METROPOLITAN’S BAY DELTA COMMITTEE: Update on Cal Water Fix cost and benefit allocation discussions for State Water Project contractors

Plan to allocate the costs and benefits of the California Water Fix project among State Water Project contractors begins to take shape, plus is a Delta watershed-wide agreement in the works?

At the October meeting of Metropolitan Water District's Special Committee on the Bay-Delta, Committee members heard an briefing on the State Water Board's water quality control plan process, an update on the California Water Fix project focused on discussions amongst State Water Project contractors on allocating costs and benefits of the project, and in the Bay Delta Manager's report, is the makings of a Delta watershed-wide agreement in the works?

UPDATE ON STATE WATER BOARD’S BAY DELTA WATER QUALITY CONTROL PLAN PROCESS

At the October meeting of Metropolitan’s Bay Delta Committee, Becky Sheehan gave an overview of the State Board’s water quality control planning process for the Delta.

The State Water Resources Control Board adopts water quality objectives for the reasonable protection of beneficial uses, through its water quality control plan process.  Beneficial uses include agriculture, urban, and fish and wildlife; the State Board seeks to strike a balance between those beneficial uses to ensure a reasonable level of protection.  Once it has set those standards, it moves to implementation, which can occur through a variety of means, such as a water rights proceeding, voluntary agreements, or other sort of activities.  The State Water Board is required to review the water quality control plan on a regular basis, pursuant to both the state law and the federal law which is implemented by the state.

Water Rights Decision D-1641 is what implements the existing water quality control plan for the Delta; it started with the Bay Delta Accord back in 1994, a voluntary agreement.  The Accord was the basis for the standards, and through that agreement, the state and federal water projects agreed for a period of time to cover some of the in-Delta standards, such as salinity standards for protection of urban, ag, and fish and wildlife; the minimum outflow or the X2 standard for fish and wildlife; and export limits which are a ratio based on how much inflow is coming into the Delta and how much of that can the projects divert.

D-1641 also covers the Delta Cross Channel gate, a federal facility.  When the Delta Cross Channel is open, it brings fresh water from the Sacramento River into the Delta and provides benefits for salinity control; the fish agencies and the State Board often require it to be closed when salmon are migrating to keep salmon out of the interior Delta.

Ms. Sheehan presented a map with yellow triangles representing compliance locations throughout the Delta, primarily salinity standards for a variety of purposes.  She noted that the two triangles on the west side towards the Bay in the red and purple area represent the outflow standards which are variable as far as compliance location.

The State Water Board has broken up the update into phases:  Phase 1 is the San Joaquin River and Southern Delta salinity standards.  Ms. Sheehan noted that they aren’t spending much time on this phase of the update as there aren’t any facilities on the San Joaquin side, although there are some overlapping issues; however, with respect to the salinity standards in the Southern Delta, the State Water Project is partially responsible for those so Metropolitan is weighing in on that issue in Phase 1.

Phase 2 addresses the Sacramento River and basically everything else not addressed in Phase 1; Ms. Sheehan noted that this phase is the one staff is most interested in as it will affect Metropolitan the most because there are State Water Project facilities on the Sacramento River side and in the Delta.  Phase 3 in this process is implementation of Phase 1 and 2; and Phase 4 is looking to the upper tributaries, mostly those that are important for the fishery, and setting goals or targets for those tributaries.

Metropolitan has been involved in the water quality control planning process since the beginning of the update and has been submitting detail comments every step of the way, Ms. Sheehan said.  “Recently, the State Board came out with the final phase 2 technical report and we commented on the draft.  We’ll also make comments on the final, because it’s very important to make sure that the State Board is aware of our concerns on the report.  This is something they are going to look at in their decision making, and primarily it’s making sure that the State Board has the information they need to make decisions.  That falls into the category of making sure the scientific uncertainty of various analyses are disclosed, because there’s certainly a range – one analysis was maybe a pretty information quick analysis versus something that’s been fully vetted for many years and fully discussed, and we want to make sure the State Board knows which category the science is that they are looking at when they go forward to make decisions.  And that falls into several of the categories here, including literature cited, and some of the approaches to how they show the results of statistical analyses.”

