Plan to raise water rates sparks controversy
by Ian James, originally posted on June 10, 2016
A plan to raise water rates in communities from Cathedral City to La Quinta is being questioned and scrutinized by customers who say they’re about to be hit with an excessive financial burden.
The rate increases, which are up for a vote Tuesday, would lead to significantly higher bills for residential customers, businesses and homeowners associations that buy water from the Coachella Valley Water District.
The district’s board members say the rate increases are needed to raise $250 million for new water treatment plants to remove the potentially hazardous heavy metal chromium-6, as required under a new state standard. The district is also trying to make up for a projected decline in revenue due to conservation.
Many opponents of the plan are pressing CVWD to reduce the rate increases or at least ease into them. Some customers have called for the agency to find ways to spend less on water treatment or come up with different financing approaches.
According to notices mailed to homeowners, the average monthly bill for a single-family home could climb by about $6, or 23 percent, starting in July. The increases will vary, though, depending on the customer and on how much water is used. Some homeowners associations could see rates jump by more than 50 percent.
The board will be voting on a single year of rate increases for now. But CVWD’s mailer details potential increases for the next five years. If those changes are adopted as proposed in future years, many customers would see their bills double by 2020 – and the rates of some HOAs could rise more than 150 percent.
“It’s ridiculous,” said Keith Comrie, whose homeowners association in Rancho Mirage has calculated its annual water bill could go from $60,000 to about $140,000 by 2020 under the proposal. “You’re going to see people in associations see their water bill go up $100 a month. That’s huge for somebody living on Social Security.”
The district’s board members say they intend to limit the rate hikes to the lowest level that would still allow them to qualify for a low-interest state loan to pay for chromium-6 treatment.
Some critics, however, argue CVWD’s elected leaders ought to be managing money very differently.
Debating rates and finances
One of those who has raised detailed objections is Randy Roberts, a retired businessman who lives in Palm Desert. He contends the water treatment plan is ill-conceived and CVWD’s board has long mismanaged funds.
Roberts accused the district of improperly using revenues from domestic customers to make up for insufficient revenues in the East Valley, where large farms benefit from particularly cheap water rates. Roberts argued the district has been undercharging those big agricultural water users and should have increased their rates years ago to adequately cover costs.
“We’re shouldering all of it,” he said. “They’re making us pay for these guys.”
Roberts pointed to a list of concerns in the district’s records. In 2013, for instance, documents show CVWD’s board chose to use $60.3 million from the Domestic Water Fund to provide a 15-year loan to the East Whitewater Replenishment Fund, which relies on revenues from fees charged to well owners. The loan has been used to pay for construction of the Thomas E. Levy Groundwater Replenishment Facility in La Quinta, and the funds are being gradually paid back.
“This money is owed to us immediately,” Roberts said. He said he thinks if those and other funds were paid back to the domestic customers’ fund and properly allocated, “there would be little need for additional rate increases.”
Roberts said his message for the district’s board is: “Give us back our money and come with a realistic proposal.”
John Powell, Jr., president of the CVWD board, denied those accusations and defended the district’s rate-setting process and financial management, including the 2013 loan.
“With the repayment of that loan, with interest, the domestic fund is whole,” Powell said. “And we take that into account when we set rates.”
Powell also took issue with Roberts’ contention that the district has been undercharging water users in the East Valley, and he pointed out that the rates are based on cost studies. Consultants hired by the district have carried out those “cost-of-service” studies for different categories of customers, and have recommended rates.
The district collects “replenishment assessment charges” from well owners across the valley to cover costs associated with importing water to replenish the aquifer.
Those rates vary in different parts of the valley. In the West Whitewater area, which stretches from north of Palm Springs to Bermuda Dunes, well owners as of July 1 will pay the recently increased rate of $128.80 per acre-foot. In the adjacent Mission Creek sub-basin near Desert Hot Springs, the rate is $123.20 per acre-foot. In the East Whitewater area – which stretches from Bermuda Dunes to the Salton Sea – groundwater pumpers pay $66 per acre-foot.
“The rates are based on the cost of service in each area,” Powell said. Water that flows from the Colorado River to the East Valley via the Coachella branch of the All-American Canal costs much less, he pointed out, than water the district obtains in the West Valley by trading its State Water Project allocation for an equivalent amount from the Colorado River Aqueduct.
“The west rate’s higher because the cost of water’s higher – by 10 times,” Powell said.
