Metropolitan Special Committee on the Bay Delta hears an update on the BDCP’s cost allocation discussions

Metropolitan Water District SealAt the February 25 meeting of Metropolitan Water District’s Special Committee on the Bay-Delta, Program Manager Randall Neudeck gave a brief overview of the discussions currently underway regarding cost allocations for the Bay Delta Conservation Plan (BDCP).

He began by stating that the discussions so far are just initial and that any change to either a state or federal water contract involves an open public process, but there’s still much more to be settled.

He then gave some background information on the project.  The BDCP is broken up into two major elements, he said:  Conveyance facilities and mitigation, which would be paid for by the state and federal water contractors, and ecosystem restoration/other stressors reduction, for which the two major funding entities would be the State of California and the federal government.

The State Water Project is made up of 29 contractors, of which 23 are urban contractors and 6 are agricultural contractors.  State Water Project water purveyors have contracted for 4.1 MAF, from which 3 MAF flows primarily to urban centers in the Bay Area and Southern California, and about 1.17 MAF is used for agriculture in the Central Valley, he said.

The Central Valley Project is made up of 100+ various contractors.  The project delivers about 7MAF of water, with about 5 MAF used for agriculture, about 1.2 MAF used for CVPIA requirements and refuges, with the remainder going to urban uses.  CVP contractors are distributed throughout the Central Valley, along both the Sacramento and San Joaquin Rivers; and from Shasta in the north to the Kern County in the south.

The cost information for the BDCP really has not changed, Mr. Neudeck said. He cited costs from chapter 8 of the recent public draft of the BDCP, with capital costs of $14.57 billion for the conveyance facilities and $5.28 billion for ecosystem restoration and other stressors, for a total just under $20 billion for those two components.  Adding O&M costs adds another $5 billion to the costs, for total costs just under $25 billion, he said.

SWP CVP ChartMr. Neudeck then presented a chart of the amount of water that the State Water Project and Central Valley Project would receive from the No Action Alternative, as well as both the Low Outflow Scenario and High Outflow Scenario for Alternative 4 of the BDCP, noting that this information came from the EIR documents.  “With a no action alternative, SWP gets about 54% of the water, and under the two preferred alternatives, either the low flow or the high flow outflow scenario, the state again gets about 52 – 56%,” he said.

The criteria for the cost allocation is that it be an equitable and reasonable reflection of water supply benefits received by each of the projects, as well as transparent, stable and easily administered, he said.  “For the State Water Project, the cost allocation criteria that we’re using is that clearly there has to be an agreement among all contractors, it must be simple to implement, and equitable as well.”

There are three initial cost allocation alternatives, Mr. Neudecker explained.  “The first option is to base the State Project split among contractors based on Table A,” he said.  “The benefit of that is that it’s a ‘cost follows the water’ approach but also it allows the contractors in any given year to manage costs, because they could sell water they might not want to use during the year to another one of the state contractors.“

The second approach is what Mr. Neudeck described as “some of the contractors have been wanting an opt-in alternatives with fair share.” [Note: He gave no further details, instead rolling onto the third approach, and no Director asked for more information.]

The last approach is the follow the water, which is based on water delivered to the contractors in any given year,” he said.  “What they would have to do is in the beginning of the year, they would have to estimate how much a contractor is going to get and at the end of the year, DWR would have to true-up approach to get the actual billing.”

What we’re really trying to do is find an approach mutually agreed to based on water supply benefits received.  You’re going to hear a lot more about this … We have a way to go,” concluded Mr. Nuedecker.

Discussion highlights

Director Lewinger asked what the difference was between the first option (Table A Allocation) and the last option (Costs follow water)?

They are fairly close,” Mr. Nuedecker responded.  “They are both based on a follow-the-water approach.  The last one, how they would implement that is at the beginning of the year, a contractor would say they want x amount of water delivered, and then depending on how much is taken, at the end of the year, DWR would true up that amount with the actual billing.  The first one is based on your entitlement to that water, so you would pay based on the entitlement.  Metropolitan gets the full entitlement to the water, but during any part of the year, we could sell that water to another contractor to manage costs, so there are benefits to both of these approaches.”

None of these approaches have been agreed upon,” Mr. Neudecker reminded.  “These are the initial discussion between the state contractors, and any changes in our contract would be a public document.”

Under the third alternative, doesn’t that open itself up for fixing the game?,” Director Lewinger asked.  “In years when there’s a very low supply such as this year, the unit cost is going to be extremely high and so some agencies could say, we don’t want the water this year?  And so that puts a very high unit cost on the agencies that are taking the water?

There are many issues that we are looking at and that is clearly one of them,” replied Mr. Neudecker.

In most cases the analysis has shown both approaches end up usually about in the same spot,” added Jeff Kightlinger, General Manager.  “If Met’s going to pay out on Table A, we work out close to 25% and usually in most years, we’re going to get about 25% of the water, so they work out pretty close. …  On the ‘costs follow the water’ approach, one of the issues would be that issue you brought up … could you opt out in those high unit cost years, so you’d have to have some provisions to address that,” noting that most people seem to be leaning towards the Table A approach as something they are comfortable with and because historically that how it’s been done.  “For ‘costs follow the water’, we’d have to have a new set of rules to deal with the odd years – the really high flow years and the really low flow years – but for the rest of the years, it shakes out pretty close.”

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