SAN FRANCISCO — California water agencies that have made proactive, long-term investments in water infrastructure are better equipped to deal with water supply pressures during a drought, according to a report by Fitch Ratings.
In the report, released Wednesday, analysts compared the state's five largest urban water utilities, which demonstrate various strategies of dealing with water supply issues.
"When cities make long-term investments in water infrastructure, not every drought turns into a fire drill for conservation," said Kathy Masterson, senior director at Fitch Ratings. "The fact is that droughts are cyclical and careful planning can help offset or delay some of the resulting stresses like water restrictions."
The five utilities-most rated in the double-A range-are the East Bay Municipal Utility District and the water enterprises of Fresno, Los Angeles, Sacramento and San Diego.
Of these, Fitch said Sacramento and Fresno are most pressured for alternative water sources by the current severe drought.
"While Fresno faces overpumped groundwater and is most vulnerable to a drought-related downgrade, Sacramento is realizing the cost of heavy reliance on vulnerable surface water flows and tardy adoption of basic water conservation technology like water meters," analysts said.
Fresno's water enterprise, which serves around 500,000 people, is struggling with lower water sales resulting from the combination of drought and controversy over rates, which could result in a downgrade from Fitch.
Fresno is at the front end of the capital cycle in making investments to its water supply portfolio. The city is revising its rate and capital plans and expects to take them to the city council for approval in November.
"The delay experienced in Fresno highlights the potentially long timeline needed for water utilities to plan, design, finance and construct investments needed to make major additions to their water supply portfolios," Fitch said.
Due to its reliance on surface water, Sacramento, which supplies water to about 475,000 residents, has implemented some of the strictest water conservation measures in the state and is enforcing them aggressively.
"Even with its aggressive conservation efforts, water revenues increased by 5.4% in fiscal 2014, reflecting the offsetting impact of a 10% rate increase and its high fixed charges," Fitch said. "This credit strength could recede over the next decade as the city installs meters and transitions to a more typical rate structure, but it positions the city well for the short term."
San Diego, Los Angeles and the East Bay MUD have previously implemented long-term plans to invest in water supply, putting them in a better position to handle the current drought.
The East Bay MUD, which serves approximately 1.3 million people in northern California, embarked on an extensive program to diversify and harden its water-supply delivery system following California's drought in the 1980s. After completing a $2 billion infrastructure project in 2002, the district requested users to voluntarily conserve 10% of their water during the current drought.
Users in Sacramento and Fresno currently face mandatory reductions of 20% and 10-25%, respectively.
The Los Angeles Department of Water and Power, which provides water to around 3.8 million users, has developed long-term water supply through its own aqueduct and storage investments at the Metropolitan Water District of Southern California.
These investments provide stability to the city's water position, Fitch said.
San Diego, which provides water service to about 1.3 million people, primarily purchases its water from the San Diego County Water Authority. In addition to working closely with the authority, San Diego has its own long-range water supply plan that places a priority on diversification.
"While Fitch expects to see some revenue declines in fiscal years 2015 and 2016 as a result of mandatory conservation measures taken by most California utilities, widespread weakening in credit quality is unlikely," Fitch said.