Friday, November 2, 2012

ADWR Water Allocation Process

One month ago, the Arizona Dept. of Water Resources (ADWR) held a public meeting to announce that they were beginning the process to allocate (or reallocate) approximately 96,000 acre-feet of Colorado River water delivered via the Central Arizona Project (CAP).  This is water that was made available by the big Arizona Water Settlement that was crafted almost 10 years ago, but under the language of the act was not available for reallocation until 2014.

As you might expect from the state agency responsible for management of the state's water they have proposed a tightly controlled administrative process for deciding who should get the water and how much they should be entitled to.  Oh, and there are also some costs associated with this water.  But as is typically the case, the cost for this water only covers the "costs" of administering the process, then when the recipient takes the water they will pay the "costs" for delivery.  There are no "opportunity costs" or "scarcity costs" included.  Now admittedly these costs are greater than what has been paid by those who currently possess allocations of Arizona's Colorado River water, but that is all water under the bridge, so to speak.  And what the entities who manage to "win" an allocation of this water will get is something slightly less than a continuously assured supply of renewable water.

Because this is water that was relinquished by agricultural contractors it holds a priority within the CAP system that is lower than the standard municipal and industrial allocation.  What this means is that when there is a shortage on the Colorado River that impacts Arizona's supplies this water may be unavailable for delivery.  ADWR has analyzed the expected reliability of this water and believes that up to 2/3 of this water should be continuously available, depending on the assumptions you use (a summary of their analysis can be found if you click the "presentation" link on the process page).

So far that's all well and good.  Where I have a problem is the whole process they have proposed for determining who is "worthy" of receiving an allocation of this water.  This is what administrative agencies always try to do and they never seem to get it right, especially in situations where you are dealing with a scarce resource.  People try to game the system, assumptions have to be made about where future demand will reside, and there just tends to be a whole range of normative "calculations" that need to be made to justify the actions of the agency.

I am planning to draft up some comments recommending that they at least try to allocate some of this water via a market-clearing auction (CAP staff proposed something similar as part of the ADD Water process that you can find here - click the link for "ADD Water Program Proposal").  I have no hope that it can all be auctioned off (there are too many bureaucratic hurdles in the way) but it just seems to me that given the year-to-year variability that might be present in at least some of the water available and the well-known superiority of market mechanisms to allocate scarce resources, an auction has to be the best way to ensure that this water is allocated in an equitable and efficient manner.  It's a long shot, but someone has to take the first shot.

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