HomeMy WebLinkAbout2000-02-15 Agenda Packet - Board TDPUD Staff Report
March 10, 2000
To: Board of Directors
From: Peter Holzmeister
Subject: Special LAFCo counsel _
Agenda #
The Board expressed some concern about the $5,000 deposit requested by LAFCo to process
our application for activation of latent telecommunication powers. The concern is that a deposit
suggests that the total bill could be higher and undefined. The board is concerned about giving
LAFCo an open checkbook.
I spoke to SR Jones about the concern. She said we could condition the deposit in the following
way:
a)When $2,500 is spent SR will notify us
b) If it appears that the service will exceed $5,000 SR will notify us
c) LAFCo will not spend more than $5,000 without receiving our approval
The estimate of cost amount came from the attorney she plans to employ, who said that to
perform the service requested would come to about $5,000.'The questions being posed to the
special counsel deal with telecommunication regulatory environment, such as the role of the
California PUC, the provisions of the Telecommunications Act, and how they impact as public
utility district.
RECOMMENDATION
I recommend that the Board authorize submitting the $5,000 deposit requested by LAFCo for
processing the application to activate latent telecommunications powers, subject to the following
conditions:
a) When $2,500 is spent LAFCo will notify us
b) If it appears that the service will exceed $5,000 LAFCo will notify us
c) LAFCo will not spend more than $5,000 without receiving our approval
RED L
Nevada County
Local LAFCo
Agency 950 Maidu Avenue
Formation Nevada City, CA 95959-8617
Phone 530 265 7180
Commission Toll Free 888 846 7180
Fax 530 265 7183
November 16, 1999
Don McCormack,Chair
Cities Peter Holzmeister, General Manager
Sam Dardick Truckee Donner Public Utility District
County POB 309
La=Duncan Truckee, CA 96160
Public
Bill Hollender Subject: TDPUD's Proposal to Provide Telecommunications Services
Cities
Elizabeth Martin Dear Peter:
Cmmry
Patricia Sutton Thank you for bringing Alan Harry and Bob Braitman down to meet last month
Special Dlrrricts to discuss the PUD's telecommunications proposal. The project is very exciting,
Ron Sweet and I'm looking forward to the opportunity to review it.
Special DRrtrtatJ
It is my understanding that you were going to present your draft business plan to
Bob Nix your board for their consideration. Have they approved the plan?
Special Districts
Alternate
Judith Peterson As we discussed,both LAFCo staff and counsel have very limited expertise in
Public Alternate this area. I have located an attorney who is willing to assist us with the review.
Sharon Tobiason FES name is Patrick McMahon, and he has extensive experience in the technical
Cities Alternate and regulatory aspects of telecommunications service. I know that he will prove
pear van rant helpful to both our agencies in this regard.
Cmnry Alternate
As you'll remember,I mentioned that I would be contacting you regarding the
SR Jones deposit toward fees that would be required. LAFCo's fees are based upon the
Ewcuttve°fttr actual time and materials required to process a proposal. The deposit should
P.Scott Browne cover a reasonable estimate of the necessary fees. Since we will need the
Legal counsel services of outside counsel,I am requiring a deposit of$5000. Naturally,
Katherine Hudson LAFCo will refund any unused portion of the deposit at the end of the process.
Clerk to the Commission
I look forward to working with the District staff on this matter, and we will begin
our review as soon as we receive the deposit.
Sincer ly,
R Jon , Executive Officer
Ne LAFCo
FEb-25-2000 11:47 PORTER S MON _J•o 57_0 _c
'_716 F,02i67
lN'E'MORAIND TM D=Februaiqv2-5, 20,0()
TO: Peter Flolzmeister, General MaFROM: Steve Gross, General Counsel
F:E: Operation and Accounting of Di
I Issues Presented
A. May profits (income in excess of expenses) from the operation of a
telecommunications utility/department be used to support the electric and water systems?
B. May one of the District's utilities lease excess capacity to another District utility?
II. Coriclusi n
A. As is discussed in greater detail below, the District's electric, water and
telecommunications (assuming that such a utility is created) utilities must be self-sustaining and
accurate books and records of the ownership,operation and cost of each utility must be maintained.
