METROPOLITAN SPECIAL COMMITTEE ON THE BAY-DELTA: California Water Fix, Workshop #1 – Infrastructure

Metropolitan Committee members hear presentation on the first of three white papers on the Cal Water Fix project as they work towards a September decision

On July 10, the Metropolitan Special Committee on the Delta and the Water Planning and Stewardship Committee held a joint meeting and workshop to discuss the California Water Fix project.  The workshop is the first of a series that will prepare the directors to make a decision on whether to go ahead with the project at the September 12 board meeting.  The focus of this workshop is the first white paper staff has produced for the directors on the infrastructure of the California Water Fix proposal.

PUBLIC COMMENT

However, before the committee members tackled the matter at hand, there were some members of the public who first addressed the Committee members:

BARBARA BARRIGAN PARILLA, Executive Director of Restore the Delta.  “We represent 50,000 members concerned about restoring the Delta for future generations from throughout California.  I’m here today to ask to enter into the record and to share copies of our organization’s response to your white paper on construction of the Delta tunnels project.  We’re also requesting today that you invite Dr. Jeff Michael from the University of the Pacific to address the appropriate Metropolitan committees and full board on the costs, financing, and economics of the Delta tunnels.  In addition to expert engineers from Northern California and Delta fishery experts on all, that we have collectively have evaluated as problematic with the project.”

We may never agree with you about the need for new conveyance in the Delta; however we maintain that Metropolitan member agencies are being rushed to support this project when they do not have the full scope of facts regarding costs and environmental impacts.  The MWD white paper that you will be discussing on tunnels construction is badly truth-challenged.  It skips over the Delta 2009 Reform Act policy mandate that importers like MWD are to reduce reliance on the Delta for their future water needs.  The white paper on the Delta tunnels does not adequately cover the true costs or risks for its member water agencies and water ratepayers in Southern California need to be aware of.  Are water agencies simply going to go along with the $17 billion ride because Metropolitan leadership says they should, or are they going to step up and demand hard numbers for costs and water guarantees before saddling future generations with this load of debt?

We’re here today to urge you to do the right thing.  We want you to ask questions, we want you to hold public workshops, we want you to consult with your ratepayers at all economic levels.  Be honest with them, and be honest with yourselves as to what the true financial costs of this project will be and how much water you will receive for it.  Thank you.”

RYAN BOOMS, on behalf of Los Angeles Waterkeeper: Los Angeles Waterkeeper is concerned that investing billions of dollars of local ratepayer money to continue importing water will divert critical resources away from developing more sustainable, cost effective, energy efficient, and reliable local sources of water.  We need to reduce through water conservation and efficiency measures, we need to reuse through stormwater capture, we need to recycle through wastewater reclamation as the MWD and the County are planning at the joint water pollution control plant in Carson, and lastly we need to restore through groundwater remediation.”

Los Angeles Waterkeeper is also concerned that financing this project will negatively impact LA area ratepayers, particularly lower income Angelenos who already struggle to afford current rates.  Los Angeles Waterkeeper also stands with other environmental groups like Restore the Delta to express concern about this project’s devastating water quality impacts on the San Francisco Bay Delta.  Los Angeles Waterkeeper is also troubled by the expedited timeline to approve this project.  The three major white papers require extensive vetting by the MWD and outside groups like Los Angeles Waterkeeper.  With workshops and a final hearing all scheduled within two months, we believe there is not adequate opportunity to consider this project.”

ADAM KEHOS: I’m with Amigos de los Rios, an organization that works to bring opportunities for residents living in or around the Rio Hondo, San Gabriel, and lower Los Angeles Rivers.  We ask you to hold this decision until more environmental analysis can be conducted and until other organizations like ours can have the opportunity to participate in the information gathering and commentary process.”

CONNOR EVERTS, Southern California Water Alliance and the Statewide Environmental Water Caucus: I guess for those of us who have been working on this for many years, if you consider back to the peripheral canal, it may seem like this is the ending, but really until we know what the full costs are, it’s really hard to make this evaluation.  So many of my colleagues are bringing up questions.  I think this is really an opportunity for the Board as well to challenge and ask questions because we’re moving towards independence from imported water by 2020, we’ve already reached that many times over the last winter, and other agencies like the city of Los Angeles are moving with aggressive schedules to get off imported water and make use of local water.  We want to make sure that’s where your investment is first when you compare those.”

