Carlos Lugo considers the Helix Water District a “perfect size utility”—not too big, and not too small. But as new general manager of the East County water agency, he’s mindful of the imperfect costs of retiree pensions.
In the second part of a Meet the Patch interview with editors Ken Stone of La Mesa Patch and Christine Huard of Lemon Grove Patch, Lugo concedes district pensions are on the high side.
“We’re under a current MOU [memorandum of understanding],” Lugo said last month, “but that’s up in about a year. .... And you’re right, there’s a lot of pressure throughout the state and also here in San Diego calling for us to look at [pension costs] closely. And my guess would be that once the MOU comes back up for negotiation, we’re going to have address that issue and evaluate what else we can do in that area.”
Our interview takes up where Part 1 left off—on ever-growing water rates in the nearly 50-square-mile district La Mesa, Mount Helix, El Cajon, Lemon Grove, Spring Valley and some other unincorporated areas.
Patch: How long do you think [water rates] can stay in place or be effective before the district would have to think about raising the rates again? What happens that triggers rates?
Carlos Lugo: The biggest challenge we have is the cost of water. We’re at the end of the system. We get water from the Colorado water system and the [California] State Water Project. To get that water down here, it costs money. And Metropolitan is the wholesaler that brings it to Water Authority, and they’re the wholesale dealers to Helix.
Those are really the driver of the rates. It’s been well over a 200 percent rate increase over the past 10 years just in the cost of water to get to us. Now we have ongoing costs as well. We serve a population of 267,000 folks in 50 square miles. So there’s a lot of infrastructure, and you can imagine that costs money to keep up. So we have costs on everything from gas and fuel materials, lighting power, those sorts of things. So that’s also pushing our rates.
Patch: So there are costs you can control or that you’re responsible for?
Lugo: Yes. But the biggest driver is the wholesale water rate. What we’ve been able to do—and we’re fortunate as one of the agencies that has some access to local water; we own Lake Cuyamaca up in the foothills—so we transfer any runoff we get from rain or snow down to El Capitan [Reservoir] and then we draw from El Capitan. That allows us to soften, if you will, the rate increases somewhat. So if you would get a 10 percent rate increase from CWA [California Water Authority], our constituents or our customers wouldn’t see, necessarily, a 10 percent rate increase in Helix. We can soften that by drawing from the local water source. But dry years can be killers because then we end up buying all of our water from Metropolitan Water Authority.
Patch: Apparently that dam at Lake Cuyamaca is under a restriction where you cannot fully fill it up because the dam’s not as sturdy as the state would like it to be. Is there any chance that you can fix that so you can raise the local water levels?
Lugo: The dam [at Lake Cuyamaca] is very short. It is an earthen dam and built many, many years back.
Patch: But is that an issue with you as far as having to fortify that dam? Is that something you’re considering as a capital improvement project in the future, or is it something you’re just living with?
Lugo: That hasn’t impacted our ability to capture water and move it. So from our standpoint, we don’t have that as a capital improvement in the near future.
Patch: Another major project that had to be put on ice for a while was El Monte Valley because Padre Dam water seemed to become too expensive for you. Is there any hope of reviving El Monte Valley as a source of water for you?
Lugo: There were a number of challenges. One, Padre Dam delayed the expansion of their treatment plan due to financial challenges, which is required so that we could get that highly purified water to El Monte. They’re having some financial struggles, so they’ve delayed. And our costs as we were going through our preliminary engineering, were starting to go in terms of developing that project.
As we went through studies for noise and traffic, one of the biggest challenges was dealing with the archaeological issues related to the old Indian artifacts on the site. And that was going to be a significant cost to use as well. With all those factors put together, we thought better of it and put that on hold and look at what we’re doing now with the water authority, trying to change some legislation at the state level, so instead of percolate that water in the groundwater basin and then draw it back out, actually put that water right into the lake, direct potable reuse, and then draw it out and then treat it.
Patch: You mean Lake Cuyamaca?
Lugo: Lake Jennings. Similar to what the city’s considering doing with San Vicente, where they have a pilot project at the Encina [power plant] that produces about a million or so gallons a day.