At one point last year, the district considered making the replenishment rates the same in all of those areas. A presentation from a CVWD study session on March 17, 2015, recommended increasing the East Whitewater rates to $116 per acre-foot starting in 2017, matching the other two areas. The presentation said the East Whitewater Replenishment Fund “has never fully recovered its costs due to its rate structure.”
But the board rejected that proposal and instead decided to stick with the lower rate of $66 per acre-foot for East Valley well owners following a study by Hawksley Consulting, which concluded that those rates “reflect the cost of providing the associated service.”
Roberts also objects to the district’s use of a portion of property tax revenues for the East Whitewater Replenishment Fund, and argues that money should be used for purchasing water supplies from the State Water Project, not for groundwater replenishment in the East Valley.
Increasing revenues from the district’s State Water Project tax have accounted for a large share of the cash flow into the fund. In the 2013 budget year, the CVWD board approved an increase in the State Water Project tax from 8 cents to 10 cents per $100 of assessed property value. The district has also decided to allocate more of the tax – two cents instead of the previous one cent – to the fund.
A rate study report prepared for CVWD by Hawksley Consulting projected the tax to generate more than $100 million for the fund between 2016 and 2020.
A 2012 legal opinion by the board’s attorney backed the practice of using the State Water Project tax revenues for groundwater replenishment in the East Valley. In March 2015, though, as the board was considering consolidating the rates, a CVWD presentation said a legal opinion from the district’s new attorneys concluded that the “SWP tax can only be used to pay SWP invoices.”
Roberts said that indicates the tax revenues should be used for expenses directly related to buying water from the State Water Project, and not for projects that involve the use of Colorado River water in the East Valley.
Asked about the 2015 legal opinion, Powell said “that’s privileged and it’s not in the public domain.” He said he couldn’t comment further about it, but he insisted that using the tax revenues for the East Valley costs of replenishing the aquifer is legal and fair.
“The legal opinion that we have on the State Water Project tax is solid, and we went forward on that basis,” Powell said. “The purpose of those funds is to replenish the aquifer, and that’s what we’re doing.”
The debate over water rates hasn’t been limited to rates for well owners and domestic water service. Roberts has also criticized recent changes to the rate structure for water from the Colorado River that is delivered by canal. He called it “disturbing” that Powell, who is president and CEO of Peter Rabbit Farms, has cast votes in support of low rates that benefit his business.
But Powell pointed out that it’s perfectly normal for board members of water agencies to be subject to the rates they approve – whether domestic rates or agricultural rates. And he insisted the entire rate-setting process has been carried out properly, guided by extensive studies of the costs for different categories of customers.
Questions about reserves, chromium-6
Some of the customers who are speaking out against the rate increases have questioned why CVWD needs to charge more when it holds substantial reserves.
As of December, a financial report showed the district had more than $484 million in total cash and investments, of which about $423 million was listed as “total unrestricted funds.” Last year’s budget projected reserves of $386.7 million at the end of the fiscal year.
The district’s reserves are split up into separate funds for purposes ranging from domestic water service to stormwater and sanitation. The district also has a policy that outlines its goals in maintaining sufficient reserves to prepare for risks such as unanticipated shortfalls in revenue.
The reserves for the Domestic Water Fund now total about $80 million, which Powell said is in line with the district’s guidelines. That’s good, he said, because the district needs cash to begin construction of chromium-6 treatment plants while it pursues a low-interest loan from the Drinking Water State Revolving Fund.
“We anticipate that we’re going to use before the end of this year about half of that reserve, about $40 million,” Powell said. “If we didn’t have that reserve, we would not be able to do this. So having the reserve has actually saved us quite a bit of money in terms of not having to go into the bond market and pay much higher costs to finance this project.”
The district is pursuing a state loan that at present offers an interest rate of 1.6 percent, Powell said.
“We don’t have excess reserves in domestic. We have the right amount of reserves,” Powell said. “We are going to use those funds.”
CVWD’s managers say treating water to remove chromium-6, also known as hexavalent chromium, will be their costliest infrastructure project ever.
California regulators adopted a new drinking water standard for the carcinogen in 2014, and water districts have been given until 2020 to comply with the limit of 10 parts per billion. CVWD officials have questioned the science behind the new state limit but say they’re obligated to meet the state’s requirements.
In large portions of the aquifer beneath the Coachella Valley, the groundwater has levels of chromium-6 that exceed the new state limit. While water agencies say the heavy metal occurs naturally in the area’s water supply, chromium-6 can also be released into the environment as pollution from sources ranging from cooling towers to industrial plants.
