San Diego Rates Likely To Rise Amidst Water War
April 12, 2012 12:37 p.m.
Dennis Cushman, Assistant General Manager, San Diego County Water Authority
Related Story: San Diego Rates Likely To Rise Amidst Water War
CAVANAUGH: I'm Maureen Cavanaugh, it's Thursday, April 12th. Our top story on Midday Edition, the headline this week is water rates are probably going up again in San Diego. The LA-based metropolitan water district voted to raise water rates by 5% in 2013, and another 5% in 2014. Behind the headline, this vote is another chapter in the ongoing water war between metropolitan and the San Diego County water authority. San Diego claims it's already being overcharged by the district, and it's recently launched a website with claims it's the victim of secret dealing made among other water district members. Joining us to talk about this week's rate increase is my guest, Dennis Cushman, assistant general manager with the San Diego County water authority. Welcome back to the program.
CUSHMAN: Good afternoon, Maureen. It's good to be here.
CAVANAUGH: We invited officials with the Metropolitan water district to join us, they declined. "This two-year budget is the result of an open and collaborative process that began in January and included candid discussions over a number of various budget and rate variations. It allows Metropolitan to meet key priorities to insure reliable water supplies." What are some of those key priorities that they cite as the ones they have to raise rates?
CUSHMAN: The story they've led with that's driving water rates is the need to maintain Metropolitan's water infrastructure, such as the Colorado river aqueduct. And we don't disagree with that at all. But that's not what the primary driver of raising their rates are. It's spending. Failure to cut spending to match its reduced water sales which are down sharply by nearly 1/3 sings 2006.
CAVANAUGH: One of the things that San Diego County brought up at these hearings is the proposal to disband temporarily a conservation program that they spent $20 million a year on. Now, water conservation is vital to Southern California. Why would you ask the Metropolitan Water District to do that?
CUSHMAN: We didn't suggest they disband the program, we suggest they suspend for two years. The payment of incentive subsidy payments to consumers to conserve water, that isn't free money. That's $20 million a year in incentives to try to incentivize the public to conserve. Well, the public has conserved famously. Metropolitan's own water sales are down by 30%. The water authority's are down by twenty, and that story is repeated throughout the local water districts and cities in San Diego County. People don't need payments to incident vise them to conserve right now, they need rate relief. And suspending those subsidies would have provided rate relief to the rate payer who is need it.
CAVANAUGH: Now, the last time you were on the program, we talked about this impending rate increase at Metropolitan. And we talked about this, and it was said that they were originally going to ask for 7.5% increase in water rates. When this 5% hike came down, San Diego water authority official is quoted as saying this 5% increase is something of a moral victory.
CUSHMAN: Well, I guess in that case, 5% is worse than 7.5%. But for rate payers in San Diego County, it doesn't change the fundamental way in which Metropolitan overcharges us here in San Diego. I think that's the moral part, instead of an unabashed victory. But the authority had put a serious budget proposal on the table with Metropolitan that would have cut their rate increases over the next two years by more than half, and it would have preserved every penny of their proposed building for taking care of their water facilities. That was rejected.
CAVANAUGH: Now, you still proposed a rate hike. But it was just lower, 3%, right?
CUSHMAN: It would have been capped at no more than 3%, that's right. And that's in recognition that Metropolitan like all the water districts have expenses and priorities they need to fund, and our proposal would have preserved those priorities, would have insured a reliable and safe water supply but at a lower cost with some relief to our ratepayers.
CAVANAUGH: Is it safe to say that the San Diego County water authority will raise its rates by 5% and pass those costs onto San Diego County water customers?
CUSHMAN: Yes. And what customers need to understand is where will the increases start? 100 miles north of the border. And that sets off a trickle-down effect of. We have our own facilities and investments that we're making that are going to come to our board room here in the next couple months to develop new rates that pass along, that do include the big rate increases for Metropolitan. And then we pas those rates onto the 24 local agencies and cities here who will have to come to grips with those increases from their wholesalers, and go through a similar process at the local level.
