Consulting Engineer s Report for 2010 Water System Project 2010 Subordinate Revenue Certificates of Participation

Transcription

1 Consulting Engineer s Report for 2010 Water System Project 2010 Subordinate Revenue Certificates of Participation Prepared for Imperial Irrigation District 333 East Barioni Boulevard Imperial, California Prepared by 1772 Picasso Avenue, Suite A Davis, CA September 21, 2009

2 Contents Page Introduction... 1 Purpose of Report and Role of Davids Engineering... 1 IID Background... 2 IID Water System... 4 Colorado River Water Storage and Supply System... 4 All American Canal and Related Facilities... 4 In-District Water Conveyance and Distribution System... 5 Drainage System... 5 Support Facilities... 6 Water System Maintenance, Replacement and Condition... 6 IID Water Rights and Water Use... 7 IID-MWD Water Conservation Program... 9 IID Water Sales History Water System Project Background Water System Project Description System Conservation Plan Improved Farm Delivery Measurement SCP and Delivery Measurement Implementation Schedule Financial Status QSA Revenues and Expenses Water Department Revenues and Expenses Water Rates Water Sales Water Department Revenues Historical and Projected Operating Results of the Water System Projected Repayment Capability Significant Factors Domestic Water Delivery Regulations on Water Quality of Agricultural Return Flows Principal Considerations and Assumptions Opinions References ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT II

3 Contents, Continued Page Figures Figure 1. Site Location Map...3 Tables Table 1. California Colorado River Water Right Priorities...8 Table 2. Table 3. Table 4. Table 5. Historical Water Use and Diversions...9 Imperial Irrigation District Water Transfer and Mitigation Delivery Obligation...12 Imperial Irrigation District Schedule of District s Conservation Measures to Satisfy Delivery Obligations...13 Funding Schedule for System Conservation Program and Delivery Measurement Implementation...16 Table 6. Water Transfer Revenues and Expenses...19 Table 7. Table 9. Historical Agricultural Water Rate and Water Availability Charge...21 Acreage and Gross Values of Crops in Imperial County...23 Table 10. Historic Crop Prices & Yields...24 Table 11. Summary Farm Enterprise Budgets for Significant IID Crops...25 Table 12. Acreages of Significant IID Crops...26 Table 13. Payment Capacity...28 Attachments Table 8. Historical and Projected Water Department Cash Flow...32 ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT III

4 Introduction Purpose of Report and Role of Davids Engineering This document is the Consulting Engineer s Report prepared by Davids Engineering, Inc. ( DE ) concerning the Imperial Irrigation District ( District or IID ) 2010 Water System Project. The 2010 Water System Project involves the design and construction by IID of improvements to its water system in connection with implementation of certain provisions of a 1998 water conservation and transfer agreement (the 1998 District/SDCWA Transfer Agreement ), entered into by IID with the San Diego County Water Authority ( SDCWA ) on April 28, 1998, as well as the subsequent Quantification Settlement Agreement and related agreements (the QSA and related agreements ) entered into by IID with, among others, the Metropolitan Water District of Southern California ( MWD ) and the Coachella Valley Water District ( CVWD ) as part of a plan for the future use of Colorado River water in California. DE has been retained by IID to prepare this report in support of an issue of certificates of participation ( 2010 Certificates ) to be delivered by IID for financing the intended facilities design and construction. This report presents a summary of the findings and conclusions regarding the 2010 Water System Project through the date of this report. Specifically, this report contains: (a) background information about IID, (b) a description of the IID Water System, (c) a description of the 2010 Water System Project, and (d) an assessment and opinions regarding IID s current and future projected financial status, including analysis and opinions regarding the ability of IID farmers to pay projected future water rates. The assessment of financial status is based substantially on information furnished by IID and other IID consultants regarding future IID operations. This information was not independently validated by DE. DE is a consulting firm of civil and agricultural engineers registered in California that specializes in provision of engineering and technical services to irrigation districts. The firm is based in Davis, California, and since its founding in 1993, DE has completed consulting assignments for clients in Arizona, California, Nebraska, Oregon, Washington, and overseas. Technically, DE specializes in agricultural water management, including water conservation planning and verification, water rights analysis and support, water quality and related environmental analysis, conjunctive water management, irrigation facilities assessment and modernization, and water transfers. DE has completed several engineering consulting assignments for IID since 1993, including water conservation verification in relation to IID-MWD water conservation and transfer program (see IID Background) and development of the Efficiency Conservation Definite Plan in relation to the 1998 District/SDCWA Transfer Agreement. Other assignments completed for IID include: development of the Vail Reservoir Operations Analysis and Decision Support System, conduct of the East Highline Inline Reservoir Investigation, and conduct of the Westside Main Canal Operations Analysis. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 1

5 INTRODUCTION IID Background Located along the U.S. Mexico border in southeast California (Figure 1), IID is the largest irrigation district in the United States in terms of water delivered. IID is a public agency organized in 1911 under the California Irrigation District Act and is governed by a fivemember Board of Directors elected at large from separate geographical areas within the IID service area. IID provides both electricity and raw water to customers within its power and water service area boundaries, respectively. Electrical energy is provided to customers in the Imperial and Coachella Valleys. Water is served only within the IID Water System boundaries, which encompass approximately 500,000 acres; however, the legal service area of the All American Canal exceeds 1 million acres. Agricultural development in the Imperial Valley began at the turn of the twentieth century and now encompasses approximately 500,000 acres of irrigated land. Nearly all water used in the Imperial Valley is imported through the All American Canal and is delivered to users through IID s conveyance system. No other viable source of water exists for municipal, industrial, or agricultural use. Much of the irrigated land in IID has inadequate natural drainage due to low permeability of soils and restrictive subsurface conditions. In these areas, landowners have installed buried tile drainage systems that discharge into an extensive drainage system constructed, operated, and maintained by IID. The Salton Sea is an integral part of the IID drainage system. It lies at the bottom of a closed hydrologic basin, more than 200-feet below sea level. Inflows to the Salton Sea include flows from Mexico, natural runoff from rainfall, groundwater inflow, and agricultural drainage. These inflows are discharged into the Salton Sea primarily via the Whitewater, Alamo, and New Rivers, plus various constructed drains. Precipitation falling directly on the Salton Sea is also an inflow. Agricultural drainage is the major inflow component to the Salton Sea. Outflow from the Salton Sea is solely by evaporation from the Salton Sea s water surface. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 2

6 Figure 1. Site Location Map IID 2010 Water System Project (Source: IID) ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 3

