Eldorado Area Water and Sanitation District

UTILITY TAKEOVER

Background
On August 20, 2002 the citizens of the Eldorado area voted overwhelmingly in favor of a resolution authorizing the Eldorado Area Water & Sanitation District to issue 
general obligation bonds to fund the purchase of the water utility serving the Eldorado community. Now, over a year later, no bonds have been issued and the utility is 
still in the hands of El Dorado Utilities, Inc. Why?

Condemnation - Research and Public Presentations
The rationale behind the condemnation considerations, and the probable costs to the taxpayer, were presented to the community during a public meeting on March 18
at the Eldorado Elementary School.

Condemnation - Court Actions 
See more detail below. 

Court of Appeals Ruling
Entered on 2/24/05 (same text as in the news item of this date) 

General Bond Election - Bond Election - Process and Results
If the process of condemnation is to move ahead, one of the first actions will be to arrange for an official election on General Obligation indebtedness.
     
Financing efforts
A major source of funds required for condemnation is the New Mexico Finance      Authority (NMFA). The Board is currently providing data to NMFA to try to establish
bonding capacity for the project.
   
Appraisal of Water Company
The District's appraisal of El Dorado Utilities by Barrett Appraisers has now been completed. The result is an appraised value of $6.2M. The District's attorneys will now 
contact AMREP, the owner of EDU, to attempt to negotiate a direct sale of EDU to the District, thereby avoiding condemnation.
   
Lawsuits 
Two lawsuits have been filed against the Eldorado Area Water and Sanitation District in an effort to prevent the District's acquisition of the water utility.
     
Preparation for Operations and Management
Southwest Water Consultants, Inc., has prepared a draft RFP to send to prospective bidders on/about October 15.  The plan is to have a Systems Operator under contract 
by December 31.

PRC Control

---

Background

ELDORADO AREA WATER & SANITATION DISTRICT GENERAL OBLIGATION BOND ISSUE AND ACQUISITION OF THE ELDORADO WATER UTILITY

AUGUST, 2002 - OCTOBER, 2003

On August 20, 2002 the citizens of the Eldorado area voted overwhelmingly in favor of a resolution authorizing the Eldorado Area Water & Sanitation District to issue general obligation bonds to fund the purchase of the water utility serving the Eldorado community. Now, over a year later, no bonds have been issued and the utility is still in the hands of El Dorado Utilities, Inc. Why?

Basically, the answer to this question is quite simple: Parties who oppose the District's efforts to acquire the water utility have brought two lawsuits against the District. Merely by filing their suits, they have made it impossible for the District to issue its bonds without imposing an unreasonable tax burden on the community, which the District will not do. The District is moving forward as quickly as possible, but the court proceedings are likely to continue for several more months. The District expects to issue the bonds promptly once the lawsuits are resolved, and proceed with acquisition of the water utility immediately thereafter. Since it appears that the present owner is unwilling to sell the utility to the District voluntarily, the District will be forced to file a condemnation action. The District cannot acquire the utility through condemnation, however, until it has funds available to compensate the present owner.

The following paragraphs describe the status of the legal proceedings in the various cases relating to the Eldorado water utility, as of mid-October 2003.The District has been keeping a running record of events on its web site, www.eldoradowaterdistrict.com. To improve the readibility of the web site the District has arranged for a web site re-design which should be completed early in November.

Lawsuit Brought by Alto Eldorado, Ltd. and Other Parties:

In September 2002, only a month after the bond election, the owners of certain undeveloped lands in the Eldorado area brought suit against the District, claiming that the District lacks authority to condemn the water utility and that their economic interests will be harmed if the District acquires the utility. These landowners want to subdivide and develop their lands, and assert that they have a right to water service from the utility as long as it is privately owned (regardless of whether there is sufficient water available to serve them). They are concerned that the District will not supply them with water if there is not sufficient water available. Many of the same landowners are involved in a separate lawsuit against the present utility owner, El Dorado Utilities, Inc., in which they seek a court order requiring water service to their lands. That case was originally filed in 1997, in Sandoval County, and has not yet been resolved.

The suit against the District was heard by Judge Eugenio Mathis in Las Vegas, because the plaintiffs excused all seven judges of the District Court for Santa Fe County. In February 2003, Judge Mathis dismissed the suit, ruling in favor of the District on all points. However, the plaintiffs appealed his decision to the New Mexico Court of Appeals. Briefing in the Court of Appeals has been completed, but that Court has not yet rendered a decision.

Lawsuit Brought by El Dorado Utilities, Inc. and Other Parties:

In February 2003, the present owner of the water utility, along with Utilities, Inc. (the Netherlands-based company that wishes to buy it) and five individual residents of Eldorado, filed another lawsuit against the District. The plaintiffs in this suit originally claimed that the bond election was invalid, that the District lacks power to issue the bonds, that the District lacks authority to condemn the water utility, that the District's Board violated the utility companies' constitutional rights by discussing possible acquisition of the utility at meetings to which they were not specifically invited, and that the District owes them damages because of the District's participation as a party in Case No. 3707 before the Public Regulation Commission (discussed below). The plaintiffs later dropped their constitutional claims, and in May 2003 Judge James A. Hall ruled that all of their other claims should be dismissed. By filing a motion asking Judge Hall to reconsider his decision, the plaintiffs further delayed the proceedings, so that Judge Hall's order of dismissal was not entered until July 3.

This case also was appealed. The proceedings in the Court of Appeals could take several months or longer, and there is the possibility that the case could then be further appealed to the New Mexico Supreme Court. In an effort to expedite the proceedings on appeal, the District's counsel has asked the Court of Appeals to certify both of the pending cases to the Supreme Court for a decision by that Court. The Court of Appeals has now (10/17) refused the District’s request.

