Prop. 18 Water Bond Another Victim of State Financial Crisis

We last interviewed you for MIR in March of 2007, after you had assumed leadership of the MWD Board of Directors. At the time you said, "I think we are entering an era in which a lot can get done. This is a time for leadership to provide solutions to a lot of the problems that have dogged us for many decades. I think that there has been a convergence of forces-at the state level, here at Metropolitan, and even at the federal level-that has created conditions for substantial progress." Were you correct?

Absolutely. We got a lot done in the Legislature last year and have made substantial progress in addressing the challenges that face us. The major package of legislation approved last November contains very important elements for moving water policy forward in California with regard to the Bay Delta and other aspects.

It was the first time in many decades that a bipartisan consensus was achieved in Sacramento, and the only reason that occurred is because there was a lot of groundwork done throughout the state to demonstrate the importance of coming together for solutions for the future of California. We were very pleased with the approved legislative package. We are anxious to move ahead with the bond issue, but the financial situation got in the way of that. We are looking forward to maintaining that momentum in the next two years so that we can complete a lot of that important work, particularly with regard to the Bay Delta and the State Water Project through the Bay Delta Conservation Plan. Hopefully in November of 2012, the voters will pass a bond issue to provide financial resources to accomplish many of the layers of that plan.

One of the regional challenges that existed back in 2007 seems to have persisted. The San Diego County Water Authority, MWD's largest customer, recently sued to invalidate MWD's current rate structure. What factors motivate this controversy, and how will this litigation ultimately be resolved?

San Diego has remained consistent with regard to the issues involved in the lawsuit. They object to elements of our stewardship charge being included in the cost to transport their water from the Imperial Irrigation District into San Diego County through our system. They brought a prior lawsuit on this seven or eight years ago, which they lost. They brought some slightly different issues this time, but the argument is basically the same. At Metropolitan, we have 26 member agencies. San Diego is the only agency taking that position. We understand their concern and issues, but we are confident that the court will make the decision that is best for all of Southern California.

MWD has been a leader in encouraging conservation of water resources, particularly with the continuing drought on the Colorado River Basin and several years of physical and judicial challenge for the State Water Project. MWD has made some significant investments in storage, but it seems that the results are higher and higher water rates for less and less water. Is that a fair characterization?

We have gone through a period of very dry years. Some experts think that that dryness is going to continue into the future. We have had 12 years of drought conditions on the Colorado River. The last ten years have been the ten driest years on record on the Colorado River. The State Water Project has been hit by dry conditions that have been aggravated by pumping restrictions imposed by a federal judge to provide protections to endangered fish in the Bay Delta system. The result of all of that is that our water is more expensive. That's a large part of the reason that we have had substantial rate increases.

We are in a very difficult economic period. It is necessary to make investments in new facilities for the future to change the way we use water to emphasize even more conservation in the future-more recycling and better management of groundwater resources and our other supplies. We are pleased that the legislation package approved last November included a bill that we co-sponsored with the Natural Resources Defense Council to reduce the per capita consumption of water 20 percent by the year 2020. This is a program that Governor Schwarzenegger encouraged, and we pushed it through as part of the package. We're committed to achieving that 20 percent reduction in per capita consumption in Southern California. The way that consumers in Southern California have responded in recent years has been remarkable. We have seen a substantial decrease in per capita consumption. The population of Los Angeles has increased by 1 million people in the last 25 years, but we are using the same amount of water. That pattern has continued. The last three or four years residents and businesses have continued that pattern of using less water; everybody is pitching in and doing a great job.

In the last two years, we have implemented a supply allocation program, in which we have said to our member agencies that if they want to use more than 90 percent of their historical use, they are going to have to pay substantial fees. Basically that represents a 10 percent curtailment. Every agency has conformed to that. Every agency has done better than a 10 percent cut. That is a remarkable testament to the good sense and good will of the consumers in Southern California and the effectiveness of the education program that water utilities throughout Southern California have put into effect.

Can you elaborate on the types of investments MWD and its member agencies are making in water? Are you getting the best possible results from these investments?

