Bill Would Strip MWD of Some Rate Control

Legendary water baron William Mulholland liked to say that water is worth whatever it costs to get it.

If the cigar-chomping Irish immigrant whose vision and cunning turned a semiarid outpost into modern Southern California is looking down from that big reservoir in the sky, he might be interested in a dispute simmering among California water warriors.

At issue are the staples of California’s water agonies: water, power and money.

On Tuesday, the dispute will find its way to a legislative hearing in Sacramento. The state Senate Energy, Utilities and Communication Committee will consider a bill designed to strip the Metropolitan Water District of Southern California of the power to decide how much to charge outsiders for shipping water through its maze-like delivery system.

The bill would transfer power to set transfer rates for the MWD system and the California Aqueduct to the state Public Utilities Commission.

SB 1973 by Sen. Don Perata (D-Oakland) is meant to answer the prayers of the MWD’s critics in the Legislature and elsewhere who believe the mega-agency is trying to thwart creation of a water market in California by demanding exorbitant prices for the use of its system.

The MWD opposes the bill--and three others meant to chip away at its authority--as unfair to its customers and harmful to its efforts to promote water conservation.

For more than a decade, state law has called on water agencies to help form a water market between willing sellers and eager buyers as a way to meet the state’s chronic allocation problems. But establishing such a market has been difficult, particularly because of reluctance on the part of the MWD.

Now, however, MWD officials insist that whatever opposition the agency may once have had to the idea of a water market is long past.

Indeed, the MWD is weighing 16 offers from landowners and water agencies in Central and Northern California that answered the MWD’s request for proposals from prospective sellers.

During years of drought or near-drought, the water could be purchased by the MWD to add to the supply of water it sells to its 27 member agencies, which serve 16 million people in six counties.

But its critics charge that the MWD is trying to corner the water market by becoming the only realistic buyer because it controls the distribution system. They say the MWD should act not as a buyer but as a middleman, letting individual agencies cut their own deals with sellers.

The rub is that, under current law, the MWD retains the right to decide how much, for example, to charge San Diego for using its system to buy water from Oroville.

The MWD board--except for its members from San Diego--believes the cost for such an arrangement should cover a portion of maintaining the entire system. To do otherwise, they suggest, is to shift the costs to customers that continue to buy directly from the MWD.

Powerful legislators, prospective sellers and water entrepreneurs say the cost should be pegged at only the additional costs incurred by the individual shipment, which is much lower.

The MWD, they insist, is trying to quash competition by making it too expensive for its member agencies to buy water anywhere but from the MWD, which gets water from the Colorado River and the State Water Project.

“What we’ve got here is the monolithic power of MWD being used to protect its position,” said Michael George, president of the Point Richmond-based Western Water Co., which wants to sell water to Southern California agencies that now buy from the MWD. “MWD is trying to deny customers the benefit of a free market that is threatening to MWD’s dominance.”

MWD General Manager Ronald Gastelum says Western Water wants something for nothing.

“It’s as if we’ve bought a car, paid for its upkeep and insurance and we’re driving around and serving everybody’s needs,” Gastelum said. “Western Water wants to serve the same people, but they only want to pay for the gas in the car.”

Board members of the San Diego County Water Authority, the MWD’s largest and unhappiest customer, are convinced that the Public Utilities Commission will be more reasonable in setting rates.

“Anything would be better than what MWD would do,” said board member Francesca Krauel.

Brent Haddad, assistant professor of environmental studies at UC Santa Cruz and author of “Rivers of Gold: Designing Markets to Allocate Water in California,” said there is merit in the MWD’s request that transfer fees be high enough to defray some overall costs.

“That’s a fair request and if you’re going to override that request, you really need a compelling public policy reason to do so,” Haddad said.