CA WATER COMMISSION: Screening process for eligible water storage projects; Commission continues conveyance conversation

Screening process for potential new Water Storage Investment Program projects

At the December 2020 meeting, the California Water Commission approved moving forward with a screening process to find potential projects that could be eligible for the Water Storage Investment Program after the Temperance Flat project stalled and withdrew from the program.  The screening process is designed to discover potential projects that could meet the statutory deadlines outlined in Water Code Section 79757, which requires the commission to make findings of feasibility for all water shortage investment program funded projects before January 1, 2022.

At the California Water Commission’s January meeting, Program Manager Amy Young updated the Commission on the screening process, including an overview of screening submittal content needed to obtain a finding of feasibility from the commission.

Screening for potential projects is the first step of a three-step process.  If the screening results find a pool of eligible projects, the Commission would then decide whether or not to move forward with a rulemaking process and a second solicitation, which would be similar to the first solicitation where there was a detailed application process followed by a thorough review. If the Commission decides to move forward with the rulemaking process, it would likely take about a year, with the second solicitation opening up in 2023.

The Commission is currently accepting screening information.  The Commission’s website has been updated, and the information is available here.  There is also an online form that project proponents fill out, which includes basic information, such as project name, location, contact information, any information about possible public benefits the project could provide, a quick project description, and the required information identified in the statute.  During the screening process, potential project proponents submit the statutory requirements to allow the Commission to make findings by the end of the year.

The slide lists the statutorily required information that is needed for screening, which includes completed feasibility studies, draft environmental documentation, and the 75% non-public benefit cost-share commitments, as well as information about how each project could or will advance the long term objectives of restoring ecological health and improving water management for beneficial uses of the Delta. The Commission will use this information when making their findings by that January 1, 2022 deadline.

The project proponents should provide documentation about their project to commission staff that can be sent to the Commission at cwc@water.ca.gov. As project proponents are working on their materials and filling out the form, they are encouraged to contact the staff if they have any questions. When information is received, staff will compile the information and then post it to the water storage website.  For the commission to consider a pool of projects and make findings by the end of the year, the screening information needs to be sent in as early as possible, preferably by October 22.

Having the materials by October 22nd allows staff to take a look at all the materials, compile everything and get the materials ready for a commission meeting,” said Ms. Young.  “The commission would then consider staff recommendations and decide whether to make findings for the projects. And should the commission make findings for projects, those projects would then be eligible to apply under the Water Storage Investment Program, should the commission decide to move forward with a second solicitation.”

During the public comment period, Bart Broome with Valley Water reiterated their urging of the commission to allow existing projects to apply for this new solicitation based on public benefits not previously considered by the Commission.

These would be public benefits that were not part of the original application of the existing project,” said Mr. Broome.  “I believe that the Pacheco Project delivers numerous public benefits that were not considered in the original solicitation and grant award. And there is, I believe, a serious consideration here regarding the viability of the Pacheco project without additional funding from other sources. While our board has directed staff to proceed with the project, they’ve also directed staff to aggressively seek additional funding from the state, the federal government, and other water agency partners. So with that, I would urge that the Commission ensure that existing projects may be considered in the new solicitation based on public benefits not previously considered by the Commission.”

Chair Alvarado said that the Water Storage Investment Program is such a unique program and a pioneering effort in many ways.  “We’re trying to do so many things with water storage and public benefits that it’s really is a pioneering effort in many ways, and so we are kind of exploring uncharted territory.”

We’re talking about the screening process right now,” said Ms. Young.  “This is to look at what’s out there as a possible pool of potential new projects. I think that if the commission wants to think about other issues that come up with existing projects as we move forward with a second solicitation, the opportunity to really get into those details would be through the rulemaking process that would occur after the end of this year.

Executive Officer Joe Yun agreed that it is a challenging piece of legislation and the largest state investment in water storage in a generation and nobody takes this lightly. “There are always ways that we can look and try to utilize that funding to the benefit of California. And that really is the biggest challenge we have.  So as Santa Clara Valley made their comment, we can really pick it up in the rulemaking. At this point, you know, if people want to submit to the screening process, we’re happy to talk to folks and understand what that means for them. I don’t see us trying to make a decision right now about who can enter screening or not; we just laid out that we’re accepting additional information. So it is a little bit of building the plane as we go, and it takes a long time for us to get there.”

Commissioner Daniel Curtin, the only seated member of the Commission that was involved in the Water Storage Investment Program process, noted that it was extraordinarily complex and interesting – including the idea of a public benefit being recreation; in some cases, water skiing, and maybe golf – that was discussed quite a bit.

