1. Rodney T. Smith, Ph.D President
Is Bay Delta Conservation Plan
a Doable Deal?
Special Imported Water Committee Meeting
Bay Delta Conservation Plan, Economic Analysis
San Diego County Water Authority
September 12, 2013

2. Stratecon’s Independent Perspective
 Looked at BDCP from perspective of due diligence on DWR Team “pitching
their deal”
 Discuss costs, pricing, funding, supply reliability, economic benefits and politics
 Environmental consequences are vital (but not my gig)
 Presentation based on eight-series BDCP posts on
www.hydrowonk.com/blog
 Conclude with predictions about BDCP’s future
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3. Project Costs
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4.  Present value of capital costs
estimated in 2012 ($12.7 billion)
 Construction starts in 2015 and
continues for 10 years
 Historic Record
 Bureau of Reclamation Indices:
3.7% annual increase
 Consumer Price Index: 2.6%
annual increase
Costs in 2015: $14.1 billion (2012$)
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Construction Costs Underestimated

5. Project Capital Costs $14.7 billion to $14.9 billion (2012$)
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Item Amount (billion)
DWR Estimate $12.710
Increased Real Costs $1.375
Sub-Total $14.087
Mid-Year Adjustment $0.308
Sub-Total $14.385
Net Cost of Debt Reserve $0.260 ($0.521)
Total $14.645 ($14.906)

6. Cost of BDCP Water
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7. Timing Matters
 Firm capital commitments made at
the start of construction
$14.7 billion to $14.9 billion
 A decade later, the payoff (water
deliveries) start
 Capital commitments: contractual
 Water deliveries: computer
projections
 Amortized capital costs (2012$)
Low Delta Outflow: $492/AF to $645/AF
High Delta Outflow: $697/AF to $914/AF
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8. From Capital Costs to Water Rates
 Capital Costs: $570/AF to $800/AF (average of delta outflow scenarios)
 Plus O&M and Mitigation: $625/AF to $890/AF
 Debt Coverage:
 1.25x (DWR): water rates $765/AF to $1,190/AF
 2x (market conditions): $1,125/AF to $1,602/AF
 No finance plan to tell us where the extra money is parked
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9. Water Bond Funding
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10. Water Bonds and Headwinds
 BDCP plans to partly fund $7.93
billion of environmental spending by
two water bonds
 $1.514 billion from 2014 water
bond
 $1.9 billion from a second water
bond
 First bond before construction on
BDCP conveyance facility starts
 Second bond “on the come”
 DWR argues that voters broadly
support water bonds
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11. Voting History and the 2014 Water Bond
 Voter support of water bonds falls
with increases in state debt burden
 Forecast of 2014 Water Bond ($11.4
billion)
 Expected Vote Share: 42.4%
 Probability of Passage: 12.2%
 Odds Against Passage: 7/1
 Smaller bonds do better ($2 billion)
 Expected Vote Share: 46.4%
 Probability of Passage: 27.4%
 Odds Against Passage: 3/1
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12. BDCP Water Supply Reliability
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13. BDCP Water Supply Not Reliable
 Reliability means supply subject to a low risk of a material interruption
 Extra yield of BDCP mostly in normal or wet years
 Without storage, BDCP simply a junior priority water resource
 The maximum “remaining” projected urban water shortage (critical years)
unaffected by BDCP
 BDCP does trim the magnitude of shortages in less extreme hydrologic
conditions
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14. New “Normal” in California?
 BDCP does avoid urban water
shortages
 DWR does not share the probability
of shortages
 Implied probability of annual
shortages in range of 40% to 70%
 DWR projects regular water
shortages in CA even with the
BDCP
 Is projected growth in CA viable?
Delta
Outlflow
Scenario
Expected
Annual
Shortage
Maximum
Annual
Shortage
High 250,000 AF 850,000 AF
Low 350,000 AF 1,000,000
AF
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15. Will There Be Buyers for BDCP Water?
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16. DWR’s Narrative on BDCP Water Severe Case of Oversell
 Is BDCP’s Water $200/AF to $300/AF? No
 BDCP capital costs understated by $2 billion
 DWR calculation ignores the difference between timing of capital
commitment (2015) and start of water deliveries (2026)
 Inadequate consideration of project risks
 BDCP water inferior to stated alternatives: non-firm supplies versus reliable
water supplies, location (Northern California versus in water user’s system), and
project risk (operational experience versus computer modeling)
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17. Find Committed Buyers
 DWR put together contracts and see who signs up
 Market mechanisms to address controversy
 Define project rights: BDCP unit as a supplemental project to existing State
Water Project
 Apportion share of project yield and project costs
 Allow subsequent trading in BDCP units
 A parallel process should be used with member agencies of SWP contractors
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18. Do Benefits of BDCP Exceed Costs
for Water Contractors?
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19. Economic Costs of Water Shortages
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5% 10% 15% 20% 25%
Marginal Loss $812 $1,072 $1,414 $1,874 $2,504
Average Loss $708 $822 $960 $1,128 $1,337
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2013$PerAcreFootofWaterShortage
Magnitude of Water Shortages
Economic Cost of Municipal
Water Supply Shortages
Marginal Loss Average Loss
5% 10% 15% 20% 25% 30% 35% 40% 50%
Marginal Loss $115 $126 $139 $153 $170 $189 $212 $239 $312
Average Loss $110 $115 $121 $127 $134 $142 $150 $159 $182
$0
$50
$100
$150
$200
$250
$300
$350
2013$PerAcreFootofWaterShortage Magnitude of Water Shortages
Economic Loss of Agricultural
Water Supply Shortages
Marginal Loss Average Loss