Patch: Can you give me a clue as to your plans for El Monte Valley? In other words, is it basically suspended or you’re never going to revisit it? How do you characterize your relationship with that project?
Lugo: Well, right now that project is on hold. We don’t have plans to utilize it as a groundwater basin. We feel that the technology of water treatment is such that at some point the regulators, such as the regional … board and also the health department will accept that water to the lakes and we’ll be able to draw directly. It would be much cheaper for us to do that than to draw it from the El Monte Valley, where you have to percolate it in and have to pull it out again.
Patch: The issue of cost savings in the district, aside from water savings, you can’t save on water but you can save on salaries and pensions. There has been a lot of chatter about relatively high pensions in the Helix Water District, even though you’ve recently gone to a two-tier pension system, But because, as you point out, there’s not a lot of turnover in the district staff, when can you get a handle on high pension expenses in the district?
Lugo: Well, as I mentioned, we went from 166 employees to 145 over the last two years. So that helps to some extent.
Patch: But even those retirees are getting pensions that may be on the high side.
Lugo: Correct. But we’re under a current MOU [memorandum of understanding], but that’s up in about a year. But in the last negotiations, the employees had to pay a portion of their [pay] into the retirement program, for the first time. Over two years, eventually it will be 4 percent. The first year was 2 percent and the second year another 2 percent, so they’ll be 4 percent. And you’re right, there’s a lot of pressure throughout the state and also here in San Diego calling for us to look at those closely. And my guess would be that once the MOU comes back up for negotiation, we’re going to have address that issue and evaluate what else we can do in that area.
Patch: But is there a pretty specific vision for the future of how you’re going to get that cost down or deal with that?
Lugo: Well, this will be my first go at this as the general manager. But we have, you know, the employees who have employee groups—there’s a management group and an employee group. And they negotiate through the general manager with the board on the contract and the benefits and salaries and those types of things. And depending on the term of the MOU that’s agreed upon, they revisit it at the end of those terms. Is there something that’s long term? No. I think we’ve gone from MOU to MOU, but not without understanding that there’s pressures. I mean certainly we understand that, we’re aware of it and we get the public, you know, who shares their feelings with us at our public meetings.
Patch: Your contract … shows you at $180,000 plus things like a car and a cell phone and whatever, that’s like $23,000 less than Mark Weston was getting at the end. Is that a reasonable salary for you given your wealth of experience? Do you think you should have had a higher salary? How is that set?
Lugo: I think the board set the salary, and I’m sure that they had some help from our HR department and evaluated that range of salary based on what other agencies are doing, how much they’re paying their general managers, and how much an organization or an agency of this size and what’s a competitive rate. I think that from their review of the salaries that that range of $180,000 to $200,000 was a competitive rate. And I was very comfortable with $180,000 as a starting salary, considering the fact that this is my first time as a general manager.
Patch: OK, was the figure set before they began interviewing people, or was it set after they found that you were the one they had selected?
Lugo: There was a range that was advertised as part of the recruitment of $180,000 to $200,000 … and that was on the low end. You have to remember that that’s a significant bump for me [from what I was being paid] as director of engineering. So I’m very comfortable with that the board has offered me.
Patch: Can you share what you were paid
Lugo: I think there was an adjustment for cost of living, but it’s about $157,000, in that range.
Patch: Do you live here in La Mesa?
Lugo: No, I live in Poway.
Patch: How long have you lived up there?
Lugo: About 20-some years. I grew a family there, two girls; so they’ve gone through the elementary school and the high school [there] and now they’re on to college.
Patch: Are they out of the house or still living with you?
Lugo: This year, they’re out of the house.
Patch: So where are they going to school?
Lugo: They’re both going to a community college in San Luis Obispo. It’s called Cuesta College. So their hope is to jump over to Cal Poly [San Luis Obispo] once they’re finished there. It’s a beautiful landscape. We used to camp there with my wife before we had kids.
Patch: And what’s your wife’s name?
Patch: Every general manager should come in with some idea of a vision for the district. What hasn’t been done here that needs to be done or needs to be given more emphasis?
