Analysts and business leaders say that San Diego County's high cost of living paradoxically makes it easier for businesses to endorse a recently negotiated water transfer deal to ensure a reliable water supply -- at the cost of significantly higher water prices.

While costs always matter to businesses, San Diego County's economy is not built on a commodity model of low-cost labor and land, such as the Inland Empire's economy. It is built on an educated workforce, strong research system, coastal location and matchless weather. Local companies value access to these resources, so they accept a higher cost of doing business. And one thing they can't do without is water.

So for most local businesses, the promise of greater reliability in water supply outweighs the extra money they'll have to pay. The one exception is agriculture, the most price-sensitive industry in San Diego County. Farmers already willingly risk interruption of their water supply to get a discounted rate. Rising water bills would make their lot more precarious than it already is.

Areas with lower costs of water, including Riverside County, could gain at San Diego County's expense, said Dale Mason, a director on the Vallecitos Water District, covering San Marcos and parts of Escondido and Carlsbad. Mason is also a director on the San Diego County Water Authority, which imports water to the county.

And residential users be advised: their continued water conservation is necessary for the deal to work. The county's desert climate hasn't changed.

"We buy our way out of a drought every year," Mason said.

The cost of reliability

The water transfer will bring in up to 65 billion gallons of water annually from Imperial Valley farmers, who get the water from the Colorado River. The price to residential and business customers will increase by an as-yet undetermined amount over the contract's 45- to 75-year lifetime. The amount imported will eventually amount to about 25 percent to 30 percent of the water used in the county, Mason said.

The water will be costlier -- exactly how much is not yet certain -- than that now supplied by Metropolitan Water District of Southern California, the region's water wholesaler. Metropolitan sells to the Water Authority, which then resells to local water agencies that directly supply homes, farmers and businesses.

But the new supply will be more reliable than that from Metropolitan. The water from the Imperial Irrigation District is not only an additional source of water for San Diego County, the district has a higher legal claim to Colorado River water than does Metropolitan. So in the event of a water shortage, Metropolitan will start losing its allocation before Imperial does.

It's worth the extra cost, said Erik Bruvold, vice president and director of infrastructure issues for the San Diego Regional Economic Development Corp. Reliability is more important than price.

"The kinds of companies that are going to be the high-wage and long-term investors in San Diego are typically going to put more weight on the reliability side of the equation," Bruvold said. "That's not to say that our rates can get horribly out of whack, but the key thing for those businesses is that they're not going to experience severe reductions and mandatory rationing in a way that's going to interrupt their operations."

Worth the price for some

Biotechnology and medical device companies, large employers in the county, are typical of those high-wage, high-value enterprises that put water reliability before cost. Factors such as a trained workforce and closeness to educational and research institutions brought them to San Diego County in the first place. These advantages outweigh the high cost of water.

However, there's a difference between paying a high cost for something and not being able to get it at all. That was the threat to biotech companies at the start of the 1990s. To save water during a drought, the city of San Diego considered periodic daily shutoffs of water to businesses.

Biotech veteran David Hale said he knew that approach would be disastrous. Hale, now chief executive of Carlsbad-based CancerVax, said he called together other biotech officials to head it off.

"Even though we're not huge users of water, we use water for our air conditioning, all the things that support our laboratory functions, and a lot of our experiments require water as well as our manufacturing," Hale said.

Hale and the other biotech officials met with the San Diego City Council and described the importance of having water, and the importance of their research for human health.

The region's biotech industry was far smaller than it is today, Hale said, and the companies were relatively unknown. Council members at the meeting said they were impressed with biotech's potential, and soon authorized programs to meet the biotech industry's concerns.

Biotech gains clout

Once organized, the biotech companies kept a high community profile by organizing their own trade group, now known as Biocom San Diego.

The need for water remains just as strong today for the county's biotech companies. These now represent the industry's third-largest cluster in the nation, behind the San Francisco Bay Area and the Boston area.

Mary Cassoni, a spokeswoman for Invitrogen, a Carlsbad-based biotech company that employs about 1,000 locally, said water costs are a relatively small part of the company's total expenses. That means even a significant increase could be absorbed.

"We can manage costs. We can't manage not having it at all," Cassoni said.

Agriculture is the opposite of biotech. It is very price-sensitive, because most crops are commodities, while most biotech products are protected by patents.

