HomeMy WebLinkAboutAgenda Packet 2004/06/08
CALL TO ORDER
I declare under penalty of perjury that I am
employed by the City of Chula Vista in the.
Office of the City Clerk and that I posted this
document on the bulletin board acco(ding (0
Brown Act re~u'rements, ~
AGENDA :A 0'/
Dated ~ Y Signed. ...
June 8, 2004
ROLL CALL:
Councilmembers Davis, McCann, Rindone, Salas, and Mayor Padilla
PLEDGE OF ALLEGIANCE TO THE FLAG, MOMENT OF SILENCE
SPECIAL ORDERS OF THE DAY
.
PRESENTATION BY MAYOR PADILLA OF A PROCLAMATION TO GALE
LEWIS, PRESIDENT OF THE GOODRICH CHAPTER NATIONAL MANAGEMENT
ASSOCIATION, DECLARING THE WEEK OF JUNE 6 AS MANAGEMENT WEEK
.
PRESENTATION BY THE BONITA VISTA HIGH SCHOOL BAND REGARDING
THEIR PERFORMANCE AT THE WORLD WAR II MEMORIAL DEDICATION IN
WASHINGTON, D.C.
CONSENT CALENDAR
(Items 1 through 4)
The Council will enact the Consent Calendar staff recommendations by one
motion, without discussion, unless a Councilmember, a member of the public, or
City staff requests that an item be removed for discussion. If you wish to speak on
one of these items, please fill out a "Request to Speak" form (available in the
lobby) and submit it to the City Clerk prior to the meeting. Items pulled from the
Consent Calendar will be discussed after Action Items.
1.
ORDINANCE OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA
ADOPTING A SPECIFIC PLAN (pCM-02-10) FOR THE AUTO PARK EAST
EXPANSION (FRED BORST, BORST FAMILY TRUST, AND FASK LAND)
(SECOND READING)
Adoption of the ordinance approves the Auto Park East Specific Plan, implementing the
easterly expansion of the existing Chula Vista Auto Park on Main Street. The specific
plan allows for the future development of auto dealerships and supporting uses on
approximately 31 acres on the south side of Main Street, east of the existing auto park.
This ordinance was introduced at the June 1,2004 City Council Meeting. (Director of
Community Development)
Staff recommendation: Council adopt the ordinance.
2.
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA
AUTHORIZING THE CHULA VISTA NATURE CENTER TO TAKE THE VARIOUS
ACTIONS NECESSARY TO APPLY FOR LAND AND WATER CONSERVATION
FUND ASSISTANCE
On April 6, 2004 the Council authorized the Nature Center to apply for a grant from the
Land and Water Conservation Fund Program. Since that time, the City has been
informed that additional information needs to be included in the resolution. (Nature
Center Director)
Staff recommendation: Council adopt the resolution.
3.
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA
APPROVING THE PERFORMING AND VISUAL ARTS TASK FORCE'S
SELECTION OF THE FISCAL YEAR 2004/2005 PERFORMING AND VISUAL
ARTS GRANT RECIPIENTS AND THEIR MONETARY GRANT AWARD,
TOTALING $45,000
A Performing and Visual Arts Task Force makes recommendations to the City Council
annually regarding arts grant awards. The Task Force is assisted by the Office of
Cultural Arts, which formally conducts the grant application process. Adoption of the
resolution approves the task force's recommendations for the grant recipients and their
monetary awards. (Assistant City Manager Palmer)
Staffrecommendaþon: Council adopt the resolution.
4.
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA
ACCEPTING THE CITY MANAGER'S CERTIFICATION OF SOLE SOURCE
STATUS AND APPROVING A DESIGN BUILD AGREEMENT WITH RUDOLPH
AND SLETTEN, INC. FOR THE PROVISION OF SERVICES REQUIRED TO
DESIGN AND CONSTRUCT UPGRADES AND REPLACEMENTS TO THE
NATURE CENTER INTERIOR EXHIBITS (NATURE CENTER GALLERIA
REMODEL), AND AUTHORIZING THE MAYOR TO EXECUTE SAID
AGREEMENT
The City Council previously approved CIP GG-175, which involves the redesign and
replacement of the Nature Center interior exhibits including but not limited to new
structural and electrical components, access to exhibits for daily maintenance by staff,
plumbing and draining improvements, and overall configuration of exhibits to improve
visitor flow throughout the interior of the facility. (Director of General Services)
Staff recommendation: Council adopt the resolution.
ORAL COMMUNICATIONS
Persons speaking during Oral Communications may address the Council on any
subject matter within the Council's jurisdiction that is not listed as an item on the
agenda. State law generally prohibits the Council from taking action on any issue
not included on the agenda, but, if appropriate, the Council may schedule the
topic for future discussion or refer the matter to staff. Comments are limited to
three minutes.
PUBLIC HEARINGS
The following items have been advertised as public hearings as required by law.
If you wish to speak on any item, please fill out a "Request to Speak" form
(available in the lobby) and submit it to the City Clerk prior to the meeting.
Page 2 - Council Agenda
June 8, 2004
5.
CONSIDERATION OF ADOPTION OF AN ORDINANCE AND AN URGENCY
ORDINANCE AMENDING CITY ORDINANCE 2617, AND A RESOLUTION
RELATING TO UPDATES IN THE SALT CREEK SEWER BASIN DEVELOPMENT
IMPACT FEE TO PAY FOR SEWER FACILITIES WITHIN THE SALT CREEK
SEWER BASIN
The Salt Creek Sewer Basin development impact fee was established in December 1994
to facilitate construction of the Salt Creek trunk sewer. This was the only facility
identified at that time as being necessary to serve properties within the Salt Creek Gravity
Basin benefit area. A development impact fee was set at $284 per equivalent dwelling
unit (EDU) in order to fund the project. Since that time, costs associated with the project
have continued to increase and the project has broadened in scope as additional needed
sewer facilities have been identified to serve the benefit area. In order to ensure that
sufficient funding will be available to complete the project, staff recommends increasing
the Salt Creek Sewer Basin DIF from $284 to $1,300 per EDU. (Director of General
Services, City Engineer)
Staff recommendation: Council continue the public hearing to June 29, 2004.
ACTION ITEMS
The items listed in this section of the agenda will be considered individually by
the Council, and are expected to elicit discussion and deliberation. If you wish to
speak on any item, please fill out a "Request to Speak" form (available in the
lobby) and submit it to the City Clerk prior to the meeting.
6.
CONSIDERATION OF AUTHORIZATION OF THE ISSUANCE OF SPECIAL TAX
BONDS FOR IMPROVEMENT AREA B OF COMMUNITY FACILITIES DISTRICT
NO. 06-1 AND APPROVAL OF DOCUMENTS AND ACTIONS IN CONNECTION
WITH THE ISSUANCE OF SUCH BONDS
On October 10, 2002, the Council heard election results, declaring that 100% of the votes
cast were in favor of the authorization to issue bonds of the district for Improvement
Areas A and B. The ordinance to authorize the Levy of a Special Tax in Improvement
Area A and B was also introduced. On December 17, 2002, bonds were sold for
Improvement Area A for $39 million. Of this $39 million, approximately $11.3 million
has already been reimbursed to the EastLake Company. (Director of General Services,
City Engineer)
Staff recommendation: Council adopt the following resolution:
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA
ACTING IN ITS CAPACITY AS THE LEGISLATIVE BODY OF
COMMUNITY FACILITIES DISTRICT NO. 06-1 (EASTLAKE - WOODS,
VISTAS, AND LAND SWAP), AUTHORIZING AND PROVIDING FOR THE
ISSUANCE OF SPECIAL TAX BONDS OF THE DISTRICT FOR
IMPROVEMENT AREA B THEREOF, APPROVING THE FORM OF BOND
INDENTURE, BOND PURCHASE AGREEMENT AND OTHER
DOCUMENTS AND AUTHORIZING CERTAIN ACTIONS IN CONNECTION
WITH THE ISSUANCE OF SUCH BONDS
Page 3 . Council Agenda
June 8, 2004
7.
CONSIDERATION OF ADOPTION OF A RESOLUTION DIRECTING STAFF TO 1)
IMPLEMENT THE MUNICIPAL ENERGY UTILITY FEASIBILITY STUDY
PREFERRED BUSINESS MODELS; 2) CONTINUE TO PURSUE A FRANCHISE
AGREEMENT WITH SDG&E FOR EXISTING ELECTRICITY UTILITY SERVICE
WITHIN THE CITY AND ALL EXISTING AND NEW NATURAL GAS SERVICE; 3)
RETURN TO COUNCIL WITH A STAFFING PLAN THAT REFLECTS CITY
COUNCIL'S DIRECTION TO IMPLEMENT ONE OR MORE MUNICIPAL ENERGY
BUSINESS MODELS; AND APPROPRIATING $500,000 FROM THE AVAILABLE
FUND BALANCE OF THE GENERAL FUND TO THE ADMINISTRATION
DEPARTMENT
On May 19,2004, the Council listened to five and one half hours of expert testimony and
public input regarding the potential development of a Chula Vista public utility. At that
time, the City Council directed staff to return to the June 8, 2004 Council meeting with a
resolution declaring the Chula Vista Municipal Energy Utility (established on June 5,
2001, by Ordinance No. 2835) a Community Choice Aggregator, and to further consider
the MEU Feasibility Study Consultants' recommendations to implement selected MEU
business models. (Director of Conservation and Environmental Services)
Staffrecommendation: Council adopt the following resolution:
RESOLUTION OF THE CHULA VISTA CITY COUNCIL OF THE CITY OF
CHULA VISTA:
1) DIRECTING STAFF TO IMPLEMENT THE MUNICIPAL ENERGY
UTILITY (MEV) FEASIBILITY STUDY PREFERRED BUSINESS
MODELS BY A) PREPARING AND SUBMITTING A COMMUNITY
CHOICE AGGREGATION (CCA) IMPLEMENTATION PLAN TO
THE CALIFORNIA PUBLIC UTILITIES COMMISSION (CPUC); B)
PREPARING AND CIRCULATING REQUESTS FOR PROPOSALS
FOR GREENFIELD DEVELOPMENT (GD) AND CCA SERVICE
PROVIDERS; C) ACTIVELY PARTICIPATE AT CPUC IN MATTERS
THAT MAY IMPACT THE CITY MEU PLANS, OTHER CITY
ACTMTIES, AND RATEPAYER ADVOCACY ISSUES; AND D)
PREPARE AN ORDINANCE DECLARING THE CITY MEU A CCA;
2) DIRECTING STAFF TO CONTINUE TO PURSUE A FRANCHISE
AGREEMENT WITH SDG&E FOR EXISTING ELECTRICITY
UTILITY SERVICE WITHIN THE CITY AND ALL EXISTING AND
NEW NATURAL GAS SERVICE;
3) DIRECTING STAFF TO RETURN TO COUNCIL WITH A
STAFFING PLAN THAT REFLECTS CITY COUNCIL'S DIRECTION
TO IMPLEMENT ONE OR MORE MUNICIPAL ENERGY BUSINESS
MODELS; AND
4) APPROPRIATING $500,000 FROM THE AVAILABLE FUND
BALANCE OF THE GENERAL FUND TO THE ADMINISTRATION
DEPARTMENT(~5THSVOTEREQUIRED)
Page 4 - Council Agenda
June 8, 2004
8.
CONSIDERATION OF AN INTERIM REPORT ON THE 2004 SEWER SERVICE
RATE UPDATE BY BLACK AND VEATCH AND ADOPTION OF AN ORDINANCE
AMENDING THE MUNICIPAL CODE SECTION RELATING TO SEWER SERVICE
CHARGE VARIANCES FOR RESIDENTIAL CUSTOMERS
On July 22, 2003, City Council approved an amendment to the Master Fee Schedule by
restructuring the sewer service rates and approving a four-year sewer service rate
schedule. Subsequently, on February 17,2004, to address some of the concerns raised by
citizens regarding the new structure, Council authorized staff to retain a new consultant,
Black & Veatch to update the Wastewater User and Rate Restructuring Study, which was
prepared by PBS&J. (Director of General Services, City Engineer)
Staff recommendation: Accept the report, place following ordinance on first reading, and
direct staff to finalize the subject report and present to Council specific recommendations
next fiscal year for future years.
ORDINANCE OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA
AMENDING THE CHULA VISTA MUNICIPAL CODE SECTION 13.14.140
RELATING TO THE SEWER SERVICE CHARGE VARIANCES BY ADDING
AN APPEAL PROCESS FOR RESIDENTIAL CUSTOMERS
ITEMS PULLED FROM THE CONSENT CALENDAR
OTHER BUSINESS
9.
CITY MANAGER'S REPORTS
10.
MAYOR'S REPORTS
11.
COUNCIL COMMENTS
.
Councilmember McCann: Consideration of the Council to take a position to
support AB2297 (Vargas), Imported Candy: Lead Contamination.
CLOSED SESSION
Announcements of actions taken in Closed Session shall be made available by
noon on Wednesday following the Council Meeting at the City Attorney's office in
accordance with the Ralph M Brown Act (Government Code 54957.7).
12.
CONFERENCE WITH LEGAL COUNSEL REGARDING EXISTING LITIGATION
PURSUANT TO GOVERNMENT CODE SECTION 54956,9(a)
.
Ray v. Tsunoda, et al., (USDC 03CV1884-DMS (POR)
Page 5 - Council Agenda
June 8, 2004
13.
CONFERENCE WITH LABOR NEGOTIATORS PURSUANT TO GOVERNMENT
CODE SECTION 54957.6
.
Agency designated representative: David D. Rowlands, Jr.
.
Employee organization: Executive Managers
14.
CONFERENCE WITH REAL PROPERTY NEGOTIATORS PURSUANT TO
GOVERNMENT CODE SECTION 54956.8
Property:
San Diego Gas & Electric - Gas and Electricity Franchise (pertaining to
public rights-of-way throughout the City ofChula Vista)
Agency negotiators: David Rowlands, Jr., Sid Morris, David Huard
Negotiating Parties: City of Chula Vista and San Diego Gas & Electric (various
representatives)
Under Negotiation:
Price and terms of franchise conveyance
ADJOURNMENT to the Regular Meeting of June 15, 2004, at 6:00 p.m. in the Council
Chambers,
Page 6 - Council Agenda
June 8, 2004
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\'-I\) p.a-.\)\\'-IG ~\'-I\) ~\)
ORDINANCE NO. - Sf:.CO
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA
ADOPTING A SPECIFIC PLAN (PCM-O2-10) FOR THE AUTO PARK EAST
EXPANSION (FRED BORST, BORST FAMILY TRUST, AND FASK LAND).
I.
RECITALS
A Project Site
WHEREAS, the areas of land, which are the subject of this Ordinance, are represented in
Exhibit "A" and for the purpose of general descñption herein consist of approximately 31 acres on
the south side of Main Street between Brandywine Avenue and Maxwell Road ("Project Site");
and
B. Project; Application
WHEREAS, on September 5, 2001, Fred Borst, Borst Family Trust, and Fask Land
("Developer") filed an application requesting the adoption of a Specific Plan (PCM-02-10) for the
development of auto dealerships and supporting uses on the Project Site ("project"); and
C. Planning Commission Record on Applications
WHEREAS, the Planning Commission held an advertised public heañng on this Project
on Apñl 28, 2004; and
WHEREAS, the Planning Commission recommended amending Specific Plan (PCM-O2-
10), Section III. Development Standards, Subsection F. Landscaping, by requiñng landscape
plans to be submitted to the Olay Valley Regional Park Citizens Advisory Committee for
comment; and
WHEREAS, the Planning Commission recommended that the trails easement alignment.
be submitted to the to the Olay Valley Regional Park Citizens Advisory Committee for review prior
to final map approval; and
WHEREAS, the Planning Commission voted to recommend that the City Council adopt
the Amended Specific Plan (PCM-O2-10); and
WHEREAS, the proceedings and all evidence introduced on this Project before the
Planning Commission at their public hearing held on Apñl 28, 2004, and the minutes and
resolutions resulting therefrom, are hereby Incorporated into the record of Ìhis proceeding; and
D. City Council Record on Applications
WHEREAS, a duly called and noticed public hearing was held before the City Council on
May 18, 2004 on the application and to receive the recommendations of the Planning
Commission and to hear public testimony with regard to t!;1e same.
II.
The City Council does hereby ordain as follows:
The City Council does hereby adopt Auto Park East Specific Plan (PCM-02-10), attached
hereto (Exhibit "B") and incorporated herein as though set forth in full, finding that the proposed
automobile sales and supporting land U$es are permitted by the implementing zone and therefore
consistent with the General Plan and would implement the Auto Park expansion program of the
I-I
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Ordinance No.
Page 2
Redevelopment Plan for the Otay Valley Road Redevelopment Project Area, and that the public
necessity, conveniences, general welfare, and good zoning practice supports its approval and
implementation.
III.
INVALIDITY; AUTOMATIC REVOCATION
It is the intention of the City Council that its adoption of this Ordinance is dependent upon
the enforceability of each and every term, provision, and condition herein stated; and that in the
event that anyone or more terms, provisions, or conditions are determined by a Court of
competent jurisdiction to be invalid, illegal, or unenforceable, this Ordinance shall be deemed to
be automatically revoked and of no further force and effect ab initio.
IV. Adoption of this Ordinance (Second Reading) is conditioned upon the approval by the
Redevelopment Agency of the City Of Chula Vista of an Owner Participation Agreement between
the Developer and the Redevelopment Agency.
V. This ordinance shall take effect and be in full force on the thirtieth day from and after the
approval of an Owner Participation Agreemen~ which shall occur as stated above.
Presented by
Approved as to form by
Laurie Madigan
Community Development Director
~+ ¡b¡
A~ A;oo~eey
1-2
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CITY COUNCIL
AGENDA STATEMENT
Item: ;;¿
Meeting Date: 6/8/04
REVIEWED BY:
Resolution of the City Council of the City of Chula Vista
Authorizing the Chula Vista Nature Center to take the various actions
necessary to apply for Land and Water Conservation Fund assistance.
Nature Center DirectiW
City Manager<
I, '9t'
(4/5ths Vote: Yes- NolU
ITEM TITLE:
SUBMITTED BY:
At the April 6, 2004 Meeting, the City Council approved a resolution authorizing the Nature
Center to apply for a grant from the Land and Water Conservation Fund Program. Since that
time, the City has been informed that additional information needs to be included in the
resolution.
RECOMMENDATION: That the City Council adopt the resolution authorizing the Chula Vista
Nature Center to take the various actions necessary to apply for Land
and Water Conservation Fund assistance.
BOARDSICOMMISSIONS RECOMMENDATION: The Nature Center Board of Trustees
endorsed the grant application at their meeting of March 18, 2004.
DISCUSSION:
At the April 6, 2004 Meeting, the City Council approved a resolution authorizing the Nature
Center to apply for a grant from the Land and Water Conservation Fund Program. Since that
time, the City has been informed that additional information needs to be included in the
resolution.
The Project is the Nature Center's approved interior exhibit remodel CIP project (GG-175).
In the original submittal to the State, the City requested $125,000 from LWCF - the guideline
maximum request. Since that time, the maximum request guidelines have been clarified,
resulting in the potential to change the City's request from $125,000 to $210,000. This could
further reduce the City's General Fund share to an amount in the neighborhood of $100,000.
The other funds raised and committed to the project constitute the matching funds required for
LWCF funding eligibility.
A resolution of the City Council authorizing the Nature Center's grant application and
designating the City's representative is a required element of the submittal. Additionally, the
LWCF guidelines require:
1. Certification that the City has matching funds and can finance 100% of the Project, up to
half of which will be reimbursed; and
2. Certification that the Project is compatible with the land use plans of neighboring
jurisdictions.
.;?-/
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Item#: "'-
Meeting Date: 6/8/04
The application deadline to the State of California has been extended to July 5, 2004.
FISCAL IMPACT:
There are no costs associated with this action. If the grant is awarded, the City would realize
revenues to help fund this project, significantly reducing the need for City funds. Currently,
approximately $370,000 of the likely $750,000 has been raised. It is anticipated that the final
General Fund impact will be between $100,000 and $200,000. In addition, Nature Center staff
and volunteers are in the process of developing financial participation from the Friends of the
Chula Vista Nature Center in terms of a small capital campaign, from the County, from the US
Fish and Wildlife Service, and from other local grant-making agencies.
.,,)-2-
RESOLUTION NO. 2004--
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA AUTHORIZING THE CHULA VISTA
NATURE CENTER TO TAKE THE VARIOUS ACTIONS
NECESSARY TO APPLY FOR LAND AND WATER
CONSERVATION FUND ASSISTANCE
WHEREAS, at the April 6, 2004 Council meeting, the City Council approved a
resolution authorizing the Nature Center to apply for a grant from the Land and Water
Conservation Fund Program (L WCF); and
WHEREAS, subsequent to the Council meeting, the City has been informed that
additional information needs to be included in the resolution; and
WHEREAS, the Project is the Nature Center's approved interior exhibit remodel CIP
project (GG-175); and
WHEREAS, the original submittal to the State requested $125,000 from LWCF Program
- the guideline maximum request; and
WHEREAS, subsequently, the maximum request guidelines have been clarified, resulting
in the potential to change the City's request from $125,000 to $210,000; and
WHEREAS, staff requests the appointment of the Nature Center Director, as the City's
agent to execute related agreements with the State of Cali fomi a should a grant be awarded.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Chula
Vista hereby:
1.
Approves the filing of an Application for Land and Water Conservation Fund
assistance; and
2.
Certifies that said agency has Matching funds and can finance 100 percent of the
Project, half of which will be reimbursed; and
3.
Certifies that the Project is compatible with the land use plans of those
jurisdictions immediately surrounding the Project; and
4.
Appoints the Nature Center Director as agent of the Applicant to conduct all
negotiations and execute and submit all documents, including, but not limited to,
Applications, contracts, amendments, payment requests, and compliance with all
J:\AttorneyIRESOINature Center - LWCF.doc
..2 -3
applicable current state and federal laws, which may be necessary for the
completion of the aforementioned Project.
Presented by
Approved as to form by
Dan Beintema
Nature Center Director
J:\attorneylresolNature Center - L WCF
2 .:{.f
COUNCIL AGENDA STATEMENT
Item: -3--
Meeting Date: 6/872004
ITEM TITLE:
Resolution Approving the Performing and Visual
Arts Task Force's selection of the FY 2004-2005 Performing and
Visual Arts Grant recipients and their monetary grant award,
totaling $45,000
SUBMITTED BY: Assistant City Manager palme~
REVIEWED BY: City Manager~ 1) I'" (4/5ths Vote: Yes LL No ~
In 1997, the City Council approved a Sublease with the House of Blues Concerts, Inc.
(formerly Universal Concerts) that established a process whereby ticket sales proceeds at
the Coors Amphitheater would be paid to the City and utilized for a Performing and
Visual Arts Fund. This fund is to be used for arts grants to the Chula Vista community
for the purpose of promoting and stimulating the growth of performing and cultural arts
within the City ofChula Vista. This year the Office of Cultural Arts received $45,171.00
from the House of Blues for the 2003 Concert Series.
As called for in the sublease, a Performing and Visual Arts Task Force was established
and annually makes recommendations to the City Council regarding the arts grant
awards. The Task Force is assisted by the Office of Cultural Arts, which formally
conducts the grant application process. The Task Force has review the FY 2004-2005
applications and makes the following recommendations to the City Council.
STAFF RECOMMENDATION: That Council approves the Task Force's selection of
the FY 2004-2005 Performing and Visual Arts Grant recipients (as listed below) and their
monetary grant awards totaling $45,000.00
BOARDS/COMMISSION RECOMMENDATION: The Task Force recommends that
the City Council award arts funds to groups and individual as outlined in this report.
DISCUSSION: In late 1998, an advisory commission, entitled the Performing and
Visual Arts Task Force, was established per the requirements of the sublease. The
current members are:
Mayor Steve Padilla
Roderick Reinhart, City staff representative
David Swift, House ofBluesiCoors Amphitheatre representative
William Virchis, Sweetwater Union High School district representative
Tracy Goodwin, Chula Vista Elementary School district representative
Chris Redo, Chula Vista Cultural Arts Commission representative
Kevin Tilden, At-Large Committee Member
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Item: ----=:::...... Page 2
Meeting Date: 06/08/2004
The City's Office of Cultural Arts administered the Performing and Visual Arts Fund
grant application process. Performing and Visual Arts Fund Grant Application Packets
were distributed by the Office to the Sweetwater Union High School District, Chula Vista
Elementary School District, Sweetwater Union High School District web site, plus arts
groups and individuals in the Chula Vista community. The Office then conducted two
"Technical Workshops" on March 10 and 13,2004.
Twenty-seven applications totaling $57,850 in requests were received by the application
due date of April 2, 2004. Upon receipt and review, the Office of Cultural Arts made
recommendations for funding to the Mayor's Task Force. In addition, a copy of each
application was sent to the members of the Mayor's Task Force for their review and
numerical scoring. The twenty-seven applications were then reviewed and ranked by
pre-established criteria by the Task Force on May 21, 2004. The Task Force
recommends funding all twenty-seven applicants for a total amount of $45,000. While
all applications received funding, some requests were adjusted based on the Council-
approved Task Force policies.
List of Grant Recommendations:
. Art Now! $1,750
To provide arts education in collaboration with the Chula Vista MAAC Project in
verbal and digital imaging processes to local residents for better methods of
expressing their ideas, opinions on issues that are important their lives in an
artistic manner.
. Bonita Artist Potpourri $1,200
To provide for community arts workshops, summer children's classes and their
annual exhibition held at the Rosemary Lane Galeria.
. Bonita Historical Society $750
To provide the community and region with an exhibition and workshops that
traces the heritage of a founding community in the South Bay and Native
Americans of the South Bay and their crafts and arts who inhabited the
Sweetwater Valley.
. Bonita Vista High School "Sound Unlimited" $1,200
To provide funding for adjudicators at "For Ladies Only" show choir competition.
This annual competition is held in Chula Vista at the Ruth Chapman Center for
the Performing Arts and in a one-day event
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Item: ~ Page 3
Meeting Date: 06/08/2004
. Bonitafest Melodrama $2,500
To provide funding for a community musical-melodrama based on local history
appropriate for multi generational, culturally diverse family audiences.
. Califomia BalletlDance $2,500
To provide dance, drama, stagecraft and production methods in the creation of a
story and ballet, with the five middle schools ofChula Vista. Teaching dance and
dance methods as required by the new dance education standards of the State of
California and encouraging young men to dance through the relationship to
athletics.
. Todd Caschett $1,200
To provide funds for community workshops held at Southwestern College in
traditional Haitian Vodun Practices a study of spirituality brought to the islands
by slaves from West Africa through its musical rhythms, drumming and dance.
. Chula Vista Art Guild $1,030
Expanding "Portrait of the Community" concept and exhibition to local and
regional artist using the City and its various neighborhoods, citizen as the source
of images that show Chula Vista in a positive manner and raise the awareness
about the community.
. Chula Vista Cultural Arts Commission $1,500
To provide funds to cover the cost of design and printing of the program for
"Taste of the Arts, by the Bay" Chula Vista's signature cultural event.
. Chula Vista Cultural Arts Commission $750
To provide funds to cover the cost of artist fees for one concert that is part of the
annual Chula Vista "Music In.The Park, a summer concert series"
. Chula Vista Downtown Business Association $2,000
To provide a continued opportunity for local artist to design and paint the surfaces
of the utility boxes on Third A venue. The funds will provide paint, equipment and
stipend for this enhancement in the redevelopment process of Downtown Chula
Vista.
. Chula Vista High School for Creative & Performing Arts $1,500
To expand the Chula Vista Band Review and increase the promotion and
awareness of this event from a one day event to two days. It is the largest
sweepstakes in marching event in the State of California. It has a strong economic
value to the community in the amount of bands and guest it brings to the City.
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Item: ~ Page 4
Meeting Date: 06/08/2004
.
Chula Vista High School "Main Attraction" $1,500
To fund the cost of program design and printing for the Southern California
Performance Show Choir Invitational that will be held in Chula Vista at the Ruth
Chapman Performing Arts Center. This two-day event attracts large crowds and
20 schools participate in this event.
. Friends of the Chula Vista Civic Center Library $2,000
To provide funding for the placement of Public Art/Sculpture in front of the
library in the "Temporary Pad/Loan" project.
. Friends of the South Chula Vista Library/Literacy Team $2,500
To present a South Chula Vista Branch Library Cultural Arts Festival and
partnering with Centro Hispanoamericano de Guitarra and held in the Rosemary
Lane Galeria. The series will include classical, folk and multi-cultural dance
presentations and promote the visual art exhibitions held in the Galeria,
. Hilltop High School B!\Ild Boosters $2,000
To provide funding for preparation of band students for solo and ensemble
festivals and enhancing band unit performance for community/public concerts and
marching season,
. Hilltop High School Winter Guard $1,500
To provide funding for enhanced instructional classes in dance, drill techniques in
flags, rifles & sabers dramatic choreography.
. Imagination Express.. .All-Board! $2,500
To provide artistic and educational interactive assemblies to five Chula Vista
Elementary and five Middle Schools. Students will be engaged with stylized and
slow motion movements or fast paced slapstick comedy to excite their minds.
. Installation Gallery $1,750
To provide artist and integrate arts education into Finney Elementary School's
curriculum and instructional programs. This project provides quality time during
the school day for artist and teachers to plan for incorporating arts learning with
classroom instruction.
. Mariachi Scholarship Foundation $1,000.
To provide promotional materials and increase the awareness for Mariachi Month
in the City ofChula Vista.
3-f
Item: L Page 5
Meeting Date: 06/08/2004
. Museum of Photographic Arts $1,670
To provide arts education in the Chula Vista Elementary School District to
students and staff with instruction in photographic techniques and procedures and
museum education.
. Bharvani Peesapath $1,000
To provide funds for the continued studies ofKuchipudi and Bharata Natyam
classical Indian dance styles in India. Then presenting workshops and
performances with her grandmother as part of the South Chula Vista Library's
Cultural Arts Festival.
. Playwrights Projects $1,800
To provide language arts, drama, and performance skills to Castle Park High
School and Middle Schools to increase self awareness and confidence using
drama as a key factor to leaming and the curriculum.
. San Diego Junior Theatre $1,800
To provide increased promotions for the Chula Vista branch/classes during the
2004-2005 seasons.
. San Diego Opera $2,500
To provide a music/enrichment program to the five middle schools in Chula
Vista. Students will work with the Opera Ensemble program with instruction
about opera singing, acting, music language, theater arts, make-up, costuming and
the new music education standards of the State of California.
. Southwestern College Concert Choir $1,100
To present and develop a production/concert of Haydn's 3rd Mass. The project
consists of students, community members and full orchestra accompanying the
performances.
. The Old Globe Theater $2,500
To provide a language arts and drama program to 9th grade students using
Shakespeare's Romero & Julieta as the learning device and the development of
the production/play to be presented in various parks in the City of Chula Vista.
FISCAL IMPACT: There is no General Fund impact associated with these grants. The
recommended FY 2004/05 grant awards total $45,000 leaving a balance of $12,020.83 to
be used for emergency "out-of-cycle" grant requests received during 2004/05. Any
remaining funds may be carried over and added to next year's program.
.j-$)
RESOLUTION NO. 2004--
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA APPROVING THE PERFORMING AND
VISUAL ARTS TASK FORCE'S SELECTION OF THE FY
2004-2005 PERFORMING AND VISUAL ARTS GRANT
RECIPIENTS AND THEIR MONETARY GRANT AWARD
TOTALING $45,000
WHEREAS, in 1997, the City Council approved a Sublease with the House of Blues
Concerts, Inc. (formerly Universal Concerts) that established a process whereby ticket sales
proceeds at the Coors Amphitheater would be paid to the City and utilized for a Performing and
Visual Arts Fund; and
WHEREAS, this fund is to be used for arts grants to the Chula Vista community for the
purpose of promoting and stimulating the growth of performing and cultural arts grant awards;
and the
WHEREAS, this year the Office of Cultural Arts received $45,171.00 from the House of
Blues for the 2003 Concert Series; and
WHEREAS, as called for in the sublease, a Performing and Visual Arts Task Force was
established and annually makes recommendations to the City Council regarding the arts grant
awards; and
WHEREAS, the Task Force is assisted by the Office of Cultural Arts, which formally
conducts the grant application process; and
WHEREAS, the Task Force has reviewed the Fiscal Year 2004-2005 applications and
has made its recommendations.
NOW, THEREFORE, BE IT RESOLVED the City Council of the City of Chula Vista
does hereby approve the Performing and Visual Arts Task Force's selection of the Fiscal Year
2004-2005 Performing and Visual Arts Grant recipients (set forth in Exhibit A) and their
monetary grant award totaling $45,000.
Presented by
Approved as to form by
J:)o...- ì. 14 t:I--
David Palmer
Assistant City Manager
Ann Moore
City Attorney
J:lAttorney\ResolgrantsILibrary Performing and Visual Arts Task Force
3-b
EXHIBIT A
FY 2004-2005 PerCorminl! and Visual Arts Grant Recipients
Art Now! $1,750
To provide arts education in collaboration with the Chula Vista MAAC Project in verbal
and digital imaging processes to local residents for better methods of expressing their
ideas, opinions on issues that are important their lives in an artistic manner.
Bonita Artist Potpourri $1,200
To provide for community arts workshops, summer children's classes and their annual
exhibition held at the Rosemary Lane Galeria.
Bonita Historical Society $750
To provide the community and region with an exhibition and workshops that traces the
heritage of a founding community in the South Bay and Native Americans of the South
Bay and their crafts and arts who inhabited the Sweetwater Valley.
Bonita Vista High School "Sound Unlimited" $1,200
To provide funding for adjudicators at "For Ladies Only" show choir competition. This
annual competition is held in Chula Vista at the Ruth Chapman Center for the Performing
Arts and in a one-day event
BonitaCest Melodrama $2,500
To provide funding for a community musical-melodrama based on local history
appropriate for multigenerational, culturally diverse family audiences.
California BalletlDance $2,500
To provide dance, drama, stagecraft and production methods in the creation of a story and
ballet, with the five middle schools of Chula Vista. Teaching dance and dance methods as
required by the new dance education standards of the State of California and encouraging
young men to dance through the relationship to athletics.
Todd Caschett $1,200
To provide funds for community workshops held at Southwestern College in traditional
Haitian Vodun Practices a study of spirituality brought to the islands by slaves from West
Africa through its musical rhythms, drumming and dance.
Chula Vista Art Guild $1,030
Expanding "Portrait of the Community" concept and exhibition to local and regional
artist using the City and its various neighborhoods, citizen as the source of images that
show Chula Vista in a positive manner and raise the awareness about the community.
Chula Vista Cultural Arts Commission $1,500
To provide funds to cover the cost of design and printing of the program for "Taste of the
Arts, by the Bay" Chula Vista's signature cultural event.
3-7
EXHIBIT A
FY 2004-2005 Performinl!: and Visual Arts Grant Recipients
Chula Vista Cultural Arts Commission $750
To provide funds to cover the cost of artist fees for one concert that is part of the annual
Chula Vista "Music In The Park, a summer concert series"
Chula Vista Downtown Business Association $2,000
To provide a continued opportunity for local artist to design and paint the surfaces of the
utility boxes on Third Avenue. The funds will provide paint, equipment and stipend for
this enhancement in the redevelopment process of Downtown Chula Vista.
Chula Vista High School for Creative & Performing Arts $1,500
To expand the Chula Vista Band Review and increase the promotion and awareness of
this event from a one day event to two days. It is the largest sweepstakes in marching
event in the State of California. It has a strong economic value to the community in the
amount of bands and guest it brings to the City.
Chula Vista High School "Main Attraction" $1,500
To fund the cost of program design and printing for the Southern California Performance
Show Choir Invitational that will be held in Chula Vista at the Ruth Chapman Performing
Arts Center. This two-day event attracts large crowds and 20 schools participate in this
event.
Friends of the Chula Vista Civic Center Library $2,000
To provide funding for the placement of Public Art/Sculpture in front of the library in the
"Temporary Pad/Loan" project.
Friends of the South Chula Vista Library/Literacy Team $2,500
To present a South Chula Vista Branch Library Cultural Arts Festival and partnering with
Centro Hispanoamericano de Guitarra and held in the Rosemary Lane Galeria. The series
will include classical, folk and multi-cultural dance presentations and promote the visual
art exhibitions held in the Galeria.
Hilltop High School Band Boosters $2,000
To provide funding for preparation of band students for solo and ensemble festivals and
enhancing band unit performance for community/public concerts and marching season.
Hilltop High School Winter Guard $1,500
To provide funding for enhanced instructional classes in dance, drill techniques in flags,
rifles & sabers dramatic choreography.
Imagination Express...AII-Board! $2,500
To provide artistic and educational interactive assemblies to five Chula Vista Elementary
and five Middle Schools. Students will be engaged with stylized and slow motion
movements or fast paced slapstick comedy to excite their minds.
~-p
EXHIBIT A
FY 2004-2005 Performinl! and Visual Arts Grant Recipients
Installation Gallery $1,750
To provide artist and integrate arts education into Finney Elementary School's curriculum
and instructional programs. This project provides quality time during the school day for
artist and teachers to plan for incorporating arts learning with classroom instruction.
Mariachi Scholarship Foundation $1,000
To provide promotional materials and increase the awareness for Mariachi Month in the
City of Chula Vista.
Museum of Photographic Arts $1,670
To provide arts education in the Chula Vista Elementary School District to students and
staff with instruction in photographic techniques and procedures and museum education.
Bharvani Peesapath $1,000
To provide funds for the continued studies of Kuchipudi and Bharata Natyam classical
Indian dance styles in India. Then presenting workshops and performances with her
grandmother as part of the South Chula Vista Library's Cultural Arts Festival.
Playwrights Projects $1,800
To provide language arts, drama, and performance skills to Castle Park High School and
Middle Schools to increase self awareness and confidence using drama as a key factor to
learning and the curriculum.
San Diego Junior Theatre $1,800
To provide increased promotions for the Chula Vista branch/classes during the 2004-
2005 seasons.
San Diego Opera $2,500
To provide a music/enrichment program to the five middle schools in Chula Vista.
Students will work with the Opera Ensemble program with instruction about opera
singing, acting, music language, theater arts, make-up, costurning and the new music
education standards of the State ofCalifomia.
Southwestern College Concert Choir $1,100
To present and develop a production/concert of Haydn's 3rd Mass. The project consists of
students, community members and full orchestra accompanying the performances.
The Old Globe Theater $2,500
To provide a language arts and drama program to 9th grade students using Shakespeare's
Romero & Julieta as the learning device and the development of the production/play to be
presented in various parks in the City of Chula Vista.
.3-9
COUNCIL AGENDA STATEMENT
Item .LJ--
Meeting Date Ju~
ITEM TITLE:
Resolution accepting the City Manager's certification of sole
source status and approving a Design Build Agreement with Rudolph
and Sletten, Inc. for the provision of services required to design and
construct upgrades and replacements to the Nature Center Interior
Exhibits (Nature Center Galleria Remodel), and authorizing the Mayor
to execute said agreement.
General Services Dir~ctor ~.
Nature Center Director
REVIEWED BY: City Managef!t;vr'. (4/5ths Vote: Yes - No _X~
The City Council previously approved CIP GG175 which involves the redesign and replacement
of the Nature Center interior exhibits including but not limited to new structural and electrical
components, access to exhibits for daily maintenance by staff, plumbing and draining
improvements, and overall configuration of exhibits to improve visitor flow throughout the
interior of the facility.
SUBMITTED BY:
RECOMMENDATION: That the City Council accept the City Manager's certification of sole
source status and approve a Design Build Agreement with Rudolph and Sletten, Inc. for the
provision of services required to design and construct upgrades and replacements to the Nature
Center Interior Exhibits (Nature Center Galleria Remodel), and authorizing the Mayor to execute
said agreement.
BOARDS/COMMISSION: Not Applicable
DISCUSSION:
The Nature Center Galleria Remodel project is a unique project in that it involves the redesign
and replacement of Nature Center interior exhibits such as structural and electrical components
as well as new drainage systems that support a saltwater-rich environment. The current aquaria
and exhibits were designed as temporary units in 1987 with a life span of approximately five
years. Over the past seventeen years, there have been many repairs to exhibit text panels,
plumbing, electrical and drainage systems. Many of the components are losing structural value
as a result of constant salt water and salt spray intrusion. The exhibits provide a unique learning
environment to the citizens of Chula Vista as well as many visitors from various areas of the
County and State in a safe and comfortable environment. The existing exhibits have become
worn and are in need of replacement and configuration such that the Center can continue to
provide safe, up-to-date, quality services.
¿¡: -(
I
Page2,Item~
Meeting Date June 8. 2004
SOLE SOURCE
Pursuant to Municipal Code § 2.57.030, the City may, after certification by the City Manager,
award sole source Design Build contracts. City Council certified the list of qualified Design
Builder's on June 17, 2003. Rudolph and Sletten, Inc. is on that list.
It is recommended that the City Council accept the City Manager's certification and authorize
staff to enter into an agreement with Rudolph and Sletten, Inc. to design and construct upgrades
and replacements to the Nature Center Interior Exhibits. Justification for the sole source
agreement is based upon the following:
1. Rudolph and Sletten, Inc. has specialized knowledge and experience related to the unique
scope of work involved with construction and rehabilitation of museum facilities and
aquatic exhibits. As presented in their proposal dated April 5, 2004, they have extensive
experience on similar projects such as the original construction and upgrade of the
Monterey Bay Aquarium, renovation of existing Ski Stadium Island on Mission Bay into
a complete aqua theater at Sea World San Diego ("Cirque de la Mer"), the Barbara Morse
Wackford Aquatic Complex, just to name a few.
2. Reference checks done as part of the original selection process for the Qualified Design
Build list resulted in favorable reports regarding the work completed by Rudolph and
Sletten, Inc. Previous work done by Design Builder for the City has been excellent.
There have been no negative claims against their projects with the City and they have
demonstrated the ability to complete projects within the City's time and budget
constraints.
3. The proposed sole source agreement is consistent with the intent of the Qualified Design
Build list established as a result of the RFQ process as approved by the City Council and
from which Rudolph and Sletten, Inc. was originally selected.
DESIGN/BUILD
Staff is recommending the City enter into an agreement with Rudolph and Sletten, Inc. for the
provision of services required to design and construct upgrades and replacements to the Nature
Center Interior Exhibits, and authorizing the Mayor to execute said agreement. In the case of
the Nature Center improvements, the designlbuild process will place sole responsibility for
delivery of the project upon Rudolph and Sletten, Inc., a general contractor. Rudolph and
Sletten, Inc. will subcontract for the design and consulting services, and trade contracts during
the construction phase. Generally utilization of a designlbuild process will provide savings in
cost and time because the entire project is managed and constructed by a single entity, thereby
eliminating the difficulties of dealing with multiple entities and overhead on one project.
The designlbuild process provides the City the flexibility to work with the best contractors in the
County, as it does not necessarily require award to the lowest responsible bidder.
PROJECT SCOPE AND CONTRACTUAL REOUIREMENTS
'f- -L
Page 3, Item 4-
Meeting Date June 8:1004
As proposed, the Design-Build Agreement with Rudolph and Sletten, Inc. will provide the City
with redesigned and replacement of interior exhibits at the Nature Center. The scope of work
includes, but is not limited to the following:
Design and construction of upgraded and/or replacement of interior exhibits at the Nature
Center. The facility shall include, but not be limited to all components as outlined in the
Chula Vista Nature Interior Remodel Project Programming.
Rudolph and Sletten, Inc. shall perform all services, work and obligations as described for the
not to exceed amount of $723,000, which shall include Design Services, General Conditions,
Insurance, Bonds and all Hard Construction costs necessary to provide a fully completed and
functional Project. At 90% complete documents a Guaranteed Maximum Price (GMP) will be
established as part of the agreement, which will include, but not be limited to, the cost for all
labor, equipment, and material to design and construct upgraded and replaced interior exhibits at
the Nature Center in accordance with all applicable building codes.
CHANGE ORDERS
Under the designlbuild process, change orders are handled differently than under the
designlbid/build process. Change orders are only returned for Council approval if they exceed
the approved GMP, or are for additional work requested by City, which results in a significant
change to the original scope. Otherwise, change orders are reviewed/approved by staff and the
design builder. This practice is commonplace when using the designlbuild construction
technique.
An example of a change in the scope of work could be unanticipated subsurface conditions
causing substantial additional work by Rudolph and Sletten, Inc. that was not contemplated in
the original agreement (a preliminary soils evaluation and report was completed by a qualified
contractor which suggests that the soils should not be an issue). Therefore, depending on the
significance of problematic discoveries on the site, staff may be required to process a change
order due to a change in scope of work.
PROJECT COMPLETION DATES
Rudolph and Sletten, Inc. has agreed and the contract reflects the following completion dates:
Substantial Completion: Achieve "Substantial Completion" (as defined in §16.1 of the
Design Build Agreement) no later than 220 calendar days from issuance of Notice to
Proceed at execution of Agreement.
Substantial Completion shall be that stage in the progress of the construction when all
Work on the Project is sufficiently complete in accordance with the Construction
Documents so that City can fully utilize entire Project; Substantial Completion shall
further mean that all goods, services and systems to be provided under the terms and
conditions of the Construction Documents are in place and have been initially tested, and
are operationally functional, subject only to final testing, balancing and adjustments and
normal Final Completion punch list Work.
r.3
page4,Item~
Meeting Date June 8. 2004
Final Completion shall occur at the conclusion of construction when all Work on the
Project is sufficiently complete in accordance with the Construction Documents so that
City can fully occupy and utilize entire project; Final Completion shall further mean that
all goods, services and systems be provided under the terms and conditions of the
Construction Documents are in place and have been tested, and are operationally
functional.
ENVIRONMENTAL STATUS
The Environmental Review Coordinator has reviewed the proposed project for compliance with
the California Environmental Quality Act and has determined that the project qualifies for a
Class 1 categorical exemption pursuant to Section 15301 of the State CEQA Guidelines. Thus,
no further environmental review is necessary.
FISCAL IMPACT: Rudolph and Sletten, Inc. shall perform design services, and general
conditions for the not to exceed amount of $178,395. At 90% complete documents a GMP will
be established as part of this agreement, which will include, but not be limited to, design costs,
general conditions, project management, the cost for all labor, equipment, and material to design
and construct newly upgraded and replacement of interior exhibits at the Nature Center in
accordance with all applicable building codes. Staff will return to Council for approval of the
GMP once the construction documents reach 90% completion. At the same time, staff will
request that Council appropriate additional funds to construct the project. Nature Center staff and
volunteers are in the process of developing financial participation from the Friends of the Chula
Vita Nature Center, the County, US Fish and Wildlife Service and other local grant making
agencies. Previously appropriated funds in the amount of $326,949 are sufficient to complete the
design phase.
Attachment(s): 1 - Design Build Agreement
File, GGI75
J:\General Serviees\GS Administration\Couneil AgendaINature Center Renovation GGl75\Draft AI13 GGl75.dne
4-4
RESOLUTION NO. 2004--
RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF CHULA VISTA ACCEPTING THE CITY
MANAGER'S CERTIFICATION OF SOLE SOURCE
STATUS AND APPROVING A DESIGN BUILD
AGREEMENT WITH RUDOLPH AND SLETTEN, INC.
FOR THE PROVISION OF SERVICES REQUIRED TO
DESIGN AND CONSTRUCT UPGRADES AND
REPLACEMENTS TO THE NATURE CENTER
INTERIOR EXHIBITS (NATURE CENTER GALLERIA
REMODEL), AND AUTHORIZING THE MAYOR TO
EXECUTE SAID AGREEMENT
WHEREAS, the City Council previously approved CIP Project No. GG175 which
involves the redesign and replacement of the Nature Center interior exhibits including but not
limited to a new structural and electrical components, access to exhibits for daily maintenance
by staff, plumbing and draining improvements, and overall configuration of exhibits to improve
visitor flow throughout the interior of the facility; and
WHEREAS, in June 2003, Rudolph and Sletten, Inc. was placed on the Council
approved certified Design Build list; and
WHEREAS, pursuant to Municipal Code Chapter 57.030, Design Build, in lieu of
bidding a project the City Council may award a sole source contract based upon the appropriate
certification from the City Manager; and
WHEREAS, based on informal proposals, Rudolph and Sletten, Inc., was selected as the
Design Builder with extensive experience for this type of project and who would best meet the
City's aggressive development schedule; and
WHEREAS, the City Manager has certified the sole source status of Rudolph and
Sletten, Inc. based upon the following:
1. Rudolph and Sletten, Inc. has specialized knowledge and experience related to the
unique scope of work involved with construction and rehabilitation of museum
facilities and aquatic exhibits. As presented in their proposal dated April 5, 2004,
they have extensive experience on similar projects such as the original construction
and upgrade of the Monterey Bay Aquarium, renovation of existing Ski Stadium
Island on Mission Bay into a complete aqua theater at Sea World San Diego
("Cirque de la Mer"), the Barbara Morse Wackford Aquatic Complex, just to name a
few.
2. Reference checks done as part of the original selection process for the Qualified
Design Build list resulted in favorable reports regarding the work completed by
Rudolph and Sletten, Inc. Previous work done by Design Builder for the City has
been excellent. There have been no negative claims against their projects with the
'1- S-
City and they have demonstrated the ability to complete projects within the City's
time and budget constraints.
3. The proposed sole source agreement is consistent with the intent of the Qualified
Design Build list established as a result of the RFQ process as approved by the City
Council and from which Rudolph and Sletten, Inc., was originally selected.
WHEREAS, staff recommends that the Council accept the City Manager's sole source
certification and the City enter into a Design Build Agreement with Rudolph and Sletten, Inc.
for the provision of services required to design and construct upgrades and replacements to the
Nature Center Interior Exhibits; and
WHEREAS, the Environmental Review Coordinator has reviewed the proposed project
for compliance with the California Environmental Quality Act and has determined that the
proposed project qualifies for a Class 1 categorical exemption pursuant to Section 15301 of the
State CEQA Guidelines. Thus no further environmental review or documentation is necessary.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Chula
Vista does hereby accept the City Manager's certification of sole source status and approve a
Design Build Agreement with Rudolph and Sletten, Inc. for the provision of services required
to design and construct upgrades and replacements to the Nature Center Interior Exhibits, a
copy of which shall be kept on file in the office of the City Clerk.
BE IT FURTHER RESOLVED that the Mayor of the City of Chula Vista is hereby
authorized to execute said Agreement on behalf of the City of Chula Vista.
Presented by
Approved as to form by
Jack Griffin
Director of General Services
f~))!f'Þ
Moore
'cIty Attorney
J:\attomey\reso\Design Bund Rudolph & S1etten
1//
-'I
If
THE ATTACHED AGREEMENT HAS BEEN REVIEWED
AND APPROVED AS TO FORM BY THE CITY
ATTORNEY'S OFFICE AND WILL BE
FORMALLY SIGNED UPON APPROVAL BY
THE CITY COUNCIL
~<'
~dd[
Dated:
Approving the Agreement with
Rudolph and Sletten, Inc. for the provision
Of services required to design and construct upgrades
And replacements to the Nature Center Interior
Exhibits (Nature Center Galleria Remodel)
Lf-7
~\ ~ f?
~ 1
CllY OF
CHUlA VISfA
Design Build Agreement for:
NATURE CENTER GALLERIA REMODEL
(CIP GGl75)
IN THE CITY OF CHULA VISTA, CA
DESIGN BUILD AGREEMENT
This Agreement is made and entered into this 8th day of June 2004, by and between THE
CITY OF CHULA VISTA (herein "City"), a municipal corporation, and Rudolph and Sletten, Inc.
(Design Builder) ("Design Builder or D/B"). City and OrB are sometimes hereinafter referred to as
Parties ("Parties").
RECITALS
and
WHEREAS, the project, Nature Center Galleria Remodel, is an existing facility to the City,
WHEREAS, the City of Chula Vista, in an on-going effort to expand the services to the
community, has planned for the Nature Center Galleria Remodel located in the Bayfront area of
the City; and
WHEREAS, on June 17,2003 the Council approved a resolution establishing a Design-
Build Priority List to be used in awarding Design-Build contracts for future City projects, and
WHEREAS, D/B successfully competed in the selection process and is certified as a
qualified Design-Build entity, and
WHEREAS, the City has determined that due to the unique nature of the Nature Center
Galleria Remodel, it is prudent to award this project to an approved D/B a provider without further
competition; and
WHEREAS, the City desires to contract with a single entity for the design and construction
of upgrades and replacements to the Nature Center interior exhibits, in accordance with this
Agreement; and
WHEREAS, Municipal Code §2.57 provides for the sole source award of a Design Build
contract upon written certification by the City Manager of the sole source status of the provider:
and
WHEREAS, the City Manager has certified to the Council that as a result of D/B's unique
qualifications and extensive experience in the construction and renovation of Museum and Exhibit
facilities, extensive experience in providing design build services and its ability to complete the
project within the City's time and budget constraints, the sole source award is appropriate; and
WHEREAS, on April 5, 2004 Design Builder submitted a proposal package for the Nature
Center Galleria Remodel which demonstrates their ability to perform the work and substantiates
the City Manager's certification for sole source award; and
1
NOW THEREFORE, in consideration of the mutual promises and covenants contained
herein:
THE PARTIES AGREE:
Section 1:
General Scope of Work to Be Performed by D/B
1.1 In accordance with the terms set forth in this Agreement and the Chula Vista Nature
Center Interior Remodel Project Programming, D/B shall design and construct upgrades to
and replacement of the Nature Center Interior Exhibits (Nature Center Galleria Remodel).
The Nature Center Galleria Remodel shall include, but not be limited to all components
outlined and described in the attached documeht entitled Chula Vista Nature Center Interior
Remodel Project Programming (Exhibit 1) (referred to hereafter as "Project"). The Project is
located at 1 000 Gunpowder Point Drive in the City of Chula Vista.
1.2 The services to be provided by D/B are generally to be performed in four "Phases";
the services to be provided in each Phase are specified elsewhere in this Agreement. The
services provided by the D/B shall include, but not be limited to, all services outlined and
described in this agreement and those within Exhibit 1.
1.3 The DIB shall:
1.3.1 Perform all services, work and obligations as described herein for the not to
exceed amount of $723,000, which shall include Design Services and
General Conditions necessary to provide a fully completed and functional
Project. D/B shall perform all Design Services and General Conditions for
the not to exceed amount of $1'78,395 as outlined in the Design Build Fee
Structure (Exhibit 2). At 90% complete construction documents a
Guaranteed Maximum Price (GMP) will be established pursuant to Section
13 of this Agreement, which will include, but not be limited to, the cost for
all labor, equipment, and mat$rial to design and build a fully functional
Nature Center Galleria Remodel in accordance with all applicable rules,
regulations, and laws. The D/B fee shall be based upon the Design Build
Fee Structure (Exhibit 2) and is, estimated at $40,000. Any costs incurred
by D/B in excess of said GMP 'shall be the sole responsibility of the D/B,
unless a change order is approved by the City pursuant to Sections 9 and
14 of this agreement. All funds remaining in the GMP at the completion of
the project shall belong to the c;ity.
1.3.2 Substantial Completion:
Achieve "Substantial Completion" (as defined in §16.1) no later than 220
calendar days from issuance of Notice to Proceed at execution of
Agreement.
2
1.3.3 Achieve "Final Completion" (a~ defined in §16.2) No later than 250 calendar
days from issuance of Notice to Proceed at execution of Agreement.
Section 2: General Obliqations of Citv
2.1 City shall be obligated as follows:
2.1.1 Designate a representative (or representatives) who is authorized to act on
behalf of City with respect to the Project, except as to those decisions
specified herein or by law that require authorization by the Chula Vista City
Council;
2.1.2 Make decisions with reasonable promptness to avoid delay in the orderly
progress of D/B's services per the Detailed Construction Schedule (DCS);
2.1.3 Pay for and cause to be comple~ed all necessary environmental studies and
obtain environmental approval~ and/or permits with reasonable promptness
to avoid delay to the orderly pnþgress of D/B's performance per the DCS;
2.1.4 At the request of D/B, City will µse its best efforts to provide D/B with any
available information about the! Project Site geotechnical soil conditions; it
will, however, be the responsil:/ility of D/B to take all reasonable steps to
verify all such information as i1 deems necessary to perform its services
under this Agreement. City dioes not warranty to D/B the accuracy or
completeness of any such infortmation.
2.1.5 Cooperate with D/B in identifying, processing and securing required
permits, licenses and inspectioos in a timely fashion; however, this duty to
cooperate does not relieve D/ß of its primary obligations to identify, apply
for and secure all necessary permits (except as provided in 2.1.3),licenses
and inspections in a timely manner.
2.1.6 Make payments to D/B in the al110unts and in accordance with the terms set
forth below.
2.1.7 Issue Certificate of Substa~tial Completion when City reasonably
determines the Project has achieved Substantial Completion as defined
below in Section 16.1.
2.1.8 Issue a Notice of Acceptance when City reasonably determines the Project
has achieved Final Completion'as defined in Section 16.2.
2.2 Citv Review Process. City shall review Design Development Drawings (ODD's),
50% Construction Drawings (CD's), 70% CD's, 90% CD's and 100% CD's which
3
shall allow construction of Project in cqnformity with the Interior Remodel Project
Programming for the Project.
2.2.1 For each D/B submission, City shall have fifteen (15) working days to review,
approve, conditionally approve qr deny said set of documents.
Section 3:
General Obliqations of D/B
3.1 DIB shall be obligated as follows:
3.1.1 At all times in performing its services under this Agreement to design and
deliver the best possible Project consistent with standard of care in Section
3.3 that satisfies the time,moneJary, quality and design parameters set forth
in this Agreement;
3.1.2 Design and construct the Projeþt on time, consistent with time frames set
forth in the DCS, and in such a,manner that the GMP or Contract Time of
the Project shall not be exceed~d, but if D/B reasonably believes that any
action, inaction, decision or dir~ction by City or agent for the City will likely
result in the GMP or Contract time being exceeded or the Project being
completed late, D/B will notify Gity at Project Team meeting and in writing
within five (5) calendar days of ~iscovering such action, inaction, decision,
or direction. Included in such nqticewill be an estimate of the cost and time
impact resulting from such actidn, inaction, decision or direction. D/B shall
provide complete and accurate pricing within ten (10) calendar days of said
discovery.
3.1.3. Perform, or obtain the prior written consent of the City to subcontract all
design services for the Project lutilizing qualified, licensed and sufficiently
experienced architects, engine~rs and other professionals (herein jointly
"Design Consultants") as identi~ied in Exhibit 3. D/B shall not be permitted
to substitute any Design Consul~ant unless authorized by City. The fact!hat
the City approves the subcont~cting of any such services will in no way
relieve the D/B of any of its ¡obligations or responsibilities under this
Agreement;
3.1.4 Perform all construction on the ~roject utilizing subcontractors appropriately
licensed by the California Contr~ctors State License Board or other required
agency;
3.1.5 Perform all services as expeditiþusly as is consistent with reasonable skill
and care and shall complete the services within each and all of the time
periods set forth in this Agreement;
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3.1.6 Comply with the California Fair ¢mployment and Housing Act and all other
State, Federal and local laws indluding, but not limited to, those prohibiting
discrimination, on account of ra¢e, color, national origin, religion, age, sex
or handicap;
3.1.7 Study all applicable laws, codes,¡ ordinances, rules, orders, regulations, and
statutes affecting the Project) including but not limited to, zoning,
environmental, building, fire an~ safety codes and coverage, density and
density ratios and lien laws, anþ comply with them in performance of its
services. D/B shall ensure that within the established GMP that the Project
conforms to all applicable f~deral, state and local laws, statutes,
ordinances, rules, regulations , orders or other legal requirements,
(collectively "Governmental Requirements") existing as of the date of this
Agreement. However, the' City recognizes that Governmental
Requirements and their interpr$tations by governmental officials ("Code
Authority") are often subject to c~ange at any time, even after issuance of a
building permit. If, after the da~e of this Agreement, modifications to the
Project are required because of $ change in Governmental Requirements or
their interpretation by a Code f\uthority which had not previously been
given, or which if given, was diftþrent than a prior interpretation of a Code
Authority, D/B shall make the ~equired modifications to comply with the
same. However, in the event of $uch an occurrence, the GMP and Contract
Time may be subject to an adjustment in accordance with Section 14.
Nothing contained in this paragraph shall relieve D/B of its obligations to
modify the Project at its own expßnse where D/B has failed to construct the
Project in compliance with Govefnmental Requirements applicable as of the
date of this Agreement.
3.1.8 Take all reasonable steps during the course of the Project so as not to
interfere with the ongoing operatiþn of the adjacent residences, businesses
and facilities, including but not linhited to the following:
3.1.8.1 Not interfere with pedeßtrian and vehicular access;
3.1.8.2 Control dust and noi¡¡e in accordance with the provisions in
Section 7-8.1 of the 20ØO Edition ofthe Standard Specifications for
Public Works Construotion, City Ordinances and this Agreement
3.1.9 Use reasonable care to avoid d$maging existing buildings, equipment and
vegetation adjacent to and withih the Project Site. If D/B causes damage to
any of this property, D/B shall reþlace or repair said property at no expense
to City and shall not be a basis' for seeking an adjustment to the GMP or
Contract Time. D/B agrees to indemnify City for any and all fines,
penalties, liabilities, cost imposed upon City, its officers, employees and
agents as a result of this Project.
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3.1.10 To obtain all permits necessary.o complete the Project. City shall pay cost
of permits. D/B shall be respon~ible for obtaining and paying for all permits
normally obtained by the trades! or subcontractors.
3.1.11 Conform its design to the requirements of the Americans With Disabilities
Act Accessibility Guidelines ("A¡ÞAAG") and the Americans With Disabilities
Act ("ADA").
3.1.12 Seek and obtain written approvþl from the City of the drawings for each of
the following phases: (1) ODD 1(2) 50% CD's (3) 70% CD's and (4) 90%
CD's and (5)100% CD's. Sai~ approval shall be evidenced by written
notice to proceed with the subsequent phase.
3.1.13 Provide cost estimating and v~lue engineering services, which take into
consideration long-range maint¢nance costs, energy efficiency, and impact
operation of the Project. Provid e cost estimates to the City at DDD's, 50%
CD's, 70% CD's and 90% CD's.! Provide final cost estimate, in four copies,
to the City with Final Construction Documents.
3.1.14 Review soils and geotechnical reports relating to the Project Site; and
determine and advise City if ~ny further subsurface investigations are
warranted. If such further inve$tigations are authorized by City, D/B shall
perform said investigations. . The costs of said investigations are
Reimbursable Costs to be pai<ll by the City without markup, pursuant to
Section 13.
3.1.15 Be fully responsible for all additive costs, damages, and liabilities resulting
from errors or omissions beyon~ the standard of care defined in Section 3.3
by D/B or D/B's agents, emplo~ees, design consultants and contractors;
such costs, damages and liabilities shall not be chargeable to the City nor
shall they be a basis for seekihg an adjustment in the GMP or Contract
Time.
3.1.16 Seek and obtain written appro'-1al from the City of the drawings for each of
the following phases: (1) 100% boo's and (2) 50% CD's (3) 70% CD's, (4)
90% CD's and (5) 100% CD's. Said approval shall be evidenced by written
notice to proceed with the subsequent phase.
3.1.17 Be fully responsible for all addi~ive costs, damages, and liabilities resulting
from errors or omissions beyon~ the standard of care defined in Section 3.3
by D/B or D/S's agents, empldyees, design consultants and contractors;
such costs, damages and liabilities shall not be chargeable to the City nor
shall they be a basis for seekirîg an adjustment in the GMP.
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3.2 D/B agrees to fully assume all risks, and costs associated with such risks, in
performing the services and meeting the obligations under this Agreement.
3.2.1 Unanticipated subsurface site conditions
3.2.1.1 City assumes risks for unanticipated subsurface site conditions
provided D/S notifies Oity in writing within five (5) calendar days of
discovery if D/B believ$s it has uncovered or revealed a condition
which:
3.2.1.1.1 differs materially from that indicated in the soils and
geotechnical reports furnished by City, or
3.2.1.1.2 is of an unusual nature and differs materially from
conditions ordinarily encountered and generally
recognized as inherent in the work required by
Agreement.
3.2.1.2 Upon receipt of written notice, City shall promptly investigate and if
it determines the conditions do materially differ, requiring a change
in the Work, City shalll commence the processing of a change
order pursuant to Section 14. If City determines there is no bona
fide Work scope change or is a minor change, which does not
impact GMP or Contract Time, City shall notify D/B within ten (10)
calendar days.
3.2.1.3 D/B shall not be entitled to an adjustment in the GMP or Contract
Time if D/B knew or should have known of the existence of such
conditions at the time D/B submitted and agreed to GMP or
Contract Time; or the ep<istence of such condition could reasonably
have been discovered as a result of D/B's obligations pursuant to
Section 3.1.14.
3.3 D/S shall perform in a manner consistent with that level of care and skill ordinarily
exercised by members of the profession currently practicing under similar conditions and in
similar locations. Compliance with this section by D/B shall not in any way excuse or limit
D/B's obligations to fully comply with all other terms in this Agreement.
3.3.1 D/B warrants that at least one member of the D/B team shall be licensed by
the California Contractor's State License Board as a General Building
Contractor. D/B is to provide a list of the responsible people within their
organizations performing services, which shall include their qualifications and
their function, for approval by the City prior to start of construction. City and
D/B shall establish "key personnel" who shall remain on the Project until Final
Completion. If any such "key personnel" leave the employment of D/B, City
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shall have the right to approve the replacement personnel assigned to this
Project. D/B shall comply with all licensing requirements of the State of
California, County of San Diego, and City of Chula Vista.
3.3.2 Project Manager and Project Architect throughout all phases of the Project
hereunder, the individual project manager, and project architect shall be as
reflected in Exhibit 3. So long asthe Individual Project Manager and Project
Architect remain in the employ ofthe General Contractor and Architect, such
persons shall not be changed or substituted from the Project, or cease to be
fully committed to the Project as deemed necessary by the City in its
reasonable discretion, without the prior written consent or instruction of the
City. Any violation of the terms and provisions of this Section shall constitute
a Material Default.
3.3.3 City Right to Remove Project Manager, and Project Architect.
Notwithstanding the foregoing provisions of Section 3.3, if the Individual
Project Manager or Project Architect, proves not to be satisfactory to the City,
upon written notice from the City to the General Contractor, such person or
person shall be promptly replaced by a person who is acceptable to the City
in accordance with the procedures set forth below.
3.3.4 Replacement Selection of Project Manager and/or Project Architect. Within
five (5) working days after receipt of a notice from the City requesting the
replacement of any Individual Project Manager or Project Architect, or
promptly following the discovery by the Design Build Team that any Individual
Project Manager, Landscape Architect or Project Architect is leaving the
employ of the General Contractor or Architect, as the case may be, the
replacement/substitution (together with such person's resume and other
information regarding such person's experience and qualifications) for
approval by City. The replacement/substitution shall commence work on the
Project no later than five (5) calendar days following the City's approval of
such replacement, which approv¡31 shall not be unreasonably withheld. In the
event that the City and Design Build Team cannot agree as to the
substitution of replacement of the Individual, the City shall be entitled to
terminate this Agreement for cause.
3.4 D/B shall cooperate with City in obtaining Environmental approvals and/or permits.
3.5 D/B agrees and acknowledges that the City Representative is the only person with
authority to approve additions or modifications to Project. Any costs or delays resulting
from or associated with additions or modifications implemented without the written
authorization of City Representative shall be borne exclusively by D/B and not be grounds
for an increase in GMP or Contract Time unless necessary to protect public health, safety
or property. .
8
3.6 DIB team is to provide progress photographs taken at regular intervals throughout
the Project. Photographic documentation shall depict an overview of Project site showing
work in progress. Dates and times to be documented. Copies of documentation shall be
transmitted to the City monthly. The costs are Reimbursable Costs to be paid by the City
without markup, pursuant to Section 13.3.
3.7 D/B shall fully cooperate with City Representative and any of its agents assigned to
this project.
Section 4:
Work Restriction and Biddina Reauirement
4.1 D/B shall determine how best to package portions of the work for purposes of
bidding. D/B shall be responsible for selectively bidding all construction work to others and
for entering into subcontracts, in D/B's own name, with the bidder who in D/B's discretion
best meets the monetary, time, and performance requirement ofthe Project. D/B is required
to submit a summary of bid results for each bid package. D/B shall be responsible for
ensuring that these contracts fully comply with all applicable local, state and federal laws,
some but not all of which are listed below.
4.2 D/B shall hear and decide bid protests and shall develop and maintain bid protest
procedures for that purpose. City shall be timely informed of all bid protests (prior to
resolution) and the outcome of said protests.
Section 5:
D/B's Phase I Services and Obliaations - Desian Development
5.1 D/B's services in Phase I shall include, but are not limited to the following:
5.1.1 Continue to develop program and refine project requirements and review
such requirements with the City.
5.1.2 Prepare complete ODD's such that the ODD include, without limitation, the
following:
5.1.2.1 Site plan with pertinent notes and dimensions indicating property
line; existing public streets, sidewalks, curb cuts, other public
improvements; required setbacks; service, trash, fire lane and
truck access, adjacent buildings, building outline; landscape and
site elements.
5.1.2.2 Floor plans including graphically demonstrating interior and
exterior walls and fenestration with notes, dimensions and
gridlines; room names, structural bay spacing with grids, critical
dimensions and area calculations;
9
5.1.2.3 Roof plans including detailed notes, dimensions, mechanical
equipment locations, define material for mechanical screens,
skylights and roof access, roof materials, and roof drainage;
5.1.2.4 Building sections including vertical dimensions, floor assembly
thickness showing known structural elements, notes and
dimensions.
5.1.2.5 Exterior elevations including material references and extent; visible
rooftop elements; existing and new line of grade; indicate offloors
with leader lines; and vertical dimensions; notes, dimensions and
grid lines.
5.1.2.6 Wall sections including all wall sections, dimensions, horizontal
element offsets, and guide to exterior face of wall; dimensions,
vertical floor to floor, floor to window head and sill and floor to
ceiling; structural elements and assemblies; interior and exterior
wall finishes; and wall and roof assembly;
5.1.2.7 Outline specifications, written description of building systems and
components including site work, room finishes, product cut sheets,
and special equipment.
5.1.2.8 Verify all code compliance including building construction type,
occupancy sprinkler requirements, existing, zoning and other
agency conformance and ADA.
5.1.2.9 Delivery of 3D rendered images, color and material boards, special
system and equipment plans.
5.2 Prepare and submit to City detailed cost estimates with ODD.
5.3 Submit completed ODD to City. Obtain comments from City and make revisions to
ODD as required. Obtain written approval or conditional approval from City to proceed to
Phase II Services. If conditional approval granted, D/B shall address all City comments or
issues in the next set of drawings developed. City retains the right to withhold approval and
require resubmittal of the DDD. Any delay or additional costs resulting from the re-
submittal shall be borne exclusively by D/B and not be grounds for an increase in the GMP
or Contract Time.
5.4 D/B shall prepare a detailed Critical Path Method schedule for all design and
construction components of the DCS utilizing Microsoft Project software, showing all major
milestones, bid dates for the major bid packages, commencement of construction,
sequence of construction, completion of structural elements, completion of the Nature
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Center Galleria Remodel, all of which shall conform with the dates of Substantial
Completion and Final Completion of Project.
Section 6: D/B's Phase II Services and ObliQations - Construction Documents
6.1 D/B's services in Phase II shall include but are not limited to the following:
6.1.1 D/B shall continue to develop and refine project requirements and review
such requirements with City;
6.1.2 D/B shall prepare CD's which shall include, without limitation, the following:
6.1.2.1 Architectural plans and details, including:
6.1.2.1.1 Site plan indicating general location and nature of on-
site and the necessary off-site improvements.
6.1.2.1.2 Floor plans, including roof, showing space assignments,
sizes, and location of installed or fixed and movable
equipment which affects the design of the spaces.
6.1.2.1.3 Building elevations indicating exterior design elements
and features, including fenestration arrangements,
materials, mechanical and electrical features appearing
on the walls, roofs, and adjacent areas.
6.1.2.1.4 Interior elevations to establish functional requirements,
equipment, and all systems locations.
6.1.2.1.5 Typical building sections showing primary structural
members, dimensions, and accommodation of
functional systems.
6.1.2.1.6 Typical wall sections sufficient to indicate materials,
openings, and major features.
6.1.2.2 Structural drawings including plans and sections of sufficient clarity
and detail to show the extent and type of structural system and
dimensions, final structural design criteria, foundation design
criteria, preliminary sizing of major structural components, critical
coordination clearances and applicable material lists.
6.1.2.3 Mechanical plans and details;
6.1.2.4 Landscape and Irrigation plan and details;
11
6.1.2.5 Electrical plans and details;
6.1.2.6 Plumbing plans and details;
6.1.2.7 Plans showing installation of major systems, equipment, fixed
furnishings and graphics;
6.1.2.8 Technical specifications;
6.1.2.9 All other technical drawings, schedules, diagrams and
specifications, to set forth in detail the requirements for
construction of the Project which, at a minimum, include:
6.1.2.9.1 Provide information customarily necessary for the use of
those in the building trades;
6.1.2.9.2 Include documents customarily required to obtain
regulatory agency approvals;
6.1.2.9.3 Provide color board and architectural rendering for
required presentations.
6.1.2.10 Mechanical design documentation consisting of continued
development and expansion of schematic mechanical design
consisting of:
6.1.2.10.1 Single line layouts and the approximate sizing of all
equipment and capacities, preliminary equipment layouts.
6.1.2.10.2 Required space requirements for the equipment, required
chases and clearances, acoustical and vibrations control,
visual impacts and energy conservation measures.
6.1.2.11 Electrical design documentation consisting of continued expansion
of the schematic electrical design consisting of:
6.1.2.11.1 Criteria for lighting, electrical, communications audio
visual, close circuit T.V., lighting controls and other
electrical systems typical to exhibit and museum facilities,
the approximate sizes and capacities of major components
transformers-panels-switch gears;
6.1.2.11.2 Preliminary equipment layouts, required space for
equipment, required chases and clearances.
12
6.1.2.12 Sections through critical areas showing coordination of
architectural, structural, mechanical and electrical elements.
6.1.2.13 Final specifications, including but not limited to the following:
6.1.2.13.1 Architectural: general description of the construction,
including interior finishes, types and locations of acoustical
treatment, typical and special floor coverings and final
exterior and interior material selection;
6.1.2.13.2 Mechanical: description of air conditioning, heating and
ventilation systems and controls, ducts, and piping system;
6.1.2.13.3 Electrical: description of electrical services, including
voltage, type and number of feeders, lighting systems,
including lighting levels and audiovisual, security-fire
alarms and cable antenna television systems;
6.1.2.13.4 Landscape: General description of the construction,
including plan materials, plant locations, maintenance
period and irrigation systems.
6.1.2.13.5 INTENTIONALLY LEFT BLANK
6.1.2.13.6 Site Work: General description of the construction,
including finishes, types of materials and locations.
6.1.2.13.7 Other: Such other documents to fix and describe the size,
quality and character of the entire Project, its materials,
and such other elements as shall be appropriate.
6.1.2.14 Plumbing drawings including location and quantity of fixtures,
equipment sizes, room sizes for plumbing equipment, and final
specifications as appropriate.
6.1. 3 Utilizing the 2000 Edition of the Standard Specifications for Public Works
Construction, 2000 Edition of the Chula Vista Standard Special Provisions,
2000 Edition of the Regional Standards, 2002 Edition of the Chula Vista
Construction Standards, the City's facility program, performance and
design criteria, concept drawings, and reports incorporated herein by
reference, DB shall:
6.1.3.1 Prepare CD's and specifications suitable for obtaining City-approved
permits and to allow construction. Preparation of technical
13
materials and equipment specifications for pre-purchase will be the
responsibility of the DB.
6.1.3.2 Submit Construction Documents to the City for plan check, and
make any changes therein as may be lawfully required. Obtain
general building permit and all ancillary permits and licenses,
including but not limited to, demolition permits, improvement permits
and grading permits.
6.1.3.3 Complete the design for all elements of the Project, including, but
not limited to: civil, structural, architectural, mechanical, electrical,
landscape, and specialty consulting areas.
6.1.3.4 Evaluate alternative structural and construction approaches to
ensure economical designs, which optimize constructability yet meet
all codes, architectural concepts, schematic designs, and standard
specifications of the Project. Design and construction shall also
meet all ADA requirements.
6.1.3.5 Provide additional site surveys and geotechnical investigations to
the extent the DB determines they are necessary for final design.
The survey information provided by the City is preliminary in nature
and may not have sufficient accuracy or scope to support final
design.
6.1.3.6 Furnish support to a City constructability review team at the 50%,
70% and 90% percent design completion stage. Incorporate the
results of this review into the design.
6.1.3.7 Provide updated construction cost estimates at durations specified
in this agreement to support Value Engineering (VE) and
constructability reviews.
6.2 D/B shall determine and establish the sequence of construction, and if appropriate,
identify separate bid packages to accomplish phased construction of the Project.
6.3 INTENTIONALLY LEFT BLANK
6.4 Review as needed the CD's with the governmental authorities having jurisdiction
over the Project.
6.5 Notify City within seven (7) days in writing whenever DIB reasonably believes that
the cost of the Project is likely to exceed the GMP or Contract Time and include in said
notice:
6.5.1 An itemized cost breakdown estimate;
14
6.5.2 A list of recommended revisions which D/B believes will bring Project within
the GMP;
6.5.3 Assist City in reviewing the itemized cost breakdown and recommend
revisions so that City can revise the scope of the Project so that the GMP is
not exceeded.
6.5.4 Provide a master accounting system and matrix on Microsoft Excel that will
be updated, expanded and provided to the City monthly as the Project
develops.
6.6 D/B shall develop and implement Project Management Plan and Procedures
including:
6.6.1 Project status reports
6.6.2 Coordination/interface with the City and its other consultants/contractors
6.6.3 INTENTIONALLY LEFT BLANK
6.6.4 Biweekly Design and Construction meetings
6.6.5 Interface and communications with other agencies
6.6.6 Vendors and subcontractors management
6.6.7 Document control
6.6.8 Schedule and budget control
6.6.9 Quality assurance and quality control
6.6.10 Throughout the design phase, the D/B shall provide scheduling and cost
control reports monthly.
6.7 Submit and obtain approval from City of Phase II items. Provide written confirmation
that the project is still within the GMP and can be built in accordance with the DCS.
Said written confirmation shall include an accounting of all costs and expenses
incurred to date against the GMP. Obtain written approval from City to proceed to
Phase IV.
6.8 City and D/B may mutually agree in writing that D/B may contract for or perform
certain limited Phase III services during earlier phases to expedite completion ofthe
Project, for such tasks as, for example, demolition ofthe buildings and relocation of
utilities, and other critical path activities to meet the Project Construction Schedule.
However, absent such written agreement, D/B shall not proceed with any Phase III
services until the City issues a written Notice to Proceed with Phase III.
15
6.9 Present to the City for approval the following: 100% CD's, Management and
Implementation Plan, DCS.
6.9.1 Upon presentation by D/B to the City of the items specified in Section 6.9,
the City may:
6.9.1.1 Approve the 100% Construction Documents, and Management
and Implementation Plan and DCS, and authorize D/B to proceed
with Phase III services; or
6.9.1.2 Determine not to proceed with the Project and terminate this
Agreement in accordance with Section 26.3 of this Agreement; or
6.9.1.3 Direct D/B to revise and resubmit documentation submitted to City
pursuant to Section 6.9 which does not conform to previously
approved direction of City any delay or additional costs resulting
from the resubmittal shall be borne exclusively by D/B and not to
be grounds for an increase in the GMP or Contract Time.
Section 7: D/B's Phase III Services: Construction Administration
7.1 After City formally approves any required cost estimates, 100% Construction
Documents and Construction Schedule, City shall issue to D/B a written Notice to Proceed
with Phase III Services. The D/B shall construct the Project in accordance with City-
approved plans and specifications prepared by the DB to meet or exceed all requirements
of the City provided program, schematic design and the performance criteria. The D/B's
Phase III Services shall include but are not limited to:
7.1.1 Prepare and submit to City for review separate bid packages as D/B
determines appropriate to enable the construction of the Project to proceed
in an efficient and cost effective manner;
7.1.2 Conduct competitive bidding for the respective bid packages.
7.1.3 D/B shall require additive alternates for extended warranties in bid
packages for roofing and HVAC systems (if applicable).
7.1.4 Schedule and conduct pre-bid conferences to answer questions posed by
bidders; said answers and any other information required to provide
clarification to the Construction Documents during the bidding process shall
be issued as written addenda and provided to all prospective bidders;
7.1.5 Execute subcontracts, in D/B's own name, with the bidder best meeting the
monetary, time, and performance requirements of the Project in the
professional opinion of the D/B.
16
7.1.6 Perform construction management and administration services during the
construction of the Project;
7.1.7 Be responsible for and coordinate all construction means, methods,
techniques, sequences and procedures;
7.1.8 Coordinate scheduling of bid packages, submittals, and all design and
construction of the Project to ensure the efficient and orderly sequence of
the construction of the Project. Monitor and report to the City on actual
performance compared to schedule;
7.1.9 Give all notices and comply with laws, ordinances, rules, regulations, and
lawful orders of public authorities relating to the Project;
7.1.10 Provide timely review and approval of shop drawings, samples of
construction materials, product data, schedule submittals, and other
submittal for compliance with the Construction Documents; keep City
advised of all such matters being reviewed and approved by 0/8;
7.1.11 Issue responses to Requests for Information, substitution requests, and
Change Order requests. Provide City with copy of all correspondence
within twenty-four (24) hours of receipt. Conduct weekly review meetings
with City to discuss these items. All change orders, including zero dollar
change orders which require the use of D/B Contingency Fund, irrespective
of impact on GMP and Contract Time shall require City approval;
7.1.12 Establish and maintain a quality control program with appropriate reviews
and independent testing procedures to ensure compliance with the
Construction Documents;
7.1.13 Coordinate all required inspections in such a manner that the progress of
construction is not affected or impacted;
7.1.14 Correct any work which does not conform to the Construction Documents;
7.1.15 Keep City informed of the progress and quality of the design and
construction of the Project;
7.1.16 Pay royalties and license fees, if applicable. D/B shall defend suits or
claims for infringement of patent rights and shall defend and hold City and
City's agents harmless from loss on account thereof; except that City shall
be responsible for such loss when a particular design, process or product of
a particular manufacturer is required by City. However, if D/B has reason to
believe the use of a required design, process or product is an infringement
17
of a patent, D/B shall be responsible for such loss unless such information
is promptly given to the City in writing.
7.1.17 Ensure Project is maintained in a clean, neat, sanitary and safe condition
free from accumulation· of waste materials or rubbish. Prior to Final
Completion, D/B shall cause to be removed from and about the Project all
tools, construction equipment, machinery, surplus materials, waste
materials and rubbish;
7.1.18 Develop a mutually agreed upon program to abate and minimize noise,
dust, and disruption to access for parking and services at all times for
adjacent business entities and residences;
7.1.19 Provide City with an updated DCS on an approved software within fourteen
(14) working days after receiving Notice to Proceed with Phase III, provide
updated versions of DCS on a monthly basis, and provide immediate notice
of any impact on critical path items;
7.1.20 Conduct and prepare minutes for weekly Project team meetings with City
and appropriate design and construction members;
7.1.21 Maintain a complete and up-to-date set of Construction Documents in the
Projects field office at all times during construction which reflect all changes
and modifications, and at the end of construction prepare for City a
complete set of Project documents, along with four reproducible, and one
electronic set of drawings depicting As-Built conditions for Project;
7.1.22 Notify City in writing when D/B believes that the Project has achieved
Substantial Completion, participate with City in inspecting the completed
construction, prepare punchlists, and cause the punchlist items to be
performed and/or corrected in accordance with the Construction
Documents;
7.1.23 Notify City in writing when D/B believes that the Project has achieved Final
Completion. Assemble and deliver to City upon Final Completion all
records, documents, warranties, bonds, guarantees, maintenance/ service
contracts, and maintenance and operating manuals;
7.1.24 Inspect the Project during the one-year general building warranty period,
identify items requiring repair, and oversee those repairs. Inspect the each
component at 180 and 360 days after Final Completion of Project and
prepare reports to City, develop budgets and direct all repairs.
7.1.25 Conduct contractor meetings, as necessary, to provide technical input.
7.1.26 Provide interpretation of technical specifications and drawings.
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7.1.27 When appropriate, witness testing and review materials and equipment
testing results and provide comments regarding conformance with
specification requirements.
7.1.28 Provide list of required shop drawing submittals. Review shop-drawing
submittals for technical compliance and forward copy to City for review.
7.1.29 Assist during final acceptance process by furnishing final walk- through(s)
and comments.
7.1.30 The DB shall be responsible for complete management, supervision, and
reporting of all aspects of the construction of this Project.
7.1.31 The DB shall provide resident management and contract administration,
including specialists necessary for the functional, safe, on-budget and on-
schedule completion of the Project, starting with the issuance of a Notice to
Proceed, upon receipt of final construction drawings, from the City and
extending through issuance of Notice of Completion and Acceptance. City
staff will perform inspections to verify compliance with the plans,
specifications and contract documents.
7.1.32 The DB resident staff shall ensure construction compliance with applicable
local, state, and federal codes, building and environmental permit
requirements, construction mitigation documents and enforcement of the
Contract Documents.
7.1.33 The DB is responsible for the design, construction and all contract
administration services during the construction of the Project in accordance
with all applicable laws, regulations, and codes, including, but not limited to,
the 1990 Americans with Disabilities Act [ADA] and Title 24 California Code
of Regulations [Building Code] as defined in Section 18910 of California
Health and Safety Code. The DB is responsible as a designer, employer,
and City representative to comply with all portions of Title 24 and the ADA.
7.1.34 The DB shall provide surveying, and other contracted services as required
to complete project construction inspection and testing tasks. The City will
provide special inspection services and periodic building inspections. DB is
responsible for scheduling and coordinating all inspections and paying for
all re-inspections.
7.1.35 The DB shall develop a project-specific Plan for defining, tracking and
reporting cash flow activity requirements and submit such plan to the City
for review and approval prior to implementation.
7.1.36 The DB shall implement and maintain an internal records management and
document control system as required to support project operations. The DB
shall provide records management and document control information in a
manner consistent with the City's reporting system.
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7.1.37 The DB shall administer and coordinate the project contract closeout
process and shall resolve any warranty provision issues. The DB shall
report progress of project contract closeout to the City in a manner
consistent with the City's reporting system.
7.1.38 The DB shall administer and enforce the Environmental Mitigation
Monitoring and Reporting Plan for the Project, if any. The DB shall report a
record of environmental issues to the City in a manner consistent with the
City's reporting system.
7.1.39 Prepare Operations Manual.
7.2 Unless the D/B receives the City's prior approval to substitute equal or better quality
materials, the D/B warrants to City that materials and equipment incorporated in the Project
will be new, unless otherwise specified, and that the Project will be of good quality, free
from faults and defects, and in strict conformance with the Construction Documents and in
accordance with Section 22.
Section 8: D/B's Phase IV Services and Obliqations: Operation/Startup Phase
8.1.1 The DB shall prepare, submit for City review and written approval, and
implement a Project Startup and Testing Plan for the Project.
8.1.2 The DB shall conduct Operator Training Sessions for facilities.
8.1.3 The DB shall supervise, manage, and coordinate all project startup and
testing activities for mechanical systems within the provisions of the project
Contract Documents.
8.1.4 The DB shall report progress of project startup and testing to the City in a
manner consistent with the City's reporting system.
8.1.5 The DB shall report to the City all guarantee/warranty disputes. The DB
shall proceed to resolve such disputes after having submitted to the City for
review and approval the DB's approach for obtaining resolution for the
dispute.
Section 9: Additional Services
9.1 City will have the right to direct D/B to perform Additional Services beyond those
specified in this Agreement. D/B may provide Additional Services only if authorized in
writing, in advance, by City and after complying with Section 9.4. The City may propose
changes to the Work of a subcontractor after the bid has been awarded. In the event of a
change of this nature, D/B will estimate the cost of the Change Order, assist City in
developing drawings and specifications as necessary, solicit a revised bid, negotiate with
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the subcontractor, present a recommendation for a Change Order to City, and implement
construction as approved by City.
9.2 For Additional Services which increase the Hard Construction Costs, design costs,
or other reasonably necessary costs of the Project, D/B shall be paid a fee pursuant to
Design Build Fixed Fee Structure on Exhibit 2. Said fee shall cover all home office
overhead and profit to be earned as additional services.
9.3 For additional services, which result in an extension ofthe Substantial Completion
date, D/B shall be paid a fee equal to the number of working days the Substantial
Completion date is extended multiplied by the daily proration of the general conditions fee
included within the GMP.
9.4 If at any time D/B contends that it is being asked to perform Additional Services, it
shall give City written notice 5 days prior to performing said services indicating that D/B
intends to seek additional compensation beyond the D/B Fixed Fee. Furnishing advance
written notice shall be a condition precedent to being able to seek additional compensation
from City.
Section 10: Bonds
10.1 D/B shall furnish performance and payment bonds with the names ofthe obligees
designated as the City in the amount set forth below, as security for the faithful
performance and payment of all D/B's obligations under the Agreement. These bonds shall
remain in effect at least until thirty (30) days after the filing date of Notice of Completion,
except as otherwise provided by law or regulation or by this Agreement. D/B shall also
furnish such other bonds as are required by this Agreement.
10.1.1 The performance bond shall be in the amount of 100% of the GMP.
10.1.2 The payment bond shall be in the an amount of 100% of the Hard
Construction Costs.
10.2 All bonds shall be in the form prescribed by City and by such sureties which are
authorized to transact such business in the State of California, listed as approved by the
United States Department of Treasury Circular 570, and whose underwriting limitation is
sufficient to issue bonds in the amount required by this agreement and which also satisfy
the requirements stated in Section 995.660 of the Code of Civil Procedure, except as
provided otherwise by laws or regulations. All bonds signed by an agent must be
accompanied by a certified copy of such agent's authority to act. Surety companies must
be duly licensed or authorized in the jurisdiction in which the Project is located to issue
bonds for the limits so required.
10.3 If the surety on any bond furnished by D/B is declared bankrupt or becomes
insolvent or its right to do business is terminated in any state where any part of the Project
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is located, D/B shall within seven (7) days thereafter substitute another bond and surety,
which must be acceptable to City.
Section 11: Insurance
11.1 The insurance provisions herein shall not be construed to limit DIB's indemnity
obligations contained in this Agreement.
11.2 D/B shall procure and maintain for the- duration of the contract, insurance against
claims for injuries to persons or damages to property, which may arise from or in
connection with the performance of the work hereunder by the D/B, his agents,
representatives, employees or subconsultants. All subconsultants shall be required to
comply with the applicable insurance provisions. The maintenance of proper coverage is a
material element ofthe contract and that failure to maintain or renew coverage orto provide
evidence of renewal may be treated by the City as a material breach of contract.
11.3 Minimum Scope of Insurance
11.3.1 Coverage shall be at least as broad as:
11.3.1.1 Insurance Services Office Commercial General Liability
coverage (occurrence Form CG 0001).
11.3.1.2 Insurance Services Office Form Number CA 0001 covering
Automobile Liability, Code 1 (any auto).
11.3.1.3 Workers' Compensation insurance as required by the State of
California and Employer's Liability Insurance.
11.3.1.4 Errors and Omissions Insurance.
11.3.1.5 A policy of "all risk" Builder's Risk Insurance for the Full
Replacement Cost of Materials, Equipment and fixtures
destined to become a permanent part of the structure,
Property in Transit, and Property in Offsite Storage will be
provided by the City of Chula Vista for the Nature Center
Galleria Remodel construction in an amount equal to the Hard
Cost Construction value. Contractors and Subcontractors will
be added to policy as Loss Payees as their interest may
appear.
Contractor and its Subcontractors will be solely responsible for
any loss or damage to their personal property including
contractor's tools and equipment owned, used, leased, or
rented by the Contractor or Subcontractor.
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The $5,000 policy deductible amount will be the responsibility
of Contractor and/or Subcontractor.
11.4. Minimum Limits of Insurance
11.4.1 Contractor or appropriate subconsultant shall maintain limits no less than:
11.4.1.1 General $2,000,000 per occurrence for bodily
Liability: injury, personal injury and
property damage. If
(Including Commercial General
operations, Liability Insurance or other
products and
completed form with a general
operations.) aggregate limit is used,
either the general
aggregate limit shall apply
separately to this
project/location or the
general aggregate limit
shall be twice the required
occurrence limit.
11.4.1.2 Automobile $1,000,000 per accident for bodily injury
Liability: and property damage.
11.4.1.3 Employer's $1,000,000 per accident for bodily injury
Liability: or disease.
11.4.1.4 Errors and $1,000,000 per occurrence
Omissions:
11.5 Deductibles and Self-Insured Retentions
11.5.1 Any deductible or self-insured retentions must be declared to and approved
by the City. At the option of the City, either: the insurer shall reduce or
eliminate such deductibles or self-insured retentions as respects the City,
its officers, officials, employees and volunteers; or the D/B shall. provide a
financial guarantee satisfactory to the City guaranteeing payment of losses
and related investigations, claim administration and defense expenses.
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11.6 Other Insurance Provisions
11.6.1 The general liability policy shall contain, or be endorsed to contain, the
following provisions:
11.6.1.1 The City, its officers, officials, employees, and volunteers are to
be covered as additional insureds using ISO Form CG 2010 or
its equivalent, with respect to liability arising out of work or
operations performed by or on behalf of the D/B including
materials, parts or equipment furnished in connection with such
work or operations.
11.6.1.2 For any claims related to this project the D/B's insurance
coverage shall be the primary insurance as respects the City, its
officers, officials, employees, and volunteers. Any insurance or
self-insurance maintained by the City, its officers, officials,
employees, or volunteers shall be excess of the D/B's insurance
and shall not contribute with it.
11.6.1.3 Coverage shall not extend to any indemnity coverage for the
active negligence of the additional insured in any case where an
agreement to indemnify the additional insured would be invalid
under Subdivision (b) of Sections 2782 of the Civil Code.
11.7 Verification of Coverage
11.7.1 Contractor shall furnish the City with original certificates and amendatory
endorsements effecting coverage required by this clause. The
endorsements should be on forms that conform to the requirements. All
certificates and endorsements are to be received and approved by the City
before work commences. The City reserves the right to require complete,
certified copies of all required insurance policies, including endorsements
affecting the coverage required by these specifications at any time.
11.8 Subcontractors
11.8.1 All coverages for subcontractors or subconsultants shall be subject to all of
the requirements stated herein. Subcontractors and Subconsultants shall
be protected against risk of loss by maintaining insurance in the categories
and at the limits required herein. Subcontractors and Subconsultants shall
name City and D/B as additional insured's under its policies.
11.9 Cooperation. The D/B and its Contractors shall cooperate fully with and provide any
information or records requested by the City or regarding all aspects of the insurance and
project, including but not limited to claims, audit, payroll, insurance records and safety.
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Delays in reporting information to the City may result in delays in progress payments to the
D/B.
11.10 Prior to beginning Work under the Agreement, each and every Contractor of any tier
shall furnish Certificates of Insurance satisfactory to the City. All such Certificates shall
contain at least the following provisions:
11.10.1 Thirty (30) days written notice to the City prior to any cancellation, non-
renewal or material reduction in coverage.
11.10.2 The words "will endeavor" and "but failure to mail such notice shall impose
no such obligation or liability of any kind upon the company, its agents or
representatives" will be deleted from the Certificates.
11.10.3 Throughout the life of the Agreement, each and every Contractor of any tier
shall pay for and maintain in full force and effect, with Insurers authorized
by the California Insurance Commissioner to do business in the State of
California, any policies required by this Agreement.
11.10.4 Any insurance provided for this project shall be written through an insurer
with an A.M. Best Rating of nòt less than AV. Any exceptions are at the
sole discretion of the City and subject to written approval of the City.
11.11 Questions concerning the insurance requirements of this Agreement shall be
directed to the City Representative.
Section12:
Inspection
12.1 City shall be responsible for City inspection and material testing and inspections,
with reimbursement to be required by D/B for any re-inspections. The City shall either
perform said inspection services with its own forces or contract with third parties. It shall be
the responsibility of D/B, however, to call for, coordinate and schedule all inspections.
12.2 City, its consultants, subcontractors, independent testing laboratories as well as
other governmental agencies with jurisdictional interests will have access at reasonable
times for this observation, inspecting and testing. D/B shall provide them proper and safe
conditions for such access and advise them of D/B's safety procedures and programs so
that they may comply.
12.3 City will make, or have made, such inspections and tests, as the City deems
necessary to see that the Work is being accomplished in accordance with the requirements
of the Construction Documents or shall in any way limit or modify D/B's indemnity
obligations as provided for within this agreement. Unless otherwise specified, the cost of
such inspection and testing will be borne by the City. In the event such inspections or tests
25
reveal non-compliance with the requirements of the Construction Documents, D/B shall
bear the cost of corrective measures deemed necessary by City, as well as the cost of
subsequent re-inspection and re-testing. Neither observations by the City nor inspections,
tests, or approvals by others shall relieve D/B from D/B's obligations to perform the Work in
accordance with the Construction Documents. D/B shall give City timely notice of
readiness of the Work for all required on and off-site inspections, tests, or approvals and
shall cooperate with inspection and testing personnel to facilitate required inspections or
tests. D/B shall give at least 24 hours notice for on-site inspection and five (5) days notice
for off-site inspection.
12.4 City has the right to stop or suspend Work activities which will conceal or cover up
D/B Work product which is to be inspected or tested, or which will interfere with the
inspection or testing activities, for a reasonable time and D/B will have no right to additional
cost or time it may incur as a result of the Work stoppage.
Section 13: D/B GMP for Services and Reimbursements
13.1 D/B shall submit to City 90% Construction Documents ("CD's") for approval. Upon
the approval of the 90% CD's, D/B shall, within ten (10) working days, submit a GMP for
approval by City. The GMP shall include all Hard Construction Costs, D/B Contingency
Fund, Reimburseable Costs, and D/B Fixed Fee for the complete design and construction
of the entire Project as specified in the 90% CD's; provided that:
13.1.1 The GMP shall not exceed $723,000 and include within said GMP shall be
no more than $178,395 for Design Services and General Conditions as
previously identified in Section 1.3.1 of this agreement.
13.1.2 Said GMP shall be supported by a detailed itemized breakdown that shows:
the D/B Fixed Fees and the expected Hard Construction Costs for each of
the major trades on the Project which will include labor, material expenses,
equipment costs, and a reasonable D/B Contingency Fund. Said D/B
contingency fund shall not exceed 5% of the Hard Construction Costs.
13.1.3 All Hard Construction Costs included in the GMP are for direct Construction
costs incurred in performing the work, including taxes, delivery and
installation. City shall reimburse D/B for the exact amount of subcontract,
self performed work or invoice amount. No additional D/B markup, handling
fees, overhead, or other charges are to be added or paid except as
otherwise set forth in this agreement. Upon Final Completion of the Project,
any amount of Hard Construction Costs or D/B Contingency Fund monies
not utilized shall result in a deductive Change Order.
13.1.4 The GMP shall include a D/B Contingency Fund which can be used by the
D/B with City approval. If the Parties mutually agree that there is a sufficient
surplus, the D/B Contingency Fund will be available to provide additional
26
funds for Change Orders as provided for in Section 7 of this Agreement.
This Contingency Fund will not be available for: (1) Work required due to
D/B's and/or Contractors/subcontractors failure to perform according to the
terms of this Agreement and/or in compliance with the Construction
Documents, or (2) uninsured losses resulting from the negligence of D/B or
its Contractors/subcontractors. All change orders, including zero dollar
change orders, which require the use of the DIB Contingency Fund, shall
require City approval. The City reserves the right to seek reimbursements
for any funds used due to errors or omissions of the Design Consultants.
13.1.5 D/B shall prepare, with the cooperation of the City, alternate bid items to
assist in meeting the GMP;
13.2 Except as otherwise expressly provided in this Agreement, as full and complete
compensation for performance of all services and obligations under this Agreement, D/B
shall be compensated ("D/B GMP") by a sum to be determined at 90% construction
documents. GMP shall include the not to exceed amount of $178,395 for General
Conditions and Design Services. Said $178,395 for General Conditions and Design
Services shall not be exceeded unless additional services are requested pursuant to § 7
above or a change order issued pursuant to § 14. Unless otherwise expressly provided in
this Agreement, D/B GMP shall include full compensation for all costs of any type incurred
by D/B in performing all services and obligations under this Agreement, including but not
limited to the following:
13.2.1 All Design Consultants, including but not limited to architectural, structural,
civil, mechanical, electrical, communications, graphics and art consultants,
landscape architects, and acoustical, audio visual, lighting, and security
consultants.
13.2.2 Estimating, value engineering and construction management;
13.2.3 Construction supervision and project management personnel, including but
not limited to superintendents, Project managers, Project secretaries,
Project engineers, Project accountants, and all other D/B personnel
wherever located;
13.2.4 All on-site and off-site equipment, supplies and facilities, including but not
limited to, computers, estimating, dictating, communication and accounting
equipment, office space, trailers, field equipment and storage facilities;
13.2.4.1 In no case shall the cumulative monthly rental charges to the
Project for equipment and Small Tools used by the D/B exceed
90% of the fair market value of anyone piece of equipment or
Small Tools. At City's option, the full price for equipment or
27
Small Tools may be paid, and City may take possession upon
completion of the Work.
13.2.5 All home-office and field overhead costs of any type including document
control and retention;
13.2.6 All business license costs;
13.2.7 All profit D/B intends to earn under this Agreement.
13.2.8 All direct and incidental costs incurred by D/B, except for those specifically
identified in Section 9.
13.3 D/B shall be reimbursed, without markup and only as specified in this Agreement for
the following "Reimbursable Costs."
13.3.1 Any reimbursable cost expressly provided for elsewhere in this Agreement.
13.4 D/B agrees and acknowledges the City retains its full and complete discretion for all
legislative actions, including any future appropriations necessary to complete this Project or
fund this Agreement. As more fully provided in Section 26, the City may terminate this
Agreement for any reason, including but not limited to, if City Council fails to appropriate
sufficient funds or is unsuccessful at obtaining long term financing.
Section 14: ChanQe in GMP and Contract Time
14.1 The GMP and Contract Time may only be changed by written Change Order.
Change Orders shall be issued only under the following circumstances:
14.1.1 The City directs D/B to perform Additional Services or City Changes as
provided in Section 9.
14.1.2 For reasons expressly provided elsewhere in this Agreement.
14.2 The following procedure shall be followed for the issuance of Change Orders:
14.2.1 Upon the occurrence of any event that gives rise to a Change Order, D/B
shall give the City notice of the same with 5 days. DIB shall not proceed
with any such services or work until such notice has been given to the City
except if such services or work are necessary to protect public health,
safety or property.
14.2.2 Unless otherwise directed by the City Representative in writing, before
proceeding with any Change Order work D/B shall promptly provide the
City with a detailed and complete estimate of cost impact associated with
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the Change Order, including all appropriate direct and indirect costs and
credits. All such costs and credits shall be accurately categorized into D/B
Fixed Fee, Reimbursable Costs or Hard Construction Costs. D/B shall also
provide City with a realistic estimate of the impact, if any, the Change Order
will have on the Contract Time.
14.2.3 Upon submission of the detailed estimates by the D/B, the Parties will
attemptto negotiate an appropriate adjustment in GMP and ContractTime.
If an agreement is reached, a Change Order reflecting the agreement will
be executed by the Parties. If an agreement is not reached, the City shall
have the option to direct the D/B to proceed with the subject services
and/or work, during which time the D/B shall contemporaneously maintain
accurate and complete records of all labor, material and equipment utilized
in performing the subject services and/or work. These records shall be
submitted to the City and shall become the basis for continued negotiations
between the Parties for an equitable adjustment to the GMP and/or
Contract Time.
14.2.4 In the eventthere is any disagreement or dispute between the Parties as to
whether the D/B is entitled to a Change Order or the amount of the Change
Order, the matter shall be resolved in accordance with Section 33. DIB
shall not have the right to stop or delay in the prosecution of any services or
work, including services or work that is the subject of the Change Order,
pending this resolution process. Instead, D/B shall continue diligently
prosecuting all such services and work.
14.2.5 City may, in its sole discretion, adjust the GMP or Contract Time for any
undisputed amount or time associated with the Change Order or Additional
Services.
Section 15: Pavment Terms
15.1 D/B shall provide all Phase I, II and IV services for the Phase I, II and IV Fee. D/B
shall submit certificate and application for payment to the City on a monthly basis for Phase
I, II and IV services rendered and costs incurred. The monthly payment shall be based
upon percentage of completion of the Schedule of Values plus any Reimburseable Costs
as provided in Section 15.3.
15.2 D/B shall provide all Phase III services for the Phase III Fee. D/B shall submit
certificate and application for payment to City on a monthly basis for Phase III services.
The monthly payment application shall be based upon the percentage of completion of the
Schedule of Values plus any Reimbursable Costs and Hard Construction Costs as provided
in Section 15.3 and 15.4, less any payments previously made by the City and subject to the
receipt of unconditional lien releases for all prior payments and if the invoiced amount is not
disputed by City, it shall pay D/B ninety percent (90%) of payment application based upon
29
the percentage complete of the Schedule of Values and 100% of the reimbursable costs
within thirty (30) days after receipt of the fully documented invoice. City will withhold the
remaining 10% as security for D/B's full performance.
15.3 D/B shall develop and maintain an accurate system for tracking all Reimbursable
Costs. Utilizing this system, D/B shall include with each month payment application an
itemization of all such Reimbursable Costs actually incurred by D/B, during the previous
month. If requested by the City, D/B shall provide all backup documentation supporting
such Reimbursable Costs. .
15.4 D/B shall develop and maintain an accurate system for tracking all Hard
Construction Costs it incurs on the Project. Utilizing this system, D/B shall include with
each monthly application for payment an itemization of all Hard Construction Costs actually
incurred by D/B during the previous month.
15.5 D/B shall separately submit to City certificate and application for payment on a
monthly basis for any authorized Additional Services performed by D/B. Subject to the
receipt of unconditional lien releases for all prior payments and if Additional Services are
not disputed by City, City shall pay ninety percent (90%) of the invoiced amount within thirty
(30) days of receipt of fully complete invoice. City will withhold the remaining 10% as
security for D/B's full performance.
15.6 Subject to Sections 15.8, City shall pay D/B the ten percent (10%) retention being
withheld pursuant to Sections 15.2, and 15.5 as part of the "Final Payment" to D/B. Final
Payment will be made thirty-five (35) days after Final Completion.
15.7 The City Manager will consider the release of the entire retention for subcontractors
upon completion of the subcontractors' work and execution of a disclaimer and
unconditional final lien release by the subcontractor.
15.8 In lieu of withholding retention under this Agreement, atthe election of D/B, City will
deposit retention amounts into escrow and/or the substitution of securities for money as
provided in California Public Contract Code Section 22300.
Section 16: Proiect Completion
16.1 Substantial Completion shall be that stage in the progress of the construction when
all Work on the Project is sufficiently complete in accordance with the Construction
Documents so that City can fully utilize entire Project; Substantial Completion shall further
mean that all goods, services and systems to be provided under the terms and conditions
of the Construction Documents are in place and have been initially tested, and are
operationally functional, subject only to final testing, balancing and adjustments and normal
Final Completion punchlist Work.
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16.2 Final Completion shall be deemed to occur on the last of the following events: (1)
recordation of a Notice of Completion for the Project; (2) acceptance of the Project by the
City; (3) issuance of a final Certificate of Occupancy for the Project; (4) submission of all
documents required to be supplied by D/B to City under this Agreement, including but not
limited to As-Built Drawings, warranties, and operating manuals; (5) and delivery to City of
a Certificate of Completion duly verified by D/B.
16.3 D/B shall provide City with a Certificate of Completion, certifying to City under
penalty of perjury that the Project has been completed in accordance with the Construction
Documents, all applicable building codes and regulations, all permits, licenses, and
certificates of inspection, use and occupancy, and ordinances relating to the Project.
16.4 D/B shall provide five sets of City final record drawing documents at the end of
construction and one copy in electronic format ("As-Built Drawings") and one copy of
reproducible drawings. As-Built Drawings are to be accurate and legible records showing
exact location by dimensions, and the exact depth by elevation of underground lines,
valves, plugged tees, wiring and utilities.
16.5 D/B shall provide a copy of, or make available before destruction, all records (which
includes all writings as defined in Evidence Code Section 250) to the City upon receipt or
generation, which shall include a copy of D/B's filing protocol.
Section 17: Contract Time
17.1 The "Contract Time" shall be the number of calendar days stated in Section 1 for D/B
to achieve Substantial Completion.
17.2 "Time is of the essence" with regard to Contract Time and all milestones listed in the
DCS.
17.3 The Contract Time may only be changed by a Change Order as set forth in Section
14.
17.4 Further, an extension in Contract Time will not be granted unless D/B can
demonstrate through an analysis of the Project Schedule that the increases in the time to
perform or complete the Project, or specified part of the Project, beyond the corresponding
Contract Time arise from unforeseeable causes beyond the control and without the fault or
negligence of D/B, its Design Consultants, and subcontractors or suppliers, and that such
causes in fact lead to performance or completion of the Project, or specified part in
question, beyond the corresponding Contract Time, despite D/B's reasonable and diligent
actions to guard against those effects.
17.5 D/B carries the burden of proving an entitlementto an increase in the ContractTime.
Delays attributable to and within the control of Design Consultants, or subcontractor or
supplier shall be deemed to be delays within the control of D/B. No time extension will be
31
allowed for such delays. An increase in Contract Time does not necessarily mean that D/B
is due an increase in the GMP.
Section 18: Late Completion
18.1 City and D/B recognize that time is of the essence in this Agreement and that City
will suffer financial loss if the Project is not completed within the Contract Time, plus any
extensions thereof allowed in accordance with Section 17.3. They also recognize the
delays. expense, and difficulties involved in proving in a legal proceeding the actual loss
suffered by City if the Project is not completed on time. Accordingly, instead of requiring
any such proof, City and D/B agree that D/B shall pay as liquidated damages (but not as a
penalty) for each calendar day of delay beyond the time specified for Substantial
Completion of the Project, the following amounts which D/B expressly agrees are "not
unreasonable under the circumstances" as defined in California Civil Code §1671 (b): $100
for each calendar day. Liquidated Damages shall not be assessed after the date on which
Substantial Completion is achieved pursuant to Section 16.
Section 19: Riqht to Modify Work
19.1 Without invalidating the Agreement and without notice to any surety, City may at any
time or from time to time, order additions, deletions, or revisions in the Project; these will be
authorized by a written Change Order prepared and issued by City. Upon receipt of any
such document, D/B shall promptly proceed with the Work involved which will be performed
under the applicable conditions of the Construction Documents (except as otherwise
specifically provided).
19.2 When City desires a change in the Project, City may issue a Request for Proposal to
D/B. D/B will be required to respond within the time indicated by City.
Section 20: Intentionally Omitted
Section 21: Work By Others
21.1 City may perform other work related to the Project at the Project Site by City's own
forces, or let other direct contracts ("City Contractor"). The City will give D/B reasonable
notice of its intent to do such other work. D/B's work shall take priority over the City
Contractors; but the Parties will use their best efforts to coordinate their work so as to
minimize the disruption to each other's work and to aI/ow City Contractor to proceed
expeditiously.
21.2 If the proper execution or results of any part of D/B's work depends upon the work by
the City or City Contractor, D/B shall promptly inspect and report to City in writing any
apparent delays, defects, or deficiencies in the City's work that render it unavailable or
unsuitable for such proper execution and results. D/B's failure to promptly report such
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delays, defects, or deficiencies in writing before commencement of the affected work, will
constitute an acceptance of the City's work as fit and timely for integrationwith D/B's Work
except for latent defects and deficiencies in the City's work for which D/B will not be
responsible.
21.3 If D/B or any person or entity working for D/B causes damage to the City's or City
Contractor's work, property, or person, or if any claim arising out of D/B's performance of
the Project by any other contractor is made against D/B, by City, any other contractor, or
any other person, D/B shall promptly repair and/or resolve said claim at no cost to City.
Section 22: Warranties and Guarantees
22.1 D/B warrants and guarantees to City that materials and equipment incorporated into
the Project will be new unless otherwise specified and that all work will be in strict
accordance with the Construction Documents and will not be defective. Prompt notice of
defects known to City shall be given to DIB. All Defective Work, whether or not in place,
may be rejected, corrected, or accepted as reasonably directed by City, provided D/B shall
not be entitled to an extension in Contract Time or increase in GMP because of any delay
or increase in cost attributable to the rejection, correction or acceptance of said work.
Defective work may be rejected even if approved by prior inspection.
22.2 The warranty period shall commence when the Certificate of Final Completion is
issued (irrespective of beneficial use by City prior to Final Completion) and extend one (1)
year after that date or whatever longer period may be prescribed by laws or regulations or
by the terms of any applicable special guarantee or specific provision of the Construction
Documents.
22.3 D/B is to provide any extra material for maintenance at the completion of the Project,
including items such as carpeting, base, floor tile, ceiling tile, paint, and filters.
22.3.1 D/B is to provide City one (1) set of operating and maintenance data
manuals, fully bound and indexed, warranties, guarantees, and bonds.
22.4 Correction of Defective Work - If within the designated warranty period, or such
longer period as may be required by laws or regulations, the Project or any part of the
Project, is discovered to contain defective work, D/B shall promptly, without any
reimbursement or adjustment in the GMP, and in accordance with City's written
instructions, either correct that defective work, or if it has been rejected by City remove it
from the Project and replace it with work which is not defective. If circumstances warrant it,
including but not limited to, in an emergency, City or D/B may have the defective work
corrected or the defective work removed and replaced. In that event, D/B shall not be
allowed to recover any associated costs, and D/B shall reimburse City for all direct, and
indirect costs of City, and City shall be entitled to an appropriate decrease in the GMP, to
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withhold a setoff against amount recommended for payment, or make a claim on D/B's
bond if D/B has been paid in full.
22.5 With respect to all warranties, express or implied, from subcontractors,
manufacturers, or suppliers for Work performed and materials furnished under this
Agreement, the D/B shall:
22.5.1 Obtain all warranties that would be given in normal commercial practice and
as required by the City;
22.5.2 Require all warranties to be executed, in writing, for the benefit of City;
22.5.3 Enforce all warranties for the benefit of City, if directed by City;
22.5.4 In the event D/B's warranty under section 22.2 has expired, City may bring
suit at its expense to enforce a subcontractor's, manufacturer's, or
supplier's warranty;
22.5.5 D/B shall assign all subcontractor, supplier and manufacturer warranties
including maintenance contracts from the installer for specialized
equipment, such as elevators, escalators, movable partitions, equipment
etc., to cover the limited warranty period to City at the expiration of the one
year warranty; and
Section 23: Use and Possession Prior to Completion
23.1 City shall have the right to take possession of or use any completed or partially
completed part of the Work if mutually agreed upon by the parties. Before taking
possession of or using any Work, City shall furnish D/B a list of items of Work remaining to
be performed or corrected on those portions of the Work that City intends to take
possession of or use. However, failure of City to list any item of Work shall not relieve D/B
of responsibility for complying with the terms of this Agreement. City's possession or use
shall not be deemed an acceptance of any Work under this Agreement, nor relieve the D/B
of any of its obligations under this Agreement.
23.2 While City has such possession or use, D/B shall be relieved ofthe responsibility for
the loss of or damage to the Work resulting from City's possession or use. If prior
possession or use by City delays the progress of the Work or causes additional expense to
D/B, an equitable adjustment shall be made in the GMP or the Contract Time, and the
Agreement shall be modified in writing accordingly.
Section 24: Personal Services and Non-Assiqnabilitv
24.1 This is a personal services Agreement and, therefore, D/B shall not alter the key
employees or Design Consultants nor assign or transfer, voluntarily or involuntarily, any of
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its rights, duties or obligations under this Agreement except upon the prior written consent
of City. Any such change, assignment or transfer without the prior written consent of the
City shall be deemed null and void and constitute a material breach under this Agreement.
Section 25: Indemnification
25.1 To the fullest extent permitted by the law, D/B shall indemnify, defend, protect and
hold harmless City, its elected and appointed officers, agents, employees, consultants,
(collectively herein the "Indemnitees"), from and against all claims, demands, causes of
action, damages, injuries, liabilities, losses and expenses (including, without limitation,
reasonable attorneys' and consultants' fees and expenses) of any kind whatsoever, arising
in whole or in part out of or resulting from D/B's performance of this Agreement, D/B's
breach of this Agreement, or the alleged negligent acts or omissions of D/B, its architects,
engineers, other professionals and consultants, Contractors, suppliers or anyone directly or
indirectly employed by any of them or anyone for whose acts they may be liable. The
obligations of the D/B under this paragraph for errors or omissions, including those of the
design professional subcontractors, which includes the Design Subcontractors, consultants,
agents and employees thereof ("Design Subcontractors"), which arise from (1) the
preparation or approval of maps, drawings, opinions, reports, surveys, designs or
specifications, or (2) the giving of or the failure to give directions or instructions shall not be
limited to the amount of coverage provided for in the professional liability insurance policy.
If City is fully reimbursed by DB's insurance for any loss covered by this paragraph, D/B
shall have no further obligation for such loss.
25.2 D/B's obligation to indemnify under section 25.1 shall not extend to such claims,
demands, causes of action, damages, injuries, liabilities, losses and expenses, to the
extent that such is the result of the active negligence or the willful misconduct of an
Indemnitee. D/B's obligation to defend under section 25.1, if not covered by the insurance
to be provided on the Project, shall not extend to such claims, demands, causes of action,
damages, injuries, liabilities, losses and expenses, or causes of actions, to the extent that
such are caused by the active negligence or the willful misconduct of the Indemnitee, and
from no other cause.
25.3 The D/B agrees, notwithstanding the above to the fullest extent permitted by law, to
indemnify, defend, and hold harmless the City, its elected and appointed officers,
employees, agents and consultants from and against any and all claims, suits, demands,
liabilities, losses, or costs, including reasonable attomey's fees and defense costs, resulting
or accruing to any and all persons, firms, and any other legal entity, caused by, arising out
of or in any way connected with the handling, removal, abatement, capping, migration (after
handling, removal, abatement or capping) of, or disposal of any asbestos or hazardous or
toxic substances, products or materials that exist on, about or adjacent to the jobsite,
whether liability arises under breach of contract or warranty, tort, including negligence, strict
liability or statutory liability or any other cause of action. D/B's obligation regarding
asbestos or hazardous or toxic substances, products or materials shall be limited to the
proper removal within the Project boundaries and the proper disposal of such materials.
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Section 26: Riqht to Terminate and Suspend Work
26.1 Archaeological and Paleontological Discoveries: If a discovery is made of an
archaeological or paleontological interest, D/B shall immediately cease operations in the
area of the discovery and shall not continue until ordered by City. When resumed,
operations within the area of the discovery shall be as directed by City.
26.1.1 Discoveries which may be encountered may include, but are not be limited
to, dwelling sites, stone implements or other artifacts, animal bones, human
bones, fossils or any item with cultural significance.
26.1.2 D/B shall be entitled to an extension of time and compensation in
accordance with the provisions of this Agreement.
26.2 Termination of Agreement by City for Cause: If, through any cause, D/B shall fail to
fulfill in a timely and proper manner D/B's obligations under this Agreement, or if D/B shall
violate any of the covenants, agreements or stipulations of this Agreement, City shall have
the right to terminate this Agreement by giving written notice to D/B of such termination and
specifying the effective date thereof at least five (5) days before the effective date of such
termination. All finished or unfinished documents, data, studies, drawings, maps, plans,
specifications, reports and other materials prepared by D/B, or any of its agents, Design
Consultants or Subcontractors, shall, at the option of the City, become the property of the
City, and D/B shall be entitled to receive just and equitable compensation for any work
satisfactorily completed on such documents and other materials up to the effective date of
Notice of Termination, not to exceed amounts payable hereunder, and less any damages
caused by D/B's breach.
26.2.1 In the event the Agreement is terminated in accordance with this Section,
City may take possession of the Project and may complete the Project by
whatever method or means City may select.
26.2.2 If the cost to complete the Project exceeds the balance, which would
have been due, D/B shall pay the excess amount to City. .
26.2.3 Rights of City Preserved: Where D/B's services have been so terminated
by City, the termination will not affect any rights or remedies of City
against D/B then existing or which may thereafter accrue. Any retention
or payment of moneys due D/B by City will not release D/B from liability.
It is agreed that termination hereafter will not in any way release, waiver,
or abridge any rights the City has against D/B's performance bond surety.
26.2.4 Any dispute as to the amount due or owed to D/B upon termination under
this section shall be resolved in accordance with Section 33.
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26.3 Termination for Convenience by City: City may terminate this Agreement at any time
and for any reason, by givin9 specific written notice to D/B of such termination and
specifying the effective date thereof, at least seven (7) days before the effective date of
such termination. In that event, all finished and unfinished documents and other materials
described hereinabove shall, at the option of the City, become City's sole and exclusive
property. If the Agreement is terminated by City as provided in this påragraph, D/B shall be
entitled to receive just and equitable compensation for any satisfactory Work completed,
including reasonable demobilization costs, to the effective date of such termination. D/B
hereby expressly waives any and all claims for damages or compensation arising under this
Agreement except as set forth herein.
26.3.1 Records and Documents Relating to Termination: Unless otherwise
provided in the Agreement or by statute, D/B shall maintain all records and
documents relating to the terminated portion ofthis Agreementforthree (3)
years after final settlement. This includes all books and other evidence
bearing on D/B's costs and expenses under this Agreement. D/B shall
make these records and documents available to City, at D/B's office, at all
reasonable times, without any direct charge. If approved by the City
Manager, photographs, electronic files, microphotographs, or other
authentic reproductions may be maintained instead of original records and
documents.
26.4 Upon receipt of the Notice of Termination, D/B shall take any action that may be
necessary, or that the City Manager may direct, for the protection and preservation of the
property related to this Agreement that is in the possession of D/B and in which City has or
may acquire an interest.
26.5 Payment to D/B Due to Termination - D/B and the City Manager may agree upon the
whole or any part of the amount to be paid because of the termination. The amount may
include a fee proportional to the percentage of work satisfactorily completed. However, the
agreed amount, exclusive of costs shown in section 26.9 below, may not exceed the total
dollar amount authorized by City as reduced by the amount of payments previously made.
If termination occurs during Phase I, II, or III, D/B shall only be entitled to the Fees for
Phases I, II, or III, or a portion thereof, and no amountfor Phase IV D/B Fixed Fee, except
for Phase IV D/B fixed fee proportional to the percentage of work satisfactorily completed
and authorized pursuant to Section 6.
26.6 Failure to Agree on Payment - If DIB and City fail to agree on the whole amount to
be paid because of the termination of Project, City shall pay D/B the fair and reasonable
amounts determined in good faith by City as follows, but without duplication of any amounts
agreed to above:
26.6.1 The price for completed services accepted, including any retention, by City
not previously paid;
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26.6.2 The costs incurred in the performance of the Project terminated, including
initial costs and preparatory expense allocable thereto. These costs are
only for Work completed and accepted by the City based on an audit of all
Contractors' bills of materials and the timecards for Work actually
performed;
26.6.3 A portion of the D/B Fixed Fee (overhead and profit) based on the
percentage of Work completed on the Project; however, if D/B would have
sustained a loss on the entire Agreement had it been completed, City shall
allow no profit under this section and shall reduce the settlement to reflect
the indicated rate of loss;
26.6.4 D/B and Design Subcontractor services through the date of termination
shall be paid based on actual time spent as documented on timecards.
Expenses shall be paid based on invoice and receipts provided by D/B;
26.6.5 Under no circumstances will D/B be entitled to any consideration for lost
profit or lost opportunity costs.
26.7 If D/B does not agree that the amount determined by the City Manager is fair and
reasonable and if D/B gives notice of such disagreement to City within thirty (30) days of
receipt of payment, then the amount due shall be as later determined pursuant to the
Dispute Resolution procedures in Section 33.
26.8 Payment for Property Destroyed, Lost, Stolen or Damaged - Except to the extent
that City expressly assumed the risk of loss, the City Manager shall exclude from the
amounts payable to D/B under this Section, the fair value, as determined by the City
Manager, of property that is destroyed, lost, stolen, or damaged so as to become
undeliverable to City.
26.9 Deductions - In arriving at the amount due D/B under this section, there shall be
deducted:
26.9.1 Any claim which City has against D/B under this Agreement; and
26.9.2 The agreed price for, or the proceeds of sale of, materials, supplies, or
other things acquired by D/B or sold under the provisions of this clause and
not recovered by or credited to City.
26.10 Termination of Agreement by D/B:
26.10.1 D/B may terminate the Agreement upon ten (10) days written notice to City,
whenever:
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26.10.1.1 The Project has been suspended under the provisions of
Section 26.1 or 26.2, for more than ninety (90) consecutive
days through no fault or negligence of D/B, and notice to
resume Work or to terminate the Agreement has not been
received from City within this time period; or,
26.10.1.1 City should fail to pay D/B any monies due it in accordance
with the terms of this Agreement and within ninety (90) days
after presentation to City by D/B of a request therefore, unless
within said 10-day period City shall have remedied the
condition upon which the payment delay was based.
26.10.2 In the event of such termination, D/B shall have no claims against City
except for those claims specifically enumerated in Section 26.9, herein, and
as determined in accordance with the requirements of said Section.
Section 27: Independent Contractor
27.1 D/B and any Design Consultant, Contractor, Subcontractor, agent or employee of
DIB, shall act as an independent contractor and not as an agent, officer or employee of
City. Except as expressly provided in this Agreement, City assumes no liability for D/B's
actions and performance; in particular, but without limitation, City assumes no responsibility
for paying any taxes, bonds, payments or other commitments, implied or explicit, by or for
D/B. D/B acknowledges that it is aware that because it is an independent contractor, City is
making no deductions from the fees for services being paid to D/B and that City is not
contributing to any fund on the behalf of D/B. D/B disclaims the right to any type of
additional fee or benefits.
Section 28: Independent Judqment
28.1 Unless otherwise directed in writing by City, D/B shall, in providing the professional
services required by this Agreement, arrive at conclusions with respect to the rendition of
information, advice and recommendations, independent of the control and direction of City,
other than normal contract monitoring; D/B, however, shall possess no authority with
respect to any City decision beyond rendition of such information, advice and
recommendations. D/B shall not have the authority to act as an agent on behalf of City
unless specifically authorized to do so by City in writing.
Section 29:
Maintenance of Records and Accountinq
29.1 D/B shall maintain, during the Project and for a period of three (3) years after
completion of the Project, accurate and organized records of all costs of any type and all
services performed under this Agreement. City will have the right at any time, including
during the performance of all Phases of the Project to audit and copy all such records.
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Section 30: Ownership of Documents
30.1 All reports, studies, information, data, statistics, forms, designs, plans, procedures,
systems and any other materials or properties produced under this Agreement shall be the
sole and exclusive property of City. No such materials or properties produced in whole or
in part under this Agreement shall be subject to private use, copyrights or patent rights by
Consultant in the United States or in any other country without the express written consent
of City. City shall have unrestricted authority to publish, disclose (except as may be limited
by the provisions of the Public Records Act), distribute, and otherwise use, copyright or
patent, in whole or in part, any such reports, studies, data, statistics, forms or other
materials or properties produced under this Agreement.
Section 31: Force Maieure
31.1 Any party to this Agreement may be excused for any delay or failure to perform its
duties and obligations under this Agreement, except for obligations to pay money, but only
to the extent that such failure or delay is caused by an Event of Force Majeure as set forth
in section 31.2. If an Event of Force Majeure set forth in section 31.2 causes a delay or
failure in performance of only a portion of the obligations of a Party under this Agreement,
then only that portion of performance which was delayed or prevented by such cause shall
be deemed excused, and the performance of all other obligations of a Party not so delayed
shall not be excused by an Event of Force Majeure. Delay or failure in performance of all
other obligations of a Party not so delayed shall not be excused by such Event of Force
Majeure. Delay or failure in performance by a Party which is the result of an Event of Force
Majeure set forth in section 31.2 shall be deemed excused for a period no longer than the
delay or failure in performance caused by such Event.
31.2 An Event of Force Majeure means an occurrence beyond the control and without the
fault or negligence of a Party, including but not limited to unusually severe weather, flood,
earthquake, fire, lightning, and other natural catastrophes, acts of God orthe public enemy,
war, terrorist act, riot, insurrection, civil disturbance or disobedience, strike or labor dispute
for which D/B is not responsible, expropriation or confiscation of facilities, changes of
applicable law, or sabotage of facilities, so long as such Party makes good faith and
reasonable efforts to remedy the delays or failures in performance caused thereby.
However, D/B, in developing the GMP and Project Schedule, has incorporated three (3)
days for anticipated adverse weather days that may disrupt work on the Project; D/B shall
be entitled to relief under this Section for adverse weather only to the extent adverse
weather days exceed this amount of days.
31.3 A Party shall give written notice to the other Party as soon after becoming aware of
the delay or failure in performance caused by an Event of Force Majeure as is reasonably
possible, but in any event within five (5) working days after Party becomes aware of such
delay or failure.
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31.4 No Event of Force Majeure shall be a basis for monetary adjustment to the GMP.
Costs incurred by the D/B as a result of a Force Majeure Event will be reimbursed
according to the terms of this Agreement from the Contingency Fund.
Section 32: Hazardous Materials
32.1 In the event the D/B or any other party encounters asbestos or hazardous or toxic
materials at the Project Site, or should it become known in any way that such materials may
be present at the Project Site or any adjacent areas that may affect the performance of the
D/B's services, the D/B may, at his or her option and without liability for consequential or
any other damages, suspend performance of services on the Project until the City retains
appropriate specialist consultant(s) or contractor(s) to identify, abate and/or remove the
hazardous or toxic materials, and warrant that the Project Site is in full compliance with
applicable laws and regulations.
Section 33: Disputes
33.1 All claims, counterclaims, disputes, and other matters in question arising under, or
relating to, the Agreement or the breach thereof shall be processed in accordance with the
provisions of this Section, unless specifically addressed by another provision of this
Agreement.
33.2 D/B shall submit its written request for a Change Order to City pursuant to Section
14. City shall make a determination on D/B's request in writing within 7 days of receipt of
request and all supporting data. Said Change Order shall be made in good faith and
accurately reflect the adjustment in GMP or Contract Time for which D/B believes City is
liable, and covers all costs and delays to which D/B believes it is entitled as a result of the
occurrence of the claimed event. All requests for adjustment in Contract Time shall include
an analysis of the Master Construction Schedule and the impact of the claimed work on
specific activities on the Master Construction Schedule.
33.3 If D/B disagrees with City's determination, D/B shall file a claim in writing in
accordance with the procedures set forth in Chapter 1.34 of the Chula Vista Municipal
Code, as same may from time to time be amended, the provisions of which are
incorporated by this reference as if fully set forth herein, and such policies and procedures
used by the City in the implementation of the same.
33.4 Pending final resolution of any claim, including litigation, D/B shall proceed diligently
with performance of the Project, and comply with any direction of City.
Section 34: Notices
34.1 All notices, demands or other communications hereunder shall be given or made in
writing and shall be delivered personally or sent by courier or registered or certified mail,
return receipt requested, postage prepaid, addressed to the Party to whom they are
41
directed at the following addresses, or at such other addresses as may be designated by
notice from such Party:
(i) To CITY:
City Attorney
276 Fourth Avenue
Chula Vista, CA 91910
Tel: (619) 691-5037
Fax: (619) 409-5823
Department of General Services
Building and Park Construction
1800 Maxwell Road
Chula Vista, CA 91911
Tel: (619) 397-6070
Fax: 619) 397-6250
(ii) To D/B:
Rudolph and Sletten, Inc.
10955 Vista Sorrento Parkway
Suite 100
San Diego, CA 92131
Tel: 858-259-6262
Fax: 858-259-8282
Any notice, demand or other communication given or made solely by mail in the manner
prescribed in this Section shall be deemed to have been given and to be effective three (3) days
after the date of such mailing; provided, however, that any notice, demand or other communication
which would otherwise be deemed to have been given on a day which is not a working day shall
be deemed to have been given on the next subsequent working day.
Section 35: Miscellaneous Terms
35.1 Representations: Each Party hereto declares and represents that in entering into
this Agreement it has relied and is relying solely upon its own judgment, belief and
knowledge of the nature, extent, effect and consequence relating thereto. Each Party
further declares and represents that this Agreement is being made without reliance upon
any statement or representation of any other Party not contained herein, or any
representative, agent or attorney of any other Party.
35.2 Severabilitv: If any term or condition of this Agreement is held to any extent to be
invalid or unenforceable, all the remaining terms and conditions shall be enforceable to the
fullest extent permitted by law.
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35.3 Entire Aqreement: This Agreement contains the entire agreement, between the
Parties and supersedes all prior negotiations, discussions, obligations and rights of the
Parties in respect of each other regarding the subject matter of this Agreement. There is
no other written or oral understanding between the Parties. No modification, amendment or
alteration of this Agreement shall be valid unless it is in writing and signed by the Parties
hereto.
35.4 Draftinq Ambiquities: The Parties agree that they are aware that they have the
right to be advised by counsel with respect to the negotiations, terms and conditions of this
Agreement, and that the decision of whether or not to seek the advice of counsel with
respect to this Agreement is a decision which is the sole responsibility of each of the
Parties hereto. This Agreement shall not be construed in favor of or against either Party by
reason of the extent to which each Party participated in the drafting of the Agreement.
35.5 Applicable Law: The formation, interpretation and performance of this Agreement
shall be governed by the laws of the State of California. Venue for mediation, arbitration
and/or actions arising out of this Agreement shall be in the City of Chula Vista, California.
35.6 Waiver: Unless otherwise expressly provided herein, no delay or omission by the
Parties hereto in exercising any right or remedy provided for herein shall constitute a waiver
of such right or remedy, nor shall it be construed as a bar to or a waiver of any such right or
remedy on any future occasion.
35.7 Effect of Headinqs: Headings appearing in this Agreement are inserted for
convenience of reference only, and shall in no way be construed to be interpretations of the
provisions hereof.
35.8 Amendments: This Agreement may be modified, amended or supplemented only
by the mutual written agreement of the Parties hereto.
35.9 Authorization and Compliance: Each Party represents that it is duly authorized to
execute and carry out the provisions of this Agreement.
35.10 Further Assurances: The Parties agree to do such further acts and things and
execute and deliver such additional agreements and instruments as the other may
reasonably require to consummate, evidence or confirm the agreements contained herein
in the manner contemplated hereby.
35.11 Counterparts: This Agreement may be executed by the Parties in one or more
counterparts, all of which taken together shall constitute one and the same instrument. The
facsimile signatures of the Parties shall be deemed to constitute original signatures, and
facsimile copies hereof shall be deemed to constitute duplicate original counterparts.
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35.12 Exhibits and Glossarv of Terms: All Exhibits and Glossary of Terms are
incorporated herein by reference into this Agreement.
35.13 Third Party Beneficiarv: Nothing within this Agreement shall create a contractual
relationship between the City and any third party.
[NEXT PAGE IS SIGNATURE PAGE]
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CITY OF CHULA VISTA
By:
Stephen C. Padilla, Mayor
ATTEST:
Susan Bigelow, City Clerk
Approved as to form by:
Ann Moore, City Attorney
SIGNATURE PAGE TO
DESIGN/BUILD AGREEMENT
45
By:
Name and I
~1L
V I c.~ "":Prz.@!$I!:>.&-\.....
