Guest blogger: Another economist weighs in on the BDCP, pencils out the cost of water

Guest BloggerFilling in today for the vacationing Maven is a guest blogger.  So what do you do when you have two economists that disagree?  Add a third, of course!

Today’s guest blogger is Rodney T. Smith, Phd, who blogs at the Hydrowonk blog and is president of Stratecon Inc, an economics and strategic planning consulting firm that specializes in the economics, finance, and policy of water resources.

In the first of two posts on the BDCP’s costs and funding, Mr. Smith explores the question, is the BDCP a doable deal?

At this stage, the BDCP is still a “concept deal.” Some concept deals mature into real projects.  Others wither away.  Further refinements in analysis and consideration will determine BDCP’s destiny.  BDCP has problem children:

  • Capital costs: understated
  • Cost of water: obscured
  • Project risks: not transparently addressed
  • The prospect of “New Water Bonds” (to fund conservation of species): overstated
  • The case for economic benefits: not yet compelling

As the BDCP conversation moves from internal deliberations within DWR and its consultants to the water community, water users, public and (most importantly?) capital markets, BDCP proponents will find that they must address fundamental questions more thoroughly (and in some cases correctly).  A prudent person needs more refinements and analysis before making a responsible “go” decision.

Read more from the Hydrowonk blog by clicking here.

In a second post, he pencils out what is the cost of water in the BDCP:

“As explained below, the answer depends on interest rates and risk assessments.  I conclude that a reasonable range for the cost of water for state and federal contractors is substantial and depends on DWR’s Delta outflow scenario:

  • “low Delta outflow” scenario: $550/AF to $700/AF
  • “high Delta outflow” scenario: $750/AF to $1,000/AF

These cost estimates are for water delivered at Banks and Tracy pumping plants.  The valuation date is 2016. … “

Continue reading this post from the Hydrowonk blog by clicking here.

2 Responses

  1. Vincent

    When someone like Dr. Smith speaks, people should listen.

    Gov. Brown’s tunnel vision is bad for California. I continue to be amazed that one central issue is obscured…to say the least. Climate change is real and accelerating. Who can say for sure whether sustainable water supplies will exist AT THE SOURCE to justify the cost. Dr. Smith is correct, the capital costs are understated…by a mere $35-40 billion.

    Reply
  2. Sandy Kozlen

    Question: At what level of sea level rise do the tunnel intakes get swamped with salt water during an ocean high tide with a surge (worse case condition that does actually happen with some frequency)? Second question: Phil Eisenberg has said something to the extent that the Delta was eventually going to become an inland “salty sea.” If that is allowed to happen, what will the loss in BOTH surface and groundwater resources be to California? Third question: Have we really looked at potential future long term conditions and then tried to define necessary capital projects, or have we defined some long term projects and then looked for long term conditions to justify the projects?

    Reply

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