A financial framework for one of the nation’s largest water recycling programs

The Metropolitan Water District of Southern California (Metropolitan) is the nation’s largest wholesale water provider, serving 26 member agencies across six counties. As drought conditions intensify, Metropolitan faced the challenge of developing a financial roadmap for Pure Water Southern California (PWSC), a regional water recycling program designed to produce up to 150 million gallons per day (MGD) of climate-resilient water.

How do you recover the multi-billion-dollar costs of a one-of-a-kind system in a way that feels fair to everyone, all while navigating California’s stringent regulatory environment?

Metropolitan required a pricing structure that treated purified recycled water as a core supply, benefiting the entire region through seismic resilience and drought protection, while ensuring costs were allocated fairly among diverse member agencies with varying local resources.

Defining the value of resilience 

As a strategic advisor to Metropolitan since 1998, Raftelis helped navigate this multi-jurisdictional environment. We moved beyond standard rate-setting to create a flexible menu of funding options. 

For the PWSC program, our approach included:

• Conceptual cost recovery modeling: We evaluated three distinct recovery alternatives:
  
  • Integration with existing rates: Functionalizing Advanced Water Treatment (AWT) as supply and regional pipelines as distribution.
  • Functionalized fixed charge: Developing a new fixed charge based on 10-year rolling averages of sales and transactions to increase revenue stability.
  • Subscription/direct investor model: A novel take-or-pay contract approach allowing member agencies to purchase shares of the project for extraordinary local supply rights during droughts.
• Independent validation and compliance: Building on our prior Independent Reviews, we confirmed that Metropolitan’s rate-setting process remains consistent with the MWD Act, Administrative Code, and AWWA’s Manual M1 best practices.
• Stakeholder consensus building: Leveraging 25 years of experience facilitating Metropolitan’s Long-Term Financial Planning Committees, we participated in workshops to build consensus among 20+ stakeholder jurisdictions on complex issues like overhead allocation and peaking surcharges.
• Litigation support: Since 2015, Raftelis has provided expert witness and litigation support regarding COS disputes, conducting independent reviews of Metropolitan’s financial software and modeling accuracy.

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A nexus for regional reliability 

The resulting financial framework did more than balance the books; it legally defined the value of recycled water for Southern California. 

We successfully demonstrated that PWSC frees up to 150 MGD of capacity in the existing system. This created a clear, defensible nexus for regional cost sharing: by bringing this new supply online, Metropolitan protects regional storage from falling below the critical 1 million acre-feet shortage threshold—the trigger for many mandatory allocations.

By treating purified recycled water as a fundamental regional resource rather than a niche local project, Metropolitan is now positioned to execute the PWSC program with a stable financial foundation. The transition toward more sophisticated fixed-charge recovery and direct-investment options ensures that Southern California can fund the next generation of climate-resilient infrastructure while maintaining the regional consensus that has defined Metropolitan for decades.