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Home My WebLink About2020-10-13; Municipal Water District; ; Board of Directors’ Update on San Diego County Water AuthorityCA Review __RMC__ Meeting Date: Oct. 13, 2020 To: President and Board Members From: Scott Chadwick, Executive Manager Staff Contact: Vicki Quiram, General Manager vicki.quiram@carlsbadca.gov, 760-438-2722 Eric Sanders, Utilities Manager eric.sanders@carlsbadca.gov, 760-603-7361 Subject: Board of Directors’ Update on San Diego County Water Authority Recommended Action Receive a report from Keith Lewinger, San Diego County Water Authority Board Member, to update the Carlsbad Municipal Water District Board of Directors on recent Water Authority issues of importance. Executive Summary Carlsbad Municipal Water District Board President Hall and Keith Lewinger represent the CMWD on the San Diego County Water Authority Board of Directors. In keeping with a minute motion by CMWD Board President Hall approved Sept. 1, 2020, Mr. Lewinger will provide an overview and update on the Water Authority and CMWD’s water supply covering the following four topics: •Metropolitan Water District of Southern California legal activity •Fallbrook Public Utility District and Rainbow Municipal Water District detachment proposal •Regional Conveyance System Studies recently completed •Cost savings and rate reduction by the Water Authority Discussion Overview The CMWD purchases 100% of its reliable potable water supply from the San Diego County Water Authority, with 17% of it coming from local desalinated water. The county Water Authority delivers a safe and reliable wholesale water supply to 24 retail water agencies in the county, one of which is the CMWD. The county Water Authority’s 36-member Board and the CMWD Board of Directors work diligently to keep customer rates as low as possible while continuing to provide excellent service to our customers. Oct. 13, 2020 Item #5 Page 1 of 4 County Water Authority-Municipal Water District legal activity The county Water Authority has worked for years to resolve disputes with the Metropolitan Water District of Southern California, known as the MWD, in cases filed from 2010-2018. In August 2020, a Superior Court judge awarded the county Water Authority $44,373,872 in a final judgment for two cases covering rates paid by San Diego County ratepayers during calendar years 2011-2014. The award included $28,678,191 in damages for MWD’s breach of contract for the four years at issue. As the lawsuits continue to wind down, the county Water Authority is working collaboratively with MWD member agencies across MWD’s six-county service area to update their long-term water resource and financial planning. The court will retain continuing jurisdiction over the cases. The county Water Authority is also working to narrow the scope of the remaining 2014, 2016 and 2018 cases. It will take time to work through all the details of the court proceedings. Fallbrook and Rainbow detachment proposal On March 18, 2020, the Fallbrook Public Utility District and the Rainbow Municipal Water District filed reorganization applications with the San Diego Local Agency Formation Commission, or SD LAFCO, to detach from the county Water Authority and be annexed into the Eastern Municipal Water District. The two local districts say that because of the location of their facilities, they can receive water supply directly off the MWD portion of the aqueduct without use of the county Water Authority system and save millions of dollars. SD LAFCO is considering this change. The county Water Authority and CMWD are concerned about the financial impact on the cost of water to the retail agencies and the infrastructure investment cost of debt that is still being paid off. Consistent with the City of Carlsbad 2020 Legislative Platform, City Council Policy No. 39, on Aug. 14, 2020, Mayor Hall sent a letter to SD LAFCO opposing the detachment unless a balanced, comprehensive economic analysis of the proposal is completed and it can be demonstrated that detachment will not adversely affect other county Water Authority member agencies and San Diego County as a region financially or environmentally. SD LAFCO is still considering the proposal. Regional conveyance system studies For many years, the county Water Authority has studied potential future solutions for insuring a reliable local water supply for San Diego County. Variations of a project that would build a San Diego regional conveyance system to deliver county Water Authority high-priority Colorado River water supplies directly to the county have been studied. In June 2019, the county Water Authority board authorized a study to build on previous studies and contracted with the engineering and consulting company Black & Veatch to perform the first phase of the study at a cost of $2.6 million. The study, completed in June 2020, compared the financial impact of the proposed regional conveyance system with the increasing costs from the MWD and identified additional benefits of the project. The county Water Authority Board of Directors was presented with the report on Aug. 27, 2020, and was asked to vote on moving ahead with the second phase of the study for a cost of approximately $1.3 million. The regional conveyance system project would include a 47-mile canal, 39 miles of pipeline, a 47-mile tunnel and a 2,000-foot pump lift. The project would cost an estimated $5 billion. Oct. 13, 2020 Item #5 Page 2 of 4 Managers representing each of the county Water Authority member agencies were concerned about the financial impact of the regional conveyance system project on ratepayers. In June 2020, 18 of the 24 member agencies commissioned DLM/Gillingham Water to provide an independent engineering and economic analysis of the county Water Authority’s Black & Veatch report to help inform the decision on whether the authority should continue, pause or table further efforts to advance the project. This analysis was said to cost $72,000, approximate $4,000 for each participating agency and it focused on a sensitivity analysis of the model data. CMWD did not participate in the funding for the DLM/Gillingham report. The county Water Authority hired the Hunter Pacific Group to conduct another independent cost review, at a cost of $100,000, which is included in the total cost of $2.6 million for the first phase of the project. At the Aug. 27, 2020, county Water Authority board meeting, the board discussed the reports and the comment letters received and ultimately voted unanimously to spend three more months assessing the studies before voting to move ahead with the second phase of the regional conveyance system study with Black & Veatch. Cost savings and rate reduction by the county Water Authority The county Water Authority developed its 2021 rate proposal in conjunction with an independent cost-of-service study to ensure rates and charges comply with state law, legal requirements, cost-of-service standards and board policies and to develop strategic tools such as a long-range financing plan. The county Water Authority worked diligently to respond to member agency feedback and to keep the proposed rates and charges below the mid-point of earlier projections. The fiscal pressures faced by the county Water Authority include: • Reduced water sales, which are 14% below the current budget and expected to remain low in 2021 and subsequent years. Decreased water sales put upward pressure on rates because fixed costs must be spread across fewer units sold. A reduction in demand is expected to continue as local supplies come on-line and with the possible detachment of the Fallbrook and Rainbow districts. • Rising costs from MWD that reflect continued increases to its base supply rates and charges and the amount MWD charges to transport the county Water Authority’s independent Colorado River supplies. The 2021 rates adopted by the MWD increased supply costs by more than 9%, or $15.4 million. • Increasing deliveries of independent, exceptionally reliable Colorado River water supplies from the Imperial Irrigation District. This added a net $5.6 million to the total cost of water in 2021, the final year of increasing deliveries from Imperial Irrigation District. The rates recommended by the county Water Authority are the result of strategic measures that include: • Providing more than $80 million in rate relief from the Rate Stabilization Fund over the next 24 months. Oct. 13, 2020 Item #5 Page 3 of 4 • Capitalizing on historically low interest rates and strong credit ratings by lowering annual debt expenditures by optimizing cash to restructure outstanding debt to provide significant savings. • Planning to withdraw stored water to reduce water purchases while maintaining water reserves for future years, the result of careful planning and investments over more than two decades. • Reducing