Friday, April 15, 2016

Is Metropolitan's purchase of 20,000 acres in the Delta a subsidy for agricultural water contractors?

For years, I have explained why agricultural water contractors will be unable or unwilling to pay for their proportional share of the delta tunnels (i.e. California WaterFix) and have predicted that urban ratepayers will be stuck with most if not all of the tunnels' cost.  Last week, the Metropolitan Water District (MWD) approved the $175 million purchase of approximately 20,000 acres of Delta land, much of it strategically located to support the construction of the delta tunnels.  Throughout last summer and fall there were multiple news reports that MWD was having discussions with agricultural water contractors like Westlands and Kern County Water Agency about jointly purchasing the Delta Wetlands property.  However, the agricultural agencies decided not to particpate, so MWD decided to go ahead and buy the property all by themselves.  Is this a harbinger for how the delta tunnels will be financed?  After all, this is likely the largest land acquisition that will be made to directly support tunnel construction.

MWD says it has not yet determined how it would specifically use the land.  In addition, to supporting tunnel construction, MWD points out that the land could indirectly help water supply reliability through habitat restoration to benefit endangered species that limit delta water exports, and that the parcels were strategically located to facillitate construction of a freshwater path through the delta if a massive levee failure and flood threatened exports.  MWD is hoping that uncertainty argument will be sufficient for it to prevail against a CEQA lawsuit, but it doesn't explain the financial rationale for MWD moving ahead without any funds from the agricultural contractors.

For all of these potential uses, the benefits would accrue to all of the water contractors who export water from the Delta, not just MWD, and the vast majority of water exported from the Delta that would benefit from these actions is received by farmers.  

Thus, it seems clear that this purchase is not consistent with the assurances MWD has repeatedly made to its ratepayers that it will not subsidize agricultural contractors share of the tunnels' cost.  It also seems like it could be inconsistent with Proposition 218, which requires water rates to be tied to specific benefits received by its ratepayers and that ratepayers only pay the proportional costs of providing those benefits.  The fact that MWD initially pursued a joint purchase is strong evidence that MWD believes that its ratepayers are not the exclusive beneficiaries of the $175 million purchase that is now going to be 100% paid for by MWD ratepayers.

Is this a preview of how the tunnels themselves will be financed?  If the agricultural users back out of paying for the WaterFix as many expect, will urban contractors like MWD move ahead and try to finance the entire estimated $16 billion in WaterFix construction costs by themselves.  Even if MWD wants to do it alone, will they be able to?  This proposed purchase makes it even more clear why the WaterFix needs to issue a detailed finance plan as soon as possible.