Why the Pending Lawsuits Have Delayed the District's Funding:

The District originally anticipated that its general obligation bonds would be funded through the New Mexico Finance Authority (NMFA). The project received final approval from NMFA's Board of Directors in September 2002, subject to a few conditions (such as an appraisal of the utility) which have now been completed. However, the NMFA is prohibited by statute from purchasing the District's bonds as long as there is pending litigation challenging their validity, and the El Dorado Utilities lawsuit does challenge their validity. Therefore, simply by filing their suit (regardless of whether it has any merit), the El Dorado Utilities plaintiffs have delayed the District's funding. Also, since the District was unable to proceed with the project within six months after the NMFA Board's approval, any funding through NMFA will now require that the District re-apply and go through the entire application and approval process again, after the litigation has been completely resolved.

The District has retained an investment banker and bond counsel to look into the possibility of selling its bonds directly, rather than through NMFA. However, the national bond market effectively imposes conditions that, in the view of the District and its counsel, make it imprudent to issue the bonds immediately. For the District to sell the bonds at a reasonable rate of interest, the bonds must have an investment-grade rating and they must be insured. It appears that the bonds might receive an investment-grade rating, even under present conditions. However, the various bond insurers who have been invited to participate in the offering are not willing to insure the bonds at present, unless the District agrees to hold the bond proceeds in escrow until the litigation against the District is resolved. That would mean that, until the appeals in the El Dorado Utilities suit are exhausted, the District would be paying some $30,000 to $40,000 in interest monthly on the money held in escrow, while earning at most some $5,000 to $10,000 monthly. While the District could impose taxes sufficient to cover this "negative arbitrage" for a period of several months, the District's Board is not willing to impose such a burden on the community merely to have the funds sitting idle until a condemnation action can be filed.

Under these circumstances, the District's Board has determined that the best course of action is to be prepared to issue its bonds promptly when the El Dorado Utilities litigation is resolved, but not to issue them before that time. That is the course the District is now pursuing.

Status of Public Regulation Commission Case No. 3707:

In December 2001, El Dorado Utilities, Inc. and Utilities, Inc. filed a joint application (PRC utility case No. 3707) seeking PRC approval for sale of the Eldorado water utility to Utilities, Inc. (Since the application was filed, Utilities, Inc. has been purchased by n.v. Nuon, a utility holding company based in the Netherlands. Utilities, Inc. now operates as a wholly-owned subsidiary of n.v. Nuon.) After a hearing in December 2002, the PRC's hearing examiner recommended that the District should be given an opportunity to acquire the utility, but that if the District was unable to acquire it, the sale to Utilities, Inc. should be approved. The District then pointed out to the PRC that the only reason the District could not proceed to acquire the utility immediately was that the applicants in the PRC proceeding had disrupted the District's funding by filing their case against the District in the courts.

Given this state of affairs, the PRC voted to hold the proceedings in Case No. 3707 in abeyance until 60 days after the lawsuits brought against the District have been resolved. The applicants in the PRC case sought a writ of mandamus from the New Mexico Supreme Court, asking that the Court order the PRC to rule on their application immediately. The Supreme Court denied the petition for a writ of mandamus, so the PRC's order holding Case No. 3707 in abeyance remains in effect. This means that, once the suits presently before the Court of Appeals have been resolved, the District will have at least 60 days in which to issue its bonds, sell them, and file a condemnation action, with compensation to the present utility owner to be paid from the bond proceeds. If the District does not proceed within that time, the PRC may approve the sale of the utility to Utilities, Inc.

Summary:

In summary, El Dorado Utilities, Inc. and Utilities, Inc. (n.v. Nuon) have delayed the District's funding and acquisition of the water utility by filing suit against the District. In response, the PRC (at the District's request) has leveled the playing field by delaying any action on approval (or denial) of the utility's sale to Utilities, Inc. until the lawsuits are resolved. Decision of the issues presented in the lawsuits brought against the District, and the timetable under which those decisions will be made, will be determined by the New Mexico Court of Appeals and the time required may well extend into the spring of 2004.

An aspect of the current legal battles with Utilities, Inc., (UI) that needs to be recognized is that they are incurring very heavy legal costs. Three different law firms have been assigned by UI to fight the District, and the expectation is that if UI acquires the water system these legal expenses will be applied to the rate base and water customers will have to pay for UI’s extravagance. The district’s legal expenses, while significant, do not compare with those of UI. (ADDED 11/5/03)

CONDEMNATION - Research and Public presentations

The rationale behind the condemnation considerations, and the probable costs to the taxpayer, were presented to the community during a public meeting on March 18 at the Eldorado Elementary School. Southwest Water Consultants, Inc. (Phil Soice), under contract to the District, had developed a financial analysis and the essence of this study was presented. A copy of the report may be had by emailing your request to Ray Nichols.

The meeting was attended by approximately 200 people, with a question & answer session lasting about an hour and a half. The results of the questionnaire will determine whether the District goes forward with comdemnation proceeding (exercise the right of eminent domain) or not. Questionnaires were collected and counted by RoseMarie Bagioni, co-Chairperson of the US 285 Coalition, assisted by the Santa Fe League of Women Voters, to assure impartiality and accuracy.

To help residents understand the material in the package two public meetings were set up, one on Friday, April 19, and the second on Tuesday, April 23. The meetings were held in the RR Station at the Eldorado Community Center. Attendance at both the April 19th and April 23rd meetings was between 40 and 50 persons and the general sentiment in those meetings was similar to that of the March 18 meeting - that local ownership is the preferred way to go.

The tally of questionnaire cards on the issue of condemnation is 529 for, 400 against, and 13 invalid cards. The Board held a special meeting on Wednesday, May 29, to officially accept the results, and voted to proceed with condemnation. Time was allocated during the meeting to allow a presentation by Mr. Steve Lubertozzi, Director of Utilities, Inc., for Regulatory Matters. Mr lubertozzi and the UI attorney, Mr. Jeff Allbright, fielded questions from the audience (about 45-50 people)for about 45 minutes.
Utilities, Inc., held a public meeting at the Elementary School on July 16. The notice was posted on this web site in response to UI's request.

