State Treasurer’s Office Says BDCP Is Affordable; DWR Begins Negotiations on SWP Contract Amendments to Allocate BDCP Costs

With revisions to key portions of the Bay Delta Conservation Plan (BDCP) underway and expected to be recirculated in early 2015 and recent announcements by two state agencies, the BDCP is moving forward.

On November 14th, the California State Treasurer’s Office released an independent report on the affordability of the BDCP conveyance facility.  The report, which was requested by the California Resources Agency and commissioned by the California Debt and Investment Advisory Commission, estimates peak costs over the lifetime of debt financing.  Peak annual debt service costs, which are measured in year-of-expenditure dollars, are estimated to range from $1.08 billion (best case) to $2.50 billion (worst case), with an average of $1.58 billion per year.

The debts would be financed by issuing revenue bonds that would be repaid revenues from State Water Project (SWP) and Central Valley Project (CVP) contractors and their ratepayers.  But to be able to sell the bonds certain commitments must be undertaken.  On the SWP contractors’ part, more than 56% of their financial responsibility must come from contractors who have at least two ratings of at least AA/Aa from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.  For their part, the CVP contractors and Reclamation need to adopt the same “take or pay” contract structure that the Department of Water Resources (DWR) and SWP contractors use.  This will allow for fixed annual payments without regard to the annual fluctuations in water deliveries due to changes in hydrologic conditions.

In all, the Treasurer’s Office says that the Delta conveyance facility is “within the range of urban and agricultural users’ capacity to pay.”

On the heels of the report from the Treasurer’s Office, DWR announced on November 24th that it will be holding negotiation sessions for proposed SWP contract amendments that would establish the allocation and payment of costs if the BDCP is implemented.

For an alternative viewpoint on the BDCP’s affordability and risk and financing considerations, see Is The BDCP Doable—Redux, Part 1 and Part 2 on the Hydrowonk Blog.

Written by Marta Weismann