JESSICA SALENS:I just started an internship with Food and Water Watch, and I am a local community organizer in District 13 of LA City.  Unlike Connor, I haven’t been active in this for years and years.  I’m just understanding it now and understanding how water flows in California and who owns it, and so I would encourage this room to delay the vote.  With such an extreme infrastructure project which costs so much, we’re even at the state level talking about single payer health care in California, and our governor is asking how do we pay for it, and yet we have this project of $17 billion and we’re not even sure where the water will flow from it.  I do think we need to start prioritizing locally sources water and ways of reusing and capturing rainwater, and be thinking seven generations ahead of us.  Talking to the front line communities that have been doing this work for decades, bringing them to the table and asking the people that this will directly impact what do they think of it.

ART:  “I’m here with Environmental Justice Coalition for Water.  They are a statewide organization that work on providing clean drinking water for communities and people that don’t have access to it.  I’m here to ask you to delay this process because it’s a huge decision, it’s a big plan, and I think we need way more time to go over all the information that we need.”

The public comment period was thus concluded.

MODERNIZING THE SYSTEM:  CALIFORNIA WATER FIX INFRASTRUCTURE WHITE PAPER

Assistant General Manager Roger Patterson began by briefly reviewing the process on how Metropolitan staff is preparing the directors to make a decision on the California Water Fix in September.

Staff is developing a series of three white papers in order to prepare the directors to make a decision; they will be presenting them at board and committee meetings.  The first white paper is on the physical infrastructure and is the subject of the presentation today.  The second white paper will be presented in about two weeks, and will cover operations, water supply, and other aspects of the project.  The final paper will be on finance and cost allocation that will be presented in August.  A workshop is being planned for August where they will bring all the pieces together; they are also preparing a board letter on the three white papers.  This is all in order to set the stage for board action in September, said Mr. Patterson.

He presented a slide showing the benchmarks for a Delta solution that was adopted by the Board in 2007.   “The board spent a considerable amount of time basically putting together the guiding principles that the Board wanted us as staff to be using as we were engaged in the multiple discussions that we were having, so this was the framework that was provided by the board,” he said.  “Since 2007, we’ve tried to keep are eye on these policy principles.”

He said they’ve also tried to adhere to the concept of cost following water, and that everybody should pay the same.  “I’ve talked about that many times to the Committee that we’re looking at from our standpoint, no subsidy between the various sectors in the project.”

Mr. Patterson then gave some background on California water policy and infrastructure development.    What to do in the Delta, particularly with conveyance, has been an ongoing discussion for decades, he said.  In 1919, the USGS did an evaluation of the water supplies in the state of California and first put forth the notion of the need to move water from north to south; to move water from where it is to where the water is needed.

In 1931, the state engineer at the time, Edward Hyatt, produced the State Water Plan; it was submitted to the legislature and enacted in 1933 as the Central Valley Act.  The Act put a $17 million bond issue on the ballot which the voters passed, but due to the Great Depression, the bonds didn’t sell.  So the federal government was brought in, and shortly thereafter, the Bureau of Reclamation initiated what is now the Central Valley Project, starting with the Contra Costa Canal in the Delta to move water into Contra Costa County.  Shasta Reservoir, the cornerstone of that project, was finished in 1945.

In the 1950s, the State of California wanted to take on the next phase of the project, so in 1960, the Burns Porter Act was passed which authorized the State Water Project; a bond for $1.75 billion was put on the statewide ballot, which passed by only 174,000 votes out of $5.8 million.  Only one county in Northern California voted yes, and that was Butte County, the site of Oroville Dam.  “It was tight,” Mr. Patterson acknowledged.  “It’s always been contentious, and it’s no surprise that this continues to be contentious. It has been for a long time.”

The first time the need for Delta conveyance was specifically recognized was in the 1933 Central Valley Act, and since then, there have been several attempts to move forward with Delta conveyance, the most notable being the peripheral canal battle in the early 1980s that ended with the rejection of the project by voters in 1982.

The Bay Delta Accord in the mid-90s was another effort to bring together various agencies and stakeholders to work on Delta problems.  The Accord was struck in 1994; it created the CalFed process.  “I was working at the Department of the Interior at the time,” said Mr. Patterson.  “We were trying to do three things: One, dedicate more water to the Delta specifically for Delta outflow.  Two, CalFed brought the relevant state and federal agencies together to do the planning for Delta conveyance and storage needs.  Three, was a commitment to start funding some non-flow projects for fish.  Metropolitan’s involvement in that was the work that was completed at Butte Creek and the success that we’ve had there.  That was in the mid 90s leading up to about 2000 when the Record of Decision on CalFed was signed.”

