Proposed Rate Increases for 2017 Driven by MWD and Desalination
May 24, 2016
The San Diego County Water Authority staff has proposed increasing rates charged to member agencies by 6.4 percent for untreated…
The San Diego County Water Authority staff has proposed increasing rates charged to member agencies by 6.4 percent for untreated water and 5.9 percent for treated water in calendar year 2017, similar to the increases adopted by the Board of Directors for 2016.
Next year’s rate proposal is primarily driven by higher costs from the Metropolitan Water District of Southern California. In addition, it incorporates higher costs for drought-proof water supplies from the Claude “Bud” Lewis Carlsbad Desalination Plant.
The rates are also impacted by state-mandated reductions in water use that are expected to lower the Water Authority’s sales compared to previous projections.
Careful financial management by the Water Authority has kept the proposed rates near the low end of its projections and well below the double-digit increases during the last drought that were driven by steep price hikes from MWD. One way the Water Authority avoids such steep increases is through its planned draw of approximately $20 million from the agency’s Rate Stabilization Fund – created in 1990 – in accordance with the agency’s long-term financial planning to provide the necessary funds to maintain a smooth water rate pattern over time and to prevent rate shock for its customers.
Proposed 2017 rates will be formally presented to the Water Authority Board on May 26. The Board will hold a public hearing on the 2017 rates and consider their adoption on June 23.
“The desalination plant has provided our region with a drought-resilient water supply that lowered state water-use targets across the region and is expected to help alleviate the need for extraordinary conservation measures,” said Maureen Stapleton, general manager of the Water Authority. “Improving supply reliability comes at a cost, but it reduces our vulnerability to prolonged dry periods and shortages that can harm our economy and quality of life.”
The Water Authority proposes charging its 24 member agencies the municipal and industrial rate of $1,256 per acre-foot for untreated water in calendar year 2017, or $76 more than they currently pay. The Water Authority also proposes charging $1,546 per acre-foot for treated water, or $86 more than in 2016. Actual figures will vary by member agency based on each agency’s fixed-charge allocations. 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 two typical four-person households in San Diego County during normal water-use conditions.)
A significant portion of the Water Authority’s proposed rate increase is due to rising prices at MWD, which supplies about half of the San Diego region’s water. The Water Authority has decreased reliance on MWD by increasing purchases from independent sources such the Imperial Irrigation District under long-term contracts designed to avoid rate spikes from year to year. In 2017, the cost of untreated water from MWD will increase by 12.1 percent, and treated water costs will rise by 3.9 percent. In addition, MWD increased the cost for transporting the Water Authority’s independent Colorado River supplies by 6.2 percent.
Proposed 2017 rates and charges also account for water purchases from the Lewis Carlsbad Desalination Plant, which produces approximately 50 million gallons of drinking water per day. Although it’s more expensive than traditional water supplies, desalinated seawater is a locally controlled, drought-proof resource and an important component of the region’s long-term strategy to improve water supply reliability.
In addition, proposed 2017 rates are influenced by the current era of reduced water sales. Projecting water demand is especially challenging given the uncertainties about state regulations, and the Water Authority took a conservative approach. Water sales are expected to be only about 3 percent higher in 2017 than in 2016.
The Water Authority’s long-term financial strategy – including the draw from the Rate Stabilization Fund and debt restructuring – helps to moderate water rate increases. Tapping the Rate Stabilization Fund in 2017 will provide about $50 per acre-foot of rate relief to offset the impacts of desal water and reduced sales. The 2017 rate proposal was designed to ensure debt-coverage ratios that maintain the Water Authority’s strong credit ratings and minimize the cost of borrowing money for construction projects, an approach that ends up saving ratepayers money over the long run. The Water Authority has credit ratings of AA+ with a stable outlook from both Standard & Poor’s and Fitch ratings, and Aa2 with a stable outlook from Moody’s.
Additionally, the Water Authority has received the Distinguished Budget Presentation Award from the nonprofit Government Finance Officers Association for each of its budgets adopted since 1995, and the Operating Budget Excellence Award from the California Society of Municipal Finance Officers for each of its last 15 adopted budgets.
For more information about the Water Authority’s proposed rates, go to sdcwa.org/monthly-board-meeting-60, click on the Board packet and go to page 116.