MET BAY DELTA COMMITTEE: Preparing for the vote on Delta Conveyance planning costs

At last week’s meeting of Metropolitan’s Bay-Delta Committee, preparations continued for the board action at the December meeting regarding funding the first two years of planning costs for the Delta Conveyance Project.  Bay-Delta Initiatives Manager Steve Arakawa provided an update on the funding agreement with the Department of Water Resources for Metropolitan’s proportionate share of the planning and preconstruction costs for the Delta Conveyance Project, and an amendment to the JPA agreement for the Delta Conveyance Design and Construction Authority.

Project schedule

The project schedule for the next four years is shown on the slide.  The public draft environmental documents are expected to be completed around the middle of 2022 with a final environmental report by the second half of 2023.  Permits such as the State Water Board water right decision for adding new intakes on the Sacramento River and the Delta Stewardship Council consistency determination are expected to follow in 2024.

Board policy related to the Delta

Mr. Arakawa then briefly reviewed the board’s policy regarding the Delta.  It’s been the board’s policy to stabilize the SWP supplies and to manage for additional supplies through local resources, and that’s the direction that Metropolitan has been taking for a number of years now, he said.  In the Notice of Preparation for the project, the state included seismic resiliency, climate change resiliency, and being able to improve environmental conditions in the Delta in their stated objectives for the Delta Conveyance Project.

The project would reduce the risk of shortages during times of drought which I think really means being able to store water in wet years and draw on that supply during dry years, which Met has been successful doing in the past 20 years in weathering through Colorado River cutbacks and a number of significant droughts,” he said.  “The project would provide more flexibility for the system to meet different needs, including environmental needs but also supply needs and particularly for our area, to be able to provide water to those areas that mainly rely on the State Water Project.”

Stepping through the Metropolitan’s participation level

Mr. Arakawa then broke down exactly how Metropolitan’s share of the planning costs is determined.  There are 29 contractors on the State Water Project, stretching from the Feather River area to the Bay Area, the San Joaquin Valley, the Central Coast, and Southern California.  Of the 29 agencies, about two-thirds rely on state project for municipal and industrial use and about one-third of the water is for agricultural use.

There are five contractors north of the Delta that would not take their water through the Delta Conveyance Facility, therefore they wouldn’t be relying on that infrastructure and are not expected to participate in the project.  The total of those contracts amounts to 2.79% of the total State Water Project contract amount so that 2.79% will need to be spread amongst the other participating contractors who would rely on and benefit from the project.

South of the Delta, there are a number of contractors that are not expected to participate, based on all of the discussions that have occurred and things said during the public negotiations.  Those contractors are smaller agricultural districts in the San Joaquin Valley.  On the Central Coast, the Santa Barbara County Flood Control and Water Conservation District is not expected to participate, and in Southern California, a smaller ag district called Little Rock Creek also is not expected to participate.  Altogether, those contractors not expected to participate comprise 3.79% of the total contract amount.

The planned approach is that all of the North of Delta percentage gets distributed to everybody south of the Delta that benefits from the proposed project and the share of non-participation of these areas South of Delta would be allocated to all of those other contractors that are not Kern and Metropolitan,” said Mr. Arakawa.  “Most of the participants are in Southern California, but there is an expected participant on the Central Coast which is San Luis Obispo County and a couple in the South Bay Area – Alameda, Alameda Zone 7, and Santa ClaraThe participation between Metropolitan and Kern would be determined by the participation level that Kern County Water Agency decides.”

Kern County Water Agency is the only contractor that has both agricultural and municipal and industrial (M&I) with 20.33% allocated for agriculture and 3.23% for M&I.

In the public negotiations, you could opt-out of participating, but you would opt out of your full contract amount for your ag share or your M&I share,” said Mr. Arakawa.  “Kern County is the only contractor that has both, so all of the other contractors are going to have to decide that they are either at their contract amount or more or they are at zero.  For Kern County Water Agency, they would decide whether they were participating for their agricultural contract share or zero, and whether they are participating for their M&I share or possibly even taking on more of that share.”

Mr. Arakawa reminded that the 65% is just a conservative estimate; the actual amount has yet to be determined.  “It’s a conservative estimate that Kern County Water Agency would be participating at some share, and that would mean they would be participating on their M&I side of their contract and they would likely participate at a higher rate than just their M&I contract amount,” he said.  “When you look at their total share, if Kern County were to not participate, that would mean that in this situation where I’m saying Metropolitan would take on the share that’s not funded, Metropolitan would be just a little bit north of 70% rather than the 65%.  If they participate conservatively for their M&I share and then some amount for agriculture based on the indications that we’ve seen, then that would be about 65% and we’ve been openly telling the other contractors that the upper level is 65%.

