Benefit Calculation, Monetization, and Resiliency A5 ... Calculation, Monetization, and Resiliency ....

August 2017

Benefit Calculation, Monetization, and Resiliency

A5: Economic Valuation Approach Attachment

Temperance Flat Reservoir Project

Contents

Benefit Calculation, Monetization, and Resiliency Tab A5 August 2017 – i Economic Valuation Approach Attachment

Contents

Page

CHAPTER 1 Introduction ..................................................................................... 1-1 1.1 Attachment Purpose ..................................................................................... 1-1 1.2 Attachment Organization .............................................................................. 1-1

CHAPTER 2 Economics Assessment Methods.................................................. 2-1 2.1 Economic Valuation Methods ....................................................................... 2-1

2.1.1 Willingness to Pay Method .................................................................... 2-1 2.1.2 Actual or Simulated Market Prices Method ........................................... 2-2 2.1.3 Change in Net Income Method .............................................................. 2-2 2.1.4 Least-Cost Alternative Approach ........................................................... 2-2 2.1.5 Administratively Established Values ...................................................... 2-2

2.2 TFR Project Valuation Approaches .............................................................. 2-3 2.2.1 Agricultural Water Supplies ................................................................... 2-3 2.2.2 M&I Water Supplies ............................................................................... 2-3 2.2.3 Emergency Response ........................................................................... 2-3 2.2.4 Ecosystem Improvement ....................................................................... 2-4 2.2.5 Refuge Water Supplies ......................................................................... 2-4 2.2.6 Recreation ............................................................................................. 2-4 2.2.7 Hydropower ........................................................................................... 2-5 2.2.8 Flood Damage Reduction ...................................................................... 2-5

CHAPTER 3 Agricultural Supply Reliability Benefits ........................................ 3-1 3.1 Risk and Uncertainty .................................................................................... 3-1

3.1.1 Water Transfer Pricing Estimation Method ............................................ 3-2 3.1.2 Estimation Procedures .......................................................................... 3-4 3.1.3 Model Results........................................................................................ 3-5 3.1.4 Market Price for Water to Agriculture .................................................... 3-9

CHAPTER 4 Municipal and Industrial Water Supply Reliability Benefits ......... 4-1 4.1 Risk and Uncertainty .................................................................................... 4-1

CHAPTER 5 Ecosystem Improvement Benefits ................................................. 5-1 5.1 Alternative Cost Approach............................................................................ 5-2

5.1.1 Floodplain Habitat ................................................................................. 5-3 CHAPTER 6 Refuge Water Supply Benefits ....................................................... 6-1

6.1 Risk and Uncertainty .................................................................................... 6-2 CHAPTER 7 Emergency Response Benefits ...................................................... 7-1

7.1 Previous Studies Considered ....................................................................... 7-1 7.2 Benefits Estimation Method.......................................................................... 7-2

7.2.1 Key Considerations ............................................................................... 7-2 7.2.2 Estimation Methodology ........................................................................ 7-5

CHAPTER 8 Hydropower Benefits ...................................................................... 8-1 8.1 Hydropower Valuation Methodology ............................................................ 8-1

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ii – August 2017 Benefit Calculation, Monetization, and Resiliency Tab A5 Economic Valuation Approach Attachment

8.1.1 Energy Value ......................................................................................... 8-1 8.1.2 Renewable Energy Value ...................................................................... 8-1 8.1.3 Other Value Assumptions ...................................................................... 8-2

CHAPTER 9 Recreation Benefits ......................................................................... 9-1 9.1 Visitation Estimates ...................................................................................... 9-1 9.2 Economic Values for Recreational Visitors................................................... 9-2

CHAPTER 10 Flood Damage Reduction Benefits .............................................. 10-1 10.1 Hydrologic and Hydraulic Modeling ............................................................ 10-1 10.2 Applying the HEC-FDA Model .................................................................... 10-3 10.3 Incidental Flood Storage Benefits .............................................................. 10-4

CHAPTER 11 References ..................................................................................... 11-1

Tables

Table 3-1. Estimated 2030 and 2045 Unit Values of Water .......................................... 3-1

Table 3-2. Regression Results ..................................................................................... 3-7

Table 3-3. Estimated 2030 and 2045 SOD Agricultural Water Prices Sensitivity ....... 3-10

Table 3-4. Estimated Agricultural Conveyance Costs ................................................ 3-10

Table 3-5. Estimated 2030 and 2045 SOD Agricultural Water Supply Unit Costs Sensitivity ........................................................................................................ 3-11


Table 4-2. Estimated 2030 and 2045 M&I Water Prices Sensitivity ............................. 4-3

Table 4-3. Estimated Power Costs for CVP SOD M&I ................................................. 4-4

Table 4-4. Estimated Friant Division M&I Conveyance Costs ...................................... 4-4

Table 4-5. Estimated 2030 and 2045 M&I Water Supply Unit Costs Sensitivity ........... 4-5

Table 5-1. Floodplain Habitat Least Cost Action .......................................................... 5-4

Table 5-2. Estimated Per Acre Floodplain Habitat Costs ............................................. 5-4

Table 5-3. Change in Abundance Index of Spring-Run Chinook Salmon and Unit Cost for Least Cost Action ................................................................................. 5-5


Table 6-2. Estimated 2030 and 2045 Refuge Water Prices Sensitivity ........................ 6-2

Table 6-3. Estimated Refuge Conveyance Costs ......................................................... 6-3

Table 6-4. Estimated 2030 and 2045 Refuge Water Supply Unit Costs Sensitivity ...... 6-3

Table 7-1. Seismic Probabilities of Delta Island Breach Scenarios .............................. 7-3

Table 7-2. Average Delta Export Disruption for 30-island Breach ................................ 7-4

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Benefit Calculation, Monetization, and Resiliency Tab A5 August 2017 – iii Economic Valuation Approach Attachment

Table 7-3. Emergency Water Supply Beneficiary Demand .......................................... 7-6

Table 7-4. Estimated Price Elasticities of Water Demand in California ........................ 7-7

Table 7-4. Estimated Price Elasticities of Water Demand in California (contd.) ........... 7-8

Table 8-1. California Renewable Energy Value ............................................................ 8-2

Table 9-1. Consumer Surplus Values per Visitor-Day .................................................. 9-3

Table 10-1. Total San Joaquin Valley Expected Annual Damages Associated with Range of Additional Flood Storages Assessed with HEC-FDA ................ 10-4

Table 10-2. Incidental Flood Damage Reduction Benefits for TFR Project ................ 10-5

Figure

Figure 3-1. General Water Value Estimation Procedures ............................................. 3-2

Figure 10-1. Temperance Flat and Millerton Reservoirs Flood Benefit Area .............. 10-2

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iv – August 2017 Benefit Calculation, Monetization, and Resiliency Tab A5 Economic Valuation Approach Attachment

Abbreviations and Acronyms

AF acre foot BCMR Benefit Calculation, Monetization, and Resiliency Cal/EPA California Environmental Protection Agency CALFED CALFED Bay-Delta Program CalSim II California Water Resources Simulation Model-II CES Constant Elasticity of Substitution Comprehensive Study USACE Sacramento and San Joaquin River Basins

Comprehensive Study CVP Central Valley Project CVPIA Central Valley Project Improvement Act DDT dichloro-diphenyltrichloroethane Delta Sacramento-San Joaquin Delta DWR California Department of Water Resources EAD expected annual damages EDT Ecosystem Diagnosis and Treatment EGPI Eligibility and General Project Implementation EIS Environmental Impact Statement EQ Environmental Quality ESA Endangered Species Act EWA Environmental Water Account FMP Fisheries Management Plan FWCA Fish and Wildlife Coordination Act HEC-FDA Hydrologic Engineering Center Flood Damage Reduction

Analysis IMPLAN Impact Analysis for Planning Investigation Upper San Joaquin River Basin Storage Investigation I-O input-output LCPSIM Least Cost Planning Simulation Model LLIS low-level intake structure LTPP Long-term Procurement Plan M&I municipal and industrial msl above mean sea level MW megawatt MWh megawatt hours NED National Economic Development NEPA National Environmental Policy Act NOD north-of-Delta OM&R operations, maintenance, and replacement OSE Other Social Effects

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Benefit Calculation, Monetization, and Resiliency Tab A5 August 2017 – v Economic Valuation Approach Attachment

P&G Economic and Environmental Principles and Guidelines for Water and Related Land Resources Implementation Studies

PEIS/R Programmatic Environmental Impact Statement/Report PG&E Pacific Gas and Electric Company PMP Positive Mathematical Programming Reclamation U.S. Department of the Interior, Bureau of Reclamation RED Regional Economic Development RM river mile ROD Record of Decision RPS California Energy Commission Renewable Portfolio

Standard SAR smolt-to-adult return rate Settlement Stipulation of Settlement in NRDC et al. vs. Kirk Rodgers, et

al. SGMA Sustainable Groundwater Management Act SJRG San Joaquin River Gorge SJRRP San Joaquin River Restoration Program SLDMWA San Luis Delta and Mendota Water Authority SLIS selective level intake structure SOD South of Delta SRA State Recreation Area SRMA Special Recreation Management Area State Water Board State Water Resources Control Board (formerly the

SWRCB) SWAP Statewide Agricultural Production Model SWP State Water Project TAF thousand acre-feet TCD temperature control device TDS total dissolved solids TFR Temperance Flat Reservoir USACE U.S. Army Corps of Engineers USFWS U.S. Fish and Wildlife Service (USFWS WAM Water Analysis Module WAP Water Acquisition Program WECC Western Electricity Coordinating Council WSIP Water Storage Investment Program WTP willingness to pay

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vi – August 2017 Benefit Calculation, Monetization, and Resiliency Tab A5 Economic Valuation Approach Attachment

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Benefit Calculation, Monetization, and Resiliency Tab A5 Economic Valuation Approach Attachment August 2017 – 1-1

CHAPTER 1 INTRODUCTION 1.1 Attachment Purpose This Economic Valuation Approach Attachment presents the valuation methods for economic benefits of the Temperance Flat Reservoir (TFR) Project in support of an application to the California Water Commission (CWC) under the Water Storage Investment Program (WSIP).

1.2 Attachment Organization This Economic Valuation Approach Attachment is organized as follows:

Chapter 1 provides attachment purpose and organization.

Chapter 2 describes methods for economics analysis, and summary valuation approaches for each benefit category.

Chapter 3 describes the approach for agricultural water supply reliability benefits.

Chapter 4 describes the approach for M&I water supply reliability benefits.

Chapter 5 describes the approach for fish habitat benefits, related to enhancing conditions for salmon in the San Joaquin River.

Chapter 6 describes the approach for Refuge Water Supply Benefits

Chapter 7 describes the approach for emergency water supply benefits.

Chapter 8 describes the approach for hydroelectric power generation benefits.

Chapter 9 describes the approach for benefits related to recreation benefits.

Chapter 10 describes the approach for flood damage reduction benefits.

Chapter 11 contains sources of information used to prepare this attachment.


Benefit Calculation, Monetization, and Resiliency Tab A5 1-2 – August 2017 Economic Valuation Approach Attachment




CHAPTER 2 ECONOMICS ASSESSMENT METHODS

The following section describes the methods used for economic assessments during development of this application for the TFR Project. The economic analysis presented addresses the potential incremental economic benefits that may be provided by the TFR Project. TFR Project costs are documented in the Eligibility and General Project Information (EGPI), Attachment 4 (A4): Engineering Summary, Chapter 6. TFR Project net benefits are presented in the Benefit Calculation, Monetization, and Resilience (BCMR) A3: Monetized Benefits Analysis.

2.1 Economic Valuation Methods Economic valuation methods generally fall into one of two categories: market valuation or nonmarket valuation. Market values refer to conditions for which a price can be observed, such as crops for human consumptive uses. Nonmarket valuation methods usually apply to resources with no established market to observe values, such as ecosystem restoration or wildlife conservation. Economic benefits may be determined by one of five valuation approaches:

• Willingness to pay (WTP)

• Actual or simulated market prices

• Change in net income

• Least-cost alternative

• Administratively established values

In general, it is recommended that the value of goods and services be measured according to WTP as a measure of demand. Revealed and stated preferences are two approaches for valuing WTP for goods and services. Revealed preferences are based on observed behavior that reflects preferences, while stated preferences are based on directly asking individuals to indicate preferences in a hypothetical setting. Demand functions cannot always be estimated for many goods and services, because of a lack of observed market or surveyed data. In lieu of demand function estimation, the use of actual or simulated market prices is recommended, where available, because they represent a close approximation of total WTP value. Other generally acceptable approaches include cost-based approaches. Each of the valuation approaches to estimate economic benefits is briefly described below.

2.1.1 Willingness to Pay Method The user-value, or WTP, method refers to the value of the resource to the consumer. WTP refers to the value that a “seller” would obtain if able to charge each individual user a price that



captures the full value to the user. Implementation of this approach requires estimation of a demand curve. Three methods are commonly used to estimate a demand curve. The methods include: revealed preferences, which rely on market-based data; contingent valuation, which uses surveys to directly elicit consumer benefits; and benefits transfer, which uses estimates from previously completed studies. A well-designed contingent valuation survey represents one possible method to measure WTP in a developing market. However, conducting a primary revealed preference or contingent valuation study is often prohibitively time-consuming and expensive. Therefore, values from previous economic studies may be used to estimate WTP provided they are relevant to the primary and extended project area, and output being valued.

