We begin our discussion of the July 17 public meeting on the final chapters of the Bay Delta Conservation Plan (BDCP) administrative draft by noting that Deputy Resources Secretary Jerry Meral said the design of the project is only 10% complete.
Bear that in mind as you read what follows. The subject of the meeting was costs, financing, and take alternatives for a project for which THE FINAL DESIGN IS 90 PERCENT UNKNOWN.
And the design is for a project that has never been done anywhere before.
Over 200 people attended the July 17 meeting, about 50 of them representing the Save the California Delta Alliance and waving red and green “Stop the Tunnels” signs. This room at the DoubleTree Hotel was a big improvement over the venue for previous meetings at the Pagoda Building in downtown Sacramento, with its giant pillars in the middle of the room. Clearly, BDCP recognizes that interest in its activities has outgrown the Pagoda Building.
Don’t look for a statewide cost-benefit analysis here, or even an analysis of the costs and benefits of BDCP for the Delta. Consultants will present statewide economic impacts at a finance working group meeting on August 8. That’s when we should expect to hear about what Melinda Terry of the North Delta Water Agency said are more than 750 identified local impacts, including unavoidable degradation of groundwater quality; depleted groundwater supplies and reduced well production; limited access to properties for 10 years; reduction of recreational opportunities; degradation of levees by heavy construction equipment; and permanent loss of farmland.
What consultants wanted to do on July 17 was
This is not an operating budget or financing plan. BDCP kicks annual operating costs down the road to be dealt with later.
It is worth keeping in mind that
For years, BDCP has been touted as a “beneficiary pays” project. So it is interesting to see how that translates into the funding estimates in the BDCP Administrative Draft. All benefits other than water delivery have been gradually shifted away from the state and federal water contractors, so that now BDCP assumes that the contractors will pay for just 68% of total BDCP funding. (The cost split between state and federal contractors has not yet been determined.) The other 32% – almost a third of the cost – is to come from a variety of public state and federal sources. This pretty much lines up with everything about BDCP that is NOT tunnels — that is, all the rest of the conservation measures. (See below.)
DWR’s own “Economic Analysis Guidebook” imposes a test of financial feasibility that includes beneficiaries being “willing and able to pay their allocated costs for project outputs over the life of the project.” There are serious questions about whether the contractors can actually cover even the reduced percentage of the total cost that this funding scheme now assigns to them.
State Water Project (SWP) contractors are currently in negotiations with the Department of Water Resources regarding water supply contract extensions. One issue is that contractors need to be able to sell bonds and keep the debt service as low as possible. Bonds typically sold with a 30-year repayment period can now be sold with only 22-year repayment periods due to a 2035 maturity date limitation for the Metropolitan Water District and some other contractors. They will have to sell bonds to help finance the Peripheral Tunnels. DWR would also like to increase reserves – currently less than 3% – for operating and maintaining the SWP as it currently exists.
The proposal is to extend existing water supply contracts for 40 to 75 years, relying on water sales to meet as yet undisclosed costs and thus extending ratepayer debt for two or three generations. (Over $300 million of the original cost of the SWP remains unpaid.)
So ratepayers are facing extended debt for the existing SWP, without the addition of the cost of Peripheral Tunnels.
Dr. Jeff Michael of UOP has noted that BDCP can’t evaluate financial feasibility without a cost allocation. Although they have said that it is premature to assume a cost allocation, consultants also suggested that the cost would be $5 per household for urban households. Dr. Michael commented that with something like 30% of the project cost paid for by urban users, “I don’t think this project is feasible at $5 per household.”
They will need more than that from urban users.
Meanwhile, farmers receiving federal Central Valley Project (CVP) water from contractors like Westlands Water District face their own challenges. A recent report by the Office of the Inspector General of the U.S. Department of the Interior found that the Bureau of Reclamation, which operates the CVP, is not on track to meet the congressional mandate for paying off the project by 2030 as required by law. The report recommended renegotiating contracts so that revenues currently refunded to contractors go instead to reducing unpaid capital costs. Westlands argues that it can’t make the payments if it doesn’t get the water. (Never mind that periodic shortages were anticipated in the original CVP contracts.)
At the July 17 meeting, Westlands’ Deputy General Manager Jason Peltier said again, as he has before, that he can’t imagine CVP farmers being willing to pay more for water if they can’t get more. We would argue that with or without the tunnels, given the increasing unpredictability of California’s climate, there are no iron-clad guarantees of water for farmers or anyone else. Certainly BDCP planners should take the situation of CVP farmers into consideration when they estimate what they can count on those farmers to pay for the Peripheral Tunnels.
(A claim that none of the project water would ever go to privately-owned water agencies brought an audible “WHAT???” from the audience. What about the privately controlled Kern Water Bank, which stores and resells project water?)
So what about all the parts of this project that are not tunnel construction or operation? What about paying for the actual protection and restoration of natural communities; strategies for dealing with stressors like invasive weeds, dissolved oxygen, and stormwater treatment; and monitoring, research, and plan administration?
As Restore the Delta board member Rogene Reynolds said, the other 32% of BDCP funding has been “cobbled together.” BDCP documents say that “habitat restoration carries a broad public value” and therefore should not be funded by the state and federal water contractors. The plan estimates that 15% of the total cost would relate to habitat restoration and other stressors reduction and would be paid for with state funding. Another 16% comes from federal funding, and 1% comes from “Other Funding Sources” (interest income on unspent revenue, or potential endowments or leveraging state tax credit for donated conservation lands).
BDCP is counting on the 2014 Water Bond going forward in, basically, its present form (which includes a big chunk for “Delta sustainability” and “Conservation and watershed protection”). Efforts are underway in the Assembly to ensure than any 2014 water bond excludes these.
BDCP is also counting on money from Prop 1E and Prop 84, although most of that money will have been entirely expended within the next few years, probably before BDCP is even ready to break ground for the tunnels. And they’re counting on a second water bond somewhere down the line for “public benefits.” BDCP’s informational brochure says that “subsequent water bonds . . . are likely to occur during the 50-year permit term.” Well, yes. And taxpayers 35 years down the line will probably have their own ideas about how they want to spend that bond money.
The brochure talks about the “likelihood and feasibility of public funding for BDCP,” estimating that 16% of total funding will come from the federal government through “authorities that have been used in the past to support Delta restoration and monitoring.” These agencies include the Bureau of Reclamation, U.S. Fish and Wildlife Service, the Corps of Engineers, EPA, and USGS. But Brandon Minto, Deputy District Director for Congressman John Garamendi, told BDCP consultants not to assume continued levels of funding in the current federal climate. Congress has been demonstrating an unwillingness to fund a lot of projects that have traditionally been funded.
Dr. Meral dismissed this with the comment that this is a 50-year plan, and BDCP is “trying to take the longer view” regarding the willingness of the feds to fund water in California.
One problem with BDCP cost estimates: Delta land values are based on 2009 data and are based on acquiring land from willing sellers. (Called out one audience member, “Define willing!”) Dr. Meral said that ag land to be acquired would be “marginal.” Rogene Reynolds corrected him, pointing out that over 16,000 acres in the south Delta designated for terrestrial habitat restoration was productive ag land, not swampland. She also told him that BDCP’s land values of $7,000 per acre in the south Delta were incorrect; land near her on Roberts Island recently sold for $12,000 per acre. Dr. Meral, who has an answer to almost every objection to BDCP, had no answer to that.
After wandering for awhile in the realm of optimistic speculation, consultants got down to Chapter 9, Alternatives to Take. The Endangered Species Act requires them to consider whether there is a way to harm fewer fish and other species, but for purposes of the BDCP Administrative Draft, any alternative must be “practicable”- i.e. the exporters must be willing to pay for it. (Consideration of “take alternatives” in the environmental documents – the EIR/EIS – will be different.)
The analysis assumes that construction starts in 2015, and that operation begins in 2025 and continues to 2075. The permits would expire in 2065, but the facility is assumed to have a 50-year life, so the analysis assumes that the permits would be extended. (More optimism in the face of uncertainty.)
Economic benefits fall into three categories: water supply, water quality, and seismic risk reduction.
Urban benefits include avoiding future shortages and avoiding some investment needs. For Metropolitan Water District, for instance, the analysis considered what Delta water might be worth compared to other local supplies – groundwater recovery, local surface water, recycling water, seawater desalination (presumably at current costs and with current levels of technology).