GLOSSARY OF TERMS
(This Page Intentionally Left Blank - See Attachment)
46
GLOSSARY OF TERMS
The following Glossary of Terms is designed to provide in a single location the defined
terms used in the Agreement and Supplementary Conditions. In the event of any conflict
between the following and the definitions set forth in the Agreement, those in the
Agreement and Supplementary Conditions shall take preference.
Additional Services. Services which the City has authorized the D/B to perform
and which are beyond the scope of work as set forth in the Agreement.
Additive Costs. Any cost above that which would normally be found in a
competitive bid situation.
Agreement. The Design/Build Agreement including all attachments between City
and D/B.
Certification of Completion. The document, by which D/B certifies that the Project
has been fully completed in accordance with the Construction Documents, all applicable
building codes and regulations, all permits, licenses, and certificates of inspection, use and
occupancy, and ordinances relating to the Project.
Certificate of Occupancy. The document issued by City authorizing occupancy of
the entire Project.
Certificate of Substantial Completion. The document issued by City after it
reasonably determines the Project has achieved Substantial Completion as defined in
Section 16 of the Agreement.
Change Order. A written amendment to the Agreement executed by City and D/B
modifying the terms of the Agreement pursuant to the terms of Sections 7 and 14.
City. City shall refer to the City Representative, Agent and/or City Inspection
Representative.
City Representative. Matt Little shall be the initial City Representative. The City
Manager will notify D/B in writing of the name of any successor City Representative and
D/B shall be entitled to rely upon the directions of the current City Representative until
receipt of said written notice. The City Representative shall act on behalf of the City with
respect to this Agreement unless the Agreement provides otherwise. D/B shall not make
any modifications to the Project unless directed by the designated City representative.
Construction Documents. DlB's architectural, structural, mechanical, electrical,
plumbing plans and details as well as the plans showing installation of major systems,
equipment, fixed furnishings and graphics, the technical specifications and all other
- 1 -
technical drawings, schedules, diagrams and specifications, necessary to setforth in detail
the requirements for construction of the Project.
Contractor. Any person or entity with whom the D/B or City contracts or
subcontracts for construction of the Project.
Contract Amount. The dollar amount authorized by the Chula Vista City Council to
be paid to the D/B as consideration for full performance under the terms of this Agreement
which includes the GMP and Reimbursable Costs.
Contract Time. The time within which D/B has to complete all Work and services
under the Agreement, which commences with the execution of the Agreement and ends
with the Final Completion Date.
Day. Is a working day, unless specified otherwise.
Defective Work. Work on the Project which is not in compliance with the
Construction Documents.
Design Builder. D/B including but not limited to consultants, subconsultants,
contractors, subcontractors, employees, agents or any other person or entity working for or
on behalf on D/B.
Design Subcontractors. The architects, engineers and other design professionals
contracting with the City or DIB to perform design services for the Project.
Detailed Construction Schedule. D/B prepared and City approved Detailed
Construction schedule for Phase I. Phase II and Phase III showing all major milestones,
bid dates for major bid packages, commencement of construction, sequence of
construction, completion of structural elements, completion of the exterior of the building,
which shall conform with the dates of Substantial Completion and Final Completion of
Project. D/B will update the schedule as required by the Agreement.
DIB Fixed Fee. The fixed sum which D/B shall receive as full compensation for
performance of all services and obligations under this Agreement, including all costs of any
type incurred by D/B; but not including (1) Hard Construction Costs, and (2) Reimbursable
Costs, (3) D/B Contingency Fund.
Event of Force Majeure. The type of event defined in Section 31 of this
Agreement.
Final Completion. The date on which the last of the following events occurs: (1)
recordation of a Notice of Completion for the Project; (2) acceptance of the Project by the
- 2 -
City; (3) issuance of a final Certificate of Occupancy for the Project; (4) submission of all
documents required to be supplied by D/B to City under this Agreement, including but not
limited to as-built drawings, warranties, and operating manuals: (5) and delivery to City of a
Certification of Completion duly verified by D/B.
Final Payment. Payment to D/B 35 days after date of Final Completion as set forth
in Section 15.
Guaranteed Maximum Price (GMP). The guaranteed maximum price (herein
"GMP") which DIB shall be paid by City for all Hard Construction Costs and D/B Fixed Fee
as set forth in the Agreement for the complete design and construction of the entire Project
as specified.
Hard Construction Costs. All costs D/B incurred in contracting actual construction
Work on the Project for the performance of the Work on the Project including a
Contingency Fund; but specifically does not include: (1) costs associated with the design
and construction management services to be performed by D/B under this Agreement or
(2) costs incurred due to D/B's negligence or failure to perform according to the terms of
this Agreement, including, but not limited to, failure to adequately supervise the Project,
use of materials which do not comply with the Construction Documents.
Management and Implementation Plan. D/B's detailed description of all
necessary procedures and methods to be utilized by D/B in performing its construction
services under Phase IV of this Agreement.
Notice of Completion. City document issued after Chula Vista City Council
formally accepts the Project.
Onsite/Offsite. Refers to Project Site, unless otherwise indicated.
Party. The Parties to this Agreement, The City of Chula Vista ("City"), and Highland
Partnership, Inc., ("D/B").
Phase I. Phase I shall consist of all services and events described or implied in
Section 5 of the Agreement, including but not limited to preparation of schematic design
documents, and cost estimates.
Phase II. Phase II shall consist of all services and events described or implied in
Section 6 of the Agreement, including but not limited to the preparation of Design
Development Documents, outline specifications and cost estimates.
Phase III. Phase III shall consist of all services and events described or implied in
Section 7 of the Agreement, including but not limited to the preparation of 1 00%
Construction Documents, Detailed Construction Schedule, preparation of GMP Finalized
- 3 -
Management and Implementation Plan and determination of need for and conducting of
additional subsurface investigation.
Phase IV (if applicable). Phase IV shall consist of all services and events
described or implied in Section 8 of the Agreement, including but not limited to conducting
competitive bidding for the Work, and the construction and completion of the Project.
Project. The design and construction of a completed and fully functional
Community Park and on and off site improvements as more fully described on the Chula
Vista Nature Center Interior Remodel Project Programming.
Project Budget. The amount of money authorized by the Chula Vista City Council
to be expended on this Project, including the GMP, Reimbursable Costs and all other City
costs.
Project Site. All areas where Work is to be performed pursuant to this Agreement
as shown in the Construction Documents.
Project Team. All participants involved with the project
Reimbursable Costs. Includes the premiums for Performance Bond and Payment
Bond furnished by D/B pursuant to Section 8 of the Agreement, the net premiums (less any
premium returns) for the insurance, including costs for insurance brokers, deductibles,
Safety Program and consultants which D/B is required to purchase and maintain pursuant
to Section 9 of the Agreement, the cost of all necessary permits obtained by D/B for the
Project pursuant to Section 3.1.10 of the Agreement, the costs of subsurface investigations
performed pursuant to Section 3.1.14 of the Agreement, costs for extension of warranties
pursuant to Section 20 of the Agreement, and Safety Program pursuantto Section 90fthe
Agreement.
Small Tools. Mobile items less than $1500 in total value.
Substantial Completion. The date on which (1) the progress of construction when
all Work on the Project is sufficiently complete in accordance with the Construction
Documents so that City can occupy and utilize the entire facility for Police activities and (2)
all goods and services to be provided under the terms and conditions of the Construction
Documents are in place and have been initially tested, and are operationally functional,
subject to final testing, balancing and adjustments and a Final Completion punch list Work.
Work. All services, labor, materials, supplies, and equipment necessary for D/B,
Contractors and consultants to complete the Project.
-4-
EXHIBIT LIST (I-III)
Exhibit I
Exhibit 2
Exhibit 3
Chula Vista Nature Center Interior Remodel Project Programming
Design Build Fee Structure
Identification of Design Build Team Members
47
EXHIBIT 1
Chula Vista Nature Center Interior Remodel Project Programming
J:\General ServÎces\GS Administration\Design Build Agreements\Nature Center Renov DB Agmt 050404.doc
I
Chula Vista Nature Center
Interior Remodel Project
Programming
December 18, 2003
Overview and Background
The main Nature Center building was constructed in 1987 and its 3,500 square-foot galleria
space was subsequently used for static and marine exhibits. The exhibits are arranged in four
"islands" constructed of wood and wood products. These islands were originally designed as
"temporary" with a 5-year life. Three of the four islands are served by the saltwater life support
system which is an extension of the main semi-closed system.
Due to age, use, and saltwater intrusion, the islands have begun to deteriorate and need to be
replaced. Design "flaws" have plagued maintenance and keeper personnel for years and need to
be rectified. These include issues related to wind, sun, durability, and access.
A small portion of the building has been dedicated to a book and gift retail operation, which also
serves as the reception and admissions area for guests. The current space use does not provide a
clear starting point for incoming guests and customer flow is undirected.
Program Studv Committee
A committee was formed, staffed largely by CVNC employees with assistance from other
individuals with design and "constructibility" expertise. The "Big Idea" or central theme ofthe
exhibit area to be known as the "Discovery Center" was determined to be:
"Explore and discover the biodiversity and history of the San Diego Bay Region. "
The Committee identified elements ofthe current exhibits/design to be retained in a new design
and elements of the current exhibits/design not to be retained in a new design. The desirable
elements are included in the "Space Uses" category below. Some of the elements identified to
be avoided in a new design include: cramped and inaccessible keeper spaces, noisy mechanical
gadgets, exhibits and facilities interrupting visitor flow, lack of spill/overflow containment for
marine exhibits, and marine exhibit structural support (and adjoining materials) made of wood.
Partnershi ps/Stakeho Iders
There are a number of stakeholders for this process. These include the Chula Vista Elementary
School District, Metropolitan Water District, Friends of the Chula Vista Nature Center, and the
U.S. Fish and Wildlife Service. Of these stakeholders, the U.S. Fish and Wildlife Service would
actually partner with the Nature Center on some design, interpretation and funding issues due to
the Nature Center's leasehold location in the middle of the Sweetwater Marsh National Wildlife
Refuge. Seamless interpretation between the interior CVNC exhibits and the learning
opportunities which exist outside on the Refuge's trails and walkways - is a "must".
Space Uses
The following represent space uses which are of a high priority. While it is recognized that some
uses may be in conflict with one another, they are nonetheless listed here:
· Live marine animals (such as green sea turtles, moon jellies, sea bass, leopard sharks,
spiny lobsters, small invertebrates, sting rays, sea horses, and the like)
· Live terrestrial animals (limited to local reptiles, insects, and amphibians - such as
gopher snakes, king snakes, toads, spiders, butterflies)
· Use of closed-loop video displayed at various locations to increase depth and
understanding of concepts being interpreted at that location
· Arrangement of exhibits to facilitate use of space for "after hours" receptions and special
events
· Reception area for customers to provide a clear starting point for admissions and improve
customer flow
· Maximize merchandise capacity and enhance visual presentation
· Exhibits/artifacts which can be touched (fossils, grinding stones, shells, bones)
· Temporary, wall-mounted displays of nature-related artwork
· Mounts either singly displayed or in a prominent wetland/upland diorama, or both
· Freshwater (rainbow/steelhead trout) exhibit (location to remain - but reconstruct
cabinetry to match style and design ofthe balance of the project)
· Electronic interactive display: 19" monitor, touch screen, capability for switching inputs
from canned presentations to live shots to interactive presentations (includes supplying
interactive program)
· Watershed interpretation and its relationship to San Diego County, San Diego Bay and
water conservation (could be 2-D panels, floor graphics and/or 3-D model)
· Lighting which is energy efficient and not counter productive to maintaining optimal
environmental quality in the marine exhibits
· Unobstructed keeper access to live exhibits and the ability to safely perform
maintenance/feeding routines during visitor hours.
Solutions/Concept Ideas
As a result of the work the Committee did, a number of concept ideas/designs and potential
solutions for problem areas were formulated. These include:
· Grouping of marine tanks into larger cabinetry for ease of maintenance
· Orienting marine enclosures away from direct am or pm sunlight patterns
· Using a central and prominent diorama (oriented WestlEast) to illustrate the habitat
zonation and to create easier transitions to open-air interpretation out on the Refuge. This
diorama would begin with creatures common to mudflat areas (birds, clams) then
transition to areas where snakes, lizards, snails, rabbits, squirrels, hawks, falcons, eagles,
and coyotes dominate.
· Enclosing the area between the columns on the west (exterior) side of the building to
create a vestibule which would provide additional visitor reception area and help
attenuate issues related to the prevailing west winds.
· Creating a "wow" factor near front entrance through large scale marine enclosure -likely
involving live green sea turtles and interpretation of their biology.
· Creating a semi-enclosed video presentation area which naturally attenuates external light
and sound; to be used for longer "sit-down" video segments.
BudgetlTimeline
Construction/fabrication costs are estimated to be in the neighborhood of $500,000. Optimal
demolition and construction period for this project is September 2004 to April 2005 when visitor
volume for the Nature Center is the lowest. The project must be complete by May 15,2005.
EXHIBIT 2
Design Build Fee Structure
J:\General Services\GS Administration\Design Build Agreements\Nature Center Renov DB Agmt 050404.doc
II
EXHIBIT 2
"DESIGN BUILD FEE STRUCTURE"
1. Design Services and General Conditions
$178,395
a. Architectural & Engineering
b. General Conditions - Design
c. General Conditions - Construction
$75,000
$31,000
$72,395
2. Construction Costs
$504,605
3. Design Build Fee
$40,000
$723,000
Total Design Build Not-To-Exceed Costs
EXHIBIT 3
Identification of Design Build Team Members
J:\General Services\GS Administration\Design Build Agreements\Nature Center Renev DB Agmt 050404.doc
III
EXHIBIT 3
"IDENTIFICATION OF DESIGN BUILD TEAM MEMBERS"
Legal Name and Address
Rudolph and Sletten, Inc.
989 East Hillsdale Boulevard, Suite 100
Foster City, CA 94404
Legal Form of Company
Corporation
Parent Company
Same
San Diego County Office Address
4350 Executive Drive, Suite 30 I
San Diego, CA 92121
Number of Years in San Diego
14 years
Number of Employees in San Diego
115
Chula Vista License Number
39531
Persons assigned to project
Bruce Zelenka, Project Executive
Matt Frey, Project Manager
John Bunje, Project Engineer
Cal Prochnow, Field Supervisor
10955 Vista Sorrento Parkway, Suite 100
San Diego, CA 92130
(858) 259-6262
Contract Contact
Bruce Zelenka, Project Executive
10955 Vista Sorrento Parkway, Suite 100
San Diego, CA 92130
(858) 509-2217
COUNCIL AGENDA STATEMENT
Item í
Meeting Date 6/8/04
REVIEWED BY:
Public Hearing to consider adoption of an urgency ordinance and a new
ordinance amending City Ordinance 2617, and a resolution relating to
updates in the Salt Creek Sewer Basin Development Impact Fee to pay for
sewer facilities within the Salt Creek Sewer Basin
Director of General Services / City Engineer fffj
CityManagerC(¿;. ,..,) (4/SthSVote: Yes- No...xJ
j'"Q\
ITEM TITLE:
SUBMITTED BY:
It is recommended that this item be continued to June 29, 2004.
jolEngineerlAGENDAlSalt Creek DIF PH-cont'd.doc
5"-- /
COUNCIL AGENDA STATEMENT
Item -~
Meeting Date 6/08/04
ITEM TITLE:
Resolution ofthe City Council ofthe City ofChula Vista,
acting in its capacity as the legislative body of Community Facilities District
No. 06-1 (EastLake - Woods, Vistas, and Land Swap), Authorizing and
providing for the issuance of special tax bonds of the district for
Improvement Area B thereof, Approving the form of Bond Indenture, Bond
Purchase Agreement and other documents and authorizing certain actions in
connection with the issuance of such bonds.
SUBMITTED BY: Director of General Services/City Engineer ~
Director of Finance
REVIEWED BY:
City Manager ¡d¿. ,.,
~Ol
(4/Sths Vote: Yes_NolO
Tonight, Council will consider the authorization of the issuance of a second series of special tax
bonds ofCFD No. 06-1 for Improvement Area B, commonly referred to as the "Land Swap Area".
The second Series of bonds is in the amount of $7,825,000. In addition Council will approve the
form of certain documents related to the issuance of the bonds including a Bond Indenture, Bond
Purchase Contract and Preliminary Official Statement.
RECOMMENDATION: That Council approve the resolution.
BOARDS/COMMISSIONS RECOMMENDATION: Not applicable.
DISCUSSION:
Back!!round
On September 10, 2002, a public hearing was held which formed and established Community
Facilities District No. 06-1 (CFD No. 06-1), and on October 8, 2002 City Council heard the election
results which declared that 100% of the votes cast, were in favor. On October 22,2002 Council
heard the second reading of the Ordinance authorizing the Levy ofa Special Tax. The Mello-Roos
Community Facilities Act of 1982 is a financing mechanism for funding the acquisition or
construction of public infrastructure improvements from the proceeds of Community Facilities
Districts bonds, which are repaid from an annual special tax collected from the property owners
within the district. There is no direct cost to the City.
CFD No. 06-1 is primarily an acquisition district wherein the developer constructs the public
improvements and the City acquires them upon completion with funds derived solely from the sale
of bonds. An approximately 52.9 acre(42 net acres) parcel of commercial property and an
approximately 8 acre parcel of affordable housing has prepaid their Special Tax. These funds will be
available for use to finance approved eligible improvements. The grading for all of the residential
6-1
f
Page 2, Item~
Meeting Date 6/08/04
property and the northern commercial property has essentially been completed. The southern
commercial property, which was prepaid, is well into the construction phase.
District Boundaries
Exhibit 1 presents the amended boundaries of the proposed CFD No. 06-1, which includes parcels
located within EastLake's Woods (394 gross acres), Vistas (343 gross acres), and "Land Swap"
(143 gross acres) owned by either The EastLake Company, LLC or merchant builders. The
Woods and Vistas will comprise Improvement Area A and the "Land Swap" will comprise
Improvement Area B. The Boundary Map was amended to correct a minor parcel adjustment
shown in the boundary for the "Land Swap" area. An Annexation Map was also recorded to
include a triangular parcel to be included in the Land Swap area. A copy of the amended Boundary
Map (Exhibit 1) and Annexation Map (Exhibit 2) is on file at the City Clerk's office and is
available for review.
The "Land Swap" is actually two non-adjacent areas; 1) the northernmost area being a triangular
shaped set of parcels located in the southwestern quadrant ofOtay Lakes Road and SR 125, and 2)
the southernmost area is bound to the south by Olympic Parkway with EastLake Parkway
projecting north just west of the center of the area.
At buildout, Improvement Area B ("Land Swap") will have a 750 single-family mixture of
detached and attached residential units, along with two commercial sites (approximately 73 acres).
The ownership is as follows:
.
KB Homes owns approximately 16 acres with plans to build 76 detached units and 134
attached units.
Cornerstone owns approximately 20 acres with plans to build 135 detached units and 126
attached units.
The EastLake Company owns approximately 28 acres with plans to build 129 attached units
and various commercial uses.
Chelsea owns approximately 8.3 acres with plans to build approximately 150 affordable
housing units. Chelsea is in the process of prepaying their Special Tax for this property.
Walmart, Home Depot and other commercial retailers oWn 52.9 acres of which the Special
Tax has been prepaid.
.
.
.
The Improvements
Preliminary estimates show that the maximum tax revenue (using the proposed taxes) from all the
taxable properties within only Improvement Area B would support a total bonded indebtedness of
approximately $7.825 million (assuming a 6.5% interest rate and a 30-yearterm on the bonds). This
borrowing will finance approximately $6.7 million in facilities (i.e. grading, landscaping, streets,
utilities, drainage, sewer, etc). Also proceeds from the commercial and residential prepayments of
the Special Tax in the amount of approximately $4.7 million are available to finance facilities.
Combined the total available funds for financing facilities will be approximately $11.7 million.
{,-.2..
Page 3, Item-.!L..-
Meeting Date 6/08/04
The developer is proposing the financing of backbone and associated improvements (i.e. grading,
sewer, streets, dry utilities, etc.) as described below. CFD policy requires a determination of the
priority for the acquisition of improvements by a CFD. Staff, consultants, and land developers have
prepared a list of facilities as shown below. The final prioritization of these facilities has been
outlined in the approved Acquisition Finance/Agreement and amendments.
A.
Prioritv Items:
.
Otay Lakes Road/Eastlake Parkway Road Widening
EastLake Parkway
Otay Lakes Road Widening(H Street to Telegraph Canyon)
Trunk Sewer
Traffic Signals
.
.
.
.
Special Tax Report
A copy ofthe Amended Special Tax Report Community for Facilities District No. 06-1 for EastLake
prepared by the Special Tax Consultant, McGill Martin Self, Inc., is on file, and available for public
review in the City Clerk's Office. Said report incorporates the "Rate and Method of Apportionment"
(RMA) for Improvement Area B (previously approved by Council on July 23,2002 and amended on
March 25,2003), that establishes the procedures for levying the special taxes in CFD No. 06-1 for
Improvement Area B.
Citv Financial Criteria
At the time the special tax is levied, developed parcels are those parcels for which a building permit
has been issued. This special tax rate has been determined by a preliminary "2% maximum tax"
analysis. Said analysis, which is based on estimated house sizes and prices, sets the amount of the
maximum special tax that may be levied by CFD No. 06-1 on residential parcels. It should be noted
that a final test will be required at escrow closing using actual house sale prices. If the 2% limit is
exceeded, the developer is required to buy down the lien to an amount sufficient to meet the 2%
criteria.
As mentioned above the final 2% test has previously been applied at the time of the close of escrow
of the sale of a lot and house to the first retail buyer. By applying the test at this time, the actual
sales price of the house can be incorporated into the test.
Value to Lien Ratio: The City's Statement of Goals and Policies for Community Facilities Districts
("CFD policy") requires a minimum value to lien ratio of 4: 1. In addition, the policy establishes the
following criteria:
The required value-to-debt ratio shall be determined with respect to all taxable
property within the community facilities district in the aggregate and with respect to
each development area for which no final subdivision map has been filed. A
community facilities district with a value-to-debt ratio of less than 4: 1 but equal to or
(,-3
Page 4, Item-
Meeting Date 6/08/04
greater than 3:1 may be approved, in the sole discretion of the City Council, upon a
determination by the City Manager, after consultation with the finance director, the
bond counsel, the underwriter and the financial advisor, that a value to debt ratio of
less than 4:1 is financially prudent under the circumstances of the particular
community facilities district. "
Bruce W. Hull & Associates conducted an appraisal (dated April 15, 2004) on the property. The
commercial site owned by Walmart and other retailers and the affordable housing property owned
by Chelsea were not included due to their prepayment of the Special Taxes. Exhibit 3 illustrates
an Improvement Area B bond sale of$7,825,000 million which will result in an overall lien ratio
ofl1.05: I. Within Improvement Area B, all of the planning areas have a lien ratio of greater than
9:1.
Resolution
There is one resolution on today's agenda that, if adopted, will accomplish the following
(A) THE RESOLUTION AUTHORIZING THE ISSUANCE OF BONDS AND APPROVING THE
FORM OF CERTAIN RELATED DOCUMENTS authorizes the issuance of limited obligation
bonds, pursuant to the Mello-Roos Act in a principal amount not to exceed $10,000,000. The final
bond sale amount will be known once the interest on the bonds is determined at bond sale. In
addition, the resolution approves the form of the following documents:
.
The Preliminarv Official Statement (Exhibit 4): describing the Community Facilities District
and type of bonds, including terms and conditions thereof, for the bondholders.
.
The Bond Indenture (Exhibit 5): between the City and the Fiscal Agent, US Bank Trust
National Association, that sets forth the terms and conditions relating to the issuance and sale
of the bonds. The Indenture also establishes the Escrow Account and the conditions to be
met for releasing the funds deposited in said Escrow Account.
.
The Bond Purchase Contract (Exhibit 6): The Bond Purchase Contract authorizes the sale of
bonds to the designated Underwriter (Stone & Youngberg LLC). The underwriter's discount
for this negotiated sale is not to exceed 1.75% of the total bond amount that translates into a
fee not to exceed $137,000.
.
Continuing Disclosure Agreement: between the City and U.S. Bank Trust National
Association, as dissemination agent, pursuant to which the City is required to disclose certain
financial information on an annual basis regarding the Community Facilities District and
certain significant events. These disclosures include but are not limited to:
Special tax delinquencies
Bond calls
Events reducing density or causing modifications
Other events reflecting financial difficulties of CFD No. 06-1
&-'/
Page 5, Item~
Meeting Date 6/08/04
It should be noted that Council would only be approving the form of the aforementioned documents.
The proposed resolution authorizes the Director of Finance to approve the final form and to execute
such documents on behalf of the City following review by and consultation with the City Attorney,
Bond Counsel, and Financial Consultant. No additions or changes in the documents are permitted
which would result in the annual interest rate on the bonds to exceed 7.00 %.
Future Actions
Adoptions of tonight's Resolutions will authorize the issuance of bonds, and approve the form of
related documents. The issuance of the bonds is anticipated in June 2004. The acquisition of
selected public improvements will be audited only after 100% of the project is deemed complete.
FISCAL IMPACT:
The City's General Fund receives 1 % ofthe bond sale amount in accordance with the CFD Policy for
the use of the City's bonding capacity. The developer will pay all formation costs and has deposited
money to fund initial consultant costs, and City costs in accordance with the approved
Reimbursement Agreement. The City will receive the benefit of the full cost recovery for stafftime
involved in district formation and administration activities. $75,000 each year is reserved from the
Special Tax Revenue to pay for the continuing administration of the CFD. Staff anticipates that most
of the CFD No. 06-1 Improvement Area B administration will be contracted out.
Attachments:
Exhibit 1: Recorded Amended Boundary Map for CFD No. 06-1
Exhibit 2: Recorded Annexation Map for CFD No. 06-I
Exhibit 3: Estimated Value to Lien Ratios Based on Appraisal
Exhibit 4: Preliminary Official Statement for CFD No. 06-1 Improvement Area B
Exhibit 5: Bond Indenture for CFD No. 06-1
Exhibit 6: Bond Purchase Agreement for CFD No. 06-I
nEngineerIAGENDA\CAS 6-8-D4 Bond Docs(V4).doc
~ -5""
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AMENDED BOUNDARIES OF
COMMUNITY FACILITIES DISTRICT NO, 06-1
"EASTLAKE - WOODS, VISTAS AND LAND SWAP"
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ASSESSOR'S PARCEL NUMBERS FOR
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VISTAS (ZONE 1)
643-040-014
WOODS (ZONE 2)
595-050-017
595-080-031
595-080-032
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595-090-001
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595-010-049
643-020-041
643-020-045
643-020-048
643-030-013
643-070-005
(1) A5 UODIRED BY PARCEl. MAP NO. 14372.
RECOIIOED ON APRIL 23. 2002. CERTIACAl'E
NO. 2002-034>322 FOR 1RACT NO. 01-D9
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,." 61"'25.13<3
,= 619.425.1357
.ARD<. 2003
~
~!
EXHIBIT 3
ESTIMATED VALUE TO LIEN RATIOS
BASED ON ACREAGE AS OF 4/15104 AND APPRAISED VALVES'"
E."~t'"
UDd..."p'" App~.od
Total BDIIdJD, Proj«lod ToDb" Proj«Iod Volo"o
Uoita po""'"uor Dov,,"podS.."" Amo,ouor UDd.......d ProJ«IodAMDoI %orCFD"" CFD...IBood UOD
P"'o"AA~_- - !o"".. P",portyQ~onbip'" AJ'pro"d 4115/04 T"""",___4I151O4 S.."oITn,,'" SpttlolTu" BODdU.. U..AUo~"OD'" App~.odVol..'" Rolio'"
MoRh..1 BoUd" 0.0'"
A 3 KB Ho~ C...., 76 0 $0.00 8.16 '"1.804
B 3 Com""".o 13S 0 $0.00 11.50 '157,566
D 3 COm""'DO i26 0 '0.00 7.96 '109,063
. 3 KBHo~Coulol 134 0 '0.00 7.51 '102,898
S""".I 47J 0 ".00 35./3 $481)31
M..", Do""DU Owuod
C 3 """"0 Com"", 129 0 $0.00 8.42 '"5)66
C~W(LotaI,2.3&4)'" 4 ,"""'oC="", NtA NtA $0.00 10.69 $47,488
S,'",,' '" 0 ".00 19.1/ 516'.'"
G~odTolol 600 0 $0.00 54.24 '644,185
"'Doolorooo"'08Iota"~yo"bo~'
'" O~""¡pm_oo""'fromO..olop",
"I F"",Y=2004-2oo5 Sp""'T~ r"u""""op"'Propta1y = projo<tod 10 ho '13.701.42 fu,z...3 ..d 54,44232 fu,Zo.o 4.., "m.
'" H"",tho"~liII""oûooo""~"oo ofBoo"'buoloou"prop.rtyo~""projtt""Sptti'¡ To I.",.
'" App"""'Vo]..huol,pooAp",0¡""""'ApriIIS,2004
'" Cokolo"" hydi"d¡o.Ap","'Vol....]_byTotolDobtAlI~ûoo..'~.
PI C_,,"ol Lota."Opp"'Rd """",Iyio Ap",""'.
."'ihi" V,¡..10 U..
$111,804 17.36% $1,358.092 $15.775.000 11.62101
$157.566 24.46% 11,913,978 $22,970.000 12.0010 I
'109,063 16.93% 11)24,806 $14,490,000 10.9410 I
$102,898 15.97% $1)49,911 '14,070.000 11.2610 t
5m.m 74.72% $5,846,788 567.305.01)0 11.5110]
5I1S)66 17.91% $1,40])65 '12.857)00 9.1710]
147,488 7.37% $576.847 $6,332,700 10.98 10 I
IW.854 25.28% $1,978.212 519.190.000 9.7010 I
1644.185 100.00% 57,825,000 S86~95.oo0 II.OS 10 I
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¡§ -Š 2 DOCSOC/1034128v6/22245-0151
EXHIBIT .L.
Stradling Yocca Carlson & Rauth
Draft of 6/1/04
PRELIMINARY OFFICIAL STATEMENT DATED AS OF JUNE 9, 2004
NEW ISSUE - BOOK-ENTRY-ONLY NO RATING
In the opinion of Best Best & Krieger LLP, Bond Counsel, based on an analysis of existing laws, regulations, rulings and court decisions,
qnd assuming, among other matters, compliance with certain covenants, interest and original discounts o~ the Bonds is excluded from gross
mcome for Jederal mcome t~urposes under Section 103 of the Internal Revenue Code of 1986 and tS exempt from State of California
fiersonal income taxes. In the urtlier opinion of Bond Counsel, interest and original discounts on the Bonds is not a specific preference item
for purposes of federal indivi uai or corporate alternative minimum taxes, although Bond Counsel observes that sucli interest is included in
adjusted current earnings in calculating federai corporate alternative minimum taxable income. Bond Counsel expresses no opinion
~'!.~í.~i~~:::J1' °J~;r 4'1fX'f¿¡1¥'l1s~~~~':e~~.ax consequences reiating to the ownership or disposition of, or the accrual or receipt of interest
$7,825,000.
CITYOFCHULA VISTA
COMMUNITY FACILITIES DISTRICT NO, 06-1
(EASTLAKE - WOODS, VISTAS AND LAND SWAP)
2004 IMPROVEMENT AREA B SPECIAL TAX BONDS
Dated: Date of Delivery Due: September 1, as shown on the inside cover page
The City of Chuia Vista Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and Land Swap) 2004 Improvement
Area B Special Tax Bonds (the "Bonds") are being issued and delivered to finance various public improvements needed to develop property
iDeated within Improvement Area B of Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and Land Swap) (the "District").
The District has been formed by and is located in the City of Chula Vista (the "City"), County of San Diego, California.
The Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections 53311
g1 Wi. of the Government Code of the State of California), and pursuant to a Bond Indenture (the "Indenture") dated as of June I, 2004, by
and between the District and U.S. Bank National Association, as fiscai agent (the "Fiscai Ageot"). The Bonds are special obligations of the
District and are payable solely from revenues derived from certain annuai Special Taxes (as defined herein) to be levied on certain taxable
land within Improvement Area B of the District and from certain other funds pledged under the Indenture, all as further described herein.
The Special Taxes are to be levied according to the amended rate and method of apportionment approved by the City Council of the City and
the qualified electors within improvement Area B. See "SOURCES OF PAYMENT FOR THE BONDS - Rate and Method of
Apportionment" The City Council of the City is the legislative body of the District
The Bonds are issuable in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The
Depository Trust Company, New York, New York ("DTC"). Individual purchases may be made in principal amounts of $5,000 and integral
multiples thereof and will be in book-entry form only. Purchasers of Bonds will not receive certificates representing their beneficial
ownership of the Bonds but will receive credit balances on the books of their respective nominees. The Bonds will not be transferable or
exchangeable except for transfer to another nominee of DTC or as otherwise described herein. Interest on the Bonds will be payable on
September I, 2004 and semiannually thereafter on each March I and September I. Principal of and interest on the Bonds wiil be paid by the
Fiscal Agent to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of
the Bonds. See "THE BONDS - Description of the Bonds" herein.
Neither the faith and credit nor the taxing power of the City, the County of San Diego, the State of California or any political
subdivision thereof is pledged to the payment of the Bonds. Except for the Special Taxes, no other taxes are pledged to the payment of the
Bonds. The Bonds are special tax obligations of the District payable solely from Special Taxes and other amounts held under the Indenture
DS more fully described herein.
The Bonds are subject to optional redemption, extraordioary mandatory redemption and mandatory sinking fund redemption prior
to maturity as set forth herein. See "THE BONDS - Redemption of Bonds" herein.
CERTAIN EVENTS COULD AFFECT THE ABILITY OF THE DISTRICT TO PAY THE PRINCIPAL OF AND
INTEREST ON THE BONDS WHEN DUE. THE PURCHASE OF THE BONDS INVOLVES SIGNIFICANT RISKS, AND THE
BONDS ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. SEE THE SECTION OF THIS OFFICIAL
STATEMENT ENTITLED "SPECIAL RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD
BE CONSIDERED, IN ADDITION TO THE OTHER MATTERS SET FORTH HEREIN, IN EV ALUA TING THE INVESTMENT
QUALITY OF THE BONDS.
This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms
of this issue. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed
investment decision.
MATURITY SCHEDULE
(See Inside Cover Page)
The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Best
Best & Krieger LLP, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed on for the City and the
District by the City Attorney and for the Underwriter by Stradling Yocca Carlson & Rauth. a Professional Corporation, Newport Beach,
California, as counsel to the Underwriter. It is anticipated that the Bonds in book-entry form will be available for delivery to DTC in New
York, New York, on or about June ~ 2004.
Stone & Youngberg LLC
~~Cj
MATURITY SCHEDULE'
(Base CUSIP: )t
Maturity
Date
(September 1)
Principal
Amount
Interest
Rate
Price
CUSIP'
Maturity
Date
(September 1)
Principal
Amount
Interest
Rate
Price
CUSIP'
$__%TennBondsdueSeptemberl,20_Price: _%-CUSIP:-
$ _%TennBondsdueSeptemberl,20_Price: _%-CUSIP:-
Preliminary, subject to change.
Copyright 2004, American Bankers Association. CUSIP data herein is provided by Standard & Poor's, CUSIP Service Bureau, a division
of The McGraw-Hill Companies, Inc. Neither the Underwriter nor the District takes any responsibility for the accuracy of such data.
DOCSOC/I034128v6/22245-0151
4;v-j 0
CITY OF CHULA VISTA, CALIFORNIA
CITY COUNCIL
Stephen C. Padilla, Mayor
Mary Salas, Deputy Mayor
Patty Davis, Councilmember
John McCann, Councilmember
JelT)' Rindone, Councilmember
CITY STAFF
David D. Rowlands, Jr., City Manager
Sid Morris, Assistant City Manager
George Krempl, Assistant City Manager
Cheryl Fruchter, Assistant City Manager
Ann Moore, City Attorney
Maria Kachadoorian, Director of Finance
Susan Bigelow, City Clerk
Alex AI-Agha, City Engineer
BOND COUNSEL
Best Best & Krieger LLP
San Diego, California
FINANCIAL ADVISOR TO THE CITY
Fieldman, Rolapp & Associates
Irvine, California
SPECIAL TAX CONSULTANT
REAL ESTATE APPRAISER
McGill Martin Self, Inc.
Chula Vista, California
Bruce W. Hull & Associates, Inc.
Ventura, California
MARKET ABSORPTION CONSULTANT
FISCAL AGENT
The Meyers Group
Solana Beach, California
U.S. Bank National Association
Los Angeles, California
DOCSOC/1 034128v6/22245-0 151
6~//
Except where otherwise indicated, all information contained in this Official Statement has
been provided by the District. No dealer, broker, salesperson or other person has been authorized by
the District, the City, the Fiscal Agent or the Underwriter to give any information or to make any
representations in connection with the offer or sale of the Bonds other than those contained herein
and, if given or made, such other information or representations must not be relied upon as having
been authorized by the District, the City, the Fiscal Agent or the Underwriter. This Official
Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be
any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make
such an offer, solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers or Owners of
the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or
matters of opinion, whether or not expressly so described herein, are intended solely as such and are
not to be construed as representations of fact. This Official Statement, including any supplement or
amendment hereto, is intended to be deposited with a nationally recognized municipal securities
depository.
The Underwriter has provided the following sentence for inclusion in this Official Statement:
The Underwriter has reviewed the information in this Official Statement in accordance with,
and as part of, its responsibilities to investors under the federal securities laws as applied to the facts
and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or
completeness of such information.
The information set forth herein which has been obtained from third party sources is believed
to be reliable but is not guaranteed as to accuracy or completeness by the District or the City. The
information and expressions of opinion herein are subject to change without notice, and neither the
delivery of this Official Statement nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the District, the City or any
other parties described herein since the date hereof. All summaries of the Indenture or other
documents are made subject to the provisions of such documents respectively and do not purport to
be complete statements of any or all of such provisions. Reference is hereby made to such
documents on file with the District for further information in connection therewith.
All information considered material to the making of an informed investment decision with
respect to the Bonds is contained in this Official Statement. While the City maintains an internet
website for various purposes, none of the information on its web site is incorporated by reference into
this Official Statement. Any such information that is inconsistent with the information set forth in
this Official Statement should be disregarded.
Certain statements included or incorporated by reference in this Official Statement constitute
"forward-looking statements" within the meaning of the United States Private Securities Litigation
Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended,
and Section 27A of the United States Securities Act of 1933, as amended. Such statements are
generally identifiable by the terminology used such as "plan," "expect," "estimate," "project,"
"budget" or other similar words. Such forward-looking statements include, but are not limited to,
certain statements contained in the information under the caption "THE COMMUNITY
FACILITIES DISTRICT" and "THE DEVELOPMENT AND PROPERTY OWNERSHIP."
DOCSOCIl 034128v6/22245-0 151
fo- /1...
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS
CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR
REVISIONS TO THE FORWARD-LOOKING STATEMENT SET FORTH IN THIS OFFICIAL
STATEMENT.
IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER
MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN
THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH
ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES LAWS OF ANY STATE.
DOCSOC/1034128v6/22245-0151
b-/3
TABLE OF CONTENTS
Page
INTRODUCTION..................................................................................................................................1
General.............................................................................................................................................1
The District ......................................................................................................................................1
Sources of Payment for the Bonds...................................................................................................3
Description of the Bonds .................................................................................................................4
Tax Matters """""""""""""""""""""""""""""'""""""""""""""""""""""""""""""'"............5
Professionals Involved in the Offering ............................................................................................5
Continuing Disclosure .....................................................................................................................5
Bond Owners' Risks ........................................................................................................................6
Forward Looking Statements...........................................................................................................6
Other Information ............................................................................................................................6
ESTIMATED SOURCES AND USES OF FUNDS..............................................................................7
THE BONDS ......................................,..................................................................................................7
Authority for Issuance...................................................................................................................... 7
Purpose of the Bonds ....................................................................................................................... 7
Description of the Bonds .................................................................................................................8
Redemption of Bonds ......................................................................................................................8
Notice and Selection of Bonds for Redemption............................................................................. 10
Notice of Redemption.............................................. ......................................................................10
Effect of Redemption.................................................. ...................................................................11
Transfer and Exchange of Bonds........................................................ ...........................................12
Debt Service Schedule for the Bonds ............................................................................................13
SOURCES OF PAYMENT FOR THE BONDS .................................................................................13
Limited Obligations .......................................................................................................................13
Special Taxes .................................................................................................................................14
Reserve Fund .................................................................................................................................19
Issuance of Parity Bonds...................................,.,..........................................................................19
THE COMMUNITY FACILITIES DISTRICT ...................................................................................19
General Description ofthe District and Improvement Area B ............,.........................................19
Description of Authorized Facilities..............................................................................................20
Status of Facilities.................................................... ..............................,....,..................................21
Principal Taxpayers ..................................................................................................,....................21
Estimated Direct and Overlapping Indebtedness ...........................................................................22
Expected Tax Burden.....................................................................................................................24
Estimated Value-to-Lien Ratios.....................................................................................................25
Permitted Land Use........................................................................................................................28
THE DEVELOPMENT AND PROPERTY OWNERSHIP ................................................................29
General Description and Location ofImprovement Area B ..........................................................29
The Developer................................................................................................................................29
Development Plan........................................,.................................................................................30
Merchant Builders..........................................................................................................................31
Development Status .......................................................................................................................32
Financing Plan .....................................,......................................................................................,..33
Merchant Builder Financing. ......................................................................................................,..35
Status of Entitlement Approvals ....................................................................................................36
Environmental Constraints..............................................................,.................................,............36
Infrastructure Requirements and Construction Status ...................................................................36
Potential Limitations on Development ..........................................................................................37
Appraisal........................................................................................................................................38
-i- 6 -/4
DOCSOC/l 034128v6/22245-0 151
TABLE OF CONTENTS
Page
Market Absorption Study ...............................................................................................................39
SPECIAL RISK FACTORS.................................................................................................................40
Concentration of Ownership ..........................................................................................................40
Limited Obligations .......................................................................................................................41
Insufficiency of Special Taxes.......................................................................................................41
Special Tax Delinquencies.............................................................................................................41
Failure to Develop Properties ..,.....................................................................................................42
Future Land Use Regulations and Growth Control Initiatives ......................................................43
Endangered Species ........................................,.................................................,............................44
Water Availability............,.............................................................................................................44
Natural Disasters............................................................................................................................45
Hazardous Substances....................................................................................................................45
Parity Taxes, Special Assessments and Land Development Costs ................................................46
Disclosures to Future Purchasers...................................................................................................46
Non-Cash Payments of Special Taxes ...........................................................,...............................4 7
Payment of the Special Tax is not a Personal Obligation of the Owners ......................................47
Land Values ......................................,..........................................,......,.........................................:47
Terrorism........................................................................................................................................48
FDIC/Federal Government Interests in Properties.........................................................................48
Bankruptcy and Foreclosure ..................,.............................,.........................................................49
No Acceleration Provision.............................................................................................................50
Loss of Tax Exemption..................................................................................................................51
Limitations on Remedies ...............................................................................................................51
Limited Secondary Market............................................................................................................51
Proposition 218 ..............................................................................................................................51
Ballot Initiatives.............................................................................................................................52
CONTINUING DISCLOSURE ........................".................................................................................53
TAX MA TTERS ..................................................................................................................................54
LEGAL MATTERS.............................................................................................................................54
LITIGATION ....................................."................................................................................................55
NO RATING..................................................................... ......................,............................................55
UNDERWRITING...........................................,...................................................................................55
FINANCIAL INTERESTS .................,................................................................................................56
PENDING LEGISLATION .................................................................................................................56
ADDITIONAL INFORMATION ......................................................................................................,.56
APPENDIX A
APPENDIX B
APPENDIX C
APPENDIX D
APPENDIX E
APPENDIX F
APPENDIX G
APPENDIX G-I
APPENDIX G-2
APPENDIX H
APPENDIX I
AMENDED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX... A-I
SUMMARY OF MARKET ABSORPTION STUDY.................................................. B-1
APPRAISAL REPORT ................................................................................................. C-I
INFORMATION REGARDING THE CITY OF CHULA VISTA..............................D-I
SUMMARY OF INDENTURE .................................................................................... E-l
CONTINUING DISCLOSURE AGREEMENT OF THE DISTRICT ..........................F-l
CONTINUING DISCLOSURE AGREEMENT OF THE DEVELOPER.................... G-I
CONTINUING DISCLOSURE AGREEMENT OF THE DEVELOPER.................G-I-I
CONTINUING DISCLOSURE AGREEMENT OF THE DEVELOPER.................G-2-1
FORM OF OPINION OF BOND COUNSEL ..............................................................H-l
DTC AND THE BOOK ENTRY SYSTEM ...................................................................1-1
DOCSOC/1 034128v6/22245-0151
6~/5
-ii-
[AERIAL PHOTO]
DOCSOCII 034128v6/22245-Q 151
b~lb
$7,825,000.
CITY OF CHULA VISTA
COMMUNITY FACILITIES DISTRICT NO. 06-1
(EASTLAKE - WOODS, VISTAS AND LAND SWAP)
2004 IMPROVEMENT AREA B SPECIAL TAX BONDS
INTRODUCTION
General
This introduction is not a summary of this Official Statement. It is only a brief description of
and guide to, and is qualified by, more complete and detailed infonnation contained in the entire
Official Statement and the documents summarized or described herein. A full review should be
made of the entire Official Statement. The sale and delivery of Bonds to potential investors is made
only by means of the entire Official Statement. All capitalized tenus used in this Official Statement
and not defined shall have the meaning set forth in Appendix A - "AMENDED RATE AND
METHOD OF APPORTIONMENT OF SPECIAL TAX" or in Appendix E - "SUMMARY OF
INDENTURE" herein.
The purpose of this Official Statement, which includes the cover page, the table of contents
and the attached appendices (collectively, the "Official Statement"), is to provide certain infonnation
concerning the issuance of the $7,825,000. City of Chula Vista Community Facilities District
No. 06-1 (Eastlake - Woods, Vistas and Land Swap), 2004 Improvement Area B Special Tax Bonds
(the "Bonds"). The proceeds of the Bonds will be used to construct and acquire various public
improvements needed with respect to the proposed development within Improvement Area B
("Improvement Area B") of Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and
Land Swap) (the "District"), to fund the Reserve Fund securing the Bonds, to pay costs of issuance of
the Bonds and to capitalize interest on the Bonds through September 1, 2004.
The Bonds are authorized to be issued pursuant to the Act (as defined herein) and a Bond
Indenture (the "Indenture") dated as of June 1, 2004, by and between the District and U.S. Bank
National Association (the "Fiscal Agent"). The Bonds are secured under the Indenture by a pledge of
and lien upon Special Tax Revenues and all moneys in the funds and accounts under the Indenture
other than the Rebate Fund, the Project Fund and the Administrative Expense Fund.
The District
Formation Proceedings. The District has been fonned by the City of Chula Vista (the
"City") pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections 53311
et seq. of the Government Code of the State of California) (the "Act"), and the City of Chula Vista
Community Facilities District Ordinance.
The Act was enacted by the California legislature to provide an alternative method of
financing certain public capital facilities and services, especially in developing areas of the State.
Any local agency (as defined in the Act) may establish a community facilities district to provide for
and finance the cost of eligible public facilities and services. Generally, the legislative body of the
local agency which fonns a community facilities district acts on behalf of such district as its
. Pniliminary, subject to change.
DOCSOCII 034128v6/22245-0 151
I 4?-/7
legislative body. Subject to approval by two-thirds of the votes cast at an election and compliance
with the other provisions of the Act, a legislative body of a local agency may issue bonds for a
community facilities district and may levy and collect a special tax within such district to repay such
indebtedness. The City Council of the City acts as the legislative body of the District.
Pursuant to the Act, the City Council adopted the necessary resolutions stating its intent to
establish the District, to authorize the levy of Special Taxes (defined herein) on taxable property
within the boundaries of the District, and to have the District incur bonded indebtedness. Following
public hearings conducted pursuant to the provisions of the Act, the City Council adopted resolutions
establishing the District, designating Improvement Area B and Improvement Area B therein and
calling special elections to submit the levy of the Special Taxes and the incurring of bonded
indebtedness to the qualified voters of each of the improvement areas. On September 17,2002, at an
election held pursuant to the Act, the landowners who comprised the qualified voters of Improvement
Area B authorized the District to incur bonded indebtedness in the aggregate principal amount not to
exceed $11,000,000 to be secured by the levy of Special Taxes on taxable property within
Improvement Area B. On that same date, the landowners within Improvement Area B approved the
rate and method of apportionment of the Special Taxes on land within Improvement Area B of the
District to pay the principal of and interest on the bonds of the District issued for Improvement
Area B. On May 20, 2003, the landowners of Improvement Area B elected to annex certain territory
to Improvement Area B and amend the then existing rate and method of apportionment of special tax.
The Amended Rate and Method of Apportionment of Special Tax (the "Rate and Method") is set
forth in Appendix A hereto. The facilities authorized to be financed by the District are referenced
herein as the "Facilities." See "THE COMMUNITY FACILITIES DISTRICT - Description of
Authorized Facilities."
Description and Development. The District consists of 873 gross acres and is located
approximately five miles east of Interstate 805 along both the north and south sides ofOtay Lakes
Road.
The District is divided into two improvement areas: Improvement Area A (known as Woods
and Vistas), consisting of approximately 737 gross acres, and Improvement Area B (known as "Land
Swap") which consists of approximately 135 gross acres. The Bonds will be secured by Special
Taxes levied on certain property within Improvement Area B, and none of the special taxes from
Improvement Area A are pledged or available to repay the Bonds.
Improvement Area B consists of land proposed for 750 residential units and two commercial
areas. Currently one residential parcel in Improvement Area B is being developed with 150
affordable residential units and one commercial parcel, containing approximately 53 gross acres, is
being developed with retail uses. These two parcels have prepaid their respective Special Taxes
obligations and will no longer be subject to the Special Taxes securing repayment of the Bonds. The
remainder of Improvement Area B is subject to the Special Taxes securing the Bonds and has been
divided into five residential areas and four commerciaVadministrative parcels. Based on current land
use approvals, such residential land is expected to be developed into 211 single family detached
residential units and 389 single family attached residential units. The four commercial parcels
consists of approximately 20 gross acres and are expected to be developed into commercial and
office uses. See "THE DEVELOPMENT AND PROPERTY OWNERSHIP - Development Plan.
In 2003, mass grading of the residential parcels was completed. Fine grading was completed
in March 2004, and the construction of infrastructure (utilities, roads, sidewalks, etc.) is in process
DOCSOC/1 034128v6/22245-0 151
2 t -/1
and anticipated to be completed in October 2004. Construction of model homes in four of the five
residential parcels is expected to commence in June 2004. Grading of the commercial/administrative
parcels began in early March 2004, with completion of the sites, including landscaping, scheduled for
September 2004.
The Developer (as defined below) currently owns one parcel in the residential area of
Improvement Area B consisting of approximately 15.3 taxable acres. The Developer plans to sell
such parcel for the development of 129 single family attached units. The Developer has completed
sales of the four remaining residential areas, consisting of approximately 35 taxable acres, to two
merchant builders as described under "THE DEVELOPMENT AND PROPERTY OWNERSHIP-
Development Plan" and "- Merchant Builders." The Developer currently retains ownership of the
four parcels in the commercial/administrative area of Improvement Area B, but is under contract to
sell two parcels with escrow closing in June 2004. The Developer has executed a letter of intent to
sell the other two parcels in this area and expects such sales to close escrow in December 2004.
For a more detailed description of development activity within Improvement Area B, see
"THE COMMUNITY FACILITIES DISTRICT - Development Status."
Developer. The master developer of the property in Improvement Area B is The EastLake
Company, LLC, a California limited liability company (the "Developer"). The members of the
Developer are Boswell Properties, Inc. and the Tulago Company, both wholly owned subsidiaries of
the J.G. Boswell Company. The Developer was formed to acquire, develop and manage a master-
planned community named EastLake in the City, which includes Improvement Area B. For certain
information concerning the Developer, see "THE DEVELOPMENT AND PROPERTY
OWNERSHIP - The Developer."
Currently, there are two merchant builders that own property within Improvement Area B,
Cornerstone Summit at Eastlake, LP ("Cornerstone") and KB Home Coastal, Inc. ("KB Coastal").
See "THE DEVELOPMENT AND PROPERTY OWNERSHIP - Merchant Builders" herein.
Appraisal and Market Absorption. Bruce W. Hull & Associates, Inc. (the "Appraiser") has
conducted an appraisal (the "Appraisal") of the land within Improvement Area B subject to the
Special Tax and has concluded, based upon the assumptions and limiting conditions contained
therein, that as of April 15, 2004, the aggregate value of such land was $86,495,000. The Meyers
Group (the "Market Absorption Consultant") has prepared a Market Analysis and Absorption
Projection report (the "Market Absorption Study") for the purpose of developing a build-out
projection for the 211 single family detached units and the 389 single family attached units planned
in Improvement Area B as of April 8, 2004. The Market Absorption Study concludes that the
residential units within Improvement Area B should be built-out in the 2004-2006 period assuming
continued development with no stops due to unanticipated market or business factors. See "THE
DEVELOPMENT AND PROPERTY OWNERSHIP - Appraisal" and "- Market Absorption
Study," Appendix B - "SUMMARY OF MARKET ABSORPTION STUDY" and Appendix C -
"APPRAISAL REPORT."
Sources of Payment for the Bonds
Special Taxes. As used in this Official Statement, the term "Special Tax" is that \ax which
has been authorized pursuant to the Act to be levied against certain land within Improvement Area B
pursuant to the Act and in accordance with the Rate and Method. See "SOURCES OF PAYMENT
3
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DOCSOC/l 034128v6/22245-D151
FOR THE BONDS - Special Taxes" and Appendix A - "AMENDED RATE AND METHOD OF
APPORTIONMENT OF SPECIAL TAX." Under the Indenture, the District has pledged to repay
the Bonds from the Special Tax Revenues remaining after the funding of the annual Administrative
Expense Requirement of $75,000 and amounts on deposit in the funds and accounts established
under the Indenture other than the Project Fund, the Rebate Fund and the Administrative Expense
Fund. Special Tax Revenues are defined in the Indenture to include the proceeds of the Special
Taxes received by the District, including any scheduled payments and prepayments thereof, interest
and penalties thereon and the proceeds of the redemption or sale of property sold as a result of
foreclosure of the lien of the delinquent Special Taxes in the amount of said lien and interest and
penalties thereon.
The Special Taxes are the primary security for the repayment of the Bonds. In the event that
the Special Taxes are not paid when due, the only sources of funds available to pay the debt service
on the Bonds are amounts held by the Fiscal Agent, including amounts held in the Reserve Fund.
See "SOURCES OF PAYMENT FOR THE BONDS - Reserve Fund."
Foreclosure Proceeds. The District has covenanted for the benefit of the owners of the
Bonds that it will commence, and diligently pursue to completion, judicial foreclosure proceedings
against Assessor's Parcels under common ownership with delinquent Special Taxes in the aggregate
in excess of $5,000 by the October I following the close of the fiscal year in which such Special
Taxes were due, and it will commence and diligently pursue to completion judicial foreclosure
proceedings against all Assessor's Parcels under common ownership with delinquent Special Taxes
in the aggregate in excess of $2,500 by the October I following the close of any fiscal year if the
amount in the Reserve Fund is less than the Reserve Requirement. See "SOURCES OF PAYMENT
FOR THE BONDS - Proceeds of Foreclosure Sales" herein. There is no assurance that the
property within Improvement Area B can be sold for the appraised value or assessed values described
herein, or for a price sufficient to pay the principal of and interest on the Bonds in the event of a
default in payment of Special Taxes by the current or future landowners within Improvement Area B.
See "SPECIAL RISK FACTORS - Land Values" and Appendix C - "SUMMARY APPRAISAL
REPORT" herein.
EXCEPT FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO
THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL
OBLIGATIONS OF THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT
ARE SPECIAL OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM SPECIAL
TAXES AND CERTAIN AMOUNTS HELD UNDER THE INDENTURE AS MORE FULLY
DESCRIBED HEREIN.
Description of the Bonds
The Bonds will be issued and delivered as fully registered Bonds, registered in the name of
Cede & Co. as nominee of The Depository Trust Company, New York, New York ("DTC"), and will
be available to actual purchasers of the Bonds (the "Beneficial Owners") in the denominations of
$5,000 or any integral multiple thereof, under the book-entry system maintained by DTC, only
through brokers and dealers who are or act through DTC Participants as described herein. Beneficial
Owners will not be entitled to receive physical delivery of the Bonds. In the event that the book-
entry-only system described herein is no longer used with respect to the Bonds, the Bonds will be
registered and transferred in accordance with the Indenture. See Appendix 1 - "DTC AND THE
BOOK ENTRY SYSTEM."
4
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DOCSOCII 034128v6/22245-0 151
Principal of, premium, if any, and interest on the Bonds is payable by the Fiscal Agent to
DTc. Disbursement of such payments to DTC Participants is the responsibility of DTC and
disbursement of such payments to the Beneficial Owners is the responsibility of DTC Participants.
In the event that the book-entry-only system is no longer used with respect to the Bonds, the
Beneficial Owners will become the registered owners of the Bonds and will be paid principal and
interest by the Fiscal Agent, all as described herein. See "BOOK-ENTRY-ONL Y SYSTEM" herein.
The Bonds are subject to optional redemption, extraordinary mandatory redemption and
mandatory sinking fund redemption as described herein. For a more complete descriptions of the
Bonds and the basic documentation pursuant to which they are being sold and delivered, see "THE
BONDS" and Appendix E - "SUMMARY OF INDENTURE" herein.
Tax Matters
In the opinion of Bond Counsel, based on an analysis of existing laws, regulations, rulings
and court decisions, and assuming, among other matters, compliance with certain covenants, interest
on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of
the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In
the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for
purposes of federal individual or corporate alternative minimum taxes, although Bond Counsel
observes that such interest is included in adjusted current earnings in calculating federal corporate
alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other
federal or state income tax consequences relating to the ownership or disposition of, or the accrual or
receipt of interest on, the Bonds. See "TAX MATTERS" herein.
Professionals Involved in the Offering
U.S. Bank National Association will act as Fiscal Agent under the Indenture and as the initial
Dissemination Agent under the Developer Continuing Disclosure Agreements. See Appendix G.
Stone & Youngberg LLC is the Underwriter of the Bonds. All proceedings in connection with the
issuance and delivery of the Bonds are subject to the approval of Best Best & Krieger LLP, San
Diego, Bond Counsel. Fieldman, Rolapp & Associates is acting as Financial Advisor to the City in
connection with the Bonds. Certain legal matters will be passed on for the City and the District by
the City Attorney, and for the Underwriter by Stradling Yocca Carlson & Rauth, a Professional
Corporation, Newport Beach, California, as Underwriter's Counsel. Other professional services have
been performed by McGill Martin Self, Inc. as Special Tax Consultant, Bruce W. Hull & Associates,
Inc. as Appraiser, and The Meyers Group, as Market Absorption Consultant.
For information concerning the respects in which certain of the above-mentioned
professionals, advisors, counsel and agents may have a financial or other interest in the offering of
the Bonds, see "FINANCIAL INTERESTS" herein.
Continuing Disclosure
Each of the District, the Developer, Cornerstone and KB Coastal has agreed to provide, or
cause to be provided, to each nationally recognized municipal securities information repository and
any public or private repository or entity designated by the State as a state repository for purposes of
Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission certain financial
information and operating data. The District has further agreed to provide notice of certain material
DOCSOCIIO34128v6/22245-0151
5 6 -~I
events. These covenants have been made in order to assist the Underwriter in complying with
Rule 15c2-12(b)(5). See "CONTINUING DISCLOSURE" herein, Appendix F and Appendix G
hereto for a description of the specific nature of the reports to be filed by the District, the Developer,
Cornerstone and KB Coastal and notices of material events to be provided by each.
Bond Owners' Risks
Certain events could affect the timely repayment of the principal of and interest on the Bonds
when due. See the section of this Official Statement entitled "SPECIAL RISK FACTORS" for a
discussion of certain factors which should be considered, in addition to other matters set forth herein,
in evaluating an investment in the Bonds. The Bonds are not rated by any nationally recognized
rating agency. The purchase of the Bonds involves significant risks, and the Bonds may not be
appropriate investments for some investors. See "SPECIAL RISK FACTORS" herein.
Forward Looking Statements
Certain statements included or incorporated by reference in this Official Statement constitute
"forward-looking statements" within the meaning of the United States Private Securities Litigation
Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended,
and Section 27A of the United States Securities Act of 1933, as amended. Such statements are
generally identifiable by the terminology used such as "plan," "expect," "estimate," "project,"
"budget" or other similar words. Such forward-looking statements include, but are not limited to,
certain statements contained in the information under the caption "THE COMMUNITY
FACILITIES DISTRICT" and "THE DEVELOPMENT AND PROPERTY OWNERSHIP."
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS
CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR
REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL
STATEMENT.
Other Information
This Official Statement speaks only as of its date, and the information contained herein is
subject to change.
Brief descriptions of the Bonds and the Indenture are included in this Official Statement.
Such descriptions and information do not purport to be comprehensive or definitive. All references
herein to the Indenture, the Bonds and the constitution and laws of the State as well as the
proceedings of the City Council, acting as the legislative body of the District, are qualified in their
entirety by references to such documents, laws and proceedings, and with respect to the Bonds, by
reference to the Indenture. Capitalized terms not otherwise defined herein shall have the meanings
set forth ín the Indenture.
6
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DOCSOC/1O34128v6/22245-0151
Copies of the Indenture and other documents and infonuation referred to herein are available
for inspection and (upon request and payment to the City of a charge for copying, mailing and
handling) for delivery from the City at 276 Fourth Avenue, Chula Vista, CA 91910, Attention:
Director of Finance.
ESTIMATED SOURCES AND USES OF FUNDS
The following table sets forth the expected uses of Bond proceeds:
Sources of Funds
Principal Amount of Bonds
$
TOTAL SOURCES
$
Uses of Funds
Project Fund
Interest Account(1)
Reserve Fund
Cost of Issuance Fund
Underwriter's Discount
Administrative Expense Fund
$
TOTAL USES
$
(1) Represents gross funded capitalized interest on the Bonds through September 1. 2004.
THE BONDS
Authority for Issuance
The Bonds in the aggregate principal amount of $7,825,000' are authorized to be issued by
the District under and subject to the tenus of the Indenture, the Act and other applicable laws of the
State of California.
Purpose of the Bonds
The Bonds are being issued to provide funds to: (i) finance the costs of constructing and
acquiring certain public facilities related to the proposed development within Improvement Area B
(See "THE COMMUNITY FACILITIES DISTRICT - Description of Authorized Facilities");
(ii) pay costs related to the issuance of the Bonds; (iii) fund the Reserve Fund for the Bonds in the
initial amount of $573,210'; and (iv) gross fund capitalized interest on the Bonds through
September I, 2004. See "ESTIMATED SOURCES AND USES OF FUNDS."
. Preliminary, subject to change.
7
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DOCSOCIl 034128v6/22245-0 151
Description of the Bonds
The Bonds will be issued as fully registered bonds without coupons in denominations of
$5,000 and any integral multiple thereof and shall be dated the date of delivery thereof. The Bonds
will be issued in book-entry only fonn and The Depository Trust Company, New York, New York
("DTC") will act as securities depository for the Bonds. So long as the Bonds are held in book-entry
only fonn, principal of, premiwn, if any, and interest on the Bonds will be paid directly to DTC for
distribution to the beneficial owners of the Bonds in accordance with the procedures adopted by
DTC. See Appendix I - "DTC AND THE BOOK ENTRY ONLY SYSTEM." The Bonds will
mature on September I, in the principal amounts and years, and bearing rates of interest, as shown on
the inside cover of this Official Statement.
Interest on the Bonds will be payable semiannually on March I and September I of each
year, commencing September I, 2004 (each, an "Interest Payment Date") and will be computed on
the basis of a 360-day year comprised of twelve 30-day months. Each Bond will bear interest from
the Interest Payment Date next preceding the date of authentication, thereof, unless (i) such date of
authentication is an Interest Payment Date, in which event interest shall be payable from such date of
authentication, (ii) the date of authentication is after a Record Date but prior to the immediately
succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment
Date immediately succeeding the date of authentication or (iii) the date of authentication is prior to
the close of business on the first Record Date, in which event interest shall be payable from the date
of the Bonds; provided, however, that if at the time of authentication of a Bond, interest is in default,
interest on that Bond shall be payable from the last Interest Payment Date to which the interest has
been paid or made available for payment.
Interest on any Bond shall be paid to the person whose name shall appear in the books of
registration as the owner of such Bond as of the close of business on the Record Date immediately
preceding such Interest Payment Date. Such interest shall be paid by check of the Fiscal Agent
mailed to such Bondowner at his or her address as it appears on the books of registration or, upon the
request in writing prior to the Record Date of a Bondowner of at least $1,000,000 in aggregate
principal amount of Bonds, by wire transfer in immediately available funds to an account in the
United States designated by such Owner.
Redemption of Bonds
Optional Redemption. The Bonds maturing on and after September I, 2012 may be
redeemed at the option of the District prior to maturity as a whole, or in part on any Interest Payment
Date on and after September I, 2011, from such maturities as are selected by the District, and by lot
within a maturity, from any source of funds, at the following r~demption prices (expressed as
percentages of the principal amount of the Bonds to be redeemed), together with accrued interest to
the date of redemption:
Redemption Date
September 1, 2011 and March 1,2012
September 1,2012 and March 1,2013
September 1,2013 and thereafter
Redemption Price
102%
101
100
DOCSOCII 034128v6i22245-O151
8 6~~'i
Extraordinary Mandatory Redemption from Special Tax Prepayment. The Bonds are subject
to redemption on any Interest Payment Date, prior to maturity, as a whole or in part on a pro rata
basis among maturities from the proceeds of the prepayment of Special Taxes pursuant to the Rate
and Method. Such extraordinary mandatory redemption of the Bonds shall be at the following
redemption prices (expressed as percentages of the principal amount of the Bonds to be redeemed),
together with accrued interest thereon to the date of redemption:
Redemption Date
September I, 2004 through March 1,2011
September I, 2011 through March 1,2012
September I, 2012 and March 1,2013
September 1,2013 and thereafter
Redemption Price
103%
102
101
100
See "SOURCES OF PAYMENT FOR THE BONDS - Special Taxes - Prepayment of Special
Taxes" and Appendix A for a description of how a property owner may prepay, or will be required to
prepay, Special Taxes.
Mandatory Sinking Fund Redemption. The Bonds maturing on September I, 20- are
subject to mandatory sinking fund redemption, in part, by lot, on September I in each year
commencing September I, 20_, at a redemption price equal to the principal amount of the Bonds to
be redeemed, plus accrued and unpaid interest thereon to the date fixed for redemption, without
premium, in the aggregate principal amounts and in the years shown on the following redemption
schedule.
Redemption Date
(September I)
Principal
Amount
$
t Final Maturity
9
b ..;({;;"
DOCSOC/1034128v6/22245.0151
The Bonds maturing on September I, 20- are subject to mandatory sinking fund
redemption, in part, by lot, on September I in each year commencing September I, 20_, at a
redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued and unpaid
interest thereon to the date fixed for redemption, without premium, in the aggregate principal
amounts and in the years shown on the following redemption schedule.
Redemption Date
(September 1)
Principal
Amount
$
t Final Maturity
In the event of a partial optional redemption or special mandatory redemption of the Bonds,
each of the remaining mandatory sinking fund payments for such Bonds, as applicable, will be
reduced, as nearly as practicable, on a pro rata basis.
Purchase in Lieu of Redemption. In lieu of such an optional, extraordinary mandatory or
mandatory sinking fund redemption, the District may elect to purchase such Bonds at public or
private sale at such prices as the District may in its discretion determine; provided, that, unless
otherwise authorized by law, the purchase price (including brokerage and other charges) thereof shall
not exceed the principal amount thereof plus accrued interest to the purchase date.
Notice and Selection of Bonds for Redemption
In the event the District shall elect to redeem Bonds as provided in the Indenture, the District
shall give written notice to the Fiscal Agent of its election to so redeem, the redemption date, the
principal amount of the Bonds to be redeemed, the maturities from which such Bonds are to be
redeemed and the principal amount of the Bonds to be redeemed from each such maturity, the Bonds
or portions thereof to be selected for redemption.
The notice to the Fiscal Agent shall be given not less than 60 days prior to the redemption
date or such shorter period as shall be acceptable to the Fiscal Agent. If less than all of the Bonds
Outstanding are to be redeemed, the portion of any Bond of a denomination of more than $5,000 to
be redeemed shall be in the principal amount of $5,000 or a multiple thereof, and, in selecting
portions of such Bonds for redemption, the District shall treat each such Bond as representing that
number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such
Bond to be redeemed in part by $5,000.
Notice of Redemption
Notice by Mail to Registered Owners. The Fiscal Agent shall mail, at least 30 days but not
more than 45 days prior to the date of redemption, notice of intended redemption, by first-class mail,
postage prepaid, to the original purchasers of the Bonds and the respective registered Owners of the
DOCSOC/l 034128v6/22245-0 151
10 I \ ('
ú:> . -<. 0
Bonds at the addresses appearing on the Bond registry books. The notice of redemption shall state:
(a) the redemption date; (b) the redemption price; (c) the bond registration numbers, dates of maturity
and CUSIP numbers of the Bonds to be redeemed, and in the case of Bonds to be redeemed in part,
the respective principal portions to be redeemed; provided, however, that whenever any call includes
all Bonds of a maturity, the numbers of the Bonds of such maturity need not be stated; (d) that such
Bonds must be surrendered at the Principal Corporate Trust Office of the Fiscal Agent; (e) that
further interest on such Bonds will not accrue from and after the designated redemption date; (I) the
date of the issue of the Bonds as originally issued; (g) the rate of interest borne by each Bond being
redeemed; and (h) that any other descriptive infonnation needed to identify accurately the Bonds
being redeemed as the District shall direct.
Further Notice. Further notice of redemption shall be sent at least two days before the notice
of redemption is mailed to the Bondholders, as described above, by registered or certified mail or
overnight delivery service to the registered securities depositories and to the national infonnation
services listed in the Indenture or, in accordance with the then-current guidelines of the Securities
and Exchange Commission, such other securities depositories and services providing infonnation on
called bonds, or such other securities depositories and services, as the District may detennine in its
sole discretion.
Failure to Receive Notice. So long as notice by first class mail has been provided as set forth
above, the actual receipt by the Owner of any Bond of notice of such redemption shall not be a
condition precedent to redemption, and failure to receive such notice shall not affect the validity of
the proceedings for redemption of such Bonds or the cessation of interest on the date fixed for
redemption.
Certificate of Giving Notice. The notice or notices described above shall be given by the
Fiscal Agent on behalf of the District. A certificate by the Fiscal Agent that notice of call and
redemption has been given to the registered Owners of the Bonds as herein provided shall be
conclusive against all parties, and no Owner whose Bond is called for redemption may object thereto,
or object to cessation of interest on the redemption date, by any claim or showing that he failed to
receive actual notice of call and redemption.
Notice from DTC to Beneficial Owners. So long as the Bonds are held in book-entry-fonn,
notice of redemption will be sent by the Fiscal Agent only to DTC or its nominee. Conveyance of
redemption notice by DTC to Beneficial Owners is detennined by DTC and its participants and is not
the responsibility of the District. See Appendix 1- "DTC AND THE BOOK ENTRY SYSTEM."
Effect of Redemption
When notice of redemption has been given, and when the amount necessary for the
redemption of the Bonds called for redemption is set aside for that purpose in the Redemption Fund,
the Bonds designated for redemption shall become due and payable on the date fixed for redemption
thereof, and upon presentation and surrender of said Bonds at the place specified in the notice of
redemption, with the fonD of assignment endorsed thereon executed in blank, said Bonds shall be
redeemed and paid at the redemption price out of the Redemption Fund and no interest will accrue on
such Bonds or portions of Bonds called for redemption from and after the redemption date specified
in said notice, and the Owners of such Bonds so called for redemption after such redemption date
shall look for the payment of principal and premium, if any, of such Bonds or portions of Bonds only
to said Redemption Fund.
DOCSOC/l 034128v6/22245-0 151
II
&:""<7
All Bonds redeemed shall be canceled forthwith by the Fiscal Agent and shall not be
reissued. Upon surrender of Bonds redeemed in part, a new Bond or Bonds of the same maturity
shall be registered, authenticated and delivered to the registered Owner at the expense of the District,
in the aggregate principal amount of the unredeemed portion. All unpaid interest payable at or prior
to the date fixed for redemption shall continue to be payable to the respective registered owners of
such Bonds or their order, but without interest thereon.
Transfer and Exchange of Bonds
There shall be kept by the Fiscal Agent, sufficient books for the registration and transfer of
the Bonds and, upon presentation for such purpose, the Fiscal Agent shall, under such reasonable
regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said
register, the Bonds. The ownership of the Bonds shall be established by the Bond registration books
held by the Fiscal Agent. Whenever any Bond or Bonds shall be surrendered for registration of
transfer or exchange, the Fiscal Agent shall authenticate and deliver a new Bond or Bonds of the
same maturity, for a like aggregate principal amount of authorized denominations; provided that the
Fiscal Agent shall not be required to register transfers or make exchanges of (i) Bonds for a period of
15 days next preceding the date of any selection of the Bonds to be redeemed, or (ii) any Bonds
chosen for redemption.
Bonds may be exchanged at the Principal Corporate Trust Office, for a like aggregate
principal amount of Bonds of authorized denominations, interest rate and maturity, subject to the
terms and conditions of the Indenture, including the payment of certain charges, if any, upon
surrender and cancellation of a Bond. Upon such transfer and exchange, a new registered Bond or
Bonds of any authorized denomination or denominations of the same maturity and for the same
aggregate principal amount will be issued to the transferee in exchange therefor.
The transfer of any Bond may be registered only upon such books of registration upon
surrender thereof to the Fiscal Agent, together with an assignment duly executed by the Owner or his
attorney or legal representative, in satisfactory form. Upon any such registration of transfer, a new
Bond or Bonds shall be authenticated and delivered in exchange for such Bond, in the name of the
transferee, of any denomination or denominations authorized by the Indenture, and in an aggregate
principal amount equal to the principal amount of such Bond or Bonds so surrendered. In all cases in
which Bonds shall be exchanged or transferred, the Fiscal Agent shall authenticate the Bonds in
accordance with the provisions of the Indenture. All Bonds surrendered in such exchange or transfer
shall forthwith be canceled. The Fiscal Agent may make a charge for every such exchange or
registration of transfer of Bonds sufficient to reimburse it for any tax or other governmental charge
required to be paid with respect to such exchange or registration or transfer.
DOCSOC/IO34128v6/22245-0151
126. .-\
'..)1:5
Debt Service Schedule for the Bonds
Period Ending
(September 1)
Principal
on Bonds
Interest
on Bonds
Total Debt Service
on Bonds
$
$
$
(I) To be paid ITom capitalized interest.
SOURCES OF PAYMENT FOR THE BONDS
Limited Obligations
The Bonds are special, limited obligations of the District payable only from amounts pledged
under the Indenture and from no other sources.
The Special Taxes are the primary security for the repayment ofthe Bonds. Special Taxes do
not include any amounts received by the District with respect to property within Improvement
Area A. Under the Indenture, the District has pledged to repay the Bonds from the Special Tax
Revenues remaining after the funding of the annual Administrative Expense Requirement of $75,000
and from amounts held in the funds and accounts under the Indenture, other than amounts held in the
Project Fund, the Rebate Fund and the Administrative Expense Fund. Special Tax Revenues are
defined in the Indenture to include the proceeds of the Special Taxes received by the District,
DOCSOCII 034128v6/22245-0151
13 6 ~';¿9
including any scheduled payments and prepayments thereof, interest and penalties thereon, the
proceeds of the redemption of delinquent Special Taxes or sale of property sold as a result of
foreclosure of the lien of delinquent Special Taxes in the amount of said lien, and interest and
penalties thereon.
In the event that the Special Tax Revenues are not received when due, the only sources of
funds available to pay the debt service on the Bonds are amounts held by the Fiscal Agent, including
amounts held in the Reserve Fund, for the exclusive benefit of the Owners of the Bonds.
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY,
THE COUNTY OF SAN DIEGO, THE STATE OF CALIFORNIA OR ANY POLITICAL
SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT
FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF
THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE
CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT BUT ARE SPECIAL
OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM THE SPECIAL TAXES
AND OTHER AMOUNTS PLEDGED UNDER THE INDENTURE AS MORE FULLY
DESCRIBED HEREIN.
Special Taxes
Authorization and Pledge. In accordance with the provisions of the Act, the City Council
established the District and Improvement Area A and Improvement Area B therein on September 10,
2002 for the purpose of financing the acquisition, construction and installation of various public
improvements to serve the District. At a special election held on September 17, 2002, the owners of
the property within Improvement Area B authorized the District to incur indebtedness secured by
Special Taxes levied on property in Improvement Area B in an amount not to exceed $11,000,000,
and approved a rate and method or apportionment which authorized the Special Tax to be levied to
repay District indebtedness for Improvement Area B, including the Bonds. At a special election on
May 20, 2003, the landowners within Improvement Area B approved an amended rate and method of
apportionment of Special Taxes (herein referred to as the "Rate and Method").
The District has covenanted in the Indenture that by July I of each year (or such later date as
may be authorized by the Act) it will levy Special Taxes within Improvement Area B up to the
maximum rates pennitted under the Rate and Method in the amount required for the payment of
principal of and interest on any Outstanding Bonds becoming due and payable during the ensuing
calendar year, including any necessary replenishment or expenditure of the Reserve Fund and the
amount estimated to be sufficient to pay the Administrative Expenses during such calendar year.
The Special Taxes levied in any fiscal year may not exceed the maximum rates authorized
pursuant to the Rate and Method. See Appendix A - "AMENDED RATE AND METHOD OF
APPORTIONMENT OF SPECIAL TAX" hereto. There is no assurance that the Special Tax
proceeds will, in all circumstances, be adequate to pay the principal of and interest on the Bonds
when due. See "SPECIAL RISK FACTORS - Insufficiency of Special Taxes" herein.
Rate and Method. Under the Rate and Method, all Taxable Property within Improvement
Area B shall be classified as Developed Property or Undeveloped Property and shall be subject to the
levy of annual Special Taxes as described below. All Taxable Property shall be categorized as being
DOCSOC/1O34128v6/22245-0151
14 6 - ~ 0
located in either Zone 3 or Zone 4. All Developed Property shall be further classified as Residential
Property or Commercial Property.
The Maximum Annual Special Tax for each Assessor's Parcel of Residential Property or
Commercial Property shall be the greater of (1) the Assigned Special Tax described below or (2) the
Backup Special Tax computed as described below.
The Assigned Special Tax for each Assessor's Parcel of Developed Property is shown in the
tables below.
Assigned Annual Special Tax for Developed Property
Land Use Class Description Assiened Annual Special Tax
Residential Property $0.74 per square foot of
Residential Floor Area
$6,000 per Acre
2
Commercial Property
When a Final Subdivision Map is recorded within Zone 3 or Zone 4, the Backup Special Tax
for Assessor's Parcels classified as Residential Property or Commercial Property shall be determined
as follows:
For each Assessor's Parcel of Residential Property or for each Assessor's Parcel of
Undeveloped Property to be classified as Residential Property upon its development within the Final
Subdivision Map area, the Backup Special Tax shall be the rate per Lot calculated according to the
following formula:
Zone 3
$20,563 x A
B=
----------------
L
Zone 4
$6,667 x A
B=
--------------
L
The terms above have the following meanings:
B=
Backup Special Tax per Lot in each Fiscal Year,
A=
Acreage classified or to be classified as Residential Property in such Final
Subdivision Map.
L=
Lots in the Final Subdivision Map which are classified or to be classified as
Residential Property.
For each Assessor's Parcel of Commercial Property or for each Assessor's Parcel of
Undeveloped Property to be classified as Commercial Property within the Final Subdivision Map
15
b"dl
DOCSOC/1O34128v6/22245-0151
area, the Backup Special Tax shall be detennined by multiplying $20,563 for Zone 3 and $6,667 for
Zone 4 by the total Acreage of each Assessor's parcels of the Commercial and Undeveloped Property
to be classified as Commercial Property within the Final Subdivision Map area.
Notwithstanding the foregoing, if Assessor's Parcels of Residential Property, Commercial
Property or Undeveloped Property for which the Backup Special Tax has been detennined are
subsequently changed or modified by recordation of a new or amended Final Subdivision Map, then
the Backup Special Tax applicable to such Assessor's Parcels shall be recalculated to equal the
amount of Backup Special Tax that would have been generated if such change did not take place.
The Maximum Annual Special Tax for each Assessor's Parcel classified as Undeveloped
Property shall be $20,563 per acre for Zone 3 and $6,667 per acre for Zone 4.
Commencing with Fiscal Year 2003-04 and for each following Fiscal Year, the City Council
shall detennine the Special Tax Requirement (as defined in the Rate and Method) and shall levy the
Special Tax until the amount of Special Taxes equals the Special Tax Requirement. The Special Tax
shall be levied each Fiscal Year as follows:
First: The Special Tax shall be levied Proportionately on each Assessor's Parcel of
Developed Property within Zone 3 and Zone 4 at a rate up to 100% of the applicable Assigned
Special Tax to satisfy the Special Tax Requirement.
Second: If additional monies are needed to satisfy the Special Tax Requirement after the first
step has been completed, the Special Tax shall be levied Proportionately on each Assessor's Parcel of
Undeveloped Property within Zone 3 and Zone 4, excluding any Assessor's Parcels classified as
Undeveloped Property pursuant to Section E of the Rate and Method, at a rate up to 100% of the
Maximum Annual Special Tax for Undeveloped Property.
Third: If additional monies are needed to satisfy the Special Tax Requirement after the first
two steps have been completed, the Special Tax to be levied on each Assessor's Parcel of Developed
Property whose Maximum Annual Special Tax is derived by the application of the Backup Special
Tax shall be increased Proportionately from the Assigned Special Tax up to the Maximum Annual
Special Tax for each such Assessor's Parcel.
Fourth: If additional monies are needed to satisfy the Special Tax Requirement after the first
three steps have been completed, then the Special Tax shall be levied Proportionately on each
Assessor's Parcel classified as Undeveloped Property pursuant to Section E of the Rate and Method
at a rate up to 100% of the Maximum Annual Special Tax for Undeveloped Property.
Notwithstanding the above, under no circumstances will the Special Tax levied against any
Assessor's Parcel of Residential Property be increased by more than ten percent per year as a
consequence of delinquency or default in the payment of Special Taxes by the owner of any other
Assessor's Parcel.
Prepayment of Special Taxes. There are certain events that will result in a required
prepayment of Special Taxes as described in the following paragraph. In addition, under the Rate
and Method, the owner of a parcel of Developed Property, the owner of a parcel of Undeveloped
Property for which a building pennit has been issued, or the owner of any Public Property may
prepay the Special Tax obligation for a parcel in whole or in part. Any required or voluntary
DOCSOCII 034128v6/22245-0151
16 " -,
b' :s-L
prepayment of Special Taxes will result in an extraordinary redemption of Bonds. See "THE
BONDS - Redemption - Extraordinary Mandatory Redemptionfrom Special Tax Prepayment."
A required prepayment of Special Taxes will occur on a parcel to the extent necessary to
comply with the City's policy that the total annual taxes and assessments on a parcel, exclusive of
special taxes for services, will not exceed two percent (2%) of the sales price of a parcel to a
residential homeowner. Pursuant to the Acquisition/Financing Agreement, the Developer has agreed
to comply with the policy and the Developer and the City expect that the current merchant builders
will also agree to comply with the policy. The Developer has agreed with the City to require all
additional merchant builders to comply with this policy. Based on estimated retail home sales prices,
the Developer does not anticipate that the total taxes and assessments, exclusive of special taxes for
services, will exceed 2% of the sales price. As shown in Table 6 under the caption "THE
COMMUNITY FACILITIES DISTRICT - Expected Tax Burden," the expected tax burden
(excluding taxes allocable to City maintenance community facilities districts) on a typical single
family detached unit will be 1.63% and 1.59% in the case of a single family attached unit. Under the
policy, prior to the closing of an escrow for the sale of a residential unit, the merchant builder is to
deposit into escrow the amount needed to partially prepay the Special Taxes or other special taxes or
assessments so that following such prepayment the parcel will be in compliance with the policy.
Upon the closing of the escrow, any prepayment of Special Taxes will be paid to the Director of
Finance of the City and will be sent to the Fiscal Agent to redeem Bonds.
Collection and Application of Special Taxes. The Special Taxes are to be levied and
collected by the Treasurer-Tax Collector of the County of San Diego in the same manner and at the
same time as ad valorem property taxes; provided, however, that the District may directly bill the
Special Tax or collect Special Taxes at a different time or in a different manner if necessary to meet
its financial obligations.
The District has made certain covenants in the Indenture for the purpose of ensuring that the
current maximum Special Tax rates and method of collection of the Special Taxes are not altered in a
manner that would impair the District's ability to collect sufficient Special Taxes to pay debt service
on the Bonds and Administrative Expenses when due. First, the District has covenanted that, to the
extent it is legally pennitted to do so, it will not reduce the maximum Special Tax rates and will
oppose the reduction of maximum Special Tax rates by initiative where such reduction would reduce
the maximum Special Taxes payable from parcels on which a completed structure is located to less
than 110% of Maximum Annual Debt Service on the Outstanding Bonds. See "SPECIAL RISK
FACTORS - Proposition 218." Second, the District has covenanted not to pennit the tender of
Bonds in payment of any Special Taxes except upon receipt of a certificate of a Special Tax
Consultant that to accept such tender will not result in the District having insufficient Special Tax
Revenues to pay the principal of and interest when due on the Bonds remaining Outstanding
following such tender. See "SPECIAL RISK FACTORS - Non-Cash Payment of Special Taxes."
Although the Special Taxes constitute liens on taxed parcels within Improvement Area B,
they do not constitute a personal indebtedness of the owners of such property within Improvement
Area B. Moreover, other liens for taxes and assessments already exist on the property located within
Improvement Area B and other such liens could come into existence in the future in certain situations
without the consent or knowledge of the City or the landowners therein. See "SPECIAL RISK
FACTORS - Parity Taxes, Special Assessments and Land Development Costs" herein. There is no
assurance that property owners will be financially able to pay the annual Special Taxes or that they
DOCSOC/l034128v6/22245-0151
17 ;' ~
0'3,3
will pay such taxes even if financially able to do so, all as more fully described in the section of this
Official Statement entitled "SPECIAL RISK FACTORS."
Under the tenus of the Indenture, not later than the tenth Business Day after receipt, all
Special Tax Revenues received by the District are to be deposited in the Special Tax Fund. Special
Tax Revenues (with the exception of Special Tax Revenues representing Prepayments) are to be
applied by the Fiscal Agent under the Indenture in the following order of priority: (1) to deposit
annually up to $75,000 to the Administrative Expense Fund, (2) to pay the principal of and interest
on the Bonds when due, (3) to replenish the Reserve Fund to the Reserve Requirement, (4) to make
any required transfers to the Rebate Fund and (5) to pay Administrative Expenses of the District
above the $75,000 referenced in (1) above. See Appendix E - "SUMMARY OF INDENTURE."
Special Tax Revenues representing Prepayments shall be transferred to the Bond Service Fund as
provided for in the Indenture and used to redeem Bonds. See "THE BONDS - Redemption of
Bonds - Extraordinary Mandatory Redemption from Prepayment."
Proceeds of Foreclosure Sales. The net proceeds received following a judicial foreclosure
sale of land within Improvement Area B resulting from a landowner's failure to pay the Special
Taxes when due are included within the Special Tax Revenues pledged to the payment of principal of
and interest on the Bonds under the Indenture.
Pursuant to Section 53356.1 of the Act, in the event of any delinquency in the payment of
any Special Tax or receipt by the District of Special Taxes in an amount which is less than the
Special Tax levied, the City Council, as the legislative body of the District, may order that Special
Taxes be collected by a superior court action to foreclose the lien within specified time limits. In
such an action, the real property subject to the unpaid amount may be sold ata judicial foreclosure
sale. Under the Act, the commencement of judicial foreclosure following the nonpayment of a
Special Tax is not mandatory. However, the District has covenanted for the benefit of the owners of
the Bonds that it will commence and diligently pursue to completion, judicial foreclosure
proceedings against (i) properties under common ownership with delinquent Special Taxes in the
aggregate of $5,000 or more by the October I following the close of the Fiscal Year in which such
Special Taxes were due, and (ii) against all properties with delinquent Special Taxes in the aggregate
of $2,500 or more by the October I following the close of any fiscal year if the amount in the
Reserve Fund is less than the Reserve Requirement. See Appendix E - "SUMMARY OF
INDENTURE - Other Covenants of the District" herein.
If foreclosure is necessary and other funds (including amounts in the Reserve Fund) have
been exhausted, debt service payments on the Bonds could be delayed until the foreclosure
proceedings have ended with the receipt of any foreclosure sale proceeds. Judicial foreclosure
actions are subject to the nonnal delays associated with court cases and may be further slowed by
bankruptcy actions, involvement by agencies of the federal government and other factors beyond the
control of the City and the District. See "SPECIAL RISK FACTORS - Bankruptcy and
Foreclosure" herein. Moreover, no assurances can be given that the real property subject to
foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the proceeds of such
sale will be sufficient to pay any delinquent Special Tax installment. See "SPECIAL RISK
FACTORS - Land Values" herein. Although the Act authorizes the District to cause such an action
to be commenced and diligently pursued to completion, the Act does not impose on the District or
the City any obligation to purchase or acquire any lot or parcel of property sold at a foreclosure sale
if there is no other purchaser at such sale. However, the City does have the ability to use the
foreclosure judgment to purchase property by credit bid at a foreclosure sale, in which case the City
DOCSOC/l 034128v6/22245-0151
186.-3'1
would have no obligation to pay such credit bid for 24 months. The Act provides that, in the case of
a delinquency, the Special Tax will have the same lien priority as is provided for ad valorem taxes.
Reserve Fund
In order to secure further the payment of principal of and interest on the Bonds, the District is
required, upon delivery of the Bonds, to deposit in the Reserve Fund and thereafter to maintain the
Reserve Fund at an amount equal to the Reserve Requirement. The. Indenture provides that the
amount in the Reserve Fund shall, as of any date of calculation, equal the lesser of (i) 10% of the sale
proceeds of the Bonds, (ii) the maximum annual debt service of the Bonds, or (iii) one hundred
twenty-five percent (125%) of the average annual debt service on the proceeds of the Bonds (the
"Reserve Requirement").
Subject to the limits on the maximum annual Special Tax which may be levied within
Improvement Area B, as described in Appendix A, the District has covenanted to levy Special Taxes
in an amount that is anticipated to be sufficient, in light of the other intended uses of the Special Tax
proceeds, to maintain the balance in the Reserve Fund at the Reserve Requirement. Amounts in the
Reserve Fund are to be applied to (i) pay debt service on the Bonds, to the extent other monies are
not available therefore, (ii) redeem the Bonds in whole or in part, and (iii) pay the principal and
interest due in the final year of maturity of the Bonds. In the event of a prepayment of Special Taxes,
under certain circumstances, a portion of the Reserve Fund will be added to the amount being
prepaid. As described in the Rate and Method, the Reserve Fund Credit will be equal to the lesser of:
(a) the expected reduction in the Reserve Requirement, if any, as a result of prepayment, or (b) the
amount derived by subtracting the new Reserve Requirement in effect after the redemption from the
balance in the Reserve Fund, but in no event shall such amount be less than zero. See Appendix E-
"SUMMARY OF INDENTURE" herein.
Issuance of Parity Bonds
The District covenanted in the Indenture not to issue any other obligations to finance
additional public improvements which are payable from the Special Taxes levied on land within
Improvement Area B and which have, or purport to have, any lien upon the Special Taxes superior to
or on a parity with the lien of the Bonds. Nothing in the Indenture prevents the District from issuing
and selling, pursuant to law, refunding bonds or other refunding obligations payable from and having
a first lien upon the Special Taxes on a parity with the Outstanding Bonds so long as the issuance of
such refunding bonds or other refunding obligations results in a reduction in the Annual Debt Service
on the Bonds and such refunding bonds or other refunding obligations taken together.
THE COMMUNITY FACILITIES DISTRICT
General Description of the District and Improvement Area B
The District consists of approximately 873 gross acres and is located in the easterly portion
of the City, approximately five miles east of Interstate 805 along both the north and south sides of
Otay Lakes Road. The District is divided into two Improvement Areas: Improvement Area A and
Improvement Area B. The Bonds will be secured by Special Taxes levied on certain property within
Improvement Area B, and none of the special taxes from Improvement Area A is pledged and
available to repay the Bonds. Improvement Area B consists of approximately 135 gross acres ofland
DOCSOCII 034128v6/22245-0151
19
6-:35"
proposed for 750 residential units and two commercial developments. Currently one residential area
in Improvement Area B is being developed with a project consisting of 150 affordable single family
attached units. The remaining residential areas planned for Improvement Area B are divided into
five residential "villages" which, at buildout, are expected to be developed into 211 single family
detached residential units and 389 single family attached residential units. The two commercial areas
include a 53-acre parcel which is currently being developed with a Wal-Mart and a Home Depot, and
a 20-acre commercial/administrative site which has been divided into four parcels expected to
include a private fitness club and office buildings. The Special Taxes imposed on the 53-acre
commercial parcel and the parcel being developed with the 150-unit residential project have been
prepaid in full and no further Special Taxes may be levied on these parcels to secure the repayment
of the Bonds.
The Developer currently owns one residential village within Improvement Area B. The
Developer plans to sell such residential village for the development of 129 single family attached
units. The Developer has sold four residential villages to two merchant builders. The Developer
currently owns four commercial/administrative parcels within Improvement Area B, but expects to
close escrow on two of these parcels in June 2004. The Developer has executed a letter of intent in
connection with the sale of the two remaining commercial/administrative parcels and expects to close
escrow on these parcels by December 2004. See "THE DEVELOPMENT AND PROPERTY
OWNERSHIP - Development Plan."
Description of Authorized Facilities
The Facilities authorized to be acquired or constructed by the District with the proceeds of
the Bonds consist of various public improvements, described in Table I below, to serve property
within Improvement Area B. In addition to or in substitution for the Facilities listed below, the City
and the Developer may agree to finance additional or different eligible Facilities.
TABLE!
ESTIMATED COSTS OF PUBLIC FACILITIES
Projects
Otay Lakes RoadlEastLake Parkway Road Widening
EastLake Parkway (County Water Authority Easement
to Olympic Parkway
Otay Lakes Road Widening (H St to Telegraph Canyon
Road)
Sewer
Traffic Signals
TOTALS
Cost To be Paid
Esrimatell) by Bonds
$ 1,152,226 $ 1,152,226
6,075,434 2,947,374
1,495,000 0
1,200,000 1,200,000
1411 844 1,411.844
$11,334,504 $ 6,711,544
To be Paid % To be Paid
Prepaymen 1) by Developer
$ 0 $ 0
3,128,060 0
1,486,286 8,714
0 0
0 0
$ 4,614,346 $ 8,714
(I) Costs shown may not represent total cost of improvement and soft costs. The Developer expects to pay the overage from
proceeds oflot sales.
(2) Reflects Special Tax prepayment of two parcels in the total amount of$4,614,346.
Sources: Developer and McGill Martin Self, Inc.
DOCSOC/1 034128v6/22245-0151
20 I J .i'
O' ';)~
Status of Facilities
The status of certain of the Facilities serving Improvement Area B as of May I, 2004 is
summarized in Table 2 below.
TABLE 2
STATUS OF FACILITIES
Public Improvement
Otay Lakes Road/EastLake Parkway Road Widening(l)
EastLake Parkway ~County Water Authority Easement to
Olympic Parkway)( )
Otay Lakes Road Widening (H SI. to Telegraph Canyon Road)
Sewer
Traffic Sigoals
TOTALS
Total Spent to
Budget Date
$1,152,226 $ 936,472
6,075,434 6,075,434
1,495,000 0
1,200,000 1,200,000
IAll 844 800373
$1l,334,504 $ 9,012,279
%
Complete
100%
100
0
100
57
(I) Actual costs came in lower than budgeted costs.
(2) Road is complete; however audit is not, so spent to date number is estimated.
Source: Developer
Principal Taxpayers
Table 3 below sets forth the percentage of the Special Taxes that the property owners in
Improvement Area B would pay in Fiscal Year 2004-05 based on a projected Special Tax levy of
$641,652 and the ownership/development status of land within Improvement Area B as of April 15,
2004, the date of value used in the Appraisal.
DOCSOCII 034128v6/22245-0151
21
6-iJ7
TABLE 3'
PROJECTED PRINCIPAL TAXPAYERS FOR
FISCAL YEAR 2004-05
Parcels
Owner!l)
Fiscal Year
2004-05 Special Tax(2)
% a/Total
A
B
D
E
Subtotal
Merchant Builder Owned
Parcels
KB Coastal
Cornerstone
Cornerstone
KB Coastal
$
111,804
157,566
109,063
102 898
481,331
17.36%
24.46
16.93
15.97
74.72%
$
C
Commercial
(Parcels 1,2,3 and 4)
Subtotal
Developer Owned
Parcels
The Eastlake Company, LLC
TOTAL
$ 115,366
47,488
$ 162227
~ 641 652
17.91%
The Eastlake Company, LLC
7.37
25.28
10000%
(1) Ownership information from Appraisal as of April 15, 2004.
(2) Estimated Special Tax Levy for Fiscal Year 2004-05.
Source: McGill Martin Sel~ Inc.
Estimated Direct and Overlapping Indebtedness
Within Improvement Area B' s boundaries, numerous local agencies provide public services.
Some of these local agencies have outstanding bonds or other forms of indebtedness which are
secured by taxes and assessments on the parcels within Improvement Area B and others have
authorized but unissued bonds which, if issued, will also be secured by taxes and assessments levied
on parcels within Improvement Area B. The approximate amount of the direct and overlapping debt
secured by such taxes and assessments on the parcels within Improvement Area B for fiscal year
2003-04 is shown in Table 4 below (the "Debt Report").
The Debt Report has been derived from data assembled and reported to the District by
California Municipal Statistics, Inc. Neither the District, the City nor the Underwriter has
independently verified the information in the Debt Report and do not guarantee its completeness or
accuracy.
. Preliminary, subject to change.
DOCSOC/I034128v6/22245-0151
22 6 ':6;
TABLE 4
DIRECTOR AND OVERLAPPING DEBT SUMMARY
CITY OF CHULA VISTA COMMUNITY FACILITIES DISTRICT NO. 06-1
(EASTLAKE - WOODS, VISTAS AND LAND SWAP)
IMPROVEMENT AREA B
2003-04 Local Secured Assessed Valuation: $4,304,699(1)
DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT:
Metropolitan Water District
Otay Muoicipai Water Distrié~ J.D. No. 27
Southwestern Community College District
Sweetwater Union High School District
Chula Vista City School District
Chula Vista City and Sweetwater Union High School District
Community Facilities Districts
City ofChula Vista Assessment District No. 1994-1
City of Chula Vista Community Facilities District No. 06-1, I.A. B
TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT
% Aoolicable
0.0003%
0.015
0.017
0.020
0.028
Debt 4/15/04
$ 1,342
1,546
6,537
17,045
17,223
0.097
1.772
100.
49,246
111,370
$ 7.825.000(')
$ 8,029,309
OVERLAPPING GENERAL FUND OBLIGATION DEBT:
San Diego County General Fund Obligations
San Diego County Pension Obligations
San Diego County Superintendent of Schools Obligations
Otay Municipal Water District Certificates of Participation
Southwestern Community College District General Fund Obligations
Sweetwater Union High School District Certificates of Participation
Chula Vista City School District General Fund Obligations
City of Chula Vista Certificates of Participation
City of Chula Vista Pension Obligations
TOTAL GROSS OVERLAPPING GENERAL FUND OBLIGATION DEBT
Less: Otay Municipal Water District Certificates of Participation (100% self-
supporting)
TOTAL NET OVERLAPPING GENERAL FUND OBLIGATION DEBT
0.002%
0.002
0.002
0.031
0.018
0.021
0.029
0.034
0.034
8.854
16,295
42
7,868
554
4,623
25,954
31,593
4337
100,120
GROSS COMBINED TOTAL DEBT
NET COMBINED TOTAL DEBT
7868
92,252
8,129,429(3)
8.121,561
Ratios to 2003-04 Assessed Valuation:
Direct Debt,...............................................................................181.78%
Total Direct and Overlapping Tax and Assessment Debt........................ 186.52%
Gross Combined Total Debt...........................................................188.85%
Net Combined Total Deb\.............................................................188.67%
STATE SCHOOL BUILDING AID REPAY ABLE AS OF 6/30/03: $0
(1) Assessed Value does not include the prepaid affordable housing and commercial parcels.
(') Includes Mello-RoosAct bonds to be sold.
(3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded
capital lease obiigations.
Source: California Municipal Statistics, loco
DOCSOC/l 034128v6/22245-0151
23{;-d9
The authorized but unissued debt of existing community facilities districts with boundaries
overlapping Improvement Area B as of May I, 2004 is summarized in Table 5 below. In addition,
other local agencies whose boundaries encompass all or a portion of Improvement Area B may form
other community facilities districts or assessment districts.
TABLES
SUMMARY OF OVERLAPPING COMMUNITY FACILITIES DISTRICTS
Undeveloped Final Map
Land Special Tax Property
Special Tax Base Special
District Purpose Per Acre Rat¿1)(2) Taxl" Authorized Debt
Chula Vista Elementary CFD No. I Elementary Schools $1,000 $189.66 250% $150,000,000
Sweetwater High School CFD No. I High Schools $1,000 458.35(J) 250% 150,000,000
(1) On July I of each year, the maximum special tax rates shall be increased prior to development of a parcel by the greater of
(i) the annual percentage change in the Engineering News Record building cost index for the City of Los Angeles
determined every May 31 for the prior 12-month period, or (ii) two percent per fiscal year, and after developmeotofa parcel
at the rate of2% per annum.
(2) The Special Tax for developed property is applied by multiplying the Base Rate by the factor derived ITom the following
data:
Residential (Developed Square Feet)
400-950
951-1,100
1,101-1,350
1.351"1,500
1,501-1,650
1,651-2,000
2,001 +
Factor (% of Base Tax)
55%
80%
95%
110%
125%
150%
180%
Co/1lJlU!rcial (Developed Square Foot)
Per square foot of developed space
.15%
Industrial
Per acre ofland
500%
(J) These amounts are cUITently pledged to lease payment with respect to certain certificates of participation of the Sweetwater
High School District and also be expected to be pledged to lease payments with respect to a future series of certificates of
participation.
(4) This Special Tax is derived using a factor of 250% of the Special Tax Base Rate and multiplying by the acreage or pro-rata
portion thereof, any approved subdivision tract andlor parcel map.
Source: McGill Martin Self, Inc.
Expected Tax Burden
It is expected that the total tax burden on residential units in Improvement Area B will be
slightly less than 2% of the initial sales price of the units. Table 6 below sets forth an estimated
property tax bill for a typical single family detached unit of 2,055 square feet and a typical single
family attached unit of 1,650 square feet (such square footage being the weighted average of
expected unit sizes). The estimated total effective tax rate for a single family detached unit is
estimated to be 1.67% and for a single family attached unit is estimated to be 1.62%.
DOCSOC/I034128v6/22245-0151
24 I '
~ ~E-/O
TABLE 6
SAMPLE PROPERTY TAX BILL
PROJECTED FOR FISCAL YEAR 2004-05
TYPICAL SINGLE FAMILY DETACHED AND ATTACHED UNITS
House Square Footage(Weighted Average)
Base Sales Price
Total Assessed Value(1)
Basic Levy(2)
MWD
County Water Authority
Chula Vista Elementary School District G.O. Bond
Sweetwater High School District G.O. Bond
Southwestern Community College G.O. Bond
Total Taxes Based on Assessed Value
Chula Vista Elementary CFD No. I
Chula Vista Elementary CFD No. I G.O. Credit
Sweetwater Union High School CFD No. I
Sweetwater UHSD No. I G.O. Credit
Chula Vista Maintenance CFD No. 07-M
(Improvement Area 2)
City of Chula Vista CFD 06-1
Mosquito/Rat Control
MWD Water Standby Charge
Otay Water Availability
CWA Water Availability
Total Assessments and Parcel Charges
Total All Property Taxes
Total Effective Tax Rate
Total Effective Tax Rate Excluding City
Maintenance CFD's
(1) Includes assumed homeowners exemption of $7,000.
(2) As a percentage of base sales price.
Source: McGill Martin Sel~ Inc.
Estimated Value-to-Lien Ratios
Percent of Total
Assessed Single Family
Valuation Detached Unit
2,055
$ 446,335.00
$ 439,335.00
1.00 $ 4,393.35
0.0061 $ 26.80
0.00067 $ 2.94
0.02723 $ 119.63
0.01956 $ 85.93
0.00727 $ 31.94
1.06083 $ 4,660.60
341.388
($119.63)
825.75
($85.93)
143.85
1,520.70
2.29
11.50
10.00
10.00
$ 2,659.91
$ 732051
1.67%
1.63%
Single Family
Attached Unit
1,650
$ 395,702.00
$ 388,702.00
$ 3,887.02
$ 23.71
$ 2.60
$ 105.84
$ 76.03
$ 28.26
$ 4,123.47
284.49
($105.84)
688.13
($76.03)
115.50
1,221.00
2.29
11.50
10.00
10.00
2,161.03
628450
1.62%
1.59%
The value of the land within Improvement Area B is significant because in the event of a
delinquency in the payment of Special Taxes the District may foreclose only against delinquent
parcels in Improvement Area B. Table 7 summarizes the estimated appraised value-to-lien ratios for
property in Improvement Area B based on the principal amount of the Bonds and the projected
Special Tax levy for fiscal year 2004-05 based on the land use as of April 15, 2004 and assuming no
further development within Improvement Area B after such date.
DOCSOCII 034128v6/22245-0151
25 6 ~I(/
The appraised value of the land within Improvement Area B, based on the assumptions and
limiting conditions contained in the Appraisal, was $86,495,000 as of April 15, 2004. The estimated
appraised value-to-lien ratio for the property within Improvement Area B currently subject to the
levy of the Special Tax, based upon land values and property ownership described in the Appraisal,
is approximately 11.05 to I' as shown in Table 7 below. The estimated appraised value-to-lien ratio
for the land owned by the Developer is approximately 9.70 to I' based on the assumptions set forth
in Table 7. Table 7 does not include the overlapping debt which is payable from taxes and
assessments on land within Improvement Area B, which, as set forth in Table 4 above, was estimated
at $204,309 for fiscal year 2003-04, not including the anticipated amount of the Bonds. If the
overlapping debt payable from taxes and assessments were included, the estimated appraised value-
to-lien ratio for the District as a whole would be 10.77 to I' rather than the 11.05 to I' shown in
Table 7.
In the Annual Report filed pursuant to the Continuing Disclosure Agreement, the District will
estimate the value-to-lien ratios for property within the District subject to the Special Tax based on
the assessed value of the taxable property within the District, but not based on the appraised value of
the property within Improvement Area B. The information in the Annual Report for the estimated
assessed value-to-lien ratios will follow the format of Table 7. The assessed value of the land within
the District for fiscal year 2003-04 is $4,304,669. Dividing this assessed value by the principal
amount of the 2004 Bonds results in an estimated assessed value-to-lien ratio for the District as a
whole of 0.55 to I'.
, Preliminary, subject /0 change.
DOCSOC/lO34128v6/22245-0 15\
26 .
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~
.
--t
u.;-
TABLE 7
ESTIMATED APPRAISED V ALUE-TO-LIEN RATIOS'
Projected Undeveloped Projected
Bnilding Developed Property Undeveloped Projected Esdmated
Total Permits Property Taxable Property Annual %of Appraised
Tax Units as of Special Acreage as Special Special Bond Bond lien Appraised Value/o
Parcel Zone Property Ownership'" Approved 4/15/04 Taxes'" of4/151O4 Taxes'" Taxes Lien Allocation"! Value'" Lien Ratio'"
Merchant Builder Owned
A 3 KB Coastal 76 0 $0.00 8.16 $ t 11.804 $111,804 17.36% $1,358,092 $15,775,000 11.62 to I
B 3 Comerstooe 135 0 0.00 11.50 157,566 157.566 24.46 1.913.978 22.970,000 12.00 to I
D 3 Comerstooe 126 0 0.00 7.96 109,063 109,063 16.93 1,324,806 14.490,000 10.94 to I
E 3 KB Coastal ill ~ QJ)!) 2.il ~ 102 898 ill1l ---1.lli.lli ...l.4.Q1Q.!1OO 11.26 to 1
Sublolal 471 0 $0.00 35.13 $ 481,331 $481.331 74.72% $ 5.846.788 $67,305.000 11.51 to 1
Deve/ooer Owned
C 3 EastLake Company LLC 129 0 $0.00 8.42 $ 115,366 $115,366 17.91% $1,401,365 $12.857.300 9.17 to I
Commercial m 4 EastLake Company LLC lliA N/A -MQ ~ ~ ~ --1.Il ---lliMl 6332 700 l.!illJ<ù
Sublolal ...U't ~ $.MQ -12J.l $ 162854 $162854 2528% U21UI.2 lli.l2Q.ill)Q 9.70 to 1
Grand Total 600 0 $0.00 54.24 $ 644,185 $644,185 100.00% $7,825,000 $86,495,000 11.05 to 1
(OJ Due to rounding totals may not be exact.
a, Ownership information taken from Appraisal as April 15, 2004.
'" Fiscal Year 2004-2005 Special Taxes for Undeveloped Property are projected to be $13.701.42 for Zone 3 and $4,442.32 for Zone 4 per acre.
,., Hypotbetical illustration of allocation of Bonds based 00 eacb property owner's projected Special Tax levy.
,0) Appraised Value based upon Appraisal dated April 15. 2004.
'0) Calculated by dividing Appraised Value colnmn by Bond Lien Allocation column.
m Commercial parcels I. 2, 3 and 4 only. Commercial parcels not appraised separately in the Appraisal.
Source: McGill Martin Self, Inc.
. Preliminary, subject to change.
27
DOCSOC/1034128v6/22245-0151
Permitted Land Use
Table 8 below describes the currently approved land uses within Improvement Area B.
TABLE 8
LAND USE SUMMARY IMPROVEMENT AREA B OF
COMMUNITY FACILITIES DISTRICT NO. 06-1
IMPROVEMENT AREA B
Use
Residential{l)
Commercial(2)
Total
Acres
Dwelling
Units
62.7
72.5
135.2
750
(I) 150 of such units are no longer subject to Special Taxes securing the Bonds.
(2) Approximately 52 of such acres are no longer subject to Special Taxes securing the Bonds.
Source: City and Developer
DOCSOC/I034128v6/22245-0151
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THE DEVELOPMENT AND PROPERTY OWNERSHIP
Except for the information under the captions "-Appraisal" and "-Market Absorption
Study, " the Developer and the Merchant Builders provided the iriformation in this section.
The information herein regarding ownership of property in Improvement Area B has been
included because it is considered relevant to an informed evaluation of the Bonds. The inclusion in
this Official Statement of information related to existing owners of property should not be construed
to suggest that the Bonds, or the Special Taxes that will be used to pay the Bonds, are recourse
obligations of the property owners. A property owner may sell or otherwise dispose of land within
Improvement Area B or a development or any interest therein at any time.
No assurance can be given that the proposed development within Improvement Area B will
occur as described below. As the proposed land development progresses and parcels are sold, it is
expected that the ownership of the land within Improvement Area B will become more diversified.
Although planning for the development of Improvement Area B is at an advanced stage, actual
construction of improvements is as described below under the caption "Infrastructure Requirements
and Construction Status." No assurance can be given that fUrther development of the land within
Improvement Area B will occur, or that it will occur in a timely manner or in the corifìguration or
intensity described herein, or that any landowner described herein will obtain or retain ownership of
any of the land within Improvement Area B. The Bonds and the Special Taxes are not personal
obligations of any landowners and, in the event that a landowner defaults in the payment of the
Special Taxes, the District may proceed with judicial foreclosure but has no direct recourse to the
assets of any landowner. As a result, other than as provided herein, no financial statements or
information is, or will be, provided about the Developer, the Merchant Builders or other landowners.
The Bonds are secured solely by the Special Taxes and other amounts pledged under the Indenture.
See "SOURCES OF PAYMENT FOR THE BONDS" and "SPECIAL RISK FACTORS."
General Description and Location of Improvement Area B
Improvement Area B consists of approximately 136 acres in the City and is located east of
Interstate 805. Current residential developments in the vicinity include Otay Ranch, Lomas Verdes,
Rancho Del Rey, Sunbow, Rolling Hills Ranch and San Miguel Ranch. Improvement Area B is
bounded to the north by Rolling Hills Ranch, beyond which is San Miguel Ranch. East of
Improvement Area B are the Upper and Lower Otay Reservoirs and unincorporated lands. South of
Improvement Area B are undeveloped lands. To the west are the recently developed communities of
EastLake Greens and EastLake Trails, both of which were developed by the Developer.
The Developer
The Developer is The EastLake Company, LLC, a California limited liability company,
which currently is the owner of one residential village and four commercial/administrative parcels in
Improvement Area B. The Developer purchased the property in May 2000. The members of the
Developer are Boswell Properties, Inc. and the Tulago Company, both wholly owned subsidiaries of
the J.G. Boswell Company. The Developer was fonned as a limited partnership in 1983 and
converted to a limited liability company in 1997. The Developer was fonned to acquire, develop and
manage a master-planned community named EastLake, which includes Improvement Area B, and
which is one of the largest master-planned communities in San Diego County. At buildout, EastLake
DOCSOC/l 034128v6/22245-0151
29
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is planned to encompass approximately 3,200 gross acres and include approximately 8,600
residential units with a population exceeding 20,000 people.
The initial phase of EastLake was built over a six-year period beginning in 1985. The initial
phase included two residential neighborhoods, EastLake Hills and EastLake Shores, and the first
phase of the EastLake Business Center. Initial residential sales started in April19S6 with the last of
the 1,823 units in the initial phase being sold in June 1990. Amenities in EastLake Hills include the
EastLake Swim and Tennis Club, a private 2.S-acre park with a junior Olympic swimming pool, spa,
children's play area, picnic area and lighted tennis courts. EastLake Shores has a water-oriented
lifestyle and is designed around the 21.5-acre lake, boat launching and fishing facilities, a swimming
lagoon, sandy beach with volleyball and picnic facilities and a 1,500 sq. ft. community center. In
addition, three satellite parks in EastLake Shores are for the exclusive use of residents of EastLake
Hills and EastLake Shores. All landscaping, open space and recreational elements are owned and
operated by the EastLake I Homeowners Association.
The second phase of EastLake was EastLake Greens and includes an IS-hole championship
golf course designed by Ted Robinson and a country club living environment. EastLake Greens
totaled approximately 2,800 homes ranging from attached housing to estate homes. EastLake Greens
opened in February 1991 with the last of the 2,SOO homes being sold in 1999. Twelve distinct
product types from custom and single family homes to condominiums and town-homes were offered
in EastLake Greens. EastLake County Club officially opened for public play on June 22, 1991. A
permanent clubhouse opened in August 1997. Three private neighborhood parks are owned and
maintained by the EastLake II Community Association for use exclusively by residents of EastLake
Greens.
Improvement Area B of the District is part of the third phase of Eastlake known as
"Eastlake III." EastLake 111 also includes a proposed business center and other commercial and
residential development located within Improvement Area A of the District.
Development Plan
The approved tentative tract map applicable to Improvement Area B allows for the
development of 750 dwelling units and 72 acres of commercial/administrative uses. Upon buildout,
development within Improvement Area B is anticipated to include 211 single family detached homes,
389 single family attached units, 150 affordable single family attached units, along with
approximately 72 acres of commercial/administrative uses consisting of big box retail including Wal-
Mart and Home Depot, private fitness center facilities and medical offices, The parcels on which the
150 affordable units are being constructed and the parcels upon which 52 acres of retail are planned,
including the Wal-Mart and Home Depot, have prepaid their Special Taxes and are no longer subject
to a Special Tax levy.
As of April 15, 2004, the Developer had sold four residential villages in Improvement Area B
to two merchant builders. A fifth residential village currently owned by the Developer is schedule to
be sold by January 2005. The Developer currently owns four commercial/administrative parcels
within Improvement Area B and expects to close escrow on two of the parcels, totaling 6.5 acres, in
June 2004. The Developer has executed a letter of intent in connection with the sale of the two
remaining commercial/administrative parcels and expects to close escrow on these parcels in
December 2004. These four commercial parcels within Improvement Area B which remain subject
to Special Taxes are expected to be developed with a private fitness center and medical offices. Lots
DOCSOC/l034128v6/22245-0151
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were delivered to the merchant builders on a mass-graded basis with intract improvements such as
sewer, water, dry utilities and street improvements to be completed by the Developer with the
merchant builders subsequently reimbursing the Developer.
Table 9 below summarizes proposed development within Improvement Area B subject to the
Special Taxes.
Residential
VIllages
A
B
C
D
E
Conunucial/
Administrative
Parcels
1
2
3&4
TABLE 9
SUMMARY OF PROPOSED DEVELOPMENT
Proposed
Product Type Number of Propased Square
LatSize Proposed MerchanJ BuUder Units'° Footage Range
9.3 dulacre KB Home Coastal, Inc. 76 SID 1998-2211
11.7dulacre Cornerstone Summit at EastLake LP 135 SFA 1443-2232
15.3 dulacre To be determined'" 129 SFD 1484-1951
15.8 dulacre Cornerstone Summit at EastLake LP 126 SFA 1298-1713
17.8 dulacre KB Home Coastal, Inc. 134 SFA 1941-2156
Projected
Home Prices
$456.000-472,000
405,000-467.500
376,000-407,500
357.500-385,000
415,000-430.000
Net Parcel Proposed Proposed
Size Developer'" Square Footage
4.4 acres LA Fitness 45,000
2 Triad Partners, Inc. 30.000
4 Four Sheer Investments. LLC -_OJ
Projected
Sale Price
$4.575,750
2,232,450
3,659,000
(1) SFD refers to single family detached units and SF A refers to single family attached units.
(2) Currently owned by !he Developer.
(3) Proposed square footage currently unknown.
Source: Developer
Infrastructure is currently underway in both the residential and commercial areas.
Completion of the residential area, including landscaping, irrigation and the park is scheduled for
October 2004. Completion of infrastructure improvements for the commercial/administrative area is
expected in September 2004.
Merchant Builders
Currently, there are two merchant builders that own property within Improvement Area B, as
described below. The Developer intends to complete the land development process and sell all of the
remaining residential village within Improvement Area B to a merchant builder and the commercial
parcels to commercial developers. Future sales by the Developer could result in additional
landowners being individually responsible for more than 20% of the Special Tax levy.
Cornerstone. Village B and Village D are owned by Cornerstone Summit at EastLake LP, a
California limited partnership ("Cornerstone'). Cornerstone is a single purpose entity specifically
formed to own and develop the two residential parcels it owns within Improvement Area B. The
general partner of Cornerstone is Cornerstone Communities LLC, a California limited liability
company, formed in 1994 with a management group which has developed, mapped, and/or
constructed over 8,000 homes and/or lots in over 50 developments throughout California. They
engage in the acquisition and development of single family homes. Cornerstone Communities LLC
is based in San Diego with homebuilder operations in Sacramento, San Diego and Riverside
Counties, and is wholly owned by Ure R. Kretowicz.
DOCSOCIIO34128v6/22245-0151
6.'17
KB Coastal. Village A and Village E are owned by KB Home Coastal, Inc., a California
corporation ("KB Coastal"). KB Coastal is wholly owned by its parent company KB Home. KB
Home is a Delaware corporation with principal executive offices located in Los Angeles, California.
KB Home is subject to the informational requirements of the Securities Exchange Act of 1934, and in
accordance therewith file reports, proxy statements and other information with Securities and
Exchange Commission (the "SEC"). Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.c. In addition, the aforementioned material may also be inspected at the office
of the New York Stock Exchange, Inc. (the "NYSE") at 20 Broad Street, New York, New York
10005. KB Home is actively traded on the NYSE. The trade symbol is "KBH."
Founded in 1957, KB Home is one of the largest homebuilders in the United States based on
the number of homes delivered. KB Home first developed homes in California in 1963. In January
1999, KB Home completed its purchase of substantially all of the homebuilding assets of the Lewis
Homes Group of Companies. KB Home currently has operations in Arizona, California, Colorado,
Florida, Nevada, New Mexico and Texas, and, through a majority-owned subsidiary, international
operations in France. In fiscal year 2003, KB Home delivered 27,331 units (excluding 231 deliveries
from unconsolidated joint ventures), the highest number of units delivered during any single year in
the company's history. KB Home's unit deliveries for the year ended November 30, 2003 increased
nearly 7% from the previous year's 25,452 units (excluding 356 deliveries from unconsolidated joint
ventures). KB Home's average selling price per residential unit was $206,500 in 2003, up 8% from
$190,800 in 2002.
Cornerstone and KB Coastal are hereafter collectively referred to as the "Merchant Builders."
Development Status
Residential Areas. The land within Improvement Area B approved for residential use has
been divided into five residential "villages." Four such villages have been sold by the Developer to
the Merchant Builders. The Developer plans to sell the remaining residential village to a merchant
builder by January 2005. At buildout, the residential land within Improvement Area B subject to
Special Taxes is proposed to be developed into 211 single family detached residential units and 389
single family attached residential units. The current status and description of the Merchant Builder
for each of these residential parcels is described below.
Village A, consisting of approximately 8 acres, was sold to KB Coastal on October 10, 2003,
and is expected to be developed with 76 single family detached homes. The development will be
known as "Firenze" with homes ranging in size from 1 ,998 to 2,211 square feet. The minimum lot
size is 3,000 square feet. The base price of these homes is expected to range from $456,000 to
$472,000. As of May 1,2004, Village A had been rough graded with final map approval.
Village B, consisting of approximately 11.5 acres, was sold to Cornerstone on September 19,
2003, and is expected to be developed with 135 single family attached condominium units. The
development will be known as "Andorra" with for-sale units ranging in size from 1,443 to 2,232.
The base price of these condominium units is expected to range from $405,000 to $467,500. As of
May 1,2004, Parcel B had been rough graded with final map approval.
Village C, consisting of approximately 8.4 acres, is currently owned by the Developer. The
Developer plans to sell Village C to a merchant builder by January 2005. Village C is expected to be
DOCSOC/IO34128v6/22245-0 151
32
{; -+<p
developed with 129 single family attached units for sale to individual homeowners. Village C will be
sold on a rough graded basis with final map approval.
Village D, consisting of approximately 8 acres, was sold to Cornerstone on September 19,
2003, and is expected to be developed with 126 single family attached units. The development will
be known as "Cortina" with for-sale units in triplex buildings ranging in size from 1,298 to 1,713
square feet. The base price of these condominium units its expected to range from $357,500 to
$385,000. As of May 1,2004 Village D had been rough graded with final map approval.
Village E, consisting of approximately 7.5 acres, was sold to KB Coastal on October 10,
2003, and is expected to be developed with 134 single family attached units. The development will
be known as "Capria" with for-sale units ranging in size from 1,941 to 2,156 square feel. The base
price of these condominium units is expected to range from $415,000 to $430,000. As of May I,
2004 Village E had been rough graded with final map approval.
Commercial Parcels. The land within Improvement Area B subject to Special Taxes and
approved for commercial/administrative uses consists of approximately 20 gross acres and is divided
into four separate parcels. Currently, the Developer is in the process of selling each parcel as
described below.
Parcel I consists of approximately 4.4 acres and is in escrow to be sold to L.A. Fitness
International, LLC, for $4,575,750. Parcell will be sold in a sheet graded condition with all utilities,
streets, curbs and gutters and landscaping and parking completed. Parcell is expected to be
developed with a 45,000 square-foot private fitness center. The Developer expects to close escrow
by June 30, 2004.
Parcel Number 2 consists of approximately 2 acres and is in escrow to be sold to Triad
Partners, Inc., for $2,232,450. Parcel 2 will be sold in a 90% graded condition with all utilities
stubbed to building limit line. Parcel 2 is expected to be developed with a 30,000 square foot
medical/office building. Developer expects to close escrow by June 30, 2004.
Parcel 3 and Parcel 4, totaling approximately 4 acres are currently under a letter of intent to
be purchased by Four-Sheer Investments LLC for $3,659,000. Parcel 3 and Parcel 4 are expected to
be developed with a multi-story office building. The Developer expects to close escrow on these
parcels no later than December 2004.
Financing Plan
Developer Financing Plan. The development of Improvement Area B will require large
expenditures of funds to fully develop the property and the required infrastructure. The development
of the infrastructure and the lots by the Developer requires funds in addition to the Bond proceeds.
The cash sources outside of the Bond proceeds necessary for the Developer to complete its
development of the lots and the infrastructure are expected to come from future land sales and from
moneys advanced to the Developer by its parent company, J.G. Boswell Company. The Developer's
expected plan of finance is set forth in Table 10 below. The financing plans of the Merchant
Builders are described below. See "Merchant Builder Financing."
The full buildout of Improvement Area B as planned is dependent upon a number of external
factors, including the general and local economy and the health of the local real estate market and the
DOCSOC/1 034128v6/22245-0 151
33 .
I:, -L/Cf .
ability of the Developer and the Merchant Builders to obtain financing and all required pennits to
build the residential units and construct the commercial buildings. Table 10 represents the
Developer's current estimate of the sources and uses of funds to complete its proposed development
in Improvement Area B. While Table 10 represents the current estimate of the sources and uses of
funds for the Developer's operations, there can be no assurance there will not be substantial changes
to the sources and uses funds presented.
The projected sources and uses of funds in Table 10 has been prepared based on assumptions
of future sales revenues, future advances of funds by the Developer's parent company,
reimbursements to the Developer, public facilities financing, bank financing, development costs,
operating costs, property taxes and other items. The absorption estimates used for the sources and
uses of funds may differ from those derived by the Appraiser. Detailed construction plans have not
been approved or developed for all of the work which is contemplated within Improvement Area B.
As such, there is no assurance that the actual costs will not be greater than projected or occur sooner
than projected. There can be no assurance that the actual revenues realized by the Developer will not
be less or the actual costs more than projected or occur later than projected by the Developer.
To the extent that actual revenues are less than projected in Table 10 or are received more
slowly than projected in Table 10, other financing projected by the Developer is not put into place, or
actual expenses are greater than or occur earlier than projected above, there could be a shortfall in the
cash required to complete the land development operations being undertaken by the Developer. No
assurance can be given that the Developer will have access to funds from its parent company or will
obtain any additional loans to finance the development. Neither the Developer, the Developer's
parent company nor any of its members has any legal obligation to obtain additional loans or
otherwise advance funds for the remaining development costs.
DOCSOC/l034128v6122245-0151
34
cP.£U
TABLE 10
DEVELOPER'S PROJECTED SOURCES AND USES OF FUNDS
(in thousands)
Calendar Year Calendar Year Calendar Year
Sources of Funds 2002 2003 2004 and Beyond Tola/s
Beginning Cash Balance 20,612 0 0 20,612
Net Land Sale Proceeds 123,180 182,098 115,576 424,854
Misc. Cash Receipts 6,578 \3,879 20,457
Borrowed Funds(1) 20,095 (20,095)
Net Bond Proceeds CFD 06-1 -Improvement Area A 9,716 25,645 35.362
Net Bond Proceeds CFD 06-I-Improvement Area B 6712 6712
Total Sources 170465 185598 147933 503996
Use of Funds
Public Facilities CFD 06-1 19,394 15,034 7,645 42,073
Other Capital Improvements \39235 51763 20286 211 285
Subtotal Development Costs 158630 66798 27931 253358
Operating Costs 11,836 5,270 2,012 19,118
Debt Service 245 245
Distributions
Total Uses 170 466 72313 29943 272 722
Sources in Excess of Uses 113 285 1]7990
Aggregate Annual Sources Over Uses 113 285(2) 731275(2) 231274
(1) As operating cash is needed, the Developer's parent company, J.G. Boswell Company, advances funds to the Developer.
(2) All amounts in excess of uses are to be distributed to the members of the Developer.
Source: Developer
Merchant Builder Financing.
Corners/one. As of May I, 2004, Cornerstone expects the remaining intract, home
construction, carrying, marketing and miscellaneous costs to complete Village B and Village D to be
approximately $92 million, Cornerstone plans to finance its proposed development of Village Band
Village D, in part, with proceeds of a construction loan from Guaranty Bank. Cornerstone and
Guaranty Bank have entered into a master loan agreement in the amount of $50,500,000 consisting of
a $40,000,000 acquisition and development loan and a $10,500,000 revolving loan.
KB Coastal. As of May 1, 2004, KB Coastal expects the remaining intract, home
construction, carrying, marketing and miscellaneous costs for Village A and Village E to be
approximately $41 million. KB Coastal plans to fmance its proposed development of Village A and
Village E internally and through funding it expects to receive from its parent company KB Home.
Notwithstanding this expectation, KB Home has no legal obligation to advance monies to KB
Coastal and no assurance can be given that sufficient monies will be advanced to complete the
development of Village A and Village E as currently planned.
Notwithstanding the current financing plans of the Merchant Builders, there could be a
shortfall in the cash required to complete the development operations being undertaken by the
DOCSOC/I034128v6/22245-0 151
35
(p.c;¡¡
Merchant Builders. No assurance can be given that Cornerstone will have access to funds under its
existing loans or that KB Coastal will have sufficient internal funds to finance their respective
developments. Neither Merchant Builder has any legal obligation to obtain additional loans or
otherwise advance funds for the remaining development costs.
Status of Entitlement Approvals
Improvement Area B was pre-zoned Planned Community ("PC") as part of the General
Development Plan ("GDP") planning process. The PC zone required a multi-phase planning process
beginning with a GDP, followed by the preparation of a Sectional Planning Area ("SPA") Plan. The
SPA Plan is to be used as a supplement to other existing City regulations, and supersedes those
established in the City Zoning Ordinance. Incorporated into the SPA Plan is the Site Utilization
Plan, which designates the zoning on Improvement Area B. The SPA Plan was adopted by the City
on November 24, 1998 by Resolution No. 19275. Under the SPA Plan, Improvement Area B is
designated for residential and commercial development, open space lands and both major circulation
and internal streets.
The vesting tentative tract map for Improvement Area B was approved in November 2003
allowing for 211 single family detached residential lots and 389 single family attached units, and the
final map for the 600 residential units that remain subject to the Special Tax levy was approved by
the City on May 4, 2004 and was recorded on June -'-'
The Developer believes that all discretionary approvals required for the development of
Improvement Area B have been obtained.
Environmental Constraints
Improvement Area B has undergone extensive environmental and biological review and has
received the necessary permits for the development of the entire property covered by the tentative
map. These include take authorizations from the United States Fish and Wildlife and the California
Department of Fish and Game for endangered species, and all applicable wetland permits from the
Army Corp of Engineers and California Department ofFish and Game.
Infrastructure Requirements and Construction Status
The infrastructure requirements for Improvement Area B can be broken into three categories
as follows:
Major Backbone Infrastructure. The major roads which form the primary access to the
community are Olympic Parkway to the South, EastLake Parkway which is the north/south arterial
between Olympic Parkway and Otay Lakes Road to the north. Both EastLake Parkway and Olympic
Parkway were recently completed. Otay Lakes Road has been in use for several years. Also
included in this infrastructure category are the backbone sewer and storm drain facilities, dry utility
systems, water systems, traffic signals, associated landscaping. The water system will be owned by
the Otay Water District.
Minor Backbone lrifrastructure. The secondary backbone infrastructure consists of the
collector streets into the residential project of which there are two, and the entrance road into the
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commercial site. Each of these roads provide further access into the residential and commercial
areas.
Intract Infrastructure. The residential intract infrastructure includes fine grading to create
the lots for the homes, private streets, curbs, gutters, sidewalks, lighting, utilities and landscaping.
The Merchant Builders are reimbursing the Developer for their proportionate share of these costs.
Potential Limitations on Development
Growth Management Oversight Commission ("GMOC"). The City has established a
Threshold Standards Policy (the "Threshold Policy") through the adoption of a Growth Management
Ordinance, which established eleven public facility and service area "quality of life" measures. The
eleven public facility and service thresholds include police, fire and emergency medical services,
traffic, schools, parks and recreation, libraries, sewer, drainage, fiscal impact, air quality and water.
The Threshold Policy established goals, objectives, standards or thresholds and applicable
implementation measures for the eleven services. The GMOC was created to provide an annual
independent review for compliance with the Threshold Policy.
The GMOC review for compliance occurs on a fiscal year cycle. The Threshold Policy calls
for preparation of short-range, 12 to 18 month, and mid-range, five to seven year, development
forecasts. These forecasts are utilized by City staff and external service agencies to evaluate
projected service levels, identifY any potential threshold problems and address implementation
measures to avoid level of service problems.
As a condition to developing property within the District, a developer must, prior to final
map approval for a parcel, enter into an agreement with the City acknowledging that building permits
may be withheld if any of the required development threshold limits set in the City transportation
planning phase are exceeded. The tentative map conditions for the land within the District subject
the land to the provisions of the GMOC.
The Threshold Policy includes traffic thresholds which require that level of service "c" be
maintained on the arterial street system except level of service "D" can occur for no more than two
hours of the day. The level of service is a descriptive and qualitative measure of the degree of traffic
congestion experienced by motorists. There are six levels of congestion, assigned letters' A' through
'F.' Levels of service 'A' Through 'D' represent generally acceptable levels of service with level of
service 'A' corresponding to no congestion and level of service 'C' represents a range in which the
ability of vehicles to maneuver is affected by the presence of other vehicles and speeds begin to show
some reduction. Level.of service 'D' is approaching roadway capacity with the ability to maneuver
being severely restricted and traffic is subject to speed reductions. Level of service 'E' is at roadway
capacity with unstable speeds. Level of service 'F' occurs when roadway capacity is exceeded,
excessive delays are experienced and stop-and-go traffic conditions exist. Should the traffic
threshold standard be exceeded, the Growth Management Ordinance calls for a building permit
moratorium to be considered by the City Council until the threshold problem can be mitigated. There
can be no guarantee that any such moratorium would exclude Improvement Area B, even if the
traffic congestion leading to such moratorium occurs outside of the Improvement Area B area.
Throughout the fall of 2002 and the spring of 2003, the City monitored the traffic conditions
on the major east-west arterials east of 1-805 to measure compliance with the levels of service
described in the GMOc.
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In response to the conclusions in the most recent traffic study, the City has implemented a
building permit monitoring program (the "Monitoring Program") for a number of projects in
EastLake, including those within the District. The Developer and the City have entered into an
agreement (the "Monitoring Agreement") which provides for the issuance of building permits for the
entire Eastlake III development. The Monitoring Agreement allows for the issuance of a maximum
total of 1,961 building permits through March 31, 2006. The Developer has entered into agreements
with the Merchant Builders to allocate to each parcel a certain number of permits each year from the
total allotment provided to the Developer under the Monitoring Agreement. Accordingly, 56 permits
may be issued for units in Improvement Area B through March 31, 2004, 169 permits between
April!, 2004 and March 31, 2005, and 375 permits between April!, 2005 and March 31, 2006.
Release of certain permits depends upon the construction of certain roadway improvements. If a
roadway improvement is not completed by the date set forth in the Monitoring Agreement, then, until
it is completed, the corresponding number of building permits attributed to such improvement will be
deducted from the total number of permits to be issued for the last 12 months of the Monitoring
Program. The amount deducted will be prorated against all developers included within the
Monitoring Program on a proportionate basis. In arriving at the conclusions in the Market
Absorption Study and the Appraisal, both the Market Absorption Consultant and the Appraiser
considered the impact of the Monitoring Agreement and have assumed that permits for all 600 units
planned within Improvement Area B will be available and will not be reduced as a result of a failure
to complete any ofthe roadway improvements referenced in the Monitoring Agreement.