2.1.2 Actual or Simulated Market Prices Method In cases when a demand curve cannot be directly estimated, market prices may be used to estimate society’s WTP for a good or service. Prices should be expressed in real terms (inflation adjusted). Real prices should be adjusted, where possible, throughout the planning period to account for expected changes in demand and supply conditions.

2.1.3 Change in Net Income Method When WTP and market price methods cannot be implemented, estimation of the change in net income to producers associated with a project can be used to obtain an estimate of total value. This method is most frequently applied to circumstances when water supply from the project will be used as an input in a production process. One example is estimation of benefits with the Statewide Agricultural Production Model (SWAP), which measures the change in net income to agricultural producers associated with changes in water supply conditions.

2.1.4 Least-Cost Alternative Approach In situations when water supply alternatives to a proposed project exist, the cost of an action to obtain the same level of output can be used as a proxy measure of benefits. It is important to consider actions that would realistically be implemented in the absence of the proposed project and to make sure that all alternatives provide a similar level of output. This approach is generally considered for benefit categories that cannot be estimated through the market-based methods described above. The least-cost alternative approach identifies the cost of obtaining or developing the next unit of a resource to meet a particular objective. The net benefit is estimated by subtracting the cost of developing the potential project from the cost of the alternative unit. For example, for water supply reliability, the cost of the least-cost action represents the next unit of water supply the water user would purchase or develop if the potential project were not in place. This approach assumes that, if the preferred alternative is not implemented, the action most likely to take place provides a relevant comparison. If the preferred alternative provides the same output as the least-cost action at a lower cost, the net benefit of the preferred alternative is equal to the difference in the project costs. If the preferred alternative has a higher cost, the cost of the least-cost action equals the benefit.

2.1.5 Administratively Established Values Administratively established values are representative values for specific goods and services that are cooperatively established by the water resources agencies. This method is the least preferred approach to estimating economic benefits and is only implemented when other options cannot be completed.



2.2 TFR Project Valuation Approaches This section briefly describes economic benefit valuation approaches used for the TFR Project. Valuation approaches are presented for: agricultural water supplies, M&I water supplies, refuge water supplies, emergency water supplies, ecosystem improvements, recreation, hydropower, and flood damage reduction benefits. Additional information on each benefit category and the valuation approaches is provided in later sections.

2.2.1 Agricultural Water Supplies The TFR Project has the potential to provide water supply to agricultural users and increase agricultural water supply reliability in the San Joaquin Valley. The economic benefits associated with agricultural water supplies provided by the TFR Project are estimated through application of the unit values of water provided by the WSIP Technical Reference Document. Agricultural production areas in the region have increasingly relied upon temporary surface water purchases to meet crop water needs. As a sensitivity, the agricultural water supply benefits are estimated through application of a water transfer cost model and consideration of the costs associated with conveying the water to the agricultural service areas; a least-cost alternative approach. This approach is based on the premise that water supplies for agricultural purposes developed through the TFR Project would improve water supply reliability and reduce the need for future water purchases from other regions such as the Sacramento Valley.

2.2.2 M&I Water Supplies The TFR Project has the potential to provide water supply to M&I users and increase M&I water supply reliability. The economic benefits associated with M&I water supplies provided by the TFR Project are estimated through application of the unit values of water provided by the WSIP Technical Reference Document. As a sensitivity, the M&I water supply benefits are estimated through application of a water transfer cost model and consideration of the costs associated with conveying the water to the M&I service areas; a least-cost alternative approach. M&I water users have been participating in the water transfer market to augment supplies. This analysis assumes that the next increment of water supply to South-of-Delta (SOD) M&I water users would likely be obtained through water transfers.

2.2.3 Emergency Response The TFR Project has the potential to provide emergency water supplies SOD in the event of a Delta conveyance outage due to a seismic or other catastrophic event. Emergency water supply benefits were measured according to the WTP to avoid water shortages in the event of emergencies that result in infrequent shortages or outages in water supply. This might include supply disruption resulting from a levee failure in the Delta that causes water quality to degrade, or an earthquake that damages a major distribution or supply pipeline. Estimation of the benefits associated with avoiding shortages in emergencies and outages requires careful consideration of: (1) the types of emergencies likely to occur, (2) their expected intensity and frequency, and (3) the expected economic costs for each level of intensity and frequency in the without-project and with-project conditions. In this analysis, an economic demand function is used to estimate the economic effects of Delta levee failures and to estimate the value of emergency water supplies provided by the TFR Project.



2.2.4 Ecosystem Improvement The TFR Project provides opportunities for enhancing water temperature and flow conditions in the San Joaquin River as a means of improving the riverine ecosystem. The focus of the temperature and flow modifications is on habitat conditions for the Endangered Species Act (ESA)-listed spring-run Chinook salmon, but enhancing water temperature and flow conditions is likely to improve other ecosystem attributes. Estimates of ecosystem improvement benefits are provided for this report using the least-cost alternative approach. The underlying premise for the least-cost alternative approach is that enhancing water temperature and flow conditions in the San Joaquin River is a socially desirable goal, as indicated by the listing of several species as threatened or endangered and the demonstrated expenditures on salmon restoration projects. The least-cost alternative is based on costs of various projects that increase the abundance of Chinook salmon in the San Joaquin River downstream from Friant Dam.

2.2.5 Refuge Water Supplies The TFR Project can provide opportunities to improve water supply and habitat conditions for wildlife refuges located in the San Joaquin Valley. Reclamation delivers water to wildlife refuges in the San Joaquin Valley as a requirement of the Central Valley Project Improvement Act (CVPIA), as Level 2 supply (firm supply) and Incremental Level 4 supply (purchased from willing sellers). New water supply captured with the TFR Project may be used to provide a more reliable water supply to meet Incremental Level 4 refuge demands in dry years.

The economic benefits associated with refuge water supplies for the TFR Project are estimated through application of the unit values of water provided by the WSIP Technical Reference. As a sensitivity analysis, the refuge water supply benefits were also estimated through application of a water transfer cost model and consideration of the costs associated with conveying the water to the refuge service areas, which is a least-cost alternative approach. This approach is based on the premise that water supplies and operations for refuge purposes developed through the TFR Project would improve water supply reliability and refuge habitat and offset a portion of the future water purchases needed to meet Incremental Level 4 requirements.

2.2.6 Recreation The TFR Project has the potential to affect recreation at existing reservoirs, including Millerton Lake, and create recreation opportunities on or near the potential TFR. In general, recreation benefits of the TFR Project are associated with enhanced or improved water elevation conditions at Millerton Lake and new recreation opportunities within TFR. Although a preliminary recreation opportunities assessment was conducted during plan formulation, no primary data have been collected, or previously collected, on the economic value (WTP) that potential visitors would attribute to enhanced recreation opportunities at Millerton Lake or TFR. Therefore, the quantification presented in this section relies on: historical information, the Recreation Opportunities Technical Report (Attachment G of EGPI A4 Engineering Summary), personal interviews with knowledgeable staff at Millerton Lake State Recreation Area (SRA) and the San Joaquin River Gorge (SJRG) Special Recreation Management Area (SRMA), estimates of recreation improvement and associated visitation, and benefits transfer approaches for applying economic values. This approach is consistent with the “willingness-to-pay” method as long as the source values being transferred are themselves measures of WTP.



2.2.7 Hydropower The TFR Project could affect hydropower value at Friant Power Project powerhouses and CVP and SWP hydropower facilities because of changing operations at Friant Dam and system-wide SOD deliveries. The quantified economic values of impacted hydropower facilities at and downstream from Friant Dam fall into two categories: (1) energy, and (2) renewable energy credits. Forecasted energy market prices were modeled using PLEXOS®; a transmission-constrained optimal power flow power market simulation model that uses forecasted 2020 day-ahead Northern California market prices. Renewable energy credits were valued using actual California bundled renewable energy credit (bucket 1) prices. These methods are consistent with the “actual or simulated market price” method. Hydropower values of the impacted Kerckhoff Hydroelectric Project and the proposed Temperance Flat Powerhouse are described in the BCMR A5 Modeling Approach, Chapter 6; and EGPI A4 Engineering Summary, Chapter 6.

2.2.8 Flood Damage Reduction The TFR Project has the potential to provide some measure of flood damage reduction to the San Joaquin River Basin. A basin-wide flood damage economics analysis tool was developed using the U.S. Army Corps of Engineers (USACE) Hydrologic Engineering Center Flood Damage Reduction Analysis (HEC-FDA) model. This model uses a risk-based analysis to express economic performance in terms of expected annual damages (EAD). Evaluations were performed to estimate potential incidental flood benefits that would accrue from the TFR Project, which do not include additional, dedicated flood storage space, above the without-project condition. The minimum increase in available storage space between the without-project conditions and the TFR Project was identified, and the corresponding potential flood damage reduction benefit that would result from that amount of additional dedicated available space was identified as the potential incidental flood damage reduction benefit. This method is consistent with the avoided cost (or avoided damage) method.



CHAPTER 3 AGRICULTURAL SUPPLY RELIABILITY BENEFITS

The TFR Project has the potential to increase surface water deliveries primarily to agricultural users in the Friant Division of the CVP as well as other CVP agricultural contractors in the San Joaquin region. The unit values of water provided in the WSIP Technical Reference Document are utilized for monetizing the agricultural deliveries. Table 3-1 provides the estimated 2030 and 2045 unit values of water for the Friant Service Area and CVP SOD water users consistent with the WSIP Technical Reference Document.

Table 3-1. Estimated 2030 and 2045 Unit Values of Water

Year Type

Friant Service Area CVP SOD (Delta Export)

2030 Unit Value ($/AF/yr)1



2045 and Later Conditions Unit Value ($/AF/yr)1

Wet $200 $256 $204 $414 Above Normal $251 $321 $256 $519 Below Normal $261 $481 $267 $633 Dry $278 $512 $285 $674 Critical $324 $1,105 $360 $1,056

Source: Water Storage Investment Program Technical Reference Document (2017) Notes: 1 Expressed in 2015 dollars. Key: AF/yr = acre-feet per year

As described in the Technical Reference Document, the unit values were developed from a statistical analysis of water transfer prices from 1992 through 2015 and an application of the Statewide Agricultural Production Model (SWAP), including assumptions related to SGMA.

3.1 Risk and Uncertainty This section provides a comparison of the agricultural water supply reliability benefits estimated using the WSIP Technical Reference to estimates developed using another water transfer pricing model and considering the costs associated with conveying the water to the agricultural service areas. This approach to estimate agricultural water supply benefits considers the estimated short-term market purchase price as the most likely alternative in the absence of firm water supply from the TFR Project.

Due to increased plantings of permanent crops and limited groundwater availability, agricultural producers in the region have consistently purchased water from other entities to satisfy crop water demands. For example, the San Luis and Delta-Mendota Water Authority (SLDMWA)



entered into a multiple-year agreement to purchase a minimum of 20 TAF up to 100 TAF annually from the San Joaquin River Exchange Contactors Water Authority. SLDMWA has also purchased water from Sacramento Valley sources in recent years. For water supply reliability benefits, the least-cost action represents the next unit of water supply the water user would purchase, or develop, if the project under consideration were not in place. The least-cost alternative approach assumes that if the preferred alternative is not implemented, the action most likely to take place provides a relevant comparison. This analysis relies in part on market prices paid to purchase water on an annual basis from willing sellers. As a result, the resulting estimates may underestimate WTP. The market prices are reported according to the payments made directly to the sellers. The buyers incur additional costs to convey the water to their service areas. These costs include both conveyance losses, which diminish the volume of water delivered to end users, as well as conveyance costs. The conveyance costs are estimated for water users benefiting from the TFR Project, and added to the estimated market prices to acquire the water to develop an estimate of the full cost associated with additional water supply obtained in the transfer market. Figure 3-1 illustrates the information used to estimate the value of water supplies.

Figure 3-1. General Water Value Estimation Procedures

3.1.1 Water Transfer Pricing Estimation Method A database of California surface water market sales was developed for use in estimation of the water transfer pricing model. Information for each transaction was researched and recorded to allow statistical analysis of a variety of factors influencing water trading activity and prices. During the research, transactions occurring from 1990 through 2016 were documented. The transactions were filtered for this analysis according to the following criteria:

• Water sales originating outside the operating region of the SWP facilities were excluded. These regions include the North Coast, North Lahontan, and South Lahontan regions.

• The water transfer pricing model, which relies upon the database of water transactions described above, is intended to estimate spot market prices and trading activity. Thus, multi-year transfers and permanent water entitlement sales were excluded.

• “Within-project” transfers were removed from the analysis, because they do not reflect “arms-length” transactions, whereby buyers and sellers are separate parties acting in their individual interests.

• Transactions associated with SWP Turnback Pool supplies were excluded because they are associated with rules that limit market participation.

• Purchases of “flood” supplies (e.g., SWP Article 21 and CVP 215) were excluded as prices are administratively set and do not have comparable reliability to the TFR Project.

Water Market

Price

Conveyance Charges

+ Water Value

= Conveyance Losses

+



• Reclaimed and desalination water sales were removed from the analysis because they represent cost rather than market-based supplies.

