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HomeMy WebLinkAbout05-09-2012 Administration Committee Agenda05/09/12 Administration Committee Agenda Page 1 of 3 Orange County Sanitation District Regular Meeting of the Administration Committee Wednesday, May 9, 2012 5:30 P.M. Administration Building Board Room 10844 Ellis Avenue Fountain Valley, CA (714) 593-7130 AGENDA PLEDGE OF ALLEGIANCE: DECLARATION OF QUORUM: PUBLIC COMMENTS: If you wish to speak, please complete a Speaker’s Form and give it to the Clerk of the Board. Speakers are requested to limit comments to three minutes. REPORTS: The Committee Chair and the General Manager may present verbal reports on miscellaneous matters of general interest to the Committee Members. These reports are for information only and require no action by the Committee. REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES: · Budget Update INFORMATIONAL ITEMS: 1. Operations and Maintenance Benchmarking Study 2. Benefits Program 3. Insurance Renewals, 2012-13 CONSENT CALENDAR: 4. Approve Minutes of the April 11, 2012 Administration Committee Meeting. 05/09/12 Administration Committee Agenda Page 2 of 3 ACTION ITEMS: 5. Recommend to the Board of Directors to: Award professional agreements with TDI Consulting and Brown and Caldwell for Piping and Instrumentation Diagram (P&ID) Redrawing Project, Specification No. CS-2012-518BD with an aggregate amount not to exceed $250,000. 6. Recommend to the Board of Directors to: A. Approve a Purchase Order contract with Scale Datacom, LLC, for the purchase of the Storage Area Network (SAN), Specification No. S-2011- 511BD-R, for an amount not to exceed $389,790; B. Approve a contingency in the amount of $19,490 (5%). 7. Recommend to the Board of Directors to: A. Approve Amendment No. 2 to the Professional Services Agreement for Specification No. CS-2011-499BD, Purchase Order No. 104353-OA, issued to Total Resource Management, Inc. (TRM, Inc.) for Phase 2 of the Implementation of IBM-Maximo Enterprise Asset Management System, for an amount not to exceed $435,452; B. Approve a contingency in the amount of $43,545 (10%). 8. Recommend to the Board of Directors to: Authorize the General Manager to issue new fixed rate Certificates of Participation (COP), to be referred to as Wastewater Refunding Revenue Obligations, in an amount sufficient to refund the outstanding $91,900,000 of COP Series 2000-A and 2000-B OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY: ADJOURNMENT: The next Administration Committee meeting is scheduled for Wednesday, June 13, 2012, at 5:30 p.m. 05/09/12 Administration Committee Agenda Page 3 of 3 Accommodations for the Disabled: Meeting Rooms are wheelchair accessible. If you require any special disability related accommodations, please contact the Orange County Sanitation District Clerk of the Board’s office at (714) 593-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature of the disability and the type of accommodation requested. Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2, this agenda has been posted outside the main gate of the Sanitation District’s Administration Building located at 10844 Ellis Avenue, Fountain Valley, California, not less than 72 hours prior to the meeting date and time above. All public records relating to each agenda item, including any public records distributed less than 72 hours prior to the meeting to all, or a majority of the Board of Directors, are available for public inspection in the office of the Clerk of the Board. NOTICE TO DIRECTORS: To place items on the agenda for the Committee Meeting, items must be submitted to the Clerk of the Board 14 days before the meeting. Maria E. Ayala Clerk of the Board (714) 593-7130 mayala@ocsd.com For any questions on the agenda, Committee members may contact staff at: General Manager Jim Ruth (714) 593-7110 jruth@ocsd.com Assistant General Manager Bob Ghirelli (714) 593-7400 rghirelli@ocsd.com Assistant General Manager Jim Herberg (714) 593-7300 jherberg@ocsd.com Director of Finance and Administrative Services Lorenzo Tyner (714) 593-7550 ltyner@ocsd.com Director of Human Resources Jeff Reed (714) 593-7144 jreed@ocsd.com Page 1 of 1 ADMINISTRATION COMMITTEE Meeting Date 05/09/12 To Bd. of Dir. 05/23/12 AGENDA REPORT Item Number 1 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Ed Torres, Director of O&M SUBJECT: OPERATIONS & MAINTENANCE BENCHMARKING STUDY GENERAL MANAGER'S RECOMMENDATION Information Item. SUMMARY The Operations & Maintenance department recently completed a benchmarking study with the Los Angeles County Sanitation District. The results of the benchmarking effort will be presented. PRIOR COMMITTEE/BOARD ACTIONS None. ADDITIONAL INFORMATION None. CEQA N/A. BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A. Page 1 ADMINISTRATION COMMITTEE Meeting Date 05/09/12 To Bd. of Dir. N/A