The quality of life thresholds of the GMOC and the Thresholds Policy remain in effect and
supersede the provisions of the Monitoring Agreement. Should the City detennine that the standards
ofthe Threshold Policy are not being met, it could impose further limitations or a moratorium on the
issuance of building permits within the District. The City does not currently anticipate that it will
need to further restrict or prohibit the issuance of building permits within the District; however,
currently unforeseen events could result in further action by the City under the GMOC.
A development slowdown beyond that resulting from the Monitoring Program imposed in the
Monitoring Agreement or a moratorium on development could adversely impact the rate of
development in the District and presents certain risks to the owners of the Bonds. See "SPECIAL
RISK FACTORS - Failure to Develop Properties" and "- Future Land Use Regulations and
Growth Control Initiatives."
Investors should note that, in particular, the City may amend its Growth Management
Ordinance from time to time and no assurance can be given that its tenus will not be more restrictive
on development than those currently in effect.
Appraisal
The infonnation regarding ownership of property in Improvement Area B included in the
Appraisal is relevant to an infonned evaluation of the Bonds. The inclusion in this Official
Statement of infonnation related to existing owners of property should not be construed to suggest
that the Bonds, or the Special Taxes that will be used to pay the Bonds, are recourse obligations of
the property owners. A property owner may sell or otherwise dispose of land within Improvement
Area B or a development or any interest therein at any time. Development may also be abandoned at
any time.
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The Appraiser valued certain property within Improvement Area B, taking into consideration
the lien of the Improvement Area B Special Taxes, based upon a number of assumptions and limiting
conditions contained in the Appraisal as set forth in Appendix C. The Appraiser has valued the
property sold by the Developer to the Merchant Builders based upon a sales comparison approach to
value and the remaining land owned by the Developer using a sales comparison approach coupled
with a discounted cash flow analysis. Under the sales comparison approach to value, the Appraisal
takes into account the development status of the residential lots and the commercial land in
Improvement Area B, analyzes the market for similar properties and compares these properties to the
properties in Improvement Area B. Under the discounted cash flow analysis, the Appraiser values
the undeveloped acreage by discounting the cost of development and the probable proceeds from the
sale of the finished lots. The Appraiser first estimates the retail value of the finished lots to be sold
by the Developer and the costs of developing the finished lots, the estimated absorption period and
the marketing, sales and carrying costs. The Appraiser then applies a discount rate to the projected
cash flow that accounts for the risk associated with the development of the lots, the true value of
money and a profit due to the Developer. The Appraiser projects that the residential parcel to be sold
by the Developer will be sold within the next year and that four commercial lots will be sold within
the next year as well. Based on historical infonnation, the Appraiser has assumed annual
appreciation of 3% on land sales and 3% on development costs. A discount rate of 18% per year has
been used by the Appraiser in arriving at the estimate of value for the Developer's holdings in
Improvement Area B.
The Appraiser is of the opinion that the aggregate "as is" value of the land within
Improvement Area B as of April 15, 2004, assuming the completion of all improvements to be
financed with proceeds of the Bonds was $86,495,000, with the Merchant Builder owned lands
valued at $67,305,000 and the Developer's property at $19,190,000. Certain land that is expected to
become exempt from the levy of Special Taxes in the future was not assigned a value in the
Appraisal, all as described under the caption "- Estimated Value- To-Lien Ratios."
In arriving at its statement of value, the Appraiser assumes that there are no hidden or
unapparent conditions of the property or subsoil that render it more or less valuable, that all required
licenses, certificates of occupancy or other legislative or administrative authorizations from
governmental agencies or private entities or organizations have been or can be obtained, that no
hazardous waste and/or toxic materials are located on the property within Improvement Area B that
would affect the development process, that the improvements to be funded with the Bonds are
completed, that the costs of development provided by the Developer are accurate and that the
proposed development is constructed in a timely manner with no adverse delays (i.e., construction
will proceed as proposed with no limitations on development occurring). See "- Potential
Limitations on Development" above.
No assurance can be given that the assumptions made by the Appraiser will, in fact, be
realized, and, as a result, no assurance can be given that the property within Improvement Area B
could be sold at the appraised values included in the Appraisal. For a complete list of the Appraiser's
assumptions and limiting conditions, see Appendix C - "APPRAISAL REPORT."
Market Absorption Study
The Market Absorption Study dated April 8, 2004 for Improvement Area B has been
prepared by the Market Absorption Consultant. A synopsis and summary of the Market Absorption
Study is included herein as Appendix B. The Market Absorption Consultant has estimated, based
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upon the analysis of relevant demographic and economic conditions in the Chula Vista area, the
number and proportion of housing units in Improvement Area B that can be expected to be marketed
annually using the estimated absorption schedules for each of the product types. The Market
Absorption Study concludes that it will take until 2006 for the residential units within Improvement
Area B to be constructed and sold, with final absorption occurring in 2006. The Market Absorption
Study projects that, ofthe 600 single family detached and attached units within Improvement Area B
that are subject to the Special Tax, 174 will be absorbed in 2004, 352 in 2005 and 74 in 2006.
The Market Absorption Study assumes that all required governmental approvals will be
obtained, that there are no physical impediments to construction such as earthquakes and hazardous
waste, that the public infrastructure necessary to develop will be provided in a timely manner, that
the developers and merchant builders in Improvement Area B will respond to market conditions with
products that are competitively priced and have the features and amenities desired by purchasers, that
the developers and merchant builders and their lenders have sufficient financial strength to fund
adequately the projects and that they have sufficient cash flow reserves to supplement their cash flow
positions in the event that adverse economic or market conditions occur. The actual absorption of
units could be adversely affected if one or more of the foregoing assumptions is not realized. See
Appendix B - "SUMMARY OF MARKET ABSORPTION STUDY."
SPECIAL RISK FACTORS
The purchase of the Bonds involves a significant degree of investment risk and, therefore, the
Bonds are not appropriate investments for many types of investors. The following is a discussion of
certain risk factors which should be considered, in addition to other matters set forth herein, in
evaluating the investment quality of the Bonds. This discussion does not purport to be
comprehensive or definitive. The occurrence of one or more of the events discussed herein could
adversely affect the ability or willingness of property owners in Improvement Area B to pay their
Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the
District to make full and punctual payments of debt service on the Bonds. In addition, the occurrence
of one or more of the events discussed herein could adversely affect the value of the property in
Improvement Area B. See "Land Values" and "Limited Secondary Market" below.
Concentration of Ownership
As of the date of the Appraisal, all of the land within Improvement Area B remaining subject
to the Special Tax levy was owned or controlled by three owners. Based on the land use status as of
the date of the Appraisal, assuming no further land sales, approximately 25.28% of the projected
fiscal year 2004-2005 Special Tax levy would be paid by the Developer, 33.33% by KB Coastal and
41.39% by Cornerstone. See "THE COMMUNITY FACILITIES DISTRICT - Principal
Taxpayers." This concentration of ownership presents a risk to Bondowners. Until the completion
and sale of additional parcels, the receipt of the Special Taxes is dependent on the willingness and
the ability of such landowners to pay the Special Taxes when due. Failure of the current landowners,
or any successor, to pay the annual Special Taxes when due could result in a default in payments of
the principal of, and interest on, the Bonds, when due. See "- Failure to Develop Properties"
below.
No assurance can be made that such landowners, or their successors, will complete the
intended construction and development in Improvement Area B. See "- Failure to Develop
DOCSOC/1 034128v6/22245-0 151
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(0 .,.;i1J t:?
Properties" below. As a result, no assurance can be given that such landowners will continue to pay
Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See
"- Bankruptcy and Foreclosure" below, for a discussion of certain limitations on the District's
ability to pursue judicial proceedings with respect to delinquent parcels.
Limited Obligations
The Bonds and interest thereon are not payable from the general funds of the City. Except
with respect to the Special Taxes, neither the credit nor the taxing power of the District or the City is
pledged for the payment of the Bonds or the interest thereon, and, except as provided in the
Indenture, no owner of the Bonds may compel the exercise of any taxing power by the District or the
City or force the forfeiture of any City or District property. The principal of, premium, if any, and
interest on the Bonds are not a debt of the City or a legal or equitable pledge, charge, lien or
encumbrance upon any of the City's or the District's property or upon any of the City's or the
District's income, receipts or revenues, except the Special Taxes and other amounts pledged under
the Indenture.
Insufficiency of Special Taxes
Under the Rate and Method, the annual amount of Special Tax to be levied on each taxable
parcel in Improvement Area B will generally be based on whether such parcel is categorized as
Undeveloped Property or as Developed Property and on the zone and land use class to which a parcel
of property is assigned. See AppendixA - "AMENDED RATE AND METHOD OF
APPORTIONMENT OF SPECIAL TAXES" and "SOURCES OF PAYMENT FOR THE BONDS
- Special Taxes."
The Rate and Method governing the levy of the Special Tax expressly exempts property
owned by public agencies or a property owners association and certain other public or quasi-public
uses, provided that no such exemption shall reduce the sum of all taxable property to less than
36.5 acres in Zone 3 and 52 acres in Zone 4.
If a substantial portion of land within Improvement Area B became exempt from the
Special Tax because of public ownership, or otherwise, the maximum Special Tax which could
be levied upon the remaiuing property within Improvement Area B might not be sufficient to
pay principal of and interest on the Bonds when due and a default could occur with respect to
the payment of such principal and interest.
Special Tax Delinquencies
Under provisions of the Act, the Special Taxes, from which funds neçessary for the payment
of principal of, and interest on, the Bonds are derived, are customarily billed to the properties within
Improvement Area B on the ad valorem property tax bills sent to owners of such properties. The Act
currently provides that such Special Tax installments are due and payable, and bear the same
penalties and interest for non-payment, as do ad valorem property tax installments. See "SOURCES
OF PAYMENT FOR THE BONDS - Special Taxes," for a discussion of the provisions which
apply, and procedures which the District is obligated to follow under the Fiscal Agent Agreement, in
the event of delinquencies in the payment of Special Taxes. See "- Bankruptcy and Foreclosure"
below, for a discussion of the policy of the Federal Deposit Insurance Corporation (the "FDIC")
DOCSOC/l 034128v6/22245-0151
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regarding the payment of special taxes and assessment and limitations on the District's ability to
foreclosure on the lien of the Special Taxes in certain circumstances.
Neither the Developer nor the Merchant Builders is currently delinquent or has been
delinquent in the past in the payment of any special taxes or assessments levied on property owned
by it.
Failure to Develop Properties
Undeveloped or partially developed land is inherently less valuable than developed land and
provides less security to the Bondowners should it be necessary for the District to foreclose on such
land due to the nonpayment of Special Taxes. The failure to complete development of the required
infrastructure and development in Improvement Area B as planned, or substantial delays in the
completion of the planned infrastructure and development due to litigation or other causes may
reduce the value of the property within Improvement Area B and increase the length of time during
which Special Taxes will be payable from undeveloped property, and may affect the willingness and
ability of the owners of such undeveloped property within Improvement Area B to pay the Special
Taxes when due.
Land development is subject to comprehensive federal, State and local regulations. Approval
is required from various agencies in connection with the layout and design of developments, the
nature and extent of improvements, construction activity, land use, zoning, school and health
requirements, as well as numerous other matters. There is always the possibility that such approvals
will not be obtained or, if obtained, will not be obtained on a timely basis. Failure to obtain any such
agency approval or satisfy such governmental requirements would adversely affect planned land
development. Finally, development ofland is subject to economic considerations.
Additionally, the Developer and the Merchant Builders may need to obtain financing to
complete their development activities within Improvement Area B. No assurance can be given that
the required funding will be secured or that the proposed development will be partially or fully
completed, and it is possible that cost overruns will be incurred which will require additional funding
beyond what the Developer and the Merchant Builders have projected, which mayor may not be
available. See "THE DEVELOPMENT AND PROPERTY OWNERSHIP - Finance Plan" herein.
The future development of the land within Improvement Area B may be adversely affected
by existing or future governmental policies, or both, restricting or controlling the development of
land in Improvement Area B. See "THE DEVELOPMENT AND PROPERTY OWNERSHIP -
Potential Limitations on Development" for a discussion of certain potential limitations on the ability
of the Developer and Merchant Builders to complete the projected development of Improvement
Area B. Specifically, investors should consider the broad power of the City to halt or delay "B" map
approval under its Growth Management Ordinance. There can be no assurance that the owners of the
land in Improvement Area B will be able to secure all of the necessary land use approvals to develop
their properties. See also" - Future Land Use Regulations and Growth Control Initiatives" below.
There can be no assurance that land development operations within Improvement Area B will
not be adversely affected by a future deterioration of the real estate market and economic conditions
or future local, State and federal governmental policies relating to real estate development, the
income tax treatment of real property ownership, or the national economy, or the direct or indirect
consequences of military and/or terrorist activities in this country or abroad. A slowdown of the
DOCSOC/1O34128v6122245-0151
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development process and the absorption rate could adversely affect land values and reduce the ability
or desire of the property owners to pay the annual Special Taxes. In that event, there could be a
default in the payment of principal of, and interest on, the Bonds when due.
Bondowners should assume that any event that significantly impacts the ability to develop
land in Improvement Area B would cause the property values within Improvement Area B to
decrease substantially from those estimated by the Appraiser and could affect the willingness and
ability of the owners ofland within Improvement Area B to pay the Special Taxes when due.
The payment of the principal of and interest on the Bonds currently depends upon the receipt
of Special Taxes levied on undeveloped property. Undeveloped property is less valuable per unit of
area than developed land, especially if there are no plans to develop such land or if there are severe
restrictions on the development of such land. The undeveloped property also provides less security
to the Bondowners should it be necessary for the District to foreclose on undeveloped property due to
the nonpayment of the Special Taxes. Furthermore, an inability to develop the land within
Improvement Area B as currently proposed will make the Bondowners dependent upon timely
payment of the Special Taxes levied on undeveloped property for a longer period of time than
projected. Because all of the land within Improvement Area B is currently owned or controlled by
just three owners, the timely payment of the Bonds depends upon the willingness and ability of such
owners to pay the Special Taxes levied on the undeveloped property when due. See "-
Concentration of Ownership" above. A slowdown or stoppage in the continued development of
Improvement Area B could reduce the willingness and ability of such owners to make Special Tax
payments on undeveloped property and could greatly reduce the value of such property in the event it
has to be foreclosed upon. See "-Land Values" below.
Future Land Use Regulations and Growth Control Initiatives
The City currently has the authority under its Growth Management Ordinance to limit or halt
development within Improvement Area B if certain quality of life standards are not met within the
City. See 'THE DEVELOPMENT AND PROPERTY OWNERSHIP - Potential Limitations on
Development."
In addition, it is possible that future growth control initiatives could be enacted by the voters
or future local, state or federal land use regulations could be adopted by governmental agencies and
be made applicable to the development of the vacant land within Improvement Area B with the effect
of negatively impacting the ability of the owners of such land to complete the development of such
land if they should desire to develop it. Development could also be delayed or prohibited under the
City's existing Growth Management Ordinance. See "- Endangered Species" below. This
possibility presents a risk to prospective purchasers of the Bonds in that an inability to complete
desired development increases the risk that the Bonds will not be repaid when due. The owners of
the Bonds should assume that any reduction in the permitted density, significant increase in the cost
of development of the land within Improvement Area B or substantial delay in development caused
by growth and building permit restrictions or more restrictive land use regulations would cause the
values of the land within Improvement Area B to decrease, A reduction in land values increases the
likelihood that in the event of a delinquency in payment of Special Taxes a foreclosure action will
result in inadequate funds to repay the Bonds when due.
Completion of construction of any proposed structures on the land within Improvement
Area B is subject to the receipt of approvals from a number of public agencies concerning the layout
DOCSOCIlO34128v6/22245-0151
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and design of such structures, land use, health and safety requirements and other matters. The failure
to obtain any such approval could adversely affect the planned development of such land.
Under current State law, it is generally accepted that proposed development is not exempt
from future land use regulations until building permits have been issued and substantial work has
been performed and substantial liabilities have been incurred in good faith reliance on the permits.
Because future development of the property in Improvement Area B could occur over several years,
if at all, the application of future land use regulations to the development of the land could cause
significant delays and cost increases not currently anticipated, thereby reducing the development
potential of the land and the ability or willingness of owners of such land to pay Special Taxes when
due or causing the value of such land within Improvement Area B to decrease substantially from that
contained in the Appraisal.
Endangered Species
In recent years there has been an increase in activity at the State and federal levels related to
the possible listing of certain plant and animal species found in the southern San Diego County Area
as endangered species. An increase in the number of endangered species could curtail development
in the southern San Diego County area. Any action by the State or federal governments to protect
species located on or adjacent to the property within Improvement Area B could negatively impact
the ability of the owners of that land to develop it. This, in turn, could reduce the likelihood of
timely payment of the Special Taxes levied against such that land and would likely reduce the value
of such land and the potential revenues available at the foreclosure sale for delinquent Special Taxes.
See "- Failure to Develop Land" above.
Water Availability
The development of the land within Improvement Area B is dependent upon the availability
of water for the planned units. The Otay Water District (the "Water District") is the agency
responsible for providing water to the District. The Water District receives a significant portion of its
water from the Metropolitan Water District ("MWD"), which is the primary supplier of wholesale
water in Southern California. MWD's major source of water is the State Water Project operated by
the California Department of Water Resources. MWD is also apportioned the use of a certain
amount of water delivered to the State from the Colorado River. In addition to this apportionment,
MWD is also entitled to surplus water from the Colorado River. On December 31, 2002, the federal
government suspended the delivery of surplus water from the Colorado River to MWD as a result of
the failure of certain water agencies in the State to reach agreement on the transfer of water rights
from the Imperial Irrigation District to coastal San Diego County. Reinstatement of surplus water
deliveries to MWD can occur if such agreement is executed or if the State takes other actions
required by the federal government. Additionally, the availability of water depends upon the
weather, the rate of development and other factors.
The Developer and the City believe that the Water District will be able to provide water to
Improvement Area B to permit the construction of the planned units. No assurance can be given,
however, that water service will be available at the time that building permits are applied for, and the
lack of water availability could adversely affect the planned development in Improvement Area B. A
slowdown or stoppage in the continued development of Improvement Area B could reduce the
willingness and ability of such owners to make Special Tax payments on undeveloped property and
DOCSOC/1034128v6/22245-0151
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could greatly reduce the value of such property in the event it has to be foreclosed upon. See "-
Land Values" below.
Natural Disasters
Improvement Area B, like all California communities, may be subject to unpredictable
seismic activity, fires, flood, or other natural disasters. Southern California is a seismically active
area. Seismic activity represents a potential risk for damage to buildings, roads, bridges and property
within Improvement Area B. In addition, land susceptible to seismic activity may be subject to
liquefaction during the occurrence of such event. Portions of Southern California are subject to
wildfires. In October 2003, over 200,000 acres and over two thousand homes were destroyed in
wildfires in San Diego County. The land within Improvement Area B was not affected by these
wildfires.
In the event of a severe earthquake, fire, flood or other natural disaster, there may be
significant damage to both property and infrastructure in Improvement Area B. As a result, a
substantial portion of the property owners may be unable or unwilling to pay the Special Taxes when
due. In addition, the value of land in Improvement Area B could be diminished in the aftennath of
such a natural disaster, reducing the resulting proceeds of foreclosure sales in the event of
delinquencies in the payment of the Special Taxes.
Hazardous Substances
The presence of a hazardous substance on a parcel may result in a reduction in its value. In
general, the owners and operators of a parcel may be required by law to remedy conditions of the
parcel relating to releases or threatened releases of hazardous substances. The Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes
referred to as "CERCLA" or the "Superfund Act," is the most well-known and widely applicable of
these laws, but California laws with regard to hazardous substances are also stringent and similar.
Under many of these laws, the owner or operator is obligated to remedy a hazardous substance
condition of property whether or not the owner or operator has anything to do with creating or
handling the hazardous substance. The effect, therefore, should any of the taxed parcels be affected
by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of
remedying the condition, because the purchaser, upon becoming owner, will become obligated to
remedy the condition just as is the seller.
Further, it is possible that liabilities may arise in the future with respect to any of the parcels
resulting from the existence, currently, on the parcel of a substance presently classified as hazardous
but which has not been released or the release of which is not presently threatened, or may arise in
the future resulting from the existence, currently on the parcel of a substance not presently classified
as hazardous but which may in the future be so classified. Further, such liabilities may arise not
simply from the existence of a hazardous substance but from the method of handling it. All of these
possibilities could significantly affect the value of a parcel that is realizable upon a delinquency.
None of the City, the Developer or the Merchant Builders has knowledge of any hazardous
substances being located on the property within Improvement Area B.
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Parity Taxes, Special Assessments and Land Development Costs
Property within Improvement Area B is subject to the lien of taxes and assessments imposed
by public agencies and several overlapping districts also having jurisdiction over the land within
Improvement Area B. See "THE COMMUNITY F ACILITlES DISTRICT - Estimated Direct and
Overlapping Indebtedness."
The Special Taxes and any penalties thereon will constitute a lien against the lots and parcels
of land on which they will be annually imposed until they are paid. Such lien is on a parity with all
special taxes and special assessments levied by the City and other agencies and is co-equal to and
independent of the lien for general property taxes regardless of when they are imposed. The Special
Taxes have priority over all existing and future private liens imposed on the property except,
possibly, for liens or security interests held by the Federal Deposit Insurance Corporation. See "-
Bankruptcy and Foreclosure" below.
Development of land within Improvement Area B is contingent upon construction or
acquisition of major public improvements such as arterial streets, water distribution facilities, sewage
collection and transmission facilities, drainage and flood protection facilities, gas, telephone and
electrical facilities, schools, parks and street lighting, as well as local in-tract improvements and
on-site grading and related improvements. Certain of these improvements have been acquired and/or
completed; however, there can be no assurance that the remaining improvements will be constructed
or will be constructed in time for development to proceed as currently expected. The cost of these
additional improvements plus the public and private in-tract, on-site and off-site improvements could
increase the public and private debt for which the land within Improvement Area B is security. This
increased debt could reduce the ability or desire of the property owners to pay the annual Special
Taxes levied against the property. In that event there could be a default in the payment of principal
of, and interest on, the Bonds when due.
Neither the City nor the District has control over the ability of other entities and
districts to issue indebtedness secured by taxes or assessments payable from all or a portion of
the property within Improvement Area B. In addition, the landowners within Improvement
Area B may, witbout the consent or knowledge of the City, petition other public agencies to
issue public indebtedness secured by taxes or assessments. Any such taxes or assessments may
have a lien on such property on a parity with the Special Taxes and could reduce the estimated
value-to-lien ratios for property within Improvement Area B described herein.
Disclosures to Future Purchasers
The willingness or ability of an owner of a parcel to pay the Special Tax may be affected by
whether or not the owner was given due notice of the Special Tax authorization at the time the owner
purchased the parcel, was infonned of the amount of the Special Tax on the parcel should the Special
Tax be levied at the maximum tax rate and the risk of such a levy at the maximum rate. The City has
caused a notice of the Special Tax lien to be recorded in the Office ofthe Recorder for the County
against each parcel within Improvement Area B. While title companies nonnally refer to such
notices in title reports, there can be no guarantee that such reference will be made or, if made, that a
prospective purchaser or lender will consider such Special Tax obligation in the purchase of a
property within Improvement Area B or lending of money thereon.
DOCSOC/1O34128v6/22245-0 151
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The Act requires the subdivider (or its agent or representative) of a subdivision to notify a
prospective purchaser or long-tenn lessor of any lot, parcel, or unit subject to a Mello-Roos special
tax of the existence and maximum amount of such special tax using a statutorily prescribed fonn.
California Civil Code Section II 02.6b requires that in the case of transfers other than those covered
by the above requirement, the seller must at least make a good faith effort to notify the prospective
purchaser of the special tax lien in a fonnat prescribed by statute. Failure by an owner of the
property to comply with the above requirements, or failure by a purchaser or lessor to consider or
understand the nature and existence of the Special Tax, could adversely affect the willingness and
ability of the purchaser or lessor to pay the Special Tax when due.
Non-Cash Payments of Special Taxes
Under the Act, the City Council as the legislative body of the District may reserve to itself
the right and authority to allow the owner of any taxable parcel to tender a Bond in full or partial
payment of any installment of the Special Taxes or the interest or penalties thereon. A Bond so
tendered is to be accepted at par and credit is to be given for any interest accrued thereon to the date
of the tender. Thus, if Bonds can be purchased in the secondary market at a discount, it may be to
the advantage of an owner of a taxable parcel to pay the Special Taxes applicable thereto by
tendering a Bond. Such a practice would decrease the cash flow available to the District to make
payments with respect to other Bonds then outstanding; and, unless the practice was limited by the
District, the Special Taxes paid in cash could be insufficient to pay the debt service due with respect
to such other Bonds. In order to provide some protection against the potential adverse impact on
cash flows which might be caused by the tender of Bonds in payment of Special Taxes, the Indenture
includes a covenant pursuant to which the District will not authorize owners of taxable parcels to
satisfy Special Tax obligations by the tender of Bonds unless the District shall have first obtained a
report of a Special Tax Consultant certifying that doing so would not result in the District having
insufficient Special Tax Revenues to pay the principal of and interest on all Outstanding Bonds and
any Parity Bonds when due.
Payment of the Special Tax is not a Personal Obligation of the Owners
An owner of a taxable parcel is not personally obligated to pay the Special Tax. Rather, the
Special Tax is an obligation which is secured only by a lien against the taxable parcel. If the value of
a taxable parcel is not sufficient, taking into account other liens imposed by public agencies, to
secure fully the Special Tax, the District has no recourse against the owner.
Land Values
The value of the property within Improvement Area B is a critical factor in detennining the
investment quality of the Bonds. If a property owner is delinquent in the payment of Special Taxes,
the District's only remedy is to commence foreclosure proceedings in an attempt to obtain funds to
pay the Special Taxes. Reductions in property values due to a downturn in the economy, the direct
or indirect consequences of military and/or terrorist actions in this country or abroad, physical events
such as earthquakes, fires or floods, stricter land use regulations, delays in development or other
events will adversely impact the security underlying the Special Taxes. See "THE COMMUNITY
FACILITIES DISTRICT - Estimated Value-to-Lien Ratios" herein.
The assessed values set forth in this Official Statement do not represent market values arrived
at through an appraisal process and generally reflect only the sales price of a parcel when acquired by
47
DOCSOC/l 034128v6/22245-0 151
(p~ 63
its current owner, adjusted annually by an amount detennined by the San Diego County Assessor, not
to exceed an increase of more than 2% per fiscal year. No assurance can be given that a parcel could
actually be sold for its assessed value.
The Appraiser has estimated, on the basis of certain definitions, assumptions and limiting
conditions contained in the Appraisal, that as of April 15, 2004 the value of the land within
Improvement Area B was $86,495,000. The Appraisal is based on the assumptions as stated in
Appendix C - "APPRAISAL REPORT." The Appraisal does not reflect any possible negative
impact which could occur by reason of future slow or no growth voter initiatives, any potential
limitations on development occurring due to time delays, an inability of the Developer or the
Merchant Builders to obtain any needed development approval or penn it, the presence of hazardous
substances within Improvement Area B, the listing of endangered species or the detennination that
habitat for endangered or threatened species exists within Improvement Area B, or other similar
situations. The Appraiser has conditioned the Appraisal on a specific condition in addition to the
typical list of assumptions and limiting conditions which is that there are no environmental issues
which would slow or thwart development of Improvement Area B to its highest and best use. See
"THE DEVELOPMENT AND PROPERTY OWNERSHIP - Potential Limitations on
Development."
Prospective purchasers of the Bonds should not assume that the land within Improvement
Area B could be sold for the appraised amount described above at a foreclosure sale for delinquent
Special Taxes. In arriving at the estimates of value, the Appraiser assumes that any sale will be
unaffected by undue stimulus and will occur following a reasonable marketing period, which is not
always present in a foreclosure sale. See Appendix C for a description of other assumptions made by
the Appraiser and for the definitions and limiting conditions used by the Appraiser.
No assurance can be given that any bid will be received for a parcel with delinquent Special
Taxes offered for sale at foreclosure or, if a bid is received, that such bid will be sufficient to pay all
delinquent Special Taxes. See "SOURCES OF PAYMENT FOR THE BONDS - Special Tax-
Proceeds of Foreclosure Sales."
Terrorism
Neither the City nor the Developer can predict the economic effect of the ongoing threat of
terrorism and the response of the United States government thereto, though impacts could be
significant. No assurance can be given that the direct and indirect consequences of military and/or
terrorist activities in this country or abroad will not have an effect on the development of
Improvement Area B or the property owners in Improvement Area B, which may include, among
other effects, a slowdown in home sales and a decrease in land values in Improvement Area B.
FDIC/Federal Government Interests in Properties
The ability of the District to foreclose the lien of delinquent unpaid Special Tax installments
may be limited with regard to properties in which the Federal Deposit Insurance Corporation (the
"FDIC") has an interest. In the event that any financial institution making any loan which is secured
by real property within Improvement Area B is taken over by the FDIC,' and prior thereto or
thereafter the loan or loans go into default, then the ability of the District to collect interest and
penalties specified by State law and to foreclose the lien of delinquent unpaid Special Taxes may be
limited.
DOCSOC/1O34128v6/22245-0 151
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ø -b~'
The FDIC's policy statement regarding the payment of state and local real property taxes (the
"Policy Statement") provides that property owned by the FDIC is subject to state and local real
property taxes only if those taxes are assessed according to the property's value, and that the FDIC is
immune from real property taxes assessed on any basis other than property value. According to the
Policy Statement, the FDIC will pay its property tax obligations when they become due and payable
and will pay claims for delinquent property taxes as promptly as is consistent with sound business
practice and the orderly administration of the institution's affairs, unless abandonment of the FDIC's
interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property
taxes owed at the rate provided under state law, to the extent the interest payment obligation is
secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and
will not pay nor recognize liens for such amounts. If any property taxes (including interest) on
FDIC-owned property are secured by a valid lien (in effect before the property became owned by the
FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of
the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC's consent.
In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by
foreclosure without the FDIC's consent.
The Policy Statement states that the FDIC generally will not pay non-ad valorem taxes,
including special assessments, on property in which it has a fee interest unless the amount of tax is
fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the
validity of any lien to the extent it purports to secure the payment of any such amounts. Special taxes
imposed under the Mello-Roos Act and a special tax formula which determines the special tax due
each year are specifically identified in the Policy Statement as being imposed each year and therefore
covered by the FDIC's federal immunity.
The District is unable to predict what effect the application of the Policy Statement would
have in the event of a delinquency in the payment of Special Taxes on a parcel within Improvement
Area B in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be
foreclosed out at a judicial foreclosure sale could reduce or eliminate the number of persons willing
to purchase a parcel at a foreclosure sale, Such an outcome could cause a draw on the Reserve Fund
and perhaps, ultimately, a default in payment on the Bonds.
Bankruptcy and Foreclosure
Bankruptcy, insolvency and other laws generally affecting creditors rights could adversely
impact the interests of owners of the Bonds in at least two ways. First, the payment of property
owners' taxes and the ability of the District to foreclose the lien of a delinquent unpaid Special Tax
pursuant to its covenant to pursue judicial foreclosure proceedings may be limited by bankruptcy,
insolvency or other laws generally affecting creditors' rights or by the laws of the State relating to
judicial foreclosure. In addition, the prosecution of a foreclosure could be delayed due to many
reasons, including crowded local court calendars or lengthy procedural delays.
Second, the Bankruptcy Code might prevent moneys on deposit in the funds and accounts
created under the Indenture from being applied to pay interest on the Bonds and/or to redeem Bonds
if bankruptcy proceedings were brought by or against the Developer or a Merchant Builder and if the
court found that the Developer or a Merchant Builder had an interest in such moneys within the
meaning of Section 541(a)(I) of the Bankruptcy Code.
49
DOCSOCII 034128v6/22245-015!
, .-
b-Þ~
Although a bankruptcy proceeding would not cause the Special Taxes to become
extinguished, the amount of any Special Tax lien could be modified if the value of the property falls
below the value of the lien. If the value of the property is less than the lien, such excess amount
could be treated as an unsecured claim by the bankruptcy court. In addition, bankruptcy of a
property owner could result in a delay in prosecuting Superior Court foreclosure proceedings. Such
delay would increase the likelihood of a delay or default in payment of delinquent Special Tax
installments and the possibility of delinquent Special Tax installments not being paid in full.
On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion
in a bankruptcy case entitled In re GlasDlv Marine Industries. In that case, the court held that ad
valorem property taxes levied by Snohomish County in the State of Washington after the date that
the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor
with a prior lien on the property. Although the court upheld the priority of unpaid taxes imposed
before the bankruptcy petition, unpaid taxes imposed after the filing of the bankruptcy petition were
declared to be "administrative expenses" of the bankruptcy estate, payable after all secured creditors.
As a result, the secured creditor was able to foreclose on the property and retain all the proceeds of
the sale except the amount of the pre-petition taxes.
The Bankruptcy Refonn Act of 1994 (the "Bankruptcy Refonn Act") included a provision
which excepts from the Bankruptcy Code's automatic stay provisions, "the creation of a statutory
lien for an ad valorem property tax imposed by . . . a political subdivision of a state if such tax comes
due after the filing of the petition [by a debtor in bankruptcy court]." This amendment effectively
makes the GlasDlv holding inoperative as it relates to ad valorem real property taxes. However, it is
possible that the original rationale of the Glasply ruling could still result in the treatment of post-
petition special taxes as "administrative expenses," rather than as tax liens secured by real property,
at least during the pendency of bankruptcy proceedings.
According to the court's ruling, as administrative expenses, post petition taxes would be paid,
assuming that the debtor had sufficient assets to do so. In certain circumstances, payment of such
administrative expenses may be allowed to be deferred. Once the property is transferred out of the
bankruptcy estate (through foreclosure or otherwise), it would at that time become subject to current
ad valorem taxes.
The Act provides that the Special Taxes are secured by a continuing lien which is subject to
the same lien priority in the case of delinquency as ad valorem taxes. No case law exists with respect
to how a bankruptcy court would treat the lien for Special Taxes levied after the filing of a petition in
bankruptcy. Glasply is controlling precedent on bankruptcy courts in the State. If the Glasl'lv
precedent was applied to the levy of the Special Taxes, the amount of Special Taxes received from
parcels whose owners declare bankruptcy could be reduced.
The various legal opinions to be delivered concurrently with the delivery of the Bonds
(including Bond Counsel's approving legal opinion) will be qualified, as to the enforceability of the
various legal instruments, by moratorium, bankruptcy, reorganization, insolvency or other similar
laws affecting the rights of creditors generally.
No Acceleration Provision
The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event
of a payment default or other default under the Bonds or the Indenture.
DOCSOC/1034128v6/22245-0 151
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Loss of Tax Exemption
As discussed under the caption "TAX MATTERS," the interest on the Bonds could become
includable in gross income for federal income tax purposes retroactive to the date of issuance of the
Bonds as a result of a failure of the District to comply with certain provisions of the Internal Revenue
Code of 1986, as amended. Should such an event of taxability occur, the Bonds are not subject to
early redemption and will remain outstanding to maturity or until redeemed under the optional
redemption provisions of the Indenture.
Limitations on Remedies
Remedies available to the owners of the Bonds may be limited by a variety of factors and
may be inadequate to assure the timely payment of principal of and interest on the Bonds or to
preserve the tax-exempt status of interest on the Bonds.
Bond Counsel has limited its opinion as to the enforceability of the Bonds and of the
Indenture to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the
enforcement of creditors' rights, by equitable principles and by the exercise of judicial discretion.
The lack of availability of certain remedies or the limitation of remedies may entail risks of delay,
limitation or modification of the rights of the owners of the Bonds.
Limited Secondary Market
There can be no guarantee that there will be a secondary market for the Bonds or, if a
secondary market exists, that the Bonds can be sold for any particular price. Although the District,
the Developer and the Merchant Builders have committed to provide certain financial and operating
information on an annual basis, there can be no assurance that such information will be available to
Bondowners on a timely basis. See "CONTINUING DISCLOSURE." The failure to provide the
required annual financial information does not give rise to monetary damages but merely an action
for specific performance. Occasionally, because of general market conditions, lack of current
information, or because of adverse history or economic prospects connected with a particular issue,
secondary marketing practices in connection with a particular issue are suspended or terminated.
Additionally, prices of issues for which a market is being made will depend upon then prevailing
circumstances. Such prices could be substantially different from the original purchase price.
Proposition 218
An initiative measure commonly referred to as the "Right to Vote on Taxes Act" (the
"Initiative") was approved by the voters of the State of California at the November 5, 1996 general
election. The Initiative added Article XIIIC and Article XIIID to the California Constitution.
According to the "Title and Summary" of the Initiative prepared by the California Attorney General,
the Initiative limits "the authority of local governments to impose taxes and property-related
assessments, fees and charges." Certain provisions of the Initiative have been interpreted by the
courts, although it is expected that various aspects of the Initiative will be the subject of litigation for
a number of years. The Initiative could potentially impact the Special Taxes available to the District
to pay the principal of and interest on the Bonds as described below.
DOCSOC/l 034128v6/22245-0151
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Among other things, Section 3 of Article XIlI states that ". . . the initiative power shall not be
prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or
charge." The Act provides for a procedure which includes notice, hearing, protest and voting
requirements to alter the rate and method of apportionment of an existing special tax. However, the
Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or
terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Act unless
such legislative body determines that the reduction or termination of the special tax would not
interfere with the timely retirement of that debt. On July I, 1997, a bill was signed into law by the
Governor of the State enacting Government Code Section 5854, which states that:
"Section 3 of Article XlIIC of the California Constitution, as adopted at the
November 5, 1996, general election, shall not be construed to mean that any owner or
beneficial owner of a municipal security, purchased before or after that date, assumes the risk
of, or in any way consents to, any action by initiative measure that constitutes an impairment
of contractual rights protected by Section 10 of Article I of the United States Constitution."
Accordingly, although the matter is not free from doubt, it is likely that the Initiative has not
conferred on the voters the power to repeal or reduce the Special Taxes if such reduction would
interfere with the timely retirement of the Bonds.
11 may be possible, however, for voters or the City Council acting as the legislative body of
the District to reduce the Special Taxes in a manner which does not interfere with the timely
repayment of the Bonds, but which does reduce the maximum amount of Special Taxes that may be
levied in any year below the existing levels. Furthermore, no assurance can be given with respect to
the future levy of the Special Taxes in amounts greater than the amount necessary for the timely
retirement of the Bonds. Therefore, no assurance can be given with respect to the levy of Special
Taxes for Administrative Expenses. Nevertheless, to the maximum extent that the law permits it to
do so, the District has covenanted that it will not initiate proceedings under the Act to reduce the
maximum Special Tax rates on parcels within Improvement Area B to less than an amount equal to
110% of Maximum Annual Debt Service on the Outstanding Bonds. In connection with the
foregoing covenant, the District has made a legislative finding and determination that any elimination
or reduction of Special Taxes below the foregoing level would interfere with the timely retirement of
the Bonds. The District also has covenanted that, in the event an initiative is adopted which purports
to alter the Rate and Method, it will commence and pursue legal action in order to preserve its ability
to comply with the foregoing covenant. However, no assurance can be given as to the enforceability
of the foregoing covenants.
The interpretation and application of the Initiative will ultimately be determined by the courts
with respect to a number of the matters discussed above, and it is not possible at this time to predict
with certainty the outcome of such determination or the timeliness of any remedy afforded by the
courts. See "SPECIAL RISK FACTORS - Limitations on Remedies."
Ballot Initiatives
Article XIlI A, Article XIlI B and Proposition 218 were adopted pursuant to measures
qualified for the ballot pursuant to California's constitutional initiative process. From time to time,
other initiative measures could be adopted by California voters, The adoption of any such initiative
might place limitations on the ability of the State, the City or local districts to increase revenues or to
increase appropriations or on the ability of the landowners within Improvement Area B to complete
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DOCSOCIl 034128v6/22245-0 151
~ -6;
the remaining proposed development. See "SPECIAL RISK FACTORS - Failure to Develop
Properties" herein.
CONTINUING DISCLOSURE
Pursuant to a Continuing Disclosure Agreement with the Fiscal Agent, as dissemination
agent (the "Disclosure Agreement"), the District, has agreed to provide, or cause to be provided, to
each nationally recognized municipal securities infonnation repository and any public or private
repository or entity designated by the State as a state repository for purposes of Rule 15c2-12(b)(5)
adopted by the Securities and Exchange Commission (each, a "Repository") certain annual financial
infonnation and operating data concerning the District. The Annual Report to be filed by the District
is to be filed not later than February I of each year, beginning February I, 2005, and is to include
audited financial statements of the City. The requirement that the City file its audited financial
statements as a part of the Annual Report has been included in the Disclosure Agreement solely to
satisfy the provisions of Rule 15c2-12. The inclusion of this infonnation does not mean that the
Bonds are secured by any resources or property of the City. See "SOURCES OF PAYMENT FOR
THE BONDS - Limited Obligations" and "SPECIAL RISK FACTORS - Limited Obligations."
The City has never failed to comply in all material respects with any previous undertakings with
regard to Rule 15c2-12 to provide annual reports or notices of material events. The District has
never failed to comply in all material respects with any undertaking under Rule 15c2-12. The full
text of the Disclosure Agreement is set forth in Appendix G.
To assist the Underwriter in complying with Rule 15c2-12(b)(5), the Developer, KB Coastal
and Cornerstone will each enter into a Continuing Disclosure Agreement (collectively, the
"Developer Disclosure Agreements") covenanting to provide Semi-Annual Reports not later than
May I and November 1 of each year beginning November I, 2004. The Semi-Annual Reports
provided by the Developer, KB Coastal and Cornerstone are to contain the financial and operating
data outlined in Section 4 of fonn of the Developer Disclosure Agreement attached in Appendix G
and the Semi-Annual Report due in May of each year is to confinn the audited financial statements
for the prior calendar year if audited financial statements are prepared.
The obligations of the Developer, KB Coastal and Cornerstone under their respective
Developer Disclosure Agreements will tenninate upon the earliest to occur of: (a) the legal
defeasance, prior redemption or payment in full of all the Bonds; (b) the date on which such
landowner (and all its affiliates) is no longer responsible for the payment of more than 20 percent of
the annual Special Tax levy; or (c) the date on which such landowner delivers to the City an opinion
of nationally-recognized bond counsel to the effect that the continuing disclosure is no longer
required under the Rule. Each such landowner has also agreed that if it sells or transfers an
ownership interest in any property in Improvement Area B which will result in the transferee
becoming responsible for the payment of20 percent of the annual Special Tax levy in the fiscal year
following such transfer, such landowner will cause any such transferee to enter into a disclosure
agreement as described in Section 12 of the fonn of Developer Disclosure Agreement attached hereto
in Appendix G.
The Developer Disclosure Agreements will inure solely to the benefit of the District, any
Dissemination Agent, the Underwriter and owners or beneficial owners from time to time of the
Bonds.
DOCSOC/I 034128v6/22245-0 151
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TAX MATTERS
In the opinion of Best Best & Krieger LLP ("Bond Counsel"), based upon an analysis of
existing laws, regulations, rulings and court decisions, and assuming, among other matters,
compliance with certain covenants, interest on the Bonds is excluded from gross income for federal
income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code") and is
exempt from State of California personal income taxes. Bond Counsel is of the further opinion that
interest on the Bonds is not a specific preference item for purposes of the federal individual or
corporate alternative minimum taxes, although Bond Counsel observes that such interest is included
in adjusted current earnings when calculating federal corporate alternative minimum taxable income.
A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix H hereto.
The Code imposes various restrictions, conditions and requirements relating to the exclusion
from gross income for federal income tax purposes of interest on obligations such as the Bonds. The
District has covenanted to comply with certain restrictions designed to insure that interest on the
Bonds will not be included in federal gross income. Failure to comply with these covenants may
result in interest on the Bonds being included in federal gross income, possibly from the date of
original issuance of the Bonds. The opinion of Bond Counsel assumes compliance with these
covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any
actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the
Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. Further, no
assurance can be given that pending or future legislation or amendments to the Code, if enacted into
law, or any proposed legislation or amendments to the Code, will not adversely affect the value of, or
the tax status of interest on, the Bonds. Prospective Bondholders are urged to consult their own tax
advisors with respect to proposals to restructure the federal income tax.
Certain requirements and procedures contained or referred to in the Indenture, the Tax
Certificate, and other relevant documents may be changed and certain actions (including, without
limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to
the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any
Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice
or approval of counsel other than Best, Best & Krieger LLP.
Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross
income for federal income tax purposes and is exempt from State of California personal income
taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may
otherwise affect a Bondholder's federal or state tax liability. The nature and extent of these other tax
consequences will depend upon the particular tax status of the Bondholder or the Bondholder's other
items of income or deduction, and Bond Counsel expresses no opinion regarding any such other tax
consequences.
LEGAL MATTERS
Certain legal matters incident to the issuance of the Bonds are subject to the approving legal
opinion of Best Best & Krieger LLP ("Bond Counsel"). A copy of the proposed form of opinion of
Bond Counsel is set forth in Appendix H hereto. The opinion of Bond Counsel will be qualified as to
the enforceability of certain of the proceedings by limitations imposed by bankruptcy, insolvency,
S4
DOCSOC/1O34128v6/22245-0 151
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moratoria and other similar laws affecting creditors' rights, heretofore or hereafter enacted, and by
the exercise of judicial discretion in accordance with general principles of equity.
Bond Counsel has reviewed the cover page of this Official Statement and the portions hereof
under the captions "INTRODUCTION," "THE BONDS," "SOURCES OF PAYMENT FOR THE
BONDS" "TAX MATTERS" and in Appendices E and H, insofar as such portions purport to
summarize certain provisions of the Bonds, the Indenture, the legal procedures required for the
authorization of the Bonds, and the opinion of Bond Counsel concerning the exclusion of interest on
the Bonds from gross income, but Bond Counsel has not assisted in the preparation of or. reviewed
the remainder of this Official Statement, and accordingly Bond Counsel expresses no opinion as to
the accuracy or sufficiency of any statements, material or financial information contained in the
remainder of this Official Statement.
Certain legal matters will be passed upon for the City and the District by the City Attorney
and for the Underwriter by its counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation,
Newport Beach, California ("Stradling"). Although it serves as counsel to the Underwriter in
connection with the issuance and sale of the Bonds, Stradling represents the City in connection with
other financings. Stradling undertakes no responsibility to the purchasers of the Bonds for the
accuracy, completeness or fairness of the information in this Official Statement and expressly
disclaims any duty to do so.
LITIGATION
No litigation is pending or threatened concerning the validity of the Bonds or the pledge of
Special Taxes to repay the Bonds and a certificate of the District to that effect will be furnished to the
Underwriter at the time of the original delivery of the Bonds. The District is not aware of any
litigation pending or threatened which questions the existence of the District or contests the authority
of the District to levy and collect the Special Taxes or to issue and retire the Bonds.
NO RATING
The District has not made and does not contemplate making application to any rating agency
for the assignment of a rating of the Bonds.
UNDERWRITING
The Bonds are being purchased by Stone & Youngberg LLC (the "Underwriter"). The
Underwriter has agreed to purchase the Bonds at a price of $ (being
$ aggregate principal amount thereof, less Underwriter's discount of
$ ). The purchase agreement relating to the Bonds provides that the Underwriter will
purchase all of the Bonds if any are purchased. The obligation to make such purchase is subject to
certain terms and conditions set forth in such purchase agreement, the approval of certain legal
matters by counsel and certain other conditions.
The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower
than the offering price stated on the cover page hereof. The offering price may be changed from time
to time by the Underwriter.
DOCSOC/I034128v6/22245-0151
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FINANCIAL INTERESTS
The fees being paid to the Financial Advisor, the Underwriter, Underwriter's Counsel and
Bond Counsel are contingent upon the issuance and delivery of the Bonds. From time to time, Bond
Counsel represents the Underwriter on matters unrelated to the Bonds and Underwriter's Counsel
represents the City on matters unrelated to the Bonds.
PENDING LEGISLATION
The District is not aware of any significant pending legislation which would have material
adverse consequences on the Bonds or the ability of the District to pay the principal of and interest
on the Bonds when due.
ADDITIONAL INFORMATION
The purpose of this Official Statement is to supply information to prospective buyers of the
Bonds. Quotations and summaries and explanations of the Bonds and documents contained in this
Official Statement do not purport to be complete, and reference is made to such documents for full
and complete statements and their provisions.
DOCSOC/1O34128v6/22245-o 151
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t-7J-
The execution and delivery of this Official Statement by the Director of Finance of the City
has been duly authorized by the City Council acting in its capacity as the legislative body of the
District.
CITY OF CHULA VISTA COMMUNITY
FACILITIES DISTRlCT.NO. 06-1
(EASTLAKE - WOODS, VISTAS AND
LAND SWAP)
By:
Director of Finance
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APPENDIX A
AMENDED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX
CITY OF CHULA VISTA
COMMUNITY FACILITIES DISTRICT NO. 06-1
IMPROVEMENT AREA B
(Eastlake - Woods, Vistas and Land Swap)
A Special Tax as hereinafter defined shall be levied on each Assessor's Parcel of Taxable
Property within the City ofChula Vista Community Facilities District No. 06-1, Improvement Area B
("Improvement Area B") and collected each Fiscal Year commencing in Fiscal Year 2003-2004 in an
amount detennined by the City Council through the application of the appropriate Special Tax for
"Developed Property," and "Undeveloped Property" as described below. All of the Taxable Property
in Improvement Area B, unless exempted by law or by the provisions hereof, shall be taxed for the
purposes, to the extent and in the manner herein provided.
A.
DEFINITIONS
The tenns hereinafter set forth have the following meaning:
"Acre or Acreage" means the land area of an Assessor's Parcel as shown on an Assessor's
Parcel Map, or if the land area is not shown on an Assessor's Parcel Map, the land area
shown on the applicable Final Subdivision Map, parcel map, condominium plan, record of
survey, or other recorded document creating or describing the parcel. If the preceding maps
for a land area are not available, the Acreage of such land area shall be detennined by the
City Engineer.
"Act" means the Mello-Roos Community Facilities Act of 1982, as amended, being
Chapter 2.5, Division 2 of Title 5 of the Government Code of the State of California.
"Administrative Expenses" means the actual or reasonably estimated costs directly related
to the administration ofImprovement Area B including, but not limited to, the following: the
costs of computing the Special Taxes and preparing the annual Special Tax collection
schedules (whether by the City or designee thereof or both); the costs of collecting the
Special Taxes (whether by the County, the City, or otherwise); the costs of remitting the
Special Taxes to the Trustee; the costs of the Trustee (including its legal counsel) in the
discharge of the duties required of it under the Indenture; the costs to the City, CFD-06-1 or
any designee thereof of complying with arbitrage rebate requirements; the costs to the City,
CFD-06-I or any designee thereof of providing continuing disclosure; the costs associated
with preparing Special Tax disclosure statements and responding to public inquiries
regarding the Special Taxes; the costs of the City, CFD-06-I or any designee thereof related
to any appeal ofthe levy or application ofthe Special Tax; and the costs associated with the
release of funds from an escrow account, if any. Administrative Expenses shall also include
amounts estimated or advanced by the City or CFD-06-1 for any other administrative
purposes of Improvement Area B, including, but not limited to attorney's fees and other costs
related to commencing and pursuing to completion any foreclosure of delinquent Special
Taxes.
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"Assessor's Parcel" means a lot or parcel shown in an Assessor's Parcel Map with an
assigned Assessor's Parcel number.
"Assessor's Parcel Map" means an official map of the County Assessor of the County
designating parcels by Assessor's Parcel number.
"Assigned Special Tax" means the Special Tax for each Land Use Category of Developed
Property as detennined in accordance with Section C.I.a.
"Available Funds" means the balance in the reserve fund established pursuant to the tenus
of the Indenture in excess of the reserve requirement as defined in such Indenture, delinquent
Special Tax payments not required to fund the Special Tax Requirement for any preceding
Fiscal Year, Special Tax prepayments collected to pay interest on Bonds, and other sources
offunds available as a credit to the Special Tax Requirement as specified in such Indenture.
"Backup Special Tax" means the Backup Special Tax amount set forth in Section C.I.b.
"Bonds" means any bonds or other debt (as defined in the Act), whether in one or more
series, issued by CFD-06-I for Improvement Area B under the Act.
"Bond Year" means a one-year period beginning on September 2nd in each year and ending
on September 1st in the following year. Unless defined differently in the applicable
Indenture.
"CFD Administrator" means an official of the City, or designee thereof, responsible for
detennining the Special Tax Requirement and providing for the levy and collection of the
Special Taxes.
"CFD 06-1" means City of Chula Vista, Community Facilities District No. 06-1.
"City" means the City of Chula Vista.
"Commercial Property" means all Assessors' Parcels of Developed Property, for which a
building pennit(s) was issued for a non-residential use, excluding Community Purpose
Facility Property.
"Community Purpose Facility Property" means all Assessors' Parcels which are classified
as community purpose facilities and meet the requirements of City of Chula Vista Ordinance
No. 2452.
"Council" means the City Council of the City, acting as the legislative body ofCFD-06-1.
"County" means the County of San Diego.
"Developed Property" means, for each Fiscal Year, all Taxable Property for which a
building pennit for new construction was issued prior to March I of the prior Fiscal Year.
"Exempt Property" means property not subject to the Special Tax due to its classification as
either Public Property, Property Owner Association Property Community Purpose Facility
Property.
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"Final Subdivision Map" means a subdivision of property, created by recordation of a Final
Subdivision Map, parcel map or lot line adjustment, approved by the City pursuant to the
Subdivision Map Act (California Government Code Section 66410 et seq.) or recordation of
a condominium plan pursuant to California Civil Code 1352, that creates individual lots for
which residential building permits may be issued without further subdivision of such
property.
"Fiscal Year" means the period starting July I and ending on the following June 30.
"Improvement Area B" means Improvement Area B of CFD No. 06-1 known as the "Land
Swap".
"Indenture" means the indenture, fiscal agent agreement, trust agreement, resolution or other
instrument pursuant to which Bonds are issued, as modified, amended and/or supplemented
from time to time, and any instrument replacing or supplementing the same.
"Land Use Class" means any of the classes listed in Table I of Section C.
"Lot(s)" means an individual legal lot created by a Final Subdivision Map for which a
building permit for residential construction has been or could be issued.
"Master Developer" means the owner of the predominant amount of Undeveloped Property
in Improvement Area B.
"Maximum Annual Special Tax" means the maximum annual Special Tax, determined in
accordance with the provisions of Section C, which may be levied in any Fiscal Year on any
Assessor's Parcel of Taxable Property.
"Outstanding Bonds" mean all Bonds, which remain outstanding as defined in the
Indenture.
"Property Owner Association Property" means any property within the boundaries of
Improvement Area B owned by or dedicated to a property owner association, including any
master or sub-association.
"Proportiouately" means for Developed Property that the ratio of the actual Special Tax
levy to the Assigned Special Tax or the Backup Special Tax is equal for all Assessors'
Parcels of Developed Property within Improvement Area B. For Undeveloped Property
"Proportionately" means that the ratio of the actual Special Tax levy per Acre to the
Maximum Annual Special Tax per Acre is equal for all Assessor's Parcels of Undeveloped
Property within Improvement Area B.
"Public Property" means any property within the boundaries ofImprovement Area B that is
owned by or dedicated to the federal government, the State of California, the County, the
City or any other public agency.
"Residential Property" means all Assessors' Parcels of Developed Property for which a
building permit has been issued for purposes of constructing one or more residential dwelling
units.
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"Residential Floor Area" means all of the square footage of living area within the perimeter
of a residential structure, not including any carport, walkway, garage, overhang, patio,
enclosed patio, or similar area. The determination of Residential Floor Area shall be made
by the CFD Administrator by reference to appropriate records kept by the City's Building
Department. Residential Floor Area for a residential structure will be based on the building
permit(s) issued for such structure.
"Special Tax" means the annual special tax to be levied in each Fiscal Year on each
Assessor's Parcel of Taxable Property to fund the Special Tax Requirement.
"Special Tax Requirement" means that amount of Special Tax revenue required in any
Fiscal Year for Improvement Area B to: (i) pay annual debt service on all Outstanding
Bonds (as defined in Section A) due in the Bond Year beginning in such Fiscal Year; (ii) pay
other periodic costs on Outstanding Bonds, including but not limited to, credit enhancement
and rebate payments on Outstanding Bonds; (iii) pay Administrative Expenses; (iv) pay any
amounts required to establish or replenish any reserve funds for all Outstanding Bonds in
accordance with the Indenture; and (v) pay directly for acquisition and/or construction of
public improvements which are authorized to be financed by CFD-O6-I provided that the
inclusion of such amount does not cause an increase in the levy of Special Tax on the
Undeveloped Property for Improvement Area B; less (vi) a credit for Available Funds.
"State" means the State of California.
"Taxable Property" means all of the Assessor's Parcels within the boundaries ofCFD-O6-I,
Improvement Area B that are not exempt from the Special Tax pursuant to law or Section E
below.
"Trustee" means the trustee, fiscal agent, or paying agent under the Indenture.
"Undeveloped Property" means, for each Fiscal year, all Taxable Property not classified as
Developed Property.
"Zone 3" means a specific geographic area as depicted in Exhibit A attached hereto.
"Zone 4" means a specific geographic area as depicted in Exhibit A attached hereto.
B.
ASSIGNMENT TO LAND USE CATEGORIES
Each Fiscal Year, all Assessor's Parcels of Taxable Property within, Improvement Area B
shall be (a) categorized as being located in either Zone 3 or Zone 4, (b) classified as
Developed Property or Undeveloped Property and (c) shall be subject to the levy of annual
Special Taxes determined pursuant to Sections C and D below. Furthermore, all Developed
Property shall then be classified as Residential or Commercial Property.
C.
MAXIMUM ANNUAL SPECIAL TAX RATE
1.
Developed Property
The Maximum Annual Special Tax for each Assessor's Parcel of Residential
Property or Commercial Property shall be the greater of (1) the Assigned Special Tax
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described in Table 1 below or (2) the Backup Special Tax computed pursuant to b.
below.
a.
AssÍ!med Special Tax
The Assigned Special Tax for each Assessor's Parcel of Developed Property is
shown in Table I.
TABLE 1
ASSIGNED SPECIAL TAX FOR DEVELOPED PROPERTY
WITHIN ZONE 3 AND ZONE 4
Land Use Class
Description
Residential Property
Assigned Special Tax
$0.74 per square foot of
Residential Floor Area
$6,000 per Acre
2
Commercial Property
b.
Backup Special Tax
When a Final Subdivision Map is recorded within Zone 3 or Zone 4, the Backup
Special Tax for Assessor's Parcels of Developed Property classified as Residential
Property or Commercial Property shall be detennined as follows:
For each Assessor's Parcel of Residential Property or for each Assessor's Parcel of
Undeveloped Property to be classified as Residential Property upon its development
within the Final Subdivision Map area, the Backup Special Tax shall be the rate per
Lot calculated according to the following fonnula:
Zone 3
$20,563 x A
B=
------------------------
L
Zone 4
$6,667 x A
B=
------------------------
L
The tenns above have the following meanings:
B=
A=
L=
Backup Special Tax per Lot in each Fiscal Year.
Acreage classified or to be classified as Residential Property in such
Final Subdivision Map.
Lots in the Final Subdivision Map which are classified or to be
classified as Residential Property.
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For each Assessor's Parcel of Commercial Property or for each Assessor's Parcel of
Undeveloped Property to be classified as Commercial Property within the Final
Subdivision Map area, the Backup Special Tax shall be determined by multiplying
$20,563 for Zone 3 and $6,667 for Zone 4 by the total Acreage of each Assessor's
Parcels of the Commercial Property and Undeveloped Property to be classified as
Commercial Property within the Final Subdivision Map area.
Notwithstanding the foregoing, if Assessor's Parcels of Residential Property,
Commercial Property or Undeveloped Property for which the Backup Special Tax
has been determined are subsequently changed or modified by recordation of a new
or amended Final Subdivision Map, then the Backup Special Tax applicable to such
Assessor's Parcels shall be recalculated to equal the amount of Backup Special Tax
that would have been generated if such change did not take place.
2.
Undeveloped Property
The Maximum Annual Special Tax for each Assessor's Parcel classified, as
Undeveloped Property shall be $20,563 per Acre for Zone 3 and $6,667 per Acre for
Zone 4.
D.
METHOD OF APPORTIONMENT OF THE SPECIAL TAX
Commencing with Fiscal Year 2003-04 and for each following Fiscal Year, the Council shall
determine the Special Tax Requirement and shall levy the Special Tax until the amount of
Special Taxes equals the Special Tax Requirement. The Special Tax shall be levied each
Fiscal Year as follows:
First: The Special Tax shall be levied Proportionately on each Assessor's Parcel of
Developed Property within Zone 3 and Zone 4 at a rate up to 100% of the applicable
Assigned Special Tax to satisfy the Special Tax Requirement.
Second: If additional monies are needed to satisfy the Special Tax Requirement after the first
step has been completed, the Special Tax shall be levied Proportionately on each Assessor's
Parcel of Undeveloped Property within Zone 3 and Zone 4, excluding any Assessor's Parcels
classified as Undeveloped Property pursuant to Section E, at a rate up to 100% of the
Maximum Annual Special Tax for Undeveloped Property.
Third: If additional monies are needed to satisfy the Special Tax Requirement after the first
two steps have been completed, the Special Tax to be levied on each Assessor's Parcel of
Developed Property whose Maximum Annual Special Tax is derived by the application of
the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up
to the Maximum Annual Special Tax for each such Assessor's Parcel.
Fourth: If additional monies are needed to satisfy the Special Tax Requirement after the first
three steps have been completed, then the Special Tax shall be levied Proportionately on each
Assessor's Parcel classified as Undeveloped Property pursuant to Section E at a rate up to
100% of the Maximum Annual Special Tax for Undeveloped Property.
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E.
F.
Notwithstanding the above, under no circumstances will the Special Tax levied against any
Assessor's Parcel of Residential Property be increased by more than ten percent per year as a
consequence of delinquency or default in the payment of Special Taxes by the owner of any
other Assessor's Parcel.
EXEMPTIONS
I.
The CFD Administrator shall classify the following Assessor Parcel(s) as exempt
property: (i) Public Property, (ii) Property Owner Association Property,
(iii) Community Purpose Facility Property, and (iv) Assessor's Parcels with public or
utility easements making impractical their utilization for other than the purposes set
forth in the easement; provided, however, that no such classification shall reduce the
sum of all Taxable Property to less than 36.50 Acres in Zone 3 and 52.00 Acres in
Zone 4. Assessor's Parcels which cannot be classified as exempt property because
such classification would reduce the Acreage of all Taxable Property to less than
36.50 Acres in Zone 3 and 52.00 Acres in Zone 4 will be classified as Undeveloped
Property and shall be taxed as such. Tax-exempt status for purposes of this paragraph
will be assigned by the CFD Administrator in the chronological order in which
property becomes exempt property.
2.
The Maximum Annual Special Tax obligation for any property which would be
classified as Public Property upon its transfer or dedication to a public agency but
which cannot be classified as exempt property as described in paragraph I of
Section F shall be prepaid in full by the seller pursuant to Section I.1, prior to the
transfer/dedication of such property to such public agency. Until the Maximum
Annual Tax obligation for any such Public Property is prepaid, the property shall
continue to be subject to the levy of the Special Tax as Undeveloped Property.
REVIEW/APPEAL COMMITTEE
Any landowner or resident who feels that the amount of the Special Tax levied on their
Assessor's Parcel is in error shall first consult with the CFD Administrator regarding such
error. If following such consultation, the CFD Administrator determines that an error has
occurred; the CFD Administrator may amend the amount of the Special Tax levied on such
Assessor's Parcel. If following such consultation and action (if any by the CFD
Administrator), the landowner or resident believes such error still exists, such person may file
a written notice with the City Clerk of the City appealing the amount of the Special Tax
levied on such Assessor's Parcel. Upon the receipt of any such notice, the City Clerk shall
forward a copy of such notice to the City Manager who shall establish as part of the
proceedings and administration of CFD-06-I and a special three-member Review/Appeal
Committee. The Review/Appeal Committee may establish such procedures, as it deems
necessary to undertake the review of any such appeal. The Review/Appeal Committee shall
interpret this Rate and Method of Apportionment and make determinations relative to the
annual administration of the Special Tax and any landowner or resident appeals, as herein
specified. The decision of the Review/Appeal Committee shall be final and binding as to all
persons.
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G.
MANNER OF COLLECTION
The annual Special Tax shall be collected in the same manner and at the same time as
ordinary ad valorem property taxes; provided, however, that CFD-06- I, Improvement Area B
may directly bill the Special Tax, may collect Special Taxes at a different time or in a
different manner if necessary to meet its financial obligations, and may covenant to foreclose
and may actually foreclose on Assessor's Parcels of Taxable Property that are delinquent in
the payment of Special Taxes.
Tenders of Bonds may be accepted for payment of Special Taxes upon the terms and
conditions established by the Council pursuant to the Act. However, the use of Bond tenders
shall only be allowed on a case-by-case basis as specifically approved by the Council.
H.
PREPAYMENT OF SPECIAL TAX
The following definition applies to this Section H:
"CFD Public Facilities" means those public facilities authorized to be financed by CFD-O6-1
Improvement Area B.
"CFD Public Facilities Costs" means either $12.3 million, or such lower number as shall be
determined either by (a) the CFD Administrator as sufficient to finance the CFD Public
Facilities, or (b) the Council concurrently with a covenant that it will not issue any more
Bonds to be secured by Special Taxes levied under this Rate and Method of Apportionment.
"Construction Fund" means an account specifically identified in the Indenture to hold funds
which are currently available for expenditure to acquire or construct the CFD Public
Facilities.
"Future Facilities Costs" means the CFD Public Facilities Costs minus that (a) portion of
the CFD Public Facilities Costs previously funded (i) from the proceeds of all previously
issued Bonds, (ii) from interest earnings on the Construction Fund actually earned prior to the
date of prepayment and (iii) directly ITom Special Tax revenues and (b) the amount of the
proceeds of all previously issued Bonds then on deposit in the Construction Fund.
"Outstandiug Bonds" means all previously issued Bonds which will remain outstanding
after the first interest and/or principal payment date following the current Fiscal Year,
excluding Bonds to be redeemed at a later date with the proceeds of prior prepayments of
Maximum Annual Special Taxes.
1.
Prepayment in Full
The Maximum Annual Special Tax obligation may only be prepaid and permanently satisfied
for an Assessor's Parcel of Developed Property, Undeveloped Property for which a building
permit has been issued, or Public Property. The Maximum Annual Special Tax obligation
applicable to such Assessor's Parcel may be fully prepaid and the obligation of the
Assessor's Parcel to pay the Special Tax permanently satisfied as described herein; provided,
however that a prepayment may be made only if there are no delinquent Special Taxes with
respect to such Assessor's Parcel at the time of prepayment. An owner of an Assessor's
Parcel intending to prepay the Maximum Annual Special Tax obligation shall provide the
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CFD Administrator with written notice of intent to prepay. Within 30 days of receipt of such
written notice, the CFD Administrator shall notify such owner of the Prepayment amount of
such Assessor's Parcel. The CFD Administrator may charge a reasonable fee for providing
this figure.
The Prepayment Amount (defined below) shall be calculated as summarized below
(capitalized terms as defined below):
Total:
Bond Redemption Amount
plus Redemption Premium
plus Future Facilities Amount
plus Defeasance Amount
plus Prepayment Fees and Expenses
less Reserve Fund Credit
less Capitalized Interest Credit
equals Prepayment Amount
As of the proposed date of prepayment, the Prepayment Amount (defined below) shall be
calculated as follows:
Step No.:
I.
For Assessor's Parcels of Developed Property, compute the Maximum Annual
Special Tax for the Assessor's Parcel to be prepaid. For Assessor's Parcels of
Undeveloped Property for which a building permit has been issued to be prepaid,
compute the Maximum Annual Special Tax for that Assessor's Parcel as though it
was already designated as Developed Property, based upon the building permit issued
for that Assessor's Parcel. For Assessor's Parcels of Public Property to be prepaid,
compute the Maximum Annual Special Tax for that Assessor's Parcel using the
Maximum Annual Special Tax for Undeveloped Property.
2.
Divide the Maximum Annual Special Tax computed pursuant to paragraph I by the
sum of the total expected Maximum Annual Special Tax revenues which may be
levied within Improvement Area B excluding any Assessors Parcels for which the
Maximum Annual Special Tax obligation has been previously prepaid.
3.
Multiply the quotient computed pursuant to paragraph 2 by the principal amount of
the Outstanding Bonds to compute the amount of Outstanding Bonds to be retired and
prepaid (the "Bond Redemption Amount').
4.
Multiply the Bond Redemption Amount computed pursuant to paragraph 3 by the
applicable redemption premium on the next possible Bond call date, if any, on the
Outstanding Bonds to be redeemed (the "Redemption Premium").
5.
If all the Bonds authorized to be issued for Improvement Area B have not been
issued, compute the Future Facilities Costs.
DOCSOCIl 034128v6i22245-0 151
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14.
15.
16.
6.
Multiply the quotient computed pursuant to paragraph 2 by the amount detennined
pursuant to paragraph 5 to compute the amount of Future Facilities Costs to be
allocated to such Assessor's Parcel (the "Future Facilities Amounf').
7.
Compute the amount needed to pay interest on the Bond Redemption Amount from
the first bond interest and/or principal payment date following the current Fiscal Year
until the earliest redemption date for the Outstanding Bonds.
8.
Confmn that no Special Tax delinquencies apply to such Assessor's Parcel.
9.
Detennine the Special Taxes levied on the Assessor's Parcel in the current Fiscal
Year, which have not yet been paid.
10.
Detennine the fees and expenses of CFD-06- I, including but not limited to, the costs
of computation of the prepayment, the costs to invest the prepayment proceeds, the
costs of redeeming Bonds from the proceeds of such prepayment, and the cost of
recording any notices to evidence the prepayment and the redemption (the
"Prepayment Fees and Expenses").
11.
Compute the amount the CFD Administrator reasonably expects to derive from the
reinvestment of the prepayment amount less the Prepayment Fees and Expenses, as
detennined pursuant to step 10, from the date of prepayment until the redemption
date for the outstanding bonds to be redeemed with the prepayment.
12.
Add the amounts computed pursuant to paragraphs 7 and 9 and subtract the amount
computed pursuant to paragraph II (the "Defeasance Amount').
13.
The reserve fund credit (the "Reserve Fund Credit") shall equal the lesser of: (a) the
expected reduction in the reserve requirement (as defined in the Indenture), if any,
associated with the redemption of Outstanding Bonds as a result of the prepayment,
or (b) the amount derived by subtracting the new reserve requirement (as defined in
the Indenture) in effect after the redemption of Outstanding Bonds as a result of the
prepayment from the balance in the reserve fund on the prepayment date, but in no
event shall such amount be less than zero.
If any capitalized interest for the Outstanding Bonds will not have been expended at
the time of the first interest payment following the current Fiscal Year, a capitalized
interest credit shall be calculated by multiplying the quotient computed pursuant to
paragraph 2 by the expected balance in the capitalized interest fund after such first
interest payment (the "Capitalized Interest Credit').
The Maximum Annual Special Tax prepayment is equal to the sum of the amounts
computed pursuant to paragraphs 3, 4, 6, 10, and 12, less the amounts computed
pursuant to paragraphs 13 and 14 (the "Prepayment Amount').
From the Prepayment Amount, the amounts computed pursuant to paragraphs 3, 4,
12, 13, and 14 shall be deposited into the appropriate fund as established under the
Indenture and be used to retire Outstanding Bonds or make debt service payments.
The amount computed pursuant to paragraph 10 shall be retained by CFD-06-1. The
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amount computed pursuant to paragraph 6 shall be deposited in the Construction
Fund.
The Prepayment Amount may be sufficient to redeem other than a $5,000 increment of
Bonds. In such cases, the increment above $5,000 or integral multiple thereof will be
retained in the appropriate fund established under the Indenture to be used with the next
prepayment of bonds or to make debt service payments.
As a result of the payment of the current Fiscal Year's Special Tax levy as detennined under
paragraph 9 above, the CFD Administrator shall remove the current Fiscal Year's Special
Tax levy for such Assessor's Parcel from the County tax rolls. With respect to any Assessor's
Parcel that is prepaid, the Council shall cause a suitable notice to be recorded in compliance
with the Act, to indicate the prepayment of Special Taxes and the release of the Special Tax
lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay the
Special Tax shall cease.
Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the
amount of Maximum Annual Special Taxes that may be levied on Taxable Property within
Improvement Area B both prior to and after the proposed prepayment is at least 1.1 times the
maximum annual debt service on all Outstanding Bonds.
Tenders of Bonds in prepayment of Maximum Annual Special Taxes may be accepted upon
the tenns and conditions established by the Council pursuant to the Act. However, the use of
Bond tenders shall only be allowed on a case-by-case basis as specifically approved by the
Council.
2.
Prepayment in Part
The Maximum Annual Special Tax on an Assessor's Parcel of Developed Property or an
Assessor's Parcel of Undeveloped Property for which a building pennit has been issued may
be partially prepaid. The amount of the prepayment shall be calculated as in Section HI;
except that a partial prepayment shall be calculated according to the following fonnula:
PP = (PE X F) + A
These tenns have the following meaning:
PP = the partial prepayment
PE = the Prepayment Amount calculated according to Section H.I, minus Prepayment Fees
and Expenses detennined pursuant to Step 10.
F = the percent by which the owner of the Assessor's Parcel(s) is partially prepaying the
Maximum Annual Special Tax.
A = the Prepayment Fees and Expenses detennined pursuant to Step 10.
The owner of an Assessor's Parcel who desires to partially prepay the Maximum Annual
Special Tax shall notify the CFD Administrator of (i) such owner's intent to partially prepay
the Maximum Annual Special Tax, (ii) the percentage by which the Maximum Annual
Special Tax shall be prepaid, and (iii) the company or agency that will be acting as the
escrow agent, if applicable. The CFD Administrator shall provide the owner with a statement
DOCSOCil 034128v6/22245-0151
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6.J'I'
of the amount required for the partial prepayment of the Maximum Annual Special Tax for
an Assessor's Parcel within 30 days of the request and may charge a reasonable fee for
providing this service.
With respect to any Assessor's Parcel that is partially prepaid, the City shall (i) distribute the
funds remitted to it according to Step 16 of Section H.I, and (ii) indicate in the records of
CFD-06-I, Improvement Area B that there has been a partial prepayment of the Maximum
Annual Special Tax and that a portion of the Maximum Annual Special Tax equal to the
outstanding percentage (1.00 - F) of the remaining Maximum Annual Special Tax shall
continue to be authorized to be levied on such Assessor's Parcel pursuant to Section D.
I.
TERM OF MAXIMUM ANNUAL SPECIAL TAX
The Maximum Annual Special Tax shall be levied commencing in Fiscal Year 2003"2004 to
the extent necessary to fully satisfy the Special Tax Requirement and shall be levied for a
period no longer than the 2043-2044 Fiscal Year.
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APPENDIX B
SUMMARY OF MARKET ABSORPTION STUDY
B-1
DOCSOCIl 034128v6/22245-0 151
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APPENDIX C
APPRAISAL REPORT
C-I
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APPENDIX D
INFORMATION REGARDING THE CITY OF CHULA VISTA
GENERAL INFORMATION
This appendix sets forth general information about the City ofChula Vista ("Chula Vista").
The following information concerning Chula Vista, the County of San Diego (the "County"), the
State of California (the "State ") and the United States of America (the "United States") are included
only for general background purposes.
General Description
Chula Vista is located on San Diego Bay in Southern California, 8 miles south of the City of
San Diego and 7 miles north of the Mexico border, in the area generally known as "South Bay."
Chula Vista's city limits cover approximately 50 square miles. Chula Vista was incorporated
March 17, 1911 and became a chartered city in 1949. Chula Vista operates under a Council-Manager
form of government and provides the following services: public safety, community services,
engineering services, planning services, public works, general administrative services and capital
improvements. With a January 2003 estimated population of 199,700, Chula Vista is the second
largest city in the County.
Population
The historic population ofChula Vista, the County and the State is shown below.
City of Chula Vista, County of San Diego and State of California
Population Estimates
Year
City ofChula Vista
164,200
171,700
181,000
190,300
199,700
County of San Diego
2,751,000
2,805,900
2,856,000
2,908,500
2,961,600
State of California
33,140,000
33,753,000
34,367,000
35,000,000
35,591,000
1999
2000
2001
2002
2003
Source: California State Department of Finance, E-4 Revised Historical City, County and State Population Estimates, 1991-
2000, with 1990 and 2000 Census Counts and E-4 Population Estimates for cities. counties and the State, 2001-2003,
with 2000 DRU Benchmark.
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Building Activity
Residential building activity for the past five calendar years for Chula Vista is shown in the
following tables.
Single Family Units
Multifamily Units
Total Units
City of Chula Vista
New Housing Units Building Permits
1999 2000 2001 2002 2003
1,796 1,776 2,184 1,749 2,137
750 864 1,341 501 1,006
2,546 2,640 3,525 2,250 3,143
Source: Construction Industry Research Board.
City ofChula Vista
Bnilding Permit Valuations
1999 2000 2001 2002 2003
Residential
New Single Family $ 307,653,358 $ 319,085,986 $. 433,850,821 $ 413,647,842 $ 498,045,931
New Multifamily 53,470,818 74,634,324 107,731,702 47.388,930 118,687,194
Res. All. & Adds 5085049 4862879 7987049 1O 301 301 13 277 257
Total Residential 366,209.225 398,583,189 549,569,572 471.338,073 630,010,382
Nonresidential
New Commercial 17,213,869 17,916,085 22,139,245 20,926,638 54,744,910
New Iodustrial 7,909,587 17,418,207 2,139,313 737,651 7,071,470
NewOther(l) 5,840,339 17,890,100 11,112,335 22,761,223 28,063,492
Alters. & Adds. 13 552638 10527193 13 091 600 19367574 16290492
Total Non-Residential 38,516,433 63,751,585 48,482,493 63,793.086 106,170,157
Total All Building $ 404,725,658 $ 462,334,774 $ 598.052,065 $ 535,131,159 $ 736,180,539
(I) Includes churches and religious buildings, hospitals and institutional buildings, schools and educational buildings,
residential garages, public works and utilities buildings and no-residential alterations and additions.
Note: "Total All Building" is the sum of Residential and Nonresidential Building Permit Valuations. Totals may not add to
sums because of independent rounding.
Source: Construction Industry Research Board.
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Employment
The following table summarizes the labor force, employment and unemployment figures over
the period 1998 through 2002 for Chula Vista, the County, the State and the United States.
1998
1999
2000
2001
2002
Chula Vista, San Diego County, State of California and United States
Labor Force, Employment and Unemployment Yearly Average
Civilian Civilian Civilian Civilian
Year and Area Labor Force EmploymenlI) Unemploymenl1) Unemployment RauP)
Chula Vista 68,500 66,030 2,550 3.7%
San Diego County 1,309,300 1,263,300 46,000 3.5%
California 16,138,200 15,180,900 957,200 5.9%
United States") 137,673,000 131,463,000 6,210,000 4.5%
Chula Vista 70,600 68,3000 2,300 3.3%
San Diego County 1,348,300 1,306,700 41,600 3.1%
California 16,375,600 15,522,300 853,300 5.2%
United States") 139,368,000 133,488,000 5,580,000 4.2%
Chu1a Vista 72,970 70,660 2,310 3.2%
San Diego County 1,393,600 1,351,800 41,800 3.0%
California 17,171,600 16,056,500 835,500 4.9%
United States") 140,863,000 135,208,000 5,655,000 4.0%
Chula Vista 74,830 72,270 2,560 3.4%
San Diego County 1,428,900 1,382,600 46,300 3.2%
California 17,375,800 16,249,100 922,500 5.4%
United States") 141,815,000 135,073,000 6,742,000 4.8%
Chula Vista 76,980 73,490 3,490 4.5%
San Diego County 1,469,000 1,406,000 63,000 4.3%
California 17,404,600 16,214,900 1,160,900 6.7%
United States") 144,863,000 136,485,000 8,378,000 5.8%
'1) Includes persons involved in labor-management trade disputes.
(2) Includes all persons without jobs who are actively seeldng work.
(3) The unemployment rate is computed from umounded data; therefore, it may differ from rates computed from rounded
figures in this table.
(') Not strictly comparable with data for prior years.
Source: California Employment Development Departmen~ hased on March 2002 benchmark and U.S. Department of Labor.
Bureau of Labor Statistics.
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The San Diego Metropolitan Statistical Area ("MSA"), which includes Chula Vista, civilian
labor force and wage and salary employment figures for calendar years 1999 through 2003 are shown
in the following table. These figures are county-wide statistics and may not necessarily accurately
reflect employment trends in Chula Vista.
San Diego MSA
Civilian Labor Force, Employment and Unemployment
Annual Averages, March 2003 Benchmark
1999 2000 2001(1) 2002(1) 2003(1)
Civilian Labor Force 1,321,000 1,361,600 1,393,600 1,429,300 1,468,300
Civilian Employment 1,274,600 1,319,600 1,351,800 1,383,000 1,405,300
Civilian Unemployment 46,400 42,000 41,800 46,300 63,000
Civilian Unemployment Rate 3.5% 3.1% 3.0% 3.2% 4.3%
Total Farm 11,200 11,400 11,400 11,000 11,200
Total Nonfarm 1,152,900 1,193,800 1,218,400 1,230,700 1,241,900
Total Private 953,500 987,200 1,004,700 1,011,000 1,022,100
Goods Producing 190,200 192,600 194,400 189,000 185,300
Natural Resources and Mining 300 300 300 300 300
Construction 67,000 69,700 75,100 76,400 79,600
Manufacturing 122,900 122,600 119,000 112,300 105,400
Service Providing 962,700 1,001,200 1,024,000 1,041,700 1,056,700
Trade, Transportation and Utilities 194,200 202,600 209,000 208,600 208,600
Wholesale Trade 36,800 39,100 41,500 41,300 41,300
Retail Trade 128,200 133,800 135,600 138,000 140,000
Transportation, Warehousing and
Utilities 29,200 29,800 32,000 29,300 27,300
Infonnation 36,200 39,200 38,800 37,700 37,100
Financial Activities 70,400 71,200 72,000 75,000 80,500
Professional and Business Services 185,000 195,200 198,200 201,700 201,600
Educational and Health Services 112,200 115,300 116,000 119,700 122,000
Leisure and Hospitality 124,400 129,000 131,400 133,800 139,900
Other Services 40,900 42,200 44,900 45,600 47,200
Government 199,300 206,600 213,800 219,700 219,800
Total, All Industries 1,164,000 1,205,200 1,229,800 1,241,700 1,253,100
Note: The "Total, All Industries" data is not directly comparable to the employment data found herein.
(I) March 2002 Benchmark Figures
(2) Based on place ofwork.
Source: State of California, Employment Deveiopment Department, San Diego MSA Annual Average Labor Force and
Industry Employment, March 2002 Benchmark and March 2003 Benchmark.
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The following listings set forth Chula Vista's principal employers for fiscal year ending
June 30, 2003:
Chula Vista's Principal Employers
Business Industrial/Office
Name
BF Goodrich Aerospace Aerostructures Group
Sharp Chula Vista Medical Center
Scripps Memorial Hospital
Ges Exposition Services, Inc.
United Parcel Service
Wal-Mart
Remedy Temporary Services, LLC
Raytheon Systems Company
Costco Wholesaler Corp #460
Sears Roebuck & Co.
Costco Wholesaler Corp #405
Bayview Behavioral Health Campus
Home Depot
American Fashion Inc.
GCE Industries Inc.
ATC Vancum of California
Target
MDI Interviewing Services, Inc.
Type of Business
Aerospace Manufacturer
Hospital
Hospital
Contractor - Specialty
Parcel Delivery Service
General Merchandise
Employment Services
Communications
General Merchandise
Department Store
General Merchandise
Hospital
Building SupplieslHardware
Apparel Manufacturing
Engineering
Transit Company
Retail
Marketing
No. of Employees
2,418
1,110
818
705
466
375
352
292
281
262
237
236
235
229
222
214
204
200
Source: City ofChula Vista Finance Department (excluding City ofChula Vista employees).
DOCSOC/I 034128v6/22245-0 151
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Effective Buying Income
"Effective Buying Income" is defined as personal income less personal tax and nontax
payments, a number often referred to as "disposable" or "after-tax" income. Personal income is the
aggregate of wages and salaries, other than labor-related income (such as employer contributions to
private pension funds), proprietor's income, rental income (which includes imputed rental income of
owner-occupants of non-fann dwellings), dividends paid by corporations, interest income from all
sources and transfer payments (such as pensions and welfare assistance). Deducted from this total
are personal taxes (federal, state and local, nontax payments, fines, fees, penalties, etc.) and personal
contributions to social insurance. According to U.S. government definitions, the resultant figure is
commonly known as "disposable personal income."
The following table summarizes the total effective buying income, the per capita effective
buying income, the median household effective buying income and percent of households over
$50,000 for Chula Vista, the County and the State between 1998 and 2002.
Chula Vista, San Diego County and California
Effective Buying Income(l)
Median
Household Percent of
Effective Buying Per Capita Effective Effective Buying Households
Incomel2) Buying Income Income over $50,000
1998
Chu1a Vista $ 2,408,888 $14,187 $33,911 30.1%
San Diego County 46,056,143 16,101 36,296 32.8
California 551,999,317 16,299 37,091 34.6
1999
Chula Vista $ 2,629,899 $15,776 $37,725 35.4%
San Diego County 49,907,828 17,270 39,213 37.4
California 590,376,663 17,245 39,492 38.3
2000
Chu1a Vista $ 2,959,674 $17,268 $42,550 41.6%
San Diego County 54,337,662 19,150 44,292 43.7
California 652,190,282 19,081 44,464 44.3
2001
Chula Vista $ 2,917,494 $16,128 $42,229 39.1%
San Diego County 55,210,119 19,092 44,146 42.0
California 650,521,407 18,652 43,532 41.9
2002
Chu1a Vista $ 2,864,900 $15,231 $40,578 37.0%
San Diego County 54,831,958 18,524 42,315 39.7
California 647,879,427 17,737 42,484 40.5
(I) Not comparable with prior years. Effective Buying Income is now based on money income (wbich does not take into
account sale of property, taxes and social security paid, receipt offood stamps, etc.) versus personal income.
(2) Dollars in thousands.
Source: "Survey of Buying Power," Sales & Marketing Management Magazine, dated 1999,2000.2001,2002 and 2003.
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Sales Taxes
The following table shows taxable transactions in Chula Vista by type of business during
calendar years 1998 through 2002. As indicated below, total retail sales for Chula Vista in 1999
increased by approximately 10.30% over the 1998 level, in 2000 increased by approximately 10.44%
over the 1999 level, in 200 I increased approximately 4.98% over the 2000 level, and in 2002
increased approximately 2.42% over the 2001 level.
A summary of historic taxable transactions for Chula Vista is shown in the following table.
City of Chula Vista
Taxable Transactions
(Dollars in thousands)
1998 1999 2000 2001 2002
Apparel Stores Group 63,414 61,758 66,598 $ 61,937 $ 67,035
Geoeral Merchandise Stores 382,944 439,731 495,679 524,942 525,423
Food Stores Group 81,006 85,662 90,487 92,224 99,897
Eating and Drinking Group 131,661 142,329 155,583 164,417 169,892
Household Group/Home Furn. Appli. 55,856 61,923 66,365 67,827 74,255
Building Material Group 75,812 87,902 102,370 97,827 91,235
Automotive Group 107,808 126,304 145,923 151,812 156,872
Service Stations 88,570 95,546 121,244 119,050 123,636
Other Retail Stores ~ ~ ~ 183303 205564
Retail Stores Total $ 1,120,534 $ 1,240,992 $ 1,401,401 $1,463,409 $1,513,809
All Other Outlets ~ ----.ill.d2Q 206.889 225,256 215349
Total All Outlets ~ ~ ~ ~ ~
Note: Drugs stores are grouped with the General Merchandise Stores and package liquor stores are grouped with the Eating
and Drinking Group.
Source: State Board of Equalization.
Education
Public educational instruction from kindergarten through high school is provided by the
Chula Vista Elementary School District and Sweetwater Union High School District. These districts
administer twenty-six elementary schools, nine junior high schools and eight senior high schools.
Southwestern College, a two year Community College, has an enrollment of more than 15,000.
There are also four adult education schools and twelve private schools. There are seven universities
or colleges within 30 minutes commuting distance from Chula Vista in the San Diego Metropolitan
Area. Chula Vista has proposed a University of California campus in Chula Vista, to be located on a
400 acre site adjoining the Olympic Training Center.
Community Facilities
There are two acute-care hospitals, two psychiatric hospitals and three convalescent
hospitals, and more than 400 medical doctors and allied professionals in Chula Vista.
There are two daily, one weekly and one semi-weekly newspapers published and circulated
in Chula Vista. Chula Vista has one main public library and two branch libraries.
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Recreational facilities within or near Chula Vista include twenty-four parks, four community
centers, six "tot lots," two ball fields, twenty-eight tennis courts, three golf courses, four municipal
swimming pools, two gymnasiums and boat launching facilities. Chula Vista's bayfront area
contains a marina which houses 552 boats and miles of public beaches. Chula Vista also provides
many trails for bicycling, hiking and jogging.
Chula Vista is also the home of the United States Olympic Training Center. This is the third
such training center in the nation and the only year round training facility. The center is located on a
150-acre site donated by EastLake Development Company adjacent to the Otay Lake reservoir.
Chula Vista has more than sixty churches and nearly 100 service, fraternal and civic
organizations.
Transportation
U.S. Highways 5 (along the coast) and 805 (inland) provide full freeway access from Chula
Vista north to San Diego and south to the Mexican boarder. Commuter rail service is provided by
the San Diego Trolley, a light rail system started in 1981 and eleven bus routes serve Chula Vista.
Daily bus connections serve Chula Vista, and Southern Pacific Railway and San Diego's
Lindbergh International Airport are fifteen minutes to the north of Chula Vista.
Utilities
Electric power and natural gas are provided by San Diego Gas and Electric. Pacific Bell
provides telephone service to the area. Otay Water District and Sweetwater Water District provide
water service and Chula Vista provides sewer service.
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APPENDIX E
SUMMARY OF INDENTURE
The following is a summary of certain provisions of the Bond Indenture not otherwise
summarized in the text of this Official Statement. This summary is not intended to be definitive, and
reference is made to the complete text of each of such documents for the complete terms thereof
[TO COME]
DOCSOC/1 034128v6/22245-0 151
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APPENDIX F
CONTINUING DISCLOSURE AGREEMENT OF THE DISTRICT
This Continuing Disclosure Agreement dated as of June 1, 2004 (the "Disclosure
Agreement") is executed and delivered by Community Facilities District No. 06-1 (EastLake -
Woods, Vistas and Land Swap) (the "Issuer") and MuniFinancial as dissemination agent (the
"Dissemination Agent"), in connection with the issuance and delivery by the Issuer of its
$ 2004 Improvement Area B Special Tax Bonds (the "Bonds"). The Bonds are being
issued pursuant to an Indenture, dated as of June I, 2004 (the "Indenture"), by and between the Issuer
and U.S. Bank National Association, as fiscal agent (the "Fiscal Agent"). The Issuer and the
Dissemination Agent covenant as follows:
SECTION I. Purpose of the Disclosure Agreement. This Disclosure Agreement is being
executed and delivered by the Issuer and the Dissemination Agent, for the benefit of the Owners and
Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying
with the Rule.
SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which
apply to any capitalized tenD used in this Disclosure Agreement unless otherwise defined in this
Section, the following capitalized tenDS shall have the following meanings:
"Annual Report" shall mean any Annual Report provided by the Issuer pursuant to, and as
described in, Sections 3 and 4 of this Disclosure Agreement.
"Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to
vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding
Bonds through nominees, depositories or other intennediaries), or (b) is treated as the owner of any
Bonds for federal income purposes.
"Disclosure Representative" shall mean the Director of Finance of the City ofChula Vista or
his or her designee, or such other officer or employee as the Issuer shall designate in writing to the
Dissemination Agent from time to time.
"Dissemination Agent" shall mean, initially, MuniFinancial, acting in its capacity as
Dissemination Agent hereunder, or any successor Dissemination Agent designed in writing by the
Issuer and which has been filed with the then current Dissemination Agent a written acceptance of
such designation.
"District" shall mean Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and
Land Swap).
"Improvement Area B" shall mean Improvement Area B of the District.
"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure
Agreement.
"National Repository" shall mean any Nationally Recognized Municipal Securities
Infonnation Repository for purpose of the Rule.
DOCSOCIl 034128v6122245-0151
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"Official Statement" shall mean the Official Statement, dated
to the Bonds.
, 2004 relating
"Participating Underwriter" shall mean Stone & Youngberg LLC, whose address for
purposes of this Agreement is One Ferry Building, San Francisco, California 94111, Attention:
Research Department.
"Repository" shall mean each National Repository and each State Repository.
"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as the same may be amended from time to time.
"State Repository" shall mean any public or private repository or entity designated by the
State of California as a state repository for the purpose of the Rule and recognized as such by the
Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no State
Repository.
"Tax-exempt" shall mean that interest on the Bonds is excluded from gross income for
federal income tax purposes, whether or not such interest is includable as an item of tax preferences
or otherwise includable directly or indirectly for purposes of calculating any other tax liability,
including any alternative minimum tax or environmental tax.
SECTION 3.
Provision of Annual Reports.
(a) The Issuer shall, or shall cause the Dissemination Agent by written direction to such
Dissemination Agent to, not later than February 1 after the end of the Issuer's fiscal year (which
currently ends on June 30), commencing with the report due by February 1, 2005, provide to each
Repository and the Participating Underwriter an Annual Report which is consistent with the
requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a
single document or as separate documents comprising a package, and may include by reference other
information as provided in Section 4 of this Disclosure Agreement; provided that the audited
financial statements of the Issuer may be submitted separately from and later than the balance of the
Annual Report if they are not available by the date required above for the filing of the Annual
Report.
An Annual Report shall be provided at least annually notwithstanding any fiscal year
longer than 12 calendar months. The Issuer's fiscal year is currently effective ftom July I to the
immediately succeeding June 30 of the following year. The Issuer will promptly notify each
Repository or the Municipal Securities Rulemaking Board and, in either case, the Fiscal Agent and
the Dissemination Agent of a change in the fiscal year dates.
(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a)
for providing the Annual Report to Repositories, the Issuer shall provide the Annual Report to the
Dissemination Agent. If by fifteen (15) Business Days prior to such date the Dissemination Agent
has not received a copy of the Annual Report, the Dissemination Agent shall contact the Issuer to
determine if the Issuer is in compliance with subsection (a). The Issuer shall provide a written
certification with each Annual Report furnished to the Dissemination Agent to the effect that such
Annual Report constitutes the Annual Report required to be furnished by it hereunder. The
F-2
DOCSOC/1 034128v6/22245-0 151
,; . )f,t
Dissemination Agent may conclusively rely upon such certification of the Issuer and shall have no
duty or obligation to review such Annual Report.
(c) If the Dissemination Agent is unable to verify that an Annual Report has been
provided to Repositories by the date required in subsection (a), the Dissemination Agent shall send a
notice to each Repository, in substantially the fonn attached as Exhibit A.
(d)
The Dissemination Agent shall:
(i) detennine each year prior to the date for providing the Annual Report the
name and address of each National Repository and each State Repository, if any; and
(ii) promptly after receipt of the Annual Report, file a report with the Issuer and
(if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the
Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it
was provided and listing all the Repositories to which it was provided.
SECTION 4. Content of Annual Reports. The Issuer's Annual Report shall contain or
include by reference:
(a) Financial Statements. The audited financial statements of the Issuer for the most
recent fiscal year of the Issuer then ended. If the Issuer prepares audited financial statement and if
the audited financial statements are not available by the time the Annual Report is required to be
filed, the Annual Report shall contain any unaudited financial statements of the Issuer in a fonnat
similar to the financial statements, and the audited financial statements shall be filed in the same
manner as the Annual Report when they become available. Audited financial statements of the
Issuer shall be audited by such auditor as shall then be required or pennitted by State law. Audited
financial statements, if prepared by the Issuer, shall be prepared in accordance with generally
accepted accounting principles as prescribed for governmental units by the Governmental
Accounting Standards Board; provided, however, that the Issuer may from time to time, if required
by federal or state legal requirements, modify the basis upon which its financial statements are
prepared, In the event that the Issuer shall modify the basis upon which its financial statements are
prepared, the Issuer shall provide a notice of such modification to each Repository, including a
reference to the specific federal or state law or regulation specifically describing the legal
requirements for the change in accounting basis.
(b) Financial and Operating Data. The Annual Report shall contain or incorporate by
reference the following infonnation:
(i) the principal amount of Bonds outstanding as of the September 2 preceding
the filing of the Annual Report;
(ii) the balance in each fund under the Indenture and the Reserve Requirement as
of the September 2 preceding the filing of the Annual Report;
(iii) an update on the status of construction of the public improvements to be
constructed with the proceeds of the Bonds, which shall include an update of Table 2 in the
Official Statement; provided however that such update will not be required after the
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DOCSOC/1 034128v6/22245-0 151
6> -,99
construction of the public improvements to be constructed with the proceeds of the Bonds is
completed;
(iv) any changes to the Rate and Method of Apportionment of the Special Taxes
approved or submitted to the qualified electors for approval prior to the filing of the Annual
Report and a description of any parcels for which the Special Taxes have been prepaid in the
Fiscal Year for which the Annual Report is being prepared;
(v) an update of the estimated assessed value-to-lien ratios within the District
based upon the most recent Special Tax levy preceding the date of the Annual Report and on
the assessed values of property for the current fiscal year substantially in the form set forth in
Table 7; provided, however, that all parcels which constitute Developed Property may be
grouped as a single category;
(vi) an update of Table 3 in the Official Statement, including (a) the percentage of
Special Taxes payable by individual homeowners as a group, and (b) a list of all taxpayers
within the District which own property in Improvement Area B upon which 5% or more of
the total Special Taxes for the current fiscal year have been levied, and a statement as to
whether any of such taxpayers is delinquent in the payment of Special Taxes;
(vii) any event known to the Issuer which reduces or slows the number of
residential units permitted to be constructed within Improvement Area B or which results in a
moratorium on future building within the District;
(viii) the status of any foreclosure actions being pursued by the Issuer with respect
to delinquent Special Taxes;
(ix) the total Special Taxes levied and the total Special Taxes collected for the
prior fiscal year and the total Special Taxes that remain unpaid for each prior fiscal year in
which Special Taxes were levied; and
(x) any information not already included under (i) through (ix) above that the
Issuer is required to file in its annual report to the California Debt and Investment Advisory
Commission pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982,
as amended.
(c) Any or all of the items listed in (a) or (b) above may be included by specific reference
to other documents, including official statements of debt issues of the Issuer or related public entities,
which have been submitted to each of the Repositories or the Securities and Exchange Commission.
If the document included by reference is a final official statement, it must be available from the
Municipal Securities Rulemaking Board. The Issuer shall clearly identify each such other document
so included by reference.
SECTION 5.
Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the Issuer shall give, or cause to be given,
notice of the occurrence of any of the following events with respect to the Bonds, if material:
(I)
principal and interest payment delinquencies.
DOCSOCII 034128v6/22245-0151
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(p . /tì:)
(2)
above.
(3)
difficulties.
an event of default under the Indenture other than as described in (1)
unscheduled draws on the Reserve Fund reflecting financial
(4) unscheduled draws on any credit enhancements securing the Bonds
reflecting financial difficulties.
(5) any change in the provider of any letter of credit or any municipal
bond insurance policy securing the Bonds or any failure by the providers of such
letters of credit or municipal bond insurance policies to perform on the letter of credit
or municipal bond insurance policy.
(6) adverse tax opinions or events adversely affecting the tax-exempt
status of the Bonds.
(7)
(8)
(9)
(10)
Bonds.
(11)
modifications to the rights of Bond Owners.
unscheduled redemption of any Bond.
defeasances.
any release, substitution, or sale of property securing repayment of the
rating changes.
(b) The Dissemination Agent shall, promptly upon the obtaining actual knowledge of the
occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of
the event, and pursuant to the Indenture, inform such person of the event, and request that the Issuer
promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to
subsection (t).
(c) Whenever the Issuer obtains knowledge of the occurrence of a Listed Event, whether
because of a notice from the Dissemination Agent pursuant to subsection (b) or otherwise, the Issuer
shall as soon as possible determine if such event would be material under applicable federal
securities laws.
(d) If the Issuer has determined that knowledge of the occurrence of a Listed Event
would be material under applicable federal securities laws, the Issuer shall promptly notify the
Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the
occurrence pursuant to subsection (t).
(e) If in response to a request under subsection (b), the Issuer detennines that the Listed
Event would not be material under applicable federal securities laws, the Issuer shall so notify the
Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence
pursuant to subsection (t).
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(1) If the Dissemination Agent has i)een instructed by the Issuer to report the occurrence
of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with (i) the
Municipal Securities Rulemaking Board or (ii) each National Repository, and in either case, to each
State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections
(a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the
underlying event is given to Owners of affected Bonds pursuant to the Indenture. In each case of the
Listed Event, the Dissemination Agent shall not be obligated to file a notice as required in this
subsection (1) prior to the occurrence of such Listed Event.
(g) The Issuer hereby agrees that the undertaking set forth in this Disclosure Agreement
is the responsibility of the Issuer and that the Fiscal Agent or the Dissemination Agent shall not be
responsible for detennining whether the Issuer's instructions to the Dissemination Agent under this
Section 5 comply with the requirements of the Rule.
SECTION 6. Tennination of Reporting Obligation. The obligation of the Issuer and the
Dissemination Agent under this Disclosure Agreement shall tenninate upon the legal defeasance,
prior redemption or payment in full of all of the Bonds. If such tennination occurs prior to the final
maturity of the Bonds, the Issuer shall give notice of such tennination in the same manner as for a
Listed Event under Section 5.
SECTION 7. Dissemination Ai¡i:ent. The Issuer may, from time to time, appoint or engage a
Dissemination Agent to assist it in carrying out its obligations under the Disclosure Agreement, and
may discharge any such Dissemination Agent, with or without appointing a successor Dissemination
Agent. If at any time there is not any other designated Dissemination Agent, the Fiscal Agent shall
be the Dissemination Agent. The initial Dissemination Agent shall be MuniFinancial. The
Dissemination Agent may resign by providing (i) thirty days written notice to the Issuer and the
Fiscal Agent and (ii) upon appointment of a new Dissemination Agent hereunder.
SECTION 8. Amendment. (a) This Disclosure Amendment may be amended, by written
agreement of the parties, without the consent of the Owners, if all of the following conditions are
satisfied: (I) such amendment is made in connection with a change in circumstances that arises from
a change in legal (including regulatory) requirements, a change in law (including rules or regulations)
or in interpretations thereof, or a change in the identity, nature or status of the Issuer or the type of
business conducted thereby, (2) this Disclosure Agreement as so amended would have complied with
the requirements of the Rule as of the date of this Disclosure Agreement, after taking into account
any amendments or interpretations of the Rule, as well as any change in circumstances, (3) the Issuer
shall have delivered to the Fiscal Agent an opinion of a nationally recognized bond counselor
counsel expert in federal securities laws, addressed to the Issuer and the Fiscal Agent, to the same
effect as set forth in clause (2) above, (4) the Issuer shall have delivered to the Dissemination Agent
an opinion of nationally recognized bond counselor counsel expert in federal securities laws,
addressed to the Issuer, to the effect that the amendment does not materially impair the interests of
the Owners or Beneficial Owners, and (5) the Issuer shall have delivered copies of such opinion and
amendment to each Repository.
(b) This Disclosure Agreement may be amended, by written agreement of the parties,
upon obtaining consent of Owners in the same manner as provided in the Indenture for amendments
to the Indenture with the consent of the Owners of the Bonds, provided that the conditions set forth in
Section 8(a)(I), (2) and (3) have been satisfied.
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(c) To the extent any amendment to this Disclosure Agreement results in a change in the
type of financial information or operating data provided pursuant to this Disclosure Agreement, the
first Annual Report provided thereafter shall include a narrative explanation of the reasons for the
amendment and the impact of the change.
(d) If an amendment is made to the basis on which financial statements are prepared, the
Annual Report for the year in which the change is made shall present a comparison between the
financial statements or information prepared on the basis of the new accounting principles and those
prepared on the basis of the former accounting principles. Such comparison shall include a
quantitative and, to the extent reasonably feasible, qualitative discussion of the differences in the
accounting principles and the impact of the change in the accounting principles on the presentation of
the financial information.
SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be
deemed to prevent the Issuer from disseminating any other information, using the means of
dissemination set forth in this Disclosure Agreement or any other means of communication, or
including any other information in any Annual Report or notice of occurrence of a Listed Event, in
addition to that which is required by this Disclosure Agreement. If the Issuer chooses to include any
information in any Annual Report or notice of occurrence of a Listed Event in addition to that which
is specifically required by this Disclosure Agreement, the Issuer shall have no obligation under this
Agreement to update such information or include it in any future Annual Report or notice if
occurrence of a Listed Event.
The Issuer acknowledges and understands that other state and federal laws, including but not
limited to the Securities Act of 1933 and Rule IOb-5 promulgated under the Securities Exchange Act
of 1934, may apply to the Issuer, and that under some circumstances compliance with this Disclosure
Agreement, without additional disclosures or other action, may not fully discharge all duties and
obligations of the Issuer under such laws.
SECTION 10. Default. In the event of a failure of the Issuer or the Dissemination Agent to
comply with any provision of this Disclosure Agreement, the Participating Underwriter or any
Owner or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate,
including seeking mandate or specific performance by court order, to cause the Issuer to comply with
its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not
be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure
Agreement in the event of any failure of the Issuer or the Fiscal Agent to comply with this Disclosure
Agreement shall be an action to compel performance.
SECTION II. Duties. Immunities and Liabilities of Fiscal Al?ent and Dissemination Agent.
The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure
Agreement, and the Issuer agrees to indemnify and save the Dissemination Agent and its respective
officers, directors, employees and agents, harmless against any loss, expense and liabilities which
they may incur arising out of or in the exercise or performance of their powers and duties hereunder,
including the costs and expenses (including attorneys fees) of defending against any claim of
liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct.
The Dissemination Agent shall be paid compensation by the Issuer for its services provided
hereunder in accordance with its schedule of fees as amended from time to time and all expenses,
legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties
hereunder. The Dissemination Agent shall have no duty or obligation to review any information
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provided to it hereunder. The obligations of the Issuer under this Section shall survive resignation or
removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to
commence any action against the Dissemination Agent seeking any remedy other than to compel
specific performance of this Disclosure Agreement. The Dissemination Agent shall not be liable
under any circumstances for monetary damages to any person for any breach under this Disclosure
Agreement.
SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of
the Issuer, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and Owners and
Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or
entity.
SECTION 13. Notices. Notices should be sent in writing to the following addresses. The
following information may be conclusively relied upon until changed in writing.
Disclosure Representative:
Director of Finance
City ofChula Vista
276 Fourth Avenue
Chula Vista, California 91910
Dissemination Agent:
MuniFinancial
27368 Via Industrial, Suite 110
Temecula, California 92590
Attention: Municipal Disclosure
SECTION 14. Counteq>arts. This Disclosure Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the same
instrument.
COMMUNITY F ACIL1TIES DISTRICT NO. 06-1
(Eastlake - Woods, Vistas and Land Swap)
By:
Director of Finance
MUNIFlNANCIAL, as Dissemination Agent
By:
Authorized Officer
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EXHIBIT A
NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT
Name ofIssuer:
Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and Land
Swap)
Name of Bond Issue: City ofChula Vista Community Facilities District No. 06-1 (Eastlake-
Woods, Vistas and Land Swap) $ 2004 Special Tax Bonds
Date ofIssuance:
,2004
NOTICE IS HEREBY GIVEN that the Community Facilities District No. 06-1 (Eastlake -
Woods, Vistas and Land Swap) located in the City of Chula Vista, California (the "District") has not
provided an Annual Report with respect to the above-named Bonds as required by Section 3 of the
Continuing Disclosure Agreement, dated as of June I, 2004, by and between the District and
MuniFinancial, as dissemination agent. [The District anticipates that the Annual Report will be filed
by .J
Dated:
MUNIFINANClAL, as Dissemination Agent
cc:
City ofChula Vista
Stone & Youngberg LLC
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APPENDIX G
CONTINUING DISCLOSURE AGREEMENT OF THE DEVELOPER
(THE EASTLAKE COMPANY)
This Continuing Disclosure Agreement (the "Disclosure Agreement") dated as of June 1,
2004 is executed and delivered by The East Lake Company LLC (the "Developer"), and U.S. Bank
National Association, as fiscal agent (the "Fiscal Agent") and as dissemination agent (the
"Dissemination Agent"), in connection with the execution and delivery by Community Facilities
District No. 06-1 (Eastlake ~ Woods, Vistas and Land Swap) (the "District") $ aggregate
principal amount of its City of Chula Vista Community Facilities District No. 06-1 (Eastlake -
Woods, Vistas and Land Swap) 2004 Improvement Area B Special Tax Bonds (the "Bonds"). The
Bonds are being executed and delivered pursuant to an Indenture dated as of June I, 2004 by and
between the District and U.S. Bank National Association, as Fiscal Agent (the "Indenture"). The
Developer covenants and agrees as follows:
SECTION I. Puroose of the Disclosure Agreement. This Disclosure Agreement is being
executed and delivered by the Developer for the benefit of the Bondowners and Beneficial Owners
and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).
This Disclosure Agreement does not address additional undertakings, if any, by or with respect to
persons other than the Developer who may be considered obligated persons or purposes of the Rule,
which additional undertakings, if any, may be required for the Participating Underwriter to comply
with the Rule.
SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which
apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this
Section, the following capitalized terms shall have the following meanings:
"Affiliate" shall mean, with respect to any Person, (a) each Person that, directly or indirectly,
owns or controls, whether beneficially or as an agent, guardian or other fiduciary, twenty-five percent
(25%) or more of any class of Equity Securities of such Person, (b) each Person that controls, is
controlled by or is under common control with such Person, or (c) each of such Person's executive
officers, directors, joint venturers and general partners; provided, however, that in no case shall the
District be deemed to be an Affiliate of the Developer for purposes of this Disclosure Agreement.
For the purpose of this definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
"Beneficial Owner" shall mean any person which has or shares the power, directly or
indirectly, to make investment decisions concerning ownership of the Bonds (including persons
holding Bonds through nominees, depositories or other intermediaries).
"City" shall mean the City of Chula Vista, California.
"Dissemination Agent" shall mean U.S. Bank National Association, acting in its capacity as
Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the
Developer and which has filed with the Developer and the City a written acceptance of such
designation.
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"District" shall mean Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and
Land Swap).
"Equity Securities" of any Person shall mean (a) all common stock, preferred stock,
participations, shares, general partnership interests or other equity interests in and of such person
(regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options
and other rights to acquire any of the foregoing.
"Fiscal Year" shall mean the period beginning on July 1 of each year and ending on the next
succeeding June 30.
"Government Authority" shall mean any national, state or local government, any political
subdivision thereof, any department, agency, authority or bureau of any of the foregoing, or any other
Person exercising executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Improvement Area B" shall mean Improvement Area B of the District.
"Listed Event" shall mean any of the events listed in Section 5(a) of this Disclosure
Agreement.
"National Repository" shall mean any Nationally Recognized Municipal Securities
Information Repository for purposes of the Rule.
"Official Statement" shall mean the Official Statement, dated
the Bonds.
, 2004, relating to
"Participating Underwriter" shall mean Stone & Youngberg LLC, the original underwriter of
the Bonds, whose address for purposes of this Disclosure Agreement is One Ferry Building, San
Francisco, California 94111, Attention: Research Department, and any other underwriting firm that
provides written notice to the Developer that it is required to comply with the Rule in connection
with the offering of the Bonds,
"Person" shall mean any natural person, corporation, limited liability company, partnership,
firm, association, Government Authority or any other Person whether acting in an individual
fiduciary, or other capacity.
"Repository" shall mean each National Repository and the State Repository.
"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as the same may be amended from time to time.
"Semi-Annual Report" shall mean any Semi-Annual Report provided by the Developer
pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.
"State" shall mean the State of California.
"State Repository" shall mean any public or private repository or entity designed by the State
as a state repository for the purpose of the Rule and recognized as such by the Securities and
Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository.
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SECTION 3. Provision of Annual Reports.
(a) The Developer shall, or shall cause the Dissemination Agent to, not later than May I
and November I of each year, commencing November I, 2004, provide to each Repository, the
District and to Stone & Youngberg LLC a Semi-Annual Report which is consistent with the
requirements of Section 4 of this Disclosure Agreement. The Semi-Annual Report may be submitted
as a single document or as separate documents comprising a package, and may include by reference
other information as provided in Section 4 of this Disclosure Agreement provided that the audited
financial statements, if any, of the Developer may be submitted separately from the balance of the
Semi-Annual Report due in May of each year and later than the date required for the filing of the
Semi-Annual Report due in May of each year if they are not available by that date.
(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a)
for providing the Semi-Annual Report to Repositories, the Developer shall provide the Semi-Annual
Report to the Dissemination Agent or shall provide notification to the Dissemination Agent that the
Developer is preparing, or causing to be prepared, the Semi-Annual Report and the date which the
Semi-Annual Report is expected to be available. If by such date, the Dissemination Agent has not
received a copy of the Semi-Annual Report or notification as described in the preceding sentence, the
Dissemination Agent shall contact the Developer to determine if the Developer is in compliance with
the first sentence of this subsection (b).
(c) If the Dissemination Agent is unable to provide a Semi-Annual Report to
Repositories by the date required in subsection (a) or to verify that a Semi-Annual Report has been
provided to Repositories by the date required in subsection (a), the Dissemination Agent shall send a
notice to each Repository in substantially the form attached as Exhibit A.
(d)
The Dissemination Agent shall:
(i) determine each year prior to the date for providing the Semi-Annual Report
the name and address of each National Repository and the State Repository, if any; and
(ii) file a report with the Developer and the District certifying that the Semi-
Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it
was provided and listing all the Repositories to which it was provided.
SECTION 4. Content of Semi-Annual Report. The Developer's Semi-Annual Report shall
contain or include by reference the information which is available as of April I and October I of
each year, as applicable, relating to the following:
a.
An update to the section in the Official Statement entitled "THE DEVELOPMENT
AND PROPERTY OWNERSHIP" (excluding the information therein relating to
merchant builders that are not Affiliates of the Developer and excluding the
subsections entitled "Appraisal" and "Market Absorption Study") including an update
of tables therein and a discussion of the sources of funds to finance development
relating to its property within Improvement Area B, and whether any material
defaults exist under any loan arrangement related to such financing.
b.
A summary of development activity for property owned by the Developer within
Improvement Area B, including the number of parcels for which building permits
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have been issued, the number of parcels for which certificates of occupancy have
been issued, the number of parcels for which sales have closed, and land or lot sales
by the Developer including the amount of land or lots sold and the name of the
purchaser of lots to be developed.
c.
Status of any material governmentally-imposed preconditions for commencement or
continuation of development of the undeveloped parcels within Improvement Area B
owned by the Developer and which is known to the Developer.
d.
Status of any material legislative, administrative and judicial challenges known to the
Developer affecting the construction of the development or the time for construction
of any public or private improvements to be made by the Developer or any of its
Affiliates within Improvement Area B, other than the public improvements described
in (e) below (the "Developer Improvements").
e.
Status of completion of the public improvements financed by the Bonds and any
material legislative, administrative and judicial challenges known to the Developer to
or affecting the construction of such public improvements (the "District
Improvements").
f.
Any material amendments to land use entitlements for the property owned by the
Developer with Improvement Area B or Special Tax rate and method of
apportionment with respect to parcels within Improvement Area B that are known to
. the Developer, including (i) a description of any amendment to the rate and method
affects the total number of acres subject to the levy of the Special Taxes, and (ii) a
listing of any acreage that has become exempt from the levy of Special Taxes.
g.
In the Semi-Annual Report due in May of each year only and until such time as the
Developer and its Affiliates no longer own land within Improvement Area B which is
responsible for 20% or more of the annual Special Tax levy, unaudited financial
statements of the Developer and its Affiliates owning land within Improvement
Area B and, if prepared, audited financial statements of each of such entities for its
most recently completed fiscal year (which currently ends on each December 31),
prepared in accordance with generally accepted accounting principles as promulgated
to apply to private entities from time to time by the Financial Accounting Standards
Board. If the Developer has audited financial statements prepared and the audited
financial statements are not available by the time the Semi-Annual Report is required
to be filed pursuant to Section 3(a), the Semi-Annual Report shall contain unaudited
fmancial statements in a format similar to the audited financial statements for the
preceding year, and the audited financial statements shall be filed in the same manner
as the Semi-Annual Report when they become available. The Developer need only
provide audited or unaudited data once per year.
h.
The filing of any lawsuit against the Developer or otherwise known to the Developer
which will materially adversely affect the completion of the District Improvements,
the Developer Improvements or the development of undeveloped parcels within
Improvement Area B, or litigation which would materially adversely affect the
financial condition of the Developer or its Affiliates that own property within
Improvement Area B.
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i.
A payment default by the Developer on any loan made to the Developer (whether or
not such loan is secured by property within the District) which is beyond any
applicable cure period in such loan.
Any and all of the items listed above may be included by specific reference to other
documents, including official statements of debt issues which have been submitted to each of the
Repositories or the Securities and Exchange Commission. If the document included by reference is a
final official statement, it must be available from the Municipal Securities Rulemaking Board. The
Developer shall clearly identify each such other document so included by reference.
SECTION 5.
Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the Developer shall give, or cause to be
given, notice of the occurrence of any of the following events with respect to the Bonds, if material
under clauses (b) and (c):
I. Failure to pay any real property taxes, special taxes or assessments (including
any assessment installment) levied within Improvement Area B on a parcel owned by the
Developer or any of its Affiliates;
2. A payment default by the Developer or any Affiliate on any loan secured by
property within Improvement Area B owned by the Developer or any of its Affiliates which
is beyond any applicable cure period in such loan;
3. The filing of any proceedings with respect to the Developer or any of its
Affiliates, in which the Developer or any of its Affiliates that own property within
Improvement Area B may be adjudicated as bankrupt or discharged from any or all of their
respective debts or obligations or granted an extension of time to pay debts or a
reorganization or readjustment of debts; and
4. A sale or transfer of a majority interest in the Developer to an entity that is
not an Affiliate.
(b) Whenever the Developer obtains knowledge of the occurrence of a Listed Event, the
Developer shall as soon as possible detennine if such event would be material under applicable
federal securities laws.
(c) If the Developer detennines that knowledge of the occurrence of a Listed Event
would be material under applicable federal securities laws, the Developer shall promptly file a notice
of such occurrence with the Dissemination Agent which shall then distribute such notice to the
Municipal Securities Rulemaking Board and each State Repository, with a copy to the District and
the Participating Underwriter.
SECTION 6. Tennination of ReDorting Obligation. The Developer's obligations under this
Disclosure Agreement shall tenninate upon any of the following events:
(a)
the legal defeasance, prior redemption or payment in full of all of the Bonds,
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. (b) if as of the date for filing the Semi-Annual Report the Developer and its Affiliates
own property within Improvement Area B which is responsible for less than twenty percent (20%) of
the Special Taxes levied in the Fiscal Year for which the Semi-Annual Report is being prepared, and
the Developer Improvements and any District Improvements to be constructed by the Developer have
been completed, or
(c) upon the delivery by the Developer to the District and the Participating Underwriter
of an opinion of nationally recognized bond counsel to the effect that the information required by this
Disclosure Agreement is no longer required. Such opinion shall be based on information publicly
provided by the Securities and Exchange Commission or a private letter ruling obtained by the
Developer or a private letter ruling obtained by a similar entity to the Developer. If such termination
occurs prior to the final maturity of the Bonds, the Developer shall give notice of such termination in
the same manner as for a Semi-Annual Report hereunder.
SECTION 7. Dissemination Allent. The Developer may from time to time, appoint or
engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure
Agreement, and may discharge any such Dissemination Agent, with or without appointing a
successor Dissemination Agent, Ifthe Dissemination Agent is not the Developer, the Dissemination
Agent shall not be responsible in any manner for the content of any notice or report prepared by the
Developer pursuant to this Disclosure Agreement. The Developer has initially appointed U.S. Bank,
N.A. as the Dissemination Agent hereunder.
SECTION 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure
Agreement, the Developer may amend this Disclosure Agreement, and any provision of this
Disclosure Agreement may be waived, provided that the following conditions are satisfied:
(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, it may
only be made in connection with a change in circumstances that arises from a change in legal
requirements, change in law, or change in the identity, nature or status of an obligated person with
respect to the Bonds, or the type of business conducted;
(b) This Disclosure Agreement, as amended or taking into account such waiver, would,
in the opinion of nationally recognized bond counsel addressed to the District, the Fiscal Agent and
the Participating Underwriter, have complied with the requirements of the Rule at the time of the
original issuance of the Bonds, after taking into account any amendments or interpretations of the
Rule, as well as any change in circumstances;
(c) The amendment or waiver either (i) is approved by the Bondowners in the same
manner as provided in the Indenture for amendments to the Indenture with the consent of
Bondowners, or (ii) does not, in the opinion of nationally recognized bond counsel addressed to the
City and the Fiscal Agent, materially impair the interests ofthe Bondowners or Beneficial Owners of
the Bonds; and
(d) The Developer, or the Dissemination Agent, shall have delivered copies of the
amendment and any opinions delivered under (b) and (c) above.
In the event of any amendment or waiver of a provision of this Disclosure Agreement, the
Developer shall describe such amendment in the next Semi-Annual Report, and shall include, as
applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the
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type (or, in the case of a change of accounting principles, on the presentation) of financial
information or operating data being presented by the Developer. In addition, if the amendment
relates to the accounting principles to be followed in preparing financial statements, (i) notice of such
change shall be given to the Municipal Securities Rulemaking Board, the State Repository, if any,
and the Repositories, and (ii) the Semi-Annual Report for the year in which the change is made
should present a comparison (in narrative form and also, if feasible, in quantitative form) between the
financial statements as prepared on the basis of the new accounting principles and those prepared on
the basis of the former accounting principles. The comparison of financial data described in
clause (ii) of the preceding sentence shall be provided at the time financial statements, if any, are
filed under Section 4(g) hereof.
SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be
deemed to prevent the Developer from disseminating any other information, using the means of
dissemination set forth in this Disclosure Agreement or any other means of communication, or
including any other information in any Semi-Annual Report or notice of occurrence of a Listed
Event, in addition to that which is required by this Disclosure Agreement. If the Developer chooses
to include any information in any Semi-Annual Report or notice of occurrence of a Listed Event in
addition to that which is specifically required by this Disclosure Agreement, the Developer shall have
no obligation under this Disclosure Agreement to update such information or include it in any future
Semi-Annual Report or notice of occurrence of a Listed Event.
SECTION 10. Default. In the event of a failure of the Developer to comply with any
provision of this Disclosure Agreement, any Participating Underwriter or any Bondowner or
Beneficial Owner of the Bonds may, take such actions as may be necessary and appropriate,
including seeking mandate or specific performance by court order, to cause the Developer or the
Dissemination Agent to comply with its obligations under this Disclosure Agreement. A default
under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and
the sole remedy under this Disclosure Agreement in the event of any failure of the Developer to
comply with this Disclosure Agreement shall be an action to compel specific performance.
SECTION 11. Duties. Immunities and Liabilities of Dissemination Agent. The
Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure
Agreement and the Developer agrees to indemnify and save the Dissemination Agent, its officers,
directors, employees and agents, harmless against any loss, expense and liabilities which they may
incur arising out of or in the exercise or performance of theirs powers and duties hereunder, including
the costs and expenses (including attorneys fees) of defending against any claim of liability, but
excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The
Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Developer,
the Participating Underwriter, Bondowners or Beneficial Owners or any other party. The
Dissemination Agent may rely and shall be protected in acting or refraining from acting upon a
direction from the Developer or an opinion of nationally recognized bond counsel. The obligations
of the Developer under this Section shall survive resignation or removal of the Dissemination Agent
and payment of the Bonds. No person shall have any right to commence any action against the
Dissemination Agent seeking any remedy other than to compel specific performance of this
Disclosure Agreement.
The Dissemination Agent will not, without the Developer's prior written consent, settle,
compromise or consent to the entry of any judgment in any pending or threatened claim, action or
proceeding in respect of which indemnification may be sought hereunder unless such settlement,
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compromise or consent includes an unconditional release of the Developer and its controlling persons
ftom all liability arising out of such claim, action or proceedings. If a claim, action or proceeding is
settled with the consent of the Developer or if there is a final judgment (other than a stipulated final
judgment without the approval of the Developer) for the plaintiff in any such claim, action or
proceeding, with or without the consent of the Developer, the Developer agrees to indemnify and
hold harmless the Dissemination Agent to the extent described herein.
SECTION 12. ReDorting Obligation of DeveloDer's Transferees. The Developer shall, in
connection with any sale or transfer of ownership of land within Improvement Area B which will
result in the transferee (which term shall include any successors and assigns of the Developer)
becoming responsible (i) for the payment of more than 20 percent of the Special Taxes levied on
property within Improvement Area B in the Fiscal Year following such transfer and (ii) for the
construction and/or installation of some or all of the improvements needed to bring such sold or
transferred land to finished lot condition, cause such transferee and any Affiliate of the transferee to
enter into a disclosure agreement with terms substantially similar to the terms of this Disclosure
Agreement, whereby such transferee and any such Affiliate agrees to be bound by the obligations
under such disclosure agreement. Additionally, the Developer shall, in connection with any sale or
transfer of ownership of land within the District which will result in the transferee and any Affiliate
of the transferee becoming responsible for the payment of more than 20 percent of the Special Taxes
levied on property within the District in the Fiscal Year following such transfer, which sale or
transfer occurs before such sold or transferred land is in finished lot condition, and the transferee is
not responsible for the construction or installation of some or all of the inftastructure needed to bring
such land to finished lot condition, cause such transferee to enter into a disclosure agreement with
terms substantially similar to the terms of this Disclosure Agreement, whereby such transferee agrees
to provide the information of the type described in Sections 4 and 5 of this Disclosure Agreement,
other than Section 4(e) with respect to its property; provided that such transferee's obligations under
such disclosure agreement shall terminate upon the transferee and any Affiliate of the transferee
together becoming responsible for the payment of less than 20 percent of the annual Special Taxes.
A memorandum regarding the Developer's obligations under this Disclosure Agreement may be
recorded in the Official Records in the office of the County Recorder of the County of San Diego.
SECTION 13. DeveloDer as Independent Contractor. In performing under this Disclosure
Agreement, it is understood that the Developer is an independent contractor and not an agent of the
City or the District.
SECTION 14. Notices. Notices required by this Disclosure Agreement shall be sent in
writing to the following addresses. The following information may be conclusively relied upon until
changed in writing:
Dissemination Agent:
U.S. Bank National Association
633 West Fifth Street, 24th Floor
Los Angeles, CA 90071
Attention: Corporate Trust
Developer and its Affiliates:
c/o East Lake Companies
900 Lane Avenue, Suite 100
Chula Vista, CA 91914
Attention:
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District:
City ofChula Vista
276 Fourth Avenue
Chula Vista, CA 91910
Attention: Finance Department
Re: Community Facilities District No. 07-1 (Otay Ranch
Village Eleven) 2004 Special Tax Bonds
Participating Underwriter:
Stone & Youngberg LLC
One Ferry Building
San Francisco, CA 94111
Attention: Research Department
SECTION 15. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of
the Developer, the City, the Dissemination Agent, the Participating Underwriter and Bondowners and
Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or
entity.
SECTION 16. Counteroarts. This Disclosure Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute one and the same
instrument.
[EAST LAKE COMPANY SIGNATURE BLOCK]
By:
Its:
U.S. BANK NATIONAL ASSOCIATION
By:
Its:
DOCSOCII 034128v6/22245-0151
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EXHIBIT A
NOTICE TO REPOSITORIES OF FAILURE TO FILE SEMI-ANNUAL REPORT
Name of the Issuer:
Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and
Land Swap) City ofChula Vista, California
Name of Bond Issue:
City of Chula Vista
Community Facilities District No. 06-1
(Eastlake - Woods, Vistas and Land Swap) 2004 Improvement Area B
Special Tax Bonds
Date ofIssuance:
,2004
NOTICE IS HEREBY GIVEN that Developer has not provided a Semi-Annual
Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement.
[The Developer anticipates that such Semi-Annual Report will be filed not later than
_.j
Dated:
U.s. BANK NATIONAL ASSOCIATION
By:
cc:
City of Chula Vista, California
Stone & Youngberg LLC
G-IO
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APPENDIX G-t
CONTINUING DISCLOSURE AGREEMENT OF THE DEVELOPER
(CORNERSTONE)
This Continuing Disclosure Agreement (the "Disclosure Agreement") dated as of June I,
2004 is executed and delivered by Cornerstone Summit at Eastlake LP (the "Landowner"), and U.S.
Bank National Association, as fiscal agent (the "Fiscal Agent") and as dissemination agent (the
"Dissemination Agent"), in connection with the execution and delivery by Community Facilities
District No. 06-1 (Eastlake - Woods, Vistas and Land Swap) (the "District") $ aggregate
principal amount of its City of Chula Vista Community Facilities District No. 06-1 (Eastlake -
Woods, Vistas and Land Swap) 2004 Improvement Area B Special Tax Bonds (the "Bonds"). The
Bonds are being executed and delivered pursuant to an Indenture dated as of June I, 2004 by and
between the District and U.S. Bank National Association, as Fiscal Agent (the "Indenture"). The
Landowner covenants and agrees as follows:
SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being
executed and delivered by the Landowner for the benefit of the Bondowners and Beneficial Owners
and in order to assist the Participating Underwriter in complying with S,E.C. Rule 15c2-12(b)(5).
This Disclosure Agreement does not address additional undertakings, if any, by or with respect to
persons other than the Landowner who may be considered obligated persons or purposes of the
Rule, which additional undertakings, if any, may be required for the Participating Underwriter to
comply with the Rule.
SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which
apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this
Section, the following capitalized terms shall have the following meanings:
"Affiliate" shall mean, with respect to any Person, (a) each Person that, directly or indirectly,
owns or controls, whether beneficially or as an agent, guardian or other fiduciary, twenty-five percent
(25%) or more of any class of Equity Securities of such Person, (b) each Person that controls, is
controlled by or is under common control with such Person, or (c) each of such Person's executive
officers, directors, joint venturers and general partners; provided, however, that in no case shall the
District be deemed to be an Affiliate of the Landowner for purposes of this Disclosure Agreement.
For the purpose of this definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
"Beneficial Owner" shall mean any person which has or shares the power, directly or
indirectly, to make investment decisions concerning ownership of the Bonds (including persons
holding Bonds through nominees, depositories or other intermediaries).
"City" shall mean the City ofChula Vista, California.
"Dissemination Agent" shall mean U.S. Bank National Association, acting in its capacity as
Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the
Landowner and which has filed with the Landowner and the City a written acceptance of such
designation.
DOCSOC/I 034128v6/22245-0 151
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"District" shall mean Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and
Land Swap).
"Equity Securities" of any Person shall mean (a) all common stock, preferred stock,
participations, shares, general partnership interests or other equity interests in and of such person
(regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options
and other rights to acquire any of the foregoing.
"Fiscal Year" shall mean the period beginning on July I of each year and ending on the next
succeeding June 30.
"Government Authority" shall mean any national, state or local government, any political
subdivision thereof, any department, agency, authority or bureau of any of the foregoing, or any other
Person exercising executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Improvement Area B" shall mean Improvement Area B of the District.
"Listed Event" shall mean any of the events listed in Section 5(a) of this Disclosure
Agreement.
"National Repository" shall mean any Nationally Recognized Municipal Securities
Infonnation Repository for purposes of the Rule.
"Official Statement" shall mean the Official Statement, dated
the Bonds.
-' 2004, relating to
"Participating Underwriter" shall mean Stone & Youngberg LLC, the original underwriter of
the Bonds, whose address for purposes of this Disclosure Agreement is One Ferry Building, San
Francisco, California 94111, Attention: Research Department, and any other underwriting finn that
provides written notice to the Landowner that it is required to comply with the Rule in connection
with the offering of the Bonds.
"Person" shall mean any natural person, corporation, limited liability company, partnership,
finn, association, Government Authority or any other Person whether acting in an individual
fiduciary, or other capacity.
"Repository" shall mean each National Repository and the State Repository.
"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as the same may be amended from time to time.
"Semi-Annual Report" shall mean any Semi-Annual Report provided by the Landowner
pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.
"State" shall mean the State of California.
"State Repository" shall mean any public or private repository or entity designed by the State
as a state repository for the purpose of the Rule and recognized as such by the Securities and
Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository.
DOCSOC/1 034128v6/22245-0 151
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SECTION 3. Provision of Annual Reports.
(a) The Landowner shall, or shall cause the Dissemination Agent to, not later than May 1
and November I of each year, commencing November I, 2004, provide to each Repository, the
District and to Stone & Youngberg LLC a Semi-Annual Report which is consistent with the
requirements of Section 4 of this Disclosure Agreement. The Semi-Annual Report may be submitted
as a single document or as separate documents comprising a package, and may include by reference
other information as provided in Section 4 of this Disclosure Agreement provided that the audited
financial statements, if any, of the Landowner may be submitted separately from the balance of the
Semi-Annual Report due on May of each year and later than the date required for the filing of the
Semi-Annual Report due on May of each year if they are not available by that date.
(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a)
for providing the Semi-Annual Report to Repositories, the Landowner shall provide the Semi-Annual
Report to the Dissemination Agent or shall provide notification to the Dissemination Agent that the
Landowner is preparing, or causing to be prepared, the Semi-Annual Report and the date which the
Semi-Annual Report is expected to be available. If by such date, the Dissemination Agent has not
received a copy of the Semi-Annual Report or notification as described in the preceding sentence, the
Dissemination Agent shall contact the Landowner to determine if the Landowner is in compliance
with the first sentence of this subsection (b).
(c) If the Dissemination Agent is unable to provide a Semi-Annual Report to
Repositories by the date required in subsection (a) or to verify that a Semi-Annual Report has been
provided to Repositories by the date required in subsection (a), the Dissemination Agent shall send a
notice to each Repository in substantially the form attached as Exhibit A.
Cd)
The Dissemination Agent shall:
(i) determine each year prior to the date for providing the Semi-Annual Report
the name and address of each National Repository and the State Repository, if any; and
(ii) file a report with the Landowner and the District certifying that the Semi-
Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it
was provided and listing all the Repositories to which it was provided.
SECTION 4. Content of Semi-Annual Report. The Landowner's Semi-Annual Report shall
contain or include by reference the information which is available as of January I and July I of each
year, as applicable, relating to the following:
a.
An update to the section in the Official Statement entitled "THE DEVELOPMENT
AND PROPERTY OWNERSHIP" of information relating to the Landowner
including a summary of any material changes to the sources of funds to finance
development relating to its property within Improvement Area B, and whether any
material defaults exist under any loan arrangement related to such financing.
b.
A summary of development activity within Improvement Area B relating to property
owned by the Landowner, including the number of parcels for which building permits
have been issued, the number of parcels for which certificates of occupancy have
been issued, the number of parcels for which sales have closed, and land or lot sales
G-l-3
DOCSOC/IO34128v6/22245-Q 151
{; ~/?P
by the Landowner including the amount of land or lots sold and the name of the
purchaser oflots to be developed.
c.