The most recent effort that we’re approaching a decision point on is the Bay Delta Conservation Plan, now California Water Fix.  The process started in 2006 when a planning agreement was signed by various state and federal agencies such as the fish agencies, the Department of Water Resources, the Bureau of Reclamation, and several stakeholders.  “The situation hasn’t improved in the Delta even while we’ve been doing all this work and planning,” Mr. Patterson said.  “It’s been hard work.  People have worked with sincere intentions to try to address the problems, no matter where you come from on this.”

There remain significant risks to the Delta and to water supplies, such as fishery conflicts, subsidence, seismic risks, and sea level rise.  “Those are also in the back of our mind as we look at what we need to see as far as performance for a project consistent with the policy principles we’ve laid out,” he said.

Mr. Patterson then presented a graph showing the combined water supplies exported for both the State Water Project and the Central Valley Project and the various things that have occurred: the Bay Delta Accord, the Central Valley Project Improvement Act, and the most recently the biological opinions in 2008 and 2009 that were issued by the federal fish agencies.  “What does it look like in the future? We’re not sure.  We get a lot of these questions.”

He reminded that although the California Water Fix is in essence trying to achieve the same things as the peripheral canal, but it is different.  “One is it’s underground as opposed to being above ground; that’s a major change.  The other thing is the size.  The size of the diversion we’re looking at now is about 40% of what was looked at back in the early 1980s.   And we know a lot more about science; we know a lot more about adaptive management than we did then.”

Mr. Patterson then turned the presentation over to John Bednarksi, Engineering Program Manager for Metropolitan, who presented a brief overview of the white paper.  In his presentation, he discussed the physical infrastructure proposed for the California Water Fix, the constructability of the project and how it stacks up to other tunneling projects in general; the schedule and the cost of the program; and the risk management approach.

PHYSICAL FEATURES OF THE PROJECT

He began with the physical features of the project.  The project is about 43 miles in length from the north Delta intakes to the south Delta export facilities.  There are three intakes in North Delta along the Sacramento River; there are tunnels from the intakes to the Intermediate Forebay, and then the two main tunnels to convey the water south to the Clifton Court pumping plant that would be located in the northeast corner of the existing Clifton Court Forebay.  North Clifton Court would be modified to receive the water from the north Delta diversions, and keep that separate from the south Delta diversions.

The system will provide for “dual conveyance” which means that water will be able to be diverted solely from the North Delta intakes, solely from the existing facilities in the south, or through a combination of the two.   The project also includes modifications to the Head of Old River gate.

Mr. Bednarski then presented an overview of the three intakes proposed to be located about 5 miles south of Sacramento.  He noted that originally when the program was in development, there were five intakes capable of pumping 15,000 cfs; through the environmental review process and the comments received, the program was downsized to 9,000 cfs.  The numbering of the intakes has remained the same for consistency through the environmental process, so the intakes are #2, #3, and #5.  They are spaced approximately 2 miles apart from one another.

The location for the intakes was determined by a technical team that was established between federal and state fish experts, DWR, and other experts in fish and aquatic studies areas, so these locations were all agreed upon ahead of time, Mr. Bednarski said.   Each of the intakes are connected by a tunnel system; there are 2 28-foot diameter tunnels that will convey water from intakes 2 to intake 3, and that will be transitioned into a 40-foot tunnel; from intake 5, there is also a 28-foot tunnel.

He then presented the most current conceptual drawing for the intake facilities.  “These have evolved over time, but this is a proven technology for on-bank fish screen intakes,” he said.  “There are several of these along the Sacramento River already and operating within their specifications.”

There are a series of box conduits that convey the water into the sedimentation basins, where larger particulate matter from the Sacramento River can be settled out before that water drops into the tunnels.  The sedimentation basins were originally planned to be concrete basins, which were large concrete structures that would need to be pile-supported and would use tens of thousands of cubic yards of concrete.  “We are now following an approach that was used up at the Red Bluff facility north of Sacramento utilizing earthen basins.  This has helped us reduce construction impacts as well as our greenhouse gas footprint for the overall program.”

He then presented a diagram of a fish screen, noting that one of the advantages of having the screens along the river at this location is that now migrating fish will not be trapped in a dead end situation like they are at the South Delta as they will be able to swim by these fish screens.   Each of those fish screens will be anywhere from 12 to 17 feet high, depending on the depth of the Sacramento River at that particular location.  At intermediate areas along the run of the intake, there will be refuge areas established where the screens will be blanked off to allow the fish to rest in those areas before they continue their journey past the screens.

Mr. Bednarski pointed out that this technology has been used in other locations along the Sacramento River.  “The important thing to point out here is the screen spacing at 1 ¾ mm,” he said.  “The approach velocity is a key criteria for the design of the screens; it sets the overall sizing of the intakes in the different locations.  The velocity is 0.2 feet per second through the screens at the maximum diversion of 3000 cfs per intake.  This criteria was set to allow Delta smelt to be able to navigate by the screens without becoming impinged against the screens; even though the Delta smelt are not known to migrate up as far north as these intakes are, if they do begin that migration in the future, these screens can be in full operation with the Delta smelt in the vicinity of the screens.”

There are three tunnel reaches totaling about 13.5 miles that are associated with the North Delta intakes: there are two 28-foot diameter tunnels and one 40-foot tunnel.  The purpose of these tunnels is to collect the water from the intakes and bring that to the intermediate forebay.  In  prior interations of the design, the collection facilities were going to be cut and cover pipelines, but during the conceptual design, it was determined that tunnels would be preferable, both for the constructability and to reduce potential impacts to the local communities in that area.

The intermediate forebay receives water from the north tunnels, allows those to be comingled and split equally into the two main 40-foot tunnels going south.  The water surface footprint of the Intermediate Forebay is about 40 acres; the overall footprint is approximately 100 acres.  Another refinement made during the environmental process was to reduce the size of the intermediate forebay from 750 acres to 40 acres, which is the bare minimum required in order to feed the pumps with a consistent source of water, and also to dampen the hydraulic surge that could occur if there’s a power trip at the pumps station.

The main tunnels are twin bore; they will be deep tunnels with the bottom right now set at 150 feet below grade.  “We’re looking for ways to possibly bring those up to reduce tunneling costs and to make the project basically easier to install,” he said.  “These are going to be unique tunnels in these would be a single pass liner system; that means there will be a 2 foot thick concrete liner with gasketed joints that will be relying on the fit up of those segments at the gasketed joints to provide the water tight seal inside the tunnels.”

Mr. Bednarksi noted that the top photo is the Port of Miami tunneling machine which is about 42 feet in diameter; the bottom photo is a 40-foot inside diameter tunnel that crosses underneath the sea of China in Hong Kong.  “I present that photo just to show you how tight the fit up of these tunnel segments can be to allow us to mitigate any kind of seepage into the tunnel or out of the tunnel; they are virtually water tight tunnels.”

The Clifton Court Forebay in the south Delta provides feed water to the State Water Project’s Banks Pumping Plant; the Central Valley Project’s Jones Pumping Plant is also located here, on the far right of the slide; those will remain intact and are not being modified with the program.  Clifton Court Forebay will be modified so that the north half of the facility will receive the fish-free water from the north diversions; the southern half of Clifton Court will be enlarged, back to almost it’s original size and will provide DWR the capabilities to continue on with their south Delta diversions, when those diversions are permissible.

Mr. Bednarski then turned to the pumping facilities in the south, noting that this was another innovation brought together during the environmental process.  There are two 4,000 cfs pumps that will be located at Clifton Court; these vertical turbine pumps will lift the water about 20 to 25 feet and drop it into the north Clifton Court and keep it isolated from the water from the south diversions.

There is also the capability under certain river conditions to divert water by gravity; when the Sacramento River’s stage is high enough, up to about 5000 cfs can flow by gravity through the system without pumping.

The project components also include improvements to the Head of Old River gate, which is being constructed primarily for fish protection.  Currently, the Department of Water Resources is constructs a rock barrier at the confluence of the Old River and the San Joaquin River to stop the small salmon from being drawn towards the export pumps at Jones and Banks.  With the rock barrier in place, the fish are instead diverted down the rest of the San Joaquin River and they can make their way out to the ocean.  The purpose of the Head of Old River gate will be to replace this annual installation of the rock barrier.

This will be an operable gate that can be raised and lowered when the salmonids are present, so that it provides a lot of operational flexibility and real time operation capabilities for DWR for environmental protection of the salmon,” he said.

PROJECT CONSTRUCTIBILITY

Mr. Bednarski then discussed the constructability of the project, saying that they’ve broken this down into several different areas:  understanding the complexity of this project and how it relates to other complex infrastructure projects that have been implemented in the United States and throughout the world; establishing an appropriate management structure; developing confidence in the cost estimates; and assessing and managing program risks.

There have been some modifications to the program along the way: the footprint of the Intermediate Forebay has been significantly downsized; impacts to Delta communities have been reduced by relocating the pumping plants to Clifton Court; the use of public lands has been maximized in the realignment of the tunnels; the size of the program has been reduced from 15,000 cfs to 9,000 cfs, and they have been able to provide for gravity flow under certain conditions for the north Delta diversions.

