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CITY COUNCIL REPORT

POLICY AGENDA
TO: Rick Naimark
Deputy City Manager
AGENDA DATE: October 21, 2014
FROM: Kathryn Sorensen
Water Services Director
ITEM: 3
SUBJECT: WATER RESOURCES DROUGHT UPDATE

This report provides the City Council with an update on drought conditions and the City
of Phoenix corresponding water resources planning activities. It also provides
information to the City Council regarding the establishment of a Colorado River
Resiliency section of the Water Services Departments Capital Improvement Program
and requests City Council support for policies to better protect groundwater resources.

THE ISSUE

To assure the quality of life for residents and opportunities for economic development,
the City of Phoenix must focus on the long-term resiliency of the Colorado River system.
Investing in resiliency efforts will help provide insurance against rare water supply
shortage events that may be outside normal expectations. An added benefit of these
insurance policies is that they send a signal to business, real estate, tourism, and
investment communities that the City not only has enough water, but that the water
resources it has are resilient.

To this end, the City is undertaking action at three scales:

(1) System-wide, by partnering with other Arizona users and broader Basin
stakeholders to enhance the resiliency of the Colorado River system;

(2) Regionally, by partnering with interests to improve the resiliency of the
Citys Colorado River water in the event of shortages; and

(3) Locally, by improving the resiliency of the Citys groundwater and Salt
River Project (SRP) supplies in the face of potential Colorado River
shortages.

A few of the Citys current initiatives include:

System-wide Colorado River Resiliency

Storage of Phoenix Water behind Lake Mead the seven Basin States are
engaged in negotiations to address declines in Lakes Mead and Powell. As part
of this effort, the City is in preliminary discussions with the Arizona Department of
Water Resources (ADWR) and Central Arizona Project (CAP) to explore the
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possibility of storing some of the Citys water in Lake Mead to improve current
reservoir levels.

Expanded System Conservation Program Earlier this year, major water utilities
serving water from the Colorado River, in partnership with the U.S. Bureau of
Reclamation, initiated a small-scale system conservation pilot program to test
options for accomplishing voluntary, compensated reductions in Colorado River
diversions among agricultural districts and other users in the Upper and Lower
Basins to benefit reservoir levels in Lakes Mead and Powell. Together with other
interested stakeholders, the City is exploring the potential for implementing a
larger-scale Colorado River System Conservation Program that would follow this
pilot, and that would engage a broader group of constituencies in both funding
and implementation.

Regional Colorado River Resiliency

Phoenix/Tucson Colorado River Partnership The Cities of Phoenix and Tucson
have developed a first-ever joint storage arrangement in which the City of
Phoenix will be storing Colorado River water in the City of Tucsons aquifers. In
future times of shortage on the Colorado River, the City of Tucson will rely on this
additional storage to meet its demands, while the City of Phoenix will have
access to a portion of Tucsons Colorado River water for use at its surface water
treatment plants.

Dry-Year Option Investigation As part of its larger system resiliency planning,
the City is also in the early stages of exploring potential partners for a dry-year
option program that would give the City access to higher priority Colorado River
water during extraordinary CAP shortage conditions.

Local Resiliency

Enhanced Aquifer Management Ultimately, groundwater is the source that the
City can fall back on during extreme shortages on the Colorado River. The 1980
Arizona Groundwater Management Act has been effective in protecting this
resource. However, for groundwater to play its role, the City must ensure that
current groundwater levels are maintained for future generations that may
desperately need it as a redundant supply. Currently, groundwater users can
pump in one area of the aquifer and recharge or replenish in an area very distant
from that pumping, a paradigm that allows potential localized depletion of the
aquifer. The City, along with other stakeholders, has been participating in the
development of new mechanisms designed to ensure that groundwater levels are
protected by creating a better nexus between the location of pumping and
recharge. These concepts would: (1) create incentives to recharge in the same
hydrologic sub-basin in which recovery will occur; (2) create disincentives for
recovering in a different sub-basin from which the recharge occurs; and, (3)
protect water stored underground from being pumped by an entity that didnt
store it.

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Continued Underground Storage The City is continuing to store unused
Colorado River water in local aquifers at the Granite Reef Underground Storage
Project and through SRPs groundwater savings facility. The City is in
exploratory talks with SRP regarding a cooperative well-sharing program that
would allow the City access to SRP-owned wells during Colorado River shortage
conditions to recover this stored water. In addition, the City is working to
increase the capacity of its existing well field to provide for resiliency in the event
of extreme Colorado River shortages.

Groundwater modeling In cooperation with ADWR, the City is undertaking
substantial improvements to local and regional modeling in order to study the
direct and indirect impacts that could be associated with extreme Colorado River
shortages and a corresponding increase in groundwater pumping and decrease
in groundwater recharge in the Phoenix area, and to develop plans to address
those impacts.

