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Home My WebLink About2006-05-10MINUTES OF THE REGULAR JOINT MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE& STEERING COMMITTEE Orange County Sanitation District Wednesday, May 10, 2006, 5:00 p.m. A joint meeting of the Finance, Administration and Human Resources Committee and the Steering Committee of the Orange County Sanitation District was held on May 10, 2006, at 5:00 p.m., in the Sanitation District's Administrative Office. (1) The roll was called and a quorum declared present, as follows: FAHR COMMITTEE MEMBERS: DIRECTORS PRESENT: Darryl Miller, Chair Mike Duvall, Vice Chair Bill Dalton Bob Fauteux Jim Ferryman, Vice Board Chair Phil Luebben Joy Neugebauer James W. Silva Mark Waldman DIRECTORS ABSENT: Steve Anderson, Board Chair STAFF PRESENT: Jim Ruth, Interim General Manager Lisa Tomko, Director of Human Resources Lorenzo Tyner, Director of Finance Marc Dubois, Contracts & Purchasing Manager Jeff Reed, Human Resources Manager Mike White, Controller Rich Spencer, Human Resources Supervisor Lilia Kovac, Committee Secretary OTHERS PRESENT: Brad Hogin, General Counsel Bret Colson Tom Gaffney, Bartle Wells & Assoc. Don Hughes Norbert Gaia Juanita Skillman (2) APPOINTMENT OF CHAIR PRO TEM FILED IN THE OFFICE OF THE SECRETARY ORANGE' CQLJNTV r • '"~•T'"N DISTRICT No appointment was necessary. MAY 2 4 2006 (3) PUBLIC COMMENTS There were no public comments. IY_,,,£_1--_. --=- (4) REPORT OF THE COMMITTEE CHAIR Chair Miller reported that he, Lorenzo Tyner and Mike White had met with Mr. Lockhart of Revenue Enhancement Company, who had approached the last committee meeting to address various issues. Chair Miller and Director Luebben met with Mr. Shirish Patel of Lance, Soll & Lunghard, LLP, CPAs , the internal auditors, to provide direction for their auditing efforts. Minutes of the Regular Joint rreeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting April 12, 2006 Page 2 (5) REPORT OF THE GENERAL MANAGER Jim Ruth, Interim General Manager, had no report. (6) REPORT OF DIRECTOR OF FINANCE/TREASURER Director of Finance, Lorenzo Tyner, had no report (7) REPORT OF DIRECTOR OF HUMAN RESOURCESPUBLIC INFORMATION OFFICE Lisa Tomko, Director of Human Resources, had no report. (8) REPORT OF GENERAL COUNSEL Brad Hogin, General Counsel, had no report. (9) CONSENT CALENDAR ITEMS a. Approve minutes of the April 12, and April 19, 2006, Finance, Administration and Hunan Resources Committee meetings. b. FAHR06-33 Receive and file Employment Status Report as of April 20, 2006. c. FAHR06-34 Receive and file OSHA Incidence Rates and Workers' Compensation Claims and Costs Report. d. FAHR06-35 Recommend to the Board of Directors to receive and file report of General Manager approved purchases in amounts exceedng $50,000 in accordance with Board purchasing policies. e. FAHR06-36 Recommend to the Board of Directors to receive and file the FY 2005-06 Quarterly Financial Management Reportfor the period ended March 31, 2006. f. FAHR06-37 Recommend to the Board of Directors to approve extension of the commercial lease with Nautical Enterprises, Inc., dba H & S Yacht Sales from the original expiration date of May 31, 2006, to the extended expiration date of December 31, 2007. g. FAHR06-38 Recommend to the Board of Directors to approve Adopt Resolution No. Motion: OCSD 06-_, Establishing a Policy Regarding Board of Directors' Business and Travel Expense Reimbursement, and Meeting Attendance and Compensation; and Repealing Resolution No. OCSD 06-09. It was moved, seconded and duly carried to approve the recommended action for the item specified as 9(a) through 9(g) under consent calendar. END OF CONSENT CALENDAR Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting April 12, 2006 Page 3 (10) ACTION ITEMS a. FAHR06-39 Recommend to the Board of Directors to approve the Second Amerded and Restated Memorandum of Understanding Agreement re: Additional Retiree Benefit Account with the Orange County Employees Retirement System. Motion: Lisa Tomko, Director of Human Resources, presented the proposed amended and restated MOU agreement reAdditional Retiree Benefit Account. After a brief discussion, General Counsel Brad Hagin, suggested that due to the direction of discussion on the subject, that this subject would best be covered in closed session. It was moved, seconded and duly carried to move this item to the closed session for a conference with the District's labor negotiators on the subject of retiree medical benefits. General Counsel, Brad Hagin, announced that the Committee would convene in closed session pursuant to Government Code Section 54957.6 to meet with its labor negotiators Lisa Tomko, Jeff Reed, and Rich Spencer regarding retiree medical benefits. Mr. Hagin further announced that the discussion would cover benefits for employees represented by the Orange Couny Employees Association, the International Union of Operating Engineers, Local 501, and the Supervisory Professional Management Team. (11) INFORMATIONAL ITEMS a. FAHR06-40 FY 2006/07 and 2007/08 Budget Development Lorenzo Tyner briefly presented the highlights and updates to the proposed budget scheduled to be proposed to the Board of Directors for adoption at the June 28, 2006 meeting. b. FAHR06-41 Contracts Insurance Indemnification Marc Dubois, Contracts and Purchasing Manager, briefly reviewed the current requirements for all service provicers to the Sanitation District as adopted based on recommendations by the insurance broker and General Counsel, that are now outdated. Directors requested a future reporton different "what if' scenarios with the Sanitation District's current insurance requirements and possible exposures to update the requirements. c. FAHR06-42 Rate Study Validation Lorenzo Tyner, Director of Finance, introduced Mr. Tom Gaffney of Bartle Wells, who was contracted to study the rate model. While Tom Gaffney recommended that the tax credit be eliminated, as most comparable agencies do not offer this structure, a committee previously directed Staff to continue with the Sanitation District's rate structure This item will be reviewed again over the course of the year. I • Minutes of the Regular Joint ITT:leting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting April 12, 2006 Page4 (12) CLOSED SESSION The Committee convened in Closed Session at 6:25 p.m. pursuant to Government Code Section 54957.6 to confer with designated representatives Lisa Tomko, Director of Human Resouices; Jeff Reed, Human Resources Manager; and Rich Spencer, Human Resources Supervisor, re ARBA negotiations for employees represented by 1 ). Orange County Employees Associatiol"( 2). International Union of Operating Engineers, Local 501, and 3). Supervisors, Professional Management Team (part of Peace Officers Council of California), Government Code Section 54957.6. Confidential Minutes of the Closed Session held by the Finance, Administration and Human Resources Committee have been prepared in accordancewith California Government Code Section 54957.2, and are maintained by the Board Secretary in the Official Book of Confidential Minutes of Board and Committee Closed Meetings. No reportable actions were taken re Agenda Item No. 12(a). RECONVENE IN REGULAR SESSION: At 7:15 p.m., the Committee reconvened in regular session. The Committee approved the staff recommendation forthe Board of Directors to approve the Second Amended and Restated Memorandum of Understanding Agreement re: Additional Retiree Benefit Account with the Orange County Employees Retirement System. (13) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY There were none. (14) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT There were none. (15) CONSIDERATION OF UPCOMING MEETINGS The FAHR Committee Benefits Workshop is scheduled for Thursday, May 18, 2006 at 5:00 p.m. The next regular FAHR Committee meeting is scheduled for June 14, 2006, at 5:00 p.m. (16) ADJOURNMENT The Chair declared the meeting adjourned at 7:20 p.m. Submitted by: 1:~~ -Li lia' Kovac Committee Secretary H:\deptlagenda\FAHR\FAHR2006\0606\05.051006 FAHR Minutes.doc ROLL CALL JOINT FINANCE, ADMINISTRATION AND HUMAN RESOURCES AND STEERING COMMITTEES Meeting Date: May 10, 2006 Time: 5:00 p.m. Adjourn: COMMITTEE MEMBERS Darryl Miller (Chair) Mike Duvall (Vice Chair) Bill Dalton Richard Freschi Phil Luebben Joy Neugebauer James W. Silva Mark Waldman Steve Anderson (Board Chair) Jim Ferryman (Board Vice Chair) OTHERS I Brad Hagin, General Counsel I I STAFF Jim Ruth, Interim General Manager Bob Ghirelli, Director of Technical Services Lorenzo Tyner, Director of Financeff reasurer David Ludwin, Director of Engineering Jim Herberg, Director of Operations & --Management Lisa Tomko, Director of Human Resources Patrick Miles, Director of Information Technoloav Nick Arhontes, Director of Regional Assets & Services Lilia Kovac, Committee Secretary Jeff Reed, Human Resources Manager Paul Loehr, Human Resources Supervisor c: Lenora Crane AGENDA REGULAR JOINT MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE & STEERING COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, MAY 10, 2006, AT 5:00 P.M. (1) ROLL CALL ADMINISTRATIVE OFFICE 10844 Ellis Avenue Fountain Valley, California 92708 www.ocsd.com (2) APPOINTMENT OF CHAIR PRO TEM, IF NECESSARY (3) PUBLIC COMMENTS (4) REPORT OF COMMITTEE CHAIR (5) REPORT OF GENERAL MANAGER (6) REPORT OF DIRECTOR OF FINANCE (7) REPORT OF DIRECTOR OF HUMAN RESOURCES/ PUBLIC INFORMATION OFFICE (8) REPORT OF GENERAL COUNSEL (9 ) CONSENT CALENDAR ITEMS Consideration of motion to approve all agenda items appearing on the Consent Calendar not specifically removed from same, as follows: a. Approve minutes of the April 12, 2006 and April 19, 2006 meetings of the Finance, Administration and Human Resources Committee. Book Page 1 May 10, 2006 Page2 b. FAHR06-33 Receive and file Employment Status Report as of April 20, 2006. Book Page 16 c. FAHR06-34 Receive and file OSHA Incidence Rates and Workers' Compensation Claims and Costs Report. Book Page 21 d. FAHR06-35 Recommend to the Board of Directors to receive and file report of General Manager approved purchases in amounts exceeding $50,000 in accordance with Board purchasing policies. Book Page 23 e. FAHR06-36 Recommend to the Board of Directors to receive and file the FY 2005-06 Quarterly Financial Management Report for the period ended March 31, 2006. Book Page 25 f. FAHR06-37 Recommend to the Board of Directors to approve extension of the commercial lease with Nautical Enterprises, Inc., dba H & S Yacht Sales from the original expiration date of May 31, 2006, to the extended expiration date of December 31, 2007.Book Page 27 g. FAHR06-38 Recommend to the Board of Directors to approve Adopt Resolution No. OCSD 06-_, Establishing a Policy Regarding Board of Directors' Business and Travel Expense Reimbursement, and Meeting Attendance and Compensation; and Repealing Resolution No. OCSD 06-09.Book Page 29 END OF CONSENT CALENDAR f. Consideration of items deleted from Consent Calendar, if any. (10) ACTION ITEMS a. FAHR06-39 Recommend to the Board of Directors to approve the Second Amended and Restated Memorandum of Understanding Agreement re: Additional Retiree Benefit Account with the Orange County Employees Retirement System. BookPage43 (Lisa Tomko -10 minutes) (11) INFORMATIONAL ITEMS a. FAHR06-40 FY 2006/07 and 2007/08 Budget Development Book Page 63 (Lorenzo Tyner-20 minutes) b. FAHR06-41 Contracts Insurance Indemnification Book Page 83 (Lorenzo Tyner -10 minutes) c. FAHR06-42 Rate Study Validation Book Page 99 (Lorenzo Tyner -10 minutes) H:\dept\agenda\FAHR\FAHR2006\0506\03. 051006 FAHR Agenda.doc Book Page 2 May 10, 2006 Page 3 (12) CLOSED SESSION 1 During the course of concluding ttie" business set forth on "tliis agenda' as a reg'ular meeting of the Committee, l l the Chair may convene the Committee in closed session to consider matters of pending real estate negotiations, i l pending or potential litigation, or personnel matters, pursuant to Government Code Sections 54956.8, 54956.9, i \ 54957 or 54957.6, as noted. i ~ ~ 1 Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) [ i employee actions or negotiations with employee representatives; or which are exempt from public disclosure i l under the California Public Records Act, may be reviewed by the Committee during a permitted closed session ! l and are not available for public inspection. At such time as final actions are taken by the Committee on any of [ ] these subjects, the minutes will reflect all required disclosures of information. [ \. ........ ' .. -. ... . . . . . ........ ', .............. ·----······-·. ' .. -···-····· ··-· ..... ·-·· .. ·-····· ........ ·-·· .. ............ .. .. ·-....................... ______ .. __ ,. _________ .... ·-··-·-·---· ·-··-·----·-· .......... ___ ) a. Convene in closed session. b. Reconvene in regular session. c. Consideration of action, if any, on matters considered in closed session. (13) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS. IF ANY (14) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT (15) FUTURE MEETING DATES The next Finance, Administration and Human Resources Committee Meeting is scheduled for June 14, 2006, at 5 p.m. (16) ADJOURNMENT H:\dept\agenda\FAHR\FAHR2006\0506\03. 051006 FAHR Agenda.doc BookPage3 May 10, 2006 Page4 Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2, this agenda has been posted in the main lobby of the District's Administrative offices not less than 72 hours prior to the meeting date and time above. All written materials relating to each agenda item are available for public inspection in the office of the Board Secretary. Items Not Posted: In the event any matter not listed on this agenda is proposed to be submitted to the Committee for discussion and/or action, it will be done in compliance with Section 54954.2(b) as an emergency item or because there is a need to take immediate action, which need came to the attention of the Committee subsequent to the posting of agenda, or as set forth on a supplemental agenda posted in the manner as above, not 'less than 72 hours prior to the meeting date. Public Comments: Any member,of the public may address the Finance, Administration and Human Resources Committee on specific agenda items or matters of general interest. As determined by the Chair, speakers may be deferred u11til the specific item is taken for discussion and remarks may be limited to three minutes. Matters of interest addressed by a member of the public and not listed on this agenda cannot have action taken by the Committee except as authorized by Section 54954.2(b). C0nsent Calendar: All matters placed on the consent calendar are considered as not requiring discussion or further explanation, and unless a particular item is requested to be removed from the consent calendar by a Director of staff member, there will be no separate discussion of these items. All items on the consent calendar will be enacted by one action approving all motions, and casting a unanimous ballot for resolutions included on the consent calendar. All items removed from the consent calendar shall be considered in the regular order of business. The Committee Chair will determine if any items are to be deleted from the consent calendar. Items Continued: Items may be continued from this meeting without further notice to a Committee meeting held within five (5) days of this meeting per Government Code Section 54954.2(b)(3). Meeting Adjournment: This meeting may be adjourned to a later time and items of business from this agenda may be considered at the later meeting by Order of Adjournment and Notice in accordance with Government Code Section 54955 (posted within 24 hours). Acc0mmodations for the Disabled: The Board of Directors Meeting Room is wheelchair accessible. If you require any special disability related accommodations, ple_ase contact the Orange County Sanitation District Board Secretary's office at (714) 593-7130 at lea$t ??. h0urs prier to the scheduled meeting. Requests must specify the nature of the disability and the type of accommodation requested. Notice to Committee Members: For any questi0ns on the agenda or to place any items on the agenda, Committee members should contact the Committee Chair or Secretary ten days in advance of the Committee meeting. Committee Chair: Committee Secretary: Interim General Manager: Director of Finance: Director of Human Resources: And Public Information Office Darryl Miller Lilia Kovac Jim Ruth Lorenzo Tyner Lisa Tomko (949) 453-5300 (714) 593-7124 lkovac@ocsd.com (714) 593-7110 jruth@ocsd.com (714) 593-7550 ltyner@ocsd.com (714) 593-7145 ltomko@ocsd.com H:\dept\agenda\FAHR\FAHR2006\0506\03.051006 FAHR Agenda.doc Book Page4 MINUTES OF THE REGULAR JOINT MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE & STEERING COMMITTEE Orange County Sanitation District Wednesday, April 12, 2006, 5:00 p.m. A joint meeting of the Finance, Administration and Human Resources Committee and the Steering Committee of the Orange County Sanitation District was held on April 12, 2006, at 5:00 p.m., in the Sanitation District's Administrative Office. (1) The roll was called and a quorum declared present, as follows: FAHR COMMITTEE MEMBERS: DIRECTORS PRESENT: Darryl Miller, Chair Mike Duvall, Vice Chair Bill Dalton Rich Freschi Phil Luebben Joy Neugebauer Mark Waldman Steve Anderson, Board Chair DIRECTORS ABSENT: James W. Silva Jim Ferryman, Vice Board Chair STAFF PRESENT: Jim Ruth, Interim General Manager Lorenzo Tyner, Director of Finance Jeff Reed, Human Resources Manager Mike White, Controller Lilia Kovac, Committee Secretary Paul Loehr, Human Resources Supervisor OTHERS PRESENT: Brad Hogin, General Counsel Bob Geggie Bret Colson Keith Bozarth Robert Grantham Bob Lockhart Richard Kikuchi Shirish Patel (2) APPOINTMENT OF CHAIR PRO TEM No appointment was necessary. (3) PUBLIC COMMENTS Bob Lockhart of Revenue Enhancement expressed interest in making comments on several agenda items. Due to time constraints it was recommended that a meeting be scheduled with Directors Miller and Luebben and Mr. Ruth to review his comments. (4) REPORT OF THE COMMITTEE CHAIR Chair Miller had no report. (5) REPORT OF THE GENERAL MANAGER Jim Ruth, Interim General Manager, reported the completion of the performance evaluation process plan, as well as substantial progress made on the succession management program and its Book Page 6 Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting April 12, 2006 Page2 scheduled implementation by July 1, 2006. The Leadership Development program is scheduled to be kicked off by the end of summer or early fall; and the two-year budget program process is progressing well. The independent review of Operations and Maintenance, Regional Assets and Services and Information Technology., requests for proposals are being developed and the results should be presented to the Board within 90 days. (6) REPORT OF DIRECTOR OF FINANCE/TREASURER Director of Finance, Lorenzo Tyner, reported that the Sanitation District sold its stock investment in United Airlines (UAL) on sold April 5, 2006. (7) REPORT OF DIRECTOR OF HUMAN RESOURCES/PUBLIC INFORMATION OFFICE Jeff Reed, Human Resources Manager, directed the attention of the committee members to the employment status report which includes positions open more than 90 days. (8) REPORT OF GENERAL COUNSEL Brad Hogin, General Counsel, had no report. (9) CONSENT CALENDAR ITEMS a. Approve minutes of the March 1, 2006, Finance, Administration and Human Resources Committee meeting. b. FAHR06-19 Item pulled for discussion. c. FAHR06-20 Item pulled for discussion. d. FAHR06-21 Item pulled for discussion. e. FAHR06-22 Item pulled for discussion. Motion: It was moved, seconded and duly carried to approve the recommended action for the item specified as 9(a) under consent calendar. END OF CONSENT CALENDAR f. FAHR06-19 Receive and file Employment Status Report as of March 16, 2006. Motion: Mr. Ruth explained the employment status to be at a new-hire freeze level, as the budget process requires a thorough review of each position's criticality before hiring any new position. The agency is looking at internal resources for the operation to be optimally effective, while maintaining a safe level of service. It was moved, seconded and duly carried to receive and file. Book Page 7 Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting April 12, 2006 Page3 g. FAHR06-20 Receive and file OSHA Incidence Rates and Workers' Compensation Motion: Claims and Costs Report. Directors requested that future reports be modified to include claims closed during the reporting period. It was moved, seconded and duly carried to receive and file. h. FAHR06-21 Recommend to the Board of Directors to adopt Resolution No. 06-_, amending Resolution No. OCSD 98-33, amending Human Resources Policies and Procedures Manual. Motion: Jeff Reed, Human Resources Manager, briefly reviewed the policy changes and answered Directors' questions. It was moved, seconded and duly carried to recommend approval to the Board of Directors. i. FAHR06-22 Recommend to the Board of Directors to adopt Resolution No. OCSD 06- Motion: _, Adopting the Updated Records Retention Schedule and Records Series Definitions, Authorizing Destruction of Obsolete Records, and Repealing Resolution No. OCSD 05-08. Jeff Reed informed the Committee that annually the Board of Directors adopts an updated resolution to incorporate changes made in legislation for recordkeeping of public records, as well as internal departmental procedure changes. It was moved, seconded and duly carried to recommend approval to the Board of Directors. (10) ACTION ITEMS a. FAHR06-23 Approve the New Performance Appraisal System for EMT and Managers. Motion: Barry Newton of Creative Management Solutions described the streamlining features of the revised five-point Performance Appraisal System, goals and objectives-setting exercise. It was moved, seconded and duly carried to recommend approval to the Board of Directors. b. FAHR06-24 Approve implementation of a new process that will ensure the General Manager is informed on workers' compensation costs and liabilities. Book Page 8 Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting April 12, 2006 Page4 Motion: Jeff Reed briefly reviewed the proposed process and the required steps designed to keep the General Manager fully informed on workers' compensation costs and liabilities. It was moved, seconded and duly carried to approve. .c. FAHR06-25 Recommend to the Board of Directors to adopt Ordinance No. OCSD-27, Motion: An Ordinance of the Board of Directors of Orange County Sanitation District Establishing Specified Revenue Areas within the District, and Repealing Ordinance No. OCSD-02: 1 ). Motion to read Ordinance No. OCSD-27 by title only and waive reading of said entire ordinance. (The waiver of the reading of the entire ordinance must be adopted by a unanimous vote of Directors present.) 2). Motion to introduce Ordinance No. OCSD-27, and pass to second reading and public hearing on May 24, 2006. Mike White, Controller, briefly presented the purpose of this ordinance as a housekeeping process to consolidate revenue areas and simplifying the financial reporting system by incorporating all, with the exception of Revenue Area 14, which is a fully-funded revenue area through IRWD. It was moved, seconded and duly carried to recommend approval to the Board of Directors. d. FAHR06-26 Recommend to the Board of Directors to adopt Ordinance No. OCSD-28, An Ordinance of the Board of Directors of Orange County Sanitation District Adopting Wastewater Discharge Regulations, and Repealing Ordinance No. OCSD-01: 1 ). Motion to read Ordinance No. OCSD-28 by title only and waive reading of said entire ordinance. (The waiver of the reading of the entire ordinance must be adopted by a unanimous vote of Directors present.) 2). Motion to introduce Ordinance No. OCSD-28, and pass to second reading and public hearing on May 24, 2006. Mike White presented this ordinance as a proposed methodology to standardize the Sanitation District's rate structure, and remove the tax credit system; however, there was concern expressed that this move could cause extreme rate hikes for some businesses. Detailed information was not immediately available in order to address this concern. After discussion among the Directors, a substitute motion was made to delay consideration and to further discuss at a Special FAHR meeting that was subsequently scheduled for Wednesday, April 19, 2006. Book Page 9 Minutes of the Regular Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting April 12, 2006 Pages e. FAHR06-27 Recommend to the Board of Directors to adopt Ordinance No. OCSD-29, Motion: An Ordinance of the Board of Directors of Orange County Sanitation District Adopting Fees, Procedures, and Policies Concerning Annexations of Territory to the District, and Repealing Ordinance No. OCSD-21: 1 ). Motion to read Ordinance No. OCSD-29 by title only and waive reading of said entire ordinance. (The waiver of the reading of the entire ordinance must be adopted by a unanimous vote of Directors present.) 2). Motion to introduce Ordinance No. OCSD-29, and pass to second reading and public hearing on May 24, 2006. Mike White briefly defined the purpose of this Ordinance as a means to consistently apply the Sanitation District's policy to exempt certain open space areas from annexation fee payments. It was moved, seconded and duly carried to recommend approval to the Board of Directors. f. FAHR06-28 Recommend to the Board of Directors to adopt Ordinance No. OCSD-30, An Ordinance of the Board of Directors of Orange County Sanitation District Establishing Sanitary Sewer Service Charges; Establishing Capital Facilities Capacity Charges; Adopting Miscellaneous Charges and Fees Relating to Industrial Charges, Source Control Permittees and Wastehaulers, and Repealing Ordinance No. OCSD-26: 1 ). Motion to read Ordinance No. OCSD-30 by title only and waive reading of said entire ordinance. (The waiver of the reading of the entire ordinance must be adopted by a unanimous vote of Directors present.) 2). Motion to introduce Ordinance No. OCSD-30, and pass to second reading and public hearing on May 24, 2006. Lorenzo Tyner presented the proposed rate fees for consideration by the committee; however, the Directors agreed to consider this item at the Special FAHR Committee meeting scheduled for April 19, 2006. (11) INFORMATIONAL ITEMS a. FAHR06-29 2006/07 and 2007/08 Budget Development Lorenzo Tyner reported the budget in overview format that identifies the GIP reduction program and the proposed rate increase, and the Sanitation District's debt service as it relates to the GIP program. Book Page 10 MINUTES OF THE SPECIAL JOINT MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE & STEERING COMMITTEE Orange County Sanitation District Wednesday, April 19, 2006, 5:00 p.m. A special joint meeting of the Finance, Administration and Human Resources Committee and the Steering Committee of the Orange County Sanitation District was held on April 19, 2006, at 5:00 p.m., in the Sanitation District's Administrative Office. (1} The roll was called and a quorum declared present, as follows: FAHR COMMITTEE MEMBERS: DIRECTORS PRESENT: Darryl Miller, Chair Mike Duvall, Vice Chair Bill Dalton Rich Fresch i Phil Luebben Joy Neugebauer James W. Silva Mark Waldman Jim Ferryman, Vice Board Chair DIRECTORS ABSENT: Steve Anderson, Board Chair STAFF PRESENT: Jim Ruth, Interim General Manager Jim Herbert, Director of Operations and Maintenance Lisa Tomko, Director of Human Resources Lorenzo Tyner, Director of Finance Mike White, Controller Lilia Kovac, Committee Secretary Mike Moore Ed Torres OTHERS PRESENT: Brad Hogin, General Counsel Robert Grantham Toby Weissert (2) APPOINTMENT OF CHAIR PRO TEM No appointment was necessary. (3) PUBLIC COMMENTS There were no public comments. (4) REPORT OF THE COMMITTEE CHAIR Chair Miller had no report. (5) REPORT OF THE GENERAL MANAGER Jim Ruth, Interim General Manager, had no report. Book Page 12 Minutes of the Special Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting April 19, 2006 Page2 (6) REPORT OF DIRECTOR OF FINANCE/TREASURER Director of Finance, Lorenzo Tyner, had no report. (7) REPORT OF DIRECTOR OF HUMAN RESOURCES/PUBLIC INFORMATION OFFICE Lisa Tomko, Director of Human Resources, had no report. (8) REPORT OF GENERAL COUNSEL Brad Hogin, General Counsel, had no report. (9) CONSENT CALENDAR ITEMS No items were considered END OF CONSENT CALEN DAR (10) ACTION ITEMS a. FAHR06-26 Recommend to the Board of Directors to consider Ordinance No. OCSD- 28, An Ordinance of the Board of Directors of Orange County Sanitation District Adopting Wastewater Discharge Regulations, and Repealing Ordinance No. OCSD-01: 1 ). Motion to read Ordinance No. OCSD-28 by title only and waive reading of said entire ordinance. 2). Motion to introduce Ordinance No. OCSD-28, and pass to second reading and public hearing on May 24, 2006. Lorenzo Tyner, Director of Finance, briefly reviewed a table of industrial users with current user rates with a comparison of proposed rates using a new rate methodology, eliminating the tax credit adjustment system for Class I and Class II permits. Robert Grantham of Carollo Engineers presented the rate study results, and the recommendations made to standardize the net cost of service. Due to the impact this new methodology would have on some businesses, this new rate calculation must be delayed this tax period and introduced to put into effect in next years' budget process. b. FAHR06-28 Recommend to the Board of Directors to consider Ordinance No. OCSD- 30A, An Ordinance of the Board of Directors of Orange County Sanitation District Establishing Sanitary Sewer Service Charges; Establishing Capital Facilities Capacity Charges; Adopting Miscellaneous Charges and Fees Relating to Industrial Charges, Source Control Permittees and Wastehaulers, and Repealing Ordinance No. OCSD-26: Book Page 13 Minutes of the Special Joint meeting of the Finance, Administration and Human Resources Committee and Steering Committee Meeting April 19, 2006 Page3 MOTION: 1 ). Motion to read Ordinance No. OCSD-30 by title only and waive reading of said entire ordinance. 2). Motion to introduce Ordinance No. OCSD-30, and pass to second reading and public hearing on May 24, 2006. Lorenzo Tyner introduced the proposed rate changes based on the approved CIP cost reductions, with a CIP reduction study review presented to all Board members by December of 2006. After much discussion, due to the time constraints of the passing of an ordinance and the tax bill preparation requirements, a motion was made to submit two rate structures be recommended to the Board of Directors for reading by title, and to pass to second reading and public hearing on May 24, 2006. It was moved, seconded and duly carried to recommend to the Board of Directors to: A). Consider Ordinance No. OCSD-30A, An Ordinance of the Board of Directors of Orange County Sanitation District Establishing Sanitary Sewer Service Charges; Establishing Capital Facilities Capacity Charges; Adopting Miscellaneous Charges and Fees Relating to Industrial Charges, Source Control Permittees and Wastehaulers, and Repealing Ordinance No. OCSD-26: 1 ). Motion to read Ordinance No. OCSD-30A by title only and waive reading of said entire ordinance. 2). Motion to introduce Ordinance No. OCSD-30A, and pass to second reading and public hearing on May 24, 2006. And, B). Consider Ordinance No. OCSD-30B, An Ordinance of the Board of Directors of Orange County Sanitation District Establishing Sanitary Sewer Service Charges; Establishing Capital Facilities Capacity Charges; Adopting Miscellaneous Charges and Fees Relating to Industrial Charges, Source Control Permittees and Wastehaulers, and Repealing Ordinance No. OCSD-26: 1 ). Motion to read Ordinance No. OCSD-30B by title only and waive reading of said entire ordinance. 2). Motion to introduce Ordinance No. OCSD-30B, and pass to second reading and public hearing on May 24, 2006. (11) INFORMATIONAL PRESENTATIONS a. FAHR06-29 2006/07 and 2007/08 Budget Development Book Page 14 FAHR COMMITTEE Meeting Date 05/10/06 AGENDA REPORT Item Number FAHR06-33 Orange County Sanitation District FROM: Lisa L. Tomko, Director of Human Resources Originator: Richard Spencer, Human Resources Supervisor SUBJECT: EMPLOYMENT STATUS REPORT AS OF APRIL 20, 2006 GENERAL MANAGER'S RECOMMENDATION Receive and file the Employment Status Report. SUMMARY The number of full-time equivalent (FTE) employees at OCSD is 591.50; actual headcount is 599. PRIOR COMMITTEE/BOARD ACTIONS N/A PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT D This item has been budgeted. (Line item: ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. [:gJ Not applicable (information item) ADDITIONAL INFORMATION NEW HIRES: 5 Total To Bel. of Dir. Item Number Job Title Division Business Need Buyer Contracts, Purchasing & Materials Management 2-Important Operator In Training Operations -Plant 1 1-Critical Instrumentation Tech II Electrical/Instrumentation Maintenance 2-Important Human Resource Assistant Employee & Labor Relations 2-Important Instrumentation Tech I Electrical/Instrumentation Maintenance 2-Important H:\dept\agenda\FAHRIFAHR2006\0506\06.06-34.Empl Status Rpl doc Page 1 Book Page 16 SEPARATIONS: 12 Total Job Title Division Reason Intern Environmental Compliance Services Internship Ended Senior Storekeeper Contract, Purchasing, & Material Management Deceased Principal Accountant Accounting Retired Administrative Assistant Engineering & Construction Retired Maintenance Specialist Instrumentation & Electrical Maintenance Retired Human Resource Analyst Workforce Support Services Retired Maintenance Supervisor Rebuild, Welding, Fabricating, & Machine Services Retired Operations Supervisor Operations -Plant 2 Retired Accounting Assistant II Accounting Retired Intern Public Information Office Internship Ended Intern Operations & Maintenance Process Engineering Internship Ended Engineer Mechanical Maintenance, and Power Production Resignation PROMOTIONS: 3 Total Name Former Job Title Current Job Title Division Frank Chavez Senior Plant Operator Operations Supervisor Operations -Plant 1 Janet L. Gray Executive Assistant Human Resource Analyst Employee & Labor Relations Paul Ward Operator in Training Plant Operator Operations -Plant 2 RECRUITMENT STATUS: All current recruitments have been reviewed and approved by the General Manager through the Position Analysis process. RECRUITMENTS GREATER THAN 90 DAYS: Job Title Sr. Contracts Administrator ALTERNATIVES N/A CEQA FINDINGS N/A Date Posted 7/25/2005 H:\dept\agenda\FAHR\FAHR2006\0506\06.06-34.Empl Status Rpt.doc Page 2 1 Total Days Open 274 Book Page 17 Division Contracts, Purchasing & Materials . ATTACHMENTS 1. April 20, 2006 Employment Status Report 2. FY 2005/06 Staffing Report (year to date performance compared to budgeted FTE's) H:ldept\egenda\FAHRIFAHR2006\0506\06.06-34.Empl Status Rpt.doc Page 3 Book Page 18 OJ 0 0 ::,;- i C'D ..a. co DIV 110 General Management Admin General Management Totals 210 Finance Administration 220 Accounting 230 Contracts, Purch. & Materials Mgmt Finance Totals 310 Public Affairs Administration 320 Board Services 330 Public Information Office 340 Legislative Advocacy & Grants Public Affairs Totals 410 Regional Assets & Services Adm in 420 Collection Facilities O&M 430 Facilities Maintenance Svcs Regional Assets & Services Totals 610 Human Resources Admin 620 Employee Development/Training 530 Safety & Health 640 Workforce Support Services 650 Employee & Labor Relations Human Resources Totals 610 Technical Services Admin 620 Environmental Assessment 630 Environmental Sciences Lab 640 Source Control 660 Environmental Compliance Svcs Technical Services Totals 710 Engineering Admin 740 Planning 750 Project Management Office 760 Engineering & Construction Engineering Totals 810 O&M Administration 820 O&M Process Engineering 830 Operations, Plant No. 1 840 Operations, Plant No. 2 850 Mech Main! & Power Production 860 Electrical & Instrumentation Main! Operations & Maintenance Totals 910 IT Administration 930 IT Customer & Network Support 940 IT Programming & Database Sys 950 IT Process Controls Integration Information Technology Totals GRAND TOTAL FTEs REG 2.00 2.00 2.00 20.00 27.00 49.00 2.00 5.00 7.00 1.00 15.00 8.00 24.00 30.00 62.00 2.00 3.00 8.00 8.00 4.00 25.00 3.00 15.00 36.00 40.00 18.00 112.00 3.00 16.00 15.00 64.00 98.00 5.00 14.00 42.00 46.50 58.00 54.00 219.50 3.00 17.00 12.00 13.00 45.00 627.50 I AUTHORIZED FTE 0.50 0.75 TOTAL REG --2.00 2.00 --2.00 2.00 --2.00 2,00 - -20.00 14.00 0.50 . 