Report 2013-126 All Recommendation Responses

Report 2013-126: Antelope Valley Water Rates: Various Factors Contribute to Differences Among Water Utilities (Release Date: July 2014)

Recommendation #1 To: Quartz Hill Water District

To ensure that water customers are able to have an understanding of how rate increases are determined, Quartz Hill Water District should include information in its public notices providing reasonably sufficient details of the basis of its fee methodology.

Annual Follow-Up Agency Response From October 2016

During the March, 2016 regularly scheduled meeting of the Board of Directors the new rate structure and rate study were adopted. This rate study plainly and thoroughly shows the methodology of how the rates were determined and derived.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From September 2015

We have not performed a rate increase/rate study. However, during the September 2015 Board of Director meeting the Board of Directors authorized staff to execute a contract with Urban Future Inc. to perform a comprehensive rate study. It is anticipated at this time the rate study will conclude prior to January 1st 2015.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

We have not performed a rate increase.

California State Auditor's Assessment of 1-Year Status: No Action Taken

The district has not increased its rates since our report was released, therefore we cannot determine whether or not its public notice provides reasonably sufficient details of the basis of its fee methodology. Furthermore, Quartz Hill has not developed any written procedures to address the recommendation.

6-Month Agency Response

We have not performed another rate study.

California State Auditor's Assessment of 6-Month Status: No Action Taken

The district has not increased its rates since our report was released, therefore we cannot determine whether or not its public notice provides reasonably sufficient details of the basis of its fee methodology. Furthermore, Quartz Hill has not developed any written procedures to address the recommendation.

60-Day Agency Response

QHWD will comply with this recommendation when another rate increase is proved to be necessary. QHWD will consult legal council during the drafting of the Prop 218 mailer to ensure "reasonably sufficient details of the basis of its fee methodology" is included.

California State Auditor's Assessment of 60-Day Status: No Action Taken

The district has not increased its rates since our report was released, therefore we cannot determine whether or not its public notice provides reasonably sufficient details of the basis of its fee methodology. Furthermore, Quartz Hill has not developed any written procedures to address the recommendation.

Recommendation for Legislative Action

To provide guidance to local public agencies in implementing the notice requirements of Proposition 218, the Legislature should enact a statute that specifies the level of detail required to satisfy the requirement that the notice specify the basis upon which the amount of the proposed fee or charge was calculated.

Description of Legislative Action

The Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

Legislation has not been introduced to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

Legislation has not been introduced to address this recommendation.

California State Auditor's Assessment of 1-Year Status: No Action Taken

Description of Legislative Action

No action has been taken yet, as the Legislature has not enacted a statute that addresses the recommendation.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #3 To: Los Angeles County Waterworks, District 40

To ensure that Los Angeles County Waterworks, District 40 can demonstrate that it complies with the public notification requirements of Proposition 218, it should retain documentation demonstrating that it mailed required Proposition 218 notifications of pass-through rate increases to water customers during the period that the increased rates are in effect.

6-Month Agency Response

LA District 40 implemented a pass-through water rate increase for calendar year 2015. All documentation of compliance with Section 53756(d) of the California Government Code is retained to evidence proof of mailing.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Los Angeles County Waterworks, District 40 (LA District 40) provided us with documentation demonstrating that it mailed the required Proposition 218 notifications. We would expect LA District 40 to retain similar documentation for future rate increases as well.

60-Day Agency Response

Since the issuance of the report, LA District 40 has not implemented any rate increases, and therefore, no related documents need to be retained. Further, Proposition 218 does not stipulate a record retention requirement establishing proof of mailing. However, LA District 40 will retain records indicating compliance with Section 53756 (d) of the California Government Code.

California State Auditor's Assessment of 60-Day Status: No Action Taken

Los Angeles County Waterworks, District 40 has not developed any written procedures to address the recommendation.

Recommendation #4 To: Quartz Hill Water District

To ensure that Quartz Hill Water District can demonstrate that it complies with the public notification requirements of Proposition 218, it should retain documentation demonstrating that it mailed required Proposition 218 notifications of pass-through rate increases to water customers during the period that the increased rates are in effect.

