DIVE RSIFI CATION. San Diego County Water Authority Annual Report

Transcription

1 DIVE RSIFI CATION San Diego County Water Authority Annual Report

2 CONTENTS 5 21 OPTIMIZATION RESOURCE ALLOCATION 13 RISK MANAGEMENT BALANCED INVESTMENT STRATEGY FINANCING OUR MISSION

3 D I V E RSIFI CATION 1 The parallels that run between savvy investing and prudent resource planning are striking. Planning in each case is based on a recognition that diversification is absolutely fundamental, fundamental to how people live and benefit from what they have in the present, and fundamental to the growth, vitality and strength of their future. Financial planners seek to diversify investment portfolios by recommending a combination of large-, mid- and small-cap stocks, bonds and various fixed income funds. The diversification strategy assists the investor in meeting short- and long-term financial goals, while experiencing an acceptable level of risk. The San Diego County Water Authority is similarly planning its investments in water resources. The Water Authority understands and takes action for the present water supply needs and at the same time invests in the future needs of the San Diego region. For the planners of the Water Authority, a well-balanced water portfolio is critical in providing continued water supply reliability to the county. The pages that follow describe the Water Authority s activities and actions taken during fiscal year 2002, which furthered its goals to optimize the mix of local water resources, seek options for imported water supplies, manage associated risks and stay invested in the surrounding community.

4 Optimizing and diversifying our water resources could never have been more important for the nearly three million residents of San Diego County than it was during fiscal year This was the region s driest year on record, with a scant 3.02 inches of rainfall. 2 This year will be remembered for the tremendous effort to work out a mutually agreeable plan with the Imperial Irrigation District for the transfer of 200,000 acre-feet of water from Imperial Valley to San Diego County. The transfer has been a hotly debated issue among agricultural interests, Salton Sea advocates, water agencies and environmentalists all of whom must work together to reduce California s use of Colorado River water before the Secretary of the U. S. Department of the Interior s Dec. 31, 2002 deadline. While imported water supplies helped keep the taps running, the Water Authority steadfastly worked to make the most of the local water resources within the region. The agency s portfolio of local water supply options will change dramatically between now and This year was marked by the board of directors decision to seriously consider constructing a seawater desalination plant on the coast. Research was also conducted and presented regarding the feasibility of a binational aqueduct that would transport water from the Colorado River in Imperial Valley to the San Diego and Tijuana regions. Conservation, recycling and groundwater supplies continue to be other ways we are enhancing and diversifying our local water supply portfolio. Investing in water is an investment in our community and our economic vitality. The Water Authority created opportunities for emerging and small businesses to compete for its contracts, developed presentations for community organizations and recognized tomorrow s leaders with student science awards and the scholarship program. The Water Authority s greatest capital investment this year was building the infrastructure to manage emergency water needs. Construction of the Olivenhain Dam and Reservoir literally stood out as examples of our Capital Improvement Program. The dam is an engineering marvel; when completed, it will be the tallest roller-compacted concrete dam in North America at 318 feet high. Security was a top concern across our nation in the aftermath of the Sept. 11 terrorist attacks. The Water Authority responded to the national crisis with immediate heightened security followed by a systematic security analysis of our water system and implementation of improvements. Diversifying our local water resources is key to the success of our mission: providing a safe, reliable water supply that supports the county s $126 billion economy. We invite you to read through our 2002 portfolio and take stock of these prevailing trends: optimizing our portfolio, allocating resources, managing risk, balancing investments and financing our mission James F. Turner CHAIRMAN Bernie Rhinerson VICE CHAIRMAN James H. Bond SECRETARY Maureen A. Stapleton GENERAL MANAGER

5 Diversified Water Portfolio { 2020 } Metropolitan Water District IID Transfer Water Conservation Surface Water Recycled Water Groundwater Desalinated Seawater 32-40% 22% 10% 9% 6% 7% 6-14% % Metropolitan Water District 5.7% Surface Water 1.8% Groundwater 2.0% Recycled Water 0.8% Desalinated Water The San Diego County Water Authority is continually pursuing the development of local water supplies in an aggressive manner, and has actively promoted conservation throughout the region. Using local supply resources, coupled with conservation measures, will actually decrease the percentage of imported water in the region s total water supply mix over the next 20 years. Water Supply Sources { 2002 }

6 4 If all the water on the earth were divided among all the people on the earth, each person would have enough to fill 94 Olympic-sized swimming pools. SOURCE: United States Geological Survey; United States Bureau of Census. Based on pool size of 50m x 25m x 3m

7 O P T IMI Z A T I O N 5

8 6 Optimization: Putting together a portfolio in such a way that return is maximized for a given risk level, or risk is minimized for a given expected return level.

9 PICTURED ON LEFT: Colorado River Sacramento River San Joaquin River California Aqueduct Metropolitan Water District of Southern California San Diego County Water Authority Colorado River Aqueduct Imperial Irrigation District Parker Dam Colorado River The first imported water from the Colorado River arrived in San Diego County in Today, imported water accounts for 75 to 95 percent of total water used in the county each year. All imported water is currently supplied by Metropolitan Water District from the Colorado River and from Northern California through the State Water Project. O P TIM I Z A T ION 7 Life in San Diego County depends upon optimizing the region s water supply. In , this was especially evident as the region received a paltry 3.02 inches of rain. Despite historic low rainfall, most residents and businesses expect water to be available when they turn on the tap. The region is booming with successful industries such as biotechnology, science, high-tech computer and wireless businesses, manufacturing, tourism and the military. To help keep the county s $126 billion economy vibrant, the San Diego County Water Authority is planning ways to optimize and diversify its water supply. In the financial marketplace, investing in a diversified portfolio is considered smart strategic planning. Combining large-cap, mid-cap and small-cap stocks with bonds and other fixed income funds contributes to the security of one s investment portfolio. This basic tenet of diversification also holds true in planning for San Diego County s present and future water supply needs. The Water Authority has invested its capital, time and effort in a number of projects that collectively contribute to greater diversity in its water resource mix and, thus, a stronger agency to support three million residents of San Diego County. Diversifying water supply sources will have a significant impact on the community and its water supply reliability. The Water Authority has historically relied on a single supplier to meet the vast majority of the county s water demand. Since first making an agreement to import water from the Metropolitan Water District of Southern California in 1944, the 23 member agencies of the Water Authority have depended upon this single source for up to 95 percent of the water used in San Diego County. Two timely factors, however, make it imperative for the Water Authority to seek alternatives to reduce its heavy reliance on water from MWD. The first is California s effort to reduce its take of Colorado River water by Dec. 31, 2002, as outlined in the California Colorado River Water Use Plan. The other is the lack of clarity on the Water Authority s rights to purchase sufficient MWD water. The California Colorado River Water Use Plan The California Colorado River Water Use Plan outlines the state s initiative to reduce its use of Colorado River water and live within its basic annual apportionment of 4.4 million acre-feet. Key to the plan is

10 Imported Water Supply Sources FY 2002 Imported Sources 650,695 acre-feet Local Sources 70,957 acre-feet 90% Total Water Supply 721,652 acre-feet 26% 74% 74% State Water Project 169,181 acre-feet Colorado River 481,514 acre-feet This market-driven approach makes California a more efficient 8 user of its limited Colorado River resource, alleviating stresses on the water supply not only within the Colorado River Basin, but also in the Bay-Delta region of Central and Northern California. IMPERIAL VALLEY FARMLAND the transfer of Colorado River water from agricultural agencies to urban agencies. The urban agencies will now pay to implement agricultural water conservation programs that make transfer water available without economically harming the agricultural communities. This market-driven approach makes California a more efficient user of its limited Colorado River resource, alleviating stresses on the water supply not only within the Colorado River Basin, but also in the Bay-Delta region of Central and Northern California. The federal government has implemented Interim Surplus Guidelines to continue to provide California with surplus Colorado River water supplies above the state s basic annual apportionment of 4.4 million acre-feet for the next 15 years in order to provide a soft landing while water conservation programs are being implemented. California currently uses as much as 5.2 million acre-feet of river water annually, 800,000 of which has been provided only through annual declared surpluses on the river. Quantification Settlement Agreement A major component of the California Colorado River Water Use Plan is the Quantification Settlement Agreement (QSA). This historic agreement was crafted jointly by MWD, the Imperial Irrigation District, the Coachella Valley Water District and the state Department of Water Resources, with participation of the Water Authority and the U. S. Department of the Interior. The joint agreement marked a new chapter in the history of water in Southern California; it was the first time these agencies collaborated in a long-term agreement to settle decades-old disputes over Colorado River water allocations. The QSA must be executed by Dec. 31, 2002, or the federal government will suspend the Interim Surplus Guidelines. The state would experience a sudden 800,000 acre-foot reduction in its water supply in That would represent a cut of 35 percent of the water that MWD supplies through its member agencies to 17 million people in Southern California. A critical factor in completing the QSA is finalizing the terms of the Water Authority- IID Water Transfer Agreement. Water Authority-IID Water Transfer Agreement The transfer agreement made between the Water Authority and the Imperial Irrigation District is the linchpin determining whether the QSA will be finalized by the deadline of Dec. 31, This agreement calls for

11 CALFED Bay-Delta Program The success of the Water Authority-IID water transfer agreement has far-reaching impacts, beyond the boundaries of the San Diego and Imperial counties. If the agreement fails and the QSA is not implemented, there will inevitably be a greater strain on the fragile San Francisco Bay - Sacramento/San Joaquin River Delta (Bay-Delta) water system, which supplies approximately 20 percent of the water imported to the San Diego region. The Bay-Delta, a large estuary located south of Sacramento, supplies drinking water for 22 million California residents, is used to irrigate Central Valley farmland that produces 45 percent of the nation s fruits and vegetables and is home to about 750 plant and animal species. However, 150 years of human activity has caused the Bay-Delta to deteriorate significantly. The federal and state government signed the Bay-Delta Accord in 1994 to restore the estuary as a reliable supply of good-quality water and a healthy habitat for fish and wildlife. In July 2001, the joint CALFED Bay-Delta Program entered its second year of action to achieve these goals. In San Diego County, the program provided funding for projects to encourage the purchase of highefficiency home clothes washers and increase the region s supply of groundwater. San Francisco Sacramento River San Joaquin River The Salton Sea is a 35-mile-long lake with 110 miles of shoreline, sustained mostly by agricultural drain water from the Imperial, Coachella and Mexicali valleys. Recently, environmental concerns about the sea have been an obstacle in water transfer negotiations. 9 SALTON SEA THE BAY- DELTA the transfer of up to 200,000 acre-feet of conserved Colorado River water per year to the Water Authority for the next 75 years (if either party renews after the first 45 years). The water will be transferred to San Diego through a related exchange agreement with MWD. The Water Authority-IID Water Transfer Agreement outlines a method of shifting water from Imperial Valley to San Diego County with a minimum impact on the agricultural community and the Salton Sea. The 1998 agreement precluded farmers from fallowing their lands. A draft Environmental Impact Report, released on Jan.18, 2002, cast that condition into question. As 2002 began to unfold, debates about the future of the Salton Sea complicated an already complex deal. When the agreement was written it was expected that Congress would have decided how to restore the Salton Sea California s largest lake, home to several endangered species and a stopover point for several million migratory birds. Environmentalists voiced concerns that reducing agricultural drain water flowing to the Salton Sea would accelerate the increasing salinity and subsequent deterioration of the sea, compromising the species that depend on it. The draft Environmental Impact Report examined four possible courses of action: (1) No project, that is, no transfer; (2) A transfer of no more than 130,000 acre-feet per year, using on-farm conservation only. Environmental effects on the Salton Sea would be mitigated through fallowing;(3) A transfer of up to 230,000 acrefeet annually. Of that, 130,000 would go to San Diego County. The other 100,000 would go to Coachella and/or MWD. Under this scenario, the water would be saved on-farm through system savings or fallowing. Effects to the Salton Sea would be mitigated through fallowing; and (4) A transfer of up to 300,000 acre-feet only through fallowing. The draft recognizes that to use fallowing as a conservation method, the Water Authority-IID agreement must be changed, as fallowing was not part of the 1998 agreement. At the end of fiscal year 2002, the EIR had raised several unresolved questions. Were the original terms of the agreement still feasible? Would fallowing need to be considered? How would environmental and economic impacts be mitigated? With increasing pressure to find a solution before the December deadline, the Water Authority continued its efforts to restructure the water transfer agreement to address these issues.

