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Utility Alternatives Study

Updated October 24, 2016

The City Council has undertaken a study to investigate possible alternative structures for the City's current water and wastewater utility services. The Council undertook the study because over the last decade it has become increasingly more complex and costly to provide water and wastewater services, and many cities have opted for alternatives to continuing to provide these services themselves.

The City Council established four goals to guide the consideration of a change in organization for the City's utilities:

1. Bring rate stability or rate relief to  utility customers.

2. Continue high levels of customer service

3. Continue representation for San Juan Capistrano residents, and

4. Protect the City's substantial investment in utility infrastructure.

EVALUATION CRITERIA

At the direction of City Council, the San Juan Capistrano Utilities Commission drafted evaluation criteria for the Council's use when considering the feasibility of proposals submitted by public water and wastewater service providers interested in serving San Juan Capistrano. At its regularly scheduled public meeting on July 8, 2016, the Commission adopted its selection criteria. These criteria were then considered by the City Council at its meeting on August 2, 2016, at which time the City Council approved a revised version. 

A summary of the criteria as approved and modified by direction of the City Council is provided at the following link HERE. These criteria, along with an application for a Municipal Services Review were submitted to the Orange County Local Agency Formation Commission (LAFCO) on August 22, 2016, for its review and evaluation, which is anticipated to take between six months and a year. 

ADDITIONAL BACKGROUND ON THE UTILTIES STUDY

The City Council has limited the consideration of alternatives to those involving other public agencies, like neighboring water districts. The four options currently being studied are:

  • Sale or transfer to a public entity, i.e., a Special District in the area that already provides water and wastewater services and has a locally elected board of directors,
  • Contracting with another public entity to provide these services, but maintaining City ownership of the utilities,
  • Creation of a new Special District to serve the City, and
  • Maintaining and improving current utility operations.

Advantages and disadvantages of these four options were presented to the City Council at its October 20, 2015 public meeting, as follows: 

Option 1: Sale/Transfer to a Public Entity

This option would require approval by the Orange County Local Area Formation Commission (LAFCO),   which would conduct a Municipal Service Review. To move forward, LAFCO would have to expand the Sphere of Influence of the acquiring entity and approve the annexation of the City’s service area by the other entity (i.e., a special district).

Advantages 
• LAFCO oversees process and provides recommendations 
• City divests itself of all responsibilities of owning, operating and maintaining utilities 
• Improved efficiency of operations and management could be created 
• Public control of utilities would be maintained 

Disadvantages 
• LAFCO may impose conditions 
• City relinquishes all assets 
• City relinquishes decision-making powers 

Option 2: Contract Services by a Public Entity 
Under this option. a selected public entity (for example, a special district) would take over operation of the utility.  

 Advantages 
• LAFCO approval is not required 
• City relieved of day-to-day operational responsibilities but allowed to retain 
  ownership of utility assets 
• Process is simplified and may be expedited 
• Efficiencies may be improved by creating economies of scale 
• Public control of utilities would be maintained 

Disadvantages 
• Depending on nature of contract, City may retain some responsibility and liability for 
   utilities  

Option 3: Creation of a New Special District

This option would also require approval by LAFCO, which would conduct a Municipal Service Review. To move forward, LAFCO would approve the formation of the new special district, establish its Sphere of Influence, and annex the City’s service area into the new special district.

Advantages 
• LAFCO would oversee process and provide recommendations 
• The special district would serve City customers only 
• The special district may succeed to all City’s rights, interests and responsibilities 
• Improved efficiency of operations and management may be created  
• Public control of utilities would be maintained 

Disadvantages 
• LAFCO approval required; may impose conditions 
• Creation of new special districts is disfavored by LAFCO when existing entities can provide service 

Option 4: Maintain Utility Operations, but Explore Partnerships with Regional Providers to Optimize use of the Groundwater Recovery Plant

This option would involve implementing improvements identified through the utility alternatives study to enhance the efficiency of utility operations, including investigating regional initiatives with other San Juan Basin Authority members to optimize use of the Groundwater Recovery Plant, reduce costs, and/or improve water supply reliability.

Advantages 
• City ownership and control of utilities would be maintained 
• City's investments in the Groundwater Recovery Plant could be optimized 
• Provides potential for reduced costs and/or improved water supply reliability associated with operation of the Groundwater Recovery Plant

 

Disadvantages 
• City would maintain responsibility and liability for utility assets

 

The City is not committed to any of these actions at this time. If the Council elects to pursue a change, then the process of implementing that change would begin, and no change could move forward without Council action at a public meeting. 

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