In the midst of California’s fourth year of drought, cities and water districts are starting to get tougher on both individual water wasters and cities that are not reaching state-mandated water reduction targets. In late October, the East Bay Municipal Utilities District outside of San Francisco released the names and data of the top-100 water wasters in the District. The list includes venture capitalists, business executives and even former and current baseball and basketball stars. The top water waster identified was Chevron executive George Kirkland, who used an average of 12,579 gallons per day. Extrapolating that water usage to a monthly basis (assuming 30 days in a month), Kirkland was on pace to use more than one acre-foot per month, more than an average California household uses in an entire year!

Across Southern California, the State Water Resources Control Board fined four Southern California cities $61,000 each for not meeting the state-mandated usage reduction goals. Beverly Hills, Indio, Redlands and the Coachella Valley Water District received these fines for missing the state mandated targets. But despite the front page headlines, the cities and individuals facing fines are not significantly worse off financially after the fines. The penalties for cities missing the state-mandated targets is $500 per day. In the East Bay Municipal Utilities District, water users are penalized $2 for every unit of water consumed over 80 units (each unit is 100 cubic feet, or 748 gallons) in a 60-day billing cycle, likely a pittance for well-to-do business executives that top the water wasters list.

On November 2, Marta L. Weismann wrote a post about how water conservation can cause unintended negative consequences including potential revenue shortfalls for water districts. The drought conditions have exacerbated these issues and have shown that water supplies don’t always go to the places with highest demand, especially during times of drought. But are there ways that California can streamline getting water to places and end users that need it most? In this post, I will discuss the challenges that water agencies face in financial planning for current and future water needs and why these challenges occur. In my next piece, I will discuss the potential solutions that California could implement to alleviate these challenges.

Perverse Incentives for Conserving Water

When Governor Jerry Brown issued an Executive Order in April mandating statewide water use restrictions, California immediately created challenges for water districts to create enough revenue to cover costs. A water system by its nature is a capital-intensive investment. Significant infrastructure such as pipelines, storage tanks, wells and pumps must be constructed and maintained over the life of the system. To pay for this infrastructure, water districts make a series of long-term assumptions about how much water customers will use, and if the district is in a growth area, how much new development will occur (and therefore new customers will contribute to the district’s revenues). An unplanned cutback in water usage or a slowdown in new construction has negative consequences on cash flows of a water district, and may put financial strains on the utility.

A water district’s primary source of revenue comes from its users, but districts’ revenue streams are currently under pressure for a variety of reasons. First as I mentioned, mandatory water conservation means less than projected water sales for a district, and therefore less revenue. Rob McDonald at The Nature Conservancy estimates that California municipal water districts’ revenue will drop by as much as $600 million this year due to the mandatory water restrictions. Second, and rather ironically, some water districts will be forced to raise water rates to make up for revenue shortfalls because we have conserved water too well. The Los Angeles Times reported in late October that the LA Department of Water and Power plans to add a “pass-through charge” that will require customers to pay about $1.80 a month more than they currently pay for water service. The reason? LA DWP fell approximately $111 million short of revenue projections because its customers conserved more water than the Department planned. It has no other way of recouping this money to pay for necessary repairs and infrastructure without raising rates. It is a vicious cycle, and does not promote further water conservation.

Some areas have water, but it doesn’t always go to the places that need it most

There is no doubt that California is in the midst of a severe drought, and that the negative effects of the drought are far-reaching. But it is not accurate to say that all areas of the state are suffering equally. The state’s cities and irrigation districts receive water from a variety of sources, and the drought has not affected each one of these sources equally. Further, the priority system of California’s water rights have highlighted the “haves” and the “have nots” in terms of water supplies. For example, farmers with rights to Central Valley Project water have not received supplies from the system for the last two years. Some farmers that rely on water from the Friant-Kern Canal worry that even with significant rains this winter, the Bureau of Reclamation will be conservative in the supplies they grant to farmers.

Other areas of the state have experienced no cutbacks in water supplies.  Bloomberg reports that farmers in the Imperial Irrigation District (IID) in Southeastern California have not experienced cutbacks in water supplies despite the drought. IID has court-affirmed water rights from the Colorado River, and these rights have not been curtailed. Further, because of California’s seniority in rights along the Lower Colorado River Basin, neighboring Arizona would be the first to experience cutbacks. (For more information on why Arizona’s Colorado River rights are junior to California’s, please see the post I wrote about this topic earlier this year.)

The fact that water is relatively abundant in some places and non-existent in others highlights a major challenge that California faces – that water does not always go to the places and uses that need it the most, especially in times of drought.

The hold-ups to transfer water efficiently in California

There are a few reasons why California does not currently have an efficient way to transfer water to the places and uses that need it the most. First, California’s water rights system is exceedingly complex and does not currently lend itself to efficient transfers. Water could come from surface water rights, (which both the State Department of Water Resources and the US Bureau of Reclamation have jurisdiction over, depending on which system the water rights originate from) groundwater rights, reclaimed water or even from desalination plants that are coming online. There is no one central clearinghouse to match willing sellers who have excess water and willing buyers who need excess water.

Second, the regulatory environment in the state causes slowdowns in delivering much needed water projects. A myriad of environmental hurdles including the California Environmental Quality Act (CEQA), Federal Clean Water Act and takings permits as well as the lawsuits that generally accompany large water projects all contribute to major slowdowns in project approval. For example, the Carlsbad Desalination Plant took 17 years after the developers initiated feasibility studies to receive final permits and court decisions to proceed on construction.  Last month, The Journal of Water  wrote an interesting piece on the myriad of legal challenges to the Cadiz project, a water storage and transfer project in San Bernardino County that has been winding its way through regulatory approvals and lawsuits since the 1980s. Recently, a group of Southern California water districts including the Metropolitan Water District of Southern California has entered into negotiations to purchase the Delta Wetlands properties, a water storage project in the Delta that has been winding through the approval process for approximately 25 years. Neither the Cadiz Project nor the Delta Wetlands Project currently has all of the necessary permits to move forward on construction.

Regardless of your opinion of the water projects mentioned (and opinions vary wildly on the validity of these projects), one thing is clear – each of these projects have taken decades to process through the environmental and legal reviews that California’s laws necessitate. And while the projects slog through regulatory approvals, Californians still must make due with the limited water supplies we have stored in our current water system.  In my next post, I will look at some solutions California could implement to help transfer water more efficiently and bring viable projects to the construction phase more efficiently.