A CHRONICLE SPECIAL REPORT

S.F. looted region's water system, diverted millions into city coffers Now $3.6 billion sought to repair and expand aging Hetch Hetchy

Susan Sward, Chuck Finnie, Chronicle Staff Writers Sunday, September 15, 2002

Over the past 20 years, San Francisco officials raided the city's vaunted Hetch Hetchy Water and Power system of hundreds of millions of dollars, leaving the Bay Area's largest water supply vulnerable to earthquake, drought and decay.

Despite increasingly serious warnings about the need for expansion and seismic upgrades, city officials postponed the costly work and used profits from Hetch Hetchy's hydropower electricity sales to bankroll city programs and salaries for everything from the Municipal Railway to health care for the needy.

Today, engineers warn that a significant earthquake could cause widespread damage to the system, ranging from the collapse of Calaveras Dam in Alameda County to the destruction of a key tunnel that delivers water through the foothills to 2.4 million Bay Area residents, potentially cutting off most of the system's water supply for 60 days.

Now city officials want San Francisco and its suburban water customers to borrow $3.6 billion to fix the problems - and pay for it by more than doubling water bills.

"The politicians used the Hetchy system as a money machine in the basement of City Hall," said Jim Chappell, president of San Francisco Planning and Urban Research, a nonprofit civic group. "For decades, there has been gross irresponsibility in the siphoning of funds clearly needed for Hetchy maintenance."

Since 1979, San Francisco officials have diverted $670 million from the Hetch Hetchy system into the city's general fund, according to city records. As recently as fiscal year 2001, the city took nearly $30 million from the system.

Rudy Nothenberg, who ran the city's Public Utilities Commission during Mayor Dianne Feinstein's administration, defended the fund transfers, saying, "There is nothing wrong in my view with using the (Hetch) Hetchy power resource to generate money for the general fund, which pays for cops, parks and recreation and everything that people hold dear."

The city's diversion of the funds, though legal, exploited a loophole in the City Charter and shirked its obligation to maintain the Hetch Hetchy aqueduct that the city constructed from Yosemite National Park to the Bay Area during the early 1900s.

The deteriorating condition of the system has prompted a rebellion by Hetch Hetchy's suburban water customers, who have raised the threat of seeking state control over the repairs if the city -doesn't move speedily on its own.

Fiercest of San Francisco's critics are lawmakers representing those communities where residents and businesses depend solely or in part on Hetch Hetchy water.

"If we have a major disaster, all the Bay Area will suffer," said Assemblyman Lou Papan, a Millbrae Democrat who represents more than 400,000 Hetch Hetchy customers. "We can no longer afford to put up with the child's play going on in San Francisco. The deterioration rests on their shoulders."

Today, San Francisco officials say they need $3.6 billion to put the Hetch Hetchy aqueduct back on a sound footing.

This fall San Francisco voters will be asked to approve Proposition A, a $1. 6 billion bond measure, to cover the city's share of rebuilding and expanding the water system over the next 13 years.

To pay for it, San Franciscans' water bills would nearly triple by 2015. Suburban users of the system would raise another $2 billion toward the project,

requiring a more than doubling of their water bills over the same period.

California historian Kevin Starr calls the failure to maintain Hetch Hetchy more than just a matter of dollars and cents.

Recalling the system's creation in the early 1900s - an engineering marvel requiring an act of Congress and the sacrifice of majestic, 3-mile-long Hetch Hetchy Valley - Starr said the system's decline amounts to an abandonment of the public trust.

"For San Francisco to neglect Hetch Hetchy is to neglect the public works project it used to bring itself into metropolitan status," said Starr, the state librarian.

DANGEROUS DISREPAIR Much of the 167-mile Hetch Hetchy aqueduct is more than three-quarters of a century old and vital sections are in dire need of repair:

-- State engineers suspect that Calaveras Dam, located in Alameda County 10 miles northeast of San Jose, is unstable, and have advised San Francisco to keep the reservoir behind it less than a third full.

