County Service Area No. 6 – Jones Valley Water (CSA) provides potable water to approximately 500 customers in Jones Valley. The Jones Valley Subdivision was created in 1964 with a private water system. The system’s wells were inadequate to meet demand. In 1980, the CSA was formed and grants were obtained to pump, treat, store and deliver water from Shasta Lake. In 1991, the Silverthorn Subdivision was annexed. In 1997, additional grants and loans were obtained to upgrade the system. In 2012, grants and loans were obtained to annex the Elk Trail neighborhoods. There have been other minor annexations over the years. The resulting system serves a relatively small population base spread among several pressure zones.
Fiscal Conditions
The CSA is presently insolvent. The last general rate increase took effect on January 1, 2012. CSA finances were stable for several succeeding years but have since deteriorated. Operational expenses have increased due to general inflation coupled with new regulatory mandates. Turbidity associated with recent winter rains incurred additional costs (operator time, disinfection byproducts, filter rehabilitation, filter media replacement, etc). The Community Advisory Board (CAB) advocated for various expenditures to address lost water. Grants are potentially available. While planning grants do not need to meet the 1.5% of MHI requirements, grant guidelines for construction or renovation work generally require communities to contribute at least 1.5% of their MHI to fund CSA expenses. CSA residents presently pay around 1.1% of their MHI for this purpose.
Low water rates, rising expenses, state regulatory mandates, and leak detection activities have depleted the CSA’s reserves. Last spring, County staff prepared a rate study which proposed a four-year series of rate increases (Four-Year Proposal) and presented it to the residents and the Community Action Board. The Four-Year Proposal was designed to fund operations and a moderate reserve. The Four-Year Proposal did not account for future capital expenses and replacement of infrastructure as needed. Residents objected so the fourth year was omitted from the final proposal (Three-Year Proposal). The Three-Year Proposal was advanced with the caveat that an additional increase may be required in the future to obtain grant funding. The rate payers protested the imposition of the Three-Year Proposal pursuant to Proposition 218 and the Board of Supervisors was prevented from adopting the rate increase. CSA rates thus remain near 1.1% of MHI based upon census data and the CSA is ineligible for construction grants.
Fees
Most utility providers routinely charge fees for late payments and other incidental services. At the Board’s direction, staff has prepared revised fee ordinances for all of the CSAs for the Board’s consideration next week. Charges have been proposed for late payments, unpaid balances, shut-offs and backflow prevention testing. These charges have been fashioned to recover actual costs from responsible parties and will not restore solvency to County Service Area No. 6 – Jones Valley Water in and of themselves.
Median Household Income
CSA residents have a MHI which is approximately 80% of the statewide average based upon available census data. MHI is an important community metric because it establishes a community’s potential eligibility for grant assistance. If a community has an MHI less than 80% of the statewide average then that community is classified as a Disadvantaged Community (DAC) and may be eligible for state and federal construction grants.
At the County’s request, RCAC recently submitted a proposal (Attachment #1) to prepare an MHI study of CSA customers at State Revolving Fund (SRF) expense. As proposed, RCAC would request income data from CSA residents using County mailing lists. The County would inform rate payers that RCAC would be contacting them and requesting information in order to prepare the study and requesting their participation. RCAC may later engage in follow-up discussions with the CSA customers.
Rate Study
RCAC has volunteered to prepare a rate study (Attachment #2). The proposal notes that the County has already prepared a rate study with no major flaws in its logic. A revised rate study would require RCAC to secure an understanding of operational and infrastructure needs in the CSA. RCAC’s proposal calls upon the County to provide infrastructure, budgetary, operational and engineering information. The most problematic new data need would entail a capital improvement plan and schedule of improvements for the CSA. Such an undertaking would typically be contracted out to a consultant at a cost of $10,000-100,000 depending upon the degree of specificity. The County rate study supporting the Four-Year Proposal and the Three-Year Proposal did not include future costs of repairing or replacing the existing infrastructure and constructing any new infrastructure if needed. The studies were prepared assuming that infrastructure grants would be available to cover these costs. The replacement-cost of CSA infrastructure is estimated to be over $20,000,000. A typical 2% depreciation rate (50-year life) would yield an annualized capital cost of $400,000 which far exceeds the total water bill revenues to the CSA. This demonstrates the need for grants.
Study Results and Recommendations
RCAC’s Rate Study proposal says that that their rate study model will recommend a rate which is NOT the rate that is expected to be implemented. Rather, it is a start for a discussion between County staff, the community and RCAC. After the County, community representatives and RCAC agree on a rate, RCAC will present the rates to the community during several community meetings. The CAB is presently suspended due to a lack of a quorum so it is not clear who RCAC proposes to represent the community prior to the community meetings.
RCAC’s Rate Study proposal appears to be based on the premise that the actual rates recommended will not fully provide for operational and future infrastructure needs. Additionally, the process proposed by RCAC for arriving at the rates ultimately presented to the Board is problematic in that it appears to be derived from negotiation with the rate payers rather than rate study that will determine the actual costs to sustain the CSA over the long-term. Additionally, RCAC’s proposal explains that their contractual relationship would be with the State and not the County per se. Preparation of a rate study may very well be appropriate and should provide useful information. However, more information and analysis is necessary to determine whether RCAC’s proposal is in the best interests of the County or whether the County should contract with another entity to provide such a study or to prepare a study itself. The Department intends to consider the available options regarding a rate study especially in light of the recent measures to curtail expenses and will report on the analysis as appropriate. The State also regulates the CSA and dispenses SRF grants so they would substantively control the CSA’s fortunes.
Leak Detection Study
The CSA has received a $200,000 planning grant to study system losses and propose improvements (Note: planning grants are exempt from the 1.5% MHI requirement). On January 24, 2017, a Request-For-Proposals was issued. Four engineering firms were contacted. A single proposal was received from PACE Engineering, Inc. They are familiar with the CSA and their proposal is deemed to be competitive. It is important to consider that the planning grant will merely analyze the problem and suggest possible solutions. Ultimately, whether any of the possible solutions are able to be implemented will depend on the rates paid by the users, the expenses of operating the system and the availability of any grants. The current requirements specify that the rate payers meet the 1.5% MHI requirement to be eligible for construction grants. As the planning grant is available and could provide important information about the system, the Department recommends approving and authorizing the Chairman to sign an agreement with PACE Engineering, Inc. for leak detection and design services. County staff costs to direct and assist PACE Engineering, Inc. are reimbursable through the grant.
Alternate Organizational Models
Residents have previously considered annexation of the CSA to another district. At the Board’s direction, staff recently sent inquiries to three candidate districts. Bella Vista Water District and Mountain Gate Community Services District both expressly declined to proceed with an annexation. The Anderson-Cottonwood Irrigation District has not responded to the County’s request.