Oro Valley is leading the charge for passage of a bill that could save the town's water utility, as well as municipalities and private water companies across the state, millions of dollars in bringing more water to their customers.

The savings would result from legislative passage of a bill that would allow local governments and private water companies to become partners in water districts and in doing so share the costs of the infrastructure required to deliver water to their users.

As partners combining their resources, the districts would reduce their interest costs on bonds issued to finance water system improvements and receive both state and federal grants with less stringent matching fund requirements, said George Swartz, executive director of the state Water Infrastructure Financing Authority.

As an example, if Oro Valley, Marana and the Metro Water and Flowing Wells Irrigation districts were to form a new water district, the estimated $62 million it would cost Oro Valley to bring a Central Arizona Project transmission line to the town could be reduced by as much as 45 percent. Actual cost sharing would be subject to negotiation but the principle would remain the same: partners would pay based on their proportional use of total transmission line capacity and the needs of their service areas.

Tucson Water has shown little interest in the potential district partnering because of its ability to provide for customers and the prospect of little benefit in return for the patrnership.

Although the arrival of CAP water in Oro Valley isn't expected for another seven to 10 years, "we do need these projects," said Alan Forrest, the town's water utility director, addressing both the town's plans for CAP and a separate $20 million delivery system for treated effluent to be used for irrigation. The system for delivering treated effluent to the town has been given a higher priority by the Oro Valley Town Council since consultants have said this project can be done sooner.

"We're not in dire straits," said Forrest, "but we do have dwindling water supplies and we're trying to address that situation in the most efficient manner possible."

Forrest said the water district proposal emerged from the Governor's Water Commission discussions over the past year and a half. Oro Valley's seeming leadership position is due more to the fact that it had specific projects in mind and other communities were simply looking at the possibilities such a proposal presented, he said.

If the bill passes, it will likely take a year from that date before the measure would be presented to the council to set a date for an election. Voters would have to approve the formation of the district and revenue bond financing, Forrest said.

Brad DeSpain, Marana water utility director, said the district could reduce by one third or more the town's cost of developing a direct delivery system for potable water. While Marana's own system currently serves only about 1,300 residential and 80 commercial users, it is estimated that a potable water delivery system will be needed to meet the demands of 90,000 customers in the next 30 years.

Tucson Water currently provides water to about 5,000 customers at Continental Ranch, Dove Mountain and in the Ina-Thornydale roads area, but in the past has been reluctant to expand its system, putting Marana at the mercy of Tucson Water in terms of its ability to serve new development.

The less expensive financing provided by a water district could provide a key to Marana's water independence, DeSpain said.

In addition, Marana, which is surrounded by the CAP canal, will need its own effluent delivery system or the ability to hook on to existing systems as its borders expand closer to neighboring municipalities, DeSpain said.

The proposed water district would be extremely helpful in terms of cost reduction in this area as well, he said.

"This measure will help water providers across Arizona move water to where it needs to go in a time frame that is realistic in terms of cost and realistic from the standpoint of need," said Rep. Tom O'Halleran, R-Sedona, one of the sponsors of HB2480, or the Multijurisdictional Water Facilities District bill.

"The bottom line is that water doesn't recognize geographical lines," O'Halleran said. "We need to be realistic as we move into the future that although Company A or Municipal Water Provider B has a certain area, that doesn't mean they are necessarily going to be able to provide water to either area if they don't cooperate. We not only have to lower costs, we have to start anticipating these needs now so we aren't paying higher costs in the future.

"Cottonwood and Clarkdale, for example, are now looking to buy out a private water company. It will become a municipal provider, but still it will be surrounded by private water companies," O'Halleran said. "Yet those entities have the same problem, that is to reach out to other areas of the Verde Valley for water. Without cooperation and the ability to work together easily, that will be much more difficult."

Under current conditions, municipalities can enter into intergovernmental agreements, but difficulties often arise in the water arena when municipal water companies have to join in with private water companies, said Mark Stratton, Metro Water District general manager.

In addition, bond buyers look at the solidity of such agreements and as a rule view them as contracts that can be broken with such things as termination clauses, Stratton said.

"So the security of the bonds is put at risk and because of that risk, there's a higher interest rate or your bond rating isn't as high. The IGA is workable, but it adds to your cost."

Districts would reduce that risk because they ensure the participation of the partners from start to finish, Swartz said.

Metro's Stratton also pointed out the importance of such districts to rural Arizona water pro-viders on two fronts, first on the front of water quality and second on the front of water resources and having to deal with drought.

Arsenic levels are proposed to be lowered from 50-parts-per-billion to 10-parts-per-billion in 2006, and there's a question of whether rural water providers can build a single treatment process they can all benefit from, Stratton said.

"In rural Arizona, you're looking at small companies that don't have a strong rate base and they're looking at significant costs because the cost of treating for arsenic is not small at all.

"So the concern is that a lot of small water providers are going to have to impose huge rate increases for their users to meet this requirement," he said. "But if we can combine water providers in the same general region and spread out the costs across a larger rate base, the impact is reduced."

In terms of dealing with drought, Stratton said northern Arizona communities such as Flagstaff, Prescott and Williams pay an awful lot to get the water they have and because "there's not much of it" they need to look at the alternative water supplies available.

Those supplies, he said, could cost millions of dollars, so the question is whether they can combine their resources and spread the cost across a greater population so everyone benefits.

The formation of a water district would give them that ability, he said.

For the Metro Water District, an important issue in terms of joining in a district is one of timing and how soon such a mechanism can be put in place, he said. "If we can't do this in a realistic time frame, then do we go it alone? Does Oro Valley then go it alone because of the pressure the town faces to get the golf courses off ground water?"

Metro Water, which serves some 45,000 customers, is looking for a way to economically use its 8,858 acre-foot allocation of CAP water in conjunction with a Canada del Oro Storage and Recovery Project to bring CAP water from the Moore Road-Interstate 10 area to the CDO water basin to be replenished and recovered so that Metro Water's ground water supplies aren't diminished further, said Warren Tenney, assistant to the general manager,

An acre-foot of water equals about 325,000 gallons, or enough water to cover an acre one foot deep.

Other matters to be dealt with include outside funding and, in particular, Federal Bureau of Reclamation financing that has been slowed due to federal appropriations and compatibility issues in terms of system design, Stratton said.

"It's a major commitment, but it is of significant importance to this region because our water resources are dwindling so rapidly," Stratton said. "Old wells are breaking down, we have to go deeper with the new wells and these new wells cost an average of about $500,000 apiece," he said.

In the Flowing Wells Irrigation District, officials are looking to develop a backup source of water since it has a 4,354-acre-foot CAP allocation and "no way to get at it," said David Crockett, superintendent.

The district also needs that backup source to serve its 15,000 customers because a Superfund contamination site is encroaching on the district's production wells and three of its wells will be unable to meet stricter 2006 arsenic level requirements, Crockett said.

Proposals to finance improvements through general obligation bonds and a new mechanism called user obligation fees were deleted from the bill in the early going because of opposition from utility companies over taxes they would have had to pay for little return and because the user obligation fees, fees other than just water rates, were such a new concept.

"The user obligation fees would have changed the way we do bonding in Arizona and I wasn't comfortable at this time with creating a whole new bonding mechanism without a thorough review of that process," O'Halleran said.

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