If you look at another scenario – I’m just giving you a scenario – but if Kern were to participate at about half of their contract amount, that would mean that the 65% would probably be around 59%.  So that gives you a feel for how that range might work.”

Mr. Arakawa noted that if Metropolitan goes forward with the planning costs and then ultimately makes the decision to participate, then the benefits of the project and that participation level would translate to capability in the system, capacity in the system, for sea level rise, for earthquake resilience, and other benefits.

The slide shows the contractors with their scheduled board dates.  As of the date of this meeting, both Palmdale and Coachella Valley Water District had approved going forward.  Kern County Water Agency is scheduled to take its vote on November 19.

Paying for the planning costs

The slide shows the planning budget for planning costs incurred by both the Department of Water Resources and the Design and Construction Authority for technical and engineering support to complete the planning and permitting process.  To fund Metropolitan’s share for the first two years of the planning agreement, it would be $81.2 million if Metropolitan’s participation is at 65%; if it’s less than that, then that would be proportionally less.  It depends on what Kern County Water Agency decides.

Regarding how Metropolitan would budget for those $81.2 million planning costs over the next two years, the slide shows how those planning costs would work with regard to the budget.  Mr. Arakawa explained this all during the meeting, but I’ll just cut to the chase and say the staff has figured out where the money will come from (as if there was any doubt), which would include using the leftover Water Fix planning costs that were refunded back to Metropolitan.

The planning agreement allows the agencies to pay the first two years of planning costs, with a second decision point to pay the remaining half in two years.  The planning agreement also allows for the contributed funds that all the contractors would be paying to be used for both the costs incurred by the Department of Water Resources as well as the costs incurred by the Delta Conveyance Authority to support the Department of Water Resources.

Delta Conveyance Design and Construction Authority agreement

The second major agreement in addition to the planning agreement that will be before the Board is a modification to the JPA agreement for the Delta Conveyance Design and Construction Authority (or DCA).   When the JPA was first set up, it was set up for Cal Water Fix, and so the board structure included seats for Central Valley Project contractors.  However, given the non-participation of the Central Valley Project contractors and the participation by other contractors, a new board structure more reflective of that contractor participation is needed.

The proposed board would have seven seats, determined by geographic regions.  Metropolitan, Kern County Water Agency, and Santa Clara Valley Water District would each have a seat.  There would be two seats for contractors mainly along the East Branch of the California Aqueduct, two because of the large number of contractors there.  There would be one seat for a South Bay contractor (not Santa Clara) and the remaining areas would share the remaining seat.

The amendment to the JPA allows changes to the JPA agreement to be made by two-thirds of its members in a vote.  The Board officers would be selected instead of rotating, and the voting would be majority vote, 1 director, 1 vote, except on financial items.

For anything related to budget, budget modification, leases, contracts, there would be a provision that allows for reconsideration that recognizes the economic or financial contribution by each of the members,” said Mr. Arakawa.  “That would mean at a given board meeting, a board action would be taken, each board member would vote with a majority rule for a 7 member board, but any member could ask for a reconsideration vote.  That vote would be based on a weighted proportionate share basis that aligns with their investment in the project and the planning.  That reconsidered vote would then take place at the next board meeting.”

Discussion highlights

Director Gail Goldberg (San Diego) said she was still confused about the cost allocation.  “The board item says that we’re going to be asked to pay Metropolitan’s proportionate share of the project, but that’s not actually what we’re recommending because we don’t own 65, we don’t even own 50% after accounting for the North Delta agencies.  I’m trying to figure out why staff is assuming we will fund a significantly bigger share of planning costs then our Table A share, and I don’t understand why we are picking up all of Kern’s share.  I think my understanding is that the 65% had to do with Metropolitan agreeing to pay the Central Valley Project share, which I don’t think is any longer the formula or the agreement.  I’m trying to figure out what is the business case for our ratepayers paying more if we don’t need more water and I don’t know that we don’t?  Wouldn’t the climate change and seismic benefits be the same for all contractors, whether they pay more or not?  How do we justify burdening our ratepayers with a higher cost that will actually benefit ratepayers outside our agencies?”

First of all, I think proportionate share is probably not the right term – maybe participation level,” said Mr. Arakawa.  “Certainly on the SWP, we have a contract amount.  We usually use the term Table A which is a term in the contract.  When we talk about our proportionate share, it’s usually the 46% that we have as the contract amount for the SWP.  In this planning process, probably the better term is participation level.  Both for the planning and potentially when we take an action sometime in the future if the project does go forward, it would be indicative of the level we would participate for this project.”

