Citizens Make The Call in El Paso, TX -

PSB Appeal

August 2, 2010

Mr. Mark Bolduc, Customer Service Manager
C/O Mr. Robert Andron, General Counsel
El Paso Water Utilities
1154 Hawkins
El Paso, Texas 79925

Dear Mr. Bolduc,

Public Service Board (PSB) Rules and Regulations No. 8 provide as follows:

"....THE FOLLOWING RULES AND REGULATIONS SHALL IN ALL INSTANCES GOVERN THE RIGHT OR RIGHTS OF APPEAL CONCERNING ANY DECISION OR RULE AFFECTING ANY CUSTOMER OF THE EL PASO WATER UTILITIES (EPWU)."

"....the right of appeal is provided to permit adjustments in the policies or charges where these adjustments bring about greater equity between customers and do not merely give relief to one customer simply because that customer feels that the charges are excessive or the policy is unreasonable. The true test of the policies as well as requests for deviation from the policies is that the action taken by the Utility must be fair and equitable to all customers.

I wish to appeal the following "decisions" affecting all customers of EPWU on the basis that these decisions are not "fair and equitable to all customers":

EPWU forces El Paso Citizens to pay for their own demise. EPWU collects money from water customers to promote growth in El Paso. EPWU is spending money to bring more people to the water rather than more water to the people. Quality of life diminishes as residents pay more money for less water while an ever increasing population places additional demands on a limited water supply.
The purpose of EPWU is to produce water for El Paso Citizens. As the population grows, EPWU is expected to produce more water for the new residents. Between 1999 and 2008, El Paso citizens expected EPWU to increase water production by 5 Billion gallons a year¹ to accommodate 83,284² new residents. EPWU acquired $869 Million³ worth of new assets but water production declined by 3.5 Billion gallons per year.⁴ Existing customers were forced to pay for the costs of growth rather than the costs of service. EPWU must be held to account for $869 Million worth of new assets and show that these costs are "fair and equitable to all customers."
The Utility uses pricing as both a demand management tool and a way to generate additional revenue.^7,12 An increase in the price of water will cause customers to use less water while generating more revenue for EPWU.^5,12 The Consumer Price index went up by 24%⁶ between 2000 and 2009. EPWU raised the average price of water by 100%.^6,7 El Paso Citizens decreased their daily water consumption by 16%.⁸ EPWU revenues increased by $60 Million11 per year and this non-profit government owned monopoly recorded profits of $91 Million⁹ for itself and another $66 Million⁸ for the City of El Paso. EPWU plans to raise prices by another 128%¹⁰ in the future to further reduce customer water consumption and increase EPWU profits. EPWU must show that $91 Million in profits for itself and $66 Million for the City of El Paso are "fair and equitable to all customers."
The PSB instructed its President/CEO to delay improvements to the EPWU system and to honor the PSB commitment to "Fort Bliss and economic development."¹¹
EPWU committed to build the world's largest inland desalination plant on Fort Bliss property to allow Fort Bliss to keep its' existing wells in reserve as a strategic buffer.¹² The so called "joint" plant¹³ was a gift to the U.S. Army to entice the Base Realignment and Closure Commission to expand Fort Bliss. EPWU claims that "this is a tremendous partnership with the army,"¹⁵however there is no partnership agreement; only an Easement and Water Supply Agreement that will cause undue hardship to El Paso Citizens. Elected officials in most U. S. cities use tax revenues to pay for economic incentives. El Paso may be the only U. S. city where unelected officials will shut off a family's water if the family unable to pay for a subsidy to the U.S. Army. The purpose of water bills is to recover the costs of providing water; not to subsidize the U. S. Army. The U.S. Army is funded by Federal Income taxes collected from all U.S. Citizens.
On May 13, 2005, The Base Realignment and Closure Commission announced plans to expand Fort Bliss. Later that day, the EPWU President/CEO signed a Right of Entry agreement¹⁴ with Fort Bliss. The agreement obligated EPWU to build a $91 Million¹⁹ desalination plant on Fort Bliss property. The Right of Entry agreement guaranteed PSB nothing in return. Fort Bliss retained the right to cancel the agreement at will. PSB agreed to execute, accept and be bound by an easement and "to such terms and conditions which the Department of the Army may deem to be reasonable and proper to protect its interest." The Easement to the property was granted by Fort Bliss two years after the plant was built. The City of El Paso owned vacant land adjacent to the easement but the President/CEO chose to build the plant on Fort Bliss property rather than on City of El Paso property. EPWU will pay Fort Bliss $20.5 Million for the easement .²⁰
