Wednesday, April 23, 2014
PLACERVILLE, CALIFORNIA
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EID GM says gadfly misguided

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From page A1 | September 2, 2011 | Leave Comment

JIM ABERCROMBIE

During the 10 months that the Cost of Service Ccommittee met with El Dorado Irrigation District Manager Jim Abercrombie, one person was consistently on the losing end of 9-1 votes. Without Cameron Park resident Greg Prada’s “no” vote the committee would have been unanimous as it plowed through financial minutiae to assign costs to EID’s different services.

Committee members besides Prada included Kim Beal of Cameron Park, Albert Hazbun of El Dorado Hills,Tom Heflin of Camino and Doug Leisz of Placerville. District staff members of the committee included Abercrombie, Communications Director Mary Lynn Carlton, Finance Director Mark Price, Drinking Water Manager Dana Strahan and Engineering Manager Elizabeth Wells.

After the committee completed its work Prada, who describes himself as a retired health care executive, continued to pepper EID officials and others outside the district with e-mails and speak out at EID meetings, especially workshops about the Cost of Services study.

At the Aug. 23 workshop Prada made 12 allegations, to which the Mountain Democrat requested Abercrombie respond in writing. The 12 e-mail allegations and General Manager Abercrombie’s written response follow below.

Allegation 1: 65 percent of 1,300 Domestic Irrigation customers … (ellipsis Prada’s) a rate category “made up” (quote marks by Prada) by EID and not in existence anywhere else in California.

Response: The EID staff and consultant brought this issue to the COS committee’s attention as an issue to be resolved during COST implementation. Currently 1,287 Domestic Irrigation customers are grandfathered into a rate schedule not available to other customers. It was the consultant’s recommendation that this customer class either be opened to all customers or consolidated with another rate class, such as single-family residence or small farms, providing they meet the established requirements.”

Allegation 2: Ag rates as much as 95 percent lower than residential rates per acre-foot due to:

a. Different cost assignment rules/cost exclusions

b. use of different base years

c. use of different conservation assumptions

d. Ag non-participation in excess capacity interest costs that all other customers illegally are forced to pay.

Response:

a. COS Principle 9, which acknowledges ag customers should not be charged the treated water component of water service, was agreed upon by the committee and implemented by the board. Because EID undertook a ditch system conversion, service to ag customers was changed. That change removed ag service from raw water ditches, transferring it to piped potable water to continue existing service. This solution was less expensive than building a second raw water pipeline to continue existing service. In recognition of the fact that this change was neither requested nor required by Ag customers, the district retained the existing Agriculture rate class.

b. Based on the type of water year, the committee agreed that 2009 water use by ag was a reasonable baseline for consumption.

c. Based on the Irrigation Management System program, the committee agreed that agricultural users currently optimize water use based on crop production and that additional conservation would be minimal because the economic consequences of damaging crops would outweigh the water cost-savings of conservation efforts.

d. incorrect. Ag customers, as part of the COS, pay for their fair share of infrastructure capacity based on Principle 9.

(Principle 9 of the Cost of Service Study states, “Establish agricultural rates that recognize agriculture’s role in the district’s formation and development, the quality of water required to serve these customers, and the level of service provided.”)

Allegation 3: Non-correction of Small Farm rates to reverse illegal rate reduction implemented in 2009 Bartle Wells rate restructuring.

Response: I am not familiar with the 2009 Bartle Wells Study. The current Cost of Service Study is focused on establishing equitable, Proposition 218-compliant rates moving forward. I fail to see any relevance and do not have any comment on this issue. However, I am convinced the Cost of Services Study appropriately allocates rates according to the principles agreed upon by the committee.

Allegation 4: Recycled water costs borne by sewer customers

Response: I believe that this allegation refers to a Feb. 24 e-mail in which Mr. Prada asserts that sewer customers are subsidizing recycled customers. As I have explained to Mr. Prada, he misinterpreted $27 million of recycled capital assets in our Comprehensive Financial Report as borrowed funds. In addition, he was under the misimpression that recycled customers should pay for the debt associated with that infrastructure. Albert Hazbun, a fellow member of the COS committee, explained that those recycled capital costs are actually developer contributions and not district-issued debt. Nevertheless Mr. Prada continues to make this allegation.

