Monday, April 6, 2015

Quick Take on LA Times' Report on Restructuring the Delta Tunnel Plan

Some highlights from Bettina Boxall's extremely interesting and important article.

"Sources familiar with the state discussions said that it is likely the department will separate the habitat restoration component from the tunnel proposal and pursue shorter-term operating permits for the new diversion facilities and existing pumping operations. Although the Bay Delta plan included restoration money, it is unclear how the separate restoration effort would be funded or carried out.

While the changes would not affect construction of the tunnels, they have raised concerns that the restoration work could fall by the wayside. And the revisions, expected to be released in coming weeks, could also make the project less attractive to the urban water and agricultural irrigation districts that have promised to pick up the roughly $15-billion construction tab....

The plan revisions would represent more than just a bureaucratic change. The agricultural and urban water districts that are the major drivers of the long-planned project were betting that a 50-year permit would stabilize delta deliveries that have been restricted by increasingly stringent protections for endangered fish. 

Reverting to shorter-term approvals would leave future water deliveries vulnerable to cuts associated with a change in permit conditions. And that raises questions of whether the project is still worth the money to the districts that have promised to pay for the tunnels. 

"We don't really know what the permitting will be 10 years from now, 15 years from now," said Jeffrey Kightlinger, general manager of the Metropolitan Water District of Southern California, which would cover a portion of the tunnels' cost. "That's the challenge in making sure it's a sound investment. Does it pencil out and still make sense?"

I am in rare agreement with Mr. Kightlinger, this change has huge implications for the economics of the tunnels.  As I have discussed on this blog and a variety of other issues, the value of reducing regulatory uncertainty is the majority of the economic benefit attributed to the tunnels in the BDCP economic studies.  According to this article, the level of regulatory assurance will be massively reduced under the revised plan.

I wrote this blog in 2012 right after Dr. Sunding unveiled the regulatory certainty argument in a BDCP meeting. That post still looks good to me this morning, and it looks like my environmental sources were right on target when they told me the regulatory certainty scenario was not accurate.

The argument was later repackaged by changing the no-tunnel baseline to the "Existing Conveyance Scenario" where exports are assumed to plummet in the future without the tunnels, but remain near current levels with them.  Even with this reframing, the economic benefits of BDCP drop substantially with the impending change to short-term approvals, and risk of significant drops in water deliveries even with the tunnels.

Faced with that heightened risk even with the tunnels, it is reasonable to expect that water agencies will make more investment in expensive, less risky water supply alternatives.  Thus, another economic justification that has been made for the tunnels - that it will avoid the cost of these investments - is also weakened by this change.

The other big change described in Boxall's article is separating the habitat restoration component.  This will really help clarify the economic analysis, as the incorrect packaging of the restoration with the tunnels (restoration does not require the tunnels), was a major analytical shortcoming.

As for environmentalists worries that restoration will fall by the wayside without this packaging, they shouldn't worry.  The BDCP/tunnels were not creating any new funding for habitat restoration, it was diverting public environmental funding from other uses to the BDCP.  Good projects like the Yolo Bypass enhancements do not depend on the BDCP for funding and will go forward anyway with or without the tunnels.  And as we learned with last years water bond, environmental funding is more likely to be approved when it is detached from BDCP.  I would also argue that this is a good time to bring up again my argument for a no-tunnel BDCP, which is a more conventional approach to a Habitat Conservation Plan under the ESA, in which the regulated entities provide new resources for habitat restoration in return for some level of regulatory certainty.  I discussed that in an October 6, 2013 op-ed in the Sacramento Bee (can't find a link), and in this old blog post,

A bit unrelated, but I read an interesting new article last night in Businessweek about Seattle's troubled tunnel project.  The on-line version has fun graphics too and is worth a look by those interested in the Delta tunnels proposal.

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