Assembly oversight hearing on the funding structure and economic impacts of the Bay Delta Conservation Plan (part 3): San Diego County Water Authority & Contra Costa Water District share their concerns

BDCP Meeting 1On February 12th, the Assembly Committee on Accountability and Administrative Review held an oversight hearing on the funding structure and economic impacts of the Bay Delta Conservation Plan.

Coverage continues with the testimony of Dennis Cushman from the San Diego County Water Authority and Marguerite Patil discussing their agencies concerns about the Bay Delta Conservation Plan.

The first part featuring the Deputy Director of the Department of Water Resources Laura King Moon and ICF International’s David Zippin on the Administration’s perspective is posted here:  Assembly oversight hearing on the funding structure and economic impacts of the Bay Delta Conservation Plan (part 1): The Administration’s Perspective.

The second part featured Anton Favorini-Csorba and Dr. Jeff Michael on the funding and financing is posted here:  Assembly oversight hearing on the funding structure and economic impacts of the Bay Delta Conservation Plan (part 2): Anton Favorini-Csorba and Dr. Jeff Michael on funding the BDCP. 

The fourth and final part posting on Monday will cover Delta stakeholder views from the perspectives of Melinda Terry from the North Delta Water Agency, Larry Ruhstaller with the Delta Protection Commission, Charles Gardiner with the Delta Vision Foundation,and Bill Wells with the California Delta Chambers & Visitor’s Bureau.

Dennis Cushman, San Diego County Water Authority

Dennis Cushman, assistant General Manager of the San Diego County Water Authority (Water Authority), began by giving some details about the agency he represents.

“The Water Authority is one of the largest water agencies in California,” he said.  “The San Diego County Water Authority represents 3.1 million people in San Diego County and an economy of $188 billion.  We are the largest member agency of the Metropolitan Water District which is, in turn, the largest State Water Project contractor, accounting for about half of the State Water Project contract.

Cushman SD 1991 water supplyHe then presented a slide that depicted the sources of San Diego’s water supply in 1991, pointing out that at that time, 95% of San Diego County’s water was purchased from Metropolitan Water District and noting that a portion of that 95% came from the Bay-Delta.  “When we had 95% of all water coming from a single supplier as we did in 1991, we had virtually all of our region’s eggs in one basket and the bottom of that basket fell out,” he said.  “The Metropolitan Water District cut back our water supplies by 31% in that 95%, so San Diego got a major wake up call.  That shortage lasted 13 months in San Diego County …  That was a major wakeup call and our business community responded with a clear message to the Board of Directors of the Water Authority at the time: Never again. No more water shortages.”

Cushman SD diversifiedThe lesson that San Diego needed to diversify its water resources was painfully clear, he said, displaying a chart showing the progress the region has made.  The middle chart depicted San Diego County’s water supply last year, showing that the region has reduced their reliance on Metropolitan water by over half since 1991.  “We’ve done that through long-term water transfers, ag-to-urban transfers, investments in conservation and recycling and what little groundwater that we do have in San Diego County,” he said.

The chart also showed San Diego County’s projected water supply portfolio in 2020.  “The biggest new addition here  in 2016 will be seawater desalination,” he said.  “We are past the 25% point of construction on the largest seawater desalination project in the western hemisphere in Carlsbad.”

Cushman SD Met purchasesThese charts demonstrate how we’re reducing the Water Authority’s purchases of water from Metropolitan, which in turn, is reducing our dependence on Bay Delta water, Mr. Cushman said.  “If you look at 1990, before those cutbacks were imposed by Metropolitan, we were buying 673,000 acre-feet of water.  Last year, it was just under 300,000 acre-feet, less than half of that, and by the end of this decade, we will buying form Metropolitan 66% less Met water than we were buying in 1990.  That’s significant because the Water Authority is the largest by far of the 26 agencies that comprise Metropolitan, so if you are looking for a bellwether of Metropolitan’s purchases, looking at its largest agencies is a good place to start.”

Metropolitan’s second largest customer is the Los Angeles Department of Water and Power, he said.  “LADWP is going to embark on to decontaminate a groundwater basin in the San Fernando Valley,” he said, “and through this project, Los Angeles will be able to reduce its purchases of water from Metropolitan by half.  That’s the largest customer next to San Diego.”

