Economic Benefits of Alternative Reservoir Operations Watersmart Basin Study Program - Reservoir Operations Pilot Study
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Final Report Economic Benefits of Alternative Reservoir Operations WaterSMART Basin Study Program - Reservoir Operations Pilot Study May 28, 2021 Acknowledgements This work was made possible through funding from the WaterSMART Basin Study Program of the Bureau of Reclamation (Reclamation). Thanks to Katharine Dahm for initiating this work, and all members of the project team: • Mike Dietl (Project Manager), Vince Barbara, Avra Morgan, Ankur Bhattacharya and Kenneth Richard—Reclamation • Donald Seymour, Devin Chatoian, Chris Delaney, Bradley Elliott, Joan Hultberg, Jay Jasperse, and John Mendoza—Sonoma Water • Dr. Lou Nadeau, Dr. Tess Hubbard, Arleen O’Donnell, Charles Goodhue, Caitline Barber and Zach Finn—ERG • Robert Hartman—Robert K. Hartman Consulting Services Additional thanks to the Prosser Reservoir Test Case Team, especially Laurie Nicholas, and those who participated in the transferability workshop held on November 5, 2020. Members of the Water Management Options Pilot Team are indicated with an asterisk: • Laurie Nicholas, John Hunter, Dan Lahde, and Scott Schoenfeld—Reclamation* • Dan Deeds, Matt Elmer, and Austin Olah—Reclamation • Chad Blanchard, Patrick Fritchel, and Dave Wathen—U.S. Water Master’s Office* • Bill Hauck—Truckee Meadows Water Authority* • Donna Noel and Ali Shahroody—Pyramid Lake Paiute Tribe* • Jim Eto and Dan Yamanaka—California Department of Water Resources* • Caleb Erkman—Precision Water Resources Engineering* Finally, we thank the economic roundtable participants whose expertise informed the economic assessment methodologies: • Matthew Bates—California Department of Water Resources • Cameron Speir—National Oceanic and Atmospheric Administration Fisheries • Tom Corringham—Scripps Institution of Oceanography, UC San Diego, Center for Western Weather and Water Extremes (CW3E) • Barbara Wyse—Highland Economics • Dagmar Llewellyn and Beau Uriona—Reclamation • Guyton Durnin and Jeremy Cook—HDR, Inc. Cover photo courtesy of Sonoma Water. Final Report 1 May 28, 2021 List of Acronyms and Abbreviations AEP annual exceedance probability ac-ft acre-feet BLS Bureau of Labor Statistics cfs cubic feet per second CNRFC California Nevada River Forecast Center CPI-U Consumer Price Index for All Urban Consumers CVD Coyote Valley Dam DST decision support tool EAD expected annual damage EAP expected annual population at risk EFO Ensemble Forecast Operations EIA Energy Information Administration FDA Flood Damage Assessment FIA Flood Impact Analysis FIRO Forecast Informed Reservoir Operations ft feet FY fiscal year FVA Final Viability Assessment HEC Hydrologic Engineering Center HEC-DSS HEC Data Storage System HEC-ResSim HEC Reservoir System Simulation HEC-RAS HEC River Analysis System HEMP Hydrologic Engineering Management Plan Ln natural logarithm MWh mega-watt hour M&I municipal and industrial NED National Economic Development NOAA National Oceanic and Atmospheric Administration NPV net present value NQH2O Nasdaq Veles California Water Index OHV off-highway vehicle PAR population at risk P&G Economic and Environmental Principles and Guidelines for Water and Related Land Resources Implementation Studies PR&G Principles, Requirements, and Guidelines for Water and Land Related Resources Implementation Studies PV Present Value PVA Preliminary Viability Assessment Reclamation Bureau of Reclamation SWP State Water Project TMWA Truckee Meadows Water Authority TNC The Nature Conservancy Final Report 2 May 28, 2021 TOC top of conservation TUCP Temporary Urgency Change Petitions UDV unit day values USACE United States Army Corps of Engineers USDA United States Department of Agriculture USFS United States Forest Service USGS United States Geological Survey VERS Visitation Estimation and Reporting System WCM Water Control Manual WCP Water Control Plan WMOP Water Management Options Pilot WTP willingness to pay WY water year Final Report 3 May 28, 2021 Table of Contents Acknowledgements 1 List of Acronyms and Abbreviations 2 1 Executive Summary 7 2 Introduction 12 2.1 Project Tasks 13 2.2 Organization of This Report 15 3 Overview of FIRO at Lake Mendocino 16 3.1 FIRO Alternatives 16 Background 16 WCP Alternatives 17 3.2 Water Availability Estimates 23 WCP Performance Metrics 23 Procedure 24 Study Boundary Conditions 24 Analysis Methods 25 Non-Consequence Analysis Methods 25 Consequence Analysis Methods 25 Results 27 Key Findings 27 3.3 FIRO Alternatives Considered for Economic Analyses 39 4 Economic Benefits of FIRO at Lake Mendocino 44 4.1 Introduction 44 4.2 Federal Guidelines for Estimating Economic Benefits 46 4.3 Agricultural Water Supply 47 Background 47 Methods and Results 48 Caveats and Limitations 53 4.4 Municipal and