An update on the status of any material governmentally-imposed preconditions for
commencement or continuation of development of the undeveloped parcels within
Improvement Area B owned by the Landowner.
d.
Status of any material legislative, administrative and judicial challenges known to the
Landowner affecting the construction of the development or the time for construction
of any improvements to be made by the Landowner or any of its Affiliates within
Improvement Area B, other than the public improvements described in (e) below (the
"Landowner Improvements").
e.
Any material amendments to land use entitlements for the property owned by the
Landowner with Improvement Area B or Special Tax rate and method of
apportionment with respect to parcels owned by the Landowner and its Affiliates
within Improvement Area B that are known to the Landowner, including (i) an update
of the total acres owned by the Landowner and its Affiliates subject to the levy of
Special Taxes on the amendment to the rate and method affects the total number of
acres subject to the levy of the Special Taxes, and (ii) a listing of any such acreage
that has become exempt from the levy of Special Taxes.
f.
In the Semi-Annual Report due in May of each year only and until such time as the
Landowner and its Affiliates no longer own land within Improvement Area B which
is responsible for 20% or more of the annual Special Tax levy, audited financial
statements of the Landowner and its Affiliates owning land within Improvement
Area B, if prepared, for its most recently completed fiscal year (which currently ends
on each December 31), prepared in accordance with generally accepted accounting
principles as promulgated to apply to private entities from time to time by the
Financial Accounting Standards Board. If the Landowner has audited financial
statements prepared and the audited financial statements are not available by the time
the Semi-Annual Report is required to be filed pursuant to Section 3(a), the Semi-
Annual Report shall contain unaudited financial statements in a format similar to the
audited financial statements for the preceding year, and the audited financial
statements shall be filed in the same manner as the Semi-Annual Report when they
become available. The Landowner need only provide audited or unaudited data once
per year.
g.
The filing of any lawsuit against the Landowner or otherwise known to the
Landowner which will materially adversely affect the completion of the District
Improvements, the Landowner Improvements or the development of undeveloped
parcels owned by the Landowner and its Affiliates within Improvement Area B, or
litigation which would materially adversely affect the financial condition of the
Landowner or its Affiliates that own property within Improvement Area B.
h.
A material payment default by the Landowner on any loan made to the Landowner
(whether or not such loan is secured by property within the District) which is beyond
any applicable cure period in such loan.
DOCSOC/l034128v6/22245-0151
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Any and all of the items listed above may be included by specific reference to other
documents, including official statements of debt issues which have been submitted to each of the
Repositories or the Securities and Exchange Commission. If the document included by reference is a
final official statement, it must be available from the Municipal Securities Rulemaking Board. The
Landowner shall clearly identify each such other document so included by reference.
SECTION 5.
Reporting of Silffiificant Events.
(a) Pursuant to the provisions of this Section 5, the Landowner shall give, or cause to be
given, notice of the occurrence of any of the following events with respect to the Bonds, if material
under clauses (b) and (c):
1. Failure to pay any real property taxes, special taxes or assessments (including
any assessment installment) levied within Improvement Area B on a parcel owned by the
Landowner or any of its Affiliates;
2. A payment default by the Landowner or any Affiliate on any loan secured by
property within Improvement Area B owned by the Landowner or any of its Affiliates which
is beyond any applicable cure period in such loan;
3. The filing of any proceedings with respect to the Landowner or any of its
Affiliates, in which the Landowner or any of its Affiliates that own property within
Improvement Area B may be adjudicated as bankrupt or discharged from any or all of their
respective debts or obligations or granted an extension of time to pay debts or a
reorganization or readjustment of debts; and
4. A sale or transfer of a majority interest in the Landowner to an entity that is
not an Affiliate. -
(b) Whenever the Landowner obtains knowledge of the occurrence of a Listed Event, the
Landowner shall as soon as possible determine if such event would be material under applicable
federal securities laws.
(c) If the Landowner determines that knowledge of the occurrence of a Listed Event
would be material under applicable federal securities laws, the Landowner shall promptly file a
notice of such occurrence with the Dissemination Agent which shall then distribute such notice to the
Municipal Securities Rulemaking Board and each State Repository, with a copy to the District and
the Participating Underwriter.
SECTION 6. Tennination of Renorting Obligation. The Landowner's obligations under
this Disclosure Agreement shall terminate upon any of the following events:
(a)
the legal defeasance, prior redemption or payment in full of all of the Bonds,
(b) if as of the date for filing the Semi-Annual Report the Landowner and its Affiliates
own property within Improvement Area B which is responsible for less than twenty percent (20%) of
the Special Taxes levied in the Fiscal Year for which the Semi-Annual Report is being prepared, and
the Landowner Improvements to be constructed by the Landowner have been completed, or
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DOCSOC/1O34128v6/22245-0151
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(c) upon the delivery by the Landowner to the District and the Participating Underwriter
of an opinion of nationally recognized bond counsel to the effect that the information required by this
Disclosure Agreement is no longer required. Such opinion shall be based on information publicly
provided by the Securities and Exchange Commission or a private letter ruling obtained by the
Landowner or a private letter ruling obtained by a similar entity to the Landowner. If such
termination occurs prior to the final maturity of the Bonds, the Landowner shall give notice of such
termination in the same manner as for a Semi-Annual Report hereunder.
SECTION 7. Dissemination Agent. The Landowner may from time to time, appoint or
engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure
Agreement, and may discharge any such Dissemination Agent, with or without appointing a
successor Dissemination Agent. If the Dissemination Agent is not the Landowner, the Dissemination
Agent shall not be responsible in any manner for the content of any notice or report prepared by the
Landowner pursuant to this Disclosure Agreement. The Landowner has initially appointed U.S.
Bank, N.A. as the Dissemination Agent hereunder.
SECTION 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure
Agreement, the Landowner may amend this Disclosure Agreement, and any provision of this
Disclosure Agreement may be waived, provided that the following conditions are satisfied:
(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, it may
only be made in connection with a change in circumstances that arises from a change in legal
requirements, change in law, or change in the identity, nature or status of an obligated person with
respect to the Bonds, or the type of business conducted;
(b) This Disclosure Agreement, as amended or taking into account such waiver, would,
in the opinion of nationally recognized bond counsel addressed to the District, the Fiscal Agent and
the Participating Underwriter, have complied with the requirements of the Rule at the time of the
original issuance of the Bonds, after taking into account any amendments or interpretations of the
Rule, as well as any change in circumstances;
(c) The amendment or waiver either (i) is approved by the Bondowners in the same
manner as provided in the Indenture for amendments to the Indenture with the consent of
Bondowners, or (ii) does not, in the opinion of nationally recognized bond counsel addressed to the
City and the Fiscal Agent, materially impair the interests of the Bondowners or Beneficial Owners of
the Bonds; and
(d) The Landowner, or the Dissemination Agent, shall have delivered copies of the
amendment and any opinions delivered under (b) and (c) above.
In the event of any amendment or waiver of a provision of this Disclosure Agreement, the
Landowner shall describe such amendment in the next Semi-Annual Report, and shall include, as
applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the
type (or, in the case of a change of accounting principles, on the presentation) of financial
information or operating data being presented by the Landowner. In addition, if the amendment
relates to the accounting principles to be followed in preparing financial statements, (i) notice of such
change shall be given to the Municipal Securities Rulemaking Board, the State Repository, if any,
and the Repositories, and (ii) the Semi-Annual Report for the year in which the change is made
should present a comparison (in narrative form and also, if feasible, in quantitative form) between the
DOCSOC/IO34128v6/22245-0151
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6 -( cJ.-1
financial statements as prepared on the basis of the new accounting principles and those prepared on
the basis of the former accounting principles. The comparison of financial data described in
clause (ii) of the preceding sentence shall be provided at the time financial statements, if any, are
filed under Section 4(f) hereof.
SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be
deemed to prevent the Landowner from disseminating any other information, using the means of
dissemination set forth in this Disclosure Agreement or any other means of communication, or
including any other information in any Semi-Annual Report or notice of occurrence of a Listed
Event, in addition to that which is required by this Disclosure Agreement. If the Landowner chooses
to include any information in any Semi-Annual Report or notice of occurrence of a Listed Event in
addition to that which is specifically required by this Disclosure Agreement, the Landowner shall
have no obligation under this Disclosure Agreement to update such information or include it in any
future Semi-Annual Report or notice of occurrence of a Listed Event.
SECTION 10. Default. In the event of a failure of the Landowner to comply with any
provision of this Disclosure Agreement, any Participating Underwriter or any Bondowner or
Beneficial Owner of the Bonds may, take such actions as may be necessary and appropriate,
including seeking mandate or specific performance by court order, to cause the Landowner or the
Dissemination Agent to comply with its obligations under this Disclosure Agreement. A default
under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and
the sole remedy under this Disclosure Agreement in the event of any failure of the Landowner to
comply with this Disclosure Agreement shall be an action to compel specific performance.
SECTION 11. Duties. Immunities and Liabilities of Dissemination Agent. The
Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure
Agreement and the Landowner agrees to indemnify and save the Dissemination Agent, its officers,
directors, employees and agents, harmless against any loss, expense and liabilities which they may
incur arising out of or in the exercise or performance of theirs powers and duties hereunder, including
the costs and expenses (including attorneys fees) of defending against any claim of liability, but
excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The
Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Landowner,
the Participating Underwriter, Bondowners or Beneficial Owners or any other party. The
Dissemination Agent may rely and shall be protected in acting or refraining from acting upon a
direction from the Landowner or an opinion of nationally recognized bond counsel. The obligations
of the Landowner under this Section shall survive resignation or removal of the Dissemination Agent
and payment of the Bonds. No person shall have any right to commence any action against the
Dissemination Agent seeking any remedy other than to compel specific performance of this
Disclosure Agreement.
The Dissemination Agent will not, without the Landowner's prior written consent, settle,
compromise or consent to the entry of any judgment in any pending or threatened claim, action or
proceeding in respect of which indemnification may be sought hereunder unless such settlement,
compromise or consent includes an unconditional release of the Landowner and its controlling
persons from all liability arising out of such claim, action or proceedings. If a claim, action or
proceeding is settled with the consent of the Landowner or if there is a final judgment (other than a
stipulated final judgment without the approval of the Landowner) for the plaintiff in any such claim,
action or proceeding, with or without the consent of the Landowner, the Landowner agrees to
indemnify and hold harmless the Dissemination Agent to the extent described herein.
DOCSOC/l 034128v6/22245-0 151
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(, -/0-;"
SECTION 12. Reporting Obligation of Landowner's Transferees. The Landowner shall, in
connection with any sale or transfer of ownership of land within Improvement Area B which will
result in the transferee (which term shall include any successors and assigns of the Landowner)
becoming responsible for the payment of more than 20 percent of the Special Taxes levied on
property within Improvement Area B in the Fiscal Year following such transfer, cause such
transferee to enter into a disclosure agreement with terms substantially similar to the terms of this
Disclosure Agreement, whereby such transferee agrees to provide the information of the type
described in Sections 4 and 5 of this Disclosure Agreement with respect to its property; provided that
such transferee's obligations under such disclosure agreement shall terminate upon the transferee and
any Affiliate of the transferee becoming responsible for the payment of less than 20 percent of the
annual Special Taxes. A memorandum regarding the Landowner's obligations under this Disclosure
Agreement may be recorded in the Official Records in the office of the County Recorder of the
County of San Diego.
SECTION 13. Landowner as Independent Contractor. In performing under this Disclosure
Agreement, it is understood that the Landowner is an independent contractor and not an agent of the
City or the District.
SECTION 14. Notices. Notices required by this Disclosure Agreement shall be sent in
writing to the following addresses. The following information may be conclusively relied upon until
changed in writing:
Dissemination Agent:
U.S. Bank National Association
633 West Fifth Street, 24th Floor
Los Angeles, CA 90071
Attention: Corporate Trust
Landowner and its Affiliates:
[Cornerstone Notice Info]
Attention:
District:
City ofChula Vista
276 Fourth Avenue
Chula Vista, CA 91910
Attention: Finance Department
Re: Community Facilities District No. 07-1 (Eastlake-
Woods, Vistas and Land Swap) 2004 Special Tax Bonds
Participating Underwriter:
Stone & Youngberg LLC
One Ferry Building
San Francisco, CA 94111
Attention: Research Department
SECTION 15. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of
the Landowner, the City, the Dissemination Agent, the Participating Underwriter and Bondowners
and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person
or entity.
DOCSOC/1 034128v6/22245-0151
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6 ~/.J3
SECTION 16. Counterparts. This Disclosure Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute one and the same
instrument.
[CORNERSTONE SIGNA TORE BLOCK]
By:
Its:
U.S. BANK NATIONAL ASSOCIATION
By:
Its:
G-I-9
DOCSOC/1 034128v6/22245-0151
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~ "7
EXHIBIT A
NOTICE TO REPOSITORIES OF FAILURE TO FILE SEMI-ANNUAL REPORT
Name of the Issuer:
Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and
Land Swap) City of Chula Vista, California
Name of Bond Issue:
City of Chula Vista
Community Facilities District No. 06-1
(Eastlake - Woods, Vistas and Land Swap) 2004 Improvement Area B
Special Tax Bonds
Date ofIssuance:
,2004
NOTICE IS HEREBY GIVEN that the Landowner has not provided a Semi-Annual
Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement.
[The Landowner anticipates that such Semi-Annual Report will be filed not later than
_.j
Dated:
U.S. BANK NATIONAL ASSOCIATION
By:
cc:
City of Chula Vista, California
Stone & Youngberg LLC
G-I-IO
DOCSOCIl 034128v6/22245-0151
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:;..-
APPENDIX G-2
CONTINUING DISCLOSURE AGREEMENT OF THE DEVELOPER
(KB COASTAL)
This Continuing Disclosure Agreement (the "Disclosure Agreement") dated as of June 1,
2004 is executed and delivered by KB Home Coastal, Inc. (the "Landowner"), and U.S. Bank
National Association, as fiscal agent (the "Fiscal Agent") and as dissemination agent (the
"Dissemination Agent"), in connection with the execution and delivery by Community Facilities
District No. 06-1 (Eastlake - Woods, Vistas and Land Swap) (the "District") $ aggregate
principal amount of its City of Chula Vista Community Facilities District No. 06-1 (Eastlake -
Woods, Vistas and Land Swap) 2004 Improvement Area B Special Tax Bonds (the "Bonds"). The
Bonds are being executed and delivered pursuant to an Indenture dated as of June 1, 2004 by and
between the District and U.S. Bank National Association, as Fiscal Agent (the "Indenture"). The
Landowner covenants and agrees as follows:
SECTION I. Puroose of the Disclosure Agreement. This Disclosure Agreement is being
executed and delivered by the Landowner for the benefit of the Bondowners and Beneficial Owners
and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).
This Disclosure Agreement does not address additional undertakings, if any, by or with respect to
persons other than the Landowner who may be considered obligated persons or purposes of the
Rule, which additional undertakings, if any, may be required for the Participating Underwriter to
comply with the Rule.
SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which
apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this
Section, the following capitalized terms shall have the following meanings:
"Affiliate" shall mean, with respect to any Person, (a) each Person that, directly or indirectly,
owns or controls, whether beneficially or as an agent, guardian or other fiduciary, twenty-five percent
(25%) or more of any class of Equity Securities of such Person, (b) each Person that controls, is
controlled by or is under common control with such Person, or (c) each of such Person's executive
officers, directors, joint venturers and general partners; provided. however, that in no case shall the
District be deemed to be an Affiliate of the Landowner for purposes of this Disclosure Agreement.
For the purpose of this definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
"Beneficial Owner" shall mean any person which has or shares the power, directly or
indirectly, to make investment decisions concerning ownership of the Bonds (including persons
holding Bonds through nominees, depositories or other intermediaries).
"City" shall mean the City of Chula Vista, California.
"Dissemination Agent" shall mean U.S. Bank National Association, acting in its capacity as
Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the
Landowner and which has filed with the Landowner and the City a written acceptance of such
designation.
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"District" shall mean Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and
Land Swap).
"Equity Securities" of any Person shall mean (a) all common stock, preferred stock,
participations, shares, general partnership interests or other equity interests in and of such person
(regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options
and other rights to acquire any of the foregoing.
"Fiscal Year" shall mean the period beginning on July I of each year and ending on the next
succeeding June 30.
"Government Authority" shall mean any national, state or local government, any political
subdivision thereof, any department, agency, authority or bureau of any of the foregoing, or any other
Person exercising executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Improvement Area B" shall mean Improvement Area B of the District.
"Listed Event" shall mean any of the events listed in Section 5(a) of this Disclosure
Agreement.
"National Repository" shall mean any Nationally Recognized Municipal Securities
Information Repository for purposes of the Rule.
"Official Statement" shall mean the Official Statement, dated - -' 2004, relating to
the Bonds.
"Participating Underwriter" shall mean Stone & Youngberg LLC, the original underwriter of
the Bonds, whose address for purposes of this Agreement is One Ferry Building, San Francisco,
California 94111, Attention: Research Department, and any other underwriting firm that provides
written notice to the Landowner that it is required to comply with the Rule in connection with the
offering of the Bonds.
"Person" shall mean any natural person, corporation, limited liability company, partnership,
firm, association, Government Authority or any other Person whether acting in an individual
fiduciary, or other capacity.
"Repository" shall mean each National Repository and the State Repository.
"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as the same may be amended from time to time.
"Semi-Annual Report" shall mean any Semi-Annual Report provided by the Landowner
pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.
"State" shall mean the State of California.
"State Repository" shall mean any public or private repository or entity designed by the State
as a state repository for the purpose of the Rule and recognized as such by the Securities and
Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository.
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SECTION 3. Provision of Annual Reports.
(a) The Landowner shall, or shall cause the Dissemination Agent to, not later than May I
and November I of each year, commencing November I, 2004, provide to each Repository, the
District and to Stone & Youngberg LLC a Semi-Annual Report which is consistent with the
requirements of Section 4 of this Disclosure Agreement. The Semi-Annual Report may be submitted
as a single document or as separate documents comprising a package, and may include by reference
other information as provided in Section 4 of this Disclosure Agreement provided that the audited
financial statements, if any, of the Landowner may be submitted separately from the balance of the
Semi-Annual Report due on May of each year and later than the date required for the filing of the
Semi-Annual Report due on May of each year if they are not available by that date.
(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a)
for providing the Semi-Annual Report to Repositories, the Landowner shall provide the Semi-Annual
Report to the Dissemination Agent or shall provide notification to the Dissemination Agent that the
Landowner is preparing, or causing to be prepared, the Semi-Annual Report and the date which the
Semi-Annual Report is expected to be available. If by such date, the Dissemination Agent has not
received a copy of the Semi-Annual Report or notification as described in the preceding sentence, the
Dissemination Agent shall contact the Landowner to determine if the Landowner is in compliance
with the first sentence of this subsection (b).
(c) If the Dissemination Agent is unable to provide a Semi-Annual Report to
Repositories by the date required in subsection (a) or to verify that a Semi-Annual Report has been
provided to Repositories by the date required in subsection (a), the Dissemination Agent shall send a
notice to each Repository in substantially the form attached as Exhibit A.
(d)
The Dissemination Agent shall:
(i) determine each year prior to the date for providing the Semi-Annual Report
the name and address of each National Repository and the State Repository, if any; and
(ii) file a report with the Landowner and the District certifying that the Semi-
Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it
was provided and listing all the Repositories to which it was provided.
SECTION 4. Content of Semi-Annual Report. The Landowner's Semi-Annual Report shall
contain or include by reference the information which is available as of January I and July 1 of each
year, as applicable, relating to the following:
a.
An update to the section in the Official Statement entitled "THE DEVELOPMENT
AND PROPERTY OWNERSHIP" of information relating to the Landowner
including a summary of any material changes to the sources of funds to finance
development relating to its property within Improvement Area B, and whether any
material defaults exist under any loan arrangement related to such financing.
b.
A summary of development activity within Improvement Area B relating to property
owned by the Landowner, including the number of parcels for which building permits
have been issued, the number of parcels for which certificates of occupancy have
been issued, the number of parcels for which sales have closed, and land or lot sales
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by the Landowner including the amount of land or lots sold and the name of the
purchaser of lots to be developed.
c.
An update on the status of any material governmentally-imposed preconditions for
commencement or continuation of development of the undeveloped parcels within
Improvement Area B owned to the Landowner.
d.
Status of any material legislative, administrative and judicial challenges known to the
Landowner affecting the construction of the development or the time for construction
of any improvements to be made by the Landowner or any of its Affiliates within
Improvement Area B, other than the public improvements described in (e) below (the
"Landowner Improvements").
e.
Any material amendments to land use entitlements for the property owned by the
Landowner with Improvement Area B or Special Tax rate and method of
apportionment with respect to parcels owned by the Landowner and its Affiliates
within Improvement Area B that are known to the Landowner, including (i) an update
of the total acres owned by the Landowner and its Affiliates subject to the levy of
Special Taxes on the amendment to the rate and method affects the total number of
acres subject to the levy of the Special Taxes, and (ii) a listing of any such acreage
that has become exempt from the levy of Special Taxes.
f.
In the Semi-Annual Report due in May of each year only and until such time as the
Landowner and its Affiliates no longer own land within Improvement Area B which
is responsible for 20% or more of the annual Special Tax levy, audited financial
statements of the Landowner and its Affiliates owning land within Improvement
Area B, if prepared, for its most recently completed fiscal year (which currently ends
on each December 31), prepared in accordance with generally accepted accounting
principles as promulgated to apply to private entities from time to time by the
Financial Accounting Standards Board. If the Landowner has audited financial
statements prepared and the audited financial statements are not available by the time
the Semi-Annual Report is required to be filed pursuant to Section 3(a), the Semi-
Annual Report shall contain unaudited financial statements in a fonnat similar to the
audited financial statements for the preceding year, and the audited financial
statements shall be filed in the same manner as the Semi-Annual Report when they
become available. The Landowner need only provide audited or unaudited data once
per year.
g.
The filing of any lawsuit against the Landowner or otherwise known to the
Landowner which will materially adversely affect the completion of the District
Improvements, the Landowner Improvements or the development of undeveloped
parcels owned by the Landowner and its Affiliates within Improvement Area B, or
litigation which would materially adversely affect the financial condition of the
Landowner or its Affiliates that own property within Improvement Area B.
h.
A payment default by the Landowner on any loan made to the Landowner (whether
or not such loan is secured by property within the District) which is beyond any
applicable cure period in such loan.
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Any and all of the items listed above may be included by specific reference to other
documents, including official statements of debt issues which have been submitted to each of the
Repositories or the Securities and Exchange Commission. If the document included by reference is a
final official statement, it must be available from the Municipal Securities Rulemaking Board. The
Landowner shall clearly identifY each such other document so included by reference.
SECTION 5.
Reporting of Si~ificant Events.
(a) Pursuant to the provisions of this Section 5, the Landowner shall give, or cause to be
given, notice of the occurrence of any of the following events with respect to the Bonds, if material
under clauses (b) and (c):
I. Failure to pay any real property taxes, special taxes or assessments (including
any assessment installment) levied within Improvement Area B on a parcel owned by the
Landowner or any of its Affiliates;
2. A payment default by the Landowner or any Affiliate on any loan secured by
property within Improvement Area B owned by the Landowner or any of its Affiliates which
is beyond any applicable cure period in such loan;
3. The filing of any proceedings with respect to the Landowner or any of its
Affiliates, in which the Landowner or any of its Affiliates that own property within
Improvement Area B may be adjudicated as bankrupt or discharged from any or all of their
respective debts or obligations or granted an extension of time to pay debts or a
reorganization or readjustment of debts; and
4. A sale or transfer of a majority interest in the Landowner to an entity that is
not an Affiliate.
(b) Whenever the Landowner obtains knowledge of the occurrence of a Listed Event, the
Landowner shall as soon as possible detennine if such event would be material under applicable
federal securities laws.
(c) If the Landowner detennines that knowledge of the occurrence of a Listed Event
would be material under applicable federal securities laws, the Landowner shall promptly file a
notice of such occurrence with the Dissemination Agent which shall then distribute such notice to the
Municipal Securities Rulemaking Board and each State Repository, with a copy to the District and
the Participating Underwriter.
SECTION 6. Tennination of Reporting Obligation. The Landowner's obligations under
this Disclosure Agreement shalltenninate upon any of the following events:
(a)
the legal defeasance, prior redemption or payment in full of all of the Bonds,
(b) if as of the date for filing the Semi-Annual Report the Landowner and its Affiliates
own property within Improvement Area B which is responsible for less than twenty percent (20%) of
the Special Taxes levied in the Fiscal Year for which the Semi-Annual Report is being prepared, and
the Landowner Improvements to be constructed by the Landowner have been completed, or
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(c) upon the delivery by the Landowner to the District and the Participating Underwriter
of an opinion of nationally recognized bond counsel to the effect that the information required by this
Disclosure Agreement is no longer required. Such opinion shall be based on information publicly
provided by the Securities and Exchange Commission or a private letter ruling obtained by the
Landowner or a private letter ruling obtained by a similar entity to the Landowner. If such
termination occurs prior to the final maturity of the Bonds, the Landowner shall give notice of such
termination in the same manner as for a Semi-Annual Report hereunder.
SECTION 7. Dissemination Agent. The Landowner may from time to time, appoint or
engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure
Agreement, and may discharge any such Dissemination Agent, with or without appointing a
successor Dissemination Agent. If the Dissemination Agent is not the Landowner, the Dissemination
Agent shall not be responsible in any manner for the content of any notice or report prepared by the
Landowner pursuant to this Disclosure Agreement. The Landowner has initially appointed U.S.
Bank, N.A. as the Dissemination Agent hereunder.
SECTION 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure
Agreement, the Landowner may amend this Disclosure Agreement, and any provision of this
Disclosure Agreement may be waived, provided that the following conditions are satisfied:
(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, it may
only be made in connection with a change in circumstances that arises ÍÌ'om a change in legal
requirements, change in law, or change in the identity, nature or status of an obligated person with
respect to the Bonds, or the type of business conducted;
(b) This Disclosure Agreement, as amended or taking into account such waiver, would,
in the opinion of nationally recognized bond counsel addressed to the District, the Fiscal Agent and
the Participating Underwriter, have complied with the requirements of the Rule at the time of the
original issuance of the Bonds, after taking into account any amendments or interpretations of the
Rule, as well as any change in circumstances;
(c) The amendment or waiver either (i) is approved by the Bondowners in the same
manner as provided in the Indenture for amendments to the Indenture with the consent of
Bondowners, or (ii) does not, in the opinion of nationally recognized bond counsel addressed to the
City and the Fiscal Agent, materially impair the interests of the Bondowners or Beneficial Owners of
the Bonds; and
(d) The Landowner, or the Dissemination Agent, shall have delivered copies of the
amendment and any opinions delivered under (b) and (c) above.
In the event of any amendment or waiver of a provision of this Disclosure Agreement, the
Landowner shall describe such amendment in the next Semi-Annual Report, and shall include, as
applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the
type (or, in the case of a change of accounting principles, on the presentation) of financial
information or operating data being presented by the Landowner. In addition, if the amendment
relates to the accounting principles to be followed in preparing financial statements, (i) notice of such
change shall be given to the Municipal Securities Rulemaking Board, the State Repository, if any,
and the Repositories, and (ii) the Semi-Annual Report for the year in which the change is made
should present a comparison (in narrative form and also, if feasible, in quantitative form) between the
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financial statements as prepared on the basis of the new accounting principles and those prepared on
the basis of the fonner accounting principles. The comparison of financial data described in
clause (ii) of the preceding sentence shall be provided at the time financial statements, if any, are
filed under Section 4(1) hereof.
SECTION 9. Additional Infonnation. Nothing in this Disclosure Agreement shall be
deemed to prevent the Landowner from disseminating any other infonnation, using the means of
dissemination set forth in this Disclosure Agreement or any other means of communication, or
including any other infonnation in any Semi-Annual Report or notice of occurrence of a Listed
Event, in addition to that which is required by this Disclosure Agreement. If the Landowner chooses
to include any infonnation in any Semi-Annual Report or notice of occurrence of a Listed Event in
addition to that which is specifically required by this Disclosure Agreement, the Landowner shall
have no obligation under this Disclosure Agreement to update such infonnation or include it in any
future Semi-Annual Report or notice of occurrence of a Listed Event.
SECTION 10. Default. In the event of a failure of the Landowner to comply with any
provision of this Disclosure Agreement, any Participating Underwriter or any Bondowner or
Beneficial Owner of the Bonds may, take such actions as may be necessary and appropriate,
including seeking mandate or specific perfonnance by court order, to cause the Landowner or the
Dissemination Agent to comply with its obligations under this Disclosure Agreement. A default
under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and
the sole remedy under this Disclosure Agreement in the event of any failure of the Landowner to
comply with this Disclosure Agreement shall be an action to compel specific perfonnance.
SECTION II. Duties. Immunities and Liabilities of Dissemination A!!ent. The
Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure
Agreement and the Landowner agrees to indemnify and save the Dissemination Agent, its officers,
directors, employees and agents, hannless against any loss, expense and liabilities which they may
incur arising out of or in the exercise or perfonnance of theirs powers and duties hereunder, including
the costs and expenses (including attorneys fees) of defending against any claim of liability, but
excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The
Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Landowner,
the Participating Underwriter, Bondowners or Beneficial Owners or any other party. The
Dissemination Agent may rely and shall be protected in acting or refraining from acting upon a
direction from the Landowner or an opinion of nationally recognized bond counsel. The obligations
of the Landowner under this Section shall survive resignation or removal of the Dissemination Agent
and payment of the Bonds. No person shall have any right to commence any action against the
Dissemination Agent seeking any remedy other than to compel specific perfonnance of this
Disclosure Agreement.
The Dissemination Agent will not, without the Landowner's prior written consent, settle,
compromise or consent to the entry of any judgment in any pending or threatened claim, action or
proceeding in respect of which indemnification may be sought hereunder unless such settlement,
compromise or consent includes an unconditional release of the Landowner and its controlling
persons from all liability arising out of such claim, action or proceedings. If a claim, action or
proceeding is settled with the consent of the Landowner or if there is a final judgment (other than a
stipulated final judgment without the approval of the Landowner) for the plaintiff in any such claim,
action or proceeding, with or without the consent of the Landowner, the Landowner agrees to
indemnify and hold hannless the Dissemination Agent to the extent described herein.
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SECTION 12. ReDortinl! Obligation of Landowner's Transferees. The Landowner shall, in
connection with any sale or transfer of ownership of land within Improvement Area B which will
result in the transferee (which term shall include any successors and assigns of the Landowner)
becoming responsible for the payment of more than 20 percent of the Special Taxes levied on
property within Improvement Area B in the Fiscal Year following such transfer cause such transferee
to enter into a disclosure agreement with terms substantially similar to the terms of this Disclosure
Agreement, whereby such transferee agrees to provide the information of the type described in
Sections 4 and 5 of this Disclosure Agreement with respect to its property; provided that such
transferee's obligations under such disclosure agreement shall terminate upon the transferee and any
Affiliate of the transferee becoming responsible for the payment of less than 20 percent of the annual
Special Taxes. A memorandum regarding the Landowner's obligations under this Disclosure
Agreement may be recorded in the Official Records in the office of the County Recorder of the
County of San Diego.
SECTION 13. Landowner as IndeDendent Contractor. In performing under this Disclosure
Agreement, it is understood that the Landowner is an independent contractor and not an agent of the
City or the District.
SECTION 14. Notices. Notices required by this Disclosure Agreement shall be sent in
writing to the following addresses. The following information may be conclusively relied upon until
changed in writing:
Dissemination Agent:
U.S. Bank National Association
633 West Fifth Street, 24th Floor
Los Angeles, CA 90071
Attention: Corporate Trust
Landowner and its Affiliates:
[KB COASTAL NOTICE INFO]
Attention:
District:
City of Chula Vista
276 Fourth Avenue
Chula Vista, CA 91910
Attention: Finance Department
Re: Community Facilities District No. 06-1 (EastLake-
Woods, Vistas and Land Swap) 2004 Special Tax Bonds
Participating Underwriter:
Stone & Youngberg LLC
One Ferry Building
San Francisco, CA 94111
Attention: Research Department
SECTION 15. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of
the Landowner, the City, the Dissemination Agent, the Participating Underwriter and Bondowners
and Beneficial Owners from time to time ofthe Bonds, and shall create no rights in any other person
or entity.
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SECTION 16. Counterparts. This Disclosure Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute one and the same
instrument.
[KB COASTAL SIGNATURE BLOCK]
By:
Its:
U.S. BANK NATIONAL ASSOCIATION
By:
Its:
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DOCSOC/1034128v6/22245-0 i51
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EXHIBIT A
NOTICE TO REPOSITORIES OF FAILURE TO FILE SEMI-ANNUAL REPORT
Name of the Issuer:
Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and
Land Swap) City of Chula Vista, California
Name of Bond Issue:
City of Chula Vista
Community Facilities District No. 06-1
(Eastlake - Woods, Vistas and Land Swap) 2004 Improvement Area B
Special Tax Bonds
Date ofIssuance:
,2004
NOTICE IS HEREBY GIVEN that the Landowner has not provided a Semi-Annual
Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement.
[The Landowner anticipates that such Semi-Annual Report will be filed not later than
_.j
Dated:
U.S. BANK NATIONAL ASSOCIATION
By:
cc:
City ofChula Vista, California
Stone & Youngberg LLC
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APPENDIX H
FORM OF OPINION OF BOND COUNSEL
[TO COME]
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APPENDIX I
DTC AND THE BOOK ENTRY SYSTEM
The Depository Trust Company ("DTC"), New York, NY, will act as securities depository
for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of
Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized
representative ofDTC. One fully-registered bond will be issued for each maturity of the Bonds, each
in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world's largest depository, is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the
New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for
over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and
money market instruments from over 85 countries that DTC's participants ("Direct Participants")
deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales
and other securities transactions in deposited securities, through electronic computerized book-entry
transfers and pledges between Direct Participants' accounts. This eliminates the need for physical
movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities
brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations.
DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC").
DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National
Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing
Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC,
also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock
Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as both U.S. and non-U.S. seclÌrities brokers and dealers, banks, trust
companies, and clearing corporations that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's
highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and
Exchange Commission. .
Purchases of Bonds under the DTC system must be made by or through Direct Participants,
which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual
purchaser of each 2004 Special Tax Bond ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase. Beneficial Owners are, however, expected to receive written
confirmations providing details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on
the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive bonds representing their ownership interests in Bonds, except in the event
that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are
registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be
DOCSOCIl 034128v6/22245-0 151
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requested by an authorized representative of DTc. The deposit of Bonds with DTC and their
registration in the name of Cede & Co. or such other DTC nominee do not effect any change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's
records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited,
which mayor may not be the Beneficial Owners. The Direct and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct
Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial
Owners will be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to
take certain steps to augment the transmission to them of notices of significant events with respect to
the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents.
For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds
for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative,
Beneficial Owners may wish to provide their names and addresses to the registrar and request that
copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are
being redeemed, DTC's practice is to detennine by lot the amount of the interest of each Direct
Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with
respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures.
Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the
record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Bonds are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Redemption proceeds, distributions, and dividend payments on the Bonds will be made to
Cede & Co., or such other nominee as may be requested by an authorized representative of DTc.
DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and
corresponding detail infonnation from the District or the Fiscal Agent, on payment date in
accordance with their respective holdings shown on DTC's records. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer fonn or registered in "street name," and
will be the responsibility of such Participant and not of DTC nor its nominee, the Fiscal Agent, or the
District, subject to any statutory or regulatory requirements as may be in effect from time to time.
Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other
nominee as may be requested by an authorized representative of DTC) is the responsibility of the
Fiscal Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC,
and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and
Indirect Participants.
A Beneficial Owner shall give notice to elect to have its Bonds purchased or tendered,
through its Participant, to the Fiscal Agent, and shall effect delivery of such Bonds by causing the
Direct Participant to transfer the Participant's interest in the Bonds, on DTC's records, to the Fiscal
Agent. The requirement for physical delivery of Bonds in connection with an optional tender or a
mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are transferred
DOCSOC/l 034128v6122245-O151
1-2
b -/:jP
by Direct Participants on DTC's records and followed by a book-entry credit of tendered Bonds to
the Fiscal Agent's DTC account.
DTC may discontinue providing its services as depository with respect to the Bonds at any
time by giving reasonable notice to the District or the Fiscal Agent. Under such circumstances, in the
event that a successor depository is not obtained, physical Bonds are required to be printed and
delivered.
The District may decide to discontinue use of the system of book-entry-only transfers
through DTC (or a successor securities depository). In that event, physical Bonds will be printed and
delivered to DTC.
The infonnation in this section concerning DTC and DTC's book-entry system has been
obtained from sources that the District believes to be reliable, but the District takes no responsibility
for the accuracy thereof.
1-3
DOCSOC/I034128v6/22245-0151
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EXHIBn£',
BOND INDENTURE
by and between
City Of Chula Vista
Community Facilities District No. 06-1
(Eastlake - Woods, Vistas and Land Swap)
and
U.S. Bank National Association,
As Fiscal Agent
Dated as of June 1,2004
Re:
$
City of Chula Vista
Community Facilities District No. 06-1
(Eastlake - Woods, Vistas and Land Swap)
2004 Improvement Area B Special Tax Bonds
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TABLE OF CONTENTS
Pal!:e
ARTICLE I. DEFINITIONS ...................................................................................................... 1
SECTION 1.01 DEFINITIONS. ....................................................................................................1
ARTICLE II. GENERAL AUTHORIZATION AND TERMS............................................. 14
SECTION 2.01 AMOUNT, ISSUANCE AND PURPOSE. ............................................................... 14
SECTION2.02 TYPE AND NATURE OF BOND. ........................................................................ 14
SECTION 2.03 TERMS OF TIlE BONDs. ..................................................................."............. 14
SECTION 2.04 DESCRIPTION OF BONDS; INTEREST RATES. ................................................... 15
SECTION2.05 PAYMENT.......................................................................................................15
SECTION2.06 EXECUTION OF BONDS. ..................................................................................16
SECTION 2.07 ORDER TO PRINT AND AUTHENTICATE BONDS. .............................................. 16
SECTION 2.08 BOOKS OF REGISTRATION; BOOK ENTRY SYSTEM.......................................... 16
SECTION2.09 EXCHANGE OF BONDS........................................................................... ......... 18
SECTION 2.10 NEGOTIABILITY, REGISTRATION AND TRANSFER OF BONDS..........................: 18
SECTION2.11 AUTIIENTlCATlON. .........................................................................................18
ARTICLE III. FUNDS AND ACCOUNTS ............................................................................. 20
SECTION 3.01 ESTABLISHMENT OF SPECIAL FUNDS. ............................................................. 20
SECTION3.02 SPECIAL .TAX FUND....................................................................................... 20
SECTION 3.03 BOND SERVICE FUND..................................................................................... 22
A. Interest Account ............................................................................................................22
B. Principal Account. ........................................................................................................22
SECTION 3.04 COSTS OF ISSUANCE FUND. ............................................................................ 22
SECTION 3.05 PROJECT FUND................................................................... ............................22
SECTION 3.06 RESERVE FUND ..............................................................................................24
SECTION 3.07 REBATE FuND. ...............................................................................................25
SECTION 3.08 REDEMPTION FUND. ....................................................................................... 25
SECTION 3.09 ADMINISTRATIVE EXPENSE FUND. ................................................................. 26
SECTION 3.10 INVESTMENT OF FUNDS. ................................................................................. 26
SECTION 3.11 DISPOSITION OF BOND PROCEEDS. ................................................................ 27
ARTICLE IV. REDEMPTION ................................................................................................ 28
SECTION 4.01 NOTICE OF REDEMPTION. ...................................................................."......... 28
A. Notice bv Mail to Bondholders:.................................................................................... 28
B. Further Notice: ............................................................................................................. 28
C. Failure to Receive Notice..............................................................................................28
D. Certificate of Givini! Notice..........................................................................................29
SECTION 4.02 EFFECT OF REDEMPTION. ................................................................................ 29
SECTION 4.03 REDEMPTION PRICES AND TERMS. ................................................................. 29
A. Optional Redemption ....................................................................................................29
B. Extraordinarv Mandatorv Redemption. ........................................................................ 29
C. Mandatorv Sinkini! Fund Redemption .......................................................................... 30
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TABLE OF CONTENTS
(Continued)
Pal!e
E. Notice and Selection of Bonds for Redemvtion............................................................. 31
ARTICLE V. SUPPLEMENTAL INDENTURES .................................................................. 32
SECTION 5.01 AMENDMENTS OR SUPPLEMENTS. """"""""""""""""""""""""""""""""" 32
ARTICLE VI. MISCELLANEOUS CONDITIONS............................................................ 34
SECTION 6.01 OWNERSHIP OF BONDS. .....................................,............................................34
SECTION 6.02 MUTILATED, LOST, DESTROYED OR STOLEN BONDs. .................................... 34
SECTION 6.03 CANCELLATION OF BONDS. ............................................................................34
SECTION 6.04 COVENANTS. """""""""""""""""""""""""""""""""""""""""'".............34
SECTION 6.05 ARBITRAGE CERTIFICATE............................................................................... 38
SECTION 6.06 DEFEASANCE. ................................................................................................ 38
SECTION 6.07 FISCAL AGENT. """""""""""""""""""""""""""""""""""""""""""""....39
SECTION 6.08 LIABILITY OF FISCAL AGENT. .........................................................................40
SECTION 6.09 PROVISIONS CONSTITUTE CONTRACT............................................................. 41
SECTION 6.10 CUSIPNUMBERS...........................................................................................42
SECTION 6.11 SEVERABILITY................................................................................................42
SECTION 6.12 UNCLAIMED MONEY. .....................................................................................42
SECTION 6.13 NONPRESENTMENT OFBONDs........................................................................ 43
SECTION 6.14 CONTINUING DISCLOSURE. ............................................................................ 43
ARTICLE VII. BOND FORM...............................................................................""""""""'" 45
SECTION 7.01 FORM OF BONDS. ........................................................................................... 45
SECTION 7.02 TEMPORARY BONDs. ..................................................................................... 45
ARTICLE VIII EVENT OF DEFAULT.................................................................................. 46
SECTION 8.01 EVENTS OF .DEFAULT..................................................................................... 46
SECTION 8.02 APPLICATION OF REVENlÆS AND 01HER FUNDS AFTER DEFAULT .................46
EXHIBIT "A" - FORM OF BOND......................................................................................... A-I
EXHIBIT "B" - ARBITRAGE REBATE INSTRUCTIONS .................................................. B-1
(ii)
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BOND INDENTURE
This Bond Indenture dated as of June I, 2004, is entered into by and between Community
Facilities District No. 06-1 (Eastlake - Woods, Vistas and Land Swap), a community facilities district
organized and existing under the laws of the State, and U.S. Bank National Association, as Fiscal
Agent, to establish the terms and conditions and pertaining to the issuance of the Bonds as defined
herein.
ARTICLE I. DEFINITIONS
SECTION 1.01
Definitions.
As used in this Indenture, the following terms shall have the following meanings:
"Acquisition Account" means the account by that name within the Project Fund established pursuant
to Section 3.10 hereof.
"AcquisitionlFinancing Agreement" means that certain AcquisitionlFinancing Agreement, dated as
of November 17, 2002 by and between the City, acting on behalf of itself and the District, and
EastLake Company LLC, a California limited liability company, as amended by the First
Amendment to AcquisitionlFinancing Agreement, dated as of , 2003 and by the Second
Amendment to AcquisitionlFinancing Agreement, dated as of , 2004, and as such
agreement may be amended from time to time.
"Act" means the "Mello-Roos Community Facilities Act of 1982", as amended, being Chapter 2.5,
Part 1, Division 2, Title 5 of the Govemment Code ofthe State of California.
"Administrative Expense Fund" means the fund by that name established pursuant to Section 3.01
hereof.
"Administrative Expenses" means the expenses directly related to the administration of the District,
including, but not limited to, the following: the costs of computing the Special Taxes and preparing
the annual Special Tax collection schedules (whether by the City or a designee thereof or both); the
costs of collecting the Special Taxes (whether by the County, the City or otherwise); the costs of
remitting the Special Taxes to the Fiscal Agent; the costs of the Fiscal Agent (including its legal
counsel) in the discharge of the duties of the Fiscal Agent required under this Indenture; the costs of
the City, the District or any designee thereof of complying with the arbitrage rebate requirements; the
costs of the City, the District, or any designee thereof of complying with City, District or obligated
person disclosure requirements associated with applicable federal or state securities laws and ofthe
Act; the costs associated with preparing Special Tax disclosure statements and responding to public
inquiries regarding the Special Taxes; the costs of the City, District or any designee thereof related to
an appeal of the Special Tax; and the costs of any credit enhancement obtained by the City or the
District (but excluding the costs of any credit enhancement required to be provided by EastLake
Company LLC and/or its successor). Administrative Expenses shall also include Delinquency
Collection Expenses.
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"Administrative Expense Requirement" means an annual amount equal to $75,000, or such lesser
amount as may be designated by written instruction from an Authorized Representative to the Fiscal
Agent, to be allocated as the first priority of Special Taxes received each Fiscal Year for the payment
of Administrative Expenses.
"Annual Debt Service" means, for each Bond Year, the sum of (a) the interest payable on the
Outstanding Bonds in such Bond Year, and (b) the principal amount of the Outstanding Bonds
scheduled to be paid in such Bond Year, including from mandatory sinking fund payments.
"Assistant Director of Financing" means the Assistant Director of Financing of the City, acting for
and on behalf of the District.
"Assessor's Parcel" means an Assessor's Parcel as defined in the Special Tax RMA.
"Authorized Representative" of the District means the City Manager, Director of Finance or
Assistant Director of Finance of the City, acting on behalf of the District, or any other person
designated by the City Council and authorized to act on behalf ofthe District under or with respect to
this Indenture and all other agreements related hereto.
"Average Annual Debt Service" means the average annual debt service on the Bonds based upon a
Bond Year during the term of the Bonds.
"Bond Counsel" means an attorney or firm of attorneys, selected by the District, of nationally
recognized standing in matters pertaining to the tax treatment of interest on bonds issued by states
and their political subdivisions, duly admitted to the practice oflaw before the highest court of the
State.
"Bondowner" or "Owner", or any similar term, means any person who shall be the registered owner
or his duly authorized attorney, trustee, representative or assign of any Outstanding Bond which shall
at the time be registered.
"Bonds" means the $ , City ofChula Vista Community Facilities District 06-1 (Eastlake-
Woods, Vistas and Land Swap) 2004 Improvement Area B Special Tax Bonds issued pursuant to
this Indenture.
"Bond Service Fund" means the fund created and established pursuant to Section 3.01 hereof.
"Bond Year" means each twelve-month period extending from September 2 in one calendar year to
September 1 of the succeeding calendar year, except in the case of the initial Bond Y ear which shall
be the period from the Delivery Date to September 1, 2004.
"Business Day" means a day that is not a Saturday or a Sunday or a day of the year on which banks
in New York, New York and Los Angeles, Califomia, or where the Principal Corporate Trust Office
is located, are not required or authorized to remain open.
2
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"Capitalized Interest Sub-Account" means the sub-account by that name within the Interest Account
of the Bond Service Fund established pursuant to Section 3.01 hereof.
"City" means the City of Chula Vista, California.
"City Manager" means the City Manager of the City, acting for and on behalf of the District.
"Code" means the Internal Revenue Code of 1986, as amended.
"Costs oflssuance" means, as to the Bonds, the costs of issuing the Bonds, including but not limited
to, all printing and document preparation expenses in connection with this Indenture, the Bonds, and
any and all other agreements, instruments, certificates or other documents issued in connection
therewith; any computer and other expenses incurred in connection with the Bonds; the initial fees
and expenses of the Fiscal Agent (including without limitation, acceptance fees and first annual fees
payable in advance); and other fees and expenses incurred in connection with the issuance of the
Bonds, to the extent such fees and expenses are approved by the District.
"Costs oflssuance Fund" means the fund by that name established pursuant to Section 3.01 hereof.
"Comptroller of the Currency" shall mean the Comptroller of the Currency ofthe United States.
"Debt Service on Parity Refunding Obligations" means the gross debt service due in any Bond Year
on any refunding bonds or other refunding obligations which have, or purport to have, a lien upon the
Special Tax Revenues on a parity with the lien of the Bonds.
"Delinquency Collection Expenses" means those fees and expenses of the District incurred by or on
behalf of the District in or related to the collection of delinquent Special Taxes.
"Delinquency Proceeds" means the amounts collected from the redemption of delinquent Special
Taxes including the penalties and interest thereon and from the sale of property sold as a result of the
foreclosure of the lien of the Special Tax resulting from the delinquency in the payment of Special
Taxes due and payable on such property.
"Delivery Date" means the date on which the Bonds are issued and delivered to the initial purchaser
thereof.
"Depository" shall mean DTC and its successors and assigns or if (a) the then Depository resigns
from its functions as securities depository of the Bonds, or (b) the District discontinues use of the
Depository pursuant to this Indenture, any other securities depository which agrees to follow
procedures required to be followed by a securities depository in connection with the Bonds and
which is selected by the Treasurer.
"Director of Finance" means the Director of Finance of the City, acting for and on behalf of the
District.
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"District" means Community Facilities District No. 06-1 (EastLake - Woods, Vistas and Land Swap).
"DTC" shall mean The Depository Trust Company, New York, New York, and its successors
and assigns.
"Fiscal Agent" means U.S. Bank National Association, and any successor thereto.
"Fiscal Year" means the 12 month period beginning July 1 of each year and terminating on June 30
of the following year, or any other annual accounting period hereinafter selected and designated by
the District as its fiscal year in accordance with applicable law.
"Government Obligations" means obligations described in Paragraph 1 of the definition of Permitted
Investments.
"Gross Proceeds" has the meaning ascribed to such term in Section 148(f)(6) of the Code.
"Improvement Area B" means Improvement Area B of the District.
"Indenture" means this Bond Indenture, as amended or supplemented pursuant to the terms hereof.
"Independent Accountant" means any certified public accountant or firm of such certified public
accountants appointed and paid by the District, and who, or each of whom -
1.
is in fact independent and not under domination of the District or the City;
2.
does not have any substantial interest, direct or indirect, in the District or the City;
and
3.
is not an officer or employee of the District or the City, but who may be regularly
retained to make annual or other audits of the books of or reports to the City or the
District.
"Information Services" means Financial Information, Inc's., "Daily Called Bond Service," 30
Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny
Information Services' "Called Bond Service," 65 Broadway, 16th Floor, New York, New York
10006; Moody's Investors Service "Municipal and Govemment," 99 Church Street, 8th Floor, New
York, New York 10007, Attention: Municipal News Reports; Standard and Poor's Corporation
"Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004; and, in accordance
with then current guidelines of the Securities and Exchange Commission, such other addressees
providing information with respect to called bonds as the District may designate in writing to the
Fiscal Agent.
"Interest Payment Date" means March 1 and September 1 of each year, commencing September 1,
2004.
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"Investment Agreement" means any investment satisfying the requirements of Paragraph 11 ofthe
definition of Permitted Investments.
"Legislative Body" means the City Council of the City, acting as the legislative body of the District.
"Maximum Annual Debt Service" means, as of the date of any calculation, the largest Annual Debt
Service during the current or any future Bond Year.
"Moody's" means Moody's Investors Service, its successors and assigns.
"Nominee" shall mean the nominee of the Depository which may be the Depository, as
determined from time to time by the Depository.
"Outstanding" means as to the Bonds, all of the Bonds, except:
1.
Bonds theretofore canceled or surrendered for cancellation in accordance with
Section 6.03 hereof;
1.
Bonds for the payment or redemption of which monies shall have been theretofore
deposited in trust (whether upon or prior to the maturity or the redemption date of
such bonds), provided that, if such Bonds are to be redeemed prior to the maturity
thereof, notice of such redemption shall have been given as provided in this Indenture
or any applicable Supplemental Indenture.
"Participant" shall mean a member of or participant in the Depository.
"Permitted Investments" means any of the following which at the time of investment are legal
investments under the laws of the State for the moneys proposed to be invested therein (the Fiscal
Agent shall be entitled to rely upon any written investment direction from an Authorized
Representative of the District as a certification to the Fiscal Agent that such investment constitutes a
Permitted Investment):
1.
A. Direct obligations (other than an obligation subject to variation in principal
payment) of the United States of America ("United States Treasury Obligations");
B. Obligations fully and unconditionally guaranteed as to timely payment of
principal and interest by the United States of America;
C. Obligations fully and unconditionally guaranteed as to timely payment of
principal and interest by any agency. or instrumentality of the. United States of
America when such obligations are backed by the full faith and credit ofthe United
States of America, or
D. Evidences of ownership of proportionate interests in future interest and
principal payments on obligations described above held by a bank or trust company
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2.
3.
E.
F.
G.
4.
as custodian, under which the owner of the investment is the real party in interest and
has the right to proceed directly and individually against the obligor and the
underlying government obligations are not available to any person claiming through
the custodian or to whom the custodian may be obligated.
Federal Housing Administration debentures.
The listed obligations of government-sponsored agencies which are not backed by the
full faith and credit of the United States of America:
A.
Federal Home Loan Mortgage Corporation (FHLMC)
(1) Participation certificates (excluded are stripped mortgage securities
which are purchased at prices exceeding their principal amounts)
Senior Debt obligations
(2)
B.
Farm Credit Banks (formerly: Federal Land Banks, Federal Intermediate
Credit Banks and Banks for Cooperatives)
(1) Consolidated system-wide bonds and notes
C.
Federal Home Loan Banks (FHL Banks)
(1) Consolidated debt obligations
D.
Federal National Mortgage Association (FNMA)
(1) Senior debt obligations
(2) Mortgage-backed securities (excluded are stripped mortgage
securities which are purchased at prices exceeding their principal
amounts)
Student Loan Marketing Association (SLMA)
(1) Senior debt obligations (excluded are securities that do not have a
fixed par value and/or whose terms do not promise a fixed dollar
amount at maturity or call date)
Financing Corporation (FICO)
(1) Debt obligations
Resolution Funding Corporation (REFCORP)
(1) Debt obligations
Unsecured certificates of deposit, time deposits, and bankers' acceptances (having
maturities of not more than 30 days) of any bank the short-term obligations of which
are rated "A-I" or better by S&P.
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Deposits the aggregate amount of which are fully insured by the Federal Deposit
Insurance Corporation (FDIC), in banks which have capital and surplus of at least $5
million.
1.
6.
Commercial paper (having original maturities of not more than 270 days rated "A-I"
by S&P and "Prime-I" by Moody's.
1.
Money market funds rated "AArn-l" or "AArn-G" by S&P, or better.
8.
A.
B.
State Obligations, which means:
Direct general obligations of any state of the United States of America or any
subdivision or agency thereofto which is pledged the full faith and credit of a
state the unsecured general obligation debt of which is rated "A3" by
Moody's and "A" by S&P, or better, or any obligation fully and
unconditionally guaranteed by any state, subdivision or agency whose
unsecured general obligation debt is so rated.
Direct general short-term obligations of any state agency or subdivision or
agency thereof described in (A) above and rated "A-l +" by S&P and "Prime-
l"byMoody's.
C.
Special Revenue Bonds (as defined in the United States Bankruptcy Code) of
any state, state agency or subdivision described in (A) above and rated "AA"
or better by S&P and "AA" or better by Moody's.
9.
Pre-refunded municipal obligations rated "AAA" by S & P and "AAA" by Moody's
meeting the following requirements:
A.
B.
C.
the municipal obligations are (1) not subject to redemption prior to maturity
or (2) the trustee for the municipal obligations has been given irrevocable
instructions concerning their call and redemption and the issuer of the
municipal obligations has covenanted not to redeem such municipal
obligations other than as set forth in such instructions;
the municipal obligations are secured by cash or United States Treasury
Obligations which may be applied only to payment of the principal of,
interest and premium on such municipal obligations;
the principal of and interest on the United States Treasury Obligations (plus
any cash in the escrow) has been verified by the report of independent
certified public accountants to be sufficient to pay in full all principal of,
interest, and premium, if any, due and to become due on the municipal
obligations ("Verification");
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D.
E.
F.
10.
the cash or United States Treasury Obligations serving as security for the
municipal obligations are held by an escrow agent or trustee in trust for
owners of the municipal obligations;
no substitution of a United States Treasury Obligation shall be permitted
except with another United States Treasury Obligation and upon delivery of a
new Verification; and
the cash or United States Treasury Obligations are not available to satisfy any
other claims, including those by or against the trustee or escrow agent.
Repurchase agreements:
With (1) any domestic bank, or domestic branch ofa foreign bank, the long tenn debt
of which is rated at least "A" by S&P and Moody's; or (2) any broker-dealer with
"retail customers" or a related affiliate thereof which broker-dealer has, or the parent
company (which guarantees the provider) of which has, long-tenn debt rated at least
"A" by S&P and Moody's, which broker-dealer falls under the jurisdiction of the
Securities Investors Protection Corporation, or (3) any other entity rated "A" or better
by S&P and Moody's, provided that:
A.
The market value of the collateral is maintained at levels and upon such
conditions as would be acceptable to S&P and Moody's to maintain an "A"
rating in an "A" rated structured financing (with a market value approach);
B.
The Fiscal Agent or a third party acting solely as agent therefor or for the
District (the "Holder of the Collateral") has possession of the collateral or the
collateral has been transferred to the Holder of the Collateral in accordance
with applicable state and federal laws (other than by means of entries on the
transferor's books);
A.
The repurchase agreement shall state and an opinion of counsel shall be
rendered at the time such collateral is delivered that the Holder of the
Collateral has a perfected first priority security interest in the collateral, any
substituted collateral and all proceeds thereof (in the case of bearer securities,
this means the Holder of the Collateral is in possession);
B.
The repurchase agreement shall provide that if during its term the provider's
rating by either Moody's or S&P is withdrawn or suspended or falls below
"A-" by S&P or "A3" by Moody's, as appropriate, the provider must, at the
direction of the District or the Fiscal Agent, within 10 days of receipt of such
direction, repurchase all collateral and tenninate the agreement, with no
penalty or premium to the District or Fiscal Agent.
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Notwithstanding the above, collateral levels need not be as specified in "A" above, so
long as such collateral levels are 103 % or better and the provider is rated at least "A"
by S&P and Moody's, respectively.
11.
Investment agreements with a domestic or foreign bank or corporation the long-term
debt or financial strength of which, it or its guarantor is rated at least "AA-" by S&P
and "Aa3" by Moody's; provided that, by the terms of the investment agreement:
B.
A.
B.
A.
the invested funds are available for withdrawal without penalty or premium,
upon not more than seven days' prior notice; the District and the Fiscal Agent
hereby agree to give or cause to be given notice in accordance with the terms
of the investment agreement so as to receive funds thereunder with no penalty
or premium paid;
the investment agreement shall state that it is the unconditional and general
obligation of, and is not subordinated to any other obligation of, the provider
thereof; or, in the case of a bank, that the obligation of the bank to make
payments under the agreement ranks pari passu with the obligations of the
bank to its other depositors and its other unsecured and unsubordinated
creditors;
the District and the Fiscal Agent receives the opinion of domestic counsel
that such investment agreement is legal, valid, binding and enforceable upon
the provider in accordance with its terms and of foreign counsel (if
applicable);
the investment agreement shall provide that if during its term
(1)
the provider's rating by either S&P or Moody's falls below "AA-" or
"Aa3", respectively, the provider shall, at its option, within 1 0 days of
receipt of publication of such downgrade, either (a) collateralize the
investment agreement by delivering or transferring in accordance with
applicable state and federal laws (other than by means of entries on
the provider's books) to the District, the Fiscal Agent or a Holder of
the Collateral free and clear of any third-party liens or claims the
market value of which collateral is maintained at levels and upon
such conditions as would be acceptable to S & P and Moody's to
maintain an "A" rating in an "A" rated structured financing (with a
market value approach); or (b) transfer and assign the investment
agreement to a then qualifying counterparty with ratings specified
above; and
the provider's rating by either S&P or Moody's is withdrawn or
suspended or falls below "A-" or "A3", respectively, the provider
must, at the direction of the District or the Fiscal Agent, within 1 0
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(2)
days of receipt of such direction, repay the principal of and accrued
but unpaid interest on the investment;
E.
The investment agreement shall state and an opinion of counsel shall be
rendered, in the event collateral is required to be pledged by the provider
under the terms of the investment agreement, at the time such collateral is
delivered, that the Holder of the Collateral has a perfected first priority
security interest in the collateral, any substituted collateral and all proceeds
thereof (in the case of bearer securities, this means the Holder of the
Collateral is in possession);
F.
the investment agreement must provide that if during its term
(1)
the provider shall default in its payment obligations, the provider's
obligations under the investment agreement shall, at the direction of
the District or the Fiscal Agent, be accelerated and amounts invested
and accrued but unpaid interest thereon shall be repaid to the District
or Fiscal Agent, as appropriate, and
(2)
the provider shall become insolvent, not pay its debts as they become
due, be declared or petition to be declared bankrupt, etc. ("Event of
Insolvency"), the provider's obligations shall automatically be
accelerated and amounts invested and accrued but unpaid interest
thereon shall be repaid to the District or Fiscal Agent, as appropriate.
1.
The Local Agency Investment Fund (LAIF) administered by the treasurer of the
State to the extent such deposits remain in the name of and control of the Fiscal
Agent.
Whenever reference is made in this definition of Permitted Investments to "collateral," collateral
shall be limited to (i) cash and securities issued or guaranteed by the United States Government,
including United States Treasury obligations and any other obligations the timely payment of the
principal of and interest on which are guaranteed by the United States Government, and (ii) bonds,
notes, debentures, obligations or other evidences of indebtedness issued or guaranteed by the
Government National Mortgage Association, Federal National Mortgage Association or Federal
Home Loan Mortgage Corporation, or any other agency or instrumentality of the United States or
America including but not limited to, mortgage participation certificates, mortgage pass-through
certificates, and other mortgage-backed securities.
"Prepayments" means Special Tax Receipts identified to the Fiscal Agent by an Authorized
Representative as representing a prepayment of the Special Tax.
"Principal Corporate Trust Office" means the office ofthe Fiscal Agent at 550 South Hope Street,
Suite 500, Los Angeles, California 90071 or such other offices as maybe specified to the District by
the Fiscal Agent in writing; provided, however for transfer, registration, exchange, payment and
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surrender of Bonds means care ofthe corporate trust office of U.S. Bank National Association in St.
Paul, Minnesota or such other address specified by the Fiscal Agent to the District in writing.
"Project" means the public improvements as set forth and described in Exhibit A to the
AcquisitionlFinancing Agreement excluding (a) those public improvements the acquisition of which
were financed from the proceeds of the District's 2002 Improvement Area A Special Tax Bonds and
(b) the Transportation Facilities.
"Proj ect Costs" means all expenses of and incidental to the construction, acquisition, or both, ofthe
Project.
"Project Fund" means the fund by that name established pursuant to Section 3.01 hereof.
"Rebate Fund" means the fund by that name established pursuant to Section 3.01 hereof.
"Rebate Instructions" means the Rebate Instructions attached as Exhibit B hereto.
"Record Date" shall mean the fifteenth (15th) calendar day ofthe month immediately preceding an
Interest Payment Date.
"Redemption Fund" means the fund by that name established pursuant to Section 3.01 hereof.
"Registration Books" shall have the meaning given such term in Section 2.08 hereof.
"Regulations" means the regulations promulgated under the Internal Revenue Code of 1986, as
amended.
"Reserve Fund" means the fund by that name established pursuant to Section 3.01 hereof.
"Reserve Requirement" means an amount initially equal to $ which amount shall, as of
any date of calculation, be equal to the lesser of (i) Maximum Annual Debt Service for the Bonds,
(ii) one hundred twenty-five percent (125%) of Average Annual Debt Service for the Bonds, or (iii)
ten percent (10%) of the original principal amount ofthe Bonds less original issue discount, if any,
plus original issue premium; if any, applicable to the Bonds.
"Securities Depository" means, as of the Closing Date, The Depository Trust Company, 711 Stewart
Avenue, Garden City, New York 11530 and, in accordance with then current guidelines of the
Securities and Exchange Commission, such other addressees providing depository services with
respect to bonds as the District may designate in writing to the Fiscal Agent.
"Special Tax" means the Special Tax authorized to be levied in Improvement AreaB pursuant to the
Act and the Special Tax RMA.
"Special Tax Consultant" means any person or firm possessing demonstrated experience and
expertise in the preparation of special tax formulas and/or the administration of special taxes levied
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for community facilities districts. Any such person or firm shall be appointed and paid by the District
and who, or each of whom-
1.
is in fact independent and not under domination of the District or the City;
2.
does not have any substantial interest, direct or indirect, in the District or the City;
and
3.
is not an officer or employee of the District or the City, but who may be regularly
retained by the City or other community facilities districts formed by the City to
administer the levy of special taxes within such community facilities districts.
"Special Tax Fund" means the fund by that name established pursuant to Section 3.01 hereof.
"Special Tax Revenues" means (a) the proceeds of the Special Tax levied by the District within
Improvement Area B pursuant to the Special Tax RMA and received by the District, and (b) the
Delinquency Proceeds.
"Special Tax RMA" means the rate and method of apportionment of the Special Tax authorized to
be levied on property within Improvement Area B as approved at the special election held in
Improvement Area B of the District on May 20,2003, as may be modified from time to time in
accordance with the Act and as permitted hereby.
"Standard & Poor's" or "S&P"means Standard & Poor's Rating Services, its successors and assigns.
"State" means the State of California.
"Supplemental Indenture" means any bond indenture then in full force and effect which has been
duly approved by resolution of the Legislative Body under and pursuant to the Act at a meeting of
the Legislative Body duly convened and held, at which a quorum was present and acted thereon,
amendatory hereof or supplemental hereto; but only if and to the extent that such Supplemental
Indenture is specifically authorized hereunder.
"Tax Exempt" means, with reference to a Permitted Investment, a Permitted Investment the interest
earnings on which are excludable from gross income for federal income tax purposes pursuant to
Section 103(a) ofthe Code, other than one described in section 57(a)(5)(C) of the Code.
"Term Bonds" means the Bonds maturing on September 1, 20- and the Bonds maturing on
September 1, 20_.
"Transportation Facilities Costs" means the cost of the acquisition or construction of Transportation
Facilities.
"Transportation Facilities Account" means, for each series ofthe Bonds, the account by that name
within the Project Fund established for such series of the Bonds pursuant to Section 3.01 hereof.
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"Treasurer" means the Treasurer of the City acting for and on behalf of the District.
"Yield" has the meaning assigned to such term for purposes of Section 148(f) of the Code.
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ARTICLE II. GENERAL AUTHORIZATION AND TERMS
SECTION 2.01
Amount, Issuance and Purpose.
Pursuant to the provisions of the Act and the Registered Public Obligations Act ofCalifomia
(Sections 5050 and following of the California Govermnent Code), the Legislative Body has
authorized the issuance of the Bonds in an aggregate principal amount of$ . The Bonds
shall be designated City ofChula Vista Community Facilities District No. 06-1 (Eastlake - Woods,
Vistas and Land Swap) 2004 Improvement Area B Special Tax Bonds. The purpose of the Bonds
shall be to (a) pay for the acquisition or construction of the Project and the Transportation Facilities,
(b) fund the Reserve Fund, (c) pay capitalized interest on the Bonds through September 1, 2004 and
(d) pay the Costs ofIssuance.
SECTION 2.02
Type and Nature of Bond.
The Bonds and interest thereon, together with any premium paid thereon upon redemption,
are not obligations of the City, but are limited obligations of the District secured by and payable from
an irrevocable first lien on the Special Tax Revenues and on the monies in the funds and accounts
established herein (including the investment earnings thereon) with the exception of the Project
Fund, the Rebate Fund and the Administrative Expense Fund. Except for the Special Tax Revenues,
neither the credit nor the taxing power of the District or the City is pledged for the payment of the
Bonds or the interest thereon, and no Owner of the Bonds may compel the exercise of taxing power
by the District or the City or the forfeiture of any of their property. The principal of and interest on
the Bonds and premiums upon the redemption thereof, if any, are not a debt of the District or the
City, the State of California or any of its political subdivisions within the meaning of any
constitutional or statutory limitation or restriction. The Bonds are not a legal or equitable pledge,
charge, lien or encumbrance, upon any of the District's property, or upon any of its income, receipts
or revenues, except the amounts which are, under this Indenture and the Act, set aside for the
payment of the Bonds and interest thereon and neither the members ofthe Legislative Body, the City
Council of the City, nor any persons executing the Bonds are liable personally on the Bonds by
reason oftheir issuance.
Notwithstanding anything contained in this Indenture, the District shall not be required to
advance any money derived from any source of income other than the Special Tax Revenue for the
payment of the interest on or the principal of the Bonds or for the performance of any covenants
herein contained.
Nothing in this Indenture or in any Supplemental Indenture shall preclude the redemption
prior to maturity of any Bonds subject to call and redemption or the payment of the Bonds from
proceeds of the refunding bonds issued under the Act or under any other law of the State.
SECTION 2.03
Terms of the Bonds.
The Bonds shall mature on September 1 in the years, and in the respective principal amounts
set forth opposite such years, and shall bear interest at the respective rates per annum, as follows:
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Maturity Date
(September I)
Principal
Amount
Interest
Rate(%)
Maturity Date
(September 1)
Principal
Amount
Interest
Rate(%)
SECTION 2.04
Description of Bonds; Interest Rates.
The Bonds of each series shall be issued in fully registered form in denominations of$5,000
or any integral multiple thereof within a single maturity and shall be numbered as desired by the
Fiscal Agent. The Bonds of each series shall be dated as of the Delivery Date of such series, and
shall mature and be payable on September 1 in the years and in the aggregate principal amounts and
shall bear interest at the rates set forth in this Indenture. The Bonds shall mature and be payable in
the years and in the aggregate principal amounts and shall bear interest at the rates set forth in
Section 2.03. Interest shall be payable with respect to each Bond on each Interest Payment Date
(commencing September 1, 2004 for the Bonds), until the principal sum of that Bond has been paid;
provided, however, that if at the maturity date of any Bond (or if the same is redeemable and shall be
duly called for redemption, then at the date fixed for redemption) funds are available for the payment
or redemption thereof, in full accordance with the terms of this Indenture, such Bond shall then cease
to bear interest.
SECTION 2.05
Payment.
The principal of and interest on the Bonds shall be payable in lawful money of the United
States of America. The principal of the Bonds and any premium due upon the redemption thereof
shall be payable upon presentation and surrender thereof at maturity or the earlier redemption thereof
at the Principal Corporate Trust Office of the Fiscal Agent.
Interest on any Bond shall be payable from the Interest Payment Date next preceding the date
of authentication ofthat Bond, unless (i) such date of authentication is an Interest Payment Date, in
which event interest shall be payable from such date of authentication, (ii) the date of authentication
is after a Record Date but prior to the immediately succeeding Interest Payment Date, in which event
interest shall be payable from the Interest Payment Date immediately succeeding the date of
authentication or (iii) the date of authentication is prior to the close of business on the first Record
Date, in which event interest shall be payable from the date of the Bonds; provided, however, that if
at the time of authentication of a Bond, interest is in default, interest on that Bond shall be payable
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from the last Interest Payment Date to which the interest has been paid or made available for
payment. Interest on any Bond shall be paid to the person whose name shall appear in the books of
registration as required by Section 2.08 as the owner of such Bond as of the close of business on the
Record Date immediately preceding such Interest Payment Date. Such interest shall be paid by
check of the Fiscal Agent mailed to such Bondowner at his or her address as it appears on the books
of registration as required by Section 2.08 or, upon the request in writing prior to the Record Date of
a Bondowner of at least $1,000,000 in aggregate principal amount of Bonds, by wire transfer in
immediately available funds to an account in the United States designated by such Owner. Interest
with respect to each Bond shall be computed using a year of360 days comprised of twelve 30-day
months.
SECTION 2.06
Execution of Bonds.
The Bonds shall be executed manually or in facsimile by the Mayor of the City and
countersigned by the City Clerk of the City, acting on behalf of the District. The Bonds shall then be
delivered to the Fiscal Agent, for authentication and registration. In case an officer who shall have
signed or attested to any of the Bonds by facsimile or otherwise shall cease to be such officer before
the authentication, delivery and issuance of the Bonds, such Bonds nevertheless may be
authenticated, delivered and issued, and upon such authentication, delivery and issue, shall be as
binding as though those who signed and attested the same had remained in office.
SECTION 2.07
Order to Print and Authenticate Bonds.
The Director of Finance is hereby instructed to cause Bonds in the form as set forth herein, to
be printed, and to proceed to cause said Bonds to be authenticated and delivered to an authorized
representative of the purchaser, upon payment of the purchase price as set forth in the purchase
contract for the sale of the Bonds.
SECTION 2.08
Books of Registration; Book Entry System.
There shall be kept by the Fiscal Agent, sufficient books for the registration and transfer of
the Bonds (the "Registration Books") and, upon presentation for such purpose, the Fiscal Agent
shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be
registered or transferred, on said register, Bonds as hereinbefore provided. The ownership of the
Bonds shall be established by the Bond registration books held by the Fiscal Agent. Whenever any
Bond or Bonds shall be surrendered for registration of transfer or exchange, the Fiscal Agent shall
authenticate and deliver a new Bond or Bonds of the same maturity, for a like aggregate principal
amount of authorized denominations; provided that the Fiscal Agent shall not be required to register
transfers or make exchanges of (i) Bonds for a period of 15 days next preceding the date of any
selection of the Bonds to be redeemed, or (ii) any Bonds chosen for redemption.
The Bonds shall be initially issued in the form of a single, fully registered Bond for each
maturity (which may be typewritten). Upon initial issuance, the ownership of such Bonds shall be
registered in the name of the Nominee identified below as nominee of the Depository. Except as
hereinafter provided, all of the Outstanding Bonds shall be registered in the name of the nominee of
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the Depository, which may be the Depository, as determined from time to time pursuant to this
Section.
With respect to the Bonds registered in the name ofthe Nominee, neither the District nor the
Fiscal Agent shall have any responsibility or obligation to any Participant or to any person on behalf
of which such a Participant holds an interest in the Bonds. Without limiting the immediately
preceding sentence, neither the District nor the Fiscal Agent shall have any responsibility or
obligation with respect to (i) the accuracy of the records of the Depository, the Nominee, or any
Participant with respect to any ownership interest in the Bonds (ii) the delivery to any Participant or
any other person, other than an Owner of a Bond as shown in the Registration Books, of any notice
with respect to the Bonds, including any notice of redemption, (iii) the selection by the Depository
and its Participants of the beneficial interests in the Bonds to be redeemed in the event the District
redeems the Bonds in part, or (iv) the payment to any Participant or any other person, other than an
Owner of a Bond as shown in the Registration Books, of any amount with respect to principal of or
interest on the Bonds. The District and the Fiscal Agent may treat and consider the person in whose
name each Bond is registered as the holder and absolute Owner of such Bond for the purpose of
payment of principal and interest with respect to such Bond for the purpose of giving notices or
prepayment if applicable, and other matters with respect to such Bond for the purpose of registering
transfers with respect to such Bond, and for all other purposes whatsoever. The District shall pay all
principal of and interest on the Bonds only to or upon the order of the respective Owner of a Bond, as
shown in the Registration Books, or his respective attorney duly authorized in writing, and all such
payments shall be valid and effective to fully satisfy and discharge the District's obligations with
respect to payment of principal of and interest on the Bonds to the extent of the sum or sums so paid.
No person other than an Owner of a Bond, as shown in the Registration Books, shall receive a Bond
evidencing the obligation of the District to make payments of principal and interest pursuant to this
Indenture. Upon delivery by the Depository to the Owners of the Bond, and the District of written
notice to the effect that the Depository has determined to substitute a new nominee in place of the
Nominee, and subject to the provisions herein with respect to Record Dates, the word Nominee in
this Indenture shall refer to such nominee of the Depository.
In the event (i) the Depository determines not to continue to act as securities depository for
the Bonds, or (ii) the Depository shall no longer so act and gives notice to the District of such
determination, then the District will discontinue the book-entry system with the Depository. If the
District determines to replace the Depository with another qualified securities depository, the District
shall prepare or direct the preparation of a new, single, separate, fully registered Bond, per maturity,
registered in the name of such successor or substitute qualified securities depository or its nominee.
If the District fails to identify another qualified securities depository to replace the Depository, then
the Bonds shall no longer be restricted to being registered in the register in the name of the Nominee,
but shall be registered in whatever name or names Owners of the Bonds transferring or exchanging
Bonds shall designate, in accordance with the provisions hereof and the District shall prepare and
deliver Bonds to the Owners thereof for such purpose.
In the event of a reduction in aggregate principal amount of Bonds Outstanding or an advance
refunding of part ofthe Bonds Outstanding, DTC, in its discretion, (a) may request the District to
prepare and issue a new Bond or (b) may make an appropriate notation on the Bond indicating the
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date and amounts of such reduction in principal, but in such event the Registration Books maintained
by the Fiscal Agent shall be conclusive as to what amounts are Outstanding on the Bond, except in
the case of final maturity, in which case the Bond must be presented to the Fiscal Agent prior to
payment.
Notwithstanding any other provision of this Indenture to the contrary, so long as any Bond is
registered in the name of the Nominee, all payments of principal and interest with respect to such
Bond and all notice with respect to such Bonds shall be made and given respectively, as instructed by
the Depository and acceptable to the District.
The initial Nominee shall be Cede & Co., as Nominee ofDTC.
SECTION 2.09
Exchange of Bonds.
Bonds may be exchanged at the Principal Corporate Trust Office, for a like aggregate
principal amount of Bonds of authorized denominations, interest rate and maturity, subject to the
terms and conditions of this Indenture, including the payment of certain charges, if any, upon
surrender and cancellation of a Bond. Upon such transfer and exchange, a new registered Bond or
Bonds of any authorized denomination or denominations of the same maturity and for the same
aggregate principal amount will be issued to the transferee in exchange therefor.
SECTION 2.10
Negotiability, Registration and Transfer of Bonds.
The transfer of any Bond may be registered only upon the Registration Books upon surrender
thereof to the Fiscal Agent, together with an assigmnent duly executed by the Owner or his attorney
or legal representative, in satisfactory form. Upon any such registration oftransfer, a new Bond or
Bonds shall be authenticated and delivered in exchange for such Bond, in the name of the transferee,
of any denomination or denominations authorized by this Indenture, and in an aggregate principal
amount equal to the principal amount of such Bond or Bonds so surrendered. In all cases in which
Bonds shall be exchanged or transferred, the Fiscal Agent shall authenticate the Bonds in accordance
with the provisions of this Indenture. All Bonds surrendered in such exchange or transfer shall
forthwith be canceled. The Fiscal Agent may make a charge for every such exchange or registration
of transfer of Bonds sufficient to reimburse it for any tax or other governmental charge required to be
paid with respect to such exchange or registration or transfer.
SECTION 2.11
Authentication.
Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the
form below, manually executed by the Fiscal Agent, shall be valid or obligatory for any purpose or
entitled to the benefits ofthis Indenture, and such certificate of the Fiscal Agent shall be conclusive
evidence that the Bonds so authenticated have been duly executed, authenticated and delivered
hereunder, and are entitled to the benefits of this Indenture:
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FORM OF CERTIFICATE OF AUTHENTICATION
This is one of the Bonds described in
the within defined Indenture.
Dated:
U.S. Bank National Association,
As Fiscal Agent
By:
Authorized Officer
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A.
B.
D.
E.
F.
G.
H.
ARTICLE III. FUNDS AND ACCOUNTS
SECTION 3.01
Establishment of Special Funds.
The following funds and accounts identified in this Section 3.01 are hereby created and
established and shall be maintained by the Fiscal Agent:
Special Tax Fund;
Bond Service Fund, and within the Bond Service Fund, the Interest Account, and within the
Interest Account, the Capitalized Interest Sub-Account, and the Principal Account;
c.
Rebate Fund;
Redemption Fund;
Project Fund, and within the Project Fund, the Acquisition Account and the Transportation
Facilities Account;
Reserve Fund;
Administrative Expense Fund; and
Costs ofIssuance Fund.
The District may, through written instructions from an Authorized Representative, direct the Fiscal
Agent to establish such other accounts or sub-accounts, as may be necessary to carry out the
administration of the Bonds and the proceeds of the Bonds.
SECTION 3.02
Special Tax Fund.
A. The District shall, no later than the tenth (10th) Business Day after which Special Tax
Revenues have been received by the District and in any event not later than February 15th and
August 15th of each year, transfer such Special Tax Revenues to the Fiscal Agent and, except as set
forth in the following sentence, such amounts shall be deposited in the Special Tax Fund. Special
Tax Revenues representing Prepayments shall be deposited into the Bond Service Fund and the
Administrative Expense Fund as set forth in written instructions from an Authorized Representative.
B. With the exception of Special Tax Revenues representing Prepayments which shall be
transferred pursuant to the provisions of Section 3.02C below, the Special Tax Revenues deposited
in the Special Tax Fund shall be held in trust and deposited in the following accounts of the Special
Tax Fund or transferred to the following other funds and accounts on the dates and in the amounts
set forth in the following paragraphs and in the following order of priority:
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1.
The Fiscal Agent shall each Fiscal Year transfer to the Administrative Expense Fund
from the first Special Tax Revenues received by the Fiscal Agent during such Fiscal
Year an amount equal to the Administrative Expense Requirement.
2.
The Fiscal Agent shall deposit in the Interest Account of the Bond Service Fund, on
each Interest Payment Date and date for redemption of the Bonds, an amount
required to cause the aggregate amount on deposit in the Interest Account to equal the
amount of interest due or becoming due and payable on such Interest Payment Date
on all Outstanding Bonds or to be paid on the Bonds being redeemed on such date.
3.
The Fiscal Agent shall deposit in the Principal Account of the Bond Service Fund, on
each Interest Payment Date and redemption date on which the principal of the Bonds
shall be payable, an amount required to cause the aggregate amount on deposit in the
Principal Account to equal the principal amount of, and premium (if any) on, the
Bonds coming due and payable on such Interest Payment Date, or required to be
redeemed on such date pursuant to this Indenture.
1.
On or after March 2 and September 2 of each year after making the transfer and
deposits required under 1. through 3. above, the Fiscal Agent shall transfer the
amount, if any, necessary to replenish the amount then on deposit in the Reserve
Fund to an amount equal to the Reserve Requirement.
2.
On or after September 2 of each year after making the deposits and transfers required
under 1. through 4. above, upon receipt of written instructions from an Authorized
Representative, the Fiscal Agent shall transfer from the Special Tax Fund to the
Rebate Fund the amount specified in such request.
6.
On or after September 2 of each year after making the deposits and transfers required
under 1. through 5. above, upon receipt of a written request of an Authorized
Representative, the Fiscal Agent shall transfer from the Special Tax Fund to the
Administrative Expense Fund the amounts specified in such request to pay those
Administrative Expenses which the District reasonably expects (a) will become due
and payable during such Fiscal Year or the cost of which Administrative Expenses
have previously been incurred and paid by the District from funds other than the
Administrative Expense Fund and (b) the cost of which Administrative Expenses will
be in excess of the Administrative Expense Requirement for such Fiscal Year.
7.
If, on or after September 2 of each year, after making the deposits and transfers
required under 1. through 6. above, monies remain in the Special Tax Fund, such
monies shall remain on deposit in the Special Tax Fund and shall be subsequently
deposited or transferred pursuant to the provisions of 1. through 6. above.
C. The Fiscal Agent shall, upon receipt of Special Tax Revenues representing Prepayments,
immediately transfer Prepayments to the Bond Service Fund for credit and deposit into the Interest
Account and the Principal Account and utilize such funds to redeem Bonds pursuant to Section 4.03
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B and as set forth in written instructions to be delivered to the Fiscal Agent by an Authorized
Representative; provided, however, that any portion of a Prepayment constituting Administrative
Fees and Expenses (as defined in the Special Tax RMA) shall be deposited into the Administrative
Expense Fund as set forth in such written instructions. The Fiscal Agent may conclusively rely upon
such instructions.
D. When there are no longer any Bonds Outstanding, any amounts then remaining on deposit in
the Special Tax Fund shall be transferred to the District and used for any lawful purpose under the
Act.
SECTION 3.03
Bond Service Fund.
A. Interest Account. All moneys in the Interest Account, including the Capitalized Interest Sub-
Account, shall be used and withdrawn by the Fiscal Agent solely for the purpose of paying interest
on the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed
prior to maturity). All funds in the Capitalized Interest Sub-Account shall be used and withdrawn to
pay interest on the Bonds prior to using any other funds on deposit in the Interest Account for such
purpose.
B. Principal Account. All moneys in the Principal Account shall be used and withdrawn by the
Fiscal Agent solely for the purpose of (i) paying the principal of the Bonds at the maturity thereof, or
(ii) paying the principal of the Term Bonds upon the mandatory sinking fund redemption thereof
pursuant to this Indenture.
SECTION 3.04
Costs of Issuance Fund.
The Fiscal Agent shall, upon receipt of a payment request in the form set forth in Exhibit C
hereto duly executed by an Authorized Representative, disburse money from the Costs of Issuance
Fund, if any, on such dates and in such amounts as specified in such requisition to pay the Costs of
Issuance related to each series of the Bonds. Any amounts remaining on deposit in the Costs of
Issuance Fund on the earlier of the date on which all Costs ofIssuance have been paid as stated in
writing by an Authorized Representative delivered to the Fiscal Agent or six months after the
Delivery Date of each series of the Bonds shall be transferred to the Project Fund.
SECTION 3.05
Project Fund
A. Acquisition Account. The Fiscal Agent shall, from time to time, disburse monies from the
Acquisition Account to pay the Project Costs. Upon receipt of a payment request in the form set forth
in Exhibit D hereto duly executed by an Authorized Representative (which payment request shall not
exceed the corresponding payment request provided to the City under the AcquisitionlFinancing
Agreement), the Fiscal Agent shall pay the Project Costs from amounts in the Acquisition Account
directly to the contractor(s) or such other person(s), corporation(s).or entity(ies) specified in the
payment request (including reimbursements, ifany, to the District). The Fiscal Agent may rely on an
executed payment request as complete authorization for said payments.
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After the final payment or reimbursement of all Project Costs, as certified by delivery of a
written notice from an Authorized Representative to the Fiscal Agent, the Fiscal Agent shall transfer
excess monies, if any, on deposit in, or subsequently deposited iIi., the Acquisition Account to the
Special Tax Fund or the Redemption Fund as an Authorized Representative may direct in writing
and the Fiscal Agent shall apply the amount so transferred in accordance with Section 3.02 or 3.08 as
directed by the Authorized Representative. Upon such transfer the Acquisition Account shall be
closed.
On or after June 1,2007, the District may deliver to the Fiscal Agent a written certificate
executed by an Authorized Representative certifying that the District, in its sole and absolute
discretion, has determined that it will not be necessary for the District to utilize the proceeds of the
Bonds, together with any investment earnings on such proceeds, then remaining on deposit in the
Acquisition Account to fund Project Costs and directing the Fiscal Agent to transfer all such moneys
to the Special Tax Fund or the Redemption Fund and the Fiscal Agent shall apply the amount so
transferred in accordance with Section 3.02 or 3.08 as directed by the Authorized Representative.
Upon such transfer the Acquisition Account shall be closed.
Notwithstanding anything herein to the contrary, if on the date which is three (3) years from
the Delivery Date of the Bonds, any funds derived from the Bonds remain on deposit in the
Acquisition Account, the Fiscal Agent shall, upon the receipt of written instructions from the
District, immediately restrict the Yield on such amounts so that the Yield earned on the investment
of such amounts is not in excess of the Yield on the Bonds, unless in the written opinion of Bond
Counsel delivered to the Fiscal Agent such restriction is not necessary to prevent an impairment of
the exclusion of interest on the Bonds from gross income for federal income tax purposes.
B. Transportation Facilities Account. The Fiscal Agent shall, from time to time, disburse monies
from the Transportation Facilities Account to pay the Transportation Facilities Costs. Upon receipt of
a payment request in the form set forth in Exhibit E hereto duly executed by an Authorized
Representative, the Fiscal Agent shall pay the Transportation Facilities Costs from amounts in the
Transportation Facilities Account directly to the contractor(s) or such otherperson(s), corporation(s)
or entity(ies) specified in the payment request (including reimbursements, ifany, to the District). The
Fiscal Agent may rely on an executed payment request as complete authorization for said payments.
Funds on deposit in the Transportation Facilities Account may not be utilized to pay Project Costs.
After the final payment or reimbursement of all Transportation Facilities Costs, as certified
by delivery of a written notice from an Authorized Representative to the Fiscal Agent, the Fiscal
Agent shall transfer excess monies, if any, on deposit in, or subsequently deposited in, the
Transportation Facilities Account to the Acquisition Account, if such account is still open, or to the
Special Tax Fund or the Redemption Fund as an Authorized Representative may direct in writing if
the Acquisition Account is closed and the Fiscal Agent shall apply the amount so transferred in
accordance with Section 3.02 or 3.08 as directed by the Authorized Representative.
On or after June 1,2007, the District may deliver to the Fiscal Agent a written certificate
executed by an Authorized Representative certifying that the District, in its sole and absolute
discretion, has determined that it will not be necessary for the District to utilize the proceeds of the
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Bonds, together with any investment earnings on such proceeds, then remaining on deposit in the
Transportation Facilities Account to fund Transportation Facilities Costs and directing the Fiscal
Agent to transfer all such moneys to the Acquisition Account, if account is still open, or to the
Special Tax Fund or the Redemption Fund as an Authorized Representative may direct in writing if
the Acquisition Account is closed and the Fiscal Agent shall apply the amount so transferred in
accordance with Section 3.02 or 3.08 as directed by the Authorized Representative. Upon such
transfer the Transportation Facilities Account shall be closed.
Notwithstanding anything herein to the contrary, if on the date which is three (3) years from
the Delivery Date of the Bonds, any funds derived from the Bonds remain on deposit in the
Transportation Facilities Account, the Fiscal Agent shall, upon receipt of written instructions from
the District, immediately restrict the Yield on such amounts so that the Yield earned on the
investment of such amounts is not in excess of the Yield on such series of the Bonds, unless in the
written opinion of Bond Counsel delivered to the Fiscal Agent such restriction is not necessary to
prevent an impairment of the exclusion of interest on the Bonds from gross income for federal
income tax purposes.
SECTION 3.06
Reserve Fund
Moneys on deposit in the Reserve Fund shall be used solely for the purpose of paying the
principal of and interest on the Bonds as such amounts shall become due and payable in the event
that the moneys in the Special Tax Fund and the Bond Service Fund for such purpose are insufficient
therefor or redeeming Bonds as described below. The Fiscal Agent shall, when and to the extent
necessary, withdraw money from the Reserve Fund and transfer such money to the Bond Service
Fund or the Redemption Fund for such purpose.
All Authorized Investments in the Reserve Fund shall be valued at their fair market value at
least semi-annually on March 1 and September 1. On any date after the transfers required by Section
3.02B(I) and (2) have been made for any Bond Year, ifthe amount on deposit in the Reserve Fund is
less than the Reserve Requirement, the Fiscal Agent shall transfer to the Reserve Fund from the first
available monies in the Special Tax Fund an amount necessary to increase the balance therein to the
Reserve Requirement. If on September 1, or the first Business Day thereafter if September 1 is not a
Business Day, of each year, the amount on deposit in the Reserve Fund is in excess ofthe Reserve
Requirement, the Fiscal Agent shall, as directed in writing by an Authorized Representative, (i) prior
to the final payment or reimbursement of all Project Costs or a determination by the City Manager, or
the designee thereof, that amounts in the Acquisition Account of the Project Fund are sufficient to
pay all remaining Project Costs for which a payment request has been or is expected to be submitted,
as evidenced by a written certificate of an Authorized Representative, transfer such excess to the
Acquisition Account of the Project Fund, and (ii) after receipt of such written certificate, transfer
such excess (less the hold back of funds sufficient to pay all remaining Project Costs for which a
payment request has been or is expected to be received, if applicable) to the Special Tax Fund. In
connection with any optional or extraordinary mandatory redemption of Bonds, amounts in the
Reserve Fund in excess of the Reserve Requirement following such redemption shall be transferred
to the Principal Account or the Interest Account of the Bond Service Fund, as applicable, pursuant to
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written instructions of the District executed by an Authorized Representative and applied to redeem
Bonds.
Upon receipt of written instructions from an Authorized Representative instructing the Fiscal
Agent to transfer certain moneys representing a Reserve Fund credit for the prepayment of a Special
Tax obligation, the Fiscal Agent shall transfer the amount specified in such instructions from the
Reserve Fund to the Redemption Fund for the purpose of redeeming Bonds pursuant to such
instructions.
Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay the
Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if
any, due upon redemption, the Fiscal Agent shall transfer the amount in the Reserve Fund to the
Redemption Fund to be applied, on the next succeeding interest payment date, to the payment and
redemption, in accordance with Section 4.03 of all of the Outstanding Bonds. In the event that the
amount so transferred from the Reserve Fund to the Redemption Fund exceeds the amount required
to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund shall be transferred to the
District to be used for any lawful purpose of the District as set forth in the Act.
SECTION 3.07
Rebate Fund.
The District shall calculate Excess Investment Earnings as defined in, and in accordance
with, the Rebate Instructions, and shall, in writing, direct the Fiscal Agent to transfer funds to the
Rebate Fund from funds furnished by the District as provided for in this Indenture and the Rebate
Instructions.
Notwithstanding the foregoing, the Rebate Instructions, including the method of computing
Excess Investment Earnings (as defined in the Rebate Instructions) maybe modified, in whole or in
part, without the consent ofthe Owners of the Bonds, upon receipt by the District of an opinion of
Bond Counsel to the effect that such modification shall not adversely affect the exclusion from gross
income of interest on the Bonds then Outstanding for federal income tax purposes.
The Fiscal Agent shall not be responsible for calculating rebate amounts or for the adequacy
or correctness of any rebate report or rebate calculations. The Fiscal Agent shall be deemed
conclusively to have complied with the provisions of this Indenture regarding calculation and
payment of rebate if it follows the directions of the District and it shall have no independent duty to
review such calculations or enforce the compliance by the District with such rebate requirements.
SECTION 3.08
Redemption Fund.
Monies may be deposited by the District or the Fiscal Agent pursuant to the terms of Section
3.05 or 3.06 into the Redemption Fund and shall be set aside and used solely for the purpose of
redeeming Bonds in accordance with Section 4.03A hereof Following the redemption of any Bonds,
if any funds remain in the Redemption Fund, such funds shall be transferred to the Special Tax Fund.
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SECTION 3.09
Administrative Expense Fund.
The Fiscal Agent shall deposit from time to time the amounts authorized for deposit therein
pursuant to Section 3.02. The moneys in the Administrative Expense Fund shall be used to pay
Administrative Expenses from time to time upon receipt by the Fiscal Agent of a written request
executed by an Authorized Representative specifying the name and address of the payee and the
amount of the Administrative Expense and a description thereof and further stating that such request
has not formed the basis of any prior request for payment.
SECTION 3.10
Investment of Funds.
Unless otherwise specified in this Indenture, monies in the Special Tax Fund, the Bond
Service Fund, the Project Fund, the Reserve Fund, the Costs ofIssuance Fund and Administrative
Expense Fund shall, at the written direction of an Authorized Representative given at least two (2)
days prior, be invested and reinvested in Permitted Investments (including investments with the
Fiscal Agent or an affiliate of the Fiscal Agent or investments for which the Fiscal Agent or an
affiliate of the Fiscal Agent acts as investment advisor or provides other services so long as the
investments are Permitted Investments). Monies in the Redemption Fund and the Rebate Fund shall,
at the written direction of an Authorized Representative, be invested in Govemment Obligations.
Notwithstanding anything herein to the contrary, in the absence of written investment instructions,
the Fiscal Agent shall invest solely in investments identified in paragraph 7 of the definition of
Permitted Investments.
The District acknowledges that to the extent regulations of the Comptroller of the Currency
or other applicable regulatory entity grant the District the right to receive brokerage confirmations of
security transactions as they occur, the District specifically waives receipt of such confirmations to
the extent permitted by law. The Fiscal Agent will furnish the District.periodic cash transaction
statements, which include detail for all investment transactions made by the Fiscal Agent hereunder.
Obligations purchased as investments of monies in any fund or account shall be deemed at all
times to be a part of such fund or account. Any income realized on or losses resulting from
investments in any fund or account shall be credited or charged to such fund or account. Subject to
the restrictions set forth herein and/or any written investment instructions received by Fiscal Agent
pursuant to this Section 3.10, monies in said funds and accounts may be from time to time invested
by the Fiscal Agent in any manner so long as:
(1)
Monies in the Project Fund, Administrative Expense Fund and Rebate Fund shall be
invested in obligations which will by their terms mature as close as practicable to the
date the District estimates the monies represented by the particular investment will be
needed for withdrawal from such Fund; and
Monies in the Special Tax Fund, the Bond Service Fund, the Redemption Fund and
the Reserve Fund shall be invested only in obligations which will by their terms
either mature or allow for withdrawals at par on such dates so as to ensure the
payment of principal and interest on the Bonds as the same become due; provided,
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(2)
however, that except for investment agreements as described in paragraph 11 of the
definition of Permitted Investments which permit withdrawal at par, investment of
monies on deposit in the Reserve Fund shall have an average aggregate weighted
term not greater that five (5) years.
The Fiscal Agent shall sell or present for redemption any obligations so purchased whenever
it may be necessary to do so in order to provide monies to meet any payment or transfer for such
funds and accounts or from such funds and accounts. The Fiscal Agent shall not be liable for any
loss from any investments made or sold by it in accordance with the provisions of this Indenture.
SECTION 3.11
Disposition of Bond Proceeds.
Upon the receipt of$ as the sale proceeds for the Bonds (being the par amount of
$ less the underwriter's discount of$~, the Fiscal Agent shall transfer or set aside
and deposit or cause to be deposited such funds as follows:
$
shall be deposited in the Acquisition Account of the Project Fund;
$ 1,000,000.00 shall be deposited in the Telegraph Canyon Roadway Account of the Project
Fund;
$
shall be deposited in the Reserve Fund;
$
shall be deposited into the Costs ofIssuance Fund;
$ shall be deposited in the Capitalized Interest Sub-Account of the Interest
Account of the Bond Service Fund; and
$ 75,000.00 shall be deposited in the Administrative Expense Fund.
The Fiscal Agent may establish such temporary funds or accounts on its records, as it may deem
appropriate to facilitate such deposits and transfers.
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ARTICLE IV. REDEMPTION
SECTION 4.01
Notice of Redemption.
A.
Notice bv Mail to Bondholders:
The Fiscal Agent shall mail, at least thirty (30) days but not more than forty-five (45) days
prior to the date of redemption, notice of redemption, by first-class mail, postage prepaid, to the
original purchasers of the Bonds and the respective registered Owners of the Bonds at the addresses
appearing on the Bond registry books. The notice of redemption shall: (a) state the redemption date;
(b) state the redemption price; (c) state the bond registration numbers, dates of maturity and CUSIP
numbers of the Bonds to be redeemed, and in the case of Bonds to be redeemed in part, the
respective principal portions to be redeemed; provided, however, that whenever any call includes all
Bonds of a maturity, the numbers of the Bonds of such maturity need not be stated; (d) state that
such Bonds must be surrendered at the principal corporate trust office of the Fiscal Agent; (e) state
that further interest on such Bonds will not accrue from and after the designated redemption date; (f)
state the date of the issue of the Bonds as originally issued; (g) state the rate of interest borne by each
Bond being redeemed; and (h) state that any other descriptive information needed to identify
accurately the Bonds being redeemed as the District shall direct.
B.
Further Notice:
In addition to the notice of redemption given pursuant to Section 4.01A above, further notice
shall be given as set out below, but no defect in said further notice nor any failure to give all or any
portion of such further notice shall in any manner defeat the effectiveness of a call for redemption if
notice thereof is given as above prescribed.
Each further notice of redemption shall be sent at least 2 days before the notice ofredemption
is mailed to the Bondholders pursuant to Section 4.01A by registered or certified mail or overnight
delivery service to the Securities Depositories and to at least one (1) Information Services that
disseminate notice of redemption of obligations similar to the Bonds or, in accordance with the then-
current guidelines of the Securities and Exchange Commission, such other services providing
information on called bonds, or no such other services, as District may determine in its sole
discretion.
c.
Failure to Receive Notice:
So long as notice by first class mail has been provided as set forth in Section 4.01 A above,
the actual receipt by the Owner of any Bond of notice of such redemption shall not be a condition
precedent to redemption, and failure to receive such notice shall not affect the validity of the
proceedings for redemption of such Bonds or the cessation of interest on the date fixed for
redemption.
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D.
Certificate of Giving Notice:
The notice or notices required by this Section shall be given by the Fiscal Agent on behalf of the
District. A certificate by the Fiscal Agent that notice of call and redemption has been given to the
registered Owners of the Bonds as herein provided shall be conclusive as against all parties, and no
Owner whose Bond is called for redemption may object thereto, or object to cessation of interest on
the redemption date, by any claim or showing that he failed to receive actual notice of call and
redemption.
SECTION 4.02
Effect of Redemption.
When notice of redemption has been given substantially as provided for herein, and when the
amount necessary for the redemption of the Bonds called for redemption is set aside for that purpose
in the Bond Service Fund or the Redemption Fund, as provided for herein, the Bonds designated for
redemption shall become due and payable on the date fixed for redemption thereof, and upon
presentation and surrender of said Bonds at the place specified in the notice of redemption, said
Bonds shall be redeemed and paid at the redemption price out of the Bond Service Fund or the
Redemption Fund and no interest will accrue on such Bonds or portions of Bonds called for
redemption from and after the redemption date specified in said notice, and the Owners of such
Bonds so called for redemption after such redemption date shall look for the payment of principal
and premium, if any, of such Bonds or portions of Bonds only to the Bond Service Fund or the
Redemption Fund, as applicable. All Bonds redeemed shall be canceled forthwith by the Fiscal
Agent and shall not be reissued. Upon surrender of Bonds redeemed in part, a new Bond or Bonds
of the same maturity shall be registered, authenticated and delivered to the registered Owner at the
expense of the District, in the aggregate principal amount of the unredeemed portion. All unpaid
interest payable at or prior to the date fixed for redemption shall continue to be payable to the
respective registered owners of such Bonds or their order, but without interest thereon.
SECTION 4.03
Redemption Prices and Terms.
A.
ûptional Redemption
The Bonds maturing on and after September 1, 20- may be redeemed at the option of the
District prior to maturity as a whole, or in part on any Interest Payment Date on and after September
1, 20_, from such maturities as are selected by the District, and by lot within a maturity, from any
source of funds, at the following redemption prices (expressed as percentages of the principal
amount of the Bonds to be redeemed), together with accrued interest to the date of redemption:
Redemption Date
Redemption Price
September 1,20- and March 1,20-
September 1,20- and March 1,20-
September 1, 20- and thereafter
102%
101%
100%
B.
Extraordinarv Mandatorv Redemption
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The Bonds shall be subject to redemption on any Interest Payment Date, prior to maturity, as
a whole or in part on a pro rata basis among maturities from the prepayment of Special Taxes
pursuant to the Special Tax RMA. An Authorized Representative shall deliver written instructions
to the Fiscal Agent not less than 60 days prior to the redemption date directing the Fiscal Agent to
utilize the Special Tax Revenues transferred to the Principal Account of the Bond Service Fund
pursuant to Section 3.02 C to redeem Bonds pursuant to this Section 4.03 B. Such extraordinary
mandatory redemption of the Bonds shall be at the following redemption prices (expressed as
percentages of the principal amount of the Bonds to be redeemed), together with accrued interest
thereon to the date of redemption:
Redemption Date
Redemption Price
September 1, 2004 through March 1, 20-
September 1, 20- and March 1, 20-
September 1, 20- and March 1,20-
September 1, 20- and thereafter
103%
102%
101%
100%
C.
Mandatorv Sinking Fund Redemption
The Bonds maturing on September 1, 20- are subject to mandatory sinking fund
redemption, in part by lot, on September 1 in each year commencing September 1, 20_, at a
redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued and
unpaid interest thereon to the date fixed for redemption, without premium, in the aggregate principal
amount and in the years shown on the following redemption schedule:
Redemption Date
(Sevtember 1)
Principal
Amount
The Bonds maturing on September 1, 20-, are subject to mandatory sinking fund
redemption, in part, by lot, on September 1 of each year commencing September 1, 20_, at a
redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued andunpaid
interest thereon to the date fixed for redemption, without premium, in the aggregate principal
amounts and in the years shown in the following redemption schedule.
Redemption Date
Sevtember 1)
Principal
Amount
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D. Purchase in Lieu of Redemption
In lieu of such an optional, extraordinary mandatory or mandatory sinking fund redemption,
the District may elect to purchase such Bonds at public or private sale at such prices as the District
may in its discretion determine; provided, that, unless otherwise authorized by law, the purchase
price (including brokerage and other charges) thereof shall not exceed the principal amount thereof
plus accrued interest to the purchase date.
E.
Notice and Selection of Bonds for Redemption
In the event the District shall elect to redeem Bonds as provided in this Section 4.03, the District
shall give written notice to the Fiscal Agent of its election so to redeem, the redemption date, the
principal amount of the Bonds to be redeemed, the maturities from which such Bonds are to be
redeemed and the principal amount of the Bonds to be redeemed from each such maturity, the Bonds
or portions thereofto be selected for redemption.
The notice to the Fiscal Agent shall be given not less than sixty (60) days prior to the
redemption date or such shorter period as shall be acceptable to the Fiscal Agent in its sole
discretion. Ifless than all ofthe Bonds Outstanding are to be redeemed, the portion of any Bond of a
denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000 or a
multiple thereof, and, in selecting portions of such Bonds for redemption, the District shall treat each
such Bond as representing that number of Bonds of $5,000 denomination which is obtained by
dividing the principal amount of such Bond to be redeemed in part by $5,000.
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SECTION 5.01
ARTICLE V. SUPPLEMENTAL INDENTURES
Amendments or Supplements.
The Legislative Body may, by adoption of a resolution from time to time, and at any time but
without notice to or consent of any of the Bondholders, approve a Supplemental Indenture hereto for
any of the following purposes:
(a)
(b)
(c)
(d)
to cure any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to make any other provision with
respect to matters or questions arising under this Indenture or in any Supplemental
Indenture, provided that such action shall not be materially adverse to the interests of
the Bondowners;
to add to the covenants and agreements of and the limitations and the restrictions
upon the District contained in this Indenture, other covenants, agreements, limitations
and restrictions to be observed by the District which are not contrary to or
inconsistent with this Indenture as theretofore in effect;
to modify, alter, amend or supplement this Indenture in any otherrespect which is not
materially adverse to the interests of the Bondowners; and
to amend any provision of this Indenture relating to the Code as may be necessary or
appropriate to assure compliance with the Code and the exclusion from gross income
of interest on the Bonds.
Exclusive ofthe Supplemental Indentures hereto provided for in the first paragraph of this
Section 5.01, the Owners of not less than 60% in aggregate principal amount of the Bonds then
Outstanding shall have the right to consent to and approve the adoption by the District of such
Supplemental Indentures as shall be deemed necessary or desirable by the District for the purpose of
waiving, modifying, altering, amending, adding to or rescinding, in any particular, any ofthe terms
or provisions contained in this Indenture; provided, however, that nothing herein shall permit, or be
construed as permitting, (a) an extension of the maturity date of the principal of, or the payment date
of interest on, any Bond, or (b) a reduction in the principal amount of, or redemption premium on,
any Bond or the rate of interest thereon without the consent of the affected Bondowner( s), or permit,
or be construed as permitting, (x) a preference or priority of any Bond or Bonds over any other Bond
or Bonds, (y) a reduction in the aggregate principal amount of the Bonds the Owners of which are
required to consent to such Supplemental Indenture, or (z) creating of a pledge of or lien or charge
upon the Special Tax Revenues superior to the pledge provided for in Section 2.02 hereof, without
the consent of the Owners of all Bonds then Outstanding.
If at any time the District shall desire to approve a Supplemental Indenture, which pursuant to
the terms of this Section 5.01 shall require the consent of the Bondowners, the District shall so notify
the Fiscal Agent and shall deliver to the Fiscal Agent a copy of the proposed Supplemental
Indenture. The District shall, at the expense of the District, cause notice of the proposed
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Supplemental Indenture to be mailed, postage prepaid, to all Bondowners at their addresses as they
appear in the Registration Books. Such notice shall briefly set forth the nature of the proposed
Supplemental Indenture and shall state that a copy thereof is on file at the principal office of the
District for inspection by all Bondowners. The failure of any Bondowner to receive such notice shall
not affect the validity of such Supplemental Indenture when consented to and approved as in this
Section 5.01 provided. Whenever at any time within one year after the date of the first mailing of
such notice, the District shall receive an instrument or instruments purporting to be executed by the
Owners of not less than 60% in aggregate principal amount of the Bonds then Outstanding, which
instrument or instruments shall refer to the proposed Supplemental Indenture described in such
notice, and shall specifically consent to the approval thereofby the Legislative Body substantially in
the form of the copy thereofreferred to in such Notice as on file with the District, such proposed
Supplemental Indenture, when duly approved by the Legislative Body, shall thereafter become a part
ofthe proceedings for the issuance of the Bonds. In determining whether the Owners of 60% ofthe
aggregate principal amount of the Bonds have consented to the approval of any Supplemental
Indenture, Bonds which are owned by the District or by any person directly or indirectly controlling
or controlled by or under the direct or indirect common control with the District, shall be disregarded
and shall be treated as though they were not outstanding for the purpose of any such determination.
Upon the approval of any Supplemental Indenture hereto and the receipt of consent to any
such Supplemental Indenture from the Owners of the appropriate aggregate principal amount of
Bonds in instances where such consent is required pursuant to the provisions of this Section 5.01,
this Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith,
and the respective rights, duties and obligations under this Indenture of the District and all Owners of
Bonds then Outstanding shall thereafter be determined, exercised and enforced hereunder, subject in
all respects to such modifications and amendments. Notwithstanding anything herein to the contrary,
no Supplemental Indenture shall be entered into which would modify the duties ofthe Fiscal Agent
hereunder, without the prior written consent of the Fiscal Agent.
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ARTICLE VI. MISCELLANEOUS CONDITIONS
SECTION 6.01
Ownership of Bonds.
The person in whose name any Bond shall be registered shall be deemed and regarded as the
absolute Owner thereof for all purposes, and payment of or on account of the principal and
redemption premium, if any, of any such Bond, and the interest on any such Bond, shall be made
only to or upon the order of the registered Owner thereof or his legal representative. All such
payments shall be valid and effectual to satisfy and discharge the liability upon such Bond, including
the redemption premium, if any, and interest thereon, to the extent of the sum or sums so paid.
SECTION 6.02
Mutilated, Lost, Destroyed or Stolen Bonds.
If any Bond shall become mutilated, the Fiscal Agent shall authenticate and deliver a new
Bond of like tenor, date and maturity in exchange and substitution for the Bond so mutilated, but
only upon surrender to the Fiscal Agent of the Bond so mutilated. Every mutilated Bond so
surrendered to the Fiscal Agent shall be canceled. If any Bond shall be lost, destroyed or stolen,
evidence of such loss, destruction or theft may be submitted to the Fiscal Agent and, if such evidence
is satisfactory to the Fiscal Agent and, if an indemnity satisfactory to the Fiscal Agent shall be given,
the Fiscal Agent shall authenticate and deliver a new Bond oflike tenor and maturity, numbered and
dated as the Fiscal Agent shall determine in lieu of and in substitution for the Bond so lost, destroyed
or stolen. Any Bond issued under the provisions ofthis Section 6.02 in lieu of any Bond alleged to
have been lost, destroyed or stolen shall be equally and proportionately entitled to the benefits hereof
with all other Bonds secured hereby. The Fiscal Agent shall not treat both the original Bond and any
replacement Bond as being Outstanding for the purpose of determining the principal amount of
Bonds which may be executed, authenticated and delivered hereunder or for the purpose of
determining any percentage of Bonds Outstanding hereunder, but both the original and replacement
Bond shall be treated as one and the same.
SECTION 6.03
Cancellation of Bonds.
All Bonds paid or redeemed, either at or before maturity, shall be canceled upon the payment
or redemption of such Bonds, and shall be delivered to the Fiscal Agent when such payment or
redemption is made. All Bonds canceled under any of the provisions of this Indenture shall be
destroyed by the Fiscal Agent, which shall execute and provide the District with a certificate of
destruction.
SECTION 6.04
Covenants.
As long as the Bonds are Outstanding and unpaid, the District shall (through its proper
members, officers, agents or employees) faithfully perform and abide by all of the covenants and
agreements set forth in this Section 6.04; provided, however, that said covenants do not require the
District to expend any funds other than the Special Tax Revenues.
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A. The District will review the public records of the County of San Diego, California, in
connection with the collection of the Special Taxes not later than July 1 of each year to determine the
amount of the Special Tax collected in the prior Fiscal Year and will commence and diligently
pursue to completion, judicial foreclosure proceedings against (i) properties under common
ownership with delinquent Special Taxes in the aggregate of$5,000 or more by October 1 following
the close of the Fiscal Year in which the Special Taxes were due, and (ii) against all properties with
delinquent Special Taxes in the aggregate of$2,500 or more by October I following the close of any
Fiscal Year if the amount of the Reserve Fund is less than the Reserve Requirement.
B. The District shall preserve and protect the security of the Bonds and the rights of the
Bondowners and defend their rights against all claims and demands of all persons. Until such time
as an amount has been set aside sufficient to pay Outstanding Bonds at maturity or to the date of
redemption if redeemed prior to maturity, plus unpaid interest thereon and premium, if any, to
maturity or to the date of redemption if redeemed prior to maturity, the District will faithfully
perform and abide by all ofthe covenants, undertakings and provisions contained in this Indenture or
in any Bond issued hereunder.
C. The District will not issue any other obligations payable, principal or interest, from the
Special Taxes which have, or purport to have, any lien upon the Special Taxes superior to or on a
parity with the lien of the Bonds herein authorized. Nothing in this Indenture shall prevent the
District from issuing and selling, pursuant to law, refunding bonds or other refunding obligations
payable from and having a first lien upon the Special Taxes on a parity with the Outstanding Bonds
so long as the issuance of such refunding bonds results in a reduction in each Bond Year on the
Annual Debt Service on the Bonds when combined with the Debt Service on Parity Refunding
Obligations following the issuance of such refunding bonds or other refunding obligations.
D. The District will duly and punctually payor cause to be paid the principal of and interest on
each of the Bonds issued hereunder on the date, at the place and in the manner provided in said
Bonds, but only out of Special Tax Revenues and such other funds as may be herein provided.
E. The District shall comply with all requirements of the Act so as to assure the timely
collection of the Special Taxes. Prior to July 1 of each year, the District shall ascertain the parcels on
which the Special Taxes are to be levied in the following Fiscal Year, taking into account any
subdivisions of parcels during the current Fiscal Year. The District shall effect the levy of the Special
Tax in accordance with the Special Tax RMA and the Act each Fiscal Year so that the computation
of such levy is complete and transmitted to the Auditor of the County of San Diego before the final
date on which the Auditor of the County of San Diego will accept the transmission of the Special
Tax for the parcels within Improvement Area B for inclusion on the next real property tax roll. Upon
completion of the computation ofthe amount ofthe Special Tax levy, the District shall prepare or
cause to be prepared, and shall transmit or cause to be transmitted to the Auditor of the County of
San Diego, such data as such Auditor requires to include the levy of the Special Tax on the next real
property tax roll.
The District finds and determines that, historically, delinquencies in the payment of special
taxes authorized pursuant to the Act in community facilities districts in Southern California have
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from time to time been at levels requiring the levy of special taxes at the maximum authorized rates
in order to make timely payment of principal of and interest on the outstanding indebtedness of such
community facilities districts. For this reason, the District has determined that, absent the
certification described below, a reduction in the Maximum Annual Special Tax (as such term is
defined in the Special Tax RMA) authorized to be levied below the levels provided would interfere
with the timely retirement of the Bonds. The District has determined it to be necessary in order to
preserve the security for the Bonds to covenant, and, to the maximum extent that the law permits it to
do so, the District does covenant, that it shall not initiate proceedings to reduce the Maximum
Special Tax Rates (as such term isdefmed in the Special TaxRMA), unless, in connection therewith,
(i) the District receives a certificate from one or more Special Tax Consultants which, when taken
together, certify that, on the basis ofthe parcels ofland and improvements existing in Improvement
Area Bas of the July 1 preceding the reduction, the Maximum Annual Special Tax which maybe
levied on all Assessor's Parcels (as such term is defined in the Special TaxRMA) of taxable property
on which a completed structure is located in each Fiscal Year will equal at least 110% of the gross
debt service on all Bonds to remain Outstanding after the reduction is approved and will not reduce
the Maximum Annual Special Tax payable from parcels on which a completed structure is located to
less than 110% of Maximum Annual Debt Service, and (ii) the City Council, acting as the legislative
body ofthe District, finds pursuant to this Indenture that any reduction made under such conditions
will not adversely affect the interests of the Owners of the Bonds. Any reduction in the Maximum
Annual Special Tax approved pursuant to the preceding sentence may be approved without the
consent ofthe Owners of the Bonds.
The District covenants that, in the event that any initiative is adopted by the qualified electors
which purports to reduce the Maximum Annual Special Tax below the levels authorized pursuant to
the Special Tax RMA or to limit the power or authority of the District to levy Special Taxes pursuant
to the Special Tax RMA, the District shall, from funds available hereunder, commence and pursue
legal action in order to preserve the authority and power of the District to levy Special Taxes
pursuant to the Special Tax RMA.
F. The District will at all times keep, or cause to be kept, proper and current books and accounts
(separate from all other records and accounts) in which complete and accurate entries shall be made
of all transactions relating to the Special Tax Revenues and other funds herein provided for.
G. The District will not directly or indirectly use or permit the use of any proceeds of the Bonds
or any other funds of the District or take or omit to take any action that would cause the Bonds to be
"private activity bonds" within the meaning of Section 141 of the Code, or obligations which are
"federally guaranteed" within the meaning of Section 149(b) of the Code. The District will not allow
five percent (5%) or more of the proceeds of the Bonds to be used in the trade or business of any
non-governmental units and will not loan five percent (5%) or more of the proceeds of the Bonds to
any non-governmental units.
H. The District covenants that it will not take any action, or fail to take any action, if any such
action or failure to take action would adversely affect the exclusion from gross income of the interest
on the Bonds under Section 103 of the Code. The District will not directly or indirectly use or permit
the use of any proceeds of the Bonds or any other funds of the District, or take or omit to take any
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action, that would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of
the Code. To that end, the District will comply with all requirements of Section 148 of the Code to
the extent applicable to the Bonds. In the event that at any time the District is of the opinion that for
purposes of this Section it is necessary to restrict or limit the yield on the investment of any monies
held under this Indenture or otherwise the District shall so instruct the Fiscal Agent in writing, and
the Fiscal Agent shall take such action as may be necessary in accordance with such instructions.
Without limiting the generality of the foregoing, the District agrees that there shall be paid
from time to time all amounts required to be rebated to the United States of America pursuant to
Section 148(f) of the Code and any temporary, proposed or final Treasury Regulations as may be
applicable to the Bonds from time to time. This covenant shall survive payment in full or defeasance
of the Bonds. The District specifically covenants to payor cause to be paid to the United States of
America at the times and in the amounts determined under Section 3.07.
Notwithstanding any provision of this Section, if the District shall obtain an opinion of Bond
Counsel to the effect that any action required under this covenant is no longer required, or to the
effect that some further action is required, to maintain the exclusion from gross income of the
interest on the Bonds pursuant to Section 103 of the Code, the Fiscal Agent may rely conclusively on
such opinion in complying with the provisions hereof, and the covenant hereunder shall be deemed
to be modified to that extent.
I. The District shall not directly or indirectly extend the maturity dates ofthe Bonds or the time
of payment of interest with respect thereto.
J. Not later than October 30th of each year, commencing October 30, 2005, and until October
30th following the fmal maturity ofthe Bonds, the District shall supply or cause to be supplied to the
California Debt and Investment Advisory Commission by mail, postage prepaid, the information, if
any, then required by Government Code Section 53359.5 to be submitted to such agency.
K. The District covenants that it will not adopt any policy pursuant to Section 53341.1 of the Act
permitting tender of Bonds in full payment or partial payment of any Special Taxes unless it first
receives a certificate of a Special Tax Consultant that accepting such tender will not result in the
District having insufficient Special Tax Revenues to pay the principal of and interest on the Bonds
when due.
L. The District shall do and perform or cause to be done and performed all acts and things
required to be done or performed by or on behalf of the District under the provisions of this
Indenture. The District warrants that upon the date of execution and delivery of the Bonds, the
conditions, acts and things required by law and this Indenture to exist, to have happened and to have
been performed precedent to and in the execution and delivery of such Bonds do exist, have
happened and have been performed and the execution and delivery of the Bonds shall comply in all
respects with the applicable laws of the State.
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SECTION 6.05
Arbitrage Certificate.
On the basis of the facts, estimates and circumstances now in existence and in existence on
the date of issue ofthe Bonds, as determined by the Treasurer, said Treasurer is hereby authorized to
certify that it is not expected that the proceeds of the Bonds will be used in a manner that would
cause the Bonds to be arbitrage bonds. Such certification shall be delivered to the purchaser together
with the Bonds.
SECTION 6.06
Defeasance.
If the District shall payor cause to be paid, or there shall otherwise be paid, to the Owner of
an Outstanding Bond the interest due thereon and the principal thereof, at the times and in the
manner stipulated in the Indenture, then the Owner of such Bond shall cease to be entitled to the
pledge of the Special Tax Revenues, and, other than as set forth below, all covenants, agreements
and other obligations of the District to the Owner of such Bond under the Indenture shall thereupon
cease, terminate and become void and discharged and satisfied. In the event of the defeasance of all
Outstanding Bonds, the Fiscal Agent shall pay over or deliver to the District all money or securities
held by it pursuant to the Indenture which are not required for the payment of the principal of,
premium, if any, and interest due on such Bonds.
Any Outstanding Bond shall be deemed to have been paid within the meaning expressed in
the preceding paragraph if such Bond is paid in anyone or more ofthe following ways:
(a)
(b)
(c)
by paying or causing to be paid the principal of, premium, if any, and interest on such
Bond, as and when the same shall become due and payable;
by depositing with the Fiscal Agent, in trust, at or before maturity, money which,
together with the amounts then on deposit in the funds established pursuant to the
Indenture (exclusive of the Rebate Fund) and available for such purpose, is fully
sufficient to pay the principal of, premium, if any, and interest on such Bond, as and
when the same shall become due and payable; or
by depositing with the Fiscal Agent or an escrow bank appointed by the District, in
trust, noncallable Permitted Investments of the type described in subparagraph I of
the definition thereof, in such amount as an Independent Accountant shall determine
(as set forth in a verification report from such Independent Accountant) will be
sufficient, together with the interest to accrue thereon and moneys then on deposit in
the funds established under the Indenture (exclusive of the Rebate Fund) and
available for such purpose, together with the interest to accrue thereon, to pay and
discharge the principal of, premium, if any, and interest on such Bond, as and when
the same shall become due and payable;
then, at the election of the District, and notwithstanding that any Outstanding Bonds shall not have
been surrendered for payment, all obligations of the District under the Indenture with respect to such
Bond shall cease and terminate, except for the obligation of the Fiscal Agent to payor cause to be
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paid to the Owners of any such Bond not so surrendered and paid, all sums due thereon and except
for the covenants of the District to preserve the exclusion of the interest on the Bonds from gross
income for federal income tax purposes. Notice of such election shall be filed with the Fiscal Agent
not less than ten (10) days prior to the proposed defeasance date, or such shorter period oftime as
may be acceptable to the Fiscal Agent. In connection with a defeasance under (b) or (c) above, there
shall be provided to the Fiscal Agent a certificate of an Independent Accountant stating its opinion as
to the sufficiency of the moneys or securities deposited with the Fiscal Agent or the escrow bank,
together with the interest to accrue thereon and moneys then on deposit in the funds established
under the Indenture (exclusive of the Rebate Fund) and available for such purpose, together with the
interest to accrue thereon to pay and discharge the principal of, premium, if any, and interest on all
such Bonds to be defeased in accordance with the Indenture as and when the same shall become due
and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the Independent
Accountant) to the effect that the Bonds being defeased have been legally defeased in accordance
with the Indenture.
To accomplish such defeasance, the District shall cause to be delivered (i) a report of the
Independent Accountant verifying the determination made pursuant to paragraph (c) above (the
"Verification Report") and (ii) an opinion of Bond Counsel to the effect that the Bonds are no longer
Outstanding. The Verification Report and opinion of Bond Counsel shall be acceptable in form and
substance to the District, and addressed to the District and the Fiscal Agent.
SECTION 6.07
Fiscal Agent.
The District hereby appoints U.S. Bank National Association as Fiscal Agent for the Bonds.
The Fiscal Agent is hereby authorized to and shall mail or otherwise provide for the payment of
interest payments to the Bondholders, and upon written instruction of the District shall select Bonds
for redemption, give notice of redemption of Bonds and maintain the Bond Register. The Fiscal
Agent is hereby authorized to pay the principal of and premium, if any, on the Bonds when the same
are duly presented to it for payment at maturity or on call and redemption, to provide for the
registration of transfer and exchange of Bonds presented to it for such purposes, to provide for the
cancellation of Bonds all as provided in this Indenture, and to provide for the authentication of
Bonds, and shall perform all other duties assigned to or imposed on it as provided in this Indenture.
The Fiscal Agent shall keep accurate records of all Bonds paid and discharged by it.
The District shall from time to time, subject to any agreement between the District and the
Fiscal Agent then in force, pay to the Fiscal Agent compensation for its services, reimburse the
Fiscal Agent for all its advances and expenditures, including, but not limited to, advances to and fees
and expenses of independent accountants or counsel employed by it in the exercise and performance
of its powers and duties hereunder, and indemnify and hold the Fiscal Agent, its officers, directors,
agents and employees, harmless from and against losses, claims, expenses and liabilities not arising
from its own negligence or willful misconduct which it may incur in the exercise and performance of
its powers and duties hereunder. Such obligations shall survive the termination or discharge of this
Indenture.
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The District may at any time at its sole discretion remove the Fiscal Agent initially appointed,
and any successor thereto, by delivering to the Fiscal Agent a written notice of its decision to remove
the Fiscal Agent and may appoint a successor or successors thereto, provided that any such
successor, other than the Treasurer, shall be a bank or trust company having a combined capital
(exclusive of borrowed capital) and surplus of at least fifty million dollars ($50,000,000), and subject
to supervision or examination by Federal or State authority. Any removal shall become effective
only upon acceptance of appointment by the successor Fiscal Agent or the Treasurer. If any bank or
trust company appointed as a successor publishes a report of condition at least annually, pursuant to
law or to the requirements of any supervising or examining authority above referred to, then for the
purposes of this Section the combined capital and surplus of such bank or trust company shall be
deemed to be its combined capital and surplus as set forth in its most recent report of condition so
published.
The Fiscal Agent may at any time resign by giving written notice to the District and by giving
to the Owners notice of such resignation, which notice shall be mailed to the Owners at their
addresses appearing in the Registration Books. Upon receiving such notice of resignation, the
District shall promptly appoint a successor Fiscal Agent by an instrument in writing. Any
resignation or removal of the Fiscal Agent and appointment of a successor Fiscal Agent shall become
effective only upon acceptance of appointment by the successor Fiscal Agent.
SECTION 6.08
Liability of Fiscal Agent.
The recitals of fact and all promises, covenants and agreements contained herein and in the
Bonds shall be taken as statements, promises, covenants and agreements of the District, and the
Fiscal Agent assumes no responsibility for the correctness of the same and makes no representations
as to the validity or sufficiency ofthis Indenture or of the Bonds, and shall incur no responsibility in
respect thereof, other than in connection with its duties or obligations herein or in the Bonds or in the
certificate of authentication on the Bonds. The Fiscal Agent shall be under no responsibility or duty
with respect to the issuance ofthe Bonds. The Fiscal Agent shall not be liable in connection with the
performance ofits duties hereunder, except for its own negligence or willful misconduct. The Fiscal
Agent shall have no responsibility with respect to any information, statement or recital in any official
statement, offering memorandum or any other disclosure material prepared or distributed with
respect to the Bonds.
The Fiscal Agent shall be protected in acting upon any notice, resolution, request, consent,
order, certificate, report, bond or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties. The Fiscal Agent may consult with counsel,
who may be counsel to the District, with regard to legal questions, and the opinion of such counsel
shall be full and complete authorization and protection in respect of any action taken or suffered
hereunder in good faith and in accordance therewith.
Whenever in the administration of its duties under this Indenture, the Fiscal Agent shall deem
it necessary or desirable that a matter be proved or established prior to taking or suffering any action
hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed)
may, in the absence of bad faith on the part of the Fiscal Agent, be deemed to be conclusively proved
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and established by a written certificate ofthe District, and such certificate shall be full warrant to the
Fiscal Agent for any action taken or suffered under the provisions of this Indenture upon the faith
thereof, but in its discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such
matter or may require such additional evidence of such matter or may require such additional
evidence as to it may seem reasonable.
The Fiscal Agent shall have no duty or obligation to enforce the collection of funds to be
deposited with it hereunder or as to the correctness of any amounts received, and its liability shall be
limited to the proper accounting for such funds as it actually receives.
No provision of this Indenture or any other document related hereto shall require the Fiscal
Agent to risk or advance its own funds or otherwise incur any financial liability in the performance
of its duties or the exercise of its rights hereunder.
The permissive right of the Fiscal Agent to do things enumerated in this Indenture shall not
be construed as a duty.
The Fiscal Agent may execute any of the duties of the Fiscal Agent or powers hereof and
perform any of its duties through attorneys, agents and receivers and shall not be answerable for the
conduct of the same if appointed by it with reasonable care.
The Fiscal Agent shall be responsible for only those duties expressly set forth in this
Indenture and no implied duties or obligations shall be read into this Indenture against the Fiscal
Agent.
SECTION 6.09
Provisions Constitute Contract.
The provisions of this Indenture shall constitute a contract between the District and the
Bondowners and the provisions hereof shall be enforceable by any Bondowner for the equal benefit
and protection of all Bondowners similarly situated by mandamus, accounting, mandatory injunction
or any other suit, action or proceeding at law or in equity that is now or may hereafter be authorized
under the laws of the State in any court of competent jurisdiction. Said contract is made under and is
to be construed in accordance with the laws of the State.
No remedy conferred hereby upon any Bondowner is intended to be exclusive of any other
remedy, but each such remedy is cumulative and in addition to every other remedy and may be
exercised without exhausting and without regard to any other remedy conferred by the Act or any
other law of the State. No waiver of any default or breach of duty or contract by any Bondowner
shall affect any subsequent default or breach of duty or contract or shall impair any rights or
remedies on said subsequent default or breach. No delay or omission of any Bondowner to exercise
any right or power accruing upon any default shall impair any such right or power or shall be
construed as a waiver of any such default or acquiescence therein. Every substantive right and every
remedy conferred upon the Bondowners may be enforced and exercised as often as may be deemed
expedient. In case any suit, action or proceeding to enforce any right or exercise any remedy shall be
brought or taken and the Bondowner shall prevail, said Bondowner shall be entitled to receive from
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the Special Tax Fund reimbursement for reasonable costs, expenses, outlays and attorney's fees, and
should said suit, action or proceeding be abandoned or be determined adversely to the Bondowners
then, and in every such case, the District and the Bondowners shall be restored to their former
positions, rights and remedies as if such suit, action or proceeding had not been brought or taken.
After the issuance and delivery of the Bonds, this Indenture shall be irrevocable, but shall be
subject to modification to the extent and in the manner provided in this Indenture, but to no greater
extent and in no other manner.
SECTION 6.10
CUSIP Numbers.
CUSIP identification numbers, if available, will be imprinted on the Bonds, but such numbers
shall not constitute a part of the contract evidenced by the Bonds and no liability shall hereafter
attach to the District or the Fiscal Agent, or any of the officers or agents thereof because of or on
account of said numbers.
SECTION 6.11
Severability.
If any covenant, agreement or provision, or any portion thereof, contained in this Indenture,
or the application thereof to any person or circumstance, is held to be unconstitutional, invalid or
unenforceable, the remainder of this Indenture and the application of any such covenant, agreement
or provision, or portion thereof, to any other persons or circumstances, shall be deemed severable
and shall not be affected, and this Indenture and the Bonds issued pursuant hereto shall remain valid
and the Bondholder shall retain all valid rights and benefits accorded to them under this Indenture
and the Constitution and laws of the State ofCalifomia. If the provisions relating to the appointment
and duties of a Fiscal Agent are held to be unconstitutional, invalid or unenforceable, said duties
shall be performed by the Treasurer.
SECTION 6.12
Unclaimed Money.
All money which the Fiscal Agent shall have received from any source and set aside for the
purpose of paying or redeeming any of the Bonds shall be held in trust for the respective owners of
such Bonds, but any money which shall be so set aside or deposited by the Fiscal Agent and which
shall remain unclaimed by the Owners of such Bonds for a period of one year after the date on which
any payment or redemption with respect to such Bonds shall have become due and payable shall be
transferred to the General Fund of the District; provided, however, that the Fiscal Agent, before
making such payment, shall cause notice to be mailed to the Owners of such Bonds, by rust-class
mail, postage prepaid, not less than 90 days prior to the date of such payment to the effect that said
money has not been claimed and that after a date named therein any unclaimed balance of said
money then remaining will be transferred to the General Fund of the District. Thereafter, the Owners
of such Bonds shall look only to the General Fund of the District for payment and then only to the
extent of the amount so received without any interest thereon.
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SECTION 6.13
Nonpresentment of Bonds.
Except as otherwise provided in Section 6.12 hereof, in the event any Bonds shall not be
presented for payment when the principal thereofbecomes due, if funds sufficient to pay such Bonds
shall be held by the Fiscal Agent for the benefit of the Owners thereof, all liability of the District to
the Owners thereof shall forthwith cease and be completely discharged and thereupon it shall be the
duty of the Fiscal Agent to hold such funds (subject to Section 6.12 hereof), without liability for
interest thereon, for the benefit of the Owners of such Bonds, who shall thereafter be restricted
exclusively to such funds for any claim of whatever nature on, or with respect to, such Bonds.
SECTION 6.14
Continuing Disclosure.
The District hereby covenants and agrees that it will comply with and carry out all of the
provisions of that certain Continuing Disclosure Agreement dated as of June 1,2004 between the
District and the Fiscal Agent (the "Continuing Disclosure Agreement"). Notwithstanding any other
provision of this Indenture, failure of the District to comply with the Continuing Disclosure
Agreement shall not be considered an breach of the provisions ofthis Indenture.
Section 6.15. Execution of Documents and Proof of Ownership by Owners. Any
request, consent, declaration or other instrument which this Indenture may require or permit to be
executed by Owners may be in one or more instruments of similar tenor, and shall be executed by
Owners in person or by their attorneys appointed in writing.
Except as otherwise herein expressly provided, the fact and date of the execution by any
Owner or his attorney of such a request, consent, declaration or other instrument, or of a writing
appointing such an attorney, may be proved by the certificate of any notary public or other officer
authorized to take acknowledgments of deeds to be recorded in the state in which he purports to act,
that the person signing such request, declaration or other instrument or writing acknowledged to him
the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such a
notary public or other officer.
