San Marcos Mercury | Local News from San Marcos and Hays County, Texas

September 26th, 2011
LCRA utilities closer to private sector hands


Publicly-controlled infrastructure providing potable water to thousands of northern Hays County customers was offered for sale to two private companies last week.

The Lower Colorado River Authority’s board directed its staff to negotiate agreements with California Water Service Group and Corix Infrastructure, Inc. by Oct. 19 for the sale of about two dozen water and wastewater systems, which include the West Travis County Regional Water System. Corix is based out of Vancouver, B.C. and Cal Water is headquartered in San Jose, Calif.

LCRA loses $3 million a year on the systems and wants to get out of the retail water business, its officials have said. In a Sept. 21 resolution, LCRA’s board said it intends to choose a buyer — Corix or Cal Water — by Oct. 19.

The West Travis System serves an estimated 20,380 people in Hays and Travis Counties, including 7,000 water users in northern Hays County. It is also the only obvious water source for much of fast-growing Hays County, especially the affluent Dripping Springs area along U.S. 290. About $140 million has been invested in the system, LCRA staff have said.

Coalition of Central Texas Utilities Development Corp., a group made up of counties, cities and water supplies, submitted its own bid to buy the utilities from LCRA. The coalition’s board includes Hays County Pct. 4 Commissioner Ray Whisenant (R-Dripping Springs) as vice chair and City of Leander Urban Design Officer Pix Howell as chair.

Echoing a warning he gave to LCRA’s board at its Aug. 23 meeting, Howell said the coalition may take steps to prevent the utilities from falling into private hands.

“The biggest factor in (Corix and Cal Water’s) bids had to do with risk, and the biggest risk to them is whether or not they can get all the necessary permits — like their retail sale permit, their (certificate of convenience and necessity), their expansion permits, etc. They have to get all that in place before they can close (the deal).”

Howell said the CCN may not transfer to a private owner if “we’re all down there protesting the transfer.”

Hays County commissioners and coalition officials have argued that water/wastewater customers are best served by governments or non-profits, rather than investor-owned companies. An executive of one of the companies in the running to buy the utilities, however, disagreed.

“Is one better than the other? In my opinion, no,” said Cal Water Vice President Stan Ferraro. ”Both systems can work, whether they’re government-owned or privately-owned, and both can fail. It depends on the people who are running them and how they run them.”

Ferraro said government entities, unlike for-profit companies, sometimes have the luxury of deferring capital investments. He said state regulatory requirements mean for-profit entities must make the investments necessary to the provision of high-quality services.

“So we don’t really have that option of trying to defer investments in order to compromise service,” Ferraro said. “I’m not saying government agencies will do that, I’m just saying some can do that. Some can subsidize their water and wastewater rates with other city operations. So it’s extremely difficult to know if the rate structure for a government agency is fully cost-based. For private companies, it has to be because it’s regulated by a state commission.”

LCRA spokesperson Clara Tuma declined to enter the debate about for-profit versus non-profit water services, citing LCRA’s policy of not discussing matters related to ongoing purchase negotiations.

If the utilities do fall into private hands, Howell said customers need “concessions” in order to have more control over rates.

“So worst case, if they still end up going into private hands, I think we can negotiate out some transparency and some capability for a customer group to be able to have a say in how their rates are created,” Howell said.

Transparency includes giving customers accurate operations costs so they can determine reasons for rate changes, Howell said. He said the law does not hold private owners of water/wastewater utilities to the same transparency standards as public entities.

“In my experience, the filings that we need to make with state regulatory commissions with respect to rates are very extensive,” Ferraro said.

Ferraro said his firm must file “volumes” of reports, testimony and supporting data, which can take a year to 18 months in some states. He said consumer advocate groups and state agencies scrutinize water company processes, and administrative law judges hear arguments and make recommendations to state agencies when rate increases are disputed.

“I’ve never seen a city or a government agency go through that extensive of a process in getting their rates approved,” Ferraro said. “Now, having said that, LCRA found themselves in that type of situation for, I believe, the West Travis County systems, where their rates were being reviewed by the TCEQ. And so this was the first time they were ever subjected to that type of process. But that is not a normal process for government agencies, especial cities, who set their own rates.”

Howell and Whisenant have said investor-owned companies would be more likely than non-profit or government entities to assess higher water/wastewater rates.

“It’s my understanding that Cal Water is the most profitable water company in the United States,” Howell said. “So what does that tell you about what that does for the customer?”

Ferraro said there are several large water companies in the U.S., not all of which are publicly traded.

“There’s no way of knowing with the privately-held ones, how profitable they are or they’re not,” Ferraro said. “In terms of publicly-owned, I’d say we’re in the mix. I’m not aware of anything that says we’re number one. But we have an obligation to our shareholders to provide a fair return and we do our best to do that. Now, does that result in higher rates? Well, there’s a lot of confusion with respect to rates that are charged by government agencies versus private industry.”

Ferraro said large water companies may be more able than governments to invest in engineering solutions, operations, and the employ of water quality experts

“We’re a fairly large water company with many operations,” Ferraro said. “As a result of all that experience, you bring that to bear on each of your systems as needed. So that’s one of the advantages of a large corporation versus smaller, government-owned systems.”

According to its website, Cal Water has more than 490,000 customers and its management team averages more than 20 years of experience. Corix serves 650,000 people in North America, including Oklahoma and Alaska, and employs a team with more than 70 years of experience, according to its website. Coris was not immediately available for comment.

LCRA’s board said the following criteria have been used to select buyers for the water/wastewater utilities: 1) the ability and commitment of a buyer to provide reliable and quality utility services 2) ability to invest capital for additional and/or necessary water and wastewater utility infrastructure 3) commitment to meet applicable regulatory requirements, and 4) willingness to compensate LCRA for its investment in water and wastewater utility systems.

“The (Coalition) still stands ready to acquire those systems on behalf of the customers when (LCRA’s) negotiations fall apart,” Howell said on Sept. 22. “As far as I’m concerned, we’re still in the hunt.”

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One thought on “LCRA utilities closer to private sector hands

  1. Where are the Tea Partiers and Republicans? Corporations and not GOVERNMENT can do the job better! Corporations DESERVE to make as much of a profit as they can. At least that’s what they tell me.

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