The State Water Board has specifically posed questions to the public that they are looking for input on; the deadline is November 8th.  “Their questions are primarily based on implementation,” she said.  “They are very specific implementation questions and we don’t really have information from the State Board sufficient to fully answer them as requested as all we have right now are the bare bones of a staff report, and it’s not very detailed.  We haven’t even been in front of the State Board yet to have any kind of process on what the proposal may be.”

Really what we are focused on is the same thing the Governor is focused on which is looking for comprehensive solutions, voluntary agreements, that are watershed wide, that we think are more durable and viable and more likely to help the fish in the end,” she continued.  “We’re going to spend significant resources to move forward, and we want to make sure we’re doing it in a way that is actually beneficial to the fish.”

As for next steps, Metropolitan will be commenting on the implementation, as well as the final Phase 2 report; staff will continue to collaborate with our partners, working to come up with some viable solutions.  The next step in the State Board process for Phase 2 is to come out with the CEQA document, at which point there will be hearings and forward the information they need for decision making.

As we have been and continue to be, Met staff with continue to participate very actively in all those processes as we move forward,” concluded Ms. Sheehan.

UPDATE ON CAL WATER FIX

Steve Arakawa, Manager of the Bay-Delta Initiatives Program, then gave an update on the California Water Fix project.  He began by presenting an updated graphic showing a list of State Water Project contractors who have voted to participate in California Water Fix.  He noted that some of boards will make a determination on involvement in the JPAs at a later date; for other contractors, they plan to be represented by a party that would represent the group.  Alameda Zone 7 Water Agency and Metropolitan are the two agencies that took action related to joining both the design and the construction and the finance JPA.  “I estimated that with roughly 4.2 MAF of contract amount, that Metropolitan is 1.9 of that 4.2 and the other agencies represent about 1.6 MAF, so that’s about a total of 3.5 MAF of the State Water Project,” said Mr. Arakawa.

Discussions about cost allocation continue on the State Water Project side.  Those discussions over the years have always been that the existing State Water Project contract would be the basis for how costs will be allocated, based on Table A amount, which is the portion of contract amount that each agency has with the state of California for its State Water Project supply.  For Metropolitan, that’s 1.9 MAF; for Kern County Water Agency, it is slightly under 1 MAF.  All of the contractors’ Table A amounts add up to approximately 4.2 MAF.

The approach on cost allocation is that all contractors would pay their share based on this contract amount for Cal Water Fix, and then there would be opportunities provided under the contract to manage their supply, to manage their costs, and to utilize water management provisions under those contract provisions to manage both of those,” Mr. Arakawa said.  “So for example, the contract allows for the transfer of contract amount on a permanent basis, so a contractor may decide that they want to reduce their contract amount and they could enter into a contract with another party to transfer that contract amount; they would reduce their contract amount and some other party would increase theirs and that would be the way in which an agency may decide to control their costs, and another agency may decide to improve their reliability.”

He noted there are other opportunities as well, such as multi-year transfers and ability to do water exchanges.  Water exchanges could occur where parties are looking to exchange water during one period of time in return for water in another period of time; this could even be across different years, he said.  “Those exchanges could not only be across different years, but could end up reflecting that wetter period water versus dried period water have different values, so maybe an uneven changes, and some of those uneven exchanges have occurred over time between contractors.”

Another example is banking programs.  Since the mid 90s, the State Water Project contract has allowed for parties to have agreements between themselves on using banking programs, so for example, Metropolitan has banking arrangements with entities up in Kern County and that has provided for improved water supply reliability because wetter period water can be put into that bank and then drawn out in drier years when there’s a need for that water, he said.

These are the kinds of examples that are available and are being discussed as a means for managing water and managing costs within the State Water Project member agencies,” said Mr. Arakawa, noting that a number of agencies are interested in how this all could work for them.  “Just to kind of refresh on Cal Water Fix benefits, when trying to put the backdrop for how these kinds of water management arrangements can work, the benefits could be summarized in the following way: that Cal Water Fix provides improved reliability, both in terms of Table A water supply which is the water supply that is allocated at the beginning of the year and updated each month during the year as you get to approximately May.  That’s water that is scheduled, so agencies through their contracts schedule their water, DWR updates the allocation each month they go through the heart of the hydrologic year where most of the rainfall and snowpack occur.   So Cal Water Fix provides the benefit of having improved reliability for Table A water supply.”

