Delta tunnel is a big drain compared to bullet train

July 11, 2012

By Wayne Lusvardi

Who could have guessed it? A proposed water conveyance tunnel through the Sacramento Delta is a greater economic boondoggle than the California High-Speed Rail Authority.

That’s the conclusion of Jeffrey Michael, director of the Forecasting Center of the University of Pacific Eberhardt Business School. Michael’s conclusion comes from a preliminary cost-benefit study of the proposed Bay Delta Plan he conducted without any outside funding source.

The benefits-to-cost ratio of the California High-Speed
Rail Authority is five times higher than the proposed Bay Delta water conveyance tunnel. The Delta tunnels would be a loser generating only $1 in benefits for every $2.50 in costs, compared to $2 in benefits to $1 in costs for the bullet train boondoggle (according, at least, to train proponents).

The money tunnel

The “Through-the-Delta Tunnel” is a proposed project to convey water directly through the Sacramento Delta in a massive underground tube, rather than around the Delta in a Peripheral Canal.

In wet years, the tunnel would bring water to reservoirs and underground water banks for use by farms and Southern California cities in dry years. The tunnel has been designed to be very large in order to convey a huge volume of excess water during wet years.

Local Delta farmers, fishermen and environmentalists don’t want a surface canal around the Delta. So a subsurface tunnel project through the Delta was proposed. But, at $14 billion, a tunnel is the most costly alternative.  Have farmers and cities been compelled to pursue the most costly alternative for the project, only to have the tunnel option blamed as economically infeasible?

Voters shot down the proposed Peripheral Canal in 1982. Thirty years later, this has resulted in California only having about a half-year of water storage in the combined state and federal water systems in California to weather a drought. Southern California cities have had to learn to manage water by conservation rather than water storage.

Should the project be built at all?

Given his conclusion of the lack of economic feasibility, Michael asks the question: “Should the Delta project be built at all?”  But this also raises the question: Is it too late to stop it?

Michael’s cost-benefit study may be too late because AB 39, the Delta Reform Act, has already been signed into law. An official cost-benefit study by economist David Sunding of the University of California won’t be released until the Bay Delta Plan is in final form. This is unlike the high-speed rail project that has released updated cost-benefit studies as the project has evolved in its planning phase. Thus, Michael has taken it upon himself to do an up-front cost-benefit study for the benefit of the public.

The Delta Reform Act is based on the “co-equal” goals of the conservation and management of the Sacramento-San Joaquin River Delta ecosystem and improving the current supplies and reliability of water conveyed through the State Water Project and the federal Central Valley Project.  The Delta Plan would not “restore” the Delta because the Delta was originally an occasional inland sea that created flooding and havoc on the economy.

By adopting the co-equal goals of the Delta Plan, the state Legislature and governor have inadvertently nearly eliminated any ongoing economic consideration of the project.  The proposed Through Delta Tunnels are estimated to cost about $14 billion. The rehabilitation of the Delta ecosystem is estimated to cost about $4 billion. But the net economic feasibility — comparing costs and benefits — is about $500 million in net benefits and $1.25 billion in net costs, according to Michael’s rough study.  That means that the costs of the proposed through-Delta tunnel are about 2.5 times the benefits to both water users and to the Delta ecosystem.

Michael points out that the original Bay Delta Plan in 2006-7 called for a “$3 to $4 billion canal that would ‘restore’ water exports up to 6.5 million acre feet on average.”  An acre-foot of water is enough, for one year, to supply two urban households; or irrigate one-third of an acre of farmland.  Now, he says in emails to me: “The cost has increased 3 to 4 times, it yields one million acre feet less water in the best case scenario and water demand is declining — and planners have finally gotten real about the long-term demand trends.”

“It is completely logical that people who supported the (Delta) vision 5 years ago would oppose the plan now.  Anyone who isn’t seriously reconsidering their position in light of changed facts isn’t being rational,” says Michael.  “I am not saying that I necessarily support the idea that Southern California should write a multi-billion-dollar habitat check, either. I think taxpayers and ratepayers deserve to have an alternative explored.”

Scare tactics instead of economics

Michael further says that sloganeering and scare tactics can’t substitute for sound economics: “For four years I have said I will support a canal if the state can demonstrate that it makes sense in a real statewide benefit-cost analysis.  I would tell the Delta folks it is for the greater good of California.

“But canal and tunnel supporters just state that it is for the greater good of the state with slogans (’25 million new people’) or scare tactics (‘an earthquake will rupture the Delta levees and cause the economy to run dry!’).  Maybe, but a canal or tunnel doesn’t protect energy, transport, etc.

