Grand Jury Recommends Mergers of Water Agencies

Declaring that government inefficiency makes consumers pay too much for water, the Orange County Grand Jury called Wednesday for a drastic reorganization of some of the county’s largest water agencies.

In a much-anticipated report, the 19-member panel recommended that nine independent water districts be merged into two large agencies, eliminating “instances of overlapping and conflicting authority in water districts” while maintaining “a reliable source of water . . . into the next century.”

One juror, John Baird, said the 42-page report that took six months to prepare reiterates recommendations that grand juries have been making for 23 years--conclusions that the water industry has virtually ignored.

“Since 1971, there have been recommendations that consolidations take place . . . and a very minimum number have occurred,” said Baird, a retired Cal State Long Beach biology instructor from Anaheim. “We believe something still needs to be done.”

The jury’s non-binding recommendations will be presented to the county’s Local Agency Formation Commission, which oversees and takes action on district consolidations.

A recent scandal at the powerful Santa Margarita Water District in South County that led to the indictments in March of two top managers played only a “very, very small part” in the grand jury review, Baird said. The report sidestepped any criticism of the Santa Margarita district.

The report calls for mergers on two levels of the system that delivers imported water from the Colorado River and Northern California throughout the county: the wholesale districts that sell water to other agencies and the retail districts that then sell the water to households and businesses.

At the retail level, the jury recommended merging five of the biggest water districts in South County--the Moulton Niguel, Irvine Ranch, El Toro, Los Alisos and Santa Margarita districts--into one large agency managed by the Irvine Ranch district. The potential savings are not specified in the report.

At the wholesale level, based on an audit by the Ernst & Young accounting firm, the jury suggested merging the Tri-Cities and Coastal municipal water districts and the East Orange County Water District into one district managed by the huge Municipal Water District of Orange County. The merger would generate an annual savings of $758,158, according to the report.

Each district’s outstanding debt would have to be broken down and assessed to the affected taxpayers, the report suggested. The jury’s report, while saying that consumers pay too much for water, does not specify how much. Nor does it indicate how much water rates might decrease under district reorganization.

Baird said the jury concluded that “fewer board members and fewer top management” personnel at the districts “would reduce some of these water charges.”

Administrative costs for retail districts alone were $2.9 million in 1993, according to the report.

Water district officials were clearly unhappy with the retail level recommendations, but generally supported merging the wholesale districts.

“This is pretty radical, pretty drastic,” Dale Heuerman, general manager of the East Orange County Water District, said of the recommendations for consolidating retail agencies. “It’s not impossible, but it’s full of a lot of problems. . . . It’s quite a step all at once.”

Peer Swan, president of the Irvine Ranch water board, said he was flattered his district was proposed to absorb other retail agencies, but he doubted a larger district would be better for consumers.

“I’m not convinced consolidation is a necessity,” Swan said. “I think special districts serve a local constituency and generally serve it very well. It’s local government.”

But Ray Benedicktus, a director of the San Clemente-based Tri-Cities Municipal Water District, called the recommendations for the wholesale agencies “pretty cut-and-dried” and expected by his peers in the industry.

“Everybody knows there is a lot of room to consolidate at the wholesale level,” said Benedicktus of Capistrano Beach. “This was no surprise. . . . But the retail recommendations came out of left field.”

The jury also recommended that Tri-Cities’ small retail operations be taken over by the city of San Clemente and its proposed underground-water sharing arrangement with Camp Pendleton be taken over to the Municipal Water District of Orange County.

Stan Sprague, general manager of the Municipal Water District of Orange County, said his district has been studying consolidation for several years. The district already serves as a wholesale supplier to 27 water agencies throughout the county.

Sprague said “there is a fair amount of support for the grand jury recommendations as it relates to the wholesale water agencies.”

“I think there would probably be some cost savings, but the more urgent issue is whether the region receives a stronger benefit as far as a more dependable water supply,” he said. “I think there are some arguments that would say, yes, you clearly gain those.”

At the retail level, Sprague said the issues are “far more complex. You have five different agencies that are already pretty big and relatively new. . . . It’s certainly something to look at, but I think (the jury) may have gone a little too far on that one.”

Noticeably absent from the jury’s report was direct mention of the beleaguered Santa Margarita district.

The district’s former general manager, Walter W. (Bill) Knitz, and his assistant, Michael P. Lord, are awaiting trial June 6 on criminal conflict-of-interest charges. Both have pleaded not guilty.

Instead, jurors focused on consolidation, which “looked to us would provide a much more reliable supply of water,” Baird said. “We have just gone through a drought and we think this is critical.”