6-Month Agency Response

We have implemented a new work practice that requires the billing attendant to keep the following documents:

1. Copy of the proof (Document that shows the verbiage and layout)

2. Copy of the invoice from the billing company

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

QHWD staff will retain all documentation associated with the pass-through rate increases by one maintaining a certified list of all customers who received the notice and two maintaining a copy of the notification.

California State Auditor's Assessment of 60-Day Status: No Action Taken

The district has not increased its rates since our report was released, therefore it cannot demonstrate it complied with the public notification requirements. Furthermore, Quartz Hill has not developed any written procedures to address the recommendation.

Recommendation #5 To: Quartz Hill Water District

To ensure that water customers are aware of pass-through rate increases, Quartz Hill Water District should adopt a schedule of fees showing how these increases will affect its tiered usage charges before the new rates take effect.

Annual Follow-Up Agency Response From October 2017

During March, 2016 regularly scheduled meeting of the Board of Directors the new rate structure and rate study were adopted. This rate study plainly and thoroughly shows the methodology of how the rates were determined and derived. In addition to this rate study, a table was included in the Prop 218 mailer to show proposed adjustments by tier. This was mailed on January 29th, 2016.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2016

During the March, 2016 regularly scheduled meeting of the Board of Directors the new rate structure and rate study were adopted. This rate study plainly and thoroughly shows the methodology of how the rates were determined and derived. In addition to this rate study a table was included in the Prop 218 mailer to show proposed adjustments by tier. This was mailed on January 29th 2016.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Quartz Hill's notice of public hearing for proposed rate increases does not include a schedule of fees specifically for pass-through rates.

Annual Follow-Up Agency Response From September 2015

During the September 2015 Board of Director meeting the Board of Directors authorized staff to execute a contract with Urban Future Inc. to perform a comprehensive rate study. It is anticipated at this time the rate study will conclude prior to January 1st 2015. Steps are being taken to ensure the next rate study common work practice is modified to ensure the transparency and mechanism of the pass-through rate structure. Quartz Hill Water District customers understanding of the process is paramount to confirm this understanding of the process a schedule will be added to show rates before and after.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

Steps are being taken to ensure the next rate study common work practice is modified to ensure the transparency and mechanism of the pass-through rate structure. Quartz Hill Water District customers understanding of the process is paramount to confirm this understanding of the process a schedule will be added to show rates before and after.

California State Auditor's Assessment of 1-Year Status: No Action Taken

The district has not increased its rates since our report was released, therefore it has not adopted a schedule of fees. Furthermore, Quartz Hill has not developed any written procedures to address the recommendation.

6-Month Agency Response

During the next rate study the standard operating procedures will be modified to ensure transparency and knowledge of the pass-through rate structure by adding a schedule to show rates before and after.

California State Auditor's Assessment of 6-Month Status: No Action Taken

The district has not increased its rates since our report was released, therefore it has not adopted a schedule of fees. Furthermore, Quartz Hill has not developed any written procedures to address the recommendation.

60-Day Agency Response

At this time QHWD is reviewing our written Standard Operating Procedures to ensure the State Recommendation is achieved and followed.

California State Auditor's Assessment of 60-Day Status: No Action Taken

The district has not increased its rates since our report was released, therefore it has not adopted a schedule of fees. Furthermore, Quartz Hill has not developed any written procedures to address the recommendation.

Recommendation #6 To: Quartz Hill Water District

To ensure that its water customers have access to Quartz Hill Water District's rate methodology and other factors that help it determine rate increases, the utility should keep all documentation it uses to calculate or otherwise explain the need for rate increases for as long as the rate increases are in effect.

Annual Follow-Up Agency Response From October 2016

During the March, 2016 regularly scheduled meeting of the Board of Directors the new rate structure and rate study were adopted. This rate study plainly and thoroughly shows the methodology of how the rates were determined and derived. This aforementioned rate study was posted to our website prior to the Board of Director Meeting and made available during the meeting held on March 17, 2016.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

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Annual Follow-Up Agency Response From September 2015

We have not performed a rate increase/ rate study. However, during the September 2015 Board of Director meeting the Board of Directors authorized staff to execute a contract with Urban Future Inc. to perform a comprehensive rate study. It is anticipated at this time the rate study will conclude prior to January 1st 2015.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

We have not performed another rate study.

