FEBRUARY 22, 1995

The Lake County Board of County Commissioners met in special session on Wednesday, February 22, 1995, at 2:00 p.m., in the Board of County Commissioner's Meeting Room, Lake County Administration Building, Tavares, Florida. Commissioners present at the meeting were: Rhonda H. Gerber, Chairman; William "Bill" H. Good, Vice Chairman; G. Richard Swartz, Jr.; Catherine C. Hanson; and Welton G. Cadwell. Others present were: Pete Wahl, County Manager; Tim Hoban, Senior Assistant County Attorney; Ava Kronz, BCC Office Manager; and Sandra Carter, Deputy Clerk.

The Chairman opened the meeting.


Mr. Pete Wahl, County Manager, stated that the purpose of this meeting was to discuss a proposed private/public partnership agreement between Lake Groves Utilities, Inc. and Lake County, concerning the acquisition of a utility system in south Lake County. He stated that, as part of the Settlement Agreement with the Department of Community Affairs (DCA), with regard to the County's Comprehensive Plan, the County was directed to look at the need to establish a regional water/wastewater facility in the south Lake County area, particularly along the Hwy. 27 corridor. He stated that staff communicated with Lake Groves Utilities, Inc. about entering into a private/public partnership agreement with them, concerning a water/wastewater facility, and they expressed an interest in exploring the idea.

Mr. Wahl stated that staff met with representatives of the utility over a number of months, reported their findings to the Board during that time, and were now bringing to the Board a culmination of approximately a year's work by staff, Mr. William "Bill" Sundstrom, Rose, Sundstrom & Bentley, special counsel to the County, and Public Financial Management, Inc. (PFM), the County's financial advisors. He stated that, at three different intervals - the years 2004, 2007, and 2010, the County will have the option to acquire a system that is in place. He stated that this agreement does not obligate or bind the County to anything except that, if the County exercises the option, it identifies methodology for establishing a price to pay for the acquisition of the utility.

Mr. Wahl stated that, from the date that the agreement is signed, the County will become an equity owning member of that partnership and all the lines going into the ground will become dedicated to the County. He stated that all involved tried to focus the private/public partnership agreement to a win/win/win situation for the utility, the County, and the rate payer.

Mr. Sundstrom appeared before the Board stating that Lake Groves Utilities, Inc. is a for-profit Florida corporation that possesses Public Service Commission (PSC) certificates, giving it exclusive territorial rights to a six square mile area in south Lake County. He distributed a map of the south sub-region of the County, for the Board's perusal, indicating the existing service territory, as well as the 1993 service territory expansion. He stated that Lake Groves Utilities, Inc. has the exclusive right to provide service within that territory, however, they have proposed to dedicate those lines to the County, for tax purposes, which he elaborated on. He stated that, by those lines being vested in the County, the County becomes an equity owner of a portion of the system. He stated that the agreement is designed to give the County oversight in line location, line sizing, and line construction, in terms of quality and quantity during the course of the development of the utility system, in conformance with the long-range master plan, to be worked out between the County and the utility.

Mr. Sundstrom stated that the County receives from the utility a certain payment for the utilization of those lines, amounting to $5,000 in 1995, $6,250 in 1996, $7,500 in 1997, $10,000 in 1998, and basically $1.50 per home, per month, with those numbers being escalated in accordance with an annual cost of living kind of indicator, thereafter. He stated that the County, in turn, pays to the utility a price for maintaining those lines, which amounts to approximately $1.35 per month.

Mr. Sundstrom stated that the agreement before the Board gives the County a mechanism to deal with package plants and small temporary wastewater plants that may be in the area and encourages the utility to pick up those package plants and incorporate them into the regional system. He stated that it also gives the County (a) a right of first refusal to buy the utility against any other bona-fide offer from another third party - a private corporation; and (b) the option to acquire the utility at windows of opportunity in the future, being July of 2004; July of 2007; and July of 2010. He stated that the contract further contains a mechanism for the determination of the purchase price, which is one of replacement costs of the plant facility assets, less depreciation, and then less any capital deficiencies that are in the system at the time of the exercise of the option.