“They — the Delta Stewardship Council — have refused to conduct or at least release a cost-benefit analysis. Taxpayers should be outraged by that, no matter where they live.”

Are ‘co-equal goals’ and cost-benefit compatible?

Mike Wade, head of the California Farm Water Coalition, believes that the above cost-benefit study ignores that policy makers have already passed laws requiring the “co-equal goals” of reliable water supplies and ecosystem protection for the Delta.

In response to Michael’s cost-benefit study, Wade left the following comment online:

“A closer look at the two reports by UC Berkeley’s David Sunding and UOP’s Jeffrey Michael reveals that the study Sunding provides is an in-depth analysis on the economics of California water and the benefits that result from an enhanced water supply. This water supply, along with a restored Delta ecosystem, is the basis for the work currently being conducted by the Bay Delta Conservation Plan. Unfortunately, the report by Jeff Michael fails to assign any value to meeting either of the co-equal goals, which is the entire basis for the existence of BDCP.”

Of course, why have an economic cost-benefit study at all if every square peg has to fit into the round hole of “co-equal goals”? And if it doesn’t fit, then some contrivance such as “regulatory assurance” must be invented to make it fit.

‘Regulatory Assurance’

Both the Delta tunnel and ecosystem rehabilitation would probably be funded with a revenue bond paid for those who would use the water (rather than a statewide general obligation bond tapping the state general fund). A revenue bond would pay for the Delta ecosystem upgrades and tunnel by raising water rates for farmers and cities.  This is why the Delta Reform Law has “co-equal” goals.  There must be “co-equal” goals for a) Delta conservationists and b) Central Valley farmers and Southern California cities. The Delta would supply the habitat and the water; the farmers and the cities would supply most of the revenue.

To provide the revenue, however, farmers and cities have demanded “regulatory assurance.” “Regulatory assurance” is a bureaucratic term meaning that water deliveries to farmers would not be interrupted or cut back by environmental lawsuits or surprise water shut offs to save some threatened species.  Farmers need assurance that their water supplies won’t be cut back over the term of any agricultural loans.  And Southern California cities need the assurance of water deliveries before they invest further in water conservation.  Cities surrounding the Delta may also need greater assurance if they are to be forced to pay to clean up Delta water pollution due to urban runoff.

But is ‘regulatory assurance’ a ploy?

Michael says that “regulatory assurance” has emerged as a fictional device to make the tunnel project seem economically feasible.

Economist David Sunding says that, to make the tunnel project feasible, an $11 billion value has been assigned to “regulatory assurance” to close the gap between costs and benefits.

Michael suggests that it would be less costly if the Delta Tunnels were dropped from consideration altogether and the $4 billion ecosystem restoration costs were completed separately and reduced to $2 billion.  As Michael puts it:

“The BDCP envisions $4 billion in habitat investments paid for by federal and state taxpayers. So my question is: ‘could a similar $4 billion investments in habitat in a “no conveyance” alternative merit a comparable regulatory assurance from the Fish and Wildlife Service?  What about $2 billion?’”  

But if ecosystem rehabilitation were funded separately, there would no longer be “co-equal” goals.  It would be back to Northern California wanting to fund only Delta ecosystem rehabilitation and farmers — and Southern California cities only wanting to fund a tunnel for greater reliability of water deliveries in dry years. And who would pay for stand-alone ecosystem rehabilitation if the state and federal governments are both broke?

But stand-alone ecosystem rehabilitation would lower costs even if it didn’t produce greater reliability of water deliveries to farmers and cities.  But then would the project unravel politically?

Of course, if the ecosystem rehabilitation costs were lowered to, say, $2 billion, perhaps it could be funded regionally instead of statewide.

But then we’re back to the problem of what to do about the thin water storage in the state.  California has already popped for $18.7 billion in water bonds since 2000 that haven’t developed any added water storage.  These water bond projects may have been intended as a way to pre-mitigate the impacts of the Delta tunnel, mostly to Northern Californians.

The cost-benefit studies of the Delta tunnel/ecosystem rehabilitation do not consider these prior water bonds. Nor does it consider the cost of removing dams along the Klamath River in Oregon and Northern California to restore salmon runs as part of the costs or benefits.

To fund or not to fund, that is the question

Michael’s question — “Should the Tunnels be funded at all?” — should include whether the Delta habitat rehabilitation funding should be continued as well.

Slow population growth is another issue that Michael has perceptively raised.