CONDEMNATION - Bond Election - Process and Results

If the process of condemnation is to move ahead, one of the first actions will be to arrange for an official election on General Obligation indebtedness. The District will, in the next few weeks, arrange to provide as much detailed information as may be useful for District property owners to make an informed decision. Flyers are in the process of being handed out over the time period of July 26-31. A public meeting sponsored by the Water and Sanitation District to respond to questions from the public was held at the El Dorado Elementary School on August 12 from 7-9 p.m. (added 7/29)(changed 8/19)

The General Obligation Debt Election for the Eldorado Area Water & Sanitation District has had to be re- scheduled from July 30 to later in the summer. The County Clerk has asked the County Attorney to review the election procedure for Water & Sanitation Districts before proceding. As of Monday, June 24, the County Clerk has agreed to Tuesday, August 20, as the date to hold the election in Eldorado. The District Board is scheduled to hold a special meeting on Wednesday, June 26, at 7 pm in the Community Center to approve the General Obligation Bond Debt Election resolution and the Voter Eligibility resolution. (added 6/25)

A number of arrangements are necessary to complete plans for the election. Working with the County Clerk and the Santa Fe Public Schools, the plan is for the election to be held at the El Dorado Elementary School on August 20, from 7 am to 7 pm in the gymnasium. Absentee voting should start on or about July 10. The County Clerk is expected to make facilities available at the County Administration Building at 102 Grant Street.

On July 1 the County Clerk decided that the District should run its own election. As a result the District is making arrangements to provide for absentee voting at the ECIA office at the Community Center starting on July 11 and running through August 16. Because of the change in arrangements new resolutions are required and will be introduced at a special District Board meeting at the District office at 7 pm on July 3rd.

Absentee voting will take place from 8:00 a.m. on July 11, 2002, until 5:00 p.m. on August 16, 2002, from Monday through Friday during regular office hours, in the offices of the Eldorado Community Improvement Association, 1 Hacienda Loop, El Dorado. Any voter who will not be present to vote on August 20, 2002, may vote by absentee ballot during the dates and hours indicated. (added 7/7/02) As of the close of business and the end of the absentee voting, 270 voters had cast their ballots. (added 8/19)

On Wednesday, June 26, the District Board approved a resolution authorizing the election, a resolution defining voter eligibility, and a legal notice that will appear in the newspapers, in particular the Santa Fe New Mexican, officially announcing the election. A set of questions and answers is being prepared and will be distributed to all residents of the District around the end of July. A week or so later a public meeting will be held to respond to questions. If the result of the election is approval of the bond debt the District will hold a public meeting on the budget developed to support the startup of the utility ownership, probably on August 26.(added June 30) In order to meet the budget schedule established by DF&A the budget hearing on the Utility Ownership Fund was held on August 14. If the bond issue carries in the 8/20 election the budget will be submitted to DF&A on/about 8/26. (added 8/19)

RESULTS OF THE BOND ELECTION ON AUGUST 20:

971 votes in favor
447 votes opposed
Total 1418 votes cast, including 266 absentee votes

8/21/02:THE GENERAL OBLIGATION BOND IS APPROVED

The budget for startup funds,approximately $539,000, was submitted to DF&A and subsequently approved. The property tax bills mailed in early November reflect these startup costs. (Added 11/10)

At the November monthly meeting on November 13 a number of questions were raised concerning the increase in property taxes. County Tax Assessor Benito Martinez and County Treasurer Phil Trujillo were on hand to answer questions about how the County system works, and District Board members answered questions on the purpose of the taxes. A Q&A piece is planned for the Eldorado Supplement of the New Mexican for November 20, 2002 so that more of the community will understand the tax situation.

The Q&A piece that is expected to appear in the Santa Fe New Mexican is shown here.

FINANCING EFFORTS

A major source of funds required for condemnation is the New Mexico Finance Authority (NMFA). The Board is currently providing data to NMFA to try to establish bonding capacity for the project. However, it is likely that the funds required would exceed those available from NMFA and the difference would have to be made up from additional property taxes approved by the taxpayers of the District. A special election will ask voters to approve a 20-year general obligation indebtedness as well as the additional property taxes. The debt would be repaid mostly through revenue realized from the sale of water. (changed 6/3/02)

Additionally, the New Mexico Finance Authority, which is the potential financing agent for any acquistion of the water utility, has asked for more time to research that aspect out before our proceeding. As a result, the election will not be until later in the Summer. Advance notices of the revised election date will be issued when known.

The new legal notice which has appeared in the Santa Fe New Mexican as "Legal Notice for the election of August 20,2002"

Since the election the Board has been busy with Southwest Water Consultants to start the process of finding a systems operator, with contracting with Barrett Appraisers for an appraisal of the water utility, (added 10/13) with the New Mexico Finance Authority to complete arrangements for financing, and with our attorneys to be sure we meet all legal requirements. (added 9/1/02) The application to the New Mexico Finance Authority for the funding approved in the bond election, was approved by resolution on September 11 and the application was officially submitted on September 16. (added 9/16/02) On September 26 the NMFA Board of Directors approved the District's loan application. Details relating to acquisition of the loan will be worked out in the near future. (added 10/1/02)
-On January 31 the District Board will hold a special meeting to approve a resolution "Authorizing the issuance and sale of the Eldorado Area Water and Sanitation District, Santa Fe County, New Mexico, General Obligation Utility Acquisition and Improvement Bonds, Series 2003, in the aggregate principle amount of $7,839,316 (the 'Series 2003 Bonds') to the New Mexico Finance Authority to provide funds to defray the cost of acquiring, improving and equipping a water utility system; providing that the series 2003 Bonds shall be payable from ad velorum taxes levied on all taxable property within the District; providing for the form, terms and conditions of the Series 2003 bonds, the manner of their execution, and the method of, and security for, payment; providing for other details concerning the series 2003 bonds."
- The resolution authorizing the issuance and sale of general obligation bonds by the District took place on Friday, January 31.
- An amendment to the resolution passed on January 31 is required to restructure the issuance of bonds to encompass the required 20 years or less since the 1/31 resolution covered something more than 20 years. A special Board meeting and public hearing is scheduled for Friday, March 28.
- The amended resolution was approved on March 28.
- As the time for closing on the NMFA loan, approved by NMFA on September 26, 2002, approaches, the attorneys for Utilities Inc. have sent a letter to each NMFA Board Member to try to convince the Board to deny the District the funds it needs to purchase the water system. The attorneys for the District are in the process of responding to the Utilities Inc. attempt to derail the District's purchase. Significant portions of the Utilities Inc. letter are blatantly false and will be exposed as such. (added 6/1/03)
- The NMFA Board of Directors will meet in executive session on Thursday, June 26, to discuss the loan to the District, in light of the materials provided by Utilities, Inc., and the responses by the District.
- The NMFA discussions were held in executive session and the results of the discussions were not revealed when the Board returned to the open meeting. (added 6/29/03)
- Since the NMFA Board of Directors seems hesitant to follow through on the loan to the District, the District has taken out an ad in the Santa Fe New Mexican (7/4) requesting interested persons to ask the Governor to intervene. (added 7/7/03)

