San Diego Finds a Customer for Its Water Surplus — But the Tab Is Already Decades Long

San Diego County Water Authority signs water sale deal with Riverside agency | KPBS Public Media

A new 21-year deal to sell excess water to Riverside County is welcome news for overburdened ratepayers. It is also a textbook case of what happens when public agencies plan for a future that never arrives.

Analysis • Western Water Watch San Diego, California March 2026

• 21 Year deal length
• $13.5M Annual revenue to SDCWA
• $100M Expected revenue, first 5 years
• ~$3B Total supply infrastructure investment
• 8.3% 2026 wholesale rate increase
• 15 yrs Duration of SDCWA–MWD litigation

On March 19, 2026, officials from the San Diego County Water Authority and the Western Municipal Water District of Riverside County gathered at SDCWA headquarters in Kearny Mesa to sign what both sides called a "landmark" agreement. For 21 years, San Diego will sell at least 10,000 acre-feet of water annually to Western — enough to supply roughly 30,000 households — at a price that delivers $13.5 million per year back to the Authority, with an upfront payment of roughly $40 million securing an additional 30,000 acre-feet for future delivery.^[1] The deal also has no infrastructure costs: water flows through existing connections in the Metropolitan Water District of Southern California's sprawling system.^[2]

Board Chair Nick Serrano called it "a win for San Diego ratepayers, a win for Western, and a win for Southern California."^[1] General Manager Dan Denham declared it "groundbreaking for them as much as it is for us."^[3]

They are not wrong. But the story of how San Diego ended up with so much water to sell — and what that surplus has cost the people footing the bill — is a more complicated, and cautionary, tale than the press conference suggested.

"The system was overbuilt, as it turned out, in large part because population projections were too high and water conservation expectations were too low."

San Diego Union-Tribune, February 2026

The Blessing-and-Curse of Strategic Overinvestment

The roots of today's surplus stretch back to the early 1990s, when California's drought forced the Metropolitan Water District to impose strict cutbacks on member agencies. San Diego — then almost entirely dependent on MWD imports — found itself in a precarious position. The response was a sweeping, multi-decade investment campaign in supply independence: a landmark 2003 deal to purchase conserved Colorado River water from the Imperial Irrigation District, the lining of the All-American and Coachella canals to recapture seepage, a massive expansion of local reservoir capacity (including enlargement of San Vicente Dam), and eventually, the $1 billion Claude "Bud" Lewis Carlsbad Desalination Plant, which opened in 2015 and supplies roughly 10 percent of the county's drinking water.^[4,5]

By nearly any technical measure, the strategy worked. San Diego's Urban Water Management Plan now projects adequate supply through 2050, even accounting for multiple dry years.^[6] While communities across the Southwest grappled with extraordinary restrictions during recent droughts, San Diego's taps ran uninterrupted. Former Councilmember Sean Elo-Rivera — who has loudly criticized the Authority's pace on water sales — acknowledged that the investments "paid off during this latest drought."^[7]

The problem is that the investments were sized for a San Diego that never materialized. Population projections from the regional planning authority SANDAG, which informed water infrastructure decisions, consistently overestimated growth. Simultaneously, water conservation programs, tiered pricing, and drought habits permanently suppressed per-capita demand. The Authority's peak water sales reached roughly 660,000 acre-feet in 2007; by 2023 it expected to sell only around 360,000 acre-feet — a 45 percent decline that shattered the revenue assumptions built into the Authority's debt structure.^[8] Recycled water projects coming online in coming years promise to push demand for wholesale water even lower, by an additional 55,000 acre-feet or more before decade's end.^[8]

The Ratepayer Gets the Bill

The fundamental economics of a water utility are unforgiving: fixed costs do not flex when customers stop buying. The SDCWA carries roughly $2 billion in debt accumulated financing its infrastructure.^[9] That debt service continues regardless of sales volume. So as consumption dropped and MWD's own wholesale charges rose, the Authority faced a brutal arithmetic: fewer customers, higher costs per unit, accelerating rate increases.

