BY ANTONY CURRIE AND KEVIN ALLISON

San Antonio is plotting a $3.3 billion strike in the growing U.S. water wars. The drought-prone Texas city plans to spend about that much on a project for moving H20 140 miles. It’s the next leg of a strategy for securing enough water to keep people and businesses in the home of the Alamo. It’s also part of a national battle for economic survival.

The city faces a serious dilemma. Its population of 1.6 million is expected to almost double by 2070, but the San Antonio Water System, or SAWS, doesn’t supply enough water for even current residents. Shortages could threaten up to 135,000 jobs and reduce economic output $17 billion by 2040, according to a San Antonio Chamber of Commerce report. That’s about one-fifth of the city’s 2012 GDP.

Companies aren’t eager, of course, to base operations in drought-prone areas. Pharmaceutical firm Bristol-Myers Squibb mentioned water availability as a key factor in its choice of suppliers and locations for new facilities, a joint CDP and Deloitte & Touche report says. San Antonio may well worry what the healthcare companies it now hosts are thinking.

On the bright side, the city’s conservation efforts have been impressive. The average amount of water each resident uses daily has been cut from 225 gallons 30 years ago to 124 gallons today, barely one-quarter the national average. SAWS stores any excess supplies underground to avoid over-consumption and evaporation. It even uses treated waste water to keep the famous Riverwalk tourist spot flush, saving the 5 million gallons a day it used to take from its primary water source, the Edwards aquifer.

The new centerpiece of San Antonio’s strategy, though, is a 140-mile pipeline project that SAWS approved last week. It’s expected to carry 50,000 acre-feet of water each year – one-fifth the city’s current consumption – from private wells in the Carrizo-Wilcox aquifer, a vast underground reservoir in a part of Texas with permissive rules on pumping out supplies. The project is being built by the Vista Ridge Consortium, a partnership between Spanish infrastructure group Abengoa and investor BlueWater Systems, which owns the water rights.

The water will be expensive: around $2,000 per acre-foot, compared with $500 for Edwards aquifer water. The city is also building a plant to desalinate brackish groundwater that may cost some $2,100 per acre-foot. The new supplies could push rates up 16 percent over several years. Consumers won’t be happy, but pricing and rationing this scarce resource properly is essential. San Antonio may be able to limit the taxpayer hit by selling any extra water.

The project has taken nearly four years just to gain approval, in part because San Antonio has driven a hard bargain. Abengoa will be paid only for water it delivers, so will bear the risk of drought or any legal issues that interrupt supply. The city will pay a fixed rate for water and after 30 years will inherit the pipeline – and get first dibs on the water rights.

The extensive wrangling has made it difficult for Abengoa and its partners to determine their likely return on investment. Private capital usually wants a fair whack more than the 8 percent to 10 percent common in utility deals. In a possible nod to political sensitivities, Abengoa has said it is seeking a maximum 12 percent return, according to the San Antonio Express-News.

That may seem low, given the risks. But if successful, the San Antonio project could be a template for other water-strapped cities and states. California, for one, is still wrestling with how to pitch a water bond to voters while 95 percent of the state is in severe drought.

All in, the United States may need to spend almost $400 billion by 2030 on drinking water infrastructure, according to the Environmental Protection Agency. Even chambers of commerce in relatively water-rich states like Indiana are examining how to ensure they have enough to attract more businesses. Fortunately, unlike the battle for which the Texas city is famous, the fight for a secure water supply need not be a zero-sum game.

First published Oct. 7, 2014

IMAGE: REUTERS/Joshua Lott