Bay-Delta Conservation Plan: Preliminary Assessment of Financing Risk Parameters - Jan. 23, 2014

Amy Chen, Director of MWD Program

Imported Water Committee

January 23, 2014

Public draft of BDCP and EIR/EIS released December 13, 2013

◦ 120 day formal review period

◦ Public meeting scheduled for February 6, 2014 in San Diego at the Convention Center from 3:00pm – 7:00pm

Staff continues its evaluation of the public draft

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BDCP Component Type of Cost1

Capital O&M Total

Water Facilities & Operation (CM1)

$14,571 $1,456 $16,027

Natural Community Restoration (CM2-CM11) $4,170 $237 $4,406

Other stressors (CM12-CM22) $927 $1,735 $2,661

Changed circumstances $184 - $184

Local government revenue replacement - $226 $226

Monitoring & research measures - $913 $913

Plan admin. - $336 $336

Total2 $19,851 $4,902 $24,754 1 in Millions of 2012 dollars 2 Total may not add due to rounding Source: Bay Delta Conservation Plan, Tables 8-33 and 8-34

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BDCP envisions costs will be shared between water export contractors and the state and federal governments

4

State & Federal

Contractors69%

State funding

17%

Federal funding

14%

o Exporters: Conveyance facilities and related mitigation costs

o State/Federal: Ecosystem restoration costs

Funding Source

Water Facilities & Operations

Nat.Com. Protect. &

Mgt.

Nat. Com. Restoration

Other Stressors

Monitoring Research

Etc.

Program Admin.

Total

Contractors $16,027 $266 $269 $224 $113 $31 $16,930

USBR $0 $50 $602 $1,077 $640 $100 $2,469

Other Fed Funds $0 $346 $460 $10 $200 $60 $1,076

Props 1E & 84 $0 $0 $142 $21 $0 $0 $163

2014 Water Bond $0 $184 $900 $430 $0 $0 $1,514

Future Water Bond $0 $205 $1,200 $840 $0 $0 $2,245

Other State Funds $0 $10 $40 $0 $145 $0 $195

Interest Income $0 $0 $0 $20 $0 $145 $165

Total Funding $16,027 $1,061 $3,613 $2,623 $1,098 $336 $24,758

Total Cost $16,027 $1,061 $3,610 $2,623 $1,097 $336 $24,754

Difference $0 $0 $3 $0 $1 $0 $4

1 In millions of 2012 dollars Source: Bay Delta Conservation Plan, Public Draft, Chapter 8, December 2013, Table 8-37.

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State and federal regulations require assurance of funding to issue permits under the habitat conservation plan

Federal ESA requires that HCPs specify “the applicant will ensure that adequate funding for the plan will be provided” for conservation actions – courts have interpreted broadly

ESA case law strongly supports the notion that funding must be assured and an HCP “cannot rely on speculative future actions of others”

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Cost allocation negotiations between and among state and federal water export contractors are ongoing ◦ Water Authority requested, but is not involved in cost

allocation negotiations

BDCP indicates that the actual funding share between state and federal contractors will not be determined until “near the time that permits are issued for BDCP”

Lack of cost allocation certainty hinders the ability to assess cost impacts and risks

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Because cost allocation has not been finalized, staff analysis uses a bookend approach to potential cost allocation scenarios

Scenarios 1. Contractors pay for only conveyance/mitigation costs of $16.9

billion, with costs shared 55/45 between SWP and CVP

2. All $24.8 billion of BDCP costs paid by contractors, with costs shared 55/45 between SWP and CVP

3. Contractors pay for only conveyance mitigation costs of $16.9 billion, with urban agencies from SWP and CVP paying 90 percent of costs and agricultural agencies paying 10 percent

- MWD share assumed to be 58 percent of urban share

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Scenario 1

Scenario 2

Scenario 3

Description

Contractors pay for conveyance

Cost share between SWP & CVP:

55/45

Contractors pay for all costs

Cost share between SWP & CVP:

55/45

Contractors pay for conveyance; Urban and

agricultural split: 90/10

Total Cost (Capital and O&M)

$16,930M $24,754M $16,930M

SWP (or urban in scenario 3)

$9,312M $13,617M $15,237M

MWD $4,218M $6,168M $8,832M

Water Authority $1,055M $1,542M $2,208M

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Scenario 1

Scenario 2

Scenario 3

Description

Contractors pay for conveyance

Cost share between SWP & CVP

55/45

Contractors pay for all costs

Cost share between SWP & CVP

55/45

Contractors pay for conveyance;

Urban and agricultural split: 90/10

Annualized Debt Service

$1,111M $1,563M $1,111M

SWP share (or urban) $611M $859M $1,000M

Annualized Debt Service to MWD

$277M $389M $579M

BDCP Op Scn. High Outflow

Low Outflow

High Outflow

Low Outflow

High Outflow

Low Outflow

Potential Benefit (TAF)

299 424 299 424 299 424

Incremental Unit cost ($/AF)

$926 $653 $1,302 $919 $1,938 $1,368

*Analysis varied the cost obligations only, assumes MWD’s share of the BDCP benefits remains constant –

i.e., 45.3 percent (Table A) of 55 percent (SWP share).