The easement was signed on July 22, 2009. Fort Bliss can cancel the easement upon thirty days notice.¹⁵ Fort Bliss can also terminate the Water Supply Agreements(s) upon thirty days notice if "The government can no longer supply such service as surplus to its own needs."¹⁶ This allows Fort Bliss to hold their own wells in strategic reserve and to purchase all the water they need from EPWU. Fort Bliss can simply cancel the easement and water supply agreement if EPWU fails to meet their demands.
El Paso Citizens pay $1.56 to produce each 1,000 gallons of water from the $91 Million desalination plant.¹⁷On June 1, 2009, EPWU entered into a contract to sell water to Fort Bliss at a price of $.85 per 1,000 gallons; ¹⁸a potential loss of $116 Million over the life of the plant.¹⁹ EPWU management refers to this contract as a "unified wholesale contract."²⁰
PSB regulations limit wholesale contracts to properties that are on the tax-rolls of El Paso County or within the extraterritorial jurisdiction of the City of El Paso. Fort Bliss is not on the tax-rolls of El Paso County or within the extraterritorial jurisdiction (EJT) of the City of El Paso.PSB regulations also provide that wholesale contracts must specify "contract time, maximum quantity desired, cost of service and other conditions of service." ²¹ The "unified wholesale contract" between EPWU and Fort Bliss does not contain any such information. As such, the unified wholesale contract was executed beyond the authority granted to the PSB/EPWU by its rules and regulations.
PSB regulations provide that "Conditions of Service to outside-city customers shall be in strict accordance with Rules and Regulations No.7. Written acknowledgment that the customer will comply must be provided with application for service."²² The "unified wholesale contract" is not in strict compliance with Regulation No. 7. There is no application for service and no written acknowledgement.
PSB Regulations Provide that "The utility may extend service outside of the El Paso EJT only when the PSB, In their sole judgment, deems such service to be in the interest of public safety, health and welfare." ²³ EPWU must show why EPWU customers must absorb a discount to Fort bliss in the amount of $930 in the interest of public safety, health and welfare.
PSB Regulations Provide that "As a part of this regulation, the Utility may require,............ sufficient charges or deposits which the Utility may deem necessary to assure that the costs are assumed by the apparently benefitted parties and not by the general water users of the City and County of El Paso, Texas."²⁴ "In no case shall funds from the utility be used so as to cause an expense to the other customers which would amount to a subsidy without benefits...."²⁵ EPWU will spend $1,393,781 for "Tie-ins and metering at Fort Bliss."²⁶ This cost will be absorbed by the general water users of the City and County of El Paso, Texas.
EPWU has been selling water to Fort Bliss for over 50 years at the same retail rates charged to El Paso residential customers. These rates range from $1.45 to $4.87 per CCF. The unified wholesale contract reduced the Fort Bliss rate to a flat $.64 per CCF. EPWU must show how this decision is "fair and equitable to all customers."If Fort Bliss elects to keep its existing wells in reserve as a strategic buffer, EPWU may be forced to supply around 4.4 Million CCF a year (9MGD)¹² to Fort Bliss at a potential discount of between $178 Million²⁷ and $930 Million²⁸ over the life of the plant. EPWU will raise the price of water to El Paso residential customers to make up the difference.
EPWU is required to take corrective action if water production lowers the water table on Fort Bliss. An increase in water production will lower the water table and EPWU may have to deepen or drill new wells for the exclusive use of Fort Bliss. The costs will be buried in water bills to El Paso Citizens.
