonds to be redeemed under Section 4.01[(a)]; provided, however, that at any time prior to the selection of Bonds for redemption, the Trustee may apply such amounts to the purchase of Bonds at public or private sale, when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as may be directed under a Written Request of the District, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Bonds. The Trustee shall be entitled to conclusively rely on any Written Request of the District received under this Section 5.05, and shall be fully protected in relying thereon. Section 5.06. Investments. All moneys in any of the funds or accounts established with the Trustee under this Indenture shall be invested by the Trustee solely in Permitted Investments. Such investments shall be directed by the District under a Written Request of the District filed with the Trustee at least 2 Business Days in advance of the making of such investments. In the absence of any such directions from the District, the Trustee shall hold any such moneys uninvested. Amounts in the Project Fund held by the District shall be invested by the District in Permitted Investments. Permitted Investments purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. To the extent Permitted Investments are registrable, such Permitted Investments must be registered in the name of the Trustee. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the Bond Fund. For purposes of acquiring any investments hereunder, the Trustee may commingle funds held by it hereunder. The Trustee or any of its affiliates may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee may rely conclusively on the written investment direction of the District as to the suitability and legality of the directed investments. The Trustee shall incur no liability for losses arising from any investments made under this Section 5.06. The Trustee may make any investments hereunder through its own bond or investment department or trust investment department, or those of its parent or any affiliate. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee hereunder. The Trustee is hereby authorized, in making or disposing of any investment permitted by this Section, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Trustee or for any third person or is dealing as a principal for its own account. - 27 - 3394469.7 043520 RSIND The Authority and the District acknowledge that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the District the right to receive brokerage confirmations of security transactions as they occur at no additional cost, the District specifically waives receipt of such confirmations to the extent permitted by law. The District further understands that trade confirmations for securities transactions effected by the Trustee will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker. The Trustee will furnish the District periodic cash transaction statements which shall include detail for all investment transactions made by the Trustee hereunder. Upon the District’s election, such statements will be delivered via the Trustee’s online service and upon electing such service, paper statements will be provided only upon request. The moneys on deposit in the funds and accounts established under this Indenture shall not be deemed “surplus” under Section 53601 of the Government Code. Section 5.07. Valuation and Disposition of Investments. (a) Except as otherwise provided in subsection (b) of this Section, the District covenants that all investments of amounts deposited in any fund or account created by or under this Indenture, or otherwise containing gross proceeds of the Bonds (within the meaning of Section 148 of the Tax Code) shall be acquired, disposed of and valued at the Fair Market Value thereof as such term is defined in subsection (d) below. The Trustee shall have no duty in connection with the determination of Fair Market Value other than to follow the investment directions of the District in any Written Request of the District. (b) Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Tax Code shall be valued at cost thereof, (consisting of present value thereof within the meaning of Section 148 of the Tax Code): provided that the District shall inform the Trustee which funds are subject to a yield restriction and the Trustee shall have no duty in regards to ensuring that such funds meet such yield restriction. (c) Except as provided in the preceding subsection (b), for the purpose of determining the amount in any fund or account established hereunder, the value of Permitted Investments credited to such fund shall be valued by the Trustee at least annually on or before __________. The Trustee may sell or present for redemption, any Permitted Investment so purchased by the Trustee whenever it shall be necessary in order to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investment is credited, and the Trustee shall not be liable or responsible for any loss, tax, fee or other charge resulting from any such Permitted Investment, reinvestment or liquidation of investment. (d) For purposes of this Section 5.08, the term “Fair Market Value” means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm’s length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of Section 1273 of the Tax Code) and, otherwise, the term “Fair Market Value” means the acquisition price in a bona fide arm’s length transaction (as referenced above) if (i) the - 28 - 3394469.7 043520 RSIND investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Tax Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Tax Code, or (iii) the investment is a United States Treasury Security – State and Local Government Series which is acquired in accordance with applicable regulations of the United States Bureau of Public Debt. (e) To the extent of any valuations made by the Trustee hereunder, the Trustee may utilize and rely upon generally recognized or computerized securities pricing services that may be available to it, including those available through its regular accounting system. ARTICLE VI COVENANTS OF THE AUTHORITY Section 6.01. Punctual Payment. The Authority shall punctually pay or cause to be paid the principal of and interest and premium (if any) on all the Bonds in strict conformity with the terms of the Bonds and of this Indenture, according to the true intent and meaning thereof, but only out of the Revenues and other amounts pledged for such payment as provided in this Indenture. Section 6.02. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which have not been so extended. Nothing in this Section 6.02 limits the right of the District to cause the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance does not constitute an extension of maturity of the Bonds. Section 6.03. Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under this Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by this Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, and reserves the right to issue other obligations for such purposes. Section 6.04. Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized under law to issue the Bonds and to enter into this Indenture and to pledge and assign the Revenues and other amounts purported to be pledged and assigned, respectively, under this Indenture in the manner and to the extent provided in this Indenture. - 29 - 3394469.7 043520 RSIND The Bonds and the provisions of this Indenture are and will be the legal, valid and binding special obligations of the Authority in accordance with their terms, and the Authority and the Trustee shall at all times, subject to the provisions of Article VIII and to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Bond Owners under this Indenture against all claims and demands of all persons whomsoever. Section 6.05. Accounting Records. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries shall be made of all transactions made by it relating to the proceeds of Bonds and all funds and accounts established by the Trustee under this Indenture. The Trustee shall make such books of record and account available for inspection by the Authority and the District during business hours, upon reasonable notice, and under reasonable circumstances. Section 6.06. Limitation on Additional Obligations. The Authority covenants that no additional bonds, notes or other indebtedness shall be issued or incurred which are payable out of the Revenues in whole or in part. Section 6.07. Tax Covenants. (a) Private Business Use Limitation. The Authority shall assure that the proceeds of the Bonds are not used in a manner that would cause the Bonds to satisfy the private business tests of Section 141(b) of the Tax Code or the private loan financing test of Section 141(c) of the Tax Code. (b) Federal Guarantee Prohibition. The Authority may not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Tax Code. (c) No Arbitrage. The Authority may not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Bonds or of any other obligations which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date, would have caused the Bonds to be “arbitrage bonds” within the meaning of Section 148(a) of the Tax Code. (d) Maintenance of Tax Exemption. The Authority shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the Closing Date. (e) Rebate of Excess Investment Earnings to United States. The Authority shall calculate or cause to be calculated all amounts of Excess Investment Earnings with respect to the Bonds which are required to be rebated to the United States of America under Section 148(f) of the Tax Code, at the times and in the manner required under the Tax Code. The Authority shall pay when due an amount equal to Excess Investment Earnings to the United States of America in such amounts, at such times and in such manner as may be required - 30 - 3394469.7 043520 RSIND under the Tax Code, such payments to be made from any source of legally available funds of the Authority. The Authority shall keep or cause to be kept, and retain or cause to be retained for a period of six years following the retirement of the Bonds, records of the determinations made under this subsection (e). The Trustee may rely conclusively upon the Authority’s determinations, calculations and certifications required by this Section. The Trustee shall have no responsibility to independently make any calculation or determination or to review the Authority’s calculations hereunder. Section 6.08. Enforcement of Installment Sale Agreement. The Trustee shall collect all amounts (to the extent any such amounts are available for collection) due from the District under the Installment Sale Agreement. Subject to the provisions of Article VIII, the Trustee may enforce, and take all steps, actions and proceedings which the Trustee determines to be reasonably necessary for the enforcement of all of its rights thereunder as assignee of the Authority and for the enforcement of all of the obligations of the District under the Installment Sale Agreement. Section 6.09. Waiver of Laws. The Authority shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force that may affect the covenants and agreements contained in this Indenture or in the Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the Authority to the extent permitted by law. Section 6.10. Further Assurances. The Authority will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in this Indenture. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.01. Events of Default. The following events constitute Events of Default hereunder: (a) Failure to pay any installment of the principal of any Bonds when due, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise. (b) Failure to pay any installment of interest on the Bonds when due. (c) Failure by the Authority to observe and perform any of the other covenants, agreements or conditions on its part contained in this Indenture or in the Bonds, if such failure has continued for a period of 60 days after written notice thereof, - 31 - 3394469.7 043520 RSIND specifying such failure and requiring the same to be remedied, has been given to the Authority by the Trustee provided, however, if in the reasonable opinion of the Authority the failure stated in the notice can be corrected, but not within such 60-day period, such failure shall not constitute an Event of Default if the Authority institutes corrective action within such 60-day period and thereafter diligently and in good faith cures the failure in a reasonable period of time, not to exceed 180 days of the date of the written notice of such failure. (d) The commencement by the Authority of a voluntary case under Title 11 of the United States Code or any substitute or successor statute. (e) The occurrence and continuation of an Event of Default under and as defined in the Installment Sale Agreement. Section 7.02. Acceleration; Other Remedies. If any Event of Default occurs, then, and in each and every such case during the continuance of such Event of Default, the Trustee may, and shall, at the written direction of the Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding shall, in each case, upon receipt of indemnification satisfactory to Trustee against the costs, expenses and liabilities to be incurred in connection with such action, upon notice in writing to the Authority, declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Bonds contained to the contrary notwithstanding. The foregoing provision, however, is subject to the condition that if, at any time after the principal of the Bonds has been so declared due and payable, the Authority shall pay to or shall deposit with the Trustee a sum sufficient to pay all principal of the Bonds maturing prior to such declaration and all matured installments of interest (if any) upon all the Bonds, and any and all other defaults actually known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) are made good or cured to the satisfaction of the Trustee, or provision deemed by the Trustee to be adequate is made therefor, then, and in every such case, the Trustee, on behalf of the Owners of all of the Bonds, shall rescind and annul such declaration and its consequences: but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon; provided, however, that no such rescission and annulment shall extend to or shall affect any subsequent Event of Default, or shall impair or exhaust any right or power consequent thereon. In addition to declaring the principal of all of the Bonds, and the interest accrued thereon, to be immediately due and payable as set forth above, the Trustee shall have the right to pursue any other remedy provided by law or in equity or otherwise after an Event of Default has occurred. Section 7.03. Application of Revenues and Other Funds After Default. If an Event of Default occurs and is continuing, all Revenues and any other funds then held or thereafter received by the Trustee under any of the provisions of this Indenture shall be applied by the Trustee in the following order of priority: - 32 - 3394469.7 043520 RSIND (a) To the payment of fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its legal counsel including outside counsel and the allocated costs of internal attorneys and those of its agents and advisors) incurred in and about the performance of its powers and duties under this Indenture; and (b) To the payment of the principal of and interest then due on the Bonds (upon presentation of the Bonds to be paid, and stamping or otherwise noting thereon of the payment if only partially paid, or surrender thereof if fully paid) in accordance with the provisions of this Indenture, as follows: First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available is not sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Second: To the payment to the persons entitled thereto of the unpaid principal of any Bonds which have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate borne by the respective Bonds (to the extent permitted by law), and, if the amount available is not sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference. Section 7.04. Trustee to Represent Bond Owners. The Trustee is hereby irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the Bonds, this Indenture and applicable provisions of any law. All rights of action under this Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Owners of such Bonds, subject to the provisions of this Indenture. Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment, or composition affecting the Bonds or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners so affected. Section 7.05. Limitation on Bond Owners’ Right to Sue. Notwithstanding any other provision hereof, no Owner of any Bonds has the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under this Indenture, the Installment Sale Agreement or any other applicable law with respect to such Bonds, unless - 33 - 3394469.7 043520 RSIND (a) such Owner has given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding have requested the Trustee in writing to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; (c) such Owner or Owners have tendered to the Trustee satisfactory indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee has failed to comply with such request for a period of 60 days after such written request has been received by, and said tender of indemnity has been made to, the Trustee; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Indenture or the rights of any other Owners of Bonds, or to enforce any right under the Bonds (it being understood that the Trustee does not have an affirmative duty to ascertain whether or not such actions or forbearances are unduly prejudicial to such Owners), this Indenture, the Installment Sale Agreement or other applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of this Indenture. Section 7.06. Absolute Obligation of Authority. Nothing in this Indenture or in the Bonds affects or impairs the obligation of the Authority, which is absolute and unconditional, to pay the principal of and interest and premium (if any) on the Bonds to the respective Owners of the Bonds at their respective dates of maturity, or upon acceleration or call for redemption, as herein provided, but only out of the Revenues and other assets herein pledged therefor, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds. Section 7.07. Termination of Proceedings. In case any proceedings taken by the Trustee or by any one or more Bond Owners on account of any Event of Default have been discontinued or abandoned for any reason or have been determined adversely to the Trustee or the Bond Owners, then in every such case the Authority, the Trustee and the Bond Owners, subject to any determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the Authority, the Trustee and the Bond Owners shall continue as though no such proceedings had been taken. - 34 - 3394469.7 043520 RSIND Section 7.08. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee, or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Section 7.09. No Waiver of Default. No delay or omission of the Trustee or any Owner of the Bonds to exercise any right or power arising upon the occurrence of any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or an acquiescence therein; and every power and remedy given by this Indenture to the Trustee or to the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient by the Trustee or the Bond Owners. ARTICLE VIII THE TRUSTEE Section 8.01. Appointment of Trustee. MUFG Union Bank, N.A. is hereby appointed Trustee by the Authority and the District for the purpose of receiving all moneys required to be deposited with the Trustee hereunder and to allocate, use and apply the same as provided in this Indenture. The Authority and the District will maintain a Trustee which is qualified under the provisions of the foregoing provisions of this Article VIII, so long as any Bonds are Outstanding. Section 8.02. Acceptance of Trusts; Removal and Resignation of Trustee. The Trustee hereby accepts the express trusts imposed upon it by this Indenture, and agrees to perform said trusts, but only upon and subject to the following express terms and conditions: (a) The Trustee shall, prior to an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in this Indenture and no implied duties or covenants shall be read into this Indenture against the Trustee. After the occurrence and during the continuance of an Event of Default, the Trustee shall use the same degree of care and skill that a prudent person would use or exercise in the circumstances in the conduct of such prudent person’s own affairs. (b) The District may remove the Trustee at any time, unless an Event of Default has occurred and is then continuing, and shall remove the Trustee (a) if at any time requested to do so by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or (b) if at any time the Trustee ceases to be eligible in accordance with this Section 8.02, or becomes incapable of acting, or is adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property is appointed, or any public officer takes control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. (c) The Trustee may at any time resign by giving written notice of such resignation to the Authority and the District, and by giving the Bond Owners notice of such resignation by mail at the addresses shown on the Registration Books. - 35 - 3394469.7 043520 RSIND (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee has been appointed and accepted appointment within 45 days of giving notice of removal or notice of resignation as aforesaid, the District, upon its own direction or the direction of the retiring Trustee may, or the retiring Trustee may, at the expense of the District, petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture, must signify its acceptance of such appointment by executing and delivering to the District and to its predecessor Trustee a written acceptance thereof, and after payment by the District of all unpaid fees and expenses of the predecessor Trustee, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein. At the Written Request of the District or the request of the successor Trustee, such predecessor Trustee shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Trustee, the District shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the District shall promptly mail or cause the successor trustee to mail a notice of the succession of such Trustee to the trusts hereunder to the Bond Owners at the addresses shown on the Registration Books. If the District fails to mail such notice within 15 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the District. (e) Any Trustee appointed under this Indenture shall be a corporation or association organized and doing business under the laws of any state or the United States of America or the District of Columbia, shall be authorized under such laws to exercise corporate trust powers, shall have (or, in the case of a corporation or association that is a member of a bank holding company system, the related bank holding company has) a combined capital and surplus of at least $50,000,000, and shall be subject to supervision or examination by a federal or state agency, so long as any Bonds are Outstanding. If such corporation or association publishes a report of condition at least annually under law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this subsection (e), the combined capital and surplus of such corporation or association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If the Trustee at any time ceases to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section. Section 8.03. Merger or Consolidation. Any bank, national banking association, federal savings association, or trust company into which the Trustee may be merged or converted or with which it may be consolidated or any bank, national banking association, federal savings association, or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank, national banking association, federal savings association, or trust - 36 - 3394469.7 043520 RSIND company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank, national banking association, federal savings association, or trust company shall be eligible under subsection (e) of Section 8.02 shall be the successor to such Trustee, without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. Section 8.04. Liability of Trustee. (a) The recitals of facts herein and in the Bonds contained shall be taken as statements of the Authority or the District as appropriate, and the Trustee shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of this Indenture, the Bonds or the Installment Sale Agreement, nor shall the Trustee incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations of Trustee herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence. The Trustee may become the Owner of Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bond Owners, whether or not such committee shall represent the Owners of a majority in principal amount of the Bonds then Outstanding. (b) The Trustee is not liable for any error of judgment made by a responsible officer, unless it is proved that the Trustee was grossly negligent in ascertaining the pertinent facts. (c) The Trustee is not liable with respect to any action taken or omitted to be taken by it in accordance with the direction of the Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture or assigned to it hereunder. (d) The Trustee is not liable for any action taken by it and believed by it to be authorized or within rights or powers conferred upon it by this Indenture. (e) The Trustee shall not be deemed to have knowledge of any Event of Default hereunder, or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default hereunder unless and until a corporate trust officer receives written notice thereof at its Office from the District, the Authority or the Owners of at least 25% in aggregate principal amount of the Outstanding Bonds. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance by the Authority or the District of any of the terms, conditions, covenants or agreements herein, under the Installment Sale Agreement or the Bonds or of any of the documents executed in connection with the Bonds, or as to the existence of a default or an Event of Default or an event which would, with the giving of notice, the passage of time, or both, constitute an Event of Default. The Trustee is not responsible for the validity, effectiveness or priority of any collateral given to or held by it. Without limiting the generality of the foregoing, the Trustee shall not be - 37 - 3394469.7 043520 RSIND required to ascertain or inquire as to the performance or observance by the District or the Authority of the terms, conditions, covenants or agreements set forth in the Installment Sale Agreement, other than the covenants of the District to make Installment Payments to the Trustee when due and to file with the Trustee when due, such reports and certifications as the District is required to file with the Trustee thereunder. (f) No provision of this Indenture requires the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. (g) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or through agents, receivers or attorneys and the Trustee shall not be responsible for any willful misconduct or negligence on the part of any agent, receiver or attorney appointed with due care by it hereunder. (h) The Trustee has no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of the Bond Owners under this Indenture, unless the such Owners have offered to the Trustee security or indemnity satisfactory to it against any and all of the costs, claims, expenses and liabilities (including but not limited to fees and expenses of its attorneys) which might be incurred by it in compliance with such request or direction. No permissive power, right or remedy conferred upon the Trustee hereunder shall be construed to impose a duty. to exercise such power, right or remedy. (i) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to the provisions of Section 8.02(a), this Section 8.04 and Section 8.05, and shall be applicable to the assignment of any rights to the Trustee hereunder. (j) The Trustee is not accountable to anyone for the subsequent use or application of any moneys which are released or withdrawn in accordance with the provisions hereof. (k) The Trustee makes no representation or warranty, expressed or implied as to the title, value, design, compliance with specifications or legal requirements, quality, durability, operation, condition, merchantability or fitness for any particular purpose for the use contemplated by the Authority or the District of the Project. In no event shall the Trustee be liable for incidental, indirect, special, punitive or consequential damages in connection with or arising from the Installment Sale Agreement or this Indenture for the existence, furnishing or use of the Project. (l) The Trustee has no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds. (m) The Trustee shall not be considered in breach of or in default in its obligations hereunder or progress in respect thereto in the event of delay in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, - 38 - 3394469.7 043520 RSIND freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources or energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. (n) The Trustee shall have the right to accept and act upon instructions, including funds transfer instructions (“Instructions”) given pursuant to this Indenture and delivered using Electronic Means (“Electronic Means” shall mean the following communications methods: S.W.I.F.T., e-mail, facsimile transmission, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Trustee, or another method or system specified by the Trustee as available for use in connection with its services hereunder); provided, however, that the District and the Authority shall provide to the Trustee an incumbency certificate listing officers with the authority to provide such Instructions (“Authorized Officers”) and containing specimen signatures of such Authorized Officers, which incumbency certificate shall be amended by the District or the Authority whenever a person is to be added or deleted from the listing. If the District or the Authority elects to give the Trustee Instructions using Electronic Means and the Trustee in its reasonable judgment elects to act upon such Instructions, the Trustee’s understanding of such Instructions shall be deemed controlling. The District and the Authority understand and agree that the Trustee cannot determine the identity of the actual sender of such Instructions and that the Trustee shall conclusively presume that directions that purport to have been sent by an Authorized Officer listed on the incumbency certificate provided to the Trustee have been sent by such Authorized Officer. The District and the Authority shall be responsible for ensuring that only Authorized Officers transmit such Instructions to the Trustee and that the District or the Authority and all Authorized Officers are solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt by the District or the Authority. The Trustee shall not be liable for any losses, costs, claims or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Instructions notwithstanding such directions conflict or are inconsistent with a subsequent written instruction. The District and the Authority agree: (i) to assume all risks arising out of the use of Electronic Means to submit Instructions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Instructions, and the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to the Trustee and that there may be more secure methods of transmitting Instructions than the method(s) selected by the District or the Authority; (iii) that the security procedures (if any) to be followed in connection with its transmission of Instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances; and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures. Section 8.05. Right to Rely on Documents. The Trustee shall be protected and shall incur no liability in acting or refraining from acting in reliance upon any notice, resolution, request, consent, order, certificate, report, opinion, bonds, requisition, facsimile transmission, electronic mail or other paper or document believed by them to be genuine and to have been signed or presented by the proper party or parties. The Trustee is under no duty to make any - 39 - 3394469.7 043520 RSIND investigation or inquiry as to any statements contained or matter referred to in any paper or document but may accept and conclusively rely upon the same as conclusive evidence of the truth and accuracy of any such statement or matter and shall be fully protected in relying thereon. The Trustee may consult with counsel of its selection, who may be counsel of or to the District, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. The Trustee may treat the Owners of the Bonds appearing in the Registration Books as the absolute owners of the Bonds for all purposes and the Trustee shall not be affected by any notice to the contrary. Whenever in the administration of the trusts imposed upon it by this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate, Written Request or Written Requisition of the Authority or the District, and such Written Certificate, Written Request or Written Requisition shall be full warrant to the Trustee for any action taken or suffered under the provisions of this Indenture in reliance upon such Written Certificate, Written Request or Written Requisition, and the Trustee shall be fully protected in relying thereon, but the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may deem reasonable. Section 8.06. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of this Indenture shall be retained in its respective possession and in accordance with its retention policy then in effect and shall, upon reasonable notice to Trustee, be subject to the inspection of the Authority, the District, and any Bond Owner, and their agents and representatives duly authorized in writing, during business hours and under reasonable conditions as agreed to by the Trustee. Section 8.07. Compensation and Indemnification. The District shall pay to the Trustee from time to time, on demand, the compensation for all services rendered under this Indenture and also all expenses, advances (including any interest on advances), charges, legal (including outside counsel of its selection and the allocated costs of internal attorneys) and consulting fees and other disbursements as previously agreed upon in writing, incurred in and about the performance of its powers and duties under this Indenture. The District and the Authority shall indemnify the Trustee, its officers, directors, employees and agents against any cost, claim, suit, damage, fine, penalty, loss, liability or expense whatsoever (including but not limited to fees and expenses of its attorneys) incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this trust and this Indenture, including costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers hereunder or under the Installment Sale Agreement. As security for the performance of the obligations of the District and the Authority under this Section 8.07, the Trustee shall have a lien prior to the lien of the Bonds upon all property and funds held or collected by the Trustee as such. The rights of the Trustee and the obligations of the District and - 40 - 3394469.7 043520 RSIND the Authority under this Section 8.07 shall survive the resignation or removal of the Trustee or the discharge of the Bonds and this Indenture and the Installment Sale Agreement. When the Trustee incurs expenses or renders services after the occurrence of an Event of Default, such expenses and the compensation for such services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law. ARTICLE IX MODIFICATION OR AMENDMENT HEREOF Section 9.01. Amendments Permitted. (a) Amendments With Bond Owner Consent. This Indenture and the rights and obligations of the Authority, the District and the Owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time by Supplemental Indenture, which the Authority and the Trustee may enter into when the written consents of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding are filed with the Trustee. No such modification or amendment may: (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or permit the creation of any lien on the Revenues and other assets pledged under this Indenture prior to or on a parity with the lien created by this Indenture except as permitted herein, or deprive the Owners of the Bonds of the lien created by this Indenture on such Revenues and other assets (except as expressly provided in this Indenture), without the consent of the Owners of all of the Bonds then Outstanding. It is not necessary for the consent of the Bond Owners to approve the particular form of any Supplemental Indenture, but it is sufficient if such consent approves the substance thereof. (b) Amendments Without Owner Consent. The Indenture and the rights and obligations of the Authority, the District, the Trustee and the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority and the Trustee may enter into without the consent of any Bond Owners if the Trustee has been furnished an opinion of counsel that the provisions of such Supplemental Indenture shall not materially adversely affect the interests of the Owners of the Bonds, including, without limitation, for any one or more of the following purposes: (i) to add to the covenants and agreements of the Authority or the District contained in this Indenture, other covenants and agreements thereafter to be observed, to - 41 - 3394469.7 043520 RSIND pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the Authority or the District; (ii) to cure any ambiguity, inconsistency or omission, or to cure or correct any defective provision, contained in this Indenture, or in regard to matters or questions arising under this Indenture, as the District deems necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners, in the opinion of Bond Counsel filed with the Trustee; (iii) to modify, amend or supplement this Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute; (iv) to modify, amend or supplement this Indenture in such manner as to assure that the interest on the Bonds remains excluded from gross income under the Tax Code; or (v) to modify any of the provisions of this Indenture in any other respect, provided that such modifications shall not have a material adverse effect on the interests of the Owners of the Bonds, in the opinion of Bond Counsel filed with the Trustee. (c) Limitation. The Trustee is not obligated to enter into any Supplemental Indenture authorized by subsections (a) or (b) of this Section 9.01 which materially adversely affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise. (d) Bond Counsel Opinion Requirement. Prior to the Trustee entering into any Supplemental Indenture hereunder, the District shall deliver to the Trustee an opinion of Bond Counsel stating, in substance, that such Supplemental Indenture has been adopted in compliance with the requirements of this Indenture, the Supplemental Indenture is the legal, valid and binding obligation of the District and that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the exclusion from gross income for purposes of federal income taxes of interest on the Bonds. (e) Notice of Amendments. The District shall deliver or cause to be delivered a draft of any Supplemental Indenture to each rating agency which then maintains a rating on the Bonds, at least 10 days prior to the effective date of such Supplemental Indenture under this Section 9.01. Section 9.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture under this Article IX, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the District the Trustee, and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. - 42 - 3394469.7 043520 RSIND Section 9.03. Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the execution of any Supplemental Indenture under this Article may, and if the District so determines shall, bear a notation by endorsement or otherwise in form approved by the District as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand on the Owner of any Bonds Outstanding at the time of such execution and presentation of his Bonds for the purpose at the Office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation shall be made on such Bonds. If the Supplemental Indenture so provides, new Bonds so modified as to conform, in the opinion of the District, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee, and upon demand on the Owners of any Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any Bond Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amount of the same maturity. Section 9.04. Amendment of Particular Bonds. The provisions of this Article IX do not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by such Owner. ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture. Any or all of the Outstanding Bonds may be paid by the District in any of the following ways, provided that the District also pays or causes to be paid any other sums payable hereunder by the District: (a) by paying or causing to be paid the principal of and interest and premium (if any) on such Bonds, as and when the same become due and payable, (b) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem such Bonds, or (c) by delivering to the Trustee, for cancellation by it, such Bonds. If the District pays all outstanding Bonds as provided above and also pays or causes to be paid all other sums payable hereunder by the District, then and in that case, at the election of the District (evidenced by a Written Certificate of the District, filed with the Trustee, signifying the intention of the District to discharge all such indebtedness and this Indenture), and notwithstanding that any of such Bonds have not been surrendered for payment, this indenture and the pledge of Revenues and other assets made under this Indenture with respect to such Bonds and all covenants, agreements and other obligations of the District under this Indenture with respect to such Bonds shall cease, terminate, become void and be completely discharged and satisfied, subject to Section 10.02. - 43 - 3394469.7 043520 RSIND In such event, upon the Written Request of the District, the Trustee shall execute and deliver to the District all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver to the District all moneys or securities or other property held by it under this Indenture which are not required for the payment or redemption of any of such Bonds not theretofore surrendered for such payment or redemption. The Trustee is entitled to conclusively rely on any such Written Certificate or Written Request and, in each case, is fully protected in relying thereon. Section 10.02. Discharge of Liability on Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem any Outstanding Bonds (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to maturity, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee is made for the giving of such notice, then all liability of the Authority and the District in respect of such Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject, however, to the provisions of Section 10.04. The Authority or the District may at any time surrender to the Trustee, for cancellation by Trustee, any Bonds previously issued and delivered, which the Authority or the District may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. Section 10.03. Deposit of Money or Securities with Trustee. Whenever in this Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established under this Indenture and shall be: (a) lawful money of the United States of America in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such Bonds, premium, if any, and all unpaid interest thereon to the redemption date; or (b) non-callable Defeasance Obligations, the principal of and interest on which when due will, in the written opinion of an Independent Accountant filed with the District, the Authority and the Trustee, provide money sufficient to pay the principal of and interest and premium (if any) on the Bonds to be paid or redeemed, as such principal, interest and premium become due, provided that in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given - 44 - 3394469.7 043520 RSIND as provided in Article IV or provision satisfactory to the Trustee has been made for the giving of such notice; provided, in each case, that (i) the Trustee has been irrevocably instructed (by the terms of this Indenture or by Written Request of the District) to apply such money to the payment of such principal, interest and premium (if any) with respect to such Bonds, and (ii) the District has delivered to the Trustee an opinion of Bond Counsel to the effect that such Bonds have been discharged in accordance with this Indenture (which opinion may rely upon and assume the accuracy of the Independent Accountant’s opinion referred to above). The Trustee shall be entitled to conclusively rely on such Written Request or opinion and shall be fully protected, in each case, in relying thereon. Section 10.04. Unclaimed Funds. Notwithstanding any provisions of this Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any Bonds and remaining unclaimed for two years after the principal of all of the Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in this Indenture), if such moneys were so held at such date, or two years after the date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall be repaid to the District free from the trusts created by this Indenture, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the District as aforesaid, the Trustee shall (at the cost of the District) first mail to the Owners of Bonds which have not yet been paid, at the addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the District of the moneys held for the payment thereof. In the absence of any such written request, the Trustee shall from time to time deliver such unclaimed funds to or as directed by pertinent escheat authority, as identified by the Trustee, pursuant to and in accordance with applicable unclaimed property laws, rules or regulations, any such delivery shall be in accordance with the customary practices and procedures of the Trustee and the escheat authority. All moneys held by the Trustee and subject to this Section shall be held uninvested and without liability for interest thereon. ARTICLE XI MISCELLANEOUS Section 11.01. Liability of Authority Limited to Revenues. Notwithstanding anything in this Indenture or in the Bonds contained, the Authority is not required to advance any moneys derived from any source other than the Revenues and other assets pledged under this Indenture for any of the purposes in this Indenture mentioned, whether for the payment of the principal of or interest on the Bonds or for any other purpose of this Indenture. Nevertheless, the Authority may, but is not required to, advance for any of the purposes hereof any funds of the Authority which may be made available to it for such purposes. - 45 - 3394469.7 043520 RSIND Section 11.02. Limitation of Rights to Parties and Bond Owners. Nothing in this Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any person other than the Authority, the Trustee, the District and the Owners of the Bonds, any legal or equitable right, remedy or claim under or in respect of this Indenture or any covenant, condition or provision therein or herein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Authority, the Trustee, the District and the Owners of the Bonds. Section 11.03. Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with corporate trust industry standards to the extent practicable, and with due regard for the requirements of Section 6.05 and for the protection of the security of the Bonds and the rights of every Owner thereof. The Trustee may establish such funds and accounts as it deems necessary or appropriate to perform its obligations under this Indenture. Section 11.04. Waiver of Notice; Requirement of Mailed Notice. Whenever in this Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in this Indenture any notice is required to be given by mail, such requirement may be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail. Section 11.05. Destruction of Bonds. Whenever in this Indenture provision is made for the cancellation by the Trustee, and the delivery to the District or the Authority, of any Bonds, the Trustee shall, in lieu of such cancellation and delivery, destroy such Bonds as may be allowed by law in accordance with its customary procedures, and shall deliver a certificate of such destruction to the District. Section 11.06. Severability of Invalid Provisions. If any one or more of the provisions contained in this Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture, and this Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The Authority hereby declares that it would have entered into this Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. Section 11.07. Notices. All notices or communications to be given under this Indenture shall be given by first class mail, e-mail, facsimile transmission, overnight mail or personal delivery to the party entitled thereto at its address set forth below, or at such address as the party - 46 - 3394469.7 043520 RSIND may provide to the other party in writing from time to time. Notice shall be effective either (a) upon transmission by facsimile transmission or other form of telecommunication (including e-mail) (b) 48 hours after deposit in the United States mail, postage prepaid, or (c) in the case of personal delivery to any person or overnight mail, upon actual receipt; provided, however, that notice to the Trustee shall be deemed given only upon receipt by it. The Authority, the District or the Trustee may, by written notice to the other parties, from time to time modify the address or number to which communications are to be given hereunder. If to the Authority: Otay Water District Financing Authority [ADDRESS] Attn: ___________________ E-Mail: [_______] If to the District: Otay Water District 2554 Sweetwater Springs Blvd. Spring Valley, CA 91978-2004 Attn: ___________________ E-Mail: [_______] If to the Trustee: MUFG Union Bank, N.A. Attention: Corporate Trust Department 445 South Figueroa Street, Suite 401 Los Angeles, California 90071 Fax: 213-972-5694 Email: LACT@unionbank.com Section 11.08. Evidence of Rights of Bond Owners. Any request, consent or other instrument required or permitted by this Indenture to be signed and executed by Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Bond Owners in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of Bonds transferable by delivery, shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee, the District and the Authority if made in the manner provided in this Section 11.08. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. - 47 - 3394469.7 043520 RSIND The ownership of Bonds shall be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee, the District or the Authority in accordance therewith or reliance thereon. Section 11.09. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are actually known by the Trustee to be owned or held by or for the account of the Authority or the District, or by any other obligor on the Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the District or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination unless all the Bonds are so owned or held, in which case all such Bonds shall be deemed Outstanding. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right to vote such Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the District or any other obligor on the Bonds. In case of a dispute as to such right, the Trustee shall be entitled to rely upon the advice of counsel in any decision by Trustee and shall be fully protected in relying thereon. Upon request, the Authority and the District shall specify to the Trustee those Bonds disqualified under this Section 11.09. Section 11.10. Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, premium, if any, or principal due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, to the provisions of Section 10.04 but without any liability for interest thereon. Section 11.11. Waiver of Personal Liability. No member, officer, agent or employee of the Authority shall be individually or personally liable for the payment of the principal of or interest or premium (if any) on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law or by this Indenture, Section 11.12. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture either the Authority, the District or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained by or on behalf of the Authority, the District or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. - 48 - 3394469.7 043520 RSIND Section 11.13. Execution in Several Counterparts. This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Authority and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. The exchange of copies of this Indenture and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this Indenture as to the parties hereto and may be used in lieu of the original Indenture and signature pages for all purposes. Section 11.14. Payment on Non-Business Day. In the event any payment is required to be made hereunder on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and with the same effect as if made on such preceding non-Business Day. Section 11.15. Governing Law. This Indenture shall be governed by and construed in accordance with the laws of the State of California. Section 11.16. U.S.A. Patriot Act. The parties hereto acknowledge that in accordance with Section 326 of the U.S.A. Patriot Act, the Trustee, like all financial institutions and in order to help fight the funding of terrorism and money laundering, is required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The parties to this Indenture agree that they will provide the Trustee with such information as it may request in order for the Trustee to satisfy the requirements of the U.S.A. Patriot Act. S-1 3394469.7 043520 RSIND IN WITNESS WHEREOF, the Otay Water District Financing Authority has caused this Indenture to be signed in its name by its authorized signatory and attested to by its other authorized signatory, and MUFG Union Bank, N.A., in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. OTAY WATER DISTRICT FINANCING AUTHORITY By___________________________________ Name: Title: ATTEST: By___________________________________ Name: Title: MUFG UNION BANK, N.A. as Trustee By______________________________________ Authorized Officer S-1 3394469.7 043520 RSIND Acknowledged and agreed: OTAY WATER DISTRICT By____________________________________________ _______________, District Manager [Signature page to Indenture] A-1 3394469.7 043520 RSIND APPENDIX A BOND FORM UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. NO. R-__________ ***$____________*** UNITED STATES OF AMERICA STATE OF CALIFORNIA OTAY WATER DISTRICT FINANCING AUTHORITY 2019 WASTEWATER REVENUE BONDS INTEREST RATE: MATURITY DATE: ORIGINAL ISSUE DATE: CUSIP: _______% ______ 1, ____ _________, 2019 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: ***_______________________________________________*** The OTAY WATER DISTRICT FINANCING AUTHORITY, a joint exercise of powers authority duly organized and existing under the laws of the State of California (the “Authority”), for value received, hereby promises to pay to the Registered Owner specified above or registered assigns (the “Registered Owner”), on the Maturity Date specified above (subject to any right of prior redemption hereinafter provided for), the Principal Amount specified above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication of this Bond unless (i) this Bond is authenticated on or before an Interest Payment Date and after the close of business on the __th day of the month preceding such interest payment date, in which event it shall bear interest from such Interest Payment Date, or (ii) this Bond is authenticated on or before ___________, 201_, in which event it shall bear interest from the Original Issue Date specified above; provided, however, that if at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on this Bond, at the Interest Rate per annum specified above, payable semiannually on ______ 1 and ______ 1 in each year, A-2 3394469.7 043520 RSIND commencing _________ 1, 201_ (the “Interest Payment Dates”), calculated on the basis of a 360-day year composed of twelve 30-day months. Principal hereof and premium, if any, upon early redemption hereof are payable upon presentation and surrender hereof at the designated corporate trust office of MUFG Union Bank, N.A. (the “Trust Office”), as trustee (the “Trustee”). Interest hereon is payable by check mailed to the Registered Owner hereof at the Registered Owner’s address as it appears on the registration books of the Trustee as of the close of business on the fifteenth day of the month preceding each Interest Payment Date (a “Record Date”), or, upon written request filed with the Trustee as of such Record Date by a registered owner of at least $1,000,000 in aggregate principal amount of Bonds, by wire transfer in immediately available funds to an account in the United States designated by such registered owner in such written request. This Bond is one of a duly authorized issue of bonds of the Authority designated as the “Otay Water District Financing Authority 2019 Wastewater Revenue Bonds” (the “Bonds”), in an aggregate principal amount of $__________, all of like tenor and date (except for such variation, if any, as may be required to designate varying numbers, maturities, interest rates or redemption provisions) and all issued pursuant to the provisions of Articles 4 of Chapter 5, Division 7, Title 1 of the California Government Code, commencing with Section 6584 of said Code, and under an Indenture of Trust dated as of _________, 2019 (the “Indenture”), between the Authority and the Trustee, and a resolution of the Authority adopted on __________, authorizing the issuance of the Bonds. Reference is hereby made to the Indenture (copies of which are on file at the office of the Authority) and all supplements thereto for a description of the terms on which the Bonds are issued, the provisions with regard to the nature and extent of the Revenues, and the rights thereunder of the owners of the Bonds and the rights, duties and immunities of the Trustee and the rights and obligations of the Authority thereunder, to all of the provisions of which the Registered Owner of this Bond, by acceptance hereof, assents and agrees. The Bonds have been issued by the Authority to finance certain improvements to the District’s facilities and property for the collection of wastewater within its service area (the “Wastewater Operations”). This Bond and the interest and premium, if any, hereon are special obligations of the Authority, payable from the Revenues, and secured by a charge and lien on the Revenues as defined in the Indenture, consisting principally of Installment Payments made by the District under an Installment Sale Agreement dated as of _________, 2019, between the Authority and the District (the “Installment Sale Agreement”). As and to the extent set forth in the Indenture, all of the Revenues are exclusively and irrevocably pledged in accordance with the terms hereof and the provisions of the Indenture, to the payment of the principal of and interest and premium (if any) on the Bonds. The rights and obligations of the Authority and the owners of the Bonds may be modified or amended at any time in the manner, to the extent and upon the terms provided in the Indenture, but no such modification or amendment shall extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the owner of each Bond so affected. A-3 3394469.7 043520 RSIND The Bonds are subject to redemption prior to maturity as provided under the Indenture. As provided in the Indenture, notice of redemption will be mailed by the Trustee by first class mail not less than 30 nor more than 60 days prior to the redemption date to the respective owners of any Bonds designated for redemption at their addresses appearing on the registration books of the Trustee, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for redemption or the cessation of accrual of interest thereon from and after the date fixed for redemption. If this Bond is called for redemption and payment is duly provided therefor as specified in the Indenture, interest shall cease to accrue hereon from and after the date fixed for redemption. Optional redemption may be conditional and rescinded by the District pursuant to the Indenture This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Trust Office, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon registration of such transfer, a new Bond or Bonds, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. This Bond may be exchanged at the Trust Office for Bonds of the same tenor, aggregate principal amount, interest rate and maturity, of other authorized denominations. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the Authority and the Trustee shall not be affected by any notice to the contrary. It is hereby certified by the Authority that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened or have been performed in due and regular time, form and manner as required by the Indenture and the laws of the State of California and that the amount of this Bond, together with all other indebtedness of the Authority, does not exceed any limit prescribed by the Indenture or any laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Indenture. This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose until the certificate of authentication hereon endorsed shall have been manually signed by the Trustee. A-4 3394469.7 043520 RSIND IN WITNESS WHEREOF, the Otay Water District Financing Authority has caused this Bond to be executed in its name and on its behalf with the facsimile signature of its authorized signatory and attested to by the facsimile signature of its other authorized signatory, all as of the Original Issue Date specified above. OTAY WATER DISTRICT FINANCING AUTHORITY By___________________________________ Name: Title: Attest: By___________________________________ Name: Title: A-5 3394469.7 043520 RSIND CERTIFICATE OF AUTHENTICATION This is one of the Bonds described in the within-mentioned Indenture. Dated: ____________ ____________, as Trustee By___________________________________ Authorized Signatory A-6 3394469.7 043520 RSIND ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto ________________________________________ whose address and social security or other tax identifying number is ___________________________, the within-mentioned Bond and hereby irrevocably constitute(s) and appoint(s) ___________________________________________ attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature(s) must be guaranteed by an eligible guarantor institution meeting the requirements of membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined in substitution for STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. Note: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. Hawkins Delafield & Wood LLP 10/15/2019 3394471.5 043520 AGMT INSTALLMENT SALE AGREEMENT Dated as of __________, 2019 By and between OTAY WATER DISTRICT FINANCING AUTHORITY, as Seller and OTAY WATER DISTRICT, as Purchaser Relating to the $[Par Amount] Otay Water District Financing Authority 2019 Wastewater Revenue Bonds (i) 3394471.5 043520 AGMT TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; RULES OF INTERPRETATION Section 1.1. Definitions................................................................................................................1 Section 1.2. Interpretation ............................................................................................................2 ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES Section 2.1. Representations, Covenants and Warranties of the District .....................................2 Section 2.2. Representations, Covenants and Warranties of Authority .......................................3 ARTICLE III ISSUANCE OF BONDS Section 3.1. The Bonds ................................................................................................................4 Section 3.2. Deposit and Application of Funds ...........................................................................4 Section 3.3. Acquisition of the Project ........................................................................................4 Section 3.4. Appointment of District as Agent ............................................................................4 ARTICLE IV SALE OF PROJECT; INSTALLMENT PAYMENTS Section 4.1. Sale of Project ..........................................................................................................5 Section 4.2. Term .........................................................................................................................5 Section 4.3. Title ..........................................................................................................................5 Section 4.4. Installment Payments ...............................................................................................5 Section 4.5. Pledge and Application of Net Revenues ................................................................6 Section 4.6. Special Obligation of the District; Obligations Absolute ........................................7 Section 4.7. Additional Payments ................................................................................................8 Section 4.8. Rate Stabilization Fund ............................................................................................8 TABLE OF CONTENTS (continued) Page (ii) 3394471.5 043520 AGMT ARTICLE V COVENANTS OF THE DISTRICT Section 5.1. Disclaimer of Warranties., Maintenance, Utilities and Taxes .................................9 Section 5.2. Release and Indemnification Covenants ................................................................10 Section 5.3. Sale or Eminent Domain of Wastewater Operations .............................................10 Section 5.4. Insurance ................................................................................................................11 Section 5.5. Records and Accounts............................................................................................11 Section 5.6. Rates and Charges ..................................................................................................11 Section 5.7. Superior and Subordinate Obligations ...................................................................12 Section 5.8. Issuance of Parity Obligations ...............................................................................12 Section 5.9. Governmental Loans ..............................................................................................13 Section 5.10. Operation of Wastewater Operations in Efficient and Economical Manner .........13 Section 5.11. Assignment and Amendment .................................................................................13 Section 5.12. Continuing Disclosure ...........................................................................................14 ARTICLE VI EVENTS OF DEFAULT Section 6.1. Events of Default Defined .....................................................................................14 Section 6.2. Remedies on Default ..............................................................................................15 Section 6.3. No Remedy Exclusive............................................................................................16 Section 6.4. Agreement to Pay Attorneys’ Fees and Expenses .................................................16 Section 6.5. No Additional Waiver Implied by One Waiver .....................................................16 Section 6.6. Trustee and Bond Owners to Exercise Rights .......................................................16 ARTICLE VII PREPAYMENT OF INSTALLMENT PAYMENTS Section 7.1. Security Deposit .....................................................................................................17 Section 7.2. Optional Prepayment Relating to the Bonds ..........................................................17 Section 7.3. Credit for Amounts on Deposit ..............................................................................18 ARTICLE VIII MISCELLANEOUS Section 8.1. Further Assurances.................................................................................................18 Section 8.2. Notices ...................................................................................................................18 Section 8.3. Governing Law ......................................................................................................19 Section 8.4. Binding Effect ........................................................................................................19 Section 8.5. Severability of Invalid Provisions ..........................................................................19 Section 8.6. Article and Section Headings and References .......................................................20 Section 8.7. Payment on Non-Business Days ............................................................................20 TABLE OF CONTENTS (continued) Page (iii) 3394471.5 043520 AGMT Section 8.8. Execution of Counterparts .....................................................................................20 Section 8.9. Waiver of Personal Liability ..................................................................................20 Section 8.10. Trustee as Third Party Beneficiary ........................................................................20 Section 8.11. Authority Provisions ..............................................................................................20 APPENDIX A Schedule of Installment Payments APPENDIX B Description of Project - 1 - 3394471.5 043520 AGMT INSTALLMENT SALE AGREEMENT This INSTALLMENT SALE AGREEMENT (this “Agreement”), dated as of ____________, 2019, is between the OTAY WATER DISTRICT FINANCING AUTHORITY, a joint exercise of powers authority duly organized and existing under the laws of the State of California (the “Authority”), as seller, and the OTAY WATER DISTRICT, a sanitation district duly organized and existing under the laws of the State of California (the “District”), as purchaser. WHEREAS CLAUSES: 1. The District presently operates facilities and property for the collection of wastewater within its service area (the “Wastewater Operations”). 2. The Authority has been formed for the purpose, among others, of issuing its revenue bonds to finance the acquisition, construction and improvement of certain public capital improvements in and for the benefit of the District. 3. The Authority and the District desire to raise funds necessary to finance certain improvements to the Wastewater Operations. 4. In order to obtain funds for this purpose, the Authority has authorized the issuance of its Otay Water District Financing Authority 2019 Wastewater Revenue Bonds (the “Bonds”), in the aggregate principal amount of $[Principal Amount] under an Indenture of Trust, dated as of _____________, 2019, by and between the Authority and MUFG Union Bank, N.A., as trustee (the “Indenture”), and under Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 (the “Bond Law”). 5. The Bonds will be payable from Installment Payments made under this Agreement. AGREEMENT: In consideration of the foregoing and the material covenants hereinafter contained, the District and the Authority formally covenant, agree and bind themselves as follows: ARTICLE I DEFINITIONS; RULES OF INTERPRETATION Section 1.1. Definitions. Unless the context clearly otherwise requires or unless otherwise defined herein, the capitalized terms in this Agreement have the respective meanings given them in Article I of the Indenture. 2 3394471.5 043520 AGMT Section 1.2. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and do not affect the meaning, construction or effect hereof. (c) All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement; the words “herein,” “hereof,” “hereby,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof. ARTICLE II REPRESENTATIONS, COVENANTS AND WARRANTIES Section 2.1. Representations, Covenants and Warranties of the District. The District represents, covenants and warrants to the Authority and the Trustee as follows: (a) Due Organization and Existence. The District is a water, recycled water, and sewer service provider duly organized and validly existing under the laws of the State of California, has full legal right, power and authority under said laws to enter into this Agreement and to carry out and consummate all transactions contemplated hereby and thereby, and by proper action the Board of Directors of the District has duly authorized the execution and delivery of this Agreement. (b) Due Execution. The officers of the District executing this Agreement are fully authorized to execute the same. (c) Valid, Binding and Enforceable Obligations. This Agreement has been duly authorized, executed and delivered by the District and constitutes the legal, valid and binding agreement of the District enforceable against the District in accordance with its terms; except as the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted and except as such enforceability may be subject to the exercise of judicial discretion in accordance with principles of equity. (d) No Conflicts. The execution and delivery of this Agreement, the consummation of the transactions herein contemplated and the fulfillment of or compliance with the terms and conditions hereof, do not and will not conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both) under any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any indenture, mortgage, deed of trust, lease, contract or other agreement or instrument to which the District is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any 3 3394471.5 043520 AGMT prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the District, which conflict, violation, breach, default, lien, charge or encumbrance would have consequences that would materially adversely affect the consummation of the transactions contemplated by this Agreement or the financial condition, assets, properties or operations of the District, including but not limited to the performance of the District’s obligations under this Agreement. (e) Consents and Approvals. No consent or approval of any trustee or holder of any indebtedness of the District or of the voters of the District, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority is necessary in connection with the execution and delivery of the Indenture, or the consummation of any transaction herein contemplated, except as have been obtained or made and as are in full force and effect. (f) No Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other governmental authority pending or, to the knowledge of the District after reasonable investigation, threatened against or affecting the District or the assets, properties or operations of the District which, if determined adversely to the District or its interests, would have a material and adverse effect upon the consummation of the transactions contemplated by or the validity of the Indenture, or upon the financial condition, assets, properties or operations of the District, and the District is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority, which default might have consequences that would materially adversely affect the consummation of the transactions contemplated by the Indenture, or the financial conditions, assets, properties or operations of the District, including but not limited to the payment and performance of the District’s obligations under the Indenture. (g) Encumbrances. There are no easements, encumbrances or interests with respect to the Wastewater Operations or the Project that prohibit or materially impair the execution, delivery and performance of this Installment Sale Agreement or the acquisition or use of the Project or the use of the Wastewater Operations. (h) Senior Indebtedness. The District has not issued or incurred any obligations which are currently outstanding having any priority in payment out of the Gross Revenues or the Net Revenues over the payment of the Installment Payments as provided herein. Section 2.2. Representations, Covenants and Warranties of Authority. The Authority represents, covenants and warrants to the District and the Trustee as follows: (a) Due Organization and Existence. The Authority is a joint exercise of powers authority organized and existing under the laws of the State of California, and has power to enter into this Agreement and the Indenture and to perform the duties and obligations imposed on it hereunder and under the Indenture. The Board of Directors of 4 3394471.5 043520 AGMT the Authority has duly authorized the execution and delivery of this Agreement and the Indenture. (b) Due Execution. The representatives of the Authority executing this Agreement and the Indenture are fully authorized to execute the same. (c) Valid, Binding and Enforceable Obligations. This Agreement and the Indenture have been duly authorized, executed and delivered by the Authority and constitute the legal, valid and binding agreements of the Authority with the Authority, enforceable against the Authority in accordance with their respective terms; except as the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted and except as such enforceability may be subject to the exercise of judicial discretion in accordance with principles of equity. ARTICLE III ISSUANCE OF BONDS Section 3.1. The Bonds. The Authority shall cause the Bonds to be issued under the Indenture in the aggregate principal amount of $[Principal Amount]. The Trustee shall deposit the proceeds of sale of the Bonds received by it on the Closing Date in accordance with the Indenture. The District hereby agrees to comply with the Indenture and approves the Indenture, the assignment thereunder to the Trustee of certain rights of the Authority, and the issuance of the Bonds. Section 3.2. Deposit and Application of Funds. The proceeds received by the Trustee from the sale of the Bonds to the Underwriter shall be deposited in the respective funds and accounts, and in the respective amounts, as set forth in Section 3.02 of the Indenture. Section 3.3. Acquisition of the Project. The Authority hereby agrees with due diligence to supervise and provide for, or cause to be supervised and provided for, the acquisition of the Project in accordance with all documents relating thereto and approved by the District under all applicable requirements of law. The failure of the Authority to complete the Project by that date does not constitute an Event of Default hereunder or a grounds for termination hereof, nor does any such failure result in the diminution, abatement or extinguishment of the obligations of the District hereunder to pay the Installment Payments when due hereunder. Section 3.4. Appointment of District as Agent. The Authority hereby appoints the District as its agent to carry out all phases of the acquisition of the Project under and in accordance with the provisions hereof. The District hereby accepts such appointment and assumes all rights, liabilities, duties and responsibilities of the Authority regarding the acquisition of the Project. As agent of the Authority hereunder, the District shall enter into, administer and enforce all purchase orders or other contracts relating to the Project. Payment of Project Costs shall be made by the District from amounts held by the District in the Project Fund in accordance with this Agreement and the Indenture. 5 3394471.5 043520 AGMT ARTICLE IV SALE OF PROJECT; INSTALLMENT PAYMENTS Section 4.1. Sale of Project. The Authority hereby sells, bargains and conveys the Project to the District, and the District hereby purchases the Project from the Authority, upon the terms and conditions set forth in this Agreement. The Authority and the District are entering into this Agreement in order to finance the facilities and improvements included in the Project. Section 4.2. Term. The Term of this Agreement commences on the Closing Date, and ends on ____________, or such later or earlier date on which the Bonds cease to be Outstanding under and within the meaning of the Indenture. Section 4.3. Title. Title to the Project shall be deemed conveyed by the Authority to and vested in the District on the Closing Date. The Authority and the District will execute, deliver and cause to be recorded any and all documents reasonably required by the District to consummate the transfer of title to the Project to the District. Such title shall be held by the District in trust pending the satisfaction of the payment obligations under this Agreement. Section 4.4. Installment Payments. (a) Obligation to Pay. The District hereby agrees to pay to the Authority, as the purchase price of the Project hereunder, the aggregate principal amount of $[Principal Amount] together with interest (calculated on the basis of a 360-day year of twelve 30-day months) on the unpaid principal balance thereof, payable in semiannual installment payments in the respective amounts and on the respective Installment Payment Dates specified in Appendix A hereto. The District shall deposit the Installment Payment coming due and payable on any Interest Payment Date with the Trustee, as assignee of the Authority under the Indenture, on the related Installment Payment Date (as set forth in Appendix A hereto) in an amount which, together with amounts then held by the Trustee in the Bond Fund, is equal to the full amount of such Installment Payment. The Installment Payments are secured by and payable solely from the sources specified in Section 4.5. (b) Effect of Prepayment. If the District prepays all remaining Installment Payments in full under Section 7.2, or under the relevant provisions of any Supplemental Agreement, the District’s obligations under this Agreement shall thereupon cease and terminate, including but not limited to the District’s obligation to pay Installment Payments therefor under this Section 4.4; provided, however, that the District’s obligations to compensate and indemnify the Trustee under Sections 4.7 and 5.2 will survive such prepayment. If the District prepays the Installment Payments in part but not in whole under Section 7.2, or under the relevant provisions of any Supplemental Agreement, the principal component of each succeeding Installment Payment will be reduced as provided in such Sections or in such Supplemental Agreement, and the interest component of each remaining Installment Payment will be reduced by the aggregate corresponding amount of interest which would otherwise be payable with respect to the Bonds 6 3394471.5 043520 AGMT thereby redeemed under the applicable provisions of the Indenture and the District shall provide the Trustee with a revised schedule of Installment Payments. (c) Rate on Overdue Payments. If the District fails to make any of the payments required in this Section 4.4 and Section 4.7, the payment in default will continue as an obligation of the District until fully paid, and the District agrees to pay the same with interest thereon, from the date of default to the date of payment, at the Overdue Rate. (d) Assignment. The District understands and agrees that certain rights of the Authority, including but not limited to the right of the Authority to receive payment of the Installment Payments, have been assigned by the Authority to the Trustee in trust under the Indenture, for the benefit of the Owners of the Bonds, and the District hereby consents to such assignment. The Authority hereby directs the District, and the District hereby agrees, to pay to the Trustee at its Trust Office, all payments payable by the District under this Section 4.4 and all amounts payable by the District under Article VII. Section 4.5. Pledge and Application of Net Revenues. (a) Pledge of Net Revenues. The District hereby grants a first priority lien and security interest in the Net Revenues in order to secure payment of the Installment Payments to the Trustee (as assignee of the Authority under the Indenture). All of the Net Revenues and all moneys on deposit in any of the funds and accounts established and held by the Trustee under the Indenture are hereby irrevocably pledged, charged and assigned to the punctual payment of the Installment Payments. Such pledge, charge and assignment constitute a lien and security interest on the Net Revenues and such other moneys for the payment of the Installment Payments in accordance with the terms hereof, on a parity with the pledge and lien which secures any Parity Obligations. (b) Deposit of Gross Revenues into Wastewater Revenue Fund; Transfers to Make Payments. The District hereby establishes the Wastewater Revenue Fund, which the District will hold and maintain for the purposes and uses set forth herein. The District shall deposit all of the Gross Revenues in the Wastewater Revenue Fund immediately upon receipt. The District shall apply amounts in the Wastewater Revenue Fund as set forth in this Agreement and any Parity Obligations Documents. Amounts on deposit in the Wastewater Revenue Fund shall be applied by the District to pay when due the following amounts in the following order of priority: (i) all Operation and Maintenance Costs; (ii) the Installment Payments and all payments of principal of and interest on any Parity Obligations; (iii) any other payments required to comply with the provisions of this Agreement (including Additional Payments) and any Parity Obligations Documents; and (iv) any other purposes authorized under subsection (d) of this Section 4.5. 