MINUTES OF THE JOINT meeting of the

Senate Committee on Government Affairs

AND THE Senate Committee on Natural Resources

 

Seventy-second Session

February 26, 2003

 

 

The joint meeting of the Senate Committee on Government Affairs and the Senate Committee on Natural Resources was called to order by Chairman Ann O’Connell at 1:30 p.m., on Wednesday, February 26, 2003, in Room 1214 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to the Grant Sawyer State Office Building, Room 4412, 555 East Washington Avenue, Las Vegas, Nevada.  Exhibit A is the Agenda.  Exhibit B is the Attendance Roster.  All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

 

Senate Committee on Government Affairs MEMBERS PRESENT:

 

Senator Ann O'Connell, Chairman

Senator Sandra Tiffany, Vice Chairman

Senator William J. Raggio

Senator Randolph J. Townsend

Senator Warren B. Hardy II

Senator Dina Titus

Senator Terry Care

 

Senate Committee on Natural Resources MEMBERS PRESENT:

 

Senator Dean A. Rhoads, Chairman

Senator Mike McGinness, Vice Chairman

Senator Raymond C. Shaffer

Senator Mark Amodei

Senator Bob Coffin

Senator Michael Schneider

Senator Maggie Carlton

 

STAFF MEMBERS PRESENT:

 

Michael Stewart, Committee Policy Analyst

Fred Welden, Committee Policy Analyst

Scott Wasserman, Committee Counsel

Joseph Bozsik, Committee Secretary

OTHERS PRESENT:

 

Patricia Mulroy, General Manager, Southern Nevada Water Authority

Kay Brothers, Deputy General Manager, Engineering/Operations, Southern Nevada Water Authority

Richard J. Wimmer, Deputy General Manager, Administration, Southern Nevada Water Authority

George Caan, Executive Director, Colorado River Commission of Nevada

Hugh Ricci, P.E., State Engineer, Division of Water Resources, State Department of Conservation and Natural Resources

Stan Spraul, Nevada Golf Course Owners Association

Charles Hauser, General Counsel, Southern Nevada Water Authority

Ed Duffy

Larry Paulson

 

Senator O’Connell mentioned the committees’ concern for the future availability of water in Nevada and its impact on economic development. She further noted the committee wanted to hear about future water resources compared to projected need.

 

Patricia Mulroy, General Manager, Southern Nevada Water Authority (SNWA), stated the water supply in Nevada was an issue of local and global significance. She indicated scientists project by the year 2025, two-thirds of the world population will have an inadequate supply of drinking water. Over the last decade, Ms. Mulroy noted, significant changes have occurred in the area of water management because of a shift in population to the southwestern United States.

 

Ms. Mulroy said the SNWA was created to combine several different water authorities which together work better than each individually. Southern Nevada was rapidly running out of water and needed to find additional resources, take conservation measures, and build a system of infrastructure to meet demand.

 

Ms. Mulroy noted many believed for a long time the Colorado River Basin was governed by an immovable, impenetrable pact between the states, which in the past 10 years had been proven incorrect. The changes had occurred because Arizona began to draw its entitlement from the Colorado River in conjunction with Nevada using, and California overusing, their Colorado River water allocations.

Ms. Mulroy said for 10 years the states had been in a partnership to find solutions that worked for all parties, did not deplete any one state’s water entitlement, and represented water benefits to states temporarily with or without an adequate supply of water. She said a historic agreement with Arizona to bank water for Nevada’s future use was made. The agreement allowed the injection of unused Colorado River water into overdeveloped groundwater basins for storage.

 

She commented southern Nevada lies in the driest desert in the United States. Ms. Mulroy noted with 26 million acre-feet and 25 million acre-feet of storage capacity for Lake Powell and Lake Mead, respectively, a 7-year water supply existed. The combined advantages of each lake’s storage capacity allowed the southwestern United States to survive the fickle nature of the Colorado River.

 

Southern Nevada had not experienced a drought while it had been using Colorado River water, Ms. Mulroy noted. The last drought southern Nevada experienced was in the 1950s, as a result of the water aquifers in the Las Vegas Valley not recharging. Since 1971, when Nevada began tapping the Colorado River, southern Nevada had been able to avoid the drought conditions seen in many other Western states. During the past 10 years, Ms. Mulroy explained, tremendous surpluses of water existed in the Colorado River system; the high water marks in Lake Mead and Lake Powell had been hit on a regular basis. During the high-flow years the states began discussions on how to use the stored capacity. The main purpose for the interim surplus, Ms. Mulroy remarked, was to find a soft landing for California. The states of Arizona and Nevada felt strongly that California needed to wean itself from overusing its Colorado River allocation. California needed 15 years to move water from agricultural users to coastal plain cities. Water from the agricultural areas had to be conserved, leased, bought, borrowed, or shared for future use in the urban cities, Ms. Mulroy said. She concluded California was having a difficult time making the conversion, known as the Quantification Settlement Agreement (QSA), but had to, “if the fifth largest economy in the world is going to survive.”

 

Ms. Mulroy mentioned the drought had complicated the issue and made southern Nevada reevaluate water-usage patterns. Southern Nevada’s water use far exceeded its neighbors’ and, as a result, southern Nevada was looking at a drought plan, Ms. Mulroy explained. Water was extremely cheap and with an overabundance of water at one time, people were not conserving. A conservation program had to be considered which called into question water running down streets and water blowing from fountains. She said water rates should have been increased last year, but after September 11, 2001, the economic climate made the SNWA reevaluate the idea. Explaining the drought plan, Ms. Mulroy noted it was developed to eliminate excessive and unnecessary water use without economic disruption. The philosophy behind the plan was if everybody conserved a little, the community could survive the drought.

 

Another consequence of the drought was water quality, Ms. Mulroy remarked. Lake Mead accounted for 80 percent of southern Nevada’s water supply, and as it shrunk contaminants were concentrating. Ms. Mulroy indicated having the second intake in Lake Mead completed had allowed tremendous flexibility to manage contaminants. The challenges of water quality would always exist. However, she said, significant investments in superior water treatments and new systems coming on-line would help eliminate some concerns. Conservation combined with creating credibility with the seven states using the Colorado River resources, the federal government, and the country of Mexico to form new partnerships, were the underpinnings of water resource planning for southern Nevada. The conservation goal of 25 percent represented an essential water resource to southern Nevada, she concluded.

 

Kay Brothers, Deputy General Manager, Engineering/Operations, Southern Nevada Water Authority, stated she would be taking the committee through the Southern Nevada Water Authority Presentation (Exhibit C. Original is on file in the Research Library.), the Operating and Capital Budget (Exhibit D. Original is on file in the Research Library.), and the Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2002 (Exhibit E. Original is on file in the Research Library.).

 

Ms. Brothers informed the committee that in the mid-1990s the SNWA began preparing a water resource plan which was to be resubmitted to the SNWA board of directors each year. The plan would consider population projections for southern Nevada, turn them into demand projections, and evaluate current water resources to meet projected demand. The water resource plan submitted in March 2002, she noted, included progress made on Arizona water banking, interim surplus guidelines, and potential groundwater and river water rights. Ms. Brothers described Exhibit C, tab 1, page 10, which showed demand for water from 1990 to 2001. She said the formation of the SNWA allowed them to contract for additional water resources and the development of new water resources required a lot of lead time.

 

Ms. Brothers noted Exhibit C, tab 1, pages 11 and 12, listed the SNWA purveyor demands, indoor and outdoor water use, and conservation achieved. In the mid-1990s a conscious decision was made to achieve 25 percent conservation by 2010 using the 1990 demand as the baseline. She said conservation was included in the demand projection; otherwise demand would be much higher. Outdoor water use was extensive in southern Nevada. Indoor water use was consistent through the year and much of it was recycled and returned to the Colorado River. Conservation was best utilized in outdoor use, because unlike indoor water, it would evaporate or percolate into the ground, unavailable for recycling. Ms. Brothers indicated the first few years of conservation went well, but in the past 2 years water use increased. Southern Nevada should be at 20 to 21 percent conservation, she concluded.

 

Ms. Brothers continued by listing the SNWA’s next priority water resources listed on Exhibit C, tab 1, page 12. The demand line included 25 percent conservation by 2010. She noted interim surplus was the first priority through 2016. Arizona banking was the second priority and 116,000 acre-feet had already been banked. The third priority she named was the 240,000 acre-feet of water banked in the Las Vegas Valley. Ms. Brothers indicated the SNWA had been acquiring Muddy River and Virgin River rights and developing additional groundwater rights. She concluded the drought would eventually end and stated she was confident the interim surplus would be reinstated.

 

Ms. Brothers examined Exhibit C, tab 1, pages 13, 14, and 15. She explained California had overused their 4.4 million acre-feet of Colorado River allocation since the 1960s and it was not a problem until 1996 when Arizona water banking began. Ms. Brothers indicated the key to the California problem was the priority system illustrated in Exhibit C, tab 1, page 14. The solution to the problem was the quantification of water rights in the QSA. The QSA would determine a set amount of water rights for agricultural and municipal users.

