IROC endorses “in concept” proposed San Diego water policy
Posted by George J Janczyn on February 22, 2011
The Independent Rates Oversight Committee (IROC) met today with an agenda that took more time than was scheduled, even though meetings were recently lengthened to 2 1/2 hours. Several items had to be deferred for a future meeting as the time approached 3 hours.
San Diego City Councilmember Sherri Lightner presented a draft copy of her proposed “Comprehensive Policy for a Sustainable Water Supply in San Diego.”
Background: in Oct 2009 Lightner wrote a memo complaining about inconsistencies in San Diego’s water policy and lack of follow-through on expansion of purple pipe infrastructure for delivery of recycled water for irrigation and industrial use. There was apparently no further action taken on that memo, however, and it languished for most of the year.
Possibly frustrated, in July 2010 Lightner voted in opposition to the advanced IPR water treatment facility for the city’s Water Purification Demonstration Project (it passed 6-2 with DeMaio also voting against), citing the lack of a comprehensive water policy as a reason for her vote.
Lightner renewed her call for a new policy in memorandums submitted to the Natural Resources and Culture Committee in February 2011, and the draft submitted to IROC today is the first stab at that. I’ve only scanned it, but my initial impression is that it needs more focus and refinement. Read it and decide for yourself, though. A scanned copy is reproduced at the bottom of this post.
IROC voted to “support in concept” Lightner’s draft policy, although member Andrew Hollingworth expressed concern that such a policy not become a “back door to implementing growth control.” Also, chair Jim Peugh indicated that he prefers less emphasis on purple pipe and more on IPR (indirect potable reuse).
In other committee action, Barbara Lamb gave a presentation on the city’s Managed Competition Program which, despite being billed as not outsourcing and not privatization, could have that effect if a city department loses a function to an outside contractor and “goes away.” Mr. Hollingworth observed that he has trouble seeing how the Public Utilities Department can compete on projects when PUD pension costs are double those in the private sector. PUD Assistant Director Alex Ruiz countered that he’s not so sure the difference is that extreme and that the department also has other major strengths with which to compete.
There was a brief update on auditing to be done on the uses of PUD funds associated with rate increases and other financials.
The Harbor Drive Trunk Sewer project funding from DRES reserves was approved. Hollingworth voted no because he thought it an inappropriate use of DRES funds, while the prevailing sentiment was that it was a cash-flow adjustment for a critical project required by an EPA consent decree, not a raid of reserves for petty reasons.
Regarding the sale of PUD land to the Carlton Oaks Country Club, chair Peugh expressed concern about giving up a regular source of income from that property in exchange for a one-time sale payment. City staff are convinced, though, by the country club’s claim that a sale is the only way it can afford to maintain operations there. In other words, without a sale, the club will cease operations and income will stop and there are no other potential users or buyers.
Here’s Lightner’s draft policy:
GrokSurf's San Diego 
K. Svet said
Regarding the raiding of the DRES fund for the Harbor Drive Sewer Project, the DRES is a reserve fund that can be used for one of two purposes: 1) to help offset future rate increases or 2) for new capital improvement projects. The Harbor Drive Sewer Project is one of the CIP projects identified in the 2006 Cost of Service Study and, as such, has been fully funded by the past four years of 6.5% rate increases. City Staff concurred, and indicated that the transfer of DRES funds was needed only for cash flow purposes, since for some unknown reason budget was not appropriated for this fiscal year. The DRES is now being proposed to fix a short-term cash flow problem. What is more alarming is that there was no mention of paying back the fund at a later date. Surely there are other more appropriate funds or reserve accounts that could be used to cover the $4.7M cash flow shortfall. The purposed raiding of the DRES fund for this purpose sets a troubling precedent that should not be taken lightly. Andy Hollingworth, who is the only audit/accounting professional on IROC, understood this but unfortunately was not able to convince the other members.
George J. Janczyn said
Actually, Assistant Director Ruiz did say that he thought a good portion of the DRES money could be restored in the following fiscal year.
K. Svet said
George, I didn’t catch that comment at the meeting. That is somewhat reassuring, but why a “good portion”? All of the money should be restored, since the Harbor Drive Sewer Project is already fully funded through the rate increases. Furthermore, actual costs are projected to be less than the original project budget. Even if the budget were to be exceeded, there is available contingency money in the CIP dedicated for this purpose. What assurances are there that the money will be restored to the DRES fund, and how will the money be tracked? It is not good practice to loan money without a definite payback plan, and there doesn’t appear to be anything like that in place for money transferred from the DRES. Money for the 4-year CIP is supposed to be tracked, per the conditions of the rate increase, and IROC is supposed to be making sure that this happens, not approving more sloppy accounting practices.
George J. Janczyn said
“Good portion” is my term…Mr. Ruiz said it differently but the gist was that DRES money to be used now will offset the need to use all of the project money budgeted for the future, so in theory there will be leftover money after project completion which can go back into DRES. Obviously he was not going to go out on a limb and say for sure that the entire amount will be replaced…
K. Svet said
Mr. Ruiz needn’t have gone out on a limb. The contingency in the CIP is for cost overages. Why do they have a contingency if it’s not going to be used for situations like these? Furthermore, to date there are 7 completed CIP projects and 3 canceled projects, which result in a savings of $31.3M over the rate-case budgeted amount. This surplus has not been transferred into the DRES. Wouldn’t it make more sense to transfer this surplus into the DRES and then take from that money? That is how it should work according to the City’s reserve policy. The point is that enough money has been collected for this project, and there is a contingency if extra money is needed. The money currently in the DRES should not be touched if it can potentially be used to offset future rate increases. If the City is allowed to draw down the DRES whenever there is a cash flow problem, the ratepayers will never see rebates and the money collected from rate increases will be harder and harder to track.