There are all kinds of issues that are not covered by this legislation that gets very confusing,” Commissioner Curtin said.  “The idea that we would be looking at in the future of conveyance was really not covered here. Water conveyance completely has to be a part of the conversation. The groundwater capture concept through SGMA is also quite groundbreaking and stressful for many, many water agencies. We never really built a concept of upper watershed management into this process.

The question that was raised a little earlier, which makes me cringe a little bit because of the complexity is, do we look at each project as what will bring the most public benefit, as defined by the statute for the state in total, or does each project get looked at individually?” continued Commissioner Curtin.  “The concept there is if it’s a giant project, it’ll get all the money because it may very well bring the most public benefit. But we tried to balance larger and smaller projects so that some of the smaller projects were not left out of the mix and they couldn’t compete because their public benefits are important, but they’re relatively small on the scale of the size of the project. The certainty just was never there. So we had to move forward with what we have. It was really well done by the staff. It’s terribly well vetted. I think this proposal is excellent. You know, the more you open up the door for some of these concepts, you get to finish these projects. Right now, we got to really help these projects get done, or it was all for naught.

We need to realize the public benefits of these water storage projects that we’ve already invested in,” said Chair Alvarado.  “I really appreciate Commissioner Curtin talking about the diversity of projects that were selected so that we could diversify the benefit. And I think through this inflation adjustment, action, we are demonstrating our continued public support for their efforts.

Commission continues public benefits of conveyance conversation

The California Water Commission is in the process of assessing the state’s role in financing conveyance projects that could help meet needs in a changing climate, as tasked by action 19.4 in the Water Resilience Portfolio.  This work advances the portfolio’s goal of promoting statewide water resilience and reinforces the role that the Commission plays as the primary public forum for the discussion of improving water management policy to assist regions in achieving climate resiliency, as stated in goal one of the Commission’s strategic plan.

At the California Water Commission’s January meeting, Assistant Executive Officer Laura Jensen reviewed the information presented by the expert panel on December on public benefits, discussed a list of public benefits that the state might fund, and how those benefits could be valued.

Ms. Jensen noted that the Commission and staff are working through a process that started with conducting research to develop a background policy brief; they are currently gathering public input by hosting a series of workshops and through expert panel discussions at Commission meetings.

Definition of terms

She began with how experts defined the terms related to public benefits.

The term ‘beneficiary pays’ is at the core of the discussion of state investment in resilient conveyance, and it’s also a central tenet of the Water Storage Investment Program. The principle states that those who benefit from our project should pay for the benefits they receive.

That’s because we want to avoid those who do not benefit from a project having to pay for that project, so it’s incumbent upon us to carefully consider how taxpayer funds are being spent,” she said.

Private benefits are those that accrue just as specific entities or individuals; they are frequently transactional in nature and therefore easier to value.  The panel of economists encouraged the Commission not to subsidize private benefits unless a beneficiary is limited in their ability to gain the benefit.  The private benefits of conveyance include direct benefits such as municipal and agricultural use of the conveyance system, and indirect benefits, such as hydropower generation.

Public benefits are those that accrue society-wide, or within a specific geography, or to a specific class of people; sometimes, they can be water-related benefits that don’t accrue to a well-defined group of people from whom you can clearly align benefits and recover costs.

So by definition, public benefits are tricky to pay for, it’s hard to identify the user base willing to pay for them, and if you can find that user base, then perhaps what you’re considering is not a public benefit,” said Ms. Jensen.  “Because there isn’t a market with consumers who are willing to pay for them, there’s no observable price making public benefits more difficult to value. “

Subsidies occur when public funds are used to pay for private benefits, and some benefits may not accrue society-wide. However, there may be reasons for subsidizing them, such as when the beneficiaries are budget constrained or the benefits are too diffuse to seek payment from the beneficiaries.

What are the public benefits of conveyance?

The slide lists the public benefits of conveyance projects, which was compiled from the research that went into the background policy brief; the small group discussions with representatives from tribes, environmental justice organizations, environmental NGOs, academics, industry groups, and water managers; and the presentations at Commission meetings. The list on the slide is fairly comprehensive but not necessarily the definitive list of public benefits of conveyance projects.

The second column on the slide identifies what PPIC called the ‘fiscal orphans,’ which are the items for which it has been difficult to secure stable financing; it could be argued that these are benefits that don’t accrue to a well-defined group of people from whom you can clearly align benefits and recover costs. The third column is the Water Storage Investment Program benefits, which have already been hashed out by the legislature and stakeholders, codified in statute, and are used by the Commission’s Water Storage Investment Program.  The fourth column is the distilled feedback from the panel of economists from last month’s meeting.

