GRASS VALLEY, Calif. Dec. 17, 2008 - While many sectors of the state's economy are struggling, there is one business that continues to thrive: the sale and distribution of water. Arguably California's most precious natural resource, water has joined the ranks of big business.
But in spite of water's escalating value - along with its potential scarcity - water agencies like Nevada Irrigation District must turn to reserves to balance their future budgets.
Last week (Dec. 10) NID board of directors approved a $77.5 million budget for 2009, up over 21% from the district's 2008 amended budget.
To balance the 2009 budget, NID must withdraw $34 million from its reserves.
This figure represents 44% of revenues needed to fund the district's total budget for 2009.
NID's Hydroelectric and Recreation Divisions represent $7 million and $1.2 million, respectively, of the district's overall 2009 budget. Weighing in at 89% of the 2009 budget, NID's Water Division budget will top $69.4 million.
Key to understanding the significance of the water division budget is its source of revenue:
For 2009, water sales are projected to generate 51% of the division's revenue. So where do the remaining dollars come from to offset nearly $70 million in expenditures?
The single largest revenue source for the district's water division are property taxes. These dollars make up NID's rate augmentation fund which helps subsidize raw and treated water rates in addition to functioning as a reserve account for the district. But according to NID's Finance Manager Marie Owens, her budget projections on tax revenues are conservative. "I've flattened it," Owens said of her budget calculations on property tax revenues.
There are also concerns that with mounting deficits in Sacramento, the state will once again cast a greedy eye on the district's property tax dollars. "I worry that they haven't taken districts like ours off the table to fix their deficit," General Manager Ron Nelson warned board members. "We must assume the state is looking at our tax revenues," Nelson added.
Roughly $13 million will come from NID's rate augmentation fund to go toward shoring up the water division's deficit.
According to Nelson, even with an adopted budget, staff will begin in January to reevaluate aspects of the budget in an effort to trim expenses. Such measures could include postponing personnel replacement and possibly delaying some pending projects. "It is conceivable that water sales could be off and we might anticipate revenues off more from hydro," Nelson advised.
While Director Nick Wilcox supported approval of a budget, he also voiced some strong concerns about the district's long-term financial security. "I think it's important the district has a working budget," Wilcox observed.
"Having said that, this budget looks like a train wreck waiting to happen. In my limited understanding of fiscal things, you either reduce expenses or increase revenue," he added. "We need to look at our upcoming rate discussion and increasing district revenues in the future."
The newly-adopted 2009 budget does not include revenue calculations based on rate increases.
During last Friday's (Dec. 12) Rate Committee meeting, the subject of rate increases was discussed. Board members Paul Williams and Scott Miller suggested that NID continue with the 6.5% rate increase enacted in early 2008 as a projected five-year plan for its treated water customers. In addition, they recommended that rate increases for raw water customers would be held at 4 to 5.75% over ten years.
A special meeting will be conducted on January 7 for purposes of a public hearing on potential rate increases. The public is encouraged to attend.
Water Supply Update:
While the district's mountain division (including Jackson Meadows, Bowman Reservoir, French Lake, Faucherie, Sawmill, Jackson Lake and Milton) hovers at 49 per cent capacity, Operations Manager Don Wight does not seem too concerned.
"This is close to average," Wight advised NID's board of the 77,874 acre feet sitting in the district's high Sierra storage. "It's not a bad state of affairs as long as the precipitation comes through."
Wight further added that NID's total reservoir capacity sits relatively comfortable at 139,000 acre feet, or 92 percent of average.
Cement Hill CFD: Still Working Out the Details:
Venturing into the unfamiliar realm of community facilities districts or CFDs has been an ongoing challenge for NID, particularly with its Cement Hill project.
At a recent board meeting, directors voted to adopt a resolution that would allow for water service and tax obligation waivers on what NID refers to as "special circumstance" parcels within the newly-formed CFD.
The resolution establishes the procedure for certain parcels to opt out of the CFD.
