San Diego’s Water Prices Face Doomsday Increase

Thursday is doomsday for water prices in San Diego.  

That’s when the region’s water importer – the San Diego County Water Authority – debates whether to boost its prices a whopping 18 percent come Jan. 1. The price increase is massive compared to previous rate increases, and the Water Authority’s biggest customer, the city of San Diego, is pretty ticked off. For the last five years, water rates rose between 5 and 10 percent per year. The last time San Diego passed a higher price spike was 2010 at 20 percent.  

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

Gloria’s administration is building a water recycling project, which costs billions of dollars. Once its built, in 2035, San Diego won’t buy as much water from the Water Authority. But for now, San Diegans are saddled with the cost of building water recycling and purchasing expensive water from outside city boundaries.  

San Diego can’t shoot down a big rate increase on its own. It needs one other water district to agree. But it’s not even clear if Gloria’s representatives agree on what needs to be done.  

“It would be easy for us to defer maintenance on our water infrastructure to temporarily blunt the sticker shock of rising rates,” wrote Jim Madaffer, a long-time board member representing the city of San Diego, and Valley Center’s water district general manager and Water Authority representative in an op-ed. But we can’t afford to do that to our water system, they wrote. In other words, the lower the rates, the higher the risk on the aging infrastructure. 

As we wait for the politics to play out, the Water Authority is scrambling to get rid of water. It’s halted production at its expensive ocean water-to-drinking water treatment plant in Carlsbad. It’s sold some of its Colorado River water (San Diego’s main water source) back to the Imperial Valley farmers they bought it from. It’s banking even more Colorado River water in reservoirs that are so full, they’d have to empty them some to make room for more. And the Water Authority is starting to get bad reviews from credit rating agencies.  

To tame 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 take their money, but its financial staff argued that even if every one of their 23 customer water districts did the same, it’d only soften the expected rate increase by 1.5 percentage points.  

It’s also unclear whether any other water buyers want to chip in. These water districts shoulder some of the rate impact, if their budgets can handle it, but typically have to pass on the Water Authority’s bill to their own customers.  

So the Water Authority has a conundrum on its hands. It’s an election year for the mayor of its biggest and most powerful customer; that mayor would like to celebrate a victory against an increase to the already high cost of living for his constituents.  

Thankfully, a $19.4 million grant from the U.S. Bureau of Reclamation to upgrade San Diego’s desalination plant came just in the nick of time – so the final rate increase might look more like 15 percent. But the climbing cost of water in San Diego may be a battle already lost.  

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

To make sure that never happened again, the Water Authority made big investments in building expensive storage reservoirs and cutting a decades-long deal to buy Colorado River water from farmers in Imperial County. It also financed Southern California’s largest ocean-water-to-drinking-water plant, a highly-energy intensive process and the region’s most expensive water source, in Carlsbad.  

Now it must pay for all those investments and care for huge aqueducts responsible for getting water here that are aging and need major glow-ups to survive earthquakes and daily wear and tear.  

But at the same time it made these investments, it started selling less water. The Water Authority hasn’t sold enough water to pay off its giant loans and maintain its infrastructure. In fiscal year 2024, the Water Authority sold about 75 percent of what it sold in 2021, when much of California faced brutal years of drought. That’s why Water Authority leaders want to raise rates by a lot.  

Enter 2024, and Southern California’s had two of the rainiest years in recent memory. Knowing rainy years bring low water sales, the Water Authority’s new general manager Dan Denham began looking for other buyers for San Diego’s ample supplies. Denham cut a deal to sell some of San Diego’s pricey Colorado River water back to Imperial Valley and swap it out for cheaper water from Metropolitan. (The deal still isn’t complete. The parties are waiting on the federal government to pay for part of it.) He’s also trying to find customers for San Diego’s de-salted ocean water from Carlsbad. At least one tiny water district in Orange County is interested, but so far that deal amounts to a handshake. 

In the meantime, the desal plant ramped down its production, Water Authority spokesman Mike Lee told me. The agency – the desal plant’s only customer – is buying only about 65 percent of its contracted amount, said Mike Lee, a spokesman for the Water Authority.  

Lee said the Water Authority will be buying less desal through December, which they anticipate will save $18 million. The savings are equivalent to a 3 percent decrease in water rates, Lee said.  

The Water Authority has what’s called a take-or-pay contract with the owner of the desal plant, once Poseidon and now Channelside Water Resources, according to spokesperson Michelle Peters. That means it typically must take all the water it signed up to buy in its contract, no matter the circumstances. 

There’s flexibility in that contract, said Jeremy Crutchfield, a water resources manager at the Water Authority. Terms in the contract allow the Water Authority to cut its desal order and just pay a portion of the total water cost.  

The Water Authority has a similar contract with Imperial Valley farmers. Because San Diego’s market had no demand for that water during this past winter, the Water Authority banked Colorado River water in the San Vicente Reservoir – which is nearly full now.  

That’s partly why the desal plant is producing less, because there’s nowhere to store that extra water. And it’s too clean to store in a reservoir anyway. San Diego has so much water stored, it would have to spill some out of the reservoir to make room for more.  

The Water Authority staff said the agency is in a “financially precarious position” in a June 19 letter to its governing board.  

“Following two wet years (low sales), rate increases are necessary to maintain and repair current systems and support the financial position of the Water Authority,” the document says.  

The water seller has drawn down its cash reserves, below the target amount the board sets for itself, to help smooth over previous rate spikes. And one of its credit rating agencies, S&P Global, gave the Water Authority a negative credit outlook. That can affect the interest rate on future borrowing to pay for the vast system of aqueducts, pipes, pumps and reservoirs the Water Authority maintains. The agency is already sitting on over $2 billion in debt that it needs to pay off.  

Some of this is out of the Water Authority’s control. S&P noted that human-caused climate change and planet warming is affecting the water agency’s ability to remain stable in the long run.  
 
“Given the recent climate whiplash, we anticipate the authority will continue to experience hydrological volatility that influences water sales revenue with a need to adjust to the rising cost-of-service requirements,” S&P wrote on June 12.