OAKHURST – Hillview Water has just completed major upgrades to its water system — but some of the company’s customers are having a hard time swallowing a new 10.2 percent rate hike just floated by the Oakhurst-based utility.
The company’s recent upgrades — along with the proposed surcharge — were outlined in a letter sent to customers last week. The rate hike, according to company officials, is necessary to offset an unexpected financial shortfall caused by both tax code changes and a computer system “glitch” in Sacramento.
Ralph Fairfield, Hillview’s compliance and resource officer, said Monday the company was caught off guard by recent changes in U.S. tax laws, which left Hillview on the hook for taxes on $14 million in grant money the utility recently tapped into in order to upgrade its systems.
According to Fairfield, Hillview wasn’t notified until “somewhere around the first of the year” of language in the 2018 Tax Cuts and Jobs Act now requiring all public water systems to pay taxes on grant money. “No one saw this coming,” he said.
So while the grants may have spared the utility from having to fund the $14 million in system improvements, the changes to the tax act created a multi-million-dollar tax liability for Hillview.
And to add insult to injury, Hillview customers — at least temporarily — may also need to come up with more than $1 million to pay the contractors that worked on Hillview’s recent projects.
That unexpected situation, Fairfield said, is being created by a so-called “glitch” that is temporarily preventing the State of California from paying about $1.2 million owed to the contractors who did the systems upgrade work.
“The glitch is happening because the state is in the process of converting from one [payment] system to another,” Fairfield said. “None of the water companies in the state are being [reimbursed] right now. I’m really surprised it’s not a bigger story.”
Over the past few years, Hillview has invested heavily to clean up and improve its water system, which, in recent years, has tested positive for higher-than-allowable levels of iron, arsenic, uranium and manganese.
In addition to building three new state-of-the-art treatment facilities, the water company has recently added 1.5 million gallons of additional water storage capacity for Oakhurst and Raymond, and five new wells producing a total of more than 700 gallons of water per minute.
“When we began the process of looking for solutions to our water contamination problems and sources of funding, it never entered my mind that it would take twenty-four years before the problems would be 100-percent resolved,” said Roger Forrester, the company’s president.
With the recent activation of its three new water treatment facilities, Hillview now complies with all state and federal drinking water standards, according to the California State Water Resources Control Board, and Forrester believes the company has turned a corner.
“I’m overjoyed that our long journey is now at an end with the completed projects better and larger than when we first began,” Forrester said last week in a letter thanking customers “for their patience.”
Kassy Chauhan, Water Resources Control Board senior sanitary engineer, says Hillview Water Company (HWC) “has worked long and hard for many years to bring this project to fruition. We commend them as, now, the region as a whole has access to water that meets all drinking water standards. DDW [Division of Drinking Water] looks forward to the continued partnership with HWC to supply safe, wholesome and potable water to the entire Oakhurst and Raymond region.”
The proposed rate hike, according to Fairfield, would impact about three-quarters of current Hillview Water users — about 1,100 customers in Oakhurst and Sierra Lakes and 93 customers in Raymond.
Hillview currently serves 1,500 customers via four different water systems, and a number of users have already voiced their displeasure with the utility’s proposed rate hike.
“We’ve been getting some calls since Friday,” Fairfield said. “People aren’t happy about the rate increase.”
After getting her notice in the mail this past weekend, Hillview customer Amanda Chacon blasted the company on Facebook. “So we don’t have to charge you for that $14 million we used to fix your water (that took us 20+ years to fix by the way) but we have to charge you instead for a few other ‘glitches.’ Don’t worry, it’s not OUR fault but we’ll make it yours!”
Fairfield called the tax law changes “very frustrating” but said the issue with the state glitch could be resolved “even before” the California Public Utilities Commission (CPUC) has a chance to rule on the proposed rate hike, a process he called “very complex.”
Since 2017, Hillview has actually been in the process of being acquired by California American Water, a Sacramento-based, publicly traded company that, with operations in 45 states, is a major player in the water industry.
The proposed sale, under review now for two years by state regulators, is progressing “a little more slowly than we expected,” Fairfield said. “We are now anticipating it will close sometime in the third quarter of this year.”
Fairfield said the company plans to get a bridge loan to cover payment to its contractors until the state’s payment issue is corrected.
“We worked diligently to not have this happen but this is what we’re required to do,” he said. “Between the tax law changes and glitch with the state, we’ve had the double whammy thrown at us.”
According to the notice mailed to customers last week, under the proposed rate hike, the monthly bill for 3/4-inch metered customers using approximately 14 ccf of water would increase from $119.89 to $132.06 — or 10.2 percent.
About 90 percent of the utility’s customers use 3/4-inch connections.
Once the state glitch is corrected, Fairfield said Hillview will repay the bridge loan and the average monthly bill for those customers would decrease from $132.06 to $127.57 — or 3.4 percent.
The CPUC, which has the final say on the proposed rate hikes, must hold a public hearing and then will decide whether to approve the rate hike.
“It’s going to take months until any of this is finalized,” Fairfield said Monday.