There is one intangible asset that is absolutely essential to the survival of any politician: deniability.
Gov. Bobby Jindal would dearly love to have that deniability right now.
The Sabine River Authority (SRA) has decided, for the time being, at least, to hold up on its proposal to sell up to 600,000 acre-feet (196 billion gallons) of water from the Toledo Bend Reservoir.
The action came after Jindal’s chief of staff Stephen Waguespack announced on Dec. 29 that the administration opposes a proposed sale of water from Toledo Bend reservoir by the Sabine River Authority of Louisiana (SRA) to a group of Texas and Louisiana investors.
The only problem with the administration’s stated opposition is that just four months earlier, an Aug. 25 letter, from Waguespack informed the SRA that the governor’s signature is required for the sale of water “outside of the boundaries of the state of Louisiana.” He added that no such concurrence would be considered “unless it is, at a minimum, the product of a competitive RFP.” In other words, the governor, through Waguespack, gave his tacit approval to the sale provided there was a “competitive RFP.”
Reminiscent of John Kerry, Jindal was for it before he was against it.
The board, thus empowered by the administration’s implied approval, on September 22 authorized by unanimous vote the preparation of the RFP for the out-of-state water sales contract. The result was a proposal from Toledo Bend Partners (TBP) that would lock the state in to a 50-year contract with an option to renew for an additional 49 years.
RFPs were sent to five separate firms or individuals who expressed an interest. A sixth was picked up at SRA offices by a representative of Toledo Bend Partners (TBP). The TBP proposal was the only one submitted pursuant to the RFP.
Public opposition to the proposed sale was such that Jindal, through Waguespack, quickly backtracked. “There’s talk of a January vote and I think that is way too fast,” Waguespack said. He said he was reviewing the proposal which he said would need Jindal’s signature.
That was quickly followed by a Jan. 12 vote by the SRA board to suspend any proposed out-of-state water sales until a comprehensive water plan for Louisiana has been completed.
But the issue is far from dead. There is too much revenue at stake and with another potential budget deficit looming, the state desperately needs revenue. With Jindal’s dogged insistence on no new taxes, coupled with his push for even deeper tax cuts, that revenue has to come from other sources.
That’s where his agenda for privatization comes in and the sale of water to private investors is part of that agenda: rather than selling the water directly to consumers, Jindal instructed the SRA to take proposals from private investors—a middle man, as it were.
And that is precisely why this issue demands a closer inspection to consider not only how the sale would affect the local area but also to see who the principals are and how much money is involved—on both ends of the sale.
While considerable emphasis has been placed on the potential revenue of $54 million per year for the state, little has been said of the potential windfall to the investors if the sale ultimately goes through or of strong political connections on the part of the individual investors.
And while most assume the water will be resold to municipalities in Texas, nothing definitive has been said about the investors’ potential market.
Toledo Bend, which sits astride the Louisiana-Texas border and is jointly-owned by the states of Louisiana and Texas, was created in the 1960s at a cost of $70 million for the purpose of water supply, hydro-electric power generation and recreation. It is the only public water conservation and hydro-electric power project to be undertaken without federal participation.
In order to express large volumes of water use, terms are generally expressed in acre-feet. One acre-foot equals 43,560 cubic feet and is equivalent to 326,700 gallons.
The reservoir covers about 185,000 surface acres, giving it a storage capacity of nearly 4.5 million acre-feet. The reservoir’s annual surplus water supply—water that may be sold—is slightly less than 2.1 million acre-feet with Texas and Louisiana each apportioned half of that total.
That gives Louisiana more than a million acre-feet per year in surplus water.
To put these numbers in perspective, imagine one acre of land covered by one foot of water; that’s one acre-foot of water. There are 7.48 gallons in a cubic foot and 748 gallons in 100 cubic feet.
An Analysis of Proposed Water Sale Agreement between Sabine river Authority, State of Louisiana and TBP says the Sabine River Authority of Louisiana “has the express statutory power” to enter into any and all contracts and other agreements with any person, but “in the case of contracts or agreements involving the sale and/or consumption of water outside the boundaries of the state of Louisiana, written concurrence of the governor is required.”
Louisiana’s counterpart, the Sabine River Authority of Texas, has been selling water to Texas municipalities and other water systems, including 600,000 gallons per day to Houston. Louisiana currently sells its water only for hydroelectric generating, historically tapping less than 3 percent of its annual allocation of surplus water.
Water supply demands in Texas are expected to grow. The 2007 State Water Plan for Texas anticipates that municipal demand will increase by 92 percent between 2010 and 2060—from 1.5 million acre-feet to 2.9 million acre-feet.
The water sale analysis calls for SRA to sell up to 600,000 acre-feet—196 billion gallons—of water per year to TBP at a price of 28 cents per thousand gallons ($91.24 per acre-foot).
Under its proposed 50-year contract, TBP would pay SRA the $91.24 per acre-foot on top of an annual “reservation fee” that begins at $1 million and gradually escalates to $25 million after 35 years. In addition, SRA could choose between taking 1 percent of gross revenues from water sales or 20 percent of net profits.
That price is substantially higher than the current sale price of one cent per thousand gallons ($3.27 per acre-foot) currently paid by Entergy to operate its hydroelectric generator that straddles the Louisiana-Texas border at Newton County, Texas, and Sabine Parish.
Should the sale to TBP eventually be approved, it is anticipated sales to Entergy will be terminated when the current contract expires in 2018.