 

Ms. Mulroy explained California’s rolling water priority system. She noted the Metropolitan Water District (MWD) of Southern California would attempt to access additional water sources, but rarely succeeded. The problem was water not used by one agricultural district would often be used by another agricultural district. She said the agricultural districts had to be satisfied before any water would be released to the MWD. The Coachella Irrigation District had little priority rights, so they would usually consume the excess apportionment from the other three districts, the Palo Verde Irrigation District, the Yuma Project, and the Imperial Irrigation District, leaving nothing for the MWD. Ms. Mulroy said the water rights had to be quantified and the rolling priority would have to be undone.

 

Senator O’Connell asked if the water banked in Arizona was guaranteed to Nevada and if so, how it would be transported to Nevada. Ms. Brothers indicated the agreement with Arizona would allow Arizona to take care of their water needs first. Ms. Brothers said Arizona had been banking 400,000 acre‑feet per year and were continuing to increase banking capacity, benefiting from having a full-paying partner to share some of the capacity in Nevada.

 

Senator O’Connell further inquired if the State paid Arizona for the banked water. Ms. Mulroy said it was at no profit to Arizona. If the water was banked through an arrangement with an agricultural district then an in‑lieu recharge would be done. Ms. Mulroy said agricultural districts pump groundwater and if Arizona wanted the agricultural district to stop pumping, Nevada would pay the price for the district to purchase Colorado River water. Ms. Mulroy noted the agricultural district could not otherwise afford water from the river. In return the water not pumped by the district would become part of the bank. Ms. Mulroy indicated Nevada would additionally bear the cost to put the banked water to use with the municipal or agricultural partner, whether the cost meant building wells or transporting water to the Central Arizona Project aqueduct. The price would vary, she said; direct injection would be inexpensive while infiltration basin recharge would be more expensive. Under the agreement, Ms. Mulroy noted, Arizona could release up to 100,000 acre-feet of water per year to interstate banking efforts. Nevada would pay the cost for an Arizona party to use the banked water and Arizona would forebear a portion of its Colorado River entitlement to Nevada.

 

Senator Hardy asked if the apportionment priorities system, a system placing a premium on agricultural water use, used in California was unique to Western states. Ms. Brothers indicated the priority system was in California’s own agreements. The problem was, unlike other agricultural water districts, the Imperial Irrigation District could divert water away from the river to irrigate additional land.

For clarification, Senator Hardy asked if the priority system was unique only to California. Ms. Mulroy said it was not unique to California because the West was originally developed as an agricultural area; Western water law mandated, “first in time, first in right.” However, Ms. Mulroy indicated, most areas did not have a rolling priority; water rights were quantified.

 

Ms. Brothers indicated the QSA was designed to convert agricultural water to municipal users. The agreement would quantify agricultural usage and save water by lining canals, through interstate banking, land fallowing, and water transfers.

 

Senator Rhoads asked what percentage of water in California and Nevada was used for agriculture and Ms. Brothers guessed at around 80 to 85 percent in California. Ms. Mulroy said agricultural use in Nevada was close to 90 percent.

 

Ms. Brothers noted the interim surplus guidelines were formulated to allow California a time period to implement measures to wean itself from overdrawing from the Colorado River. Without interim guidelines, the Bureau of Reclamation for flood control would release water from Lake Mead and Lake Powell when the lake levels were high for both agricultural and municipal use. Ms. Brothers said interim surplus established two additional surplus designations, full domestic surplus and partial domestic surplus. Since southern Nevada was a domestic user, she explained, if Lake Mead was above 1145 feet when the guidelines were in effect, southern Nevada could take all the water needed above their 300,000 acre-feet allocation. If Lake Mead was between 1125 and 1145 feet, half of the needed water resources above 300,000 acre-feet could be taken. If Lake Mead were less than 1125 feet, southern Nevada would be restricted to the standard 300,000 acre‑feet of water. Ms. Brothers said the Bureau of Reclamation projected lake levels each year to determine the surplus, if any. She noted, for 2004, the Bureau of Reclamation had determined a partial domestic surplus would exist. If the drought continued, the interim surplus guidelines would be jeopardized and southern Nevada could be restricted to its 300,000 acre-feet entitlement.

 

Ms. Brothers explained Exhibit C, tab 1, pages 17 and 18, showed the levels of precipitation throughout the Colorado River Basin. Most of the water in the basin came from the upper-third portion. Ms. Brothers noted blue represented normal precipitation and the other colors, below average precipitation. She said the basin had seen 3 years of extremely low precipitation and the Bureau of Reclamation had only predicted 80 percent of normal precipitation as of February 2003. Ms. Brothers concluded, Lake Mead and Lake Powell had both dropped 60 feet, leaving Lake Mead at 64 percent capacity and Lake Powell at 57 percent.

 

Senator Coffin asked Ms. Brothers if her measurements for Lake Mead’s water level took into account a build up of silt in the lake. Ms. Brothers said her calculations were based on the original capacity of the lake.

 

Senator Coffin noted the amount of water in the lake could conceivably be less. Ms. Brothers responded some sediment had entered Las Vegas Bay and taken some of the lake’s capacity, but most of the sediment buildups were in the tributaries.

 

Senator Amodei asked if sediment buildup impacted the water plan, if the SNWA were counting on a specific capacity. Ms. Brothers said yes, it would impact planning.

 

Ms. Brothers said 3 years of dismal runoff had dropped the water level of Lake Mead by 60 feet. The slides from Exhibit C, tab 1, pages 20 through 22, depicted the decline of Lake Mead’s water level. As water levels decreased and pollutants became more concentrated, Ms. Brothers noted, mixing-zone capacity also declined. The two lake intakes sat at 1000 and 1050 feet, allowing the SNWA to access about 8 million acre-feet of water, nearly 3 million more because of the second intake. Additionally, the two intakes allowed the SNWA to draw water from different zones with better water quality while the lake was “turning over.”

 

Ms. Mulroy said although Lake Mead’s capacity was 16 million acre-feet, less was available because of the locations of the intakes. The first intake would be lost if the water level dropped to 1050 feet and the second intake at 1000 and with them, 80 percent of southern Nevada’s water supply.

 

Senator O’Connell asked what the limitations were when drawing water from the Arizona water bank. Ms. Brothers said a request should be made 3 years in advance, however, Arizona has allowed southern Nevada to draw this year and next because of the drought.

 

Senator Amodei asked if a conflict with water between Arizona and Nevada occurred, who would have priority usage of the water. Ms. Brothers noted it was Arizona’s unused apportionment, but there should not be any conflict.

 

Senator Amodei reiterated his question. Ms. Brothers responded if Arizona experienced a water shortage, Arizona could deny Nevada its ability to recover the water. She further explained Arizona had the capability through many wells to recover water and she said she doubted the situation would happen.

 

Senator Hardy asked how to get around the wheeling issue. Ms. Mulroy said Arizona would forbear its water.

 

Senator Hardy inquired if the procedures had been determined through an agreement. Ms. Mulroy said the procedures were in agreements between parties in Nevada, Arizona, and the federal government.

 

Senator Hardy asked if the wheeling laws could be relaxed. In response, Ms. Mulroy stated there were other ways of creating partnerships in moving water between states without a direct wheeling concept as was envisioned in some proposals in the 1980s.

 

Senator Hardy asked if California was weaned off of over-apportioned water, would dealing with water issues in the Colorado basin be easier. Ms. Mulroy said the linchpin issue was California’s notion of priorities between states. When Arizona finished the Central Arizona Project in the 1960s, California included a provision in the enabling legislation which subordinated all uses of the Central Arizona Project to all uses in California. If Arizona was not worried it would suffer the first shortage many things would change.

 

Ms. Brothers continued her presentation by noting last summer with two intakes, the SNWA successfully limited the problems incurred by perchlorate levels and the algae mass as a result of mixing water intake zones.

 

Ms. Brothers indicated southern Nevada had approximately 240,000 acre-feet banked in Nevada and approximately 116,000 acre-feet banked in Arizona. If the drought continued for an indefinite amount of time, southern Nevada’s water supply with currently banked water, 25 percent conservation, and assuming no additional water resources had been developed, would last until 2010. She added, with 33 percent conservation demand, it would be met through 2020.

 

Senator Amodei referenced the residential water-use chart under tab 1 on page 24 of Exhibit C. He asked if the statistics included commercial users. Ms. Brothers said the statistics included average single-family residential water use per year. The information was determined through meter readings on single‑family homes.

 

In response to an inquiry from Senator Amodei, Ms. Brothers said residential water use constituted 65 percent of total use. Senator Amodei inferred 35 percent of water users were commercial and industrial. Ms. Mulroy mentioned the resort industry used 7 percent of the valley’s water.