The original peripheral canal was going to be approximately 1400 feet wide, spanning about 35 to 40 miles through the eastern side of the Delta.  It would have cut a large swath, eliminating animal migration paths and disrupting connectivity for transportation and farming through the Delta; it would have taken up about 19,000 acres if fully implemented.  With the tunnels, surface impacts have been reduced by about 90% with much of the facilities being below ground as compared to the original peripheral canal, he said.

With the tunnels accounting for approximately 2/3rds of the constructed cost of the facility, they spent a lot of time looking at other tunnel projects throughout the world; they have met with all of the folks on these projects with the exception of the Eurasia tunnel in Turkey.

Mr. Bednarski then discussed tunnel boring technologies.  On the far left is the cutter head which moves through the soil; the preliminary investigation at tunnel depth is that the soil will be dense silt, sands, and clays.  This is ideal for tunneling conditions with the only potentially problematic issue being the water pressure that will be in front of the tunnel boring machine, so they are proposing to use ‘earth pressure balance tunneling’ technology to overcome the pressure and allow them to tunnel safely.

Next are the jacks that press against the segments as they are constructed, and then the segmental liner.  Then behind that, there is a screw conveyor that brings out the reusable tunnel material, places it on conveyor which transports it to a shaft to be brought up to the land surface.

The tunnels proposed for the program, even the smaller tunnels at 28 foot in diameter, are larger than normal metro tunnels, so they spent quite a bit time researching the capabilities of the tunneling industry and the contracting industry to design tunnel boring machines to meet the needs and to construct these tunnels safely and efficiently.

This is a representation of where our tunnels will sit, as far as the state of the practice for worldwide tunneling technologies, so we feel we are in the sweet spot of the large tunnel boring machines,” Mr. Bednarksi said.  “There is a lot of experience with designing, building, and operating these size machines, and there have been a lot of successes.”

He noted that to the right are the large tunnel projects, both the Seattle project and the Hong Kong project.  “Many of you are aware of the difficulties the folks up in Seattle ran into with the Bertha tunneling machine,” he said.  “Those were eventually resolved but it was approximately a 2 year delay in their overall project, but they did pull through and complete tunneling in April.”

During the conceptual engineering effort, they did look at the opportunities to go with a single bore tunnel.  “We’re estimating that in order to convey the full 9000 cfs, that we need an inside tunnel diameter of approximately 56 feet, which would translate to a tunnel boring machine requirement of about 60 feet,” he said.  “You can see that would be well beyond what the current tunneling industry has offered so far and successfully applied, so that was one of our reasons for mitigating risk at least on the tunneling side was to recommend going with twin tunnels of a smaller diameter.”

Tunnel shafts will be utilized throughout the project to launch the machines as well as to retrieve them at the end of their tunnel drives, as well as for materials, staffing, ventilation and other things.  “In the short-term, the shafts will provide construction access, so in addition to these large shafts required for operating and maintaining the machines, we’ll have shafts at midway locations and sometimes at specialized maintenance locations,” he said.  “These will be temporary shafts and will be closed up and buried after construction is completed.  The few remaining shafts, I believe there’s about three of these different locations on Staten Island, Baldwin, and Bacon Island; they will allow DWR to get long-term access to the tunnels for maintenance which is expected at about every 5 to 10 years.”

In developing their plans for the overall management of the project, they also looked at other mega programs in addition to just tunnels.  Some have good reputations (such as the Water Supply Improvement Program in San Francisco) and others perhaps more checkered reputations (such as Boston’s Big Dig).   They looked at all of these, gathered the best practices from all of these programs, and worked these into our overall program plans for implementing the project.

So what has been learned from talking with others about their projects?

Proactive risk management:  “First and foremost, proactive risk management and first on that list is controlling the project scope,” Mr. Bednarksi said.  “This will be first and foremost on our list of requirements.  Often we see projects run into problems when shortly after they are authorized, a lot of additional scope is added to the project.  It makes it very difficult to control your overall schedule and budget for the program at that point in time.”

Another item that we really put a lot of significance on is running an active and continuous risk management program and assigning risk to the appropriate party along the way,” he said.  “In deference to some of the other programs that we’ve studied, where risk management is kind of done as a one-off process, we plan on doing this as a living effort or process throughout the entire life of the program.