Therefore, as a practical matter,profits from one utility should not be'used to support the District's
other utilities. However, the Board has the authority and discretion to determine a fair
apportionment that each utility should contribute to pay for the common expenses of the District_
Additionally, the Board may appropriate funds from the operation of a utility into a reserve fund;
and,when certain conditions are met,it may appropriate excess reserve funds into the general fund.
The general fund may be used to pay for the salaries and expenses of the District common to all of
the District's utilities. This could have the overall effect of lowering the cost of the common
expenses of the District that would be chargeable to each of the utilities.
B. Although the Public Utilities District Act is silent on this precise issue,it appeazs that
one District utility may lease excess capacity to another District utility. While the District has the
authority to own or operate utilities, there is no express requirement that the District own facilities
or utilities that it operates. Additionally, the public Utilities District Act suggests that the District
should use its facilities,works or utilities to their fullest capacity for the benefit of the District or its
inhabitants before it uses surplus facilities to provide services outside the District's boundazi
District has historically enga es. The
ged in this practice in as much as the electric utility owns several assets,
0
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such as the office building and garage, that it leases in pan to the water utility and to the Town of
Truckee.
III. Law and Analvsis
A. May profits (income in excess of expenses) from the operation of a
telecommunications utility/department be used to support the electric and water
systems?
i. Operation of the District's Utilities
The Public Utility District Act, Public Utilities Code §15501, et seq., (the
"Act") states that the District may acquire and operate a number of different types of utilities,
including light, water, power, heat, transportation, telephone service, or other means of
communication,garbage disposal,sewage disposal,firefighting,street lighting,public parks,public
playgrounds,golf courses,public swimming pools,public recreation buildings,a drainage system,
curbs,gutters,sidewalks,and pavement of streets. The Act considers each of these to be a separate
"utility". Public Utilities Code §§ 16461, 16463. In addition, the District may do all things
necessary or convenient to the full exercise of the powers granted to it. Public Utilities Code §
1646 L
The Act requires that water,electric and telecommunications utilities be operated as revenue-
producing utilities,on a self-sustaining basis. Public Utilities Code §16467 provides:
Only revenue producing utilities shall be acquired,
owned, or operated by a district. So far as possible the
board shall fix such charges for commodities or service
furnished by any revenue producing utility as will pay all of
the expenses of the government of the district, or such
portion as the board determines justly apportionable to such
utility. The expenses to be paid include:
(a) Salaries, office expenses, and other necessary
disbursements.
(b) The operating expenses of the utility.
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(c) The interest on any indebtedness incurred for the
acquisition, construction, and completion of the
Utility.
(d) Provisions for a sinking or other appropriate fund for
the payment of the principal of such debt as it
becomes due.
(e) Provisions for an appropriate fund for repairs,
replacements, and betterments.
It is the intention of this section that a district pay all
of such charges and expenditures and the interest and
principal of its debt from the revenues derived by the district
from the operation of its public utilities,and that each public
utility owned and operated by a district shall be self-
sustaining. (Emphasis added.)
As §16467 indicates,the Board is directed to charge for a particular commodity or service
such amount as will pay for the expenses of the District or an amount "as the Board determines
justly apportionable to such utility" such that"each public utility owned and operated by a district
shall be self-sustaining." There is no further statutory guidance en`how that determination should
be made or on what factors it should be based. As long as the apportionment is fair and j ust it should
be lawful.
Public Utilities Code §16467.1 provides that some types of utilities do not have to be
operated on a self-sustaining basis. These include fire departments, street lighting systems,public
parks, public playgrounds, public swimming pools, public recreation buildings, building used for
a public purpose and works to provide for the drainage of roads, streets and public places.
2. Bookkeeping and Accounting Requirements for the District
Several sections of the Public Utility District Act set forth requirements for
the bookkeeping and accounting of the District's financial data. Specifically Public Utilities Code
§ 16601, provides that all "[R]eceipts from the operation of a public utility shall be paid daily into
the treasury of the district in a special fund set aside for such [individual] public utility." Of
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Particular note in this section is the Act's use of the term "special fund"rather than the term"general
fund."
Additionally, Public Utilities Code § I6602 provides:
The board may from time to time make
appropriations from individual public utility funds for the
following purposes:
(a) The payment of operating expenses of the public
utility and all or such portion of the general salary
and expense fund of the district as the board
determines is justly apportionable thereto.
(b) Repairs and reconstruction.
(c) Payment of interest and sinking fund on the bonds or
indebtedness incurred or assumed for acquisition,
construction, or completion of the public utility.
