Colorado River deal opens cash spigot for big farms

A widely hailed deal to conserve water from the shrinking Colorado River is turning into a windfall for some of the most powerful farmers and tribes in the West.

A POLITICO investigation has found that many of the deals to save water under the three-year $1.2 billion pact struck by Arizona, California and Nevada in May are driving up the value of existing agreements to save or transfer water by nearly 50 percent.

The Colorado River supplies water to 40 million people and vast swaths of the country’s most productive farmland — a task that’s becoming increasingly difficult as climate change shrivels its flow. But the investigation, based on more than a dozen interviews and analyses of federal, state and local documents, reveals that the gusher of federal money is likely to make a broader, long-term deal to save the West’s most important river more expensive.

“It’s all a grand experiment,” said Kathryn Sorensen, a former head of Phoenix’s water department, who noted that Democrats’ Inflation Reduction Act funding is effectively creating a new market for water, with a new, higher price. “This market, especially one with a premium [price], might create some perverse incentives.”

The $1.2 billion in federal funding that made the May deal possible comes out of a $4 billion pot of money in the climate law tagged for mitigating drought. That provision, secured at the last minute by Independent Sen. Kyrsten Sinema of Arizona, was crafted at a moment when the Southwest appeared to be on the precipice of disaster. Water levels at Lake Mead, one of the river’s critical reservoirs, had fallen to their lowest levels since it was filled in the 1930s. The decline was happening so quickly, it was feared the lake could be just months away from a point where it would be impossible to get water through the Hoover Dam at all.

The Biden administration offered the initial tranche of funding from the Inflation Reduction Act last fall to water-rights holders in Arizona, California and Nevada in exchange for leaving their water in Lake Mead. That incentive was paired with a threat: The Interior Department launched a process to wrest control of the river away from the states and impose cuts if a plan to save sufficient quantities of water wasn’t reached.

But by the time that the three-state deal was clinched this spring, the immediate disaster had been averted, thanks to unusually heavy precipitation across the West. Indeed, state negotiators acknowledge that nature’s reprieve made the short-term pact possible.

Yet scientists warn the Colorado River flows are on an inexorable decline, and without painful cuts in consumption, the region’s access to the water remains in jeopardy. The hope is that the short-term deal will stabilize reservoir levels for the next three years while the states negotiate major new rules to bring their use in line with the river’s diminished flows over the coming decades.

Under the plan, the three states along the lower river agreed to conserve 10 percent of their water — 3 million acre-feet, or nearly a billion gallons — between now and 2026. The federal contracts to pay water users for that conservation are being finalized now.

But POLITICO found that much of that water was already being saved by the farms and tribes getting paid. Many of the contracts that have been signed or are in negotiation are based on prior deals to conserve or transfer water using almost entirely the same practices, like fallowing farm fields or using water-efficient sprinklers for irrigation, for example. The only difference: the new federal contracts pay significantly more.

In California alone, POLITICO found that at least a third of the state’s conservation commitment comes from water that was already available under prior, less expensive agreements. Because of how the river’s accounting rules work, much of the water promised by the state would likely have been left in Lake Mead for the next few years, even without the new federal contracts.

“There’s sort of a rumor in the water community that a lot of people are getting paid to do what they would have done anyway,” said Eric Kuhn, the former general manager of the Colorado River District.

That raises the prospect that, rather than helping the region begin to adapt to a drier future, the Biden administration’s approach to spending a large chunk of the $4 billion pot of IRA drought funding could instead drive up the cost of the future water conservation deals. The federal dollars will dry up in 2026, and without new funding from Congress, it’s unclear who will foot the new, higher bill for the water savings arrangements that will be essential to ensuring that Western economies can continue to grow as the river shrinks.

For instance, the contract being negotiated between the Bureau of Reclamation and California’s Palo Verde Irrigation District to conserve up to 130,000 acre-feet of water per year over four years represents more than a quarter of California’s obligation under the state’s deal with Arizona and Nevada.

But farmers there had already agreed to save up to that volume of water, first under a 2004 deal with southern California’s major urban water agency, the Metropolitan Water District of Southern California, and then under a 2021 agreement between regional water agencies and the federal government aimed at bolstering reservoir levels.

