Author Archives: Rodney T. Smith

About Rodney T. Smith

Rodney T. Smith, Ph.D., President of Stratecon Inc.—an economics and strategic planning consulting firm—advises public and private sector water users on the acquisition, sale and leasing of water rights and water supplies in the western U.S. He is routinely involved in economic valuation of water rights, water investments, and negotiation of water acquisition and transportation agreements and has served as an expert witness in the economic valuation of groundwater resources, disputes over the economic interpretation of water contracts, economics of water conservation and water use practices, and the socio-economic impacts of land fallowing. For more information, see www.stratwater.com.

Thinking About the Availability of Wheeling Capacity on the Colorado River Aqueduct

With the implementation of the Quantification Settlement Agreement in 2003, the amount of Colorado River water available to the Metropolitan Water District of Southern California has been less than the capacity of the Colorado River Aqueduct (“CRA”).  For example, the Bureau of Reclamation currently forecasts that Metropolitan’s use of Colorado River water will be 861,616 AF in 2015 http://www.usbr.gov/lc/region/g4000/hourly/forecast15.pdf.  This is 438,834 AF less than the historical maximum annual amount of 1.3 million AF of Colorado River water conveyed through the CRA. Continue reading

Thoughts on the Financial Structure of Water Projects

Two recent transactions in western water (San Diego County Water Authority’s Carlsbad Desalination Plant and San Antonio Water System’s Vista Ridge Project) provide an opportunity to discuss the economics of the structure of debt and equity payments to project developers.  For long-lived projects, a finance plan that matches the term of debt structure to the project’s life, makes both debt and equity payments subject to inflationary adjustments and deferred payments at the end of the payment period provides the best economic incentives for:

  • customers to conserve water
  • project operators to fulfill their contractual obligations

Plans that don’t incorporate these features will shift the economic burden of project costs to future current customers relative to current future customers, erode the economic incentives for customers to conserve water long-term and dilute the economic cost of project operators defaulting on contractual obligations. Continue reading

What will be the Final SWP Allocation for 2015?

How does 21% sound, which would be a 40% increase over the current 15% allocation declared by the Department of Water Resources?  While “more is better”, Californians cannot rejoice.  Due to the natural variability in precipitation, there is a 9% chance that the final SWP Allocation may be zero!

No, Hydrowonk is not using an Ouija board. Instead, these forecasts are based on a study of the historic record of SWP final allocations.  This year’s version is slightly different than the model used last year to forecast SWP Final Allocations for 2014. Continue reading

Texas Laments Unreliable Water Deliveries from Mexico

In his article “The price Texas pays for Mexico’s water debt” recently published in the Texas Water Journal, the chairman of the Texas Water Development Board, Carlos Rubenstein, calls for active participation by the U.S. State Department, White House and Texas officials to have Mexico live up to its obligations under a 1944 Treaty between the United States and Mexico. The article is an excellent source for a concise history of the 1944 treaty and projects and summarizes the economic hardship suffered in the Rio Grande Valley when there are inadequate water supplies. It is less successful in identifying the water resource management problems facing the parties.

While Mexico may indeed have a “water debt problem”, it is not the one identified in the article. Texas’s interpretation of the 1944 treaty is not correct. The real challenge is how can the parties work together to create reliable water supplies in the face of highly variable hydrologic conditions. Continue reading