We have long understood the critical role that water plays in creating an economic base for Southern California. In this era, we recognize the ways that water agencies can prime the pump in terms of the development of new technology. We're seeing more of that kind of investment. In the energy area, for 35 years, since the beginning of the Energy Commission and the massive move toward energy conservation in the mid-1970s, California has been investing millions of dollars each year in energy efficiency. The electric utility is working through the Electric Power Research Institute and other industry vehicles, making a substantial amount of investment into the development of new technology to solve things for the future. Only in recent years have we really seen that kind of focused investment in the area of water and I think we need to see more of that in the future.

Metropolitan has played a role in the past with regard to a variety of subsidies for the development of innovative conservation programs. We provide a $250-an-acre-foot subsidy for innovative new technology. That has led to products, such as the water broom and spray nozzles for dishwashers, and processes for recycling water, x-ray technology, and things like that, which have been beneficial. But there is a lot more that can be done in terms of investment into technology. With regard to desal in particular, About eight or ten years ago, Metropolitan contracted with our five largest member agencies to provide a $250-an-acre-foot subsidy for the price of any desalinated water that they would develop. To this point, we don't have any finalized signed contracts. Although we have authorized the contract with the Poseidon Plant in Carlsbad, we still don't have a signed contract with Carlsbad and the Poseidon Project. We are now completing our Integrated Resources Plan, which is a very important step forward toward meeting Southern California's water supply in a reliable way and is creating the basis for new partnerships. I am not sure if we will continue to offer subsidies in the same way that we have in the past. We have that same kind of $250 subsidy for recycling programs. We may decide to take an approach in which we look at our contribution to the development of new technology more as an investment, where we either get equity in the project, equity in the technology being developed, or products coming out of it, such as water.

The water bond that was recently removed from the November ballot was a critical piece of financing, with co-equal goals of environmental restoration and water supply reliability. The bond was only intended to pay for a portion of the infrastructure; the majority of the infrastructure investment was to be paid by users. Talk about that principle of users paying for benefits received and how that plays out for Southern California.

We believe in that principle-users should pay for the facilities. We are ready to pay for the facilities that will improve the water reliability in the Bay Delta ecosystem. You are correct that the major infrastructure improvement in the Bay Delta system was not included in the bond issue itself. The optimal approach is being developed through the Bay Delta Conservation Plan. We expect that by mid-2011 we are going to see some clarity in terms of solutions. We believe it will be some sort of facility-either a canal or an aqueduct that skirts the eastern part of the Delta or a tunnel that goes underneath the Delta. We expect that the facility will cost somewhere in the range of $10-$12 billion, and we are ready to pay our share. We have it in our financial projections for the future, and it is a critical investment in the reliability of water supply for Southern California.

The Bay Delta system is not only subject to environmental collapse, which has already occurred with regard to some of the key species-the salmon and the Delta Smelt, an indicator species for other fish and wildlife in the Delta-it is also subject to earthquake and other kinds of natural disasters that could knock out the state's water system for 25 million Californians. We must do everything we can in order to move quickly and ensure that such a catastrophe does not hit the state of California because it will be an economic catastrophe as well as a water supply catastrophe.

Aside from the infrastructure challenges that you just shared, there were other parts of the water bond legislative package that affected quality, liability, and cost of Southern California's future supply.

There is a substantial amount of funding for recycling programs throughout California. Southern California in particular will benefit from those programs. There is a lot of money in there for conservation-broadly defined. Some of the funding will go toward the environmental restoration of the Bay Delta system itself. The big program of fixing the Bay Delta ecosystem is likely to involve 80,000 acres of habitat restoration. A substantial amount of money will go to solutions like that. There is $3 billion in a storage program, which could go either to surface storage or groundwater storage. That has probably been the most contentious element of the whole package. Toward the end, the consensus agreement was achieved between the legislators that the money could be for either surface or groundwater storage.

The user will pay for a 50 percent of the cost of the dams and reservoirs associated with surface storage. That was a significant concern a lot of the legislators had about that program. As I stated before, Metropolitan is firmly committed to the principle of user pays, and we're ready to pay for the facilities that will provide for reliability in Southern California in the future.

WEB EXCLUSIVE

MWD has significant subsidies to encourage its members to diversify their water resources and reduce their dependence on imported sources. Among the subsidized local projects are desalinization projects in Carlsbad, Huntington Beach, and Long Beach. In light of the significant energy requirements for desal, is desal a wise long-term investment for state investing in reducing its carbon footprint?

