A Cost of Services study by the El Dorado Irrigiation District calls for changing residential rates from 70 percent consumption based to 50 percent consumption based. The study, rolled out last June 13, also indicates lower sewer bills.
As the EID Board of Directors delved into the nitty gritty of the Cost of Service analysis at a workshop last Monday Chairman Harry Norris, underlined the situation. “EID is an enterprise district,” he said. “It is a hybrid form of government; half business, half government.”
An enterprise form of government has to live on its earnings, plus whatever grant funds, loans or other government moneys it can qualify for. EID, like other special districts, does get a small percentage of the property taxes with its district.
Director George Wheeldon put the need for a Cost of Service analysis in context:
• EID serves a district that ranges in elevation from 300 to 6,000 feet. It is not next to a major river.
• Detection of contaminants has improved from identifying parts per million (ppm) to parts per trillion (ppt). Pharmaceuticals and personal care chemicals are being identified in domestic water.
• Federal grant sources that helped pay for acquisitions are drying up. EID is more on its own.
“We’re paying more,” said Wheeldon. “We are trying to determine the most palatable way to spread costs around.”
Since the 1980s, when the county’s population grew rapidly, especially in El Dorado Hills, facility connection charges on new homes and businesses provided revenue that helped hold down rates. In the past couple of years, that source has dried to a trickle.
Like government agencies throughout the country, EID is facing rising costs, diminishing revenues and high customer expectations. Unlike most agencies that provide services, where the costs are mostly in personnel, water districts’ costs are mostly in the facilities that store, treat and distribute water to customers and collect and treat wastewater.
A recent example is the $2.1 million, odor-reducing biofilter system at the El Dorado Hills Wastewater Treatment Plant that was required under EID’s operating permit. The system is part of the two-year, $65 million upgrade and expansion of the plant.
Another example is the purchase of four new portable generators. One of their uses is to pump wastewater from the Four Seasons senior development uphill to the treatment plant. Replacement of the old generators was not optional.
Major acquisitions had to be made when the opportunity arose. When PG&E decided to divest the system of reservoirs and canals known as Project 184, EID had a small window of time to respond. When the U.S. Bureau of Reclamation was willing to sell the rights to Jenkinson Lake to EID, the district had to rise to the occasion or lose the chance to own the water rights.
“These are examples of investments for years to come, for future generations, said General Manager Jim Abercrombie.
In the past couple of years EID has been paring down costs. Wages from top to bottom are frozen and a new contract with the employee association reduces retiree pensions and health benefits for new employees. The district workforce has been reduced 30 percent and laboratory testing is now outsourced. Thirty-one employees were laid off. Debt was restructured to reduce payments. The amount of money anticipated to be spent on capital improvements in the next five years was cut in half.
To increase revenue, the district negotiated a new contract PG&E to buy hyrdropower. The new contract is projected to more than double the district’s income from power generation.
Like a mortgage on a house, bonds are sold to pay for capital expenditures and repaid by customer charges. Under the bond contracts, the district’s revenues have to be 25 percent more than the amount of principal and interest payments. The consequence of failing to do so is a loss of credit rating, resulting in millions of dollars in higher interest rates, or in the worst case scenario a takeover of the district by a court-appointed trustee for the bondholders.
Cost of Service Committee
Realizing that the district will have to raise rates, the board appointed a community-based ratepayer advisory committee to work with a consultant and EID staff to recommend a fair and equitable resetting of rates for service.
The community members are Kim Beal, Cameron Park; Albert Hazbun, El Dorado Hills; Tom Heflin, Camino; Doug Leisz, Placerville; and Greg Prada, Cameron Park. With the exception of Prada, the committee members are long-time civic volunteers with different perspectives who have respect for one another. Prada has expertise in health services and moved to El Dorado County in 2006.
Staff members assigned to the committee are: General Manager Jim Abercrombie, Communications Director Mary Lynn Carlton, Finance Director Mark Price, Drinking Water Manager Dan Strahan and Engineering Manager Elizabeth Wells.
The consultant is Greg Clumpner, senior financial manager and rate economist at HDR. Clumpner has 26 years of experience in water, sewer and recycled water projects, and in guiding water districts through the Proposition 218 process.
Before starting on the study, the committee adopted 12 guiding principles. One recognizes all federal, state and local laws and regulations. Another principle is to make rates as simple to understand and reasonable to administer as possible. Others are to make rates as cost-based as possible and to promote efficient customer use.
The committee’s approach was to establish uniform rates within a service class, with no differentiation by area nor by pumped vs. gravity water service.
The rates must meet Proposition 218 requirements, which is the method EID will use to legally reset the rates.
