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Is Temperance Flat the Answer?

Contrary to nearly every dam, Temperance Flat’s primary justification is not water supply, but environmental restoration.

Mar 25, 2014

From the Valley Economy blog: "The new feasibility study justifies the dam (Temperance Flat) for its ecosystem benefits to salmon. It values the ecosystem benefits 2-10 times higher than the water supply benefits."

From Brett Walton at Circle of Blue: "For instance, the bureau released a feasibility study last month for the $US 2.6 billion Temperance Flat project. Contrary to nearly every dam, Temperance Flat’s primary justification is not water supply, but environmental restoration. The dam will increase supplies for cities and farmers by a piddling amount, but its main purpose is storing cold water to help revive fish habitat in the San Joaquin River." He is correct when he says 'piddling amount' as the 41,000 acre feet the farmers would get under this plan would be spread over 1.1-million acres.

Mario Santoyo of the Friant Water Authority (California Spigot blog): “I've always been one to believe that if the upper San Joaquin is to be successfully restored, the Fresno reservoir needs another million acre feet of storage.” Only then, he said, can the state meet its co-equal goals on the east side: to provide both irrigation water in dry years and in-stream flows for fish. "We just don't have the volume of cold water we need to restore the salmon. It's a high priority for us. We have to succeed in bringing back the salmon.” This last statement sounds more like a Mission Statement from the NRDC than what you would expect from a farmer's water agency.


Here's the headline in a recent edition of the Valley Economy blog: "New Temperance Flat Feasibility Study Claims Salmon Benefits and Delta Earthquake Risk Reduction Justify the New Dam and a Big Taxpayer Subsidy." The blog goes on to explain, "This recasting of the dam as a salmon project is very surprising to me as I am not aware of any environmental groups or fishery experts pushing Temperance Flat dam as a priority, and there are even some environmental groups who are opposed."

A lot of people think new storage at Temperance Flat is part of the answer to Central Valley water problems. There certainly is no doubt that California needs more storage and there are several locations where new dams would make a lot of sense, including Temperance Flat. We just want to remind everyone that environmentalists don't want the new dam, or any increased storage at existing dams for that matter, but if Temperance Flat was somehow able to withstand environmental scrutiny, the enviros have a 'Plan B': they want more water for the river. Better believe it. There is no doubt that our current elected officials will give them most of it. Look at this from the californiaspigot.com blog:

 

Who Gets the High Water?

But if Friant clients use most of the San Joaquin River water now, why put themselves into big debt building another dam? At most, Temperance Flat would increase their yield by 150,000 to 250,000 acre feet per year – not overly impressive. (Formal predictions on actual yield have yet to be released in feasibility studies.) One answer is that farmers are eager to store flood waters for use during dry periods and Temperance Flat would give them that flexibility.
 
But the flood waters are exactly what environmentalists want to use in restoring the San Joaquin River downstream.
 
“We want to get back to a healthy river,” said Kathryn Phillips, director of the Sierra Club California. She said the river needs more flow than the amounts contributed by the restoration agreement with Friant. “If you want groundwater recharge along the river, if you want a balanced ecosystem, then you have to let the river flow. Temperance Flat will not help that; it will harm it.”

Then there is Southern Cal that also want a piece of any more stored water on the SJ River just in case they run short someday. So where does that leave the folks that live and work in the Central Valley? Well according to the govt study the 1.1 million acres of farmland will get on average 41,000 ac ft per year which wouldn't even come close to the 250,000 to 350,000 ac ft we lost due to the Feinstein/Costa river restoration legislation. The good news is that Feinstein and Costa are beginning to wonder if what they did is causing a problem(disaster). So now we have a study that shows that the plan to fix it really doesn't!!!
 

So, enviros don't want Temperance Flat, but if they can't stop it their second choice is to get the water. Those of us in the Central Valley will have to fight all the legal battles to get the dam, then fight more legal battles over the water. If you don't think this will happen, you must not have paid attention the last twenty years. Makes you wonder if it's even worth fighting for.

Recommendation: Fight the battle to see how much water we'll get before fighting the battle to build the dam.



Valley Economy Blog:

New Temperance Flat Feasibility Study Claims Salmon Benefits and Delta Earthquake Risk Reduction Justify the New Dam and a Big Taxpayer Subsidy

 
I spent a good part of the afternoon reviewing the new feasibility study for the Temperance Flat dam and compared it to the one released in 2008. The Bureau of Reclamation's claimed benefit-cost ratio in the new feasibility study is much higher than the one from 2008 that infamously found a B-C ratio of 1.0 to 1.06 despite the fact that the estimated water yield is lower.
 
 

Some observations about the benefit-cost estimates.

 

 
1. Estimated construction costs of the dam dropped by nearly $1 billion (new estimate is about $2.5 billion compared to original of about $3.5b), even though the current estimate is in 2013 dollars and the old one was in 2006 dollars. I am told the cost reduction is attributed to a change in the hydroelectric mitigation required. Apparantly, it isn't true that estimated construction costs always go up.
 