Any request, consent, declaration or other instrument or writing of the Owner of any Bond
shall bind all future Owners of such Bond in respect of anything done or suffered to be done by the
District or the Fiscal Agent in good faith and in accordance therewith.
Section 6.16. Notices to and Demands on District and Fiscal Agent. Any notice or
demand which by any provision of this Indenture is required or permitted to be given or served by
the Fiscal Agent to or on the District may be given or served by being deposited postage prepaid
(first class, registered or certified) in a post office letter box addressed (until another address is filed
by the District with the Fiscal Agent) as follows:
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City of Chula Vista
Finance Department
276 Fourth Avenue
Chula Vista, CA 91910
Attention: Director of Finance
RE: Community Facilities District No. 06-1
(Eastlake - Woods, Vistas and Land Swap)
2004 Improvement Area B Special Tax Bonds
Any notice or demand which by any provision of this Indenture is required or
permitted to be given or served by the District to or on the Fiscal Agent may be given or served by
being deposited postage prepaid (first class, registered or certified) in a post office letter box
addressed (until another address is filed by the Fiscal Agent with the District) as follows:
U.S. Bank National Association
Attn: Corporate Trust
550 South Hope Street, Suite 500
Los Angeles, CA 90071
Reference: Chula Vista CFD
Section 6.17. Applicable Law. This Indenture shall be governed by and enforced in
accordance with the laws of the State of California applicable to contracts made and performed in the
State of California.
Section 6.18. Payment on Business Dav. In any case where the date of the payment of
interest on or of principal (and premium, if any) of the Bonds or the date fixed for redemption is
other than a Business Day, the payment of interest or principal (and premium, if any) need not be
made on such date but may be made on the next succeeding day which is a Business Day with the
same force and effect as ifmade on the date required, and no interest shall accrue for the period from
and after such date.
Section 6.19. Counteruarts. This Indenture may be executed in counterparts, each ofwhich
shall be deemed an original.
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ARTICLE VII. BOND FORM
SECTION 7.01
Form of Bonds.
The format of the Bonds as authorized and to be issued for these proceedings shall be
substantially in the form as set forth in the attached, referenced and incorporated Exhibit "A".
SECTION 7.02
Temporary Bonds.
Any Bonds issued under this Indenture may be initially issued in temporary form
exchangeable for definitive bonds. The Bonds may be issued as one temporary bond with an
attached maturity schedule and interest rate schedule to represent all Bonds. The temporary bond
may be printed, lithographed or typewritten, shall be of such denominations as may be determined by
the District and may contain such references to any of the provisions of this Indenture as may be
appropriate. Every temporary Bond shall be executed by the District in substantially the same
manner as provided in Section 2.06 hereof. If the District issues one or more temporary Bonds, it will
execute and furnish definitive Bonds without delay upon the request of any Owner and thereupon the
temporary bonds may be surrendered for cancellation at the Principal Corporate Trust Office of the
Fiscal Agent, and the District shall deliver in exchange for such temporary bonds an equal aggregate
principal amount of definitive Bonds of the same interest rates and maturities. Until so exchanged,
the temporary bonds shall be entitled to the same benefits under this Indenture as definitive Bonds
issued hereunder.
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SECTION 8.01
ARTICLE VIII EVENT OF DEFAULT
Events of Default.
The following events shall be Events of Default under this Indenture.
(a)
(b)
(c)
(d)
SECTION 8.02
Default in the due and punctual payment of the principal of any Bond when and as
the same shall become due and payable, whether at maturity as therein expressed, by
proceedings for redemption, by declaration or otherwise.
Default in the due and punctual payment of interest on any Bond when and as such
interest shall become due and payable.
Default by the District in the observance of any of the other covenants, agreements or
conditions on its part in this Indenture or in the Bonds contained, if such default shall
have continued for a period of thirty (30) days after written notice thereof, specifying
such default and requiring the same to be remedied, shall have been given to the
District by the Fiscal Agent or to the District and the Fiscal Agent by the Owners of
not less than twenty-five percent (25%) in aggregate principal amount of the Bonds
at the time Outstanding; provided that such default (other than a default arising from
nonpayment of the Fiscal Agent's fees and expenses, which must be cured within
such 30-day period unless waived by the Fiscal Agent) shall not constitute an Event
of Default under this Indenture if the District shall commence to cure such default
within said thirty (30) dayperiod and thereafter diligently and in good faith shall cure
such default within a reasonable period of time; or
The filing by the District of a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other applicable law of the
United States of America, or if a court of competent jurisdiction shall approve a
petition, filed with or without the consent of the District, seeking reorganization
under the federal bankruptcy laws or any other applicable law of the United States of
America, or if, under the provisions of any other law for the relief or aid of debtors,
any court of competent jurisdiction shall assume custody or control of the District or
of the whole or any substantial part of its property.
Application of Revenues and Other Funds After Default
If a default in the payment of the Bonds shall occur and be continuing, all revenues and any
other funds then held or thereafter received under any of the provisions of this Indenture shall be
applied as follows and in the following order:
A.
To the payment of any expenses necessary in the opinion of the District to protect the
interest of the owners of the Bonds and payment of reasonable charges and expenses
of the Fiscal Agent (including reasonable fees and disbursements of its counsel)
incurred in and about the performance of its powers and duties under this Indenture;
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B.
To the payment of the principal of and interest then due with respect to the Bonds
(upon presentation of the Bonds to be paid, and stamping thereon of the payment if
only partially paid, or surrender thereof if fully paid) subj ect to the provisions of this
Indenture, as follows:
First: To the payment to the persons entitled thereto of all installments of interest
then due in the order of the maturity of such installments, and, if the amount available
shall not be sufficient to pay in full any installment or installments maturing on the
same date, then to the payment thereof ratably, according to the amounts due thereon,
to the persons entitled thereto, without any discrimination or preference; and
Second: To the payment to the persons entitled thereto of the unpaid principal of
any Bonds which shall have become due, whether at maturity or by call for
redemption, with interest on the overdue principal at the rate borne by the
respective Bonds on the date of maturity of redemption, and if the amount
available shall not be sufficient to pay in full all the Bonds, together with such
interest, then to the payment thereof ratably, according to the amounts of principal
due on such date to the persons entitled thereto, without discrimination or
preference.
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IN WITNESS WHEREOF, the District and the Fiscal Agent have executed this Bond Indenture
effective the date first above written.
COMMUNITY FACILITIES DISTRICT NO. 06-1 (Eastlake-
Woods, Vistas and Land Swap)
By:
DIRECTOR OF FINANCE
U.S. BANK NATIONAL ASSOCIATION,
as Fiscal Agent
By:
AUTHORIZED OFFICER
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EXHIBIT "A" - FORM OF BOND
United States of America
State of California
CITY OF CHULA VISTA
COMMUNITY FACILITIES DISTRICT NO. 06-1
(EASTLAKE - WOODS, VISTAS AND LAND SWAP)
2004 IMPROVEMENT AREA B SPECIAL TAX BONDS
Interest Rate
Bond Date
,2004
CUSIPNo.
Registered Owner:
Cede & Co.
Principal Amount:
City of Chula Vista Community Facilities District No. 06-1 (EastLake - Woods, Vistas and Land
Swap) (the "District"), situated in Chula Vista, California, for value received, hereby promises to
pay, solely from Special Tax Revenues (as hereafter defined), to the registered owner named above,
or registered assigns, on the maturity date set forth above, unless redeemed prior thereto as
hereinafter provided, the principal amount set forth above and to pay interest on such principal
amount semiannually on each March I and September 1, commencing September 1, 2004, (each an
"Interest Payment Date") at the interest rate set forth above, until the principal amount hereof is paid
or made available for payment. The principal of and premium, if any, on this Bond are payable to the
registered owner hereof in lawful money of the United States of America upon presentation and
surrender of this Bond at maturity or redemption at the corporate trust office or agency of U.S. Bank
National Association (the "Fiscal Agent") in St. Paul, Minnesota (or such other office designated by
the Fiscal Agent). Interest on this Bond is payable from the Interest Payment Date next preceding the
date of its authentication, unless (i) such date of authentication is an Interest Payment Date, in which
event interest shall be payable from such date of authentication, (ii) the date of authentication is after
the 15th calendar day ofthe month preceding the Interest Payment Date (the "Record Date") but prior
to the immediately succeeding Interest Payment Date, in which event interest shall be payable from
the Interest Payment Date immediately succeeding the date of authentication or (iii) the date of
authentication is prior to the close of business on the first Record Date, in which event interest shall
be payable from the Bond Date above; provided, however, that if at the time of authentication of this
Bond, interest is in default, interest on this Bond shall be payable from the last Interest Payment Date
to which the interest has been paid or made available for payment. Interest on this Bond shall be
payable by check of the Fiscal Agent mailed first class, postage prepaid, to the registered owner
hereof at such registered owner's address as it appears on the registration books maintained by the
Fiscal Agent as of the close of business on the Record Date preceding the Interest Payment Date or,
upon request in writing prior to the Record Date received from a registered owner of at least
$1,000,000 in aggregate principal amount of the Bonds, by wire transfer in immediately available
funds to an account in the United States of America designated by such registered owner.
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This Bond is one ofa duly authorized issue of the "CityofChula Vista Community Facilities District
No. 06-1 (EastLake- Woods, Vistas and Land Swap) 2004 Improvement AreaB Special Tax Bonds"
(the "Bonds") issued in the aggregate principal amount of$ pursuant to the Mello-Roos
Community Facilities Act of 1982, constituting Sections 53311, et seq. of the California Government
Code, as amended (the "Act") and the City ofChula Vista Community Facilities District Ordinance
enacted pursuant to the powers reserved by the City of Chula Vista under Sections 3, 5 and 7 of
Article XI of the Constitution of the State of Califomia, for the purpose of financing certain public
improvements including street and road facilities in and for the District. The creation of the Bonds
and the terms and conditions thereof are provided for by a Bond Indenture (the "Indenture") dated as
of June 1,2004, and this reference incorporates the Indenture herein, and by acceptance hereof the
owner of this Bond assents to said terms and conditions. All capitalized terms used herein shall have
the same meaning as set forth in the Indenture unless otherwise specified herein. The Indenture is
authorized under, this Bond is issued under, and both are to be construed in accordance with, the
laws ofthe State of Califomia.
Pursuant to the Act and the Indenture, the principal of, premium, if any, and interest on this Bond are
payable solely from, and shall be secured by a pledge of and lien upon, the proceeds of the Special
Tax (as derIDed in the Indenture) levied and received by the District and the proceeds of the
redemption and sale of property sold as a result of foreclosure of the lien of the Special Tax to the
amount of such lien and penalties thereon (together, the "Special Tax Revenues") and certain funds
held under the Indenture. The Bonds are not general obligations of the City of Chula Vista or the
District, but are special, limited obligations of the District, and neither the faith and credit nor the
taxing power of the District, the City of Chula Vista, the State of California, or any political
subdivision thereof is pledged to the payment of the Bonds. Except for the Special Tax Revenues, no
other revenues or taxes are pledged to the payment of the Bonds.
The District will review the public records of the County of San Diego, California, in connection
with the collection of the Special Taxes and will commence and diligently pursue to completion,
judicial foreclosure proceedings against (i) properties under common ownership with delinquent
Special Taxes in the aggregate of$5,000 or more by October 1 following the close of the Fiscal Year
in which the Special Taxes were due, and (ii) against all properties with delinquent Special Taxes in
the aggregate of$2,500 or more by October 1 following the close of any fiscal year if the amount in
the Reserve Fund is less than the Reserve Requirement.
The Bonds maturing on and after September 1, 20_maybe redeemed at the option of the District
prior to maturity as a whole, or in part on any Interest Payment Date on and after September 1, 20_,
from such maturities as are selected by the District, and by lot within a maturity, from any source of
funds, at the following redemption prices (expressed as percentages of the principal amount of the
Bonds to be redeemed), together with accrued interest to the date of redemption:
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Redemption Date
Redemption Price
September 1, 20- and March 1, 20-
September 1, 20- and March 1,20-
September 1, 20- and thereafter
102%
101%
100%
The Bonds are subject to redemption on any Interest Payment Date, prior to maturity, as a
whole or in part on a pro rata basis among maturities, from the proceeds ofthe prepayment of Special
Taxes pursuant to the Special Tax RMA. Such extraordinary mandatory redemption of the Bonds
shall be at the following redemption prices (expressed as percentages of the principal amount of the
Bonds to be redeemed), together with accrued interest thereon to the date of redemption:
Redemption Date
Redemption Price
September 1, 2004 through March 1, 20-
September 1, 20- and March 1, 20-
September 1, 20- and March 1, 20-
September 1, 20- and thereafter
103%
102%
101%
100%
The Bonds maturing on September 1, 20- are subject to mandatory sinking fund redemption, in
part, by lot, on September 1 of each year commencing September 1, 20_, at a redemption price
equal to the principal amount of the Bonds to be redeemed, plus accrued and unpaid interest thereon
to the date fixed for redemption, without premium, in the aggregate principal amounts and in the
years shown in the following redemption schedule.
Redemption Date
(September 1)
Principal
Amount
The Bonds maturing on September I, 20- are subject to mandatory sinking fund redemption, in
part, by lot, on September 1 of each year commencing September 1, 20_, at a redemption price
equal to the principal amount of the Bonds to be redeemed, plus accrued and unpaid interest thereon
to the date fixed for redemption, without premium, in the aggregate principal amounts and in the
years shown in the following redemption schedule.
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Redemption Date
September I)
Principal
Amount
Notice of redemption with respect to the Bonds to be redeemed shall be given by the Fiscal Agent to
the registered owner thereof at least 30 days but not more than 45 days prior to the redemption date,
by first class mail, postage prepaid, at their addresses appearing on the Bond Register.
This Bond shall be issued only in fully registered form in the denominations of$5,000 or any integral
multiple thereof. No transfer hereof shall be valid for any purpose unless made by the registered
owner, by execution of the form of assignment printed hereon, and authenticated as herein provided,
and the principal hereof, interest hereon and any redemption premium shall be payable only to the
registered owner or to such owner's order. Interest on this Bond shall be payable to the person whose
name appears upon the Bond Register as the registered owner hereof as of the close of business on
the Record Date or to such person's order. The Fiscal Agent shall require the registered owner
requesting transfer or exchange to pay any tax or other governmental charge required to be paid with
respect to such transfer or exchange. The Fiscal Agent shall not be required to register, transfer or
make exchanges of (i) Bonds for a period of 15 days next preceding the date of any selection of
Bonds to be redeemed or (ii) any Bonds chosen for redemption.
This Bond shall not become valid or obligatory for any purpose until the certificate of authentication
hereon printed shall have been dated and manually signed by the Fiscal Agent.
IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things
required by law to exist, happen and be performed precedent to and in the issuance of this Bond have
existed, happened and been performed in due time, form and manner as required by law, and that the
amount of this Bond, together with all other indebtedness of the District, does not exceed any debt
limit prescribed by the laws or Constitution of the State of Califomia.
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IN WITNESS WHEREOF, the City ofChula Vista, for and on behalf of the City ofChula Vista
Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and Land Swap), has caused this
Bond to be dated as of ,2004 and to be signed by the Mayor of the CityofChula Vista
by her manual signature and attested by the City Clerk by her manual signature.
City Clerk, City of Chula Vista, for and on
behalf of the City of Chula Vista Community
Facilities District No. 06-1 (Eastlake - Woods,
Vistas and Land Swap)
Mayor, City of Chula Vista, for and on behalf
of the City ofChula Vista Community
Facilities District No. 06-1 (Eastlake - Woods,
Vistas and Land Swap)
CER TIFICA TE OF AUTHENTICATION
This is one of the Bonds described in the within defined Indenture.
Date:
u.S. Bank National Association,
as Fiscal Agent
By:
Authorized Officer
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ASSIGNMENT
For value received the undersigned do(es) hereby sell, assign and transfer unto
(Name, Address, and Tax Identification or Social Security Number of Assignee)
the within-mentioned registered Bond and hereby irrevocably constitute(s) and appoint(s),
attorney,
to transfer the same on the books of the Fiscal Agent with full power of substitution in the premises.
Dated:
Signature
Guaranteed:
NOTICE: Signature must be guaranteed by a
qualified guarantor.
NOTICE: The signature on this assignment must
correspond with the name as it appears on the
face of the within Bond in every particular,
without alteration or enlargement or any change
whatsoever
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EXHIBIT "B" - ARBITRAGE REBATE INSTRUCTIONS
This document sets forth instructions regarding the investment and disposition of monies
deposited in various funds and accounts established in connection with the issuance by the
Community Facilities District No. 06-1 (EastLake - Woods, Vistas and Land Swap) (the "District")
of its 2004 Improvement AreaB Special Tax Bonds in aggregate principal amount of$
(the "Bonds").
The purpose of these instructions is to provide the District with information necessary to
ensure that the investment of the monies in the funds and accounts described herein will comply with
the arbitrage requirements imposed by the Internal Revenue Code of 1986 and the regulations issued
thereunder.
DEFINITIONS
For purposes of these instructions, the following terms shall have the meanings set forth
below:
Bond Year. The term "Bond Year"means each 12-monthperiod (or shorter period from the
date of issuance) that ends at the close of business on a date selected by the District pursuant to the
Code.
Code. The term "Code" means the Internal Revenue Code of 1986, as amended.
Deliverv Date. The term "Delivery Date" means
,2004.
Excess Investment Earnings. The term "Excess Investment Earnings" means an amount
equal to the sum of:
(1)
The excess of:
(a) The aggregate amount earned from the Delivery Date of the Bonds on all
Nonpurpose Investments in which Gross Proceeds of the Bonds are invested, over
(b) The amount that would have been earned if the Yield on such Nonpurpose
Investments had been equal to the Yield on the Bonds, plus
(2)
Any income attributable to the excess described in paragraph (I).
In determining Excess Investment Earnings, (i) any gain or loss on the disposition of a
Nonpurpose Investment shall be taken into account and (ii) any amount earned on a bona fide debt
service fund shall not be taken into account.
Gross Proceeds. The term "Gross Proceeds" means the following:
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(1) Original proceeds, i.e.. the amount received by the Fiscal Agent as a result of the sale
of the Bonds and any amounts actually or constructively received from investing the amount
received from the sale ofthe Bonds;
(2)
Amounts, other than original proceeds, in the Reserve Fund and in any other fund
established as a reasonably required reserve or replacement fund;
(3) Amounts, other than as specified above, that are reasonably expected to be or are used
to pay debt service with respect to the Bonds; and,
(4)
Amounts received as a result of investing amounts described above.
Investment Property, The term "Investment Property" means any security, obligation, annuity
contract or investment-type property in which Gross Proceeds are invested, excluding, however, the
following:
(a) United States Treasury - State and Local Government Series, Demand Deposit
securities, and
(b)
Tax-exempt obligations.
For purposes of these Instructions, the term "tax-exempt obligations" shall include only
obligations the interest on which is (i) excludable from gross income for federal income tax purposes
and (ii) not treated as an item of tax preference under Section 57(a)(5) of the Code. The term "tax-
exempt obligation" shall, however, also include stock in a "qualified regulated investment
company," which is a corporation that (i) is a regulated investment company within the meaning of
Section 851(a) of the Code and meets the requirements of Section 852(a) of the Code for the taxable
year; (ii) has only one class of stock authorized and outstanding; (iii) invests all of its assets in tax-
exempt obligations (as defined above) to the extent practicable; and (iv) has at least 98% of its gross
income derived from interest on, or gain from the sale or other disposition of, tax-exempt
obligations, or the weighted average value of its assets is represented by investments in tax -exempt
obligations.
Nonpurpose Investment. The term "Nonpurpose Investment" means any Investment Property
that is acquired with the Gross Proceeds of the Bonds and is not acquired in order to carry out the
govermnental purpose of the Bonds.
Purchase Price. The term "Purchase Price", for the purpose of computation of the Yield of
the Bonds, has the same meaning as the term "Issue Price" in Sections 1273(b) and 1274 of the
Code, and, in general, means the initial offering price to the public (not including bond houses and
brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) at
which price a substantial amount of each maturity (at least 10 percent) of the Bonds was sold.
The term "Purchase Price", for the purpose of computation of Yield of Nonpurpose
Investments means the fair market value ofthe Nonpurpose Investment on the date of use of Gross
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Proceeds of the Bonds for acquisition thereof, or if later, on the date that Investment Property
constituting a Nonpurpose Investment becomes a Nonpurpose Investment of the Bonds.
Regulations. The term "Regulations" means temporary and permanent Regulations
promulgated under Section 148 ofthe Code.
Yield. The term "Yield" means that discount rate which, present value of all payments of
principal and interest case of Nonpurpose Investments which require payments in principal and
interest) on a Nonpurpose Investment or on the Bonds produces an amount equal to the Purchase
Price of such Nonpurpose Investment or the Bonds, all computed as prescribed in applicable
Regulations. The yield on Nonpurpose Investments must be computed by the use of the same
frequency interval of compounding interest as is used with respect to the Bonds.
REBATEREOUIREMENT
Calculation of Excess Investment Earnings. No later than the last day of the fifth Bond Year,
each succeeding fifth Bond Year and on the date the last Bond is discharged, the District shall
calculate or cause to be calculated the Excess Investment Earnings pursuant to the Code and
Regulations and deposit or cause to be deposited into the Rebate Fund the amount calculated to be
Excess Investment Earnings. This calculation shall be made or cause to be made by the District in
accordance with the following rules:
(1) For purposes or calculation of the yield on any investment as required under these
Instructions, the purchase price of the investment will be the fair market price of the
investment on an established market. This means that the District (or the Fiscal Agent acting
at the direction of the District) will not pay a premium and will not accept a lower interest
rate than is usually paid to adjust the yield on an investment.
(2) The market price of certificates of deposit issued by a commercial bank may be
regarded as being at a fair market price if they are determined by reference to the bona fide
bid price quoted by a dealer who maintains an active secondary market in such certificates,
or, if no secondary market exists, by satisfying subparagraph (3) below relating to investment
agreements.
(3) Investments pursuant to an investment agreement may be regarded as being made at a
fair market price if (i) at least three (3) bids are received on the investment contract from
persons without an interest in the Bonds; (ii) the winning bidder provides a certificate that,
based on its reasonable expectations on the date the investment agreement is entered into,
investments will not be purchased or sole at a price other than their fair market value; (iii) the
yield on the investment agreement is at least equal to the yield offered under the highest bid
received from a non-interested party; and (iv) the yield on the investment agreement is at
least equal to the yield offered on similar contracts.
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(4) For other investments traded on an established market, the fair market price shall be
the mean between the bid and offered prices for such obligations on the date of purchase or,
if subsequent thereto, the date the investment becomes a Nonpurpose Investment.
(5) Where amounts must be restricted to a certain yield and investments cannot be
purchased on an established market or a bona fide fair market price cannot be established at a
yield that does not exceed the maximum permissible yield, the District may acquire or hold,
or cause the Fiscal Agent to acquire or hold, tax-exempt securities, currency or Umted States
Treasury Certificates of Indebtedness, Notes and Certificates - State and Local Government
Series ("SLGs") that yield no more than the maximum permissible yield. SLGs are available
at the Federal Reserve Bank.
Payment to United States. The District shall direct the Fiscal Agent in writing to pay from
the Rebate Fund an amount equal to Excess Investment Earnings (after application of any available
credits) to the United States Treasury in installments with the first payment to be made not later than
thirty (30) days after the end of the fifth Bond Year, and with subsequent payments to be made not
later than five (5) years after the preceding payment was due. The District shall assure that each such
installment is in an amount equal to at least ninety percent (90%) of the Excess Investment Earnings
with respect to the Bonds as of the close of the computation period. Not later than sixty (60) days
after the retirement of the Bonds, the District shall pay from the Rebate Fund to the United States
Treasury one hundred percent (100%) of the theretofore unpaid Excess Investment Earnings ofthe
Bonds. In the event that there are any amounts remaining in the Rebate Fund following the payment
required by the preceding sentence, the District shall use such amount for any lawful purpose of the
District. The District shall cause payments to the United States at the address prescribed by the
Regulations as the same may be from time to time in effect with such reports and statements as may
be prescribed by such Regulations. In the event that, for any reason, amounts in the Rebate Fund are
insufficient to make the payments to the United States Treasury which are required hereunder, the
District shall assure that such payments are made to the United States Treasury on a timely basis
from any funds lawfully available therefor.
Further obligation of District. The District shall assure that Excess Investment Eamings are
not paid or disbursed except as provided in these instructions. To that end, the District shall assure
that investment transactions are on an arms-length basis. In the event that Nonpurpose Investments
consist of certificates of deposit or investment contracts, investment in such Nonpurpose Investments
shall be made in accordance with the procedures described in applicable Regulations as from time to
time in effect.
MAINTENANCE OF RECORDS. With respect to all Nonpurpose Investments acquired in a fund
or account established and held by the District or the Fiscal Agent, the District or the Fiscal Agent
shall record or cause to be recorded the following information: (i) purchase date, (ii) purchase price,
(iii) information establishing that the purchase price is the fair market value as of such date (e.g., the
published quoted bid by a dealer in such an investment on the date of purchase), (iv) any accrued
interest paid, (v) face amount, (vi) coupon rate, (vii) periodicity of interest payments, (viii)
disposition price, (ix) any accrued interest received, and (x) disposition date. To the extent any
investment becomes a Nonpurpose Investment by becoming Gross Proceeds after it was originally
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purchased, it shall be treated as if it were acquired at its fair market value at the time it becomes a
Nonpurpose Investment. The District shall keep and retain for a period of six (6) years following the
retirement of the Bonds, records of all determinations made pursuant to these Instructions.
AMENDMENT. In order to comply with the covenants in the Bond Indenture regarding compliance
with the requirements of the Code and the continued exclusion from gross income for purposes of
federal income taxation of interest paid on the Bonds, the procedures described in these Instructions
may be modified as necessary, without the consent of Bond owners, and based on the opinion of
nationally recognized bond counsel acceptable to the District, to comply with regulations, rulings,
legislation or judicial decisions as may be applicable to the Bonds. Neither the Fiscal Agent nor any
of its members, agents, officers or employees shall be liable for any action taken or for its failure to
take any action in connection with these Instructions. The District may rely conclusively on the
advice of its Bond Counsel with respect to the requirements of these Instructions.
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EXH181T ..L
Stradling Yocca Carlson & Rauth
Draft of May 26, 2004
$
CITYOFCHULA VISTA
COMMUNITY FACILITIES DISTRiCT NO. 06-1
(EASTLAKE - WOODS, VISTAS AND LAND SWAP)
2004 SPECIAL TAX BONDS
BOND PURCHASE AGREEMENT
June -' 2004
Community Facilities District No. 06-1
(Eastlake - Woods, Vistas and Land Swap)
City of Chula Vista
Chula Vista, California
Ladies and Gentlemen:
Stone & Youngberg LLC (the "Underwriter"), acting not as a fiduciary or agent for you, but
on behalf of itself, offers to enter into this Bond Purchase Agreement with Community Facilities
District No. 06-1 (Eastlake - Woods, Vistas and Land Swap) (the "District"), which was fonned by
the City of Chula Vista (the "City"), which, upon acceptance, will be binding upon the District and
upon the Underwriter. This offer is made subject to acceptance of it by the District on the date
hereof, and if not accepted will be subject to withdrawal by the Underwriter upon notice delivered to
the District at any time prior to the acceptance hereof by the District.
I.
Purchase. Sale and Deliverv of the Bonds.
(a) Subject to the tenus and conditions and in reliance upon the representations,
warranties and agreements set forth herein, the Underwriter agrees to purchase from the District, and
the District agrees to sell to the Underwriter, all (but not less than all) of the City of Chula Vista
Community Facilities District No. 06-1 (Eastlake - Woods, Vistas and Land Swap) 2004 Special Tax
Bonds (the "Bonds") in the aggregate principal amount specified in Exhibit A hereto. The Bonds
shall be dated the Closing Date (hereinafter defined), and bear interest (payable semiannually on
March 1 and September 1 in each year, commencing September I, 2004) at the rates per annum and
maturing on the dates and in the amounts set forth in Exhibit A hereto. The purchase price for the
Bonds shall be the amount specified as such in Exhibit A hereto.
The Bonds shall be substantially in the fonn described in, shall be issued and secured under
the provisions of, and shall be payable and subject to redemption as provided in, the Bond Indenture
(the "Bond Indenture") by and between the District and U.S. Bank National Association, as Fiscal
Agent (the "Fiscal Agent"), dated as of June 1,2004, approved in Resolution No. 2004-- adopted
by the City Council of the City, as the legislative body of the District, on June 8, 2004 (the
"Resolution of Issuance"). The Bonds and interest thereon will be payable from a special tax (the
"Special Tax") levied and collected on certain taxable land within Improvement Area B of the
District in accordance with Resolution No. 2002-379 adopted by the City Council on October 3,2002
(the "Resolution of Fonnation"), Ordinance No, 2881 enacted on September _,2002 and Ordinance
No. 2915 enacted June 3,2003 (together, the "Special Tax Ordinance") and Resolution No. 2003-215
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and Resolution No. 2003-216 adopted by the City Council on May 27, 2003 (together, the
"Resolution of Change Proceedings"). Proceeds of the sale of the Bonds will be used in accordance
with the Bond Indenture and the Mello-Roos Community Facilities Act of 1982, as amended
(Sections 53311 !á ~. of the Govemment Code of the State of California) (the "Act") and the City
of Chula Vista Community Facilities District Ordinance ("Authorizing Ordinance" and together with
the Act, the "Law"), to acquire certain public improvements described in the Resolution of
Formation. The Resolution of Issuance, the Resolution of Formation, the Resolution of Change
Proceedings, the Special Tax Ordinance and the Authorizing Ordinance and all other resolutions
adopted with respect to the formation of the District and the issuance of the Bonds are collectively
referred to herein as the "District Resolutions."
(b) At or prior to the acceptance hereof by the District, the District shall cause to
be delivered to the Underwriter (i) a Certificate of Representations and Warranties of the City, dated
as of the date of this Bond Purchase Agreement (the "City Certificate"), in substantially the form
attached hereto as Exhibit B, with only such changes therein as shall have been accepted by the
Underwriter, and (ii) certificates executed by The EastLake Company, LLC (the "Developer"),
Cornerstone Summit at Eastlake LP ("Cornerstone"), and KB Home Coastal, Inc. ("KB Coastal"),
dated on or prior to the date of this Bond Purchase Agreement and addressed to the Underwriter and
the District deeming the information in the Preliminary Official Statement (as defined in (c) below)
relating to the Developer final and accurate as of its date.
(c) Subsequent to its receipt of a certificate from the District deeming the
Preliminary Official Statement for the Bonds, dated June -' 2004 (which Preliminary Official
Statement, together with the cover page and all appendices thereto, is herein collectively referred to
as the "Preliminary Official Statement" and which, as amended with the prior approval of the
Underwriter and executed by the District, will be referred to herein as the "Official Statement"), final
for purposes of Rule 15c2-12 of the Securities and Exchange Commission ("Rule 15c2-12"), the
Underwriter has distributed copies of the Preliminary Official Statement. The District hereby ratifies
the use by the Underwriter of the Preliminary Official Statement and authorizes the Underwriter to
use and distribute the final Official Statement dated the date hereof (including all information
previously permitted to have been omitted by Rule 15c2-12 and any supplements and amendments
thereto as have been approved by the District as evidenced by the execution and delivery of such
document by an officer of the District (the "Official Statement"), the Bond Indenture, the Continuing
Disclosure Agreement of the District (the "District Disclosure Agreement"), this Bond Purchase
Agreement, any other documents or contracts to which City or the District is a party, and all
information contained therein, and all other documents, certificates and statements furnished by the
City and the District to the Underwriter in connection with the transactions contemplated by this
Bond Purchase Agreement, in connection with the offer and sale of the Bonds by the Underwriter.
The Underwriter hereby agrees to deliver a copy of the Official Statement to a national repository on
or before the Closing Date (as hereinafter defined) and to each investor that purchases any of the
Bonds prior to the "end of the underwriting period" (as such term is defined in Section 2(g) below)
and otherwise to comply with all applicable statutes and regulations in connection with the offering
and sale of the Bonds, including, without limitation, MSRB Rule G-32 and Rule 15c2-12.
(d) At 8:00 A.M., Pacific Daylight Time, on June --' 2004, or at such earlier
time or date as shall be agreed upon by the Underwriter and the District (such time and date being
herein referred to as the "Closing Date"), the District will deliver (i) to The Depository Trust
Company in New York, New York, the Bonds in definitive form (all Bonds being in book-entry form
registered in the name of Cede & Co. and having the CUSIP numbers assigned to them printed
DOCSOC/l 04354 7v3/22245-0151
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thereon), duly executed by the officers of the District as provided in the Bond Indenture, and (ii) to
the Underwriter, at the offices of Best Best & Krieger LLP, Bond Counsel in San Diego, California,
or at such other place as shall be mutually agreed upon by the District and the Underwriter, the other
documents herein mentioned; and the Underwriter shall accept such delivery and pay the purchase
price of the Bonds in immediately available funds (such delivery and payment being herein referred
to as the "Closing"). Notwithstanding the foregoing, the Underwriter may, in its discretion, accept
delivery of the Bonds in temporary form upon making arrangements with the District which are
satisfactory to the Underwriter relating to the delivery of the Bonds in definitive form.
2. Representations. Warranties and A!!I'eements of the District. The District represents,
warrants and covenants to and agrees with the Underwriter that:
(a) The City is duly organized and validly existing as a charter city duly
organized and validly existing under the Constitution and laws of the State of California and has duly
authorized the formation of the District pursuant to the Resolution of Formation and the Law. The
City Council as the legislative body of the City and the District has duly adopted the District
Resolutions, and has caused to be recorded in the real property records of the County of San Diego, a
Notice of Special Tax Lien and Amendment to Notice of Special Tax Lien (together, the "Notice of
Special Tax Lien") (such District Resolutions and Notice of Special Tax Lien being collectively
referred to herein as the "Formation Documents"). Each of the Formation Documents remains in full
force and effect as of the date hereof and has not been amended. The District is duly organized and
validly existing as a community facilities district under the laws of the State of California. The City
has, and at the Closing Date will have, as the case may be, full legal right, power and authority to
execute, deliver and perform on behalf of itself and the District its obligations under that certain
Acquisition/Financing Agreement between the City and the Developer, together with all amendments
thereto (the "Funding Agreement") and to carry out all transactions contemplated by the Funding
Agreement. The District has, and at the Closing Date will have, as the case may be, full legal right,
power and authority (i) to execute, deliver and perform its obligations under this Bond Purchase
Agreement, the District Disclosure Agreement, and the Bond Indenture, and to carry out all
transactions contemplated by each of such agreements, (ii) to issue, sell and deliver the Bonds to the
Underwriter pursuant to the Resolution of Issuance and Bond Indenture as provided herein, and
(iii) to carry out, give effect to and consummate the transactions contemplated by the Formation
Documents and by the Bond Indenture, this Bond Purchase Agreement, the District Disclosure
Agreement and the Funding Agreement (collectively, the "District Documents") and the Official
Statement;
(b) The District and the City, as applicable, each has complied, and will at the
Closing Date be in compliance, in all material respects with the Formation Documents and the
District Documents, and any immaterial noncompliance by the District and the City, if any, will not
impair the ability of the District and the City, as applicable, to carry out, give effect to or
consummate the transactions contemplated by the foregoing. From and after the date of issuance of
the Bonds, the District will continue to comply with the covenants of the District contained in the
District Documents;
(c) The City Council has duly and validly: (i) adopted the District Resolutions,
(ii) called, held and conducted in accordance with all requirements of the Law the elections within
the District to approve the levy of the Special Tax, the facilities eligible for financing and the
issuance of the Bonds and recorded the Notice of Special Tax Lien which established a continuing
lien on the land within the District securing the Special Tax, (iii) authorized and approved the
DOCSOC/l 043547v3/22245-0151
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execution and delivery of the Bonds and the District Documents, (iv) authorized the preparation and
delivery of the Preliminary Official Statement and the Official Statement, and (v) authorized and
approved the perfonnance by the District of its obligations contained in, and the taking of any and all
action as may be necessary to carry out, give effect to and consummate the transactions contemplated
by, each of the District Documents (including, without limitation, the collection of the Special Tax),
and at the Closing Date the Fonnation Documents will be in full force and effect and the District
Documents and the Bonds will constitute the valid, legal and binding obligations of the District and
(assuming due authorization, execution and delivery by other parties thereto, where necessary) will
be enforceable in accordance with their respective tenns, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general
and to the application of equitable principles if equitable remedies are sought;
(d) To the best of the District's knowledge, neither the District nor the City is in
breach of or default under any applicable law or administrative rule or regulation of the State of
California (the "State"), or of any department, division, agency or instrumentality thereof, or under
any applicable court or administrative decree or order, or under any loan agreement, note, resolution,
bond indenture, contract, agreement or other instrument to which the District or the City is a party or
is otherwise subject or bound, a consequence of which could be to materially and adversely affect the
perfonnance by the District of its obligations under the Bonds, the Fonnation Documents or the
District Documents, and compliance with the provisions of each thereof, will not conflict with or
constitute a breach of or default under any applicable law or administrative rule or regulation of the
State, or of any department, division, agency or instrumentality thereof, or under any applicable court
or administrative decree or order, or a material breach of or default under any loan agreement, note,
resolution, trust agreement, contract, agreement or other instrument to which the District or the City,
as the case may be, is a party or is otherwise subject or bound;
(e) Except for compliance with the blue sky or other states securities law filings,
as to which the District makes no representations, all approvals, consents, authorizations, elections
and orders of or filings or registrations with any State governmental authority, board, agency or
commission having jurisdiction which would constitute a condition precedent to, or the absence of
which would materially adversely affect, the perfonnance by the District of its obligations hereunder,
or under the Fonnation Documents or the District Documents, have been obtained and are in full
force and effect;
(t) The Special Tax constituting the security for the Bonds has been duly and
lawfully authorized and may be levied under the Law and the Constitution and other applicable laws
of the State of California, and such Special Tax, when levied, will constitute a valid and legally
binding continuing lien on the properties on which it has been levied;
(g) Until the date which is twenty-five (25) days after the "end of the
underwriting period" (as hereinafter defined), if any event shall occur of which the District is aware,
as a result of which it may be necessary to supplement the Official Statement in order to make the
statements in the Official Statement, in light of the circumstances existing at such time, not
misleading, the District shall forthwith notify the Underwriter of any such event of which it has
knowledge and shall cooperate fully in furnishing any infonnation available to it for any supplement
to the Official Statement necessary, in the Underwriter's opinion, so that the statements therein as so
supplemented will not be misleading in light of the circumstances existing at such time and the
District shall promptly furnish to the Underwriter a reasonable number of copies of such supplement.
As used herein, the tenn "end of the underwriting period" means the later of such time as (i) the
DOCSOCII 04354 7v3/22245-0151
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District delivers the Bonds to the Underwriter, or (ii) the Underwriter does not retain, directly or as a
member of an underwriting syndicate, an unsold balance of the Bonds for sale to the public. Unless
the Underwriter gives notice to the contrary, the "end of the underwriting period" shall be deemed to
be the Closing Date. Any notice delivered pursuant to this provision shall be written notice delivered
to the District at or prior to the Closing Date, and shall specifY a date (other than the Closing Date) to
be deemed the "end ofthe underwriting period";
(h) The Bond Indenture creates a valid pledge of the Special Taxes and the
moneys in the Special Tax Fund, the Bond Service Fund, the Redemption Fund and the Reserve
Fund established pursuant to the Bond Indenture, including the investments thereof, subject in all
cases to the provisions of the Bond Indenture permitting the application thereof for the purposes and
on the terms and conditions set forth therein;
(i) Except as disclosed in the Official Statement, no action, suit, proceeding,
inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board
or body is pending or, to the best knowledge of the District, threatened (i) which would materially
adversely affect the ability of either the City or the District to perform its obligations under the
Bonds, the Formation Documents or the District Documents, or (ii) seeking to restrain or to enjoin
the development of the land within the District, the issuance, sale or delivery of the Bonds, the
application of the proceeds thereof in accordance with the Bond Indenture or the Funding
Agreement, or the collection or application of the Special Tax pledged or to be pledged to pay the
principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the
validity or enforceability of the Bonds, the Formation Documents, the District Documents, the land
use approvals granted by the City with respect to the land within the District, any other instruments
relating to the development of any of the property within the District, or any action contemplated by
any of said documents, or (iii) in any way contesting the completeness or accuracy of the Preliminary
Official Statement or the Official Statement or the powers or authority of the District with respect to
the Bonds, the Formation Documents, the District Documents, or any action of the District
contemplated by any of said documents; nor is there any action pending or, to the best knowledge of
the District, threatened against the City or the District which alleges that interest on the Bonds is not
excludable from gross income for federal income tax purposes or is not exempt from California
personal income taxation;
(j) The District will furnish such information, execute such instruments and take
such other action in cooperation with the Underwriter as the Underwriter may reasonably request in
order for the Underwriter to qualifY the Bonds for offer and sale under the "Blue Sky" or other
securities laws and regulations of such states and other jurisdictions of the United States as the
Underwriter may designate; provided, however, the District shall not be required to register as a
dealer or a broker of securities or to consent to service of process in connection with any blue sky
filing;
(k) Any certificate signed by any authorized official of the City and the District
authorized to do so shall be deemed a representation and warranty to the Underwriter as to the
statements made therein;
(I) The District will apply the proceeds of the Bonds in accordance with the
Bond Indenture and as described in the Official Statement;
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(m) The infonnation contained in the Preliminary Official Statement (other than
infonnation therein relating to The Depository Trust Company and its Book-Entry-Only System, as
to which no view is expressed) was as of the date thereof, and the infonnation contained in the
Official Statement (other than infonnation therein relating to The Depository Trust Company and its
Book-Entry-Only System, as to which no view is expressed) as of its date was, and on the Closing
Date shall be, true and correct in all material respects and such infonnation does not and shall not
contain any untrue or misleading statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under which they were made,
not misleading;
(n) The District shall use its best efforts to cause the Developer to cooperate with
the Underwriter in the preparation of the Official Statement; provided, however, that such efforts
shall not include the expenditure of funds by the District;
(0) The Preliminary Official Statement heretofore delivered to the Underwriter
was deemed final by the District as of its date, except for the omission of such infonnation as is
pennitted to be omitted in accordance with paragraph (b)(I) of Rule 15c2-12. The District hereby
covenants and agrees that, within seven (7) business days from the date hereof, the District shall
cause a final printed fonn of the Official Statement to be delivered to the Underwriter in a quantity
mutually agreed upon by the Underwriter and the District so that the Underwriter may comply with
paragraph (b)(4) of Rule 15c2-12 and Rules G-12, G-15, G-32 and G-36 of the Municipal Securities
Rulemaking Board;
(P) Neither the City nor the District is in default with respect to any reporting
obligation that it has undertaken under Rule 15c2-12 for any indebtedness issued by it.
3. Conditions to the Obligations of the Underwriter. The obligations of the Underwriter
to accept delivery of and pay for the Bonds on the Closing Date shall be subject, at the option of the
Underwriter, to the accuracy in all material respects of the representations and warranties on the part
of the District contained herein, as of the date hereof and as of the Closing Date, to the accuracy in
all material respects of the statements of the officers and other officials of the City and the District
made in any certificates or other documents furnished pursuant to the provisions hereof, to the
perfonnance by the District of its obligations to be perfonned hereunder at or prior to the Closing
Date and to the following additional conditions:
(a) At the Closing Date, the Fonnation Documents and the District Documents
shall be in full force and effect, and shall not have been amended, modified or supplemented, except
as may have been agreed to in writing by the Underwriter, and there shall have been taken in
connection therewith, with the issuance of the Bonds and with the transactions contemplated thereby
and by this Bond Purchase Agreement, all such actions as, in the opinion of Best, Best & Krieger
LLP, Bond Counsel for the District, and Stradling Yocca Carlson & Rauth, a Professional
Corporation, counsel to the Underwriter, shall be necessary and appropriate;
(b) Between the date hereof and the Closing Date, the market price or
marketability of the Bonds at the initial offering prices set forth in the Official Statement shall not
have been materially adversely affected, in the judgment of the Underwriter (evidenced by a written
notice to the District tenninating the obligation of the Underwriter to accept delivery of and pay for
the Bonds), by reason of any of the following:
DOCSOC/1 04354 7v3/22245-0 \5\
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(I) legislation introduced in or enacted (or resolution passed) by the
Congress of the United States of America or recommended to the Congress by the President of the
United States, the Department of the Treasury, the Internal Revenue Service, or any member of
Congress, or favorably reported for passage to either House of Congress by any committee of such
House to which such legislation had been referred for consideration or a decision rendered by a court
established under Article 111 of the Constitution of the United States of America or by the Tax Court
of the United States of America, or an order, ruling, regulation (final, temporary or proposed), press
release or other form of notice issued or made by or on behalf of the Treasury Department or the
Internal Revenue Service of the United States of America, with the purpose or effect, directly or
indirectly, of imposing federal income taxation upon the interest as would be received by the holders
of the Bonds beyond the extent to which such interest is subject to taxation as of the date hereof;
(2) legislation introduced in or enacted (or resolution passed) by the
Congress of the United States of America, or an order, decree or injunction issued by any court of
competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed), press release or
other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or
any other governmental agency having jurisdiction of the subject matter, to the effect that obligations
of the general character of the Bonds, including any or all underlying arrangements, are not exempt
from registration under or other requirements of the Securities Act of 1933, as amended, or that the
Bond Indenture is not exempt from qualification under or other requirements of the Trust Indenture
Act of 1939, as amended, or that the issuance, offering or sale of obligations of the general character
of the Bonds, including any or all underwriting arrangements, as contemplated hereby or by the
Official Statement or otherwise is or would be in violation of the federal securities laws, rules or
regulations as amended and then in effect;
(3) any amendment to the federal or California Constitution or action by
any federal or California court, legislative body, regulatory body or other authority materially
adversely affecting the tax status of the District, its property, income, securities (or interest thereon),
the validity or enforceability of the Special Tax or the ability of the City or the District to construct or
acquire the improvements as contemplated by the Formation Documents, the District Documents or
the Official Statement; or
(4) any event occurring, or information becoming known, which, in the
judgment of the Underwriter, makes untrue in any material respect any statement or information
contained in the Official Statement, or results in the Official Statement containing any untrue
statement of a material fact or omitting to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under which they were made,
not misleading.
(5) any national securities exchange, the Comptroller of the Currency, or
any other governmental authority, shall impose as to the Bonds or obligations of the general
character of the Bonds, any material restrictions not now in force, or increase materially those now in
force, with respect to the extension of credit by, or the charge to the net capital requirements of, the
Underwriter; or
(6) the declaration of a general banking moratorium by federal, New
York or California authorities;
DOCSOCII 043547v3/22245-0151
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"",,,,"c. {)
(7) there shall have occurred any material outbreak or escalation of
hostilities or other calamity or crisis the effect of which on the financial markets ofthe United States
is such as to make it impracticable, in the judgment of the Underwriter, following consultation with
the City, to sell the Bonds; or
(8) any proceeding shall have been commenced or be threatened in
writing by the Securities and Exchange Commission against the City.
(c) On the Closing Date, the Underwriter shall have received counterpart
originals or certified copies of the following documents, in each case satisfactory in fonn and
substance to the Underwriter:
(I) The Fonnation Documents and the District Documents, together with
a certificate dated as of the Closing Date of the City Clerk to the effect that each Fonnation
Document is a true, correct and complete copy of the one duly adopted by the City Council;
(2)
The Official Statement;
(3) An unqualified approving opinion for the Bonds, dated the Closing
Date and addressed to the City, of Best Best & Krieger LLP, Bond Counsel for the District, in the
fonn attached to the Preliminary Official Statement as Appendix H, and an unqualified opinion of
such counsel, dated the Closing Date and addressed to the Underwriter, to the effect that such
approving opinion addressed to the District may be relied upon by the Underwriter to the same extent
as if such opinion was addressed to it;
(4) A supplemental opinion, dated the Closing Date and addressed to the
Underwriter, of Best Best & Krieger LLP, Bond Counsel for the District, to the effect that (i) the
District Documents have been duly authorized, executed and delivered by the City or the District, as
applicable, and, assuming such agreements constitute valid and binding obligations of the other
parties thereto, constitute the legally valid and binding agreements of the City or the District, as
applicable, enforceable in accordance with their tenns, except as enforcement may be limited by
bankruptcy, moratorium, insolvency or other laws affecting creditor's rights or remedies and by
general principles of equity (regardless of whether such enforceability is considered in equity or at
law); (ii) the Bonds are not subject to the registration requirements of the Securities Act of 1933, as
amended, and the Bond Indenture is exempt from qualification under the Trust Indenture Act of
1939, as amended; (iii) the infonnation contained in the Official Statement on the cover and under
the captions "INTRODUCTION," "THE BONDS," "SOURCES OF PAYMENT FOR THE
BONDS," "THE COMMUNITY FACILITIES DISTRICT," "SPECIAL RISK FACTORS-
Proposition 218," "TAX MATTERS" and Appendices E and H thereof, insofar as it purports to
summarize certain provisions of the Law, the Fonnation Documents, the Bonds and the Bond
Indenture and the exclusion from gross income for federal income tax purposes and exemption from
State of California personal income taxes of interest on the Bonds, presents a fair and accurate
summary of such provisions; (iv) the Special Tax has been duly and validly authorized in accordance
with the provisions of the Law and, except as the same may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or other laws relating to or affecting
generally the enforcement of creditors' rights, by equitable principles and by the exercise of judicial
discretion in appropriate cases, a lien to secure payment of Special Taxes has been imposed on all
non-exempt property in the District; and (v) Bond Counsel has examined the proceedings regarding
the levy of the Special Tax, including without limitation, the Notice of Special Tax Lien which was
DOCSOC/1 043547v3/22245-0 i51
8
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recorded for the District pursuant to Section 3114.5 of the California Streets and Highways Code (the
"Code") in the official records of the County of San Diego on October 30, 2002 and September 9,
2003, and based on such examination, and its review of applicable laws ofthe State of California, as
of the date of such opinion, Bond Counsel is of the opinion that (a) pursuant to Section 53339.8(a) of
the California Government Code, all non-exempt property in the District became subject to the levy
of the Special Taxes as of the date of the adoption of the Resolution of Formation, (b) pursuant to
Section 53340 of the California Government Code, each levy on such non-exempt property is
secured by a continuing lien; and (c) any delinquent Special Taxes levied on such non-exempt
property will be subject to foreclosure pursuant to Section 53356.1 of the California Government
Code;
(5) An opinion, dated the Closing Date and addressed to the Underwriter,
of Stradling Yocca Carlson & Rauth, a Professional Corporation, counsel for the Underwriter, to the
effect that (i) the Bonds are exempt from the registration requirements of the Securities Act of 1933,
as amended, and the Bond Indenture is exempt from qualification under the Trust Indenture Act of
1939, as amended; and (ii) without having undertaken to determine independently the accuracy or
completeness of the statements contained in the Official Statement, but on the basis of their
participation in conferences with representatives of the City, Bond Counsel, representatives of the
Underwriter and others, and their examination of certain documents, nothing has come to their
attention which has led them to believe that the Official Statement as of its date and as of the Closing
Date contained any untrue statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (except that no opinion or belief need be expressed as any
financial or statistical data, appraisals, assessed values or projections or information regarding the
book-entry system contained in the Official Statement);
(6) A certificate, dated the Closing Date and signed by an authorized
representative of the District, ratifying the use and distribution by the Underwriter of the Preliminary
Official Statement and the Official Statement in connection with the offering and sale of the Bonds;
and certifying that (i) the representations and warranties of the District contained in Section 2 hereof
are true and correct in all material respects on and as of the Closing Date with the same effect as if
made on the Closing Date; (ii) to the best of his or her knowledge, no event has occurred since the
date of the Official Statement affecting the matters contained therein which should be disclosed in
the Official Statement for the purposes for which it is to be used in order to make the statements and
information contained in the Official Statement not misleading in any material respect, and the
Bonds, the Formation Documents and the District Documents conform as to form and tenor to the
descriptions thereof contained in the Official Statement; (iii) the District has complied with all the
agreements and satisfied all the conditions on its part to be performed or satisfied under the
Formation Documents, the District Documents and the Official Statement at or prior to the Closing
Date; and (iv) the representations and warranties of the City contained in the City Certificate are true
and correct in all material respects on and as of the Closing Date, with the same effect as if made on
the Closing Date, except that all references therein to the Preliminary Official Statement shall be
deemed to be references to the Official Statement;
(7) An opinion, dated the Closing Date and addressed to the Underwriter,
of the City Attorney, to the effect that (i) to the best of his or her knowledge and except as disclosed
in the Official Statement, no action, suit, proceeding, inquiry or investigation, at law or in equity,
before or by any court, regulatory agency, public board or body is pending or threatened which
would materially adversely affect the ability of the District to perform its obligations under the
DOCSOC/1 04354 7v3/22245-0 151
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b' J/'
Bonds, the Fonnation Documents or the District Documents, or seeking to restrain or to enjoin the
development of property within the District, the issuance, sale, delivery of the Bonds or the exclusion
from gross income for federal income tax purposes or State of California personal income taxes of
interest on the Bonds, or the application of the proceeds thereof in accordance with the Bond
Indenture, or the collection or application of the Special Tax to pay the principal of and interest on
the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the
Fonnation Documents or the District Documents or the accuracy of the Official Statement, or any
action of the City or the District contemplated by any of said documents; (ii) the City is duly
organized and validly existing as a charter city under the Constitution and laws of the State of
California and the District is duly organized and validly existing as a community facilities district
under the laws of the State of California, and the District has full legal right, power and authority to
issue the Bonds and each of the City and the District has the full legal right, power and authority to
perfonn all of its obligations under the Fonnation Documents and the District Documents; (iii) the
City and the District have obtained all approvals, consents, authorizations, elections and orders of or
filings or registrations with any State governmental authority, board, agency or commission having
jurisdiction which constitute a condition precedent to the levy of the Special Tax, the issuance of the
Bonds or the perfonnance by the District of its obligations thereunder or under the Bond Indenture,
except that no opinion need be expressed regarding compliance with blue sky or other securities laws
or regulations, whatsoever; (iv) the City Council has duly and validly adopted the District
Resolutions at meetings of the City Council which were called and held pursuant to law and with all
public notice required by law and at which a quorum was present and acting throughout, and the
District Resolutions are now in full force and effect and have not been amended; and (v) each of the
City and the District has duly authorized, executed and delivered the District Documents to which it
is a party and the District has duly authorized and executed the Bonds and has duly authorized the
preparation and delivery of the Official Statement, and the District Documents and the Bonds
constitute legal, valid and binding agreements ofthe District and the City, as applicable, enforceable
in accordance with their respective tenus, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the enforcement of creditors' rights in general and to the
application of equitable principles if equitable remedies are sought and to the limitations on legal
remedies against cities in the State of California;
(8) A certificate dated the Closing Date and addressed to the Underwriter
and the City, from the Developer, in substantially the fonn attached hereto as Exhibit C and an
executed copy of the Continuing Disclosure Agreement in the fonn attached as Appendix G to the
Official Statement (the "Developer Continuing Disclosure Agreement");
(9) A certificate dated the Closing Date and addressed to the Underwriter
and the City, from Cornerstone, in substantially the fonn attached hereto as Exhibit C-I and an
executed copy of the Continuing Disclosure Agreement in the fonn attached as Appendix G-! to the
Official Statement (the "Cornerstone Continuing Disclosure Agreement");
(10) A certificate dated the Closing Date and addressed to the Underwriter
and the City, from KB Coastal, in substantially the fonn attached hereto as Exhibit C-2 and an
executed copy of the Continuing Disclosure Agreement in the fonn attached as Appendix G-2 to the
Official Statement (the "KB Coastal Continuing Disclosure Agreement");
(II) An opinion dated the Closing Date and addressed to the Underwriter,
the City and the District, by counsel to the Developer, substantially in the fonn attached hereto as
Exhibit D;
DOCSOCII043547v3/22245-0151
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(12) An opinion dated the Closing Date and addressed to the Underwriter,
the City and the District, by counsel to each of Cornerstone and KB Coastal, each substantially in the
form attached hereto as Exhibit D-l;
(13) A certificate dated the Closing Date from McGill, Martin Self, Inc.
addressed to the City, the District and the Underwriter to the effect that (i) the Special Tax if
collected in the maximum amounts permitted pursuant to the Rate and Method of Apportionment of
Special Taxes as of the Closing Date would generate at least 110% of the maximum annual debt
service payable with respect to the Bonds, based on such assumptions and qualifications as shall be
acceptable to the Underwriter, and (ii) the statements in the Official Statement concerning the Rate
and Method of Apportionment of Special Tax and all information supplied by it for use in the
Official Statement were as of the date of the Official Statement and are as of the Closing Date true
and correct, and do not contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances under which they
were made, not misleading;
(14) A letter dated the Closing Date from Bruce W. Hull & Associates,
Inc. (the "Appraiser") addressed to the Underwriter, the District and the City to the effect that it has
prepared the appraisal report (the "Appraisal") with respect to the property located within the District
and that (a) the Appraisal, in the form set forth in Appendix C to the Official Statement, may be
included in the Preliminary Official Statement and the Official Statement, (b) it has reviewed the
Official Statement and the Appraisal included in Appendix C thereto and the information in the
Official Statement referring to the Appraisal is accurate and does not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (c) no events or
occurrences have been ascertained by it or have come to its attention that would materially change
the opinion of value set forth in the Appraisal;
(15) A letter from The Meyers Group dated the Closing Date addressed to
the Underwriter, the City and the District to the effect that it has prepared the market absorption
study (the "Study") referred to in the Official Statement and that (a) the summary of the Study in
Appendix B thereto (the "Summary") may be included in the Preliminary Official Statement and the
Official Statement, (b) it has reviewed the Official Statement and the Summary and the information
regarding the Study and the projected absorption of the proposed development included in the
Official Statement is accurate and does not contain any untrue statement of a material façt or omit to
state a material fact necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and (c) no events or occurrences have been ascertained
by it or have come to its attention that would materially change the opinion set forth in the Study;
(16) A certificate of the District dated the Closing Date, in a form
acceptable to Bond Counsel, that the Bonds are not arbitrage bonds within the meaning of
Section 148 of the Internal Revenue Code of 1986, as amended;
(17) A certificate of the Fiscal Agent and an opinion of counsel to the
Fiscal Agent dated the Closing Date and addressed to the City, the District and the Underwriter to the
effect that it has duly authorized the execution and delivery of the Bond Indenture and the Developer
Continuing Disclosure Agreements and that each of such documents is a valid and binding obligation
of the Fiscal Agent enforceable in accordance with its terms; and
DOCSOC/l 043 54 7v3/22245-0 151
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(18) Such additional legal opinions, certificates, instruments and other
documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the
date hereof and as of the Closing Date, of the statements and information contained in the
Preliminary Official Statement and the Official Statement, of the District's representations and
warranties contained herein and the due performance or satisfaction by the District at or prior to the
Closing of all agreements then to be performed and all conditions then to be satisfied by the District
in connection with the transactions contemplated hereby and by the Official Statement.
If the District shall be unable to satisfY the conditions to the obligations of the Underwriter to
purchase, accept delivery of and pay for the Bonds contained in this Bond Purchase Agreement, or if
the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds shall be
terminated for any reason permitted by this Bond Purchase Agreement, this Bond Purchase
Agreement shall terminate and neither the Underwriter nor the District shall be under any further
obligation hereunder, except that the respective obligations of the District and the Underwriter set
forth in Section 5 and Section 6 hereof shall continue in full force and effect.
4. Conditions of the District's Obligations. The District's obligations hereunder are
subject to the Underwriter's performance of its obligations hereunder, and are also subject to the
following conditions:
(a) As of the Closing Date, no litigation shall be pending or, to the knowledge of
the duly authorized officer of the District executing the certificate referred to in Section 3(c)(6)
hereof, threatened, to restrain or enjoin the issuance or sale of the Bonds or in any way affecting any
authority for or the validity of the Bonds, the Formation Documents, the District Documents or the
existence or powers ofthe City or the District; and
(b) As of the Closing Date, the District shall receive the approving opinions of
Bond Counsel referred to in Section 3(c)(3) and (4) hereof, dated as of the Closing Date, addressed to
the City, the District and the Underwriter.
5.
herein:
ExDenses. Whether or not the Bonds are delivered to the Underwriter as set forth
(a) The Underwriter shall be under no obligation to pay, and the District shall
payor cause to be paid (out of any legally available funds of the District) all expenses incident to the
performance of the District's obligations hereunder, including, but not limited to, the cost of printing
and delivering the Bonds to the Underwriter, the cost of preparation, printing, distribution and
delivery of the Bond Indenture, the Preliminary Official Statement, the Official Statement and all
other agreements and documents contemplated hereby (and drafts of any thereof) in such reasonable
quantities as requested by the Underwriter; and the fees and disbursements of the Fiscal Agent for the
Bonds, Bond Counsel, financial advisor to the City, counsel to the Underwriter in the amount of
$25,000, and any accountants, engineers or any other experts or consultants the District has retained
in connection with the Bonds including reimbursements to the Developer for advances of such
amounts; and
(b) The District shall be under no obligation to pay, and the Underwriter shall
pay, any fees of the California Debt and Investment Advisory Commission, the cost of preparation of
any "blue sky" or legal investment memoranda and this Bond Purchase Agreement; expenses to
qualifY the Bonds for sale under any "blue sky" or other state securities laws; and all other expenses
DOCSOCfl 043547v3/22245-0151
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incurred by the Underwriter in connection with its public offering and distribution of the Bonds
(except those specifically enumerated in paragraph (a) of this section), including the fees and
disbursements of its counsel and any advertising expenses.
6. Notices. Any notice or other communication to be given to the City under this Bond
Purchase Agreement may be given by delivering the same in writing to the City at 276 Fourth
Avenue, Chula Vista, California 91910, Attention: Director of Finance; and any notice or other
communication to be given to the Underwriter under this Bond Purchase Agreement may be given by
delivering the same in writing to Stone & Youngberg, 4350 La Jolla Village Drive, Suite 140, San
Diego, California 92122, Attention: L. William Huck, and to One Ferry Building, San Francisco,
California 94111, Attention: Public Finance.
7. Parties in Interest. This Bond Purchase Agreement is made solely for the benefit of
the District and the Underwriter (including their successors or assigns), and no other person shall
acquire or have any right hereunder or by virtue hereof.
8. Survival of Reoresentations and Warranties. The representations and warranties of
the District and the City set forth in or made pursuant to this Bond Purchase Agreement and any
certificates delivered hereunder shall not be deemed to have been discharged, satisfied or otherwise
rendered void by reason of the Closing or termination of this Bond Purchase Agreement and
regardless of any investigations made by or on behalf of the Underwriter (or statements as to the
results of such investigations) concerning such representations and statements of the District and the
City and regardless of delivery of and payment for the Bonds.
9. Effective. This Bond Purchase Agreement shall become effective and binding upon
the respective parties hereto upon the execution of the acceptance hereof by the District and shall be
valid and enforceable as of the time of such acceptance.
10. No Prior AlITeements. This Bond Purchase Agreement supersedes and replaces all
prior negotiations, agreements and understandings between the parties hereto in relation to the sale of
Bonds for the District.
11. Governing Law. This Bond Purchase Agreement shall be governed by the laws of
the State of California.
DOCSOCil 04354 7v3/22245-0 \5\
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12. Counterparts. This Bond Purchase Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute one and the same
instrument.
Very truly yours,
STONE & YOUNGBERG LLC
By:
Managing Director
ACCEPTED: June -' 2004
COMMUNITY F ACILITlES DISTRICT NO. 06-1
(EASTLAKE-WOODS, VISTAS AND LAND
SWAP)
By:
Director of Finance
14
DOCSOC/1 04354 7v3/22245-0151
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EXHIBIT A
MATURITY SCHEDULE
CITYOFCHULA VISTA
COMMUNITY FACILITIES DISTRICT NO. 06-1
(EASTLAKE-WOODS, VISTAS AND LAND SWAP)
2004 SPECIAL TAX BONDS
Maturity Date
(September 1)
Principal
Coupon
Price
Par Amount
Original Issue Discount
Underwriter's Discount
Purchase Price
DOCSOC/IO43547v3/22245-0151
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6 - ..)//£J
EXHIBIT B
CERTIFICATE OF REPRESENTATIONS AND WARRANTIES
OF THE CITY OF CHULA VISTA
June -' 2004
To:
Stone & Youngberg LLC
San Diego, California
Re:
$ City ofChula Vista Community Facilities District No. 06-1 (EastLake-
Woods, Vistas and Land Swap) 2004 Special Tax Bonds
Ladies and Gentlemen:
We are delivering to you this certificate in connection with the issuance and sale of
$ aggregate principal amount of the City of Chula Vista Community Facilities District
No. 06-1 (EastLake-Woods, Vistas and Land Swap) 2004 Special Tax Bonds and pursuant to the
Bond Purchase Agreement, dated the date hereof (the "Purchase Contract"), by and between you and
Community Facilities District No. 06-1 (EastLake-Woods, Vistas and Land Swap) (the "District").
All capitalized tenns used herein without definition shall have the meanings assigned to such tenns
in the Purchase Contract.
The undersigned, in his capacity as an officer of the City and not in his individual capacity,
on behalf of the City, represents and warrants to you that:
(I) The City is duly organized and validly existing as a charter city under the
Constitution and laws of the State of California and the City Council of the City, as the legislative
body of the District, has duly and validly adopted each ofthe District Resolutions and authorized the
fonnation of the District pursuant to the Law.
(2) The infonnation contained in the Preliminary Official Statement (except for
infonnation therein as to the book-entry system as to which no view is expressed) was, as of the date
thereof and is, as of the date hereof, true and correct in all material respects and did not, as of the date
thereof, and does not, as of the date hereof, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
CITY OF CHULA VISTA
By:
Director of Finance
DOCSOC/1 04354 7v3/22245-0 151
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EXHIBIT C
CERTIFICATE OF THE DEVELOPER
June -' 2004
Stone & Youngberg LLC
4350 La Jolla Village Drive, Suite 140
San Diego, California 92122
City of Chula Vista
276 Fourth Avenue
Chula Vista, California 91910
Re:
$ City ofChula Vista Community Facilities District No. 06-1 (EastLake-
Woods, Vistas and Land Swap) 2004 Improvement Area B Special Tax Bonds
(the "Bonds ")
Ladies and Gentlemen:
The EastLake Company, LLC, a California limited liability company (the "Developer"),
hereby certifies that:
I.
The Developer is the owner of certain of the land within Improvement Area B of
Community Facilities District No. 06-1 (EastLake-Woods, Vistas and Land Swap)
(the "District"), as described in the Official Statement of the District dated
2004 relating to the above-captioned Bonds (the "Official Statement").
2.
The Developer covenants that, while the Bonds are outstanding, the Developer will
not bring any action, suit, proceeding, inquiry or investigation at law or in equity,
before any court, regulatory agency, public board or body which in any way seeks to
challenge or overturn the District, the levy of the Special Tax in accordance with the
rate and method of apportionment contained in the Amendment to Notice of Special
Tax Lien recorded in the real property records ofthe County of San Diego (the "Rate
and Method of Apportionment") or the validity of the Bonds or the proceedings
leading up to their issuance. The foregoing covenant shall not prevent the Developer
from
(a)
bringing an action or suit contending that the Special Tax has not been levied
in accordance with the methodology contained in the Rate and Method of
Apportionment; or
(b)
bringing any action, suit, proceeding, inquiry or investigation to enforce the
obligations of the District or the City of Chula Vista (the "City") under the
District formation resolutions or any agreement including, without limitation,
the Bond Indenture, the Bond Purchase Agreement, or the
Acquisition/Financing Agreement, dated as of , 2004, executed
by and among the City, the District and the Developer, and/or any other
DOCSOCII 043 54 7v3/22245-0 \5\
C-I
b . j /Þ
agreement with the District and/or the City for which the Developer is a party
or beneficiary, so long as any such action or suit does not seek to interfere, or
have the effect of interfering, with the levy and collection of the Special Tax
in amounts and at times sufficient to pay the principal of and interest on the
Bonds when due and unless such action or suit is brought or filed pursuant to
subsection (a) above.
3.
Any and all information submitted by the Developer to the City, the Underwriter and
Underwriter's counsel in connection with the preparation of the Official Statement,
and any and all information submitted by the Developer to the Special Tax
Consultant, the Appraiser and the Market Absorption Consultant, was, to the best of
the Developer's knowledge, true and correct when given and remains true and correct
as of the date hereof, and all information in the Official Statement relating to the
Developer and the development of its land within the District was final as of its date
for purposes of Rule 15c2-12 promulgated under the Securities Exchange Act of
1934.
4.
The statements relating to the Developer, its members and related entities, its
proposed development in the District, their property ownership and its contractual
arrangements contained in the Official Statement do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time subsequent hereto and within
25 days after the Closing Date any such statements in the Official Statement become
untrue, the Developer agrees to notify the City and the Underwriter immediately.
5.
No proceedings are pending or, to the best of the Developer's knowledge, threatened
in which the Developer or any of its members may be adjudicated as bankrupt or
discharged from any or all of their debts or obligations or granted an extension of
time to pay its debts or a reorganization or readjustment of its debts.
6.
Except as disclosed in the Official Statement, no action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, regulatory agency, public
board or body, is pending or, to the best of the Developer's knowledge, threatened, in
any way seeking to restrain or enjoin the development of the property within the
District or in any way seeking to invalidate or set aside any final or vesting tentative
maps on land in the District.
7.
Except as disclosed in the Official Statement, to the best of the Developer's
knowledge, no other public debt secured by a tax or assessment on the land in the
District is in the process of being authorized and no assessment districts or
community facilities districts have been or are in the process of being formed which
include any portion of the land within the District.
8.
Except as disclosed in writing to the Underwriter and the City, to the best of the
Developer's knowledge, there are no events of monetary default or events which with
the passage of time would constitute a monetary default under any loan or similar
credit arrangement to which the Developer or any of its members is a party which
DOCSOCfl 04354 7v3/22245-o 151
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9.
II.
would materially and adversely affect the ability of the Developer to develop the
property or pay Special Taxes when due.
The Developer has duly authorized and executed the Developer Continuing
Disclosure Agreement dated as of July I, 2004 (the "Disclosure Agreement"), and
such Disclosure Agreement is the valid obligation of the Developer, enforceable
against the Developer in accordance with its terms, and none of the documents which
govern the Developer would cause such Disclosure Agreement to be invalid or
unenforceable against the Developer in accordance with its terms; and no event has
occurred which, with the passage oftime, would constitute a default by the Developer
of any of its obligations under the Disclosure Agreement.
10.
The Developer has duly authorized and executed the Funding Agreement and such
Funding Agreement constitutes the valid obligation of the Developer, enforceable
against the Developer in accordance with its respective terms, and none of the
documents which govern the Developer would cause such Funding Agreement to be
invalid or unenforceable against the Developer in accordance with its terms; and no
event has occurred which, with the passage oftime, would constitute a default by the
Developer of any of its obligations under the Funding Agreement.
All capitalized terms not otherwise defined herein shall have the meaning set forth in
the Bond Purchase Agreement to be entered into between the District and Stone &
Youngberg LLC relating to the sale of the Bonds.
EASTLAKE COMPANY LLC, a California limited
liability company
By:
Name:
Its:
By:
Title:
Its:
DOCSOCIl 043547v3/22245-0 151
C-3
6-):20
EXHffiIT C-l
CERTIFICATE OF THE DEVELOPER
June -' 2004
Stone & Youngberg LLC
4350 La Jolla Village Drive, Suite 140
San Diego, California 92122
City of Chula Vista
276 Fourth Avenue
Chula Vista, California 91910
Re:
$ City ofChula Vista Community Facilities District No. 06-1 (EastLake-
Woods, Vistas and Land Swap) 2004 Improvement Area B Special Tax Bonds (the
"Bonds ")
Ladies and Gentlemen:
Cornerstone Summit at Eastlake LP, a California limited partnership ("Cornerstone"), hereby
certifies that:
I.
Cornerstone is the owner of certain of the land within Improvement Area B of
Community Facilities District No. 06-1 (EastLake-Woods, Vistas and Land Swap)
(the "District"), as described in the Official Statement of the District dated
2004 relating to the above-captioned Bonds (the "Official Statement").
2.
Cornerstone covenants that, while the Bonds are outstanding, Cornerstone will not
bring any action, suit, proceeding, inquiry or investigation at law or in equity, before
any court, regulatory agency, public board or body which in any way seeks to
challenge or overturn the District, the levy of the Special Tax in accordance with the
rate and method of apportionment contained in the Amendment to Notice of Special
Tax Lien recorded in the real property records of the County of San Diego (the "Rate
and Method of Apportionment") or the validity of the Bonds or the proceedings
leading up to their issuance. The foregoing covenant shall not prevent Cornerstone
from bringing an action or suit contending that the Special Tax has not been levied in
accordance with the methodology contained in the Rate and Method of
Apportionment.
3.
Any and all infonnation submitted by Cornerstone to the City, the Underwriter and
Underwriter's counsel in connection with the preparation of the Official Statement,
and any and all infonnation submitted by Cornerstone to the Special Tax Consultant,
the Appraiser and the Market Absorption Consultant, was, to the best of
Cornerstone's knowledge, true and correct when given and remains true and correct
as of the date hereof, and all infonnation in the Official Statement relating to
Cornerstone and the development of its land within the District was final as of its date
DOCSOC/ 1 04354 7v3/22245-0 151
C-I-I
/:, . e),) Ii
--.
for purposes of Rule 15c2-12 promulgated under the Securities Exchange Act of
1934.
4.
The statements relating to Cornerstone, its general partner and related entities, its
proposed development in the District, its property ownership and its contractual
arrangements contained in the Official Statement do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time subsequent hereto and within
25 days after the Closing Date any such statements in the Official Statement become
untrue, Cornerstone agrees to notify the City and the Underwriter immediately.
5.
No proceedings are pending or, to the best of Cornerstone's knowledge, threatened in
which Cornerstone or its general partner may be adjudicated as bankrupt or
discharged from any or all of their debts or obligations or granted an extension of
time to pay its debts or a reorganization or readjustment of its debts.
6.
Except as disclosed in the Official Statement, no action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, regulatory agency, public
board or body, is pending or, to the best of Cornerstone's knowledge, threatened, in
any way seeking to restrain or enjoin the development of the property within the
District or in any way seeking to invalidate or set aside any final or vesting tentative
maps on land in the District.
7.
Except as disclosed in the Official Statement, to the best of Cornerstone's knowledge,
no other public debt secured by a tax or assessment on the land in the District is in the
process of being authorized and no assessment districts or community facilities
districts have been or are in the process of being formed which include any portion of
the land within the District.
8.
Except as disclosed in writing to the Underwriter and the City, to the best of
Cornerstone's knowledge, there are no events of monetary default or events which
with the passage of time would constitute a monetary default under any loan or
similar credit arrangement to which Cornerstone or its general partner is a party
which would materially and adversely affect the ability of Cornerstone to develop its
property in the District or pay Special Taxes when due.
9.
Cornerstone has duly authorized and executed the Developer Continuing Disclosure
Agreement dated as of July I, 2004 (the "Disclosure Agreement"), and such
Disclosure Agreement is the valid obligation of Cornerstone, enforceable against
Cornerstone in accordance with its terms, and none of the documents which govern
Cornerstone would cause such Disclosure Agreement to be invalid or unenforceable
against Cornerstone in accordance with its terms; and no event has occurred which,
with the passage of time, would constitute a default by Cornerstone of any of its
obligations under the Disclosure Agreement.
C-I-2
DOCSOC/1 04354 7v3/22245-O 151
b - ,))Á
10.
All capitalized terms not otherwise defined herein shall have the meaning set forth in
the Bond Purchase Agreement to be entered into between the District and Stone &
Youngberg LLC relating to the sale of the Bonds.
[CORNERSTONE SIGNATURE BLOCK]
DOCSOC/1O43547v3/22245-0151
C-I-3
{;-);)3
EXHIBIT C-2
CERTIFICATE OF THE DEVELOPER
June -' 2004
Stone & Youngberg LLC
4350 La Jolla Village Drive, Suite 140
San Diego, California 92122
City of Chula Vista
276 Fourth Avenue
Chula Vista, California 91910
Re:
$ City ofChula Vista Community Facilities District No. 06-1 (EastLake-
Woods, Vistas and Land Swap) 2004 Improvement Area B Special Tax Bonds
(the "Bonds ")
Ladies and Gentlemen:
KB Home Coastal, LLC ("KB Coastal"), hereby certifies that:
I.
KB Coastal is the owner of certain of the land within Improvement Area B of
Community Facilities District No. 06-1 (EastLake-Woods, Vistas and Land Swap)
(the "District"), as described in the Official Statement of the District dated
2004 relating to the above-captioned Bonds (the "Official Statement").
2.
KB Coastal covenants that, while the Bonds are outstanding, KB Coastal will not
bring any action, suit, proceeding, inquiry or investigation at law or in equity, before
any court, regulatory agency, public board or body which in any way seeks to
challenge or overturn the District, the levy of the Special Tax in accordance with the
rate and method of apportionment contained in the Amendment to Notice of Special
Tax Lien recorded in the real property records of the County of San Diego (the "Rate
and Method of Apportionment") or the validity of the Bonds or the proceedings
leading up to their issuance. The foregoing covenant shall not prevent KB Coastal
from bringing an action or suit contending that the Special Tax has not been levied in
accordance with the methodology contained in the Rate and Method of
Apportionment.
3.
Any and all information submitted by KB Coastal to the City, the Underwriter and
Underwriter's counsel in connection with the preparation of the Official Statement,
and any and all information submitted by KB Coastal to the Special Tax Consultant,
the Appraiser and the Market Absorption Consultant, was, to the best ofKB Coastal's
knowledge, true and correct when given and remains true and correct as of the date
hereof, and all information in the Official Statement relating to KB Coastal and the
development of its land within the District was final as of its date for purposes of
Rule 15c2-12 promulgated under the Securities Exchange Act of 1934.
DOCSOC/1 04354 7v3/22245-0 151
C-2-1 '
6 -.)~f
9.
4.
The statements relating to KB Coastal, its parent company and related entities, its
proposed development in the District, their property ownership and its contractual
arrangements contained in the Official Statement do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time subsequent hereto and within
25 days after the Closing Date any such statements in the Official Statement become
untrue, KB Coastal agrees to notify the City and the Underwriter immediately.
5.
No proceedings are pending or, to the best ofKB Coastal's knowledge, threatened in
which KB Coastal may be adjudicated as bankrupt or discharged from any or all of
their debts or obligations or granted an extension of time to pay its debts or a
reorganization or readjustment of its debts.
6.
Except as disclosed in the Official Statement, no action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, regulatory agency, public
board or body, is pending or, to the best of KB Coastal's knowledge, threatened, in
any way seeking to restrain or enjoin the development of the property within the
District or in any way seeking to in.validate or set aside any final or vesting tentative
maps on land in the District.
7.
Except as disclosed in the Official Statement, to the best ofKB Coastal's knowledge,
no other public debt secured by a tax or assessment on the land in the District is in the
process of being authorized and no assessment districts or community facilities
districts have been or are in the process of being formed which include any portion of
the land within the District.
8.
Except as disclosed in writing to the Underwriter and the City, to the best of KB
Coastal's knowledge, there are no events of monetary default or events which with
the passage of time would constitute a monetary default under any loan or similar
credit arrangement to which KB Coastal or any of its affiliates is a party which would
materially and adversely affect the ability of KB Coastal to develop its property
within the District or pay Special Taxes when due.
KB Coastal has duly authorized and executed the Developer Continuing Disclosure
Agreement dated as of July I, 2004 (the "Disclosure Agreement"), and such
Disclosure Agreement is the valid obligation of KB Coastal, enforceable against KB
Coastal in accordance with its terms, and none of the documents which govern KB
Coastal would cause such Disclosure Agreement to be invalid or unenforceable
against KB Coastal in accordance with its terms; and no event has occurred which,
with the passage of time, would constitute a default by KB Coastal of any of its
obligations under the Disclosure Agreement.
DOCSOCII 043547v3/22245-0 i51
C-2-2
6 -ç:)':¿E[
10.
All capitalized terms not otherwise defined herein shall have the meaning set forth in
the Bond Purchase Agreement to be entered into between the District and Stone &
Youngberg LLC relating to the sale of the Bonds.
[KB HOME COASTAL SIGNATURE BLOCK]
C-2-3
DOCSOC/l 043547v3/22245-0 15\
--. ~...;;.,) ;;,
"'.
EXHIBIT D
OPINION OF DEVELOPÉR COUNSEL
(I) The Developer is duly formed, validly existing and in good standing as a limited
liability company under the laws of the State of California, and is in good standing in the State of
California.
(2) The Developer has the power to enter into and perform its obligations under the
Continuing Disclosure Agreement dated as of July I, 2004 (collectively, the "Developer
Agreements"), has duly authorized, executed, and delivered the Developer Agreement, and has
authorized the performance of its respective duties and obligations thereunder.
(3) Each of the Developer Agreements constitutes a legally valid and binding obligation
of the Developer, enforceable in accordance with its terms.
(4) The execution and delivery of the each of the Developer Agreements by the
Developer, and compliance with the provisions thereof by the Developer will not result in a violation
of, a breach of, or a default under the operating agreement of the Developer or, to our knowledge, of
any trust agreement, mortgage, deed of trust, note, lease, commitment, agreement, or other
instrument to which the Developer is a party, or, to our knowledge, any order, rule or regulation of
any court or other governmental body having jurisdiction over the Developer, the breach of which
might have a materially adverse effect on the ability of the Developer to perform its obligations
under the Developer Agreement.
(5) There is no litigation pending or threatened against or affecting the Developer
(a) which affects or seeks to prohibit, restrain or enjoin the development by the Developer of the
property it owns within the District, or (b) in which the Developer or any of the members of the
Developer may be adjudicated as bankrupt or discharged from any or all of its debts or obligations or
granted an extension of time to pay its debts or a reorganization or readjustment of its debts, or
(c) which seeks to grant an extension of time to pay the Developer's debts, or (d) seeks to effect a
reorganization or readjustment of the Developer's debts.
(6) During the course of our representation the Developer, we have reviewed certain
documents and have participated in conferences in which the contents of the Official Statement and
related matters were discussed. To our knowledge, no facts have come to our attention which would
cause us to believe that the statements contained in the Official Statement under the headings "THE
COMMUNITY FACILITIES DISTRICT," "THE DEVELOPMENT AND PROPERTY
OWNERSHIP," and "SPECIAL RISK FACTORS" relating to the District and the Developer
(excluding therefrom the financial and statistical data included therein) contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made, not misleading (except
as to financial information contained therein, as to which no view or opinion is expressed).
DOCSOC/1 043547v3/22245-0151
D-l
/. d;2'-/"
0
EXHffiIT D-l
OPINION OF DEVELOPER COUNSEL
(1) The Developer is duly fonned, validly existing and in good standing as a limited
liability company under the laws of the State of California, and is in good standing in the State of
California.
(2) The Developer has the power to enter into and perfonn its obligations under the
Continuing Disclosure Agreement dated as of July 1, 2004 (the "Developer Disclosure Agreement"),
has duly authorized, executed, and delivered the Developer Agreement, and has authorized the
perfonnance of its respective duties and obligations thereunder.
(3) Each of the Developer Disclosure Agreement constitutes a legally valid and binding
obligation of the Developer, enforceable in accordance with its tenus.
(4) The execution and delivery of the each of the Developer Disclosure Agreement by
the Developer, and compliance with the provisions thereof by the Developer will not result in a
violation of, a breach of, or a default under the operating agreement of the Developer or, to our
knowledge, of any trust agreement, mortgage, deed of trust, note, lease, cornmitment, agreement, or
other instrument to which the Developer is a party, or, to our knowledge, any order, rule or regulation
of any court or other governmental body having jurisdiction over the Developer, the breach of which
might have a materially adverse effect on the ability of the Developer to perfonn its obligations
under the Developer Agreement.
(5) There is no litigation pending or threatened against or affecting the Developer
(a) which affects or seeks to prohibit, restrain or enjoin the development by the Developer of the
property it owns within the District, or (b) in which the Developer or any of the members of the
Developer may be adjudicated as bankrupt or discharged from any or all of its debts or obligations or
granted an extension of time to pay its debts or a reorganization or readjustment of its debts, or
(c) which seeks to grant an extension of time to pay the Developer's debts, or (d) seeks to effect a
reorganization or readjustment of the Developer's debts.
(6) During the course of our representation the Developer, we have reviewed certain
documents and have participated in conferences in which the contents of the Official Statement and
related matters were discussed. To our knowledge, no facts have come to our attention which would
cause us to believe that the statements contained in the Official Statement under the heading "THE
DEVELOPMENT AND PROPERTY OWNERSHIP" relating to the Developer (excluding therefrom
the financial and statistical data included therein) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading (except as to financial
infonnation contained therein, as to which no view or opinion is expressed).
DOCSOCII 04354 7v3/22245-O 15\
D-I-1
6 -e;J;2?
Draft 10.17.02
RESOLUTION NO.
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA
ACTING IN ITS CAPACITY AS THE LEGISLATIVE BODY OF COMMUNITY
FACILITIES DISTRICT NO. 06-1 (EASTLAKE - WOODS, VISTAS AND LAND
SWAP), AUTHORIZING AND PROVIDING FOR THE ISSUANCE OF SPECIAL
TAX BONDS OF THE DISTRICT FOR IMPROVEMENT AREA B THEREOF,
APPROVING THE FORM OF BOND INDENTURE, BOND PURCHASE
AGREEMENT, PRELIMINARY OFFICIAL STATEMENT AND OTHER
DOCUMENTS AND AUTHORIZING CERTAIN ACTIONS IN CONNECTION
WITH THE ISSUANCE OF SUCH BONDS
WHEREAS, the CITY COUNCIL of the CITY OF CHULA VISTA, CALIFORNIA (this
"City Council"), did previously conduct proceedings to form and did form a community facilities
district and designate improvement areas therein pursuant to the terms and provisions of the "Mello-
Roos Community Facilities Act of 1982", being Chapter 2.5, Part 1, Division 2, Title 5 of the
Government Code of the State of California (the "Act") and the City of Chula Vista Community
Facilities District Ordinance enacted pursuant to the powers reserved by the City of Chula Vista
under Sections 3, 5 and 7 of Article XI of the Constitution of the State of California (the
"Ordinance") (the Act and the Ordinance may be referred to collectively as the "Community
Facilities District Law"), such Community Facilities District designated as COMMUNITY
FACILITIES NO. 06-1 (EASTLAKE - WOODS, VISTAS AND LAND SWAP) (the "Community
Facilities District") and such improvement areas designated as IMPROVEMENT AREA A and
IMPROVEMENT AREA B, for the purpose of financing the acquisition or construction of certain
public improvements; and,
WHEREAS, this City Council has previously declared its intention to issue bonds for each of
the improvement areas to finance the acquisition or construction of such improvements, such bonds
be issued pursuant to the terms and provisions of the Act and the City ofChula Vista Statement of
Goals and Policies Regarding the Está"blishment of Community Facilities Districts, as amended to
date (the "Goals and Policies"); and,
WHEREAS, at this time this City Council desires to set forth the general terms and
conditions relating to the authorization, issuance and administration of such bonds for Improvement
Area B; and,
WHEREAS, the forms ofthe following documents have been presented to and considered for
approval by this City Council:
A.
Bond Indenture by and between the Community Facilities District and U.S. Bank
National Association, as fiscal agent (the "Fiscal Agent") setting forth the terms and
conditions relating to the issuance and sale of bonds (the "Bond Indenture");
B.
Bond Purchase Agreement authorizing the sale of bonds to Stone & Youngberg LLC,
the designated underwriter (the "Bond Purchase Agreement");
6/2/2004
6 - ~.).9
Draft 10.17.02
C.
D.
Preliminary Official Statement containing information including but not limited to
the Community Facilities District, Improvement Area B and the bonds, including the
terms and conditions thereof (the "Preliminary Official Statement"); and
Continuing Disclosure Agreement by and between the Community Facilities District
and U.S. Bank National Association, as dissemination agent (the "Dissemination
Agent"), pursuant to which the Community Facilities District will be obligated to
provide ongoing annual disclosure relating to the bonds (the "Continuing Disclosure
Agreement"); and
WHEREAS, this City Council, with the aid of City staff, has reviewed and considered the
Bond Indenture, the Bond Purchase Agreement, the Continuing Disclosure Agreement and the
Preliminary Official Statement and finds those documents suitable for approval, subject to the
conditions set forth in this resolution; and
WHEREAS, all conditions, things and acts required to exist, to have happened and to have
been performed precedent to and in the issuance ofthe bonds as contemplated by this resolution and
the documents referred to herein exist, have happened and have been performed or have been
ordered to have been preformed in due time, form and manner as required by the laws of the State of
California, including the Act and the applicable policies and regulations of the City ofChula Vista.
NOW, THEREFORE, IT IS HEREBY RESOLVED AS FOLLOWS:
SECTION I. Recitals. The above recitals are true and correct.
SECTION 2. Determinations. This legislative body hereby makes the following
determinations pertaining to the proposed issuance of the Bonds:
(a)
6/2/2004
The Goals and PolicieS'ogenerally require that the full cash value of the properties
within Improvement Area B of the Community Facilities District subject to the levy
of the special taxes must be at least 4 times the principal amount of the Bonds (as
defined below) and the principal amount of all other bonds outstanding that are
secured by a special tax levied pursuant to the Act on property within Improvement
Area B or a special assessment levied on property within Improvement Area B
(collectively, "Land Secured Bonded Indebtedness").The Act authorizes the City
Council, acting as the legislative body of the Community Facilities District,to sell
the Bonds only if the City Council has determined prior to the award of the sale of
the Bonds that the value of such properties within Improvement Area B will be at
least 4 times the amount of such Land Secured Indebtedness.
The value of the property within Improvement Area B of the Community Facilities
District which will be subject to the special tax to pay debt service on the Bonds will
be at least 4 times the amount of the Land Secured Bonded Indebtedness.
2
{; - ;)3~
Draft 10.17.02
The Goals and Policies further provide that the full cash value of each development
area for which no final subdivision map has been filed must also be at least 4 times
the Land Secured Bonded Indebtedness allocable to each such property. The value of
certain development areas will be at least 4 times the Land Secured Indebtedness
allocable to such areas.
The foregoing determinations are based upon the full cash value of such properties
and development areas as shown upon an appraisal of the subject properties prepared
by Bruce W. Hull & Associates, a state certified real estate appraiser, as defined in
Business and Professions Code Section 11340( c). Such determination was made in a
manner consistent with the Goals and Policies.
(b)
The terms and conditions of the Bonds as contained in the Bond Indenture are
consistent with and conform to the Goals and Policies.
(c)
As a result of the current status of development of the property within Improvement
Area B and the relative overall lack of diversity of ownership of property within
Improvement Area B, the private sale ofthe Bonds will result in a lower overall cost
to the Community Facilities District.
SECTION 2. Bonds Authorized. Pursuant to the Community Facilities District Law, this
Resolution and the Bond Indenture, special tax bonds of the Community Facilities District
designated as "City of Chllia Vista Community Facilities District No. 06-1 (EastLake - Woods,
Vistas and Land Swap) 2004 Improvement Area B Special Tax Bonds" (the "Bonds") in an
aggregate principal amount not to exceed $9,000,000 are hereby authorized to be issued. The date,
manner of payment, interest rate or rates, interest payment dates, denominations, form, registration
privileges, manner of execution, place of payment, terms of redemption and other terms, covenants
and conditions of the Bonds shall be as provided in the Bond Indenture as finally executed.
SECTION 3. Authorization and Conditions. The City Manager, the Director of Finance, the
Assistant Director of Finance and suclltther official or officials of the City as may be designated by
this City Council (each, an "Authorized Officer") are each hereby authorized and directed to execute
and deliver the final form of the various documents and instruments described in this Resolution,
with such additions thereto or changes therein as such Authorized Officer may deem necessary and
advisable provided that no additions or changes shall authorize an aggregate principal amount of
Bonds in excess of $9,000,000, an annual interest rate on the Bonds in excess of seven percent
(7.00%) per year and a purchase price for the Bonds not less than ninety eight and twenty five
hundredths percent (98.75%) of the par amount of the Bonds (excluding original issue discount, if
any). The approval of such additions or changes shall be conclusively evidenced by the execution
and delivery of such documents or instruments by an Authorized Officer, upon consultation with and
review by the City Attorney and Best Best & Krieger LLP, the Community Facilities District's bond
counsel.
SECTION 4. Bond Indenture. The form of Bond Indenture by and between the Community
Facilities District and the Fiscal Agent, with respect to the Bonds as presented to this City Council
and on file with the City Clerk is hereby approved. An Authorized Officer is hereby authorized and
6/2/2004
3
6 -~~I
Draft 10.17.02
directed to cause the same to be completed and executed on behalf of the Community Facilities
District, subject to the provisions of Section 3 above.
SECTION 5. Official Statement and Continuing Disclosure Agreement. The City Council
hereby approves the fonn ofthe Preliminary Official Statement as presented to this City Council and
on file with the City Clerk, together with any changes therein or additions thereto deemed advisable
by the Director of Finance or, in the absence ofthe Director of Finance, another Authorized Officer.
Pursuant to Rule 15c2-12 under the Securities Exchange Act of 1934 (the "Rule") the Director of
Finance or, in the absence of the Director of Finance, another Authorized Officer is authorized to
detennine when the Preliminary Official Statement is deemed final, and the Director of Finance or
such other Authorized Official is hereby authorized and directed to provide written certification
thereof. The execution of the final Official Statement, which shall include such changes and
additions thereto deemed advisable by the Director of Finance or, in the absence of the Director of
Finance, another Authorized Officer pursuant to the Rule, shall be conclusive evidence of the
approval of the final Official Statement by the Community Facilities District. The City Council
hereby authorizes the distribution of the final Official Statement by the Underwriter as the initial
purchaser of the Bonds.
The fonn of Continuing Disclosure Agreement by and between the Community Facilities
District and the Dissemination Agent as presented to this City Council and on file with the City
Clerk is hereby approved. An Authorized Officer is hereby authorized and directed to cause the same
to be completed and executed on behalf of the Community Facilities District, subject to the
provisions of Section 3 above.
SECTION 6. Sale of Bonds. This City Council hereby authorizes and approves the
negotiated sale of the Bonds to Stone & Youngberg LLC (the "Underwriter"). The fonn of the Bond
Purchase Agreement is hereby approved and an Authorized Officer is hereby authorized and directed
to execute the Bond Purchase Agreement on behalf of the Community Facilities District upon the
execution thereof by the Underwriter, subject to the provisions of Section 3 above.
'.
SECTION 7. Bonds Prepared and Delivered. Upon the execution of the Bond Purchase
Agreement, the Bonds shall be prepared, authenticated and delivered, all in accordance with the
applicable tenns of the Community Facilities District Law and the Bond Indenture, and any
Authorized Officer and other responsible City officials, acting for and on behalf of the Community
Facilities District, are hereby authorized and directed to take such actions as are required under the
Bond Purchase Agreement and the Bond Indenture to complete all actions required to evidence the
delivery of the Bonds upon the receipt of the purchase price thereof from the Underwriter.
SECTION 8. Actions. All actions heretofore taken by the officers and agents of the City
with respect to the establishment of the Community Facilities District and the sale and issuance of
the Bonds are hereby approved, confinned and ratified, and the proper officers of the City, acting for
and on behalf of the Community Facilities District, are hereby authorized and directed to do any and
all things and take any and all actions and execute any and all certificates, agreements, contracts, and
other documents, which they, or any of them, may deem necessary or advisable in order to
consummate the lawful issuance and delivery of the Bonds in accordance with the Community
6/2/2004
. 4 .
I:; . ~..~..L
Draft 10.17.02
Facilities District Law, this Resolution, the Bond Indenture, the Bond Purchase Agreement, the
Continuing Disclosure Agreement, and any certificate, agreement, contract, and other document
described in the documents herein approved.
SECTION 9. Effective Date. This resolution shall take effect from and after its adoption.
Presented by
Approved as to form by
CÀ~
Ann Moore
City Attorney
Jack Griffin
Director of General Services
6/2/2004
5
(; -~ð3
June 3, 2004
*7
JUN - ¿ 200¿
, . ,...~.
III".
Americ.n Public Power Assocl.tion
2301 M Street, N.w.
Washington, D.C. 20037-1484
2021467-2900
2021467-2910 (fax)
www.APPAnet.olll
Mayor Steven Padilla
City of Chula Vista
276 Fourth Ave.
Chula VIsta, CA 91910
Dear Mayor Padilla:
Thank you for forwarding to APPA the information on the City of Chula Vista's municipal
electric utility analysis. Public power is a viable alternative for communities currently
being served by private power companies. Frequently, and in many cases successfully,
private power companies work to prevent even the examination of the public power
option by local elected officials. I commend you and your colleagues for undertaking
this evaluation. The ultimate benefits for your community could be substantial.
American Public Power Association (APPA) is the national service organization
representing the interests of the nation's locally owned and controlled public power
systems. Over 40 million American citizens in 2,000 communities are served by locally
owned, not-far-profit public power utilities. I'm sure you are familiar with two of the
largest public power systems in the Country, Los Angeles Department of Water and Power
and the Sacramento Municipal Utility District. Other large cities, including Seattle,
Tacoma, San Antonio, Austin, Orlando and Jacksonville also own their own electric
utilities. Most public power systems, however, are located in small to medium size cities
and towns throughout the country.
Public power's characteristics -local control, not-for-profit operations, low rates and
reliable service, and financial stability - constitute a business model that has worked well
for more than a century, and continues to work well in communities across the nation
today.
Public power communities have local control over how electricity is provided to homes
and businesses. Local control and not-far-profit operation of the electric system result in
lower rates and higher quality electric service. In addition, local control provides local
citizens opportunities to affect utility policies. Decisions are made locally through citizen
participation instead of being made in a distant city by people who don't understand local
issues and who are primarily focused on profits, not service. Further, the not-for-profit
nature of public power utilities also ensures that decisions will be made in the public
interest. In the midst of recent financial scandals in the energy business, the local control
distinction between public power and investor-<>wned systems may never be more clear
than it is today.
Page 2 0£2
Richardson
Chula Vista's Municipal Utility Analysis
Chula Vista's approach, while different than that examined by other communities
considering the public power option, is entirely consistent with the local control
nature of public power. You are considering a novel solution that works best for
Chula Vista's present and future electricity needs. We applaud your innovation and
look forward to working with you.
Creating a new public power utility is not an easy task, made all the more difficult because
those who oppose public power find it convenient to distort the facts. While APPA's
primary mission is to serve the immediate needs of its existing members, we are able to
provide limited assistance to community leaders, such as yourself, who have decided to
explore the public power option.
I wish you the best as you examine the benefits public power can bring to your
community.
£4 L£J.,,-
President & CEO
AHR/US/ln
A)
B)
C)
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-=-.. -
~
CITY COUNCIL MEETING
AGENDA STATEMENT
Item: 7
Meeting Date: June 8. 2004
mY OF
CHUlA VISfA
ITEM TITLE:
Resolution
Of The Chula Vista City Council:
Directing Staff to Implement the Municipal Energy Utility (MEU) Feasibility Study
Preferred Business Models By:
i. Preparing and Submitting a Community Choice Aggregation (CCA)
Implementation Plan to the California Public Utilities Commission (CPUC),
ii. Preparing and Circulating Requests for Proposals for Greenfield
Development (GD) and CCA service providers,
iii. Actively Participate at CPUC in Matters that May Impact the City MEU Plans,
other City Activities and Ratepayer Advocacy Issues, and
iv. Prepare an Ordinance Declaring the City MEU a CCA.
Directing Staff to Continue to Pursue a Franchise Agreement with SDG&E for
Existing Electricity Utility Service within the City and All Existing and New Natural
Gas Service,
Directing Staff to Return to Council With a Staffing Plan that Reflects City
Council's Direction to Implement One or More Municipal Energy Business
Models, and
D) Appropriating $500,000 from the Availab~und Balance of the General Fund to
the Administration Department.
SUBMITTED BY: Assistant City Manager 6 ~
REVIEWED BY: City Manager ~ (4/5ths Vote: Yes .lL No -)
On Monday May 10, 2004, Staff released copies of the Municipal Energy Utility
Feasibility Study, Peer Review and Staff reports to City Council and the public. Two
copies of each document were made available at each of the City's three libraries,
posted on the City's website, and approximately 20 copies were made available for
purchase through the City Clerk's Office. Staff also contacted a number of regional
stakeholders, who had previously requested copies, to let them know that the
documents were available on the City's website and through the City Clerk or City
Manager's office. Additionally, approximately 15 hard copies were either picked up by or
delivered to those stakeholders, including one copy that was delivered to SDG&E.
At the May 19, 2004 Municipal Energy Utility (MEU) Workshop and Council Meeting, the
City Council listened to approximately five and one half hours of expert testimony and
public input regarding the potential development of a Chula Vista public utility. At that
workshop, the City Council directed Staff to return to the June 8, 2004 City Council
meeting with an ordinance declaring the Chula Vista MEU (established on June 5, 2001,
~-I
Page: 2 of 8
Meeting Date: June 8. 2004
by Ordinance No. 2835) a Community Choice Aggregator, and to further consider the
MEU Feasibility Study Consultants' recommendations to implement selected MEU
business models. This report provides a brief summary of the May 19, 2004 Consultant
presentation. Attached are the original staff report, the Consultants' executive summary
and the peer review comments originally transmitted to Council for the workshop
presentation.
RECOMMENDATION: That Council:
1) Direct Staff to implement the MEU Feasibility Study preferred business models by; a)
preparing and submitting a CCA Implementation Plan to the CPUC, b) prepare and
circulate requests for proposals for GO and CCA service providers, c) actively
participate at CPUC in matters that may impact the City MEU plans, other City activities
and ratepayer advocacy issues, and d) prepare an ordinance declaring the City MEU a
CCA. 2) Direct Staff to continue to pursue a franchise agreement with SDG&E for
existing electricity utility service within the City and all existing and new natural gas
service, 3) Direct staff to return to Council with a staffing plan that reflects City Council's
direction to implement one or more municipal energy business models, and 4)
Appropriate $500,000 from the available fund balance of the general fund to the
Administration Department budget therefor.
BOARDS/COMMISSIONS RECOMMENDATION:
Not applicable.
BACKGROUND: At Council's direction, staff began implementing the City's Energy
Strategy and Action Plan, Adopted May 2001. A significant component of the strategy
required an analysis of the costs, benefits and risks associated with forming and
operating a municipal energy utility, (MEU). Following a comprehensive national search
and selection process in March of 2003, the City Council retained the services of
Navigant Consulting, Inc., Duncan, Weinberg, Genzer & Pembroke and McCarthy &
Berlin (Duncan/Navigant) to conduct the MEU feasibility study. The MEU Study
selection committee included six key City staff, Bill Carnahan, Executive Director of
Southern California Public Power Authority (SCPPA) and Dave Wright, City of Riverside
Municipal Utility Assistant Director.
SDG&E was treated as a partner in the process and invited to participate in the
development and implementation of the MEU Feasibility Study, including consultant
selection. SDG&E assisted the City with the development of the scope of work for the
Study and recommended candidates to conduct the Study. However, SDG&E chose to
withdraw from the process just prior to the consultant selection.
Duncan/Navigant recommends that the City pursue a phased approach to specific
business models, which the feasibility study, and peer review analysis demonstrate are
legally and technically feasible, and financially advantageous. The MEU business
models identified by the Duncan/Navigant team include; Community Choice
Aggregation (CCA), Greenfield Development (GO) and a Municipal Distribution Utility
íJ~d-
Page: 3 of 8
Meeting Date: June 8. 2004
(MDU). Staff tested the validity of the consultant's recommendations by conducting
technical and consumer peer reviews of the recommended business models. Their
findings will be discussed later in this report.
MEU Business Models
Communitv Choice Aqqreqation
The City has the option to serve as a Community Choice Aggregator (CCA) for
electric power pursuant to Assembly Bill 117. A CCA is an entity that procures
electric energy for residents and businesses within a community. Under this
business model, the City would not own the electric or gas distribution system
within the City. Rather, it would procure electric power either through owning a
generation facility, market purchases, or through a partner, on behalf of the
customers that choose to aggregate their load. As a CCA, the City would use
SDG&E's distribution and transmission facilities to deliver electricity to its
customers. This business model is subject to the California Public Utilities
Commission's (CPUC) review of the City's Implementation Plan, and/or the
implementation of final rules by the CPUC. Under California law (Public Utilities
Code § 366.2 and other sections of Chapter 838 of 2002, formerly AB 117), for
Chula Vista to establish itself as a Community Choice Aggregator it must do so
via ordinance. The City also has the option of becoming an aggregator of natural
gas service for "non-core" or small business and residential consumers under a
different set of state rules and regulations.
Greenfield Development
Another business model, identified by the Duncan/Navigant team, is the
implementation of a Greenfield Development (GD). Typically, this business
model would include undeveloped acreage of land designated for an industrial
park or new residential subdivisions. Duncan/Navigant identified the Otay Ranch
Area, Mid-Bay front, and Sunbow planning areas as the sites primarily adaptable
to a GD project.
A GD project requires investment in distribution facilities to supply energy to
previously undeveloped areas within the City of Chula Vista. The distribution
system for undeveloped areas is currently planned and built by the developers of
the projects in collaboration with SDG&E. Much of the cost for designing and
building the distribution system is borne by the developers who then deed the
infrastructure to SDG&E. The consultant's feasibility analysis assumes a worst
case, with the distribution system development costs borne entirely by the City.
Even under this model, Duncan/Navigant has identified GD as warranting serious
consideration.
The MEU may need to fund and construct a substation, and if so, would have to
interconnect to SDG&E's system in order to supply energy. The MEU would also
need to develop the distribution system configuration (underground) lines,
appurtenances, and service extensions, as well as make arrangements for
17-3
Page: 4 of 8
Meeting Date: June 8 2004
appropriate meters and related customer service functions. Notwithstanding
these planning and phasing requirements, these costs are included in the GO
business model.
Communitv Choice Aqqreqation/Greenfield Development Combined
This business model represents the combination of the main options. The City
would implement both the CCA and GO models simultaneously and administer
and operate the two programs using City Staff and/or an outside Third-Party
service provider to oversee operations. The Duncan/Navigant report indicates
that the City enhances the near term economic benefits by forming a CCA
program and simultaneously pursuing and implementing GO programs.
Council should note that these first three options, CCA, GO and the combined
CCAlGD do not include acquisition of any of SDG&E's existing infrastructure.
Staffs pursuit of these options would be greatly enhanced by SDG&E's
cooperation on CCA and greatly reduce or eliminate the need for acquiring any of
SOG&E's infrastructure. Council may remember that SDG&E supported the City
acting as the electricity aggregator for the City at the June 5, 2001 Council
meeting when the City adopted its energy strategy. SDG&E also supported CCA
at the legislature when AB-117 was established. Staff has subsequently reported
to Council that SDG&E's actions at the CPUC workshops regarding CCA have
not been supportive.
Municipal Distribution Utilitv
As defined by Duncan/Navigant, an MDU is a public agency that acquires a
portion of, or the entire existing utility infrastructure within its jurisdiction, and
uses it to provide energy services previously provided by the incumbent utility.
The Duncan/Navigant Report states there are approximately 38 public agencies
that currently provide electric utility services to communities in California,
servicing approximately 25% of the state's total electric load. With this utility
structure, the City could acquire some or all of SDG&E's electric and/or gas
distribution system by a negotiated sale or condemnation. Under this option,
MDU services could be provided by a City utility department. or contracted out.
The City Council, or a separate board appointed by the Council, would oversee
the MDU operations. Duncan/Navigant recommends that the MDU model be
pursued only after at least 2 years of successful CCA and/or CCA/Greenfieid
operation.
The following table provides a summary of the projected financial benefits to the Chula
Vista community by various business model combinations, as estimated by the
Duncan/Navigant Team:
r¡-y-
Page: 5 of 8
Meeting Date: June 8. 2004
omparlson 0 U Business Models
MEU Electricity Nominal NPV of Average
Rank Business Model Supply Savings Savings Annual
Strategy ($ Millions) ($ Millions) Savings (%)
1* CCAIGreenfield Generation 351 122 10%
2 MDU Generation 329 109 9%
3* CCA Generation 244 90 8%
4* CCAIGreenfield Contracts 170 52 4%
5* CCA Contracts 86 28 2%
6* Greenfield Contracts 89 21 10%
7 MDU Contracts 16 (12) -1%
c
fME
The table below provides a comparison of the projected startup costs to community
financial benefits for each business model, as estimated by the Duncan/Navigant Team:
S
f MEU B .
I S
C
ummarv 0 uslness mode s, tartup ost and Proiected Revenues
Business model Supply Strategy Pre-implementation Savings $ I
Startup Cost
CCA Contract 225 thousand 86 million
CCA Generation 225 thousand 244 million
CCA/Greenfield Contract 13.8 million 170 million
CCA/Greenfield Generation 13.8 million 351 million
MDU Generation 185 million 329 million
Generation 78 million
Savings indicated are for the full 18-year study period.
Duncan/Navigant reports that all the recommended MEU business models (except
MDU) would be financially viable immediately, if supported by power purchase
agreements. Duncan/Navigant also reports that the financial viability of the MEU
business models in the table above would be enhanced, including the MDU, if
supported by in-city electricity generation with a capacity of 130MW.
Peer Review
To test and validate Duncan/Navigant's conclusions and recommendations, Staff
retained the peer review services of three independent energy consultants: R.W. Beck
(recommended by SDG&E), Cross border Energy, and Tabors, Caramanis and
Associates. The Peer review reports made several significant contributions to the
process, not the least of which were, verifying that the Duncan/Navigant Team had
taken a very conservative approach to estimating the projected savings from each
business model, and that each business model continued to produce significant
financial benefits for the community, even after the Duncan/Navigant team applied a
sensitivity analysis to the key assumptions and the most volatile factors underlying the
MEU team's recommendations.
'1-5
Page: 6 of 8
Meeting Date: June 8. 2004
Staff further tested the appropriateness of Duncan/Navigant's recommendations by
requesting that the Executive Director of UCAN, Michael Shames, and the author of
California's Community Choice Aggregation legislation (AB-117), Paul Fenn, review the
Study and Peer Review Analysis. Both reviews supported the recommendations of the
Report and Peer Review process and strongly encouraged the City to take the next
steps to implement the Plan, and work with other jurisdictions in the region, whenever
possible.
The MEU Report and the peer review clearly indicate that the City can operate a
financially successful municipal utility and that, whichever business model the City
Council wishes to focus on, risks can be successfully managed through phasing, and
the utilization of the successful business practices used by the existing 38 California,
and 1,900 U.S., public utilities. However, the reports identify additional benefits that
staff believes are equally important to the City Council's decision regarding a Municipal
Utility, as the financial considerations. The additional benefits to a future Chula Vista
Municipal Energy Utility include better control of the City's energy future through
implementation of the following objectives:
. Establish a local Municipal Utility structure that's only focus is on service and
delivering value to the community, not profit to shareholders.
. Establish a local Municipal Utility that is accountable to local ratepayers, not
shareholders, state and federal regulators.
. Establish reliable electricity, and under certain circumstances, natural gas supply
that reduces or eliminates scheduled brown outs and maintains the highest level
of customer service.
. Stabilize consumer rates.
. Establish land use guidelines for power lines and utility boxes that put local
quality of life issues first.
. Enhanced Control of Local Public Goods Funds to:
0 Ensure an environmental advantage for City residents and businesses,
0 Invest the $3,000,000 already collected from Chula Vista ratepayers each
year to produce real savings for current rate payers,
0 Establish better incentives for existing residents and businesses to invest
in conservation and clean generation options,
0 Invest in a more environmentally sustainable energy future based on
renewable sources that do not use fossil fuels,
. Invest in medium and long-term energy procurement and power generation
strategies that reflect the City's commitment to a sustainable environment and
cleaner air including;
0 CO2 reduction,
0 the prevention of global warming, and
0 particulate reduction.
. Investment in energy procurement and generation, infrastructure and operational
services that maintain existing jobs and create new quality jobs for local
residents.
. Enable the utilization of the MEU as an economic development tool to retain and
attract businesses,
ry-(p
Page: 7 of 8
Meeting Date: June 8. 2004
0 Establish better incentives that encourage developers to reduce costs
through increased investment in conservation, energy efficiency and clean
generation.
. Generate new city revenues at no increased cost to ratepayers
0 Equitably invest new revenues generated from an MEU business
throughout the City in the form of enhanced existing services and/or new
services.
. Enhance Chula Vista's vision to continue as a vibrant community in the region
and a leader in environmental stewardship.
Consistent with the existing energy policy and previously articulated Council support for
quality jobs and the increased use of renewable energy, energy conservation and
efficiency, the recommended and proposed CCNGreenfield MEU business model
provides the Council with the greatest opportunity to develop and incorporate
economically viable and local renewable resources in the City's energy portfolio.
The Duncan/Navigant team and Staff recommend using a phased approach to
implementing a Chula Vista municipal utility to ensure that the Council will have
incremental decision points and that costs, benefits, risks and impacts to the City
associated with each step can be evaluated, debated and understood before escalating
the City's level of commitment. The peer review consultants also endorse this
approach. The Duncan/Navigant and Peer Review reports also indicate that this
gradual step-by-step growth will provide the City with valuable experience in the MEU
business before fully committing to operating a full distribution business.
Next Steps
If adopted, the proposed resolution will implement a work program that includes but is
not limited to the following elements:
1. Return to Council with an Ordinance declaring the City MEU a CCA.
2. Develop and distribute an RFP for Community Choice Aggregation (CCA) and
Greenfield Development,
3. Develop a CCA Implementation Plan to submit to the
CPUC for review,
Estimated project costs:
$225,000
4. Continue to work with the CPUC to develop viable
regulations and exit fees for a CCA program,
Estimated Costs for the remaining calendar year;
$275,000
5. Direct Staff to continue to pursue a Franchise Agreement
with SDG&E.
Total Funding Request
$500,000
'1-1
Page: 8 of 8
Meeting Date: June 8. 2004
If City Council adopts the recommendations as submitted, Staff will return to Council
with a staffing plan that reflects City Council's direction to implement one or more
municipal energy business models. Item 3 above addresses the full cost of pursuing
CCA issues at the CPUC, which the City is currently involved in through December
2004, but does not reflect the potential costs of participating in all relevant matters
before the CPUC. Staff will continue to manage those costs as efficiently and
effectively as possible, and will return to Council for further appropriations as needed.
Staff may also need return to Council for an additional appropriation to support SDG&E
negotiations, depending on the level of negotiation activity and SDG&E's commitment to
the process.
FISCAL IMPACTS: The City Council's approval of Staffs recommendation will require
an appropriation from the available fund balance of the General Fund to the
Administration Department budget in the amount of $500,000 to continue the work with
the CPUC to develop viable regulations and exit fees for a (CCA) program.
Attachments:
May 19, 2004, Energy Staff report
Executive Summary of the Municipal Energy Utility Feasibility Study
Peer Review Reports and Comments
Mtm:mud/meu/meu-cas-6-8-04-fin
r¡-~
Accept The Municipal Energy Utility Feasibility Report And Peer Review Analysis
Reports.
Direct Staff To Return To Council By June 8, 2004 For Further Consideration Of
The Consultant's Recommendation To Implement City Municipal Energy Utility
Business Models.
Direct Staff To Prepare and distribute A "Request For Proposal" For A Full-
Requirement Greenfield Development And Community Choice Aggregation
Service Provider And Return To Council For Further Action.
Direct Staff To Continue To Work With The California Public Utilities Commission
To Assert The City's Position Regarding The Development Of Community Choice
Aggregation Rules, Exit Fees And Municipal Departing Load Fees.
Direct Staff To Continue To Work With SANDAG To Implement Regional Energy
Options.
Direct Staff To Continue To Actively Monitor And Influence Pending and New
California Public Utilities Commission, California Energy Commission, State and
Federal Energy Rules And Legislation.
SUBMITTED BY: Assistant City Manag~r
REVIEWED BY: City Manag~ .--:' \ (4/5ths Vote: Yes.lL No}
INTRODUCTION:
A)
B)
C)
D)
E)
F)
CITY COUNCIL MEETING AND WORKSHOP.
AGENDA STATEMENT
ITEM:
MEETING DATE:
5/19/04
ITEM TITLE:
Resolution
Vista To:
Of The City Council Of The City Of Chula
At Council's direction, Staff began implementing the City's Energy Strategy and Action
Plan, adopted in May of 2001. To date, on-going energy conservation programs are
being implemented, City facilities are renovated and built to exceed state energy
efficiency requirements and renewable power is being installed on some City facilities.
A significant aspect of the Strategy requires an analysis of the costs, benefits and risks
associated with forming and operating a municipal energy utility (MEU). The purpose of
the City of Chula Vista Municipal Energy Utility Analysis is to identify and evaluate the
potential for a municipal energy utility to 1) better control the City's energy future, 2)
provide stable rates for customers, 3) enhance local control of conservation funds, 4)
generate new city revenues, 5) enhance city services, 6) catalyze economic development
opportunities, 7) mitigate the local environmental impacts of energy generation and
distribution, 8) fund renewable energy projects and 9) generate quality local jobs.
r¡-q
M+ /t~ H- ((I{:¡VÎ
Council Workshop Date: 5/19/04
Page: 2 of 29
The results of the analysis by Duncan/Navigant indicate that there are legally, financially
and technically feasible MEU models that the City should pursue. These MEU models,
which are defined in detail below, include Community Choice Aggregation (CCA),
Greenfield Development (GD) and Municipal Distribution Utility (MDU).
The MEU models are viable as independent business models and can provide maximum
benefits to the City when a phased implementation approach is carried out. The MEU
business models are viable using a "contract" supply strategy for electricity procurement
and become even more financially feasible using "locally owned generation" as an
electricity supply strategy.
There are significant start-up, and on-going, costs as well as risks associated with
implementing each City MEU business model. However, the cost/benefit analysis
conducted by the consultants takes these costs into account when determining financial
viability, and these risks can be mitigated by implementing the most successful business
practices already used by the approximately 38 existing California and almost 2000 U.S.
public utilities.
To test and validate the consultant team's findings, conclusions and recommendations,
Staff retained the peer review services of three independent energy consultants. This
report provides a summary of the review findings from RW. Beck (Attachment 1).
Crossborder Energy (Attachment 2) and Tabors, Caramanis and Associates (Attachment
3). Also attached to this Staff report are the MEU Report Executive Summary
(Attachment 4), Report (Attachment 5), the Appendices (Attachment 6), and the March
25, 2003 Council Agenda Statement selecting Duncan/Navigant (Attachment 7).
RECOMMENDATION: That Council:
1.
Accept The Municipal Energy Utility Feasibility Report And Peer Review Analysis
Reports.
Direct Staff To Return To Council By June 8, 2004 For Further Consideration Of
The Consultant's Recommendation To Implement City Municipal Energy Utility
Business Models.
Direct Staff To Prepare and distribute A "Request For Proposal" For A Full-
Requirement Greenfield Development And Community Choice Aggregation
Service Provider And Return To Council For Further Action.
Direct Staff To Continue To Work With The California Public Utilities Commission
And Other State Agencies To Assert The City's Position Regarding The
Development Of Community Choice Aggregation Rules, Exit Fees And Municipal
Departing Load Fees.
Direct Staff To Continue To Work With SANDAG To Implement Regional Energy
Options.
Direct Staff To Continue To Actively Monitor And Influence Pending and New
California Public Utilities Commission, California Energy Commission And State
Energy Rules And Legislation.
2.
3.
4.
5.
6.
ry ---I 0
Council Workshop Date: 5/19/04
Page: 3 of 29
BOARDS/COMMISSIONS RECOMMENDATION:
Not applicable.
BACKGROUND:
In 1996 Governor Wilson signed AB 1890, putting California on course for energy
deregulation. The projected benefits of deregulation were never realized, instead San
Diego Gas and Electric (SDG&E) customers' bills dramatically increased, beginning in
May 1999. Soon after, Pacific Gas and Electric and Southern California Edison warned
the state of their impending bankruptcies and their lack of financial worthiness to
continue buying power for customers. In 2000 and 2001, SDG&E customers
experienced brownout alerts and blackouts due to lack of power supply and market
manipulation by the energy Industry. In early 2000, Governor Davis signed AB 1X into
law authorizing the Department of Water Resources to begin buying power to serve
California's energy needs. In January 2003, the regulated, Investor Owned Utilities
(IOU) were directed to resume purchasing power for customers.
In August 2000 Council directed Staff to investigate any and all energy options that the
City could pursue to potentially protect Chula Vista residential and commercial
ratepayers from exponential rate increases, and better position the City, to deal with the
volatility and uncertainty of the energy market. In April 2001, following a Council
workshop outlining the City's options, Council directed Staff to return with the
implementing resolution adopting a City Energy Strategy and Action Plan. In May 2001
Council passed Resolution No. 2001-162 adopting the City's Energy Strategy and
Action Plan (please see Attachment 7). Included was a recommendation that the City
take the initial steps to assess the costs and benefits of forming and operating a
municipal utility. On June 5 Council passed Ordinance No. 2835 establishing the City's
status as a Municipal Utility, and directing Staff to conduct a cost-benefit analysis of the
various energy business models that could be used to operate a municipal utility. In
addition, to assessing the cost/benefit, Staff was tasked with identifying the risks
involved with establishing an MEU to provide a strong "go or no go" recommendation to
Council. The City of Chula Vista Municipal Energy Utility Feasibility Analysis (MEU
Report) is the result of this effort. The MEU Report evaluates initial facility acquisition
costs and provides various business models to rigorously test the economics of City
ownership and operation of an energy utility. This agenda statement is a summary of
the process used to implement the Council's direction. It also summarizes the
recommendations of the City's consultant team and identifies differences in their report
from the peer review comments.
When Staff negotiated its most recent SDG&E franchise agreement, the term was
limited to 5 years because of the uncertainty of deregulation and the volatility of the
energy market. That volatility still exists and as a result, some issues identified by the
consultants have been overtaken by events, and others are still awaiting the adoption of
implementing rules and regulations by the California Public Utilities Commission
(CPUC).
Finally, this report provides Council with a comparative analysis of the recommended
r¡ -II
Council Workshop Date: 5/19/04
Page: 4 of 29
MEU business models and the proposed franchise agreement with SDG&E. The intent
of this analysis is to outline for Council the cost benefit of the proposed franchise with
SDG&E to the implementation of an MEU business model. It is important to note that
these options are not necessarily mutually exclusive. In fact, if Council implements one
or more of the report recommendations, it is likely that the City will continue to have a
long term energy relationship with SDG&E in some form.
DISCUSSION:
SDG&E is the San Diego region's energy service provider. SDG&E is a business unit of
SEMPRA Energy (SEMPRA) a national Fortune 500 energy services holding company
headquartered in downtown San Diego. SEMPRA (SRE) is a publicly traded company
with a market capitalization of approximately $7.3 billion dollars. SEMPRA's annual
revenue from SDG&E is approximately $1 billion dollars. SDG&E services San Diego
and southern Orange counties and 25 cities. SDG&E is the investor owned utility that
provides energy services to the City of Chula Vista. Chula Vista is approximately 9% of
SDG&E's total natural gas and electricity market and makes up approximately 7% of all
energy meters. SDG&E's five-year average - 1999 to 2003 - annual gross receipts from
Chula Vista is approximately $100 million dollars.
In December 2002, SDG&E submitted a request to the CPUC to increase annual
natural gas and electricity service wide rates by at least $100 million. This matter is
currently under a settlement proposal before the Commission to limit the rate increase.
The City Council directed Staff to intervene in the proceedings and contest the
settlement agreement. The City's points against the proposed settlement are:
1.
The proposed settlement would implicitly accept the form and detail of the
initial "cost of service" filing in lieu of a general rate case. A general rate
case establishes what the California Public Utilities Commission refers to
as "revenue requirements," and has the effect of setting the basis for rates
for up to five years. General rate cases have historically provided greater
detail and opportunity for ratepayers and their advocates to review the
facts behind revenue requests than the current "cost of service," filing
provides. The SDG&E cost of service filing and the record developed in
hearing does not support a settlement that could establish rates for five
years;
2.
The opponents to the proposed settlement are making the case that
Sempra and its affiliates (SDG&E, Southern California Gas Company),
has not passed on the savings that were projected and required to be
passed. The opponents are also making the case that this settlement
blends the costs between Sempra's affiliates in a manner that will make it
unlikely, if not impossible to identify and pass those required savings on to
rate payers in the future, and that without these savings the settlement
establishes a higher base line for future cost of service or general rate
case filings.
r¡ .r /;;--
3.
Council Workshop Date: 5/19/04
Page: 5 of 29
The Settlement continues a long history of very high utility earnings for
SDG&E while providing no rate relief for SDG&E customers;
4.
The Settlement tacitly assumes continuation of questionable capital
investments and utility programs such as the design, location and timing of
transmission projects, the management of energy conservation funds and
other projects strongly opposed by local interests;
5.
The Settlement rejects the majority of revenue requirement adjustments
raised by local interests such as the City of Chula Vista, the Utility
Consumer's Action Network (UCAN), and Federal Energy Administration
(FEA) which represents the Military and other federal agencies); and
6.
The Settlement ignores the negative impacts of SDG&E's rates on San
Diego County.
In comparison, the CPUC approved reduced rates for ratepayers submitted by the other
two major Utility service areas in California. Southern California Edison (SCE) rates were
reduced by $1.2 Billion in July 2003 effective August 2003 and Pacific Gas and Electric
(PG&E) rates were reduced by $783 million in February 2004 effective March 2004.
The high and ever increasing cost of energy in the SDG&E service area places the region
and the City at a commercial disadvantage as compared to the rest of the state and most
of the United States. The California Energy Commission is projecting that SDG&E's
average electricity rates will be the highest in California for the next decade. Department
of Energy data for 2002 indicate that California has the third highest rates in the nation
only behind the cost of energy in New York and Hawaii. A lack of adequate energy
generation and transmission infrastructure in its service territory also contributes to
SDG&E's high cost of service.
The San Diego Regional Energy Office (SDREO) conducted the 'Regional Energy
Infrastructure Study' (REIS) in 2001/2002 and concluded that the current state of
SDG&E's energy infrastructure is in dire need of enhancement. The REIS recommends
adding more native generation, repowering the plants at South Bay and Encina, and
installation of additional "local" transmission by 2005/2006 to prevent a recurrence of the
energy crisis that occurred in 2000/2001.
Consultant Selection Process
Notwithstanding its efforts in statewide and regional energy issues, and having
accomplished many of the recommendations of the City's Energy Strategy, the City
Council directed Staff to pursue the feasibility of a City MEU. Staff immediately began
to develop a Request for Proposal (RFP) to conduct the feasibility study.
Soon after these efforts began, an unsolicited proposal from Edison Utility Services
representatives (now ENCO) - an MEU design/build operator - presented a revenue
sharing proposal for an "electricity only" Greenfield Development project in undeveloped
areas of the City. In a Greenfield Development MEU, the City would own and operate
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electric distribution systems, set rates and supply energy to customers. Under the
proposal, ENCO would finance, construct and operate the Greenfield Development
MEU as a Third-Party service provider for the City. The revenue sharing mechanism of
the proposal between ENCO and the City would be modeled on a sliding scale. The
distribution of the benefits and risks are dependent on the level of investment and risk
accepted respectively by ENCO and the City for infrastructure use not already funded
by developers. Energy supply, operation and maintenance costs would be recovered
through rates.
At the same time, ChevronTexaco (Chevron), a company similar to ENCO, also
approached City Staff and presented their "electricity only" Greenfield Development
MEU program. Chevron reviewed and commented on the City's scope of work for the
feasibility study. Chevron then proposed to conduct the feasibility study "at no cost" for
the City.
Based on a series of meetings with ENCO & Chevron, Staff was convinced that the
"greenfield" proposal represented a sound business opportunity worthy of serious
consideration. City Staff sought SDG&E's input about the proposed MEU feasibility
study. Staff also solicited SDG&E's input regarding the draft scope of work for the RFP.
Based on SDG&E's input, Staff agreed that the better approach for the City would be to
select the feasibility consultant through an open and competitive process that would
consider multiple options, not just the one being proposed. Staff also incorporated
SDG&E recommendations in the scope of work. Based on SDG&E's input and the
City's shared concerns about objectivity, Staff declined the ENCO and Chevron
proposals and Chevron's offer to conduct the feasibility study at no charge. Shortly
thereafter SDG&E unilaterally chose to withdraw from participation with City Staff
in the development and implementation of the RFP process.
On December 20, 2002 Staff released an RFP to study the costs and benefits of
implementing various possible MEU businesses, including owning and operating all or
portions of the local distribution system. The RFP was released to over 60 national
legal, energy and engineering firms. SEMPRA (SDG&E's parent company) and three
firms recommended by SDG&E (EES Consulting, Black and Veatch, and RW. Beck,
which ultimately was used as one of the peer review consultants) were among the
companies provided with the RFP.
On January 9, 2003 Staff conducted a pre-bid conference attended by about 20
representatives from 15 firms. Because SEMPRA, not SDG&E, was on the mailing list,
Staff delivered an RFP package to SDG&E one day prior to the meeting. SDG&E had
participated in the development of the RFP scope of work well in advance of the
meeting and an SDG&E representative was able to attend the meeting. Responses to
questions received at the pre-bid conference and prior to January 17 were distributed to
potential bidders on January 24. On February 7, Staff received proposals from the
following nine firms: (no proposal was received from SDG&E)
. Alliant
. Astrum Utility
. Black and Veatch
. GDS Associates
. McDonald Partners
. Milbank Tweed
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. Duncan/Navigant
. EES Consulting
. R.W Beck
On February 21, 2003, after a thorough review of the proposals from the nine firms, an
internal selection committee composed of City Staff: Sid Morris, Glen Googins, Michael
Meacham, Willie Gaters, Maria Kachadoorian, and Dave Byers unanimously selected
the following top five firms for initial interviews in March 2003:
. Alliant
. Black and Veatch
. Duncan/Navigant
. GDS Associates
. RW Beck
On March 5 and 6, 2003 an interview panel composed of the internal section committee,
Bill Carnahan, Executive Director of Southem California Public Power Authority and
Dave Wright, City of Riverside Municipal Utility Assistant Director interviewed the top
five firms and selected the following top two firms for final interviews, follow-up
questions and referral background checks:
. Duncan/Navigant
. RW Beck
On March 14, 2003 the internal section committee (again with assistance from Mr.
Carnahan and Mr. Wright) unanimously agreed to recommend Navigant Consulting,
Inc., Duncan, Weinberg, Genzer & Pembroke and McCarthy & Berlin (collectively
referred to as "Duncan/Navigant") for Council consideration. On March 25, 2003 Staff
presented a report on the RFP process and Staffs recommended firm to Council (see
Attachment 8). Duncan/Navigant was selected based upon the following criteria:
.
The proposal as originally submitted was complete in its approach,
addressing all of the major scope of work components;
The consultant team Duncan/Navigant has a longstanding working
relationship with one another, and past efforts by this group reflected
extensive, detailed research in addressing clients' concerns;
Duncan/Navigant was most knowledgeable in identifying the South Bay
Power Plant and other possible local generation options as a potential key
opportunity for a Chula Vista MEU;
Duncan/Navigant was most clear in its intent and ability to provide the City
with an "actionable intelligence";
The consultant had relevant California experience including extensive work
with California regulatory agencies;
The consultant has demonstrated the experience and ability to deliver a
report on time, within budget and according to established criteria;
The consultant team exhibited the best overall breadth and depth of
energy industry sophistication; and
Duncan/Navigant offered the greatest number of hours applied to the task,
approaching, in many respects, a phase II level of analysis.
.
.
.
.
.
.
.
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In April 2003, the City contracted with Duncan/Navigant.
MEU Models Study Process
Obiective of the MEU Feasibility Study
NavigantlDuncan was tasked to answer the question: Is it viable for the City of Chula
Vista to pursue the implementation of MEU business? If so, what form of MEU
business?
Duncan/Navigant identified and evaluated the financial, legal and technical feasibility of
various MEU business models and analyzed each MEU business model's merits
relative to the objectives listed below:
. Establishes reliable and stable electricity and natural gas supply and maintains
the highest level of customer service.
. Identifies a viable business model that benefits the City's time and investment.
. Ensures an environmental advantage for City residents, businesses and the
region.
. Results in a citywide distribution of MEU benefits.
. Enables the utilization of the MEU as an economic development tool to retain
and attract businesses.
. Enhances Chula Vista's vision to continue as a vibrant community in the region.
Report Financial. Leaal. and Technical Feasibility Analysis Methodoloay
A general description of Duncan/Navigant's methodology to analyze the financial, legal
and technical feasibility of an MEU business models is described below:
Leaal Feasibility Analvsis
Duncan/Navigant identified and analyzed the alternatives available to the City
under applicable federal laws, state and local regulations applicable to municipal
energy utility formation and operation. Duncan/Navigant analyzed the potential
costs of acquiring SDG&E's distribution and other facilities, by voluntary sale or
condemnation, and the City's potential obligation to pay SDG&E's "stranded
costs" (reimbursable capital investments). Duncan/Navigant also analyzed and
addressed applicable legal requirements, regulatory approvals, and applicable
laws and regulations governing the acquisition and delivery of electric and gas
supplies to a City MEU.
Financial Feasibility Analysis
Duncan/Navigant determined the costs, benefits and feasibility of implementing
selected utility structure business models by incorporating prospective loads, load
shapes, existing (SDG&E) rates, energy resource supply portfolios, capital costs,
debt service, operation and maintenance cost projections, exit fees, in-lieu tax
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payments and other inputs in Duncan/Navigant's proprietary "Utility Feasibility and
Cost of Service" model (UFCOS). The UFCOS Model then generates detailed
reports that demonstrate the revenues that can be generated by each integrated
business model over time. The benchmark for financial composition is the same
service provided by SDG&E using existing and projected SDG&E rates. The
UFCOS Model output reports include cost-of-service requirements, revenue
projections and forms the bases for preliminary rate design. The UFCOS platform
allowed for iterative sensitivity analyses, with variable inputs regarding forward
energy prices, fuel costs and asset valuation alternatives.
Technical Feasibility Analvsis
For the Greenfield and MDU alternative, Duncan/Navigant conducted a
preliminary appraisal of the electric and gas utility facilities now owned and
operated by SDG&E in the City, and identified facilities necessary for the City to
operate each feasible MEU business model. Duncan/Navigant analyzed the
system modifications necessary to separate the MEU gas and electric distribution
systems from SDG&E and the contractual arrangements (including borderline
agreements, interconnection agreements, and power and gas supply
agreements) necessary for the operation of a distribution system. For all
business models including CCA, Duncan/Navigant also developed and provides
an analysis of all available and economically feasible power and gas supply
alternatives open to the MEU, including purchased power, the availability of
Federal preference power, MEU-owned generation, and available gas and
pipeline resources, together with an estimate of the cost of power and gas supply
and a comparison of such costs with the current cost of power, energy, and gas
presently provided by SDG&E.
Utility Business Models and Alternatives
Identification of Utilitv Options
Duncan/Navigant analyzed five municipal energy utility business models and
alternatives authorized under federal and State law. Duncan/Navigant identified the
following business models that could legally facilitate Chula Vista's entry into the
MEU business:
. Community Choice Aggregation (CCA): electricity;
. "Greenfield municipalization" development (Greenfield): electricity immediately
with the potential for gas
. Municipalization under a city electric utility department format, eventually leading
to a Municipal Distribution Utility (MDU) system;
. Participation in a joint powers agency (JPA); and
. Municipalization under a Municipal Utility District format (MUD).