On the revenue side, the members took into account property tax revenue allocations, debt service allocations, overhead costs, best management practices and the domestic irrigation customer class.
After reviewing the debt service from several perspectives, the committee, by a vote of 9-1, established a ratio of 60 percent to water and 40 percent to wastewater.
Resetting water and sewer rates
Financial analyses that took into account water volume, total peak daily use, conservation, class, tiers, overhead costs and other data were used to determine the recommended rate changes. By far, the largest number of water accounts are single-family residences, 34,561 or 89 percent.
EID has 20,970 wastewater accounts; 19,825 are single-family residential. It has 4,056 recycled water accounts; 3,890 are residential dual-plumbed.
The proposed charges are measured by meter size. Most residences are 3/4 –inch. The committe unanimously decided to recommend charges revert from the current 70-30 split to the 50-50 split used in 2008. The charges would be based on a 50 percent base rate and a 50 percent commodity, or average volume used, rate. “We’re kind of unringing the bell here,” said Abercrombie.
The 50-50 ratio also follows state law that requires water districts with 3,000 or more customers to conserve water. The state goal is to reduce water use 20 percent by 2020.
If adopted, the proposed rates would supersede the previously adopted 2012 rates.
The proposed changes will affect users differently. Most classes will pay somewhat more for water service, but low- and medium-volume wastewater customers will see reductions in their sewer bills.
Low-volume single-family residential users currently pay an average of $140.18 every two months for water and sewer. The proposed rate would be $155 bimonthly, or $77.50 a month, a raise of $7.41 per month.
Medium-volume users pay a combined rate of $199.62; the proposed rate is $219.51, a difference of around $10 a month (from $99.81 to $109.76).
High volume users would go from $330.69 to $360.01 bimonthly, or $165.34 to $180 monthly, $15 more monthly.
Rates for all other residential, commercial, agricultural and industrial uses have been analyzed by the committee and recommendations made for resetting.
Following the presention by Clumpner and Abercrombie, Norris invited the committee members and public to comment. Committee member Heflin commended the general manager and staff for doing an “outstanding job of trying to educate us.” He said the committee spent hours making the Cost of Service fair and made a lot of compromises.
Committee member Albert Hazbun, who did the engineering design for recycled water for Serrano, said that recycled water customers have been paying a full fixed fee for potable water, although 20-30 percent of the water they use is recycled. He explained that the original concept for recycled water, accepted by EID and the regional water board, was to minimize discharge to the stream from the treatment plant. He worked in the committee to ensure future recycled water rates are fair to the customers.
Committee member Doug Leisz said the trend in water use is moving away from agriculture to domestic and industrial. He said agricultural rates require judgment and should be approached with compassion. He discussed the Domestic Irrigation classification, which may be moved to Small Farm, and the issues involved.
Speaking of the work done, he said, “We had spirited discussions and looked at different approaches. The model can be used in the future as a basis for adjustment when the data changes.”
Norris asked Clumpner whether the district owns the model and Clumpner responded in the affirmative. He also addressed Leisz’s concerns with agricultural rates and gave examples of instances where a rate or regulation can be waived or modified.
Greg Boeger, member of the county Agriculture Commission, said the process was good, the board and staff were open. Even though there are ongoing issues, he is confident that tweaking can be done.
Greg Prada said, “There are more than a dozen legal problems. Folks in Sacramento who are experts wouldn’t agree” with the study. He charged there are Proposition 218 violations.
Norris asked Clumpner, “Are we puttting ourselves in jeopardy?” Clumpner responded that he is not a lawyer, but courts have given different interpretations of Proposition 218 since it was passed in 1996. Osborne asked him to rank the process of the study compared with other water districts on a scale of 1 to 10, with 10 being highest. “This one was a 10,” said Clumpner.
Director George Osborne asked Abercrombie about the schools and golf courses. Abercrombie said the school administrators have been brought into the discussions. The Cameron Park Golf Course was given as an example of water conservation. With 1,700 senors detecting changes in weather conditions on site, water is used only as needed.
Valerie Zentner, El Dorado County Farm Bureau, said, “The district is evolving, as is the county. The rates have to follow along.”
Next board workshop and public meetings
At the end of the 3-1/2 hour discussion, the board members expressed the need to have another workshop to absorb all the details. Board member John Fraser said, “This board needs to be fully informed, but so does the public.”
The next board workshop on Cost of Service will be scheduled in early August. Two public workshops, one in El Dorado Hills-Cameron Park and one upcountry will be scheduled in late August and early September. Notices of the meetings will be posted on the EID Website and advertised in the Mountain Democrat.
Information on the Cost of Service analysis is available on eid.org.