Understand geological setting: Since 2/3rds of the cost of the program’s capital costs are in the tunnels, we really need to know what the geological setting is.  As I’ve presented before, we have about 200 borings through the Delta now.  This is not enough to complete final design of the tunnels.  We need to do a much more robust program and a more robust program is planned then what’s covered in the environmental planning process.  We have a two-step program that will be implemented.  We plan on collecting, depending on the ground conditions, upwards of 2000 different samples of the ground, so we really understand what that is and are able to document that in our contract documents.”

Address long lead time items early:  “Making sure you have all the rights of way acquired early on and that you have those in your control before you start issuing construction contracts.  Utilities and coordination with outside agencies is going to be especially important in the Delta; we’re going through a number of different communities and we have to work with those counties, cities, and other localities as we move through their areas and finally, logistical issues.  The Delta is relatively close to Sacramento and Stockton, but it is a very rural area, and we will need to develop the sites before we can come in and work, so we’ll be working on those early on.”

Construction will take approximately 16 years from initial start up through completion of construction with an additional year or so of commissioning at the end.  There is not a program office yet; although they have a nucleus with some staff and personnel, it will take hundreds more, so it will take some time to staff up.  However, he said they can start design relatively quickly.   There is about a 4- year design period with the first construction starting in about year 3 after receiving approval to move ahead with the program.

COST ESTIMATES

Cost estimates are very important as they set the initial budget and also benchmarks of what to manage against, so they’ve prepared multiple estimates.  “Because we’re at the 5 to 10% conceptual engineering phase for this program, a Class 3 estimate is what is appropriate,” he said.  “There’s five different classes of estimate, all the way from a Class 1 to a Class 5.  We’re kind of in the middle now; as we move forward with design, we’ll be moving into the Class 2 and the Class 1 estimate is what you issue right before you prepare your engineer’s estimate for construction bids.”

They’ve constructed bottoms-up contractors estimates as the estimates for this program where they broke down the conceptual engineering report into all of its components; they added up all the tons of steel, the cubic yards of concrete, and taking into account things such as local labor rates and developed an estimate that would be similar to what a contractor would prepare if they were submitting a bid to DWR for constructing the facilities.

Mr. Bednarski noted that the estimate that they’ll be seeing initially is in 2014 dollars; they do have the ability to escalate that to 2017 dollars.

He presented a table of the $15.74 billion cost estimate shown in the white paper, which covers all the capital costs of the program.  Not shown in this estimate is the approximately $1.4 billion for 50 years of O&M on the facilities.

He then presented a comparison of three different cost estimates.  The first cost estimate was prepared by 5RMK in 2014 which totaled $14.94 billion with approximately $9.5 in construction costs.  Added to that is a 36% contingency of $3.38 billion.  “The contingency is really set up there to take care of unknown risks that may, the program may encounter as you move along through the different phases of the project,” he said.

In 2015, the second bottoms-up estimate was developed by Jacobs Engineering.  “The good news story to us here was that their estimate came in slightly less than the 5RMK estimate of $14.94 billion,” he said.  “I might also mention that the 5RMK estimate is sort of the basis for the overall estimate for the program at this point in time.  Again, 36% contingency has been attached to this estimate, so you can see the difference between estimate 1 and estimate 2.  So that gives us good confidence that our initial program estimate that we have at this point in time is valid.”

The third estimate is a risk-adjusted estimate which takes into account mitigation of risks that could possibly impact the project.  “What we did in late 2015 is we assembled a group of subject matter experts in heavy infrastructure, construction, tunnel construction, and pump station construction on both the design and construction side of things.  We ran a 3 day workshop where we asked this group to try and identify all of the potential risks that could befall a program such as ours.  Identify those risks, the likelihood of occurrence, and the consequence of them occurring to the project.  What is the most likely occurrence, what would be the most likely cost of that occurrence, what would be the high end of that occurrence, what would be the low end of that occurrence.”

We took all of that data from the workshop, we put it into a statistical model, ran that model over 10,000 times to generate what we call an S curve that predicts basically where the program costs will fall,” he continued.  “And just for point of brevity, I did not include that S curve in this presentation but it’s included in the white paper, and it’s explained in there that we, for the purposes of our estimating here, we chose the 75th percentile, which gives us a degree of confidence that our program costs will be either at the number at the 75% level, or below that for the completion of the project.

I want to just point out here on estimate #3, you can see that on that S curve at the 75th percentile range, the construction estimate, the design and construction estimate is $10.66 billion,” he said.  “There’s no contingency with this number any longer, because the risk workshop took into account the potential for something going wrong on the project, so there’s no need to add a separate contingency any more once you do the statistical modeling in the workshop process.  So again, the third estimate gives us additional confidence that our program estimate of $14.94 will not be exceeded.  We’re now at this risk adjusted one at $12.72 billion for the program.”