Funding ◦ Federal and state share – dependent on future bond

passage and/or appropriation

◦ Exporters share

Allocation not yet finalized

BDCP “Big Gulp” ◦ Contractors’ ability and willingness to capture and

store wet year supply for dry year use critical

◦ Storage fill plan and financing strategy needed at MWD

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Meeting Imported Water Committee/Board Activity

7/25/2013 Provide input on scope of proposed Water Authority analysis of BDCP alternatives; provide input on policy questions to be addressed

√

8/8/2013 Special Meeting

Overview of Bay-Delta and proposals for Delta fix, including description of alternatives

√

8/22/2013 Review of technical analysis – demand assumptions; alternative project yield assumptions; projected costs

√

9/12/2013 Special Meeting

BDCP economic study on cost-benefit of BDCP preferred alternative √

9/26/2013 Review of technical analysis (cont.), including yield review √

10/24/2013 Information: Review of technical analysis (cont.), including baselines; BDCP timeline and processes impacting implementation

√

11/14/2013 Special Meeting

Supply and demand evaluation and analysis √

Meeting Imported Water Committee/Board Activity

1/9/2014 Special Meeting

Identification of BDCP Physical features and facilities; supply/demand risk assessment

√

1/23/2014 Preliminary cost estimates and risk assessment to Water Authority

√

2/13/2014 Special Meeting

Engineering assessment of BDCP cost estimates; BDCP Governance

2/27/2014 Economic and risk assessment (cont.)

3/13/2014 Special Meeting

Summary presentation of BDCP issues; Identification of issues to be addressed in the EIR/EIS comment letter

3/27/2014 Action: Consider action on final EIR/EIS comment letter

4/24/2014 Revise BDCP schedule; discuss outstanding policy issues; timeline for future board meetings

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BDCP Update

Overview of BDCP Economic Assessment Issues ◦ Cost Estimates

◦ Funding Sources

◦ Cost Allocation

Preliminary assessment of potential financial impacts

Summary

Next Steps

15

16

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

1-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 41-45 46-50

Program Costs (Administration, Monitoring, Research, Other)

Other Stressors Conservation Measures (CM13 to CM 21)

Habitat Protection and Restoration Conservation Measures (CM2 to CM12)

Water Facility Conveyance (CM1, CM22)

Cap

ital

Co

sts

(Mill

ion

s o

f U

nd

isco

un

ted

201

2 D

olla

rs)

Plan Years

Estimated Capital Costs in 5-Year Increments

Source: BDCP Executive Summary, Page 28

17

$-

$100

$200

$300

$400

$500

$600

1-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 41-45 46-50

Habitat Protection and Restoration Conservation Measures (CM2 to CM12)

Other Stressors Conservation Measures (CM13 to CM 21)

Water Facility Conveyance (CM1, CM22)

Program Costs (Administration, Monitoring, Research, Other)

Cap

ital

Co

sts

(Mill

ion

s o

f U

nd

isco

un

ted

201

2 D

olla

rs)

Plan Years

Estimated Operational Costs in 5-Year Increments

Source: BDCP Executive Summary, Page 28

Unclear whether reliance on federal funding and future state bonds will meet the “adequate funding” test for permit issuance

BDCP public draft indicates that if a shortfall in state or federal funding occurs ◦ Authorized entities will not be required to provide land,

water, or monetary resources beyond their commitment in the Plan

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BDCP public draft indicates the SWP share of new water conveyance system costs could be paid similar to how existing SWP is being paid for

◦ DWR-issued revenue bonds ◦ Take-or-pay contracts for participating SWP contractors ◦ SWP contracts will need to be amended to allow costs to be

financed beyond current term of 2035

Individual contractors may issue their own revenue bonds or collectively through a JPA

◦ BDCP public draft identifies State and Federal Water Contractors Water Agency as possible JPA to finance project

JPA formed in 2009 – majority of SWP/CVP contractors are members

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Incremental unit costs for MWD depend on benefit it receives from BDCP yield ◦ Consumptive need for water

◦ Ability to place water in storage when available

High outflow scenario = 1.2 MAF average annual benefit compared with no action

Low outflow scenario = 1.7 MAF average annual benefit compared with no action

Range of potential average annual benefit to MWD = 299,000 acre-feet to 424,000 acre-feet

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Aggregate annual debt service and operations costs for the conveyance facility only ◦ Average annual capital debt service costs are approx $1.1 billion from

2021 through 2055

21

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 2058 2060 2062 2064

$ in

Millions

Figure 4

Aggregate Debt & Operations

(Conveyance only)

Debt serv O&M

Aggregate annual debt service and operations costs for conveyance plus habitat restoration ◦ Average annual capital debt service costs are approx $1.6 billion from

2021 through 2055

22

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 2058 2060 2062 2064

$ in

Millions

Figure 5

Aggregate Debt & Operations

(Conveyance and Habitat)

Debt Serv (CM1) Debt Serv (Habitat) O&M (CM1) O&M (Habitat)