June 2012, Issue 61: Editors’ Notes

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In last month’s editorial, we noted that a shortage on the Colorado River is inevitable. This month, we consider how a shortage might affect Arizona water users.

It is common knowledge that agriculture accounts for the biggest share of Arizona’s water demand and that, consequently, some ag users are likely to be subject to reductions during shortages on the Colorado River. Less well understood is that Arizona’s complex water-management structure incorporates hardwired protections for municipal uses for the foreseeable future. CAP has released a new recovery plan, which incorporates the results of hydrologic modeling and provides an updated look at what M&I subcontractors can expect when the shortage hits. The plan provides reassurance that M&I subcontractors are in a relatively secure position for the next 25 years, while agricultural and other users of “excess” CAP water should continue to prepare for frequent, and perhaps sustained, reductions.

The formula for allocating shortages as prescribed by the Law of the River sets reduced water deliveries in motion. As Lake Mead drops below the successive threshold levels of 1,075, 1,050, and 1,025 feet, Arizona will be expected to reduce its 2.8 MAF share of Colorado River water by first 320,000, then 400,000, and finally 480,000 AF per year. CAP will absorb most of Arizona’s shortage because of its lower priority.

There is also a priority hierarchy for CAP subcontractors. Reductions will start with excess water users. This lowest-priority group includes interstate banking and the ag settlement pool. After that, long-term contract holders will be shorted — again, according to priority, starting with non-Indian ag (NIA) and lastly M&I and Indian contracts.

The low priority of CAP agricultural contracts, combined with future uncertainties in energy availability and water costs, prompted a study on loan risks by Farm Credit Services Southwest. A borrower-owned cooperative, FCSSW holds the note on nearly half of all Arizona farm and ranch loans. According to Thomas Schorr of FCSSW, speaking at a recent conference in Tempe, “a loan on property within a CAP district could have a shorter repayment period and/or lower loan-to-value limits based on the availability and costs of water.”

Unlike lower-priority contractors, CAP’s M&I and Indian users are uniquely buffered from shortages because of “deposits” made to the Arizona Water Bank that can be recovered during shortage. CAP’s plan incorporates prescribed shortage formulas for existing contracts based on the updated hydrologic modeling results. The results are summarized below for different shortage and population-growth scenarios.

Table 1: First onset of shortage to M&I contracts (recovery trigger)

Population Growth Moderate Scenario * Severe Scenario **
Rapid (Full use of CAP by 2025) No impact to M&I First M&I impact
in 2027
Moderate (Full use of CAP by 2035) No impact to M&I First M&I impact
in 2034

* Assumes two shortages: 2017–2019 and 2024–2034
**Assumes a sustained shortage from 2016–2035

Based on these projections, M&I contracts are reduced and recovery is triggered only under the severe shortage model. Through 2035, a maximum of only 3 percent of all subcontracts would be shorted in any given year — about 17,000 AF/yr, out of almost 1 MAF. As such, the recovery needs of M&I customers will be very manageable through 2035. Nonetheless, model projections should continue to be updated so M&I contractors can prepare for 2035 and beyond.

Juliet M. McKenna, MS, PGTaylor D. Shipman, MS | Michele Robertson, PG