The Metropolitan Water District of Southern California is well situated to deal with the state's drought and prepare for the next one, the chief financial officer told a standing-room-only crowd at JPMorgan's now annual public finance transportation and utility conference in New York.
"We are well situated from a financial perspective to get through this," Gary Breaux, the assistant general manager and chief financial officer, said on April 15. "The headlines are making the situation sound dire, but we still have a lot of water in storage and a diversity of supplies and we will continue to adapt. We have been dealing with periodic droughts in the past and are experienced in managing our way through it."
California lawmakers are proposing legislation to accelerate more than $1 billion in bond spending to address the drought. Breaux said that the proposed acceleration wouldn't directly change what the district is doing, but the water agencies that it serves will be able to apply for funding for recycling, storm water and ground water recovery projects.
"These projects will not have any immediate impacts as they will take a number of years to complete but will help increase local water supplies in the future and will be helpful in managing future droughts," said Breaux. "The bonds provide up to 50% funding for local projects which is very helpful to the region we serve."
There is a 25% statewide reduction in urban water use, effective June 1 2015-February 2016, with fines of as much as $10,000 a day if a supplier fails to meet the standard.
A drought in 1991 led to a new approach on how the district manages its water: now there is an Integrated Resource Plan and more emphasis on conservation, recycling and local resource development.
Southern California has been focused on conservation for the last 30 years, with per capita water use down by nearly 25 percent since 1990. Breaux said additional conservation will be more challenging to achieve.
"Our board took action yesterday to implement a mandatory water supply allocation that will require our customers to reduce their purchases from Metropolitan by 15%, with significant financial surcharges if they exceed their allocation," Breaux said.
Breaux also said the district has diverse water supplies like different storage facilities, which will help mitigate the impact even if the drought continues several more years.
JPMorgan’s conference has continued to grow each year. This year’s conference drew 150 investor clients and 500 total attendees, up from 111 investors in 2010.
"The conference started in 2010 and is now an annual event with the express purpose of bringing our issuer and investor clients together," said Jamison Feheley, managing director and head of public finance banking for JPM. "Our goal was to create more meaningful dialogue among market participants so issuers can have a better understanding of the key factors influencing buy-side decisions and investors can more fully understand the issuers and the credit drivers of their particular offerings."
One of the more anticipated and well attended presentations, given the current situation, was from Breaux.
"I have been receiving many questions from investors about the drought in California and the recent executive order issued by the Governor calling for a 25% mandatory reduction in urban water use," Breaux said. "This conference provided an excellent opportunity to explain how we are managing through the drought and meet with many of the investors one-on-one to answer their questions.
Breaux also said that this was the third consecutive year that Metropolitan has presented at this conference and it has been invaluable in providing an opportunity to update the investment community on water issues in California and meet with investors individually to answer their questions.
"Our issuer and investor clients look forward to this event," said Paul Palmeri, managing director and head of public finance for JPM. "It is considered the premiere conference for these two sectors and it continues to grow each year. In 2013, we facilitated 263 1-on-1 meetings and last year that number was up to 346.The growth rate may flatten in coming years, however, as we are largely at capacity in terms of attendance without adding a third day."