Mr. Sundstrom stated that, theoretically, there should not be any capital deficiencies, the reason being that the County and the utility are partners, for all practical purposes, and because the County, under this arrangement, will have annual reviews of the system; review and prior approval of the construction of any new lines; and a review of the type of facility that will go into the ground.

Mr. Sundstrom stated that, under the Costs Less Depreciation pricing scenario, there is also no possibility of any futures, which he explained. He further stated that, under this scenario, because the County owns the easements and the main lines going in, it would not be a part of the purchase price equation. He stated that it would take as much as half of the costs of the facility out of the purchase price scenario, which would otherwise be there.

Mr. Sundstrom stated that the other method of acquisition, outlined in the contract, is known as the Debt Capacity Method, which he explained. He stated that the important thing to remember in the option scenario is that it is just that, a unilateral option on behalf of the County stating that, if the County does not want to buy it, they do not exercise the option. He stated that, because the County has both an option and a right of first refusal, it should not be read to imply that the County has no other choices. He stated that, under the agreement, the County could negotiate at any time, or attempt to negotiate. He further stated that the County would retain the right of eminent domain, if for some reason that would become something that the County would elect to do.

Mr. Sundstrom stated that the remainder of the document took care of mundane things, such as annual accountings. He stated that the primary element left would be one of a submission of a Private Letter to the Internal Revenue Service (IRS) asking them to bless this transaction. He noted that a couple of years ago the IRS stated that it would look very carefully at these kinds of arrangements and that it would look to the substance of the transaction and not its form. He stated that, under this particular arrangement, the County is addressing a needed public service to the south Lake County area and protection of the Green Swamp. Furthermore, in this case, the County has contractually obligated itself, through its Comprehensive Land Use Plan, with the Department of Community Affairs, to do this in some way. He briefly discussed various documents contained in the packet that was presented to the Board, for their perusal.

Ms. Lavon Wisher, Public Financial Management, Inc., appeared before the Board stating that in May of 1994 her firm prepared a report for the Board listing options that the County had regarding the agreement before them and the advantages and disadvantages of each. She stated that a Memorandum of Understanding was adopted, which led the financing team to the documents (Agreement of Purchase and Sale of Water and Wastewater Assets By and Between Lake Groves Utilities, Inc. and Lake County, and Contract Establishing Private/Public Partnership By and Between Lake Groves Utilities, Inc. and Lake County) before the Board this date, for consideration. She stated that the purpose of her report was to give the Board a brief summary of each of the documents and the financial responsibility of each of the partners that are involved in this transaction, at which time she pointed out three things that she felt were important.

Ms. Wisher stated that in the Debt Capacity Method the County would exercise futures, if there is capacity left within the system. She stated that that projection is 75% of the connection fee, which would go back to the developer within a five year period. She stated that her firm did an analysis, to determine the fairness of the 75%, and found a minimum of 74% and a maximum of 76% in about 30 transactions that had occurred, therefore, felt that it was an equitable and fair return for the County to take and also for the developer to receive.

Ms. Wisher referred to various exhibits contained within the booklet (the "blue" book) that her firm prepared for the Board's perusal and briefly explained each. She stated that she felt it was important on the last chart contained in the "blue" book (Exhibit E) to show the Board, from a layman's point of view, how each one of the systems (Debt Capacity Method vs. Cost Less Depreciation) work. She stated that she felt the exhibit was clear cut, simple, and to the point and would give the Board some idea of what the agreement before them does so that, when they exercise their option to purchase, they can very easily have someone, whether its PFM or an engineer, determine about what the cost would be at that given point in time just by reviewing the financial statement of the utility.

Ms. Wisher discussed the risks involved, as well as the advantages and disadvantages of a private/public partnership agreement. She stated she is a firm believer, in most instances, that it is advantageous for a public body to own its utilities, based upon the fact that it can get tax exempt capital and can use it as a tool for planning; however, her firm did an analysis and determined that there would be a lot of risks involved to the County, if it was to purchase Lake Groves Utilities, Inc. at this time. She stated that the agreement before the Board would provide a win/win situation because, when the County decides that it is to the County's advantage to be the deliverer of water and sewer, it sets forth the mechanism. She stated that she sees this as a step toward future opportunities for the County.

