Tag Archives: California

Why ag “savings” might not be the solution to urban water woes

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Over the last couple of years, I’ve come across several examples of how increased agricultural irrigation efficiency hasn’t led to water savings. When interviewing a farmer in San Joaquin County about managing agricultural pumping loads, he described how he had invested $2,000/acre in a microdrip system for his tomato and melon fields. To avoid his subterranean systems, his farm has a GPS repeater that guides his tractors within a few inches. Another consultant described how they couldn’t find any flood irrigated tomato fields, a standard method in 2007, for a comparison survey for drip effectiveness. Fresno County tomato yields increased more than 25% from 2007 to 2012, and individual field yields have increased 50%.

The result is that growers are using the water they have to increase productivity. They also have moved into more permanent crops which deliver higher revenues per acre-foot. For example, almond acreage has more than doubled since 1995. And little additional water has been freed up for urban or environmental uses.

With the increased value of water to agriculture, urban agencies have lost much of their competitive edge in pursuing water transfers. In 2014, Westlands Water District paid Placer County Water Agency an unheard of $325/AF, and there were reports of some transfers costing several thousand dollars per AF to protect orchard investments. The urban agencies use to largely have this playing field to themselves, but that era looks to be ending.

The evolution of California’s water transfer market (albeit a bit dated)

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Eric Cutter and I wrote a paper in 2002 that extended my dissertation chapter exploring how the state’s agricultural water management institutions, i.e., special districts like irrigation and California water districts, affected water transfer participation. We had built the first extensive transfer database in 2000 (On-Tap) for USBR and CDWR, using secondary sources, and used that analysis for the paper. Ellen Hanak of PPIC reconstructed a data set from primary sources a couple of years later, and updated it in 2012, so this data has been superseded. (Her 2012 coauthor Liz Stryjewski is now a consulting associate with M.Cubed.)

The paper discusses two important aspects not often touched upon: 1) the search and transaction settlement mechanisms are important to market success, and 2) the nature of the institutions managing agricultural water can affect willingness to participate. Another important aspect is that California already has about 10 MAF in long-term permanent water transfers embedded in the CVP and SWP contracts. The 2 MAF in short-term and more recent long-term transfers are on top of those already occurring. So California has already has a viable market contrary to ill-informed observations by others; the question is whether that market can and should be expanded further.

UCLA professor’s comments not helping California’s drought problem

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An environmental horticulturalist for UC Cooperative Extension in Los Angeles, Don Hodel, has been getting a lot of press recently criticizing the State Water Board’s urban water restrictions. He advises that the Water Board should have advised targeting changes in watering practices rather than limiting supplies, and claims that urban restrictions were unneeded, implying that agriculture should bear the entire brunt. Unfortunately, he’s made at least two grievous errors in his assessment.

First, Hodel fails to understand that the actual implementation of the reductions is to be done by the local water utilities, not the Water Board. The Board only provided the targets, and the stick if the targets aren’t met. Hodel needs to complain to the utilities if he thinks they aren’t doing their job.

But of course, he’s equally naive about the huge problem of communicating about changing irrigation practices to millions of urban customers across hundreds (yes) of distinct water utilities. Of course, these utilities have been trying to get their customers to improve outdoor watering, but just getting their attention is a big enough problem.

Second, his real agenda is to imply that urban horticulture is more valuable the state’s agricultural industry. Urban agencies have only so much contractual and physical access to water supplies. To not cutback deliveries would require transferring water from farmers. But there’s at least two problems with that, the first being that agricultural water is much more valuable than Hodel imagines and second is that it’s not easy getting the water from northern to southern California.

It turns out that those farmers have been doing an exceptional job at improving their irrigation practices; the problem is that they’ve used that efficiency to increase output rather than to save water. The original proponents of agricultural water efficiency didn’t anticipate this response and the surplus didn’t materialize for urban users or the environment.

And even so, moving water from farm areas and treating it for domestic uses adds substantially to the cost of water. It’s the primary reason why urban water costs well in excess of $2,000 per acre-foot while agricultural water is much less than $500 per acre-foot. Water isn’t a particularly fungible good, and proponents of water transfers as the “solution” ignore this issue (along with the problems of market design and function.)

These types of moments are when I wished that journalists were better informed and able to filter out the uninformed “experts.”

Interesting interview with the Delta Watermaster

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OK, it’s not a scene from Ghostbusters. Delta Watermaster Michael George makes some statements that have been percolating about but not publicly discussed. He points out that agricultural water efficiency, contrary to water savings calculations by groups such as Pacific Institute, has lead to increased productivity with the same amount of water. He also appears to support the Twin Tunnels approach.

Reblog: Leaking Coal to Asia

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Maximillian Auffhammer at UC’s Energy Institute @ Haas focuses on the issue of exporting coal from the Port of Oakland, but he turns to the issue I highlighted recently–the path to accomplishing environmental objectives should travel through compensating those who are worse off from such policies.

Source: Leaking Coal to Asia

Looking to the Aussies to solve California’s water problems

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The San Francisco Chronicle ran an article how Australia changed its water infrastructure and usage in the face of the 12-year “Big Dry.” Earlier the Chronicle ran “5 fixes for California’s age-old water rights system” that drew on Australia’s experience. M.Cubed’s analysis of the state’s urban drought regulations included a synopsis of Australia’s experience. An interesting question is whether anyone has assessed the political-economic process that facilitated Australia’s transformation. What were the trade-offs made? How were key interest groups satisfied?