Secondly, the Cal Water Fix project also has the benefit of providing more access to unscheduled water, or ‘Article 21 water’ in contractual terms.  “That’s water that becomes available in the Delta on an unscheduled basis because of unregulated flows in the system,” he said.  “San Luis Reservoir, which is south of the Delta, DWR would look to fill that reservoir, and then once that’s full, any additional water that may show up in the Delta becomes available; those Article 21 supplies are provided to contractors who have a need and an ability to manage that water.  Metropolitan has taken Article 21 water, they’ve taken it this year for example.  Cal Water Fix provides that capability because of the diversion in the north and the ability to divert the stormwater and to do it in a way that’s within the regulatory framework to allow for diversion of that water without causing problems to fish because of the reverse flows at the south end of the Delta.”

The Cal Water Fix project also provides capacity to convey non-project water.  “If there are water transfer arrangements with the parties upstream of the Delta that is not State Water Project water, the conveyance provides that kind of capacity to do those transfers,” he said.  “Today with the current system, the ability to do transfers can be very limited in certain periods, particularly when you get to the point where there’s a 55-60% allocation, the water that’s moving through the system and through the Delta is mainly Table A water and it squeezes out any capability to move any transfer water.  What Cal Water Fix does is it provides that increased capability because the water is moving through the tunnel diversion rather than the south end of the Delta, so it provides that additional benefit of being able to move non-project water and provides more capability to do water transfers.

Cal Water Fix also reduces losses with transferred water that occur because as water moves through the Delta, there may be outflow increases that are needed to protect salinity.  “So if water is moving through the tunnel versus export pumps at the south end of the Delta, that reduces the amount of water that basically is needed in order to divert that extra amount with water transfers because you have to protect the salinity.  That is all part of the operations, so it can reduce those kinds of losses.

Mr. Arakawa noted that the capacity of the project provides reliability in the case of emergencies such as a catastrophic failure in the Delta.  “If, for example, there were an earthquake and pumping facilities at the south end are not accessible, because the levees fail and salt water intrudes, the ability to divert at the north end is that emergency capability.”

These are the kind of benefits when talking about how do you enter into arrangements between contractors to figure out how the benefits can work for contractors and the costs can be managed,” he said.

The framework behind the discussions has consistently been ‘beneficiary pays,’ Mr. Arakawa noted.  “If there’s a benefit that a contractor is getting, then they would be paying for that benefit; if there’s a benefit that could be transferred to another contractor, then that contractor will take on that cost.  So cost sharing amongst these benefits would be appropriate when it’s determined that makes sense between the contractors.  The results of this could be long term partnerships between contractors on managing their water supply.  For some contractors, it’s really managing costs to make sure that they are able to manage within their cost limits but at the same time, continue to live up to their contract that they have with the state of California, and to support the Cal Water Fix project.”

Mr. Arakawa then gave an example of a possible water management action.  For example, there could be a multi-year water transfer provided for under the contract and the amount of water transferred is potentially equivalent to the improvement in supply that is part of Cal Water Fix.  “We have talked about the benefit of Cal Water Fix and that reliability being what the supply would be if we made no investment, projecting forward that regulations only get tighter, so we are looking at less reliability in the future compared with where we are today,” he said.  “With Cal Water Fix, it’s really strengthening the reliability and providing for that increased Table A water supply as a result of that.  So that could be the supply that could be part of a water management action.  Scheduled Table A water that could be part of a multi-year water transfer.”

In this case, the party that’s transferring the water would continue to pay their bills under the existing State Water Project contract, they would pay their statement of charges to DWR, and the transferee, the party getting the benefit of this incremental Table A would pay the equivalent of what that value is so the transferor pays DWR and the transferee is reimbursing the transferor for the benefit that’s being transferred,” he continued.  “Conceivably the transferor, that that’s transferring this Table A water would retain other benefits, for example Article 21 supply that mainly can be used in the contractor service areas, so it’s not transferrable, so they would retain that benefit.  They would be potentially retaining the ability to do water transfers, and conveyance capacity during emergencies.  So one way that an arrangement could be worked out is the transferor pays for the benefits of Article 21 and these other capacities, including transfer capacity and emergency capacity, and the other party that enters into an agreement could get the benefit of the Table A water that gets transferred and that party would pay the benefit of that to the transferor.”