The water district, the largest of six water suppliers in the area, plans to install ion-exchange treatment units at about 30 of its 92 wells across the Coachella Valley.
The rate increases will affect the bills of nearly 93,000 single-family homeowners, as well as more than 3,400 multi-family accounts, more than 4,800 landscape irrigation meters and more than 4,500 commercial customers.
CVWD laid out its plans, including changes to the rate structure, in the mailer it sent to customers ahead of Tuesday’s public hearing.
The district’s figures show that under one scenario, customers living in a multifamily condominium and with a level of water use deemed “efficient,” could face an increase of 21 percent starting in July.
Homeowners associations that buy water for outdoor irrigation would see some of the biggest increases. HOAs often have a few dozen water meters for grassy areas, and the large proposed increases in the fixed rates for each meter would add up.
Representatives of HOAs have been writing to the district to protest the plan. Cal Lockett, executive director of the Coachella Valley chapter of the Community Associations Institute, said in a letter to CVWD that his non-profit organization opposes the major increases proposed for monthly fixed charges.
“We represent more than fifty percent of your customers,” Lockett wrote. “These rates are problematic for all associations and may put some associations at substantial financial risk.”
Associations will be forced to pass along the increases to homeowners through higher monthly dues. And HOAs will need up to a year to put in place higher assessments, Lockett said. “Forcing associations to pay these increases without providing a reasonable amount of time to properly raise assessments is setting them up to fail financially.”
‘Lowest possible increase’
At a CVWD meeting on Wednesday, several people told the board they think the proposed rates are excessive, particularly the big jump in the monthly fixed rates for homeowners associations.
Chrystina Wallen said her 50-home community, Casa Rosada in Indian Wells, has projected a 78-percent increase in its water costs by next June under the proposed rate increases.
“That is very difficult when you’ve already done your budget,” she said. “It will affect us severely as a small development.”
She said the district ought to challenge the state on the chromium-6 regulations. She also asked what CVWD has done with the money it has collected in penalty fees from customers who have failed to reach conservation targets during the drought.
CVWD eliminated those drought penalty fees after state regulators lifted mandatory conservation targets for local agencies in May. Those fees helped the agency’s finances as it lost $12.3 million in revenues between July 2015 and April 2016 due to conservation.
As people continue with their water-saving habits, the district will no longer have penalties to offset those losses in revenue. General Manager Jim Barrett has said that’s another factor contributing to the need for higher rates.
After listening to several people oppose the plan at Wednesday’s meeting, Powell said he’d support a smaller increase in fixed rates as long as it generates enough money to cover debt payments, a key condition for the state loan.
“I’m interested in the lowest possible increase to the rate that doesn’t disqualify us from accessing the state revolving fund loan, which is a very low-cost loan,” Powell said. “I’m suggesting that we take it down as much as we can.”
It’s not clear how much smaller the rate increases might turn out to be when the board votes on Tuesday.
Water rates increases
Here are scenarios for potential rate increases based on a notice the Coachella Valley Water District mailed to customers. The actual rates vary depending on the customer and the amount of water used. The CVWD board could decide to adopt smaller rate increases.
Single-family home – 3/4″ water connection, 20 ccf, efficient rates
Now: $28.30 per month
With increase: $34.74 per month
Multifamily – 3/4″ connection, 105 ccf, efficient rates
Now: $122.40 per month
With increase: $148.25 per month
Landscape irrigation – 1 1/2″ meter size, 193 ccf, efficient rates
Now: $227.66 per month
With increase: $348.16 per month
Commercial – 3/4″ connection, 52 ccf, efficient rates
Now: $65.24 per month
With increase: $76.74 per month
Public hearing on water rates
The public hearing on the proposed rate changes will be held at 9 a.m. on Tuesday, June 14, at the CVWD administration building, at 75515 Hovley Lane in Palm Desert.
The water district will accept formal written protests until Tuesday. Written protests may be mailed to: Coachella Valley Water District, Attention: Clerk of the Board, P.O. Box 1058, Coachella, CA 92236 or may be hand-delivered to: Coachella Valley Water District, Attention: Clerk of the Board, 51501 Tyler Street, Coachella, CA 92236; or 75515 Hovley Lane, Palm Desert, CA 92211; or at the public hearing on June 14. Protests must include name, signature, street address, parcel number and/or account number.