bwl3 at comcast.net
Thu Dec 16 11:56:32 PST 2010
<http://valleyecon.blogspot.com/> Valley Economy
A discussion of economic, business, and environmental issues of importance
in the Central Valley.
Thursday, December 16, 2010
ire.html> Financing a Big Delta Tunnel will Require Big Water Exports
I am Director of the Business Forecasting Center and Associate Professor,
Eberhardt School of Business, University of the Pacific. My professional
areas of expertise are regional economics (such as labor and real estate
markets), and environmental economics. Much of my research has been on the
economic impacts of environmental policies such as the Endangered Species
Act, sea-level rise, greenhouse gas controls, and land preservation.
Depending on the facts, these studies sometimes favor environmental
viewpoints and sometimes business points of view. This is a personal journal
and reflects my thoughts at a particular time. I am open to changing my mind
in light of new facts and better arguments.
For the past two years, I have said that "beneficiary pays" financing of the
peripheral canal only pencils out if it increases water deliveries to record
levels. After reviewing Wednesday's state
ency_Releases_BDCP_Summary_Document.aspx> and federal BDCP updates
PageID=104334> and subsequent news stories, it is becoming more obvious
that this is true.
These quotes from Mike Taugher's article
lta.html> are particularly revealing.
"We need to know that the yield of the project that is going to be proposed
is at a level that is cost-effective for us," said Jim Beck, general manager
for the Kern County Water Agency...
Still, the state report suggested that water districts in the San Francisco
Bay Area, San Joaquin Valley and Southern California could receive 5.4
million to 5.9 million acre-feet a year on average under the plan. The
federal report said it appeared that the plan could result in more than 5.2
million acre-feet a year.
That's an improvement over the 4.7 million acre-feet that can be delivered
on average with new restrictions in the Delta but less than the 6 million
acre-feet a year delivered from 2000 to 2007.
"If it's under 5.9 ... it will require our water users to re-evaluate
whether BDCP meets their water supply objectives," Beck said.
Some back of the envelope calculations reveal that the exporters' concerns
are very valid. At $13 billion and over $80 million annual operations
costs, the annual costs of operating the 15,000 cfs tunnel for exporters
will be about $900 million per year. As Taugher reports above, the BDCP
highlights report reveals that conveyance is only expected to increase
diversions between 0.7 and 1.2 million acre feet. Thus, the each additional
af of water delivered because of the canal will cost about $900 per af. And
that only gets the water to Tracy, delivery from there to end users and
treatment for urban users further increases costs. That is well beyond the
ability of agricultural users to pay, and it makes conservation, recycling
and desal. look a lot cheaper to urban users.
Of course, most of this is fixed costs, so if deliveries were increased by 2
maf or more, the unit costs drop quickly. This is a simplistic calculation
worthy of no more than blog publication, but it is nonetheless revealing. (I
am aware that the project adds value not just through additional water, but
by increasing reliability or the risk of disruptions...but conservation,
water recycling and desal. provide equally if not more reliable water.) It
is rather obvious that the pressure to increase deliveries beyond whatever
limits will be agreed upon in the BDCP will be enormous. And if it doesn't
happen, it is likely that agricultural water exporters will be unable to
meet their financial requirements and there will be calls for billion dollar
taxpayer subsidies or a lot more costs will be dumped on Socal urban users
than they expected.
Why, after 4 years, can't a 100 page document on the BDCP take its financial
analysis one baby step forward? Some real economic analysis early in the
process would have helped create more realistic expectations on the part of
participants and greatly increased the probability of reaching a solution.
(I also note that Met's new water plan says they are only planning on a $2.3
billion contribution to the Delta plan. Is that realistic? Who do they
think is going to come up with the other $10.7 billion the BDCP allocates to
This is part of the reason I have been so critical for so long of the
economic analysis in the 2008 PPIC study that exagerrated the willingness of
exporters to pay for a canal as well as the costs of "doing nothing". In
doing so, they gave a lot of people false expectations about the financial
viability of a BDCP type plan. I am disapointed in the way the federal
document seems to cite the 2008 PPIC report as the sole, infallible source
of Delta analysis. Indeed, my pastor typically cites more non-Bible sources
in his Sunday sermons than the federal government cites non-PPIC/Davis
sources on the Delta. The PPIC report does not follow the federal
governments own guidelines for cost-benefit analysis for infrastructure, and
exagerrates the costs of alternative water supplies among other problems.
According to PPIC, water exporters should be willing to pay for a $20
billion canal AND ecosystem improvements. So, either these exporters are
lying or PPIC's calculations were wrong. I believe it is the latter.
Byron Leydecker, JcT
Chair, Friends of Trinity River
PO Box 2327
Mill Valley, CA 94942-2327
415 383 4810 land
415 519 4810 mobile
<mailto:bwl3 at comcast.net> bwl3 at comcast.net
<mailto:bleydecker at stanfordalumni.org> bleydecker at stanfordalumni.org
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