DELTA CONVEYANCE: Metropolitan Committee discusses funding planning costs, how to account for project benefits, and who is in and who is out

At the October meeting of Metropolitan’s Bay-Delta Committee, staff continued preparing the committee members for the upcoming decision on funding the planning costs for the Delta Conveyance Project which is anticipated to be before the full board at the December meeting.

Last month, staff presented information on preliminary costs and preliminary benefits.  “These are very preliminary,” reminded Metropolitan Bay-Delta Initiatives Manager Steve Arakawa.  “They were really intended for the contractor agencies that are looking to participate to be able to bring information to their boards when they are deliberating over contributing to the planning costs.  We’re at the front end of the environmental process.  No alternatives have been evaluated yet.  The proposed project is still yet to be determined in terms of a preferred project so there is a lot to be done yet; a lot of remaining work to refine costs and to identify benefits, but we felt that bringing information to the board would be important, on both preliminary costs and preliminary benefits, just for the purposes of just considering that for the planning funding agreement.

PROJECT BACKGROUND

In May of 2019, the state moved from Cal Water Fix to a single tunnel approach under Governor Newsom, the third consecutive governor to look at Delta conveyance.   The Governor also included Delta conveyance in his Water Resilience Portfolio, which was released in final form in July.  In January of 2020, the state officially moved forward with Delta Conveyance Project environmental process by issuing a Notice of Preparation to start the environmental review process.  From July of 2019 through August of 2020, public negotiations were held regarding the State Water Project contract amendment which resulted in an Agreement In Principle completed in April of 2020.

At the September meeting, Mr. Arakawa presented the preliminary cost estimate of $15.9 billion, noting that it is very early on in the planning process: the environmental process is yet to be completed, alternatives still to be evaluated, and there’s no conceptual engineering report.  However, it does provide some indication of costs.  He also presented a preliminary benefits analysis on how the proposed project could offer benefits in climate resiliency and sea-level rise, seismic resiliency, and water supply reliability in terms of operating capability and operational resilience. 

For coverage of the September meeting, go here:  MET BAY DELTA COMMITTEE: Delta Conveyance Update: Preliminary cost and benefits, the mechanics of opting out, and more …

AGREEMENT IN PRINCIPLE

The negotiations on the State Water Project contractor agreement went from July of 2019 through April of 2020, the end result being an Agreement In Principle with an approach that State Water Project contractors have a responsibility to pay for facilities to improve the Delta under their state project contract. 

The contractors ended up with an Agreement in Principle that is based on opting out, so when you opt-out, you opt-out of the benefits,” said Mr. Arakawa.  “It’s key to recognize that this contract approach means that those who pay will get proportionate benefits in terms of water supply, water supply reliability, and so whatever your participation level is, your benefits are tied to that.”

The Delta Conveyance Project would be part of the State Water Project and would be constructed and operated as an integrated component, but much of the negotiation dealt with how to keep track of the benefits and how those benefits would be managed so they would be directed towards those who pay.  In the end, a white paper was developed.

The accounting is mainly how they do things from week to week and day to day; it is not necessarily contractual language, but there is contractual language in the Agreement in Principle that would end up being contractual language with regards to describing what kind of benefits you would receive, how you would pay for the costs, and what non participants would be forgoing as a result of not participating,” said Mr. Arakawa.

FUNDING AGREEMENTS

The state has developed a schedule for the next four years.  Key milestones are a public review draft EIR in the middle of 2022, a final in 2023, and then ESA regulations being issued at some point in 2023.  Also in 2023, the State Water Board process to change the point of diversion to allow for a diversion on the Sacramento River as well; Mr. Arakawa noted that it’s noted on the schedule as water rights, but is only the change to add the new point of diversion and allowance for the operation of that intake.  There would also be the certificate of consistency with the Delta Plan, and a few other permits that are targeted for completion in 2024.

There’s a parallel effort led by the Corps of Engineers to complete a federal environmental impact statement that would also be part of the decision making.

The chart on the slide shows the planning budget divided into calendar years.  Mr. Arakawa noted that it is divided into calendar years, but Metropolitan has fiscal years in terms of the budget.

The planning costs are estimated at $394.2 million.  There was about $9.2 million remaining from the Cal Water Fix funding that was reauthorized for the updated Delta Conveyance Project.  Metropolitan also contributed to Water Fix planning costs, and the unused portion has since been refunded back to Metropolitan.

The estimate is $392.4 million over four calendar years.  There has been an effort to identify how to save some costs.  The planning process is stretched over four years and the Design and Construction Authority has done a lot of technical and engineering work to determine the footprint for the environmental analysis and much of the remaining work now is to support the work for the environmental analysis.  Engineering activities for construction will resume once environmental planning is complete.

