CONTACT: Chuck Cullom Suzanne Ticknor

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1 Agenda Number 8. CONTACT: Chuck Cullom Suzanne Ticknor MEETING DATE: February 2, 2017 AGENDA ITEM: Report and Possible Consideration of Action Gila River Indian Community (GRIC) System Conservation Implementation Agreement and CAWCD Forbearance Agreement RECOMMENDATION: Staff recommends that the Board authorize the General Manager to execute a system conservation forbearance agreement with Reclamation for system conservation by the GRIC in 2017, consistent with the key terms outlined in the brief. FINANCIAL IMPLICATIONS: Impact on Budget: None Impact on Reserves: None Impact on Rates: Potential increase of up to $2/af due to forgoing collection of fixed OM&R for 40,000 af of system conservation by GRIC in 2017 LINKAGE TO STRATEGIC PLAN, POLICY, STATUTE OR GUIDING PRINCIPLE Optimize reliability and sustainability of CAP Water Supply: Reduce risk associates with CAP s junior priority Manage risks and opportunities posed by climate change ISSUE SUMMARY/DESCRIPTION: RECLAMATION GILA RIVER INDIAN COMMUNITY SYSTEM CONSERVATION IMPLEMENTATION AGREEMENT AND CONSERVATION PROJECT, 2017 As an outgrowth of the discussions to implement the Lower Basin Drought Contingency Plan within Arizona, referred to as DCP+, the United States Department of the Interior through the Bureau of Reclamation ( Reclamation ) and the Gila River Indian Community (GRIC) have entered into a System Conservation Implementation Agreement (SCIA) to compensate the GRIC for conservation of CAP water in 2017.

2 The SCIA was executed on January 18, The goal of the GRIC conservation activity is to conserve CAP water in 2017 to assist in increasing water levels in Lake Mead to avoid shortage in The GRIC conservation activities are in addition to CAWCD s plans to conserve 185,000 af in 2017 to avoid shortages in The SCIA includes a commitment by Reclamation to compensate GRIC for the conservation of 40,000 af in Reclamation will pay GRIC $6M for conserving 40,000 af ($150/af). The SCIA does not include funding to reimburse CAWCD for its loss of fixed OM&R rates. It is estimated that the loss of collection of the fixed OM&R for the 40,000 af could potentially result in an increase of up to $2/af for the remaining OMR rate payers in The SCIA agreement includes an option for an additional 40,000 af of conservation to create additional water in Lake Mead. The funding for the additional conservation would also be provided by Reclamation, with the compensation to GRIC for the additional conservations set at $6M or $150/af. The option for the additional conservation volume is contingent upon execution of a DCP + agreement by March 31, 2017, and the exercise of Reclamation s option by May 15, In order for the GRIC conservation of CAP water to provide increased storage in Lake Mead, CAWCD will be requested to forego our rights to divert, deliver, or remarket the conserved CAP water under our authorities to manage Excess CAP water. In previous conservation actions with CAP contractors and other Arizona Colorado River users, CAWCD has agreed to forego diversion or delivery of the conserved water, increasing the water level in Lake Mead. Examples of previous forbearance by CAWCD include Pilot System Conservation Projects such as the 2016 Ag Forbearance 2 program, 2015 & 2016 conservation by the Tohono O odham Nation, and 2016 GRIC conservation project. In addition, CAWCD provide forbearance for Reclamation s conservation project with the Fort McDowell Yavapai Nation in STATUS OF RECLAMATION CAWCD FORBEARANCE AGREEMENT Reclamation has provided CAWCD staff a draft forbearance agreement, similar in scope to previous agreements with Reclamation for CAWCD s forbearance of our contract authorities to divert and deliver the conserved water. Staff provided edits and comments to the draft agreement to Reclamation on January 26, 2017 (attached), for their review and comment. It is our intention to quickly finalize the forbearance agreement with Reclamation so that the 40,000 af of compensated GRIC conservation actions can move forward in The key terms, included in CAWCD s edits to the draft forbearance agreement, are as follows: Conservation may only occur if the conserved water has a recent history of use. It is essential that compensated conservation projects reduce existing consumptive uses, because unused entitlements cannot be the basis for system conservation. GRIC provides certification that absent system conservation, GRIC intended to utilize available groundwater savings capacity for underground storage in 2017, and those groundwater savings facilities are physically capable and permitted to accept the delivery volume in 2017.

