As severe drought returns to California, the water shortage facing the Central Valley highlights the need for renewed investment in state water infrastructure. But the challenges of both the State’s water politics and project finance have led the Governor Brown to consider scaling back his signature proposal for two new tunnels beneath the Delta. For VX News, Metropolitan Water District General Manager Jeff Kightlinger explains the current status of the WaterFix project and what can be expected as the agency considers taking a majority stake in the needed project. He stresses that, as Gov. Brown’s term nears its end and the gubernatorial race builds momentum, the need for strong leadership on resilient infrastructure is becoming ever more pressing.
VX News: With abnormal dryness or drought currently affecting about 98% of California’s population, a state Water Fix remains undone. Share an update on the status of this important water project.
Jeff Kightlinger: Governor Brown’s administration is pursuing two linked but separate projects, California Water Fix and EcoRestore, which would improve water supply reliability and help restore the Delta ecosystem.
WaterFix is an attempt to address the “plumbing” in the Bay Delta by building two large tunnels that would connect to the State Water Project and the Central Valley Project. They would deliver 9,000 cubic feet of water per second, providing those agencies with more reliable access to water.
Rather than pulling water through the Delta, which has had harmful environmental impacts, the tunnels would pick up the water in the North, off the Sacramento River, and take the water underground bypassing the Delta.
This project is not cheap: its overall price tag is $17 billion. The concept has been that the beneficiaries—the water agencies—would pay that cost, and a number of agencies have agreed to do so.
But notably, the major central valley farming districts have said that, while they want the project, they can’t make the finances work. So, the question has been how to proceed without all the funding being in place.
Now, the Brown administration has proposed building the project in two phases. First, they would build one tunnel delivering 6,000 cubic feet per second—two-thirds the size of the original project - at a cost of about $10 billion.
This would primarily benefit State Water Project customers, who are willing to finance the cost. The administration would continue pursuing permits for the full project, but construction would not begin on a second tunnel until sufficient financing were in place.
VX News: MWD’s Board view of how best to finance the Delta Water Fix challenge, and the options that are now being studied.
Jeff Kightlinger: Our Board had voted to finance the original project at a roughly 26 percent share, or a $4.3 billion commitment. Because we spread our costs over a wide base—19 million customers—it broke down to about $1.90 per household per month.
In the new version of the project, the overall cost goes down, but our percentage share goes up. Instead of 26 percent of $17 billion, we would cover 47 percent of $10 billion. The net cost to Metropolitan would actually remain pretty close.
But we are also exploring what it would look like if Metropolitan agreed to finance the missing portion—the second tunnel—and recouped our investment through ownership of the additional capacity, which we could lease or sell to others.
Our staff is doing financial analysis of both options—being a larger participant in the full project, or participating at the same level in the smaller project—before we decide what we’re interested in pursuing.
VX News: It would seem that agricultural water supply districts and Central Valley water users would have an appetite for a more reliable & adequate water supply. What is causing them to be slow in supporting what most agree is a needed infrastructure fix?
Jeff Kightlinger: Primarily, it’s a financial issue. For agricultural suppliers, the equation is different. Metropolitan spreads our costs across millions of households in Southern California, so the individual impact of the investment is relatively small—people might not notice another $2 on their household bill.
But when you’re buying water for tens of thousands of acres, that’s a multimillion-dollar input on your cropping decision.
Even though the agricultural districts need the water and want the improved reliability, it’s a very high-stakes financial commitment. And, as always, there is some risk. We don’t know exactly how things are going to look in the future, especially with climate change bringing long-term droughts and all sorts of other wrinkles in water supply. You can build all the right infrastructure, and there’s still no guarantee you’ll end up with all the water you’d hoped it would provide.
In the past, the U.S. Bureau of Reclamation or the state of California would typically serve as the financier of a project like this, and then bill the agencies for it every year to cover the costs.
That’s the model the famers are used to: paying year by year, rather than entering into a long-term financing commitment. But the United States and the state of California are not interested in being financing partners anymore, and the change to that model is a challenge for some districts.
VX News: The U.S. Bureau of Reclamation recently announced that farmers who get water from the Central Valley Project will receive just 20 percent of requested allocations. How does this decision impact the effort to find consensus for the Water Fix?
Jeff Kightlinger: The Central Valley’s main reservoir, Shasta, is full to the brim right now. By all rights, they should be getting a much higher allocation. But without the right infrastructure in place, they can’t get that water. It’s very telling that they need this project.
Despite two wet years, California has essentially been in a drought for a decade—and it is deepening yet again with another extremely dry year.
This is our future: We’re going to get wet years sprinkled sporadically among many dry years. And we need the right infrastructure to take advantage of those wet years. We need storage, and we need the ability to move water into storage. That’s where the tunnels come in.
VX News: At VerdeXchange 2018, you participated in a panel moderated by Delta Watermaster Michael George that included Mark Pruner of the Delta Projection Advisory Committee and Goldman Sachs’ Chris Higgins. Was there any consensus?
Jeff Kightlinger: The position of Delta Watermaster was created in 2009 by state legislation so that the State Water Board could have someone fully devoted to all issues related to the Delta, including water rights and water quality.
At the conference, Michael George spoke to the overwhelming need to take action, as well as the challenges we’re facing in moving this project forward.
He said clearly that we need to fix the physical plumbing issues within the Delta so that we can start to restore the ecosystem there—to make a dent in essentially 150 years of that landscape changing from a natural marsh habitat to a highly altered, farmed landscape that has been very difficult for native species to adjust to.
Water is a very divisive issue; there are different north/south, agricultural/urban, and environmentalist/developer interests. Very few of these people see entirely eye to eye, but they are starting to find common ground. No one agrees on what constitutes a perfect solution, but we’re starting to see everybody agree that the status quo is not acceptable. We have to do something, or the situation will continue to degrade.
The Delta Protection Committee, for example, doesn’t like Metropolitan’s preferred solution. But they’re willing to work with us to try and find compromises. That, in itself, is progress.
VX News: The Sacramento Bee recently reported that farmers who rely on Delta water could see their costs quadruple or more if MWD took a larger role in financing the “Fix”. What’s your response?
Jeff Kightlinger: This is just something we’re exploring; we’re looking at different financial arrangements that might make sense, and for ways to make this a win-win for Metropolitan and agriculture.
But if Metropolitan were to step up and provide a larger investment, we’d have to make sure that our ratepayers were protected. That doesn’t equate to a water grab. It just means that if we’re going to invest, then that investment has to return something of value to our ratepayers.
VX News: This is California Governor Brown’s last year in office. The Delta Fix has been a high priority during his tenure. What do you expect will happen this year, and what have you discerned to be the attitude of the contenders for his office going forward?
Jeff Kightlinger: Not surprisingly, though all the candidates have been asked where they stand on the tunnel project, they’ve all given variations of the same answer:
They’re not entirely sure it’s the right solution, but they understand the need to do something, and they wish Governor Brown well in continuing to make progress. Understandably, they’re all hoping that most of the decisions get made this year. But I don’t think any future California governor is going to have the luxury of ducking the issue of water. Climate change is wreaking havoc on our systems.
Those systems are also just aging; the cities of Los Angeles and San Francisco built their systems at the turn of the century, and Governor Pat Brown built the State Water Project in the 1960s.
As a state, we have to reinvest in our water system, and we have to deal with climate change. It’s going to be controversial, and we are going to need a governor who—much like Governor Brown—is willing to step up and provide leadership on tough issues like water.