Water peddler-in-chief is anything but wet behind the ears

In this patch of God’s green earth, the most controversial commodity is that which makes it green: water.

And in local water bureaucracy, the most polarizing figure might be Steve Knell, general manager of the Oakdale Irrigation District.

His counterparts in Stanislaus County’s two other large water agencies make more money but don’t seem to get near the attention. (Greg Salyer and Casey Hashimoto, of the Modesto and Turlock irrigation districts, respectively, earned $312,706 and $316,647 in salary and benefits in 2015, compared with Knell’s $293,101.)

But while MID and TID mostly go quietly about their business, a certain buzz hangs over OID.

Oakdale is the only agency constantly in search of someone to buy the extra river water that its fortunate farmers can’t use. Among others elsewhere that do shop their water, OID is the only one relying on a transfer strategy that doesn’t require environmental review. And the dysfunction among its board of directors is well-documented.

No other water agency failed to resize its voting districts, as required by law, after the 2010 U.S. Census. When exposed in June 2015, the board offered no explanation and hired a firm for the task, but has produced no proposal in the 18 months since.

No Stanislaus County leader in recent memory has called another government unit a “rogue agency,” as Supervisor Jim DeMartini said of OID in 2015. No other agency’s elected leaders have battled each other in court lately, as OID’s did last year. No other agency is roiled by a recall campaign, as OID is now.

“OID has been a little slower to move to the new mentality of ‘united we stand, divided we fall,’ ” said County Supervisor Terry Withrow, who leads a regional effort addressing groundwater concerns. “Of the three (big water agencies), OID has had the hardest time changing direction.”

Who’s in charge?

At the center of OID sits Knell, its appointed commander for 15 years. While other agencies’ managers take marching orders from their elected leaders, Knell’s detractors say it works the opposite at OID.

“Unfortunately, Knell dictates to the board what he wants them to do, when it should be the other way around,” said Ken Krause, an Oakdale cattleman and regular board meeting attendee. “It’s entirely upside down.”

Knell, 65, is intelligent and knowledgeable, especially with California’s complex water relationships and policies. He has a sense of humor, and is bold and independent. He can be charming, has a folksy approach, and his programs are innovative and successful.

His adult daughter, Katie Knell, said in an email: “My dad is at home what he is at work: dedicated, committed, generous, fair, understanding, and most of all, caring.”

Knell also hates scrutiny, plays favorites and holds a grudge. He bristles when challenged, and critics say he’s arrogant and secretive. He initially refused to participate in this story, suggesting a delay; a week later, having learned that The Modesto Bee had contacted his board members, several farmers and many professional associates past and present, Knell kept the door closed on an interview request but emailed a four-page response to suggested topics.

“Life’s good in Oakdale,” Knell said at the end. “Go Mustangs.”

Colorful backdrop

Knell was born into a family farming 200 acres in Washington state and moved to the Bay Area when he was young. After high school in San Jose and a community college degree, he spent two years roaming Europe, North Africa, the Middle East and Asia. His adventures included working on a dairy farm in Spain and in greenhouses on a Greek island.

Those farming experiences led back to college, an agricultural engineering degree from Cal Poly San Luis Obispo in 1979, and an eight-year job with what was the U.S. Department of Agriculture’s soil conservation service. Knell then joined the Imperial Irrigation District at California’s south end, where he would spend 15 years mostly managing engineering and drainage units.

Knell’s detractors in Oakdale are aware of his involvement in Imperial’s water sale to San Diego, the nation’s largest ag-to-urban transfer that continues today and will for many decades. He was “special project coordinator” for that job, overseeing environmental studies, but “never participated in the development of any fallowing programs, as some local rumors seem to insist,” his email said.

But the San Diego transfer led to fallowing programs hated by many Imperial farmers. “To some, it’s the f-word,” said Tina Shields, the Imperial district’s water manager. “The worst thing to do as a farmer is to not farm.”

Although Imperial gets billions of dollars from the San Diego sale, it’s partly blamed for an environmental disaster in the making. Water promised to San Diego and other buyers means less for the nearby Salton Sea, where the receding shoreline exposes toxic dust, creating an air pollution time bomb.

But people who worked with and for Knell at the time said recently that he can’t take much credit or blame for the San Diego deal – there were much larger forces at play – and none at all for Imperial’s fallowing programs, which came after Knell left.