They were able to identify $53.5 million that could be saved and still maintain the schedule, so they were able to reduce the estimate to $340.7 million. 

The funding agreements allow participating contractors to pay for the first two years with the ability to make a decision at the end of 2022 on the additional amount of funding.  Assuming Metropolitan is at a 65% level of participation, Metropolitan’s share would be $81.2 million for the first two years of planning. 

We provide that as an example, but just a footnote that other contractors are going to their boards and that includes both other municipal and industrial contractors, but also particularly Kern County Water Agency, so during November, as that proceeds, we’re going to have a more precise outcome of how those decisions end up and what we would be taking our board for a proposed action as far as participation level,” said Mr. Arakawa.

The chart shows that are 5 north of Delta contractors that would not be participating out of the 29 total contractors, so the 24 contractors south of the Delta would actually benefit from the conveyance so those are the ones that would be looking to pay for the planning costs.   Six contractors are likely opt out, so there would be 18 remaining contractors looking to participate in the project and support the planning costs.   

As an example, Metropolitan is at 65%, so we would be saying we are committed to paying for 65% of the total, but I think it’s important to note that we will need to see how the other votes occur to know whether it’s 65% or something less,” said Mr. Arakawa.

DESIGN AND CONSTRUCTION AUTHORITY BOARD

The Design and Construction Authority has a five member board; there are four members currently seated: Two from Metropolitan, one from Santa Clara Valley Water Agency, and Sarah Palmer from Zone 7 who represents the other contractors. 

A seven member board is being proposed that would allow for other contractors to have a seat on the board.  The new configuration would have one seat each for Metropolitan, Kern County, and Santa Clara Valley.  The other four seats would be occupied by representatives from different ‘classes’ (or regions); there would be two from Class 8 because of the large number of contractors in that area.

The map on the right shows how the board representation would break down geographically.  Mr. Arakawa noted that on the left side is the listing of contractors.  The shaded areas and the grayed-out names of the contractors are those that are anticipated not to participate.  Santa Clara is shaded out because they already have a seat on the board.

Each director has a vote, and a majority vote would be needed.  The agreement also has provisions for reconsideration on matters related to funding including budget, budget modifications, and major contracts based on proportionate share of equity.

DISCUSSION

Director Michael Hogan (San Diego) had a question about the preliminary benefits slide shown at last month’s meeting.  The preliminary project benefits were based on the three metrics of climate change, seismic, and operations.  “Under water supply reliability and operational resiliency section of this slide, it shows an analysis using the State Board’s framework which resulted in only about 100,000 acre-feet water supply improvements through the tunnel, but the analysis also showed that without the tunnel project, the State Water Project would have an average export of 1.9 MAF, which is about 400,000 AF more than the more restrictive south Delta analysis.  Can you say why the more restrictive south Delta rule is used to analyze the tunnel, even though the State Board is not asking for those operations?  In other words, why aren’t we using the same without project for both of those bottom two bar charts?

Steve Arakawa reminded that it is a preliminary analysis. “We used some of the experience we had looking at Water Fix to come up with some projected operating criteria, but certainly we don’t have the benefit of knowing what will end up going in the EIR or what will be selected in the EIR.  For the more constrained south Delta, we made some assumptions about Old and Middle River.  Those could be either actions that evolve through the biological opinions – certainly the State Water Board is looking to set flow requirements, but in the past they have set export constraints as well.  There are existing export constraints in water rights permits of the State Water Project so we wanted to make sure that we weren’t losing focus on how things have evolved over the last 20-25 years with regards to regulations, either ESA regulations or SWB regulations.”

The bar you pointed out, it’s really a proxy,” he continued.  “We don’t know exactly how the State Water Board would implement their proposed unimpaired flow concept, but we assume a proxy for it based on everything we know and all of the information that they’ve released.  That scenario is all about Delta outflow and not so much about export constraints.  The bar just above that, there was the assumption of tighter Old and Middle River flows, not only during the December through June period which we are mostly involved in with the biological opinions, but also knowing that there may be some increased scrutiny in the remaining part of the year, July through November, so we made some assumptions about that and that’s what resulted in the reduction.  When you reduce exports, that has a much more direct effect on the projects … when you take water that would have been released from the reservoirs and it goes to outflow, it’s not available for export.”

Director Michael Hogan (San Diego): The preliminary benefits of the project now seem to address the seismic and climate change issues primarily.  Why would MWD or SWC agree to the opt-out approach?  Doesn’t climate change and seismic concerns impact all contractors?

General Manager Jeffrey Kightlinger reminded that this is a preliminary analysis that will be further refined as the project progresses.  “The other point I’d like to make on that is, with the opt-out, they don’t get the benefits of the project.  We will be modeling climate change impacts to the project and those that opt-out would not get those benefits.  In terms of seismic resiliency, if there is an earthquake that collapses the rest of the exports so that those contractors that opted out would not receive that water and only those that invested in the project would.  The benefits will follow the investment.

