LA WATCHDOG--The $8.1 million Silver Lake Reservoir Stormwater Capture Project is designed to capture 159 acre feet of stormwater (52 million gallons) from 171 acres surrounding the lake and to divert the cleaned up (but not drinkable) water into the out of service Silver Lake and Ivanhoe Reservoirs.
This will allow the Department of Water and Power to provide 38% of the 418 acre feet (136 million gallons) lost to evaporation and seepage each year instead of purchasing potable water from the Metropolitan Water District (“MWD”). (Photo above courtesy of Los Feliz Ledger.)
This project will also have the added benefit of improving the water quality of the Los Angeles River and Ballona Creek.
Furthermore, it will help the Department comply with the Mayor Eric Garcetti’s truly aspirational goals of reducing the purchase of imported by 50% by 2024 and sourcing 50% of our water from local sources by 2035.
But this deal is not in the best interests of Ratepayers and DWP.
Under the agreement between DWP, the Bureau of Engineering, and the Bureau of Sanitation, the Department will finance 100% of this project while Engineering will be responsible the construction of the project and Sanitation will operate and maintain the facility.
This is a worthwhile project, although it may be over engineered, especially since Engineering and Sanitation know DWP is footing the bill.
The major issue with this project is that the full cost of water for DWP under this project is multiples of the price that MWD is currently charging the Department for untreated water.
The capital cost of this project is over $51,000 for each acre foot of water ($8.1 million divided by 159 acre feet). This implies that the annual cost to cover the capital cost is in the range of $3,500 to $4,000 an acre foot, considerably higher than MWD’s price of $600-800 for untreated water and $800 to $1,000 for treated water.
The Department’s analysis indicates that the cost per acre foot is in the range of $1,000 based on 50 years of water savings. But this analysis does not reflect the time value of money.
Furthermore, DWP’s analysis indicated an acceptable rate of return on its investment based on the assumption of ever increasing prices for MWD treated water and low cost debt. But this does not make economic sense because the Department does not recover its unleveraged $8.1 million investment for 25 years as the initial savings is less than 2% of the $8.1 million investment.
Rather than stick it to the Ratepayers and DWP, a better alternative is to have the City finance the project. DWP will then purchase the untreated water from Sanitation at the price charged by MWD for untreated water, less a discount based on water quality. In this case, the Ratepayers and DWP will bear the risk of increasing prices of water, a risk worth taking given the exorbitant cost of $3,500 to $4,000 an acre foot.
The Water System is also overleveraged as its debt ratio is in the range of 65%, a level that jeopardizes its credit rating and future financial flexibility. The Water System is going to under considerable pressure to finance its very expensive, multibillion dollar recycled water program and other costly initiatives.
Ratepayers, especially homeowners, have also been hit with a 30% increase in their water bills over the last two and a half years because of higher rates and the introduction of new pricing tiers.
The Silver Lake Stormwater Capture Project is just another example of the Mayor, the City Council, and the politically appointed Board of Commissioners sticking it to Ratepayers and why every transaction (including the Silver Lake Master Plan) between the City and DWP must be analyzed in depth by an independent, fully staffed Ratepayers Advocate.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. He can be reached at: email@example.com.)