CWA approves rate increase, two-year budget

The San Diego County Water Authority board meeting of June 24 included approval of SDCWA rates and charges for calendar year 2022 and approval of a two-year CWA budget.

Fallbrook Public Utility District General Manager Jack Bebee, Helix Water District board member Joel Scalzitti, and Rainbow Municipal Water District General Manager Tom Kennedy cast the only CWA board votes against the $1,693,496,900 budget covering fiscal years 2021-22 and 2022-23.

Bebee, Scalzitti, Kennedy, and San Diego City Council Member Chris Cate were the four CWA board members to vote against the approval of the rates and charges which also allocated the pro-rata share of fixed charges to each CWA member agency.

Cate was the sole voting opponent of the May 27 action to set the June 24 hearing date along with the proposed rates and charges. The board members received the cost of service study the week prior to the May 27 meeting. "The budget process was complex and brief," Kennedy said.

Kennedy noted that board members had three weeks to review the budget. "That was problematic," he said. "It's something you should spend more than three weeks looking at."

The board members participated in three budget workshops. "There were still quite a few questions that went unanswered," Kennedy said.

The CWA is preparing a long-range plan which will update expected long-term demand and thus the need for capital projects. "We should have done the long-range plan first," Kennedy said.

"While I appreciate the effort by SDCWA to contain costs, I voted against their proposed budget and rate increases due to concerns over its rate structure and long-term debt management strategy," Bebee said.

"I'm concerned that the vote regarding budget expenditures, along with use of additional debt combined with a high probability that water sales will decrease, will result in significant challenges for the region in the years ahead which could unfairly raise water bills on customers in rural water agencies like the Fallbrook Public Utility District," Bebee said. "Given that the two-year budget included adding another $200 million in debt to the existing $1.4 billion in outstanding long-term debt, I was hoping to have a broader, more open discussion about options to prepare for these challenges and how to minimize the water bill impacts that will ultimately get passed through to our ratepayers."

The new rates will, on a countywide basis, increase the cost per acre-foot from $1,760 to $1,833 for treated water and from $1,474 to $1,523 for untreated supply. That equates to an increase of 3.6% for treated purchases and 3.3% for untreated delivery. The CWA member agencies have the option of absorbing the rate increase or passing on the additional cost to customers.

The rates are based on a melded rate which melds the cost of water delivered from the Metropolitan Water District of Southern California, water purchased from the Imperial Irrigation District under the Quantification Settlement Agreement, and water produced by the Claude "Bud" Lewis Carlsbad Desalination Plant.

The CWA also has transportation, storage, and customer service charges along with fees and charges for fixed expenditures which are incurred even when water use is reduced. The CWA also incorporates debt coverage targets into its rate structure with a target debt coverage ratio, or ratio of cash available to debt obligation, of 1.5:1 for senior lien debt (debt secured by collateral in the event of a default) and 1.4:1 for overall debt.

MWD increased the cost of treated water by 5.2% and its untreated wholesale rate by 2.8%. MWD also has a "wheeling" charge to transport the QSA water through the MWD aqueduct system, which will increase by 4.1%. The QSA included scheduled rate increases over the multi-decade period, and the price of IID water is now tied to an inflation index.

"There's no increase from the Water Authority, and you can't beat that," said Lakeside Water District board member Frank Hilliker, who is Lakeside's representative on the CWA board. "It's a good thing."

Due to each agency's pro-rata share of fixed charges, some CWA member agencies will see up to a 7% increase in rates and charges.

Conservation measures, the conversion of agricultural land to crops utilizing less water and increased local supply have led to a reduction in water sales to many CWA member agencies. "I think that our forecasting for water sales are inaccurate," Kennedy said.

Kennedy explained that the budget and corresponding rates are based in large part on revenue from water sales. "To be financially sustainable you have to ensure some stability in your revenue," he said.

"We need to hope for the best but plan for the worst," Kennedy said. "What we're doing is planning for the best."

The desire to avoid steep increases has led to raising rates over a multi-year period to cover a specific cost, and the CWA also has a rate stabilization fund which allows increases to be spread over multiple years. The CWA will draw $40.9 million from its rate stabilization fund for fiscal year 2021-22.

The CWA untreated water rate per acre-foot for municipal and industrial customers will increase from $940 to $1,009. The M&I untreated rate was $909 in 2019 and $925 during 2020.

The melded CWA rate for treatment is based on the cost to purchase treated water from MWD, the cost of desalinated water from the Carlsbad plant, and the cost to treat water at the Twin Oaks, Olivenhain, and Levy treatment plants (the Levy plant is owned and operated by the Helix Water District, and the CWA purchases treated water from Helix). The treated water surcharge which is currently $295 will increase to $310 for 2022. That surcharge was $276 during 2019 and $280 last year.