Desert heat became too much, Knell said, for his wife, Kim, who has multiple sclerosis. Consultant buddies warned him, he said, against interviewing with Oakdale, which in late 2001 was nearly broke and rife with political turmoil – the board lost a member to recall just before he arrived, and another a few weeks later. But Knell’s sister lives in Oakdale, and their brother in Ripon, and “I liked challenges,” Knell said.

Like now, the OID board then was deeply divided, and Knell was hired on a 3-2 split vote. The board majority “wanted to find a manager to do just what he’s doing now – to peddle water,” said Grover Francis, who voted with the minority that day and lost a re-election bid later that night.

“My deal was, you don’t bring up somebody from Southern California who wants our water. You don’t want a manager like that,” Francis said.

Fixing the leaks

Deeper than the political mess was OID’s financial mire, with no money to upgrade aging pipelines, canals and more. The district needed $3.5 million a year in replacement costs and another $3.5 million for upgrades, and Knell had the answer.

“When you can’t afford to pay for the upkeep, maintenance and mortgage on your house, you might want to consider taking in renters to help subsidize those expenses,” he said. It’s an analogy to marketing the district’s most valuable asset: water.

When water leaders in Modesto proposed selling water to San Francisco in 2011 and 2012 – with a similar goal of raising money for needed upgrades – the resulting hue and cry suffocated the idea. Knell’s predecessor met no such resistance when OID began shopping water in 1998, and Knell brought a business model building on sales with a plan for rebuilding the system.

By any measure, the strategy has been wildly successful, although some credit also goes to a renegotiated deal for electricity wholesales.

After Knell arrived, the OID board agreed to beef up its designated reserves, or cash set aside for specific future uses such as boring a new tunnel through a mountain. In the past decade, that account has jumped from $7.6 million to $44.6 million – a 485 percent increase. OID will pay cash for a $20 million tunnel this year, instead of borrowing money as most agencies have to do.

In the 10 years since adopting Knell’s business plan, OID’s annual average take from selling water has exceeded $4.8 million.

“It’s working, and it’s paying costs that OID landowners don’t have to,” Knell said.

With that track record, what’s not to like?

Going it alone

For starters, OID doesn’t always get along with others.

While the county works to prevent pumping and exporting water, OID continues to shop its river water and insists that the groundwater it pumps is not used to replace what’s sold. OID can’t sell to certain buyers because of sour relations with neighboring MID, whose canals would be used for water passing through. When county leaders called all hands on deck to develop a regional response to the state’s demand for new groundwater policy, OID was last to the table.

“I wish (OID) could improve diplomatically,” Withrow said. “They’ve had such a PR nightmare out there, it’s gotten to the point where, when somebody pokes a stick at you – justified or not – they just clam up and don’t want to talk because they think everyone’s their enemy.

“I don’t want to beat up on them,” Withrow continued. “They’ve just had a harder time accepting the new world order, that we’ve got to fight jointly against the people coming after us. There are good, sharp people out there; they’re just having a hard time with this group hug we’re working on.”

John Davids, an MID assistant general manager, worked for Knell for a decade before joining MID. “I can’t really say anything negative about my time (at OID),” Davids said. Asked if his perspective changed after the job change, Davids said, “Business models differ from utility to utility.”

Others wanted no part in a story on Knell, including MID board member Larry Byrd, the Stanislaus Farm Bureau’s Tom Orvis and some current and former OID employees. Former contracts manager Gary Jernigan declined to comment because OID had him sign a promise not to bad-mouth the district when he retired, he said.

“(Knell) loves guys kissing up to him, but if you challenge him, he takes it personal,” said Brent Noon, who serves on the Knights Ferry Community Services District.

Knell, whose contract requires that he handle media inquiries, picks and chooses which reporters he’ll talk to. He often does not reply to calls and emails. His four-page response for this report ignored a suggested discussion on press relations.

“He is a real good irrigation engineer. He’s very bright, very innovative,” said Jeff Shields, Knell’s former counterpart at the South San Joaquin Irrigation District before Shields retired in late 2015. “The problem (OID) has is they don’t communicate well.”

Playing ‘hide the ball’

Stonewalling reporters or customers seeking information breeds distrust, continued Shields. He invited the press and customers when his board publicly voted in Manteca, his district’s headquarters, to join OID in a fall 2015 water sale; the OID board held no such vote in Oakdale.

“Our growers needed to know, it’s just that simple,” Shields said. “If they didn’t like it, they should be able to show up and tell us. You can’t do water sales and not tell people. It really boils down to public trust. If the public doesn’t trust you, you’re going to have difficulty even with great programs.”