Cushman Met reduce relianceOther Metropolitan member agencies are also planning to reduce their reliance on Metropolitan, Mr. Cushman pointed out, presenting a graphic showing local water supply projects that have been identified in the Southern California area.  “These are local water supply projects that they’ve identified that they may pursue to increase local supply reliability through the creation of more local water resources and less reliance on imported water overall,” he said.

Metropolitan has pledged to pay 25% or more of the BDCP project costs, but Metropolitan relies on water sales for 85% of all of it revenues,” Mr. Cushman pointed out.  “While it relies on water sales for 85% of its revenues, Metropolitan’s member agencies are not obligated to buy any water from Metropolitan – there are no long term commitments to buy any water in the future, so we think that’s an issue of concern since Metropolitan will be the financial foundation of the BDCP by providing the largest potential share of funding for BDCP.”

Delta water over the last 5 years has provided on average about 20% of all water use in San Diego County, so the Water Authority supports a fix for the problems in the Delta, both for ecosystem reliability as well as water supply reliability, he said, but he noted that the Water Authority board has not endorsed a specific project, neither the BDCP preferred alternative or others.

The Water Authority Board of Directors and staff have been actively engaged in analyzing the BDCP and have been so for years, he said.  “The Water Authority is studying four alternatives to try to understand the relative merits or benefits of four different alternatives: the BDCP preferred alternative, a no-project alternative, a project advocated by the Delta Vision Foundation, and an alternative advanced by some environmental organizations,” he said.

Cushman BDCP slide pub agency fundingThere have been some changes in how the BDCP is saying the project may be paid for, Mr. Cushman said.  He presented a slide of charts taken from BDCP documents.  He noted that the graphic on the left was used in earlier documents and states that the water contractors will be paying $16-17 billion with state and federal funding providing the remainder.  “This year, there’s a somewhat different graphic that BDCP is using in their outreach in San Diego and elsewhere … we noticed that there’s a little bit of change in how the funding is being portrayed,” said Mr. Cushman.  “If you look at the sum total on the right, that’s the $25 billion with the $16 billion paid for by public water agencies for the capital, but we noticed in each and every other piece of the pie, the language has been added that public water agencies may provide some or up to all of the funding for the $25 billion.”

Those costs of $16 billion to $25 billion costs currently are roughly split between Central Valley and State Water Project contractors, and Metropolitan’s share is a fourth of that, which is somewhere between $4.2 and $9 billion, he said.  “For the Water Authority, it works out to $1 billion to $2 billion, but we really don’t know.  No assurances have been provided to us and no financing plan has been shared, but accepting on faith the numbers that BDCP put forward, that’s the financial stake that the Water Authority has in BDCP.”

It’s important to understand what the Water Authority’s position is financially, he said.  “We’re being expected to pay $1 billion or $2 billion or more of the total project costs, and we’re left searching for clues as to what the total projects costs may be, and yet our rate payers will pay the second largest share among water contractors.”

Cushman SD ratepayersAccepting the numbers for project yield on faith that BDCP has put forward, it’s between 1.2 and 1.7 MAF of restored reliability, which would be 300,000 to 424,000 acre-feet of water for Metropolitan, and between 54,000 and 77,000 acre-feet for the San Diego Water Authority, Mr. Cushman said.  “If this were a business decision posed to our 36 member board of directors, they would be asked to commit to $2 billion, perhaps more, for that increment of water.  What are the other options that our Board might have that provide greater reliability or equal reliability to that investment?

The Water Authority board did make a similar decision in November of 2012 when they decided to sign the purchase agreement with Poseidon Water for the Carlsbad seawater desalination project, he said.  “That was a billion dollar investment in capital, on par with the low end of the range of the BDCP, and that is for 56,000 acre-feet per year of highly reliable water supply,” he said.  “It’s not subject to drought impacts or the kinds of curtailments we’re seeing in Bay Delta supplies, so it’s not an apples to apples comparison.  It’s a far more reliable resource that imported water, either Bay Delta or otherwise.  So that’s a business decision.”

