fresnobee.com The Fresno Bee

Water users face a shock

(Published March 19, 2001) SACRAMENTO -- A cash shortage brought on by the energy crisis could raise the price farmers and residential users pay this spring for valuable Sierra snowmelt unless millions of dollars are repaid to the state agency that manages the water.

The state Department of Water Resources is projecting that the account it uses to pay for operating the pumps, canals and reservoirs that form the plumbing for the State Water Project will be short $38 million by the end of this month. Water users such as farmers in Kings and Kern counties and agencies that supply residents in Southern California are scrambling to come up with ways to cover the shortfall if the Legislature doesn't act swiftly.

Officials say the cash deficiency stems from $42.9 million that the Independent System Operator owes DWR after asking the agency to buy electricity in December and January to avoid rolling blackouts. DWR tapped into the water-project funds to purchase the power, expecting the ISO to pay back the agency in 90 days.

But the payments haven't come, and DWR officials say they are facing a "serious cash problem" exacerbated by the high prices the agency has paid in recent months for power to operate the project's pumps.

"We're concerned about that shortfall and being able to meet payroll and the project's bond obligations," said Lucinda Chipponeri, deputy director of DWR.

"But we don't expect it to interrupt water deliveries. On the one hand, we've got a dry year so we've got less water to move and will need less power, but on the other, we want a normal water year, which would cost more because of rising prices for power. It's a Catch-22."

Contractors are expecting to get only 25% of their contracted allocation of water this year after a series of wet years and full allocations.

DWR and water users hope the Legislature will move forward on bills that would restore the State Water Project fund in time to meet financial obligations such as paying salaries, buying power for pumping and making debt-service payments on revenue bonds.

"The department needs that money now," said John Coburn, general manager of State Water Contractors, an organization that represents 27 public agencies that buy project water. "Someone's going to have to cover that shortfall, and it may have to come out of the pockets of contractors."

A bill by Assembly Member Dean Florez, D-Shafter, would prevent contractors from having to reach into their pockets.

AB 63X would authorize the immediate repayment of the State Water Project account from the state's general fund and would prohibit the account from being used again to buy electricity for the grid. Bruce McPherson, R-Santa Cruz, has introduced an identical bill in the Senate.

Florez's bill, amended last week to be an urgency measure, is scheduled for a hearing before the Assembly energy committee.

DWR officials said the bill would need to be passed out of the Legislature and signed by Gov. Davis by March 31 to "avoid defaulting on any of its obligations."

That time line will be tough to meet, so DWR, water contractors and the Davis administration are "exploring other options," Chipponeri said.

Some of those options include rebilling contractors for water to raise cash and borrowing money from a fund set aside to pay for replacing turbines, generators and other equipment used to move water. One other fallback would be dipping into reserve accounts to cover a hefty bond payment in June, an option that Coburn described as being "like a bomb going off, because it tells the bond holders there's a problem, and that affects interest rates."

Florez also expressed concern that DWR would be forced to use reserve money to pay the project's bond obligations at the same time the state is preparing to issue an unprecedented $10 billion in revenue bonds to cover the costs of long-term energy contracts for cheaper power.

DWR -- which buys power to move water around the state to 20 million Californians -- has been thrust into the weighty role of buying electricity on the daily spot market, stepping in for debt-ridden utilities.

Officials with the Metropolitan Water District of Southern California, which uses project water to supply its 17 million customers, is also engaged with DWR in discussing ways to fix the cash-flow problem. Ultimately, they say, the money used to tide over the state's electricity supply in a time of urgency must come back to project users. "The department stepped up to keep the lights on in an emergency situation," said Brian Thomas, chief financial officer for the district. "All we're asking is that water ratepayers be paid back for that."

Thomas said Metropolitan would be able to absorb higher energy costs and help make up for the cash shortage without raising rates for its users.

"These are very unusual times, and the contractors are legitimately concerned," Chipponeri said. "But this is a top issue for the department to resolve."

The reporter can be reached at lmaxwell@fresnobee.com or (916) 326-5541.

http://www.fresnobee.com/print/storynews/0,1737,249862.html,00.html

-- Martin Thompson (mthom1927@aol.com), March 19, 2001

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Monday, March 19, 2001 Getting Real About Water Supplies

As if the electricity crisis weren't enough for Californians to worry about, water experts are warning about the consequences of the next drought. No one knows when that water shortage will come, but it's a good bet it will be within this decade. Statistically in California, the next drought is always just around the corner. Even without drought, the development of new water supplies is far more difficult and time-consuming than building new electric power plants.

The obvious lesson is for California not to act as if it has an endless supply of water. But that is exactly what seems to be happening as local and state planning officials continue to routinely approve massive new housing projects without any certainty that they will have enough water.

The Legislature tried to end this reckless practice in 1995 when it passed Senate Bill 901, authored by Sen. Jim Costa (D-Fresno). The Costa measure provided that any project large enough to require an environmental impact statement must meet five criteria in demonstrating that it had enough water to satisfy its future needs, in dry years as well as wet ones.

But SB 901 has been a failure. An analysis by the Oakland-based East Bay Municipal Utility District shows that of 119 projects with a projected population of 582,000, only two fully complied with the law in 1996-2000. Sixty percent of the projects provided only the first and most basic requirement of SB 901, identifying the source of projected water supply. For several years, Randele Kanouse, the lobbyist for East Bay, has fought to give California stronger legislation to assure adequate water supplies for future development but has been thwarted by development forces. In each of the last two years, state Sen. Sheila Kuehl (D-Santa Monica) authored bills that would have required new subdivisions of 200 homes to provide evidence of adequate water supplies before they could win construction approval. Both of the bills were defeated.

Last summer, the Assn. of California Water Agencies joined developers in opposing the Kuehl legislation, saying SB 901 was on the books and should be doing the job. The water agencies acknowledged that SB 901 might have loopholes and suggested a study to see whether it needed to be strengthened. This shameless action came from the public water agencies that are supposed to be guaranteeing Californians they will have enough water.

Now they have their study. And they also have a new bill, Costa's SB 610, to plug the loopholes by being more specific about the data that must be provided. And they have SB 221, by Kuehl, to make sure the water requirements are met before subdivision construction actually begins, just in case there are more loopholes.

There is much that Sacramento needs to do to make sure

California is not surprised by a water shortage the way it was the electricity crisis. Lawmakers can begin by passing both SB 610 and SB 221.

http://www.latimes.com/cgi-bin/print.cgi

-- Martin Thompson (mthom1927@aol.com), March 19, 2001.