FROM THE EDITOR’S DESK: Musings on Wolf Creek vs VVWD

By VERNON ROBISON

The jury trial between Wolf Creek Golf Course and Virgin Valley Water District came to an end last week. Finally!

The best adjective that can be used to describe it is “glacial.” The proceedings over the past five years truly have moved as slow as a massive glacier making its imperceptible advance down a mountain slope. Nevertheless, like a glacier, the results of this case could have a massive transformative impact on the landscape in the community and, possibly, across the state.

Firstly, I should note that this column will NOT be an attempt to relitigate the court proceedings of the past five years. Heaven forbid! I will not be second guessing which side was right and which side was wrong. There is certainly a little bit of both on each side.

Suffice it to say, though, both sides put up a valiant fight. They have now had their day in court – actually, about 30 of them if you only count the trial proceedings. A jury has spoken. Of course, there may well be another legal chapter added to this saga by way of an appeal. But for now, the jury verdict will have to be good enough.

With all of that said, here are a few of my simple observations and musings as I have studied, observed and thought about the proceedings of this important case.

Untold wide-ranging impacts
First of all, to ALL the residents of northeastern Clark County: If you think that the drama that has played out in this case has nothing to do with your life, your household or your financial well-being, you may want to think again. The case has immediate impacts that are clear to see. But there will be additional effects, more difficult to predict, that will ripple forth for years to come.

First off, VVWD ratepayers probably ought to take a screenshot of their current water bills, look at them longingly for a moment and then preserve them in a scrapbook for posterity. That’s because last week’s verdict, if it is allowed to stand, is going to raise your rates; and not by a little!

The rate impacts of this are going to be keenly felt in the households and businesses of Mesquite and Bunkerville for many years to come. The legal costs to the district alone are somewhere in the neighborhood of $1.5 million. The jury also awarded Wolf Creek more than $811,000 in damages to be paid by the district. And that doesn’t even include more than $2 million in legal costs that the golf course is likely to recover; or the opportunity cost of the district being forced to lease 155 shares of irrigation water at a deeply discounted rate, in perpetuity. With a total annual budget of only about $15 million, VVWD will have a difficult time swallowing all of these costs while doing its usual business of serving water to a growing community!

Though the district’s books have been impeccably and frugally managed in recent years, and the entity seems to be on sound financial footing, there is still no fountain of wealth bubbling up from any of the local wells that can be tapped to magically cover all of these legal losses. With the hard cap, placed last week by the jury, on what the district can get for its locally-leased irrigation water, VVWD will have no other option than to pile those expenses on to its culinary ratepayers to make up the difference.

Of course, the folks in Moapa Valley shouldn’t get too comfortable, either. They certainly shouldn’t feel secure in the idea that this case has nothing to do with them. If last week’s verdict is allowed to stand, its broader effects may eventually come home to roost at the Moapa Valley Water District, as well as any other rural water districts in the state.

When a citizen jury in an urban Las Vegas court is given the power to second-guess, overturn, cancel and drastically adjust the rate-making decisions of a duly-elected water board in Mesquite; the same can be done anywhere else in the state. If a ratepayer can sue for damages any time he/she feels a rate increase is unfair, it will not bode well for rural utility districts or their ratepayers. The legal proceedings will never end; and the only ones that win will be the attorneys.

The ‘two-market’ mystery
Wolf Creek built much of its case on the premise that, at the end of its ten-year water lease with VVWD, it had a reasonable expectation that the renewal would be at a special “local market rate.” The Wolf Creek attorney was masterful at convincing the jury that there are two markets for local irrigation water: one for use locally, and another much higher rate for use by Southern Nevada Water Authority (SNWA) in Las Vegas. The argument was successful. The jury was convinced.
But just because the jury believed it doesn’t make it true. The idea is not only counter-intuitive, but it flows against reason and common sense.

Even if a pricing anomaly like that should occur, it would only be momentary. An imbalanced market, if it is a free market, will always right itself and come into balance again. And it wouldn’t take anything like 10 years to do so.

