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Home My WebLink About2009-03-24; Municipal Water District; 677; Drought response plan updateCARLSBAD MUNICIPAL WATER DISTRICT - AGENDA BILL 677AB# MTG. 03/24/09 DEPT. PW/M&O DROUGHT RESPONSE PLAN AND WATER SUPPLY UDATE DEPT. HEAD CITY ATTY. CITY MGR. RECOMMENDED ACTION: Receive a presentation by the San Diego County Water Authority (SDCWA) on water supply issues and water rates. ITEM EXPLANATION: This presentation provides an update on water supply issues affecting the San Diego region and the Carlsbad Municipal Water District. The presentation will also highlight anticipated water rate increases from SDCWA and the Metropolitan Water District. FISCAL IMPACT: None ENVIRONMENTAL IMPACT: None EXHIBITS: None DEPARTMENT CONTACT: Mark Stone 760-438-2722 mston@ci.carlsbad.ca.us FOR CITY CLERKS USE ONLY. BOARD ACTION: APPROVED D DENIED D CONTINUED D WITHDRAWN D AMENDED D CONTINUED TO DATE SPECIFIC CONTINUED TO DATE UNKNOWN RETURNED TO STAFF OTHER -SEE MINUTES Board rpr.pivpd fbp D D D D San Diego County Water Authority 4677 Overland Ave. San Diego, CA 92123-1233 (858) 522-6700 www.sdcwa.org February 2009 Wate indate San Diego County is experiencing unprecedented water supply challenges that make significant mandatory water cutbacks likely in 2009. The San Diego County Water Authority is urging residents and businesses to immediately increase conservation efforts and prepare for potential shortages as soon as this summer. Water supplies statewide have been diminished by two straight years of drought, and a third dry year appears likely with state snowpack levels well below normal though January. In addition, regula- tory restrictions on pumping water through the State Water Project (SWP), designed to protect threatened fish such as the Delta Smelt, have fur- ther restricted available supplies for Southern Cali- fornia and other regions of the state. April whether to allocate supplies. If approved, water supply shortages would begin in July. Supply shortages imposed by MWD will require the Water Authority to reduce deliveries to its mem- ber agencies, which will result in the implementa- tion of mandatory water use restrictions to residents and businesses in San Diego County. To help prepare the San Diego region for potential water shortages, the Water Authority created a Model Drought Response Ordinance. It has four levels, each with recommended water-use restrictions designed to achieve demand reduc- tion during water shortages. Lake Oroville, a key State Water Project reservoir, is below 30 percent full. Additional restrictions to protect salmon and steelhead could be ordered in March. Local retail water agencies have updated their own ordinances using the model ordinance to help provide consistency throughout the region on re- sponse levels and water use restrictions. Many key reservoirs around the state We Are Here already have been drawn down toward record-low levels. Drought Watch (10% voluntary conservation) Drought Alert (Up to 20% mandatory conservation) Drought Critical (Up to 40% mandatory conservation) Drought Emergency (More than 40% mandatory conservation) The Metropolitan Water District of Southern California, the Water Authority's main water supplier, said in February there is a 3-in-4 chance that supply constraints will force it to allocate, or cut back, deliveries to its resources for residents and businesses are member agencies this year. MWD plans to decide in available at www.20gallonchallenge.com. More information on the Water Authority's Model Drought Re- sponse Ordinance, along with links to drought response ordinances for each retail water agency, is avail- able at www.sdcwa.org. Water- saving tips, rebate information, and other conservation-related Enhancing Water Supply Reliability Drought Management The Water Authority has implemented plans and strategies for managing the region's water re- sources effectively during times of limited supply. In 2006, the Water Authority became the first Southern California water agency to adopt a Drought Management Plan that includes a shortage allocation plan. Developed in coop- eration with the Water Authority's 24 member agencies, it lays out orderly, progressive actions to be taken as supply challenges escalate. (To view the plan visit www.sdcwa.org/- manage/pdf/DroughtManagementPlanFinaLpdf.) Following