SAWS Could Save More Than $300 Million on Vista Ridge

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SAWS Chairman Berto Guerra, JR listens to a speaker during a board meeting. Photo by Scott Ball.

SAWS board Chairman Berto Guerra, listens to a speaker during a board meeting. Photo by Scott Ball.

San Antonio Water System (SAWS)’s board approved a measure today that allows SAWS to “lock in” an interest rate as low as 4.23% for the Vista Ridge water pipeline project, a move that will save SAWS and its customers more than $300 million.

The anticipated contract price was based on a 5.54% interest rate, but record low interest rates in April and May inspired SAWS leadership to strike while the iron was hot. Under the contract, SAWS needs to provide seven business days notice before finalizing the rate. Today’s vote provides that notice.

“We’re just at the right place at the right time,” said SAWS board Chair Heriberto “Berto” Guerra.

If the maximum interest rate allowed in the Vista Ridge contract had been used, 6.04%, the maximum estimated capital and raw groundwater unit price of Vista Ridge water would have been $450 million more than what what was approved today. Instead of paying $1,959 per acre foot of water piped down from the Carrizo Aquifer, SAWS will pay something closer to $1,645. The $314/acre-foot savings will be passed down to customers with lower than anticipated rate increases.

The annual cost for the 50,000 acre feet – 16.3 million gallons – the Vista Ridge project is slated to produce starting in 2020 will cost $82,250,000 at the 4.23% rate compared to $97,950,000 under the maximum allowable 6.04%.

Map of the Vista Ridge pipeline.

SAWS map of the Vista Ridge pipeline. Click to enlarge.

Water from the Vista Ridge project will still be some of the most expensive water bought or sold in Texas.

What makes the Vista Ridge deal so appealing, SAWS President and CEO Robert Puente said, is that the price is locked in for 30 years.

Water from the Edwards Aquifer, no longer sufficient to meet the growing city’s needs, costs between $331 and $541 an acre-foot and is heavily regulated, while water from the under-construction desalination plant is expected to cost $1,138.

“This is a great day for San Antonio,” Guerra said several times during an interview after the unanimous vote. “That’s $450 million-plus in savings – that’s incredible, that’s better than my milk story.”

Guerra often uses the analogy that if a customer could get a guaranteed fixed price for milk at $2.49 per gallon for two, possibly three, generations, “I’d buy into that deal,” he said.

The interest rate will establish the benchmark rate and, ultimately, the fixed price of the project, according to SAWS staff.

“The actions that the SAWS board took today will secure our water future, improve our quality of life and reduce our project costs by more than $450 million,” stated Mayor Ivy Taylor in a news release sent out after the vote. “SAWS board and staff have been truly conservative in their estimates, requests and actions. That measured, careful approach will result in less money from ratepayers’ pocketbooks.”

Puente said he was “cautiously optimistic” that Vista Ridge contract will be taken over by Garney Construction. The Kansas City-based firm was already the construction partner for the project, but is now looking to be in charge of operations, maintenance, and financing of the project. The financially struggling Abengoa Vista Ridge, which signed the original contract, has not filed for bankruptcy yet but its parent company Abengoa S.A. and 13 of its U.S. subsidiaries did in March.

Several outstanding loans and a lawsuit still need to be worked out until Garney can take over the project, the contract remaining in place essentially as-is.

“Every day is a day that it is more likely to happen than not because certain things get taken care of,” Puente said. The lawsuit between Metropolitan Water Co. and Blue Water Systems, for instance, “that’s getting resolved.”

(Read More: SAWS: Vista Ridge is Not a Done Deal)

SAWS itself won’t spend any money until financial close of the deal, which has a May 2017 deadline and depends on the results of Garney’s negotiations with a consortium of international banks to borrow about $800 million to take over the project. SAWS board must also give approval of the contract transfer to Garney. That decision is expected to made by the end of May.

 

Top image: SAWS Board Chair Berto Guerra (right) and Mayor Ivy Taylor listen to a speaker during a board meeting earlier this year. Photo by Scott Ball. 

Related Stories:

SAWS: Vista Ridge is Not a Done Deal

Mayor Hopes to Dispel ‘Misinformation’ About Vista Ridge

Garney Construction Taking Over Vista Ridge Water Pipeline

Troubled Abengoa Files for Protection from Creditors

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