Focused on developing a culture of innovation, the Water Authority added value for ratepayers and member agencies on all fronts during the fiscal year. The Board adopted some of the lowest rate increases in more than a decade, in part because supplies from the Colorado River Quantification Settlement Agreement are now less costly – and more reliable – than water from the Metropolitan Water District. Across its core services, the agency embraced new approaches and technologies to ensure continued efficiencies and cost-effective approaches to everything from investment strategies and pipeline management to right-of-way assessments and billing. Those initiatives were complemented by agency-wide advances in cyber-security and a continued commitment to clean energy solutions.

• Rate Increases Among the Lowest in 15 Years

  Rate increases for 2019, adopted by the Board in June, are among the smallest in 15 years due to financial benefits secured through litigation against the Metropolitan Water District of Southern California and the Water Authority’s planned use of its Rate Stabilization Fund. Several other factors also were at play: Regional water demand projections remained below earlier forecasts; deliveries of Colorado River water from Imperial Irrigation District will continue increasing; and MWD-related costs were lower because of a 2017 Court of Appeal ruling that favored the Water Authority on several key points. Prudent financial management also played a role. For 2019, the Water Authority planned a draw about of $18.4 million from its Rate Stabilization Fund, which was created in 1990 to help avoid rate spikes. Rates charged to the Water Authority’s 24 member agencies increase by 0.9 percent for treated water and 2.9 percent for untreated water in calendar year 2019.

  

  

• QSA Water is Less Costly, More Reliable than MWD Supplies

  The rate-setting process for 2019 highlighted a key long-term accomplishment for the region: Starting in 2018, the Water Authority’s independent water supplies from the Colorado River were less expensive than supplies from the Metropolitan Water District of Southern California – and the cost difference will continue to grow in the years ahead. The landmark 2003 Colorado River Quantification Settlement Agreement allowed the Water Authority to transfer increasingly large amounts of conserved water from the Imperial Valley to San Diego. From the start, that water has been more reliable because it has a higher priority on the Colorado River. The cost of that water is linked to the rate of inflation, which means it is rising far more slowly than MWD’s rates and charges. In addition, the Water Authority started benefitting from lawsuits that forced MWD to drop millions of dollars a year in illegal charges for delivering the Water Authority’s independent Colorado River water.

  

• Major Upgrade Started on Water Billing System

  A multi-department task force formed in the spring to lead a major upgrade of the Water Authority’s water billing software used to generate monthly invoices for member agencies, along with replacement of the information management system that archives key historical planning-related data such as water deliveries, water use and reservoir storage. Staff from the Water Resources, Finance, and Administrative Services departments started collaborating on efforts to modernize legacy software deployed in 1996. The new Data Archival and Invoicing System will include an intuitive user-interface, an on-line member agency portal, and a robust set of reporting tools. Work started in June with evaluation of the existing systems. The new applications are expected to be fully operational in 2020.

  

• Innovation Program Expands, Promotes Continual Improvement

  The Water Authority’s Innovation Program expanded significantly during 2018 to capitalize on internal and external ideas for managing the region’s water supplies and improving long-term stewardship of the region’s most precious natural resource. In October, the agency announced the winners of its first Bright Ideas of the Year competition, which drew more than 80 entries from across all departments. Winning ideas included forming an employee Health and Wellness Committee and installing fiber optic lines during pipeline relining projects to streamline the installation process. The Water Authority also expanded outreach to external stakeholders with increased participation in water industry and business innovation forums and the creation of a new web portal for entrepreneurs and others to submit their ideas online.

  

• City of San Diego, Water Authority Explore Potential Joint Energy Project

  In December, the Water Authority and the City of San Diego began negotiations with a private developer to assess the potential of developing a major energy storage facility at San Vicente Reservoir near Lakeside. The project would leverage existing water and energy infrastructure to reduce upward pressure on water rates while also expanding the potential for renewable energy use across the region. It would do so by creating a closed-loop system connecting San Vicente Reservoir to a smaller new reservoir that would be built at a higher elevation nearby. Energy would be generated by water moving through turbines from the upper reservoir to the lower reservoir. The region would benefit from the system’s ability to serve as a giant battery, an increasingly important asset given the growing renewable energy market. A primary goal of the project would be to offset water-related costs for the joint project partners – the Water Authority and the City of San Diego – in exchange for the use of public land, water and other assets.

  

• Agency Staff Develops 360-Degree Technology for Pipeline Inspections

  Using off-the-shelf, professional-grade cameras, Asset Management staff fabricated a device that provides high-resolution video imagery inside large-diameter pipelines. Images from multiple cameras can be stitched together to offer 360-degree views of pipeline interiors for assessing hard-to-reach sections. The Water Authority examines more than 20 miles of pipelines each year, however, several miles of pipeline are in extremely steep terrain and past inspections required support from specialized companies. By minimizing dependence on contractors, the video tool paid for itself in just two days of use after being first deployed in December. In addition, 360-degree videos can be paired with off-the-shelf virtual reality goggles to provide an experience like being inside a pipeline – an advance that allows stakeholders at the Citizens Water Academy and elsewhere to get an inside view of pipelines and the Water Authority’s innovative Asset Management Program.

