Metropolitan Water District Leases Reveal Increasing Price for Reliable Water Supplies

In an effort to improve water supply reliability for 2015, the Metropolitan Water District of Southern California (“Metropolitan”) Board of Directors authorized the General Manager to enter into one-year agreements to acquire up to 100,000 AF from various Sacramento Valley water districts and to secure storage and conveyance agreements with the Department of Water Resources (“DWR”) and the districts to facilitate the transfers.

For the water, Metropolitan will pay $700/AF at the seller’s point of delivery—or $875/AF after accounting for a Delta carriage loss of 20%.  Payments are scheduled so that 50% will be paid on April 30, 40% on July 1 and the remaining 10% after DWR confirms the transfer amount.  Metropolitan will also pay DWR’s $10/AF administrative fee as required for use of storage and conveyance facilities needed to facilitate the transfer.  Under these payment terms, Metropolitan’s total expenditure for the water and conveyance would range from $42 million (for a minimum volume of 60,000 AF) to $71 million.  In addition, Metropolitan has paid each seller a $50,000 non-refundable administrative fee from an expenditure authorized in January.

If the sellers’ water supplies are reduced or curtailed, those making water available through land idling will make no transfer water available, while those that are using reservoir releases and groundwater substitution may reduce deliveries.  However, Metropolitan is paying only for the water provided, with provisions governing refunds should sellers receive payments for water that is not provided.

Last year, agricultural water provided by Sacramento River Settlement Contractors leased at $500/AF.  (For more, see “California Agricultural Water Prices Pressured by Limited Supplies In 2014,” JOW, February 2015).

Late reports indicate that curtailments and reduced project deliveries are driving sellers to back out of the deal.  Metropolitan Assistant General Manager Roger Patterson told the Sacramento Bee that the district is now expecting to get only about 20% of the water it was seeking under the deal.  In an earlier post on his blog, which was published when the transaction was still in play, Metropolitan’s General Manager Jeffrey Kightlinger noted that the transfers would make up about 5% of Metropolitan’s deliveries and would account for about 2% of total demand in Southern California.  So losing the deal is not a detrimental blow to Metropolitan, but according to Kightlinger, “It is going to make it tougher.”

 

Written by Marta L. Weismann