Mr. Jim Barker, Director, Environmental Management Services, appeared before the Board and answered questions regarding mandates set forth by the Comprehensive Plan Policy and the Water/Wastewater Master Plan regarding this issue. He stated that the Water/Wastewater Master Plan requires that there be approximately four million gallons of capacity in the area in question. He stated that the County negotiated with DCA to have a trigger point of 1,000 homes, because that was a point where the County felt it would have enough effluent to justify and operate a plant itself.

Commr. Good questioned when the County felt that would occur.

Mr. Wahl, County Manager, referred to Exhibit A in the "blue" book, stating that the ERCs (equivalent residential customers) would reflect that that trigger point could occur as early as 1997. He noted that there is already a system in place that is serving some of the homes.

Commr. Gerber questioned Ms. Wisher about language contained in the first paragraph on Page 2 of the "blue" book, which states: County must maintain and operate all of the water and wastewater facilities within the service area, including the lines, which are conveyed and dedicated to the County, or utilities shall have the right to maintain and operate such facilities and offset the cost against the rent due the County.

Ms. Wisher stated that the agreement before the Board this date is an operating agreement and that in said agreement there is a concept for interchange and, if the County does not enter into an operating agreement, it will be the County's responsibility to do the maintenance.

Commr. Gerber then referred to Paragraph 8 on Page 4 of the "blue" book, which states: Seller shall pay for all bills for services, materials and supplies in connection with the operation of the system up to and including the closing date; and the paragraph titled Operations Agreement on Page 5, which states: The Operations Agreement establishes the engagement of the services of utilities to manage, operate and maintain the County system as well as the render of its services to the County. The utilities shall act as the exclusive managing agent of the County system to provide for centralized management. The original engagement is for a period of ten years with the option to extend the period as per agreement. She stated that it looked like the utility was going to operate it, maintain it, and pay for all the services, material, and supplies in connection with the operations, therefore, questioned what the County's responsibility would be.

Ms. Wisher stated that the County's responsibility would be monitoring, review, and inspections.

Mr. John Lowndes, Lowndes, Drosdick, Et Al, Attorney, representing Lake Groves Utilities, Inc., appeared before the Board, in response to a question by Commr. Gerber as to what the plans are for the facility, stating that the plan is to expand the facility as growth occurs. He stated that the company has projections as to what they will do when there are 300, 500, and 1,000 homes in place, but noted that it is a market driven exercise.

A brief discussion occurred regarding whether or not the utility in question would be considered a package plant.

Mr. Lowndes stated that the utility is a permanent plant, even though it is made out of metal, rather than concrete.

Commr. Swartz stated that, according to Post, Buckley, Schuh and Jernigan's definition of a package plant, the utility in question is what is considered to be a package plant and is not consistent with what the County would have put in the ground, based on the original Post, Buckley, Schuh & Jernigan study of a regional sewer system. He stated that the County would not have constructed the kind of facility that is currently serving the Lake Groves area, or the south Lake County area.

Mr. Bob Chapman, President, South Lake Utilities, appeared before the Board stating that he had not heard the term "package plant" when he invested in the facility, noting that this was the first time he had heard it. He stated that the plant has an ultimate capacity of one million gallons and is currently permitted for 450,000 gallons. He stated that it has current disposal permits for wastewater for 300,000 gallons and he believed that was going to be increased, based on current groundwater monitoring studies that are being done.

Mr. Chapman stated that the plant is producing effluent which currently meets all standards, including advanced wastewater treatment standards. He stated that they are very proud of the quality of the plant and the quality of its operations, noting that it is a very clean, well run operation. He stated that, as far as water was concerned, they currently have three wells that have passed water supply standards and have a current permitted water capacity of 600,000 gallons, which he noted will be expanded as needed.

Commr. Hanson stated the bottom line is that this facility will meet DCA's requirement for a regional wastewater treatment facility.

Commr. Gerber questioned what mechanism the County would have to deal with complaints from customers, when they learn that the County is a partner in this deal.