 

Senator Amodei asked what was dedicated in terms of planning for residential and commercial growth. Ms. Brothers noted future demand was based on yearly population projections for single-family homes and commercial users.

 

Senator Amodei asked if the SNWA had an acre-foot demand figure for 2003 and 2004. Ms. Mulroy indicated the demand for the next 2 years could be met through additional resources or through conservation.

 

Ms. Brothers referenced the demand line under tab 1, page 26 of Exhibit C. She said the graph showed available water resources through 2050.

 

Senator Amodei asked if in 2006 southern Nevada would need 100,000 additional acre-feet. Ms. Brothers said the number represented the diversion; much would be returned, and so it was a lower-consumption number. She explained, the Bureau of Reclamation estimated the SNWA would need 337,000 acre-feet from the Colorado River next year. Ms. Brothers concluded the 337,000 acre‑feet of consumptive use equated to a 480,000 acre-feet diversion.

 

Ms. Brothers indicated Tucson’s water use was much less than southern Nevada. If southern Nevada achieved a significant reduction in demand, like that of Tucson, southern Nevada could live within existing water resources. She emphasized water conservation was a priority.

 

Senator Care asked Ms. Brothers if she was aware of the kinds of ordinances imposed in other Southwestern cities, like landscaping restrictions. Ms. Brothers said she knew water was more expensive in Tucson, but noted the people of Tucson had embraced desert landscaping.

 

Ms. Brothers acknowledged the SNWA was developing groundwater resources, but needed time. The goal was to be ready for future droughts, if necessary. Ms. Brothers noted Clark County groundwater was included in the 2002 water resource plan by looking at basins wholly or partly in Clark County for future development. The SNWA was studying the feasibility and cost of the “95” pipeline to import water into the northwest part of the Las Vegas Valley. Coyote Springs was a potential water resource with an estimated 25,000 to 40,000 acre-feet. Ms. Brothers indicated the SNWA owned 9000 acre-feet of permitted rights in Coyote Spring Valley, groundwater rights in Garnet and Hidden Valleys, and groundwater rights in the California wash. In 2001 the SNWA went to a hearing for additional water in Coyote Spring Valley and the State engineer ordered additional information be gathered before the issuance of additional permits. She further noted the SNWA had requested hearings for water rights in three additional valleys for the “95” pipeline. The pipeline was under design and it needed to be constructed to divert the already permitted water from the Coyote Spring Valley into the Moapa Valley system. She concluded construction would soon begin.

 

Senator Amodei inquired as to what the cost and length of time would be to complete the pipeline. Ms. Brothers responded the estimates from the Boyle Engineering Firm indicated June 2003.

 

Senator Amodei asked if the feasibility was still being assessed or had the SNWA already committed to building the pipeline. Ms. Brothers explained the feasibility was still being assessed, but when compared to similar water transport projects, the pipeline appeared to be feasible.

 

Senator Amodei concluded the potential future water supplies north of the Las Vegas Valley, a major piece of the puzzle, were being evaluated for cost feasibility. Ms. Brothers indicated he was correct. Clark County had filed many groundwater applications north of Clark County, which were protested by numerous counties. Negotiations to settle the disputed water rights have been progressing; the goal had been to find solutions beneficial to all counties.

 

Senator Rhoads asked how many applications the SNWA had in Lincoln County. Ms. Brothers approximated, close to 60 applications in 12 affected basins.

 

The basins wholly or partly in Lincoln County had been categorized, Ms. Brothers noted. Category 1 included applications to which the SNWA or district retained all rights and title. Category 2 applications were assigned to Lincoln County. Category 3 applications were those to which the authority and district retained all rights with some exceptions. Ms. Brothers acknowledged the map under tab 1, page 29 of Exhibit C, illustrating the categorization of the various Lincoln County basins. Category 3 applications would give the first 3000 acre‑feet of permits to Lincoln County and 50 percent of any permit exceeding 30,000 acre‑feet. She also indicated Lincoln County could lease water on a temporary basis from the SNWA through 2030. After 2030 the SNWA could use it for itself if needed.

 

Ms. Mulroy interjected; she was concerned Senator Amodei’s question concerning the SNWA’s commitment to developing specific water resources had not been properly addressed. She indicated the water resources would be developed, especially given the drought. The question was how the development costs would be divided amongst the different municipalities.

 

Senator Schneider asked how long the water resources available in Lincoln County would last. Ms. Brothers said the State engineer allocated water from each basin not to take out any more water than would cause harm. She explained the perennial yield concept was used for water allocations.

 

Ms. Mulroy noted the 25,000 to 40,000 acre-feet of water Ms. Brothers had mentioned was direct diversion. She said in southern Nevada the SNWA had been aggressive on reuse and the possibility of returning non-Colorado River water to the Colorado River and getting credit. Every drop of water from northern resources would get reused, thereby increasing the total usability of the supply and making it more cost-effective.

 

Senator Amodei asked how much developed water resources were currently available to meet projected demand. Ms. Brothers answered there were almost 380,000 acre-feet of water banked in Nevada and Arizona.

 

Ms. Mulroy indicated under a worst-case scenario, current water resources with conservation would last as far as 2030 without changing the economic structure of southern Nevada. However, she noted, the interim surplus guidelines would get reinstated, allowing the SNWA over the next 15 years to develop the other planned water resources.

 

Senator Amodei restated Ms. Mulroy’s comments, if no additional resources were brought on-line, water use in southern Nevada with some conservation could continue at present rates for close to 30 years. Ms. Mulroy responded, “With significant conservation.” She explained, Phoenix’s 35 percent less water use than southern Nevada’s did not affect the Phoenix lifestyle. She concluded significant conservation was achievable and would not cause disruptions.

 

Ms. Brothers indicated the additional water needed was a small percentage of existing water resources, which was the reason why extending the water supply through conservation was viable.

 

Senator Rhoads asked if the aquifers the SNWA wanted to develop were found through former-Senator Gibson’s efforts to match funds with the federal government for water exploration in central Nevada. Ms. Brothers indicated they were, but explained, until the water was pumped, the system stressed, and data collected, there were only estimates of available resources.

 

Senator Coffin asked Ms. Mulroy, while not knowing how much water was available in the northern basins, and given the commitment to protect the northern water basins from an environmental disaster like the one created by Los Angeles in Inyo County, California, how many years before the people of southern Nevada were drinking wastewater.

 

Ms. Mulroy noted since most water in the Las Vegas area was used outside, reusing wastewater for outside purposes provided southern Nevada an opportunity as a desert community to really have a use for it. The communities where discussions were taking place over the conversion of effluent water into drinking water were predominately inside water-use communities. She concluded the most likely source of drinking water would be desalinated water, not wastewater.

 

Senator Coffin noted he did not know how desalted water would get to southern Nevada without a tremendous cost. He asked why not think about drinking treated wastewater. Ms. Mulroy said in Tokyo, new apartments and high-rise commercial units had to double-plumb, a system whereby wastewater is sent to the toilet. Senator Coffin asked if southern Nevada was at the tertiary stage before discharge and Ms. Brothers indicated it was. Ms. Brothers said reverse osmosis removal was required to drink treated wastewater.

 

Ms. Brothers explained if desalinization were used as a resource it would serve California’s metropolitan users, and in return for helping build the desalination facilities, Nevada would take a portion of California’s metropolitan entitlement from the Colorado River.

 

Senator Coffin asked how much desalinated water would cost. Ms. Brothers noted the cost was between $800 and $900 an acre-foot; it would depend on the cost of power, but with new technologies the price could go down.

 

Senator Amodei asked what needed to be done to access the water resources in the Virgin and Muddy rivers. Ms. Brothers indicated a pipeline needed to be built or a wheeling agreement between states would have to be approved. Senator Amodei asked if either the pipeline or wheeling agreement were being explored or implemented. Ms. Brothers noted the SNWA had a State water right for the Virgin River.

 

Ms. Mulroy said the SNWA bought significant water rights in the Muddy River and built into the acquisitions were the continued usage of the water until 2015 or 2020.

Senator Care noted a plan to build 50,000 houses in the Coyote Spring Valley and he asked how the project might be affected. Ms. Brothers indicated the SNWA currently owned 9000 acre-feet of Coyote Springs water and Coyote Springs development owned 1100 acre-feet of water. Further application would not be decided until the State engineer received more information on the effect of the basin.

 

Richard J. Wimmer, Deputy General Manager, Administration, Southern Nevada Water Authority, said the 9000 acre-feet the SNWA acquired would be moved to the Las Vegas Valley. Coyote Springs Investment has retained about 5000 acre-feet, some with restrictions, for future development, he continued. He noted there was an agreement to divide unallocated water resources in the Coyote Springs Basin between the SNWA, Coyote Springs Investments, and the Moapa Valley Water District. Mr. Wimmer concluded Coyote Springs Investments had enough water to do a certain amount of development, but if no more water was found, they would not have water to move further.

