By John Perry
Editor’s note: This is the last of a four part series to help the public understand how the City got into the water business. It is a story of mismanagement, misleading accounting and millions of wasted taxpayer dollars.
In 2008 the City and its contractor ECO Systems (ECO) were locked in a bitter fight about who should pay for frequent shut downs and mounting deficits from lack of production from the Ground Water Recovery Plant (GWRP). ECO was contracted to design, build and operate the GWRP for a 20 year period. According to the recent Utilities Audit, the contract negotiated by City staffers Cindy Russell and Engineer Eric Bauman provided “liquated damage penalty charges” from ECO if certain conditions were not met. Unfortunately, the contract also contained loopholes that allowed the contractor to escape paying for lost production.
When the GWRP began to produce colored water that c logged plumbing and filters, the City Council was inundated with complaints from angry residents. ECO refused to accept responsibility so the City hired consultants to identify and correct the problem at a cost of more than $500 thousand.
The City then learned that MTBE, a gasoline additive, may have entered the water supply from leaks in tanks at two Chevron stations. Tests confirmed that MTBE, which had been in the water table under the Chevron stations, had moved toward the Dancehall well that supplied water to the GWRP for processing. Even though the MTBE was well below the safety level, the City Council led by Mark Nielsen demanded that the Dancehall and Kinoshita wells be shut down in hopes of forcing Chevron into a settlement. This cost the ratepayers millions of dollars since we then had to replace the well water with water purchased from the Metropolitan Water District (MWD).
Chevron eventually agreed to a $3 million settlement, far below the $7 million the City Treasurer stated the City lost during the shutdown. In fact, the City tried to use the MTBE issue to levy a surcharge to force ratepayers to pay the entire cost of the MTBE losses, but the Council backed down because of massive public protests.
In November 2008, the City quietly fired ECO, claiming that the contractor had defaulted the contract because of lost production and contamination cleanup costs. The contractor was allowed to leave without having to fix the design defects in the GWRP and wells; those costs were instead passed on to ratepayers who continue to foot the bill for the defects.
The water wells eventually began to fail because the corrosive water was destroying the metal well structure and pumps. This was one of many design defects causing lost production which reached a peak in 2010/11 when only 1200 acre feet of water was produced the entire year. This forced ratepayers to spend millions to not only pay for the defects, but to purchase MWD water to replace the water we could not produce.
In 2010, the City Council approved a 40% water rate increase. The City had been losing money on the GWRP due to lost production and loss of MWD subsidy but also had greater operating expenses because City employees were now running the facility. The average salary of a Utilities Department employee was $105,000 annually, including pension and benefits.
In January 2011, City Treasurer Cindy Russell reported a water department deficit of $8.1 million. The Utility Commissioners were outraged because the reports they had received from Ms. Russell gave no indication of a deficit of that magnitude. As a result, the City Council voted to hire a special auditor to analyze the Water Department’s operation to determine what happened.
The Audit report recommended the City raise water rates (again) and cut expenses to recover the current deficit and restore reasonable reserves. As a ratepayer, I feel the rates are way too high now and further increases would place undue hardships on residents, especially those who are unemployed or on fixed incomes.
One solution might be to file a lawsuit to determine if the tiered rate structure is legal and whether the rate increase to repay water bonds should only be used for debt repayment. A successful resolution of a lawsuit may offer relief on current and future water rate increases while stabilizing the “water factory” finances. Please let us know if you agree with the proposed solution or how you would propose to solve the problem. We can be reached at: email@example.com .