Water Authority proposes 3.7 percent rate increases for 2018

SAN DIEGO – The San Diego County Water Authority recently announced that it will recommend increasing rates charged to its member agencies by 3.7 percent for both untreated and treated water in calendar year 2018, mostly because of higher rates and charges from the Metropolitan Water District (MWD) of Southern California.

The proposed rate increases are the smallest since 2014 and are in line with Water Authority projections. Approximately 56 percent of the overall increase is driven by rising costs from MWD, which increased its base supply rates and also raised its costs for transporting the Water Authority’s independent supplies of Colorado River water.

Another driver of the proposed increase is a 30,000 acre-foot increase in deliveries of those Colorado River supplies. In 2018, the Water Authority will receive 130,000 acre-feet of water via its long-term water conservation and transfer agreement with Imperial Irrigation District, up from 100,000 acre-feet in 2017. While these supplies cost more than imported water purchased from MWD, they are more reliable and not subject to cutbacks by MWD.

“Prudent investments in our own water supplies helped our region withstand the recent five-year drought and emerge from it with even greater water supply reliability, and we are continuing to strengthen that reliability to sustain our region’s $222 billion economy and 3.3 million people,” said Maureen Stapleton, general manager of the Water Authority. “Thanks to prudent financial planning and debt management, we are accomplishing this while proposing only a modest increase for next year.”

The Water Authority proposes charging its 24 member agencies the municipal and industrial rate of $1,303 per acre-foot for untreated water in calendar year 2018, or $47 more per acre-foot than they currently pay. The Water Authority also proposes charging $1,603 per acre-foot for treated water, or $57 more per acre-foot than in 2017. 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 the annual needs of two typical four-person households in San Diego County.)

MWD is supplying more than 40 percent of the region’s water in 2017. In 2018, the base cost of treated and untreated water from MWD will increase 3.7 percent and 4.4 percent, respectively. In addition, MWD adopted increases in its fixed charges, including a 3.7 percent increase in its readiness-to-serve charge and an 8.8 percent increase to its capacity charge. MWD also is increasing the amount it charges to transport the Water Authority’s independent Colorado River supplies by 4.5 percent.

Next year’s increase in the Water Authority’s Colorado River deliveries is part of the final ramp-up of transfers from the Imperial Irrigation District under terms of the 2003 Quantification Settlement Agreement. IID transfers will reach their peak of approximately 200,000 acre-feet annually in 2021. Supplies from IID are more reliable than supplies from MWD because IID has senior rights to Colorado River water.

Proposed 2018 rates are also impacted to a lesser degree by a climate of low water sales that’s expected to continue as residents and businesses embrace efficient water use following the end of drought conditions and state-mandated water-use reductions. Water sales are projected to increase by only 4.3 percent in 2018, which will keep regional water demand well below pre-drought levels.

Prudent financial management by the Water Authority has kept the proposed rates within the range of the Water Authority’s 2015 Long Range Financing Plan. The Water Authority plans to draw $5 million from the agency’s Rate Stabilization Fund, which moderated the proposed rate increase by approximately $13 per acre-foot. Also, debt refunding executed during the current budget cycle also helped keep proposed rate increases low by reducing the Water Authority’s debt service payments by $78.3 million on a present-day basis.

The Water Authority’s proposed rates and the recommended two-year budget for fiscal years 2018 and 2019 was to be formally presented to the agency’s Board of Directors May 25. The Board will hold a public hearing June 22 to consider adoption of the proposed 2018 rates along with the recommended budget for fiscal years 2018 and 2019. Although the Water Authority’s budget spans two fiscal years, the agency sets rates annually to more effectively manage changing conditions.

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.

The Water Authority’s fiscal strategy also helps moderate water rates. The 2018 rate proposal ensures 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 saves ratepayers money over the long run. The Water Authority has senior lien credit ratings of AAA from Standard & Poor’s, AA+ from Fitch ratings and Aa2 from Moody’s. All three ratings agencies rated the Water Authority’s credit outlook as stable.

For more information about the Water Authority’s proposed rates, go to http://www.sdcwa.org/monthly-board-meeting-10, click on the Board packet and go to page 79.