Several parcels already have legal access to the existing water main along Indian Flat Road. These parcels will be granted immediate waivers upon signed written agreements.
Other "special circumstance" parcels do not front the new Cement Hill CFD pipelines. Instead these parcels have principal frontage along a road right-of-way where a future water main will eventually serve these parcels.
After numerous discussions and negotiations with parcel owners, NID has agreed to grant waivers to the additional "special circumstance" parcels under question. However, these parcels will continue to be assessed a special tax until new parcels are created within or annexed into the CFD.
When a new parcel is added to the CFD, then the remaining "special circumstance" parcels would be notified by mail. Waivers will be granted priority based on the date of their signed and notarized agreements.
Combie North Powerhouse: How Project Costs Escalate:
Take a hydroelectric facility replacement project that is budgeted for $1,925,000. Then find yourself explaining why the actual cost balloons to over $3 million.
NID Senior Associate Engineer Doug Roderick did just that at the district's recent board meeting. And won approval of the project along with the construction contract which the district awarded to Sacramento-based T&S Construction Co., Inc.
Roderick pointed to several items that ended up exceeding original cost projections. Unable to reuse any of the existing building as previously assumed, a new structure became part of the project plans. Then, factor in additional construction and design costs - and demolition expenses for the old building - for a project that sits on an extremely steep slope. Include purchase and installation costs for the turbine unit. And the pipe for a penstock.
According to Roderick, hydroelectric construction costs have increased significantly due to demand for these facilities and global steel prices. But don't higher prices mean a longer payback period for districts like NID? No, explained Roderick.
North Combie currently receives a higher per kilowatt hour rate (kWh) than was used in the original payback calculation of 14 years. While the cost of the project has increased, so have the revenue projections.
Roderick placed the payback period anywhere from 14 to 14.7 years.
Director Paul Williams expressed concerns that other projects in the district warrant more priority and recommended placing the turbine unit into storage.
Roderick and staff reminded board members that there would likely be warranty issues over postponing installation of the turbine. In addition, delays in construction could be costly because of prevailing union rates and the rising price of steel.
Along with the construction of the new powerhouse building the project will also replace a combined 300-kilowat (kW) unit with a single unit that can generate a maximum of 500 kW. Additional work will also include replacing the existing concrete flume and installing a new spillway downstream of the new powerhouse.
Move to Dissolve Nevada Power Authority:
In 1983 NID entered into a joint powers agreement with Nevada City and Nevada County to form the Nevada Power Authority (NPA). Created with the intention of raising money for the design, construction, and operation of water storage and hydroelectric facilities, it financed construction of a powerhouse at Bowman Reservoir. NID ultimately took over operation of the powerhouse.
Currently there is a cash balance of $16,000 in the NPA account. In 2005 NID extended its participation in the NPA for an additional three years. According to NID Finance Manager Marie Owens, there has been no financial activity on the current account for several years, other than interest income. "We have barely had a meeting in two years," General Manager Nelson added.
Nevada City recently sent a letter to the NPA requesting the money. According to City Engineer Bill Falconi the city wants to use the money for solar installation at their sewage treatment plant.
Last week NID's board voted to withdraw from the NPA and further recommended dissolution of the agency.
NID Board Recognizes Its Own:
Prior to sitting down for his first board meeting last week, Nick Wilcox of Penn Valley took the official oath of office as newly-elected Division V director. Including the communities of Lake Wildwood and Penn Valley, Wilcox's division extends from the western reaches of Grass Valley to the Yuba County border.
Nancy Weber of Nevada City was also recognized for her 10 years of service as director of Division I, which includes Banner Mountain, Cascade Shores, Cement Hill and the Lake-Vera/North Bloomfield area.
Board members also honored John A. Norton of Lake Wildwood, who served as interim director for Division V following the resignation in July of the late George Leipzig.
NID board meetings are normally held on the second and fourth Wednesdays of the month at the NID Business Center in Grass Valley. The next meeting is scheduled for Jan. 14 at 9 a.m. The public is encouraged to attend.
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