27.50 25,00 0.50 . 49.50 41.00 . . 2.00 - 0.50 -5.50 5.00 --7.00 7.00 --1.00 1.00 0.50 -15.50 13.00 . 8.00 7.00 . . 24.00 22.00 -. 30.00 26.00 . . 62.00 55.00 1.00 -3.00 2.00 --3.00 3.00 . . 8.00 8.00 9.50 -17.50 5.00 0.50 . 4.50 4.50 11.00 -36.00 22.50 - -3.00 3,00 --15.00 15.00 1.00 -37.00 33.00 --40.00 38.00 . . 18.00 18.00 1.00 -113.00 107.00 . . 3.00 2,00 . . 16.00 16.00 -0.75 15.75 14.00 --64.00 58.00 -0.75 98.75 90.00 . . 5.00 4.00 0.50 -14.50 10.00 0.50 0.75 43.25 42.00 -. 46.50 44.00 0.50 . 58.50 55.00 0.50 -54.50 45.00 2.00 0.75 222.25 200.00 --3.00 2.00 . . 17.00 16.00 . . 12.00 11.00 . . 13.00 12.00 . . 45.00 41.00 15.00 1.50 571.50 AUTHORIZED FTE 1=1 644.00 ACTUAL FTE Recruitments Vacancies 0.50 0.75 LOA TOTAL -- -2.00 -- -- -2.00 -- ---2.00 -- --2.00 16.00 2.00 4.00 a.so . -25.50 2.00 2.00 0.50 -2.00 43.50 4.00 6.00 -----2.00 0,50 . -5.50 -- ---7.00 . - ---1.00 -- 0.50 . . 13.50 . 2.00 . -. 7.00 1.00 1.00 -. 1 00 23.00 -1.00 ---26.00 3.00 4.00 . -1.00 56.00 4.00 6.00 1.00 --3.00 -- ---3.00 -. ---8.00 -- 5.00 --10.00 1.00 7.50 ---4.50 -. 6.00 -. 28.50 1.00 7.50 ---3.00 1.00 - ---15.00 -- 2.00 --35.00 2.00 2.00 --1.00 39.00 -1.00 ---18.00 -- 2.00 . 1.00 110.00 3.00 3.00 . . -2.00 -1.00 -. -16.00 -- . 0.75 . 14.75 1.00 1.00 . -1.00 59.00 -5.00 -0.75 1.00 91.75 1.00 7.00 ---4.00 -1.00 0 50 --10.50 2.00 4.00 0.50 0.75 -· 43.25 -- 0.50 -. 44.50 2.00 2.00 0.50 -2.00 57.50 1.00 1.00 0.50 --45.50 3.00 9.00 2.50 0.75 2.00 205.25 8.00 17.00 -- -2.00 -1.00 . --16.00 1.00 1.00 ---11.00 -1.00 ---12.00 -1.00 . . . 41.00 1.00 4.00 11.50 1.50 7.00 ACTUAL FTE I+ I Recruitments I+ Vacancies (less recruitments) 591.50 22.00 30.50 DJ 0 0 ~ ~ CQ CD N c:::, STAFFING REPORT 700.00 - - -~ • • •----- - JUN JUL* Authorized FTE 629.00 644.00 Actual FTE 601.00 606.00 Difference** 28.00 38.00 Recruitments 23.00 20.00 Vacancies 5.00 18.00 * Authorized FTE as of July; actual FTE as of June **Difference = Recruitments + Vacancies SEP 644.00 597.50 46.50 36.50 10.00 • • • • • • • • OCT NOV DEC FEB 644.00 644.00 644.00 644.00 595.50 595.50 598.50 601.00 48.50 48.50 45.50 43.00 38.50 38.50 36.50 16.50 10.00 10.00 9.00 26.50 • • • • • • MAR APR MAY 644.00 644.00 644.00 598.50 596.50 591.50 45.50 47.50 52.50 24.00 21.00 22.00 21.50 26.50 30.50 I-+-Authorized FTE -Actual FTE I FAMR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Lisa L. Tomko, Director of Human Resources Originator: James Matte, Safety & Health Supervisor Meeting Date To Bel. of Dir. 05/10/06 Item Number Item Number FAHR06-34 SUBJECT: OSHA INCIDENCE RATES AND WORKERS' COMPENSATION CLAIMS AND COSTS REPORT GENERAL MANAGER'S RECOMMENDATION Receive and file the OSHA Incidence Rates and Workers' Compensation Claims and Costs Report. SUMMARY The Safety and Health Division tracks OSHA Incidence Rates for DART(1) Cases (DART Incidence Rate) and Total Accidents (Total Injury Frequency Rate) and the District's Workers' Compensation Claims and Costs. The data for January-March 2006 are shown in the table below: OCSD DART Cases OCSD DART Rate1£1 OSHA Recordable Accidents District OCSD Total Injury Frequency Rate101 NOTES: (1) Days Away, Restricted or Transfer (2) Industry Average for DART is 2.80 (3) Industry Average for TIFR is 6.00 January- March 2006 1 0.69 4 2.78 March 2006 Data 0 0.00 2 4.16 The two recordable injuries for this reporting period are as follows: Change (February to March) 0 -2.05 1 2.11 • On March 1 a Senior Construction Inspector reported sciatica with his right leg from wearing a district radio on his hip for many years. This injury is classified as an OMT case. • March 31 a Plan Operator sustained a minor injury to his left thumb after a tool slipped off equipment. This case is classified as an OMT case. The Division also tracks the District's Workers' Compensation Claims and Costs. Information regarding OCSD workers' compensation claims is presented below. The three closed cases for this reporting period are as follows: • A claim involving a Senior Mechanic who sustained a back strain while line cleaning on January 24 closed with a total incurred cost of $1,047. Revised: 06104103 Page 1 BookPage21 • A claim involving a Senior Construction Inspector who sustained a laceration to his left finger after falling on the aeration deck on February 2 closed with a total incurred cost of $178. • A claim involving an Instrumentation Technician II who submitted a workers compensation claim form claiming stress on October 25 closed with a total incurred cost of $263. January -March 2006 OCSD Workers' Compensation Claim Count (report period) 3 OCSD Workers' Compensation Claim Cost (report period) $2,026 Total Open Claims 25 Total OCSD Workers' $1,796,664 Compensation Claim Cost PRIOR COMMITTEE/BOARD ACTIONS NIA PROJECT/CONTRACT COST SUMMARY NIA BUDGET IMPACT D This item has been budgeted. (Line item: ) March 2006 Data 1 800.00 D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. ~ Not applicable (information item) ADDITIONAL INFORMATION The reporting period ends March 31 . ALTERNATIVES NIA CEQA FINDINGS NIA ATTACHMENTS NIA Revised: 06/04/03 Book Page 22 Change 1 800.00 Page2 1, FAHR COMMITTEE Meeting Date To Bd. of Dir. 05/10/06 05/24/06 AGENDA REPORT Item Number Item Number FAHR06-35 Orange County Sanitation District FROM: Marc Dubois, Contracts/Purchasing Manager SUBJECT: GENERAL MANAGER APPROVED PURCHASES GENERAL MANAGER'S RECOMMENDATION Receive and file report of General Manager approved purchases in amounts exceeding $50,000 in accordance with Board purchasing policies SUMMARY In May 1998, the FAHR Committee and the Board approved changes to the staff purchasing authority. One of the changes was to increase the dollar threshold before Board authority was required for purchases of goods or services, excluding public works purchases, to $100,000. When approving this change, the Committee asked for periodic reports showing purchases approved by the General Manager for amounts between $50,000 and $100,000. Subsequent to receiving the initial report, the Committee requested that future reports be placed on the Consent Calendar. Vendor Name Amount Department Description/Discussion Pacific Ford $53,600 Regional Assets and Services Ford Escape Hybrid SUV Villa Ford $97,222 Regional Assets and Services Seven ( 7) Taurus SE Sedans Frost Company $90,000 Engineering Emergency equipment repairs. Carollo Engineering, Inc. $98,265 Finance User Fees and Capital facilities Capacity Charge Rate Study Sole Source contract for Malcolm Pirnie, Inc. $85,108 Engineering Bushard Trunk Sewer Rehabilitation Mythics, Inc. $55,200 Information Technology Oracle database perpetual license Section 4.03.B of Resolution 04-08, the District's Delegation of Authority Resolution, authorizes the Contracts / Purchasing Manager to purchase items that have been previously authorized by the Board as identified in the annual District budget. During the budget adoption process, the lists of these items were highlighted for the Directors. For these reasons, purchases that fell into these categories are not included in this report. H:ldept\agenda\FAHRIFAHR2006\0506\06.06-35.GM Approved Purchases Q3 05--06.doc Revised: 06/04/03 Book Page 23 Page 1 PRIOR COMMITTEE/BOARD ACTIONS NIA PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT D This item has been budgeted. (Line item: ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. [8'.J Not applicable (information item) ADDITIONAL INFORMATION N/A ALTERNATIVES N/A CEQA FINDINGS NIA ATTACHMENTS None. MD H:ldeptlagenda\FAHRIFAHR200610506\06.0&-35.GM Approved Purchases Q3 05-06.doc Revised: 06/04/03 BookPage24 Page2 FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Michael D. White, Controller SUBJECT: QUARTERLY FINANCIAL MANAGEMENT REPORT FOR THE PERIOD ENDED MARCH 31, 2005 GENERAL MANAGER'S RECOMMENDATION Meeting Date 05/10/06 Item Number FAHR06-36 Receive and file the FY 2005-06 Quarterly Financial Report for the period ended March 31, 2006. SUMMARY To Bd. of Dir. 05/24/06 Item Number Attached in a separately bound document is the Quarterly Financial Report for the period ended March 31, 2006, for the District's financials, investments, interest rate exchange agreement (Swap), operations monitoring and Certificates of Participation. PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT D This item has been budgeted. D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. cgj Not applicable (information item) ADDITIONAL INFORMATION None. ALTERNATIVES N/A H:ldept\agenda\FAHRIFAHR2006\0506\06.06-36.3Q Financial Report.doc Revised: 8/20/98 BookPage25 Page 1 CEQA FINDINGS N/A ATTACHMENTS Attached in a separately bound document is the Quarterly Financial Report covering the period ended March 31, 2006 for the District's financials, investments, interest rate exchange agreement (Swap), operations monitoring and Certificates of Participation. H:ldept\egenda\FAHRIFAHR2006\0508106.00-36.3Q Financial Report.doc Revised: 8/20198 Book Page 26 Page2 FAHR COMMITTEE Meeting Date To Bel. of Dir. 05/10/06 05/24/06 AGENDA REPORT Item Number Item Number FAHR06-37 Orange County Sanitation District FROM: Mike White, Controller SUBJECT: EXTENSION OF COMMERCIAL LEASE ON THE FUTURE SITE OF THE ROCKY POINT PUMP STATION GENERAL MANAGER'S RECOMMENDATION Approve extension of the commercial lease with Nautical Enterprises, Inc., dba H & S Yacht Sales from the original expiration date of May 31, 2006, to the extended expiration date of December 31, 2007. SUMMARY The District purchased three (3) adjacent parcels along Coast Highway in Newport Beach from International Bay Clubs (IBC) on September 1, 2004, for the purpose of constructing the new Rocky Point Pump Station. As part of the Purchase Agreement, the District assumed the leases of two tenants currently occupying portions of the property. The southernmost parcel is occupied by Nautical Enterprises, Inc. dba H & S Yacht Sales (H & S). Since construction of the new pump station was not scheduled to begin until approximately June 2006, the District continued leasing out the premises to the existing tenants. Due to the short-term nature of these leases, the Board continued these leases with monthly payments remaining the same as was negotiated by the previous landlord. On September 1 , 2004, the Sanitation District entered into a lease agreement with H &S leasing this southernmost parcel at a monthly lease amount of $5,000 through May 31, 2006. At this time, H&S has requested a least extension to December 31, 2007. The Engineering Department now estimates that construction for the new pump station is tentatively scheduled to begin in September 2008, but it is possible construction may begin earlier in the calendar year. PRIOR COMMITTEE/BOARD ACTIONS On August 25, 2004, the Board approved the purchase of this approximate one-acre parcel in the City of Newport Beach from International Bay Clubs, Inc. for Replacement of Rocky Point Pump Station. H:\deptlagenda\FAHRIFAHR200610506106.06-37.Nautical Ent Rocky Pt Lse.doc Revised: 06/04/03 Book Page 27 Page 1 On October 27, 2004, the Board approved a lease agreement with H & S for the period of 21 months, commencing September 1, 2004 through May 31, 2006, at the rate of $5,000 per month for a portion of the site acquired by the Sanitation District for the new Rocky Point Pump Station. PROJECT/CONTRACT COST SUMMARY The approval of this recommendation will continue to generate $5,000 in monthly lease income for an additional 19 months at no additional out-of-pocket cost to the District. BUDGET IMPACT D This item has been budgeted. (Line item: ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. IZ] Not applicable (information item) ATTACHMENTS None. H:ldeptlagenda\FAHRIFAHR200610506\06.0&37.Nautical Ent Rocky Pt Lse.doc Revised: 06/04103 Book Page 28 Page2 FAHR COMMITTEE Meeting Date To Bet of Dir. 05/10/06 05/24/06 AGENDA REPORT Item Number Item Number FAHR06-38 Orange County Sanitation District FROM: Bradley R. Hagin, General Counsel SUBJECT: Revisions to Directors' Expense Reimbursement Policy GENERAL MANAGER'S RECOMMENDATION Adopt Resolution No. OCSD 06-_, Establishing a Policy Regarding Board of Directors' Business and Travel Expense Reimbursement, and Meeting Attendance and Compensation; and Repealing Resolution No. OCSD 06-09. SUMMARY In order to clarify language contained in Resolution No. OCSD 06-09 that was adopted by the Board of Directors on April 26, 2006, a new resolution will need to be adopted. This new resolution clarifies language under Sections 16 and 17, to be consistent with the current Ordinance No. OCSD-14 and Ordinance No. OCSD-23. PRIOR COMMITTEE/BOARD ACTIONS Resolution No. OCSD 06-09 adopted April 26, 2006. PROJECT/CONTRACT COST SUMMARY Nia BUDGET IMPACT D This item has been budgeted. (Line item: ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. x Not applicable (information item) ADDITIONAL INFORMATION N/A ALTERNATIVES N/A H:ldeptlagende\FAHRIFAHR200610506106.06-38.Directors Expense.doc Revised: 01 /04/06 Book Page 29 Page 1 CEQA FINDINGS NIA ATTACHMENTS 1. Proposed Resolution No. OCSD 06-_ H:\deptlagenda\FAHR\FAHR2006\0506\06.06-38.Directors Expense.doc Revised: 01104/06 Book Page30 Page2 RESOLUTION NO. OCSD 06-_ A RESOLUTION OF THE BOARD OF DIRECTORS OF ORANGE COUNTY SANITATION DISTRICT ESTABLISHING A POLICY REGARDING BOARD OF DIRECTORS' BUSINESS AND TRAVEL EXPENSE REIMBURSEMENT, AND MEETING ATTENDANCE AND COMPENSATION, AND REPEALING RESOLUTION NO. OCSD 06-09 WHEREAS, the District, by previously adopted Ordinance Nos. OCSD-14 and OCSD-23, has established Board of Directors' compensation for meeting attendance; and, WHEREAS, the Board of Directors desires to revise the policy previously adopted pursuant to Resolution No. 06-09 to comply with all of the requirements in the above-described new statutes. NOW, THEREFORE, the Board of Directors of Orange County Sanitation District, DOES HEREBY RESOLVE, DETERMINE AND ORDER: Section 1: Adoption of Policy and Establishment of Procedures. The Board of Directors hereby adopts the Policy Regarding Board of Directors' Business and Travel Expense Reimbursement, and meeting attendance and Compensation, set forth on Exhibit "A", attached hereto and incorporated herein by reference. Section 2: Rescission of Inconsistent Resolutions and Policies. Resolution No. OCSD 06-09 is hereby rescinded. In addition, any prior resolutions and/or policies established by the Board of Directors that are in conflict with the policy set forth in Attachment "A" shall be deemed rescinded to the extent of such conflict. PASSED AND ADOPTED at a regular meeting held May 24, 2006. Chair ATTEST: Board Secretary 1 Book Page31 EXHIBIT "A" ORANGE COUNTY SANITATION DISTRICT POLICY REGARDING DIRECTORS' BUSINESS AND TRAVEL EXPENSE REIMBURSEMENT AND MEETING ATTENDANCE AND COMPENSATION Article I. Business and Travel Expense Reimbursement It is the District's policy to reimburse Board Members for authorized business and travel expenses in accordance with the procedures of this Policy. This Reimbursement Plan is intended to be an "accountable plan" under the applicable requirements of the Internal Revenue Code and Treasury Regulations. The District, through the Chair of the Board, will authorize attendance at conferences, seminars, meetings and travel, but such expenses related thereto will only be approved to the extent they are necessary to further the accomplishment of District goals and objectives. This Policy applies to all regular and alternate District Board Members authorized to represent the District in business or travel activities. At all times, District representatives serve the public and must do so within the ethical and business performance standards expected of a public agency. Prudent judgment and full compliance with District policies is required. Failure to use discretion in the incurring of business expenses may result in the loss of discretionary travel privileges. Sufficient funds must be included in the current Fiscal Year's operating or capital improvement budgets for all business and travel expenses to be paid or reimbursed under this Policy. Non-compliance with the Policy or falsification of reports or documentary evidence may result in corrective action, including criminal prosecution. Section 1 ~ Authorized Expenses. A. The following types of occurrences qualify Board Members to receive reimbursement for expenses incurred in the performance of official duties relating to travel, meals, lodging, and other actual and necessary expenses that constitute authorized expenses, provide the requirements of this policy are met: i. Communicating with representatives of regional, state and national government on issues or matters affecting the District or on District- adopted policy or political positions; 2 Book Page32 ii. Attending conferences and/or educational seminars designed to improve the Board Members' expertise and information levels, including, but not limited to, ethics training required pursuant to Government Code Section 53234; iii. Participating in regional, state and national organizations whose activities affect the District's interests; iv. Attending District events; v. Implementing a District-approved strategy for District- related activities / business; and vi. Meetings such as those listed above for which compensation is expressly authorized under this policy. B. Unless otherwise specifically provided for herein, reimbursement for travel, meals, lodging, and other actual and necessary business expenses shall be at the rates presently in effect as established in Internal Revenue Service Publication 463 or any successor publication. Expenses not covered by this policy, or expenses in excess of the reimbursable rates set forth in this policy, are not reimbursable unless approved by the District Board of Directors in a public meeting before the expense is incurred. Section 2: Terms and Definitions. A. "Accountable Plan" shall mean the Internal Revenue Service Publication No. 463 for Travel, Entertainment, Gift and Car Expenses, or any successor publication. Expenses must have a business connection. Expenses must be adequately documented and include evidence such as receipts, canceled checks, invoices, or credit card statements to support the expenses, and must be submitted within sixty (60) days after they were paid or incurred. Any excess reimbursement must be returned within sixty (60) days. B. "Approval by the Board" shall mean Board of Directors approval at a regularly-scheduled Board Meeting with a quorum present and acting. C. "Alternate Board Member" shall mean a Member of the District's Board of Directors designated by the Director's agency to serve in the absence of the Board Member. When the Board Member is absent, the Alternate Board Member becomes the Board Member, and everything in this Policy applies. The Alternate Board Member and the Board Member cannot both be compensated for the same event without prior approval by the Board Chair. 3 BookPage33 D. "Board Chair" shall mean the Member of the District's Board of Directors who has been elected by the other Members to serve as Chair. E. "Board Member" shall mean a Member of the District's Board of Directors, appointed by a member agency pursuant to California Health and Safety Code Section 4730.65. F. "Committee Member" shall mean any Member of the Board of Directors, appointed to a Standing or Ad Hoc Committee, established by an action of the Board or Board Chair. G. "Days Service Rendered" shall mean attendance as described in Article 11, Section 13, below. H. "Director'' shall mean a Member of the District's Board of Directors. I. "Incidentals" shall mean any minor, miscellaneous expense incurred during travel, including but not limited to, telephone, facsimile or computer connection service, local ground transportation, baggage handling and storage, and snacks. K. "Travel Expenses" shall mean transportation, lodging, meals, and incidentals expenses associated with attending a seminar, conference, or meeting requiring an overnight stay. L. "Travel Liaison" shall mean the Secretary to the General Manager, or such other employee as designated in writing by the General Manager. Section 3: Responsibilities. A. Directors shall be familiar with and comply with this Policy; ensure all travel and other reimburseable expenses are reasonable; coordinate multiple Director participation at conferences to avoid unnecessary duplication; and promote economic means of travel. The Board Chair can approve or deny requests for travel or business activities and reimbursements for Board and Committee Members. B. The General Manager shall be familiar with and comply with this Policy; ensure all travel and other reimburseable expenses are reasonable; coordinate multiple Director participation at conferences; and promote economic means of travel. 4 Book Page34 C. The Travel Liaison shall be familiar with and comply with this Policy; promote economic and reasonable means of travel; and inform the General Manager of all unreconciled expenses regarding travel matters. D. The District Controller shall be familiar with and comply with this Policy; ensure all travel and other reimburseable expenses are reasonable; coordinate multiple Director participation at conferences; and promote economic means of travel. Section 4: Travel Liaison. The Travel Liaison shall arrange all travel, lodging, accommodations, and seminar/conference registrations for the Directors. The Travel Liaison shall use the District's designated travel agency for booking all air and ground travel. The General Manager is authorized to grant exceptions on a case-by-case basis. Any travel or registration not booked through the Travel Liaison, or not granted an exception, may be subject to payment by the Director without reimbursement from the District. Section 5: Designated Travel Agency. The District will designate a single travel agency for the Travel Liaison to use to arrange all travel and lodging accommodations for Directors. Section 6: Seminars, Conferences, and Meetings. A. Attendance at seminars, conferences, and meetings must be approved in advance by the Board Chair, except when specifically pre-authorized by this Policy. B. Directors may from time to time receive requests or may elect to attend meetings or conferences pertaining to the water and wastewater utility industry, and may be asked to, or may desire to, give presentations or otherwise represent the District at such events. Any Director wishing to attend such events and represent the District by providing a presentation or oral commentary shall request and receive advance authorization from the full Board of Directors. If such a request is granted, all expense reimbursements and travel and meeting attendance requirements shall comply with this Policy. In the event there is not sufficient time to submit a request to act as District Representative to the Board, the Board Chair has the authority to approve such a request in advance; this approval would then be subsequently submitted for ratification at the next regularly scheduled Board meeting. C. The number of Directors attending a seminar, conference, or meeting should be minimized, and there must be a District business reason for attendance. Such reasons would include, but are not limited to: presentation of technical findings; attendance at committee meetings, or technical sessions dealing with issues related to District business; or participation as an Officer of the Association. 5 Book Page 35 D. Seminars must be selected based on value to the District. Benefits would include improved efficiency and effectiveness, as well as becoming familiar with new regulatory standards. Free, local seminars must also be authorized in advance in order to be considered for approval of Director compensation. Preference will be given to seminars that are provided within the Southern California region. E. Attendance at seminars, conferences, or meetings in "destination resort" areas outside California or areas outside the continental United States will not be approved except by vote of the District's Board of Directors' Steering Committee. Section 7: Ground Transportation. A. The most economical mode and class of transportation reasonably consistent with travel and scheduling requirements will be used. Each Director shall be reimbursed at the rate per mile established by the United States Internal Revenue Service as allowable for mileage expense deduction for use of a personal vehicle on business of the District. As said allowable rate established by the Internal Revenue Service is periodically changed, said changes in the reimbursement rate shall become effective on the first day of the month following the month in which the change is announced by the Internal Revenue Service. B. In no event shall the amount paid for mileage reimbursement for use of a personally-owned vehicle used for travel in lieu of air travel, exceed the lowest available cost of coach class airfare. C. Personally-owned vehicles used in the conduct of District business must be insured for property and liability damage in an amount not less than the minimum limits required by the California Financial Responsibility Act. D. Reasonable vehicle parking and storage costs will be allowed when rental or personally-owned vehicles are used for District business. E. Highway and bridge tolls are allowable expenses when incurred while conducting District business. F. Directors should only use rental cars for ground transportation when necessary or when it is less expensive than other forms of transportation such as trains, buses, taxis, or shuttles. Discretion must be used in selecting rental car size. The rental car should be the smallest size that provides adequate safety and comfort for the period of time it is in use. To accommodate a group of travelers, a larger vehicle may be rented in lieu of renting separate vehicles. 6 Book Page 36 G Directors will not be reimbursed for any surplus insurance purchased for rental cars. The District and Director are sufficiently insured through existing District policies. Only Directors are allowed to operate rental cars. H. Use of chauffer-driven limousines is not allowed while conducting District business. I. When using ground transportation other than personally- owned vehicles, Directors shall use government and group rates offered by the provider of transportation services when available. Section 8: Air Transportation. A. Air transportation must be at coach class level. First class travel will only be allowed on an excep~ion basis and must be approved in advance by the Board Chair, based upon physical needs or ability to conduct meaningful work while on board. B. Air transportation should be arranged as early as possible to take advantage of reduced fares for early reservations. Consideration should be given to alternative departure times, departure and arrival airports, dates, flight times, and stopovers to minimize airfares; however, the total cost of the alternatives (e.g., ground transportation, lodging) should also be considered in selecting an alternative. Internet booking services can be consulted to help in finding the optimum alternative; however, flights must still be reserved by the Travel Liaison. C. Government and group rates for airline travel shall be used when available. Section 9: Lodging. A. Government and group rates offered by a provider of lodging services shall be used when available. B. When travel is to a conference or organized educational activity, lodging costs shall not exceed the maximum group published by the conference or activity sponsor. Some conferences require early booking to take advantage of reduced rates. If lodging cannot be arranged at the conference group rate, other lodging accommodations may also be arranged if the cost is less than or equal to the conference group rate. No lodging within sixty (60) miles of the District's Administrative Offices or the Director's residence, whichever is less, will be reimbursed. 7 Book Page 37 Section 10: Meals and Incidentals. Meal expenses are allowed while Directors are traveling. Expenditures for meals will be moderate and reasonable. Expenses for meals not associated with travel but related to an appropriate business purpose meeting, are also allowed. Non-travel business meals will only be reimbursed if taken in conjunction with a District business meeting. Meals for Directors' guests will be reimbursed only if they have a legitimate business relationship with the District. A. Reimbursement Rates. Directors will be reimbursed for actual meal expenses, including all taxes and gratuities, up to the amounts indicated below. If meal expenses exceed the allowance amount, the Director will only be reimbursed the allowance amount, with the remainder being paid by the Director. If meal expenses are less than the allowable amount, only the actual expense amount will be reimbursed. All meal expenses must be documented in detail in accordance with this Policy. When receipts are provided, the maximum per meal/expense reimbursements are as follows: Breakfast Lunch Dinner Snacks $15.00 $20.00 $25.00 $10.00 Multiple meal expenses cannot be combined to pay for a more expensive single meal. The Policy is applied strictly as a per meal expense. In no event will a Director be reimbursed more than $70 per travel day under the Receipt Method. Receipts must be a detailed receipt from the restaurant for actual costs. Restaurant bill stubs do not provide sufficient detail and are not acceptable for reimbursement. Credit card receipts may be accepted, subject to Board Chair approval if itemized, if detailed meal receipts are not provided by the restaurant. B. Non-Reimbursable Meals and Incidentals. Directors will not be reimbursed for the following: i. Meals that are included in the cost of a conference or seminar, nor for meals taken elsewhere in lieu of the meal provided. ii. Meals provided by others. Conflict of interest policies and applicable statutes should be considered when providing meals for or receiving meals from persons or entities other than the District representatives. iii. Meals provided to a spouse or guest. iv. Alcoholic beverages consumed by a Director or others. 8 Book Page38 Section 11: Extended Travel and/or Travel with Family Members. When a Director elects to extend his/her stay at travel destinations, or when traveling with family members, all expenses related to such extended or family travel, .including, but not limited to airfare, extra meals, extended car rental, lodging, or incidentals shall be paid by the Director without reimbursement. When travel time restrictions or transportation discounts make it desirable for a Director to arrive at a conference, seminar, or meeting a day early, or to stay an additional day, those travel days will be considered the same as a day's service rendered; provided, approval is obtained from the Board Chair in advance. Section 12: Requests for Reimbursement. A Requests for reimbursement shall be submitted to the District Controller not later than sixty (60) days after payment by the individual and shall be submitted on forms provided by the District. A delinquent expense report will not be reimbursed unless justified in writing and approved by the Board Chair . All requests for reimbursement must be accompanied by receipts or documentation evidencing each expense. Improper expenditures, or those not adequately documented, will not be reimbursed. Non-essential expenses, including but not limited to in-room movies, service bar, etc. will not be reimbursed. B. All expense reports shall include detailed receipts (except for meals to be paid pursuant to Section 9.B. above) and state the date, type of expense, District business purpose, those in attendance and their affiliations, and amounts expended. Section 13: Brief Reports to Board. At the next regular meeting of the Board of Directors following the event for which expenses are incurred, Directors shall briefly report, orally or in writing, on any meetings attended at District expense. If multiple Directors attended the meeting at District expense, a joint report may be made to the Board of Directors. Article II. Meeting Attendance and Compensation Section 12: Directors shall be paid a stipend as compensation, at the rate determined by the Board of Directors, and adopted by Ordinance No. OCSD-14 as amended, for attendance at Meetings, as defined below, and for each Day's Service Rendered as a Member of the Board. "Maximum Meetings Allowed Per Month" shall mean for the Board Chair, ten (10) meetings, or ten (10) days' service rendered per month; for all other Directors, six (6) meetings or six (6) days' service rendered per month. 9 Book Page39 "Meetings" shall mean all regularly convened Board of Directors Meetings, Standing Committee Meetings, Ad Hoc Committee Meetings, and other Meetings called by the Board Chair. Also included are specific industry conferences and business meetings of a recurring nature, such as the California Association of Sanitation Agencies and the Association of Metropolitan Sewerage Agencies, designated by the Board Chair. Meetings not sanctioned by the Board Chair are not considered business of the District. Section 13: Directors shall receive a stipend as compensation, without further action or authorization of the Chair or the Board of Directors for attendance at the following: Board of Directors meetings; Standing Committee and Ad Hoc Committee meetings, of which the Director is a duly appointed member; meetings, conferences and committee meetings of CASA and AMSA; meetings of other governmental agencies, at which the District has an official delegate. Section 14: Each Day's Service Rendered as a Member of the District's Board of Directors, shall be deemed to include, but not be limited to: A. Attendance at any Meeting of a Committee of which the Director is not a member, when expressly invited to attend said Committee Meeting by the Chair of the Board of Directors. 