Friday, June 1, 2012

Is the Metropolitan Water District Going to Pay 25% or 75% of the Cost of a Delta Tunnel?

The working assumption of BDCP is that water contractors will pay for tunnel conveyance in proportion to their share of Delta exports.  For Metropolitan Water District, that would be about 25% of the cost, and that is the share they say they expect to pay in their public statements.

However, the financing chapter (8) of the BDCP (page 8-89) declares that conveyance is financially feasible, because the per capita cost of construction is smaller than some recent capital projects built by smaller urban water agencies.  They divide the conveyance cost by the 25 million people who are served by agencies that derive at least part of their water supply from the SWP and CVP to come up with a per capita cost of $508.  This is less on a per capita basis than, for example, San Francisco's Hetch Hetchy aquaduct improvements.  However, it is important to note that Metropolitan represents 75% of the population in this per capita calculation, much higher than their 25% share of Delta water exports and the 25% cost share that they have pledged to pay.  There are many reasons why this per-capita cost comparison is irrelevant, but it has been used by the Southern California Water Commitee, and now it is prominent in the BDCP's own argument for financial feasibility.  At minimum, the per capita cost shouldn't be used at all unless Metropolitan really is supporting a per capita financial plan, which means they will pay 75% of the cost.

As discussed in earlier posts, assuming water exports were to increase by 1.2 maf with a canal (a big if for environmental reasons) as stated in the draft BDCP, the annual capital and operating costs of $1.2 billion in the draft BDCP imply this new water will cost $1,000 af - just to get the untreated water to the pumps near Tracy.  That is very expensive and financially marginal for urban users, and clearly infeasible for agricultural users who receive most Delta water.  [Yes, canal proponents use an average cost of nearly $200af averaged over all Delta exports - including those they will still receive without a canal.  This is a common error made by utilities and boosters of infrastructure mega-projects to promote investments that are not in the best interest of their captive ratepayers.  And the latest rumors are that half this amount of additional water is the best case scenario, putting the marginal cost at a minimum of $2,000 af.]

The reality is that Metropolitan will actually have to pay something close to the 75% cost share implied by the per capita cost comparison for the project to have any chance at being financially feasible.  Even that may not be enough.  Their ratepayers could probably stretch to make the payments (hence making it technically feasible), but it surely isn't a good deal for their ratepayers who have lower cost options.  Most importntly, it is not what Metropolitan has been telling their customers and their board that they are going to pay.

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