Industrial Water Supply 54 Background 54 Methods and Results 54 Sensitivity Analyses 58 Caveats and Limitations 59 4.5 Hydropower 59 Background 59 Methods and Results 60 Caveats and Limitations 63 4.6 Fisheries 64 Background 64 Methods Overview 64 Abbreviated Least-Cost Alternative Method and Scoping of Alternatives 65 Final Report 4 May 28, 2021 Avoided Cost of Raising the Dam Height 66 Valuation Using Water Transaction and Conveyance Prices 69 Valuation Using WTP Benefit Transfer 70 Caveats and Limitations 70 4.7 Recreation 71 Background 71 Methods and Results 71 Alternative Estimates and Validity Assessment 79 Caveats and Limitations 80 4.8 Reduced Operation, Maintenance, and Replacement Costs 81 5 Economic Decision Support Tool Summary and User Guidance 82 5.1 Introduction 82 5.2 Irrigation Water Supply 84 Step 1: Additional Water 84 Step 2: Identify Commodities 84 Step 3: Calculate Net Revenue 84 Step 4: Identify Water Usage 86 Step 5: Calculate the Shadow Price of Water 87 Step 6: Distribute Additional Water Across Commodities 87 Step 7: Calculate Benefits 87 Limitations and Considerations 88 5.3 M&I Water Supply 88 Option 1 89 Option 2 89 Limitations and Considerations 91 5.4 Hydropower 92 Hydropower Generation 93 Wholesale Electricity Prices 94 Limitations and Considerations 94 5.5 Fisheries 94 Indicator Metrics 95 Fisheries Economic Benefit Estimation Methods 95 5.6 Recreation 101 Option 1 101 Option 2 102 USGS Data 103 Limitations and Considerations 104 5.7 Keeping the DST Up to Date 105 The CPI-U 105 NQH2O Data 107 Wholesale Electricity Price Data 112 USGS Recreation Values 112 6 Prosser Reservoir: Transferability and Workshop 114 Final Report 5 May 28, 2021 6.1 Introduction 114 6.2 Calculations 114 Irrigation Water Supply 115 M&I Water Supply 116 Recreation 119 Fisheries 121 6.3 Workshop 122 7 Broader Stakeholder Input and Communicating Results: American Geophysical Union Conference Poster 124 8 Findings and Conclusions 125 References 127 Appendix A: Lake Mendocino Data and Methodological Appendix 132 Appendix B: Economic Benefit Methodologies 139 Appendix C: Economic DST 150 Appendix D: Transferability Workshop Notes 151 Final Report 6 May 28, 2021 1 Executive Summary The purpose of this project was to assess the economic benefits of alternative reservoir operations at Lake Mendocino and test transferability of the methods to other reservoirs. Following research of economic benefit methodologies, and consultation with other economists at a facilitated roundtable session, final methods were chosen and subsequently tailored. ERG developed an economic decision support tool (DST) to support and facilitate the transferability of the methods. The potential costs of FIRO were not considered as part of this work and therefore the net benefits of FIRO remain uncertain. Future work should consider assessing the costs of FIRO. This work was funded through Reclamation’s WaterSMART Basin Study Program. Sonoma Water was awarded $150,000 through the WaterSMART: Reservoir Operations Alternatives— Calculating Economic Effects (BOR-DO-18-F004) grant. ERG was hired as a subcontractor to Sonoma Water. ERG estimated the benefits of Forecast Informed Reservoir Operations (FIRO) at Lake Mendocino for six benefit types. Five of these benefits were then incorporated into the DST. In accordance with Reclamation standards, ERG assessed “with project” alternatives as compared to the “without project” condition. We refer to the “without project” condition as “baseline” because it represents a continuation of the existing reservoir operations. The “with project” alternatives are referred to generally as FIRO “alternatives” or specifically by the type of alternative reservoir operating conditions. Benefits were quantified for two FIRO alternatives: Modified Hybrid and Ensemble Forecast Operations (EFO). These alternatives were chosen as part of the Lake Mendocino Final Viability Assessment (FVA) Hydrologic Engineering Management Plan (HEMP), which assessed the performance of these two alternatives in addition to three others (including existing operations, or baseline) in terms of 16 metrics. The EFO alternative operates without a traditional guide curve and uses 15-day ensemble streamflow forecasts to identify required flood releases. The Modified Hybrid alternative is a combination of the baseline operations and the EFO alternative, but with a “corner-cutting” strategy that allows for greater storage to begin in late winter to help with spring refill. FIRO’s impacts on Lake Mendocino water levels were estimated using data from a 33-year hindcast from January 1, 1985, through September 30, 2017. For each benefit type, we calculated the average annual benefit over this hindcast period and adjusted the benefits to 2019 dollars. As shown in Table 1, FIRO’s total estimated annual benefits are either $9.4 million or