• Leases of groundwater pumping allocations within adjudicated groundwater basins were excluded because they take place within isolated markets with different regulatory conditions from the market for surface water.

• Water sales with incomplete or inadequate information were excluded.

The database contains information on approximately 6,000 spot market (single year) transactions from 1990 through 2016. Many of these involve groundwater leases within adjudicated basins. Following application of the above criteria, 678 spot market transfers remained to support the statistical analysis. All prices were adjusted to July 2015 dollars using the Consumer Price Index. As previously described, prices and volumes are presented from the seller’s perspective and do not include conveyance charges or losses.

Although Federal and State government agencies have recently been more active in recording information related to water sales or leases, California has few sources that track water transfers between private individuals. Most of the recorded transfers involve a Federal or State government party either because an agency had to approve the transfer, as is the case when a transfer involves CVP or SWP water, or because the government agency was directly involved in the transfer as a purchaser or a seller. Transfers involving private parties are more difficult to track, because the State does not have any reporting requirements.

In California, single-year transfers of water entitlements issued before 1914 are allowed without review by the State Water Resources Control Board (State Water Board) as long as they do not adversely impact the water rights of a third party (CALFED 2000d). For entitlements issued after 1914, the buyer and seller can petition the State Water Board for a 1-year temporary transfer. Nonetheless, prices for these transfers are not well documented. As a result, the data for this study were obtained from a mixture of public and private sources. Public sources include the following:

• Water Acquisition Program (WAP), Reclamation

• Resources Management Division, Environmental Water Account (EWA)

• State Water Bank, DWR

• OnTap database, DWR

• State Water Board, California Environmental Protection Agency (Cal/EPA)

• Various irrigation districts and water agencies

These sources provided information on the WAP, EWA, State Water Bank, and other public water transfers. State Water Bank observations included transfers to the State Water Bank to capture the price the seller receives.



Information on water transfers was also obtained from the January 1990 through December 2010 issues of the Water Strategist. The publication, previously called Water Intelligence Monthly, assembles information on public and private water transfers. Although not all transfers are recorded in the Water Strategist, the publication represents a primary source for water market research. Many of the transfers reported in the Water Strategist were independently researched to obtain more specific information and confirm transaction terms. The Water Strategist ceased to report on transactions in 2010. In addition, transactions not covered by the Water Strategist were researched and verified through direct communication with the transfer participants.

3.1.2 Estimation Procedures This study applies a water transfer pricing regression model and builds on a previous analysis completed by Mann and Hatchett (2006) by applying an expanded data set and considering additional factors that influence water market trading activity and prices. Unlike the Mann and Hatchett analysis, which estimated a recursive regression model using Ordinary Least Squares techniques, the water transfer pricing model developed in this study uses Two-Stage Least-Squares. The first equation estimates the unit price for spot market water transfers, and the second estimates the level of spot market trading activity. The coefficients from the models may be used to forecast water prices North of Delta (NOD) and SOD.

The regression model theorizes that prices and volume of water traded can be estimated through consideration of the following market factors: water supply, geographic location, real water price escalation, buyer type, and State and Federal water supply acquisition programs.1 These factors are described below.

Water Supply As previously described, hydrologic conditions are a primary driver of water transfer market activity and prices. Therefore, it is important to include variables that appropriately capture water supply conditions to describe water trading activity and prices. In this analysis, water supply conditions are measured using the final annual SWP allocation (DWR 2017a), the final CVP allocation (Reclamation 2017), and the Sacramento River Water Year Index (DWR 2017b).

Geographic Location Water prices and trading activity vary by location according to water year type. Consequently, the origin of the water source for each transaction is used to determine geographic differences in water prices. Water sales applied in the regression analysis were allocated among the hydrologic regions identified by DWR (DWR and Reclamation 2006). Binary variables are used to denote the different geographic regions of buyers and sellers including a variable identifying spot market transfers that involved through-Delta conveyance.

Real Water Price Escalation Due to the growing water demand in the State, water transfer prices are anticipated to increase over time. To test for hypothesized price appreciation, the model includes an independent variable taking on the value of the year in which the transfer occurred.

1 Additional demand and supply factors were tested in the model but did not result in an improvement in overall

explanatory power.



Buyer Type Previous economic analyses of water prices have concluded that the type of buyer (e.g., M&I, agricultural, and environmental) influences water prices. The water pricing equation tests the influence of buyer type on water price and trading. In this analysis, binary variables are used to estimate price differences among environmental, urban, and agricultural buyers.

Seller Type CVP and SWP agricultural contractors are the most common water sellers in the spot market. In order to test the influence of the two projects on water prices, a binary variable identifying sellers that are SWP contractors is included in the model.

Drought Water Bank and Environmental Water Account The State has participated in the water market during drought years to facilitate trades. Under this program, DWR sets up a State Water Bank to facilitate water transfers, primarily from NOD agricultural users to SOD buyers. To account for the market conditions that existed during operation of the State Water Bank.

The EWA acquired water supplies for environmental purposes annually between 2001 and 2007. The implementation of the EWA impacted spot market trading and prices by introducing a large, new demand for water supplies. A dummy variable separating acquisitions by the EWA from other buyers is included to test for the price impacts of the program. A binary variable is included in the model to test the influence of the two programs on prices and trading activity.

3.1.3 Model Results Two equations are constructed to estimate the economic benefits of increased water supplies. The first equation forecasts water transfer prices based on hydrologic conditions, price appreciation over time, water supplier region, buyer type, buyer location, and premiums associated with DWR Drought Water Bank and EWA transactions. Information on 678 spot market water transfers is included in the data, allowing the model to forecast spot-market prices.

The second equation predicts the total annual volume of water traded in the spot market. Total annual trading volume is calculated using 678 spot market transfers, and is reported in thousands of acre-feet. The trading volume equation projects total annual volume traded based on hydrologic conditions, environmental water acquisition programs, and water transfer prices predicted by the first equation. The predicted water transfer prices obtained from Equation 1 are used as the explanatory price variable lnadjpricehat in Equation 2. Each equation’s specification and variables are defined, and the Two-Stage Least-Squares regression results are presented in Table 3-2.



Equation 1 lnadjprice=scbuyer+nodbuyer+nodsod+lnyear+lntwpper+ag+env+dwbewa+ swpseller+e lnadjprice=Natural Logarithm of Price per Acre-Foot, Adjusted to July 2015 Dollars

scbuyer=1 if South Coast Region Water Buyer (binary) nodbuyer=1 if the Buyer is North of the Delta (binary) nodtosod=1 if North of Delta Water Supplier and South of the Delta Buyer (binary) lnyear=Natural Log of the Year in which the Transfer Occurred lntwpper=Natural Log of the Percentage of Project Water that was Allocated in the Year the Transfer Occurred ag=1 if Agricultural Water End Use (binary) env=1 if Environmental Water End Use (binary) dwbewa=1 if State Water Bank/Dry Year Water Acquisitions or the Environmental Water Account (binary) swpseller=1 if the seller was a State Water Project contractor (binary) e=Error Term

Equation 2 lnspottaft=drycrit+lnadjpricehat+ewayear+ e lnspottaft=Natural Logarithm of Total Acre-Feet Traded Annually (Thousands) drycrit=1 if a dry or critical year as indicated by the Sacramento River Water Year Index (binary) lnadjpricehat=Values of the Variable lnadjprice Predicted by Equation 1 ewayear=1 if year in which the EWA operated (binary) e = Error Term



Table 3-2. Regression Results Equation1 Dependent Variables

Observations Parameters RMSE R-Squared F-Statistic P-Value

(P > F) lnadjprice 678 9 0.35 0.64 120.34 0 lnspottaft 678 3 0.56 0.34 130.01 0

Stage 1: Dependent Variable lnadjprice Independent Variables Coefficient Standard Error t-Statistic P-Value

(P > |t|) 95% Confidence Interval

scbuyer 0.25 0.09 2.71 0.01 0.07 0.44 nodbuyer -0.35 0.08 -4.52 0.00 -0.51 -0.20 nodtosod -0.16 0.07 2.28 0.02 -0.29 -0.02 lnyear 117.97 6.73 17.54 0.00 104.79 131.16 lntwpper -0.79 0.08 -9.98 0.00 -0.94 -0.63 ag -0.15 0.06 -2.54 0.01 -0.27 -0.04 env -0.30 0.08 -3.57 0.00 -0.46 -0.13 dwbewa 0.29 0.06 4.77 0.00 0.17 0.40 swpseller 0.55 0.07 8.49 0.00 0.42 0.68 cons -892.28 51.13 -17.45 0.00 -992.48 -792.07

Stage 2: Dependent Variable lnspottaft Independent Variables Coefficient Standard Error t-Statistic P-Value

(P > |t|) 95% Confidence Interval

drycrit 0.47 0.03 16.39 0.00 0.41 0.52 lnadjpricehat -0.06 0.02 -3.23 0.00 -0.09 -0.02 ewayear 0.38 0.04 9.78 0.00 0.30 0.45 cons 5.75 0.11 53.64 0.00 5.54 5.96

Note: 1 Equations and variables are defined in Equations 1 and 2 above. Key: RMSE = root-mean-square error

All estimated relationships between dependent and independent variables are statistically significant at the 95 or 99 percent confidence level.

Equation 1 Discussion The variable lntwpper is a measure of annual water availability. The amount of water available was calculated using the SWP and CVP maximum contract amounts, and the percentage of the maximum contract that was delivered each year to the different contractors. The SWP and CVP allocations decrease during drought conditions. Regulatory actions such as the Delta pumping constraints could further impact water deliveries. The statistical relationship between lnadjprice and lntwpper is attributable to increased demand for additional water supplies under the hydrologic and regulatory scarcity conditions that drive reduced water allocations. As an example, the coefficient value of -0.7872 on the lntwpper variable indicates that water transfer prices increase by approximately 50 percent in response to a decrease in percentage of total Project water allocation from 50 percent to 30 percent, all else held equal.

The coefficient value on the variable lnyear indicates that water transfer prices rose at a real annual rate of approximately 6 percent between 1990 and 2016.2

The binary variables in the price equation describe conditions that influence prices, but are qualitative in nature. The coefficients for env and ag represent the influence that end-water use

2 Example Calculation: 2.71828^(116.392*ln(YearT)) = A; 2.71828^(116.392*(ln(YearT-1)) = B; (A-B)/B = 6%.



has on price. When these variables are zero, the model estimates prices to urban water users. Agricultural and environmental water users generally paid less for water than urban users, as indicated by the negative coefficients on the two variables. The results show environmental water buyers have paid 26 percent less per acre-foot than urban buyers in the market, with all else being equal. Similarly, water leases for agricultural use were priced 14 percent per acre-foot less than urban water leases, with all else being equal. These results may reflect the relative budget constraints among the three buyer categories.

The variable dwbewa is an indicator that the lease was either a State water lease through the Drought Water Bank of 1991, 1992, 1994, and 2009, or a lease through the EWA program. The binary variable is used to account for the price premium that occurred during operation of the bank and the EWA program. The coefficient value indicates that water leased during the operation of the Drought Water Bank, and water that was purchased through the EWA program, was priced 33 percent higher than other transactions, with all else being equal.

The variable nodbuyer is a binary variable measuring the difference in spot market prices between water originating and remaining NOD, compared to water that originated SOD. Sales from NOD suppliers to NOD buyers were 30 percent lower than sales originating SOD, suggesting there is a higher value for water SOD.

The variable nodtosod is a binary variable that captures the difference in spot market prices between water transactions where the water originated NOD and was transferred SOD, compared to water that originated SOD. NOD to SOD sales were priced 15 percent lower than sales where water originated SOD. This discount is attributable to water losses and other challenges that occur for supplies conveyed through the Delta.

According to the coefficient estimated for scbuyer, water transactions involving buyers in the South Coast region were priced 29 percent higher than acquisitions by buyers in other regions, with all else being equal. Premium prices paid by South Coast buyers result from strong competition for water supplies in the region, and the relatively high-value water uses in the area.

The variable swpseller is a binary variable measuring the premium paid for purchasing SWP water. The coefficient on swpseller indicates SWP sellers receive a premium of approximately 74 percent over CVP and non-project sellers, on average.

Equation 2 Discussion The California water transfer market is governed by a complex set of legal, institutional, and physical conditions and is not an efficient (perfectly competitive) market. However, the successful estimation of the demand function (Equation 2) supports the use of water transfer prices for quantifying water supply reliability benefits. The ability to estimate demand as a function of price in California’s water transfer market confirms that the market is active and, through prices, provides to both sellers and buyers the marginal value of water in its higher-valued uses (Brookshire et al. 2004). Thus, forecasted water transfer prices estimated by the model (Equation 1) represent an appropriate measure of water supply reliability benefits.

Equation 2 estimates total annual water market activity in spot market transfers according to hydrologic conditions, demand, and the current range of water transfer prices.



The dependent variable in the second equation, lnspottaft, is measured as the natural logarithm of the total annual volume of water (in TAF) traded in regions within the SWP service area through the recorded spot market water transfers beginning in 1990. As expected, the level of market activity holds an inverse relationship with water transfer prices (lnadjpricehat), indicating a down-sloping demand curve. Under the same hydrologic and demand conditions, more water trading occurs as prices drop.

