BILL ANALYSIS Ó AB 2421 Page 1 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 AB 2421 Page 2 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 AB 2421 Page 3 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 AB 2421 Page 4 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. AB 2421 Page 5 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 AB 2421 Page 6 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 AB 2421 Page 7 "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 AB 2421 Page 8 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 AB 2421 Page 9 Opposition AB 2421 Page 10 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 AB 2421 Page 11 Analysis Prepared by : Tina Cannon Leahy / W., P. & W. / (916) 319-2096