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Will pipeline weigh down your wallet or buoy your future?

Is the Lake Powell Pipeline necessary? Will it cost too much? Is Washington County's water supply at risk?
Is the Lake Powell Pipeline necessary? Will it cost too much? Is Washington County's water supply at risk?
Andy Nguyen

SALT LAKE CITY — Another step to get the Lake Powell Pipeline approved and built occurred last week, with Utah officials submitting a preliminary licensing proposal to the federal government.

The $1 billion project — a cost in dispute by critics — would deliver 86,249 acre-feet of water from Lake Powell to Kane and Washington counties via a 139-mile buried pipeline that includes hydropower generation.

Proponents of the pipeline say it is necessary to diversify the region's water supply and meet the demands of a growing population. Critics say otherwise, arguing that there are cheaper sources of water and users need to change their water-guzzling habits and conserve more.

Utah's population is expected to nearly double in the next 35 years and the state's Dixie region, according to the U.S. Census, grew nearly twice the rate as the rest of Utah from 2014-15. By 2050, Washington County is expected to have 600,000 residents, up from the 160,000 residents who live there now.

The pipeline is years from being built, if ever. First it has to survive environmental scrutiny and the permitting process through the Federal Energy Regulatory Commission. It then has to withstand the steady barrage of scrutiny raised by critics seeking other water solutions, including Zach Frankel and his group, Utah Rivers Council.

Frankel said the project is a financial boondoggle and state water officials pushing for its completion are guilty of hoodwinking the taxpaying public into supporting an unnecessary project planned on a financial house of cards.

"The state Division of Water Resources has been misinforming the governor, legislators and the public about water needs in Utah," Frankel said. "And now, they are misinforming the same audience about the ability to repay taxpayers for billions of dollars of Lake Powell Pipeline debt."

Nonsense, counters the division's deputy director, Todd Adams.

"As we have talked with a lot of water districts throughout the state, none of them are going to build a water project they don't use or need," he said, stressing the project also won't go forward if it is not financially viable.

Frankel uses a twin salvo in his attacks on the feasibility of the Lake Powell Pipeline. His first shot is that Washington County can do more to conserve water. Utah, according to the U.S. Geological Survey, has the highest per capita water use in the nation, outstripping even its Western neighbors and overwatering landscapes by more than 40 percent.

According to Adams, Washington County has seen a higher amount of conservation than anywhere else in the state, but Frankel said it needs to become even more aggressive.

Some areas have proven more can be done, especially under the glare of dire conditions. When California Gov. Jerry Brown asked the state's residents to cut water use by 25 percent in May this year, people shot past the mark, conserving 28.9 percent. Specific areas cut back even more — one as high as 49 percent.

Ron Thompson, general manager for the Washington County Water Conservancy District, said it is a foolhardy gamble to bank on that type of conservation month to month, year over year, to fulfill the region's water demands.

"If you want to leave a legacy of no growth and no water, you can pursue that path," he said. "Conservation alone will not get us there. I don't want to be the guy who sells this community down the drain. "

The money

Frankel says the project will cost too much, that rates and impact fees will be too onerous for Washington County ratepayers, developers, businesses and institutions.

Thompson does not dispute that water rates or impact fees will have to increase to pay for the pipeline to meet future growth. But he said claims that those increases will be massive are untrue.

"This is going to cost money — sure it is going to cost more," he said. "We have always assumed our impact fees will go up and we will have rate increases, but to say we are going to have increases of 500, 600 or 700 percent, that is just not going to happen."

A group of 21 economists from three Utah universities penned a letter to Utah Gov. Gary Herbert, Senate President Wayne Niederhauser, R-Sandy and House Speaker Greg Hughes, R-Draper, in October, citing "major" concerns about the debt and increased prices the pipeline will bring.

"The state should not facilitate Washington County's acquisition of this debt without a careful and thoroughly detailed study of whether Washington County residents have the need for this water, the will to pay dramatically more in water rates and/or impact fees, and the financial capacity to repay this large debt owed to the taxpayers of Utah," the letter states.

State water officials say assumptions about the repayment plan, how those costs are spread out among district recipients and what rates and impact fees look like are premature, but Frankel insists if financial impacts aren't figured out now, taxpayers will suffer.

Former House Speaker David Clark, a St. George resident with 40 years in the banking business, put his name to the Lake Powell Pipeline Development Act back in 2006 — legislation he said grew out of the growing recognition by state leaders that they needed a plan for Utah's water future.

"The first thing the pioneers did when they got to this valley is build a dam and dig a ditch," he said. "The same holds true today."

The act describes the repayment plan for the project, describes how the pipeline's construction is contingent on the sale of the water and includes language that the actual repayment of construction and preconstruction costs start as each block of water goes under contract with individual water retailers such as St. George or Hurricane.