AGENDA REPORT Item Number 2 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Jeff Reed, Director of Human Resources SUBJECT: BENEFITS PROGRAM GENERAL MANAGER'S RECOMMENDATION Information Item. SUMMARY The total cost of insurance coverage will increase 1.7% or $160,404 for the forthcoming fiscal year (FY 2012-13). The total cost for FY 2012-13 is $9,364,697, which is proportionally shared as follows: · OCSD cost: $7,606,309 · Employee cost: $1,758,388 PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION Premium increases for FY 2012-13 are as follows: Insurance Provider % ∆ Comments Medical Anthem Blue Cross 1.0 HMO and PPO, all employee groups Medical Kaiser Permanente 5.6 HMO, all employee groups Dental Delta Dental -0.9 Rate guarantee through 7/1/13 Vision Anthem Blue View 0.0 Rate guarantee through 7/1/13 EAP ComPsych 0.0 Rate guarantee through 7/1/14 Life/AD&D Prudential 5.3 Rate guarantee through 7/1/14 Short-Term Disability Prudential 9.6 Rate guarantee through 7/1/14 Long-Term Disability Prudential 3.0 Rate guarantee through 7/1/14 Historical Summary: Page 2 Insurance Rate Change % ∆ FY 12/13 FY 11/12 FY 10/11 FY 09/10 FY 08/09 Medical: Anthem Blue Cross 1.0 10.5 7.2 4.2 9.4 Medical: Kaiser Permanente 5.6 0.8 13.6 3.6 11.7 Dental -0.9 8.0 14.8 0.0 0.0 Vision 0.0 0.0 -18.7 0.0 0.0 EAP 0.0 0.0 0.0 -21.2 5.8 Life/AD&D 5.3 0.0 0.0 -2.6 0.0 Short-Term Disability 9.6 0.0 0.0 -5.4 0.0 Long-Term Disability 3.0 0.0 0.0 -9.6 0.0 CEQA N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A JDR:JR:LM Page 1 of 1 ADMINISTRATION COMMITTEE Meeting Date 05/09/12 To Bd. of Dir. N/A AGENDA REPORT Item Number 3 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance & Administrative Services SUBJECT: Updated Status of 2012-13 Insurance Renewals GENERAL MANAGER'S RECOMMENDATION Informational item. SUMMARY Historically, the Administration Committee has asked for status updates regarding the renewals of major insurance policies each year. The Risk Management Division and the Sanitation District’s operational insurance broker begin the process of renewal each January, and final quotes are typically received in June shortly before the beginning of the new fiscal year. The Sanitation District’s insurance broker will be at the May Administration Committee meeting to give an updated status report. The Sanitation District budget provides funds for the renewal of the following four major insurances for the operations: 1) Excess General Liability Insurance 2) Excess Workers’ Compensation 3) All-Risk Property and Flood insurance 4) Boiler & Machinery insurance PRIOR COMMITTEE/BOARD ACTIONS March 2012 – Staff provided the Administration Committee with an informational item on the status of the 2012-13 Insurance Renewals. June 2011 - The Board approved renewal of the above four policies for the period July 1, 2011 through June 30, 2012. ADDITIONAL INFORMATION The following attachments have been provided: - Letter from Alliant Insurance Services, 04/16/12 - March 14, 2012 Administration Committee Agenda Report CEQA N/A BUDGET/DELEGATION OF AUTHORITY COMPLIANCE N/A DRIVER SPECIALTY GROUP Alliant Insurance Services, Inc. — 1301 Dove Street, Suite 200, Newport Beach, CA 92660 PHONE (949)756-0271 FAX (949) 756-2713 — www.alliantinsurance.com — License No. 0C36861 April 16, 2012 Randall Kleinman Enterprise Risk and Insurance Div. 260 - Risk Management Orange County Sanitation District July 1, 2012 Insurance Renewal Projections Dear Randy: As we have been discussing, 2012 will be an interesting and somewhat challenging year for insurance renewals. We are writing therefore to provide a specific update of what we are hearing from underwriters in order to prepare OCSD for what unfortunately will likely be premium increases in your program over last year. Along with an update on the current state of the insurance market, we are writing to provide our expectation of “not to exceed” premium figures for OCSD’s renewal and a brief discussion of our renewal strategy. The commercial insurance market is undergoing a hardening in most lines due to unprecedented loss activity in 2011. While the earthquake and tsunami off the coast of Japan were widely reported, this and an extraordinary accumulation of other severe natural catastrophes around the globe pushed insurer losses to over $105BB, more than 2.5 times the losses of 2010 and the second worst on record. Key underwriting statistics for 2011 include: § Net insurer income down 71% over 2010 § Insurers’ combined ratio increased from 103% in 2010 to 108% § Workers’ Compensation combined ratio for 2011 is 118%. The “combined ratio” you will recall is a gross measure of dollars flowing in to insurers vs. loss and expenses paid out. Percentages in excess of 100% reflect outflow greater than inflow. The impact of these higher than normal figures are being felt as underwriters seek