CENTRAL ARIZONA PROJECT Special Meeting of the Board of Directors November 15, :00 AM

Transcription

1 CENTRAL ARIZONA PROJECT Special Meeting of the Board of Directors November 15, :00 AM Central Arizona Project N. 7th Street Phoenix, Arizona Board Room FINAL AGENDA Times shown are approximate. Some items may take more or less time than scheduled, or the President may grant requests to hear items in an order other than shown. 1. Report and Discussion of CAP's Ongoing Commitment of the Drought Contingency Plan Atkins (9:00) 2. Report and Discussion of the Lower Basin Drought Contingency Plan and the Status of the Arizona Implementation of the Drought Contingency Plan Ticknor (9:20) 3. Discussion and Possible Consideration of Action of the Possible Impacts of the DCP on CAP Water Supplies and Finances, and Development of an Intra Arizona DCP Mitigation Proposal to Recommend to the DCP Steering Committee Cooke (9:40) 4. Discussion and Possible Consideration of Action Regarding CAWCD Authorities and Responsibilities Relating to DCP and the DCP Agreements Johnson (10:40) 5. Next Steps Atkins (11:15) 6. Public Comment (11:30) 7. Adjourn (12:00) CAP Board members are elected by the voters in Maricopa, Pima and Pinal Counties. Visit cap az.com/board to learn more about the Board. Those interested in meeting with a Board member may contact the member directly to schedule an appointment. Space will be made available at CAP Headquarters. ^ Linkage to 2016 CAWCD Board of Directors Strategic Plan. Page 1 of 26

2 Update on AZ LBDCP Implementation Process November 15, 2018 Special Meeting of the CAWCD Board Steering Committee Process The inability to reach consensus on an AZ DCP mitigation plan has created a logjam CANCELLED - October 25 SC meeting CANCELLED November 8 SC meeting CANCELLED November 8 Work Group Many small group meetings have been held No consensus on actionable AZ DCP mitigation plan 2 Page 2 of 26 1

3 Recent Mitigation Proposals Since October 10 th, three different AZ DCP mitigation plans have been proposed or informally discussed with the Steering Committee co-chairs, BOR and various stakeholders/delegates. October 10 th Joint ADWR/CAWCD mitigation proposal proposed to Steering Committee October 24 th Gila River Indian Community mitigation proposal informally discussed October 31 st 3-Agency Conceptual Response informally discussed 3 October 10 th ADWR-CAWCD Mitigation Proposal FIXED Mitigation Total Ag Mitigation (KAF) Ag mitigation only Partial mitigation 25% reduction from original request of 778 kaf Fixed schedule for Ag mitigation provided during T1 and T2 shortages NIA and Developer mitigation TBD Proposed budget $85 - $100 million 4 Page 3 of 26 2

4 ADWR CAWCD Mitigation Proposal Annual vs. Fixed? Fixed 3 AMA vs Pinal + HVIDD Mitigation? Pinal+Queen Creek+HVIDD Full Ag Mitigation vs Ag Partial? Partial Ag (total 595 kaf through 2026 see table) Mitigation to NIA and CAGRD/Developer impacts Requires further discussion and expression of interest Support for water and funding commitments ADWR, CAWCD and others propose $85 to $100M Mitigation budget Voluntary limited waivers for Ag Mitigation, System Conservation, and ICS CAWCD to use Lake Pleasant for Mitigation CAWCD to use CAP ICS as a safety net supply Commitment by CAP M&I subcontractors to explore appropriate, voluntary USF GSF concepts in coordination with ADWR, CAWCD, and AWBA 5 GRIC Proposal 10/24 Full mitigation for higher priority pools first, then extra mitigation for Ag Pool if additional resources available. ( Full mitigation means 100% of the incremental reductions under LBDCP vs Guidelines through 2026) Total mitigation volume = MAF, of which: 240 KAF Ag Pool 776 KAF NIA Pool 143 KAF M&I Pool Overall Program Cost $187 million Included transfer of 200 KAF of Phx AMA credits to GRIC from AWBA or CAWCD Proposed Funders: CAWCD $132 million State $31 million BOR $54 million NGOs $22 million* *includes balance of about $52 million at end of term 6 Page 4 of 26 3

5 GRIC Proposal 10/24 GRIC Proposal Program Costs ~$187M Shortage Tier T1 T1 T1 T2a T2a T2b T3 Mitigation % Ag Mitigation (KAF) NIA Mitigation System Conservation M&I/Indian Mitigation Total Mitigation Ag Groundwater Infrastructure Program Total Ag Agency Conceptual Response to GRIC Key Elements Mitigation a temporary bridge to transition to a drier future. Mitigation was never intended to be a program to keep all parties whole. Fixed mitigation program, i.e., assumptions agreed to in advance regarding hydrology and quantities of mitigation Voluntary waivers required from NIA pool entitlement holders Full mitigation to Ag Pool in and extra water in Full mitigation to NIA Pool in 20 23, declining in last three years of program Full mitigation to M&I and Indian Pool System Conservation No mitigation in Tier 3 shortage Include support for Pinal Ag groundwater infrastructure to get total Ag mitigation volume to 595 kaf 8 Page 5 of 26 4

