Integrated Resource Planning:
Metropolitan Water District
November 18, 1993
Central and West Basin MWDs
BROWN AND CALDWELL
in conjunction with
Dr. John Boland
Johns Hopkins University
CONTEXT AND CONCEPTS .............
Traditional Supply Planning ..........
Least Cost Planning (LCP) ...........
Integrated Resource Planning (IRP) ......
APPLYING IRP TO METROPOLITAN .......
Benefits of IRP ..................
Consequence of Failure to Apply IRP ....
KEY ISSUES ........................
IRP is Essential for Southern California ...
The Scope of Planning Must be Regional ..
The Rate-Setting Process Must be Integrated
Planning Must be Participative ..................
Planning Must be Open-Ended and Iterative .........
BROWN AND CALDWELL
INTEGRATED RESOURCE PLANNING:
METROPOLITAN WATER DISTRICT IMPACTS
CONTEXT AND CONCEPTS
The Metropolitan Water District of Southern California (Metropolitan) is a very large regional water
importer, supplying 1.8 to 2.5 million ac ft of water annually to water purveyors in 6 counties in
Southern California. Its service area includes 27 member agencies which either are themselves
wholesalers or are retail agencies, selling water to end users. There are a large array of solutions to the
problem of matching supply and demand for water users in Southern California over the water resources
planning horizon (next 1 to 200 years):
Multiple water resource development opportunities are-available inside and outside
Metropolitan's service area which can provide water for Metropolitan's customers.
Water transfer opportunities exist within existing water sources throughout the state
which could provide more water for Southern California.
"New" water resource opportunities become available when they are envisioned, from
year-to-year with changing climatological conditions, and when legislation is implemented
changing the water industry's ability to increase water supplies. The process of planning
for and implementing additional water resources is therefore an on-going and never-
The past few years have been critical because environmental and institutional changes
have adversely affected the reliability of existing statewide water resource capacities.
The active financial participation by Metropolitan in water management programs
(Groundwater Recovery and Local Project Programs) implemented by member agencies
and retail water purveyors in its service area have provided additional water resources..
Metropolitan is the regional water supplier in its service area. Demand for Metropolitan water is reduced
when rainfall increases the availability of local water resources. Metropolitan's supply is reduced during
times of drought. As a result, a volatility in water sales from year-to-year exists resulting from
significant year-to-year fluctuations in supply and demand.
The critical interdependence between Metropolitan and the agencies it supplies has been recognized and
has resulted in Metropolitan's Strategic Planning Study, Integrated Resource Planning (IRP) process, and
its rate structure study.
BROWN A~D CALDWELL 1
Integrated Resource Planning
' Traditional Supply Planning
Traditional supply planning takes place entirely within a utility, and focuses on supply facilities either
owned by, or subject to the control of the utility. The expected level and pattern of future water use is
taken as given, or is assumed to be set independent of the planning process. Demand management
measures are not considered, and the rate-setting process is entirely separated from supply planing.
System reliability goals are usually established without regard to cost or impacts, and are not subject to
later review. Facilities are planned to meet the reliability goals. Drought management measures are not
considered. In many cases, reliability goals are very high, limiting supply shortfalls to one event in fifty
or one hundred years.
While this description continues to apply to many water utilities in the U.S., it does not apply to
Metropolitan. Demand and drought management measures have been a routine part of supply planning
for most of the past ten years. System reliability goal are reexamine regularly. Water use forecasts are
sensitive to changes in price and policy. Recently, Metropolitan's supply planning has widened in scope,
beginning to consider facilities owned and controlled by member agencies and purveyors.
Least Cost Planning (LCP)
LCP, at a minimum, seeks to find the combination of new sources of supply and demand management
programs which meet water needs at the lowest possible cost. This would generally mean full and
complete consideration of demand management measures, including pricing; balancing benefits and costs
to find the appropriate combination of drought management measures and reliability criteria; consideration
of a wider range of supply measures including use of facilities not owned by the utility; and equal status
for supply- and demand-side measures.
In practice, LCP can have many forms. In some cases, LCP means nothing more than a preference for
demand-side measures. In other situations, LCP may go well beyond the components noted above, to
include multiple objectives, sophisticated risk management analyses, attention to flexibility and diversity,
attention to third party (external) cost and benefits, integration of planning with rate-setting, and other
features. Prior to initiation of the current planning effort, Metropolitan had begun to evolve in the
direction of LCP. Efforts now underway will complete that transition.
Integrated Resource Planning (IRP)
A prerequisite to IRP is a fully evolved system of Least Cost Planning. However, for IRP the planning
context of the planning differs significantly from most application of LCP. Under IRP, an open and
participative planning process is used to develop one or more performance objectives for the regional
water system. Various strategies for meeting these objectives are identified, taking account of all
facilities, assets, and resources available to benefit the region. A strategy incorporates supply
BROWN AND CALDWELL 2
Integrated Resource Planning
augmentation, demand management, drought management, rate-setting policy, and other actions needed
to meet objectives. Each strategy is subjected to LCP, in order to define the lowest cost configuration.
Strategies are then compared on the basis of performance (relative to all objectives, cost (internal and
external), and other factors. The best overall strategy is selected for implementation.
IRP is not necessarily constrained by past practices, existing institutions, or jurisdictional boundaries.
The purpose is to find the strategy which performs best--in the collective opinion of Metropolitan,
affected agencies, and the public. The fact that a particular strategy requires institutional changes should
not exclude it from consideration: the advantages of that strategy may outweigh the costs of change. In
practice, however, significant institutional change is not expected, except through a process of slow
evolution. This is particularly true in the Southern California water industry which has served its purpose
so well in the past.
