May 30, 2003



At a Special Meeting of the Montara Sanitary District on May 29, 2003, the Board of Directors unanimously approved the a Settlement and Asset Purchase Agreement with the California-American Water Company (CalAm) which owns the water system serving Montara and Moss Beach, CA. The Agreement, which has now to be signed by CalAm, was negotiated in accordance with a settlement conference held under the auspices of the County of San Mateo Superior Court with the Honorable Margaret J. Kemp presiding. In May 2002 the District filed condemnation action in Superior Court to acquire the local water system after receiving general obligation bond authority of $19 million passed in an election by a margin of 81%.

The Agreement, negotiated over several months, authorizes the District to take possession of the water system and all its assets on August 1, 2003 for a price of $11,097,000. The District will begin preparing for the sale of general obligation bonds sufficient to cover the purchase price plus some additional amount to renovate the system.

The District plans to hire the existing staff of the water system, and is in the process of acquiring utility billing software to handle customer accounts and billing. Customers will be able to call a local phone number and talk with the local office instead of CalAm’s national center in Alton, Ill. The Board has supported the acquisition because of the overwhelming public support for the bond issue and because of the following:

q Suspension of planned rate increases of over 20% already approved by the Public Utilities Commission coupled with a proposed 43% increase for the approved master plan projects.

q No corporate taxes or profit (historically about 40% of revenues), no guaranteed rate of return on all capital improvements (about 10% of value of improvements added to rates), and lower interest cost of capital improvements for public agencies.

q Local control.

q No longer subject to rate increases due to sale to new owners. The system has been sold twice in the last couple of years and is currently owned by RWE, a German multi-national corporation. Each time its sold, the new owner pays a premium which then becomes a higher valuation upon which new higher rates are based.

The local water system has been under a moratorium since 1976 due to lack of sufficient water supply. The moratorium will remain in effect, but about a year ago the District submitted a Coastal Development Permit to the County to drill additional test wells in an effort to locate additional water supplies. If you have any questions please contact George Irving, District Manager of the Montara Sanitary District at 650-728-3545.