7 IID Water System As described previously, nearly all water used in the Imperial Valley is imported and delivered by the IID Water System. The water system includes large diversion dams, gravity flow conveyance canals and distribution laterals, reservoirs and related pump stations, an extensive network of communication and automated control facilities, an extensive drainage system, construction and maintenance equipment, equipment workshops and storage facilities, and administrative quarters. The water supply originates from the Colorado River. IID maintains water rights with the federal government that include use of reservoirs and control facilities on the Colorado River to ensure a reliable year-round water supply. A staff of about 461 people operates and maintains the IID Water System. The IID Water System includes the following primary components: Colorado River water storage and supply system All American Canal and related facilities In-District water conveyance and distribution system Drainage system Support facilities A study recently completed for IID estimates the capital asset value of IID s water facilities to be $1.41 billion in 2009 dollars (R.W. Beck, 2009). Colorado River Water Storage and Supply System IID s water supply is diverted from the Colorado River at Imperial Dam, 18 miles northeast of Yuma, Arizona. The water supply above Imperial Dam is controlled by major federallyowned storage and control facilities that provide a constant year-round supply to match IID demands. These include Hoover Dam and Lake Mead (32.5 million acre-feet capacity), Davis Dam and Parker Dam. These facilities are operated by the U.S. Department of the Interior, Bureau of Reclamation ( USBR ), and are shown on Figure 1. These facilities, including Imperial Dam and All American Canal, were authorized by the U.S. Congress under the Boulder Canyon Project Act of December 21, 1928 (45 Stat. 1057). IID submits weekly water orders to the USBR for scheduling of reservoir releases and Colorado River operations, allowing for an approximate 3-day water travel time from Lake Mead to Imperial Dam. The USBR delivers water at Imperial Dam for diversion into the All American Canal, with changes made from day to day according to the weekly water order. IID can modify its order with 3 days advance notice to the USBR so that water supplies closely match water demands. All American Canal and Related Facilities The major features of the All American Canal and related facilities include Imperial Dam, the Desilting Works, and the 82-mile-long All American Canal. Although these facilities are presently owned by the federal government, IID has repaid the debt for construction of the All American Canal. All three facilities are operated and maintained by IID. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 4

8 1BIID WATER SYSTEM The All American Canal is the sole conveyance system for lands in IID, CVWD north of the Salton Sea, and the Yuma Project in California and Arizona. The Imperial Dam and Desilting Works were constructed by The dam has a width of 3,485 feet and concrete buttresses with a hydraulic height of 23-feet. Three desilting basins have a total capacity of 12,000 cubic feet per second (cfs) that can each remove 70,000 tons per day of silt (700,000 yd 3 /yr) from the water before transport to final use. Construction of the All American Canal was completed in The maximum canal capacity is 15,150 cfs at the headworks. Capacity decreases below the delivery points and is about 7,000 cfs below Drop 1, the location of the delivery turnout for the Coachella Canal. The All American Canal provides flow to the Pilot Knob power plant and passes through five drop structures and hydroelectric power plants. Check structures and power plants provide control for water flow rates and elevations along the canal length. Two reaches of the canal totaling 23 miles in length were recently lined to conserve 67,700 acre-feet of water annually. The remainder of the canal is mostly unlined (earth section) with a typical depth of 21-feet and top width of 160 feet. The All American Canal is one of the largest constructed canals in the United States. In-District Water Conveyance and Distribution System The All American Canal runs in a westerly direction and delivers water to three main canals within IID: the East Highline, Central Main, and Westside Main canals. These main canals generally run northward and deliver water into IID s distribution laterals and directly to some farmland that adjoins the main canals. Laterals provide water to farms through delivery gates. In all, there are about 1,600 miles of canals and laterals, about 1,100 miles of which are concrete lined. There are approximately 5,500 farm delivery gates in the IID water service area, all of which are owned and operated by IID. IID has seven regulating reservoirs located along main (or major supply) canals with a total storage capacity of 2,256 acre-feet. These reservoirs level out mismatches between daily water supply and demand, enabling responsive water delivery to farms without excessive operational discharge from the IID water system. In addition, three lateral interceptor and regulating reservoir systems are in place. These systems capture operational discharges from certain laterals for reuse within the irrigation system. They also allow higher levels of water delivery service to the farmers in these areas as compared to other portions of the water service area. Drainage System IID operates and maintains a drainage system to collect and convey tailwater and deep percolation resulting from irrigation. Removal of tailwater and deep percolation is necessary to prevent water logging of soils and accumulation of potentially damaging salts in the crop root zone. Adequate drainage is essential for maintaining the productivity of irrigated lands within IID. The drains also collect operational discharge from the water conveyance and distribution system. The drainage system consists of 1,457 miles of surface drains and the Salton Sea. The drains discharge to the Salton Sea directly or via the Alamo and New Rivers. The approximately 34,408 miles of tile drainage systems installed under irrigated fields are owned by landowners and discharge into IID s surface drains. The Salton Sea serves as a drainage basin for irrigation and storm runoff in the Imperial, Coachella, and Mexicali valleys. The Salton Sea has been designated by the Federal government as a repository for agricultural drainage. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 5

9 1BIID WATER SYSTEM Support Facilities Operation and maintenance support facilities include equipment, shops, buildings, communications systems, and water operations facilities. IID s Water Control Center opened in August From this modern center, the All American Canal and District main canals and reservoirs can be remotely monitored and controlled to enable efficient, flexible operation. IID is expanding its automation system over time to further enhance water delivery operations. Water System Maintenance, Replacement and Condition Maintenance of the IID Water System is planned and implemented on an annual cycle, with actual maintenance activities carried out year-round. IID organizational structure includes a Water Department Manager who is supported by three General Superintendents, one of whom oversees maintenance and construction of both the irrigation delivery and drainage systems. IID s maintenance processes are generally adequate to keep the system in reliable operating condition. Most of IID s major water control structures and concrete canal lining improvements were constructed in the period between 1930 and 1970, and modernized controls have been gradually added and upgraded since Many of these structures and control systems are approaching the end of their useful lives and will need major refurbishment or replacement over the next approximately 50 years. To address this need, IID commissioned development of a replacement planning and funding model (R.W. Beck, 2009). The model includes an inventory of the various components comprising the IID Water System, current estimates (in 2009 dollars) of the capital replacement cost of each component, and estimates of the useful lives of the various component types. Based on this information, and other user-definable parameters, the model calculates future capital requirements for replacement and refurbishment. A number of important assumptions are reflected in the replacement cost data and model calculations, one of which is that control structures and concrete-lining improvements will be replaced at the end of their designated useful lives. Experience in IID and elsewhere indicates that some structures and concrete-lining continue to function effectively beyond the general useful life estimates used for financial planning, while others do not last as long as estimated. Overall, the useful lives used for financial planning are thought to be conservative for conditions in IID. The model run regarded by IID s Water Department as final, and documented in R.W. Beck 2009 reflects an aggressive replacement schedule and, therefore, maximum capital requirements. In discussion with IID management staff and consultants 1 it was revealed that IID intends to address initial replacement needs on a more practical schedule reflecting both realistic, on-the-ground replacement needs and priorities as determined by the risk posed to system function, structure condition and operability, and, to some extent, IID s financial constraints between 2010 and Reflected in this approach is the expressed intent to address critical, high-risk, replacement needs first, and to minimize replacement costs. For example, it is expected that portions of structures, or critical water control equipment, could be replaced over time, rather than replacing entire structures all at once (as generally assumed for the planning study). The financial projections presented in the next main section of this report (see 2010 Water System Project) reflect staff s replacement approach 1 Discussion on September 10, 2009, with Greg Broeking, Chief Financial Officer, Mike King, Manager, Water Department, and John Eckhardt, QSA Executive Program Manager. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 6

