VOICE FROM SAN DIEGO: San Diego’s water rates face dramatic increase ~ MAVEN’S NOTEBOOK

By Mackenzie Elmer
This story was first published by Voice of San Diego. Sign up for VOSD’s newsletters here.

Thursday is the end of the world for water prices in San Diego.

Then the region’s water importer, the San Diego County Water Authority, is considering a whopping 18 percent price increase effective January 1. Compared to previous rate increases, this is a massive price increase, and the Water Authority’s largest customer, the city of San Diego, is quite upset. Over the past five years, water prices have increased by 5 to 10 percent annually. The last time San Diego saw a higher price increase was in 2010, at 20 percent.

San Diego Mayor Todd Gloria has ordered his powerful force of 10 water board members to fight the increase. We won’t know how hard they will fight until the 33-member board meets to vote on it Thursday afternoon.

Gloria’s administration is building a water recycling project that will cost billions of dollars. Once it’s finished in 2035, San Diego will no longer buy as much water from the water authority. But for now, San Diegans must bear the cost of building the water recycling and buying expensive water from outside the city limits.

San Diego can’t push through a big rate increase on its own. It needs the approval of another water district. But it’s not even clear whether Gloria’s officials agree on what needs to be done.

“It would be easy for us to delay maintenance on our water infrastructure to temporarily mitigate the price shock of rising rates,” Jim Madaffer, a longtime San Diego City Board member, general manager of the Valley Center Water District and representative of the Water Authority, wrote in an opinion piece. But we cannot afford that with our water system, they wrote. In other words, the lower the rates, the higher the risk to aging infrastructure.

While we wait to see how the policy plays out, the Water Authority is trying to get rid of the water. It has shut down production at its expensive Carlsbad treatment plant, which turns seawater into drinking water. It has sold some of its water from the Colorado River (San Diego’s main water source) back to the Imperial Valley farmers from whom it bought it. It is damming even more water from the Colorado River into reservoirs so full that it would have to partially drain them to make room for more. And the Water Authority is getting increasingly poor ratings from credit rating agencies.

To mitigate the price shock, the City of San Diego (the water authority’s largest customer) offered to pay its bills early. The water authority would be happy to accept the money, but its finance department argued that even if each of its 23 water districts did the same, it would only mitigate the expected price increase by 1.5 percentage points.

It’s also unclear whether other water buyers will want to chip in. These water districts bear some of the rate burden when their budgets allow, but typically must pass the water authority’s bill on to their own customers.

So the water authority faces a dilemma. It’s an election year for the mayor of its largest and most powerful customer, and that mayor would like to celebrate a victory against an increase in the already high cost of living for his constituents.

Fortunately, a $19.4 million grant from the US Bureau of Reclamation came just in time to modernize the desalination plant in San Diego – so the final rate increase is likely to be closer to 15 percent. But rising water prices in San Diego may already be a losing battle.

How we got here: San Diego has too much water. That wasn’t the case in the 1990s, when severe droughts sparked fears of water rationing. The Metropolitan Water District of Southern California, based in Los Angeles, controls San Diego’s only lifeline to its most important water source: the Colorado River.

To ensure that this never happened again, the water authority invested heavily in building expensive storage reservoirs, entered into a decades-long contract to buy water from the Colorado River from Imperial County farmers, and financed Southern California’s largest plant to convert seawater into drinking water – a highly energy-intensive process and the region’s most expensive source of water – in Carlsbad.

Now it must finance all the investments and maintain the huge aqueducts responsible for the country’s water supply, which are aging and in need of a major overhaul to withstand earthquakes and daily wear and tear.

But at the same time as these investments, the agency began selling less water. The water authority has not sold enough water to pay back its huge loans and maintain its infrastructure. It sold only about 75 percent of the amount of water it sold in 2021, when large parts of California suffered from brutal drought years. That’s why water authority officials want to significantly increase prices.

In 2024, Southern California experienced two of the rainiest years in recent history. Knowing that water sales are low in rainy years, the water authority’s new general manager, Dan Denham, began looking for other buyers for San Diego’s plentiful supplies. Denham struck a deal to sell some of the expensive water from San Diego’s Colorado River back to Imperial Valley, exchanging it for cheaper water from Metropolitan. (The deal is not finalized. The parties are waiting for the federal government to pay for part of it.) He is also trying to find customers for San Diego’s desalinated seawater from Carlsbad. At least one small water district in Orange County is interested, but so far the deal amounts to a handshake.

In the meantime, the desalination plant has cut back on production, Mike Lee, a water authority spokesman, told me. The authority – the desalination plant’s only customer – is buying only about 65 percent of the amount it’s contracted for, said Mike Lee, a water authority spokesman.

Lee said the water authority will purchase fewer desalination plants through December, which is expected to save it $18 million. The savings would be equivalent to a 3 percent reduction in water rates, Lee said.

The water authority has a so-called take-or-pay contract with the owner of the desalination plant, formerly Poseidon and now Channelside Water Resources, according to spokeswoman Michelle Peters. This means that the authority must essentially take all the water it is obligated to buy under the contract, regardless of the circumstances.

The contract offers flexibility, says Jeremy Crutchfield, water resources manager at the Water Authority. The contract terms allow the Water Authority to cut its desalination contracts and pay only a portion of the total water costs.

The water authority has a similar contract with Imperial Valley farmers. Since the San Diego market had no demand for this water last winter, the water authority stored water from the Colorado River in the San Vicente Reservoir – which is now nearly full.

That’s one reason the desalination plant produces less, because there’s no place to store the extra water. Plus, it’s too clean to store in a reservoir anyway. San Diego has so much water stored that it would have to release some of it from the reservoir to make room for more.

In a June 19 letter to the board, water authority staff said the agency was in a “financially precarious situation.”

“After two wet years (low revenues), tariff increases are necessary to maintain and repair existing systems and strengthen the financial position of the water authority,” the document states.

The water utility has reduced its cash reserves to less than the target amount set by its board of directors to offset past price spikes. And one of its ratings agencies, S&P Global, has given the water authority a negative credit rating. That may affect the interest rate on future loans needed to finance the vast system of aqueducts, pipes, pumps and reservoirs that the water authority maintains. The authority is already sitting on more than $2 billion in debt that it must repay.

Some of this is beyond the water authority’s control. S&P found that human-caused climate change and global warming are affecting the water authority’s ability to remain stable over the long term.

“Due to the recent climate emergency, we expect the agency will continue to struggle with hydrologic variability that impacts water sales revenues and will need to adjust to rising service costs,” S&P wrote on June 12.

Related:

Comment: Arguments for increasing water prices

Gary Arant, a member of the Water Authority Board of Directors and General Manager of the Valley Center Water District, writes, “Most San Diegans don’t often think about the journey water travels before it reaches our taps. It involves hundreds of miles of pipes, multiple treatment plants and countless moving parts to provide a reliable water supply to our region, which has nowhere near enough natural water sources to sustain us. Any disruption along the way could have serious consequences for local families and businesses, so regular maintenance is not just a good idea, it’s an absolute necessity. The San Diego County Water Authority and its member agencies are responsible for ensuring that reliable water supply for our region’s 3 million residents and businesses, delivering it to our taps every day without interruption. As stewards of your water needs, we have a responsibility to maintain our 80-year-old system as cost-effectively as possible, balancing your expectations for reliable service with the demand for low bills. …” Read more in the Voice of San Diego.