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Newsha K. Ajami,

Director of Urban Water Policy,

Water in the West

Stanford University

The State of Water in California

2Source: U.S. Drought Monitor, February 28, 2015

http://droughtmonitor.unl.edu/Home/StateDroughtMonitor.aspx?CA

• Uncertain and extreme climate

• Decentralized utility system

• Many orphan and underfunded projects

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A Challenge or An OpportunityUrban re-invention is costly and requires rethinking of current financing mechanisms.

– Some of the financing options include:– Municipal bonds– State revolving funds– Public-Private Partnerships (PPP)– Tax initiatives– Public benefit funds

– Funding gaps include – Conservation and efficiency efforts, – Water research and development, – Monitoring and data management, – Capital investment for innovative water systems

– In California, State General Obligation (GO) bonds, while only 3% of annual water spending, cover about 10% of capital investment in various water projects.

California’s Reliance on GO water Bonds

Bond financing is unreliable and expensive:- Californians pay $80 annually / household to pay back water

bonds

- Between 2008-2011, 18% of statewide annual water-related spending in California covered Debt service on GO water bonds

ReNUWIt Year 3 Renewal Review Site Visit 4

Source: PPIC (2014)

0.0

0.5

1.0

1.5

2.0

2.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Bill

ions

of $

2012

per

yea

r

Total water bond spending ($2012 billions)

Bond spending on water sector ($2012 billions)

Bond debt repayment ($2012 billions)

Projected repayment ($2012 billions)

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Public Financing Mechanism

• Public Benefit Charge can create a sustainable pool of monies to :– Invest in R&D, – Reduce the cost of new technologies, and – Attract private capital

Looking to the

electricity sector for

solutions

Image Source: https://www.flickr.com/photos/gi/197751467/

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Water Electricity

Number of Utilities in California

2,000+ 50+

Utility Landscape Highly decentralized, mostly Publicly Owned Utilities

Dominated by three major Investor Owned Utilities

Characteristic of the Good

Economic CommodityPublic GoodHuman Right

Economic Commodity

Approach to Efficiency Mostly Voluntary Mostly Mandatory

Recent Public Benefits Funding Mechanism

Municipal Bond (e.g. GOB)

Public Goods Charge

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GO Bonds Public Goods Charge

Funders Taxpayers Ratepayers

Reliability of

Funding

Unreliable

(depends on voter

approval)

Reliable

(fees generated every

billing cycle)

Order of Funding Money is borrowed

up front and

taxpayers repay the

bond later

Ratepayers are charged

up front and see results

later

Nature of

Funding

One time lump sum

to projects

Continual income

Provisions for

Low Income

Communities

No Possibly

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Public Goods Charge

• Created during deregulation of the state’s electricity market in the 1990s to ensure that research and development did not stop

• A per-usage fee on customer utility bill, usually 1-2% of the bill ($1/$2 dollars)

• Raised money for three program areas to transform the state’s electricity sector

• In place from 1998-2012

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IOU Public Purpose Program Surcharge Components

0

0.001

0.002

0.003

0.004

0.005

0.006

0.007

0.008

0.009

Commercial A Residential DR

cen

ts/

kW

h

Rate Schedule

Procurement EE Surcharge

Non-Low Income (PGC)

Low Income

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Energy Efficiency

57%

RD&D

16%

Renewables

27%

Image Source: http://www.zeiss.com

Image Source: Getty CreativeImage Source: www.wnergy.nd.edu

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Energy Efficiency Program

• Received the majority of PGC funds• Programs administered by the IOUs • Funds distributed to

– IOUs themselves– Statewide programs– Local government partnerships – Third/local party implementers

• Money allocated to various programs– Residential– Agriculture– Commercial – Industrial

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Image source; www.gracelinks.org

Image source: www.oge.com

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Renewable Energy Program

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• Goal: to augment the state’s energy supply with renewable energy sources

• Provided fiscal incentives to– Renewable energy generators– End-use customers

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Image Source: www.solarauthority.com

Image Source: UTS San Diego Image Source: www.energy.ca.gov

Image Source: www.indianaffairs.gov

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Renewable Energy Program

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40%

2%6%

27%

25%

New Renewable Facilities Consumer Education

Customer Credit Emerging Renewables

Existing Renewables

Research and Development:Public Interest Energy Research

(PIER)

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“To fund research…that is not adequately provided by competitive and regulated markets”

“Develop and bring to market energy technologies that provide increased environmental benefits, greater

system reliability, and lower system costs”

Energy Efficiency

Renewable Energy

Energy Infrastructure

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POUs- Public Goods Charge

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Modesto IrrigationDistrict

SacramentoMunicipal Utility

District

Turlock IrrigationDistrict

Dis

trib

uti

on

of

Pu

bli

c B

enef

its

Sp

end

ing

Low Income

Energy Efficiency

Renewables

RD & D

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PGC Successes

• Decreased per-capita energy use• Customer and state economic benefits• Environmental benefits from decreased

energy use and increased renewables• Increased rate of innovation• Fee serves as a signal for conservation

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PGC Successes

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-

10,000

20,000

30,000

40,000

50,000

60,000

70,000C

umul

ativ

e E

ffic

ienc

y an

d C

onse

rvat

ion

Impa

cts

(GW

h)

Public Goods Charge Era

Despite many successes, the PGC for electricity was not renewed…

• The California Energy Commission could not demonstrate substantial benefits

• Energy landscape different when PGC was enacted than when it expired

• Process by which funding was allocated for PIER program was not economical

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A PGC for Water?

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A PGC for Water?

• Like the PGC for electricity- a small, usage related fee on customer water bills

• 1% -2% of customer bills• Money could be used to support Public

Purpose Projects such as– Innovation: research, demonstration and

dissemination of new technologies and management practices

– Conservation and efficiency– Ecosystem restoration

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Governance

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Statewide

Local

Regional

Hybrid

Lessons Learned from PGC for Electricity

Transparency and record keeping

Reevaluate program priorities

Research and development clearly defined

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