(d) Extensions and improvements.
(e) A reserve fund.
Public Utilities Code § 16603 provides: -"
Whenever a reserve fund exceeds one-half of the
payment for operating expenses in the preceding fiscal year,
the board may appropriate such excess to the general fund.
Public Utilities Code§ 16604,which describes the requirements for the contents ofthe books
of account,provides:
The books of account of the district shall show all of
the following:
(a) The true and complete financial results of the
ownership and operation of each public utility.
(b) The aetuaI cost of each public utility.
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(c) All costs of maintenance, extension, and
improvement, and all operating expenses of every
description.
While the Act allows the Board to make appropriations from individual public utility funds
for a reserve fund,and for the Board to appropriate such reserve funds to a general fund when such
reserve fund exceeds one-half of the payment for operating expenses in the preceding fiscal year
(Public Utilities Code§§ 16602, 16603),the terms"reserve fund"and"general fund"are not defined
with precision in the Act. The lack of clarity in defining of these terms,together with the use of the
term "special fund" creates ambiguity and difficulty in interpreting these statutes.
The term "reserve fund" as used in § 16602 is not defined as either a reserve fund for the
particular utility or for the District. However, since the amount of the reserve fund can be limited
based on the operating expenses for the previous year, it appears that the intent of the statute is to
provide for the creation of a reserve fund for the particular utility(s). Although if the Board wanted
to create a general reserve fund for the District,it does not appear that it is prohibited from doing so.
Similarly,the term"general fund" as used in§ 16603 is not defined as either a general fund
for the particular utility or the for the District. However,the term"general salary and expense fund
of the district" is referred to in § 16602(a). This suggests that theDistrict may establish a general
fund for the District as a whole. The purpose of the monies in that fund would be to pay for the
salaries and expenses of the District. Each utility would contribute to that fund an amount that is
fairly apportioned to it by the Board.
This interpretation is strengthened because§ 16603 uses the term"general fund"ratherthan
"special fund",as is used in§ 16601. If,the legislature had intended to authorize the Board to return
excess reserve funds to the "special fund" for the particular utility from which it was originally
generated,as opposed to the"general fund',then it would have used the term"special fund"and not
"general fund." Thus,there appears to bean intent to allow for the creation of a general fund for
the entire District.
B. May one of the District's utilities lease excess capacity to another District utility?
As is stated in Public Utilities Code §§ 16461 and 16463, the District may acquire,
construct,own,operate,control or use works for utilities and do all things necessary or convenient
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to the full exercise of its powers. Additionally, pursuant to § 16467, the District is required, with
some exceptions, to only acquire, ow-n or operate revenue producing utilities. There is no
requirement set forth in these sections,or other portions ofthe public Utilities Code,that the District
own all of the facilities that it is authorized to operate or control. Similarly, there is no express
prohibition against the District,or a utility of the District, leasing utility works from a third party or
from another utility of the District. As tong as the utility is self-sustaining,the law does not dictate
to the District how to structure its business or utilities.
Section 16474 authorizes the District to use facilities, works or utilities to supply services
beyond the boundaries of the District when those facilities, works or utilities are not used to their
fullest capacity for the benefit of the District or its inhabitants. Although this section does not
expressly authorize the District,or one of its utilities,to lease excess capacity,it does envision and
suggest that the District should attempt to utilize its facilities, works and utilities to their fullest
capacity for the benefit of the District and its inhabitants. Given the District's authority to do all
things necessary or convenient to the full exercise of the powers granted to it, it is logical for one
District utility to be able to lease unused facilities to another District utility.
As a practical matter,the District has engaged in this practice of leasing facilities from one
utility to another utility for a number of years. The electric utility owns the District's office building
and garage, as well as a variety of other assets, and leases a portion of the facility and other assets
to the water utility. In addition,the District/electric utility leases the excess capacity of the facility
that is not used by the District to the Town of Truckee. These practices are consistent with the
powers and authorities granted to the District.
In the same way that the District's electric utility constructed the office building and garage
and overbuilt the facility so as to be able to accommodate and lease space to the water utility, the
electric and water utilities could decide to construct a fiber optic cable system to serve their needs
and overbuild the facilities so that there is excess capacity to lease to the telecommunications utility.
The economies of scale involved in structuring the project in this manner may make overwhelming
financial sense.
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