By Shawn Raymundo
The City Council could make a decision to enter into exclusive negotiations with one of the agencies vying to take over San Juan Capistrano’s water and wastewater services in early February.
During the Council’s upcoming meeting Tuesday, Feb. 5, members and the public will hear presentations from each of the three water districts interested in the city’s plans to annex its water utility department.
According to the city, councilmembers will first go into a closed session to discuss a handful of items, including the utility transfer. Following the closed session, the council will hold its regular public meeting, when members are likely to select one of the agencies with which to start negotiations.
Addressing residents’ questions regarding the water transfer issue on Friday, Jan. 25, Mayor Brian Maryott said it’s not inconceivable for the council to select one of the potential successor agencies to start negotiations with at the next meeting. Maryott also said the meeting will play out like a public hearing, allowing residents to voice their thoughts.
Moulton Niguel Water District (MNWD), Santa Margarita Water District (SMWD) and South Coast Water District (SCWD) are contending to absorb San Juan Capistrano’s water and sewer services. Currently, each of the three districts provides some sort of services to the city.
Moulton Niguel supplies limited water services in areas of the city that include Hidden Creek Estates and Hamilton Oaks Winery, as well as areas along Camino Capistrano, Rancho Capistrano and Peppertree Bend. Santa Margarita has a contract with the city to provide meter reading services, while South Coast handles sewer services for more than 140 parcels within the city.
Maryott recently told The Capistrano Dispatch that he favors Moulton Niguel and Santa Margarita to take over San Juan Capistrano’s water and wastewater utilities, believing they’re better equipped to run the department because of their business volume and economies of scale.
A Municipal Service Review completed by the Orange County Local Agency Formation Commission (LAFCO) also advised that the city would experience more financial benefits if Moulton Niguel or Santa Margarita took over the water utilities.
Spending on Infrastructure
As a result of increasing costs and difficulty of providing water and wastewater services, the city has been looking to transfer its Utilities Department to another agency since 2016. In April of that year, the City Council voted to enlist LAFCO’s help by looking into restructuring options under the Municipal Service Review.
This past October, LAFCO completed the review, which evaluated the three agencies’ compatibility with the city, the city’s water utility infrastructure and the city’s potential to improve its financial condition.
“It was found that the City of San Juan Capistrano’s domestic water and wastewater systems both have sufficient infrastructure capacity to adequately serve existing demand,” according to LAFCO’s infrastructure assessment. “However, there is a capacity constraint in the domestic water system that has resulted in insufficient fire flow to meet fire code requirements at several locations, which needs to be addressed.”
The assessment also found supply constraints to the city’s recycled water system because the amount of recycled water that’s imported isn’t meeting demands and should be blended with groundwater. Furthermore, LAFCO reported, the city’s Groundwater Recovery Plant has allowed it to rely less on importing water.
“Based on the city’s (Urban Water Master Plan) projections, it can be determined that the city sources of water supply are acceptable to serve current and future population projections, as well as weather a three-year drought,” according to the assessment. “Expansion of the recycled water system and acquirement of a reliable recycled water supply will be necessary to meet future demands for recycled water.”
The UWMP projects that San Juan Capistrano’s population is estimated to grow by approximately 3,000 new residents by 2040.
The city’s agenda report pertaining to the utility transfer for the Feb. 5 City Council meeting states that all three water districts plan to replace certain areas of the city’s water infrastructure “that are identified as nearing the end of their useful life.”
“The capital investment would not only enhance the stability and reliability of the entire system, but would also reduce costs in the long run as delayed replacement is typically more costly than proactive investment,” according to the city.
The city’s current capital investment plans over the next five years put spending at nearly $22 million. Should Moulton Niguel or Santa Margarita take over San Juan Capistrano’s water department, the agencies are expected to spend $28.9 million and $28.4 million, respectively, on capital improvements to the city’s current service area, excluding regional projects. South Coast is expected to expend $19.1 million on capital investments, the agenda report states.
Moulton Niguel’s planned spending would be focused on “reducing the risk of disruption of supply for imported water by enhancing the interconnectivity of major water supply lines,” the city explained. Santa Margarita and South Coast plan to replace the aging infrastructure.
If Santa Margarita is selected, it would spend $14 million to replace sewer mains, nearly $10 million on replacing water mains, and $4.8 million on replacing wells and pump station equipment. Nearly $18 million of South Coast’s planned spending would go to water and sewer projects.
The Financial Benefits
According to LAFCO’s fiscal assessment, annexing the city’s water utility department “is likely to improve the overall financial condition of utility services within” San Juan Capistrano.
“Annexation to an alternative service provider offers the potential for cost savings due to economies of scale,” the assessment states. “These savings could help to stabilize utility rates and support the funding of capital improvements.”
