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Archive for the ‘Independent Rates Oversight Committee (IROC)’ Category

Water rates and the cost of providing service in San Diego

Posted by George J Janczyn on June 26, 2012

Periodically water and wastewater rates paid by San Diego residents becomes a hot topic and with November elections drawing nearer the issue is certainly going to get more coverage, much of it political, in the press. But if you want to truly understand water rates you need to look beyond the surface rhetoric of politicians (recall one mayoral candidate who said he can cut rates by 15% and freeze them that way for five years) and press reports that sometimes inflame more than inform.

Nobody likes to see water rates go up but the City of San Diego’s unique geographic and climate characteristics make expensive water inevitable since most of it has to be imported from great distances. Relying on distant water sources also makes San Diego vulnerable to supply reductions from those sources (Colorado River and Northern California) and potential disasters that could cut the supply entirely for an extended period of time.

Reducing dependence on water imports by developing more local supplies through water recycling and potable reuse is expensive.* Protecting against potential supply cutoffs by increasing local storage capacity is expensive. Water conservation is the most cost-effective means of reducing demand for imported water to the extent that people are willing to conserve. In general, these things are understood by informed residents. What’s not well understood yet is what may happen to water rates in the future.

*(although the City of San Diego doesn’t plan to purchase desalinated water in the foreseeable future, if the Poseidon plant in Carlsbad deal with the County Water Authority (CWA) comes together the city will, however, be required to pay a certain percentage towards that project as part of the cost of being connected to CWA’s infrastructure)

Politics aside, for a better understanding of issues underlying water rate structure there is useful information out there: the 2010 Urban Water Management Plans for the City of San Diego and for San Diego County; the city’s 2011 Recycled Water Master Plan and Recycled Water Study. There’s also the city’s new Comprehensive Water Policy that was implemented following a drive by city councilmember Sherri Lightner to update the city’s old and sometimes conflicting policies.

More immediately, the city has contracted with Black & Veatch (a global engineering, consulting, construction and operations company specializing in infrastructure development) to conduct a Cost of Service Study.

The information and recommendations that will result from this study, due to be completed around the end of the year, will play a large role in determining water and wastewater rates in the coming years.

A very good presentation on how this new study will help determine a new rate structure for San Diego was given at the June 18 meeting of the Independent Rates Oversight Committee.

You can listen to the presentation (including an interesting Q&A afterwards) and view the Powerpoint slides just below.

The presentation was given by Black & Veatch Director Ann Bui, Principle Consultant Brian Jewett, and Patricia Tennyson from Katz & Associates. Thank you to IROC representatives Ernie Linares and Monica Foster for their assistance in securing permission for me to record a copy of the presentation. Apologies for a few seconds of interference about halfway through the recording:





Posted in Independent Rates Oversight Committee (IROC), Water, Water rates | Tagged: , | Leave a Comment »

San Diego oversight committee on water operations issues 2011 annual report

Posted by George J Janczyn on February 23, 2012

The San Diego Independent Rates Oversight Committee 2011 annual report has been released. The committee serves as an official advisory body to the Mayor, City Council and City Manager on policy issues relating to the oversight of the Public Utilities Department operations (water and wastewater) including, but not limited to resource management, planned expenditures, service delivery methods, public awareness and outreach efforts, high quality and affordable utility services. The report will eventually be available at the City’s website (


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San Diego city audit calls for improved water/wastewater management

Posted by George J Janczyn on October 19, 2011

[new headline; the old one confused people]

An audit of the San Diego Public Utilities Department (PUD) Capital Improvement Program (CIP) was received on Monday Oct. 17 by an approving Independent Rates Oversight Committee (IROC). The report, performed at IROC’s request and prepared by the Office of the City Auditor (OCA) issued four broad findings with 18 recommendations.

PUD is responsible for the city’s water and wastewater systems.

Erin Noel, Performance Auditor at the City Auditor’s Office, presented the report to the committee, provided additional background, and answered questions.

The report summarized: “Steps have been taken to implement asset management and planning, but improvements are needed to more effectively manage projects.

Among the areas for improvement noted:

  • Public Utilities has assessed the physical condition of many above-ground assets, but has only assessed about one percent of its water transmission pipes.
  • Public Utilities has developed three master plans to address capital needs — the Water Facilities Master Plan, Draft Metropolitan Wastewater Plan, and Municipal Wastewater Collection System Master Plan — but only the Water Facilities Master Plan is comprehensive and in-line with best practices.
  • For smaller projects valued between $100,000 and $2 million, the City’s average delivery costs are 14 percent higher than the statewide average of 33 percent.

(Findings are also summarized in an OCA highlights sheet.)

