PLACERVILLE, CALIFORNIA

Opinion

Rate fever broken

By From page A4 | November 04, 2013

The El Dorado Irrigation District has sworn off the already approved 11 percent rate increase planned for 2014 and will only raise rates 5 percent. That was announced at its Oct. 14 meeting and was made official Oct. 28 when the board voted to approve an update to the 2014 budget, which included the lower rate hike.

The outlook is for 5 percent or lower rate hikes through the next five years. This year the district projects a savings of $575,000 by Dec. 31 and $1 million more in hookup fees than had been budgeted.

The savings were primarily the result of employees agreeing to pay all of their share of the Public Employees Retirement System four years earlier than required by the state’s new pension reform act. The ratepayers owe a debt of gratitude to the EID employees for their civic-minded action. We challenge county employees to match this. County elected officials have long paid their own full share.

The big driver of rate hikes has been the bond covenants that require the district to maintain a debt service ratio of 1.25. EID used its hookup fee revenue, called Facility Capital Charges, to meet that minimum standard. That worked when FCC revenue was $9 million to $15 million. Then the real estate bubble popped and FCCs went from $11 million in 2008 to $1 million in 2009 and $577,000 in 2010.

EID General Manager Jim Abercrombie saw that FCC implosion and started preparing the board for rate increases. The board and Abercrombie dialed back an initial 35 percent rate hike to 18 percent in February 2010 plus 15 percent in 2011. Simultaneously the board asked the GM to cut $1 million of expenses. The employee roster was cut, which followed a cutback of 30 employees in 2008 by a prior manager.

EID’s debt service ratio dropped to less than 1.0 in 2004 and 2009. Abercrombie’s goal was to achieve the 1.25 ratio without FCCs, due to their cyclical uncertainty. In fact, in the last 10 years EID met that mark only four times, the last three of those — 2010-2012 — under Abercrombie and once in 2006. The other years between 2003 and 2009 had debt service ratios of .04, .04, .23, .079, .81, .75. That was pathetic.

That’s not all. Between 1987 and 2009 water rates were increased only six out of 23 years. Four of the increases were 7 percent in 2004, ’05, ’06 and ’07 because the state took a chunk of EID’s property tax revenue. Had earlier boards increased rates just to keep up with inflation EID would not have had to have imposed the double-digit rate hikes of the last three years. It would have been able to handle more capital expenditures with less debt.

Rate hikes followed a Cost of Service Study and a shift from 30 percent base rate 70 percent commodity charges to 50-50. The overall effect in April 2012 was a 6 percent rate hike on top of a 5 percent rate hike followed by 11 percent in 2013. Now a scheduled 11 percent increase approved for 2014 had 6 percentage points lopped off and reduced to 5 percent.

What about EID’s debt? It stood at $373 million in July 2012, but EID will shave 5.25 million off it in March 2014, having already put $3 million into escrow. Included in that total are $2.67 million of general obligation bonds out of $8 million originally sold to buy Sly Park and Jenkinson Reservoir. At the beginning of this year Abercrombie detailed the elements of the debt, of which $300 million was accumulated in the last decade. EPA requirements account for $64 million, $42 million went to requirements by the California Department of Health, $22 million was required by the Federal Energy Regulatory Commission, $7 million was required by the El Dorado County Department of Transportation and $1 million by the Division of Safety of Dams. That totals up to $142 million in regulatory costs. Another $90 million has been spent fixing up Project 184’s system of four alpine reservoirs, 22 miles of canals, flumes and tunnels. Project 184 provides one-third of the district’s water, generates an average of $8 million in hydroelectric revenue and helps keep Sly Park’s rain-fed Jenkinson Lake topped off in dry years.

For an agency with nearly a billion in assets, the mortgage leaves a lot of equity. Now, with rates stabilized and covering annual capital expenses and FCCs building up a capital reserve, EID should be able to tackle most capital improvement projects on a pay-as-you-go basis.

Mountain Democrat

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