July 1, 2015

Study: Colorado River Aqueduct Can Accommodate Cadiz Water Headed to South Orange County

CLAREMONT, Calif., Jun 23, 2015  -- Stratecon Inc. released today a study examining the availability of wheeling capacity on the Colorado River Aqueduct (“CRA”) for water from the Cadiz Valley Water Conservation, Recovery and Storage Project (“Cadiz Water Project”). The study was sponsored by Cadiz Inc. CDZI, +1.27% who requested that Stratecon evaluate the probability that the Colorado River Aqueduct will have space available to convey water for beneficial use by the Santa Margarita Water District and others within the Metropolitan Water District of Southern California (“Metropolitan”) over the 50 year initial term of the Cadiz Project.

The study posted today to the Stratecon website concludes that the probability of CRA capacity is highly likely in nearly every year of Project operations.

After taking into account the variability and complexity of uses of Metropolitan’s CRA, Stratecon further finds that any concern about the availability of CRA wheeling capacity for the Cadiz Project is misplaced. The risk is not material. Over the entire term of a 50-year agreement, there may not be space available to convey the water in extremely wet years, when Project Participants can otherwise store the water. Moreover, the Cadiz Project’s operational flexibility to engage in make-up deliveries within the initial term enables the project’s cumulative deliveries to reach 2.5 million AF.

Project Participants are likely to find the “carry-over” of Cadiz Project water in a wet year to be very desirable, allowing them to benefit from storage and the subsequent delivery of the stored water in years in which conditions are normal or dry when with CRA capacity is available.

Stratecon’s risk assessment considered the complexities regarding Metropolitan’s use of the CRA:

  • Colorado River water available under Metropolitan’s Priority 4 water entitlement;
  • Long-term water transfers involving the Imperial Irrigation District with both Metropolitan and the San Diego County Water Authority and water conserved from the lining of the All American Canal and the Coachella Canal;
  • Water Metropolitan receives water from the Lower Colorado Water Supply Project;
  • Water available under Metropolitan’s land fallowing agreement with the Palo Verde Irrigation District;
  • Metropolitan underwriting the risk of Priority 1, 2 and 3b annual use of Colorado River water in California fluctuating above or below 420,000 acre-feet;
  • Availability of unused agricultural use of Colorado River water under Priority 3;
  • Creation and recovery of Intentionally Created Surplus Credits;
  • An interstate storage agreement with Nevada; and
  • Potential for surplus Colorado River water for the Lower Colorado River Basin.

Stratecon’s analysis is based on reasonable assumptions using available information including Metropolitan’s forecasts of the availability of Colorado River water from their Priority 4 entitlement, the delivery schedules in various agreements, the historic record of Metropolitan’s underwriting risks of Colorado River water use by Priority 1, 2 and 3b, the historic record of underuse by Priority 3 agricultural water users, and the Bureau of Reclamation’s projections of shortages and surpluses in the Lower Colorado River Basin.

Availability of CRA wheeling capacity is on a favorable trend. The key drivers for this favorable trend are:

  • Reductions in Metropolitan’s Priority 4 entitlement from increasing use of Colorado River water by miscellaneous Present Perfected Rights and Indians;
  • Transition of Nevada’s water banking activity from storage in the short term (which increases use of the CRA) to recovery in the long term (which decreases use of the CRA); and
  • The long-term declining trend in the expected availability of surplus water.

About Stratecon Inc.

Stratecon Inc., based in Claremont, CA, is a strategic planning and economics consulting firm that specializes in water resources and provides advisory services, proprietary market research, economic studies, expert testimony and asset management. It also publishes the Journal of Water, a monthly publication tracking developments in water markets, law and policy. Please visit Stratecon’s website, www.stratwater.com.

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