MANAGING RISKS AND PROTECTING METROPOLITAN’S INTERESTS

Risk management will be an ongoing process throughout the life of the program.  “Unlike many programs that do it once and put that book on the shelf, we actually have a very high level position identified in our organizational chart that will be responsible for doing ongoing risk management throughout the program,” he said.

There is a three step process for doing that.  “First, try to avoid the risk.  For example, on this project, we were able to realign the tunnel to avoid sensitive surface features or below ground features, so that was one way to mitigate a risk is to avoid the risk,” he said.  “Second would be to mitigate the risk, and those of you who are familiar with Arrowhead tunnels, we did a lot of grouting on that program as we went through fractured ground.  That’s a way to mitigate your tunneling risk by grouting, so we’ll be looking for opportunities to mitigate risks that can’t be avoided on the program.”

The third step would be to allocate those risks through construction contracts to the most appropriate party, whether that’s the owner or the contractor.   An example of this might by the Port of Miami tunnel, where they set up risk allocation funds in the project, they knew there was going to be a lot of grouting as they tunneled underneath the port, and so the contractor could draw on those allocated funds and then at the end of the project, any unused funds was split equally between the owner and the contractor.  This might be a way to allocate risks, so we’ll be looking at all sorts of opportunities like that to manage risk actively throughout the program.”

A Design and Construct Authority will be established as a joint powers authority; it will be charged with management of design, construction, and commissioning of these facilities.  The Design and Construct Authority will be a single purpose organization, meaning it will sunset once the project is commissioned and turned over to DWR.   It will be under contract to DWR, but not necessarily part of DWR, he said.  “They’ll be receiving general direction from DWR, and DWR will be able to have an opportunity to input along the way.  If there are significant changes, DWR would have to be consulted on those kinds of things, but the day to day operations will be led by this Design and Construction Authority.  There will be independent staffing from DWR, while we may draw upon employees from some of the public water agencies to be part of this, we’ll be looking for world class expertise to staff the organization.”

He then presented a proposed organization chart.  The Joint Powers Authority, a public agency, will be under contract to the Department of Water Resources.  The organization will be led by a Program Director.  The design and construction management would fall under the purview of the program manager.  Mr. Bednarksi noted the how risk management is elevated to a high level in this organization chart; this position will be charged with managing the risk, insuring QA quality assurance and quality control, and providing an internal audit function.  “This was really helpful to us on the Arrowhead tunnels.  We had auditing going on continuously on the program, we got invoices in from the contractor every month, and active program controls, and reoccurring cost estimates will be generated throughout the life of the program to make sure we’re on track with our overall budget.”

SO IN SUMMARY …

Mr. Bednarksi said that the project facilities are consistent with Board policies as far as insuring reliable supply.  “Through all of the mitigation efforts that we have made along the way, we have not jeopardized the overall scope of the project and its purpose of the project; it will still deliver what your Board is expecting it to deliver as far as a reliable supply of water from the Delta,” he said.  “We found through our investigations that the program can be implemented with industry best practices and the risk will be managed through some of the methods that I’ve described today to ensure and protect Metropolitan’s interests.”

And with that …

DISCUSSION HIGHLIGHTS

Director Lorraine Paskett asks, “In the white paper, there’s a sentence that says that the JPA is developed through contractual relationship between parties, included Met and the DWR.  There’s a sentence in here that says the Department of Water Resources may not have ultimate veto.  I want to understand better how it works.  Will the decision making be at the JPA level, or will there be a process and a board, but the DWR can override the decision making?

DWR has to remain in control of the project by statute,” said Roger Patterson.  “So what they would do is form the JPA and then in the contract between DWR and that Joint Powers Authority, we will need to spell out the various review and approvals that DWR may retain.  That would be a negotiation, but they have to maintain certain decision making themselves, just like when we contract with any other consultant to do work, a lot of the decisions are made at that level, so we want to find the right balance between efficiency and moving the project along.  The board of the JPA will be making all of those decisions that they’ve been delegated, yet DWR will reserve certain decisions they make, and we’ll describe those and sort of the tolerances around those.”