budget expenditures with a hiring freeze, reduced professional services contracts and reprioritizing more than $30 million in capital projects. Fiscal Analysis No funding is being requested. The direct fiscal impact resulting from the county Water Authority-MWD legal activity and the outcome of the request to detach the Fallbrook and Rainbow districts are unknown at this time. There is no fiscal impact to CMWD from the regional conveyance system studies and the rates recommended by county Water Authority do not result in a material impact to CMWD’s projected costs. All updates will be reconsidered during CMWD’s next rate study. Environmental Evaluation (CEQA) Receiving a report does not qualify as a "project" under the California Environmental Quality Act as defined by CEQA Guidelines Section 15378, because it does not result in a direct or reasonably foreseeable indirect physical change in the environment and therefore does not require environmental review. Public Notification Public notice of this item was posted in keeping with the Ralph M. Brown Act and it was available for public viewing and review at least 72 hours before the scheduled meeting date. Exhibits None. Oct. 13, 2020 Item #5 Page 4 of 4 Presentation by Keith Lewinger, San Diego County Water Authority Board Member representing CMWD Staff: Vicki Quiram, CMWD General Manager Oct. 13, 2020 CMWD Board of Directors’ Update on San Diego County Water Authority Issues Recommendation Receive a report from Keith Lewinger, San Diego County Water Authority Board Member, to update the Carlsbad Municipal Water District Board of Directors on recent Water Authority issues of importance. Wholesale agency created by the state Legislature in 1944 –Serves 3.3 million people and $245 billion economy through 24 member agencies –Provides about 75% of water used across the metro area –36-member Board sets policy 3 Water Authority Serves a Vibrant Region 1.Status of MWD rate litigation 2.Progress of Regional Conveyance Study 3.Update on LAFCO detachment application by Fallbrook & Rainbow 4.Overview of issues causing budget and rate pressures 4 Four Key Issues for Review 5 Rate Litigation Winds Down Feb. 2020: SDCWA Board votes to dismiss pieces of rate cases after MWD approves $350M for local projects Aug. 2020: Final judgment issued in 2010-2012 cases with $44.4M award for SDCWA. SDCWA seeking to resolve cases from 2014, 2016 & 2018. Sept.2020: MWD files appeal of final judgment. Oldest cases now have judgment entered, and writ of mandate issued against MWD. Highlights: a.Monetary award of $44,373,872.29 to Water Authority b.Preferential rights increase confirmed c.Rate Structure Integrity clause confirmed unlawful d.Writ of mandate bars MWD from adding demand management costs to Exchange Agreement rate e.MWD Admin. Code 4405 unlawful with WSR Recap of 2010-12 Litigation Benefits 7 Issue 1.State Water Project costs allocated to transportation 2. Water Stewardship Rate (Exchange Agreement) 3.Preferential Rights 4.MWD’s “Rate Structure Integrity” clause 5. Applicability of Prop. 26 to MWD’s rates 6. Validity of 2003 Exchange Agreement 7.Validation and statue of limitations 8. Right to pursue attorney’s fees 9.Statutory interest rate (10% pre-and 7% post-judgment) 10.MWD breached Exchange Agreement contract 2010 & 2012 Litigation Outcome Water Authority Win MWD Win •In February 2020, the Water Authority dismissed without prejudice: a.Challenges to MWD Water Stewardship Rate charges on supply purchases, b. Claims that MWD rates violate cost-of-service, c.Claims for MWD to provide their rate model. •Water Authority continues to: a. Challenge WSR on Exchange Agreement charges, and lack of offsetting benefit credit required by statute 8 2014 -2018 Case Reductions Conveyance Study Reaches Decision Point •Water Authority assesses long-term options for delivering Colorado River supplies. •New study shows two alignments are cost-competitive with other options for water supply and transportation. •Board to decide on next steps in November. 10 Regional Conveyance System Study Riverside County Water Authority Pipelines San Diego County Twin Oaks Water _Y_~::---...::H:;e~,:,~eaw:.,;:i.'