It’s based on what’s codified in policy and what’s been brought up by stakeholders and experts,” said Ms. Jensen.  “We can certainly refine it and add to it as we get the feedback through public workshops and elsewhere. But it will be important to keep the beneficiary pays principle and the definition of public benefits as something that applies society-wide in mind as we do so.”

Ms. Jensen noted there are many important benefits delivered by conveyance projects. Still, not all of them are public benefits, and not all of them are policy priorities of the state that warrant state financing.

It’s hard to tease apart conveyance from other aspects of water management from the benefits of conveyance because we are in this sort of artificially segregated view of looking only at conveyance,” said Ms. Jensen.  “The benefits need to be carefully considered to ensure that they’re not conflated with the benefits of the source water, or some other aspect of water management so that we can avoid double counting of public benefits, and over investment.

The potential public benefits of conveyance are:

Ecosystem benefits: These are a ‘pure’ public benefit.  The Water Storage Investment Program emphasizes ecosystem benefits, making them more important than the other WSIP benefits.  From virtually all perspectives, this is easy to identify as something the state should fund.  An example project might be conveyance projects that move water to habitat areas or that have a habitat component themselves.

Poor rural communities:  The human right to water is a codified public policy priority that states that all Californians should have access to safe, clean, and affordable water. There is a recognized need for poor communities to have adequate water infrastructure to meet their water consumption needs and fulfill their right to water.

Perhaps poor rural communities is too narrow of a lens through which to look at it,” said Ms. Jensen, noting that in the November panel, they heard about the need for water solutions for disadvantaged urban communities, too.  “The concept of poor communities can be further fleshed out: what are the benefits to poor rural and urban communities of the state might be interested in financing?

Flood protection:  A conveyance project with a flood protection benefit might be conveyance to move flood flows to groundwater recharge areas that help avoid peak flows and vulnerable parts of the system. Ms. Jensen noted that this is included in the Water Storage Investment Program benefits but arguably could be seen as a local or private benefit to those directly benefiting from the flood protection. It might be a benefit that the Commission considers only when applicable to under-resourced communities, or potentially if the flood protection component is regional in nature.

Collaborative management: This speaks to the need for entities to work across jurisdictions to manage water resources, which could be to nearby water districts working to increase interties, or it could be integrating land and water management considerations. There’s an undeniable need for this type of integration, but it is difficult to value as a public benefit.

Instead, this is something that the state could consider incentivizing,” said Ms. Jensen.  “And you could do this by requiring collaboration to be eligible for state funds, and possibly offering technical assistance to those who struggle to have the means to work collaboratively without additional resources.”

Water quality improvements: This might be a conveyance project to move cleaner water to communities in need or to blend with other sources of water, resulting in an overall increase in water quality. It’s included in WSIP but needs to be carefully considered because water quality improvements that only benefit agricultural or municipal users may not be a public benefit; it may be necessary to specify that we’re looking for water quality improvements that benefit ecosystems and species or from a human right to water perspective. There is a case for state investment in water quality improvements for under-resourced communities.

Emergency response: This might be a conveyance project designed to provide a stable water supply during drought or seismic or fire disruptions. It’s included in WSIP, but it’s one of the facets of WSIP that one of our expert panelists thought a unique take on public benefits because it’s usually something that’s left to local agencies. However, Ms. Jensen said that with the beginning of a drought year upon us potentially and the need for wildfire response, perhaps it’s worth including on the list of our priorities.

Recreation:  This might be conveying water to places of recreation, including places for hunting, fishing, or boating, or particularly in the case of green infrastructure, that conveyance mechanism itself may provide recreational opportunities.  It was a benefit included in the Water Storage Investment Program.

Greenhouse gas reduction:  This is another example of a broad public benefit.  It might be a project that facilitates an operational change that produces fewer greenhouse gases.

The human right to water:  The state of California has codified a human right to water in Section 106.3 of the California Water Code, which specifies that every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking and sanitary purposes.

This topic comes up very frequently in conversation with stakeholders as being an important thing to consider and to figure out how to how to think about promoting at the state level,” said Ms. Jensen.  “Several of the other benefits on this list are related to the human right to water: water quality, water reliability, system resilience.  Not all communities and users need a state investment in water infrastructure to ensure that they have a human right to water.  Where communities aren’t resource-constrained, the cost of this policy priority is borne by the users themselves, and this is by necessity because if the state was expected to invest in water at the same level across the whole state, you can imagine that state funds would be applied so diffusely as to be largely ineffective. So it might be best to consider a state investment in the human right to water as a collection of benefits in which the state is willing to invest in if a community or region is resource-constrained.”