CAVANAUGH: Is there any chance that the county could absorb any of this increase?
CUSHMAN: No, we simply don't have the financial reserves to be able to do that and also maintain a responsible level of investment in our facilities here in San Diego County. So that's very unlikely, those are decisions that our board of directors will make.
CAVANAUGH: Do you have any statistics about how much this 5% hike should raise rates for the average customer?
CUSHMAN: Well, most customers will see every bit of that rate increase, and then probably more from their local water districts. And from the water authority. It'll be different depending on where you live, because each district has a different mix of water supplies that comprise their cost structure. So the built thing is the rates are going up again. And this is the ninth consecutive year of big water rate increases from Metropolitan since 2006. While their sales have gone down by 30%, their rates have gone up by 96 point of view 5%.
CAVANAUGH: A group of customers in this that might get badly hit by this are farmers and our growers. Some avocado fields are lying fallow so to speak because the farmers and the growers simply cannot pay these water rates anymore. Is the county water authority perhaps cognizant of that fact? Is there some alternative water source that you might be able to offer to these struggling farmers?
CUSHMAN: We're very cognizant of it. It's discussed in our board room virtually every month. Ironically, the Metropolitan water district had an agricultural water pricing program that it is phasing out. It was a five-year phase-out, and 2012 is the final year of that phase-out. That was a program in which farmers got a lower level. Similar tradeoffs between reliability and cost. It is a more modest program than the one farmers had years before, but it is an issue. Of it is a very real issue for farmers here in San Diego County. And it's one that I think is going to have serious side effects for that portion of our economy.
CAVANAUGH: Let's go and talk about the overall context of this rate hike, and the continuing disputes that San Diego County water authority has with Metropolitan Water District. Just so that we have a grounding in this, how much of our water comes from the Metropolitan Water District now?
CUSHMAN: About 40% of the water used in San Diego County comes from Metropolitan Water District. That's a lot. But in 1991, before the diversification investments that we and our local agencies have made, we got 95% of all water used in San Diego County from Metropolitan. So the good news is, hundreds of millions and billions of dollars have been invested in the past 2†decades to diversify our water supply sources and improve the reliability of not only the water supply sources but the infrastructure that serves that water to every residence, business here in San Diego County.
CAVANAUGH: Tell us about that diversification.
CUSHMAN: Well, the cornerstone of the diversification strategy was the investments we made in water transfer deal with the imperial irrigation district, and the infrastructure we need to line the imperial and Coachella valley canals in the desert. This year, those sources are supplying almost 30% of our water in San Diego. And it's growing every year. By 2020, we'll get more water from those two sources than we will from the Metropolitan Water District. And importantly, we have greater control over the cost of those alternative water supplies. We have a contract that locks in the rate structure, the rate increases in a predictable way. And it's local supply for us here in San Diego County. That's a big piece of it. And then locally, water recycling. Conservation, groundwater desalination and other projects that our local wars agencies and cities have been investing to create more new resources. And we're in final negotiations on a sea water desalination project being privately developed in Carlsbad that will add about 7% of our supplies in 2020 if we're able to reach a final agreement, if will come from the sea. That will be a local source, controlled locally under a long-term contract where we can predict the cost of that supply.
CAVANAUGH: Now, one of the ways that the Metropolitan Water District has countered some of the accusations that San Diego has made toward their rate-setting policy is that they sent off a letter last month to UT San Diego's editorial board, and one of the things they say is that it's San Diego's decision to buy higher-priced water from the Imperial Valley that is really driving our water rates up. And that's -- also that's why the county water authority doesn't want to pay its fair share to maintain the pipes that Metropolitan owns that bring the water to San Diego. How do you respond to that accusation? Imperial Valley water is more expensive than the water we get from Metropolitan; isn't that right?
