State Mandates, Desalination Factor into Water Authority’s Proposed Rate Increases for 2016
May 21, 2015
The San Diego County Water Authority on Thursday announced that it will recommend increasing rates charged to its member agencies…
The San Diego County Water Authority on Thursday announced that it will recommend increasing rates charged to its member agencies by 6.6 percent for untreated water and 5.4 percent for treated water in calendar year 2016. Prudent financial management by the Water Authority has kept the proposed rates near the low end of projections made in 2011, and well below the double-digit increases during the last drought that were driven by steep price hikes from the Metropolitan Water District of Southern California.
Next year’s rate proposal is based on higher costs for drought-proof water supplies from the Carlsbad Desalination Project, higher costs from MWD and state-mandated reductions in water use that are expected to lower the Water Authority’s sales. To moderate rate increases, the Water Authority restructured about $14.3 million in debt, and it’s planning a draw of $8 million from the agency’s Rate Stabilization Fund.
The Water Authority’s proposed rates and the recommended two-year budget for fiscal years 2016 and 2017 will be formally presented to the agency’s Board of Directors on May 28. On June 25, the Board will hold a public hearing on the 2016 rates and consider their adoption along with the recommended budget for fiscal years 2016 and 2017. Although the Water Authority’s budget spans two fiscal years, the agency sets rates annually to more effectively manage changing conditions.
“Investments in highly reliable water supplies, such as our independent water conservation and transfer agreement from the Colorado River, have helped our region avoid the severe consequences of current drought conditions being felt around the state – but they come at a cost,” said Maureen Stapleton, general manager of the Water Authority. “With our recommended strategy for next year, we can avoid the kind of rate increases the region experienced from 2009 to 2011 as we continue preparing for the future.”
The Water Authority proposes charging its 24 member agencies the municipal and industrial rate of $1,159 per acre-foot for untreated water in calendar year 2016, or $72 more than they currently pay. The Water Authority also proposes charging $1,439 per acre-foot for treated water, or $74 more than in 2015. 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 two typical four-person households in San Diego County.)
The Water Authority’s rate proposal was developed in conjunction with an independent cost-of-service study, which confirmed that the proposed rates and charges complied with legal requirements, cost-of-service standards and Board policies.
A piece 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 2016, the cost of treated and untreated water from MWD will increase 2.1 percent.
Proposed 2016 rates and charges also include the first full year of production from the Carlsbad Desalination Project, which is expected to start commercial deliveries of water this fall. 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 for distribution throughout the region. The desalination plant will produce 50 million gallons of water per day as the largest facility of its kind in the Western Hemisphere. 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 2016, the net increase in costs related to desalinated seawater is $39.5 million.
In addition, proposed 2016 rates are driven by declining water sales to the Water Authority’s member agencies, which are under state orders to cut water use by between 12 and 36 percent in response to drought conditions. The Water Authority anticipates a reduction in water sales in line with the state mandates will put significant upward pressure on rates as fixed costs are spread over fewer acre-feet of water sold.
The Water Authority’s fiscal strategy – including the draw from the Rate Stabilization Fund and debt restructuring – helps to moderate water rates. The 2016 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.
For more information about the Water Authority’s proposed rates, go to www.sdcwa.org/monthly-board-meeting-48, click on the Board packet and go to page 19.