Director Lewinger said, “You talk about mitigations. What you’re really talking about is mitigation of constructability if you will.  You’re mitigating the risk of construction. (Bernardski agrees.)  One of the biggest risks that I see, if I understand it right, is that we still need permits in order to construct and operate the tunnels, if they’re constructed.  And the regulations around those approvals are not yet known.  That’s a huge operational risk that we don’t know the answer to yet, so my question is, will the next white paper discuss that risk and the range of risk, because that risk can go all the way from 0 benefit from the tunnels, would be worst case scenario, that the fish and wildlife agencies come out with such horrendous requirements that we get no additional benefit from the construction of the tunnels to something where we do get a benefit.  Are we going to be discussing those risks as part of our operational white paper?

The next white paper is going to be a pretty meaty paper,” said Mr. Patterson.  “It will do an analysis of what we believe the operational constraints and restrictions are.  We try to provide some assessment of the risks associated with those.  We will describe how Metropolitan will be involved in the adaptive management program and the science programs which help to mitigate, and we need to remember that the fish agency permits for the tunnels were recently issued by Fish and Wildlife Service and National Marine Fisheries Service, that is a huge step.  But we know 15 years from now, if the project goes forward, as the science evolves and our understanding of the science, changes will likely be made to those permits, we’ve experienced that in the past, so we’ll do the best job we can trying to be fair with an assessment of that, and that will be in the next white paper.”

Director (sorry, unable to identify) asks,  “One of our speakers this morning talked about a paper that Dr. Jeffrey Michael prepared.  Would it be possible to have him come and speak before our board to talk about his observations of this program?

Obviously we can look at the time schedule and invite in guest speakers,” said Mr. Kightlinger.  “The point here is not to have a debate forum here; the point is to get as much information as we can in your precious time and in the calendar, and we’ll just have to work with the chairmen of the committees and the chair of the board as to who we can invite in …

Director Steiner asked, “Is the DCA and the JPA also going to be responsible for financing?  I notice there was a financial group but it didn’t seem to be focused on the actual financing and going out for bonds or anything along those lines.  Is that going to be one of their joint duties?

Roger Patterson answered, “The discussion with DWR and amongst the contractors has been to set up a parallel JPA to do the financing, so that’s how we’re working with that, similar with what we’ve done with other programs, but the recommendation we’re getting from counsel and others is form a separate JPA, sits along side the construction, and they will do the financing aspect of that.”

I wondered if I was reading that between the lines, because you do have DWR having approval, and one of those things is costs going over 5%, so I presume that whatever the separate JPA would have similar issues and restrictions put on it, such as if you have here for other things,” Director Steiner said.  “There was a mention you were going to talk about 2017 dollars; I don’t remember hearing that …?

These are in 2014 dollars, the $15.74 billion,” said Mr. Bednarski.  “Then if you use the Engineering News Record construction cost index for the last three years, it’s averaged about 3.1, 3.2% so … roughly adding about 10% to this number brings you up to about $17 billion for the escalated construction costs in 2017 dollars.

Director Steiner asks about the permits.

There are numerous other permits that we will need,” said Roger Patterson.  “The key permits we wanted to see before we could make a decision were the federal and state fishery agency permits.  The Corps of Engineers will have multiple permits that they will need to issue.  The State Water Board is in the proceeding to add the new points of diversion, so that will be another form of a permit, and then the State Water Board is also, not specific to this project, but they are in the middle of updating the water quality control plan for the Delta which we are keeping a very close eye on and participating in that, so there are numerous permits that will still be needed.  The big ones are the ones we just received.”

“There are dissenting views about this,” said Director Wunderlich.  “We’ve heard a variety of economic analyses, and have touched on dissenting views of those economic analyses, but I hope we can find time in our workshops and our presentations to not necessarily have a debate but to have those presented.  I know I like to hear all perspectives on an issue, and I get asked about this, I know there are people in the public who are following these dissenting views and I get asked about those questions, and I’d like a better knowledge base to know why these people are coming to very different perspectives on some of the issues, so that I can address them so I would like to make the time so we can hear those things as well.”

Director Peterson noted that Dr. Michael’s report is readily accessible on the internet.

I know that,” said Director Wunderlich.  “But to have a presentation by our staff or someone weighing on, pointing out the disconnects, pointing out the different assumptions …

Director Sylvia Ballin says, “I’d like to say I have great respect for Director Wunderlich and the way he views things concerning his profession and I support everything he says.  I think he makes sense.”

Director De Jesus expresses concern about DWR and the history of cost overruns.

That’s the whole point of the Design Construction Authority,” Roger Patterson said.  “We’ll handle that with a board made up of contractors and staffed by Metropolitan and other contractor staff to mitigate that risk.  That is the best way we think to manage and mitigate the risks that you’re touching on.”

FOR MORE INFORMATION …

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