At the June meeting of Metropolitan Water District’s One Water and Stewardship Committee meeting, DWR Director Karla Nemeth was on hand to make the economic case for the Delta Conveyance Project. The meeting included a presentation on the cost estimate by Graham Bradner, Executive Director of the Delta Conveyance Design and Construction Authority (DCA), and a presentation on the benefit-cost analysis by Dr. Sunding, Emeritus Professor at UC Berkeley and .
PUBLIC COMMENT
But first, as is usually the case when the Delta Conveyance Project is on the agenda, there were folks on hand to give their comments to the Committee members. Members of the public can comment at the beginning of the meeting on any item on the agenda. A total of 22 commenters spoke regarding the project.
Thirteen spoke in opposition to the project: Representatives from NGOs, including LA Waterkeeper, Environmental Water Caucus, Sierra Club, San Francisco Baykeeper, and others, along with a few Delta residents and members of the public. Many said the Delta Conveyance Project’s benefits are overstated and driven by unrealistic population growth estimates, while risks are understated. The costs are high and will increase rates and impact water affordability; it would also use funding that would otherwise be used for local and regional projects. Several urged Committee members read Dr. Jeff Michael’s letter on the benefit-cost analysis, or bring him in for a board workshop. The project will negatively impact fish and wildlife in the Delta; these mitigation costs are not included in the estimate. One was concerned the dust from construction would put folks at risk for Valley Fever.
Nine spoke in support of the project: They included the Southern California Water Coalition, Californians for Water Security, Orange County Business Council, LA Chamber of Commerce, and other business organizations. They spoke about the importance of securing the water supply for Southern California’s economy and population. The Delta Conveyance Project would help prepare California’s water infrastructure for climate change. It’s an affordable source of water. Tt would provide jobs. Doing nothing is not an option.
It was noted later in the meeting that Restore the Delta had been on the public comment line but was not called, so their written comments would be provided to Committee members. That would bring the total to 23 total speakers, 14 in opposition.
INTRODUCTORY REMARKS
(Note: This meeting was held prior to the June 13 board meeting.)
General Manager Adel Hagekhalil began the agenda item by acknowledging and thanking those who spoke during the public comment period. He noted that Metropolitan is currently examining solutions through the Climate Adaptation Master Planning for Water (or CAMP4) process, including conservation, local resource development, storage, creative collaboration and partnerships, water supply management, and the Delta Conveyance Project.
Critical questions need to be answered regarding the Delta Conveyance Project and the long-term reliability of the State Water Project, which Mr. Hagekhalil said was ‘a vitally important water supply for Metropolitan.’ The planning efforts that will continue over the next two years are critical for the staff and the board to determine the best solution for providing Metropolitan’s long-term reliable water supply.
“In December 2020, the board voted to fund the planning costs for the project through December 2024 for $160.8 million*,” said Mr. Hagekhalil. “The planning efforts have advanced, including a final EIR report that was certified at the end of last year. … Today, we have speakers to provide the status of two key project milestones: the release of the project cost estimate and the statewide benefit-cost analysis.”
In the fall, there will be additional updates to the Committee on the benefits of the State Water Project to Metropolitan and an evaluation of the Delta Conveyance Project information as it relates to Metropolitan.
“By the end of 2024, Metropolitan staff will bring forward to your board for consideration and action preceded by an informational item to consider an additional two years of planning efforts funding for 2025 and 26 on the Delta Conveyance Project to get this project through the permitting process and hopefully provide the additional information we need for the board to make the right decisions.”
DWR Director Karla Nemeth then addressed the Committee members. She recalled how the last time she addressed the board, they discussed the challenges in collectively making choices about climate-resilient water supplies for all Californians.
