This is an urgent time of both challenge and opportunity. The primary finding of this paper is that a major portion of the solution is closer coordination between the water and energy sectors. A meaningful solution cannot be reached in the current regulatory environment where water utilities value only the cost of acquisition, conveyance, treatment, and delivery; wastewater utilities value only the cost of collection, treatment, and disposal; electric utilities value only saved electricity; and natural gas utilities value only saved natural gas. The state must both develop and expand best practices and existing programs to realize the substantial incremental benefits of joint water and energy resources and infrastructure management.

While many nuances of this complex statewide problem are still unclear, staff’s analysis shows that significant energy benefits can be reaped through the twin goals of the efficient use of water by end users and the efficient use of energy by water systems. It is also clear that not nearly enough has been done to ensure that California’s water supply strategies are synchronized, hand-in-hand, with its energy strategies. Nor has enough been done to forge partnerships between the water and energy sectors so that their natural synergies, joint resources, and assets can be effectively leveraged for the benefit of all Californians.

The state has the opportunity now to reap near-term energy benefits by helping California’s water and wastewater utilities become more energy self-sufficient, which will ease pressures on California’s already stressed electric system. By adjusting existing policies, programs, and resources, water and wastewater utilities could be converted from high energy users to net renewable energy producers.

California’s water and energy policymakers need to commit today to the joint planning and management of these critical resources. The state’s water plan and resource strategies are being reviewed with all key stakeholders, and implementation plans are already on the drawing table. At the same time, the California Public Utilities Commission has approved substantial utility ratepayer expenditures in energy efficiency programs for the 2006-2008 program cycle. The state must waste no time in taking advantage of these rapidly evolving events.

The state can meet energy and demand-reduction goals comparable to those already planned by the state’s investor-owned energy utilities for the 2006-2008 program period by simply recognizing the value of the energy saved for each unit of water saved. If allowed to invest in these cold water energy savings, energy utilities could co-invest in water use efficiency programs, which would in turn supplement water utilities’ efforts to meet as much load growth as possible through water efficiency. Remarkably, staff’s initial assessment indicates that this benefit could be realized at less than half the cost to electric ratepayers of traditional energy efficiency measures.

This staff report examines how energy is used – and how it can be saved – in the water use cycle. The strategies and goals for a comprehensive statewide water-energy program would achieve incremental energy benefits for water and energy utilities. The overarching goal of establishing a comprehensive statewide water-energy program would create a dynamic, living process where key stakeholders have incentives to continuously identify and implement strategies optimizing the state’s water and energy resources and assets on an integrated, coordinated, and collaborative basis. This opportunity must not be lost since the need is so great.

Because of all these factors, staff recommends that an action-oriented approach structured to achieve near-term results be developed immediately.