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In The News

Redwood City Saltworks developer poised to become major Bay Area water baron

By Julia Scott

San Mateo County Times, 3/01/10

Water for one of the biggest proposed developments in the Bay Area's history would be supplied by a developer who has amassed enough private water rights to become a major Bay Area water baron at a time of increasing supply uncertainty.

DMB Associates, an Arizona-based company that specializes in upscale mixed-use developments close to wilderness, plans to pipe 591 million gallons per year from the Sacramento-San Joaquin River Delta to as many as 12,000 homes on the Redwood City Saltworks site via a series of complicated and unprecedented water exchanges that originate 300 miles to the southeast in Kern County.

But DMB had more than Redwood City's needs in mind in late 2008 when it bought the rights to 2.7 billion gallons of water per year — about 12 percent of the annual water demand for San Mateo County — from Kern County-based Nickel Family, a land- and water-holding company with some developments of its own and roots in more than a century of Central Valley farming.

"We look at water rights as an asset, just like securing rights to land," said John Bruno, general manager of the DMB Saltworks venture.

The water is guaranteed for 35 years, with an option to renew for another 35 years.

DMB has yet to outline its water plan to Redwood City in a formal proposal that would demonstrate exactly how it would transfer the water to Redwood City, which only purchases water from the Hetch Hetchy Reservoir through the San Francisco Public Utilities Commission (SFPUC) and not State Water Project deliveries to the Delta. But the company did provide some details to a third-party consultant for a report analyzing the water plan, which was released in late January.

The report preliminarily concluded that DMB's proposal is plausible as a potential source of potable water supply, pending further analysis and approvals from local and state agencies. The city is now embarking on an extensive environmental review of the entire project, which a number of local environmental groups vehemently oppose.

With 80 percent of its water up for grabs after supplying the Saltworks site, DMB is poised to become a Bay Area water dealer, selling water to public agencies in need. In 2009, the company sold almost 652 million gallons of water to the Santa Clara Valley Water District for $550,000, according to the report. It sold the balance to Tejon Ranch Co., with whom DMB has partnered to build a new 3,500-home community called Tejon Mountain Village on Kern County's Tejon Ranch, the largest privately owned piece of land in California.

Documents show that Tejon Mountain Village is getting its water from sources other than DMB, at least for the next 20 years. But the Tejon Ranch Co. is planning two other major developments at Tejon Ranch, a 23,000-home property named Centennial and an industrial park. DMB sold its water allocation to Tejon Ranch in 2008, according to David Smith, a lawyer and vice president with DMB.

"It just happened that we had water and they needed that water," said Smith.

He would not say what the water was used for, but it might have been stockpiled underground in one of the region's many water banks until it is needed by a development.

The most obvious potential customer for DMB's water in coming years is Redwood City, which is facing a housing needs scenario that will create a water supply deficit of tens of millions of gallons by 2040 despite the city's water recycling and conservation efforts, according to City Manager Peter Ingram. And the city won't be receiving any extra water from the SFPUC, which has required cities to cut back.

Environmental groups fear that could prove to be a tempting incentive for Redwood City to approve the Saltworks project. Bruno, DMB's general manager, acknowledges his company's extra water could help "address the long-term needs of the community."

"The whole genesis behind securing the water was making sure we were self-sufficient," he said, "and as a potential benefit to Redwood City."

Ingram acknowledged the appeal of DMB's extra water but said city officials wouldn't use it as a factor in deciding on the Saltworks proposal.

"I would divorce that question from whether that project should or shouldn't be approved. . . . But Redwood City, like any city on the Peninsula, would want to explore that possibility because we all know that is going to be difficult to add a new water supply in this area," he said.

Many cities face the same water supply dilemma as Redwood City, especially on the Peninsula. The SFPUC will need to meet a peak water demand of 300 million gallons per day by 2030 on behalf of customers in San Francisco, San Mateo, Santa Clara and Alameda counties, but the agency hasn't formally planned for water supply beyond 2018.

It's increasingly common to see water rights change hands between agricultural interests and developers in the Central Valley, where water once intended to grow produce is used to make homes sprout instead, water experts say. The Nickel Family, which inherited generous water rights on the Kern River, has sold water to developers before, according to news accounts. It promised 521 million gallons of water per year for 35 years to help supply the huge 20,000-home Newhall Ranch development, west of Santa Clarita.

But never before has a Bay Area developer moved this much private water north of the Delta, or sought to resell it to a public agency.

DMB's Smith said his company is just paving the way.

"I think a lot of people are thinking about the need for exchanges everywhere. While it hasn't happened a lot, I don't think people were shocked to hear someone step forward and propose it, because things are really tight."

 

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