(added 12/26/03)

Eldorado Area Water and Sanitation District
Notice of Meeting and Public Hearing Concerning
Amendment of Resolution Authorizing the Issuance of
General Obligation Bonds
The Eldorado Area Water and Sanitation District, Santa Fe County, New Mexico hereby gives notice that at its regular meeting to be held on January 14, 2004, at the hour of 7:00 p.m. at the Eldorado Community Center, 1 Hacienda Loop, Santa Fe, New Mexico, the District will hold a public hearing on and consider the adoption of a proposed resolution amending Resolution No. 03-01-03, as previously amended by Resolution No. 03-03-04, regarding the issuance and sale of general obligation bonds for the purpose of financing the acquisition, equipping and improvement of a water supply system. A complete copy of the proposed resolution is available for inspection during normal business hours at the Eldorado Community Improvement Association, 1 Hacienda Loop, Santa Fe, New Mexico.

The title of the proposed resolution is:

A RESOLUTION AMENDING RESOLUTION NO. 03-01-03, AS PREVIOUSLY AMENDED BY RESOLUTION NO. 03-03-04, AUTHORIZING THE ISSUANCE OF THE ELDORADO AREA WATER AND SANITATION DISTRICT GENERAL OBLIGATION UTILITY ACQUISITION AND IMPROVEMENT BONDS (THE “BONDS”), AMENDING THE SERIES DATE THEREOF TO 2004; PROVIDING THAT THE AGGREGATE PRINCIPLE AMOUNT OF THE BONDS SHALL NOT EXCEED $7,895,000; PROVIDING THAT THE BONDS SHALL HAVE A FINAL MATURITY DATE OF FEBRUARY 1, 2023; PROVIDING FOR A SINKING FUND; APPROVING A REVISED SCHEDULE OF THE PRINCIPLE AMOUNTS AND MANDATORY REDEMPTION DATES FOR THE BONDS; AUTHORIZING A PUBLIC SALE OF THE BONDS; RATIFYING ACTIONS PREVIOUSLY TAKEN NOT INCONSISTENT WITH THE PROVISIONS OF THIS RESOLUTION; AND REPEALING INCONSISTENT ACTIONS.

This notice is published pursuant to Section 4-54-3(B), NMSA 1978

The above proposed resolution was approved on January 14, 2004

The District has arranged for the sale of general obligation bonds in the amount of $7,895,000 for the purpose of paying the cost of acquiring and improving the water utility serving the greater Eldorado community. Bids will be received on January 21, 2004, and will be considered and acted upon by the District Board on the 21st or within three days thereafter. Terms and conditions of the sale are included in the Preliminary Official Statement for the Bonds, copies of which may be obtained from the District's bond counsel, Coppler & Mannick at (505) 988-5656. Closing of the sale is planned for January 27. Filing for condemnation is expected to occur within a few days of closing. (added 1/6/04)

On Wednesday, January 21, a bid was received from Piper Jaffray for the purchase of the general obligation bonds issued by the District for the acquisition and improvement of the water utility. There is much paper work required to prepare for the closing of the sale, scheduled for Tuesday, January 27. Following the closing a press release will be generated which will be posted to this web site. The interest rate on the bonds is 6%, the highest allowable by state statute, and considerably higher than the 4.5% approved by the New Mexico Finance Authority (NMFA). However, NMFA was not able to follow through because of the litigation brought against the District by the local developers and the two utilities (EDU and UI). The District has asked the courts to require the utilities to post a bond to compensate the District for the higher costs. The case will be heard in Judge Hall's courtroom on February 5.

The District Board of Directors met at their attorney's office on January 27. The purpose of the meeting was for the members of the Board of Directors, being also the administrative officers of the District, to complete all administrative actions necessary for the issuance and sale of the District's Utility Acquisition and Improvement Bonds, Series 2004, in the amount of $7,895,000. As of approximately 10 AM the District's bonds were sold and the proceeds of the sale, $7,895,000, were deposited to the District's account. Now that funds are in hand the District will move on to the next step, which is the acquisition of the water utility. This could be by direct sale if AMREP is willing to negotiate, or by condemnation if they are not. (added 1/27/04)

Condemnation - Court Actions

The District's petition for condemnation of the El Dorado water system is scheduled to be heard by Judge James Hall on March 9 at 8:30 AM. Judge Hall's courtroom is in the Judicial Complex in Santa Fe. If the judge concurs the District will ask for an order of permanent entry which, if signed, would permit the District to take over the water system. The petition for condemnation and associated documents were filed in the First Judicial District Court at 2:00 p.m.on March 10, 2004.