3 Upon receipt of the certification from GRIC, CAWCD amends its 2017 water order to reflect the GRIC conservation. Any conserved water shall remain in Lake Mead for the sole purpose of reducing risks of reach critical reservoir elevations and shall not be used to replace Colorado River system losses. CAWCD s agreement shall not constitute acceptance of terms of the SCIA between Reclamation and GRIC. In addition, the draft agreement acknowledges CAWCD s willingness to consider amendment of the forbearance agreement if Reclamation exercises its option for additional conservation (up to 40 kaf) with GRIC in SUGGESTED MOTION: I move that the Board authorize the General Manager to execute a system conservation forbearance agreement with Reclamation for system conservation by the GRIC in 2017 consistent with the key terms discussed today. Attachment.

4 Agenda Number 8. Attachment. LC-4405 WTR-4.03 VIA OVERNIGHT MAIL Letter Agreement No. 17-XX-30-W0621 Mr. Theodore C. Cooke General Manager Central Arizona Water Conservation District North 7 th Street Phoenix, AZ Subject: System Conservation Implementation Agreement No. 17-XX-30-W0620 Between the United States Bureau of Reclamation and the Gila River Indian Community (Community) (SCIA) Pursuant to the Memorandum of Understanding for Pilot Drought Response Actions, Dated December 10, 2014 (MOU) Dear Mr. Cooke: The Colorado River Basin is experiencing the worst 17-year drought in the historical record, and Lake Mead s elevation has dropped to levels where the Secretary of the Interior may determine a shortage condition for Lake Mead as early as As you know, on December 10, 2014, Reclamation, the Central Arizona Water Conservation District (CAWCD), the Metropolitan Water District of Southern California, the Southern Nevada Water Authority, the Arizona Department of Water Resources (ADWR), the Colorado River Board of California, and the Colorado River Commission of Nevada entered into the MOU. The MOU provides for Reclamation to, among other things, use its best efforts to create 50,000 acre-feet of Protection Volume between 2014 and 2017 that will be dedicated as Colorado River System water, thereby increasing the volume of water remaining in Lake Mead. The MOU also provides that Reclamation will work to plan and implement actions to replace, recover and reduce system losses from the Colorado River System. Recognizing the severity of the ongoing historic drought, the Community desires to help mitigate the impacts of the current drought by entering into the SCIA, thereby making some of its Central Arizona Project (CAP) water entitlement under its Contract No W0284 dated October 22, 1992, as amended, available in 2017 as Colorado River System water to help Reclamation meet its commitments under the MOU. In 2017 the Community is willing to make available to Reclamation 40,000 acre-feet of the Community s CAP water entitlement that has a recent history of use (Confirmed Water). The SCIA also contains an option that may be exercised by the United States and the Community by which, and if the contemplated Drought Contingency Plan Plus Agreement (DCP + Agreement) is executed by the necessary parties in Arizona, including ADWR and CAWCD, among others, by March 31, 2017, the Community is willing to provide Reclamation with an

