STATEMENT BY LOS ANGELES DEPARTMENT OF WATER AND …



STATEMENT BY LOS ANGELES DEPARTMENT OF WATER AND POWER IN RESPONSE TO CERES REPORT ON IMPACTS OF WATER SCARCITY TO PUBLIC AND PRIVATE UTILITY COMPANIES AND LADWP WATER AND POWER MUNICIPAL BONDS

The recently issued CERES report on the impacts of water scarcity and climate change on utility bonds includes findings on LADWP’s Water and Power systems that are uninformed and miscalculated. The report leaves readers with the impression that Los Angeles is likely to experience an imminent undersupply of water affecting both water and power operations and revenues and that LADWP bond ratings should therefore be reconsidered.  These summations are incorrect.

LADWP Water System

The CERES report fails to acknowledge the significant water consumption reductions, including outdoor water use, among LADWP customers for the past 3 years.

The report does also not accurately reflect LADWP resource planning efforts to ensure a reliable water supply for the City of Los Angeles. The report fails to consider the policies and priorities set forth in LADWP’s Water Supply Action Plan, “Securing L.A.’s Water Supply,” which was released in May 2008 and water system long range plan released in June 2010.

• The Plans serve as blueprints for creating sustainable sources of water locally through investments in state-of-the-art conservation and recycling technologies, a combination of rebates and incentives, the installation of smart sprinklers, efficient washers and urinals, and long-term measures such as expansion of water recycling, groundwater replenishment and investment in cleaning up the local groundwater supply. 

• The Plan addresses the impacts of climate change and the Department’s necessary response to drought and dry weather. 

• The Plan specifically addresses current and future State Water Project supply shortages and concludes that the Metropolitan Water District of Southern California’s (MWD) Integrated Resources Plan (IRP) actions in response to this threat will ensure continued reliability of MWD water deliveries to its member agencies, including Los Angeles.  The IRP sets forth a detailed plan for meeting future demand for water among over two dozen water agencies in Southern California – it is relied upon and reliable.

The report does not consider the growing use of recycled water among LADWP’s large commercial, industrial and governmental customers.

The report does not take into account the Metropolitan Water District’s established policy objective for water supply reliability as part of its updated IRP. 

• Collaboration between LADWP and MWD has been critical in ensuring that the City’s anticipated water demands be incorporated into the MWD’s updated Integrated Resources Plan.  MWD’s IRP directs a continuous effort to develop regional water resources involving all of MWD’s member agencies. Successful implementation of MWD’s IRP has resulted in a reliable supplemental water supply for the City of Los Angeles from MWD.  

• Part of MWD’s planning efforts is the implementation of a Five-Year Supply Action Plan to address potential shortfalls in the five-year planning horizon for water supply due to the effects of ongoing dry hydrologic conditions and regulatory restrictions on water exported from the Sacramento-San Joaquin Delta. A set of resource options for the next five years was developed to focus on six main areas: conservation, Colorado River transactions, State Water Project transactions, groundwater recovery, and local resources. 

• MWD’s long-term plans to meet its member agencies’ growing reliability needs include water transfer programs and development of additional local resources, such as recycling, and seawater desalination. 

• MWD has more than 5.0 million acre-feet of storage capacity available in reservoirs and banking/transfer programs, with approximately 1.7 million acre-feet currently in that storage.  Despite concerns about ongoing water shortages and higher costs, MWD has upheld its pledge to plan for emergencies and natural disasters throughout this region.  In total, this reserve of water supplies buffers the severity of a potential shortage, allows for a less severe water shortage allocation if required, and keeps the region prepared for a major earthquake or other events.   

• MWD is currently updating its Regional Urban Water Management Plan (RUWMP,) incorporating available planning projections of supply capability and demand developed through a collaborative process with the member agencies.

• MWD has supply capabilities that would be sufficient to meet expected demands from 2015 through 2035 under average, single dry-year and multiple dry-year hydrologic conditions.

• MWD has comprehensive plans for stages of actions it would undertake to address a reduction in water supplies of up to 50 percent due to catastrophic events through its Water Surplus and Drought Management and Water Supply Allocation Plans.

• MWD has developed an Emergency Storage Requirement to mitigate against potential interruption in water supplies resulting from catastrophic occurrences within the Southern California region, including seismic events along the San Andreas fault.

• MWD has plans for supply implementation and continued development of a diversified resource mix including programs in the Colorado River Aqueduct, State Water Project, Central Valley transfers, water use efficiency programs, local resource projects and in-region storage that will enable the region to meet its water supply needs.