MWDSC looking to add recycled water to their portfolio

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Metropolitan Water District is looking at spending up to $1 billion on recycled water supplies. MWD is considering a $15 million pilot in Carson to start. When I talked to the California Association of Sanitation Districts last month on the impacts of the drought, I highlighted that recycled water now may be a cost-effective supply source as the water market changes. In 2008, M.Cubed prepared with AECOM/EDAW and RMC East Bay Municipal Utility District’s Water Supply Management Program 2040. At that time, other resources such as water transfers were more attractive, but the economics are changing for a variety of reasons.  I’ll blog in the near future about how agriculture may no longer be an attractive source for urban supplies.

Do we really need more storage for our renewables?

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PG&E has been running a series of “advertorials” on clean energy in the Sacramento Bee and other papers. Today’s on the need for electricity storage caught my eye. I’m not sure that we need new storage in California, at least not large-scale, in the immediate future.

The PG&E article describes an event in February 2014 when California generated more energy, much of it from solar and wind, than consumers were using. PG&E raises this as a concern that should be addressed so as not to lose that energy. But PG&E’s premise ignores one critical point–California is not isolated–it’s connected to many other states.

California is the largest electricity consumer in the Western Interconnection (with 10 other states and parts of Canada and Mexico). However the state only represents 30% of Western load. All of those states have weaker directives on renewables and greenhouse gas emissions, and most have much larger portions coming from high-emitting coal-fired plants.

When California overgenerates from renewables, it exports that power to those other states. This leads to a reduction in natural gas and coal use. When California needs power, it imports power as it has been doing for decades. In other words, the rest of the Western Interconnect is already acting like a storage device. The Southwest utilities have long exported excess coal-fired power overnight to California at low prices. Now California can turn the tables. PG&E may not be getting renewable portfolio standard (RPS) or greenhouse gas reduction credits for those exports, but they reduce GHG emissions in other states.

This situation is similar to the recent rise in petroleum production in the U.S. The country now exports refined products thanks to advances in extraction technologies. Congress is considering whether to allow the export of crude oil.  For both California and the U.S., the concept of exporting energy has been inconceivable up to now. Time to rethink our paradigms?

Far Reaching Impacts of the California Drought

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I talked to the California Association of  Sanitation Agencies in San Diego on the drought situation, its economic impacts and available resources including recycled or “recovered” water. My presentation is here.

Equity issues in TOU rate design

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I attended the Center for Research into Regulated Industries (CRRI) Western Conference last week, which includes many of the economists working on various energy regulatory issues in California. A persistent theme was the interrelationship of time-varying rates (TVR) and development of distributed generation like rooftop solar. One session was even entitled “optimal rates.” We presented a paper on developing the proper perspectives and criteria in valuing distributed solar resources in another session. (More on that in another post.)

With the pending CPUC decision in the residential ratemaking rulemaking, due July 3, time of use rates (TOU) rates were at the top of everyone’s mind. (With PG&E violations of the ex parte rules, the utilities were cautious about who they were presenting with at least one Commission advisor attending. At least one presentation was scotched for that reason.) Various results were presented, and the need for different design elements urged on efficiency grounds. In the end though I was struck most by two equity issues that seem to have been overlooked.

First, various studies have shown that TOU rates deliver larger savings for customers who have various types of automated response equipment such as smart thermostats (e.g., NEST) or smart appliances. Those customers will see bigger bill savings and may find that doing so is more convenient and comfortable. An underlying premise in these studies is that the customer is the decision maker. But for 45% of California’s residents–renters–that is not the case. As a result tenants, who tend to have lower incomes, are likely to be subsidizing home owners who are better equipped to benefit from TOU rates.

Tenants must rely on landlords to make those necessary investments. Landlords don’t pay the bills or realize the direct savings in what is called the “split incentive” problem. And landlords may be concerned that future tenants might not like the commitments that come with the new smart devices. For example, signing up for PG&E’s SmartAC program can face this barrier.

So in considering residential customer impacts, the CPUC should address the likely differential in opportunities and benefits between owner-customers and tenant-customers. Solutions might include rate design differences, or moving toward a model where energy service providers (ESP or ESCo) take over appliance ownership in multifamily buildings. This split incentive is endemic across many programs such as the solar initiative and energy efficiency.

Second, a fixed charge have been proposed to address the anticipated impact of solar net energy metering. The majority of costs to be covered are for the “customer services” that run from the flnal line transformer to the meter. (I’ve been focused on this segment while representing the Western Manufactured Housing Communities Association (WMA) on master-metering issues.) However, the investments in customer services are not uniform across residences. For older homes, the services or “line extensions” may have already been paid off (e.g., most homes built before 1975), and with inflation, the costs for newer homes can be substantially higher.

The fixed charge would be based on one of two methods. In current rate cases, the new or “marginal” cost for a line extension is the starting point of the calculation, and usually the cost is scaled up from that. However, given the depreciation and inflation, the utilities will receive much more revenue than what they are entitled to under regulated returns. In the second method, the average cost for all services will be applied to all customers. This solves the problem of excess revenues for the utility, but it does not address the subsidies that flow from customers in older homes to those in newer ones. Because the residents of older homes tend to be tenants and have lower incomes, this again is a regressive distribution of costs. Solutions might include no fixed charge at all, differences in rates by house vintage, or discounts in the fixed charge as SMUD has instituted.

Regardless, these types of subsidies flow the wrong direction.