The attempt by the group of developers to intervene in the District's motion to condemn the water utility was dismissed by Judge Hall on April 7 and on April 8 the District's attorney, John Appel, requested a date on the Judge's calendar for a half day hearing on the motion to condemn. (added 4/13/04)

Judge Hall has scheduled the District's motion for condemnation of the El Dorado Utilities water system for Wednesday, May 12, from 10 AM until 5 PM in the Judge's courtroom. (added 4/21/04)

Witness testimony and cross examination continued until 5:15 pm on May 12 and the hearing had to be continued until the following Tuesday morning (May 18). The hearing was concluded at about 11:30 on May 18 with Judge Hall ruling that the District should not take over the utility immediately but should wait until a jury determines the value of the water system. His ruling was based on the premise that if the District took over the system and then could not afford to pay what the jury decides it is worth, then the District would have to return the system to EDU, a process that would be too disruptive. However, the judge recognized that time is of the essence to the District therefore he has given this particular jury trial top priority and has scheduled it for September of this year. If the results of the trial are favorable to the District the takeover would occur on or about October 1. The District Board had expected the jury trial to take place over the course of the next 1 1/2 to 2 years so expediting the process should be beneficial. (added 5/21/04)

Both sides in the condemnation proceedings have identified witnesses who expect to be called to testify at trial. The start date of the trial is officially Septmber 7 with jury selection. Actual testimony is not expected until September 13. It is possible that the 13th date will slip to the 16th but that will not be known until sometime on the 7th.

Judge Hall has scheduled the trial to begin on Monday, September 13 at 9 AM. The trial will continue through Thursday, September 16, then continue on Monday, Sept. 20 through Thursday, Sept. 23. Residents of the Eldorado area are encouraged to attend. Judge Hall's courtroom is in the Herrera Judicial complex at 100 Catron Street which is near the Main Post Office. A list of witnesses scheduled to appear is shown below.

Witnesses for the District are as follows:
Jerry B. Paz - Molzen-Corbin
Edward R. Street - REDW
Jack Frost - Office of the State Engineer
Bill Campbell - California Water Service Co.
Eluid Martinez - Water Resource Management   
Ray Nichols - Eldorado Area Water & Sanitation District
V. Phillip Soice - Southwest Water Consultants

Witnesses for El Dorado Utilities are as follows: 
Jeff Albright
Larry Brooks
James Corbin
Stacy Crossingham
John Davido
Don Dayton
Tim Decker
Raymond Dennis
John Guastella
Gerald Hartmen
Guy Monroe
Ray Nichols
Robert Reilly   

The trial ended on Wednesday, September 22, 2004, with the jury verdict assessing the payment required of the District for the system at something more than $11M. The District Board met with their attorneys on September 24 to discuss the implications of the jury verdict. A special Board meeting has been called for Thursday in the ECIA Conference Room (10 AM) to make decisions on what actions the Board plans to take.

On Thursday, September 30, 2004, the Board approved the following resolution relating to moving forward to acquire the water utility:

ELDORADO AREA WATER & SANITATION DISTRICT

RESOLUTION NO. _________________

A RESOLUTION TO CONTINUE THE ELDORADO AREA WATER & SANITATION DISTRICT’S EFFORTS TO ACQUIRE THE ELDORADO WATER UTILITY, AUTHORIZING THE DISTRICT’S ATTORNEYS TO APPEAL THE AMOUNT OF THE JUST COMPENSATION AWARDED BY THE JURY IN THE DISTRICT’S CONDEMNATION PROCEEDINGS AND TAKE SUCH OTHER LEGAL ACTIONS AS THEY DEEM APPROPRIATE, AND STATING THE INTENTION OF THE BOARD OF DIRECTORS TO SEEK ADDITIONAL FUNDING IN AN AMOUNT SUFFICIENT TO ACQUIRE THE WATER UTILITY.

WHEREAS, the Eldorado Area Water & Sanitation District (the “District”) was created in 1997 with the specific purpose, among others, of acquiring the water utility serving the Eldorado area (the “Utility”) and operating it for the public benefit; and

WHEREAS, during 2002 the District organized public meetings and issued mailings and public statements advising Eldorado residents and other interested parties that the cost of acquiring and improving the Utility could possibly be as much as about $13,000,000, of which about $7,900,000 could be raised by general obligation bonds and the remainder by other means, including but not necessarily limited to revenue bonds supported by the revenues of the Utility; and

WHEREAS, on August 20, 2002, the qualified registered electors of the District authorized the issuance of up to $7,900,000 in general obligation bonds for the purpose of acquiring and improving the Utility; and

WHEREAS, the general obligation bonds were issued in January 2004 and, after costs of issuance and other expenses associated with the bonds, including payments on debt service during 2004, there remains in the District’s treasury slightly over $7,000,000 for Utility acquisition; and

WHEREAS, the District’s appraiser in 2002 determined that, in his view, the fair market value of the Utility was approximately $6,200,000; and

WHEREAS, during the period from September 2001 through December 2003 there was an agreement outstanding for the sale of the Utility to a privately owned utility corporation for a price of approximately $6,300,000; and

WHEREAS, the District’s efforts to acquire the Utility through a negotiated agreement with its present owners, at the anticipated purchase price of approximately $6,300,000, were unsuccessful; and

WHEREAS, the District filed an action for condemnation of the Utility on February 10, 2004; and

WHEREAS, on September 22, 2004, the jury empanelled to determine just compensation in the condemnation action determined that the fair market value of the Utility, in their view, is $11,047,128, which is 75% greater than the actual value for which the Utility was offered for sale on the open market; and

WHEREAS, the District’s Board has been informed that abandonment of the condemnation action at this time would mean that the District will not acquire the Utility and could result in a requirement that the District pay the Utility owner’s reasonable costs and attorney fees incurred in the condemnation action, without benefit to the District or the District’s residents.

NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE ELDORADO AREA WATER & SANITATION DISTRICT, AS FOLLOWS:

1. It is in the best interest of the District and the community that the District continue its efforts to acquire the Utility and operate it for the benefit of the community.

