Monday, February 12, 2024

Income-based Fixed Charge for Electricity? There must be a better way

I support the efforts of lawmakers to put the income-based fixed charge proposal on hold.

I understand the objectives, but it seems to me that income-based fixed charges would have very high administrative costs and the potential for a lot of errors and privacy concerns.  There are other ways to administer a fixed charge, even a progressive one, if that is necessary and desirable.

There are lots of people living in households that are not economic units - roommates and extended family who are multiple taxpaying units with multiple income streams who are on the same electric meter.  There are also some housing units that are not separately metered within a building.  And income varies wildly from year to year and is hard to verify.

It seems you could accomplish most of the same objective in a much simpler way by having a fixed cost that varies by the size of the housing unit (square footage).  While not perfectly correlated with income, variation by size of the unit would still be progressive and much easier to administer.  Square footage is stable from year to year and the information is easy to obtain and verify without being personally intrusive.  

Finally, there is an issue of adding more "means tested" programs that phase-out in the same income bands.  Too many of these well-intentioned programs, usually developed independently, can create high the equivalent of high "marginal tax rates" and benefit "cliffs" for households that can create negative economic incentives and unfair surprises for households. 

Of course, there is a second issue about whether fixed costs make sense at all.  Having a fixed cost on a bill is better aligned with the true cost structure of a utility which includes fixed and variable costs, but recovering all the costs through rates encourage conservation and efficiency from customers.  The incentive for conservation may be secondary to the objective of getting people to switch fuel sources and electrify appliances and vehicles.  Fixed charges that would normally be bad environmentally, may make more sense in that context.

Friday, December 8, 2023

Final Delta Conveyance EIR Released Without Cost Estimate or Benefit-Cost Analysis: A Quick Look At Old DWR Analysis of Single-Tunnel Alternatives Shows This Proposal Is Likely A Bad Deal For SWP Agencies. (and even worse for a State that cares about the environment and non-SWP regions)

 The Final EIR for Delta Conveyance was released today.  I just read the press release summary.  Here is my quick take.

The press release case for the tunnel argues that the project will result in about 500,000 AF in additional water supply for State Water Project agencies once operational.  They continue to ignore updated cost estimates, and economic/financial analysis of the project.

However, in 2018, DWR did analyze the effects of a single-tunnel proposal that would result in 660,000 additional AF, over 30% more water than the current proposal, that was estimated to cost $11 billion in 2017 dollars.  While no cost estimate for the current proposal has been released, it is well-known that costs of the current proposal are much, much higher - even after accounting for inflation.

In 2018, DWR's consultant found that a single-tunnel proposal barely penciled out for SWP agencies (benefit-cost ratio was about 1.2), and the benefit-cost ratio would have been negative if the project yield were the same as the current EIR (a greater than 30% decline in water supply benefits).  Thus, it appears the current proposal would not pencil for SWP agencies out even if the costs had not increased at all, but it is well-known that the cost has escalated substantially.    

Is it any wonder that DWR still has no cost estimate or benefit-cost analysis for a project with well-known financial troubles.

A few additional things to consider when comparing to 2018 single-tunnel analysis:

  • That analysis only considered benefits and costs to SWP contractors.  It was not a comprehensive benefit-cost analysis that incorporates environmental harm or impacts on non-SWP supplied regions of the state like the Delta.  The project is bad for SWP agency ratepayers, but it is even worse for the state as a whole.
  • Economic and finance will drive operations.  Thus, the missing economic analysis is a critical oversight, and the EIR lacks credibility without it.
  • State population growth forecasts have plummeted since the earlier analysis, meaning that future demand will be much lower, and the costs will be spread over fewer households which means larger rate increases.  
  • Projects like this can be good for SWP agency leaders and staff, and provide political value to the Governor, even when they are bad for their ratepayers and citizens.  It is one reason why objective benefit-cost analysis is so critical.  

At some point next year, I may have time to update a comprehensive benefit-cost analysis of this proposal.  However, there is plenty of reason to doubt the economic and financial viability of this project based on what we know now. 

