Thursday, August 25, 2016

It Is Strange To Be Accused of Bias By WaterFix Supporters for Following The Information in Their Own Documents and Applications for Project Approval

The response from opponents to the benefit-cost report is both predictable and a little bit strange.

Someone from the Department of Water Resources criticizes it for not using the "declining baseline" of water exports, and the pro-tunnels group "Californians for Water Security" says that we "fail to acknowledge economic losses of future water cutbacks without project."

This criticism stems from the fact that I followed their documents.  In essence, they are saying that a good analysis would make stuff up that is completely inconsistent with the official documents the WaterFix has created to support its applications for regulatory approval.

It seems that in the opinion of Californians for Water Security, and Department of Water Resources' spokespeople, an unbiased benefit-cost analysis would make the following unsupportable and speculative assumptions.

  • Future environmental restrictions on water exports can only affect the no-tunnel scenario, and that the WaterFix is somehow immune.
  • If future environmental restrictions were to reduce water exports, it would have no environmental benefit to society, only costs to water exporters.    
Both of these are false, and addressed in the report.  Any reasonable argument to support the first assumption went away with the change in the proposal from BDCP to WaterFix.  Water operations could decreae in the future in response to environmental conditions and regulations with and without the WaterFix.  The benefit-cost analysis correctly focuses on the incremental change in water supply with and without the tunnels.  There is no reason to believe the incremental supply with and without would be any different even if future regulations are tighter.

The second assumption that these potential environmental regulations would only have costs but not offsetting environmental benefits is simply false.       

But this is a silly debate with media spokespeople.  There is only one reasonable response for project proponents.  Follow your own guidelines and repeated promises, and complete your own benefit-cost analysis of the WaterFix that is integrated and consistent with the environmental documents.

In fact, one of the goals of doing this report is to put some pressure on the state and project proponents to put their benefit-cost analysis on the table like they promised to do last year.  Then we could compare the assumptions, the points of consistency and inconsistency with the environmental documents, and have a real informed discussion about the merits of the WaterFix proposal.  

Wednesday, August 24, 2016

Benefit-Cost Analysis of the WaterFix

Earlier today, the Center released a benefit-cost analysis of the California Water Fix.  Last year, state officials said they would release their own benefit-cost analysis in August 2015, but it is now a year later and nothing has been forthcoming.  In this analysis, I would describe the "optimistic" scenario as my best estimate of what I think DWR's benefit-cost analysis would look - based on previous work done by their consultants for the tunnels when they were part of the BDCP.  The "base" scenario reflects what I believe are more realistic values, and in both cases the WaterFix has benefits that are far less than costs.

Since the benefit-cost ratio for the optimistic scenario is so low, it did not seem necessary to consider a pessimistic scenario which would consider possibilities of higher costs or that the tunnels created greater environmental damage than predicted in the proponents' documents.  While 23 cents of benefit per dollar of cost is bad, the reality could be even worse.

A link to the full report and a summary table of results is below.

Present Value of Benefits and Costs of the California WaterFix. 

2014 dollars, 3.5% real discount rate, 15 years of construction, and 100 years of operation. 

Base scenario
Optimistic Scenario
Export Water Supply
Export Water Quality
Earthquake Risk Reduction
Total Benefits
Construction and Mitigation
Operation and Maintenance
In-Delta Municipal
In-Delta Agriculture
In-Delta Transportation
Total Costs
Net Benefit
Benefit/Cost ratio