Introduction
Background
South Orange County Wastewater Authority (SOCWA) is a joint powers authority (JPA) founded in 2001 by 10 member agencies (members) consisting of local water and service districts and cities. Previously, all of these 10 members had been participants, to varying degrees, in three predecessor JPAs, the South East Regional Reclamation Authority, Aliso Water Management Agency, and South Orange County Reclamation Authority. A JPA is a partnership between two or more public agencies to jointly exercise common powers. The mission of SOCWA is to collect, treat, beneficially reuse, and dispose of wastewater in a manner that protects and respects the environment; maintains the public’s health; and meets local, state, and federal regulations. SOCWA facilitates and manages the collection, transmission, treatment, and disposal of wastewater, as well as the production of recycled water for irrigation and commercial usage, for approximately 500,000 homes and businesses across the southern portion of Orange County. Figure 1 depicts SOCWA’s service area.
Figure 1
SOCWA Service Area
Source: https://www.socwa.com/about-socwa/service-area/
SOCWA’s Governance and Funding Structure
SOCWA’s board of directors (board) is made up of one representative from each of SOCWA’s 10 members, and each has one vote regardless of their individual levels of contribution to SOCWA’s revenues or the size of the population or territory they serve. Among other functions, the board is responsible for approving SOCWA’s budget, appointing its general manager, and taking other administrative actions. While SOCWA’s board governs matters that affect SOCWA as a whole, members enter into agreements with each other to establish project committees to serve their specific needs. According to SOCWA’s JPA agreement, members may choose to leave SOCWA on the last day of a specified fiscal year, as long as they provide the other members with a written notice at least 120 days in advance; however, leaving SOCWA does not absolve a member of its obligations under any ongoing project committee agreements.
A project committee forms when members enter into agreements to share the cost of an existing SOCWA wastewater processing facility or to construct a new facility in exchange for their use of the facility for processing their wastewater products or for other purposes. By entering into these agreements, members establish a right to a certain amount of capacity in a SOCWA facility; capacity here refers to the member’s right to use the facility to process wastewater liquids and solids or to perform advanced water treatment. Project committee agreements and budgets express these capacities as a percentage of the total capacity of the facility for its different functions. As shown in Table 1, SOCWA currently has 10 project committees.
| Project Committee | ||
|---|---|---|
| Project Committee Number | Name | Participating Members |
| 2 | Jay B. Latham Treatment Plant |
City of San Juan Capistrano Moulton Niguel Santa Margarita Water District South Coast Water District |
| 5 | San Juan Creek Ocean Outfall |
City of San Juan Capistrano
City of San Clemente Moulton Niguel Santa Margarita Water District South Coast Water District |
| 8 | Pretreatment Program |
City of Laguna Beach
City of San Clemente City of San Juan Capistrano El Toro Water District Emerald Bay Service District Irvine Ranch Water District Moulton Niguel Santa Margarita Water District South Coast Water District |
| 10 | San Clemente Land Outfall* | City of San Clemente |
| 12 | Regional Waste Discharge Permit |
City of San Juan Capistrano El Toro Water District Irvine Ranch Water District Moulton Niguel Santa Margarita Water District South Coast Water District Trabuco Canyon Water District |
| 15 | Coastal Treatment Plant (CTP) | City of Laguna Beach
Emerald Bay Service District Moulton Niguel South Coast Water District |
| 17 | Regional Treatment Plant |
City of Laguna Beach
El Toro Water District Emerald Bay Service District Moulton Niguel South Coast Water District |
| 21 | Effluent Transmission Main |
REACHES†: B/C/D
El Toro Water District REACH†: E El Toro Water District Irvine Ranch Water District Moulton Niguel |
| 23 | North Coast Interceptor‡ | City of Laguna Beach
Emerald Bay Service District |
| 24 | Aliso Creek Ocean Outfall* |
City of Laguna Beach
El Toro Water District Emerald Bay Service District Irvine Ranch Water District Moulton Niguel South Coast Water District |
Sources: SOCWA’s project committee list.
NA = Not applicable.