10 1BIID WATER SYSTEM from 2010 to 2019, followed by more aggressive funding of replacement needs beginning in It is our opinion that the staff replacement approach, with its initially reduced level of capital spending relative to the aggressive forecasts in the final model, supports reliable function of the IID Water System. This statement assumes that IID does actually expend the capital identified in its financial projections (or more) as scheduled, that high priority replacement needs are correctly identified and addressed in a timely manner, that IID can realize the kinds of cost savings described by staff, and that replacement needs are more fully funded beginning in IID Water Rights and Water Use The foundation of IID s water rights dates back to The rights, established under state law, were conveyed to IID in June In 1922, representatives from the Upper Basin states (Colorado, New Mexico, Utah, and Wyoming) and Lower Basin states (Arizona, California, and Nevada) signed the Colorado River Compact, an interstate agreement giving each basin perpetual rights to individual apportionments of 75 million acre-feet of Colorado River water every 10 years. The Compact was made effective by the provisions in the 1928 Boulder Canyon Project Act ( BCPA ) (45 Stat. 1056), which authorized construction of Hoover Dam and the All American Canal and served as the United States consent to accept this Compact. The BCPA resulted in ratification of the Compact by six of the basin states (excluding Arizona) and also required California to limit its annual consumptive use to 4.4 million acre-feet of the Lower Basin s apportionment, plus not more than half of any excess or surplus water unapportioned by the Compact. California abided by this federal mandate through the implementation of its 1929 Limitation Act. The BCPA authorized the Secretary of the Interior ( Secretary ) to contract for the storage of water and for the delivery thereof...for irrigation and domestic uses, and further defined the Lower Basin s apportionment split by allocating 0.3 million acre-feet of water to Nevada and 2.8 million acre-feet of water to Arizona. While the three states never formally accepted or agreed to these terms, the 1964 Supreme Court decision (Arizona vs. California, 373 U.S. 546) declared their consent to be inconsequential because the Boulder Canyon Project Act was authorized by the Secretary. Following implementation of the Boulder Canyon Project Act, the Secretary requested California to make recommendations regarding the distribution of its allocation of Colorado River water. In August 1931, under the direction of the Chairmanship of the State Engineer, the California Seven-Party Agreement was developed and authorized by the affected parties to prioritize California water rights. The Secretary accepted this recommended agreement and established these priorities (as shown in Table 1) through General Regulations issued in September The first four priority allocations account for California s 4.4 million acrefeet allotment, with agricultural entities utilizing 3.85 million acre-feet of that total. The remaining priorities are defined for years in which the Secretary declares that excess waters are available. On December 1, 1932, the Secretary, acting on behalf of the United States, executed a contract with IID to deliver Colorado River water as ordered by IID and as reasonably required for potable and irrigation purposes within the boundaries of IID in the Imperial and Coachella Valley s in California (Article 17). At that time, it was expected that the lands to be served in Coachella Valley would become annexed to IID. However, a 1934 Compromise Agreement between IID and the CVWD cleared the way for CVWD to make its own contract with the ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 7

11 1BIID WATER SYSTEM Table 1. California Colorado River Water Right Priorities Priority Order User Apportionment 1. Palo Verde Irrigation District (for use exclusively on 104,500 acres of Valley land in and adjoining District) 2. Yuma Project (for use on California Division, not exceeding 25,000 acres of land) 3a. Imperial Irrigation District (lands served by All American Canal in Imperial and Coachella Valley s) 3b. Palo Verde Irrigation District (for use on 16,000 acres of Mesa land) 4. Metropolitan Water District (for use on the Southern California Coastal Plain) Subtotal: California s Limit (not including surplus waters of Colorado River Water per the Boulder Canyon Project Act and the 1929 Limitation Act) Colorado River Water Rights for Excess River Water 5a. Metropolitan Water District (for use on the Southern California Coastal Plain) 3,850,000 acrefeet a 550,000 acrefeet 4,400,000 acrefeet 550,000 acrefeet 5b. City and County of San Diego (through MWD) 112,000 acrefeet 6a. Imperial Irrigation District (lands served by All American Canal in Imperial and Coachella Valley s) 6b. Palo Verde Irrigation District (for use exclusively on 16,000 acres of Mesa lands) 7. California Agricultural Use (Colorado River Basin lands in California) a The sum of Priorities 1, 2, and 3 300,000 acrefeet 300,000 acrefeet All remaining available water Present Perfected Rights 219,700 acre-feet (or the consumptive use of 33,604 acres) 38,270 acre-feet (or the consumptive use of 6,294 acres) 2,600,000 acre-feet (IID only or the consumptive use of 424,145 acres) Secretary. According to this Compromise Agreement, IID s third priority apportionment takes precedence over CVWD s for years in which there is a shortage of Colorado River water. Both the Colorado River Compact and the Boulder Canyon Project Act contained provisions that required satisfaction of present perfected rights, or appropriative rights acquired pursuant to state laws that were in existence prior to the implementation of these provisions. IID s water rights can be classified as two types, present perfected and/or contract. The 1964 Supreme Court decree (Arizona vs. California, 373 U.S. 546), in conjunction with a supplemental 1979 decree (Arizona vs. California, 439 U.S. 419,429), awarded IID a present perfected right to 2.6 million acre-feet of Colorado River Water annually, with a priority date of This legal decision reinforced the rights to this water that IID had previously established through appropriations based on historical usage. These present perfected rights are essential to IID as they guarantee priority access to the Colorado River water before those without these rights (after Mexico s allotment has been satisfied). Of the Seven-party Agreement entities, only Palo Verde Irrigation District ( PVID ), IID, and the Yuma Project Reservation Division (non-indian Bard Unit) have present perfected rights. IID s remaining water allocations are based on contract rights from the December 1932 contract with the Secretary of the Interior (as modified by the 1934 Compromise Agreement ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 8