Monday, August 14, 2023

My Comments on Three Sacramento City Council Members Propose Significant Strengthening Of Rent Control and Tenant Protections

Several members of the Sacramento City Council led by Katie Valenzuela, are proposing a substantial increase in rent control and tenant protections in Sacramento.  It motivated me to quickly write some written comments tonight, which felt like I was blogging again, so I thought I would post my comments here too. The key elements of the proposal, which they call Sacramento Forward, is summarized as below in the City Council Law and Legislation Committee report. 

2. Build More Affordable Housing: a. Establish an inclusionary housing requirement that a percentage of all new units be affordable to low and very low income households.

3. Stop People from Losing Their Homes: a. Enact “just cause” eviction protections at 30 days. b. Require reporting of any evictions to the city. c. Establish a Right to Counsel for tenants and landlords needing legal support. d. Reduce the percentage of allowable annual rent increases to align with wages/income and limit rent increases during tenant turnover, with a process for hearings to allow exceptions when necessary to cover landlords’ costs. 

4. Prevent Corporate Purchases of Property: a. Adopt a “Sacramento Opportunity to Purchase Act” that would require any tenantoccupied building that is listed for sale to be sold to a tenant or eligible community group if they can meet the initial listing price.

5. Generate More Funding: a. Pursue a 2024 ballot measure to generate funding to support the acquisition, construction, and protection of affordable housing units, as well as important support programs like emergency rent assistance.

(Note: I left out some parts of the proposal that I didn't comment on for brevity. See the full proposal here.)  Below are my comments, which I indicated neutral but probably lean more towards opposed than in favor.  (some edits made December 8, 2023)

Elements I Support: (numbered as in the proposal)
4. “Sacramento Opportunity to Purchase Act.” This is a creative and interesting proposal.
5. Pursue a 2024 ballot measure for funding. I support this because it places financial support for affordable housing programs on the government's general resources where it belongs, rather than fees and regulations that place the financial burden on market-rate housing which can be counter-productive by reducing the overall supply of housing.  While I support putting it on the ballot, I am not sure how I would vote on a local tax ballot measure.  I would be more supportive if it were County or region-wide, and not just Sacramento City.  I do support the concept of going in this direction for new funding sources.

Elements That I Might Support If Revised: With Some Suggested Revisions.
3.a. “Just Cause” eviction protections at 30 days is too short, suggest 6 months at minimum. There is an unintended consequence here of damaging a market for 1-6 month rentals, often furnished, which serve new residents, travel-nurses and others in housing transitions. This measure will really discourage the production of backyard ADUs, and could limit housing available for traveling health-care professionals and those in housing transition. No evidence is provided for why the current 1 year 1-day rule is failing to protect tenants and needs to be shortened, and changes should be incremental in the absence of such evidence.
3.c. “Right to counsel” seems like a potentially costly entitlement, and could might encourage the use of legal actions when there are less costly remedies. I appreciate the need for low-cost or no-cost legal assistance, and perhaps this should be revised to increase funding towards that if current services are inadequate.
Financial Considerations – Recommend low or no fees for small landlords: This element suggests that the City will just impose fees (presumably on landlords) to offset the City’s staff costs of implementing the ordinance which would be consistent with other practice. Landlords and property managers will also have significant compliance costs for such a complex ordinance, even before paying the City’s costs with fees. Understanding and complying with these rules is especially difficult for small landlords, and will encourage rental housing to be controlled by large investors or shift small landlords towards large corporate management companies. Thus, I suggest reduced or waived compliance fees for small landlords based on the number of units they own and/or self-manage.
3.d.1 Reduce the percentage of allowable annual rent increases from 5%+CPI to annual CPI or wage increases is something I can support IF it does not apply to new tenancies.

Elements I Oppose:
3.d.part 2. While I support rent increase limits one existing tenants, rent should not be controlled for new tenancies, and instead should be allowed to reset at market rates. Limits on rent at new tenancies will encourage landlords to increase rent by the maximum allowable amount on existing tenancies every year, raising costs for those the ordinance is trying to protect from displacement. In addition, rent controls at new tenancy greatly disincentive maintenance, investment and repair of the housing stock, as much maintenance and investment in units occurs when units turnover with landlords motivated by the ability to charge market rent to a new tenant. Landlords are not going to replace old appliances, freshly paint units, replace carpets or do anything more than the bare minimum health and safety repairs if rents are restricted at turnover.
2. Inclusionary housing requirements. These policies risk unintended consequences by increasing the cost of market-rate development and thus reducing the overall supply of housing. The Keyser-Marston Associates report cited as support for this proposal does not provide compelling empirical evidence, and they do not cite any of the research on inclusionary zoning policies and the potential negative effects on private development. Inclusionary zoning does have a potential social benefit in that it promotes mixed-income neighborhoods as opposed to concentrated low-income housing, but this social-benefit should be financed more broadly and not through higher market-rate production costs.

