NCSD Half Truth #9: "No Profit"

NCSD often makes incorrect statements like the costs will have "No Profit"

1/30/12Audio of Mike LeBrun at the Woodlands Presentation:

h:mm:ss	Notes on Comments made
1:14:05	Question, Will the City of Santa Maria benefit from this commercial transaction, and make a profit on the water?
1:14:18	If so will they participate in the capital cost?
1:14:21	Lebrun, The city of Santa Maria like the NCSD is a public agency there is no profit to be made
1:14:30	the sales agreement that the city worked out is one that protects there customers financial interest. in other words
1:14:37	the Santa Maria customers who fund their water department are not going be subsidizing us in any way.
1:14:44	We will pay the full loaded cost of the project and the City will put that money to work within that water system but it's not a for profit margin.
1:14:58	Question, perhaps I did not raise the question properly
1:15:01	Will the cost of the water to the city of Santa Maria be passed on to this we are going to vote on, or will they mark it up?
1:15:12	Mike Lebrun, The wholesale water agreement that the district signed with the city of Santa Maria calls for the cost of our water that we are buying from Santa Maria to, they fixed that rate at what is their Tier 1
1:15:22	Which is their bottom water rate to, they fixed that rate at what is their Tier 1 which is their bottom water rate and then they added an energy charge for the fact that their water system has push that water up on the Mesa.
1:15:33	That's it, Our water is fixed at there tier 1 cost of water.
1:15:39	Question, So there is little motivation to help with the capital cost?
1:15:46	The City of Santa Maria is not likely helping with our capital cost of building the pipeline.
1:20:11	End

This is not true:

Mayor Larry Lavagnino, If you want to talk about money, if we make a few bucks on one end long time, and we solve our own problem with the depression (Minutes Santa Maria, Regular Meeting 12/1/09, page 12)

"That's what this is all about, it's taking advantage of opportunities that present themselves, thinking sort of outside the
box, thinking of ways to provide additional revenues to help offset the cost of municipal services and expanding municipal
service," Ness said. (SMT 1/31/05)

What's the problem?:

NCSD has agreed to accept the same water quality as the City of Santa Maria customers use in the supplemental water agreement.

The supplemental water agreement puts the City of Santa Maria in the position of deciding between sending "revenue" from the water sale to general fund uses such as the fire and police department or purchasing more State Water to improve water quality.

What will the water quality be?

The best quality or a lower quality that is still legal with the extra money going to the fire or police department?

The City of Santa Maria can use its other options of restricting the use of water softeners that discharge salt to comply with the RWQCB effluent requirements.

That would lead to higher costs to customers for the softener rentals, but keep money flow from Nipomo to Santa Maria’s police and fire departments.

Which will the City of Santa Maria choose in the future?

City of Santa Maria council members and staff have used the word profit:

Toru Miyoshi, former City Council member and 5th District county supervisor, 09/03/07 Santa Maria Times, Regarding a misuse of public funds, Use of Santa Maria's water Sale "Profits"

Dwyane Chism Utilities Manager, 07/21/04 Santa Maria Times, Water deal strengthens city's hand

Profit may not be the best word, but Santa Maria uses a number of terms to describe increasing the general fund from water sales:

"provide additional revenues"
"more money for the city"
"generate revenue"
"proceeds generated from" the city's sale of surplus water"
"the profit could help lower the cost of water for city rate payers"

01/31/10 Santa Maria Times, Water deal interpretation, profit?