Policy priorities:  These may be policy priorities, particularly when applied to under-resourced parts of the state, and thus are public benefits in which the state wants to invest. But these can also be incentivized by weaving them into ranking criteria for projects that the state is considering funding, which might be the best path forward for areas that aren’t resource-constrained.

Economic stimulus.   The economic benefit of water supply stabilization and construction projects can be measured, which puts a value on the economic stimulus of a conveyance project. Water Supply stability benefits generally accrue to a private user; however, the state may want to invest in water supply benefits when the end-user is budget constrained. Also, the supply stability benefits the economy but diffusely enough that it may be difficult to assign and recover costs.

There may be a particularly compelling benefit to invest in areas hard hit by SGMA implementation, as state policies such as the Sustainable Groundwater Management Act, create an economic burden with statewide ramifications, decreased tax revenue, and that state investment in projects to mitigate that impact will have a statewide benefit of increased tax revenue.

One economist suggested it was okay to use statewide funds to pay for something that only benefits one region because, particularly if that part of the state is struggling economically, it benefits the whole state.

Water reliability and system resilience: These benefits are embedded in the water resilience portfolio’s very purpose. Water reliability is a facet of system resilience, and all projects the state would consider investing in would need to promote system resilience. System integration and flexibility are important components of system resilience. So should the state invest in resilience as a benefit in its own right?  The benefits of water reliability and system resilience both accrue to private users who already have water supply when they need it. But the economists made a case for state funding if a region is resource-constrained or if their interdependencies between localities or regions that make the project critical for multiple user bases, but it’s difficult to assign costs.

Community enhancement:  This is difficult to define and value, and if the Commission deems it of importance, they could consider making it a part of the ranking criteria.

Chair Alvarado noted that the term public benefit could be extremely expansive. What do these mean in relation to the Commission’s purview?

Ms. Jensen said the definition of public benefits is that it’s something that applies society-wide. It’s hard to recoup costs because there’s not necessarily a person or a user group willing to pay for it. “I think the Commission in its work needs to be guided by that definition of public benefits. And also guided by what policy priorities are, because to a certain extent, the commission is helping to shape what is on the list of public benefits by thinking about what policy priorities are, and coming up with these recommendations.”

The ecosystem benefits are sort of a classic thing to think about,” Ms. Jensen continued.  “I think that we need to be able to think creatively about benefits that might fall under the public policy priority of human right to water, which might look like private benefits. But if the beneficiaries themselves are unable to pay for it, there’s arguably a state role to step in and help to subsidize those benefits for the sake of the entire state of California. And that really is the question at hand is, where do you draw that line?

Then we should spend more time considering what our policy priorities are, rather than a list of public benefits,” observed Chair Alvarado.  “I would imagine we would all say, yes, these are public benefits, because they should be public benefits that are in our list of policy priorities.”

Commissioner Alexandre Makler noted that there is a question of whether our water systems and the different entities that govern the water systems are working as effectively or as optimally as possible, and is there a role for the state, perhaps using taxpayer dollars, to make for greater optimization?

Because if you look at water reliability and system reliance, I would say clearly, those are ratepayer benefits,” he said.  “However, if you have different regions or different entities that are trying to coordinate, and those are in different economic circumstances, or it’s hard to determine the allocation of the costs, or somebody has to spend a lot more money, but the benefit is really enjoyed by somebody else. Is there a role for the state in trying to resolve that? And maybe, is there a role for the taxpayer to resolve that?

Vice-chair Swanson questioned whether they should be considering a broader perspective.  In the end, it will likely come down to a case by case basis.  “You could have a project that maybe is lower on the scale for public benefit but is well-financed, and can really go, and at the same time, you could have a project like the human right to water that struggles to find funding. … We started broad, and we’ve kind of moved it in based on experience and how projects have actually been coming together. So would staff recommend a broader interpretation? Or do they want us to really fine-tune?”

Ms. Jensen pointed out that there’s no pot of money to be planning for at this point, so the Commission is at the theoretical stages of thinking about how the state might apply its financing.  If funding should become available, it’s unknown exactly which entity would be tasked with implementing a program.  However, the Commission will be making recommendations and providing some guidance for policymakers to consider when setting up the bounds for spending state funds.

Executive Officer Joe Yun acknowledged there are challenges in some of the benefits that come from conveyance.  “When you talk about recreation and think about a reservoir, it’s easy to see boats, and that kind of activity, camping, hiking.  It becomes a very kind of different story when you think about conveyance. If it’s green conveyance, certainly you may have some interpretive opportunities or something like that. So as the commission talks about benefits and conveyance, there might be some refinements that we’d have to play with or understand before we make our recommendations.”

