Two Small Agencies Want a Divorce From the Water Authority. It Could Get Messy. - Voice of San Diego

Government UNVEILING THE UNSEEN

Two Small Agencies Want a Divorce From the Water Authority. It Could Get Messy.

After decades buying water from the Water Authority, the Fallbrook Public Utility District and the Rainbow Municipal Water District want a divorce. The Water Authority isn’t going to just let that happen.

Photo by Sam Hodgson

Back in January, the head of an obscure government agency that exists almost entirely to draw the boundary lines of other public agencies had gotten wind of something. Two rural water agencies wanted to bolt from the San Diego County Water Authority so they could start buying cheaper water from Riverside County.

Keene Simonds knew what was in store for his agency, the San Diego Local Agency Formation Commission, which oversees things like where a city’s limits end and where water districts can sell water.

This water thing, Simonds wrote in an email to a consultant, “could be a doozy.”

How much of a doozy is only now becoming clear.

In late August, the Water Authority’s board approved spending up to $1 million to hire a law firm to defend itself against the two water agencies that want to leave, the Fallbrook Public Utility District and the Rainbow Municipal Water District.

While there’s no court action yet, the Water Authority is gearing up for what in the water world amounts to a rare change in relationship status. After decades buying water from the Water Authority, Rainbow and Fallbrook want a divorce.

The Water Authority was formed 75 years ago to buy water from the Colorado River and resell that water to local water agencies, like the city of San Diego’s water department. Two dozen local water agencies now buy Water Authority water. Fallbrook was a founding member. Rainbow joined a decade later.

Rainbow and Fallbrook officials now believe they can save their 50,000 residents millions of dollars a year by leaving the Water Authority. Instead, they want to buy water from the Riverside-based Eastern Municipal Water District.

The Water Authority isn’t going to just let that happen. The Water Authority is notoriously aggressive in court, though its track record lately hasn’t been great. Last year, it tried to interfere with the delivery of water to five local Indian tribes that had been fighting for the water for 50 years. At stake there was a modest, one-time hit to the Water Authority’s bottom line of about $2 million.

The Water Authority lost. A former federal judge assigned to settle the matter wrote that “it is beyond comprehension” that the Water Authority “with a $900 million budget, competent management, and skilled attorneys” did not find a way to deliver the water to the tribes without a hitch.

By comparison, Rainbow and Fallbrook’s exit could cost the Water Authority about $13 million a year, perhaps for years to come, according to some estimates the Water Authority put together.

That’s because the Water Authority spent billions planning to feed water to 24 water agencies from South Bay to North County. If Rainbow and Fallbrook leave, the other 22 agencies and their hundreds of thousands of customers will have to pay more, perhaps several bucks a year on average. The largest of those remaining agencies would be the San Diego city water department.

If the divorce is too easy, there’s also worry that other agencies may start looking for the door.

All this is partly because the Water Authority has succeeded at one thing: making the region’s water supplies more reliable. But it’s failed at another: keeping those same supplies affordable for everyone.

For years, the Water Authority was a go-between agency. It just bought and resold water from the Metropolitan Water District of Southern California, which gathers water from the Colorado and from the rivers of Northern California for 19 million people.

Then, amid a drought in the early-1990s, there wasn’t enough Metropolitan water to go around, which meant the Water Authority was in trouble too. San Diego was on the brink of being forced to cut its water use in half, a move that would have devastated farms and businesses and risked the region’s way of life.

With the phrase “never again” ringing in their ears, Water Authority officials went out and bought rights to water from farmers in the Imperial Valley and built a plant in Carlsbad that makes ocean water drinkable. San Diego now doesn’t have to rely so much on Metropolitan and should be able to weather droughts in the near future without much worry, but San Diego’s water rates are now among the highest in the country.

In some ways, whether anybody wants it to or not, the Rainbow and Fallbrook exit attempt all comes back to the Water Authority’s long-running rivalry with Metropolitan, a fight that has consumed Southern California water policy for the last quarter century.

In an Aug. 21 report on water prices, Rainbow and Fallbrook show just how high the Water Authority’s rates are by comparing them to Metropolitan’s. Though the Water Authority has sued Metropolitan repeatedly over high rates, it still buys some Metropolitan water, which the Water Authority then blends with its other supplies.