7 3394471.5 043520 AGMT (c) No Preference or Priority. Payment of the Installment Payments and the principal of and interest on any Parity Obligations shall be made without preference or priority among the Installment Payments and such Parity Obligations. If the amount of Net Revenues on deposit in the Wastewater Revenue Fund is any time insufficient to enable the District to pay when due the Installment Payments and the principal of and interest on any Parity Obligations, such payments shall be made on a pro rata basis. (d) Other Uses of Gross Revenues Permitted. The District shall manage, conserve and apply the Gross Revenues on deposit in the Wastewater Revenue Fund in such a manner that all deposits required to be made under the preceding subsection (b) will be made at the times and in the amounts so required. Subject to the foregoing sentence, so long as no Event of Default has occurred and is continuing, the District may use and apply moneys in the Wastewater Revenue Fund for (i) the payment of any subordinate obligations or any unsecured obligations, (ii) the acquisition and construction of improvements to the Wastewater Operations, (iii) the prepayment of any other obligations of the District relating to the Wastewater Operations, or (iv) any other lawful purposes of the District. Section 4.6. Special Obligation of the District; Obligations Absolute. The District’s obligation to pay the Installment Payments and any other amounts coming due and payable hereunder is a special obligation of the District limited solely to the Net Revenues. Under no circumstances is the District required to advance moneys derived from any source of income other than the Net Revenues and other sources specifically identified herein for the payment of the Installment Payments and such other amounts. No other funds or property of the District are liable for the payment of the Installment Payments and any other amounts coming due and payable hereunder. The obligations of the District to pay the Installment Payments from the Net Revenues and to perform and observe the other agreements contained herein are absolute and unconditional and are not subject to any defense or any right of set-off, counterclaim or recoupment arising out of any breach by the Authority or the Trustee of any obligation to the District or otherwise with respect to the Wastewater Operations, whether hereunder or otherwise, or out of indebtedness or liability at any time owing to the District by the Authority or the Trustee. Until all of the Installment Payments, all of the Additional Payments and all other amounts coming due and payable hereunder are fully paid or prepaid, the District (a) will not suspend or discontinue payment of any Installment Payments, Additional Payments or such other amounts, (b) will perform and observe all other agreements contained in this Agreement, and (c) will not terminate this Agreement for any cause, including, without limiting the generality of the foregoing, the occurrence of any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, destruction of or damage to the Wastewater Operations, sale of the Wastewater Operations, the taking by eminent domain of title to or temporary use of any component of the Wastewater Operations, commercial frustration of purpose, any change in the tax or other laws of the 8 3394471.5 043520 AGMT United States of America or the State of California or any political subdivision of either thereof, or any failure of the Authority or the Trustee to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Indenture or this Agreement. The foregoing provisions of this Section 4.6 do not release the Authority from the performance of any of the agreements on its part contained herein or in the Indenture, and if the Authority fails to perform any such agreements, the District may institute such action against the Authority as the District deems necessary to compel performance, so long as such action does not abrogate the obligations of the District contained in the preceding paragraph. The District may, however, at its cost and expense and in its name or in the name of the Authority, prosecute or defend any action or proceeding or take any other action involving third persons which the District deems reasonably necessary in order to secure or protect the District’s rights hereunder, and in such event the Authority shall cooperate fully with the District and shall take such action necessary to effect the substitution of the District for the Authority in such action or proceeding if the District may request. Section 4.7. Additional Payments. In addition to the Installment Payments, the District shall pay when due the following amounts to the following parties: (a) to the Authority, all costs and expenses incurred by the Authority to comply with the provisions of this Agreement and the Indenture; (b) to the Trustee upon request therefor, all of its fees, costs and expenses payable as a result of the performance of and compliance with its duties hereunder or under the Indenture or any related documents; (c) to the Trustee, all amounts required to indemnify the Authority and the Trustee under Section 5.2 hereof and Section 8.07 of the Indenture; (d) all costs and expenses of auditors, engineers and accountants for professional services relating to the Wastewater Operations or the Bonds; and (e) to the Authority, the payments due under Section 8.12(a). The Additional Payments shall be payable from, but shall not be secured by a pledge or lien upon, the Net Revenues. The rights of the Trustee and the Authority under this Section 4.7, and the obligations of the District under this Section 4.7, shall survive the termination of this Agreement, and with regard to the Trustee, the resignation or removal of the Trustee. Section 4.8. Rate Stabilization Fund. The District has the right at any time to establish a fund to be held by it and administered in accordance with this section, to be known as the “Rate Stabilization Fund,” for the purpose of stabilizing the rates and charges imposed by the District with respect to the Wastewater Operations. 9 3394471.5 043520 AGMT From time to time the District may deposit amounts in the Rate Stabilization Fund from any source of legally available funds, including but not limited to Net Revenues which are released from the pledge and lien which secures the Bonds and any Parity Obligations, as the District may determine. The District may, but is not required to, withdraw from any amounts on deposit in a Rate Stabilization Fund and deposit such amounts in the Wastewater Revenue Fund in any Fiscal Year for the purpose of paying Annual Debt Service coming due and payable in such Fiscal Year. Amounts so transferred from a Rate Stabilization Fund to the Wastewater Revenue Fund will constitute Gross Revenues for such Fiscal Year (except as otherwise provided in the Indenture), and will be applied for the purposes of the Wastewater Revenue Fund. Amounts on deposit in a Rate Stabilization Fund will not be pledged to or otherwise secure the Bonds or any Parity Debt. All interest or other earnings on deposits in a Rate Stabilization Fund will be withdrawn therefrom at least annually and accounted for as Gross Revenues in the Wastewater Revenue Fund. The District has the right at any time to withdraw any or all amounts on deposit in a Rate Stabilization Fund and apply such amounts for any lawful purposes of the District. The District does not currently maintain funds in a Rate Stabilization Fund. ARTICLE V COVENANTS OF THE DISTRICT Section 5.1. Disclaimer of Warranties., Maintenance, Utilities and Taxes. (a) The District makes no warranty or representation, either express or implied, as to the value, design, condition, merchantability or fitness for any particular purpose or fitness for the use contemplated by the District of the Project or any component thereof, or any other representation or warranty with respect to the Project or any component thereof. In no event is the Authority liable for incidental, indirect, special or consequential damages, in connection with or arising out of this Agreement or the Indenture for the existence, furnishing, functioning or use of the Project. (b) Throughout the Term of this Agreement, all improvement, repair and maintenance of the Wastewater Operations shall be the responsibility of the District, and the District shall pay for or otherwise, arrange for the payment of all utility services supplied to the Wastewater Operations, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, water and all other utility services, and shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Wastewater Operations resulting from ordinary wear and tear. The District shall also pay or cause to be paid all taxes and assessments of any type or nature, if any, charged to the Authority or the District affecting the Wastewater Operations or the respective interests or estates therein; provided, however, that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, 10 3394471.5 043520 AGMT the District shall be obligated to pay only such installments as are required to be paid during the Term of this Agreement as and when the same become due. Section 5.2. Release and Indemnification Covenants. The District agrees to indemnify the Trustee and its respective officers, directors, employees, agents, successors and assigns, against all costs, claims, losses, liabilities, penalties, fines and damages, including legal fees and expenses, arising out of (a) the use, maintenance, condition or management of, or from any work or thing done on or about the Wastewater Operations by the District, (b) any breach or default on the part of the District in the performance of any of its obligations under this Agreement or the Indenture, (c) any act or omission of the District or of any of its agents, contractors, servants, employees or licensees with respect to the Wastewater Operations, (d) any act or omission of any lessee of the District with respect to the Wastewater Operations, and (e) the acceptance or administration of the Indenture and the trusts thereunder, including the costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers hereunder or under the Indenture. No indemnification is made under this Section 5.2 or elsewhere in this Agreement for willful misconduct under this Agreement by the Authority, or the Trustee, or their respective officers, agents, employees, successors or assigns. The provisions of this Section 5.2 shall survive the expiration of the Term of this Agreement and the earlier removal or resignation of the Trustee. Section 5.3. Sale or Eminent Domain of Wastewater Operations. Except as provided herein, the District covenants that the Wastewater Operations shall not be encumbered, sold, leased, pledged, have any charge placed thereon, or otherwise be disposed of, as a whole or substantially as a whole, if such encumbrance, sale, lease, pledge, charge or other disposition would materially impair the ability of the District to pay the Installment Payments or the principal of or interest on any Parity Obligations, or would materially adversely affect its ability to comply with the terms of this Agreement or any Parity Obligations Documents. The District may not enter into any agreement which impairs the operation of the Wastewater Operations or any part of it necessary to secure adequate Net Revenues to pay the Installment Payments or any Parity Obligations, or which otherwise would impair the rights of the Bond Owners or the Trustee with respect to the Net Revenues. If any substantial part of the Wastewater Operations is sold, the payment therefor shall be used for the acquisition or construction of improvements to the Wastewater Operations [or the redemption of all outstanding Bonds and Parity Obligations pursuant to Article 4 of the Indenture]. 11 3394471.5 043520 AGMT [Notwithstanding anything to the contrary provided herein, the District shall be permitted to convey its Wastewater Operations to San Diego County so long as the Bonds are redeemed in full pursuant to Article 4 of the Indenture on or prior to such conveyance.] Any amounts received as awards as a result of the taking of all or any part of the Wastewater Operations by the lawful exercise of eminent domain, if and to the extent that such right can be exercised against such property of the District, shall be used for the acquisition or construction of improvements to the Wastewater Operations. Section 5.4. Insurance. The District shall at all times maintain with responsible insurers all such insurance on the Wastewater Operations as is customarily maintained with respect to works and properties of like character against accident to, loss of or damage to the Wastewater Operations. The District shall apply any amounts collected from insurance against accident to or destruction of any portion of the Wastewater Operations to repair or rebuild such damaged or destroyed portion of the Wastewater Operations. The District shall also maintain, with responsible insurers, worker’s compensation insurance and insurance against public liability and property damage to the extent reasonably necessary to protect the District, the Authority, the Trustee and the Owners of the Bonds. Any policy of insurance required under this Section 5.4 may be maintained as part of or in conjunction with any other insurance coverage carried by the District, and may be maintained in whole or in part in the form of self-insurance by the District or in the form of the participation by the District in a joint powers agency or other program providing pooled insurance. Section 5.5. Records and Accounts. The District shall keep proper books of record and accounts of the Wastewater Operations in which complete and correct entries shall be made of all transactions relating to the Wastewater Operations. Said books shall, upon prior request, be subject to the reasonable inspection of the Owners of not less than 10% of the Outstanding Bonds, or their representatives authorized in writing, upon not less than 2 Business Days’ prior notice to the District. The District shall cause the books and accounts of the Wastewater Operations to be audited annually by an Independent Accountant not more than 9 months after the close of each Fiscal Year, and shall make a copy of such report available for inspection by the Bond Owners at the office of the District. Such report may be part of a combined financial audit or report covering all or part of the District’s finances. The Trustee shall not be deemed to have notice of any information contained therein or default or Event of Default which may be disclosed therein in any manner. Section 5.6. Rates and Charges. (a) Covenant Regarding Gross Revenues. The District shall fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Wastewater Operations during each Fiscal Year, which are at least sufficient, after making allowances for 12 3394471.5 043520 AGMT contingencies and error in the estimates, to yield Gross Revenues sufficient to pay the following amounts in the following order of priority: (i) All Operation and Maintenance Costs estimated by the District to become due and payable in such Fiscal Year. (ii) All Installment Payments and all payments of principal of and interest on any Parity Obligations as they become due and payable during such Fiscal Year, without preference or priority, except to the extent such Installment Payments or the principal of and interest on such Parity Obligations are payable from the proceeds of the Bonds or such Parity Obligations, as applicable, or from any source of legally available funds of the District (other than the Gross Revenues of the Wastewater Operations) that have been deposited with the Trustee for such purpose before the beginning of that Fiscal Year. (iii) All payments required to meet any other obligations of the District which are charges, liens, encumbrances upon, or which are otherwise payable from, the Gross Revenues or the Net Revenues during such Fiscal Year, except to the extent other sources of funds are reserved or encumbered therefore. (b) Covenant Regarding Net Revenues. In addition, the District shall fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Wastewater Operations during each Fiscal Year that are sufficient, after making allowances for contingencies and errors in estimates, to yield Net Revenues that are at least equal to [115]% of the amount described in the preceding clauses (a)(ii) and (iii) for such Fiscal Year. Section 5.7. Superior and Subordinate Obligations. The District may not issue or incur any additional bonds or other obligations during the Term of this Agreement having any priority in payment of principal or interest out of the Gross Revenues or the Net Revenues over the Installment Payments. Nothing herein is intended or shall be construed to limit or affect the ability of the District to issue, enter into or incur (a) Parity Obligations under Section 5.8, or (b) obligations that are either unsecured or that are secured by an interest in the Net Revenues which is junior and subordinate to the pledge of and lien upon the Net Revenues established hereunder. Section 5.8. Issuance of Parity Obligations. Except for obligations incurred to prepay or discharge the Installment Payments or any Parity Obligations, the District may not issue or incur any Parity Obligations during the Term hereof unless all of the following conditions are satisfied: (a) No Event of Default has occurred and is continuing. 13 3394471.5 043520 AGMT (b) The amount of Net Revenues, excluding connection fees and transfers from the Rate Stabilization Fund, as shown by the books of the District for the most recent completed Fiscal Year for which audited financial statements of the District are available or for any more recent consecutive 12-month period selected by the District, or shown in the audited financial statements of the District, plus at the option of the District any Additional Revenues, are at least equal to [115]% of the amount of Maximum Annual Debt Service coming due and payable in the current or any future Fiscal Year with respect to the Bonds and all Parity Obligations then outstanding (including the Parity Obligations then proposed to be issued). If the Parity Obligations are being issued solely to refund outstanding Parity Obligations, and the resulting Annual Debt Service for each Fiscal Year is less than the Annual Debt Service for each Fiscal Year prior to the issuance of the refunding Parity Obligations, the District need not comply with the provisions of paragraphs (a) and (b) above. The Parity Obligations may be, but are not required to be, in the form of Supplemental Agreements, and may, but are not required to, secure the payment of debt service on Bonds. Section 5.9. Governmental Loans. (a) The District may borrow money from a Governmental Agency and incur a Governmental Loan to finance improvements to the Wastewater Operations. A Governmental Loan may be treated as a Parity Obligation for purposes of this Agreement, so long as the District complies with Sections 5.8(a) and (b) of this Agreement before incurring the Governmental Loan. (b) (i) the District shall not make a payment on any Governmental Loan (except as expressly permitted in subsection (c) below) to the extent it would have the effect of causing the District to fail to make a timely payment on the Bonds. (c) If Net Revenues are ever insufficient to pay the full amount of Installment Payments and other Parity Obligations then Outstanding and such Governmental Loan, the District shall make payments on the Installment Payments and other Parity Obligations and such Governmental Loan on a pro rata basis. Section 5.10. Operation of Wastewater Operations in Efficient and Economical Manner. The District covenants and agrees to operate the Wastewater Operations in an efficient and economical manner and to operate, maintain and preserve the Wastewater Operations in good repair and working order. Section 5.11. Assignment and Amendment. The Authority and the District may at any time amend or modify any of the provisions of this Agreement, but only: (a) with the prior written consent of the Owners of a majority in aggregate principal amount of the Outstanding Bonds, or (b) without the consent of the Trustee or any of the Bond Owners, but only if such amendment or modification is for any one or more of the following purposes: (i) to add to the covenants and agreements of the District contained in this Agreement, other covenants and agreements thereafter to be observed, or to 14 3394471.5 043520 AGMT limit or surrender any rights or power herein reserved to or conferred upon the District; (ii) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein, to conform to the original intention of the District and the Authority; (iii) to modify, amend or supplement this Agreement in such manner as to assure that the interest on the Bonds remains excluded from gross income under the Tax Code (provided that this provision shall not apply to bonds the interest on which is intended to be included in gross income for purposes of federal income taxation); (iv) in any other respect whatsoever as the Authority and the District deem necessary or desirable, if in the opinion of Bond Counsel such modifications or amendments do not materially adversely affect the interests of the Owners of the Bonds; and (v) to provide for the issuance of Parity Obligations pursuant to Section 5.8 hereof. No such modification or amendment may (a) extend or have the effect of extending any Installment Payment Date or reducing any Installment Payment or any premium payable upon the prepayment thereof, without the express consent of the Owners of the affected Bonds, or (b) modify any of the rights or obligations of the Trustee without its written assent thereto. Section 5.12. Continuing Disclosure. The District hereby covenants and agrees to comply with and carry out all of the provisions of the continuing disclosure agreement (the “Continuing Disclosure Agreement”) as originally executed as of the date of issuance and delivery of the Bonds, and as it may be amended from time to time in accordance with its terms. Notwithstanding any other provision of this Agreement, failure by the District to comply with the Continuing Disclosure Agreement shall not constitute a default hereunder or under the Indenture of Trust; provided, however, that any Participating Underwriter or any Owner or beneficial owner of the Bonds may take such action as may be necessary and appropriate to compel performance by the District of its obligations under this Section 5.12, including seeking mandamus or specific performance by court order. All capitalized terms used but not defined in this Section 5.12 shall have the meanings given in the Continuing Disclosure Agreement. ARTICLE VI EVENTS OF DEFAULT Section 6.1. Events of Default Defined. The following events constitute Events of Default hereunder: (a) Failure by the District to pay any Installment Payment when due and payable hereunder. 15 3394471.5 043520 AGMT (b) Failure by the District to pay any Additional Payment when due and payable hereunder, and the continuation of such failure for a period of 30 days. (c) Failure by the District to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in the preceding clauses (a) or (b), for a period of 60 days after written notice specifying such failure and requesting that it be remedied has been given to the District by the Authority or the Trustee; provided, however, that if the District notifies the Authority and the Trustee that in its reasonable opinion the failure stated in the notice can be corrected, but not within such 60-day period, such failure will not constitute an event of default hereunder if the District commences to cure such failure within such 60 day period and thereafter diligently and in good faith cures the failure in a reasonable period of time not to exceed 180 days of the date of such written notice of failure. (d) The filing by the District of a voluntary petition in bankruptcy, or failure by the District promptly to lift any execution, garnishment or attachment, or adjudication of the District as a bankrupt, or assignment by the District for the benefit of creditors, or the entry by the District into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the District in any proceedings instituted under the provisions of the Federal Bankruptcy Code, as amended, or under any similar acts which may hereafter be enacted. (e) The occurrence of any event defined to be an event of default under any Parity Obligations Documents. Section 6.2. Remedies on Default. If an Event of Default occurs and is continuing, the Trustee as assignee of the Authority and subject to its rights and protections under the Indenture has the right, at its option and without any further demand or notice, to take any one or more of the following actions: (a) Declare all principal components of the unpaid Installment Payments, together with accrued interest thereon at the Overdue Rate from the immediately preceding Interest Payment Date on which payment was made, to be immediately due and payable, whereupon the same shall immediately become due and payable. Notwithstanding the foregoing provisions of this subsection (a), the Trustee shall rescind and annul such declaration and its consequences if, before any judgment or decree for the payment of the moneys due has been obtained or entered, if (i) the District deposits with the Trustee a sum sufficient to pay all principal components of the Installment Payments coming due prior to such declaration and all matured interest components (if any) of the Installment Payments, with interest on such overdue principal and interest components calculated at the Overdue Rate, and (ii) the District pays the reasonable expenses of the Trustee (including any fees and expenses of its attorneys), and (iii) any and all other defaults actually known to the Trustee (other than in the payment of the principal and interest components of the Installment Payments due and payable solely by reason of such declaration) have been made good. No such rescission 16 3394471.5 043520 AGMT and annulment will extend to or shall affect any subsequent default, or impair or exhaust any right or power consequent thereon. (b) Take whatever action at law or in equity may appear necessary or desirable to collect the Installment Payments then due or thereafter to become due during the Term of this Agreement, or enforce performance and observance of any obligation, agreement or covenant of the District under this Agreement. (c) As a matter of right, in connection with the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and the Bond Owners hereunder, cause the appointment of a receiver or receivers of the Gross Revenues and other amounts pledged hereunder, with such powers as the court making such appointment may confer. Section 6.3. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Authority is intended to be exclusive. Every such remedy is cumulative and in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default impairs any such right or power or operates as a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority to exercise any remedy reserved to it in this Article VI, it is not necessary to give any notice, other than such notice as may be required in this Article VI or by law. Section 6.4. Agreement to Pay Attorneys’ Fees and Expenses. If either party to this Agreement defaults under any of the provisions hereof and the nondefaulting party, the Trustee or the Owner of any Bonds employs attorneys or incurs other expenses for the collection of moneys or the enforcement or performance or observance of any obligation or agreement on the part of the defaulting party herein contained, the defaulting party agrees that it wilt on demand therefor pay to the nondefaulting party, the Trustee or such Owner, as the case may be, the reasonable fees and expenses of such attorneys and such other expenses so incurred. The provisions of this Section 6.4 survive the expiration of the Term of this Agreement and the resignation or removal of the Trustee. Section 6.5. No Additional Waiver Implied by One Waiver. If any agreement contained in this Agreement is breached by either party and thereafter waived by the other party, such waiver is limited to the particular breach so waived and does not waive any other breach hereunder. Section 6.6. Trustee and Bond Owners to Exercise Rights. Such rights and remedies as are given to the Authority under this Article VI have been assigned by the Authority to the Trustee under the Indenture, to which assignment the District hereby consents. Such rights and remedies shall be exercised by the Trustee and the Owners of the Bonds as provided in the Indenture. 17 3394471.5 043520 AGMT ARTICLE VII PREPAYMENT OF INSTALLMENT PAYMENTS Section 7.1. Security Deposit. Notwithstanding any other provision hereof, the District may on any date secure the payment of Installment Payments, in whole or in part, by irrevocably depositing with the Trustee an amount of cash which, together with other available amounts, is either: (a) sufficient to pay all such Installment Payments, including the principal and interest components thereof, when due under Section 4.4(a), or (b) invested in whole or in part in non-callable Federal Securities in such amount as will, in the opinion of an Independent Accountant (which opinion is addressed and delivered to the Trustee), together with interest to accrue thereon and together with any cash which is so deposited, be fully sufficient to pay all such Installment Payments when due under Section 4.4(a) or when due on any optional prepayment date under Section 7.2, as the District instructs at the time of said deposit. If the District makes a security deposit under this Section for the payment of all remaining Installment Payments, all obligations of the District hereunder, and the pledge of Net Revenues and all other security provided by this Agreement for said obligations, will thereupon cease and terminate, excepting only the obligation of the District to make, or cause to be made, all Installment Payments from the security deposit. The security deposit will be deemed to be and will constitute a special fund for the payment of the Installment Payments in accordance with the provisions hereof. Section 7.2. Optional Prepayment Relating to the Bonds. The District may exercise its option to prepay the principal components of the Installment Payments relating to the Bonds in whole or in part on any date on or after October 1, 2025. The District may exercise such option by payment of a prepayment price equal to the sum of: (a) the aggregate principal components of the Installment Payments relating to the Bonds to be prepaid, (b) the interest component of the Installment Payment relating to the Bonds required to be paid on or accrued to such date, and (c) the premium (if any) then required to be paid upon the corresponding redemption of the Bonds under Section 4.01(a) of the Indenture. The Trustee shall deposit the prepayment price in the Redemption Fund to be applied to the redemption of Bonds under Section 4.01(a) of the Indenture. If the District prepays the Installment Payments in part but not in whole, the principal components will be prepaid among such maturities and in such integral multiples of $5,000 as the District designates in written notice to the Trustee. 18 3394471.5 043520 AGMT Section 7.3. Credit for Amounts on Deposit. If the District prepays the Installment Payments in full under this Article VII, such that the Indenture is discharged by its terms as a result of the prepayment, and upon payment in full of all Additional Payments and other amounts then due and payable hereunder, all available amounts then on deposit in the funds and accounts established under the Indenture shall be credited towards the amounts then required to be so prepaid. ARTICLE VIII MISCELLANEOUS Section 8.1. Further Assurances. The District agrees that it will execute and deliver and file any and all such further agreements, instruments, financing statements or other assurances as may be reasonably necessary or requested by the Authority or the Trustee to carry out the intention or to facilitate the performance of this Agreement, including, without limitation, to perfect and continue the security interests herein intended to be created. Section 8.2. Notices. Any notice, request, complaint, demand or other communication under this Agreement must be given by first class mail, e-mail, facsimile transmission, overnight mail or personal delivery to the party entitled thereto at its address set forth below, or by telecopier or other form of telecommunication, at its number set forth below. Notice is effective either (a) upon transmission by fax or other form of telecommunication (including e-mail), (b) upon actual receipt after deposit in the United States of America mail, postage prepaid, or (c) in the case of personal delivery to any person or overnight mail, upon actual receipt; provided, however that notice to the Trustee shall be deemed given only upon receipt by it. The Authority, the District and the Trustee may, by written notice to the other parties, from time to time modify the address or number to which communications are to be given hereunder. If to the Authority: Otay Water District Financing Authority [ADDRESS] Attn:_________________ E-mail: [________] If to the District: Otay Water District 2554 Sweetwater Springs Blvd. Spring Valley, CA 91978-2004 Attn:________________ E-mail: [________] 19 3394471.5 043520 AGMT If to the Trustee: MUFG Union Bank, N.A. Attention: Corporate Trust Department 445 South Figueroa Street, Suite 401 Los Angeles, California 90071 Fax: 213-972-5694 Email: LACT@unionbank.com If the District or the Authority elects to give the Trustee Instructions using Electronic Means and the Trustee in its reasonable judgment elects to act upon such Instructions, the Trustee’s understanding of such Instructions shall be deemed controlling. The District and the Authority understands and agrees that the Trustee cannot determine the identity of the actual sender of such Instructions and that the Trustee shall conclusively presume that directions that purport to have been sent by an Authorized Officer listed on the incumbency certificate provided to the Trustee have been sent by such Authorized Officer. The District and the Authority shall be responsible for ensuring that only Authorized Officers transmit such Instructions to the Trustee and that the District or the Authority and all Authorized Officers are solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt by the District or the Authority. The Trustee shall not be liable for any losses, costs, claims or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Instructions notwithstanding such directions conflict or are inconsistent with a subsequent written instruction. The District and the Authority agrees: (i) to assume all risks arising out of the use of Electronic Means to submit Instructions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Instructions, and the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to the Trustee and that there may be more secure methods of transmitting Instructions than the method(s) selected by the District or the Authority; (iii) that the security procedures (if any) to be followed in connection with its transmission of Instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances; and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures. Section 8.3. Governing Law. This Agreement will be construed in accordance with and governed by the laws of the State of California. Section 8.4. Binding Effect. This Agreement inures to the benefit of and is binding upon the Authority and the District and their respective successors and assigns, subject, however, to the limitations contained herein. Section 8.5. Severability of Invalid Provisions. If any one or more of the provisions contained in this Agreement are for any reason held to be invalid, illegal or unenforceable in any respect, then such provision or provisions will be deemed severable from the remaining provisions contained in this Agreement and such invalidity, illegality or unenforceability will not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The Authority and the District each hereby declares that it would have entered into this Agreement and each and every other Section, paragraph, sentence, clause or phrase hereof irrespective of the fact that any 20 3394471.5 043520 AGMT one or more Sections, paragraphs, sentences, clauses or phrases of this Agreement may be held illegal, invalid or unenforceable. Section 8.6. Article and Section Headings and References. The headings or titles of the several Articles and Sections hereof, and any table of contents appended to copies hereof, are solely for convenience of reference and do not affect the meaning, construction or effect of this Agreement. All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement; the words “herein,” “hereof,” “hereby,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof; and words of the masculine gender mean and include words of the feminine and neuter genders. Section 8.7. Payment on Non-Business Days. Whenever any payment is required to be made hereunder on a day which is not a Business Day, such payment shall be made on the immediate preceding Business Day. Section 8.8. Execution of Counterparts. This Agreement may be executed in any number of counterparts, each of which will for all purposes be deemed to be an original and all of which together constitute but one and the same instrument. Section 8.9. Waiver of Personal Liability. No member of the Board of Directors, officer, agent or employee of the District has any individual or personal liability for the payment of Installment Payments or Additional Payments or be subject to any personal liability or accountability by reason of this Agreement; but nothing herein contained relieves any such member of the Board of Supervisors, officer, agent or employee from the performance of any official duty provided by law or by this Agreement. Section 8.10. Trustee as Third Party Beneficiary. The Trustee is hereby made a third party beneficiary hereof and is entitled to the benefits of this Agreement with the same force and effect as if the Trustee were a party hereto. Section 8.11. Authority Provisions. (a) Additional Payments. In addition to the Installment Payments, the District shall also pay to the Authority, the following: (i) The reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the Authority to prepare audits, financial statements, reports, opinions or provide such other services required under this Agreement or the Indenture; and (ii) The reasonable fees and expenses of the Authority or any agent or attorney selected by the Authority to act on its behalf in connection with this Agreement, the Bonds or the Indenture, including, without limitation, any and all reasonable expenses incurred in connection with the authorization, issuance, sale and delivery of any such Bonds or in connection with any litigation, investigation, inquiry or other proceeding which may at any time be instituted involving this Agreement, the Bonds or 21 3394471.5 043520 AGMT the Indenture or any of the other documents contemplated thereby, or in connection with the reasonable supervision or inspection of the District, its properties, assets or operations or otherwise in connection with the administration of this Agreement, the Bonds or the Indenture. Such Additional Payments shall be billed to the District by the Authority from time to time, together with a statement certifying that the amount billed has been incurred or paid by the Authority for one or more of the above items. After such a demand, amounts so billed shall be paid by the District within thirty (30) days after receipt of the bill by the District. (b) Non-Liability of Authority. The Authority shall not be obligated to pay the principal (or redemption price) of or interest on the Bonds, except from Revenues and other moneys and assets received by the Trustee pursuant to this Agreement. Neither the faith and credit nor the taxing power of the State or any political subdivision thereof, nor the faith and credit of the Authority is pledged to the payment of the principal (or redemption price) of or interest on the Bonds. The Authority shall not be liable for any costs, expenses, losses, damages, claims or actions, of any conceivable kind on any conceivable theory, under or by reason of or in connection with this Agreement, the Bonds or the Indenture, except only to the extent amounts are received for the payment thereof from the District under this Agreement. The District hereby acknowledges that the Authority’s sole source of moneys to repay the Bonds (whether by maturity, redemption, acceleration or otherwise) will be provided by the payments made by the District to the Trustee pursuant to this Agreement, together with amounts on deposit in and investment income on certain funds and accounts held by the Trustee under the Indenture, and hereby agrees that if the payments to be made hereunder shall ever prove insufficient to pay all principal (or redemption price) of and interest on the Bonds as the same shall become due (whether by maturity, redemption, acceleration or otherwise), then upon notice from the Trustee, the District shall pay such amounts as are required from time to time to prevent any deficiency or default in the payment of such principal (or redemption price) or interest, including, but not limited to, any deficiency caused by acts, omissions, nonfeasance or malfeasance on the part of the Trustee, the District, the Authority or any third party, subject to any right of reimbursement from the Trustee, the Authority or any such third party, as the case may be, therefor. (c) Annual Reporting Covenant. No later than January 31 of each calendar year (commencing January 31, 2020), the District, on behalf of the Authority, agrees to provide to the California Debt and Investment Advisory Commission, by any method approved by the California Debt and Investment Advisory Commission, with a copy to the Authority, the annual report information required by Section 8855(k)(1) of the California Government Code. This covenant shall remain in effect until the later of the date (i) the Bonds are no longer Outstanding or (ii) the proceeds of the Bonds have been fully spent. (d) Expenses. The District covenants and agrees to pay and indemnify the Authority against all reasonable fees, costs and charges, including reasonable fees and expenses of attorneys, accountants, consultants and other experts, incurred in good faith (and with respect 22 3394471.5 043520 AGMT to the Trustee, without negligence) and arising out of or in connection with this Agreement, the Bonds or the Indenture. These obligations and those in Section 5.2 Release and Indemnification Covenants shall remain valid and in effect notwithstanding repayment of the loan hereunder or the Bonds or termination of this Agreement or the Indenture. (e) Indemnification. To the fullest extent permitted by law, the District agrees to indemnify, hold harmless and defend the Authority, and each of its respective officers, governing members, directors, officials, employees, attorneys and agents (collectively, the “Indemnified Parties”), against any and all losses, damages, claims, actions, liabilities, costs and expenses of any conceivable nature, kind or character (including, without limitation, reasonable attorneys’ fees, litigation and court costs, amounts paid in settlement and amounts paid to discharge judgments) to which the Indemnified Parties, or any of them, may become subject under any statutory law (including federal or state securities laws) or at common law or otherwise, arising out of or based upon or in any way relating to: (i) the Bonds, the Indenture, this Agreement or the Tax Agreement or the execution or amendment hereof or thereof or in connection with transactions contemplated hereby or thereby, including the issuance, sale or resale of the Bonds; (ii) any act or omission of the District or any of its agents, contractors, servants, employees, tenants or licensees in connection with the Project or the Wastewater Operations, the operation of the Project or the Wastewater Operations, or the condition, environmental or otherwise, occupancy, use, possession, conduct or management of work done in or about, or from the planning, design, acquisition, installation or construction of, the Project or the Wastewater Operations or any part thereof; (iii) any lien or charge upon payments by the District to the Authority and the Trustee hereunder, or any taxes (including, without limitation, all ad valorem taxes and sales taxes), assessments, impositions and other charges imposed on the Authority in respect of any portion of the Project or the Wastewater Operations; (iv) any violation of any Environmental Regulations with respect to, or the release of any Hazardous Substances from, the Project or the Wastewater Operations or any part thereof; (v) the defeasance and/or redemption, in whole or in part, of the Bonds; (vi) any untrue statement or misleading statement or alleged untrue statement or alleged misleading statement of a material fact contained in any offering or disclosure document or disclosure or continuing disclosure document for the Bonds or any of the documents relating to the Bonds, or any omission or alleged omission from any offering or disclosure document or disclosure or continuing disclosure document for the Bonds of any 23 3394471.5 043520 AGMT material fact necessary to be stated therein in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading; (vii) any declaration of taxability of interest on the Bonds, or allegations that interest on the Bonds is taxable or any regulatory audit or inquiry regarding whether interest on the Bonds is taxable; (viii) the Trustee’s acceptance or administration of the trust of the Indenture, or the exercise or performance of any of its powers or duties thereunder or under any of the documents relating to the Bonds to which it is a party; except in the case of the foregoing indemnification of the Authority or any of its officers, members, directors, officials, employees, attorneys and agents, to the extent such damages are caused by the willful misconduct of such Indemnified Party. In the event that any action or proceeding is brought against any Indemnified Party with respect to which indemnity may be sought hereunder, the District, upon written notice from the Indemnified Party, shall assume the investigation and defense thereof, including the employment of counsel selected by the Indemnified Party, and shall assume the payment of all expenses related thereto, with full power to litigate, compromise or settle the same in its sole discretion; provided that the Indemnified Party shall have the right to review and approve or disapprove any such compromise or settlement. Each Indemnified Party shall have the right to employ separate counsel in any such action or proceeding and participate in the investigation and defense thereof, and the District shall pay the reasonable fees and expenses of such separate counsel; provided, however, that such Indemnified Party may only employ separate counsel at the expense of the District if in the judgment of such Indemnified Party a conflict of interest exists by reason of common representation or if all parties commonly represented do not agree as to the action (or inaction) of counsel. The rights of any persons to indemnity hereunder and rights to payment of fees and reimbursement of expenses pursuant to Section 5.2 and Section 4.7 shall survive the final payment or defeasance of the Bonds and in the case of the Trustee any resignation or removal. The provisions of this Section 8.12 shall survive the termination of this Agreement. (f) Waiver of Personal Liability. No member, officer, agent or employee of the Authority shall be individually or personally liable for the payment of any principal (or redemption price) of or interest on the Bonds or any sum hereunder or under the Indenture or be subject to any personal liability or accountability by reason of the execution and delivery of this Agreement; but nothing herein contained shall relieve any such member, director, officer, agent or employee from the performance of any official duty provided by law or by this Agreement. 24 3394471.5 043520 AGMT [Remainder of Page Intentionally Left Blank] 25 3394471.5 043520 AGMT IN WITNESS WHEREOF, the Authority and the District have caused this Agreement to be executed in their respective names by their duly authorized signatories, all as of the date first above written. OTAY WATER DISTRICT FINANCING AUTHORITY By: Name: Title: OTAY WATER DISTRICT By: Name: Title: [Signature page to Installment Sale Agreement] A-1 3394471.5 043520 AGMT APPENDIX A SCHEDULE OF INSTALLMENT PAYMENTS Payment Date(1) Principal Interest Total Debt Service Fiscal Year Debt Service (1) Installment Payment Dates are the first Business Day immediately preceding each Interest Payment Date shown in the table. - 2 - 3394471.5 043520 AGMT Payment Date(1) Principal Interest Total Debt Service Fiscal Year Debt Service Total $ $ $ $ B-1 3394471.5 043520 AGMT APPENDIX B DESCRIPTION OF PROJECT The Bonds are being issued primarily to finance capital improvements to the District Wastewater Operations consisting primarily of [description of project]. The Bonds may also be used to finance any other capital project of benefit to the Wastewater Operations. DRAFT PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER 15, 2019 NEW ISSUE- BOOK-ENTRY ONLY NOT RATED (See “CONCLUDING INFORMATION - No Rating on the Bonds; Secondary Market” herein) In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel, under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described herein, (i) interest on the Bonds is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax under the Code. In addition, in the opinion of Bond Counsel, under existing statutes, interest on the Bonds is exempt from State of California personal income taxes. See “TAX MATTERS” herein. $3,200,000* OTAY WATER DISTRICT FINANCING AUTHORITY 2019 WASTEWATER REVENUE BONDS Dated: Date of Delivery Due: September 1, as shown on the inside front cover page. The cover page contains certain information for general reference only. It is not a summary of the issue. Potential investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. See “RISK FACTORS” herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds. The Otay Water District Financing Authority 2019 Wastewater Revenue Bonds (the “Bonds”) are payable from revenues pledged under the Indenture (defined below) consisting of Installment Payments (defined herein) to be made by the Otay Water District (the “District”) to the Otay Water District Financing Authority (the “Authority”) pursuant to an Installment Sale Agreement, as described herein and from investment earnings on funds held under the Indenture (the “Revenues”). The Bonds will be issued pursuant to an Indenture of Trust, dated as of November 1, 2019 (the “Indenture”), by and between the Authority and MUFG Union Bank, N.A., as trustee (the “Trustee”). The Bonds are being issued to provide funds to pay for certain capital improvements to the District’s wastewater system (the “Wastewater System”). See “THE FINANCING PLAN” herein. The District is required under the Installment Sale Agreement to make the Installment Payments in each fiscal year from Net Revenues of the Wastewater System in an amount sufficient to pay the annual principal and interest due on the Bonds, as described herein. See “SOURCES OF PAYMENT FOR THE BONDS” and “RISK FACTORS” herein. Interest on the Bonds is payable on March 1, 2020, and semiannually thereafter on September 1 and March 1 of each year until maturity. The Bonds are subject to optional and sinking account redemption prior to maturity (see “THE BONDS - General Provisions” and “THE BONDS - Redemption” herein). The Bonds are special, limited obligations of the Authority and are not secured by a legal or equitable pledge of, or charge or lien upon, any property of the Authority or any of its income or receipts, except the Revenues (consisting principally of Installment Payments received from the District). Neither the full faith and credit of the Authority nor its members (including the District) is pledged for the payment of the Bonds and no tax or other source of funds other than the Revenues is pledged to pay the Bonds. The Bonds do not constitute a debt, liability or obligation of the Authority or any member of the Authority (including the District) in violation of any constitutional or statutory debt limitation or for which any such entity is obligated to levy or pledge any form of taxation or for which any such entity has levied or pledged any form of taxation. The Authority has no taxing power. The obligation of the District to pay Installment Payments under the Installment Sale Agreement is secured solely by the Net Revenues of the Wastewater System. The full faith and credit of the District is not pledged for the payment of the Installment Payments and no tax or other source of funds other than the Net Revenues is pledged to pay the Installment Payments. The Installment Payments do not constitute a debt, liability or obligation of the District in violation of any constitutional or statutory debt limitation. The Bonds are offered, when, as and if issued, subject to the approval as to their legality by Hawkins Delafield & Wood LLP, San Francisco, California, as Bond Counsel. Certain legal matters will be passed on for the District and the Authority by Artiano Shinoff, San Diego, California, as General Counsel to the District and the Authority, and by Hawkins Delafield & Wood LLP, San Francisco, California, as Disclosure Counsel. Certain legal matters will be passed on for the Underwriter by its counsel, Nixon Peabody LLP, Los Angeles, California. It is anticipated that the Bonds, in book-entry form, will be available for delivery through the facilities of The Depository Trust Company on or about ___________, 2019 (see “THE BONDS - General Provisions” herein). The date of the Official Statement is __________, 2019. __________________________ * Preliminary, subject to change.Th i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t a n d t h e i n f o r m a t i o n c o n t a i n e d h e r e i n a r e s u b j e c t t o c o m p l e t i o n o r a m e n d m e n t . U n d e r n o c i r c um s t a n c e s s h a l l th i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t c o n s t i t u te a n o f f e r t o s e l l o r a s o l i c i t a t i o n o f a n o f f e r t o b u y n o r s h a l l t h e r e b e a n y s a l e o f t h e s e s e c u r i t i e s i n a n y ju r i s d i c t i o n i n w h i c h s u c h o f f e r , s o l i c i t a t i o n o r s a l e w o u l d b e u n l a w f u l u n d e r t h e s e c u r i t i e s l a w s o f s u c h j u r i s d i c t i o n . $3,200,000* OTAY WATER DISTRICT FINANCING AUTHORITY 2019 WASTEWATER REVENUE BONDS MATURITY SCHEDULE (Base CUSIP®† _____) Maturity Date Principal Interest Reoffering Reoffering September 1 Amount Rate Yield Price CUSIP®† __________________________ * Preliminary, subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by S&P Capital IQ on behalf of the American Bankers Association. CUSIP numbers have been assigned by an independent company not affiliated with the Authority, the District, the Municipal Advisor or the Underwriter and are included solely for the convenience of the holders of the Bonds. None of the Authority, the District, the Municipal Advisor or the Underwriter is responsible for the selection or use of these CUSIP numbers, and no representation is made as to their correctness on the Bonds or as indicated above. The CUSIP number for a specific maturity is subject to being changed after the execution and delivery of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds. GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT For purposes of compliance with Rule 15c2-12 of the United States Securities and Exchange Commission, as amended (“Rule 15c2-12”), this Preliminary Official Statement constitutes an “official statement” of the District with respect to the Bonds that has been deemed “final” by the District as of its date except for the omission of no more than the information permitted by Rule 15c2-12. Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the District or any other parties described in this Official Statement. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the District, any press release and any oral statement made with the approval of an authorized officer of the District or any other entity described or referenced herein, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward- looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the District or the Municipal Advisor. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Preparation of This Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness. The information and expressions of opinions herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the District. All summaries of the Bonds, the Indenture or other documents, are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the District Secretary for further information. See “INTRODUCTION - Summaries Not Definitive.” The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Bonds are Exempt From Securities Laws Registration. The issuance, sale and delivery of the Bonds has not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exemptions for the execution, sale and delivery of municipal securities provided under Section 3(a)(2) of the Securities Act of 1933 and Section 3(a)(l2) of the Securities Exchange Act of 1934. Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside front cover page hereof and said public offering prices may be changed from time to time by the Underwriter. District Website. The District maintains a website. The information on such website is not part of this Official Statement and is not intended to be relied on by investors with respect to the Bonds unless specifically set forth or incorporated herein. OTAY WATER DISTRICT SAN DIEGO COUNTY, CALIFORNIA BOARD OF DIRECTORS Mitch Thompson, President - Division 2 Mark Robak, Vice President - Division 5 Hector Gastelum, Treasurer Division 4 Gary D. Croucher, Division 3 Tim Smith, Division 1 ______________________________________________ MANAGEMENT TEAM Mark Watton, General Manager Adolfo Segura, Chief, Administrative Services Rod Posada, PE, PLS, CCM, Chief, Engineering Joseph R. Beachem, CPA, MBA, MPA, Chief Financial Officer Pedro Porras, PE, Chief, Water Operations Dan Martin, PE, Assistant Chief, Engineering Kevin Koeppen, CPA Assistant Chief, Finance Jose Martinez, Assistant Chief, Water Operations ________________________________________ PROFESSIONAL SERVICES Bond Counsel and Disclosure Counsel Hawkins Delafield & Wood LLP San Francisco, California General Counsel to the District and the Authority Artiano Shinoff San Diego, California Municipal Advisor Harrell & Company Advisors, LLC Orange, California Trustee MUFG Union Bank, N.A. Los Angeles, California TABLE OF CONTENTS INTRODUCTION ...................................................... 1  The District ................................................................ 1  The Authority ............................................................. 1  The Wastewater System ............................................. 2  Sources of Payment for the Bonds ............................. 2  No Reserve Fund ....................................................... 3  Offering of the Bonds ................................................ 3  Summaries Not Definitive ......................................... 3  THE BONDS ............................................................... 4  General Provisions ..................................................... 4  Redemption.. .............................................................. 4  Scheduled Debt Service ............................................. 6  THE FINANCING PLAN .......................................... 8  The Project ................................................................. 8  Estimated Sources and Uses of Funds ....................... 8  SOURCES OF PAYMENT FOR THE BONDS ....... 9  Revenues; Pledge of Revenues .................................. 9  Installment Payments ................................................. 9  Net Revenues ............................................................. 9  Application of District Revenues ............................. 11  No Reserve Fund for the Bonds ............................... 12  Event of Default and Acceleration of Maturities ..... 12  Rate Covenant .......................................................... 13  Rate Stabilization Fund ............................................ 13  Parity Obligations .................................................... 14  Proceeds of Insurance, Sale or Condemnation Awards .................................................................. 15  OTAY WATER DISTRICT ...................................... 17  THE WASTEWATER SYSTEM ............................. 17  Wastewater System Description .............................. 17  San Diego Metropolitan Sewerage System .............. 18  Wastewater System Regulatory Issues ..................... 19  Customer Base ......................................................... 21  Sewer Charges ......................................................... 22  Billing Practices and Collection............................... 25  No Outstanding Parity Debt ..................................... 25  Capital Improvement Program ................................. 25  Employees and Benefits........................................... 26  District Reserves and Investment Policy ................. 26  Historical Operating Results .................................... 27  Projected Debt Service Coverage ............................ 32  CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS ...................... 34  Article XIIIB Gann Limit ........................................ 34  Proposition 218 ........................................................ 34  Future Initiatives ...................................................... 36  RISK FACTORS ....................................................... 37  Net Revenues; Rate Covenant.................................. 37  Risks Related to Facilities and Operations ............... 37  Risk of Fines and Litigation ..................................... 39  Proposition 218 ........................................................ 39  Limitations on Remedies Available to Bond Owners .................................................................. 39  Future Parity Obligations ......................................... 39  Cybersecurity ........................................................... 40  Bankruptcy ............................................................... 40  Loss of Tax Exemption ............................................ 41  IRS Audit of Tax-Exempt Bond Issues .................... 42  Secondary Market Risk ............................................ 42  TAX MATTERS ........................................................ 42  LEGAL MATTERS .................................................. 44  Enforceability of Remedies ...................................... 44  Approval of Legal Proceedings ................................ 44  Litigation .................................................................. 45  CONCLUDING INFORMATION .......................... 45  No Rating on the Bonds; Secondary Market ............ 45  Underwriting ............................................................ 45  The Municipal Advisor ............................................ 46  Continuing Disclosure ............................................. 46  Audited Financial Statements .................................. 46  References ................................................................ 46  Execution ................................................................. 47  APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS APPENDIX B - DISTRICT AUDITED FINANCIAL STATEMENTS APPENDIX C - ECONOMIC PROFILE FOR THE COUNTY OF SAN DIEGO APPENDIX D - FORM OF CONTINUING DISCLOSURE AGREEMENT APPENDIX E - FORM OF BOND COUNSEL OPINION APPENDIX F - THE BOOK-ENTRY SYSTEM OTAY WATER DISTRICT LOCATION MAP 1 OFFICIAL STATEMENT $3,200,000* OTAY WATER DISTRICT FINANCING AUTHORITY 2019 WASTEWATER REVENUE BONDS This Official Statement which includes the cover page, the inside front cover page and appendices (the “Official Statement”) is provided to furnish certain information concerning the sale of the Otay Water District Financing Authority 2019 Wastewater Revenue Bonds (the “Bonds”), in the aggregate principal amount of $3,200,000*. INTRODUCTION This Introduction contains only a brief description of this issue and does not purport to be complete. The Introduction is subject in all respects to more complete information in the entire Official Statement and the offering of the Bonds to potential investors is made only by means of the entire Official Statement and the documents summarized herein. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision (see “RISK FACTORS” herein). For definitions of certain capitalized terms used herein and not otherwise defined, and the terms relating to the Bonds, see the summary included in “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” herein. The District The Otay Water District (the “District”) was established in 1956. The District is a municipal water district organized and existing under and in accordance with Division 20 of the Water Code of the State of California, commencing with Section 71000, as amended (the “Law”). The District’s boundaries currently encompass an area of approximately 125 square miles in San Diego County, lying immediately east of the San Diego metropolitan area and running from the City of El Cajon south to the Mexican border, abutting the cities of El Cajon and La Mesa and encompassing most of the City of Chula Vista and a small portion of the City of San Diego. The District currently serves a population of approximately 223,000 and expects the service area to experience moderate growth in the next ten years (see “OTAY WATER DISTRICT” and “APPENDIX C - ECONOMIC PROFILE FOR THE COUNTY OF SAN DIEGO” herein). Approximately 15,300 of the District’s customers are served by the District’s wastewater system (see “THE WASTEWATER SYSTEM” herein). The District is administered by a Board of Directors consisting of five members who are elected to four- year alternating terms by the voters residing within the District’s boundaries. The District is divided into five divisions, with each Director representing a specific division within which he or she must reside. The positions of General Manager and General Counsel are filled by appointments of the Board. The District employs 137 full-time equivalent employees. The Authority The Otay Water District Financing Authority (the “Authority”) is a joint exercise of powers authority organized and existing under and by virtue of the Joint Exercise of Powers Act, constituting Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the “Joint Powers Act”). The District and the California Municipal Finance Authority, a joint exercise of powers authority, formed the Authority by the execution of a joint exercise __________________________ * Preliminary, subject to change. 2 of powers agreement on March 3, 2010. The Authority functions as an independent entity and was formed to assist the District in the financing of public capital improvements. Pursuant to the Joint Powers Act, the Authority is authorized to issue revenue bonds to provide funds to finance and refinance public capital improvements of the District, with such revenue bonds to be repaid from the installment payments for such improvements, such as the installment payments described herein. The Authority is governed by a five-member Board which consists of all members of the District’s Board of Directors. The Board President serves as the Chairman of the Authority. The General Manager acts as the Executive Director, the District Secretary acts as the Secretary, and the Chief Financial Officer acts as the Treasurer/Auditor of the Authority. The Wastewater System The District provides sewer service to approximately 15,300 customers through 4,729 accounts located in the northern section of the District. The District operates and maintains the sewage collection system serving Rancho San Diego, Singing Hills, and portions of Mount Helix, all within the Upper Sweetwater River Basin. This basin is also known as the Jamacha Basin. Residential customers comprise 97.3% of the customer base. Wastewater collection within the Jamacha Basin is provided by two agencies, the District and the County of San Diego (the “County”). Customers in the basin, not served by either agency, dispose of their sewage through septic tanks. After the sewage has been collected, it is sent to the District’s Ralph W. Chapman Water Reclamation Facility treatment plant where the District produces recycled water. The by-product of the treatment process is discharged through the County’s transmission system into the City of San Diego Metropolitan Wastewater system (the “Metro System”). The District is a member of Metro Wastewater Joint Powers Authority (the “Metro JPA”) and shares in the use of the City of San Diego’s regional wastewater facilities. A significant amount of the sewer operation costs is for sewer service charges from the Metro JPA. Additionally, the District also pays its share of the County’s operation and maintenance cost of the Rancho San Diego Outfall and the Spring Valley Outfall to transport sewage to the Metro System. See “THE WASTEWATER SYSTEM - San Diego Metropolitan Sewerage System” herein. Sources of Payment for the Bonds The Bonds. The Bonds are being issued pursuant to the Joint Powers Act and an Indenture of Trust, dated as of November 1, 2019 (the “Indenture”), by and between the Authority and MUFG Union Bank, N.A., Los Angeles, California, as trustee (the “Trustee”). The Bonds are being issued to provide funding for the Project, as defined herein. The proceeds of the Bonds deposited in the Project Fund will be used by the District for the acquisition, construction and installation of the Project. A portion of the proceeds will also be used to pay costs of issuance. The Bonds are secured by the “Revenues,” consisting of Installment Payments (defined herein) to be made by the District to the Authority pursuant to an Installment Sale Agreement, dated as of November 1, 2019 (the “Installment Sale Agreement”) by and between the Authority and the District and from investment earnings on funds held under the Indenture. The District is obligated to make installment payments to the Authority under the Installment Sale Agreement (the “Installment Payments”) from Net Revenues (defined herein), and the Authority is, in turn, required under the Indenture to use the Installment Payments to pay interest on and principal of the Bonds. The Installment Payments are scheduled to be sufficient to pay, when due, the annual principal and interest on the Bonds. Pursuant to the Indenture, the Authority will assign to the Trustee, for the benefit of the Owners of the Bonds, all of its rights, title and interest under the Installment Sale Agreement except for its 3 right to be indemnified by the District. For a summary of the Indenture and the Installment Sale Agreement see “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” herein. The Installment Payments. The Installment Sale Agreement is being executed and delivered to finance the construction of the Project. See “THE FINANCING PLAN” and “THE WASTEWATER SYSTEM.” The Installment Payments are secured by a charge and lien on Net Revenues of the Wastewater System. See “SOURCES OF PAYMENT FOR THE BONDS” herein. The Bonds are limited obligations of the Authority and are payable solely from and secured solely by the Revenues and all moneys on deposit in any of the funds and accounts established and held by the Trustee under the Indenture. The District’s obligation to make the Installment Payments is a limited obligation of the District payable solely from Net Revenues of the Wastewater System, and neither the full faith and credit nor the taxing power of the District, the State of California or any of its political subdivisions is pledged for the payment of the Bonds. Neither the Bonds nor the obligation of the District to make Installment Payments constitutes an indebtedness of the Authority, the District, the State of California or any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction. No Reserve Fund The Authority will not establish or fund a reserve fund for the Bonds. Offering of the Bonds Authority for Issuance and Delivery. The Bonds are to be issued pursuant to the Joint Powers Act, the Indenture and Resolution No. ___ of the Authority adopted on ____, 2019. Offering and Delivery of the Bonds. The Bonds are offered, when, as and if issued, subject to the approval as to their legality by Bond Counsel. It is anticipated that the Bonds, in book-entry form, will be available for delivery on or about ______, 2019 through the facilities of The Depository Trust Company. Summaries Not Definitive The summaries and references contained herein with respect to the Indenture, the Bonds and other statutes or documents do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute, and references to the Bonds are qualified in their entirety by reference to the form thereof included in the Indenture. Copies of these documents may be obtained after delivery of the Bonds from the District at 2554 Sweetwater Springs Blvd., Spring Valley, California 91978. 4 THE BONDS General Provisions Bond Terms. The Bonds will be dated their date of delivery and issued in fully registered form without coupons in denominations of $5,000 or any integral multiple of $5,000. The Bonds will mature in the amounts and on the dates, and bear interest at the annual rates, set forth on the inside front cover page of this Official Statement. The Bonds will be issued as fully registered bonds in book-entry only form, registered in the name of Cede & Co. as nominee of DTC, and will be available to ultimate purchasers in the denomination of $5,000 or any integral multiple of $5,000, under the book-entry system maintained by DTC. While the Bonds are subject to the book-entry system, the principal and interest with respect to a Bond will be paid by the Trustee to DTC, which in turn is obligated to remit such payment to its DTC Participants for subsequent disbursement to Beneficial Owners of the Bonds. Purchasers of the Bonds will not receive certificates representing their interests therein, which will be held at DTC. See “APPENDIX F - THE BOOK-ENTRY SYSTEM” for further information regarding DTC and the book- entry system. Payments of Principal and Interest. Principal of the Bonds will be payable in accordance with the maturity schedule shown on the inside front cover page of this Official Statement, subject to any optional or mandatory sinking fund redemptions prior to maturity (see “Redemption” below). Interest on the Bonds will be payable on March 1 and September 1 in each year, commencing on March 1, 2020 (each an “Interest Payment Date”). Interest will be calculated on the basis of a 360-day year of twelve 30-day months. While the Bonds are subject to the book-entry system, the principal and interest with respect to the Bonds will be paid by the Trustee to DTC for subsequent disbursement to beneficial owners of the Bonds. See “APPENDIX F - THE BOOK-ENTRY SYSTEM.” Redemption* Optional Redemption From any Source of Available Funds. The Bonds maturing on or before September 1, 2029 are not subject to optional redemption prior to their respective stated maturity dates. The Bonds maturing on or after September 1, 2030, are subject to redemption in whole, or in part at the Written Request of the District, among maturities on such basis as the District may designate and by lot within a maturity, at the option of the District, on any date on or after September 1, 2029, from any available source of funds, at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest to the date of redemption, without premium. Mandatory Sinking Fund Redemption. The Bonds maturing on September 1, ___ (the “Term Bond”) are also subject to redemption, by lot, on September 1 in each of the years as set forth in the following table, from deposits made for such purpose under the Indenture, at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, or in lieu thereof may be purchased in the aggregate respective principal amounts and on the respective dates as set forth in the following table; provided, however, that if some but not all of the Term Bonds have been redeemed through optional redemption as described above, the total amount of all future sinking fund payments with respect to such Term Bonds will be reduced by the aggregate principal amount of such Term Bonds so redeemed, to be allocated among such payments in integral multiples of $5,000 as determined by the District. ________________________________________ * Preliminary, subject to change. 5 Term Bond Maturing September 1, 20__ Sinking Fund Redemption Date (September 1) Principal Amount To Be Redeemed (Maturity) Special Mandatory Redemption From Sale Proceeds. [ ]. Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all the Bonds of a single maturity, the District will select the Bonds of that maturity to be redeemed by lot in any manner that the District in its sole discretion deems appropriate. For purposes of such selection, the District will treat each Bond as consisting of separate $5,000 portions and each such portion will be subject to redemption as if such portion were a separate bond. Notice of Redemption. The Trustee will mail notice of redemption of the Bonds by first class mail, postage prepaid, not less than 30 nor more than 60 days before any redemption date, to the respective Owners of any Bonds designated for redemption at their addresses appearing on the Registration Books and to one or more Securities Depositories, and will be filed electronically with the Municipal Securities Rulemaking Board or such other services providing information with respect to called bonds in accordance with then- current guidelines of the Securities and Exchange Commission. Neither the failure to receive any redemption notice nor any defect therein will affect the sufficiency of the proceedings for redemption of the Bonds or the cessation of accrual of interest from and after the redemption date. Rescission of Redemption Notice. The District has the right to rescind any optional redemption by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of redemption will be cancelled and annulled if for any reason funds are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation will not constitute an Event of Default under the Indenture. The Trustee will mail notice of rescission of redemption in the same manner notice of redemption was originally provided. Effect of Redemption. If notice of redemption has been duly given as provided in the Indenture, and moneys for payment of the redemption price of, together with interest accrued to the date fixed for redemption on, including any applicable premium, the Bonds (or portions thereof) so called for redemption are held by the Trustee, on the redemption date designated in the redemption notice, then the Bonds (or portions thereof) so called for redemption will become due and payable, interest on the Bonds so called for redemption will cease to accrue, those Bonds (or portions thereof) will cease to be entitled to any benefit or security under the Indenture, and the Owners of those Bonds will have no rights in respect thereof except to receive payment of the redemption price thereof. 