Water deal interpretation
Posted: Sunday, January 31, 2010 12:00 am
The Santa Maria City Council voted to sell water to Nipomo, more water than is needed to correct the ground water basin
problem.
Nipomo needed 2,000 to 2,500 acre-feet a year to prevent salt water from intruding into the ground water basin. But the city
agreed to sell up to 6,200 acre-feet a year. The extra water is to accommodate new development in Nipomo.
Nipomo can then sell the water to any other water purveyor, at whatever price it chooses.
The city may have to buy more water on the spot market at high cost in order to meet state requirements that the water quality
has lower total dissolved solids — minerals. If there is any profit generated from this sale of water, the proceeds are to go into the
city’s General Fund.
However, in reading the resolution passed by the City Council and the attached Exhibit B, it looks like the city ratepayers may
benefit after all.
Exhibit B states that balanced against the environmental damage associated with the project, the city finds that the project has the
following economic, social and legal benefits: The project would serve the economic goals of allowing the city to recoup money
for the ratepayers through sale of supplemental water that exceeds current needs of its customers.
As I read this, it means the revenue generated from the sale of water to Nipomo would go into the Water Fund. How else could it
benefit ratepayers?
Since the council passed the resolution and exhibits, it looks to me like the Water Fund will benefit.
Joan Leon
Santa Maria

1/5/10 SM council water sale to Nipomo Report

“Fiscal Considerations: Based on fiscal projections, the sale of supplemental water to the NCSD will be revenue neutral in the worst case scenario and generate revenue under most scenarios. This follows the City's longstanding judicial use of fiscal assets.”