Several different proxies for physical water scarcity conditions were tested, including annual CVP allocations, the Sacramento River Water Year Index, and a binary variable separating dry and critically dry years from wetter years. The selected variable drycrit held the strongest statistical relationship with lnspottaft.

The binary variable ewayear estimates the impacts of environmental water acquisition programs on trading activity. The positive coefficients on each variable demonstrate that environmental water acquisition programs shift the water market demand curve out, resulting in a larger volume traded, with all else being equal.

3.1.4 Market Price for Water to Agriculture The water transfer pricing model described above is applied here as a sensitivity to estimate the benefits of improved agricultural water supply. As previously described, the economic model consists of a statistical analysis of documented spot market water transactions in California. The model seeks to explain the factors that influence California water market prices and is used to forecast prices under a variety of conditions including seller and buyer location, buyer type, and hydrologic conditions.

Table 3-3 provides the estimated 2030 and 2045 water market prices sensitivity for SOD agriculture assuming:

• The water is being leased for agricultural purposes. As shown by the coefficient value for model variable ag (presented in Table 3-2, above), agricultural buyers are typically able to acquire water for a lower price than urban buyers.

• Water is leased from lower priced NOD sources during below normal, dry, and critical years when Delta conveyance capacity is available. During above normal and wet year types water is leased from SOD sources.

• A 25 percent conveyance loss factor is applied to water leased from NOD sources and 10 percent to water leased from SOD sources.



Table 3-3. Estimated 2030 and 2045 SOD Agricultural Water Prices Sensitivity Year Type 2030 Water Transfer Price

($/AF/yr)1 2045 Water Transfer Price

($/AF/yr)1 Wet $460 $1,096 Above Normal $486 $1,159 Below Normal $509 $1,214 Dry $527 $1,257 Critical $673 $1,605

Notes: 1 Expressed in July 2015 dollars. Key: Wet = Total SWP and CVP deliveries is 89% of contracted volume. Above Normal = Total SWP and CVP deliveries is 83% of contracted volume. Below Normal = Total SWP and CVP deliveries is 64% of contracted volume. Dry = Total SWP and CVP deliveries is 61% of contracted volume. Critical = Total SWP and CVP deliveries is 45% of contracted volume. AF/yr = acre-feet per year CVP = Central Valley Project SOD = south-of-Delta

In addition to the market price for water, agricultural buyers incur conveyance costs that vary with location and infrastructure. This analysis assumes that the purchased water is conveyed to CVP SOD and Friant Division agricultural users consistent with SLDMWA O&M rates below Dos Amigos from 2010 to 2017, indexed to 2015 price level using GDP implicit price deflator and averaged by year type as shown in Table 3-4. It is assumed that CVP SOD and Friant Division agricultural users’ most likely water supply alternative would be provided at a minimum through the conveyance below Dos Amigos on the California Aqueduct.

Table 3-4. Estimated Agricultural Conveyance Costs Year Type Conveyance Cost ($/AF/yr)

Below Dos Amigos1

Wet $25 Above Normal $38 Below Normal $51 Dry $46 Critical $94 Notes: 1 It is assumed that CVP SOD and Friant Division agricultural users’ most likely

water supply alternative would be provided through the conveyance below Dos Amigos on the California Aqueduct.

Key: AF/yr = acre-feet per year

Combined water market prices, carriage losses, and conveyance unit costs for agricultural water supplies are provided in Table 3-5. The values reflect the total cost of water (water price + conveyance losses + conveyance costs) to agricultural water users as a sensitivity by location and year type in 2030, and 2045 and later conditions. Due to the inherent uncertainty associated with long-term forecasts, this analysis did not extend the water value estimates past 2045, and assumes the 2045 water cost would be same for later conditions. Changes in crop prices and production costs may affect agricultural producers’ ability to pay for water supply in



the future. These values are applied to the TFR Project water deliveries by location and year type to estimate total agricultural water supply reliability benefits.

Table 3-5. Estimated 2030 and 2045 SOD Agricultural Water Supply Unit Costs Sensitivity Year Type 2030 Water Cost ($/AF/yr)1

2045 and Later Conditions Water Cost ($/AF/yr)1

Wet $539 $1,246 Above Normal $582 $1,330 Below Normal $747 $1,686 Dry $764 $1,736 Critical $1,023 $2,265

Notes: 1 Expressed in July 2015 dollars. Key: AF/yr = acre-feet per year CVP = Central Valley Project SOD = south-of-Delta



CHAPTER 4 MUNICIPAL AND INDUSTRIAL WATER SUPPLY RELIABILITY BENEFITS

The TFR Project increase water supplies to M&I water users in the Friant Division of the CVP as well as other CVP contractors in the San Joaquin region. In this analysis, the benefits to M&I water users are measured according to the least-cost water supply action that would be pursued in the absence of development of the TFR Project. The unit values of water provided in the WSIP Technical Reference Document are utilized for monetizing the M&I deliveries. Table 4-1 provides the estimated 2030 and 2045 unit values of water for the Friant Service Area and CVP SOD water users consistent with the WSIP Technical Reference Document.


Year Type Friant Service Area CVP SOD (Delta Export)




2045 and Later Conditions Unit Value ($/AF/yr)1

Wet $200 $256 $204 $414 Above Normal $251 $321 $256 $519 Below Normal $261 $481 $267 $633 Dry $278 $512 $285 $674 Critical $324 $1,105 $360 $1,056


4.1 Risk and Uncertainty This section provides a comparison of the agricultural water supply reliability benefits estimated using the WSIP Technical Reference Document to estimates developed using another water transfer pricing model and considering the costs associated with conveying the water to the agricultural service areas.

M&I water users have increasingly relied on the water transfer market to augment existing supplies and avoid shortages. The approach to estimate M&I water supply benefits considers the estimated short-term market purchase price as the most likely alternative in the absence of firm water supply from the TFR Project. M&I water users rely on the water transfer market to augment existing supplies and avoid shortages. For example, Santa Clara Valley Water District (SCVWD) has purchased water supplies from a variety of sources in recent years including irrigation districts and other SWP contractors. In 2015, SCVWD purchased 7,500 AF from the



Antelope Valley-East Kern Water District for $500/AF and 3,100 AF from Browns Valley Irrigation District for $665/AF, not including conveyance costs and losses. In addition, water market purchases are included as part of the long-term water supply portfolio for many water providers in the region. This analysis relies in part on market prices paid to purchase water on an annual basis from willing sellers. The market prices are reported according to the payments made directly to the sellers. The buyers incur additional costs to convey the water to their M&I service areas. These costs include both conveyance losses, which diminish the volume of water delivered to end users, as well as conveyance cost (e.g. power costs). Conveyance losses are incorporated into the adjusted water market price by dividing the estimated water market price paid to sellers by the proportion of acquired water that is delivered to the end use. The conveyance costs are estimated for M&I water users benefiting from the TFR Project, and added to the estimated market prices to acquire the water to develop an estimate of the full cost associated with additional water supply obtained in the transfer market. Figure 3-1 illustrates the information used to estimate the value of M&I water supplies.

The water transfer pricing model described in Chapter 3 is applied here to estimate the benefits of improved M&I water supply. As previously described, the economic model consists of a statistical analysis of documented spot market water transactions in California. The model seeks to explain the factors that influence California water market prices and is used to forecast prices under a variety of conditions including seller and buyer location, buyer type, and hydrologic conditions.

Table 4-2 provides estimated water market prices sensitivity for SOD M&I water acquisitions for selected years. NOD and SOD were selected as supplier regions used to estimate the value of the project. During wet and above-normal water years, the analysis applies SOD prices to value increased M&I supplies due to conveyance limitations for NOD supplies. During below-normal, dry, and critical-dry years, the analysis applies NOD prices due to increased capacity to move the relatively less expensive NOD water through the Delta. Although there have been a limited number of short-term market purchases by the Friant Division from entities outside of the Friant Division, there is potential for the use of SOD water transfers especially under SGMA. For this sensitivity analysis, Friant Division M&I was assumed to be equivalent to CVP SOD agricultural water transfer pricing.



Table 4-2. Estimated 2030 and 2045 M&I Water Prices Sensitivity

Year Type

Friant Division M&I CVP SOD M&I 2030 Water

Transfer Price ($/AF/yr)1

2045 Water Transfer Price

($/AF/yr)1


($/AF/yr)1


($/AF/yr)1 Wet $460 $1,096 $537 $1,092 Above Normal $486 $1,159 $567 $1,154 Below Normal $509 $1,214 $594 $1,416 Dry $527 $1,257 $615 $1,466 Critical $673 $1,605 $785 $1,872

Notes: 1 Expressed in 2015 dollars. Key: Wet = Total SWP and CVP deliveries is 89% of contracted volume. Above Normal = Total SWP and CVP deliveries is 83% of contracted volume. Below Normal = Total SWP and CVP deliveries is 64% of contracted volume. Dry = Total SWP and CVP deliveries is 61% of contracted volume. Critical = Total SWP and CVP deliveries is 45% of contracted volume. AF/yr = acre-feet per year CVP = Central Valley Project M&I = municipal and municipal SOD = south-of-Delta

In addition to the market price for water, M&I buyers incur conveyance costs that vary with location and infrastructure. The cost to convey water to CVP SOD M&I users is estimated according to the cost to move water through SWP facilities. Conveyance cost varies by location and user type. For example, SWP contractors pay a unit variable cost to move water based on a melded power rate. In comparison, non-SWP contractors pay a wheeling charge for access to SWP facilities, in addition to a market rate for the power required to pump the water. As a result, non-SWP contractors incur higher conveyance costs. This analysis applies the forecast market power price (Pinnacle 2012) to estimate variable water conveyance costs. Fixed water conveyance charges (e.g., Delta water charge, transportation charge capital cost component) are not included.

The amount of power required to convey water is based on DWR’s estimates of power use per acre-foot for SWP power facilities (DWR 2012). Table 4-3 lists the point of reference for each buyer region, the associated cumulative power demand, and the power costs using the forecast power price. A pumping plant facility is selected as a reference delivery point for each region. For example, the South Bay Pumping Plant is chosen as the facility used for buyers wheeling water to the South Bay Aqueduct.



Table 4-3. Estimated Power Costs for CVP SOD M&I

Contractor Region Reach Pumping Plant

Cumulative Power Demand

(kWh/acre-foot)

Market Power Rate

($/kWh)

Estimated Power Cost ($/acre-foot)

South Bay Aqueduct 1, 2, 4-9

South Bay and Del Valle 1,165 $0.067 $77.83

Sources: California Department of Water Resources, Management of the California State Water Project: Bulletin 132-12. Table 7. Kilowatt-Hour Per Acre-Foot Factors for Allocating Off-Aqueduct Power Facility Costs, 2012. Jones, Jon. Charges for Wheeling Non-State Water Project Water Through State Water Project Facilities, State Water Project Analysis Office Division of Operations and Maintenance, January 17, 2012. Key: kWh= kilowatt hour

The cost to convey water to Friant Division M&I users is based on the SLDMWA O&M rates below Dos Amigos from 2010 to 2017, indexed to 2015 price level using GDP implicit price deflator and averaged by year type as shown in Table 4-4. It is assumed that Friant Division M&I users’ most likely water supply alternative would be provided at a minimum through the conveyance below Dos Amigos on the California Aqueduct.

Table 4-4. Estimated Friant Division M&I Conveyance Costs Year Type Conveyance Cost ($/AF/yr) Below Dos Amigos1

Wet $25 Above Normal $38 Below Normal $51 Dry $46 Critical $94 Notes: 1 It is assumed that Friant Division M&I users’ most likely water supply alternative

would be provided through the conveyance below Dos Amigos on the California Aqueduct.

Key: AF/yr = acre-feet per year

Combined water market prices, carriage losses, and conveyance unit costs for M&I water supplies are provided in Table 4-5. The values reflect the total cost of water (water price + conveyance losses + conveyance costs) to M&I water users as a sensitivity by location and year type in 2030, and 2045 and later conditions. Due to the inherent uncertainty associated with long-term forecasts, this analysis did not extend the water value estimates past 2045, and assumes the 2045 water cost would be same for later conditions. A 25 percent conveyance loss factor is applied to water leased from NOD sources and 10 percent to water leased from SOD sources consistent with agricultural water supply benefits. These values are applied to the TFR Project water deliveries by location and year type to estimate total M&I water supply reliability benefits.



Table 4-5. Estimated 2030 and 2045 M&I Water Supply Unit Costs Sensitivity

Year Type

Friant Service Area CVP SOD M&I

2030 Water Cost ($/AF/yr)1


2030 Water Cost ($/AF/yr)1


Wet $539 $1,246 $683 $1,299 Above Normal $582 $1,330 $717 $1,369 Below Normal $747 $1,686 $896 $1,992 Dry $764 $1,736 $924 $2,058 Critical $1,023 $2,265 $1,151 $2,600




CHAPTER 5 ECOSYSTEM IMPROVEMENT BENEFITS

TFR Project opportunities for ecosystem improvements are provided through additional cold-water and various operations strategies including routing water supplies via the San Joaquin River. Increasing reservoir storage capacity and managing cold-water releases would help to develop and conserve a cold-water pool and allow the release of colder water during late summer and fall months to improve fish habitat conditions, especially for Chinook salmon, but other native fish species as well. Routing water from TFR via the San Joaquin River for exchange or delivery between Mendota Pool and the Merced River confluence to benefit wildlife refuges, CVP contractors, or SWP municipal and industrial contractors also provides increased flow in Reaches 1 and 2 of the San Joaquin River, providing ecosystem improvements.

