Saturday, 25 July 2015

Additional thoughts and information regarding my Delta Tunnels op-ed in the Sunday Sacramento Bee

Today, the Sacramento Bee published an op-ed by me on the economic benefits and costs of the Delta Tunnels.  As always, word constraints limit what you can see in an op-ed.  This post expands and clarifies a few things.

Financing the Tunnels. The op-ed focuses on economic benefits and costs, and doesn’t discuss some of the serious problems with financing the tunnels.  Without going into details, these are myriad and deserve a separate op-ed of their own.  Most notably, farmers would have to pay the majority of the tunnels’ cost because they receive the majority of water exported from the Delta.  It is highly unlikely that the agricultural agencies can pay their share, meaning costs will have to be shifted to urban agencies or general taxpayers.  Even if the agencies could somehow make the payments in an average year, how would they do it in a drought when they are receiving no water from these tunnels?  The plan quotes costs on households in Southern California at $5 a month - that calculation is a few years old but assumes that farmers are paying as much as 75% of the Tunnels’ cost.  That’s not going to happen.  You can count on costs being shifted to urban ratepayers, local property taxes or general taxes because it simply won’t fly any other way.

Water Supply:  I hope no one thinks I am advocating a bunch of desalination plants is the best alternative to the tunnels by choosing this comparison to a current, very high cost source.  And yes, I know that energy costs are high with desal, but the energy requirements aren’t much different than pumping Delta water hundreds of miles and over mountains to LA and San Diego.

I also could have compared them to new reservoirs.  The much criticized Temperance Flat has a projected water yield of about 70,000 af for a capital cost of at least $2.5 billion.  Yes, even these dams have a better water yield bang for the buck than the Delta Tunnels, but nobody pretends that water users could pay for them.  In fact, there are serious financial viability questions about these Dams even if general taxpayers pay the majority of the costs through the Water Bond and various sources.

Finally, I could point to Rod Smith’s old blog that calculated the cost per acre foot per water yield.  Without the regulatory assurance in the Tunnels plan, it is pretty clear that the estimated water yield is only 257,000 af.  Using Rod’s handy table, you can see the water cost of the tunnels is about $3,000 af assuming no risk premium.  That’s almost 50% more than desal, for less reliable supply.  And the cost is orders of magnitude higher than other alternatives like recycling, conservation, and stormwater capture, and is also orders of magnitude higher than what farmers could afford to pay (their profit per acre foot).

Seismic Risk:  The Mark Cowin comment about weeks and months, not years, was a direct quote from his prepared statement for a media call as transcribed by the remarkable Maven.  It would be nice if the Governor would be so careful in his remarks on this subject.  The fact that the outage would not be as long as claimed seems to be one of those things that “everyone knows”.  But this isn’t my area, so the only reference I have is this presentation from a BDCP meeting a few years ago that Bob Pyke conveniently posted for the benefit of people like me.  Previous BDCP analysis shows exports from the Tunnels would be about 3 maf per year if the south Delta pumps were disabled, so that would be the benefits to the water exporters in the very unlikely case an outage lasted a full year.  So the loss the State’s surface water supply would be about ¼ the current drought (more in some areas very dependent on Delta exports), but it is not something that would destroy the economy the way the Tunnel advocates rhetoric claims.  The current drought shows the State’s economy can do just fine in the face of more severe shortages. 

The loss of life and only 20% of economic damage from loss of water exports comes from the State’s DRMS studies.  You won’t find it in the executive summary of those studies, you have to compile the data from their consequences analysis the way we did in the Economic Sustainability Plan.  That finding was thoroughly vetted.  It’s also common sense.  The Delta is not urbanized, but there is a lot of important stuff out there - including inter-regional highways, gas wells and storage, pipelines, inter-regional power lines, farmland, and people’s homes. If we need to reroute the water canals around the Delta due to flood risk, what about the highways and power infrastructure.  Rerouting and elevating these would cost billions more even if we could figure out a route.  Fixing the levees to protect everything together makes a lot more sense. 

And I haven’t even mentioned public safety.  I am not one to make moral arguments, but I think this constant discussion of a Delta flood without even mentioning the catastrophic impacts in the Delta itself - including significant life loss - is disgraceful.

The value of regulatory assurance:  The Governor calls it a “technical change” but it is a very big deal to the economics.  Here is my very first post on the subject written when the BDCP rolled out the argument that regulatory assurance was the reason water agencies should pay tens of billions of dollars on a project with such minimal water yield.  One thing to note in the post is that all of the science experts I consulted on this theory at the time told me the regulatory assurance claim was fictional as it would never get regulatory approval.  It is now clear that my sources were right about that.

On the media call, Mark Cowin mentioned that they might have some new economic analysis coming out next month.  It will be interesting to see if they come up with anything new to find more benefits.  I don’t think they can, and I expect people to be very skeptical of any new benefits that miraculously emerge at this late point in the process.

About the Author

Ethan Jacob

Author & Editor

I am Ethan Jacob Executive Director of the Center for Business and Policy Research at the University of the Pacific, where I have a joint faculty appointment in the Eberhardt School of Business and the Public Policy Program in the McGeorge School of Law..

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