rate increases to balance their books going forward. Under such circumstances, our plan is to vigorously market OCSD’s program to numerous insurers to seek the most favorable terms possible, as well as seeking options on coverage structure (limits and deductibles) to determine if a different structure may be more desirable from OCSD’ point of view. As of this writing, our expected worst case for each major renewal is as follows: Line 2011 Total Cost 2012 Total Cost Dollar Change Percent Change Liability 333,609 366,970 35,000 10% Property 465,529 523,720 60,000 13% Workers Comp. 153,752 172,000 19,000 12% DRIVER SPECIALTY GROUP Alliant Insurance Services, Inc. — 1301 Dove Street, Suite 200, Newport Beach, CA 92660 PHONE (949)756-0271 FAX (949) 756-2713 — www.alliantinsurance.com — License No. 0C36861 To put a perspective on the these changes, the following chart shows that the expected increase, if fully realized (estimated here for 2012), would still be lower than its high points earlier in the decade: All this said, we are currently in process in vigorously marketing the OCSD program to numerous insurers, and it is possible that the final results of this effort could be more favorable than as presented here. We do feel however that under the circumstances OCSD should be aware of the current difficult market environment being encountered. As we continue in our marketing process, we will provide you with regular updates on our progress, and we look forward to working with you through the balance of the year. Sincerely, Alliant Insurance Services Dennis Mulqueeney Senior Vice President Donald Mc Lean Senior Vice President Page 1 of 4 ADMINISTRATION COMMITTEE Meeting Date 03/14/12 To Bd. of Dir. N/A AGENDA REPORT Item Number 4 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance & Administrative Services SUBJECT: Status of 2012-13 Insurance Renewals GENERAL MANAGER'S RECOMMENDATION Informational only. SUMMARY Historically, the Administration Committee has asked for status updates regarding the renewals of major insurance policies each year. The Risk Management Division and the Sanitation District’s operational insurance broker begin the process of renewal each January, and final quotes are typically received in June shortly before the beginning of the new fiscal year. The Sanitation District budget provides funds for the renewal of the following four major insurances for the operations: 1) Excess General Liability Insurance 2) Excess Workers’ Compensation 3) All-Risk Property and Flood insurance 4) Boiler & Machinery insurance PRIOR COMMITTEE/BOARD ACTIONS June 2011 - The Board approved renewal of the above four policies for the period July 1, 2011 through June 30, 2012. ADDITIONAL INFORMATION 1) Excess General Liability Insurance Program The Sanitation District’s Excess General Liability Insurance Program is currently provided through the California Municipal Excess Liability Program (CAMEL) and its sister program, the Alliant National Municipal Liability Program (ANML). The Sanitation District has participated in the CAMEL program since FY 1996-97. Page 2 of 4 ADDITIONAL INFORMATION (cont’d) This program currently provides the Sanitation District with a $30 million policy of comprehensive coverage for municipal liability, bodily injury and property damage, and personal injury. The program was structured to also include Employment Practices, and Public Officials Errors & Omissions coverage. The $30 million coverage has a self-insured deductible of $250,000 per occurrence and $500,000 deductible for employment practices claims. Since 1997, the Employment Practices portion of coverage has been enhanced from a $2 million sub-limit to the full $30 million policy limit. The actual insurance coverage currently consists of two separate layers. The first layer is the “Basic” $10 million program with self-insured retention of $250,000. The second layer consists of $20 million of coverage in excess of the first layer of $10 million. The premium for 2011-12 was $333,609, a decrease of about 4% from the previous year. 2) Excess Workers’ Compensation Insurance The Excess Workers’ Compensation insurance coverage is with the California State Association of Counties Excess Insurance Authority (CSAC EIA). The Sanitation District has participated in this program or its predecessor since 2003. Excess Workers’ Compensation Program currently provides so-called “Statutory” (unlimited) coverage with a self-insured retention (SIR), or deductible, of $750,000. The use of Excess Workers’ Compensation Insurance dates back to the late 1980’s. At that time, the Fiscal Policy Committee approved an SIR, or deductible, of $250,000, for such coverage. Due to the hardening of the workers’ compensation market, this deductible was raised to $500,000 beginning in FY 2002-03 through a policy with Employers Reinsurance Corporation (ERC) that provided coverage at the time of $25 million with a self-insured retention (SIR), or deductible of $500,000. Some additional risk may be associated with the CSAC EIA joint powers authority in that a premium surcharge can be assessed to individual members if an unusually large number of losses were to occur outside of the actuarial evaluation estimates. However, historically the CSAC EIA premiums for excess workers compensation have been so much less than competing quotes available to the Sanitation District that if even there were a surcharge, the cost might still continue to be cheaper. The renewal of the Excess Workers’ Compensation Insurance for the period July 1, 2011 through June 30, 2012 was at a rate of .00249 (approximately a 10% reduction compared to the previous year’s rate of .002763) partly due to the Sanitation District’s decision to increase its self-insured retention. This premium rate generated an estimated premium of $153,742 based on the estimated 2011-12 payroll. Since Page 3 of 4 ADDITIONAL INFORMATION (cont’d) the premium itself is based on final payroll, the Sanitation District will not know the exact final premium until the year is over. 3) All-Risk Property and Flood Insurance All-Risk Property and Flood Insurance Program (Property Insurance) provides for comprehensive coverage for most of the Sanitation District’s real and personal property regarding virtually all perils including fire, flood, and business interruption. The Sanitation District previously carried earthquake insurance as part of its Property Insurance, but in the last few years earthquake insurance has been impossible to obtain or not cost-effective. Currently, the Sanitation District has earthquake insurance only in connection with some of its buildings under construction. Current Property Insurance limits are $1 billion for most perils other than flood and earthquakes, and $300 million for flood, with many sub-limits for various situations. In order to reach $1 billion in limits, the broker had to arrange for nearly a dozen different layers of insurers. The SIR is $250,000 per occurrence for most types of losses. Since the late 1990’s, the Property Insurance has been with a nationwide joint purchase property insurance program called Public Entity Property Insurance Program (PEPIP), one of the world’s largest property programs. It is important to note that this joint purchase property insurance program offers the purchasing power of numerous large public entities without the pooling or sharing of coverage or losses. The renewal of All-Risk Property and Flood Insurance for the period July 1, 2011 through June 30, 2012 was at a premium of $449,441, approximately a 3% increase from the previous year, after a decrease of 5.8 percent the year before. 4) Boiler & Machinery Insurance The Boiler & Machinery insurance program provides comprehensive coverage for loss caused by machinery breakdown and explosion of steam boilers or other covered process equipment, including damage to the equipment itself and damage to other property caused by covered accident. The current Boiler & Machinery insurance program provides coverage ($100 million per occurrence/ with deductibles ranging from $25,000 to $350,000) for losses caused by covered machinery breakdown (e.g., motors, steam turbines, digesters, co-gen engines). Damages to the equipment, as well as damages to other property and improvements caused by the machinery breakdown, are covered by the boiler & Page 4 of 4 ADDITIONAL INFORMATION (cont’d) machinery insurance. This program augments the Sanitation District’s all-risk property insurance that covers perils such as fire and flood. The renewal of the Boiler & Machinery Insurance Program for the period July 1, 2011 through June 30, 2012 was at $16,188, an increase of approximately 4%, after a decrease of about 9 percent the year before. CEQA N/A BUDGET/DELEGATION OF AUTHORITY COMPLIANCE N/A Page 1 of 2 ADMINISTRATION COMMITTEE Meeting Date 05/09/12 To Bd. of Dir. 05/23/12 AGENDA REPORT Item Number 5 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: PIPING AND INSTRUMENTATION DIAGRAMS, REDRAW GENERAL MANAGER'S RECOMMENDATION Award professional agreements with TDI Consulting and Brown and Caldwell for Piping and Instrumentation Diagram (P&ID) Redrawing Project, Specification No. CS-2012- 518BD-R with an aggregate amount not to exceed $250,000. SUMMARY Piping and Instrumentation Diagrams (P&IDs) are graphical representations that show the interconnections of process equipment and the instrumentation used to control processes within the treatment plants. From 1995 until July 2010, OCSD has been using Intergraph’s Plant Design System (PDS 2D) to create and manage approximately 1,400 P&IDs. The PDS 2D software is now obsolete and unsupported. OCSD replaced PDS 2D with Autodesk’s AutoCAD P&ID system as the