Summary:
On October 12, 2022, USBR distributed a letter calling for proposals to leave Colorado River water in Lake Mead under a new Lower Colorado River Conservation and Efficiency Program (“LC Conservation Program”). The LC Conservation Program compensates participants per acre-foot for water left in Lake Mead with longer commitments receiving a higher price. After carefully evaluating a number of supply and demand scenarios, Peoria staff submitted a proposal on November 21, 2022 offering to forgo receipt of up to 7,200 acre-feet of its CAP allocation per year for three years in exchange for the maximum compensation price of $400 per acre-foot; up to $2,880,000 in total compensation per year. As requested by USBR, Peoria included a number of stipulations that would be required for its participation. Since mid-January 2023, Peoria staff has worked with attorneys and water managers from the federal government, CAWCD, and fellow potential participants—Glendale, Phoenix, Scottsdale, Gilbert, Tucson, ASARCO, Metro Water District—to develop an agreement acceptable to all.
Similar to the CAP System Conservation Agreement Peoria Council approved on August 23, 2022, the current SCIA would result in Peoria agreeing to cancel receipt of a portion of its CAP allocation in 2023, 2024, and 2025 in exchange for compensation. For 2022, under a different federal program, the agreement was 10,000 acre-feet for $261.60 per acre-foot. The current SCIA under the LC Conservation Program is for up to 7,200 acre-feet in 2023, 2024, and 2025 for $400 per acre-foot. The “up to” language acknowledges the fact that Colorado River shortages in future years may result in Peoria not being able to participate at its maximum proposed volume of 7,200 acre-feet per year. Importantly, participation is not compulsory and is an annual decision.
To implement the SCIA, Peoria will submit a delivery schedule amendment to CAWCD cancelling its order for up to 7,200 acre-feet currently scheduled for delivery at the Salt River Project Groundwater Savings Facility (“SRP GSF”) and the Agua Fria Recharge Project (“AFRP”). As with the 2022 agreement, it is Peoria staff’s intention and goal to ensure the city’s balance of stored water is not impacted by participating in this agreement. Staff is in communication with owners of existing long-term storage credits (“LTSC”) at these storage facilities to purchase LTSCs to replace those that would have been created if Peoria had taken delivery of all its CAP allocation. Purchase agreements for LTSCs may be brought to council later in the year. A small differential between the anticipated cost of purchasing LTSCs versus the water delivery cost savings plus the federal compensation may result in a net financial benefit to Peoria. At this time, without final LTSC purchase agreements or a final SCIA volume this net benefit cannot be known with certainty. Any proceeds, cost savings, and expenses will take place in fiscal year 2024, so the SCIA will not result in any negative impact to Peoria’s budget or the cost of water to its residents.
Benefits of the SCIA:
· Enhanced Goodwill – Peoria has and continues to participate in voluntary efforts aimed at stabilizing the Colorado River water delivery system.
· Higher Ranking with Additional Funding Opportunities – Participation in Part 1.a of the LC Conservation Program gives applicants seeking funding under Part 2 of the Program a higher ranking. Peoria does not currently have a proposal for Part 2 funding, but participation enhances Peoria’s likelihood of being selected if we should elect to do so.
· Contribute to Higher Lake Mead Water Levels – Leaving CAP water in Lake Mead contributes to higher water levels. Colorado River shortages and associated CAP reductions are based on Lake Mead water levels. Peoria’s participation could help the Lake Mead water level and possibly reduce the size of CAP water reductions, if applicable, in 2024.
· CAP Water Cost Savings – Reduced CAP water deliveries results in a higher rate per acre-foot as fixed costs are spread over less water sold. Many users of CAP water are participating in various programs to leave water in Lake Mead that will result in an upward adjustment to the 2023 CAP water rate. Peoria does not have to pay this higher rate for any water it does not receive under the SCIA.