The desalination plant alone became a particular flashpoint. By 2021, the Authority was paying $2,588 per acre-foot for Carlsbad water — a 22 percent increase over the plant's 2016 inaugural price.^[9] Energy costs at the energy-intensive facility jumped 47 percent in a single year, creating a $17 million shortfall.^[8] The Authority's board, squeezed from every direction, repeatedly raised wholesale rates: 14 percent in one recent year, 12 percent in another, with then-City Councilmember Serrano himself warning he would not accept "a double-digit rate increase under any circumstance" — before his own board approved one.^[8]

Meanwhile, the costs were spread more thinly after the Fallbrook Public Utility District and Rainbow Municipal Water District — fed up with rising rates — completed a contentious departure from the Authority to seek cheaper supply elsewhere, leaving remaining member agencies absorbing their share of fixed costs.^[10]

The SDCWA's own rates and affordability page acknowledges: "San Diego County's strategic investments in supply reliability…means that residents and businesses will likely pay more for water in future years."^[11] That is a remarkably candid admission from a public agency. The translation: ratepayers are paying — and will continue to pay — for infrastructure built to a demand profile that no longer exists.

The Legal Detour That Delayed the Fix

Even before the surplus became acute, there was a structural obstacle to selling the water: a 15-year legal battle between the SDCWA and the Metropolitan Water District over the price MWD charged to move San Diego's conserved Colorado River water through its system. The dispute began in 2010 and cost San Diego ratepayers an estimated $20 million in legal fees alone.^[12] Perhaps more damaging, it froze the cooperative relationship between the two agencies — preventing the kind of water-transfer arrangements that are now being celebrated.

The settlement, reached June 2, 2025, established a fixed exchange rate of $671 per acre-foot starting in 2026, adjusted annually for inflation — replacing the variable MWD-rate pricing that had fueled the original litigation.^[13] The agreement also explicitly opened the pathway for San Diego to sell conserved water to Metropolitan member agencies and to offer water to agencies across the Southwest — the legal keystone that made the Western Municipal deal possible.^[13] "It's been very tough," MWD General Manager Deven Upadhyay said at the settlement announcement. "In a normal relationship, you'd be doing water deals, trying to figure out how to capture supplies." Instead, both agencies spent 15 years in court.^[12]

Key Milestones: How San Diego Built Its Surplus — and Why Selling It Took So Long

• 1991–94Severe California drought; MWD imposes cutbacks; San Diego faces drastic supply reductions, triggering the push for independence.
• 2003SDCWA finalizes IID water transfer agreement; begins funding lining of All-American and Coachella canals to conserve Colorado River water.
• 2007Peak SDCWA water sales: ~660,000 acre-feet. Population growth projections still robust; infrastructure built to serve continued expansion.
• 2010SDCWA begins legal challenge to MWD's transfer pricing, launching what becomes a 15-year dispute.
• 2015Carlsbad Desalination Plant opens — first large-scale ocean desal facility in the Western Hemisphere — at approximately $1 billion total cost.
• 2019–23Authority draws down $201 million in reserves — including $90M in settlement funds — to provide COVID-era ratepayer relief as demand collapses.
• 2023Projected water sales near 360,000 acre-feet, nearly half of 2007 peak. Rate stabilization fund falls below Board policy minimums.
• June 2025SDCWA and MWD settle 15-year litigation; fixed transfer price of $671/acre-foot established; sales to MWD member agencies authorized.
• March 2026First water sale agreement signed: 21-year deal with Western Municipal Water District, generating $13.5M/year and $100M over five years.

A Deal That Works — With Caveats

The Western Municipal agreement is genuinely good news, as far as it goes. The $100 million it promises over the first five years — accounting for the upfront payment — represents real revenue for an agency that has been hemorrhaging rate stabilization reserves.^[3] The terms require no new infrastructure. Western Water, which serves nearly 1 million Riverside County residents across 527 square miles and faces its own supply challenges tied to Colorado River uncertainty, gets reliable access to a volume of water roughly equivalent to 30,000 homes per year.^[1] Both sides gain something concrete.