2. The District therefore will continue its efforts to acquire the Utility at a reasonable purchase price which shall not, in any event, be greater than the amount of the jury verdict plus any reasonable interest thereon.

3. The District’s attorneys are instructed to take such actions as are legally reasonable and appropriate to seek a reversal or a downward modification of the jury determination that the fair market value of the Utility is $11,047,128, including but not limited to an appeal of the district court decision.

4. The District’s officers are instructed to seek additional funding in such amounts as may be necessary to pay the purchase price of the Utility as stated in Paragraph 2 hereof. Such additional funding may be in the form of grants, loans, revenue bonds, or such other funding mechanisms as are deemed appropriate by the District’s officers, and any such funding proposal shall be submitted to the Board for its approval before any final agreement is entered into to procure such funding.

5. The District’s officers are further instructed to advise the owner of the Utility of the District’s intentions as set forth herein, and to seek if possible a negotiated settlement of all issues so that the District may acquire the Utility in the most expeditious manner possible, at a reasonable price.

This Resolution No. _______ shall be in full force and effect immediately upon adoption.

PASSED, ADOPTED AND APPROVED this ______ day of September, 2004.

ELDORADO AREA WATER &
SANITATION DISTRICT,
SANTA FE COUNTY, NEW MEXICO

[SEAL] By _____________________________
President and Chairman of the
Board of Directors

ATTEST:

By ___________________________
Secretary

Also, the Board approved the following letter for dissemination through the Eldorado area:

To the Residents of the Eldorado Area Water and Sanitation District:

As many of you are undoubtedly aware, the efforts of the District’s Board to acquire our local water system, most recently through condemnation, have been affected by the jury verdict in the condemnation trial. Briefly, the jury decided that the District should pay slightly over $11 million for a system that, until recently, was in the process of being sold to a private corporation for $6.3 million.

After consideration of the options available to the District, the Board has decided to go forward with the condemnation/purchase of the water system, using what funds we have and then arranging for revenue bonds or other financing to cover the remainder. Our County Commissioner, Jack Sullivan, is working with us to try to provide some County funds. The Board believes that it is in the best interests of the community for the District to acquire the water utility, even at the inflated price represented by the jury verdict.

For those of you who were not involved in the early stages of the acquisition/condemnation process, it may be worthwhile to describe briefly how we have reached this point. In early 2002, the District Board went step-by-step through an inquiry phase, financial analysis and public education and questionnaire to establish whether the District should seek to acquire the water utility. It was determined that the total cost of acquiring the utility system and of making necessary repairs and improvements to it could be as high as about $13,000,000. The District anticipated that the money would be raised partly through general obligation bonds, and partly through revenue bonds or other funding sources. The options and the anticipated costs were presented to the public through mailings and at public meetings held in the spring and summer of 2002. At an election in August 2002, the community, by a margin of 2 to 1, voted in favor of issuing general obligation bonds in the amount of $7,900,000. (Revenue bonds, which would be supported only by revenues of the utility itself, do not require a public vote.) Litigation brought by the present owner of the utility (El Dorado Utilities, Inc.) delayed the sale of the District’s general obligation bonds, but they were eventually sold in January 2004. The District then filed its condemnation action in February 2004.

Assuming the District is successful in raising the additional funds (slightly over $4,000,000) that will now be necessary, the District will take possession of the utility system as soon as it is authorized to do so by the Santa Fe County District Court. Our operations and management contractor, OMI (Operations Management International), is prepared to effect a reasonably seamless transition once the District Court authorizes our take-over. Among the many activities to be pursued will be a public meeting, yet to be scheduled, for the purpose of introducing the OMI team and answering questions relating to the new management of our water utility.

We try to keep our web site, www.eldoradowaterdistrict.com, updated about weekly, and once we start mailing out water bills there will be additional communication with water service customers. Please don’t hesitate to ask questions.

Once all of the funding is in place, we look forward to a successful transition from a commercial operator to the local ownership and operation of our water system. The system has problems which must be addressed but with local owners dedicated to the long term success of the project and the support of the community we expect to help assure the viability of the Eldorado Area.

Ray Nichols, President
Syd Lumbers, Treasurer
John Brown, Secretary

An attempt by the attorneys on both sides of the condemnation issue (the District and EDU) to dispose of the outstanding issues has not been successful. Although the attorneys agreed, Mr. Wall, President of EDU, insists on interest and costs (about $1.5M) in addition to the $11M jury verdict. The attorneys for the District will argue the case in court. In the meantime the District has submitted an application to the NM Finance Authority for the additional $4.5M the District needs and will proceed with the condemnation when the funds are available.

The following letter is in response to two letters that appeared in the New Mexican on 10/20/04.

District’s Response on EDU Condemnation:

This will respond to the two letters that appeared in the Eldorado section of the New Mexican on October 20th. Messrs. Steve Ruud and Joe Miller quite obviously don’t want the Water and Sanitation District to purchase our water utility, although most in the community disagree with them. They have the right to express their opinions but along with that right goes the responsibility to not distort the truth.

To clarify the facts in the case:

In the August 20, 2002, election voters pledged support for a general obligation (GO) bond issue of about $7.9M. If the jury in September of this year had returned a verdict of $6.3M, the amount that AMREP had agreed to sell the water system to Utilities, Inc. for, revenues from monthly water bills would have paid for almost all of the bond issue and taxes paid to the District would have been largely eliminated. Unfortunately, the jury arrived at the $11M figure which requires that the District seek to sell revenue bonds to make up the difference. Revenues from monthly water bills, at present rates, will pay down the revenue bonds and part of the GO bonds, but property taxes at some level will be required to pay off the GO bonds.

In the GO bond election in 2002 the District was directed, by a vote of 2 to 1, with over 1400 residents voting, to sell bonds to acquire the funds to buy the water system. In compliance with this public mandate the District sold the bonds in January, 2004, and incurred the obligation to pay off those bonds, plus 6% interest. This debt amounts to $730,000 per year and must be paid whether we acquire the water system or not. Without the water system there is no income to the District except for property taxes. Without money in hand the District could not file for condemnation.

