So Who Would Pay for the Other 75 Percent?

As the end of the year approaches, it's time for predictions for 2010.  Here's my first: 2010 will be a year of serious debate about the financing of water projects. 

One of the most significant of those issues is how South of Delta water agencies would divide the cost of any new Delta conveyance facility.  Specifically, the Metropolitan Water District of Southern California has agreed to pay for 25 percent of such a project - leading to a simple question:  Who would pay the other 75 percent? 

An interesting article from the Voice of San Diego gives a sense of what that debate might center around. The era of cheap water is over.  Rates for water users are already on the rise.  One line is particularly interesting. 

If a $10 billion canal is built to route water around the beleaguered 738,000 Sacramento Delta, Metropolitan (the Metropolitan Water District of Southern California) expects to pay about $2.5 billion of the cost. That would require a 15 percent rate increase.

Let's unpack those numbers a bit. 

The Costs Are Going to Be High

The cost of any Delta conveyance solution - which could include some combination of strengthening existing levees, a Delta canal, a pipeline or a tunnel - could cost tens of billions of dollars.  In just the last few months, DWR and water user estimates of the potential cost of a canal have risen from $5-$10 billion to $6-$12 billion, but those numbers will likely increase. 

DWR, for example, is now starting to evaluate seriously the possibility of building a tunnel under the entire Delta to move water.  $20 billion is a reasonable planning number for a conveyance solution, but no one knows for sure.  

A Solution May Not Produce More Water

If such a facility is built, it may not generate additional water supply - just a less vulnerable existing supply.  Some water users have suggested that a canal would allow a return to the record water diversions earlier in this decade.  We don't buy that.  Restoring a healthy Delta will require water, no matter how the Delta is plumbed. 

The Users Would Have to Pay for It

The Delta reform legislation passed on November 4 requires that all of the costs - including environmental review, planning, construction, maintenance, mitigation and operations --  for any Delta facility must be paid for by those who would receive water from it. 

This is a major step forward in establishing the "beneficiary pays" approach to water financing that NRDC has supported for more than a decade.  As a result of this requirement, water users south of the Delta will be focusing great attention to the development of a new Delta plan.    

Who Else Would Help Foot the Bill?

MWD's offer to pay 25 percent of the cost of a Delta conveyance facility  is based roughly on MWD's share of total Delta diversions.  Who would pay the other 75 percent of the costs is a big question -- as that share might reach $15 billion.

There are two obvious options:

Central Valley Agriculture:  Central Valley agricultural interests have long resisted efforts to get them to pay full cost for the facilities that they would receive water from.  The Central Valley Project is one of the nation's most generously subsidized pieces of infrastructure. And farmers have been quite clear that they will not pay the cost of proposed new dams that they strongly support.  Given the amount of revenue generated per acre-foot of water used in this sector, there are real economic limits to the ability of agriculture to pay billions - let alone more than ten billion - for a Delta canal, pipeline or tunnel.  In fact, some agricultural interests are already saying that agriculture will be unable to pay their share of the costs of a Delta canal. 

Silicon Valley:  The Santa Clara Valley Water District receives about half of its water from the Delta.  But their 250,000 acre-feet of contracts with the CVP and SWP are about 1/6 of the maximum SWP deliveries to MWD.  It's hard to imagine that this part of the state will pay more than a proportional share of a Delta fix.

Those two options appear unlikely as the source of 75 percent of the cost of a Delta facility.  Of course, Met - and Southern California ratepayers - could agree to pay more.  However, local water agencies are already finding that their customers are suffering from sticker shock when they open their water bills. 

This is just one of the major financing questions that the new Delta Council and other agencies must wrestle with during 2010.  The answers to these questions will be essential to help craft the right plan for the Delta, and to ensure that the plan is implemented.  After all, the CALFED program - which was eliminated by the legislature in the water reform package - failed to resolve the financing problem.  It's one major reason why that effort failed. 

Our understanding of Delta issues has changed dramatically in recent years.  Finding solutions is going to require everyone to rethink old positions in light of new developments.  For example, in recent years, NRDC has revised our thinking on Delta conveyance issues.  For water users South of the Delta, these new developments will require a clear-eyed evaluation of what a Delta conveyance solution would cost, what specific water agencies would get from it, and what they would pay for it.