1/5/10 SM council water sale to Nipomo Audio

h:mm:ss	Notes on Comments made
0:00:28	Mr Sweet, Staff Presentation
0:02:17	Sweet basin as a whole East to West
0:02:46	During the Groundwater litigation it became apparent that there was a localized groundwater depression in Nipomo
0:02:55	MOU Sept 7th 2004
0:03:08	Spring 2008 Nipomo water contours
0:03:39	Fall 2008, "down 30 feet more"
0:03:54	This water is flowing almost strait North
0:04:18	Judgment (that is being appealed)
0:05:00	Continued from December first 2009
0:05:10	Two letters received
0:08:02	Questions of Council
0:08:47	We are starting to see a seawater intrusion discussion in the Northern Cities
0:09:00	Some contention that that may be because of over pumping in the Nipomo area
0:09:21	Public Comment, Mike Lebrun
0:10:45	Joan Leon
0:11:02	Concerned about the Quantity of water to be supplied to Nipomo
0:11:05	The impact on the Quality of the City water
0:11:52	Does not think water should be provided to facilitate growth
0:12:29	then they can sell the water to anyone they want to
0:12:54	The city will need 19000 AFY for are own projection
0:13:23	The EIR states that the pipeline can result in a substantial depletion of the basin, resulting in a Net deficit.
0:13:52	By supplying blended water to Nipomo our proportion of State water will be lower and Quality will be lower
0:14:22	Sweet, response
0:14:41	We have several efforts underway to increase the amount of Water we receive
0:14:53	The amount of water we can receive is only limited by the pipe
0:15:15	We can purchase water on the open market
0:15:22	We can make a deal for more table A allocation
0:15:39	We are seeking more high Quality water
0:15:47	There are a number of ways that are more expensive
0:15:59	quite frankly The money that is derived from the Nipomo deal will be enough to supplied high quality water for the entire deal under the worst case scenario
0:16:41	Sweet, We Believe that there is more water capacity in the pipeline then the design factors
0:17:07	Joan Marmlaho
0:20:33	Ernest
0:22:59	Answer to Mr. Armentes
0:23:05	The agreement to sell water to Nipomo
0:23:08	The funds derived from that will, in the worst case scenario
0:23:13	Will pay for delivery of water to Nipomo
0:23:15	In the best case scenario there will be money for the city to use as they choose
0:23:21	So Um, in most cases, 99% of the cases , 90%, 95% of the case or better there will be more money for the city then there was before, so it’s a benefit
0:23:38	Lavanino, Of course the counsel that sits at the time those monies are brought in the city of Santa Maria will make the decision on how those monies are allocated.
0:24:06	Hilda Zacarias,
0:24:48	It's not about making a profit, it's about recovering our expenses
0:24:54	Is that correct?
0:25:13	What does Santa Maria do when we generate revenue from assets owned by the city, that we are required to spend it on things that benefit the public
0:25:23	is that correct, there is not anything that states what we have to spend but it has to be, it one has to be spent on services
0:25:29	Gilbert A. Trujillo, counsel member Zacarias that is correct
0:25:33	So whether additional police officers, or additional services or that we are able to spend money in our utility departments for infrastructure any of those dollars that come back in go for that.
0:25:50	I have seen in the past is there are some folks who believe what we should do if we sell water is that we should reduce the amounts we charge for water,
0:26:04	and that should be considered among all sorts of options
0:26:22	Mike Cordero, Problems for our water if we don't participate?
0:27:15	Sweet, The impact has to do with how water flows to the North
0:27:26	Much of it is water that is developed because of the Twitchell project
0:27:31	The City of Santa Maria has paid for that water
0:27:37	The court has awarded us that water
0:27:39	as this turns more north
0:27:42	That's basically our water going that way
0:27:45	So that would be one of the Impacts to us
0:27:49	it sounds like that water will fill up that depression whether we send it up or whether god sends it
0:28:18	Sweet, Protects Quantity, not Quality
0:28:25	Santa Maria, GSWC, Guadalupe have state water
0:28:33	and that water is gone to heal the depressions in the basin of all water use in the basin
0:29:01	I don't know if it will fill the depression, it will go toward the depression
0:29:11	Public comment: Gorden Hensly, Coast keepers
0:32:04	Ben Sweet
0:32:25	Sweet, we are not moving water out of the basin only within the basin
0:32:33	Close of public hearing
0:37:56	At 2500 we are revenue neutral, there is still a lot to be gained by Nipomo
0:39:56	Brad Newtons response to coast keepers letter
0:41:07	Coast Keepers thinks money is the driving force
0:41:44	Mayor Larry Lavagnino, If you want to talk about money, if we make a few bucks on one end long time, and we solve our own problem with the depression,
0:41:54	Mayor Larry Lavagnino, So be it, and then the counsel will make a decision on how to allocate that money. there is nothing sinister here. It's the protection of the Santa Maria Water supply.
0:42:12	Alice Patino, Coast Keepers not in process
0:43:09	Councel, I agree it's not the money
0:44:06	It's in the hands of experts, it's not junk science here
0:44:17	Mike Cordero
0:45:10	Gilbert A. Trujillo
0:46:22	you would go out and purchase water on the open market
0:46:29	can you explain that?
0:46:51	Sweet, There are several mechanisms to acquire water through the state water system.
0:47:18	We employ a person to find that water for us.
0:47:24	One source of water we have been using for the last two years is San Luis Obispo County
0:47:28	San Luis Obispo County has a state water allocation 25,000 AF of water
0:47:33	They only have a pipe line capacity of 5,000 AF
0:47:37	That leave 20,000 AF out there
0:47:40	Because that water is what we call stranded water
0:47:51	We can acquire that water
0:47:55	at a financial benefit to them, and a fairly reasonable cost, compared to the open market
0:48:04	I think we bought 2200 AF this year
0:48:09	our state water allocation was only 40% and would mean in we would only bring 6300 AF so we have brought in 8,500 feet because we have been buying water on the open market.
0:48:39	On years when we are trying to meet our water quality and there is not enough water to do that on our entitlement we acquire water on the market
0:49:01	Our plan is to provide A quality water and if we have to purchase more water we do that.
0:49:13	and we would do that with the funds that we get from Nipomo
0:49:21	Sweet, We priced this to assure ourselves that we could provide quality water to the city
0:49:32	We assumed that we would have to purchase all the water to Nipomo
0:49:57	Why are we going out and purchasing water and selling water?
0:50:20	Sweet, a lot of what we do is preserve the quality water that's available back to the basin.
0:50:31	We put better water in the basin then we take out
0:50:35	The way we do that is by getting more supplemental water
0:50:39	We can leverage these deals to get more supplemental water
0:50:46	It's hard to explain
0:53:56	Move to adopt the resolution, all yes

Minutes SANTA MARIA, REGULAR MEETING, DECEMBER 1, 2009, page 12

ENVIRONMENTAL REVIEW OF THE WATERLINE INTERTIE PROJECT AND APPROVAL OF AN AGREEMENT WITH THE NIPOMO COMMUNITY SERVICES DISTRICT ON THE SALE AND DELIVERY OF SUPPLEMENTAL WATER.
Director of Utilities Sweet gave the staff report. The City Council, acting as the Responsible Agency, is asked to approve an Environmental Impact Report and adopt mitigation measures for the Nipomo Community Services District (NCSD) Waterline Intertie Project, and approve an agreement with NCSD for the sale and delivery of supplemental water. NCSD needs to purchase supplemental water to offset groundwater overdraft. The Santa Maria Groundwater Litigation Stipulation required that the City seek to provide the Nipomo Management Area with 2,500 Acre Feet (AF) 12
MINUTES DECEMBER 1, 2009
of supplemental water annually. The City has adequate water to fulfill this obligation. The NCSD and the City signed an MOU in 2004 to begin negotiations on a supplemental water sales agreement. The NCSD completed the preliminary design and certified an Environmental Impact Report for a Waterline Intertie Project to deliver the supplemental water to the community. They have also approved the Agreement with the City for the purchase of supplemental water. The City has water of sufficient quality and quantity to supply supplemental water to Nipomo; and, therefore, there were no significant environmental impacts to the City. The sale of supplemental water to Nipomo will be a judicial use of fiscal assets and will help with groundwater restoration and preservation by assisting in the balance of the groundwater basin.
In order for the City to deliver water to NCSD, a water delivery system must be constructed between the two existing water systems. The water delivery system, or Nipomo Waterline Intertie Project (Project), is made up of water lines, pump stations and the necessary infrastructure to deliver water from one location to another. Construction of the water delivery system is the responsibility of the NCSD. The location for joining of the two water systems in Santa Maria will be near the intersection of West Taylor Street and North Blosser Road. A pipeline extension would run north on Blosser Road to the levee, under the levee and the Santa Maria River, and eventually to a connection in Nipomo. If NCSD receives the necessary financing for the Project, the delivery system is scheduled to be completed by the NCSD in January 2012.
Director Sweet requested a two-week continuance to address issues raised in a letter received today from San Luis Obispo Coastkeeper questioning water supply issues, impacts to the Santa Maria River, and whether the agreement required a separate legal review. The Environmental Impact Report was approved by the NCSD on April 22, 2009. There was a scoping meeting before the document was prepared, and there was a public comment and review period provided. At no time did the San Luis Obispo Coastkeeper provide input on this project until this morning. Staff has been working to develop a sustainable response, and felt the information was substantial and sustainable to respond to the letter. The two-week continuance would allow staff time to prepare a solid response to the letter.
Michael Le Brun, Nipomo Community Services District Interim General Manager, stated the District approved the agreement, was very supportive of this project, and felt it would be beneficial to both parties in the overall management of the groundwater basin.
Joan Leon, Santa Maria Community Coalition, referenced a table showing the City’s water entitlement. She asked how the City could still get the full entitlement from the Twitchell Reservoir if the State Water allotment in a dry year was cut in half. It seemed that the figure for Twitchell was not accurate. The other concern was the water quality. One of the reasons for State Water was because of the dissolved solids in the ground water. If the City was going to have less State Water and use more ground water, what would happen to the water quality.
Director Sweet stated that although the City might not get its full allocation of State Water, the City could purchase State Water on the open market from the State. Staff believed that even in the worst draught scenario, the City would be able to provide enough high-quality water due to the revenue from this agreement. Part of why the City delivered high quality water was to discourage water softening in the Valley. There is a new State law that would allow the City to manage softening of water in the Valley. Staff was also exploring other more expensive options for delivering higher quality water that would need more public input. The Twitchell yield was based on a 30-year average.
Councilmember Zacarías stated she did not see any reference to what the facilities would look like and how they would be incorporated into the neighborhoods. She asked about the proposed tank sites and pump stations.
Peter Sevcik, NCSD Engineer, replied there would be no pump stations on the Santa Maria side. There would be an 18” line in the right-of-way of Blosser Road up to the Levee, an underground 24” pipe up to the top of the Mesa where there would be a half million gallon storage tank and booster pump station. The tank would be mostly buried and would be on the Nipomo side. At the time the EIR was prepared, the District had not completed all of its hydraulic analysis. They have since confirmed that no pump stations would be needed on the Santa Maria side.
Councilmember Orach moved to continue the item to the next City Council meeting, Councilmember Zacarías seconded the motion, and it carried unanimously.

