Regionalization Approach - Step by Step

Regionalization involves consolidation of multiple water systems and is a long process.  Due to the length of the process, water systems often begin working together in a number of ways on a trial basis while the regionalization process occurs.  For example, they may set up mutual aid agreements and/or memorandum of understandings.  These early arrangements can often be a good first step to help build trust and understanding between water systems.  Steps 2, 3, 4, 5 and 6 below are provided in the order that often occurs in a regionalization project.  However, each regionalization project is different and the steps can be completed in a different order depending on the needs and desires of the community.

Step 1 - Find Nearby Water Systems

To find adjacent public water systems begin by following Step 1 and 2 on how to find nearby public water systems and review their boundary areas using the Consolidation Approach - Step by Step webpage.

Step 2 - Setup Mutual Aid Agreements

Mutual aid agreements lay the groundwork for how two or more communities will help each other while maintaining their independence. These agreements are a great step toward resource sharing, consolidation, and regionalization, especially with an unfamiliar group or a water system where there is a complicated history. These agreements are often created for use in natural disasters (e.g. droughts, earthquakes, supply failure) but can be much broader. A signed mutual aid agreement does not obligate a utility to provide or receive aid, but gives direction should the need arise. While there are large statewide mutual aid organizations, such as CALWARN, which provide important large scale disaster response, the value of local community collaboration and planning should not be underestimated. Provided below are some resources on mutual aid agreements.

Mutual Aid: Communities Work to Help Each Other

American Water Works Association: Utilities Helping Utilities

Step 3 - Work Toward Implementing Proper Rates and Similar Rate Structures

Many small water systems do not account for all their costs in their water rates, resulting in old or failing infrastructure. Each water system should review the useful life of their assets and verify that their water rates reflect needed infrastructure upgrades and make the needed changes.

The Rural Community Assistance Corporation (RCAC) provides free online and classroom trainings on their website to help water system board members and operators deal with rate setting, financial management, budgeting and capital improvement planning. Once the water rates are understood and reflect actual costs, water rates can be structured in the same way as other collaborating public water systems. The rates may not be the same, but if the structuring of rates is similar, this can make it easier for customers to compare water rates between systems allowing rate payers to understand future costs and savings of regionalization. There are many savings associated with regionalization. One example would be streamlining the sampling process to decrease the number of sampling points, another benefit would be one consumer confidence report for all consolidated water systems, and the sharing of operational costs among all systems, which could provide savings to water systems and consumers.

Step 4 - Plan and Build Interties, Emergency or Otherwise

If a mutual aid agreement has been successful and rates are in order, consider starting plans for emergency interties that could further support both systems during an emergency, or could support a full consolidation of the systems at some point. Be upfront with customers and let them know regionalization is being considered, but the intertie does not have to turn into a full consolidation if all parties do not find it mutually beneficial. Even if full consolidation does not occur, interties and mutual aid agreements provide additional redundancy and resiliency for all water systems involved. Be sure to include the State Water Board's Division of Drinking Water District Offices to review technical details of the intertie prior to construction.

Funding for emergency and permanent interties may be available using various financing options, see the Funding and Incentives for Consolidation and Regionalization Projects webpage. Funding may also be available using other sources, such as USDA Rural Utilities Service Funding and Integrated Regional Water Management (IRWM) Funding.

Step 5 - Evaluate Governance Options and Formally Combine Resources

Formally combining resources and/or insurances will likely require some sort of legal agreement, such as a memorandum of agreement, a joint powers agreement, or creation of a new water system. Use the Regionalization Process Map, provided by Rural Community Assistance Program (RCAC), below to guide the next steps.

Once the combined needs and the purposes of the group are clear, an analysis of the type of governance structure that is best can be performed. This analysis should include community outreach for input on preferred structure, and may also include a feasibility study of the costs of each type of governance. Examples of potential new governance structures include: a new public water system which includes all the existing water systems, everyone consolidating into one of the existing public water systems, formation of a joint powers agreement, and managerial consolidation of some public water systems and physical consolidation of others. There can be many variations on the potential structure depending on the engineering feasibilities, costs and the desires of the community. Once the governance structure is decided, a lawyer can help draw up the necessary agreements.

Sometimes, it may be helpful to consider the changes of governance in phases. Initial legal agreements can be the basis of shared managerial, operational, and/or billing staff and equipment. It can also set up a process that consolidates these functions as key senior personnel retire, instead of immediate full regionalization.

Additional information on joint powers authorities can be found in Section 6500-6536 of the Government Code. Section 6525 also discusses how mutual water companies can be combined with public water agencies. The Secretary of State's website provides notice of joint powers agreements and amendments forms.  If a new business entity is formed, it may also need to acquire business licenses, a new federal tax ID, new bank accounts, transfer asset titles and a new DUNS number.

Step 6 - Change Service Boundaries

There are many types of planning boundaries that define local jurisdiction. Thus, to move toward regionalization, some of these boundaries may need to be changed. The most significant of these changes include: LAFCO boundaries, utility service area boundaries, and water rights Place of Use boundaries. Regionalization is easiest when no boundaries have to be change and the community is in agreement with the concept. If there may be community concern, public meetings prior to attempting to change these boundaries is recommended.

Local Area Formation Commission (LAFCO)-Sphere of Influence - Regionalization may or may not require changes in LAFCO boundaries depending on the types of water systems involved. LAFCO typically has jurisdiction over cities and county special districts. If needed, this may include providing a map and description of the new water system, a LAFCO hearing, a protest hearing, and possibly an election. Contact the county's LAFCO executive officer for more information. A link to the contact information for the executive officer of LAFCO in each county is provided here: http://calafco.org/about-us/lafco-directory. In the event of public health emergencies, extraterritorial service agreements may be possible.

Surface Water Rights-Place of Use Boundaries - Each public water system that uses surface water as a source (e.g. a lake, river, etc.), will have surface water rights which can only be used to provide water in a defined area, called its "Place of Use". It is likely that the Places of Use will not include all of the proposed service area for the new regionalized water system. As a result, a Petition for Change will need to be filed with the Division of Water Rights by the water right holder(s) before these rights are allowed to supply water in the combined distribution system. It may be best if the LAFCO process is completed first so that the formal boundaries are known for the new Place of Use. However, contact the State Water Resource Control Board's Division of Water Rights simultaneously to determine the most efficient path forward. A temporary urgency change may be appropriate under some situations involving public health risks, and takes less time to process.

Step 7 - Obtain a New Domestic Water Supply Permit

If you are creating a new public water system as part of the regionalization process, you will need to obtain a new domestic water supply permit from the Division of Drinking Water. Contact the State Water Board Division of Drinking Water district engineer for the specifics that are required for your new public water system. At minimum, information regarding the technical, managerial and financial capacity of the new water system and a permit application will be required. More information regarding obtaining a new domestic water supply permit can be found on the State Water Board's Permits for Water Systems webpage.

Step 8 - Help Sign Up Customers with the New Public Water System

When construction of the consolidation project is completed, residents may need assistance signing up with the billing system of the new public water system. While this seems like an obvious step, it can be a time-consuming process. Keeping residents informed throughout the entire regionalization process will help make this easier.

Step 9 - Formally Dissolve Your Water System

The legal entity of the water systems that make up the regionalized water system will need to provide a written request to the Division of Drinking Water asking that their domestic water supply permits be cancelled, as appropriate. It will be necessary to cancel any associated business licenses and insurances for the dissolved water systems. Also consider the need to close bank accounts and transfer deeds or titles. And finally, make sure to provide important records such as distribution maps and operations plans to the new water system staff.