However, the Board of Directors doesn’t have a say in this, he said.  “There’s been representations made that this project is voluntary,” Mr. Cushman said.  “Former Deputy Secretary Jerry Meral came to our Board and he said, this is a voluntary project, there’s nothing mandatory about it.  The state cannot impose these costs on anyone, including yourselves.  I think Dr. Meral is correct that the state cannot impose those costs on the Water Authority involuntarily, but Metropolitan can.  The Water Authority Board of Directors has accountability to 3.1 million people in San Diego County and does not have a say whether these costs will be imposed on the Water Authority and we think that’s wrong.  We think that representative board of our public should have a say in the future water resource investment decisions made for the benefit of our public in San Diego County and the economy that we serve.”

Cushman BDCP slide alt source costsOutreach documents used by the BDCP in San Diego say the water will cost $282 to $337 per acre-foot, he said, noting that he doesn’t know how they arrived at those numbers.  “They compare these numbers in this presentation that they are making to business groups and civic organizations throughout San Diego County,” he said.  “They compare the costs of Delta water to the Carlsbad seawater desal project at $2000-$2200 per acre-foot, Camp Pendleton desal which the water authority is studying another potential project, and the City of San Diego’s indirect potable reuse project at $2000 acre-foot.  The implication of the slide is that BDCP water is a bargain compared to these more expensive investments.”

It’s not ‘apples to apples’ in terms of reliability, but we did analyze what it would take to get Metropolitan to only pay $282 – $337 acre-foot without the BDCP,” said Mr. Cushman.  “To achieve that supply cost, Metropolitan would have to get a Table A allocation between 74% and 87%.  If you recall just a few weeks ago, DWR lowered the allocation from 5% to 0%. … Metropolitan has received a table a allocation of 50% or less for the last 6 years, and the 10 year average is 65%, but well short of the 75% to 87% to hit those numbers.”

Cushman range of SWP supply costsMetropolitan’s costs for the State Water Project is $466 million, Mr. Cushman said.  “That’s the payment that Metropolitan will make this year to DWR no matter what amount of water it moves or receives in its allocation from the state,” he said, pointing out that if the allocation is raised to 20%, costs would be $1220 per acre-foot, or at 10%, $2400 an acre-foot. “But at 0% allocation, it’s $466 million dollars for no supply and that’s the current conditions we’re under right now.”

Of course those aren’t the dollars that ratepayers pay to Metropolitan – those are supply costs to Metropolitan, he said.  “We are paying these amounts of money per acre-foot to Metropolitan so we are concerned that they are putting cost comparisons in front of our community that show $282 an acre-foot compared to the investment decisions and local supplies of seawater desalination or recycled water and those types of projects.”

He noted that over the last 10 years, Metropolitan has doubled the cost of its water to San Diego and to its member agencies and this is without the BDCP costs added in.

We have a lot of questions we’ve been asking and which we think need to be answered going forward, he said.  “What is the real demand for water?  What’s the right size project to meet the demand?  Where’s the financing plan? Who is going to commit to pay for it? Should Met commit to pay billions of dollars without getting contractual commitments from its 26 member agencies that provide all of its revenues?  And how will the full faith and credit of the state of California be protected without such firm financial commitments?

If these costs are getting laid onto your Authority, without your oversight, it may affect your ability to come up with other strategies that make sense at the local level,” suggested Assemblyman Cooley.

BDCP Cushman 1Mr. Cushman agreed.  “Money is not infinite,” he said.  “Our rate payers have seen significant rate increases, not just the rate increases we’ve absorbed from Metropolitan, but because we are also making major capital investments in regional water supply reliability and other supplies.  The ability to raise rates is not endless.  We’ve seen a significant reduction in purchases.  Our water sales have gone down 27% since 2007 and Metropolitan’s sales are down significantly similarly since that time as well, and part of that is the price impact of water … When you pay a precious amount of money for a resource, you conserve it and people are doing that, and they are responding very well to the calls for conservation. … We don’t know what we’re going to pay for the BDCP and as we said, we’re in the unenviable position of not having a say in it.”

It seems that San Diego County Water Authority is concerned about paying for something that they don’t really need,” said Mr. Frazier.  “How do you think water contractors can better participate in this project so that their concerns are heard as a whole?

I wouldn’t say the San Diego doesn’t need Bay Delta water,” replied Mr. Cushman.  “The reason we have supported solutions in the Delta for many decades that restore reliability of water supply is that we depend on it for a significant piece of our water supply as we have in the past.  As to the future, the Water Authority Board will make resource decisions and have made quite a number of major investment decisions to diversity the resources.”

