WATER WAR: Fairfax’s Experts Rip Falls Church

Last week the Fairfax County Water Authority (FCWA) released two lengthy reports in support of its ongoing litigation against the City of Falls Church.  Prepared by experts in their respective fields, the reports are highly critical of the City’s position.

This is not surprising.  Had the reports reached conclusions critical of FCWA they never would have been submitted to the Circuit Court or appeared on the Authority’s website.

While the City’s counsel will no doubt dispute the findings, the documents demonstrate the depth of the Authority’s resources and its will to win, both at trial and in the court of public opinion.

Such research and analysis does not come cheap.  The author of one of the reports openly states that he is compensated at a rate of $700 an hour.  Presumably the City would incur similar costs if it decides to retain its own experts.

The case, which is scheduled for trial in September, may still be settled out of court.  If it is not, the reports provide an interesting preview of the arguments FCWA’s counsel will present to the judge or jury (among other things, the parties are disputing how the case should be heard).

The Mayo Report  –  Critiquing the City’s Monopoly

Dr. John W. Mayo, a professor in the McDonough School of Business at Georgetown University,  also has been an economic advisor for, and consultant to, both public agencies and private companies, including the Antitrust Division of the Department of Justice.

Fairfax Water requested he provide “an independent economic analysis of whether the City has significant monopoly power in the relevant market and whether  .  .  .   the City’s actions are consistent with those of a monopolist attempting to maintain its monopoly  position.”  He also was asked to estimate how much net revenue FCWA would lose if the City prevented a developer from connecting to Fairfax’s system.

The Mayo Report cites six examples of Falls Church attempting to maintain its monopoly:

1. Attempting to block entry of competition [into areas previously served exclusively by the City].
2. Representing an exclusive right to serve customers located in the interface area when none existed [as found in federal court and upheld in appellate court].
3. Unnecessarily inflicting costs on parties seeking to switch [water service] providers.
4. Imposing the threat of costly litigation on parties that may switch providers.
5. Seeking to delay Fairfax Water’s infrastructure development that would enable competition.
6. Using an aggressive and visible defense of its monopoly position with Halstead [a developer] to discourage other potential parties from switching.

Dr. Mayo concluded that “from an economic standpoint, [the City's] actions are consistent with those of a utility attempting and succeeding in willfully maintaining and abusing its position as a monopolist. [Emphases added.]  In addition, as a consequence of Falls Church’s actions, a reasonable estimate of Fairfax Water’s lost net revenues is in the range of $1.9 million to $6.0 million.”

As FCWA is seeking triple damages in the amount of $21 million, this estimate of its losses may seem rather conservative.  However, the estimate is limited only to losses associated with the Halstead project.  The complete text of the Mayo Report is available here.

The Woodcock Report  –  Questionable Rates and Transfers to the General Fund

Christopher P. N. Woodcock, who has worked on over 200 cost of service and water rate determination studies, is the past chairman and longest serving member of the Rates & Charges Committee of the American Water Works Association.

The Woodcock Report focuses on the City’s water rates and its practice of transfering monies from the water fund to the general fund.  In tracing the long history of the rates and transfers the author reviewed over 200 documents, the earliest dating to the 1950s.

Mr. Woodcock concluded that:

1. Falls Church has been billing and collecting excessive amounts for water service to customers in Fairfax County.
2. The generation of excessive revenues has resulted in enormous fund balances that serve no
   purpose, other than to provide a source of revenue to the City’s general fund.
3. The transfer of water funds to Falls Church’s general fund is not in conformance with generally
   accepted rate making standards.
4. The assessing of rates, fees, and charges that consistently generate revenues in excess of
   legitimate costs turns the City’s water fees into what rate making professionals recognize as a tax.
5. Falls Church should adjust its rates immediately to reflect the legitimate costs of providing water service.

The full text of the Woodcock Report is available here.

Should Readers Follow the Links?

Neither report qualifies as an easy read, but both are well worth reading as they present a wealth of  information that was previously unavailable or difficult to obtain.

For example, the Woodcock Report briefly notes that the City and the County engaged in a previous litigation over water rates — in 1961!  To some that may qualify as mere trivia, but the fact illustrates that the current controversy actually has been simmering for decades.

While they reflect Fairfax’s perspective, the reports shed considerable light on the past and present policies of the City.  Anyone interested in the current litigation or the future of Falls Church should find them worth their time.

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Previous reporting and commentary on the ”Water War” between Falls Church and Fairfax County

Reports

[June 2] UPDATE: City Council Rejects Fairfax Offer

[May 21] Having Lost One Lawsuit, City Files Another

[April 16] Part 1: A Tale of Two Lawsuits

[April 17] Part 2: How City Lost Suit Against Fairfax County

[April 21] Part 3: An Appeal Denied

[April 23] Part 4: The Authority Strikes Back

Commentary

[June 1] OPINION: Town Hall Meeting Needed on Water War

[May 4] OPINION: Settle the Water Litigation Now

[May 4] COMMUNITY COMMENT: Reasons to Resolve Water Dispute