Of particular interest to IROC members, in addition to the report’s findings, was “Management’s Response to Report Recommendations” submitted by PUD Director Roger Bailey. While management agreed with most recommendations, it disagreed with several, especially with regard to process changes in recommendations #16 and #17, with management indicating that other processes already in place can or do accomplish the same things.

As committee members questioned Ms. Noel about the disagreements, she indicated that it wasn’t really the Department that disagreed with the recommendations, the objection came from higher up “in the administration” (i.e., Mayor’s Office). The outcome then, is a difference of opinion between OCA and the Mayor’s Office as to whether the recommended steps are already being done.

When members asked how the standoff would be resolved, Ms. Noel indicated that a followup process will take place in Nov-Dec, and that the issue would also likely go before City Council, possibly in January.

Overall the committee was impressed by the auditor’s view on the disputed issues. Initially Andrew Hollingworth moved to “accept” the report, but Colin Murray suggested that “support” would better convey the committee’s interest in the auditor’s position. Revised motion moved (Murray), seconded (Don Billings), and passed unanimously. Committee Chair Jim Peugh later said “I think the auditor’s report made a lot things clearer and I hope we can build on the information that was in the report over the next year.”

Click here for the complete audit report. Below are the slides from Ms. Noel’s briefing to the committee:


Posted in Independent Rates Oversight Committee (IROC), San Diego Public Utilities Department (PUD), Water | Tagged: | Leave a Comment »

Sneak preview: draft annual report from the San Diego Independent Rates Oversight Committee

Posted by George J Janczyn on August 15, 2011

[possible subtitle: Charting San Diego’s water future]

The 2010 draft annual report from the San Diego Independent Rates Oversight Committee (IROC) was on the agenda for today’s meeting.

Water conservation, water rates (and how the Carlsbad desal project may impact them), recycled water, capital improvement programs, and wastewater treatment are among the topics committee members are interested in. Since I’ve expressed concern in earlier blog posts that not enough City effort seems to be going towards large-scale potable reuse, I was happy to see the report emphasize that we should not wait for the completion of the Water Purification Demonstration Project to expand our vision for potable reuse. The Environmental & Technical Subcommittee also mentioned: “An additional concern is that sufficient planning has not gone into what needs to be done to move ahead with an operational Indirect Potable Reuse (IPR) system…”

Approval on the annual report was deferred because the Finance Committee portion was seen to contain excessive detail and be inappropriate for an annual report. Indeed, the City Comptroller said at the meeting that he was one of maybe only 10 people in the city who would even understand it (here’s the draft PDF, judge for yourself). The Finance report will be rewritten and discussed at the next meeting.

A copy of the IROC draft annual report is displayed below (or if you prefer use this link for the PDF). Please remember that this is a draft and is subject to further revision.

Posted in Government, Independent Rates Oversight Committee (IROC), Water | 3 Comments »

The unsettled water rates in San Diego

Posted by George J Janczyn on July 19, 2011

San Diego’s most recent water rate hike last March happened because the Metropolitan Water District of Southern California (MWD) raised its water rate to the San Diego County Water Authority (SDCWA) which in turn raised the water rate for county water agencies that it supplies (including the City of San Diego). San Diego, of course, typically needs to import 85-90% of its water so it doesn’t have much recourse.

As a result, the City Council reluctantly approved a “pass-through” water rate increase for City customers effective March 1 to cover the SDCWA rate hike. The Council also sought to exert some pressure on MWD.

The perceived pressure point was SDCWA’s lawsuit against MWD charging that it illegally inflates the price of water for San Diego County. The City naturally supports that position so when approving the pass-through increase the City Council asked the City Attorney to recommend whether the city should join SDCWA’s lawsuit against MWD, and also asked the Mayor’s Intergovernmental Relations Department to develop a recommendation for seeking state legislative support for auditing MWD pricing practices.

Here we must note that an underlying issue in SDCWA’s lawsuit against MWD is that in addition to buying water from MWD, SDCWA buys Colorado River water from Imperial Valley as part of the Quantification Settlement Agreement (QSA). However, there are no water pipelines from Imperial Valley to San Diego so SDCWA needs to pay MWD to capture Imperial Valley’s water upstream at Lake Havasu and transport it through the Colorado River Aqueduct to San Diego’s pipelines.

MWD’s charge to transport that water (wheeling charge) is a big deal. SDCWA says MWD illegally inflates the wheeling charge with expenses unrelated to the Colorado River Aqueduct (e.g., costs associated with obtaining State Water Project water from Northern California).

The disagreement over water transport pricing is an old issue that was already evident when the QSA was enacted in 2003. The Record of Decision actually memorialized that “…MWD and SDCWA do not agree on the nature or scope of rights to the delivery, use or transfer of Colorado River water within the State of California.”.

So when MWD and SDCWA signed their agreement for transporting the water, the contract included a provision that “after conclusion of the first five years, nothing shall preclude SDCWA from contesting in an administrative or judicial forum whether such charge or charges have been set in accordance with applicable law and regulation.”