8. Attendance at conferences with State and/or Federal Legislators regarding District business, when approved by action of the Board of Directors. C. Attendance at a meeting, hearing, or conference relating to the business of the District, when approved by action of the Board of Directors, or when designated by the General Manager, with the concurrence of the Chair, in advance, and when deemed to be in the best interests of the District, including but not limited to the following: i. Meetings of nonprofit organizations or service club meetings where a Board Member is making a presentation on behalf of the District. ii. Ceremonial events. iii. Meetings with other elected officials or their employees, which do not include District Staff. iv. Meetings of the governing body of another agency, of which the District has an official delegate, where a matter directly affecting the 10 Book Page40 interests of the District is agendized for discussion and the Board Member is not compensated by the other agency. v. Meetings with District Staff. vi. Industry related conferences other than California Association of Sanitation Agencies' or Association of Metropolitan Sewerage Agencies' work conferences. vii. Telephone conferences when physical attendance is impractical and not mandatory. viii. Ethics training required by Government Code sections 53234 -53235.5. Section 15: Non Compensable Attendance. Board Members shall not be compensated for the following meetings where there is no District-related business to be conducted: A. Nonprofit organization meetings. B. Nonprofit organization events. C. District-sponsored employee events, including but not limited to the annual holiday luncheon, employee picnic, or retirement events. D. E. 14(C)(i) above. F. G. consultants. Social or ceremonial events not pre-authorized by the Board. Service club meetings other than those included in Section Parades, festivals, holiday events, or retirement dinners. Meetings with existing or potential contractors, vendors, or H. Meetings of partisan political organizations. Section 16: No Director shall receive compensation for attendance at more than one meeting on any one calendar day. Section 17: No Alternate Director shall receive compensation for attendance at any meeting unless serving in the absence of the regular, Active Director, unless the Board Chair invites the Alternate Director to attend the meeting and approves payment of compensation. 11 BookPage41 The Policy was duly adopted, by action of the Board of Directors, on ______ , 2006 and shall be effective upon its adoption. 12 Book Page42 FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Lisa L. Tomko, Director of Human Resources Originator: Paul Loehr, Human Resources Supervisor Meeting Date To Bd. of Dir. 05/10/06 05/24/06 Item Number Item Number FAHR06-39 SUBJECT: AMENDED AGREEMENT FOR THE ADDITIONAL RETIREE BENEFIT ACCOUNT (ARBA) GENERAL MANAGER'S RECOMMENDATION Approve the Second Amended and Restated Memorandum of Understanding Agreement re: Additional Retiree Benefit Account with the Orange County Employees Retirement System. SUMMARY The purpose of this report is to obtain approval to amend the ARBA agreement, which addresses depleting ARBA benefit funds, and to provide a timeline for addressing intermediate and long term issues with retiree medical benefits. Upon Board approval in 2002, OCSD implemented an amended and restated ARBA agreement with OCERS. This agreement replaced the original ARBA agreement and established a Retiree Medical Benefit Reserve (RMBR) account that would safeguard three (3) years of projected ARBA payments if the ARBA funds were exhausted, and provide a one time b·uffer to address future funding. Since that time, OCERS investments have no longer produced the excess funds previously used to fund the ARBA benefit, thereby requiring OCSD to self-fund the program once the existing monies are depleted in September 2006. Immediately amending the current agreement would accomplish the following: • Remove a shortfall provision that requires OCSD to pay one-half percent of payroll to fund pension statutory reserve requirements. This will allow OCSD to reallocate those funds to pay future ARBA benefits. • Amend the termination date of December 2007 to December 2006 with the option of renewal through 2007. (OCERS does not intend to continue administering the ARBA benefit beyond December 2007 unless an alternative plan solution is developed and approved by the OCERS Board. OCERS will review ideas for future administration at their Board meeting on May 15, 2006.) The modified termination date will provide OCSD with sufficient time to make a decision as to the future funding and administration of the ARBA benefit and H:\dept\agenda\FAHRIFAHR2006\0506\06.06-39. ARBA Agreement.doc Page 1 BookPage43 will allow OCSD the flexibility of changing the administration of ARBA benefits in the near future. In the meantime, staff has initiated an independent actuarial study to identify future retiree medical benefit funding obligations and compliance requirements. The actuarial study will provide valuable information in developing a funding strategy to outline future retiree medical benefit costs, investment options, compliance issues, available administrative mechanisms, and foreseeable changes to retiree medical benefits. Staff will provide further updates to the FAHR Committee and will seek directi'on from the committee. The meeting dates and topics of discussion are anticipated to be as follows: • June 2006 FAHR Committee meeting: Update on the May OCERS Board meeting and an outline of OCSD's actuarial study results. • July 2006 FAHR Committee meeting: Detailed information on available options for intermediate and long-term issues with retiree medical benefits. • Early fall 2006 FAHR Committee meetings: Meet and Confer discussions on all benefits, including ARBA. PRIOR COMMITTEE/BOARD ACTIONS • April 2006: An informational item addressing ARBA was presented to the FAHR Committee. • December 2002: The Board of Directors approved an amended and restated ARBA agreement that established a Retiree Medical Benefit Reserve (RMBR). PROJECT/CONTRACT COST SUMMARY After the RMBR account depletes in September 2006, OCSD will self-fund ARBA benefits at an approximate c;:ost of $17,00Q/month or $204,000/year. In accordance with the current agreement, OCSD is currently paying one-half percent of payroll each pay period. This amount is approximately $266,420 annually. If the ARBA agreement is amended to remove this shortfall provision, OCSD will stop paying the one-half percent of payroll requirement and instead, will directly fund the ARBA benefit costs of approximately $204,000 annually. This will result in an approximate net savings of over $50,000 per year. BUDGET IMPACT [8] This item has been budgeted. (Line item: 50580) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. D Not applicable (information item) H:ldepl\agenda\FAHRIFAHR200610506\06.06-39. ARBA Agreement.doc Page 2 Book Page44 ADDITIONAL INFORMATION Background Information OCSD provides two different retiree medical benefits: The Retiree Paid Medical Premium Plan and the Additional Retiree Benefit Account (ARBA). The Retiree Paid Medical Premium Plan provides employees hired prior to July 1, 1988 with 2.5 months of fully paid medical premiums for each year of continuous service if they retire. OCSD administers this benefit and the costs are paid directly to insurance carriers. When this benefit is exhausted, the retiree begins receiving ARBA benefits. Employees hired after July 1, 1988 are not eligible for this benefit. ARBA benefits are a retiree medical premium offset plan. Retirees who have a vested right in this benefit are provided with $10 per month for every year of service up to a maximum of 25 years or $250 per month to offset the costs associated with health insurance premiums. Unlike the retiree paid medical premium plan, ARBA benefits are sent directly to the retiree in the retirement benefits payment from OCERS. As such, ARBA benefits are taxable to the retiree. Current Issues The RMBR account that funds ARBA benefits is expected to be depleted by September 2006. The RMBR account was established in December 2002 and was funded using excess earnings from OCERS investments. Until September 2006, ARBA benefits will have been funded entirely by excess earnings from OCERS pension investments. Due to poor market conditions, there are no excess earnings to replenish depleting ARBA benefit funds. Since OCSD has a legal obligation to continue funding retiree medical benefits to those retirees and employees who have a vested right in the benefit, OCSD must begin self-funding this benefit. The existing ARBA agreement contains two provisions, sections 10 and 11, which address account shortfalls. Section 10 -RMBR Account: Shortfalls in ARBA • If there are monetary shortfalls to pay ARBA benefits and sufficient excess earnings exist in the Unallocated Fund Balance (UFB) to replenish the RMBR account to the designated "safety level", a transfer of funds is made from the UFB into the RMBR account. Effect: Although this provision is in place to avoid OCSD from self-funding the ARBA benefit, there has been no transfer of funds into the RMBR account since the current ARBA agreement was ratified in December 2002 because there have been insufficient excess earnings in the UFB. H:ldeptlagenda\FAHRIFAHR2006\05D6\06.06-39. ARBA Agreement.doc Page 3 BookPage45 Section 11 -Shortfalls in Net Unallocated Fund Balance • If there are shortfalls in the UFB to pay statutory reserve requirements, OCSD is required to pay an amount necessary to restore the UFB, up to one-half percent of payroll. Effect: Due to a shortfall in the UFB account, OCSD is currently paying the one-half percent of payroll each pay period. This amount is approximately $266,420 annually or just over $10,200 per pay period. If the agreement is amended to remove this shortfall provision, OCSD will stop paying the one- half percent of payroll requirement and will reallocate those funds to offset ARBA benefit costs of approximately $204,000 annually. This will result in an approximate net savings of over $50,000 per year. Finally, the current ARBA agreement has a termination date of December 31, 2007 and an option to terminate the agreement at the end of any preceding calendar year with 60 days written notice in advance of the end of that year. In fact, other agencies' ARBA agreements with OCERS expire on December 31, 2007, as well. Although OCERS has indicated that it does not intend to continue the RMBR account past the 2007 termination date, it is reviewing ideas to continue administering ARBA benefits through employer contributions. A tentative plan, which will be discussed at the next OCERS Board meeting on May 15, 2006 is to implement a stand-alone account that would earn an investment rate of return that would not be affected by any aspect of pension fund administration. If this type of plan is implemented, OCERS has indicated that they will charge an administrative fee and will not administer any variation of the benefit if retiree medical benefits change in the future. For example, if OCSD transitions from a defined benefit plan to a defined contribution plan, such as Health Saving Accounts (HSA), OCERS would not administer that benefit. Immediate Action The immediate objective is to amend the ARBA agreement with OCERS to remove the UFB shortfall requirement, modify the termination date to December 31, 2006, with the option to renew through 2007, and provide a provision that will ensure reimbursement of any funds available at the termination date of the agreement. This action will immediately stop payments to OCERS, per the current ARBA agreement, that are not funding ARBA benefits. Moreover, the modified termination date provides OCSD with sufficient time to make a decision as to the future funding and administration of the ARBA benefit and will allow OCSD the flexibility of changing the administration of ARBA benefits in the intermediate future. In addition, OCSD will need to transfer funds into the RMBR account for the period of September to December 2006. It is recommended that OCSD initialize this process with advance reserves equal to one-month worth of ARBA payments and continue each month until the period is funded. Once a decision is made as to the future administration of the ARBA benefit and a funding strategy has been developed, appropriate funding actions would then occur. H:ldept\agenda\FAHRIFAHR2006\0506106.06-39. ARBA Agreement.doc Page 4 Book Page46 OCSD has initiated an independent actuarial study to determine retiree medical benefit funding obligations and compliance requirements in the future. The actuarial study will evaluate both OCSD retiree medical benefits (Retiree Paid Medical Premium Plan and ARBA) and is expected to be completed by the end of May 2006. There are currently 104 retirees receiving ARBA benefits with another 37 retirees receiving fully paid medical benefits who will eventually receive ARBA benefits. In addition, staff is estimating that another 30 employees will retire in fiscal year 2006- 2007. There are also 128 employees hired prior to July 1, 1988 who will receive Retiree Paid Medical Premium Plan benefits when they retire. The average retiree will receive retiree medical benefits for 20 years. It is important that OCSD fully understands this unfunded liability obligation in order to adequately fund these benefits and understand the resources needed to administer them. Once the amended agreement is implemented, options for intermediate and long term administration of ARBA benefits will be refined by OCSD staff and presented to the FAHR Committee for consideration and direction. Items of discussion will include future costs and investment options, compliance issues and available administrative mechanisms, and foreseeable changes to retiree medical benefits. Future Issues In considering the future funding of retiree medical benefits, OCSD will work to develop a funding strategy that will reduce costs over the long term and will help secure benefits expected by retirees and employees. In addition, the funding strategy should identify a low risk investment plan, consistent with OCSD's Board approved investment policy, to ensure a market rate of return on the funds being used for retiree medical benefits. In considering the future administration of retiree medical benefits, there are three administrative options to evaluate: OCERS, OCSD (in-house administration), or through a third party administrator. There are some key issues to consider in reviewing the future administration of the ARBA benefit, such as: • First, if OCSD is going to self-fund the ARBA benefit, it must consider an administrative option that will provide an investment rate of return on expenditures. • Second, the Governmental Accounting Standards Board (GASB) has issued statement 45 (GASB 45), requiring public agencies to report their costs and obligations pertaining to health and other benefits of current and future retired employees. This reporting requirement is similar to pension plan obligation reporting (GASB 27) and becomes effective in fiscal year 2007-2008. • Finally, the future administration of the ARBA benefit should have a level of flexibility and adaptability considering any foreseeable future changes to retiree medical benefits. H:ldept\agenda\FAHRIFAHR200610506\06.06-39. ARBA Agreement.doc Page 5 Book Page47 A plan of action to address these future issues is under development and will be presented at upcoming FAHR Committee meetings. ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS (1) Current ARBA Agreement (2) Proposed Amended ARBA Agreement H:\deptlagenda\FAHRIFAHR2006\0506\06.06-39. ARBA Agreement.doc Page 6 BookPage48 • AMENDED AND RESTATED AGREEMENT RE: ADDITIONAL RETIREE BENEFIT ACCOUNT This Amended and Restated Agreement re Additional Retiree Benefit Account ("Agreement'') dated December 16, 2002 is entered into as of the Effective Date, as defined herein, by and between Orange County Sanitation District, a public agency of the State of California Sanitation District, ~d the Orange County Employees Retirement System, a public retirement system organized and existing pursuant to the provisions of the County Employees Retirement Law of 193 7, as amended ("OCERS" or the "retirement system"). Sanitation District and OCERS are sometimes referred to herein individually as "Party" and colJectively as "Parties." RECITALS A. OCERS provides and administers a program of retirement benefits for the employees and retirees of the County of Orange ("County") and certain other public agencies located within the County that participate in OCERS, including Sanitation District, pursuant to Government Code Sections 31450, et seq. ("CERL") and other applicable law. B. Sanitation District and OCERS are parties to an ARBA Agreement, dated October 5, 1995, concerning the funding of a supplemental benefit program for retired employees of the Sanitation Djstrict who are members of OCERS, and their eligible beneficiaries (the Sanitation District ARBA Agreement") and other matters. C. The County and OCERS have entered into an Amended and Restated Memorandum of Understanding Agreement re: Additional Retiree Benefit Account, dated August 27, 2002 ("County ARBA Agreement"), a true and correct copy of which is attached hereto as Exhibit A for reference. D. Sanitation District and OCERS wish to amend and restate the Sanitation District ARBA Agreement, to be consistent with the County ARBA Agreement, and to accomplish other objectives of the parties, as more particularly set forth herein. AGREEMENT NOW, THEREFORE, for good and valuable consideration, the existence and sufficiency of which the Parties hereby acknowledge1 IT IS HEREBY AGREED AS FOLLOWS: 1. Recitals. TI1e foregoing RECITALS are true and correct and are incorporated herein by this reference. 2. Amendment and Restatement of tbe AREA Agreement. The Parties hereby agree to amend and restate the Sanitation District ARBA Agreement in this Agreement. This Agreement is intended to and shall supercede the Sanitation District ARBA Agreement in its entirety. Upon this Agreement becoming effective, the Sanitation District ARBA Agreement shall be null and void and of no further force or effect. 10990:6318165.2 -J- BookPage49 - J. lntent of this Agreement. The intent of this Agreement is (a) to use a portion of Sanitation District Advance Reserves (as defined herein), as authorized by Section 31592.2 of CERL, to provide a source of funding to help defray the cost to the Sanitation District of providing supplemental benefit grants to its retired employees who are members ofOCERS and their eligible survivors• and for reasonable expenses of administration of the benefit program, while minimizing employer contributions to the retirement system; and (b) to make the Sanitation District ARBA Agreement consistent with the County AREA Agreement. 4. this Agreement. Definitions. The following terms shall have the following definitions in "Additional Retiree Benefit Account" or "ARBA" is a portion of the Unallocated Fund Balance (as defined herein) originally established by the ARBA Agreement, as defined in the County ARBA Agreement, comprised of the Members' Share of Transferable Funds (as defined herein) designated to help defray the cost to the County and other.districts, including Sanitation District, of providing supplemental and other benefit grants to their retired employees who are members of OCERS and their eligible survivors, and for reasonable expenses of the employers' administration of their benefit grant program. "Employer Advance Reserves" is the reserve account in the retirement fund comprised of (a) the contributions made into the fund from time to time by the County and other employers, net of benefit payments, (b) the Employers' Share of Transferable Funds ( as defined herein), (c) the County and Employer RMBR Accounts (as defined herein), and (d) accumulated investment earnings on all of the foregoing. "Employer Advance Reserves" has the same meaning as the "County Advance Reserves" as defined in the County ARBA Agreement. "Sanitation District Members' Share of ARBA" is that portion of ARBA held for the benefit of retired employees of the Sanitation District who are members of OCERS and their eligible survivors. "Effective Date" shall have the meaning set forth in Paragraph 14 of this Agreement. "Investment Account" shall have the same meaning as set forth in the County ARBA Agreement. "Net Applicable Assets" is the total book value of assets of the retirement system Jess the Unallocated Fund Balance (as defined herein), true payables (as determined from time to time by OCERS' actuary), the Investment Account, the ARBA, and reserves established by the Board ofOCERS. "Net Unallocated Fund Balance" or "Net UFB" is the Unallocated Fund Balance (as defined herein) less amounts in the ARBA and other reserves, including the UFB Reserve (as defined herein), designated by the Board of OCERS. l0990:6318 l 65.2 -2- Book Page 50 • • "County and District RMBR Accounts" are those portions of the Employer Advance Reserves maintained exclusively for the purpose of providing a source of funding to help defray the cost to the County, the Sanitation District and other employers participating in OCERS of providing health and supp emental benefit grants to their retired employees who are members of OCERS and their eligible survivors, and for reasonable expenses of the County, and other districts' administration of their benefit grant programs. The Sanitation District's portion of the County and Employer RMBR Accounts shall be referred to herein as the "Sanitation District RMBR Account." "Una1located Fund Balance,t or "UFB" is the fund created by earnings of the retirement fund during any year in excess of (a) the total interest credited to contributions and reserves during such year, pursuant to Sections 31592 and 31592.2 of CERL, and (b) amounts determined by OCERS for deficiencies in interest earnings in other years, losses on investments and other contingencies, as provided in Sections 31592 and 31592.2. "Valuation Date" shall be the 31 st day of December each year for which OCERS' actuary prepares an annual valuation for purposes of establishing employer and employee contributions into the retirement fund, for the fiscal year commencing on the next following July 1. 5. Initial RMBR Transfer. As of the Effective Date, OCERS shall establish and maintain a Sanitation District RMBR Account as a sub-account of the Employer Advance Reserves, and shall transfer on its books the sum of $593,000 from the ARBA to the Sanitation District RMBR Account. This sum is the amount detennined by OCERS' actuary to represent three (3) years' projected costs of the portion of Sanitation District grants to be funded pursuant to this Agreement, under the Sanitation District's program of providing supplemental benefit grants to retired employees of the Sanitation District who are members of OCERS and their eligible survivors, plus reasonable expenses of the administration of the supplemental benefit program. The funds in the Sanitation District RMBR Account shall be used exclusively for the purposes and in the manner set forth in Paragraph 10, below. 6. UFB Reserve. OCERS has established a policy of maintaining a reserve against deficiencies in interest earnings in other years, losses on investments and other contingencies, as provided in Sections 31592 and 31592.2, of five percent (5%) of the Net Applicable Assets (the "UFB Reserve"). The Parties acknowledge that the Board of OCERS may change the percentage level of the UFB Reserve from time to time, and that in the event the level of UFB Reserve changes, the change shall have no effect on the other provisions of this Agreement. 10990:6318!65.2 .., -:,- Book Page 51 • • 7. Transfers to Employer Advance Reserves and ARBA. a. As of the Valuation Date each year, OCERS shall detennine, upon the advice ofits actuary, ifthere is available Net UFB in excess of funds to be transferred into the Sanitation District RMBR Account as required under Paragraph 1 Ob., below. Such available funds shall be known as the "Transferable Funds." The Transferable Funds shall be divided in the manner set forth in Paragraph 7b., below, resulting in the Sanitation District's Share of Transferable Funds and the Sanitation District Members~ Share of Transferable Funds. OCERS shall transfer on its books the Sanitation District's Share -of Transferable Funds to Employer Advance Reserves. OCERS shall transfer on its books the Sanitation District Members' Share of Transferable Funds to the Sanitation District Members' Share of ARBA. b. The Sanitation District's Share of Transferable Funds shall be detennined in the following manner: (1) First, by multiplying the Transferable Funds by a :fraction, the numerator of which is the amount of all employer contributions to OCERS during the ten (10) calendar years immediately preceding the Valuation Date, and the denominator of which is the total of all employer and emp]oyee contributions to OCERS made during the same period. The result shall be known as the "Employers' Share of Transferable Funds." The balance of Transferable Funds shall be known as the ''Members' Share of Transferable Funds." (2) Second, by multiplying the Employers' Share of Transferable Funds by a fraction, the numerator of which is the amount of all employer contributions to OCERS made by the Sanitation District during the ten (10) calendar years immediately preceding the Valuation Date, and the denominator of which is the total employer contributions to OCERS made by the County, the Sanitation District and other participating districts during the same period. The result shall be the "Sanitation District's Share of Transferable Funds" and shall be distributed as set forth in Paragraph 7a, above. c. The Sanitation District Members' Share of Transferable Funds shall be detennined by multiplying the Members' Share of Transferable Funds by a fraction, the numerator of which is the amount of all employee contributions to OCERS made by Sanitation District's employees during the ten (10) calendar years immediately preceding the Valuation Date, and the denominator of which is the total employee contributions to OCERS by the employees of the County, the Sanitation District and other participating districts during the same period. The result shall be the "Sanitation District Members' Share of Transferable Funds" and shall be transferred on OCERS: books as set forth in Paragraph 7a., above. d. The remaining, untransferred balances of the Employers' Share of Transferable Funds and the Members' Share of Transferable Funds shall be held in separate sub- accounts ofUFB, for the purpose of funding health and supplemental benefit programs administered by other districts participating in OCERS, pursuam to separate agreements to be entered into by and between such districts and OCERS. 10990:631&165.2 -4- BookPage 52 - 8. Transfers from ARBA for Retiree Supplemental Benefits. For each fiscal year in which the Sanitation District provides a program of supplemental benefits to retired employees of the Sanitation District who are members of OCERS and their eligible survivors, OCERS shall transfer on its books from ARBA into Employer Advance Reserves an amount, subject to availability, sufficient to pay for the portion of the supplemental benefit grants to be funded pursuant to this Agreement which the Sanitation District provides to retired employees of the Sanitation District who are members of OCERS and their eligible survivors, and for reasonable expenses of the administration of the supplemental benefit program during that fiscal year. 9. Interest Crediting on Accounts. OCERS shall credit interest on ARBA at the assumed rate of interest as established by OCERS from time to time, currently eight percent (8%) per annum; provided. however, that such interest is available for crediting from Net UFB. OCERS shall not credit interest on the Sanitation District RMBR Account. 10. Sanitation District RMBR Account; Shortfalli in ARBA. a. The Sanitation District RMBR Account shall be used by OCERS exclusively as a reserve against a deficiency in the Sanitation District Members' Share of ARBA. To the extent that in any fiscal year, the Sanitation District Members' Share of ARBA is insufficient or unavailable to provide the full amount required to be transferred to Employer Advance Reserves pursuant to paragraph 8, above {an "ARBA Shortfall"), OCERS shall transfer on its books an amount equivalent to the ARBA Shortfall from the Sanitation District RMBR Account to Employer Advance Reserves for the exclusive purpose as set forth in paragraph 8 above. b. As of each Valuation Date, on the advice of its actuary, OCERS shall maintain a balance in the Sanitation District RMBR Account not less than an amount determined by OCERS' actuary to represent three (3) ensuing fiscal years' worth of projected costs of the portion of the supplemental benefit grants provided by the Sanitation District to be funded pursuant to this Agreement, plus reasonable expenses of administration of the supplemental benefit program during those fiscal years (the "Safety Level.") In the event that the balance of the Sanitation District RMBR Account at any time is less than the Safety Level, OCERS shall transfer out of first available Net UFB sufficient funds to return the Sanitation District RMBR Account to the Safety Level. This transfer shall occur prior to the transfers referred to in Paragraph 7, above. 11. Shortfalls in Net Unallocated Fund Balance. As of June 30 and December 31 of any fiscal year, if OCERS' earnings are insufficient to credit the assumed rate of interest to i) all statutory reserves, such deficiency shall be made up at that time by transferring funds out of the UFB. If such transfer results in a Net UFB of less than three percent (3%) of Net Applicable Assets, then all employer contributions to OCERS shall be increased during the immediately following fiscal year by an amount which is the lesser of (a) the amount necessary to restore the Net UFB to three percent (3%) of Net Applicable Assets or (b) an amount equal to one~half of one percent (112%) of employer payroll subject to retirement contributions. 10990:6318165.2 -5- Book Page 53 - 12. Further Actions. Each Party shall take all actions and do all things? and execute, with acknowledgment or affidavit if required, any and all documents and writings, that reasonably may be necessary or proper to achieve the purposes and objectives of this Agreement and the transactions contemplated hereby. 13. Tennination Date; Renewal. a. The tenn of this Agreement shall be through and including December 31, 2007, the second anniversary of the tri-annual actuarial valuation of the retirement system performed by the system's actuary as of December 31, 2001; provided, however, that this agreement may be terminated sooner than December 31, 2007 if either the governing body of the Sanitation District or the Board of Retirement of OCERS determines, in the sole and exclusive exercise of its duties, that it does not wish this Agreement to remain in force beyond the end of the calendar year in which such determination is made. In the event of such determination, the determining body or Board shall give the other not less than 60 days written notice ip.advance of the end of that calendar year ofits desire for earlier tennination, and this Agreement shall thereafter terminate effective at midnight on December 31 of that year. b. Following the effective date of termination, (i) all funds remaining in the Sanitation District RMBR Account shall remain in that account, without further credit for interest, and shall be used for the purposes and in the manner provided for under Paragraph 10 of this Agreement after termination of this Agreement for so long as they are available; (ii) all funds remaining in the Sanitation District Members' Share of ARBA shall be deemed to be Net UFB and there shall no longer be any funds designated as Sanitation District Members' Share of ARBA; and (iii) OCERS shall have no further obligation to transfer on its books any funds pursuant to this Agreement. c. Notwithstanding the foregoing subparagraph (a), the Parties may mutually agree to extend the term ofthis Agreement in such interval(s) and upon such terms as they may later agree upon in a writing executed prior to the termination of this Agreement. 14. Effective Date, This Agreement shall be effective as of the date on which all Parties have signed this Agreement. 15. Entire Agreement. This Agreement represents the Parties' entire agreement and constitutes the only existing and binding agreement between them with respect to the matters stated herein. This Agreement supersedes any and all prior agreements, representations, promises and understandings of any kind, whether oral or written, express or implied, between the Parties regarding the subject matters of this Agreement. Nothing herein is intended to nor shall affect any party's rights and obligations under CERL. ln entering into this Agreement, each Party disclaims any reliance upon any representation, fact or opinion that is not otherwise set forth in writing in this Agreement. Each Party hereby waives any rules of interpretation or construction contained in California Civil Code § 1654. I 0990:6318165.2 -6- Book Page 54 SECOND AMENDED AND RESTATED MEMORANDUM OF UNDERSTANDING AGREEMENT RE: ADDITIONAL RETIREE BENEFIT ACCOUNT This Second Amended and Restated Memorandum of Understanding Agreement re Additional Retiree Benefit Account ("Agreement") dated ______ _, is entered into as of the Effective Date, as defined herein, by and between the Orange County Sanitation District, a public agency of the State of California ("OCSD"), and the Orange County Employees Retirement System, a public retirement system organized and existing pursuant to the provisions of the County Employees Retirement Law of 1937, as amended ("OCERS" or the "retirement system"). OCSD and OCERS are sometimes referred to herein individually as "Party" and collectively as "Parties." RECITALS A. OCERS provides and administers a program of retirement benefits for the employees and retirees of the County of Orange ("COUNTY") and certain other public agencies that participate in OCERS, including OCSD, pursuant to Government Code Sections 31450, et seq. ("CERL") and other applicable law. B. OCSD and OCERS are parties to an Amended and Restated Memorandum of Understanding Agreement re Additional Retiree Benefit Account, dated December 16, 2002, concerning the funding of a supplemental benefit program for retired employees of the OCSD who are members of OCERS, and their eligible beneficiaries, and other matters (the "2002 OCSD ARBA Agreement"). C. OCSD and OCERS wish to amend and restate the 2002 OCSD ARBA Agreement as provided for in this Agreement. AGREEMENT NOW, THEREFORE, for good and valuable consideration, the existence and sufficiency of which the Parties hereby acknowledge, IT IS HEREBY AGREED AS FOLLOWS: I . Recitals. The foregoing RECITALS are true and correct and are incorporated herein by this reference. 