Could Obama also privatize the Central Valley Water Project?

May 1, 2013

By Wayne Lusvardi

Almost out of nowhere, the Obama Administration has opened up discussions for possibly privatizing the model asset of the New Deal, the Tennessee Valley Authority, to bring in revenues to the federal government and reduce the long-term national debt.  Part of President Obama’s strategy is to divest and decommission 59 coal-fired power plants in Tennessee, Alabama and Kentucky and replace them with green power.

The TVA is a massive rural redevelopment project of 46 dams and hydropower stations, 59 coal fired power plant units, 14 natural gas fired power plants, five nuclear power plants and navigation channels sprawling over Tennessee, Alabama, Mississippi, Georgia, North Carolina and Kentucky. The TVA reports an $11.6 billion annual budget for 2013 but a projected net loss of $183 million.

Would Obama privatize the Central Valley Project too? 

The question for California quickly becomes: Could Obama also propose to privatize the Central Valley Project that delivers water to farmers in California’s San Joaquin Valley?

The federal Central Valley Project is not the same as the State Water Project, which was built five decades ago through state bonds.

To give an idea of the magnitude of the CVP, it delivers about 6 million acre-feet of irrigation water to about 3 million acres of farmland in the central San Joaquin Valley.  By comparison, the State Water Project supplies only about 1 million acre-feet of water to farmers.

In the 1930s Great Depression era, the federal government built the Central Valley Project when California was broke.  The federal government had to take over the state water plan to stimulate the agricultural economy and bail out California.  Also, by building a separate water system for farmers that was not under state control, the long-term water disputes between farms and cities were lessened.  The CVP carries water to the Sacramento Delta, which is pending a major re-engineering called the Bay Delta Conservation Plan. 

Unlike the TVA, the CVP does not have coal-fired power plants that the Obama Administration wants decommissioned and replaced with green power purportedly to reduce air pollution.  Tennessee air quality is graded as spotty patches of “C,” “D,” and “F.”  California air quality is graded as “F” for most of the Central Valley.

Central Valley Project has only 1/15th the Budget of the TVA

The CVP is not as large as the TVA.  It has 20 dams and reservoirs, 11 hydropower plants, and 500 miles of major canals.  It has a $174.1 million annual budget.   The entire budget for the Central Valley Project is less than the operating deficit for the TVA.

The CVP’s congressional budget appropriation is offset by $39.6 million in fees collected from farmers to fund the San Joaquin River Restoration Project ($1 billion unfunded by Congress, but temporarily funded with $9 million in discretionary funds) and the Indian Water Rights Settlement Account ($26.7 million).

Recovery from farmers of the original capital outlay to build the CVP is projected to fall short by $330 to $390 million by the payoff date of 2031.  Auditors have warned that “the repayment shortfalls could become significant enough to require political intervention.”

According to the Congressional Budget Office, the proposed San Joaquin Valley Water Reliability Act, H.R. 1837, would have accelerated farmers’ repayments by $221 million.  Republican Reps. David Nunes (R-Tulare), Tom McClintock (R-Elk Grove), and Jeff Denham (R-Merced) authored and supported H.R. 1837.   H.R. 1837 is sitting in the U.S. Senate without any action taken by California’s two Democratic senators, Dianne Feinstein and Barbara Boxer.  Feinstein and Boxer oppose H.R. 1837 because it would de-fund the San Joaquin River Restoration Act, a $1 billion jobs program to re-wet the dry portions of the San Joaquin River to restore salmon runs.

H.R. 1837 is best chance at reforming Central Valley Project

It would be much more difficult to privatize wholesale water storage and delivery systems compared to retail water companies. The California Public Utilities Commission regulates private retail water companies, but not wholesale government water agencies. In 2001, the Metropolitan Water District of Southern California pulled back from buying outsourced water from a private supplier, fearing complications to its water rate structure from the deregulation of its monopoly.

It is unlikely the CVP would be privatized for many reasons.  One big reason is that it does not have so-called “dirty” coal-fired power plants that are a target for elimination by the Obama Administration.

H.R. 1837 would have eliminated the Central Valley Project from being a jobs program and vehicle for politicized reparations.  By contrast, Feinstein’s “Bandit River” restoration project would likely:

* Take away more private sector jobs than gained.
* Require more expenditures to enlarge levees.
* Take away water from farmers without any plan to “restore” it with new supplies.
* Result in high salt content in water and seepage to farmlands.

The Obama-Feinstein-Boxer plan for managing the Central Valley Project has been to regulate first, think later.  Stated differently: the policy of the federal government has been to create jobs programs first and only later deal with the consequences to farmers and farmlands.  This is what I explained in my earlier article, “Salmon eating farmers along the the San Joaquin River.”

Alas, the Central Valley Project is not going to be privatized anytime soon. But it could be reformed so that restoring fish to the river doesn’t end up destroying farm jobs.