The analysis pegs the 2012 urban demand at just over 5 MAF and assumes that by 2050, that demand grows by 1 MAF. Population and conservation will both grow, cancelling each other out, according to analysts. Even implementing BDCP, the analysis forecasts an urban shortage of 1.6 MAF in a dry year. According to Dr. David Sunding, BDCP just keeps things where they are. No new water for urban ratepayers.
Dr. Michael pointed out that the analysis rises and falls on urban water assumptions, which are based on faulty assumptions about urban population growth. The analysis uses 2006-07 regional transportation plans, which have been updated twice since then. Those analyses were controversial, with aggressive growth assumptions that were shown by the 2010 census to be too high.
Current projections show 5 million fewer people in the water demand area by 2050. Dr. Michael noted that projections made in 2012 are now the basis of housing and transportation planning, and he suggested that Sunding use those when revising the plan.
On the subject of agricultural water supply benefits, those are problematic for a variety of reasons, not least of which is the difficulty of predicting how much water we will actually have to share in California as climate fluctuates. Deirdre Des Jardins of California Water Research noted that the analysis assumes that frequency of dry and critically dry years will not increase, which could have a major impact on the assumed benefits of BDCP.
The analysis assumes that BDCP would reduce the need for agricultural capital system investments and for fallowing. San Joaquin Valley deliveries of 3.5 MAF rather than the higher amount proposed by BDCP would require fallowing 200,000 acres. But a sizable amount of San Joaquin Valley farmland, including 100,000 acres just in Westlands, has already been taken out of production because it has become too salty to farm. This salting up of valley farmland is just going to get worse, and the demand for fresh water to flush it will increase.
Meanwhile, BDCP proposes to turn 146,000 acres of Delta farmland over to habitat protection and restoration – a permanent loss of prime farmland in one area for a temporary benefit to compromised farmland elsewhere.
BDCP is claiming benefits for improving water quality by reducing the salinity of export water. Exporters may indeed get higher quality water, but at the expense of fish, agriculture, and urban users in the Delta, the Estuary, and the Bay.
Dr. Michael complimented Dr. Sunding on the economic analysis and said he wished it had been done three or four years ago when BDCP alternatives were first being developed. He said that the earthquake analysis was done correctly, with reduction in seismic risk representing just 2% of economic benefits; this is NOT an important justification for building the tunnels (although you wouldn’t know that from the exaggerated weight it still gets in the BDCP brochure). He noted that tunnels do not provide full insurance against an earthquake causing dozens of islands to flood and fail. For that, we need levee investment alternatives that would create a more resilient delta.
(Said Dr. Meral, “If you can demonstrate that USGS estimates of earthquake threats are exaggerated, we’d like to know about that.” Someone will be getting back to him on that subject.)
BDCP will continue to rely on South Delta diversions up to 51% of the time, so there is no overall reduction in seismic risk unless Delta levees are upgraded – something BDCP does not propose to do.
There was a lot more: questions about inconsistent discount rates, jeopardy to habitat for critical species, absence of actual mitigation proposals, and whether the fish agencies can even issue permits if the project is not fully funded prior to groundbreaking.
The suggestion to put the whole matter to a popular vote got vocal support from the audience.
To summarize . . . the water contractors MAY have a good reason to pay for about two-thirds of the BDCP – the Peripheral Tunnel part, for which the design is only 10% complete – IF the conservation part is good enough to make the fisheries agencies issue “take” permits and stop restricting exports, which so far it isn’t. (We’ll report on that later.) Or the contractors may NOT have a good reason to pay, depending on how much water they can get and how much it is going to cost their ratepayers, over the next 50 years, in the face of climate uncertainties. For about a third of the money they need for this bundle of assumptions, they’ll be going to taxpayers for public funding.
We’ll just conclude here with a comment on the matter of Grand Visions. If you’ve visited Hoover Dam, you’ve seen the monuments to the visionary engineers and politicians who created this wonder of the modern world. Maybe you also noticed the “bathtub ring” on Lake Mead, which is now somewhere between “drought” and “critical storage level.” You might wonder why it didn’t occur to these dam-building visionaries that the future could bring droughts, reduced flows into Lake Mead, or dramatic increases in the number of people using the water. Even visionaries don’t think of everything. So it behooves us all to keep pointing out to BDCP planners all the ways that the Peripheral Tunnels vision doesn’t make sense in either the short term or in some visionary future.
Dr. Meral assured everyone several times that the State will offset local revenue losses from property taxes and assessments.