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Two weeks ago the City Council’s Governance Committee interviewed seven finalists for three open San Antonio Water System Board of Trustee seats. The committee – which comprises Mayor Ron Nirenberg and Councilmembers Adriana Rocha Garcia (D4), Shirley Gonzales (D5), Ana Sandoval (D6), and John Courage (D9) – confirmed by consensus Nirenberg’s selection for board chair Jelynne LeBlanc Burley, CEO of the Center for Health Care Services and a former City and CPS Energy official; Leticia Ozuna, a systems engineer and former District 3 councilwoman; and Robert Potts, CEO of the Dixon Water Foundation and former general manager of the Edwards Aquifer Authority.
The candidates were then presented to the full Council for confirmation. At that meeting, Burley and Ozuna were confirmed. However, the vote on Potts was delayed as Councilman Manny Pelaez (D8) put forward a motion to select in his stead Fernando Reyes, chairman and owner of Reyes Automotive Group (a Tier 1 supplier to the Toyota Plant). On Thursday, City Council will decide who will fill this third and last vacant seat on the SAWS Board.
Noting that while SAWS is a public utility, it still is a business at heart, the councilman argued that with the departure of Heriberto “Berto” Guerra Jr. – the current board chair and another Tier 1 supplier to Toyota – from the board means that the board now lacks members with requisite business experience and who can provide representation for SAWS largest customers. These concerns by Pelaez, however, are unfounded.
At least three of the six current board members have very significant, professional knowledge and experience in these areas. Burley, in addition to her extensive public sector and utility management and administration experience, is the president and CEO of The Center for Health Care Services, an entity whose operating budget is about $100 million and manages over 1,100 people. She is also a director of NuStar GP Holdings, LLC, a New York Stock Exchange-listed, multinational corporation. David McGee is president and CEO of Amegy Bank in San Antonio, with 34 years of experience in commercial and corporate banking. Prior to his founding of Amegy, he served as president of the San Antonio Region of JPMorgan Chase for over five years. Eduardo Parra is the CEO of his own company (Parra & Co), which offers both engineering and business management consulting services in the U.S. and abroad.
Not only are Pelaez’s concerns unfounded, but the Harvard School of Business, which has looked at board composition and performance across a wide range of companies, found that financial literacy (or lack thereof) of board members was not a decisive factor in board performance. Instead, the more current understanding holds that the best functioning boards are those whose members represent diverse experiences and opinions, and that can function as a team – with respect, trust, and candor – within a culture of open discussion and dissent. A recent poll of U.S. CEOs on what expertise they seek in a new board member found that industry knowledge and strategy were the top two most prized areas of expertise.
Potts, with his background in Texas’ water sector, and as the general manager of the Edwards Aquifer Authority, would be more valuable to the board. He brings very significant policy, institutional, and technical knowledge and experience; as well as very important community outreach experience. His inclusion on the board would add significant depth and breadth in addressing key issues facing the board, including affordability, equity, long-term competitiveness and quality of service, financial sustainability, transparent and accountable governance, and the sustainable management and wise use of the water resources upon which we all depend.
Pelaez’s second concern about having appropriate stakeholder representation on the board should certainly be a priority. However, Reyes as a proxy for Toyota raises several additional concerns. The success of his family’s business relies upon their ongoing relationship with Toyota, a fact that inevitably would raise a question of a risk of conflict of interest. Also, while Toyota is a major customer for SAWS’ heavily subsidized recycled water and its sixth-largest customer for wastewater services, it is not even among the top ten of SAWS’ commercial and industrial customers for water and wastewater services. SAWS’ actual largest customer is the residential class of users, contributing almost 10 times as much water and wastewater revenue than the top five commercial and industrial users. As such, concern for representation of the largest customers should better translate into concern for residential users.
Concurrent with the significant increases in ratepayers’ water bills over the last years, there has been a growing distrust of SAWS governance. One key challenge for the SAWS board in the next few years is to restore trust. This is especially important as a new rate structure is being put in place in 2021, and the full costs of Vista Ridge water and compliance with the EPA consent decree imply additional rate increases over the next five years. Coupled with the COVID-19 economic downturn, which is impacting SAWS’ revenues as it impacts its ratepayers, it is not a stretch to foresee the need to walk a careful line in avoiding a strong ratepayer backlash.
SAWS current rate structure, introduced five years ago, has proven to be regressive and shifted significant costs from high, discretional water users to economically disadvantaged households and conservative water users throughout the city. Unless the new board has the capacity and ability to rectify this situation with a new rate structure that prioritizes affordability for essential water use, equity for economically struggling households and conservative water users, and fairness through clear “user pays” principles, that backlash seems inevitable.
The outgoing board chair has been a lightning rod for distrust. Rejecting the Governance Committee’s recommendations in favor of seating Reyes as a substitute for Guerra, would only reinforce that narrative of distrust. However unfair that narrative may be, that Reyes and Guerra are close business associates (in the Tier 1 Toyota suppliers dubbed the “Five Compadres”), may create the unfortunate impression that the principal reason for Reyes nomination is the maintenance of the status quo that led up to the growing distrust.
There are other unresolved issues for San Antonio in which the SAWS Board will likely be playing a role and for which Potts’ background and experience make him more qualified for the open board seat. The need to develop an adequate plan for the long-term continuation of the Edwards Aquifer Protection Program (EAPP) should the voters shift the one-eighth-cent sales tax to other uses is one major issue that lies ahead. While I have no doubts that Reyes is an excellent businessman, a fact well-established by his notable successes in that arena, it is simply not the right time for a status quo choice for SAWS, and by extension, San Antonio.