The Ecosystem Diagnosis and Treatment (EDT) model of the San Joaquin River, which was applied to the San Joaquin River Restoration Program (SJRRP) and later used for the TFR Project with many of the same assumptions as for the SJRRP, was used to simulate the effects of changing water supply, management, and temperature conditions (among other characteristics) on spring-run Chinook salmon biological performance. The outputs of the EDT model (productivity, capacity, and abundance) were used as inputs into the ecosystem improvements economic benefit analysis. BCMR A3: Monetized Benefits Analysis and BCMR A5: Modeling Approach contain additional detail on the EDT analysis.

The TFR Project would not interfere with implementation of the SJRRP, but would change water management at Friant Dam and affect the Restoration and Water Management goals of the Stipulation of Settlement in NRDC et al. vs. Kirk Rodgers, et al. (Settlement) being implemented through the SJRRP.

One of the goals of the SJRRP is to restore and maintain naturally reproducing and self-sustaining populations of Chinook salmon and other native fish in the San Joaquin River. Although not all specific requirements of targeted fish species have been determined, a number of experts have identified features and physical and biological conditions that would be necessary. In addition, the SJRRP Team developed, and later updated, Chinook Salmon Temporal Occurrence and Environmental Requirements. These requirements focused on identifying primary habitat conditions and limiting factors related to the spawning and rearing life stages of both spring- and fall-run Chinook. They include, for example: monthly minimum flow levels, optimal depths, presence and characteristics of gravels, and maximum water temperatures. The SJRRP Team also developed a Fisheries Management Plan (FMP) (Reclamation 2011) to identify goals and protocols for establishing “realistic and measurable population objectives” for reintroducing spring-run Chinook salmon.



5.1 Alternative Cost Approach The alternative cost approach assumes that if the proposed action is not implemented, an alternative action that could take its place provides a relevant comparison. To be assumed as a likely replacement, an alternative action must meet or exceed the specified accomplishment of the proposed action. A unit cost, or dollars per unit accomplishment, is calculated for potential alternative actions. The action with the lowest unit cost is selected as the alternative action. The unit cost of the alternative action is then applied to the physical accomplishment of the proposed action to calculate the monetized benefits of those accomplishments.

One of the goals of the operating plan is to enhance water temperature and flow conditions in the San Joaquin River downstream from Friant Dam for salmon and other native fish. The alternative action needs to meet or exceed the same type and quality of habitat improvements as the proposed action. For this application, the unit cost is defined as dollars per one percent increase in fish abundance.

Potential alternative actions were developed following review of literature, species recovery plans, and various restoration program plans. Projects or programs that were already planned, authorized, or funded for implementation in the San Joaquin River downstream from Friant Dam (e.g., some elements of the SJRRP) were not considered because they have already been incorporated in the without-project condition.

Actions not likely to be implemented by either the Federal government or other organizations, or where there is no evidence that an action would be considered or implemented, were also not considered. For example, changing operations of Friant Dam to release more water to the San Joaquin River, thereby decreasing existing Friant Dam agricultural and M&I contract deliveries, would not likely be implemented given the San Joaquin River Settlement, the implementing legislation, and resultant 9d water contracts signed after the Friant Division contractors paid off their remaining CVP construction costs. Reoperation of Friant Dam for additional releases to the San Joaquin River was not considered implementable because it would violate the San Joaquin River Settlement and its authorizing federal legislation.

Another action that would not likely be considered or implemented would be water chillers built adjacent to the San Joaquin River downstream from Friant Dam to enhance temperature conditions. This action was assessed, but was found to be not feasible because of the physical footprint and number of units required, flow capacity limitations, energy requirements, and related environmental impacts.

Actions that meet the following criteria were also excluded from consideration:

• Actions within defined scope of existing aquatic habitat-related programs

• Actions outside the analysis area of the EDT model

Least cost actions for ecosystem improvements could include increasing floodplain habitat, installing and operating temperature control devices (TCD) on Friant Dam, or increasing storage in the upper San Joaquin River basin. These actions are beyond those considered in the without-project conditions, and can be modeled separately and in combination to evaluate



whether they could achieve a similar type, quantity, and quality of habitat improvement as the TFR Project. Increasing floodplain habitat exceeds habitat improvement accomplishments of the TFR Project and is the least cost action.

5.1.1 Floodplain Habitat Decisions regarding implementation of channel modification options in Reach 4B and preferred alternatives for constructed floodplain in Reaches 2B and 4B under Paragraphs 11 and 12 of the Settlement have not yet been finalized by the SJRRP and a range of implementation options exist. Several specific details for these plans have not been sufficiently developed for their evaluation. The without-project condition, therefore, did not quantitatively include representation of constructed floodplains in Reaches 2B and 4B of the San Joaquin River, since the extent and specific configuration of levee setbacks and constructed floodplain habitat was unknown.

Actions that could increase floodplain habitat include the following:

• Construction of new floodplain and related riparian habitat in Reach 2B based on the 2B1 Preferred Alternative Floodplain Restoration.

• Construction of new floodplain and related riparian habitat in Reach 4B based on the 4B1 reach restoration with Option C setback

• Revised quantities of existing suitable or useable floodplain habitat in all other main channel reaches of the San Joaquin River (SJRRP 2012b).

• Lower intensity floodplain restoration in Reaches 1 and 3.

• Incremental expansion of Reach 2B in-channel/floodplain habitat restoration calculated by subtracting the SJRRP 2B1 Preferred Alternative Floodplain Restoration from the 2012 FP-5 program alternative (SJRRP 2012), resulting in approximately 500 acres of additional inundated area.

• Incorporation of undefined incremental floodplain restoration activities in Reaches 1B and 2A to achieve the 2014 SJRRP Preliminary Draft Floodplain Plan habitat goals (SJRRP 2015).

The maximum floodplain habitat under the least cost action assumptions is shown in Table 5-1. Inundated floodplain, however, is dependent on many factors including river flow volumes and velocity. Without-project condition flows would inundate 8,714 acres of floodplain habitat, and this acreage constitutes the least cost action.

The least cost action acreage is multiplied by the per acre cost in Table 5-2 and then divided by the difference in EDT habitat abundance between the least cost action and the without-project condition. This value is the dollar per unit change in habitat abundance or least cost unit value (Table 5-3). Each accomplishment of the TFR Project under 2030 and 2070 conditions is multiplied by the least cost unit value to estimate the ecosystem benefit.



Table 5-1. Floodplain Habitat Least Cost Action San Joaquin River Restoration Reaches

Reach 1A Reach 1B Reach 2A Reach 2B Reach 3 Reach 4A Reach

4B1 Reach 4B2

Reach 5

Potential Inundated Area (acres)1

119.0 363.3 610.0 2,051.0 276.0 190.0 5,712.0 923.3 1,246.7 Notes: 1 Useable or suitable habitat is assumed to equal 0.3 x inundation area

Table 5-2. Estimated Per Acre Floodplain Habitat Costs Item Cost1,2 Levee Construction $35,858,824 Bend 10 Revetment $4,034,118 Floodplain (levee removal) $5,460,191 Revegetation and Irrigation $67,235,294 Relocations $1,974,491 Land Acquisition $29,454,545 Field Cost3 $186,300,000 Non-Contract Costs4 $65,550,000 Construction Cost $250,000,000 Interest During Construction5 $14,213,409 Total Project Cost $264,213,409 Interest and Ammoritization6 $9,251,921 Annual O&M $721,000 Annual Cost $9,972,921 Annual Cost per Acre Floodplain7 $6,044 Notes: 1 Estimated Costs for San Joaquin River Restoration Program Reach 2B Floodplain Initial Alternative FP-4. 2 Appraisal level cost estimate in July 2015 dollars. Cost estimates are rounded per U.S. Bureau of Reclamation’s rounding guide. 3 Field costs include range of mobilization (1.5-5 percent), design contingency (10-15 percent), and construction contingency (15-25 percent). 4 Non-contract costs are 35 percent of field cost. 5 Interest During Construction is estimated over 4 years at the current 3.375 percent Federal discount rate. 6 Interest and Amortization of the investment cost is estimated over 100 years at the current 3.375 percent Federal discount rate. 7 Estimated floodplain habitat costs for approximately 1,650 acres of planted vegetation.



Table 5-3. Change in Abundance Index of Spring-Run Chinook Salmon and Unit Cost for Least Cost Action

Least Cost Action – 2030 Condition

Change in Abundance Index

Percent Change in Abundance Index

Unit Cost ($M per unit change in

abundance index)1

Long-Term Weighted Average 41.8 33.8% $1.3

Notes: Further details are presented in the BCMR A5 Modeling Approach. The Least Cost Action is compared to without project conditions.

1 Unit cost is calculated by multiplying annual cost per acre of floodplain by number of acres in Least Cost Action, then dividing by the change in Abundance Index.

Key: % = percent $M = million dollars



CHAPTER 6 REFUGE WATER SUPPLY BENEFITS

The TFR Project has the potential to improve water supply reliability for wildlife refuges to maintain and improve habitat conditions. The 19 federal wildlife refuges in the Central Valley are part of the U.S. Wildlife Refuge system. Through the passage of the CVPIA in 1992, fish and wildlife were given equal priority as other water uses in the CVP service area. As a result, the federal government was required to provide a clean and reliable supply of water to wetland habitats in these refuges in support of fish and wildlife species. This is being accomplished through the Refuge Water Supply Program (Reclamation and USFWS 2009).

Reclamation delivers water to wildlife refuges in the Central Valley as a requirement of the CVPIA, as Level 2 supply (firm supply) and Incremental Level 4 supply (purchased from willing sellers). Currently, Incremental Level 4 refuge demands are not being fully met, and the new water supply developed with the proposed TFR Project may be used to provide a more reliable supply to meet Level 4 refuge demands. The more reliable refuge water supply will improve habitat production within the affected refuges due to greater availability of water for ecosystem functions and food production. Additionally, purchases on the spot market by Reclamation to meet Level 4 refuge demands may be avoided.

The unit values of water provided in the WSIP Technical Reference Document are utilized for monetizing the refuge deliveries. Table 6-1 provides the estimated 2030 and 2045 unit values of water for the refuge water supply consistent with the WSIP Technical Reference Document.


Year Type Refuge (Delta Export)

2030 Unit Value ($/AF/yr)1 2045 and Later Conditions Unit Value ($/AF/yr)1

Wet $204 $414 Above Normal $256 $519 Below Normal $267 $633 Dry $285 $674 Critical $360 $1,056




6.1 Risk and Uncertainty This section provides a comparison of the refuge water supply reliability benefits estimated using the WSIP Technical Reference Document to estimates developed using another water transfer pricing model and considering the costs associated with conveying the water to the refuge service areas. This approach to estimate refuge water supply benefits considers the estimated short-term market purchase price as the most likely alternative in the absence of firm water supply from the TFR Project.

Historically, Incremental Level 4 water supplies have been primarily obtained through water lease agreements. In this analysis, the benefits of refuge water supply are measured according to the estimated cost of obtaining the water supply through continued spot market leases. The water transfer pricing model described in Chapter 3 is applied here to estimate the benefits of improved refuge water supply. As previously described, the economic model consists of a statistical analysis of documented spot market water transactions in California. The model seeks to explain the factors that influence California water market prices and is used to forecast prices under a variety of conditions including seller and buyer location, buyer type, and hydrologic conditions.

Table 6-2 provides the estimated water market prices as a sensitivity assuming:

• The water is being leased for environmental (refuge) purposes. As shown by the coefficient value for model variable env (presented in Table 3-1, above), environmental buyers are typically able to acquire water for a lower price than urban buyers.

• Water is leased from lower priced NOD sources during below normal, dry, and critical years when Delta conveyance capacity is available. During above normal and wet year types water is leased from SOD sources.

• A 25 percent conveyance loss factor is applied to water leased from NOD sources and 10 percent to water leased from SOD sources.

Table 6-2. Estimated 2030 and 2045 Refuge Water Prices Sensitivity Year Type 2030 Water Transfer Price ($/AF/yr)1 2045 Water Transfer Price ($/AF/yr)1

Wet $399 $951 Above Normal $422 $1,006 Below Normal $442 $1,053 Dry $458 $1,091 Critical $584 $1,393


In addition to the market price for water, buyers incur conveyance costs that vary with location and infrastructure. This analysis assumes that the purchased water is conveyed to refuges at Mendota Pool consistent with SLDMWA O&M rates from 2010 to 2017, indexed to 2015 price



level using GDP implicit price deflator and averaged by year type and an estimated flat $5 per acre-foot wheeling charge through the San Joaquin River Exchange Contractors Water Authority as shown in Table 6-3.

