Hydrowonk makes 2014 predictions for Bay Delta plan

Rodney T. Smith, PhD, is a consulting economist in Claremont for Stratecon, Inc.  Smith also runs a unique blog called Hydrowonk. 

One of Smith’s side businesses is a new venture with Inkling Markets called Stratecon Water Policy Markets. It brings prediction markets to the water industry. If the title “California’s Hydrowonk” can be attributed to anyone, it is Smith. 

Smith was recently retained by the San Diego County Water Authority to analyze the proposed Bay Delta Conservation Plan and forecast its future.  On Sept. 12, 2013, Smith presented a slide show to the Special Imported Water Committee Meeting of the SDCA titled, “Is Bay Delta Conservation Plan a Doable Deal?”  (Click on the link to go to the slide show.)

Included in his presentation are a number of predictions for the BDCP for 2014.  Smith’s predictions are based on statistical analysis, not on crystal ball gazing.  But it might prove interesting to Californians to look into Smith’s crystal ball about what is likely to happen with the BDCP in 2014.

The BDCP is a strategy to re-engineer the freshwater biology of the Delta mainly for fish; and partly by building two tunnels under the Delta to ship water Southward.

Hydrowonk’s assessment of the BDCP

There has been a public outcry over the $14.9 billion cost to construct the twin tunnels under the Delta. The total cost, with interest, on the bonds to finance the tunnels over a 50 year period is reported to have swollen to about $67 billion, with bond interest included from years 2027 to 2057.  In Smith’s opinion:

• The BDCP has no financing plan yet;
• The capital investment is understated by billions without considering interest on the bonds to finance the project;
• The cost of the water is severely understated (at least triple the stated amount);
• The prospect for water bond funding solely for environmental activities is remote;
• There is no guaranteed water supply reliability in the BDCP. The BDCP only trims the magnitude of water shortages in average years of rainfall and snowpack, not in extreme dry years;
• The prospect of water buyer agreements is not promising but can be overcome by getting Letters of Intent (LOI);
• The importance of the BDCP to the state economy is minuscule;
• The Department of Water Resources calculation of project costs ignores the difference between the timing of capital commitment in 2015 and the start of water deliveries in 2026;
• The major flaw in the BDCP narrative is the absence of water storage in any new reservoirs;
• There is a prospect of water districts passing on the BDCP and merely looking for water storage opportunities South of the Delta to hook into the existing California Aqueduct.
  

Hydrowonk’s eight predictions for  the BDCP for 2014 

Based on an answers to questions from CalWatchdog.com, Smith has eight predictions for the Bay Delta Plan’s future starting in 2014:

1. Will agriculture walk from the Bay Delta Conservation Plan, and if so, when?

To maintain the BDCP implementation schedule, agricultural irrigation and urban water districts that have contracted for water from the Federal Central Valley Project will have to pony up $1.2 billion for design and pre-construction activities in 2014. This is risky given that the $11 billion California Water Bond won’t be voted on until the Nov. 2014 election. Smith predicts there is a 90 percent chance that agriculture will bolt from the BDCP no later than June 30, 2014, due to the risk of incurring costs before voters consider the California Water Bond.

2. Will the California Department of Water Resources treat the BDCP as a separate part of the State Water Project?

Smith guesstimates there is a 10 percent chance of this happening before June 30, 2014, but a 60 percent chance thereafter.  This predication assumes the California Water Bond has a small chance of passing.  As a result, the BDCP may end up incorporated into and funded by the existing State Water Project.

3. Can the BDCP proceed with only municipal water users?

Smith foresees a 25 percent chance of this occurring without new water storage reservoirs and a 65 percent probability with viable storage.

4. Will the California Department of Water Resources include water storage in the BDCP, and if so, when?

Here Smith foresees a 25 percent chance of water storage being included in the plan. But there would be no action until after the 2014 election. 

5. Will the DWR use market mechanisms for contracting?

Smith sees a slim 10 percent chance of this happening before June 30, 2014, but a 75 percent chance thereafter.

6. Will voters approve the California Water Bond in Nov. 2014?

Smith has done his own statistical analysis of the likelihood of the $11 billion California Water Bond passing. He found that support of water bonds falls with the increase in state debt burden.  A smaller, $2 billion bond would have a 27.4 percent chance of passing and the odds against it would be only 3 to 1. Overall, Smith sees a 3.9 percent chance the larger $11 billion bond will pass.

7. Will an alternative bond replace the current one, and if so, what size would it be, and when?

Based on his statistical analysis, Smith sees a 75 percent chance that a new bond proposal will surface by July 1, 2014 for a $2.5 billion bond.

8. Will voters pass an alternative bond?

The likelihood of a slimmer $2.5 billion water bond passing is 35 percent, according to Smith.

Smith says not to take his word about the BDCPs future. Instead, he encourages the water industry to use its operational experience, not computer modeling used by the BDCP.

Whatever the BDCP’s future may be, 2014 will be a critical year for the BDCP to proceed, die, or be reformulated.