An Oasis for Rational Water Analysis

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by Barry Estates
August 1, 2015
Category:   Rancho Santa Fe Homes

(The 5-minute video above is worth watching)

Topic: The main point is that the governor’s order does not benefit The San Diego County region in either the short or the long term, but instead harms our region. It is a separate but also important point that his action might well be illegal, as Riverside asserts. San Diego County is actually the model for responsible water use, foresight planning, and investment. The Governor is demanding water cuts from San Diego residents and businesses even though San Diego does not have a shortage this year nor is a shortage expected for 2016. If we do this, it will costs property owners billions of dollars of dollars in unnecessary destruction and costs to San Diego residents. It is as if the Governor declared that the Pacific Ocean no longer exists.

Who is Presenting? Donald Billings who has just completed two terms on the City of San Diego Independent Rates Oversight Committee (citizens’ advisory body to the mayor and council on water issues) and Chairman for three years

What: Facts will be presented that conflict with what you read in the newspapers and from what the Santa Fe Irrigation District is saying. The manufactured water shortage has some partial truths and many misleading and inaccurate statements.

When: August 6, 2015 – Thursday @ 1:30 PM

Where: Rancho Santa Fe Golf Club

Why Should You Care? You should care because there is no water shortage in San Diego County. In fact, we will have excess water this year above what we use starting October 2015. Our reservoirs should be at higher levels in 2016.


According to the County Water Authority we have no water shortage in San Diego today, or prospectively for all of the coming year. Do you agree with the County Water Authority? If so why allow the Santa Fe Irrigation District to raise our rates, assess fines and penalties, and dispatch water police to make us reduce water use when there is no shortage?

The Goal of the Meeting: Property owners need to understand how they can defend their property rights and value without being characterized as selfish and insensitive to the needs of others. Conservation and intelligent water use practices are fundamentally important. However, the justification for increased water rates, behavior based penalties, consumption taxes and water police are all supply based. With the understanding that San Diego has an adequate water supply, the result of years planning and interagency effort, and in fact is a model city for water preparedness, your perspective of the purported water crisis will change. The goal of the meeting is to present the truth, generate community discussion, and provide a level of intellectual support for property owners who choose to maintain their investment in green landscaping. The browning of California and the Ranch lowers property values and increases fire danger. Our meeting will encourage homeowners to bond together, protect their property investment, and not be bullied by politicians.

How can this be resolved? A topic for a future meeting after the problem is clearly defined and the facts presented are understood to be true.

A writer for the Rancho Santa Fe Review, July 7, 2015, interviewed Michael Hogan, the President of the Santa Fe Irrigation District.

(http://www.ranchosantafereview.com/news/2015/jul/07/water-restrictions- rancho-santa-fe- solana-beach/)

The following are comments from Don Billings, Former Chair, City of San Diego Independent Rates Oversight Committee, who was interviewed for the same article (excerpts from the article are in black, Mr. Billing’s comments are in blue):

Michael Hogan, president of the Santa Fe Irrigation District board and a member of the San Diego County Water Authority board, said San Diego County water agencies have invested in many different projects to enhance the local water supply. As a result, San Diego County can now provide for 30% of its


annual water needs, compared with 5% in the past. The percentage will continue to increase, he said, but the county still imports most of its water.

Billings: It is correct that San Diegans have made a lot of investments, but Hogan fails to make clear that we made those investments to reduce our dependence on supply from northern California. Therefore, his comment that San Diego County still imports most of our water is misleading. The fact is that the plan is to use more of the more reliable Colorado River water and less of the unreliable Northern California water. That

is what we have achieved, and will move more fully toward in the near future under existing contracts (the additional 100,000 acre feet annually on top of the current 180,000 acre feet).

Note that there has been above average precipitation in the six states that feed the Colorado this past year, and that May 2015 was the wettest on record (since 1895), at about 225% of normal. Result is that Lake Powell has already risen about 15%, to near average level, and the US Bureau of Reclamation has stated that they will begin this month to release water from Lake Powell to Lake Mead (Lake Mead levels are low, but not much different than long term averages).

Hogan: “The truth of the matter is that, looking out beyond one year, with regard to available supplies, they’re greatly threatened in the following years,” Hogan said.

Billings: Hogan needs to provide support. The US Bureau of Reclamation has already stated publicly that they expect no shortages in Lake Powell at least through 2017.
NOAA and other respected international meteorological agencies have declared that the current El Nino is one of the strongest on record and highly likely to lead to heavier than normal precipitation in the US Southwest beginning this fall 2015 and winter 2016.

Hogan: “We have to manage this from a multi-year approach. Conserving now under the governor’s mandate allows us the opportunity to manage our water supplies more effectively; that will reduce more severe cutbacks in the following years … and have the least impact on residents and businesses and


ultimately on the economy.”

Billings: It appears that Hogan thinks he should take advantage of the Governor’s executive order as an “opportunity” to fill local reservoirs. But he fails to acknowledge that we can more effectively manage, and already have been more effectively managing, local demand and supply using existing tools. Hogan fails to mention that this approach is very costly:

  1. Higher rates to offset much lower sales–essentially an added tax;
  2. $350 million conservation budget ratepayers are forced to pay forpeople to remove their lawns, change their plumbing fixtures,provide buckets for showers, etc.;
  3. The additional costs for water police, administration of fines andpenalties;
  4. The costs that do not fall directly on the agency’s books, but ontheir customers, such as costs of changing out landscaping and irrigation systems, destruction of property, harm to the business climate, etc.;
  5. Suspicion and ill will among neighbors, monitoring each other’s water use and reporting perceived infractions. This is on the website of some water agencies!