Water Authority water is $500 more per acre foot than Metropolitan’s, according to Rainbow and Fallbrook’s analysis, which was prepared with the help of a former senior Water Authority official who is now a consultant. (An acre foot is more water than two typical Southern California households use in a year.)

The water Rainbow and Fallbrook hope to buy from Eastern, the Riverside agency, is only about $11 per acre foot more than Metropolitan’s. That’s because most of Eastern’s water is Metropolitan water. Eastern hasn’t done things like the Water Authority has to expand its portfolio of water supplies.

But North County water agencies have worried for years about rising Water Authority costs. Part of the reason for the decline in the region’s once-dominant avocado industry is those higher rates.

The Water Authority offers a special rate to farmers, but Eastern’s standard rate is still lower than that.

“For us, it’s really about the cost of water,” Fallbrook general manager Jack Bebee said.

The Water Authority’s in-house general counsel, Mark Hattam, recalled a meeting where Bebee said he’d be willing to trade reliability for affordability.

“I don’t know if the people in his service area believe that,” Hattam said.

Since the drought in the 1990s, Metropolitan has also made its own investments, including a new reservoir in Riverside County and a series of deals meant to ensure access to Colorado River water. The Water Authority may be hard-pressed to argue Metropolitan is totally unreliable, though. Two years ago the Water Authority paid a consultant to argue Metropolitan was at risk of having too much water.

In the meantime, the major issue in San Diego seems to be an alimony payment of sorts that the Water Authority wants from Rainbow and Fallbrook so that other agencies aren’t left holding the bag.

The Water Authority has yet to propose a figure. It wants Rainbow and Fallbrook to suggest something.

Rainbow and Fallbrook argue that there isn’t a clear way to come up with such a figure for public water agencies. Using one series of numbers, the two agencies argue the Water Authority might actually owe them money, for assets the two agencies helped pay for that others benefit from, though that seemed to be floated more as a thought experiment than an actual request for money. Rainbow and Fallbrook mostly just want to leave without a massive fight.

In the meantime this will all be sorted out by not one but two Local Agency Formation Commissions, which are created by state law and known as LAFCOs. There’s another such commission in Riverside County that may help the San Diego LAFCO sort out this county line-crossing water deal.

Simonds stands by his initial assessment of what’s about to happen.

“I still think it’s a doozy, because nobody has ever asked the question that Rainbow and Fallbrook are asking now,” he said.

The Water Authority’s law firm on this front is Lewis Brisbois Bisgaard & Smith, the firm that’ll get up to $1 million.

Hattam said hiring the firm was a must because the Water Authority has to quickly get up to speed on something that Rainbow and Fallbrook have been working on for months.

“We were behind the eight ball and we have to have legal counsel,” he said.

Though Fallbrook and Rainbow’s intentions weren’t public until this spring, the divorce seems to have been in the works since at least last fall, according to documents the Water Authority obtained through Public Records Act requests it sent to Fallbrook, Rainbow and the San Diego LAFCO. Voice of San Diego, in turn, requested the records from the Water Authority.

In theory, the two agencies’ customers wouldn’t notice much difference – except for cheaper water. The water would still come from the same rivers and through the same pipes after leaving the same water treatment plant.

But on paper, everything would be different.

In an email that the Water Authority obtained in its document request, Rainbow general manager Tom Kennedy said he’s argued for years that the Water Authority’s rates and financial forecasts don’t deal well with agencies that plan to buy less water from the Water Authority, but his arguments went nowhere.

Perhaps that’s because other Water Authority members, like the city of San Diego, have their own plans, not for a complete divorce, but for a little bit of distance. The city, which is far larger than Rainbow and Fallbrook combined, plans to get a third of its water in the future by recycling wastewater. Part of the justification for that project is to avoid the Water Authority’s rising prices, though the city doesn’t expect its recycled water will be cheaper for another three decades.

If the city does end up buying less water, rates for other agencies – like Rainbow and Fallbrook – could increase. If they’re still part of the Water Authority.

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