Water Issues and what Finance Professionals should know

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Water Issues and what Finance Professionals
should know

• Presented to
• Government Finance Organization of Arizona

Bradley M. Hill, R.G. City of Flagstaff August 7,
2008
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Agenda

• Water Management Laws Nexus Water Energy
• Overview - Energy use / gallon
• SB 1575 and HB 2272 - Carbon Cap Trade
• HB 2211 - Carbon Tax
• Urban Rural Issues

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BackgroundWater Adequacy Rules - 1973

• Response to Ned Warren land sales near
• Grand Canyon
• Consumer advisory program
• 100-year planning horizon one time
• Permissive
• City of Flagstaff Designated
• May 17, 1973

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Water Adequacy Rules 1973

• 5 Criteria
• Continuously available delivery, storage
  treatment
• Legal availability legal right to the source
  water
• Physical availability hydrologic study, prove
  100-years of groundwater lt 1,200 ft depth below
  land surface for all current, committed and
  projected water demands
• Financial Capability to construct water
  delivery, treatment storage facilities
• Water Quality adequate treatment works, etc.

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Assured Water Supply Rules 1995

• 1980 - only in Active Management Areas
• 100-year rolling planning horizon
• Physical availability prove 100-year supply of
  groundwater lt 1,000 ft depth below land surface
  for all current, committed and projected water
  demands
• Financial Capability 100s millions already
  spent
• Water Rights, Infrastructure (water treatment
  plants), etc

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Water Adequacy Rules2007

• Update
• Purpose Provide rural Arizona communities tools
  to effectively managed their water supplies - -
  (since Active Management Area Assured Water
  Supply Rules only apply to Prescott Phoenix -
  Tucson)
• Provide a linkage between existing future water
  demand, infrastructure and hydrology by looking
  100-years into future

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Water ManagementSenate Bill 1575

• Countys may adopt with unanimous vote
• decision not reversible (Cochise County)
• City Councils may adopt with majority vote or
  simply
• re-apply for their Designation
• may reverse decision (Town of Patagonia)
• City of Flagstaff has been notified (January 08)
  that ADWR will be requiring proof of Water
  Adequacy to
• all water providers Designated in 1970s

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Water Management

• Should Communities seek Designation?
• Must ensure you can comply with Rules first
• Pros Cons of adopting Rules?
• PRO 1. Community commitment to long-term
  sustainability
• 2. Funding from HB 2672 Water Development
  Fund
• CON 1. Regulated by ADWR
• 2. Costs (always cheaper to mine
  groundwater)

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Water ManagementHouse Bill 2672

• Water Development Fund
• Urban cites required adoption of Water Adequacy
  Rules first
• WIFA style funding source for water development
  projects
• ADWR exploring ways to create seed
• Opposition from urban cities (Phoenix Tucson)
  on methods to fund
• HB 2211 - maximum 10 million/year from Lottery
  in FY2010

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Water Energy

• Water / Wastewater Utilities are typically the
  largest user of electricity in a municipality
• Consortium for Energy Efficiency
• 34 of O M costs water
• 28 of O M costs - wastewater
• Why should you know what you
• should be asking?

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Greenhouse Gas Reduction Initiatives

• International Kyoto Protocol
• Federal various Legislation
• McCain-Lieberman / Bingaman-Spector /
  Lieberman-Warner
• Regional Western Climate Initiative
• State Arizona Climate Action Plan
• Governor Executive Order - 2005

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• 2006
• Flagstaff Mayor signed
• Meet Kyoto Protocol targets

Cities that have signed
Sustainability Environmental Management
Division GHG Emission inventory Develop plan to
meet targets
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• February 2007 Governors of Arizona,
  California, New Mexico, Oregon, Washington,
  Montana Utah agreed to
• join The Climate Registry
• develop a regional greenhouse gas reduction
  goal
• design a multi-sector market-based Cap Trade
  by August 2008 to help meet the greenhouse gas
  reduction goal.
• The States of Alaska, Colorado, Idaho,
  Kansas, Nevada, Wyoming northern States of
  Mexico participate as observers

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Climate Registry

• Started May 2007
• Members gt70 of USA population
• Voluntary Reporting
• C02, CH4, N20, PFC, HFC, SF6
• Used for Carbon Reduction Initiatives
• Standardized method of
  reporting calculating GHG

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Arizona Climate Change Action Plan
Greenhouse Gas Emissions
Carbon Tax Or Cap Trade
Reduction Goals
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Electrical Generation

• U.S.G.S. - Coal produces gt51 of electricity
• APS derives 67 of electricity from coal power
• SRP produced 1,545 lbs of C02e / MW-H in 2006
• City of Flagstaff energy
• 41 from coal

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Carbon Tax (CO2e)

• Federal Legislation potential 11/ton to
  80/ton
• 40 MGD Water Treatment Plant in Phoenix
• Uses 12,000 KW-H / year
• Carbon Tax exposure? 230,000 to 930,000
• SRP passes to customer entire cost
• Not include increase costs in energy production

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City of Flagstaff
2007 Use
Surface Water 0.23/ 1,000 gallons
(3) Water Supply Wells 0.82/ 1,000 gallons
(93)
San Francisco Peaks
Lake Mary
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Carbon Tax (CO2e)

• City of Flagstaff Utilities used 17,252 MW-H in
  2005
• 23 wells, Lake Mary WTP, Rio de Flag WRF and
  Wildcat Hill WWTP
• Carbon Tax exposure? - 102,000 to 680,000?
• possible 3.50 / month
• customer increase
• FY09 400,000
• rate increase

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SUMMARY

• Water Adequacy Rules for rural Arizona
• Rural Arizona water infrastructure upfront
  funding with repayment agreements
• SB 1575, HB 2722 and HB 2211
• Water Supply Energy nexus
• Carbon CO2e Tax or Cap Trade
• Not IF, but WHEN?

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Questions?