California State Auditor's Assessment of 1-Year Status: No Action Taken

The district has not increased its rates since our report was released, therefore we cannot determine whether or not its public notice provides reasonably sufficient details of the basis of its fee methodology. Furthermore, Quartz Hill has not developed any written procedures to address the recommendation.

6-Month Agency Response

We have not performed another rate study.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

The district has not increased its rates since our report was released, therefore we cannot determine whether or not its public notice provides reasonably sufficient details of the basis of its fee methodology. Furthermore, Quartz Hill has not developed any written procedures to address the recommendation.

60-Day Agency Response

The District has not completed another rate study, however it is expected that during November of 2014 the District will conduct another rate study that could affect rates. To ensure all "customers have access to Quartz Hill Water District's rate methodology and other factors that help it determine rate increases" all documents used in the determination will be maintained and scanned upon completion of the report. If a rate increase is determined to be necessary at that point then the scanned packet will be made available on QHWD website.

California State Auditor's Assessment of 60-Day Status: No Action Taken

The district has not increased its rates since our report was released, therefore we cannot determine whether or not it retained relevant documentation. Furthermore, Quartz Hill has not developed any written procedures to address the recommendation.

Recommendation #7 To: California Water Service Company

To show water customers that they are attempting to keep rates reasonable, the California Water Service Company should maintain documentation to demonstrate any cost savings expected or achieved as a result of its cost-saving efforts.

Annual Follow-Up Agency Response From September 2015

As documented in its 2015 General Rate Case (GRC) filing with the California Public Utilities Commission, Cal Water has taken a number of steps to control and reduce costs in its Antelope Valley District. For example, in its 2015 GRC filing, Cal Water estimates that per-employee pension costs will be 27% lower than projected during its 2012 GRC. In addition, Cal water is projecting that per-employee retiree health care costs will be 17% lower. Also, Cal Water has undertaken a fundamental change to its capital planning and procurement processes in Antelope Valley that will assist it in delivering capital projects on budget, and meet service requirements at the lowest life cycle cost.

Further, the Audit acknowledged that service areas "with a dense population of service connections allow water utilities to disperse their fixed costs over a larger number of water customers, resulting in lower overall monthly bills, whereas service areas with fewer service connections result in higher monthly bills because the water utilities must spread their fixed costs across fewer water customers." With only 1,400 customers, Cal Water's service area is the smallest of those included in the Audit. It has proposed to consolidate its Palos Verdes and Antelope Valley service areas for rate-making purposes. As such, the number of customers who share the cost of operating the water system would increase. Absent the proposal, revenue in the Lancaster portion of the service area would need to increase by about 34.9% to offset the cost of service. However, with the proposed consolidation, revenue in the Lancaster portion of the service area would need to increase by about 6.4%.

Cal Water will continue to use multiple communication channels to communicate cost savings to its customers. Further, Cal Water's local management will continue to give regular reports to its Officers regarding the service area's operations, including any efficiencies or cost-savings achieved.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

Cal Water continues to implement several initiatives related to the Audit's recommendation to increase its ability to demonstrate its efforts to control costs.

The efforts of team that was formed to evaluate the cost-efficiency of replacing aging infrastructure, as opposed to repairing it, culminated in the start of the CPUC's tri-annual review of Cal Water's operations and rates, which began on July 3, 2015. The success of the team's efforts is outlined in the Direct Testimony of Scott Wagner, which has been separately emailed to the State Auditor's office.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

We believe that Cal Water could do more to fully implement this recommendation. For example, it could conduct an assessment of Antelope Valley's operating costs to see how they can be reduced. Furthermore, the testimony Cal Water provided does not address cost savings for Antelope Valley ratepayers.

6-Month Agency Response

Cal Water continues to implement several initiatives related to the Audit's recommendation to increase its ability to demonstrate its efforts to control costs.

The efforts of team that was formed to evaluate the cost-efficiency of replacing aging infrastructure, as opposed to repairing it, is flowing into Cal Water's planning for the CPUC's review of Cal Water's operations and rates. The efforts of the team have resulted in several internal changes to the capital planning process, which will assist Cal Water deliver infrastructure projects on time and on budget, and meet service requirements at the lowest life cycle cost. Specifically, these changes include:

- Expanding the capital planning process out to nine years.