He then gave some examples related to existing and planned infrastructure.  “For example, parties are looking at in the future whether they make an investment in Sites Reservoir, which is a planned off-stream reservoir in the Sacramento Valley that could capture water and basically provide for a range of benefits, including environmental benefits in the Delta; there are also water supply benefits to users that may be part of that project,” He said.  “The ability to move that water from north of the Delta to an export area south of the Delta – really the focus here is how to move that water through the Delta, and in today’s situation with the regulations and the facility capability that we have today, providing that kind of transfer is very limiting because of how the Delta is regulated and the capacity that is available.  So potentially, a party would be looking to Cal Water Fix benefits to help support an investment in storage upstream, like Sites Reservoir.”

Mr. Arakawa noted that there is an ongoing agreement in place with Yuba County Water Agency to transfer water; that transfer becomes more reliable and viable if there is more reliable capacity to move water through the Delta, so that’s another real example where Cal Water Fix could be a benefit to contractors relying on that kind of transfer.

Exchanges that go across years are another possibility.  “An agency that has a need for dry year water could provide for supply in wetter year and then get that water returned on some basis in drier years – to translate a value that may be more limited in wetter years and find a partner that could use and manage that water and then in drier years, convert that to value that is needed to meet a demand.”

There are benefits is there is an emergency in the Delta, such as a levee failure that take some time to repair; the ability to count on the emergency capacity in the tunnel is a value that would be part of the mix, he said.

Table A supply is scheduled at the beginning of the year and allocated based on the process outlined in the contract; however, Article 21 water is water that shows up in the Delta that cannot be stored in San Luis.   With the Cal Water Fix, the availability of Article 21 does increase because of the increased conveyance capacity of the system to take water.

When you have the peak flows coming into the system, the ability to divert that water with the existing system is limited because it is at the south end of the Delta and it is being regulated because of the reverse flows, but if you have the diversion point in the north, it opens up the opportunity to take Article 21 water and then individual agencies would be taking that water and managing that water,” he said.  “The water is allocated based on your contract amount.  Contractors express a desire for a water, a demand for the water that DWR allocates amongst those contractors that have that need, based on their Table A contract amount, so that’s all laid out in the contract that we have today.  It is interruptible, it can’t be carried over, it has to be taken at that point in time, but nonetheless, entities like Kern County and Metropolitan and others that have developed storage capabilities have been able to utilize Article 21 when it’s available and store that water, and that’s been important.”

Mr. Arakawa noted that this is to apprise the board members of the discussions that are occurring; there will be more discussion with the committee and the board as this develops.

He then reviewed the water management benefits that Cal Water Fix would have for Metropolitan:

  • Improvement in Table A water supply reliability; Metropolitan could have an opportunity to look at whether it wants to increase that reliability from that share that the Board approved.
  • Improve dry year supply reliability for those portions of Metropolitan’s service area that can only receive State Water Project water
  • The ability to enter into exchange or banking arrangements to manage water among State Water Project contractors: Metropolitan has been doing this already with arrangements in Kern County and also with local conjunctive use programs, so converting wetter year supplies to more valuable drier year supplies would be a benefit to Metropolitan.

To conclude, Mr. Arakawa said the objective was to brief the committee members on the discussions that are occurring.  “The kind of approach that could work for other contractors could work as well for Metropolitan, so we will be continuing these discussions and looking at how to define costs and benefits and the sharing of those in terms of a cost allocation, develop terms that would enhance our regional water supply, and then update the Board and potentially bring back a board action once something materializes.”

DISCUSSION PERIOD

WHO IS IN, WHO IS OUT …

Director Fern Steiner directs to Slide 2, and notes that he said that 3.5 MAF is presently committed.  “We know that Kern did 6.5% so slightly half of theirs which is 500,000, and then Santa Clara did their conditional approval, and they are about 2.5%, so that would be together about 700,000.  Is that what’s uncommitted amongst the 55% of the state contractors?

I was really counting Kern and Santa Clara as support for their Table A amount, recognizing that there may need to be some water management actions to make it all work for them,” Mr. Arakawa answered.  “In the Kern example, I wasn’t saying that they are only supporting 48.5 in terms of supporting the contract they have with the state of California.  It really comes down to how do we do these water management actions.  But it’s a fair point that their action said that 48.5% of their contract amount was saying that it could work for them, so the challenge now is to figure out how to do water management actions that can make it work for their whole 1MAF.”

