One great thing about following water policy is that every few years, a gigantic, historic deal is made. These negotiations are exciting. The politics are so raw and territorial. The interests at stake are enormous.
As I tried to summarize simply, the San Diego County Water Authority may sign off on one of those historic deals later this month.
The agency holds the water bills of millions of county residents in their hands. And some folks are desperately trying to warn you that it’s about to make a bad deal.
Here are four things I learned (barely) that might help you understand the deal and whether it’s worth it.
1. This is a purchase of water.
But you’re not paying for it … yet.
It helps to have a quick background of this ecosystem. In the old days, when you and your neighbors needed water, you’d all get together, pool some money and pay for the infrastructure to bring it in.
These became water districts.
In San Diego, there are now 24 water districts. They all formed the San Diego County Water Authority. The Water Authority is itself part of an even bigger organization, the Metropolitan Water District.
The Met, or MWD, is a truly gigantic public agency. And we have decided as a community that we don’t want to rely on it quite so much.
So the County Water Authority has decided it would like to buy water from other sources. This is the deal going through. A private company, Poseidon Resources, has decided to make a big investment that would help the county authority get there: Build a desalination plant and deliver the water.
On Nov. 29, the Water Authority board will decide whether to pay up to $2,290 per acre foot of water (an acre foot is enough water for two typical homes for one year). If it buys the most it can buy, it will cost about $114 million a year.
Then, every year it will go up an estimated 2.5 percent. This accounts not only for the water purchase but also for a loan the authority wants to take out to build needed pipelines.
How will these costs trickle down to you?
The fact is we do not know.
After deals like this, the Water Authority does a cost-of-service study. This study will determine how we pay for it.
You see, the Water Authority is prohibited from charging us anything more than the “cost of service” to deliver the water. So these studies set the price the districts pay.
That means we will not know how much each agency and therefore each person has to pay until the middle of next year.
Mark Watton, a Water Authority board member and general manager of the Otay Water District, says his analysis shows Otay customers’ costs may go up anywhere from 12 to 20 percent. Add that to the regular inflation and it might be 20 percent increases or higher.
He offered a tongue-in-cheek take on whether all of the people supporting the deal will have his back when he adjusts water user rates to handle this.
“I expect we will have the same politicians and editorial boards that support Poseidon writing letters and editorials supporting Otay when we must pass through that 20 percent plus rate increase,” he wrote me in an email.
The Water Authority leaders I talked to responded that they simply hadn’t seen the details of Watton’s analysis and therefore don’t know why it’s higher than the $5 to $7 increase they expect the average user to see.
More on that in a second.
2. A company will make a lot of money on this.
When I pointed out I was writing this follow-up on Twitter, Brant Will, an attorney at the city, tweeted a reminder that this could be a big boondoggle.
We don’t want a big boondoggle, I take it?
The Water Authority tries to communicate as often as possible all the ways it has protected itself from a potential boondoggle.
In its special board report, the Water Authority estimated that Poseidon and its investment partner (Stonepeak) will make an actual rate of return of 10 percent to 13 percent.
Pretty nice investment.
The problem for Poseidon is it has to build the thing and deliver the water up to standard. If it runs over on construction costs, its returns are threatened. There are ways the authority can manage if Poseidon goes belly-up.
But it would not be pretty.
The Water Authority also has the opportunity to buy the whole plant outright in 10 years. The price of it would be equal to how much outstanding debt the facility has, the present value investors were expecting and other costs.
Or the authority can buy it for a dollar in 30 years.
3. The city of San Diego is the big dog here.
In one of the last debates of the mayoral election, I asked now Mayor-elect Bob Filner whether he supported this deal.
“I would advise the Water Authority to negotiate a price that was good for the taxpayer,” he said.
But as I pointed out, the deal was set. It’s a matter of whether it gets approved. Would he approve it? He came down to yes.
Watch the exchange here:
Why does it matter what Filner thinks?
The city of San Diego has 10 representatives on the 36-member board of directors of the County Water Authority. What the city thinks matters — big-time.
Watton and other folks are worried that the deal might turn out poorly for their smaller districts if the city throws around its weight to set terms that will force other districts to bear the burden of desalination’s cost.
In fact, the city of San Diego submitted an alternative formula for how the cost of this new source of water should be divvied up.
Watton and Otay think it would cost them big-time.
How could the city do this?
4. Treated water vs. untreated water
The Water Authority sells treated and untreated water. One of the benefits of desalination is that the water comes out perfectly ready to be sent to consumers.
But some districts, like the city of San Diego, have their own treatment facilities and don’t need more treated water.
The city will argue that the County Water Authority should recoup its cost for “treating this water” and therefore agencies that buy it will have to pay more for the treated water.
The Water Authority admits that it did not review the city of San Diego’s proposed alternative and it did not factor it into the $5-$7-per-month-hike estimate that it offered residents about how it would affect their bills.
“The Water Authority has 24 member agencies and they have different perspectives. They often ask for their options to be evaluated and now, when we set the rates, we’ll have an independent expert come in and keep it all on the straight and narrow and produce a result that everyone thinks is fair,” said Ken Weinberg, the agency’s water resources director.
The problem is that this will be done after the agency has already agreed to buy the water. Agencies are being asked to trust the process.
Like many historic water agreements, things are tense.
Watch closely because it will be fun to see how it plays out.
What might not be fun is what happens to your water bill.
I’m Scott Lewis, the CEO of Voice of San Diego. Please contact me if you’d like at firstname.lastname@example.org or 619.325.0527 and follow me on Twitter (it’s a blast!):
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