BLSMWC’S WATER SUPPLY

The Board of Directors of the Blue Lake Springs Mutual Water Company (“BLSMWC”) provides the following information to BLSMWC shareholders and customers concerning BLSMWC’s water supply and efforts to ensure a reliable water supply.

Where does BLSMWC get its water?
Why did BLSMWC need to take action to ensure that it has a reliable water supply?
What action has BLSMWC taken to ensure that BLSMWC has a reliable water supply?
What is BLSMWC doing to pursue the potential development of new groundwater wells?
What is BLSMWC doing to assess groundwater supply options?
What is BLSWMC doing to assess the economic feasibility of a surface water supply from CCWD?
What is the annexation feasibility study?
How much will the annexation feasibility study cost?
Was the BLSMWC Board authorized to enter into the annexation feasibility study agreement with CCWD and pay the deposit funds to CCWD?
Does BLSMWC’s decision to move forward with the annexation feasibility study commit BLSMWC to being annexed by CCWD?
Do BLSMWC’s shareholders have a say in whether BLSMWC is annexed by CCWD?
Why is BLSMWC moving forward with the annexation feasibility study if it hasn’t completely exhausted all groundwater options?
Where can an interested person obtain additional information about BLSMWC’s efforts to ensure that BLSMWC has a reliable water supply?
Where does BLSMWC get its water?

From approximately 2001 to 2011, BLSMWC’s water supply consisted of (a) groundwater pumped from wells at White Pines Lake and (b) surface water purchased from the Calaveras County Water District (“CCWD”). For much of that time, BLSMWC purchased as much as half of its total customer demands from CCWD. In 2011, CCWD restricted water deliveries to BLSMWC except for emergency situations. Since that time, BLSMWC’s water supply has been provided exclusively from the wells at White Pines Lake.

Why did BLSMWC need to take action to ensure that it has a reliable water supply?

As noted above, CCWD’s delivery of approximately 50% of BLSMWC’s water supply ceased in 2011. For the approximate 5 to 6 years prior to CCWD stopping its delivery of water to BLSMWC, BLSMWC had seen the performance of its groundwater wells decline. When CCWD deliveries were restricted in 2011, BLSMWC’s general manager expressed concerns about the ability of BLSMWC’s groundwater wells at White Pines Lake to meet full demands through the summer. These circumstances prompted BLSMWC to begin pursuing alternate water sources to ensure that BLSMWC would have a reliable water supply.

What action has BLSMWC taken to ensure that BLSMWC has a reliable water supply?

Since the restriction of CCWD deliveries in 2011 and the reliability of BLSMWC’s groundwater wells at White Pines Lake were called into question, BLSMWC has taken (and is taking) action to (a) pursue the potential development of new groundwater wells; (b) assess groundwater supply options; and (c) assess the economic feasibility of long-term reliable water supply from CCWD. CCWD’s policy requires that any long-term water supply for the Blue Lake Springs community be obtained through annexation, but BLSMWC and CCWD currently do not have sufficient information to assess the cost of annexation of the Blue Lake Springs community to CCWD.

What is BLSMWC doing to pursue the potential development of new groundwater wells?

Locating and securing new sites for groundwater wells, and then developing a groundwater well on a site, is very costly and time consuming. This process requires locating a suitable site that is believed to have a sufficient groundwater supply beneath it, acquiring access to the site through the purchase of the land or obtaining a lease or easement on the land, and developing a groundwater well on the site. Depending on the site’s terrain, preliminary grading or logging may be necessary before a test well can even be drilled. Once a site is accessible to drill a test well, a test well is drilled to determine if there is sufficient groundwater beneath the site. If the test well produces sufficient groundwater and the water meets state water quality requirements, then a permanent well can then be developed. Additionally, however, new wells are subject to strict requirements and standards under California law that increase the time and cost of development. Under these circumstances, it has been important for BLSMWC to take a thoughtful and diligent approach in pursuing the potential development of a new groundwater well.

Since 2011 BLSMWC has evaluated potential well sites at more than ten different locations, and has drilled a test well at one site. These sites include multiple sites in the White Pines and Love Creek areas, as well as sites at Hazel Fischer Elementary School and property owned by the federal government located near the Sierra Nevada Logging Museum, among others. Some of the sites considered by BLSMWC were eliminated as potential sites because of non-favorable terrain (which results in high development costs and risks), zoning restrictions, and rejections by landowners. BLSMWC continues to actively pursue potential groundwater well development sites.

What is BLSMWC doing to assess groundwater supply options?

In March of 2012, BLSMWC hired Luhdorff & Scalmanini, Consulting Engineers (“L&S”) – a consulting and engineering services firm that specializes in groundwater resources throughout California (http://www.lsce.com). L&S’s primary focus has been to address the extent and availability of groundwater resources and the development of groundwater supply. L&S was tasked to conduct a study of BLSMWC groundwater supply options and to quantify the need and appropriate actions to develop a back-up source for the wells at White Pines Lake. L&S will also assist BLSMWC in its pursuit of the potential development of a new groundwater well. In late March, an engineer from L&S made a site visit to BLSMWC’s treatment plant and the wells at White Pines Lake. On May 4, 2012, L&S sent BLSMWC a memorandum discussing the considerations and criteria that it will employ in its groundwater study. The L&S memorandum points out that BLSMWC’s most viable water supply options include:

  1. Assessing and optimizing the use of BLSMWC’s existing wells at White Pines Lake
  2. Evaluating potential new well sites
  3. Determining the feasibility of securing a surface water supply from CCWD.]
What is BLSWMC doing to assess the economic feasibility of a surface water supply from CCWD?

