The Governor has said he won’t sign any water bond without a surface storage unit. The Bureau of Reclamation recently released a preliminary feasibility report (see Chapter 6) describing Temperance Flat, which would become the second major dam on the San Joaquin River. It would provide 1,200,000 acre-feet of storage and an additional 160,000 acre-feet of usable annual water, 4/10 of one percent of California’s current annual use. The water that would be captured for storage currently flows down the river in the rainy season and out into the ocean.
The Bureau’s report indicates that this dam has a benefit-cost ratio of 1.06 to 1, meaning that for every dollar spent, California will receive $1.06 in benefits. To arrive at these figures, the Bureau estimates that construction costs will be $3.36 billion, or $169 million per year. It estimates the annual benefits at $180 million, only a bit more than the estimated cost. This alone ought to give anyone pause—the experience with past Bureau water projects has been that the costs are typically underestimated, while benefits are overestimated.
A closer look at the proposed benefits is revealing. Most of the projected $180 million in benefits comes from increased agricultural and urban water supply reliability. The Bureau estimates that the additional 160,000 acre-feet water is worth close to $125 million in total – an average of $780 per acre-foot. Is this a reasonable estimate?
Agricultural water districts in that region currently pay the Bureau less than $20 per acre-foot. They sometimes buy water in transfers for a much higher sum, occasionally as high as $300-500 per acre-foot, but those purchases involve very small quantities of water bought in very dry years. To assume that farmers will be willing to pay an average of $780 per acre-foot year in and year out is over-optimistic. Of course, if farmers end up paying less for water from Temperance Flat, other buyers – urban water users, would have to pay more in order to balance the books.
Urban water users are in fact willing to pay significantly more for water than farmers. But it is not clear that there is a sufficiently large urban demand for this water at $780 or more per acre foot. For example, San Diego paid $250 per acre-foot this year to buy water from water districts in Butte County, but this was the price at the source. San Diego also had to pay an additional $500 in transportation costs to move the water down to San Diego. It is extremely unlikely that the Bureau could obtain a price of $780 from urban water agencies for water from Temperance Flat at the source, which is what it has assumed.
Bottom Line: The Bureau’s numbers, while preliminary, raise serious doubts as to whether the dam is worth the cost. Californians should be wary.
Sunday, October 18
Temperance Flat Economics
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3 comments:
I am dubious of the economics of Temperance Flat, too; but there are two other considerations that, while hard to quantify, may argue in its favor. First, the restoration of the San Joaquin flows will require substantial water. In theory, this will be obtained from existing supplies. In practice, it is hard to envision where this water will come from, especially at the times and with the flows (big seasonal pulses) desired. Second, simply having a way to store more water that is already south of the Delta makes occasional tweaking of the Delta pumping regime less explosive.
It will take years to build the dam, and years more to fill it up, barring an exceptional el Nino year.
Raise doubts? I think this report makes it clear that this dam isn't worth the cost.
you are right. This was just language in a potential op-ed, so we kept it conservative. It is obvious that it is not worth it.
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