Mr. Ruud falsely stated that the District Board says there is only 5-10 years of water to be pumped from under Eldorado. The District’s experts, John Shumaker & Associates (hydrogeology) and Molzen-Corbin (engineers) indicate a 20-40 year supply unless imported water is found to supplement existing supplies. The District Board has been working diligently to arrange for imported water from one or more sources.

Mr. Ruud falsely implies that it will take millions of dollars to bring the utility infrastructure up to accepted standards. The infrastructure was probably built to existing standards and there is no expectation that any massive rebuilding is required. As problems occur – line breaks, etc. – they will be repaired using the higher standards called for in our contract with our system operator, OMI.

Mr. Ruud’s speculation about tax increases and water rate increases are just that – wild speculation with no factual basis. If the acquisition of the utility can be realized based on the $11M figure the 2004 tax rate and current water rates are probably good for the foreseeable future – several years.

Mr. Miller’s comment that “the decision to acquire the Eldorado water system was made by two board members…” conveniently ignores the August 20, 2002 bond election in which the community mandated the District to move forward.

Ray Nichols, President

Eldorado Area Water and Sanitation District

Court of Appeals ruling (2/24/05)

The New Mexico Court of Appeals entered its opinion on February 18, 2005 in the appeal by Utilities, Inc., El Dorado Utilities, Inc., and other parties in their case brought against the District two years ago. The Santa Fe County District Court had ruled that the case should be dismissed (a victory for the District). In its February 18 Opinion, the Court of Appeals affirmed the District Court in all respects, except for one matter involving the District’s general obligation bonds.

In the bond resolution adopted two years ago, the District pledged to levy property taxes in any amount necessary to pay the debt service on the bonds. That is a requirement found in the Water and Sanitation District Act, passed in 1943. However, the Community Service District Act, passed in 1965, imposes a 10-mill limit (that is, a maximum of $10.00 in taxes per $1,000.00 of net taxable property value). On February 18, the Court of Appeals held that the later-enacted limitation is binding on the District, despite the language found in the earlier Water and Sanitation District Act.

As a practical matter, this makes no significant difference in the financing of the bonds. The actual tax levy necessary to pay off the District’s general obligation bonds is about 3.3 mills, and will decrease in the future as more homes and businesses are built and the value of the tax base increases. The District is confident that this issue can be resolved simply by amending the bond resolution to recognize that the 10-mill limit is absolute. (This is, in fact, precisely the course adopted by the Court of Appeals when presented with a similar problem regarding a Doña Ana County bond issue in 2003.)

Nonetheless, the Court of Appeals decision presents another opportunity for those who oppose public ownership of the Eldorado water utility to introduce further procedural delays in the courts. These delays, in turn, make it difficult for the District to complete the financing needed to purchase the utility. The District will move forward to resolve this matter as quickly as possible in the courts and complete the acquisition process that began more than two years ago.

As of March 24, 2005:

Statement regarding Eldorado Area Water & Sanitation District Bond Matters:

As has been reported in the news media, the New Mexico Court of Appeals recently ruled that the District’s $7,900,000 general obligation bonds issued in 2004 are “invalid” because the District’s bond resolution affirmed that the District would impose ad valorem property taxes in any amount needed to make the bond payments, as required by the Water and Sanitation District Act. The Court of Appeals held that this provision of the bond resolution violated the Community Service District Act, which imposes a ten-mill limit ($10.00 in tax per $1,000.00 of net taxable value of real property). Because the Community Service District Act was adopted later than the Water and Sanitation District Act, the Court held that the provisions of the Community Service District Act prevail, and therefore the District cannot pledge to impose taxes in any amount greater than ten mills.

As a practical matter, this makes no difference. The actual mill levy necessary to pay the entire principal and interest due on the general obligation bonds is about 3.3 mills (that is, $3.30 in tax per $1,000.00 of net taxable value). This is the amount that Eldorado taxpayers are presently being assessed by the Water and Sanitation District. In order to resolve the issue raised by the Court of Appeals, the District’s Board recently voted to amend the general obligation bond resolution to state that property tax to support the bonds will be no more than ten mills. The District has discussed this resolution with the bond purchasers, and understands that it will meet with their approval.

The Court of Appeals, recognizing the importance of a prompt resolution, has ordered that the case challenging the validity of the District’s bonds should be remanded immediately to the Santa Fe County District Court for an expedited review. Based on precedent established in previous New Mexico cases, the District anticipates that the District Court will approve a resolution in which the District and the bond purchasers agree that taxes will be levied in accordance with the limitations of the Community Service District Act.

The District still must obtain an additional $4,500,000 to complete payment for the water utility, and also wishes to obtain additional funds for utility improvements and financial reserves. Therefore, the District anticipates that it will issue up to $5,800,000 in revenue bonds, payable only from the excess revenues of the water utility. The revenue bonds have already been authorized by the District’s Board of Directors, and do not require an election because they would not be payable from tax revenues. The District anticipates that sufficient water utility revenues will be available to support the bonds, without any need for a utility rate increase.

In conjunction with issuance of the revenue bonds, the District also expects that it may refund its outstanding general obligation bonds. This means that the District will pay off the original bonds with new “refunding” bonds supported by the District’s tax revenues. There are two goals to be served by refunding the existing bonds. First, when the litigation surrounding those bonds has been resolved it is likely that the District will be able to obtain bond insurance and issue the refunding bonds at a significantly lower interest rate than the original bonds. Second, the District wishes to remove a “double pledge” of utility revenues that was made when it issued the original general obligation bonds. This pledge is no longer necessary to support those bonds, and its removal will permit the District to effectively market the new revenue bonds. Otherwise, the new revenue bonds could be difficult to sell because investors will be concerned that the revenues are pledged to both bond issues, thereby reducing the security of the revenue bonds. Refunding of the outstanding general obligation bonds is authorized by statute and will not require an election. Of course, the District’s Board will authorize a refunding only if that turns out to be in the best interests of the District.