 

Ms. Mulroy indicated under the agreement, Coyote Springs Investments would be a customer of the Moapa Valley Water District and additional water could be purchased through the district.

 

Senator Carlton said available water resources had been measured with a level of conservation, but she asked if conservation did not happen and the lake continued to drop, how long the water would be safe.

 

Ms. Mulroy indicated the level of the lake was temporarily low because of the drought. Senator Carlton answered no one knew when the drought would end and Ms. Mulroy agreed.

 

Senator Carlton said conservation was not a guarantee. In response, Ms. Mulroy said conservation was the most assured resource and ordinances could be made to effectuate conservation if needed.

 

Ms. Mulroy said the drought plan would require 25 percent conservation. Ms. Brothers added, the drought plan, a response to lower lake levels, would create ordinances to restrict water use. Use restrictions and increased water rates would be used if necessary.

 

Senator Carlton asked if 25 percent conservation was met, how long before the lake level would become unsafe. Ms. Brothers said runoff would still occur and 8.23 million acre-feet of water per year must be released to the lower Colorado River basin from Lake Powell. Ms. Brothers also added the drought probably would not continue another 10 years.

 

Ms. Brothers said a demonstration project with Arizona was made in 1992 and 50,000 acre-feet of water in Arizona were banked. The agreement called upon Arizona to use their best efforts to bank 1.12 million acre-feet for Nevada over 15 years, which was dependent on the drought. She indicated it would cost approximately $150 per acre-foot to bank water, although water banked in lieu in the aquifers would cost less. Water put directly in storage facilities would cost more.

 

Ms. Brothers indicated there was an additional fee to recover the water. The recovery cost would be the costs incurred by Arizona, which should not be too high. The SNWA requested 10,000 acre-feet from the Arizona bank this year. The SNWA would get a good idea of the cost for water recovery of the unused apportionment. In 2002 66,000 acre-feet were banked and with the 50,000 acre-feet from the demonstration project, a total of 116,000 acre-feet were banked.

 

Ms. Mulroy said if the Salt and Verde Rivers get enough rainfall, water might be banked this year despite the SNWA water recovery.

Senator Amodei asked how the current amount of banked water compared to the amount of water needed per year to keep pace with the 1.12 million acre‑feet, 15-year banking timeline. Ms. Brothers said an agreement had been reached in June to bank 40,000 acre-feet and Arizona actually banked more for Nevada.

 

Senator Amodei asked if there was an administration fee for Arizona water banking. Ms. Brothers said it was $23,000 this year. Senator Amodei inquired if the administration fee was included in the $150 an acre-foot figure Ms. Brothers previously quoted and Ms. Brothers indicated it was rolled into it on an average basis.

 

Ms. Brothers stated the feasibility of developing the shallow aquifer was being assessed. The shallow aquifer was non-potable water created by overwatering. She described the aquifer as salty and close to the surface, but noted the aquifer might be an economical source of water by 2025.

 

Ms. Brothers indicated the SNWA owned or will own 8000 acre-feet of Muddy River irrigation rights and 113,000 acre-feet of Virgin River water. The water resource plan showed the river water sources some years from now because the infrastructure must be created to use the water. She concluded the commitment existed to develop the resources, but the best approach to utilize, treat, blend, and maximize the yield of the water resources was still developing.

 

Ms. Brothers indicated the SNWA had banked 240,000 acre-feet of water in southern Nevada since the 1980s and the infrastructure existed to utilize surpluses when available. She pointed out the well infrastructure could put about 30,000 to 40,000 acre-feet of water a year into the southern Nevada groundwater system.

 

In summary, Ms. Brothers noted, future water resources, projected water demands, and the need for conservation had been discussed. She said many changes had been seen in the past 10 years and flexibility and cooperation were ever increasing between states.

 

Senator Hardy asked if it would be cost-effective to build a pipeline to relocate Virgin River water to Las Vegas. Ms. Mulroy said the resource would be developed by whatever means necessary. She said it made more sense to transport the water by other means, but obstacles existed for the means to be used.

 

Senator Hardy stated the wheeling restrictions were ridiculous because of the possible expense incurred by Nevada if water had to be moved by alternate means. Ms. Brothers said the wheeling restrictions were a result of Arizona’s lower priority and one day it might be removed.

 

Mr. Wimmer noted once the water resources were acquired, infrastructure had to be built to deliver the resources. He indicated in 1995 a capital improvement plan was put in place, which has been continually updated to accommodate growth, and to improve system reliability and water quality.

 

The plan called for flexibility, Mr. Wimmer indicated; the plan was to phase in the increased infrastructure over a period of time with the ability to slow down or speed up the timetable based on growth. The plan was on time in conjunction with demand and under budget. Mr. Wimmer explained pages 35 through 37 under tab 1 of Exhibit C, showed how new infrastructure met water demands since 1997. Conservation, future water resources, and water transportation projects were all factors of the planning phase for new facilities.

 

Senator O’Connell asked if there was a reason why Muddy River and Coyote Springs water was purchased rather than taking an option on the water. Mr. Wimmer said it was not unrealistic to build a pipeline to transport the water from Coyote Springs or the Muddy River. He also noted Senator O’Connell’s point was well taken; putting too many eggs in one basket might have been risky, but it helped the water resource plan move forward.

 

Senator O’Connell asked Mr. Wimmer if he had a plan to build the pipeline. In response, Mr. Wimmer answered there was no detailed design, but if the cost was within the framework of what was affordable on new water resources, the answer was yes.

 

Senator Tiffany asked if the quarter-cent sales tax approved for infrastructure included flexible language which would allow for the financing of a pipeline. Mr. Wimmer indicated the pipeline was not envisioned at the time the Legislature approved the enabling legislation, but he noted the priority was to build the infrastructure for which the legislation was expressly passed.

 

Senator Tiffany inquired if there was enough revenue to bond against with the way the language was structured, without requiring another vote of the people. In response, Mr. Wimmer noted the quarter-cent was limited to a specific point in time or a specific dollar amount. Senator Tiffany indicated the time was 30 years. Mr. Wimmer said it was planned around the cost of the project, so it had a limitation.

 

Senator Tiffany commented if there was access and it could be used as a revenue stream, then the language was flexible. Mr. Wimmer stated there was some flexibility built intentionally into the language. Senator Tiffany indicated the flexible language was not intentional.

 

Senator Amodei referenced Exhibit C, tab 1, pages 34 and 38. Senator Amodei asked Mr. Wimmer if the circled future water resources on page 34 would be paid with the capital improvement funding plan, shown as a pie chart on page 38. Mr. Wimmer indicated the circled water resources on page 34 were potential resources, not priorities. The other water resources would be partially funded by the existing capital improvement plan, but most of the money was earmarked for both transporting Nevada’s entitlement and surpluses from Lake Mead and the facilitation of water banking.

 

Senator Amodei said, as explained by Mr. Wimmer, there was no connection between pages 34 and 38. Mr. Wimmer indicated a connection existed with the top priority water resources.

 

Senator Titus asked for a time frame for building the pipeline to Coyote Spring Valley. Ms. Brothers said possibly 8 to 10 years.

 

Senator Titus asked if the SNWA’s water rights were not accessed and used would the rights be lost. Ms. Mulroy indicated that was not the case. Ms. Brothers said the SNWA had 9000 acre-feet of permitted rights and have gone to hearings on additional rights, but nothing would revert back.

 

Senator Titus stated in reference to the water rights, “so you will keep it forever, no matter what.” Ms. Mulroy noted the delay was because of the State engineer’s desire to pump test the system for the next 5 years to avoid any unanticipated “ancillary” environmental impacts.

 

Mr. Wimmer noted the existing Capital Improvements Funding Plan (CIFP) in excess of $2 billion included 57 percent from regional connection charges, which recognized growth needed to pay for itself. Mr. Wimmer said, the remaining 43 percent of the CIFP included sales taxes, regional water rates, and reliability surcharges, which recognized everyone should pay for reliability and improved water quality. The CIFP was working, he said; the anticipated revenues were raised, obligations have been and continue to be met, and the SNWA was financially strong.

 

Mr. Wimmer told the committee the reason the SNWA wanted the sales tax was because the connection charges, for example, were a volatile source of revenue. Fluctuations in growth had the potential of creating a financial problem. He explained the monthly construction costs diagram in Exhibit C, tab 1, page 39. The red line reflected the anticipated amount of money needed to pay for construction costs. The blue line reflected actual construction costs. Mr. Wimmer noted southern Nevada sustained high growth rates and facility construction accelerated. Mr. Wimmer said favorable conditions in the bond market and aggressive refinancing created significantly lower financing costs than originally projected, which would result in approximately $350 million in savings. The volatility of the connection fees resulted in significant cash reserves, equal to at least 2 years of payments, creating financial stability to meet obligations. Mr. Wimmer concluded the SNWA had a Standard & Poor’s bond rating of AA—.