Lugo: Well, let me share with you as I shared earlier that we’re a very stable organization and that we’re in great financial shape. And as far as our infrastructure, we’re in a very solid position. I think over the last 15 years, we’ve replaced our major facilities including the upgrade and expansion of the treatment plant, our major pump stations, well water and filtered water, some of our tanks and pump stations that needed attention, the tanks from the seismic sampler—we want to bring them current—our pump stations, we wanted to make them more efficient in terms of pumping water and power use. And we’re doing that, and we’ll continue to do that. But the major components of our infrastructure have been replaced or modified.
So we’re really at a point at Helix where we’re maintaining and replacing those facilities. And that’s how our capital-improvement program plan is geared. We just updated it last year to include things like valve replacements, pipeline replacements—things that need to be replaced on a cyclical basis. And I’d be happy to share that with you—the 10-year. There’s a … program that allows for us to set up funding for things like at our treatment plant or this building, where we set aside funding every year for carpet, painting or changing out pumps or electrical panels at the treatment plant.
We have thousands and thousands of pieces of electrical equipment at the treatment plant. I’d love to give you a tour of that if you haven’t been. I’m very proud of that facility because I spend 3 1/2 years there. But it’s a great facility
So, like I said, we’re in a very good situation where we’ve set up our capital-improvement program to start replacing … on a cyclical basis from here on out.
Patch: One of the issues that arose during the September regionwide blackout was that apparently Helix had enough power to run the pumps for a day, but you were worried if it had to go longer than a day you might not have power to run the pumps. What is the status of your pumps in the event of a major disaster?
Lugo: That’s a timely question because … one of the things we do … about this time in the fiscal year, we look at our midyear program and say, what kind of things do we need to tweak … we make the adjustments on our capital budget based on good pricing that we get or maybe things are a little more expensive than we thought, or a project gets delayed or something has to be moved forward. Or we see an event like a power outage, for example, and you’re absolutely right—we saw some things there that we could improve upon. During the blackout that we had, we did very well. We did not have anybody lose water. … We didn’t have a boil-water order. Regardless of what the press said, we did not have a boil order.
Patch: I think you were the only district that did not issue a boil-water order. That was really important because people in Lemon Grove were boiling their water and I told them not to.
Lugo: Yeah, there was no need to. We had enough resources to shuffle generators around. But during that outage … we saw that if we had a peak or there was any more usage than we were seeing, we could have been in a situation where we would have had to call out and tell people to reduce their usage, or we may have lost some volume in some of the tanks.
So as part of the midyear, we looked at that event and did a debrief on it, like we always do in these situations. We looked at: What were the lessons we learned here? And some of these were we needed to improve some of our connections at some of our treatment plants; to run multiple pumps, not just one pump. We needed to address our hydro stations—those are smaller stations up on hillsides, maybe a few hundred for homes. ... Those we’re going to set up with permanent standby power. Those are not a very high-cost item. And we’re also looking to purchase additional power generators over the next few years as part of our capital-improvement program,
In addition, we’re talking to rental companies, where you can contract or be first on, if you will, should the need arise for generators. It might cost a little bit; we might under a monthly contract have to pay a monthly charge for that. But it’s worth the insurance.
Patch: A lot of government agencies, such as the fire departments in the area, have merged to consolidate and become more efficient. The Heartland Fire and Rescue Agency was merged with La Mesa, El Cajon, Lemon Grove. Has there ever been thought given to a merger of water districts to achieve efficiencies?
Lugo: As a matter of fact, we just had one. Lakeside absorbed Riverview, a smaller little water agency up here, and that seems to be working well. At Helix, we serve 267,000 folks. From my experience, from what I’ve learned and read over the years about utilities, we’re probably a perfect size utility. We’re not too small; we’re not too big. It seems to be an efficient size for a water agency. We’ve done some research on that. There are opportunities for smaller agencies to be absorbed and probably run more efficiently. But as far as Helix goes, we feel that we’re perfectly sized for what we do.
