May 11, 2011

San Diego County Water Authority

City of San Diego

What We Need in a Bay-Delta FixA Perspective by MWD‟s Largest Customer

S

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30% of San Diego County’s water supply comes from the Bay-Delta

50%

20%

30%

San Diego County Water Authority Supports a Bay-Delta Fix

Who‟s at the table?

Southern California issues not addressed◦ Realistic assessment of demand

◦ Realistic assessment of willingness and commitment to pay for current or future State Water Project costs

Cost

What‟s the timeline – and consequences of further delay

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Financial “real parties in interest” are not at the table◦ MWD is dependent on water sales revenues from its

member agencies But those revenues cannot be counted on

◦ MWD‟s only revenues are provided to it by its member agencies Those revenues are in sharp decline

Need firm financing plan and commitments to pay from real parties in interest

Delta parties are not at the table◦ Success in the Delta without support of the Delta

Community is difficult to envision

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MWD‟s Integrated Resources Plan (IRP) proposes to overdevelop supplies by 500,000 acre-feet◦ New supplies come at the highest cost◦ Inconsistent with statewide conservation mandate◦ Inconsistent with MWD‟s member agencies‟ plans to

develop independent supplies Urban Water Management Plans due in June

MWD finalized its IRP without essential information

MWD has become a house of cards◦ Pattern and practice of inflating sales and projected

revenues

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MWD member agencies unwilling to commit to pay for current fixed costs◦ Problem was identified more than 15 years ago by

independent MWD Blue Ribbon Task Force Report◦ MWD board has failed to act

MWD currently proposing to sell water at a discount due to member agency budget constraints But these budgets will become more, not less constrained in

the future

MWD member agencies want MWD to pay for theirown projects, but do not want to pay for MWD projects◦ Member agency managers‟ letter to Blue Ribbon

Committee underscores this point

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Need to connect willingness to spend with willingness and commitment to pay

◦ Represented by real, enforceable contracts

◦ So far, San Diego is the only member agency willing to do that

MWD rate structure has fatal flaw in the assumptions about who will pay for a Delta Fix

San Diego is placed at unreasonable risk under MWD rate structure◦ Water Authority payments to MWD amount to 25% of total

revenue

◦ Water Authority remains largest purchaser of MWD water

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Failure to grapple with the key issues today will further delay project implementation◦ Failure to talk about cost during the planning

process will lead to another “CalFed”

Practical implementation challenges presented by absence of Delta community support

Southern California water demands won‟t be “on hold” as the disputes continue

Conservation and local projects are being implemented now

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MWD

28 OtherState Water

ProjectContractors

MWD

9

50%Central Valley Project

Contractors

50%State Water

Project Contractors

Average MWD Water Purchases

by Member Agency (2000-09)

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If the San Diego County Water Authority was a State Water Project

Contractor, it would be the third-largest

Who actually pays MWD‟s costs?Most MWD Member Agencies buy little waterWith no contracts in place, MWD revenues depend on variable sales

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Carlsbad M.W.D. City of Del Mar City of Escondido Fallbrook P.U.D. Helix W.D. Lakeside W.D.

City of National City City of Oceanside Olivenhain M.W.D. Otay W.D. Padre Dam M.W.D. Camp Pendleton

City of Poway Rainbow M.W.D. Ramona M. W.D. Rincon Del Diable City of San Diego San Dieguito W.D.

Santa Fe I.D. South Bay I.D. Vallecitos W.D. Valley Center M.W.D. Vista I.D. Yuima M.W.D.

40%City of

San Diego

The City of San Diego has the Biggest Stake in the Water Authority

Water Authority

Member Agencies,

by Size of Total

Financial Payments

Decisions by board members to spend money are disconnected from their agencies‟ willingness to pay◦ In 1928, voting, water rights and

financial commitment matched◦ Today, there is no connection

Agencies most willing to support new projects have most aggressive plans to reduce purchases from MWD

MWD board members support a Delta Fix – but are their agencies willing to pay?