Instead of getting paid about $270 per acre-foot of water as laid out under the prior deals, the landowners are poised to get nearly $400 per acre-foot under the IRA program.

Now, the irrigation district is trying to renegotiate its long-term water transfer arrangement with Metropolitan — an arrangement that is crucial to maintaining water supplies for Los Angeles and San Diego as climate change wallops the region. After the federal program ends in 2026, the underlying water-saving contract reverts back to Metropolitan and runs for another 12 years.

Dana “Bart” Fisher, president of the Palo Verde Irrigation District’s board of trustees, said the district had already been talking to Metropolitan about raising their payments from the levels negotiated in 2004, and the Inflation Reduction Act program simply “shined the spotlight” on the issue.

“There is no question, there’s a disparity between our Met contract and what the feds have offered,” Fisher said.

In an interview, Bureau of Reclamation Commissioner Camille Touton acknowledged that many of the new conservation contracts are built on cheaper prior agreements.

But she argued that there is an important distinction between prior programs and the new federal one: under pre-existing deals like the one between Palo Verde and Metropolitan, the conserved water would have been consumed by another user. Under the new federal program, that water remains unused, helping to raise Lake Mead’s water line.

“That water that’s conserved stays in the system behind Lake Mead, and that is meant to stabilize those reservoirs,” Touton said.

She also noted that the Biden administration plans to use the remainder of the $4 billion in IRA funding for projects like canal lining, reservoir building and irrigation system upgrades that will lock in long-term reductions in water use.

There’s reason to think that water conservation deals would be getting more expensive now, even without the new federal funding, since the shrinking river means there’s increased competition for a limited resource.

“These programs are all programs that require a willing seller,” said Tom Buschatzke, Arizona’s lead negotiator on the Colorado River, noting that many of the pre-existing agreements with California farmers were negotiated under duress.

In his state, the going price for water conservation was $261 per acre-foot before the current federal offer of up to $400 per acre-foot. Buschatzke said he “would expect the price to be something closer to the IRA price” going forward.

Most of Arizona’s conserved water will come from cities, tribes and industrial users along its main Colorado River canal system, the Central Arizona Project, according to a Bureau of Reclamation presentation obtained by POLITICO and previous federal announcements. Those users are largely agreeing to leave their water in Lake Mead rather than store it in local, underground aquifers, where it can be banked or marketed for future use.

But those users were the ones at greatest risk of being hit with mandatory cuts if reservoir levels dropped further. Signing on to conserve water for Reclamation allowed them to get compensated for cuts they could have faced anyway, and to bolster reservoir levels to help ensure they receive the rest of their water deliveries.

Nevada’s portion of the deal is modest, and does not include federal compensation.

But there is one powerful agricultural district in the Southwest that is preparing to do significant amounts of new conservation.

The crown jewel of the states’ May deal is an additional 250,000 acre-feet per year offered up by California’s Imperial Irrigation District. The district uses the single largest share of Colorado River water — more than the states of Arizona and Nevada combined — and has for more than a century taken a firm stance against efforts to alter its status as one of the last to take cuts in times of shortage.

The fact that Imperial agreed to take on new water savings obligations, on top of ongoing ones that date back to 2003, marked a huge political win for the Biden administration. But it will come at a steep cost.

Rather than the standard $400 per acre-foot price that Reclamation has offered to most other entities agreeing to forego water use for at least three years, the contract under negotiation between the irrigation district and Reclamation would pay roughly twice that, according to multiple sources close to the negotiations. Reclamation and the district declined to comment on the price since negotiations are still underway.

Ultimately, the irrigation district plans to make up most of its conservation commitment with new programs to reduce summertime irrigation. But it’s too late to conserve water that way this year. Instead, regional water agencies are laying the groundwork to hand water from a conservation program already in place in Imperial Valley over to the federal program.

That program, in which farmers conserve water that is transferred to San Diego, was negotiated two decades ago at a moment when San Diego political leaders were desperate to shore up control over their supplies. It’s a price tag — now nearing $800 per acre-foot — bemoaned by others in the region as extravagantly high.

Now, the Biden administration appears poised to cement it as the going rate for water from the river’s biggest user.