6 Scheduled Debt Service The following presents the annual debt service on the Bonds, assuming no optional redemption prior to maturity. Bond Year Ending September 1 Principal Interest Total 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 Total 7 Annual Installment Payments related to the Bonds are set forth in the following table. The payments are calculated on an accrual basis for each July 1 to June 30 period, consistent with the debt service calculations that will be made for the District’s Comprehensive Annual Financial Report. Fiscal Year Ending Installment June 30 Payments 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 Total 8 THE FINANCING PLAN The Project The District will use the proceeds of the Bonds for the Campo Road Sewer replacement project (the “Project”). The Project will replace 1.41 miles of 10-inch-diameter sewer main with a new 15-inch- diameter sewer main pipeline along State Route 94 (“SR 94”) in Rancho San Diego. The sewer pipeline is installed in easements that cross the properties of Rancho San Diego Village and the Rancho San Diego Town Centre, and in the SR 94 public right of way between Avocado Boulevard and Jamacha Road. The Project is part of an ongoing series of projects to rehabilitate and upgrade the sewer system in the communities served by the District. The new pipeline will replace a 10-inch sewer main that can no longer provide adequate capacity for sewer flows in the area. The new 15-inch-diameter pipeline will reduce the potential for sewer overflows, and its new alignment will allow the District to construct and maintain the pipeline without disturbing sensitive environmental areas. The total Project cost is approximately $10.5 million, of which approximately $3 million will be funded with proceeds of the Bonds. The Project is underway and is anticipated to be completed during November 2019. Estimated Sources and Uses of Funds Under the provisions of the Indenture, the Trustee will receive the proceeds from the sale of the Bonds and other funds and will apply them as follows: Sources: Principal Amount of Bonds Net Original Issue Premium (Discount) Available Sources Uses: Project Fund Underwriter’s Discount Costs of Issuance Fund (1) Total Uses ____________________________________ (1) Expenses include fees of Bond Counsel, the Municipal Advisor, Disclosure Counsel, the Trustee, costs of printing the Official Statement, and other costs of delivery of the Bonds. 9 SOURCES OF PAYMENT FOR THE BONDS Revenues; Pledge of Revenues Pledge of Revenues and Other Amounts. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, all of the Revenues and all amounts held in any fund or account established under the Indenture are pledged to secure the payment of the principal of and interest and premium (if any) on the Bonds and in accordance with their terms and the provisions of the Indenture. This pledge constitutes a lien on and security interest in the Revenues and such amounts held under the Indenture, and will attach, be perfected and be valid and binding from and after the Closing Date, without the need for any physical delivery thereof or further act. “Revenues” means: (a) all amounts received by the Authority or the Trustee pursuant or with respect to the Installment Sale Agreement, including, without limiting the generality of the foregoing, all of the Installment Payments (including both timely and delinquent payments, any late charges, and whether paid from any source, but excluding any Additional Payments), prepayments, insurance proceeds, condemnation proceeds, and (b) all interest, profits or other income derived from the investment of amounts in any fund or account established pursuant to the Indenture. Assignment to Trustee. Under the Indenture, the Authority will irrevocably transfer, assign and set over to the Trustee, without recourse to the Authority, all of its rights in the Installment Sale Agreement (excepting only the Authority’s rights to Additional Payments, release and indemnification by the District, and the payment of attorneys’ fees and expenses under the Installment Sale Agreement), including but not limited to all of the Authority’s rights to receive and collect all of the Installment Payments. The Trustee is entitled to collect and receive all of the Installment Payments, and any Installment Payments collected or received by the Authority will be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and will immediately be paid by the Authority to the Trustee. The Trustee is also entitled to and must, subject to the provisions of the Indenture, take all steps, actions and proceedings which the Trustee determines to be reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the District under the Installment Sale Agreement. Installment Payments The Installment Payments are payable from and secured by Net Revenues all as set forth in the Installment Sale Agreement and in the manner described herein. The Installment Payments are calculated to be sufficient to pay, when due, the scheduled payment of principal and interest on by the Bonds. The District’s obligation to pay the Installment Payments is a limited obligation of the District payable solely from Net Revenues of the Wastewater System, and neither the full faith and credit nor the taxing power of the District, the State of California or any if its political subdivisions is pledged for the payment of the Installment Payments. Net Revenues Definitions. The following definitions are from the Installment Sale Agreement and the Indenture and capitalized terms used below have the meanings set forth in the Indenture. See “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.” 10 “Net Revenues” means, for any period, an amount equal to all of the Gross Revenues of the District received during such period minus the amount required to pay all Operation and Maintenance Costs of the District becoming payable during such period. “Gross Revenues” means all gross charges received for, and all other gross income and receipts derived by the District from, the ownership and operation of the Wastewater Operations (as defined below) or otherwise arising from the Wastewater Operations, including but not limited to: (a) all amounts levied by the District as a fee for connecting to the Wastewater Operations, as such fee is established from time to time under the applicable laws of the State of California, (b) all income, rents, rates, fees, capital improvement fees, charges and other moneys derived from the services and facilities furnished or supplied through the facilities of the Wastewater Operations, (c) the earnings on and income derived from the investment of such income, rents, rates, fees, charges or other moneys to the extent that the use of such earnings and income is limited by or under applicable law to the Wastewater Operations, (d) the proceeds derived by the District directly or indirectly from the sale, lease or other disposition of a part of the Wastewater Operations as permitted hereunder, and (e) amounts transferred into the Wastewater Revenue Fund from a Rate Stabilization Fund, if any. The term “Gross Revenues” does not include (i) customers’ deposits or any other deposits subject to refund until such deposits have become the property of the District, (ii) the proceeds of any ad valorem property taxes levied to pay any general obligation bond indebtedness of the District with respect to the Wastewater Operations, (iii) special assessments or special taxes levied upon real property within any improvement district for the purpose of paying special assessment bonds or special tax obligations of the District, and (iv) amounts transferred from the Wastewater Revenue Fund into the Rate Stabilization Fund during a fiscal year, but only to the extent that any amounts transferred from the Wastewater Revenue Fund into the Rate Stabilization Fund were included in Gross Revenues for that fiscal year. “Wastewater Operations” means the wastewater system of the District, including but not limited to all facilities, properties and improvements at any time owned or operated by the District for the collection and conveyance of wastewater from residents served thereby, and any necessary lands, rights, entitlements and other property useful in connection therewith, together with all extensions thereof and improvements thereto hereafter acquired, constructed or installed by the District. “Operation and Maintenance Costs” means the reasonable and necessary costs and expenses paid by the District for maintaining and operating the Wastewater Operations, including but not limited to: (a) costs of utilities, including the costs of electricity and other forms of energy supplied to the Wastewater Operations, (b) the reasonable expenses of management and repair and other costs and expenses necessary to maintain and preserve the Wastewater Operations in good repair and working order, and (c) the reasonable administrative costs of the District attributable to the operation and maintenance of the Wastewater Operations, including insurance and other costs described in the Installment Sale Agreement. “Operation and Maintenance Costs” do not include: 11 (i) debt service payable on obligations incurred by the District with respect to the Wastewater Operations, including but not limited to the Installment Payments and any Parity Obligations, (ii) depreciation, replacement and obsolescence charges or reserves therefor, and (iii) capital expenditures (other than as set forth in paragraph (b) above), including amounts charged by the Metro System for the Pure Water capital costs (see “THE WASTEWATER SYSTEM – San Diego Metropolitan Sewerage System – Point Loma Wastewater Treatment Plant and the Pure Water Project”), and (iv) amortization of intangibles or other bookkeeping entries of a similar nature. Application of District Revenues Under the Installment Sale Agreement, the District will irrevocably pledge, charge and assign all the Net Revenues of the District and all moneys on deposit in any of the funds and accounts established and held by the Trustee under the Indenture to the punctual payment of the Installment Payments. This pledge, charge and assignment constitutes a lien on the Net Revenues and such other moneys for the payment of the Installment Payments in accordance with the terms of the Installment Sale Agreement, on parity with the pledge and lien that secures any “Parity Obligations” (as defined under the heading entitled “Parity Obligations” below). Under the Installment Sale Agreement, the District is required to deposit all of the Gross Revenues in the Wastewater Revenue Fund (which has been established and is held and maintained by the District) immediately upon receipt. The District will apply amounts in the Wastewater Revenue Fund in accordance with the Installment Sale Agreement and any Parity Obligations Documents (for all purposes in this Official Statement, as such are defined in the Indenture), and will apply amounts on deposit in the Wastewater Revenue Fund to pay when due the following amounts in the following order of priority: (i) all Operation and Maintenance Costs; (ii) the Installment Payments and all payments of principal of and interest on Parity Obligations; (iii) any other payments required to comply with the provisions of the Installment Sale Agreement and any Parity Obligations Documents; and (iv) any other purposes authorized under the Installment Sale Agreement. No Preference or Priority. Under the Installment Sale Agreement, payment of the Installment Payments and the principal of and interest on Parity Obligations will be made without preference or priority among the Installment Payments and such Parity Obligations. If the amount of Net Revenues on deposit in the Wastewater Revenue Fund is any time insufficient to enable the District to pay when due the Installment Payments and the principal of and interest on Parity Obligations, such payments will be made on a pro rata basis. Other Uses of Gross Revenues Permitted. Under the Installment Sale Agreement the District will manage, conserve and apply the Gross Revenues on deposit in the Wastewater Revenue Fund in such a manner that all deposits required to be made as described above will be made at the times and in the amounts so required. Subject to the foregoing sentence, so long as no Event of Default has occurred and is continuing, the District may use and apply moneys in the Wastewater Revenue Fund for (i) the payment of any subordinate obligations or any unsecured obligations, (ii) the acquisition and construction of 12 improvements to the Wastewater Operations, (iii) the prepayment of any other obligations of the District relating to the Wastewater Operations, or (iv) any other lawful purposes of the District. Events of Default; Remedies on Default. For a description of events of default and remedies on default contained in the Installment Sale Agreement, see “Events of Default and Acceleration of Maturities” below and “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - Events of Default” and “- Remedies on Default.” Allocation of Revenues by Trustee Transfers from the Bond Fund. Under the Indenture, on or before each Interest Payment Date, the Trustee will transfer from the Bond Fund and deposit into the following respective accounts the following amounts in the following order of priority: (a) Deposit to Interest Account. The Trustee will deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such Interest Payment Date on all Bonds then Outstanding. (b) Deposit to Principal Account. The Trustee will deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds coming due and payable on each September 1, including the aggregate principal amount of the Term Bonds (if any) that are subject to mandatory sinking fund redemption on that September 1. Application of Interest Account. All amounts in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as it comes due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity). Application of Principal Account. All amounts in the Principal Account will be used and withdrawn by the Trustee solely to pay the principal amount of the Bonds on their respective maturity dates, and the principal amount of the Term Bonds (if any) that are subject to mandatory sinking fund redemption on such September 1. No Reserve Fund for the Bonds There is no reserve fund established for the Bonds. Events of Default and Acceleration of Maturities The Installment Payments are not secured by, and the Owners of Bonds have no security interest in or mortgage on the property of the Wastewater System, or of the District. Default by the District will not result in loss of any property to the District. Should the District default, the Trustee may declare the entire principal amount of the Installment Payments and the accrued interest thereon, to be due and payable immediately, whereupon the same shall become due and payable, and take whatever action at law or in equity may appear necessary or desirable to enforce performance and observance of any obligation, agreement or covenant of the District under the Installment Sale Agreement. A default under the Installment Sale Agreement is also an Event of Default under the Indenture which may result in an acceleration of Bonds. See “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - Events of Default” and “- Remedies on Default” and “RISK FACTORS - Limitations on Remedies Available to Bond Owners.” 13 Rate Covenant Covenant Regarding Net Revenues. Under the Installment Sale Agreement, the District is required to fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Wastewater Operations during each Fiscal Year that are sufficient, after making allowances for contingencies and errors in estimates, to yield Net Revenues that are at least equal to 115% of the amount described in the clauses (ii) and (iii) under “- Covenant Regarding Gross Revenues” below for such Fiscal Year. Covenant Regarding Gross Revenues. Under the Installment Sale Agreement, the District is required to fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Wastewater Operations during each Fiscal Year, which are at least sufficient, after making allowances for contingencies and error in the estimates, to yield Gross Revenues sufficient to pay the following amounts in the following order of priority: (i) All Operation and Maintenance Costs estimated by the District to become due and payable in such Fiscal Year. (ii) All Installment Payments and all payments of principal of and interest on any Parity Obligations as they become due and payable during such Fiscal Year, without preference or priority, except to the extent such Installment Payments or the principal of and interest on such Parity Obligations are payable from the proceeds of the Bonds or such Parity Obligations, as applicable, or from any source of legally available funds of the District (other than the Gross Revenues of the Wastewater Operations) that have been deposited with the Trustee for such purpose before the beginning of that Fiscal Year. (iii) All payments required to meet any other obligations of the District which are charges, liens, encumbrances upon, or which are otherwise payable from, the Gross Revenues or the Net Revenues during such Fiscal Year, except to the extent other sources of funds are reserved or encumbered therefore. Rate Stabilization Fund The District has the right at any time to establish a fund to be held by it and administered in accordance with the Indenture, to be known as the “Rate Stabilization Fund,” for the purpose of stabilizing the rates and charges imposed by the District. From time to time the District may deposit amounts in the Rate Stabilization Fund from any source of legally available funds, including but not limited to Net Revenues that are released from the pledge and lien that secures the Bonds and any Parity Obligations, as the District may determine. The District may, but is not required to, withdraw from any amounts on deposit in a Rate Stabilization Fund and deposit such amounts in the Wastewater Revenue Fund in any Fiscal Year for the purpose of paying Annual Debt Service coming due and payable in such Fiscal Year. Amounts so transferred from a Rate Stabilization Fund to the Wastewater Revenue Fund will constitute Gross Revenues for such Fiscal Year (except as otherwise provided in the Indenture), and will be applied for the purposes of the Wastewater Revenue Fund. Amounts on deposit in a Rate Stabilization Fund will not be pledged to or otherwise secure the Bonds or any Parity Debt. All interest or other earnings on deposits in a Rate Stabilization Fund will be withdrawn therefrom at least annually and accounted for as Gross Revenues in the Wastewater Revenue Fund. The District has the right at any time to withdraw any or all amounts on deposit in a Rate Stabilization Fund and apply such amounts for any lawful purposes of the District. The District does not currently maintain any funds in a Rate Stabilization Fund. 14 Parity Obligations Under the Installment Sale Agreement, the District may not issue or incur any additional bonds or other obligations during the Term of the Installment Sale Agreement having any priority in payment of principal or interest out of the Gross Revenues or the Net Revenues over the Installment Payments. Under the Installment Sale Agreement, the District may issue, enter into or incur Parity Obligations, in accordance with the conditions described below, or obligations that are either unsecured or which are secured by an interest in the Net Revenues that is junior and subordinate to the pledge of and lien upon the Net Revenues established under the Installment Sale Agreement. Conditions for Issuance of Parity Obligations. Under the Installment Sale Agreement, except for obligations incurred to prepay or discharge the Installment Payments or any Parity Obligations, the District may not issue or incur any Parity Obligations during the Term of the Installment Sale Agreement unless all the following conditions are satisfied: (a) No Event of Default has occurred and is continuing. (b) The amount of Net Revenues, excluding connection fees and transfers from the Rate Stabilization Fund, as shown by the books of the District for the most recent completed Fiscal Year for which audited financial statements of the District are available or for any more recent consecutive 12-month period selected by the District, or shown in the audited financial statements of the District, plus at the option of the District any Additional Revenues, are at least equal to 115% of the amount of Maximum Annual Debt Service coming due and payable in the current or any future Bond Year with respect to the Bonds and all Parity Debt then outstanding (including the Parity Debt then proposed to be issued). If the Parity Obligations are being issued solely to refund outstanding Parity Obligations, and the resulting Annual Debt Service for each Bond Year is less than the Annual Debt Service for each Bond Year prior to the issuance of the refunding Parity Obligations, the District need not comply with the provisions described in paragraphs (a) and (b) above. The Parity Obligations may be, but are not required to be, in the form of Supplemental Agreements, and may, but are not required to, secure the payment of debt service on Bonds. “Parity Obligations” means (i) any bonds, notes, leases, installment sale agreements or other obligations of the District payable from and secured by a pledge of and lien upon any of the Net Revenues on a parity with the Installment Payments, entered into or issued under and in accordance with the Installment Sale Agreement, and (ii) any other Governmental Loan that is treated as a Parity Obligation under the Installment Sale Agreement. “Additional Revenues” means (i) an allowance for Net Revenues from any additions or improvements to or extensions of the Wastewater Operations to be made with the proceeds of such Parity Obligations and also for Net Revenues from any such additions, improvements or extensions which have been made from moneys from any source but in any case which, during all or any part of the latest Fiscal Year or for any more recent consecutive 12-month period selected by the District, were not in service, all in an amount equal to the estimated additional average annual Net Revenues to be derived from such additions, improvements and extensions for the first 36-month period in which each addition, improvement or extension is respectively to be in operation, or (ii) an allowance for Net Revenues arising from any increase in the charges made for service from the Wastewater Operations which has been adopted prior to the incurring of such Parity Obligations but which, during all or any part of the latest Fiscal Year or for any more recent consecutive 12-month period selected by the District, was not in effect, in an amount equal to the total amount by which the Net Revenues would have been increased if such increase in charges had been in effect during the whole of such Fiscal Year or 12-month period. 15 Conditions for Entering Into Governmental Loans. (a) The District may borrow money from a Governmental Agency and incur a Governmental Loan to finance improvements to the Wastewater Operations. A Governmental Loan may be treated as a Parity Obligation for purposes of the Installment Sale Agreement, so long as the District complies with subsections (a) and (b) under the conditions for issuance of Parity Obligations described above before incurring the Governmental Loan. (b) the District may not make a payment on any Governmental Loan (except as expressly described in subsection (c) below) to the extent it would have the effect of causing the District to fail to make a timely payment on the Bonds. (c) If Net Revenues are ever insufficient to pay the full amount of Installment Payments and other Parity Obligations then Outstanding and such Governmental Loan, the District will make payments on the Installment Payments and other Parity Obligations and such Governmental Loan on a pro rata basis. “Governmental Agency.” The term “Governmental Loan” is defined in the Indenture as any loan made by a “Governmental Agency” (defined as the State, and the United States of America, acting through any of its agencies, to the extent that the State or such agency has loaned money to the District for the Wastewater Operations) to the District which is secured by a pledge of Net Revenues and incurred by the District to finance improvements to the Wastewater Operations pursuant to the Installment Sale Agreement. Proceeds of Insurance, Sale or Condemnation Awards Insurance. Under the Installment Sale Agreement, the District must at all times maintain with responsible insurers all such insurance on the Wastewater Operations as is customarily maintained with respect to works and properties of like character against accident to, loss of or damage to the Wastewater Operations. The District will apply any amounts collected from insurance against accident to or destruction of any portion of the Wastewater Operations to repair or rebuild such damaged or destroyed portion of the Wastewater Operations. The District must also maintain, with responsible insurers, worker’s compensation insurance and insurance against public liability and property damage to the extent reasonably necessary to protect the District, the Authority, the Trustee and the Owners of the Bonds. Any policy of insurance required under this provision may be maintained as part of or in conjunction with any other insurance coverage carried by the District, and may be maintained in whole or in part in the form of self-insurance by the District or in the form of the participation by the District in a joint powers agency or other program providing pooled insurance. Sale of the Wastewater Operations. Except as described below, the District will covenant in the Installment Sale Agreement that the Wastewater Operations will not be encumbered, sold, leased, pledged, have any charge placed thereon, or otherwise be disposed of, as a whole or substantially as a whole, if such encumbrance, sale, lease, pledge, charge or other disposition would materially impair the ability of the District to pay the Installment Payments or the principal of or interest on any Parity Obligations, or would materially adversely affect its ability to comply with the terms of the Installment Sale Agreement or any Parity Obligations Documents. The District may not enter into any agreement that impairs the operation of the Wastewater Operations or any part of it necessary to secure adequate Net Revenues to pay the Installment Payments or any Parity Obligations, or which otherwise would impair the rights of the Bond Owners or the Trustee with respect to the Net Revenues. 16 If any substantial part of the Wastewater Operations is sold, the payment therefor must be used for the acquisition or construction of improvements to the Wastewater Operations [ or the redemption of all Outstanding Bonds and Parity Obligations.] Condemnation Awards. Any amounts received as awards as a result of the taking of all or any part of the Wastewater Operations by the lawful exercise of eminent domain, if and to the extent that such right can be exercised against such property of the District, must be used for the acquisition or construction of improvements to the Wastewater Operations. SEWER SERVICE AREA AND FACILITIES INSERT MAP 17 OTAY WATER DISTRICT The District was formed in January 1956 pursuant to Section 71000 et seq., of the California Water Code, and joined the San Diego County Water Authority (which is a member of the Metropolitan Water District of Southern California) in September 1956 to acquire the right to purchase and distribute imported water throughout its service area. The San Diego County Water Authority is an agency responsible for the wholesale supply of water to its 24 public agency members in San Diego County. The District’s boundaries currently encompass an area of approximately 125 square miles and is generally located within the south central portion of San Diego County. The District serves a wide spectrum of communities, including southern El Cajon, La Mesa, Rancho San Diego, Jamul, Spring Valley, Bonita, eastern Chula Vista, and a small portion of the City of San Diego on Otay Mesa. The southern boundary of the District is the international border with Mexico. The District is governed by a five-member Board of Directors (the “Board”) elected from separate geographical areas within the District. The Board selects a Board President from among its members and appoints a General Manager and General Counsel to serve the District. Revenues from the District’s water system are not pledged to the payment of the Bonds or the Installment Payments. THE WASTEWATER SYSTEM The following information concerning the Wastewater System was obtained from District officials except where otherwise indicated. The audited financial statements of the District for the Fiscal Year ended June 30, 2019 are attached hereto as “APPENDIX B” and should be read in their entirety. Wastewater System Description The District owns and operates the Wastewater System, a wastewater collection system providing public sewer service to approximately 4,729 customer accounts within the Jamacha drainage basin located in the northern section of the District. The County also provides wastewater service in a portion of the Jamacha Basin. Wastewater flows from each agency’s customers are conveyed in joint collection and pumping systems. The District’s wastewater facilities consist of approximately 88 miles of sewer mains, four sewage lift stations, and one main sewage pump station. The District also owns and operates the Ralph W. Chapman Water Reclamation Facility (“Ralph W. Chapman Water Reclamation Facility”) within the Jamacha Basin, which is operated as a skimming facility. Currently, the District collects approximately 1.15 million gallons per day (“mgd”) of wastewater. Of this amount, approximately 0.2 mgd is conveyed to the City of San Diego Metropolitan Sewerage System (the “Metro System”) for treatment at the Point Loma Wastewater Treatment Plant (“Point Loma Wastewater Treatment Plant”) and released into the ocean via an outfall. The remaining 0.95 mgd is processed as recycled water at the Ralph W. Chapman Water Reclamation Facility. The costs of primary and secondary treatment of wastewater is an operating expense of the Wastewater System. The costs of tertiary treatment of the wastewater, which then allows it to be conveyed to the District’s recycled water customers, is charged directly to the District’s water system. The District has entered into a joint use agreement with the County’s Spring Valley Sanitation District to pay its share of the County’s operation and maintenance cost of the Rancho San Diego Outfall and the Spring Valley Outfall to transport sewage to the Metro System. The Metro System processes the District’s sewage that is beyond the capability of the Ralph R. Chapman Water Recycling Facility and all of the sludge created by the Ralph W. Chapman Water Reclamation Facility. All payments by the District to the City of 18 San Diego with respect to the Metro System are treated as Operation and Maintenance Costs of the Wastewater System. San Diego Metropolitan Sewerage System The Metro System is a regional sewage treatment and disposal system that serves the City of San Diego and various other public agencies, including cities situated within common drainage areas. The Metro System treats and disposes of the wastewater generated by the City of San Diego and certain amounts from 12 other cities and districts. The City of San Diego, as operator of the Metro System, is the holder of two National Pollutant Discharge Elimination System (“NPDES”) permits, one for the discharge of sewage at the Point Loma Wastewater Treatment Plant (“Point Loma Discharge Permit”), and the other for the discharge of sewage at the South Bay Water Reclamation Plant. The Metropolitan Wastewater Joint Powers Authority (“Metro JPA”) is a coalition of municipalities and special districts in the southern and central portions of San Diego County that share in the use of the Metro System facilities. The District is one of 12 “Participating Agencies” in the Metro JPA The other Metro JPA member agencies are the cities of Chula Vista, Coronado, Del Mar, El Cajon, Imperial Beach, La Mesa, National City, Poway, the County of San Diego Sanitation District, the Lemon Grove Sanitation District, and Padre Dam Municipal Water District. The District is a party to the Regional Wastewater Disposal Agreement dated of May 18, 1998 as amended, between the City of San Diego and the Participating Agencies including the District (the “Regional Wastewater Disposal Agreement”). The Regional Wastewater Disposal Agreement is proposed to be amended and restated by an Amended and Restated Regional Wastewater Disposal Agreement (the “Amended and Restated Regional Wastewater Disposal Agreement”) that is currently under consideration and has been executed by all but 2 Participating Agencies. Regional Wastewater Disposal Agreement. Under the terms of the Regional Wastewater Disposal Agreement, the District shares in the cost of the Metro System. It is the District’s practice to pass through any increase in treatment costs to its customers (see “THE WASTEWATER SYSTEM - Sewer Charges”). Pursuant to the Regional Wastewater Disposal Agreement, the Participating Agencies are required to pay their respective share of planning, design and construction of the Metro System facilities and costs relating to the operation and maintenance of the Metro System by the City of San Diego. The amount to be paid by the Participating Agencies is calculated based on a Sewer System Charge and, if additional capacity is needed, a New Contract Capacity Charge. The current Regional Wastewater Disposal Agreement expires on December 31, 2050. The “Sewer System Charge” is a charge that is calculated annually, billed quarterly and based on flow and strength coming into the Metro System. The “New Contract Capacity Charge” is an amount to be paid by any Participating Agency for the right to discharge any new or additional capacity into the Metro System beyond its existing allotted capacity. The Amended and Restated Regional Wastewater Disposal Agreement, as proposed, terminates on December 31, 2065, subject to extension by agreement of the parties; the parties agree in the Amended and Restated Regional Wastewater Disposal Agreement to begin discussing an extension no later than December 31, 2055. The Participating Agencies’ right to obtain wastewater treatment services from the Metro System will survive termination of the Amended and Restated Regional Wastewater Disposal Agreement; in that case, the Participating Agencies are obligated to pay their proportional share of costs based on their respective flow and strength. However, the City of San Diego may abandon the Metro System on December 31, 2065 with 10 years’ prior notice to the Participating Agencies. For information about regulatory requirements applicable to the Metro System and the Metro System capital improvement program, the District refers potential investors to an Official Statement prepared by the Public 19 Facilities Financing Authority of the City of San Diego in connection with the issuance of Senior Sewer Revenue Refunding Bonds, Series 2016A relating to the Metro System dated March 2, 2016 (the “Metro Official Statement”). Although the District believes the City of San Diego is the best source of information about the Metro System, and, therefore, encourages potential investors to review the Metro Official Statement, the District can provide no assurances as to the accuracy, completeness or timeliness of the Metro Official Statement. The Metro Official Statement and its continuing disclosure reports are available on EMMA. The City of San Diego is required to develop and implement an industrial pretreatment program pursuant to its NPDES permits. Among other things, this obligates the District to adopt and diligently enforce an ordinance that establishes an industrial pretreatment program that incorporates discharge limits that are at least as stringent as those established by the City of San Diego and any categorical pretreatment standards promulgated by the Environmental Protection Agency (“EPA”). Point Loma Wastewater Treatment Plant and the Pure Water Project. Opened in 1963, the Point Loma Wastewater Treatment Plant treats approximately 175 million gallons of wastewater per day (it is rated for 240 million gallons per day). In November 1995, the City of San Diego received a modified permit (also called a “waiver”) from Secondary Treatment requirements of the Clean Water Act. This modified permit was renewed in September 2002, in June 2010 and October_, 2017. The permit is required by the EPA to be renewed every 5 years and expires September 30, 2022. The recent renewal process included the “Pure Water Project,” a water recycling program that would divert millions of gallons of wastewater per day to a water purification facility, providing 83 million gallons of water every day, with an initial facility producing 30 million gallons per day anticipated to be completed first and the second phase to be completed by 2035. The Pure Project would use proven water purification technology to clean recycled water to produce safe, high-quality drinking water. While completion of the Pure Water Project avoids costly upgrades to the Point Loma Wastewater Treatment Plant, cost estimates for the Pure Water Project range from $1.8 billion to $3 billion (in 2016 dollars), of which approximately $1.8 billion will be a cost borne by the Metro System with the balance of $1.2 billion paid for from the City of San Diego’s Water Reserve Fund.. Under the existing Regional Wastewater Disposal Agreement, the Participating Agencies’ share of the Pure Water capital costs is based on flow and strength coming into the Metro System. The capital costs are not limited. Under the proposed Amended and Restated Regional Wastewater Disposal Agreement, the Participating Agencies’ share of the Pure Water capital costs would be based on a fixed percentage of capacity ownership. The capital costs are limited to $1.8 billion. The District’s financial liability associated with the proposed improvements under the Amended and Restated Regional Wastewater Disposal Agreement is approximately 0.5% of the total cost, or $9 million. This percentage is higher than the District’s existing share of capital charges based the current formula for flow and strength, but it does provide a limit on total capital costs. The District cannot provide any assurance if, or when, the Amended and Restated Regional Wastewater Disposal Agreement will be executed by all the Participating Agencies, what the ultimate cost of the Pure Water Project will be and when and if it will be completed, or if additional capital improvements to the Point Loma Wastewater Treatment Plant will be required in the interim and charged to the Participating Agencies, including the District. Wastewater System Regulatory Issues Regulatory requirements applicable to the Wastewater System are contained in or imposed by regulation pursuant to the Federal Water Pollution Control Act, as amended, and the State of California Porter Cologne Water Quality Control Act of 1969, as amended. Both Federal and State regulations are administered through the Regional Water Board. The District is not aware of any environmental or regulatory issues that would adversely impact its ability to provide sewer service. 20 The waste discharge requirements applicable to the Wastewater System are a product of (i) the waste discharge requirements relating to the Ralph W. Chapman Water Reclamation Facility, and (ii) the waste discharge requirements applicable to the Metro System (see “San Diego Metropolitan Sewerage System” above). The District’s recycled water operations are subject to regulation under Section 402 of the federal Clean Water Act, implementing regulations adopted by the EPA, the California Water Code and regulations promulgated by the California Department of Health Services. Specifically, the District must comply with requirements relating to discharge from the Ralph W. Chapman Water Reclamation Facility established by the Regional Water Board, San Diego Region, most recently by Order No. R9-2007-0038 dated May 7, 2007. 21 Customer Base The customer base of the District consists primarily of residential properties. The District is primarily built out and no significant new connections are anticipated. TABLE NO. 1 CURRENT AND HISTORICAL SERVICE CONNECTIONS Fiscal Years 2009-10 through 2018-19 Fiscal Year Ended June 30 Number of Connections 2010 4,646 2011 4,655 2012 4,655 2013 4,655 2014 4,657 2015 4,679 2016 4,677 2017 4,683 2018 4,714 2019 4,729 __________________________ Source: Otay Water District. Table No. 2 shows the 10 largest water users for Fiscal Year 2018-19. TABLE NO. 2 TEN LARGEST CUSTOMERS BY REVENUES Year ended June 30, 2019 Customer Usage in CCF (1) % of Sewer System Consumption Wastewater Revenues % of Total Wastewaters Revenues Country Hills Apartments 34,611 4.66% $ 152,539 5.24% Cuyamaca College 25,865 3.49% 89,825 3.08% HCA Woodbridge LLC 13,523 1.82% 64,128 2.20% Avocado Village HOA 13,635 1.84% 36,373 1.25% Dual Diagnosis Treatment Center 4,279 0.58% 21,234 0.73% Sycuan Resort 5,110 0.69% 19,559 0.67% Grossmont School District 5,296 0.71% 18,145 0.62% Burton Schenker 3,108 0.42% 13,384 0.46% Smart & Final 1,456 0.20% 10,837 0.37% Western Golf Properties 3,478 0.47% 9,954 0.34% Total top 10 110,362 14.87% 435,979 14.96% Other sewer customers 631,667 85.13% 2,477,808 85.04% Total sewer revenues 742,029 100.00% $2,913,787 100.00% ____________________________________ (1) Hundred cubic feet. Approximately based on 2nd half winter average used in the Fiscal Year 2018-19 Budget. Source: Otay Water District. 