Short Title
Water Authority Adopts $1.5 Billion Budget
Reduced capital spending, prudent planning keep rates near low end of projections for calendar year 2016
June 25, 2015

The San Diego County Water Authority’s Board of Directors today adopted a $1.5 billion budget for fiscal years 2016 and 2017, up 2 percent from the current two-year budget due largely to higher costs for the purchase and treatment of water. The Board also adopted rate increases for 2016 of 6.6 percent for untreated water and 5.4 percent for treated water; actual increases will vary among the Water Authority’s 24 member agencies based on differing circumstances among the agencies.

Expenses were held in check by lower spending on the Water Authority’s Capital Improvement Program, which decreases by 34 percent in the new budget as major projects near or reach completion, and is now at $2.8 billion for the lifetime cost of the projects. In addition, the Water Authority continued to streamline the organization through the strategic reductions and reclassification of staff positions following a series of major cost-cutting moves in prior budgets.

“This two-year budget balances the need for efficiencies and the need for flexibility to respond to severe drought conditions we face,” said Mark Weston, chair of the Water Authority’s Board. “We have trimmed positions and reduced reliance on outside consultants to contain costs. At the same time, we are investing in drought response efforts, purchasing desalinated seawater from the Carlsbad plant starting this fall, and preparing for reduced water sales due to drought-induced conservation. The net result is a budget that will allow us to provide a reliable water supply at the least possible cost while maintaining our strong credit ratings and our solid financial footing.”

In fiscal years 2016 and 2017, the Water Authority’s budget anticipates several major projects and initiatives. They include:

  • Drought response – Helping the region meet state-mandated water-use reduction targets is a key goal. The new budget allows the Water Authority to respond to drought conditions with outreach and conservation programs to assist customers and help member agencies avoid financial penalties by the state.
  • Carlsbad Desalination Project – Launching commercial operations at the largest seawater desalination project in the Western Hemisphere is on schedule for fall 2015. The Water Authority will be ready to receive 50 million gallons of water a day from the plant.
  • Regulatory policy – Supporting a new program to address regulatory policy and planning is part of the new budget, along with increased activities necessary to comply with various demands by regulatory agencies.
  • Dry-year modeling – Developing a model to assist in the prudent use of stored water reserves is a critical part of drought response. The model is expected to account for variables such as weather, economic factors and evaporation.
  • Asset management – Maintaining the reliability of the Water Authority’s estimated $3 billion infrastructure is a high priority in the new budget. With some pipelines nearly 70 years old, it’s critical to continue implementing best management practices such as condition assessments, risk assessments and prioritization of assets for rehabilitation, repair or replacement.
  • Hydroelectric energy – Investigating the potential of new energy sources, such as a pumped storage project at San Vicente Reservoir, is part of the new budget. It supports the potential long-term development of the San Vicente project in partnership with the City of San Diego through technical studies and regulatory efforts.
  • Water supply planning – Forecasting changes in long-term water use will be accomplished by updating the Urban Water Management Plan. It quantifies the regional mix of existing and projected local and imported water supplies necessary to meet demands in the Water Authority’s service area over the next 25 years.

The Water Authority’s recommended budget was presented to the Water Authority’s Board in May in conjunction with proposed rates for calendar year 2016. The Board also held two workshops in June to review budget recommendations.

Starting Jan. 1, 2016, the Water Authority will charge 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 will charge $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 newly adopted rates arenear 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.

While the Water Authority sets rates annually to ensure it can more effectively manage changing conditions, the agency’s budgets span two fiscal years.Over the past two fiscal years, the Water Authority advanced several critical projects, such as completing the nation’s tallest dam raise at San Vicente Dam – the final major component of the Water Authority’s $1.5 billion Emergency Storage Project. The Water Authority also won a major victory in lawsuits challenging MWD’s rates from 2011-2014, which a Superior Court judge ruled were illegal. In addition, the agency restructured its debt portfolio and used the savings to provide rate relief.

The biggest reasons for the Water Authority’s two-year budget increase of $34.9 million are related to the purchase and treatment of water. Those costs are projected to rise by 12 percent in fiscal years 2016 and 2017 compared to the current budget, partly because of increases in the cost of water from MWD and water purchases from the Carlsbad plant. As scheduled, the Water Authority is also increasing contributions for environmental mitigation in the Imperial Valley as part of the 2003 Quantification Settlement Agreement. Both the Carlsbad plant and Colorado River water transfers under the QSA provide the region with highly reliable water supplies and are critical pieces of the Water Authority’s long-term supply diversification strategy.

Those increases are partially offset by a $69.2 million decrease in funding for the Water Authority’s Capital Improvement Program in the new budget. After more than a decade of developing major infrastructure projects, such as building Olivenhain Dam and raising San Vicente Dam, the Water Authority is transitioning to an era of less construction and greater focus on asset management.

In addition, the 2016 and 2017 budget for operating departments is down 5 percent from the current budget due to a combination of efforts to reduce expenses. Operating expenses comprise only 6 percent of the Water Authority’s $1.5 billion two-year budget.

To read the Water Authority’s budget, go to www.sdcwa.org/budget.