Sleepless in the Southland: Ballooning power costs driving up SoCal water prices

How many wake-up calls do we need in Southern California?  Friends, guess what?  WATER WILL BE GETTING MORE EXPENSIVE.  This week, the Board of Directors of the Metropolitan Water District, SoCal’s wholesale supplier of water imported from far away, attempted to mute this message a bit by rejecting a staff-proposed 12.4% rate increase for next year and instead adopting a two-year back-to-back rate increase of 7.5% and 7.5%, and sending staff off to find $20 million in budget cuts to avoid dipping into financial reserves.  But this only confirms that the cost trajectory for our imported water supply is headed one way -- due north.

In announcing the wholesale rate hike, Met sought to pin the blame for higher rates squarely on pumping restrictions on water taken from the Delta in Northern California.   Pumping restrictions to protect endangered fish were the “primary factor” behind the rate increase, and “are compromising the statewide water system’s ability to capture adequate supplies,” according to Jeff Kightlinger, Met’s General Manager.  That’s an interesting turn of phrase, since barely a week ago, State Water Resources Director Mark Cowin had noted that water storage at Lake Oroville, the key reservoir in the State Water Project, was at 60% of normal, lower than this time last year.  The state’s reservoir is up in the mountains.  The endangered fish are down in the Delta.  Supplies to Southern California are limited in large part because several of this winter’s storms simply missed Lake Oroville’s watershed, and a dam can only capture precipitation that falls to earth above it.  Fish don’t cause droughts.

So let’s review.  In addition to a multi-year, multi-state drought, here are some other factors contributing to higher rates that may not have been highlighted for us in Met’s announcement –

  • Debt service – MWD has a prodigious portfolio of debt – about $4.5 billion worth.  In a rising rate environment, debt service is projected to be higher.
  •  “Cost of service” – It seems that MWD has actually been underpricing water for the last several years, by dipping into financial reserves instead of recovering the full cost from water users through rates and charges.  “We’ve been subsidizing water for years,” one director said this week in a burst of candor.  But under the scrutiny of its bond rating agency – remember all that debt? – Met is now ending this particular sleight of hand and the rates must climb back up to recover full cost of service.
  • Power costs – Met notes that power costs have risen by $100 million in the last four years.  They might also have reminded us that pumping imported water over mountain ranges leaves us with one of the most energy-intensive water supply systems in the country, that we’ve been living in a bubble of cheap power for decades, and that the increases of recent years will look like peanuts compared to the power rate increases ahead, beginning in 2012.  That’s when a legacy power contract for the State Project expires, and every thimbleful of water that Met draws from the Delta (think thimbles the size of Dodger Stadium) will have to be lifted over the Tehachapi Mountains with market rate electricity.  Met staff currently projects that these power rate increases will have an even bigger impact on the price of water imported from the Delta than the long-debated and stupendously costly engineering works now being planned to “fix” the Delta’s numerous problems. 

Ballooning power costs have been a sleeper of an issue.  But this is your wake up call.  In fact, wholesale water rate increases well above the rate of inflation are now foreseen by Met staff under the rosiest of scenarios for at least the next ten years.  The words “cheap imported water” no longer belong together in the same sentence. 

But we don’t have to perpetuate an acute dependence on imported water, which now makes up about half of our supplies.  We have more local resources within Southern California – most notably water conservation and efficiency improvements  – which we can tap for less than the cost of acquiring, pumping, and treating more imported water.  These are resources that are locally installed, locally controlled, seismically secure, environmentally friendly, AND cost less.  They’re proven.  They have a track record.  We’ve done a bunch already, but we can do a whole bunch more, and do it even smarter.  So let’s get at it.  No one objects, right?

Oh, and as for that additional $20 million in budget cuts for the coming year?  The MWD staff will bring recommendations back to the Board next month.  On the chopping block, according to the General Manager, are capital projects that might be postponed, personnel costs that might be trimmed, and, believe it or not, water conservation programs that might be cut

Who still needs that wake-up call?