Fact vs. Fiction: The Spin Cycle Never Stops at MWD

At the end of Metropolitan Water District’s board meeting Tuesday, April 12, to consider and adopt higher rates and taxes for 2017 and 2018, MWD Chief Financial Officer Gary Breaux and General Manager Jeffrey Kightlinger made some astounding claims of how staff’s proposed rates would impact the San Diego County Water Authority.  Here’s what they said:

MWD General Manager Jeff Kightlinger: I just wanted to ask Gary if he would, I heard a lot of math uhm and I’m frankly puzzled how a 4 percent wholesale rate can translate to, no wrong Gary, (laughter) I appreciate your eagerness Mr. Arant, but I was actually going to go to our CFO for a math question despite your skills at math. Mr. Breaux could you explain to me how our 4 percent wholesale rate is being translated to 62 and 77 percent, uhm at one of our member agencies, as, San Diego specifically?

MWD Chief Financial Officer Gary Breaux: I’ll try to respond to that. So just to, overall, as Jeff mentioned it’s a 4 percent rate increase. We have many different components to our rates though. We have a full service treated rate, a full service untreated rate, an exchange cost rate, readiness to serve charge and a capacity charge and all of those are moving in different directions and going up in some cases and down in some cases. But the overall change is 4 percent. And when we look at if you were on one continuum which is 100 percent treated, your overall rate increase would be about 2 percent. If your 100 percent untreated you would be about 8 percent increase.

But still we have heard a lot, particularly from San Diego, different letters, what have you describing some very high rates. So what I attempted to do is to look at San Diego, we sell about 450,000 acre-feet to 500,000 acre-feet a year to them and they are a user of all our different types of water and they pay their portion of fixed charges. And what I get for 2016 is a melded rate, so if you look at all those rates what they’re paying now with the rates that are in place right now is about $717 an acre foot.

I then looked at what we have in the budget for 2017, their mix of usage and we’re showing their usage going down, we’re showing treatment cost, their treated revenues particularly going down, treated usage. So when I apply the three different options that the Board has before them, we have for Option 1, a melded rate increase of 2.2 percent. Option 2, a 3.6 percent in Option 2; and 1 percent in Option 3.

Now if you look strictly at treated, because I think a lot of these have referenced treated water and I heard today that it sounds like San Diego’s anticipating a much lower purchase of treated water that may be driving some of these higher rates. Just looking at treatment in isolation, the full service treated rate would go up 9.3 percent for Option 1; 15.2 for Option 2; 3.9 percent for Option 3. So, that’s the best I can, you know sense I can make of it so.

Jeff Kightlinger: Thank you Gary I just I had done the math and I had come to about for San Diego region a 1-3 percent melded rate under any of the options, and that verified that. So I’ll turn it back to you Mr. Chairman.

Click here to listen to the comments.

We put these claims side by side with the facts of how MWD’s proposed rates will impact the Water Authority’s ratepayers and its costs at MWD.

MWD Claim

The Facts

MWD sells about 450,000 acre-feet to 500,000 acre-feet a year to the Water Authority. Because of the Water Authority’s long-term water supply diversification strategy, the Water Authority estimates it will buy less than 200,000 acre feet of water from MWD next year.  The last year the Water Authority purchased more than 500,000 acre-feet of water from MWD was 2007.  The fact is, we will never buy that much water from MWD again.
The impact of MWD staff’s proposed fixed water treatment surcharge would only raise the Water Authority’s treatment costs by 3.9% to 15.2%. In its own written analysis, MWD itself estimated that the Water Authority’s treatment costs under its Option 1 proposal would be 7% higher than its Option 3 proposal in 2017.  Here’s a link to MWD’s own table showing the 7%. View the entire presentation here.
But, MWD’s 7% calculation is fatally flawed because MWD based that estimate on an incorrect projection of the Water Authority’s treated water purchases from MWD in 2017.  MWD projects the Water Authority will buy 97,266 acre-feet of treated water from MWD in 2017.  The fact is, because of the Water Authority’s investment in water treatment facilities right here in San Diego County – and including supplies from the Claude “Bud” Lewis Carlsbad Seawater Desalination Plant – the Water Authority estimates that it will buy only 38,289 AF of treated water from MWD in 2017. When you spread the proposed fixed charge and the commodity charge in MWD’s Option 1 over the smaller volume of water, it increases the total cost of MWD treated water to the Water Authority by 77% when compared to MWD’s Option 3 proposal.  See below for a table the Water Authority produced comparing MWD’s written analysis of the impact of Option 1 to the Water Authority’s analysis based upon the correct volume of projected 2017 treated water purchases.

The Water Authority, its member agencies, and countless civic leaders and ratepayers from San Diego County urged MWD’s Board of Directors to reject the punitive Option 1 treatment charge.  Fortunately for the Water Authority and our ratepayers, MWD’s Board of Directors rejected its own staff’s recommendation and instead adopted Option 3.  This was a big victory for our ratepayers, notwithstanding the fact that MWD’s adopted 2017 and 2018 rates continue to violate California laws, the California Constitution and the common law requirements that MWD’s rates only recover the cost of the services it provides. MWD has already been ordered to repay the Water Authority $244 million in damages, interest, costs and attorneys’ fees for the illegal rates it charged the Water Authority from 2011-2014.  While the Court also ordered MWD to adopt only lawful rates that comply with cost of service legal requirements, MWD ignored the Court order and  adopted rates and charges based upon the same flawed and illegal rate allocation methodology. So, well the Water Authority successfully avoided the imposition of even higher treated water rates by MWD, it still suffers overcharges based on its other rates and charges.