12 1BIID WATER SYSTEM with CVWD). Contract rights for all California entities are described in Article 17 of the 1932 Contract and in their individual contracts with the Secretary. Signatories to the 1931 Sevenparty Agreement, Los Angeles, San Diego, and the County of San Diego have since merged their rights with those of the MWD, which originally was granted a fourth priority 550,000 acre-feet allotment of California s 4.4 million acre-feet apportionment. California s Colorado River water right priorities are summarized in Table 1. IID-MWD Water Conservation Program IID and MWD entered into an agreement to implement a program to conserve and transfer IID water ( 1988 Agreement ). Pursuant to the 1988 Agreement, approximately 105,000 acre-feet of water is transferred annually to MWD. This program was completed September 30, 1998, at a cost of $112,314,488 and remains in effect for 35 years after project completion, or until September 21, The agreement includes a renewal clause. The agreement included a number of projects that MWD financed. Projects include main canal reservoirs to reduce main canal operational discharges and improve farm delivery flexibility, canal and lateral lining to reduce seepage, lateral interceptor systems to capture operational discharges, automation of key gates and control structures, increased flexibility in water delivery schedules, and other features. Water conserved by these projects is transferred to MWD. The term of the 1988 Agreement was recently extended to become coterminous with the term of the QSA and related agreements. By extending the term, IID was relieved from the financial costs it would incur if it had terminated the 1988 Agreement under its original terms. IID Water Sales History Table 2 shows annual volumes of water sold by IID to customers for use in the Imperial Valley from 2003 through The bulk of water is sold for agricultural use, with sales varying year to year depending on commodity markets, cropping patterns, weather, and other factors. Industrial water sales declined from 2004 to 2005 and since 2005 have remained relatively steady at about 18,000 acre-feet annually. Municipal water sales increased steadily over the period reflecting growing population and associated urban water use. Table 2. IID Water Sales 2003 through 2008 (acre-feet) Year Agricultural Sales Industrial Sales Municipal Sales Total Sold ,524,210 29,226 31,651 2,585, ,300,934 26,550 33,839 2,361, ,286,606 18,964 34,450 2,340, ,366,592 18,399 35,942 2,420, ,320,936 17,243 36,405 2,374, ,415,568 18,444 36,212 2,470,224 The three water sales categories are described briefly below. Agricultural Water is for irrigation of crops and is the total measured volume of water delivered to farm delivery gates. This water is used to satisfy crop water requirements, leaching of salts from the root zone, and on-farm operations. Agricultural water accounts for approximately 98 percent of the total delivery volume. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 9

13 1BIID WATER SYSTEM Municipal Water is delivered to seven cities and unincorporated areas within IID boundaries for domestic and industrial use. The incorporated areas include three small communities/cities and rural farms. Approximately 1.4 percent of total delivery is for municipal supply. Industrial Water outside of urban areas includes geothermal plants, Holly Sugar Corporation, chemical and fertilizer producers, two state prisons, and a U.S. Naval Air Station. Industrial water use accounts for approximately 0.6 percent of the total IID water sales. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 10

14 2010 Water System Project Background The 2010 Certificates will be used to finance the costs of designing and constructing improvements to the IID water system needed to meet certain provisions of the 1998 District/SDCWA Transfer Agreement entered into by IID with the SDCWA on April 28, 1998, and the subsequent QSA and related agreements entered into by IID with, among others, MWD and CVWD as part of a plan for the future use of Colorado River water in California. The QSA and related agreements were an important element in the satisfaction of contingencies necessary to allow for the implementation of the 1998 District/SDCWA Transfer Agreement by IID and SDCWA. The QSA and related agreements are a series of interrelated agreements among IID, MWD, CVWD and others that are designed to establish water budgets, quantify the agricultural agencies (IID and CVWD) water use, provide for the resolution of certain existing and potential future disputes among the parties (referred to as the peace treaties among the agencies), and allow for the sharing of California s apportionment of Colorado River water of 4.4 million acre-feet. Pursuant to these agreements, IID will eventually transfer a maximum of 200,000 acre-feet of water annually to SDCWA and 103,000 acre-feet annually to CVWD, respectively. Transfers to SDCWA began in 2003 in the amount of 10,000 acre-feet, while transfers to CVWD began in 2008 with an initial delivery of 4,000 acre-feet. IID will also transfer an aggregate of 800,000 acre-feet of mitigation water during the first 15 years to SDCWA, who will reassign the water to CVWD for delivery to the Salton Sea as part of the mitigation of the impacts of IID s transfers on the Salton Sea. This 15-year period began in 2003 and ends in Table 3 displays the schedule of future water transfers (from 2010 onward) to be made by IID to SDCWA and CVWD and for mitigation purposes pursuant to the terms of the 1998 District/SDCWA Transfer Agreement and the QSA and related agreements. IID will make transferred water available for such purposes through a combination of conservation measures, including: a temporary land fallowing program; construction of efficiency conservation projects within the IID system; and, implementation of a voluntary, incentive driven on-farm conservation program. Table 4 displays IID s current schedule of conservation to provide water for transfer pursuant to the transfer agreements. In 2007, IID completed development of its Efficiency Conservation Definite Plan ( Definite Plan ) to define system conservation projects and a voluntary on-farm conservation program that will enable IID to achieve the efficiency conservation targets presented in Table 4 (Davids Engineering, Inc., et.al. 2009). The Definite Plan was developed with the recognition that IID s delivery service affects the manner in which farmers can use water, and vice versa. It also was developed with the objective that the costs associated with implementing system improvements and the on-farm program should not exceed the revenues that IID will receive for transferred water. The result was an integrated package of system improvements together with a voluntary, incentive driven on-farm conservation program that would achieve efficiency conservation targets at minimum cost. The Definite Plan also included provisions for improved farm delivery measurement. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 11

15 2B2010 WATER SYSTEM PROJECT Table 3. Imperial Irrigation District Water Transfer and Mitigation Delivery Obligations (acre-feet) Year SDCWA Transfer CVWD Transfer Mitigation Water Total ,000 12,000 35, , ,000 16,000 40, , ,000 21,000 45, , ,000 26,000 70, , ,000 31,000 90, , ,000 36, , , ,000 41, , , ,000 45, , , ,000 63, , ,000 68, , ,000 (1) 73, , ,000 (1) 78, , ,000 (1) 83, , ,000 88, , ,000 93, , ,000 98, , , , ,000 (1) Does not include Early Transfer Water under the Fourth Amendment to The 1998 District/SDCWA Transfer Agreement which requires the transfer of an additional 2,500 acre-feet to SDCWA in 2020, 5,000 acre-feet in 2021, and 2,500 acre-feet in 2022 at a price of $125/acre-foot, adjusted by changes in a defined price index from January 1, 1999 to the year of delivery. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 12