Director Heather Repenning (Los Angeles) asked about Metropolitan’s participation level of 65%.  She’s concerned that sets a precedent for Metropolitan’s participation level and those costs.  She also asked about where the proposed expenditure that they will be voting on be coming from?

General Manager Jeff Kightlinger:  “Yes, that is a preliminary guess that we might be at 65%.  When we get to an action in December, we would expect to have more detailed numbers so other agencies will have acted and so we’ll know exactly what share we would be asking the board for, so right now we’re putting that it in there as a placeholder.  …  It is a concern that our Table A is 50% basically of the water project.  You will note in the presentation that the north of Delta contractors that are not receiving any benefit are opting out immediately.  They won’t be part of this and that makes sense as they are north of the Delta.  There are also others that are going to opt out that receive marginal benefits from the project, so when the pool shrinks, the costs though remain the same.  … We’ll bring all of that information so the board can make an informed decision about whether or not this an appropriate and fair share for Metropolitan to pay associated with the benefits, and we’ll have that in December.”

In terms of the funding, we did plug in the budget $25 million per year, not knowing exactly what the analysis would be.  Steve pointed out that we had $32 million already funded in there for continued planning work, so that total that Metropolitan had set aside and planned for $82 million.  We requested the reimbursement once the Governor moved from the two tunnel to the single tunnel of the $32 million and we got that back and we are holding it.  We didn’t want the state to hold that $32 million for us, but that is what we would be targeting for the expenditures over the next two years, that $80 million that staff had planned for.  We’ll continue to bring the information forward as we move towards the action in December.

Director Russell Lefevre (Torrance) noted that a slide says the engineering activities for construction will resume once environmental planning is complete.  “How do you do all of the environmental planning you need without resolving some big engineering questions, like which tunnel route we’re going to take or where we’re going to set the northern intakes?”

Steve Arakawa: “The primary information for the footprint that was needed for the environmental analysis is pretty much coming to conclusion.  The Design and Construction Authority has been doing that work over the last year.  They’ve been looking at the two alignments, the more eastern that’s closer to I-5 and the central alignment which is closer to Cal Water Fix.  They’ve looked at the intakes and the south Delta facilities so a lot of that information is already been completed by the DCA.  There’s likely some work needed as they refine the alternatives, as they complete the public draft EIR, and they are also looking at some refinements of the connection to the California Aqueduct down at the south end, so those are things that would go forward.”

Director Tracy Quinn (Los Angeles) asked about Metropolitan’s share of 65%.  “It sounds as though we may be look at picking up some of the water or portion be left on the table should other state water contractors elect to drop out from this project and therefore cover those costs as well.  I’m concerned about the potential for us to overcommit.  My understanding is the Integrated Regional Plan will inform how much of the Delta water that we will need going forward, but we certainly won’t have that gap analysis done prior to the decision in December.  So how does that potential to reconcile how much we may need … ?

Jeffrey Kightlinger had two points to his answer.  “One is we always knew the North of Delta were never going to participate.  They didn’t participate with the California Water Fix project because they are North of the Delta, they aren’t receiving the benefits, so that proportion of the overall project cost for the State Water Project was always being picked up by all the other participating contractors, and therefore their proportion of funding was always going to be slightly greater than their overall Table A mathematical projection.  That is simply a matter of those people not participating.  Everyone’s proportion went up.  It wasn’t so much they picking up additional or new benefits.”

Now when the votes do take place, some of the south of Delta contractors may not participate to their full capacity or some of them might entirely opt out, in which case, there would be additional capacity in the tunnel project available that could be picked up by Metropolitan and/or contractors, and that’s the type of issue that we would bring forward to the Board in seeing if there’s interests in doing that.  What are the benefits versus the cost, and that’s something that we would be analyzing and bringing forward, once we have that information, hopefully in the December time frame of who has opted in and who has opted out.

BAY DELTA REPORT

Due to the meeting running overtime, Roger Patterson’s report was rather abbreviated.  However, he did say that they are looking at the Delta Conveyance Project in three steps.  “We’re looking at making only a two year commitment to planning funding which if you looked at the reductions that we looked at in the budget, those are largely in the first two years.  Then there would be a decision on our level of investment for the subsequent two years of 2023-24.  The ultimate the decision on participation in the project would be based on the schedule in 2024.  So it’s a step-wise approach.”

FOR MORE INFORMATION …

The committee report has a lot of information and covers preliminary costs, a coarse evaluation of preliminary benefits, the Agreement in Principle for the amendment to the State Water Project contracts, and the associated white paper that outlines how the benefits would be administered with the Delta Conveyance Project once it is in operation. 

View/download committee report below.

Met BDComm Oct letter
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