Objectives defined for the Metropolitan service area may include maximizing the net benefits of the end
user, ensuring the fiscal integrity of each of the water agencies, environmentally protecting the resource
base, and achieving a fair and equitable allocation of costs. Whether these objectives are met depend on
the plan and actions of all water agencies in the region, including Metropolitan. The purpose of IRP,
in this case, is to define the proper role for Metropolitan within the context of the best regional water
APPLYING IRP TO METROPOLITAN
Benefits of IRP
The major benefit of IRP would be to meet the water need of the region in the least costly way, to the
satisfaction of most water users. Properly applied, Integrated Resource Planning can increase net benefits
to consumers, insure fiscal integrity for water agencies, promote fairness and equity, and protect the
water resources of the region.
IRP would also clarify relationships among water agencies and assist in coordinating the activities of those
agencies. It would, in particular, define the role and function of rate-setting policy in balancing supply
Southern California is a challenging assignment for any planning method, particularly so for IRP. The
system is physically large and institutionally complex. Water is provided through two, three, and four
levels of agencies. Relationships among those agencies are those of buyer and seller. Influence is
communicated through economic incentives; mandates or other use of administrative control are generally
BROWN AND CALDWELL 3
Integrated Resource Planning
Water resources are both outside and inside of the region, subject to the control of a wide range of
agencies and entities, and are subject to a formidable array of institutionally-imposed restrictions on use.
Significant potential exists within the region for underground storage; control of the necessary facilities
is widely dispersed.
Metropolitan's role as a supplemental supplier poses an additional challenge. Uncertainties always exist
in estimating future demand. This uncertainty is magnified for Metropolitan because its customers in
general rely on local, previously developed, lower cost supply sources before purchasing water from
Metropolitan. As a result, there are extraordinarily wide swings in demand on Metropolitan's system
from year-to-year. This creates special problems when planning for future operations and to achieve
fiscal integrity. Metropolitan's strategic plan must therefore incorporate considerable flexibility.
Consequence of Failure to Apply IRP
In the absence of IRP, individual agencies will be motivated to find their own least cost strategies. The
cumulative effect of these individual strategies is likely to result in excessive water supply costs for the
region. Failure to integrate rate-setting policy with least cost planning will lead to economic incentives
which are inconsistent with planning objectives. This is a particular problem for Metropolitan, since its
rate structure has a major influence on the behavior of the other water agencies.
Individual strategies implemented by the many water agencies and inconsistent water pricing incentives
can result in a system that performs poorly under stress, leading to increased frequency and severity of
water shortages. Failure to integrate rate-setting policy with planning objectives can produce inequitable
allocations of costs and supplies throughout the region.
IRP is Essential for Southern California
The very complexity and diversity of the Southern California water supply industry argue that, without
a system of integrated planning, costs are likely to be excessive and performance is likely to be
inadequate. While these results may not have been burdensome in the past, they will grow in importance
as economic growth continues, water resources become more stressed, and developing new water
resources becomes increasingly more expensive.
The Scope of Planning Must be Regional
Planning must address all of the Southern California service area. It must include all agencies, all
resources, and all possible strategies. Even if the purpose of planning is limited to determining
Metropolitan's activities, the effort must fail if it does not take into account the full regional system.
BROWN AND CALDWELL 4
Integrated Resource Planning
The Scope of Planning Must be Regional
Planning must address all of the Southern California service area. It must include all agencies,
all resources, and all possible strategies. Even if the purpose of planning is limited to
determining Metropolitan's activities, the effort must fail if it does not take into account the full
The Rate-Setting Process Must be Integrated with Planning
The only significant effective way for Metropolitan to influence the behavior of member agencies
and purveyors is through economic incentives. The same is true for the member agencies in their
relationships with purveyors and other agencies. Unless the incentives provided by the rate
structures and other programs are fully consistent with the strategic plans of the agencies, then
the plans are meaningless. It is essential, therefore, that the rate-setting process be integrated
with the planning process: it must address the same objectives and produce behavior that is
consistent with assumptions used elsewhere in the plan.
The participation of all water supply agencies in the region is particularly required to inventory
the set of water supply and water management alternatives to be addressed in the IRP process.
An on-going communication network must be established to keep current an inventory of water
resource and demand management alternatives. The end result of the IRP process designating
what alternatives should be implemented becomes credible only if the full range of alternatives
and their approximate characteristics (increments of water produced or increments of conservation
achieved, costs, reliability, time schedule for implementation, environmental impacts,
implementing problems) are available for selection.
Planning Must be Participative
IRP must reflect the consensus of the community regarding objectives and acceptable strategies.
Otherwise, plans and implementing strategies will not be supported. This requires a planning
process that is open to interested and involved parties, and which include procedures for
collecting views, investigating difference, and seeking consensus.
Planning Must be Open-Ended and Iterative
The future can never be known with certainty or even, sometime, with reasonable assurance. To
be useful, a plan must easily be easily adjustable as events occur, and as experience is gained
with how effective implementing procedures turn out to be. The planning process therefore must
be open-ended with frequent opportunities for updates and mid-course correction. Plans which
do not incorporate this type of flexibility are very likely to become ineffective with time, and to
impose excess costs on the region.
BROWN AND CALDWELL 5
NATIONAL ASSOCIATION OF BOND LAWYERS
William L. Gehrig
Arter & Hadden