And while it is generally assumed that TBP will purchase the water for re-sale to municipalities, there is no guarantee of that. Consider the development of the Haynesville shale formation in northwest Louisiana and east Texas and the Eagle Ford shale formation in south Texas, said to contain rich oil and natural gas deposits. The method of extracting the oil and gas is expected to be hydro-fracturing, or fracking, a procedure that takes millions of gallons of water to break up the rock formations and release the oil and gas.
The going price for water for fracking is considerably higher. In Anadarko, Pennsylvania, a community near State College, drillers are paying $6 per 1,000 gallons. In Shalersville, Ohio, near Akron, the price for potable water to perform fracturing runs between $5.20 ($1,700 per acre-foot) and $8.88 ($2,903 per acre-foot) per thousand gallons, depending on the volume.
In California, the state’s water-distribution and pricing systems vary widely and are highly complex. More than 2,800 local agencies provide water service to 35 million people and 8.7 million acres of irrigated farmland.
While about 75 percent to 80 percent of the state’s water goes to agriculture, all users must vie for the limited resources available in the state, with diversions from the Sacramento-San Joaquin and Colorado systems being the most important. Water prices vary widely by jurisdiction, ranging from less than $10 per acre-foot to more than $100 per acre-foot at the retail level.
Because of stipulations that limit water availability based on reservoir and ground water levels, depending on wet or dry years, there are no guarantees of unlimited access from those myriad systems.
At a purchase price of 28 cents per 1,000 gallons, the sale of tens of millions of gallons of water at those prices represents a significant markup and an eye-popping return on investment for the TBP that could approach 2,000 percent.
All of which begs the question that if the SRA has surplus water to sell and there is the potential of a seller’s market, why can’t the sales be made directly to the end-users without a middle man? Why is it necessary to involve TBP?
To get an answer to that, it is important to know just who the players are and they would be principals of TBP. It is also important to know that campaign cash has a way of flowing almost as freely as, well…, as water.
TBP is a Delaware chartered entity comprised of trusts and entities owned by Billy Joe “Red” McCombs of San Antonio, Donald T. “Boysie” Bollinger of Lockport and Aubrey Temple of Coushatta and their families.
McCombs, who presides over the Koontz-McCombs Development Co., a string of automobile dealerships and radio stations, is a major player on the political stage. Between June of 2007 and August of 2010, he made 21 political contributions totaling $280,000 to Texas Gov. Rick Perry. He also made a $5,000 contribution to Jindal in November of 2010.
Jindal endorsed Perry for the Republican presidential nomination immediately after Perry announced his candidacy. He campaigned vigorously for Perry in Iowa, New Hampshire and South Carolina, leading to speculation that Perry would reward Jindal with a choice appointment if he were to win the presidency.
Bollinger is chairman and CEO of Bollinger Shipyards, a family-owned business established by his father, Donald Bollinger, in 1946. Donald Bollinger, Sr. served as Secretary of Public Safety under Gov. Dave Treen.
Bollinger, his family and businesses combined to contribute $10,350 to Jindal in 2003 and 2007. Tidewater, Inc., and Bank One of Louisiana, on whose boards he serves, also contributed another $7,000 to Jindal in 2007.
Tidewater, Inc. Political Action Committee (TIDEPAC) also made five contributions totaling $25,000 to Jindal in 2003 and 2004.
Temple, a banker and founding chairman of Louisiana Workers Compensation Corp., is a former chairman of the SRA. He and his wife made six contributions totaling $25,000 to Jindal between September 2006 and March 2011.
Steve Cummings, TBP CFO and treasurer, contributed $1,000 to Perry in October of 2010, and board member James Weaver contributed $1,000 to Jindal in December 2010 and $15,000 to Perry in June 2009 and December 2010. Both men are from San Antonio.
Rep. Gerald Long (R-Winnfield), in a Jan. 4 letter to the Sabine Index, pledged to meet with Jindal to discuss the issues surrounding the proposed sale. “As you may know,” he said, “any decision to sell water will be made by Governor Jindal and not the local SRA or the Louisiana Legislature.”
Long was the recipient of a $2,500 campaign contribution from Bollinger Shipyards last Aug. 4. Six days prior to that, he received a $2,500 contribution from the Jindal campaign.
In its proposal submitted to SRA, Toledo Bend Partners included nine letters of endorsement from Texas and Louisiana residents and political leaders, including former governors Buddy Roemer, Mike Foster and Kathleen Blanco.
Two of those letters, from Blanco and Texas Lt. Gov. David Dewhurst, supported the proposal to sell water but neither mentioned TBP by name. The remaining seven letters, including those from Roemer and Foster, specifically endorsed TBP for the contract.
Several of the letters were suspiciously similar in their wording, almost as if their letters were drafted from a template and presented to the presumed authors for their signatures. Two called the proposed sale a “win-win” opportunity.
Letters from Corbin Robertson, CEO of GP Natural Resource Partners; Paul W. Hobby, founding chairman of a Houston-based private equity business, and Texas State Senator-elect Ronnie Johns each submitted letters with identical wording: “Toledo Bend Partners encompasses a group of individuals whose business and civic leadership in Texas and Louisiana span many decades.” Robertson and Hobby went even further to say, “Specifically, B.J. “Red” McCombs’ track record of successful collaboration involving business and government entities in Texas is long-standing and distinguished.”
Both men also said in their respective letters, “I believe Toledo Bend Reservoir is an outstanding resource that should be managed with an eye towards the benefits that will be realized by current and future generations of Texas and Louisiana residents.”
Foster and Johns also had identical wording in their letters, each saying “Because power generation is heavily concentrated between May-September, Toledo Bend Lake levels are oftentimes strained during the summer months. Further, downstream residents may experience flooding as a result of the water releases” (from the hydroelectric generating plant).