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Water bills to skyrocket: Desalination plus capital projects equals big bucks

Santa Cruz Sentinel, 9/27/12

Crow's Nest cooks Alvaro Sanchez, left, and Antonio Arreola could lose hours, or even get laid off, during a drought. Curtailment, without new supply from desalination, could hit the tourism business hard. ( @Shmuel Thaler )
Crow's Nest cooks Alvaro Sanchez, left, and Antonio Arreola could lose hours, or even get laid off, during a drought. Curtailment, without new supply from desalination, could hit the tourism business hard. ( @Shmuel Thaler )
Soquel Creek Water District representative Roy Sikes installs a new high-efficiency showerhead for customer Leslie Chow. ( James Tensuan/Santa Cruz Sentine )
Soquel Creek Water District representative Roy Sikes installs a new high-efficiency showerhead for customer Leslie Chow. ( James Tensuan/Santa Cruz Sentine )

SANTA CRUZ -- Water customers may want to start saving now.

Ratepayers in the city of Santa Cruz and Soquel Creek Water District will pick up the tab for a $123 million regional seawater desalination plant if the controversial proposal is approved by voters and regulators in coming years.

But that projection doesn't cover annual maintenance and operation, costs for offsetting greenhouse gas emissions and debt service payments. More importantly, it doesn't paint a full picture of the potential financial hit to ratepayers during the next decade.

The cost of planning and building the facility -- $69.1 million for Santa Cruz, $51.7 million for Soquel Creek and $2.6 million in state grants -- could come on top of a host of capital improvements estimated at $100 million in Santa Cruz and $76 million in Soquel Creek, for a grand total of nearly $300 million.

With desalination and capital projects combined, average monthly charges for single-family residences in the Soquel Creek district are projected to increase 128 percent by January 2021. The amount could go down if district's board decides in November to add higher-use tiers to the rate structure and put off some capital improvements.

In Santa Cruz, the average monthly charge for a single-family home would spike 47 percent in a 10-year period. The City Council could also decide to limit capital projects.

But Bill Kocher, the city's water director, said, "There is more that needs to be done (than just desal). Rather than just say the money is there, we are being more honest. We are going to have to raise rates."

For Soquel Creek, capital projects include new wells to reduce groundwater pumping near the coast, water main work and treating water that contains the naturally occurring carcinogen hexavalent chromium. For Santa Cruz, the list includes a new coast pump station and water main and fixes to the wastewater treatment plant.

Officials say the improvements need to be done regardless of whether desalination is approved.

"This is an old system," Kocher said. "Unlike desal, we don't have a choice."


The state constitution prohibits municipal water agencies funded by ratepayers from subsidizing water based on income levels. But local water agencies provide tiered rates to reward lower water users with lower rates.

Antonio Arreola, a cook for 16 years at the Crow's Nest, already nags his wife and four children about water use. If their bi-monthly bill of a couple hundred dollars goes up further, "I need to work more," he said.

But there is also a steep price associated with not doing desalination. Like with many aspects of desalination, the debate is full of trade-offs. There are a range of alternatives to be evaluated in a pending environmental analysis, but the one with the most widespread cost will be rationing.

Without desalination, the district will consider one of two curtailment scenarios -- one that relies on customers to install water saving devices or one that involves the district doing direct installations. The city will simply curtail use, more than 40 percent for single-family residences and up to 30 percent for businesses during critically dry periods.

If the Crow's Nest, a landmark harbor restaurant, lost 30 percent of its water during the summer tourism season, the 41-year-old Arreola, who already works six days a week, would see his hours cut if the kitchen had to end breakfast or lunch service. He said he would rather pay a higher water bill associated with desalination than risk job security.

"I don't want to lose my house," Arreola said. "It's been my dream forever."

Co-worker Alvaro Sanchez, 39, said he spends $200-$300 per month on heart medication, which would become unaffordable without a job or insurance. Losing even two of his six shifts "would be his whole life," Sanchez said.

But county employee Jeffrey Smedberg, 65, believes desalination would come at too high a cost.

"We're spending a lot of money on a low-tech problem," he said. "If water shortage is really a problem, we can get more community involvement in conserving more."

Some customers haven't made their minds up yet.

Soquel Creek customer Leslie Chow is not looking forward to another rate increase.

"We conserved, then they raised the rates" she said. But, she added, "If there is no desal, what are the options for getting water?"

The district sends notices to the top 10 percent of single-family users, offering free efficiency audits. Charlene Ebey, a La Selva Beach resident, whose bi-monthly water bill had reached $300, received a notice.