6 3-Agency Conceptual Response Total mitigation volume = MAF, of which: 340 KAF Ag Pool 607 KAF NIA Pool 16 KAF M&I Pool 100 KAF System Conservation Overall Program Cost $197 million GRIC rejected the 3-Agencay Conceptual Response 9 3-Agency Conceptual Response to GRIC Conceptual Response to GRIC (10 31) with Step Down '24 '25 (rejected by GRIC on 10/31/18) Program Costs ~$197M Shortage Tier T1 T1 T1 T2a T2a T2b T3 Mitigation % zero Ag Mitigation (KAF) "Extra" Ag Mitigation NIA Mitigation System Conservation M&I/Indian Mitigation Total Mitigation Ag Groundwater Infrastructure Program Total Ag Page 6 of 26 5

7 Challenges Recent Mitigation Proposals Each of the recent mitigation proposals contain shortcomings that create barriers to implementation 1) Affordability Between $85 - $197 million Deep uncertainty about availability of funding 2) Complexity Legislative changes Limited Waivers Credit exchanges Approvals by multiple entities 3) Viability in Arizona legislature 11 Page 7 of 26 6

8 LBDCP Potential Impacts on CAP Finances November 15, 2018 Special Meeting of the CAWCD Board Sources of CAWCD Funding for Mitigation Water Rates CAWCD Rate Setting Policy states Water rates are set in order to recover costs, on a long term basis, net of other revenue sources Acquisition of supplemental supplies for mitigation during shortage (e.g., compensated conservation) is a cost of service eligible to be included in CAP water delivery rates (Fixed OM&R) Deliveries of mitigation water supplies during shortage will be dilutive to (reduce) Fixed OM&R rates, while costs of acquiring mitigation water supplies will increase Fixed OM&R rates Smaller quantities of mitigation water will absorb smaller amounts of acquisition cost and vice versa Property Taxes CAP property taxes may be used to offset OM&R costs, at the discretion of the Board CAP is obligated to cover the Fixed OM&R cost of deliveries to the Ag Pool When Ag Pool deliveries are reduced under DCP, CAWCD s use of taxes to cover Ag Pool deliveries will also be reduced estimate is $10 15 million per year 2 Page 8 of 26 1

9 Shortage Tiers Reductions (AF) Tier Lake Mead Elevation 2007 Guidelines LBDCP Total Normal , ,000 Tier , , ,000 Tier 2a , , ,000 Tier 2b , , ,000 Tier 3 Below , , , Impact of Shortage on CAP Water Rates Volumetric impact that will increase the CAP Fixed OM&R Rate as a result of reduction in delivery supply CAP Energy Rate is assumed to be proportional to deliveries and remain unchanged Impacts shown are without mitigation and prior to application of any shortage stabilization funds Lake Mead Elevation 2019 $/AF 2020 $/AF 2021 $/AF 2022 $/AF 2023 $/AF 2024 $/AF Base Case Tier Tier 2a Tier 2b Tier 3 Below 1025 $96 $98 $99 $103 $105 $110 + $26 + $27 + $28 +$29 +$30 + $37 + $38 + $39 + $41 + $45 + $45 + $47 + $58 + $61 4 Page 9 of 26 2

10 Impact of Shortage on CAP Water Rates Volumetric impact on CAP Fixed OM&R Rate from reduction in delivery supply Lake Mead Elevation Base Case Tier Tier 2a Tier 2b Tier 3 Below 1025 FOM&R Volumetric Change N/A Nominal FOM&R Rate $100/a f 27% % % % Impacts of Mitigation on CAP Water Rates Cost of mitigation supplies will increase Fixed OM&R rates Delivery of mitigation water during shortage will reduce the volumetric impact to CAP Fixed OM&R rates In the context of AZ DCP Steering Committee discussions, mitigation is defined as providing delivery of some portion of the difference between reductions under DCP and reductions under 2007 Guidelines Maximum mitigation quantity of 192 KAF in Tier 1 and Tier 2a Maximum mitigation quantity of 240 KAF in Tier 2b Assume no mitigation in Tier 3 Firming may reduce these amounts Rule of thumb: If average cost/acre foot of mitigation water is less than the Fixed OM&R Rate without mitigation, the adjusted Fixed OM&R Rate will decline If average cost/acre foot of mitigation water is more than the Fixed OM&R Rate without mitigation, the adjusted Fixed OM&R Rate will increase 6 Page 10 of 26 3