16 2B2010 WATER SYSTEM PROJECT Table 4. Imperial Irrigation District Schedule of Water Conservation to Satisfy Water Transfer Obligations (acre-feet) Fallowing Efficiency Transfer Year SDCWA Transfer Mitigation Water Total System On- Farm Total Total ,000 35, ,000 12, , , ,000 40, ,000 16, , , ,000 45, ,000 21, , , ,000 70, ,000 46, , , ,000 90, ,000 70,000 1,000 71, , , , ,000 81,000 15,000 96, , , , ,000 92,000 29, , , , , ,000 44, , , ,000 88, , , , , , , , , , ,000 (1) , , , ,000 (1) , , , ,000 (1) , , , , , , , , , , , , , , , ,000 (1) Does not include Early Transfer Water under the revised fourth amendment to the 1998 District/SDCWA Agreement which requires the transfer of an additional 2,500 acre-feet to SDCWA in 2020, 5,000 acre-feet in 2021 and 2,500 acre-feet in 2022 at a price of $125/acre-foot, adjusted by changes in a defined price index from January 1, 1999 to the year of delivery. The Definite Plan provided a set of foundational recommendations to guide IID s implementation of system improvements and an on-farm conservation program, and it identified various near-term actions that IID should take, including pilot testing and further refinement of system improvements and farm delivery measurement. In August 2007, based on the Definite Plan recommendations, the IID Board approved a Major Work Authorization (MWA) to proceed with the near term actions. Activities conducted pursuant to the 2007 MWA have resulted in various refinements to IID s system conservation, on-farm conservation, and improved farm delivery measurement plans, positioning IID to proceed with final design and construction of an integrated efficiency conservation program. One element of the system improvements involving interception and reuse of seepage from the East Highline Canal was substantially completed in 2008 and IID has secured all necessary regulatory approvals and satisfied all initial contractual contingencies related to the proposed transfers and implementation of conservation measures. Certain of these approvals and/or transfers, however, have been challenged in litigation. IID has completed environmental documentation and authorizations required by the National Environmental Policy Act ( NEPA ), the California Environmental Quality Act ( CEQA ) the Federal Endangered Species Act and the California Endangered Species Act. Additional environmental analysis and documentation may be required as project specific designs are completed. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 13

17 2B2010 WATER SYSTEM PROJECT 2010 Water System Project Description The planned improvements to IID s water system are collectively referred to as the IID System Conservation Plan (SCP). The SCP, together with farm delivery measurement improvements, will be designed and constructed over a seven year period beginning in IID intends to finance SCP design and construction and implementation of improved farm delivery measurement with two bond issues, one in early 2010 and another in The remainder of this section describes the SCP and farm delivery measurement improvements, and the schedule for their design and construction. Design and construction activities occurring in 2010, 2011 and 2012 comprise the 2010 Water System Project. System Conservation Plan IID s SCP has been developed primarily to reduce operational discharge from IID s distribution laterals through operational discharge recovery and reuse and through operational discharge prevention. Although not a primary objective, the SCP will also allow increased farm delivery flexibility at times, subject to certain limits. This flexibility will complement the efforts of farmers enrolled in IID s voluntary on-farm conservation program. Each of the SCP s five components is described briefly below. Additional detail is provided in IID s current version of the SCP and delivery measurement description. (Davids Engineering, Inc., et. al. 2009) 1. Integrated Information Management (IIM). IIM consists of upgrades and expansion of IID s existing supervisory control and data acquisition (SCADA) system, automation of 233 lateral head gates throughout the system, remote monitoring of lateral operational discharge and system interface flows, operations decision support software, and mobile laptop computers for IID system operators (zanjeros). These features will provide zanjeros with mobile, near-real time information about flows and water levels in their assigned laterals, and the ability to remotely control lateral head gates (either directly or in coordination with main canal operators). This will enable zanjeros to reduce lateral operational discharges while maintaining a high level of water delivery service to farmers. 2. Mid-lateral Reservoirs. IID will construct regulating reservoirs on 36 selected laterals. Located at roughly the mid-point of each lateral, the reservoirs will level out temporary mismatches between lateral supply and demand while flow adjustments are made at the lateral head gate. The ability to regulate flow mismatches and fine tune lateral inflow will allow zanjeros to reduce lateral operational discharge. 3. Lateral Interties With and Without Reservoirs. At 34 locations within the IID system, interties will be constructed to capture operational discharge from one lateral and to deliver it into an adjoining lateral or main canal. For some interties, flow fluctuations associated with operational discharge capture will be regulated in existing IID system reservoirs. In other cases, new regulating reservoirs will be constructed as part of the intertie. These facilities will allow effective use of captured operational discharge. 4. Mid-Valley Collector System. The Mid-Valley collector system is the central component of the SCP. It consists of upgraded laterals, regulating reservoirs, pumping plants, and pipelines organized into four sub-systems. The central part of the valley between the New and Alamo rivers is low and does not contain enough ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 14

18 2B2010 WATER SYSTEM PROJECT irrigated area to use all of the operational discharge that collects there. The components of the four sub-systems will work together to collect existing operational discharge as well as operational discharge that is routed to this area from lateral interties to the south and move it north and west. Three large laterals (Rose, Redwood and Moorhead) will be increased in capacity to convey the extra intercepted operational discharge. Two new reservoirs will be located in this area and two more on the West Side Main to regulate the collected spill and allow it to meet deliveries locally and as far downstream as the Trifolium Extension lateral by pumping it through large pipelines to the downstream reservoirs. Sperber Reservoir will also be upgraded with a pumped connection to the Redwood Canal. This system provides flexibility to route water to areas of use through multiple paths to assure that the captured operational discharge can be effectively used. 5. Non-Leak Gates. Non-leak gates will be installed at roughly 20 selected locations throughout the District. Specific sites have not been identified, but it is anticipated that these gates will be placed at sub-lateral headings that are not automated and where leakage is a problem. Improved Farm Delivery Measurement Improved delivery measurement is planned for approximately 5,500 farm delivery gates. The measurement approach to be implemented was selected from six solutions examined. It utilizes the existing delivery gate and structure and provides measurement of upstream and downstream water levels and gate position. A local display will show flow rate and total delivered water. Measurement is continuous, so that an accurate total delivery for each irrigation will be recorded. The units will be connected to the SCADA system and provide real-time flow and lateral water surface elevation information to the zanjeros through the IIM components to facilitate reduction of operational discharges. SCP and Delivery Measurement Implementation Schedule The SCP is comprised of a number of individual projects, some of which function alone and some of which function together as integrated systems. An implementation schedule has been developed that acknowledges how the projects interact and when they must be completed to achieve the targeted water conservation amounts. Table 5 displays the schedule of capital spending by project needed to achieve the planned SCP and measurement implementation. The total capital cost of all projects is $283,766,000. Capital costs expended in 2010, 2011 and 2012, which total to $120,339,000, comprise the 2010 Water System Project. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 15

