BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 2421
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          Date of Hearing:   April 24, 2012

                   ASSEMBLY COMMITTEE ON WATER, PARKS AND WILDLIFE
                                Jared Huffman, Chair
                AB 2421 (Bill Berryhill) - As Amended:  April 12, 2012
           
          SUBJECT  :   Bay Delta Conservation Plan costs and benefits 
          analysis

           SUMMARY  :   Requires that an independent third party costs and 
          benefits analysis of the Bay Delta Conservation Plan (BDCP) be 
          submitted to the Legislature prior to the BDCP's inclusion in 
          the Delta Plan, or by June 30, 2013, whichever comes first.  
          Specifically,  this bill  :  

          1)Requires that an independent third-party use the 2008 
            Department of Water Resources (DWR) Economic Analysis 
            Guidebook to conduct a costs and benefits analysis of the 
            BDCP, a DWR project.

          2)Requires the BDCP costs and benefits analysis include:

             a)   The total costs of the project including planning, 
               construction and mitigation and how those costs are to be 
               paid;

             b)   The expected impacts of the project on taxpayers, water 
               ratepayers, and the General Fund; and,

             c)   A conclusion as to whether the project is economically 
               justified when weighing its direct societal benefits 
               against its social costs over the analysis period.

          3)Specifies that the third party conducting the analysis shall 
            be chosen by one representative from each of the following:

             a)   The Legislative Analyst's Office;
             b)   The Delta Protection Commission; and
             c)   The State Water Contractors.

          4)Limits the maximum analysis cost to $1 million. 

           EXISTING LAW:

           1)Creates the Delta Stewardship Council (DSC), an independent 
            seven-member body that is tasked with developing a long-term 







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            plan for the Delta (Delta) that meets the coequal goals of 
            providing a more reliable water supply for California while 
            preserving, enhancing and protecting the Delta ecosystem and 
            respecting the unique cultural, recreational, natural 
            resource, and agricultural values of the Delta as an evolving 
            place.

          2)Sets forth mandatory elements for the BDCP environmental 
            review process and requires the BDCP comply with the state 
            Natural Community Conservation Planning Act (NCCPA) in order 
            to be eligible for state funding and inclusion in the Delta 
            Plan.



           FISCAL EFFECT  :   Unknown

           COMMENTS  :   The San Francisco Bay/Sacramento-San Joaquin Delta 
          Estuary (Bay-Delta) is the West Coast's largest estuary - the 
          transition zone where fresh water from rivers mixes with ocean 
          water.  The environmental collapse of the Bay-Delta, 
          particularly its fisheries, is well-documented and has led to 
          listing under the California Endangered Species Act (CESA), 
          federal Endangered Species Act (FESA), or both, of many native 
          fish species such as winter-run and spring-run Chinook salmon, 
          green sturgeon, steelhead, Delta smelt and longfin smelt.  In 
          addition, poor Delta conditions have affected fall-run Chinook 
          salmon, the backbone of California's commercial salmon industry.

          The Bay-Delta is also the hub of California's water export 
          infrastructure.  Water stored in federal Central Valley Project 
          (CVP) and State Water Project (SWP) reservoirs located in 
          northern California is released into tributaries to the 
          Sacramento River, or the Sacramento River itself until it meets 
          the Delta and is exported via two large SWP and CVP pumping 
          plants located in the south of the Delta near Tracy. In nature, 
          both the Sacramento River and the San Joaquin River flow west 
          out of the Bay-Delta until they meet with the ocean.  However, 
          the SWP/CVP pumping plants change the hydrodynamics of the 
          Bay-Delta and pull water that would flow west to the south 
          instead, causing Old and Middle Rivers in the Delta to run 
          backwards. At times sensitive to native fish, this causes 
          entrainment (drawing into the pumps), impingement (crushing 
          against fish screens and other structures), and predation 
          (pulling fish into areas where they are vulnerable to being 
          eaten by larger fish and other species). Insufficient flows and 







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          alterations of hydrodynamic patterns can also change water 
          temperatures, increase straying of fish from migratory paths, 
          contribute to the growth of invasive species, and adversely 
          affect the food sources fish rely upon.

