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Southern California plans to spend $11 billion on the delta tunnels. Who will end up paying?

Southern California plans to spend $11 billion on the delta tunnels. Who will end up paying?
A levee road in the Sacramento-San Joaquin Delta. (David McNew / Getty Images)

When the Metropolitan Water District of Southern California voted to finance the lion's share of the delta tunnels project, some on the board called it a bold stroke of leadership.

The delegations from Los Angeles and San Diego, however, called the move alarming, financially risky and irresponsible.

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MWD's two largest member agencies, L.A. and the San Diego County Water Authority, were on the losing end of last week's vote to invest nearly $11 billion in the construction of two massive tunnels under the Sacramento-San Joaquin Delta.

"This vote was honestly quite divisive," Los Angeles board member Mark Gold said. "The Metropolitan Water District is basically subsidizing benefits for the entire state of California over and above the 19 million customers that Met has in Southern California. … To have local ratepayers incur that risk is inappropriate and potentially illegal."

State constitutional provisions requiring local government fees to be proportional to the services provided could leave MWD vulnerable to court challenges, Gold and others warn.

According to MWD, financing the twin tunnels would add an average of $60 a year to household water rates across the Southland. But local purchases of agency supplies vary, meaning costs will too.

The board vote amounted to an 11th-hour rescue of the massive project, known as California WaterFix, which was floundering over the issue of who would pay to revamp the linchpin of the state's water delivery system.

Backers worried that a plan to downsize the project to one tunnel would drag out the permitting process beyond the end of the year, when Gov. Jerry Brown — WaterFix's chief political cheerleader — would be out of office. His successor might not be so enthusiastic about the tunnels, which are opposed by delta interests and major environmental groups.

Brown played that card in a last-minute appeal to the MWD board. Moving ahead with just one tunnel would "risk serious delay … and jeopardize the entire project," he wrote to the directors on the eve of the vote.

"That resonated with my board very strongly," MWD general manager Jeff Kightlinger said.

In a measure of how complex — and contentious — debate was ahead of the vote, Kightlinger's staff issued conflicting signals on the project.

The staff formally recommended that the agency press ahead with one tunnel because bankrolling the full project entailed more financial risk. And a staff analysis concluded that twin tunnels would not send more water to the Southland than a single one.

But the staff also said twin tunnels would provide more overall benefits, with greater flexibility in operating the delta export operations, additional water quality improvements and the capacity to transfer water purchases above and beyond MWD's regular deliveries.

"There are multiple values in it that would accrue to MWD," and the extra investment would not violate the law, Kightlinger said.

The project's original funding scheme collapsed last fall, when the San Joaquin Valley agriculture districts that were supposed to pick up nearly half of the $17-billion tab backed out. That prompted the state to shrink the proposal to a cheaper, one-tunnel version that would be financed by MWD and the other, mostly urban districts that get State Water Project deliveries from the delta.

Under that scenario, WaterFix would move ahead in stages, with a second tunnel built when financing materialized. Not long after the downsizing proposal emerged, MWD started talking about picking up agriculture's unfunded portion, with the assumption that the agency could recoup the extra cost by selling tunnel capacity to growers after the project is built.

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But there is no guarantee agricultural districts will buy tunnel supplies — or if they do, that they will pay a price that reflects the water's true cost.

"I will be shocked if ag water users paid their fair share of the tunnels," said Doug Obegi, an attorney with the Natural Resources Defense Council, an environmental group. "It doesn't make economic sense for them."

He called the board's approval of an $11-billion stake in the project "an act of desperation ... subsidize everyone else, or you don't get your tunnels."

To some extent, the board split reflected different levels of dependence on the imported supplies that Metropolitan wholesales to the Southland.

The San Diego authority has spent the last two decades trying to wean itself from MWD supplies and repeatedly has tangled with the agency over rate setting and other policies.

L.A., which gets water from the Owens Valley as well as MWD, has embarked on a campaign to develop more local supplies and cut its MWD purchases.

That led to sniping during last week's board debate, when chairman Randy Record, who represents parts of Riverside County, implied that L.A. was just looking out for itself.

"That comment was not very well received" by the L.A. delegation, said Gold, who expressed concerns that the tunnel fight will leave a lasting mark on board relations. "Having the two largest cities in California split from most of the rest of Metropolitan is not in the best interests of Metropolitan."

L.A. and San Diego's concerns about the tunnel financing are not new. But they escalated with the move to make MWD the project's lead investor.

Funds to pay MWD's tunnel debt will come from a yet-to-be-specified mix of charges, including water sales — which make up the bulk of the agency's income — fixed charges on water deliveries and the agency's long-standing property tax levy.

In a report earlier this month, the Los Angeles Office of Public Accountability said the twin tunnels could tack an average of $30 a year onto L.A. household bills. But that surcharge could jump to $81 in what the office called a worst-case scenario: Dry years when the city purchases more MWD supplies to make up for low Owens Valley deliveries. And no buyers for the second tunnel capacity, leaving MWD customers stuck with the bill.

Board member Brett Barbre, president of the Municipal Water District of Orange County, led the push for MWD to finance the majority of the full project.

He said he balanced the risk of delay if the courts ordered a new environmental review for the one-tunnel version with the financial risk of building two tunnels.

"I think we'll have a much greater likelihood of selling that water and being made whole than succeeding on the phased approach," Barbre said.

Politically conservative Orange County, he said, noting the irony, "is doing something that is great for the Jerry Brown legacy."

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