News: New Report Demonstrates Cadiz Project Would Contribute $648 million in New Benefits to Southern California Through Intentionally Created Surplus Program

October 2, 2013 – Today the Company made available a new report by GHA Water Inc. finding that the Cadiz Valley Water Conservation, Recovery and Storage Project (Cadiz Project) offers $648 million in additional benefits to the Southern California water system, if the Project qualifies as Intentionally Created Surplus (ICS) under Colorado River supply management guidelines adopted in 2007 by the US Bureau of Reclamation (Reclamation).

Under the ICS program, the Lower Colorado River Basin states – California, Nevada and Arizona – can store water in Lake Mead if they create a like amount of new water supply within their local water systems. In exchange for creating storage in Lake Mead, water agencies are eligible to receive a credit from Reclamation and call on the stored water in future surplus years for their own use.  The Colorado River has been in a long-term drought since 2000 and reservoir levels in Lakes Powell and Mead have fallen to unprecedented low levels causing alarms throughout the West.  The ICS program is one of the tools utilized by Reclamation and Colorado River users to increase water held in Lake Mead and avoid shortage.

The GHA Water report analyzed the current ICS program and its applicability to the Cadiz Project, which would add 50,000 acre-feet to the Colorado River Aqueduct annually and could offset demand in Southern California for imported water.  According to the GHA Water report, the Cadiz Project meets the criteria established in 2007 for the ICS program and would create significant benefits for the Metropolitan Water District (Metropolitan), a California Colorado River contractor, and its service area.  Metropolitan is the region’s primary water wholesaler and owns and operates the Colorado River Aqueduct.

Metropolitan is not a direct participant in the Cadiz Project and will not fund Project construction or purchase any Project water supplies.   Since 2007, Metropolitan has spent an average of $330/acre-foot to build and implement ICS programs creating storage in Lake Mead.  If Metropolitan were to seek ICS eligibility for the Cadiz Project, then according to GHA Water’s analysis, the Cadiz Project would be worth $648 million to the service area over the 50-year life of the Project.  Metropolitan will also receive revenue for transporting, or wheeling, Cadiz water to the end user, which could provide added value.

The Cadiz Project would only be eligible for ICS credits if Metropolitan or another Colorado River water user seeks Reclamation’s approval. Cadiz and MWD have not yet held any discussions regarding the ICS program and the GHA Water report only analyzes a potential scenario for planning purposes.

To view the report and learn more about how the valuation was calculated, click here.

The Executive Summary of the Report is included below:

The Colorado River is a vital component of California’s water supply, providing at least 4.4 million acre-feet of water to the State every year. Since 2002, the River has faced a lingering drought that has drastically reduced the amount of water stored in the system’s two principal reservoirs, Lake Powell and Lake Mead, and created the possibility that deliveries of Colorado River water to its users could be severely limited over the long term.  In 2007, as the drought continued, the US Department of the Interior adopted the “Colorado River Interim Guidelines for Lower Basin Shortages and the Coordinated Operations for Lake Powell and Lake Mead” (Interim Guidelines), to establish new criteria for management of the two reservoirs based on their respective water surface elevations.  It was the aim of the Interim Guidelines to avoid significant economic, power and water supply impacts throughout the Colorado River system associated with any potential reduction in deliveries.

The Interim Guidelines also created the Intentionally Created Surplus (ICS) program, which allows Lower Basin Colorado River states (California, Nevada and Arizona) to store water in Lake Mead if they create a like amount of water within their state that could be used instead.  By holding wet water in the two reservoirs, the ICS program seeks to control the potential of a shortage declaration. Under the program, one way ICS can be created is through system efficiency improvements or extraordinary conservation measures, such as land fallowing, seawater desalination or lining irrigation canals.  For example, if a California Colorado River contractor implements an eligible program that creates 40,000 acre-feet (AF) of new water supply per year, then, under the ICS program, the Contractor could leave 40,000 AF of water stored in Lake Mead for future use through a credit from USBR.  USBR will hold the water in a storage account until an “ICS Surplus” is declared on the River and stored water could be delivered in addition to annual river allocations.

Since 2007, the Metropolitan Water District (MWD), a California Colorado River contractor,  has participated in or considered three ICS eligible programs.  These programs have a weighted average valuation of $330.38 per AF based on their development costs and ICS credits created.

The Cadiz Project is designed to provide 50,000 AF of water per year to MWD member agencies or water users in the MWD service area for 50 years. Cadiz water would be transported in MWD’s transportation facilities, including the Colorado River Aqueduct, and would create new water within the MWD service area similar to seawater desalination, system efficiency improvements, or other programs.  The Cadiz Project appears to meet the criteria established in the Interim Guidelines for projects eligible to create ICS, and if it were to be approved as an ICS program for MWD, then it would add significant value in the MWD service area.

Based on the average value of other ICS programs, the Cadiz project would have an approximate value of $648.2 million over the 50 year life of the project, or nearly $13 million per year.   Cadiz water would also be subject to MWD wheeling charges to cover transportation costs and would potentially create other benefits in the service area when ICS held in Lake Mead is released; these benefits have not been calculated but are expected to be significant.

ICS is an important program for Colorado River stability and reliability in the Lower Basin states. Water policy makers at both the state and federal level have identified supply-demand gaps that will need to be met by storing water in wetter years to augment supplies in dry or average years. Any new augmentation that can be provided to MWD’s storage accounts is of great value to the agency. These benefits are even more pronounced in the Cadiz instance since direct investment in the success and implementation of the Project by MWD is not required.

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