California’s slow 0.6 percent average annual population growth over the past five years — the slowest in more than 200 years — may not be a short-term trend. California needs to be reminded of what happened when the Washington Public Power Supply System planned to build five nuclear power plants in the 1970’s and 1980’s.  By 1983, some of the projects were cancelled due to a lack of population growth and poor management. WPPSS ended up defaulting on the bonds and went bankrupt — WHOOPS!

Gov. Jerry Brown wants a massive Delta tunnel and ecosystem rehabilitation project.  Brown has delayed a vote on the $11 billion proposed state water bond until the 2014 election.  But that bond has no funding for the Delta tunnel or ecosystem in it.  It’s another “waterless” water bond going down the proverbial drain. Maybe Brown was right long ago when he embraced a “small is beautiful” political philosophy?

The only hypothetical economically feasible way to get more reliable water supplies to Southern California might be in tanker cars on the proposed bullet train.

 

11 comments

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  1. Donkey
    Donkey 12 July, 2012, 10:52

    Brown is an eco-freak fool. Finish the 605 and 710 freeways to the high desert and build more water projects. The rest is just bureaucratic BS!!
    🙂

    Reply this comment
  2. nowsane
    nowsane 12 July, 2012, 14:07

    Every time the subject of water comes up in the state, I’m reminded of what author of Chapter 8, Water Options For the Blue Planet, Terry L Anderson, writes in The True State of the Planet, http://bit.ly/ItqjDn that among other things:
    *Eliminating laws against water marketing and establishing private water rights would give consumers an incentive to use water more efficiently.
    *Removing legal impediments to water markets would allow private firms to enter the water supply industry and take the burden off the public treasury. Market forces could pare demand, who supplied, reallocate water, and end the threat of water crises.

    I highly recommend this book, not just for Chapter 8, for all 10 Chapters covering every imaginable environmental issue that our “Bible-thumping” Greenies care to bring up.

    Reply this comment
  3. nowsane
    nowsane 12 July, 2012, 14:20

    Let’s try again!
    Every time the subject of water comes up in the state, I’m reminded of what author of Chapter 8, Water Options For the Blue Planet, Terry L Anderson, writes in The True State of the Planet, http://bit.ly/ItqjDn that among other things:
    *Eliminating laws against water marketing and establishing private water rights would give consumers an incentive to use water more efficiently.
    *Removing legal impediments to water markets would allow private firms to enter the water supply industry and take the burden off the public treasury. Market forces could pare demand, boost supplies, reallocate water, and end the threat of water crises.

    I highly recommend this book, not just for Chapter 8, for all 10 Chapters covering every imaginable environmental issue that our “Bible-thumping” Greenies care to bring up.

    Reply this comment
  4. Wayne Lusvardi
    Wayne Lusvardi 12 July, 2012, 15:10

    Dr. Jeff Michaels has clarified his definition of “regulatory assurance” in a separate email – here:

    I don’t say regulatory assurance is fictional (although it could be depending on the final BDCP). It is real benefit for exporters, and a real negative for all the upstream users. If the regulators say fish need more water or higher flows in the future that can’t come from the projects – it will have to come from the upstream folks or taxpayers will be on the hook to pay for even more compensating habitat projects. That is a particularly crappy deal for taxpayers, who will have already paid $4 billion for the habitat projects that gave regulatory assurance to the exporters.

    It IS interesting that it wasn’t in the original scope of work though.

    Reply this comment
  5. Laer Pearce
    Laer Pearce 12 July, 2012, 16:18

    I would be very curious to see how Dr. Michaels came up with a $500 million net benefit number, the assumption upon which his analysis rests. The Southern California economy, worth billions a year, is dependent on imported water. The Colorado Basin is back in drought mode and Nevada, Arizona and Mexico are asserting their water rights, so we can’t count on that water. The cost impact of a Delta collapse has been pegged at $20 billion to $40 billion.

    Michaels says demand is decreasing. Not really. Per captita demand is indeed decreasing, but the population is growing, albeit slowly. Demand is basically stuck where it’s been for 20 years or so and once the last low-flush toiled is retrofitted, we’ll have a hard time showing such dramatic conservation benefits.

    The question to be asked isn’t “Should the project be built at all,” but rather, “What’s going to happen to California if we don’t build it?” Or at least come up with a better alternative than anything I see here.

    Reply this comment
  6. John Bass
    John Bass 13 July, 2012, 09:24

    Not sure where your read ‘fictional’ into Michael’s piece, but happy to see your correction. Since it was never ‘unclear’ that regulatory assurance wasn’t a well-established legal mechanism for dealing with environmental regulation and not a mere product of Michael’s imagination, I am not sure where that came from.

