5 Financial comparison of SWIP with an All-Well Water Alternative
Mr. Hickmann makes the following statement about the financial comparison of SWIP and Groundwater Only alternatives:
The cost of power required to run well pumps is expected to exceed the City’s interest payments over the course of the City’s loan for the Surface Water Improvement Project. On a present value basis, it is cheaper to pay interest on the loan to invest in energy-efficient surface water than it is to pay long term, escalating power bills for groundwater {A-19, B-10}
Comment: Mr. Hickmann is an engineer not a financier or an economist. For these figures Mr. Hickmann is relying on the HDR comparison of SWIP and the Groundwater Only alternative (dated October 2010). The HDR study has already been rejected as illegitimate on two accounts.
1) There was a huge conflict of interest in “hiring” HDR to conduct such an analysis in the first place, which has never been addressed.
2) Mr. Hickmann’s figures for costs of power to run pumps depend completely on unrealistic growth rates in water use and the increase in power costs. In a private meeting held between the City and the opposition, even the City’s consultants agreed that the 6.2 per year increase in power costs projected was excessive.
A new financial and economic model created to compare the SWIP and Groundwater Only alternatives recalculates the figures cited by Mr. Hickman shows Mr. Hickmann is flat out wrong to say that the present value of the pumping costs will exceed the interest payments. In the Aylward model (details available in the unabridged version of this document) present value of interest payments exceeds pumping costs by more than 2 to 1. In fact, over the 50-year planning horizon the net present value of all the pumping required for all 50 years is less than $20 million (with a 1% growth rate and a 3.3% increase in power costs).
However, Mr. Hickmann’s argument is irrelevant nonetheless because for at least the last 50 years it has been generally accepted that the way to judge between project alternatives is on the net present value of all costs and benefits involved . . . not just pumping costs or interest costs. On these grounds, the model developed by Aylward suggests that a groundwater-only alternative is less costly than SWIP in financial terms by between $30 to $40 million. This is before ascribing any value to the benefits that would be realized by the City placing its water rights instream for fish, wildlife, water quality and recreational purposes. This would mean from 2 billion (now) to 4.5 billion gallons (at end of 50 years) of additional cold water in Tumalo Creek. This could represent an additional $10 million in savings to the public. So in a direct comparison of SWIP with a groundwater-only alternative the groundwater-only alternative comes out as the superior choice by some $40-$50 million.
This re-analysis of the SWIP shows that the resolution currently proposed by the City is inadequate because it does not address the shaky foundations of the project nor does it reassess the alternatives.
