LOS ANGELES — The California Department of Water Resources has announced its initial 2014 water allocation at the lowest rate in five years — a credit negative for many municipal water enterprises, according to Moody's Investors Service.
The department announced on Nov. 19 that its initial water allocation from the State Water Project would be only 5% of requested deliveries.
Moody's analysts said the low allocation is negative for the DWR, as well as the state water project's 29 water contractors, including the Metropolitan Water District of Southern California.
"It's also negative for the local utilities that these water contractors resell water to," analyst Michael Wertz said in a recent report. "The SWP is not the sole source of water supply for these entities, but it represents a significant portion of their annual sales, which will likely suppress sales and operating revenues in the coming year."
The water contractors provide water to about 70% of the state's population and significant portions of the Central Valley agriculture industry. The low allocation reflects significantly diminished water in SWP's storage reservoirs after two years of low rainfall in California, and the potential for another dry year.
State water contractors and local water agencies will offset reduced supply from SWP by increasing their use of alternative sources such as local groundwater, storage, and the Colorado River, where possible.
Including the Metropolitan Water District of Southern California, rated Aa1, Moody's rates six of the SWP's contractors, with four among the top recipients of water from the SWP. Others include the Kern County Water Agency, rated Aa3, the Antelope Valley-East Kern Water Agency, rated A2, and the Coachella Valley Water District, rated Aa3.
Though the 5% allocation is very low, it's not unprecedented. In past years, initial allocations have been low, but final allocations increased by the end of the year as conditions improved. In recent years, however, final allocations improved by very slim margins.
"It's uncertain if and by how much there will be an increase in 2014 from the initial allocation of 5%," Wertz said. "But, if it is increased by just 5% as it was over the prior two years, water allocations would be the lowest of the last decade, equating to a 70% reduction in water delivery, which would be significant, but not unheard of."
In 2011 and 2013, water contractors managed initial allocations that were 50% lower than the previous allocation period. The cumulative effect of these reductions, however, could leave many water utilities with significantly reduced supply, Wertz said.