 
2. The new feasibility study justifies the dam for its ecosystem benefits to salmon. It values the ecosystem benefits 2-10 times higher than the water supply benefits. In addition to economically justifying the dam, this finding also is convenient for justifying a much higher taxpayer subsidy of the dam than proposed in 2008 (more on that later). These multi-billion dollar ecosystem benefits (annual benefit estimates ranged up to $500m per year) result from the report's estimate that the dam will increase long-run average abundance of salmon from between -0.7% and 4.9% per year. I'm not a biologist, but that doesn't seem like a huge benefit to me for a river that is projected to have relatively small salmon populations. This recasting of the dam as a salmon project is very surprising to me as I am not aware of any environmental groups or fishery experts pushing Temperance Flat dam as a priority, and there are even some environmental groups who are opposed.
 
 
3. The report is quite honest that the traditional water supply, flood control, hydropower, and recreation benefits that are associated with dams are not nearly high enough to justify the construction costs of this project. And that's even after the report inflates these traditional benefits...
 
 
4. In the "best" scenario, the report estimates $19 million in annual agricultural water supply benefits from an average increase to ag. water supply of 41,000 af. That's a healthy $461 af in current dollars, a value that is about 3 times higher than typically used for incremental ag water in benefit-cost assessments. Given the special role of agriculture as the economic base of the Valley, I have sometimes argued for using a more generous economic development measure that includes multiplier effects. Like many of these assessments, this feasibility study also calculates the economic development value in a separate section. In Table 5-12, the report estimates this annual value at $10.8 million for agriculture, which seems about right for 41,000 af of annual yield. The strange thing is that this economic development value is lower than the value used in the benefit-cost estimate, and it is usually the other way around. This seems to confirm my suspicion that the $19 million value associated with ag. water supply reliability is an error. Bottom line, the agriculture water supply benefits are overestimated by a factor of 2-3, at least $10 million per year.
 
 
5. Delta earthquake and flood protection benefits. The feasibility study estimates $25 million in annual benefits from emergency water supplies Temperance Flat would provide in the event of a catastrophic Delta flood. This benefit is inflated due to ridiculous assumptions about levee failure probabilities among other issues. As a point of comparison that shows the foolishness of this number, it is almost identical to the risk-reduction benefits the BDCP estimates for the Delta tunnels which are thought to preserve several million acre feet of water exports in the case of these catastrophic events. [The BDCP estimates 50 years of this benefit has a present value of $364m to $460m, use the present value formula to solve for the annualized value and it is in the neighborhood of $25 million annually. This Temperance Flat study allocates over $400m of construction costs to taxpayers due to this benefit.]
 
 
6. The benefit-cost analysis uses annual costs and benefits. It annualizes capital costs over 100 years with a 3.75% discount rate. That is a very generous assumption, and it understates the annual costs.
 
 
Some observations about the proposed cost allocation for Temperance Flat.
 
 
1. Only 26% of the cost of the dam would be allocated to water users (12% ag, 14% municipal/industrial). In contrast, the 2008 study of the dam allocated the majority of costs to water users.
 
 
2. About 73% of the cost of the dam would be paid by federal and state taxpayers. The 73% allocation can be broken down into three general categories of claimed public benefits: 49% ecosystem, 8% recreation/flood control, and 17% emergency water supply benefits from a Delta flood (see #5 above). This 73% share is only direct construction costs, and does not count the subsidy in the Bureau's 0% financing of agricultural users contribution.
 
 
So that is about $1.25 billion in taxpayer dollars towards dam construction for claimed salmon benefits (direct costs, this doesn't count interest costs on the water bond that would finance the state's share). I wonder what a salmon expert would do if you gave them $1.25 billion of taxpayer funds and said spend this to improve salmon habitat.
 
 
In addition, it allocates 17% of the dam's costs (nearly $500 million) to state/federal taxpayers due to the Delta flood risk reduction benefits (see #5 above). Taxpayers might prefer to spend $500 million in Delta risk reduction would be better spent directly on Delta levees themselves - providing flood protection benefits for water supplies and protecting property, other infrastructure and lives in the Delta.
 
 
Some observations about financial feasibility calculations for water users.
 
 
Unlike BDCP, this report correctly proposes a cost allocation before making any conclusions about financial feasibility.
 
 
1. Agricultural water supply is allocated $264 million of construction costs. Assuming 40 year repayment period with no interest, and operating costs comes to $8.7 million per year. The report estimates the cost of the incremental water supply to the agricultural users is $212 af. That's a hefty cost for agricultural water, and note that this is the cost even with the Reclamation's generous no-interest financing and taxpayers picking up 73% of the estimated construction cost of the dam.
 
 
2. Municipal and industrial water supply is allocated $362 million of construction costs. The report assumes a 40 year repayment of capital costs and 5.37% interest. Principal, interest, and operating costs come to $27.4 million annually, and the incremental water supply cost to M&I users is $1,305 per acre foot. That's a pretty expensive municipal and industrial water supply, even with taxpayers picking up 73% of the estimated cost of the dam.
 
 
Overall, it's not a very convincing feasibility study, and I don't believe it provides strong economic justification for Temperance Flat dam. It's disappointing, because I believe in the value and need for storage and I would like to be able to support storage projects in the Valley. But there are better uses of taxpayer dollars for these and other purposes, and the water it is still an expensive option for water users even with the large taxpayer subsidies.

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