Finally, I will note that the past few years have seen a tremendous increase in multi-family housing development in the City, and many of these units have yet to hit the market as planning and construction takes years. Given the increase in supply, and clear evidence of rent stabilizing or declining in the past year or two as new supply is starting to come on the market, one might reasonably conclude that current housing policies are starting to work and to be cautious in implementing the more aggressive measures that could discourage new investment.

Thursday, December 15, 2022

Is DWR Lying About The Low-Utilization Operating Plan For The Delta Conveyance Project?

The most significant change from the twin-tunnel, three-intake, 9,000cfs capacity WaterFix to the single-tunnel, two-intake, 6,000cfs capacity Delta Conveyance Project (DCP) isn't the number of tunnels, but how they are utilized.  

It would seem logical that lowering the capacity of the Delta tunnel(s) would result in the remaining capacity being used more intensively. That was how it worked when DWR briefly switched to a staged, single-tunnel plan for the WaterFix in 2017, as well as other alternatives with lower capacity.  

Instead, the draft EIR for the single-tunnel DCP states that the tunnel will be used much less than the WaterFix twin-tunnels.  In fact, the operation modeling shows zero diversions through the tunnel most of the time.  In the DCP, the tunnel only makes up 13.5% of projected Delta water exports, compared to 50% of total Delta water exports in the WaterFix.  

Is this low-utilization rate of the DCP believable?  Will the state spend $20 billion on the most expensive water infrastructure project in history and not operate it most of the time (or as Osha Meserve said, why buy a Maserati and only drive 10 miles per hour)?  

That is indeed the official plan as described in chapter 3 in the EIR, and subsequently used in all the analytical chapters that follow. 

However, the Draft EIR itself contradicts these operations in chapter 2: Purpose and Objectives and in and Appendix 3a where it interprets and elaborates on the purpose to screen out all alternatives.  The project objective is to achieve the following 4 purposes in a cost-effective manner.
1. Climate resiliency
2. Seismic resiliency
3. Water Supply for State Water Project
4. Operational Flexibility

The problem is that achieving 3 out of the 4 project purposes, as described in the alternatives analysis in Appendix 3A, require shifting diversions from the south Delta to the north Delta intakes and through the tunnel.  In other words, 3/4 of the stated project goals are in conflict with the project description and EIR modeling which focuses exclusively on a low-utilization scenario.

Goal 1, Climate resiliency:  Appendix 3A states that only tunnel alternatives satisfy climate resiliency because they can divert from the north when the south is too salty. Stunningly, this flat out ignores the water quality commitments and limited north delta diversion in the actual project description.  (In Appendix 4A, the EIR models a climate change scenario, and finds that there are actually fewer days on the calendar that the tunnel can be used under climate change.  Thus the incremental water supply benefit decreases as climate change accelerates, in contrast to Appendix 3A that assumes higher tunnel use under climate change when screening out other alternatives.)

Goal 2, Seismic resiliency:  Appendix 3A assumes that if brackish water fills the Delta in a seismic-induced mega-flood, then the north Delta intakes and tunnel will be used intensively in place of the south Delta pumps which would be unavailable for months due to bad water quality. This assumption is inconsistent with the project description which commits to operating the project to support Delta water quality objectives and limits use of the north Delta intakes. The EIR provides no explanation of why the environmental restrictions and water quality objectives in the Delta would be waived in such a scenario where the Delta communities and environment are experiencing an emergency, and it provides no modeling of the environmental impacts of operations in such a case.

