At the August 27th, 2013 of Metropolitan’s Special Committee on the Bay Delta, the Committee heard a presentation on the impacts of Bay Delta Conservation Plan on Metropolitan’s Integrated Resources Plan, costs, and water rates.
“We here in Southern California have relatively diverse supplies,” began Deven Upadhyay, Group Manager for Water Resources Management for Metropolitan Water District. “About 25% of the water used here in urban Southern California is coming from the Colorado River, roughly 30% is coming from the State Water Project traveling through the Delta, and 45% are local resources in a number of different areas,” he said. “Obviously these numbers change from year to year and in any given year, they are different than these percentages, but these are the average over the last decade or so.”
“This diverse system did not happen by happenstance; this was actually intentional,” emphasized Mr. Upadhyay. “We really focused in the early 80s looking at how could we, as a region, start to develop recycled water supplies … At the same time, in the early 80s, Metropolitan did the same thing with respect to water use efficiency, trying to figure out how could the region focus more on efficiency and what is Metropolitan’s role – how could we help get that done.”
After coming out of a significant drought in the late 80s and early 90s, Metropolitan began a planning process called the Integrated Resources Plan. “That plan in a nutshell became a mutual fund approach to investing in water resources – not putting all of your eggs in one basket but focusing on diversity in supplies.”
The 2010 update to the plan identified three components: A core resource strategy that focuses on reliability under planned conditions, but also having a supply buffer to adapt to short-term uncertainty as well as foundation actions to prepare for long-term change such as climate change, he said.
The basic strategy of the Integrated Resources Plan is founded in a portfolio approach which we have been implementing for three decades now, said Mr. Upadhyay. “The cornerstone of that portfolio approach are stable, reliable supplies from our imported resources on the State Water Project and the Colorado River,” he said. “We are pursuing the improvements in the Delta through BDCP to be able to stabilize that supply on the State Water Project; and on the Colorado River, we’ve pursued transfers, exchanges, storage that will allow us to provide for a full aqueduct on the Colorado River when we need it in dry years.”
“We’ve also pursued water use efficiency programs with the goal to reduce per capital water use in the region,” he said, reminding that the legislative package in 2009 was focused on per capita reductions. “Compared to the baseline for Metropolitan’s region, through 2012 we’ve seen per capita reductions in the range of 14%,” said Mr. Upadhyay. “That is from a number of reasons, much of it due to active programs to increase water use efficiency, but we’ve seen a downturn in the economy and the summers the last few years have been relatively cooler than normal, so we know those are having an impact,” he acknowledged, adding “however, per capita water use has reduced in recent time and we will continue that.”
Local resources are very important, Mr. Upadhyay said. “A key focus was to provide incentives and mechanisms to increase local resources in the service area and as a result, the portfolio has investments throughout the service area,” he said. “If you look at fiscal year 2011-12 … More than 900,000 acre-feet in conservation improvements since 1980; recycling supplies about 300,000 acre-feet in the service area; and groundwater recovery supplies of about 90,000 acre-feet which is treatment of groundwater that otherwise couldn’t have been used. We also know that there are seawater desalination plants planned in our service area; and we are reflecting 46,000 acre-feet associated with the Carlsbad plant,” he said, acknowledging also that storage facilities throughout California and on the Colorado River help to provide reliability.
“Through this integrated plan and this portfolio approach, we are going to see a flip in the nature of local versus imported supplies,” said Mr. Upadhyay. “In 1990, we saw about 40% of the region’s demand being met by local resources; in 2035, it’s approximately 60% met by local resources. And yet the imported demands that we see in our service area … remain at about 2 million acre-feet in 2035, and the reason for that is the basis for the plan is the increases in population and demographics; we’re expecting more than 3.5 million people to be added to the region through 2035 come with these increases in local resources and efficiency programs, so we have a very significant focus on efficiency and local resources going forward.”
Stable imported water supplies from the Colorado River Aqueduct and the State Water Project are the cornerstone, Mr. Upadhyay said. “The BDCP is really focusing on those supplies that we would get through the State Water Project and stabilizing them.”
He then presented a graph that depicted how much water was delivered before court-ordered pumping restrictions were imposed as well as how much water would be delivered with and without the BDCP, noting that the graph was showing the overall water supply available to both the State Water Project and the Central Valley Project. Pre-court supplies varied year by year but were 5.9 MAF on average, he said. “What we’re seeing now in the BDCP process are estimates of what the yield with the conveyance solution and the ecosystem restoration in place, and that shows us a range between 4.7 and 5.6 MAF,” and he noted that the range is due to the BDCP’s decision tree process and it isn’t exactly known where exports are going to fall within that range. “There is clearly a huge benefit compared to a scenario without BDCP in place,” he said, “as the yield to both of the projects is significantly lower.”
Those numbers are for both the SWP and the CVP, and our Integrated Resources Plan is focused on the yield Metropolitan receives from the SWP. “The IRP has assumed 1.5 MAF approximately under average conditions on the SWP available to Metropolitan. When we’re looking at the yield estimates coming out of the BDCP, what we’re seeing is that those estimates encompass that IRP assumption and so … that range is where we would expect it to be,” said Mr. Upadhyay, noting that there are factors other than the decision tree that would affect the yield, such as the ultimate split between SWP and CVP contractors or how the costs might be allocated amongst the various SWP contractors. (Maven’s note: Metropolitan’s Table A Amount is 1,911,500.)
“Without the BDCP, we would go down a path of having to look at how we’d shore up reliability in that scenario,” said Mr. Upadhyay. “It’s not consistent what we have in the IRP; we would have to change and take a look at what the future looks like.”
