New Revenues, Budget Cuts Trim Wholesale Rate Increase for 2025

New Revenues, Budget Cuts Trim Wholesale Rate Increase for 2025

July 25, 2024

Increase up to 14% approved for 2025 after more cost cutting

Federal grant funds, an innovative water transfer, and operating budget cuts helped minimize wholesale water rate increases for 2025 despite long-lasting inflationary forces and climate impacts that are pushing prices higher.

The San Diego County Water Authority's Board of Directors today approved a total increase of 14% in wholesale water rates for next year, while directing a one-year delay on a $7 million capital project and $2 million in additional cuts to the agency's operating budget. That rate combines the Board-approved increase in June that covered rising prices from the Metropolitan Water District of Southern California with an additional increase to pay for other water supplies, along with financial and infrastructure needs.

During a months-long public process that included two public hearings, the Water Authority cut initial rate increase projections in half. That work included a decision by the Board to apply approximately $19.4 million in new federal grant money to lower 2025 rates. In addition, a new pilot program allows retail water agencies to trim about 1.5 percentage points from next year's bill by prepaying fixed costs. For participating agencies, this will reduce the 2025 effective rate increase from 14% to 12.5%.

Every customer will feel the impact differently, based on their water use and how local retail water agencies handle costs.

"We realize cost increases are hard to swallow, and we are doing everything possible to combat rate inflation now and in the future. Our efforts include cutting expenses, deferring projects and purchases, selling surplus water, and seeking additional grant funds to boost income."

Dan Denham, Water Authority General Manager

The 2025 rates are driven by passthrough costs that increase Water Authority rates 11% before accounting for internal factors. Passthroughs include the cost of water from all sources: Metropolitan, the Claude "Bud" Lewis Carlsbad Desalination Plant, and conserved water from the Colorado River. In addition, prices are driven by higher costs for inputs and the impacts of two member agencies detaching from the Water Authority. The detachment of the Fallbrook and Rainbow districts means millions of dollars in costs must be spread to other water districts in the Water Authority's service area.

Internal factors account for a 3% increase in wholesale water rates, needed to meet debt obligations bound by legal covenants and adequately maintain the 308-mile system of critical pipes, pumps and facilities delivering reliable water to more than 3 million San Diegans. To mitigate rate increases, the Water Authority had previously cut 2% from its fiscal years 2024 and 2025 operating departments budget previously approved by the Board - a figure that will increase by $2 million in response to today's Board direction. The operating departments include all staff and account for just 7% of the agency's overall budget. More than 90% of the budget is for debt, water purchases and treatment, and infrastructure maintenance.

In December, the Water Authority saved $20 million with an innovative water transfer with the Metropolitan Water District of Southern California and the Imperial Irrigation District, contributing to a 3% reduction in 2025 rates. The Water Authority continues to pursue similar, new strategies to alleviate costs to ratepayers in the future.

From 2019 to 2023 the Water Authority spent $201 million in reserves, including more than $90 million in settlement dollars, to provide ratepayer relief during the COVID-19 pandemic, stubbornly high unemployment, and skyrocketing inflation. With the use of additional reserves in 2025, the Water Authority's Rate Stabilization Fund is anticipated to fall nearly $30 million below Board policy.

For the past decade, San Diego County has been protected from drought-induced water cutbacks due to approximately $3 billion in long-term investments in water security. That strategy emerged in the early 1990s following an economically devastating drought. In addition, the region dramatically cut water demand, reducing per capita water use by more than 50% since 1990.

As a public water agency, the Water Authority doesn't have stockholders or profits; it is required by law to set rates at the cost of service. Detailed information about rates starts on page 5 of the July Board memo.

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