Call it a deep reality check. In a severe drought year, with the comment period winding down on Gov. Jerry Brown’s proposed Twin Tunnels project to divert water from the Sacramento-San Joaquin Delta south to farmers and urban users, the Standard & Poor’s credit rating agency has issued a sobering report.
The cost of construction would be high and would be borne largely by those benefiting from the project, the water contractors south of the Delta, “regardless of the amount of water delivered from the Delta.”
To date, financing of the construction of two 40-foot diameter, 30-mile-long tunnels has been a big question mark. The Feb. 13 report, “The High Price Of Water Supply Reliability,” highlights that question mark in bold. Regardless of other issues, there is no project if the water contractors – the primary benefactors of the project – don’t contribute the primary financing.
If they’re serious about this project, they should signal their intentions before the comment period for the plan ends April 14.
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S&P assumes the federal government would pick up 14 percent of the cost and the state 17 percent, from bonds that would require voter approval. Water contractors south of the Delta would pay the bulk – 68 percent. And agricultural contractors that get most of the water would pay the most, such as the Westlands Water District and the Kern County Water Agency in the Southern San Joaquin Valley.
The S&P report reiterates earlier estimates that the biggest benefit for contractors south of the Delta would be increased water supply reliability, assuming the Twin Tunnels would increase average annual water deliveries from the Delta by 1.3 million acre-feet to 1.7 million acre-feet. That’s an interesting assumption considering that the state has insisted in its town hall meetings that there would be no additional deliveries from the Delta.
But the report notes that even with the Twin Tunnels, water contractors south of the Delta would “still be exposed to variability in hydrologic conditions.” The amount of water diverted south would vary from year to year depending on how much snow falls in the Sierra Nevada and the Trinity/Siskiyou mountains.
Are the benefits great enough that contractors south of the Delta want to participate? What happens if one or more choose to opt out – as some have threatened? The S&P report raises these issues.
S&P rates bonds for water contractors, water utilities and the state. Its realism on the heavy financial lift required by the water contractors comes at the right time. If contractors south of the Delta aren’t on board for picking up the bulk of the cost, the Twin Tunnels proposal is dead. Or it should be.