          There have been many attempts to address the conflict inherent 
          in requiring an ecosystem that is home to more than 750 animal 
          and plant species to also provide part of the export water 
          supply for 25 million citizens in southern Californian and 3 
          million acres of agricultural land, principally in the San 
          Joaquin Valley.  The CALFED Bay-Delta Program was one such 
          attempt.  The CALFED Program adopted a record decision (ROD) in 
          August 28, 2000 that was signed by eighteen state and federal 
          agencies and called "an unprecedented effort to build a 
          framework for managing California's most precious natural 
          resource: water."  Although the CALFED effort adopted a 
          "beneficiary pays" principal, it was fatally flawed in that it 
          lacked a sustainable financing plan. When bond money ran low six 
          years after the adoption of the ROD, the primary state and 
          federal agencies implementing the program entered into a 
          "Memorandum of Agreement for Supplemental Funding of Certain 
          Ecosystem Actions and Support for Implementation of Near-Term 
          Water Supply, Water Quality, Ecosystem and Levee Actions" (MOA), 
          which provided "voluntary" funding from certain export water 
          agencies.  In exchange, the MOA, among other requirements, 
          called for the "development of a conservation plan for the Delta 
          and its upstream basins, hereinafter referred to as the Bay 
          Delta Conservation Plan (BDCP)" in order "to obtain the permits 
          necessary to comply with ÝCESA] and ÝFESA]."  The MOA stated 
          that it would "terminate if the State of California imposes fees 
          or an involuntary financial obligation on any water agency or 
          utility signatory to the MOA for implementation of any CALFED 
          Programs?"

          Because CALFED was "programmatic," it did not provide CESA and 
          FESA coverage for take of listed fish species by the SWP, 
          operated by the State Department of Water Resources (DWR) and 
          the CVP operated by the U.S. Department of Interior, Bureau of 
          Reclamation.  Those projects received their FESA coverage 
          through federal biological opinions and incidental take 
          authorizations issued by the U.S. Fish and Wildlife Service for 
          Delta smelt and by the National Marine Fisheries Service for 
          marine species, such as anadromous or "ocean going" fishes like 
          salmon and steelhead.  With regard to CESA, a state law 
          administered by the California Department of Fish and Game 
          (DFG), the federal government maintained that it was sovereign 







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          and the CVP needn't comply (a legally untested theory) and, as 
          was revealed in subsequent litigation against DWR, the SWP had 
          no CESA permit.  

           Financial costs and benefits are at the heart of the BDCP  
          The desire for permit certainty is at the core of the BDCP which 
          is being drafted as a federal Habitat Conservation Plan (HCP) 
          and state Natural Community Conservation Plan (NCCP).  Both the 
          HCP and the NCCP require a higher conservation standard for 
          species than federal biological opinions.  In fact, the current 
          federal biological opinions for the SWP and CVP are "jeopardy" 
          biological opinions that contain measures which were determined 
          to be necessary to prevent the extinction of listed species from 
          SWP/CVP operations in the Bay-Delta, which are the authorized 
          activity.  If those biological opinions were superseded by 
          permits issued under the BDCP, it assumed the BDCP permits would 
          have a 50-year duration and include some type of "regulatory 
          assurances."  Regulatory assurances mean that once a final plan 
          is approved, as long as the permittee is implementing it 
          consistent with the permit, no further water, money, or land can 
          be required of the permittee to protect and conserve species 
          unless one or more species being harmed by the activities 
          covered under the permit are determined to be in jeopardy of 
          extinction.  In the case of BDCP, DWR would be the clear 
          permittee.  But, by statute, DWR passes on SWP costs for the 
          preservation of fish and wildlife to its subcontractors for 
          water and power. It is because those export water subcontractors 
          are looking for certainty regarding both water supply and 
          financial investment in the Bay-Delta that they are funding the 
          BDCP planning process.  