Allegation 5: Absorption of $265,000 annual recreation losses by water customers.

Response: The $265,000 “loss” that Mr. Prada refers to is actually depreciation, a “non-cash” expense item listed in the Comprehensive Financial Report of 2010. Recreation is $1,062,062 and actual expenses, not including depreciation, are $1,010,877, for a positive return of $51,185. In addition, EID treats both revenue and expense for recreation as part of the water enterprise fund; therefore, no opportunity for cross-subsidization exists.

Allegation 6: Excessive debt cost allocations to sewer customers that doesn’t reconcile to audited financial statements.

Response: The COS committee reviewed the EID debt allocation methodology using detailed official statements that accompanied each debt issuance. The committee agreed that this detailed analysis was both reasonable and adequate for allocating costs for water and wastewater. I am convinced that debt allocation methodology was clearly allocated appropriately.

Allegation 7: Excessive overhead allocations to sewer customers that lack legally required specificity in accordance with the HJTA vs. Roseville ruling.

Response: Mr. Prada’s reliance on this case is misplaced. Its facts are very different. The city of Roseville transferred funds from water, wastewater and electricity into their general fund, with no cost-based documentation whatsoever to justify the amount of transfers; clearly a violation of Prop. 218. EID allocates overhead by full-time equivalent and meets documentation requirements with a specific overhead allocation analysis. The COS committee considered other methods of allocation, such as operational expenses including labor, operational expenses excluding labor, or by customers. The committee also contacted adjacent utilities, Rancho Murieta and South Tahoe PUD, for their best management practices. These utilities were recommended by Mr. Prada as comparable utilities. Both utilities proved to have similar but different allocation methodologies. Both agencies’ managers said they found EID’s allocation methodology to be fair and reasonable. Nine of 10 committee members agreed that EID’s detailed analysis was both reasonable and adequate for allocating costs to water and wastewater.

Allegation 8: Multi-year failure to “true-up” excess water revenue shortfalls vs. sewer revenue shortfalls.

Response: Prop. 218 states that “revenue derived from the fee or charge must not exceed the funds required to provide the property-related service.” Neither the water fund nor the wastewater fund rate revenues exceed the total revenue requirements for that fund, making commingling of funds impossible. Property taxes are used to supplement rate revenues in both funds to meet revenue requirements. The property tax revenues are allocated to each enterprise fund as needed in order to meet debt service coverage. This flexible allocation is allowed because property tax is non-rate revenue, and as such is not subject to Prop. 218.

Allegation 9: Ongoing commingling of water and sewer enterprise funds, resulting in $10 million overcharge to sewer customers on your board’s “watch.”

Response: This is a restatement of Allegation 8, so please see prior resp0nse. The source of the $10 million figure is unknown.

Allegation 10: Use of sewer fund debt coverage ratio surpluses to subsidize water fund debt coverage.

Response: Both funds are augmented with property tax revenue in order to meet debt coverage. No wastwater fund revenue of any description is used to subsidize the water fund. EID generally tries to allocate property tax 60 percent water and 40 percent wastewater. However, in direct contradiction to this allocation, the wastewater fund has required more than the 40 percent target for property tax revenue in six of the last seven years in order to meet debt coverage  in the wastewater fund.

Allegation 11: Property tax allocations being proposed to allocate 100 percent to water instead of being first used to finance interest costs on excess capacity … (ellipsis his) costs, which currently are illegally being charged to rates.

Response: I believe Mr. Prada is referring to a general question from a board member asking what effect allocating 100 percent of property tax revenue to the water enterprise fund would have on wastewater rates. Questions asked during board meetings obviously do not violate Prop. 218. Furthermore, an industry-standard rate structure should generate sufficient revenue to meet the district’s annual maintenance and operational expenses, as well as the rate-funded capital costs and debt service coverage required to provide water or wastewater service. The capital costs associated with infrastructure replacement, regulatory compliance and capacity expansion are appropriately funded by rates as long as it is consistent with industry best management practices.

Allegation 12: Proposition 218 “Override for “Political Considerations” (extra quotes his) as proposed by board members in past board meetings … (ellipsis his) which audio recordings confirm.

Response: I have no idea what Mr.Prada is referring to, but again, discussion at a board meeting obviously does not violate Prop. 218.

Michael Raffety

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