20.  Agricultural water users expected
benefits less than $100/AF
 Municipal water users expected
benefit from $400/AF to $700/AF
 If agricultural water users in BDCP,
municipal users must fund
significant subsidies
 Without subsidies, BDCP must be a
supplemental project for municipal
water users
Expected Annual Benefits/AF
Probability
Shortage
Expected Benefit
(Annual) Municipal Agricultural
40% $400/AF $60
50% $500/AF $75
60% $600/AF $90
70% $700/AF $105
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Cost Allocation Pressures

21. BDCP Project Underwater for Water Contractors
Item High Delta Outflow Low Delta Outflow
DWR
Benefits $18.011 billion $18.795 billion
Cost $13.328 billion $13.343 billion
Net Benefits $4.683 billion $5.452 billion
Hydrowonk
Benefits (adjust for timing) $13.402 billion $13.985 billion
Cost (adjust for capital costs) $15.328 billion $15.343 billion
Net Benefits ($1.926 billion) ($1.358 billion)
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22. Statewide Economic Impact
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23. BDCP Impact on Statewide Income
 BDCP estimated to increase state
income by $83.5 billion (present value)
 Economic benefit of avoiding water
shortages accounts for more than 90%
 Annual value over 50 years of operation
$3.25 billion (2012$)
 Trend growth in inflation adjusted real
personal income (3.27%)
 BDCP generates a one-time, permanent
increase in income of 0.18%
 About one month of trend income
growth
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24. BDCP Impact on State Employment
 DWR estimates BDCP generates 1.1
million full-time equivalent jobs
 Overstatement of estimated job creation
(1 permanent job counted 50 times)
 Actual job creation about 25,000 full-
time equivalent jobs per year
 Economic benefits of avoiding shortages
is the job creator
 Long-term annual growth in CA
employment 1.55%
 BDCP generates a permanent, one-time
increase of jobs of 0.15%
 About one month of trend growth
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25. Wrap Up on BDCP Analysis
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26. Hydrowonk Opinion
 No finance plan
 Capital investment: understated by billions
 Project risks: not transparently addressed/ignored
 Cost of water: severely unstated (cost at least triple stated amount)
 Prospect for water bond funding of environmental activities: remote
 Supply reliability: nope
 Prospect of buyer agreements: not promising (overcome by getting LOI’s)
 Importance to state economy: minuscule
 What is wrong with the BDCP narrative?
absence of storage
 Stratecon’s hypothetical client: passes on the BDCP opportunity and is looking
for storage opportunities south of the Delta
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27. Predictions
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28. Key Questions About BDCP’s Future
Question Hydrowonk’s Prediction
Will agriculture walk from BDCP, when? 90% chance, no later than June 30, 2014
Will DWR treat BDCP as a supplemental SWP project? 10% chance through June 30, 2014, 60% thereafter
Can BDCP proceed with only municipal water users? 25% chance proposition without storage
65% chance with viable storage
Will DWR include storage in BDCP, when? 25% chance, no action until after 2014 election
Will DWR use market mechanisms for contracting? 10% chance through June 30, 2014, 75% thereafter
Will voters approve current water bond? 3.9% chance
Will an alternative bond replace the current one, what size
and when
75% chance, $2.5 billion by July 1 2014
Will voters pass alternative bond? 35% chance
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29.  Don’t take Hydrowonk’s word about BDCP’s future
 Use the wisdom of the water industry and your perspective in prediction markets
 Look for rollout October 1 of our developmental site that will address BDCP questions
and a multitude of others on western water
www.hydrowonk.com/stratecon-marketplace
 For more information on prediction markets and the water industry,
www.hydrowonk.com/prediction-markets
 Also follow www.hydrowonk.com/blog for continued analysis
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30.  Look for rollout November 1 of specialized information service tracking Bay Delta and Colorado
River Basin, Stratecon Media’s Journal of Water powered by Stratecon analytics and
 Chris “Maven” Austin, creator and former publisher of Aquafornia, now publishing Mavens
Notebook joining Stratecon Media to provide a premier information service
www.journalofwater.com
 Stratecon Media also rolling out Southern California Water Briefing Service
 Complete our survey at http://tinyurl.com/StrateconSurvey to help us define our service to meet
the information needs of Southern California water decision-makers
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