GrokSurf's San Diego

Local observations on water, environment, technology, law & politics

Posts Tagged ‘David Zetland’

Zetland: Will San Diego make the desalination mistake?

Posted by George J Janczyn on October 23, 2012

[by David Zetland, senior water economist at Wageningen University in the Netherlands and publisher of the Aguanomics blog. Reprinted with permission.]


Poseidon Resources has been lobbying to build a desalination plant in Carlsbad (San Diego County), California for around a decade, and I’ve been skeptical of that proposal (earlier posts) — mostly because water consumption in San Diego is still quite high (ranging from 100-300 gallons/capita/day; compare that number to Sydney or Melbourne at 50 gcd!).

It makes more economical and environmental sense, in other words, for San Diego to reduce its demand before going for more supply (this year-old analysis of their supply alternatives [pdf] lists desalination at $1,600/af but that cost is now up to $2,000+/af).

But San Diego politicians are not thinking in terms of environmental or economic sustainability. They are at war with the Metropolitan Water District over imported water and in alliance with property developers who want more supply to build more subdivisions. (It’s ironic, in fact, that SD leaders worry about the burden of paying too much for more water imported from Met via the Delta [pdf] when they are prepared to throw caution to the wind for a local “solution.”)

Those are just some preliminary comments and opinions based on my observations over the past 7-8 years, but there are some new developments that make these comments even more relevant.

First, the San Diego Country Water Authority is thinking of signing a 30-year water purchase agreement to buy water from Poseidon, an agreement that will make it possible for Poseidon to borrow money from the State of California (!) for constructing the plant.

Second, that agreement does not specify how much equity (“skin in the game”) Poseidon will bring to the table in financing the $900 million project, but it DOES specify how much money Poseidon will receive for “overseeing” a project that it will neither design, nor construct, nor operate.

Third, it appears that SDCWA will pay about $3.2 billion over 30 years for water that will be twice as expensive as its existing water supplies from Met. Given the industry-norm of charging average cost for water, that means that SDCWA will be selling water it buys for $2,000 per af for about $1,200 per af. Try swinging that business model past Wall Street. (The Independent Rate Oversight Committee sure doesn’t like it! [pdf])

Fourth, you should read my 6-page analysis of the water purchase agreement (all 550 pages of what-the-hell-are-these-lawyers-saying!?!). The Surfrider Foundation paid me to prepare it, but — as usual — I acted as a consultant with a conscience: I put my original opinions in that report, since I am paid for honesty and accuracy, not groupthink. But read it for yourself.

Bottom Line: San Diego should not build a desalination plant because it would be an expensive non-solution to water reliability problems that are actually caused by poor management of regional water at Metropolitan and a failure to restrict demand to sustainable levels.


Posted in Desalination, Water | Tagged: | 1 Comment »

Can San Diego live with a water budget?

Posted by George J Janczyn on April 25, 2011

At Wednesday’s (April 20) Natural Resources and Culture Committee (NR&C) meeting, the Public Utilities Department (PUD) reported on its pilot study for a water budget plan addressing longstanding calls for a pricing mechanism that rewards customers who use water efficiently and discourages waste.

Hypothetical example per unit of water

In a memorandum to the committee, PUD Director Roger Bailey wrote that the water budget would “incentivize conservation without inadvertently penalizing customers who have already been using water efficiently.”

The pilot study examined selected properties in coastal and inland areas in order to evaluate differing needs. PUD now intends to hire a consultant “with experience developing and implementing water budget based billing methodologies.”

Although many people would like a well-designed water budget that sets a reasonable per-person amount at a low price and a significantly higher price for excess or wasteful usage, that position is somewhat at odds with another popular viewpoint that water rates should only reflect the actual cost of providing the water.

Mayor Sanders alluded to that philosophical tension in his letter criticizing a Voice of San Diego article that implied people who conserve water are penalized.

In the letter the mayor discussed logistical and other problems with a water budget, suggesting conservation pricing incentives might even be illegal, writing “California Proposition 218 requires a proportional link between what you charge a customer and what it costs to deliver water to that customer.”

Presently, San Diego has a variable “water used” charge that covers only the cost of water, and a separate fixed “water base fee” to cover infrastructure operations and maintenance, reliability projects, etc.. The City of San Diego Water Cost of Service Rate Study gives a little more insight into pricing issues.

(It gets complicated: although San Diego’s water bill theoretically separates the cost of water from the other charges contained in the fixed fee, the agencies that sell us wholesale water bundle their other expenses into the price they charge us, so in that sense our “water only” price does include other things.)