Goal 4, Operational flexibility: Appendix 3A describes this as a certain kind of flexibility - shifting south Delta diversions to the north Delta. Again, directly in conflict with the project description which does not include such flexibility or any analysis of the environmental impacts of this alternative operating scenario.

The final part of the project goal, which is the only one not in the Appendix 3A screening criteria, is to achieve the goals in a cost-effective way.  The EIR is completely silent on cost-effectiveness, but this is another goal that would seem to be in conflict with the low-utilization of the tunnel in the project description.

So back to my original question: Is DWR being truthful?  Will they really keep the north Delta intakes off and the tunnels empty most of the time?

The alternatives analysis and how it interprets the project goals show they are not really committed to the low-utilization project description.  When this is combined with the lack of economic and financial feasibility analysis, I believe the project description lacks credibility.  

While it is tempting to rate the EIR project description as "Pants on Fire" on the Truth-o-Meter, I'll keep my rating at "lacks credibility" or "inadequate support" as I am sure there are honest folks who worked on this draft EIR who truly believe in their $20 billion mostly-empty tunnel proposal. 

In summary, the DCP EIR has many problems, and I have only touched on one of them here.  As a result, I believe this single-tunnel proposal will fail like the twin-tunnel proposals that preceded it. 

Tuesday, June 28, 2022

Agricultural Jobs Data for 2021 Show Drought Impacts

The best quality jobs data (QCEW) was released earliest this month through the end of 2021, and gives the first reliable data on the state of agricultural employment during 2021, a year impacted by drought and lingering impacts of Covid.  The graphs below show employment and wages data over time for all of California in NAICS 11 (Agriculture, Forestry, Fishing and Hunting). Agriculture accounts for 99% of jobs in this industry category in California.

As you can see on the graph, jobs had steadied near 423,000 in the years prior to Covid, and then declined by about 15,000 during the first year of the pandemic.  In 2021, Covid impacts on the farm labor were lower, but drought impacts likely prevented recovery.

While I say this is the first reliable data, UC-Merced (in partnership with others) released a projection in February 2022 that the drought eliminated 8,744 jobs in California agriculture compared to what they would expect in non-drought conditions.  Their estimates suggest 2021 employment would have been just under 420,000 in the absence of drought.  That seems pretty accurate to me and I am happy to see that this modeling of drought impacts seems to be much better than what UC was producing a decade or so ago.         

Overall, this is just over a 2% decline in employment relative to non-drought conditions.  While drought employment declines grab the headlines, the more impactful story in the ag jobs data is the continued strong growth in wages.  Average wages in the agriculture industry in California increased again in 2021, and have risen about 60% over the past decade (not adjusted for inflation) after years of stagnation.  While it is still the lowest-paying sector in California, this wage growth is significant and has benefited thousands.  

What will 2022 bring?  The drought continues, and the impacts of the pandemic and less abundant and more expensive labor are also continuing to some degree.  Thus, a recovery is unlikely this year.

Monday, May 2, 2022

Stanford scientists find that the Delta Conveyance Project is a much worse idea than converting Diablo Canyon into a giant nuclear-powered desalination plant.


A recent study from Stanford scientists has caused some policy makers, including Governor Newsom, to reconsider the timeline for closing the Diablo Canyon nuclear power plant, California's last operating nuclear plant.

Among the future visions for Diablo Canyon plant evaluated in the study was using it as a mega-scale desalination facility.  Mega-scale nuclear-powered desalination!  I can see my environmentalist friends recoiling in horror at the idea.  I am not persuaded it is a good idea either, but the Stanford team clearly demonstrated that it is far from the worst idea in California water.

Here is the second highlighted finding in the Executive Summary

Using Diablo Canyon as a power source for desalination could substantially augment fresh water supplies to the state as a whole and to critically overdrafted basins regions such as the Central Valley, producing fresh water volumes equal to or substantially exceeding those of the proposed Delta Conveyance Project—but at significantly lower investment cost 

Here are some quotes from the desalination chapter,

One of the intermediate sized Diablo Canyon-powered desalination options would produce significantly more fresh water than the highest estimate of the net yield from the proposed Delta Conveyance Project at less than half of the investment cost.