In sum, the report predicts dire circumstances that indicate additional risk to bond holders which is without merit.  The Los Angeles Department of Water and Power has solid forward-looking plans to meet demand, while also strongly encouraging, incentivizing and promoting water conservation – which has achieved dramatic results. Through our mandatory water conservation program in effect since June 2009, LADWP customers have successfully reduced water usage by 19.3 percent as of September 2010, saving 54 billion gallons of water - enough water to serve the cities of Burbank, Santa Monica and Glendale combined for over a year. Our customers use less water today than they did 25 years ago, despite a population increase of over one million people.

LADWP Power System

We find the conclusions regarding the LADWP Power System to be likewise, without merit and missing key facts.  The CERES report assumes a 100 percent capacity factor at Intermountain Power Project (IPP.) As LADWP regularly has scheduled and unscheduled outages in a given year, IPP normally operates at about 88 percent of capacity. This has a significant impact on the use of water. 

The report also does not take into account that we keep one year’s worth of water stored in the Delta-Melville-Abraham-Deseret (DMAD) reservoir so that if the water deliveries to the Sevier River are short, we can make up the difference from DMAD reservoir storage. 

Additionally, the report does not note that LADWP has extra water in the DMAD reservoir that is sold to farmers in the IPP area every year.  This surplus could be used in the unlikely event that it is needed for operations.

CERES Methodologies

LADWP also has serious reservations with the methodologies employed by CERES in the formulation of their report. CERES never met with LADWP to gather information, seek clarification or gain any understanding on the issue of water scarcity from us. There was little to no information provided on PricewaterhouseCoopers’ modeling documentation for the City of Los Angeles’ local supply data and water demand projections. The model appears to use outdated information and does not take into account recent efforts implemented by LADWP and MWD to mitigate changed conditions, nor does the model make clear how the various climate change models were integrated into the PricewaterhouseCoopers model. In addition, it appears that the software tools used in PricewaterhouseCoopers’ supply and demand projections are completely inconsistent with those used by LADWP and MWD.

• Water Risk Score:  It appears that a separate risk score is provided for the baseline and four stress scenarios but there is no explanation or interpretation of the scoring scale.

• Model Water Supply Projections:  LADWP is not familiar with and does not use the Water Evaluation and Assessment Project software tool for water supply projections of the Eastern Sierra Nevada watershed and the Los Angeles Aqueduct. It is also unclear as to why a higher risk score is assigned to water utilities that rely heavily on external water to satisfy demand, when that external water source (e.g. MWD) is not also evaluated for supply reliability and risk score. The model also does not take into account changed supply conditions and actions taken by LADWP and MWD to address and mitigate supply shortage conditions.

• Climate Change Modeling: It is not clear how the climate change models were integrated into the PricewaterhouseCoopers’ model, specifically for the Eastern Sierra Nevada watershed, which supplies the runoff for the LAA system. LADWP does take into account in its water supply planning efforts the variability due to climate change; these efforts are documented in the Water Supply Action Plan and in coordination with MWD. 

• Model Water Demand Projections:  The report does not appear to take into account any reductions in per capita water use due to the City’s recent conservation measures, and updated population projection data. The residential customer class in Los Angeles has reduced their demand by almost 20 percent over the past three years and that trend is forecasted to continue in the long term, along with allowing for growth in population. LADWP projects water demand based on multiple factors including historical trends in billing data, projections of water conservation and projections of demographics provided by the Southern California Association of Governments.

• Model Storage Projections:  LADWP does not have any significant storage capability in its water system. The report does not state what storage is being referenced. If the report is citing MWD’s storage impacts, this should be stated and these impacts should be investigated based on MWD’s short and long term planning for maintaining that storage.

• Stress Scenarios:  The basis for development of stress scenarios for supplies due to regulatory, legal, and hydrological shortage impacts is unclear. No adjustments are made for impacts on demands (e.g. conservation) in the stress scenarios.

Conclusion

We believe the CERES report is fundamentally inaccurate as it is based on outdated, incomplete information and employed questionable methodologies.

Addressing the evolving challenges posed by water scarcity on our systems is a fundamental element of the work we at LADWP do on a daily basis. We have a 100-year track record of unparalleled service and experience in managing water supplies, meeting customer demand and achieving conservation targets.

We believe that our water supply planning is strong and does not pose an additional risk to investors.

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