“At that meeting, I reflected on the fact that really over the last 10 to 20 years, the water user community, which is a fractious community throughout the state, we were working together because we had these ‘all of the above’ strategies and that was a way to bring people together,” said Director Nemeth. “But now, as time has advanced and climate has asserted itself with weather whiplash and changing hydrologic patterns, we also know more about potential investments that need to be pursued … These are the things that you all need to grapple with. How does this project fit with stormwater capture? How does it fit with recycled water? How does it fit with Colorado River supplies? How does it fit with water from the Eastern Sierra? Lots of questions and lots of challenges.”
Director Nemeth acknowledged the comments that the Delta Conveyance might have been a good idea in the 20th century but not so in the 21st century. “While I understand that perspective, I also look at the risk in the Delta, which I think you all are aware of. In 2005, after Hurricane Katrina, the Army Corps of Engineers looked around to better understand where the country had significant vulnerabilities, and the California Delta was one of those places. When you start to understand that risk, generally of an earthquake or a large storm event coming through, and the fact that the State Water Project service area in and of itself is the eighth largest economy in the world, you can understand pretty quickly why any governor in California, regardless of their political party, regardless of where they stand on other issues, takes a look at this and says, what do we need to do to make sure that these water supplies are secured for Californians. Then you layer on top of that the intensity with which we are starting to experience this changing hydrology in California, and it really only gets more urgent in terms of how we think about the investments required to make California’s water supply a climate resilient one.”
Director Nemeth also acknowledged that it’s been a difficult year for those who rely on the State Water Project water. “It really was a year where the challenges of the current physical configuration of the state water project with the pumps in the south Delta created enormous conflict for fish species that we need to protect. So, while this year we had about 110% of our average precipitation, we are able to deliver only about 40% of the contract to the state water contractors. And that was largely due to fish presence in the vicinity of the pumps. So when we had these big pulses of water moving through and fish entering the vicinity, we had to protect those fish by turning down those pumps. That really demonstrates the challenges that we have with our current infrastructure in dealing with rapid shifts in hydrology because we know that as difficult as the drought from 2020 through 2022 was, there is one that is coming that will be longer and deeper. There is no question about that. So our ability to move water when it’s wet becomes increasingly crucial.”
“We estimate that this year if we’d had Delta conveyance in place, we would have been able to move about 909,000 acre feet of additional water from a system that is fundamentally more passive as a physical infrastructure. And in that sense, we can do it in a less intrusive way for fish species migrating through our system.”
Dr. Nemeth noted that the project is on track to complete permitting by the end of 2026. The Department has submitted applications for the incidental take permit from the California Department of Fish and Wildlife under the California Endangered Species Act, submitted the petition to the State Water Resources Control Board for the right to add the diversion points to the system, and currently working with their federal counterparts to complete a biological opinion on our current system that includes a programmatic analysis for this project.
“We have a lot of work to do across the board, to invest and reinvest in our systems and understand how those things work together,” continued Director Nemeth. “I think it’s important to secure and modernize the State Water Project because it does afford opportunities for transferring water, to trade water, to develop new partnerships with agriculture in California, which needs the water at different times, and new ag urban partnerships that have the potential to be revenue generators that will help you as you understand what water affordability means for 19 million Southern Californians in the 21st century.”
“One of the things that keep me up at night is that even if this project were to go away, we have intense climate vulnerabilities in the Delta and other communities that rely on the Delta for water supply – agriculture and large communities and large communities that frankly, have some traditionally underserved residents that also need to be part of a climate-resilient water future.”
“Over the next two-plus years, this board will be asked to make significant financial commitments to the construction of the project,” she continued. “We are doing ongoing design improvements and value engineering that we believe will tighten the project costs. This is a critical milestone in providing more information to assist the Metropolitan Board in this Committee and understanding the value of this project. We look forward to understanding, as you progress with your climate adaptation master plan, how your State Water Project supplies fit into that so that we can be sure that the Department continues to be a valuable partner with Metropolitan.”
DELTA CONVEYANCE PROJECT COST ESTIMATE
Graham Bradner, Executive Director of the Delta Conveyance Design and Construction Authority (DCA), presented the updated cost estimate for the Delta Conveyance Project, which now includes the Bethany Reservoir alternative.