22 Sewer Charges The District held a public hearing on October 3, 2018 and approved a five-year schedule of rates through 2023, which included authorization to raise rates by up to 10 percent per year during the five year period for all costs related to labor, benefits, materials, maintenance, administrative expenses and other operational costs of providing sewer service. This includes amounts required to meet bond covenants and to maintain adequate reserves and rate stabilization. Authorization was also approved to pass through all rates, fees and charges for power and from the District’s treatment and disposal providers including, but not limited to San Diego Gas and Electric, the County of San Diego and the City of San Diego during the five year period. Residential and Multi-Residential customers are billed based on their winter average consumption from the previous year. The “Winter Average” is defined as units of water billed from January through April of the previous year divided by four. This average is then reduced by 15% as an acknowledgement that not all water purchased goes through the sewer system. Commercial customers are billed based on the customer’s average annual consumption, meter size and strength factor. The average is also reduced by 15%. TABLE NO. 3 SEWER VARIABLE AND FIXED CHARGES As of January 1, 2019 and January 1, 2020 Usage Fee Residential Per Unit: 2019 $2.67 2020 2.93 Non-Residential Per Unit: Category 2019 2020 Low strength $2.67 $2.93 Medium strength 3.31 3.64 High strength 4.56 5.01 Fixed Rates Meter Size 2019 Residential 2019 Non- Residential 2020 Residential 2020 Non- Residential 3/4” $14.91 $ 14.91 $16.38 $ 16.38 1” 14.91 37.27 16.38 40.94 1 1/2” N/A 74.55 N/A 81.88 2” N/A 119.27 N/A 131.00 3” N/A 223.64 N/A 245.64 4” N/A 372.73 N/A 409.40 6” N/A 745.45 N/A 818.79 8” N/A 1,192.73 N/A 1,310.08 10” N/A 1,714.54 N/A 1,883.23 ____________________________________ Source: Otay Water District. 23 As charges are billed based on the prior Winter Average water use, there was a sewer rate decrease of 7% as of January 1, 2019 due to increased water usage during the prior year. The adopted rate increase effective January 1, 2020 is 8.9%, in part because the Winter Average in 2019 was lower than the prior year and in part due to increased expenses. The Board of Directors is expected to continue to take action each year through 2023 to set rates in accordance with the October 3, 2018 rate action. However, there can be no assurance that rates will be increased as contemplated herein. All rate increases are subject to the procedural and substantive provisions of Proposition 218. See “CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS - Proposition 218” herein. Based on its internal rate model updated in June 2019 and the need to fund the CIP, the District anticipates that it will need to increase its rates by approximately 7.1% in each of the next four years. The District is conducting a cost of service study (the “Study”). One of the goals of the Study is modifying the Winter Average component of the sewer rate calculation to include 3 prior years’ water usage instead of a single year to take into account an average usage between high and low rain years. The District expects to implement the new rate calculation in January 2021, however, there can be no assurance that rates will be modified as contemplated. As previously noted, the District has projected that future rate increases will be necessary to implement the current six-year CIP. Additionally, the rates, charges and fees may be increased each year to pass-through additional actual cost increases imposed by the City of San Diego and the County of San Diego if such increases are greater than already factored in to the District’s rates. 24 The average residential customer uses 8.6 units of water per month. One unit of water is equal to 100 cubic feet of water (one cubic foot of water equals 7.48 gallons). Table No. 4 compares average sewer water rates charged by the District with surrounding cities and other water agencies in San Diego County. TABLE NO. 4 COMPARISON OF AVERAGE RESIDENTIAL SEWER RATES Based on Rates to be Effective as of January 1, 2020 City/Water Agency Average Rates (1) Leucadia $ 28.64 Carlsbad (2) 28.92 Otay Water District 37.80 San Diego County 38.58 National City 38.68 Vallecitos 40.47 City of San Diego(2) 48.13 Chula Vista 48.20 Corondao 48.75 Escondido 49.61 La Mesa 50.88 Lemon Grove 51.59 Poway(2) 51.90 Imperial Beach 52.74 El Cajon 52.84 Buena 55.25 Vista 56.17 Solana Beach 56.86 Valley Center – MG (2) 58.71 Ramona 67.12 Padre Dam 69.92 Oceanside 69.96 Rainbow 71.05 Fallbrook 71.09 Olivenhain 71.76 Encinitas 72.91 Rancho Santa Fe 79.17 Del Mar 109.49 ____________________________________ (1) Based on 8.6 units of water used and ¾” residential meter size. (2) At the time of the survey September 2019, the member agency’s Fiscal Year 2019-20 rate was unavailable. The estimated increase is based on the other agency’s average Fiscal Year 2019- 20 known rate increases. Source: Otay Water District. 25 Billing Practices and Collection The District bills for sewer service monthly. Monthly amounts are fixed for each customer and are re- calculated once each year, typically in January. For Fiscal Year 2018-19, the District’s collection rate was 99.96%. Operating Reserves The District has a number of policies concerning reserves for operations and capital expenditures. The District’s minimum operating reserve requirement for the Wastewater System is 90 days’ of operating expenses. In recent years, the District built up reserves for capital expenditures and has recently completed a number of large capital projects. No Outstanding Parity Debt The Installment Payments will be secured by Net Revenues of the Wastewater System. The District has no outstanding obligations that constitute Parity Obligations on the date of issuance of the Bonds. Capital Improvement Program The District reviews and updates its six-year Capital Improvement Program (the “CIP”) annually. The table below summarizes the current six-year CIP for the Wastewater updated as part of the 2019-20 budget. Fiscal Year Ending June 30 2020 2021 2022 2023 2024 2025 Total $2,188,000 $792,000 $1,452,000 $1,008,000 $1,564,000 $1,388,000 $8,392,000 _______________________________ Source: Otay Water District. The District has identified the timing and method of funding the capital improvements over the next six years. The above improvement categories are designed to be funded with operational net cashflow, proceeds of the Bonds, reserves or a combination of these sources, and currently, the District expects to fund $3,000,000 of these improvements with future Bond proceeds. The District expects that additional debt financing for the Wastewater System will occur during 2021. In order to implement the CIP, the District anticipates that it will need to increase its rates as described herein (see “Sewer Charges” herein). However, there is no guarantee that the District will implement such rate increases at the amount and at the time anticipated in its planning documents. See “CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS - Proposition 218.” Pure Water Project. The District expects that it will capitalize any charges from the Metro System relating to the Pure Water Project (see “San Diego Metropolitan Sewerage System – Point Loma Wastewater Treatment Plant and the Pure Water Project”). The table below summarizes the expected capital charges for the Pure Water System included in the District’s six-year Capital Improvement Program. Fiscal Year Ending June 30 2020 2021 2022 2023 2024 2025 Total $132,000 $182,000 $232,000 $283,000 $334,000 $383,000 $1,546,000 26 Employees and Benefits The District has 138 full-time positions budgeted for Fiscal Year 2019-20. Five percent of total salaries and benefits are allocated to the Wastewater System. The OWD Employee Association represents 100 of these full-time employees as a collective bargaining unit. The District has not experienced any strikes and continues to have positive labor relations, which includes a negotiated multi-year Collective Bargaining Agreement. This agreement, the Memorandum of Understanding (“MOU”), with amendments, is in effect from July 1, 2019 to June 30, 2024. The District provides retirement benefits and other post-employment benefits for its employees. See Notes (7) and (8) in the District’s Fiscal Year 2018-19 audited financial statements, attached hereto as “APPENDIX B.” During Fiscal Year 2018-19, the District prepaid $31.8 million of its unfunded actuarial pension liability, which is not yet reflected in the most current available actuarial valuation of the District’s pension liability as of June 30, 2018. In addition, the District is expected to reach 100% funded status for its other post- employment benefits as of June 30, 2020. District Reserves and Investment Policy As of June 30, 2019, the District had approximately $73.8 million in cash and investments (combined Wastewater System and water operations). The Wastewater System’s share of this amount at June 30, 2019 is $2.76 million. The District’s reserves are not pledged to and do not secure the District’s obligation to pay the Installment Payments. In accordance with State of California law, the District Board of Directors has approved an investment policy (the “Investment Policy”) which complies with Sections 53601 through 53630 of the Government Code of the State of California providing legal authorization for the investment or deposit of funds of local agencies. All investments of the District conform to the restrictions of those laws. The District’s investments by category and their respective market value and book value as of June 30, 2019 are set forth in Table No. 5 below. For additional information relating to the District’s investments, see “APPENDIX B - DISTRICT AUDITED FINANCIAL STATEMENTS,” Note 2. TABLE NO. 5 SUMMARY OF INVESTMENTS As of June 30, 2019 Investments Market Value Book Value % of Portfolio Federal Agency Issues – Callable $31,670,612 $31,735,000 42.97% Local Agency Investment Fund (LAIF) 41,855,272 41,783,747 56.57 San Diego County Pool 281,000 281,036 0.38 Money Market Funds 59,595 59,595 0.08 $73,866,479 $73,859,378 100.00% ____________________________________ Source: Otay Water District. The Investment Policy may be changed at any time at the discretion of the District (subject to the State law provisions relating to authorized investments) and as the California Government Code is amended. Any exception to the Investment Policy must, however, be formally approved by the Board of Directors of the District. There can be no assurance the State law or the Investment Policy will not be amended in the future to allow for investments which are currently not permitted under such State law or the Investment Policy, or that the objectives of the District with respect to investments will not change. 27 Historical Operating Results The following table summarizes the Statement of Net Position for the Wastewater System for the last five fiscal years ended June 30, 2019. The audited financial statements of the District for the Fiscal Year ended June 30, 2019 are attached hereto as “APPENDIX B” and should be read in their entirety. The District accounts for moneys received and expenses paid in accordance with generally accepted accounting principles applicable to governmental agencies such as the District (“GAAP”). In certain cases, GAAP requires or permits moneys collected in one Fiscal Year to be recognized as revenue in a subsequent Fiscal Year and requires or permits expenses paid or incurred in one Fiscal Year to be recognized as expenses in a subsequent Fiscal Year. See “APPENDIX B.” Except as otherwise expressly noted herein, all financial information derived from the District’s audited financial statements reflects the application of GAAP. The Governmental Accounting Standards Board (“GASB”) has issued various statements relating to the reporting of pension and other post-retirement benefit liabilities and expense, and most recently, new accounting and financial reporting requirements for OPEB plans. The required reporting of net pension liability was incorporated into the District’s financial statements for the Fiscal Year ending June 30, 2015 and the required reporting of net OPEB liability in accordance with GASB Statement No. 75 was incorporated into the District’s financial statements for the Fiscal Year ending June 30, 2018. Prior to the start of a fiscal year, agencies (including the District) provide the Metro System with their estimate of wastewater flow and strength they expect to discharge to the Metro System. The City of San Diego also provides an estimate of their projected costs to be spent that fiscal year, including operational and maintenance work on the Metro System. This provides the agencies with an estimated budget to use for the fiscal year. After the fiscal year is over, the actual flows and strengths that were sent to the Metro System and the actual expenses incurred by the City of San Diego are “trued-up” to determine the final invoicing amount for that fiscal year. This generally occurs two years after the end of the operating year. In prior years, this has been reflected in “Miscellaneous Revenues” when the true-up results in a refund, and in “Operating Expenses” when the true-up results in additional payment. 28 TABLE NO. 6 OTAY WATER DISTRICT SEGMENT INFORMATION FOR WASTEWATER SYSTEM STATEMENT OF NET POSITION For the Fiscal Years Ended June 30 2015 2016 2017 2018 2019 ASSETS CURRENT ASSETS: Cash and Cash Equivalents $ 2,008,510 $ 1,380,004 $ 2,912,754 $ 1,248,515 $ 697,835 Investments 8,487,168 9,536,464 5,353,358 3,830,588 2,062,618 Board Designated Investments 44,054 87,915 115,396 125,620 - Accounts Receivable, Net - 179,781 176,447 172,016 210,500 Prepaid Expenses and Other Current Assets 34,839 34,300 34,300 34,300 34,300 Total Current Assets $10,574,571 $11,218,464 $ 8,592,255 $ 5,411,039 $ 3,005,253 NON-CURRENT ASSETS: Net OPEB Asset $ - $ 418,506 $ 467,099 $ - $ - Capital Assets: Land 28,200 28,200 332,136 332,136 332,136 Construction in Progress 1,754,365 2,168,017 4,722,179 4,977,615 9,269,253 Capital Assets, Net of Accumulated Depreciation 16,001,693 15,738,718 16,381,109 19,682,084 19,851,768 Total Capital Assets, Net of Depreciation 17,784,258 17,934,935 21,435,424 24,991,835 29,453,157 Total Non-current Assets $17,784,258 $18,353,441 $21,902,523 $24,991,835 $29,453,157 TOTAL ASSETS $28,358,829 $29,571,905 $30,494,778 $30,402,874 $32,458,410 DEFERRED OUTFLOWS OF RESOURCES Deferred Actuarial Pension Costs 164,477 277,530 450,476 425,632 2,065,311 Deferred Actuarial OPEB Costs - - - 103,494 103,904 TOTAL DEFERRED OUTFLOWS OF RESOURCES $ 164,477 $ 277,530 $ 450,476 $ 529,126 $ 2,169,215 Continued on next page. 29 TABLE NO. 6 OTAY WATER DISTRICT SEGMENT INFORMATION FOR WASTEWATER SYSTEM STATEMENT OF NET POSITION For the Fiscal Years Ended June 30 Continued from previous page. 2015 2016 2017 2018 2019 LIABILITIES CURRENT LIABILITIES: Accounts Payable $ 228,017 $ 191,334 $ 82,906 $ 900,460 $ 179,189 Other Accrued Liabilities 179,155 210,558 255,709 439,426 643,495 Total Current Liabilities $ 407,172 $ 401,892 $ 338,615 $ 1,339,886 $ 822,684 NON-CURRENT LIABILITIES: Long-term Debt: Net Pension Liability 1,781,274 1,828,127 2,068,124 2,285,634 2,221,070 Net OPEB Liability - - - 221,393 151,308 Total Non-current Liabilities $ 1,781,274 $ 1,828,127 $ 2,068,124 $ 2,507,027 $ 2,372,378 TOTAL LIABILITIES $ 2,188,446 $ 2,230,019 $ 2,406,739 $ 3,846,913 $ 3,195,062 DEFERRED INFLOWS OF RESOURCES Deferred Actuarial Pension Costs $ 228,525 $ 251,927 $ 163,823 $ 19,935 $ 31,888 Deferred Actuarial OPEB Costs - - - 25,354 25,642 TOTAL DEFERRED INFLOWS OF RESOURCES $ 228,525 $ 251,927 $ 163,823 $ 45,289 $ 57,530 NET POSITION Net Investment in Capital Assets $17,784,258 $17,934,935 $21,435,424 $24,991,835 $29,453,157 Unrestricted 8,322,077 9,432,554 6,939,268 2,047,963 1,921,876 TOTAL NET POSITION $26,106,335 $27,367,489 $28,374,692 $27,039,798 $31,375,033 ____________________________________ (1) For the Fiscal Year ended June 30, 2015, the District Implemented GASB 68 relating to reporting of pension and other retirement obligations. (2) For the Fiscal Year ended June 30, 2018, the District Implemented GASB 75 relating to reporting of OPEB obligations. Source: Otay Water District. 30 TABLE NO. 7 OTAY WATER DISTRICT SEGMENT INFORMATION FOR WASTEWATER SYSTEM STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For the Fiscal Years Ended June 30 2015 2016 2017 2018 2019 OPERATING REVENUES Wastewater Revenue $ 3,044,158 $ 3,175,300 $ 2,983,495 $ 2,865,520 $ 2,961,157 Connection and Other Fees 6,746 3,764 1,052 3,973 12,393 Total Operating Revenues 3,050,904 3,179,064 2,984,547 2,869,493 2,973,550 OPERATING EXPENSES Wastewater 1,824,259 2,021,513 1,921,745 2,498,521 2,784,579 Depreciation 1,050,506 1,017,180 1,062,249 1,006,731 833,920 Total Operating Expenses 2,874,765 3,038,693 2,983,994 3,505,252 3,618,499 Operating Income (Loss) 176,139 140,371 553 (635,759) (644,949) NON-OPERATING REVENUES (EXPENSES) Investment Earnings 73,700 94,168 50,070 67,388 104,362 Taxes and Assessments 437 3 16,316 789 Availability Charges 44,553 72,469 90,968 51,401 51,818 Gain (Loss) on Sale of Capital Assets - - - (181,859) Miscellaneous Revenues (1) - 856,306 783,963 - 392,624 Miscellaneous Expenses (11,675) - (15,091) (6,624) (4,515) Total Non-operating Revenues (Expenses) 107,015 1,022,946 926,226 (68,905) 544,289 Income (Loss) Before Capital Contributions 283,154 1,163,317 926,779 (704,664) (100,660) Capital Contributions 687,614 97,837 80,424 37,109 4,435,895 Change in Net Position 970,768 1,261,154 1,007,203 (667,555) 4,335,235 Total Net Position, Beginning, As Previously Reported 26,995,562 26,106,335 27,367,489 28,374,692 27,039,798 Prior Period Adjustment(2) (1,859,995) - - (667,339) - Total Net Position, Beginning, As Restated 25,135,567 26,106,335 27,367,489 27,707,353 27,039,798 Total Net Position, Ending $26,106,335 $27,367,489 $28,374,692 $27,039,798 $31,375,033 ____________________________________ (1) Miscellaneous Revenue may include refunds of overcharges from the City of San Diego Metro Operations from previous billing years. These refunds are the result of the City performing a “true-up” of actual costs shared by the Otay Water District which is completed 2 years after the billing year. (2) The prior period adjustment in Fiscal Year 2014-15 relates to the implementation of GASB No. 68 and in Fiscal Year 2017-18 relates to the implementation of GASB No. 75, both concerning post-employment benefits. 31 Table No. 8 sets forth historical Net Revenues for the Fiscal Years 2014-15 through 2018-19, as such Net Revenues would have been calculated in accordance with the Installment Sale Agreement. Such calculations, which are derived from definitions of Gross Revenues, Operation and Maintenance Costs, Net Revenues set forth in Appendix A, are intended to reflect the District’s ability to comply with the rate covenant contained in the Installment Sale Agreement and described under the caption “SOURCES OF PAYMENT FOR THE BONDS” and for no other purpose. Such calculations may reflect non-recurring or extraordinary accounting transactions permitted under the Installment Sale Agreement and GAAP. The District makes no representations as to any such calculations, and such calculations should not be construed as a representation by the District as to past or future compliance with any bond covenants, the availability of particular revenues for the payment of Installment Payments or for any other purpose. TABLE NO. 8 SEGMENT INFORMATION FOR WASTEWATER SYSTEM HISTORICAL NET REVENUES (in ‘000’s) For the Fiscal Year Ended June 30 2015 2016 2017 2018 2019 Revenues: Wastewater Revenue $3,044 $3,175 $2,983 $2,866 $2,961 Connection Fees 7 4 1 4 12 Availability 45 72 91 51 52 Capacity Fees/Annexation Fees 25 49 34 14 11 Betterment Fees 32 57 50 28 28 Investment and Other Earnings (1) 74 950 834 67 497 Total Revenue $3,227 $4,307 $3,993 $3,030 $3,561 Operation and Maintenance Costs: Sewer Charge (Metro & County) $1,209 $1,031 $ 871 $1,134 $1,058 Utilities 167 154 123 174 144 Payroll 326 615 701 815 1,151 Administrative 48 47 42 84 219 Materials and Maintenance 74 175 185 292 213 Total Operation and Maintenance Costs $1,824 $2,022 $1,922 $2,499 $2,785 Net Revenues $1,403 $2,285 $2,071 $ 531 $ 776 ____________________________________ (1) Investments and Other Earnings Schedule, includes Metro refunds that pertain to City of San Diego “True-Up” cost calculations from previous years. Source: Otay Water District. 32 Projected Debt Service Coverage The projections of Revenues and the corresponding Net Revenues shown in Table No. 9 are based on the assumptions shown below. The District believes the assumptions used for the projections are reasonable based on its own data and on projections from outside sources regarding expected growth in the District; however, some assumptions may not materialize and unanticipated events and circumstances may occur (see “RISK FACTORS”). To the extent that the assumptions are not actually realized the coverage levels shown in Table No. 9 will likely be reduced and, if substantial reductions in Net Revenues were to result, the District’s ability to timely pay the Installment Payments, which, in turn, pay debt service on the Bonds, may be adversely affected. (a) Sewer rates are projected to increase 7.1% annually based on the District’s most recently updated projections. These projected rates reflect the District’s estimate of potential rate increases that would be passed through to the District’s customers as a result of increased costs from the Metro System. (b) Availability and Other Fees are projected to remain stable over the next 5 years with availability charges of $52,000 derived from property tax assessments as a fixed charge per parcel representing the majority of these revenues. (c) Investment and Other Earnings are projected to increase as the District’s cash and investment position increases. (d) Sewer Costs are projected to increase 5.0% annually as a result of increases in the Metro System operating costs charged to the District. County operating charges charged to the District are projected to decrease in 2021 as a result of the County completing a major maintenance project and remain level through 2024. (e) Operating costs shown in Fiscal Year 2020 are based on current year budget estimates. Costs for subsequent fiscal years include the annual average inflationary factors shown below. Utilities 3.5% Material and Maintenance 4.0% Administrative Costs 3.0% Salaries 3.0% Benefits 5.0% Workers Compensation Insurance 5.0% 33 TABLE NO. 9 PROJECTED NET REVENUES (in ‘000’s) AND DEBT SERVICE COVERAGE For the Fiscal Year ended June 30 (1) 2020 2021 2022 2023 2024 Revenues: Wastewater Revenue $2,918 $2,964 $3,288 $3,549 $3,799 Availability and Other Fees 81 81 81 81 81 Investment and Other Earnings (1) 56 58 81 101 99 Total Revenue $3,055 $3,103 $3,450 $3,731 $3,979 Operation and Maintenance Costs: Metro Sewer Charge (2) $ 601 $ 631 $ 663 $ 696 $ 731 County Sewer Charge 251 185 185 185 185 Total Sewer Charge 852 816 848 881 916 Utilities 154 162 169 175 182 Payroll 1,167 1,202 1,237 1,277 1,320 Administrative 282 290 299 308 317 Materials and Maintenance 340 353 368 382 398 Total Operation and Maintenance Costs $2,795 $2,823 $2,921 $3,023 $3,133 Net Revenues 260 280 529 708 846 Installment Payments (3) $ 49 $ 86 $ 162 $ 162 $ 162 Parity Obligations (4) - - 45 175 175 Total Debt Service $ 49 $ 86 $ 207 $ 337 $ 337 Coverage Ratio 326% 256% 210% 251% ____________________________________ (1) Investments and Other Earnings Schedule, includes Metro refunds that pertain to City of San Diego “True-Up” cost calculations from previous years. (2) Excluding capital charges for Pure Water Project which the District expects to capitalize. (3) Calculated on an accrual basis for each July 1 to June 30 period. (4) The District anticipates issuing Parity Obligations to fund $3 million of additional capital improvements, see “Capital Improvement Program” above. Source: Otay Water District. The projected Revenues, Taxes and Operation and Maintenance Costs shown above are subject to several variables as described on the previous pages. The District provides no assurance that the projected Net Revenues or Coverage Ratios will be achieved (see “RISK FACTORS” herein). 34 CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIIB Gann Limit Article XIIIB of the California State Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. The “base year” for establishing such appropriation limit is the 1978-79 fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in the appropriations limit of an entity may also be made if (i) the financial responsibility for a service is transferred to another public entity or to a private entity, (ii) the financial source for the provision of services is transferred from taxes to other revenues, or (iii) the voters of the entity approve a change in the limit for a period of time not to exceed four years. Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions and refunds of taxes. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to an entity of government from (i) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (ii) the investment of tax revenues. Article XIIIB includes a requirement that if an entity’s revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. Certain expenditures are excluded from the appropriations limit including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by the voters and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the providing of existing services more costly. The District is of the opinion that its charges with respect to Wastewater Service do not exceed the costs that it reasonably bears in providing Wastewater Service and are not subject to the limits of Article XIIIB. Proposition 218 General. On November 5, 1996, California voters approved Proposition 218, the so-called “Right to Vote on Taxes Act.” Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which affect the ability of local governments to levy and collect both existing and future taxes, assessments, and property- related fees and charges. Proposition 218, which generally became effective on November 6, 1996, changed, among other things, the procedure for the imposition of any new or increased property-related “fee” or “charge,” which is defined as “any levy other than an ad valorem tax, a special tax or an assessment, imposed by a local government upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property related service” (and referred to in this section as a “property related fee or charge”). On November 2, 2010, California voters approved Proposition 26, the so-called “Supermajority Vote to Pass New Taxes and Fees Act.” Section 1 of Proposition 26 declares that Proposition 26 is intended to limit the ability of the State Legislature and local government to circumvent existing restrictions on increasing taxes by defining the new or expanded taxes as “fees.” Proposition 26 amended Articles XIIIA and XIIIC of the State Constitution. The amendments to Article XIIIA limit the ability of the State Legislature to impose higher taxes (as defined in Proposition 26) without a two-thirds vote of the Legislature. Proposition 26’s amendments to Article XIIIC broadly define “tax,” but specifically exclude, among other things: 35  A charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege.  A charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product.  A charge imposed as a condition of property development.  Assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Property-Related Fees and Charges. Under Article XIIID, before a municipality may impose or increase any property-related fee or charge, the entity must give written notice to the record owner of each parcel of land affected by that fee or charge. The municipality must then hold a hearing upon the proposed imposition or increase at least 45 days after the written notice is mailed, and, if a majority of the property owners of the identified parcels present written protests against the proposal, the municipality may not impose or increase the property-related fee or charge. Further, under Article XIIID, revenues derived from a property-related fee or charge may not exceed the funds required to provide the “property-related service” and the entity may not use such fee or charge for any purpose other than that for which it imposed the fee or charge. The amount of a property-related fee or charge may not exceed the proportional cost of the service attributable to the parcel, and no property- related fee or charge may be imposed for a service unless that service is actually used by, or is immediately available to, the owner of the property in question. Initiative Power. In addition, Article XIIIC states that “the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge. The power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments and neither the Legislature nor any local government charter shall impose a signature requirement higher than that applicable to Statewide statutory initiatives.” Judicial Interpretation of Articles XIIIC and XIIID. After Proposition 218 was enacted in 1996, appellate court cases and an Attorney General’s opinion initially indicated that fees and charges levied for water and wastewater would not be considered property-related fees and charges, and thus not subject to the requirements of Article XIIID regarding notice, hearing and protests in connection with any increase in the fees and charges being imposed. However, three cases have held that certain types of water and wastewater charges could be subject to the requirements of Article XIIID under certain circumstances. In Richmond v. Shasta Community Services District (2004) 32 Cal.4th 409, the California Supreme Court addressed the applicability of the notice, hearing and protest provisions of Article XIIID to certain charges related to Wastewater Service. In Richmond, the Court held that capacity charges are not subject to Proposition 218. The Court also indicated in dictum that a fee for ongoing Wastewater Service through an existing connection could, under certain circumstances, constitute a property-related fee and charge, with the result that a local government imposing such a fee and charge must comply with the notice, hearing and protest requirements of Article XIIID. In Howard Jarvis Taxpayers Association v. City of Fresno (2005) 127 Cal.App.4th 914, the California Court of Appeal, Fifth District, concluded that water, sewer and trash fees are property-related fees subject to Proposition 218, and a municipality must comply with Article XIIID before imposing or increasing such fees. The California Supreme Court denied the City of Fresno’s petition for review of the Court of Appeal’s decision on June 15, 2005. 36 In July 2006, the California Supreme Court, in Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, addressed the validity of a local voter initiative measure that would have (a) reduced a water agency’s rates for water consumption (and other water charges), and (b) required the water agency to obtain voter approval before increasing any existing water rate, fee, or charge, or imposing any new water rate, fee, or charge. The court adopted the position indicated by its statement in Richmond that a public water agency’s charges for ongoing water delivery are “fees and charges” within the meaning of Article XIIID, and went on to hold that charges for ongoing water delivery are also “fees” within the meaning of Article XIIIC’s mandate that the initiative power of the electorate cannot be prohibited or limited in matters of reducing or repealing any local tax, assessment, fee or charge. Therefore, the court held, Article XIIIC authorizes local voters to adopt an initiative measure that would reduce or repeal a public agency’s water rates and other water delivery charges. (However, the court ultimately ruled in favor of the water agency and held that the entire initiative measure was invalid on the grounds that the second part of the initiative measure, which would have subjected future water rate increases to prior voter approval, was not supported by Article XIIIC and was therefore invalid.) The court in Bighorn specifically noted that it was not holding that the initiative power is free of all limitations; the court stated that it was not determining whether the electorate’s initiative power is subject to the statutory provision requiring that Wastewater Service charges be set at a level that will pay for operating expenses, provide for repairs and depreciation of works, provide a reasonable surplus for improvements, extensions, and enlargements, pay the interest on any bonded debt, and provide a sinking or other fund for the payment of the principal of such debt as it may become due. On April 20, 2015, the California Court of Appeal, Fourth District, issued an opinion in Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano, 235 Cal. App. 4th 1493 (2015) (the “SJC Case”) upholding tiered water rates under Proposition 218 provided that the tiers correspond to the actual cost of furnishing service at a given level of usage. The opinion was specific to the facts of the case, including a finding that the City of San Juan Capistrano did not attempt to calculate the actual costs of providing water at various tier levels. District management believes that this case will not have any material impact on the District’s ability to make the Installment Payments or to meet its rate covenant. Conclusion. It is not possible to predict how the courts will further interpret Article XIIIC and Article XIIID in future judicial decisions and what, if any, further implementing legislation will be enacted. Under the Bighorn case, local voters could adopt an initiative measure that reduces or repeals water rates and charges, though it is not clear whether (and California courts have not decided whether) any such reduction or repeal by initiative would be enforceable in a situation in which such rates and charges are pledged to the repayment of bonds or other indebtedness, as is the case with respect to the Bonds. The District believes that its rates with respect to the Wastewater Service comply with the requirements of Proposition 218 and expect that future fees and charges will comply with Proposition 218’s procedural and substantive requirements to the extent applicable thereto. The requirements of, or a voter initiative pursuant to, Proposition 218 could impact the ability of the District to set or raise service charges. There can be no assurance that the courts will not further interpret, or the voters will not amend, Article XIIIC and Article XIIID to limit the ability of local agencies to impose, levy, charge and collect increased fees and charges for water, or to call into question previously adopted water rate increases. Future Initiatives Articles XIIIB, XIIIC and XIIID were adopted as measures that qualified for the ballot pursuant to California’s initiative process. From time to time other initiatives could be proposed and adopted affecting the revenues of the District. 37 RISK FACTORS This section describes certain special considerations and risk factors affecting the payment of and security for the Bonds. The following discussion is not meant to be an exhaustive list of the risks associated with the purchase of any Bonds and the order does not necessarily reflect the relative importance of the various risks. Potential investors in the Bonds are advised to consider these special factors along with all other information in this Official Statement in evaluating the Bonds. There can be no assurance that other considerations will not materialize in the future, and if additional considerations materialize to a sufficient degree, they could delay or prevent payment of principal of and interest on the Bonds. Net Revenues; Rate Covenant Net Revenues are dependent upon the demand for wastewater services, which can be affected by population factors, more stringent wastewater standards, wastewater regulations, water conservation, water shortages, problems with the District’s wastewater collection and other factors. There can be no assurance that wastewater service demand will be consistent with the levels contemplated in this Official Statement. A decrease in demand could require an increase in rates or charges in order to comply with the rate covenant contained in the Installment Sale Agreement. The District’s ability to meet its rate covenant is dependent upon its capacity to increase rates to a level sufficient to meet debt service on the Bonds and other Parity Obligations. Risks Related to Facilities and Operations The operation of the District’s facilities and physical condition of the District’s facilities are subject to a number of risk factors that could adversely affect the reliability of sewer service or increase the operating expenses of the District. Prolonged damage to the District’s facilities could interrupt the ability of the District to realize Revenues sufficient to pay principal of and interest on the Bonds, require substantial increases in rates or charges in order to comply with the rate covenant in the Installment Sale Agreement (which could drive down demand for wastewater and related services), or require the District to increase expenditures for repairs significantly enough to adversely impact the District’s ability to pay the principal of or interest on the Bonds. These factors could include, among others, the following: Operation and Maintenance Expenses. There can be no assurance that operation and maintenance expenses of the District related to the wastewater system will be consistent with the levels contemplated in this Official Statement. Seismic Hazards and Natural Disasters. The District is located in a seismically active region. From time to time, the service area of the District may be subject to other natural disasters, including without limitation wildfires, flooding and landslides, or man-made disasters that could interrupt operation of the wastewater system, or adversely affect economic activity in the District’s service area. There can be no assurance that the occurrence of any natural calamity would not cause substantial damage to the District’s facilities, including exacerbated infiltration and/or inflow of ground and other waters into the wastewater system, or that the District would have insurance or other resources available to make repairs in order to generate sufficient Net Revenues to pay debt service on the Bonds when due. The casualty and liability insurance maintained by the District may not cover damages and losses to the District’s facilities due to earthquake, fire or flood. The Wastewater System and its facilities are generally located adjacent to an area designated by California Department of Forestry and Fire Protection as a Very High Fire Hazard Severity Zone (“FHSZ”). While 38 FHSZ zones do not predict when or where a wildfire will occur, they do identify areas where wildfire hazards could be more severe and therefore are of greater concern. Climate Change. As noted, the sewer charges are based on water usage by customers, and therefore, factors affecting water usage will necessarily affect revenues of the Wastewater System. The issue of climate change has become an important factor in water resources planning in the State, and it is being considered during planning for water supplies and systems. Many studies cite evidence that increasing concentrations of greenhouse gases have caused and will continue to cause a rise in temperatures around the world, which will result in a wide range of changes in climate patterns. Moreover, they cite evidence that a warming trend occurred during the latter part of the 20th century and will likely continue through the 21st century. These changes could have a direct effect on water resources in the State, and numerous studies on climate and water in the State have been conducted to determine the potential impacts. Based on these studies, global warming could result in the following types of water resources impacts in the State, including impacts on water supplies and systems:  Sea level rise and an increase in saltwater intrusion into groundwater,  Changes in the timing, intensity, and variability of precipitation, and an increased amount of precipitation falling as rain instead of as snow,  Reductions in the average annual snowpack due to a rise in the snowline and a shallower snowpack in the low- and medium-elevation zones, and a shift in snowmelt runoff to earlier in the year,  Long-term changes in watershed vegetation and increased incidence of wildfires that could affect water quality,  Increased water temperatures with accompanying adverse effects on some fisheries,  Increases in evaporation and concomitant increased irrigation need, and  Changes in urban and agricultural water demand. Other than the general trends listed above, there is no specific information on exactly how global warming will quantitatively affect water supplies with respect to the District or customer water conservation. However, there can be no assurance that climate change will not affect the District’s water sources or customer demand. Aging Facilities. While the District has an ongoing series of projects to rehabilitate and upgrade the Wastewater System some of these facilities are aging and still in need of repair or replacement. Long-lived facilities result in decreased reliability due to unplanned outages and place a greater maintenance burden on District Operations. Private Sewer Laterals. Private sewer laterals are not owned or operated by the District; however, faulty private sewer laterals can increase inflow and infiltration into the District’s facilities. Excessive inflow and infiltration into the facilities due to faulty sewer laterals may cause damage to the District’s facilities. Statutory and Regulatory Compliance. The operation of the District is subject to a variety of federal and State statutory and regulatory requirements. Any failure by the District to comply with applicable laws and regulations could result in significant fines and penalties. See “- Risk of Fines and Litigation” below. Further, compliance with these laws and regulations may result in significant increases in the capital and operating costs of the District. Casualty Losses. The Installment Sale Agreement obligates the District to obtain and keep in force various forms of insurance or self-insurance, subject to deductibles, for repair or replacement of a portion of the 39 District’s facilities in the event of damage or destruction to such portion of the District’s facilities. No assurance can be given as to the adequacy of any such self-insurance or any additional insurance to fund necessary repair or replacement of any other portion of the District’s facilities. Risk of Fines and Litigation There is no certainty that the District can eliminate all future sanitary sewer overflows that reach waters of the United States. Sanitary sewer overflows could result in administrative civil penalties or the request for civil penalties by third parties brought under the citizen suit provisions of the Clean Water Act. Any such actions could impose additional payment obligations on the District. Any fines or civil penalties would likely be classified by the District as Operation and Maintenance Costs and, therefore, payable prior to debt service on the Bonds. Proposition 218 On November 5, 1996, California voters approved Proposition 218-Voter Approval for Local Government Taxes-Limitation on Fees, Assessments, and Charges-Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. The ability of the District to comply with its covenants under the Installment Sale Agreement and generate Net Revenues sufficient to pay the Installment Payments may be adversely affected by actions and events outside of the control of the District or taken (or not taken) by voters, property owners, taxpayers or payers of assessments, fees and charges. See “CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS - Proposition 218” for a discussion of specific issues and risks raised by Proposition 218. The District’s current projections assume future rate increases which will be subject to the Proposition 218 notice process, will be needed during the time that the Bonds are Outstanding. Limitations on Remedies Available to Bond Owners Any remedies available to the owners of the Bonds upon the occurrence of an event of default under the Installment Sale Agreement or the Indenture are in many respects dependent upon judicial actions, which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. In addition to the limitations on Bondholder remedies contained in the Installment Sale Agreement and the Indenture, the rights and obligations under the Bonds, the Installment Sale Agreement and the Indenture may be subject to the following: the United States Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights. Future Parity Obligations As described in “SOURCES OF PAYMENT FOR THE BONDS - Parity Obligations” herein, the Installment Sale Agreement permits the District to issue Parity Obligations, under which its obligations would be payable on a parity with the payment of the Installment Payments. 