REPORT TO SHASTA COUNTY BOARD OF SUPERVISORS

BOARD MEETING DATE:  August  15, 2017
CATEGORY:  Regular - Public Works-6.

SUBJECT:

CSA No. 6-Jones Valley Water

Supervisorial District No. :  3

DEPARTMENT CONTACT:  Pat Minturn, Public Works Director, (530) 225-5661

STAFF REPORT APPROVED BY:  Pat Minturn, Public Works Director

RECOMMENDATION

Take the following actions on behalf of County Service Area (CSA) No. 6-Jones Valley Water: (1) Receive a new rate study; (2) direct staff to initiate rate increase proceedings based upon the new rate study; and (3) provide direction to staff.

SUMMARY

The CSA is insolvent.  A New Rate Study has been prepared per Board direction.

DISCUSSION

County Service Area No. 6 – Jones Valley Water (CSA) provides potable water to 493 active and 222 standby customers in Jones Valley.  Expenditures have exceeded revenues for several years and fund balance has declined. The CSA is insolvent.

In early 2017, a rate study was prepared (Old Rate Study).  Annual operating expenses of $224,180 were projected based upon FY 14/15 and FY 15/16 experience with inflation-adjusted labor costs.  Electricity and other non-labor expenses were not adjusted for inflation at that time.  The Old Rate Study recommended a four-year series of rate increases (Four Year Plan).  In response to criticism received at public meetings, an amendment to the Old Rate Study was prepared to raise rates over three years (Three Year Plan).  A majority of the rate payers protested the Three Year Plan rate increase thus preventing it from being implemented.  Subsequent to the majority protest, Ordinance No. 719 was adopted in order to reduce the financial losses in the CSA while prioritizing basic health and safety requirements.  Ordinance No. 719 found that a water shortage emergency exists in CSA No. 6-Jones Valley Water due to the financial inability to continue to provide potable water.

On July 18, 2017, the Board directed staff to bring forward a single-year rate increase to restore the CSA’s financial solvency (One Year Plan).  A New Rate Study has been prepared reflecting new information and conditions as noted in the paragraphs below.  It is still primarily based upon FY 14/15 and 15/16 expense experience owing to some atypical expenses in FY 16/17.  However, escalating and recurring expenses have been reconsidered in the New Rate Study.

Deficit:  The Old Rate Study was prepared in early 2017.  The CSA has since become insolvent.  Although significant expenses were incurred in 2017 to deal with turbid raw water, filter problems and rate proceedings that are not expected to recur, even without those expenses the CSA was operating at a loss.  The CSA’s minimal reserves were quickly exhausted and the CSA has a negative fund balance of $54,000.  The CSA owes another $28,000 for recent filter improvements.  It is predicted that there will be $5,000 in expenses incurred in the course of new rate increase proceedings.  An operating reserve of $20,000 is proposed.  These initial expenses total $107,000 and are to be recovered over three years ($35,700 per year).

Fees & Services:  Since the Old Rate Study was prepared, the Board adopted ordinances intended to recover amounts expended for providing certain services (late payments, unpaid balances, shut-offs, backflow prevention testing, etc).  It is anticipated that backflow prevention testing fees will offset labor costs to provide that service.  It is estimated that other fees will save or defray $12,000 in labor costs to provide the associated services.

Electricity:  The Old Rate Study was based upon FY 14/15 & FY 15/16 costs with no escalation for non-labor costs.  Most of these expenses are minor and stable but electricity is an exception.  PG&E bills have totaled $40,776, $43,590 and $50,995 over the last three fiscal years respectively.  Reference sources confirm this escalating trend and predict similar increases in the future.  A 19% total escalation in electricity costs from the Old Rate Study basis is included in the One Year Plan in order to account for this increase in costs. Based on this information, it is predicted there will be an increase of $8,000 in annual operating costs.

The New Rate Study takes into account additional increases in expenses that were not included within the Old Rate Study to account for subsequent conditions and information as summarized above.  These additional increases in expenses were not included in the Old Rate Study in order to decrease the impact of rate increases on the users.  A One Year Plan is now proposed to balance the CSA’s books (see table below).  The One Year Plan rates approximate the final year in the previous Three Year Plan.  Staff considers this to be the minimum proposal to potentially maintain service and achieve a positive fund balance within three years.  Given the current fiscal situation, the New Rate Study does not include a capital reserve for pump replacement, filter rehabilitation or other substantive capital needs.  However, in the long-term, rates will have to include a reasonable capital reserve in order to prepare for those inevitable costs and maintain the long-term viability of the system.

ALTERNATIVES

The Board may decline to initiate a new rate increase at this time.

OTHER AGENCY INVOLVEMENT

The County Administrative Office has reviewed this recommendation.

FINANCING

The CSA is presently insolvent.  There is already a General Fund impact.