2. Amendment and Restatement of the ARBA Agreement. The Parties hereby agree to amend and restate the 2002 OCSD ARBA Agreement in this Agreement. This Agreement is intended to and shall supercede the 2002 OCSD ARBA Agreement in its entirety. Upon this Agreement becoming effective, the 2002 OCSD ARBA Agreement shall be null and void and of no further force or effect. -l- Book Page 56 3. Intent of this Agreement. The intent of this Agreement is to use a portion of Employer Advance Reserves (as defined herein), as authorized by Section 31592.2 of CERL, to provide a source of funding to help defray the cost to the OCSD of providing supplemental benefit grants to its retired employees who are members of OCERS and their eligible survivors, and for reasonable expenses of the OCSD's administration of the supplemental benefit program, while minimizing employer contributions to the retirement system. 4. this Agreement. Definjtions. The following terms shall have the following definitions in "Additional Retiree Benefit Account" or "ARBA" is a portion of the Unallocated Fund Balance (as defined herein) originally established by the ARBA Agreement, comprised of the Members' Share of Transferable Funds (as defined herein) designated to help defray the cost to the COUNTY and other districts, including OCSD of providing health or supplemental benefit grants to their retired employees who are members of OCERS and their eligible survivors, and for reasonable expenses of the employer's administration of its health or supplemental benefit grant program. "Employer Advance Reserves" is the reserve account in the retirement fund comprised of (a) the contributions made into the fund from time to time by the COUNTY and other districts, including OCSD, net of benefit payments, (b) the Employers' Share of Transferable Funds (as defined herein), (c) the RJ\.1BR Account (as defined herein), and (d) accumulated investment earnings on all of the foregoing. "OCSD Members' Share of ARBA" is that portion of ARBA held for the benefit of retired employees of the OCSD who are members of OCERS and their eligible survivors. "Effective Date" shall be the latter of the dates on which the duly authorized signatories for the OCSD and OCERS have executed this Agreement. "Investment Account" shall have the meaning established by the Investment Account Agreement, as defined in the Master Settlement Agreement between the COUNTY and OCERS dated August 27, 2002. "Net Applicable Assets" is the total book value of assets of the retirement system less the Unallocated Fund Balance (as defined herein), true payables (as determined from time to time by OCERS' actuary), the Investment Account, the ARBA, and reserves established by the Board ofOCERS. "Net Unallocated Fund Balance" or "Net UFB" is the Unallocated Fund Balance ( as defined herein) less amounts in the ARBA and other reserves, including the UFB Reserve ( as defined herein), designated by the Board of OCERS. "RMBR Accotmf' is a portion of the Employer Advance Reserves established by this Agreement and maintained exclusively for the purpose of providing a source -2- BookPage 57 of funding to help defray the cost to the COUNTY and other districts, including OCSD of providing health or supplemental benefit grants to its retired employees who are members of OCERS and their eligible survivors, and for reasonable expenses of the COUNTY, and other districts' administration of their health or supplemental benefit grant program. "Unallocated Fund Balance" or "UFB" is the fund created by earnings of the retirement fund during any year in excess of (a) the total interest credited to contributions and reserves during such year, pursuant to Sections 31592 and 31592.2 of CERL, and (b) amounts determined by OCERS for deficiencies in interest earnings in other years, losses on investments and other contingencies, as provided in Sections 31592 and 31592.2. "Valuation Date" shall be the 31 st day of December each year for which OCERS' actuary prepares an annual valuation for purposes of establishing employer and employee contributions into the retirement fund, for the fiscal year commencing on the next following July 1. 5. Initial RMBR Transfer. Pursuant to the 2002 OCSD ARBA Agreement, OCERS established and now maintains an RMBR Account as a sub-account of the Employer Advance Reserves. The funds in this account were originally intended to represent the amount determined by OCERS' actuary to be three (3) years' projected costs of the portion of grants to be funded pursuant to this Agreement, under the OCSD's program of providing supplemental benefit grants to retired employees of the OCSD who are members of OCERS and their eligible survivors, plus reasonable expenses of the OCSD's administration of the supplemental benefit program. The funds in the RMBR Account shall be used exclusively for the purposes and in the manner set forth in Paragraph 10, below. 6. UFB Reserve. OCERS has established a policy of maintaining a reserve against deficiencies in interest earnings in other years, losses on investments and other contingencies, as provided in Sections 31592 and 31592.2, of five percent (5%) of the Net Applicable Assets (the "UFB Reserve"). The Parties acknowledge that the Board of OCERS may change the percentage level of the UFB Reserve from time to time, and that in the event the level ofUFB Reserve changes, the change shall have no effect on the other provisions of this Agreement. 7. Transfers to Employer Advance Reserves and ARBA. a. As of the Valuation Date each year, OCERS shall determine, upon the advice of its actuary, if there is available Net UFB in excess of funds to be transferred into the OCSD RMBR Account as required under Paragraph 1 Ob., below. Such available funds shall be known as the "Transferable Funds." The Transferable Funds shall be divided in the manner set forth in Paragraph 7b., below, resulting in the OCSD's Share of Transferable Funds and the OCSD Members' Share of Transferable Funds. OCERS shall transfer on its books the OCSD's Share of Transferable Funds to Employer Advance Reserves. OCERS shall transfer on its books the OCSD Members' Share of Transferable Funds to the OCSD Members' Share of ARBA. -3- BookPage 58 b. The OCSD's Share of Transferable Funds shall be determined in the following manner: (1) First, by multiplying the Transferable Funds by a fraction, the numerator of which is the amount of all employer contributions to OCERS during the ten (10) calendar years immediately preceding the Valuation Date, and the denominator of which is the total of all employer and employee contributions to OCERS made during the same period. The result shall be known as the "Employers' Share of Transferable Funds." The balance of Transferable Funds shall be known as the "Members' Share of Transferable Funds." (2) Second, by multiplying the Employers' Share of Transferable Funds by a fraction, the numerator of which is the amount of all employer contributions to OCERS made by the OCSD during the ten (10) calendar years immediately preceding the Valuation Date, and the denominator of which is the total employer contributions to OCERS made by the COUNTY and other participating districts, including OCSD, during the same period. The result shall be the "OCSD's Share of Transferable Funds" and shall be distributed as set forth in Paragraph 7a., above. c. The OCSD Members' Share of Transferable Funds shall be determined by multiplying the Members' Share of Transferable Funds by a fraction, the numerator of which is the amount of all employee contributions to OCERS made by OCSD employees during the ten (10) calendar years immediately preceding the Valuation Date, and the denominator of which is the total employee contributions to OCERS by the employees of the COUNTY and other participating districts, including OCSD, during the same period. The result shall be the "OCSD Members' Share of Transferable Funds" and shall be transferred on OCERS' books as set forth in Paragraph 7a., above. d. The remaining, untransferred balances of the Employers' Share of Transferable Funds and the Members' Share of Transferable Funds shall be held in separate sub- accounts of UFB, for the purpose of funding health and other benefit programs administered by other districts participating in OCERS, pursuant to separate agreements to be entered into by and between such districts and OCERS. 8. Transfers from ARBA for Retiree Supplemental Benefits. For each fiscal year in which the OCSD provides a program of supplemental benefits to retired employees of the OCSD who are members of OCERS and their eligible survivors, OCERS shall transfer on its books from ARBA into Employer Advance Reserves an amount, subject to availability, sufficient to pay for the portion of the supplemental benefit grants to be funded pursuant to this Agreement which the OCSD provides to retired employees of the OCSD who are members of OCERS and their eligible survivors, and for reasonable expenses of the OCSD's administration of the supplemental benefit program during that fiscal year. 9. Interest Crediting on Accounts. OCERS shall credit interest on ARBA at the assumed rate of interest as established by OCERS from time to time, currently seven and -4- Book Page 59 three quarters percent (7.75%) per annum; provided~ however, that such interest is available for crediting from Net UFB. OCERS shall not credit interest on the OCSD RMBR Account. 10. OCSD RMBR Account Shortfalls in ARBA. a. The OCSD RMBR Account shall be used by OCERS exclusively as a reserve against a deficiency in the OCSD ARBA. To the extent that in any fiscal year, the OCSD ARBA is insufficient or unavailable to provide the full amount required to be transferred to Employer Advance Reserves pursuant to paragraph 8, above (an "ARBA Shortfall"), OCERS shall transfer on its books an amount equivalent to the ARBA Shortfall from the OCSD RMBR Account to Employer Advance Reserves for the exclusive purpose as set forth in paragraph 8 above. b. As of each Valuation Date, on the advice of its actuary, OCERS shall maintain a balance in the OCSD RMBR Account not less than an amount determined by OCERS' actuary to represent funds sufficient for the portion of the supplement benefit grants provided by OCSD to be funded pursuant to this Agreement, through the termination date of this agreement, (the "Safety Level"). In the event that the balance of the OCSD RMBR Account at any Valuation Date is less than the Safety Level, then OCSD contributions to OCERS shall be increased by an amount necessary to restore the OCSD RMBR Account to the Safety Level. The increased contributions shall be credited to the OCSD RMBR Account. 11. Shortfalls in Net Unallocated Fund Balance. As of June 30 and December 31 of any fiscal year, if OCERS' earnings are insufficient to credit the assumed rate of interest to all statutory reserves, such deficiency shall be made up at that time by transferring funds out of the UFB. 12. Amortization of Liabilities. OCSD acknowledges that OCERS has the authority under law to establish amortization periods for the funding of liabilities of the retirement system, and those amortization periods may differ depending upon the types of liabilities created from time to time. 13. Further Actions. Each Party shall take all actions and do all things, and execute, with acknowledgment or affidavit if required, any and all documents and writings that reasonably may be necessary or proper to achieve the purposes and objectives of this Agreement and the transactions contemplated hereby. 14. Tenrunation Dat-e~ Renewal. a. The term of this Agreement shall be through and including December 31, 2006, except as follows: b. OCSD shall be granted one optional extension of the termination date of this Agreement up through and including December 31, 2007, by providing written notice in advance of December 31, 2006 of its desire to extend the termination date. Should this extension be exercised, this agreement may be terminated sooner than December 31, 2007 if either the -5- Book Page 60 Governing Body of the OCSD or the Board of Retirement of OCERS determines, in the sole and exclusive exercise of its duties, that it does not wish this Agreement to remain in force. In the event of such determination, the determining Board or Body shall give the other Board or Body not less than 60 days written notice in advance of the requested termination date. c. Following the effective date of termination, no further interest will be credited to the funds in the OCSD Members' Share of ARBA and all funds remaining in the OCSD RMBR Account shall be credited against future OCSD contributions toward other retirement benefits or returned to OCSD. d. Notwithstanding the foregoing subparagraph (a) and (b), the Parties may mutually agree to extend the term of this Agreement in such interval(s) and upon such terms as they may later agree upon in a writing executed prior to the termination of this Agreement. 15. Entire Agreement. This Agreement represents the Parties' entire agreement and constitutes the only existing and binding agreement between them with respect to the matters stated herein. This Agreement supersedes any and all prior agreements, representations, promises and understandings of any kind, whether oral or written, express or implied, between the Parties regarding the subject matters of this Agreement. Nothing herein is intended to nor shall affect any party's rights and obligations under CERL. In entering into this Agreement, each Party disclaims any reliance upon any representation, fact or opinion that is not otherwise set forth in writing in this Agreement. Each Party hereby waives any rules of interpretation or construction contained in California Civil Code § 1654. 16. Survival. The terms and conditions of Paragraphs 6, 10.b., 11, 12, 14.c., 15, 16 and 18 of this Agreement shall survive its termination. 17. Modification. This Agreement may not be modified, altered, amended or otherwise changed in any respect except by a writing duly executed and signed by each Party. 18. Authority to Execute Agreement. Each Party represents and warrants that the person executing this Agreement on its behalf as indicated below has full power and authority to do so. (GOVERNING BODY OF DISTRICT) BOARD OF RETIREMENT OF THE ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM By: --------------By:--------------- Chair, Board of Retirement Ch air, Board of Supervisors Dated: _______ , 2006 Dated: 2006 -6- Book Page 61 _______ _, APPROVED AS TO FORM: (COUNSEL FOR DISTRICT) APPROVED AS TO FORM: ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM By: ___________ _ By: ___________ _ Julie E. Wyne Attorneys for the _____ _ Dated: , 2006 ------- Dated: , 2006 -7- Book Page 62 ------- FAHR COMMITTEE Meeting Date To Bd. of Dir. 05/10/06 AGENDA REPORT Item Number Item Number FAHR06-40 Orange County Sanitation District FROM: Lorenzo Tyner, Director of Finance/Treasurer SUBJECT: 2006-07 AND 2007-08 DISTRICT BUDGET GENERAL MANAGER'S RECOMMENDATION Informational item. SUMMARY For continued discussion of the OCSD 2006-07 and 2007-08, copies of materials presented at the April 19, 2006, Finance, Administration and Human Resources (FAHR) Committee meeting have been attached. These materials provide line item detail for the operating budget. The budget will be presented for adoption at the June 28, 2006, Board meeting. PRIOR COMMITTEE/BOARD ACTIONS N/A PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT D This item has been budgeted. (Line item: ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. IZ] Not applicable (information item) ADDITIONAL INFORMATION H;\dept\agenda\FAHRIFAHR2006\0506\06,06-40.Budget Detail,doc Revised; 01/04/06 Book Page 63 Page 1 N/A ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS 1. 2006-07 and 2007-08 Budget Development-Additional Detail 2. 2006 and 2007 Budget Summary H:ldept\agenda\FAHRIFAHR2006\0506106.06-40.Budget Detail.doc R9Vised: 01/04/06 Book Page 64 Page2 2006-07 AND 2007-08 BUDGET DEVELOPMENT -ADDITIONAL DETAIL 1) SALARIES AND WAGES 2006-07 $55.5 2007-08 $55.4 1 a) Regular Salaries $52.0 $52.0 • Includes salaries for 644 FTE as well as for Director's pay. • Vacancy factor set at 5% based on trend information. • A list of proposed positions has been provided as Attachment A. • The average employee salary is approximately $81,500, an increase of $3,000 as a result of projected range adjustments and step increases. 1 b) Overtime $1.9 $1.9 Overtime increases by $200,000 over 2005-06 due to wage rates and workload. $1.3 million of this budget is in Operations and Maintenance primarily for required overtime as the plants are in operation 24/7 (vacation, sick, shift over lap), emergencies, unscheduled maintenance, backlog and off shift construction support. The remaining $600,000 is budgeted in the other units and remains flat. 1 c) Leave Payoffs $1.6 $1.5 As a result of pending retirements, it is anticipated this number will remain flat. 2) BENEFITS $19.2 $20.9 2a) Orange County Employees Retirement System $12.0 $12.8 District employees are members of the Orange County Employees' Retirement System (OCERS). Preliminary information from OCERS indicates that an increase in rates is expected. The employer's required contribution rate has been increased from 15.31% to 20.65%. In addition, the District pays 3.5% on behalf of each employee. 2b) Group Insurance $ 6.6 $ 7.3 Includes Medical, Dental, Vision, Life Insurance, Medicare, Disability. OCSD will budget approximately $10,500 per employee, an estimated 9% increase over the prior year's group insurance costs. 2c) Other $ 0.6 $ 0.8 Includes Workers' Compensation, Tuition Reimbursement, and Uniform Rental. Workers Compensation ($300K) -This item is used to maintain the level of accumulated reserves within the workers' compensation self-insurance funds. 1 Book Page 65 2006-07 AND 2007-08 BUDGET DEVELOPMENT-ADDITIONAL DETAIL 3) OPERATING EXPENSES 3a) Disinfection 2006-07 $22.6 $ 8.7 2007-08 $26.4 $11.0 The largest cost related to Disinfection is for chemicals, specifically bleach. Sodium Hypochlorite (Bleach) -Over 98% of the bleach is used for effluent disinfection. The remaining bleach usage is for odor control, disinfection of plant water, and the control of filamentous organisms in activated sludge in the secondary treatment process. It is anticipated that the District will use 9.2 million gallons and 10.8 million gallons of bleach in 2005-06 and 2006-07 respectively. Reasons for the 18% increase in 2006/07 bleach usage are as follows: • More construction shutdowns i!l FY 2006/07 will require more bleach. • An increase in the chlorine residual buffer capacity is necessary to reduce the coliform spikes caused from interruptions in normal operations during construction events. Recent negotiations with suppliers resulted in a limited increase in the unit cost for bleach in FY 2006-07 to 1.5 percent over the prior year. Sodium Bisulfite -Sodium bisulfite is used for dechlorination of outfall effluent to ensure that no residual chlorine is discharged into the ocean. It is anticipated that the District will use 600,000 gallons and 650,000 gallons of sodium bisulfite in 2005/06 and 2006/07 respectively. This increase is caused by increasing the chlorine residual buffer capacity to decrease coliform spikes and increasing bleach use for construction events. The estimated cost increase is a result of an anticipated 17% increase in unit cost. 2 Book Page 66 2006-07 AND 2007-08 BUDGET DEVELOPMENT-ADDITIONAL DETAIL 3b) Chemical Coagulants 2006-07 $5.7 2007-08 $6.3 Anionic Polymer-Anionic polymer is added to the primary clarifiers in combination with ferric chloride to enhance primary clarifier performance. The projected usage for FY 2005/06 is 126,000 active pounds at a cost of $310,000. The estimated anionic polymer use for FY 2006/07 is 150,000 active pounds at a cost of $385,500. The increased usage is due to switching to a solution polymer that will offer better performance and will be used in all basins at Plant No. 2. The cost increase is due to the increased usage and expected increase in the unit cost. Cationic Polymer -Cationic polymer is added to digested sludge prior to dewatering in order to improve the sludge and water separation process. Cationic polymer is also added to the waste activated sludge dissolved air flotation thickeners (DAFTs) to improve solid(s) coagulation. Solution polymer will be used in the DAFTs at Plant No. 1 while Mannich polymer will be used in dewatering at Plant No. 1. Mannich polymer is used in both the DAFTs and dewatering at Plant No. 2. Approximately 25% of total polymer used for both plants is solution, and the remaining 75% of polymer used is Mannich. The cationic polymer usage for FY 2005/06 is projected to be 800,000 active pounds at a cost of $1,100,000. During FY 2006/07, the usage is expected to increase to 900,000 active pounds to handle increased solids production from secondary treatment at a cost of $1,440,000. Ferric Chloride -Ferric chloride is an iron salt which is currently used to increase the solids removal efficiencies in the primary treatment process and to control digester hydrogen sulfide. As the amount of ferric chloride is optimized in primary treatment an additional amount of ferric chloride will be added to the digesters to control hydrogen sulfide. The projected ferric chloride usage for FY 2005/06 is 10,000 dry tons which is a 14% decrease from FY 2004/05 budget. The estimated cost for FY 2005/06 is $3,893,000. The projected ferric chloride usage for FY 2006/07 is 8,500 dry tons, a 15% reduction from FY 2004/05. The estimated cost for FY 2006/07 is $3,893,000 and includes a 25% increase in the unit cost. 3 Book Page 67 2006-07 AND 2007-08 BUDGET DEVELOPMENT-ADDITIONAL DETAIL 3c) Odor Control 2006-07 $5.6 2007-08 $6.6 Hydrogen Peroxide -Hydrogen peroxide is principally used in the trunk sewers for control of sulfides, and some is used in the foul air scrubbers to control hydrogen sulfide. The projected usage in the treatment plants for FY 2005/06 is approximately 850,000 gallons with an estimated cost of $1.3 million. Sulfide and odor control is dependent upon several factors including water temperature, pH of the water and level of upstream treatment and maintenance. Assuming 2005/06 environmental conditions with unchanged levels of upstream chemical treatment, hydrogen peroxide usage for FY 2006/07 is estimated at 900,000 gallons at a cost of $1.5 million ($1.2 million and $0.3 million for Plants No. 1 and No. 2 respectively). Sodium Hydroxide (Caustic Soda) -Sodium hydroxide (caustic soda) is used in the foul air scrubbers and in the Districts' main trunk lines tributary to the treatment plants. It is estimated that the Districts will use 510 dry tons of caustic soda in the scrubbers during the current year and 360 dry tons of chemical are projected to be used in the trunk lines. In treating the trunk sewers for sulfides, it has been determined that 40% of the associated costs should be allocated to the Joint Operating budget rather than the District. Therefore, the projected cost of caustic soda allocated to the Joint Operating budget for FY 2005/06 is $321,000. For FY 2006/07, staff projects the treatment plant portion to be 727 dry tons at a cost of $357,000. The collection system's portion is projected to be 230 dry tons at a cost of $107,000 for a total caustic budget of $464,000. Muriatic Acid -Muriatic Acid (hydrochloric Acid) is used to backwash the media in the foul air scrubbers, associated piping and pumps. This cleans deposits caused by hard water, sulfides from the reaction with the foul air, and caustic soda used in the scrubbing process. The projected usage for FY2005/06 is 45,000 gallons at a cost of $37,000. The 2006/07 anticipated use is 57,600 gallons with a budgeted amount of $50,000. Odor Neutralizers -Odor neutralizers are used in the solids processing facilities of both plants to mask the odors from the processed biosolids as they are loaded into the trucks for reuse. In FY 2005/06, the estimated budget is $15,000 for approximately 70 gallons of highly concentrated solution. Over 80% of the chemical neutralizer is used at Plant No. 2. During FY 2006/07, the anticipated usage is 145 gallons at a cost of $31,000. Peroxide Regenerated Iron for Sulfide Control (PRISC) This covers chemicals, tanks, pumps and servicing for continuous treatment for odor control for 3 trunklines. It includes 3 dosing locations for ferrous chloride and 3 dosing locations for hydrogen peroxide ($2.5 million). Magnesium Hydroxide -Trunklines This includes chemicals for continuous odor control treatment for the Newport Beach trunkline, the chemical, tank, pumps and equipment servicing ($629K). 4 Book Page 68 2006-07 AND 2007-08 BUDGET DEVELOPMENT-ADDITIONAL DETAIL 3d) Supplies 2006-07 $1.0 2001 .. 08 $1.0 Other supplies budgeted in Technical Services ($635K) include: • Laboratory glassware (various: test tubes, beakers, flasks, specialty sample collection vessels) • Filtration devices (papers, filter holders, vacuum pumps, etc.) • Solvents for used for organic extraction • Acids and bases used in metals digestion • Reagents used in setting up each specific test (about 100 test types) • A wide variety of standards used in quality assurance of the tests. These include air standards, organic standards, standards for metals, weight standards. • Laboratory specialty gases include nitrogen, oxygen, argon, helium, acetylene, hydrogen, hydrogen sulfide, methane • Disposable items in microbiology used in the culture, enumeration and identification of bacteria • Microbiology growth media • Pipettes, disposable pipette tips, plastic tubing, sample vials, chromatography columns, replacement liners for chromatography, labels for samples, paper for reports, notebooks • Purchase of test organisms for bioassay, toxicity • The laboratory performs about 110,000 tests annually at approximately $5.75 per test. 3e) Tools $0.9 $0.8 Tools and equipment that cost less than $5,000, have a minimum useful life of three years, and are not considered to be capital. 3f) Gas, Diesel and Oil $0.6 $0.6 Gasoline, compressed natural gas, diesel, and oil used in the operation of the mobile equipment, within generators and other operating equipment. 3g) Other $0.1 $0.1 Other smaller operating expenses collectively reported within this one line item. 5 Book Page 69 2006-07 AND 2007-08 BUDGET DEVELOPMENT-ADDITIONAL DETAIL 4) CONTRACTUAL SERVICES 4a) Solids Removal 2006-07 $17.3 $12.8 2007-08 $17.9 $13.4 Biosolids -The FY 2005/06 biosolids hauling and land application budget is $10 million. At the current rate of expenditure, the FY 2005/06 expenses may exceed the budget by approximately $800,000. Estimated biosolids for the current fiscal year is 250,000 tons. The FY 2005/06 budget was estimated using a hauling and land application cost per ton of $40. In FY 2006/07, biosolids production at Plant No. 1 is assumed to increase by 7%. Plant No. 2 biosolids production is expected to remain similar to FY 2005/06. The total estimated biosolids production for both plants is 261,000 tons for FY 2006/07. The total estimated budget for biosolids reuse will increase by 23%, to $12,320,000. The high increase in the biosolids budget is due to the increase in biosolids reuse costs. The biosolids reuse cost was estimated to be $4 7 .19 for FY 2006/07. In FY 2007/08, biosolids production at Plant No. 1 is assumed to increase by 11%. Plant No. 2 biosolids production is expected to remain similar to FY 2006/07. The total estimated biosolids production is 268,000 tons for FY 2007/08. The total estimated budget for biosolids reuse will increase by 16%, to $14,330,000. This significant increase is due to the anticipated change in land application facilities, and the subsequent unit price increases at these facilities. The cost per ton for biosolids reuse was estimated to be $53.48 for FY 2007/08. 4b) Grounds keeping/Janitorial/Security $1.0 $1.0 This line item represents the total of the District's individual contracted services object accounts for grounds keeping, janitorial, and security services. 4c) Other Waste Disposal $0.6 $0.7 Other Waste Disposal-is primarily made up of Grit and Screenings costs. The Grit and Screening budget includes supplying bins to collect then haul and dispose of grit, screenings, and drying bed material to a landfill. The grit is generated from the grit chambers, and the screenings is the material collected off the bar screens. Drying bed material is typically made up of the material cleaned out of pipes in the collection system by District's crews and other city crews in the District's service area. The District is in the process of bidding out a new contract that may significantly affect the total cost of the grit and screenings budget. The proposed budget for FY 2006/07 is based on a projected flow of 245 MGD with a 4% inflation factor. The proposed budget for FY 2006/07 is $446,000. The budget for FY 2007/08 is based on a flow of 250 MGD with a 4% inflation factor. The proposed budget for FY 2007/08 is $473,000. 6 Book Page 70 2006-07 AND 2007-08 BUDGET DEVELOPMENT-ADDITIONAL DETAIL 4d) Outside Lab Services $0.3 $0.2 The District contracts out certain laboratory services that are not cost efficient to perform in-house. Examples include bio-solids testing and hi-resolution mass spectroscopy. The first requires registration and certification which is cheaper to contract out as opposed to hiring and obtaining the skills required to do in-house. The second would require over a one million in equipment and facilities to complete in- house as opposed to the $20,000 to $30,000 required to complete through an outside laboratory. 4e) Oxygen Plant Operations $0.4 $0.4 The District is required to purchase oxygen for plant operations during plant facility shutdowns as a result of the current construction activity. 4f) Temporary Services $0.3 $0.4 Temporary services are used agency-wide as a stop gap measure for unplanned terminations of essential staff members as well as for short term projects that require additional staffing resources. 4g) County Service Fee $0.5 $0.5 The County Service Fee is the fee charged by the County of Orange for the inclusion of the District's sanitation fees on the County of Orange Property Tax Bill and for the collection of these fees by the County on behalf of the District. 4h) Other $1.4 $1.3 Other smaller contractual services collectively reported within this one line item. 7 Book Page 71 2006-07 AND 2007-08 BUDGET DEVELOPMENT-ADDITIONAL DETAIL 6) UTILITIES 6a) Power 2006-07 $8.8 $6.2 2007-08 $9.1 $6.4 Electricity -The estimated consumption and resulting costs for electrical energy purchased from Southern California Edison for FY 2006/07 is shown below and totals $5,565,000. This budgetary number contains no contingency and excludes the electricity requirements of all pump stations. The FY 2006/07 proposed budget is 200% higher than the FY 2004/05 budget. The budget reflects an increase in energy imports because of reduced electrical power production at the District's Central Generation Facilities (CenGen), and a substantial (30%) increase in Edison rates. CenGen production has been reduced to meet new air emissions limits. The estimated consumption values are based on the actual values experienced for FY 2005/06 as shown the following table: Item Plant No. 1 Energy Charges Plant No. 2 Energy Charges Plant No. 1 Demand Charges Plant No. 2 Demand Charges Plant No. 1 Fixed Charges Plant No. 2 Fixed Charges Plant No. 1 Control Center Total Plants Laboratory Administration Building Total FY 2006/07 Estimated Consumption (kWh/year) 22,400,000 14,600,000 0 2,660,000 904,000 12,260,000 9 Book Page 73 Proposed Budget Cost per kWh Value @$0.09 $2,016,000 @$0.08 $1,168,000 $ 942,000 $ 442,000 $ 370,000 $ 162,000 @$0.13 $ 1,000 $5,101,000 @$0.12 $ 319,000 @$0.16 $ 145,000 $5,565,000 2006-07 AND 2007-08 BUDGET DEVELOPMENT-ADDITIONAL DETAIL 6b) Water 2006-07 $1.4 2007-08 $1.5 Green Acres Project (Gap) Water -GAP water is made up of secondary treated effluent from the District that is further treated by the Orange County Water District. GAP water is significantly less expensive then potable water and is used in the process wherever possible. The major uses of GAP water include cooling water, solids handling, and landscaping. The projected budget for FY 2006/07 is $1,012,000 and includes a 2% increase in usage and a 2.5% increase in the rate (2.5% maximum). The projected budget for FY 2007/08 is $1,058,000 and includes a 2% increase in usage and 2.5% increase in the rate. Potable Water -The potable water budget includes the water supplied by the City of Fountain Valley for Plant No. 1 and the City of Huntington Beach for Plant No. 2. Approximately 5% of the potable water at Plant No. 1 is used for domestic uses and less than 1 % is used for irrigation. The majority of the irrigation at both plants uses reclaimed water. Less than 1 % of the potable water used at Plant No. 2 is for domestic uses due to the relatively small number of people at Plant No. 2. The proposed budget for FY 2006/07 is based on the projected budget for FY 2005/06 with a 4% increase in both usage and cost per unit (100 cubic feet). The proposed total potable water cost for FY 2006/07 is $385,000. The proposed budget for FY 2007/08 is based on the proposed budget for FY 2006/07 with a 4% increase in both usage and cost per unit. The proposed budget for FY 2007/08 is $415,000. 6c) Natural Gas $1.0 $1.0 Natural Gas -The District's budget for natural gas is $1,000,000 for FY 2006/07 and $1,040,000 for FY 2007/08. This level should be adequate to cover projected use at the predicted natural gas commodity prices. The estimated natural gas to be purchased from SoCalGas and a gas marketer for Treatment Plant Nos. 1 and 2 for FY 2006/07 is shown below. The "core subscription" is natural gas purchased directly from the Gas Company and used mainly for building heating. The natural gas used for central generation is purchased from a gas marketer, Occidental Energy, and transported through the Gas Company conveyance system at an average cost of $0.10/therm. This total budget is 60% less than last year's budget of $2,447,100. This reflects the reduced level of production planned for the generating facilities and is slightly balanced by the forecast higher price for gas as described in the discussion of the gas market below. 10 Book Page 74 2006-07 AND 2007-08 BUDGET DEVELOPMENT-ADDITIONAL DETAIL Natural Gas FY 2006/07 User Estimated Consumption Plant No. 1 Core Subscription 70,000 therms Plant No. 1 Central Generation 310,000 therms Plant No. 2 Core Subscription 25,000 therms Plant No. 2 Central Generation 660,000 therms Total 1,065,000 therms 6d) Telephone The telephone expense is essentially unchanged 11 Book Page 75 Cost Per Total Cost Therm $1 . 1 0/therm $ 75,000 $0. 925/therm $ 287,000 $1.10/therm $ 28,000 $0.925/therm $ 610,000 $1,000,000 $0.2 $0.2 2006-07 AND 2007-08 BUDGET DEVELOPMENT-ADDITIONAL DETAIL 7) PROFESSIONAL SERVICES 7a) Legal Services 2006-07 $3.6 $0.5 Legal services are the services provided by General Counsel. 7b) Engineering Services $0.5 2007-08 $3.0 $0.5 $0.5 These engineering services are generally required to support the District's regional assets and services. 7c) Audit and Accounting $0.3 $0.3 These services represent the cost for the District's independent annual financial audit and contracted internal auditing services. 7d) Environmental and Scientific Consulting $0.2 $0.2 These consulting services support the ocean monitoring program, the fats, oil, and grease inspections and monitoring program, and watershed management initiatives. 