    But on to the latter issue I have with your piece. While there seems to be a confusion over what is meant by “conveyance,” “no-tunnel” and “no conveyance” in Michael’s piece, (all three terms he used) he is not saying don’t convey water through the Delta to the pumps. He is is asking what exactly, does environmental mitigation buy? It buys assurance against liability, not proof of habitat health..

    He is asking a very simple question:

    If regulatory assurance is the operative and binding legal mechanism here, what advantage does that mechanism gain by building a conveyance that either goes under or around the Delta? Why not just convey water as we do now, on the surface, with vastly increased habitat?

    Reply this comment
  7. Mike Wade
    Mike Wade 13 July, 2012, 10:09

    What happens if nothing is done to secure a reliable supply of water through the Delta and an improved ecosystem for the estuary? I suggest the results could be far reaching. Consider: The water that flows through the Delta reaches 25 million Californians to support their lifestyles and businesses. Farmers use water that flows through the Delta to grow a safe and affordable supply of food, which allows families to not rely on imported foods.

    Doing nothing, which seems to be where this article is pointing, does more harm than good. California only has a half-year of water storage available and that supply quickly becomes stretched during years of drought. This year is a good example. Not much rain and snow has fallen to replenish our supplies. As a result, much of the carryover supply from last year has already been allocated and farmers are only receiving 40 and 65 percent of their water supply from State and federal sources.

    Doing nothing means California’s future water supply will continue to be unreliable. Not only can food production drop, on-farm jobs will dwindle. Too often water users have been forced into courtrooms to battle for their water. This scenario could repeat itself if a reliable water supply is not secured. Is this really where we want to go?

    Mike Wade
    California Farm Water Coalition

    Reply this comment
  8. gotaminit
    gotaminit 13 July, 2012, 10:46

    How many water agencies does it take to get water from the delta to socal?
    Can’t we merege the 400 plus agencies and lower administrative costs (pensions). The San Gabriel Valley aquafier, the size of Lake Tahoe, needs
    to be cleaned up and super fund dollars accounted for the last 20 years. so cal needs to work on it’s cleanup of underground storage.

    Reply this comment
  9. Bill Dutra
    Bill Dutra 13 July, 2012, 17:24

    Mr. Wade has now introduced the trump card of Big Ag’s fear mongering campaign. “If we don’t get the water, we can’t grow your food”! Perhaps he can explain how the 1/3rd of agricultural product originated in California which gets exported plays in to this scenario. Maybe he could explain that his clients, such as the Westlands Water District, are only supposed to receive “excess water” after the Metropolitan Water District in LA gets their fill. No, better to pretend that the 25 million Californians in Southern CA which get their drinking water from the system are on an equal footing with his clients.

    Agriculture uses 80% of the water used by humans in CA, but bears a disproportionately small portion of the cost of said water. For all of this, we get a farm economy which provides only 2% of our Gross State Product.

    Reply this comment
  10. John Bass
    John Bass 14 July, 2012, 09:45

    Where did this “doing nothing” read come from? The source of Wayne’s piece here, Jeff Michael’s piece, does not propose doing nothing. He asks about the need for a “$13 billion tunnel.” And if Wayne proposes that doing nothing is Michael’s idea, it is purely rhetorical.

    Michael is simply suggesting that the envirnomental benefits of a through-Delta conveyance system are just as legitimate, absent clear science of a greater environmental benefit via a canal or tunnel, as any other means of conveyance. And vastly less expensive.

    Michael goes to some length to say that he is open to the possibility of a canal or tunnel if certain criteria are met, and writes about the difficulty of getting Delta landowners to give up land to build big, habitat-sustaining setback levees if the option of the vastly less expensvie throu-Delta conveyance option is implemented.

    I suppose Mr Michael made it confusing when he suggested doing nothing instead of saying no canal or tunnel. It’s right there, in the title to the piece. That’s my read of his thoughts anyway.

    Reply this comment
  11. Wayne Lusvardi
    Wayne Lusvardi 15 July, 2012, 22:51

    Laer
    I can’t speak for Dr. Michaels. But I understand that he used $300/acre foot for his water unit price. The actual number used however is the net benefit unit price of $45/acre foot. To clarify that would be the price for raw water – untreated and without transport costs (I believe). If the net price per acre foot is much higher then Dr. Michaels’ study might be different as to its conclusions.

    Numbers are less important than assumptions. And none of these cost/benefit studies disclose their assumptions even though no real estate appraiser could get away with that without losing their license.

    The big story with Dr. Michaels’ cost-benefit study is that no infrastructure project can be built in California anymore except for the highest cost alternative. Environmental lawsuits and unions interests have made it so.

    Reply this comment

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