11 Impacts of Mitigation on CAP Water Rates 7 Impacts of Mitigation on CAP Water Rates 8 Page 11 of 26 4

12 CAWCD Interim Mitigation Plan Proposal November 15, 2018 Special Meeting of the CAWCD Board Interim Mitigation Plan Framing The Arizona LBDC Steering Committee process has been unable to produce a consensus on mitigation so far The Steering Committee has one remaining scheduled meeting on November 29 th It is becoming apparent that it will take more time to prepare a detailed mitigation plan for the full term of DCP An Interim Mitigation Plan could provide a path for Arizona to immediately move forward with DCP, and complete additional details during 2019 CAWCD is willing to consider using its available resources as a means to implement an Interim Mitigation Plan Taking this step would create the opportunity for legislative action to implement DCP in Arizona 10 Page 12 of 26 5

13 Interim Mitigation Plan Assumptions Key Assumptions 3 year mitigation program No firm funding from ADWR, Reclamation or others required* Wet water mitigation available during Tier 1, Tier 2a and Tier 2b 100% mitigation for NIA Pool, with fixed mitigation for CAP Ag Pool and Developers Annual plan for NIA mitigation based on actual orders and operating conditions CAWCD Board action to authorize use of available CAWCD water supplies and funding Overall program costs between ~$36 54 million No increase to published Fixed OM&R delivery rates during shortage * Additional funding may be utilized to supplement the Interim Mitigation Plan 11 Interim Mitigation Plan Assumptions Key Assumptions No waivers required No legislative changes required No credit exchange required No recovery partners required Opportunities remain for USF GSF and other transactions to reduce reliance on CAP ICS or to supplement or augment the Interim Mitigation Plan Substitute for CAP ICS at additional cost Supplement quantities during the 3 year period, including System Conservation Augment the program for a longer timeframe CAWCD would support development of separate programs for groundwater infrastructure and system efficiency for CAP Ag Districts in cooperation with the U.S., Arizona, the Ag districts, tribes and others 12 Page 13 of 26 6

14 Interim Mitigation Plan Scenario 1 Interim Mitigation Plan CAP Available Resources Scenario 1: Consensus Hydrology 2019 Water Orders Total Shortage Tier T1 T1 T1 T2a T2a T2b T3 Mitigation % zero zero zero zero Developer Mitigation (KAF) Ag Mitigation "Extra"Ag Mitigation NIA Mitigation System Conservation M&I/ Indian Mitigation Total Mitigation Ag Groundwater Infrastructure and Efficiency Program Total Ag Total Program Cost ~$36 million Compensated conservation cost per acre-foot ~$240/a-f Average cost per acre-foot ~$60/a-f 13 Interim Mitigation Plan Scenario 2 Interim Mitigation Plan CAP Available Resources Scenario 2: Less Favorable Hydrology & Increased Water Orders Total Shortage Tier T1 T1 T2a T2a T2a T2b T3 Mitigation % zero zero zero zero Developer Mitigation (KAF) Ag Mitigation "Extra"Ag Mitigation NIA Mitigation System Conservation M&I/ Indian Mitigation Total Mitigation Ag Groundwater Infrastructure and Efficiency Program Total Ag Total Program Cost ~$54 million Compensated conservation cost per acre-foot ~$240/a-f Average cost per acre-foot ~$80/a-f 14 Page 14 of 26 7

15 Interim Mitigation Plan Resources Wet Mitigation 2020 T1 Compensated Conservation Scenario T T1 Total 50k 50k 50k 150k Lake Pleasant 50k k CAP ICS 100k 150k 150k 400k Total 200k 200k 200k 600k Wet Mitigation 2020 T1 Compensated Conservation Scenario T T2a Total 75k 75k 75k 225k Lake Pleasant 50k k CAP ICS 75k 135k 187k 397k Total 200k 210k 262k 672k Direct cost ~$36M Direct cost ~$54M 15 Impacts of Mitigation on CAP Water Rates 16 Page 15 of 26 8

16 Interim Mitigation Plan Recommendation Authorize utilization of CAP water resources CAP ICS up to ~400 KAF in Lake Mead CAP Project Water in Lake Pleasant up to ~50 KAF Authorize compensated conservation program to obtain necessary quantities for mitigation purposes Up to 250 KAF Up to $60 million to be included in CAP Fixed OM&R rates Authorize CAWCD support for development of separate programs for groundwater infrastructure and system efficiency for CAP Ag Districts in cooperation with the U.S., Arizona, the Ag districts, tribes and others Funding participation TBD Authorize CAWCD Delegates to bring Interim Mitigation Plan Proposal to the AZ LBDCP Steering Committee 17 Page 16 of 26 9