In terms of why would we consider this, first of all, certainly it’s the board’s decision.  We’re providing you with the best available information for you to make that decision,” Mr. Arakawa continued.  “What’s driving the conservative estimate is that we don’t know what the Kern decision is.  The 65% for Water Fix, you’re right, that was when the CVP was not in, but also I wanted to give you that background because even with that in Water Fix, we knew there were going to be non-participants on the SWP side so we were going to have to deal with that in some manner.”

In the situation that we’re at with Delta conveyance, the 65% is an assumption,” Mr. Arakawa continued.  “I think you should only consider it as an upper range assumed value.  It includes a conservative estimate for what Kern County might be participating at.  We know that their M&I portion of their contract will be participating.  What’s unknown is how much more on that M&I side will they actually subscribe to, and we’ll know that after their vote in November.”

In terms of what is the business case, first of all, I think getting the planning done so we can better understand the information since we are basically, after Water Fix, we are pretty much repeating the planning process,” Mr. Arakawa said.  “We’re starting over, so getting the best available information for the board to make decisions down the line I think is the first thing.  This is the planning costs that is needed to do that. … I don’t look at it as adding more supply; I look at it as protecting the infrastructure and providing the infrastructure that’s best suited for today to address those changes that we know will occur.  Then last, the state has for many, many years known that the diversion in the south Delta is not in the best place to protect fish, so this conveyance facility really is intended to help with the environmental needs and the fishery needs because having all of the diversion in the south end creates a very bad flow pattern that the fishery agencies are concerned about towards those export pumps and so having the diversion facility on the north end would actually help with that.  Mainly though, capacity and the benefit of that capacity to protect all of our state project supply.”

Director Goldberg asked in terms of the cost allocation, have we sent a message that we intend to pick up the cost for anybody who doesn’t participate?

I think there are two things that need to be understood,” said General Manager Jeff Kightlinger.  “First, this is a planning document; this is not the actual project go/no-go decision.  That is several years out.  We, as the largest shareholder, the largest Table A, we have the most to gain and the most to lose by ensuring the reliability of the State Water Project, so that is part of the business case of getting the planning document done and getting it done in a timely way so that the Board can make a decision on whether or not to proceed with funding the entire project.”

Secondly, if you did fund the entire project and our participating share was larger than our Table A benefit amount, the benefits go with the funding,” continued Mr. Kightlinger.  “So a 6,000, 9,000 cfs facility does not have full capacity to move all the water.  There will be water that moves through the Delta, and that water moving through the Delta would not move potentially in a post-earthquake scenario, so the larger share of participation actually accrues to the benefit of Metropolitan and its ratepayers should its board decide to do that.  So you have a funding decision for planning, so then you can make an informed decision on whether or not you do; if you do a larger share, you get the benefits.  You aren’t funding someone else’s benefits; they are your benefits if you choose to get them.  So that is something for the board to consider.  You aren’t funding for other people.”

Director Goldberg noted that if the funding allocation talking about at this point is just for the planning process, will there be another discussion of allocation of costs of the actual project itself?

Yes, that would be presumably about 4 years down the road, maybe longer depending on how long the planning process takes and assuming you get to a decision point at the end of it,” said Mr. Kightlinger.  “Assuming it follows on that same track, that would be the benefits you would be accruing at that level.  If someone else wants to actually acquire more benefits having gone through the funding/planning process, there would be a procedure in which we would actually then if we took a lower participating share, we would get back some of the planning costs through the eventual financing of the project.

Update on the voluntary agreements

During the Bay Delta Manager’s report, Assistant General Manager Roger Patterson said that they continue to do our homework as are others involved in the discussions, hoping to get back to the table soon.  “That includes the state agencies and the federal agencies which looks like they’ll be going through a transition, but we’re doing our homework so that we’re ready to move ahead with the voluntary agreements and also to find resolution on conflicts associated with the biological opinions and the incidental permit that we have, so I think that’s time well spent during the lull that’s going on … “

Chair Ackerman asks if there will be any movement on the voluntary agreements before the end of the year?  “The state is sending signals that they are ready to start some discussions.  It’s going to be hard to do with the federal agencies, given the transition, and they are critical to making it work, but there are pieces that we can be solving as we move forward and get things set up so that when everyone is at the table, we can close it off hopefully fairly quickly, but it’s going to take a bit of time,” said Mr. Patterson.

It is the right path to go,” said Mr. Patterson.  “I continue to believe it is the only path that’s going to get us some real stability and durability with the State Board and all these other issues that they are dealing with.”

Note:  General Manager Jeff Kightlinger is retiring at the end of the year, and it was mentioned as this meeting that Roger Patterson will also be retiring.


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