The cost of clean water: Inflation, supply-chain snarls force San Diego to pay $80M more for treatment chemicals

San Diego gave emergency authorization this week to pay an extra $80 million to chemical suppliers that say they need to sharply raise prices because of pandemic-related supply-chain issues, higher fuel costs and rising costs for raw materials due to inflation.

City officials say the chemicals are essential for treating sewage and keeping drinking water clean and healthy.

The City Council amended six contracts with four chemical suppliers Tuesday when the suppliers said they couldn’t continue to provide the chemicals without the price hikes, which nearly doubled the combined value of the contracts from $122.7 million to $203 million.

If prices for the chemicals stay at the elevated rates or rise further, the city’s higher costs may be passed on to its roughly 275,000 water and sewer ratepayers.

The suppliers have declined requests to lock in current prices long term, said Lisa Celaya, assistant director of the city’s Public Utilities Department.

The contracts, which all run for either five or six years, are scheduled to expire in the next two years. New contracts for the chemicals could include even larger increases.

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Prices for some of the chemicals have more than doubled. For example, the city’s costs for sodium hypochlorite are rising from 64 cents per gallon to $1.64 per gallon under the new contract. Sodium hypochlorite helps disinfect sewage.

The city’s cost for liquid chlorine rose from $440 per ton to $610 per ton in February and will surge to $1,450 per ton in the new contract. The city uses 5,800 pounds of liquid chlorine each day to disinfect water at the Alvarado and Miramar treatment plants.

Celaya said the city must buy the chemicals or risk jeopardizing public health, damaging the environment and incurring potential state and federal fines.

Charles Modica, the city’s independent budget analyst, agreed that the chemicals are essential.

“We cannot run our water or wastewater treatment plants without them,” he said.

But Modica said it was troubling that Public Utilities staff announced the need for emergency contract amendments just four days before the council was scheduled to vote on them Monday.

He said that is too little time for his office and council members to thoroughly review such a large expenditure with such complex causes. While Council President Sean Elo-Rivera was alerted Thursday, the rest of the council was unaware until Friday.

“This was quite a big item to be surprised with on a Friday before a Monday vote,” Councilmember Marni von Wilpert said.

Because of the rush, council members voted Monday to delay a vote until their Tuesday meeting, where they unanimously approved the amended contracts.

Deputy City Attorney Christina Rae said the city is trying to force the chemical suppliers to provide evidence that they are simply passing on to the city price increases from their suppliers.

“The language we are working on with the vendors — that we’re negotiating with them — would require proof from their suppliers of the actual cost they’re passing on,” Rae said. “The language that we’re trying to negotiate would actually hold them more true to the cost.”

Three of the contracts are with JCI Jones Chemical. A contract for liquid chlorine is growing from $3.2 million to $8.9 million, a contract for sodium hypochlorite is increasing from $13.3 million to $38.3 million, and a contract for caustic soda is rising from $9.4 million to $16.2 million.

Caustic soda fights corrosion throughout the city’s water distribution system.

A contract with Hill Brothers for ammonium hydroxide, which prolongs the effectiveness of chlorine as a disinfectant when it gets added to drinking water, is increasing from $4.5 million to $8.8 million.

A contract with Kemira for ferric chloride, which coagulates particulates for sedimentation at water and sewer facilities, is increasing from $24.3 million to $37.8 million.

A contract with U.S. Peroxide for hydrogen peroxide and ferrous chloride, which are used for odor control at sewer facilities, is increasing from $68 million to $93 million.