San Antonio Water System files suit over contract dispute with LCRA

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• San Antonio seeks recovery of losses, up to $1.23 billion

SAN ANTONIO, TX, Aug. 24, 2009 -- San Antonio Water System (SAWS) filed suit today for breach of contract against the Lower Colorado River Authority (LCRA) in State District Court in Travis County.

The suit challenges "policy assumptions" made by LCRA in December 2008 which directly and unilaterally rendered the agencies' water supply project unworkable. The project was under development for the benefit of the entire lower Colorado River basin and the City of San Antonio.

SAWS seeks recovery of the amount due it under the contract, defined as the difference between the project cost of 90,000 acre-feet per year for 80 years and the total cost of acquiring the same amount of water from another source, or $1.23 billion.

SAWS has invested over $43.2 million on project studies at a current value of nearly $51.9 million. Another $2 billion of investment by San Antonio would have helped provide additional supplies from the Colorado River through the use of enhanced technology and innovative conservation efforts.

SAWS leads the nation in water conservation, and project studies showed significant water savings could be achieved for the benefit of both regions.

In the suit, SAWS contends that LCRA incorrectly assumed that the results of technical studies could be altered by unilateral "policy assumptions" made by the LCRA's Board of Directors.

Nothing in the agreement "allowed the LCRA Board to tamper with the scientific studies by imposing a layer of 'policy assumptions,'" asserts SAWS. But despite the agreement and scientific findings, "some LCRA board members were unhappy with the SAWS project [and] began to [instead] focus on making sure there would be enough water to promote the growth of the power plant industry in Matagorda County."

Today's filing refers to "lucrative promises of a potential coal plant called 'White Stallion.'" Ignoring a seven-year contractual commitment with the city of San Antonio, "LCRA also decided that the economic and recreational benefits of higher lake levels for the people of Central Texas should be sacrificed -- so that Matagorda County's power industry could flourish."

"In December 2008 and in April 2009, LCRA announced, in effect, that it was not going to keep its promise to the people who live in its service area or to the people of San Antonio," reads the filing.

The petition later goes on to say, "LCRA announced to the public that it had decided, that as a matter of science, there was zero water available for SAWS. This was completely false. As a matter of science there was at least 115,000 acre-feet available for SAWS. As a matter of policy, LCRA had simply decided to renege on the deal."

Political agendas ultimately prevailed in altering the results of the scientific studies. "Although SAWS believes that discovery in this lawsuit will reveal the full extent of their activities and involvement in the power industry, the public record alone demonstrates a clear intent by some [LCRA] board members to kill the SAWS project so that the power industry in Matagorda County could expand," states the petition.

A recent Open Records Request of LCRA by SAWS for documents related to water supply for the downstream power industry has been challenged by LCRA and attorneys for White Stallion.

"It was policy, not science, that led the LCRA Board to kill the SAWS water sharing project," states the petition. "To say that SAWS believes that it has been betrayed by LCRA is an understatement," added SAWS attorney R. James George, Jr.

"We have tried to reach some compromise with LCRA, but LCRA has offered nothing that would provide San Antonio with the water it needs, or compensate it for the money and time it has spent," stated Robert R. Puente, president/ceo of SAWS. "SAWS filed this lawsuit because it has no other way to protect the people of San Antonio and its customers."

Predicated on a proposal from LCRA in 2000, San Antonio agreed to support legislation and later signed a contract agreement that would require billions of its ratepayer dollars for "certain improvements [that] would increase the water available to meet LCRA's needs, and prevent the Highland Lakes from being drained during times of drought," according to the suit.

Recent media reports illustrate the impact on Lakes Buchanan and Travis due to downstream water demands for rice farming. Potential downstream power plants could have an additional future impact. Daily releases of water from the Highland Lakes have left them at their lowest levels in decades.

Project studies show as recently as March 2008 that the LCRA-SAWS project would have increased the average levels of Lakes Buchanan and Travis by at least 10 feet and 20 feet, respectively, during a repeat of the drought of record.

"In a year such as 2009, with all boat ramps on Lake Travis closed, and the negative economic impact that this drought has caused, 20 extra feet of water would make an enormous difference to the communities reliant on the lakes," noted Puente.

The contract between SAWS and LCRA would have guaranteed these average increases while still providing additional supplies to the Colorado River basin and San Antonio. Without the project, levels at Lakes Buchanan and Travis would be "near zero" under 2060 and 2080 critical drought-of-record conditions, according to the March 2008 study.

The technical studies showed that the water supply project could make additional water available from the Colorado River, with 180,000 acre-feet for LCRA and 115,000 acre-feet for SAWS.

But after the LCRA Board of Directors interjected its non-scientific "policy assumptions" into the study process in December 2008, SAWS' share of the water dropped to zero. "The LCRA Board decided to sacrifice protections for the Highland Lakes and for its agricultural customers, and to break its promise to San Antonio, so that there would be no impediment to the growth of the power industry in LCRA's service area," reads the suit.

Since 1992, San Antonio Water System has provided leadership in managing and developing water resources in the San Antonio region. Water and wastewater services are provided to over one million consumers in the San Antonio area.

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