01/31/10 Santa Maria Times, Water deal interpretation, profit?

"The city may have to buy more water on the spot market at high cost in order to meet state requirements that the water quality has lower total dissolved solids — minerals. If there is any profit generated from this sale of water, the proceeds are to go into the city’s General Fund."

03/30/08 Santa Maria Times, Jury reports support city's programs

"One report confirms the legality of the city's practice of selling excess groundwater and state water return flows, and using the proceeds to fund police and fire personnel."

“The selling of excess state water return flow and groundwater is legally sound, and the transfer of funds received to the general fund is a proper use of the money. The ... Santa Maria City Council acting as the water board has acted properly and in the best interests of the citizens of Santa Maria.”

09/03/07 Santa Maria Times, Regarding a misuse of public funds, Use of Santa Maria's water Sale "Profits"

Richard Sweet, utilities director for the city of Santa Maria, writes in a letter to the editor, on July 24,
“The city General Fund owns the ground water rights. Funds derived from the ground water allocation
sales are not removed from the water fund because they are owned by the General Fund and therefore
were never in the Water Fund.”

This statement is not only erroneous, but also insulting. Mr. Sweet should be reminded that the people
of Santa Maria own the General Fund and Water Fund, and they - not the city staff - should determine
how the profits from the sale of State Water return flows are to be allocated.

It should be noted that Mr. Sweet uses the term “ground water” instead of “State Water return flows.”
This deception by the city staff is attempting to justify a diversion of $1 million that came from the
State Water return flow sales to a revolving loan fund. This fund is administered by a non-city
organization named Coastal Business Finance.

The city has approximately 8,500 acre-feet (AF) of State Water return flows available for sale. In a
secret negotiation by the city officials with the North Hills developers, they came up with a price of
$25,200 AF for this water. The total profits from the sale of State Water return flows can realize over
$213 million for the people of Santa Maria.

Toru Miyoshi is a former City Council member and 5th District county supervisor. He lives in Santa
Maria.

01/21/07 Santa Maria Times, One of the best-kept fund secrets not meant as a secret at all

The city has been criticized by some residents for using revenue from surplus water sales to establish
the loan program instead of putting the money back into the water fund and trying to lower rates.

Ness countered that the city tries to keep its rates for water and other services low, but that $1 million,
though it seems like a lot of money, won't reduce rates significantly.

09/25/05 Santa Maria Times, City of Santa Maria begins loan program uses profit/revenue from water sales to Nipomo

The Santa Maria City Council Tuesday unanimously approved guidelines to govern the $1 million Business Retention and Attraction Loan Program that will be administered by the Santa Maria Valley Chamber of Commerce.
The program is the brainchild of Councilman Marty Mariscal, who saw the proceeds generated from the city's sale of surplus water as
the perfect funding mechanism for such a loan.
"We are taking an asset of the city and putting it to work in the city," Mariscal said of the money.

01/31/05 Santa Maria Times, S.M. explores creating municipal utility profit/raise revenue from water sales to Nipomo