“The Integrated Resources Plan did depend on following through with investments that would fix the Delta, and we’re seeing a range in yield coming through that process that is consistent with what we had in the Integrated Resource Plan,” he said. “I would also observe that the BDCP is providing significant reliability improvements compared to the analysis that’s coming from the fish agencies on what the world looks like without the BDCP in place. We’re getting a little more definition to that and it’s clear that there are significant benefits in moving forward from a yield perspective, and there’s clearly a benefit in … the earthquake scenario, that catastrophic event.”
Gary Breaux, Chief Financial Officer, then gave a presentation on the estimated impact of the BDCP on Metropolitan’s rates. “When we look at the annual capital and O&M costs, this includes the cost of conveyance, operating costs of the conveyance as well as habitat restoration, looking at annual costs of $1.1 billion, you can see the big number is $926 million – that’s 100% paid for by the state and federal contractors, and the remaining portions of those numbers, 1 to 2 %, 1 to 3%, are also borne by the state and federal contractors, so when we take a look at all that, we come up with a Metropolitan portion in a range of about $235 million to $280 million,” he said, noting that the range is based on a 25 to 30% allocation of costs and water, but the allocation of costs and water is not yet determined.
“When you take that $235 to $280 million and spread it over our current water sales projection that we include in the budget of 1.7 million acre-feet, that will add about $138 to $160 an acre-foot to our current $847 full service treated rate,” he said. “This project is going to be constructed over the next 10 years and what we see is probably a fairly steady, 1.5 to 2% per year increase in water rates that will be necessary to fund Metropolitan’s share of the BDCP. When we look at our overall rate increase projections, we think, including BDCP, we’re going to be in a range of 3 to 6%.”
“That may look a little low to some of you, but when you look at the costs for Metropolitan without the BDCP, particularly in the area of capital financing, we see that as a fairly stable cost component going forward,” he said. “That’s about 30% of our cost base so we certainly think its achievable in the range of 3 to 6% a year including BDCP going forward.”
The retail impact will depend on how reliant one is on Metropolitan water. “Metropolitan provides about 50% of the water to the region so for customers who are 50% reliant on Metropolitan, you’re looking at a .30 to .40 per month increase, year by year over that 10 year period for a cumulative impact of $3 to $4 per month,” said Mr. Breaux. “Obviously, if one of our customers is 100% reliant, that would be twice those numbers, but what we feel it’s a fairly affordable retail impact of this project.”
When the range of costs for the BDCP is added to current tier one treated water rate, it is from $986 to $1013, said Mr. Breaux. “We think that it still is very competitive to the alternatives that we’d have to look towards if we have a no-BDCP option, so we think the rates stay in a very affordable range and compare very well to other options.”
Replacing Delta supplies would require significant additional local supply development on top of 1.3 million acre-feet of new supplies planned in existing Integrated Water Resources Plan portfolio, Mr. Breaux said. “Not too surprising, all of our local agencies have gone after the low hanging fruit if you will in their projects, so incremental local projects going forward are going to continue to rise in cost. When you look at the water quality and supply reliability coming out of this project and the moderate rate increases, it looks very affordable for Metropolitan and its customers.”
Director Steiner pointed out that the Carlsbad desalination plant will produce 56,000 AF not 46,000 AF, although the committee members did not dwell on this nor explain why there was a discrepancy. Ms. Steiner then questioned whether there were any discussions on the division of costs amongst the project participants, as she had been hearing about the possibility that the costs might be divided up on a value-added or ability to pay type thought process and was concerned.
“That would be our concern, too,” said Jeff Kightlinger. “So far there has been no change in the approach we’ve taken and in fact, most of the agencies are saying it should be paid for on the basis of water receipt. There are a couple folks saying it’s going to be difficult for agriculture … but quite a few agricultural contractors that are saying if we pay by the amount of water received, then we’re probably willing to do that. This continues to be debated and discussed and no final conclusions have been reached … in our view, it’s pretty straightforward. The value is the amount of water you get. And it should be paid for by acre-foot, bucket by bucket.”
Director Randy Record pointed out that the Colorado River wasn’t mentioned, but there are challenges there as well because of both drought and that member agencies have transfer programs that could be compromised in the future.
Jeff Kightlinger agreed. “We haven’t gone into as much detail recently on Colorado River because there’s been so much focus on the Delta, but that whole point that Deven was making about our imported supply being the basic foundation upon which we built everything else is so critical to us,” he said. “Since Metropolitan’s Colorado River supply was effectively cut in half in 2003, we have been investing heavily on the Colorado River,” noting that the board put a number of programs in place such as canal linings, the IID-San Diego transfer, the IID One program, the Yuma desalter, the Drop 2 facility … “All of these things cost money – they were investments and they returned us from 550,000AF back to 900,000 this year.”
“That’s the similar type effort we’re really talking about with the State Water Project,” Kightlinger continued. “These projects do lose their supply over time based on conditions unless you go back and reinvest and solidify them. And so that is really what we’re talking about here – that same sort of effort on the SWP that we did the last decade on the Colorado River. The Colorado River is going through obviously a tremendous drought right now, but if you look at our supplies, most of our supplies on the Colorado River are very solid compared to other supplies on the Colorado River: the canal lining water remains there, our Palo Verde option is in place for the next 30 years and our IID transfers are all efficiency-based programs that will keep producing. Same thing with the Yuma desalter, same thing with Drop 2, so they are physical investments made that will deliver that water through drought and so that is something we need to focus on … that same sort of reinvestment to solidify that piece of the foundation.”
FOR MORE INFORMATION:
- Click here for the power point for this agenda item (3-b).
- Click here for the webcast.