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Voting structure based upon arcane 1920’s formula

•1928: 100% of revenues from property taxes

•2011: 5% of revenues from property taxes

At MWD, there is a disconnect between decisions to spend and willingness to pay

$0

$250

$500

$750

$1,000

$1,250

$1,500

$1,750

$2,000

$2,250

$2,500

$2,750

$3,000

Brackish Groundwater

Recovery

Recycled/Indirect Potable

Use

Seawater Deslination MWD Imported Water

$/A

F

MWD Imported Water Cost Assumes $15 billion

Delta Fix and 6%/year escalation

$744

$2,1742030

2011

13

MWD Member Agencies have Local Supply Options Available that Compare Favorably to

Future MWD Supply Costs

“Today, the plant produces approximately 70 percent of the water residents use.”

“…be 100 percent self-sufficient by 2020….”

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Long Beach is reducing its reliance on imported water supplies from MWD

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Imported

Water

32%

Groundwater

57%

Recycled

Water

11%

Recycled

Water

8%

Groundwater

41%Imported Water

51%

2005 2010

Los Angeles plans to reduce its purchases from MWD by 48%

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Metropolitan Water District

Imperial Irrigation District Transfer

All American & Coachella Canal Lining

Local Conservation

Seawater Desalination

Local Surface Water

Recycled Water

Groundwater

Conservation & Recycling:

95%

5% 7%

17%

23%

22%

6%6%

9%

10%

13%

14%

3%5%5%

12%

48%

2020=54%

2011=44%

1991=0%

2011 20201991

578,000 AF

286,000 AF 195,000 AF

Supplies from MWD account for about

half of San Diego County’s supply

today, with planned reduction to one-

fourth by 2020

The Water Authority is also Increasing Local Supply Development and Reducing its Water Purchases from MWD

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MWD‟s rates are rising sharply◦ Up 55% since 2008

MWD‟s water sales are declining sharply◦ Down 32% since 2008

Leaving aside one-time budget gimmicks, the current fiscal year shows:◦ Revenue shortfall of almost $200 million◦ Annual sales at historic low, more than 300,000

acre-feet less than budget adopted by board Lowest water sales in more than two decades

◦ Next fiscal year budget also relies on inflated sales projections

18M

AF

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2000 2005 2010

MWD SalesMWD is experiencing unprecedented financial challenges

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$0

$500

$1,000

$1,500

$2,000

$2,500

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

$/A

F

Actual Sales

Projected - Expected

MWD rates (actual/projected)

FS Tier 1-LRFP Forecast 2010-2020

LRFP Forecast with annual 6% rate increases

Acre

-fe

et

MWD’s Projected Sales in

2020 are 24% Lower than

2000-2009 Average

-32% reduced sales

+55% rate increases

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MWD Slide (3/7/2011)Assumed sales of 1.8 maf for 2012 thru 2015

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MWD‟s financial reserves are Low – and Shrinking

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In an era of sharply declining sales and member agency reduction in water purchases, MWD:◦ Is continuing to approve new subsidies, which further reduces

water sales◦ Is proposing expensive water supply development projects to

generate unneeded water◦ Has approved a 2010 Integrated Resources Plan that plans to

over-develop 500,000 acre-feet of buffer supplies annually Who will pay?

MWD does not have contracts with its 26 member agencies to back up its “Take-or-Pay” State Water Project Supply Contract with the State of California

◦ MWD’s 2011 obligation to the State: $573 million

◦ Current SWP contract runs through 2035

10-Year MWD “purchase orders” with its member agencies expire in 2012

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But they are unwilling to do so: ◦ “…to date, most of our board members have said „we‟re

not so sure about that.‟ And, most of our member agencies have said „No. Thanks, but no thanks, because we prefer this the way it is.‟”

◦ “Should people make those firm commitments going into the future? So far, the member agencies have opted not to. They prefer it the way it is.”

-- Excerpts of remarks by MWD General Manager Jeffrey Kightlinger, speaking at an August 10, 2010 public meeting in San Diego on MWD‟s draft 2010 Integrated Resources Plan (IRP).

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The right parties to be at the table

Realistic assessment of Southern California demands as represented by firm contracts

Assurances that water supplies and access to facilities will be provided for by contract

This is the essential foundation of a meaningful discussion about willingness to pay for a Delta Fix

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The San Diego County Water Authority will:◦ Support a realistic and affordable Bay-Delta fix

◦ Back up that support with a firm, long-term contract to pay for its share of water and facilities

◦ Will MWD‟s other 25 member agencies agree to do the same?

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