An Open Letter to the City Council

Council members,

FIrst, let me extend a Happy New Year greeting to each of you!  If the past week is any indication, 2012 promises to be an interesting year for city government.

• The City Council will discuss at its Tuesday meeting, 6 p.m. at . 

Last week, I submitted a five-page memo through the city clerk that summarized my thoughts on the work of the Ad-Hoc Audit committee.  This lettere contains an updated version of that memo that is factually identical but somewhat easier to read online.  I'd appreciate your consideration of this memo.

At the same time, I've come across some information that provides independent support for the financial information contained in my memo. The South Coast Water District (SCWD) operates a Groundwater Recovery Facility (GRF), much smaller than ours, but technically similar.  SCWD makes their financial reports concerning their GRF available online.  You will find a sample from October 2011 attached.

What is remarkable about the SCWD report is that their cost of operation is very close to that of our facility.  Of course, debt service and "avoided cost" are missing, but the underlying operational costs similar.  The SCWD presentation contains a eye-opening report on the cost of electricity needed to run their GRF.  In our case, this cost is buried in an overhead ("Division") account.

The SCWD experimental GRF is useful to benchmark our GWRP.  Both produce very expensive water.  But there is a significant difference that you should consider.  In SCWD, the total output of their GRF represents a tiny fraction of their overall system water demand.  They can spread the excess cost of their experiment over a very large base.  In contrast, our GWRP has already demonstrated that it can supply 100 percent of our system demand during 11 days in November 2011.  The financial consequence of this is important to the city for the following reason:

When our GWRP is supplying a large fraction (or all) of our demand, the excess cost of the water in relation to our rate basis is maximized.  It is during these periods of "success" that we lose the most money on each unit of water sold.  This problem is further magnified by conservation.  And it is still further magnified by reduced demand brought about by higher rates.

If it were not so disastrous, we might marvel at the irony of this situation. This is the reasoning behind my claim that we are too small a utility to be engaged in the GWRP activity alone.

I hope it is clear to each of you that it is impossible to resolve this problem through an adjustment in water rates alone.  The average water bill in our City would have to triple to get close to covering this cost, and waiting won't stop the deficits.  A different solution is needed.  My memo contains a few modest suggestions, yet I fear even these may be insufficient.