In response to worsening conditions on the Colorado River, Peoria participated in a System Conservation Implementation Agreement (“SCIA”) with the United States Bureau of Reclamation (“BOR”) and Central Arizona Water Conservation District (“CAWCD”). The SCIA allows Peoria to leave a portion of its Colorado River water allocation delivered through the Central Arizona Project (“CAP”) canal behind Hoover Dam in Lake Mead, in exchange for compensation. Specifically, Peoria agreed to conserve up to 7,200 acre-feet (“AF”) [2.35 billion gallons] or 21.1% of its 34,121 AF CAP allocation per year across calendar years (“CY”) 2023, 2024, and 2025 in exchange for the maximum compensation price of $400 per AF or up to $2,880,000 in total compensation per year.

The water Peoria has left in Lake Mead would ordinarily be used to generate Long-Term Storage Credits (“credits”), which are created by storing renewable water in the aquifers underground through designed “recharge” facilities. The credits can then be accessed in the future through pumping nearby wells. The 7,200 AF voluntarily dedicated to system conservation equates to Peoria accruing approximately 6,768 (reduction due to losses assessed by the state for stored water) fewer credits across the same year. It is Peoria staff’s goal to ensure the City’s balance of stored water is not impacted by participating in this agreement so that it can continue preparing for potential reductions to its CAP allocation in the future. To that end, staff is proposing Peoria enter into the Purchase and Sale Agreement (“PSA”) with the Tohono O’odham Nation (“Nation”) to replace the credits that would have been created if Peoria had taken delivery of all its CAP allocation in CY2023.

The Nation’s Council has approved the PSA and sale of 6,768 credits at the price of $440 per-credit for a total purchase price of $2,977,920. The LTSCs are stored at the Agua Fria Constructed Underground Storage Facility (“USF”), a facility located east of Loop 303 and north of Happy Valley Road within the riverbed of the Agua Fria River. In recent years, Peoria has prioritized storage of water at this facility due to its strategic location near wells within the Vistancia community and the site of the CAP-Lake Pleasant Parkway future well field project. The $97,920 difference between the $2.88 million-dollar SCIA payment and the credit cost under the PSA is covered by unspent monies from the Water Supply Budget, further details are provided in the Fiscal Analysis section below.

Council approved the SCIA at its May 15, 2023, meeting on the consent agenda. A substantially similar compensated conservation agreement and associated Purchase and Sale Agreement (“PSA”) for Long Term Storage Credits with the Gila River Indian Community (“GRIC”) passed unanimously at the August 23, 2022, meeting.

Staff recommends Council approve entry into the agreement presented, along with a budget amendment authorizing an additional spending authority of up to $1,700,000.

The PSA under consideration is planned and intended to be budget neutral and completed within Fiscal Year 2024.

In addition to the $2.88 million in system conservation revenue under the SCIA for Calendar Year (“CY”) 2023, the FY2024, Water Supply Budget is projected to be approximately $1.38 million under budget. Much of the Water Supply budget savings are attributed to the CAP Water Delivery Fee and the $1,562,400 refund Peoria received for the water delivery costs it prepaid for the 7,200 acre-feet of CAP water conserved in CY2023, at a rate of $217 per acre-foot, which was never delivered due to participation in the SCIA.

The sale and purchase price for the 6,768 credits under the Nation’s PSA is $2,977,920. The purchase price will be partially covered by the projected $1,388,371 in unbudgeted savings from the Water Supply Budget and will also require Council to authorize an additional spending authority of up to $1,700,000. The $1,700,000 in additional spending authority is entirely covered by the $2,880,000 of unbudgeted revenue from the CY2023 SCIA payment.