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Water Capacity Charges for New Development

Dear Council and Staff:

First, I wish to congratulate you on your decision to address water supply for our new General Plan buildout through the use of dramatically increased water conservation and efficiency, and through the extensive use of recycled treated wastewater for irrigation to replace existing potable water demands. We greatly appreciate these efforts.

The benefits of this approach to the our ratepayers, to the Russian River and Eel River watersheds as well as to the overdrafted groundwater basins of Sonoma County, are immense and cannot be overstated. This is a substantial step forward towards accomplishing the State Water Resources Control Board’s Feb. 2, 2005 mandate to SCWA to “provide…a detailed plan of water conservation efforts that will offset future increases in demand, which in turn will result in no increase in Russian River diversions.”

As you go through the details on the proposed revisions to the increased water capacity charges for new development, and the increased demands for potable water created by this new and continued development, several issues arise.

In their Council meeting considerations of these changes to water capacity charges for new development, a number of Councilmembers and public speakers emphasized that the beneficiaries of this new water supply, ie, new development, should pay the entire costs of the “new” potable water supply made available to them for this growth, and that existing ratepayers should not be charged for the costs of providing this potable water.

The staff report states, “The water supply program… is designed to provide facilities to serve new customers. The total cost of the program in 2006 dollars through buildout of the General Plan is estimated at $55 million.” “Capacity charges recover costs for future projects that must be constructed to serve new growth, as well as the costs of capacity in existing facilities that will benefit and serve new customers.” (pg 3)

The Bartle Wells report (Attachment A) states that “The calculation is based on a buy-in of existing facilities, a proportionate share of projected future capital improvements, and the costs to suuport new water supply projects.”

The proposed Council Resolution notes in #2 and #3 that automatic inflationary adjustments to the costs of construction are included in the revised water capacity charges, and that significant changes to capital project costs, land use projections and or program costs would be accounted for by rate adjustments as needed.

I very much appreciate the efforts and direction to address changes in capital costs, and maintain the burden of those costs on the new development, as previously stated.

However, several other components of water system costs to provide supply for new development are also required in your adjustment of charges and considerations of existing ratepayers.

1. Any costs related to new, increased capacity to our Wastewater Treatment Plant attributable to this new development (particularly increased solids, BOD, and tertiary treatment capabilities) should be borne proportionately by the beneficiaries, ie, new development.

2. All O&M as well as program costs attributable to the infrastructure necessary to accommodate the new growth’s water supply should be likewise borne by the beneficiaries over their useful lifespan. This would include O&M for the new recycled water distribution system expansion.

3. A proportional share of the costs attributable to changed regulatory settings, fines, cost overruns, etc., in capital and O&M costs should likewise be shouldered by the beneficiaries of the new development.

4. The existing ratepayers should not assume any of the risks and associated costs attributable to the implementation of this program over its lifespan. The principle set by our General Plan, and confirmed by the Council, ie, “new development shall pay for itself”, must apply here.

5. Oversight of these costs, including independent audit, must be available to the ratepayers and public over the lifespan of the project, with a mechanism for adjustment of charges clearly established, to ensure achievement of the ratepayer protection objectives.

As we saw very importantly during the protracted development, evaluation and ultimate rejection by the PUC and later by the City of the contracts and MOU for a privatized wastewater treatment plant, the details of this Revised Water Capacity Charges must be sufficient and clear to protect the existing ratepayers from added risks.

Please let me know how the City expects to do this as it comes up with its final format for the Revised Water Capacity Charges. I hope that with full clarification of these issues and risks, the general public and ratepayers will provide very strong support for this program.

Thank you very much for your clarity and leadership as the City moves forward with this important work.

David Keller