Saturday, June 1, 2024

DWR's Delta Conveyance Project Analysis Finds a 0.39 Benefit-Cost Ratio For Agricultural Users. It Won't Be Long Before Even More Agricultural Agencies Are Dropping Out or Filing Lawsuits Against the Project

 A benefit-cost ratio specific to agricultural users is not reported anywhere in the report, but it is pretty easy to calculate from the reports Table 1 and projected water allocationfrom the reports Table 1 and projected water allocation.  

According to Table 1, the water supply and water quality benefits to agricultural users has a present value of $2.36 billion.  Assuming, they receive a share of seismic benefits that is proportional to their share of total water supply and quality benefits (6.4%), they also receive an additional $60 million in seismic reliability benefits for a total of $2.42 billion in benefits.

The benefit-cost analysis also estimates that agricultural users will receive an average water yield of 148,500 af, which is 36.35% of the total projected water yield of 403,000 af. That means that agricultural users would be responsible for 36.35% of the DCPs costs. Excluding the environmental impact cost which would not be paid by water users, agricultural users share of project costs would have a present value of $6.213 billion.  The benefit-cost ratio for agricultural users is 0.39, clearly a terrible investment for agricultural users even when analyzed using the exaggerated values and generous assumptions of the DCP benefit-cost analysis. The analysis assumes 100-year project lifespan, a real discount rate below 2%, and that agricultural water users are willing-to-pay over $460/af for an unreliable water supply on a sustained, long-term basis.  I suspect farmers will use much more conservative assumptions in their personal benefit-cost estimations, and thus in reality agricultural users would be likely to receive far less than 39 cents of benefits for each $1 invested in the DCP.

The implications for the future of the DCP are large.  As more and more agricultural water agencies make the rational choice to opt-out, the remaining cost share and risk for urban water agencies rises.  For Metropolitan Water District that likely means that the 50% cost share they are hoping for will increase to 75% or more.  And with an estimated cost of $20 billion, that increased cost share is an additional $5 billion to a total of $15 billion or more.  MWD is already dealing with declining revenue from water sales, and a $15+ billion capital expenditure on the Delta tunnel is going to be very, very challenging to incorporate into its long-run financial plan.

It also broadens the opposition to the tunnel in political and legal arenas.  Yesterday, a SWP contractor, Tulare Lake Basin Water Storage District, was leading litigation seeking an injunction against exploratory drilling for the DCP according to the Courthouse News Service.  The article states, "The Tulare district in its suit wrote that the delta tunnel project would add costly new infrastructure to state water facilities and potentially affect the cost and amount of water it can buy from the state.”

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