May 29, 2018

Dear MWSD Board and Management:

We are opposing the proposed MWSD sewer rate increases at this time. We have two major classes of reasons for our opposition, and provide recommendations at the end of this letter:

a) failure to disclose to affected ratepayers all the reasons for and costs of the increases, and

b) failure to compare the proposed approach of patching SAM together versus alternatives involving new technology, locations, and partners.

It’s clear that SAM lacks adequate, reliable capacity to handle the wet month rains we have experienced, as well as reliable infrastructure for even normal operations. The recent half million dollar overflow fine, per statute, could have been $3.5 million. And there have been over 100 sanitary sewer overflows in the past 7 years. But I oppose the proposed rate increase until there is more complete and visible analysis of the financial, partnership and system dynamics at work, and consideration of alternative strategies to a current plan of “patch what we have”.

Understanding the disaster…

The Notice of Public Hearing did not disclose several factors which I suspect are (or should be) also primary drivers of the proposed rate increase:

  1. The lawsuit from Half Moon Bay, to avoid paying their fair share of all SAM expenses, and their continued intransigence to fund required preventative maintenance.
  2. The $500,000 fine for the March, 2017 spill. A fine that could have been $3.5M.
  3. The desire for a compounded 5 year rate increase to between 222 and 229% of current rates. Only the first two years were mentioned in the Notice.
  4. Multiple large commercial and residential projects planned for the San Mateo County coast.
  5. The impact of “global warming” – aka the Climate Crisis – on water and sewer systems here. An impact which must be expected to get worse over time.

At least a range of estimated costs should be provided for: the litigation and its fallout, potential future overflows and fines, more housing demands, and the Climate Crisis.

It is also essential to document and understand for Lessons Learned going forward – so that we do not repeat these costly and damaging errors – how we got where we are. I am fully appreciative of the efforts of the MWSD Board and those who have gone before in establishing our water and sewer systems. It was a unique effort combining initiative, intelligence and public service. I am also persuaded that MWSD is well-meaning and responsive. However, some aspect of financial management has been overlooked, and/or some aspect of recurring and preventative maintenance has been under-performed, and/or some aspect of capacity planning and sizing has been mismanaged. Until we fully understand the reasons we are in this predicament, it is irresponsible to ask ratepayers to subsidize a management process that has demonstrated failure.

If all you have is a Hammer, everything looks like a Nail…

I am concerned that the Plan(s) underpinning the Rate Analysis is incomplete in two major aspects.

1. The Plan appears to be cash flow based, without a coupling to SAM and MWSD future financials. There is room for improvement in the financial rigor of the information presented (errors, missing costs, etc.) which I will gladly detail at a future date. For example, the before and after book values, depreciation, operating & maintenance costs for each asset to be upgraded are not presented – not even in the 5 year detailed SAM project descriptions. It is unclear whether rate increases should be tied to cash flow or to financial statement projections, and I request an explanation of the methodology at work and upon which rate increase calculations are made.

2. The 20 year SAM plan consists primarily of fixing and upgrading what is broken. It also appears to contain some capacity and water projects not vital to avoiding more fines. But, in the main, the plan is to spend $40 million dollars at SAM (growing with inflation) to upgrade the current infrastructure, and a few financial details would not change that plan, those needs, or those costs materially. But is that the only viable Plan? In spite of several major compelling factors, there has been no documented consideration of strategic alternatives in technology, location, funding, or partnership.

We’re all in this together…aren’t we?

My review of public information related to the sewer issue reveals both MWSD and SAM making best efforts at competent management under challenging circumstances. Our MWSD Board have given most generously of their time and abilities to construct the infrastructure upon which we rely today. The weak link seems to be the city of Half Moon Bay.

The competence of HMB officials has long been in question. The dismissal of their City Manager follows years of rumors of incompetence, waste and corruption at several levels. Their financial difficulties are evident in the ~$35 million lawsuit loss, and the unfunded pension liabilities (at least $10M) of their city and agencies. It is understandable that their motivation is to minimize near-term expenses, and their decision-making track record indicates that they are unlikely to consider the longer term consequences of such actions – such as the resulting sewer overflows and multi-million dollar potential fines from deferring SAM preventative maintenance. Is this a partner upon whom we should rely for the next 20 years?

Recommendations

I believe it is time, before committing to a 20 year, $40+ million SAM plan, plus MWSD’s own sewer capital expenditures in support thereof, to:

A. Put a moratorium on all sewer connections, and if that is not legal, at least those involving lot subdivisions and multi-unit residences. More connections undermine the water and sewer security of all existing MWSD rate-payers & residents – who have paid for the costs and investments over the past years – and risk more fines in the millions which ratepayers must bear.

B. Review alternative technologies, locations, providers, funding and partners. Empower a Strategic Sewer Study Committee now, with feasibility assessments to be completed within 3 months, and if deemed feasible, high level plans and bids to be created for those alternatives by year end. [Consider involving El Granada in this study, but without delaying our efforts] I volunteer to serve on such a committee in order to minimize burdening the workload of daily responsibilities on existing Staff and Board. Other local professionals could be recruited as well.

C. Prioritize both SAM and MWSD capital & maintenance efforts solely to avoid future fines and conserve other resources pending a decision on whether they should be redirected towards one of the new alternatives explored by the Strategic Sewer Study Committee. These criteria seem to have already largely been the focus of SAM and MWSD plans, but there appear to be planned exceptions to halt for the foreseeable future: money spent on Airport wells (largely unused) and the Cabrillo Highway sewers (among other efforts) and development of recycled water at SAM – all of which may waste resources better directed to new alternatives.

D. Prohibit expenditures which increase either capacity (for future users) or sewer use burden in the existing infrastructure (by adding users) until the Board has considered and ruled on the alternatives of the Strategic Sewer Study Committee. These monies may be wasted and run at cross-purposes to a future, superior alternative. There is only cost, and no benefit, to current rate-payers from either such action.

E. Fully disclose immediately to MWSD rate payers all factors potentially impacting future sewer infrastructure and rates, including: the potential costs of lawsuits, counter-suits, future fines, and especially the impact of HMB winning its lawsuit and/or failing to contribute properly to SAM in future scenarios even if instructed to do so. Include also Climate Crisis effects. Incorporate reserves for these amounts into the financials and plans upon which near term rate adjustments are based. Having reserves and not needing them (or refunding them) is better than having no reserves and a funding crisis preventing cost-effective remediation.

F. Only increase rates once binding commitments to fund SAM by appropriate amounts are received from other SAM owners.  As long as the justification for rate increases is to increase funding to repair the SAM infrastructure, then proof that the SAM plans are properly funded and supported by all partner agencies must be required.  Should a new strategic approach to MWSD sewers be adopted, then the Board can propose rate increases attendant to that new plan.

Only with a Board Resolution committing to the above actions, and in the absence of any other problems developing or being discovered, would I support moving ahead for two years with the proposed rate changes. It is clear from the video and minutes of the May 3rd Board meeting that several Directors share my concerns about the lack of consideration of alternative strategies for water & sewer sustainability at MWSD/SAM. I hope you will receive these requests as constructive and act accordingly in our long term best interests.

Attached is a form with the required Written Protest Information.

Sincerely,

Gregg & Nancy Dieguez