the plan, the Water Authority has heavily promoted voluntary water conservation. In 2008, cumulative savings from long-term conservation rebate and other programs helped save more than 53,000 acre-feet of water. Outreach and advertising campaigns urging extraordinary conservation succeeded in saving another 31,000 acre-feet. The Water Authority also is securing short-term, or "dry- year" transfers to augment existing supplies. Water Supply Diversification in 2008 Groundwater 2% Canal Lining Transfer 4% Imperial Irrigation District Water Transfer 7% Recycled WaterLocal 3% Surface Water 5% Conservation 8% Metropolitan Water District of Southern California 71% Water Supply Diversification by 2020 Seawater Recycled Desalination Water 10% 6% Conservation 11% Imperial Irrigation District Water Transfer Metropolitan Water District of Southern California 29% In 2008, the Water Authority secured 23,000 acre-feet of dry-year transfers, as well as storage agreements with facilities in the Central Valley for holding the water until it's needed. The Water Authority's goal is to secure 50,000 acre- feet of dry-year transfers in 2009. If these measures are not enough to meet demand, then the Drought Management Plan outlines a process for determining mandatory shortage allocations for each member agency. Supply Diversification The Water Authority is executing a long-term strategy to enhance the reliability of our region's water supply through improved infrastructure and diversifying the region's water supply portfolio. In 1991, the San Diego region was 95 percent reliant on supplies from the Metropolitan Water District. Through developing new local and imported supplies and boosting conservation, by fiscal year 2008 the San Diego region re- duced its reliance on MWD supplies to 71 percent, improving regional reliability. The Water Authority is executing a $3.7 billion Capital Improvement Program to further improve regional water delivery and storage capacity. Major projects include raising San Vicente Dam in East County by 117 feet to provide up to 152,100 acre-feet of additional storage, and connecting Lake Hodges to the region's water distribution system. The Water Authority continues to work with local agencies to develop local supplies such as ground-water, recycled water, seawater desalination, and conservation. By 2020, these sup- ply sources are projected to meet 40 percent of the region's water demands. The Water Authority also has a long-term (45-to-75 years) water conservation and transfer agreement with the Imperial Irrigation District. The deal, reached in 2003, will provide San Diego County with 60,000 acre-feet of reliable water in 2009 and will gradually increase to 200,000 acre-feet annually by 2021. The Water Authority also has separate 110-year agreements to receive water conserved by lining parts of the Coachella and All-American canals. When both are complete, these proj- ects will provide more than 80,000 acre-feet of water to the region annually. San Diego County Wafer Authority FACT SHEET Water Ra INVESTING IN A RELIABLE WATER SUPPLY The Water Authority is a public agency serving the San Diego region as a wholesale supplier of water. The Water Authority works through its 24 member agencies to provide a safe, reliable water supply to support the region's $171 billion economy and the quality of life of more than 3 million residents. Background The San Diego County Water Authority's rates and charges ensure that the Water Authority has the revenue required to deliver a safe, reli- able water supply to the region. This is accom- plished through importing water, developing additional water supplies, administering conser- sales revenues cover the agency's costs. The Water Authority covers part of these costs with income from several fixed charges, including property tax revenue and interest income. Water rates must cover the remaining amount of the revenue requirement. Rates are adjusted annually to ensure projected water vation programs, and building and maintaining large-scale water infrastructure capital projects that improve water service and water storage for droughts and emergencies. These wholesale rates and charges are billed, or passed through to the Water Authority's 24 member retail agencies based on water deliveries and specific services