Monday, June 05, 2006

Tucson Water serving big biz & next million people

TUCSON -- Why is Tucson Water pushing to raise rates again so soon after their $142,000,000 bond approvals in May 2005? These bonds included money to expand the 'clearwater' facility and increase use of (bad) CAP water.

Tucson needs to do more to curb water use and urban sprawl. Relying on CAP water is a mistake due to the major over-allocation of the CO River.

It always seems Tucson Water is not working for current customers or public-interest, but instead big developers' money interests and the next million people they want to move in to Metro Tucson.

If rates are to be raised, it should be on commercial and big users only, not average homeowners.

7 comments:

Michael said...

Dan,

Perhaps you explain in more detail how CAP water is 'overallocated' and how that might affect Tucson's water supply down the road?

DRP said...

Simply put, there is more water promised to CO river states on paper than actually exists in the river in most years.

CO river water was divided amongst states during a particularly wet time, and the old agreement still in place fails to deal with reality of drier times and drought.

AZ's CAP water could be largely cut off in a CO river emergency where all water would go to CA as a senior water right user.

Michael said...

Wow, you mean that we are relying for division of in-stream rights on a seniority rights system unmitigated by any sort of minimum allocation for other users?

Our allocation GO AWAY during an extended drought? Such as the one we're in right now?

Sheesh, I thought there was a negotiated settlement between Colorado using states and Native users that updated the water rights regime several years ago, under Babbitt. Have to crack my water law notes back open.

Crap. What's the worst scenario? Is it sufficiently awful to maybe write an extended essay on, or has someone already studied the Worst Case?

DRP said...

Sec. of Interior is ultimately in control. Politics make it unlikley we'd lose 100% of our CO river water, but Tucson is at the end of the CAP line and total loss is possible, or at least severe cutbacks.

The river doesn't have any extra water in it, esp. during drought. Big snows this winter in CO help, but w/o those it'd be much worse.

My main point is basing more AZ megagrowth our CO river water supply is risky, and we must cut water use and urban sprawl now.

Simmons B. Buntin said...

Unfortunately, Tucson continues to be a town driven by big developer interests. The Land Use Code needs overhauling, as well, as it severely constrains any kind of creative development (like once happened at Civano, and is now happening at Mercado District). But that means more work and therefore more money for sprawl developers who appreciate, or at least are comfortable with, the status quo. But that also equates to more resource use and less "sense of place." Not to mention, per your post, the very real potential of loss of water.

Mitchell Basefsky said...

Daniel,

I’d like to take this opportunity to respond to your comments, and to acknowledge that the Mayor and Council received them and will receive a copy of this response.

Tucson Water’s proposed rate increase reflects our plans to accelerate our purchase and recharge of Colorado River water delivered through the Central Arizona Project (CAP), in response to the growing probability of a shortage being declared along the Colorado River because of the long-term drought the southwestern United States is experiencing. While much of the up-front funding of our Clearwater does come from Water Revenue Bonds, selling those bonds does have an impact on our water rates.

It is important to keep in mind that water bonds are much like home loans - the money is available up front, but must be repaid with interest over the life of the bonds. Selling bonds to finance large capital projects is an efficient way to fund those projects, as it provides large sums of money necessary to construct projects, but spreads the cost of repaying that 'loan' over many years. As we noted in our bond package information given to voters prior to the bond election, revenues necessary to pay the principal and interest on the bonds must be raised through the water rate process. Tucson Water does not receive tax funding - our only financial resources are related to water. The $142 million Water Revenue Bond package that was passed by voters in 2005 is provides the authority to sell water revenue bonds up to the maximum approved. However, bonds are sold only as needed to raise funding for projects. So far, Tucson Water has sold approximately $36 million of the 2005 bonds, at an average interest rate of 4.3% - a very good interest rate from the perspective of the bond seller – Tucson Water.

In addition, in order to maximize the financial efficiency of the construction of new facilities, water bonds are used to fund approximately 60% of our capital improvement program. The rest of the money is raised on a 'pay as you go' basis and comes directly from water rates. This allows Tucson Water to build the necessary facilities, but without raising our debt beyond a prudent level. In order to garner the best (lowest) interest rate possible, we must prove to the international bond market that we conduct business in a fiscally responsible manner and do not carry too much debt. Tucson Water's bond rating is among the highest given to public utilities - which allows us to 'borrow money' at a lower interest rate.

Should a shortage on the Colorado River be declared by the federal government, any reduction in CAP deliveries would not be based on the size of our allocation (approximately 45 billion gallons/year), but on the amount of CAP water that we are actively using in the year prior to the shortage declaration. In other words, unless we are using our full allocation, we not only get a percentage cut-back on the amount we have been using, but we could potentially lose our ability to access any of the unused portion of our annual allotment of CAP water. In order to accelerate our usage of CAP water, we must accelerate the completion of our Clearwater facility expansion, and be financially able to purchase our full allotment. These costs require a water rate increase this year, which the Mayor and Council provisionally approved on June 6. There will be a Public Hearing on the proposed water rate increase on July 6th, followed by a vote by Mayor and Council immediately following that Public Hearing.

Rates for all customer classes are ultimately based on cost of service for each class, with conservation incentives then used to develop a water rate structure that rewards conservation and raises the cost of water for higher users. In this rate proposal, as is all of our previous proposals, the ‘average’ residential customer is protected to the extent possible. For the approximately 75% of our residential customers who use 1500 cubic feet (15 Ccf) or less a month, the maximum increase will be $0.07/Ccf, or less than $1.10/month. Because of our increasing block rate structure, a very heavy user will pay much more per Ccf - our highest residential block rate is increasing by $0.37/Ccf. Also, to address one of your comments, I’m not sure why you would want “commercial” users to have a higher rate increase for no other reason than they are not “residential” users. As with residential rates, commercial and industrial rates are based on cost of service to those classes and include a built-in conservation incentive that rewards water use efficiency.

In terms of how much of our Colorado River water allotment we might lose if a shortage is declared, it is impossible to tell at this time. The 7 Colorado River basin states have been developing a "shortage strategy" that will hopefully provide the answer to that and other questions. The extent of the cut-back in allocations to municipal CAP customers would be largely determined by the extent of decline in Lake Mead and Lake Powell, the two large Colorado River reservoirs. Conservatively, we would anticipate perhaps a 10% reduction in our allocation for the duration of the shortage. Once the strategy has been developed further (it would still have to be approved by the Secretary of the Interior), we'll know more.

I hope that I've been able to explain why selling bonds to finance facilities does not provide a 'new' source of money to the utility. Instead, it provides a method of borrowing money at a low cost, and spreading the repayment of the bonds (and the rate increases) over a much longer period of time than would otherwise be possible. If you or any of your blog-readers have any additional questions or concerns, please feel free to contact me at TW_Web1@tucsonaz.gov, or call me at 791-4331.

Sincerely,

Mitchell Basefsky
Public Information Officer
Tucson Water

DRP said...

Thanks for the comments, Mitch. Glad to know Tucson Water is reading this blog.

Appreciate the response, but I still see Tucson Water as serving big developers and future residents first, and current customers second. Hope that will change.

Thanks, Daniel