Monday, January 7, 2019

The CVP "No Harm" deal for the Delta Tunnels does a lot of harm to MWD's business case for their $12+ billion investment.

Why did the Central Valley Project want a "Do No Harm" agreement about the delta tunnels?

Last year, Central Valley Project (CVP) contractors made a rational and predictable decision not to pay their share of the WaterFix.  To save the project, Metropolitan Water District (MWD) staff convinced their board to add a multi-billion dollar blank check to fill the enormous financial hole.  To do so, MWD staff argued that the extra funding would allow them to receive the benefits that the CVP would have gotten from their investment.  MWD staff did this with a highly speculative estimate of future water supply benefits from financing the second of the twin tunnels, the so-called "unsubscribed capacity".   Last June, I wrote...
"when MWD staff is using this speculative no-tunnel baseline assumption to define the additional water supply benefits they will receive for the extra investment, the additional water supply is water that goes to the CVP under current regulations.  Thus, in this unsubscribed capacity scheme, MWD staff is using this speculative future baseline to argue that financing the full WaterFix will give them control of water supply that CVP currently diverts from the south Delta...  MWD board members should be very, very skeptical that it will actually work that way."
In testimony before the State Water Resource Control Board this summer, I presented the following estimates of average annual water deliveries (in acre feet) derived directly from the information MWD staff presented to their board in order to persuade them to commit additional billions from their ratepayers.  The second line is the MWD staff scenario where CVP pays MWD to use all the 33% "unsubscribed capacity" and the 3rd line is the MWD staff scenario where CVP doesn't pay and the 33% capacity is utilized by MWD.

No Action Alternative
CWF (67% SWP/33% CVP)
CWF (67% SWP/33% MWD)

The second line shows no water supply benefit for CVP compared to No Action.  Comparing the first line to the last line where MWD pays for the CVP share shows that according to MWD staff, the primary effect of implementing WaterFix is to redistribute 450,000 acre feet of water from the CVP to MWD.  The incentive of the CVP to participate in WaterFix is to avoid this potential harm.  Thus, it's not hard to see why the CVP would want a "no harm" agreement regarding the future effects of California WaterFix (CWF).

MWD staff would argue that a "no harm" agreement doesn't change their water supply benefit because under the agreement, they only have to compensate CVP for impacts that are attributable to the WaterFix.  They would argue that the decreased CVP water supply is due to regulations on south Delta pumping that they argue are equally likely with or without the WaterFix, thus there is no problem.  Are they right? 

To answer this, you should look at the official WaterFix documents, and ignore the sales pitch from MWD staff and other WaterFix proponents.  That is certainly what a court will do.  The "No Harm" agreement states that the WaterFix is described by the Final WaterFix EIR/EIS, and that document clearly states that the new OMR regulations and other more restrictive operating criteria are part of the WaterFix project itself, and are included as a response to expected environmental changes caused by operating the tunnels and the new north Delta intakes.  As an example, here is a quote from the Final EIR/EIS
“These newly proposed OMR criteria (and associated head of Old River gate operations) are in response to expected changes under the PA, and only applicable after the proposed north Delta diversion becomes operational." (note: PA stands for "proposed action" which is the WaterFix)
Thus, it seems pretty clear to me that the "No Harm" means the CVP can't lose any water supply as a result of these new regulations that are clearly defined in the EIR/EIS as an integral part of the WaterFix project.  The agreement is not specific about how the CVP would be compensated, but it seems likely that they will have to receive water delivered through tunnels without paying for the tunnels.  Thus, the water supply benefits to MWD will be significantly less than the MWD board was told when approving the extra billions.

The "no harm" agreement also reduces the already remote chance that MWD will ever be reimbursed by the CVP for its investment in the second tunnel.  The argument pushed by MWD and DWR that farmers/CVP would pay them back for the 2nd tunnel has always been as laughable as President Trump's claims that Mexico will reimburse the cost of his border wall, and this "no harm" agreement makes it even more clear.

In addition to this "no harm" agreement, the new coordinating operating agreement between the SWP and CVP could also greatly affect the water supply benefits of the WaterFix to MWD.  Nine months ago, MWD staff described a "Master Agreement" with DWR that defined MWD's use and control of the 2nd tunnel, but that agreement still has not been made public despite MWD staff promises.  MWD staff description of this "Master Agreement" was key to the MWD board's funding vote, but it seems to conflict with this new "Do No Harm" agreement with the CVP.

The bottom line is that these new agreements appear to substantially reduce promised water supply benefits to MWD ratepayers while increasing their share of the costs.  In order for the MWD board to fulfill their fiduciary duty to their ratepayers, they need to fully review the effects of these significant new agreements on the WaterFix return on investment and potentially reconsider their previous funding commitments.

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