The Delta Conveyance Project is a 6000 cubic foot per second project that includes two intakes on the main stem of the Sacramento River, each capable of diverting up to 3000 CFS, a 45-mile long conveyance tunnel with a 36-foot internal diameter tunnel constructed with 11 shafts. In the south Delta, a pumping plant would lift water out of the tunnel and deliver it directly to the Bethany reservoir.
The estimate includes the direct construction and labor costs associated with designing and building the facilities, land acquisition costs, the power supply connection infrastructure, and the consumption estimates associated with constructing the project. The estimate also includes quantified aspects of the environmental mitigation commitments within the environmental impact report, the $200 million community benefits program, and the settlement agreement with Contra Costa Water District.
Uncertainty within the estimate is incorporated in multiple ways, including the direct risk treatment costs within the construction aspects of the project and contingencies associated with construction and other program costs.
The estimate includes labor, equipment, and materials, given in 2023 real undiscounted prices. Mr. Bradner said it is mostly a class 4 estimate in AAC guidelines. The estimate assumes a design-bid-build process and lays out the activities and soft costs associated with the project, which is a conservative approach.
As for the construction schedule, permitting is expected to be completed by the end of 2026, with significant design activities continuing afterward. Construction would start in 2029. Tunneling will begin in 2029 with the construction of the shafts. The first tunnel boring machine would start excavating around 2033- 34; by 2035, all four tunnel reaches, and the pumping plant, intakes, aqueduct, and discharge structure are in construction. 2035-36 is the peak in the total expenditure on the project; then, it ramps down through the completion of the construction window. All construction would generally be done by the end of 2042; major site restoration activities would follow. The system would be ready for full operation by the end of 2044 or the beginning of 2045.
The cost estimate is $20.12 billion in real 2023 prices. 75% are costs associated with construction; 25% are other program costs, such as labor, land acquisition, mitigation, and the community benefits program. They performed multiple reconciliations and are confident in their construction estimate.
Direct risk treatment costs are about $500 million and are included in the direct construction costs in the upper portion of the table; a 30% construction contingency is included. Contingencies are built into other program costs ranging between 15 and 30%.
The DCA is also considering ‘innovations,’ which Mr. Bradner described as opportunities to reduce impacts, costs, or schedule. The 19 innovations identified are included in a secondary estimate. He provided an example from the Bethany Reservoir pumping plant that would reduce soil excavation by 274,000 cubic yards, reduce concrete by 84,000 cubic yards, use 10,400 tons less rebar, shorten the construction schedule by almost 1000 days, and save close to $140 million.
“To be clear, they do not represent changes to the project description,” he said. “That’s something that DWR will need to consider as they continue working their way through the permitting and planning phase of the project. But from an engineering perspective, we find them entirely credible and reasonable.”
The slide below shows the cost estimate and the potential savings of the 19 innovations. “Even at this very early stage, we see a real opportunity to shave $1.2 billion off the project cost estimate or 6% of the total estimate that’s been presented,” said Mr. Bradner. “This is an early step in the right direction, and we felt like this would be very helpful to share and show what we think we can do in terms of project evolution.”
DELTA CONVEYANCE PROJECT BENEFIT-COST ANALYSIS
Dr. Sunding, Emeritus Professor at UC Berkeley and , began his presentation by noting that if the service area of the State Water Project were an economy in its own right, it would be the eighth largest in the world. It’s about a $2.8 trillion economy, serving about 27 million people. So, a lot of economic activity is supported directly or indirectly by the State Water Project.
The average yield of the State Water Project is about 2.56 million acre-feet per year. The State Water Project faces two future challenges:
- Climate change and sea level rise: By 2070, the Cal Sim modeling predicts about a 22% reduction in State Water Project deliveries with no infrastructure changes.
- Seismic: There is the risk of an extended disruption in both water supply and water quality following a major seismic event in or near the Delta.