If the deal's expense is passed on to local farmers, they will be put at a cost disadvantage with Riverside County farmers, especially those near Temecula, Mason said.

Farmers in both counties grow high-value crops that can justify the price of their water. In San Diego County, these crops include ornamental plants, cut flowers and especially avocados, which are also farmed in Riverside County around Temecula.

Temecula's advantage

However, the Water Authority charges more for its water than does the supplier to Temecula area farmers, the Eastern Municipal Water District, and the difference will grow with the new and more expensive water, Mason said.

San Diego County farmers are helped somewhat now by lower "interruptible" rates offered by Metropolitan and the Water Authority that put farmers first to be cut in event of a shortage.

"I think the intent right now is to keep the rates the same, " he said, meaning the increase will be paid solely by municipal and industrial customers. "We haven't made any solid policy decisions yet."

The interruptible rate carries little risk of actually losing water, said Gregory M. Quist, a director on the Rincon del Diablo Municipal Water District in Escondido, and a board member on the Water Authority.

"It's a bit of a bogeyman," Quist said.

Regardless of subsidies, agriculture in San Diego County remains vulnerable to natural and man-made events, such as diseases or an abundance of crops that send prices plummeting.

"In the not too-distant past we've had avocados at 10 cents a pound, and you can't water the grove for that" Mason said.

The outlook is much better this year -- avocado prices soared this summer to as high as $1.70 per pound, a record price.

North County officials wary

North County's water districts will probably continue their long-standing skepticism of the Water Authority, Quist said. The cost of water is a big issue, because many of the North County districts object to paying for the use of all the Water Authority's aqueducts and other infrastructure when they use only the northernmost portion of it.

Quist said he voted for the deal reluctantly, because the Water Authority could be on the hook for open-ended price increases, which Metropolitan will levy as reimbursement for transferring the water to San Diego County.

The cost of the water in the beginning will amount to about $700 an acre-foot, he said, getting close to the cost of desalination. Moreover, technological improvements will make desalination less expensive.

However, other supporters of the deal say the cost of the deal is front-loaded, meaning that most of the cost is paid for in the early years. In later years, the water will get progressively less expensive.

Nora Jaeschke, a director on the Water Authority for the city of San Diego, calls the water transfer "a fabulously great landmark deal."

Jaeschke was speaking not only about the county as a whole, but for her field of expertise, property management. As founder and president of the property services company N.N. Jaeschke Inc., she works closely with homeowners' associations, home builders, landscapers and apartment owners.

"With our population growing over the next 20 years, it is essential that we have an adequate water supply, not only for the people living here, but for the companies moving or expanding within the area" Jaeschke said.

Pulling in the welcome mat

The price increase does hurt to some extent, she said, because California is already a high-cost place of doing business.

"We all need to, as a region and as a state, look at the cost of doing business within our region and make every effort to control the costs so our businesses can remain competitive, and that includes water costs," Jaeschke said.

San Diego and California in general have been periodically raided by other states anxious to pluck away businesses to lower-cost areas. The state has also suffered at times from a reputation as anti-business.

Like the other officials, Kelly Cunningham, the director of economic research for the San Diego Regional Chamber of Commerce, said the deal will be helpful in retaining biotech and high-tech companies.

Quist said the extra cost might be relatively small for each user, but add up to a substantial sum countywide.

"Even though the price of water may go up a fraction, when you multiply it over the usage of millions of people, it ends up being a lot of money per year," Quist said. "My argument about rising costs has always been that's money that could be used for other things, like building new businesses or investing in other things that the businesses should be doing. So you're really taking money out of the economy and putting it into the water sector."

For consumers and business owners alike, those low-flush toilets, native plants and other tools of conservation won't go away, said Mason of the Vallecitos Water District and the Water Authority.

Even the water deal can't totally overcome the periodic droughts that affect the West, he said.

"All of the West has been in a drought for a number of years. Water levels at Lake Mead and Lake Powell, which is about 90 percent of all the water stored on the Colorado River, are down tremendously.

"While this (deal) gives us access to surplus Colorado River water, right now there isn't any excess Colorado River water. Conservation is still going to be a part of our ongoing plans, and a slice of the pie of our total water picture is what we expect to get out of conservation."

Contact staff writer Bradley J. Fikes at bfikes@nctimes.com or (760)-739-6641.