Poor planning and processes are costing ratepayers millions

AWA has spent millions of dollars on projects for expansion. Some of the projects are never built, but the costs for the studies can be extensive. Due to cost overruns and/or little help from future customers, the projects that are built cost the ratepayers more than they expected.

The AWA spends tens of millions of dollars researching and building projects that will increase capacity on the systems within AWA. Some are engineered to double or triple capacity of the system. At current growth rates, tripling capacity would take about 140 years. Yet most of these projects are designed with a 30-50 year useable life. AWA uses poor or unrealistic engineering assumptions to justify the large increase in size (for example, 3% growth rate). Inevitably, when an oversized project is built based upon these bad assumptions and the growth doesn’t come, ratepayers end up paying for a project that is 3 times larger than needed -- and their rates need huge increases to pay for it.

AWA has a cookbook formula for these wasteful projects: They start off with a low engineering estimate of the project cost. The low estimate makes the project look affordable. So the Board approves spending to study the project. As more is learned about the project, the cost estimate increases. As more funds are spent on the studies, it becomes more difficult to back off and accept that the project is not feasible. So, AWA continues its pursuit.

It is important to realize that projects are not presented to the Board in an objective manner that gives equal and realistic assumptions to alternate projects (if there are any alternatives offered). For example, staff may state that an alternate to the “chosen” project may not qualify for a grant, when in reality grants for the alternate were never pursued.

After the project is complete and the debt service payments for the project begin, AWA needs large rate increases. Because the project is complete, it cannot be undone and the burden falls on the ratepayers to pay the debt service for a project that is much larger than needed. To make matters worse, AWA also offers special discounts for special interests. As an example, in August 2011 AWA gave JTS Communities (Castle Oaks developer) a $500,000 discount on connection fees. These fees are used to reimburse ratepayers for infrastructure expenses that the developer will use. A discount on the fees amounts to a giveaway of ratepayer assets. AWA staff claims the discounts are justified, but they never updated their fee study, so there is no evidence to support their claim.

AWA builds oversized expansion projects and then gives discounts on those assets to new customers. Current ratepayers make up the difference, and that is an enormous disservice to the public. Ratepayers would be better served with more reasonably sized projects and by AWA following their own fee study findings.

Here is a list of some enormous wastes of ratepayer funds (there are many more):

• Amador Transmission Line: AWA wasted tens of millions of dollars on the Amador Transmission Line (ATL). This pipeline is the poster child for what’s wrong at AWA.
  • The ATL is a $40 million project that was engineered to replace the Amador Canal and stop the leakage of water from the canal. Originally, the cost of the project was set at around $8 million. The cost estimates were updated as the project engineering and environmental studies progressed. By the time the ATL was ready to build, the estimate was $25 million. The loan would cost an additional $15 million in interest over 30 years (AWS Participation Fee Study - see page 12).
  • The public challenged AWA’s environmental documents in court. The case went to the appeals court where the public prevailed. Before litigation, the public showed the AWA Board in very clear presentations that the loss of canal leakage would reduce Jackson Creek flows to zero in summer months. The flow loss would affect wildlife as well as Jackson’s wastewater effluent permit. These presentations were also given to the Jackson City Council. The government officials all deferred to the AWA staff and consultants and ignored the public. AWA knew that Jackson Creek would go dry, but used public funds to suppress the truth and to fight those who challenged their environmental documents.
  • Once the ATL was built, the canal was partially dewatered and leakage was reduced (but not eliminated). Just the reduction in leakage caused Jackson Creek to become intermittent and flow to stop in the late summer, proving that the public was correct. The creek condition will get even worse if/when the canal is completely dewatered as planned.
  • Now the City of Jackson must deal with the loss of the leakage that is used for dilution of their effluent. Estimates have been as high as $15 million for changes needed to correct the problem by taking the effluent out of the creek (Jackson Wastewater Treatment Options, page 10). Assuming there are around 2,000 households in Jackson, $15 million amounts to $7,500 per household. This is just another impact of the ATL on Jackson’s residents.
  • As mentioned above, the annual $1.6 million debt service payment on the ATL is left to the ratepayers for a project built three times larger than needed.
  • After all of this, AWA still has the ineptitude to claim that the ATL cost overruns were due to delays caused by the lawsuit (which AWA lost).
• Tanner Regional Treatment Plant:
  • As of May 2010, the AWA Monthly Financial Report (see page 15) shows that $679,014 had been spent on the Tanner Regional Treatment Plant engineering and planning.
  • AWA spent an additional $1,981,343 (Piper Jaffray presentation, page 4) for the land for the plant, totaling over $2.6 million.
  • The General Manager has stated that the Tanner plant will not be built in the foreseeable future, and has recommended that AWA discontinue collecting connection fees to pay for the plant.
  • Ratepayers have picked up the $2.6 million tab for an expansion project that will never happen and that they never needed in the first place.
• Gravity Supply Line: Since 2001, the Upcountry Gravity Supply Line (GSL) engineering, environmental and planning costs have totaled more than $1.4 million.
  • In July 2010, Upcountry ratepayers overwhelmingly rejected a rate increase needed to pay for the $14 million GSL.
  • In January 2011, the AWA board disregarded the public’s protest and earmarked another $70,000 for engineering on the GSL.
  • In September 2011, AWA slated an additional $140,000 to work on a plan to form a Community Facilities District (CFD). The idea of the CFD is to tax Upcountry property owners to pay for the GSL, rather than getting the money through rate increases.
  • Once the dust settles, the public will be $1.6 million into the GSL -- a project they have told AWA they do not want to pay for.
• Amador Water System Rate Study: The AWA General Manager wasted $35,000 on a rate study for the Amador Water System (AWS). AWA hired a costly consultant to produce a study that would determine rates based partly on estimations of work force time allocations. Because AWA did not have real employee time data that was needed for the basis of the study, the study could not justify the rates it recommended. The GM should not have spent anything on the study if he didn’t have the data needed for the study basis.
• Plymouth Pipeline: AWA gave a discount on connection fees that resulted in a $2.2 million loss to ratepayers.
  • In June 2009, AWA only charged Plymouth $2,600 per connection to connect 516 equivalent units to AWS. The fee in effect at the time was $7,020 (AWS Participation Fee Increase Resolution, see page 33 & 35). The difference amounts to $2.2 million. Had those additional funds been collected, they could have been used to pay debt service on the ATL and treatment plant expenses. Instead, AWS rates climbed at 12% per year and the ratepayers paid those expenses.
  • An interesting side note to Plymouth is that if they had paid the full connection fees, the project would have cost Plymouth ratepayers an additional $2.2 million and the City likely would not have built the project. Plymouth increased rates by 110% even without paying the full connection fee. $2.2 million would have been an additional $4,000 cost per household, and would have likely been a dealbreaker. So AWA gave Plymouth ratepayers “a deal” at the expense of all the other AWS ratepayers. In fact, this project was not for the current residents of Plymouth at all, but for the developers who want to build in that area.