Revised Delta Tunnels EIR Further Worsens The Project's Already Lousy Economics

The Department of Water Resources did not release any revised cost estimates or economic and financial analysis Thursday with the revised EIR for the Tunnels.  However, I saw three changes in my initial review that have significant economic effects, the first of which has already been revealed and discussed.

1. The new plan drops the 50-year permit, and any notion of regulatory assurances about future water deliveries.  This change has already been revealed and discussed, but its importance to the economics can not be understated.  According to the State's BDCP consultants, the regulatory assurance was the basis for over half of the economic value of the Tunnels to the water exporters' who would finance them.  As I have discussed repeatedly (see  here, here, and here for examples), the already flimsy economic case for the Tunnels completely falls apart without the regulatory assurance.  It drops the estimated benefits by nearly $10 billion.
2. The average annual incremental water yield with the tunnels compared to "No Action" has dropped by 135,000 acre feet(af).  The 2013 EIR (table 5-9) had 4 scenarios with an incremental yield that ranged from a loss of 27,000af to a gain of 821,000af, and an average gain of 392,000af across all 4 scenarios.  The new EIR has 2 scenarios with an incremental yield ranging between a loss of 23,000af to a gain of 537,000af which is an average gain of 257,000af.  Thus, the best case scenario for water exporters dropped by 284,000 af, and the average dropped by 135,000 af.  That loss of water yield would drop benefits by about $1 billion.
3. The new plan shows the estimated construction period has grown from 10 to 14 years.  It's buried in the Appendices (see here and here), but the construction period is now described as 2016 to 2029, compared to 2015 to 2024 in the 2013 plan.  An extra 4 years of waiting to receive any economic benefits (while accumulating financing costs) will further reduce the benefit-cost ratio. 

In 2012, I estimated the net benefits of the Tunnels' as -$6 billion.  In 2013, BDCP consultants estimated +$5 billion.  Virtually all of the $11 billion difference was driven by differing water yield estimates that were entirely due to the regulatory assurance (50-year permit) assumption.  After these changes, I think my -$6billion from 2012 looks overly generous, and something like $-8 billion in net benefits seems more likely. 

I should also mention a few other changes in the EIR that could have marginal economic effects.  There are some changes to the water quality modeling that could be a significant issue for the environmental permits, but I suspect will have little impact on the project economics.  The design changes to the North Delta intakes marginally reduce negative economic impacts in the Delta, but are unlikely to significantly impact the overall project economics unless it significantly changes the estimated cost.

The project just keeps getting worse for the water exporters.  If the water agencies' leaders were really looking out for their ratepayers and the best interests of the state, they would drop it.  But they won't, although some are starting to waver in their support.  I will save my thoughts on why they keep standing by this lousy project for a future post.