 

The quarter-cent sales tax started being collected in 1999 and as of January 2003, $200 million had been received, Mr. Wimmer commented. The SNWA capital improvement plan received $151 million of the sales tax revenue, wastewater agencies received $33 million, the Las Vegas wash received $8 million, and rural Clark County for water and wastewater systems received $8 million. Mr. Wimmer noted the sales tax sunsets in 2025 or at $2.3 billion.

 

Ms. Mulroy noted the SNWA ran two capital plans; the Capital Improvement Plan and the Major Capital Construction Program plan. She said the connection charges might stay as they were, which would provide an alternative to pay for future capital improvement program projects, not currently a part of the project.

 

Senator Rhoads asked how much of the Southern Nevada Public Lands Act money had been received. Mr. Wimmer answered 10 percent, equal to $19 million.

 

Senator Rhoads asked where the money could be used. Mr. Wimmer said it went to projects to provide water in southern Nevada and, to date, the money had only been applied to the capital improvement program.

 

Senator O’Connell asked two questions. First, she said she wanted to know if a list of preferred or not preferred industries for economic development existed, in terms of water usage. Second, she asked for an explanation of issues about the drought plan and its impact on golf courses. Ms. Mulroy, in response, noted there was not a preferred list of businesses for economic development. However, the SNWA encouraged businesses to use the best technology for efficient water systems. For example, power plants were encouraged to use air‑cooled rather than water‑cooled facilities.

 

Ms. Mulroy said the objective of the drought plan was to cause as little economic disruption as possible in southern Nevada. She noted there were a range of golf courses that used as little as 5 acre-feet of water per acre, per year and some over 10 acre-feet. She added, the average Arizona golf course used 4.5 acre-feet of water per acre, per year. The drought plan would require the top 20 percent of water-using golf courses to reduce their water use to levels comparable to the remaining 80 percent of southern Nevada golf courses. Ms. Mulroy indicated the SNWA had a program to help golf courses remove turf at $1 per square foot up to $300,000.

 

Senator O’Connell inquired if potable water was used on all golf courses. Ms. Mulroy said no, but the SNWA encouraged reuse on most golf courses and has actively worked to convert the golf courses to reused water. As an aside, she noted “reuse” courses were not affected by the water rate increases. Large, excessive water-using courses, to protect their pricing structure, through regulatory changes and unused turf removal, must reduce the amount of water used per acre. Ms. Mulroy indicated the drought plan was intended to give every golf course a water budget. The golf course could choose to remove turf or pay a penalty for excessive water use.

 

Senator O’Connell asked how much water golf courses consumed in relationship to all southern Nevada water users. Ms. Mulroy said about 8 percent.

 

Senator O’Connell inquired if the golf courses used more water than the casinos. In response, Ms. Mulroy said yes, the majority of water used in casinos was returned through the sewer system and reused.

 

Senator Tiffany asked if the parks had been asked to conserve and the same type of penalties would be assessed for noncompliance. Ms. Mulroy indicated the cities and counties were going to inventory and remove turf in their road medians and some grass in their parks. She also noted a citizen advisory committee had been created to evaluate and make recommendations for the conservation plan.

 

Senator Tiffany asked if the school district was included in the drought plan. Ms. Mulroy said they were. The Clark County school district and the University of Nevada, Las Vegas were two of the largest water users and were often cited for water misuse during the summer.

 

Senator Tiffany asked if the citations included financial penalties. Ms. Mulroy said yes. Each day the water waste ordinance was violated a penalty would be cited and would accrue on a daily basis, going up per day.

 

Senator Tiffany inquired how the SNWA enforced water restrictions. Ms. Mulroy said many people call the SNWA to inform on water-use violators. The SNWA would go out and respond to the information.

 

Senator Tiffany asked if concerned-citizen phone calls were the only means to enforce water restrictions. Ms. Mulroy said during the drought the SNWA would increase water policing.

 

Senator Tiffany asked what was considered usable and not usable turf on a golf course. Ms. Mulroy explained a number of Arizona golf courses were nationally renowned and manage to only use 4.5 acre-feet per acre, per year. Some golf courses in Las Vegas were nothing but grass.

 

Senator Coffin mentioned Phoenix had about twice the rainfall as Las Vegas. Ms. Mulroy suggested the higher year-round temperatures required longer water schedules. She said on balance Las Vegas and Phoenix were comparable.

 

Senator Coffin noted many golf courses in southern Nevada were computerized and they could manageably determine priority turf and eliminate excess. Ms. Mulroy agreed and added; southern Nevada golf courses were some of the area’s better water managers.

 

Senator O’Connell asked how far along was the second “straw” project. Mr. Wimmer noted of the just over $2 billion project, $1.5 billion had been paid for construction. Another $200 million was committed by contract bringing the total to $1.7 billion.

 

Ms. Mulroy said the contractor for the ozone facilities went bankrupt and caused a delay; a new contractor had to be found to finish the job. The facilities would go on-line in June. Ms. Mulroy also noted empty pump barrels had been built to accommodate future growth, but with the drought they might be needed sooner than anticipated.

 

Senator O’Connell asked if Mr. Wimmer would say that 80 to 85 percent of the project was completed. Mr. Wimmer agreed.

 

Senator O’Connell asked how the SNWA was prepared for a terrorist attack. Ms. Mulroy noted a vulnerability assessment had been done and she would discuss the topic privately.

 

George Caan, Executive Director, Colorado River Commission (CRC) of Nevada, offered written material (Exhibit F. Original is on file in the Research Library.) explaining the role of the Colorado River Commission. Mr. Caan testified:

 

I don’t have a formal presentation, but I’d like to talk to you about a couple of things related to the Colorado River Commission and what I‘d like to do is talk to you about who we are, what we do, and how we do it and then if you have any questions, and I’ll try to be very brief.

The Colorado River Commission is an executive agency of State government and we are governed by a seven-member board. Four of them including Richard Bunker, who couldn’t be with us today, is our chairman. Three of the members of our commission are members of the board of directors of the Southern Nevada Water Authority. So, we have a commission that’s composed of appointed officials by the Governor and elected officials from southern Nevada, representing a broad cross section of interest. In fact, Roland Westergard I believe is in the audience. He’s one of our commissioners today. It is a fine commission. It works very well. It puts the interest of Nevada, the Colorado River, and our southern Nevada water interests at its foremost interest and it’s a great commission to work for. We have 30 staff and we have 3 attorneys from the attorney general’s office. Our budget, which many of you will be privileged to see, hopefully in the future, is presented to the Legislature as part of the Executive Budget package and we‘ll be talking to many of you about our budget. Our budget has a review process that includes reviews by the water authority, reviews by our power customers, reviews by our board, by the Governor, and finally the Legislature. That is who we are. What we do is we are responsible for protecting the State’s interest in the Colorado River.

 

The State of Nevada has been provided water resources, power resources, and environmental resources from the Colorado River. Our job as a State agency is to ensure that we protect those resources. We have to work with six other states, the federal government, and the country of Mexico when we do that. It is very important that the State has a role and looks at that and that is what the Legislature has envisioned since the Colorado River’s creation 50, 60 years ago, when Hoover Dam was constructed. That is what we do … .

 

Senator O’Connell asked if the State backed any of the financial agreements the CRC made.

 

Mr. Caan said, ”You are talking about agreements such as the Arizona water bank, those types of agreements.”

 

Senator O’Connell asked, to how many entities the CRC sells wholesale power.

 

Mr. Caan said:

 

I will take a step back, so I can address that. One of the roles of the Colorado River Commission has since the creation and construction of Hoover Dam has been to acquire the State’s share of hydropower. It’s one of the benefits we get from a river system in storage is that when water is released through a dam, you can generate electricity by having water run through turbines. So, we negotiate and work as a State to ensure that we receive that benefit. Over time the State has received a substantial benefit from the dams along the Colorado River, approximately 475 megawatts, about a quarter of Hoover Dam and about a quarter of Parker and Davis. The Colorado River Commission is a State agency, we do not use that power.

 

What we have done is we have contracted, first … with the federal government for the delivery of the hydropower since they are the owners of the power, owners of the dam. We in turn market that hydropower to … 12 customers in southern Nevada. The customers that we serve with hydropower include Lincoln County Power District, Overton Power District, Valley Electric Association, the City of Boulder City, and Nevada Power Company. We also provide that power to industrial customers located at the Basic Management Industrial Complex and also as a result of a settlement that we just arrived at with one of our industrial customers we now provide hydropower to the Southern Nevada Water Authority. So, we have twelve customers that we provide hydropower to.