After preliminary discussions with CCWD and consulting with a water rights attorney, BLSMWC formally started the information gathering process by seeking an assessment of the costs for securing a surface water supply from CCWD. CCWD required that such a supply could only be obtained, except on an emergency basis, by requesting annexation. In order to assess the cost of annexation to CCWD, BLSMWC sent a letter to CCWD in November 2011 requesting that CCWD move forward with the processes to analyze the cost associated with annexation of BLSMWC. Thereafter, BLSMWC asked CCWD to move forward with a feasibility study to determine the actual costs to BLSMWC and its individual shareholders of annexation to CCWD. BLSMWC has entered into an agreement with CCWD to develop the annexation feasibility study, the sole purpose of which is to assess the costs associated with annexation.

The actual costs of annexation with CCWD are not currently known, but have been the subject of rampant speculation in the Blue Lake Springs community. The true and accurate costs, however, cannot and will not be known without completing the annexation feasibility study. This is why the annexation feasibility study is necessary: to provide BLSMWC and its shareholders with accurate information needed to properly assess the option of annexation with CCWD.

What is the annexation feasibility study?

The annexation feasibility study is a cost study that will be completed at the direction of CCWD and BLSMWC by outside expert consultants. The study will examine the specific costs for CCWD to annex BLSMWC such that CCWD could provide retail water supply to the Blue Lake Springs community. Such costs will include the improvements needed to bring the current BLSMWC water system into CCWD’s system, and will also include a valuation of BLSMWC’s assets.

How much will the annexation feasibility study cost?

While the actual cost of completing the annexation feasibility study will not be known until bids are received from the outside expert consultants and their work on the study is completed, CCWD’s policy required BLSMWC to deposit $100 per parcel for the study, or $202,400 ($100 X 2,024 parcels). These funds will cover the costs for completing the annexation feasibility study. Each month, CCWD will calculate the costs it has incurred and will deduct those amounts from BLSMWC’s deposit. CCWD will also provide BLSMWC with a statement outlining the costs that were deducted from the deposit along with a detailed description of the work performed. The rights and obligations of BLSMWC and CCWD with regard to payment for the annexation feasibility study are memorialized in an agreement between BLSMWC and CCWD.

Was the BLSMWC Board authorized to enter into the annexation feasibility study agreement with CCWD and pay the deposit funds to CCWD?

Yes. The BLSMWC Board of Directors is authorized and required to conduct the business affairs of BLSMWC. Such business affairs include entering into contracts to obtain information for business operations or for dissemination to shareholders. It is not practical or appropriate for the business of a water company to be conducted by the shareholders, which is why the California Corporations Code and the BLSMWC bylaws vest such responsibility exclusively within the control of the Board of Directors. For more information on the board of directors’ authority to conduct the business affairs of BLSMWC, please review the memorandum prepared by BLSMWC’s legal counsel.

Does BLSMWC’s decision to move forward with the annexation feasibility study commit BLSMWC to being annexed by CCWD?

No. The annexation feasibility study is simply a study of the costs for CCWD to annex BLSMWC that will allow BLSMWC’s shareholders to make an informed decision about whether annexation is in the best interest of the Blue Lake Springs community. Annexation will not and cannot occur without approval by BLSMWC’s shareholders, following multiple public meetings. The Board’s decision to move forward with the annexation feasibility study does NOT commit BLSMWC to annexation to CCWD.

Do BLSMWC’s shareholders have a say in whether BLSMWC is annexed by CCWD?

Yes. In order for CCWD to annex BLSMWC, BLSMWC’s shareholders must vote to approve the annexation.

Why is BLSMWC moving forward with the annexation feasibility study if it hasn’t completely exhausted all groundwater options?

While BLSMWC’s current wells are providing sufficient water to supply the Blue Lake Springs community, BLSMWC has seen some lowering of the well levels in recent years. Drilling additional wells will not eliminate uncertainty about BLSMWC’s water supply, in the short-term or the long-term. As noted in the L&S memorandum, BLSMWC’s options to address short and long-term water needs are limited, and it is prudent for BLSMWC to evaluate all options concurrently in order to assess the technical and economic merits of the different sources in a timely manner. For these reasons, BLSMWC decided to concurrently gather facts regarding its options for both groundwater and surface water supplies.

Where can an interested person obtain additional information about BLSMWC’s efforts to ensure that BLSMWC has a reliable water supply?

For general information on actions already taken by BLSMWC, an interested person can review the minutes from the BLSMWC board of directors’ past meetings. Any specific questions about past actions can be directed to BLSMWC at (209) 795-7025 or admin@blsmwc.com.

For information on current actions being taken or considered by BLSMWC, an interested person should attend the BLSMWC board of directors’ meetings, which are held on the second Saturday of each month.

DATED: MAY 17, 2012

John Speakman, Dave Owen, Ehrling Carlsen, Richard Watson,
Ernie Multhaup, Paul Baker, Robert Maginnis
Board of Directors
Blue Lake Springs Water Company

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