On March 2, 2010 the Far West Texas Water Planning Group gave the Texas Water Development Board a plan showing EPWU plans to deliver approximately 8,992 AF a year²⁹ to Fort Bliss. If for any reason the desalination plant is unable to produce 8,992 AF a year, El Paso citizens will be forced to reduce their consumption by 8,992 AF a year or pay $554 Million²⁵ to acquire 8,992 AF a year from another source. The delivery of such water would therefore create an undue hardship for the Citizens of El Paso, through limiting its available supply of water or adding $554 Million³¹ to customers bills for imported water. Forcing the citizens of El Paso to pay for this additional water amounts to a subsidy for Fort Bliss. EPWUPSB rules state that funds from the Utility will not be used so as to cause an expense to other customers which would amount to a subsidy without benefits.
EPWU has agreed to supply Fort Bliss with approximately 8,992 AF per year.²⁶ According to EPWU, "Current supplies can meet expected future demands until sometime between 2015 and 2020" and "Simply increasing local groundwater pumping to meet increased demands has been shown to be an ineffective groundwater management strategy in El Paso County in terms of water quantity (declining groundwater levels) and water quality (brackish groundwater intrusion)."³² Therefore, any increase in groundwater pumping to supply the desalination plant and Fort Bliss must be offset with a decrease in groundwater pumping to supply El Paso Citizens. This decrease in groundwater pumping to supply El Paso citizens will force EPWU to obtain water for El Paso Citizens from a more expensive source. The cost to El Paso Citizens will amount to approximately $554 Million.²⁷
PSB/EPWU have adopted Rules and Regulations to protect and conserve the water supply of the City of El Paso.³³These Rules and Regulations state that when service is provided to a property, and the underground water belonging to the property served is used in a manner that will not reduce by the same amount the water requirements on the property serviced by the EPWU, such service shall be discontinued.³⁴ Fort Bliss will use the recent contracts with EPWUPSB in order to build up its own strategic reserves of water. Fort Bliss will use water reserves of El Paso Citizens instead of using their own water reserves. In as much, Fort Bliss is not reducing its underground and/or surface water to reduce the water requirements on the property serviced by EPWU. As such, the service associated with the wholesale service contract must be discontinued.
The desalination plant was built to provide back up and redundancy for the benefit of residential customers and for the benefit of Fort Bliss.³⁵ However, residential customers are forced to pay for all³⁶ of the plants' construction and operating costs. These costs must be shared with Fort Bliss in the ratio of benefits received. The plant can produce 27.5 million gallons a day. Fort Bliss consumption is expected to rise to 9 million gallons a day.³⁷ Therefore, Fort Bliss must pay 9/27.5 of construction and operating costs³⁸ to insure back up and redundancy for their water supply. Alternatively, these costs should be charged to the City of El Paso as a cost of economic development.
PSB must purchase feed stock water from Fort Bliss in order to effectively operate the plant.¹⁸ Feed stock cannot be readily obtained from any other source.¹⁸ However, Fort Bliss may terminate feed stock sales to PSB with 30 day notice.¹⁸ Such termination would render the plant useless. However, PSB would be obligated to pay Fort Bliss $409,500 a year for the easement and sell potable water to Fort Bliss at $.64 per CCF for up to 50 years.
EPWU has guaranteed the Fort Bliss water supply for fifty years.³⁹ According to the EPWU web site, "Current supplies can meet expected future demands until sometime between 2015 and 2020."⁴⁰ EPWU is in no position to guarantee water to Fort Bliss when they are facing a water shortage for their own citizens. PSB has a fiduciary duty to Bond Holders and El Paso Citizens, not to Fort Bliss.
The EPWU President/CEO delayed improvements to EPWU facilities in order to subsidize Fort Bliss. He betrayed the interest of El Paso Citizens in favor of Fort Bliss and he was rewarded with an employment contract worth $508,000 per year.⁴¹ The CEO's excessive salary must be billed to Fort Bliss as a cost of service, to the City of El Paso as a cost of economic development, or reduced to an acceptable amount. The average compensation for a municipal employee in his position is $114,000 per year.⁴² El Paso residential customers cannot be expected to contribute to the gross overcompensation of a President/CEO who betrayed their interest.

