MWD’s Cup Runneth Over : Government: The water district has nearly $1 billion in reserves. It should make refunds.

Money and water are in short supply these days. California’s projected budget deficit is more than $12 billion. Water conservation programs are widespread.

The Metropolitan Water District, Southern California’s major water wholesaler, is short of water, but it doesn’t lack for money. Indeed, the MWD is hoarding cash. It has nearly $1 billion in reserves.

The MWD was created by state statute to acquire and distribute water to Southern California. It sells the water to cities and municipal water districts; they, in turn, market to private water utilities and users. The agency imposes property taxes and sets its own water rates. Because the MWD is a public agency, it’s easy to believe that its rates will be the minimum necessary to provide water. Think again.

Through property taxes and water sales, the MWD annually takes in $100 million more than it spends. As a result, its cash reserves have exploded, from roughly $200 million in 1984 to nearly $1 billion last year, enough to cover three years of operating expenses. Put another way, the MWD holds the equivalent of $70 for every man, woman and child it serves.

How could this happen? After all, the MWD’s water rates haven’t changed much since 1985.

The answer, ironically, is because it rained too much in 1983.

Much of the MWD’s cost is for the dams and canals that store and move the water to customers. Since these costs are fixed, water rates tend to rise when sales decline. Accordingly, the heavy rainfall in 1983 produced fewer sales and a 33% rate hike. But in succeeding years, when water sales rebounded, the rates didn’t correspondingly decrease.

Thus the MWD’s net income soared, to more than $200 million in 1984; reserves nearly doubled, to almost $500 million. Since then, water sales have dramatically increased. Because the MWD’s costs don’t change much with volume, the extra sales have translated into more net income--without rate increases.

Is $1 billion in reserves necessary and prudent?

The only plausible justification is that the money is necessary for future construction programs, ensuring compliance with water-quality standards and maintaining supplies.

But the MWD doesn’t show any planned increases in construction spending until mid-1993. Furthermore, the projected costs of the state water project, the MWD’s major annual expense, are increasing at a relatively moderate rate.

There is no indication, then, that the MWD’s current construction program requires $1 billion. Even if it did, bonds would be the more prudent financing method. Bonds not only minimize the cost to taxpayers and customers; they also are more fair because their cost is spread out over the life of the facilities.

If the MWD were a water company regulated by the Public Utilities Commission, as many water retailers are, rate cuts and refunds would have occurred long ago. The fact that the agency isn’t regulated shouldn’t protect it from returning its reserves to those responsible for creating them--the taxpayers and ratepayers.