- Requiring a more detailed and standardized justification and cost estimate for capital projects.

- Establishing a Change Review Board that addresses changes to the timeline, budget, or scope of projects. The Board consists of the heads from the Engineering, Operations, and Rates Departments, and meets monthly.

- Requiring Officer approval of projects that experience significant cost overruns.

As was discussed in Cal Water's previous update, specific project justifications will be provided during the Commission's upcoming review of Cal Water's operations for all capital projects in the Antelope Valley District with a cost greater than $50,000. In other Districts, this level of detail is required for projects with a cost greater than $100,000. This change will provide customers with a more detailed understanding of the costs and benefits of infrastructure improvements being made in the service area.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

Cal Water is implementing several initiatives directly related to the Audit's recommendation to increase our ability to demonstrate our cost-saving efforts.

For example, we have formed a team that is evaluating the cost-efficiency of replacing aging infrastructure rather than continuing to repair it, which may be more costly in the long-run.

Also, pursuant to the California Public Utilities Commission's (CPUC) Decision in its most recent review of Cal Water's operations, costs, and rates, specific justifications will be provided for all proposed infrastructure projects in its Antelope Valley District with a cost greater than $50,000. In other Districts, specific justifications are only required for infrastructure projects with a cost greater than $100,000. This change will provide customers with a more detailed understanding of the costs and benefits of infrastructure improvements being made in the service area.

In addition, we are evaluating the best means to conduct our medium- and long-term infrastructure planning, with the goal of establishing procedures that provides more time to analyze various projects and be able to identify those that will provide the most value to customers. The improved process will assist Cal Water deliver infrastructure projects on time and on budget, and meet service requirements at the lowest life cycle cost. Reports on the new procedures will be provided to the CPUC during its next review of Cal Water's operations, costs, and rates, which will begin in July 2015. In the interim, updates will be provided to the Office of Ratepayer Advocates.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Recommendation #8 To: Los Angeles County Waterworks, District 40

To show water customers that they are attempting to keep rates reasonable, Los Angeles County Waterworks, District 40 should maintain documentation to demonstrate any cost savings expected or achieved as a result of its cost-saving efforts.

6-Month Agency Response

The County of Los Angeles established a webpage to show customers sustainability projects that demonstrate cost savings expected or achieved. These projects demonstrate cost-savings efforts throughout LA District 40 and other Los Angeles County Waterworks Districts. LA District 40 also shared this information with customers during a rate increase public meeting. LA District 40 continues to track additional cost-saving efforts as a result of ongoing projects such as renewable micro-hydropower, solar power systems, energy efficiency program, automatic meter reading systems, and leak studies, and will share this information with customers as opportunities arise.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

While the County of Los Angeles Department of Public Works has demonstrated costs savings efforts throughout all five Los Angeles County Waterworks Districts, it will attempt to track and demonstrate those costs savings efforts separately for LA District 40. Since the issuance of the report, LA District 40 has not implemented any additional costs savings measures, and therefore, has not prepared documentation to track additional costs savings efforts for LA District 40.

California State Auditor's Assessment of 60-Day Status: No Action Taken

Los Angeles County Waterworks, District 40 has not developed any written procedures to address the recommendation.

Recommendation #9 To: Palmdale Water District

To show water customers that they are attempting to keep rates reasonable, Palmdale Water District should maintain documentation to demonstrate any cost savings expected or achieved as a result of its cost-saving efforts.

6-Month Agency Response

Managers and Supervisors have been directed as policy and practice to track and report cost savings achievements

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

The District has entered into an agreement with a company to monitor the performance of the Wind Turbine which will track the amount of energy produced.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Recommendation #10 To: Quartz Hill Water District

To show water customers that they are attempting to keep rates reasonable, Quartz Hill Water District should maintain documentation to demonstrate any cost savings expected or achieved as a result of its cost-saving efforts.

