Calleguas adjusts revenue strategy amid MWD rate hikes and retailer resistance

Calleguas adjusts revenue strategy amid MWD rate hikes and retailer resistanceThe California wholesaler is rethinking its proposal for 100% fixed cost recovery following objections from the City of Oxnard, even as it prepares to pass through $10 million in new annual fixed charges from Metropolitan.

Manager of Finance Dan Smith reported that MWD is proposing rate increases of approximately 9.5% for both 2027 and 2028, following approved 8.5% hikes in previous years.

Calleguas expects to incur over $10 million in combined fixed charges from MWD annually starting in 2027, covering treatment peaking and standby costs.

Following opposition from the City of Oxnard, Calleguas is considering reducing its own fixed cost recovery goal from 100% to 80% and delaying implementation to fiscal year 2028-29.

Smith warned that current MWD rate projections do not yet account for an estimated $50 billion required to rebuild aging infrastructure over the next decade.

Calleguas Municipal Water District is navigating a complex financial landscape as it attempts to align its revenue structure with rising upstream costs while managing affordability concerns from its retail customers. At the board meeting on February 4, 2026, Manager of Finance Dan Smith outlined the dual pressures facing the wholesale agency: imminent rate restructuring from its supplier, the Metropolitan Water District of Southern California (MWD), and resistance to Calleguas’s own Cost of Service Study proposals. According to Smith, MWD has released preliminary budget data indicating overall rate increases of 9.5% for both 2027 and 2028. These projections continue a trend of steep hikes, following the 8.5% increases MWD already implemented for 2025 and 2026 to fund its $2.4 billion annual budget. A significant component of MWD’s future proposal involves shifting variable volume charges to fixed charges. Smith detailed that starting in 2027, Calleguas faces three distinct fixed charges from MWD: a Treatment Peaking Charge, a Use Standby Charge, and a Remaining Standby Charge. Collectively, these are projected to cost the district approximately $10.4 million in 2027 and $9.9 million in 2028. "It’s still a nice chunk of change that we’re talking about here," Smith told the board, noting that Calleguas intends to pass these costs through to its purveyors as fixed charges. He added that while the shift reduces the volumetric rate increase, the overall financial burden remains significant. Calleguas projects its own blended rate increase—combining MWD pass-throughs with local operations and capital costs—to be approximately 7.2% in 2027 and 8.6% in 2028. However, the district's effort to mirror this shift toward fixed revenue is facing local headwinds. Calleguas had proposed a Cost of Service Study aiming for 100% fixed cost recovery to stabilize revenue streams. During the meeting, Smith reported that retail purveyors, specifically the City of Oxnard, have pushed back against this target. In a formal letter, Oxnard officials questioned the necessity of the 100% target and raised concerns about the impact on conservation incentives and low-volume users. In response to this feedback, Smith stated that staff are developing options to scale back the proposal. The revised plan currently under consideration would lower the fixed cost recovery goal to 80%, utilize a five-year rolling average for allocation instead of ten, and delay implementation from 2027 to the 2028-29 fiscal year. "They really want to know what the need for this new fixed charge is," Smith noted regarding the purveyors' feedback. Looming over these immediate rate discussions is a massive long-term liability regarding MWD’s infrastructure. Smith reported that during a recent engineering tour, staff were informed that the Palos Verdes feeder system faces potential collapse within ten years, requiring a complete rebuild estimated at $50 billion. "That's not been factored into the rates," Smith warned. He noted that while MWD recently doubled its ad valorem property tax rate for the first time in over 30 years to address revenue shortfalls, the capital improvement program could still double in the coming years, placing further upward pressure on imported water costs. General Manager Kristine McCaffrey emphasized that these rising costs reinforce the need for local water supply development. "As MWD rates get higher, the cost proposition can change," McCaffrey said, noting that while local projects are complex, they offer advantages in local control and reliability.