I had a conversation with the executive director of the State Water Contractors,” said General Manager Jeff Kightlinger.  “She was talking to all her members, and she said she has 85% of the total Table A of the State Water Project now committed, and expressions of interest for about another 6 or 7%, not from Met but from others to buy acquire that much, so she’s saying she’s in the low 90s in terms of total State Water Project commitments.”

Director Steiner asks if there is an update on the Central Valley Project negotiations?

I know there’s some talking going on, because there’s a lot of chatter about it,” said Assistant General Manager Roger Patterson.  “The state contractors are essentially all in and we’re going to be anxious to move ahead and the CVP folks are continuing to talk.  All we’ve seen quasi-officially is the Westlands vote and the statement of participation that came with Friant and I do know Friant’s continuing to explore ways that they can buy in.  I hear there are a few others talking, but there’s nothing more than talk right now …

ARTICLE 21 WATER

Director Keith Lewinger asks if the price of Article 21 water the same as the price of scheduled water.

The price of scheduled water, you’re generally paying the fixed costs of the facilities, conservation and reservoir-type facilities and the transportation,” said Director Lewinger.  “Article 21 is mainly the costs to move the water down …

Director Lewinger asks if transferors could transfer Article 21 supplies?  Mr. Arakawa answers that Article 21 water can only be used in the service area, so there is a limit.

So in these long-term water management agreements, why would you pay the transferee’s state CWF costs when you’re not getting a significant benefit, which is Article 21 water?” asks Director Lewinger.

That’s all in the mix of the discussions to figure out how the cost sharing could work,” said Mr. Arakawa.

You don’t pay for the transferor’s Water Fix costs – you pay a share of it?” said Director Lewinger.

Yes, essentially correct,” said Mr. Kightlinger.  “If you did a Table A transfer, you’d get the whole bundle of benefits, which includes Article 21, capacity, etc.  Permanent Table A transfers.  That’s one level.  The other that’s discussed is we just want you to pay for the Water Fix costs, and so some of the benefits of Table A would not go forward, which would be the Article 21, some of the capacity, so the idea is that you wouldn’t pay 100% of Water Fix because you’re not getting 100% of the benefits; it would be negotiated and would be something less than 100% of the Water Fix costs … “

The difficulty there is defining the value of those benefits that don’t come along with the Table A amount,” said Director Lewinger.

Exactly, and that’s what the discussions are working on, to try and put the values on those,” said Mr. Kightlinger.  “How often does Article 21 come up, what are the volumes expected for that, and putting a number on it.”

BAY DELTA MANAGERS REPORT

During the Bay-Delta Managers Report, Assistant General Manager Roger Patterson noted that during Ms. Sheehan’s update on the Bay Delta Water Quality Control Plan, she had alluded to the interest of the Governor and State Board on voluntary settlements.  “There is a parallel process going on, it’s led by former Secretary of the Interior Bruce Babbitt … he’s leading on behalf of the Resources Agency an effort to see if a watershed-wide comprehensive negotiated settlement can be put together.  It’s a very heavy lift, but it’s essentially going tributary by tributary, figuring out what needs to be done here that we could reach agreement on, flows and habitat and how that works; then we’d go to the next tributary, and you build this puzzle, and finally you get to the Delta, and what does that puzzle piece look like and how does it fit in the piece upstream.  He has been at this for some time.  …  They are hoping to have kind of a term sheet on this.  I would say it would be a good test to see whether it’s going to be successful or not by the middle of December.”

It’s a good time frame,” he continued.  “That’s well within the State Board’s timeline for their regulatory process if in fact something comes together, it can be brought to the State Board and say, here's the makings of a negotiated solution, and then we’d continue to work on that for few months.  Secretary Babbitt and his team led the negotiations to the Bay Delta Accord back when, and so he’s still inspired by that kind of approach to these complicated issues, because you can bring additional stuff onto the table that the State Board can’t get at through the regulatory process, so you can bring a lot of these habitat things and changes to the system, Sutter Bypass issues, Yolo Bypass issues, those kind of things you can bring to the table that could actually have some great benefit than if you just go down the regulatory path, you’re not going to get to those, so that’s a lot of his motivation.  Whether it will be successful or not, we don’t know yet, but that is the parallel process that she was eluding to.”

FOR MORE INFORMATION …

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