A small Utah county's big water pipeline plans

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After years of discussion, a plan to finance a 140-mile pipeline from Lake Powell to fast-growing southern Utah is taking shape amid environmental and affordability concerns.

Projected construction costs range from $1.1 billion to $1.8 billion in advance of federal environmental permits, according to the Washington County Water Conservancy District. With interest on revenue bonds backed by water sales, the price tag soars to about $3 billion, according to some estimates.

“This LPP [Lake Powell Pipeline] debt service is equivalent to $369–$781 every year for 50 years for every man, woman, and child currently living in Washington County,” a report from the University of Utah said.

“Unless the District increases water rates, impact fees, and/or other revenues, its existing and LPP debt will not be repaid at the end of the 50-year loan period.”

Supporters of the project say the growth in the region will significantly lower the cost per ratepayer. Washington County’s population of 160,000 is projected to exceed 500,000 by 2065, a growth rate of 229%, according to a Gardiner Policy Institute study at UU.

Utah and other states dependent on the Colorado River agreed recently on a drought plan that would affect Lake Powell, but planning for the pipeline predates that and is based on a 2006 law that authorized feasibility studies. The state has already invested $34 million in the process.

At a meeting in Washington County last week, the Executive Water Finance Board appointed by Gov. Gary Herbert toured water facilities and discussed plans for the pipeline in a meeting at Dixie State University in the county seat of St. George.

The board recommends that the state establish a guideline of at least a 25% local downpayment on the pipeline and that Utah not undertake debt that would jeopardize its triple-A bond rating. The finance plan calls for leveraging federal funding, including from the federal Water Infrastructure Finance and Innovation Act program.

The board said it also plans to address local repayment funding sources, loan terms and interest rates to ensure full state repayment.

Eric Millis, director of the Utah Division of Water Resources, said the Lake Powell Pipeline would use about 6% of Utah’s share of the Colorado River under the multi-state compact enacted in 1922. Millis made a presentation on behalf of the WCWC District, which is promoting the project.

“The mainstream water right being used by LPP carries a priority that has never been curtailed or called out,” Millis told the board.

Ron Thompson, general manager of the district, said the pipeline would deliver 86,249 acre-fee of water through about 140 miles of buried pipeline. The system would include five pump stations and six hydropower stations.

Moving water across Utah’s rugged terrain increases the cost because of the energy required for pumps. An acre-foot of water weighs more than 1,360 tons. In California, pumping water from the San Francisco Bay-Delta to Southern California requires approximately 3,200 kilowatt hours per acre foot, according to the Natural Resources Defense Council.

“The energy costs of proposed conveyance projects can be enormous, requiring the commitment of massive quantities of power (and, except in rare cases, greenhouse gas emissions) to pump and move water to the location where it would be used,” the NRDC wrote in a report on proposed pipeline projects in the West.

One $600 million proposal calls for building two reservoirs and pumping water into the higher one at night when energy costs are low. During the day water could flow through a hydroelectric generator into the lower reservoir, producing power that could be sold at higher prices.

Utah has already earmarked sales tax revenue for water development, but the fund is expected to produce only $40 million annually when fully established in 2022. Promoters want to see construction of the pipeline started in 2021. The state would need $80 million to $120 million more per year for debt service on a bond of $1.3 billion to $1.8 billion, officials estimate.

Proposed funding sources include new revenues at the district level, adjusting state funding, or tax increases.

Washington County has already raised water rates and impact fees on new construction in anticipation of the project.

The county could raise more than $1.5 billion in revenues through 2065 if it continues to phase in a $1 per 1,000 gallon price increase on water, officials estimate. The typical fee for a residential unit would rise from $7,417 this year to $17,071 by 2026.

The University of Utah study of the pipeline’s feasibility said water rates would have to rise 678% to finance a $1.8 billion pipeline at 4% interest over 50 years.

“These debt obligations raise serious questions about the project the Division of Water Resources is proposing,” the report said. “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.

“Indeed, if repayment really was highly likely, the district by itself could have borrowed the money on the bond market from eager investors and started construction already, without any state financial involvement, as the district has done on many past occasions.”

The Utah Division of Water Resources is also proposing the $2.4 billion Bear River Development Project, the largest new river diversion in North America. The project would include building at least three new dams and a 90-mile pipeline to divert the river’s flows away from the Great Salt Lake to homes along the Wasatch Front.

Critics say it would lower the lake several feet, drying up thousands of acres of wetlands and exposing large tracts of lakebed.

To promote conservation in the arid state, Herbert recently signed Senate Bill 52, putting the state on a path to metering all pressurized nonpotable water, which accounts for about a third of Utah's residential water use.

“Given Utah's recent history of drought, high per-capita water usage and growing population, any substantive move to reduce water use — in this case via more monitoring of usage — is credit positive for the state and local governments, in part to maintain economic growth,” Moody’s Investors Service said.

The Washington County Water Conservancy District is the primary provider of wholesale water in Washington County, which is about 300 miles south of Salt Lake City and 120 miles northeast of Las Vegas.

Nearby Zion and Bryce Canyon national parks bring tourist dollars to the economy.

As a regional wholesale water supplier, the district serves 13 communities, eight of which have entered into regional supply agreements. The eight communities represent more than 85% of the residents in the service area.

The district's current water supply is mainly from ground and surface water sources.

S&P Global Ratings rates the district AA with a stable outlook that “reflects our view of the district's diverse revenue sources and position as a water wholesaler that generally provides service pursuant to long-term take-or-pay and regional agreements. “During the two-year outlook period, we anticipate that the district will continue to manage its capital needs to support its growing service area, and will achieve strong financial performance.”

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