7e) ERP Support and Software Programming $0.4 $0.4 These support costs are required to maintain the District's enterprise resource planning software applications that include human resources, payroll, general ledger and financial reporting, budgeting, fixed assets, accounts payable, accounts receivable, purchasing, inventory, and contract administration applications. 7f) Advocacy Efforts $0.3 $0.3 These costs are necessary to promote the District's interests in Sacramento and Washington D.C. 7g) Other $1.4 $0.8 Other smaller professional services collectively reported within this one line item. 12 Book Page 76 2006-07 AND 2007-08 BUDGET DEVELOPMENT-ADDITIONAL DETAIL 8) CAPITAL GRANTS TO MEMBER AGENCIES Sa) Cooperative Projects 2006-07 $2.5 $2.5 2007-08 $2.5 $2.5 The Cooperative Projects Grants Program co-funds projects sponsored by a member agency to eliminate or reduce inflow and/or infiltration of storm water and groundwater from local wastewater collection lines and to repair or replace poor performing, aging local wastewater collection system infrastructure. The District will fund projects by contributing up to fifty percent matching funds against a member agencies contribution to an eligible project. All member agencies of the District are eligible to participate in this program. For FY 2006-07, up to a total of $2.5 million in District funds are available to match member agency funds. Under this program, the total amount for outstanding obligations has been capped at $7.5 million. Total Cooperative Project Grants Program Outstanding Obligation-$3.4 million Pending Project Approvals: 1.5 million Total Projected Obligation as of 7/1/06 4.9 million Annual cash flow budget = $2.5 million with a $7 .5 million overall cap 9) OTHER MATERIAL, SUPPLIES AND SERVICES 9a) Property and General Liability Insurance $2.2 $1.5 $2.7 $2.0 The District's outside excess general liability insurance coverage is $25 million with a self-insurance retention of $250,000. The District's property insurance coverage of $1 billion for perils other than flood and fire and $300 million for flood is subject to self-insurance retention of 5 percent per unit of insurance up to $25,000 for fire and $100,000 for flood. The District is totally self- insured for earthquake. An appropriation of $1.5 million for in lieu premium contribution charged to operations is recommended for the General Liability Fund. This will serve to maintain the reserves balance. 9b) Regulatory Operating Fees $0.4 $0.4 Payments to South Coast Air Quality Management District for operating permit fees. 9c) Other $0.3 $0.3 Other material, supplies, and services collectively reported within this one line item. 13 Book Page 77 2006-07 AND 2007-08 BUDGET DEVELOPMENT-ADDITIONAL DETAIL 10) TRAINING AND MEETINGS 1 0a) Training 2006-07 $1.4 $1.0 2007-08 $1.4 $1.0 An amount equal to approximately 2% of the Regular Salaries budget is allocated to Training. Training activities are coordinated though the Human Resources Department. This category includes ongoing technical training and materials for staff; expansion of the supervisory training program, required training for computerized plant monitoring and control systems and training to allow for a more adaptive and flexible work force. 10b) Meetings $0.4 $0.4 The General Manager has reviewed all meeting request budgets for necessity, duplication, and redundancy and has limited this amount to a responsible level. 11) RESEARCH AND MONITORING 11 a) Environmental Monitoring 2006-07 $1.3 $0.7 2007-08 $1.4 $0.8 The budget line item for "Environmental Monitoring" includes costs associated with the District's National Pollution Discharge Elimination System (or NPDES) permit-required ocean monitoring program. This program consists of three elements, Core Monitoring, Strategic Process Studies, and Regional Monitoring. Core Monitoring represents routine, long-term sampling that is used to determine compliance with permit criteria and to determine changes in the coastal ocean over time. Strategic Process Studies are non-routine studies that address specific ocean processes or emerging issues that are not readily answered by the Core Monitoring program element. These studies are developed by District staff and approved and incorporated into our permit by the US Environmental Protection Agency, Region IX and Regional Water Quality Control Board, Region 8. Regional Monitoring occurs every 4-5 years and samples the coastal ocean from Point Conception in the north to the US-Mexico Border in the south. This is a cooperative, multi-agency effort; most recently, it included 65 other agencies and organizations. In addition to the funds needed to conduct the permit- required ocean monitoring program, Environmental Monitoring also includes operating funds for the District's ocean monitoring vessel, the MN Nerissa." 14 Book Page 78 2006-07 AND 2007-08 BUDGET DEVELOPMENT -ADDITIONAL DETAIL 11 b) Air Quality Monitoring 2006-07 $0.2 2007-08 $0.2 Periodic monitoring and analysis is required air emission testing from various sources including the central generation facilities, validation of emissions from continuous monitoring equipment, source testing after CIP installation/modification (i.e. P1 trickling filters, P1 primary basin install and modifications, etc.). In addition, there is a requirement to test the waste gas flares in FY 06-07. 11 c) Other Research $0.4 $0.4 OCSD contributes annually to research organizations such as the Southern California Coastal Water Research Project and the Water Environmental Research Foundation. 12) ADMINISTRATIVE EXPENSE 12a) Small Computer Items $1.3 $0.6 $1.3 $0.5 In 1999, OCSD consolidated the budget for all non-CIP Office Automation and Small Computer items into a single line item. A baseline figure ($200,000.00) was established based on the routine procurement of items mentioned below: New Computers/NotebooksfTablets, printers, monitors, Networking equipment, Computer peripherals, Digital equipment, PDAs, Digital Cameras, etc. This budget proposes an additional $300,000 for: • Annual PC Obsolescence Program -$175,000 • Annual Printer Obsolescence Program -$20,000 • Annual Laptop Obsolescence Program -$60,000 • Process SCADA Equipment Obsolescence Program -$30,000 • Ergonomic Monitor Replacements -Requested by Safety $38,000 • Infrared lighting for security cameras -$6,000 • Remote connectivity wireless equipment-$20,000 • Desktop hardware/software for 8 NEW IPMC Personnel -$35,000 12b) Memberships $0.4 $0.4 The General Manager has reviewed all membership request budgets for necessity, duplication, and redundancy and has limited this amount to a responsible level. OCSD's largest membership costs are for district-wide participation in groups such as the National Association of Clean Water, the Orange County Business Council, the California Association of Sanitation Agencies, the Southern California Alliance of Publicly Owned Treatment Works, the Association of California Water Agencies, and the Center for Demographic Research. 15 Book Page 79 2006-07 AND 2007-08 BUDGET DEVELOPMENT -ADDITIONAL DETAIL 2006-07 2007-08 12c) Office Supplies $0.1 $0.1 Office supplies include such items as envelopes, letterhead, notebooks, calendars, business cards, pens, and pencils, etc. 12d) Other $0.2 $0.3 Other smaller administrative expenses collectively reported within this one line item. 13) OTHER NON-OPERATING EXPENSE 13a) Contingency $1.3 $0.7 $1.3 $0.8 These funds are centrally budgeted and expended through the direct discretion and specific approval of the General Manager to support unanticipated District needs or requests of the Board. 13b) Prior year Appropriations $0.4 $0.4 Since the operating budget lapses at the end of each fiscal year, funds need to be set aside for contacts, purchases, commitments, and other legal obligations that have been occurred prior to June 30 in the prior year but goods or services have not been delivered until after June 30 in the new budget year. 13c) Other $0.2 $0.1 Other smaller non-operating expenses collectively reported within this one line item. 14) PRINTING AND PUBLISHING 14a) In-House Publishing $0.5 $0.4 $0.6 $0.5 Although the budget provides for some outside reproduction, the majority of OCSD printing activities are completed In-house, reflecting an expanded management information system and administrative requirements. As well as continuing demand by the public and regulatory agencies for information. These activities including printing of District's maps, brochures, Board reports and agenda items, budget materials, etc. 14b)Other $0.1 $0.1 Other printing and publishing expenses collectively reported within this one line item. 15) COST ALLOCATION ($17.3) ($17.3) This represents direct and indirect labor, benefits, materials, and services charged to the Capital Improvement Program (CIP) where the related work was performed. 16 Book Page 80 2006-07 and 2007-08 Budget Summary Percent Running 2005-06 2006-07 2007-08 of Total Total 7. Professional Services 4.4 3.6 3.0 3% 105% 7a Le al Services 0.6 0.5 0.5 0% 7b Engineering Services 0.4 0.5 0.5 0% 7c Audit and Accounting 0.2 0.3 0.3 0% 7d Environmental and Scientific Consultin 0.6 0.2 0.2 0% 7e ERP Sueeort and Software Programm 0.4 0.4 0.4 0% 7f Advocacy Efforts 0.3 0.3 0.3 0% 7g Other 1.9 1.4 0.8 1% 8. Capital Grants to Member Agencies 2.5 2.5 2.5 2% 107% 8a Cooperative Projects 2.5 2.5 2.5 2% 9. Other Material, Supplies and Services 2.9 2.2 2.7 2% 109% 9a Prope and General Liabilit lnsuranc 2.2 1.5 2.0 1% 9b Regulatory Operating Fees . 0.4 0.4 0.4 0% 9c Other 0.3 0.3 0.3 0% 10. Training and Meetings 1.3 1.4 1.4 1% 110% 1 0a Training 1.0 1.0 1.0 1% 1 Ob Meetings 0.3 0.4 0.4 0% 11. Research and Monitoring 1.4 1.3 1.4 1% 111% 11 a Environmental Monitoring 0.7 0.7 0.8 1% 11 b Air Qualit Monitorin 0.2 0.2 0.2 0% 11 c Other Research 0.5 0.4 0.4 0% 12. Administrative Expense 1.3 1.3 1.3 1% 112% 12a Small Computer Items 0.6 0.6 0.5 0% 12b Memberships 0.3 0.4 0.4 0% 12c Office Su lies 0.1 0.1 0.1 0% 12d Other 0.3 0.2 0.3 0% 13. Other Non-Operating Expense 0.7 1.3 1.3 1% 113% 13a Contin enc 0.4 0.7 0.8 1% 13b Prior Year A roRriations 0.4 0.4 0% 13c Other 0.3 0.2 0.1 0% 14. Printing and Publishing 0.5 0.5 0.6 0% 113% I 14a In House Re roduction 0.4 0.4 0.5 0% 14b Other 0.1 0.1 0.1 0% 15. Cost Allocation (16.1) (17.3) (17.3) -13% 100% 15a Cost Allocation {16.1) {17.3) (17.3) -13% Book Page 82 FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Marc Dubois, C.P.M., Contracts/ Purchasing Manager SUBJECT: INSURANCE LEVEL CRITERIA & INDEMNIFICATION GENERAL MANAGER'S RECOMMENDATION Information only. SUMMARY Meeting Date To Bd. of Dir. 05/10/06 05/24/06 Item Number Item Number FAHR06-41 At a previous Finance, Administration and Human Resources (FAHR) Committee meeting, the Committee requested information regarding the OCSD insurance and indemnification activities. This report provides general information pertaining to OCSD insurance requirements and potential program improvement. The Orange County Sanitation District requires proof of active insurance for most contracts relating to public works, Engineering Services and labor intensive services. Prior to commencement of work, the District's Contracts and Purchasing staff obtain from the vendor proof of insurance at levels requested in the public bidding or proposal process. In addition, District's bids and contracts typically carry an indemnification clause that provides risk of the specific work to be allocated appropriately. Indemnity is protection from loss and damage claims filed by another person. Indemnity insurance protects the holder from suffering financial loss due to a lawsuit. During the public bidding/proposal process administered by the District, the participant vendor has an opportunity to accept or take exception to both insurance and indemnification requirements. If said vendor takes exception to all or part of these requirements, the District reserves the right to forgo further consideration of said vendor and consider the next responsive and responsible bidder/proposer. PRIOR COMMITTEE/BOARD ACTIONS N/A PROJECT/CONTRACT COST SUMMARY N/A H:\dept\agenda\FAHR\FAHR2006\0506\06,06-41. Ins level indemnification.doc Revised: 06/04/03 Book Page 83 Page 1 BUDGET IMPACT D This item has been budgeted. (Line item: ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. IZI Not applicable (information item) ADDITIONAL INFORMATION Insurance levels and requirements were established by recommendation of the District's "Broker of Record" Driver-Alliant. Current indemnification language of District contracts were established by recommendation of the District's General Counsel. Insurance and indemnification issues relating to Professional Design Service Agreements (PDSA) are managed by the Engineering Department and General Counsel. The District's Contracts, Purchasing and Materials Management Division utilize two sets of standardized procedures for determining the appropriate levels of insurance for both public works projects and non-public works projects. Procedures were established to minimize risk by attempting to optimize value on insurance requirements that best suit the characteristics and market conditions of each type of work being performed. Prior to the commencement of work, Contracts/Purchasing staff will ensure all insurance requirements are adhered to by the awarded vendor. A collective effort between Engineering, Contracts Administration, Risk Management and occasionally General Counsel is used to determine insurance levels for public works projects. The Project Engineer takes a lead role in providing technical data that helps define insurance levels and infrequently a modification to indemnification language once General Counsel has reviewed and concurs. The Project Engineer will complete an "Insurance Requirements Form" (IRF) that allows the Project Engineer to articulate the project's level of risk by identifying possible hazard and exposures. Contracts and Risk Management staff review the IRF for completeness and calculate the limits and types of insurance that are appropriate. Calculation formulas were developed through the combined efforts of Contracts, Purchasing, Risk Management and General Counsel. After calculations are complete, Risk Management inserts the requirements on the "Determined Insurance Requirements Form" (DIRF) and forwards it back to Contracts to update into the bid documents. Non-public Works bid and contract insurance requirements are set differently. Since the potential for risk generally is much less on non-public work projects, the District's approach is to determine levels of insurance based upon the estimated contract price for the specific service. General Liability, Workers Compensation, Automotive and Excess liability coverage requirements are determined by identifying contracts in four (4) categories: 1 . Contracts below $50,000 2. Contracts above $50,000 H:ldept\agende\FAHRIFAHR2006\0506106.06-41. Ins level indemnification.doc Revised: 06/04/03 BookPage84 Page2 3. Contracts above $50,000 that involve chemicals, biosolids, grit & screening work, and marine diving services. 4. Watercraft or marine equipment. Each type of contract has its own specific requirements that enable risk to be managed in accordance to the size of the scope of work and statutory requirements. Owner Controlled Insurance Program (OCIP) As the OCSD reviews it insurance requirements, staff will investigate the feasibility of an Owner Controlled Insurance Program (OCIP). An Owner Controlled Insurance Program (OCIP) is a single insurance program, purchased and controlled by the owner, which insures the owner, general contractor, and all sub-contractors performing work at the project site. In contrast, a traditional approach requires each contractor to sup~ly their own insurance coverage. One potential advantage of an OCIP is cost savings. Some programs yield a pre-tax cost savings of 1-3% of total construction costs as result of several factors: 1. By pooling all of the risks under a single program, the owner is able to negotiate more favorable pricing and terms than individual contractors (i.e., volume purchase equals lower rates). 2. OCIP insurance underwriters are offering very favorable terms at the present time. 3. Contractor bids do not include overhead and profit loadings on the insurance costs. 4. Owner receives any dividends or returned premiums. 5. Contractor workers' compensation loss experience as a whole has improved over the past three years due to increased safety efforts and more attention to mitigating worker's compensation claims. 6. Control of the Insurance Coverages -The owner has the security of knowing that insurance coverage is in place and the risks covered by the project insurance identify the owner as the first Named Insured under the policy. The following summarizes the mechanics of the cost savings: Contractor -Typically a contractor pays for insurance on a "guaranteed cost" basis, namely an insurance industry rate times the contractor's payroll. In exchange for the premium payment, the insurance carrier agrees to pay for all losses under the policy up to the policy limit. While the contractor gets the benefit of having fixed insurance costs, they do not receive the benefit of any return premiums for having good loss experience. At bid time, the contractor marks up these insurance costs 10-5% for profit and overhead and passes the entire amount on to the owner as part of the bid amount. Owner -Due to the amount of insurance premiums generated by insuring all of the contractors under a single OCIP, the owner is able to utilize a common risk management technique of maintaining a self-insured layer of loss and purchasing H:ldeptlagenda\FAHR\FAHR2006\0506106,06--41. Ins level indemnification.doc Revised: 06104/03 Book Page 85 Page 3 catastrophe insurance above this amount. This approach significantly reduces the fixed insurance costs normally paid by the contractors and allows the owner's total cost of insurance to be predicated in large part by the amount of claim dollars generated within the self-insured layer of loss. Since the fixed costs only amount to about 20% of the total insurance premiums, the owner is able to realize the 1-3% cost savings by controlling the losses within the self-insured layer. Other coverage benefits to the owner include: 1. Owner has access to higher limits and broader coverages than most contractors. 2. The Limits of Insurance are dedicated solely to the owner's project. 3. Liability coverage remains in place 3 years after project completion. 4. Owner directs claim and litigation activities for losses occurring on owner's project. 5. Owner can keep lawsuits arising from the construction project from deteriorating the loss experience of the owner's normal insurance program. 6. Reduces possibility of inadequate insurance limits and uninsured sub-contractors. 7. The OCIP coordinates the safety efforts of all contractors, leading to fewer accidents on the owner's project site. Potential Disadvantages of an OCIP Under some circumstances, the owner may lose money under an OCIP. This can occur due to unrealistic pro-forma assumptions, poor loss experience, and inability of insurance broker to negotiate adequate reductions in the contractors' bids. The OCIP can impact the construction schedule. While the contractor is required to perform certain activities as part of the OCIP, the construction schedule is dictated by the project manager. Therefore, any impact that non-compliance with the OCIP requirements would have on the construction schedule is up to the discretion of the project manager. Next Steps Staff will continue to review the feasibility of this program and will present options to the Board later in the year. ALTERNATIVES N/A CEQA FINDINGS N/A H:ldept\agenda\FAHRIFAHR2006\0506\06.06-41.lns level indemnification.doc Revised: 06/04/03 Book Page 86 Page4 ATTACHMENTS 1. Construction CIP Procedure Number: C030 2. Insurance Requirements Form (IRF) 3. Calculations and Coverage Determination 4. Determined Insurance Requirements Form (DIRF) 5. Insurance Requirements -Non Public Works H:ldept\agenda\FAHRIFAHR2006\0506106.06-41.lns level indemnification.doc Revised: 06/04/03 Book Page 87 Page 5 5.1.2.2 5.1.2.3 5.1.2.4 5.1.2.5 5.1.2.6 5.1.2.7 Plant projects over $25 million require separate all-risk insurance except when structural work is minimal. Collection pipeline systems projects generally do not require all- risk insurance. Projects that construct primarily underground facilities, landscaping, roadways, fencing, and the like generally do not justify the premium expense for the risk of loss involved. Meet with a senior resident engineer to finalize the need for all- risk insurance. Earthquake and flood insurance are not included in the District's blanket coverage and should always be considered separately. Meet with the District's Controller, Insurance Broker and Contracts' Administrator to estimate reasonable all-risk, earthquake, and flood insurance with earthquake, and flood coverage if appropriate. 5.1.3 Estimate exposures from earthquake perils. 5.1.3.1 5.1.3.2 5.1.3.3 Discuss recommendations with senior resident engineer and provide Contracts Administrator with Property Value determination (insert this value on the Insurance Requirements Form). Consider the risks of earthquake and flood damage using the guidelines for all-risk insurance above. The cost plus deductible may be more than any perceived risk. 5.1.3.4 Consider obtaining coverages for only the amounts of perceived risk and only during periods of vulnerability, less deductible and estimated premiums. 5.1.4 Estimate exposure from flood perils. 5.1.4.1 5.1.4.2 5.1.4.3 Consider only if the project is within an area designated to be inundated in a 100 year flood. Federally funded projects may have special flood insurance requirements. Insure that insurance coverages are separate line items, which can include all-risk and earthquake and flood. When required, insurance prices are deletable bid items. See Schedule of Prices Procedure. The insurance line items are an Option and are subject to cancellation in the event that the District implements an Owner Controlled Insurance Program (OCIP). 5.1.5 Obtain initial insurance cost estimate for all-risk, earthquake and flood coverages as determined above. 5.1.5.1 Validate the Design Submittal 3 estimate of construction costs. 5.1.5.2 5.1.5.3 Request an estimate from the District's Insurance Broker for the above-mentioned coverages. Adjust the construction estimate to include the insurance estimate. Page 2 -Revision 0 Book Page 89 5.2 Complete Insurance Requirements Form (IRF) (Project Engineer) 5.2.1 Complete header section with appropriate project data. 5.2.2 Use values determined from the preceding process. 5.2.3 Select "Off Site" and /or "On Site" if project work occurs on or off District property. 5.2.4 Use the Engineer's estimate for the Facility value and the Project value. 5.2.5 Automobile Insurance actually refers to potential requirements for contractor insurance for hauling hazardous waste or extensive road use. These are typically governed by other agencies. 5.2.6 Select your opinion for all-risk, earthquake and/or flood insurance requirements based on the analysis above. 5.2. 7 Select the types of work hazards that exist in the project. 5.2.8 Provide a brief summary of the job description which includes any information that may determine, reveal or mitigate possible risk. 5.2.9 Forward the completed form to the Contract/Purchasing Analyst 90 days prior to Bid Advertise date: 5.3 Reviews the Completed Insurance Requirements Form (Contract/Purchasing Administrative Assistant) 5.3.1 Review IRF to confirm completeness, including description of project, and forward to the District's Risk Management with a Determined Insurance Requirements Form for completion with Requirements Form Section ll(A). 5.4 Determine Risk Mitigation Requirements (Controller/Risk Manager) 5.4.1 Calculate the types and limits of required insurance and insert the limits on the Determined Insurance Requirements Form (DIRF). 5.4.2 If necessary meet with the Project Engineer, Resident Engineer, Insurance Broker, Contract/Purchasing Analyst, and the Contract Administrator to further characterize and quantify project risks. 5.4.3 Review calculations and use the information provided on the IRF, back-up documentation and discussions to concur or adjust limits of coverage. 5.4.4 Edit DIRF, if necessary and sign as approval. 5.4.5 Complete Requirements Form Section ll(A). 5.4.6 Forward signed/approved DIRF and Requirements Form Section ll(A) to Contract/Purchasing Analyst. 5.5 Review and Forward DIRF (Contract/Purchasing Administrative Assistant) 5.5.1 Review edited form. 5.5.2 Forward a copy of the DIRF to the Contracts Administrative Assistant. 5.5.3 Notify PE the DIRF is reviewable in EDMS. Page 3 -Revision 0 Book Page 90 5.6 Update IFB Documents (Administrative Assistant) 5.6.1 Update the Contract Agreement and the Schedule of Prices section of the IFB Documents to reflect the types and limits of insurance listed on the final Insurance Requirements Form. See Bid Documents Procedure. 5.6.2 Ensure that General Counsel reviews all changes to the Bid Documents. 5. 7 Determine Supplier of the All-Risk Insurance (Including/Excluding Earthquake and Flood Coverage) if OCIP is Not in Place (Contract Administrator) 5.7.1 Before the bid due date, request by letter from the District's Insurance Broker a quotation for the determined builder's all-risk limit (earthquake and flood inclusive/excluded). Do not reveal the Contractor's price to the broker. 5.7.2 When both quotations are received (District's and Contractor's), transmit copies to General Counsel for evaluation. 5.7.3 Consult with General Counsel to determine which insurance quote should be accepted. Consider: 5.7.3.1 Are the coverages identical? 5.7.3.2 Expenses for processing claims may be higher with District insurance. (District does the paperwork.) 5.7.3.3 Costs are incurred in deleting the Contractor's insurance and purchasing the District's Broker's insurance. 5.7.3.3.1 Insert contract terms stating in the event of cancellation of the insurance line item that a credit will be sought for the prorated unused months (based on total period of performance known at the time of bid submission. 5. 7.4 Notify the Contractor as to the determination of which entity will supply the Builder's all-risk insurance coverage. 5.7.5 Notify Project Engineer to initiate a change order immediately when a choice for insurance is made so the Contractor may arrange its insurance efficiently. 5.7.5.1 The Contractors costs for changing insurance are significant if the change order occurs after the Notice to Proceed. The District is liable for those Contractor costs. 5.8 Evaluate and Accept Insurance Documents ( Contract/Purchasing Administrative Assistant) 5.8.1 Review contract insurance documents from contractor and, with confirmation from Risk Management, verify that all insurance requirements are met. Obtain approval from Risk Management via Requirements Form Section !!{9_. 5.8.2 Notify contractor of any deficient or missing items. 5.8.3 Review resubmitted documents. Follow previous process until all requirements have been met and are acceptable. 5.8.4 Input the insurance information into the District's insurance data base. File and maintain the insurance documents for contracts awarded by the General Manager and the Planning, Design and Construction Committee. 5.8.5 Forward to the Office of the Board Secretary all of the original Page 4 -Revision 0 Book Page 91 documents on Board awarded contracts. Documents will be maintained by each for the life of the contract. 6.0 EXCEPTIONS 7 .0 PROVISIONS AND CONDITIONS 8.0 RELATED DOCUMENTS Approved By: Approved By: Approved By: APPROVALS __________________ Date: _____ _ General Manager __________________ Date: _____ _ Director of Finance __________________ Date: _____ _ Contracts, Purchasing & Materials Management Division Manager Book Page 92 Page 5 -Revision 0 * INSURANCE REQUIREMENTS FORM PROJECT/JOB NO.: ________ _ PROJECT VALUE:$ _______ _ SCHEDULE: _____ TO ____ _ (New construction value only. Do not include rehab value) 0 OffSite D On Site PROJECT MANAGER: _______ _ BUILDER'S ALL RISK REQUIRED Yes O No 0 EARTHQUAKE REQUIRED Yes O No 0 (If near or on a fault and significant property damage at risk) Property/Facility Value$ ________ _ FLOOD REQUIRED YesD NoO AUTOMOBILE INSURANCE Hazardous Material: YesONoO YesO No D (If in a high risk flood zone and significant property damage at risk) Frequent Hauling Involved: RISK TYPE OF WORK HAZARDS PER SPECIFICATIONS High • Arterial Streets or Intersections • Asbestos Abatement • Additional Signage Required • Non-Arterial Streets • Other Hazardous Material Handling: • Flooding Hazard • Hazardous Environment • Extended Work Hours !01JSite} • Confined Space Entry • High Traffic Flow Area • Water/Sewer • High Voltage Electrical • Remediation Work • High Oxygen Areas (Plant 2) Specialized ( 480-1200v) • Open Trenches (Off site) • Medium Voltage 1200/12000v projects, skills, • Project Complexity * • Boring/Tunneling or equipment • Work in Classification / • Attractive Nuisance • Other required Unclassified Areas • Steel Erection • Use of Heavy Equipment • Welding • Other Street/Road Cranes, Earthmoving, • Demolition/Blasting Work Truck-Hauling • Excavation • Other Medium • Hazardous Environment • Hazardous Material Handling: • Additional Signage Required • Confined Space Entry • Flooding Hazard • Voltage Electrical (120-480v) • Medium Traffic Flow Area • Extended Work Hours (On Site) • Project Complexity ** • Remediation Work • Water/Sewer • Work in Classification / • Open Trenches (On Site) • Roofing Unclassified Areas • Attractive Nuisance • HVAC Bulk of • Use of Heavy Equipment • Boring/Tunneling • High Oxygen Areas (Plant 2) Construction Cranes. Earthmoving, • Steel Erection • Medium Voltage 1200/12000v Operations Truck-Hauling • Welding • Plumbing • Excavation • Other • Pump Installation • Carpentry • Concrete • Drywall • Other • Masonry • Insulation • Paving • Other Light • Project Complexity *** • Light Traffic Flow Area • Other • Door Installation • Attractive Nuisance Hazard • Ceiling Installation • Additional Signage Required • Other (On Site) • Office Equipment Installation • Extended Work Hours • Carpet Installation • Water/Sewer • Other Interior/Finish • Tile • HVAC Work • Finish Cabinetry • Voltage Electrical (0-50v) • Other Example: projects which have complex / sequential work aspects and are critical to treatment processes, safety, and the environment. Book Page 93 Rev: 041905 ** *** Example: projects which have routine work aspects that can create an upset to treatment processes, routine safety issues, and some potential for harm to the environment. Example: simple projects with minimal influence on treatment processes, low probability of safety issues, and minimal potential impact on the environment. Project Summary: Book Page 94 Rev: 041905 Calculations and Coverage Determinations: 1. General Liability 1. Multiply the number of identified hazards with the factor listed to determine the coverage limit. When the calculated total is less than the minimum coverage required for the range, the minimum limit required will be used. ii. Round all totals to the nearest $M. iii. This will be the occurrence and Products Completed limits. iv. Per the new contract/agreement insurance language, the general aggregate limit will be twice the required occurrence limit. This can be increased if warranted 2. Project Specific Requirement (General Liability) 1. Requiring project specific insurance is very rare due to the immense cost of this coverage and will only be required when a job consists of extraordinary work. The determination of extraordinary work will be based upon by the information provided on this form by the Project Manager. 3. Automotive Liability i. Currently, the automotive liability coverage limit is equal to the general liability's per occurrence limit or general aggregate limit depending on the level of hazards. 4. Workers' Compensation 1. As required by the Labor Code of the State of California including Employer's Liability Insurance ( current minimum limit is $1,000,000.00.) 5. Builders All Risk i. If the limit of the Property Value (Course of Construction) is less than or equal to $25M, based on the Engineer's Estimate, this job will be covered under the District's existing insurance policy. ii. If the limit of the Property Value (Course of Construction) is greater than $25M, based on the Engineer's Estimate, the contractor will be required to submit an insurance quote for the coverage. In conjunction, the District will obtain a quote from Driver Alliant. Separate bid line item will be established. A comparison of the two quotes will determine outcome. 6. Flood and Earthquake Coverage i. Coverage will be established dependant upon the following: ii. The job site is near/on a fault or in a high risk flood zone and iii. There is significant property damage at risk 1v. Limit of coverage will be based on Engineer's Estimate Book Page 95 Rev: 040105 DETERMINED INSURANCE REQUIREMENTS For Project/Job No.: _______ _ RISK MANAGEMENT TO COMPLETE Refer to the Calculations and Coverage Determinations for instructions. Required Coverage (1-4) 1 General Liability Limit=$ _____ Million -(Products Completed/Occurrence) 2 GIL Project Specific Insurance Required D No D Yes 3 Automotive Liability Limit$ Million -(Combined Single Limit) 4 Workers' Compensation Limit $1,000,000 Million -(Employer's Liability Statutory Limit) Additional Coverage (5-6) 5 D Builders All Risk Limit $ Million 6 D Earthquake Limit $ Million 7 D Flood Limit $ Million General Liability Ranges High: $10 -$50 Million (1.54 Factor) Medium: $5 -$10 Million (0.16 Factor) Low: $1-$5 Million (0.29 Factor) If applicable, list the reasons why the determined limit(s) of coverage differs from the calculated limits. District Approval: _________ _ Risk Management Date Rev: 081605 Book Page 96 Insurance Requirements -Non Public Works Rating Minimum Requirements 1. A-, VIII (BEST RA TING) General Liability: 1. <$SOK -----$500,000 per occurrence with 1 million aggregate. 2. >$SOK ----$1 million per occurrence with 2 million aggregate. 3. All general liability coverage must include an Additional Insured Endorsement naming the District as additional insured. Workers Compensation 1. State of CA statutory limit: $1 Million 2. Required Waiver of Subrogation: all jobs • This endorsement ensures that the Insured is waiving the right to file a claim against OCSD's workers comp. 3. If vendor does not have any employees He or she must submit a letter on their company letterhead stating that they are a sole proprietor or owner operator (i.e.: training) and that they do not have any employees. Additionally, the need to include the dates in which the job will be performed. Automotive: 1. <$SOK-----combined single limit of $1 million.* $500,00 per person, $500, 00 per accident 2. >$SOK----combined single limit of either $1 or $2 million depending on the level of risk. • For lower level of automotive risk: combined single limit of $1 million.* $500,00 per person, $500,00 per accident • For higher level of automotive risk: combined single limit of $2 million. * $1 million per person, $1 million per accident. 