Table 6-3. Estimated Refuge Conveyance Costs Year Type Conveyance Cost ($/AF/yr) Mendota Pool1

Wet $17 Above Normal $19 Below Normal $21 Dry $20 Critical $34 Notes: 1 It is assumed that refuges’ most likely water supply alternative would be

conveyed to Mendota Pool. Key: AF/yr = acre-feet per year

Combined water market prices, carriage losses, and conveyance unit costs for refuge water supplies are provided in Table 6-4 as a sensitivity. The values reflect the total cost of water (water price + conveyance losses + conveyance costs) to environmental water users by location and year type in 2030 and 2045. These values are applied to the TFR Project water deliveries by location and year type to estimate total refuge water supply reliability benefits.

Table 6-4. Estimated 2030 and 2045 Refuge Water Supply Unit Costs Sensitivity Year Type 2030 Water Cost ($/AF/yr)1 2045 Water Cost ($/AF/yr)1

Wet $463 $1,076 Above Normal $490 $1,138 Below Normal $617 $1,432 Dry $637 $1,481 Critical $825 $1,902


In general terms, total economic value is measured as the combination of market and non-market components. For many common resource uses, such as agriculture or hydroelectric power generation, well established markets with considerable and publicly available price information provides a ready measure of “value.” For other resource uses, such as recreation, there is both market (e.g., admittance or user fee) and non-market components. However, for the largely non-market basis for value associated with ecosystem services, ecosystem improvements, or enhancement and/or protection of ESA-listed species, the information base is far more limited. There is normally a high reliance on site-specific biological, physical, and hydrologic information that is often not available. Although there is consensus among economists that non-market values exist and are positive, there is also recognition that methods for measuring these values are difficult. The lack of consensus about appropriate methods and



varying levels of resource data and information contributes to uncertainty in the estimation of improved habitat condition, or ecosystem benefits. The water transfer price, or spot-market price, is potentially a good approximation of benefit value, it may underestimate the total public willingness to pay for market and non-market components of value.



CHAPTER 7 EMERGENCY RESPONSE BENEFITS

The TFR Project could provide emergency supplies to SOD water users in the event of a disruption in Delta water supplies from a catastrophic levee failure due to seismic and/or flood events, sea level rise or, other factors. These types of events would cause increased salinity in the Delta, such that exported water supplies could not be put to beneficial use and south Delta pumping facilities would need to be shut down. This analysis considers the value of additional SOD water supplies available to SOD M&I water users during a Delta water supply outage due to a seismic event as a representative water supply shortage condition.

The severity of potential supply disruptions to SOD water users in the without-project condition depends upon a variety of factors, including the availability of non-Delta water supplies and the timing and duration of the supply disruption. Supply disruptions that occur during prolonged periods of drought are likely to result in significantly higher economic costs than those that coincide with wetter conditions. In addition, supply disruptions shorter in duration will, in general, result in lower economic costs to urban water users. The estimated emergency delivery response of TFR Project is limited in consideration of these factors and based on the level of shortage expected under variable hydrologic conditions.

This chapter describes previous studies of water supply disruption in California and the emergency water supply benefits estimation methodology applied to the TFR Project.

7.1 Previous Studies Considered Several studies have estimated the economic impacts associated with Delta water supply disruptions. Jack R. Benjamin & Associates (2005) considered two major Delta levee failure scenarios and estimated the time that the Delta pumps would be shut down due to poor water quality (high salinity). The study estimated likely regional shortages experienced by water users during the pump shutdowns. Statewide economic costs from the two scenarios were estimated to range from $3 billion to more than $10 billion. Of this amount, urban economic impacts were estimated to be between $0.7 and $4.4 billion.

It should be noted that the two levee breach scenarios were assumed to take place during the month of July under relatively normal water supply conditions. Economic consequences of levee breaches were estimated to increase at an increasing rate with the length of water supply disruption. Information contained in the report did not allow economic costs to be reported by region.

In a study by Hanneman et al. (2006), the partial economic impacts of Delta levee failure due to climate change-induced sea-level rise and storm events were considered for three scenarios occurring during different months and hydrologic conditions. Estimated economic impacts to urban users in the South Coast region ranged from $10 to $14 billion. However, the study found



that future development of water supplies for Southern California independent of the Delta would reduce the economic costs to urban users to between $1.8 and $4.0 billion. The analysis relied upon a short-run price elasticity of -0.05 and assumed a linear demand function to estimate the change in consumer surplus associated with the projected shortages (Hanneman et al. 2006). The analysis did not consider economic impacts of water shortages on commercial and industrial water users.

Brozovic et al. (2007) provided another estimate of the economic losses associated with water supply disruption to the Bay Area resulting from two potential earthquake scenarios affecting water supplies from the Hetch Hetchy system. Residential losses were estimated through measurement of changes in consumer surplus by applying a constant elasticity demand function to an estimate of price elasticity from empirical studies. The applied price elasticity (-0.41) was considerably larger than the elasticity applied in the Hanneman et al. (2006) study and is more representative of long-run elasticity estimates from empirical studies. The authors note that the estimates of economic losses are highly sensitive to the choice of price elasticity of demand and that the estimates should be considered a lower bound. Business losses are estimated through the use of loss functions with increasing marginal costs as shortages increase, as well as a minimum threshold water supply below which business output would cease. Study results indicated that a 60-day disruption of the Hetch Hetchy water supply would produce between $9.3 and $14.4 billion in business interruption losses, and between $37 and $279 million in residential welfare losses.

Recently, the Bay Delta Conservation Plan estimated the economic value of reduced seismic risk with the Brozovic et al. (2007) approach (DWR and Reclamation 2013). The analysis assumed a level of water supply availability potentially experienced due to a seismic event, and assumes a .02 probability of a seismic event occurring in any forecasted year. The Brozovic et al. (2007) approach was applied to residential, agricultural, commercial, and industrial sectors with sector-specific variables. A residential water price and consumption data set was constructed and used to estimate individual water agency price elasticities. The economic value of water supplies after a seismic event was estimated by applying each agency’s estimated elasticity to constant elasticity demand functions calibrated to observed price and quantity information from each water provider.

7.2 Benefits Estimation Method This section describes the method applied to estimate the benefits of emergency water supplies resulting from the TFR Project, beginning with key considerations and followed by the estimation procedures.

7.2.1 Key Considerations Key considerations in estimating the value of emergency water supplies include the probability that a supply disruption would occur, level of water supply shortage, and duration and timing of the supply disruption to urban water agencies.



Probability of Supply Disruption Supply disruptions could arise from a variety of human and natural conditions. Various estimates exist of the probability of levee failures from seismic and flood events. This analysis relies upon estimates of levee failures due to seismic events only.

Information regarding the probabilities of Delta levee failures, potential levee failure scenarios, and associated projected SOD shortages was based on information developed for the Delta Risk Management Strategy (DRMS) (DWR, USACE, and DFG 2009). The annual probabilities associated with the Delta island inundation scenarios applied in this analysis are listed in Table 7-1. This analysis is limited to longer disruption as characterized by the 30-Delta islands inundation scenario. The annual probability associated with this scenario (0.019) was used to estimate the risk-adjusted annual emergency water supply benefits for each of the island breach scenarios. The estimated water supply deficit from SWP and CVP operations subsequent to the Delta island levee breach scenarios were simulated with the Water Analysis Module (WAM) from the DRMS study.

Table 7-1. Seismic Probabilities of Delta Island Breach Scenarios Delta Island Breach Scenario Probability of Occurrence1

1-island 0.107 3-island 0.082 10-island 0.051 20-island 0.032 30-island 0.019

Note: 1 Seismic probabilities of occurrence were developed by the Delta Risk

Management Strategy (DWR, USACE, and DFG 2009).

Duration and Timing of Supply Disruption The economic effects of a water supply disruption would vary according to the length of time that water supplies from the Delta are shut down or curtailed, the season during which the disruption occurs, and the hydrologic conditions that exist at the time. For example, a Delta water supply disruption that occurs during, or immediately following, drought conditions would result in greater economic losses than a disruption that occurs during, or immediately following, a wetter period. Similarly, a disruption that occurs during the winter may have different effects than one occurring in the spring or summer, depending upon the duration of the water supply disruption.

In this analysis, Delta water supply disruptions were simulated by assuming that the disruption could begin within any month of a 76-year hydrologic period of record. Start times were chosen randomly to cover the range of hydrologic variation. The duration of each emergency event was identified from the WAM output. The WAM output provides times for several different points during the emergency event, including the time until SOD storage has recovered. This analysis was based on the assumption that deliveries to SWP M&I water users would return to the normal schedule and would no longer be operating in a deficit once SOD storage has recovered. The duration of the event to SOD recovery was identified from the WAM output, and for the 30-island breach, the average time in months to SOD recovery, starting in each month of the 1923–1996 period. Using this approach, the potential range of water supply disruption



durations was developed and the level of SOD M&I water supply deficit for the 30-island breach was calculated.

Level of Water Supply Shortage The monthly urban deficit accruing to SWP M&I water users was calculated as the average monthly urban deliveries that would have been made over the duration of the pumping disruption under without-project conditions for 2030 and 2070. SOD water contractors rely on a variety of water sources to satisfy urban water demand. Local supplies could be used to reduce shortages in the event of drought, or an emergency disruption in imported supplies. In addition, the possibility of purchasing water from SOD agricultural users may further limit shortages to urban water agencies.

The TFR Project emergency water supply response was estimated as the difference at the time of the Delta pumping outage of water in storage in Millerton Lake and TFR, compared with Millerton Lake storage in the without-project for 2030 and 2070, and limited based on the size of the deficit and expected TFR Project response under different hydrologic conditions. The deficit of the 30-island breach, up to the time of SOD recovery, was identified from the WAM output, and averaged as shown in Table 7-2.

Table 7-2. Average Delta Export Disruption for 30-island Breach

Delta Island Breach Scenario Average Delta Export Reductions (TAF)1

Average Urban Deficit (TAF)2

Levees Breached – 30 Islands 2770 1073

Notes: 1 Average SOD exports (SWP and CVP) reduction is calculated using outputs from WAM. 2 Average deficit to SOD urban contractors is calculated as a percentage of SOD export reductions. Key: CVP= Central Valley Project SOD= South-of-Delta SWP= State Water Project TAF = thousand acre-feet WAM = Water Analysis Module

The monthly urban deficit was calculated to be 39 percent of the total deficit obtained from WAM. The urban portion of the total exports (39 percent factor) was calculated as an average annual ratio of SOD M&I deliveries and Delta exports using results from the 2012 CalSim-II Benchmark study of the Future Conditions. Finally, it is ensured that this calculated urban deficit does not exceed the simulated CalSim-II monthly deliveries to SOD M&I contractors over the event duration. The estimated annual shortage for the 30-island breach is 8 percent.

The monthly urban deficit accruing to SWP M&I water users was calculated as the average monthly urban deliveries that would have been made over the duration of the event; unless the total deficit for events starting in that month was zero, then the urban deficit was zero; or if the average monthly total delivery deficit over the event duration was smaller than the average monthly urban deliveries, then 39 percent of the total deficit was assumed to accrue to urban users.



Available Emergency Supply The total amount available at any month is the volume of water stored in Millerton Lake and TFR minus the volume stored in Millerton Lake in the with-project. For a given average monthly urban deficit caused by breach sequences starting in each month of the simulation period, Temperance Flat Reservoir supply is calculated based on a user-set minimum deficit below which Temperance Flat Reservoir would not respond, and a user-set proportion of total municipal supply deficit that would be met by Temperance Flat Reservoir storage. These user-set factors are based on SWP allocations so that in dry periods, the minimum deficit Temperance Flat would respond to is lower and the proportion of deficit that Temperance Flat Reservoir would meet is higher, than in wet years. Below an SWP allocation of 60 percent (the long-term average allocation [DWR 2012]), it was assumed that SWP M&I water users would have enough demand that all Temperance Flat Reservoir water supply could be used in an emergency. For purposes of estimating emergency water supply benefits, it is assumed that the TFR Project would supply only 50% of its available storage at the time of that emergency.

7.2.2 Estimation Methodology Economic benefits from emergency water supplies are measured according to water users’ WTP to avoid interruptions in water deliveries. The value of emergency supplies to residential users was estimated by applying a short-run price elasticity estimate to a constant elasticity demand function calibrated to observed price and estimated 2030 demand information from Southern California water agencies. This general valuation approach was used by Jenkins et al. (2003) and Brozovic et al. (2007) to estimate economic losses from water scarcity to urban water users in California. Estimated benefits were weighted according to the probability of a Delta water supply disruption (DWR, USACE, and DFG 2009).

Price was based upon current reported charges for Southern California water providers (Raftelis 2011) and projected 2030 urban water demands. The price elasticity estimate was selected based upon previous residential water demand studies completed in California. The economic benefits were estimated according to the projected demand in the year 2030, and considered the incremental improvement in water supply that is available from the TFR Project during a water supply disruption that curtails Delta pumping activity. The value of the full emergency supply volume provided by the TFR Project was represented by the demand function applied in this analysis. A separate analysis was not conducted to estimate potential commercial or industrial water shortages. Estimated benefits were weighted according to the probability of a Delta water supply disruption (i.e. the 30-island breach has a probability of 0.019). Demand, price, price elasticity, and the demand function used in the analysis are discussed below.

Demand Emergency water supply benefits from the TFR Project could be provided to SOD M&I water users. Table 7-3 provides urban water management plan estimated 2010 and forecasted 2030 annual M&I water demand for emergency water supply beneficiaries.