-.;,A.;,1;.:t,:;;e~r~n;a:,;t~iv~e;..;;:3..:,A.:. Treatment Plant urner Olivenhain Reservoir Miramar ~ Reservoir Lake /I"" Lake Wohlford Lake Hodges San Vicente ~weetwater Reservoir ~owerQm lake ~Sutherland Reservoir .../) lake lj:v' Cuyamaca ~akeMorena Alternative SC Imperial County Salton Sea •Multiple Water Authority and Member Agency consultant reviews •Key area of agreement -Phase A technical project analysis and capital and O&M cost •Key area of difference –Will MWD rates continue to increase at the rates they have historically and how will a Bay Delta fix impact future transportation rate? 11 Phase A Consultant Reports Two Member Agencies Seek Detachment •Fallbrook and Rainbow districts seek to leave the Water Authority. •Unprecedented move raises costs, decrease reliability and erode •Board will oppose unless conditions are met to protect ratepayers, environment. •San Diego LAFCO is reviewing during months-long process. 13 $16.8 Annual Base Cost of Detachment $- $1,000,000.00 $2,000,000.00 $3,000,000.00 $4,000,000.00 $5,000,000.00 $6,000,000.00 $7,000,000.00 $8,000,000.00 Carlsbad M.W.D.Del Mar, City ofEscondido, City ofHelix W.D.Lakeside W.D.Oceanside, City ofOlivenhain M.W.D.Otay W.D.Padre Dam M.W.D.Pendleton Military ReservePoway, City ofRamona M.W.D.Rincon Del Diablo M.W.D.San Diego, City ofSan Dieguito W.D.Santa Fe I.D.Sweetwater AuthorityVallecitos W.D.Valley Center M.W.D.Vista I.D.Yuima M.W.D.Annual Cost Challenging Times for Rates & Budget Lowered deliveries and local supply development change financial forecasts. COVID-19 increases challenges and pressure to minimize 2021 rate increases. Staff identified tens of millions of dollars in mid-cycle budget savings. MWD didn’t make significant reductions. Next Steps Continue to monitor, stay involved in discussions and analysis and make decisions that best serve the City and Carlsbad Municipal Water District and its rate-payers Recommendation Receive a report from Keith Lewinger, San Diego County Water Authority Board Member, to update the Carlsbad Municipal Water District Board of Directors on recent Water Authority issues of importance. Questions 19 Base Year Detachment Cost to Remaining AgenciesTable 4.9: Base Year Reallocation of Detachment Reduced Revenue Del Mar, City of $4,267 $7,052 $3,746 954 Escondido, City of $70,865 $74,868 $112,199 $53,156 $311,089 5,791 $161,826 Fallbrook P.U.D. $0 $0 $0 $0 $0 $0 $0 HelixW.D. $115,659 $108,083 $178,656 $97,953 $500,351 20,711 $578,818 $1,079,169 lakeside W.D. $11,664 $11,580 $19,141 $12,313 $54,699 2,879 $80,453 $135,153 Oceanside, City of $91,844 $91,206 $148,763 $86,351 $418,163 19,844 $554,568 $972,732 Olivenhain M.W.D. $77,840 $76,971 $126,606 $42,301 $323,718 17,189 $480,386 $804,104 OtayW.D. $122,528 $120,382 $198,987 $90,342 $532,238 28,309 $791,138 $1,323,376 Padre Dam M.W.D. $41,274 $41,522 $67,744 $40,331 $190,871 9,589 $267,976 $458,847 Pendleton Military $288 $311 $514 $0 $1,113 52 $1,448 $2,561 Reserve Poway, City of $40,590 $39,019 $64,242 $25,541 $169,392 8,714 $243,515 $412,907 Rainbow M.W.O. $0 $0 $0 $0 $0 14,479 $404,634 $404,634 Ramona M.W.D. $18,256 $21,618 $29,040 $15,368 $84,282 3,755 $104,929 $189,211 Rincon Del Diablo $22,394 $21,760 $35,856 $15,350 $95,360 4,839 $135,232 $230,592 M.W.D. San Diego, City of $716,158 $673,788 $1,112,548 $591,116 $3,093,609 151,865 $4,244,135 $7,337,745 20 Base Year Detachment Cost to Remaining Agencies •Annual cost of detachment: $16.8 million •Could increase after base year San Dieguito W.D. $17,209 $14,400 $23,802 $22,678 $78,090 3,128 $87,404 $165,494 Santa Fe I.D. $31,250 $28,229 $46,662 $15,929 $122,070 5,626 $157,223 $279,293 Sweetwater $41,421 $29,183 $48,238 $64,599 $183,441 950 $26,544 $209,985 Authority Vallecitos W.D. $51,168 $49,156 $75,939 $40,904 $217,167 10,860 $303,505 $520,672 Valley Center $31,687 $85,836 $51,374 $21,972 $190,869 16,684 $466,259 $657,128 M.W.D. • Vista I.D. $65,536 $63,914 $105,287 $53,574 $288,312 3,361 $93,940 $382,252 Yuima M.W.D. $21,960 $9,867 $916 $37,386 4,652 $130,020 $167,406 South Coast W.D. $0 $0 •Vallecitos entered a special arrangement with the Water Authority to increase the reliability of their own supplies. •The contract guaranteed delivery of high-quality treated water and specified it could be from any source, at the Water Authority's choice. •Vallecitos pays more because they get a higher right to reliable water than other Water Authority member agencies . •Vallecitos has filed a lawsuit alleging that the Water Authority violated its contract, which the Water Authority disputes. •The Water Authority has tried diligently to resolve this dispute over the past several months.21 Litigation Over Vallecitos Water Deliveries