Watershed Protection and Restoration The City is exploring partnerships with
SRP and others to ensure that the watershed that supplies the Salt and Verde
Rivers is as healthy and productive as possible.

In order to protect the City against falling into the very unlikely extreme scenarios in
which supplies are not adequate to meet demands, and fund the various types of water
insurance policies and resiliency efforts listed above, staff is recommending the
establishment of a permanent Colorado River Resiliency section of the Capital
Improvement Program of the Water Services Department, to be funded at a level of
approximately $5.5 million per year.

OTHER INFORMATION

Current projections show a 36% probability of a shortage declaration on the Colorado
River in 2016 and a 58% probability of shortage in 2017. There has never been a
shortage declaration on the Colorado River, and without one or more years of
significantly higher-than-normal snow fall on the basin, the threat of shortage will
continue to increase until a shortage is declared. As the possibility of a Colorado River
shortage looms larger, Arizona will be faced with an unprecedented level of uncertainty.
Although the probability that Phoenix will experience any reduction in its Colorado River
supplies in the foreseeable future remains extremely low, this broader uncertainty in
water supplies could itself be disruptive and generate fears that result in negative
impacts to the entire region.

While Phoenix can readily demonstrate that it has a diverse water resource portfolio and
excellent redundancy of supplies, the mere perception of any kind of a water supply
problem can have deep repercussions for the economy. Therefore, the City of Phoenix
should insure the economy against the potential for high-profile, hard-to-predict, and
rare water supply availability events that lie outside of normal expectations.

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If shortage does occur, the amount of Colorado River water available to water users
with lower priority rights to CAP water will be diminished first. Depending on the level of
shortage declared, the amount of Colorado River water available to the City may also
diminish. However, because the City only uses around 130,000 acre-feet of the
186,557 acre-feet of Colorado River water available to it each year, it should have no
problem continuing to meet demands even under extended drought conditions. In
addition, the Arizona Water Banking Authority (AWBA) has stored more than 1.6 million
acre-feet of excess Colorado River water underground in the region for the exclusive
purpose of offsetting shortages to CAP municipal customers. As necessary, the City
will work with the AWBA to implement a program to recover the stored water. Should
the drought and shortage levels reach catastrophic proportions under which even the
water stored by AWBA is insufficient to meet CAP municipal demands, the City will fall
back on its other buffer of unused (yet readily-available) supplies: 56,000 acre-feet of
Verde River Gatewater and 93,000 acre-feet of New Conservation Space water stored
behind Roosevelt Dam. Should things continue to worsen, the City will increase
pumping from its groundwater wells to offset any remaining shortages.

Water Services Department staff has modeled hundreds of scenarios encompassing
numerous Salt, Verde, and Colorado River water availability conditions over the next
several decades. The range of potential scenarios varies between scenarios with no
shortages on either the Salt/Verde or Colorado River systems (which are unrealistic) to
scenarios in which literally no Colorado River water is available through the CAP while
extreme shortages are occurring simultaneously on the Salt and Verde systems, which
are also extremely unlikely. In 97% of these scenarios, the City is able to fully offset
any projected shortages by pulling from its redundant supplies. Although the
confluence of hydrologic events necessary to generate the 3% of scenarios in which the
Citys water supplies are not adequate to meet demands is very unlikely, the
consequence of one of these scenarios is too great for the City to bear.

A central element of this problem is that the rules governing the Colorado River,
generally known as the Law of the River, are, with some small exceptions, based on
prior appropriation, a use-it-or-lose-it water allocation system. The Colorado River
water that the City currently does not use does not remain in storage in Lake Mead,
where it would prop up reservoir levels and help reduce the risk of shortages. Instead,
that unused water is allocated every year to the next-lowest priority user in Arizona.
This happens throughout the Lower Basin (California, Arizona, and Nevada) and
therefore water users in the Lower Basin collectively leverage every acre-foot available
for use every single year, rarely leaving any allocated water in the reservoirs to provide
resiliency in the system. Instead, the system is dependent on weather cycles to bring a
windfall of snowpack to restore the system. It appears that the Colorado River probably
cannot produce as much snowpack as planners in 1992 thought it would when it was
allocated. The chances for future windfall hydrology events do not appear good.

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RECOMMENDATION

Staff recommends the establishment of a Colorado River Resiliency section in the
Water Capital Improvement Program to be funded at approximately $5.5 million on
average per year to fund projects focused on water supply resiliency, and requests the
City Council support enhanced aquifer management policies that protect groundwater
and water stored underground through: (1) creation of incentives to recharge in the
same hydrologic sub-basin in which recovery will occur; (2) creation of disincentives for
recovering in a different sub-basin from which the corresponding recharge occurs and,
(3) protection of water stored underground from being pumped by an entity that didnt
store it.