April 2014, Issue 82: Editor’s Notes

Posted on by

For the first time, CAP is considering adopting water rates for shortage conditions.

In last month’s editorial, we noted several factors that may cause a dramatic increase in CAP rates in coming years. Since then, the CAP has incorporated one of these possibilities — shortage — into its upcoming biennial rate discussion. For the first time, the Board is considering two sets of advisory rates — one for normal conditions and one for shortages — over its next 6-year planning horizon.

A shortage declaration on the Colorado River triggers a reduction in the total amount of CAP deliveries and, consequently, an increase in the rates all customers pay. According to the terms of the Colorado River Operating Plan, a Tier 1 shortage declaration will reduce deliveries by 20 percent, increasing the Fixed OM&R portion of the rates for all customers by 25 percent. This is especially relevant for CAP’s highest-priority contract holders (M&I and tribes), who will be left sharing fixed operating costs under prolonged shortages as other customers become fewer in number.

So what are the chances of shortage in the next 6 years of CAP’s planning horizon? This year, runoff from the Upper Basin is projected to be slightly above normal, minimizing the chance of shortage declaration in 2015 or 2016. However, for 2017, the chance still exceeds 50 percent. The past 30 years remain the driest such span on record and, with storage currently below 50 percent of total reservoir capacity, the chances for shortage become even higher after 2017.

Future shortages and rate increases are also likely to cause other, less predictable changes down the road. For example, a shortage will reduce deliveries to agricultural customers, which in turn may reduce the need to use property taxes to support lower ag pricing. Alternatively, higher water rates may cause some Indian and/or M&I customers to opt out of delivery, thereby freeing water for redistribution to AWBA, CAGRD, and others with statutory firming obligations. All of this means that customers should watch CAP rate policies and basin shortage models closely to prepare for an uncertain future.

Juliet McKenna, MS, PG