The deal also sits atop a broader strategy that appears, at last, to be gaining traction. The Authority has offered to sell up to 50,000 acre-feet to all 26 MWD member agencies and is in preliminary discussions with the U.S. Bureau of Reclamation to explore a pilot program that would allow Carlsbad desalinated water to be exchanged with Colorado River Basin states — a particularly significant development given that the Colorado's annual flow has declined roughly 20 percent since 2000 due to climate-driven megadrought and increased evaporation.^[14,2] If western states desperate for Colorado River allocation can effectively "buy" San Diego desalination capacity through paper transfers, the Authority might finally recover a meaningful fraction of what it has spent.

But a skeptic's concerns are not unreasonable. The Western deal covers only 10,000 acre-feet per year — a small fraction of the surplus the Authority needs to monetize to meaningfully suppress rate increases. Denham has acknowledged that while the deal "should materially change rates," the magnitude of relief and how revenue will be allocated — rate relief versus debt reduction — remain board decisions yet to be made.^[10] Watchful ratepayers should note that "material change" is not the same as "reversal." The Authority's own website still warns of continued rate increases ahead.^[11]

There is also the structural question of duration. Locking in a 21-year commitment at today's terms is a bet on the stability of both demand forecasts and supply conditions in a region where both have historically confounded planners. Western Municipal's service area faces its own population pressures and climate uncertainties. San Diego's recycled water projects, whose output will reduce the Authority's surplus over time, are themselves running years behind schedule and billions over budget. What looks like a comfortable surplus today could narrow considerably before this deal expires in 2047.

The Lesson Hiding in Plain Sight

None of this is to say the original infrastructure investments were foolish. San Diego's water security during the droughts of the 2010s and early 2020s was real, measurable, and valuable. Other communities in the Southwest watched reservoirs fall to critical levels while San Diego's were comparatively full. The political and civic leaders who made those calls deserve credit for long-range thinking that was, in the final analysis, vindicated by events.

But the costs were real and were substantially borne by people who had little say in how the infrastructure was sized or financed. Rate increases of 8–14 percent annually in an era of stagnant wages and rising living costs hit hardest the households least able to absorb them. District 8 Councilmember Vivian Moreno put it plainly during a rate-increase vote: "My community is going to be impacted greatly. Folks on fixed incomes are going to be impacted tremendously."^[15] The SDCWA, like most public utilities, operates with limited price discipline because its customers have no exit option except, as Fallbrook and Rainbow showed, extreme and disruptive agency-level secession.

What this moment calls for is not just celebration of a water deal but a serious reassessment of how public water agencies forecast demand, structure long-term contracts, and expose infrastructure decisions to meaningful cost-benefit scrutiny before billions are committed. The SDCWA's own 2025 Annual Report acknowledges that demand has been declining for decades and will continue to decline as recycled water comes online — yet the agency continues to operate a desalination plant contractually obligated to sell a fixed volume regardless of whether customers want it.^[16,8] San Diego is not alone in this trap; it is, rather, a particularly well-documented example of a pattern common to public utilities across the American West.

The Riverside deal may be the beginning of a genuine financial turnaround for the SDCWA. If the Bureau of Reclamation pilot leads to interstate transfers, and if additional MWD member agency deals follow, the revenue trajectory could meaningfully improve. But ratepayers — who have already paid, through decades of escalating bills, for water that sat unused — will be watching closely to ensure the benefits flow back to them rather than disappearing into an agency balance sheet. At $13.5 million a year against a $1.8 billion annual budget, the first deal is a start. It is very much only a start.

The Revenue Question: Rates, Debt, or Infrastructure?

Even as the ink dried on the Western Municipal agreement, a fundamental question remained conspicuously unanswered: what, exactly, will San Diego do with the money? The three competing claimants — ratepayer relief, debt reduction, and deferred infrastructure maintenance — each have legitimate and urgent cases, and the board has committed to none of them. Board Chair Serrano declined to specify any allocation, saying only that there would be "a holistic conversation with all of the board" and that it was "premature to sort of say with some definitiveness."^[20]

The financial architecture of the Authority makes the answer less flexible than the political language implies. Bond covenants legally require the agency to maintain sufficient revenues to cover debt service before any discretionary allocation — and that debt load is substantial. As of June 30, 2025, the Water Authority carries approximately $1.7 billion in long-term debt outstanding, with annual debt service obligations exceeding $160 million in 2026 alone.^[21] The agency simultaneously anticipates a new $285 million bond issuance in 2026 to fund critical asset management — meaning it is taking on more debt at the precise moment it is celebrating new revenue.^[22] In that context, $13.5 million per year is less a windfall than a rounding error against existing obligations.

