May 5, 2004 - From the March, 2003 issue

MWD's Ron Gastelum Moves To Diversify Water Source Portfolio To Reduce Risk Of Drought

The fragility of the Imperial-Colorado water transfer deal underscores how sensitive the greater Los Angeles region is to water shortages. In order to mitigate risk, Metropolitan Water District has been pursuing transfer arrangements statewide to reduce the over-reliance on the Colorado River. MIR is pleased to present this interview with Ron Gastelum, CEO of the Metropolitan Water District, in which he addresses MWD's strategy for expanding the base of the region's supply of water and what to expect with the Imperial deal over the coming months.

Ron Gastelum

Ron, with both the Colorado River/Imperial deal on hold and state water shortages being predicted, please give our readers a sense of what the goals, objectives, and strategies are of MWD as it moves to ensure a reliable, long-term supply of water for Southern California. What's MET's basic strategy for meeting our region's needs going foward?

The strategy really began forming in the early 1990s. The experience we had with the shortages and the drought in the early 1990s taught us a very valuable lesson: over-reliance on the State Water Project was misplaced. And, that took us in the direction of trying to diversify the resources that we would be planning on having available to meet current and future needs. As a consequence, we made major investments in conservation, recycling, ground water conjunctive use, water transfers, and even began thinking about seawater desalination.

Today, as we look at the resources that are available to us in hydrologic conditions very comparable to what occurred in the early 1990s, we find ourselves in far better shape to meet the needs, even in the face of a cutback on the Colorado River. Our conclusion today is to continue to diversify the portfolio of resources, make the investments that are needed to meet water quality standards, and plan well in advance of need. That's our strategy.

Hasn't the Sheila Kuehl bill (SB221) also changed water policy planning from what it was in the early ‘90s. Doesn't the Kuehl Bill require all significant new developments to identify up front all sources of water that will be relied upon? Such a requirment must put pressure on your member water agencies, as well as MWD, to insure an adequate water supply well into the future. How is MWD grappling with that bill's requirements?

The new legislation that was passed by the state Legislature is really consistent, we think, with the philosophy that we adopted. And that philosophy, again, is to be very transparent and open about what you have and what you're planning for, and to be prepared to make the financial commitment to turn those plans into reality. So, we were very comfortable with that requirement being applied as a good planning policy. It's something that was needed and will actually enhance water supply reliability and water quality in the state of California.

But haven't your member agencies put pressure on MWD to identify actual sources of water now that otherwise would not need to be identified into well into the future?

Actually, no. The integrated resources plan that we began in the 1995 time frame involved the member agencies in a collaborative plan to identify exactly where those resources are going to come from and who is going to do what between member agencies and Metropolitan. Also, you have the urban water management plans where member agencies are identifying the projects that they are going to undertake. So, we're all engaged in this collaborative process, and on a regular basis, identifying what we're going to do. As you may recall, last year we put out a water assessment of what our water resources are and what we're planning to do over the next 20 years. We'll do that again in the next several weeks providing the necessary transparency so that the member agencies see the role they're playing and the role MWD is playing.

The issue that remains is where is the money going to come from to make these investments? Certainly, when Metropolitan says it's going to do things, we know where that money is going to come from-our rate structure. But, our member agencies have varying capabilities to actually do the projects that they would like to do. So, they will be looking to Metropolitan, the state government, and to the federal government for additional funds.

And then the question will be, which projects are going to be funded, and can we rely upon those planned projects and the funding that's needed to make those projects go forward as a part of our planning process? I think seawater desalination is a classic example. Metropolitan has pledged to provide significant funding for seawater desalination plants, but there is still a need beyond that for state and federal assistance. Prop 50 does have significant funding for seawater desalination here in Southern California. Our member agencies will be seeking that funding and the proceeds of future bond measures to provide additional funding for seawater desalination. Will seawater desalination become reality with the funding that's on the table, or is it contingent upon additional funding coming from the state or the federal government? That has yet to be determined, but we will certainly know that within the next several years.

Ron, could you give our readers your take on the negotiations still going on between MWD and IID re California's Colorado River water allocation? Mixed signals are flowing from news reports and there's a sense that MWD now wants to wash its hands of the transaction, that you never really were interested in paying agricultural suppliers bundles of dollars for water that you eventually thought you could get for much less. Give us your take.

These negotiations have been going on for quite a while, and as you look at the progress of the negotiations, various parties have either been at the table or pulled away. We all remember in late fall of last year when IID, after going through a very comprehensive process, led by former Assembly Speaker Bob Hertzberg, pulled away from the table and said they would only come back if they got more money-essentially more money and less risk. And without trying to be judgmental about their proposal, I would only say that this is a negotiation and every party is seeking to maximize their benefits and reduce their costs. Of course, every party will engage in characterizations in the press as to the other party's position.

At the end of the day, the only thing that is relevant is whether there is a package that's going to be developed and will that serve to carry us forward to finalize a quantification settlement agreement. Metropolitan has said for several years now that it did not believe that we should hinge our ability to get surplus Colorado River water on the outcome of negotiations with other water agencies who are seeking to maximize their benefits for the least cost. There is an overriding public interest in the surplus water, and it shouldn't be reliant on getting the buy-in, if you will, of a single water agency, say the Imperial Irrigation District. If there is a transfer between Imperial and the urban water agencies, it should stand on its own feet. We certainly would support transfers, but we would not want to be in the position where our surplus water is dependent upon whether we're all willing to pay the price, whatever is demanded, by the Imperial Irrigation District. These things could and should go on separate tracks. Currently they are not.