* Outfall: A pipeline that carries treated wastewater from one or more treatment facilities to a discharge point, such as a body of water or reuse site.
† Reach: A section of pipeline between two points.
‡ Interceptor: A large pipeline that receives flows from a number of sewers and directs the flows to a treatment facility.
Voting at the project committee level also follows a one‑member‑one‑vote structure, and members of a project committee vote on matters directly related to that project committee, including budgets to maintain or expand the facility. Members of project committees are bound by the terms of their agreements to pay their share of project costs. Members may only be relieved of this obligation by the mutual consent of all participating members of the particular project committee. Figure 2 depicts SOCWA’s current governance structure and the relationship between its board, project committees, and management.
Figure 2
Example of Members’ Capacity Ownership and Usage in a Project Committee
Coastal Treatment Plant—Liquids
Project Committee 15
Sources: SOCWA JPA agreement, organization chart, and project committee agreements.
SOCWA has no taxing authority, and nearly all funding for its operations comes directly from the contributions of members. SOCWA bills project committee members for their share of SOCWA’s costs to construct, operate, and maintain the facilities the project committees use. Project committee agreements establish each participating member’s share of operation and maintenance (O&M) costs and capital project costs generally based on the member’s level of usage or capacity rights. O&M costs represent the cost of using the facility to process wastewater; members pay these costs based on either their actual use of the facility to process liquids and solids or their share of capacity rights for common costs. Included in these cost categories are expenses for personnel, electricity, and chemicals used in the facility. Capital project costs include expenses for construction activities to maintain or improve facilities; members pay these costs based on their rights to a specified share of each facility’s total capacity—not on their actual use of the facility. Figure 3 depicts members’ capacity rights to process wastewater liquids, and actual use of those rights, for an example facility during fiscal years 2013–14 through 2015–16.
Figure 3
Example of Members’ Capacity Ownership and Usage in a Project Committee
Coastal Treatment Plant—Liquids
Project Committee 15
Sources: SOCWA’s annual audits of members’ budget versus actual expenses for fiscal years 2013–14 through 2015–16 and a project committee cost allocation report issued in 2012.
Note: The CTP also performs advanced water treatment. South Coast Water District owns 100 percent of this capacity and pays all associated costs.
* Moulton Niguel did not use any of its capacity for the three fiscal years according to the documents noted in the sources above.
In accordance with its JPA agreement, SOCWA annually prepares a budget based on estimated costs to maintain or replace its facilities as well as incidental accounting and administrative costs associated with operating those facilities. The budget is subject to review by the finance committee—a subcommittee of the board—and final approval rests with the board or the participating directors. The approved budget represents an estimate of O&M and capital project costs that each member will be responsible for in the next fiscal year. SOCWA invoices members quarterly for these estimated costs, and it reconciles cash collected from members in various cycles depending on the type of expenditures. For O&M costs, it performs an annual audit of members’ budgeted contributions to cover expenses compared to actual costs based on their use of the facilities. This annual reconciliation may result in amounts due to or due from a member depending on whether the member’s proportional use of the facilities is greater or less than expected when the budget was developed. Cash collected from members for capital project costs, however, is not reconciled to actual costs until the completion of the project, which can often span multiple years.
SOCWA’s Legal Action Against a Member Agency
In May 2017, SOCWA, along with three of its members, filed a lawsuit alleging that one of its members—Moulton Niguel—had failed to pay its contractual share of project costs for the CTP. Moulton Niguel entered into a project committee agreement with the City of Laguna Beach, the South Coast Water District, and the Emerald Bay Service District in 1999 to use CTP’s capacity to process up to 1.96 million gallons per day of its wastewater products. In response to the lawsuit, Moulton Niguel filed an answer and a cross‑complaint in August 2017. Among Moulton Niguel’s significant claims that relate to our audit objectives is the claim that SOCWA is unable to identify the capital improvement funds it holds for the CTP, including how much was contributed by each member and what the intended uses of those funds are. Moulton Niguel also claims that SOCWA’s management has engaged in questionable financial practices, fiscal improprieties, and poor retention of financial records. As of March 14, 2018, this litigation was ongoing.