12 Key Water Facts FY 2002: Water Deliveries, Sales and Conservation Total Water Delivered via Water Authority System Water Placed into Water Authority Storage Account Pre-Deliveries Placed into Storage Pre-Deliveries Withdrawn from Storage Total Sales to Member Agencies Total Savings from Conservation in Service Area 650,695 AF 1,189 AF 0 AF 9,738 AF 659,244 AF 27,529 AF 10 CALIFORNIA AQUEDUCT COACHELLA BRANCH, ALL- AMERICAN CANAL The Preferential Rights Decision The Water Authority is seeking to clarify its rights to the amount of imported water that it can depend upon from the Metropolitan Water District. The definition of preferential rights could have a tremendous impact on the entire San Diego region. The Water Authority typically buys about 26 percent of MWD s water. However, an archaic formula dating from 1931 gives San Diego the preferential right to only 14 percent of MWD s water. The potential problem is that if Southern California were to experience a water shortage or drought, any MWD agency can request that its preferential rights be fulfilled. The city of Los Angeles has a right to buy 23 percent of MWD s water, though it currently uses only 8 percent. If Los Angeles were to require its full right, the result for San Diego County would be significant cutbacks in its water supply that would immediately put the region s economy at risk. After years of trying to reach an agreement with MWD, the Water Authority decided to seek a legal resolution on the issue of preferential rights. Clarification of the preferential rights question is crucial for long-range strategic planning for the San Diego region. A decision in favor of the Water Authority could guarantee a percentage of water that is consistent with current use. A decision in favor of MWD would at least resolve the questions of how much water the Water Authority can rely upon in times of shortage so that the agency can better prepare for such a crisis. San Francisco was chosen as a neutral ground for the court hearing. On Feb. 27, 2002, San Francisco Superior Court Judge James J. McBride dismissed the suit. The Water Authority appealed McBride s decision; the appeal is expected to be heard in The Regional Colorado River Conveyance Feasibility Study Many of the Water Authority s projects originate as ideas in the agency s Regional Water Facilities Master Plan, a comprehensive planning process for projecting future water supply resources and facility needs through The Regional Colorado River Conveyance Feasibility Study, completed in February 2002, is one such effort.

13 Colorado River Aqueduct San Diego Aqueduct Colorado River San Diego El Centro Tijuana Tecate Mexicali Existing Aqueducts Proposed Routes Rosarito Río Colorado The Regional Colorado River Conveyance Feasibility Study San Diego County and Tijuana share more than a border they share a common source of water: the Colorado River. Ten binational aqueduct alignments were studied in the Regional Colorado River Conveyance Feasibility Study, including five routes primarily in Mexico, three routes primarily in the United States and two routes split between the U.S. and Mexico. The Water Authority has invested its capital, time and effort in a number of projects that collectively contribute to greater diversity in its water resource mix, and thus, a stronger agency to support three million residents of San Diego County. 11 COLORADO RIVER - TIJUANA AQUEDUCT The Regional Colorado River Conveyance Feasibility Study was conducted to determine the practicality of extending an aqueduct and pipelines from Imperial Valley to San Diego. The study focused on binational aqueduct routes that would serve the Tijuana-Tecate-Rosarito area of Baja California as well as San Diego County. In an excellent example of binational collaboration, the Water Authority, the International Boundary and Water Commission and Mexican water agencies agreed to work together on this project. The main questions driving the research were technical feasibility and cost. A major aspect of the study was determining routes for a potential new aqueduct. Ten binational aqueduct alignments were studied, each of which would connect with existing water infrastructure in both San Diego and Baja California. These alignments include five routes primarily in Mexico, three routes primarily in the United States and two routes split between the two countries. Other key aspects of the study were an evaluation of geologic features, seismic risks and environmental considerations. From the study, the Water Authority estimated the total cost for the aqueduct would be $2.2 billion to $2.6 billion (2001 dollars). The Water Authority s cost would be $1.6 billion (2001 dollars). These figures include a new parallel canal to the All-American Canal in Imperial Valley, pipelines, tunnels, pump stations and power plants. The total cost estimate also reflects building the infrastructure to have the aqueduct end at the San Vicente Reservoir and in Tijuana. The viability of the project depends upon additional studies to refine the potential alignments.

14 12 Nearly 97 percent of the world s water is salty. Another 2 percent is locked in ice caps and glaciers. That leaves just 1 percent for all of humanity s needs all agricultural, residential, manufacturing, community and personal needs. SOURCE: United States Geological Survey -

15 R E S O U RCE ALLOC A T I O N 13

16 14 Resource Allocation: The systematic distribution of a limited quantity of resources.

17 Desalination As seawater passes through layers of reverse osmosis membranes, water molecules are separated from salts and impurities to produce high-quality water. PICTURED ON LEFT: City of Oceanside Desalination Facility R E S O U RCE ALLOC A T I O N 15 An increasing share of the Water Authority s portfolio is invested in the development and optimization of local water resources. Due to the federally mandated reduction in use of Colorado River water and the need to lessen dependence on a single supplier, the development of additional local water resources has become increasingly important in the long-range planning for the San Diego community. The Water Authority and its member agencies are implementing a long-term strategy to reduce the region s heavy reliance on imported water. This long-term commitment to diversifying the region s water resources will ensure greater reliability in the water supply through investments in such projects as desalination, conservation, water recycling and groundwater storage and recovery. Desalination When looking for new water sources, it seems logical to look west to the vast Pacific Ocean. Seawater desalination converting seawater into high-quality water suitable for drinking and other potable water uses holds the promise of a new drought-proof water supply. In fact, the Water Authority has considered seawater a potential water source for decades. Until recently, however, desalination has not been economically feasible. That situation has changed. New advances in desalination technology, cost savings provided by locating desalination facilities next to coastal power plants and the availability of financial incentives have made the cost of seawater desalination competitive with other sources of new water supplies. These developments have prompted the Water Authority to engage in a serious examination of several potential opportunities that could make seawater desalination a reality in San Diego County in the near future. This fiscal year was pivotal for moving forward with plans to build a desalination facility in San Diego County. In December, the Water Authority invested $400,000 in partnership with the Carlsbad Municipal Water District and the city of Oceanside to conduct a feasibility study for a desalination plant located adjacent to the Encina Power Station in Carlsbad. If developed, the facility could supply enough high-quality potable water to serve more than 100,000 families as early as The plant would produce 56,000 acre-feet of water annually, making it the largest

18 48 October 2001 Local Precipitation September 2002 NORMAL* 36 38" NORMAL* 28" INCHES 24 California Statewide Precipitation NORMAL* ACTUAL 7.1" A CTUAL 7.8" 10" Normal ACTUAL 3.4" Average 0 CUYAMACA HENSHAW LINDBERGH 0 *NORMAL rainfall is based on the average rainfall over a period of 30 years This long-term commitment to diversifying the region s water resources will ensure greater reliability in the water supply through investments in such projects as desalination, conservation, water recycling and groundwater storage and recovery. ENCINA POWER STATION desalination facility in the Western Hemisphere. The proposed Carlsbad facility would be similar to other plants (in Tampa Bay, Florida, and on the island of Trinidad) that are successfully using reverse osmosis technology for drinking water. In May 2002, the Water Authority board authorized project development discussions regarding the proposed Carlsbad facility and approved submission of a funding proposal to the Metropolitan Water District that could help offset the project s cost. The proposed site in Carlsbad is not the only option in San Diego County for a desalination facility. The Water Authority is researching and evaluating other potential sites, including a facility next to the South Bay Power Plant in Chula Vista and the San Onofre Nuclear Generating Station, 10 miles south of San Clemente in San Diego County. Conservation Water conservation will always be an essential component of the Water Authority s portfolio. In this semi-arid climate, water is a finite resource where every drop counts. There has seldom been a more important time to communicate the message of conservation than in fiscal year 2002 when San Diego County experienced its driest year on record. The annual data for rainfall measurement coincides with the Water Authority s fiscal year. During fiscal year 2002, the San Diego region received only 3.02 inches of rainfall, down 7.66 inches from its normal rainfall of inches. While San Diego County was in a meteorological drought, the region avoided a crisis because imported sources continued to provide adequate supplies. However, the supplies from the Colorado River and Northern California are not immune to drought conditions. When these supplies are threatened (the Colorado River Basin is experiencing its fourth straight year of dry year conditions), the region faces cutbacks in its imported water supply. The Water Authority manages the most comprehensive and aggressive water conservation program in California. Conservation programs are a significant factor in reducing the region s dependence on imported water. The Water Authority s conservation program includes voucher programs that provide incentives to buy highefficiency clothes washers and ultra-low-flush toilets. Water-wise gardening and landscaping programs have helped reduce

