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Water Rates

Soaking Uncle Sam: Water Rates

September 14, 2005

Under Westlands' old contract, the district's base water rate depended on whether the land being irrigated was in "Area 1" or "Area 2." Farmers in the first area got their water at an incredibly low fixed rate of $8 per acre-foot while farmers in the second area paid a higher, adjustable water rate, which amounted to $27.57 an acre-foot in 2002 and $31.63 in 2005. [4] Under Westlands' new contract, the geographical distinction will be erased and all of the district's farmers will be paying the higher, adjustable rate. [5]

Any increase in price brings the amount paid for the water closer to market rate and eases the burden on taxpayers, but given the serious waste, inequity and fraud in the CVP, this is a token "reform." It may seem like a considerable increase, especially for some irrigators, but compared to the water's market value, it's still small change — equivalent to raising the sale price of beef that retails for $10 a pound from 47 cents to $2.00, reducing the discount from about 95 percent to 80 percent.

According to the Bureau's figures, if irrigators were to pay operation and maintenance charges, make payments towards capital costs, and pay interest on these costs (calculated from 1982 as specified by federal law), Westlands farmers would have paid $51.75 per acre-foot for their water in 2002 and would be paying $55.20 per acre-foot in 2005 — almost twice the contract rate. †2 [4]

But even this so-called "full cost" rate is highly subsidized. It does not take into consideration pre-1982 interest on construction costs. Nor does the Bureau's "full cost" rate reflect the fact that this price includes a power subsidy. Pumping water to Westlands consumes an incredible amount of energy — about 94 million kilowatt-hours in 1999, according to the district's documents. [27] Much of these energy costs are rolled into the Bureau's water rates, but the price the agency charges irrigators for energy usage is far below market rate. [2,6]

To get a better picture of what the water is really worth, consider what the state has been paying for water to put into the Environmental Water Account (EWA), which is used to restore fish and wildlife habitat in the Bay-Delta. Operated by the state since 2000 as part of a larger program to restore ecosystem health, the EWA buys water from willing sellers (mostly irrigation water users) within the CVP and State Water Project at market rates. In 2002-2003, the EWA paid an average of $129.48 per acre-foot for water. [7] If Westlands farmers had to pay this price for water plus pay off their capital costs, their water rates would be nearly $150 an acre-foot.

A new supply of irrigation water, as proposed by the Bureau and advocated by irrigators, would be even more expensive. Studies by the Bureau and the state for new or expanded dams on the San Joaquin River project that irrigation water from the newly created reservoirs would cost at least $170.42 per acre-foot — probably a lot more. [8] This cost estimate is highly conservative since it excludes the costs for road construction, relocation of existing facilities, environmental mitigation, land acquisition, reservoir cleaning, and interest during and after construction. [2]

Using these three different rates — "full cost," EWA and new supplies — as measures of the water's value and comparing what Westlands actually paid for its water in 2002, EWG calculated the value of the district's water subsidy that year. Depending on which market value is used in the calculations, EWG subsidy estimates ranged from $24 million to $110 million — all of which went to just 422 farms. [2] Compared to other published estimates, EWG's calculations are conservative: Dr. David Sunding, a prominent UC Berkeley economist, testified before the House Subcommittee on Water and Power in 2001 that "the present value of the [water] subsidy to Westlands alone is nearly $1 million per farmer." [9]

With such low prices being charged to Westlands irrigators, an important question remains unanswered: Will the district be able to pay the federal government what it still owes for CVP construction costs by the 2030 deadline? As of September 2003, the district had only paid back $56 million of its $442 million debt. The new contract says that rates may be adjusted in the future — up or down. [4]

On August 30 — just two weeks before the contract's public comment deadline — the Bureau announced that its rate-setting policies would change for 2006 †3. Although the full details of these changes have not been made public, they could increase Westlands' rates another $3 or $4 an acre-foot. The contract is really a pig in a poke — the annual rate-setting documents project how much water will actually be delivered and the price paid. The agency can adjust water rates as it sees fit without public comment or involvement.

The fact is that taxpayers have no guarantee that the Bureau will actually set prices in the future high enough to require Westlands to pay off its multi-million dollar debt. The proposed contract mentions the debt repayment just once, and refers to it only as a "goal." [5] The Bureau can change its accounting methods to show that the districts are paying off their debts, but since they are getting cheap water, power subsidies and not paying interest, the meter of costs to the taxpayers is still running all the time.