3. All automotive liability coverage must include an Additional Insured Endorsement naming the District as additional insured. Revised 10/18/04 Book Page 97 Umbrella/Excess Liability Coverage: 1 . Can be applied to other types of insurance where they are deficient • Umbrella/Excess must meet the same rating requirements as the primary coverage. 2. Umbrella/Excess may not cover all insurance types: i.e.: professional liability & workers' compensation Watercraft Insurance: 1. Minimum requirement is 300,000 for the vessel. 2. Long Shoreman Insurance -USL & H Act. Required for employees other than the owner of the business on the vessel. Must be attached to their workers comp. If owner operated must have sole proprietor letter stating that he/she is the only one that will be working on the vessel. 3. Offshore Insurance required if working 300 feet out of harbor. Companies Affording Coverage (Companies A, B, C, D) 1. Check insurance company profile on the AM Best Website. • http://www3.ambest.com/ratings/Advanced.asp Chemical / Hazardous Material Requirements (Delivery): 1 . Motor Carrier Endorsement Form (MCS-90) -required for all hauling of hazardous materials. 2. The hauler must renew this form annually. • Contact vendor for the renewal MCS90 forms from their haulers. Revised 10/18/04 BookPage98 FA"R CO MMITTEE AGENDA REPORT Orange County Sanitation District FROM: Lorenzo Tyner, Director of Financen-reasurer Originator: Mike White, Controller SUBJECT: INDEPENDENT RATE STUDY GENERAL MANAGER'S RECOMMENDATION Informational Item. SUMMARY Meeting Date To Bel. of Dir. 05/10/06 05/24/06 Item Number Item Number FAHR06-42 At a February 2006 Finance, Administration and Human Resources (FAHR) Committee Meeting, staff presented introductory information regarding the District's Rate model in anticipation of the draft findings of independent consultant (Bartle Wells Associates) engaged by the District. Subsequently, Bartle Wells Associates provided the Board with a draft report. The highlights of that report can be found in the attached previously submitted agenda report. Staff has conducted two public meetings to provide other organizations and companies an opportunity to give input on the study. This input has been forwarded to Bartle Wells for inclusion in their final report (attached). The final report will be submitted to the full Board on May 24, 2006, for consideration. PRIOR COMMITTEE/BOARD ACTIONS None. PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT • § This item has been budgeted. (Line item: ) This item has been budgeted, but there are insufficient funds. This item has not been budgeted. Not applicable (information item) ADDITIONAL INFORMATION The significant findings of the final report include: Alternative Rate Structures Bartle Wells concluded that the District's current system of rates and charges is well within the standards of public wastewater agency practice. They do not believe that any major changes are warranted, and are not recommending any major changes to the rate structure because of the disruptions these changes could cause to various user classes. However, the District may wish to consider the following two alternatives for addressing the property tax credit issue: H:ldeptlagende\FAHRIFAHR2006\0506\06.06-42.Rete Study Validation.doc Revised: 01/04/06 BookPage99 Page 1 Continue current rates: The District could continue with its current rate structure. This includes higher Permit User unit charges combined with property tax credits. Other user classes do not receive an actual property tax credit, but pay lower unit charges. Eliminate property tax credits: The District could eliminate the current system for Permit Users and establish uniform unit charges that are net of property tax revenues. The same unit charges would then apply to all users. Permit Users would no longer receive a credit for property taxes. Other Recommendations • The District should coordinate future rate increases so that to the extent possible rate adjustments are made simultaneously to all user classes. Following is a summary of the timing of the rate adjustment to Permit and other users: June 2004 -District increased all service charge rates by 15% effective July 1, 2004. July 2004 -District identified problem with double credit for Permit User property tax. Aug. 2004 -Non-Permit user rates submitted to County Tax Collector for collection. Sept. 2004 -Proposed rate increase to Permit Users for both property tax and new CIP. Jan. 2005 -Approved rate increase to Permit Users to adjust for property tax credit and an average 9.2% increase due to validation of the new CIP. July 2005 -An average 6.6% increase to Permit Users, 31% rate increase to other users. The District's January 2005 rate adjustment to Permit Users not only included a component for the property tax correction, but also included an increase to reflect the new CIP. The District didn't adjust the rates for other user classes because these are included with the property tax bill and can't be adjusted until the following fiscal year. The result was that Permit Users faced a rate increase six months earlier than other user classes. On the one hand, the rates were justified by the increase in the CIP. But on the other hand, this one group was the only one to receive the increase for six months. However, this inequity was more than compensated for six months later when rates for other user classes were increased 31% and Permit User rates were increased an average of 6.6%. (Note: This inequity continues to grow as rates for all users is proposed to increase a flat 14.25 percent or 9.8 percent increase as of July 2006). • The District may want to re-examine the CIP allocation of full secondary treatment to see if some portion of these costs might equitably be allocated to flow. • The District needs to update its CFCC with each update in the CIP. Ideally, these would be at the same rate of change and would automatically apply. An alternative method would be to establish an annual adjustment to the CFCC that is based on the change in the ENR Construction Cost Index for Los Angeles. In addition, the projection of future growth has been lowered. The District should factor the lower growth projection into determination of the CFCC. If implemented, these recommendations would have no impact on service charge unit rates. • If the CFCC is reviewed or updated, the District should consider a supplemental 'buy-in' component of the capacity fee as at present the capacity fees only ask new customers to buy into new facilities required to serve them. They are, however, served by existing facilities for which they have not contributed. The District is not required to charge new H:ldeptlegende\FAHRIFAHR2006\0506106.06-42.Rate Study Validation.doc Revised: 01104/06 Book Page 100 Page2 connections the maximum cost of providing capacity, but they are permitted to do so by law. If the charge is reviewed, the District may want to examine the allocation of costs between residential and commercial that derives a lower fee for commercial users. The District could derive an average cost of capacity that would be used to calculate fees for all customer classes in the same way. Non-residential customers appear to receive a break under the current methodology. • We suggest that the current SCFCC be confirmed by Carollo Engineers during the current rate and charge review. We would also recommend that industries should have the option of purchasing needed capacity in excess of the 25,000 gpd currently permitted by the District's grandfather clause. If additional capacity is purchased, then the user would not be subject to an additional SCFCC charge. This option may be preferable for some industries wishing to fund more capacity on a one-time basis rather than pay a supplemental annual fee. • Debt service allocation is annually adjusted by the weighted average of the CIP allocation. This can cause abrupt changes in allocations for this cost category. The District could adopt a capital allocation for a five or ten-year period to eliminate abrupt shifts. More importantly, this method does not accurately reflect the proper allocation of debt actually used. ALTERNATIVES NIA CEQA FINDINGS N/A ATTACHMENTS 1. March 2006 FAHR Agenda Report 2. Orange County Sanitation District Review of Rates and Charges -Final Report from Bartle Wells Associates. H:ldeptlagenda\FAHRIFAHR2006\0506\06.06-42.Rate Study Validation.doc Revised: 01/04/06 Book Page 101 Page 3 FAHR CO MMITTEE Meeting Date To Bd. of Dir. 03/01/06 AGEN DA REPORT Item Number Item Number FAHR06-13 Orange County Sanitation District FROM: Lorenzo Tyner, Director of Finance/Treasurer SUBJECT: DRAFT INDEPENDENT RATE STUDY GENERAL MANAGER'S RECOMMENDATION Informational item. SUMMARY At a February 2006 Finance, Administration and Human Resources (FAHR) Committee Meeting, staff presented introductory information regarding the District's Rate model. The information was provided in anticipation of the draft findings of independent consultant Bartle Wells Associates, engaged by the District. The draft report has been distributed to all Board members and has been made available to the public for review. The major elements of the review included: 1) Review the fees and charges levied by OCSD and make recommendations regarding the fees and charges based on applicable legal and regulatory standards. 2) Review the appropriate allocation of costs for operating, maintaining refurbishing, and replacing facilities to serve existing users and the costs of expanding facilities to serve future users. 3) Review that the allocation and amount of costs of providing service is adequately based on appropriate costs of service principals and applicable legal standards. 4) Review that the allocation of costs, including non-assignable costs, between flow, bio-chemical demand (BOD), and suspended solids (SS) is appropriate. 1) Review that the costs of providing full secondary treatment and the groundwater replenishment system are appropriate and allocated equitably. The following is an excerpt of the Bartle Wells study summarizing their findings: H:\deptlagenda\FAHRIFAHR2006\0506\06.06-42,Rate Study Validation-Alt 1.doc Revised: 01104106 Book Page 102 Page 1 "Findings and Recommendations Alternative Rate Structures As discussed previously, and based on our review, we find that the District's current system of rates and charges is well within the standards of public wastewater agency practice. We do not believe that any major changes are warranted. Therefore, we would not recommend any major changes to the rate structure because of the disruptions these changes could cause to various user classes. However, the District may wish to consider the following two alternatives for addressing the property tax credit issue: Continue current rates: The District could continue with its current rate structure. This includes higher Permit User unit charges combined with property tax credits. Other user classes do not receive an actual property tax credit, but pay lower unit charges. Eliminate property tax credits: The District could eliminate the current system for Permit Users and establish uniform unit charges that are net of property tax revenues. The same unit charges would then apply to all users. Permit Users would no longer receive a credit for property taxes. Other Recommendations • The District may want to re-examine the CIP allocation of full secondary treatment to see if some portion of these costs might equitably be allocated to flow. • The District needs to update its CFCC with each update in the CIP. Ideally, these would be at the same rate of change and would automatically apply. An alternative method would be to establish an annual adjustment to the CFCC that is based on the change in the ENR Construction Cost Index for Los Angeles. In addition, the projection of future growth has been lowered. The District should factor the lower growth projection into determination of the CFCC. If implemented, these recommendations would have no impact on service charge unit rates. • If the CFCC is reviewed or updated, the District should consider a supplemental 'buy-in' component of the capacity fee as at present the capacity fees only ask new customers to buy into new facilities required to serve them. They are however served by existing facilities for which they not have contributed. The District is not required to charge new connections the maximum cost of providing capacity but they are permitted to do so by law. If the charge is reviewed, the District may want to examine the allocation of costs between residential and commercial that derives a lower fee for commercial users. The District could derive an average cost of capacity that would be used to calculate fees for all customer classes in the same way. Non-residential customers appear to receive a break under the current methodology. H:\dept\agenda\FAHRIFAHR2006\0506106.0S--12, Rate Study Validation-Att 1.doc Revised: 01/04/06 Book Page 103 Page2 • We suggest that the current SCFCC be confirmed by Carollo Engineers during their upcoming rate and charge review. We would also recommend that industries should have the option of purchasing needed capacity in excess of the 25,000 gpd currently permitted by the District's grandfather clause. If additional capacity is purchased, then the user would not be subject to an additional SCFCC charge. This option may be preferable for some industries wishing to fund more capacity on a one-time basis rather than pay a supplemental annual fee. • Debt service allocation is annually adjusted by the weighted average of the CIP allocation. This can cause abrupt changes in allocations for this cost category. The District could adopt a capital allocation for a five or ten-year period to eliminate abrupt shifts. More importantly, this method does not accurately reflect the proper allocation of debt actually used." ------------------- Next Steps There will be a minimum 60 day review period where public comment will be accepted. These comments, and those of staff, will be forwarded to Bartle Wells for incorporation into their final report. The final report is due to the Board May 1 , 2006 and will be discussed at the May 24, 2006 Board meeting. PRIOR COMMITTEE/BOARD ACTIONS None. PROJECT/CONTRACT COST SUMMARY NIA BUDGET IMPACT D This item has been budgeted. (Line item: ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. ~ Not applicable (information item) ADDITIONAL INFORMATION None. ALTERNATIVES N/A H:ldeptlagenda\FAHRIFAHR2006\0506\06.06-42.Rate Study Validation-At! 1.doc Revised: 01104106 Book Page 104 Page 3 CEQA FINDINGS N/A ATTACHMENTS 1. Orange County Sanitation District Review of Rates and Charges -Draft Report H:ldept\agenda\FAHRIFAHR2006\0506106.06-42.Rate Study Validation-Alt 1.doc Revised: 01/04/06 Book Page 105 Page4 ORANGE COUNTY SANITATION DISTRICT REVIEW OF RATES AND CHARGES FINAL REPORT May2006 BARTLE WELLS ASASOCIATES Independent Public Finance Advisors 1889 Alcatraz Avenue Berkeley CA 94703 Tel. 510-653-3399 Book Page 106 TABLE OF CONTENTS Introduction ........................................................................................................................ 1 Scope ........................................................................................................................ l Bartle Wells Associates ........................................................................................... 2 Approach .................................................................................................................. 2 Current Rate and Charge System .................................................................................... 3 General ..................................................................................................................... 3 Service Charges ........................................................................................................ 3 Capital Facilities Capacity Charges (CFCCs) and SCFCCs ................................... .4 Cost Allocation ........................................................................................................ 6 Property Tax Revenues ............................................................................................ 6 Findings and Recommendations ....................................................................................... 8 Alternative Rate Structures ...................................................................................... 8 Other Recommendations .......................................................................................... 8 Appendix A -Validated Capital Improvement Program Appendix B-Permit User Rates: OCSD Staff Report Appendix C -Ordinance O 1 (partial) and Ordinance 26 Appendix D -Bartle Wells Associates Scope and Resumes Appendix E -Settlement Agreement Book Page 107 INTRODUCTION Bartle Wells Associates has been retained by Orange County Sanitation District (District or OCSD) to prepare an independent review of the District's rates and charges and to make recommendations for adjustments, if any, as appropriate. Our review is intended to satisfy the requirements of a Settlement Agreement between the District and a major wastewater user regarding changes to the method of setting and collecting revenues for users. Scope The settlement agreement outlines the scope of the review required: • Review the fees and charges levied by OCSD and make recommendations regarding the fees and charges based on applicable legal and regulatory standards. • Review the appropriate allocation of costs for operating, maintaining, refurbishing, and replacing facilities to serve existing users and the costs of expanding facilities to serve future users. • Review that the allocation and amount of costs of providing service is adequately based on appropriate cost of service principals and applicable legal standards. • Review that the allocation of costs, including non-assignable costs, between flow, biochemical demand (BOD), and suspended solids (SS) is appropriate. • Review that the costs of providing full secondary treatment and the groundwater replenishment system are appropriate and allocated equitably. This report is not intended as a rate study, but rather as a review of the appropriateness and equity of the current rate structure. We are also not reviewing the level of operating budgets or the costs of the capital improvement program. The determination of these costs is by District staff and consultants and is approved by the District's Board of Directors. Bartle Wells Associates' scope of work is included in our proposal in Appendix D. Our review is based on documents and records supplied by the District. Our review does not include any further research to determine the accuracy of the material supplied to us. For reference purposes we have included a number of documents, including sections of Ordinance O 1 and all of 26, as Appendix C to this report. We prepared a Draft Report in February 2006 and attended a public meeting at the District to receive both written and oral comments. This Final Report incorporates our response to the comments received. 1 Book Page 108 Bartle Wells Associates Bartle Wells Associates is an independent public finance advisor formed in 1964 expressly to provide independent advice to public agencies without conflict of interest of any kind. The firm is owned and managed by its principal consultants and has advised over 450 public agency clients in the western United States and completed over 2,000 financing assignments. Bartle Wells Associates specializes in three professional services -utility rate studies, financing plans, and bond marketing. Rate studies are designed to maintain the financial health of a utility enterprise and provide equity to all customers. BW A has completed hundreds of utility rate studies. The firm is very familiar with the requirements that Proposition 218 and the State Water Resources Control Board's Revenue Program Guidelines place on service charges. The firm is also very familiar with the requirements that Government Code 66000 ff place on the determination of impact fees for new growth. Thomas Gaffney, a principal of the firm, is managing this project. Tom is a registered California civil engineer and a nationally Certified Independent Public Finance Advisor. Sophia Skoda, PE, senior consultant and Bryan Antman, senior financial analyst are assisting Tom on this project. Both Sophia and Bryan are also nationally Certified Public Finance Advisors. Resumes are enclosed in Appendix D. Approach We have used the following approach to satisfy the requirements of the Settlement Agreement: • Review the allocation of capital improvement costs between current users and future users. This allocation is used to determine the revenues needed from each class to support capital projects. • Review the allocation of operation and maintenance costs among the parameters of flow, BOD, and SS. Determine the impact to service charges for high, low, and domestic strength users. • Examine property tax collections in relation to service charges. Determine if a property tax credit system is equitable and should continue for Permit Users. Relate the District's property tax credit plan to mainstream public agency practice. • Make recommendations as appropriate to establish or preserve equity and provide sufficient funding for wastewater services. 2 Book Page 109 CURRENT RATE AND CHARGE SYSTEM General The vast majority of wastewater agencies collect revenues from several sources. A service charge proportional to flow and strength is collected from all users. Revenues from the charge are used to pay for operation and maintenance, replacements, and capital improvements to serve existing users. Capacity charges are a one-time charge levied as a new user connects to the wastewater system. These charges should represent the cost of facilities required to serve the new user, and revenues from the charge may only be used to pay such costs. Capacity charge revenues may directly fund project design and construction, may pay a share of annual debt service, and/or may reimburse a previous capital expense funded by current users. Many wastewater agencies receive a share of the one-percent property tax levied by the county. Revenues from property taxes are generally not restricted to any certain use. Most agencies use all or some of property tax revenues as a credit against expenses and then determine the level of service charge to fund the balance of expenses. Other revenues include permits and fees such as plan checking, interest earnings on general reserves, and funds from rents and use of property. Usually, all such revenues are credited against operating expenses and then the net revenue requirement is used to determine the level of required service charge. Service Charges The District's service charges are fundamentally based on a determination of the revenue requirement to fund District activities on behalf of existing users. The current rate structure identifies five component costs that must be funded each year from revenues generated from existing users: • Operations and maintenance of the collection system • Operations and maintenance of the treatment plants • Capital Improvement Program (CIP) for the collection system (replacement and upgrade projects only) • CIP for the treatment plants (replacement and upgrade projects only) • Debt service on Certificates of Participation (COPs) (replacement and upgrade projects only) Adjustments are made to the collection system and treatment plant CIP line items to deduct projects allocable to new growth; these costs are recovered through the District's Capital Facilities Capacity Charges (CFCC) charged to new connections. The CIP line 3 Book Page 110 items are also adjusted downward to exclude debt-financed projects, which are accounted for separately under the debt service expense, to avoid double counting. Gross costs of the District's activities are offset by non-service charge related revenues. These revenues include interest income ($21 million in FY 2004/05) and other revenues. Most notably, revenues used to offset cost of service include contributions from reserves ($185 million) and property taxes collected from customers ($28 million; fiscal year 2004/05's property tax revenues were adversely affected by temporary state-mandated ERAF transfers). Each of the five component costs of wastewater service is allocated among the three components of wastewater: flow, biological oxygen demand (BOD), and suspended solids (SS). This allocation is made based on a detailed review of how each wastewater component contributes to the O&M or capital cost of District activities. Consistent with standard industry practice, non-assignable costs that cannot be directly assigned to flow, BOD, or SS (such as administrative costs) are allocated on a weighted average basis among the three cost centers. The resultant allocations generate unit rates per unit of flow, BOD, and SS, which can then be used to calculate user rates. Table 1 below shows total system loadings used in unit cost derivations for fiscal year 2004/05. Single family dwelling system loadings are also shown. Table 1 • OCSD 2004/05 System Loadings Total System Average Residence Flow 91,250 MG 253 gpd BOD 173,514 lbs 206 mg/I ss 177,014 lbs 219 mg/I Unit rates per unit of flow, BOD, and SS are applied to standard flow and loading factors developed for most customers. The District maintains a listing of standard flow and loading factors for various categories of customer, including single-and multi-family residences and commercial customers, creating a wastewater service rate for each customer category. For users with unusually high flows and/or strength of wastewater, known as "Permit Users", service charges are calculated individually based on measured wastewater flows and strengths. There are approximately 425 Permit Users but only about 335 receive the property tax credit. Impact of Pretreatment: To the extent possible, the District requires certain users to provide pretreatment at the users' expense to reduce the level of pollutants reaching 4 Book Page 111 Collection, Project Treatment FY 2005 FY 2006 FY 2007 FY 2008 FY2D09 FY 2D10 FY 2D11 FY 2012 FY 2013 FY 2014 FY 2D15 No Number Project Tille or Other Total Budget ue lO FYOS 2D06 2D07 2008 2009 2010 2D11 2D12 2013 2014 2015 2016 68 SP-BB NPDES Permit Renewal 3 Other $ 214,000 $ 164,000 $ 60,000 $ $ $ s $ $ $ s $ s 69 SP-90-2 Special Projects: Anaerobic Baffled Reactor (ABR) 1 Treatment s 455,000 $ 136,000 $ 319,000 $ $ $ $ $ $ $ s $ $ 70 SP-90-5 Special Projects: Microfiltration/Primary Effluent 1 Treatment $ $ $ s $ $ $ $ $ $ $ $ $ 71 SP-90-7 Special Projects: Biotrickling Filter (BTF) Treatment $ 280,000 $ 150,000 $ 130,000 $ $ $ s $ $ s $ $ $ 72 SP-94 Plant 1 Plant Water VFD Replacement Treatment s 1,469,777 $ 258,676 $ 917,324 $ 293,777 $ $ $ $ s s $ $ s 73 SP-98 Plant 2 Maintenance Building Modmcations Treatment s 412,138 $ 55,070 $ 41,930 $ 214,029 $ 101,109 $ s $ s $ $ $ s j 74 15-01 OCTA Sewer Relocation Projects 2 Collection s 396,342 $ 124,135 s 176,865 $ 95,342 $ $ $ $ s $ $ s s ' 75 02-65 Newhope-Placentia & Cypress Trunk Replacements 2 Collection s 6,842,668 $ $ 192,731 $ 158,840 s 61 ,124 $ $ $ s $ $ 810,444 $ 1,084,737 $ 1,088,893 I 76 SP-77 Warehouse Reinvention Project 3 Other $ 600,000 $ 215,000 s 130,000 $ 130,000 s 125,000 s $ $ s $ $ $ $ 77 SP-95 Pump Station P&IDs and Equipment Tagging 3 Other $ $ $ $ $ $ s $ s s $ $ $ 78 SP-81 Electrical Equipment Refurbishment and Protection 1 Treatment $ 4,412,418 $ 317,088 s 556,912 $ 2,984,300 $ 554,118 $ $ s $ $ $ $ $ 79 J-102 Treatment Plant Strategic Plan Update Treatment s 3,620,000 $ 306,410 s 2,281,590 $ 505,000 $ 527,000 s $ $ s s $ $ $ 80 J-33-3 Power Monitoring and Control Systems Treatment $ 6,764,864 $ 35,482 s 177,518 $ 1,247,941 $ 4,586,051 s 717,872 $ s s $ $ $ $ 81 J-77 Effluent Pumping Station Annex Treatment s 62,140,701 $ 39,266,742 s 10,227,258 s 9,516,730 s 3,129,971 s $ s $ $ $ $ $ 82 P1-97 Plan! 1 66kV Subslation 1 Treatment s 13,487,242 s 25,077 s 777,923 s 2,874,718 $ 9,809,524 $ $ s $ $ $ $ $ 83 03-58 Rehabilitation of Magnolia Trunk Sewer 2 Collection $ 35,422,762 s s 639,000 $ 361 ,040 $ 3,838,176 $ 2,717,995 $ 7,376,708 s 10,054,440 $ 10,435,403 $ s s $ 84 02-24-1 Carbon Cnyn Dam Sewer & Pump Sin. Abandonment 2 Collection $ 8,317,353 $ 981,354 s 347,646 $ 2,264,273 $ 4,724,080 $ $ s $ $ $ s $ 85 P1-82 Activated Sludge Plant Rehabilitation 1 Treatment s 46,928,330 s 4,433,451 $ 17,352,549 $ 19,819,413 $ 5,322,917 $ $ s $ $ $ s $ 86 07-37 Gisler-Redhill System Improvements, Reach B 2 Collection $ 11,788,691 s 556,104 $ 610,848 $ 631,719 $ 8,461,274 $ 1,528,747 s $ $ $ s s $ 87 1-2-4 Bushard Trunk Sewer Rehabilitation 2 Collection $ 83,004,524 $ 24,104,949 $ 7,958,051 s 40,733,142 s 10,208,382 $ s s $ $ $ $ $ 88 J-36 Groundwater Replenishment System 1 Treatment $ 250,050,943 s 103,686,203 $ 74,278,797 s 48,782,467 s 23,303,476 $ $ s $ s s $ $ I 89 J-103 SCADA Historian Replacement 1 Treatment $ 558,000 s $ 176,000 s 172,000 s 210,000 $ s $ $ s $ $ s 90 07-40 West Trunk Improvements 2 Collection $ 247,078 s 136,199 $ 110,879 s s $ s $ $ s $ $ $ 91 SP-100 CMMS System Replacement 1 Treatment $ 3,789,000 $ $ 52,000 s 1,350,000 s 2,387,000 $ s $ $ s $ $ $ 92 SP-03 Strategic Information Architecture (SIA) 1 Treatment $ 1,995,000 $ 529,879 $ 101,121 $ 600,000 s $ s $ $ 764,000 s $ $ $ 93 P1-106 Truck Wash and Dewatering Beds at Plant No. 1 1 Treatment $ 4,357,725 $ 24,676 $ 293,324 $ 315,048 s 3,724,677 $ s $ s s $ $ s 94 SP-89 Network Equipment upgrade 1 Treatment $ 2,901 ,000 $ 1,223,000 $ 100,000 s 500,000 $ 500,000 s 578,000 $ $ $ s $ $ $ 95 SP-53 Plant O&M Manual & SOP Project -Phase I •1 Treatment $ 3,150,000 $ 480,000 $ 270,000 $ 1,400,000 $ 1,000,000 s $ $ s s $ $ $ 96 P2-74 Rehabilttation of Activated Sludge Plant at Plant2 1 Treatment $ 17,420,116 $ 2,783,311 $ 839,724 $ 5,450,196 s 6,553,178 s 1,793,706 $ $ s s $ $ $ 97 02-41 Santa Ana River Interceptor Realignment and Prol. 2 Collection s 9,485,029 $ 6,619,950 $ 179,996 $ 415,795 s 1,059,857 s 1,209,431 $ $ $ $ $ $ $ 98 P2-80 Primary Treatment Rehab/Refurb 1 Treatment s 56,205,019 $ 3,503,535 $ 3,824,348 $ 1,010,813 s s $ 13,906,141 $ 24,110,565 s 9,849,617 s !II $ $ 99 05-53 Rehabilitation of the Bay Bridge Pump Station 2 Collection s 3,425,865 $ 344,196 s 118,804 s 150,974 $ 207,381 s 1,358,565 $ 1,245,945 $ $ $ s $ $ 100 1-10 Replace111ent of the Ellis Ave. Pump Sin 2 Collection s 71,364,430 s 2,685,621 $ 3,311,379 $ 21 ,258,515 $ 26,801,421 s 17,307,494 $ $ $ $ $ $ $ 101 05-58 'sitter Point Force Main Rehabilitation 2 Collection s 22,692,204 $ 1,610,274 $ 130,726 $ 7,355 $ 23,156 s 18,659,897 $ 2,260,796 s $ $ s s $ 102 02-41-01 Abandonment of the existing SARI in SA River 2 Collection $ $ $ $ $ s $ $ $ s s s $ 103 07-57 Lower Gisler-Redhill Trunk Relocation and MH Rehab 2 Collection $ $ s $ $ $ s s $ $ $ s $ 104 02-67 SARI and South Anaheim Interceptor MH Rehab. 2 Collection $ $ $ s $ s s $ $ $ s s $ 105 SP-09 Internet/Intranet Development 3 Other $ 650,000 s 23,686 $ 461 ,314 $ 90,000 $ $ $ s $ 75,000 $ s s $ 106 P1-109 Enterprise Contract Management Solution 3 Other $ 1,175,000 s s 5,000 s 170,000 $ 175,000 $ 100,000 s 100,000 $ 625,000 $ $ $ s s 107 02-66 Upper & Lower Newhope-Placentia MH Rehabilitation 2 Collection $ s $ s $ $ s $ $ $ $ $ s 108 FE-Collect FE-Collect Facilities Engineering Projects -Collections 2 Collection $ 5,399,957 s 1,433,547 $ 159,453 $ 151 ,711 $ 145,622 $ 147,052 $ 151 ,702 $ 151 ,702 $ 150,207 s 149,511 $ 214,085 s 267,266 s 299,638 109 01-17 Santa Ana Trunk Sewer Rehab. 2 Collection $ 18,692,134 s 419,472 $ 82,834 s· 289,670 $ 2,160,255 $ 4,829,558 $ 8,097,458 $ 2,812,887 s $ $ $ s 110 07-49 Rehabilitation of the MacArthur Pump Station 2 Collection $ 656,000 $ 306,474 $ 349,526 $ s s $ $ $ s s $ s 111 07-59 Upper Gisler-Redhill MH Rehabilitation & Campus Dr 2 Collection $ s $ $ s s s $ $ s $ $ $ 112 02-31 Santa Ana River Interceptor Relief Sewer 2 Collection $ 277,423 $ 277,423 $ s $ s $ $ s s $ $ $ 113 FE-P2 FE-P2 Facilities Engineering Projects -Plant 2 1 Treatment $ 18,199,530 $ 2,687,924 s 289,076 $ 449,194 s 427,330 s 431,220 $ 441 ,907 $ 434,904 s 427,541 $ 420,501 $ 771,449 $ 1,057,684 $ 1,225,538 114 02-49 Taft Branch Improvements 2 Collection $ 979,000 $ 9,386 $ 2,697 $ s 50,000 $ 30,000 $ 140,000 $ 140,000 $ 340,000 $ 266,917 $ $ $ 115 FE-J FE-J Facilities Engineering Projects -Joint Works 1 Treatment $ 18,230,119 $ 974,546 $ 303,727 $ 481,441 s 441,409 :s 444,705 $ 458,767 s 458,767 $ 458,767 $ 457,009 $ 859,669 $ 1,192,794 $ 1,393,737 116 SP-15 Geographic Information System 2 Collection $ 4,157,000 $ 567,000 $ 494,000 $ 695,000 s 410,000 s 410,000 $ 410,000 s 410,000 s 410,000 $ 351 ,000 s s $ 117 J-62 Modifications to Existing Mech. Systems 1 Treatment $ 272,216 $ 272,21 6 $ $ $ s s $ $ $ s s $ 118 FE-P1 FE-P1 Facilities Engineering Projects -Plant 1 1 Treatment $ 18,197,830 $ 2,457,026 $ 1,000,974 $ 730,864 s 786,195 s 1,148,054 s 1,184,354 $ 1,184,354 s 1,184,356 $ 1,179,818 s 1,240,976 s 973,396 $ 904,232 119 P1-71 Headworks Rehabilitation/Refurbishment 1 Treatment s 5,046,434 s 210,148 s 156,852 $ 829,600 $ 624,483 s 2,598,760 s 626,591 $ $ $ $ s $ 120 P2-89 Rehabilitation of Solids Storage Silos C & D at Pl 1 Treatment $ 23,145,366 s 1,719 s 2,000 $ 378,222 $ 727,172 $ 1,388,454 s 1,436,289 s 10,330,881 s 5,716,071 s 203,582 s 2,960,976 s s 121 05-61 Bayside Drive Improvement 2 Collection s 2,797,056 s $ 32,000 s 333,171 $ 319,994 $ 794,380 $ 862,472 $ 455,039 $ s s $ s 122 J-98 Electrical Power Distribution System Improvements 1 Treatment $ 5,550,256 s $ s $ 34,521 $ 644,642 s 558,522 $ 2,577,479 $ 1,735,092 s $ s s 123 05-47 Balboa Trunk Sewer Rehabilitation 2 Collection $ 7,873,290 s $ s 55,301 $ 373,257 $ 1,112,099 $ 908,723 $ 4,327,769 s 1,096,141 s $ $ $ 124 03-52 Rehabilitation of West Side Pump Station 2 Collection s 7,299,000 s 930,614 $ 425,386 $ 435,000 $ 875,000 $ 3,447,000 $ 1,186,000 $ s $ $ $ s 125 02-52 Euclid Relief Improvements -Reach "A" 2 Collection $ 23,050,000 $ 13,510 $ $ $ 274,000 $ 650,000 $ 1,200,000 $ 2,320,000 s 10,500,000 s 8,092,490 $ $ $ 126 05-50 Replacement of the Rocky Point Pump Station 2 Collection $ 32,976,652 $ 3,222,725 $ 505,275 s 1,777,536 $ 1,164,396 s 15,799,819 $ 7,194,740 $ 3,314,161 s $ $ $ $ 127 SP-68-2 Asset Management Program 3 Other $ 5,100,000 $ 630,000 s 220,000 $ 750,000 $ 750,000 $ 750,000 $ 750,000 s 750,000 s 500,000 $ $ $ $ 128 SP-68-1 Corrosion Management 1 Treatment $ 6,859,000 $ 277,000 $ 105,000 $ 1,955,000 s 1,918,000 s 1,478,000 $ 1,126,000 $ s $ $ $ $ 129 07-47 Rehabilitation of College Ave. Pump Station 2 Collection $ 7,919,248 $ 395,153 $ 494,412 $ 290,487 $ 1,170,869 s 4,192,416 s 1,375,911 $ $ $ $ s $ 130 P1-104 Regional FOG Control Collection at Plant No. 1 1 Treatment $ 3,194,889 $ $ '$ $ 136,539 $ 613,923 $ 1,419,033 $ 1,025,394 $ $ s $ $ 131 P2-79 Gas Compressor Building Upgrades at Plant No. 2 1 Treatment $ 5,024,194 $ 388,886 $ 1,272,868 $ 299,329 $ 2,801,618 $ 261,493 $ $ $ $ s s $ 132 11-26 Coast Trunk Sewer Rehabilitation 2 Collection $ 10,942,677 $ 835,548 $ 637,452 $ 408,800 $ 688,892 s 6,806,990 $ 1,564,995 s $ $ s s $ 133 P2-92 Sludge Dewatering and Odor control at Plant 2 1 Treatment $ 51,696,202 $ $ 235,000 $ 462,547 $ 1,478,176 $ 2,081 ,175 $ 1,473,601 $ 13,509,659 $, 21,430,047 $ 11,025,997 $ $ s 134 02-68 Rehabilitate District Siphons By Adding Air Jumper 2 Collection s 5,246,000 $ 294,197 s 549,803 $ 371,000 $ 196,000 $ 1,286,000 $ 1,617,000 $ 932,000 $ $ s s s 135 P2-91-1 Rehab at Plant No 2 1 Treatment s 45,286,082 s $ 341 ,000 $ 1,589,091 $ 1,842,001 $ 1,705,872 $ 3,187,606 $ 15,380,532 $ 13,057,925 s 8,182,055 $ $ s 136 07-22-1 Lemon Heights Subtrunk Street Rehabilitation 2 Collection s 192,419 $ 122,068 s 70,351 s $ $ $ $ $ $ $ $ s 137 P1-105 Headworks Rehab. and Expansion at Plant No. 1 1 Treatment s 14,400,000 s s s s $ $ 169,499 $ 187,540 s 937,356 s 466,524 $ 6,583,137 $ 3,938,751 $ 2,117,191 138 J-79-1 Central Generation Automation 1 Treatment $ 13,558,246 s 355,899 $ 1,000,101 s 541,586 s 4,074,415 $ 6,053,757 $ 1,532,488 $ $ s $ $ s 139 03-56 Rehabilitation of the Seal Beach and Edinger PS 2 Collection s 144,000 $ 16,528 $ 127,472 s s $ $ s s s $ $ s 140 P2-91 Digester Rehabilitation at Plant 2 1 Treatment s 22,478,766 $ 907,865 $ 2,267,135 s 1,137,207 s 14,006,964 s 4,159,595 $ $ $ $ $ $, $ 141 J-71-8 Rehabilttation of Odor Control Facilities 1 Treatment $ 38,233,451 $ 3,541 ,859 $ 2,465,312 $ 1,415,644 s s $ 16,177,056 $ 12,633,579 s $ $ $ $ 142 15-04 North County Collections Yard 2 Collection $ 10,050,000 $ $ 10,000,000 s 50,000 $ s s s $ $ $ $ $ 143 J-47 Cable Tray Improvements at Plants 1 & 2 1 Treatment $ 27,887,014 $ 1,194,659 $ 822,341 $ 2,384,344 s 56,318 s 1,576,408 $ 8,996,496 s 7,109,437 s 5,747,011 $ s s $ I Collection, Project Treatment FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 No Number Project Title or Oth1:1r Total Bud9eI ueto FY06 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 144 05-49 Replacement of the Bitter Point Pump Station 2 Collection $ 34,612,223 s 1,645,664 $ 744,336 $ 1,037,196 s 16,182,066 $. 