San Diego County’s wholesale water rates, a significant factor influencing the water bills for residents and businesses, are projected to rise less than previously anticipated for the upcoming year.
On Thursday, county water officials announced a reduction in the projected wholesale water rate increase for next year from 18% to 12%.
This adjustment is primarily attributed to an expected surge in water sales to local agencies over the next three years.
The increase in sales projections is partially driven by a notably dry winter and spring.
This dry spell has heightened the demand for irrigation water from farmers and homeowners with larger lawns, prompting local agencies to revise their water needs.
As a result, the anticipated demand from member agencies has risen approximately 10% from earlier estimates, increasing from 300,000 acre-feet to 327,000 acre-feet for next year.
Looking ahead to 2027 and 2028, demand is expected to remain elevated due to depleted local reservoirs that had benefitted from previous rainy winters in 2023 and 2024, according to water authority officials.
Pierce Rossum, the authority’s rate and debt manager, explained that the adjustment of the projected rate hike down to 12% was primarily driven by this increased demand.
Member agencies, which recently submitted projections of their water purchases over the next three years, anticipate a 6% rise in demand for 2026.
This forecast contrasts sharply with 2024, which saw a 15% decline in water sales that contributed to a budget crisis for the authority.
In response to last year’s crisis, officials initially proposed a substantial rate hike range of 16% to 22%.
However, following strong advocacy from San Diego city officials, the board settled on a 14% increase.
The current board’s proposed range for potential rate increases is significantly lower, now set between 7% and 14%.
Rossum indicated that while the estimate currently stands at 12%, these figures will undergo further refinement and review before a formal rate hike proposal is presented to the board on May 22.
The board is slated to finalize the rate increase for 2026 on June 26, which would take effect on January 1.
Once the new rates are implemented, nearly all local water agencies will likely have to pass those increased costs on to their customers.
However, the extent of that pass-through may vary, as some agencies purchase less wholesale water due to local water supplies or groundwater basins.
Others may have already incorporated anticipated water authority rate increases into their existing rates.
Rossum pointed out that the higher sales forecasts significantly impact the authority’s rate structure since it is positioned near the break-even point with its water purchases and sales.
This obligation to purchase more water than necessary under long-term contracts results in increased costs, as the authority must store surplus water without corresponding revenue from those purchases.
He noted that this imbalance leads to considerable financial strain, stating, “We are right at that kind of precipice, so you do see these wild swings in the rates.”
Sales of water constitute nearly 90% of the authority’s annual budget, underscoring its importance to financial stability.
Despite the favorable rise in sales projections, rate increases remain inevitable due to inflation, employee pay raises, escalating costs from the Metropolitan Water District, and plans to sell bonds to secure $285 million for infrastructure projects.
On a more promising note, rates could potentially decrease next year if General Manager Dan Denham successfully negotiates agreements to offload excess water supply to agencies beyond San Diego County.
Denham revealed that discussions are being held with interested parties in Southern California and elsewhere regarding the sale of drought-resistant desalinated seawater from Carlsbad.
Additionally, there is potential for leasing water to an Arizona agency, utilizing the Colorado River for delivery.
However, he cautioned that such negotiations could take considerable time due to the complexities surrounding water law.
While details of these talks remain undisclosed, Denham expressed optimism, “It’s fair to say there is significant interest in buying some of our drought-resilient water — and that’s welcome news for San Diego County ratepayers.”
Nonetheless, not everything is looking positive as water authority’s current projections maintain its rate stabilization fund at a minimal $79 million, which could limit its ability to manage rate hikes during future crises.
Furthermore, the authority’s cash flow is operating at a bare minimum of 150 days, while its capital improvement budget sits at a moderate-risk level, leading to delays in essential infrastructure projects.
Officials attribute the root challenges to the authority’s development of a larger water storage and delivery system than necessary, a situation that arose from anticipating continued growth in county population and expansion.
For the last two decades, however, member agencies have been consistently purchasing lesser amounts of water from wholesale sources.
Nonetheless, board member Jim Madaffer, representing the city of San Diego, offered a more optimistic perspective on the situation.
He emphasized that the authority had constructed infrastructure capable of withstanding drought conditions, which positions it uniquely in a state prone to water shortages.
Madaffer further remarked, “You can’t fix a 40-year trajectory in one or two budget cycles,” emphasizing the need for a long-term strategy to overcome these existing challenges.
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