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Water Rate Increases May Dry Up Profits

CP Kelco is one of the region’s water-use-intensive businesses that will feel more than a pinch from the San Diego County Water Authority board of directors’ recent decision to raise water rates by almost 10 percent.

Beginning Jan. 1, the CWA will charge $1,003 per acre-foot of untreated water, up $88 per acre-foot, or 9.6 percent above the current rate. The treated water rate for 2013 will be $1,259 per acre-foot, up $111 per acre-foot, or 9.7 percent more.

An acre-foot is about 325,900 gallons, enough to meet the needs of two average single-family households of four people for a year, according to the CWA.

The impacts of the increase will vary depending on how much consumption a particular business or household may have and their charges will be affected by the local water rate structures at each of the 24 member agencies the CWA supplies, including the cities of San Diego, Oceanside, Carlsbad, Del Mar, and the Padre Dam Municipal Water District in Santee, the Fallbrook Utility Water District, the Otay Water District and the Vista Irrigation District.

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Although the CWA estimates the impact will be between $3 and $4 per month for an average residential retail customer, businesses such as CP Kelco, which uses a high volume of water for biofermentation to process corn sugar used to make food ingredients, will incur much greater expenses.

John Breese, plant manager for the San Diego location of Atlanta-based CP Kelco, said as the third largest user of water in San Diego behind the CWA and the Navy, the company consumes 800,000 gallons of water a day. That translates to a $1.5 million cost for water each year.

Breese said the company deals with the significant water expense by continually making efforts to reduce water consumption. Some of the steps it takes include re-using water, recycling water in the steam system, and improving the water cooling systems.

“We have active programs to reduce water (use) because we can’t pass a 10 percent increase to the food market because consumers don’t just accept those prices,” Breese said. “It’s always a problem. One of our largest competitors is Chinese suppliers and that’s always a struggle for us because they don’t have that kind of cost increase. They don’t face that kind of inflation.”

The water charges, compounded by effluent expenses that are three times the water costs, threaten the sustainability of the business and future plant expansions, he said.

A big driver of the water rate increases are the associated costs to buy water from the Metropolitan Water District of Southern California.

Jason Foster, director of public outreach for the San Diego County Water Authority, said that while the MWD adopted an average 5 percent increase in rates for 2013, the actual cost increase to the CWA is about 8.5 percent due to the characteristic of its purchases and the fact that transportation rates to move Colorado River water from Imperial Valley are increasing by about 14 percent.

The MWD is the region’s largest single source of water. In 2011, the MWD supplied 44 percent of the region’s supply needs, followed by canal lining agreements from Imperial Valley of 14 percent and the Imperial Irrigation District water transfer that met 13 percent of the region’s supply needs. Additional sources are recycled water, surface water, ground water and water conservation offsets.

Lawsuits Challenge New Water Rates

The CWA filed a lawsuit in June 2010 challenging MWD’s 2011 and 2012 water rates, and filed a second suit last month challenging MWD’s adopted water rates for 2013 and 2014. The CWA claims the MWD is overcharging for transporting its independent Imperial Irrigation District transfer and canal-lining supplies from the Colorado River.

“That’s certainly contributing to higher rate increases than would otherwise be necessary,” Foster said.

CWA also joined business leaders, ratepayers, San Diego City Council representatives and officials from various water districts in protesting MWD’s originally proposed rate increase for 2013 of an average 7.5 percent at the MWD board meetings in Los Angeles this spring. The outcome was a reduced rate increase to an average 5 percent.

“That in effect is going to save our region $5 million this year,” Foster said. “If the lower rate increase from MWD had not happened the rate increase that we would have had to pass on would have been closer to 11 percent, so it made a big difference.”

Another contributing factor to the CWA’s rate increase is due to increased debt service costs necessary to pay for the CWA’s $3.5 billion investments in major new water infrastructure projects.

The third component of the CWA’s water rate increase is attributed to hikes in the costs for water supplies from the Imperial Irrigation District. The volume of water from the Imperial Irrigation District is increasing from 90,000 acre feet to 100,000 acre feet this year, and the rate the CWA pays the Imperial Irrigation District is increasing by 10 percent in 2013.

Acres of Avocado Groves Lost

Among the industries hardest hit by the water rate increases are agriculture and life sciences.

Eric Larson, executive director of the San Diego County Farm Bureau, said the combined increases from Metropolitan Water District, the San Diego County Water Authority and local water districts are taking its biggest toll on citrus, strawberry and avocado growers.

Larson said the region lost in excess of 5,000 acres of avocados because of the price of water.

“It was just no longer profitable to irrigate the trees, so those groves were abandoned,” Larson said. “As the price for water continues to increase we’re liable to see more of that take place.”

For some crops, he said water is more than 50 percent of the cost of production, and the doubling of water rates since 2005 has had a huge impact on business.

Now the 5,500 farmers in the county are making decisions on what or even if they will plant based on the price of water, Larson said.

Jimmy Jackson, vice president of public policy at the locally based life sciences trade association Biocom, said although water consumption varies among biotechs depending on their focus such as research, it’s considered a water intensive industry mainly due to compliance with safety and health regulations.

“We are very cognizant of the increase and we will continue to monitor both the increases and their effect on the region’s competitiveness as it pertains to our industry,” Jackson said.

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