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.

5 comments

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  1. Itachee
    Itachee 9 January, 2014, 16:18

    I’ve been in the Ca water business for 35 years from being an entry level engineer for one of the largest delta export agencies in the state to an agency GM plus 8 years as a private sector water broker doing transfer, exchange and banking programs all up and down the state. And 10 years involved in delta issues representing delta export interests. I am laughing my A off that anyone would consider Rodney Smith as any form of an expert on BDCP and water supply matters as I at least have never heard of him. Never. His assessment and analysis is so flawed I couldn’t even start to address any of it.

    Its easy for anyone to ask pot shot questions intended to make the target seem silly and the writer seem smart. But it does cal watchdog great disservice and I would urge Calwathcdog to remove this article before you lose any more credibility with readers that actually know water.

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  2. Wayne Lusvardi
    Wayne Lusvardi 9 January, 2014, 20:38

    Your comment has no credibility and is slander unless you identify yourself and who you work for.

    Reply this comment
  3. Wayne Lusvardi
    Wayne Lusvardi 9 January, 2014, 20:57

    CANON 5, Item G – Code of Ethics
    American Society of Professional Engineers

    G. Engineers shall not maliciously or falsely, directly or indirectly, injure the professional reputation, prospects, practice or employment of another engineer or indiscriminately criticize another’s work.

    Reply this comment
  4. Wayne Lusvardi
    Wayne Lusvardi 9 January, 2014, 21:34

    Rodney T. Smith, PhD. is President of Stratecon Inc, an economics and strategic planning consulting firm specializing in the economics, finance, and policy of water resources, President of Baja Norte Water Resources, LLC, a project developer of bi-national water projects, co-managing member of Northern California Water Partners, LLC, a joint venture with Lamont Financial Services Corporation to develop public-private partnerships to finance water infrastructure projects, and managing member of Strategic Water Management LLC, manager of private investment entities for water resources.

    Dr. Smith is involved as an advisor in the acquisition of water rights throughout the western United States and in the sale and leasing of water rights and water supplies to public and private sector water users. He has consulted extensively for public and private sector clients, including high net worth investors, on business and public policy issues concerning water resources, including California’s Drought Water Bank, the government of New South Wales, Australia’s effort to privatize irrigation organizations, and the eco­nomic, financial, legal, and political dimensions of water transactions in many western states. Rod worked on the IID/San Diego County Water Authority Agreement, the settlement of Colorado River disputes on behalf of the Imperial Irrigation District, and the acquisition of 42,000 acres from the United States Filter Corporation, an unit of Veolia Environment. He is routinely involved in economic valuation of water rights, water investments, and negotiation of water acquisition and transportation agreements. He has also served as an expert witness in the economic valuation of groundwater resources, disputes over the economic interpretation of water contracts, economics of water conservation and water use practices, and the socio-economic impacts of land fallowing.

    Dr. Smith has written extensively on the law, economics, and finance of water re­sources and water policy. In 1987, he created and became co-editor of Stratecon’s paid-circulation publication Water Strategist: A Quarterly Analysis of Water Marketing, Fi­nance, Legislation, and Litigation, In January 1999, the publication became a monthly web-based publication (www.waterstrategist.com) and information service, Water Strategist, which extended its coverage to include developments in the emerging private corporate participation in western water matters. In addition, Stratecon, Inc. introduced The Water Strategist Community, (www.waterchat.com) a web based news portal providing free access to the direct press releases and important reports from over 300 public agencies, water firms and bond rating agencies. In 2011, Stratecon stopped publishing Water Strategist and replaced it with a contract research service based on its proprietary database.

    Rod is also known for his books Troubled Waters: Financing Water in the West and Trading Water: A Legal Framework for Water Marketing, sponsored by the Ford Foundation through grants to the Council of Governors’ Policy Advisors. Former Secretary of the Interior Bruce Babbitt wrote the forwards for both books.

    Dr. Smith received his Ph.D. in Economics from the University of Chicago and a Bach­elor of Arts in Economics from the University of California at Los Angeles. Prior to making a full time commitment to the private sector, he was a professor of economics at Claremont McKenna College for fifteen years, Director of the Lowe Institute of Political Economy, and a member of the editorial board of Economic Inquiry, the professional economics research journal of the Western Economics Association. In 1989, he was the John M. Olin Visiting Professor of Law and Economics at Columbia Law School. In the late 1970s and early 1980s, he was also a visiting assistant professor of economics at the Graduate School of Business, University of Chicago, where he also served as the Associate Director of the Center for the Study of the Economy and the State, founded by the late Nobel Prize winner in economics, George Stigler. Rod started his career after graduate school as an economist at the RAND Corporation. He currently serves on the Board of Visitors of the School of Politics and Economics, Claremont Graduate University.

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  5. Rodney Smith
    Rodney Smith 9 January, 2014, 21:58

    Wayne:

    You did a very good and accurate summary of my posts. My only correction is that San Diego County Water Authority invited me to make the presentation. I was not retained. I often make presentations sharing my intellectual capital and 40 years of experience in western water, including the Western Governor’s Association last year, Arizona’s Water Research Center and, most recently, the Texas Water Summit.

    The whole point of my Hydrowonk blog is to share information and analysis of major western policy issues. The BDCP is one. I have not personally been involved in the multi-year, hundreds of millions of dollars spent to date on this plan. Instead, I have been involved on the Colorado River, bi-national issues and major issues in Texas, to name a few. My posts (which will continue) on the BDCP is based on a professional examination of information, data and analysis of the actual documents. If and when the BDCP tries to move to the venue of capital markets, the “insiders” must anticipate that there will be extensive due diligence. So, the public service of my blog is to provide an early “heads up” about the issues that must be addressed convincingly.

    Regarding the comment posted, the internet must accept that there are trolls who do not want to identify themselves. Emotion is never the anchor to sound decision making. Instead, identify facts, data and analysis that may disagree. Drill down on the basis of the differences and see where one can reasonably take from alternative viewpoints to get a better handle on how to navigate an important and uncertain future.

    The commenting troll, of course, has nothing to offer. In law school, they teach if you have the facts, argue the facts. If you don’t have the facts on your side, agree the law/legal theory. . If you have neither, argue procedure. Turning from law to politics, if you have nothing to say, turn to character assassination.

    There is an old saying in politics. You know you are willing when the opposition engages in character assassination. Therefore, the conclusion I draw from the troll is that I’m correct.

    Thanks again for putting out my thoughts. Perhaps, there can be a more productive dialogue.

    Best Regards

    Rod

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