Mr. Sundstrom stated that there is a complaint mechanism in the contract. He stated that the utility is a regulated one and, as such, primary jurisdiction over its sewer system rests with the Public Service Commission. He stated that failure to adequately deal with a complaint is a default, under the contract in question, and gives the County the right to terminate it. He further elaborated on the matter.

A brief discussion occurred regarding the rates, at which time it was noted that the rates are set by the Public Service Commission.

Commr. Good clarified the fact that it would cost approximately $40 million for the County to do this, for the entire south sub-region of the County, at which time he reviewed a map of said area.

Commr. Swartz requested Ms. Debbie West, the representative from DCA, to explain what DCA's position is, with regard to Policy 6A-3.2:4, which states: Lake County shall ensure that construction of a regional wastewater treatment facility has begun once 300,000 gallons per day of effluent are existing in the south sub-region of the ridge area.

Ms. West stated that she did not have an answer regarding said policy, however, noted that DCA is supportive of this type of agreement, in concept, and have no opposition to Lake Groves Utilities, Inc. entering into an agreement with the County. She stated that DCA is excited about the fact that the County is looking into options. She stated, however, that DCA views what the County views as rooftops as paper - what is approved on paper, to meet the requirements.

Commr. Swartz pointed out the fact that this facility does not cover the entire south sub-region.

Ms. West stated that DCA feels South Lake Utilities will meet up with the area that Lake Groves Utilities will serve, so, between the two facilities, they may very well cover the entire south


Mr. Wahl, County Manager, interjected that either one of the two utilities can apply to the Public Service Commission for additional area, if the market forces it. He stated that, as additional development is approved, they can expand the potential area of their PSC certificates for either of the areas.

Commr. Good questioned the fact that, should the County approve the request before them this date, at what point it would be in the financial interest of the rate payers for the County to purchase the plant.

Mr. Sundstrom stated that it would be in the best interest of the County's rate payers for the County to move toward purchasing the plant when it gets to the level of maturity that its revenues are sufficient to cover 100% of its operation and maintenance expenses, plus cover its debt service obligations, which he projects should happen around seven to eight years out, if growth takes place as anticipated by the developer.

Mr. Wahl, County Manager, stated that, under the terms of the agreement, the Board has the right at any time to go back to the utility and negotiate an alternative agreement. He stated that the only thing the agreement before them does is give the County three specific windows of opportunity, with a formula that determines the costs of acquisition. He further stated that the rate payers should begin to see a reduction in their rates, once the County becomes an equity partner, because they will not be paying the gross up costs for the lines in the ground, which is 60% of the costs of the lines.

Ms. Wisher reappeared before the Board stating that the report PFM did in May of 1994 projected that there would a break even point around 1999 and that the County would start having a return on the investment around the year 2001.

Mr. Sundstrom stated that there is nothing this date precluding the County from asking the utility to come to the table at an earlier date and there is nothing to compel them to come to the table, until the option period comes along, other than the revenues and eminent domain.

Commr. Gerber questioned how the County was going to get the 60% reduction in rates.

Mr. Sundstrom stated that the Public Service Commission sets the rates and charges, which include the connection charges. He stated that the current connection charges comprise the recovery and costs of the lines and the tax impact on the donation of those lines.

Commr. Cadwell stated that he felt the need was there, however, did not feel that the County should take the risk at this time. He stated that he felt somebody else should take the risk and that the contract spells out what the County feels it should give the utility for taking that risk. He stated that he felt it was a fair deal for the utility and for the County and that he felt the County should move forward.

Commr. Hanson concurred, stating that she felt the most important thing is that the agreement keeps the County from having to take the risk, it is willing to pay someone else to take that risk.

Commr. Swartz stated that the County's consultants have advised that somewhere between 1998 and the year 2001 would be the best time for the County to acquire the utility and that he believed the entire agreement was based on tax consequences to the utility, therefore, was not a win/win situation, but clearly a win situation. He stated that he also had a problem with the Right of First Refusal clause, which he elaborated on. He stated that, with or without this agreement, the County has the same requirements for oversight of utilities and the same requirements and rights to monitor. He stated that it is an agreement that has been presented to the Board by Lake Groves Utilities, Inc., which he believes enures to their benefit, and does not give the County the options that it should have at the times that it should have them. He stated that he did not support the agreement in May of 1994, when the issue was previously discussed, and will not support it at this time. He suggested getting a group of citizens together, to look at the issue with the Board and determine whether or not it makes sense for Lake County to enter into an agreement with Lake Groves Utilities, Inc.