19 Table 5. Funding Schedule for System Conservation Program and Delivery Measurement Implementation a Project Total Cost b SCADA Upgrade $7,368,000 $2,800,000 $2,800,000 $1,668,000 $0 $0 $0 $0 Delivery Measurement $68,750,000 $5,000,000 $15,000,000 $17,200,000 $17,200,000 $13,350,000 $0 $0 Spill Monitoring $4,528,000 $1,300,000 $2,000,000 $1,228,000 $0 $0 $0 $0 Lateral heading $19,885,000 $1,600,000 $5,000,000 $6,000,000 $6,000,000 $1,285,000 $0 $0 In-line mid-lateral reservoirs, EHL $21,480,000 $1,500,000 $8,000,000 $10,000,000 $1,980,000 $0 $0 $0 Mid-lateral reservoirs, other $24,939,000 $1,100,000 $6,500,000 $8,000,000 $8,000,000 $1,339,000 $0 $0 Inter-ties $36,373,600 $100,000 $400,000 $1,300,000 $7,000,000 $9,000,000 $12,000,000 $6,573,600 Lateral to main canal interface upgrade $698,400 $140,000 $558,400 $0 $0 $0 $0 $0 Non-leak gates $250,000 $0 $0 $0 $0 $0 $0 $250,000 Sperber upgrade $2,496,000 $2,496,000 $0 $0 $0 $0 $0 $0 WSM Reservoir 1 $37,417,000 $300,000 $1,200,000 $800,000 $400,000 $12,500,000 $16,000,000 $6,217,000 WSM Reservoir 2 $13,693,000 $200,000 $700,000 $6,300,000 $6,493,000 $0 $0 $0 Rose Reservoir & canal upgrade $15,800,000 $100,000 $800,000 $1,700,000 $5,500,000 $7,500,000 $200,000 $0 Rose-Moorhead Reservoir and pipeline $14,443,000 $0 $800,000 $1,600,000 $5,500,000 $6,000,000 $543,000 $0 Rose Canal Extension to Reservoir $3,549,000 $0 $400,000 $3,149,000 $0 $0 $0 $0 Redwood Canal and Lateral 8 Upgrades $5,494,000 $0 $0 $200,000 $1,300,000 $3,994,000 $0 $0 Moorhead Canal Upgrades $6,602,000 $0 $0 $400,000 $2,200,000 $4,002,000 $0 $0 Total $283,766,000 $16,636,000 $44,158,400 $59,545,000 $61,573,000 $58,970,000 $28,743,000 $13,040,600 a Costs associated with 2010, 2011 and 2012 comprise the 2010 Water System Project. Costs associated with 2013 through 2016 will be addressed through a separate bond issue in b Total costs for SCADA Upgrade and Delivery Measurement include expenditures in 2009 not shown in table. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 16

20 Financial Status IID provides water and electric service to customers located within its geographical boundaries (an area encompassing approximately 1,658 square miles for water and approximately 6,483 square miles for electricity). IID has the authority to fix rates and charges for supplying water and electricity and to incur debt. IID operations are segregated into two departments: the Water Department and the Power Department. The Water Department is responsible for the diversion and delivery of Colorado River water to irrigation, municipal, industrial and other users. In addition, the Water Department operates and maintains the canals and drainage facilities. Separate accounting records are maintained for each department. The entire financial effect of the QSA occurs within the Water Department. Water Department recent actual and projected revenues and expenses are presented in this section. Because the QSA has a significant influence on Water Department financials, QSAspecific revenues and costs are discussed first. All of the financial information presented in this section was provided by IID staff and was not independently validated by DE. QSA Revenues and Expenses The QSA and related agreements (see preceding section) will have significant impacts on IID s water sales and revenues. The water transfers integral to the QSA and related agreements will result in a significant new source of income for IID and also new expenditures. The QSA and related agreements also increase the security of IID s water rights resulting in an increase in the certainty of the future revenues for IID. The prices the District receives for transferred water pursuant to the 1998 District/SDCWA Transfer Agreement and the QSA and related agreements are specified in the agreements. For the water transferred to SDCWA, the prices were set initially by a deemed price schedule specified in the Revised Fourth Amendment (dated October 10, 2003) to the 1998 District/SDCWA Transfer Agreement. After the year 2007, either the District or SDCWA had the option to switch from the deemed price schedule to a price formula that was dependent on the cost of water to SDCWA from MWD in addition to certain other factors. In 2008, SDCWA exercised such right to switch permanently to the price formula. The District is currently in disagreement with SDCWA as to how that 2008 price is calculated and what the resulting amount is. In the meantime, IID and SDCWA have compromised on an interim price for 2008 and The dispute is scheduled to be arbitrated in September/October of 2009, and the District anticipates that the arbitration will result in SDCWA transfer prices for 2008 that will be greater than the deemed price. Pursuant to the transfer agreement between IID and CVWD, the price for water transferred by IID to CVWD is $50/acre-foot (in 1998 dollars) for annual volumes transferred up to 50,000 acre-feet per year and $125/acre-foot (in 1998 dollars) for annual volumes transferred in excess of 50,000 acre-feet per year. These prices are adjusted annually by changes in contractually defined price indices from January 1, 1998 to the year of delivery. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 17

21 FINANCIAL STATUS The payments for the transfer of water for mitigation purposes are set forth in the agreement establishing the Quantification Settlement Agreement-Joint Powers Agency ( QSA-JPA ), a joint powers agency established by IID, CVWD, SDCWA, and the California Department of Fish and Game. Pursuant to the agreement, the price to be received by IID for mitigation water is $90.87/acre-foot in 2003, increasing annually by 2.75 percent through the year 2017, when IID s obligation to make mitigation water available is terminated. In accordance with the terms of the underlying agreements, IID makes the water available to the other parties to the transfers at Imperial Dam. IID is entitled to receive payment for the water whether or not the other parties use the water. Under the terms of the Colorado River Water Delivery Agreement, the Secretary of the Interior will limit the amount of Colorado River water available to IID to 3.1 million acre-feet, less the amount of water delivered to the other parties. If IID fails to make available the quantity of water scheduled for delivery to other parties, the underlying agreements provide that IID s delivery obligations may be enforced by specific performance. IID retained Stratecon Inc. (Stratecon), an economic consultant, beginning in 1996 to assist in structuring its agreements comprising the QSA and related agreements and to provide economic valuations and financial projections related to such agreements. Stratecon is a California corporation established in 1983, located in Upland, California, that provides strategic planning and economic consulting services to the public and private sector regarding the economics, finance, law, politics and policy of western water, including water investments and water marketing. Stratecon continues to assist IID in forecasting the revenues and expenses related to the QSA and the 2010 Water System Project, and in other matters. Using Stratecon s forecasts, information derived from the Efficiency Conservation Definite Plan, subsequent planning efforts, and other information; IID staff have prepared revenue and expense projections related to the QSA water transfers. These projections are summarized in Table 6 and reflect several major assumptions: The IID will prevail in ongoing arbitration so that AAC conserved water can be treated as part of MWD demand Firm base contract revenue and the shortage premium revenue are based on the forecast by Stratecon IID will make a lump sum repayment in 2019 of the $10 million prepayment made to IID by SDCWA in 2007 Capital expenditures for design and construction of SCP projects will occur on the schedule presented in Table 5 Payments for on-farm efficiency conservation under IID-landowner contracts will be equivalent to $250 per acre-foot in 2006 dollars inflated at 2 percent annually As shown in Table 6, water transfer related revenues began in at just less than $10 million and grew to more than $22 million by Revenues in 2007 were nearly $32 million due to a one-time $10 million prepayment by SDCWA. Revenues are forecast to increase steadily from more than $31 million in 2009 to nearly $419 million in This increase is due to increases in the amounts of water being transferred and due to escalation of the price paid to IID per acre-foot of water. The majority of revenue associated with water ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 18