 

The relationship with the State via the hydropower is that we collect collateral, the Colorado River Commission puts in an account collateral, that we collect from our customers. We collect 3 months worth of collateral for the retail customers, not the utility customers. Those 3 months worth of funds that we have in the bank are to protect the State should any of our customers default. It gives us 3 months worth of revenue to be able to pay the Western Area Power Administration, the federal government should any of our contractors default. So, that’s the way that we have protected the State from contractors that we have defaulting on paying their power bill. That would be very unlikely given the low cost of hydro. So, we’ve managed to protect the State by raising collateral for all of our retail customers.

 

Senator O’Connell asked if the CRC only dealt with hydropower.

 

Mr. Caan said:

 

We have, and I think I know where your question is heading, let me describe that. The history of the Colorado River Commission with respect to the Basic Industrial Complex [BMI], and I’m just talking about the Basic Industrial Complex, that has existed since World War II. When we originally had allocation of hydropower, that was sufficient to provide the resources that those industries needed to produce their products. Over time those industries have prospered and grown. CRC serves the electricity needs of those customers and so when their loads were in excess of what hydropower was available the CRC had a responsibility to meet their full load requirements. If we didn’t do that, they would have to curtail their production and that really wasn’t an option.

 

The CRC has had the responsibility for industries that could not meet their entire load for hydropower by going out in the market or working with Nevada Power Company to ensure that they had all the resources that they needed. So, we have had that role. It has been limited in its application to only two industries located at the complex, Timet and Pioneer. Pioneer … about half of their load had to be met with supplemental power to meet their needs in addition to the hydropower. That is what historically we’ve done. You could refer to us as their electric utility, since we own the distribution systems that serve them. So, we have to make sure that we have enough resources to ensure they could produce.

 

Senator O’Connell asked how the CRC did during the high cost of power and more specifically, if they had any problems with over-market contracts.

Mr. Caan replied:

 

Well, at the time that … our first responsibility is to procure power supplies when they’re needed, to ensure that there is a reliable power supply for the industry for their production. If they need power, we have to make sure we have it. During the electricity crisis we bought power that at that time was priced at the market.

 

Senator O’Connell asked if the CRC was in a similar situation as Nevada Power.

 

Mr. Caan said, “Well we bought from the same market.”

 

Senator O’Connell asked if the CRC had an edge as far as buying cheaper power than Nevada Power.

 

Mr. Caan replied:

 

No, the Western electricity market is an interconnected grid and it’s dominated by California, dominated by the market manipulation, and other types of things. I want to be careful, it hasn’t been proven, but the issues revolving around the Western electricity crisis caused power prices, as I am sure you are familiar with, to spike. In order to get the reliable resource that we needed, so that we weren’t waiting for a spot market to occur or not to occur, we secured long-term contracts … on behalf of Pioneer, primarily, to ensure that they had a reliable power supply and we bought then in the same Western electric market that Nevada Power used, … California utilities used, … the utilities in the Northwest and I’m sure that there was no utility who was out there that didn’t have to face some power crisis. We bought long, which means that we bought at a lower cost for longer period of time, rather than buying higher cost for a shorter period of time in order to attempt to meet the cost projections that would allow Pioneer to continue to produce.

 

Senator O’Connell stated she was concerned with Overton’s bill and Pioneer’s bankruptcy. She asked Mr. Caan if he had information as to how much, if any, the higher cost of power played into those situations.

 

Mr. Caan asked, “Are you asking me in respect to Overton?”

 

Senator O’Connell stated she would like information for both Overton and Pioneer, as far as the high cost of the electricity.

 

Mr. Caan replied:

 

Well, I wouldn’t comment on Overton’s situation. I could tell you with Pioneer because they are a customer. Pioneer filed chapter 11 in July of 2001, prior to the electricity crisis fulfilling its price issues. They filed a voluntary reorganization. It had nothing to do as far as I know at that time with power prices. As you may be familiar we were in a dispute with Pioneer regarding those prices that would have come due to them come January of 2003, that is when the high prices, I don’t want to call them high prices, I want to be very careful when I use the term high prices we are talking about prices when we bought them, those were market prices. Today obviously prices have lowered although in the last few days they have risen dramatically. Pioneer looked at what they could afford to produce, what they could afford to produce their product, which is not, they could not raise the cost of their product unilaterally, it is dominated by a market, they produce chlorine. They looked at their prices they would have to pay and realized they could not afford to pay those prices, thus the dispute that ended last week with the settlement in the last couple of weeks with them to end the dispute with something that worked for Pioneer.

 

Senator O’Connell asked what the responsibility of the State was as far as contracts the CRC had made.

 

Mr. Caan answered:

 

Sure, let me tell you what the terms of the settlement are, so that I could be very clear. The settlement which is not confidential and it‘s been in the news reports …. The settlement involved three parties. First, the dispute was over these high-priced transactions. The settlement involved Pioneer, who had a right to hydropower, assigning their hydropower to the Southern Nevada Water Authority. In return for that, CRC would assume … the disputed transactions, the above-market transactions that they were concerned about. In return for the assignment Southern Nevada Water Authority provided $53 million, which was based on their projected cost of resource, an equitable, fair cost of resource. So, we … will receive $53 million from the Southern Nevada Water Authority. We already had in our possession in the treasury, $45 million that was also subject to dispute. The settlement with Pioneer resolved that dispute saying the State, the CRC would now own $45 million. If the $45 million plus the $53 million, $98 million that we now have is going to be used to settle those disputed transactions, and in my opinion we will be able to settle them with no residual liability to the Colorado River Commission because what I’ve said in my board meetings is we have 12 customers. If we end up with a cost, the CRC ends up with any type of administrative, operational cost, judgment, or any liability, the first place we will go to that is to the customers where we are allowed to charge an administrative expense to cover operations. They weren’t happy with that as you might imagine, but that’s where we would go …. Hopefully, and I am very positive, that we will be able to do this with the money that we have in our account, we will be able to resolve those disputed transactions, negotiate with the vendors, as many others in the Western United States have and be able to settle that and at the end of the day have no liability to the CRC, have Pioneer continue to produce, and the water authority will have a valuable resource for the long term and I am hopeful we will be able to do that. It was, I believe an elegant settlement to a very difficult problem.

 

Now the liability of the State without the settlement or the liability of the CRC could have been depending on the result of the litigation, could have been the entire package of those disputed transactions and the reason that we believe the settlement was a good thing for us to do, the water authority and Pioneer, was that it removed that contingent liability from occurring and reduced the risk substantially. The risk that we might not be able to buy the vendor contracts out. The risk to the State and the CRC was great, while we were litigating because we could lose. The risk to the State or the CRC by having a settlement, I feel is very minimal and I think we are in a much better position. In fact, I have been called by all the vendors that are looking to attempt to settle because of the way the market is moving, frankly. I hope that addresses, that is really the framework of the settlement and had we not had the settlement there would be a much different message, that I would be telling you, that I have told the customers. With the settlement we are in a much better position and I am really happy to be able to report that to you.

 

Senator O’Connell stated there was no liability for the State with the result, but asked if the cost would be shared among those 12 customers the CRC serves.

 

Mr. Caan said:

 

As I said earlier, our customers may challenge us, but I believe, and I have said this in public meetings, that we will have a right to assess a charge in our existing administrative charge, which is under contract to each of the 12 vendors to collect any of the residual amount that would be there. Thereby providing that directly to them and then paying that. They might challenge me, I think it depends on how much it is, they‘ll challenge, but also if we are able to successfully negotiate these contracts for a lower amount and we have money left. Those funds will be credited back to the same         12 customers to reduce the administrative charge. That’s my position. They‘ll certainly challenge me if there’s a liability. They probably won’t challenge me if there is an excess.

 

Senator O’Connell asked, if the Overton legislation was heard and the State allowed them to declare bankruptcy, where the CRC would be on the list of priorities as far as the collection of the money.

 

Mr. Caan answered:

 

Well, all we do for Overton is provide them hydroelectricity. We provide no supplemental contract. They have a right to hydroelectricity, whatever Overton does, they’ll still have to serve their community. That resource is a major part of their load. It is low cost. I would expect that they would continue to perform under their contracts. I am not a lawyer, but having been involved in bankruptcies with other organizations they will need to continue to perform their function. Part of that will be us having, supporting, and providing that low-cost resource to them. We have no supplemental market resources that we provide to Overton. It’s strictly hydropower.

 

Senator O’Connell asked if the power was low cost.

 

Mr. Caan replied:

It is a very low cost. It is in the area of $10 to $12 … . It is by far the lowest-cost resource that they would have and I couldn’t believe that anyone would want us to stop delivering that to them to continue to serve their community.

 

Senator O’Connell said when Mr. Caan mentioned both Pioneer and Overton that immediately raised a flag with her.

 

Mr. Caan said:

 

I apologize if I said Overton. The two that we supply is Pioneer and Timet. Timet is another of the industrial plants at the BMI Complex. I apologize if I misstated that. No, they are two retail customers, … we buy very little for Timet.

 

Senator O’Connell thanked Mr. Caan for the clarification.