At the time, a federal water official exchanged emails with Shields and Knell, later obtained by The Bee, regarding a news release to be issued about the water sale. Knell wrote, “My recommendation is to not issue a press release. OID has never done so previously on any water sale/release/etc. We have made our public disclosures as required. I see no need to draw further attention to this action.”

Knell is openly uneasy with scrutiny in public communications as well. In a September newsletter to customers, he complained about the “microscopic analysis” required in borrowing money, saying the process “has become equivalent to being strip-searched on the pitcher’s mound during the seventh inning of a Giants-Dodgers game. There is no stone left unturned by the rating agency in their quest to know EVERYTHING about one’s business operation.”

Perhaps it’s not surprising that someone uncomfortable with attention would not get along well with board members who promised more transparency in their 2015 campaigns: Linda Santos and Gail Altieri.

A few months after the election, the board majority – Steve Webb, Gary Osmundson and Herman Doornenbal – sued to keep Santos and Altieri out of some closed-door huddles on a separate fallowing lawsuit facing the district. The men blamed Santos and Altieri for helping turn the legal tide against OID. That never would have happened, the women said in court papers, if Knell and attorney Tim O’Laughlin hadn’t hidden secrets from them, from farmers and from the court.

“Management didn’t give complete and accurate information for the water sale in the spring,” Santos said in a recent interview. She believes that OID’s method of selling water by abandoning it for buyers to claim downriver is a tricky “way to get around state regulatory requirements. And I think by so doing, we jeopardize our long-term water rights. If management fails to tell us that the mechanism is to abandon it, then we’re making decisions without full information.”

A judge sided with Santos and Altieri, letting them back in closed meetings, although the board majority has continued the lawsuit. The separate fallowing case came to trial on Wednesday and a decision is expected in coming weeks.

‘Divisiveness and confusion’

Meanwhile, Santos faces a recall vote April 25. Her supporters find it hard to believe she is blamed for the unraveling of the fallowing proposal. Knell’s lack of preparation gave state and federal regulators no time to process a standard water transfer, they note, and Knell waited three months to publicly explain the failure, giving fallowing farmers no time to shift gears.

“We get in trouble for telling the truth and speaking our minds,” Altieri said. “I find it troubling that Mr. Knell has not made it one of his priorities to bring more civility and respectful behavior to the board. In my opinion, he brings more divisiveness and confusion.”

The board majority stands firm behind Knell.

“I don’t think we could ask for a better manager,” Webb said.

Doornenbal noted Knell’s public fight, along with other water experts, to protect the area’s water rights. State officials want to reduce the amounts available for farms, threatening the Valley’s economy in favor of helping fish and sending more water to users down south.

“We have plenty of water every year at some of the cheapest rates,” Osmundson said, crediting Knell’s vision. “That’s what everyone wants, and it’s what we’re getting. It’s pretty simple.”

John Brichetto and his mother, Elizabeth, own more OID-irrigated land than any other family. “The district was dilapidated when (Knell) showed up” in 2002, he said. “We were broke. We used to be kind of mocked, one of the poorest districts in the area. Now I see the results. He’s done everything to make great improvements.”

Kathy Cook, OID’s chief financial officer, said that before Knell arrived, “we were barely doing any infrastructure replacement. Putting out fires is all we did. I’ve seen this district crawl out of a hole. To see it moving forward and modernizing is wonderful.”

Staying the course

Cook and two others in OID management, Eric Thorburn and Jason Jones, sent an email praising Knell’s knowledge, example and leadership. “It’s highly probable that anyone who doubts his capabilities, motives, integrity or work ethic doesn’t know him, his family and/or the water industry,” the note reads. “The day that Mr. Knell steps out OID’s door, regardless of the circumstances, will be a sad day.”

Several supporters last year formed the Oakdale Water Network “to get accurate information out to the community” with a website and by putting up large, colorful signs praising OID for “abundant water, lowest cost, best management.”

“(Knell) is not right 100 percent of the time, but if you listen to the people with loud mouths, you’d think he couldn’t get his own pants on,” said Travis Dovala, the network’s president. “I disagree with him on some things, but I agree with him on a lot more, and I have a lot of respect for the man. He has a much better picture of the 30-to-40-year game for this district than anybody else.”

This story was originally published January 21, 2017 at 5:07 AM with the headline "Water peddler-in-chief is anything but wet behind the ears."