Professor Steve Erie: Imperial Irrigation District Transfer, Not MWD, Drives Rates in San Diego

Steve, Rodney King may have framed the California Water Wars perfectly: Why can’t the San Diego County Water Authority get along with the Metropolitan Water District of Southern California?

You’re talking about many, many years of history here, and part of it is all wrapped up in a big brother – little brother relationship. San Diego has always felt that LA pulls the strings on things like water, and San Diego gets the raw deal. There’s a good dosage of small town paranoia in San Diego that mighty LA controls its future. It’s certainly played out in terms of water.

The current dispute may have to be settled in the courts with the allegation by San Diego that MWD is overcharging SDCWA by almost $30 million annually. Please summarize the allegations.

San Diego claims MWD’s rate structure, particularly Colorado River Aqueduct wheeling (conveyance) rates for their Imperial Valley water transfer, are too high relative to actual costs. San Diego believes that a “secret society” of LA-area MWD member agencies have conspired to make San Diego pay higher rates. This is nonsense. The so-called “secret society” was formed in 2010 in response to San Diego’s lawsuit. The supposedly injurious rates San Diego complains about were adopted years earlier. San Diego originally agreed to MWD’s wheeling rate in order to secure free Imperial Valley canal lining water. Now that San Diego water rates are skyrocketing, local water officials are claiming foul and desperately trying to reduce their MWD payments. The great irony is that throughout MWD’s history, it has been Los Angeles heavily subsidizing water provision to San Diego, not the other way around.      

Professor Erie, you’ve written in the past that the relationship between MWD and SDCWA soured years ago because of SDCWA’s water transfer deal with the Imperial Irrigation District. Give us insight into this transfer deal’s context. What precisely affected the parties’ working relationship?

People were traumatized in San Diego after the drought of the late 1980s and early 1990s and really felt that they were at the bottom of the spigot, with LA having the superior water rights during times of scarcity. The SDCWA leadership felt they needed to find an independent source of water from MWD and LA, which they believed controlled MWD.  Thus they struck a water transfer deal with the Imperial Irrigation District (IID), which has 75% of California’s Colorado River water allotment. It was a very poor deal with San Diego, an overeager buyer, paying too high a price for water provided by a near-monopoly seller (IID).

The cost of Imperial Valley water was compounded by the transportation issue. You have to use the MWD aqueduct system to get the transfer water from point A, the Imperial Valley, to point B, San Diego. The question is what wheeling price to charge, and that certainly has been a bone of contention between the two. San Diego just wants point-to-point charges, and MWD and most of its member agencies say, “Wait! You’re going to take valuable aqueduct space for your water, which reduces MWD deliveries and thus revenue. MWD has large fixed costs, which now must be paid, on a smaller revenue stream. MWD and its other member agencies want a wheeling rate that includes fixed charges and prevents cost shifting. Wheeling rates have been a major bone of contention.

As noted, San Diego agreed to MWD’s wheeling rate in order to get additional Imperial Valley water. To secure MWD’s $250/acre foot subsidy for local projects like the Carlsbad desalination facility, San Diego agreed not to sue over rates for several years.  Since 2003, when the IID transfer began, San Diego water rates have risen roughly 75%, with further steep hikes in the offing.  The IID water costs more than MWD water and in the future San Diego plans to buy more IID water and less MWD water. San Diego water officials are desperate to head off a ratepayer revolt and unload as many costs as they can. Hence the lawsuit, which could lessen San Diego’s water bill by $3 billion over the life of the water transfer. That bill would be paid by customers in the rest of Southern California. 

Professor, you’ve written at least three respected books about California infrastructure and water. You’re latest book, ‘Paradise Plundered’, set a tone for this interview. Elaborate on the Southern California region’s water disputes.

‘Paradise Plundered’ is about San Diego’s myriad fiscal and governance woes, from the city’s pension scandal to inadequate public services such as fire protection. San Diego’s water challenges are part and parcel of a region that demands public services but doesn’t want to pay for them. I do a lot of primary research, talking to stakeholders and other knowledgeable people and reading a slew of public documents and reports. I’ve talked with water officials here in San Diego and throughout Southern California. ‘Paradise Plundered’ looks at the civic DNA of San Diego, the collective unwillingness to raise taxes to pay for needed public services, to avoid paying the piper today, and to always blame others, particularly LA, for its woes. As ‘Navytown USA’, San Diego had a long history of having others, particularly Uncle Sam, pay for needed infrastructure such as water provision. Old habits are hard to break.    

In terms of San Diego’s water rates, if you look to the future, the major cost drivers are not going to be MWD and the rate machinations of the so-called ‘secret society.’ San Diego’s water rate hikes are being driven by local policy decisions. The first involves the high cost of the Imperial Valley water. Since 2003 the IID cost differential relative to MWD water is $140 million and will continue to grow as San Diego weans itself off of less expensive MWD water in the name of ‘independence’.  