22 FINANCIAL STATUS Table 6. Water Transfer Revenues and Expenses Total Revenues a Excluding Debt Service Expenses Revenue Minus Expense Debt Service Total a Annual Cumulative Year Actual ,784,626 8,781,752 2,264,620 11,046,372 (1,261,746) (1,261,746) Actual ,686,429 8,993,131 2,261,220 11,254,351 (567,922) (1,829,668) Actual ,679,846 13,312,383 2,747,735 16,060,118 (1,380,272) (3,209,940) Actual ,910,315 17,632,395 2,351,262 19,983,657 11,926,658 8,716,718 Actual ,214,828 15,818,371 2,235,368 18,053,739 4,161,089 12,877,807 Projected ,391,701 23,247,840 2,319,393 25,567,233 5,824,469 18,702,276 Projected ,701,684 22,123,419 7,395,558 29,518,977 6,182,707 24,884,982 Projected ,858,254 24,314,631 12,530,549 36,845,180 5,013,074 29,898,056 Projected ,083,414 25,883,579 12,530,924 38,414,503 10,668,911 40,566,966 Projected ,571,502 32,466,521 18,889,014 51,355,535 9,215,967 49,782,933 Projected ,858,789 38,482,471 25,242,664 63,725,135 5,133,654 54,916,586 Projected ,421,100 44,926,105 25,244,844 70,170,949 5,250,151 60,166,737 Projected ,580,665 49,631,350 25,242,494 74,873,844 5,706,821 65,873,558 Projected ,863,412 56,767,039 25,245,369 82,012,408 9,851,004 75,724,562 Projected ,113,317 67,899,831 25,246,769 93,146,601 13,966,716 89,691,278 Projected ,584,673 75,719,837 25,243, ,963,607 20,621, ,312,344 Projected ,182,662 90,732,002 25,246, ,978,371 39,204, ,516,635 Projected ,530,039 99,675,491 25,241, ,917,211 42,612, ,129,463 Projected ,165, ,782,946 22,981, ,764,578 48,401, ,530,570 Projected ,827, ,898,331 22,981, ,879,963 50,947, ,478,492 Projected ,400, ,114,429 22,981, ,095,961 53,304, ,782,811 Projected ,451, ,480,112 22,981, ,461,744 55,990, ,773,059 Projected ,712, ,145,173 22,981, ,126,805 58,585, ,358,467 Projected ,204, ,360,809 22,981, ,342,441 61,862, ,220,860 Projected ,235, ,806,151 22,981, ,787,683 65,447, ,668,651 Projected ,324, ,200,893 22,981, ,182,525 69,141, ,810,536 Projected ,469, ,318,470 22,751, ,069,786 73,399, ,209,900 Projected ,050, ,760,678 22,521, ,281,778 77,768, ,978,284 Projected ,947, ,629,090 22,521, ,150,290 81,797, ,775,874 Projected ,359, ,586,996 22,521, ,108,196 86,251, ,027,031 Projected ,176, ,907,615 22,521, ,428,815 90,747,629 1,065,774,660 Projected ,157, ,698,619 22,521, ,219,819 94,938,050 1,160,712,710 Projected ,796, ,451,004 22,521, ,972,104 99,824,354 1,260,537,064 Projected ,349, ,381,277 22,521, ,902, ,447,467 1,364,984,531 Projected ,376, ,269,982 22,521, ,791, ,585,108 1,474,569,639 Projected ,289, ,918,073 22,521, ,439, ,850,487 1,589,420,126 Projected ,460, ,362,836 17,617, ,980, ,480,304 1,713,900,430 Projected ,545, ,214,723 12,713, ,928, ,616,756 1,848,517,186 Projected ,294, ,627,466 12,713, ,341, ,953,323 1,988,470,508 Projected ,540, ,502,086 6,356, ,858, ,681,685 2,140,152,194 Projected ,225, ,297, ,297, ,928,004 2,304,080,197 Projected ,227, ,980, ,980, ,247,237 2,473,327,434 Projected ,652, ,635, ,635, ,016,830 2,648,344,264 Projected ,814, ,380, ,380, ,433,972 2,829,778,236 b a Legal expense and the SDCWA $10 million pre-payment were accounted for as reductions in expenses and capital funding, respectively in the water department accounting. In the water transfer projections these two line items are considered as revenue. b Cumulative total excludes approximately $300 million in capital projects that are not financed. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 19

23 FINANCIAL STATUS transfers are payments from SDCWA and CVWD for transferred water and, through 2017, payments for water provided by IID for Salton Sea environmental mitigation. There are a variety of expenses associated with the QSA-related water transfers. These include payments made to landowners who voluntarily elect to enroll in IID s land fallowing and on-farm efficiency conservation programs and repayment of money borrowed to make capital improvements to the IID Water System, including replacement as needed. Also included are annual operation and maintenance costs. Actual expenses ranged from $11 million to $20 million per year from to Projected expenses are $25.5 million in 2009 ramping to $237 million in This increase is driven primarily by two factors: 1. Implementation of the SCP with its associated operation and maintenance costs. 2. The ramp up of the on-farm efficiency conservation program, involving gradual increases in the volumes of water being conserved and escalation of the price per acre-foot paid by IID to landowners. Although actual water transfer expenses exceeded revenues in , 2005 and 2006, net revenue (with respect to water transfers) was positive in 2007 and 2008 and is forecast to remain positive each year over the life of the QSA. The cumulative net revenue of water transfers over the life of the QSA is about $2.5 billion. Water Department Revenues and Expenses The recent historical and projected future Water Department revenues and expenses, as they will be influenced by the QSA-related water transfers discussed above, are presented in this section. Water Rates Historically, the majority of Water Department revenues have been derived from the water availability fee and from water sales to agricultural, municipal and industrial customers. The water availability fee is collected on a per acre basis for land held within IID water service boundaries. The revenue generated from water sales is calculated based on established water rates and the water volume sold to customers. IID s Board is solely responsible for setting the water rates and can modify the rates as necessary without the approval of any State or Federal agency. As noted previously, about 97 percent of IID water sales are to agricultural customers. In July 2009, the Board increased agricultural water rates by $1.00 per acre-foot to $18.00, effective August 1, Additionally, the Board scheduled future water rate increases to $19.00 and $20.00, to become effective on January 1, 2010 and January 1, 2011, respectively. The recent historical agricultural water rates and availability charges are shown in Table 7. Historically water rates have increased slowly to cover escalating operating costs. For purposes of the water system financial projections herein, water rates have been assumed to increase $1 per acre-foot per year over all rate classes from 2021 through 2026, in addition to the aforementioned increases already approved by the IID board. Other pressures could also result in future rate increases. These include potential future expenditures on drainage-related efforts and the possible need for water treatment, enforcement of the ESA, as well as meeting IID s financial covenants in connection with its water system obligations. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 20

