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Utility Alternatives Study FAQ

Why would the City just let go of the infrastructure that the residents paid for through their taxes and water/wastewater rates?

While two of the four options being considered would result in a transfer of ownership, the City’s infrastructure would continue to serve the City’s residents. Only the responsibility for operating and maintaining the infrastructure would change hands. 

Why is the City considering alternatives to the current Utilities Department?

This is a good question because the Utilities Department is a valuable asset with many positives. The City has extensive, well-maintained infrastructure and ownership shares in jointly owned infrastructure, like the Groundwater Recovery Plant and the J.B. Latham Wastewater Treatment Plan in Dana Point. It also has valuable historical water rights and rights to both local groundwater and recycled water by contract. It has an established base of customers and an experienced utilities staff. One of the potential options of the study would be to implement improvements identified through the study to enhance utility operations efficiency while investigating regional initiatives with other San Juan Basin Authority members to optimize use of the GWRP, reduce costs, and/or improve water supply reliability. 

However, water and wastewater utilities are highly regulated and costly to operate. State and federal regulations have become increasingly more demanding, with higher costs to conform. The cost of maintaining infrastructure and replacing aging pipes, pumps, reservoirs and lift stations has increased dramatically, and routine operating expenses are also rising. That may be why only the older South County cities – San Juan Capistrano, Laguna Beach and San Clemente – have city-run utilities. In all the newer cities, these services are provided by independent special districts, so municipal governments in Mission Viejo, Aliso Viejo, Rancho Santa Margarita, Lake Forest, Laguna Niguel, Laguna Hills and Laguna Woods are relieved of the significant potential financial liabilities and time-consuming administrative duties of running these operations. 

Many feel the efficiencies provided by greater economies of scale may make the Utilities Department attractive to other water and wastewater service providers. 

What will happen to the GWRP as a result of the utility reorganization?

The Groundwater Recovery Plant, which treats local groundwater supplies, is regarded as an asset of significant value by South County water leaders, who see it as important to future efforts to secure greater local water supply reliability in the South County. The GWRP was built on City land with City funds and now is operated under a long-term lease with the San Juan Basin Authority (SJBA). Because there are no offers before the City for taking over operation of the utilities, any future changes to the operation or ownership of the GWRP aren’t known at this time. However, proposed long-term plans for improving the efficiency of the basin involve the GWRP, so its expected it will continue to operate and provide water to San Juan Capistrano residents. 

What is the timeline of the study?

The study began in October 2015. The study team has audited the City's existing utility, evaluated the feasibility of several options, and conducted due diligence on those options. At its April 5, 2016 meeting, the City Council agreed to proceed with the study's final phase, implementation, by initiating a process that will provide the information necessary to determine which, if any, of the four options being evaluated should move forward. The Council asked the City's Utilities Commission to develop specific criteria to guide the City's consideration of a potential change in organization. The City Council received the Commission's recommendations on August 2, 2016, and approved a revised version. An application for a Municipal Services Review was submitted to the Orange County Local Agency Formation Commission (LAFCO) on August 22, 2016. The final MSR will be considered by the LAFCO Commission on September 5, 2018. It is anticipated that a framework for the potential reorganization of the City's utilities could be in place by the end of year 2018.

The City Council may decide to terminate utility reorganization efforts at any time, or may carry through to implementation. No timeline has been established for conclusion of the process, but as it moves forward, more information on the timeline will become available.

What is the role of the Utilities Commission in the process?

The five appointed members of the San Juan Capistrano Utilities Commission review and make recommendations to the City Council on matters concerning the City's water and wastewater services, rates, maintenance, investments and related matters. 

What are the goals of utility reorganization?

The City Council has expressed that a change in organization may be pursued if it is evident that a different organization would protect the City’s long-term interests and fiscal condition, lead to greater rate stability or lower rates for residents, ensure ongoing citizen participation in the utility, and protect the City’s investment in utility infrastructure.

Is the City considering privatizing the utility?

Not at this time. The City Council voted at its October 20, 2015 meeting to not include privately owned utilities or management of the Utilities Department by a private company in the current study. The expressed reason for this change was to maintain local representation, since the special districts the City is currently discussing reorganization with all have elected Board of Directors. 

How much debt does the City have on its utilities and how does the debt affect possible options for the Utilities Department?

There are three separate bonds for City utilities, two that obligate the City and one that obligates the San Juan Basin Authority, with the City participating. The total principal balance for the three bonds is currently approximately $42 million. This debt may be restructured as part of a change in organization. 

How is the City’s water and wastewater currently handled?

The City uses a mix of local groundwater drawn from its wells and imported water purchased from the Municipal Water District of Orange County, which supplies water brought to Southern California by the Metropolitan Water District of Southern California. The City also purchases recycled water produced by the Santa Margarita Water District and the Moulton Niguel Water District. The City is a member of the San Juan Basin Authority (SJBA) and has a long-term lease with it for the use and operation of the Groundwater Recovery Project (GWRP). The City is also a member of the South Orange County Wastewater Authority (SOCWA) and through that membership owns a portion of the J.B. Latham Wastewater Treatment Plant in Dana Point, where the City’s wastewater is treated.

Are there precedents for cities making similar changes to their utility departments?

Yes, there are. Every city in Orange County now outsources its trash collection services, which once were provided by the cities themselves. Most also outsource their police and fire protection services, as the economies of scale enjoyed by the Orange County Sheriff's Department and the Orange County Fire Authority make the outsourcing option attractive to cities. Additionally, special districts provide water and wastewater services to customers in many cities. 

In water and wastewater, there also are many precedents. According to the New York Times, hundreds of cities have privatized their water departments, including Indianapolis and Milwaukee. In California, municipal wastewater services are routinely provided by contract with a private party – for example, Burbank has done so since 1990. Another alternative is some sort of arrangement with a neighboring special district, for which there are local precedents. Both the Orange Park Acres and Los Alisos water districts were merged into the Irvine Ranch Water District in the interest of more efficient water and wastewater service. 

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