A benefit-cost analysis is a systematic approach used to analyze the costs and benefits to help decision-makers evaluate the economic feasibility and efficiency of pursuing a particular project.
The benefits from the Delta Conveyance Project analyzed were water supply reliability, water quality changes, and mitigation for seismic events. The analysis found that the benefits exceed the cost estimate by a ratio of 2.2:1 or for every $1 spent = $2.20 gained.
“We did a number of sensitivity analyses where we made different climate assumptions and whatnot, and this conclusion is pretty robust across several different scenarios,” said Dr. Sunding.
The slide shows the results of the Cal Sim modeling used to analyze water supply benefits. “Starting in 2020 hydrology, with current infrastructure, so without the Delta Conveyance Project, at present, we have average yields on the state water project of about 2.56 million acre-feet per year,” he said. “If we look out to 2070, with the same infrastructure but future climate conditions, the projections that we’re working with that are in the EIR and the accompanying documents show that average deliveries on the State Water Project will decline by about 570,000 acre-feet or about 22%. Then, the last comparison is made to 2070 climate conditions, but now let’s add in the DCP, and what happens is the State Water Project gets back 403,000 acre-feet.”
“An important threshold point is that this project is not about increasing water supplies beyond their current level. Rather, I think of it more like an insurance policy that keeps supplies roughly – not quite, but roughly at their current levels, even in the face of some significant climate disruptions.”
The qualitative rationale for the high level of water supply benefits is that more State Water Project deliveries, even in wet years, allow urban agencies to fill storage more frequently, which means they can endure drought periods of mandatory rationing and reduce the severity and frequency of shortages when they do occur.
As for the methodology, a concept called ‘willingness to pay’ was used for urban customers of the State Water Project. This method quantifies what an urban household would be willing to pay to avoid a shortage of a particular magnitude and a particular duration; it’s a dollar-value concept. He noted this methodology has been peer-reviewed and is used in numerous economic studies.
For the agricultural sector, they used different models to calculate values, particularly the Statewide Agricultural Production Model.
Water quality benefits would come from diverting water in the North Delta, where there are lower salinity levels. Reduced salinity for the urban sector reduces treatment costs, improves taste, extends the useful life of appliances, and reduces costs of water softening. In the agricultural sector, lower salinity water applied to crops reduces the leaching fraction, which is water that’s needed to flush water out of the root zone of crops.
The analysis found that the benefits of reduced salinity for SWP contractors outweigh the costs of the ‘less than significant’ increase in Delta salinity. “We also looked at impacts during the construction period, as well at longer-term impacts during the period of operations on salinity levels that are relevant to farmers in the Delta, and factored in the impact that would have on their activities using the same methods that we use to look at salinity benefits,” said Dr. Sunding. “We found that the economic costs on Delta agriculture of long term changes in salinity are quite small.”
The benefits of the ability of the Delta Conveyance Project to mitigate seismic impacts are avoiding water supply disruptions after an earthquake and reduced water quality. The main assumption came from a DWR document, the 2018 Delta Flood Emergency Management Plan.
“In particular, we used scenario one, which DWR identifies as the primary planning scenario coming out of this document,” said Dr. Sunding. “That envisions a one-in-a-500-year event, with around 50 levee breaches and then 20 islands flooded in the Delta. And we’re looking at the economic impacts of that with and without the DCP using the same water supply reliability and water quality models that we use to calculate the water supply benefits.”
So, adding up the benefits and the costs, looking at 2070 climate conditions with an assumed 1.8 feet of sea level rise, the benefit-cost ratio is 2.2:1, so for every dollar invested in the project, it’s expected to return $2.20.
Recognizing the uncertainty about how future climate will evolve, they looked at other climate scenarios, some better, some worse, and calculated the benefit-cost ratio for each of those.
They also looked at the impact of the project’s performance, assuming there was no deterioration in climate conditions beyond the day the project started operating. “So, in other words, we evaluated the benefits and costs of the project, assuming 2040 climate conditions, which I don’t think most people expect is realistic. Even in that case, the project passes a benefit-cost test.”