15,002,961 $ $ $ $ $ $ $ 145 P1-100 Sludge Digester Rehabilitation at Plant 1 1 Treatment $ 54,917,218 $ 625,159 $ 1,537,841 $ 1,864,781 $ 1,491,894 $ 1,906,791 $ 17,052,601 $ 20,812,997 $ 9,625,154 $ $ $ $ 146 P1-101 Sludge Dewatering and Odor control at Plant 1 1 Treatment $ 134,683,627 $ 484,415 $ 3,137,585 $ 5,536,991 $ 3,948,347 $ 1,777,910 $ 19,288,626 $ 57,789,343 $ 25,585,136 $ 17,135,274 $ $ $ 147 P2-66 Headworks Improvements al Plant No. 2 1 Treatment $ 259,177,566 s 18,700,457 s 26,417,543 '$ 27,959,081 $ 72,299,163 $ 62,025,327 $ 28,691,885 $ 9,583,065 $ 13,501,045 $ $ $ $ 148 P1-102 New Secondary Treatment System al Planl No. 1 1 Treatment $ 275,845,123 $ 8,008,522 $ 7,010,478 $ 7,405,388 $ 53,078,804 $ 42,910,213 $ 34,571,304 $ 44,605,342 $ 36,486,833 $ 41,768,239 $ $ $ 149 P2-90 Trickling Filters at Plant No. 2 1 Treatment $ 246,998,227 s 4,106,862 $ 5,522,138 $ 6,917,156 $ 51,096,876 $ 74,002,857 $ 59,642,346 $ 9,263,076 $ 36,446,916 $ $ $ $ 1 150 POTW_1 Drying beds and truck wash at replacement at Plant No. 2 1 Treatment $ 5,000,000 $ s $ 400,000 $ 600,000 $ 3,500,000 $ 500,000 $ $ $ $ $ $ 151 Co11_1 Raitt and Bristol Street Sewer Extensions 2 Collection $ 2,000,000 $ s $ 150,000 $ 300,000 $ 1,200,000 $ 350,000 $ $ $ $ $ $ 152 Coll_2 SARI Repairs and Protection 2 Collection $ 2,500,000 s s $ 2,500,000 $ $ $ $ $ $ $ s $ 153 Support Control Center Space Allocation 3 Other $ 150,000 $ s $ 150,000 $ $ $ $ $ $ $ s $ 154 ColL3 County Island Annexation and CEQA 3 Other $ 250,000 s $ s 150,000 $ 100,000 $ $ $ $ $ $ s $ 155 Co11_4 Dover Sewer Parallel 2 Collection $ 2,000,000 s s s 150,000 $ 300,000 $ 1,200,000 $ 350,000 $ $ $ $ $ $ 156 Coll_5 Newport Blvd. 2 Collection $ s $ s $ $ s $ $ $ $ s $ 157 ColL6 Lake 2 Collection $ 2,000,000 s s $ 150,000 $ 300,000 $ 1,200,000 $ 350,000 $ $ $ $ s $ 158 POTW_2 Digester A & B Rehabilitation Study at Plant No. 2 1 Treatment $ 2,600,000 s s 67,000 s 2,533,000 $ $ $ $ $ $ $ $ $ 159 New Projecls 3 Other $ $ s s $ $ s $ s $ s $ $ J 160 Contingency Correction 3 Other $ $ s s $ $ $ $ s $ $ $ $ 161 Equipment 3 Other $ 19,978,600 $ s 1,978,600 5 3,400,000 $ 3,400,000 $ 3,400,000 $ 3,400,000 $ 3,400,000 $ 1,000,000 $ s $ $ 162 Warner Syhpon Relocations 3 Other $ $ $ s $ $ $ $ $ $ $ $ $ 163 BPT-01 2 Collection $ 1,840,000 $ $ s 276,000 $ 368,000 $ 552,000 $ 460,000 $ 184,000 s $ s s $ 164 BKR-01 2 Collection $ 9,190,000 $ $ s 1,378,500 $ 1,838,000 $ 2,757,000 s 2,297,500 $ 919,000 s $ $ s s 165 Hats-01 2 Collection $ 3,570,000 $ $ s $ 535,500 $ 714,000 s 1,071 ,000 $ 892,500 $ 357,000 $ $ $ $ 166 EUB-01 2 Collection $ 860,000 $ $ $ $ 129,000 $ 172,000 s 258,000 $ 215,000 $ 86,000 $ $ s s 167 Knt-02 2 Collection $ 100,000 $ $ $ 100,000 $ $ s $ $ $ $ s $ 168 Mlr-01 2 Collection $ 9,210,000 $ $ $ $ $ 1,381,500 s 1,842,000 $ 2,763,000 s 2,302,500 $ 921,000 s $ $ ( 169 Sun-01 2 Collection $ 330,000 $ $ $ $ $ s 49,500 $ 66,000 $ 99,000 $ 82,500 $ 33,000 $ $ 170 MH Rehab Program 2 Collection $ 1,540,000 $ $ s 700,000 $ 840,000 $ s $ $ $ $ $ $ 171 2 Collection $ $ $ $ $ $ $ $ $ $ s $ s 172 Oxygen Plant Rehabilitation 1 Treatment $ $ $ $ $ $ $ $ s $ s $ $ 173 Board Room AV 3 Other $ 498,000 $ $ $ 498,000 $ $ $ $ $ $ $ $ $ ADDED R&R Projec1 Assumption 1 Treatment $ 721,086,267 $ $ $ $ $ $ $ 777,649 $ 2,332,948 $ 54,898,935 $ 62,998,931 $ 72,394,491 $ 82,028,011 ADDED R&R Project Assumption 2 Collection $ 190,198,049 $ $ $ $ $ $ $ 205,117 $ 615,352 $ 14,480,473 $ 16,616,977 $ 19,095,206 $ 21,636,201 ADDED R&R Project Assumption 3 Other $ 15,979,684 $ $ $ $ $ $ $ 17,233 $ 51,699 $ 1,216,592 $ 1,396,092 $ 1,604,303 $ 1,817,788 Totals $ 3,514,560,481 $ 479,778,760 $ 251,120,847 $ 267,891,360 $ 364,020,884 $ 324,585,638 $ 261,311,563 $ 266,818,313 $ 213,542,317 $ 162,672,395 $ 95,268,292 $ 104,769,364 $ 115,948,277 SUMMARY OF CAPITAL EXPENDITURES & REVENUES Ca9ital Ex9endlturos (Escatatodl ~ Replacement $ 2,011,599,343 $ 149,704,191 $ 83,987,120 $ 129,385,465 $ 137,819,013 $ 145,556,129 $ 129,322,558 $ 144,781,549 $ 101,110,703 $ 101,167,606 $ 86,791,286 $ 98,568,542 $ 110,348,282 Improved Treatment 722,301,001 82,952,331 57,873,433 47,698,218 118,784,250 120,479,450 100,914,091 79,767,534 76,817,199 30,600,541 1,470,552 523,671 573,472 Additional Capacity 663,518,858 214,249,147 86,359,117 75,174,040 89,663,892 51,611,868 24,953,405 36,749,772 32,532,284 29,992,222 6,543,527 5,153,481 4,453,051 Support 117 141 279 32 873 091 22 901,176 15,633,637 17 753 730 6.938.191 6.121 510 5.519 459 3082131 912.026 462.927 523.671 573 472 $ 3,514,560,481 $ 479,778,760 $ 251,120,847 $ 267,891,360 $ 364,020,884 $ 324,585,638 $ 261,311,563 $ 266,818,313 $ 213,542,317 $ 162,672,395 $ 95,268,292 $ 104,769,364 $ 115,948,277 Flow $ 1,533,861,474 $ 264,793,477 $ 165,368,405 $ 169,493,728 $ 170,987,135 $ 149,238,217 $ 73,541,273 $ 45,012,136 $ 39,232,340 $ 41,126,540 $ 42,995,130 $ 49,051,589 $ 53,504,245 BOD 1,297,570,429 130,577,921 61,151,610 68,750,511 148,858,616 144,581,120 129,426,936 103,349,024 102,088,948 78,074,388 32,344,007 36,208,625 40,833,086 TSS 683 128 579 84 407,362 24,600 832 29 647 121 44 175 134 30,766,301 58,343,353 118.457 153 72.221 ,029 43 471 467 19,929,155 19 509,150 21 ,610,946 $ 3,514,560,481 $ 479,778,760 $ 251,120,847 $ 267,891,360 $ 364,020,884 $ 324,585,638 $ 261,311,563 $ 266,818,313 $ 213,542,317 $ 162,672,395 $ 95,268,292 $ 104,769,364 $ 115,948,277 Capital Expondltyres (Unescalatod) Replacement Flow $ 800,304,987 $ $ $ 111,392,273 $ 114,874,468 $ 118,985,132 $ 64,163,197 $ 38,082,380 $ 28,911,425 $ 30,820,345 $ 32,305,422 $ 35,293,589 $ 38,056,644 BOD 782,452,117 52,653,674 104,095,496 108,838,203 98,391,373 65,599,071 67,451,469 43,925,466 25,611,501 28,254,335 30,994,437 TSS 466 641 409 23,628.707 39 913.007 27.909 571 52,308.806 99.480.523 59.134 039 36,239.619 14.224.431 15 089.775 16,400,725 1. $ 2,049,398,514 $ $ $ 187,674,654 $ 258,882,971 $ 255,732,906 $ 214,863,375 $ 203,161,975 $ 155,496,932 $ 110,985,429 $ 72,141,353 $ 78,637,699 $ 85,451,807 Expansion Flow $ 157,512,922 $ $ $ 58,101,455 $ 51,132,459 $ 21,686,202 $ 3,137,486 $ 1,910,320 $ 4,930,737 $ 3,622,485 $ 2,653,554 $ 3,428,188 $ 2,949,905 BOD 174,074,367 16,096,837 40,427,432 27,443,369 20,052,609 26,225,198 20,611,354 21,460,605 687,137 329,088 300,723 TSS 22 719 749 6 018 414 2 975.472 1 090 618 1 083 627 5 767 122 3 164 455 167 050 1 979 796 310 929 162 265 $ 354,307,038 $ $ $ 80,216,706 $ 94,535,363 $ 50,220,188 $ 24,273,722 $ 33,902,641 $ 28,706,546 $ 25,250,141 $ 5,320,486 $ 4,068,205 $ 3,412,893 $ 2,403,705,552 $ $ $ 267,891,360 $ 353,418,334 $ 305,953,095 $ 239,137,097 $ 237,064,615 $ 184,203,478 $ 136,235,570 $ 77,461,839 $ 82,705,904 $ 88,864,699 l De-escalation Factor: n/a nla 1.00 1 03 1 06 1.09 1, 13 1.16 1.19 1.23 1.27 1.30 (1) Capital Improvement Plan includes repair and replacement projects in addition to the District's base CIP. These projects account for unknown projects. [ l District facilities. Pretreatment offers several major advantages including: reducing the treatment requirements at the plant, reducing the level of oil and grease in the collection system, and reducing the District's costs. Pretreatment also reduces the user's bill from the District. To the extent that a users' pretreatment program can eliminate the most easily removable impurities, the program may more than pay for itself. If pretreatment is expensive for the level of pollutant reduction, then this program may be more costly for the users. Pretreatment also reduces the peaks in flow and especially loadings to the plant. Domestic users discharge relatively predictable flows and loadings, while industrial and other major users without a pretreatment program may discharge high peak loadings. There is still considerable swings in plant flows and loadings. BW A reviewed 2004/05 permit user flow data. We found a great variation in flow from month to month for many large users. Variability of 40% in flow volumes was common. This variation is greater than or about the same as that for residential and small commercial users. Cost of Service: The State of California Water Resources Control Board's (SWRCB) Revenue Program Guidelines for wastewater agencies develops a system of charges that allocate costs among user classes on the basis of wastewater flow and strength. Basically, service charges must be relatively proportional to wastewater flow and strength. Wastewater agencies have considerable leeway in determining the details that form the basis of the charges including assumptions allocating costs, developing cost estimates, assigning costs to user classes, and methods of collecting charges. The general governing factor regarding developing equitable rates and charges is that such charges and the underlying assumptions must be reasonable and generally applied. Table 2 shows total system costs, loadings, and subsequent unit cost derivations for fiscal year 2004/05. The table summarizes how costs are categorized and how they are allocated among the parameters of flow, BOD, and SS. The cost allocation percentages are based on District staff and consulting engineers' judgment. All of these allocations are within industry standards and are reasonable. Other estimated allocations could be made, but would not necessarily be more accurate or more appropriate. Of importance to the permit user group is Column C -Joint (treatment plant) Operation and Maintenance. This cost category covers about 50% of total District costs. Most of the costs in this category ( combined 88%) are allocated between the strength factors of BOD and SS. This results in an important benefit to users that implement pretreatment programs removing these pollutants. 5 Book Page 112 Table 2 • OCSD Calculation of FY 2004-05 Charges A.. ~ ~ Q ~ E §. l::!. Ref Descrielion CollO&M Coll CIP Joint O&M Joint CIP COPs Eguit~Adj SFI Total Budget Requirements: $22,605,790 $62,058,000 $86,614,140 $169,165,600 $41,917,000 $2,638,000 $1,876,000 $386,874,530 2 Remove interfund budgets (2,638,000) (1,876,000) (4,514,000) 3 Remove Fluctuating CIP With Capacity (62,058,000) (169 165.600) (231,223,600) 4 Add Avg "Cash-funded" CIP W/o Capacity 9,877.061 32.550,843 42427.904 5 Requirements for Rate Setting 22,605,790 9,877,061 86,614,140 32,550,843 41,917,000 0 0 193,564,834 6 Reduce for Interest Income (4,677.628) (12.750.874) (3.159,498) (20,588,000) 7 Net Requirements for Smooth Rate Setting 22,605,790 5,199,433 86,614,140 19,799,969 38,757,502 0 0 172,976.834 a:, No Capacity No Capacity No Capacity 0 8 Allocation Parameters: 04-05 Budget Validated CIP 03-04 Actual Validated CIP Combo VCIP 0 ~ 9 Flow 50% 90% 12% 35% ,50% ~ 10 BOD 10% 34% 33% 27% (Q 11 ss 50% 54% 32% 23% C1) Resultant ""' ""' Weighted c.., 12 Allocation to Parameters: Coll O&M Coll CIP Joint O&M JointCIP COPs Total Average% 13 Flow 11,296,561 4,679,490 10,393,697 6,929,989 19,378,751 52,678,488 30% 14 BOD 0 519,943 29,448,808 6,533,990 10,464,526 46,967,266 27% 15 ss 11,309,229 0 46,771,636 6,335,990 8.914.225 73,331,080 42% 16 22,605,790 5,199,433 86,614,140 19,799,969 38,757,502 172,976,834 100% District Loadings: Flow, million gallons 91,250 91,250 91,250 91,250 91,250 BOD, 1000 lbs 173,514 173,514 173,514 173,514 173,514 SS, 1000 lbs 177,014 177,014 177,014 177,014 177,014 Proposed Would Ra.lse 17 Parameter Rates: CollO&M CollCIP Joint O&M Joint CIP COPs Rates 18 Flow$ per MG $123.80 $51.28 $113.90 $75.95 $212.37 0.000002 0.15 $577.30 $52,678,488 19 BOD $ per 1000 lb $0.00 $3.00 $169.72 $37.66 $60.31 0.000001 $270.68 $46,967,266 20 SS $ per 1000 lb $63.89 $0.00 $264,23 $35.79 $50.36 0.000001 $414.27 $73,331 ,080 21 $172,976,834 6 Adopted permit user charges for 2003/04 through 2007 /08 are shown in Table 3 below. The District is considering revisions to these charges based on new information currently being developed. Table 3 • OCSD Adopted Charges for Permit Users 2003/04 2004/05 2005/06 2006/07 2007/08 Flow $316.38 $577.30 $637.55 $711.27 $773.32 BOD 216.13 270.68 288.50 311.21 330.53 ss 207.35 414.27 432.14 454.19 473.50 Capital Facilities Capacity Charges (CFCCs) The District imposes a Capital Facilities Capacity Charge (CFCC) on new development (including expanded use of existing users) connecting to the wastewater system in order to recover capital costs associated with providing capacity for new users. The CFCC is a one-time charge imposed on new development or expansion of existing users that places an additional demand for capacity on the District's wastewater system. The CFCC is calculated similarly to the service charge described above, with capital costs of capacity allocated among flow, BOD, and SS cost components in order to develop unit rates. The base CFCC is set to equal the capital costs required to support the flows and loadings typical of an average 3-bedroom single-family residence. Other residential CFCCs are based on a multiple of this base charge, by number of bedrooms. Commercial and industrial development CFCCs are developed in units of CFCC per 1,000 square feet, with three categories representing low, average, and high demand wastewater users. Table 4 shows the derivation of the current CFCC charges. 7 Book Page 114 Table 4 • OCSD Calculation of CFCC Commercial Residential / Industrial Additional Capacity Projects $548,416,000 $287,584,000 Adjust Wet Weather Flow Facilities 35,184,000 (35,184,000} Additional Capacity Adjusted for WW 583,600,000 252,400,000 New EDUs in 2020 202,000 106,000 CFCC per EDU 2,890 2,380 New Non-Res 1000 sq ft in OCSD 126,000 New Non-Res 1000 sq ft o/s OCSD 115,000 Total New Non-Res 1000 sq ft 241,000 CFCC per 1000 sq ft 1,050 Use Category SFR Factor Res Rates Non Res Rates Commercial/ Industrial Low Demand $170 Average Demand 1,050 High Demand 2,490 Single Family Residential 5+ Bedrooms 1.39 $4,020 4 Bedrooms 1.19 3,440 3 Bedrooms 1.00 2,890 2 Bedrooms 0.81 2,340 1 Bedrooms 0.62 1,790 Multi-Family Residential 4+ Bedrooms 1.08 3,120 3 Bedrooms 0.89 2,570 2 Bedrooms 0.70 2,020 1 Bedrooms 0.50 1,450 Studio 0.32 920 Appendix A contains tables showing the allocation of projects between existing customers and new growth, as well as between the cost components of flow, BOD, and SS. Table A-1 allocates the total cost of projects from the District's Validated CIP between four categories: • Replacement/rehabilitation • Improvements/upgrades 8 Book Page 115 • Additional capacity • Support The portion of project costs allocated to additional capacity is collected through CFCCs, while the other three components are collected through service charges, as described above. Table A-2 shows the allocation of project costs between flow, BOD, and SS, as well as showing allocation between existing users and additional capacity. This allocation of costs between the three components of wastewater allows the project costs to be distributed to the respective unit costs. Bartle Wells Associates has reviewed allocation of project costs and found them to be reasonable. As an example, project 1-17 Santa Ana Trunk Sewer Rehabilitation, intended to rehabilitate the existing Santa Ana trunk sewer, is allocated 100% to existing customers, while the related project 2-51 Santa Ana River Relief Sewer, intended to expand capacity, is allocated 100% to additional capacity. Allocation of Full Secondary Cost: The CIP includes cost and allocation of full secondary treatment. As of September 2004 these project total over $480 million. Costs are allocated 40% to improved treatment and 60% to additional capacity. Allocation of any of these costs to current users has been questioned. Virtually every other wastewater agency in California has been required to upgrade treatment standards to provide full secondary treatment. Many are required to provide advanced treatment beyond secondary. To our knowledge, every agency has allocated these cost between current and future users based on some proportion of the capacity required. There is no equitable justification in this case to allocate the costs of current flow treatment upgrades to future users. Further, the cost of secondary treatment is allocated to BOD -93% and SS -7%. In the judgment of the District's consulting engineers, the basic purpose of secondary treatment is to remove BOD. At the same time an additional small percentage of SS is also removed. The consulting engineers developed this allocation based on the design parameters that will dictate the size and configuration of the projects. Perhaps other cost allocations could be used, but they would not necessarily be more equitable. Ground Water Replenishment System Costs: The ground water replenishment system is a replacement project for a second deep-water outfall system. The outfall would only add capacity to dispose of treated wastewater and would provide no benefit to current users. As of September 2004, the District's share of GWRS is estimated to cost about $236 million and is allocated 36% to existing users and 64% to future users. The project costs allocated to current users is slightly below the allocation for full secondary treatment. One half of groundwater replenishment costs are paid for by the water district. Not only does the GWRS eliminate the need for the additional outfall, the project does provide benefits to current users. The project reduces the need for imported water because GWRS water is percolated into the ground to supplement the groundwater basin. 9 Book Page 116 This basin is the main source of local water supply in Orange County. The project also supplies injection water to provide a seawater intrusion barrier protecting existing groundwater. GRWS water is low in total dissolved solids and helps dilute the groundwater. The resulting mix is less harmful to pipelines, appliances, and machinery. If the water and wastewater districts did not build the GWRS project, the current amount of pumping would cause dissolved solids to increase to the point where the water would no longer be useable. Supplemental Facilities Capital Charges (SCFCCs) The District also imposes a Supplemental Capital Facilities Capacity Charge (SCFCC) on Permit Users based on the expected flows and loadings in excess of the base loadings allowed for commercial/industrial CFCCs (25,000 gpd). The supplemental charge is equal to the unit cost of flow, BOD, and SS capacity, plus cost of funds. The concept of a supplemental capital charge for capacity use above the base level capacity is equitable. The theory is that a customer is using capacity beyond the level funded in the amount charged as a CFCC. If not collected as an initial capacity charge, then some other users must be funding the capital costs of the facilities being used. A supplemental charge should be collected to make up the difference. An SCFCC could be determined based on a reasonable lease of the excess facilities used. To review the equity of the current SFCC we calculated the amount of the current SCFCC in comparison to the District's CFCC. For a single family dwelling the CCFC is about $2,800 and this provides an average capacity of 250 gpd, with strength of 232.6 ppm of BOD and 250 ppm of SS. Based on the current SCFCC rates, this daily capacity would be charged about $180 per year. Another reasonable method of determining the SCFCC would be to capitalize the CFCC at some reasonable level. Often a capitalization rate of 8% to 10% is used. For a CFCC of $2,800 this would indicate an annual SCFCC in the range of $220 to $280 per year. This indicates that current level of SCFCC appears reasonable. Cost Allocation As discussed in the section on existing rates and fees, the District uses five categories in its cost allocation. Each category in tum has its costs allocated to Flow, BOD and SS. Allocations to the categories may vary year by year. O&M allocations for collection system and treatment and disposal vary based on actual expenditures in previous years while the CIP cost categories vary based on specific projects and their costs. The debt service allocation is calculated as a weighted average of the CIP allocations. The allocation for 2004/05 is shown in Table 5. Unallocated Costs: Most wastewater agencies allocate treatment O&M costs among flow, BOD, and SS by some indirect method because there is no exact science to assignment of such costs. For example, should administrative costs be assigned to flow or to wastewater strength? The Revenue Program Guidelines for wastewater agencies 10 Book Page 117 suggests a rule of thumb treatment cost allocation of 34% flow, 33% BOD, and 33% SS or any other allocation that an agency can reasonably justify. This means that standard wastewater agency practice is to essentially estimate 100% of how these costs are assigned. The District assigns treatment and disposal O&M based on the costs that are reasonable measurable and extends that share to the remaining unassignable costs. When a person at the District works on a specific piece of equipment at the plant or collection system, their time is tracked and allocated to that piece of equipment or to the collection system. These items already have flow, BOD, and SS allocations and therefore these costs can be allocated to these categories. Up to 2/3rds of non-capital costs however, such as administrative costs, cannot be so directly allocated and are "unassignable". Unassignable costs are given the weighted average allocation of those O&M costs that are assignable. Based on our review of the District's rate model for the past several years, flow, BOD, and SS cost allocations are based on actual historical allocations. In many ways this method is preferable to an allocation by rule of thumb. The allocation is based on actual experience, and is specific for the District. The allocations may change with changing conditions and can help identify areas where saving may be possible. Table 5 • OCSD 2004/05 Cost Allocation O&M CIP Collection Treatment and Collection Treatment and System Disposal System Disposal Debt Service Flow 50% 12% 90% 35% 50% BOD 34% 10% 33% 27% ss 50% 54% 32% 23% The District staff report of October 13, 2004 and included as Appendix B details the methodology for determining the allocation of each cost category among Flow, BOD, and SS. BWA reviewed the allocations and the reasoning behind them and believe them to be within the acceptable range used in engineering practice. BW A also believes that the explanations of the allocations used are based on sound principles. Property Tax Revenues OCSD receives a portion of the County's 1 percent general property tax levy collected from properties located within the District's service area. The District's last rate study indicates that these property tax funds were subtracted from the District's total revenue requirements prior to derivation of unit costs of service. 11 Book Page 118 However, beginning in 1998/99, Permit Users' property tax payments were also deducted from their calculated service charge, even though total property tax revenues had already been deducted when determining unit rates used to calculate service charges, resulting in a double-counting of the Permit Users' property tax payment. Impact of Property Taxes: Table 6 shows the impact on rates of using property taxes to reduce the net revenue requirement for FY 2004-05. This table is identical to Table 2 except that an estimated $28 million of property taxes are used to reduce the amount required to fund debt service (COPs). The table below compares user charges both including and not including property tax revenues. Flow BOD ss $per MG $ per 1,000 lbs $ per 1,000 lbs Prior to Property Taxes $577.30 $270.68 $414.27 After Property Taxes $423.87 $227.11 $377.89 The change in rates is dramatic and does not impact each parameter the same. Flow unit costs are 36% higher when taxes aren't included, BOD costs are 19% higher, and SS costs are 10% higher. This would impact most users with high flow and lower strength wastewater. Revised Rates The District revised rates and eliminated the property tax adjustment to unit costs so that Permit Users would no longer receive excess credit for property tax payments. OCSD derived 2004/05 unit rates of $577.30/MG, $270.68/1,000 lbs BOD, and $414.27/1,000 lbs of SS based on the cost of service, net of contributions from reserves, interest income, and other non-property tax revenues. The calculations assumed no off-setting contribution from property tax. Therefore, these unit rates reflect the cost of service to all District customers as reflected in calculated charges for Permit Users. Consistent with District Ordinance O 1, the District credits Permit Users for tax payments reducing the net amount due on a given invoice. The invoice amount due, plus the tax payments made, equal the full cost of service. Residential and commercial customers would continue to pay lower unit charges in lieu of individual property tax credits. These lower unit charges are determined by deducting property taxes from gross revenue requirements. The effect of the District's new approach in using net cost of service unit rates is that Permit Users receive credit for only what they themselves have paid in taxes. However, this approach to property tax credits is not consistent across the District's user base. Because of the impact of Proposition 13 on assessed values, there is wide variation in individual tax levies. At present, the District credits only Permit Users with their 12 Book Page 119 Table 6 • OCSD FY 2004/05 Rate Calculation -With Property Taxes 8... ~ _Q Q f E ~ tl ~ Descri eti on Coll O&M Coll CIP Joint O&M JointCIP COPs Eguit:tAdj SFI Total 1 Budget Requirements: $22,605,790 $62,058,000 $86,614,140 $169,165,600 $41,917,000 $2,638,000 $1,876,000 $386,874,530 2 Remove interfund budgets (2,638,000} (1,876,000} (4,514,000} 3 Remove Fluctuating CIP With Capacity (62,058,000) (169,165,600) (231,223,600) 4 Add Avg "Cash-funded" CIP W/o Capacity 9,877,061 32,550,843 42,427,904 5 Requirements for Rate Setting 22,605,790 9,877,061 86,614,140 32,550,843 41,917,000 0 0 193,564,834 6 Reduce for Interest Income (4,677,628) (12,750,874} (3, 159,498) (20,588,000} 6a Reduce for Property Tax !28,000,000) 7 Net Requirements for Smooth Rate Setting 22,605,790 5,199,433 86,614,140 19,799,969 10,757,502 0 0 172,976,834 OJ No Capacity No Capacity No Capacity 0 0 8 Allocation Parameters: 04-05 Budget Validated CIP 03-04 Actual Validated CIP ComboVCIP ~ ~ 9 Flow 50% 90% 12'% 35% 50% CQ 10 BOD 10% 34% 33% 27% Cl) 11 ss 50% 54% 32% 23% -.a. Resultant ..., 0 Weighted 12 Allocation to Parameters: Coll O&M Coll CIP Joint O&M Joint CIP COPs Total Average% 13 Flow 11,296,561 4,679,490 10,393,697 6,929,989 5,378,751 38,678,488 27% 14 BOD 0 519,943 29,448,808 6,533,990 2,904,526 39,407,266 27% 15 ss 11 ,309.229 0 46.771.636 6,335.990 2,474,225 66,891,080 46% 16 22,605,790 5,199,433 86,614,140 19,799,969 10,757,502 144,976,834 100% District Loadings: Flow, million gallons 91,250 91,250 91,250 91,250 91,250 BOD, 1000 lbs 173,514 173,514 173,514 173,514 173,514 SS, 1000 lbs 177,014 177,014 177,014 177,014 177,014 Proposed 17 Parameter Rates: Coll O&M Coll CIP Joint O&M Joint CIP COPs Rates Would Raise 18 Flow$ per MG $123.80 $51 .28 $113.90 $75.95 $58.95 0.000001 0.11 $423.87 $38,678,488 19 BOD$ per 1000 lb $0.00 $3.00 $169.72 $37.66 $16.74 0.000001 $227.11 $39,407,266 20 SS $ per 1000 lb $63.89 $0.00 $264.23 $35.79 $13.98 0.000001 $377.89 $66,891,080 21 $144,976,834 13 actual property tax paid while other District users receive an average property tax credit based on total tax revenues. An alternative approach would be to subtract all property tax revenues from total cost of service revenue requirements, before calculating unit costs of service. This would treat property tax revenues in the same way as interest and other income is treated at present, and would apply to all classes of users. This approach has the benefit of treating all customers uniformly by spreading the benefit of property taxes equally. It would also simplify Permit User billing practices by eliminating the property tax credit system. Perhaps most importantly, it would allow the District to easily demonstrate that the same unit costs apply to all classes of customers. However, based on our analysis, most of the large Permit Users would benefit from this approach. At present, large Permit User property tax credit per unit of wastewater flow is less than the average residential property tax per unit of flow, as shown in Table 7. On average, the 334 Permit Users receiving the property tax credit, pay $0.009 in property taxes per I 00 gallons of wastewater flow. An average single family residence pays $0.065 per 100 gallons of wastewater flow. Table 7 • OCSD 2003/04 Property Tax Contributions per Unit of Wastewater Flow OCSD Annual Wastewater Property Tax Property Tax Flow, gallons per 100 gallons Average Single Family Residence $60 92,345 $0.065 Industry A 36,000 459,000,000 0.008 Industry B 6,600 390,000,000 0.002 Industry C 3,400 84,000,000 0.004 334 Tax Credited Permit Users $495,502 5,528,849,900 $0.009 This is the reason for the major impact of the rate revision on Permit Users. As a group they pay less property tax per unit of wastewater discharge than other users. So using property taxes to reduce unit costs is a distinct benefit to the Permit User class. Timing of Permit User Rate Adjustment Below is a summary of the timing of the rate adjustment to Permit and other users. June 2004-District increased all service charge rates by 15% effective July 1, 2004 July 2004 -District identified problem with double credit for Permit User property tax August 2004 -Nonpermit user rates submitted to County Tax Collector for collection September 2004-Proposed rate increase to Permit Users for both property tax and new CIP. 14 Book Page 121 January 2005-New rates effective for Permit User class, including the adjustment for property taxes and an average 9.2% increase due to validation of the new CIP. July 2005 -Average 6.6% increase to Permit Users, 31 % rate increase to other user classes The District's January 2005 rate adjustment to Permit Users not only included a component for the property tax correction, but also included an increase to reflect the new CIP. The District didn't adjust the rates for other user classes because these are included with the property tax bill and can't be adjusted until the following fiscal year. The result was that Permit Users faced a rate increase six months earlier than other user classes. On the one hand the rates were justified by the increase in the CIP. But on the other hand this one group was the only one to receive the increase for six months. However, this inequity was more than compensated for six months later when rates for other user classes were increased 31 % and Permit User rates were increased an average of6.6% There is no hard and fast rule that all user classes must be adjusted at the same time, but in retrospect the District would be well advised to adjust all rates at the same time. The problem was acerbated by the unexpected impact of the property tax adjustment. In the future to avoid confusion, adjustments to user charges should apply simultaneously to all user classes. This situation occurs with water districts every time they adjust rates because water meters are generally read bimonthly. So, about half of water customers pay the higher rate one month earlier than the other half. Rate Comparison with Other Agencies The Permit Users requested an industrial rate comparison with other large wastewater agencies. Table 8 shows several rate comparisons. 15 Book Page 122 Table 8 • OCSD Industrial Rate Comparison Orange County Sanitation District Flow-$/1,000 gal BOD -$/1,000 lbs SS -$/1,000 lbs City of Los Angeles Flow -$/1,000 gal BOD -$/1,000 lbs SS -$/1,000 lbs City of San Diego Flow-$/1,000 gal COD* -$/1,000 lbs SS -$/1,000 lbs 2004/05 $577.30 270.68 414.27 incl 266.00 268.00 $3,424.00 143.60 399.40 County Sanitation District of Los Angeles Flow -$/1,000 gal $478.00 84.50 238.96 COD* -$/1,000 lbs SS -$/1,000 lbs FINDINGS AND RECOMMENDATIONS Alternative Rate Structures 2005/06 $637.55 288.50 432.14 incl 285.00 287.00 $3,681.00 143.60 429.40 $509.00 90.00 254.40 As discussed previously, and based on our review, we find that the District's current system of rates and charges is well within the standards of public wastewater agency practice. We do not believe that any major changes are warranted. Therefore, we would not recommend any major changes to the rate structure because of the disruptions these changes could cause to various user classes. However, the District may wish to consider the following two alternatives for addressing the property tax credit issue: Continue current rates: The District could continue with its current rate structure. This includes higher Permit User unit charges combined with property tax credits. Other user classes do not receive an actual property tax credit, but pay lower unit charges. 