Sincerely,

Jimmy W. Janacek

_____________________________________________

¹163 g/d¹⁰X 365 days X 83,284 new residents

²EPWU 2009 CAFR, Statistical Section, Schedule D-1, http://www.epwu.org/financial/reports/2009/Statistics.pdf

³ ibid, Schedule A-5, Capital contributions totaled $141 Million.⁴

⁴ ibid, Schedule B-4

⁵ EPWU Annual Budget 2010-2011, Service Area Profile, P. 21 http://www.epwu.org/financial/reports/2010/Budget/Community_Profile.pdf
⁶ Bureau of Labor Statistics http://www.bls.gov/cpi/cpid1004.pdf

⁷ Average water revenue per CCF billed.⁴ $1.14 per ccf in 2000 vs 2.29 per ccf in 2009

⁸ibid, Schedule B-3
⁹ ibid, Schedule A-2

¹⁰ Pricing Effects on Water Demand, November 9, 2006, p10 & p12

¹¹ Performance plan for Edmund G. Archuleta, President/CEO July 1, 2007 - June 30, 2011.
¹² Team Bliss BRAC Commission Familiarization Briefing 27 May 05, Slide 51.
¹³ Letter from Edward Archuleta dated July 24, 2009
¹⁴ Immediate Right-of-Entry No. DACA63-9-05-0535 DATED May 11, 2005
¹⁵ Department of the Army Easement DACA63-2-09-0524, Article 17.

¹⁶ Contract For Sale of Water from Fort Bliss to EPWU.

¹⁷March 27, 2010 article in the El Paso Times, PSB projects longer wait if plan to import water is implemented.

¹⁸ Amendment of solicitation/modification of contract No. P00020.

¹⁹ ($1.56 production cost-$.85 sales price) x (9 Million gallons a day/1,000) x 365 days a year x 50 years.
²⁰ Letter from Robert D. Andron , General Counsel, EPWU February 2, 2010.
²¹ EPWUPSB Rules and Regulations No. 11, Sec. II(B)(1)(a)

²² ibid Sec. II(B)(4)

²³ ibid Sec. II(B)(2)
²⁴ ibid Sec. II(A)(3)
²⁵ ibid Sec. II (B)(3)
²⁶ EPWU 2009 Financial Statements Note 6

²⁷ ($1.45-$.64) x 4.4 Million CCF/yr x 50 years.

²⁸ ($4.87-$.64) x 4.4 Million CCF/yr x 50 years.
²⁹ Far West Texas Regional Water Plan, Table 4-2 at http://www.twdb.state.tx.us/wrpi/rwp/3rdRound/2010_IPP/RegionE/Region_E_IPP.pdf.

³⁰ Calculation of cost to acquire 8,992 AF per year from another source. Provided upon request.

³¹ EPWUPSB Rules and Regulations No. 11, Sec.II (B)(3)(a)

³²EPWU website, Past and Present Water Supplies, http://www.epwu.org/water/water_resources.html

³³ EPWUPSB Rules and Regulations No. 11, Sec.II(B)(3)(a)
³⁴ EPWUPSB Rules and Regulations No. 1, Sec. II(A)(2); No. 11, Sec. II(A)(2).

³⁵ Letter from Edward Archuleta dated July 24, 2009, page 2, fourth paragraph.
³⁶ Amendment of solicitation/modification of contract No. P00020.
³⁷ Letter from Edward Archuleta dated July 24, 2009, page 3, second paragraph.
³⁸ Fort Bliss would be entitled to receive 9/27.5 of the plants' production. Deliveries to Fort Bliss in excess of 9/27.5 of the plants' production must be billed at retail rates.
³⁹ Letter from Edward Archuleta dated July 24, 2009, page 3, second paragraph.

⁴⁰ PSB website http://www.epwu.org/water/water_resources.html
⁴¹ CEO Employment Contract effective July 1, 2007.
⁴² 2007 AWWA Water Utility Compensation Survey viii