engineering standard for P&IDs. OCSD has an immediate need to convert existing PDS 2D P&ID drawings to AutoCAD P&ID. For each PDS 2D P&ID drawing, the drafter is to use a pre-defined redrawing process to convert old drawings to corresponding AutoCAD P&ID drawings. In addition to redrawing each P&ID, the drafter is to provide data validation reports to identify errors in data on the drawings and a daily log to document time spent to redraw each of the drawings into the new AutoCAD P&ID format. OCSD staff will perform quality control and review of the new drawings. The work will continue until all PDS 2D drawings have been converted and/or the project budget has been exhausted. PRIOR COMMITTEE/BOARD ACTIONS None ADDITIONAL INFORMATION Below is the tabulated bid result. TDI Consulting and Brown and Caldwell were the only responsive bidders. Sun Engineering and Vertech Industrial Systems did not meet the minimum staffing requirements. Page 2 of 2 Piping and Instrumentation Diagram (P&ID) Redrawing Project Bid Date – 4/4/2012 @ 2:00 PM CS-2012-518BD-R TDI Consultants Brown and Caldwell Vertech Industrial Systems Sun Engineering Drafter $50/hour $82/hour $74.17/hour $56/hour CEQA N/A BUDGET/DELEGATION OF AUTHORITY COMPLIANCE This request complies with authority levels of the Sanitation District’s Delegation of Authority. This item has been budgeted as SP-103. Date of Approval Contract Amount Contingency 05/23/12 $250,000 (aggregate) N/A Page 1 of 2 ADMINISTRATION COMMITTEE Meeting Date 05/09/12 To Bd. of Dir. 05/23/12 AGENDA REPORT Item Number 6 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: STORAGE AREA NETWORK GENERAL MANAGER'S RECOMMENDATION A. Approve a Purchase Order contract with Scale Datacom, LLC, for the purchase of the Storage Area Network (SAN), Specification No. S-2011-511BD-R, for an amount not to exceed $389,790; B. Approve a contingency in the amount of $19,490 (5%). SUMMARY OCSD computer files are currently stored on a Hewlett Packard SAN that was installed in 2006. The SAN is at capacity and has exceeded its anticipated five year life. This procurement replaces the existing SAN, allows for expected future data growth, and establishes a disaster recovery location at Plant 2. PRIOR COMMITTEE/BOARD ACTIONS None ADDITIONAL INFORMATION On December 28, 2011, OCSD issued a Request for Proposal (RFP) and on January 17, 2012, seven proposals were received from the following vendors: · Scale Datacom LLC · PC Mall Gov · Integrated Archive Systems · IMPEX Technologies · GOVPLAVE · Consiliant Technologies LLC · Atomic Group A panel consisting of seven OCSD staff reviewed and ranked each of the proposals in accordance with Resolution No. OCSD 07-04, Section 5.07. This RFP used the Page 2 of 2 consensus scoring method. During consensus scoring sessions, the evaluation facilitator directs the team's attention to each item in the specifications. The evaluation team considers one proposal at a time, comparing the vendor's proposed offering against the specifications in the underlying RFP. Consensus scoring sessions encourage open discussions and questions among members of the evaluation team. Evaluators discuss the relative strengths and weaknesses of a vendor's proposal in each area. After preliminary assessment and following the technical proposal evaluations, the selection was narrowed down to three prospective vendors; interviews were conducted on February 14, 2012. Consideration was given to the power requirements and heat loads generated by the proposed hardware along with the current infrastructure’s capacity to provide appropriate power and cooling. After these considerations, the proposal review panel ranked Scale Datacom LLC as the most qualified firm. Staff recommends awarding the professional agreement to Scale Datacom LLC in a not-to-exceed amount of $389,790. PROPOSAL EVALUATION TABLE Scale Datacom Integrated Archive Systems Impex Technologies Consensus Score 785 685 542 Ranking 1 2 3 Proposal Fee $389,790 $259,124 $456,968 CEQA N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE This request complies with authority levels of the Sanitation District’s Delegation of Authority. This item has been budgeted per CIP Project SP-163 Date of Approval Contract Amount Contingency 05/23/12 $389,790 $19,490 (5%) Page 1 of 2 ADMINISTRATION COMMITTEE Meeting Date 05/09/12 To Bd. of Dir. 05/23/12 AGENDA REPORT Item Number 7 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: IMPLEMENTATION OF IBM-MAXIMO ENTERPRISE ASSET MANAGEMENT SYSTEM, PHASE 2 GENERAL MANAGER'S RECOMMENDATION A. Approve Amendment No.2 to the Professional Services Agreement for Specification No.CS-2011-499BD, Purchase Order No. 104353-OA, issued to Total Resource Management, Inc. (TRM, Inc.) for Phase 2 of the Implementation of IBM-Maximo Enterprise Asset Management System, for an amount not to exceed $435,452; B. Approve