19 Type of Water Use FY % Total Water Use 686,530 acre-feet 8% 17% 54% Residential 373,528 acre-feet 21% Commercial & Industrial 143,607 acre-feet Agricultural 116,075 acre-feet Public & Other 53,320 acre-feet The High-Efficiency Clothes Washer (HEW) Program generates both water and energy savings and provides a financial incentive to encourage customers to choose a HEW instead of a standard top-loading model. 17 XERISCAPE AWARDS AT SAN DIEGO COUNTY FAIR HIGH- EFFICIENCY CLOTHES WASHERS DAY LILY residential and commercial outdoor water use. The programs that the Water Authority funds and promotes helped conserve 27,547 acre-feet of water this year a record year for conservation. Drought Water Conservation Awareness Campaign A drought water conservation awareness campaign was initiated in spring 2002 as a response to the dry year. News releases and public service announcements were created to elevate public awareness about conserving water. High-efficiency Clothes Washer Program Recognized The Water Authority s residential High-Efficiency Clothes Washer (HEW) Voucher Incentive Program was recognized by the U. S. Department of the Interior, Bureau of Reclamation with an award of excellence in May. The program was chosen as the top Water Conservation Field Services Program among four districts in the U. S. Bureau of Reclamation s Lower Colorado Region. Since 1994, the Water Authority has issued financial incentives to consumers who purchased high-efficiency clothes washers, which use 40 percent less water and 55 percent less energy than standard machines. In 2002, more than 3,750 washers were purchased with vouchers. The HEW program has been made possible through several grants. In fiscal years 2000 and 2001, the Bureau of Reclamation granted $60,000 toward the program. A $300,000 grant was received from the CALFED Bay-Delta Program, which helped fund the program in 2002 and will help with 2003 funding. The Metropolitan Water District and member agencies of the Water Authority have also helped support the program. In 2002, the Water Authority sponsored Assembly Bill 1561, authored by Assembly Member Dave Kelley (R-Idyllwild), requiring stricter water efficiency standards on all residential clothes washers by The legislation follows on the heels of California Energy Commission regulations adopted in early 2002 that set a state water efficiency standard for coin-operated clothes washers. If all new clothes washers meet the minimum water efficiency standard, the machines would save state residents nearly a billion gallons of water per year. The Water Authority s commercial washer program was recognized in November 2001 with the Governor s Environmental and Economic Leadership Award for significantly reducing energy and water consumption. The commercial washer program, in

20 Water-wise gardening and landscaping In December 2001, the Water Authority became a member of the Water Conservation Joint Powers Authority, which oversees the Water Conservation Garden at Cuyamaca College. Throughout the year, the Water Authority helped sponsor events held at the garden and conducted educational workshops about waterwise gardening. Outdoor water use is the focus of several programs facilitated by the Water Authority. The Water Authority takes part in Protector del Agua, which provides basic landscape and irrigation training to field-level workers and supervisors. The Water Authority s longest-running conservation program is the Professional Assistance for Landscape Management, a free service that provides landscape audits and technical assistance to help reduce outdoor water use and improve irrigation efficiency in non-residential landscapes. The Water Authority also offers a free residential survey conducted by a certified irrigation surveyor who examines the particular landscape and irrigation needs of a property. 18 Recent advancements in filtration technology and improvements in cost effectiveness have led to a resurging interest in the use of brackish (salty) groundwater as a local water source. XERISCAPE GARDEN - GARDEN DESIGN BY DENEEN POWELL ATELIER, INC. conjunction with San Diego Gas & Electric, provides a $300 voucher to commercial buyers who purchase high-efficiency clothes washers for use in laundromats, multi-family residences, residential-care facilities and dormitories. This year water and energy savings were substantial. Participating customers saved 254,000 kilowatt-hours and 593 million gallons of water in this fiscal year. Ultra-low-flush Toilets and Low-flow Showerheads Make a Difference The residential Ultra-Low-Flush Toilet Voucher Incentive Program is one of the Water Authority s most successful water conservation programs. About 27,550 toilets were replaced in fiscal year 2002 saving 15,330 acre-feet of water. Recycled Water Recycling water, also called reclamation, involves treating wastewater so that it can be reused. Recycled water accounts for about two percent of the regional water supply. It is primarily used to irrigate parks, freeway medians and golf courses and for some industrial uses. Two local businesses serve as examples of how recycled water can be used in industry. Toppan, a manufacturer of computer chips, uses recycled water in its process because the water is both ultra-clean and is 100 percent reliable. RW Johnson, a pharmaceutical firm, uses recycled water in its cooling tower. The Water Authority provides up to a $100 per acre-foot incentive to encourage member agencies to develop recycled water programs. This year member agencies used about 13,500 acre-feet of recycled water for non-potable water needs. In March 2002, the Water Authority completed the Regional Recycled Water System Study, which looked into the feasibility of moving recycled water from areas with surplus supplies (i.e., larger treatment plant capacity than demand) to areas with large demand, but not enough supply. In the study, several alternatives or strategies that address this geographical imbalance in recycled water supply and demand within the county were developed and analyzed. Incorporating the recommendations of the study into local agency master plans could lead to the implementation of interagency projects that address the supply and demand imbalances. The study recommendations will require further analysis to evaluate key regulatory, environmental and institutional issues, as well as funding and implementation opportunities.

21 Local Water Supply Sources FY 2002 Imported Sources 650,695 acre-feet Local Sources 70,957 acre-feet 10% Total Water Supply 721,652 acre-feet 8% 18% 55% Surface Water 39,380 acre-feet 19% Reclamation/Brackish Groundwater 13,693 acre-feet Wells 12,435 acre-feet *Allocation derived from May 2002 Survey of Member Agency Water Rates. Desalination 5,449 acre-feet 19 SAN VICENTE RESERVOIR SWEETWATER DEMINERALIZATION FACILITY RECYCLED WATER PIPES Groundwater Recovery and Storage Groundwater production (water taken from below ground) currently amounts to about 1.8 percent of the region s total water supply. Much of the groundwater in the Water Authority s service area is not suitable as a drinking water supply without expensive treatment because it contains high concentrations of salt. Recent advancements in filtration technology and improvements in cost effectiveness have led to a resurging interest in the use of brackish (salty) groundwater as a local water source. The Water Authority has helped support recent efforts to recover and treat brackish groundwater. Two demineralization facilities recently constructed by member agencies in National City and the city of Oceanside have resulted in an additional 2,000 acre-feet per year of drinking water supplies each. The city of Oceanside is currently expanding the capacity of its existing groundwater desalter (demineralization facility). The Oceanside groundwater desalter will eventually supply 6,400 acre-feet of drinking water per year enough to supply 22 percent of the city s annual needs. The Water Authority is also determining the feasibility of storing imported water in the Mission Groundwater Basin, a shallow aquifer located in the lower part of the San Luis Rey River Valley in the Oceanside area. A groundwater storage and recovery project could increase the annual production of groundwater in the Mission Basin by artificially recharging the basin during the winter months when imported water is plentiful. If feasible, a Mission Basin Groundwater Storage and Recovery Project could provide the region with additional water supply by seasonally storing 2,200 to 5,600 acre-feet of water annually during normal operations, and allow the withdrawal of 1,900 acre-feet from storage in a dry year, for up to three years, without recharge.

22 20 Water that falls on land either evaporates, soaks into the soil, or runs off the land into our lakes or rivers where it can travel for days or weeks before flowing out to sea. Some water may be drawn deeper down until it hits solid rock, where it may spend thousands of years underground, or resurface as springs. SOURCE: Illinois Mathematics and Science Academy -

23 RIS K M A NAGEM E N T 21

24 22 Risk Management: The process of analyzing exposure to risk and determining how to best handle such exposure.

25 Fallbrook Second Aqueduct 76 Valley Center Pipeline Emergency Storage Project Once completed, the Emergency Storage Project will add: PICTURED ON LEFT: Foundation excavation at Olivenhain Dam Existing Pipelines Planned Pipelines Existing Pipelines Pump Station Planned Pipelines Pump Station Oceanside Carlsbad Encinitas Solana Beach North County Distribution Pipeline 78 Tri-Agencies Pipeline Del Mar La Jolla 5 Vista Ramona Pipeline San Marcos Olivenhain Reservoir Miramar Reservoir San Diego Lake Hodges 8 15 Lake Murray First Aqueduct Escondido Poway 78 San Vicente Pipeline Route Santee La Mesa 67 San Vicente Reservoir El Cajon A new 318-foot-high dam and 24,000 acre-foot reservoir at Olivenhain An additional 52,100 acre-feet of water storage at San Vicente Reservoir 17 miles of pipeline Five pump stations An interconnected system to deliver water throughout the county in event of an emergency. R I S K M A N A GEM E NT 23 Tolerance to risk is usually what financial advisors seek to determine before recommending investments. In Southern California, the possibility of a long-term disruption to the pipeline delivery system due to drought, earthquake or any other disaster is a risk the San Diego region cannot take. To prevent a catastrophic water shortage, the Water Authority is investing in a range of projects that will increase the water storage and delivery capabilities in San Diego County. The agency is employing innovative methods of ensuring the ongoing safety and maintenance of its pipes. Additionally, necessary precautions are being taken to analyze the security of the system infrastructure and test the emergency response tactics. Capital Improvement Program The Capital Improvement Program (CIP) is the Water Authority s largest capital investment at $1.2 billion and comprises a large portion of the agency s activities. Initiated in 1987 to make improvements to the pipeline delivery system and increase operational flexibility to supply water throughout the county by 2010, the Water Authority has already made great strides in completing projects essential to meet this goal. In 2002, 55 CIP projects were in planning, design, construction or post-construction phases. The total expended for this fiscal year was $123.9 million. Five CIP projects were completed this year: the R. M. Levy Water Treatment Plant Expansion in the Helix Water District, which increases the plant s capacity to treat water from 67 to 106 million gallons per day; the Pipeline 3 and 4 Conversion-Diversion Structure to Miramar; Twin Oaks Valley Diversion Structure; and Valley Center 8 Flow Control Facility. Other CIP activities included maximizing the potential of the aqueduct system, monitoring treated and untreated water, researching and developing additional water supplies and increasing the water storage capacity for use in emergencies. Collectively these projects provide a greater assurance of a safe, reliable water supply. Emergency Storage Project The Emergency Storage Project (ESP) is the Water Authority s water savings account. The $827 million project will help protect the region s economy by supplying water for use during emergencies. The ESP is a system of reservoirs, pipelines, pump stations and other facilities that work together to store and move water around

