Dr. Jeff Michael & Restore the Delta Weigh in on Delta Tunnels Benefit-Cost Analysis

Yesterday, the Department of Water Resources released a benefit-cost analysis on the Delta tunnels project, or CA WaterFix, conducted by Dr. David Sunding of the Brattle Group.

In response to this study, Executive Director of the Center for Business and Policy Research at the University of the Pacific, Dr. Jeffery Michael published a blog post of his initial reaction to Dr. Sunding’s work.

Dr. Michael focuses on four errors within Dr. Sunding’s analysis:

1. “It assumes a massive new subsidy for agricultural users cost share from urban water users. The agricultural subsidy is contained within a “wheeling rate” that it assumes that Metropolitan Water District (MWD) would charge the Central Valley Project (CVP) for using the tunnels’ conveyance capacity.

2. “The positive benefit-cost ratio depends on a dubious new benefit: the value of sea-level rise protection benefits. The report estimates the present value of these sea-level rise benefits at a whopping $5.7 billion, a value that exceeds the study’s estimated total net benefit of the WaterFix. That means the benefit-cost ratio is negative for all user categories if this dubious new benefit is removed. This estimated benefit has never been included in any previous study of WaterFix, and thus it is a new benefit category created for this report when the old methodology fell short of giving a postive benefit-cost ratio.

3. “The report, press release and webpage falsely claim that this benefit-cost analysis is consistent with DWR’s Economic Analysis Guidebook. The Economic Analysis Guidebook clearly states that “Although economic analyses can be evaluated from many different perspectives (individuals, communities, etc.), DWR conducts these analyses from a statewide perspective.” The report is clear, even in its title, that it is an analysis from the perspective of water agencies that participate in WaterFix. It does not consider statewide impacts—which include costs to other water users or the environment – both of which are very large for this project.

4. “The single-tunnel scenario is clearly better for MWD and urban water users if one compares this study to a February 2018 analysis of single-tunnel by the same consulting firm. While that single-tunnel report had many of the same problems as this one, it did not need to include a highly questionable estimate of over $5 billion in sea-level rise benefits to get a positive benefit-cost ratio. Comparing these reports shows that financing the 2nd tunnel by MWD adds enormous costs for their ratepayers for little/no additional benefit.”

Executive Director of Restore the Delta, Barbara Barrigan-Parrilla also commented on Dr. Sunding’s analysis, noting,

“Due to the changes in this benefit-cost analysis, Restore the Delta will need a few days to analyze the document. However, we see three initial problems in the fact sheet:

1. “The Brattle Group claims the project will see increased benefits with the pursuit of low-interest Federal WIFIA loans. As we said in a statement earlier this week, the WIFIA Letter of Interest submitted by the Design Construction Finance Authority is fraught with misstatements and inaccuracies.

2. “The analysis argues that the project implements components of the Sustainable Groundwater Management Act (SGMA) which significantly increases the value of WaterFix to agricultural water users. Moreover, the analysis claims that the tunnels project is complementary to the state’s goal of ensuring the sustainability of groundwater reserves.

“However, tunnels proponents failed to do adequate groundwater analysis on communities in and around the Delta as well as Northern California at large, whom will be subjected to degraded groundwater supplies with operation of the Delta tunnels.

3. “Dr. Sunding insists that, “Transfer of WaterFix project benefits significantly increases the overall values of the project by reallocating capacity to users with the greatest willingness to pay for water supply reliability.”

“Water is a public trust resource. This reads as a reworking of the California Constitution and the Delta Reform Act in terms of who is entitled to water supply reliability. All Californians are entitled to a reliable water supply—not just those who reside in water districts that will spend untold sums to buy and resell that supply. Moreover, the benefit-cost analysis is silent on the Delta Reform Act’s mandate to reduce reliance on the Delta—following that law cannot be achieved by a project that exports more water from the Delta, especially in dry years.”

Policy Analyst for Restore the Delta, Tim Stroshane added,
“Dr. Sunding’s reports have always argued that the project’s benefits exceed the costs to the water contractors, except in the draft study Restore the Delta obtained in a PRA request in 2016. The greater difficulty Dr. Sunding would have, and which DWR and the contractors do not wish to test, is whether the project benefits California or society as a whole. Dr. Michael has consistently shown it will not. Their refusal to include this massive detail in their analysis likely means that the contractors and DWR want all Californians to subsidize the project in one way or another.”

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