Another way to look at the benefits and costs of the project is to look at water supply alternatives using a ‘levelized cost.’ “There are different ways to calculate it. But in my view, the most typical way to calculate it is to take the discounted value of the costs and divide it by – this is a little unusual – you take the discounted water supplies in the denominator. This is very common in the electric sector, for example; if we do that, we come out with $1,325 per acre-foot.”
Dr. Sunding pointed out that levelized costs can be calculated in different ways. “In particular, if you don’t discount the water, the physical quantities of water that are in the denominator, and many agencies don’t, then the levelized cost is more like $428 per acre-foot. And that makes sense because the denominator would be much bigger, so the ratio goes down.”
The costs for desalination, recycling, stormwater, and water conservation come from other studies, primarily from the PPIC and Pacific Institute. “Looking across actual projects in California, there’s been a big range of costs, depending on the location and scope,” said Dr. Sunding. “But what you can tell at a glance is that the levelized cost of the DCP compares favorably to the cost of other alternatives. We can talk about additional costs beyond what’s included in these figures – conveyance, treatment, and other costs for other kinds of projects, but the conclusion here, I think, is sound. The levelized cost of the DCP compares favorably to the cost of many other water supply alternatives available to the state.”
Another way to look at the economics of DCP is the cost of doing nothing. “With respect to the Delta, I have the perspective that the status quo is not possible to maintain; one way or another, something is going to change,” he said. “We’ll invest in this project and go down that path, or we don’t invest in the project and need to do other things like invest more in water supplies, have more frequent shortages, or whatever the consequences are. And while $20.1 billion undiscounted dollars is certainly a significant amount of money, it is in the context of a $2.8 trillion economy.”
“But beyond that, doing nothing is expensive in its own right. Having shortages is expensive economically and in terms of the quality of life. Investing in water supply alternatives that are more expensive than the DCP is costly. So, another way of thinking about our results is that the cost of doing nothing but basically maintaining the current infrastructure is actually higher than the cost of investing in the DCP. Hence the 2.2 to 1 benefit-cost ratio that we calculate.”
DISCUSSION
Director S. Gail Goldberg (San Diego) asked how willingness to pay is calculated.
DR. SUNDING: “So for a household deciding how much water to consume, that’s a choice they make. They look at a prevailing rate structure and figure out for themselves what water is worth. And what does it cost? And how much do I want to purchase? So, in that sense, water is like any other commodity: tennis shoes, personal computers, or anything else a household could buy.”
“One point on a demand curve right now, given the prevailing rate of what people wanted to purchase, and that they did voluntarily tells you something about what they’re willing to pay for water. The more interesting question is, under shortage conditions, maybe I would have wanted to purchase 20 units, but I only have 18 available, so what’s the value of the two that I couldn’t purchase? For that, we use a concept called demand elasticity, which we worked on for several years, developing statistical models of how the amount consumed changes as prices change. So the method we’re using is based on actual behavior, and it calculates willingness to pay based on these estimated price elasticities, which, in turn, are based on how rates change and how households vary their consumption levels.”
Director Goldberg: We already know that about 12% of the state contractors have been unwilling to pay for the planning. What is the assumption about where that money will come from? Where who will make up that gap?
DR. SUNDING: “Our analysis is at an aggregate level. So, we added all the benefits across all the State Water Project contractors and then compared them to the costs we got from the DCA. We’re not making any assumptions about cost allocation, and we’re not making assumptions about trading water on a secondary market that could come later. But for right now, as a statewide study, we’re looking at aggregate benefits and costs.”
Director Nancy Sutley (City of LA): There were several public comments on the estimate of water demand. How sensitive is this analysis to different scenarios of water demand? And related to the demand question, if you look not just at a cost per acre-foot but the availability of those alternatives to meet the demand, did your analysis look at whether that makes any difference in the cost comparisons?