           The BDCP could create a large potential financial exposure for 
          the public
           Currently, the principal feature of BDCP is proposed new 
          conveyance either around or under the Delta combined with tidal 
          and subtidal habitat restoration and "other stressors" measures. 
          Under existing law, as explained above, costs of new SWP 
          facilities are repayed by contractors for water and power.  
          Current estimates for constructing new conveyance are $12 
          billion or higher.  That does not include maintenance and 
          operation costs.  As with any new water conveyance facility, it 
          is assumed those costs would be passed on to the ratepayers who 
          receive water supplies from that new facility.  What is less 
          clear is who would pay for the costs of ecosystem restoration 
          and other stressors measures.  Right now the BDCP assumes that 
          the general public would pay for a large share of those costs.  







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          However, achieving the "conservation standard" under BDCP would 
          be largely based on the restoration measures - not new 
          conveyance.  That means that the public would have two potential 
          exposures under BDCP:  the costs of planning and implementing 
          the measures that would provide the basis for the "regulatory 
          assurances," and then, if those measures did not yield the 
          anticipated benefits, the public could be responsible for paying 
          for any additional measures that are needed to achieve the 
          conservation standard.  Put another way, in exchange for a plan 
          that is supposed to provide a level of conservation that is 
          greater than would be received under an ordinary permit, 
          "assurances" shift the financial burden for any additional 
          unforeseen preservation and enhancement actions that may be 
          needed from the permittee to the public.

          BDCP does not currently have a financing plan but has contracted 
          for an "Economics Benefit" analysis."  The scope of work for 
          that analysis states that "water supply reliability benefits are 
          the main driver of the economics of the ÝBDCP]."  The scope of 
          work specifies that estimating the benefits that will be derived 
          from new conveyance should be achieved by comparing "the status 
          quo and isolated facility cases."  The scope of work states that 
          the analysis should reflect that an "isolated facility may 
          improve water supply reliability in the event of an earthquake 
          in or near the Delta" by "giving a range of outage durations in 
          different types of water years" with instructions to reflect 
          that "a given earthquake can cause much more economic damage in 
          a dry period than a wet one."  Because Sacramento River water is 
          inherently of a higher quality than San Joaquin River water or 
          water that has mixed in the Delta, the scope of work also 
          instructs the analyzer to reflect the benefits of "changes in 
          treatment costs" that could result from new across-Delta 
          conveyance.  With respect to habitat restoration, the contractor 
          is instructed that there "are numerous prominent examples in the 
          United States where the public has expressed a willingness to 
          pay for environmental restoration and it is likely the same 
          would be true of the Delta.  Environmental economists have 
          developed a set of tools to value changes in environmental 
          quality.  Under this task, Contractor will apply the tools of 
          this field to gauge the economic benefits to the public as a 
          result of BDCP."

           What about the costs?
           Nowhere does the contemplated analysis appear to acknowledge the 
          potential costs of the BDCP project or the high levels of 
          uncertainty attached to certain actions.  This is a similar 







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          strategy to the one BDCP utilized when it hired a group to put 
          out a report on September 19, 2011 entitled "Employment Impacts 
          for Proposed Bay Delta Water Conveyance Tunnel Options."  There 
          the task order was to "estimate the number of direct, indirect, 
          and induced jobs that would be created by the construction and 
          operation of two water conveyance system options" - a 15,000 
          cubic foot per second (cfs) facility and a 3,000 cfs facility. 
          The consultants then attended a BDCP public meeting and 
          announced that the largest possible facility would create 
          "129,193" jobs over a projected "7.5 year construction period."  
          The analysis did not include or acknowledge the potential loss 
          of agricultural or recreational jobs in the Delta over the life 
          of the project or balance the potential "job creation" against 
          any other societal costs.

           Supporting Arguments  :  The author states that in "2009 the 
          Legislature enacted a series of reforms in the way California 
          approaches water.  These reforms, meant to accomplish the 
          coequal goals of restoring the Delta and securing a reliable 
          source of water for areas south of the Delta, will have wide 
          spread effects throughout California.  From the farmers in the 
          Delta to the ratepayers in Los Angeles, all will experience some 
          effect."  The author adds that questions of BDCP costs and 
          benefits have been continually raised by stakeholders but that 
          the Natural Resources Agency has said that no comprehensive 
          cost/benefit analysis will be done.