  

• Drones Advance Assessments of Inaccessible Areas

  The Engineering Department expanded the use of aerial drones to monitor rights of way and help with surveying inaccessible landscapes. Assessment of the technology included hiring a consultant in November to obtain drone images and video of steep terrain on the Second Aqueduct west of Interstate 15 and south of the San Luis Rey River. The drone provided images that were 10 times higher resolution than stock aerial images without exposing staff to potentially dangerous conditions, prompting the Water Authority to explore drones for future surveys and use by other departments.

• Water Authority Promotes Leak-Detection Efforts Nationwide

  As part of its pioneering approach to pipeline asset management, the Water Authority co-sponsored a nationwide contest in Spring 2018 to advance leak- and corrosion-detection technologies for large-diameter pipelines. Water loss from leaks and corrosion is a major problem across the country, resulting in billions of gallons of water wasted annually, disruptions in water service, and costly repairs. The competition, which ended in May, included a $75,000 purse provided by the U.S. Bureau of Reclamation, the nation’s largest water provider and the operator of more than 20,000 miles of buried water pipelines. Unaccounted water loss (such as leaks) is less than 1 percent in the Water Authority’s system, far less than the industry average. The Water Authority helped design the competition and provided judges to identify the most promising approaches. Winners had not been announced.

  

• Clean Energy Storage System Installed at Twin Oaks

  Commercial-scale batteries installed at the Twin Oaks Valley Water Treatment Plant near San Marcos are expected to save the Water Authority about $100,000 annually. The 1 megawatt/2 megawatt-hour energy storage system was designed to reduce operational costs at the treatment facility by storing low-cost energy for use during high-demand periods when energy prices increase. The batteries were installed at no charge to the Water Authority as part of an agreement with Santa Clara-based ENGIE Storage. The system charges from either the grid or onsite solar energy, which is generated by more than 4,800 existing solar panels at the Twin Oaks facility.

  

• Going Green with Electric Vehicle Charging Stations

  Electric vehicle charging stations installed at the Water Authority’s Kearny Mesa headquarters helped the agency continue to advance is sustainability initiatives. Situated near the northeast vehicle exit gate, the stations offer electric vehicle charging at one handicap space and six standard parking spaces. San Diego Gas & Electric began installing the charging stations in February, and they started operating in April at no cost to the Water Authority or its ratepayers thanks to SDG&E’s Power Your Drive program.

  

• Proactive Efforts Upgrade Cyber-Security

  Growing international cyber-security threats prompted additional agency-wide improvements to cyber defenses, from enhanced security awareness training for employees to back-end initiatives that address the continually evolving online risks. The Water Authority hired its first dedicated information security analyst in May, adopted new security patching software, bolstered vulnerability scanning and event tracking capabilities, and prepared to launch a multi-factor authentication system for accessing agency accounts.

  

• Consultant Takes Leading Role in Investment Strategy

  When the Board of Directors adopted an updated investment policy in December, it also expanded the role of Chandler Asset Management to implement the updated strategy. Chandler, a top-rated private investment firm based in San Diego, already was under contract to manage medium-term corporate notes and municipal securities. As directed by the Board, the company took over management of the Water Authority’s core portfolio using asset classes within the investment policy. By taking full advantage of the investment types permitted by the state and emphasizing high credit quality, Chandler diversified the Water Authority’s investment portfolio with the goal of enhancing long-term returns while maintaining safety and liquidity.

  

• Insurance Review Saves Ratepayers Nearly $1 Million

  As the Water Authority wound down its successful, owner-controlled insurance program for the Emergency & Carryover Storage Project, the agency negotiated savings of nearly $1 million with the program insurance carrier, Liberty Mutual. In November, Liberty Mutual agreed to reduce the Water Authority’s financial commitment from $2.2 million to $1.3 million and returned $900,000 to the agency. The program remains funded to meet obligations, and the savings were freed up for other Water Authority needs.

  

• Water Authority Earns Awards for Excellence

  Awards

  Certificate of Achievement for Excellence in Financial Reporting for the Comprehensive Annual Financial Report for Fiscal Year 2017
  Government Finance Officers Association

  Distinguished Budget Presentation Award for the Biennium Beginning July 1, 2017
  Government Finance Officers Association

  Operating Budget Excellence Award for Fiscal Year 2018
  California Society of Municipal Finance Officers

  Achievement of Excellence in Procurement Award for 2017
  National Procurement Institute

