The Invisible Farmer and The Twin Tunnels

THE INVISIBLE FARMER AND THE TWIN TUNNELS Central Valley Business Times Stockton October 7, 2015

Governor’s twin tunnels plan doesn’t come close to making sense for ratepayers or the even the water agencies, says economist Jeffrey Michael

”It appears they intend to operate with much higher water yields than they are disclosing in the Environmental Impact Report”.

This is the majority of the text of Jeffrey Michael’s speech delivered Oct. 5 at a protest rally to an audience of about 200 anti-twin tunnel supporters.

Mr. Michael is an economist and director of the Center for Business and Policy Research at the University of the Pacific in Stockton.

A farmer came to my office and handed me a report. He said, ‘It’s like I’m invisible.’

I read it. It was true-it was like he was invisible. That was very disrespectful. But as an economist, that doesn’t necessarily mean that it is a bad project so I looked at it from a benefit-cost standpoint from the rate and taxpayers of the state of California. I stepped back to look at the big picture. Is this something that is really necessary for California?

When you’re proposing a project that has construction costs estimated at nearly $17-billion, without the interest and financing costs, you better make a good economic case for that because it is by far the most expensive water infrastructure project that has been proposed.

You would think with nine years of planning and $250 million spent on consultants that we’d have a detailed business and financial plan for this project that we could look at. The high-speed rail has issued three of these. Some people who thought the train made sense have started to question it and rethink that project. Without putting out the plans and analysis as you go along really harms your planning project and ends up with a project that just doesn’t make sense.

The tunnels don’t have a financial analysis but what they have is an Environmental Impact Report. They’ve applied for a number of permits to allow them to build this project. I’ve read the documents for those and according to the environmental documents the project will deliver little or no new water for $17 billion before financing costs. This project is not financially feasible.

I’m no expert in environmental documents and whether they have to put forth a project that is financially feasible, but in this case it is critically important because the business model for the tunnels is to pay for them by selling water. We know that flows of fresh water into the estuary are the most important thing for the environment. The financial plan and environmental imports go hand-in-hand. They must be consistent to be intellectually honest.

So if we look at the environmental documents that say they will average between zero and 500,000 acre-feet of water per year or 250,000 acre-feet in an average year for $17 billion. Most of the water exporters from the Delta go to farmers in the South Valley. They would be expected to pay the majority of the costs.

I don’t need a complex model today. I’ll just use simple division and compare this to a few things. If we can compare that water yield to the cost, you get 15,000 acre-feet of unreliable, untreated water for every $1 billion of capital investment.

I’ll compare that to other alternatives on the table for urban water agencies. These are the very expensive alternatives that even urban water agencies have a hard time moving forward on.

No one ever imagined that a farmer would finance these things.

A desalinization plant in Carlsbad that is only a limited part of the water portfolio of San Diego County will yield nearly 60,000 acre feet of reliable, purified water for a capital cost of $1 billion. That’s four times the water bang for the buck that the tunnels, according to their environmental document.

Los Angeles Metropolitan Water District has a proposal for a $1 billion water recycling plant that would yield about 150,000 acre feet a year of water for that region. That is 10 times 15,000. It is a better investment.

The Bay Delta Conservation Plan tunnels had a consultant who put out a plan and analysis. When the consultant was asked, he said, “This pencils out.” But he didn’t use the data from the environmental document. He described a completely different project than he one that the one for which they are trying to get permits. And, in fact, when they were asked by a board member of the Los Angeles Metropolitan Water District at a meeting, “Does this thing pencil out if you use the water yields in the E.I.R., he said “No”.

That’s obvious. There’s no water. But it created a scenario where it would create a much higher water yield. In fact it assumed six times the water yields that are in the E.I.R. document and assumed 10 million more people would be moving to Southern California than the official population projections and assumed they would never invest in any of the very alternatives that Californians made a down payment on by passing the water bond in 2015.

A revise economic analysis was promised two years ago. Nothing has come out.

When water agency leaders force questions about these sort of simple facts, like “Are you really going to invest $17 billion in a project that doesn’t increase water supplies?” the Brown administration has two responses:

One is that I assure you will show up in future lawsuits on the tunnels is “Just ignore what the E.I.R. says. There will be more water.”

The other big argument you hear from the governor is about a massive earthquake that would flood the Delta and salt water will come in and shut down the water exports and destroy the state’s economy. Even if the engineering is correct the tunnels are the wrong response.

If this is a real threat, the tunnels are an economically and morally wrong proposal for how to deal with it. The economic consultant previously mentioned looked at the value of those earthquake benefits. He found over 50 years the accumulative values of that earthquake protection to the ratepayers and farmers in southern California was $400 million. That’s not per year but over 50 years or two percent of the construction costs of the tunnels.

People are shocked by that figure.

It’s a low probability disaster but could happen.

The second thing is what would happen to the water supply if it did happen and how much could the state cope with this? To compare this I’ve been comparing it to the current drought. We’ve had two years of very severe drought. It has reduced surface water supply in California by over 10 million-acre feet on an annual basis. That has been costly. We have brown laws and some fields fallowed. Has it destroyed the state’s economy? No, the state is growing five percent faster than the U.S. as a whole. However, there have been some environmental impacts.

This earthquake scenario that the Brown administration has put out is the worst-case scenario. The tunnels would project us from a one to two million-acre foot water shortage. That’s about 15 percent of what we’re dealing with in this drought.

They said hundreds of people would die in the Delta and cited losses of billions of dollars. What they don’t tell you is 80 percent of that figure they calculated was in the Delta itself.

The ‘Water Fix’ plan doesn’t come close to making sense for the ratepayers or even the water agencies that are pushing it. It appears they intend to operate with much higher water yields than they are disclosing in the E.I.R. documents. That will cause serious harm to the environment and economy in the Delta.

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