a contingency in the amount of $43,545 (10%). SUMMARY The Orange County Sanitation District (OCSD) currently owns the IBM-Maximo Enterprise Asset Management (Maximo) software that will replace the current CMMS software. Phase 1 of the Enterprise Asset Management Project (EAMP) identifies the inventory and receiving functions to be a key success factor in the planning and scheduling process. Phase II of the EAMP will be to migrate the inventory and receiving functions from the current JD Edwards Enterprise One version into Maximo. PRIOR COMMITTEE/BOARD ACTIONS October 2011 – Awarded a purchase contract to Total Resource Management, Inc. (TRM, Inc.) for Phase 1 for installation & Implementation of IBM-Maximo Enterprise Asset Management System and authorized the General Manager to select from proposers TRM Inc., EMA or Starboard to negotiate and obtain the best value for the implementation of subsequent phases. ADDITIONAL INFORMATION This migration will provide the following benefits: real-time inventory information for work order planning/scheduling activities; ability to link parts to assets; ability for warehouse to determine when maintenance parts are no longer required; and create new business process and workflow which will improve inventory coordination through the district. Page 2 of 2 CEQA N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE This request complies with authority levels of the Orange County Sanitation District’s Delegation of Authority. This item has been budgeted under SP-100, Asset Management/CMMS System Replacement. Date of Approval Contract Amount Contingency 05/23/12 $435,452 $43,545 (10%) Page 1 of 6 ADMINISTRATION COMMITTEE Meeting Date 05/09/12 To Bd. of Dir. 05/23/12 AGENDA REPORT Item Number 8 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: REFUNDING VARIABLE RATE DEBT GENERAL MANAGER'S RECOMMENDATION Authorize the General Manager to issue new fixed rate Certificates of Participation (COP), to be referred to as Wastewater Refunding Revenue Obligations, in an amount sufficient to refund the outstanding $91,900,000 of COP Series 2000-A and 2000-B. SUMMARY The $91.9 million of outstanding COP 2000 Series is supported by a bank liquidity facility which provides the Sanitation District access to the variable rate market. The current bank facility expires on August 24, 2012 requiring the Sanitation District to implement a replacement plan. After considering the financing options available (discussed in “Additional Information” below), staff is proposing to issue fixed rate Wastewater Refunding Revenue Obligations to refund the COP 2000 Series. Approval of the recommended actions above will direct staff to begin the process of refunding the outstanding COP 2000 Series debt utilizing the assistance of Public Resources Advisory Group (PRAG), as financial advisor, and the bond counsel firm of Fulbright & Jaworski. PRIOR COMMITTEE/BOARD ACTIONS February 2012 - Adopted Resolution No. OCSD 12-04, Authorizing the Execution and Delivery by the Sanitation District of an Installment Purchase Agreement, a Trust Agreement, an Escrow Agreement and a Continuing Disclosure Agreement in connection with the Execution and Delivery of Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012A, Authorizing the Execution and Delivery of such Revenue Obligations Evidencing Principal in an Aggregate Amount of Not to Exceed $110,000,000, Approving a Notice of Intention to Sell, Authorizing the Distribution of an Official Notice Inviting Bids and an Official Statement in Connection with the Offering and Sale of such Revenue Obligations and Authorizing the Execution of Necessary Documents and Related Actions. Page 2 of 6 ADDITIONAL INFORMATION The Sanitation District currently has eleven series of debt issuances outstanding in the par amount of $1.34 billion. The following table lists each issuance, the outstanding amount, and the interest rate mode. Outstanding Par Amount(1) Interest Rate Mode Series 2012A Refunding(2) $ 100,645,000 Fixed Rate Series 2011B(3) 143,205,000 Fixed Rate (one-year) Series 2011A Refunding(2)(4) 147,595,000 Fixed Rate Series 2010C(5) 157,000,000 Fixed Rate Series 2010A(5) 80,000,000 Fixed Rate Series 2009A Refunding(5) 191,265,000 Fixed Rate Series 2008B Refunding(6) 26,550,000 Fixed Rate Series 2008A Refunding(6) 25,710,000 Fixed Rate Series 2007B(5) 279,250,000 Fixed Rate Series 2007A Refunding(2) 92,845,000 Fixed Rate Series 2000 Refunding(7) 91,900,000 Daily Variable Rate Total : $1,335,965,000 (1) As of May 1, 2012 (2) Refunded a portion of Series 2003 (3) Series 2011B are fixed one-year certificate of anticipation notes (CANS), that refunded the Series 2010B CANS, that refunded the Series 2009B CANS, that refunded the 2008C CANS that were issued to refund the Series 2006 daily variable rate that were supported by a weak liquidity facility bank. (4) Refunded