40 The coverage tests described in “SOURCES OF PAYMENT FOR THE BONDS - Parity Obligations” involve, to some extent, projections of Net Revenues. If Parity Obligations are issued, the debt service coverage for the Bonds could be diluted below what it otherwise would be. Moreover, there is no assurance that the assumptions that form the basis of such projections, if any, will be actually realized subsequent to the date of such projections. If such assumptions are not realized, the amount of future Net Revenues may be less than projected, and the actual amount of Net Revenues may be insufficient to provide for the payment of the Bonds and any future Parity Obligations. Cybersecurity As a recipient and provider of personal, private and sensitive information, the District faces multiple cyber threats including, but not limited to, hacking, viruses, malware and other attacks on computers and other sensitive digital networks and systems. Despite security measures, information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Increasingly, government entities are being targeted by cyber-attacks seeking to obtain confidential data or disrupt critical services. A rapidly changing cyber risk landscape may introduce new vulnerabilities which hackers may exploit in attempts to effect breaches or service disruptions. Any such breach could compromise networks and the information stored there could be disrupted, accessed, publicly disclosed, lost or stolen. Any such disruption, access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, operations and the services provided which could ultimately adversely affect Net Revenues. No assurances can be given that the security and operational control measures of the District will be successful in guarding against any and each cyber threat or breach. Although the District maintains insurance coverage for cyber security losses should a successful breach ever occur, the cost of any such disruption or remedying damage caused by future attacks could be substantial and in excess of such insurance coverage. The District is also reliant on other entities and service providers in connection with the administration of the Bonds, including without limitation the County tax collector for the levy and collection of sewer charges, the Fiscal Agent, and the dissemination agent. No assurance can be given that the District, and these other entities will not be affected by cyber threats and attacks in a manner that may affect the Bond owners. Bankruptcy While an involuntary bankruptcy petition cannot be filed against the District or the Authority, each of the District and the Authority is authorized to file for bankruptcy under certain circumstances. Should the District or the Authority file for bankruptcy, there could be adverse effects on the holders of the Bonds. To the extent that the Net Revenues are “special revenues” under the Bankruptcy Code and the Bonds are covered by the provisions of the Bankruptcy Code relating to pledges of special revenues, then Net Revenues collected after the date of the bankruptcy filing should secure the District’s obligations under the Installment Sale Agreement. If any or all of the Net Revenues are determined not to be special revenues or if it is determined that the Bonds are not covered by the relevant provisions of the Bankruptcy Code, then any such amounts collected after the commencement of the bankruptcy case will likely not secure the District’s obligations under the Installment Sale Agreement. The holders of the Bonds may not be able to assert a claim against any property of the District other than the Net Revenues, and if any or all of the Net Revenues no longer secure the Installment Sale Agreement, then there may be limited, if any, funds from which the holders of the Bonds are entitled to be paid. 41 The Bankruptcy Code provides that “special revenues” can be applied to necessary operating expenses of the project or system, before they are applied to other obligations. This rule applies regardless of the provisions of the transaction documents. It is not clear precisely which expenses would constitute necessary operating expenses and any definition in the transaction documents may not be applicable. If the District or the Authority is in bankruptcy, the parties (including the Trustee and the holders of the Bonds) may be prohibited from taking any action to collect any amount from the bankrupt party or to enforce any obligation of the bankrupt party, unless the permission of the bankruptcy court is obtained. These restrictions may also prevent the Trustee from making payments to the holders of the Bonds from funds in the Trustee’s possession. If the Authority is in bankruptcy, it may be able to require that all amounts due under the Installment Sale Agreement (including Net Revenues) be paid directly to it, notwithstanding the provisions of the transaction documents that require such payments be made directly to the Trustee. The rate covenant (see “SOURCES OF PAYMENT FOR THE BONDS - Rate Covenant”) may not be enforceable in bankruptcy by the Trustee or the holders of the Bonds. The District is permitted to commingle Net Revenues with its own funds for certain periods of time before turning over the Net Revenues to the Trustee. If the District goes into bankruptcy, the District may not be required to turn over to the Trustee any Net Revenues that are in its possession at the time of the bankruptcy filing and have been commingled with other moneys. If the District has possession of Net Revenues (whether collected before or after commencement of the bankruptcy) and if the District does not voluntarily turn over such Net Revenues to the Trustee, it is not entirely clear what procedures the Trustee and the holders of the Bonds would have to follow to attempt to obtain possession of such Net Revenues, how much time it would take for such procedures to be completed, or whether such procedures would ultimately be successful. If the District or the Authority is in bankruptcy it may be able to repudiate the Installment Sale Agreement. If the Installment Sale Agreement is repudiated, the District will no longer be obligated to make any payments under it. If the District or the Authority is in bankruptcy it may be able, without the consent and over the objection of the Trustee and the holders of the Bonds, to alter the priority, interest rate, principal amount, payment terms, collateral, maturity dates, payment sources, covenants (including tax-related covenants), and other terms or provisions of the Installment Sale Agreement, the Indenture, and the Bonds, as long as the bankruptcy court determines that the alterations are fair and equitable. There may be delays in payments on the Bonds while the court considers any of these issues. There may be other possible effects of a bankruptcy of the District or the Authority that could result in delays or reductions in payments on the Bonds, or result in losses to the holders of the Bonds. Regardless of any specific adverse determinations in a District or Authority bankruptcy proceeding, the fact of a District or Authority bankruptcy proceeding could have an adverse effect on the liquidity and value of the Bonds. Loss of Tax Exemption In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds, the Authority will covenant in the Indenture and the District will covenant in the Installment Sale Agreement to comply with each applicable requirement of Section 103 and Sections 141 through 150 of the Internal Revenue Code. The interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of execution and delivery of the Bonds, as a result of acts or omissions of the Authority or the District in violation of this or other covenants in the Indenture or the Installment Sale Agreement. Should such an event of taxability occur, the Bonds are not subject to prepayment or any increase in interest rates and will remain outstanding until maturity. See “- Limitations on Remedies Available to Bond Owners” and “TAX MATTERS” herein. 42 IRS Audit of Tax-Exempt Bond Issues The Internal Revenue Service has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the Internal Revenue Service. It is also possible that the market value of the Bonds might be adversely affected as a result of such an audit of the Bonds (or by an audit of similar bonds). Secondary Market Risk There can be no assurance that there will be a secondary market for purchase or sale of the Bonds, and from time to time there may be no market for them, depending upon prevailing market conditions, the financial condition or market position of firms who may make the secondary market and the financial condition of the District. Secondary market prices for the Bonds could be more or less than the original issue price depending on market factors. TAX MATTERS Opinion of Bond Counsel. In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel, under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described herein, (i) interest on the Bonds is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax under the Code. In rendering its opinion, Bond Counsel has relied on certain representations, certifications of fact, and statements of reasonable expectations made by the Authority and the District in connection with the Bonds, and Bond Counsel has assumed compliance by the Authority and the District with certain ongoing covenants to comply with applicable requirements of the Code to assure the exclusion of interest on the Bonds from gross income under Section 103 of the Code. In addition, in the opinion of Bond Counsel, under existing statutes, interest on the Bonds is exempt from personal income taxes imposed by the State of California. Bond Counsel expresses no opinion as to any other federal, state or local tax consequences arising with respect to the Bonds, or the ownership or disposition thereof, except as stated above. Bond Counsel renders its opinion under existing statutes and court decisions as of the issue date, and assumes no obligation to update, revise or supplement its opinion to reflect any action thereafter taken or not taken, any fact or circumstance that may thereafter come to its attention, any change in law or interpretation thereof that may thereafter occur, or for any other reason. Bond Counsel expresses no opinion as to the consequence of any of the events described in the preceding sentence or the likelihood of their occurrence. In addition, Bond Counsel expresses no opinion on the effect of any action taken or not taken in reliance upon an opinion of other counsel regarding federal, state or local tax matters, including, without limitation, exclusion from gross income for federal income tax purposes of interest on the Bonds. Certain Ongoing Federal Tax Requirements and Covenants. The Code establishes certain ongoing requirements that must be met subsequent to the issuance and delivery of the Bonds in order that interest on the Bonds be and remain excluded from gross income under Section 103 of the Code. These requirements include, but are not limited to, requirements relating to use and expenditure of gross proceeds of the Bonds, yield and other restrictions on investments of gross proceeds, and the arbitrage rebate requirement that certain excess earnings on gross proceeds be rebated to the federal government. Noncompliance with such requirements may cause interest on the Bonds to become included in gross income for federal income tax purposes retroactive to their issue date, irrespective of the date on which such noncompliance occurs or is discovered. The Authority and the District have covenanted to comply with certain applicable requirements of the Code to assure the exclusion of interest on the Bonds from gross income under Section 103 of the Code. 43 Certain Collateral Federal Tax Consequences. The following is a brief discussion of certain collateral federal income tax matters with respect to the Bonds. It does not purport to address all aspects of federal taxation that may be relevant to a particular owner of a Bond. Prospective investors, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the federal tax consequences of owning and disposing of the Bonds. Prospective owners of the Bonds should be aware that the ownership of such obligations may result in collateral federal income tax consequences to various categories of persons, such as corporations (including S corporations and foreign corporations), financial institutions, property and casualty and life insurance companies, individual recipients of Social Security and railroad retirement benefits, individuals otherwise eligible for the earned income tax credit, and taxpayers deemed to have incurred or continued indebtedness to purchase or carry obligations the interest on which is excluded from gross income for federal income tax purposes. Interest on the Bonds may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code. Original Issue Discount. “Original issue discount” (“OID”) is the excess of the sum of all amounts payable at the stated maturity of a Bond (excluding certain “qualified stated interest” that is unconditionally payable at least annually at prescribed rates) over the issue price of that maturity. In general, the “issue price” of a maturity (a bond with the same maturity date, interest rate, and credit terms) means the first price at which at least 10 percent of such maturity was sold to the public, i.e., a purchaser who is not, directly or indirectly, a signatory to a written contract to participate in the initial sale of the Bonds. In general, the issue price for each maturity of Bonds is expected to be the initial public offering price set forth on the cover page of the Official Statement. Bond Counsel further is of the opinion that, for any Bonds having OID (a “Discount Bond”), OID that has accrued and is properly allocable to the owners of the Discount Bonds under Section 1288 of the Code is excludable from gross income for federal income tax purposes to the same extent as other interest on the Bonds. In general, under Section 1288 of the Code, OID on a Discount Bond accrues under a constant yield method, based on periodic compounding of interest over prescribed accrual periods using a compounding rate determined by reference to the yield on that Discount Bond. An owner’s adjusted basis in a Discount Bond is increased by accrued OID for purposes of determining gain or loss on sale, exchange, or other disposition of such Bond. Accrued OID may be taken into account as an increase in the amount of tax-exempt income received or deemed to have been received for purposes of determining various other tax consequences of owning a Discount Bond even though there will not be a corresponding cash payment. Owners of Discount Bonds should consult their own tax advisors with respect to the treatment of original issue discount for federal income tax purposes, including various special rules relating thereto, and the state and local tax consequences of acquiring, holding, and disposing of Discount Bonds. Bond Premium. In general, if an owner acquires a bond for a purchase price (excluding accrued interest) or otherwise at a tax basis that reflects a premium over the sum of all amounts payable on the bond after the acquisition date (excluding certain “qualified stated interest” that is unconditionally payable at least annually at prescribed rates), that premium constitutes “bond premium” on that bond (a “Premium Bond”). In general, under Section 171 of the Code, an owner of a Premium Bond must amortize the bond premium over the remaining term of the Premium Bond, based on the owner’s yield over the remaining term of the Premium Bond determined based on constant yield principles (in certain cases involving a Premium Bond callable prior to its stated maturity date, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such bond). An owner of a Premium Bond must amortize the bond premium by offsetting the qualified stated interest allocable to each interest accrual period under the owner’s regular method of accounting against the bond premium allocable to that period. In the case of a tax-exempt Premium Bond, if the bond premium allocable to an accrual period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible loss. Under certain circumstances, the owner of a Premium Bond may realize a taxable gain upon disposition of the Premium Bond even though it is sold or redeemed for an amount less than or equal to the owner’s 44 original acquisition cost. Owners of any Premium Bonds should consult their own tax advisors regarding the treatment of bond premium for federal income tax purposes, including various special rules relating thereto, and state and local tax consequences, in connection with the acquisition, ownership, amortization of bond premium on, sale, exchange, or other disposition of Premium Bonds. Information Reporting and Backup Withholding. Information reporting requirements apply to interest paid on tax-exempt obligations, including the Bonds. In general, such requirements are satisfied if the interest recipient completes, and provides the payor with, a Form W-9, “Request for Taxpayer Identification Number and Certification,” or if the recipient is one of a limited class of exempt recipients. A recipient not otherwise exempt from information reporting who fails to satisfy the information reporting requirements will be subject to “backup withholding,” which means that the payor is required to deduct and withhold a tax from the interest payment, calculated in the manner set forth in the Code. For the foregoing purpose, a “payor” generally refers to the person or entity from whom a recipient receives its payments of interest or who collects such payments on behalf of the recipient. If an owner purchasing a Bond through a brokerage account has executed a Form W-9 in connection with the establishment of such account, as generally can be expected, no backup withholding should occur. In any event, backup withholding does not affect the excludability of the interest on the Bonds from gross income for federal income tax purposes. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against the owner’s federal income tax once the required information is furnished to the Internal Revenue Service. Miscellaneous. Tax legislation, administrative actions taken by tax authorities, or court decisions, whether at the federal or state level, may adversely affect the tax-exempt status of interest on the Bonds under federal or state law or otherwise prevent beneficial owners of the Bonds from realizing the full current benefit of the tax status of such interest. In addition, such legislation or actions (whether currently proposed, proposed in the future, or enacted) and such decisions could affect the market price or marketability of the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding the foregoing matters. A copy of the proposed form of opinion of Bond Counsel for the Bonds is attached in “APPENDIX E.” LEGAL MATTERS Enforceability of Remedies The remedies available to the Trustee and the Owners of the Bonds upon an event of default under the Indenture, the Installment Sale Agreement or any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the extent that the enforceability of certain legal rights related to the Indenture and the Installment Sale Agreement are subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally. Approval of Legal Proceedings The legality and enforceability of the Indenture and the Installment Sale Agreement and certain other legal matters are subject to the approval of Hawkins Delafield & Wood LLP, San Francisco, California, acting as Bond Counsel. See “APPENDIX E” for the proposed form of Bond Counsel’s Opinion. The District has no knowledge of any fact or other information which would indicate that the Indenture and the Installment Sale Agreement are not so enforceable against the Authority or the District except to the 45 extent such enforcement is limited by principles of equity and by state and federal laws relating to bankruptcy, reorganization, moratorium or creditors’ rights generally. Certain legal matters will be passed on for the District and the Authority by Artiano Shinoff, San Diego, California, General Counsel to the District and the Authority, and by Hawkins Delafield & Wood LLP, San Francisco, California, as Disclosure Counsel to the District. A portion of the fees payable to Bond Counsel and Disclosure Counsel are contingent upon the sale and delivery of the Bonds. Litigation At any given time, including the present, there are certain claims, disputes and litigation actions that arise in the normal course of the District’s activities. Such matters could, if determined adversely to the District, affect the Wastewater Operations and in some cases the Net Revenues. The Authority and the District will furnish a certificate dated as of the date of delivery of the Bonds that there is not now known to be pending or threatened any litigation restraining or enjoining the execution or delivery of the Indenture or the Installment Sale Agreement, or the sale or delivery of the Bonds or in any manner questioning the proceedings and authority under which the Indenture or the Installment Sale Agreement are to be executed or delivered or the Bonds are to be delivered or affecting the validity thereof or, in the case of the District, which if decided adversely to the District would have a material adverse effect on the District’s financial condition and its ability to pay the Installment Payments. CONCLUDING INFORMATION No Rating on the Bonds; Secondary Market The Authority has not made, and does not contemplate making, any application for a rating on the Bonds. No such rating should be assumed based upon any other Authority or District rating that may be obtained. Prospective purchasers of the Bonds are required to make independent determinations as to the credit quality of the Bonds and their appropriateness as an investment. Should a Bondholder elect to sell a Bond prior to maturity, no representations or assurances can be made that a market will have been established or maintained for the purchase and sale of the Bonds. The Underwriter assumes no obligation to establish or maintain a market for the purchase and sale of the Bonds and is not obligated to repurchase any of the Bonds at the request of the holder thereof. Underwriting The Bonds were sold to Hilltop Securities Inc. (the “Underwriter”). The Underwriter is offering the Bonds at the initial offering prices set forth on the inside front cover page hereof. The initial offering prices may be changed from time to time and concessions from the offering prices may be allowed to dealers, banks and others. The Underwriter will purchase the Bonds at a price equal to $______________, which amount represents the principal amount of the Bonds, plus a net original issue premium of $_______________ and less an Underwriter’s discount of $_____. The Underwriter will pay certain of its expenses relating to the offering from the Underwriter’s discount. 46 The Municipal Advisor The material contained in this Official Statement was prepared by the Authority and the District with the assistance of the Municipal Advisor, who advised the Authority and the District as to the financial structure and certain other financial matters relating to the Bonds. The information set forth herein received from sources other than the Authority or the District is believed to be reliable, but such information is not guaranteed by the Authority, the District or the Municipal Advisor as to accuracy or completeness, nor has it been independently verified. Fees paid to the Municipal Advisor are contingent upon the sale and delivery of the Bonds. Continuing Disclosure The District will covenant to provide certain annual financial information by not later than March 31 in each year (the “Annual Reports”) and notices of the occurrence of certain listed events in accordance with Rule 15c2-12 of the Securities Exchange Act of 1934 as amended (the “Rule”). Harrell & Company Advisors, LLC will act as Dissemination Agent. The specific nature of the information to be contained in the Annual Reports or the notices of listed events and certain other terms of the continuing disclosure obligation are found in the form of the District’s Continuing Disclosure Agreement attached in “APPENDIX D - FORM OF CONTINUING DISCLOSURE AGREEMENT.” Within the last five years, the District believes it has not failed to comply in all material respects with any prior undertakings with regard to the Rule. Audited Financial Statements The District’s audited financial statements for Fiscal Year 2018-19 included in this Official Statement have been audited by Teaman, Ramirez & Smith, Inc. (the “Auditor”), independent auditors. Attention is called to the scope limitation described in the Auditor’s report accompanying the financial statements. The Auditor has not been requested to consent to the inclusion of its report in this Official Statement. The Auditor has not undertaken to update the audited financial statements for Fiscal Year 2018-19 or its report, and no opinion is expressed by the Auditor with respect to any event subsequent to its report dated _______, 2019. See “APPENDIX B - DISTRICT AUDITED FINANCIAL STATEMENTS” herein. References Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Bonds. 47 Execution The execution of this Official Statement has been duly authorized by the District and the Authority. OTAY WATER DISTRICT By: ______________________________ Chief Financial Officer OTAY WATER DISTRICT FINANCING AUTHORITY By: ______________________________ Executive Director A-1 APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS [to be provided by Bond Counsel] B-1 APPENDIX B DISTRICT AUDITED FINANCIAL STATEMENTS C-1 APPENDIX C ECONOMIC PROFILE FOR THE COUNTY OF SAN DIEGO Introduction The County of San Diego (the “County”) is the southernmost major metropolitan area in the State of California. The County covers 4,255 square miles, extending 70 miles along the Pacific Coast from the Mexican border to Orange County, and inland 75 miles to Imperial County. Riverside and Orange Counties form the northern boundary. The County is approximately the size of the State of Connecticut. The County possesses a diverse economic base consisting of a significant manufacturing presence in the fields of electronics and shipbuilding, a large tourist industry attracted by the favorable climate of the region, and a considerable defense-related presence. The County is also growing as a major center for culture and education. A number of recognized art organizations, including the San Diego Opera, the Old Globe Theater productions, the La Jolla Chamber Orchestra, as well as museums and art galleries, are located in the County. Higher education is provided through five two-year colleges and six four-year colleges and universities. The San Diego Convention Center contains 361,000 square feet of exhibit space and over 100,000 square feet of meeting/banquet rooms. The Convention Center can accommodate events for 30,000-40,000 people. C-2 Population The following table shows the January 1 State of California Department of Finance estimates of total population in the County of San Diego and the State of California for each year since 2010, and the increase from the previous year. TABLE NO. C-1 COUNTY OF SAN DIEGO AND STATE OF CALIFORNIA POPULATION COUNTY OF SAN DIEGO STATE OF CALIFORNIA January 1 Percentage Percentage Year Population Change Population Change 2010 3,091,579 37,223,900 1.0% 2011 3,125,264 1.1% 37,594,781 1.0% 2012 3,161,750 1.2% 37,971,427 0.9% 2013 3,201,417 1.3% 38,321,459 0.8% 2014 3,235,142 1.1% 38,622,301 0.9% 2015 3,267,992 1.0% 38,952,462 0.7% 2016 3,287,279 0.6% 39,214,803 0.7% 2017 3,309,626 0.7% 39,504,609 0.6% 2018 3,333,128 0.7% 39,740,508 0.5% 2019 3,351,786 0.6% 39,927,315 % Increase Between 2010 - 2019 8.4% 7.3% _______________________________________ Source: State of California, Department of Finance, “E-4 Population Estimates for Cities, Counties, and the State, 2001-2010, with 2000 & 2010 Census Counts” Sacramento, California, November 2012 and “E-4 Population Estimates for Cities, Counties and the State, 2011-2019, with 2010 Census Benchmark” Sacramento, California, May 2019. C-3 Per Capita Personal Income Per capita personal income information for San Diego County, the State of California and the United States are summarized in the following table. TABLE NO. C-2 PER CAPITA PERSONAL INCOME (1) SAN DIEGO COUNTY, STATE OF CALIFORNIA AND UNITED STATES 2013 – 2017 Year San Diego County State of California United States 2013 $49,460 $49,173 $44,826 2014 52,166 52,237 47,025 2015 54,742 55,679 48,940 2016 56,116 57,497 49,831 2017 57,913 59,796 51,640 ____________________________________ (1) For San Diego County, State of California and United States, per capita personal income was computed using Census Bureau midyear population estimates. Estimates for 2010-2017 reflect county population estimates available as of March 2018. Note: All dollar estimates are in current dollars (not adjusted for inflation). Last updated: March 6, 2019. Source: U.S. Department of Commerce, Bureau of Economic Analysis. C-4 The District is located in the San Diego-Carlsbad Metropolitan Statistical Area (MSA). The August 2019 unemployment rate in the San Diego-Carlsbad MSA was 3.4%. The State of California August 2019 unemployment rate (unadjusted) was 4.2%. TABLE NO. C-3 SAN DIEGO-CARLSBAD MSA WAGE AND SALARY WORKERS BY INDUSTRY (1) (in $ thousands) Industry 2015 2016 2017 2018 2019 Government 226.9 234.3 233.7 234.9 243.3 Other Services 54.3 55.2 55.7 55.9 57.0 Leisure and Hospitality 189.1 197.5 202.1 206.6 208.1 Educational and Health Services 191.6 196.5 203.0 211.5 215.8 Professional and Business Services 231.6 236.3 240.5 250.8 257.4 Financial Activities 72.0 73.8 75.2 76.4 75.3 Information 24.0 24.0 24.1 24.0 23.8 Transportation, Warehousing and Utilities 28.8 30.2 32.1 33.6 34.1 Service Producing Retail Trade 146.2 146.9 148.0 147.5 144.9 Wholesale Trade 44.0 43.5 43.9 43.9 43.1 Manufacturing Nondurable Goods 26.7 27.5 28.2 28.7 28.7 Durable Goods 81.2 81.1 82.3 84.7 88.7 Goods Producing Construction 72.7 78.3 80.8 86.4 92.1 Mining and Logging 0.3 0.3 0.3 0.4 0.4 Total Nonfarm 1,389.4 1,425.4 1,449.9 1,485.3 1,512.7 Farm 9.3 9.2 8.9 9.9 9.1 Total (all industries) 1,398.7 1,434.6 1,458.8 1,495.2 1,521.8 ____________________________________ (1) Annually, as of August. Note: The unemployment rate is calculated using unrounded data. Data may not add due to rounding. Source: State of California Employment Development Department, Labor Market Information Division, “Industry Employment & Labor Force - by month March 2018 Benchmark.” C-5 Major Employers The major employers operating within the County as of June 30, 2018 are shown in Table No. C-4. TABLE NO. C-4 COUNTY OF SAN DIEGO MAJOR EMPLOYERS Employer Number of Employees Percent of Total Employment University of California, San Diego 34,448 2.26% Naval Base San Diego 34,185 2.24% Sharp Healthcare 18,364 1.20% County of San Diego 17,413 1.14% Scripps Health 14,941 0.98% San Diego Unified School District 13,815 0.91% Qualcomm Inc. 11,800 0.77% City of San Diego 11,462 0.75% Kaiser Permanente San Diego Medical Center 9,606 0.63% UC San Diego Health 8,932 0.59% 174,966 11.47% ____________________________________ Source: County of San Diego Comprehensive Annual Financial Report. Transportation Interstate 5 parallels the coast of San Diego County, starting at the border with Mexico and traveling to the Los Angeles area and points north. Interstate 15 runs inland through the County, leading to Riverside-San Bernardino, Las Vegas and Salt Lake City. Interstate 8 runs eastward providing access to the southern United States. San Diego’s International Airport (Lindbergh Field) is located approximately one mile west of downtown San Diego at the edge of the San Diego Bay. The facilities are owned and maintained by the San Diego Unified Port District and are leased to commercial airlines and other tenants. The airport is the third most active commercial airport in California, served by most major airlines. In addition to San Diego International Airport, there are two naval air stations and seven general aviation airports located in the County. San Diego is the terminus of the Santa Fe Railway’s main line from Los Angeles. Amtrak passenger service is available at San Diego with stops at Del Mar and Oceanside in the north county. San Diego’s harbor is one of the world’s largest natural harbors. The harbor, a busy commercial port, also serves cruise ships. The Port of San Diego is administered by the San Diego Unified Port District, which includes the cities of San Diego, National City, Chula Vista, Imperial Beach and Coronado. D-1 APPENDIX D FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement, dated November 1, 2019 (the “Disclosure Agreement”) is executed and delivered by the Otay Water District (the “District”) and Harrell & Company Advisors, LLC (the “Dissemination Agent”) in connection with the issuance of $___________ Otay Water District Financing Authority 2019 Wastewater Revenue Bonds (the “Bonds”) by the Otay Water District Financing Authority (the “Authority”). The Bonds are being issued pursuant to an Indenture of Trust, dated as of November 1, 2019 (the “Indenture”), by and between MUFG Union Bank, N.A., as trustee (the “Trustee”) and the Authority. The District covenants as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule. SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Report” shall mean the Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. “Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. “Disclosure Representative” shall mean the General Manager of the District and the Chief Financial Officer of the District, or their designee, or such other officer or employee as the District shall designate in writing from time to time. “Dissemination Agent” shall mean Harrell & Company Advisors, LLC, or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation. “EMMA” shall mean the Electronic Municipal Market Access system of the MSRB. “Holder” shall mean the registered owner of any Bond. “Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. “MSRB” shall mean the Municipal Securities Rulemaking Board. “Official Statement” shall mean the Official Statement relating to the Bonds, dated __________, 2019. “Participating Underwriter” shall mean the original underwriter of the Bonds required to comply with the Rule in connection with the offering of the Bonds. “Repository” shall mean the EMMA system of the MSRB or any other entity designated under the Rule as the repository for filings made pursuant to the Rule. D-2 “Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. “State” shall mean the State of California. SECTION 3. Provision of Annual Reports. (a) The District shall, or, upon delivery of the Annual Report to the Dissemination Agent, shall cause the Dissemination Agent to, not later than March 31 of each year, commencing March 31, 2020, provide to the Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report shall be provided to the Repository in an electronic format as prescribed by the Repository and shall be accompanied by identifying information as prescribed by the Repository. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) Not later than five (5) business days prior to the date specified in subsection (a) for providing the Annual Report to the Repository, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If the District is unable to provide to the Repository an Annual Report by the date required in subsection (a), the Dissemination Agent shall send a notice to the Repository that the Annual Report has not been delivered by the District. (c) The Dissemination Agent shall: (i) confirm the electronic filing requirements of the Repository for the Annual Reports; and (ii) if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided to the Repository. (d) Notwithstanding any other provision of this Disclosure Agreement, all filings shall be made in accordance with the MSRB’s EMMA system, or in another manner approved under the Rule. SECTION 4. Content of Annual Reports. The District’s Annual Report due by March 31, 2020 shall consist of the Official Statement and the District’s audited financial statements for the fiscal year ended June 30, 2019. Thereafter, the Annual Reports shall contain or include by reference the following: (a) The District’s audited financial statements for the previous fiscal year, prepared in accordance with generally accepted auditing standards for special districts in the State of California. If the District’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) To the extent not contained in the audited financial statements filed pursuant to the preceding subsection (a) by the date required by Section 4 hereof, updates of Table Nos. 1, 2, 3, 6, 7 and 9 under the caption “THE WASTEWATER SYSTEM.” (c) Amounts, if any, held in the Rate Stabilization Fund as of June 30 of the preceding fiscal year, together with amounts, if any, deposited to or transferred from the Rate Stabilization Fund in the preceding fiscal year. D-3 Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to the Repository or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The District shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Significant Events. (a) The District shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds: (1) Principal and interest payment delinquencies. (2) Non-payment related defaults, if material. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security. (7) Modifications to rights of security holders, if material. (8) Bond calls, if material, and tender offers. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities, if material. (11) Rating changes. (12) Bankruptcy, insolvency, receivership or similar event of the District or other obligated person. (13) The consummation of a merger, consolidation, or acquisition involving the District or an obligated person, or the sale of all or substantially all of the assets of the District or an obligated person (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. (14) Appointment of a successor or additional trustee or the change of name of a trustee, if material. (15) Incurrence of a financial obligation of the District, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the District, any of which affect security holders, if material. D-4 (16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the District, any of which reflect financial difficulties. (b) The District shall, or shall cause the Dissemination Agent (if not the District) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsection (a)(8) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Indenture. (c) The District acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), (a)(14) and (a)(15) of this Section 5 contain the qualifier “if material” and that subparagraph (a)(6) also contains the qualifier “material” with respect to certain notices, determinations or other events affecting the tax status of the Bonds. The District shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that it determines the event’s occurrence is material for purposes of U.S. federal securities law. Whenever the District obtains knowledge of the occurrence of any of these Listed Events, the District will as soon as possible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the District will cause a notice to be filed as set forth in paragraph (b) above. (d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District. (e) The term financial obligation means a (1) debt obligation; (2) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (3) guarantee of (e)(1) or (e)(2). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the MSRB consistent with the Rule. SECTION 6. Termination of Reporting Obligation. The District’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the form or content of any notice or report prepared by the District pursuant to this Disclosure Agreement. The Dissemination Agent may resign by providing thirty days written notice to the District. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the District and shall have no duty to review any information provided to it by the District. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the District in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the District may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that, in the opinion of nationally recognized bond counsel, such D-5 amendment or waiver is permitted by the Rule; provided, the Dissemination Agent shall have first consented to any amendment that modifies or increases its duties or obligations hereunder. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(d), and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the District shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Agreement, any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the District or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. No Bondholder or Beneficial Owner may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the District satisfactory written evidence of such Holder’s or Beneficial Owner’s status as such, and a written notice of and request to cure such failure, and the District shall have refused to comply therewith within a reasonable time. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees, to the extent permitted by law, to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s, its officers’, directors’, employees’ and agents’ negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. In performing its duties hereunder, the Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the District, the Holders, or any other party. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. D-6 SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: District: Otay Water District 2554 Sweetwater Springs Boulevard Spring Valley, CA 91978 Attention: General Manager Dissemination Agent: Harrell & Company Advisors, LLC 333 City Boulevard West, Suite 1215 Orange, CA 92868 Attn: Suzanne Harrell SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. SECTION 14. Signature. This Disclosure Agreement has been executed by the undersigned on the date hereof, and such signature binds the District to the undertaking herein provided. OTAY WATER DISTRICT By: Chief Financial Officer HARRELL & COMPANY ADVISORS, LLC, as Dissemination Agent By: Authorized Officer E-1 APPENDIX E FORM OF BOND COUNSEL OPINION F-1 APPENDIX F THE BOOK-ENTRY SYSTEM The following description of the Depository Trust Company (“DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the issuer of the Bonds (the “Issuer”) nor the trustee, fiscal agent or paying agent appointed with respect to the Bonds (the “Agent”) take any responsibility for the information contained in this Appendix. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC. 1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds (the “Securities”). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue. 2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of F-2 AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information contained on such Internet site is not incorporated herein by reference. 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC’s records. The ownership interest of each actual purchaser of each Security (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds and distributions on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject F-3 to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. 10. Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof. 4844-9354-5385.1 $_________ OTAY WATER DISTRICT FINANCING AUTHORITY 2019 WASTEWATER REVENUE BONDS BOND PURCHASE AGREEMENT _________, 2019 Otay Water District Financing Authority 2554 Sweetwater Springs Boulevard Spring Valley, California 91978 Otay Water District 2554 Sweetwater Springs Boulevard Spring Valley, California 91978 Ladies and Gentlemen: Hilltop Securities Inc. (the “Underwriter”) hereby offers to enter into this Bond Purchase Agreement (the “Purchase Agreement”) with you, the Otay Water District Financing Authority (the “Authority”) and the Otay Water District (the “District”), for the purchase by the Underwriter and the delivery by the Authority of the above-referenced Bonds (the “Bonds”). The proceeds of the Bonds will be used to: (i) to finance certain improvements to the District’s Wastewater System; and (ii) to pay costs incurred in connection with the issuance of the Bonds. This offer is subject to your acceptance prior to 11:59 p.m., California time, on the date hereof and if not so accepted will be subject to withdrawal by the Underwriter upon written notice delivered to the Authority and the District at any time prior to the acceptance thereof by the Authority and the District. Upon such acceptance, this Purchase Agreement shall be in full force and effect in accordance with its terms and shall be binding upon you and the Underwriter. All terms not defined herein shall have the meanings set forth in the Indenture or the Installment Sale Agreement (each defined below). The Authority and the District acknowledge and agree that: (i) the purchase and sale of the Bonds pursuant to this Purchase Agreement is an arm’s-length commercial transaction among the District, the Authority and the Underwriter in which the Underwriter is acting solely as a principal and not as an agent of the Authority or the District and the Underwriter is not acting as a municipal advisor, financial advisor or fiduciary to the Authority or the District; (ii) the Underwriter has not assumed any advisory or fiduciary responsibility to the Authority or the District with respect to the transaction contemplated by this Purchase Agreement and the discussions, undertakings or procedures leading thereto (irrespective of whether the Underwriter, or any affiliate of the Underwriter has provided other services or is currently providing other services to the Authority or the District on other matters); (iii) the only obligations the Underwriter has to the Authority and the District with respect to the transaction contemplated by this Purchase Agreement are expressly set forth in this Purchase Agreement; and (iv) the Authority and the District have consulted their own financial and/or municipal, legal, accounting, tax and other advisors, as applicable, to the extent the Authority and the District have deemed appropriate. The Authority acknowledges that it has previously provided the Underwriter with an 4844-9354-5385.1 2 acknowledgement of receipt of the required Underwriter disclosure under Rule G-17 of the Municipal Securities Rulemaking Board (the “MSRB”). 1. Upon the terms and conditions and upon the basis of the representations herein set forth, the Underwriter hereby agrees to purchase from the Authority for offering to the public, and the Authority hereby agrees to sell and deliver to the Underwriter, all (but not less than all) of the $_________ aggregate principal amount of the Bonds to be dated the Closing Date, at a price of $_________, being the principal amount of the Bonds, plus original issue premium of $________, less an Underwriter’s discount of $_________. The Bonds shall mature in the amounts and on the dates, and bear interest at the rates, set forth in Exhibit A hereto. The Bonds shall be as described in and shall be secured under and pursuant to an Indenture of Trust, dated as of November 1, 2019 (the “Indenture”), between the Authority and MUFG Union Bank, N.A., as trustee (the “Trustee”), substantially in the form previously submitted to the Underwriter with only such changes therein as shall be mutually agreed upon by the Authority, the District, the Trustee and the Underwriter. The obligation of the Authority to pay the principal of and interest on the Bonds is a special obligation of the Authority, payable solely from Revenues (as defined in the Indenture), and certain other amounts held under the Indenture. Revenues consist primarily of Installment Payments made by the District to the Authority pursuant to the Installment Sale Agreement (as defined below). The principal of and interest on the Bonds are not required to be paid from any other funds of the Authority, including any proceeds of any taxes, and does not constitute a debt or pledge of the faith and credit of the Authority or the State of California (the “State”) or any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction. The Authority and the District hereby ratify the use by the Underwriter of the Preliminary Official Statement, dated ________, 2019 relating to the Bonds (together with the cover page and all appendices thereto, and any supplements thereof, the “Preliminary Official Statement”), and authorizes the Underwriter to use and distribute the Preliminary Official Statement, the Official Statement (as defined below), the Indenture, the Installment Sale Agreement, dated as of November 1, 2019, between the Authority and the District (the “Installment Sale Agreement”), the Continuing Disclosure Agreement as required by Securities and Exchange Commission Rule 15c2-12, as amended (“Rule 15c2-12”), and substantially in the form attached as an appendix to the Official Statement, dated April 17, 2019 (the “Continuing Disclosure Agreement”), executed by the District and the dissemination agent named therein and this Purchase Agreement, and all information contained therein, and all other documents, certificates and statements furnished by the Authority and the District to the Underwriter in connection with the offer and sale of the Bonds by the Underwriter. The Authority and the District have heretofore “deemed final” the Preliminary Official Statement within the meaning of Rule 15c2-12. The District will undertake pursuant to the Continuing Disclosure Agreement to provide certain annual financial and operating information and notices of the occurrence of certain events. A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the final Official Statement. This undertaking will be entered into in order to assist the Underwriter in complying with the Rule 15c2-12. 2. The Underwriter agrees to offer all the Bonds to the public initially at the prices (or yields) set forth on the inside cover page of the Official Statement of the Authority pertaining to the 4844-9354-5385.1 3 Bonds, dated _________, 2019 (together with all appendices thereto, and with such changes therein and supplements thereto and as are consented to in writing by the Underwriter, and with the Preliminary Official Statement, are herein called the “Official Statement”). Subsequent to the initial public offering of the Bonds, the Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds subject to Section 5 hereof. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices. “Public Offering” shall include an offering to a representative number of institutional investors or registered investment companies, regardless of the number of such investors to which the Bonds are sold. The Underwriter agrees that prior to the time the final Official Statement relating to the Bonds is available, the Underwriter will send to any potential purchaser of the Bonds, upon the request of such potential purchaser, a copy of the most recent Preliminary Official Statement. Such Preliminary Official Statement shall be sent by first class mail or electronic distribution (or other equally prompt means) not later than the first business day following the date upon which each such request is received. 3. The Authority shall also deliver a sufficient number of copies of the Official Statement to enable the Underwriter to distribute a single copy of the Official Statement to any potential customer of the Underwriter requesting an Official Statement during the time period beginning when the Official Statement becomes available and ending on the End Date (defined below). The Authority shall deliver these copies to the Underwriter no later than the earlier of (i) seven (7) business days after the execution of this Purchase Agreement or (ii) one (1) business day prior to the Closing Date in order to permit the Underwriter to comply with Rule 15c2-12, and the applicable rules of the MSRB, with respect to distribution of the Official Statement. The Authority and the District shall prepare the Official Statement, including any amendments thereto, in word-searchable PDF format as described in the MSRB’s Rule G-32 and shall provide the electronic copy of the word-searchable PDF format of the Official Statement to the Underwriter no later than one (1) business day prior to the Closing Date to enable the Underwriter to comply with MSRB Rule G-32. The Underwriter shall inform the District in writing of the End Date, and covenants to file the Official Statement with the MSRB on a timely basis. The Official Statement, as of its date, as of the Closing Date (as defined herein) and as of the date of any update, amendment or supplement thereto as required hereby subsequent to the Closing, up to and including the date which is twenty-five (25) days following the end (the “End Date”) of the Underwriting Period (as hereinafter defined), will be correct and complete in all material respects and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. If, after the date of this Purchase Agreement and until the earlier of (i) ninety (90) days after the end of the “underwriting period” (as defined in Rule 15c2-12) (the “Underwriting Period”), or (ii) twenty-five (25) days following the end of the Underwriting Period if the Official Statement is available to any person from the MSRB as contemplated by Rule 15c2-12(b)(4), any event shall occur or circumstance shall exist of which the Authority or the District have knowledge that would cause the Official Statement to contain any untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Authority or the District, as the case may be, shall notify the Underwriter (and for the purpose of this Section provide the Underwriter with such information as it may from time to time reasonably request), and, if in the opinion of the District, the Authority or the Underwriter such event or circumstance requires the preparation and publication of a supplement or amendment to the Official Statement, the Authority and the District will, at their expense, supplement or amend the Official Statement in a form and manner jointly approved by the District, the Authority and the 4844-9354-5385.1 4 Underwriter and furnish to the Underwriter a reasonable number of copies of such supplement or amendment provided that the Underwriter agrees that it will promptly notify the Authority and the District of the end of the Underwriting Period. 4. At 8:30 a.m., Pacific Time, on ________, 2019, or at such other time or date as shall be agreed upon by the Underwriter, Authority and the District (such time and date being herein referred to as the “Closing Date”), the Authority will deliver to the Underwriter, at a location or locations to be designated by the Underwriter, the Bonds in book-entry form (all Bonds having had the CUSIP numbers assigned to them thereon), duly executed by an authorized officer of the Trustee as provided in the Indenture, and the other documents herein mentioned; and the Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in Section 1 of this Purchase Agreement in immediately available funds (such delivery and payment being herein referred to as the “Closing”). Upon initial issuance, the ownership of such Bonds shall be registered in the registration books kept by the Trustee in the name of Cede & Co., as the nominee of The Depository Trust Company. It is anticipated that CUSIP numbers will be printed on the Bonds, but neither the failure to provide such numbers nor any error with respect thereto shall constitute a cause for failure or refusal by the Underwriter to accept delivery of the Bonds in accordance with the terms of this Purchase Agreement. 5. (a) The Underwriter agrees to assist the Authority in establishing the issue price of the Bonds and shall execute and deliver to the Authority at Closing an “issue price” or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Exhibit C, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the Authority and Bond Counsel, to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the Bonds. All actions to be taken by the Authority under this section to establish the issue price of the Bonds may be taken on behalf of the Authority by the Authority’s municipal advisor identified herein and any notice or report to be provided to the Authority may be provided to the Authority’s municipal advisor.]. (b) [Except as otherwise set forth in Schedule I attached hereto,] the Authority will treat the first price at which 10% of each maturity of the Bonds (the “10% test”) is sold to the public as the issue price of that maturity. At or promptly after the execution of this Purchase Agreement, the Underwriter shall report to the Authority the price or prices at which it has sold to the public each maturity of Bonds. [If at that time the 10% test has not been satisfied as to any maturity of the Bonds, the Underwriter agrees to promptly report to the Authority the prices at which it sells the unsold Bonds of that maturity to the public. That reporting obligation shall continue, whether or not the Closing Date has occurred, until either (i) the Underwriter has sold all Bonds of that maturity or (ii) the 10% test has been satisfied as to the Bonds of that maturity, provided that, the Underwriter’s reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Authority or bond counsel.] For purposes of this Section, if Bonds mature on the same date but have different interest rates, each separate CUSIP number within that maturity will be treated as a separate maturity of the Bonds. (c) [The Underwriter confirms that it has offered the Bonds to the public on or before the date of this Purchase Agreement at the offering price or prices (the “initial offering price”), or at the corresponding yield or yields, set forth in Schedule I attached hereto, except as otherwise set forth therein. Schedule I also sets forth, as of the date of this Purchase Agreement, the maturities, if any, of 4844-9354-5385.1 5 the Bonds for which the 10% test has not been satisfied and for which the Authority and the Underwriter agree that the restrictions set forth in the next sentence shall apply, which will allow the Authority to treat the initial offering price to the public of each such maturity as of the sale date as the issue price of that maturity (the “hold-the-offering-price rule”). So long as the hold-the-offering-price rule remains applicable to any maturity of the Bonds, the Underwriter will neither offer nor sell unsold Bonds of that maturity to any person at a price that is higher than the initial offering price to the public during the period starting on the sale date and ending on the earlier of the following: (1) the close of the fifth (5th) business day after the sale date; or (2) the date on which the Underwriter has sold at least 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public. The Underwriter will advise the Authority promptly after the close of the fifth (5th) business day after the sale date whether it has sold 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public.] (d) The Underwriter confirms that: (i) any selling group agreement and any third-party distribution agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer who is a member of the selling group and each broker- dealer that is a party to such third-party distribution agreement, as applicable: (A)(i) to report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter, and (ii) to comply with the hold-the- offering-price rule, if applicable, if and for so long as directed by the Underwriter, (B) to promptly notify the Underwriter of any sales of Bonds that, to its knowledge, are made to a purchaser who is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below), and (C) to acknowledge that, unless otherwise advised by the dealer or broker-dealer, the Underwriter shall assume that each order submitted by the dealer or broker-dealer is a sale to the public. (ii) any selling group agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer that is a party to a third-party distribution agreement to be employed in connection with the initial sale of the Bonds to the public to require each broker-dealer that is a party to such third- party distribution agreement to (A) report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the 4844-9354-5385.1 6 Underwriter or the dealer that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter or the dealer, and (B) comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter or the dealer and as set forth in the related pricing wires. (e) The Authority acknowledges that, in making the representations set forth in this section, the Underwriter will rely on (i) in the event a selling group has been created in connection with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in a selling group agreement and the related pricing wires, and (ii) in the event that a third- party distribution agreement was employed in connection with the initial sale of the Bonds to the public, the agreement of each broker-dealer that is a party to such agreement to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in the third-party distribution agreement and the related pricing wires. The Authority further acknowledges that the Underwriter shall not be liable for the failure of any dealer who is a member of a selling group, or of any broker-dealer that is a party to a third-party distribution agreement, to comply with its corresponding agreement to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds. (f) The Underwriter acknowledges that sales of any Bonds to any person that is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below) shall not constitute sales to the public for purposes of this section. Further, for purposes of this section: (i) “public” means any person other than an underwriter or a related party, (ii) “underwriter” means (A) any person that agrees pursuant to a written contract with the Authority (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a third-party distribution agreement participating in the initial sale of the Bonds to the public), (iii) a purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (A) more than 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (B) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (C) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a 4844-9354-5385.1 7 corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other), and (iv) “sale date” means the date of execution of this Purchase Agreement by all parties. 6. The Underwriter represents to and agrees with the Authority and the District that, as of the date hereof and as of the Closing Date: (i) The Underwriter is duly authorized to execute this Purchase Agreement and to take any action under this Purchase Agreement required to be taken by it; (ii) The Underwriter is in compliance with MSRB Rule G-37 with respect to the Authority and the District, and is not prohibited thereby from acting as the underwriter with respect to securities of the Authority and the District; and (iii) The Underwriter has, and has had, no financial advisory relationship, as that term is defined in California Government Code Section 53590 (c) or MSRB Rule G-32, with the District with respect to the Bonds, and no investment firm controlling, controlled by or under common control with such Underwriter have or has had any such financial advisory relationship. 7. The Authority represents, warrants and covenants to the Underwriter that: (a) The Authority is a joint exercise of powers authority duly organized and validly existing pursuant to the laws of the State of California and has all necessary power and authority to enter into and perform its duties under the Indenture, the Installment Sale Agreement and this Purchase Agreement (collectively, the “Authority Documents”) and, when executed and delivered by the respective parties thereto, the Authority Documents will constitute the legal, valid and binding obligations of the Authority in accordance with their respective terms. (b) Neither the execution and delivery of the Authority Documents, or the approval and execution of the Official Statement, and compliance with the provisions on the Authority’s part contained therein, nor the consummation of any other of the transactions herein and therein contemplated, nor the fulfillment of the terms hereof and thereof, conflicts with or constitutes a breach of or default under nor contravenes any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Authority is a party or is otherwise subject, nor does any such execution, delivery, adoption or compliance result in the security interest or encumbrance of any nature whatsoever upon any of the properties or assets of the Authority under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument, except as provided by the Authority Documents. (c) Except as may be required under blue sky or other securities laws of any state, there is no consent, approval, authorization or other order of, or filing with, or certification by, any regulatory authority having jurisdiction over the Authority required for the execution and delivery of the Bonds or the consummation by the Authority of the other transactions contemplated by the Official Statement and this Purchase Agreement. 4844-9354-5385.1 8 (d) To the best of the knowledge of the Authority, there is, and on the Closing there will be, no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending or threatened against the Authority to restrain or enjoin the delivery of any of the Bonds, or the payments to be made pursuant to the Indenture, or in any way contesting or affecting the validity of the Authority Documents or of the Authority to enter into the Authority Documents or contesting the powers of the Authority to perform its obligations under any of the foregoing or in any way contesting the powers of the Authority in connection with any action contemplated by this Purchase Agreement, or in any way questioning or challenging the tax status of the Bonds. (e) As of the date thereof and at all times subsequent thereto up to and including the End Date, the information relating to the Authority contained in the Official Statement will be complete and will not contain any untrue or misleading statement of a material fact or omit to state any material fact (unless an event occurs of the nature described in Section 7(j) below) necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of its date, the information relating to the Authority and the Bonds contained in the Official Statement is true and correct in all material respects and such information does not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (f) The Authority agrees to cooperate with the Underwriter in endeavoring to qualify the Bonds for offering and sale under the securities or blue sky laws of such jurisdictions of the United States as the Underwriter may request; provided, however, that the Authority will not be required to execute a special or general consent to service of process in any jurisdiction in which it is not now so subject or to qualify to do business as a foreign agency in any jurisdiction where it is not so qualified. (g) By official action of the Authority prior to or concurrently with the execution hereof, the Authority has duly approved the distribution of the Official Statement, and has duly authorized and approved the execution and delivery of, and the performance by the Authority of the obligations on its part contained in the Authority Documents and the consummation by it of all other transactions contemplated by the Official Statement and this Purchase Agreement. (h) The Authority is not in breach of or default under any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Authority is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument. (i) The Authority is not in default, nor has been in default at any time, as to the payment of principal or interest with respect to an obligation issued by the Authority or successor of the Authority or with respect to an obligation guaranteed by the Authority as guarantor or successor of a guarantor. (j) If between the date of this Purchase Agreement and the End Date an event occurs, of which the Authority has knowledge, which might or would cause the information relating to the Authority or the Authority’s functions, duties and responsibilities contained in the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to 4844-9354-5385.1 9 omit to state a material fact required to be stated therein or necessary to make such information therein, in the light of the circumstances under which it was presented, not misleading, the Authority will notify the Underwriter, and if, in the opinion of the Underwriter or the Authority, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the Authority will cooperate with the Underwriter in the preparation of an amendment or supplement to the Official Statement in a form and in a manner approved by the Underwriter or the Authority, provided all expenses thereby incurred will be paid for by the Authority. (k) If the information relating to the Authority, its functions, duties and responsibilities contained in the Official Statement is amended or supplemented pursuant to the immediately preceding subsection, at the time of each supplement or amendment thereto and (unless subsequently again supplemented or amended pursuant to such subsection) at all times subsequent thereto up to and including the date of the Closing, the portions of the Official Statement so supplemented or amended (including any financial and statistical data contained therein) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such information therein, in the light of the circumstances under which it was presented, not misleading. (l) No consent, approval, authorization or other action by a governmental or regulatory authority that has not been obtained is or will be required of the Authority for the delivery and sale of the Bonds or the consummation of the other transactions contemplated by this Purchase Agreement and the Official Statement, except as may be required under the state securities or blue sky laws in connection with the sale of the Bonds by the Underwriter. (m) The Authority will deliver all opinions, Bonds, letters and other instruments and documents reasonably required by the Underwriter and this Purchase Agreement. (n) Any certificate of the Authority delivered to the Underwriter shall be deemed a representation and warranty by the Authority to the Underwriter as to the statements made therein. (o) Other than as described in the Official Statement, as of the time of acceptance hereof and as of the Closing the Authority does not and will not have outstanding any indebtedness which is secured by a lien on the Installment Payments superior to or on a parity with the lien of the Bonds thereon. (p) Between the date of this Purchase Agreement and the date of Closing, the Authority will not, without the prior written consent of the Underwriter, and except as disclosed in the Official Statement, offer or issue any bonds, notes or other obligations for borrowed money, or incur any material liabilities, direct or contingent, payable from the Net Revenues. (q) The Authority is not presently and as a result of the execution of the Authority Documents and the sale of the Bonds will not be in violation of any debt limitation, appropriation limitation or any other provision of the California Constitution or statutes or any additional debt or similar provision of any bond, note, contract or other evidence of indebtedness to which the Authority is a party or to which the Authority is bound. (r) The Authority will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Bonds to be applied in a manner other than as provided in the Authority Documents, unless otherwise required by law. 4844-9354-5385.1 10 8. The District represents, warrants and covenants to the Underwriter that: (a) The District is a municipal water district duly organized under the laws of the State of California, and has all necessary power and authority to enter into and perform its duties under the Installment Sale Agreement, the Continuing Disclosure Agreement, and this Purchase Agreement (collectively, the “District Documents”) and, when executed and delivered by the respective parties thereto, the District Documents will constitute the legal, valid and binding obligations of the District in accordance with their respective terms. (b) Neither the execution and delivery of the District Documents, or the approval and execution of the Official Statement, and compliance with the provisions on the District’s part contained therein, nor the consummation of any other of the transactions herein and therein contemplated, nor the fulfillment of the terms hereof and thereof, conflicts with or constitutes a breach of or default under nor contravenes any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the District is a party or is otherwise subject, nor does any such execution, delivery, adoption or compliance result in the security interest or encumbrance of any nature whatsoever upon any of the properties or assets of the District under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument, except as provided by the District Documents. (c) Except as may be required under blue sky or other securities laws of any state, there is no consent, approval, authorization or other order of, or filing with, or certification by, any regulatory authority having jurisdiction over the District required for the execution and delivery of the Bonds or the consummation by the District of the other transactions contemplated by the Official Statement and this Purchase Agreement. (d) To the best of the knowledge of the District, there is, and on the Closing there will be, no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending or threatened against the District to restrain or enjoin the delivery of any of the Bonds, or the payments to be made pursuant to the Installment Sale Agreement and Indenture, or in any way contesting or affecting the validity of the District Documents or of the District to approve or enter into the District Documents, or in any way questioning or challenging the tax status of the Bonds. (e) As of the date thereof and at all times subsequent thereto up to and including the End Date, the information relating to the District, the Bonds and the Wastewater System contained in the Official Statement will be complete and will not contain any untrue or misleading statement of a material fact or omit to state any material fact (unless an event occurs of the nature described in Section 8(j) below) necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of its date and as of the date hereof, the information relating to the District, the Bonds and the Wastewater System contained in the Official Statement is true and correct in all material respects and such information does not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (f) The District agrees to cooperate with the Underwriter in endeavoring to qualify the Bonds for offering and sale under the securities or blue sky laws of such jurisdictions of the United States as the Underwriter may request; provided, however, that the District will not be required to 4844-9354-5385.1 11 execute a special or general consent to service of process in any jurisdiction in which it is not now so subject or to qualify to do business as a foreign agency in any jurisdiction where it is not so qualified. (g) By official action of the District prior to or concurrently with the execution hereof, the District has duly approved the distribution of the Official Statement, and has duly authorized and approved the execution and delivery of, and the performance by the District of the obligations on its part contained in the District Documents and the consummation by it of all other transactions contemplated by the Official Statement and this Purchase Agreement. (h) The District is not in breach of or default under any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the District is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument. (i) The District is not in default, nor has been in default at any time, as to the payment of principal or interest with respect to an obligation issued by the District or successor of the District or with respect to an obligation guaranteed by the District as guarantor or successor of a guarantor. (j) If between the date of this Purchase Agreement and the End Date an event occurs, of which the District has knowledge, which might or would cause the information relating to the District, the Wastewater System or the District’s functions, duties and responsibilities contained in the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make such information therein, in the light of the circumstances under which it was presented, not misleading, the District will notify the Underwriter, and if, in the opinion of the Underwriter or the Authority, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the District will cooperate with the Underwriter in the preparation of an amendment or supplement to the Official Statement in a form and in a manner approved by the Underwriter or the Authority, provided all expenses thereby incurred will be paid for by the District. (k) If the information relating to the Wastewater System, the District, its functions, duties and responsibilities contained in the Official Statement is amended or supplemented pursuant to the immediately preceding subsection, at the time of each supplement or amendment thereto and (unless subsequently again supplemented or amended pursuant to such subsection) at all times subsequent thereto up to and including the date of the Closing, the portions of the Official Statement so supplemented or amended (including any financial and statistical data contained therein) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such information therein, in the light of the circumstances under which it was presented, not misleading. (l) The District covenants that it will comply with all tax covenants relating to it in the District Documents and the Tax Certificate of the District. (m) The written information supplied by the District to the Underwriter with respect to the financial information relating to the Wastewater System is true, correct and complete in all material respects for the purposes for which it was supplied. 4844-9354-5385.1 12 (n) No consent, approval, authorization or other action by a governmental or regulatory agency that has not been obtained is or will be required of the District for the delivery and sale of the Bonds or the consummation of the other transactions contemplated by this Purchase Agreement and the Official Statement, except for such licenses, certificates, approvals, variances or permits which may be necessary for the construction or operation of the Wastewater System which the District has applied for (or will apply for in the ordinary course of business) and expects to receive, and except as may be required under the state securities or blue sky laws in connection with the sale of the B