provided by the Water Authority to each agency. In turn, each retail agency has its own policy and structure for determining rates and charges paid by customers in its service area. What Determines Water Rates? The cost of purchasing water is the Water Authority's largest expense and, therefore, has the biggest impact on rates. Another significant cost is paying for major capital improvement proj- ects (such as building pipelines and dams) that improve water system reliability and storage capacity. Other costs include system operations, maintenance, and repairs, as well as agency administration. These costs comprise the Water Authority's annual revenue requirement. Why Are Water Rates Increasing? Water rates are rising mostly due to significant increases in the cost of purchasing and conveying imported water to San Diego County. Several factors are contributing to increased costs: Water Authority Wholesale Treated Water Rate 1 £0TO Q.ts0o $1000 $900 $800 $700 $600 $500 $400 $300 $200 $100 2005 2006 2007 2008 2009 2010* Calendar Year "Estimated. Based on a 30% MWD rate increase. An acre-foot of water is 325,900 gallons. An average single-family home with four people uses one-half an acre-root to meet all its water needs for a year. In 2003 the Water Authority's main water supplier, the Metropolitan Water District of Southern California (MWD), lost access to low-cost, surplus Colorado River water due to drought conditions, falling reservoir levels MARCH 2009 and other factors. As a result, MWD has become more reliant on meeting demand with more expensive supplies from the State Water Project. Because of higher energy costs and other contract terms, the cost for water from the State Water Project can range from between 5 to 22 times higher than Colorado River water. Controlling Costs in a Rising Water Rate Environment The Water Authority is working aggressively to keep rates as low as possible by doing the following: • Providing strong oversight at the Metropolitan Water District of Southern California. The Water Authority's Board members who serve as delegates to MWD's Board diligently examine MWD policies and practices to ensure MWD operates as efficiently as possible. • Aggressively controlling costs here. The Water Authority is highly regarded for running a lean, efficient organization that delivers maximum return for every dollar invested here by ratepayers. The Water Authority will explore every opportunity to tighten expenses while securing water suppl; reliability as it develops the fiscal year 2010-2011 budget. • Continuing long-term supply diversification. The Water Authority's strategy of securing new local and imported water supplies will improve long-term supply relia- bility and reduce vulnerability to increased costs from MWD or other individual supply sources. San Diego County Wafer Authority 4677 Overland Ave. San Diego, CA 92123-1233 (858) 522-6700 www.sdcwa.org Drought conditions, combined with regulatory restrictions on operations that began in December 2007 to pro- tect threatened fish, have significantly reduced water deliveries from the State Water Project. This has prompted MWD to draw down stored supplies - reservoirs and other sources previously filled with lower-cost water. To help make up for reductions in its lower-cost water supplies, MWD and the Water Authority are purchasing more expensive water from sources in Northern and Central California through short-term agreements called "dry-year water transfers." Will Water Costs Keep Rising? Yes. In January 2009, MWD projected a rate increase of between 20 and 35 percent for 2010, depending on available water supplies and sales. It also projects additional increases of 12 percent in 2011 and 11 per- cent in 2012. MWD expects water sales will decrease, while State Water Project water costs, dry-year water transfer costs, and infrastructure improvements and repair costs are expected to increase. In 2009, these projected water rates may need to increase further if supply constraints prompt MWD to cut back deliveries (and thus further reduce water sales) to its mem- ber agencies, such as the Water Authority. In addition, the recent economic downturn is reducing the Water Authority's income from development impact charges, property taxes, and interest income. Water sales for 2008 also were below projections due