For years, water officials have been concerned about the dam's stability - in part because it failed in 1918 during construction and because the Calaveras Fault runs within a quarter-mile of the dam.

"After it failed, they continued to build the dam on top of the material that had slid into the reservoir," said Ron Delparte of the state Division of Dam Safety. "We -don't do that anymore."

More than four years ago, the state warned that the dam was in "an extremely high seismic environment" and "its height, reservoir storage capacity and location create a very high damage potential to life and property. "

More than a year ago the state told the city "the stability of the dam would be in question in a major quake," Delparte said. The city agreed to lower the reservoir to a level considered safe for now.

State officials say that if the 200-foot-high dam failed, its water would cascade along Alameda Creek's path through Sunol, Fremont and Newark, threatening lives and property.

Tentative plans call for replacing the dam and increasing more than six- fold the total capacity of the 31 billion-gallon reservoir.

-- A 64-year-old reservoir on a hill in the heart of the city's residential Sunset District - known as Sunset Reservoir North Basin - has a seismically deficient concrete roof. In addition, the dam's northwest corner, at 28th Avenue and Ortega Street, sits on sand that could liquefy in a major quake. State officials say the reservoir's 89 million gallons could spill out to the west, threatening lives and property.

Four years ago, state dam safety officials told the city to look at the stability of the reservoir's foundation, and now - in 2002 - the city is preparing to design the repair and finish the work by 2005.

-- Some sections of 75-year-old pipelines carrying Hetch Hetchy water across San Francisco Bay sit on wooden trestles that were constructed long before modern seismic-strengthening techniques were developed. These pipelines are decaying and are considered very vulnerable to failure, particularly because they cross the Hayward Fault. The city says a fix -won't be finished until 2013.

-- Meanwhile, the entire waterworks - 21 reservoirs, 25 tanks, two water treatment plants, 23 pump stations, 40 miles of tunnels and 1,470 miles of water mains stretching from Yosemite National Park to North Beach - is so overextended that one vital tunnel bringing water to the Bay Area has not been shut down for maintenance in decades, city utility officials say.

This tunnel lies between the Hayward and Calaveras faults, and if it were to break in a quake or other catastrophe, that could halt the flow of more than 85 percent of the system's water to Bay Area customers for 30 to 60 days, city-hired experts have concluded.

-- While deferring system maintenance, city officials have moved slowly to meet water demands created by growth in Hetch Hetchy's service area.

When Hetch Hetchy was built, San Francisco had about 417,000 residents while Alameda County had 246,000 and San Mateo County 27,000. Today San Francisco has about 770,000 residents, Alameda County 1.4 million and San Mateo County 707,000.

On Hetch Hetchy's list of customers are thousands of businesses crucial to the economy of the Bay Area and the nation - in particular Silicon Valley's high-tech industry.

With such growth occurring and more to come, critics say San Francisco failed to plan adequately where to get more water. Even with the revamp, city officials say, the Hetch Hetchy system still would be 10-20 percent short of projected need in a long drought and, without Proposition A, shortages could be in the 45 percent range.

This state of affairs exists despite the fact that San Francisco has known since 1994 that the Hetch Hetchy system was going to fall short of customers' demands, according to a state audit.

"The San Francisco Public Utilities Commission has been slow to assess and upgrade its water delivery system so it can survive catastrophes such as earthquakes, floods and fires" and meet future supply demands, auditors said in a 2000 report.

"San Francisco has not been aggressively looking at increasing the system's reliable water supplies to tide its customers through dry years," said Nicole Sandkulla of the Bay Area Water Users Association, representing Hetch Hetchy's 29 wholesale customers. "If there is a drought, we'd all suffer - there's not enough water."

Sandkulla noted that in 1998, Contra Costa County Water District completed construction of the new Los Vaqueros Reservoir in the eastern part of the county. Another major water development is being pursued by East Bay Municipal Utility District to give the agency Sacramento River water during drought years.