Which is exactly what SDCWA is now doing with its lawsuit.

Meanwhile, on another front around that time, MWD had been developing incentive agreements to provide rebates and subsidies for local conservation and recycled water programs. Those programs are funded through MWD’s Water Stewardship Rate fee charged to all MWD member agencies.

Here’s where MWD got tricky: in 2004 MWD adopted so-called Rate Structure Integrity (RSI) language in the Water Stewardship agreements to the effect that if a member agency “files or participates in litigation or supports legislation to challenge or modify Existing Rate Structure…Metropolitan may initiate termination of this Agreement.”

So, after MWD refused to modify its wheeling charge and SDCWA filed suit, in response MWD recently exercised its option to terminate support for some of the San Diego County programs. It partially retained a few residential and commercial agreements but decided against implementing larger agreements including funding for a San Vicente Recycling program in Ramona and a subsidy for the Poseidon Desalination Project in Carlsbad.

How would that affect the City of San Diego? At an Independent Rates Oversight Committee (IROC) Environmental & Technical Subcommittee meeting on July 10, Cathy Pieroni, Principal Water Resources Specialist for the Public Utilities Department reported that MWD’s Water Stewardship cuts would not impact existing MWD contracts with the City and that the City could still potentially obtain MWD funding for up to $250/AF for Indirect Potable Reuse (IPR) water if the Water Purification Demonstration Project materializes as a full-scale operation.

As for the City Council’s request that the City Attorney investigate possible legal action that could be taken to apply pressure on MWD over the rate hike issue, City Attorney representative Tom Zeleny said that his office will likely recommend against legal action, saying it “would probably not be cost-effective.” He said the official report from his office will be on the August agenda for the City Council’s Natural Resources and Culture Committee.

On the issue of the Council’s request to the Mayor’s Intergovernmental Relations Department, it appears the Mayor may have influenced Assemblyman Nathan Fletcher to introduce AB 779 relating to establishment of water district oversight committees. Faced with opposition (including MWD’s considerable influence), at the last minute Fletcher pulled the bill from its scheduled hearing indicating he would make it a two-year bill and proceed later.

MWD’s opposition to Fletcher’s bill can be seen in its May 16 board meeting minutes where it revealed its suspicion that AB 779 was related to the San Diego City Council’s desire for legislative intervention over MWD water rates:

“There is speculation, however, that AB 779 might be amended and used as a legislative vehicle to assist the San Diego County Water Authority (SDCWA) in its lawsuit against the Metropolitan Water District of Southern California (Metropolitan) which challenges Metropolitan’s water rates and charges. A judicial victory by SDCWA would result in a significant increase in the cost of water for Metropolitan’s customers outside SDCWA’s boundaries. The rationale for this speculation is based on a memorandum circulated by the San Diego City Council after the filing of the lawsuit that details potential parallel strategies regarding the issues addressed in the lawsuit. These strategies included seeking a Joint Legislative Audit to perform a financial audit of Metropolitan as well as sponsoring legislation to create an Independent Rate Oversight Committee for MWD to evaluate the price charged for water as well as operations.”

So for the time being AB 779 is stalled and prospects are uncertain, it doesn’t look like the City will pursue legal action, and other legislative initiatives seem iffy.

Instead, for the short term, the City will try to “absorb” the SDCWA rate increase announced for next fiscal year: Mayor Sanders has proclaimed that the City won’t raise water rates next fiscal year. Instead, he wants the Public Utilities Department (PUD) to take the hit from the higher expense.

Discussing the Mayor’s announcement at yesterday’s IROC meeting (July 18), Assistant PUD Director Alex Ruiz said the department will find an accomodation because local water supplies increased considerably during the last rainy season. As a result the department figures it can draw “up to” 20,000 AF of local supplies to avoid buying about $8.75 million in imports from SDCWA. The department is also looking at more staffing cuts and creating further “efficiencies.”

Although the action hasn’t been labeled a “deferred” price increase, that’s what it looks like. SDCWA’s higher price isn’t going away at the end of the next fiscal year and there will likely be another price hike announced for the following year as well. So at some point the City will have to cover the higher costs either by passing them on to consumers or by further “absorbing” expenses within the department at some risk to infrastructure and operations. And if you think capital improvement projects, maintenance and repairs, and EPA consent agreement work isn’t piled up already, think again.

Will San Diego have to “catch up” with deferred water rate increases? What’s the risk of drawing down the City’s emergency storage capacity now that it has some water saved? Are we using precious reserves to temporarily defer expenses as a political expedient? And what about popular support for setting water rates that discourage waste? Does artificially keeping rates down send a mixed message about that?

