Local Oxnard accountant-activist predicts trebling of water rates

By Lawrence P. Stein

WaterRatesEditor’s note: Mr. Stein took the best information he could find and calculated the impact on water projects debt service and rates. The exact timing and amount cannot be known for sure, because it is all based on rough plans, cost estimates, interest rates, transaction timing and even the city’s bond ratings. We welcome reader and official responses to enhance community dialogue.

To put numbers in scale, I will use estimates. An $800,000,000 20 year bond paying 4.5% interest will incur an annual debt service of $61,500,000.  Based upon the 2013 CAFR (Comprehensive Annual Financial Report), total revenue for the Waste Water Fund was $30,000,000. Water rates will have to triple in time to cover the projected debt service. The Water Fund needs the outflow from the Waste Water Facility to generate GREAT Water. City Staff at this time, has no plans to bill the Water Fund for the feeder stock coming from the Waste Water Fund, the theory being that the water was going to be dumped into the ocean anyway. Bear in mind that in the 1870’s the black gooey tar-like liquid being found in the coal field of Pennsylvania had no economic value either. The Water Fund should pay the Waste Water Fund for the feeder stock. Such payments could increase revenue, lowering the amount rates would have to increase. (Editor’s note: Wouldn’t this just increase water liabilities and decrease wastewater liabilities? Net effect is zero, but it would more properly allocate money.)

The 2013 CAFR shows that the revenue for the Water Fund for services was $50,000,000. The debt service for the Water Fund was $14,000,000.00. A large portion of the debt service is to pay for the GREAT Program. The current capacity of the GREAT Program is 7,000 acre feet of water per year. The planned capacity for the facility is 28,000 acre feet of water per year. If one were to include a sinking fund of $240,000,000 to replace capital improvements, which currently does not exist, I estimate that at 7,000 acre feet capacity (one skid), that GREAT Water costs $3,200 per acre foot. In 2012, I projected that the city would approve in 2013 Phase 2 (2nd skid) of production of the GREAT Program and a $50,000,000 bond would be issued. I also projected in 2012 that the city would issue in 2015 a third bond of $80,000,000 (rising construction costs) for Phase 3 (3rd skid) of production. My projections did not matrialize. I still project that with economics of scale; the completion of Phase 3 of the GREAT Program, the cost per acre foot would drop below $1,200 per acre foot.

The fee for water service has 2 components, a meter fee and a fee for usage; a fixed cost and a variable cost. As less water is being used, the unit cost of water goes up. It is estimated that the average single family home uses 10 to 15 HCFs (hundred cubic feet) per month. I use about 10 HCFs per month and currently pay over $2,000 per acre foot of water. If I were to use more water, my cost per acre foot of water would drop. As the residents conserve water, less revenue is generated. Debt service does not go away. Water fees will have to go up to cover debt service as less revenue is coming in. The GREAT Program also has a fixed cost, mostly debt service, depreciation and sinking costs. The variable cost of GGEAT Water would include, feeder stock, chemicals, and power. As more GREAT Water is sold, the fixed cost is spread over a larger base, lowering the cost per acre foot of water.

The GREAT Program has potential to stabilized water rates if surplus water is generated and sold at market rates. The GREAT Program can also stabilize water rates if it is less expensive to use GREAT Water than it costs to import water. At both Phases 1 and 2, imported water is still expected to be cheaper than GREAT Water. It is my understanding that the city imports 14,000 acre feet of water. Water rates for imported water are expected to escalate significantly over time. I estimate that it will cost less than $100,000,000 to complete Phases 2 and 3 of the GREAT Program (construction costs have not gone up as expected). Debt service on $100,000,000 in will result in a water rate increase of 15%. Selling water below costs will not lower water rates. There is a contract in place to sell surplus GREAT Water at $500.00 per acre foot to private companies. Surplus water generated by the GREAT Program could be sold at a rate less than future water imported rate from the Sacramento Delta by at least 25%. Delta Water is expected to cost more than $2,000 per acre foot in the future.

 

Initial Debt                    Interest Rate     Term in Years                           Annual Debt Service

100,000,000.00 4.5000% 20.00     7,687,614.43
800,000,000.00 4.5000% 20.00     61,500,915.46

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Another relevant article:

Oxnard utility rates to go sky-high?

Oxnard utility rates to go sky-high?

By George Mill-  For years, the Oxnard utilities staff has been warning us about shrinking water supplies, higher costs, extensive deferred maintenance, obsolescence and expanding demand for water, wastewater and stormwater services. These services are probably as important to the health and safety of residents as are the police and fire departments. After one year of […]

Larry Paul Stein

Larry Paul Stein

__________________________________________________Larry Stein is an accountant and  former Oxnard Mayoral candidate, who has been following City of Oxnard financial issues for over 20 years.

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