July 19, 2017 – Doug Obegi is Senior Attorney, Water Program, Natural Resources Defense Council
The Sacramento Bee reported this week that the Board of Directors of the Westlands Water District were skeptical of paying for the Delta tunnels project (WaterFix). This shouldn’t come as a surprise, given that prior analyses have shown that the project is not cost-effective, particularly for agricultural water users. But after digging into the presentation by Goldman Sachs to the Board of Directors of Westlands, it appears that the cost numbers for WaterFix are likely to be significantly higher than what Goldman Sachs presented.
Even taking Goldman’s numbers at face value, WaterFix would increase the average cost of all water exports from the Delta by $260 per acre foot in 2033 (assuming a 30 year repayment period without capitalized interest). That would be double or triple the cost per acre foot that Westlands is paying to the Bureau this year. They also analyze costs under a range payback periods, with and without capitalizing interest during the construction period, and depending upon the amount of federal taxpayer subsidies that could help reduce financing costs.
However, several of the assumptions in Goldman Sachs’ presentation appear unreasonable and would significantly underestimate the costs of financing the tunnels for those districts that participate in the project. The presentation from Goldman Sachs includes analysis based on both the cost of incremental water supply gained by the project, as well as cost analysis based on total water exports from the Central Valley Project and State Water Project.
First, they include an analysis based on the incremental water supply gained from Waterfix, but that cost analysis assumes that the incremental water supply from WaterFix is 1 million acre feet of water (slide 3). The farmers at Westlands know that’s not true; indeed, one of them was quoted saying, “It’s a lot of money for not a lot of water.” The incremental water supply is calculated using a fake baseline that is completely different from the analysis used in the CEQA/NEPA documents for WaterFix, as I’ve written about before. In contrast, as Dr. Jeff Michael of the University of the Pacific pointed out last year, the final EIS/EIR for WaterFix estimates that the State Water Project would increase exports by 186,000 acre feet, and the Central Valley Project would reduce exports by 14,000 acre feet. If one uses the real estimate of the incremental water supply yield from WaterFix, the per acre foot costs skyrocket (particularly for CVP contractors, who lose water supply compared to today according to the final NEPA/CEQA documents).
Second, the cost analysis based on total exports from the Delta (slide 5) appears to assume that the costs are shared equally across all of the CVP and SWP water users south of the Delta. But again, this assumption does not appear to be accurate. Instead, approximately 23% of the total average Delta exports with WaterFix apparently would not pay a penny for the tunnels: water supply for the Bureau of Reclamation’s Exchange Contractors on the San Joaquin River (875TAF); and Level II refuge water supplies South of the Delta (271TAF). As such, the total costs would be shared amongst a much smaller water supply from the Delta, increasing the per acre foot cost by as much as 30% for those contractors who participate in WaterFix. (Recall that David Sunding’s 2016 analysis, which is referenced in the links above, assumed a massive, $3.9 billion taxpayer subsidy to pay for these water supplies from the Delta, and even with that taxpayer subsidy the project was not cost effective for agriculture)
Third, water supply with WaterFix is likely to be significantly lower than projected in these analyses, due to the adverse environmental impacts of the project and the likely effects of climate change over the coming decades. For native fish and wildlife, the tunnels are worse than the already unsustainable status quo, particularly because WaterFix worsens Delta outflow in most years. If the State Water Resources Control Board does its job and requires greater outflow to protect fish and wildlife and the health of the estuary, as the best available science demonstrates is necessary, the water supply from WaterFix will go down further and the cost per acre foot will increase. Slide 11 shows that the per acre foot cost for Boundary 2, which significantly reduces total exports from the Delta, is $358 per acre foot compared to $260 per acre foot under the proposed project, using the same financing assumptions (2033, 30 year repayment period, no capitalized interest).
Finally, Westlands and other contractors would have to pay for the cost of constructing WaterFix even in drought years when they get very little or no water supply from the Delta. Goldman Sachs’ analysis doesn’t discuss the difficulty of paying for WaterFix during droughts or dry years, while previous analyses have identified this as a significant problem for agricultural contractors.
It’s no surprise that WaterFix is a bad deal for the environment and for water users. But these unreasonable assumptions indicate WaterFix is likely to cost Westlands and other contractors far more than Goldman Sachs’ analysis shows.