1. CONSERVATION Three Retail Views Southern California Water Dialog July 23, 2008 Peer Swan

2. Conservation Conservation has different effects depending on the location of the conserving district Conservation has different effects depending on the location of the conserving district Closed Basin Closed Basin Upper Watershed Upper Watershed Lower Watershed Lower Watershed

3. Conservation BMP 11 requires that at least 30% of fixed costs be recovered from the variable water charges with limited exceptions. BMP 11 requires that at least 30% of fixed costs be recovered from the variable water charges with limited exceptions. This is a major disincentive for retail agencies to promote conservation. If they overly successful, then they will lose money. This is a major disincentive for retail agencies to promote conservation. If they overly successful, then they will lose money.

4. Closed Basin Agency Examples – Kern, Mojave, Palm Springs Examples – Kern, Mojave, Palm Springs Landscape – Evaporation and Transpiration (ET) losses, remaining recharges closed basin but increases salt levels in basin Landscape – Evaporation and Transpiration (ET) losses, remaining recharges closed basin but increases salt levels in basin Indoors – Waste causes increased treatment facilities and operational costs but recycled water recharges basin (limited losses) but increases salt Indoors – Waste causes increased treatment facilities and operational costs but recycled water recharges basin (limited losses) but increases salt

5. Closed Basin Agency Strategy: Landscape – adopt budget based tiered rate structure to encourage smart use, remove salt from water being recycled and sequester it, use penalty revenue to encourage SMART irrigation controllers Landscape – adopt budget based tiered rate structure to encourage smart use, remove salt from water being recycled and sequester it, use penalty revenue to encourage SMART irrigation controllers Inside - adopt budget based tiered rate structure to encourage smart use, use penalty revenue to replace inefficient devices Inside - adopt budget based tiered rate structure to encourage smart use, use penalty revenue to replace inefficient devices

6. Upper Watershed Agency Examples – Riverside, Fresno, Three Valleys Examples – Riverside, Fresno, Three Valleys Landscape – ET loss only unless Lower Watershed in not able to capture excess runoff Landscape – ET loss only unless Lower Watershed in not able to capture excess runoff Inside - Waste causes increased treatment facilities and operational costs but recycled water recharges watershed (limited losses) unless lower watershed is unable to capture flow Inside - Waste causes increased treatment facilities and operational costs but recycled water recharges watershed (limited losses) unless lower watershed is unable to capture flow

7. Upper Watershed Agency Strategy: Landscape – adopt budget based tiered rate structure to encourage smart use, use penalty revenue to encourage SMART irrigation controllers, shade heat islands with trees lowering ET, replace unneeded grass areas and other high water using plants Landscape – adopt budget based tiered rate structure to encourage smart use, use penalty revenue to encourage SMART irrigation controllers, shade heat islands with trees lowering ET, replace unneeded grass areas and other high water using plants Inside - adopt budget based tiered rate structure to encourage smart use, use penalty revenue to replace inefficient devices and encourage re landscaping Inside - adopt budget based tiered rate structure to encourage smart use, use penalty revenue to replace inefficient devices and encourage re landscaping Recycle enough wastewater for use down watershed moving SALT towards a salt sink. Use enough recycled water locally to prevent its loss to a salt sink. Recycle enough wastewater for use down watershed moving SALT towards a salt sink. Use enough recycled water locally to prevent its loss to a salt sink.

8. Lower Watershed Examples – Long Beach, Huntington Beach, Contra Costa, Santa Monica Examples – Long Beach, Huntington Beach, Contra Costa, Santa Monica Landscape – After ET excess usage flows to the Pacific or other salt sink and is lost frequently causing environmental violations in the receiving waters Landscape – After ET excess usage flows to the Pacific or other salt sink and is lost frequently causing environmental violations in the receiving waters Inside – Waste causes increased treatment facilities and operational costs. Large flows lost to the Pacific Ocean. Limited recharge. Inside – Waste causes increased treatment facilities and operational costs. Large flows lost to the Pacific Ocean. Limited recharge.

9. Lower Watershed Strategy: Landscape – adopt budget based tiered rate structure to encourage smart use, use penalty revenue to encourage SMART irrigation controllers, shade heat islands with trees lowering ET and replace unneeded grass areas Landscape – adopt budget based tiered rate structure to encourage smart use, use penalty revenue to encourage SMART irrigation controllers, shade heat islands with trees lowering ET and replace unneeded grass areas Inside - adopt budget based tiered rate structure to encourage smart use, use penalty revenue to replace inefficient devices Inside - adopt budget based tiered rate structure to encourage smart use, use penalty revenue to replace inefficient devices Maximize use of recycled wastewater, desalt a portion of recycled water to keep SALT balance, send salt to ocean. Maximize use of recycled wastewater, desalt a portion of recycled water to keep SALT balance, send salt to ocean.

10. Budget Based Rate Structures All fixed costs recovered in a fixed charge All fixed costs recovered in a fixed charge Develop a fair allocation and a appeals process Develop a fair allocation and a appeals process Use penalty revenue to finance added conservation Use penalty revenue to finance added conservation Refund penalty revenue to those who fix problems Refund penalty revenue to those who fix problems Tighten allocations during extended in shortages Tighten allocations during extended in shortages Insure significant differences in each tier Insure significant differences in each tier

11. SALT Unaddressed will significantly increase cost of groundwater Unaddressed will significantly increase cost of groundwater Water systems should constantly be moving SALT towards a salt sink (Pacific Ocean, Salton Sea) Water systems should constantly be moving SALT towards a salt sink (Pacific Ocean, Salton Sea) Salt has significant economic impacts both on our appliances and our health Salt has significant economic impacts both on our appliances and our health

12. Obstacles MWD - over 80% of its cost is fixed so lower sales cause higher rates which effectively penalize consumers for conserving – need to move fixed costs to a tax rate like many other wholesalers MWD - over 80% of its cost is fixed so lower sales cause higher rates which effectively penalize consumers for conserving – need to move fixed costs to a tax rate like many other wholesalers Poor public and regulatory perception of recycled water Poor public and regulatory perception of recycled water Poor acceptance of tiered rate structures by governing boards / councils Poor acceptance of tiered rate structures by governing boards / councils

13. Improved Operations Currently most agencies base load off their groundwater resources (lowest cost) and float on their imported supplies (highest cost). This practice unnecessarily lowers groundwater levels going into a dry period and leaves large amounts of available water in wet years to go unused and pressures fragile ecosystems for supplies during dry years. Re-operating the systems increases yields and lowers impacts during dry periods at no long term increased operational cost Currently most agencies base load off their groundwater resources (lowest cost) and float on their imported supplies (highest cost). This practice unnecessarily lowers groundwater levels going into a dry period and leaves large amounts of available water in wet years to go unused and pressures fragile ecosystems for supplies during dry years. Re-operating the systems increases yields and lowers impacts during dry periods at no long term increased operational cost

14. Other Observation We use significant amounts of water to produce rice, cattle feed, dairy and meat products We use significant amounts of water to produce rice, cattle feed, dairy and meat products These products also generate very large amounts of greenhouse gas – most not counted as it is considered part of the natural carbon cycle These products also generate very large amounts of greenhouse gas – most not counted as it is considered part of the natural carbon cycle Might it be possible to solve two of our problems by somewhat adjusting our diet? Might it be possible to solve two of our problems by somewhat adjusting our diet?

15. Questions? Questions?