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The Vallejo Lakes Water System[LWS]

History and Current IssuesJanuary 26, 2014

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1892 - 1950 Vallejo bought property above Green Valley around

1892, to develop a new water supply for the City A dam was created on Wild Horse Creek and a 14-inch

transmission pipeline (Green Line) was installed to bring this water to the City of Vallejo 1894: Lake Frey created 1908: Lake Madigan created

1925: Lake Curry built, along with a 24-inch transmission pipeline (Gordon Valley Line) to bring additional water to Vallejo

Vallejo obtained pipeline easements and riparian water rights by trading for free water.

LWS Was Originally Developed as aNew Water Supply for Vallejo

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1950-1991 Vallejo acquired new water supplies from the Sacramento River Delta

(Cache Slough) and Lake Berryessa in the 1950’s New pump stations and pipelines were completed to convey this

water to a new treatment plant (Fleming Hill WTP in Vallejo) Water from these sources was:

Cheaper More abundant and dependable Better quality

In 1988, Vallejo began receiving additional water from the State Water Project, through the North Bay Aqueduct

With these multiple sources Vallejo no longer needed

LWS water

Vallejo Obtained Additional Water From New Sources to Meet Demands

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1992-Present 1992: The Critical Year

Vallejo was compelled to cease delivering water from Lake Curry to domestic users because of new water treatment requirements

Due to this, Gordon Valley pipeline could no longer deliver Lake Curry potable water to customers along that route

Treated water from Green Valley was fed “backwards” into Gordon Valley to serve former Lake Curry customers

After Lake Curry was abandoned, and for the first time in almost 100 years, Vallejo received no water from the LWS.

Vallejo decided to make the 809 LWS customers pay all system costs (instead of the 30,000 Vallejo customers).

New Drinking Water Regulations Changed the LWS Operation

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In January, 1994 the Dept. of Health Services ordered Vallejo to add a modern treatment plant to replace the old pressure filter plant

A LWS Master Plan was developed and, together with the Green Valley Landowners Association (GVLA), it was decided to construct a new 1 million gallon per day water treatment plant and reservoir in Green Valley

Vallejo added an $80 bi-monthly surcharge on to the water bills to pay for these facilities

New Green Valley WTP Built to Meet EPA and State Requirements

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In 2004, EPA ordered Vallejo to reduce the level of trihalomethanes (THMs) in the treated water

A MIEX ion exchange process was added in 2006 The Green Valley Water Treatment Plant now

receives about 75% of its water from the Solano Irrigation District (SID - Berryessa Water) and the remainder from Lakes Frey and Madigan.

The blended water from the two sources improves water quantity, quality, and simplifies treatment plant operation

Improvements Added to Meet New Requirements

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The Cost of LWS Water Has Changed Dramatically Since 1991

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The Cost of LWS Water Has Changed Dramatically Since 1991

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Over 50 miles of pipeline; the pipeline “backbone” consists of two lines: the Green Valley Line and the Gordon Valley Line, an aging, fragile and inadequate distribution system, which cannot reliably meet potable water or fire flow needs

Reservoirs and pump stations A 1 million gallon/day water treatment plant (the Green

Valley Water Treatment Plant) Serves Upper Green Valley, Gordon Valley, Old Cordelia,

Willotta Oaks, Spurs Ranch, Solano JC, and others

The LWS Today:What Does it Consist Of?

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The source for the LWS is surface water rather than wells or purchased treated water

Surface water requires treatment to meet the Federal and State Safe Drinking Water Standards

The LWS was originally designed to supply water to the City of Vallejo but now only needs to deliver treated water to a comparatively small number of customers

The LWS is Different Than Many Small Water Systems

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Our infrastructure cost per customer is higher than typical small water systems

Lakes Water System = $11,220 per customer Typical Small System= $925 per customer

LWS Infrastructure Cost is More Than Ten Times

that of Other Systems

The LWS InfrastructureCost is Very High

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The City no longer wants the Lakes System water supply

The LWS is physically separated from the City of Vallejo The LWS is expensive to operate and maintain There are significant liability issues for Vallejo due to

the age and extent of the system infrastructure

The only reason Vallejo continues to operate and maintain the LWS is because they have an on-going responsibility to serve the customers.

Vallejo Has Given Indications That it Plans to Sell the LWS

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The first pipeline (14-inch Green Line) was installed in about 1900 Over 74% of the LWS pipeline assets have been in service for over

30 years beyond their useful life. Useful life is about 50-60 years. The replacement cost for all LWS pipelines that have reached the

end of their useful life is about $24.1 mil The balance of the distribution pipelines in Green Valley will reach

the end of their useful life in the next 10 years. Replacement cost for these pipes is about another $6.0 mil

Total Infrastructure Liability is about $30 million

The Existing LWS Pipeline Infrastructure is a Liability

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Many pipelines will need to be replaced/upgraded over the next 10 years

New pipelines and pumps will need to be larger to meet fire flow requirements

Replacement costs may be more than $30 mil (2012 $$)

This represents a potential cost of over $37,000 per household

The Pipeline Liability Represents a Huge Potential Impact on our Rates

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Example of LWS Pipeline

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Investor Owned Utility (IOU) A for-profit company Regulated by the CPUC Examples: PG&E, California American Water (Cal

Am) Community Services District (CSD) A non-profit public agency (Special District)

Governed by a locally elected board of directors Example: Solano Irrigation District (SID)

If Vallejo Sells the LWSWho Would Buy it?