26 Olivenhain Dam The Olivenhain Dam was the most visible project of From July 2001 to June 2002, the dam progressed from excavation for the foundation of the dam and the development of staging areas to an impressive structure, rising to about half of its eventual height of 318 feet. The dam is made of roller-compacted concrete, a less expensive and faster alternative to traditional concrete. The roller-compacted dam is as strong as a conventional concrete dam and will remain operational even in the face of a natural disaster, such as a magnitude 7.25 earthquake at the nearest fault. When completed, the Olivenhain Dam will be the first roller-compacted concrete dam in California and the tallest of its kind in the nation. Other project achievements on this site include completion of a 500-foot-long tunnel for the beginning section of the Lake Hodges pipeline connection, which will ultimately allow a 1.5-mile pipeline to connect Lake Hodges to the Olivenhain Reservoir. Also, a 300-foot, 84-inch-diameter inlet/outlet pipe was installed through the dam that will allow the reservoir to be filled or drained. Another 300-foot-tall inlet/outlet tower was being constructed to help monitor and control the water flow. The Olivenhain Dam will: Stand 318 feet high Hold 24,000 acre-feet of water Cover a surface area of 200 acres Connect to Water Authority pipelines and pumps to transport water throughout the county Be surrounded by a 750-acre open space park for outdoor recreational use. 24 The Capital Improvement Program is the Water Authority s largest capital investment at $1.2 billion and comprises a large portion of the agency's activities. LAKE HODGES TUNNEL OLIVENHAIN DAM the county in case of a prolonged interruption in the region s imported water supply. The innovative project will make it possible to transport water throughout the county with interconnecting pipelines that can deliver water north or south, making water supplies available to all member agencies, if needed. This is the first time that the system will have this capability. The ESP also provides additional water storage capacity. The new Olivenhain Dam and Reservoir, currently under construction, will be connected with neighboring Lake Hodges, establishing an emergency reserve account of about 38,000 acre-feet of storage water. San Vicente Reservoir will also hold an additional 52,100 acre-feet of water through a 54-foot raise of the San Vicente Dam. In all, 90,100 acrefeet of additional water storage will be available to the entire region. San Vicente Pipeline An important component of the ESP is the San Vicente Pipeline project. The 11-mile San Vicente Pipeline will connect San Vicente Reservoir in Lakeside to the Second Aqueduct, near Interstate 15 at Mercy Road. It will enable the Water Authority to deliver water to the reservoir and to move water from the reservoir back to the Second Aqueduct when needed. A significant decision was made in December 2001 to build the pipeline in a tunnel rather than in a trench. Tunneling was found to be a technically feasible option that would cause far fewer environmental impacts. It will also avoid the inconveniences resulting from lane closures on the busy Scripps Poway Parkway that would be necessary for trench construction. The tunnel and pipeline are in design with construction scheduled to begin in late Protecting Assets: The Aqueduct Protection Program An innovative Aqueduct Protection Program was developed by the Water Authority in 1992 as part of the CIP to proactively inspect the pipes for corrosion and decay that could lead to leaks or other failures. No portion of an inspected pipeline has failed since the inception of the program. This success has led to international interest and accolades. Through the program, a pipeline decay index has been created, a corrosion monitoring program has been implemented and a corrosion manual has been developed. This year, inspectors walked 54.5 miles inside the Second Aqueduct pipelines during six planned shutdowns.

27 Preserving the environment The Water Authority is committed to offsetting the environmental impacts of CIP projects by purchasing land that is protected from future developments. Following are the actions taken in 2002: The Water Authority is funding operations of the 750-acre Elfin Forest Recreational Reserve surrounding Olivenhain Dam and Reservoir. The Water Authority acquired the final 79 acres of uplands mitigation property in the 649-acre requirement to mitigate the environmental impacts resulting from the construction of the ESP. Most of this land was purchased from private owners; seven acres were purchased from the San Miguel Mitigation Land Bank. AQUEDUCT PROTECTION PROGRAM An agreement made between the county of San Diego and the Water Authority in March 2002 will provide up to 40 acres for the Water Authority to perform wetlands creation and restoration projects in Escondido, Encinitas and in the Tijuana River Valley. 25 JAMES BAIRD, UNION-TRIBUNE VALVE JAMES BAIRD, UNION-TRIBUNE OLIVENHAIN DAM SITE In 2002, a pipeline condition assessment analysis was completed for the Second Aqueduct and the Crossover Pipeline. This study estimates the remaining service life for these pipelines, constructed before With this study complete and a preventative maintenance program in place, the costs for this activity have been moved from the CIP budget to the agency s operating budget. The Aqueduct Corrosion Monitoring and Assessment Program was developed from the operating budget to perform annual corrosion-related tasks on the Second Aqueduct-Crossover Pipeline and 1987 pipelines. Safety First The safety of employees who are inspecting the pipelines is a top priority for the Water Authority. While inspectors have always been cautious, the remote possibility of a lifethreatening emergency prompted the Water Authority to coordinate an evacuation plan with local fire and police officials. In December 2001, firefighters went to a shutdown location to learn about proper entry procedures. As part of the evacuation plan, fire officials have coordinated with the California Highway Patrol to provide reliable transport to any area of the pipeline system. Managing Risk: Security Issues Managing risk depends largely on monitoring external factors that could jeopardize one s investments. For years the Water Authority has invested in minimizing any potential risks to providing a safe water supply. However, the tragic events of Sept. 11 jolted the entire nation into a new consciousness surrounding the threats of terrorism and its far-reaching impacts. The result has been a vigorous assessment of many of the nation s risks including the distribution and storage of water. The Water Authority responded to the national crisis by examining the vulnerability of its water system and evaluating the ability to protect it. During 2002, staff members performed a Hazard Assessment-Vulnerability Analysis of the water system using methods approved by American Water Works Association. As a result of this analysis and an independent study performed by a consulting firm (using the recently released Sandia National Laboratories methodology), two new projects were added to the CIP in These projects will add 24-hour monitoring equipment and water quality monitoring stations, as well as other security measures, to increase the protection of the region s water supply at strategic locations.

28 26 Up to percent of the human body is water. The brain is composed of percent water. The blood is about 82 percent water. The lungs are made up of nearly 90 percent water. While a person can live without food for approximately a month, a person can live without water less than a week. SOURCE: Environmental Protection Agency -

29 BALAN CED I N V E STM ENT S TRA T E G Y 27

30 28 Balanced Investment Strategy: An investor s plan of distributing assets among various investments, taking into consideration such factors as individual goals, risk tolerance and horizon.

31 PICTURED ON LEFT: Dr.Wilderness Splashtastic magic show Dr. Wilderness Splashtastic magic show The Splashtastic magic show, presented by Dr. Wilderness, focuses on the water cycle, water treatment, water conservation, water molecules, properties of water and the water delivery system. The show is a high-energy, fast-paced production that incorporates digital 3D sound and special effects. Dr. Wilderness has won multiple Emmy Awards and critical acclaim for this unique approach to science and environmental concepts. As of June 30, 2002: Classroom presentations 947 Students reached 70,429 B A LAN C E D I N V E STM E N T S T R A T E G Y 29 The diverse community of San Diego County is one of the Water Authority s most important areas of investment and one of its greatest assets. The Water Authority s commitment to public service and outreach to the community results in a greater understanding of water issues, policies and programs affecting the region. The Water Authority is engaged in a number of outreach efforts to maximize community involvement in water policy issues, encourage small and emerging businesses to pursue contracting opportunities with the agency, and recognize students who represent the next generation of leaders. Involving the Community The Water Authority has developed a comprehensive community relations program to participate in a wide range of civic and business events. Community involvement is essential to the success of the agency. Not only does involvement in civic events help communicate important water-related messages, it also promotes support of Water Authority programs and projects. This year, the organization participated in a variety of events including Cesar Chavez Day, Earth Day, Urban League Career Fair, Latino Builders Carne Asada Fiesta, San Diego-Imperial Counties Labor Council 100th Anniversary Celebration, Chicano Federation Unity Lunch, San Diego Economic Development Corporation annual dinner, San Diego Taxpayers Golden Fleece dinner and the San Diego County Fair. Presentations on subjects ranging from water policy to engineering were made to a variety of special interest groups. During construction of the Olivenhain Dam, the Water Authority conducted 84 tours to more than 1,500 tour participants, who viewed construction of the largest roller-compacted dam in North America. The Water Authority also hosted approximately 200 guests attending the annual United States Society on Dams Conference, which drew engineering and dam specialists from all over the world to San Diego. Small Contractor Outreach and Opportunity Program The Water Authority encourages small business to take part in agency contracting opportunities. The Small Contractor Outreach and Opportunity Program was developed to help facilitate these relationships. This year the Water Authority also instituted the

32 Small Business Contract Awards FY an increase % 32% Professional Service Contracts Awarded to Small Businesses Small Primes Small Subs Increase in small business contract participation Fifty-six percent, or 130 of 234 businesses on Water Authority public works and professional service contracts, are small businesses. This represents an increase over fiscal year In addition, 51 percent of primes are small businesses. Of subcontractors and subconsultants, 59 percent are small businesses. The Authority also does business with many small vendors. A review of over 1300 purchase orders issued during fiscal year 2002 revealed that 14 percent of vendors were small businesses. CREATING PATHS TO PARTNERSHIPS FORUM The Water Authority and its 23 member agencies hosted the fourth annual networking forum, Creating Paths to 30 Partnerships, to inform contractors, consultants, vendors, small businesses and suppliers about contracting opportunities in the water industry. CLASSROOM PRESENTATION Contractors/Consultants/Vendors Insurance Program to assist small businesses in meeting the insurance requirements of agency contracts. In October, the Water Authority sponsored Creating Paths to Partnerships, a workshop and networking forum specifically geared for small businesses that are owned and operated independently from any other business concern. At the workshop, contractors, consultants, agency representatives, vendors and suppliers learned about upcoming contracting opportunities with water agencies. In January, the Water Authority, in cooperation with the Contracting Opportunities Center, opened its boardroom for two days for a State Contracting 101 training program conducted by the State Department of General Services Procurement Division. The two-day event included workshops and tips aimed at helping small contractors win state contracts. The event was free to the participants as part of Governor Gray Davis Executive Order D-37-01, which made increased small business participation in state contracting a priority of his administration. Educational Programs While investing in the future, the Water Authority looks to tomorrow's leaders. Each year more than 100,000 students in San Diego County take part in one of the many programs and projects developed by Water Authority staff. From kindergartners to high school seniors, the Water Authority teaches the importance of water in our semi-arid climate. This is accomplished through the creation and distribution of curriculum materials, classroom presentations, teacher workshops and education conferences. Water Works is an example of one education program, which increases student awareness of career tracks in the water industry. Water Politics, teaches critical thinking skills and utilizes role-playing activities in order for students to discover the role of federal, state and local governments, water agencies and interest groups in making water management decisions. Other areas of focus are incorporated in the curriculum through programs such as, All About Water, Water Quality, Geography of Water and Water Science in a Box. Many unique and innovative programs have been created for teachers and students, such as the Traveling Library Program, which