DR. SUNDING: “The first question relates to demand projections. For the different urban contractors on the State Water Project, we used information from their planning processes or urban water management plans. And that gave us estimates of future water demands. The source was different for each agency, but that’s generally the method we used. Because a lot of the value, in our view, is essentially avoided shortages, a shortage is just a gap between supply and demand. So it stands to reason that the results would be, at least to some degree, sensitive to the particular assumptions we make about future demands.”
“For Met, in particular, we assumed demand growth out to 2045. And then flat demand beyond that. There just wasn’t an existing, credible 2070 or 2100 demand projection. But we did assume flat demand. And that, I think, has some degree of conservatism to it.”
“Regarding the benefits, we used 2070 hydrology because that’s the data we had to work with. That’s only 25 years into the operating life of the project. I would venture a guess that if we had used 2100 climate conditions, there would have been further deterioration in State Water Project deliveries, and the project’s benefits would be even larger than what I’m incorporating here. So in that sense, that’s a degree of conservatism built into the analysis as well.”
“With respect to your question about water supply alternatives, you raise a very good point. We’re talking here about under current infrastructure, going out to 2070, with no changes, losing something like 570,000 acre feet on the State Water Project. I think it’s a real question of the degree to which that could be made up for just by water supply alternatives. We know how difficult desalination is to get done. Water recycling has its own costs that could be compared pretty readily to the cost of the DCP. Conservation has made a lot of strides in California. And there will be more to happen, for sure. But you’re right; there are political and technical limitations to some of the water supply alternatives that I talked about. And that’s beyond the scope of the analysis that I’ve done. But we do have information on the relative levelized costs.”
QUESTION: Chair Tracy Quinn (City of LA) noted that the water supply alternatives don’t include conveyance, so it’s not an apples-to-apples comparison, as water conservation and efficiency doesn’t require conveyance.
DR. SUNDING: “All of these costs are at the place where they’re created. So, for an agency like Metropolitan, one would add on the marginal costs, not the average cost, and the marginal cost of conveyance and treatment to make it more comparable. But I’ll point out that some of these other projects, like desalination, for example, have additional costs beyond what PPIC estimated here. So we could add more detail to all parts of this graph, but I think the basic message will hold.”
“You spoke also about the need for this project to mitigate shortages,” said Chair Quinn. “I’ll note the 570,000 acre-feet that we’ll see in reduction is approximately what was estimated as the savings from the August draft of the conservation regulations by 2035. So it is unfortunate that the state is now pursuing significantly weakened conservation regs that don’t require any savings for 72% of Californians until 2035 at the earliest that could be used to mitigate some of the impacts this project is trying to address.”
DIRECTOR MARTIN MILLER (San Diego County Water Authority): Regarding the acre-foot cost of the DCP, how does that vary with water deliveries? The cost of the tunnel will be fixed, but what would be the actual costs in dry years? In wet years? What will be the cost to the ratepayer?
DR. SUNDING: “First of all, to calculate the levelized cost of $1325, we took into account the performance of the project under a whole variety of hydrologic conditions. So, if you’re familiar with how the Cal Sim modeling works, it looks at an essentially modified version of historic hydrology with extremely wet and extremely dry periods. So, that’s been modified to fit future climate conditions. We use that hydrologic trace across a variety of wet and dry years to calculate both the benefits of the project and also the levelized costs.
“A couple of things are important about the DCP relative to some alternatives. The construction period is fairly long; the operations begin in 2045. So, we have the costs loaded up front. And then, O&M costs continue, but the benefits can only occur after the project is constructed. And so that’s why in this levelized cost calculation, we’re discounting both the numerator and the denominator.”
“Another way of looking at it, which many agencies do in their own analyses, is to not discount the denominator. They take the discounted value of the cost and compare it to how many acre-feet will be produced over the life of the project. If I had done it that way, the levelized cost would be more like $428 per acre-foot. So that’s all worth keeping in mind.”
