The budget and supply implications of not being able to operate Well #4 and/or buy water from Calleguas are severe.

In this prior post, we reported that Crestview may not be able to buy as much imported water as shareholders need.  In fact, we may not be able to buy any water at all and must survive on only what we pump.  Here, we reported that Well #4 has been shut down and is in the process of being rehabilitated.  In this post, we discuss the implications of these contingencies on Crestview’s finances.

By long-standing Crestview policy, the volume of water sold in Tier 1 is set equal to the volume of well water.  Also by long-standing policy, Tier 1 water is priced far below a cost that would absorb its proportion of overhead on a per-gallon basis.  Purchased water from Calleguas is all sold in Tiers 2 and 3, and is priced to absorb a disproportionately large portion of the overhead.  There may be good reasons for this policy, but if—as seems likely—there is no water to sell in Tiers 2 and 3, then Tier 1 prices must absorb all the Company’s overhead and other costs, or we will quickly deplete our cash.  The table below shows that if no water is purchased from Calleguas in 2022, the Tier 1 selling price will have to be about $12.00 per 1,000 gallons to balance the budget.

The average Crestview shareholder has about 3 shares and is entitled in 2021 to buy 21,000 gallons per month in Tier 1 at $3.65 per 1,000 gallons.  A shareholder that bought exactly that amount each month this year paid a monthly water usage fee of $76.65 ($918.80 per year).  In contrast, if Crestview is not able to import any water, the amount of water available will be reduced to 12,000 gallons per month, and the rate per 1,000 gallons must go up to $12.00.  That would make the monthly cost $252 ($3,024 per year) for 43% less water.

If Crestview is able to rehabilitate Well #4 and use it with Well #6 to pump 700 acre-feet in 2022, the Tier 1 break-even cost will drop to $6.49 per 1,000 gallons—and we would have twice as much water.  (For reference, Crestview is only permitted to pump 748 acre-feet in 2022.)

Please tell us in Comments what the Crestview board should be doing about this situation.

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