Tensions Rise Over Bill to Alter Water Delivery Policy

Lost in the chaos wrought by the Legislature’s attempt at energy deregulation is the fact that the same body is now considering a major change in how another necessity of life is delivered to the public: water.

It is a dispute only a water wonk could love: How much should a seller--particularly a private company--pay to use a publicly built aqueduct and canal system to ship water to a buyer?

Both sides in the dispute over SB 1029, set for a hearing soon in the state Senate Appropriations Committee, agree that the bill could have a significant impact on the state’s economy and lifestyle, particularly in thirsty but semi-arid Southern California.

The problem is that the two sides disagree on how the bill would work and whether it would solve or exacerbate the state’s water problems.

Officials at the Metropolitan Water District of Southern California, water wholesaler to 16 million in six counties, say that the bill could plunge water into the same kind of disarray as energy.

MWD General Manager Ronald Gastelum says the bill, by curtailing the amount the water district could charge for use of its aqueduct and the rest of its delivery system, could leave the agency without enough money to pay for upkeep and expansion of its storage capacity and infrastructure.

“Not unlike energy deregulation, you could end up with something entirely different than people thought they were going to get,” Gastelum said.

He paints a gloomy scenario where the water district might become like the state’s energy companies: still delivering a commodity but unable to recoup costs and thus left with no funds or incentive to look for new supplies unless customers’ rates are raised.

The bill by state Sen. Don Perata (D-Alameda) would strip the water district of authority to set rates for its “conveyance facilities” and give that power to the State Water Resources Control Board, whose members are appointed by the governor.

Reasonable rates, Perata insists, will lead to a robust market for willing sellers and eager buyers.

With the state facing a downturn in the amount of water available from the Northern California snowpack, Perata said such deals are “an important tool for solving our increasing demand for water supplies.”

“The status quo needs to be changed,” Perata said.

An unsuccessful bill last session by Perata would have bestowed rate-setting power on the Public Utilities Commission. The PUC, however, is now snared in the energy controversy, and this year Perata chose instead the lesser-known water control board.

A major force behind SB 1029 is Northern California-based Western Water Co., a private company that would like to become a major player in arranging water sales, including sales to some of MWD’s best customers.

Michael George, president of Western Water, accuses the water district of attempting to preserve its control over water by setting an exorbitant price for using its system. MWD responds that Western Water is trying to make a bigger profit by keeping its costs low.

A consultant’s report prepared for the Agriculture and Water Resources Committee suggested that the committee “may want to investigate whether this bill sets good water policy for the state or is simply an attempt to use the Legislature to gain a better business position for its sponsor.”

The committee endorsed the bill and forwarded it to the appropriations committee. A second bill, SB 621 by state Sen. Jim Costa (D-Fresno), is also under consideration.

Conflicting Rulings Cloud the Issue

George and others insist that the MWD should only be allowed to charge enough to cover the added expense of moving the water.

The water district says that it should charge not just the “point to point” cost but also for a portion of the massive system’s upkeep and expansion.

The dispute over setting a price--known as a “wheeling rate”--for allowing buyers and sellers to use the MWD system is quickly becoming a perennial in the state’s tempestuous water business.

Three bills failed last session. A lawsuit to clarify the issue ended in a tangle of conflicting rulings.

The issue was a major sticking point in the bid by the San Diego County Water Authority to buy water from the Imperial Irrigation District. The dispute was resolved only through intervention by then-Gov. Pete Wilson, the Legislature, and then-Interior Secretary Bruce Babbitt.

In 1986, the Legislature passed a bill providing that publicly financed water systems--such as the state’s California Aqueduct or MWD’s Colorado River Aqueduct--should be made available to buyers and sellers. That law lacked a clear definition of what constitutes “fair compensation” for using such systems.

Whether that lack has hindered California from developing a water market beneficial to the public, or saved California’s water system from stumbling into a mess like the energy crisis, is in the eye of the beholder.