Addressing California state legal challenges, respected water economist David Zetland showed how a water budget can be designed without violating Proposition 218’s proportionality requirement or amending AB2882 (AB2882 calls for water pricing to reflect “cost of service”). Here’s an example he gives:

  • Set variable prices in a tiered (increasing block rate) structure.
  • Make sure that the first three tiers (e.g., “lifeline,” “basic” and “normal” blocks) recover ALL costs associated with service. Put differently, set revenues (price x quantity for first three tiers) to equal costs.
  • Implement fourth and fifth tiers (“wasteful” and “god-awful”) that are far more expensive.
  • Anyone who uses water in this range will pay 200-300% of the prices in the lower tiers.
  • Since revenue in Tiers 4 and 5 are NOT in the budget, they do not need to reflect the “cost of service.”

An American Water Works Association report further explains such workarounds: Water conservation made legal: water budgets and California law.

Another major issue with water budgets is whether landscaping gets factored in. There are some people (like Mr. Zetland) who believe a water budget should reserve the lowest prices for clearly defined human needs only, while others believe the budget should take property size into account and permit additional low-cost water as lot size and landscaping needs increase.

The “people vs. lawns” conflict can be illustrated by this (completely made up) example of one household getting the lowest price for a monthly use of 7 hundred cubic feet (HCF) or less, while across the street a home with a larger lot size might be given 12HCF or more at the same low price before excess charges kick in. Would that be fair?

In addition to his objection to allowing the lowest rates to apply to landscape watering, Mr. Zetland doesn’t think “local weather conditions” should be a factor in the price structure either. Says Zetland: “The only measure that a water manager needs is the number of people in the house. No need for lot sizes, landscaping density, temperature zones, etc.”

Any water budget promoting conservation and penalizing waste will have to work against the popular assumption that everyone is paying too much for water. As he campaigns for mayor, Councilmember Carl DeMaio has been claiming that he knows how to cut the price of water in San Diego by 15% and that he could freeze it at that level for five years. Zetland, who has discussed water issues with DeMaio’s chief of staff, dismisses the idea as “silly,” saying it would create LESS incentive to reduce consumption and that the utility’s fixed costs may not be covered with such a cut.

Notions like DeMaio’s also sidestep the fact that some 80% of San Diego’s water is imported and must be purchased through wholesale suppliers, i.e., the Metropolitan Water District (MWD) and San Diego County Water Authority (CWA). All trends show the price of purchasing that imported water will continue to increase. As imported water gets more expensive, alternative local sources like potable reuse and desalination will become more competitive, but they are nevertheless expensive infrastructure to build and maintain. Water transfers from Imperial Valley reduce imported water purchases from MWD/CWA, but ultimately it’s still expensive imported water and involves paying MWD for delivering (wheeling) it through the Colorado River Aqueduct.

A water budget can make price allocation seem more fair, but it won’t necessarily mean the price of water will be cheaper.

Informed residents know San Diego should continue to improve local resources to offset potential (inevitable) disruptions in obtaining imported water, but improving reliability will drive the cost of water up no matter how efficiently we conserve or devise water budgets. Price alone can’t be the main concern when it comes to the local water supply. Electioneering with claims that everyone’s being drastically overcharged for water fuels emotional public sentiment but doesn’t change the need to responsibly manage our local water supply. Like police and fire, if the water supply is disrupted, it’s a serious public health and safety issue. Water can’t be treated like a typical retail commodity.

Take a read of Why am I paying more for less water? from On the Public Record. The San Jose Mercury News has an interesting post too, Bay Area water customers may pay price for conservation. The article delves further into why people shouldn’t expect water conservation to make water less expensive:

Rydstrom said that while water consumption has dropped, his agency’s expenses have not — especially the bond payments on its $4.6 billion Water System Improvement Program to repair, replace and upgrade pipelines and reservoirs most at risk in a major earthquake.

“You have to pay your rent, whether you spend 30 nights of the month there or whether you’re on vacation,” Rydstrom said. “For us, the debt is a fixed cost and we have to pay that, regardless of what the water usage is.”

This Alliance for Water Efficiency document further explains water budgets.

Does any of this answer the question posed in the headline? Sorry, this is just a peek at some of the challenges. The letter from Mayor Sanders is a good starting point for a healthy fact-based debate about a water budget for San Diego. Also, Councilmember Sherri Lightner has asked NR&C to place her water policy update plan on the docket for the May meeting. With luck the City Council and others will engage in a good discussion. It will be tough going, though, if this U-T report is any indication: Water concerns wane as drought fades.


David Zetland is a senior water economist at Wageningen University in the Netherlands and has previously written extensively about water budgets:

His forthcoming book The end of abundance: economic solutions to water scarcity discusses water budget based pricing as well.

Note to Mayor Sanders: While I was asking for permission to quote his material, Mr. Zetland told me he would be happy to send you a copy of his book if you ask. Please take him up on the offer!


Posted in Government, Politics, Water | Tagged: , | 2 Comments »