5 2 additional amount of water for system conservation, not to exceed 40,000 acre-feet (Additional Water) in accordance with an option that is included in the SCIA. The Confirmed Water was initially ordered by the Community for delivery to the Gila River Indian Irrigation and Drainage District to irrigate Community lands, and the Community intended to amend its delivery schedule to have this 40,000 acre-feet of water delivered to groundwater savings facilities for the accrual of underground storage credits. Pursuant to the SCIA, Tthe Community is foregoing storage of such water. Following such actions by the Community, CAWCD will reduce its calendar year 2017 Colorado River water order with Reclamation to ensure that the 40,000 acre-feet remains in Lake Mead in accordance with the SCIA. This Letter Agreement No. 17-XX-30-W0621 (Letter Agreement) serves as documentation of agreement by the United States and CAWCD, as the junior Colorado River water entitlement holder in the state of Arizona and pursuant to CAWCD s authorities under the Repayment Stipulation, to the following: 1. CAWCD s execution of this Letter Agreement does not constitute acceptance of the terms of the SCIA. Further, no liability of the SCIA shall be imputed to CAWCD by operation of this Letter Agreement. 2. Consistent with other system conservation programs under the MOU and other authorities, only programs that reduce actual and quantifiable consumptive use, and not unused entitlement, are eligible for system conservation. The portion of the Community s CAP water entitlement that has a recent history of use is an annual average of 292,405 acre-feet. This volume is the average of all deliveries of Community Water during the years including direct delivery, lease, exchange, and the Community s creation of 10,000 acre-feet of system conservation water in Lake Mead in Therefore, for the purpose of calculating system conservation that may be created by the Community under the SCIA, only that portion of the Community s water order reduced from 292,405 acre-feet is eligible for creation of system conservation. Accordingly, the Community will submit to CAWCD an amended water order that reduces the Community s 2017 water deliveries from 292,405 acrefeet to 252,405 acre-feet. 3. The Community will submit a letter to CAWCD in which (1) the Community certifies that, absent the system conservation, the Community intended to utilize the available capacity for storage in 2017 and (2) the groundwater savings facilities identified in the Community s 2017 water order certify that the facilities were physically capable of accepting delivery of the volume of CAP water for which the Community is forgoing storage in calendar year Upon receipt of the Community s 2017 amended water order reducing the Community s water order by the Confirmed Water40,000 acre-feet to reflect the Community s implementation of the SCIA, and areceipt of the certification letter certifying the available capacity at the groundwater savings facilities, CAWCD agrees to forbear from remarketing the Confirmed such wwater within the CAP service area for delivery in 2017, consistent with the SCIA. 5. Within 2 week s receipt of suchthe Community s amended water order reduction from the Community and the certification letter, CAWCD agrees to amend its approved 2017

6 3 Colorado River water order with Reclamation and not request delivery of the Confirmed Water (40,000 acre-feet) created under the SCIA Any water conserved by this program shall remain in Lake Mead for the sole purpose of reducing the risk of reaching critical reservoir elevations in a manner consistent with the Law of the River including, but not limited to, the Consolidated Decree in Arizona v. California, 547 U.S. 150 (2006) and the 2007 Record of Decision, Colorado River Interim Guidelines for Lower Basin Shortages and the Coordinated Operations for Lake Powell and Lake Mead. Reclamation acknowledges that, contrary to section 5.5 of the SCIA, water conserved by this program shall not be used to replace Colorado River system losses Should the United States and the Community exercise the option in the SCIA for the Additional Water, CAWCD will amend this Letter Agreement and its 2017 water order to incorporate the Additional Water into system conservation provided that execution of the option is consistent with the above conditions.if the contemplated DCP + Agreement is executed by the necessary parties in Arizona, including ADWR and CAWCD, among others, by March 31, 2017, the Community is willing to provide Reclamation with Additional Water (not to exceed 40,000 acre-feet) and will further amend its 2017 water order accordingly. Within 2 week s receipt of the 2017 amended water order reducing the Community s water order by the Additional Water, and a letter certifying the available capacity at the groundwater savings facilities, CAWCD agrees to forbear from remarketing such water within the CAP service area for delivery in 2017 and further amend its approved 2017 Colorado River water order with Reclamation and not request delivery of the Additional Water. In the event that CAWCD fails to submit such water order amendment or amendments, CAWCD understands that Reclamation would, for purposes of water accounting and administration of the Inadvertent Overrun and Payback Policy, deduct the amount of the conserved water from the amount of water available to CAWCD in that year thereby ensuring that the conserved water remains in Lake Mead. This Letter Agreement is effective upon execution by CAWCD and ends December 31, If CAWCD agrees to the terms of this Letter Agreement, please sign below as indicated and return an original Letter Agreement to Reclamation. The duplicate original of the Letter Agreement is for CAWCD s files. We appreciate CAWCD s cooperation with drought response activities.

7 If you have questions, please call Mr. Steven C. Hvinden, Chief, Boulder Canyon Operations Office, at Sincerely, 4 In Duplicate Terrance J. Fulp, Ph.D. Regional Director Accepted and agreed to by CAWCD this day of Approved as to form: By: By: Theodore C. Cooke Jay Johnson Its: General Manager Its: General Counsel cc: Mr. Thomas Buschatzke Director Arizona Department of Water Resources 1110 West Washington Street, Suite 310 Phoenix, AZ bc: PXAO-1000, PXAO-4000 Chrono Daily WBR:NDiDonato: :January 2618, 2017 GILA RIVER INDIAN COMMUNITY CAWCD LETTER AGREEMENT DRAFT JANUARY 2618, 2017