It is also notable that the projected capital cost of the Delta Conveyance Project, at $15.9 Billion, is more than twice the capital cost of the Diablo Canyon Desalination Option 2, discussed below, which, at a capital cost of approximately $6.5 Billion, yields up to seven times the amount as the DCP. 

This comparison really caught my attention because pre-Covid I had given one or two talks on the Delta Conveyance Project where I started by comparing the State Water Project and Diablo Canyon Nuclear Power Plant with a series of multiple-choice questions.   The gist was if it is reasonable to close Diablo Canyon, then it should also consider closing the State Water Project since it has a worse safety record, similar share of statewide importance (5-6% of electricity and water supply respectively), lower economic value and tremendous costs to keep in service, not to mention environmental harm.

Thursday, June 3, 2021

2020 data shows Covid impacts on agricultural jobs

The best quality jobs data (QCEW) was released yesterday through the end of 2020, and gives a first reliable look at the state of agricultural employment during the 2020 pandemic year. The graphs below show employment and wages data over time for all of California in NAICS 11 (Agriculture, Forestry, Fishing and Hunting). Agriculture accounts for 99% of jobs in this industry category in California.

As shown above, 2020 resulted in the biggest decline in agriculture employment since the drought year of 2009 (the graph also shows how ag jobs did not decline during the last drought). While an essential sector, agriculture jobs did not expand like employment in grocery stores and e-commerce fulfillment. One cause of the decline may have been worker health - Covid hit ag workers and communities hard. Reductions in immigration and crop shifts may have also played a role (for example demand for labor intensive speciality crops and fresh produce may have declined as much of the restaurant sector shut down). We are now well into a drought year and there will inevitably be questions about the impact on farm jobs. It will be even harder to discern the impacts this year as Covid has distorted what had become a pretty level baseline and is also continuing to impact labor markets into 2021. Even more important than the number of jobs, the new data release provides solid data on agricultural wages. Ag worker wages continued strong gains in 2020, both in the aggregate and as an average. The average wage gain is particularly impressive - increasing $60 per week on average in 2020 compared to 2019, and up $200 per week since 2014. Overall, this is a very positive trend for the Valley economy. Total wages paid in this industry was $16.1 billion in 2020, up from $15.3 billion in 2019 and $10 billion in 2011. In general, Covid effects on agricultural labor look similar to the economy in general - jobs down but average wages up.

Monday, August 24, 2020

New $15.9 bil. Delta tunnel cost estimate: Revisiting DWR's 2018 single-tunnel economic analysis with updated costs shows it is a bad investment for water agencies.

As reported in the Sacramento Bee, the cost of a single-tunnel Delta conveyance is now estimated at $15.9 billion.  In a previous 2018 analysis to support a short-lived proposal to stage the twin-tunnel WaterFix proposal, DWR estimated the single-tunnel 1st stage of WaterFix at $11.1 billion in 2017 dollars, which is equivalent to $11.7 billion in 2020 dollars.  This is a 35% increase in constant dollars, and should lead the Governor and the dwindling number of water agencies that still support the single-tunnel delta conveyance facility (DCF) to reevaluate the investment.

That 2018 analysis wildly overstated the economic benefits of a single-tunnel to participating water agencies, but for now let's accept their estimate of benefits.  The image below shows the results of that analysis (Table 5, with no federal subsidy).

Simply updating the costs to this latest estimate ($15.9 billion in 2020 dollars is equivalent to $15 billion in the 2017$) reduces the benefit-cost ratio for SWP urban agencies from 1.23 to 0.92, and for agricultural agencies from 1.17 to 0.87 in the trading scenario.

That's a bad investment, but it is actually much worse than that.  The 2018 analysis assumed the project would be operational in 13 years, whereas the new cost estimates a 20 year delivery period.  I didn't incorporate the extra 7 year wait for benefits in the above recalculations of the b-c ratio, but it would make it even lower.

At some point, we might see a revised economic analysis that manufactures new benefits to magically get the benefit-cost ratio over 1.  Readers of this blog know that DWR and MWD already have an established track record of inventing new benefits as new information reveals the delta tunnel(s) to be a worse and worse investment.  

P.S.  Thanks to Restore the Delta for archiving the 2018 analysis online for the public record.  DWR has wiped their previous links, and I couldn't find a saved copy in my files.