 

Mr. Caan replied:

 

I appreciate being able to clear the air because there’s a lot of misperceptions on that and I think it is actually a very good story, so I appreciate that. Let me go back on track and quickly complete really what I wanted to say to the joint committee and that’s how do we do our business. I’ve been the executive director since 1996 and I joined the Colorado River Commission and I remember coming to the first board and seeing elected officials and appointed officials representing the water authority. I thought it was quite unique. I did not realize how it was created or how it was put together. I thought it was quite unique because the issues we were dealing with had to deal with southern Nevada and they were State water issues, … southern Nevada water issues, so I actually thought it was very clever that you would have a board that would constitute both the elected officials, who have to go back to the water authority and also appointed officials so that the State, the Governor has a role in that too.

 

As I did my reading and my history, I realized that this was an active effort by the Legislature who created in 1993 a joint board and created a governing structure that despite what I would want to do, forced us to work together. I think it has been an elegant solution and a wonderful partnership. The staffs of the two organizations work side by side, we are participants in the forums, I am not going to review everything that Pat, Kay, and Dick told you, but each one of those forums we are partners. We join them, we sit down, all the states together, we strategize together, our staffs are intermingled, and we work very cooperatively and that is the kind of partnership that I think the Legislature had envisioned back in ‘93 when they set these boards up … . It is really a wonderful and elegant solution and frankly given the fact that we do have the smallest allocation from the river and we are looking downstream to California, the fact that we have a united front and Nevada is able to speak with one voice at these meetings gives us the kind of strength that the other communities don’t have. That gives us a lot of leverage, a lot of working partnerships with the federal government and they could count on the fact that when they talk to one of us in the State agency or in the local government, in the Southern Nevada Water Authority, they do not have to worry about whether the State is supporting because the kind of material that was presented, there was nothing new to me that was very comprehensive and complete presentation of the issues and we have been involved every step of the way.

 

How we do our business is definitely in partnership with the water authority. They’re a major player with us, we are a major player with them and we both make moves together and I think it is the wisdom of the Legislature back in ‘93 to have created these joint boards has really served Nevada well and I just wanted to make sure that I cover that point and with that I will be happy to answer any questions that you might have.

Senator O’Connell asked Mr. Caan how many people sat on both the Southern Nevada Water Authority board and the Colorado River Commission of Nevada board.

 

Mr. Caan answered, “We have seven members. Three of our members are appointed by the water authority, so three of our seven members sit on both.”

 

Senator O’Connell asked if a list of the members was given to the committee.

 

Mr. Caan said, “Yes you do, in your material I provided you a list of all of our members and their appointments.”

 

Senator O’Connell asked the committee if they had any questions.

 

Mr. Caan said, “Well actually that’s my presentation. I want to make it brief and if you don’t have any more questions, I want to thank the committee again and I’ll turn it to you.”

 

Hugh Ricci, P.E., State Engineer, Division of Water Resources, State Department of Conservation and Natural Resources, stated the testimony and questions during the SNWA portion of the hearing accurately identified the role of the Division of Water Resources, but he would include some additional information. Mr. Ricci said he administers the Division of Water Resources, which is responsible for the appropriation, distribution, and adjudication of Nevada’s water resources, excluding federal decrees and the Colorado River. The application process for appropriating Nevada’s allocation of the Colorado River had shifted numerous times between the Division of Water Resources and the CRC of Nevada, he said, but noted the application process was now exclusively handled by the CRC of Nevada. Mr. Ricci stated the jurisdictional shifts were insignificant because the Colorado River’s water was already allocated under contracts through the Bureau of Reclamation through the Colorado River Commission of Nevada. He concluded it did not make a difference as to whether the Division of Water Resources had any role since there was no additional water to appropriate.

 

Mr. Ricci said he was not sure what defined southern Nevada, but indicated he would speak about Las Vegas. The Division of Water Resources was responsible for tracking the amount of groundwater pumped in the southern Nevada area, including Las Vegas, every year. Mr. Coache’s staff does an extensive inventory, reading meters from approximately 1300 wells twice a year. He said the Division of Water Resources produced a volume each year, which broke down every water right in the valley and how much water was used. Mr. Ricci addressed Senator Coffin’s concern over creating another Owens Valley situation in Lincoln, Nye, or White Pine Counties as a result of the Cooperative Water Project. Mr. Ricci noted much had been learned through scientific advancements in determining water availability on an average yearly basis, ensuring similar environmental damage occurring in the Owens Valley would not occur in Nevada. Any appropriation of water in a particular area would be based upon average annual recharge.

 

In 1999 the Legislature passed an interbasin water transfer bill requiring the State engineer to look at a list of things before an interbasin water-right transfer. The bill also included other details which dealt with inter-county water transfer fees. Mr. Ricci noted he was required to take into account the future water needs of the people in the basin of origin before allowing interbasin water transfers.

 

Mr. Ricci said in 2002 he issued a permit to the Vidler Water Company in Sandy Valley. It was an interbasin transfer and after evaluating the needs of those living in Sandy Valley, he reduced the 1400 acre-feet of water requested to 415 acre-feet. Mr. Ricci noted the allowable amount of water pumped per year was based on the perennial yield concept, the average annual recharge.

 

Mr. Ricci noted agricultural water use probably accounted for close to 90 percent of the total water consumption in Nevada. He noted two things, however, one, agricultural water users, due to a lack of water, may not receive their full permitted right, and two, agricultural water could not be consistently used as a municipal resource. He explained the majority of water passes between April and June and then nothing is left. Some believed agricultural water resources were the answer to Nevada’s municipal water needs, but without storage reservoirs the water could not be accessed year-round.

 

Senator O’Connell asked if there was a period of time whereby a person with a water permit has to use their water or it would revert back to the State and the State reallocate that water use.

 

Mr. Ricci stated Nevada was a prior appropriation state, which meant first in time, first in right. Those with an earlier priority would receive 100 percent of their water and everybody else would get what was left over. He said there were approximately 80,000 acre-feet of water appropriated in the Las Vegas Valley, most of which was groundwater.

 

Mr. Ricci said permits were granted on an as-needed basis. If the permit holder did not use their allotment then “beneficial use,” the right to limit the extent and measure of a water right, might be invoked. Statutes stated as long as the permit holder was proceeding with reasonable expectation and diligence in putting that water to use for the purpose to which it was appropriated, an extension could be granted. He noted no limitation existed as to how many extensions could be granted.

 

Senator O’Connell asked Mr. Ricci if the decision to remove a permit was a judgment call on the State engineer’s part, and Mr. Ricci said yes.

 

Senator O’Connell stated she was concerned about economic development opportunities with available water resources, especially for rural areas. She asked how much of that water was available to southern Nevada and how much would be reserved to protect the smaller counties. Mr. Ricci concluded the entire State of Nevada was in the throes of a drought, not only southern Nevada.

 

Senator McGinness asked if the amount of water the SNWA had released to Lincoln County was enough to support industrial development. Mr. Ricci noted he was not a party to the SNWA and Lincoln County agreement.

 

Senator McGinness said Lincoln County under the agreement would receive a permit for the first 3000 acre-feet of water and he asked Mr. Ricci how many homes would 3000 acre-feet of water support.

 

Mr. Ricci used Carson City as an example. He explained Carson City used about 12,000 acre-feet of water per year at a population of close to 60,000. Assuming a similar proportion of residential, commercial, and industrial users, 3,000 acre-feet of water would serve about 15,000 people.

 

Stan Spraul, Nevada Golf Course Owners Association, stated he had an opportunity to review the drought plan and had concerns about the unattended consequences he felt the drought plan had built into it. He noted there were
misconceptions about the golf course industry. He referenced a study showing the industry generated over $300 million spent in wages, salaries, and operational expenses directly injected into the southern Nevada community. Local residents spend their salaries on rent, car payments, food, and entertainment. Mr. Spraul said there should be an impact study done on the SNWA-proposed drought plan. He noted his concern about property values of golf courses and home owners on the golf courses. Litigation might result if golf courses had to arbitrarily remove 20 percent of the turf as stated in the drought plan. Golf courses were some of the best water managers in the valley, because of their use of the latest high-tech equipment.

 

Senator O’Connell asked if Mr. Spraul was requesting an impact study and then noted chapter 237 of Nevada Revised Statutes (NRS) required one. Mr. Spraul responded on February 20, the SNWA told him they were not required to do an impact study; the NRS did not include them.

 

Senator O’Connell asked committee counsel if the SNWA was included. Scott Wasserman, Committee Counsel, stated the provisions of chapter 237 of NRS were applicable to the SNWA, because it applied to local governments, which were defined as political subdivisions of the State. He explained SNWA under NRS 538.041 was a political subdivision of the State, although he did not know if the particular action was included in the requirement.