The per-acre untreated Special Agricultural Water Rate which was $731 for 2019 and $755 in 2020 will be increased from $777 to $799. Treated water for SAWR customers will increase from $1,072 to $1,109 per acre after being $1,007 in 2019 and $1,035 for 2020.

The CWA's transportation rate is a uniform rate set to recover capital, operating, and maintenance costs of the CWA's aqueduct system. The rate per acre-foot which had been $120 during 2019 and $132 last year is currently $150 and will be $173 next year.

The Infrastructure Access Charge is used for fixed expenditures incurred even when water use is reduced. The IAC per meter equivalent will remain unchanged at $4.24 after rising from $3.01 in 2018 and 2019 to $3.66 for 2020. A meter under one inch has a 1.0 meter equivalent and the rates are multiplied by 1.6 for one-inch meters, by 3.0 for 1.5-inch meters, by 5.2 for two-inch meters, by 9.6 for three-inch meters, and by larger factors for meters larger than three inches.

The Customer Service Charge is intended to recover costs which support the operations of the CWA and is allocated among member agencies based on a three-year rolling average of all deliveries. The charge has been $25,600,000 since 2019 and will remain at that amount next year. The pro-rata shares assess $1,057,623 to the Rainbow Municipal Water District, $561,773 to the Fallbrook Public Utility District, and $4,711 to Camp Pendleton.

The Storage Charge recovers costs related to emergency service programs and is allocated to member agencies based on a pro-rata share of non-agricultural deliveries. The total charge was $65,000,000 from 2017 to 2020, and the 2021 amount of $60,000,000 will not change for 2022. Rainbow will pay $1,560,771, FPUD is responsible for $1,052,561, and the Camp Pendleton amount is $11,892.

In March 2015, the CWA approved a revised rate structure intended to avoid a situation where conservation resulting in a decrease in water usage leads to the need to increase rates. The CWA added a Supply Reliability Charge while allocating all non-commodity revenues to all rate and charge categories including treatment and applying the debt and equity payments for the Carlsbad desalination plant to the supply rate.

The Supply Reliability Charge is a fixed charge to recover a portion of the QSA and desalination plant costs and is set equal to the difference between the supply cost of desalination and the Imperial County purchases (including MWD's wheeling charge) and a like amount of water purchased at MWD's Tier 1 rate multiplied by 25%.

The charge is allocated to CWA member agencies on a pro-rata basis using a five-year rolling average of M&I deliveries. The charge which had been $30,200,000 in 2019 and $37,430,000 last year is now $38,840,000 and will be $39,340,000 during 2022. The member agency contributions include $1,000,506 from Rainbow, $661,244 by FPUD, and $7,010 from Camp Pendleton.

The CWA also has a Standby Availability Charge of $10 per acre of $10 per parcel under one acre. That amount will not change.

MWD's Readiness to Serve Charge, which is set on a fiscal year basis and becomes effective July 1, involves credits for the standby charge and administrative costs. The CWA's share is allocated to member agencies based on a 10-year rolling average of demands. The CWA's charge after standby and administrative credits was reduced from $14,870,929 in 2018-19 to $12,909,485 during 2019-20 to $11,739,042 for 2020-21 and will decrease to $10,553,506 for 2021-22. Rainbow's share is $439,855, the FPUD cost is $260,989, and the Camp Pendleton assessment is $3,057.

MWD has a Capacity Charge which is allocated to CWA member agencies proportionately based on a five-year rolling average of flows during peak periods. The total charge to the CWA dropped from $8,262,020 during 2019 to $8,019,440 in 2020 but rose to $9,153,850 for this year and will be $10,437,100 for 2022. Rainbow will fund $478,981 of that, FPUD will be charged $271,754, and Camp Pendleton will provide $1,200.

The CWA also has a System Capacity Charge which is a one-time charge for new system connections and recovers the proportionate cost of the existing and planned system serving the new customers. The System Capacity Charge per meter equivalent increased from $5,217 in 2019 to $5,301 last year to $5,312 for 2021 new connections and will be $5,328 for 2022.

A Water Treatment Capacity Charge which recovers a portion of the regional water treatment facility expenses but exempts City of Del Mar, City of Escondido, and City of Poway customers who cannot benefit from that service will increase from $148 to $149 per meter equivalent after being $146 in 2019 and $147 last year.

The CWA Annexation Fee which was $10,681 in 2019 and $10,729 during 2020 is currently $10,771. That fee will be $10,801 next year. The annexation fee does not include the CWA member agency and MWD annexation fees, nor does it include the Local Agency Formation Commission processing fee for the annexation.