The infrastructure maintenance case is particularly pressing and tends to get less public attention than rate relief. The Authority is currently midway through a $66 million overhaul of the Southern First Aqueduct — pipelines that have served the region for over 70 years — and that is only one item in a capital improvement program that has itself been cut in recent years precisely to hold down rates.^[5] Deferred maintenance on aging water infrastructure is not a problem that resolves itself; it compounds. The most politically popular use of the new revenue, direct rate relief, is also the most likely to be short-changed by the structural realities of bond covenants and infrastructure backlog.

The Colorado River: The Source of the Water San Diego Just Agreed to Sell

Any honest accounting of the risks embedded in this 21-year commitment requires a clear-eyed look at the health of the water system that will actually supply it. San Diego's Colorado River allocation — the backbone of the IID transfer and the MWD exchange that make the surplus possible — flows ultimately from Lake Mead through Hoover Dam. And Lake Mead, right now, is in serious trouble.

"These projections are for sure serious. Without a good runoff year this coming winter, larger annual cutbacks in deliveries will be in the not-too-distant future."

Sharon Megdal, Director, University of Arizona Water Resources Research Center

As of the Bureau of Reclamation's March 9, 2026 weekly hydrologic update, Lake Mead sits at approximately 1,065 feet above sea level — and this is the seasonal high point.^[23] March is when the reservoir should be at its annual maximum, before spring and summer drawdown begins as farms and cities across the Southwest begin consuming the meltwater that hasn't yet arrived. From here, the level drops. Bureau of Reclamation projections show Lake Mead falling to roughly 1,049 feet by July 2026 — that is, the reservoir will shed another 16 feet of elevation purely from seasonal demand before next winter's snowpack has any chance of replenishing it.^[24]

The numbers in historical context are sobering. Full pool for Lake Mead is 1,229 feet. The reservoir has not been at full capacity since 1983.^[25] At today's March elevation — the supposed seasonal peak — the lake is roughly 163 feet below where it would be if full. Federal data show the last time March levels were this low was 1937, not long after Hoover Dam's completion.^[26] The entire Colorado River system is currently at 37 percent of capacity.^[23]

The snowpack feeding this year's spring runoff — the annual replenishment pulse — makes the outlook worse. Current Upper Colorado Basin snowpack stands at only 68 percent of normal. The forecasted April–July 2026 inflow into Lake Powell, the upstream reservoir that feeds Lake Mead, is just 36 percent of normal — and that figure has been revised downward from prior already-low forecasts.^[23] April through July is the window that determines whether the system recovers or contracts further. At 36 percent of average inflow, there is no meaningful recovery coming this year.

The Bureau of Reclamation has declared a Tier 1 shortage condition for Lake Mead that will remain in effect through all of 2026, triggering mandatory allocation reductions for Nevada, Arizona, and California.^[27] A Tier 2 shortage, with deeper cuts, is triggered if the lake falls below 1,050 feet — a threshold the reservoir is projected to approach by midsummer under current most-probable forecasts. The Bureau's own commissioner has warned publicly that short-term conservation tools protecting the reservoir "will only help us for so long," while seven basin states are still negotiating post-2026 operating guidelines that will determine who bears future cuts.^[28]

The structural driver is not cyclical drought but permanent aridification. Scientists calculate that the Colorado River basin now carries roughly 20 percent less water than it did at the turn of the century, a reduction attributed to climate-driven warming that increases evaporation and reduces snowpack even in years of normal precipitation.^[24] The river is, in the bluntest terms, being asked to supply more water than it physically contains — and has been for decades. The 1922 Colorado River Compact apportioned water based on flow measurements taken during an anomalously wet period; the long-run average is materially lower than what the treaty assumed.

