Inyo County considers lease, rate increases for rural towns

Residents of Lone Pine, Independence and Laws may be facing doubled or tripled water rates as Inyo County looks to a third party to lease the County-owned town water systems for the next 15 years. Inyo County took over financial responsibility for the water systems from the Los Angeles Department of Water and Power (LADWP) in 1999, gaining complete ownership of the systems in 2005.

The County originally became involved in the water systems to keep the rates at a reasonable level, explained former Inyo County Water Department Director Greg James. The DWP made the unpopular move to begin charging a metered rather than a flat water rate in the 1970s, and later claimed it had to raise the rates to the same level as rates in Los Angeles, prompting residential and County protest.

According to a workshop presentation before the Inyo Board of Supervisors on Tuesday by County Public Works Director Clint Quilter, since the town took over the water systems, the user rates have rarely generated enough funding to cover the cost of operations, let alone create and maintain a Capital Improvement Fund.

Although the DWP gave the County $26 million for water system upgrades when the County took over ownership, the County has since spent the money on about 400,000 linear feet of pipe, in additional to engineering, inspection, and other assessments and upgrades, Quilter said. “There are still substantial portions of the system that are more than 10 years old,” he said. “There’s a substantial portion that is not upgraded, and is ultimately a problem for whoever manages the system.”

According to Quilter’s estimate, based on the California Department of Public Health model, capital improvements to the town water systems could come to about $370,000. Yet the County has been operating the water systems at an average annual loss over the past four years of $35,000, making it impossible to set aside any additional money for a Capital Improvement Fund.

The County’s total cumulative loss for all town systems since 1999 is $255,581, Quilter said. “It is very unusual for utilities to be subsidized by the General Fund,” he added. “Especially when the water is free,” pointed out Supervisor Matt Kingsley. A large portion of the water supply to the three towns is free, under the Long Term Water Agreement, said Greg James. According to the Agreement, the DWP supplies a total of 1,050 acre-feet of free water in perpetuity to Lone Pine, Independence and Laws.

Nevertheless, the County continues “making a negative 9 percent per year profit,” Quilter said.

The County originally sought proposals in January 2012 for interested parties to either lease or operate the town water systems. The County received three applications, all proposing similar operations to those currently performed by private operator Owenyo Services, which has operated the town water systems since July of 1999. Had the County accepted these proposals, the water systems would have continued to operate at a loss without a water rate increase, Quilter said.

The County decided to ask the applicants if they might be interested in a 15-year lease instead, he said. “A lease arrangement like this is not particularly common,” he explained. Two of the three private operators, McMurtrie-Tanksley, Inc. and Owenyo Services, provided proposals based on the lease.

Although the 15-year lease would “get Inyo County out of the water business,” Quilter said, it would also significantly reduce local control of rates. Any local input on rates would go through the “much less local” California Public Utilities Commission, rather than the County, he said.

“Quite frankly, there probably will be a substantial rate increase if you go through the lease,” he added. He suggested that water rates might double or even triple.

Board Chair Linda Arcularius pointed out another downside to the lease agreement, which is that the County still wouldn’t be off the hook for any problems that might occur with the water systems. If a water pipe broke, it would be the operator’s responsibility to fix it, she said. However, “If the operator doesn’t have $1 million, the County will have to step in, or it becomes a public health issue,” she said.

Supervisor Jeff Griffiths wondered whether County staff had made any efforts to encourage the formation of community water districts, rather than a third party leasee to oversee the town water systems. “Yes,” Quilter replied, “but that was particularly unsuccessful. That’s why we’re here.”

“Obviously the town water system rates need to or should increase somewhat,” said County Administrator Kevin Carunchio. He suggested that Quilter and the Public Works staff assess how those rates would look, if doubled and tripled, compared to other rates in the Owens Valley or in Los Angeles.

The Board agreed that this information was necessary before it could come to a conclusion about the proposed water systems lease. “I’m certainly not opposed to a path that gets the County out of operating the water systems, but the rate payers didn’t necessarily put themselves in the situation they’re in,” said Supervisor Kingsley. “We are in a situation where we’re the operators, and we’re the Capital Improvement Fund. If we can find a path that gets us out of that role, that’s good for everybody. But we need more information about what that will do to the individual rates.”

Dave Tanksley, co-owner of McMurtrie-Tanksley, Inc., offered the County succinct advice regarding their decision-making process: “Crap or get off the pot,” he said. “Either award the contract, or reissue it out to Owenyo.” Owenyo’s current contract is set to expire on August 31.

Supervisor Griffiths agreed: “We keep talking about what should have been done in the past, [but] we have to move forward and get the system sustainable.” Yet he also acknowledged that more information on the possible rate increase would be beneficial for the Board.

Chair Arcularius requested that Public Works Director Quilter return to the Board on August 31 with an action item regarding whether or not to reissue the Owenyo contract. Quilter agreed to return to the Board again in early September with another workshop to provide additional information on rates, as well as a “game plan, with some options for you to look at,” he said.

“It will be some time before we make a decision,” he concluded.