Wednesday, January 18, 2012

The Failed Promise of Indian Water Settlements, Part II

Taking advantage of a sick day to finally get around to this thread again.

So you may remember from my previous post that it was the Arizona Water Settlements Act (passed in 2004, became law in 2007) that resolved a couple of the most significant Indian water rights claims in Arizona, as well as settling several other pressing issues in allocation of Central Arizona Project (CAP) water and costs associated with the project.  The legislation enacting those settlements allocated both water and money to help the tribes involved purchase their new water from CAP and put the water to use on their reservations, mostly in irrigation projects.

But the general consensus at the time those agreements were being negotiated was that it would be many years before the tribes could put all that water to use (if they ever did) because of the amount of money, time, and effort needed to develop irrigation projects on the scale involved.  As a result, the extra water that the tribes couldn't put to use would either return to a pool of available water called "excess water" or would be leased by the tribes to cities or farms.  And in fact that is what happened with most allocations of Indian water - up until 2008-2009, which is when the tribes started to discover the benefits of storing their extra water.  Putting the water into recharge facilities permits the storing entity to earn long-term storage credits (LTSC) that are marketable within the Active Management Area (AMA) where the water was stored.  Other than the geographic restrictions on marketing those credits, their marketability is only limited by the demand for such credits at the time they are sold.  Their value is generally determined by the price for an acre-foot of equivalent water (CAP water), currently $137 for non-subcontract (or excess) water.

While earning marketable LTSCs does not provide a current income stream (in fact it costs money to store water) the potential value of storage credits makes them generally more attractive than water leases.  When tribes lease water (under the terms of the settlement agreements) the lessee pays the cost of the water, so the value to the tribe for leased water, while generating a current revenue stream is less than the value of an equivalent amount of water represented by LTSCs.

The problem that storage poses, however, is that it constitutes a drain on the funds established to pay for Indian water from CAP (the Basin Fund and trust funds as described in the previous post).  This was a drain not anticipated by the feds (Reclamation and congress) when they established them because they didn't think those funds would be paying for as much water as they currently are, as soon as they are.  They also likely didn't anticipate the rate at which the cost of CAP water has increased.  In 2001 the cost for an acre-foot of excess water was $101 - but $43 of that was capital repayment, the operations and maintenance charge (O&M, what it costs to run the CAP) was only $58.  By 2006 the excess water rate was $108, but $87 of that was O&M.  The current rate, as noted above is $137 -- $122 of which is O&M; a 110% increase in O&M costs in 10 years.  At those rates, with the amount of water being stored and the amount of money in those funds they are likely to be exhausted within 10 to 20 years.

So how does this effect the utility of the water settlements to the tribes?  The provisions in the settlements permitting tribes to lease water are not there for the benefit of the tribes.  That's my opinion, but it's not an outrageous opinion.  Not by a long shot.  Every idea floated in the last 10 years to augment water supplies for cities in Arizona has mentioned lease of Indian water as one of the top 2 or 3 options.  The cities in Arizona grudgingly admitted that they needed to settle the Indian water rights claims - if only to remove the enormous uncertainty they added to the stream adjudication process.  But they still wanted to have access to that water if/when they needed it.  The only way the Indians could use the amounts of water they received was by farming.  And everyone in the state knew that the cost of CAP water would make its use for farming prohibitive in the near future.  The tribes were no exception. 

The language in the settlements permitting recharge of Indian water was almost a mere formality.  There was very little discussion about how it might occur, how it would be paid for, or any kind of limitations on doing so.  The provisions for leasing Indian water were much more detailed.  Some specific leases were even included in settlements.  Terms for payment for leased water, duration of leases, geographic restrictions on leases, among others were included in settlements.

Finally, the fact that the provisions for leasing required the party that leases the water to pay the O&M costs, but not the capital costs is significant because it ensures that both Reclamation and CAP will be fully on-board with those agreements (they both have to approve the terms of any non-Indian leases of CAP water, Reclamation alone approves leases of Indian water, but I suspect in-state parties could have some influence in that process).  It helps any M&I lessee because they avoid capital charges, which they pay on their own subcontract water (although they are likely to make lease payments that are at least equivalent), and they typically get additional water that is of equivalent priority to their own water, in times of shortage - something very valuable.

Where does this leave the tribes?  With water that they fought for over many years to achieve a settlement of their rights - about 30 years in the case of the Tohono O'odham - but cannot use because it's too expensive and the funding sources they were provided with are insufficient to cover those costs.  It's also too expensive because the only way they can use the water on their reservations is by irrigating crops - most of which don't earn sufficient income to justify the cost of the water.  How can they pay for the water?  They can lease it off-reservation.  Was the outcome of this ordeal predetermined by the parties who were original sued by the tribes to protect their rights to water that had been taken from them long ago?  I'll let you decide.

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