60-Day Agency Response

During each regularly scheduled Board of Director Meeting the General Manager written report includes a section that is called "Cost Savings" where any cost saving(s) that was observed over the past month is detailed and reported.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

Recommendation #11 To: Los Angeles County Waterworks, District 40

To assist low-income water customers, Los Angeles County Waterworks, District 40 should work with its governing body to consider the feasibility of using revenues from sources other than water rates to implement rate assistance programs for low-income water customers.

60-Day Agency Response

LA District 40 considered the feasibility of developing a rate assistance programs for low-income water customers and determined that the current LA District 40 funding sources are subject to Proposition 218 cost of service requirements pursuant to California Constitution article XIII D, section 6 and cannot subsidize a group of rate payers. Therefore, LA District 40 does not plan to implement a rate assistance program.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

We consider this recommendation fully implemented because, according to our legal counsel's discussion with LA District 40's legal counsel, it examined available funding sources, researched efforts that other government-owned utilities have done, researched cases and secondary sources on Proposition 218, and considered creative solutions. We consider these activities to be appropriate and reasonable steps to address our recommendation to consider the feasibility of a low-income rate assistance program.

Recommendation #12 To: Palmdale Water District

To assist low-income water customers, Palmdale Water District should work with its governing body to consider the feasibility of using revenues from sources other than water rates to implement rate assistance programs for low-income water customers.

6-Month Agency Response

Final rules and guidelines are in place. Applications are being excepted. Funding for the year 2015 is in place. Monthly Credits are being placed on accounts of approved participants.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

The Board approved the rate assistance program at their August 13, 2014 meeting. Staff is finalizing the rules and application process and will begin promoting the program and accepting applications in October 2014.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Recommendation #13 To: Quartz Hill Water District

To assist low-income water customers, Quartz Hill Water District should work with its governing body to consider the feasibility of using revenues from sources other than water rates to implement rate assistance programs for low-income water customers.

Annual Follow-Up Agency Response From December 2018

QHWD has reviewed the process of using other monies to assist low-income water customers, and the Board of Directors and staff have not discovered a practical way of implementing this.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

We stand by our recommendation as stated in our report.

Annual Follow-Up Agency Response From October 2017

Same response as the previous year.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

We stand by our recommendation. As noted in our 60-day, 6-month, and one-year assessments, Quartz Hill has failed to perform a legal or financial assessment to determine whether or not it is feasible to use revenues from sources other than water rates to implement rate assistance programs for low-income water customers. We would expect Quartz Hill to complete this assessment before determining it will not implement the recommendation.

Annual Follow-Up Agency Response From September 2015

During our February Meeting the low-income assist program was discussed and the Board of Directors instructed staff to not proceed with further investigation of this matter at this time.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

1-Year Agency Response

During our February Meeting the low-income assist program was discussed and the Board of Directors instructed staff to not proceed with further investigation of this matter at this time.

California State Auditor's Assessment of 1-Year Status: Will Not Implement

We still stand by our recommendation. As noted in our 60-day and 6-month assessments, Quartz Hill has failed to perform a legal or financial assessment to determine whether or not it is feasible to use revenues from sources other than water rates to implement rate assistance programs for low-income water customers. We would expect Quartz Hill to complete this assessment before determining it will not implement the recommendation.

6-Month Agency Response

During our February Meeting the low-income assist program was discussed and the Board of Directors instructed staff to not proceed with further investigation of this matter at this time.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

We still stand by our recommendation. As noted in our 60-day assessment, Quartz Hill has failed to perform a legal or financial assessment to determine whether or not it is feasible to use revenues from sources other than water rates to implement rate assistance programs for low-income water customers. We would expect Quartz Hill to complete this assessment before determining it will not implement the recommendation.

60-Day Agency Response

During the July Board of Director Meeting this finding was discussed with the Board of Directors and at this time they do not wish to implement this finding.

California State Auditor's Assessment of 60-Day Status: Will Not Implement

We stand by our recommendation. Quartz Hill Water District has failed to perform a legal or financial assessment to determine whether or not it is feasible to use revenues from sources other than water rates to implement rate assistance programs for low-income water customers. We would expect Quartz Hill to complete this assessment before determining it will not implement the recommendation.

All Recommendations in 2013-126

Agency responses received are posted verbatim.