As an MEU, the City could develop or acquire generation resources, and/or purchase
power to meet the City's load requirements. A MEU would position the City to provide
energy to the community by replacing SDG&E services in whole or in part. A MEU
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would ultimately provide the City with a public utility structure to protect the Chula Vista
community from unreasonably high-energy costs, and unreliable energy supply, while
allowing the community to locally control its energy future.
Duncan/Navigant's legal review of the business models identified three basic models
and one derivative that merited further financial and technical review:
. Community Choice Aggregation (CCA) (Target Implementation Jan. 2006)
. Greenfield Development - Immediate Implementation
. A combination of CCA and Greenfield Development (Target Implementation Jan.
2008)
. Municipal Distribution Utility (reconsideration in 2010)
Duncan/Navigant has recommended that the complexities of organizing an MUD and
coordinating efforts with other local governments or entities would add unnecessary
complications and delay an immediate implementation. However, Duncan/Navigant did
recommend that these models should be revisited at a later date.
Financial and Technical Feasibilitv of MEU Business Models and Alternatives
Financial analysis of the selected MEU business models were "run" for a study period of
18 years (2006 to 2023). A summary of the MEU business models evaluated by
Duncan/Navigant includes key elements critical for a viable MEU business. These
elements are:
. Key Assumptions
. Supply Strategy
. Start-Up Costs and Operational Issues
. Risks
. Benefits
. Pro-Forma Results
. Recommendations
. Financing Options
. Next Steps/Implementation
MEU Business Model Discussion
Communitv Choice Aqqreqation
The City has an option to serve as a community load aggregator for electric
power pursuant to Assembly Bill 117 - this is subject to the CPUC review of the
City's Implementation Plan, the adoption and application of exit fees (a per
kilovolt charge applied by the CPUC to recover the cost of the Department of
Water Resources energy contracts, currently under discussion at the CPUC),
and the implementation of final rules by the CPUC. The City is engaged in the
CPUC proceeding to determine exit fees and final rules. A load aggregator is an
entity that procures electric energy and/or natural gas for residents and
businesses within a community. Under this business model, the City would not
own the electric or gas distribution system within the City. Rather, it would
procure electric power and/or natural gas, either through owning a generation
facility, market purchases, or through a partner on behalf of the customers that
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choose to aggregate their load. As a CCA, the City would use SDG&E's
distribution and transmission facilities to deliver electricity and/or natural gas to
its customers. Notwithstanding the application of exit fees, Duncan/Navigant has
identified CCA as a viable alternative for the delivery of energy.
Greenfield Development
Another viable option is a the implementation of a Greenfield project under the
City's Municipal Utility status adopted by Council on June 5, 2001. Typically, this
structure would include undeveloped acreage of land designated for an industrial
park or new residential subdivisions. Duncan/Navigant has not identified any
legal impediments to pursuing this MEU business model. Duncan/Navigant
identified the Otay Ranch Area, Mid-Bayfront, and Sunbow planning areas as the
sites primarily adaptable to a Greenfield project.
A Greenfield Development requires investment in distribution facilities to supply
energy to previously undeveloped areas within the City of Chula Vista. The
distribution system is typically planned and built in collaboration with the
developers of the projects and much of the cost is borne by the developers. The
consultant's feasibility analysis assumes a worst case, with these costs borne by
the City. Even under this model, Duncan/Navigant has identified greenfields as
warranting serious consideration. However, it is likely the City would use a
model similar to the utility and require that the developer dedicate these facilities.
The MEU may need to fund and construct a substation, and if so, would have to
interconnect to SDG&E's system in order to supply energy. The MEU would also
need to develop the distribution system configuration (underground) lines,
appurtenances, and service extensions, as well as make arrangements for
appropriate meters and related customer service functions. Notwithstanding
these planning and phasing requirements, these costs are included in the
Greenfield business model.
Communitv Choice Aqqreqation/Greenfield Development Combined
This business model represents the derivative of the main options. The City
would implement both the CCA and Greenfield models simultaneously and
administer and operate the two programs using City Staff and/or an outside
Third-Party service provider to oversee operations. The Duncan/Navigant report
indicates that the City enhances the near term economic benefits by forming a
CCA program and simultaneously pursuing and implementing Greenfield
Development programs.
Municipal Distribution Utility
As defined by Duncan/Navigant, an MDU is a public agency that acquires some
or all of the existing utility infrastructure within its jurisdiction and uses it to
provide energy services previously provided by the incumbent utility. The
Duncan/Navigant Report states that there are approximately 38 public agencies
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that currently provide electric utility services to communities in California,
servicing approximately 25% of the state's total electric load. With this utility
structure, the City could acquire some or all of SDG&E's electric and/or gas
distribution system by a negotiated sale or condemnation. Under this option,
MDU services could be provided by a City utility department, or contracted out.
The City Council, or a separate board appointed by the Council, would oversee
the MDU operations. Duncan/Navigant recommends that the MDU model be
pursued only after at least 2 years of successful CCA and/or CCA/Greenfield
operation.
Summary of Fiscal Implications
The Duncan/Naviqant Feasibilitv Stud v Recommends Three Viable Citv MEU Business
Models
The findings of the feasibility study indicate that, pending the outcome of CCA rulemaking
by the PUG, it would be legally, financially and technically feasible for the City to
implement "electricity only" CCA & CCA/Greenfield operation MEU business models
beginning in 2006. Although the viability of each MEU business model works with
contracted/purchased electricity, each MEU business model is enhanced with City
ownership of generation capacity located within the City. Locally owned generation will
reduce supply cost and transmission congestion charges borne by the community.
Duncan/Navigant is only recommending an MDU for further consideration after 2-4 years
of successful operation of a CCA or CCA/Greenfield MEU. The Report does not
recommend a natural gas MEU at this time, but suggests that it may become viable
depending on price fluctuations and the development of lower cost LNG opportunities
south of the U.S./Mexican border.
Duncan/Navigant projects that, over an 18-year period, an electric CCA supplied with
contract power would generate revenues of $4.78 million annually ($86 M) whereas an
electric CCA supplied with local generation would generate annual revenues of $13.56
million ($224 M).
In a combined electric CCA/Greenfield, a community aggregates energy for the
community over the Utility's infrastructure and develops City owned energy infrastructure
in undeveloped parts of the City. An electric CCA/Greenfield supplied with contract power
would generate annual revenues of $9.45 million ($170 M) whereas an electric
CCA/Greenfield supplied with local generation would generate annual revenues of $19.5
million ($351 M).
In an electric only MDU, the City would negotiate for the purchase of the Utility owned
electric distribution infrastructure. A MDU supplied with local generation would generate
annual revenues of $18.3 million ($329 M). The table below provides a side-by-side
overview of the viable MEU business models.
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Summarv of MEU Business models, Startup Cost and Proiected Revenues
Business model Supply Strategy Pre-implementation Revenues $
Startup Cost
CCA Contract 225 thousand 86 million
CCA Generation 225 thousand 244 million
CCA/Greenfield Contract 13.8 million 170 million
CCA/Greenfield Generation 13.8 million 351 million
MDU Generation 185 million 329 million
Generation 78 million
Potential MEU Benefits
The MEU business models identified above would fulfill most of the City's community-
wide energy objectives and would provide the following benefits over time:
Local Control of City's Energy Future
. Establish a local Municipal Utility structure that's only focus is on service and
delivering value to the community, not profit to shareholders.
. Establish a local Municipal Utility that is accountable to local ratepayers, not
shareholders, state and federal regulators.
. Establish reliable electricity and natural gas supply that reduces or eliminates
scheduled brown outs and maintains the highest level of customer service.
. Stabilize consumer rates.
. Establish land use guidelines for power lines and utility boxes that put local quality
of life issues first.
. Enhanced Control of Local Conservation Funds to:
0 Ensure an environmental advantage for City residents and businesses,
0 Invest the $3,000,000 already collected from Chula Vista ratepayers each
year to produce real savings for current rate payers,
0 Establish better incentives for existing residents and businesses to invest in
conservation and clean generation options,
0 Invest in a more environmentally sustainable energy future based on
renewable sources that do not use fossil fuels,
. Invest in medium and long-term energy procurement and power generation
strategies that reflect the City's commitment to a sustainable environment and
cleaner air including;
0 CO2 reduction, the prevention of global warming, and particulate reduction.
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. Investment in energy procurement and generation, infrastructure and operational
services that maintain existing jobs and create new quality jobs for local residents.
. Enable the utilization of the MEU as an economic development tool to retain and
attract businesses
0 Establish better incentives that encourage developers to reduce costs
through increased invest in conservation and clean generation for residential
and commercial building using rate structures, infrastructure taxes and other
means available.
. New city revenues at no increased cost to ratepayers
0 Equitably invest new revenues generated from an MEU business throughout
the City in the form of enhanced existing services and/or new services.
. Enhance Chula Vista's vision to continue as a vibrant community in the region
and a leader in environmental stewardship.
MEU Development Risks And Risk Management
If the City elects to proceed with an MEU business, it will face significant political, financial
and legal risks. Most efforts to develop a locally controlled MEU have been met with
aggressive public relations campaigns and legal challenges from the local Investor
Owned Utility and utility trade associations. However, the Duncan/Navigant report
suggests these risks can be managed and mitigated to the point where they are
outweighed by the potential financial and environmental benefits to the community. The
risks and costs involved in developing an MEU business model are summarized below.
Political Risk
SDG&E will likely wage a public relations campaign to stop the City's efforts. SDG&E
attempted to stop the City of San Marcos from forming a Greenfield Utility by
sponsoring a "citizens initiative opposing a Greenfield development. The San Diego
Union Tribune reported that this matter was recently settled between SDG&E & San
Marcos.
Financial Risks
As identified by Duncan/Navigant
MEU Business Start-up Costs are Substantial
. CCA: $225,000
. CCA/Greenfield: $13.8 million
. MDU: $185 million
If the MEU business fails, some or all of these costs might not be recovered.
Notwithstanding the risks, the Duncan/Navigant report points out the potential
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upside is equally significant:
. Reliable and consistent supply
The reinvestment of saving into City services as opposed to going to
shareholder profits
. Local planning and control compared with decision making by a state
agency in San Francisco and a for profit private corporation
. Economic development and business development opportunities
Also, as Duncan/Navigant points out further mitigation is achieved through:
. The phasing of facilities commensurate with need.
. The concurrent implementation of CCA/Greenfield, enabling the City to
secure power at more competitive rates due to cost effective load factors.
. Outsourcing operations and maintenance.
. The installation of the electric distribution infrastructure by local developers.
(Even if this cost is absorbed by the developers, there are still potential
savings opportunities for them over the costs and charges they currently pay
to SDG&E.)
. The inherent price advantage Municipal utilities have over 10Us because
they are not motivated by profits for shareholders.
Volatile Procurement Costs
The cost to acquire or generate electricity may fluctuate dramatically. Some of
these costs might not be recoverable in rates (and thus may become City costs), or
if passed on to the ratepayer, may result in volatile energy prices in Chula Vista.
Mitiqatinq Factors
Possibly the most notable factor is that during the energy crisis, Municipal
Utilities did not suffer the price fluctuations encountered, and in some cases,
created by the utility industry. However, because Chula Vista is not an
established public utility, it will be critical to insure that the City's energy..
portfolio is balanced and minimizes market fluctuations and manipulation.
Leqal Risks
Significant legal costs may be incurred defending the MEU against legal
challenges to its validity, or claims for damages caused by MEU business
operations.
Mitiqatinq Factors
The Duncan/Navigant reports that there are inherent benefits and
advantages to public ownership of the utility system, as noted previously;
the State's publicly owned utilities were protected from dramatic increases in
rates. Although some increases occurred, they were not on the same
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magnitude as those experienced by investor-owned utility customers. In
fact, many public utilities made significant profits on the sale of energy, to
those outside their service area, during the energy crisis and a few have
been investigated based on those profits.
Leqal/Requlatorv Risks
. SDG&E's sponsored lawsuits may defeat, or make more costly, any
attempted MEU business.
. Legislative changes and CPUC proceedings may routinely "change the
rules" for MEU business operations in ways that increase costs and/or
affect local service control or quality.
. CCA rules are not finalized and attempts by the IOUs to influence the
PUG rule making process have not been acceptable.
Mitiqatinq Factors
The report recommendations proposed by Duncan/Navigant are very
conservative and even based on a worst-case scenario still has a positive
cost/benefit. The earlier a public agency establishes itself as an operating
public agency, the sooner the agency is "grand fathered" in under the then
current regulations. Additionally, the existing approximately 38 California
public utilities, representing approximately 25% of the state's energy load,
are collectively a formidable group that are likely to prevent any further
erosion of public utility rights.
Independent Peer Reviews
Because the magnitude of this project and the potential risk/reward issues, Staff engaged
independent third-party consultants to assess the conclusions and recommendations,
findings and key assumptions in the feasibility study conducted by Duncan/Navigant.
Peer reviewers assessed the projections for SDG&E's rates, power purchase costs and
generation development costs used by Duncan/Navigant in the modeling Proformas to
test the practical application of the feasibility study's assumptions, findings and
recommendations. The independent consulting firms include RW. Beck, Tabors,
Caramanis & Associates and Crossborder Energy.
In general, the peer reviewers independently concluded that the feasibility study used
very conservative assumptions and that Duncan/Navigant's analysis and
recommendations were reasonable (please see Attachments 3, 4 and 5). Specifically:
RW. Beck
RW. Beck was retained to review and comment on the practical aspects of
Duncan/Navigant's key assumptions, findings, conclusions and recommendations.
RW. Beck also evaluated critical components of the proformas prepared by
Duncan/Navigant. These components included verifying the preciseness of the
forecasts for power purchase costs (PPC), generation development costs and projected
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SDG&E rates.
General Findings
. Using a discount rate of 10% for Net Present Value ("NPV") calculations is high
for a public entity. A discount rate of 6% to 7% would be more reasonable for the
City. As the discount rate is decreased, savings to the City would increase.
. Exit fees seem high at the end of the study period. It is highly likely that exit fees
within the SDG&E service area in particular will be lower relative to SCE and
PG&E.
. The schedules for implementation are very optimistic. In each case, the schedule
for implementation is more rapid than what is likely to occur, particularly if
SDG&E decides to oppose the initiative. The long end of the range provided for
implementation is what could reasonably be expected.
. Power plant costs for Chula Vista appear to be optimistic given R W. Beck's
experience (Capital cost Duncan/Navigant estimates $600/kW vs. $850/kW).
Costs can vary, depending on various conditions, including location, existing
infrastructure, access to fuel, electrical transmission facilities, water supply, and
emission restrictions. (Applies to CCA, CCNGreenfield and MDU generation
business models.)
. RW. Beck also notes that its cost projection is based on an average and that
Chula Vista's unique features may save costs. Duncan/Navigant based its
development costs on recent projects implemented by Navigant and on a
California Energy Commission study titled Comparative Cost of California Central
Station Electricity Generation Technologies - June 5, 2003.
. Based on this limited review, it appears that the methodology employed in the
models used for this analysis is consistent with industry practice.
Community Choice Aaareaation (CCA) Conclusions and Recommendations
. Something less than 100% participation should be assumed in the CCA Base
Case analysis, since it is unlikely that no customers will opt out of the CCA
program.
. There should be more consistency in power supply costs between SDG&E and
Chula Vista (at a minimum in a sensitivity analysis).
Greenfield Development (GO) Conclusions
. There is a fairly long lead-time before GO becomes economic. Such a lengthy
gap between implementation and savings creates risk to the City, particularly if
the CCA or MDU options fail to be implemented.
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. Developer funding of GD utility infrastructure should be equal to what would be
contributed to SDG&E.
. There should be discussion of adverse reliability issues in GD due to limited
ability or additional costs to loop feed to spot systems.
. The City should make certain that it will move forward and likely be successful
with the implementation of either CCA and/or MDU before committing to this
option.
. There should be discussion of adverse reliability issues in GD due to limited
ability or additional costs to loop feed to spot systems.
. There should be more consistency in power supply costs between SDG&E and
Chula Vista (at a minimum in a sensitivity analysis).
Municipal Distribution Utility (MDU)
. A cost of $15 million for acquisition fees, severance, and start-up is likely very
low.
. Human Resource cost calculations assume fringe benefits of 15% - public
agencies' fringe costs are generally closer to 40% or more.
. Human resource requirements appear to exclude purchasing, warehousing,
buildings & ground, security, mail, legal, human resource, secretaries, and
reception.
Crossborder Eneroy Assessment
Cross border Energy was retained to provide a focused assessment of the
Duncan/Navigant forecasts of the SDG&E electric and natural gas rates. Crossborder
Energy was asked to validate the key assumptions in the forecast and to comment on
the reasonableness of the forecast results. SDG&E rate forecasts are an important
element of Duncan/Navigant's findings in the MEU report because they form the basis
for assessing the MEU business model rate performance, and thus the projected
savings relative to SDG&E.
. Electric Rate Projection Findings
0 Crossborder Energy's independent electric rate model produced results
that were within 1 % of Duncan/Navigant's electric rate projections; this
validated Duncan/Navigant's projections.
. Natural Gas Rate Projection Findings
0 Crossborder Energy's independent natural gas rate model indicated that
Duncan/Navigant's natural gas rate projections were conservative and
suggested that we should keep an option open for further consideration of
gas as an MEU business model.
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Tabors. Caramanis and Associates Assessment
Tabors, Caramanis and Associates were retained to provide a focused assessment of
the Duncan/Navigant forecasts for the Power Purchase Contracts and generation
development costs.
. General Findings
0 Community Choice Aggregation rules are still pending formal adoption by
the California Public Utilities Commission.
0 Other states have successfully implemented aggregation programs. Most
successful programs are not based on full community programs.
0 The City could become a Co-op Purchasing Aggregator. This allows the
City to purchase energy on behalf of customers but the City does not take
title to power.
0 Aggregation alternatives should be explored in sufficient detail.
0 Outsourcing can reduce the City's risk in CCA business options and in
Greenfield business options.
0 The City may want to obtain rights to low cost electricity through existing
generation or projects that are in advanced development. The City would
need to have the CCA or Greenfield in place before finalizing any deal, but
contingency agreements could be pursued now.
0 The report does not adequately stress the volatility of the energy market.
The City needs to be prepared to manage the risks associated with
volatility and be ready to directly or indirectly manage the risks.
0 The report appropriately proposes a phased approach.
Peer Review Conclusions
Although each of the peer review consultants identified certain items that they may have
done differently, used a different discount rate or a higher exit fee, they generally found
the findings, assumptions and analysis by Duncan/Navigant supportable. In many
cases the assumptions used by the peer review consultants were more aggressive and
only made the MEU feasibility more attractive/viable. In those cases where the factors
used by the peer review consultants had a significant impact on the numbers used by
Duncan/Navigant, the outcome was not so significant as to change the stated
recommendation.
Go/No-Go Recommendation
Duncan/Navigant evaluated a variety of MEU business models. Based on this analysis, it
recommends that the City initially develop an MEU business by forming a Community
Choice Aggregator (CCA). Thereafter, within two years, the City should combine CCA
with a Greenfield utility business. Duncan/Navigant believes that with the experience
gained from operating a CCA/Greenfieid Development Utility the City could consider
transition into a Municipal Distribution Utility (MDU) in four to six years. An MDU entails
full ownership of all or part of the existing electric and gas delivery systems. The
Duncan/Navigant report indicates that this gradual step-by-step growth will provide the
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City with valuable experience in the MEU business before fully committing to operating a
full distribution business. Duncan/Navigant believes that all the MEU business models
(except MDU) would be viable immediately if supported by power purchase agreements
(PPA). Duncan/Navigant believes that viability of all of the MEU business models would
be enhanced including the MDU if supported by in-city electricity generation with a
capacity of 130MW. Duncan/Navigant believes using a gradual approach ensures that
the Council will have incremental decision points and that costs, benefits, risks and
impacts to the City associated with each step can be evaluated, debated and understood
before escalating the City's level of commitment.
The results of the Duncan/Navigant feasibility study demonstrate that the City's unique
characteristic and the projected financial benefits and other local benefits from
developing an electricity utility business would outweigh the legal, financial and
technical risks. In other words, based on the results of the feasibility study, it is
financially, legally and technically feasible for the City to implement an "electricity utility"
business subject to the adoption of final CCA regulations.
The Duncan/Navigant feasibility study illustrates that each of the recommended MEU
business models are viable as stand-alone endeavors. To maximize benefits of the
business models, the consultants recommend that the City concurrently pursue the
implementation of a CCA/Greenfield MEU by 2006. Specifically, that CCA be
implemented immediately, subject to the PUG approval of the City's implementation plan
or adoption of pending regulations, and that Greenfield development be pursued within
two years and combined with the CCA. The consultant's also recommend that the City
reconsider a natural gas service and Citywide MDU beginning in 2010 after the City has
gained experience in operating an electric CCA/Greenfield MEU. The consultant's also
recommend that the City develop ownership of generation capacity to enhance benefits
from the proposed MEU businesses by 2010.
A caution that needs to be highlighted is that there are critical regulatory issues that have
yet to be decided and that will have a major impact on the final policy action by the City
Council. The California Public Utilities Commission (CPUC) is currently reviewing costs
related to exit fees, municipal departing loads and the regulations for implementing CCA.
Although costs related to exit fees and municipal departing loads have been incorporated
into the MEU business proformas, these issues and the regulations for CCA need to be
fully resolved before the City commits to forming a CCA-MEU business. Notwithstanding,
the City has and should continue to engage in developing and positioning itself to forming
an MEU business prior to a final ruling from the CPUC on these matters.
Summary of SDG&E Franchise Aareement
As noted previously, this report provides an analysis of the consultant's MEU business
model recommendations compared to the implementation of a franchise agreement with
SDG&E. This section will outline the status and components of an agreement with the
Utility.
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Franchise Description
Ordinance Nos. 2746 and 2747 adopted September 15, 1998 - Franchise Agreement -
grants SDG&E the right to locate electricity and natural gas distribution systems in City
"right-of-way" for a fee and other negotiated benefits. Under the Franchise, SDG&E has a
"non-exclusive" grant to distribute electricity and natural gas citywide to residents and
businesses. The Franchise Agreement expired on expired in June 30, 2003. The existing
terms and conditions of the expired franchise agreement are continuing on a month-to-
month basis.
Franchise Pavment
The City receives a franchise fee of 1.1 % of gross annual receipts for electricity and
2.0% of gross annual receipts for natural gas within the limits of the City. Other
negotiated benefits include transacting "Industrial Development Bonds" for SDG&E
capital projects. Under Rule 20A, SDG&E also allocates funds to underground
aboveground electric distribution lines based on priorities set by the City. These funds
are retained and managed directly by SDG&E. The chart below shows actual franchise
fee revenues from 1999 to 2003 and projected franchise fee revenues from 2004 to
2005 and 2006 to 2023. Projected Franchise Fees are based on "revenue
requirements" and franchise fees modeled in pro-formats prepared by
Duncan/Navigant.
Actual Franchise Fee Revenues
From 1999 to 2003
Year Electricitv ($) Natural Gas ($) Total
1998 $663,907 $408,156 $1,072,063
1999 $723,636 $1,014,008 $1,737,644
2000 $730,334 $2,586,932 $3,317,266
2001 $1,025,938 $5,249,096 $6,275,034
2002 $709,553 $488,844 $1,198,397
2003 $774,303 $654,799 $1,429,102
Year
2004
2005
Total
$1,606,915
$1,638,098
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Projected Franchise Fee Revenues
From 2006 to 2023
Year Electricity ($) Natural Gas ($) Total
2006 $972,544 $709,487 $1,682,031
2007 $996,858 $649,888 $1,646,746
2008 $1,021,779 $678,964 $1,700,744
2009 $1,047,324 $857,963 $1,905,287
2010 $1,073,507 $885,203 $1,958,710
2011 $1,100,344 $905,022 $2,005,366
2012 $1,127,853 $924,482 $2,052,335
2013 $1,156,049 $937,995 $2,094,044
2014 $1,184,951 $955,994 $2,140,944
2015 $1,214,574 $978,468 $2,193,043
2016 $1,244,939 $989,004 $2,233,943
2017 $1,276,062 $1,001,924 $2,277,986
2018 $1,307,964 $1,030,510 $2,338,474
2019 $1,340,663 $1,055,154 $2,395,816
2020 $1,374,179 $1,077,923 $2,452,102
2021 $1,408,534 $1,103,840 $2,512,374
2022 $1,443,747 $1,133,173 $2,576,920
2023 $1,479,841 $1,145,509 $2,625,350
Total $21,771,712 $17,020,502 $38,792,214
The total projected nominal revenue from franchise fees from 2006 to 2023 is
approximately $38.8 million. Additional revenues are realized if SDG&E refunds
existing bonds to realize lower interest rates. The City is paid 25 basis points for issuing
the bonds on behalf of SDG&E.
Status of Franchise Neaotiations
SDG&E has notified the City of their intention to reduce the City's undergrounding
allocation as well as other negotiated benefits if a formal Franchise Agreement is not Staff
believes that SDG&E has no basis for unilaterally reducing any benefits afforded the City
under the current expired franchise.
Staff is in on-going discussions with SDG&E negotiators to reach terms and conditions
for a Franchise Agreement that is mutually acceptable to both the City and SDG&E.
Staff cannot provide a definitive schedule to reach a conclusion to the negotiations at
this time.
Although Staff had intended to provide the City Council with a comparative analysis of
the benefits of an MEU versus a Utility Franchise Agreement, it cannot be completed
due to the lack of a franchise agreement proposal by SDG&E. Over the course of
negotiations, the City has provided SDG&E with a menu of options it considers
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Council Workshop Date: 5/19/04
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important to a franchise agreement. SDG&E subsequently requested more detail to
clarify each of the options, which the City provided. The City's offer was prepared in the
menu fashion to provide greatest possible flexibility and allow SDG&E to select those
items that best met SDG&E's corporate guidelines for entering into a franchise
agreement, and to enhance the opportunity for a successful negotiation. After waiting
some time without a comparable formal or written counter proposal, the City then
submitted another offer, "back to back" without receiving a counter offer from SDG&E
and in a manner inconsistent with normal negotiating protocol. This offer reduced the
scope of the menu but retained those elements critical to an agreement. This offer is
still pending with no response. In fact, the only recent offer received from SDG&E could
be considered regressive. It recommended an excessive term of 55 years, with a
reduction in the rule 20A Undergrounding allocation and no other appreciable
enhancements.
Due to the extended nature of these negotiations, and the lack of an agreement with
SDG&E, Staff recommends the timely consideration of the MEU analysis and
recommendations,
City's MEU Business Model Options and Staff Recommendation
Advantaae of Municipal Utilities Over For Profit Utilities
The Duncan/Navigant report points out that municipal utilities have an inherent price
advantage over Utilities because the municipal utility is not motivated to produce profits
for shareholders but value for their residents and businesses. Public utilities are
permitted to set rates which cover both capital and operating expenses, fund utility
reserve accounts, in-lieu-of-tax payments to local governments, and other worthy public
works projects. In addition, the public utility has access to tax-exempt financing for
many capital expenditures. These key components provide the City with a significant
advantage regarding retail electricity rates as compared to remaining a full-requirement
customer of SDG&E.
Chula Vista Characteristics That Make It A Good Candidate For An MEU
Chula Vista's continued development within western Chula Vista, the mid Bayfront and
the eastern territories offers significant employment opportunities through new
businesses locating in this area. Energy costs can be an important consideration in an
employer's site selection. Electric rates in California are expected to remain high.
Current energy costs in the SDG&E service area are not competitive with other areas.
Comparatively, the SDG&E service area has the highest energy rates in California (for
example, the City of Anaheim advertised having the lowest electric rates in Orange
County.) A MEU opens up the opportunity to provide the Chula Vista community with
increased reliability and access to lower cost energy.
Size and Growth:
. Chula Vista is the seventh fastest growing City in the nation and expects to add a
minimum of 15,000 equivalent dwelling units, several million square feet of
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commercial and industrial space and a future major university on 500 acres. At
its current size, Chula Vista would rank in the top 20 out of the approximately 38
California public utilities based on sales, and the top 11 out of 38 based on
customer base.
. Acquiring title to new energy infrastructure in new development could lower the
cost of development for developers and add valuable assets to the City's
portfolio.
Tax Exempt Financina:
. Chula Vista can use tax-free financing for new energy infrastructure; this will
lower the relative cost of service.
Existina Enerav Infrastructure:
. Chula Vista is a host to major energy infrastructure:
0 A 706 MW base load power plant that is being considered for repowering.
0 Adjacent to a 4 MW landfill power plant with potential expansion to 8 MW
over the next several years.
0 Major regional natural gas and electricity distribution and transmission
lines throughout the City.
Additionally, according to the California Municipal Utility Association (CMUA)
approximately 38 publicly owned electric and gas utilities continue to successfully
operate in California. These public utilities have provided energy to nearly 3 million
customers, or 25 percent of the electric load at a cost that is on average 15% to 40%
less than their investor owned counterparts over the past several years. The public
utilities in California identified by the CMUA include:
Alameda (1887)"
Anaheim (1894)
Anza
Azusa (1898)
Banning
Biggs
Burbank (1913)
Coalinga
Colton (1895)
Glendale
Gridley
Healdsburg
Hetch Hetchy W&P
"Reflects the year in which the
public utility was established.
Staff was not able to
determine this information for
every utility.
Imperial Irrigation District
Lassen MUD (1986)
Lodi
Lompoc
LA DWP
Long Beach
Merced Irrigation District (1996)
Modesto Irrigation District
Needles (1983)
Palo Alto
Pasadena
Plumas-Sierra
Redding
Riverside (1895)
Roseville
Sacramento MUD (1947)
Shasta Lake (1993)
Silicon Valley Electric (1896)
Surprise Valley
Toulumne County
Trinity County PUD (1982)
Truckee Donner PUD
Turlock Irrigation District
Ukiah (1897)
Vernon (1989)
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Conclusion
The consultants have conducted a comprehensive analysis of the MEU business
options available to the City, which has subsequently undergone a comprehensive peer
review. The feasibility study recommends, and the peer review process supports, the
implementation of a CCA and Greenfield MEU in order for the City to begin to gain
control of it's energy future and meet the objectives stated earlier in this report. and
repeated below:
Local Control of City's Energy Future
. Establish a local Municipal Utility structure that's only focus is on service and
delivering value to the community, not profit to shareholders.
. Establish a local Municipal Utility that is accountable to local ratepayers, not
shareholders, state and federal regulators.
. Establish reliable electricity and natural gas supply that reduces or eliminates
scheduled brown outs and maintains the highest level of customer service.
. Establish land use guidelines for power lines and utility boxes that put local quality
of life issues first.
. Stabilize consumer rates.
. Enhanced Control of Local Conservation Funds to:
0 Ensure an environmental advantage for City residents and businesses,
0 Invest the $3,000,000 already collected from Chula Vista ratepayers each
year to produce real savings for current rate payers,
0 Establish better incentives for existing residents and businesses to invest in
conservation and clean generation options,
0 Invest in a more environmentally sustainable energy future based on
renewable sources that do not use fossil fuels,
. Invest in medium and long-term energy procurement and power generation
strategies that reflect the City's commitment to a sustainable environment and
cleaner air including;
0 CO2 reduction, the prevention of global warming, and particulate reduction.
. Investment in energy procurement and generation, infrastructure and operational
services that maintain existing jobs and create new quality jobs for local residents.
. Enable the utilization of the MEU as an economic development tool to retain and
attract businesses
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Council Workshop Date: 5/19/04
Page: 26 of 29
0 Establish better incentives that encourage developers to reduce costs
through increased invest in conservation and clean generation for residential
and commercial building using rate structures, infrastructure taxes and other
means available.
. New city revenues at no increased cost to ratepayers
0 Equitably invest new revenues generated from an MEU business throughout
the City in the form of enhanced existing services and/or new services.
. Enhance Chula Vista's vision to continue as a vibrant community in the region
and a leader in environmental stewardship.
In addition, other factors have come to light, which impact Staffs evaluation of the
findings and ultimate recommendations:
. Energy experts are predicting that the energy market is uncertain at best and
predicted to worsen unless additional infrastructure is added in the region.
. The Regional Energy Infrastructure Study (REIS) commissioned by SANDAG
indicates that unless additional energy infrastructure in added in the region to
serve the region, another crises will occur by 2005. SDG&E in its 20-year
resource plan reiterated that additional infrastructure was also needed to ensure
rate stability and reliable supply. The REIS suggest that at least two new base
load generation plants be added in addition to repowering of the existing power
plants in the San Diego region. REIS also recommends that additional
transmission lines be added to connect local sources and that a focus be
placed on an increase in conservation to ensure adequate supply.
. The twenty year resource plan proposed by SDG&E to the PUG concentrates on
the construction of two new generation facilities and significantly greater
transmission capacity with the stated goal of reducing utility paid "reliability must
run" (RMR) charges. This translates into the possible elimination of the existing
South Bay and Encina Power Plants. The net result is a decrease in total local
generation; an increase in dependency on local generation from a single source
(SDG&E), greater reliance on energy transmitted from outside the region and
reduced competition to facilitate lower rates. SDG&E's 20-year resource plan
does not meet the intent or spirit of the regional goals established by the
Regional Energy Infrastructure Study. A regional plan that SDG&E helped
develop.
. In December 2002, SDG&E filed an application with the CPUC to increase the
"revenue requirement," effectively increasing future service territory rates by
$100,000,000 per year. This matter is pending a settlement agreement to
increase annual rates, which is being contested by the City.
In short, the lack of energy infrastructure and ever increasing utility rates in the region
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Council Workshop Date: 5/19/04
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will continue to erode Chula Vista's budget and any flexibility to provide new programs
and better services. Based on the feasibility study, a City MEU business would be viable
and could address the City's objectives, which have been mentioned previously.
Comparison of the MEU Business models with the SDG&E Franchise Aqreement
Benefits
As shown in the table below, a majority of the MEU business models are more
financially favorable when compared to SDG&E's current "month-to-month" franchise
arrangement. In most cases, the City could implement an MEU business model that
would still allow SDG&E to retain their energy infrastructure and continue to provide
benefits under a franchise agreement.
ComDarison of MEU Business models and Franchise Benefits
MEU Supply Nominal NPV of Average
Rank Savings Savings Annual
Business Model Strategy ($ Millions) ($ Millions) Savings (%)
l' CCA/Greenfield Generation 351 122 10%
2 MDU Generation 329 109 9%
3' CCA Generation 244 90 8%
4' CCA/Greenfield Contracts 170 52 4%
5' CCA Contracts 86 28 2%
6' Greenfield Contracts 89 21 10%
7 MDU Contracts 16 (12) -1%
# Franchise None 39 16 none
'Franchise payments would continue under business models 1, 3, 4, 5 and 6 in areas served
bv SDG&E with the exceotion of Greenfield areas served bv the Citv.
The comparison above provides a financial basis that further supports the
implementation of a City MEU business model. Although a franchise agreement does
provide considerable resources that contribute to the City's ability to enhance public
services, it has not produced the kind of potential benefits afforded other California
public utilities, which are identified in the report under local control. It has not protected
residents and businesses from exponential rate increases, it has not produced
consistent conservation benefits that are commensurate with the amount of funds
collected annually from local ratepayers and it has not produced the kind of economic
development opportunities for Chula Vista businesses that Staff has asked for and
identified in other communities.
Staff Recommendation
The MEU Report and peer review clearly indicate that the City can start and operate a
feasible City MEU. The state of the energy market, the inherent risk involved with
creating a new MEU business and the significant start-up costs associated with forming
a new MEU operation are manageable risks that also represent opportunity that, over
time, have been born out by approximately 38 public utilities that produce benefits for
their respective communities at substantial savings for their ratepayers. The
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Council Workshop Date: 5/19/04
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comparison of the MEU business models and the Franchise Agreement also
demonstrate that the City could potentially implement a model that generates financial
benefits to enhance City services, stabilizes rates for residents and businesses,
mitigates risk by phasing different components of the MEU over time and allows an
SDG&E franchise to continue for many years to come.
Political and legal challenges will present significant barriers and the level of their
cooperation should determine how much Chula Vista can and should rely on a future
partnership with SDG&E to provide energy services for Chula Vista ratepayers.
Staff ranked each business model relative to the associated risks and implementation
potential based on the cost/benefit, risks and timeline associated with each MEU
business model.
s
f MEU B
dl
s
c
dR
ummary 0 usmess mo e s, tartup ost and Pro"ecte avenues
MEU Risk Benefits/ Startup Cost $ Supply Supply Calendar
Business Savings $ Strategy Strategy Year
Model Capital Start
Investment $
CCA Lowest 86 million 225 thousand Contract 2006
CCA/ Mid-low 170 million 13.8 million Contract 2006
Greenfield
CCA Mid 244 million 225 thousand 78 million Generation 2010
CCA/ Mid-hi 351 million 13.8 million 78 million Generation 2010
Greenfieid
MDU Highest 329 million 185 million 78 million Generation 2010
Based on a review of potential cost/benefits, risk and likelihood of implementation, Staff
believes that the City should continue to pursue development of a City MEU business
model to control the City's energy future.
Staff recommendations are included below, but Staff is not requesting that Council
action be taken at this time on these recommendations. Staff is however, requesting
that Council direct Staff to return to council on June 8, 2004 for go/no-go actions
regarding the Municipal Energy Utility. At the June 8, 2004 meeting, Staff will
recommend that Council direct Staff to implement City MEU business models as
outlined below:
1. Direct Staff To Prepare Applicable Zoning And Permitting Ordinances That More
Specifically Address Time And Placement Issues Regarding Energy Utility
Infrastructure By Fall 2004.
2. Direct Staff to prepare a resolution that would, under its status as a Municipal
Utility (Ordinance No. 2835, June 5, 2001) declare itself a Community Choice
Aggregator.
3. Authorize Staff To Complete And Execute An Implementation Plan To Become A
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Council Workshop Date: 5/19/04
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Community Choice Aggregation Administrator.
4. Direct Staff To Return To Council With A Full Staffing Plan For Implementation
Of The Greenfield Development And Community Choice Aggregation Programs
and appropriate funds therefore.
5. Direct Staff To Appropriate $475,000 In Additional Funds To Continue To
Implement The City's Energy Strategy, Plus The Cost For Additional Staff To
Implement The Selected Municipal Energy Utility Business Models.
The adoption of the resolution before City Council today, does not require an
appropriation and will not have an impact to the general fund. The items which Staff
has proposed to bring back to City Council at the June 8, 2004 meeting would require
an appropriation from the available fund balance of the General Fund:
Continue the work with the CPUC to develop viable
regulations and exit fees for a Community Choice Aggregation
(CCA) program (Outside Consultant Fees)
$250,000
Complete and submit an implementation plan to the
CPUC for a Community Choice Aggregation Program
Based on the estimates provided by Duncan/Navigant
$225.000
$475,000
Total Funding Request Anticipated for June 8, 2004
Once the City's CCA implementation plan is approved by the CPUC, Staff anticipates
that it will return to Council for additional funds for the pre-development, power
procurement and a Staffing plan to implement a MEU business model, should City
Council chose to move forward.
FISCAL IMPACTS:
The City Council's approval of the recommendation contained in this resolution will not
have an impact to the general fund. The action that Staff has outlined for consideration
at the June 8, 2004 meeting would require an appropriation from the un-appropriated
balance of the General Fund for an estimated $475,000.
ATTACHMENTS:
1. Peer Review Report - RW. Beck
2. Peer Review Report - Crossborder Energy
3. Peer Review Report - Tabors, Caramanis and Associates
4. MEU Report - Executive Summary
5. MEU Report - Report
6. MEU Report - Appendices
7. March 25, 2003 City Council Agenda Statement
hame/adminsup/sidlmeu/a 113 meu report for 5-19-04 council workshop
'1-37
CITY OF CHULA VISTA
MUNICIPAL ENERGY UTILITY
FEASIBILITY ANALYSIS
.
EXECUTIVE SUMMARY
.
Submitted Jointly by:
DUNCAN, WEINBERG, GENZER & PEMBROKE, P.c,
McCARTHY & BERLIN, L.L.P
AND
NA VIGANT CONSULTING
.
March 19, 2004
r¡~3~
I.
II.
III.
IV.
V.
VI.
TABLE OF CONTENTS
TABLE OF CONTENTS
PURPOSE OF THE FEASIBILITY ANALYSIS.............................. 1
EXISTING UTILITY FRANCHISE WITH SAN DIEGO GAS &
ELECTRIC COMPANY......................................................... 3
REGULATORY AND LEGISLATIVE ISSUES................................4
OVERVIEW OF RECOMMENDATIONS..................................... 5
A.
Options...................................................................... 5
B.
Savings...................................................................... 6
CITY ENERGY CUSTOMERS, PROJECTED LOAD AND POWER
SUPPLY..............................................................................9
A.
Summary.....................................................................9
B.
Customer Base............................................................. 10
c.
PowerSupply.............................................................
11
1.
In-City Generation ...................,.........................
12
2.
Distributed Generation. ............ ... ......,.. ...... .... ....... 13
MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION.. 15
A.
Community Choice Aggregation (CCA)........ ...... ...... .......... 15
1.
15
Summary.........................................................
2.
Customer Base................................................... 15
3.
FunctionaIElements............................................. 16
4.
Benefits and Risks................................................ 16
a.
Benefits................................................... 16
b.
Risks....................................................... 17
5.
Legal/Regulatory.... ... ... ... ... ......... .... ..... ......... ........18
1--3C¡
B.
TABLE OF CONTENTS
a.
Electric Aggregation................... """""""'" 18
b.
Gas Aggregation.. ..... ......... ...... ....... ... .......
19
6.
Financing Options.. .......................... ............ .......
20
7.
Implementation Schedule and Timelines....... ........ .....
20
a.
Implementation Schedule.............................. 20
(1)
(2)
Track 1 Tasks.................................... 20
Track 2 Tasks.................................... 22
b.
Timelines.................................................. 22
8.
Recommendation................................................ 23
Greenfield Development.... .... ..... ... .... ..... ...... .... .............
24
1.
Summary.......................................................... 24
2.
Customer Base.................................................... 24
3.
Functional Elements.............................................. 24
4.
Benefits and Risks................................................. 25
a.
Benefits................................................... 25
b.
Risks..................................................... .
26
5.
Legal/Regulatory.................................................. 26
6.
Financing Options.. ............... ............... ............. .....26
7.
Implementation Schedule and Timelines....................... 27
a.
Implementation Schedule.............................. 27
b.
.Timelines............................................... 29
8.
Recommendation................................................. 29
ii
ry-LfO
C.
D.
TABLE OF CONTENTS
Combined Community Choice Aggregation /Greenfield
Development.............................................................
30
1.
Summary.......................................................... 30
2.
Customer Base.................................................... 30
3.
FunctionaIElements.............................................. 30
4.
Benefits and Risks................................................. 30
a.
Benefits................................................... 30
b.
Risks......................................................
30
5.
Legal/Regulatory................................................. 31
6.
FinancingOptions.................................................31
7.
Implementation Schedule and Timelines.. ..... .... ... ... ..... 31
a.
Implementation Schedule.. ..... .... ..... ...... ........ 31
b.
Timelines................................................ 31
8.
Recommendation................................................. 32
Municipal Distribution Utility........ ........................." ........ 33
1.
Summary.......................................................... 33
2.
Customer Base.. .......... ................ ......... .................33
3.
Functional Elements.............................................. 33
4.
Benefits.............................................................. 35
5.
Risks..................................................................37
6.
Legal/Regulatory.................................................. 38
a.
Formation and Implementation Process............... 38
b.
Exercise of the Power of Eminent Domain.... ......, 39
7.
Financing Options................................................. 39
iii
'1-Lf-/
TABLE OF CONTENTS
8.
Implementation Schedule and Timelines........... ........... 39
a.
Implementation Schedule.............................. 40
(1) Focused MDU Feasibility and
Implementation Plan Tasks.................. 40
(2) Implementation Plan Tasks.... ...... ... ..... 42
b.
Timelines................................................ 43
9.
Recommendation................................................. 44
E.
Joint Powers Agency/Municipal Utility District. """ .... .......... 46
VII.
NATURAL GAS.................................................................. 47
VIII. CONCLUSIONS AND RECOMMENDATIONS...........................
49
A.
Discussion and Comparison of Recommended Options............
49
1.
Community Choice Aggregation. ...... ... ...... ...... """" 49
a.
Analysis.................................................... 49
b.
Recommendation........................................ 49
2.
Greenfield Development.. ............ ........ .... ......... ..... 50
a.
Analysis.................................................
50
b.
Recommendation........................................ 50
3.
Combined CCA/GreenfieldDevelopment...................
51
a.
Analysis.................................................
51
b.
Recommendation....................................... 51
4.
Municipal Distribution Utility.......... ....................." 52
a.
Analysis....................................................52
b.
Recommendation........................................ 53
iv
íJ-ifif-
TABLE OF CONTENTS
5.
Joint Powers Agency and Municipal Utility District
~~m..........................................................
53
a.
Analysis.................................................... 53
b.
Recommendation........................................ 54
B.
RoIIOutStrategy..........................................................54
1.
CCA - Implementation Schedule........ ...................... 54
2.
Greenfield - Implementation Schedule.. ........... ... ........ 56
3.
Combined CCNGreenfield - Implementation Schedule... 58
4.
MDU - Implementation Schedule.............................. 58
Charts/Graphs
Chart: Summary of Savings Estimated for Each ~tion Ranked by NPV
ofSavingsfrom2006through2023.............................................. 7
Graph: City of Chula Vista MEU Options Annual Cost Savings Versus
SDG&ERates($).................................................................
8
Chart: 2002 Chula Vista Energy Use.................................... ................
9
City Versus Regional Energy Usage.......... .............. .............................
10
Projected Chula Vista Customer Load....................... ............................. 11
CCA Implementation Schedule................... ........................................ 55
Greenfield Implementation Schedule.. ........ ..... """"""" ............,........... 57
MDU - Implementation Schedule.......................................................... 59
v
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I.
I. PURPOSE OF THE FEASIBILITY ANALYSIS
EXECUTIVE SUMMARY
PURPOSE OF THE FEASIBILITY ANALYSIS
On May 29, 2001, the City passed Resolution No. 2001-162 adopting the
City's Energy Strategy and Action Plan (City Energy Strategy). The City Energy
Strategy was based on the assessment of the City's energy management options that were
set forth in a Report prepared by MRW Associates. On June 5, 2001, the City adopted
Ordinance No. 2835 establishing the City as a municipal utility. An overview of the
City's Energy Strategy and other actions taken by the City to implement its Energy
Strategy are discussed in detail in the Introduction (Section I) of this feasibility analysis
(Report).
Based upon the impact of the Califomia energy crisis, and in furtherance
of the City's Energy Strategy, the City of Chula Vista (City) retained the services of
Duncan, Weinberg, Genzer & Pembroke, P.C., McCarthy & Berlin, L.L.P., and Navigant
Consulting Inc., collectively the "Municipal Energy Utility (MEV) Study Team," to
perform a Municipal Energy Utility Feasibility Analysis for the City. The City requested
that the MEU Study Team perform a financial, legal, and technical feasibility analysis of
developing a municipal energy business.
Specifically, the MEU Study Team was directed to determine: (1)
whether it is desirable and economically feasible for the City to pursue the
implementation of an MEU; and (2) if so, to advise what form of MEU structure would
best meet the needs of the City.
The City further asked the MEU Study Team to analyze and discuss the
feasibility of developing a municipal energy business that would meet as many of the
following objectives as possible:
(a)
(b)
(c)
(d)
(e)
(f)
establish reliable electricity and natural gas supply at competitive
rates and maintain the highest level of customer service;
identify a viable business model that benefits the City's time and
investment;
pursue an environmental advantage for City residents, businesses
and the region;
obtain a citywide distribution ofMEU benefits;
utilize the MEU as an economic development tool to retain and
attract businesses; and
enhance Chula Vista's vision to continue as a vibrant community
in the region.
r¡ - lf~
I. PURPOSE OF THE FEASIBILITY ANALYSIS
In this feasibility analysis, the MEU Study Team has provided
comprehensive answers to the questions posed by the City based upon the objectives set
forth by the City, important assumptions, and the analysis of a wealth of available data.
2
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II. EXISTING UTILITY FRANCHISE WITH SAN
DIEGO GAS & ELECTRIC COMPANY
II.
EXISTING UTILITY FRANCHISE WITH SAN DIEGO GAS &
ELECTRIC COMPANY
San Diego Gas & Electric Company (SDG&E) owns and operates both the
electric and gas distribution systems in the City of Chula Vista under franchises granted
by the Chula Vista City Council. The original twenty-five year franchise, granted in
1972 to operate the electric distribution systems in Chula Vista, expired in 1997 and was
extended for a five-year period under Ordinance No. 2746, adopted in 1998. The original
franchise to operate a gas distribution system in Chula Vista, also with a twenty-five year
term, expired in 1997 and was extended for a five year period pursuant to Ordinance No.
2747, adopted in 1998. Both the electric and gas franchises expired, by their terms, on
June 30, 2003.
Representatives of Chula Vista and SDG&E conducted negotiations with
respect to the renewal or extension of the electric and gas franchises earlier this year. The
terms of the proposals submitted by SDG&E for a fifty-five (55) year extension of the
franchises were evaluated by the Chula Vista staff and rejected as unacceptable. Once
negotiations reached an impasse in late July 2003, the City and SDG&E attempted to
agree on a temporary extension of the franchises to give the City more time to evaluate its
options. The City offered a 90-day extension of the franchise agreements while SDG&E
offered to extend service under current terms and conditions for a 45-day period. At this
writing, the term of the franchises has not been agreed upon and the parties have
continued to perform under the terms and conditions of current franchise agreements on a
month-to-month basis.
The current franchise agreements have been an important element in the
conduct of this feasibility analysis inasmuch as the terms, conditions and rates for gas and
electric service as provided in the current franchises, or rate schedules promulgated
thereunder, have provided the benchmark against which all of the MEU options have
been measured to determine the feasibility of each of the MEU options analyzed by the
MEU Study Team. In evaluating each of the MEU alternatives, the impact on franchise
fee revenue received by the City under the current franchise agreements has been
calculated and explicitly set forth as a cost of pursuing each MEU option. The MEU
Study Team's test for economic feasibility of any and all MEU options requires that
financial benefits of a particular option must exceed any foregone franchise fee revenue
that would result from the pursuit of the MEU option.
3
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III. REGULATORY AND LEGISLATIVE ISSUES
III.
REGULATORY AND LEGISLATIVE ISSUES
As part of this feasibility analysis, the City has directed that the MEU
Study Team provide an explanation of the legal and regulatory environment in which the
MEU would operate. The MEU Study Team has prepared a comprehensive analysis of
the state and federal laws, which are, or may be, applicable to any of the MEU options
identified and analyzed. The Regulatory and Legislative issues which the City will face
if it implements any of the MEU options are set forth in Appendix B.I of the Report at
11-27.
4
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IV.
IV. OVERVIEW OF RECOMMENDATIONS
OVERVIEW OF RECOMMENDATIONS
A.
Options
In preparing this Report, the MEU Study Team performed a thorough
analysis of the energy markets in California and, in particular, in the SDG&E service
territory and prepared a comparative analysis of the City's opportunities and options to
develop and implement the City's Energy Strategy and Action Plan. Following the
directives of the City's Council and Staff, the MEU Study Team developed a series of
conclusions and recommendations, which are summarized below. The MEU Study Team
has examined both the markets for electricity and gas and determined the feasibility of
developing a Municipal Energy Utility which would provide both electric and gas
service.
For the reasons set forth in this Report and summarized below, the MEU
Study Team concluded that it is feasible for the City to develop and implement a
municipal electric utility on a phased basis. At the same time, however, the MEU Study
Team has concluded that, barring any substantial changes in SDG&E's gas rates, it is not
economically feasible for the City to undertake providing gas service to consumers within
the City within the study period. The options examined by the MEU Study Team are
discussed in Section III and evaluated in Section IV of the Report. The conclusions and
recommendations relative to these options are set forth below.
Based on its analysis, the MEU Study Team recommends that the City
embark on a course of action that includes the following elements:
(a)
(b)
(c)
(d)
development of a Community Choice Aggregation (CCA) Program
with plans to become operational in 2006, including active
participation in ongoing CPUC proceeding's to develop
implementation costs, credits, rules and protocols.! A final
decision whether to implement the CCA program should be made
following final CPUC rulings on these issues;
immediate development and implementation of City ownership of
a distribution system in the currently undeveloped portions of the
City (Greenfield Development);
combine the CCA and Greenfield projects for administration by
the City's MEU;
on a longer term basis,. begin development of an electricity
Generation Supply Strategy which will include the ownership or
The MEU Study Team recommends that the City continue its current participation in CPUC and
related regulatory proceedings in an attempt to affect the outcome of any CPUC decision that will
directly affect CCA cost-effectiveness and feasibility.
5
í}-Lfð
(e)
(f)
(g)
B.
Savings
IV. OVERVIEW OF RECOMMENDATIONS
otherwise gain entitlement to at least 130 MW of electric
generation capacity inside the City to optimize the benefits from
the recommended programs;
on an interim basis, develop commitments for power purchase
agreements to meet the immediate requirements of the CCA and
Greenfield projects;
After several (three to four at a minimum) years of successful
CCNGreenfield experience, consider acquiring ownership and
operation of the existing electric distribution system within the
City which is now owned and operated by SDG&E, and becoming
a full service municipal electric distribution utility (MDV);2 and
barring any substantial change in SDG&E/SoCal Gas rates or in
the natural gas markets in California, the MEU Study Team
recommends that the City of Chula Vista not pursue providing
natural gas service to customers within the City. If an MDU is
established in the future, the City should reevaluate the potential
for providing natural gas at that time.
With a focus on the options enumerated above, and using conservative
assumptions, the MEU Study Team modeled potential savings for the City, measured
against current and projected SDG&E rates, yielding a net present value (NPV) of
between $21 and $122 million for the study period. These projected savings or benefits
will be available, at the City's discretion, to reduce utility rates to electric customers of
the City, to fund utility operations and expansion projects, or to fund other worthy public
purpose projects.
In preparing the financial pro forma for each study option, the MEU Study
Team performed a thorough analysis including: (1) SDG&E's forecast rates; (2)
potential California Energy Crisis Cost Responsibility Surcharges (exit fees) lost
franchise revenues, and lost property tax revenue; (3) energy or commodity costs
(including generation ownership, power purchase contracts, renewable energy contracts
and spot-market purchases); (4) California Independent System Operator (CAISO)
charges; and (5) operation and maintenance costs. Each of these items was factored into
the pro forma analysis. In this evaluation, the MEU Study Team assessed the cost and
benefits of each option based on two energy supply strategies. Under the first strategy,
the City would procure all of its energy requirements in the wholesale energy market by
executing power contracts with various power suppliers at fixed prices for medium and
In the event that the CPUC's final rules and regulations fail to provide the foundation for an
economically sound CCA project, the MEU Study Team recommends that the City accelerate
consideration of the MDU option.
6
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IV. OVERVIEW OF RECOMMENDATIONS
short terms (Contracts Supply Strategy). In the second strategy, it was assumed that the
City would install its own generating facilities or take an ownership position in a power
generation facility developed by another entity (Generation Supply Strategy). The
Generation Supply Strategy is based upon City ownership of 130 MW of new combined
cycle gas turbine power plant capacity. The financial pro forma analysis compares the
total costs of each option with the total costs of continuing to take retail utility service
from SDG&E. The start-up costs and capital costs identified for each MEU option are
amortized over thirty years and factored into the pro forma analyses to arrive at the figure
for cost savings in relation to SDG&E rates. Thus, the projected savings or benefits
shown are net of the amortized start-up costs.
Financial pro forma for all the study options or combinations are
summarized in the table below. The table shows the total savings over the 18-year study
period from 2006 through 2023 and the Net Present Value (NPV) of these savings over
the same time period.
Summary of Savings Estimated For Each Option Ranked By NPV of Savings From
2006 Through 2023
Rank Option Supply Nominal Savings NPV of Savings ($ Average
Strategy ($ Millions) Millions) Annual
Savings (%)
I CCA/Greenfield Generation 351 122 10%
2 MDU Generation 329 109 9%
3 CCA Generation 244 90 8%
4 CCA/Greenfield Contracts 170 52 4%
5 CCA Contracts 86 28 2%
6 Greenfield Contracts 89 21 10%
7 MDU Contracts 16 (12) -1%
The above table considers the dollar cost and benefit of each of the MEU
options. Later in this Report, the MEU Study Team discusses the non-quantifiable risks
and benefits of each of the MEU options.
As shown on the chart below, the implementation of a Combined
CCA/Greenfield option, with a Generation Supply Strategy,3 will produce the maximum
savings for the City of approximately $14.9 million in 2006, increasing to $31.7 million
in 2023. The total NPV of the stream of annual savings is $122 million for the study
period. The chart shows further that the implementation of the second ranking option (in
terms of maximum savings), an MDU option, with Generation Supply Strategy, will
produce savings of$12.3 million in 2006, increasing to $28.7 million in 2023. The total
NPV of the stream of annual savings is $109 million for the study period.
Elements of the Generation Supply Strategy are discussed in Section V.C below at 11-13.
7
'7,50
40,000,000
35,000.000
30,000,000
25,000,000
20,000,000
15,ODO,000
10,000,000
5,000,000
IV. OVERVIEW OF RECOMMENDATIONS
City otChula Vista MEU Options
Annual Cost Savings Versus SDG&E Rates ($)
2000 2007 2008 2009 2010 2011
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
I -+-CCNGreenfield.Generalion
-B-MDU-Generatioo I
Each of the MEU options, which were evaluated by the MEU Study Team,
is summarized in Section VI below, at 15-46, and detailed analysis of each option is
provided in Sections III and IV of the Report.
8
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V. CITY ENERGY CUSTOMERS, PROJECTED
LOAD AND POWER SUPPLY
V.
CITY ENERGY CUSTOMERS, PROJECTED LOAD AND POWER
SUPPLY
A.
Summary
The chart below shows the City electric energy loads by customer sector
for 2002, that are consistent with the SDG&E system-wide average energy mix.
2002 Chula Vista Energy Use
Medium Conunercial
27%
Streetlights
1%
Residential
44%
Small Conunercial
8%
However, the City is experiencing significant development in ways that will change this
energy mix. Based on the City's general plan, growth is projected to occur in all
customer segments, but especially in the medium commercial customer sector. Such
growth, when it occurs, will improve the City's load profile, reduce the average costs to
serve the City's electric loads, and improve the City's attractiveness to ener~ suppliers.
The following table compares 2002 segment usage for the City and SDG&E contrasted
with forecast sector usage for Chula Vista in 2023.
SDG&E 2002 FERC Form-I, page 301, line 2, column d, system wide results.
9
1-5;;-
V. CITY ENERGY CUSTOMERS, PROJECTED
LOAD AND POWER SUPPLY
City Versus Regional Energy Usage
(MWh)
Chula Vista SDG&E
2002 2002
Residential 305,735 44% 6,266,000 44%
Small Commercial 56,216 8% 1,710,025 12%
Medium Commercial 193,534 27% 3,391,622 24%
Large Commercial 142,922 20% 2,725,159 19%
Streetlights 6,627 0.9% 44,442 0.3%
Total 705,034 100% 14,137,248 100%
Chula Vista
2023
568,772
78,154
439,170
250,191
8,745
42%
6%
33%
19%
0.7%
1,345,032
100%
The City has been, and will continue to be, subject to strong growth in all
sectors. However redevelopment and new development are forecast to have the greatest
impact in the medium sized commercial end-use consumer sector. In the next twenty
years the City will experience growth in its overall energy requirements by more than 90
percent. As described in Section IV.F.3.d(l) of the Report at 120-21, a municipal
distribution utility, comprised of the number of the City of Chula Vista electricity
consumers projected for 2006 (recommended MEU implementation date), would be the
11 th largest out of California's 48 electric utilities based on customer count, and the 20th
largest based on energy sales.
B.
Customer Base
The MEU Study Team estimates that, in 2004, the City will have
approximately 73,000 electric service customers (excluding the City's street lighting
service accounts). The City's annual load factor (the ratio of peak annual demand to the
average annual demand) is approximately 65 percent, which is high compared to other
California cities. The City's higher load factor would allow the MEU to function more
efficiently and economically compared to the majority of other California cities.
Residential electric load can be significantly affected by ambient
temperatures and consumer use of air conditioning. However, Chula Vista's relatively
mild climate and reduced cooling load has a significant impact on residential load shapes
and a direct bearing on the cost to serve the City's electric load. Generally, Chula Vista's
residential loads are more economic to serve than other typical California communities,
more attractive to generation suppliers, and render more types of generation projects cost-
effective.
Long-term electric load forecasts for the City have been modeled for two
primary areas: (i) existing and planned development in areas currently served by
SDG&E's distribution infrastructure; and (ii) areas being developed in which SDG&E
10
1,53
V. CITY ENERGY CUSTOMERS, PROJECTED
LOAD AND POWER SUPPLY
has not built distribution infrastructure and where the City may decide to build and
operate distribution infrastructure (Greenfield development).
The MEU Study Team forecasts that, over the study period, there will be
an increase of approximately 22,000 customers, including growth in the current SDG&E
service territory and in the Greenfield areas, with an annual consumption growth of
approximately 600,000 MWh, and a peak load growth of approximately 100 MW. This
represents a customer increase of 29 percent and an energy increase of over 80 percent.
More than half of the increased regional energy consumption results from planned
commercial development. Due. to this trend, the average, per customer energy
consumption increases by more than 36 percent (excludes street lighting accounts) during
the study period.
Projected Chula Vista Customer Load
Customers
Energy (MWh)
Residential
Commercial <20 kW
Commercial 20-500 kW
Commercial 500 kW +
2004 2023 (%)
69,440 89,510 29%
3,203 4,272 33%
340 708 "8%
13 22 71%
72,996 94,513 29%
2004
2023
(%)
329,719 568,772 73%
57,594 78,154 '8%
198,276 439,170 121%
146,424 250,191 71%
Total
732,013 1,336,287 8'%
C.
Power Supply
In providing electric power to serve the City's customer base under any of
the study options, the City has two basic choices: purchasing its electric power supply
requirements from other utilities or generators participating in the California energy
market (Contract Supply Strategy); or developing generation resources by constructing
generation or participating with a generation developer and taking an equity interest in
local generation (Generation Supply Strategy).
A key finding of this feasibility analysis, under any of the MEU structures
analyzed, is that there is significant benefit to the City in electric generation ownership or
ownership-like rights. Furthermore, the City finds itself in unique circumstances
compared to other cities in the region due to the confluence of natural gas and electric
transmission facilities, and the location of the South Bay Power Plant (South Bay), and
the location of the proposed Otay Mesa Power Plant (Otay Mesa). The City is
geographically at the center of a significant portion of the energy facilities required to
support the San Diego region. The MEU Study Team recommends the City develop in-
City generation as the centerpiece of its MEU electric supply strategy. Our
recommendation is not that the City should seek to develop a generation resource on its
own; rather the MEU Study Team recommends that the City look to jointly develop
and/or pursue a partial ownership with a developer in a larger base load generating unit.
11
1-5¥-
V. CITY ENERGY CUSTOMERS, PROJECTED
LOAD AND POWER SUPPLY
1.
In-City Generation
The Generation Supply Strategy, with in-City generation, provides the
maximum opportunity for electricity cost savings achieved through the implementation of
an MEU. Associated savings are positive in every year for both the CCA and MDU
options. The combined CCA/Greenfield option with a Generation Supply Strategy offers
the greatest benefits of all the options.
Ownership of generation would offer the City several advantages relative
to procuring electricity through power purchase contracts (Contracts Supply Strategy).
Among the benefits associated with participation in generation projects are:
.
Lower electricity costs due to the City's retention of generation operating
margins;
The ability to leverage partial ownership to locate projects within the City and
receive franchise fee revenues and local taxes; and
Reduction in CAISO transmission charges, CAISO administrative charges, and
protection against charges related to transmission system congestion.
.
.
The MEU Study Team modeled generation options for the City using
operating and cost parameters of a new combined cycle gas turbine operating as a base
load plant. These parameters include the unit's heat rate, capacity cost, variable O&M
costs, availability factor, hours of planned operation, and the year the resource becomes
operational. Sales of any excess production beyond what is needed to serve the City's
load would be sold into the market. The price for excess sales reflects a 25% discount
relative to the prevailing peak or off-peak price to reflect the probability that excess sales
will occur in the lowest priced hours ofthe on- or off-peak periods.
The following assumptions were used in the calculation of generation
costs:
Capacity:
Technology:
Year Online:
Heat Rate:
Capacity Factor:
Variable O&M:
Excess Sales:
130MW
Combined Cycle Natural Gas Turbine
2006
7,000 BTU/KWh
90%
$2 Per MWh
75% of Market Price
There are presently at least two local generation options, which may be
available to the City with respect to obtaining generation located within or near the City's
boundaries:
(1) Otay Mesa: The Otay Mesa Generating Project (Otay Mesa) will
be a 510 MW, natural gas-fired combined cycle power plant located in the Otay Mesa
area in western San Diego County. Calpine Energy Services, LP (Calpine) is the project
12
1-65
V. CITY ENERGY CUSTOMERS, PROJECTED
LOAD AND POWER SUPPLY
owner. The 15-acre site is about 15 miles southeast of San Diego, California, and about
1.5 miles north of the United States/Mexico border. SDG&E has recently announced
plans to purchase most or all of the capacity from Calpine's Otay Mesa plant. If these
plans are implemented, this option would not be available to the City. If SDG&E's
proposal is not finally approved and implemented, the City should examine this option, as
the MEU Study Team believes that there is still an opportunity to discuss potential
teaming arrangements with Calpine.
Under current plans, a new 230-kV switchyard at the site is proposed.
There are plans to build a O.I-mile connection to SDG&E's existing 230-kV Miguel-
Tijuana transmission line that passes near the eastern boundary of the Otay Mesa site. A
new two-mile natural gas pipeline will be built by SDG&E to provide fuel for the project.
Originally scheduled for completion in the summer of 2002, the construction schedule
now calls for its completion by summer 2005. Currently the project is reported to be five
percent complete.
(2) South Bay Power Plant Repower (SBPP): The California State
Lands Commission approved the San Diego Unified Port District's (port District or Port)
expenditure of $110 million in public trust funds to acquire the SBPP from SDG&E on
January 29, 1999. The existing SBPP consists of four natural gas-fired conventional
boiler units and one 14 MW combustion turbine.
Duke Energy North America's (Duke) 10-year lease with the Port District
to operate the SBPP went into effect in April 1999. As part of its lease agreement with
the Port District, Duke must, subject to certain conditions, dismantle and relocate the
existing plant by 2009. According to the lease agreement, Duke must identify a specific
relocation site no later than June 2006 and publicize its site selection as part of an
application to the California Energy Commission (CEC) for permits to site the new plant.
Currently, the future of Calpine's Otay Mesa project and the siting of a
new South Bay Power Plant remain unknown. The MEU Study Team's analysis indicates
that the City is uniquely located to allow the City to potentially host either or both of
these generation projects.
2.
Distributed Generation
In addition to the evaluation of the Generation Supply Strategy, the MEU
Study Team also evaluated the feasibility of acquiring or building small distributed
generation units within the City to serve the customers of the City's MEU as a start-up
strategy. With respect to this option, the MEU Study Team has concluded that there are
no generation projects of sufficient size now operating within the City to support the
development of an MEU. The MEU Study Team has also concluded that the
development of small distributed generation projects is not economically feasible as a
start-up measure in implementing an MEU.
13
'I-6ft;
V. CITY ENERGY CUSTOMERS, PROJECTED
LOAD AND POWER SUPPLY
Moreover, until the City successfully develops its Greenfield projects or
forms an MDU and acquires the electric distribution system of SDG&E, it would have no
means of delivering power from small City generation facilities to consumer electric
loads (load). Without a distribution system, it would not be possible for the City to
obtain delivery of power under the state's direct access laws and regulations and the
Federal open access laws and regulations which apply to direct transmission access,
except for the CCA-only option. Furthermore, the concept of developing distributed
generation at selected sites around the City (e.g., main campus) would not provide a City-
wide benefit and would offer limited savings. As noted above (see Section I.(d)), the
MEU Study Team was asked by the City to analyze feasible municipal energy businesses
with the objective of "city wide distribution ofMEU benefits."
At such time as the City develops a Generation Supply Strategy and has,
through ownership or construction, a means of delivering power from local distributed
generation projects to load, the MEU Study Team recommends that the City explore the
development of local distributed generation projects to augment the City's power supply.
14
'7-57
VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
CCA
VI.
MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
The MEU Study Team has examined all MEU structures, which are
presently authorized under California law (or the Califomia Constitution) and has
identified five structures that would be suitable and provide a legal basis for Chula
Vista's entry into the utility business. These include:
a)
b)
c)
d)
e)
Community choice aggregation for both electricity and natural gas (CCA);
"Greenfield municipalization" development (Greenfield);
Municipalization under a city electric utility department format, eventually
leading to a Municipal Distribution Utility (MDV) system;
Participation in a joint powers agency (JP A); and
Municipalization under a Municipal Utility District format (MUD).
Each of these options is discussed in Section ill of the Report and
evaluated in Section IV of the Report.
A.
Community Choice Aggregation (CCA)
1.
Summary
As discussed in the Report, Section ill B.l at 25 and Section IV.C at 39,
the City of Chula Vista can elect to serve as a community load aggregator for electric
service within the City. A load aggregator is an entity that procures electric energy
and/or natural gas for residents and businesses within a community. Under this option,
the City would not own the electric or gas distribution system within the City. Rather, it
would own or procure electric power and/or natural gas, either through ownership of
resources, market purchases, or through a partner on behalf of the customers that choose
to aggregate their load. SDG&E would then be required to deliver the electric energy
and/or natural gas to the end-use customer across its transmission and distribution
facilities.
2.
Customer Base
The customer base for the electric CCA option is potentially all electric
customers in the City. However, customers have the option to "opt-out" of the CCA
program and continue to receive their electric service from SDG&E. For the purposes of
this feasibility analysis, the MEU Study Team has assumed that all potential customers
within the City would participate and that none would elect to "opt out." To the extent
that some potential customers do "opt out" of the CCA program, the benefits to
remaining customers would be proportionately diminished. The customer base for the
gas aggregation option includes all residential and small commercial customers in the
City. Certain industrial customers that use less than 250,000 therms per year can also
become a part of the customer base.
15
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VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
CCA
3.
Functional Elements
The MEU Study Team evaluated two primary supply strategies for the
City to serve the electric loads of the MEU customers: 1) a Generation Supply Strategy
that uses city owned generation resources for base load requirements; and 2) a Contracts
Supply Strategy that uses long term power purchase contracts for base load requirements.
The Generation Supply Strategy is based on City ownership of 130 MW of new
combined cycle gas turbine power plant capacity located within the City or by acquiring
an equity interest or entitlement to 130 MW of a plant owned by a third party. The
Contracts Supply Strategy is based on the City entering into long and short-term fixed
price power supply contracts to meet the majority of the MEU's load requirements.
The MEU Study Team evaluated a number of supply portfolios to
optimally serve the load requirements of the City. A typical supply portfolio would
utilize generation owned by the City or long-term contracts for the majority of projected
base load requirements. These long-term resources would be supplemented with short-
term contracts covering the additional seasonal load requirements of the portfolio,
typically in the third quarter of each year. Spot market purchases and sales are used to
fill the residual net short load requirements.
The City would not need to invest in any transmission or distribution
infrastructure, i.e., substations, lines or meters, in order to serve City residents under this
option. Although final CCA Rules and Regulations have not been promulgated, it is
assumed that the City's CCA customers would pay SDG&E the retail rate for non-
generation charges (e.g., transmission and distribution). SDG&E would provide a credit
on the bill to remove its costs related to generation and procurement of electricity that
would be procured by the City. The bill credit that SDG&E will provide for generation-
related charges is assumed to be the entire generation rate net of the applicable exit fees.
SDG&E would continue to perform metering and billing services for end use customers,
the costs of which are embedded in existing retail distribution rates.
4.
Benefits and Risks
a.
Benefits
The 18-year NPV of savings or benefits to the City and its residents,
measured against current and projected SDG&E rates, is projected to be $28 million if
power supply is obtained from the competitive wholesale market in the form of contracts
or an average annual savings of 2%. If the power is supplied from City-owned
generation, the 18-year savings are projected to be $90 million with average annual
savings or benefits of 8%. Capital costs for the Generation Supply Strategy are estimated
to be $78 million.
16
1--61
VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
CCA
The major benefit available through the electric aggregation option is that
the City could begin procuring electric energy and supplying it to retail customers
without the need to purchase the SDG&E electric distribution system.
By electing to implement a CCA program, Chula Vista could begin to
provide utility services to customers within the City as an interim step without
developing a utility infrastructure that would require the enormous investment necessary
to acquire and operate a utility distribution system.
b.
Risks
On the electric utility side, CCA is governed by the Community Choice
Aggregation legislation (AB 117, Chapter 838, September 24, 2002\ and the CPUC's
corresponding proceeding, Rulemaking 03-10-003 (R.03-1O-003). If the City elects to
pursue the CCA option, the CPUC must confirm or approve the implementation plan
before final steps to implementation can occur. Pursuant to R03-10-003, the CPUC is to
determine the implementation requirements for a CCA, including the level of any
applicable cost responsibility surcharges, IOU administrative charges, and other costs and
restrictions that may be developed. As discussed further in Section 5 below at 18-19 and
in Section IV.D.4 of the Report at 57, the parameters of the CPUC's proceeding will
dictate the rules governing CCA programs. On November 26, 2003, the assigned
Administrative Law Judge in R03-10-003 issued a ruling bifurcating the proceeding into
two phases. The first phase, in which hearings were held in February 2004, addressed
many of the cost related issues. Administrative and ministerial matters will be the subject
of the second phase of the proceeding
The MEU Study Team is advised that the City is a party to R.03-10-003
and is taking an active role to ensure that the CPUC's CCA rules and regulations are just
and reasonable and consistent with the City's energy development objectives. The MEU
Study Team recommends that the City continue to take an active interest in ongoing
CPUC proceedings to establish the costs, credit rules and protocols that will eventually
determine the cost effectiveness and feasibility of the CCA program.
The primary risks inherent in the CCA option are:
The cost responsibility surcharges and transaction fees imposed by the
CPUC could make the program uneconomical. Especially problematic
would be unanticipated increases in these costs after the CCA program
has begun. Such cost increases could impose financial hardship on the
City or force CCA rates higher than the comparable SDG&E rates.
AB 117 became effective January 1, 2003 amends Sections 218.3,366,394, and 394.25 of the
Public Utilities Code and adds Sections 331.1, 366.2, and 381.1 to the same Code.
17
1-(P()
VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
CCA
The City could improperly hedge its exposure to electricity and/or
natural gas price volatility and adverse price movements could impose
severe financial hardship on the City or its customers.
The City could fail to properly secure its customer base, making debt
financing via the capital markets impossible to obtain and exposing the
City to stranded costs if customers opt out ofthe CCA program.
The City's energy suppliers could default on supply contracts (credit
risk) at times when energy spot markets are high, forcing the City to
purchase energy at excessively high prices.
On the natural gas side, the biggest impediment to a successful
implementation would appear to be the slim margins on the actual procurement of the
natural gas commodity. Typically, existing natural gas Local Distribution Companies
(LDCs) earn most of their return from their transmission and distribution assets, not the
actual commodity itself, which is usually priced at cost with a minor markup for
brokerage services. As discussed in Section VII below at 47-48 and in Section IV.H of
the Report at 140-54, the MEU Study Team has made an analysis of the feasibility of
providing gas service to customers within the City and has concluded that it is not
economically feasible to attempt to provide gas as an aggregator or provide gas
transmission and distribution service by acquiring the gas distribution system of SDG&E.
This option should be revisited ifthere are dramatic changes in SDG&E's gas rates.
5.
LegallRegulatory
a.
Electric Aggregation
While AB 117 does provide a statutory basis for Community Aggregation
Projects, the CPUC has not yet developed and implemented final rules for the
development of such programs. On September 4, 2003, the CPUC issued an order
instituting a rulemaking or "OIR" (Rulemaking 03-09-007) in order to develop the
guidelines for community aggregation programs, as it was directed to do under AB 117.
On October 2,2003, the CPUC reissued the rulemaking under Docket No. R.03-10-003,
and an initial pre-hearing conference and a workshop have been held. The City, as noted
above, is a party to and active in, these proceedings.
The City could become a Community Choice Aggregator for electric
utility generation by developing an implementation plan, and then having this plan
approved by the CPUC pursuant to the rules and protocols to be adopted in R.03-10-003.
AB 117 (2002 Migden - Chapter 838, Statutes of 2002) offers flexibility in that it
provides for an "opt out" program rather than an "opt in" program. This would allow the
City to sign up customers willing to switch from SDG&E generation service to City
service without the necessity of developing an active marketing effort to lure customers.
Instead, the City would merely need to notify customers of the impending community
18
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VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
CCA
choice aggregation program. Any customers that do not want to participate in the
program would be required to notify the City of their election within a specified amount
oftime.
AB 117 also requires full cooperation by the host investor owned utility
(SDG&E) in any CCA program implemented by the City. In this regard, SDG&E is
required to provide necessary load information and other important data to Chula Vista,
and continue to provide transmission, distribution, metering, meter reading, billing and
other essential customer services.
An additional benefit of becoming a Community Choice Aggregator may
be for Chula Vista to administer the public goods charges collected from electric
customers in the program. In addition to authorizing CCA programs, AB 117 also
requires the CPUC to determine the policies and procedures by which any party,
including a CCA, may apply to the CPUC to administer cost-effective energy efficiency
and conservation programs. The Commission issued a decision in July 2003 to set up this
program. Like all other electric users in the state, those that are served by a CCA will
still be required to pay the state mandated public goods charge. However, in lieu of
having these funds administered by SDG&E for use on any qualified programs within the
IOU's entire service area, Chula Vista could apply to the CPUC for the authority to
administer these funds and utilize 100% of the proceeds locally. Decision 03-07-034
(D.03-07-034) authorizes CCAs seeking energy efficiency program funding authorization
to do so, applying the existing procedures, schedules, selection criteria, and evaluation,
measurement and verification requirements already developed by the CPUC.
Furthermore, in order to facilitate the CCA's ability to administer the energy efficiency
program funds, D.03-07-034 directs the IOUs to provide certain information and data to
the CCAs that would allow them to develop and implement local energy resource plans
and programs.
b.
Gas Aggregation
For natural gas load aggregation, the State of California currently has laws
and procedures in place for "core" aggregation opportunities. Core aggregation has been
allowed since the early 1990's and permits a municipal agency to petition the current
natural gas energy provider and take over responsibility for the provision of natural gas
commodity services. This is known as the Core Aggregation Transportation (CAT)
program, and requires a minimum usage by customers that together purchase and
consume 120,000 therms of natural gas per year. Core customers are those that use less
than 250,000 therms a year and include all residential customers as well as those small
commercial and industrial customers using under the core limit threshold. Non-core
customers (large commercial and industrial customers using over 250,000 therms per
year) are already required to solicit their own natural gas procurement. As discussed in
Section VII below at 47-48 and in Section IV.H of the Report at 140-54, the MEU Study
Team has determined that it is not economically feasible for the City to enter into the gas
distribution business, including engaging in gas load aggregation, at this time. This
19
'1' !P{)-
VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
CCA
option should be reevaluated in the event that SDG&E succeeds in raising its rates for gas
service.
6.
Financing Options
The City would have a variety of financing mechanisms available to
finance its CCA project depending upon the specific asset and/or activity. Financing
techniques might include the following:
- General Obligation Bonds
- Limited Obligation Bonds
- Special Assessment
- Certificates of Participation
- Revenue Bonds
- Commercial Paper
The MEU Study Team believes that tax-exempt debt financing should
generally be applicable to finance CCA capital projects.
In Appendix C, Section IV.A, at 126-27, the MEU Study Team has
provided an overview and comparative analysis of each type of financing vehicle that is
available to the City.
7.
Implementation Schedule and Timelines
It is estimated that it would take between one and two years for full
implementation ofthis option, depending largely upon when the rules and regulations for
the program are approved and implemented by the CPUC. The major and critical steps
necessary to implement a CCA program are set forth below:
a.
Implementation Schedule
The MEU Study Team recommends a two-track approach to implement a
CCA project. The following outlines the critical path elements for each track of work:
(1)
Track 1 Tasks
1.1 - Project Initiation - Orientation Sessions for Elected Officials and Staff
1.2 - Base Case Feasibility Studies
- Load Forecasts
- Cost-of-Service Analyses
1.3 - Regulatory Engagement-A
20
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VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
CCA
Participation in CPUC CCA proceedings and workshops for the
development of costs, credit rules and protocols; use base case feasibility
studies performed under 1.2 above as the basis to demonstrate the impacts
of proposed decisions.
1.4 - Track I Report
Update base case feasibility study with final CPUC adopted costs, credit
rules and protocols; evaluate results and make threshold decision whether
or not to proceed with implementation.
1.5 - Prepare CPUC Implementation Plan Filing
- Develop program structure, organization, operations plans and
funding
- Perform Rate Design (cost allocation methodology and disclosure)
- Document participant rights and responsibilities
- Finalize energy supply resource portfolio
- Adopt Implementation Plan in a public hearing6
- Pass City Ordinance to implement CCA as defined in the
Implementation Plan7
- File the Implementation Plan with the CPUC
Where third-party suppliers are indicated, evaluate and document their
financial, technical and operational capabilities. If the City intends to
pursue an equity position in generation resources document the same
capabilities of the City and/or its equity partners.
1.6 - Regulatory Engagement-B
Monitor, participate and respond as required to CPUC proceedings and
processes to approve or reject the City's filed Implementation Plan.
Pending CPUC approvals, begin Track 2 Tasks.
Cal. Pub. Util. Code §366.2 (c)(3) "The implementation plan, and any subsequent changes to it,
shall be considered and adopted at a duly noticed public hearing."
Cal. Pub. Util. Code §366.2 (c)(IO)(A).
21
r;-fpLj
VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
CCA
(2)
Track 2 Tasks
2.1 - CCA Implementation
2.1.1. - Register the CCA with the CPUC (may become part of 1.5 above)
2.1.2. - Execute Investor-Owned Utility (IOU) Service Agreement 8
2.1.3. - Determine Required Aggregated Load Metering Facilities 9
2.1.4. - Complete Arrangements for 60-Day Customer Notification
And Opt-Out Provisions
2.1.5. - Notify SDG&E When CCA Service Will Begin
2.2 - CCA Operation (iterative and on-going activities)
2.2.1. - Activate Energy Supply Resource Plan
- Execute Supply Contracts
- Schedule Generation Resources
2.2.2. - Update Load Forecast and Optimize Scheduling
2.2.3. - Manage Supply Portfolio and Risk Management
2.2.4. - Process Financial Settlements
2.2.5. - Produce Operating Statements and Reports
b.
Timelines
Upon acceptance of this Report, the City will have completed Track 1
Tasks 1.1 and 1.2. The CPUC proceedings began on August 21, 2003 and appear to be
moving ahead in a manner to meet the CPUC's expectation of lasting between six and
nine months or approximately mid-2004. The MEU Study Team strongly recommends
that the City remain active in the ongoing CPUC proceedings in order to help shape the
The City, as a CCA operator, will need to establish a legal relationship with SDG&E. It is
anticipated that a service agreement will include processes for information exchange including
electronic data interchange, procedures for settling fmancialtransactions, treatment of customer
bill payment funds transfer, credit tenns, access to confidential customer infonnation, audit
provisions, and regulatory oversight and complaint processes.
Identify whether additional metering devices described in Section IV.C.2.a of the Report at 40 can
be employed. If feasible and warranted, place service orders with SDG&E to have them installed.
22
7 - iPS
VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
CCA
CCA implementation costs, credit rules and protocols. The MEU Study Team estimates
that a CCA could be operational by 2006. Please refer to Section VIII.B at 55 and
Appendix C, Section V at 130, for Gantt Chart time requirement projections for ach Task
described above.
8.
Recommendation
The MEU Study Team recommends that, subject to the final adoption of
CPUC rules, the City take immediate steps to provide electric utility services through the
development and implementation of a CCA program. To enhance the benefits accruing
from the CCA program, the MEU Study Team recommends that the City also adopt a
Generation Strategy leading to the development of generation capability within the City
as part of its resource portfolio. The MEU Study Team does not recommend any
financial commitment by the City for the development or ownership of a generation
resource until such time as the CPUC has finalized CCA rules and protocols and
approved a CCA Implementation Plan for the City. However, planning should begin
immediately for the implementation of a CCA program, although actual implementation
must await the promulgation of final rules by the CPUC.
23
r¡ ~ 1.,(,
VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
GREENFIELD DEVELOPMENT
B.
Greenfield Development
1.
Summary
As discussed in the Report, Section III.B.2 at 26 and Section IV.D, at 61,
Greenfield development calls for the investment in distribution facilities to provide
electric service to certain previously undeveloped areas within the City of Chula Vista.
This structure would include undeveloped acreage of land designated for an industrial
park, for example, or for new residential subdivisions that are anticipated and planned for
within the City's general plan build-out schedule. The City may need to purchase a
substation and would have to interconnect to SDG&E's system in order to supply energy.
The City would also need to develop the distribution system configuration
(overhead/underground), lines, poles, and service extensions, as well as make
arrangements for appropriate meters and related customer service functions. The MEV
Study Team has identified the Otay Ranch Area, Mid-Bayfront, and Sunbow planning
areas as the sites primarily adaptable to a Greenfield project.
Once the Greenfield utility structure is established, the City would take
wholesale transmission service from SDG&E and the CAISO, and its customers in the
Greenfield areas would no longer pay SDG&E retail rates. As the Greenfield
development would interconnect to SDG&E's distribution system, transmission service
would be under SDG&E's Wholesale Distribution Access Tariff (WDAT). The rates,
terms and conditions of service to be provided by SDG&E under its WDA T are regulated
and determined by the Federal Energy Regulatory Commission (FERC).l0 The cost for
taking wholesale service under the WDAT would be determined based on an assessment
of the actual distribution facilities utilized by the City. The distribution capital costs
associated with City-owned distribution system serving the Greenfield development will
be determined based on the cost to construct new facilities.
2.
Customer Base
The most likely areas for Greenfield development are the Mid-Bayfront,
Otay Ranch, and Sunbow planning areas. The number of customers in these potential
Greenfield development areas are projected at 4,017 in 2006 increasing to 10,193 in
2023.
3.
Functional Elements
A new, City-owned electric distribution system would be constructed in
the Greenfield service areas and interconnected with the existing SDG&E system. The
distribution system includes substations, lines, poles, extensions and meters.
10
A copy ofSDG&E's Pro Fonna WDAT is attached as Appendix D.
24
')-&1
VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
GREENFIELD DEVELOPMENT
The required capital investment for the new distribution system is
approximately $3,000 per customer. The approach used to estimate distribution capital
costs is based on industry standard investment costs per utility customer. The derivation
of this figure is explained in Appendix C, Section II.E.2 at 84-86. The MEU Study Team
believes this is a reasonable approximation for distribution capital costs in the context of
the MEU options analysis. Actual distribution capital costs will depend on factors
specific to the topography of the city, such as population density; requirements for under-
grounding of distribution facilities; the mix of residential, commercial, and industrial
customers in the existing and Greenfield development areas; and the method of service
provided for these customers. The option Chula Vista may elect is to require all
developers of new Greenfield areas to construct the requisite distribution facilities
according to the City and SDG&E standards, and dedicate such facilities to the City. If
such an approach were successfully implemented, the benefits accruing from the
Greenfield option would increase substantially from what the MEU Study Team has
estimated, because the initial infrastructure costs would be borne by the developer, not by
the City as was modeled by the MEU Study Team. The implementation of this option
would, of course, be subject to the adoption of appropriate policies by the City Council to
impose or recover these charges. The MEU Study Team has taken the most conservative
approach to projecting financial benefits for the Greenfield development by incorporating
the aforementioned $3,000 per customer distribution cost.
Resource requirements for a Greenfield only approach would be fulfilled
by entering into long and short-term contracts for power supply. The MEU Study Team
has concluded that it would not be feasible to obtain an ownership interest in a generation
project solely to match the relatively small and rapidly changing load requirements in the
Greenfield development areas.
The power supply sources and portfolio would include long-term (one to
five years) and short-term (up to one year) contracts. Spot purchases could also be used to
fill the residual net short load requirements.
The rate structure assumptions used in the Greenfield model are based on
the City taking wholesale transmission service from SDG&E through SDG&E's WDAT.
4.
Benefits and Risks
a.
Benefits
The 18-year NPV of savings to City residents, with power supply obtained
through contracts, is projected to be $21 million with average annual savings of 10%
compared to comparable SDG&E rates. Capital costs for this option are estimated at
$13.8 million.
25
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VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
GREENFIELD DEVELOPMENT
The benefits under this option include the likelihood of lower cost of
procurement and delivery of electricity, local control, improved reliability, and economic
development enhancements. An additional benefit of a Greenfield municipalization
effort would be that the City would not need to purchase the existing distribution
facilities from SDG&E, and go through a lengthy condemnation process.
b.
Risks
One of the risks that would play out, at least through the initial
infrastructure development period, is the economic viability of the program. Since at
least part of the infrastructure would need to be in place before customers began to
consume the energy, there would need to be enough working capital and cash flow to get
through the first few years as development came "on-line." Construction of some
distribution facilities such as lines, poles, and extensions would be phased in as
development progresses. However, some facilities may need to be constructed first, such
as a substation with a large enough capacity to meet future load growth. Another risk is
attributable to the fact that the amount of energy required to serve the Greenfield starts
out very small. The City likely will not be able to secure power at as competitive rates as
it could if it was purchasing for a larger load.
5.
Legal/Regulatory
With the exception of CPUC rules requiring the payment of Cost
Responsibility Surcharges, or "exit fees," discussed in Section IV.FA.b.(4) of the Report
at 124-26 and Appendix B, Section II.C.1 at 78-81, there are no specific state laws or
CPUC rules regulating the implementation of the Greenfield development option. Chula
Vista has adequate authority under the California Constitution and state statutes to
provide electric service to its inhabitants. Federal law governs the interconnection of the
City-owned distribution facilities with the facilities of SDG&E, including those operated
by the CAISO and SDG&E's rates for transmission service provided under its WDAT are
regulated by the FERC. The laws regarding interconnection requirements are also
addressed in Appendix B, Section II.C.3 at 33-35.
6.
Financing Options
The City would have a variety of financing mechanisms available to
finance its Greenfield projects depending upon the specific asset to be required or built
and/or activity. Financing techniques might include the following:
~ General Obligation Bonds
~ Limited Obligation Bonds
~ Special Assessment
~ Certificates of Participation
26
'7,{pCj
VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
GREENFIELD DEVELOPMENT
~ Revenue Bonds
~ Commercial Paper
The MEU Study Team believes that tax-exempt financing should
generally be applicable to finance all the Greenfield capital projects.
In Appendix C, Section IV.A, at 126-27, the MEU Study Team has
provided an overview and comparative analysis of each type of financing vehicle that is
available to the City.
7.
Implementation Schedule and Timelines
It is estimated that it would take one to three years for full implementation
of this option. A detailed listing of the steps necessary to implement this option is set
forth below.
a.
Implementation Schedule
(I)
Ordinance:
City passes an ordinance to form a municipal utility (City has
already passed Ordinance No. 2835).
(2)
Svstem Design:
Electric distribution design firms will work with developers to
design and specifY system requirements in compliance with
applicable design standards to serve the planned development. (2-
3 mo.)
(3)
Determine Interconnection Reauirements:
Assess technical requirements and cost to achieve interconnection
of the development distribution system with adj acent transmission
or distribution facilities. If the given Greenfield development is
going to be interconnected with facilities operating below
transmission system voltage levels (which for SDG&E is 138kV),
and served at distribution voltage levels (most likely 12-69 kV), it
will need to be served under SDG&E's WDAT. If this is the case,
the City must complete an application for service according to the
SDG&E WDAT. SDG&E will perform a facilities requirement
and system impact study to determine the logistics and the cost to
effect an interconnection with the SDG&E system. A successful
application will result in the execution of a service agreement
27
'7-'70
(4)
(5)
(6)
(7)
(8)
(9)
VI. MEU STRUCTURAL OPTIONS -
OVERVIEW AND EVALUATION
GÌŒENFIELD DEVELOPMENT
which sets forth the costs, terms and conditions of service. (6-9
mo.)
Final Evaluation:
Evaluate and assess projected loads, costs and benefits (at this
point, primarily interconnection costs) and determine whether to
proceed with the project. (1 mo.)
Procure and Schedule Power:
Based on load studies and forecasts derived from information
provided under item (2), tailor and initiate a resource and schedule
power delivery to coincide with project completion and estimated
development occupancy. Update power delivery schedules, as
required before operational status as provided in power contract
terms and conditions, to balance loads and resources. (2 mo.)
Staffing/Outsourcing:
Initiate human resources plan. Update plans to reflect development
schedules and requirements; perform staffing or solicit outsource
staffing services. (2 mo.)
Infrastructure Construction:
Land developer subcontractors will install electric system
infrastructure, including trenching, conduit, backfill, vaults,
manholes and transformer pads (as they would if SDG&E were to
serve the area). (2-5 weeks)
High Voltage Equipment Installation:
The City will engage subcontractors specializing in high-voltage
interconnection to pull conductors through the conduit, install
substations, connectors, switches, transformers and connections
with metered panels (residents, businesses, etc). (2-3 weeks)
Peripheral Equipment:
City will install peripheral electrical equipment
controllers/irrigation pedestals/street lights). (2-3 weeks)
(traffic
28
1,11
VI. MEV STRUCTURAL OPTIONS-
OVERVIEW AND EVALUATION
GREENFIELD DEVELOPMENT
(10)
Initiate Operations:
Schedule and initiate Greenfield utility operations to coincide with
the occupancy date for newly developed area. (1 mo. - occupancy
date)
b.
Timelines
The MEU Study Team estimates that the steps identified above would take
between 15 and 20 months to complete from the time electric distribution system design
firms begin working with developers. Operation of a new Greenfield project will depend
upon actual project completion and building occupancy in the newly developed area. The
project implementation schedule Gantt chart, Section VIII.B below at 57 and Appendix
C, Section ILV.B at 131, is structured in months from the onset of any given Greenfield
development project.
8.
Recommendation
The MEU Study Team recommends that the City provide utility services
to the residents and businesses in the developing areas of Mid-Bay front, Otay Ranch, and
Sunbow through the implementation of Greenfield projects and the construction of new,
City-owned distribution facilities.
29
r¡-'7~
VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
COMBINED CCNGREENFIELD DEVELOPMENT
c.
Combined Community Choice Aggregation/Greenfield Development
1.
Summary
The City of Chula Vista can simultaneously implement the CCA program
and Greenfield development on approximately the same schedule. Based upon the
economic analysis set forth in this Report, the MEU Study Team has concluded that the
most beneficial option open to the City is a Combined CCNGreenfield development
based on a Generation Supply Strategy.
2.
Customer Base
In combining the CCNGreenfield options, the City could serve a
projected combined customer load of 90,652 customers beginning in 2006 and 104,469
customers in 2023 at the end of the study period. As discussed above, the MEU Study
Team has assumed 100% participation in the CCA program. To the extent that potential
customers "opt out", as they have the legal right to do, the benefits to the City and its
remaining customers would be reduced accordingly.
3.
Functional Elements
The functional elements of other CCA and Greenfield options discussed
above do not change when the two options are combined. The two programs would be
administered and managed by the same administrative staff.
4.
Benefits and Risks
a.
Benefits
The benefits of a combined CCNGreenfield development are materially
enhanced by the combination of these programs. Based on the financial pro forma
performed by the MEU Study Team, the combined CCNGreenfield utility option, using
City-owned generation (Generation Supply Strategy) would produce savings amounting
to $14.9 million in 2006 and increase to $31.7 million in 2023, for a total NVP savings of
$122 million over the study period. Capital costs for this option are estimated to be $78
million for generation and $13.8 million for distribution facilities.
b.
Risks
There are certain risks inherent in both the CCA and the Greenfield
options, particularly one based on a Generation Supply Strategy. In the case of
Greenfield development, the full implementation of a Greenfield program in the
undeveloped areas of the City will depend on the pace at which commercial and
residential development occurs in the Greenfield areas. There is also the risk that
30
'7- 73
VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
COMBINED CCNGREENFIELD DEVELOPMENT
generation costs projected in the study to serve Greenfield's loads will be higher than
projected due to unforeseen changes in the California energy markets.
In the case of CCA development, there is currently uncertainty and
attendant risks related to the final development and implementation of rules and protocols
governing CCA programs. The City also runs the risk that, if benefits or savings to be
made available to electric customers are not attractive enough, prospective customers will
"opt out" of the CCA program, thus diminishing the benefits or savings to the City's
remaining customers.
5.
Legal/Regulatory
Pursuing a program which combines both Greenfield development and
CCA will not alter the legal requirements for either option. There are no legal
impediments (or advantages) to pursuing both options simultaneously or in tandem.
6.
Financing Options
The financing options open to the City for a combined CCNGreenfields
utility option are those applicable to either the CCA or the Greenfield options as
discussed above.
7.
Implementation Schedule and Timelines
Barring any substantial delay in the promulgation and issuance of final
CPUC rules and regulations for CCA Projects, it is estimated that a combined
CCNGreenfield utility option can be planned and implemented in a two to three year
time frame to allow the City to commence operations in 2006.
a.
Implementation Schedule
The major and critical steps to implement a CCA project are discussed
above in Section VI.A.7.a at 20-22 and in Section IV.C.6.a of the Report at 58-60 and
will not be repeated herein. The major and critical steps to implement a Greenfield
project are discussed and outlined above in Section VI.B.7.a at 27-29 and in Section
IV.D.6.a of the Report at 77-79 and will not be repeated herein. Suffice it to say that, in
combining the Greenfield and CCA options, the critical steps and timing will remain
relatively unchanged.
b.
Timelines
The implementation schedules for the CCA and Greenfield MEU options
can move forward simultaneously and the two options can be implemented on
approximately the same schedule depending on separate variables.
31
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
COMBINED CCAiGREENFIELD DEVELOPMENT
In the case of the CCA option, the largest unknown is the development
and implementation of final CCA rules and regulations by the CPUC. As discussed
earlier, the CPUC initiated its CCA rulemaking procedure on August 21, 2003 and issued
Rulemaking No. R-03-09-007 on September 4, 2003. On October 2, 2003, the CPUC
reissued the rulemaking under Docket No. R03-10-003. On November 26, 2003, the
assigned Administrative Law Judge in R03-10-003 issued a ruling bifurcating the
proceeding into two phases. The first phase, in which hearings were held in February
2004, addressed many of these cost related issues. Administrative and ministerial matters
will be the subject of the second phase of the proceeding. It is anticipated that final CCA
rules and regulations will be implemented by mid-2004, and, under this schedule, the
MEU Study Team estimates that a CCA could be operational by mid-2005 (please refer
to Section VIII.B below at 55 and Appendix C, Section V.A at 130 for Gantt chart time
requirement projection for each critical path necessary to form a CCA).
In the case of a Greenfield Project, the operation of any Greenfield Project
will depend upon actual project completion and building occupancy in the newly
developed areas designated for Greenfield development. The MEU Study Team
estimates that the steps necessary to implement a Greenfield Project would take from 15
to 20 months to complete from the time the City Staff and electric distribution design
flTIll begin working with the developers of the Greenfield areas. The project
implementation schedule (Gantt Chart) in Section VIII.B below at 57 and in Appendix C,
Section IIV.B, at 131 is structured in months from the onset of any given Greenfield
development project.
8.
Recommendation
The MEU Study Team recommends that the City elect to develop both a
CCA project and Greenfield projects in the near term and combine the administration of
these projects under the City's MEv. The MEU Study Team also recommends that the
City immediately begin initial planning for development of an internal generation
program to allow the City to serve its customers with City-owned generation. While it is
not necessary for City-owned generation to be online to serve the MEU load at the outset,
the long lead-time and due diligence required for investment in generation dictates
beginning the process now. In developing an MEU with the CCA and Greenfield
projects in the near term, the City will establish utility infrastructure and gain operating
experience without the necessity of acquiring the electric distribution facilities of
SDG&E.
32
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
MUNICIPAL DISTRIBUTION UTILITY
D.
Municipal Distribution Utility
1.
Summary
As discussed in the Report, Section III.B.4 at 26 and Section IV.F at 99,
the Municipal Distribution Utility (MDV) model is a full service utility that develops and
acquires generation resources and owns and operates the distribution facilities within the
City in order to provide full utility service to retail electric customers in the City. If the
City implements this option, the City would acquire SDG&E's electric distribution
system by negotiation or condemnation and perform operation and maintenance
activities. The City would also develop or acquire generation resources, and/or purchase
power to meet City load requirements.
2.
Customer Base
The development of an MDU will give the City the capability of providing
full electric distribution service to all electric consumers in the City. It is projected that
the MDU would serve 86,652 customers in 2006 and 104,499 customers at the end of the
study period in 2023.
3.
Functional Elements
The MEU Study Team evaluated two primary supply strategies for the
City to serve the loads of the MDU customers: 1) a Generation Supply Strategy that uses
city owned generation resources for base load requirements; and 2) a Contracts Supply
Strategy that uses long term power purchase contracts for base load requirements. The
Generation Supply Strategy is based on City ownership of 130 MW of new combined
cycle gas turbine power plant capacity. The Contracts Supply Strategy is based on the
City entering into long and short-term fixed price power supply contracts to meet the
majority of the MDU's load requirements.
To achieve the highest benefit under this option, the City would have to
acquire the distribution system of SDG&E and have ownership of at least 130 MW of
internal generation. Under this scenario, the City would take wholesale transmission
service from SDG&E and the CAISO, and its customers would no longer pay SDG&E
retail rates. It is assumed that the City or its customers would be subject to payment for
the exit fees and other non-bypassable charges mandated by AB 1890. The City would
acquire the existing distribution system from SDG&E at a negotiated price or by the
exercise of the power of eminent domain.
In assessing the feasibility of the MDU option, it is important to
distinguish whether the option includes a Generation Supply Strategy based on the
ownership or entitlement to at least 130 MW ofload generation.
The MDU option is financially viable if the City owns generation within
the City boundaries. Internal generation minimizes wholesale transmission charges and
33
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
MUNICIPAL DISTRIBUTION UTILITY
other charges assessed by the CAISO. So long as the internal generator operates at a
capacity factor greater than 50%, FERC rules require transmission access charges to be
assessed on a net load basis, i.e., the internal generation is subtracted from the gross load
requirements of the MDU before applying the transmission rates. In addition, internal
generation reduces exposure to transmission congestion charges, charges for reliability
services, and certain elements of the CAISO's grid management charge. The benefits of
internal generation to the MDU's cost of service from reduced transmission access
charges and other CAISO charges are estimated at $6 million per year.
These wholesale transmission related benefits would not be obtained if the
City were to supply its load through power purchase contracts or ownership of remote
generation that must utilize the CAISO transmission network for delivery to the City
MDU. An MDU supplied through purchases from the market (as opposed to City-owned
generation) is not financially viable for the City in the near term.
The MEU Study Team evaluated a number of supply portfolios to
optimally serve the load requirements of the City. A typical supply portfolio would
utilize generation owned by the City or long-term contracts for the majority of projected
base load requirements. These long-term resources would be supplemented with short-
term contracts covering the additional seasonal load requirements of the portfolio,
typically in the third quarter of each year. Spot market purchases and sales are used to
fill the residual net short load requirements.
To import power, the City would take wholesale transmission service at
the 115 KV voltage level and would be assessed CAISO charges for high and low voltage
transmission service. Transmission costs are based on the currently effective CAISO
transmission access charges applicable to the SDG&E area for high voltage and low
voltage transmission service. The transmission charges were assumed to escalate at 1.3%
per year.
The MEU Study Team used the results of a nationwide benchmarking
study of municipal electric utilities to estimate distribution operation and maintenance
(O&M) costs for the city. The study grouped municipal electric utilities by size into five
strata and reports average per customer O&M costs within each strata for distribution
O&M, customer service expenses, and administrative and general expenses. The average
total annual distribution O&M costs reported by participants in the study range from
$246 to $594 per customer, reflecting a wide range of urban and rural municipal utilities
of various sizes and population densities.
The MEU Study Team has also used a targeted set of case studies of
California municipal electric utilities to obtain O&M estimates that would be more
reflective of the costs expected for the City municipal electric utility. Data are available
for years 1998-2001, and the average total annual distribution O&M costs range from
$231 to $380 per customer. For this analysis, the four-year average per customer O&M
costs of California municipal utilities of similar size as Chula Vista was used to predict
the cost for MDU distribution operations. The four municipal utilities with between
34
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EV ALUA TION
MUNICIPAL DISTRIBUTION UTILITY
50,000 and 90,000 customers were selected. These were Burbank, Glendale, Pasadena,
and the Turlock Irrigation District. The average annual O&M cost is $270 per customer.
By comparison, the MEU Study Team has calculated the system-wide
average distribution O&M costs for SDG&E, using FERC Form 1 data, of $198 per
customer. The lower figure for SDG&E reflects economies of scale in distribution
operations that are not available to smaller distribution systems. The capital financing
and tax advantages of municipal electric utilities are offset to a degree by higher per
capita O&M costs typical of smaller utilities.
4.
Benefits
The projected NPV of savings to City residents does not support use of
this option with power procured solely through contracts. However, with power supplied
from City-owned generation, the NPV of this option is projected to be $109 million over
the study period. Capital costs are estimated to be $185 million to acquire SDG&E's
distribution system and $78 million for generation.l!
If Chula Vista decides to pursue this option, its residents could realize a
number of benefits, including the likelihood of lower-priced power, more stable
electricity rates, local control, improved reliability, and opportunities for economic
development. Moreover, in acquiring the SDG&E distribution system, the City will have
valuable assets and broaden its opportunities for further savings.
There are important inherent benefits and advantages to public ownership
of utility systems. Since the Califomia electric industry was restructured and
"deregulated" by the California Legislature in 1996, the electric customers of the State's
IOUs have experienced dramatic increases in their electric rates, particularly in the San
Diego area. At the same time, the customers of most of the State's publicly-owned
utilities were protected from the dramatic increase in rates. While some municipal utility
customers also experienced rate increases, the increases were not on the order of
magnitude that the customers ofthe California IOUs have experienced. The major reason
municipal utility rates did not increase as dramatically as IOU rates is that municipal
utilities were not fully and forcefully committed to the California deregulation
experiment, and therefore not substantially reliant on the energy spot markets in 2000 and
2001. Most municipal utilities had either developed their own generation resources, or
entered into long-term power contracts that "locked-in" and stabilized future energy
costs, and were therefore not dependent upon spot-market purchases. The history of the
restructuring of the Califomia electric industry and related regulatory and legislative
issues is set forth in Appendix B, Section I at 11-27. This analysis demonstrates and
discusses the legal and regulatory environment in which the City of Chula Vista's MDU
would operate once established.
II
The total capital costs for the acquisition of SDG&E's distribution system would be approximately
$12 million lower if the City elects to pursue the Greenfield option and build distribution facilities
for these customers.
35
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
MUNICIPAL DISTRIBUTION UTILITY
Municipal utilities have an inherent price advantage over IOUs because
the municipal utility is not motivated to produce profits for shareholders. Municipal
utilities are permitted to set rates which cover both capital and operating expenses and
also fund utility reserve accounts, fund in-lieu-of-tax payments to local governments,
fund other worthy public projects and, within reasonable limits, make a rate of return on
its investment. In addition, the municipal utility has access to tax-exempt financing for
many capital expenditures. These key components provide the City with significant
advantages regarding retail electricity rates as compared to remaining a full requirements
customer ofSDG&E.
Another major advantage with this option would be local authority and
control. For instance, the future potential City ofChula Vista Electric Utility Department
could make resource decisions, develop maintenance practices, develop capital
improvement programs, and make other decisions relating to the operation of the utility
for the sole benefit of City residents and businesses. For instance, the City could elect to
purchase electricity from more environmentally benign resources in comparison to
SDG&E's resource mix. The City Council would be the only entity to set electric rates.
Such rates would be designed to meet any unique circumstances existing within the
City's service territory. Currently, these decisions are being made by SDG&E (for the
benefit of its shareholders) under the regulation of the CPUC and the FERC. Municipal
utilities are not, for the most part, subject to CPUC or FERC regulation.12 Rather, they
are, for the most part, subject to self-regulation and control by the City Council or a
municipal utility board or commission.
An important facet of local control which should not be overlooked is the
ability of the Chula Vista City Council to fashion programs to utilize public goods
charges (discussed in Section IV.F.3.d(I)) of the Report at 119-20 and in Appendix B,
Section III.C.1.a at 16-17). Such programs must meet the requirements of state law, but
can be designed to meet the unique requirements of Chula Vista customers and provide
direct benefits to Chula Vista residents and businesses.
Public Utilities Code 385 authorizes and requires local publicly owned
electric utilities to collect, through rates for local distribution service, revenue allocated to
public benefits programs. The public benefits charges are to be not less than the lowest
expenditure level of the three largest IOUs on a percent of revenue basis for year ending
December 21,1994. Public benefits related charges are currently a minimum of
2.85 percent of the publicly owned electric utility's revenue requirement.
Public benefit programs referred to include the following:
i.
Cost-effective demand-side management services to promote energy
efficiency and energy conservation;
12
See discussion in Appendix B, Section I.C at 15-27.
36
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
MUNICIPAL DISTRIBUTION UTILITY
ii. New investment in renewable energy resources and technologies (subject.
to applicable statutes);
iii. Research, development and demonstration programs for public interest to
advance science and technology that is not adequately provided by
competitive and regulated markets; and
iv. Service for low-income electricity customers, including, but not limited to,
energy efficiency services, education, weatherization, and rate discounts.
Revenue associated with this charge would be available to the City to
allocate to various activities identified above.
Finally, the City could provide economic incentives for specific economic
development areas within the City, and design rates to match those incentives.
5.
Risks
One obvious and large risk inherent in this option is the amount of
resistance that SDG&E would exert against the City moving forward with a public power
entity. Ideally, if the City decided that it wanted to proceed with the implementation of a
City Electric Utility Department, the City would be able to reach a negotiated settlement
with SDG&E for the acquisition of its distribution assets. However, it is more likely that
SDG&E would resist the acquisition of its distribution facilities.
In considering the MDU option, the City should not underestimate the
potential strong opposition SDG&E will wage against the taking of its distribution assets
or infringement on its customer base. The City should anticipate that SDG&E will use
every legal and political tool available to frustrate, defeat or delay the implementation of
the City's MDU option. The Eminent Domain Law 13 gives the property owner several
opportunities to defeat the acquisition, beginning with the contest of the Resolution of
Necessity. SDG&E can also delay the implementation process by contesting the terms
and conditions of the interconnection before the FERC.14 At the bottom line, SDG&E's
political and legal resistance to selling its distribution assets may substantially increase
the start-up costs associated with the creation of a new utility.
It is worth noting that SDG&E recently funded a citizen's initiative in San
Marcos in opposition to the City Council's efforts to implement a Greenfield project to
serve newly developed areas within the City. IS
13
See discussion in Appendix B, Section ILA at 28-30.
14
See discussion in Appendix B, Section II.e.3 at 33-35.
15
The San Diego Union Tribune, August I, 2003. According to San Marcos Councilman Lee
Thibadeau: "SDG&E is doing everything it can to interfere with the city's right to establish our
own utility and save our residents minions of donars."
37
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
MUNICIPAL DISTRIBUTION UTILITY
Another risk may involve issues surrounding the separation or "islanding"
from other parts of the SDG&E system. If the City and SDG&E cannot agree on the
terms and conditions of the interconnection, the City will be required to file an
application for interconnection with the FERC. The FERC will establish the terms and
conditions of the interconnection, including any necessary reconfiguration of the SDG&E
distribution system to allow SDG&E to continue to serve those customers located outside
of the City's service territory. The FERC will assign the costs of the interconnection to
the City. There would also likely be certain physical distribution asset separation
problems where portions of SDG&E's distribution lines cross other jurisdictional
boundaries. This may require the construction of additional distribution substations,
installation of net metering technologies, or other local distribution design
reconfigurations resulting in the award of severance costs to SDG&E as part of the
condemnation process. The net effect could result in increased costs of acquiring
SDG&E's distribution assets and establishing the City's distribution system.
Operational risks must also be considered, as the City would be
undertaking electric distribution operations that require skill sets and personnel not
currently in place at the City. Operations and maintenance of high voltage electrical
systems require skilled and experienced personnel with the ability to safely and reliably
operate the system.
To provide a cost benefit over the current SDG&E service, the City would
need to be able to acquire the distribution system, provide or obtain energy and related
services, perform operation and maintenance services, billing, settlements, and
collections, and perform long-term planning, all at a cost of less than the current provider.
Based upon the financial pro forma performed by the MEU Study Team, the City can
meet this challenge through the formation and operation of a full service MDU.
6.
Legal/Regulatory
a.
Formation and Implementation Process
Ca!. Const. Art. XI, §9 provides specific authority for municipal
corporations to provide utility services both within and without of their boundaries ". . .
except within another municipal corporation which furnishes the same service and does
not consent." Ca!. Pub. Uti!. Code § 10002 provides that a municipal corporation may
acquire, construct, own, operate, or lease any public utility. A Public Utility, in this
context, is defined as tlie supply of a municipal corporation alone or together with its
inhabitants, or any portion thereof, with water, light, heat, power, sewage collection,
treatment, or disposal for sanitary or drainage purposes, transportation of persons or
property, means of communication, or means of promoting the public convenience. See
Ca!. Pub. Uti!. Code § 10001.
Publicly owned municipal utilities (the various forms of which are set
forth and described at Ca!. Pub. Uti!. Code § 9604(d)) are not regulated by the Public
Utilities Commission or any other supervising agency, in the absence of a legislative
38
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
MUNICIPAL DISTRIBUTION UTILITY
grant of authority (Cal. Const., art XII, § 3; see also, County of Inyo v. Public Utilities
Commission (1980) 26 Cal. 3d 154.
No formation or implementation process is specified by state law for the
creation of such a utility.
As discussed in Section I above at 1, the City of Chula Vista has already
taken the initial steps in the formation of an MEU with the adoption, on June 5, 2001, of
Ordinance No. 2835, establishing the City as a municipal utility.
b.
Exercise of the Power of Eminent Domain
In California, a public entity, such as Chula Vista, may acquire property
for public use, including public utility facilities and franchises, using the process of
eminent domain.16 The procedure which a municipality or other entity (e.g. Municipal
Utility District) must follow in acquiring public utility facilities or franchises is discussed
in detail in Section IV.F.4.a of the Report at 123-24 and in Appendix B, Section II.A at
28-32. The MEU Study Team has also provided an analysis of the standards for
determining 'just compensation" in eminent domain proceedings. See Appendix B,
Section II.B at 30-32.
7.
Financing Options
The City would have certain financing advantages in comparison to
SDG&E due to its lower cost of capital arising from access to low cost debt and
exemption from federal and state income taxes. Tax-exempt financing is not applicable
to the acquisition of existing distribution assets and was not used in the analysis. Tax-
exempt financing was only assumed to be used for all new distribution and generation
facility development.
In Appendix C, Section IV.A, at 126-27, the MEU Study Team has
provided an overview and comparative analysis of each type of financing vehicle that is
available to the City.
8.
Implementation Schedule and Timelines
The implementation of an MDU option will be complicated by the
eminent domain process assuming that the City is unable to reach agreement with
SDG&E after making an offer for the purchase of the electric distribution system. To
develop a reliable offer, the City must complete the study and planning process and adopt
a Resolution of Necessity. On a most optimistic basis, the MEU Study Team estimates
that an MDU could be established in a three and one-half year time frame. More
realistically, the MEU Study Team would suggest allowing a five to six year (or more)
16
See Cal. Civ. Proc. Code §§ 1240.010 and 1240.110.
39
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
MUNICIPAL DISTRIBUTION UTILITY
lead time for the formation of the MDU. During this period, the City could implement
the CCNGreenfield options, develop an MEU infrastructure, and gain utility operating
experience before undertaking the task of acquiring or condemning SDG&E's electric
distribution system.
a.
Implementation Schedule
In the event that Chula Vista elects to form an MDU, the MEU Study
Team has identified the following major and critical steps, beginning with a focused
MDU Feasibility and Implementation Plan, which will be necessary for the City to
complete before commencing the operation ofthe City's electric distribution system:
(1)
Focused MDU Feasibility and Implementation
Plan Tasks
(1.1) Distribution System Survey and Valuation: (I mo.)
1.1.1 Detail the distribution system configuration, inventory
equipment and facilities; document the percent condition
1.1.2 Perform a system valuation to determine just compensation for
the negotiated purchase or condemnation of the existing
distribution system
(1.2) Severance Plan and Cost Study: (3 mo.)
1.2.1 Perform an engineering evaluation of the distribution system
within and adjacent to the City's boundaries
1.2.2 Document the location and configuration of substations and
interconnections required to isolate and interconnect the City
electric system and ensure SDG&E can provide service to its
remaining customers
1.2.3 Prepare plans, specifications, drawings, material lists, cost and
construction time estimates
1.2.4 Identify other private properties that must be purchased or
condemned and estimate just compensation and time estimates
(1.3) Energy Resource Plan: (3 mo.)
1.3.1 Finalize generation and contract supply strategy, engage
developers in negotiations
1.3.1.1 Negotiate placement of generation facilities within
City boundaries
1.3.1.2 Negotiate a percentage of plant ownership and/or
entitlement to generation plant output
1.3.1.3 Identify a short list of wholesale energy providers;
refine supply pricing, terms and conditions of
supply
(1.4) Human Resources Plan: (3 mo.)
40
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
MUNICIPAL DISTRIBUTION UTILITY
1.4.1 Identify any areas of overlap with existing City organizational
structures and ways to leverage existing staff capabilities
1.4.2 Re-evaluate human resource requirements (Section IV.F at
106-07) to eliminate overlaps in staffmg
1.4.3 Develop detailed job descriptions for each remaining human
resource requirement
1.4.4 Perform an analysis of the regional labor base to determine
availability of qualified candidates for key discipline areas,
survey the relevant job market to fulfill plans to staff these
positions and provide time estimates
(1.5) Facilities Plan: (3 mo.)
1.5.1 Identify facility requirements
1.5.1.1 Customer and Energy Services: (call center, staff
offices, billing system, vehicles and equipment)
1.5.1.2 Distribution Engineering and Operations: (offices,
communication and control equipment, garage
facilities, service vehicles, yard, security)
1.5.1.3 Power Operations: (staff offices, systems and
equipment)
1.5.1.4 Detail availability, location and cost to build, buy,
lease or otherwise acquire the needed facilities
(1.6) Pro Forma Update: (1 mo.)
1.6.1 Update cost estimates with results of the distribution system
survey, severance, energy resource, human resources and
facilities plans described in 1.1 to 1.5
1.6.1 Prepare request to SDG&E to obtain detailed customer load
data
1.6.2 Update and refme load forecast based on planned development
1.6.3 Incorporate the impacts of any new regulations, cost
assumptions or City objectives
(1.7) Finance Plan: (I mo.)
1.7.1 Work with financial planners and bond counsel to develop
revenue bonding and other alternatives for financing depending
upon categories and values of assets to be financed
(1.8) Governance Plan: (2 mo.)
1.8.1 Propose governance structures for the new municipal utility
1.8.2 Obtain consensus among City leadership and establish plans
for reporting, oversight and financial management of the
municipal utility
(1.9) Implementation Plan: ( 1 mo.)
1.9.1 Incorporate all of the above into an implementation plan
41
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
MUNICIPAL DISTRIBUTION UTILITY
1.9.1.1 Structures, costs, timelines, updated financial
prospectus
1.9.1.2 Achieve City leadership's approval and move to
Implementation Phase
(2)
Implementation Plan Tasks
(2.1) Establish public interest and necessity and demonstrate greatest
public good, least private injury (1 mo.)
(2.2) Ordinance No. 2835 has provided local authority establishing a
public utility - further action by City Council to authorize
negotiations with SDG&E as described in Section 2.3 below (1 mo.)
(2.3) Make an offer and attempt to negotiate the purchase of SDG&E's
distribution system (I mo.)
(2.4) Provide an opportunity for SDG&E to appear and be heard and argue
public interest and necessity (30 days required - 1 mo.)
(2.5) Adopt Resolution of Necessity to condemn the property (1 mo.)
(Resolution of Necessity creates a rebuttable presumption that the
public interest and necessity have been established!?)
(2.6) Final Offer: 30 days prior to condemnation trial the City must make
another attempt to negotiate the purchase of the property (I mo.)
(2.7) Judicial Review:!8
2.7.1 SDG&E is likely to seek judicial review ofthe validity of the
City's Resolution of Necessity (see 2.5) before or during the
power of eminent domain proceeding!9 (3 mo.)
(2.8) File Complaint in Superior Court invoking the power of eminent
domain and initiating condemnation proceedings (6 mo. to 2 years)
2.8.1 Obtain any final information needed to confirm and support
any critical elements of the Implementation Plan
2.8.1.1 The City can secure either the written consent of the
SDG&E or an order from the Superior court to enter
the property to make photographs, studies, surveys,
17
Ca1 Civ. Proc. Code § 1245.250.
18
Cal Civ. Proc. Code § 1245.255.
19
Cal Civ. Proc. Code §§ 1250.350 and 1250.370.
42
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
MUNICIPAL DISTRIBUTION UTILITY
examinations, and appraisals or engage in similar
activities related to acquisition or use of the
propertl°
2.8.1.2 If the City's Resolution of Necessity is accepted and
the City's right to affect a taking of SDG&E's
property and setting of compensation is approved, the
City may apply ex parte to the court for an order for
possession (deposit with the court the probable
amount of compensation) and proceed to initiate the
Implementation Plan.
(2.9) Execute Implementation Plan: (1 year)
2.9.1 Negotiate the Date of Possession based upon the
scheduled completion of the Following:
Governance Plan
Human Resources Plan
Facilities Plan
Severance Plan
Energy Resource Plan
2.9.2 Execute Energy Supply Agreements
2.9.2.1 Finalize arrangements with developers for generation
projects
2.9.2.2 Prepare RFP for Power Supply Contracts, Evaluate
Responses and Execute Contracts
2.9.2.3 Begin Scheduling power
b.
Timelines
Given the many variables inherent in the eminent domain proceedings and
in the other regulatory proceedings related to the establishment of state imposed exit fees
and non-bypassable charges, it is impossible to provide a definitive implementation
schedule. The MEU Study Team estimates the following timelines for the completion of
the planning elements and implementation phases in establishing an MDU:
Planning Elements: The time to complete additional planning, consisting
of the individual elements itemized above, performed in sequence are estimated to take
twenty months. However, overlaps and concurrent work projects might reduce this
estimate to one year. The lead time to implement generation projects, on which the MDU
Generation Strategy option and its benefits are based, is estimated between one and one-
half to three years, although this might be initiated prior to completing all of the planning
elements.
20
Civ. Proc. §§ 1245.010, 1245.020, 1245.030.
43
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
MUNICIPAL DISTRIBUTION UTILITY
Implementation Phase: It is estimated that the process leading up to a
condemnation trial will take approximately six months for Implementation Tasks 2.1
through 2.7. The court hearings are estimated to take between six months and two years.
An order for possession might be obtained prior to resolution and setting of just
compensation. It is estimated that the City can establish its right to take the SDG&E
assets by obtaining the judicial approval of the Resolution of Necessity within ten
months. It is further estimated that the implementation Plan can be fully executed in
from one year to 18 months. Hence, the most optimistic time projection to implement the
MDU is three and one-half years.
The MEU Study Team believes the estimated two year time required to
implement a generation project will run concurrently with the additional planning
activities and the condemnation process. Accordingly, the 3.5 year time estimate would
not change for implementation of the MDU structure option with a Contract Supply
Strategy. However, as discussed above, the MEU Study Team does not recommend
implementing the MDU option with a Contracts Supply Strategy.
Based on the analysis contained herein, the City could elect to implement
an MDU employing a Generation Supply Strategy as soon as it could obtain entitlement
to generation output from a local, modern power plant. A phased approach, as described
above, would allow the City to develop experience in the power procurement and
delivery business.
If the City elects to implement the MDU option in the 2010 timeframe,
after the establishment of the Combined CCNGreenfield option, as recommended by the
MEU Study Team, the City would commence the MDU Planning and Implementation
Elements discussed above in mid-2008?!
In considering the timelines necessary to implement an MDU system, the
City should be cognizant of and prepared for strong legal and political opposition from
SDG&E. Such opposition could substantially delay the completion of the acquisition
process and increase the start-up costs for the MDU option.
9.
Recommendation
Based upon the positive results of the pro forma financial studies and the
other major benefits, which will accrue from the implementation of the MDU (with the
Generation Supply Strategy) option, the MEU Study Team believes that it is feasible,
from both an economic and operational standpoint, for the City to form and operate an
MDU by acquiring the distribution assets of SDG&E. In coming to this conclusion, the
MEU Study Team recognizes that, because of the substantial capital investment required
to acquire the distribution system, generation facilities and to defray the start-up expenses
21
It should be noted that, in the Gantt Chart located in Section VIII.B below at 59 and in Appendix
C, Section V.C at 132, the implementation schedule used for comparing the MEV options
reviewed herein begins in 2004 for all options.
44
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VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
MUNlCIP AL DISTRIBUTION UTILITY
for an MDU, the potential NPV of benefits to the City is less favorable than the
CCNGreenfield option with a Generation Strategy. At the same time, the MEU Study
Team is of the opinion that, in the long run, the ownership of the electric distribution
system would allow the City to serve all electric customers within the City at rates
substantially below the current and proj ected rates of SDG&E and permit the city to build
asset value in the distribution system. The MEU Study Team has also given substantial
weight to the non-financial benefits to be realized by public ownership of the distribution
system, including local control of rates and service, discretion in the application of
savings or benefits, and independence from SDG&E and the owner/operators of the
transmission grid.
Given the additional planning and study requirements needed to
implement the MDU option, together with the procedural steps which must be followed
under the Eminent Domain Law, the MEU Study Team recommends that the City defer
implementation of the MDU option until the 2008-10 time frame and re-evaluate the
option based on circumstances existing at that time. Assuming that the City proceeds to
develop the CCA and Greenfield options in the meantime, the City will have an MEU
infrastructure, customer base, generation facilities and several years of operating
experience before needing to make the critical decision of potentially acquiring the
distribution system of SDG&E. In the event that CCA appears to be uneconomical once
the CPUC has issued its final rulemaking decisions, the MEU Study Team would
recommend that the City accelerate its consideration of the MDU option.
45
r¡-gg
VI. MEU STRUCTURAL OPTIONS - OVERVIEW AND EVALUATION
JOINT POWERS AGENCY/MUNICIPAL UTILITY DISTRICT
E.
Joint Powers Agency/Municipal Utility District
As discussed in the Report, Section m.B.5 at 26 and Section IV.G at 135,
the MEU Study Team identified two long range options which are open to the City once
it establishes an MDU. These options are participating in a Joint Action Agency (JPA) or
forming a Municipal Utility District (MUD). As explained in the body of this Report,
both the JP A and MUD options would involve making complex arrangements and
entering into contractual agreements with other publicly-owned electric systems and/or
local governments.
While both the JP A and MUD options provide a vehicle for spreading risk
and expenses and allowing the City's MEU to take advantage of the economies of scale,
it is the opinion of the MEU Study Team that neither the JPA nor MUD option is suitable
as a vehicle for the initial formation of an MEU by the City.
Once the City forms its MEU and begins operations under anyone of the
options analyzed and recommended herein, the City should consider participation in an
existing JPA or the formation ofan MUD.
The legal authority and the procedures required to participate in or form a
JPA or MDU are set forth in Section IV.G of the body ofthe Report at 135-39.
46
r¡-81
VII. NATURAL GAS
VII.
NATURAL GAS
As explained in Section IV.H of the Report at 140-54, the MEU Study
Team performed an analysis of the feasibility of owning and operating the gas
distribution facilities located within the City. The gas distribution system in Chula Vista
is currently owned and operated by SDG&E, a wholesale customer and affiliate of SoCal
Gas.
The study fIrst focused on the economics of the gas distribution business
since SDG&E's gas procurement charge for core customers is competitive with the
market price of gas available to SDG&E at the California border. The MEU Study Team
found that (1) SDG&E does not own substantial amounts of interstate pipeline capacity,
and (2) that SDG&E's gas procurement contracts are based on rates that are "at or below"
market prices and that, even with projected escalation in gas prices, it is unlikely that
SDG&E's gas procurement contracts will be "above market" during the 18-year period of
the study. Under these circumstances, it was concluded that Chula Vista could not
compete with SDG&E by entering into the gas distribution business using SDG&E's gas
distribution system for delivery of gas to customers within the City.
The MEV Study Team then performed an analysis to determine whether
Chula Vista could provide any benefits or achieve economic feasibility by acquiring,
owning and operating the gas distribution system within the City's boundaries. Since the
MEU Study Team had concluded that the City could not procure gas at wholesale for
prices that were competitive with SDG&E, it was necessary to determine whether the
City could provide gas transportation and distribution (T&D) services to customers at a
lower cost than the customers currently pay to SDG&E for these services. To perform
this analysis, the MEU Study Team provided an estimate, using conservative
assumptions, ofChula Vista's estimated costs for facility acquisition, operating costs, and
transmission costs which would have to be paid to both SoCal Gas and SDG&E to get
wholesale gas to the City.
Once the MEU Study Team projected all operating and gas procurement
costs, these costs were compared to comparable costs of continuing to buy retail gas from
SDG&E to determine whether Chula Vista could provide gas service to its customers at
rates lower than SDG&E. The comparative cost analysis for both gas distribution service
and for a full service gas utility (including acquisition, ownership and operation of the
gas distribution system) were negative. Under the conservative assumptions used by the
MEU Study Team, the study shows that, over the 18-year study period (2006 through
2023), the NPV of the revenues which would be lost by establishing a municipal gas
utility in Chula Vista would be approximately $24 million.
As this feasibility analysis reflects, on September 17, 2003, SDG&E filed
an application for significant increases in its natural gas rates as part of its Biennial Cost
Allocation Proceedings (BCAP). If approved, SDG&E's new gas rates would become
effective on January 1, 2005. In the event that SDG&E succeeds in its proposal to
47
1-90
VII. NATURAL GAS
increase its gas rates, the MEU Study Team recommends that the City should reexamine
the feasibility of providing gas distribution services.
48
'7 -1/
VIII. CONCLUSIONS AND RECOMMENDATIONS
VIII. CONCLUSIONS AND RECOMMENDATIONS
A.
Discussion and Comparison of Recommended Options
Based upon the results of this feasibility analysis, the MEU Study Team
has recommended that the City implement its Energy Strategy through the
implementation of the following MEU options or a combination thereof:
1.
Community Choice Aggregation Program
a.
Analysis
Under a CCA program based on a Contracts Supply Strategy, cost savings
or benefits are projected to occur in the years 2006-10. Projected SDG&E rate reductions
in 2011 resulting from the expiration of DWR power purchase contracts eliminate the
savings or benefits in the years 2011 through 2014. At that time, annual increases in
SDG&E's rates are projected to provide persistent savings or benefits to the City through
the study period. Savings begin at $6.3 million/year in 2006 and increase to $11
million/year in 2023. The City could implement the CCA program based on a Contracts
Supply Strategy without substantial capital costs. The first year implementation costs to
get this program in operation are estimated at $225,000.
A CCA program based on a Generation Supply Strategy promises to
optimize the City's revenues and savings to its customers. If Chula Vista elects to secure
130 MW of generation, the MEU Study Team projects savings to begin at $13.3
million/year in 2006 and grow to $21.3 million/year in 2023. Here again, savings or
benefits will be reduced significantly in the years 2011-2014 due to the expiration of
SDG&E's DWR contracts, and savings or benefits would increase as SDG&E's
wholesale rates are increased. Under this option, the City would be required to make a
substantial capital investment in generation facilities to provide 130 MW of internally-
generated electric power. The initial investment in generation is estimated at $78 million.
The major benefit available under the CCA program is that, under this
option, the City could begin purchasing electric energy and supplying it to its retail
customers without the need to purchase the SDG&E electric distribution system. It
would also provide a generation portfolio and the infrastructure and experience necessary
if the City also elects to establish a Greenfield Project or form an MDU and acquire and
operate the electric distribution system within the City.
b.
Recommendation
It is the recommendation of the MEU Study Team that the City
immediately implement the Tasks identified in the body of the Report to implement a
CCA program. While the actual implementation of a CCA program cannot be completed
until the CPUC issues its final rules and regulations, the MEU Study Team believes that
the City could implement a CCA program by mid-2005 or 2006.
49
1-q9--
VIII. CONCLUSIONS AND RECOMMENDATIONS
Of the two CCA options analyzed, implementation of a CCA program
with a Generation Supply Strategy, as opposed to the Contract Supply Strategy, optimizes
the benefits and savings to the City
2.
Greenfield Development
a.
Analysis
Based upon the economic analyses, the MEU Study Team concluded that
a Greenfield utility, which commences service in 2006, would lose money until 2012.
Beginning in 2012, the MEU Study Team projected persistent savings or benefits through
the end of the study period (2023) due to the addition of a larger number of electricity
users and the addition of large commercial and industrial loads. Over the study period
(2006-23), savings or benefits are projected to amount to $21 million. The
implementation of a Greenfield option would require a capital investment of
approximately $13.8 million to provide the distribution system necessary to serve
developing areas.
The MEU Study Team projected the cost of taking wholesale distribution
service under SDG&E's WDAT and developed projections for the initial cost of
construction, the distribution infrastructure necessary to serve the Greenfield areas. The
MEU Study Team then developed a projected electric supply portfolio, including long
and short-term power purchase contracts and renewable energy contracts. The study
showed that a stand-alone Greenfield utility was not of sufficient size to support the
development of an internal generation project by the City. Therefore, the projected
power supply for the Greenfield utility is 100% contract based.
In addition to the economic benefits to be derived over the study period,
the development and operation of Greenfield projects also produces other non-financial
benefits to the City. Importantly, the operation of the City's Greenfield projects will put
the City into the utility business, provide City personnel with experience in operating an
electric utility, and provide the City with the beginnings of an electric distribution
infrastructure. Moreover, as discussed below, the Greenfield option can be readily
combined with a CCA program to optimize savings to customers within the City and is
easily absorbed as part of a municipal distribution system if the City later decides to form
an MDU and acquire and operate the electric distribution facilities within the City
boundaries.
b.
Recommendation
The MEU Study Team has concluded that the development of Greenfield
Projects within the City is both economically feasible and desirable and recommends that
the City immediately implement plans to develop Greenfield projects in the Mid-
Bayfront, Eastlake/Otay Ranch Area and Sunbow planning areas for operations in 2006.
50
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VIII. CONCLUSIONS AND RECOMMENDATIONS
3.
Combined CCA and Greenfield Development
a.
Analysis
The detailed economic and financial analysis performed by the MEU
Study Team demonstrates that the City can obtain the greatest potential benefit in the
short term by forming a CCA and simultaneously pursuing Greenfield project
opportunities. Under the most beneficial option, the City would build or acquire equity in
a generation project (130 MW), preferably within the City, to supply the combined
CCNGreenfield loads. The CCA program would give the City the operational scale
required to effectively source electricity for the CCA and Greenfield customers and
successfully compete with the electric supply portfolio of SDG&E.
In implementing the combination of CCA and Greenfield projects, the
City can capture the benefits of CCA in areas where there is presently an SDG&E
distribution infrastructure and realize commensurate savings on the electric energy
component for Greenfield areas, thus significantly increasing the cost effectiveness of the
Greenfield projects.
Based on the financial pro forma performed by the MEU Study Team, the
combined CCNGreenfield utility option, using City-owned generation, would produce
annual savings or benefits amounting to $14.9 million in 2006 and increasing to $31.7
million in 2023 (again with significant reductions in savings or benefits in the 2011-2014
time frame). Over the study period savings or benefits are projected to amount to $122
million.