Westlands Water District contains some of the largest and most subsidy-rich agribusinesses in California and the nation. Of the nine farms that used the most CVP water in 2002, all are wholly or partly contained within Westlands. No less than 15 Westlands farms received water subsidies worth at least $1 million in 2002. [2]



Table: Top 15 farms in Westlands.

 

Farm Name Estimated amount of WWD water purchased in 2002 (acre-feet) Subsidy calculated at
Federal "full cost" rate State Environmental Water Account rate Replacement water rate
WOOLF ENTERPRISES 29,223 $38,000 to 710,000 $2.3-3 million $3.5-4.2 million
DRESICK FARMS INC 18,812 $30,000 to 450,000 $1.5 million $2.3 million
VAQUERO FARMS 17,083 $38,000 to 410,000 $1.4 million $2.1 million
S & S RANCH 16,217 $29,000 to 390,000 $1.3 million $2.0 million
HARRIS FARMS 15,158 $36,000 to 370,000 $1.2 million $1.8 million
BURFORD RANCH 14,757 $28,000 to 360,000 $1.2 million $1.8 million
MURRIETA WESTLAND TRUST 14,202 $39,000 to 340,000 $1.1 million $1.7 million
TANIMURA & ANTLE 12,910 $29,000 to 310,000 $1.0 million $1.6 million
O'NEILL FARMING ENTERPRISES 12,543 $36,000 to 300,000 $1.0 million $1.5 million
WESTSIDE HARVESTING L P (NORTH) 11,239 $37,000 to 270,000 $910,000 to 1,100,000 $1.4 million
STONE LAND COMPANY 10,794 $34,000 to 260,000 $870,000 to 1,100,000 $1.3 million
ANDERSON, DICK & SONS FARMING 9,561 $33,000 to 230,000 $780,000 to 970,000 $1.2 million
BORBA BROTHERS FARMS 8,844 $39,000 to 210,000 $730,000 to 900,000 $1.1 million
TERRA LINDA FARMS II 8,660 $34,000 to 210,000 $710,000 to 880,000 $1.1 million
WESTSIDE HARVESTING L.P. 8,583 $38,000 to 210,000 $700,000 to 870,000 $1.1 million

 


Source: [2]



But some Westlands farmers are getting a double helping of government subsidies. These "double dippers" not only get federal irrigation water delivered at cut-rate prices, they then turn around and get cash payments from the government for growing subsidized crops they have irrigated with highly subsidized water. Matching up names and addresses in our crop and water subsidy databases, EWG found that 37 percent of farms in Westlands were double dipping in 2002, with crop subsidy payments alone averaging $144,345 per farm. Overall, these 156 farms got crop subsidy checks together worth $22.5 million in 2002. [10]



Footnotes

†2 The 1982 Reclamation Reform Act requires farmers who irrigate more than 960 acres of land to pay this rate for water they use on each acre over the 960-acre limit. It is well known, however, that many farmers break up their land holdings into trusts and other arrangements to get around paying these higher prices for water. The 1992 Central Valley Improvement Act also requires CVP contractors — in theory — to pay higher prices for their water. According to the tiered pricing structure outlined in the Improvement Act, the first 80 percent of a contractor's water allotment is paid at the contract price, the next 10 percent is paid at the average of the contract and the Bureau's "full cost" price, and the last 10 percent is paid at the "full cost" price. The revenues from this tiered pricing are supposed to go into a habitat restoration fund of up to $50 million annually. Unfortunately, because CVP water is over-allocated, most contractors don't receive more than 80 percent of their allotted amount in a given year, meaning that in practice the tiered pricing structure falls short of its promise.


†3 The following note was posted on the US Bureau of Reclamation website on August 30th, 2005: "Effective in the 2006 CVP Irrigation and M&I water rates, Reclamation is fine-tuning the base (projected water deliveries) utilized in the capital and deficit rate calculation process to reflect paid for project water. The following sample schedules show what the 2005 CVP water rates would have been utilizing this change." See: http://www.usbr.gov/mp/cvpwaterrates/