• Financial Statements

  Download PDF

  Statements of Revenues, Expenses, and Changes in Net Position

  For the Fiscal Years Ended June 30, 2018 and 2017

  	2018	2017
  Operating Revenues
  Water Sales	$591,809,280	$579,057,028
  Other revenues	4,053,221	3,727,332
  Total Operating Revenues	595,862,501	582,784,360
  Operating expenses
  Cost of sales	442,369,171	430,560,992
  Operations and maintenance	24,219,304	19,097,518
  Planning	9,179,960	9,040,200
  General and administrative	16,914,642	14,487,899
  Depreciation and amortization	62,842,596	67,086,517
  Total Operating Expenses	555,525,673	540,273,126
  Operating Income	40,336,828	42,511,234
  Nonoperating revenues (expenses)
  Property taxes and in-lieu charges	13,753,714	12,913,313
  Infrastructure access charges	32,482,290	31,144,704
  Investment income	4,342,461	2,237,947
  Other income	19,253,393	11,408,632
  Intergovernmental	10,665,858	11,452,308
  Gain (Loss) on sale/retirement of capital assets	131,308	(727,294)
  Interest expense	(99,915,662)	(95,533,730)
  Debt issuance costs	(227,212)	(352,544)
  Other expenses	(39,453,750)	(17,143,705)
  Total nonoperating revenues (expenses)	(58,967,600)	(44,600,369)
  Income before capital contributions	(18,630,772)	(2,089,135)
  Capital contributions
  Capacity charges	28,153,768	21,080,540
  Water standby availability charges	11,102,611	11,091,285
  Contributions in aid of capital assets	16,000	219,325
  Total capital contributions	39,272,379	32,391,150
  Changes in net position	20,641,607	30,302,015
  Net position at beginning of year, as restated	1,556,316,102	1,526,014,087
  Net position at end of year	$1,576,957,709	$1,556,316,102

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  Statements of Net Position

  June 30, 2018 and 2017

  	2018	2017
  Assets
  Current Assets
  Cash and investments	$104,682,066	$56,840,335
  Restricted cash and investments	119,984,952	149,126,977
  Water receivables	106,982,874	102,593,505
  Interest receivable	1,112,444	918,016
  Taxes receivable	1,026,196	1,153,812
  Other receivables	19,833,613	13,731,984
  Inventories	96,334,231	96,983,153
  Prepaid expenses	4,649,883	4,640,248
  Total current assets	454,606,259	425,988,030
  Noncurrent assets
  Cash and investments	107,746,039	135,072,833
  Restricted cash and investments	22,665,917	23,411,934
  Advances to other agencies	217,594	650,477
  Retention receivable	1,245,470	823,942
  Long-term loan receivables	19,174,304	20,000,000
  Net OPEB asset	795,852	-
  Capital assets
  Non-Depreciable	118,295,114	151,945,443
  Depreciable	3,346,284,374	3,325,243,161
  Total noncurrent assets	3,616,424,664	3,657,147,790
  Total assets	4,071,030,923	4,083,135,820
  Deferred outflows of resources
  Deferred loss on refunding	61,113,716	72,294,728
  Pension contributions subsequent to measurement date	4,240,681	16,163,814
  OPEB contributions subsequent to measurement date	366,591	324,982
  Deferred actuarial amounts related to pensions	12,733,072	8,560,959
  Deferred actuarial amounts related to OPEB	84,422	275,965
  Total deferred outflows of resources	78,538,482	97,620,448
  Liabilities
  Current liabilities
  Accounts payable and other liabilities	104,266,238	85,111,259
  Interest payable	20,430,541	20,806,003
  Construction deposits	362,845	429,144
  Short-term liabilities	345,000,000	345,000,000
  Current portion of long-term liabilities	54,165,278	57,293,370
  Total current liabilities	524,224,902	508,639,776
  Noncurrent liabilities
  Long-term liabilities	1,975,170,555	2,041,933,667
  Net pension liability	70,106,317	71,135,027
  Net OPEB liability	-	170,141
  Total noncurrent liabilities	2,045,276,872	2,113,238,835
  Total liabilities	2,569,501,774	2,621,878,611
  Deferred inflows of resources
  Deferred actuarial amounts related to pensions	2,528,360	2,561,555
  Deferred actuarial amounts related to OPEB	581,562	-
  Total deferred inflows of resources	3,109,922	2,561,555
  Net postion
  Net investment in capital assets	1,154,718,703	1,123,928,892
  Restricted for construction projects	119,984,952	147,352,064
  Restricted for debt service	377,929	235,337
  Unrestricted	301,876,125	284,799,809
  Total net position	$1,576,957,709	$1,556,316,102

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  Cash and Investments

  June 30, 2018 and 2017

  	2018	2017
  As of June 30, 2018 and 2017, restricted cash and investments balances were as follows
  Construction	$ -	$2,663,522
  Debt Service Reserve	22,665,917	22,523,325
  Pay-As-You-Go	119,984,952	147,352,064
  Total	$142,650,869	$172,538,911
  As of June 30, 2018 and 2017, unrestricted cash and investments balances were as follows
  Operating	$56,369,103	$55,645,254
  Designated for Rate Stabilization	155,139,512	135,072,833
  Designated for Equipment Replacement	919,490	1,195,081
  Designated for Stored Water	-	-
  Total	$212,428,105	$191,913,168
  Total Cash Unrestricted	60.0%	53.0%