24 FINANCIAL STATUS Table 7. Historical Agricultural Water Rate and Water Availability Charge Fiscal Year Water Rate a (per acre-feet) Water Availability Charge (net per acre) 2009 $18.00 c $4.00 d 2008 $17.00 $ $17.00 $ $17.00 $ $16.00 $ $15.00 b $ $16.00 $ $15.50 $ $15.00 $ $14.50 $ $14.00 $ $13.50 $ $12.50 $ $12.50 $ $12.00 $ $11.50 $ $11.50 $ $11.50 $3.80 a Rates do not include the surcharge for white fly research. b Interim reduced rate. c Rate increased from $17.00 per acre-feet to $18.00 per acre-feet by IID Board effective August 1, d In calendar year 2009 Water Availability Charge was based on net acres farmed. Prior years were based on gross acres less minimum allowance for any and all right-of-way consideration. Source: Imperial Irrigation District. Water Sales Total water sales have been relatively consistent over the past 5 years, averaging 2.43 million acre-feet and ranging from a low of 2.34 million acre-feet in 2005 to a high of 2.59 million acre-feet in 2003 (Table 2). However, as a result of on-farm efficiency conservation and transfers (and land fallowing between 2003 and 2017), IID s water sales will decrease in the future. The volume of future water sales has been predicted by assuming that distribution system conservation and IID diversion reduction will follow the schedules cited in the QSA and related agreements (Table 4). Assuming no further increases in system efficiency, this results in decreasing District water sales with 2.38 million acre-feet being the maximum volume available for sale. According to the water transfer schedule, IID s water sales will eventually stabilize at a new, lower level by 2026, the year aggregate water transfers under the QSA reach their peak of 303,000 acre-feet annually. Reduced water sales result in IID s operation and maintenance costs being spread over a smaller sales base. Normally, this would result in an increase in water rates. However, rather than allow rates to rise to the detriment of the local agricultural economy, lost water sales revenues attributable to water transfers will be allocated to the general Water Department operations out of water transfer revenues. Water Department Revenues Water Department revenues following implementation of the QSA and related agreements and the 2010 Water System Project will come primarily from two main sources: agricultural ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 21

25 FINANCIAL STATUS water sales to IID customers and water transfer revenues received from SDCWA and CVWD. As discussed earlier, costs and revenues associated with water transfers have been projected by Stratecon and IID staff. Other revenue from Water Department operations include water availability charges, industrial water sales, municipal water sales, plus an interdepartmental transfer of revenues from the Power Department for generation of power from water flowing through the IID Water System. Additional non-operating revenue is generated from interest income and other miscellaneous income and an allocation of revenues from water transfer activities to make up for lost water sales. Historical and Projected Operating Results of the Water System Water Department operating results for the historical period 2007 through 2008 and projected for 2009 through 2047 are presented in Table 8 (located following the text portion of this report due to its large size, as Attachment A). This financial forecast was developed by IID staff and reviewed by DE. Key assumptions used by staff to prepare the projections are as follows: Water transfer revenues and expenses as previously described Water sales as previously described Water rate increases of $1 per acre-foot per year over all rate classes from 2021 through 2026, in addition to increases already approved by the IID Board Bond issues in 2010 (for the 2010 Water System Project) and 2013 to construct the SCP (previously described) Additional bond issues in 2023 and 2029 to replace existing District infrastructure Expenditures for replacement of the IID Water System according to R.W. Beck as modified by IID staff (previously described) The Water Department s projected cash available for debt service ranges from a low of $19.2 million in 2010 to a high $142 million in Over this same period, IID s debt coverage (cash available for debt service divided by debt service) ranges from a low of 1.06 in 2016 to a high of 3.92 in The debt service is below the desired threshold of 1.20 from 2014 through Thereafter, the debt coverage generally increases reflecting a more rapid growth in cash available for debt service than actual debt obligation. Projected Repayment Capability The farmers ability to pay for IID water is estimated using a farm budget approach. This method calculates the residual net income available to pay water costs after all other production costs are covered, including cash costs, investment, and management costs. Imperial County is one of the nation s leaders in total crop receipts, with a climate well suited to attaining high yields for a variety of crops, including high value vegetable and melon crops. Crop values exceed $1 billion per year. Table 9 shows the harvested acreage and the gross value of crops for Imperial County for the past three years. This information was obtained from the Imperial County Agricultural Commissioner s Reports. Principal crops include alfalfa, wheat, asparagus, broccoli, sudan grass hay, sugar beets, lettuce, onions, cantaloupes, and carrots. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 22

26 FINANCIAL STATUS Table 9. Acreage and Gross Values of Crops in Imperial County Gross Values ($1,000) Gross Values ($1,000) Gross Values ($1,000) Harvested Acreage Harvested Acreage Harvested Acreage Major Crops Within Category Vegetable & Melon Crops 107, , , , , ,242 Asparagus, harvested 786 6, , ,127 Broccoli 11,812 35,731 12,127 61,283 12,679 73,054 Carrots 5,976 58,416 5,520 28,382 6,202 42,936 Cauliflower 3,030 17,385 3,090 23,076 3,317 23,812 Head Lettuce, Total 17,318 67,074 15,512 75,252 23, ,069 Onions, Total 11,475 34,178 10,072 39,602 10,505 39,712 Tomatoes, Market Cantaloupes, Total 9,135 48,595 7,138 36,231 8,310 42,613 Field Crops 361, , , , , ,588 Alfalfa 146, , , , , ,146 Sugar Beets 23,404 43,038 23,762 39,091 23,773 41,239 Sudan Grass Hay 68,289 41,731 71,323 49,065 68,536 67,146 Wheat 28,878 15,278 47,245 29, , ,793 Livestock 418, , ,789 Fruit & Nut Crops 6,430 46,452 5,812 32,158 5,665 37,342 Dates 1,021 19, ,980 1,038 21,448 Lemons 3,377 16,481 3,152 10,677 2,805 9,467 Seed & Nursery Crops 74,691 72,351 61,561 56,205 64,457 86,789 Bermuda Grass Seed 32,897 32,844 24,068 13,894 18,769 15,679 Alfalfa Seed 16,832 8,920 12,393 11,548 19,149 22,989 Apiary Products 2,544 3,139 3,772 Table 10 presents the yields and prices received for significant crops grown in IID over the past 5 years. The 5-year average yield and price are also shown. Variation in prices and yields over the past 5 years is similar to historical patterns. The annual per-acre and per acre-foot repayment capacity is estimated as the residual net income after all costs except water are subtracted from gross revenue. Farm enterprise budgets for the significant crops are summarized in Table 11. The budgets are derived from University of California Cooperative Extension Service ( UCCES ) Projected Production Costs for The farm budgets were prepared using price and yield data averaged over the past 5 years, with prices and costs escalated to Repayment capacity was estimated by calculating a weighted return per acre-foot of water, based on the relative crop distribution within IID. Table 12 presents the crop breakdown and percentage for IID. ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 23

27 3BFINANCIAL STATUS ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 24

28 FINANCIAL STATUS ENGINEER S REPORT FOR 2010 WATER SYSTEM PROJECT 25