Controversial Water Pipeline Project Moves Forward in San Antonio

San Antonio is one step closer to buying some of the most expensive water ever sold in Texas, just as the deal is drawing more critics.

The San Antonio Water System board on Monday unanimously approved a $3.4 billion contract to pipe in 50,000 acre-feet, or 16 billion gallons, of water a year from underneath Central Texas' Burleson County starting in 2019. The contract is with two companies, Austin-based BlueWater and the Spanish company Abengoa, whose joint venture is called the Vista Ridge pipeline. 

“The time for courage is now,” Berto Guerra, chairman of the SAWS board, said in a statement urging the San Antonio City Council to approve the contract as well. “Further delays will only serve to create uncertainty in our water future and risk increased project costs.”

The proposal could come before the City Council as early as next month.

With the encouragement of groups like the San Antonio Chamber of Commerce, SAWS says the historic deal is the best way for the growing region to wean itself off the Edwards Aquifer, whose supply is uncertain in the wake of drought and concerns over endangered species. The Vista Ridge pipeline would serve 162,000 new families, according to the utility. 

But critics say the plan is financially risky and premature, because the city will have to pay for the full amount of water the pipeline can deliver every year — even though it may be decades before San Antonio actually needs all of it. Sixteen billion gallons of water is 20 percent of the city's current annual water demand today. 

“People are starting to wake up ... [and ask], ‘Does this smell as bad to you as it does to me?’” said Amy Hardberger, an assistant professor of law at St. Mary’s University who teaches water law and land use. “I think that the next month is going to get pretty hairy.”

At $3.4 billion for a 30-year supply contract, the cost of the water, including treatment and delivery, will be about $2,300 per acre-foot — as much as seven times the rate that San Antonio pays for water from the Edwards Aquifer. By 2050, increasing electrical and maintenance costs could put that number closer to $2,700, SAWS spokesman Greg Flores said. The utility estimates that residents will see a water rate hike of about 16 percent to pay for the pipeline. 

Other rate increases are expected in the next few years to help pay for upgraded water delivery and sewer infrastructure, and to bring in other new supplies like desalinated water. Combining those increases with what is needed to pay for the new pipeline means that San Antonio residents could pay 41 percent more for water and wastewater in 2019 than they are paying today. Such a hike would push the average household water bill, at $53 per month today, up to $88. Of that bill, $12 would pay for the Vista Ridge pipeline. (Many of these numbers could be slightly lower if SAWS secures a lower interest rate on the deal.)

The City Council will be deciding on a project that just a few months ago had even drawn objections from Guerra and SAWS President Robert Puente because of its high cost. 

“I don’t think we’ve ever, in one fell swoop, committed to a $3.4 billion project before,” said Ron Nirenberg, a San Antonio city councilman. “This is one and a half times the city budget,” which is $2.4 billion, he said. 

San Antonio isn’t the only city where water rates are climbing; this summer, drought-stricken Wichita Falls boosted its water rates by 53 percent. Industry experts say Americans have been underpaying for water for decades. The cost of the raw water for the Vista Ridge project will be fixed over 30 years, prompting SAWS board members to declare the utility is buying “tomorrow’s water at today’s price.”

Not everyone is so sure of that, however. “If we really cared about the cost, we would be going after a project that could be financed with SWIFT money,” Hardberger said. She was referring to $2 billion that voters approved to be taken out of Texas’ Rainy Day Fund last November, to be given out by the state as low-cost loans for water projects.

The Vista Ridge pipeline is ineligible for those funds because it is privately financed. Abengoa, a private company, will build the pipeline, not SAWS, a public utility that could have gotten the cheaper loans from the state.

Puente had made the same point several months ago, suggesting that the city should instead expand its desalination plant because that public project would be eligible for more low-cost state loans. (The plant is being financed in part by such funds, which SAWS can still pursue for other water projects.) 

But Puente and Guerra now say the Vista Ridge deal is better than it was several months ago. For instance, the contract now ensures that SAWS will only pay for the water that the companies can physically deliver. If only 40,000 acre-feet is available one year because groundwater managers in Burleson County force cutbacks, SAWS will only pay for that amount of water, and Vista Ridge will have to bear the loss. The companies also scrapped their initial demand of a $5 million annual “reservation” fee for the water and capped the interest rate at 6.04 percent. SAWS could still negotiate a lower interest rate before the deal closes, which the utility hopes would happen within the next 18 months.

But critics say that’s not a justification for such an expensive deal, and the interest rate is twice as much as what state loans on public projects could offer. “That tells me it’s very risky,” said Michelle McFaddin, a water lawyer who has reviewed the 581-page contract between SAWS and Vista Ridge.

McFaddin, who was the lead attorney for infrastructure loan programs at the Texas Water Development Board for six years, now works for the League of Independent Voters. The Central Texas activist group, which is vocal on water issues, opposes the SAWS deal.

“This is an example of public-private partnerships gone awry,” said McFaddin, adding that the company Abengoa carries its own risks because its “credit rating is two levels below investment grade.” Moody’s rated the company at B2 in August, which suggests a higher level of risk for potential investors.

Flores, the SAWS spokesman, argued that “regardless of their credit rating, if they’re able to secure the financing and the interest rate is capped, then our ratepayers are protected.” He added that the ability to sell bonds for the pipeline will depend not on Abengoa's credit rating but on San Antonio's ability to pay for the project. 

Nirenberg, the San Antonio city councilman, said he supports the efforts to expand the city’s water supply beyond the Edwards. But he worried that by the time the city actually needs the full 16 billion gallons of water per year, it may not even be available. Many other water provider hopefuls are placing their straws in the Carrizo-Wilcox aquifer, where the Vista Ridge project will draw from, and some hydrologists are concerned there isn’t enough to go around.

“What happens to that water, knowing that that aquifer is going to be sold to other parties as well?” Nirenberg asked. “If the water’s not there in 30 years, what are we doing? We’re just building a pipeline to nowhere.”

Disclosure: The San Antonio Water System is a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.