She suspected her husband's affinity for long showers was to blame for their high bill, but an inspection revealed an irrigation leak. She looks forward to saving money now, and wonders whether rate increases for desalination and capital improvements are merited at the same time.

"Why do we need so many expensive upgrades if we are going to commit to desalination?" she asked.

Brent Haddad, who directs the Center for Integrated Water Research at UC Santa Cruz and negotiated the desalination arrangement between the two water agencies, said the cost of desalination has to be viewed alongside other forms of supply. He credits student Alex Webster for noting: "In California, the collapse and near-extinction of salmon populations is a good example of a cost of surface fresh-water supply, but who sees a Salmon Exchange Surcharge on their water bill? Even if such a surcharge were authorized, how could it be calculated accurately and assessed fairly among millions of water users?"


Still, costs for the desalination proposal have been adding up since 2006, after the city decided to pursue it as a primary new water source. According to city records requested by the Sentinel, $11.6 million was spent from 2006 through June of this year. State grants covered $2.6 million and the city spent $5.2 million. Seventy percent of the city's costs were covered through customer rates that increased 5 percent last year and the remaining 30 percent was paid using a fund established through development connection charges, records show.

Soquel Creek's portion, $3.8 million, was covered entirely through rates, which have gone up 29 percent during the past four years. The district is considering another rate increase in January.

The vast majority of what's been spent so far, setting aside staff time, supplies and other miscellaneous costs, has gone to a host of consultants and contractors, the records show.

The greatest single expense, $3.6 million, was paid to Camp Dresser & McKee, better known internationally as CDM, for its operation of the city's pilot desalination facility in 2008-2009. The desalination giant, which is behind projects in Sand City, Southern California, Florida and elsewhere, also will be paid an estimated $1.1 million for its preliminary design work on the full-scale plant.

The other big expense is $1.1 million for a San Francisco consultant's work on an environmental impact report due later this year.

Another $4.6 million in expenses are planned through 2013. After 2014, costs will spike if the project is approved by voters and regulators. The city estimates a total of $107.1 million in construction-related expenses through 2018.

But there are significant costs not factored into the $123 million price tag of building the project -- costs that also will be built into rates.

Annual plant maintenance and operations are estimated to be $3 million to $5 million, depending on production levels, and will be paid by whichever agency is using the plant.

The energy required to power the reverse osmosis technology that strips salt form seawater is another high cost. The district, which would use the plant most often, is using $500,000 annually as a placeholder for offsetting greenhouse gas emissions.

The two agencies also are expected to take out loans for desalination or capital projects. Estimates are $4 million annually in interest, also borne by ratepayers, but will depend on borrowing rates and the duration of the loan.

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Santa Cruz and Soquel Creek Water District have agreed to share pre-construction and construction expenses of the proposed desalination facility on a 59/41 basis, though some costs have been covered by grants. The costs below do not include debt service if either agency borrowed money to pay for capital expenses, which is a strong possibility, especially for Soquel Creek Water District.


$11.6 million (2006-2012)


$111.8 million (2013-2018)

Full-scale plant construction: $63.2 million

Intake facility: $21.6 million

Transmitting water from Santa Cruz to Soquel Creek: $6.5 million

Acquiring property: $5.2 million

Project management: $5 million

Infrastructure: $4.8 million

Permitting: $4.3 million

Public outreach and education: $1.2 million

Environmental review: $800,000

Grant administration: $100,000

TOTAL: $123.4 million


SANTA CRUZ -- $69 million for desal, $100 million for capital projects: The Water Department could tap $30 million in reserves and cover the remaining $39 million in desalination-only costs through rate increases. To do $100 million in capital projects at the same time could require $50 million more from ratepayers and borrowing $50 million.

SOQUEL CREEK -- $51 million for desal, $76 million for capital projects: The agency would likely borrow for desalination and repay the loan through rates. Capital projects would be paid through rates and borrowing. The district is unlikely to tap reserves, which according to the district's most recent budget are estimated to be $5.7 million by June 2013.

SOURCE: City of Santa Cruz, Soquel Creek Water District


The city and Soquel Creek have spent a combined $11.6 million on desalination so far, the majority of which has gone to consultants and contractors. For a full list, visit and click on this story.


Monthly charges for single-family customers in Santa Cruz and Soquel Creek Water District with average usage are expected to increase in the next decade to pay for desalination and capital projects. Below are current estimates, which could change based on future decisions by the City County and district board.

2012 $38 $56 47 percent
2021 $54 $123 128 percent

SOURCE: City of Santa Cruz and Soquel Creek Water District

See Deconstructing Desal in Santa Cruz

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