Mr. Tim Hoban, Senior Assistant County Attorney, stated that, if an unfavorable ruling comes from the IRS, the agreement will not be worth the paper that it is printed on.

Commr. Hanson stated that the County has a window of opportunity right now that it will not have with anyone else. She stated that nobody else is going to come to the Board and make this type of offer, unless they too can get the tax benefits.

Commr. Good questioned whether the Board had taken the time to see if the County could get a better deal than the one before them this date.

Commr. Cadwell stated that is what the Board paid PFM and Mr. Sundstrom to do. He stated that the agreement before the Board does not answer all the problems in the south end of the County, but he feels that it is a step in the right direction.

Commr. Gerber questioned whether the Board could amend the County's Comprehensive Plan and have it say that the Board feels the providers are providing exactly the services they need to and that their plants are considered by them to not be package plants and will serve the capacity of people that are there and will be there in the future.

Ms. West, DCA, stated that the Board could amend the County's Comprehensive Plan, but, DCA would probably appeal it.

Commr. Hanson pointed out the quality of the developer and the sewer system, noting that the County could go out and find other people that may be able to provide the service and facilities, but she is not sure that the County could get it at the level that they can get it from Lake Groves Utilities, Inc..

Mr. Bob Mandel, Lake Groves Utilities, Inc., appeared before the Board stating that he felt the critical issue that was being missed was the fact that, if the County decides it wants to get into the water and sewer business, and, if this agreement goes forward, the County will already own half the lines, so the expense involved will be reduced. He noted that it is an option and the County does not have to do it.

Mr. Mandel discussed what the County will need to do, if they want to purchase the utility earlier than the year 2004. He stated that, assuming there is no agreement, the County will have to pay for it. He stated that, if there is an agreement and they want to purchase it, the County will pay less for it, because the County will already own the lines; therefore, he feels that it enures the County some benefit to approve the agreement. He stated that the issue of whether or not the County gets some benefit from approving the agreement has to do with perspective. He stated that ten years from now, if the County decides that it wants to be in the water and sewer business, it will be doing a great service to the community by already having some portion of the costs involved paid for and the County will be in the position of owning the assets that it would otherwise have to purchase.

Mr. Mandell stated that he felt there was a significant benefit to the County to enter into the agreement this date, noting that putting it off will only make matters worse, because there will be more assets that the County will have to purchase, as opposed to more assets being under the County's control. He stated that DCA does not have any relationship in this matter, because it is a decision of the Board as to whether or not they want to be partners with Lake Groves Utilities, Inc.

Discussion occurred regarding the fact that the earliest date the County could look at owning the utility is the year 2004 and the reason for it.

Commr. Swartz questioned why an agreement could not be drawn up giving Lake Groves Utilities, Inc. the certainty and assurances that they are concerned about, but give the County an earlier date to acquire the utility, based on what the County's consultants have recommended to the Board.

Mr. Mandel stated that the County did not have to enter into an agreement at all, to buy the utility in the year 2001, because the County could condemn the utility, therefore, there was no reason for the County to have an agreement that would give it that protection.

A motion was made by Commr. Cadwell and seconded by Commr. Hanson for the County to enter into a private/public partnership agreement with Lake Groves Utilities, Inc., with regard to a water and wastewater system for the south Lake County area, subject to review and approval by the County Attorney.

Under discussion, Commr. Gerber stated that she was going to support the motion, because the County was going to do it eventually anyway and the County needed to start somewhere. She stated that she hoped it would be a long and happy relationship.

Commr. Good stated that he was not going to support the motion, because he was not sure that this was the best way to provide the lowest possible rate and was not sure that now is the time for this negotiation process to end.

The Chairman called for a vote on the motion, which was carried.

Commrs. Swartz and Good voted "No".

There being no further business to be brought to the attention of the Board, the meeting was adjourned at 4:15 p.m.