33 From the scholarship recipients I ve learned that education is the key to my success. I ve seen what a lack of education can do. My family is my inspiration, but they cannot help me. I am determined to go far in life, attend a university and I hope to give back to my family and community. I need your help. One of my greatest dreams has been to be a doctor. I also plan to open a free health care center in poor neighborhoods of San Diego and Tijuana. Isabela Raygoza, Palomar High School The scholarship has financially helped me with transportation and books. I had also the opportunity to work with some of San Diego s most prominent professionals at the San Diego County Water Authority. Timar Mussie, San Diego High School In Vietnam, a lifetime of destitution and deprivation of learning due to financial circumstances beyond their control has taught my parents the value of education. Communism has robbed them of their property; it has demoralized the essence of their nationalism. With democracy, my parents are fighting back, and I am their clarion voice. Next fall my family will face the most serious financial dilemma of our lives. Financing two college educations amounts to more than $300,000 for my parents, an amount we neither have nor can afford. I will never acknowledge defeat. Cindy Nguyen, Scripps Ranch High School The Water Authority recognized 16 scholarship recipients, representing eight high schools throughout San Diego County. 31 SCHOLARSHIP RECIPIENTS SAN DIEGO COUNTY FAIR consists of an interactive electronic kiosk that contains over 100 water-related books. The Water Authority also works in partnership with other community organizations on programs, such as the Splash Science Mobile Lab, provided in conjunction with the San Diego County Office of Education. Science Fair Awards The Water Authority recognized six outstanding students for water-related projects at the 2002 Science Fair. The fair drew 12,000 applicants from San Diego County high schools. Water Authority directors and staff reviewed projects with water themes from among the top 1,000 entrants. From those, three junior and three senior high school students were selected and presented with awards, ranging from $100 to $300. water industry groups, including local contractors, potential water suppliers and participating member agencies. Students who are eligible for the scholarships must be local seniors with plans to attend a local trade school, college or university. Applicants were asked to write a 300-word essay describing how their intended career or occupation would be of general benefit to society and submit a biographical essay describing their need for financial assistance. The scholarships are managed by the College Opportunity Foundation, Inc., an organization that specializes in managing financial assistance to deserving students. Scholarship funds are placed in designated accounts at the institution of the student s choice where they can be drawn upon for books, tuition and other school supplies. Scholarship Program A scholarship program has been created for high school seniors. In May the Water Authority formally recognized 16 students who each received $1,000 college scholarships. The scholarships are part of the Creating Paths to Partnerships Scholarship Program and are funded entirely by

34 37 32 CONTENTS SELECTED FINANCIAL INFORMATION 34 CONTINUING DISCLOSURE OF FINANCIAL INFORMATION ( FY ) 48 APPENDIX 34 Statement of Net Assets 35 Income Statement 36 Portfolio Master Summary & Sources and Expenditures of Cash 38 Member Agency Voting Entitlements 39 Summary of Debt Outstanding 40 Summary of Water Rates 41 Water Source and Use 42 Gross Water Sales Receipts by Member Agency 48 Analysis of Metropolitan s Water Supplies 49 Member Agencies and Representatives 43 Historical Operating Results 45 Portfolio Master Summary 46 Economy of San Diego County

35 The Water Authority s commitment to managing its budget is exercised with the same resolve as it is to providing a safe, reliable water supply to the San Diego region. A guiding principle of the Water Authority is, Fiscal Responsibility Our Duty. The Water Authority has developed a Long-Range Financing Plan that sets forth the policies for funding the agency s future operating and capital costs. The Water Authority s expenditures of $445 million for are expected to increase over the next several years due to the agency s substantial Capital Improvement Program and growing water demands within its service area. A new water rate structure, approved by the board in June, improves the equity of cost distribution to the Water Authority s member agencies, increases the proportion of fixed revenues, addresses a change in MWD s structure of rates and charges, and considers the urban and agricultural needs of its member agencies. The Water Authority was able to refund money to its member agencies twice during the fiscal year. In December, the agency authorized $8.7 million to be returned to member agencies as a result of water rate over-collections by MWD. In April, favorable Water Authority revenues enabled a second refund to member agencies of $7.16 million. The Water Authority s commitment to excellence in financial management was recognized by FINANCING OUR MISSION 33 several credit rating agencies. The Water Authority received an upgrade in its credit rating by Standard and Poor s from AA- to AA. Two other rating agencies, Moody s and Fitch, affirmed their credit ratings regarding Water Revenue Certificates of Participation at levels of Aa3 and AA-, respectively. The Moody s rating was accompanied by a Stable Outlook position. All three ratings reflect the very strong financial condition of the agency and confidence in its plans for the future. The Water Authority was acknowledged at the state and national levels for its financial practices. The agency earned the Distinguished Budget Presentation Award from the Government Finance Officers Association (GFOA) and the Excellence in Operational Budgeting award from the California Society of Municipal Finance Officers (CSMFO). The Water Authority received a Certificate of Achievement for Excellence in Financial Reporting from the GFOA and the Excellence in Financial Reporting award from the CSMFO for its Comprehensive Annual Financial Report. The GFOA also commended the Water Authority for being one of the 75 special districts across the nation to implement Governmental Standards Board Statement Number 34 two years prior to the deadline. The Association of Municipal Treasurers recognized the Water Authority for its Excellence in Investment Policy. San Diego County Water Authority

36 Selected Financial Information Statement of Net Assets (June 30, 2002 and 2001) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 77,398,000 $ 59,555,000 Accounts and Taxes Receivable 67,197,000 64,691,000 Inventories 1,099,000 1,654,000 TOTAL CURRENT ASSETS 145,694, ,900,000 RESTRICTED AND DESIGNATED CASH, CASH EQUIVALENTS AND INVESTMENTS Cash and Cash Equivalents 186,441,000 49,284,000 Investments 343,541, ,514,000 Property, Plant and Equipment, Net 1,066,109, ,048,000 Other Assets 6,515,000 4,656,000 TOTAL NONCURRENT ASSETS 1,602,606,000 1,211,502,000 TOTAL ASSETS $1,748,300,000 $1,337,402,000 LIABILITIES CURRENT LIABILITIES Accounts Payable and Accrued Liabilities $ 95,432,000 $ 76,965,000 Current Portion of Long-Term Debt 152,937,000 95,072,000 TOTAL CURRENT LIABILITIES 248,369, ,037,000 Noncurrent Liabilities 742,428, ,756,000 TOTAL LIABILITIES 990,797, ,793,000 NET ASSETS Invested in Capital Assets, Net of Related Debt 501,159, ,683,000 Restricted for Construction Projects 150,733, ,195,000 Restricted for Rates Stabilization 61,619,000 53,623,000 Unrestricted 43,992,000 37,108,000 TOTAL NET ASSETS $ 757,503,000 $ 678,609,000 San Diego County Water Authority

37 Selected Financial Information Income Statement (Statements of Revenues, Expenses and Changes in Net Assets Years Ended June 30, 2002 and 2001) Water Sales $294,526,000 $266,467,000 OPERATING EXPENSES Cost of Sales 242,255, ,480,000 Depreciation and Amortization 17,773,000 15,260,000 Operations and Maintenance 7,679,000 7,083,000 Planning 2,212,000 2,139,000 General and Administrative 13,119,000 12,573,000 TOTAL OPERATING EXPENSES 283,038, ,535,000 OPERATING INCOME 11,488,000 14,932,000 OTHER REVENUES Property Taxes and In-Lieu Charges 7,575,000 7,120,000 Interest Expense (17,795,000) (21,055,000) Investment Income 16,880,000 21,644,000 Infrastructure Access Charge 9,968,000 9,788,000 Other Income 1,104,000 1,458,000 Other Expenses (312,000) (471,000) TOTAL NONOPERATING REVENUES (EXPENSES) 17,420,000 18,484,000 NET INCOME BEFORE OTHER REVENUES, EXPENSES, GAINS, LOSSES, AND TRANSFERS 28,908,000 33,416,000 Capital Contributions 49,986,000 49,777,000 INCREASE (DECREASE) IN NET ASSETS 78,894,000 83,193,000 Net Assets at Beginning of Year 678,609, ,416,000 NET ASSETS AT END OF YEAR $757,503,000 $678,609, San Diego County Water Authority

38 Selected Financial Information Portfolio Master Summary (At June 30, 2002) INVESTMENTS As of June 30, 2002 and 2001, restricted reserve fund cash balances were as follows: Construction $269,835,000 $ 38,644,000 Rate Stabilization 61,619,000 53,623,000 Pay-As-You-Go 143,422, ,710,000 Debt Service Reserve 55,106,000 36,846,000 Equipment Replacement Fund 5,574,000 5,587,000 TOTAL $535,556,000 $264,410,000 As of June 30, 2002 and 2001, unrestricted cash balances were as follows: Operating $ 71,823,000 $ 53,943, Sources and Expenditures of Cash (June 30, 2002 and 2001) SOURCES OF CASH TO FUND EXPENDITURES* Water Sales** $ 294,526,000 $ 266,467,000 Taxes 7,575,000 7,120,000 Interest Income*** 16,593,000 18,729,000 Standby Charges 10,696,000 10,708,000 Capacity Charges 24,951,000 25,836,000 Infrastructure Access Charges 9,968,000 9,788,000 Other Revenue 1,104,000 1,458,000 Capital Reimbursement 14,338,000 13,233,000 Rate Stabilization Transfer (5,276,000) (6,762,000) Net Pay-As-You-Go Deposit (11,597,000) (23,293,000) Sale of Assets 3,109,000 Net Construction Draw 93,269,000 87,131,000 TOTAL $ 459,256,000 $ 410,415,000 EXPENDITURES Water Purchases $ 242,255,000 $ 214,480,000 Operating Budget 23,388,000 22,213,000 Capital Budget 123,929, ,453,000 Debt Service**** 52,968,000 52,250,000 TOTAL $ 442,540,000 $ 391,396,000 * Method change in fiscal year 2002 shows revenues net of draws from, or deposits into, funds. Fiscal year 2001 revenues have been calculated in accordance with the new method. ** Favorable water sales revenues in fiscal year 2001 enabled the Water Authority to refund $7.159 million to its member agencies in fiscal year Fiscal year 2002 water sales are shown net of this refund. *** Interest income shown net of unrealized gain/loss on investments. **** Debt Service is net of amortization of discounts and premiums and deferred refunding. San Diego County Water Authority

39 Continuing Disclosure of Financial Information CONTINUING DISCLOSURE OF FINANCIAL INFORMATION 37 The purpose of this document is to provide information about the San Diego County Water Authority for the fiscal year ended June 30, The document provides continuing disclosure for the Water Authority s six fixed-rate debt issues currently outstanding. The economic and demographic data contained in this document has been collected from sources believed to be accurate. The Water Authority, however, makes no assurances about the accuracy or reliability of this information. The Water Authority does not intend that the enclosed information be relied on as specific offering information in connection with any issuance of bonds. Investors may receive further documentation about the Water Authority by requesting its most recent official statement from the Municipal Securities Rulemaking Board or a Nationally Recognized Municipal Securities Information Repository. Requests may also be directed to: Karen P. Brust Director of Finance / Treasurer San Diego County Water Authority 4677 Overland Drive San Diego, CA Tel (858) kbrust@sdcwa.org SAN DIEGO COUNTY WATER A UTHORITY MANAGEMENT Maureen A. Stapleton General Manager Christopher J. Guild Deputy General Manager Karen P. Brust Director of Finance / Treasurer Daniel S. Hentschke General Counsel San Diego County Water Authority