To implement a combined CCNGreenfield utility option, the City would
be required to invest some $78 million in a new generation facility and $13.8 million for
the new distribution facilities in the Greenfield development areas.
b.
Recommendation
To optimize savings and benefits to the City and its customers, the MEU
Study Team strongly recommends that the City implement the combined CCNGreenfield
utility option in the immediate future. The MEU Study Team estimates that a CCA
program could be operational by mid-2005 (assuming that the CPUC issues final rules
and regulations by mid-2004). With respect to Greenfield development, the MEU Study
Team estimates that the initial Greenfield project could be implemented in a 15 to 20
month time frame depending upon the construction schedule and building occupancy
within the designated Greenfield areas. Thus, a combined CCNGreenfield operation
could be implemented at least by 2006.
51
1- q1
VIII. CONCLUSIONS AND RECOMMENDATIONS
4.
Municipal Distribution Utility
a.
Analysis
Based upon the pro forma financial analysis performed by the MEU Study
Team, a City-owned MDU would, under the MDU Generation Supply Strategy (i.e., with
at least 130 MW of in-City generation), realize $12.3 million/year in savings in 2006 and
increasing to $28.7 million in 2023. Total savings through 2023 would amount to $109
million. Savings would be substantially reduced in the 2011-2014 timeframe due to the
expiration ofSDG&E's obligations under its contracts with DWR.
Under an MDU Contracts Supply Strategy (i.e., under which the Chula
Vista MDU purchases all electric power requirements in the market and pays related
transmission costs), the MDU would suffer losses in the first eleven years and realize
only modest savings in the period from 2017 through 2023. Based upon the pro forma
results, the MEU Study Team has concluded that an MDU that relies exclusively on
market purchases of wholesale electricity to serve the entire load requirements of its
customers would not be a cost-effective option for the City.
The MDU option would require a substantial investment in distribution
infrastructure to distribute electric power to the customers of the City's MDU, including:
distribution substations, primary distribution transformers, primary distribution wires and
poles, final line transformers, secondary distribution feeders, and meters. It was assumed
that the City would acquire these facilities from SDG&E by negotiated purchase or
through the exercise of the power of eminent domain.
For purposes of this feasibility analysis, the MEU Study Team relied on
information provided by SDG&E, the City's tax records, the CPUC, the Federal Energy
Regulatory Commission (FERC) and upon industry standard practices to estimate the
value of the SDG&E distribution system at $170 million. Using this acquisition cost
figure, the MEU Study Team estimated the combined system acquisition and start-up
costs (including distribution facilities, customer service call center, billing equipment and
service vehicles) at $185 million.
In addition to the capital costs necessary to acquire the SDG&E
distribution system and establish necessary interconnections and bulk power supply costs,
the MEU Study Team estimated the distribution operations and maintenance costs and
has taken into consideration the required payment for "exit fees" and other non-
bypassable charges mandated by legislation and related CPUC orders and any applicable
Federal stranded costs which may be required under FERC rules or regulations. The
MEU Study Team has also factored in the loss of franchise and/or tax revenues.
In forming and implementing an MDU, the City can expect enormous and
continued opposition by SDG&E, both legally and politically. Depending upon the
strength of the opposition by SDG&E, the litigation costs could substantially increase the
implementation costs and substantial delays could result.
52
r¡-qs
VIII. CONCLUSIONS AND RECOMMENDATIONS
b.
Recommendation
The MEU Study Team has concluded that, in the long term, the formation
of an MDU, which obtains generation from City-owned facilities and owns and operates
a utility distribution system is a feasible option notwithstanding the substantial capital
investment required and higher risks and potential litigation costs involved. In making
this recommendation, the MEU Study Team notes that the NVP of savings or benefits
over the study period is less for the MDU option than for the Combined CCA/Greenfield
option (with a Generation Supply Strategy). This is primarily due, of course, to the
capital costs necessary to acquire the SDG&E distribution system. At the same time, the
MEU Study Team believes that the long-term benefits resulting from the City's
ownership of the electric distribution system (i.e., local control, asset appreciation, and
independence from SDG&E and the owner/operators of the transmission system) may
justify the City's decision to establish and operate an MEU.
For the reasons explained in the body of this Report, the MEU Study
Team recommends that the City first implement the CCA/Greenfield options and defer a
decision on the potential implementation of the MDU structure until the 2008-10 time
frame.
If the MDU continues to be the more beneficial option in 2008-2010, as
this analysis predicts, the City would, at that time, have four years of power supply
operations (CCA), distribution system operation and maintenance experience (for the
Greenfield portion ofthe City) to assist it in making a decision on whether to form and
operate a full service MDu.
5.
Joint Powers Agency and Municipal Utility District Options
a.
Analysis
If the City elects to establish a full service MDU and acquire the electric
distribution facilities of SDG&E, two other long-range options will be available to the
City's MDU. The City, through its MDU, may be able to participate in an existing Joint
Powers Agency (JPA), or form, in partnership with another community, unincorporated
territory, or public utility entity, a Municipal Utility District (MUD).
Both of these options provide the City with alternatives which would
spread risk, expand the City's options for generation and transmission resources and
allow the City to more effectively achieve the economies of larger scale projects and
operations. For the reasons explained in this feasibility report, the MEU Study Team has
concluded that neither the JPA nor the MUD structure is suitable for use as a vehicle for
establishing an MEU. Both options involve the development of arrangements,
agreements and infrastructure with other publicly-owned utilities or local governments.
The development of these arrangements would further complicate and delay the
53
1-Qþ
VIII. CONCLUSIONS AND RECOMMENDATIONS
implementation process and would require the City to relinquish local control in the
development of its MEU structure.
b.
Recommendation
At such time as the City establishes an operating MEU, it is recommended
that it reevaluate the feasibility of participating in a JP A or forming an MUD.
B.
Roll Out Strategy
As part of this feasibility analysis, the MEU Study Team has provided a
detailed listing of the major and critical steps necessary to implement each of the
recommended MEU options. The MEU Study Team has also provided a Gantt Chart
showing the time-line requirements for each major step or task necessary from the
initiation of the process to operations. See Gantt Charts below and in Appendix C,
Section V at 130-32.
1.
CCA - Implementation Schedule
The MEU Study Team recommends a two-track approach to evaluate and
implement a CCA project. Within Track One the following tasks are required
immediately: (1) conduct an orientation session for Elected Officials and Staff on this
option including a review of this feasibility analysis; (2) continue active participation in
the CPUC's proceedings and workshops for the development of costs, credit rules and
regulations; (3) update the feasibility analysis with information from the CPUC
proceedings; and (4) develop the CCA Implementation Plan, adopt the Implementation
Plan at a duly noticed public hearing, pass an Ordinance to implement CCA per the
Implementation Plan and file the Implementation Plan with the CPUC by July 200422.
Under Track One, the MEU Study Team anticipates that the CPUC approval of the City's
Implementation Plan would take between four to seven months.
Assuming CPUC approval of the City's CCA Implementation Plan by
January 2005, the following tasks would be initiated simultaneously within Track-Two:
(a) the City would execute a Service Agreement with SDG&E; (b) complete
development of CCA metering facilities; and (c) complete customer notification
regarding opt-out provisions. Between July 2005 and January 2006 the following
iterative and on-going activities should be conducted by the City: (1) activate Energy
Supply Resource Plan; (2) address Load Forecast and Optimize Scheduling; (3) manage
supply portfolio and risk management (4) process financial settlements; and (5) produce
operating statements and reports. Under this schedule and based on these assumptions,
the MEU Study Team anticipates that a CCA project could be operational by early 2006.
Please see Section IV.C.6 at 58-60 for more detail on this Implementation Schedule.
22
Although the CPUC has not approved rules for the implementation of the CCA program, the draft
rules and CPUC precedent indicate that parties have submitted applications for the CCA program.
54
rj-9'7
..:1
,
-t:)
00
VIII. CONCLUSIONS AND RECOMMENDATIONS
CCA Implementation Schedule
I 2003 2004 2005
Ta.k Jan Fob Ma, A' Ma Jon Jol All So <Xt Noo 000 Jao Fob Ma, Ap, May Jon Jol Ao Sap <XI Noo 000 Jan Fob Ma, Ap, May Jon Jol All. See <Xt Noo Ooc
1.1 Initiation II
1.2 Ba.e ea.e StodlM I I
1.3 CPUC P"",""lno. A I I
1.4 T","'-1 Rooort I I
1.5 1m lomentetion Plan I I
1.6 CPUC P""edlno. B I I
2.1.1 R,"~I~ CCA I
2.1.2 Senolce A~eemool I
2.1.3 CCA Metenn. I
2.1.4 Cootom"No"oation
2.1.5 No,,"IOU I
2.2.1. Actioate Eno"", Sopply RMoo",e Plan I
2.2.2. Load Fo,oce.US,hedole
2.2.3. PortfolIo Manaoemeot On-Going Tasks
2.2.4. Flnandal Se"emonls
2.2.5. O~tino Reeo.. II II II II II
55
VIII. CONCLUSIONS AND RECOMMENDATIONS
2.
Greenfield - Implementation Schedule
Recognizing that the City has previously passed an ordinance to form a
municipal utility and, working back from the date that occupancy of the Greenfield areas
would be initiated (as early as July 2005), the MEU Study Team recommends that the
following steps be taken by the City to implement the Greenfield option: (1) consult with
electric distribution design firms and developers to design and specify system
requirements for the Greenfield Project -- initiate in January 2004 and complete by April
2004; (2) following the development of the design and system requirements, the City
would need to determine the interconnection requirements, which includes an assessment
of technical requirements and costs to achieve interconnection of the distribution system
-- initiate in April 2004 and complete no later than mid-November 2004; (3) evaluate and
assess projected loads, costs and benefits -- initiate in November 2004 and complete by
mid-December 2004; (4) based upon the final evaluation of the load studies and forecasts,
the City would need to tailor and implement a resource plan and schedule power and
update power delivery schedules; (5) the City would initiate a human resource plan, in
December 2004 and complete staffing by February 2005; (6) developers would complete
infrastructure construction (trenches, conduits, vaults and transformer pads) in the March
to April 2005 time frame; (7) high voltage contractors would install conductors,
transformers, service drops and metering in April 2005; (8) contractors would install
streetlights, traffic signals and landscape irrigation facilities (peripheral equipment) by
mid-May 2005; and (9) utility service could be provided between mid-May and mid-June
2005 or be scheduled to coincide with an occupancy. Please see Section IV.D.6 at 77-79
for more detail on this Implementation Schedule.
56
f],qc¡
VIII. CONCLUSIONS AND RECOMMENDATIONS
Greenfield Implementation Schedule
Greenfield Utility Development
Project Year 1 2
Task Project Month 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
1 Ordinance
2 System Design
3 Interconnection
4 Final Evaluation
5 Procure and Schedule Power I
6 Staffing/Outsourcing I
7 Infrastructure Construction I
8 High-Voltage Equipment Installation I I
9 Peripheral Equipment I
10 Initiate Operations I
-:!
I
-
~
C)
57
VIII. CONCLUSIONS AND RECOMMENDATIONS
3.
Combined CCAIGreenfield - Implementation Schedule
The implementation schedule for the CCAIGreenfield entails utilizing the
major and critical steps identified in the implementation schedules for CCA and
Greenfield options and combining them. The major and critical steps and timelines
would remain unchanged.
4.
MDU - Implementation Schedule
If the City elects to form an MDU, the MEU Study Team has identified
the following major and critical steps: (1) During the first year after electing to pursue the
MDU option, the City should complete the feasibility and implementation plan, which
includes: (a) Distribution System Survey and Valuation, (b) Severance Plan and Cost
Study, (c) Energy Resource Plan, (d) Human Resource Plan, (e) Facilities Plan, (f) Pro
Forma Update, (g) Finance Plan, (h) Governance Plan, and (i) Implementation Plan. (2)
by the end of the first year, establish public interest; (3) begin the condemnation process:
(a) offer to purchase the distribution facilities of SDG&E, (b) public hearing on finding
of public interest and necessity, (c) adopt Resolution of Necessity to condemn property,
(d) second and final offer of purchase to be extended to SDG&E, (e) judicial review of
Resolution of Necessity, (f) conduct the condemnation proceeding; and (4) execute
Implementation Plan once condemnation proceedings have been completed and an Order
for Possession has been entered by a court of competent jurisdiction. If the City elects to
implement the MDU option in the 2010 time frame, after the establishment of the
Combined CCAIGreenfield option, as recommended by the MEU Study Team, the City
would commence the MDU Planning and Implementation elements in mid-2008. Please
see Section IV.F.6 at 127-131 for more detail on this Implementation Schedule.
58
r-¡"/D I
VIII. CONCLUSIONS AND RECOMMENDATIONS
- -- - --- ----------- ____nun
I 2004 2005 2006 2007
Task IJan Feb MadAD< IMay Jun Jut IAug Sap Oct INovlDee Jan Feb Mar Aor MaylJun Jul Aug SeplOct NovlDee Jan Feb IMar IApr May Jun Jul IAug Sep Oct I Nov Dee Jan I Feb M" Apr May Jun
Focused Feasibility and Implementation Plan
1.1 Valuation I
1.2 Severange Plan
Energy Resource
1.3 Plen
1.4 Human Resources Plan
1.5 Facilities Plan
1.6 Update Pro Forma I
1.7 Finance Plan I I
1.8 Governance Plan I I
1.9 Implementation Plan I
Implementation Tasks
21 Establish Public Interest I I
2.2 Ordinance I I
2.3 1st Offer to Purchase I I Coed'~'t"e !kg;', 0nI" fer Po"",;oe Utility Gp,..tioe,
2.4 Public Hearing I 11/ /
2.5 Adopt Resolution of Necessity
2.6 2nd & Final Offer to Purchase
2.7 Judicial Review (optional) I ~ I
2.8 Condemnation I / I
2.8.1.1 Data Request I I ,(
2.8.1.2 Order for Possession I
2.9 Execute Implementation Pian I I
MDUI
Schedul
....::1
\
-
~
<p
59
April 8,2004
Via E-Mail
R'W'~E(K
Mr. Glen Googins
Senior Assistant City Attorney
City Attorney's Office
City ofChula Vista
2764th Avenue
Chula Vista, Califomia 91910
Subject:
Independent Review of Municipal Energy Utility Feasibility Analysis
Dear Mr. Googins:
On November 10, 2003, the City of Chula Vista ("City") retained R. W. Beck, Inc.
("R. W. Beck") to provide an Independent Review of the City of Chula Vista Municipal Energy
Utility Feasibility Analysis Phase I Report ("Feasibility Analysis") dated October 10, 2003,
prepared by Duncan, Weinberg, Genzer & Pembroke, P.e.; McCarthy & Berlin, L.L.P.; and
Navigant Consulting, Inc. ("Duncan, McCarthy, and Navigant").
In this Independent Review, R. W. Beck has perfonned a high-level fatal flaw analysis of the
strengths and weaknesses of the Feasibility Analysis. Specifically, R. W. Beck has provided an
Independent Review that includes:
. the identification and assessment of key assumptions to detennine reasonableness;
. a critical review of the methodology employed to analyze the options;
. a general assessment of the Feasibility Analysis assumptions, conclusions and recommend-
ations; and
. suggested improvements.
In our experience, the finns that perfonned the Feasibility Analysis (Duncan, McCarthy, and
Navigant) have a long history of providing quality service to cities such as the City of Chula
Vista. This Independent Review is intended to draw on R. W. Beck's experience in tenus of
preparing and presenting similar analysis and recommendations to public agencies, such as the
City. Our comments, observations, and recommendations are intended to provide constructive
feedback and observations that will better prepare the City and its consultants for upcoming
public discussion on the Feasibility Analysis.
The R. W. Beck Independent Review is presented in sections. These include:
. General Comments
. Community Choice Aggregation ("CCA")
. Greenfield Development ("GO")
. Combined ("CCAlGD")
. Municipal Distribution Utility ("MDU")
. Gas Case
Copyright 2004, R. W. Beck, Inc. AU Rights Reserved
2710 Gateway Oaks Drive, Suite 300 South, Sacramento CA 95833-3502
Phone 916.929.3653
Fax 916.929.1710
1- /tJ3
Mr. Glen Googins
April 8, 2004
Page 2
As requested by the City, each section includes a review of the assumptions, methodology, and
an assessment of the conclusions and recommendations. Organizing the Independent Review in
this manner has produced some duplication of issues because they apply to two or more sections.
General Comments
Assumptions
. A discount rate of 10% is used for Net Present Value ("NPV") calculations. This rate is
unusually high for a public entity. Most publicly owned enterprises are using discount rates
in the 6% to 7% range given today' s market. The impact of lowering the discount rate would
be to raise the expected savings over the life of the analysis, since future savings are
discounted at a lower rate. It is also important to note that the NPV savings are but one
measure of perfonnance. Review of cash flow, nominal dollar savings, and annual net
income are also important factors.
. Exit fees (Califomia Cost Responsibility Surcharge for Municipal Departing Load) seem
high at the end of the study period. These fees primarily include (I) Califomia Department
of Water Resources (CDWR) bond charges; (2) CDWR Power Charges; and (3) the "Tail
Competitive Transaction Charge" (Tail CTC). It remains unclear what the eventual
magnitude of these fees will be. The Feasibility Analysis assumes a high exit fee scenario
based on methodology established by the Califomia Public Utilities Commission (CPUC) in
detennination of Direct Access Cost Responsibility Surcharge (DA CRS) issued on
November 7, 2002 (Decision 02-11-022). This is a sound methodology; however, it is highly
likely that exit fees within the SDG&E service area in particular will be lower relative to
SCE and PG&E, since SDG&E had less exposure to the CDWR charges. The impact of
lower exist fees will be to improve the savings under applicable models (CCA, MDU and
Greenfield Development). The CPUC is continuing to debate exit fees in R.02-01-011
(Municipal Departing Load Exit Fee) and R03-10-003 (Community Choice Aggregation
Exit Fees).
. The schedules for implementation are very optimistic. In each case, the schedule for
implementation is more rapid than what is likely to occur, particularly if SDG&E decides to
oppose the initiative. The long end of the range provided for implementation is what could
reasonably be expected.
Methodology
. Feasibility Analysis spreadsheets provided to us by Navigant do not contain the fonnulae or
sufficient detail to document that all potential costs were included in the analysis. Examples
include generation capacity reserve costs and fmancial reserves for debt service coverage. It
is important to recognize that the fonnulae contained in the model are proprietary and the
model contains the intellectual property of the consultant. Therefore, it is not expected that
infonnation other than the results would be made available. During the course of our
iliscussions, Duncan, McCarthy, and Navigant represented that all such applicable costs are
7- I/) '-f
Mr. Glen Googins
April 8, 2004
Page 3
included in the Feasibility Analysis. Based on this limited review, it appears that the
methodology employed in the models used for this analysis is consistent with industry
practice.
. Some sensitivity analyses around key assumptions could be beneficial. For example, a range
of potential assumptions should be shown for:
Different energy supply costs, including gas prices. (:t20%)
Lower distribution system purchase cost (-20%), but higher severance fees. (+100%)
Distribution O&M costs. (:t10%)
Exit fees. (-25% to :t10%)
Conclusion and Recommendation
. A discount rate of 6% to 7% would be more reasonable for the City. As the discount rate is
decreased, savings to the City would increase.
. Exit fees are likely to decrease with time as existing obligations are restructured or expire.
Lower exit fees will result in greater savings to the City.
Community Choice Aggregation (CCA)
Assumptions
. A key assumption in the Feasibility Analysis is that SDG&E will meet power supply from
the market and pay a 5% premium to market, while Chula Vista generates 80% of its supply.
A more conservative approach for planning purposes would be to assume SDG&E power
supply costs at market prices or that SDG&E develops a power supply portfolio that includes
ownership of generation. Sensitivity could then be analyzed assuming variation of SDG&E
cost either above or below market.
. Power plant costs for Chula Vista appear to be optimistic given R. W. Beck's experience.
Cost Element Analysis R. W. Beck
Capital cost $600/kW $850/kW
Variabie O&M $2/MWh $2IMWh
Fixed O&M $4/MWh
Heat rate 7,000 MMBtu/kWh 7,500 MMBtu/kWh
Gas price escaiation +0.7%/yr 2.3%/yr
Costs can vary, depending on various conditions, including location, existing infrastructure,
access to fuel, electrical transmission facilities, water supply, and emission restrictions.
~~/()5
Mr. Glen Googins
April 8, 2004
Page 4
. SDG&E prices are based on market prices that are projected to increase by 35% over the
study period, while Chula Vista supply costs (per kWh) increase by only 8% due to low gas
price escalation. This divergence results in a lower cost resource for the City.
. Exit fees are likely to decline over time as existing obligations are restructured or expire.
Lower exit fees will result in greater savings to the City.
. It would be helpful to have a discussion of economic effect of customers opting out of CCA,
since it is unlikely that there will be 100% participation.
Methodology
. No comments.
Conclusions and Recommendations
. A discount rate of 6% to 7% would be more reasonable for the City. As the discount rate is
decreased, savings to the City would increase.
. Exit fees are likely to decrease with time as existing obligations are restructured or expire.
Lower exit fees will result in greater savings to the City.
. Something less than 100% participation should be assumed in the CCA Base Case analysis,
since it is unlikely that no customers will opt out of the CCA program.
. There should be more consistency in power supply costs between SDG&E and Chula Vista
(at a minimum in a sensitivity analysis).
Greenfield Development (GO)
Assumptions
. An assumption contained in the Feasibility Analysis for GD capital costs is that service
installation will be paid by the City. 11 is common industry practice for developers to pay for
most costs associated with utility service to new development. To the extent that some or all
of these costs are funded by developers, the economics of this business case will be
improved.
Methodology
. There are potential reliability issues with spot systems that are served through one facility.
Failure of a single facility can result in longer outages, unless there are other options for
routing service, such as loop feeds. Generally, the more redundancy that is designed into the
service, the greater the cost. Utilities have a rather wide range of practice when it comes to
distribution system design.
1-/òG
Mr. Glen Googins
April 8, 2004
Page 5
Conclusions and Recommendations
. There is a fairly long lead time before GD becomes economic. Such a lengthy gap between
implementation and savings creates risk to the City, particularly if the CCA or MDU options
fail to be implemented.
. Developer funding of GD utility infrastructure should be equal to what would be contributed
to SDG&E.
. There should be discussion of adverse reliability issues in GD due to limited ability or
additional costs to loop feed to spot systems.
. The City should make certain that it will move forward and likely be successful with the
implementation of either CCA and/or MDU before committing to this option.
. A discount rate of 6% to 7% would be more reasonable for the City. As the discount rate is
decreased, savings to the City would increase.
Combined (CCAlGD)
Assumptions
. A key assumption in the Feasibility Analysis is that SDG&E will meet power supply from
the market and pay a 5% prenllum to market, while Chula Vista generates 80% of its supply.
A more conservative approach for planning purposes would be to assume SDG&E power
supply costs at market prices or that SDG&E develops a power supply portfolio that includes
ownership of generation. Sensitivity could then be analyzed assuming variation of SDG&E
cost either above or below market.
. Power plant costs for Chula Vista appear to be optimistic given R. W. Beck's experience.
Cost Element Analysis R. W. Beck
Capital cost $600/kW $850/kW
Variable O&M $2IMWh $2IMWh
Fixed O&M $4/MWh
Heat rate 7,000 MMBtu/kWh 7,500 MMBtu/kWh
Gas price escalation +0.7%lyr 2.3%/yr
Costs can vary, depending on various conditions, including location, existing infrastructure,
access to fuel, electrical transnllssion facilities, water supply, and emission restrictions.
. SDG&E prices are based on market prices that are projected to increase by 35% over the
study period, while Chula Vista supply costs (per kWh) increase by only 8% due to low gas
price escalation. This divergence results in a lower cost resource for the City.
'7- jar¡
Mr. Glen Googins
April 8, 2004
Page 6
. Exit fees are likely to decline over time as existing obligations are restructured or expire.
Lower exit fees will result in greater savings to the City.
. It would be helpful to have a discussion of economic effect of customers opting out of CCA,
since it is unlikely that there will be 100% participation.
. An assumption contained in the Feasibility Analysis for GD capital costs is that service
installation will be paid by the City. It is common industry practice for developers to pay for
most costs associated with utility service to new development. To the extent that some or all
of these costs are funded by developers, the economics of this business case will be
improved.
Methodology
. There are potential reliability issues with spot systems that are served through one facility.
Failure of a single facility can result in longer outages, unless there are other options for
routing service, such as loop feeds. Generally, the more redundancy that is designed into the
service, the greater the cost. Utilities have a rather wide range of practice when it comes to
distribution system design.
Conclusions and Recommendations
. Developer funding of GD utility infrastructure should be equal to what would be contributed
to SDG&E.
. There should be discussion of adverse reliability issues in GD due to limited ability or
additional costs to loop feed to spot systems.
. The City should make certain that it will move forward and likely be successful with the
implementation of either CCA and/or MDU before committing to the GD option.
. A discount rate of 6% to 7% would be more reasonable for the City. As the discount rate is
decreased, savings to the City would increase.
. There should be more consistency in power supply costs between SDG&E and Chula Vista
(at a minimum in a sensitivity analysis).
Municipal Distribution Utility (MDU)
Assumptions
. A key assumption in the Feasibility Analysis is that SDG&E will meet power supply from
the market and pay a 5% premium to market, while Chula Vista 80% of its supply. A more
conservative approach for planning purposes would be to assume SDG&E power supply
costs at market prices or that SDG&E develops a power supply portfolio that includes
ownership of generation. Sensitivity could then be analyzed assuming variation of SDG&E
cost either above or below market.
7-/{)!
Mr. Glen Googins
April 8, 2004
Page 7
. Power plant costs for Chula Vista appear to be optimistic given R. W. Beck's experience.
Cost Element Analysis R. W. Beck
Capital cost $600/kW $850/kW
Variable O&M $2IMWh $2IMWh
Fixed O&M $4/MWh
Heat rate 7,000 MMBtu/kWh 7,500 MMBtu/kWh
Gas price escaiation +0.7%Jyr 2.3%lyr
. SDG&E prices are based on market prices that are projected to increase by 35% over the
study period, while Chula Vista supply costs (per kWh) increase by only 8% due to low gas
price escalation. This divergence results in a lower cost resource for the City.
. Exit fees are likely to decline over time as existing obligations are restructured or expire.
Lower exit fees will result in greater savings to the City.
. A cost of$15 million for acquisition fees, severance, and start-up is likely very low.
. Human Resource cost calculations assume fringes of 15% - public agencies' fringe costs are
generally closer to 40% or more.
. Human resource requirements appear to exclude purchasing, warehousing, buildings &
ground, security, mail, legal, human resource, secretaries, and reception.
Methodology
. No comments.
Conclusions and Recommendations
. No reason given for consideration of using a Municipal Utility District or JPA.
. A discount rate of 6% to 7% would be more reasonable for the City. As the discount rate is
decreased, savings to the City would increase.
. There should be more consistency in power supply costs between SDG&E and Chula Vista
(at a minimum in a sensitivity analysis).
Gas Case
Assumptions
. No comments.
Methodology
. There is discussion of pass-through of gas supply cost, but no. discussion of carrying costs,
storage, or risk management.
'7-/09
Mr. Glen Googins
April 8, 2004
Page 8
Conclusions and Recommendations
. Consideration should be given to the assumption/methodology comments.
. A discount rate of 6% to 7% would be more reasonable for the City. As the discount rate is
decreased, savings to the City would increase.
Sincerely,
R. W. BECK, INC.
¡jIJ t1. fi!Ø
Michael A. Bell
Principal and Senior Director of Client Services
c: Ken Mellor
09-00370-01000-00011121014 I 004238 RolSacmnentolPmjectslChula VistsI02e-00370.doc
'7- //0
TABORS CARAMANIS & ASSOCIATES
Memo
T'" Elizabeth Hull, Deputy City Attorney,
City of Chula Vista
From: Frederick H. Pickel
cc:
Willie Gaters
Date: May 6, 2004
Reo
Electricity Aggregation & Power Acquisition
The purpose of this memo is to summarize my high level review of the
Community Choice Aggregation ("CCA") and wholesale power acquisition
components ("Generation Supply Strategy" and other power supply
acquisition alternatives) of the "Municipal Energy Utility Feasibility
Analysis Phase I Report" (October 10, 2003 and December 12, 2003
Drafts, or "MEU Draft").
In the context of this limited review related to CCA and the Generation
Supply Strategy, I believe that the City of Chula Vista should follow no
more than the least aggressive path, a "Low and Slow" approach.
1. This would be a low cost aggregation approach to an initially
limited customer group, with out-sourcing of administration to
qualified energy marketing organizations, similar to the approach
that has been successfully used in Texas and New England. This
is a lower initial cost approach than suggested in the CCA strategy
in the MEU study. The City can use this approach to learn about
the markets at a lower cost and risk than the suggested MEU Draft
approach. The City need not take title to the power or the power
generation assets.
2. The City should continue to participate in the development of
California's CCA rules, stressing an approach to build on low-
overhead successes in other states rather than inventing an
elaborate and likely infeasible California program from scratch.
The City should not move ahead with CCA until favorable CCA
rules are established.
3. The MEU draft did not fully address the risks in developing an
energy utility - Chula Vista should learn by doing in a limited risk
way rather than making large initial commitments. The
aggregation setup costs can be much lower than in the MEV draft.
4. Once the City is more familiar with the markets, if opportunities
arise, the City can expand the scope of its activities.
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'7-11/
Page 2
Community Choice Aggregation for Electricity
First, the rules for CCA are not fully established in California. The main
uncertainty in developing such a program is the likely nature of any
California legislation or CPVC regulation, current and future. Other
states have successfully developed electricity purchasing aggregation
programs, but the most successful programs are focused on specific
market segments rather than full community programs.
Second, far lower initial implementation costs are possible than the $4.2
million estimated by the MEV Draft. TCA and its affiliates have worked
on the implementation of aggregation programs in Texas, Massachusetts,
and Maine. These aggregation programs have been targeted as state-
wide programs for non-profit or governmental entities only, rather than
whole community programs.
In our experience with aggregation programs elsewhere, the startup costs
are the external costs associated with professional services assisting in
the strategy and negotiation of enabling agreements and standard form
customer / energy supplier contracts between the aggregation sponsor
and one or more companies in the energy marketing business. In this
"Co-op Purchasing" approach, the aggregation sponsor, like Chula Vista,
coordinates the relationship with the marketers, provides form master
agreements between the energy marketers and individual customers, and
helps manage disputes. The cost for the aggregation sponsor involves 2
to 4 permanent staff plus initial outside professional help of $300,000 to
$500,000.
With Co-op Purchasing, the aggregation sponsor does not take title to the
power, and the marketer retains responsibility for the power acquisition
to serve the customers. The City avoids the commodity risks associated
with electricity in this approach, but also may miss out on larger
potential savings associated with direct supply acquisition or generation
ownership. In managing a Co-op Purchasing type aggregation, the City
would gain familiarity with energy markets and with energy regulation.
At the other extreme, a CCA that has the sponsor take possession of the
power commodity, its management, and the wholesale and retail billing
processes can be very costly and is unlikely to be costs effective - the
costs could be far in excess of $4.2 million stated in the MEU draft. This
"do-it-all-yourself' approach requires the development of internal risk
management processes and billing systems with initial investment and
,/-I/d-
Page 3
on-going operating costs that at least as high as those summarized in the
MEU Draft, likely far higher.
The MEU Draft report does not explore aggregation altematives in
sufficient breadth. The Califomia rules are not fully defined, so Chula
Vista has the opportunity to shape the [mal format. There have been
successful aggregation programs developed in other states - and it is
possible to have a successful program without jumping into a full "do-it-
all-yourself' CCA with high initial investment costs and high on-going
annual operation costs along with a Generation Supply Strategy
involving direct electricity procurement contracts and/or generation
asset purchases.
Setup cost
On-going cost
Net Benefits
Co-op Purchasing
("Texas /
Massachusetts Model"
or out-sourcing
approach)
$300,000 - $500,000
once Califomia rules
are in place
2 to 4 staff plus ad hoc
professional assistance
on key issues
Modest benefits at low
City risk
MEU draft "Do-it-all-
yourself' aggregation
with direct supply
contracts or generation
acquisition
At least $4.2 million
Much higher, not
directly available in
study
Larger projected
benefit, but
substantial energy
market risk to City
Electricity Acquisition and "Generation Supply Strategy"
The Generation Supply Strategy approach in the MEU Draft is driven by
the "do-it-yourself' CCA approach and potential Greenfield
Developments. So, first, if Chula Vista decides to out-source aggregation
development, it may be possible to avoid direct involvement in electricity
acquisition - this avoids the risks but also reduces the potential benefits
7-//3
Page 4
related to municipal ownership. This out-sourcing approach may also be
possible under a Greenfield strategy.
Second, the current electricity maxket is creating a difficult time for
generation asset owners. Natural gas prices axe up beyond prior
expectations - and natural gas is the primary fuel for neaxly all new
generation. Electricity prices have not gone up enough, so that
generation asset owners axe in a pinch between slightly higher wholesale
electricity prices and much higher gas prices. A number of key
generation owners have financial troubles because of these factors. TCA
analyses done over the past 2 yeaxs indicate that this situation will not
be alleviated for 3 to 5 yeaxs or more, depending upon overall economic
growth and western hydropower conditions. However, the price of new
generation equipment for new generation projects and of troubled
generation assets for new projects or those under development have not
come down to a level where many purchases of assets axe taking place.
This may create an opportunity for the City to obtain rights to electricity
supplies through creative agreements with existing generation or projects
that axe in advanced development. For example, this might require
customized agreements on development controls, property taxes, and
their timing in return for a portion of the power supply. But this
approach also requires the simultaneous development of a CCA,
Greenfield, or Municipal Distribution operation that can use the power
and efficiently dispose of any excess power.
The MEV Draft report does not explore power acquisition alternatives in
sufficient breadth. First, it may be possible to out-source power
acquisition under the CCA or Greenfield. Second, specialize agreements
may be possible that might allow the City to obtain power at attractive
prices - but this analysis would have to be specific to the opportunity,
not a generic analysis like that presented in the report. Third, a MEV
strategy based on the direct purchase of power via contract or by the
acquisition of generation is very costly and risky.
Related Comments
The report does not stress the volatility of energy maxkets. The City
decision makers must be prepaxed for routine and sudden shifts in
electricity and gas prices and related regulatory schemes - but this
volatility does not mean that Chula Vista should not paxticipate in these
maxkets. In addition, energy prices not only move suddenly, they usually
7-//'1
Page 5
move together. It is the gap between the prices of alternatives that
provides the benefit to the City and its constituents (such as between
Chula Vista supplied power and the prices offered by others). The City
can directly or indirectly manage these risks, but must be prepared for
the volatility and its active management.
The discussion would be improved by presentation of several scenarios
that encompass both the energy market and political uncertainties
related to the development of a municipal energy utility.
The MEU Draft appropriately proposes a phased Roll-Out Strategy. This
MEV Draft should stress this phased approach, for example, starting
small with a more limited implementation of a CCA or along with
Greenfield Developments on a case-by-case basis, with supply
acquisition out-sourced in a way where the City assumes little cost or
risk.
7-1/5
Crossborder Energy
Comprehensive Consulting for the North American Energy Industry
FINAL REPORT
Evaluation of N avigant Consulting's
Long-term SDG&E Rate Forecast
Prepared for the City of Chula VIsta, California
MARCH 24, 2004
Principal Authors:
R. Thomas Beach, Principal
Patrick G. McGuire, Policy Advisor
2560 Ninth Street. Suite 316 'Berkeley CA 94710' (510) 649-9790fax (510) 649-9793
'7-//&
Table of Contents
INTRODUCTION AND SUMMARY .............................................1
EVALUATION METHOD.................................. ........... ..........3
Constraints .............................................................3
Caveats................................................................3
KEY ASSUMPTIONS.......................................... ................4
Natural Gas Price Forecast, as a Key Driver of Wholesale Power Costs in California. . . 4
Natural gas prices at the Califomia/Arizona border. . . . . . . . . . . . . . . . . . . . . . .4
Intrastate transportation costs and the fate of the Sempra-wide electric generation
rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SoCalGas / SDG&E transportation charges for a City-owned gas utility. . . . . . . 8
New LNG supplies will impact gas prices in San Diego. . . . . . . . . . . . . . . . . . . . 9
Bypass potential in Chula Vista ......................................12
WholesaleMarketCostofElectricPower........ ...... ................ .... ..13
Cost and Composition of the Utility's Generation Portfolio over Time
.. .... . . ... .. . . ....... . . . .. .. .. .. ..... .. ... . . . . . . .. . . . ... .. . . ..13
SONGS ........................................................13
QFs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
DWRlong-termcontractpower................ ........ ........ .... ..14
Inter-utilitycontracts ..............................................15
Newrenewableorgas-fuedpurchases ................................15
Sempra-ownedgeneration ..........................................16
Marketpurchasesfortheresidualnetshort............................ .16
ResourceMix....................................................16
Average Generation Rates ..........................................16
Non-GenerationRates ...................................................17
Inflationrate.....................................................18
Productivity assumptions ...........................................18
Conclusion......................................................19
OtherRateElements ....................................................19
OTHER POSSIBLE FACTORS AFFECTING SDG&E'S RATES. . . . . . . . . . . . . . . . . . . . . . 20
Changes in Cost Allocation among the Customer Classes. . . . . . . . . . . . . . . . . . . . . . . 20
ChangesinRateDesignMethodology...... ....... .... ..... ......... ....... .20
ry- //7
Evaluation of Navigant Consulting's Long-term SDG&E Rate Forecast
I.
INTRODUCTION AND SUMMARY
This report evaluates a long-term forecast of San Diego Gas and Electric's natural gas and
electric rates. Navigant Consulting (Navigant) prepared this forecast as a key component in the
municipal energy utility (MEU) feasibility analysis that it prepared for the City of Chula Vista
(City). The City has asked us to validate the key assumptions in the forecast and to comment on
the reasonableness of the forecast results.
The following are the key conclusions of our review. We separate our findings into those
that apply to an electric MEU and those that apply to a natural gas MEv.
Electric MEV
Navigant's projection of future natural gas prices is a key driver of its forecast of
SDG&E's future electric råtes. Navigant's long-term forecast of natural gas prices is
reasonable, and is within 8% of similar recent forecasts that our firm and the California
Energy Commission have prepared. However, Navigant also should perform sensitivity
analyses that reflect California border natural gas prices that are both 20% above
and 20% below the levels projected in their study, in order to bracket the likely range
of future gas market conditions and to further refine the analysis. We anticipate that at
lower natural gas prices the option for Chula Vista to develop its own gas-fIred
generation within the City will be more attractive than Navigant portrays. The converse
will be true at higher gas prices.
Navigant's forecast of natural gas transportation rates on the SoCalGas / SDG&E
system is too low, particularly for electric generators. Navigant's forecast does not
reflect the potential end to the Sempra-wide electric generation rate or the possible move
to a new cost allocation methodology. Assuming higher natural gas transportation rates
for electric generators in the San Diego area would slightly reduce the attractiveness of
the City owning its own gas-fired power plant.
Navigant's forecast of wholesale electric prices is reasonable, given current and
expected future conditions in the wholesale electric market that serves California.
Natural gas prices are the key driver ofNavigant's forecast of wholesale electric prices.
Navigant should verify that it has included direct access exit fee revenues as an offset to
SDG&E's cost of DWR power. SDG&E direct access loads approach 20% of its overall
demand, and thus the utility will derive substantial revenues from its direct access exit
fee. We believe that Navigant has included these revenues, but its report is unclear on
this point.
-1-
Crossborder Energy
'7-1/8
Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
Using reasonable assumptions for SDG&E's resource mix and generation costs, we were
able to reproduce Navigant's results, to within one percent, for the generation portion of
SDG&E's rates over the period 2006 - 2011. This validates Navigant's projection of
the generation portion of SDG&E's electric rates.
Navigant's long-term inflation forecast is too high by almost 1 %. Assuming a long-
tenn inflation forecast of2.0% and a productivity factor of 1.5%, SDG&E's non-
generation rates should increase by no more than 0.5%, significantly less than
Navigant's assumed 1.3% annual escalation. Making this change in Navigant's forecast
ofSDG&E's future electric rates should not change the results ofthe Community Choice
Aggregation (CCA) scenarios (which assume that SDG&E continues to provide non-
generation services such as transmission and distribution), but may decrease the
economic benefits of the Greenfield Development or full-fledged municipal utility
options.
Natural Gas MEV
Navigant erroneously forecasts that Chula Vista's cost to serve a gas-fired power plant
within the City would be higher than if SDG&E served the plant. Correcting just this one
error indicates that the NPV of a city-owned gas utility is close to zero. We conclude that
a more careful analysis of the potential benefits of a City-owned gas utility is
warranted.
Navigant's analysis does not consider the potential benefits of Chula Vista's location
close to a potential major new source of liquilled natural gas (LNG) supplies for both
upper and lower California. Chula Vista is uniquely situated to realize substantial
benefits from its proximity to the LNG tenninals proposed to be built in Baja California.
If an LNG tenninal is developed in Baja, as both Navigant and Crossborder expect to
happen, the cost of gas at the Otay Mesa border crossing will be competitive with
Califomia / Arizona border prices. In this event, Chula Vista's close proximity to this
border crossing should give it the competitive leverage to obtain gas supplies at prices
that are significantly lower than supplies moved over the traditional route through the
SoCalGas and SDG&E systems. In this scenario, the potential net present value of the
benefits of a City-owned gas utility could be in the range of $42 to $73 million (with the
range of results depending on future SDG&E gas transportation rates). The City should
monitor closely the progress of the proposed LNG terminals and the regulatory
developments that will detennine how those new gas supplies can reach customers in
California. Finally, the potential availability of a low-cost source of natural gas for City-
owned gas-fired generation could have a significant beneficial impact on those MEU
scenarios.
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Crossborder Energy
'7-//1
Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
ll.
EVALUATION METHOD
A.
Constraints
Navigant did not provide us with a copy of the model that it used to prepare its SDG&E
rate forecast, due to confidentiality concerns. Navigant's Technical Appendix C, Section II.A,
does provide a broad description of how Navigant modeled future SDG&E rates. Because we
have not had access to the details ofNavigant's model, of necessity our evaluation has focused
on the material that is available for our review - the input assumptions used in the model and the
output that the model produces. We have also used our own data sources and energy price
projections, as well as data on SDG&E's rates produced in various CPUC proceedings. With the
data available to us, we have been able to duplicate Navigant's results for the generation
component ofSDG&E's electric rates, which is the key element ofNavigant's projection of
future SDG&E rates.
Finally, we recognize that Navigant completed its study in October 2003. As a result,
Navigant's projection does not reflect certain recent developments that have occurred in the past
several months, after the study was finalized. We indicate below several possible developments
that the City may want to include in any future updates to Navigant's work.
B.
Caveats
Our work has focused on whether Navigant's SDG&E rate forecast is based on the best
available infonnation for the key assumptions that will drive that forecast. The initial draft of our
report was prepared in November and December 2003, and reflects market conditions and
regulatory developments at that time. Many of the assumptions that both we and Navigant have
used involve projections of future prices in energy markets that are volatile and that can change
in ways that are difficult to predict. If energy market conditions change significantly, we
recommend that the City update and re-visit the results of the Navigant study to reflect the new
conditions. We also suggest a number of sensitivity studies that the City may wish to have
Navigant perfonn in order to understand how Navigant's results may change if certain key
assumptions are varied. These sensitivity analyses are important if the City is to understand the
robustness ofNavigant's findings under changing market conditions.
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Crossborder Energy
'7- 1&0
Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
Ill.
KEY ASSUMPTIONS
A.
Natural Gas Price Forecast, as a Key Driver of Wholesale Power Costs in
California.
Navigant's forecast of delivered natural gas prices in the SDG&E service territory is a key
driver of its forecast of the generation component of SDG&E' s electric rates. The gas price
forecast, including SDG&E and SoCalGas rates to transport gas across their pipeline systems,
also plays a key role in Navigant's evaluation of the potential economic benefits of the City's
development of a municipal gas utility. The delivered cost of natural gas has two principal
components - first, the market price of gas at the California border and, second, the
transportation costs required to deliver gas from the border to the end user's burner-tip across
various pipeline systems. We evaluate each of these components of Navigant' s gas price forecast
separately.
1.
Natural gas prices at the California/Arizona border.
Navigant forecasts an average California border price of $4.90 per MMBtu for the period
from 2006 to 2023. This appears to be a reasonable forecast given today's market outlook and
conditions.
To judge the reasonableness of Navigant's forecast, we compare it to other market
forecasts. We have assembled our own forecast of gas prices, based on (I) recent prices in the
NYMEX Henry Hub, Louisiana gas futures market and (2) our analysis of historical and likely
future basis differentials! between the Henry Hub and the southern Califomia border. We have
also reviewed gas price projections contained in the California Energy Commission's August
2003 Natural Gas Market Assessment.
Navigant's forecast was assembled in June 2003, at a time when both spot and futures
prices were over $1.00 per MMBtu higher than the November 2003 prices used in our forecast.
Nevertheless, Navigant's forecast for Califomia appears to be reflective of recent market
conditions in California. This is probably the result ofNavigant's assumption of a much larger
(negative) basis differential for the southern California border. For example, Figure 2 (page 104)
! The "basis differential" is the price difference for a commodity between a reference
market and a market in another location. Thus, the basis differential provides the market value of
transporting the commodity between the two markets. In this case, the reference market is the
NYMEX gas futures market located at the Henry Hub in Louisiana. The second market is at the
Southern California / Arizona border at Topock, Arizona. The basis differential is the difference
in prices between the two markets.
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Cross border Energy
']- /;;; /
Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
ofNavigant's Technical Appendix indicates a ($0.66) basis differential (i.e. Henry Hub $5.99 per
MMBtu vs. Topock $5.33 per MMBtu) for the period January to June, 2003.
Our current forecast of California border prices in the 2006-2023 time frame averages
$5.08 per MMBtu - a 4% increase over Navigant's border price forecast. Our forecast reflects
November 2003 futures maxket conditions.' For the basis differential we have assumed ($0.21)
per MMBtu, based on the historical relationship between the Henry Hub and Topock over the
period from 1994 to 2003. We excluded the natural gas "crisis" year of 200 1, which reflected
extremely high gas prices and severe pipeline constraints to Califomia.
The historical basis differential between the Henry Hub and the southern California
border is portrayed in Figure 1. Navigant's report also provides a useful summary of historical
gas prices and basis differentials. Figure I illustrates how high basis differentials have spurred
the construction of new pipeline capacity to Califomia. The added capacity then depresses the
basis differential until demand growth constrains the pipelines and the basis differential
increases. For example, from 1988 - 1993, Califomia border prices exceeded the Henry Hub by
$0.39 per MMBtu. After the completion ofthe 700 MMc£ld Kern River pipeline in March 1992,
prices in California decreased to the level of Henry Hub prices, and even fell below the Henry
Hub at times. Similarly, the pipeline capacity serving California has expanded by 1.6 Bc£ld since
the "basis blow-out" of the 2000 - 2001 energy crisis. As a result, Topock prices today are again
at or below the Henry Hub benchmark. With the expected addition of major new LNG supplies
to the California market by 2007, we expect basis differentials for the California market to
remain low or slightly negative to the Henry Hub. The historical basis differentials are
summarized in Table 1, below.
Table 1 - Historical Gas Prices and Basis Differential
Period Henrv Hub Topock
1989-1993 $1.75 $2.14
1994-1996 $2.12 $1.71
1997-1999 $2.29 $2.37
2000-2001 $4.15 $7.10
2002-2003 $4.34 $4.00
Basis
$0.39
($0.41)
$0.07
$2.95
($0.35)
, We recognize that gas prices have continued to rise in December 2003. Today's gas
futures would support a forecast as much as $0.50 per MMBtu higher than presented here. The
recent increases appear to have been driven largely by a major early-winter snowstorm on the
Eastern Seaboard that has raised expectations for a colder-than-anticipated winter. We anticipate
that prices will moderate as more seasonable weather returns.
-5-
Cross border Energy
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Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
Our forecast of southern California border prices, at Topock, is shown in Table 2. Again,
we have used November futures market prices with a ($0.21) per MMBtu basis differential. The
average price for the period 2006 to 2023 is $5.08 per MMBtu.
Table 2 - Crossborder Gas Price Forecast (2003 $ per MMBtu)
2006 2007 2008 2009 2010 2011 2012
$4.41 4.49 4.50 4.51 4.58 4.68 4.79
2015
5.09
2016
$5.20
2017
$5.22
2018
5.40
2019
5.51
2020
5.61
2021
5.72
2013 2014
4.89 5.00
2022 2023
5.86 $6.01
An additional source of gas price forecasts is the California Energy Commission (CEC),
which in August 2003 released its Natural Gas Market Assessment. This market assessment
includes a gas price forecast in constant 2000 dollars. The CEC forecasts natural gas prices using
a large-scale model of gas production, pipelines, and demand across the entire North American
continent. When adjusted to 2003 $ per MMBtu, the CEC forecast for Topock for the period
2006 to 2023 is $4.52 per MMBtu. Thus, the CEC forecast is lower than Navigant's forecast by
approximately 8%.
We conclude that Navigant's forecast is reasonably close to current price expectations.
We do recommend that Navigant prepare sensitivity analyses that reflect natural gas prices that
are both 20% above and 20% below the levels projected in Navigant's study. These sensitivity
analyses should bracket the likely range of future gas market conditions. Understanding the
impacts of the high gas price sensitivity case is particularly important, because we understand
that MEU benefits will decline as gas prices increase.
2.
Intrastate transportation costs and the fate of the Sempra-wide
electric generation rate.
Navigant has assumed a transportation rate of$0.28 per MMBtu for electric generation
customers (EG) to move their gas supplies from the California border to their plants on the
SDG&E or SoCalGas systems. If the CPUC implements a restructuring of the rates and services
on the SoCalGas system known as the Comprehensive Settlement Agreement (CSA), Navigant
projects a slightly lower EG rate of $0.24 per MMBtu. As explained below, there are two
reasons why we think that these forecasted transportation rates are too low.
An End to the "Sempra-wide" EG Rate. First, Navigant assumes the continuation of the
"Sempra-wide" EG rate on the SoCalGas and SDG&E systems. In April 2000, the CPUC made
the surprising, and very controversial, decision to equalize transportation rates to electric
-6-
Crossborder Energy
r¡-/d'/
Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
generation customers on the SoCalGas and SDG&E systems. As both SoCalGas and SDG&E
are affiliates of Sempra Energy, the resulting policy is called the "Sempra-wide" EG rate.
Historically, for at least the decade prior to April 2000, EG rates have been much higher
on the SDG&E system than on the SoCalGas system, because gas bound for San Diego must
flow through the SoCalGas system before reaching SDG&E. EG volumes moving to power
plants in San Diego had to pay separate transportation charges on both the SoCalGas and
SDG&E systems. This "pancaking" of a SoCalGas wholesale rate plus the SDG&E EG retail
rate produced a total rate for power plants in San Diego that was typically $0.15 to $0.20 per
MMBtu higher than the retail EG rates paid on the SoCalGas system by EG customers located in
the Los Angeles Basin. Electric generators in the San Diego area mounted a major, and
successful, campaign in the CPUC's last SoCalGas biennial rate proceeding (BCAP) to remove
this rate "pancaking," and to equalize EG rates across all southern California. They argued that
all generators in southern California must compete in the same electric market (the California
Power Exchange [PX]), and that the "pancaking" of gas rates discouraged the development of
much-needed new electric generation in the San Diego area.
Whether to continue the Sempra-wide EG rate will be a major issue in the SoCalGas
BCAP that the CPUC will conduct in 2004, to set new rates effective January 1,2005. The
Sempra-wide EG "subsidy" increases SoCalGas' EG rate by about $0.06 per MMBtu, or 12%.
We are certain that electric generators in the Los Angeles area will urge the CPUC to end this
subsidy of San Diego generators by LA. generators. In our view, the California energy crisis has
undermined the arguments in favor of the Sernpra-wide EG rate. The California PX is defunct,
and there is no longer a large, centralized electric market out of which the electric utilities must
buy all of their power. Furthermore, the California electric utilities have resumed their historic
roles of buying the power for their individual service territories. Finally, significant new power
plants have been completed or are under construction in the San Diego area and northern Baja
Califomia, Mexico. These plants are likely to be served from the new North Baja interstate
pipeline and from future liquified natural gas (LNG) supplies. Thus, the need for a special gas
rate on the SDG&E system to encourage new generation in the San Diego area is much less
pressing today than in 2000.
For these reasons, we believe that there is a 50% chance that the Sempra-wide rate will be
repealed effective January 1,2005. If the Sempra-wide EG rate is eliminated, distinct EG rates
for SDG&E and SoCalGas would be established, resulting in an increase in the SDG&E EG rate
of as much as an 65%. Table 3 shows the impacts of repeal of the Sempra-wide EG rate, based
on SDG&E's recent BCAP filing (A. 03-09-031, September 17,2003). The table shows these
impacts under both long-run marginal cost (LRMC) and embedded cost rate methodologies,
which we discuss in the next section.
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Crossborder Energy
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Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
Table 3 -Impact of the Sempra-Wide EG Rate Methodology ($ per MMBtu)
LRMC Embedded
0.43 0.52
0.70 0.75
0.27 0.23
65% 45%
Sempra-wide EG rate
SDG&E stand-alone EG rate
increase
percent
A Move to an Embedded Cost Allocation. The second factor that may increase
SDG&E's gas transportation rates is a change in the methodology that SDG&E uses to allocate
the costs of its gas system among its customer classes. In their recent BCAP filings in September
2003, SDG&E and SoCalGas have asked the CPUC forpennission to change their cost
allocation methodology. The utilities propose to use an "embedded cost" allocation instead of
the current allocation based on long-run marginal costs (LRMC). In essence, this change would
shift costs from small "core" customers (residential and small business) to large "noncore"
customers such as industrial and electric generation users. In addition, with higher noncore rates
under the embedded cost method, the end to the Sempra-wide rate would have a magnified
effect.
We believe that there is a 50/50 chance that the CPUC will move to the use of embedded
costs. Combining this with a 50% probability of ending the Sempra-wide EG rate, we obtain a
projected EG rate for the combined SoCalGas/ SDG&E system of $0.60 per MMBtu. This rate
is calculated as an average of the rates shown in Table 3 above. We recognize that this rate
includes a large noncore balancing account undercollection that we expect to be amortized by the
end of2005. This undercollection amounts to $0.13 per MMBtu. Thus, our projection of the
2005 SDG&E EG rate excluding this undercollection is $0.47 per MMBtu. This expected
SDG&E EG rate is significantly higher than Navigant's assumed EG rate of $0.28 per MMBtu.
3.
SoCalGas / SDG&E transportation charges for a City-owned gas
utility.
Navigant assumes that a City-owned gas utility would pay a combined SoCaIGas/SDG&E
transportation rate of$O.41 per MMBtu for service to an electric generation facility in the City
(see Pro Fonna analysis, page 94). This rate consists of an $0.18 per MMBtu wholesale rate on
the SoCalGas system and a $0.23 per MMBtu wholesale rate on the SDG&E system. If SDG&E
remains the serving utility, this generator is assumed to pay just the Sempra-wide EG rate of
$0.28 per MMBtu. This transportation rate disparity appears to be a major reason why Navigant
concludes that it would not be economic for the City to pursue the creation of a gas utility.
We think that this assumed rate disparity is wrong. There is already a precedent for the
rate that applies ifboth SoCalGas and SDG&E transport gas across their systems to an electric
generator not on the SDG&E system. This precedent is Sempra's service to the Mexican power
-8-
Cross border Energy
r¡ - I:J.?
Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
plant at Rosarito. The CPUC has required Sempra to charge the Sempra-wide EG rate for this
service.' There is little difference between this service and the service that SoCalGas and
SDG&E would provide to an electric generator in Chula Vista that is served from a City-owned
gas system.
Simply correcting this one erroneous assumption produces a significant change in the
results ofNavigant's pro forma analysis of a City-owned gas utility, as shown in Attachment A
to this report. The net present value (NPV) shown in Navigant's pro forma analysis increases by
$23 million if the EG rate difference between service from the City versus SDG&E is eliminated.
This offsets most of the $24 million NPV in losses assumed by Navigant if a City-owned EG
must pay a "pancaked" SoCaIGas/SDG&E rate of $0.41 per MMBtu. Moreover, the revised pro
forma analysis shown in Table 4 indicates that there are benefits for roughly the first nine years.
This tells us that a more careful analysis of the potential benefits of a City-owned gas utility is
warranted.
4.
New LNG supplies will impact gas prices in San Diego.
It should also be emphasized that natural gas prices in the San Diego area could decrease
significantly as a function of new LNG supplies entering the California market starting in 2007.
Five major energy companies are competing to build an LNG terminal in Baja California,
Mexico. Other proposals would site the terminal in Long Beach or offshore ftom Ventura,
California.
Given the number of developers active south of the border, Baja California appears to be
the most likely location for the first LNG terminal on the West Coast. An initial LNG terminal
would be able to deliver 700 MMcf/d to I Bcf/d. From a Baja terminal, LNG supplies could
flow either north on the TGN pipeline to the SDG&E system at the Otay Mesa international
border crossing, or north and east via the TGN and North Baja pipelines to the El Paso /
SoCalGas interconnect at Ehrenberg / Blythe on the Califomia I Arizona border.
SDG&E has indicated that, at minimal cost, it can accept up to 400 MMc£'d of LNG into
its system at Otay Mesa for delivery to SDG&E or SoCalGas customers. We also expect 300
MMc£'d to serve Mexican power plant loads in the Tijuana I Mexicali area. LNG would
completely displace gas that today flows south and west on the North Baja and SoCalGas /
SDG&E systems to serve these San Diego and Mexican markets. Any LNG that does not serve
San Diego or Mexican loads could flow east on North Baja to the California / Arizona border
market at Blythe.
, This policy was established in CPUC D. 99-09-071 (September 16, 1999).
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Cross border Energy
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Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
In our opinion, southern California - and San Diego in particular - is clearly the
preferred market for LNG from an initial terminal in Baja. LNG would provide a long-sought
second source of gas supply for the San Diego area, which has always paid higher rates for gas
service due to its location "behind" the SoCalGas system. Both LNG suppliers and consumers
should prefer that LNG supplies flow to the Sempra / SDG&E system at Otay Mesa rather than
over North Baja to the California/Arizona border market, because the SDG&E option avoids
transportation charges on North Baja (on the order of $0.25 per MMBtu). In addition, gas
customers in SDG&E' s territory would gain a new source of gas supplies that does not require
transportation over the SoCalGas system, thus also avoiding SoCalGas' wholesale transportation
costs (now about $0.18 per MMBtu, but expected to rise substantially in 2005 as a result of the
new SoCalGas BCAP case). An LNG supplier would greatly prefer to sell gas at the Otay Mesa
border crossing to a customer in San Diego, where the competing sources of gas are supplies
delivered over the SoCalGas system at the California border price!llilli $0.18 per MMBtu for
wholesale transportation on SoCalGas. The LNG supplier's other option (except for local
markets in Baja) would be to move gas over North Baja to the California border at Ehrenberg, for
which the supplier would receive the California border price minus the $0.25 per MMBtu
backhaul charge on North Baja. On a short-term basis, if there is spare capacity to move gas east
on North Baja, then the market price in Tijuana may be just slightly below the Topock border
price, due to the low market value of North Baja capacity. In sum, although Sempra has yet to
establish Otay Mesa as a receipt point for gas flowing into the SDG&E system, we believe that
state policymakers would be foolish not to force Sempra to do so, because that is the most direct
and most economical means to move new LNG supplies to the southern Califomia market.
Given these market dynamics, ifthe LNG supplies delivered to a terminal in Baja
Califomia exceed the capacity of local markets and the SDG&E system to absorb them, we
expect the price for gas at the Otay Mesa border crossing to be less than the southern California
border price at Topock, Arizona. LNG supplies would fit into the economic landscape in such a
way that the netback price for LNG is equal to the Topock market less the market value of
transportation on the North Baja pipeline. Thus, if an LNG terminal is built in Baja California,
we expect that gas prices at the Otay Mesa border crossing will be competitive with Califomia /
Arizona border prices. Thus, customers in Chula Vista should be able to obtain gas supplies in
the Otay Mesa market at prices at or below the benchmark Topock price, and simply pay a
transportation charge to SDG&E to deliver this gas (and perhaps a charge for receipt point access
at Otay Mesa, as discussed below), thus avoiding the SoCalGas wholesale transportation costs
that all customers on the SDG&E system must pay today.
We believe the case described above to be the most likely. However, it should be noted
that to the extent LNG supplies initially enter the market in small amounts, or to the extent that
LNG supply is initially dominated by a single supplier (e.g. a market power scenario), gas at the
Otay Mesa could be priced on a net-forward basis, such that the end-use customer (e.g. Chula
Vista) would face a price equal to the California border price!llilli the market transportation rate
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Cross border Energy
'7 - rd-8
Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
on either North Baja or the Sempra system. In this scenario, the customer would be confined to
negotiating a small discount to service from the price of otherwise available supplies on the
SoCaIGas/SDG&E system. We do not expect this scenario to materialize so long as multiple
suppliers of LNG and conventional supplies compete with each other to serve customers in the
Baja California / San Diego area and a single LNG supplier is not allowed to monopolize the
receipt point capacity into the SDG&E system at Otay Mesa.
We also anticipate that SoCalGas and SDG&E will implement a system of finn capacity
rights at the receipt points where gas enters the Sempra system. This system may be the CSA
that the CPUC is now considering whether to implement" or it may be a revised system of firm
rights that is implemented in 2006. Under any such scheme, we expect that there will be a chatge
for receipt point access into the SDG&E system at Otay Mesa in the range of $0.06 to $0.08 per
MMBtu.'
Once gas enters the SDG&E system at Otay Mesa, the charge for transportation to end
users should be less than the current transportation rates for service over the combined SoCalGas
and SDG&E systems. We note that the SDG&E system today provides a rate for transportation
only on the SDG&E system to EGs located within San Diego County (Schedule EG-SD) of
approximately $0.10 per MMBtu: Even with an additional receipt-point access chatge of$0.08
per MMBtu, this rate would be much lower than the current combined SoCalGas / SDG&E EG
rate of$0.27 per MMBtu. Thus, to the extent that electric generation in Chula Vista takes gas
service from the California/Mexico border, the cost of transportation on the SDG&E system from
Otay Mesa should be lower than SDG&E's traditional rates that combine transportation over
both the SoCalGas and SDG&E systems. This should remain true even if SDG&E's
transportation rates rise in the upcoming BCAP case due to the end to the Sempra-wide subsidy
or a change to an embedded cost allocation.
In sum, Navigant's analysis does not consider the potential benefits ofChula Vista's
location close to a potential major new source of natural gas supplies for both upper and lower
California. We anticipate that the cost of gas at the Otay Mesa border crossing will be
4 The CPUC will make this choice early in 2004.
, Under the CSA, the charge for firm receipt point capacity is 7.8 c/MMBtu. SoCalGas
recently suggested a lower charge of 6 c/MMBtu as one of certain changes to the CSA that it
proposed earlier this fall.
6 This rate currently applies only to deliveries only from the SoCalGas I SDG&E
interconnect at Rainbow. We assume that the CPUC also will approve such a rate for deliveries
from the international border at Otay Mesa.
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Crossborder Energy
'ry-1ð-1
Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
competitive with California / Arizona border prices. We also expect that the cost of moving
supplies from Otay Mesa to customers on the SDG&E system with be the cost of receipt point
access at Otay Mesa plus an unbundled rate for transportation on the SDG&E system alone.
5.
Bypass potential in Chula Vista.
The fact that gas prices at the Califomia/Mexico border may be the same as or even lower
than prices at the California/Arizona border, once LNG supplies enter the market, presents a
bypass opportunity for Chula Vista. Even if the City does not actually build a bypass pipeline,
the threat of bypass may exert significant leverage on SDG&E at least to discount its gas
transportation rates to the cost of bypass service.
Table 4 presents a preliminary analysis of the possible cost to bypass the SDG&E system
via a pipeline to the Otay Mesa border crossing. The distance from the South Bay power plant to
the Otay Mesa border crossing is no more than 15 miles. SDG&E local transmission pipelines
(eight- and ten-inches in diameter) already run along most of the route (roughly parallel to
Highway 905 and Interstate 5). A conservative, order-of-magnitude estimate for the cost of a
pipeline to bypass SDG&E's service to South Bay and Chula Vista is $32 million ($2 million per
mile plus $2 million for meter stations'), for construction in a heavily-developed urban and
suburban environment. We have used a Pacific Gas and Electric pipeline cost-of-service model
to estimate O&M and A&G costs for operating this pipeline. Consistent with the Navigant study,
we assume that the City [fiances this project over 20 years at an interest rate of 5.5%. With
assumed City gas volumes of90,800 MMBtu per day, or 33,157 M3Btu per year as shown on the
gas utility pro-forma, the resulting transportation rate for a City-owned power plant at the South
Bay site is $0.14 per MMBtu, which is very competitive even with today's Sempra-wide EG
transportation rate of $0.27 per MMBtu. As shown in the revised pro-forma that is Attachment
B, at a $0.14 per MMBtu rate for 100% ofChula Vista's projected gas loads, plus Navigant's
assumed distribution costs within Chula Vista, the NPV benefit of a municipal gas utility is on
the order of$73 million assuming our expected SDG&E EG transportation rate of$0.47 per
MMBtu. Even using the current Sempra-wide EG rate of$0.27 per MMBtu, which we believe is
too low, the gas MEV benefits are $42 million if the City can bypass the SDG&E system.
, We reviewed the costs of PG&E' s expected 2004 local transmission pipeline projects
(16 to 24-inch pipelines) in its Gas Accord 11 application to the CPVC (A. 01-10-011). All of
these projects had costs that ranged from $1.0 to $2.0 million per mile. To be conservative, we
use the upper end of this range. These costs are also consistent with SDG&E system expansion
costs reported in the utility's 1999 BCAP case, A. 98-10-031. SDG&E's large Otay Mesa meter
station cost $1.3 million in 1999 $.
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Table 4
City of Chula Vista
Financial Pro Forma Analysis
Natural Gas Utility Option -- Cost to Bypass SDG&E
Pipeline Capital
Interest
Term
Annual Bond Charge
Annual O&M @ 3.2%
Annual A&G @ 3.0%
Total Annual Costs
Throughput
Bypass Rate
$ 32,000,000
5.5%
20 years
$ 2,677,739
$ 1,024,000
$ 960,000
$ 4,661,739
$
33,157 M3Btu
90.8 M3Btu per day
0.141 perMMBtu
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Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
B.
Wholesale Market Cost of Electric Power
Navigant's electricity spot market forecast for 2006 to 2023 reflects an average price of
$49 per MWh. Navigant has told us that they did not use a production cost or market simulation
model to forecast electric market prices. Instead, they appear to have calculated wholesale
electric prices by applying a market heat rate of approximately 9,000 Btu per kWh, and a variable
O&M adder of $2 per MWh, to their bumer-tip gas price forecast. This is a common forecasting
methodology that reflects the fact that natural gas-fired generation is typically the marginal,
market-clearing source of electricity in California.
In 2003 Dow Jones has reported Califomia spot market prices for electricity of roughly
$45 per MWh. Gas prices have been high in 2003, however, and thus the "market heat rate"
reflected in the Dow Jones day-ahead spot prices has been close to 8,500 Btu/kWh. During the
energy crisis of 2000 - 200 I, market heat rates were much higher. However, given the
determination of both state and federal regulators to avoid similar disasters in the future, we
expect capacity reserve margins to be planned so as to avoid price spikes, with most merchant
generators depending on long-term contracts to recover average costs. Thus, in this environment,
we would expect the market heat rate to remain at values in the range of 8,500 to 9,000 Btu per
kWh. This notion is supported by Navigant's own assumptions for the heat rates of new gas-
fired combined-cycle plants (7,000 Btu/kWh) versus older, less efficient gas-fired generation (at
10,000 Btu/kWh). As older generation is gradually displaced by newer generation, we would
expect the market heat rates to move towards the 7,000 Btu/kWh value slowly over time,
assuming that enough new plants are built at least to offset electric load growth.
Thus, we find that Navigant's projection of wholesale electric market prices is
reasonable, given its underlying gas price forecast.
C.
Cost and Composition of the Utility's Generation Portfolio over Time.
We have reviewed the reasonableness ofNavigant's projection of SDG&E's generation
costs. Because Navigant did provided a breakdown of its assumed SDG&E resource mix into the
volumes and costs for each of its component resources, we did our own projection of SDG&E's
likely future resource mix, using both the input data that Navigant provided as well as our own
data sources.
1.
SONGS
Navigant has used data ftom SDG&E's 2003 Cost-of-Service case and ftom the current
Southern California Edison (Edison) general rate case to project SDG&E's 20% share of SONGS
costs. We have reviewed the sources for this data, and concur that Navigant has used the best
available data.
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Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
We used data on expected SONGS production ftom Edison filings before the CPUc.
2.
QFs
Navigant used 2002 FERC Form I data to project SDG&E's cost of power from the
qualifying facilities that sell to SDG&E. Navigant assumes that 67% ofSDG&E's QF costs are
linked to natural gas prices.
We disagree with Navigant's assumption that QF contract quantities will decrease over
time. Navigant cites its October 2002 consultant's report supporting the DWR bond fmancing
(Consultant Report) as the source for this assumption. In the long-term electric procurement plan
that SDG&E filed in the summer of2003 in the CPUC's procurement docket (R. 01-10-024),
SDG&E stated that it expects to re-contract with the QFs on its system, when the QFs' original
power purchase contracts expire.' Most ofSDG&E's QF power comes from four large
cogeneration facilities. Based on our knowledge of these facilities, we expect that they will
continue to operate over the forecast period, particularly if SDG&E continues to be willing to
purchase their output. Thus, we have assumed no decline in QF contract quantities over the
forecast period. This is a minor change in Navigant's assumptions, as the decline that Navigant
has assumed is not great.
We have made our own estimates ofNavigant's assumed QF costs over time, based on
SDG&E's short-run avoid cost (SRAC) energy pricing formula, which is linked to natural gas
prices. We also assumed that SDG&E will pay $20 per MWh in firm capacity payments to its
QFs.
3.
DWR long-term contract power
As a primary consultant to the DWR, we understand that Navigant has significant
expertise modeling the quantities and costs of the DWR long-term contracts. We have used data
from the CPUC's exit fee proceeding (R. 02-01-011) on the expected costs and volumes for the
DWR contracts assigned to SDG&E.
We are unclear on whether Navigant has included direct access exit fee revenues as an
offset to SDG&E's cost ofDWR power. This is an important point to verify with Navigant,
because SDG&E has a high percentage of direct access loads (approaching 20%) and thus will
derive substantial revenues from its direct access exit fee. Our projection of SDG&E's
, See "Direct Testimony of Robert 1. Resley" filed on behalf of SDG&E in R. 01-10-024
(April 30, 2003), at pages 14-15.
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Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
generation rates for bundled customers assumes that exit fee revenues are used to reduce those
rates.
4.
Inter-utility contracts
Navigant used 2002 FERC Form I data to project SDG&E's cost of power from its inter-
utility contracts. It is our understanding that these contracts expire at the end of 2003, except for
the contract with Portland General Electric (pGE) for a share of the output of the Boardman coal-
fired plant in Oregon. We included only the PGE contract in SDG&E's resource mix after 2003.
5.
New renewable or gas-fired purchases
Califomia's recently-enacted Renewables Portfolio Standard (RPS) charts an ambitious
course for expanding the amount of renewable electric generation in the state. The key element
of the RPS legislation, SB 1078, requires the state's investor-owned utilities, including SDG&E,
to increase the renewable portion of their energy mix each year by at least I % of total retail sales,
with a goal of 20% renewable generation by 2017. Renewable generation projects will compete
with each other to supply the IOUs, with the CPUC establishing a process to select the "Ieast-
cost, best fit" projects. If the costs of new renewable power exceeds certain CPUC-established
benchmark prices, the above-benchmark costs will be paid from a limited pool of "public goods"
funds (which ratepayers also pay as a surcharge on all utility rates). Ratepayers will pay directly
for the costs of new renewables up to the benchmark price.
Unlike the two larger electric IOUs, SDG&E's resource portfolio today has little
renewable power. We understand that SDG&E has already signed a number of power purchase
contracts with new renewable projects, mostly wind farms. According to a recent CEC report,'
even considering these recent purchases, SDG&E still will need to almost quadruple the amount
of renewable power that it expects to buy in 2004 in order to meet the RPS standard of 20%
renewable supplies by 2017. Thus, SDG&E will need to devote a significant portion of its
resource portfolio to purchases from new renewables.
Navigant's forecast does not appear to consider SDG&E's required renewable purchases
separately from its market purchases, although Navigant does model renewable contracts as a
potential source of supply for the possible MEU. Navigant assumes that new renewable
contracts will be priced at $3 per MWh above the cost of comparable, generic wholesale power
(Appendix C, page 65). Navigant based this premium on a study of "green ticket" prices for
renewable power reported by the Automated Power Exchange (APX).
, CEC, "Renewable Resources Development Report" (November, 2003), at 6. This
report is available at www.energy.ca.gov/reports/2003-11-24_500-03-080EPDE
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Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
6.
Sempra-owned generation
Navigant completed its study for the City prior to SDG&E's announcements that, first, it
has negotiated a long-term power purchase agreement for the output ofCalpine's 510 MW Otay
Mesa power plant and, second, SDG&E plans to acquire the 500 MW Palomar project in
Escondido from its Sempra affiliate. SDG&E will operate Palomar as a utility-owned resource.
This acquisition of more than 1,000 MW of efficient, local, combined-cycle generation will
significantly reduce SDG&E's need to import power from markets outside of its service territory.
This new gas-fired generation will displace market purchases in SDG&E's generation
portfolio. Generally, Navigant's assumed cost of wholesale power, based on a market heat rate
of9,000 Btu per kWh and an O&M adder of$2 per MWh, is lower than the "all-in" costs of a
new combined cycle plant such as Otay Mesa or Palomar. If SDG&E proceeds to buy power at
cost from Palomar and / or Otay Mesa, SDG&E's generation costs may well be higher than
Navigant has assumed.
7.
Market purchases for the residual net short
Navigant has assumed that SDG&E will purchase power at market prices for its "residual
net short" - the difference between its system demand and the power produced by the resources
that it owns or has under long-term contract (also known as "utility-retained generation" or
URG). In Navigant's model URG appears to include SDG&E's share of SONGS, QF power,
existing interutility contracts, and the DWR contracts allocated to SDG&E. We are uncertain
whether N avigant considered the purchase of renewable power under the RPS program. As
noted in Section m.B above, we concur with Navigant's forecast of wholesale power prices for
the market purchases that SDG&E will make to fill its net short requirements.
8.
Resource Mix
We have reproduced Navigant's projection of the generation component ofSDG&E's
rates, using the SDG&E energy balance for 2006 - 2011 contained in the Navigant Consultant
Report. This shows SDG&E's future energy mix as a combination of SDG&E's share of
SONGS, QF power, the PGE interutility contract, SDG&E's allocated DWR contracts, and
market purchases for the residual net short. The consultant report also shows SDG&E's
expected amounts of direct access loads.
9.
Average Generation Rates
Using the resource mix ftom the Consultant's Report, we have estimated SDG&E's
average generation rate for 2006 - 20 II. We have used SONGS costs from the SDG&E cost-of-
service case, our own projection of QF costs, PGE contract costs based on 2002 FERC Form I
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Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
data, and the DWR contract costs that Navigant projected in Scenario 14 of the CPUC direct
access exit fee case (R. 02-01-011), which Navigant references on page 73 of Appendix c.1D The
CPUC's D. 03-07-030 fuund this to be the "most reasonable" scenario for future exit fees.11 We
have also assumed that the exit fee revenues based on Scenario 14 are used to reduce SDG&E's
generation rates for bundled customers. We priced the utility's residual net short purchases at
Navigant's assumed wholesale power costs (without a premium for new renewable purchases).
Under these assumptions, which we believe are reasonable, we were able to reproduce
Navigant's results (to within one percent) for the generation portion of SDG&E's rates over the
period 2006 - 2011.12 In our opinion, this validates Navigant's projection of the generation
portion ofSDG&E's electric rates.
D.
Non-Generation Rates
Navigant has taken a simple approach to projecting the non-generation portion of
SDG&E's rates. These include transmission, distribution, and public purpose program costs.
Navigant has assumed that these portions ofSDG&E's rates will escalate at 1.3% per year from a
base of the existing June 2003 non-generation rates.
Navigant appears to assume that SDG&E's non-generation rates will continue to be set
under a performance-based ratemaking (PBR) program. Since the mid-1990s, the CPUC has
used such programs to set the non-generation rates for the Califomia energy utilities. Essentially,
a PBR program replaces the traditional biennial or triennial general rate case with a pre-set
formula that allows the utility to change its rates (or its allowed revenue requirement) every year
by an inflation factor less an assumed productivity rate. PBR programs are intended to provide
the utility with a strong incentive to operate efficiently, by allowing shareholders to keep a
significant share of the savings if the utility can reduce its costs below those allowed under the
PBR formula. The assumption that SDG&E will continue to operate under a PBR mechanism
10 We adjusted these DWR contract costs based on the difference between the gas price
forecast used in R. 02-01-011 and our own gas price forecast prepared for this report.
11 We concur in this CPUC finding, which is consistent with the position that we took in
this case on behalf of the Califomia Manufacturers & Technology Association.
12 Navigant does not provide a table showing its forecast for the generation portion of
SDG&E's rates. However, we were able to derive them by taking the difference between
Navigant's forecast of bundled SDG&E rates and its projection of SDG&E's non-generation
rates shown in the Community Choice Aggregation pro formas.
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Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
simplifies the forecasting of future non-generation rates, because one can use available inflation
forecasts and productivity projections.
However, it is important to recognize that, since the Califomia energy crisis, the CPUC
has been moving away from the use of PBR mechanisms. In fact, the Commission has required
all of the major energy utilities, including SDG&E, to file new general rate cases or cost-of-
service proceedings. It is unclear whether the CPUC intends to move back to standard rate cases
at regular intervals or simply to use the results of the new rate cases to set new base years for
renewed PBR mechanisms.
In the pending SDG&E cost-of-service case, the utility has proposed to return to the use
of a PBR mechanism with the results of the current case setting the base year rates. SDG&E has
also proposed an inflation index and a productivity factor of 0.52%. Navigant appears to have
derived its assumed escalation rate of 1.3% as the difference between an inflation forecast of
2.9% and the utility's currently adopted 1.6% productivity factor under its existing PBR
mechanism.
We note that Navigant has used this 1.3% escalation rate for all of SDG&E's non-
generation costs, including transmission, distribution, and public purpose program costs, even
though SDG&E's PBR program applies only to the utility's distribution costs. Transmission
costs are now FERC-regulated and are set in FERC transmission rate cases. However, SDG&E's
distribution costs are much larger than its transmission or public pUlpose program costs, and it
does not appear unreasonable to apply the escalation rate for electric distribution to all three cost
categories.
1.
Inflation rate
Navigant appears to assume a long-tenn inflation rate for electric distribution costs of
2.9%. Navigant told us that this figure is taken from SDG&E's cost-of-service testimony, which
shows both historical and forecasted inflation rates from 1997 - 2004. Our review of that data
could not verify the source for the 2.9% figure. The closest number appears to be SDG&E's
assumed inflation rate for 2004 - 3.1 %. However, we note that the 3.1 % inflation assumed for
2004 is high by recent historical standards. SDG&E's longer-tenn average inflation rate from
1997 - 2004 is 2.2%; over this same period general inflation (the GDP implicit price deflator) has
risen by less than 2% per year, and long-tenn inflation forecasts going forward are now in the
2.0% range. Thus, we believe that Navigant's long-tenn inflation forecast is high by almost I %.
2.
Productivity assumptions
Navigant used the Commission's currently-authorized productivity adjustment of 1.62%
for SDG&E's electric distribution system. The Commission adopted this figure in D. 99-05-030.
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Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
SDG&E is proposing a much lower figure, 0.52%, in its pending cost-of-service case. This
figure is based on national electric utility productivity trends. Generally, however, the CPUC has
adopted productivity adjustments for PBR mechanisms that include a "stretch" factor above
industry productivity trends. These "stretch" factors are typically in the range of 0.5% to 1.5%.
As a result, Navigant's use of the current 1.62% productivity adjustment appears to include a
"stretch" factor of about 1.1 %. SDG&E argues in its cost-of-service case that productivity
improvements will be more difficult in the future, and thus the CPUC should no longer adopt
"stretch" factors. Nonetheless, given the continued strong growth of productivity in the U.S.
economy, we anticipate that the CPUC will continue to adopt "stretch" factors of 1.0% and
overall productivity factors of 1.5%.
3.
Conclusion
With a long-term inflation forecast of2.0% and a productivity factor of 1.5%, we expect
SDG&E's non-generation rates to increase by no more than 0.5%, significantly less than
Navigant's assumed 1.3%. Making this change in Navigant's forecast ofSDG&E's future
electric rates should not change the results ofNavigant's Community Choice Aggregation (CCA)
scenarios, which assume that SDG&E continues to provide non-generation services such as
transmission and distribution. However, a lower forecast of SDG&E transmission and
distribution rates should decrease the economic benefits of the scenarios in which the City
provides these non-generation services (i.e. the Greenfield Development or full-fledged
municipal utility options).
E.
Other Rate Elements
Navigant's forecast also includes several other rate elements. First, SDG&E is still
amortizing the electric procurement cost undercollection that it accumulated during the energy
crisis. This is known as the "AB 265 undercollection," after the legislation that required SDG&E
to freeze its rates during the crisis. Navigant expects SDG&E to complete the amortization of
this undercollection by the end of2004. We have reviewed Navigant's assumptions, and agree
with this projection.
Second, SDG&E's rates now include the repayment of the bonds that were issued to
provide small ratepayers with a 10% rate reduction under the electric restructuring program.
These so-called "Fixed Transition Amounts" are expected to expire in 2007. As the amount of
these bonds is fixed and the repayment is relatively certain, we do not disagree with this forecast
element.
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Navigant's SDG&E Rate Forecast
March 24, 2004
FINAL REPORT
IV.
OTHER POSSIBLE FACTORS AFFECTING SDG&E'S RATES
There are several factors that could have a significant impact on a long-range SDG&E
rate forecast that Navigant did not consider explicitly. This section discusses these factors.
A.
Changes in Cost Allocation among the Customer Classes
Navigant's forecast of non-generation rates is based on escalating the June 2003 non-
generation rate components for each of SDG&E' s rate schedules. Implicit in this method is the
assumption that the allocation of costs between the various customer classes will not change over
time. Obviously, it is difficult to forecast such changes. Such changes are less likely if there are
no obvious inequities in SDG&E's rate structure. As an example of such an inequity, we cite
Southern Califomia Edison's current cost allocation, which now results in large commercial rates
that are higher than residential and small commercial rates. Based on our experience in electric
rate design, we do not see any such obvious inequities in SDG&E's current rate structure.
We also note that the mix of electric customers in Chula Vista is very similar to the
overall mix in SDG&E' s service territory, as shown in the table on page 8 of Section II of the
main Navigant study. As a result, SDG&E is unlikely to be able to use changes in its cost
allocation as a means to reduce the City's incentive to pursue a municipal utility. We conclude
that this similarity will minimize the impact of future cost allocation changes on the overall
economics of the City's pursuit of its own utility system.
B.
Changes in Rate Design Methodology
Navigant's analysis seems to use class average electric rates. Class average rates are
influenced not only by the underlying cost allocation, but also by the rate design used to recover
costs. Rate design changes that shift costs between fixed monthly charges, demand charges, and
energy rates can change class average rates. As an example, Southern California Edison has
floated a proposal in the rate design phase of its ongoing general rate case to make a major shift
to recover more costs through fixed monthly charges. This proposal has met stiff resistance, and
Edison recently backed away from it. With no major shifts in SDG&E's rate design on the
horizon, it is our judgement that Navigant's use of class average rates is reasonable.
We conclude that Navigant made reasonable assumptions concerning cost allocation and
rate design on the SDG&E system. However, the City may need to re-evaluate the economics of
its MEV endeavors if SDG&E makes significant rate changes in the future.
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Attachment A
City of Chula Vista
Financial Pro Forma Analysis
Natural Gas Utility Option
(No Cost Penalty to Serve EGs)
NPV
2002 2003
62,500 64,925
3,370 3,411
20 20
10 10
1 1
65,901 68,367
20,600 21,293
6,366 6,475
5,000 5,086
34,778 34,778
66,744 67,632
110,184 113,489
176,928 181,121
2.4%
Customer Accounts
Residential
Core Commercial
Noncore Commercial
Noncore Industrial
Electric Generation
Total
Gas Requirements (Mth)
Residential
Core Commercial
Noncore Commercial
Noncore Industrial
Subtotal RlCII
Electric Generation
Total
% Increase
Estimated SDG&E Delivery Rates ($rrherm) (Including SoCalGas charges)
Residential 0.394
Core Commercial 0,420
Noncore Commercial 0.078
Noncore Industrial 0.078
Electric Generation 0.019
0.429
0.405
0.088
0.088
0.027
2004 2005
67,349 69,774
3,513 3,735
21 22
10 10
1 1
70,894 73,642
21,977 22,65S
6,702 7,161
5,264 S,625
34,778 34,778
68,721 70,219
116,894 120,401
185,615 190,620
2.S% 2.7%
0.436 0.443
0.412 0.419
0.089 0.091
0.089 0.091
0.028 0.028
1.7% 1.7%
$9,S80 $10,040
$2,762 $3,000
$469 $510
$3,101 $3,153
$15,912 $16,703
0.232 0.238
$3,265 $3,419
$19,177 $20,122
$0.103 $0.106
change
Estimated SDG&E Non.Gas Revenue ($000) (including SoCalGas charges)
Residential $8,112 $9,129
Core Commercial $2,671 $2,625
Noncore Commercial $388 $446
Noncore Industriai $2,700 $3,050
Subtotal RlCII $13,871 $15,250
Average RlCII ($rrhenn) 0.208 0.225
Electric Generation $2,093 $3,118
Totai $15,964 $18,368
Averge ($rrhenn) $0.090 $0.101
Estimated Chula Vista Operating Expenses (including SoCalGas charges with no cost penalty to serve EGs)
C.V. Deiivery CosI!o RlCII 0.152 0.157 0.161
C.v. Cost to Serve RlCIl ($000) $10,294 $10,774 $11,339
Est. Cost to Serve Power Plant ($rrh) 0.0010 0.0010 0.0011
C'v.CosttoServePP($OOO) $1,998 $113 $120 $128
SoCalGas Wholesale Rate ($fTh) 0.018 0.018 0.018
Est. SDG&E Trans. Rate ($rrh) 0.023 0.023 0.024
Total Rate RlC/I SoCal & SDG&E ($fTh) 0.041 0.041 0.042
Total EG Rate SoCal & SDG&E ($rrh) 0.027 0.028 0.026
SoCaIGaslSDG&E Coslto C.V. $5,867 $6,104 $6,369
Capital Expense ($000) $418 $418 $418
Capilallmprovement Cost ($000) $958 $958 $958
Total Expenses $17,650 $18,374 $19,212
Total $rrhenn 0.097 0.099 0.101
Estimated Benefit of Gas Utility
SDG&E Revenue minus CV Cost
Lost Franchise Fee
Net BenefiV(Cost)
Discount Rate
$6,087
$7,244
($1,157)
9.73%
$718
$657
$61
Page 1 of4
$803
$681
$122
$910
$689
$221
2006
72,199
3,784
22
10
1
76,016
23,395
7,291
S,727
34,778
71,191
124,013
19S,204
2.4%
0.451
0.426
0.092
0.092
0.029
1.7%
$10,641
$3,106
$S28
$3,206
$17,381
0.244
$3,580
$20,961
$0.107
0.166
$11,841
0.0011
$136
0.0184
0.024
0.043
0.029
$6,621
$418
$958
$19,974
0.102
$987
$709
$278
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Attachment A
City of Chula Vista
Financial Pro Forma Analysis
Natural Gas Utility Option
(No Cost Penalty to Serve EGs)
2007 2008 2009 2010 2011 2012
Customer Accounts
Residential 74,624 76,643 78,663 80,683 81,248 81,813
Core Commercial 3,833 3,882 3,954 4,045 4,069 4,092
Noncore Commercial 23 23 23 24 24 24
Noncore Industrial 10 10 10 10 10 10
Electric Generation 1 1 1 1 1 1
Total 78,491 80,559 82,6S1 84,763 85,352 8S,940
Gas Requirements (Mth)
Residential 24,132 24,786 25,439 26,092 26,275 26,4S7
Core Commercial 7,422 7,S56 7,734 7,952 8,038 8,125
Noncore Commercial 5,830 5,935 6,075 6,246 6,314 6,382
Noncore Industrial 34,778 34.776 34,778 34,778 34.778 34,778
Subtotal RlCII 72,162 73,055 74,026 75,068 75,405 75,742
Electric Generation 0 0 257,544 2S7,544 257,544 257,544
Total 72,162 73,055 331,570 332,612 332,949 333,286
% Increase -63.0% 1.2% 353.9% 0.3% 0.1% 0.1%
Estimated SDG&E Delivery Rates ($lThenn)
Residential 0.458 0.466 0.473 0.481 0.489 0.497
Core Commercial 0.433 0.440 0.448 O.4SS 0.462 0.470
Noncore Commercial 0.094 0.095 0.097 0.098 0.100 0.102
Noncore Industrial 0.094 0.095 0.097 0.098 0.100 0.102
Electric Generation 0.029 0.030 0.030 0.031 0.031 0.032
change 0.5% 3.4% 1.1% 1.7% 1.8% 1.8%
Estimated SDG&E Non-Gas Revenue ($000)
Residential $11,054 $11,542 $12,043 $12,558 $12,850 $13,147
Core Commercial $3,214 $3,327 $3,462 $3,618 $3,716 $3,817
Noncore Commercial $546 $565 $S88 $615 $632 $649
Noncore Industrial $3,259 $3,313 $3,368 $3,424 $3,479 $3,535
Subtotal RlC/I $18,073 $18,747 $19,461 $20,215 $20,677 $21,148
Average RlC/I ($lTherm) 0.250 0.257 0.263 0.269 0.274 0.279
Electric Generation $0 $0 $7,812 $7,942 $8,070 $8,200
Total $18,073 $18,747 $27,273 $28,157 $28,747 $29,348
Averge ($lTherm) $0.250 $0.257 $0.082 $0.085 $0.086 $0.088
Estimated Chula VIsta Operating Expenses
C.V. Delivery Casita RlCII 0.171 0.176 0.182 0.187 0.193 0.199
C.V. Cost to Serve RlC/I ($000) $12,363 $12,891 $13,454 $14,053 $14,539 $15,042
Est. Cost to Serve Power Plant ($lTh) 0.0011 0.0011 0.0012 0.0012 0.0013 0.0013
C.V. Cost to Serve PP ($000) $0 $0 $308 $317 $326 $336
SoCalGas Wholesale Rate ($lTh) 0.019 0.019 0.019 0.020 0.020 0.020
Est. SDG&E Trans. Rate ($lTh) 0.025 0.02S 0.025 0.026 0.026 0.027
Total Rate RlC/I SoCal & SDG&E ($lTh) 0.043 0.044 0.045 0.046 0.046 0.047
Total EG Rate SoCal & SDG&E ($lTh) 0.029 0.030 0.030 0.031 0.031 0.032
SoCaIGaslSDG&E Cost to C.V. $3,133 $3.225 $11.134 $11.367 $11.565 $11,768
Capital Expense ($000) $418 $418 $418 $418 $418 $418
Capital Improvement Cost ($000) $958 $958 $958 $958 $958 $958
Total Expenses $16,872 $17,492 $26,272 $27,113 $27,806 $28,522
Total $lTherm 0.234 0.239 0.079 0.082 0.084 0.086
Estimated Benefit of Gas Utility
SDG&E Revenue minus CV Cost $1,201 $1,255 $1,001 $1,044 $941 $826
Lost Franchise Fee $650 $679 $858 $885 $905 $924
Net BenefiU(Cost) $5S1 $S76 $143 $159 $36 ($98)
Discount Rate
Page 2 of 4 Crossborder Energy
r¡-ILII
Attachment A
City of Chula Vista
Financial Pro Forma Analysis
Natural Gas Utility Option
(No Cost Penalty to Serve EGs)
2013 2014 2015 2016 2017 2018
Customer Accounts
Residential 82,378 82,944 83,509 84,074 84,540 85,205
Core Commercial 4,116 4,190 4,377 4,413 4,449 4,485
Noncore Commercial 24 25 26 26 26 27
Noncore Industrial 10 10 10 10 10 10
Electric Generation 1 1 1 1 1 1
Total 86,529 87,170 87,923 88,524 89,126 89,728
Gas Requirements (Mth)
Residential 26,640 26,823 27,006 27,189 27,371 27,S64
Core Commercial 8,212 8,402 8,822 8,938 9,056 9,175
Noncore Commercial 6,450 6,600 6,930 7,021 7,113 7,207
Noncore Industrial 34,778 34,778 34,778 34,778 34,778 34,778
Subtotal RlC/I 76,080 76,603 77,536 77,926 78,318 78,714
Electric Generation 257,644 257,544 257,644 257,644 257,644 257,544
Total 333,624 334,147 335,080 33S,470 335,862 336,258
% Increase 0.1% 0.2% 0.3% 0.1% 0.1% 0.1%
Estimated SDG&E Delivery Rates ($lThenn)
Residential 0.505 0.513 0.521 0.530 0.538 0.547
Core Commercial 0.477 0,485 0.493 0.501 0.509 0.517
Noncore Commercial 0.103 0.105 0.107 0.108 0.110 0.112
Noncore Industrial 0.103 0.105 0.107 0.108 0.110 0.112
Electric Generation 0.032 0.033 0.033 0.034 0.034 0.035
change 1.5% 1.6% 1.6% 1.6% 1.6% 1.6%
Estimated SDG&E Non-Gas Revenue ($OOO)
Residential $13,451 $13,761 $14,078 $14,401 $14,730 $15,067
Core Commercial $3,920 $4,075 $4,348 $4,476 $4,607 $4,743
Noncore Commercial $666 $693 $739 $761 $783 $806
Noncore Industrial $3,592 $3,650 $3,709 $3,768 $3,829 $3,890
Subtotal RlC/I $21,629 $22,179 $22,874 $23,406 $23,949 $24,506
Average RlC/I ($/Therm) 0.284 0.290 0.29S 0.300 0.306 0.311
Electric Generation $8,332 $8,466 $8,602 $8,740 $8,880 $9,023
Total $29,961 $30,64S $31,476 $32,146 $32,829 $33,529
Averge ($/Therm) $0.090 $0.092 $0.094 $0.096 $0.098 $0.100
Estimated Chula VIsta Operating Expenses
CV. Delivery Cost to RlCII 0.205 0.211 0.217 0.224 0.230 0.237
C.V. Cost to Serve RlC/I ($000) $15,563 $16,140 $16,827 $17,418 $18,031 $18,666
Est. Cost to Serve Power Plant ($lTh) 0.0013 0.0014 0.0014 0.0015 0.0015 0.0016
C.V. Cost to Serve PP ($000) $346 $357 $367 $378 $390 $401
SoCalGas Wholesale Rate ($lTh) 0.021 0.021 0.021 0.022 0.022 0.022
Est. SDG&E Trans. Rate ($/Th) 0.027 0.027 0.028 0.028 0.029 0.030
Total Rate RlCII SoCal & SDG&E ($lTh) 0.048 0.049 0.049 0.050 0.051 0.052
Total EG Rate SoCal & SDG&E ($/Th) 0.032 0.033 0.033 0.034 0.034 0.035
SoCaIGasISDG&E Cost to C.V. $11,973 $12,191 $12,433 $12,652 $12,875 $13,103
Capital Expense ($000) $418 $418 $418 $418 $418 $418
Capital Improvement Cost ($000) $958 $958 $958 $958 $958 $958
Total Expenses $29,2S8 $30,064 $31,003 $31,824 $32,672 $33,S46
Total $/Therm 0.088 0.090 0.093 0.095 0.097 0.100
Estimated Benefit of Gas Utility
SDG&E Revenue minus CV Cost $703 $581 $473 $322 $157 ($17)
Lost Franchise Fee $938 $956 $978 $989 $1,002 $1,031
Net BenefiV(Cost) ($235) ($375) ($505) ($667) ($845) ($1,048)
Discount Rate
Page 3 of 4 Crossborder Energy
r¡- /tfJ-
Attachment A
City of Chula Vista
Financial Pro Forma Analysis
Natural Gas Utility Option
(No Cost Penalty to Serve EGs)
2019 2020 2021 2022 2023
Customer Accounts
Residential 8S,770 88,335 86,496 86,656 86,816
Core Commercial 4,521 4,556 4,599 4,642 4,68S
Noncore Commercial 27 27 27 28 28
Noncore industrial 10 10 10 10 10
Electric Generation 1 1 1 1 1
Totai 90,329 90,929 91,133 91,337 91,540
Gas Requirements (Mth)
Residential 27,737 27,920 27,972 28,023 28,075
Core Commercial 9,295 9,414 9,SSO 9,687 9,827
Noncore Commercial 7,301 7,395 7,501 7,609 7,719
Noncore Industrial 34,778 34,778 34,778 34,778 34,778
Subtotal RlC/I 79,111 79,S07 79,801 80,097 80,399
Electric Generation 2S7,544 257,544 257,544 257,544 2S7,544
Total 336,655 337,051 337,345 337,641 337,943
% Increase 0.1% 0.1% 0.1% 0.1% 0.1%
Estimated SDG&E Delivery Rates ($rrhenn)
Residential 0.SS6 0.564 0.574 0.583 0.592
Core Commercial 0.S25 0.534 0.542 0.SS1 0.560
Noncore Commercial 0.114 0.115 0.117 0.119 0.121
Nonco," Industriai 0.114 0.115 0.117 0.119 0.121
Electric Generation 0.036 0.036 0.037 0.037 0.038
change 1.6% 1.6% 1.6% 1.6% 1.6%
Estimated SDG&E Non-G.s Revenue ($000)
Residential $15,410 $15,760 $16,042 $16,329 $16,621
Core Commercial $4,882 $5,024 $5,178 $5,336 $5,500
Noncore Commercial $830 $854 $880 $907 $935
Noncore Industriai $3,953 $4,016 $4,080 $4,146 $4,212
Subtotal RlC/I $25,075 $2S,6S4 $26,180 $26,718 $27,268
Average RlC/I ($fTherm) 0.317 0.323 0.328 0.334 0.339
Electric Generation $9,167 $9,314 $9,463 $9,615 $9,769
Totai $34,242 $34,968 $3S,643 $36,333 $37,037
Averge ($rrherm) $0.102 $0.104 $0.106 $0.108 $0.110
Estimated Chula Vista Operating Expenses
c.v. Delivery Cost to RlC/i 0.244 0.252 0.2S9 0.267 0.27S
C.V. Cost to Serve RlC/I ($000) $19,323 $20,002 $20,679 $21,378 $22,102
Est. Cost to Serve Power Plant ($lTh) 0.0016 0.0017 0.0017 0.0018 0.0018
C. V. Cost to Serve PP ($000) $413 $426 $438 $4S2 $465
SoCalGas Whoiesale Rate ($lTh) 0.023 0.023 0.024 0.024 0.024
Est. SDG&E Trans. Rate ($lTh) 0.030 0.030 0.031 0.031 0.032
Total Rate RlC/I SoCal & SDG&E ($lTh) 0.053 0.054 0.054 0.055 0.056
Total EG Rate SoCal & SDG&E ($lTh) 0.036 0.036 0.037 0.037 0.038
SoCaIGasISDG&E Cost to C.V. $13,333 $13,568 $13,801 $14,039 $14,280
Capital Expense ($000) $418 $418 $418 $418 $418
Capital Improvement Cost ($000) $958 $958 $958 $958 $958
Total Expenses $34,445 $35,372 $36,294 $37,245 $38,223
Total $fTherm 0.102 0.105 0.108 0.110 0.113
Estimated Benefit of Gas Utility
SDG&E Revenue minus CV Cost ($203) ($404) ($651) ($912) ($1,186)
Lost Franchise Fee $1,055 $1,078 $1,104 $1,133 $1,146
Net BenefiU(Cost) ($1,258) ($1,482) ($1,755) ($2,045) ($2,332)
Discount Rate
Page40f4 Crossborder Energy
r¡-1i-3
City of Chula Vista
Financial Pro Forma Analysis
Natural Gas Utility Option
(SDG&E System Bypass)
Customer Accounts
Residential
Core Commercial
Noncore Commercial
Noncore Industrial
Electric Generation
Total
Gas Requirements (Mth)
Residential
Core Commercial
Noncore Commercial
Noncore Industrial
Subtotal RlC/I
Electric Generation
Total
% Increase
Attachment B
NPV
2002 2003 2004
62,500 64,925 67,349
3,370 3,411 3,513
20 20 21
10 10 10
1 1 1
65,901 68,367 70,894
20,600 21,293 21,977
6,366 6,475 6,702
5,000 S,086 S,264
34,778 34,778 34,778
66,744 67,632 68,721
110,184 113,489 116,894
176,928 181,121 185,615
2.4% 2.5%
Estimated SDG&E Delivery Rates (5ITherm) (Including SoCalGas charges)
Residential 0.394
Core Commercial 0.420
Noncore Commercial 0.078
Noncore Industrial 0.078
Electric Generation 0.019
change
Estimated SDG&E Non-Gas Revenue (5000) (including SoCalGas charges)
Residential 58,112 $9,129
Core Commercial $2,671 $2,625
Noncore Commercial $388 $446
Noncorelndustrial $2,700 $3,050
Subtotal RlC/I $13,871 $15,250
Average RlCIl ($IThenn) 0.208 0.22S
Electric Generation $2,093 $3,118
Total $15,964 $18,368
Averge ($IThenn) $0.090 $0.101
Estimated Chula Vista Operating Expenses (including charges to bypass SDG&E)
C.V.DeliveryCosttoRiC/I 0.1S2
C.V. Cost to Serve RlC/I ($000) $10,294
Est. Cost to Serve Powe' Plant ($ITh) 0.0010
C.v. Cost to Serve PP($OOO) $1,998 $113
Bypass Transmission Rate ($ITh) 0.014
Bypass Cost to C.V. 52,554
Capital Expense ($000) $418
Capital Improvement Cost ($000) $958
Total Expenses $14,337
Total $IThenn 0.079
Estimated Benefit of Gas Utility
SDG&E Revenue minus CV Cost
Lost Franchise Fee
Net BenefiU(Cost)
Discount Rate
0.429
0.405
0.088
0.088
0.027
0.436
0.412
0.089
0.089
0.047
1.7%
$9,S80
$2,762
$469
$3,101
$15,912
0.232
$5,494
$21,406
$0.11S
0.157
$10,774
0.0010
$120
0.014
52,617
$418
$958
$14,887
0.080
$80,617
$7,244
573,373
9.73%
$4,031
$657
$3,374
$6,519
$681
$5,838
Page 1 of4
'7-1 tf-i
2005 2006
69,774 72,199
3,735 3,784
22 22
10 10
1 1
73,S42 76,016
22,655 23,395
7,161 7,291
5,625 5,727
34,778 34,778
70,219 71,191
120,401 124,013
190,620 19S,204
2.7% 2.4%
0.443 0.451
0.419 0.426
0.091 0.092
0.091 0.092
0.048 0.049
1.7% 1.7%
$10,040 $10,541
$3,000 $3,106
$510 $528
$3,153 $3,206
$16,703 $17,381
0.238 0.244
$5,753 $6,024
$22,456 $23,405
$0.118 $0.120
0.161 0.166
$11,339 $11,641
0.0011 0.0011
$128 $136
0.014 0.015
52,733 52,845
$418 $418
$958 $9S8
$15,576 $16,198
0.082 0.083
$6,881 $7,207
$689 $709
$6,192 $6,498
CrossborderEnergy
Attachment B
City of Chula Vista
Financial Pro Forma Analysis
Natural Gas Utility Option
(SDG&E System Bypass)
2007 2008 2009 2010 2011 2012
Customer Accounts
Residential 74,624 76,643 76,663 60,683 81,246 81,813
Core Commercial 3,833 3,882 3,954 4,045 4,069 4,092
Noncore Commercial 23 23 23 24 24 24
Noncore Industrial 10 10 10 10 10 10
Electric Generation 1 1 1 1 1 1
Total 78,491 60,559 62,651 84,763 85,3S2 85,940
Gas Requirements (Mth)
Residential 24,132 24,786 25,439 26,092 26,275 26,457
Core Commercial 7,422 7,5S6 7,734 7,952 6,038 8,125
Noncore Commercial 5,830 5,935 6,075 6,246 8,314 8,382
Noncore Industrial 34,778 34,778 34,778 34,778 34,778 34,778
Subtotal RlGII 72,182 73,055 74,026 75,068 75,405 7S,742
Electric Generation 0 0 257,544 257,544 257,544 2S7,544
Total 72,162 73,OS5 331,S70 332,612 332,949 333,286
% Increase -63.0% 1.2% 353.9% 0.3% 0.1% 0.1%
Estimated SDG&E Delivery Rates ($/TheRn)
Residential 0.458 0.466 0.473 0.481 0.469 0.497
Core Commercial 0.433 0.440 0.448 0.455 0.462 0.470
Noncore Commercial 0.094 0.095 0.097 0.096 0.100 0.102
Noncore Industrial 0.094 0.095 0.097 0.096 0.100 0.102
Electric Generation 0.049 0.050 0.051 0.052 0.053 0.054
change 0.5% 3.4% 1.1% 1.7% 1.6% 1.6%
Estimated SDG&E Non-Gas Revenue ($000)
Residential $11,OS4 $11,542 $12,043 $12,SS8 $12,650 $13,147
Core Commercial $3,214 $3,327 $3,462 $3,618 $3,716 $3,817
Noncore Commercial $546 $565 $588 $61S $632 $649
Noncore Industrial $3,2S9 $3,313 $3,368 $3,424 $3,479 $3,53S
Subtotal RlCIl $18,073 $18,747 $19,461 $20,215 $20,677 $21,148
Average RlCII ($/Thenn) 0.250 0.257 0.263 0.269 0.274 0.279
Electric Generation $0 $0 $13,145 $13,364 $13,579 $13,798
Total $18,073 $18,747 $32,606 $33,579 $34,2S6 $34,946
Averge ($/Thenn) $0.250 $0.257 $0.098 $0.101 $0.103 $0.10S
Estimated Chula VIsta Operating Expenses
C.V. Delivery Cost to RlC/I 0.171 0.176 0.182 0.187 0.193 0.199
C.V. Cost to Serve RlC/I ($000) $12,363 $12,891 $13,454 $14,053 $14,S39 $15,042
Est. Cost to Serve Power Plant ($/Th) 0.0011 0.0011 0.0012 0.0012 0.0013 0.0013
C.V. Cost to Serve PP ($000) $0 $0 $308 $317 $326 $336
Bypass Transmission Rate ($/Th) 0.01S 0.01S 0.015 0.016 0.016 0.016
Bypass Cost to C.V. $1,056 $1,106 $5,077 $5,178 $5,267 $5,357
Capital Expense ($000) $418 $418 $418 $418 $418 $418
Capital Improvement Cost ($000) $958 $958 $9S8 $958 $968 $958
Total Expenses $14,795 $1S,373 $20,21S $20,924 $21,S08 $22,111
Total $/Thenn 0.205 0.210 0.061 0.063 0.065 0.066
estimated Benefit of Gas Utility
SDG&E Revenue minus CV Cost $3,278 $3,374 $12,391 $12,655 $12,749 $12,835
Lost Franchise Fee $650 $679 $658 $885 $905 $924
Net BenefiV(Cost) $2,628 $2,695 $11,533 $11,770 $11,844 $11,911
Discount Rate
Page 2 of 4
Crossborder Energy
rJ- /'1-5
Attachment B
City of Chula Vista
Financial Pro Forma Analysis
Natural Gas Utility Option
(SDG&E System Bypass)
2013 2014 2015 2016 2017 2018
Customer Accounts
Residential 82,378 82,944 83,509 84,074 84,640 85,20S
Core Commercial 4,116 4,190 4,377 4,413 4,449 4,485
Noncore Commerciai 24 25 26 26 26 27
Noncore Industriai 10 10 10 10 10 10
Electric Generation 1 1 1 1 1 1
Totai 86,529 87,170 87,923 88,524 89,126 89,728
Gas Requirements (Mth)
Residential 26,640 26,823 27,006 27,169 27,371 27,554
Core Commercial 8,212 8,402 8,822 8,938 9,OS6 9,175
Noncore Commercial 6,450 6,600 6,930 7,021 7,113 7,207
Noncore Industriai 34,778 34,778 34,778 34,778 34,778 34,778
Subtotal RlCII 76,080 76,603 77,536 77,926 78,318 78,714
Eiectric Generation 257,544 257,544 257,544 257,544 2S7,544 257,544
Totai 333,624 334,147 335,080 335,470 335,862 336,2S8
% Increase 0.1% 0.2% 0.3% 0.1% 0.1% 0.1%
Estimated SDG&E Delivery Rates ($/Thenn)
Residential 0.505 0.513 0.521 0.530 0.538 0.547
Core Commercial 0.477 0.485 0.493 0.S01 0.509 0.S17
Noncore Commercial 0.103 0.105 0.107 0.108 0.110 0.112
Noncore Industrial 0.103 0.105 0.107 0.108 0.110 0.112
Electric Generation 0.054 0.055 0.056 0.057 0.058 0.059
change 1.6% 1.6% 1.6% 1.6% 1.6% 1.6%
Estimated SDG&E Non-Gas Revenue ($000)
Residential $13,4S1 $13,761 $14,078 $14,401 $14,730 $15,067
Core Commercial $3,920 $4,075 $4,348 $4,476 $4,607 $4,743
Noncore Commercial $666 $693 $739 $761 $783 $806
Noncore Industrial $3,592 $3,650 $3,709 $3,768 $3,829 $3,890
Subtotal RlCII $21,629 $22,179 $22,874 $23,406 $23,949 $24,506
Average RlCII ($/Therm) 0.284 0.290 0.295 0.300 0.306 0.311
Electric Generation $14,020 $14,246 $14,475 $14,707 $14,942 $15,183
Total $35,649 $36.425 $37,349 $36,113 $36,891 $39,689
Averge ($/Therm) $0.107 $0.109 $0.111 $0.114 $0.116 $0.118
Estimated Chula Vista Operating Expenses
C.V. Delivery Cost to RlC/I 0.20S 0.211 0.217 0.224 0.230 0.237
C.V. Cost to Serve RlCII ($000) $15,563 $16,140 $16,827 $17,418 $18,031 $18,666
Est. Cost to Serve Power Plant ($/Th) 0.0013 0.0014 0.0014 0.0015 0.001S 0.0016
c.v. Cost to Serve PP ($000) $346 $357 $367 $378 $390 $401
Bypass Transmission Rate ($/Th) 0.016 0.017 0.017 0.017 0.017 0.018
Bypass Cost to C.V. $S,449 $S,545 $5,650 $5,747 $5,846 $5,947
Capital Expense ($000) $418 $418 $418 $418 $418 $418
Capital Improvement Cost ($000) $958 $958 $958 $958 $958 $958
Total Expenses $22,734 $23,418 $24,220 $24,919 $25,643 $26,390
Total $/Therm 0.068 0.070 0.072 0.074 0.Q76 0.Q78
Estimated Benefit of Gas Utility
SDG&E Revenue minus CV Cost $12,916 $13,007 $13,129 $13,194 $13,248 $13,299
Lost Franchise Fee $938 $956 $978 $989 $1,002 $1,031
Net BenefiV(Cost) $11,978 $12,051 $12,151 $12,205 $12,246 $12,268
Discount Rate
Page 3 of4
Crossborder Energy
'7- /tf~
Attachment B
City of Chula Vista
Financial Pro Forma Analysis
Natural Gas Utility Option
(SDG&E System Bypass)
2019 2020 2021 2022 2023
Customer Accounts
Residential 85,770 86,335 86,496 86,656 86,816
Core Commercial 4,521 4,SS6 4,599 4,642 4,685
Noncore Commercial 27 27 27 28 28
Noncore Industrial 10 10 10 10 10
Electric Generation 1 1 1 1 1
Total 90,329 90,929 91,133 91,337 91,S40
Gas Requirements (Mth)
Residential 27,737 27,920 27,972 28,023 28,075
Core Commercial 9,295 9,414 9,550 9,687 9,827
Noncore Commercial 7,301 7,395 7,501 7,609 7,719
Noncore Industrial 34.778 34,778 34,778 34,778 34,778
Subtotal RIC/I 79,111 79,507 79,801 80,097 80,399
Electric Generation 257,544 257,544 257,544 257,544 257,544
Total 336,655 337,051 337,345 337,641 337,943
% Increase 0.1% 0.1% 0.1% 0.1% 0.1%
Estimated SDG&E Delivery Rates ($lThenn)
Residential 0.556 0.564 0.574 0.583 0.592
Core Commercial 0.525 0.534 0.542 0.551 0.560
Noncore Commercial 0.114 0.115 0.117 0.119 0.121
Noncore Industrial 0.114 O.IIS 0.117 0.119 0.121
Electric Generation 0.060 0.061 0.062 0.063 0.064
change 1.6% 1.6% 1.6% 1.6% 1.6%
Estimated SDG&E Non-Gas Revenue ($000)
Residential $15,410 $15,760 $16,042 $16,329 $16,621
Core Commercial $4,882 $S,024 $5,178 $5,336 $5,500
Noncore Commercial $830 $854 $880 $907 $935
Noncore Industrial $3,953 $4,016 $4,080 $4,148 $4,212
Subtotal RIC/I $25,07S $25,654 $28,180 $26,718 $27,268
Average RIC/I ($lTherm) 0.317 0.323 0.328 0.334 0.339
Electric Generation $IS,425 $15,673 $15,923 $16,179 $16,438
Total $40,500 $41,327 $42,103 $42,897 $43,706
Merge ($lTherm) $0.120 $0.123 $0.12S $0.127 $0.129
Estimated Chula Vista Operating Expenses
C.V. Delivery Cost to RIC/I 0.244 0.252 0.259 0.267 0.27S
C.V. Cost to Serve RICII ($000) $19,323 $20,002 $20,679 $21,378 $22,102
Est. Cost to Serve Power Plant ($ITh) 0.0016 0.0017 0.0017 0.0018 0.0018
C.V. Cost to Serve PP ($000) $413 $426 $438 $452 $465
Bypass Transmission Rate ($lTh) 0.018 0.018 0.019 0.019 0.019
Bypass Cost to C.V. $6.049 $6,153 $6,257 $6,363 $6,471
Capital Expense ($000) $418 $418 $418 $418 $418
Capital Improvement Cost ($000) $958 $958 $9S8 $958 $958
Total Expenses $27,161 $27,957 $28,750 $29,569 $30,414
Total $lTherm 0.081 0.083 0.085 0.088 0.090
Estimated Benefit of Gas Utility
SDG&E Revenue minus CV Cost $13,339 $13,369 $13,353 $13,328 $13,292
Lost Franchise Fee $1,055 $1,078 $1,104 $1,133 $1,146
Net BenefiV(Cost) $12,284 $12,291 $12,249 $12,195 $12,146
Discount Rate
Page 4 of 4
7-;+1
Crossborder Energy
RESOLUTION NO. 2004-
RESOLUTION
OF THE CHULA VISTA CITY COUNCIL:
A)
DIRECTING STAFF TO IMPLEMENT THE MUNICIPAL ENERGY UTILITY
(MEU) FEASIBILITY STUDY PREFERRED BUSINESS MODELS BY:
i. PREPARING AND SUBMITTING A COMMUNITY CHOICE
AGGREGATION (CCA) IMPLEMENTATION PLAN TO THE
CALIFORNIA PUBLIC UTILITIES COMMISSION (CPUC),
ii. PREPARING AND CIRCULATING A REQUEST FOR
PROPOSALS FOR GREENFIELD DEVELOPMENT (GD) AND
CCA SERVICE PROVIDERS,
iii. ACTIVELY PARTICIPATE AT CPUC IN MATTERS THAT MAY
IMPACT THE CITY MEU PLANS, OTHER CITY ACTIVITIES
AND RATEPAYER ADVOCACY ISSUES,
iv. PREPARE AN ORDINANCE DECLARING THE CITY MEU A
CCA.
B)
DIRECT STAFF TO CONTINUE TO PURSUE A FRANCHISE AGREEMENT
WITH SDG&E FOR EXISTING ELECTRICITY UTILITY SERVICE WITHIN
THE CITY AND ALL EXISTING AND NEW NATURAL GAS SERVICE;
C)
DIRECTING STAFF TO RETURN TO COUNCIL WITH A STAFFING PLAN
THAT REFLECTS CITY COUNCIL'S DIRECTION TO IMPLEMENT ONE
OR MORE MUNICIPAL ENERGY BUSINESS MODELS; AND
D)
APPROPRIATING $500,000 FROM THE AVAILABLE FUND BALANCE OF
THE GENERAL FUND TO THE ADMINISTRATION DEPARTMENT
BUDGET.
WHEREAS, at Council's direction, staff began implementing the City's Energy Strategy
and Action Plan, adopted in May, 2001; and
WHEREAS, a significant component of the strategy required an analysis of the costs,
benefits and risks associated with forming and operating a municipal energy utility, (MEU); and
WHEREAS, the City has been negotiating with SDG&E the terms of a mutually
beneficial franchise agreement since June 2002; and
WHEREAS, the Franchise Agreement between the City and SDG&E expired in June
2003; and
r7- /'/8
WHEREAS, on May 10, 2004, staffreleased copies of the MEU, Peer Review and staff
reports to City Council and the public; and
WHEREAS, at the May 19, 2004 MEU Workshop and Council Meeting, the City Council
listened to approximately five and one half hours of expert testimony and public input regarding
the potential development of a Chula Vista public utility; and
WHEREAS, at the May 19, 2004 workshop, the City Council directed staff to retum to
the June 8, 2004 City Council meeting with a resolution declaring the Chula Vista MEU
(established on June 5, 2001, by Ordinance No. 2835) a Community Choice Aggregator, and to
further consider the MEU Feasibility Study Consultants' recommendations to implement
selected MEU business models; and
WHEREAS, DuncanlNavigant reports that all the recommended MEU business models
(except Municipal Distribution Utility (MDU)) would be financially viable immediately, if
supported by power purchase agreements; and
WHEREAS, to test and validate DuncanlNavigant's conclusions and recommendations,
staff retained the peer review services of three independent energy consultants: RW. Beck
(recommended by SDG&E), Crossborder Energy, and Tabors, Caramanis and Associates; and
WHEREAS, the peer review reports made several significant contributions to the
process, not the least of which were, verifying that the DuncanlNavigant Team had taken a very
conservative approach to estimating the projected savings from each business model, and that
each business model continued to produce significant financial benefits for the community, even
after the DuncanlNavigant team applied a sensitivity analysis to the key assumptions and the
most volatile factors underlying the MEU team's recommendations; and
WHEREAS, the DuncanlNavigant report and confirming peer review reports indicate the
City enhances the near term economic benefits by forming a CCA program while simultaneously
pursuing and implementing Greenfield Development's programs; and
WHEREAS, consistent with the existing energy policy and previously articulated
Council support for quality jobs and the increased use ofrenewable energy, energy conservation
and efficiency, the recommended and proposed CCA/Greenfield MEU business model provides
the Council with the greatest opportunity to develop and incorporate economically viable and
local renewable resources in the City's energy portfolio.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City ofChula Vista
does hereby:
A)
Direct Staff to implement the MEU Feasibility Study preferred business models by:
i.
ii.
preparing and submitting a CCA Implementation Plan to the CPUC,
preparing and circulating requests for proposals for GD and CCA service
providers,
actively participating at CPUC in matters that may impact the City MEU
plans and other City activities,
preparing an ordinance declaring the City MEU a CCA;
111.
IV.
7- /'19
C)
Direct Staff to continue to pursue a franchise agreement with SDG&E for existing
electricity utility service within the City and all existing and new natural gas
service;
Direct staff to return to Council with a staffing plan that reflects City Council's
direction to implement one or more municipal energy business models; and
Appropriate $500,000 from the available fund balance of the general fund to the
Administration Department budget.
B)
D)
Presented by
Approved as to form by
Sid Morris
Assistant City Manager
~ktiÞ1J- f:k;
Ann oore .
. Attorney .
J:\attomeylreso\MEU Workshop 2004 Implement
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Vince Schwent, formerly, Director for SMUD
Notes made from a conversation with
Mr. Vince Schwent, formerly,Director for SMUD,
Now a private energy consultant
SMUD ownes a wind farm, SMUD also helps individuals to buy a solar
system and put the new home with solar units idea into play, The utility
owns the system, SMUD started selling systems to the customer, The State
tax incentive helps citizens do it on a big scale and this gets costs down" The
City should buy large megawhat systems. This is what bring the costs down,
The proposal for solar should go to the citizenry. The goal now in California
is for the use ofa20% renewable portfolio by 2010. We are at 11%
renewable now,
Another way: Put in a big solar system. Big corporations or investor buy the
solar system. They take the tax benefit and sell the power to Chula Vista,
The investor owns the system for 5 years, then the law permits selling it to
the city. The investor or corporation can sell the system to the city cheaper
as he has had the benefit of the tax incentive. The city borrows with the tax
exempt monies. This is called a third party deal, The city then buys the
electricity. Photovoltaic cells now have a 30-year life.
In a Greenfield plan, the builder installs the solar system on the new home.
The extra cost is added to the mortgage. If City is distributing the electricity,
these homebuyers are making more electricity than they need. They sell it
back to the city. The city needs a substation to collect the electricity and
have a high voltage line to houses. San Francisco now has 4000 homes
connected in this way, It is very doable,
Mr. Schwent has just returned ftom Kawai, Hawaii where he was advising
the island on how to buyout the utility to get a lower rate They will need to
set up proper legal entity. Here, as in Sacramento, the people will elect a
Board of Directors, such as in Glendale and Pasadena. In Chula Vista, they
should set up a citizens advisory board so that these people have the
responsibility of running the electrical business and are not distracted by
other city responsibilities. This Board should include professional energy
Notes, Vince Schwent, Page 2
people as well as knowledgeable residents who have the public's benefit at
heart.
Today selling solar bonds is not enough. You have to have rebate programs
and tax incentives. Here in California,the Governor has just refllied the tax
rebate funds. There is State and federal low cost tax exempt bond financing
but tax credits are better.
Notes, conversation with Paul Fenn
10% of cities in CA are going with renewables, They will have 40% green
implementation. 10% more cities are slightly behind in their planning but
have announced their intentions to do CCA. The CPUC has not yet written
the regulations but should be done by Dec. 2004. The timing is right for
C. V, to begin now,
Concerning Community Choice Aggregation:
Chula Vista can buy the energy needed to electrifY city but will use SDG&E
wires for transmission. Citizens can opt out if they wish, However, C.y. can
get involved in generation ifit wishes, We don't need to own a power plant
if we go solar. If we get involved with ownership of a generating plant our
money will go to paying 95% of our money for has, Its like a renter paying
out rent but never getting ownership of anything, With solar, we would own
the house, eventually, and not have to worry where the energy was coming
ftom or whether we would have blackouts or whether the rate for sunshine
would go up. RFP would go to energy servicing companies.
How is this possible fmancially? Float a bond, get money to put solar panels
on city buildings and over parking lots, people's homes, schools,
commercial buildings. They agree to keep paying their bills,
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Buildings e-FFICIENCY NEWS
Long Island Power Authority's Clean Energy Initiative
Seeking to help customers' reduce electric usage and costs, while improving the
environment and fostering economic growth on Long Island, the Long Island
Power Authority (LIP A) has adopted a Clean Energy Initiative (CEI). The CEI
will offer residential and commercial customers a wide range of energy
conservation and efficiency programs, while fostering the development and use
of renewable energy technologies and clean distributed generation.
"It's a new era for electric energy conservation and efficiency on Long Island,"
declared Richard Kessel, Chairman of LIP A "We're seeking to help electric
consumers manage their electric usage so they can lower their electric bills even
further than the 20 percent average rate reduction that LIP A implemented last
year."
LIPA's Clean Energy Initiative resulted ITom Governor Pataki's commitment to
establish new energy efficiency/conservation programs on Long Island when he
announced his double-digit electric rate reduction plan in March 1997.
Over the next five years, LIP A will spend an average of$32 million per year
implementing eleven discrete CEI programs designed to encourage energy
efficiency, peak load reduction, and renewable energy technology, as well as a
portfolio of research, development and demonstration projects that include clean
distributed generation technologies such as fuel cells, wind, and solar.
The Authority's Conservation/Competition Committee and LIP A's Clean
Energy Advisory Panel assisted LIP A staff in the development of the CEI over
the course of the last year. The Natural Resources Defense Council, as a
member of Clean Energy Advisory Panel, also helped LIP A in structuring the
CEI.
LIP A's Conservation/Competition Committee is Co-chaired by Trustees
Michael Affiunti and Harriet Gilliam. Its Clean Energy Advisory Panel is chaired
by Nassau County Legislator Lisanne Altmann of Great Neck Ashok Gupta
participated in the CEI development process on behalf of the Natural Resources
Defense Council. Rich Bolbrock, LIPA's Vice President for Power Markets,
headed the staff effort on the CEI.
"Responsive to the needs of both residential and commercial customers, the
CEI is a five-year effort that reflects state-of-the-art program design with a
positive mix of energy efficiency, renewable energy, and research and
development and demonstration programs," said Mr, Kessel. "The program
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5/26/04 9JO AM
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>126/049.10 AM
contains a special component that directs ten percent of the annual program
funds to assist low-income customers with affordable energy efficiency and
conservation needs, while providing a wide-range of programs for all customers."
Specifically, LIPA's CEI seeks to:
. fmther customers' ability to control their electric energy bills beyond the
rate reduction implement in 1998 by encouraging the use of high efficiency
electric equipment;
. stimulate the local economy and retain businesses and jobs on Long
Island through lower electric energy costs;
. slow the growth in electric energy use;
. defer the need for some new on- and off-island electric capacity; and
. reduce on-island electric generation plant emissions through lower energy
use and the research and development and demonstration of
environmentally fiiendly technologies (wind, solar, fuel cells).
Residential Program Highlights
Residential Lighting and Appliance Program Premium-efficiency appliances and
high-efficiency lighting cost more to purchase initially, but they save money in the
long run. For example, energy saving lighting uses about one-third to one-quarter
of the electricity of incandescent lighting, which saves the product's initial
purchase price many times over.
Most consumers are not familiar with the benefits of premium-efficiency
appliances and high-efficiency lighting, because relatively few retailers are willing
to devote significant shelf or floor space, or sales effort, to promote these
products.
LIP A's Residential Lighting and Appliance Program will supply residential
consumers with rebates to lower the initial purchase price of premium-efficiency
appliances and high-efficiency lighting, The program will also provide marketing
and training assistance to retailers to make stocking and selling efficient products
easier to offer for sale.
LIP A will promote the purchase and installation of appliances and lighting
fixtures and replacement bulbs that meet the EPA's ENERGY STAR standards
and carry the ENERGY STAR label. ENERGY STAR appliances include
refiigerators, clothes washers, dishwashers and room air conditioners. Rebates
will be available for qualifYing clothes washers and a variety of ENERGY
STAR-labeled lighting products,
Residential Heating, Ventilation and
Air Conditioning (HV AC) Efficiency Program
Old, oversized, or inefficient central, home air conditioners and heat pumps,
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which are usually replaced every 15 years or so, waste a tremendous amount of
electric energy. LIPA's Residential HV AC Efficiency program will offer rebates
to homeowners whom select an ENERGY STAR replacement unit, and builders
will receive a financial incentive for including ENERGY STAR-rated HVAC
units and duct systems in new homes.
Also included in this program is a Home Performance Service (HPS) that will
provide customers with a complete home inspection and follow-up report on
ways to save energy and improve the safety and comfort of their homes, through
various home modification strategies and appliance replacements, The service
will also make low interest financing available for eligible construction services,
Residential Energy Affordability Partnership Program
Low-income households typically devote a much larger share of their total
household income to pay for energy than does the general population, At the
same time they can least afford to improve the energy efficiency of their homes
due to limited disposable income,
LIP A has structured a Residential Affordability Partnership Program to reduce
the barriers to energy affordability for Long Island's low-income consumers.
Working with existing weatherization providers on Long Island, for example,
LIP A will coordinate an effort to expand their capabilities to serve a larger
segment oflow-income consumers with energy efficient improvements,
LIPA's program will provide qualifYing consumers with: tree installation of cost-
effective air-sealing, insulation, HV AC repair, lighting and other energy saving
measures; extensive in-home education and counseling; and other services
Non-Residential Program Options
Commercial New Construction and Renovation Program
While today's new commercial buildings are more energy efficient than those
built even ten years ago, the greatest opportunities exist for the application of
energy efficient savings in the early design phase of new buildings. Planning for
energy efficiency does take extra time and it can add to the cost of a project,
which can adversely impact a developer's project fInancing.
LIP A's Commercial New Construction and Renovation Program will aim to
influence current design and construction practices on Long Island It will offer
technical and financial assistance to cover the extra cost, time and effort to
design and construct energy efficient buildings and install efficient equipment
Eventually, as more contractors incorporate energy efficient designs and
construction practices, local building codes can be updated to increase minimum
efficiency standards for all new buildings,
Additional Energy Use Reduction Strategies
http.llwwwA",o,g/'.FFICIENCYI""hivo';do,umonMipa,htm
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Other residential programs include targeted education campaigns and promotion
of photovoltaic systems (solar electricity panels). Other commercial programs
will promote efficient motors, unitaIy HV AC systems, conservation of multiple
resources at public institutions, and other cost effective measures identified by
customers.
LIP A's Clean Energy Initiative will also include strategies for reducing peak load
demand, fostering the development of alternative and renewable energy
technologies - such as fuel cells, wind and solar - to help reduce pollution,
developing of improved technologies for electric energy production and
distribution.
"LIP A will be on the cutting edge of research and development regarding
alternative and renewable energy technologies," said Mr. Kessel. "New,
practical methods must be found to accommodate the needs for increased
electric energy demand with electric production technologies that are more
environmentally mendly than traditional production methods. "
LIP A's Clean Energy Initiative will be implemented in coordination with
campaigns already underway in the northeast, including the Northeast Energy
Efficiency Partnership (NEEP) and the New York State Energy Research and
Development Authority (NYSERDA).
http:(lwww.energymatters.org/
.,~"~~-~!I!!I! 61118nce............ III c""..........
.Edw-~ ~. -1- """~I
This page was updated AprilS, 1999
The AlIiaoœ to Save EneJ'8Y
1200 18th Street, NW, Suite 900
Washington, DC 20036
Phone: 2021857.0066 Fax: 2021331-9588
info@ase o(~ www ase or¡¡
hUp,1 Iwww.",.o'g/o.FFICIENCY/".hi"o/dooumcn'o/!ipo.h"
Pogo4of4
The Local Government
Commission is offefing
Stimulating Public-sector im-
plementation of Renewable
Energy (SPiRE) - a program
designed to offer financing
procurement opportuni-
to help municipalities
nt renewable energy
SPIRE is made possi-
c&
,...."'.-,.""", ""-_..,.,,
... loCAL
~ GoVERNMENT
~JI\W COMMISSION
Innovative Energy Strategies
for the Public Sector
When it comes to energy,
California's local governments
have been innovators for a long
time. With electricity and natural
gas price spikes and mounting evidence of
global climate change,cities,counties and other
local agencies can playa large role in fostering
creative solutions that reduce costs, boost relia-
bility, and shrink the environmental footprints
linked to energy production and consumption,
One strategy is through distributed renewable energy sys.
tems, which growing numbers of local governments are installing
in response to a variety of state financial incentives - including the
California Energy Commission's Emerging Renewable Buy-Down
Rebates. Available to all local governments served by investor-
owned utilities, these rebates can cover up to half of the installa-
tion costs of a new solar photovoltaic (PV) system - an ideal dis-
tributed electricity generation source for local governments.
Renewables Help Your Bottom LIne
A combination of state rebate incentives, low-interest financing
and bulk procurement makes self-generation a cost-effective
option for the public sector's energy needs. Given the volatility of
the electric utility industry, investing in renewable energy sources
can guarantee stable, long-term energy prices and supply while
helping to budget for fixed energy costs. For a limited time, local
governments, schools and special districts can substantially cut
their energy costs by taking advantage of these unprecedented
rebate incentives and financing opportunities - some municipal-
ities can even save money from the first day of installation,
Alameda County's
Santa Rita Jail
Alameda County installed 5,700
photovoltaic cells on its Santa
Rita Jail. making it the largest
rooftop solar PV system in the nation,
Begun in June 2001, the 642 kW PV sys-
tem is just one of the county's techno-
logical innovations to retrofit the jail for
energy-efficiency and self-generation -
and the first of many solar-power
systems that the county will adopt over
the next ff!oN years.
The county began looking at how to
reduce energy demand at the jail in
1993, The energy-efficiency programs
included retrofitting over 12,000 flue-.
rescent light fixtures, installing
pancy sensors and other adv
lighting controls, and installing
solar-reflective, 'Cool Roof'
By reflecting 65% of the s
that hits the roo~ summer r
peratUres are cut by 50
reducing air conditioni
ments, The jail was also re
a more efficient central
tower and a computeri
Energy Management System.
By starting with energy-efficien
fits and adding the rooftop PV sys
Alameda County was able to reduc
peak power consumption by 20% with-
out any general fund expenditure.
Instead, the county leveraged a
variety of state subsidies, includ-
ing $2.5 million from the California
Energy Commission's Emerging
Renewable Technology Buy-Down
Rebate; $425,000 in State Peak
Load Reduction funds for the PV
System, the air-conditioning de-
mand response system, and Cool
Roof; and $250,000 from the
CPUC's'cost-cutting demand.pro-
gram. Another $980,000 was
financed by a fixed 6% interest
loan from the California Energy
Commission's Energy Efficiency
Financing Program for local gov.
ernments - which will be paid off
by the savings achieved by re-
duced electricity use over the
next 11 years,
The County's net savings will aver-
age about $295,000 annually over
the next 25 years. or about $7
million in total savings over the life
of the project (based on July 2001
electricity rates).
The Santa Rita Jail project also
provides an added environmental
benefit by displacing almost 9 mil-
lion pounds of carbon dioxide
and 2,900 pounds of nitrogen
oxides - gasses associated with
global climate change and urban
smog, respectively - as a result of
its reduced utility power purchases,
FrI, May 28, 2004 7:13 AM
Subject: Fw: Local Power Alert: CPUC to Vote on Sempra's Ratepayer
"Lockdown Plan"
Date: Monday, May 24, 2004 1:39 PM
Reply-To: "Jim Bell" <jimbellob@hotmail.com>
To: Lupe jimenez <libritos@cox.net>
----- original Message -----
wr""" WFAOBUZXUWLSZLKBRNVW
Tol <power@local.org>
Col <jimbellob@hotmail.oom>
SentI Monday, May 24, 2004 9154 AM
Subject I Local P"""r Alert: CPUC to Vote on Sempra's Ratepayer
Plan"
"Lockdown
LOCAL POOER ALERT MAY 24, 2004
CALIFORNIA REGULATORS TO VOTE ON SEHPRA I.OCI\DCMN PLAN
Sempra Proposes Power Shopping Binge at Ratepayer Expense
On Thursday (May 27), the California Publio utilities Commission (CPUC)
will vote on whether to allow San Diego Gas & Electrio force its ratepayers
to pay for a gas-fired power plant IlOquisition and power oontrllOts that
they do not need, potentially blocking San Diego, Chula Vista and other
oamnunities fran leaving 5DG&E to develop renewable energy under the 2002
CoImnunity Choioe law (AB1l7, 2002 - Migden).