to successful voluntary conservation efforts. These factors, to a lesser degree, contribute to increases in Water Authority rates and charges. Regional Water Supply Sources Recycled Water 3% Conservation 8% Local Surface Water5% Groundwater 2»/o ^ Canal Linings 4% Imperial Irrigation District Transfer 7% Fiscal Year 2008 \ Printed on recycled paper ^ using soy-based ink Water Supply and Rates 2009 Outlook Carlsbad City Council / CMWD March 24, 2009 San Diego County’s Water Sources LAKESHASTA LAKEOROVILLE State Water Project (Bay-Delta) 28% Colorado River 54% Local Water Supply Projects 18% San Diego County imports more than 80% of its water supply 2 3 What You Need to Know Regulatory restrictions are limiting water imports from Northern California. Statewide drought conditions are further limiting water supply. 2009 supply shortages are very likely. Water supply challenges are driving water rates sharply higher. Water Supply Reliability Reliable Water Water StoragePumping restrictions have severely cut water supplies from Northern California Delta Smelt Water Supply Impacts Drier Years Wetter Years 415,000 AF 980,000 AF 1,709,000 AF 1,851,000 AF 24% lost 40% lost 44% lost 43% lost 5 315,000 AF 585,000 AF 960,000 AF 1,060,000 AF Reductions in water supplies from the State Water Project due to Delta smelt pumping restrictions AF = Acre-feet. One acre-foot = 325,900 gallons. State Water Project Supply Costs SWP problems are driving two-thirds of projected rate increases from MWD MWD has ~$400 million in fixed costs annually from the State Water Project Fixed costs are spread over the number of acre-feet MWD has to sell The less SWP water it receives, the more each acre-foot costs MWD 6 MWD’s State Water Project Costs % Allocation # of Acre-Feet Cost/Acre-Foot 15%315,000 $1,272 35%735,000 $594 50%1,050,000 $449 85%1,785,000 $311 Low allocations of State Water Project drive MWD’s rates higher 7 0 200 400 600 800 1,000 1,200 1,400 1,600 2009/10 $408.0 $1,108.0 •Departmental O&M •PAYG Funding •Conservation Credits •State Water Contract •CRA Power •Debt Service & Debt Reserve •Water Supply Programs •LRP Incentive Contracts •Required Reserve Increase 2009/10 Budget -$408 Million is “Controllable”Million Dollars Lower Sales = Higher Rates Full Service Treated Tier 1 Increases 0% 5% 10% 15% 20% 25%1989 1990 1991 1992 1993 1994 1995 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 10 M&I* Rates and Charges Impacts MWD rules of thumb –Every $2 million in operating budget = $1/acre-foot rate impact –Every $20 million capital improvement budget = $1/acre-foot rate impact Water Authority rules of thumb –Every $500,000 in operating budget = $1/acre-foot rate impact –Every $6.7 million in capital improvement budget = $1/acre-foot rate impact *Municipal and Industrial LRFP Outputs –April 2008 Treated M&I Rates 600 700 800 900 1,000 Calendar Year$/Acre FeetBudget $679 $729 $785 $846 $910 Annual % Change 8.1%7.4%7.7%7.8%7.6% High $684 $768 $829 $884 $946 Annual % Change 8.9%12.3%7.9%6.6%7.0% Low $684 $744 $793 $850 $926 Annual % Change 8.9%8.8%6.6%7.2%8.9% 2008 2009 2010 2011 2012 CRACA “Lite” High/Low Rate Forecast $700 $800 $900 $1,000 $1,100 $1,200 $1,300 $1,400 $1,500 $1,600 $1,700 Calendar Year$/Acre-FootCRACA "Lite" High Rate $766 $990 $1,133 $1,254 $1,324 $1,389 $1,458 $1,522 $1,587 $1,686 High Annual % Change 11.9%29.3%14.4%10.7%5.6%4.9%5.0%4.3%4.3%6.2% CRACA "Lite" Low Rate $766 $932 $1,039 $1,144 $1,210 $1,255 $1,311 $1,355 $1,398 $1,480 Low Annual % Change 11.9%21.6%11.6%10.0%5.8%3.7%4.5%3.4%3.2%5.9% LRFP High Rate $768 $829 $884 $946 $982 $1,013 $1,058 $1,086 $1,147 $1,213 LRFP Annual % Change 12.3%7.9%6.6%7.0%3.8%3.2%4.4%2.6%5.6%5.8% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Compounded Annual Growth Rate CRACA “Lite” High 9.2% CRACA “Lite” Low 7.6% LRFP High 5.2% 13 Diversifying San Diego County’s Water Supply Portfolio 2008 2020 Conservation 11% Canal Lining Transfer 9% Local Surface Water 7% Groundwater 6% Recycled Water 6% IID Transfer 22% Groundwater Local & QSA Supplies 29%MWD 29% Seawater Desalination 10% MWD 71% 1991 Local Supplies: 5% MWD: 95% Member Agency Supply Costs Water Authority 2009 Treated Water Rate $ 766 Range Recycled Water $1,000 -$1,500 Groundwater $ 150 -$ 200 Desalinated Groundwater $ 750 -$ 900 Surface Water $ 200 Seawater Desalination $1,200 -$1,500