Water Authority Board Approves $1.65 Billion Budget for Fiscal Years 2010 and 2011 


Short Title
Water Authority Board Approves $1.65 Billion Budget for Fiscal Years 2010 and 2011 

Supply challenges drive 18.1 percent treated water rate increase effective September 2009
June 25, 2009

The San Diego County Water Authority Board of Directors today approved a $1.65 billion, two-year budget to fund water purchases, debt service, capital improvements and Water Authority operations from July 1, 2009 through June 30, 2011.

The total is 12.2 percent more than the prior two-year budget, primarily because of California’s water supply challenges, which are significantly increasing the cost of imported water from the Metropolitan Water District of Southern California (MWD). The Water Authority plans to spend nearly $764 million on water purchases and treatment over the next two years – $199 million more than budgeted during fiscal years 2008 and 2009.

“Regulatory restrictions, drought conditions and other factors are making it much more expensive to provide the water needed by our region’s 3 million residents and $171 billion economy,” said Claude A. “Bud” Lewis, Water Authority board chair. “This budget represents a concerted effort to control costs, while continuing to prudently invest in programs and projects that enhance current and long-term water supply reliability.”

The board also adopted new rates and charges for water purchased by the Water Authority’s 24 member retail agencies. The total Municipal and Industrial cost of treated water will rise to $905 per acre-foot effective Sept. 1, 2009 through Dec. 31, 2010. That is an increase of $139, or 18.1 percent. (An acre-foot is 325,900 gallons, enough to meet the needs of two single-family homes of four people for a year.)

The acre-foot cost is based on water sales estimates to the Water Authority’s member agencies and includes fixed customer service and storage charges, and variable supply and transportation charges. The new treated water rates equate to an increase of approximately $5.80 per month to an average household’s water bill in the San Diego region (defined as a single-family home with four people using one-half acre-foot of water annually). This is in addition to any rate increases to households from their local retail water agency.

The new rates reflect the increased cost of water deliveries from the Metropolitan Water District of Southern California, the Water Authority’s largest supplier. MWD approved a 21 percent rate increase in treated water rates beginning Sept. 1, 2009. The Water Authority’s new rates also take into account the cost of dry-year water transfers designed to help mitigate the current water shortage and reduced revenues from development fees and lower investment income.

Uses of Funds

Water Authority General Manager Maureen Stapleton said the Water Authority’s new two-year budget is focused on delivering maximum return for the region’s ratepayers.

“More than 92 percent of the 2010-2011 budget is dedicated to covering the costs of water purchases and treatment, capital improvements and prudent debt service schedules that keep our financing costs for capital projects as low as possible,” Stapleton said. “This budget will allow the Water Authority to sustain its long-term strategy of enhancing water supply reliability through diversifying our water resources and improving large-scale regional water infrastructure.”

Water purchases and treatment represent the largest component, 46 percent, of the budget. This includes the cost of obtaining water and treatment services from MWD, securing Colorado River Quantification Settlement Agreement (QSA) water, operating the Twin Oaks Valley Water Treatment Plant, making Central Valley Groundwater storage payments and developing local supply sources. It also includes funds for 32,500 acre-feet of dry-year water transfer purchases over the next two fiscal years.

Capital improvements represent 34 percent, the second-largest budget component with an appropriation of $556 million. More than half of all Capital Improvement Program expenditures, $293 million are devoted to a single project, the San Vicente Dam Raise and Carryover Storage. The raising of the San Vicente Reservoir dam by 117 feet – the tallest dam raise project in U.S. history – will provide 152,000 acre-feet of additional local water storage, 52,000 acre-feet for emergency use and 100,000 acre-feet of carryover storage. Carryover storage will allow water to be stored during wet seasons for use during subsequent dry years. The remaining CIP budget funds four major projects and several smaller projects including:

    •    San Vicente Pipeline and Aqueduct Interconnect – $58 million
    •    Lake Hodges (Pump Station & Olivenhain-Hodges Pumped Storage) – $42 million
    •    Mission Trails Pipeline Tunnel – $23 million
    •    Colorado River Canal Linings & Post-Construction Mitigation Monitoring – $53 million

Debt service, at $210 million, represents 13 percent of the budget. It includes existing and projected commercial paper and long-term debt service expenditures to finance major capital projects. The Water Authority expects to issue approximately $675 million in additional short-term and long-term debt over the next two fiscal years.