Whatever happens, I don’t think broader public understanding will come from would-be mayors accusing PUD of mismanagement over water rates and saying things like “I pledge to cut rates by 15% and freeze them for five years without any delay in our infrastructure investment and while maintaining the highest standards for water quality.”


Posted in Independent Rates Oversight Committee (IROC), Metropolitan Water District of Southern California, San Diego County Water Authority (SDCWA), Water, Water rates | Tagged: | 4 Comments »

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:


Posted in Independent Rates Oversight Committee (IROC), Water | Tagged: , | 5 Comments »

San Diego water rates to go up in March

Posted by George J Janczyn on December 14, 2010

By now, just about all San Diego city residents should have received a notice of public hearing to be held on January 24, 2011 to discuss a requested water rate increase. The increase is needed to cover the new price of water charged by the San Diego County Water Authority (SDCWA) — the imported water wholesaler supplying the City of San Diego and 23 other member water agencies in the county.

Although SDCWA’s price increase to its member agencies takes effect January 1, 2011, the City’s proposed rate increase would not begin until March 1, so there will be a few months where water rate revenues will be out of sync with what the City has to pay for water. The San Diego Public Utilities Department (PUD) believes it can absorb the difference for a few months, but if the March 1 increase does not take effect, something will have to give.

Many water agencies throughout the county have already approved rate increases for the same reason. In addition, some of them have taken the opportunity to bundle in additional operations and maintenance costs into their rate increases, so they are doing more than simply passing along the increased price of water.

San Diegans are not being asked for those extras. The higher price of the water itself is the only thing residents are being asked to pay for. For single-family residences — the majority of San Diego water customers — the increase will amount to about $0.47 per month. [late clarification: that amount pertains only to the increase in the base fee. The overall increase in the bill can be $3.41 for for up to 14HCF of use — see comments]

San Diego is in the middle of the pack. From the 2006 Water Cost of Service Rate Study

Practically speaking, it looks pretty straightforward and non-controversial. But politically there are complications.

For one thing, it is already known that SDCWA will increase the wholesale price of water again in 2012, so San Diego residents will again be asked to approve a “pass-through” rate increase next year.

For another, the City will eventually need to expand its water capital improvement program (to replace overaged water mains, etc.) and cover other higher costs.

The Public Utilities Department has been engaged in longer-term thinking about the water rate structure and the Independent Rates Oversight Committee (IROC) has been monitoring developments and giving feedback on that topic.

To that issue, yesterday the IROC held a special workshop — a presentation from PUD on the framework for the rate setting process. The nearly two-hour presentation by PUD Assistant Director Alex Ruiz went into detail about the many complex issues involved in designing rates. To list a few of the rate drivers: operations and maintenance; pumps, plants, and pipes; bond coverage requirements; rate affordability; current economy; pensions; trust/transparency; taxes; CIP financing; regulations.

The current rate structure was last overhauled via a four-year capital improvement program in 2007. The 2007 program was based on the San Diego Water Cost of Service Rate Study completed in 2006. FY 2011 is the final year for that program and PUD is now gathering information for a new rate review, with a new cost of service study expected to begin in FY 2012.

Mr. Ruiz also briefly characterized ongoing staff discussions about a future revision to the rate structure possibly incorporating some of the techniques used by the Irvine Ranch Water District for taking household needs into account in a rate structure that encourages conservation and penalizes waste.

Meanwhile, City Councilmember Carl DeMaio is campaigning against the increase by introducing tangental arguments that, especially in the City’s current economic malaise, tend to generate emotional responses. Based on a “white paper” he delivered in September, DeMaio makes charges of “empty promises” and “out of control labor costs” and that “flaws and weaknesses” in PUD’s management and the overall rate structure have not been addressed and therefore (as punishment, I guess) this pass-through increase should not be approved until those issues are addressed.

(Incidentally, while observing the IROC workshop I got to wondering if Mr. DeMaio ever attends IROC meetings. IROC’s administrative support person Monica Foster wasn’t sure how many times, but committee member Gail Welch recalled that did he come to one meeting long enough to inform the committee of his priorities as a councilmember.)

Ultimately, the whole rate structure issue can appear to boil down to this dynamic between costs and rates: on the one hand you can total the costs and then calculate what rates should be to pay for them; or you can determine what ratepayers can afford to pay and then decide which costs can be funded with that amount. Somewhere in that mix is the answer.

The immediate rate increase bypasses those difficult issues for the time being. Carl DeMaio’s diversions notwithstanding, the question is simply whether we’re willing to cover the commodity cost of water that the City has to pay SDCWA.

For further information, here’s a report by the San Diego Independent Budget Analyst (see also the City Auditor’s review of calculations used for the proposed increase).


Posted in Independent Rates Oversight Committee (IROC), San Diego County Water Authority (SDCWA), Water, Water rates | Tagged: , | 6 Comments »