We're all trying to reach closure on the quantification settlement agreement. But, if it doesn't work, then we need to figure out how to make the transfers work in a way that is acceptable to the Imperial Irrigation District. So I am still optimistic that we'll get to a solution, but it's a lot more complex than most people generally recognize.

Re the Imperial/ Colorado negotiations, do you see that contest of wills as an example of a growing schism between urban and agricultural interests in California. Are we seeing just the first round of many water battles to come over what urban interests see as Agriculture's wasting or hording of excess water?

It has always been difficult to do ag-to-urban water transfers. People would be amazed, nonetheless, at how much water is actually transferred today from ag-to-urban. Certainly there are a lot of transfers from ag-to-ag. There are various theories on why it's difficult. But, I would submit that there are two basic reasons that underlie the difficulty of ag-to-urban transfers. One, is the emotion that comes with the thought, certainly in the agricultural community, that they may be losing or giving up their right to the long-term use of their agricultural water. Hence, it becomes far more difficult to do long-term water transfers than short-term water transfers, and we can see evidence of that today.

We were able to accomplish a short-term water transfer with the Sacramento Valley because it is a short-term transfer and they're reserving all rights for the future. Whereas in the Imperial Irrigation District situation, we started at 75-years and they said the maximum they would consider is 45 years. They have said that their preference is a much shorter time frame for a transfer, and that goes to dealing with the emotion, and the fear, in the agricultural community that a long-term transfer will undermine the basic economy and livelihood they have. So that's number one in terms of making these work.

Number two is that there are environmental impacts when we do these transfers, and the costs of those environmental impacts need to be assessed up front. The basic principle needs to be established as to whether or not the costs of those impacts are going to be borne by the transfer, or will they be borne by the public. So, by way of example, you can see that in the Sacramento-San Joaquin Delta there's a great deal of effort going on right now to restore habitat and to make it easier to move water through the delta. Public money is being spent there and there's an indirect benefit-water transfers will be easier if we're able to do the things we say we want to do in the delta.

In contrast, the current transfer that's proposed between the Imperial Irrigation District and the San Diego County Water Authority has been hindered because of the potential impact on the Salton Sea. There is no real plan by the state or the federal government on whether the Salton Sea is going to be restored. And so you have potentially a very large mitigation impact on the IID–San Diego transfer that may or may not be appropriately allocated to the Imperial Irrigation District and San Diego. It might be that there is a broader public benefit for restoring the Salton Sea, in which case public funds would be appropriate. But the basic policy decisions haven't been made. So, as a further complication in this negotiation, we are trying to deal with the allocation of dollars and the allocation of risk in the absence of that basic public policy decision. It has added a great deal of complexity.

As a basic principle, there remains the question of whether market transfers, as a matter of principle, receive direct subsidies of pubic funds? And what are the ground rules that are going to be applied when individual market transfers are being considered for public subsidies? Further, how do you deal with the competition for limited public funds between such things as seawater desalination, recycling, conservation, ground water conjunctive use, and market transfers? Are market transfers better able to internalize these costs than say a conservation program or a brackish water/ ground water contamination program? All of these issues are in play and are brought to focus in these negotiations over the Colorado River, which of course adds to the difficulty of trying to bring it to closure.

But again, don't you sense a significant schism is growing between Ag and urban interests as the state adds in the next 20 years another 15 million residents? Clearly, AG interests senses that an urban squeeze on their water rights is on; that the apparent collapse of the Colorado River/IID deal is proof of concept. They fear, don't they, that the junior appropriator of their water, MWD, wants to get their water for less than market price by squeezing off their capacity to do water transfers at market prices? Don't they also fear that MWD's push to have agriculture owners document how much water is actually being used annually will ultimately be used as a benchmark for determining what ought, as excess, to be available from Ag to MWD, the junior appropriator, for less than market price? Perhaps such concerns are an inherent part of the DNA of any broad statewide water coalition in California?

In the Imperial situation, that issue would not have even been on the table had Imperial Irrigation District not brought litigation raising that issue against the Department of Interior. Metropolitan has not brought that litigation. Metropolitan did not force that issue. The Imperial Irrigation District did, and now they are in litigation with the Department of Interior. Some people may want to try and create the specter of an ag-urban conflict or characterize this issue in that way, but if you look at certainly all the transfers and programs that Metropolitan is engaged in, it is based upon a win-win cooperative principle. If you look at the Palo Verde Irrigation District program, if you look at the Sacramento Valley transfers, if you look at our programs at Arvin Edison, Kern Delta, Semi-Tropic, all are based on a business paradigm of win-win, not a litigation strategy.

Lastly, Ron, water is again resurfacing as a high profile public issue because of the challenges presented by population growth in the State and our region. As you know, the business community in Los Angeles has created, through the Area Chamber, a new water committee. What might the civic and business leadership of metropolitan Los Angeles do to be an informed and contributing partner to meeting Southern California's water needs as this region absorbs another two Chicagos?

Major public policy decisions are going to be made in the next five years that will affect water supply reliability for many years to come. If public money is going to be spent-and there should be no doubt that water policy, historically and today, is largely driven by those investment decisions of public money-then the business community, the public and environmental groups should all be at the table and understand, in a very open and transparent way, how public money is going to create a return on the investment. Will the public receive a benefit for their investment? It's a matter of being smart about making those investments, not that there is anything untoward about making investments-they should be made. It's being smart and transparent so that everyone will know that the public funds returned value.


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