The operating budget represents 5.5 percent of the overall budget at $91 million and includes the combined budgets of 13 departments and programs that implement the Water Authority’s strategic and business plans.

The Operations and Maintenance department represents the largest portion of the operating budget, $28.6 million, to address the increased workload of operating new facilities such as the San Vicente Pipeline and the Hodges Pumped Storage facility. Water Conservation program funding increased 25 percent, to $10.2 million, to reflect greater emphasis on the Water Authority’s near-term drought management programs and long-term strategies for reducing water demand.

“We have undertaken a comprehensive workforce planning effort to meet our changing organizational requirements through redeploying staff,” Stapleton said. “As a result, we are meeting new demands in our Operations and Maintenance department and in our Water Conservation program without hiring additional staff.”

Grant-funded expenditures – programs supported by external revenue sources – represent $31 million, or 2 percent of the budget. Equipment replacement, at $3.8 million, is 0.2 percent of the budget. For a summary of budgeted uses of funds, see Table 1 below.

Sources of Funds

The Water Authority will generate $­­­1.65 billion in estimated revenue for the next two fiscal years. Approximately 89 percent of the Water Authority’s total income will come from water sales and net fund withdrawals.

Water sales to member agencies are the largest source of funds, at $964 million, or 58 percent. Revenue from water sales is expected to increase by 36 percent due primarily to increases in the cost of water purchases and treatment and, in part, to offset reductions in other revenue, such as capacity charges for new development and investment income. Capacity charges, for example, are expected to decline 82 percent, a loss of $57 million over the prior two-year budget.

Net fund withdraws represent $507 million, or 31 percent of available funds. Net fund withdrawals are primarily draws from debt proceeds to fund the Capital Improvement Program

The remaining 11 percent of revenue comes from capacity charges, investment income, infrastructure access charges, standby charges, property taxes, hydroelectric revenue, contributions in aid of construction and other smaller revenue sources. For a summary of sources of funds, see Table 2 below.

The Water Authority has the following long-term credit ratings:

Fitch’s Ratings

AA

Moody’s Investors Service

Aa3

Standard & Poor’s

AA+

TABLE 1 – FY 2010 & 2011 WATER AUTHORITY USES OF FUNDS

Water purchases and treatment

$ 763.9 million

46.2 percent

Capital improvement program

$ 555.7 million

33.6 percent

Debt service

$ 209.8 million

12.6 percent

Operating budget

$ 90.8 million

5.5 percent

Grant- funded and other expenditures

$ 30.6 million

1.9 percent

Equipment Replacement

$ 3.8 million

0.2 percent

Total

$ 1.655 billion

100 percent

TABLE 2 – FY 2010 & 2011 WATER AUTHORITY SOURCES OF FUNDS

Water Sales

$964.3 million

58.3 percent

Net Fund Withdraws

$506.8 million

30.6 percent

Capacity Charges

$ 12.4 million

0.7 percent

Investment Income

$ 26.9 million

1.6 percent

Infrastructure Access Charges

$ 45.6 million

2.8 percent

Standby Availability Charges

$ 22.2 million

1.3 percent

Property Taxes

$ 20.8 million

1.3 percent

Hydroelectric Revenue

$ 2.6 million

0.2 percent

Contributions in Aid of Construction

$ 22.1 million

1.3 percent

Other income

$ 30.9 million

1.9 percent

Total

$1.655 billion

100 percent

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