S.M. explores creating municipal utility
By Malia Spencer/STAFF WRITER
The Santa Maria City Council is poised to establish a utility that has the potential to bring millions of
dollars to the city's general fund and become one more money-making venture that city staff has
established in an effort to offset rising costs of municipal services.
The council is set to hear city staff's recommendations on the establishment of a municipal electric
utility at tonight's meeting. It is anticipated council will also hear from PG&E representatives about the
risks associated with the proposal.
The proposed utility would only service new development in Santa Maria, said City Manager Tim Ness. Currently, areas
that could see electric service from a municipal utility would be customers in the proposed Mahoney Ranch and Bradley East
developments. Those two areas have the possibility of bringing 8,000 new housing units plus schools and commercial space
to the city, said officials with the Community Development Department.
Current residents who get their power from PG&E would continue to do so, Ness said.
Though the project would have significant up front costs, city staff is estimating that over the long term the venture would
cover start-up and operation costs and provide a profit that would then be funneled into the general fund to pay for city
services such as public safety and recreation and parks, Ness explained.
It is also estimated to take five years before the pay-off is realized, officials said.
Those who would be served by the proposed municipal utility would pay the same rates as PG&E customers, Ness said. Even
if the city can buy the electricity at a cheaper price, the rates for customers will be the same.
"(The difference in purchase price and customer rates) will not become a profit, it's a way to generate money to help offset
the costs that we are going to be incurring for providing other services," Ness said. "We are not putting the money back into
lower rates but using it to augment the general fund. We are not charging any more or any less than what existing
customers are paying to PG&E."
If the council decides to proceed with the project, the city would have to construct a connection to PG&E's lines in the area
of future development, said Paul Karp, director of Public Works.
The connection would be metered and would serve a small load, he said. It would draw power from PG&E's grid through the
company's lines and then distribute the power through a system of city-owned lines. The city's lines will be underground.
As growth occurs in the areas, Karp said, the city will have to construct substations to more efficiently draw from the
system.
The initial construction is estimated to cost about $250,000 in the first calendar year of the project, Karp said.
Establishing a utility is only an option for dealing with the city's rapid growth, Ness said. With Santa Maria's predicted one to
two percent growth rate each year, officials said they believe this is a viable option.
In researching the feasibility of the project, city officials have been visiting other municipalities that have established electric
utilities. Ness said he has been working with officials in Lompoc who have been in the electricity business for decades.
However, officials with PG&E, which currently serves Santa Maria customers, plan to attend the meeting and present
possible risks that can be associated with the project.

"We respect the city of Santa Maria's desire to look at available energy alternatives but our concern here is that they
are moving forward with little or no public comment," said Sharon Gavin, a company spokesperson. "From what we have
seen, we feel that this is a questionable scheme based on a flawed model and the tax payers could be paying for millions of
dollars in new city debt."
A large error in the feasibility study is the city's assumption that the new utility will have 100 percent of the market share,
Gavin said. That is the wrong assumption, she said, because PG&E will have the right to compete for those customers.
She added that the company would "fully intend" to do so.
"The city's expectation of revenue may be overly optimistic," she said, "and raise false hopes of potential benefits."
Establishing an electrical utility is just one more way city staff is trying to raise revenue in order to provide service without
raising municipal taxes.

Establishing an electrical utility is just one more way city staff is trying to raise revenue in order to provide service without
raising municipal taxes.
"About two or two and half years ago we had a goal setting workshop with the council and one of the things they asked us
to do is to look at creative ways to create funding and to create financing to help offset the continuing cost of providing
municipal service without increasing taxes," Ness said.
To achieve that Ness and other members of city staff have been challenged and as a result the city has begun a number of
other revenue-generating projects.
The city spent five years permitting the Santa Maria Regional Landfill to be able to accept non-hazardous impacted soils.
Last fiscal year, this project generated $4.6 million in revenue for the general fund, Ness said.
Another project allowed for the retrofit of the Waste Water Treatment Plant to accept what is called septige and treat it in
small quantities with the rest of the waste water, he said. Septige is the contents pumped out septic tanks and other waste
that can't go down the drain. That project has generated hundreds of thousands of dollars for the city, he noted.
A third project is the selling of surplus water to other agencies such as Nipomo and Orcutt. That program earned the city
$1.5 million last year.

The City Council will meet tonight at 6 in City Council Chambers at City Hall, 110 E. Cook St.

First Known connection of Santa Maria selling water and the word Profit, 2004 Santa Maria Times

07/21/04 Santa Maria Times, Water deal strengthens city's hand

The 500 acre-feet the city made available Tuesday will sell at $25,200 per acre-foot, and the profit could help lower the
cost of water for city rate payers, Chisam said. Last year the council approved selling 400 acre-feet of excess state water to
Orcutt projects, and most of that has been used up.

Nipomo Water

Documents and informatin realted to water in Nipomo.