SCWD bakes in 15% rate hike, plots $44M bridge loan for Doheny desal construction

SCWD bakes in 15% rate hike, plots $44M bridge loan for Doheny desal constructionThe California utility's newly approved FY 2027 budget absorbs shifting regional fixed costs while teeing up a commercial paper borrowing strategy to kickstart its flagship ocean desalination project.

SCWD approved a $44.5 million water revenue budget that assumes a 15% water rate increase, pending a final rate adoption vote on June 25.

The district plans to issue $44.1 million in commercial paper in FY 2027 to bridge-finance the Doheny Ocean Desalination Project before securing permanent SRF and WIFIA loans.

The utility is absorbing a shift in Metropolitan Water District (MWD) rates, which are moving toward fixed-cost recovery models including new treatment capacity charges.

SCWD will pay a $1.1 million one-time capacity buy-in for the Baker Treatment Plant product water pump station to establish long-term water supply arrangements.

The South Coast Water District (SCWD) Board of Directors unanimously approved its fiscal year 2027 operating and capital budget on June 11, incorporating a planned 15% water rate increase to support rising operational costs and major infrastructure investments. The budget projects $44.5 million in water revenues and $36.4 million in wastewater revenues. A major driver of the district's future capital strategy is the Doheny Ocean Desalination Project, which is currently at 60% design completion. SCWD staff outlined a financing strategy designed to avoid immediately drawing down district reserves. The district expects to spend $2.9 million in pay-go funds to complete Phase 1 by late October. Following the expected construction contract award, SCWD plans to issue $44.1 million in commercial paper during FY 2027 to act as a bridge loan. This commercial paper will eventually be taken out by State Revolving Fund (SRF) and WIFIA financing. The project is also projected to utilize $15.7 million in grant funding during the fiscal year, with the district anticipating a potential $45 to $47 million federal grant from the USBR. In preparation for the project's next phase, SCWD is finalizing a Request for Qualifications (RFQ) for construction management services to oversee the design-build-operate-maintain (DBOM) contractor. Additionally, the board approved a cost recovery agreement of up to $500,000—starting with a $200,000 initial deposit—to reimburse the California Department of Parks and Recreation for staff time spent reviewing designs and coordinating State Fire Marshal compliance for the project's infrastructure at Doheny State Beach. Operationally, the district's budget absorbs changing rate structures from the Metropolitan Water District (MWD). While MWD's treated volumetric costs are decreasing by 7.1%, the regional wholesaler is shifting toward a fixed-cost recovery model. SCWD will face $300,000 in new MWD fixed charges, including a treatment peaking capacity charge and a treatment use standby capacity charge. To bolster local reliability, SCWD's budget also includes $3.4 million in acquired capital costs, featuring a $1.1 million one-time capacity buy-in for the Baker Treatment Plant's product water pump station as the district negotiates a long-term water supply arrangement with the Irvine Ranch Water District.