40 Continuing Disclosure of Financial Information O VERVIEW OF THE SAN DIEGO COUNTY WATER AUTHORITY General The Water Authority was organized by 11 member agencies in 1944 for the primary purpose of supplying water to San Diego County for distribution to the Water Authority s member agencies. The Water Authority currently has 23 member agencies. A member of the San Diego County Board of Supervisors also serves as a representative to the Water Authority board of directors. As a wholesaling entity, the Water Authority has no retail customers, serving only its member agencies. The Water Authority has broad powers related to acquiring, developing, storing, transporting, selling and delivering water both inside and outside its boundaries. The Water Authority is authorized to fix and collect rates or other charges for the delivery of water or the use of facilities for service. The Water Authority may borrow money, incur indebtedness and issue bonds and other evidences of indebtedness. The Water Authority currently receives a minor amount of revenue from hydroelectric power sales. Legislation enacted in September 2000 expands the Water Authority s power generation authority to include the purchase, sale and transmission of energy for member agencies as well as its own use. 38 Member Agency Voting Entitlements (As of January 1, 2002) Total Financial Contribution 1 Votes 2 Percentage Carlsbad Municipal Water District $ 179,576, % City of Del Mar 17,382, City of Escondido 171,934, Fallbrook Public Utility District 144,235, Helix Water District 431,318, City of National City 3 49,308, City of Oceanside 261,287, Olivenhain Municipal Water District 114,887, Otay Water District 220,187, Padre Dam Municipal Water District 188,204, Camp Pendleton Marine Corps Base 11,185, City of Poway 112,066, Rainbow Municipal Water District 240,043, Ramona Municipal Water District 85,556, Rincon del Diablo Municipal Water District 87,099, City of San Diego 2,310,040, San Dieguito Water District 63,951, Santa Fe Irrigation District 80,824, South Bay Irrigation District 3 149,823, Vallecitos Water District 101,617, Valley Center Municipal Water District 311,680, Vista Irrigation District 150,507, Yuima Municipal Water District 18,201, TOTAL $5,500,919,433 1, % 1 Total financial contribution equals base revenues plus fiscal year 2001 revenues. 2 Rounded values. 3 Comprise Sweetwater Authority. The 23 voting member agencies currently served by the Water Authority consist of six cities, 16 special districts and one federal agency. Under the County Water Authority Act, California Statutes 1943, Chapter 545, a member agency s vote is based on its total financial contribution to the Water Authority since the Water Authority was organized in Total financial contribution includes all amounts paid in taxes, assessments, fees and charges to or on behalf of the Water Authority or the Metropolitan Water District of Southern California. The act authorizes each board member to cast one vote for each $5 million, or major fractional part thereof, of the total financial contribution paid by the member agency. San Diego County Water Authority

41 Continuing Disclosure of Financial Information SUMMARY OF DEBT OUTSTANDING The table below summarizes the Water Authority s outstanding fixed-rate debt, including final maturities, original par amounts, amounts outstanding and applicable debt service reserve fund requirements. This information is presented as of June 30, Fixed-Rate Debt Outstanding (Fiscal Year Ended June 30, 2002) Final Original Amount Debt Service ISSUE NAME Maturity Par Amount Outstanding Reserve Funds 1966 Waterworks General Obligation Bonds 2003 $ 30,000,000 $ 3,220,000 Water Revenue Certificates of Participation, Series ,000,000 69,000,000 $21,329,000 Water Revenue Refunding Certificates of Participation, Series 1993A ,650,000 81,985,000 $13,565,000 Water Revenue Refunding Certificates of Participation, Series 1997A ,315, ,695,000 $15,196,610 Water Revenue Certificates of Participation, Series 1998A ,000, ,000,000 $15,392,000 Water Revenue Certificates of Participation, Series 2002A ,000, ,000,000 $18,385,750 TOTAL $1,107,965,000 $794,900,000 1 No debt service reserve fund balance required. Trustee for All Issues is Fonda Hall, U.S. Bank Trust National Association, (213) Balance satisfied with surety bond. Source: San Diego County Water Authority, Comprehensive Annual Financial Report, June 30, Commercial Paper Program The Water Authority has a commercial paper program through which it can borrow up to $250 million for periods of up to 270 days. Currently, the amount that can be borrowed is limited to $110 million, the amount of the revolving credit and term loan agreement that supports a portion of the program. The revolving credit and term loan agreement, unless otherwise extended, will terminate on Nov. 7, During the term of the agreement, the Water Authority is obligated to pay a usage fee of 0.16 percent on the commitment. Currently, no advances have been made under the revolving credit and term loan agreement. The Water Authority maintains remarketing arrangements with two dealers at a total cost of 0.05 percent on the outstanding commercial paper. The commercial paper notes are secured and payable solely from net water revenues and are subordinate to the water revenue certificates of participation. At June 30, 2002, $110 million of commercial paper was outstanding. Future Debt Issuance Future debt issuance is largely governed by the Water Authority s current Capital Improvement Program. The CIP, discussed elsewhere in this annual report, has a projected cost of $1.2 billion through the fiscal year ended June 30, The use of debt is prescribed by the Water Authority s Long-Range Financing Plan, which considers overall projected revenues and expenditures, reserve fund balances and debt service coverage factors through The current projection of funding sources is approximately 70 percent long-term debt proceeds, 17 percent short-term debt proceeds and 13 percent cash (pay-as-you-go funds). In fiscal year 2004, the Water Authority plans to issue approximately $80 million in new commercial paper. In fiscal year 2005, the Water Authority plans to issue approximately $190 million in new long-term debt. The Water Authority annually assesses its capital financing needs through the budget process. 39 San Diego County Water Authority

42 Continuing Disclosure of Financial Information Summary of Water Rates (Fiscal Year ) METROPOLITAN WATER DISTRICT SAN DIEGO COUNTY WATER AUTHORITY MWD RATES TOTAL RATE CHARGED TO MEMBER AGENCIES Full Service 1 IAWP 2 Seasonal Shift Storage 3 CWA Rates Full Service SAWR /IAWP 4 Seasonal Shift Storage 5 From To UTR TR UTR TR UTR TR UTR TR UTR TR UTR TR UTR TR 7/1/91 6/30/92 $222 $261 $130 $154 $55 $62 $277 $323 $55 $62 $185 $216 7/1/92 6/30/ /1/93 6/30/ $250 $ /1/94 6/30/ /1/95 12/31/ /1/97 12/31/ /1/98 12/31/ /1/99 12/31/ /1/00 12/31/ /1/01 12/31/ /1/02 12/31/ MWD renamed Non-Interruptible to Full Service in MWD implemented the Interim Agricultural Water Program (IAWP) effective May 1, Seasonal Shift Storage rates apply Oct. 1 through April CWA Special Agricultural Water Rate (SAWR) implemented Jan. 1, 1999 (set at $80 per AF). 5 This schedule represents contractual seasonal storage rate. Noncontractual participants pay a higher rate. 40 UTR = Untreated Water TR = Treated Water Water rates are established by the board of directors and are not subject to regulation by the California Public Utilities Commission or by any other local, state or federal agency. Under the General Resolution, the Water Authority is required to fix rates that are reasonably fair and nondiscriminatory. The Water Authority fixes its water rate at the price charged by the Metropolitan Water District of Southern California, plus an additional component as established by the board, resulting in an automatic pass-through of MWD s charge to the Water Authority s member agencies. The additional component is used to pay, among other things, debt service, administration and maintenance expenses and Capital Improvement Program costs. A new rate structure, effective Jan. 1, 2003, will substantially increase the percentage of water revenues received as fixed charges, increasing Water Authority revenue stability. San Diego County Water Authority

43 Continuing Disclosure of Financial Information Water Use as Reported by Member Agencies (Fiscal Years) Compilation of Data Furnished by Member Agencies 2002 TYPE OF AUTHORITY SOURCE OF WATER SUPPLY WATER USE Local Authority Supply Agricultural Authority Supply (Imported Use) Acre-feet Supply 1 (Imported Use) 2 Total Use 3 M & I Use Gross Area Estimated Acre-feet Acre-feet Acre-feet Acre-feet Acre-feet (Acres) Populations Carlsbad M.W.D. 15,449 17,286 19,952 19,016 1,260 20,586 21,846 1,138 19,448 20,640 67,627 City of Del Mar 1,440 1,465 1,556 1, ,354 1, ,354 1,159 4,389 City of Escondido 16,760 17,345 26,977 25,934 3,665 30,198 33,863 7,041 23,157 21, ,000 Fallbrook P.U.D. 11,582 14,176 16,824 15, ,194 17,784 8,102 9,092 27,988 32,000 Helix W.D. 29,172 28,485 38,483 37,419 2,075 40,073 42, ,073 31, ,900 City of National City 2, ,128 3,170 2,551 4,407 6, ,407 5,838 54,420 City of Oceanside 27,160 29,238 32,073 30,062 2,354 32,241 34,595 3,025 29,217 28, ,869 Olivenhain M.W.D. 13,680 16,165 19,433 18, ,730 22,001 1,283 20,447 30,942 52,000 Otay W.D. 22,874 25,442 29,901 30, ,182 36, ,061 63, ,420 Padre Dam M.W.D. 16,802 19,061 21,824 20, ,395 22, ,615 54, ,600 Camp Pendleton , , ,625 50,000 City of Poway 11,223 13,270 15,625 13, ,301 14, ,883 25,088 48,044 Rainbow M.W.D. 19,051 25,403 29,929 27, ,702 31,702 21,972 9,730 47,260 18,000 Ramona M.W.D. 7,591 9,774 8,267 9,795 2,196 11,891 14,087 5,074 6,818 46,524 36,000 Rincon del Diablo M.W.D. 6,540 8,077 9,119 7, ,998 8,998 1,089 7,909 10,596 27,000 City of San Diego 5 162, , , ,649 23, , , , ,726 1,277,168 San Dieguito W.D. 4,080 3,875 5,112 4,690 3,183 5,195 8, ,195 5,653 36,500 Santa Fe I.D. 6,191 6,486 8,056 7,509 5,131 8,634 13, ,513 10,359 20,618 South Bay I.D. 7, ,392 11,177 3,099 15,145 18, ,145 20, ,200 Vallecitos W.D. 12,438 14,029 16,409 15, ,526 17,526 2,773 14,753 28,801 67,000 Valley Center M.W.D. 29,301 39,195 48,550 44, ,524 49,828 39,576 9,948 61,022 21,949 Vista I.D. 6 11,708 7,476 17,123 17,556 4,365 19,756 24, ,816 21, ,000 Yuima M.W.D ,849 2,740 1,497 3,599 5,096 3, ,792 1,870 TOTALS 8 435, , , ,140 70, , ,530 97, , ,340 2,825, Includes surface, recycled and groundwater supplies; does not reflect conserved water. 2 Water use in a given year may differ from Water Authority water sales due to storage. 3 Includes only amounts certified through the Interim Agricultural Water Program. 4 Per San Diego County Water Authority Water Resources Department. 5 Excludes city of San Diego local surface water use outside of Water Authority service area. 6 Excludes land outside of Water Authority s service area. 7 Excludes local supplies developed beyond Yuima s master meters. 8 Numbers may not total due to rounding. Source: San Diego County Water Authority annual member agency data surveys. San Diego County Water Authority

