ON THE WATER FRONT
by Bob Hazard Mr. Hazard is an Associate Editor of this paper and a former president of Birnam Wood Golf Club
Should Montecito Sign Desal Deal with Santa Barbara?
A
fter two years of staff-to-staff negotiations, one would think that either a desal deal between the City of Santa Barbara (the City) and the Montecito Water District (MWD) would be near completion, or that the parties have reached an impasse. MWD Board president Dick Shaikewitz has described negotiations with the City as “difficult and complex.” Without bargaining power and without attractive alternatives, MWD has been presented with a “take or leave it,” proposal from the City, albeit with the possibility of some minor tweaking.
The Basic Structure of a Deal
The terms offered by the City call for a “Take or Pay” Water Supply Agreement, meaning that MWD is obligated for 20 years to take 1,250 AFY (acre feet per year) of water from the City at a cost, now estimated at $3,518 per AF at the current plant production capacity of 3,125 AFY. That price is considerably higher than any other source of water in the MWD portfolio. At the $3,518 per AF price, MWD would be obligated to pay the City $88 million over the 20-year life of the agreement. MWD is being asked to assume 40% of the risk and cost of the desal facility without any proportional ownership benefits such as a seat at the decision table, a voice in operations, an ability to negotiate future water sales agreements or residual economic value once capital costs are recovered. The City has 100% discretion to mothball the desal plant at any time or increase its capacity. MWD is simply a spot water buyer, obligated to pay the City $4.4 million each year for 1,250 AFY of water. MWD is being offered a reliable supply of water for its portfolio, but at a hefty price and with the flexibility of a steel rod. The City, meanwhile, retains the option of selling MWD water from any
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