a portion of Series 2000 (5) New money debt issue (6) Series 2008B and Series 2008A refunded the Series 1993 and Series 1992 Synthetic Variable-to-Fixed Rate Debt issues that were supported by a failing insurance provider. Series 1993 and 1992 refunded the Series 1986 and a portion of the Series “B”. (7) Series 2000 refunded the Series A, B, and C issued between 1990 and 1992. Background Information The COP 2000 Series was originally issued to refund COPs issued between 1990 and 1992 and is currently outstanding in the amount of $91,900,000 with interest rates that reset on a daily basis. The COP 2000 Series is supported by a bank liquidity facility provided by Lloyds TSB Bank plc (Lloyds Bank). Last year, Lloyds Bank announced it was exiting the municipal credit market. While Lloyds Bank is still honoring its existing commitments, it will not renew any municipal bank facilities, including the COP 2000 Series. The current bank liquidity facility with Lloyds Bank expires on August 24, 2012. Page 3 of 6 The current COP 2000 Series principal repayment schedule is concentrated in 2018-2020 as shown in the table below: Sinking Fund Principal Amount 08/01/18 $ 24,000,000 08/01/19 25,000,000 08/01/20 26,000,000 08/01/21 1,400,000 08/01/22 1,500,000 08/01/23 1,500,000 08/01/24 1,600,000 08/01/25 1,600,000 08/01/26 1,700,000 08/01/27 1,800,000 08/01/28 1,900,000 08/01/29 1,900,000 08/01/30 2,000,000 Total : $ 91,900,000 Financing Options As the Lloyds Bank liquidity facility expiration approaches in August, staff has been exploring various financing options as it relates to the COP 2000 Series. Listed below are three basic financing options available to the Sanitation District: 1. Maintain Variable Rate Exposure The recent interest rate resets on the COP 2000 Series have been at historic lows with the daily resets averaging 0.105% in 2012; however, the ancillary costs required to support the variable rate program equal an additional 0.57% annually, comprising of current bank support fees and remarketing fees. With the most recent reset of 0.23% (as of April 28, 2012), the COP 2000 Series all-in cost of borrowing today is 0.80% (.23% interest rate reset plus 0.57% bank support and remarketing fees). Although, the variable rate program has served the Sanitation District well by providing a low cost of borrowing since 2000, there is the risk that short-term tax- exempt interest rates will increase from the current historic low levels that are nearly 0%. There are also market expectations that bank support fees will become more costly in the near future due to financial reforms to be instituted on banks as a result of the global financial crisis. The municipal bank support market has been relatively volatile with banks abandoning the business, such as Lloyds Bank, and the unsteadiness of bank credit ratings. Moody’s Investors Service (Moody’s) has recently released reports stating it may downgrade a number of banks within the next two months, including Bank of America and Citibank, two of the largest players in the municipal bank market. The potential action by Moody’s could dramatically reduce the amount of saleable variable rate Page 4 of 6 paper backed by Bank of America and Citibank and it will likely to result in higher fees due to reduced bank competition. It is also important to note that bank liquidity facilities are generally limited to three-year terms which require issuers to renew with banks or find replacement banks every three years. Instead of seeking a replacement bank, the Sanitation District could refund the COP 2000 Series with a non-liquidity backed variable rate financial product. Due to the issues associated with bank supported variable rate paper, including high cost, more onerous bank terms/conditions, fewer participating banks, and weak bank credit ratings, municipal issuers have been utilizing other means to access the variable rate market, including interest rates swaps, self-liquidity, and new products that have been developed which avoid the need for bank support. Staff has considered these types of products, but the limited widespread investor acceptance is a concern. With a thin investor base, issuers risk that a failed remarketing could result in the collapse of the entire market which would require immediate remedies that would likely be expensive. In addition, the associated remarketing fees and the administrative efforts are high for these non-liquidity backed products. 