Rate Increase FAQ
Why have SLVWD expenses and water rates increased so dramatically over the past two decades?
National and state trends in water rates
Rapidly escalating costs are not unique to SLVWD. Over the past two decades, water rates across the country have increased faster than the rate of inflation (and faster than rates for other utilities), especially in the drought-prone West. For example, increasing costs drove up residential water bills an average of 7% per year from 2007 to 2014, double the rate of inflation, for a majority of Californians. (See: Keeping Water Affordable: Accounting for the Drivers Behind Increasing Rates.)
The harsh reality is that, despite improvements in operating efficiency, the cost of reliably delivering clean, safe water continues to rise, due to replacing aging infrastructure, complying with increasingly stringent water quality standards, addressing more variable climate effects, and responding to ever-increasing State reporting requirements and unfunded mandates.
Unfunded mandates are particularly burdensome for small districts like SLVWD because they are unable to spread these new expenses across a large, urban customer base. A notable example is the Santa Margarita Groundwater Agency (SMGWA), established in 2017 (with SLVWD as a founding member) as required by the State’s 2014 Groundwater Sustainability Act. SMGWA is responsible for overseeing use of the over-drafted groundwater aquifers that SLVWD shares with neighboring water agencies, and for developing and implementing plans to bring this use to a sustainable level. SLVWD contributes about $150,000 per year toward the cost of operating SMGWA, as well as a significant amount of staff time (not tracked as a separate line item in the operating budget) spent monitoring creeks and groundwater wells and participating in meetings with counterparts at neighboring water agencies.
Local factors driving up SLVWD expenses
In addition to these nationwide trends, three key local factors have played a critical role in driving up SLVWD expenses over the past two decades: (1) a significant increase in the number of connections and the size of the service area, (2) a history of under-investment in infrastructure in a system cobbled together from many small water mutuals, many created to serve rustic summer cabins, and (3) a location subject to frequent natural disasters (wildfires, winter storm flooding and wind damage, landslides, and earthquakes). These factors interact in complicated ways, so no one simple narrative accounts for SLVWD’s expense increases.
SLVWD has added approximately 2,000 ratepayers since 2006 (a 23% increase), mostly from the mergers with Felton (2007) and Lompico (2016). Incorporating these districts into SLVWD’s service area significantly increased the distances traversed for service calls and supervision of infrastructure projects. With the Lompico merger, the staff structure was updated, and a few new positions were created, reflecting the overall increase in workload. Currently, the staff is working to annex the 152 connections serving Bracken Brae and Forest Springs, small water mutuals that had their water systems destroyed in the 2020 CZU Fire.
This increase in number of connections and the size of the service area is only part of the story, though. SLVWD’s expenses for salaries and benefits roughly doubled from 2013 to 2023, while the cost of living increased by only a factor of 1.4. During this time period, however, the number of SLVWD employees increased by roughly 1.4 as well (from around 25 to around 35). This increase was driven by a variety of factors in addition to the increased number of connections with the addition of Lompico.
SLVWD has dramatically increased its capital expenditures during the last two decades, and particularly in the last four years. For example, when SLVWD started tackling major upgrades to pipelines and tanks in 2018, it had to substantially increase staffing to handle the increased workload. SLVWD now has a District Engineer, an Assistant Engineer, a GPS specialist, a construction quality control inspector, and an environmental planner who works almost exclusively on permitting issues. An HR clerk was also added to deal with increased reporting requirements and COVID-related personnel issues.
Due to SLVWD’s origin as an amalgamation of small historic water mutuals, often initially constructed for vacation use only, its infrastructure is inherently costly to operate and maintain. In the years leading up to 2018, this challenge was compounded by insufficient funding, resulting in a significant backlog of deferred maintenance and infrastructure upgrades. Then, just as SLVWD was beginning to more effectively confront these issues, the 2020 CZU Fire and the 2022-2023 winter storms inflicted substantial damage.
The CZU Fire and the winter storms had financial impacts on SLVWD beyond the more obvious ones associated with rapidly re-establishing water service and replacing and repairing damaged infrastructure. These two back-to-back natural disasters, together with the slow rate of reimbursement from FEMA for the repairs, caused SLVWD to draw down its financial reserves to dangerously low levels. One of the goals of the proposed rate increase, and one of the drivers for making it significantly greater than the rate of inflation, is to raise levels of reserves to best-practices standards for operations and capital projects.
The bottom line
The bottom line is that the new rate structure reflects both SLVWD’s anticipated increases in operating expenses and an ambitious plan for capital expenditures that are essential in order for SLVWD to respond to fire and storm damage, replace leaking mains to reduce water loss, replace under-sized distribution lines to increase fire-fighting capacity, create additional water storage for use in emergencies, improve system-wide reliability, and install new meters that will allow customers to track their usage in real-time so they can better control their own costs.
As noted above, a dramatic increase in capital projects, whether to implement infrastructure upgrades or repair damages resulting from natural disasters, inevitably produces a corresponding rise in operating expenses. Staffing needs to be increased, and while engineering consultants and construction companies employed to undertake infrastructure projects are charged to the capital part of SLVWD’s biennial budget, most of the staff time spent on planning and overseeing infrastructure projects is charged to the operating budget, even though these tasks go beyond routine operation of the system.
The doubling of operating expenses between 2013 and 2023 was due to the combined effect of cost-of-living increases (a factor of 1.4) and the increase in staff (a factor of 1.4). Going forward, SLVWD should certainly do everything in its power to minimize the rate at which its operating expenses increase, but it cannot responsibly base its rate structure on speculative future cost savings that it has, as yet, no identified plan for achieving.
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