All of this bears directly on the Western Municipal deal. San Diego's Colorado River supply — the water it is now committed to deliver to Riverside County for 21 years — is drawn from a system operating at Tier 1 shortage, heading toward Tier 2, fed by snowpack at 68 percent of normal, with spring inflows forecast at 36 percent of average, at a March elevation last seen in 1937. The SDCWA's official position is that the Carlsbad desalination plant provides a drought-independent backstop sufficient to honor its commitments. That may be technically correct under the scenarios its modelers have stress-tested. But it also means that in a prolonged shortage, San Diego would be producing some of the most expensive water on the continent — at roughly $2,500 per acre-foot at the desalination plant — in order to fulfill a 21-year sale agreement priced at a fraction of that cost. The financial logic of that scenario has not been publicly addressed.

The deal was signed on March 19, 2026. Lake Mead's March elevation — the annual seasonal peak — is the lowest it has been since the reservoir was first filled nearly ninety years ago. That timing is not an argument against water markets or regional cooperation. It is, however, an argument for humility about 21-year commitments — and for demanding that the contract's shortage and force majeure provisions be made fully public so that ratepayers can assess what they have actually agreed to.

Sources & Formal Citations

1. City News Service / KPBS Public Media. "San Diego County Water Authority Signs Water Sale Deal with Riverside Agency." KPBS, March 20, 2026. https://www.kpbs.org/news/environment/2026/03/20/san-diego-county-water-authority-signs-water-sale-deal-with-riverside-agency
2. KPBS Public Media. "New Agreement Could Lead to Lower Water Rates for Local Ratepayers." KPBS, February 27, 2026. https://www.kpbs.org/news/environment/2026/02/27/new-agreement-could-lead-to-lower-water-rates-for-local-ratepayers
3. Jennewein, Chris. "Water Authority Announces Long-Term Sale of Surplus to Riverside County." Times of San Diego, March 19, 2026. https://timesofsandiego.com/business/2026/03/19/water-authority-announces-long-term-sale-surplus-riverside-county/
4. San Diego County Water Authority. "Water Authority Forecasts Sufficient Supply Through 2050, Seeks Outside Sales." Times of San Diego, March 14, 2026 (via SDCWA release). https://timesofsandiego.com/environment/2026/03/14/water-authority-forecasts-sufficient-supply-through-2050-seeks-outside-sales/
5. San Diego County Water Authority. 2025 Annual Report. SDCWA, 2025. https://www.sdcwa.org/annualreport/2025/
6. San Diego County Water Authority. "SDCWA Urban Water Management Plan — Supply Forecast through 2050." Referenced in SDCWA 2025 Annual Report and March 2026 press materials. https://www.sdcwa.org/annualreport/2025/
7. Voice of San Diego. "Morning Report: Sold! Temecula Buys Our H2O; But Will Arizona?" March 20, 2026. https://voiceofsandiego.org/2026/03/20/morning-report-the-water-deal-to-watch/
8. San Diego Union-Tribune. "Despite 'Multitude of Risks,' San Diego Region Could Tap Cash Reserves to Blunt Spiking Water Rates." May 27, 2023. https://www.sandiegouniontribune.com/news/environment/story/2023-05-26/san-diego-spiking-water-rates-cash-reserves
9. Voice of San Diego. "Why Your Water Bill Is Rising." March 15, 2022. https://voiceofsandiego.org/2022/03/15/why-your-water-bill-is-rising/
10. Smolens, Michael. "San Diego Officials Say They're Close to Selling Off Some Water Oversupply." San Diego Union-Tribune, February 27, 2026. https://www.sandiegouniontribune.com/2026/02/27/san-diego-officials-say-theyre-close-to-selling-off-some-water-oversupply/
11. San Diego County Water Authority. "Rates & Affordability." SDCWA.org, updated December 2025. https://www.sdcwa.org/your-water/affordability/
12. Voice of San Diego. "Big LA-SD Water Settlement Reached." June 1–2, 2025. https://voiceofsandiego.org/2025/06/01/big-la-sd-water-settlement-reached/