“The last thing I would say is that a benefit-cost analysis isn’t a rate-setting exercise. We haven’t mapped out the consequences on rates for any state water project contractor. That would be a separate process that presumably the agencies would do themselves to figure out how to layer it into rates and what might be other sources of funding. But that’s separate from benefit-cost analysis.”
DIRECTOR JEFFREY ARMSTRONG (Eastern Municipal Water District): Regarding slide 19, I understand the benefit-cost analysis, but what specifically about the project increases the supply compared to the no alternative project? What is the project doing that allows us to get this additional 400,000 acre feet?
GRAHAM BRADNER: Although operations are not within the purview of the DCA, I’m close enough to it to respond to this question. It provides a new diversion location in the North Delta along the main stem of the Sacramento River, so when you overlay the hydrologic conditions anticipated and include the operational commitments within the EIR and through additional permit activities, there are opportunities to capture additional flow that are currently missed. And so that is at least in one major way how that occurs.”
DIRECTOR DENNIS ERDMAN (Municipal Water District of Orange County): Does a drought result in the loss of the gross domestic product of the state? How can it be calculated? What is the relationship between gross domestic product and water supply?
DR. SUNDING: “The most obvious connection between water shortages and changes in GDP is in the agricultural sector because water is a production input. And we’ve seen many, many instances that during periods of water shortage, there’s more fallowing, and that’s less output and fewer farm jobs with all the ripple effects that occur in agricultural communities. So yes, definitely, in the agricultural sector, there’s a very direct linkage between GDP and water shortage.
“In the urban sector, typically shortages are of a magnitude that can be mediated primarily through the residential sector. Some employment is linked to residential water consumption, such as landscaping jobs and whatnot. But generally, the urban impacts are more what I would think of as a quality of life impact, not being able to use water inside or outside the home the way one would normally like under non-drought conditions. So, in the urban sector, while the benefits of avoiding shortage are significant, they don’t manifest in GDP the way they would or would not, to the same degree that they would in the agricultural sector. However, there are still real economic losses.”
DIRECTOR KARL SECKEL (Municipal Water District of Orange County): In looking at the discounted or undiscounted cost divided by discounted acre feet, what period did you use to get the $1375? And then at what discount rates?
DR. SUNDING: The discount rates that I used were the current real rate of interest that we observe in the capital markets. It’s the same interest rate or discount rate that I used in the benefit-cost analysis. So that’s a simple answer to that. To calculate the levelized cost of $1325 per acre-foot, I used the costs that come out of the DCA, together with the construction period that comes out of the DCA, and then for the water supplies, I assumed operations begin in 2045. And then I looked at the 100-year useful life of the project.”
BOARD CHAIR ADAN ORTEGA: Metropolitan is currently in storage conditions with a 30% allocation. We currently need to expand our storage capacity to accommodate the water. We have filled all of our storage accounts. We opened up a new one last year at AVEK. We currently have about 3.4 million acre-feet of water in storage. 2.1 million acre-feet, our analysts have indicated it is there because of reduced demands. So, have you assessed the incremental cost of Delta conveyance, accounting for the increased surplus you expect the project to offer when you have good weather conditions? And then, is the administration entertaining funding for expanding storage capacity in tandem with that growth in surplus?
DR. SUNDING: “In terms of how we calculated the shortage profiles for each urban State Water contractor, we did the same thing for Met that we did for all of the others that we modeled, which is to use current criteria for puts and takes into storage, together with limitations on the total quantity of storage available. So, as much as possible, we tried to mimic the operations the way they’re modeled in your IRP process. And that gave us a pattern of shortages with and without the DCP. And then we put an economic value to that to get the urban reliability benefits.”
DWR DIRECTOR KARLA NEMETH: “One thing that is not captured in the benefit-cost analysis because we ultimately thought it was too speculative was a year like this one where we saw, from January through essentially June 1, a set of events in the Delta around multiple different species that are protected under state and federal law, appearing in front of the pumps; those species were salvaged, they were put into trucks and moved out and put back into the Delta at a different location.
