PHOENIX - The proposed twin-tunnels project in California probably will drive a further increase in monthly water rates which may test utilities' rate flexibility, Fitch Ratings said this week.

The $16 billion California WaterFix project backed by Gov. Jerry Brown and opposed by some environmentalists and landowners in the Sacramento- San Joaquin River Delta is crawling toward implementation, with the cost ultimately to be borne by the ratepayers of the participating utilities. The cost increases likely to result may pressure some utilities that are already charging rates difficult for their customers to bear, Fitch said Wednesday.

“Ratepayers have thus far shown a willingness and ability to absorb higher rates and most California utilities have ratepayer bases able to bear the estimated increase to fund the Fix,” the rating agency said. “However, some agencies have water bills that already exceed Fitch's affordability threshold (combined water and sewer utility bill equal to, or higher than, 2% of median household income) and could become more pressured.”

The Sacramento River
The Sacramento River

The project, more than 10 years in the making, would use tunnels to divert water from the north side of the Sacramento-San Joaquin Delta to bypass the Delta itself and deliver it to the system that delivers water to the drier southern part of the state. Fitch said the estimated $16.3 billion in project costs would be borne by rate payers to utilities, including State Water Project (SWP) and Central Valley Project (CVP) members. The Metropolitan Water District of Southern California (MWD), a SWP wholesaler to 26 member agencies serving about 19 million residents, expects to bear about one-quarter of the total cost. MWD estimates the monthly household bill within its service territory would increase by about $2-to-$3.

The project has cleared a number of hurdles in terms of permitting, and the decade-long construction process could begin as soon as next year under an optimistic timeline. But opponents, who say the project risks irreparably damaging local wildlife as well as harming delta farmers, appear dug in for a series of challenges to the legality of the permitting. A group opposed to the plan, Restore the Delta, is also warning delta-area water districts deciding whether or not to support the project that MWD leadership of the project means that the will of those participating northern districts could be ignored with consequences on them and their customers. The group sent a letter to the Midlands Water District this week making those points.

“Westlands farmers and officials may already feel this way, but we wanted to share with them how garbled WaterFix financing and planning has become under MWD leadership," said Tim Strochane, policy analyst for Restore the Delta. “They are asked to decide on whether their next farming generation should be loaded with huge WaterFix debt, and no clear willingness to pay for it.”

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Kyle Glazier

Kyle Glazier

Kyle Glazier is a reporter covering market trends, infrastructure, and the Far West region for The Bond Buyer.