16 Book Page 123 Eliminate property tax credits: The District could eliminate the current system for Permit Users and establish uniform unit charges that are net of property tax revenues. The same unit charges would then apply to all users. Permit Users would no longer receive a credit for property taxes. Other Recommendations • The District should co-ordinate future rate increases so that to the extent possible rate adjustments are made simultaneously to all user classes. • The District may want to re-examine the CIP allocation of full secondary treatment to see if some portion of these costs might equitably be allocated to flow. • The District needs to update its CFCC with each update in the CIP. Ideally, these would be at the same rate of change and would automatically apply. An alternative method would be to establish an annual adjustment to the CFCC that is based on the change in the ENR Construction Cost Index for Los Angeles. In addition, the projection of future growth has been lowered. The District should factor the lower growth projection into determination of the CFCC. If implemented, these recommendations would have no impact on service charge unit rates. • If the CFCC is reviewed or updated, the District should consider a supplemental 'buy-in' component of the capacity fee as at present the capacity fees only ask new customers to buy into new facilities required to serve them. They are however served by existing facilities for which they not have contributed. The District is not required to charge new connections the maximum cost of providing capacity but they are permitted to do so by law. If the charge is reviewed, the District may want to examine the allocation of costs between residential and commercial that derives a lower fee for commercial users. The District could derive an average cost of capacity that would be used to calculate fees for all customer classes in the same way. Non-residential customers appear to receive a break under the current methodology. • We suggest that the current SCFCC be confirmed by Carollo Engineers during the current rate and charge review. We would also recommend that industries should have the option of purchasing needed capacity in excess of the 25,000 gpd currently permitted by the District's grandfather clause. If additional capacity is purchased, then the user would not be subject to an additional SCFCC charge. This option may be preferable for some industries wishing to fund more capacity on a one-time basis rather than pay a supplemental annual fee. • Debt service allocation is annually adjusted by the weighted average of the CIP allocation. This can cause abrupt changes in allocations for this cost category. The District could adopt a capital allocation for a five or ten-year period to 17 Book Page 124 eliminate abrupt shifts. More importantly, this method does not accurately reflect the proper allocation of debt actually used. H:\dept\agenda\FAHR\F AHR2006\0506\06.06-42.Rate Study Validation-Att 2.doc 18 Book Page 125 r r r r r r r L L L L L L L L L Callan Associates Inc. Investment Measurement Service Quarterly Review Orange County Sanitation District March 31, 2006 The following report was prepared by Callan Associates Inc. ("CAI") using information from sources that include the following: fund trustee(s); fund custodian(s); investment manager(s); CAI computer software; CAI investment manager and fund sponsor database; third party data vendors; and other outside sources as directed by the client. CAI assumes no responsibility for the accuracy or completeness of the information provided, or methodologies employed, by any information providers external to CAI. Reasonable care has been taken to assure the accuracy of the CAI database and computer software. In preparing the following rep01t, CAI has not reviewed the risks of individual security holdings or the compliance/non-compliance of individual ecurity holdings with jnvestment policies and guidelines of a fund ponsor, nor has jt assumed any respon ibility to do so. Copyright 2006 by Callan A sociate Inc. I l l L Capital Markets Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Active Management Overview Market Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Domestic Fixed-Income ...................................................... 18 Asset Class Risk and Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Investment Manager Asset Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Investment Manager Returns .................................................. 21 Manager Analysis PIMCO-Liquid Operating Monies PIMCO-Liquid Operating Fund Bond Portfolio Characteristics Portfolio Characteristics Detail .............................................. 23 24 25 26 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Ill r r Ill '\;i.\\ , llRi~ l lllC \(,U 111 \',I \ L CAlIAN Mayl, 2006 Mr. Michael D. White Controller Orange County Sanitation Districts 10844 Ellis A venue Fountain Valley, California 92728 C RE: March 31, 2006 Quarterly Performance Report Dear Mike, ~ .. ,. The March 31, 2006 Quarterly Performance Report for the District's investment portfolio is attached. This letter provides a qualitative summary of the most important points covered in the report. Market Overview U.S. stocks got off to a solid start in 2006 with the S&P 500 up 4.2%, its best quarterly showing since the first quarter of 1999. The strong first quarter rally is attributed to a resilient economy, an increase in consumer spending and a renewed interest in technology stocks. Small cap stocks (Russell 2000: +13.9%) surpassed large caps (S&P 500: +4.2%). The S&P 500 Citi Value Index (+5.9%) trumped the S&P 500 Citi Growth Index (+2.6%). Bonds experienced a more difficult last quarter. The Lehman Aggregate Bond Index (a measure of the broad fixed income market) recorded its fourth worst quarter in the past decade, down 0.7% in the first quarter. All subsectors of the credit market ended the quarter down. Mortgage-backed securities (-0.1%) fell the least. The yield on the benchmark IO- year Treasury note rose to its highest level since 2004, on fears of rising inflation and further interest rate increases. During its March meeting, the Fed raised short-term interest rates 0.25% to 4.75%, its fifteenth consecutive rate hike and the first under new Fed Chairman Ben Bemanke, who assumed the role in February. Manager Results The Liquid Operating Money account, managed by PIMCO, produced a 1.08% return for the quarter, slightly better than the return on the 90-day Treasury bill (1.03%), and higher than the prior quarter. For the trailing twelve months, the portfolio gained 3.72%, which is, again, above the 90-day Treasury bill return (3.53%). Over longer time periods, the portfolio ranks in the top decile of Callan's Money Market Mutual Funds Database, on an after-fee basis. As of March 31, 2006, the portfolio's yield is 4.5%, up from 4.1% in the prior quarter. For r L L L L L L L L L Mr. Michael White May 1, 2006 Page2 the Liquid Operating account the increasing short rates from continued Federal Reserve tightening translates quickly into higher yields. The Long Term Operating Fund, also managed by PIMCO, produced a 0.36% return for the quarter, outperforming the Merrill 1-5 Year Gov/Corp index at 0.19%. A yield-enhanced strategy utilizing mortgages contributed to out performance. The Fund has consistently performed in the top quartile over longer time periods in Callan's Defensive Fixed Income Style Group; however, the return ranks poorly in the recent quarter due to the longer duration than peers. As expected, the return for the quarter as calculated by Callan is lower than that reported by the manager (0.36% vs. 0.46%), reversing some of the prior quarter's reported return differential. This discrepancy is common in bond portfolios, and is expected to wash out over time. Our policy is to use the custodian as the independent source of valuations. The Long Term Fund continues to hold one security rated below the 'A' rating minimum of your policy, based on Moody's ratings. The security is issued by United Airlines, a company in bankruptcy. A listing of the five lowest rated securities is provided on page 26 of the report. As for sector guidelines, the Fund has less than 30% invested in corporate notes, and the combination of asset backed securities and mortgages remains below 20%. The Liquid Operating Money account out performed the Long Term Operating Fund for both the quarter and the year. Rising interest rates cause capital losses on the longer duration securities held by the Long Term fund Conversely , the Sanitation District has benefited from higher yields on the Liquid Operating account. Please do not hesitate to call me if you have any questions. Yours truly, Ruthann C. Moomy, Ph.D., CF A Senior Vice President r L L L L L L L L L Mr. Michael White May 1,2006 Page 3 UPCOMING CALLAN EVENTS The Center for Investment Training: "Callan College" • May 1-3 in San Francisco • August 21-23 in San Francisco The "Callan College" is a 2-½ day course designed to help participants learn all aspects of the investment management process and their role within it. We are also offering two specialized programs: Alternative Investments "Callan College" • May 17-18 in Boston The "Callan College" on Alternative Investments will advance the participants' knowledge, understanding and comfort with Hedge Funds, Private Equity and Real Estate investments. Defined Contribution "Callan College" • June 6-7 in San Francisco The "Callan College" on Defined Contribution will provide an understanding of the investment process and procedures upon which successful 401 (k) investment programs are based. Callan Charter Investments Institute Events June Regional Breakfast Workshop • June 21-Westin Buckhead, Atlanta • June 22-The Metropolitan Club, New York "GTAA, 130/30, and Other Return Enhancing Strategies" In this workshop, Callan specialists will discuss the recently increased interest in an array of return enhancing strategies within traditional asset classes. We will discuss Return enhancing strategies such as Global Tactical Asset Allocation, 130/30, Opportunistic Fixed Income and Emerging Markets Debt. Callan professionals will also provide insights relating to institutional demand, product availability and implementation issues with regards to these return enhancement strategies. L L Investment Manager Asset Allocation /I The table below contrasts the distribution of assets across the Fund's investment managers as of March 31, 2006, with the distribution as of December 31, 2005. The change in asset distribution is broken down into the dollar change due to Net New Investment and the dollar change due to Investment Return. Asset Distribution Across Investment Managers • March 31, 2006 December 31, 2005 Market Value Percent Net New Inv. Inv. Return Market Value Percent Domestic Fixed Income Long Term Operating Fund 245,653,440 77.36% 29,600,000 855,750 215,197,690 78.18% Liquid Operating Monies 71,889.832 22.64% 11,100.000 745,681 60,044,151 21.82% Total Fund $317,543,272 100.0% $40,700,000 $1,601,431 $275,241,840 100.0% Orange County Sanitation District [ LONG TERM OPERATING FUND PORTFOLIO CHARACTERISTICS DETAIL MARCH 31, 2006 Weighted Average Portfolio Characteristics Total Fund, By Asset Class and By Sector Ending Percent Market of Effective Effective Sector Value Portfolio Couooo Maturity Total Fund $297,011,452 100.0% 4.08 2.66 Asset Backed $908,386 0.3% 5.78 4.19 Agencies SJ0l,324344 34.1% 4.02 2.48 CMOs $4.832.729 1.6% 4.10 1.81 Credit $30,498.020 10.3% 5.00 2.34 Mortgages $38 514.203 13.0% 4.56 5.56 Treasunes $1 J7.049r145 39.4% 3.70 2.05 Non-Convertible Bonds S.293,127,026 98.7% 4.07 2.69 Cash Equivalents $3,884,425 1.3% 4.87 0.25 5 Largest Holdings Ending Percent Market of Name Sector Value Portfolio Uni.ted States Treas Nts Treasuries $32,306. I 93 10.9% United States Treas Nts. Dtd 00095 Treasuries $16,441,801 5.5% Federal Horne Ln Bks Agen_cics $ I 5.755,836 5.3% Federal Natl Mtg Assn Agencies $14,999,500 5.1% United States Treas Nts Treasuries SI 0.835,000 3.6% 5 Lowest Rated Holdings (Moody's Rating) Ending Percent Market of Name Sector Value Portfolio 1Jnited Air.ls Ps1hn1 Trs 6.831 % 911/08 2001-1 Ctf Cl C Credit $1,526,648 0.5% Fedemlllome Ln Bks Agencies $247,340 0.1% mall Business Adm.in Gtd Dev Prutn Ctf 3/1121 Deb Ser '.!tics $2,439,166 0.8% Small Business Ad.min Gtd Partn Ctfs 6.64% 211/11 Ser Sbi ncies $824,395 0.3% Dnimlcrchrysler orth Amer Hldg Corp it $1,002,818 0.3% 5 Longest Duration Holdings ame Feder.tl.Home Ln Bks Fnma Toa Fnm 5.0% 15yr Fnma Pool # 879906 Fed Home Ln Bks Cons Bd 06/1912003 United States Treas Nts Sector Agencies Mortgages Mortgati:es Agencies Treasuries Ending Market Value $1,020.354 $3,898.800 . S395.144 $2,854.363 $385.596 Percent of Portfolio 0.3% 1.3% 0.1% 1.0% 0.1% 5 Holdings with Highest Effective Yield 11me United Aids Psthru Trs 6.831 % 91 1108 2001-1 CtfCl C Fnma Pool # 684798 Fnma Pool# 823358 Fhlmc Mbs Passthru #78-6064 Federal Natl Mtg Assn Gtd Rernic Pass Thru Tr Sector Credit Mongages Mortgages Mortgages CMOs Ending Market Value $1.526.648 $258,817 $1.938.356 $37,600 $27,904 Percent of Portfolio 0.5% 0.1% 1.0% 0.0% 0.0% Yield 5.04 1.85 5.13 5.40 5.39 5.31 4.79 5.04 4.87 Effective Yield. 4.85 4.88 5.14 4.84 4.87 Effective Yield 9.48 5.13 5.78 5.93 5.55 Effective Yield 5.42 5.54 5.93 5.30 4.83 Effective Yield 9.48 6.09 6.00 6.00 5.96 OA OA Duration Convexitv Oualitv 2.08 (0.12) 2.11 0.•7 2.09 (0.20) 1.43 (0.44) 2.11 0.02 3.33 (0.51) 1.75 0.05 2.11 (0.12) 0.25 0.00 OA OA Duration oavexitv 1.65 0.04 1.19 0.02 2.44 (0.24) 0.32 0.00 1.11 0.02 OA OA Duration Coovexi!)'. 3.29 0.13 2.29 (0.23) 1.27 0.03 0.78 0.01 2.65 0.09 OA OA Duration Convexity 5.28 (0.42) 4.44 (0.40) 4.27 (1.08) 4.11 (0.39) 4.02 0.19 OA OA Duration Convexilv 3.29 0.13 3.16 (2 86) 3.17 (0.67) 0.68 (0.14) 1.08 0.69 Agcy Aa2 Agcy Al;~ 1V'rcy rsy Agcy Aaa Qualitv T1-sy Trsy Agcy ":[{Y ·rsy Quality NIA NIA NIA NIA A3 Qualitv Agcy Agcy Agcy Agcy Trsy Quality NIA Agcy Agcy Agcy Agcy * All Statistics shown on the page are dependent on the securities in the portfolio being recognized (by their Cusip) and priced. In this case 100% of the securities in the portfolio (by market value) were recognized and priced. Orange County Sanitation District Ill r r r l L Confidential -For Callan Client Use Only The list below represents those investment management organizations who purchased educational and/or consulting services from a division of Callan Associates as of March 31, 2006. Educational services include those provided by the Callan Investments Institute and/or the "Callan College." Consulting services include manager consulting services provided by our Institutional Consulting Group, financial intermediary consulting services provided by our Independent Adviser Group and/or consulting to a manager's retirement plan provided by our Fund Sponsor Consulting Group, In no way do these relationships affect the outcome or process by which any of Calla n's services are conducted. Because Callan's client list of investment managers changes periodically, the information below may not reflect very recent changes that are not yet updated in our database. You are welcome to request a list of Cal Ian's investment manager clients at any time. Manager Name Aberdean Asset, Management ABN AMRO Asset Management (USA) LLC Acadian Asset Management, Inc, Affiliated Managers Group, Inc. AIG Global investment Group Allegiant Asset Management Group AllianceBernstein Allianz Investor Services, LLC (fka USAllianz Investor Services, LLC) Allstate Investments LLC Ameriprise Financial American Century Investment Management AmSouth/Investment Management Group Ariel Capital Management, Inc. Ark Asset Management Co., Inc. Atalanta Sosnoff Capital, LLC Atlanta Capital Management Co., L.L.C. Atlantic Asset Management, LLC AQR Capital Management AXA Rosenberg Investment Management Babson Capital Management, LLC Baillie Gifford International LLC (fka Baillie Gifford Overseas Ltd.) Baird Advisors Bank of America Barclays Global Investors Barrow, Hanley, Mewhinney & Strauss, inc. Batterymarch Financial Management, Inc. Bear Stearns Asset Management Bel Air Investment Advisors BKF Asset Management, Inc. (fka John A. Levin & Co., Inc.) BNY Asset Management -Please see Page 4 of 4 Boston Company Asset Management, LLC (The) Brandes Investment Partners, L,P. Brandywine Asset Management, Inc. Brazos Capital Management, L.P. Brown Advisory Brown Brothers Harriman & Company Cadence Capital Management Capital Guardian Trust Company Carl Domino Inc. CastleArk Management, LLC Causeway Capital Management Charles Schwab & Co. Chartwell Investment Partners Chicago Equity Partners, LLC CIBC Global Asset Management (USA) Ltd. (fka TAL Global Advisors Ltd.) Citigroup Asset Management Columbia Management Group Inc. Columbus Circle Investors Cramer Rosenthal McGlynn, LLC Credit Suisse Asset Management Davis Advisors Davis Hamilton Jackson & Associates DE Shaw Investment Management, L.L.C. Delaware Investment Advisers Delta Asset Management Denali Advisors LLC DePrince, Race & Zollo, Inc. Deutsche Asset Management/Deutsche Bank DSM Capital Partners DuPont Capital Management Dwight Asset Management Eagle Asset Management, Inc. Eagle Global Advisors, LLC EARNEST Partners, LLC Eaton Vance Management Educational Services Page 1 of 4 y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y Consulting Services y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y r= r r f r r I ·L l L L L L Confidential -For Callan Client Use Only The list below represents those investment management organizations who purchased educational and/or consulting services from a division of Callan Associates as of March 31, 2006, Educational services include those provided by the Callan Investments Institute and/or the "Callan College." Consulting services include manager consulting services provided by our Institutional Consulting Group, financial intermediary consulting services provided by our Independent Adviser Group and/or consulting to a manager's retirement plan provided by our Fund Sponsor Consulting Group. In no way do these relationships affect the outcome or process by which any of Callan's services are conducted. Because Callan's client list of investment managers changes periodically, the information below may not reflect very recent changes that are not yet updated in our database. You are welcome to request a list of Calla n's investment manager clients at any time. Manager Name Edgar Lomax Company (The) Enhanced Inv. Technologies, LLC (INTECH) Equinox Capital Management, LLC Evercore Partners Evergreen Investments Fayez Sarofim & Company Federated Investors Fidelity Investments Fiduciary Asset Management Fiduciary Management Associates Fifth Third Asset Management, Inc. First Quadrant LP. Fischer Francis Trees & Watts Fisher Investments Fort Washington Investment Advisors Fortis Investments Franklin Portfolio Associates Franklin Templeton Fred Alger Management Co., Inc. Fraley, Revy Investment Company, Inc. FX Concepts GAM USA Inc. GE Asset Management GlobeFlex Capital, LP. GoldenTree Asset Management, LP Goldman Sachs Asset Management Grande.Jean Capital Management Grantham, Mayo, Van Otterloo & Co., LLC Great Lakes Advisors, Inc. Harris Investment Management, Inc. Hartford Investment Management Co.!The Hartford Hartford Life HSBC Investments (USA) Inc. Independence Investment LLC ING Clarion ING Investment Management INVESCO IXIS Asset Management Janus Capital Corporation Jensen Investment Management John Hancock Advisers JPMorgan Asset Management JP Morgan Investment Management JP Morgan Retirement Plan Services Julius Baer Investment Management Kalmar Investments Kelly Capital Management, LLC Kensington Investment Group Knightsbridge Asset Management, LLC Lazard Asset Management Lehman Brothers Inc. Loomis, Sayles & Company, LP. Lord Abbett & Company LSV Asset Management MacKay-Shields LLC Managers Investment Group LLC Marquette Asset Management Marvin & Palmer Associates, Inc. McMorgan & Company LLC Mellon Institutional Asset Management Mellon Private Wealth Management Merrill Lynch Investment Managers Metropolitan Life Insurance Company Metropolitan West Capital Management, LLC Educational Services Page 2 of 4 y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y Consulting Services y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y r L l Confidential -For Callan Client Use Only The list below represents those investment management organizations who purchased educational and/or consulting services from a division of Callan Associates as of March 31, 2006. Educational services include those provided by the Callan Investments Institute and/or the "Callan College." Consulting services include manager consulting services provided by our Institutional Consulting Group, financial intermediary consulting services provided by our Independent Adviser Group and/or consulting to a manager's retirement plan provided by our Fund Sponsor Consulting Group. In no way do these relationships affect the outcome or process by which any of Callan's services are conducted. Because Callan's client list of investment managers changes periodically. the information below may not reflect very recent changes that are not yet updated in our database. You are welcome to request a list of Callan's investment manager clients at any time. Manager Name MFS Investment Management Mondrian Investment Partners Limited Montag & Caldwell, Inc. Montgomery Street Income Securities Morgan Stanley Investment Management Morgan Stanley Real Estate New York Life Investment Management LLC (NYLIM) Nicholas-Applegate Capital Management Northern Trust Global Investment Services Northern Trust Value Investors Nuveen Investments Institutional Services NWQ Investment Management Company OFI Institutional Asset Management Old Mutual Asset Management Oppenheimer Capital Oriental Financial Group Pacific Investment Management Company Paradigm Asset Management Co., LLC Pareto Partners Payden & Rygel Penn Capital Management Peregrine Capital Management, Inc. Phoenix Investment Partners, Ltd. Pinnacle West Capital Corporation Pioneer Investment Management, Inc. Post Advisory Group Principal Global Investors Progress Investment Management Company, LLC Provident Investment Counsel Prudential Investment Management Prudential Retirement Putnam Investments Ranger Investments Management, LP. RCM Record Currency Management Rice Hall James & Associates, LLC RiverSource Investments, LLC Robeco USA Rorer Asset Management Rosewood Management Corp. Rothschild Asset Management, Inc. RREEF Funds (The) Russell Investment Grop Schroder Investment Management North America Inc. SEI lnveslments Seligman (J. & W.) & Company, Inc. Seneca Capital Management LLC Sit Investment Associates, Inc. Smith Group Asset Management Southeastern Asset Management, Inc. Standish Mellon Asset Management Company State Street Global Advisors Sterne Agee Asset Management Stone Ridge Investment Partners Stratton Management Systematic Financial Management T Rowe Price Associates, Inc, Taplin, Canida & Habacht Texas Pacific Group Thrivent Financial for Lutherans TIAA-CREF TimesSquare Capital Management, LLC Todd Investment Advisors, Inc. Trusco Capital Management, Inc. TCW Asset Management Company UBS Educational Services Page 3 of 4 y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y Consulting Services y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y r r ,.- I L .. L Confidential -For Callan Client Use Only The list below represents those investment management organizations who purchased educational and/or consulting services from a division of Callan Associates as of March 31, 2006. Educational services include those provided by the Callan Investments Institute and/or the "Callan College." Consulting services include manager consulting services provided by our Institutional Consulting Group, financial intermediary consulting services provided by our Independent Adviser Group and/or consulting to a manager's retirement plan provided by our Fund Sponsor Consulting Group. In no way do these relationships affect the outcome or process by which any of Calla n's services are conducted. Because Callan's client list of investment managers changes periodically, the infonmation below may not refiect very recent changes that are not yet updated in our database. You are welcome to request a list of Callan's investment manager clients at any time. Manager Name Educational Services Consulting Services Union Bank of California y U.S. Trust Asset Management y Vaughan Nelson Investment Management y Victory Capital Management Inc. y y Vontobel Asset Management y y Waddell & Reed Asset Management Group y WEDGE Capital Management y Wellington Management Company, LLP y y Wells Capital Management y WestAM y Western Asset Management Company y Westwood Management Corporation y William Blair & Co., Inc. y William D. Witter, Inc. y In October 1998, Callan's affiliate, Alpha Management, Inc. ("Alpha"), a registered broker-dealer, was acquired by BNY Brokerage, Inc. (formerly known as BNY ESI & Co), a subsidiary of The Bank of New York Company, Inc. (collectively "BNY"). In that transaction, BNY purchased for cash the assets of Alpha. BNY and Callan also entered into a Services Agreement which provided that for a period of eight years (through 2006), BNY would make an annual service fee payment in a fixed amount to Callan, 92 percent of which was conditioned upon Callan achieving gross consulting revenues in excess of a specified amount during the preceding calendar year, which threshold amount was detenmined by reference to Callan's 1998 gross consulting revenues and remains the same throughout the eight years. Essentially. payment of this 92% was conditioned upon Callan remaining in business through 2006. The remaining eight percent of the annual payment to Callan was conditioned upon BNY receiving gross commissions during the preceding annual period of a specified minimum amount from Callan clients that use Callan services and pay for all or a portion of Callan services through directed brokerage and soft dollar arrangements with BNY. The minimum amount of gross commissions necessary to satisfy this obligation remains the same throughout the eight years and was detenmined by reference to Alpha's business with Callan clients during 1998. Both of these minimum thresholds have been met easily for all the years following the execution of the Services Agreement and, the amount of the annual payment does not increase regardless of how much Callan's consulting revenues or BNY's gross commissions from Callan clients might exceed the minimum threshold. Callan has been advised by BNY that since 2000, BNY has not been tracking either Callan gross consulting revenues or BNY gross commissions as they relate to the 1998 Services Agreement and, for all practical purposes, both Callan and BNY have considered these annual payments as fixed. In addition, under the tenms of the Services Agreement, Callan is obligated through 2008 to advise all of its plan sponsor clients through 2008 on an annual basis, and at the outset of a new relationship, of BNY's status as its preferred broker in those instances where the plan sponsor client chooses to pay Callan's fees through commissions paid to BNY for brokerage transactions, and to provide BNY with some of the same client infonmation as was provided to Alpha prior to the sale. Notwithstanding such obligation to so advise its plan sponsor clients, all clients are advised that they are free to conduct brokerage, and to establish directed brokerage arrangements, with any broker of their choice. Calla n's fees for any services provided to its plan sponsor clients are always expressed and paid in hard dollars and are the same without regard to the brokerage arrangements which may have been made between the plan sponsor client and its broker. As to its investment manager clients, Callan is obligated through 2008 to advise them that if they choose to pay Callan's fees through broker's commissions, BNY is its exclusive broker for that purpose and that the use of a third party brokerage firm for soft dollar arrangements may fall outside of the safe harbor under Section 28(e) of the Securities Exchange Act of 1934. In addition, if payment for Callan services is received from a third party broker, Callan is to advise the investment manager client of the exclusive brokerage arrangement with Callan and infonm BNY of the payment. As with its plan sponsor clients, Callan receives the same payment for its services regardless of whether payment comes from BNY, from a third party brokerage finm, or from the investment manager client. In summary, nothing in the Services Agreement affects the options available to a Callan client for payment of Callan's fees, which are always quoted and paid in hard dollars regardless of the method of payment selected by the plan sponsor or investment manager client. Those options are as follows: (1) By paying cash via check or wire transfer (2) By electing to direct brokerage transactions to BNY At the client's request, BNY will pay invoices submitted by Callan for its services to such client. (3) By entering into a contract for services directly with BNY to acquire Callan's services from BNY. BNY will then contract with Callan for such services and will pay invoices submitted to it by Callan for such services. Page 4 of 4 II CAILAN ASS · Atlanta Consulting Office 300 Galleria Parkway, Suite 950 Atlanta, Georgia 30339 Phone: (770) 618-2140 Chicago Consulting Office 120 North LaSalle Street, Suite 2100 Chicago, Illinois 60602 Phone: (312) 346-3536 Denver Consulting Office 1660 Wynkoop Street, Suite 950 Denver, Colorado 80202 Phone: (303) 861-1900 New York Consulting Office 200 Park Avenue, Suite 230 Florham Park, New Jersey 07932 Phone: (973) 593-8050 San Francisco Consulting Office 101 California Street, Suite 3500 San Francisco, California 94111 Phone: (415) 974-5060 is INC Investment Management Program Orange County Sanitation District Strategy Review for the Period December 31, 2005 -March 31 , 2006 rcrrrrrrrrrrrrrrrrr~~~~;;;J77777771111111111 A company of Allianz ® Global Investors Investment Management Program Orange County Sanitation District Strategy Review for the Period December 31, 2005 -March 31, 2006 ----------- rrrrrrrrrrrrrrrrr ,-.. ,-.. ,-.. ,-.. ,-, .-. ,...,, .-. .-. ,...,, l ~ l , ~ J , J J 77777777777711111 Biographical Information John M. Miller, CFA Mr. Miller is an Executive Vice President and account manager, with a focus on institutional client servicing. In addition to those responsibilities, he manages the training and development of investment professionals new to the account management group. He joined PIMCO in 1999. Prior to that, he was an officer in the U.S. Army, achieving the rank of Captain. Mr. Miller holds a bachelor's degree in economics from the United States Military Academy, West Point and an MBA from the Harvard Business School. Christine Telish, CFA Ms. Telish is a Vice President and account manager, with a focus on institutional client servicing. She is also a member of PIMCO's municipal team, providing specialized servicing for tax-sensitive accounts. She joined PIMCO in 1994, and has seventeen years of finance, accounting, and investment experience. Ms. Telish holds a bachelor's degree in finance, real estate and law from California State Polytechnic University and an MBA from the University of California, Irvine. r r r r r r r r r r r r :-r r :-------------------~---~-~-~~ ) ; ; ) ' ) , ) ) .; -J Performance Review As of March 31, 2006 Orange County Sanitation District Long Term Operating Portfolio Market Value as of Mar. 2005 $ 336,883,885 Contributions/ Withdrawals Net Investment Earnings* (100,400,000) 9,054,014 Market Value as of Mar. 2006 $ 245,537,899 Since Inception .---. ;g_ 0 ..__, 1/) C I.. ::, ...., Q) 0:: Performance 12 Annual • Orange County Sanitation District I YTD 10 • Merrill Lynch Corp./Gov't. 1-5 Year Bond Index ,_ .... 8 ~ ~ .,_ 6 .- 4 .-,_ 2r • I • I • I • I • I • I • I • I IJ IJ· al ~ -~ ~ ~ ~ ~ ~ -I~ -99 96 97 98 00 01 02 03 04 05 06 09/30/95 10 Yrs. 5 Yrs. 3 Yrs. 1 Yr. 9 Mos. 6 Mos. 3 Mos. Before Fees(%) Merrill Lynch Corp./ Gov't. 1-5 Year Bond Index(%) 5.6 5.4 5.6 4.2. 5.4 4.0 2.4 3.1 1.4 1.9 2.3 0.6 * Includes income and realized/unrealized gains and losses, less management fees; all periods longer than one year are annualized. 5 1.2 0.5 0.8 0.2 PIM C 0 r--r-r-,-.-r r l,,__ r ,-.-r r--r r ,,__ ,-,--,----.-----~-~~~~~~~~~~~~1~~~ l '--'-" ~ ' ' \ l I ' Performance Review As of March 31, 2006 Orange County Sanitation District Li uid Operating Portfolio Market Value as of Mar. 2005 $ 73,542,627 Contributions/ Withdrawals Net Investment Earnings* (3,900,000) 2,246,690 Market Value as of Mar. 2006 $ 71,889,317 Since Inception 8 7 6 ~ 5 0 -..., Vl E 4 .a ~ 3 2 1 Annual ~ -- ; I ) I • J ; J ) J ) j ; j .J ) Performance • Orange County Sanitation District I YTD Citigroup 3-Month Treasury Bill Index '- '- ~ '- '- ~ O' ----~ -D I] 96 97 98 99 00 01 02 03 04 05 06 09/30/95 10 Yrs. 5 Yrs. 3 Yrs. 1 Yr. 9 Mos. 6 Mos. 3 Mos. Before Fees (%) Citigroup 3-Month Treasury Bill Index(%) 4.2 3.8 4.1 3.7 2.5 2.1 2.2 3.7 3.0 2.1 2.0 3.5 2.8 2.0 * Includes income and realized/unrealized gains and losses, less management fees; all periods longer than one year are annualized. 6 1.0 1.0 PIM C 0 rrrrrrr~rr-rrr~------------~-~-~~---,~~~,~11· l 1. ~. 1, , , · \ \ l ( , l ( • , :j i l I ,) I ) ,; ~ ,:! ,i I) 'I t) I J Portfolio Strategy: Position for Slowing Economy • Anticipate end of Fed tightening cycle and steeper yield curve Interest Rate Strategies Sectors Strategies -Slightly above index duration -Focus on short and intermediate maturities • Mortgages: Overweight and emphasize coupon selection • Corporates: Underweight as credit spreads remain tight • TIPS: Retain small allocation as a less volatile substitute for Treasuries 12 PIM C 0 r rrrrrrrr~~r~-r-----------------~~-~ "-._~'-~ ~ \ i l, ~, l 1 • i J))).) Assets Under Management by Strategy -..,~~""'-l~~·~"'"" ) ) ) I I •I •.j ) PIMCO continues to build on fixed income expertise to provide effective solutions to meet investor needs Alternative Investments: Equities: Fixed Income: Absolute Return Strategies Commodities Real Estate Real Return Tactical Allocation Diversified Income CBO/CLO Broad U.S. Market Large Cap U.S. Small Cap U.S. International: EAFE, TOPIX, EuroSTOXX 50, FTSE 100, etc. Long Duration Intermediate Cash Management Stable Value Credit Mortgages Global Emerging Markets Municipals LIBOR based vehicles: enhanced cash or pure alpha Commodity-linked exposures enhanced with active bond portfolios Real Estate-linked exposure backed by a inflation index bonds TIPS and other inflation-hedging strategies Tactical allocation among PIMCO funds, All Asset, All Asset All Authority* Global credit combining corporate and emerging markets debt Collateralized bonds/loan obligations StocksPLUS®, StocksPLUS®Total Return, StocksPLUS® PARS: Combines passive equityindexexposure with active bond management Focus on long-term bonds; asset liability management Total Return, Moderate Duration Low Duration, Enhanced Cash, Money Market Strategies that use book value wrappers Investment Grade Corporates, High Yield Emphasis on management of mortgage pass-throughs Non-U.S. and global multiple currency formats Focus on solid credits with improving economic fundamentals Tax-efficient total return management Total Assets Under Management: $13,524 12,573 165 33,744 11,032 2,865 5,263 32,149 19,701 210,937 46,606 19,235 30,832 9,238 120,178 17,292 8,668 $594,078 M Assets as of December 31, 2005. PIMCO now includes the assets that it manages for third-party clients of its German affiliate, Allianz Dresdner Global Investors Germany. Potential differences in asset totals are due to rounding. * All Asset strategies are invested in PIMCO Funds; these assets are not included in the individual strategies. 14 PIM C 0