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The real meaning of “beneficiary pays”

It is worth keeping in mind that

  •  Construction and operation of the Peripheral Tunnels is the primary “conservation measure” under this habitat conservation plan.  (Yes, they think that taking the majority of freshwater flows out of the Delta and creating a lot of habitat will lead to species recovery.  But the new North Delta diversion point has not yet been approved by the State Water Resources Control Board.)
  •  Construction and operation of the tunnels represent 65% of the estimated costs of the project.

For years, BDCP has been touted as a “beneficiary pays” project. So it is interesting to see how that translates into the funding estimates in the BDCP Administrative Draft.  All benefits other than water delivery have been gradually shifted away from the state and federal water contractors, so that now BDCP assumes that the contractors will pay for just 68% of total BDCP funding.  (The cost split between state and federal contractors has not yet been determined.)  The other 32% – almost a third of the cost – is to come from a variety of public state and federal sources.  This pretty much lines up with everything about BDCP that is NOT tunnels — that is, all the rest of the conservation measures.  (See below.)

DWR’s own “Economic Analysis Guidebook” imposes a test of financial feasibility that includes beneficiaries being “willing and able to pay their allocated costs for project outputs over the life of the project.” There are serious questions about whether the contractors can actually cover even the reduced percentage of the total cost that this funding scheme now assigns to them.

State Water Project (SWP) contractors are currently in negotiations with the Department of Water Resources regarding water supply contract extensions.  One issue is that contractors need to be able to sell bonds and keep the debt service as low as possible.  Bonds typically sold with a 30-year repayment period can now be sold with only 22-year repayment periods due to a 2035 maturity date limitation for the Metropolitan Water District and some other contractors.  They will have to sell bonds to help finance the Peripheral Tunnels.  DWR would also like to increase reserves – currently less than 3% – for operating and maintaining the SWP as it currently exists.

The proposal is to extend existing water supply contracts for 40 to 75 years, relying on water sales to meet as yet undisclosed costs and thus extending ratepayer debt for two or three generations.   (Over $300 million of the original cost of the SWP remains unpaid.)

So ratepayers are facing extended debt for the existing SWP, without the addition of the cost of Peripheral Tunnels.

Dr. Jeff Michael of UOP has noted that BDCP can’t evaluate financial feasibility without a cost allocation.  Although they have said that it is premature to assume a cost allocation, consultants also suggested that the cost would be $5 per household for urban households.  Dr. Michael commented that with something like 30% of the project cost paid for by urban users, “I don’t think this project is feasible at $5 per household.” 

They will need more than that from urban users.

Meanwhile, farmers receiving federal Central Valley Project (CVP) water from contractors like Westlands Water District face their own challenges.  A recent report by the Office of the Inspector General of the U.S. Department of the Interior found that the Bureau of Reclamation, which operates the CVP, is not on track to meet the congressional mandate for paying off the project by 2030 as required by law.  The report recommended renegotiating contracts so that revenues currently refunded to contractors go instead to reducing unpaid capital costs.  Westlands argues that it can’t make the payments if it doesn’t get the water.  (Never mind that periodic shortages were anticipated in the original CVP contracts.) 

At the July 17 meeting, Westlands’ Deputy General Manager Jason Peltier said again, as he has before, that he can’t imagine CVP farmers being willing to pay more for water if they can’t get more.  We would argue that with or without the tunnels, given the increasing unpredictability of California’s climate, there are no iron-clad guarantees of water for farmers or anyone else.  Certainly BDCP planners should take the situation of CVP farmers into consideration when they estimate what they can count on those farmers to pay for the Peripheral Tunnels.

(A claim that none of the project water would ever go to privately-owned water agencies brought an audible “WHAT???” from the audience.  What about the privately controlled Kern Water Bank, which stores and resells project water?)

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  • July 24, 2013, 7:43 pm

    It appears that BDCP officials give different audiences get different answers. I wasn’t at the July 17th meeting, but I was at the ACWA (Association of California Water Agencies) Spring Conference on May 8th and 9th. Representatives from the San Joaquin Valley water agencies (I think they were Westlands people) asked about what the Tunnels would cost, “My farmers?” The state agency official who responded “What do you care? It’s not going to cost you anything.” He went on to say that the SJV Farmers already had a contract. (These were questions shouted out and the people responding were not identified. ACWA said they were recording these meetings and would post them on their website, but I haven’t found them yet.)

    So it appears that only new water requests over existing contracts are in the equation. Also, at several of the panels said that the tunnels would make sure the SJV Farmers will get the full contracted amounts. They also said at times — “with enhanced Spring runoffs” they would get more than the 9,000 cfs.

    Here is the part that I find MOST interesting. When Westlands gets their contracted water, they pay less than $25 an acre-foot. They also are paid subsidies when they don’t get their contracted water. Yet, Westlands paid PCWA (Placer County Water Agency) almost $3 Million at over $120 an acre-foot for water. I haven’t been able to find out if the water they buy from other agencies has any affect on the subsidies they receive when shorted their original contracted water.

    You ever feel like these water contracts are a giant shell game hiding which shell (or gimmick) has the taxpayer’s dollars under it?