Billings: Hogan’s statement that the imposition of current restrictions will reduce more severe cutbacks in the following years is without factual or logical foundation. He can’t support that statement in the face of what is known today:

  1. –The Carlsbad Desalinization plant coming on line in October 2015,
  2. –Improved supply conditions on the Colorado River,
  3. –Strong El Nino forecasts (90% certainty by some accounts),
  4. –Accelerated build out of potable reuse (aka pure water),
  5. –Significant additional Colorado River supplies as part of IID transfer contract, etc.

Billings: In fact, Hogan has it backward: The likelihood of even more severe cutbacks in the future is quite low.

Hogan: Water agencies have embraced technology, either adopting or studying

a number of options, from water-efficient devices for homes, to recycling wastewater, which can be treated, blended with water in reservoirs, and then purified for household use, Hogan said. “That’s what the (county) water authority and member agencies have been doing already, and there’s been a lot of progress,” Hogan said. “This doesn’t happen overnight.”

Billings: We agree. This is the point. San Diegans have been making these investments. But his suggestion that the benefits are somehow very far off is not supported by the facts. The fact is that, after four years of low rainfall in California, San Diego has adequate water supplies.

Hogan: Hogan rejected calls for the district to ignore the state mandates. “That’s not an acceptable approach with the current board of directors, and I know of no agency that’s taking that approach,” Hogan said. “It would be contrary to my duties as a sworn public official to not make every effort possible to comply with the directives from the state.”

Billings: No one is advocating that SFID ignore them. On the contrary, we are advocating they challenge them.

Hogan: “It’s a crisis, and I think people need to realize that,” he said.

Billings: My comment stands: the facts clearly show that while rain supply is always uncertain (ask any farmer anywhere in the world) we do not have a water supply emergency in San Diego.

Additional Background Information for your review: Proposition 18

“The California Supreme Court on Wednesday (July 22) denied a request by the state’s top lawyers and water experts to depublish a groundbreaking ruling that the city’s tiered water rates system was illegal. The 4th District Court of Appeal ruled April 20 that the tiered rates approved by the San Juan Capistrano City Council in 2010 violated Proposition 218, which requires government fees be set in accordance with cost.


The ruling didn’t declare tiers in general illegal, but the court said they must be based on the actual cost of providing water and can’t be artificially inflated to discourage water use.

Depublishing the decision would have meant it couldn’t be used to support challenges to tiered water rates charged by other agencies in California. The Supreme Court’s decision to keep it published means it can be cited by lawyers and judges considering the legality of tiers all over the state.

State officials fear that any added scrutiny to how tiers are calculated will hinder agencies from implementing them. Tiers are considered one of the best ways to encourage people to use less water.

Cities and agencies across California continue to reference the Capistrano case as a reason for taking a more cautious approach to calculating tiers. A recent class- action lawsuit challenging tiered rates in Marin County references the Capistrano case.

The City Council last month approved a refund process that’s set aside $4.1 million to repay the city’s approximately 17,000 water customers. The city has also restructured its water pricing system. Anyone who was charged under the top three of four tiers – $4.24, $6.37 and $11.67 per 100 cubic feet –will be reimbursed based on the base rate, which was $3.18.”
OC Register July 22, 2915

Riverside Sues Over California Water Restrictions

“The city of Riverside has sued a state agency over water restrictions intended to combat the drought, claiming the rules are unfair because the city has ample groundwater supplies. The Southern California city argues it has been unfairly ordered to cut water use by 24 percent even though it has groundwater supplies for four years and does not rely on any imported water, according to the lawsuit filed Thursday in Fresno County Superior Court.”

2 News, June 9, 2015

http://losangeles.cbslocal.com/2015/06/09/riverside-sues-over-california-water- restrictions/


Donald F. Billings
Chartered Financial Analyst & Consultant at Promontory Financial Group LLC

An expert in financial institution analysis, supervision, governance and crisis management, with a broad perspective formed over more than 30 years working domestically and internationally as a federal regulator, Big Four management consultant, lecturer, and savings and loan resolution executive.

Prior to his work with Promontory, Mr. Billings was a managing director in KPMG’s New York and Tokyo offices. He helped launch KPMG Financial Services Consulting in Tokyo, and served as a member of its board of directors.

Mr. Billings was the U.S. Treasury Department’s senior adviser for financial institutions, based at the American Embassy in London. In this role, he managed the Treasury’s work with central banks and ministries of finance in Russia and Eastern Europe in reforming their banking systems and privatizing the region’s leading banks.

He was director of financial institutions at KPMG LLP in Washington, D.C., where he launched the foreign financial institutions consulting practice, helping it to grow to more than 100 professionals and opening its office in Budapest, Hungary. Earlier in his career, he served as the first director of finance of the Resolution Trust Corporation’s oversight board, and at the Federal Reserve where he played a key role in the management of the rolling banking crises of the 1980s.

Mr. Billings has a BA in economics from the University of California, Berkeley, and attended the Universite Catholique de Louvain in Belgium. He was awarded the CFA charter in 1986.

Mr. Billings has been a guest lecturer at the University of Michigan and Georgetown University. He serves on the University of California, San Diego’s Economics Roundtable Steering Committee, and as a member and past chair of the City of San Diego’s public utilities oversight board. He is a member of the CFA Society of San Diego, a former board member of the Washington Society of Investment Analysts, and a founder of the CFA Society of Japan. He was also the Former Chairman and two-term member of the Independent Rates Oversight Committee City of San Diego.


Article by: Barry Estates

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