Taxpayers could be on the hook for Oroville spillway third-party claims, spillway reconstruction

It is not generally known that the State Water Project Water Supply Contracts explicitly bar recovery of damages or general liability for operations of the State Water Project. For example, Metropolitan Water District’s contract states the following:

13.  Responsibilities for Delivery and Distribution of Water.

(b) Neither the District nor any of its officers, agents, or employees shall be liable for the control, carriage, handling, use, disposal, or distribution of project water before such water has passed the delivery structures established in accordance with Article 10; nor for claim of damage of any nature whatsoever, including but not limited to property damage, personal injury or death, arising out of or connected with the control, carriage, handling, use, disposal, or distribution of such water before it has passed said delivery structures.

The annual financial statement published by the Department of Water Resources claims, erroneously, that the State Water Project is self-insured for general liability. The 2017 State Water Resources Development System financial statement states:

11. Self-Insurance

The System is self-insured for all completed facilities of the SWP. The System is also self-insured for workers’ compensation, general liability and other risks. All workers’ compensation claims and other losses are on a pay-as-you-go basis. The Water Supply Contracts provide for recovery of such losses from the Water Contractors. Additionally, the CVP act and the related bond resolutions authorize the issuance of additional bonds, payable from available revenues or federal reimbursements under the National Disaster Act, for the purpose of providing funds for emergency repairs to power projects or water system projects necessitated by natural disasters, provided that certain conditions are met.

But clearly given the language in the State Water Project contracts, the State Water Resources Developments system is likely NOT self-insured for general liability. For this reason, taxpayers could have to pay damages from the Oroville spillway incident, awarded by the courts to third parties. In 2017, the state received claims from the Oroville spillway incident totaling $1.1 billion .

1 Oroville spillway emergency evacuees Source: Beale Airforce Base

The State Water Project contractors are also seeking $200 million in general obligation bond funds to pay the costs of the reconstruction of the Oroville spillway, although the 1960 Burns-Porter Act pledged that repair costs would be paid from revenues from sale of water and power. Water Code section 12937, subdivision (b), states (underlining added):

All revenues derived from the sale, delivery or use of water or power, and all other income or revenue, derived by the State, from the State Water Resources Development System shall be deposited in a special account or accounts in the California Water Resources Development Bond Fund and shall be accounted for and used annually only for the following purposes and in the following order, to wit:

1. The payment of the reasonable costs of the annual maintenance and operation of the State Water Resources Development System and the replacement of any parts thereof.

2. The annual payment of the principal of and interest on the bonds issued pursuant to this chapter.

3. Transfer to the California Water Fund as reimbursement for funds utilized from said fund for construction of the State Water Resources Development System.

4. Any surplus revenues in each year not required for the purpose specified in the foregoing subparagraphs (1), (2) and (3) of this subdivision (b) of Section 12937 and not required to be transferred to the General Fund pursuant to subparagraph (a) of this Section 12937, shall, during the time any of the bonds authorized herein are outstanding, be deposited in a special account in the California Water Resources Development Bond Fund and are hereby appropriated for use and shall be available for expenditure by the department for acquisition and construction of the State Water Resources Development System as described in Section 12931 hereof.

In spite of this provision, it is currently unclear if the State Water Project contractors will end up paying any of the costs of neglect and deferred maintenance of the Oroville dam spillway.

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