Here is an example. If a gas station on the west side of the street is charging $12 dollars per gallon for unleaded gasoline, and another station on the east side is charging $3 per gallon for the same grade of fuel, which one would you choose? Which would EVERY rational driver choose? It certainly wouldn’t take 10 years before the west side station would be forced to either lower its prices or go out of business. That is the beauty of an efficient market.

The idea that a market price spread of more than $1,000 per share would exist in the irrigation water market for a decade is absurd. If SNWA is offering, say, $1,200 per share annually to lease irrigation water, and locals are only willing to pay $300, where is any rational shareholder going to lease his/her water? They would be crazy to take the lower price.

The VVWD claims that there were two reasons for its offering Wolf Creek such an artificially discounted rate in 2011: 1) to try and keep the water in the valley; and 2) to help the golf course get through a difficult time during the Great Recession. If that’s the case, it was awfully nice of them. But I’m guessing that the district will now think twice about ever being so generous with ratepayer assets again.

Even so, the district’s explanation makes more sense than the argument that two vastly different prices have run parallel for the same water for more than 10 years. Though the argument served Wolf Creek’s case well, it is a work of the imagination; not possible in a real-world market.

Who is the real bad guy?
It is unfortunate that this case has pitted two important, and fundamentally good, local institutions against each other. The outcome was going to be at tremendous cost to the community either way it ended.

The case has also divided the community into two diametrically opposed camps, which is unfortunate. Now, in the aftermath, it will be instinctual for each camp to look for villains on the other side and cast blame back and forth.

VVWD officials have already been painted as the rapacious and wasteful government trying to profit on small business. It has been implied that there now needs to be some regulatory oversight from the state established, to keep the district in check. That would be a huge mistake!

There aren’t any villains here. The elected members of the VVWD board and the district staff are all honorable, decent and intelligent citizen leaders. They want nothing more than to serve their community. They are not ‘in it for the money.’ There is no money for them to be in it for – especially not now.

These folks don’t get any kick backs, commissions or recompense for seeking what they feel is a justified market rate for VVWD water. They are just looking to provide an essential service to the community at the lowest possible rate. That independent, locally-based system has worked generally well for our valleys since their earliest settlement. Free elections have always been the best regulator.

On the other hand, Wolf Creek and its owners have been an essential driver of economic benefits to the city for more than two decades. This wonderland of a course, has brought in visitors and tourism from all over the world; millions in revenues to the city. It is a well-run and honorable business; a crown jewel for Mesquite.

In addition, Wolf Creek has been a generous benefactor to important community causes. The Kids for Sports foundation, founded and funded by the golf course, does great work helping local kids in both Virgin Valley and Moapa Valley to be able to afford to play sports. It is a great organization! There are no villains here, either.

So who is to blame? Who is the bad guy? Maybe there isn’t one. After all, no one in the community really wins when local culinary water rates skyrocket to pay for millions in legal fees. Not even Wolf Creek!

There is no reason for the community to tear itself apart looking for villains. If there is an antagonist in the matter between Wolf Creek and VVWD, it isn’t a local one.

The real winners of this case are the residents in Las Vegas valley. They are the ones smiling all the way to the water hole.

In 2007 when SNWA pushed a seven-state agreement to change the law of the Colorado River, the retention dam on more than 100 years of irrigation water serving our local communities was suddenly breached. Any irrigation shares that SNWA could get its hands on could now flood down the rivers into the lake to slake the endless thirst of urban growth in Las Vegas. And with unlimited resources, SNWA could get their hands on quite a lot. If that isn’t rapacious government at work, I don’t know what is.

The severe disruption in the market for local irrigation shares has been caused by SNWA, pure and simple. By all rights, this lawsuit ought to have been directed against the Authority for setting the table perfectly to serve this inevitable conclusion. Sadly, VVWD, with its more limited resources, was a much softer legal target.

But now that our communities have been ravaged, SNWA really ought to step up and play a role in cleaning up the mess it has created here. The ratepayers of VVWD shouldn’t be left alone to pay the cleaning bill. Every penny of those legal fees and damages, in effect, are just another example of our communities being forced to pay the bill for growth in Las Vegas. And there are far too many examples of that already.