CUSHMAN: It is more expensive, and it is much more reliable too. But it's not quite as expensive as Metropolitan is letting on. And I guess if people really want to see what the true story is, go to MWDfacts.com, the website we set up, to understand that the message you just read from Metropolitan that was in that letter to the Union Tribune is what is called message strategy. It is their message strategy to try to obfuscate the real issue in the water authority's litigation with Metropolitan. We're not suing Metropolitan over the price we're saying Imperial Valley for the water. We're suing Metropolitan because of the overcharges they're charges us to transport that supply. They're two different things. The supply and the transportation. Metropolitan knows full well that we're not in court suing over the cost of the supply. We're suing Metropolitan over the cost of transportation.
CAVANAUGH: I want to ask you with that about that website and what has turned into a very public fight with Metropolitan Water District. San Diego County has this website now, and it basically has all the allegations against Metropolitan Water District. Last month you came out with a textbook full of e-mails that you allege show that there is an anti-San Diego coalition, a secret society at the Metropolitan Water District. Metropolitan comes back and says the only reason those terms were in these e-mails is because those are the terms that San Diego used in the lawsuit that it filed against Metropolitan. So is it possible that you misinterpreted those e-mails that you sent out last month?
CUSHMAN: No, it's not possible we've misinterpreted it. But one of the reasons we published all of those documents on the Internet on that website MWDfacts.com is that anyone can take a look at it and judge for him or herself what those documents say. I would add that Metropolitan's absence from your program today is deafening. Are they really addressing their words? We did not coin the phrase secret society, we did not coin the phrase anti-San Diego coalition. They did.
CAVANAUGH: Critics of this very public dispute and critics of the lawsuit say, you know, all of this may be counter productive for San Diego water ratepayers. For instance, how much money is legal action costing San Diego in pursuing this lawsuit against Metropolitan?
CUSHMAN: Well, that's a fair question. And let's talk about what's at stake in the litigation. This year, it was $40 million of overcharges. The last year it was $30†million, and this increases, it'll be more than $40 million next year, $50†million the following year and on and on. If we allow this rate structure to stay in place over 45 years, we will be overcharged here in San Diego County between 1.3 and $3.1†billion. That's just the incremental amount of the money in dispute in the litigation. Those are the stakes. And yes, we're paying lawyers.
CAVANAUGH: Almost $1 million so far, right?
CUSHMAN: We probably spent more than $1 million so far in the litigation. We've been in court since June of 2010.
CAVANAUGH: So what you're doing is weighing that against the amount of money that you say we could -- San Diego could be overcharged continually, year after year by Metropolitan Water District?
CUSHMAN: Yeah, let's put it in perspective. By the end of 2013, by the end of 2014, there will be almost $200 million that Metropolitan under our agreement with them, they have to escrow. So we're fighting to get that money back. If we win the litigation, we get it back. If we get back $200 million, and we have spent several million dollars to get it, that's right. This is a business decision. And that's the business decision our Board of Directors unanimously made to protect our region from these overcharges that would go on for decade fist we didn't challenge them.
CAVANAUGH: Couldn't it possibly be making the situation worse?
CUSHMAN: In what way?
CAVANAUGH: In the way that if you could sit down at the table with Metropolitan, without having the website, sort of calling them names, and sit down and hammer this out with the idea that it's going to help San Diego ratepayers not to be this litigious and aggressive?
CUSHMAN: Well, No. 1, I disagree. We haven't called Metropolitan names. They'll labeled themselves. And what we've done is publish how they describe themselves. Relative to what it would have been better to work it out, you bet. And we tried to do that in the Met board room for several years, to convince them to make their rate structure lawful under California law. When you look at who benefits from $40 million of overcharges to San Diego this year, the other 25 member agencies in the aggregate benefit from those $40 million. To step into the board room at Metropolitan and ask them to change a rate structure that benefits them financially even if it's wrongful is asking a lot. That's why in our system of government, we have other places to go to seek justice when you're outvoted by a majority as we have been by Metropolitan. And one of those venues is the Courts.
CAVANAUGH: I'm sure this is not the last time we'll speak about this. I've been speaking with Dennis Cushman, assistant general manager, San Diego County water authority. Thank you very much.
CUSHMAN: Thank you.