 

Charles Hauser, General Counsel, Southern Nevada Water Authority, explained the chapter did apply to the SNWA, but applied to rules or ordinances, which would impose an action. The SNWA adopted a regional plan, or blueprint, which would go to the water district, and the cities of Henderson, North Las Vegas, and Boulder City for implementation. The impact statement would be required at the time the municipalities amended their ordinances or service rules.

 

Senator O’Connell said there was no enforcement until the entities had their hearings. Mr. Hauser reiterated a rule had not been adopted, only a blueprint, which the individual entities could choose to adopt, whereupon the impact statement would be required.

 

Mr. Spraul said as long as he had an avenue to review the impact studies on the regional level and at the individual water districts, many people would be more comfortable. He said he wanted to dispel a couple of misconceptions. The first
was about “reuse” water. Reuse water made good economic and environmental practice and the golf courses had wholeheartedly endorsed the idea. It was cheaper water, but the Las Vegas Valley water authority hired Dr. Dale Debit to do a study, which determined 15 to 20 percent more “reuse” water was needed to water the golf courses to leach out the salts inherent with recycled water.

 

The one thing driving his concerns was the across-the-board cuts in water when each golf course was run and designed differently. Some golf courses have 100 acres and 200 acres; the industry needed an opportunity to review their options before arbitrarily requiring a 20 percent water-use reduction. Mr. Spraul said the SNWA showed a sampling of 24 golf courses which were about half of those represented in the water district area. The SNWA further showed the percentage of courses using over 7 acre-feet of water. At the second stage of the drought alert the allowable level of water usage would drop to 5.7 acre-feet. The SNWA noted, Mr. Spraul explained, 20 percent of the courses would have to live within 80 percent of what the other courses were using. On the SNWA chart it showed the opposite. He said 5 courses met the 5.7 acre-feet and the other 21 did not. He concluded he thought this was misinformation.

 

Ed Duffy said the water authority’s presentation was only one part of the equation. He said conservation was a key element for surviving and not wanting economic disruption was a noble gesture, but not considering economic disruption might cause multiple problems in the future with a lack of sufficient water to sustain residents and businesses. The water authority’s population forecast, used to formulate operational plans, had been inaccurate for 50 years, according to their 2002 resource plan. Nevada was currently exceeding its Colorado River allotment of 454,520 acre-feet per year including return-flow credits. Nevada was exceeding the allotment because of growth. The 2002 water resource plan stated a population increase of 44,000 created a demand for an additional 13,000 acre-feet of water per year. Mr. Duffy noted if 44,000 people was divided by 13,000 acre-feet of water, it would show 1 acre‑foot per year was required for every 3.385 people. Mr. Duffy said if the July 2002 Clark County population of 1,549,657 was divided by 3.385, then a demand of over 450,000 acre-feet per year would exist. The 450,000 acre-feet demand would not take into account the 16,000 acre-feet per year commitment to the Southern California Edison generating plant in Laughlin, 53 golf courses, private lakes, businesses, hotels, tourists, schools, and construction sites. At the present rate of growth there should be approximately 2,150,000 people living in southern Nevada by 2013 requiring an additional 177,000 acre-feet of water. Mr. Duffy questioned where and how the Las Vegas Valley would get the water. He noted the solution to the immediate problem was to combine conservation with restrictions on growth. Amanda Cyphers, chairperson of the SNWA board of directors had rebuffed the suggestion, Mr. Duffy said. On January 23, Ms. Cyphers said the drought had nothing to do with growth and that she would not let it be used as a growth matter. Mr. Duffy asked why the water authority board of directors was allowing the community to grow beyond available water resources.

 

Larry Paulson told the committee they had heard from Pat Mulroy and the SNWA that southern Nevada had enough water to last through 2030 with conservation, yet in 2000, southern Nevada began overdrawing Nevada’s entitlement from the Colorado River.

 

Mr. Paulson noted the SNWA’s number one priority was the interim surplus agreement, but the Las Vegas Sun ran a headline “Discord muddies hope for water deal” which would negatively affect the interim surplus. On New Year’s Eve, Mr. Paulson continued, the interior secretary cut Nevada’s withdrawal by 37,000 acre-feet of water, enough to support nearly 180,000 people.

 

The second priority was Arizona water banking, Mr. Paulson stated. He said SNWA told the committee they had about 116,000 acre-feet in the bank, but the best Mr. Paulson could determine through an Arizona Water Banking Authority report published in December 2002 was that only 64,000 acre-feet had been banked. There were 50,000 acre-feet of water in a pilot project of which he had not seen a contract. The total cost of the banking program was about $180 million that had been encumbered. The most fundamental problem with banking was Arizona also used its full entitlement and interstate water banking was Arizona’s last priority.

 

Mr. Paulson noted the SNWA stated Clark County had 240,000 acre-feet of water stored in underground aquifers, 16,000 acre-feet of which were committed to the Cal Edison plant in Laughlin. Those aquifers leak and the water was from Lake Mead and contaminated with perchlorate.

Mr. Paulson said the SNWA noted they had 9000 acre-feet of water from Coyote Springs and rights in the Muddy and Virgin Rivers without the infrastructure to transport it to the Las Vegas Valley. He questioned the appropriateness of purchasing water rights from Coyote Springs and Harvey Whittemore, who lobbied for the sales tax legislation, A.B. No. 291 of the 69th Session, authorizing counties to impose sales and use taxes for infrastructure. Mr. Paulson indicated water rights were purchased from a lobbyist who both helped pass the tax legislation, and collected $31 million in the process. He further indicated approximately $11 million of the Muddy River purchase went to Michael Saltman and Rex Lewis. Mr. Paulson said Michael Saltman of Vista Group served on the Integrated Resource Plan Advisory Committee, which devised the capital improvement plan now $500 million over budget. Mr. Paulson concluded that inquiries should be made into where the money went.

 

Mr. Paulson said he did not appreciate someone telling him water conservation, if necessary, would be imposed by ordinance. He remarked he was already conserving as much water as he could. Nevada had a firm 300,000 acre-feet entitlement per year to the Colorado River for consumptive use, but with return‑flow credits, a maximum diversion of about 450,000 acre-feet. The community was growing at 5 or 6 percent per year. Mr. Paulson asked how many thousands of acre-feet had been committed to developers, golf courses, and casinos without a guarantee of future water resources.

 

Mr. Paulson referenced excerpts from a report entitled The Impact of a Water‑Imposed Interruption of Growth in the Las Vegas Region, Exhibit G, prepared for the Las Vegas Valley Water District in November 1992 by William T. White, Ph.D., Thomas M. Carroll, Ph.D., and R. Keith Schwer, Ph.D., UNLV economists. Mr. Paulson noted the excerpts dealt with short-term impacts.

 

Mr. Paulson read:

 

Imagine that in the year 2006 the Las Vegas Valley Water District announced that, due to its inability to secure alternate sources of water, the growth in the Las Vegas metropolitan area at the historical average of 5 percent could no longer be supported. Planned construction which has not reached the water hookup
stage would be halted. Immediately, one-third of the construction projects would be stopped, and those on the drawing board would be scrapped. With adequate water, employment in Clark County would have increased from 752,731 in 2005 to 773,143 in 2006. With the water shortage, the [Retention of Employment Model] REM model predicts that employment would decline to 690,031 workers in 2006. This represents a 10.75 percent dip below what employment would have been with sufficient water … .

 

As expected, the decline would be instigated by reduced construction expenditures, with construction employment falling by 60.6 percent in 2006 from 48,811, with ample water to 17,269, as a result of a water shortage induced limit to growth … .

 

Employment in finance, insurance, and real estate in the first year of the crisis would decline from 54,210 workers with plentiful water to 48,490 with a water shortage, a decrease of 10.5 percent.

 

Mr. Paulson commented these unemployment impacts made September 11, 2001, seem mild by comparison. Southern Nevada cannot conserve its way out of the water shortage. Unlimited growth must be restricted. No one knows what the future water supply will be in the Colorado River system. Mr. Paulson pointed out normal runoff was not enough water in the lower Colorado River entitlements to meet the uses in Arizona, California, and Nevada. He noted Nevada was in a perennial drought situation and it was affecting the entire State. Mr. Paulson continued reading:

 

As goes Clark County, so goes the State of Nevada. We show in table 4.7 that a water shortage in Clark County would adversely influence the rest of the State. A major economic disruption in Clark County, which will contain 62.1 percent of State employment and 63.3 percent of the State population by 2005, would send shock waves through the State.

Senator O’Connell asked Mr. Paulson to send the report excerpts to the committee to be included as an exhibit.

 

Senator O’Connell adjourned the meeting at 4:55 p.m.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

                                                           

Joseph Bozsik,

Committee Secretary

 

 

APPROVED BY:

 

 

 

 

                                                                                         

Senator Ann O'Connell, Chairman, Government Affairs

 

 

DATE:                                                                             

 

 

APPROVED BY:

 

 

_____________________________________________

Senator Dean Rhoads, Chairman, Natural Resources

 

 

DATE:_______________________________________