BDCP Affordable for Water Contractor Funders, New Report Says

The cost of constructing conveyance improvements as part of the Bay Delta Conservation Plan is affordable for the urban and agricultural water users who will pay a large share of the project, according to a new report released today.

The California State Treasurer’s Office released the report, titled “The Bay Delta Conveyance Facility: Affordability and Financing Considerations.” The independent financial analysis was requested by the California Natural Resources Agency and commissioned by the California Debt and Investment Advisory Commission.

Karla Nemeth, deputy director of the Natural Resources Agency, said in a conference call with reporters today that the report is a “very positive assessment of the affordability of the proposal.” Portions of the BDCP are expected to be recirculated for public review in early 2015, said Nemeth. She added that officials from the Natural Resources Agency are working with federal, state and wildlife officials to address some concerns that have been raised about the project.

Tim Gage, a consultant with the treasurer’s office, walked reporters through some of the overall findings in the report. He said its authors based their assumptions on an 81-year history of the deliveries from the Delta as well as precipitation records. They looked at different delivery scenarios and whether they would supply to make the project pencil out.

Gage said that based on best-, worst-, and base-case scenarios, the overall cost to contractors would be between $14.7 billion and $25.2 billion. Annual debt service would range from $1.08 billion to $2.5 billion –  in year-of-expenditure dollars. These debts would be financed via revenue bonds and repaid by revenues from the SWP and CVP contractors and their ratepayers, not California’s taxpayers.

The economists also estimated what the cost of water would be for major contractors based on flow projections and project costs.  They estimated that water would cost between $260 to $400 per acre-foot for the Metropolitan Water District of Southern California, $290 to $360 per acre-foot for Santa Clara Valley Water District, $225 to $350 per acre-foot for Kern County Water Agency and $290 to $300 per acre-for Westlands Water District.

David Sunding, an economist with the Brattle Group and a consultant on the BDCP, said the study posed the overarching question of whether the project is affordable for contractors. He said the benefits exceed the costs by a 1.4-to-1 ratio.

"Water is valuable...and shortage is expensive," said Sunding, adding that water users are willing to pay to avoid shortages.

Jeffrey Kightlinger, general manager of the Metropolitan Water District of Southern California, issued a statement saying the independent review "finds that BDCP is a prudent investment."

"The treasurer's report is consistent with our own estimates, which translate BDCP costs into today's dollars," Kightlinger added. "Whether we pay now or in the future, it is important to remember that California faces unacceptable risks to our water supply and economy if we fail to take comprehensive action in the Sacramento-San Joaquin Delta." 

Terry Erlewine, general manager of the State Water Contractors association, called the report "encouraging."

“It’s encouraging as we make our way through the home stretch that we continue to hear from leading, independent experts that this project is affordable for Californians," Erlewine said in a written statement. "The Bay Delta Conservation Plan offers an opportunity to protect our state’s primary water supply from the constant threat of earthquakes, levee failures and flooding—it’s a significant investment, but the risk of doing nothing is costly and bleak. The drought we are in today is unforgiving, and if we don’t address the urgent need to modernize the state’s water delivery system, we may find that this drought is a disturbing preview of what our state looks like without reliable water.”

The treasurer’s report also states that SWP and CVP contractors would need to adopt a “take or pay” structure to finance the project. This requires annual fixed payments even when water deliveries fluctuate year to year due to changes in hydrologic conditions. This financing arrangement enables bonds to be sold at a higher rating.

The report also identifies potential risks to bond financing, such as construction cost overruns and delays, regulatory uncertainty, and unforeseen changes due to climate change. The report cites studies on so-called “megaprojects,” and their potential for cost overruns. According to the report, bridge and tunnel projects experience cost overruns of 34% on average. Currently the BDCP construction budget has a contingency of 36% to account for this uncertainty. 

For additional information, or to read a copy of the report, go to: