California’s biggest water supplier is hurting for cash this year as the recent record-breaking rainy winter means its customers need to buy less water.
The Metropolitan Water District of Southern California is facing a more than $300 million budget shortfall – about a quarter of its normal revenue from selling water.
The drought drags on, and the thirsty residents of Southern California are preparing again to spend heavily to buy water from the farm fields of the Sacramento Valley.
The board of the Metropolitan Water District of Southern California directed its staff Tuesday to start negotiating the purchases of as much as 100,000 acre-feet of water from the Valley — deals that would be worth millions of dollars.
Metropolitan has bought water from Northern California in eight of the past 16 years. The purchases can be a sensitive point in farm country, where water sales will result in fewer acres of crop grown and damage done to the local economy.
Water has begun trickling from Ukiah to Fort Bragg, and the county’s main task going forward is to scale up hauling to meet demand.
The city of Fort Bragg announced Sept. 9 that it had received its first 5,000-gallon delivery of water from Ukiah and is expected to receive 10,000 gallons per day that will allow Fort Bragg to resume outside water sales after halting them in mid-July. The two certified water haulers on the coast can resume their water sales, too, which were put to a stop once Westport shut off outside water sales at the start of the month. Josh Metz, who was contracted by the county to help coordinate the drought response, told the countywide drought task force, also on Sept. 9, the process has been “set up to address both domestic and commercial needs with some price difference.”
Wall Street’s reputation as one of America’s premier innovation machines can only be enhanced by a new futures contract that began trading publicly on Dec. 7. It allows investors to bet on the price of water in California.
Those who take the gamble are effectively betting that the spot price for water will rise during the life of the contract; they’ll pocket the difference. Sellers are betting that the price will fall.
The board of directors of the Metropolitan Water District of Southern California Tuesday approve a cost-cutting plan to reduce expenditures in response to lower water sales and concerns about the financial impacts of COVID-19 on its member agencies.
Following a public hearing, the San Diego County Water Authority’s Board of Directors today adopted rate increases for 2021 that are 30% lower than proposed last month following a series of refinements by staff. In addition, the Board directed staff to return in September or October with any further opportunities to reduce the 2021 rate increases, such as a decrease in rates set by the Metropolitan Water District of Southern California or the acquisition of federal or state economic stimulus funds.
As adopted June 25, the all-in rates charged to the Water Authority’s 24 member agencies will increase by 4.8% for untreated water and 4.9% for treated water in calendar year 2021. The new rates take effect January 1, 2021.
Rate increases are driven by reduced water sales, higher rates and charges from MWD and continued regional investments in supply reliability.
Since the staff’s rate proposal was released in May, the Water Authority re-evaluated several assumptions driven by COVID-19 recessionary pressures based on new economic data and forecasts. The Water Authority also funded some costs related to the Carlsbad Desalination Plant this year instead of in 2021. The 2021 rates and charges may be further reduced if MWD makes material changes when revisiting its budget and rates this fall.
“We’ve taken a series of strategic steps to minimize rate impacts during this pandemic-induced recession, despite numerous factors putting upward pressure on rates,” said Water Authority Board Chair Jim Madaffer. “At the same time, the Water Authority is maintaining its long-term fiscal stability while ensuring a safe and reliable regional water supply for residents and businesses that will be the foundation of our economic recovery.”
In 2021, the Water Authority will charge its 24 member agencies an all-in municipal and industrial rate of $1,474 per acre-foot for untreated water, or $68 more per acre-foot than they currently pay. Charges would be $1,769 per acre-foot for treated water, or $83 more per acre-foot than in 2020.
Actual figures will vary by member agency, and each member agency will incorporate costs from the Water Authority into the retail rates it charges to residents, businesses and institutions. (Note: An acre-foot is about 325,900 gallons, enough to serve the annual needs of 2.5 typical four-person households in San Diego County.)
In addition, the rates package includes new Permanent Special Agriculture Water Rates, following the Board’s decision late last year to make the temporary program permanent. The program provides farmers with lower rates that correspond to a lower level of water supply reliability. In 2021, the untreated PSAWR will increase from its current level of $755 per acre-foot to $777 per acre-foot and the treated PSAWR will increase from $1,035 per acre-foot to $1,072 per acre-foot.
The fiscal pressures faced by the Water Authority include:
The Water Authority’s 2021 rates were developed in conjunction with an independent cost-of-service study to ensure rates and charges comply with state law, legal requirements, cost-of-service standards and Board policies, and strategic tools such as the Long-Range Financing Plan.
In addition, the 2021 rates are designed to ensure Board-adopted debt coverage ratios that support the Water Authority’s strong credit ratings and minimize the cost of borrowing money for construction projects. The Water Authority has credit ratings of AAA with a stable outlook from S&P, AA+ from Fitch, and Aa2 with a stable outlook from Moody’s.
The rates adopted by the Board are the result of strategic measures that include:
Across the country, public agencies are scrambling to fill holes created by the pandemic – financial holes and, worse yet, holes in the workforce. It is safe to assume, until a vaccine is developed or an antibody treatment is found, we are living the new normal.
As we hope and pray that the worst days of the coronavirus are behind us, I am so thankful that the Water Authority took aggressive early action to protect employees and that we have had no COVID-related illnesses. I’m also grateful to report that our region’s water treatment and delivery systems are in good shape, and that they continue to provide clean, safe drinking water 24/7 due to the efforts of a few thousand employees of the Water Authority and its 24 member agencies. These dedicated public servants are doing their jobs day and night, despite numerous personal and logistical challenges.
That said, our region’s water agencies are collectively facing serious declines in revenues; businesses are not using water as expected, which means water sales have plummeted. Unlike some other industries, most of our costs are fixed. In fact, the Water Authority’s operating departments only account for about 6 percent of the budget.
This means that even when water sales drop, we still must pay the “mortgage” on the system – from pumps to pipes to filtration and whatever other costs we cannot control, such as increases from our water suppliers or higher costs for energy and treatment chemicals. For instance, we expect the Los Angeles-based Metropolitan Water District of Southern California to raise rates in San Diego County by more than 7 percent in 2021 despite our pleas for relief on your behalf.
Details about the financial impact of coronavirus will take weeks or months to emerge, but the Water Authority is already taking proactive steps to address anticipated challenges, from instituting a hiring freeze to assessing which non-essential projects and expenses can be deferred. I assure you that we are working every day to sustain our core mission to maintain the many values that we provide our region and make smart choices to ensure our long-term viability.
It is not an easy task, but we have 75 years of history that say we can do this together – and I know we will.
On a hopeful note, the region’s water agencies have joined forces to raise thousands of dollars for the Jacobs & Cushman San Diego Food Bank through voluntary donations by board members and employees. We’re always looking for opportunities to raise more money given the ongoing significance of the need. Click here to donate – and do not forget to share the link with family, friends and others who may want to participate. Every dollar helps feed those in need.
The Water News Network is San Diego County’s source for water news and information.
