1 week Ago
Wholesale water rates — a key driver of the water bills of residents and businesses across the county — are not expected to rise nearly as much next year as previously thought . County water officials on Thursday lowered their projected wholesale water rate hike for next year from 18% to 12%, thanks primarily to higher projected water sales to local agencies over the next three years. The higher sales projections are based partly on the particularly dry winter and spring San Diego has experienced, which has increased demand for irrigation water from farmers and people with large lawns.
Higher sales help the finances of the water authority because it is contractually obligated to buy more water than its member agencies typically need, forcing it to raise rates to cover its built-in costs. But the dry winter has pushed the expected demand from member agencies for next year about 10 percent higher than was estimated just last month — from 300,000 acre feet to 327,000 acre feet. And demand is expected to remain higher than previously projected in 2027 and 2028 because the dry winter has depleted local reservoirs that had filled up during rainy winters in 2023 and 2024, water authority officials said.
“The reason why that road map from last year that was anticipating an 18% increase is down now toward 12% is because of higher demand,” said Pierce Rossum, the authority’s rate and debt manager. Demand from member agencies — which each recently gave the authority their projections of how much water they expect to buy during the next three years — is expected to rise 6% in 2026. That’s in stark contrast to 2024, when water sales dropped 15% and helped prompt a budget crisis for the authority.
Officials last year proposed a hike between 16% and 22% in April 2024 to help address that crisis. But the water authority board ended up approving a 14% increase after aggressive lobbying by city of San Diego officials. This year, the range of possible rate increases being proposed by the board is much lower: 7% to 14%.
Rossum said the financial numbers now point to 12%, but he said those numbers will be refined, re-examined and possibly tweaked before water authority staff make a firm rate hike proposal at the board’s next meeting May 22. The board is scheduled on June 26 to finalize the rate hike for 2026, which will take effect Jan. 1.
Whatever increase is adopted in June will likely force nearly every local water agency to pass on the extra costs to its customers. But just how much gets passed on could vary widely. Some agencies buy less wholesale water than others, especially those with groundwater basin storage or other local water supplies.
And some agencies have already built projected water authority increases into their rates. Rossum said the higher sales projections are having such a significant impact on rates because the authority is right near the break-even point with water purchases and sales. Being forced by long-term contracts to buy more water than it needs forces the authority to store it and get no revenue in return for the purchases.
“There’s a very big financial impact, because you are spending money and receiving none on the other end,” he said. “We are right at that kind of precipice, so you do see these wild swings in the rates.” Water sales make up nearly 90% of the authority’s annual budget.
Despite the higher sales projections, rates are still going up because of several factors, Rossum said. They include inflation, employee pay raises, higher rates being charged by the Metropolitan Water District and plans to increase debt payments by selling bonds next year to raise $285 million for infrastructure projects. On the other hand, the rates could be lower than projected next year if General Manager Dan Denham is able to finalize some deals to sell the authority’s extra water supply to other agencies outside San Diego County.
“We are talking with potential partners in Southern California and beyond,” Denham said earlier this month. He said the authority is negotiating with water-scarce areas about selling them drought-proof desalinated seawater from Carlsbad for multiple years. In addition, the authority may be able to lease water to an agency in Arizona, using the Colorado River as the conduit for delivering those supplies.
Such deals will take months or even years to secure due to the complexities of water law, Denham said. “While we can’t discuss the details of negotiations, it’s fair to say there is significant interest in buying some of our drought-resilient water — and that’s welcome news for San Diego County ratepayers,” Denham said. But things aren’t all positive.
The rate projections presented Thursday include leaving the authority’s rate stabilization fund, which can help soften hikes in crisis years, at the minimum level of $79 million. And the authority’s cash flow is also at the minimum of 150 days. In addition, the capital improvement budget is at the moderate-risk level instead of the low-risk level.
That means the authority is delaying some infrastructure projects it would pursue if finances were strong. Water authority officials say the fundamental problem they face is that they borrowed money to build and maintain a significantly larger water storage and delivery system than is now needed. Officials had expected demand to keep growing as the county’s population did and as development expanded, but member agencies have instead been buying steadily less wholesale water during the last two decades.
But Jim Madaffer, a member of the authority board representing the city of San Diego, said there’s a positive way to look at the situation. “We’ve built infrastructure that will survive drought,” he said. “We will have more droughts, and we are the only agency in the state of California that’s prepared for that.
” He said efforts to solve the authority’s problems quickly are the wrong approach. “You can’t fix a 40-year trajectory in one or two budget cycles,” he said..