The second local policy cost driver is a long-needed but delayed emergency storage program, such as raising the height of local dams. In the past 7 years, SDCWA’s capital project debt has mushroomed from $864 million to over $2.4 billion. With interest-only debt financing ending and principal payments kicking in, local ratepayers will be experiencing more sticker shock in the name of enhanced reliability. 

A third local cost driver is desalination. With MWD local project subsidies ended because of San Diego legal challenge to MWD’s rate structure, San Diego ratepayers could experience the full high cost of desalination. The SDCWA is negotiating with Poseidon to purchase desalinated water from their Carlsbad facility. This could add another 8-11% increase to local water bills.

San Diego water officials are desperate to reduce the steep price of independence from MWD. As the local chickens come home to roost, they have launched an expensive public relations campaign to blame MWD and LA-area member agencies for their problems. Scapegoating MWD is a popular pastime in San Diego.      

The New York Times recently reported on this water war story; the tone of their coverage illustrated that the San Diego - MWD dispute has increasingly become warlike.

This is far more bitter than the conflicts over the original IID transfer. It’s become very personal for the war hawks at the SDCWA. San Diego has gone to Las Vegas and is betting the farm on the lawsuit. It’s one big roll of the dice, and they’re praying that MWD’s wheeling rate will be substantially lowered. 

The Water Authority has turned a simple business dispute over rates into a crime scene investigation.  They’ve hired an expensive criminal defense attorney in the Bay Area who defended Andy Fastow, the CFO of Enron, to basically use the California Public Records Act and 60,000 public documents to find a vast conspiracy against San Diego. In this huge haystack they have found a few needles, mainly joking emails about a ‘secret society’.  If there is anything to the ‘secret society’, San Diego, by its lawsuit and acrimonious public relations campaign, should be congratulated for creating it. The SDCWA’s legal bills, passed on to unsuspecting ratepayers, have skyrocketed in recent years.

The Water Authority has hired Ace Smith, who was the campaign manager for state Attorney General Kamala Harris. And, surprise of surprises, San Diego’s leading newspaper, long the propaganda arm of the SDCWA war hawks, calls from the Attorney General to investigate the vast conspiracy against San Diego driving up local rates.

San Diego water officials are desperate, looking for a Hail Mary pass to deliver them from rate spikes and local revolt. Water rate hikes are big trouble in a town where taxes and rates are four letter words. Judging from the letters to the editor, local ratepayers are fed up. Hence the lawsuit and demonizing of MWD. What started as a business dispute has turned into a bitter family feud. Some would say it’s verging on fratricide.

Professor, you have also just co-authored, with Greg Freeman, a report for the Los Angeles Economic Development Corporation called, ‘The Cost of Water in San Diego: The IID Water Transfer and SDCWA Water Rates’. Please summarize your findings.

We tried to be as fair and balanced as possible and only used available public documents.  If you look at the period 2003-10, MWD cost increases have been a big driver of San Diego water cost increases. However, local policy decisions have played an underappreciated and increasingly major role. Local conservation measures have raised water bills by 20%. As noted, high-priced IID water is a major cost driver which will only grow in importance. San Diego is not only paying a high price to the farmers, which is growing; it’s also paying substantial mitigation costs, both economic and environmental. And San Diego is paying MWD’s wheeling charges, which it initially agreed to. By 2020, costly IID water will outstrip MWD deliveries. Independence comes at a very high price. 

San Diego water officials are anxious to hide the high price of independence from MWD from ratepayers. The campaign that needs to be waged down here is to educate San Diegans about the true cost of independence. In my mind, and in the minds of many in this community, the costs of independence far exceed the benefits. MWD has been a great partner and water provider to San Diego over the years.   

If we interview you in six months time regarding this water dispute, what will have changed?

Let’s see how the courts rule on the lawsuit. It’s really difficult to understand how you can kick your chief water provider in the shins, or even higher. The Water Authority desperately needs adult supervision. Since the IID transfer, it has been hijacked by the war hawks. What’s critical politically to understand is that the Water Authority is essentially controlled by the City of San Diego because of the weighted vote. The city directors only need a couple of other supportive directors to call the shots. The IID deal was driven the City of San Diego.

The war hawks have replaced and otherwise silenced responsible peacemakers. I’ve interviewed past general counsels and past general managers of the Water Authority before the recent dust up. They were aghast at what was happening. One former general manager said that in his days they were “more MET than MET,” and it worked. In the past there were family squabbles over how to pay for capital projects, over preferential rights (claims to water during scarcity), and the like. LA paid and had the rights. San Diego wanted the rights and didn’t want to pay.

Unfortunately, there will not be peace until the local war hawks are dethroned.  Interestingly, San Diego has a mayor’s race this year, with a likely runoff in November. Because of the clout of the city delegation in the SDCWA, the new mayor’s appointees can dramatically change the personnel and character of regional water policy. I pray that the next mayor replaces the hawks with doves so that we can begin fence mending in the now-polarized Southern California water community. I’m so concerned about recent developments that I’m working on a new book, a sequel to ‘Beyond Chinatown’. The working title is ‘Water War: San Diego’s Assault on the Southern California Water Community’.