--------------------------
Please Call SWING VOTE CPUC cæMISSIONER GEOFFREY BRCMN (Staff David
Gamson)to ask that SDG&E oustomers' right to find alternative energy
providers be respected.
. NO ON SDG&E PALC»!AR POOER PL!INr ACQUISITION
. LIMIT SDG&E TO TWO YEAR 250 MW POOER CONTRACT
TEL 415 703 1407
FAX 415 703 1294
-------------------------- -
Background
In January 2004 the CPUC voted not to allow over-procurement by the state's
investor owned utilities, rejecting proposals to authorize a 5 year "blank
oheck" power purchase that would have put ratepayers on the hook for
utility power contracts. Recognizing that dozens of cities representing 10%
of the investor-owned utility market are now seeking alternative suppliers
to develop an ambitious 40% green power portfolio (twioe the state minimum)
under AB1l7, the Commission voted unanimously to plan electric utility
procurement based in part on forecasts of "widespread adoption" of
CoImnunity Choice Aggregation.
While four of the five Commissioners present verbally pranised to "make
roan" for Community Choice and to "resolve any contradictions" with
electric utility procurement, the new SDG&E plan is an underhanded attempt
to get around the January 22 decision and to block their ratepayers from
negotiating with alternative Electric SeIVioe Providers. While SDG&E's
2005-2007 shortfall only needed 250 MW of capacity to meet short term
needs, SDG&E is now boldly proposing to dramatioally over-purohase power.
The largest two of the five oontraots alone total more than 100OMW.
Page1of3
SDG&E's effort to overbuy p"""r by approximately 600% threatens new
"stranded costs. that would have to be paid by any ratepayers seeking to
switch to an alternative Electric Service Provider - including the costs of
SDG&E acquiring the 500 Megawatt Palomar gas-fired p"""r plant from its
unregulated affiliate (which itself should be illegal), and signing a
10-year Power Purchase Agreement with Calpine for power from its Otay Mesa
gas-fired p"""r plant - all on SDG&E ratepayers' backs.
With San Francisco approving an "Energy Independence ordinance" last _k
to break away from PG&E and aggressively develop renewables, and cities
like Chula Vista and potentially San Diego now seeking to escape SDG&E
procurement, the SDG&E Lcckdown plan clearly represants a preemptive move
to block these customers from lawfully escaping the resurrected monopoly.
Community Choice Advocates are crying foul and demanding that SDG&E' s
procurement be limited to 250 MW for two years, consistent with the CPUC's
January 22 decision. As dozens of California cities representing millions
of residential and business ratepayers are now actively pursuing Community
Choice Aggregation, we are very concerned about efforts of California's
investor-owned utilities to use over-procurement to block their customers
from pursuing Community Choice.
We are counting on the commissioners to keep their word by disallowing a
single Megawatt of procurement prior to the approval of the long-term
procurement plans later this year as required by the Commission' s
unan:iJDously adopted procurement fr!Ul1eWOrk on January 22.
POLITICAL SUBTEXT: Monopolies, Developers Exploit Shortage Brinksmanship
Governor Schwarzenegger' s recent press statement about accelerating utility
purchasing appears to promote utility long-term contracts as a solution to
lcoming p"""r shortages. In fact, utility p"""r contracts and new gas-fired
capacity cannot address the peak shortage issue, but rather will
potentially block ongoing efforts to address the problem. Through
aggressive investments in renewable energy and efficiency by Community
Choice Aggregators. RACE is extremely concerned about the prospects of the
rate basing of added new utility-owned gas-fired generation, and asserts
that the commission cannot protect California ratepayers from a future
energy crisis by authorizing utilities to build and rate base more
gas-fired p"""r plants.
The use of contrived shortages to pressure the Commission is nothing new,
but must never be countenanced again. In fact, the California Energy
commission has predicted no electricity shortages for the foreseeable
future except for the possibility of summertime afternoon peak shortages -
shortages that cannot physically be met with gas-fired generation:
CEC and ISO analysis directly contradict the growing brinksmanship about
looming p"""r shortages. The CECagrees with the ISO that, under average
conditions, the state's electricity generation system has adequate supplies
to meet demand for at least the next six years.
Hot weather, coupled with other factors, however, could reduce summar
afternoon peak hour reserves to very low levels as early as 2006.
Increased gas-fired generation is no solution to the Perfect Storm scenario
because summer afternoon peak demand shortages cannot physically be met
with new gas-fired generation. Acoording to the Independent System
Operator, the single greatest causes of p"""r shortages in 2000-1 was
PageZof3
(1) contrived shortages by manipulation of interstate gas pipeline owners
and marketing affiliates (including Sempra) to drive up prices;
(2) federal Clean Air Act power plant shut-off orders resulting fran air
pollution violations that polluting new power plants will only make worse.
(3) With the additional fact that federal government regulations require a
widespread gas pipeline shut-offs over the next four years, forcing
numerous shut-offs of gas-fired power plants through 2008, gas fired
generation is quite simply no solution to afternoon peak shortages - but,
rather, the leading cause.
Nowhere does the CEC recommend building new gas-fired generation to address
the ISO's "Perfect Stom" scenario. Instead, the IEPR asserts that the
state should: ramp up public funding for cost-effective energy efficiency
programs above current levels. The CI!C recamnends that california enact
legislation reflecting the Energy Action Plan's ccmmitment to requiring
that all retail suppliers of electricity meet the Renewab1es Portfolio
Standard's goal of 20 percent of retail electricity sales and acoelerate
the target date for reaching the goal fran 2017 to 2010.
Thus over-proourement and acceleration of long-tem contracts or new
generation acquisitions by utilities cannot be justified as a solution to
looming shortages. It is no DK>re than fear-DK>ngering by Sempra, which has
publicly admitted to market manipulation that caused the contrived
shortages of 2000-1.
Paul Fenn
Local Power
4281 Piedmont Ave
Oakland, CA 94611
510 451 1727
paulfenn@looal.org
http:¡¡_.local.org
--------------------------------------------------------------------
mai12web - Check your email from the web at
http://mai12web.com/ .
Page3of3
Community ColI'gos Mnk, Hi""ry With the Cloanost Eo"!!Y Policy S" by on A,odomic IMtitution in 1h, u.s,. Cwmrt Fos"""". CI,onon"8Yßow,mg. "'-pc,.. USA
.
5130/04 12.15 PM
Community Colleges Make History With the Cleanest Energy Policy
Set by an Academic Institution in the U.S.
We Applaud The Board of Trustees for Their Unanimous Vote - Says
Greenpeace
~t~
June 19, 2002. The Los Angeles Community College Disnict's (LACCD) Board of
Trustees unanimously voted in favor of the cleanest renewable energy policy ever
set by an academic institution in the V,S,
In addition to exceeding Title 24, lI1e mandated energy efficiency standard in the California Building Codes, by 20%,
the 40 to 50 new Proposition A buildings will use 15-25% clean energy. At least 10% of the new buildings energy
needs will be generated on-site with solar power. The additional 5-15% of the renewable commitment will be met by
long-tenn contracts with utility green power purchasing programs,
The new solar installations at the LACCD alone will prevent over 137 million tons of carbon dioxide from being
emitted into lI1e atmosphere, or the equivalent of removing at least 2.2 million cars from the road fur one year over
the lifetime of the panels,
"This is a historic moment for the greening of colleges in the U,S,," says Kristin Casper, campaigner for
Greenpeace's Clean Energy Now' Campaign, "LACCD is setting the standard fur all new University and College
building projects"
This decision was the lalest in a series of pushes by lI1e LACCD to make its campuses green, In lI1e spring of 200 I,
Los Angeles voters allocated over $1,2 billion to the LACCD fur renovations and new building construction on its
nine campuses. Greenpeace along with students and other organizations - Coalition fur Clean Air, Sierra Club, and
Global Greens - worked with lI1e Board of Trustees to devise the most innovative Sustainable Building Standard and
Renewable Energy Standard in the V,S. by any academic institution, Last March lI1e board voted in favor of all 40
to 50 new buildings meeting the LEED Certified or Silver standard,
"Colleges and Universities in the U.s, have a responsibility to address climale change," says Kristin Casper, "The
LACCD is taking on the climate cballenge and is teaclring the students today how to become the future leaders of
Califumia's booming clean energy economy,"
published 19 Jun' 200]
Check out other victories!
'ttp.llwww,cloan,n',"ynow,o'glfoatu,,'¡¡oçchi,tory _victory ,html
Pogo! of2
~ER?CA<:~-
Solar Generation: electricity for over 1 billion people and 2 million jobs by 2020 - a
report by EPIA and Greenpeace
What does this report tell us?
Solar energy is on the brink of a boom. The industry is already worth $1 billion annually. By the time
the generation bom today reaches adulthood in 2020 solar energy could easily provide energy to over
a billion people globally and provide 2.3 million full-time jobs. By 2020 solar can provide a projected
276 terawatt hours of energy. Even if we double current consumption rates that would be equivalent
to supplying 30% of Africa's energy needs, or 10% of OECD European demand by 2020. This is equal
to 1 % of the projected global demand.
This would replace the output of 75 new coal fired power stations and prevent the emission of 664
million tonnes of carbon dioxide. It would have an investment value of US$75 billion a year and bring
the cost of solar modules down to US$1 per watt delivered.
By 2040 solar output could be more than 9000 terawatt hours, which would be 26% of the projected
global demand. or more than the combined demand of OECD Europe and OECD North America in
1998,
If we want to prevent dangerous climate change. we have to phase out the fosSil fuels currently used
to meet the majority of global electricity demand. This report. using conservative modelling. shows
that we can easily use solar to replace a large part of the global energy demand. At the same time as
protecting the planet from climate change. solar energy can create millions of jobs.
"Solar Generation" is part of the global Choose Positive Energy campaign. aimed at massively
increasing the uptake of renewable energy. The Choose Positive Energy campaign aims to
encourage the public to demand that they can get connected to Green Energy supplies, and demand
that renewable energy be made available to two billion people of the world's poorest people within the
next decade.
The campaign demonstrates the point that the energy to meet human needs does not have to come
at the cost of more climate change. "Solar Generation" shows that solar PV can meet a large part of
this demand.
EPIA and Greenpeace produced "Solar Generation" as a long-term analysis of the global solar
electricity mar1<et. It provides a detailed analysis of the PV mar1<et up until 2020, with projections to
2040. It is designed to add more weight to the political arguments supporting better mar1<et conditions
for the expansion of solar PV.
This study is based upon clearly defined and realistic assumptions from which extrapolations could be
made on the likely expansion of the solar electricity mar1<et up to 2020. Those assumptions include a
projected average PV mar1<et growth rate of 30% up to 2020 and 15% growth between 2020 and
2040. It uses International Energy Agencay (lEA) assumptions of increased of energy demand
27.000 terawatt hours by 2020. and 35.000TWh by 2040.
Community CoUug" Mak, Himory With tho CI,.."t En"" Policy Sot by .. Ac"¡,mic In,titution in th, U,S" Co"'nt Fonture, CI...,n"I!ynow,m!t G""np"o" USA
5/30/04 12J5 PM
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1~1I~IIJœIIJW:
1wID£1I~1I~
unl", o1herwi.. noted all copy. photo" 8mphi". and othet material,@2oo1 Greenpoaœ. Inc, and may not be u,od in nny ronn without
prior ponni..on
httpJ/www,cI"""'I!ynow,o,gifoature';lac,hi,tury_victory.hanl
Pag,20f2
How do we oet to this solar future?
Joint political and industrial support is needed to give solar the boost required to allow it to realise this
potential. Already in countries such as Japan and Germany, the combination of govemment and
industrial commitment has achieved greater penetration of solar electricity into the energy mix at local,
national, regional and global levels. This has included extensive investment in new facilities and
products from the industry, and the implementation of legislative support frameworks at the political
level. While Germany and Japan have been the leaders in forging and optimising these joint
commitments, more countries are rapidly pursuing similar initiatives.
"Solar Generation" has identified several areas where effective joint action by industry and
govemments would have a significant impact in ensuring that the rapid progress of the past few years
translates into achieving the medium- and long- term potential revealed by this study.
StabiUsation of the annual world market at a level of 1 GWp+ by 2006
This would be achieved through the extension of (adapted) best practice support schemes to
encourage the uptake of solar electricity amongst consumers.
Building a global export market for photovoltaics
The solar electricity industry must be a truly global industry to deliver the economies of scale needed
to catalyse significant price reductions and achieve its status as a driving force for sustainable
development in both the industrialised and developing worlds. This requires action at both national
and global levels, including better co-operation between export promotion agencies, tapping financing
credits through the mobilisation of the huge funds available to Export Credit Agencies, promoting local
capacity building measures relating to financing and developing supply networks, and raising
awareness among all actors of the potential role of the Kyoto Protocol mechanisms in developing the
industry.
Better targeting of R&D resources for the solar electricity industry
The emphasis here should shift towards achieving better automation of the production chain, the
development of new products and achieving greater economies of scale
Enhanced co-operation between the global solar electricity industry and research organisations
The global solar electricity industry should play an enhanced role in the allocation of funds earmarked
for research
Fostering the development of an advanced PV plant technology industry
Expansion of production facilities in the solar electricity sector will lead to a massive increase in
demand for plant and equipment. Emphasis will have to be placed on strengthening this part of the
industry in order to ensure that state-of-the-art production processes can be effectively and efficiently
put into operation world-wide
Who's winnino the solar race?
At present, the nations of the industrialised world vary greatly in their commitment to solar electricity.
While countries such as Germany, Japan and the Netherlands, as well as others in Europe, have
moved forward from discussion to implementing the necessary support schemes, others have actually
cut back their solar electricity programmes. In the United States in particular, this could severely affect
the ability of the national solar electricity industry to fulfil its promise as a global exporter providing for
sustainable employment at home.
Entry into the solar electricity market is not the preserve of companies only active in the clean energy
sector. Many of the leaders in the solar electricity industry were, and still are, leading lights in the "old"
energy economy. The sustained commitment of these companies will be appropriately rewarded if we
create the right climate to ensure that the whole solar electricity business sector moves rapidly ahead.
Solar power will certainly play an ever more significant role in the energy supply mix, However, the
extent to which solar electricity will make its impact on that market will depend very much on ensuring
that the potential winners in this business are made fully aware of the opportunities available.
Those opportunities will only be realised if both industry and governments continue to strengthen their
commitment to broadening the energy supply base and, through the deployment of solar electricity
Whv we need solar
Combating climate change: Intemational consensus now clearly states that business-as-usual is no
longer an option, and the world must move to a clean energy economy, if we are to prevent further
climate change. Solar power is a prime choice in developing an affordable, feasible, substitute for
fossil fuels in all climate zones around the world. Climate change will persist for many centuries, due
to the long life of greenhouse gases, however an expansion of the solar market now can playa vital
role in limiting both the rate and magnitude of climate change over the next century,
Meeting human needs: More than 2 billion people in the world today are without access to electricity,
trapped in a cycle of poverty and without basic needs including clean water, health care facilities,
heating and lighting. Renewable energy sources offer us the best chance we have to avoid a
potential climate catastrophe, and to ensure that the world's poor also have access to clean and
reliable energy. The Choose Positive Energy campaign aims to bring renewable energy to 2 billion
people in 10 years, and solar can be large part of that mix,
Energy security: Strengthening the renewable energy sector will also provide real energy security.
Fossil fuels, due to their wholesale contribution to the climate catastrophe, represent an intrinsically
insecure energy source regardless of whether they are from Alaska or the Middle East. Decentralised
renewable sources of supply from the sun can help countries achieve true energy security, and
energy independence.
The imDact on consumers & iob seekers born todav
Phasing in solar photovoltaics requires a shift from centralised to decentralised power production,
allowing far greater control to individual consumers.
More jobs are created in the installation and servicing of PV systems than in their manufacture, Based
on information provided by the industry, it has been assumed that 20 jobs are created per MW of
capacity during manufacture (assumed to fall to 10 jobs/MWp of capacity after 2010) and about 30
jobs per MW during the process of installation, retailing and providing other local services. As far as
maintenance is concerned it is assumed that with the more efficient business structures and larger
systems of the industrialised world, about 1 job will be created per installed MW. Since developing
world markets will playa more significant role beyond 2010, however, the proportion of maintenance
work is assumed to steadily increase up to 2 jobs per MW by 2020,
The result is that by 2020, around 2.3 million full time jobs would have been created by the
development of solar power around the world. The majority of those would be in the installation and
marketing of systems.
Key Findings
Global Solar Electricity Output in 2020: 276 Terawatt hours
= 30% of total demand in Africa
= 10% of total demand in OECD Europe
= 1% of total global demand
= the annual output of 75 coal-fired power stations
Detailed Projections for 2020:
PV systems capacity
Grid-connected consumers
207 GWp
82 million worldwide
35 million in Europe
1 billion worldwide
2.3 million full-time jobs worldwide
US$75 billion per annum
Level of US$1 perWp achieved
More than 660 million tonnes of CO2
Off-grid consumers
Employment potential
Investment value
Cost of solar modules
Cumulative carbon savings
Global SoJar Electricity Output in 2040:
9,113 Terawatt hours
= 26% of total global demand
= more than the combined demand in OECD-Europe and
OECD-North America in 1998
Conclusions
The results of this EPIAIGreenpeace joint initiative clearly point to solar electricity potentially making a
significant impact on the global energy mix over the next few decades.
Our goal must now be to mobilise the necessary industrial, political and end-user commitment to this
technology and, more importantly, the service it provides. We must redouble our efforts to ensure that
the population born today benefits from all the socio-economic and environmental benefits that solar
electricity offers.
The Solar Generation should know no north/south divide. It should be an inclusive generation bringing
together by 2040 a significant fraction of the world's population in both industrialised and developing
countries - a generation, supplied by an industry driven by customer needs and the ability of a
sophisticated global market to meet those needs.
Copies of the report can be downloaded from htlP:/Iwww.areenpeace.ora
For more infonnation contact Louise Fraser on +31 653 955 202 or
Sven Teske on +49 1724040754
C I TYLink
April
MORENO
.
VALLEY
2004' www,moreno-valley,ca.us
---
Municipal
Electrical Utility
City to serve new residential
and business development
After more than two years of public discus,
sian and study, the Cily Council has given
the green light for Moreno Valley's new mu.
nicipal electrical utility. Operations began
in February 2004. The City Council ap'
proved a 17 ,year contract with ENCO Dlil,
ity Services to provide electrical distrihu,
tionservicesforMorenoValley, ENCOwill
handle customer service, meter reading,
billing, emergency response and otherser,
vices related to the operation and manage,
mentoftheelectricalutility, Thenewulil,
itywill provide electrical service to Moreno
Valley's "greenfields" - new commercial
and new residential development, prima,
rily on the east end of Ihe city. and is not
aimed at taking over existing Southern
California Edison customers,
Community Benefits
The municipal utility will help make
Moreno Valley more attractive to busi,
nesses looking to locate and expand here
by enhancing the city's ability to offer eco'
nomic development incentives. But busi,
nesses won't be the only entities benefit,
ing from the utility. "The new utility will
help the city as a whole," said City Man.
ager Gene Rogers. "Over time, the utility
will provide more revenue for the city's
general fund, which helps pay for impor,
tant city services and programs that ben,
efit the entire community," he said,
There are more than 2,000 municipal utili,
ties operating successfully in the USA. Mu.
nicipal utilities performed well during
California's last energy crisis (38 munici,
pal milities were operating in California in
2001). The City of Riverside, for example,
has a successful electrical mility that pre,
formed well during the energy crisis, The
risks sometimes associated wilh operating
a utility are significantly reduced with the
contract with ENCa.
In Moreno Valley, safeguards have been
built into the citys contract with ENCa to
offset any temporary energy cost spikes and
avoid the necessity for rate hikes or loans
from the cit¡!s general fund if spikes do oc.
cu< Decisions about the utility are con-
trolled locally by the City Council. not cor.
porate executives in a far.away offiæ.
Finally, the municipal utility infrastructure
will become a valuable capital assel to the
city as the utility grows,
For more information about Moreno
Valley's municipal electrical utility, please
call 413,3480 and see the special insert in
this publication.
City Finances
State budget crisis
takes local money
In November 2002, the city voters
defeated an initiative,driven ballot
measure that would have repealed the
utility tax. Repeal of that tax would have
cut the general fund revenues by about
'I $10 million per year, about 20% of the
budget. Nonetheless, there remains
uncertainty about the finances, Cily
California
officials continue to receive many
questions from residents and businesses
about the status of the budget and city
services given the enormous problems
with the state finances and actions taken
by the stale to reduce the state budget
deficit.
Since 1991/92, the state and California
cities have had an especially acrimonious
relationship regarding finances, Atvarious
times since 1980, when the state faced
reduced revenues, the cities have been
required to contribute their local tax
revenues 10 help balance the state's
budget. When economics have been
positive, the cities have received little or
no return of their involuntary
contributions of local tax dollars, and
those ongoing contributions have been
maintained in the stale coffers, In fact, a
significant portion of the increase in stale
revenues in the late 90s was due to a
property tax shift. Since 1991/92, the state
has shifted billions of property taxes from
cities to the benefit of the state budget, an
amount that now totals about $5 billion
per year. These are now considered to be
permanent shifts by the state, Moreno
Valley's contribution amounts to more
than $1.6 million annually,
~
Moreno Valley was incorporated in 1984.
For several reasons, newer cities receive a
smaller local portion of property taxes and
often their sales taxes lag behind the
performance of older established cities.
The confluence of the 1990s recession,
state funding cuts, MarchAFB realignment
=
=
c:::)
Continued~"Pagej
A Message from the City Manager
Moreno
Valley's
MORENO
a
Municipal Utility
VALLEY
Moreno Valley formed a municipal utility in June of 2001, listing electrical distri.
butlon as one of the potential services. Since that time. the City has reviewed its electri.
cal utility plans at several Council Meetings that were televised on the city's government
access cable channel. MVTV.3. and at public meetings. to brief the City Council and the gener.
al public on the progress made since the formation of the utility. Additionally. the issue has
been a topic on two editions of the city's television talk show. "Q & A." which aired on MVTV.
3 in May 2001 and September 2003, The Press-Enterprise newspaper also printed articles on
the issue in the local section of the Moreno Valley edition. Despite the newspaper coverage
and public meetings. some residents may not be aware that the municipal utility had been
formed more than two years ago and that discussions about its progress have been ongoing
since that time,
get
Moreno Valley is p14nning to provide electrical service to new commercial and
new residential development, primarily on the east end of the City, and is not
aimed at taking over existing Southern California Edison customer.. Moreno
Valley has the right, under the state Constitution. to form a municipal utility and has followed
all laws required to take such action. contrary to the deceptive claims of Southern California
Edison in recent newspaper and direct mail advertisements, Additionally. independent legal.
technical and financial consultants have reviewed the City's utility efforts. and the process has
been moving forward. The City is poised to implement the utility if and when the City Council
approves a contract with an experienced firm to operate the utility,
Despite these facts, or perhaps because of them, Southern California Edison has
14unched a "mis-information" campaign to a14rm residents and derail the City'.
efforts. Edison's activities are typical of a for.profit monopoly that is facing competition,
Municipal utilities are not new, Many cities. including Riverside operate municipal utilities,
Municipal utilities have a track record of success and performed admirably during the last
energy crisis, Such enterprises can benefit communities by enhancing economic development
and providing another source of revenue to the general fund for public safety and other pro.
grams while offering rates that are competitive with Edison's,
It is important that you have the facts. Copies of staff reports presented to the
Moreno Valley City Council that provide details on the municipal utility are available on the
City's web site at www.moreno-valley.ca.us or from the City Clerk's office,
There will be additional discussion of the issue at upcoming Council Meetings, As always. the
City of Moreno Valley encourages input from residents on all issues affecting the City. and
invites you to attend Council Meetings. which take place the second and fourth Tuesday of the
month at 6:30 p,m, and/or Study Sessions. which take place at 6:00 p,m, on the third Tuesday
of the month, These meetings are held in the Council Chamber at Moreno Valley City Hall.
14177 Frederick Street. If you are unable to attend the City Council Meetings and are a cable
television subscriber. you are invited to watch them on the City's government access cable tel.
evision channel. MVTV.3 (channel 3) on Adelphia Cable, The Council Meetings are replayed
twice daily at 11 a,m, and 11 p,m, for two weeks. or the next televised Council Meeting,
For more information, please contact the city's Media and Communications office at 413.3053.
Gene Rogers
City Manager
",18103
More on Moreno Valley's
EI ectric Utili ty
MORENO
~
After a lengthy review and study process, the City Council formed
I Moreno Valle,y Electrical Ut1lity t,o electrical service to new com,
mernal, Industnal and pnmarily on the east
end of the city as shown on this map
,
I Why form a municipal utility?
, Moreno Valley Electrical Utility was established for two major reasons
, economic development and the health and stability of the city general
I fund, As aresull of the success of mumcipal utilities during the 2001
energy CfiSIS. many cities began examimng whether a municipal elec,
tncal utility could provide more rate Slability to residents and busi,
II nesses than investor,owned utilities, The S.tate of California constitu,
lion allows cilles to operate public ulllitJes, and many Clt'
ies do so, City utilities are more effiCIent and are not subject
I to the rules of the Public Utilities Commission, Besides providing rate
stability, it was learned that other Important benefits accrue with city
electrical utilities, Cities with electrical utilities are able to offer incen,
tlves to new or expanding businesses in their communilies that en,
i hance economic development For example, a Targel store that was
I located in Moreno Valley moved Just across the boundary to River,
I side when the store needed to expand. Why' City of Riverside
, offered lower utility costs to Target Riverside could offer lower elec,
I tncal utility costs because the city owns its utility, When Target moved
lout of Moreno Valley, the sales tax revenue Target generated was dis,
placed too,
I Having a municipal utility gives cities more tools to enhance economic
: development effons and provides a stable source of revenue for a
As a case in point, 9 % of the money earned by Riverside's
I utility, or $16.5 million, goes to Riverside's general fund. This results
, in a reliable source of funding for services upon which residents and
businesses depend
I
VALLEY
Since Moreno Valley's electric utility serves only I
new commercial and residential customers - not
those currently served by Southern California
Edison - why has Edison opposed the city's
electrical utility?
In communities where investor,owned utilities (such as Edison) pro'l
vide electrical service. the company IS the only significant provider of
electricity and holds a virtual monopoly on the business, These mo,
nopolies resist competition and the resullant loss of profits, Thus. they I
are known to fund public relations campaigns aimed at discrediting I
the city and disrupting municipal utility efforts, Throughout the Cily
Council's process of studying, establishing and implementing a locally I
run utility, Southern California Edison sponsored a well,financed cam' I
paign that was intended to derail the municipal electrical plans'
Edison spent thousands of dollars on mailers and newspaper
ads that contained some misinformation about the city's utility plans,
Southern California Edison is currently finanCIng a petition drive to
place a measure on the November ballot that would have a sigmficant
negative impact upon the operation of the city electrical utility I
I
What safeguards and polices did the City Council 'I
put in place when it approved the city electric
utility?
The City Council established guidelines and financial safeguards for
the municipal utility to protect Moreno Valley taxpayers and consum'
ers, This includes for establishing reserves and the establish,
ment of a enterprise fund for the utility, The city allocaled
start,up funds in the form of a loan to the new electrical utility, Any
start,up business would need funds to set up operation, These safe,
guards allow the Moreno Valley Electrical Utility to become financially
self,suffrcient with respect to operation, maintenance and power pur,
chase costs and help the uti Illy maintain adequate power reserves for
service By policy, rates for electncity provided by Moreno
Valley Utility are no greater than those billed by the investor, I
owned utility serving other areas of Moreno Valley. I
Money from the city's general fund was used to
help start the utility. How were these funds used 'I'
and will they be returned to the general fund?
One purpose of the start,up funding was to hire the services of first,
rate financial, technical and legal consultants to study and re, view the I
feasibility of a city utility and advise on its Implementation Another
purpose of the funding was for capital costs A new business requires
advance capital in order to begin operating, The proforma earnings I
projections are favorable, Once the utility becomes fully operational, I
the general fund will not have to provide any subsidy to the utility. In
fact, the general fund will be repaid and additional revenues raised by I
the utilIty will flow to the general fund. Moreno Valley IS Ireatlng the
electrical utility enterprise as a unique fund, and its operation will be i
differentiated from other operations of the general fund, I
I
I Are the people operating the utility experienced
. and qualified?
I Yes, In order to operate more efficiently, and take advantage of
the capital investment of a private partner, Moreno Valley contracts I
I l,tS electr, ical operations with a well,establlshed company, EN CO ;
Utility Services based in Anaheim, Ca[¡fornia, This provides
Immediate expertise to Moreno Valley for the day,to,day
I management and operation of the utility ~ including emergency
response ~ and e[¡mlnates the need for a new bureaucracy to
operate the utility Contracting out for operations gives the city
I the abi[¡ty to substantially minimize any risks, The contractor
. carries $10 million in liability Insurance coverage and contributed
, to the start,up operational costs of the utility
I
Who will regulate and provide oversight of
I Moreno Valley's electrical utility?
The Moreno Valley City Council is the governing commission of
the electrical utility Consumers may participate in the meetings i
I of the Commission The Commission IS accountable to the
residents and businesses of Moreno Valley This contrasts with
the lack of access that residents and buSinesses have to corporate 1
I decision,makers of investor,owned utilities and the Public Utility
Commission, which regulates them, A small administrative unit
I within City Hall that currently administers other city programs
. will provide staff oversight of the contract
I
How many municipal utilities are operating in
California?
I Thirty,elght publicly owned electrical and gas utilities operate in
California, with nearly three million custOmers or 25 % of the state's
electrical load, Public electric utilities in California include
I
. Alameda
. Anaheim
. Anza
. Azusa
. Bonning
. Bisg$
. Burbank
. c""linga
. Colton
. Glendale
. Gridley
. Heald$burg
. Hetch Hetchy W & P
. Imperial Irrigation District
. LA DWP
. tassen MUD
. ladi
. Lampac
. tang Beach
. Merced Irrigation District
. Modesta Irrigation District
. Needles
. Palo Alto
. Pasadena
. Plumas.Sierra
. Redding
. Riverside
. Raseville
. Sacramenta MUD
. Shasta lake
. Silican Valley electric
. Surprise Valley
. Tuolumne County
. Trinity County PUD
. Truckee Donner PUD
. Tunack Irrigation District
. Vernon
. Ukiah
1__-
Across,the,board. municipal eleerrical utilities operate with lower
; cost structures than investor,owned utilities and they are all
successfuL When they were started, they also had to establish
themselves with start up funds
Will Moreno Valley Utilities only benefit those
residents and businesses served by the utility?
All of the taxpayers in Moreno valley - not just those customers
served by the city's utility - will beneFrt from the operation of the
electrical utility Municipal utilities benefit communities by making
it possible to offer economic development incentives to new and
I expanding businesses. and by providing another source of revenue
. to the city's general fund for public safety and other city services
and programs that all residents and businesses use and enjoy,
Moreno Valley's eleerrical utility will do this while offering rates
that are competitive with Southern California Edison, Moreno
Valley is only about 60 % built out, so the electrical utility will
serve most of the new residents and most of the new businesses
located within the remaming undeveloped portion of the city
Moreno Valley's electrical utility became fully operational in
February 2004, providmg electricity to the Promontory Park
housing tract development in Moreno Valley Ranch,
Fo. mo" ;nfo,m..;on ,bout
Mo.nno Vnllnv Elnc";c.1 Utmty.
pin". cnIlODO,"3,3'.O
(;ty cj Mmecc V,IIey
C"y H,II
14177 Feedeed s,eeee
PO SO' 88005
Mmecc V,IIey
CA92552.0805
9094H3000
wwwmmeoc.,,"ey.co."'
I
Gene Rogers,City Manager
Parks & Recreation
Advisory Committee
¡uanila Barnes. Chairperson
Ronald CrnJhers . Vico,Chairperson
Sandee Hackett Man Mader Elena Arciniega
Martha Arciniega StuarlSwan
Meetssocond Thursday o[the month at 6:00 p.m,
at the Senior Community Center,
Citizens' Advisory Committee
on Recreotionol Troils
Guy Pierce. Chairperson
Gilb£rl Brooks. Vico,Chairperson
Margie Breltkreuz Jennifer Chandler
SueUen Thomas Wraymond Sawyerr
Joel Sanden Christopher Silvey
Meets fourth Wednesdny at 7 p,m.
tM Senior Community Center, during the
months: January, April, July and Octob
Senior Citizens' Advisory Commi
Barhara Koehn' Chairporson
Sara Anderson' Vice,Chairperson
Donald Issac James Cowen Donald Cook
Carol Sasso Joseph Lafata
Meets third Monday O[tM month at 3 p.m, at
Ihe Senior Community Cenler.
Porks & Recreotion Deportment
CltyHail'14177FrederlckSJreet.909.413,3280
George E. Price' Parks & Roc'eation Viroctor
Parks & Facillties Division Recreation Division
Phone: 413,3702 Phone: 413,3280
Sieve Kupsal< Karen Reams
Parks & Fadlit", Manogor Rec...titmSup"intendmt
Senior Community Center
25075 FIT Streel' Phone: 413,3430
Usa SmeJhurst
"ecrea"," Guid< Editor
Angela Rushen
ATCM/Media' Commun""ions
Nina Glangreco
GrophlcsCo"dlnator
Christina Anderson
Sr, GrophlQ Techn"i"
Send emeil to: recreetion@moveLorg
City website: www,moreno.valley,ca.us
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DJRECTOR'S NOTEBOOK
We are pleased to publish the summer edition of the Recreation Guide
and City NewsLine. It contains news about important City issues, and
features a variety offun.filled summer activities and programs for the
entire family. This year's Fourth of July "Family Fun Fest" will be held on
two days, with the parade being held on Saturday, July 3 and the festival/
fireworks being held on Sunday, July 4. This year's theme is, "A Grass
Roots Celebration."
On behalf of the City of Moreno Valley and the Parks and Recreation
Department, I would like to thank you for selecting the annual Fourth of
July Family Fun Fest as The Press. Enterprise Readers' Choice Best
Community Event in the Moreno Valley area! This event is the highlight
of our summer program and celebrates our nation's birthday. We
encourage all community, religious and service groups to be participants
in a day of floats, fireworks and fun! We invite the entire community to
come out and join us for a weekend filled with activities. Headlining this
year's event will be Grass RoOlS, who promise to bring back great memo.
ries with their top 40 hits from the '60s and the '70s including, "Midnight
Confessions," "Let's Live for Today" and "Where Were You When I Needed
You." Crowd favorite, the Trailer Park Troubadours, are returning once
again with their special brand of comedy and musical entertainment.
The Fourth of July Celebration concludes with a fireworks extravaganza
beginning at 9:00 p.m. sharp. ¡nland Empire's Home for Oldies KOLA
(99.9 FM) will simulcast patriotic music. For more information on this
event, see the flyer on the inside front cover of this brochure or call our
office at (909) 413,3280.
n a ition to all of our many programs outlined in this brochure. we are
excited about our newest community center. The Recreation and
Conference Center begsn construction in February 2004 and is antici.
pated to be completed in the spring of 2005. This 45,000 square foot
center is located adjacent to City Hall and will have tWo separate and
distinct programming aTeas able to host a variety of activities concur.
rently. Amenities include banquet facilities (for up to 400 guests),
outdoor patio (for up to 200 guests), full kitchen facilities, stage, commu.
nity meeting rooms, restrooms, Parks and Recreation Administrative
offices. gymnasium, fitness facility, community meeting room and
locker/shower/restroom facilities. When completed, it is envisioned that
the Recreation snd Conference Center will immediately become the
premier facility in Moreno Valley for hosting major community events,
small conferences and performing arts programs. It is anticipated that
the facility will be a popular location for private functions such as
weddings, receptions and company and holiday parties, while at the
same time providing recreation and fitness programs and classes for
Moreno Valley residents.
Wonderful recreational activities are yours in Moreno Valley, We invite
you to h~ve a great summer with us, and to "Come Play In Our Parks!"
George Price.
Parks and Recreation Director
. P age 2
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At Your Service -
City Ho1l413-3000
14177 Frederick Slreet
I',(). Box 88005
Moreno Valley. CA 92553
TIm
(IIearing Impaired)
413,3055
24,lionr
City Hall Message Cenler
413<J400
24,Hour
City Infonnalion Line
413,3405
City Council
Moets second ond fourrh Tuesday of the month at
6:30 p,m" 14177 Proderick Street, Council Chamber
FrankWest..
Richard A Stewart..,
William H, Batey, II..,
Ronnie Fiickinger ..,
ChariesR.White..,
Council Office..,
..,Mayor
..,MayorProTem
.., Council Member
..,Council Member
..,Council Member
..,413,3008
Administrative Offices
Building 1nspection Services..,
Building Permit Processing ..
Business License ..
,..413,3350
..,413,3380
..,413,3080
...413,3130
..,413,3036
..,413'3001
..,413,3008
...413,3018
..,413,3340
..,413,3460
..,413,3084
..,413,3171
..,413,3045
...413,3120
..,413,3053
Capital Projects ..
City Attorney..,
City Clerk..,
City Council ..
City Manager ..
Code Compiiance..,
Economic Bu,iness Development..,
Finance Administration ..
Graffiti Hotiine ..
Human Resnurces...,
Land Development ..
Media and Communications..,
Accessibility Appeals Board
Hearings shall be h,Jd within 30 day, of receipt of on appeal
Ruthee Goldkorn..,
Gary Kyle ..
.., Phy;ically Challenged Rep,
.., StaffLiaisonl
~f~~~'¡Ii4 Official
..,Pubiic Representative
.., Phy,ically Challenged Rep,
TommyL Lewis..
Berina "Tina" Smith '..
Citizens' Advisory Committee an
Recreational Trails
Moets fourrh W,dnesdoy ot 7:00 p,m" Senior Community
Centor. 25075 Fir Avenue, during the following months:
January, April, July, October,
ArthurD.Dasson....,
Christopher Silvey..,
Guy Pierce..,
Gilbert Brook..., ,
Jennifer Chandler..,
loel Sanders ..
Margie Breitkreu, ..
Suellen Thomas..,
WraymomJ"awyerr ..
Steve K~B~ak..,
,..Committee Member
.., Committee Member
..,Committee Member
.., Committee Member
.., Committee Member
...CommitteeMember
...Committee Member
.., Committee Member
..,Committee Member
,..Stailliai,oni
Parks & Facilities Mgr,
413,3702
Neighborhood Preservation,Redev.., ..,413,3450 Cuftural Preservation Advisory
Parks and Facilities Maintenance... ..,413,3702 Committee
Parks and RecreationAdministration.. ....413,3280 ,,4eetsfourrh Monday of the month at 7:15 p,m"
,Inside this issue .~=~:t:~~:;~;~~;:':"~'~'~:'~:':"~î~:~:"""."7prederickStreet, Council Chamber
Pubiic Work.. Maintenance & Operatinns......413'3160 Cheryl A, Fasig ..............................,Cnmmittee Member
Purchasing.., ..,413,3190 Richard E, Dozier.., ..,Cnmmittee Member
Recreation,.. ..,413,3280 lacqueiineLAshe...., ..,CommitteeMember
Special Districts.., ..,413'3480 Von"tta M, Fielding.. ..,Committee Member
Harne1hiaMansell.... ,.. ..,CommitteeMember
Street Maintenance.., ...413'3160 Michelle Terese Gerard.., ..,Cnmmittee Member
Transportation.. ..,413,3140 Lesiie Smith.. ..,Committee Member
Weed Abatement... ...413.3340 Mark Gro...., ..,StaffLiaisonl
A..ociate Planner
4)3,3206
Staff
Gene Rog", ...
Barry McClellan...
Betsy Adams..,
Steven Chapman...
TrentD, Pulliam..,
Linda Guillis..,
Alice Reed..,
GenrgePrice..,
Robert Herrick..,
Cynthia Pirtle..,
William Di Yorio...
Stan Lake..,
Den"eWilson..,
.., City Manager
...A..istant City Mgr,
..,Admin, Services Dir,
'.. Finance Director
.., Public Work.. Dir,
.., Community & Economic
Develnpm,ntDirectnr
..,CilyClerk
..,Parks & Recreation Di..
..,City Attorney
..,LibraryDirector
.., Police Chief
..,FireChiel'
.., Human Resources Dir,
Ecological Protection Advisory
Committee
Moets second Monday of each odd numberodmonth at 7:00
p,m" 14177 Frederick Str,et, Council Chamber
lanL. Reyers..
Thnmas 0, Hines..,
Laura Arciniega ..
Gerald M, Budlnng..,
M,NaeemQureshi..,
leffBradshaw..,
.., Committee Member
.., Vice Chair
..,Committee Member
.., Committee Member
..,CnmmitteeMember
..,StaffLiaisonl
Associate Planner
413,3224
COUNCIL AGENDA STATEMENT
Item ~
Meeting Date 6/8/04
ITEM TITLE:
Interim Report on the 2004 Sewer Service Rate Update by Black and Veatch.
Ordinance Amending the Chula Vista Municipal Code Section
13.14.130 relating to Sewer Service Charge Variances for residential
Customers.
SUBMITTED BY: Director of General Services/City Engineer4
REVIEWED BY:
City Manager C; fo r'
h
(4/5ths Vote: (Yes: - No:..L)
BACKGROUND:
On July 22, 2003, City Council adopted Resolution No. 2003-321, amending the Master Fee
Schedule by restructuring the sewer service rates and approving a four-year sewer service rate
schedule. Subsequently, on February 17, 2004, to address some of the concerns raised by citizens
regarding the new structure, Council by Resolution No. 2004-051, authorized staff to retain a new
consultant, Black & Veatch to update the Wastewater User and Rate Restructuring Study, which
was prepared by PBS&J.
RECOMMENDATION:
That City Council:
I.
2.
Accept an Interim Report on the Sewer Rate Update by Black and Veatch.
Adopt an ordinance amending the Chula Vista Municipal Code Section 13.14.130
relating to the Sewer Service Charge Variances.
Direct staff to finalize the subject report and present to Council specific
recommendations next fiscal year for FY 05/06 and beyond.
3.
BOARDS/COMMISSIONS RECOMMENDATIONS: Not applicable.
DISCUSSION:
On June 3, 2003, Council accepted the "Wastewater User And Rate Restructuring Study" prepared
by PBS&J (Resolution No. 2003-240), and shortly afterwards on July 22, 2003, approved a new
sewer service rate structure based on the study's recommendations. The new rate structure was
primarily put in place to enhance equity between various ratepayers, encourage conservation and
make revenue collection consistent with Metro charges.
6'-/
Page2,Item~
Meeting Date 6/8/04
Following the implementation of this new structure, some residents questioned the accuracy of
consumption-based billing utilizing the winter-use average. Concurrently, Staff determined that the
rate structure could not meet the expectations of the recently adopted revenue plan for this fiscal
year. Based on these two developments, a report was presented to Council on February 17, 2004,
which addressed these issues. At that meeting, staff was authorized to retain a consultant (Black &
Veatch) to prepare an update to the PBS&J Study to address the concerns of the residents and to
bring recommendations to Council for the resolution of these issues.
Black & Veatch Study
Re-evaluation of the PBS&J Studv
The first phase of the Black & Veatch Study, was the review of the PBS&J Study. Black & Veatch
determined that the model used in the study contained some errors and inconsistent assumptions.
These caused the following financial impacts:
1. The adopted rate structure resulted in a revenue shortfall of approximately $2.75 million.
2. However, the revenue shortfall was largely mitigated by the following unanticipated
changes:
a. An increase in the projected number of sewer accounts, due to new housing.
b. Higher than anticipated billable flow (based on winter consumption).
c. Reduction of the estimated (Metro) cost to treat the City's wastewater.
Rate Adjustment
Black & Veatch and City staff considered numerous scenarios to update the rates for FY04/05
through FY 07/08. Staff is recommending the following strategy:
a. For the upcoming Fiscal Year 04/05, the difference between the proposed Black & Veatch
rates under various scenarios and the adopted rates are minimal amounting to a rate increase
of only 1 %. However, the difference will be much wider in subsequent years from FY 05/06
through FY 07/08. The existing rate plan includes a 9% increase for the upcoming fiscal
year. This difference between the existing plan and the Black & Veatch study for next year
is within acceptable assumption limits and does not warrant an immediate change. Due to
the reduction in estimated Metro expenditures for FY 04/05, the adopted rates should
generate sufficient revenue for next year. Therefore, staffrecommends that the City use the
adopted rates for FY 04/05.
'6-L
Page3,Item~
Meeting Date 6/8/04
b. For FY 05/06 and beyond, Staff recommends that the City Council refrain from adopting
new rates (based on the Black & Veatch study) until the latter part ofFY 04/05 for the
following reasons:
i. To develop a strategy to acquire needed Metro Sewer Capacity.
ii. To adopt the General Plan Update including the Wastewater Master Plan Update and the
development ofrelated Capital Improvement Projects.
iii. To complete the re-evaluation of the Storm Drain fee, which is collected with the sewer
bill. This fee is currently being reviewed as part of the Drainage Facilities Master Plan
Update.
iv. To complete the re-evaluation of the Sewer Replacement fee, which also gets collected
with the sewer bill. This fee is currently being reviewed as part of the Wastewater
Master Plan Update
v. To account for the [mancial impacts of imminent debt re-financing by the City of San
Diego's Metro wastewater Department.
vi. To complete our first fiscal accounting cycle with the consumption based sewer billing
in order to minimize assumptions.
Trunk Sewer Capital Reserve Fund Transfers
The Trunk Sewer Capital Reserve is funded through the collection of "capacity fees" from new
connections to the City's sewer collection system. The fee, currently set at $3,000/Equivalent
Dwelling Unit (EDU), is charged to new users to use the collection system and the Metro capacity
(a "buy-in fee").
As noted last year when the present rate structure was adopted, the Sewer Service Fund operates
with a structural deficit (see table below). To cover this deficit, Trunk Sewer Capital Reserve funds
are transferred to the Sewer Service Revenue Fund. This transfer is consistent with provisions of the
Municipal Code that allow funds to be used for the construotion or enlargement of sewer facilities
to enhance or increase capacity. With the demands of population growth, sewer capacity
requirements continually increase and are being addressed by the City of San Diego's ongoing
expansion of the Metro system.
It appears the City now needs to re-formulate its strategy to purchase additional capacity. The new
strategy may affect the extent and amount of annual support that can be allocated to ratepayers from
the Reserve Fund. The following table shows the annual amount of financial support, as adopted, in
the existing rate structure:
~-3
Page4,Item~
Meeting Date 6/8/04
Existing Rate Plan 2004 2005 2006 2007 2008
Chula Vista's Operation and Maintenance Cost $27.2 $28.3 $30.1 $31.1 $32.0
Chula Vista's estimated Metro payment $18.4 $19.0 $20.4 $21.0 $21.6
Planned transfers from Trunk Sewer Fund $6.6 $5.9 $5.5 $4.0 $4.0
Trunk Sewer Fund support to ratepayers as a 24% 21% 18% 13% 13%
Percentage of Total O&M
* Table info is based on the current adopted revenue plan
Later next fiscal year, Staff will be recommending a strategy for the acquisition of additional metro
treatment capacity rights. Since the trunk sewer capital reserve fund will be required to fund the
acquisition, it is crucial to minimize the expenditures from that fund to facilitate the early build-up
of the needed reserves.
Consumption-based billin!!
While acknowledging some of the limitations of consumption based billing, overall, there is an
acknowledgement, in both the industry and the community, that the consumption-based structure is
preferred by most users to the flat rate structure because of equity. Once users understand the
underlying basis of the methodology, they feel more empowered because it offers them something
that the flat rate does not, choice. The user understands that there is something they can do to
change the outcome of their bill. In a flat rate structure the customer feels powerless, and unable to
control the fee they get charged for that utility. Hence, the reason for the preference ofthis method.
Reversion to a flat rate structure would significantly impact over 20,000 users who would see their
sewer fees go up. Some ofthese users will be those who generate very minimal flows. Furthermore,
for some of these users instead of having their charges go from $8.00 to $9.19 per month next fiscal
year, they could see their charges go to a flat-rate of $26.10. Therefore, Staff is recommending that
the City continue the consumption-based billing.
Implementation of an Appeal Process
Staff recommends the immediate implementation of an appeal process for residential ratepayers
having special water consumption circumstances during the winter season. These circumstances
include special irrigation needs, small households with large backyards and exceptional water
consumption such as the filling of a swimming pool during the winter season.
Section 13.14.130 of the Municipal Code sets forth the procedure for establishing criteria for sewer
service variances among different user classifications. This proposed ordinance would amend that
section of the Municipal Code to clearly state the City's intention to establish a method by which
single-family residence owners, and/or occupants, may obtain a variance to their applicable Sewer
Service Charges through an appeal process. Subsequent approval would be given by the City
Manager or his designee. The City Manager or his designee will be authorized to approve each
'e-I.-f
Page 5, Item~
Meeting Date 6/8/04
request upon provision of adequate documentation. A copy of a sample application is allached
(Allachment 3).
FISCAL IMPACT: By staying with the adopted rate schedule, the City will recover sufficient
revenues to meet projected sewer-related expenditures for fiscal year 2005, including
reimbursements to the General Fund of $7. 7 million in fiscal year 2005 for critical City staff support
services for the maintenance and operation of the City's sewer collection and treatment system.
Attachments: 1. Table 1 - Current Sewer Service Charge Rate Structure
2. "2004 Sewer Rate Update - Interim Report", by Black and Veatch
3. Application for Sewer Rate Variance
Last printed June 3. 2004
J: \Engineer\AGENDA\A 1 13 _-2004- Rate _lncrease-revised.ac.doc
2(-6
ATTACHMENT 1
Table 1. ADOPTED Sewer Service Charge Rate Structure
FYO3/04 FY04/05
Monthlv Service Charees (SlMonth) (1)
5/8" S 6.10 S 7.20
3/4" $ 6.10 $ 7.20
1" $ 10.07 $ 11.91
11/2" $ 20.00 $ 23.68
2" $ 31.92 $ 37.80
4" $ 59.73 $ 70.75
6" $ 99.46 $ 117.82
8" $ 198.79 $ 235.50
Total Users
ariable Commodity Rates (In Addition To
Service Charge S/HCF)
~esidential:
Single Family $1.90 $1.99
Multi-Family $1.90 $1.99
Mobile Homes $1.90 $1.99
~nmmercial:
Low $1.90 $1.99
Medium $2.29 $2.42
High $3.78 $4.02
Golf Club House $2.29 $2.42
Govermnent $1.90 $1.99
Special User (2) Varies Varies
9-("
A TT ACHMENT 2
'6~7
TABLE OF CONTENTS
SECTION 1 - EXECUTIVE SUMMARY
SUMMARY OF FINDINGS AND RECOMMENDATIONS .............................................................1
SECTION 2 - INTRODUCTION
BACKGROUND ................................................................................................................................4
PURPOSE .......................................................................................................................................4
SCOPE OF THE STUDY ....................................................................................................................5
SECTION 3 - REVENUE UNDER EXISTING RATES
USER CLASSIFICATION AND CUSTOMER GROWTH ............................................................................6
EXISTING SEWER RATES................................................................................................................. 7
SEWER USER FEE REVENUE UNDER EXISTING RATES .....................................................................8
Revenue Under Existing Rates ......................................................................................""".. 8
Transfers from Trunk Sewer Capital ReseNe Fund............................................................... 8
Other Revenues ..................................................................................................................... 8
Interest Income....................................................................................................................... 8
SECTION 4 - CAPITAL IMPROVEMENT PROGRAM
MAJOR CAPITAL IMPROVEMENT FINANCING PLAN ..........................................................................10
Sewer Replacement Fund....................................................................................................10
Trunk Sewer Capital ReseNe Fund .....................................................................................11
Special Sewer Fund ............................................................................................................. 12
Sewer Income Fund .............................................................................................................13
Storm Drain Fund.................................................................................................................14
SECTION 5 - REVENUE REQUIREMENTS
Operation and Maintenance Expense..................................................................................15
Debt SeNice Requirements.................................................................................................. 16
Transfer of Revenues to the Sewer Replacement Fund ......................................................16
Transfers of Revenues to the Storm Drain Fund.................................................................. 16
Bad Debt Write-offs ..............................................................................................................16
Routine Capital Outlay ......................................................................................................... 16
SECTION 6 - CASHFLOW ANALYSIS
PROPOSED REVENUE ADJUSTMENTS..................................................................................17
SECTION 7 - COST OF SERVICE
COST OF SERVICE TO BE ALLOCATED............................................................................................20
WASTEWATER PARAMETERS.........................................................................................................20
ALLOCATION TO WASTEWATER PARAMETERS................................................................................22
Allocation of Capital Costs ................................................................................................... 22
Allocation of Operating Expense .......................................................................................... 23
ALLOCATION OF COST TO CUSTOMER CLASSES.............................................................................24
Customer Classifications......................................................,...............................................24
Units of SeNice ....................................................................................................................24
Unit Costs of SeNice............................................................................................................26
¡¡),
BLACK" VEATCH
rc-]
5-4
Table of Contents
CUSTOMER CLASS COSTS OF SERVICE .........................................................................................26
SECTION 8 - RATE DESIGN
EXISTING SEWER RATES...............................................................................................................29
PROPOSED SEWER RATES............................................................................................................29
~.
BLACK & VEATCH
TC-2
3-10
SECTION 1
EXECUTIVE SUMMARY
The City ofChula Vista (City) requested Black & Veatch to conduct a comprehensive study
of cost of service and rates for sewer service. The study is to evaluate the existing sewer rates,
review and evaluate revenues and revenue requirements, and perform cost of service and rate
analyses to ensure equity among customer classes. This report documents the results of the study
and recommends sewer rates that the City should charge its customers in the study period.
Throughout this study, references to a particular fiscal year always use the end date. Thus,
Fiscal Year 2004-2005 is termed FY 04-05 or just 2005 herein.
The objective of this report is to document development offair and equitable rates that can be
easily implemented and updated for the City's sewer system for the study period of FY 03-04
through FY 07-08 and a five-year fmancial plan that will secure financial stability of the sewer
enterprise.
SUMMARY OF FINDINGS AND RECOMMENDATIONS
1.
The City is currently serving approximately 43,400 individual sewer customer accounts.
The study anticipates continued increases in the number of sewer customers throughout the
study period. The projected growth rate varies depending on the customer category. Below
are the annual percentage growth used for the various customers.
Customer Class FY 04-05 FY 05-06 FY 06-07 FY 07-08
Single Familv Residential 6.0% 6.0% 5.5% 4.3%
Multi-Familv Residential 2.0% 2.0% 1.0% 1.0%
Mobile Homes 0.0% 0.0% 0.0% 0.0%
Commercial Low 2.0% 2.0% 1.0% 1.0%
Commercial Medium 0.0% 0.0% 0.0% 0.0%
Commercial High 0.0% 0.0% 0.0% 0.0%
Special Users 0.0% 0.0% 0.0% 0.0%
2.
Sewer utility revenues are principally derived from sewer user fees. Other revenue sources
include transfers from the Trunk Sewer Capital Reserve Fund, industrial waste permits,
miscellaneous fees, and interest income. It is anticipated that the Operating Fund will be
self-supporting by FY 06-07 and no transfers from the Trunk Sewer Capital Reserve Fund
will be necessary thereafter. Revenue derived from charges for service under current rates is
estimated to be $18,844,100 for FY 03-04. Revenues under the adopted FY 04-05 rates are
estimated to be $21,114,100 for FY 04-05 to $23,532,800 for FY 07-08.
3.
The City's existing sewer rates would have produced a revenue shortfall of approximately
$2.75 million in FY03-04 if it had not been for the growth in sewer accounts in the City, the
Ill.
BLACK" VEATCH
'6-11
Executive Summary
average winter usage for residential customers being higher than anticipated and the San
Diego Metropolitan Wastewater Department's (Metro) cost to treat the City's wastewater
flow being significantly lower than expected. As a result of the additional sewer accounts,
higher average usage, and lower Metro cost, the revenue generated under the existing rates
is able to meet the revenue requirements in FY 03-04.
4.
The Sewer Utility Capital Improvement Program (CIP) is projected to total $42,845,600 for
FY 03-04 through FY 07-08. Projects include the purchase of additional Metro capacity,
sewer replacements, and annual improvements to the sewer system. To finance the capital
program, several funding sources are planned to be used, including sewer facility
replacement fees, storm drain fees, sewer capacity charges, transfers from the General Fund,
and existing fund balances in the capital funds.
5.
The City has a nwnber of funds related to the capital financing of the sewer utility. A cash
flow analysis was performed for each fund and a summary of the fmdings and
recommendations is presented below:
a. Sewer Reolacement Fund - The projected reserve level will be minimal by FY 07-08.
We believe consideration should be given to increasing the replacement fee before the
fund balances reach such a low level.
b. Trunk Sewer Capital Reserve Fund - The City should immediately proceed to search for
additional Metro capacity and purchase it when available to the extent financial
resources exist.
c. Special Sewer Fund - This fund should be closed and the proceeds transferred to the
Trunk Sewer Capital Reserve Fund.
d. Sewer Income Fund - Consideration should be given to closing out this fund.
e. Storm Drain Fund - The City should investigate increasing the storm drain fee to collect
more revenues to pay operating costs and future capital projects.
6.
The sewer utility's annual revenue requirements consist of O&M expenditures, routine
capital outlays, bad debt write-offs, and transfers to the replacement fund and storm drain
fund. O&M expenses are projected \0 increase ÍÌ'om $24,537,600 in FY 03-04 to
$26,324,200 in FY 07-08.
7.
Required revenue increases throughout the study period are based on an analysis of the
sewer utility's revenues and revenue requirements. Our analyses indicate sewer utility
revenues will require the following increases for FY 05-06 through FY 07-08.
Effective Date
July 1,2005
July 1,2006
July 1,2007
Increases
9.0 percent
9.0 percent
0.0 percent
~.
BLACK & VEATCH
2
}{-I'2-
Executive Summary
The percentage increases shown above assume that the adopted FY 04-05 rates will be
effective July 1, 2004 as planned. The increases are also the same percentage increases
the City Council adopted last year in the City's four-year plan. While the revenue base is
lower than previously projected, the level of projected expenses is also lower.
8.
By definition, cost of service is the annualized revenue requirements net of revenue credits
from other miscellaneous sources that needs to be met through sewer rates. The City's
estimated 2006 test year cost of service to be met from sewer rates totals $24,000,900 and
consists of the following elements:
Net Operation and Maintenance Expense
Capital Costs
Cost of Service to be recovered from Rates
$23,073,400
927.500
$24,000,900
9.
A cost of service approach is used to develop rates for sewer service. This means that
customers are charged based on their proportional usage of facilities. The proposed rates are
consistent with State Water Resources Control Board (SWRCB) guidelines and recognized
rate industry standards as described in the Wastewater Environment Federation (formally
Wastewater Pollution Control Federation) rate manual. Rates are developed using uniform
unit costs for volume, chemical oxygen demand (COD) and total suspended solids (SS).
These are applied to loadings and demands for service from each customer category. The
rate schedule which then follows is based on a uniform cost of service and recognizes
loadings from each customer class.
10.
Based upon results from the detailed cost of service studies for the 2006 through 2008 test
years, the proposed schedule of sewer rates shown in Table 19 have been developed to
recover the utility's cost in an equitable and practical manner from all customers served.
Table 19 shows that we recommend continuing with the adopted sewer rates for FY 04-05
and adjusting the rates for FY 05-06 and FY 06-07 to correct small cost of service
discrepancies. The proposed rates have higher fIXed charges and lower volume charges than
the rates currently adopted to go into effect for residential customers. For higher strength
commercial customers, the volume charges are higher.
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BLACK & VEATCH
3
g -( "3
SECTION 2
INTRODUCTION
Background
The City of Chula Vista is the sewer and storm drain service provider to the residences and
commercial enterprises in its service area. The City is located eight miles south of the City of San
Diego and seven miles north of the Mexico border and covers approximately 50 square miles. The
City is growing at a rapid pace, primarily through new development in the eastern portion.
Wastewater generated in the City is collected and sent to a treatment facility in Point Lorna
operated by the City of San Diego Metropolitan Wastewater Department. The City is billed by
Metro based on the wastewater flow and strength sent to the treatment plant.
In providing sewer service, the City incurs considerable expense related to the ongoing
operating and capital needs of the utility. Operating and capital expenditures change annually
because of the need for repairs and replacements to existing facilities, the need to improve service
to meet more stringent state and federal environmental compliance requirements, and to stay
abreast of inflationary trends. The City, in recognition of the importance of financially planning for
the costs to replace, improve, and operate the sewer utility, has engaged Black & Veatch to perform
a comprehensive sewer cost of service and rate study.
The City's priorities in the coming years include purchase of additional sewer capacity from
Metro and on-going upgrades and improvements of the sewer system. All these projects are
included in the City's five-year capital improvement program. A major challenge will be to
balance the requirements of expanded infrastructure with available City revenues. All planned
expenditures will need prioritization to assure that financial resources are used in the most effective
way.
Purpose
The purpose of this sewer rate study is to:
.
analyze and project the City's historical and future revenues and requirements;
.
plan for fmancing of the capital improvement program proposed by the City;
.
meet the financial requirements of system improvements;
.
analyze the cost of providing service by customer class;
develop an equitable sewer structure based on proper customer classification;
.
design sewer rates based on cost of service which will generate adequate revenues
to support revenue requirements.
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BLACK" VEATCH
4
8' ---I if
Introduction
Scope of the Study
The comprehensive rate study includes three phases: Financial Planning, Cost of Service
Analysis, and Rate Design.
Financial Planning: Revenue requirements are projected for a five-year period from FY
03-04 through FY 07-08. Financial planning involves estimation of annual O&M and
capital expenditures, interfund transfers, annual reserve requirements, operating and capital
revenues, and the determination of required annual user revenues from rates and charges.
Cost of Service: Cost of service involves the apportioning of annual revenues required
from rates to the different user classes in proportion to their demands on the sewer system.
Rate Design: Rate design involves the development of a fixed and variable schedule of
sewer rates for each of the different user classes to reflect the required revenue adjustments
made during the financial planning phase.
This report includes six sections besides the Executive Summary and the Introduction.
Sections 3 through 8 present study results. These sections discuss in detail the financial planning
phase, cost of service analysis, and rate design phase.
~.
BLACK & VEATCH
5
?? ~/£)
SECTION 3
REVENUE UNDER EXISTING RATES
Revenue for the sewer utility is derived from user charges, industrial waste pennits, transfers
from the Trunk Sewer Capital Reserve Fund, miscellaneous revenues, and interest income from
operations. The level of future revenue the City can expect to receive is a function of the number
of customers served, the quantity of sewer flow, and the level of current rates. Development of
projected revenues under existing rates provides the benchmark upon which to evaluate the need
for revenue adjustments throughout the five-year study period.
User Classification and Customer Growth
Seven classes of customer are recognized. They include single family, multi-family,
mobile homes, low commercial, medium commercial, high commercial, and special users. The
study assumes modest future growth in the City service area. Table 1 shows the projected
number of customer accounts, wastewater flow, and revenue under existing rates for FY 03-04
and revenue under the adopted FY 04-05 rates for FY 04-05 to FY 07-08. Revenues are
estimated to be $18,844,100 for FY 03-04 to $23,532,800 for FY 07-08.
TABLE 1
PROJECTED NUMBER OF ACCOUNTS, VOLUME, AND REVENUE
(I) (2) (3) (4)
Projected
Projected Projected Revenue
Fiscal Average Total Under
Year Ended Number of WW Existing
June 30 Accounts Volume Rates (I)
hcf $
2004 43,400 7,944,000 18,844,100
2005 (2) 45,840 8,264,500 21,114,100
2006 (2) 48,420 8,603,500 22,019,200
2007 (2) 50,890 8,907,800 22,842,200
2008 (2) 52,940 9,164,000 23,532,800
(I) Includes revenue !Tom Special Users.
(2) Projected revenue under adopted FY 04-05 rates.
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BLACK & VEATCH
6
'ii'~(b
Revenue Under Existina Rates
Existing and Adopted Sewer Rates
The current sewer rate structure is comprised of varying monthly service charge based on
meter size for multi-family residential and non-residential sewer customers. Single family
customers are charged based on a 5/8-inch meter at $6.10 per month for FY 03-04 and $7.20 per
month for FY 04-05. Single family residential have a volume charge based on average winter
water usage with a usage cap of 15 hundred cubic feet (hcf).
Multi-family. residential, mobile homes, and non-residential customers are charged a
uniform volume rate based on 79,84 and 90 percent of metered water usage, respectively. The
uniform rates vary based on the type of customer. The existing and adopted rate schedule is
presented below in Table 2.
TABLE 2
EXISTING AND ADOPTED SEWER RATE SCHEDULE
Monthly Service Charge
Existing Adopted
FY 03-04 FY 04-05
$/mo $/mo
Single Family Residential
6.10
All Others
5/8
3/4
I
1 1/2
2
4
6
8
6.10
6.10
10.07
20.00
31.92
59.73
99.46
198.79
7.20
7.20
7.20
11.91
23.68
37.80
70.75
117.82
235.50
Volume Charge
Existing Adopted
FY 03-04 FY 04-05
$/hcf $/hcf
Residential
Single Family
Multi-Family
Mobile Homes
Non-Residential
Commercial - Low Strength
Commercial - Medium Strength
Commercial - High Stength
Special User
1.90
1.90
1.90
1.90
2.29
3.79
Varies
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BLACK & VEATCH
?-17
1.99
1.99
1.99
1.99
2.42
4.02
Varies
Revenue Under ExistinQ Rates
Sewer User Fee Revenue Under Existing Rates
Revenue for financing the City's sewer system is derived principally from user charges.
Other revenues are received from miscellaneous revenues, transfers from the Trunk Sewer
Capital Reserve Fund, and interest income.
Revenue Under Existing Rates
Revenue under existing rates is obtained by applying the current and adopted rate schedule,
shown in Table 2, to the projected number of customers served by the City and estimated
wastewater flow. Table 1 shows that the City will collect approximately $21,114,100 in FY 04-05
for sewer services.
Transfers from Trunk Sewer Capital Reserve Fund
The Operating Fund is currently receiving transfers from the Trunk Sewer Capital Reserve
Fund to help pay for the capital costs included in Metro treatment costs. The financial plan is to
gradually reduce the transfers each year until the Operating Fund is self-supporting. It is
anticipated that no transfers from the Trunk Sewer Fund will be necessary after FY 05-06.
Other Revenues
Other revenue sources include industrial waste permits, pump station maintenance fees,
reimbursements, and miscellaneous revenue. Total revenue from these sources is estimated to be
approximately $319,000 in FY 04-05.
Interest Income
Interest income varies from year-to-year depending on the investment of available monies
in the Sewer Operating Fund. Investment income projections are based on available fund
balances using an average annual interest rate of 3.5 percent throughout the study period.
Estimated interest income for FY 04-05 totals $200,000.
Winter Average Water Usage Approach
An analysis of the City's sewer customer billing data unveiled that the City's current approach
of billing residential customers the lowest two months of water usage is a fair and equitable method.
In addition, a cap of 15 hcf is included in the approach to avoid charging high irrigation. This
method is the most fair and equitable approach and is used by a majority of large utilities in the
United States.
Figure I shows a comparison of monthly wastewater flows to Metro with the average flow
billed by the City. As shown in the figure, wastewater flows during the summer months are higher
~.
BLACK & VEATCH
6' -(g'
Revenue Under Existing Rates
than the average billed flow due to additional wastewater usage for summer activities. In total, the
figure shows that wastewater flows are slightly greater than billed flows. The result indicates that
with a residential cap of 15 hcf, unbilled wastewater flows remain.
16.0
c
C) 14.0
::E
12.0
10.0
FIGURE 1
COMPARISON OF W ASTEW ATER FLOWS TO METRO WITH BILLED FLOWS
18.0
Ju~ Aug- Sep- Oct- Nolf- Dec- Jan- Feb- Mar- Apr- May- Jun- Ju~ Aug- Sep- Oct-
œ œ œ œ œ œ œ œ œ œ œ œ œ œ œ œ
-- Flow to Metro - Average Billed Flow
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BLACK & VEATCH
9
Z-/9
SECTION 4
CAPITAL IMPROVEMENT PROGRAM
The City has developed a sewer utility capital improvement program (CIP) to address sewer
systems need in terms of projects necessary to bolster and reinforce its existing infrastructure
facilities. The CIP includes a variety of projects including the following: replacement, trunk
sewer, special sewer, and storm drain. A summary of the sewer capital improvement program,
which reflects the planned expenditures for each year during the study period, is shown in Table 3.
The program is estimated to total $42,845,600 for FY 03-04 through FY 07-08. Sewer projects
include the purchase of additional Metro capacity, sewer replacements, and annual upgrades and
improvements to the sewer system.
TABLE 3
PROPOSED MAJOR CAPlT AL IMPROVEMENT PROGRAM (INFLATED)
(I) (2) (3) (4) (5) (6)
Li.. F=ding Fi",1 V", Endi.. ¡u.. 30
I><>.. D",ription Sm=ill 2QQ;[ = = = = I<>!o!
$ $ $ $ $ $
I Mo" St"" B". Bw,",way aOO Woodlawn A" T 0 336,300 0 0 0 336.300
2 Colo<adoStB"."¡"aOO"K"S..", T 0 360,100 0 0 0 360,100
3 Main St. B,t. Ind",trial & Thin! Avo. T 0 64,900 0 0 0 64,900
4 C,n'" S."t B,t. 4th Avffiu, & Ga"ott A". T 0 217,200 0 0 0 217,200
5 "G" S.." P=p Statioo Impw"men" R 0 2,060,000 0 0 0 2,060,000
6 E"t Lak, P"kway Pump Station n"ommi"ioning 0 0 103,000 0 0 0 103,000
7 Poli" S."t PS R 0 0 0 0 56,300 56,300
g Inftao"",tu"R,liab R 0 412,000 636,500 984.g00 1,014,300 3.047,600
9 Vid,o Imp"tion R 0 259,700 267,500 275,500 283,800 1,086,500
10 Trunk S,we< CIP T 10,773,300 0 0 0 0 10,773.300
II R",I~'m'ot CIP R t,678,I00 0 0 0 0 1,678.IDO
12 Op",tingCIP 0 22,800 0 0 0 0 22,800
13 P=h", Additional M'tto Cap~ity T 0 0 0 0 22,500,000 22.500,DOO
14 Sto= Omin R,habilitation SO 491,300 0 0 0 0 491,300
15 Sp"ial S,we< Pwj"t SS 48,200 0 0 0 0 48.200
16 Total (lnflat,d) 13,013,700 3.813,200 904,000 1.260,300 23,854,400 42,845,600
(I) T =TrunkS'~tCapital R"m' F=d, R=R,pl~,montF=d, 0= Opotating F=d, SO = St=nOmin F=d, S8 = Sp"ial S,we<Fuod
Major Capital Improvement Financing Plan
The Sewer Fund is consist of several restricted capital funds, including the Sewer
Replacement Fund, Trunk Sewer Capital Reserve Fund, Sewer Special Fund, Sewer Income
Fund, and Storm Drain Fund. Tables 4 through 8 present the proposed capital improvement
financing plan which indicates the sources and application of funds to [fiance the major capital
improvement program over the five-year period. A detailed discussion of each fund follows:
Sewer Repmcement Fund
The Sewer Replacement Fund is used to pay for the cost of refurbishment and/or
replacement of the CIP. The City currently has a sewer replacement fee of $0.70 per dwelling
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BLACK & VEATCH
10
6-2-0
Capital Improvement Program
unit per month for residential customers. Non-residential customers are charged $0.06 per hcf of
water usage per meter but in no case less than $0.70 per meter. The fee is part of the sewer
service charge. As shown in Line 2 of Table 4, a series of transfers from the Operating to the
Sewer Replacement Fund are anticipated ranging from $570,200 to $662,700 during the study
period. The transfers represent the annual amounts collected from the replacement fee.
Line 3 shows a one-time repayment ftom the Storm Drain Fund and Line 6 shows the
capital project amounts to be funded by year.
Table 4 indicates the City should have sufficient Replacement Fund resources to meet
requirements during the study period, however, reserves will be minimal by FY 07-08. We
believe consideration should be given to increasing the replacement fee before the fund balances
reach such a low level.
TABLE 4
SEWER FACILITY REPLACEMENT FUND
(I)
(2)
(3)
(4)
(5)
Line Fisc,,] Year Ending June 30
No. Description 2004 = Mm2 :1QQ1 =
$ $ $ $ $
Source of Funds
Funds on Hand at Beginning of Year 4,439,300 4,121,200 2,092.800 1,878,800 1.317,800
Sewer FadHty Replanement Fees (From Operating) 570,200 594.600 620.500 643,400 662.700
Transfer ftom STORM DRAIN FUND 640,000 0 0 0 0
Interest Income [I] 149,800 108,700 69,500 55,900 34,600
Tota!FundsAvailable 5,799,300 4.824,500 2,782.800 2,578,100 2.015,100
Use nfFnnds
Major Capita! Improvements [2] 1,678.100 2.731,700 904,000 1,260.300 1,354,400
rota! Use of Funds 1,678.100 2,731.700 904,000 1,260.300 1,354,400
Funds on Hand at EndofVear 4,121,200 2,092,800 1,878,800 1,317.800 660,700
[I] Interest on available "pital funds computed at a 3.5% annual interest rate.
[2] Shown on Table 3 '" funding source "R".
Trunk Sewer Capital Reserve Fund
Revenues generated ftom the sewer capacity charges for sewer treatment capacity are
available to fund "capacity" capital projects listed in the capital improvement program. It is
estimated that annual revenues will vary from $8,823,000 to $6,036,000 for FY 03-04 to FY 07-08,
as shown in Line 2 of Table 5.
Line 3 of shows the repayment of the Salt Creek DIF loan. It is anticipated that the fund
will receive approximately $1,880,200 annually in FY 04-05 through FY 07-08. Line 6 of Table
5 shows the capital projects amounts to be funded by year including the purchase of additional
19.
BLACK & VEATCH
11
2?> "2-1
Capital Improvement ProQram
sewer capacity in FY 07-08.
TABLE 5
TRUNK SEWER CAPITAL RESERVE FUND
6
7
8
9
10
(I) (2) (3) (4) (5)
Fiscal Ye", Endin. June 30
Desoription 2004 2005 2006 2007 2008
$ $ $ $ $
Source of Funds
Funds on Hand at Beginning ofY"r 16.710,700 7,745.100 10,062,400 15,622,100 25,539.600
Se",r Capacity Ch"'ges 8.823,000 7,104,000 7.530.000 7.317,000 6,036,000
Repaymont of Salt Crook OlF Loan 156,700 1,880.200 1,880,200 1.880,200 1,880,200
In"rest Inoome [1] 428,000 311.600 449,500 720,300 650,000
Total Funds Availabk 26.118,400 17,040,900 19.922.100 25,539.600 34,105.800
Use of Funds
Major Capi"llmprovements [2] 10,773,300 978,500 0 0 22,500,000
Loan to Salt Creek DlF 1,000,000 0 0 0 0
Transfor to OPERATING FUND 6.600,000 6,000.000 4.300.000 0 0
Total Use of Funds 18,373,300 6.978,500 4.300,000 0 22,500.000
Funds on Hand at End of Year 7,745.100 10,062,400 15.622,100 25,539,600 11.605,800
Line
No.
[I] 1n"rest on available capital funds computed at a 3.5% annual interest rare
[2] Shown on Table 3 '" funding sourco "T".
The Trunk Sewer Capital Reserve Fund is transferring a series of revenues to the
Operating Fund (Line 8). These transfers are to help pay for the capital portion of Metro costs
until the Operating Fund is self-supporting through rate increases.
Table 5 shows that the projected balance of the Trunk Sewer Capital Reserve Fund will
remain above $10 million for FY 04-05 and forward. However, because the City will need to
acquire additional capacity from Metro and because the cost of that capacity may increase, the
balances are considered prudent. Furthermore, the City should immediately proceed to search
for additional capacity and purchase it when available to the extent financial resources exist.
Special Sewer Fund
Table 6 present the flow of fund for the Special Sewer Fund. The fund is used to account
for the sale of the City's excess Metropolitan Sewerage System capacity. Use of money in this
fund is determined by the City Council. One capital project is planned in FY 03-04 and none
thereafter. This fund should be closed and the proceeds transferred to the Trunk Sewer Capital
Reserve Fund.
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BLACK & VEATCH
12
8-2--7-
Capital Improvement Program
TABLE 6
SPECIAL SEWER FUND
(I)
(2)
(3)
(4)
(5)
Line
J'iQ.
Description
Fiscal Ye", En<lin. June 30
2004 2005 2006 IQQ1 2008
$ $ $ $ $
665,074 639.674 662,474 686,074 710,474
22.800 22,800 23,600 24.400 25,300
687,874 662.474 686.074 710,474 735,774
48.200 0 0 0 0
48,200 0 0 0 0
639,674 662,474 686.074 710,474 735.774
Souree ul Funds
Fund, on H",d al Beginnin8 olYe",
InterestIncome[IJ
Total Funds Available
U" ununds
CIP Expenditure, [2]
Total U,e olFund,
Funds on Hand alEnd olYe'"
[IJ lnlece,1 on available 'pecial sewee fundcompuled al a 3.5% "'nual in""e" rate
[2] Shown on Table 3 as funding so",ce "SS".
Sewer Income Fund
The Sewer Income Fund is used to cover the cost of connecting properties to the City's
public sewer system. The money from this fund can only be used for the acquisition,
construction, reconstruction, maintenance and operation of the City's sewer facilities. As shown
in Table 7, no capital projects are planned throughout the study period. Consideration should be
given to closing out this fund.
Line
J'iQ.
Description
TABLE 7
SEWER INCOME FUND
(I) (2) (3) (4) (5)
FIscal Ye", Endin. June 30
2004 lQQ.2 ;¡QQ§: IQQ1 ~
$ $ $ $ $
1,434,400 1,494,632 1.557,232 1.622,308 1,690.068
8.932 9,200 9,476 9.760 10,053
51.300 53,400 55,600 58,000 60,400
1,494.632 1.557,232 1,622.308 1,690,068 1,760,521
0 0 0
0 0 0 0 0
1,494.632 1.557,232 1,622.308 1,690.068 1.760,521
Snurce 01 Foods
Funds on H",d al Beginning olYe",
Sewee Income ""e"m",,~
InlecestIncome [1]
Total Funds Available
U" olFunds
CIP Expenditures
Total Use olFunds
Funds on Hand at End olYe",
[1] Intemt on available sew"" income fund computed at a 3.5% annual Interest rate
~.
BLACK & VEATCH
13
g-;), :3
Capital Improvement Proaram
Storm Drain Fund
The Storm Drain Fund, Table 8, is used to pay for the services of cleaning storm drain
inlets, underground drainage systems, and planning costs associated with meeting stringent
requirements mandated by the Regional Water Quality Control Board. Revenues for the fund are
collected through a storm drain fee of $0.70 per dwelling unit per month. The fee is part of the
sewer service charge and is transferred from the Operating Fund as shown in Line 2 of Table 8.
A series of transfers from the General Fund is necessary in order for the Storm Drain
Fund to break even. It is anticipated that a series of transfers ranging from $174,400 to $442,700
will need to occur during the study period.
The Storm Drain Fund is currently transferring revenue to the General Fund for
administrative services provided. Reducing the transfers to the General Fund would enable the
Storm Drain Fund to break even.
No future capital program is shown for the Storm Drain Fund since revenues are not
sufficient to pay for such costs. The City should investigate increasing the storm drain fee to
collect more revenues to pay operating costs and future capital projects.
Line
No,
Descriptinn
TABLES
STORM DRAIN FUND
(1) (2) (3) (4) (5)
Fiscal Year Endin.June 30
2004 = 2006 2007 ~
$ $ $ $ $
1,315,200 0 0 0 0
570,200 594.600 620,500 643,400 662,700
6.000 6,200 6,400 6,600 6,800
174,400 417,000 421.400 429.800 442,700
61,500 0 0 0 0
2.127,300 1.017.800 1,048,300 1.079,800 1,112,200
288,000 296,600 305.500 314,700 324,100
700,200 721,200 742,800 765,100 788.100
640,000 0 0 0 0
7,800 0 0 0 0
491,300 0 0 0 0
2,127.300 1,017,800 1,048,300 1,079.800 1,112,200
0 0 0 0 0
Souree of Funds
Funds on Handa' Beginning of Year
Stonn Drain Fees (Transfer from Operating)
Other Revenues
Tmnsfer from GENERAL FUND
Interest Income [I]
Total Funds Available
7
8
9
10
11
12
13
UsenfFunds
Fees and Services
Tmnsfer to GENERAL FUND
Transfer to REPLACEMENT FUND
Other Transfers Out
CIP Expenditures [2]
Tntal Use of Funds
Funds on Hand at End of Year
[IJ Interest on available slonn drain fund computed a' a 3.5% annual interest mte
[2] Shown on Tahle 3 as funding so=e "SD".
¡;¡).
BLACK & VEATCH
14
f9f
SECTION 5
REVENUE REQUIREMENTS
To provide for the continued operation of the sewer utility on a sound cash flow basis,
annual revenue must be sufficient to meet annual revenue requirements of the system. Revenue
requirements include O&M expense for sewer, bad debt write-offs, routine capital outlay,
transfers to the Sewer Replacement Fund, and transfers to the Stonn Drain Fund.
Operation and Maintenance Expense
Operation and maintenance expense includes the cost of operating and maintaining sewer
collection, treatment and disposal of wastewater, and maintenance of system facilities. Expenses
also include cost of personnel, utilities (gas and electric), chemicals, and miscellaneous materials
and supplies to operate the sewer system on a routine basis. Since these costs are an ongoing
annual obligation of the City, they must be met from user charge revenue.
Table 9 presents a summary of the historical and projected O&M expenses for the City's
sewer system. The forecasted expenditures are based upon the City's FY 03-04 budget and the
effect of inflation in future years. Total operation and maintenance expense is projected to increase
from $24,537,600 in FY 03-04 to $26,324,200 in FY 07-08. The Metro and Spring Valley costs
shown on Lines 7 and 8 include both O&M and capital costs.
Every year Metro provides the City with a four-year projection of treatment costs based on
the City's estimated wastewater flow and strength. Metro's recent projected treatment costs for the
City are significantly lower than previous year's projections. However, based on conversation with
Metro staff, it is anticipated that these costs in the future will be higher than the current projections.
TABLE 9
HISTORICAL AND PROSECl'ED OPERA noN AND MAINTENANCE EXPENSE
7
8
9
10
II
(I) (2) (3) (4) (5) (6)
F~oolY",Endin.<Jun,30
ð&!!!!!! jJ!!!g<!<J! "'o¡"to<!
Desoripûon = 2001 29.11> 2QQó = =
S S S S S S
WW Support Se",'".
ww Opomûom Admin 202,300 208.400 214.700 221.100 227,700 234,500
WW M.in'"""", 4.130,300 4,254,200 4.381,800 4.S13,3oo 4.648,700 4,788,200
Lift StationlPool M,in!. 584,200 601,700 619.800 638.400 657,600 677,300
Se- Billing ""d Coll"tion [I] 260.900 268,800 408.900 421,200 433.800 446,800
T"""r" to G""",I Fund 1,307,800 2,043,400 2,114,"D 2,188.9DO 2.265.500 2,344,800
Total WW Support S""io" 6,485.500 7,376,500 7.740,100 7,982.900 8,233,300 8.491,6{)0
M'tto Co~ [2] 15.738,200 16,527.900 16,352.300 16,515.200 16,581,000 17,078,400
Spring Volley c..~ [3] 114,600 283.900 851,300 706.300 504,900 360,900
Sowe, Som" Exponditores 342.400 291.800 300.600 309,600 318,800 328,300
Se- S""¡,, Ri>k M""...,mont 31,800 57,500 59,300 61.200 63,100 65,000
Total O&M Expon.. 22,712.500 24,537,600 25,303,6{)0 25,575,200 25.701.100 26,324.200
Lin'
jQ.
[I] ""swn"Otaybillingoostwillin""""b,ginningFY04-05.
[2] FY 03'{)4thruFY 06-07 ""mM,tto. An inft,ûonof3% ""uno" in FY 07-OS.
[3] D,taftomS""Di'goCounty.
¡¡J.
BLACK & VEATCH
15
ð- ").5
Revenue Reauirements
Debt Service Requirements
The City currently does not have any existing debts.
Transfer of Revenues to the Sewer Replacement Fund
As part of the sewer service charge, a sewer replacement fee of $0.70 per dwelling unit per
month is charged to residential customers. Non-residential customers are charged $0.06 per hcf of
water usage per meter but in no case less than $0.70 per meter. A series of transfers ftom the
Operating to the Sewer Replacement Fund are anticipated ranging ftom $570,200 to $662,700
during the study period. The amounts match revenues collected.
Transfers of Revenues to the Storm Drain Fund
Similar to the sewer replacement fee, the City also has a storm drain fee of $0.70 per
dwelling unit per month. It is anticipated that the Operating Fund will make a series of transfer
to the Storm Drain Fund ranging from $570,200 to $662,700 throughout the study period. The
amounts match revenues collected.
Sad Debt Write-ofts
It is anticipated that the City will have a bad debt write-offs of $300,000 annually. The
majority of the write-offs are from customers in the pre-annexation area of the City who are
billed by the City's Finance Department. Since the sewer billing is not done in conjunction with
the water bill, the City does not have the ability to shut-off water service in order to collect these
bills.
Routine Capital Outlays
Routine capital outlays, which are financed ftom annual system earnings, include
estimates for relatively small additions and replacements to system facilities. A capital outlay of
$100,000 is projected for each year in the study period.
~.
BLACK" VEATCH
16
1r).~
SECTION 6
CASHFLOW ANALYSIS
PROPOSED REVENUE ADJUSTMENTS
To provide for the continued operation of the sewer utility on a sound fmancial basis,
revenue must be sufficient to meet revenue requirements. This section of the report analyzes the
revenue increases needed to meet future revenue requirements.
The pro forma operations statement or cash flow summary presented in Table 10 provides a
basis for evaluating the timing and level of sewer revenue increases required to meet the projected
revenue requirements during FY 03-04 through FY 07-08. In order to meet projected revenue
requirements and to maintain desired operating and capital reserve fund balances, the following
increases are proposed:
Effective Date
July 1,2005
July 1,2006
July 1,2007
Increases
9.0 percent
9.0 percent
0.0 percent
The magnitude of the increases shown above has been selected in order for total sewer
revenue to meet revenue requirements and eliminate the transfers from the Trunk Sewer Capital
Reserve Fund. The study assumes that the adopted FY 04-05 rates will be effective July 1,2004 as
planned. The percentage increases are the same percentage increases the City Council adopted last
year in the City's four-year plan.
Estimated sewer revenue under existing rates is shown on Line I of Table 8. Additional
operating revenues from any proposed rate increases are shown on Lines 2 through 7. Other
revenues and interest income are shown on Lines 10 through 13.
Operation and maintenance expenses, transfers to other funds, and bad debt write-offs are
shown on Lines 15 through 26. Line 22 shows the transfers to the Sewer Replacement Fund and
Line 23 p,resents the transfers to the Storm Drain Fund scheduled for each year.
The cash flow indicates the projected revenue increases will be sufficient to meet all the
needs of the utility and maintain adequate fund balances throughout the study period with the nine
percent annual increases already adopted by the City. With the series of nine percent increases, it is
anticipated that the Operating Fund will be self-sufficient and no transfers from the Trunk Sewer
Capital Reserve Fund will be necessary in FY 06-07 and FY 07-08.
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t"J7
Cashflow Analysis
TABLE 10
OPERATING FUND FLOW OF FUNDS
(I) (2) (3) (4) (5)
Line Fi"al You Endin, June 30
~ De",;ptinn 2004 2005 2006 2007 ~
$ $ $ $ $
Revenu",
W",tewater S"",ice Charges Under Existing R»tes 18,844,100 21,114,100 22,019,200 22.842,200 23,532,800
Additinnal Service Charge Revenue Required:
Annualized
Revenue Months
Year In"e",e EtTective
2 2003 0.00% 12.0 0 0 0
3 2004 0.00% 12.0 0 0 0
4 2005 0.00% 12.0 0 0 0
5 2006 9.00% 12.0 1,981,700 2,055.800 2,118.000
6 2007 9.00% 12.0 2.055,800 2,118.000
7 2008 0.00% 12.0 0
8 Total Additional Service Charge Revenue 0 0 1.981.700 4,111.600 4.236,000
9 Total W",tewater Service Charge Revenue 18,844.100 21,114,100 24,000,900 26,953.800 27.768.800
10 Other Revenues 378.100 319,000 328,500 338,400 348,600
II Transfer ITom TRUNK SEWER CAPITAL RESERVE 6,600,000 6.000,000 4.300.000 0 0
12 Interest Income From Operations [I] 188,000 199,900 241,800 273.800 283.100
13 Interest Income From Restricted Reserves [I] 0 0 0 0 0
14 Total Operating Revenues Available 26,010,200 27,633,000 28,871.200 27,566,000 28,400,500
Revenue Requirements:
15 Operation and Maintenance Expense 24,537.600 25,303,600 25.575,200 25.701.100 26,324,200
Debt Service
Existi.. Debt
16 Revenue Bonds
17 General Obligation Bond.
18 SRF Loans
~
19 Revenue Bonds 0 0 0 0 0
20 General Obligation Bonds 0 0 0 0 0
21 SRF Loans 0 0 0 0 0
22 Transfer to REPLACEMENT FUND 570.200 594,600 620,500 643,400 662,700
23 Transfer to STORM DRAJN FUND 570,200 594.600 620.500 643,400 662,700
24 Transfer Out to Other Funds 67,252 0 0 0 0
25 Bad Debt W,;te-otTs 300,000 300,000 300,000 300,000 300,000
26 Routi., Capital Outlay 22.800 103,000 100,000 100,000 100.000
27 Total Revenue RequITements 26,068,052 26,895.800 27,216,200 27.387,900 28.049,600
28 Net Operating Fund. Available (57,852) 737.200 1,655.000 178,100 350,900
29 Beginning Operating Fund Balance 5,400,700 5.342,848 6,080,048 7,735,048 7.913,148
30 Cumulative Operating Fund Balance 5,342.848 6,080,048 7.735,048 7.913,148 8,264.048
31 Minimum Desired Balance [2] 6.134,400 6,325,900 6,393,800 6.425.300 6.581,100
32 Annual Debt Service Coverage N/A N/A N/A N/A N/A
[I] Estimatedb",edon 3.5% interest rate.
[2] Estimated at 90 days of operation and maintenance expense.
~. 18
BLACK" VEATCH
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Cashflow Analysis
Figure I shows a graphical summary of the revenue under the proposed rates with revenue
requirements. The figure indicates that revenue under the proposed rates is not sufficient to cover
operation and maintenance and capital expenses for FY 03-04 through FY 05-06 and that transfers
from the Trunk Sewer Capital Reserve Fund will be necessary. However, no transfers are
anticipated in FY 06-07 and FY 07-08 once the Operating Fund becomes self-sufficient.
FIGURE 1
SEWER OPERATING FUND SUMMARY
30.0
5.0
25.0
r!
.!!
Õ
0
c
~
i
20.0
15.0
10.0
0.0
2004
2005
2006
Fiscal Year
2007
2008
...... City's Operating Expense
= Transfers to Other Funds
<=3 Metro/Spring Velley Costs
---Rate Rewnue with 9% ine",e.es
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SECTION 7
COST OF SERVICE
The cost of service analysis is a critical element in a rate study. The total revenue
requirements net of revenue credits from miscellaneous sources, is by definition, the cost of
providing service. This cost of service is then used as the basis to develop unit rates for the
wastewater parameters and to allocate costs to the various user classes in proportion to the quantity
of wastewater contributed and the strength of wastewater.
In this study, FY 05-06 is referred to as the "test year", therefore, FY 05-06 revenue
requirements are used in the cost allocation process.
Cost of Service to be Allocated
The annual revenue requirements or costs of service to be recovered from charges for
wastewater service consist of the elements of O&M expense and capital related costs. O&M
expense includes cost directly related to the collection, treatment and disposal of wastewater, and
maintenance of system facilities. Capital related costs represent routine capital outlays.
The test year cost of service to be recovered from wastewater service charges is estimated at
$24,000,900. As shown in Table 11, the total cost of service comprises net operating expenses of
$23,073,400 and capital costs of $927,500.
In determining the annual cost of service revenues required from rates, revenues fÌ'om other
revenue sources, such as miscellaneous revenue and transfers from the Trunk Sewer Capital
Reserve Fund, are deducted fÌ'om the appropriate cost element. In addition, adjustments are made
to account for cash balances.
Wastewater Parameters
The total cost of sewer service is analyzed by system functions in order to equitably
distribute costs of service to the various classes of customers. For this analysis, sewer utility costs
of service are assigned to three basic functional cost components (wastewater parameters)
including volume related costs, strength related costs, and customer related costs. Functional cost
components relate to services provided and not activities of the utility.
Volume costs are those which vary directly with the quantity of wastewater contributed and
include capital costs related to the investment in the system facilities which are sized on the basis of
wastewater volume, O&M expense related to those facilities, and the expense of treatment
chemicals and electric power associated with the volume of wastewater treated.
¡¡J.
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20
t- 30
Cost of Service
TABLE 11
ALLOCATION OF REVENUE REQUIREMENTS
Test Year 2006
(I) (2) (3)
Line Operating Capital and
No. Expense Other Costs Total
$ $ $
Total Revenue Requirements
I Operation & Maiotenance Expense 25,575,200 25,575,200
2 Total Debt Service 0 0
3 Routine Capital Outlay 100,000 100,000
4 Bad Debt Write-offs 300,000 300,000
5 Transfer to REPLACEMENT FUND 620,500 620,500
6 Transfer to STORM DRAIN FUND 620,500 620,500
7 Subtotal 27,116,200 100,000 27,216,200
Less Other Operating Revenue
8 Other Revenues 328,500 328,500
9 Transfer from Trunk Sewer Capital ReSt 4,300,000 4,300,000
10 Interest Income 241,800 241,800
11 Subtotal 4,870,300 0 4,870,300
Adjustments
12 Adjustment for Annual Cash Balance (827,500) (827,500) (1,655,000)
13 Adjustment to Annualize Rate Increase 0 0
14 Subtotal (827,500) (827,500) (1,655,000)
15 Cost of Service to be Recovered from Rat 23,073,400 927,500 24,000,900
Wastewater strength costs consist of the O&M expense and capital costs related to system
facilities, which are designed principally on the basis of the quantity of pollutants in the
wastewater. Strength costs are further separated into COD and SS.
Customer costs are those which tend to vary in proportion to the number of customers
served. These include billing and collection expenses and general administration.
The separation of costs of service into these principal components provides the means for
further allocation of such costs to the various customer classes on the basis of their respective
volume and customer requirements for service.
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Cost of Service
Allocation to Wastewater Parameters
The allocation of O&M and capital costs to the wastewater parameters selected involves the
following:
. Identification of functional O&M and capital costs of the wastewater system
. Determination of O&M and capital cost allocation percentages for the wastewater
parameters
O&M expense items are allocated directly to appropriate cost components, while the
allocation of capital costs is based upon a detailed allocation of related capital investment. The
separation of costs into functional components provides a means for distributing such costs to the
various classes of customers on the basis of their respective responsibilities for each particular
type of service.
Allocation of CaDital Costs
Capital costs include routine capital improvements. A reasonable method of assigning
capital costs to functional components is to allocate such costs on the basis of the capital
improvement projects.
Capital projects are allocated to cost components on a design basis recognizing the principal
function governing the design of the facilities which influence the majority of its costs. A
reasonable method of assigning capital costs to functional components is to allocate such costs
based upon the nature of the capital cost. For example, the pumping stations are allocated to the
volume cost component because they are designed in relation to the average volume of wastewater
flow; while the collection costs are allocated to the customer and volume parameters.
Table 12 shows the allocation of the capital costs of $1,004,000. It is the basis for
recovery of the test year 2005 net capital costs of $927,500.
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Cost of Service
TABLE 12
ALLOCATION OF CAPITAL INVESTMENTS
TO FUNCTIONAL COST COMPONENTS
Test Year 2006
(1)
(2)
(3)
(4)
(5)
Line
No.
I
2
3
4
Total
1
Volume
$
Strength
Suspended
COD Solids
$ $
Customer
$
Cost Component
Collection
Pumping
General Piant
Total
904,000
0
100,000
1,004,000
452,000
0
50,000
502.000
0
0
0
0
452.000
0
50.000
502,000
Percent
50.0%
0.0%
0.0%
50.0%
Allocation of Operatina Expense
Projected net operating expense for the test year is allocated to cost components on the
basis of an allocation of O&M expense as shown in Table 13. O&M expense for the test year is
allocated to cost components in the same manner as capital costs, based on the design criteria of the
plant facilities. The allocation of Metro costs is based on annual billing.
TABLE 13
ALLOCATION OF OPERATION AND MAINTENANCE EXPENSE
TO FUNCTIONAL COST COMPONENTS
Test Year 2006
(1) (2) (3) (4) (5)
Slreo"'"
Line rota! Suspended
lli>. Cost Component fu= ~ ÇQQ ~ ~
$ $ $ $ $
WW Support Serv;...
WW Operatious Adm;" 221,100 0 0 0 221,100
WW Mainteuance 4.513,300 2,256.650 0 0 2.256.650
Lift StationIPool Mmn!. 638,400 638,400 0 0 0
Sewer Billing and Collection 421,200 0 0 0 421,200
Transfer to General Fund 2,188,900 0 0 0 2,188,900
Total WW Support Services 7,982,900 2,895,050 0 0 5.087,850
7 Metro Cost 16,515,200 8,794,265 3.992,109 3,728,826 0
8 Spring Valley Costs 706,300 353.150 0 0 353,150
9 Sewer Svc Expenditures 309.600 0 0 0 309,6()0
10 Sewer Svc Risk Management 61,200 0 0 0 61,200
11 Total Operation & Mmntenance 25,575,200 12,042,465 3,992,109 3,728,826 5,811,800
t2 Percent 47.09% 15.61% 14.58% 22.72%
13. 23
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..3-3
Cost of Service
Allocation of Cost to Customer Classes
The total cost responsibility of each customer class may be estimated by the distribution of
the functionally allocated total cost of service for the utility among the classes based on the
respective service requirements of each class.
The allocation of costs of service into these principal components (customer, volume and
strength related) provides a means for further allocation of costs to the various customer classes on
the basis of their respective volume and strength.
Customer Classifications
For purposes of cost of service analysis and rate design, sewer customers are classified to
reflect groups of customers with similar service requirements and who are served at a similar
average cos\. Sewer customers are currently separated by the City into the following classes:
.
Single Family Residential
Multi-Family Residential
Mobile Homes
Commercial- Low Strength
Commercial- Medium Strength
Commercial- High Strength
Special Users
.
.
.
Units of SeNice
The detennination of customer class responsibility for costs of service requires that each
general customer class be allocated a portion of the volume, strength and customer costs of service
according to its respective service requirements, and that all costs directly associated with a
specific customer class be allocated to that class.
The estimated test year service requirements or units of service for the various customer
classes are shown in Table 14. Cost responsibility by customer class is based on each class' share
of units of service. That is, if a class contributed one-third of the wastewater flow it will be
assigned one-third of volume related costs. The same is done for strength-related costs and
customer costs. Metered water and wastewater data for FY 02-03 was used to estimate customer
usage by customer category and to balance total wastewater plant loadings.
Estimates of the wastewater volume of each class are based upon water usage records and
include an estimated return factor for water reaching the wastewater system. Estimated strengths
and return factors are shown in Table 15. The estimated total wastewater volume for test year
2006 is 8,603,461 hcf. Infiltration is not included.
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Cost of Service
TABLE 14
ESTIMATED UNITS OF SERVICE
Test Year 2006
Line
No.
Customer Class
(I) (2) (3) (4)
Strength
Wastewater Suspended Number of
Volume COD Solids Accounts
hcf Ibs Ibs
5,055,300 17,670,900 5,206,600 44,345
1,913,700 6,689,600 1,971,000 2,207
92,700 323,900 95,400 19
771,300 2,696,100 794,400 1,391
122.200 762,500 266,900 184
167,700 2,093.000 732,600 175
480,700 1,680,300 495,100 98
-
8,603,600 31,916,300 9,562,000 48,419
4
5
6
7
Residential
Single Family
Multi-Family
Mobile Homes
Non-Residential
Commercial - Low
Commercial - Medium
Commercial - High
Special Users
Total
TABLE 15
WASTEWATER CHARACTERISTICS
Wastewater Strengths
Customer Return Factor COD TSS
Classification % mgiL mgiL
Single Family Residential (1) 100 560 165
Multi-Family Residential 79 560 165
Mobile Homes 84 560 165
Commercial - Low 90 560 165
Commercial - Medium 90 1000 350
Commercial - High 90 2000 700
Soecial Users m 90 560 165
(I) Winter period usage.
(2) Average strength.
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í:~3S
Cost of Service
Unit Costs of Service
Table 16 shows the development of the test year unit costs for each of the wastewater
parameters. The test year net O&M expense is allocated to volume, COD, SS, and customer
based on the O&M allocation percentage shown in Line 12 of Table 13. The test year capital
expense is allocated to volume, COD, SS, and customer based on the capital cost allocation
percentage derived in Line 4 of Table 12.
The unit costs of service shown in Line 5 of Table 16 are developed by dividing Line 3 by
Line 4.
TABLE 16
DEVELOPMENT OF UNIT COSTS
Test Year 2006
(1)
(2)
(3)
(4)
(5)
Strength
Line Suspended
No. Total Volume COD Solids Customer
$ $ $ $
Net Operating Expense 23,073,400 10,109,200 3,992,100 3,728,800 5,243,300
Capital Costs 927,500 463.700 0 0 463,800
Total Cost of Service 24,000,900 10,572,900 3,992.100 3.728,800 5,707,100
4 Total Units of Service 8,603,600 31.916,300 9,562,000 54.573
hcf pounds pounds Eq. meters
Total Unit Costs of Service - $/unit 1.2289 0.1251 0.3900 104.5780
Customer Class Costs of Service
The cost responsibility of each customer class is determined by applying the unit cost of
service shown in Table 16 to the units of service estimated for a class (shown in Table 14). The
cost of service allocated to each customer class is summarized in Table 17.
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rr 3(p
Cost of Service
TABLE 17
ALLOCATION OF COSTS OF SERVICE TO CUSTOMER CLASSES
Test Year 2006
(1) (2) (3) (4) (5)
Strength
Line Suspended
No. Total Volume COD Solids Customer
$ $ $ $
Unit Cost of Service 1.2289 0.1251 0.3900 104.5780
Residential
Single Family
Units 5,055,261 17.670,900 5,206,600 44,345
Cost-$ 15,090,000 6,212,400 2,210,000 2,030,200 4,637,400
Multi-Family
4 Units 1,913,700 6,689.600 1,971,000 5,528
5 Cost- $ 4.535,400 2,351,700 836,900 768,700 578.100
MohileHome
Units 92,700 323,900 95,400 90
Cost-$ 201,000 113,900 40,500 37,200 9,400
Non-residential
Commercial - Low
Units 771.300 2,696,100 794,400 3,198
Cost-$ 1.929,500 947,900 337,300 309,800 334,500
Commercial - Medium
10 Units 122,200 762,500 266,900 439
11 Cost- $ 395,600 150,200 95,400 104,100 45.900
Commercial - High
12 Units 167,700 2.093,000 732,600 429
13 Cost-$ 798,500 206,100 261,800 285,700 44,900
Special Users
14 Units 480,700 1,680,300 495.100 544
15 Cost-$ 1,050,900 590,700 210,200 193,100 56,900
16 Total Cost of Service - $ 24,000,900 10,572,900 3,992,100 3,728,800 5,707,100
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P-37
Cost of Service
Table 18 shows a comparison of the cost of service for each customer class with revenue
under existing rates, indicating the impact of cost of service allocation on each class. A nine
percent annualized increase in the level of sewer revenue is indicated to meet the projected revenue
requirements for FY 05-06. The cost of service analysis ensures that the test year 2006 revenue
requirement of $24,000,900 is met.
The result of the cost of service analysis is very infonnative. Table 18 shows that most
customers have been paying close to their fair share of cost of service. The table indicates that
medium and high commercial and special user customers are currently being subsidized by the
residential and low strength commercial customers who have been paying slightly in excess of their
allocated costs.
TABLE 18
COMPARISON OF ALLOCATED COSTS OF SERVICE
WITH REVENUE UNDER EXISTING RATES
Test Year 2006
(I) (2) (3)
Revenue Inillcated
Total Under Reveoue
Line Cost of Existing Increase
No. Customer Class Service Rates (Decrease)
%
Residential
I Single Family 15,090,000 13,891,400 8.63
2 Multi-Family 4,535,400 4,259,800 6.47
3 Mobile Homes 201,000 192,000 4.69
Non-Residential
4 Commercial- Low 1,929,500 1,805,100 6.89
5 Commercial - Meillum 395,600 333,100 18.76
6 Commercial - High 798,500 710,600 12.37
7 Special Users 1,050,900 827,100 27.06
8 Total 24,000,900 22,019,100 9.00
1:).
BLACK &: VEATCH
28
(,,3¿
SECTION 8
RATE DESIGN
In general, class cost of service allocations serve as a "guide" to the necessity for, and extent
of, rate adjustments. Other considerations such as the change from previous rate levels, public
reaction to rate changes, past local policies and practices, and local regulations may modifY
indicated cost of service adjustments. The end result of any rate adjustment process, however,
should be rate schedules which are simple to apply, clearly understood, and as equitable to each
customer class as possible.
Existing Sewer Rates
The current sewer rate structure is comprised of varying monthly service charge based on
meter size for multi-family residential, mobile homes, and non-residential sewer customers. Single
family customers are currently charged based on a 5/8-inch meter at $6.10 per month which will
increase to $7.20 effective July 1, 2004. Single family residential have a volume charge based on
average winter water usage with a sewer cap of 15 hcf.
Multi-family, mobile homes, and non-residential customers are charged a uniform volume
rate based on 79, 84, and 90 percent of metered water usage, respectively. The uniform rates vary
based on the type of customer. Special users have a volume charge that is based on 100 percent of
metered wastewater flow.
Proposed Sewer Rates
The cost of service analysis provides the basis for adjusting sewer service charges. The cost
of service allocation study provides the unit costs of service used in the rate design process and
gives a basis for determining whether resultant rates will recover costs of service from customer
classes and provide the total level of revenue required.
Table 19 presents the proposed rate schedule for FY 04-05 through FY 07-08. We
recommend that the City continue with the adopted rates for FY 04-05 and refme the adopted rates
for FY 05-06 and FY 06-07 to fix small cost of service discrepancies.
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Y'37
Rate Design
TABLE 19
PROPOSED RATE SCHEDULE FOR FISCAL YEARS 2005 THROUGH 2008
Meter
Size
2005 2006 2007 2008
Monthly Service Charge
$/month $/month $/month $/month
7.20 8.71 9.08 9.08
7.20 8.71 9.08 9.08
7.20 8.71 9.08 9.08
11.91 14.52 15.14 15.14
23.68 29.05 30.28 30.28
37.80 46.48 48.45 48.45
87.15 90.85 90.85
70.75 145.25 151.41 151.41
117.82 290.49 302.82 302.82
235.50 464.79 484.52 484.52
Volume Charge
$/hcf $/hcf $/hcf $/hcf
1.99 2.07 2.28 2.28
1.99 2.07 2.28 2.28
1.99 2.07 2.28 2.28
1.99 2.07 2.28 2.28
2.42 2.86 3.04 3.04
4.02 4.49 4.63 4.63
Single Faorily Residential
All Others
5/8
3/4
1
1 1/2
2
3
4
6
8
Residential
Single Family
Multi-Faorily
Mobile Homes
Non-Residential
Commercial - Low
Commercial- Medium
Commercial-High
Table 20 presents a summary of the revenue under the FY 04-05 adopted rates, cost of
service and revenue under proposed rates for each customer class for test year 2006. The table
shows that the proposed rate schedule will fairly recover the cost of providing sewer service
from all of the customer class.
Adoption of the proposed rates would cause varying charge increases and decreases for
certain users. Table 21 shows that the sample sewer monthly bills for single family residential
for FY 04-05 through FY 07-08. The average customer uses 9.5 hcf a month.
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Ý'-"lO
Rate Desian
TABLE 20
COMPARISON OF CUSTOMER REVENUE UNDER PROPOSED RATES
WITH TEST YEAR COST OF SERVICE
Tes!Year2006
4
5
6
7
8
(I) (2) (3) (4)
Proposed Rates
Estimated
Test Year Revenue Revenue Asa
2006 Under Under Pecent of
Cost of Existing Proposed Cost of
Customer Class Service ~ ~ Service
$ $ $ %
Residential
Single Family 15,090,000 13,891,400 15,099,400 100.1
Multi-Family 4.535,400 4.259,800 4.539,500 100.1
Mobile Homes 201,000 192,000 201,300 100.1
Non-Residential
Commercial (L) 1,929,500 1,805,100 1,931,000 100.1
Commercial (M) 395,600 333,100 395,400 99.9
Commercial (H) 798,500 710.600 797,800 99.9
Special Users 1,050,900 827.100 1,050.900 100.0
Total 24,000,900 22,019,100 24,015,300 100.1
Line
No.
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'(, ¥/
Rate DesiQn
TABLE 21
COMPARISON OF TYPICAL SFR MONTHLY SEWER BILLS
FY 2005 FY 2006 FY 2007 FY 2008
Existiog Adopted Proposed Proposed Proposed
Usage Rate Rate Rate Rate Rate
hcf/mo. $ $ $
0 6.10 7.20 8.71 9.08 9.08
1 8.00 9.19 10.78 11.36 11.36
2 9.90 11.18 12.85 13.64 13.64
3 11.80 13.17 14.92 15.92 15.92
4 13.70 15.16 16.99 18.20 18.20
5 15.60 17.15 19.06 20.48 20.48
6 17.50 19.14 21.13 22.76 22.76
7 19.40 21.13 23.20 25.04 25.04
8 21.30 23.12 25.27 27.32 27.32
9 23.20 25.11 27.34 29.60 29,60
10 25.10 27.10 29.41 31.88 31.88
11 27.00 29.09 31.48 34.16 34.16
12 28.90 31.08 33.55 36.44 36.44
13 30.80 33.07 35.62 38.72 38.72
14 32.70 35.06 37.69 41.00 41.00
15 34.60 37.05 39.76 43.28 43.28
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? 'I&-
REVISED A TT A CHMENT 3
2004-2005 City of Chula Vista
Sewer Scmcc Charge Adjustment Form
Account Information
The purpose of this form is to allow customers the opportunity to comment on any unusual amount of indoor and/or outdoor
water use experienced during the months of November 2003 to Avril 2004. Sewer Service Charges are based on an average
of the two lowest consecutive months within the defined period.
Sewer Service Charges based on this period of time are not effective until July 2004.
Name on Account: La,tName I F;cstName
Account #
Number of I Daytime Phone # T
occupants
Service Address
Indoor Water Use
Have you discovered and repaired any indoor leaks during the months of
1. November. December, January, February, March or April? If yes which month
did you discover the repair?
Pool / Soa Water Use
1. Did you refill your pool or spa during the months of December, January,
February, March or Anril? If so what month')
a. How many gallons were used to refill your pool?
b. Have you had your pool or spa checked for cracks or leaks?
Other Outside Water Use (irrif!ation)
1. Have you discovered and repaired any leaks in the sprinkler system? If so what
month did vou discover the leaks?
a. How many gallons did you estimate were lost?
2. Have you planted a winter lawn or garden? If yes what is the area sq ft?
3. What is the total area sq. ft. of your landscaped front and back yards?
4. Do you use an irrigation system?
5. How many days a week do you water'
6. How long do you water?
Additional reasolls why recorded willter water use should IIOt be used to base Sewer Service
Charges effective July 2004. Please illclude photos, additiollal documelltatioll, etc.
I I
I understand that submittal of this form does not guarantee an adjustment to my monthly Sewer Semce Charge and any
adjustment to my account is not effective until July 2004. Additionally, any adjustment will alter only the Sewer
Scmce Charge portion of my monthly bill. The information provided is accurate to the best of my knowledge.
SIgnature of Account Holder Date
Please retum to:
CityofChulaVista
Wastewater Engineering
1800 Maxwell Rd
Chula Vista CA 91911
'(5- 1':.:<,
"t--
ORDINANCE NO. -
AN ORDINANCE OF THE CITY OF CHULA VISTA,
CALIFORNIA AMENDING THE CHULA VISTA
MUNICIPAL CODE SECTION 13.14.140 RELATING
THE SEWER SERVICE CHARGE VARIANCES BY
ADDING AN APPEAL PROCESS FOR RESIDENTIAL
CUSTOMERS
WHEREAS, sewer service charges pay for the operation and maintenance of the
sewer system and other incidental related expenditures; and
WHEREAS, sewer service charges are consumption-based and calculated by
measuring winter water usage; and
WHEREAS, sometimes certain activities by property owners or occupants cause a
substantial discrepancy between the property owner or occupant's sewer service charge
and their sewer system usage; and
WHEREAS, an appeal process to deal with such discrepancies already exists for
nonresidential customers; and
WHEREAS, this ordinance will establish an appeal process for residential users
with a separate water meter, who feel their consumption is not reflective of their
discharges into the sewer system.
NOW, THEREFORE, the City Council of the City of Chula Vista does hereby
ordain:
SECTION I. That Section 13.14.130 of the Chula Vista Municipal Code is amended to
read as follows:
13.14.130
Sewer service charge variances permitted when - Application - Contents
- Fees.
A.
The city manager shall have the power to establish rules and regulations for the
granting of variances from the established sewer service charges; pw,..iàed, such
rules and regulations shall be appr8yed by resolution of the eity eoHneil. The city
manager or his/her designee shall have the power to grant variances from
established sewer service charge billing categories upon receipt of a variance
application as hereinafter provided from the owner or occupant of any premises,
and one or more ofthe following situations exist:
ý~Lf'l
Ordmance No. -
Page 2 of 2
Text Underlined is Added
Text Redlined is Deleted
B.
1.
Where a nonresidential user's wastewater contains a total suspended solids
concentration sufficiently low as to qualify for a different sewer service
charge strength category.
2.
Where a substantial portion of the premises of an industrial or commercial
establishment is used for industrial, commercial, recreational, horticultural
or agricultural purposes of such a nature that the water supplied to such
premises is not substantially discharged into the sewer system.
3.
Where a residential user (with a separate water meter) has sufficient
evidence to prove that his or her average winter consumption (usage from
November I st through April 30th), which fOlliS the basis of their montlllv
sewer service charge, does not substantial Iv correlate to the amount of
sewage discharged into the sewer collection svstem.
The owner or occupant of any premises subject to the sewer service charge may
apply in writing to the city manager for a reclassification of such premises
("variance") under the provisions of subsections (A)(I) or íA}(2) or (A)(3) of this
section; provided, however, that no rebate upon such reclassification shall be
allowed for a period more than 90 days preceding the filing of such application.
The citv manager or his/her designee shall render a decision as soon as practicaL
but not longer than sixty davs after receipt of the request for a variance. The
applicant shall bear the burden of proof and furnish substantial engineering and
factual data to support the applicant's contention, bv clear and convincing
evidence, that the premises should be reclassified as provided in this section.
C.
The owner or occupant of any premises requesting a variance from the sewer
service charges pursuant to the provisions of this section and t£e rules and
regulatiofl3 approved by resÐbtioR oft-he eity eÐur.eil shall pay the required fee(s)
to cover the cost of investigation of said request (if any); provided, however, that
no fee shall be charged for a request for total exemption from the sewer service
charge. In addition, a special handling charge to cover the cost of billing and
inspections to be paid per billing may be established in the resolution granting the
¥IlFÎ!IÐee bv resolution of the citv council.
SECTION II. This Ordinance shall take effect and be in full force on the thirtieth day
from and after its adoption.
Presented by:
Approved as to form by:
.Do- 7.. I+e.....-
Alex AI-agha
City Engineer
Ann Moore
City Attorney
r-Lf5
REQUEST FOR SUPPORT
June 8, 2004
TO:
The Honorable Mayor and City Council
FROM:
John McCann, Councilmember
SUBJECT:
AB 2297 (Vargas) Imported Candy: Lead Contamination
The attached documents include:
. Text of AB 2297 (Vargas) Imported Candy: lead contamination
. State Analysis of AB 2297
. Environmental Health Coalition Letter of Support
. Recent Article from the Orange County Register
Recent studies have revealed unsafe levels of lead in two types of candy imported from Mexico
to the United States. The intent of AB 2297 is to appropriate State funds to the Department of
Health Services to perform specified tasks to ensure that this candy is free of lead contamination
or, if contaminated, is not sold or ingested.
The proposal, authored by State Assemblyman Juan Vargas, would provide $1.2 million to pay
for staff, lab equipment, computers, safety equipment and on going testing of candy suspected of
being contaminated. The bill is sponsored by the Environmental Health Coalition.
Chula Vista's adopted Legislative Program does not provide guidelines with respect to the
activities of the Department of Health Services. As a result, Council action is needed in order for
the City to take a position on this bill. In the interest of the health and well being of our
community, I believe it is this Council's duty to support Assemblymember Vargas' efforts to
protect our residents from the dangers of lead-contaminated foods.
I respectfully request the Council's support for this measure and would ask that a letter stating
that support be sent by this Council to Assemblyman Vargas.
Attachments:
Text of AB 2297 (Vargas)
. Assembly Floor Analysis of AB 2297
. Letter of Support from Environmental Health Coalition
. Article from Orange County Register (May 27,2004)
Qu1C L-.
Û. It -I
AMENDED IN ASSEMBLY MAY 20, 2004
AMENDED IN ASSEMBLY APRIL 1,2004
CALIFORNIA LEGISLATURE-2003-04 REGULAR SESSION
ASSEMBLY BILL
No. 2297
Introduced by Assembly Member Vargas
February 19,2004
An act to add a heading as Article 1 (commencing with Section
105275) to, and to add Article 2 (commencing with Section 105312) to,
Chapter 5 of Part 5 of Division 102 of the Health and Safety Code,
relating to imported candy.
LEGISLATIVE COUNSEI:S DIGEST
AB 2297, as amended, Vargas. Imported candy: lead
contamination.
Existing law, the Sherman Food, Drug, and Cosmetic Law, requires
the State Department of Health Services to regulate manufacture, sale,
labeling, and advertising activities related to food, drugs, devices, and
cosmetics in conformity with the federal Food, Drug, and Cosmetic
Act.
Under existing law, the State Department of Health Services is
responsible for administering the Childhood Lead Poisoning
Prevention Act of 1991. Existing law requires the department to
establish a childhood lead poisoning prevention program to identifY and
conduct medical followup of high-risk children, and to establish
procedures for environmental abatement and followup designed to
reduce the incidence of excessive childhood lead exposures. Existing
97
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AB 2297
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law requires the department to assess a fee for these purposes against
persons who contributed to sources of lead contamination.
This bill would amend the Childhood Lead Poisoning Prevention Act
of 1991 to require the department to, as a component of that program,
regulate lead in imported candy and use those fees, upon appropriation
by the Legislature, to regulate the lead content of imported candy. The
bill would require the department to test imported candy to determine
the presence of lead, to issue related health advisories, to order removal
of, and to embargo, imported candy found to contain lead. The bill
would require the department to adopt related regulations and to form
an interagency collaborative. The bill would authorize the department
to enter into contracts with county health officers and to provide grants
to environmental justice organizations.
By requiring enforcement of these provisions in part by county health
officials, this bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the state.
Statutory provisions establish procedures for making that
reimbursement, including the creation of a State Mandates Claims Fund
to pay the costs of mandates that do not exceed $1,000,000 statewide
and other procedures for claims whose statewide costs exceed
$1,000,000.
This bill would provide that, if the Commission on State Mandates
determines that the bill contains costs mandated by the state,
reimbursement for those costs shall be made pursuant to these statutory
provisions.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
The people of the State of California do enact asfollows:
I SECTION I. A heading is added as Article I (commencing
2 with Section 105275) to Chapter 5 of Part 5 of Division 102 of the
3 Health and Safety Code, to read:
4
5
6
7
8
9
10
Article I.
General
SEe. 2. Article 2 (commencing with Section 105312) is
added to Chapter 5 of Part 5 of Division 102 of the Health and
Safety Code, to read:
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AB 2297
1
2
3 105312. (a) The department, as a component of its other
4 regulatory duties pursuant to this chapter, shall have jurisdiction
5 over the regulation of imported candy to ensure that the candy is
6 lead free.
7 (b) For the purposes of this chapter, "candy" includes only
8 candy imported from a foreign country and its packaging or
9 wrapper.
10 (c) Funds deposited into the Childhood Lead Poisoning
II Prevention Fund established pursuant to Section 105310 shall,
12 upon appropriation by the Legislature, be available to the
13 department for the purposes of this article.
14 105313. The department shall do all of the following:
15 (a) Establish a lead content standard of zero, or the lowest
16 detection limit, for imported candy.
17 (b) Establish a collaborative as set forth in Section 105314.
18 (c) Require the testing of imported candy to detennine its lead
19 content. Priority shall be given to testing samples of imported
20 candy received by conununity-based organizations.
21 (d) Issue health advisories when candy has been found to
22 contain any detectible level of lead.
23 (e) Order local health officers to remove from-sel¥esshelves of
24 retailers, any candy found to contain lead.
25 (f) Order an embargo against a manufacturer of candy that is
26 found to contain lead, until the manufacturer demonstrates that the
27 lead contamination no longer exists.
28 (g) Promote enforcement of this article by making the
29 elimination of lead in imported candy a major goal of its
30 Childhood Lead Poisoning Prevention -Bftmeft-branch.
31 (h) Through its Childhood Lead Poisoning Prevention-Bftmeh
32 branch, enter into contracts with county health officers and county
33 environmental health officers to collect samples of imported
34 candy for submission to the Food and Drug-Bftmeh branch of the
35 department for testing pursuant to this article.
36 (i) Through its Food and Drug-Bftmeh branch, test the samples
37 of imported candy collected pursuant to this article.
38 U) Thi'éJtlgh its Chilàfteeti Lcati Peiseftiftg Pre, cfttieft Dl'!Iftefi,
39 ]Jre.itie P'lillts te eet..eeft 5 !tH.ti Ie eft.irellffieftta! jl1stiee
40 erganizatiefl3 tltreligl1etil the state te itiefttif} retail establi3hmeftt3
Article 2. Imported Candy
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AB 2297
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1 aaà impofleà ellftà) for e6taiaiag test sllH1f'les. Plff'Stioot te these
2 grants, the Ðrßflaizaliea shall eÐaàllet iaspeetieas ef retail
3 establishments Ie detefflliae the presoRoe ef impÐReà oandy al1à
4 shall repsr{ its fiaàiRg3 te the oellft~ healt.fi effieer f('lf the
5 oelleetisR aaà testing ef samples pllrsHant te this ehaptor, lIftà for
6 eRfereemeat aetiÐa3 if6alilleà oaRdy is feHl1à. The erganizatisa3
7 shall osl1àtlet a media eampaiga as a eeatralpaR sf Iheir pH61ie
8 eàtloatiÐa aaà eHtroaeh offeRs lIflàer this miele.
9 00-
10 (j) Through its Childhood Lead Poisoning Prevention-Bmfteft
II branch, draft, periodically update, and distribute a community
12 flyer that identifies all imported candy found to contain lead
13 pursuant to this article, for use by the department and by
14 environmental justice organizations to inform the public and to
15 educate retailers.
16 El}-
17 (k) Adopt regulations necessary for the enforcement of this
18 article. Evaluate the regulatory process, identify problems, and
19 report to the Legislature, as necessary.
20 105314. (a) The department shall establish an interagency
21 collaborative on the lead content of imported candy to be
22 composed of the following members:
23 (I) The department, including its Childhood Lead Poisoning
24 Bf'!ffieft branch and its Food and Drug-Bmfteft branch.
25 (2) County health officers.
26 (3) Environmental health organizations receiving grants
27 pursuant to this article.
28 (4) Health ministers of affected foreign governments.
29 (5) Mam1faotures Manufacturers of imported candy.
30 (6) Community-based organizations.
3 I (b) The department, in consultation with its partners in the
32 collaborative, shall do all of the following:
33 (I) Identify the reasons for, and problems associated with, lead
34 contamination of imported candy.
35 (2) Identify obstacles to the removal of lead from imported
36 candy, and develop strategies for overcoming the obstacles.
37 (3) Develop recommended feasible manufacturing process
38 shifts designed to result in lead-free candy.
39 SEe. 3. Notwithstanding Section 17610 of the Government
40 Code, if the Commission on State Mandates determines that this
97
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AB 2297
I act contains costs mandated by the state, reimbursement to local
2 agencies and school districts for those costs shall be made pursuant
3 to Part 7 (commencing with Section 17500) of Division 4 of Title
4 2 of the Government Code. If the statewide cost of the claim for
5 reimbursement does not exceed one million dollars ($1,000,000),
6 reimbursement shall be made from the State Mandates Claims
7 Fund.
0
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I
BILL ANALYSIS
AB 2297
ASSEMBLY THIRD READING
As Amended May 20, 2004
Majority vote
HEALTH
11-3
APPROPRIATIONS
16-3
-----------------------------------------------------------------
I Ayes: 1 Cohn, Chan, Dymally, 1 Ayes: I Chu, Berg, Calderon, 1
1 I Frommer, Koretz, Lieber, 1 1 Corbett, Correa, I
I IMontanez, Nakano, 1 1 Firebaugh, Goldberg, 1
I 1 Ridley-Thomas, Salinas, 1 1 Leno, Nation, Negrete 1
I I Wolk 1 I McLeod, Oropeza, Pavley, 1
1 1 1 1 Ridley-Thomas, Wesson, 1
I I I IWiggins,Yee I
1 1 I I 1
1-----+--------------------------+-----+--------------------------1
INays: 1 Dutton, Nakanishi, INays: 1 Runner, Haynes, Keene I
I 1 Plescia I 1 I
1 1 I I 1
-----------------------------------------------------------------
SUMMARY:
Expands the Childhood Lead Poisoning Prevention Act of 1991 (Act) to require
the Department of Health Services (DHS) to regulate the lead content of
imported candy. Specifically, this bill:
I) Requires the testing of imported candy to determine its lead
content. Establishes a lead content standard of zero, or
lowest detection limit for imported candy.
2)Requires DHS to have jurisdiction over the regulation of
ensuring imported candy is lead free and gives priority for
testing imported candy received by community-based
organizations.
3)Authorizes DHS to make available funds deposited into the
Childhood Lead Poisoning Prevention Fund for purposes
described in this bill.
4)Authorizes DHS to enter into contracts with county health
officers and county environmental officers to collect samples
of candy for testing.
5)Requires DHS to establish an interagency collaborative and
defines the composition of the collaborative.
6)States that "candy," for the purposes of this bill, includes
only candy imported from a foreign country and its packaging
or wrapper.
7)Authorizes DHS to issue health related advisories, order the
removal of, and to embargo candy found to contain lead.
! - 7
EXISTING LAW:
l)Prohibits, under the Sherman Food, Drug, and Cosmetic Law, the
sale of adulterated food, as defined.
2)Requires DHS to establish a childhood lead poisoning
prevention program to identify and conduct medical follow-up
of high-risk children and to establish procedures for
environmental abatement.
3)Requires DHS to assess a fee for these purposes against
persons who contributed to sources of lead contamination.
FISCAL EFFECT:
According to Assembly Appropriations Committee, special fund costs of
approximately $862,000 in 2004-05 and on-going annual cost of approximately
$1.3 million. (Childhood Lead Poisoning Prevention Fund.)
COMMENTS:
According to the author, the state's standard for an allowable lead level is
based on a recommendation from the Federal Food and Drug Administration
(FDA). The FDA recommended guidelines state that children under six years of
age should consume no more than 6.0 micrograms of lead each day from all food
sources. Lead poisoning from food is not currently under the jurisdiction of
the Childhood Lead Poisoning Prevention Program.
The author states that in June of 2002, DHS conducted a sample testing of
candy imported from Mexico and sold in California. These tests revealed some
of the candy contained higher levels of lead than FDA recommended guidelines
had deemed safe for a child to consume in one day. In August of 2002, a
report issued by the United States Centers for Disease Control and Prevention
identified a popular Mexican candy bar called Chaca Chaca as a possible
source of high lead levels in 150 children in cases reported to California
health officials between May 2001 and January 2002. In March of 2004, DHS
issued an alert warning the public of lead levels in Chaca Chaca. This candy
was found to contain three to four times the lead level recommended in the
FDA guidelines.
Lead poisoning is defined as an acute or chronic intoxication by lead.
Repeated exposure or consumption of lead can cause symptoms from stomach pain
and constipation to convulsions and coma. Lead poisoning can lead to the
damage of the nervous system and kidney failure. It has also been proven to
cause learning disabilities and behavioral disorders.
AB 256 (Vargas) was introduced in 2003, but the provisions dealing with lead
levels in imported candy were amended out of the bill.
Currently, DHS is neutral on this bill. DHS has the authority under the
Sherman Food, Drug, and Cosmetic Law to test candies under their Food and
Drug branch. DHS does test food, including candy, when complaints are
received from consumers and other state departments.
Supporters assert that this bill takes important steps to protect the public
from candy with unsafe levels of lead and that ingesting lead is especially
harmful to pregnant women and children.
The opposition contends that FDA is already addressing the issue of lead in
imported candy and that FDA has already sent out an advisory informing
/1- f
manufacturers, importers, and distributors of imported candy that FDA intends
to take actions to reduce further the potential exposure of children to lead
from candy products.
The Paint Council of California states they have no position on the proposal
for DHS to regulate the lead content in candy. They state that the Childhood
Lead Poisoning Prevention Program is funded by fees imposed mainly on paint
manufacturers and the petroleum industry, who should not be required to pay
for the program described in this bill.
Analysis Prepared by:
Patty Rodgers / HEALTH / (916) 319-2097
FN: 0005688
V-q
April 15, 2004
Assemblywoman Rebecca Cohn, Chair and Members of the Committee
California State Assembly
Committee on Health
State Capitol
Sacramento, CA 95814
RE: STRONGLY SUPPORT AB 2297: Protect Children from Candy Contaminated
with Lead
Dear Chairwoman Cohn and Committee Members:
Environmental Health Coalition (EHC) is a community-based social and environmental
justice organization dedicated to protecting human health and the environment from the
impacts of toxic chemicals. Our Campaign to Eliminate Childhood Lead Poisoning was
established to protect children from the dangers of lead in their environment. Although
the major source of childhood lead poisoning is lead-based paint and dust, some
candies imported and sold in California are contaminated with lead and present a
serious and substantial threat to children's health.
EHC strongly urges the committee to support AB 2297 to protect children by
ensuring that no candies that contain lead are sold in California.
Childhood lead exposure from candies is a preventable problem and AB 2297 will
provide clear authority to the Department of Health Services to test, ban, and remove
lead contaminated imported candies.
Community Efforts Exposed Lead in Candies
Over the years EHC has investigated many potential and known sources of lead
exposure. Concerned about the potential for lead contamination in candy, in 2001
EHC's community promotoras collected candies from a variety of local stores in San
Diego and sent them to Department of Health Services for testing. In July 2002, DHS
released test results showing two Mexican candies contained excessive levels of lead.
Chaca Chaca was found in three tests to contain three times the allowable lead levels,
and another candy, Tablarindo, was found to contain more than five times the allowable
level of lead. These candies were not removed from store shelves.
These candies present an unacceptable health risk to children, and should have been
removed from store shelves immediately. But almost a year after the DHS test results,
many of these poisonous candies are still readily available to children in our
communities. AB 2297 will ensure that DHS is authorized to act quickly in the
future.
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Existing Federal and State Authorities Do Not Adequately Regulate Lead in Candy
Environmental Health Coalition applauds the recent actions taken by the U.S. Food &
Drug Administration (FDA) and California Department of Health Services (DHS) to
remove lead-contaminated Chaca Chaca candy from stores shelves. Unfortunately,
FDA's authority is limited as they are not testing candies on a routine basis, only a small
percentage of the shipments are inspected and many trucks are not declared.
Additionally and contrary to some assertions, the Federal Bioterrorism Act does not
address the lead in candy problem as it was created to inspect products that are
suspected of being intentionallv tampered with or poisoned. FDA has not increased
their sampling of lead in candy and Mexico is not on the FDA's alert list. AB 2297 will
reqÜlarize the inspection. samplinq and removal of candies contaminated with
lead.
Lead poisoning is the number one environmental health threat to children under 6
years-old. It can cause damage to the central nervous system, resulting in reduced IQ,
learning disabilities, behavior problems, hyperactivity and increased aggression. But
childhood lead poisoning is also considered the most preventable environmental
disease among young children. Now is the time for health officials to move quickly
before these candies poison one more child. It's better to prevent than regret.
Sincerely,
Leticia Ayala
Director, Campaign to Eliminate Childhood Lead Poisoning
Environmental Health Coalition (EHC)
li~fI
Assembly OKs bill to eradicate lead from candy
http;llwww2.ocregister.com/ocrweb/ocr/printArticle. do ?id~96 93 5& s. . .
Thursday, May, 27, 2004
Assembly OKs bill to eradicate lead from candy
State Assembly passes bill that calls for more testing of lead candy, 71-2. Senate hears it next.
By JOHN GITTELSOHN and JENIFER B. McKIM
THE ORANGE COUNTY REGISTER
A bill that would combat the sale of imported candy contaminated with poisonous lead sailed through the state
Assembly on Wednesday.
The bill, introduced by Assemblyman Juan Vargas, D-San Diego, would increase testing, boost public education and
work with the candy makers and foreign officials to clean up the industry. It now heads to the Senate, where similar
legislation failed last year.
Vargas said he hoped the current bill, AS 2297, has better luck after increased awareness of the lead candy probiem
sparked by an Orange County Register investigation.
'We know that candies on the shelves right now in many stores are loaded with lead, and we allow them to be sold,"
said Vargas, whose bill passed on a 71-2 vote. "In fact, we allow unsuspecting parents to give them to their children
while thinking that they are giving them a nice treat when they're giving them polson."
John Campbell, R-Irvlne, who opposed the bill with Ray Haynes, R-Riverside, said he supported the goal of eliminating
lead but criticized the fact that funding for testing would mostly come from paint and gasoline companies that pay for
lead eradication. He also worried that the bill would enlarge government.
"it's already illegal. There's already enforcement," he said. "This is just setting up another bureaucracy."
The Register investigation showed how government regulators kept hundreds of high lead results in candy and
wrappers from the public. The vast majority of candies were from Mexico.
Several lawmakers said they changed their position after reading the Register series, including Assemblyman Robert
Pacheco, R-Walnut, who opposed last year's bill.
"If I had known a lot of the information at the time, I would have been concerned," said Pacheco, who earlier argued that
he'd eaten the candies all his life and was still alive. "I am not eating the stuff anymore. It is the old line, what you don't
know can't hurt you. Now, I know."
The bill would require the Department of Health Services to;
Test imported candy for lead. Establish a lead-content standard of zero or the lowest detection limit for candy.
Issue health advisories on candy with lead and remove the candy from store sheives or embargo its import.
Create an interagency group of state and county health officials, health ministers of foreign governments and
environmental health organiza- tions to deal with lead problems.
Draft and distribute a community flyer identifying imported, contaminated candy.
An analysis of the bill from the Assembiy Appropriations Committee estimates costs of $862,000 in the first year and
continuing costs of $1.3 million a year.
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5/27/20049:57 AM