MWD Eyes Possible Effects of Competition

Even as Californians feel the pain of energy deregulation, the mammoth Metropolitan Water District on Monday launched discussions about what similar steps would do to the water industry.

“I think the energy deregulation in San Diego was a real wake-up call,” Ronald Gastelum, MWD general manager, said about soaring electricity rates this summer in that city. “The directors asked, ‘Is that going to affect water too?’ ”

To figure that out, MWD board members began debating a study titled “Deregulation! Impacts on the Water Industry,” which raised a series of questions for the industry, lawmakers and public to answer before changing the current system.

“You need to ask if the benefits will be there,” said Janice Beecher, coauthor of the report that looked at water deregulation across the country. “Can somebody show you that they can do it for cheaper?”

The MWD owns and controls a web-like water delivery system that brings 1.7 billion gallons a day to Los Angeles and surrounding counties from the Colorado River and Northern California.

The current debate in water circles throughout the state is who should control this system. The report, sponsored by the American Water Works Assn. and discussed Monday, did not address that issue or the particulars of water usage in Southern California, where colossal waterworks have allowed lush suburbs to grow in a naturally arid landscape.

However, it cited some of the general differences between the water industry and other utilities undergoing deregulation. The key, it said, is that the survival of all residents depends on reliable water.

It also said that while all electricity is the same after it is transmitted, water varies in quality depending on the source and treatment techniques.

The report also underscored the fact that no major new technology has entered the water business to prompt a transformation of the vast infrastructure--as has happened with telecommunications and power.

Those conclusions prompted one MWD board member to remark: “We’re still stuck with this heavy, incompressible product that needs to be piped pretty much the same way the Romans did it.”

While the centerpiece of Monday’s discussion was the concept of deregulation, most of the debate veered off onto current attempts to restructure how water is delivered to 17 million consumers in Southern California.

Opponents of the MWD--including some key politicians, smaller water agencies and several private companies seeking to enter the water business--are fighting for some control of the agency’s delivery system. If they succeed, they could essentially crack the 72-year-old institution’s historic monopoly on the region’s water supply.

The Legislature is debating the issue, including whether to strip the MWD of its power to set the price for any outsider water suppliers that use its pipelines. Those suppliers say the MWD will charge exorbitant rates to keep the market closed.

But MWD officials said Monday that opening up the agency’s delivery system would give private companies a competitive advantage by allowing them to use it without paying for its upkeep and expansion, as do the current 27 member districts that comprise the MWD.

“That’s a real concern,” Beecher said.

In effect, a change could mean regulation of what has been an essentially unregulated agency. But like the state’s power industry, it would also mean the introduction of competition to a previously closed market.

Some board members Monday took issue with the word “deregulation” when discussing the future of the water industry.

“We say don’t deregulate water,” board member Jim Turner of San Diego protested. “Well, water isn’t regulated in California.”