2. Certificate Anticipation Notes Refunding The COP 2000 Series could be refinanced with an issuance of short-term fixed rate Certificate Anticipation Notes (CANs) as an alternative means of maintaining short-term rate (variable-like) exposure. Upon maturity, the Sanitation District would need to refinance the CAN due to its short-term nature. Since 2008, the Sanitation District has been issuing CANs on an annual basis to mimic variable rates with the 2008C CANs that were issued to replace a downgraded bank providing liquidity support for the variable rate COP 2006 Series. The most recent CANs issuance by the Sanitation District in November 2011 resulted in a 0.399% all-in borrowing cost (inclusive of all costs/fees) for one year. The issuance of CANs can provide a low fixed rate for a pre-determined period of time while insulating the District from the potential of higher variable rates during the same period of time (unlike variable rate debt). Given that current variable rates are already so low (at 0.23%), there is little reasonable expectation that rates could trend lower. The longer the CANs period, the longer the fixed rate will be locked-in, but the rate will also be higher. One important feature of the CANs structure is the avoidance of paying high fees to liquidity banks and the risks associated with bank downgrades. The major risk with a CANs issuance is the inability of the issuer to refund the CANs upon maturity. Since CANS are a short-term financing vehicle, there is roll-over risk at maturity. As the Sanitation District has the highest possible credit ratings (AAA/AAA), the lack of market access to refinance is remote. The Sanitation District has mitigated this unlikely lack of market access risk by refinancing its existing CANs in advance of the maturity date. As a worse case Page 5 of 6 back-stop, the District could use its reserves to temporarily repay maturing CANs. 3. Fixed Rate Refunding The COP 2000 Series could be refinanced with a fixed rate refunding issuance which would remove many of the risks associated with variable rate debt, including interest rate, bank renewal, credit downgrades, and market access. Long-term fixed rate borrowing costs for tax-exempt issuers are at, or near, all- time lows as shown in the graphic below (AAA GO MMD is the most commonly referenced index for tax-exempt yields) : In the current market, a fixed rate refunding would lock-in an all-in borrowing cost of less than 2.0% for a refunding of the COP 2000 Series. Cost Comparison The following table shows a comparison of the current costs for each of the three financing options discussed above: Financing Option Interest Rate Costs/ Fees Total Cost 1) Maintain Variable Rates – Replace Bank 0.23%(a) 0.64%(b) 0.87% 2) Refund with CANs – 3 Year 0.50%(c) 0.11% 0.61% 3) Fixed Rate Refunding(d) 1.85% 0.10% 1.95% (a) Assumes today’s variable rate for the COP 2000 Series will not change which could be an aggressive assumption. (b) Assumes an estimate of current bank fees of 0.50%/year which could be an aggressive assumption. (c) Assumes current three-year fixed CANs rate. After three years rates could be higher. (d) Based on current market conditions. After pricing, rates/costs will not change and will not be subject to other risks. 0% 1% 2% 3% 4% 5% 6% 7% 8% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 AAA GO MMD January 1, 1990 - Present High Average Current Low Page 6 of 6 Refunding Structure If the Sanitation District wishes to continue the COP 2000 Series as a variable rate obligation, a replacement bank must be secured (or a non-liquidity backed product). Alternatively, the Sanitation District could refund the variable rate COP 2000 series with low cost fixed rate debt. As bank risks remain elevated ever since the global financial crisis and the costs to maintain variable rate debt is relatively high, staff is proposing to avoid such risks and costs by refunding the COP 2000 Series with fixed rate Wastewater Refunding Revenue Obligations. There is also the risk that short-term tax-exempt interest rates will rise from the current low levels and there are market expectations that bank support fees will begin to become more expensive in the near future due to financial reforms to be instituted on banks as a result of the global financial crisis. In addition, tax-exempt fixed rates are historically low levels and the Sanitation District could currently fix out the COP 2000 Series at an all-in cost of less than 2%. Timeline Since the contemplated transaction is a fixed-rate debt financing, staff is proposing to issue the refunding through a competitive sale because it is the most expeditious way to access the market and it is expected to provide the lowest interest cost for this type of structure. July Ø Board approval of legal and disclosure documents Ø Financing Corporation approval of legal and disclosure documents Ø Rating agency discussions Ø Publish Notice of Intention to Sell August Ø Marketing and Sale through a Competitive Sale Process Ø Closing Ø Begin debt administration All costs involved with the refunding, including costs for PRAG and Fulbright & Jaworski will be paid from the proceeds of the new refunding issue. CEQA N/A BUDGET/DELEGATION OF AUTHORITY COMPLIANCE N/A JDR:LT:MW