GrokSurf's San Diego

San Diego’s most recent water rate hike last March happened because the Metropolitan Water District of Southern California (MWD) raised its water rate to the San Diego County Water Authority (SDCWA) which in turn raised the water rate for county water agencies that it supplies (including the City of San Diego). San Diego, of course, typically needs to import 85-90% of its water so it doesn’t have much recourse.

As a result, the City Council reluctantly approved a “pass-through” water rate increase for City customers effective March 1 to cover the SDCWA rate hike. The Council also sought to exert some pressure on MWD.

The perceived pressure point was SDCWA’s lawsuit against MWD charging that it illegally inflates the price of water for San Diego County. The City naturally supports that position so when approving the pass-through increase the City Council asked the City Attorney to recommend whether the city should join SDCWA’s lawsuit against MWD, and also asked the Mayor’s Intergovernmental Relations Department to develop a recommendation for seeking state legislative support for auditing MWD pricing practices.

Here we must note that an underlying issue in SDCWA’s lawsuit against MWD is that in addition to buying water from MWD, SDCWA buys Colorado River water from Imperial Valley as part of the Quantification Settlement Agreement (QSA). However, there are no water pipelines from Imperial Valley to San Diego so SDCWA needs to pay MWD to capture Imperial Valley’s water upstream at Lake Havasu and transport it through the Colorado River Aqueduct to San Diego’s pipelines.

MWD’s charge to transport that water (wheeling charge) is a big deal. SDCWA says MWD illegally inflates the wheeling charge with expenses unrelated to the Colorado River Aqueduct (e.g., costs associated with obtaining State Water Project water from Northern California).

The disagreement over water transport pricing is an old issue that was already evident when the QSA was enacted in 2003. The Record of Decision actually memorialized that “…MWD and SDCWA do not agree on the nature or scope of rights to the delivery, use or transfer of Colorado River water within the State of California.”.

So when MWD and SDCWA signed their agreement for transporting the water, the contract included a provision that “after conclusion of the first five years, nothing shall preclude SDCWA from contesting in an administrative or judicial forum whether such charge or charges have been set in accordance with applicable law and regulation.”

Which is exactly what SDCWA is now doing with its lawsuit.

Meanwhile, on another front around that time, MWD had been developing incentive agreements to provide rebates and subsidies for local conservation and recycled water programs. Those programs are funded through MWD’s Water Stewardship Rate fee charged to all MWD member agencies.

Here’s where MWD got tricky: in 2004 MWD adopted so-called Rate Structure Integrity (RSI) language in the Water Stewardship agreements to the effect that if a member agency “files or participates in litigation or supports legislation to challenge or modify Existing Rate Structure…Metropolitan may initiate termination of this Agreement.”

So, after MWD refused to modify its wheeling charge and SDCWA filed suit, in response MWD recently exercised its option to terminate support for some of the San Diego County programs. It partially retained a few residential and commercial agreements but decided against implementing larger agreements including funding for a San Vicente Recycling program in Ramona and a subsidy for the Poseidon Desalination Project in Carlsbad.

How would that affect the City of San Diego? At an Independent Rates Oversight Committee (IROC) Environmental & Technical Subcommittee meeting on July 10, Cathy Pieroni, Principal Water Resources Specialist for the Public Utilities Department reported that MWD’s Water Stewardship cuts would not impact existing MWD contracts with the City and that the City could still potentially obtain MWD funding for up to $250/AF for Indirect Potable Reuse (IPR) water if the Water Purification Demonstration Project materializes as a full-scale operation.

As for the City Council’s request that the City Attorney investigate possible legal action that could be taken to apply pressure on MWD over the rate hike issue, City Attorney representative Tom Zeleny said that his office will likely recommend against legal action, saying it “would probably not be cost-effective.” He said the official report from his office will be on the August agenda for the City Council’s Natural Resources and Culture Committee.

On the issue of the Council’s request to the Mayor’s Intergovernmental Relations Department, it appears the Mayor may have influenced Assemblyman Nathan Fletcher to introduce AB 779 relating to establishment of water district oversight committees. Faced with opposition (including MWD’s considerable influence), at the last minute Fletcher pulled the bill from its scheduled hearing indicating he would make it a two-year bill and proceed later.

MWD’s opposition to Fletcher’s bill can be seen in its May 16 board meeting minutes where it revealed its suspicion that AB 779 was related to the San Diego City Council’s desire for legislative intervention over MWD water rates:

“There is speculation, however, that AB 779 might be amended and used as a legislative vehicle to assist the San Diego County Water Authority (SDCWA) in its lawsuit against the Metropolitan Water District of Southern California (Metropolitan) which challenges Metropolitan’s water rates and charges. A judicial victory by SDCWA would result in a significant increase in the cost of water for Metropolitan’s customers outside SDCWA’s boundaries. The rationale for this speculation is based on a memorandum circulated by the San Diego City Council after the filing of the lawsuit that details potential parallel strategies regarding the issues addressed in the lawsuit. These strategies included seeking a Joint Legislative Audit to perform a financial audit of Metropolitan as well as sponsoring legislation to create an Independent Rate Oversight Committee for MWD to evaluate the price charged for water as well as operations.”

So for the time being AB 779 is stalled and prospects are uncertain, it doesn’t look like the City will pursue legal action, and other legislative initiatives seem iffy.

Instead, for the short term, the City will try to “absorb” the SDCWA rate increase announced for next fiscal year: Mayor Sanders has proclaimed that the City won’t raise water rates next fiscal year. Instead, he wants the Public Utilities Department (PUD) to take the hit from the higher expense.

Discussing the Mayor’s announcement at yesterday’s IROC meeting (July 18), Assistant PUD Director Alex Ruiz said the department will find an accomodation because local water supplies increased considerably during the last rainy season. As a result the department figures it can draw “up to” 20,000 AF of local supplies to avoid buying about $8.75 million in imports from SDCWA. The department is also looking at more staffing cuts and creating further “efficiencies.”

Although the action hasn’t been labeled a “deferred” price increase, that’s what it looks like. SDCWA’s higher price isn’t going away at the end of the next fiscal year and there will likely be another price hike announced for the following year as well. So at some point the City will have to cover the higher costs either by passing them on to consumers or by further “absorbing” expenses within the department at some risk to infrastructure and operations. And if you think capital improvement projects, maintenance and repairs, and EPA consent agreement work isn’t piled up already, think again.

Will San Diego have to “catch up” with deferred water rate increases? What’s the risk of drawing down the City’s emergency storage capacity now that it has some water saved? Are we using precious reserves to temporarily defer expenses as a political expedient? And what about popular support for setting water rates that discourage waste? Does artificially keeping rates down send a mixed message about that?

Whatever happens, I don’t think broader public understanding will come from would-be mayors accusing PUD of mismanagement over water rates and saying things like “I pledge to cut rates by 15% and freeze them for five years without any delay in our infrastructure investment and while maintaining the highest standards for water quality.”