WaterFix Economic Study Doesn’t Pencil Out

Earlier this week, the Department of Water Resources released an “Economic Analysis of Stage I of the California WaterFix” prepared by Dr. David Sunding.  In 2016, Dr. Sunding’s draft cost-benefit report reached the conclusion that the full project was not economically feasible, even with billions of dollars in taxpayer subsidies, which is presumably why that draft study only became public thanks to a request filed under the California Public Records Act.  More recently, the State commissioned him to prepare this new analysis to justify a smaller project.  But rather than providing the transparent and honest analysis that the California WaterFix project so desperately needs, this new study raises more questions than it answers.

First, this new study assumes that Stage 1 of the California WaterFix would result in the State Water Project (“SWP”) increasing Delta exports even more than under the full project, and the Central Valley Project (“CVP”) decreasing Delta exports compared to the full project.

2018 Sunding Analysis of Water Supply from Phase 1

SWP

CVP

Urban

Ag

SWP total

CVP Total

   1,989,220.00

   704,058.00

   2,693,278.00

   832,936.00

Source: 2018 Report at 8

2016 Sunding Analysis of Water Supply from WaterFix

SWP

CVP

Urban

Ag

SWP total

CVP Total

   1,876,000.00

   707,000.00

   2,582,000.00

   945,000.00

Source: Draft 2016 Report at 8

Other experts have analyzed DWR’s preliminary modeling, and reached a similar conclusion. Walter Bourez of MBK Engineers submitted a declaration to the State Water Resources Control Board which states that,

“Although the CVP is given a 1,000 cfs dedicated share of the NDD in the Stage 1 modeling, the CVP south of Delta deliveries decrease by annual average of 120,000 acre feet when compared to the No Action Alternative. SWP deliveries increase by 192,000 acre feet in the Stage 1 modeling compared to the No Action Alternative and the total increase (CVP plus SWP) in south of Delta deliveries is 72,000 acre feet.”  

See page 32 of this document filed with the SWRCB.

Dr. Sunding’s 2018 analysis assumes that the Westlands Water District and other CVP contractors pay part of the costs of the tunnels but lose more than 100,000 acre feet per year of water supply, while SWP water contractors end up gaining even more water supply from Phase I (his analysis concludes that the first phase has a positive cost-benefit ratio for CVP contractors).

Given the long history of CVP contractors vociferously objecting to any reduction in Delta exports for the project, it’s hard to square this significant shift in burdens with DWR’s insistence to the Water Board just last week that “California WaterFix has not changed.” Indeed, one of primary roles of the Water Board is to determine whether the project would cause an injury to other legal users of water.  Perhaps this explains the silence of the U.S. Bureau of Reclamation -- DWR’s co-petitioner for the project before the Water Board – when asked whether this new “phased” approach requires a delay in the Water Board’s hearings to update the analysis of impacts to other users and the environment.  

Second, Dr. Sunding’s 2018 study assumes that this first phase of the project would be operated for 100 years, and he estimates the economic benefits of the project out to the year 2131.  However, his 2016 analysis only analyzed the economic benefits over a 50-year period of operations.  In other words, he doubled the time period over which to assumes benefits without any explanation of those differing approaches. He also assumes that operations and maintenance costs are lower over the last fifty years than over the first fifty years. After last year’s near disaster with Oroville Dam, it seems very odd to assume that this massive project would require less upkeep and maintenance the older it gets.

Third, Sunding’s water supply analysis only uses climate change data through the year 2025, ignoring the effects of climate change on hydrology – and water supply – over the next 100 years, despite the widespread scientific consensus that climate change is likely to reduce water supply from the Delta as droughts intensify and become more frequent, and as the Sierra snowpack decreases from warming temperatures.

Each of these problems likely would alter the cost-benefit analysis significantly.  There are other problems with the analysis, like his assumption of historically low interest rates (3%), even as interest rates begin to rise.  The 2018 report provides far less detail than his 2016 draft, and it’s difficult to understand some of the other changes from the 2016 report to the 2018 report. Most notably, in 2016 Dr. Sunding estimated that the project was not cost-effective for SWP Ag contractors, but in 2018 he assumes it would be cost-effective despite SWP Ag contractors paying nearly $300-900M more than he estimated in 2016.

But the biggest surprise is that Dr. Sunding’s analysis assumes that the full project is never constructed.  While the State insists that this is only a first phase and that the full project must be permitted because it will be constructed, Dr. Sunding bases his analysis on the opposite assumption: that the SWP gets this increased water supply over 100 years, meaning that the second phase (and the reduction in SWP supplies as a result of the full project becoming operational) – never occurs. Indeed, he writes that, “Participants in Stage II of the California WaterFix are not currently known. Depending on the evolution of environmental regulations, water demands and climate, state and federal water agencies may decide to implement Stage II at some point in the future. At that time, a detailed cost-benefit analysis of Stage II can be completed.” This assumption of 100 years of Phase 1 belies the State’s argument, and reinforces the common knowledge that there isn’t sufficient funding for a full project.

Ultimately, however, the biggest problem with Dr. Sunding’s analysis – and indeed, the biggest problem with the WaterFix project, regardless of its size – is the assumption that it will maintain or increase water exports from the Delta.  The science is clear that the State must reduce water diversions from the Bay-Delta watershed to protect and restore the health of the estuary, its fish and wildlife, and the jobs and communities that depend on it.  Indeed, the December 5, 2017 Board Meeting packet for the Desert Water Agency included the following update from the November 16, 2017 meeting of the State Water Contractors:

Jennifer Pierre also reported having learned the previous evening that the California Department of Fish and Wildlife was planning to submit a proposal to the State Water Resources Control Board in the proceedings for approval of a new point of diversion which would take a lot more water from the system as a condition of the proposed permit. The Contractors had just learned of the proposal, leaving only four weeks to negotiate changes in the proposal before it would be submitted to the State Board for consideration. The Contractors have until December 15 to negotiate changes in the terms, if possible. The DFW proposal would take another 300,000 acre feet from the diverters in the Delta, although it was not certain how much would be taken from the State Water Project compared to the Central Valley Project. The proposal would also require another one million acre feet of water to flow through the Delta to protect endangered species. The main difference between current requirements and the proposed requirements would be taking more water during below normal years. Jennifer Pierre stated that the proposal was not a surprise but disheartening nonetheless.

https://dwa.org/board-meeting-agenda/board-of-directors-agendas-packets/2017/288-december-19-2017-packet (see page 26 of the pdf). 

Anyone who believes that paying for one or more tunnels means that the current levels of water supply from the Delta will be maintained or increased over the next century – despite the effects of climate change, the need to increase flows in order to restore the health of the estuary, and concerns about worsening water quality – has tunnel vision.

About the Authors

Doug Obegi

Director, California River Restoration, Water Division, Nature Program

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