WHERE THE MONEY WENT Within the Hetch Hetchy system, there are two branches - one providing water and another generating hydroelectric power. The City Charter called for the water and power systems to be merged when completed. When merged, hydroelectric revenues could be declared surplus if they were not needed to maintain the water and power system. Only then could those revenues be used for other city needs.

But city officials have never declared the systems complete and merged. Thus city officials can declare the hydroelectric profits as surplus to that branch of the Hetch Hetchy system and then use the revenues for general city needs - even though the system's waterworks are in desperate need of repairs and improvements.

The city began diverting the hydropower revenues at least as early as the late 1960s. About $25 million in Hetch Hetchy funds went to fund Muni electrical maintenance work in the following decade, which spanned the mayoral administrations of Joseph Alioto, George Moscone and Dianne Feinstein.

Since 1979, the earliest year for which the San Francisco Public Utility Commission (SFPUC) officials say they have records, more than $236 million in Hetch Hetchy power revenues were transferred during Feinstein's administration ending in 1987; $95 million during Art Agnos' four-year administration ending in 1991; more than $104 million during Frank Jordan's administration ending in 1995; and more than $233 million through Willie Brown's administration.

In 1999, Brown began reducing the amount of money the city took in Hetch Hetchy power revenues, believing the city should be weaned from using those funds, Brown aides said. In the 2002 budget year, there was no transfer.

City Hall politicians who took the Hetch Hetchy money say it went to pay for police, public health and other important services and that it helped San Francisco stave off municipal budget cuts during lean economic times.

Former Mayors Agnos and Jordan said they approved the transfers only after being assured by their staffs that the moves would not have a negative effect on the Hetch Hetchy system. Agnos said the transfers in his administration declined over time because of his concern about the need to protect the system,

and Jordan said the city's budget problems forced him to continue transfers.

"I walked into office with a $300 million deficit and was having to consolidate services," Jordan said. "The public was clamoring for health care for AIDS, social services for the homeless, Muni, affordable housing, the libraries."

Jordan said he toured the Hetch Hetchy system and knew it had long-term infrastructure needs, "but it -wasn't something I could take on as an immediate priority given what I was dealing with."

Critics say the transfers were done out of expedience by elected officials.

"They milked the cow and chose to ignore an asset when they should have been putting its revenues back in the system to protect all who depend on it," said Assemblyman Papan, who sponsored legislation this year that sets specific deadlines for the repair of Hetch Hetchy.

WARNINGS IGNORED San Francisco had many warnings of trouble ahead.

In 1987, an SFPUC consultant faulted the agency for failing to perform preventative maintenance on the Hetch Hetchy waterworks, lack of familiarity with the system's condition and lack of proper planning.

In 1994, Board of Supervisors Budget Analyst Harvey Rose concluded that the SFPUC was not collecting the basic information to set priorities for what needed to be done to keep Hetch Hetch water flowing.

In 1999, experts hired to examine Hetch Hetchy vulnerabilities forecast enormous failures throughout the system in a severe earthquake.

Mayor Brown's five-member Public Utilities Commission adopted a 13-year capital improvement plan this May to put the waterworks on sound footing, at a total cost of $3.6 billion, shared between San Francisco and suburban ratepayers according to their proportional use. The $1.6 billion water bond on the November city ballot is to pay San Francisco's share of the project.

San Franciscans, who pay some of the lowest water rates in the Bay Area, would see their monthly bills climb from an average of $14.43 to $40.85 by 2015; suburban users' bills would go from an average of $32 to $71.

Typically, the suburban users now pay higher rates than San Francisco because their water systems are newer and they are still paying them off.

The commission's vote on the revamp plan came two years and four months after its staff first began formulating a construction priority list, which includes seismic strengthening and expansion to increase the system's capacity.