Table 7-3. Emergency Water Supply Beneficiary Demand

Water Service Provider Population M&I Water Demand

(AF/yr) 2010 2030 2010 2030

Metropolitan WD 18,896,000 21,926,000 2,551,000 3,108,000

Crestline-Lake Arrowhead WA 30,137 33,475 976 2,250

San Gorgonio Pass WA 91,777 197,351 29,667 58,802

Palmdale WD 109,395 253,791 17,455 48,455

San Luis Obispo County FC&WCD 47,696 52,597 4,189 4,530

Alameda County FC&WCD-Zone 7 220,000 290,000 48,900 69,600

Alameda County WD 346,700 394,600 29,100 35,400

Desert WA 60,600 80,600 26,410 39,200

Solano County WA 413,300 454,000 81,330 84,050

Mojave WA 437,357 652,481 141,460 182,544

Castaic Lake WA 286,750 401,223 45,721 68,294

San Bernardino Valley MWD 958,400 1,250,509 171,076 236,272

Santa Clara Valley WD 1,822,000 2,310,800 302,900 383,190

Coachella Valley WD 435,698 816,266 161,572 255,007

Kern County WA 369,812 474,943 33,400 62,750

Antelope Valley-East Kern WA 291,063 513,430 53,062 87,043

Total 24,816,685 30,102,066 3,698,218 4,725,387

Key: AF/yr = acre-feet per year FC&WCD = Flood Control and Water Conservation District WA = Water Authority WD = Water District Zone 7 = Alameda County Flood Control and Water Conservation District, Zone 7

Price The 2010 water price used in this analysis is based on reported charges for Bay Area water providers (Raftelis 2011), and only the “commodity” charge is included in the price estimate to exclude fixed charges that do not vary with the volume of water delivered. The price used in this analysis is the service area population weighted average price ($1,448 per acre-foot), indexed to 2015 dollars ($1,560) with the GDP implicit price deflator.

Price Elasticity Residential demand for water has been shown by most studies to be inelastic. A survey of previous economic literature by Dalhuisen et al. (2003) found a mean price elasticity of demand of -0.41 and a median of -0.35 from 268 individual estimates. Previous studies have shown that the price elasticity of demand varies throughout the year. In general, price elasticity is more elastic (higher) in the summer when water use is at its peak and less elastic (lower) during the winter when water use is lower. Similarly, price elasticity is lower in the short-run than the long-run, because water users are less able to alter water demand through conservation. However, most of the previous studies estimated long-run price elasticities of demand. Economic losses from an unexpected water supply outage are most appropriately measured through application of a short-run price elasticity. Estimates of economic losses increase with application of lower price elasticities. Table 7-4 provides price elasticity estimates from water demand studies in California.

Temperance Flat R

eservoir Project

Benefit Calculation, M

onetization, and Resiliency Tab A5

Economic Valuation A

pproach Attachment

August 2017 – 7-7

Table 7-4. Estimated Price Elasticities of Water Demand in California

Study Location Sector Season Elasticity

Low High Howe, 1982 Western U.S. Residential, single family summer -0.43 Weber, 1989 Bay Area Residential winter -0.08 -0.2 annual -0.1 -0.2 CCWD, 1989 Bay Area Residential annual -0.2 -0.4 summer -0.35 DWR, 1991 California Residential annual -0.2 -0.5 Dziegielewski & Optiz, 1991 Southern California Residential, single family winter -0.24 summer -0.39 Residential, multiple family winter -0.13 summer -0.15 Urban annual -0.22 Renwick, 1996 California Residential annual -0.33 Corral et al., 1998 California Residential annual -0.3 0.0 Renwick and Archibald, 1998 Bay Area and Southern

California Residential, single family average -0.16

summer -0.2 Metzner, 19891 San Francisco Residential annual -0.25 Metropolitan Water District of Southern California, 19901

South Coast Residential, single family summer -0.29 -0.36

winter -0.03 -0.16 DWR, 1998 California Residential, single family annual -0.16 Espey et al., 1997 U.S. Residential annual -0.64 annual -0.38 annual -0.51 Dalhuisen et al., 2003 U.S. Residential annual -0.41

Temperance Flat R

eservoir Project

Benefit C

alculation, Monetization, and R

esiliency Tab A5 7-8 – August 2017

Economic Valuation A

pproach Attachment

Table 7-4. Estimated Price Elasticities of Water Demand in California (contd.)

Study Location Sector Season Elasticity

Low High Olmstead and Stavins, 2007 U.S. and Canada Residential, uniform

marginal prices annual -0.33

Residential, increasing block rates

annual -0.064

California Climate Change Center, 2009

El Dorado County, California Residential, increasing block rate structure

annual -0.2198

Gleick et al., 2005 U.S. Residential, single family annual -0.16 Residential, multiple family annual -0.05 Upper San Gabriel Valley Municipal Water District, 2013

Upper San Gabriel Valley Residential, single family annual -0.13

Residential, multiple family annual -0.11 Metropolitan Water District of Southern California, 2010

Southern California Residential, single family annual -0.1947

Residential, multiple family annual -0.1626 Jenkins et al., 2003 Santa Clara Valley Residential (average of summer and

winter) -0.25

Bay Delta Conservation Plan (DWR and Reclamation, 2013)

California Residential Annual -0.146 -0.324

Note: 1 Cited in California Water Plan Update (DWR, 1998) Key: CA = California CCWD = Contra Costa Water District DWR = Department of Water Resources



This analysis applies the coefficients from a recently completed California residential water demand study (DWR and Reclamation 2013). The study used panel data from 127 California water retailers to estimate price elasticity. According to the estimated equation, price elasticities are estimated as: -0.415+0.108 * ln (income). Applying this equation to the county-level weighted average household income in southern California results in a value of -0.22. The WSIP Technical Reference Document lists an acceptable range of M&I demand elasticities of -0.15 to -0.35.

Demand Function This analysis assumes a constant price elasticity of demand over the changes in water delivery considered. The demand function is calibrated to 2030 water demand levels by adjusting 2010 prices and quantities according to water demand projections. The demand function applied in this analysis is as follows:

𝑃𝑃 = 𝑒𝑒^(𝑙𝑙𝑙𝑙 (𝑄𝑄)/𝜂𝜂 + 𝐶𝐶) (1)

Where

• 𝑃𝑃 is the observed price ($/acre foot) of water to residential users in the Southern California (Raftelis Financial Consultants, Inc. 2011)

• 𝑒𝑒 is a mathematical constant approximately equal to 2.71828

• 𝑄𝑄 is the estimated volume of residential water use in Southern California in 2010 obtained from Urban Water Management Plans.

• 𝜂𝜂 is the short-run price elasticity of demand

• 𝐶𝐶 is the integration constant.

The integration constant is calculated according to Equation 2 using the observed water price (P2010) and level of water use (Q2010). The integration constant is then scaled to 2030 according to the ratio of water demand in 2030 to water demand in 2010 (D2030 / D2010) as shown in Equation 3.

𝐶𝐶2010 = 𝑙𝑙𝑙𝑙(𝑃𝑃2010) − {𝑙𝑙𝑙𝑙 (𝑄𝑄2010)/𝜂𝜂} (2)

𝐶𝐶2030 = 𝐶𝐶2010 + {𝑙𝑙𝑙𝑙 ((𝐷𝐷2030/𝐷𝐷2010))/𝜂𝜂} (3)



The economic benefits of the TFR Project emergency water supplies for each month of a 76-year hydrologic period of record are calculated according to Equation 4.

𝐵𝐵𝑒𝑒𝑙𝑙𝑒𝑒𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 (𝑄𝑄𝐸𝐸)

= �𝑒𝑒𝐶𝐶2030

�1 + �1𝜂𝜂��

� ∗ �𝑄𝑄2030�1+�1𝜂𝜂�� − 𝑄𝑄𝑅𝑅

�1+�1𝜂𝜂�� ∗ 𝑄𝑄𝐸𝐸 − 𝑐𝑐 ∗ 𝑄𝑄𝐸𝐸 − 𝑝𝑝𝑐𝑐 ∗ 𝑄𝑄𝐸𝐸

(4)

Where,

• 𝑄𝑄𝐸𝐸 is the TFR Project emergency water supply yield

• 𝑄𝑄𝑅𝑅 is the level of disrupted through Delta water deliveries

• 𝑐𝑐 is the marginal cost of water delivery during a shortage

• 𝑝𝑝𝑐𝑐 is the estimated cost of groundwater pumping

Expected Annual Benefit The estimation method described above was used to generate an estimate of the economic losses associated with an 8 percent annual shortage for the 30-island breach scenario to develop a dollar per acre-foot benefit for emergency supplies. This is based on the average shortage of the 30-island breach over the 76-year hydrologic period from the WAM study. The average value was then multiplied by the volume of emergency supplies available from the TFR Project (50 percent of available storage), and then the expected annual benefit is calculated by multiplying by the probability of a Delta water export disruption.

The expected annual TFR Project emergency water supply benefit is then reduced by the marginal cost of water delivery to residential customers (c) is deducted from the benefits estimate. This analysis applies a fixed per unit cost of $250/AF/year (DWR and Reclamation 2013). In order to not overstate benefits to other benefit categories due an emergency, the annual benefits for other benefit categories are reduced by the probability of occurrence of the 30-island breach (0.019) times the amount made available during that emergency (50 percent).



CHAPTER 8 HYDROPOWER BENEFITS

This chapter provides information on hydropower benefits value of existing Friant Power Project and CVP and SWP hydropower facilities for the TFR Project. Descriptions of hydropower energy modeling and resulting hydropower accomplishments in gigawatt-hours are in the BCMR A5: Modeling Approach, Chapter 6; and BCMR A3: Monetized Benefits Analysis, respectively. Descriptions of existing and proposed hydropower facilities and related planning efforts (e.g., hydropower replacement costs) are in the EGPI A4: Engineering Summary, Chapter 6.

8.1 Hydropower Valuation Methodology Hydropower accomplishments were valued using forecasted energy market prices and renewable energy prices, as described in the following sections.

8.1.1 Energy Value Day-ahead market values of energy in the year 2020, expressed in 2015 dollars (i.e., inflation beyond 2011 has been removed but not real escalation), were applied to Friant Power Project and CVP and SWP hydropower accomplishments. These market values were forecasted by the PLEXOS® model and applied to hydropower accomplishments; however, the PLEXOS® model was not used to simulate the accomplishments (see the BCMR A5 Modeling Approach, Chapter 6). The underlying Western Electricity Coordinating Council (WECC3) database used to forecast these prices is the California Public Utility Commission Long-term Procurement Plan (LTPP) (Pinnacle 2012).

8.1.2 Renewable Energy Value The May 2012 California Energy Commission Renewable Portfolio Standard (RPS) Eligibility Guidebook lists four types of hydropower facilities that qualify for RPS (CEC 2012). These types differ in size, operations, and age. Two hydropower types, conduit hydropower and efficiency improvements, are not relevant to the TFR Project and are not discussed further. The other two hydropower types include the following:

1. Small hydropower facilities less than 30 megawatts (MW)

a. Began commercial operation before January 1, 2006, or

b. Began commercial operations after January 1, 2006, and does not “cause an adverse impact on instream beneficial uses or cause a change in the volume or timing of streamflow”

3 In addition to being the Regional Entity responsible for coordinating and promoting Bulk Electric System reliability,

WECC also provides Western Interconnection-wide economic transmission planning and coordinates the formulation of infrastructure, loads, and resources databases for use in these planning studies.



2. Existing hydroelectric generation units 40 MW or less and operated as part of a water supply or conveyance system

Legislation has been proposed to open up the RPS to all hydropower units regardless of size. At this time, these efforts have been unsuccessful and the likelihood of passing such legislation is unknown. It is also unclear if such legislation would keep the age and adverse impact/volume/timing constraints.

Renewable energy in the TFR Project is valued using California Bundled renewable energy credit (Bucket 1) prices (Platts 2015). These prices represent the value of the environmental attributes of the renewable energy and do not include the market price of energy (Table 8-1). The $/megawatt hours (MWh) renewable energy value is added on top of the sum of all the other market values estimated for the hydropower attributes that qualify for the RPS.

Table 8-1. California Renewable Energy Value Price($/Megawatts/hour) Low Mid High

California Bundled Renewable Energy Credits (Bucket 1)1 $12.00 $13.75 $15.50

Source: Platts, 2015 Note: 1 Price as of January 29, 2015; prices do not include energy prices, rather they are in addition to the

energy prices.

8.1.3 Other Value Assumptions It is assumed that all Friant Power Project powerhouses qualify for RPS, whereas CVP and SWP generating facilities were only evaluated for energy value. Capacity values at Friant Dam and other CVP and SWP powerhouses are not anticipated to change under the proposed TFR Project and were not evaluated.



CHAPTER 9 RECREATION BENEFITS

Millerton Lake is formed by Friant Dam, and represents a regionally important recreation site for water sport enthusiasts (motor boating, water skiing, and sport fishing), other day-use recreationists, and campers. The TFR Project has the potential for affecting recreation on existing reservoirs, including the existing Millerton Lake, and creating recreation opportunities on or near the potential TFR.