44 Continuing Disclosure of Financial Information 42 Gross Water Sales Receipts by Member Agency 1 (Thousands of Dollars) Carlsbad Municipal Water District $ 7,706 $ 8,784 $ 10,048 $ 8,775 $ 10,378 City of Del Mar City of Escondido 6,500 7,833 11,382 11,414 12,433 Fallbrook Public Utility District 5,329 6,456 7,547 6,975 7,761 Helix Water District 12,006 12,266 17,515 17,069 17,674 City of Oceanside 12,335 13,971 14,616 14,000 14,662 Olivenhain Municipal Water District 7,019 8,374 9,851 8,424 10,961 Otay Water District 11,478 12,988 15,029 13,440 18,081 Padre Dam Municipal Water District 8,553 9,893 11,003 9,079 10,841 Camp Pendleton Marine Corps Base City of Poway 4,795 5,890 6,792 6,476 6,657 Rainbow Municipal Water District 8,156 11,432 12,719 12,658 13,613 Ramona Municipal Water District 2,874 3,503 4,579 4,557 5,408 Rincon del Diablo Municipal Water District 3,209 4,059 4,511 3,486 4,509 City of San Diego 72,156 77,089 91, , ,560 San Dieguito Water District 1,755 1,684 2,183 2,839 2,183 Santa Fe Irrigation District 2,542 2,886 3,510 2,704 3,847 Sweetwater Authority 3 1, ,846 5,479 7,775 Vallecitos Water District 6,285 7,224 8,234 7,257 8,837 Valley Center Municipal Water District 12,467 17,169 20,438 20,749 20,833 Vista Irrigation District 5,252 3,555 7,989 7,683 9,322 Yuima Municipal Water District ,080 1,161 1,354 TOTAL 4 $192,859 $215,778 $ 263,607 $265,572 $294,297 1 Gross receipts represent amounts invoiced to member agencies, but do not include year-end accruals or other adjustments. Numbers may not total due to rounding. 2 Favorable water sales for the fiscal years 1999 and 2001 enabled the Water Authority to refund $6.268 and $7.159 million respectively to its member agencies. Fiscal years 2000 and 2002 water sales are shown net of this refund. 3 Represents sales to the city of National City and South Bay Irrigation District for which Sweetwater Authority acts as a purchasing agent. 4 In addition to the total water sales revenue shown, in some years the Water Authority has also received a minor amount of revenues from adjacent water districts that provide water to customers within the Water Authority s service area under operating agreements. These revenues are not included in this chart. San Diego County Water Authority

45 Continuing Disclosure of Financial Information Historical Operating Results (Thousands of Dollars) OPERATING REVENUE Water Sales 1 $195,083 $217,796 $262,081 $266,467 $294,526 Standby Charges 10,660 10,523 10,829 10,708 10,696 Capacity Charges 16,351 21,259 21,500 25,836 24,951 Infrastructure Access Charges 2 4,789 9,626 9,788 9,968 Total Operating Revenue 222, , , , ,141 Plus Withdrawals From or Minus Deposits to the Rate Stabilization Fund n/a (5,276) Non-Operating Revenue 4 11,301 15,534 13,054 18,097 15,739 Total Revenue 233, , , , ,604 OPERATING EXPENSES 5 MWD Water Purchases 167, , , , ,255 Other Maintenance and Operations Costs 6 16,961 17,126 18,704 21,795 23,009 Other Expenses 7 2,480 Total Operating Expenses 186, , , , ,264 Application of Net Tax Receipts 8 4,048 4,410 4,956 5,438 5,900 Net Operating Expenses 182, , , , ,364 Net Water Revenue Available for Debt Service 50,999 77,854 86, ,059 91,240 REVENUE SUPPORTED DEBT SERVICE Certificates 22,073 17,430 16,822 16,372 16, Certificates 11,561 11,737 11,778 14,439 14, Certificates 3,393 8,107 8,772 8,081 8, Certificates 5,481 8,809 8,809 8, Certificates 1,001 Total Debt Service 37,027 42,755 46,181 47,701 49, SUBORDINATE OBLIGATION PAYMENTS 10 Commercial Paper 11 1,925 1,970 2,314 2,734 1,755 Balance Available After Debt Service and Subordinate Obligation Payments 12,047 33,129 37,886 49,624 39,986 Revenue Supported Debt Service Coverage Ratio 1.38 x 1.82 x 1.87 x 2.10 x 1.84 x Debt Service and Subordinate Obligation Coverage Ratio 1.31 x 1.74 x 1.78 x 1.98 x 1.88 x 1 Water sales represent accrued sales to member agencies, as well as revenues from treatment of raw water and certain miscellaneous income items. 2 Infrastructure Access Charge was implemented January 1999 and is levied on retail water meters within the service area. 3 Favorable revenues in fiscal year 2001 enabled a deposit to the RSF of $6.762 million. The computation method was changed in fiscal year 2002 to reduce revenues by RSF deposits. 4 Non-operating revenues consist of interest earnings on Water Authority funds and from fiscal year 2001 forwards includes other revenues (hydroelectric sales, penalties, etc.). For fiscal year 2000 and forward, non-operating revenues exclude interest earned on debt proceeds. Fiscal years 2001 and 2002 include other revenues (hydroelectric sales, penalties, sale of assets, etc.). 5 Excludes depreciation and amortization charges. 6 Includes operations, maintenance, planning, and general and administrative costs; excludes capital equipment purchases. 7 Represents one-time reclassification of prior year capital project costs to operating expenses. 8 Fiscal Year Ending June 30, Total Tax Receipts $5,772 $6,125 $6,665 $7,120 $7,575 General Obligation Bond Debt Service 1,724 1,715 1,709 1,682 1,675 Net Tax Receipts $4,048 $4,410 $4,956 $5,438 $5,900 9 Includes only debt service on Water Authority indebtedness payable from net water revenues and excludes debt service paid from tax revenues. Senior lien debt service does not include trust fees. 10 The Water Authority has no outstanding subordinate obligation long-term debt at this time. 11 FY 2000 and forward, commercial paper costs include interest and related program fees. San Diego County Water Authority

46 Continuing Disclosure of Financial Information 44 Investment Policy The Water Authority s investment policy is defined and approved annually. The purpose of this policy is to identify various policies and procedures that enhance opportunities for a prudent and systematic investment policy and to organize and formalize investment-related activities. The Water Authority s board of directors has delegated investment responsibility to the Water Authority s treasurer, who is primarily responsible for implementing the investment policy. The board of directors and treasurer adhere to the guidance provided by the prudent investor rule. The treasurer presents an investment report to the board monthly. The objectives of the investment policy are as follows: A. Safety: Each investment transaction shall seek to ensure that capital losses are avoided. Diversification of the portfolio will be used in order to reduce exposure to principal loss. B. Liquidity: An adequate percentage of the portfolio will be maintained in liquid short-term securities that can be converted to cash to meet disbursement requirements. Investment in securities with active secondary markets will be utilized. These securities will have a low sensitivity to market risk. C. Yield: Yield should become a consideration only after the basic requirements of safety and liquidity have been met. D. Public Trust: All participants in the investment process shall act as custodians of the public trust. The overall program shall be designed and managed with a degree of professionalism that is worthy of the public trust. The investment portfolio will be diversified to avoid incurring unreasonable and avoidable risks regarding specific security types or individual financial institutions. Portfolio diversification is employed as a way to control risk. The Water Authority strives to maintain an efficient portfolio by providing for the lowest level of risk for a given level of return. This acceptable level of return has been quantified as a return that is consistent with the Merrill Lynch 1-3 Year Index. The Water Authority is governed by the California Government Code, Sections et seq. Within the context of these limitations, the following investments are authorized for the Water Authority s operating and reserve funds. It is the Water Authority s goal to maintain a minimum of 50 percent of the Water Authority s portfolio in U. S. Treasury securities; however, based on market conditions a combination of 50 percent agency securities and Treasury bills or notes will satisfy this requirement. At no time will less than 15 percent of the portfolio be in Treasury bills or notes. The Water Authority does not invest in derivative instruments. Securities such as yield curve notes, interest only, principal only, range notes and inverse floaters are prohibited. Callable bonds, stepup bonds and floating rate securities are permitted investments. No security will be purchased that could result in a zero interest accrual if held to maturity. Investments such as common stocks, futures and the writing of options are prohibited from use in the Water Authority s portfolio. The use of short positions is also prohibited. San Diego County Water Authority

47 Continuing Disclosure of Financial Information Portfolio Master Summary (As of June 30, 2002) Maximum Financial Permitted by Institution Actual INVESTMENT TYPE Board Policy Maximum Maturity Concentration Percentage Actual Amount Local Agency Investment Fund (LAIF) $40 Million N/A N/A 14.24% $ 40,000,000 Bankers Acceptances 20% 180 days 5% 0.00% Treasury Securities 15% -Minimum 5 years N/A 17.95% 50,404,969 Federal Agency Securities 70% 5 years No limit 44.48% 124,954,532 Repurchase Agreements 20% 1 year No limit 0.00% Reverse Repurchase Agreements 20% 1 year No limit 0.00% Certificates of Deposit 15% 2 years No limit 0.00% Negotiable Certificates of Deposit 15% 1 year No limit 0.00% Commercial Paper 25% 270 days 5% 10.31% 28,954,893 Medium Term Notes/Corporates 30% 3 years (AA-) 5% 7.10% 19,953,155 { } 5 years (AAA) Money Market Funds 15% N/A No limit 5.92% 16,624,779 SUBTOTAL FOR PORTFOLIO PERCENTAGES: % $ 280,892,328 Accrued Interest (unavailable for investing) 179,508 Checking/Petty Cash/Available Funds (unavailable for investing) 5,044,397 BOND PROCEEDS EXCLUDED FROM PORTFOLIO PERCENTAGES: Local Agency Investment Fund (LAIF) 151,352,000 Societe Generale - Reserve (GIC) 21,329,039 Trinity Plus - Reserve (GIC) 15,391,555 FSA - Reserve (GIC) 18,385,750 FSA - Acquisition Fund (GIC) 100,000,000 TOTAL CASH AND INVESTMENTS $ 592,574, Litigation The Water Authority has engaged in litigation against the Metropolitan Water District of Southern California and the city of Los Angeles to interpret a section of the Metropolitan Water District Act that established so-called preferential rights to MWD water supplies among MWD s 27 member agencies. Additional information about this issue is included elsewhere in this annual report. The validity of the transportation rate portion of the Water Authority s rate structure is currently being challenged in a lawsuit filed against the Water Authority in San Diego Superior Court by Rincon del Diablo Municipal Water District,Vallecitos Water District, Valley Center Municipal Water District, Vista Irrigation District and Yuima Municipal Water District. Since the lawsuit pertains to the rate structure rather than the amount of revenues collected, there will not be a material impact on the Water Authority s revenues should the challenge be successful. The Water Authority board of directors has authorized full defense of the suit. For further information, contact the Water Authority s General Counsel, Daniel S. Hentschke. San Diego County Water Authority