Valuing public benefits

So how should the state determine the value of public benefits?  There are two primary methods:

The assigned cost method:  This is a process where the public benefits funded by the state are defined, and the value of the benefit quantified, which then determines the funding.  It’s a very methodical process that was used for the Water Storage Investment Program.  The advantage of this approach is that it’s very precise; the state investment matches the value of the benefit, so the taxpayers are getting what they pay for; however, it’s a costly and onerous process with a high barrier to entry for smaller or under-resourced project proponents.

The cost-share approach:  This approach basically says that it would qualify for state cost-share if a project meets certain qualifications. For instance, if a project provides X, Y, or Z public benefit, it would get funding. This approach makes it much easier to access funding; however, it’s not as precise, so the state may be overpaying for the value of a public benefit. And there is a discussion to be had about what is the appropriate percent of cost-share.

Ms. Jensen pointed out that it doesn’t have to be ‘one size fits all.’  “You could use the assigned cost approach, for instance, for larger projects or wealthy areas or proponents to ensure that large investments are being made precisely, and we have the Water Storage Investment Program example of applying this approach to the benefits of ecosystems, flood protection, water quality improvements, emergency response, and recreation,” she said.  “You could at the same time recommend using a cost-share approach for smaller projects or for projects that implement the human right to water, which would lower the entry bar for underserved communities in need of conveyance solutions to access safe, clean, and affordable water. And so you could use this method to pay for the same benefits considered under the assigned cost approach, ecosystem benefits, etc., as well as some of the softer benefits such as regional economic, economic stimulus, water reliability, system resilience.  Instead of valuing the benefits of the project can show that it is providing it, it would then qualify for a percentage of cost-share.”

Commissioner Samantha Arthur said she has been pondering the question around breadth versus focus. “Because we don’t have a specific pot of funding, that puts us more in the theoretical, but in some ways, it gives us an opportunity to really wrestle with some questions without time pressure and without having to talk about specific projects and get into the sort of battles over that. … I felt that some of the economists were quite broad in their definition of what a public benefit was.  Then maybe we want to spend some time thinking about well, okay, breadth can be great, but maybe you lose some of the impact of those tax dollars if you’re just saying that everything, like any economic stimulus or any community enhancement, is a public benefit.  So I would advocate for maybe a little bit more focus.”

Ms. Jensen noted that there is more information to be gathered.  There is still one remaining conveyance workshop, and the Commission does need to hear the synthesis of the information gathered from those workshops, which will be at the next commission meeting.  Then staff will start putting together some draft recommendations, and the discussions will go from there.

Commissioner Arthur pointed out that the Commission is discussing public benefits of conveyance projects, but there are also potential negative impacts from conveyance projects.  “We have to weigh both benefits and impacts of projects and kind of look at the net benefits and in that assessment of where state funds should support activities,” she said.

Chair Alvarado said she appreciated the example of the dual approach.  “I think it makes sense for large, complex projects to have to go through the exercise of really defining the public benefits so that the public can be assured that we’re investing wisely, and that’s the discussion that we’re having, even today with the WSIP funded projects,” she said.  “Then with the cost-share for the smaller or human right to water projects in disadvantaged communities where they may not have the capacity to kind of do that in-depth analysis and have just a minimum bar to meet a threshold. I think that makes a ton of sense.”

Commissioner Makler agreed with Commissioner Arthur’s point about the impact of projects and said public benefits should not include taxpayers funding related mitigation.

Next steps

Next month, staff will review the input from the four conveyance workshops.  They are working to line up a financing panel for the February meeting to discuss financing mechanisms and challenges. From there, we would move on to drafting recommendations and then final recommendations.

There are other topics that staff is considering and thinking about the best way to bring those before the commission, which include water rights, the environmental impacts of flood capture or Flood MAR, green infrastructure and resilient natural systems, water budgets, partnerships, collaboration, and governance at the watershed or basin scale.

Other Water Commission Actions

    • The Commission elected Commissioner Teresa Alvarado as Chair and Matthew Swanson as Vice-Chair.
    • The Commission adopted regulations governing the special application for early funding in the Water Storage Investment Program.
    • The Commission voted to adjust the Kern Fan Groundwater Storage Project and Willow Springs Water Bank Conjunctive Use Project’s Maximum Conditional Eligibility Determination (MCED) and adjust the MCEDs of all seven projects within the Water Storage Investment Program for inflation at 2.5%.

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