As to the question on how the water contractors could more fully participate, the Water Authority has specifically asked the Natural Resources Agency to be invited to the negotiations table where the decisions are being made, he said.  “That request we’ve sent to Secretary Laird and earlier correspondence we sent to Deputy Secretary Meral asking to be invited to the table,” he said, noting that those requests have gone unanswered.  “If we’re being counted on to provide 1 billion, 2 billion or x billion for this project, shouldn’t we be in the negotiations?  To us, it seems incomprehensible that our region would face these kinds of costs and decisions with no say and no participation.”

Marguerite Patil, Contra Costa Water District

Marguerite Patil began by giving some details about the Contra Costa Water District (CCCWD), a public agency serving about 500,000 people in central and eastern Contra Costa County.  The CCWD is inside the legal Delta and is an in-Delta water user with four Delta intakes with state of the art fish screens supplying 100% of the water to the district.  She also noted that the CCWD is one of the first Central Valley Project contractors, and they also hold their our own water rights to divert surplus Delta flows into our Los Vaqueros Reservoir, which was built to provide a high quality drinking water supply to get us through droughts, provide ecosystem protection, and emergency storage.

BDCP Patil 1Contra Costa Water District agrees that the Delta water system is in need of changes to meet the coequal goals to provide a high quality reliable supply and healthy ecosystem, she said.  “We agree on that.  A comprehensive solution of integrated and linked actions is needed, including additional storage.  We feel that the actions must give equal priority to statewide water supply reliability, Delta ecosystem, and Delta water quality.”

At this time, the CCWD Board of Directors has not taken a formal position on BDCP,” said Ms. Patil.  “As a Delta water user, though, we’ve been closely monitoring the project since it started, and my staff is thoroughly reviewing the documents as we speak, and we’re anticipating providing detailed constructive comments on the draft EIR/EIS.  Our comments will likely focus on three areas that are of concern to us where we see the potential for significant impacts: water quality, water supply, and financial.  Our expectation is that any significant impacts will be fully mitigated by the project proponents.”

CCWD has spent about a billion dollars over the past 20 years to invest in projects such as Los Vaqueros Reservoir and high-tech water treatment plants and infrastructure with the goal of all these things working together to provide a clean, reliable supply of water that’s not only resilient to droughts but looks ahead to climate change, Ms. Patil said.  “Every water agency is just like us,” she said.   “They need to figure it out for themselves and decide how they are going to invest their ratepayer’s dollars,” adding that she isn’t here to tell others how to spend their money.

But we do feel when a water agency benefits from a project, it’s appropriate that they not only pay for the appropriate share of construction or operations, but also mitigation for the project,” said Ms. Patil.  “There are still many unanswered questions about BDCP financing,” noting that as a federal contractor, they are particularly concerned with the federal cost share.  “What we’ve seen in Chapter 8 is that there is an optimistic outlook for continued and expanded federal funding, and that may not be realistic.”

There’s a great potential for the CVP to improperly allocate costs to CVP contractors like ourselves that are not proponents and would not benefit from the project directly,” said Ms. Patil.  “I’ll give you an example of that.  The draft EIR has shown that the federal wildlife refuges operated by Reclamation that were created from 1992 CVPIA, these refuges won’t get a drop more water under BDCP.  However, there’s some talk that Reclamation may decide to allocate a portion of the BDCP costs to the refuges and then in turn ask all the CVP contractors to pay a share of this, so that’s what we’re tracking,” she said, noting that they will continuing coordinating with other CVP contractors that are not proponents as well as the Bureau of Reclamation.

We also want to make sure when the BDCP financing plan becomes available, it emphasizes the importance of ensuring that all contractual and legal rights are protected, she said.  “We’ve declared and many others have told Reclamation if they need additional federal authority in order to meet their financial obligations, we understand that they are going to come to the CVP contractors before moving forward to get our feedback.”

So in closing, we encourage the BDCP proponents to identify a comprehensive cost-effective solution that’s affordable, can be implemented with little or no opposition, and most important to us, does not place an undue burden on CCWD’s customers,” said Ms. Patil.  “Thank you again for the opportunity to highlight CCWD’s concerns.”

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