Frankel, backed by the economists, say this "pay as you go" plan does not work because regardless of the district's repayment schedule to the state, the construction, preconstruction and operation costs must be paid as soon as the pipeline's spigot opens.

"Pay as you go is a gift that the taxpayer does not get repaid, it is giving an interest free loan," he said.

Clark said the repayment plan is not a departure from how the state does business, and there is no "gift."

"That discussion needs to be stopped immediately...I don't know how many city or state projects have had repayment schedules going out 30, 40 to 50 years," he said. "Those cities, there are 283 of them, have had some sort of help on financing their project."

With the state acting as the financier on the pipeline, funding packages enjoy the benefit of Utah's AAA bond rating and get a better interest rate on the open market, Clark said.

"The state has a larger capacity for projects like these and we do this all the time," he said.

Costs and benefits

Clark, who is on the Lake Powell Pipeline's citizen advisory committee, said the funding model for the Lake Powell Pipeline is similar to what the U.S. Bureau of Reclamation has done for more than a century — financing large projects such as dams on behalf of local water districts and requiring payment over time.

Under the bureau's repayment arrangements, irrigation water recipients pay back the costs over 40 years at no interest, while municipal and industrial users have a 40-year repayment plan with interest. There is also the option to defer payments for a 10-year period, but that can only be exercised once.

Wayne Pullan, area manager of the Bureau of Reclamation's Provo office, said big, expensive water projects take a lot of time, and a lot of money, which understandably gives rise to concerns over affordability and necessity.

"People have come to view having safe, clean water as a right," he said, "As a water community, we are having to stumble on our own success because people have come to view this resource as universally available and easy to afford. They somehow think it should cost nothing, and we live in a desert."

The 1902 Reclamation Act, modified in the 1939 and 1958, established 180 projects in 17 Western states and required users to repay construction costs. Between 1902 and 1994, the federal government spent $21.8 billion on water projects in the United States, including Utah.

As an example, the Weber Basin Project in northern Utah was created in 1942 and a series of dams, canals, irrigation and drainage systems were constructed between 1952 and 1969, including Pineview and Echo reservoirs and Willard Bay Dam.

The Weber Basin Water Conservancy District entered into a repayment contract with the U.S. government in 1952, with repayment of all the original project costs and interest scheduled to be completed in 2035. Pullan said the repayment schedule starts anew with each successive phase, with the last project coming on in the 1980s for Weber Basin. Funding comes from the sale of water and the tax levied on customers in the service area.

A financial analysis done by Gabriel Lozada, an associate professor in the University of Utah's economics department, shows that the Washington County Water Conservancy District will have to pay debt service of anywhere from $62 million a year to $131 million for final pipeline costs. Its annual revenues are $29 million.

"This (pipeline) debt service is the equivalent of $369-$781 every year for 50 years for every man, woman and child currently living in Washington County," Lozada said.

But Adams said the analysis wrongly takes the total price of the project and spreads it out across the current population, not accounting for water that is taken in blocks over a graduated schedule with more people and businesses to bear the costs. Frankel said the analysis does include population growth.

Thompson said even as rates increase for residents, water will remain affordable.

"If you look at Western water projects, our rates will still be less than most major metropolitan areas."

Frankel said the district and state are trying to sell a pipe dream to residents.

"So we are going to be building one of the largest and most complicated water projects proposed in the American West. We are going to spend however many billion of dollars to take however much water 800,000 people use in a year, pump it up 2000 feet across 140 miles of desert to deliver it to 160,000 people in Washington County, who are running out of water. But, we are not going to take the water for 20, 40 or 50 years. So which is it? Do they need the water or not?"

David LaFrance, chief executive officer of the American Water Works Association, said water managers have to consider many factors when forecasting demand for the future, including how populations are growing, how people will use water in the future and the type of development likely to take place.

"The planning time horizon and construction for water projects is quite lengthy, so you need to be planning well in advance," he said. "There is no way to do just in time water development."

LaFrance did not weigh in on the soundness of the Lake Powell Pipeline proposal, but said public water utilities finance big projects out for decades and decades.

"Water professionals and water economists call it intergenerational equity — one generation finances the next generation's water projects...The systems that we rely on today to deliver water to our homes were built many, many years ago, as much as 80 years ago."

LaFrance said even as rates have gone up to pay for water projects, water remains incredibly affordable, and safe.

"Having a well run, well managed water system in our communities is an advantage that North America has over many countries...and the price per gallon of water is unbelievably low when you consider that every gallon you use is delivered to your doorstep."

Water projects aren't considered sexy by the public — parks have more appeal — but LaFrance disagrees with that contention.

"Here's what is sexy: Turning on the tap and knowing that the water you gave your child did not make them sick."

With last week's submission of paperwork to the regulatory agency, a 90-day public review of the draft environmental analysis begins and revisions will be made in the spring based on feedback.

A final proposal will be filed in April, followed by a more substantive environmental analysis.


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