13. San Diego County Water Authority. "Southern California Water Agencies End Lengthy Legal Dispute." Official SDCWA press release, June 2, 2025. https://www.sdcwa.org/mwd-sdcwa-settlement/
14. San Diego Union-Tribune. "Cheaper Water Ahead? San Diego County Water Authority Inks Landmark Water Deal with Riverside County." March 19–20, 2026. https://www.sandiegouniontribune.com/2026/03/19/cheaper-water-ahead-san-diego-county-water-authority-inks-landmark-water-deal-with-riverside-county/
15. Fox5/KUSI San Diego. "San Diego Water Rates Are About to Go Up Despite Water Surplus." March 7, 2025. https://fox5sandiego.com/news/local-news/san-diego-water-rates-are-about-to-go-up-despite-water-surplus/
16. San Diego County Water Authority. "New Revenues, Budget Cuts Trim Wholesale Rate Increase for 2025." SDCWA press release, July 2024. https://www.sdcwa.org/revenues-and-cuts-trim-rate-increase-for-2025/
17. KPBS Public Media. "MWD, SD County Water Authority Settle Legal Dispute over Water Exchange." June 3, 2025. https://www.kpbs.org/news/quality-of-life/2025/06/02/mwd-sd-county-water-authority-settle-legal-dispute-over-water-exchange
18. San Diego Union-Tribune. "San Diego County Water Officials Settle Long-Running Rate Dispute After 15 Years and Tens of Millions in Legal Costs." June 3, 2025. https://www.sandiegouniontribune.com/2025/06/02/san-diego-county-water-officials-settle-long-running-rate-dispute-after-15-years-and-tens-of-millions-in-legal-costs/
19. 10News KGTV San Diego. "San Diego Water Authority Plans to Sell Surplus Water, Aims to Lower Costs." April 2, 2025. https://www.10news.com/news/local-news/san-diego-water-authority-plans-to-sell-surplus-water-aims-to-lower-costs
20. San Diego Union-Tribune. "Cheaper Water Ahead? San Diego County Water Authority Inks Landmark Water Deal with Riverside County." [Board allocation discussion / Serrano quote on holistic conversation.] March 19–20, 2026. https://www.sandiegouniontribune.com/2026/03/19/cheaper-water-ahead-san-diego-county-water-authority-inks-landmark-water-deal-with-riverside-county/
21. San Diego County Water Authority. "Debt Information." SDCWA.org, updated December 2025. [~$1.7B long-term debt outstanding as of June 30, 2025; debt service schedule.] https://www.sdcwa.org/about-us/debt-information/
22. San Diego County Water Authority. Cost-of-Service Report CY 2026. [$285M bond issuance; debt service obligations.] https://www.sdcwa.org/wp-content/uploads/2022/12/FINAL-CY2026-Cost-of-Service-Report-with-Disclaimer.pdf
23. U.S. Bureau of Reclamation, Lower Colorado Region. "Lower Colorado Weekly Hydrologic Update: March 9, 2026." [Lake Mead elevation 1,065.52 ft; Colorado River total system 37% capacity; snowpack 68% of normal; April–July 2026 inflow forecast 36% of normal.] https://www.usbr.gov/lc/region/g4000/weekly.pdf
24. 8NewsNow Las Vegas / U.S. Bureau of Reclamation 24-Month Study. "Lake Mead Projections Lower as Snowpack Lags." [March 2026 high of ~1,062 ft; July 2026 low of ~1,049 ft.] February 2025. https://www.8newsnow.com/news/local-news/lake-mead-projections-lower-as-snowpack-lags-in-upper-colorado-river-basin/
25. Wikipedia / U.S. Bureau of Reclamation. "Lake Mead." [Full pool 1,229 ft; not at capacity since 1983.] https://en.wikipedia.org/wiki/Lake_Mead
26. Newsweek. "Lake Mead Faces Worrying Water Levels for 2026, 2027." [Last time March levels were this low: 1937; Megdal quote on serious projections.] July 23, 2025. https://www.newsweek.com/lake-mead-worrying-water-levels-2026-2027-2102339
27. Southern Nevada Water Authority. "Water Shortages." [Tier 1 shortage in effect 2026; Lake Mead down ~160 ft since 2000; aridification discussion.] https://www.snwa.com/water-resources/drought-and-shortage/index.html
28. U.S. Bureau of Reclamation. "Reclamation Announces 2026 Operating Conditions." [Commissioner Cameron warning on short-term tools; post-2026 guidelines negotiations.] https://www.usbr.gov/newsroom/news-release/5211