MWD Board Adopts Rate Increase of $30 per acre-foot in 2008 for Wholesale Urban and Ag

Metropolitan Water District’s Board of Directors adopted a $30 per acre-foot rate increase for 2008 at April’s board meeting.  This increase, which is $5 per acre-foot less than the staff recommendation, is driven by power costs, operations and maintenance costs associated with labor contracts, increases in chemicals for treatment and the district's capital improvement program (CIP).  We presume that retailers will pass the rate increases along directly to end users.  Some local water systems will add their own increases to this.

Earlier last year MWD staff had reported to the board that rate increases "in the future" would be in the 3-5 percent range. Metropolitan Water District staff at January's Board of Directors' meeting recommended a wholesale water rate increase of $35 for both Ag and urban water to be effective January 1, 2008 and similar increases for 2009 and 2010.  The first year increase would have raised wholesale Interim Agricultural Water Program rates from $364 to $399 an acre-foot.

However, Metropolitan's board delayed for one month a decision on how much the increase would be once it was approved.  Individual board members directed staff to return in February with an analysis of what the impact would be if the increase for 2008 is "only" $30. To make this lower rate increase feasible, it was suggested that the amount of R&R funding from rates be reduced by below the board policy of $95 million per year.

As requested, MWD staff provided the board with an option for a $30 per acre-feet rate increase made possible by a $10 million per year reduction in the amount of R&R funding from rates. The board voted to adopt this option at its April meeting.  As a result of this lower rate increase, the amount of debt necessary to fund the CIP will increase by over $40 million; hence, rates will have to increase more in the future to recover the additional debt service. The option includes 6 percent overall rate increases per year in 2009 and 2010, so anticipate these additional increases.

By way of background, for the current fiscal year (even though rates are set for calendar years) MWD's expenditures are projected to be $1.202 billion while income is projected at $1.156 billion.  The difference will come from reserves.  These numbers are based on anticipated water sales of 2.175 million acre-feet.  Greater water sales would reduce the deficit.

Table 1:  Projected High Rate Increases

 
Table 2:  Projected Low Rate Increases

• 2006 Rate Structure
  
  
  

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