SAN DIEGO -- A lingering dispute over water rates has apparently become the latest threat to San Diego County's already-confusing dreams of turning ocean water into drinking water.

San Diego County Water Authority board members have said the latest threat to a seawater desalination plant proposed for Carlsbad was delivered in a letter written earlier this summer by the leader of Southern California's main water supplier, the Metropolitan Water District.

Metropolitan General Manager Ron Gastelum proposed a new policy that would ban the Water Authority from accepting a critical subsidy to build the desalination plant -- unless the Water Authority promises not to challenge Metropolitan's rate system in court or the state Legislature.

Gastelum said his proposed policy, which has not been acted upon by Metropolitan, was needed to protect "the integrity" of the giant water wholesaler's rate system and revenues.

But Water Authority leaders say Gastelum is holding the desalination subsidy hostage, and trying to unfairly force the Water Authority to give up its legal right to seek resolution -- outside of Metropolitan's board room -- to its unhappiness over the rate system.

They also hinted that losing the subsidy could kill the increasingly-confusing saga of the desalination plant.

Desperate

Water Authority board members desperately want the Metropolitan subsidy.

They say the proposed Carlsbad plant, which they are still pursuing even though they broke off talks with the private company that wants to build it, is extremely important to San Diego County's future water supply. Water Authority engineers expect seawater desalination to make up between 6 percent and 15 percent of the county's water supply by 2020.

Water Authority leaders have also said for several years that the Carlsbad plant may be too expensive to operate without the Metropolitan subsidy, which would cut the cost of the water the plant produces by $250 per acre-foot.

An acre-foot is enough water to sustain two households for a single year, and the subsidy would cut the plant's water-cost from roughly $800 to $550 per acre-foot, close enough to the $418 to $499 per acre-foot cost of imported water to make the plant feasible.

But as desperately as Water Authority leaders want the Metropolitan subsidy to build the Carlsbad plant, the agency also wants to keep its right to challenge Metropolitan's rate structure in the courts.

That's because a successful challenge could shave millions of dollars off the cost of the deal the Water Authority completed last year to buy billions of gallons of water from Imperial Valley farmers.

That water transfer deal will eventually send up to 65 billion gallons of water a year from Imperial Valley to San Diego County residents for 45 to 75 years.

The only way the Water Authority can ship the Imperial Valley water to San Diego County is through Metropolitan's 770-mile system of pipelines.

Rate structure dispute

The two agencies have bickered for years over how much Metropolitan should be allowed to charge the Water Authority to "rent" its pipelines. Metropolitan has held out for higher rates and the Water Authority has argued for cheaper rates.

The two groups reached a settlement over the rental cost last year when the Imperial water transfer was completed, a rate of $253 per acre-foot of water.

Water Authority leaders, in that agreement, promised not to challenge Metropolitan's rates in court or the state Legislature -- but only for five years.

In his letter proposing the policy change, Gastelum said the Water Authority should not be allowed to ask the courts or state lawmakers to intervene in their dispute with Metropolitan over the rate structure. The only place for that discussion, he said, was in Metropolitan's board room -- a place where the Water Authority has historically had little support.

Water officials protest

At their meeting earlier this month, Water Authority board members blasted Gastelum's proposal.

"I'm speechless at the concept of doing this," said Greg Quist, a Water Authority board member from Escondido's Rincon del Diablo Municipal Water District.

Water Authority leaders said it was wrong for any agency to force its members to give up their legal right to seek justice in the courts or Legislature in return for financial incentives and subsidies.

Gastelum's characterization of Metropolitan's incentives as "grants" -- and his statement that Metropolitan "is not obligated to provide grants -- irked Water Authority General Manager Maureen Stapleton.

She said those incentives are funded by a surcharge tacked onto what it charges its member agencies to buy water.

"This is not a charity where Met receives revenue separate and apart from its member agencies and then out of the goodness of its heart hands us some," Stapleton said. "This is our revenue that we send up to them in the form of water stewardship charges."

Metropolitan criticizes Water Authority

Metropolitan spokesman Adan Ortega said Gastelum's letter was simply meant to "get a policy discussion going" and "was not a line in the sand."

But he also sharply criticized the Water Authority, noting the confusing status of the Carlsbad desalination project.

Ortega said the Water Authority had a habit of looking for "boogeymen" at Metropolitan instead of working to fix the projects it had in its own back yard.

A number of Water Authority board members, meanwhile, said the agency needed to look for support from other Metropolitan member agencies to kill Gastelum's proposal.

Others said they thought Gastelum's letter signified that Metropolitan had no intention of giving the Water Authority the desalination subsidy.

Keith Lewinger, the Water Authority board's representative from the Fallbrook Public Utility District, said that could call the Carlsbad project into question.

"Is this agency willing to go forward with desalination with no Met subsidy?" he asked last week. "We need to hold a meeting soon to talk about that."

Contact staff writer Gig Conaughton at (760) 739-6696 or gconaughton@nctimes.com.