We need to make a commitment to desal and the development of the technology. We need to solve the energy problem. That is one of the things we have learned from Australia. In Australia, every major city is pursuing desal. Most of them are linking desal with renewable energy. In Perth, for instance, in Western Australia, a wind farm that is about 100 miles away generates all of the power for the plant. That is a good solution. There are technical breakthroughs occurring fairly regularly with regard to the energy consumption associated with desal. Most people don't realize that pumping water is very energy intensive as well. Desalination, as energy intensive as it is, only requires a little bit more energy than pumping water from the State Water Project into Southern California-on the order of 20 percent more energy. With advancements in technology, combined with the use of renewable resources, we can deal with the energy issues.

You have been leading MWD to interface with other countries and regions around the world struggling with the same water supply issues, for example Australia, Canada, and others. Can you talk about the information exchange that currently is going on with other jurisdictions and sub-national regions around the world?

It is fascinating to see that the problems that dog us are really global problems. There are other countries that have a lot of lessons for us, and we have a lot of lessons for them. There has been a very effective exchange going on, with Australia in particular. Australia has had a 15-year drought and has moved very decisively to restructure the water industry there, to change the governance, to establish more market mechanisms for the transfer of water, and to move to new technology, particularly a massive commitment to desalination. It has been very impressive how quickly they have been able to move and how decisive they have been about implementing new governance, market reforms, and technology.

We are also very pleased to be working with water officials from the Israeli Embassy and Consulate on a major program at Metropolitan in October. We are going to have a two-day conference to discuss Israeli innovations in water management. They have really been remarkable in many ways, particularly with regard to the use of recycled water and desalination.

We had a terrific technology conference here a few weeks ago that was sponsored by the government of Ontario, Canada. They have a lot of water there, so they have different kinds of water problems than ours. They have been real champions of the development of new technology, ozone treatment, desalination, and other water quality technology. It was really exciting to see the representative from the government of Ontario come to Los Angeles talking about how we can work together more effectively for the future. This kind of exchange is very important to make sure that we're using the best solutions and learning from those who have gone through similar situations all around the world and have determined the best solutions for the problems that we face.

Let's close by focusing on your representation of Pasadena, one of the founding members MWD. What is Pasadena doing to integrate its groundwater basin with MWD sources? How does Pasadena's integrated water resource planning compare with similar plans by the cities of Los Angeles and San Diego?

Pasadena is actively engaged in a water integrated resources plan that is going to emphasize conservation. It has become clear through that study that this is the cheapest and most effective resolution. Pasadena has a special problem because of the contamination of its groundwater basin, mostly coming from perchlorate that is 50 years old or more, from rocket testing that occurred in the Arroyo Seco. That perchlorate has led to the closing of ten of Pasadena's 15 wells, which has handicapped Pasadena in terms of groundwater management.

As a result, there has been a significant overdraft in the groundwater basin in recent years. The Raymond Basin is the groundwater basin beneath Pasadena, and it feeds other cities in that region. The pumpers in the upper part of the Raymond Basin have had to agree to cut back on their pumping. They are now on a program of reducing their pumping each year by 5 percent until they reach a 30 percent reduction in their extractions from the Raymond Basin. That is necessary to ensure that the water levels don't continue to fall. Ultimately, the solution will be a replenishment program to put water into the basin and other programs that ensure that our water is wisely managed. Every agency in Southern California is looking to the future for how they can reemphasize and better utilize local resources. Pasadena is finally leaning toward recycling. It hasn't had any recycling until now, but it is now moving toward implementing recycling.

Los Angeles' program is ambitious. Mayor Villaraigosa has a program that is going to move Los Angeles into recycling in the future although they haven't done a lot in the past. There are very important steps being taken in order to emphasize conservation in Los Angeles.

San Diego has a very ambitious program, in addition to their transfers with the Imperial Irrigation District and their program of assisting with the lining of the All American Canal in the Coachella Valley. They have a variety of other options that will give them some independence or new supplies. They are looking avidly at desalination facilities. They are in negotiations with Poseidon with regard to the Carlsbad plant and designing a water purchase agreement-basically to take over the responsibility that the nine agencies in Northern San Diego County had previously established. They are also looking at other desalination opportunities in Baja California and Camp Pendleton. San Diego is very aggressively pursuing options that will enable a more secure and reliable water supply.