Water Authority Reduces Capital Spending, Lowers Budget for Fiscal Year 2015

Short Title
Water Authority Reduces Capital Spending, Lowers Budget
Board adopts rate increases that are among the smallest in past decade
How can rates go up when the budget goes down?

There are two main reasons why the Water Authority’s lowered budget for 2014 and 2015 does not decrease rates that the Water Authority charges its 24 member agencies.

  • Different time periods. The Water Authority’s budget for 2014 and 2015 is for fiscal years, which start July 1. It sets rates for calendar years. Rates for 2015 incorporate costs for desalinated seawater from the Carlsbad Desalination Project that could arrive as early as fall 2015. The cost of that supply is not accounted for in the budget for 2014 and 2015 budget because it will come online after those fiscal years are over. That cost will be reflected in the budget for fiscal years 2016 and 2017. 
  •  Borrowing. A reduction in the Capital Improvement Program budget provides long-term benefits by reducing the amount of money that the Water Authority may need to borrow in the future. However, it doesn’t immediately change how much money has been borrowed or how much the agency is paying in debt service. In light of current budget savings, the Water Authority will assess its outstanding debt this summer and look for ways to refund debt, pay off existing debt and defer issuance of new debt.

“All-in” rates

The “all-in” water rate is the estimated average cost of water that includes the Water Authority’s rates for supply, treatment (if applicable) and transportation, along with charges for storage and customer service. Actual figures will vary by member agency.

The San Diego County Water Authority today cut its current two-year budget by $37 million, or 2.5 percent, as part of its ongoing effort to reduce costs, adopt efficiencies and leverage partnerships while maintaining critical programs. It was the first time in at least a decade that the agency has de-appropriated money during a budget cycle because of savings in its Capital Improvement Program.

During its regular monthly meeting, the Board of Directors also approved rates and charges for calendar year 2015 that will increase the “all-in” cost of untreated water by 2.9 percent and treated water by 2.6 percent. Increases in the rates paid by the Water Authority’s 24 member agencies are among the smallest in the past decade.  They are necessary to cover higher treatment costs from the Metropolitan Water District of Southern California, pay for the first deliveries from the Carlsbad Desalination Project and support the Water Authority’s commitment to water conservation during the statewide drought. In addition, the Water Authority’s Board of Directors voted to extend the Transitional Special Agricultural Water Rate Program, which protects local farmers by allowing program participants to pay a lower water rate in exchange for a lower level of water supply reliability.

“This rate and budget package reflects the Water Authority’s commitment to controlling costs while maintaining a reliable water supply and our long-term financial stability,” said Thomas V. Wornham, Chair of the Water Authority’s Board. “We are taking prudent steps to protect ratepayers, and we will continue looking for opportunities to trim expenses."

At the midpoint of each two-year budget cycle, the Water Authority reviews revenue projections and spending, then makes adjustments based on changed circumstances. Newly realized savings in the $1.5 billion budget for fiscal years 2014 and 2015 resulted from lower spending on capital projects because of bids that came in below projections along with the deferral of several projects. Some of those savings were offset by additional costs for water purchases, replacing some pieces of equipment sooner than planned, and other expenses.

In addition, the Water Authority’s Board approved spending up to $1.2 million in fiscal year 2015 to study the feasibility of building a pumped storage project at San Vicente Reservoir. The project could benefit ratepayers by providing revenue from electrical generation in coming years. It would require the construction of a small reservoir in the hills above the existing reservoir, along with other facilities. Power would be generated during peak-demand periods by allowing water to flow downhill in a tunnel from the upper reservoir and turn turbines before entering San Vicente Reservoir. Water would be pumped back uphill during off-peak periods when power is less expensive. The difference in power rates would allow the Water Authority to generate revenues for offsetting expenses.

 “We regularly right-size our budget to ensure that it matches our actual needs,” said Maureen Stapleton, general manager of the Water Authority. “We also constantly seek opportunities that could produce a good return on investment for water ratepayers. The updated budget reflects both of those priorities."

As for calendar year 2015 water rates and charges, the Water Authority’s Board adopted some of the smallest increases in the past decade. Next year, the Water Authority will charge its 24 member agencies the “all-in” rate of $1,059 per acre-foot for untreated water, $30 more than they currently pay. The Water Authority will charge $1,337 per acre-foot for treated water, an increase of $34. An acre-foot is about 325,900 gallons, enough to serve two typical four-person households in San Diego County for a year.  The 2015 rates are near the low end of the forecasted range the Water Authority provided to its member agencies in 2011. They account for several factors, including a 14.81 percent increase in treatment costs charged by MWD.

Another critical element of the 2015 rates and charges is the purchase of the first water deliveries from the Carlsbad Desalination Project, which could begin commercial production of water as early as fall 2015 – several months ahead of schedule. The desalination project is being developed and financed by a private developer, Poseidon Water, with the Water Authority making system improvements to accept the desalinated seawater. The desalination plant will produce up to 50 million gallons of water per day, and the Water Authority will be the sole purchaser of water from the project to bolster the region’s long-term water supply reliability.

The 2015 rates also account for increased regional conservation in response to statewide drought conditions that are expected to reduce water sales. The Water Authority in April launched its “When in Drought: Save every day, every way.” outreach campaign to promote voluntary conservation measures across the San Diego region in case dry conditions continue into next year. The Water Authority has declared a Level 1 Drought Watch condition that calls for voluntary conservation efforts such as repairing leaks quickly, washing paved surfaces only when necessary for health and safety, and eliminating inefficient landscape irrigation, such as runoff and overspray. San Diego County residents have significantly reduced water consumption in recent years, but more savings are needed after three consecutive dry winters have reduced California’s water supplies. More information is at www.whenindrought.org.

In addition, the Water Authority’s 2015 rates were crafted to meet Board targets for fiscal sustainability through the achievement of a debt service coverage ratio of 1.5 and maintaining Board-directed reserve levels. The rates also help the Water Authority maintain its strong bond ratings, which minimize the cost of borrowing and ultimately save ratepayer money.

For more information about the Water Authority’s rates and budget, go to www.sdcwa.org/monthly-board-meeting-38 and click on the Board packet for June 26. The rates and charges memo begins on page 84, and the budget memo begins on page 111.