           Opposing Arguments  :  Opponents state that they view this bill as 
          "a threat to achieving the co-equal goals of ecosystem 
          restoration and reliable water supplies."  They state that this 
          bill would "repeal the process delineated in the 2009 
          Delta/water management legislation that created a path towards 
          new Delta conveyance and ecosystem improvements.  The historic 
          Delta package wisely chose to set an achievable and balanced set 
          of state policies to restore this vital estuary and improve the 
          reliability of water supplies if they are given a chance to 
          succeed."  They advise that they, the "undersigned are committed 
          to meeting California's water management challenges in a manner 
          consistent with achieving the coequal goals established by 
          legislative policy."

           How would a costs and benefits analysis be the end of BDCP?
           Opponents of this bill seem to infer that a costs and benefits 
          analysis of BDCP would be the end of the project.  It is unclear 
          how a costs and benefits analysis of what is potentially the 
          largest public works project in the history of California 







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          "repeals the process delineated in the 2009 Delta legislation" 
          or threatens the coequal goals.  This bill requires the costs 
          and benefits analysis to be completed by June 30, 2013.  The 
          current BDCP time line assumes that all environmental review and 
          permitting will be completed by February 2013.  Even if that 
          were accurate, which is unlikely, a project of this magnitude 
          and controversy is likely to be delayed for at least six months 
          pending litigation.  Therefore, the costs and benefits analysis, 
          in and of itself, should not delay BDCP implementation.

          It is also ironic to note that more than one of the signatories 
          to the coalition letter decrying the violence this bill would 
          purportedly do to the coequal goals and the 2009 legislation are 
          themselves on record supporting U.S. House of Representative 
          Resolution 1837 (Nunes).  H.R. 1837 would have, in the words of 
          California Attorney General Kamala Harris, abrogated 
          "long-standing provisions of California law designed to protect 
          the State's natural resources and would violate settled 
          constitutional principles of state sovereignty."  Importantly, 
          H.R. 1837 would have guaranteed exports out of the Delta for 
          certain parties and prohibited the State Water Resources Control 
          Board and the Department of Fish and Game from taking actions to 
          protect fishery and public trust values other than those that 
          were in place back in 1994.  In other words, it would have 
          completely and directly eviscerated the 2009 Delta legislation.  


           REGISTERED SUPPORT / OPPOSITION  :  

           Support 























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          A.G. Spanos Companies
          City of Escalon
          City of Ripon
          City of Stockton
          Ducks Unlimited
          Food and Water Watch
          Greater Stockton Chamber of Commerce
          Lower Sherman Island Duck Hunters Assoc.
          Pacific Coast Federation of Fishermen's Assoc.
          Restore the Delta
          San Joaquin Council of Governments
          San Joaquin County Board of Supervisors
          Sierra Club California
          Stockton East Water District
          The Grupe Company
          Numerous individuals
           



































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           Opposition 



















































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          Alameda Co. Flood Control and Water
            Conservation Dist. Zone 7
          Association of California Water Agencies
          Calleguas Municipal Water District
          California Chamber of Commerce
          Castaic Lake Water Agency
          Coachella Valley Water District
          Desert Water Agency
          East Valley Water District
          Eastern Municipal Water District
          Friant Water Authority
          Inland Empire Utilities Agency
          Irvine Ranch Water District
          Kern County Water Agency
          Kings River Conservation District
          Las Virgenes Municipal Water District
          Metropolitan Water District of So. California
          Newhall County Water District
          Orchard Dale Water District
          Rowland Water District
          San Bernardino Valley Municipal Water Dist.
          Southern California Water Committee
          Three Valleys Municipal Water District
          Upper San Gabriel Basin Municipal Water Dist.
          Valley Ag Water Coalition
          Westlands Water District
          Western Growers Association
          Western Municipal Water District
           























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           Analysis Prepared by  :    Tina Cannon Leahy / W., P. & W. / (916) 
          319-2096