48 Continuing Disclosure of Financial Information ECONOMY OF SAN DIEGO COUNTY General San Diego County extends 70 miles along the Pacific Ocean from the U. S. - Mexico border to Orange County, and inland 75 miles to Imperial County. Riverside and Orange counties form the northern boundaries. The county covers 4,255 square miles, approximately the size of the state of Connecticut. The Water Authority s service area lies within the foothill and coastal areas of the westerly third of San Diego County, encompassing 908,970 acres (1,430 square miles). Of the total population of San Diego County, 97 percent lives within the Water Authority s service area. Therefore, as San Diego County has grown, the population served by the Water Authority has increased considerably since its inception in The Water Authority s first annual report in 1946 indicates a service area of 431,000 residents. By the year 2001, the population served had increased to over 2.8 million residents, with a projected 2002 population of nearly 2.9 million. The chart below shows the historic and projected population in the service area from 1990 through In addition to the city of San Diego, the principal cities are Chula Vista, Carlsbad, Oceanside, El Cajon, Escondido, La Mesa, National City, San Marcos, Poway, Santee and Vista. Most county residents live within 20 miles of the coast. Farther inland are agricultural areas, principally planted in avocados and tomatoes, while the easternmost portion of the county has a dry, desertlike topography. Historic and Projected Population in Authority Service Area Population Served (Millions) San Diego County Annual Building Permit Activity Single And Multifamily Dwellings * Single Family 9,000 10,100 8,100 9,300 6,791 Multifamily 2,900 6,200 7,600 6,300 4,734 TOTAL 11,900 16,300 15,700 15,600 11,525 Source: San Diego Regional Chamber of Commerce Economic Research Bureau. *Numbers indicate time period of April 2001 through March San Diego County Water Authority

49 Continuing Disclosure of Financial Information ECONOMY OF SAN DIEGO COUNTY County, State and National Labor Force, Employment, Unemployment and Unemployment Rate Trends Civilian Labor Percent YEAR Area Force Employment Unemployment Unemployment 1998 San Diego County 1,321,000 1,274,600 46, California 16,298,300 15,340, , United States 137,976, ,677,000 6,299, San Diego County 1,361,600 1,319,600 42, California 16,653,400 15,868, , United States 139,386, ,986,000 5,836, San Diego County 1,404,100 1,362,100 42, California 17,256,000 16,456, , United States 141,319, ,986,000 5,227, San Diego County 1,435,900 1,388,300 47, California 17,408,700 16,507, , United States 141,774, ,379,000 6,395, San Diego County 1,475,400 1,413,700 61, California 17,451,000 16,426,000 1,145, United States 142,605, ,149,000 8,456, Sources: California Employment Development Department and U.S. Department of Labor, Bureau of Labor Statistics 47 San Diego County Employment By Industry* INDUSTRY Farm Production & Services 10,600 11,200 11,900 13,800 11,400 Mining Construction 61,800 67,000 70,400 74,400 76,900 Manufacturing 127, , , , ,100 Transportation & Public Utilities 47,000 51,300 50,900 51,700 50,600 Wholesale Trade 48,300 50,300 52,300 53,300 50,500 Retail Trade 201, , , , ,700 Finance, Insurance & Real Estate 65,300 68,700 69,800 71,200 72,500 Hotels & Other Lodging Places 24,000 26,100 26,800 28,400 27,800 Business Services 87,600 95, , ,700 98,600 Amusement, Including Movies 23,100 24,800 24,400 28,000 26,100 Health Services 70,500 73,400 75,300 77,100 80,100 Engineering & Management Services 50,300 51,700 56,000 60,900 66,000 Other Services 104, , , , ,100 Federal Government 43,300 42,500 42,600 41,000 39,800 State & Local Government 151, , , , ,400 TOTAL 1,116,100 1,164,000 1,208,300 1,239,500 1,250,900 * Total Employment by Industry is not directly comparable to the labor force data in the previous table due to different survey techniques. Source: State of California Employment Development Department. San Diego County Water Authority

50 Appendix The Metropolitan Water District of Southern California General Mineral and Physical Analysis of Metropolitan s Water Supplies (Fiscal Year Averages) 48 SOURCE WATERS LAKE SAN CASTAIC SILVER- LAKE HAVASU JACINTO LAKE WOOD SKINNER FILTRATION PLANT EFFLUENTS SYMBOLS NEAR TU NNEL AT LAKE DIAMOND AT AND WHITSETT WEST LAKE LENSEN AT DEVIL LAKE VALLEY OUTLET WEYMOUTH DIEMER JENSEN SKINNER MILLS Symbols Units Havasu near Whitsett Intake San Jacinto Tunnel West Portal Lake Mathews Castaic Lake at Lensen Influent C O N S T I T U E N T S UNITS INTAKE PORTAL MATHEWS INFLUENT CANYON PERRIS LAKE CONDUIT PLANT PLANT PLANT PLANT PLANT Silica SiO 2 mg/l Calcium Ca mg/l Magnesium Mg mg/l Sodium Na mg/l Potassium K mg/l Carbonate CO 3 mg/l Bicarbonate HCO 3 mg/l Sulfate SO 4 mg/l Chloride Cl mg/l Nitrate NO 3 mg/l Fluoride F mg/l Boron B mg/l Total Dissolved Solids TDS mg/l Total Hardness as CaCo 3 mg/l Total Alkalinity as CaCo 3 mg/l Free Carbon Dioxide CO 2 mg/l H + Concentration PH Specific Conductance µmho/cm Color cu Filter Effluent Turbidity ntu Turbidity ntu Temperature c Asbestos mfl nd nd nd nd nd nd nd nd nd nd nd nd nd Bromide* Br mg/l Cyanide CN mg/l nd nd nd nd nd nd nd nd nd nd nd nd nd Foaming Agents (mbas) mg/l nd nd nd nd nd nd nd nd nd nd nd nd nd Total Organic Carbon TOC mg/l Total Trihalomethanes TTHMs µg/l Threshhold Odor Number TON Langelier Index@Source Temp % State Project Water %spw % Silverwood Lake at Devil Canyon Lake Perris Diamond Valley Lake Lake Skinner at Outlet Conduit Weymouth Plant Diemer Plant Jensen Plant Skinner Plant Mills Plant *Treatment plant bromides are plant influent values. ** Treatment plant results are flow weighted averages. nd = none detected San Diego County Water Authority

51 ORANGE COUNTY Appendix RIVERSIDE COUNTY Member Agencies and Representatives on the Water Authority Board of Directors As of June 30, 2002 SAN DIEGO COUNTY Carlsbad Municipal Water District 5950 El Camino Real Carlsbad, CA T: F: Director: Claude A. Bud Lewis 2 City of Del Mar Water Utilities Department 1050 Camino del Mar Del Mar, CA T: F: Director: Charles Newton 10 Padre Dam Municipal Water District Woodside Avenue Santee, CA T: F: Director: Dan McMillan 11 Pendleton Military Reservation Water Resources, AC/S Facilities Marine Base Oceanside Camp Pendleton, CA T: F: Carlsbad Director: Edmund L. Rogers Fallbrook Second Aqueduct North County Distribution Pipeline Vista 22 Tri-Agencies Pipeline 13 First Aqueduct Valley Center Pipeline 15 San Marcos Escondido 23 3 City of Escondido Water Utilities Department 201 N Broadway Escondido, CA T: F: Director: Marilyn J. Dailey 12 City of Poway Customer Services Department Civic Center Drive Poway, CA T: F: Director: James L. Bowersox Encinitas Lake Hodges Ramona Pipeline Designed and produced by Mentus, San Diego, California. 4 Fallbrook Public Utility District 990 E Mission Road Fallbrook, CA T: F: Director: Keith Lewinger 5 Helix Water District 7811 University Avenue La Mesa, CA T: F: Directors: Harold W. Ball, H. Warren Buckner 6 City of National City (member of Sweetwater Authority) 1243 National City Boulevard National City, CA T: F: Director: Frank Chenelle 7 City of Oceanside 300 N Coast Highway Oceanside, CA T: F: Director: James F. Turner 8 Olivenhain Municipal Water District 1966 Olivenhain Road Encinitas, CA T: F: Director: Susan J. Varty 9 Otay Water District 2554 Sweetwater Springs Boulevard Spring Valley, CA T: F: Director: Gary Croucher, José Lopez 13 Rainbow Municipal Water District 3707 Old Highway 395 Fallbrook, CA T: F: Director: Paul W. Christensen 14 Ramona Municipal Water District 105 Earlham Street Ramona, CA T: F: Director: Doug Wilsman 15 Rincon del Diablo Municipal Water District 1920 N Iris Lane Escondido, CA T: F: Director: Gregory M. Quist 16 City of San Diego Water Utilities Department 600 B Street Ste (MS913) San Diego, CA T: F: Directors: Benjamin A. Haddad, Nora Jaeschke, John Johnson, George Loveland, Mike Madigan, Joseph Parker, Bernie Rhinerson, Javier Saunders, Fred Thompson, Yen C. Tu 17 San Dieguito Water District 505 S Vulcan Avenue Encinitas, CA T: F: Director: James Bond Solana Beach Del Mar La Jolla Santa Fe Irrigation District 5920 Linea del Cielo P.O. Box 409 Rancho Santa Fe, CA T: F: Director: Robert M. "Bud" Irvin 19 South Bay Irrigation District (Member of Sweetwater Authority) 505 Garrett Avenue Chula Vista, CA T: F: Director: Bud Pocklington 20 Vallecitos Water District 201 Vallecitos de Oro San Marcos, CA T: F: Director: Dale Mason Poway Miramar Reservoir Lake Murray San Diego 94 Lemon Grove National City 54 Coronado 6 19 Chula Vista Santee 125 La Mesa 21 Valley Center Municipal Water District Valley Center Road Valley Center, CA T: F: Director: Gary A. Broomell 22 Vista Irrigation District 1391 Engineer Street Vista, CA T: F: Director: Howard Williams Sweetwater Reservoir San Vicente Reservoir El Cajon 9 Upper Otay Lower Otay Yuima Municipal Water District Valley Center Road Pauma Valley, CA T: F: Director: W.D. Bill Knutson 9 County of San Diego 1600 Pacific Highway, Rm. 335 San Diego, CA T: F: Dianne Jacob, member of the San Diego County Board of Supervisors, also serves as a representative to the Water Authority Board of Directors. 49 San Diego County Water Authority

52 S D C W A. O R G Administrative Office 4677 Overland Avenue San Diego, CA Telephone: Facsimile: Heilbron Operations Center 610 West 5 th Avenue Escondido, CA Telephone: Facsimile: