## 19 April 2010

### MWD says pricy water is cheap

A little birdie sent me this MWD presentation [52 MB pptx; my ppt].

On pages 33 and 34 [PDF], we see that a canal or tunnel in the Delta will deliver an additional 400taf to MWD (Metropolitan Water District of SoCal), and that additional water will cost \$82 -- \$120 per acre foot. (\$120/af for MWD's preferred alternative, the tunnel.)

The trouble is that this "marginal cost" is calculated as total cost for the new project that will deliver 400taf more than MWD would get without it (1.6 maf, up from 1.2 maf) divided by the total water that MWD gets from the Delta, NOT the additional water from that project.

The REAL marginal cost for new water from the Delta is \$610/af.* -- 400 percent more than the number MWD is presenting to the public.

Is this an accident? No, MWD has -- for years -- used average cost numbers to underplay the cost of their NEW water projects. They did it with the Colorado River Aqueduct and the State Water Project. On page 61 of my dissertation, I say:
In the 1940s, MET averaged the cost of local and CRA water to make CRA water look cheaper. In the 1960s, it blended the cost of (now cheap) CRA water with SWP water to make SWP water look cheaper. More recently, the bundled price of different conveyance facilities (e.g., SWP versus CRA) has dampened -- if not halted -- demand for water trades that would have low marginal conveyance costs. SDCWA's Wheeling Charge of \$258/AF pays for all of MET's facilities; it would be \$116/AF if it was only based on the fixed and variable costs of the CRA...
Here's the money question: Can MWD get "new" water for less than \$610/af? If so, then MWD should NOT be paying for a delta conveyance.

Bottom Line: Some people will say anything lie to get what they want.

* Rough calculation (using MWD's numbers, which are still only estimates): \$119/af cost across 1.6 maf future yield is \$190 million in new costs. Divide new cost by 400 taf of new water (from 1.2 maf to 1.6 maf) to get marginal cost of \$476/af south of the Delta. Add \$135/af to deliver water, via SWP, to MWD and you've got \$610 af. Bada bing.

Addendum: I've had a lot of emails on this one (I sent it around), and I want to make three things clear:
1. I am not accusing MWD of lying (the BL says "some people")
2. I am merely highlighting that MWD is distorting their case by saying that the supply will rise from 1.2 to 1.6 maf at a cost of \$120/af. If MWD just said, "hey we have to pay \$120/af more to keep ALL our water," then I wouldn't say anything.
3. MWD does this all the time, to make projects look cheap.

#### 3 comments:

1. They probably don't even know what marginal cost means...

This is fairly typical behaviour in my experience.

2. Does conservation (among other sources of "new" water) generate revenue to pay MWD staff?

I don't know exactly how the PC costs will be allocated, but \$190 million a year seems kind of low for the MWD share; I believe that is less than 1/3-1/4 the annualized cost of financing the PC (assuming current DWR cost estimates are accurate). That sounds proportional to their share of the delivered water, but I doubt the agricultural contractors are planning to pay the same rate. I could be mistaken, and would be interested in learning more about this.

I also can't resist commenting on the title of this MWD talk. Water is jobs... (Is MWD planning to hire all the people who lose their jobs due to their rate increases and paying for the water bond?)

3. EG asked me:

In looking at the numbers, I guess my question is: If the big imperative for the peripheral canal, or conveyance, is to protect existing supplies from earthquakes in a sinking Delta, then how does that affect those numbers? Isn't it a case of more than a quest for 400taf?

I said:

That's the item on the agenda. MET is presenting it as if it's another 400taf of capacity, but they tell people on the side that they need the PC to get ANY water from the canal, i.e., go from 1.6 maf to 0 without it.

"Doomsday if you don't fund us..."

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