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The LWS appraisal, by FCS Group, was completed in March 2013

The report concluded that the Fair Market Value of the LWS was estimated to be $9,077,000, without including any land or any water rights

The GVLA review of the appraisal indicates that it is deeply flawed and did not consider the infrastructure liability

It appears that the Fair Market Value of the LWS was grossly overestimated

Vallejo Had an Appraisal of the LWS Prepared in Anticipation of Sale

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Purchase by an investor-owned utility (IOU) would result in higher rates than if a Community Service District (CSD) owned and operated the LWS IOU -- 54% initial increase in rates CWD – 10% initial increase in rates

Interest rates are more favorable for CWD financing compared to an IOU

An IOU is allowed to make a return on its investment (profit) where a CWD is non-profit

The Appraisal Report Also Analyzed Purchase by Both an IOU and CSD

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Vallejo’s stated intention is to sell the LWS to a private utility.

Vallejo is allegedly in discussions with California American Water (Cal Am), and others, to sell the LWS.

A private utility is allowed to recover from consumers: The price it paid for the system The cost of all operations The price of any improvements to the system Plus a reasonable rate of return (i.e. profit)

Highest rates will occur with an Investor Owned Utility

What is Vallejo Likely to Do?

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Rates will depend on who buys or operates the LWS: an IOU or a CSD

With financing by an IOU, the rate increase would be about $640/2-mo average per customer or:

An average total bi-monthly cost of $1,150 per customer(approximately three times your present water bill)

One thing is guaranteed: Without action, all operating, maintenance and deferred capital improvement costs associated with the LWS will be shared by no more than our 809 connections.

What Will Future Water Rates Be?

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Raise rates pursuant to a new 5-year study beginning in June, 2014

Continue to pass the full cost of the LWS to the LWS customers

Continue to defer needed infrastructure replacement and system reconfiguration

Likely carry out its stated intention of selling some or all of the LWS to a privately regulated utility (who will pass on the full cost, plus profits, to the LWS customers)

Possibly sell some or all of the water and non-watershed lands (while pocketing the proceeds for itself)

What Will Vallejo Likely do if We Do Nothing?

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On December 4, 2014, the GVLA sent Vallejo: A formal claim under the Government Claims Act; A detailed demand letter; and A detailed response to the flawed appraisal of the LWS.

The GVLA offered to mediate the dispute; Vallejo ignored the offer.

On January 22, 2014, the GVLA filed a class action complaint on behalf of all LWS Customers against Vallejo.

Recent Actions

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The class action lawsuit alleges that Vallejo has a contractual, fiduciary and legal obligation to share in the cost of the LWS (just as it had for the first 100 years).

The class action lawsuit alleges that Vallejo is obligated to pay at least 98% of the cost of operating the LWS.

What Does the Class Action Lawsuit Allege?

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Damages (of approximately $12 million) stemming from the rate increases which first went into effect in 2009.

An order prohibiting Vallejo from selling the LWS to an IOU or any other party.

An order compelling Vallejo to continue to share in the cost of the LWS, including:

Maintenance and operational costs Deferred Capital improvement costs

What Does the Class Action Lawsuit Seek?

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The GVLA is the “named plaintiff” – the plaintiff who brings the lawsuit on behalf of the class.

The “class” members consist of all LWS customers between 2009 and 2014.

Class actions lawsuits are binding on all class members unless you “opt out” of the class.

Any settlement must be approved by the court. Class members may object to a settlement.

How Does a Class Action Lawsuit Work?

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In an abundance of caution, the GVLA is beginning the process of forming a Community Services District (CSD).

The Community Services District could take title to the LWS in the event a settlement is reached (on acceptable terms), whereby the LWS is transferred to the customers.

Unlike Vallejo, a Community Services District would be run by a locally-elected board of directors, responsible to the customers.

In all likelihood, the District ‘s system would be operated by a third party operator, such as SID.

What Else is Being Done?

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The GVLA will submit a “Notice of Intent” to form a CSD with the Solano County Local Agency Formation Committee (“LAFCO”).

10% of all users of the LWS will need to sign a petition to form the CSD.

Thereafter, an application and the signatures will be filed with LAFCO.

If approved by LAFCO, a majority of the users need to vote to approve the formation of the new CSD.

How Does the CSD Process Work?

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The lawsuit does not challenge the right of certain owners to continue to receive free water.

The water rights these owners obtained are vested and run with the land.

However, the lawsuit does seek to recoup damages from Vallejo attributable to the increased cost the remaining customers bear in order to provide the free water.

What if I receive “free water”?

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Contribute to the cause. Litigation is expensive; Forming a CSD is expensive; PR efforts are expensive.

The minimum recommended donation is an amount equal to one bi-monthly water bill.

Tell others, spread the word and stay informed. www.GVLA.com www.smflynn-law.com Follow and circulate local and regional news stories Help draft and submit letters to the editor

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