There are few alternate reservoir recreational sites in the San Joaquin Valley with similar attributes to Millerton Lake and the potential TFR, and certainly none within the proximity to the large population base of the nearby Fresno metropolitan area. Regional population growth is expected to increase recreation demand at Millerton Lake and increase visitation, as reported in the 2010 Millerton Lake SRA General Plan, and continued demand for outdoor recreational activities of the type offered at Millerton Lake, suggest that there is an excess unmet demand that would be associated with new visitors.

This chapter documents the economic benefit methodology of increased recreational visitation at Millerton Lake and the potential TFR. The method presented in the following sections relies on: historical information, an assessment of recreation opportunities for the TFR Project (see Attachment G, EGPI A4 Engineering Summary), personal interviews with knowledgeable staff at Millerton Lake SRA and the SJRG SRMA, estimates of increased recreation participation at Millerton Lake and the potential TFR (see BCMR A5: Modeling Approach, Chapter 7), and benefits transfer approaches for applying economic values.

9.1 Visitation Estimates Opportunities for recreational development would vary, depending on balancing of reservoir storage levels between Millerton Lake and TFR and water supply beneficiaries. The Recreation Opportunities Technical Report (Attachment G, EGPI A4 Engineering Summary) presents a qualitative evaluation of the overall impact on Millerton Lake recreation during peak season under several scenarios representative of TFR. These evaluations indicate an “overall positive assessment” of the recreation opportunities in the wide portion Millerton Lake, downstream from the potential dam site, with scenarios that operate Millerton Lake at a 550 feet water surface elevation during the peak recreation season (April to September).

Operating the reservoir balancing to generally keep Millerton Lake at a fixed elevation could improve early- and late-season boating opportunities in Millerton Lake. However, operating at lower elevations could affect the aesthetics of the reservoir, increase the distance recreation participants would travel to the water surface, and increase vehicle use that may degrade shoreline use conditions. Operating Millerton Lake with a fixed elevation between elevations 540 to 560 feet would allow the best balance of shoreline and reservoir use. The current operating



plan for the TFR Project seeks to maintain Millerton Lake at 550 feet, but allows it to drop to an elevation of 472 feet.

It should be noted that TFR would decrease the surface area of Millerton Lake (since the potential dam site is within the upstream portion of Millerton Lake) and may therefore affect activities that rely on access to that portion of the lake. For this reason, the estimate of impacts of reservoir operations and Millerton Lake water surface elevations on recreational participation focused on recreational visitation in the wide portion of Millerton Lake, downstream from the potential dam site.

TFR would provide an increase in water surface acres available for boating activity participation within the region and two boat ramps are included as project features to provide access to the reservoir water surface (described in the EGPI A4 Engineering Summary). In addition, existing Millerton Lake SRA and SJRG SRMA recreation facilities that would be affected by the reservoir inundation area would be relocated and/or replaced. No additional new land-based recreation or camping facilities are included in the engineering design and costs. Estimated TFR Project recreational visitation (documented in the BCMR A5 Modeling Approach, Chapter 7; and BCMR A3 Monetized Benefits Analysis, Chapter 3) is net of existing Millerton Lake SRA visitation above RM 274.

The Recreation Opportunities Technical Report (Attachment G, EGPI A4 Engineering Summary) indicates that some existing recreation activity opportunities (i.e., caving, rock climbing, gold panning, and whitewater boating) in SJRG SRMA may be impacted, and that the conversion of a riverine experience to a reservoir experience may impact recreation participation due to the change in aesthetics. As a result, the estimated benefit increases in annual visitation at TFR are net of potentially impacted SJRG SRMA recreation activity participation.

9.2 Economic Values for Recreational Visitors For recreation, the valuation of benefits would abide by a WTP framework. Recreation is primarily a non-market good, and non-market benefits quantification is often difficult and time consuming. The change in recreational participation and economic value (WTP) that potential visitors would attribute for enhanced recreation opportunities at Millerton Lake and new recreation at TFR were not evaluated. Therefore, benefits transfer approaches for applying economic values were used to determine the economic benefit of increased recreational participation.

The literature contains a wide variety of studies that contain estimates of many types of recreational activity in a host of different locations and settings. Loomis (2005) prepared and updated a report that summarizes some 30 years of literature on the net economic value of recreation, including average net WTP or consumer surplus per day for 30 recreational activities. Estimates of relevance to the Millerton Lake and TFR recreation benefit estimate value are shown in Table 9-1, in both 2004 dollars (as reported in the study) and updated to July 2015 dollars via the Bureau of Economic Analysis Implicit Price Deflator.



Table 9-1. Consumer Surplus Values per Visitor-Day Recreational Activity Value (2004$) Value (2015$1)

Camping $37.19 $45.55 Fishing $47.16 $57.76 Hiking $30.84 $37.77 Motorboating $46.27 $56.67 Picnicking $41.46 $50.78 Swimming $42.68 $52.27 Waterskiing $49.02 $60.04

Source: Loomis, John. Updated outdoor recreation use values on national forests and other public lands. Gen. Tech. Rep. PNW-GTR-658. Portland, OR: U.S. Department of Agriculture, Forest Service, Pacific Northwest Research Station, 2005. Note: 1 Consumer surplus values are adjusted to July 2015 dollars using the Bureau of

Economic Analysis Implicit Price Deflator.



CHAPTER 10 FLOOD DAMAGE REDUCTION BENEFITS

Increasing the overall storage capacity in the upper San Joaquin River Basin increases the likelihood that there would be storage capacity available for use in flood management over and above the current dedicated flood storage space in Millerton Lake. This newly available storage is called incidental flood storage because it would not have the same amount of flood storage space available at a given time every year. Incidental flood storage is different than dedicated flood storage, which follows the reservoir operations rule curve and reserves a specified amount of storage space at any given time during the flood season.

Although the TFR Project would not be managed for flood control as a primary purpose, flood damage reduction is an incidental benefit that could provide additional benefits. This section summarizes that complete analysis of the flood damage reduction potential, including an estimate of the economic benefits, which has been indexed to July 2015 price levels.

10.1 Hydrologic and Hydraulic Modeling A basin-wide flood damage analysis framework and associated suite of technical tools incorporating a risk-based analysis was developed as part of the USACE Sacramento and San Joaquin River Basins Comprehensive Study (Comprehensive Study) (USACE 2002). Analytical tools developed for the Comprehensive Study were designed to support evaluations of flood management actions for the entire San Joaquin River basin and included hydrologic data for inflows to all reservoirs operated for flood management; a hydraulic model representing San Joaquin River floodways; and an economics model representing damageable property in areas subject to flooding in the San Joaquin River basin (Figure 10-1).

Hydrologic data used in the reservoir flood modeling include inflows to all major reservoirs operated for flood management, from Pine Flat Reservoir on the Kings River to New Hogan Reservoir on the Calaveras River. A HEC-5 reservoir operations model of combined Temperance Flat and Millerton reservoirs was run to determine the effects of operating the two reservoirs in conjunction for flood operations, with additional available flood storage.

The existing Flood Control Diagram at Friant Dam specifies rain flood space of 170 TAF November 1 to February 1, with a ramp up and down in the months before and after that period. From November 1 to February 1, flood space in excess of 85 TAF may be replaced by an equal amount of space in Mammoth Pool. The required total available flood control storage and operation rules at Millerton Lake were used for the combined TFR Project and Millerton Lake analysis to maintain the same level of regulatory flood control. The HEC-5 model was run for existing conditions of 170 TAF available flood space, and for available flood storages of 210 TAF, 250 TAF, 340 TAF, and 500 TAF.



Figure 10-1. Temperance Flat and Millerton Reservoirs Flood Benefit Area



The USACE UNET hydraulic model of the San Joaquin River developed for the Comprehensive Study was used to route the flows from the HEC-5 models downstream to the Delta. The resulting water surface elevations for the damageable areas were used as inputs to the HEC-FDA model.

CalSim-II simulations for the Current Conditions (2017), 2030 Future Conditions, and 2070 Future Conditions were used to determine the available end-of-month storage in the combined Temperance Flat and Millerton reservoirs as an indication of incidental available flood storage. The CalSim-II model results show that during the winter months (November to February) the incidental total available storages in the combined Temperance Flat and Millerton reservoirs 90% of the time are as follows:

• Current Conditions (2017) – 440 TAF available storage

• 2030 Future Conditions – 233 TAF available storage

• 2070 Future Conditions – 191 TAF available storage

10.2 Applying the HEC-FDA Model The primary model for performing economic analysis of flood damage reduction for the Comprehensive Study was the U.S Army Corps of Engineers HEC-FDA model. The HEC-FDA model integrates hydrologic, hydraulic, and geotechnical engineering and economic data, and incorporates uncertainty for risk analysis using a Monte Carlo simulation procedure. The output of the HEC-FDA model is expressed in terms of EADs, which represents the long-term average annual flood damage expected for a given area. Computation of EAD takes into account interrelated hydrologic, hydraulic, geotechnical, and economic information and associated uncertainties. Specifically, EAD is determined by combining the discharge-frequency, stage-discharge (or frequency), and stage-damage functions and integrating the resulting damage-frequency function. Uncertainties are present for each of these functions and are carried forth into the EAD computation.

The analysis of the possible addition flood storages determined that EADs for the San Joaquin River Basin would be reduced by increasing flood storage at Friant Dam while maintaining the existing objective release of 8,000 cubic feet per second, and the total EAD in the San Joaquin Valley for this alternative is shown in Table 10-1.



Table 10-1. Total San Joaquin Valley Expected Annual Damages Associated with Range of Additional Flood Storages Assessed with HEC-FDA

Alternative

Expected Annual Damage ($ millions)1 170 TAF

Flood Storage

210 TAF Flood

Storage

250 TAF Flood

Storage

340 TAF Flood

Storage

500 TAF Flood

Storage

1,000 TAF Flood

Storage2 Future No Action $37.4 n/a n/a n/a n/a n/a

Enlarged Flood Storage Space n/a $35.6 $35.1 $34.1 $32.6 $29.5

Source: U.S. Department of the Interior, Bureau of Reclamation and California Department of Water Resources. 2005b. Upper San Joaquin River Basin Storage Investigation, Initial Alternatives Information Report. Flood Damage Reduction Technical Appendix. June. Notes: 1 Dollar values are expressed in July 2015 price levels. 2 The expected annual damage associated with 1,000 TAF of flood storage was not assessed with the HEC-FDA

model. Instead, it was calculated by fitting a curve defined by a logarithmic function to the data points associated with smaller flood storage values, and using this curve to estimate the expected annual damage associated with 1,000 TAF of flood storage.

Key: n/a = not applicable TAF = thousand acre-feet

10.3 Incidental Flood Storage Benefits Increasing the overall storage capacity in the upper San Joaquin River Basin increases the likelihood that there would be storage capacity available for use in flood management over and above the current dedicated flood storage space in Millerton Lake. This newly available storage would be called incidental flood storage because it would not have the same amount of flood storage space available at a given time every year. Incidental flood storage is different than dedicated flood storage, which follows the reservoir operations rule curve and reserves a specified amount of storage space at any given time during the flood season.

Once the amount of available incidental storage is determined, the incidental annual flood damage reduction can be calculated using the HEC-FDA EAD values described above and shown in Table 10-1. For this analysis, the available incidental storage was assumed to be equal to the increase in minimum 90 percent exceedence storage space available above the without-project condition that occurs during the November-to-February flood season. The minimum 90 percent exceedence storage space is found by first assessing the amount of storage space that is available during each month of the modeled period, which is equal to the total storage capacity less the volume of water stored in the given month. Then, for each calendar month, the 90 percent exceedence storage space is calculated as the amount of storage space that is available in that month during at least 90 percent of the years modeled. Finally, the minimum 90 percent exceedence storage space is determined as the smallest of the monthly 90 percent exceedence storages available across the months that comprise the flood season (November through February). This method essentially assumes that only the minimum amount of incidental storage likely to be available during the flood season in at least 90 percent of years is considered when determining flood reduction benefits. This method likely underestimates benefits associated with flood damage reduction, as substantially more incidental storage would be available on average. However, this conservative method was



chosen due to the uncertainty in the timing of flood flows and their coincidence with available incidental storage.

The EAD for each scenario is determined by interpolating between values for given flood storage volumes from the HEC-FDA modeling reported in Table 10-1 to find the EAD associated with the assumed incidental storage available under each with-project condition. The flood damage reduction under each with-project condition is then equal to the difference between the EAD for the with-project condition and the EAD under the without-project condition. Table 10-2 presents the results of the calculations to determine the 90 percent exceedence incidental flood damage reduction for each with-project condition.

Table 10-2. Incidental Flood Damage Reduction Benefits for TFR Project

Scenario

90% Exceedence

Flood Storage (TAF)

Increase in 90%

Exceedence Flood Storage

(TAF)1

Total EAD ($M)

Flood Damage

Reduction Benefit ($M)2

Millerton CWC2030 170 0 $38.1 n/a Millerton + TFR CWC2030 233 63 $35.9 $2.1 Millerton CWC2070 85 -85 $42.6 n/a Millerton + TFR CWC2070 191 106 $37.1 $5.5 Notes: 1 November-February minimum 90% exceedence storage less 170 TAF for Millerton Lake and Mammoth

Pool flood storage 2 Dollar values are expressed in July 2015 price levels Key: EAD = expected annual damages $M = million dollars TAF = thousand acre-feet TFR = Temperance Flat Reservoir



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