Saturday, June 23, 2012

Is BDCP a good deal for water agencies? Jason Peltier and David Sunding disagree

In the first part of the BDCP meeting on Wednesday, Jason Peltier of Westlands Water District, the water agency that may have the most at stake in the BDCP, said,
"[The BDCP is] a crappy path for us. This is a crapshoot. Unacceptable... We can't finance it.”
However, in the closing presentation of the meeting, Dr. David Sunding, an economist and principal at the Brattle Group hired by the state Resources Agency, said,
"I think it's really beyond serious debate at this point that the benefits of BDCP to the agencies ... exceed the cost," 
Now that is a disagreement.  It's natural to suspect Mr. Peltier is posturing to negotiate a better deal, and there may be some of that, but I think he is right.

Dr. Sunding went through a presentation that had sophisticated analysis of the usual categories of benefits attributed to the tunnels, a)water supply, b) water quality, and c)seismic risk reduction.  All together, these three added up to about 50 cents of benefits for every $1 in costs to the agencies (using the realistic seismic risk scenario, not the worst case).  So how did he figure that the benefits exceeded the costs for the agencies?

It came from a new category of benefit that was not in his original scope of work with DWR: the value of eliminating regulatory uncertainty.  He put forward a scenario where regulatory assurance was more valuable than all the rest of the benefits combined. $11 billion in one scenario. And he argued that regulatory assurance was the main objective of the agencies in the BDCP process, and a normal component of HCPs under the ESA.  He is right about that.  But environmental lawyers tell me that there are significant limits on the legal assurances in HCPs, and there are serious doubts about whether the BDCP can deliver much regulatory assurance at all due, in part, to enormous uncertainty about the environmental effects of the tunnels.

Thus,Dr. Sunding's conclusion should have been worded "It's beyond serious debate at this point that strong regulatory assurances are required for the benefits of the BDCP to the water agencies to exceed the cost to the water agencies." If he said that, I would agree, and that is very important information for the people negotiating BDCP.  It isn't just posturing, the water agencies really need the assurance in order to seriously consider a $13 billion investment in infrastructure.

With words like "crapshoot", Mr. Peltier is clearly not very impressed with the regulatory assurance in the BDCP.   Apparantly, not many other people are either. I asked a small sample of objective scientists, lawyers, and environmentalists outside the Delta if strong regulatory assurances would or could be part of the BDCP. The responses were "Not a chance", "No way", and "Sunding analyzed a project that is rejected by the regulatory agencies." Maybe there are experts who disagree, but it is clear that Sunding touched on a very controversial topic in the BDCP.  I am pretty sure that any project that might offer some level of regulatory assurance will have lower exports, and thus lower water supply values, than the scenarios he modeled.

I look forward to further debate of the concept of regulatory uncertainty, how much can be provided, and how it should be valued (I'm not buying the $11 billion estimate, more on that later).  But it is important to realize that regulatory assurance isn't very important for statewide benefit-cost analysis.  The regulatory assurance isn't a statewide benefit, it is shifting risk from the exporting water agencies to the environment and everyone else who will have to pay if the tunnels don't work for fish.

The good news is we finally have a rational discussion and debate about economics, and some reliable numbers out in public.  It's about time.  While I disagree with a few parts (mostly with the scenarios he has been given to evaluate), for the most part, I think Dr. Sunding's quantitative estimates are very reliable, and they inform the planning process. Benefit-cost isn't just a pass/fail test at the end of the process. BDCP would have been much better off if they had hired him years ago.


  1. Jeff - This framing, in terms of regulatory certainty, is incredibly helpful, thanks.

    I'm curious what this process might look like if the BDCP wasn't shoehorned into the HCP framework - if the various interests were all pursuing their same goals and interests, but through some bureaucratic mechanism other than the Endangered Species Act?

  2. Regulatory certainty. Rain is now a regulatory requirement of Mother Nature. Good luck enforcing that, Mr. Sunding.

    John Fleck, IF being the key word in that last sentence, no?

  3. John F. Good question, I don't know the answer.

    John B. I don't think it is quite that bad. But I don't see how the regulatory assurance Dr. Sunding is modeling can be remotely justified unless the contractors are paying for both the habitat and the conveyance in the BDCP. In the BDCP proposal, the public would be paying for most of the conservation and potentially accepting the risk.