Jim Fabris, head of the San Francisco Association of Realtors and a member of a mayoral task force that evaluated the SFPUC's Hetch Hetchy improvement plans, says he cannot fathom how the city could have moved so slowly given so many warnings.

"What is mystifying is how many in government knew of the severity of the infrastructure's aging problems for decades" without moving expeditiously to meet repair and supply expansion concerns, Fabris said. "To not have done so borders on a crime."

Starr, the California historian, sees the city's failure to act expeditiously as indicative of a San Francisco-style arrogance - we built the Hetch Hetchy system, it's ours and it's magnificent.

"It's this idea San Franciscans have that this -isn't a real city dependent on maintenance but it's a Monte Carlo, an Oz, the Club Med of American cities, " Starr said.

Some of San Francisco's often-desultory approach to care of Hetch Hetchy has to do with politicians' lack of interest in approving infrastructure projects that will bring them little glory.

Oral Moore, Hetch Hetchy's longtime, respected general manager who retired in 1983, says most routine maintenance and repair should be paid for year-by- year because that avoids bond measure interest charges.

But, he said, politicians "have budget problems above and beyond Hetch Hetchy and they -don't like to see funds diverted to the water system from other important city needs."

Dean Coffey, who headed the Hetch Hetchy system from 1979 to 1989, said he pushed for repairs before any transfers of the system's money over to the general fund, but "there was a tremendous amount of pressure put on the commissioners and staff by City Hall, which wanted as much revenue out of Hetchy as possible."

SUBURBAN ANXIETY While Hetch Hetchy's problems have been well known for years in the relatively small circle of water and power experts, the problem has been brought into sharp focus only as Hetch Hetchy users outside San Francisco have grown increasingly critical of the system.

Those users include hundreds of high-profile businesses that produce everything from cars to computer chips. Many of these companies prize the Hetch Hetchy water for its high quality and the relatively small amount of additional treatment it requires before being used in manufacturing processes.

"Our industries are delighted to have the Hetchy water because it is so soft," said Robin Saunders, director of the city of Santa Clara's water and sewer system that serves dozens of high-tech firms. "It comes right off the Sierra, which is mostly bedrock granite. It's put in pipes and comes straight to us so it has a very low mineral content. That makes it ideal for the Silicon Valley industries that have to have ultra-pure water for their industrial processes."

In the state Capitol, lawmakers representing San Mateo, Santa Clara and Alameda county customers of the Hetch Hetchy system have won passage of legislation that creates a mechanism allowing those water users to issue bonds covering their share of the project and sets a series of deadlines for the project. All are expected to win Gov. Gray Davis' signature.

Ira Ruskin, chairman of the regional water reliability committee for the Bay Area Water Users Association that represents San Francisco's 29 wholesale, suburban customers, says the measures are greatly needed: "There is a human and economic catastrophe waiting to happen. The very health and well-being of 2.4 million Bay Area residents is at stake.

"We cannot stand by and leave it up to San Francisco to decide when or if they're going to fix the Hetch Hetchy system," said Ruskin, a city councilman from Redwood City, where Hetch Hetchy is the sole source of water. "The SFPUC's past record shows an inability or unwillingness . . . to repair the system."

The Legislature's recent involvement in the issue of Hetch Hetchy's upkeep occurs at a time when San Francisco has been losing ground as a population center and suburbs have been growing.

With the $1.6 billion bond measure on San Francisco's November ballot, the system's 29 customers outside the city will be watching the outcome intently.

Clearly, the city finds itself in a world far different than the one where its leaders grabbed the Hetch Hetchy water almost a century ago.

"San Francisco's political position is slipping and it can no longer imperially call the shots," said Rich DeLeon, a San Francisco State University professor who studies and writes about the city's history and politics. "The city has to get its act together and work out water problems on a regional, cooperative basis." .

Librarian researcher Johnny Miller contributed to this report.

-- Anonymous, September 15, 2002