Fact vs. Fiction: Why Does Water Cost More When We’re Using Less?

MWD Fiction: Recent increases in MWD water rates and charges are driven primarily by the need to maintain and repair important MWD water facilities such as the Colorado River Aqueduct.

FACT: When MWD’s water sales decline, the cost of each unit of water sold rises. This is really the primary driver behind  MWD’s water rates, which have increased by 101 percent since 2006 (through 2013 and 2014, proposed). 

In fact, MWD’s two-year water sales are projected in its proposed budget to be about 30 percent lower in 2013 and 2014 than they were in 2006 and 2007.While MWD’s water sales are declining, its fixed costs are increasing, some of which can be reduced. This confluence of high fixed costs and lower revenue is causing water rates to rise.  MWD’s fixed costs must be paid from reduced sales revenues. 

Table 3 shows that in 2006 and 2007, MWD sold 4.38 million acre-feet over a two-year period.  MWD projects it will sell 3.04 million acre-feet of water in 2013 and 2014.

 

 

 

 

 

 

 

 

 

 

Lower water sales are an especially big problem for MWD because it has very high fixed costs and very low fixed revenues:  more than 80% of its expenses are fixed (like a “mortgage”) as contrasted with 15% fixed revenues.  And, this problem is getting worse, not better. Fixed revenues as a percentage of MWD’s total revenues are steadily declining under MWD’s current rate structure.  The rest of MWD’s revenues come from water sales — a variable source of revenue.

 

 

 

 

 

 

 

 

 

 

MWD has another BIG problem: spendingWe’ll focus on that in the next edition of Fact vs. Fiction.

Stubborn things, facts are.
Check back for the next installment of MWD Fiction vs. Fact.