The District intends to move forward as quickly as possible with these financial arrangements as soon as the issues presented by the Court of Appeals decision have been fully resolved.

T:\JLA\MISC\332018O.DOC (3/24/05)

PRC Control?

PRC CONTROL?
Some people have asked the question – Will the Water and Sanitation District request to be under the jurisdiction of the PRC (Public Regulation commission) after we acquire the water utility? Let me first explain that the District has the option of being responsible to the PRC or not. A privately-owned public utility does not have that option since the PRC represents the only control that the public has over decisions by the utility. Since the Water and Sanitation District Board of Directors, unlike a privately-owned utility Board of Directors, must stand for public election – just as elected officials of a municipality – there is that same element of control by the public.

Our experience with the PRC has been mixed. Last year (2003) the PRC Commissioners, by a vote of 3 to 2, ruled that they would not consider the joint application by Utilities, Inc. and EDU for the purchase/sale of the utility until all litigation against the District had been resolved – litigation brought by the utilities themselves and the developers which blocked our getting the funds needed to buy the utility. The PRC came through for us in that circumstance.

However, in 2001, the PRC, during a rate hearing, dismissed the District’s allegation that the Eldorado homeowners had already paid for most of the water utility through an average premium of $5000 per lot with water service, despite a previous case in Timberon, NM, where the same argument had been accepted. If our argument had been accepted the rate base of the utility would have been lowered by $3.5 million and the rate increase approved by the PRC (44%) would have been much less. During the PRC Commissioners hearing the Commissioner representing our area, Jerome Block (no longer our Commissioner), instead of supporting his constituents, when asked by the Commission Chairman “What is the Eldorado Area Water and Sanitation District?” answered “They’re nothing.” Subsequently, when the District wrote to the PRC Commissioners, complaining of their treatment of the District, the Chairman asked us to attend a meeting to explain our position. That meeting was held, the Chairman seemed interested in our arguments, and said he would look into it and get back to us. He never did.

Our attorney has advised that if we opted to be subject to PRC regulations, that the cost to the District might be $200,000 per year to comply with reporting requirements. Further, any proposed rate increase would require a full-blown hearing which would take most of a year and involve heavy legal expenses.

Assuming the District acquires ownership of the Eldorado water utility, any rate increase contemplated by the District Board would be well advertised to the community and public hearings held to explain the necessity for the increase. The District Board would always be aware that if only twenty-five (25) residents (water customers) petition for a PRC hearing, that the law requires that the PRC conduct a full-blown hearing. If, at that point, the rate increase was found to be justified, it would be approved.

The above-described circumstances establish the rationale for the Board’s leaning in the direction of not being under the control of the PRC. A decision in this regard will be appropriate only after the District has acquired the utility.

Ray Nichols, President
Eldorado Area Water and Sanitation District

APPRAISAL OF THE WATER COMPANY

The District's appraisal of El Dorado Utilities by Barrett Appraisers has now been completed. The result is an appraised value of $6.2M. The District's attorneys will now contact AMREP, the owner of EDU, to attempt to negotiate a direct sale of EDU to the District, thereby avoiding condemnation.
-an offer letter was sent to Mr. Wall, CEO of AMREP Southwest, with a request for a reply by December 16. They have until ecember 27 to initiate action. If AMREP is not interested in dealing the District will continue on the path to condemnation.
-A response from EDU's attorney, Matt Spangler, states that EDU cannot deal with the District because of the existence of a contract with Utilities, Inc., (recently extended). He further states that EDU does not accept the District's authority to condemn the water utility and will oppose the process. As a result two more appraisals will be required, further delaying the process. (added 12/31/02)

PREPARATION FOR OPERATION AND MANAGEMENT

Southwest Water Consultants, Inc., has prepared a draft RFP to sent to prospective bidders on/about October 15. The plan is to have a Systems Operator under contract by December 31. (added 10/1/02)
-RFP's were sent to eight prospective bidders on October 18th.
-A pre-bid conference was held by the District for all interested bidders. Representatives of six firms attended. Based on a number of questions the RFP will be amended and the six firms will be provided copies of the amendment.
- A number of potential bidders requested additional time to prepare their proposals so the due date has been extended from Nov. 18 to December 9. This also pushes the schedule for a finalized contract into January. (added 11 10)
-proposals were received from five firms - American Water, Houston; CDS, Albuquerque; NM Water Service Co., Belen; OMI, Denver; and Severn Trent, Houston. CDS, NM Water, and OMI were selected to make presentations, and OMI was selected to enter negotiations, to be scheduled for early January. (Added 12/22)
-Two negotiation sessions have been held with OMI and the results indicate that we can successfully arrive at a contract. Our progress has been due mainly to the efforts of Bill Robens, an Eldorado resident with a strong background in utility work, who volunteered to assist the District. (added 2/3/03)
-Negotiations with OMI have been on-going since early January and all issues were resolved by May 22nd. At a special meeting of the Board of Directors on May 22 a resolution was approved which authorized the Chairman of the Board to sign the contract with OMI. The contract was signed on May 23rd and mailed to OMI for their signature. (added 5/25/03)
-The final signed contract with OMI was received during the last week in June. (added 7/7/03)
-The provisions in the contract with OMI were in effect through the end of August, 2003. When the contract could not be entered into by that date the terms of the contract were re-negotiated and a new contract, effective for the next 12 months, will be approved in the near future. (added 9/21/03)

In view of the changing responsibilities of the District Board as the District acquires the water utility and moves into an operational phase, it seems prudent to review and revise rules, procedures and processes to improve effectiveness and efficiency of the Board’s operations. To implement such review and revision the Board has established a Rules and Procedures Committee of three, made up of Bill Robens, John Appel and one Board Member, Syd Lumbers. Further, since this effort will continue over an extended period of time, reporting to the Board is planned monthly, starting with the regular meeting in February.(added 1/19/04)

EAWSD Web Site by Starfinger Software