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The Economic Case for a No-Tunnel Bay Delta Conservation Plan - Dr. Jeffrey Michael, University of the Pacific - Sept. 12, 2013


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The Economic Case for a No-Tunnel Bay Delta Conservation Plan - Dr. Jeffrey Michael, University of the Pacific - Sept. 12, 2013

  1. 1. THE ECONOMIC CASE FOR A NO-TUNNEL BAY DELTA CONSERVATION PLAN Dr. Jeffrey Michael University of the Pacific San Diego County Water Authority September 12, 2013
  2. 2. Results of BDCP Economic Studies Support Development of a No-Tunnels BDCP  The Water Supply Benefits in BDCP report is from the regulatory assurance of the habitat conservation plan, not the physical characteristics of the tunnels.  The tunnels are not required for a habitat conservation plan (HCP) under the ESA.  A No-Tunnels BDCP could provide regulatory assurance benefits at a much lower cost.
  3. 3. Does BDCP Still Make Sense for Water Agencies? 1. Conveyance construction cost estimates have increased from $4 billion to $15 billion. 2. Anticipated Water Exports Have Decreased From 6.5maf to about 5maf. (No increase in water supply.) 3. Seismic Benefit Estimates Have Declined Substantially  Seismic levee upgrades create more benefits at lower cost. 4. Present and future prospects for federal and state funding have severely declined. 5. Urban water demand is declining, and future population forecasts have dropped significantly.
  4. 4. Comparing Estimates of Benefits and Costs of the Tunnels Michael (7/2012) BDCP (5/2013) Difference Export Water Supply 3,916 15,722 to 16,642 11,806 to 12,726 Export Water Quality 2,328 1,819 to 1,789 -509 to -539 Earthquake Risk Reduction 866 470 to 364 -396 to -502 Environmental Benefits/Costs 0 Not Estimated* NA (0) Tunnel Costs (Capital, O&M) -12,310 -13,328 to -13,343 1,018 to 1,033 In-Delta and Upstream Impacts -1,173 Not Estimated* NA (-1,173) Net Benefits ($ millions) -6,374 4,684 to 5,452 11,058 to 11,826 Benefit-Cost Ratio 0.53 1.35 to 1.41
  5. 5. Why the huge difference in water supply benefits?  The studies assume dramatically different water exports for the no-tunnel scenario.  Michael: Extension of current restrictions as described in BDCP Environmental Impact Report no-action alternative (4.7 maf)  BDCP/Sunding: Assumes BDCP restrictions to benefit fish are placed on south Delta pumps even without introducing the fish-harming north Delta intakes.  Exports are 3.4 maf to 3.9 maf  This no-tunnel alternative is likely better for fish than the tunnels. BDCP study provides no environmental analysis.
  6. 6. Both Estimates Have Significant Pro-Tunnel Biases  Assume rapid future growth based on outdated, pre- recession, pre 2010 census forecasts. 2050 MWD area population overstated by 5 million, more than current population of San Diego County.  Assume tunnels open in 2025, no delays.  Does not account for risk of cost escalation.  Does not include many alternative water supply developments already in water agency plans.  Assumes current technology, ignores technological improvements in alternative water supplies.
  7. 7. What is the “break-even” point? The case for a no-tunnel BDCP  How much more could water exports be reduced and still be less costly for water agencies than the $15 billion tunnels?  Based on Dr. Sunding’s results, I estimate the break- even or “tunnel indifference” level of exports appears to be an average of 4 to 4.4 maf.  This suggests that if a no-tunnel BDCP could be developed with water exports above 4 maf, water agencies would be better off than with the current tunnel-based BDCP.
  8. 8. Two Other Key Issues  Regulatory Assurances under an HCP are not guarantees.  Regulatory risk reduction benefits are overstated.  Financial feasibility requires benefits exceed allocated costs for all users. BDCP only shows total benefits and costs.  Financial feasibility will require a large reallocation of costs from agricultural contractors to urban ratepayers or general taxpayers.