17 CAWCD Authorities & Responsibilities re DCP & DCP Agreements Jay Johnson, General Counsel November 15, 2018 Drought Contingency Plan CAWCD Board is a strong proponent of DCP, recognizing its importance to the Basin, AZ and CAP water users and taxpayers CAWCD partners with ADWR to negotiate DCP with other CR Basin entities and within AZ to develop an effective framework Page 17 of 26 1

18 DCP Obligations Proposals discussed today demonstrate the magnitude of cost in water and money to ensure Arizona s participation CAWCD, its water users, ratepayers and taxpayers bear the largest burden of DCP in the Basin CAWCD Powers & Duties Manage & conduct the affairs and business of CAWCD Make and execute all necessary contracts Perform all acts necessary to carry out the purposes of the District Enter into contracts with the Secretary to carry out the purposes of the District Cooperate & contract with the Secretary to carry out the provisions of the Reclamation Act, and acts amendatory thereof or supplementary thereto, including the Basin Project Act Act consistent with fiduciary duty to its ratepayers and taxpayers Page 18 of 26 2

19 CAWCD Board Decisions Board decisions related to DCP Consideration of DCP mitigation proposals Amount and sources of water Agreements re funding of programs taxes, rates ICS proposals forbearance Approval of DCP Agreements DCP Agreements Lower Basin DCP Agreement Lower Basin Drought Contingency Operations (Exhibit to LBDCP Agreement) Upper Basin Drought Response Operations Agreement Upper Basin Demand Management Storage Agreement Companion Agreement Page 19 of 26 3

20 DCP Agreements AZ Parties Arizona entities that are essential parties to the DCP Agreements: ADWR CAWCD Arizona entities that may be a party and sign: On river Section 5 Contractors ADWR Governor s representative at the DCP negotiating table As a party with the authority to prosecute and defend all rights, claims and privileges of this State with respect to interstate streams. ARS (A)(9) Page 20 of 26 4

21 CAWCD CAWCD s Section 5 contract is the principal Section 5 contract in Arizona affected by DCP, and perhaps the only one The DCP Agreement requires each party to have the legal authority to perform its obligations thereunder Implementation of DCP requires forbearance by CAWCD for reductions, interstate ICS flexibility, and other provisions CAWCD is empowered to cooperate and contract with the Secretary to carry out the provisions of the Reclamation Act ARS (A)(5) CAWCD CAWCD is, by far, the largest contributor to DCP in the Colorado River Basin At least half of the quantities of water reductions under the 07 Guidelines plus DCP will come from CAP Page 21 of 26 5

22 CAWCD CAWCD is being asked to contribute a sizable amount of money to implement DCP (e.g., compensated conservation, federal cost sharing), probably more than any other Arizona entity and possibly far more. CAWCD is being asked to consider policy changes regarding operation of Lake Pleasant and management of Excess Water, among others things to implement DCP. CAWCD Bottom line: CAWCD water users, ratepayers and taxpayers bear the brunt of DCP in the Colorado River Basin in terms of both water and money No entity other than the CAWCD Board may legally bind CAWCD to take on the extensive obligations of DCP in water reductions and costs that will fall on its water users and taxpayers No entity other than the CAWCD Board may forbear on CR water that is available for delivery under the CAP Master Repayment Contract between CAWCD and the United States Page 22 of 26 6

23 Common Issues for DCP Signatories Enforcement Parties to DCP must be able to enforce its provisions CAWCD faces the largest reduction/contribution requirements under DCP. CAWCD must be able to enforce the DCP agreement against other parties in the Basin to avoid further impacts to the District. Common Issues for DCP Signatories Other provisions of the DCP Agreements Each signatory represents and warrants that it has the authority to carry out its obligations under DCP Secretary s commitment to create/contribute 100 KAF to DCP Process for resolution of claims and controversies No third party beneficiaries Joint defense Page 23 of 26 7

24 On-river Section 5 Contractors P5 Contractors may be directly impacted by DCP Senior on river water supply not directly affected New ICS rules 2007 Guidelines & MOU State of Arizona signed the Forbearance Agreement pursuant to 07 Guidelines Forbearance on delivery of ICS (surplus) CAWCD agreed to sign MOU declaring that CAWCD would not order surplus to which it has a right under its Section 5 contract Page 24 of 26 8

25 DCP Agreements CAWCD supports signature by ADWR as well as any other essential Arizona entities CAWCD is an essential party and must sign CAWCD Participation Page 25 of 26 9

26 Questions 19 Page 26 of 26 10