“That’s a scenario where we know if we had the Delta Conveyance Project online, there would have been significant water benefits of this program. It’s difficult to capture because we want to be conservative across the board, and our ability to capture a set of circumstances with regulations and fish presence seemed not really supportable regarding the information you would need to weigh the project. So, we do know that there are opportunities to move water safely, especially when the system is running really high, that are not available to us now simply because of the configuration of the existing pumps.”
“As it relates to storage, what we are trying to do with this project is understand the value related to this project and our set of contractors. When I think about California as the statewide water planner and look at the benefits of the Delta conveyance project, can California afford to have facilities that aren’t up to the task of moving water during very wet periods so that we can survive during expanded and deepening droughts?
“So how do we make sure that Metropolitan can, in the context of its climate adaptation plan, identify what its needs are for reliability for the State Water Project in various scenarios, and make sure that you are not investing in more than the benefits that will accrue to your service area and your ratepayers? I think that’s the work that we need to continue to do. That’s why it was important for us to get this information out and have conversations about it. It’s certainly not the end of the story, you know, by any stretch, but it is, I think, important information about the totality of the project in aggregate. We’re having these conversations with multiple state water contractors to determine how this works in their service area. And that kind of partnership is going to be crucial for all of us collectively making good decisions that do what we need to do for local resilience and do what we need to do for affordability for water in California.”
CHAIR ORTEGA: I think Dr. Sunding is correct; something’s going to give. One of the things that I find perplexing is that we’re so far apart with the Delta interests on where we are right now with climate change. A study that came out just a few weeks ago said that the atmospheric rivers we’ve seen come through California do not match the torrents that have passed through California across the millennia. We have this conversation about seismic, and I don’t think that people in the Delta agree that they’re in as much danger as we might perceive them to be. In fact, Metropolitan perceived such danger that we spent $50 million constructing a freshwater passage through the Delta. So, it’s a very interesting paradigm. I think one of the risks is that even if you built Delta conveyance a few years from now, there may be a flood. And then you’re going to be blamed for not building it big enough because it doesn’t have the capacity to divert enough water around it.”
DIRECTOR MARTIN MILLER (San Diego County Water Authority): We build a tunnel and get 400,000 acre-feet of water through it. That’s great. But we still get a large portion of our water through the Delta levees. We also own 20,000 acres of farmland in the Delta. So, the Delta levees are important to us. And I’m sure they’re important to Delta farmers. The Delta tunnel isn’t going to solve all of our problems. What’s the plan?
DWR DIRECTOR KARLA NEMETH: “So the Department does a lot of emergency response planning. If we have a levee failure in the Delta, that could generate an inability for the State Water Project to continue moving water, so the state needs additional funding to invest in levees throughout the Delta to enable us to protect those communities and those water supplies.
“I think the real challenge is, over time, the intensity of the storm events that we have the potential to see. 2023 was an interesting year because we had been tracking a significant number of those atmosphere rivers to hit to the north of the Delta, but they all sort of tailed south, and that’s why we had the 400% snowpack in the southern Sierra. But the challenges we have in terms of levee protection really throughout the Sacramento San Joaquin system – that’s a $30 billion challenge over the next couple of decades. … There’s also a real risk of intense atmospheric river storm events, creating a cascading flooding problem. So, we need funding in California for public protection and the flood safety side of climate change. And it’s something that I’ve been working in this administration to do.”
“My hope is, if we do see a bond, there will be a downpayment on what we need to do for flood protection. With many of our flood protection needs, it’s a partnership between the Corps of Engineers, the Department of Water Resources, and typically a local jurisdiction in the work that we need to do … We have a fantastic Corps office in Sacramento, we have a great assistant secretary, and the federal government is incorporating climate into their policies, but not fast enough to help the state of California do what it really needs to do to partner with the Corps and get those projects in faster.”
*Metropolitan’s contribution was misstated earlier as $460.8 million. It is actually $160.8 million.