San Juan Capistrano’s ratepayers currently pay higher rates compared to ratepayers under other service providers, the report notes. Since 2014, the average monthly rate per household has gone up by 16.2 percent, with residents currently paying a monthly average of $146.
In 2014, the Dispatch reported, City Council had approved a 5 percent increase in water bills for each of the five subsequent years.
The assessment also noted that despite costly litigation and refunds the city paid to customers who overpaid for water under the previous tiered water rates, San Juan Capistrano’s financial conditions continue improving.
“However, any number of adverse conditions could reduce (the city’s) ability to fund needed improvements,” LAFCO reported.
How much in savings the city and ratepayers can expect to see from the divesture of the utility department couldn’t be estimated, LAFCO explained. However, such savings would most likely be achieved if the city selects a larger agency such as Moulton Niguel or Santa Margarita.
Examining the Successors
Moulton Niguel supplies limited water services in areas of the city that include Hidden Creek Estates and Hamilton Oaks Winer, as well as areas along Camino Capistrano, Rancho Capistrano and Peppertree Bend, according to LAFCO. Santa Margarita has a contract with the city to provide meter reading services while South Coast handles sewer services for more than 140 parcels within the city.
All the three of the water districts “have proven to be outstanding service providers, each in their own arena,” LAFCO’s infrastructure assessment found.
In the assessment, Moulton Niguel is described as being a “highly responsive and well-managed agency” that has a low rate of customer complaints. The district was also credited for using predictive modeling.
Santa Margarita, according to LAFCO, “maintains excellent system integrity with a low rate of leakage and breaks and substantial water reserves that greatly exceed standards.” And South Coast “has a low rate of water loss that is indicative of a top performer, met fire flow standards at 100 percent of sampled hydrants, and aggressively inspects its wastewater system.”
In terms of being able to manage the city’s water, LAFCO noted several key differences among the agencies.
The size of operations and population that South Coast Water District serves, as well as its staffing levels, are most similar to San Juan Capistrano, according to LAFCO. South Coast’s headquarters is also closer to the city, allowing it to respond faster to complaints and emergencies.
South Coast also has the most experience when it comes to being a successor agency, “which may make the transition of services from the city to itself more seamless,” the report stated.
“Despite these advantages and similarities, if named a successor agency, SCWD would be taking on operations that would immediately double its own size,” LAFCO reported. “Taking on a system of a similar size would have an effect on SCWD’s resource capacity as it works to accommodate the City’s water and wastewater systems, which already require additional maintenance to improve their integrity.”
“The existing size of the City and SCWD exponentially increases the amount of effort that would be required for reorganization. An agency with larger operations, (which) is already capitalizing on economies of scale, may have greater capability to integrate the City’s operations into its own, making for a more suitable successor agency,” the report further explained.
LAFCO’s assessment stated that Moulton Niguel “appears to be in a better position” to operate San Juan Capistrano’s water utilities, because its current “system size, served population, and water reserves are significantly larger than those of the city.”
“MNWD has demonstrated that it is a highly responsive agency that is equipped to address issues that may come with systems that require additional attention to improve their integrity, such as the City’s systems,” according to LAFCO.
The assessment explained that Moulton Niguel also has a history of absorbing utility departments, “which will promote a smoother restructuring process.”
As for Santa Margarita, LAFCO reported that the agency also “serves a greater population and operates significantly larger water and wastewater systems than the City, with extensive water reserves.”
“SMWD already provides services to the City in several capacities, including delivery of imported water through its South County Pipeline, a contractual relationship with the City for meter reading and emergency services, and delivery of recycled water,” the assessment stated. “Concentrating ownership and control of such critical infrastructure in the hands of the service provider increases supply reliability and economies of scale.”
The city and Santa Margarita currently have a mutual interest in San Juan Capistrano’s Groundwater Recovery Plant (GWRP), which is “presently underutilized because of insufficient groundwater sources.” The completion of the San Juan Watershed Project is expected to “enable utilization of the unused GWRP capacity to process the added groundwater.”
Santa Margarita is the lead agency in charge of the San Juan Watershed Project, an endeavor that’s joined multiple agencies and nearby cities to capture local storm water runoff. When completed, the Watershed Project will provide 5.6 billion gallons of reliable water for 50,000 families each year.
LAFCO summarized that even though South Coast had the most in common with San Juan Capistrano’s operations and services, the comparable size is likely to hinder the consolidation and double the agency’s demand.
“Becoming a part of a larger well-managed organization with additional capacity has a higher potential of benefiting city residents,” the assessment stated. “An agency, such as MNWD or SMWD, will be able to extend its operational and service efficiencies to cover the much smaller San Juan Capistrano service area without sacrificing much of its own capacity.”
The City Council’s closed session is scheduled to begin at 3 p.m. The regular council meeting will start at 5 p.m.