Patch: Has anyone ever approached you about merging with you, or have you ever approached anyone else about absorbing another district?
Lugo: I’m not aware of us approaching anybody to merge. From time to time, we’ll have pieces of property from other agencies that are contiguous to our boundary that want to be annexed in. But those are less and less as time goes on. With the development planned, there’s not much going on.
Patch: It sounds like you’re saying a merger wouldn’t offer any kind of benefit to consumers?
Lugo: Based on our research or at least what I know, it wouldn’t. You know, you see issues like the city of San Diego—they’re large, they’re huge, they’re about eight times our size. And you see the challenges they have with the competing infrastructure needs, the roads, the sewers, storm drains and the treatment plants, and that can become overwhelming. We have a nice, balanced approach as it is now.
We have a good capital-improvement program, we have a great maintenance program in place to have a nice balance. And that’s the challenge—the water rates and what your needs are in terms of expenditures to keep that infrastructure up. Right now, we’re doing a good job of it. I think in terms of water rates, we’re in the lower third compared to all the water agencies. So I think we’re doing a pretty good job.
Patch: One of the harder jobs, more difficult jobs of a general manager is dealing with a board of directors that could have different agendas, constituencies and political issues. This is the first time you’ve had to deal with them as a boss, as opposed to the general manager as your boss. What are the challenges you see in dealing with a five-member board as your boss?
Lugo: Well, you’re right, I’ve not had to be in terms of the general manager’s seat dealing with the board. But I have had extensive experience over the years dealing with the board from the director’s standpoint. So in that respect, I’ve been exposed to that. And Mark has done a real good job of allowing us to do that and gain that experience and build those relationships with the board members. So is it a challenge? Yes.
And there’s always political influences and there’s always agendas. And I feel pretty good about the skills I have in terms of dealing with conflict. As the director of engineering, we’ve run into a lot of that. When you’re building a tank next door to somebody’s home, or you’re tearing up a roadway and people are just fed up with you because you’ve been there for months, or you want to build a new structure in a neighborhood that doesn’t have one, because it’s need for fire … and they don’t want it—been through all that. So I’ve developed those skills to be able to address that. I’ve also got a pretty good relationship with all the board members. And I’m willing to spend the time that’s needed to address those issues.
One of the things that makes it a little easier for us is that our board members are very educated in terms of water policy. They go that extra mile and do the research about an issue, and we do a good job of providing the background on the issues that they have to vote on. So I think they have everything they need in front of them to make good, sound decisions.
Patch: In addition to dealing with your board, you have to deal with city councils and the [county] Board of Supervisors and other districts that overlay Helix’s jurisdiction. What are the challenges of having to deal with the multiplicity of city councils and other boards and commissions?
Lugo: Well, you know we serve the city of El Cajon, the city of La Mesa, city of Lemon Grove, some of the county, some of the unincorporated areas. So we have that, but over the years we’ve developed a really good relationship with all those city councils. We have our disagreements in terms of water with Lemon Grove and those types of things.
But our staff works closely with the cities’ staffs to build those relationships and try to address conflicts before they are newsworthy. For example, we have a cast-iron replacement program under which we replace about 20,000 to 25,000 feet of cast iron a year. You can imagine, we’re tearing up streets, at least five miles or so a year. Well, when we looked up doing that, we said this could be a potential conflict with cities, especially if they’re overlaying their streets and we go in and tear up a street that was just overlaid.
So we’ve taken the time to coordinate all that and we have regular scheduled meetings with each of the cities’ agencies that we deal with to make sure we avoid those types of things. That’s just an example of how we coordinate and try to build those relationships.
Patch: How often is regular?
Lugo: The utility coordinator I think meets at least quarterly with the cities, and some more, and the county might even be more.
Patch: How long do you expect to hold this job? Mark retired at 61. Do you expect to retire here as well?
Lugo: Well, it’s early in the game. I’m still young. I’ve always had a goal, if I retired at Helix, maybe the 30-year mark. But I’m still going to be very young at that point, so we’ll see as time goes. But I’d like to represent this district for a while, for years to come.
Patch: Thank you very much.