Final report / Governor's Water Management Commission

              GOVERNOR'S WATER MANAGEMENT COMMISSION
FINAL REPORT
December 2001
JANE DEE HULL Governor



GOVERNOR'S WATER MANAGEMENT COMMISSION 500 North Third Street, Phoenix, Arizona 85004 Telephone 602-417-2462 Fax 602-417-2467



HERB DISHLIP Co-Chair JOHN MAWHINNEY Co-Chair JACK PFISTER Co-Chair



December 3, 2001 To the Honorable Jane Dee Hull: On behalf of the members of the Governor's Water Management Commission (Commission), it is our pleasure to present the Final Report of the Commission. In its transmission to Governor Babbitt in June of 1980, the Arizona Groundwater Study Commission submitted Senate Bill 1001, the Groundwater Management Act. At that time, the Groundwater Management Act was acclaimed as "a giant step forward in water management." However, the drafters of that legislation also recognized that the Act would "undoubtedly be in need for further refinement and review." Since that time groundwater use in three of the five Active Management Areas has declined. The use of renewable supplies and the provisions of the Groundwater Code have been instrumental in moving these AMAs towards the statutory management goals established in the Code. However, additional work is needed to ensure achievement of the management goals in each AMA. In June of 2000, there was wide recognition that there was a need for the review of the 20year old Act and as such you appointed 49 representatives to the Governor's Water Management Commission to take on that task. The Commission has completed its work and has found that the goals and legal framework contained in the Groundwater Code are sound and should continue to guide water management decisions and investments in the State's five AMAs. However, the Commission also has identified areas that could be improved to address changing water management needs in the AMAs as well as areas that the original Act did not address. This report contains a brief background on the status of the AMAs in the achievement of their management goals, a chronology of the Commissions activities, and the recommendations being forwarded to you for your consideration. Additionally, we are proceeding with the drafting of a bill or bills to introduce in the upcoming regular session of the Legislature. Each of the recommendations transmitted in this report is supported by a majority of the Commission members. The Commission recognizes that although these actions alone may not result in the AMAs achieving their statutory management goals, they will assist in further reducing groundwater mining and will maintain the stability necessary to sustain water management investments vital to Arizona's future.



GOVERNOR'S WATER MANAGEMENT COMMISSION



Governor's Water Management Commission Members

Co-Chairs

Herb Dishlip John Mawhinney Jack Pfister ADWR, Assistant Director Senate Majority Leader (retired) ASU, Vice President for Institutional Advancement Arizona State Land Department, Commissioner U.S. Rep. Bob Stump's Office, Chief of Staff State Senator, District 1 Scottsdale City Manager (retired) State Senator, District 21 (retired) Brasher Real Estate, President & Rose Valley Water Co., President City of Phoenix, Water Advisor Phelps Dodge Corporation, Vice President Office of the Governor, Northern Arizona Office Director State Representative, District 4 Gammage & Burnham, CAWCD Board Member Sunbelt Holdings, CEO State Senator, District 5 State Representative, District 12 Fennemore Craig, Attorney Arizona Department of Agriculture, Director Office of the Governor, Liaison on Agricultural and Rural Issues Arizona-Sonora Desert Museum, Vice President for Administration Arizona Public Service, Executive Vice President, Generation ASARCO, Plant Manager Arizona Municipal Water Users' Assoc., Exec. Director Errol L. Montgomery & Associates, Hydrologist Arizona Corporation Commission, Executive Secretary MegEcon Consulting, President Tucson Water Department, Director Motorola, Environmental Affairs Director State Representative, District 2 The Mary Orton Company, Consultant Former ADWR Director (1993 � May 2001) Robson Communities, Senior Vice President & Chief Financial Officer A-Tumbling-T Ranches ASU Center for Environmental Studies, Director Central AZ Water Conservation District, Board President Munger-Chadwick, Attorney Schnepf Farms, Mayor of Queen Creek (retired) Bill Scott Farms City of Casa Grande, Library Director Steinhoff Enterprises, Owner RS Engineering, President Salt River Project, Associate General Manager � Water Group Town of Prescott Valley, Public Works Director Town of Chino Valley, Town Manager Arizona Riparian Council, Executive Board Member Farmers Investment Co., CEO Chandler, Tuller, Udall & Redhair, CAWCD Board member Sundance Farms



Members



Michael Anable Lisa Atkins Ken Bennett Dick Bowers Rusty Bowers Gary Brasher Bill Chase H.M. Conger Bill Feldmeier Jake Flake Grady Gammage John Graham Herb Guenther Steve Huffman Jim Johnson Sheldon Jones Joe Lane Nancy Laney James Levine John Low Roger Manning Ed McGavock Brian McNeil Sharon Megdal David Modeer Don Netko Tom O'Halleran Mary Orton Rita Pearson Maguire Karl Polen Ron Rayner Charles Redman George Renner Larry Robertson Mark Schnepf Bill Scott David Snider Eric Steinhoff Robert Suarez John Sullivan Larry Tarkowski Carl Tenney Ruth Valencia Dick Walden Steve Weatherspoon David Wuertz Preface Final Report � GWMC December 2001



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Former Members

Maria Baier George Britton William Schrader Mark Stevens Ron Thielenhaus Office of the Governor City of Phoenix, Deputy City Manager Salt River Project, President of the Board Stevens Corporate Relations, Inc., President Ross Products Division, Plant Manager



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EXECUTIVE SUMMARY

The December 2001 Final Report of the Governor's Water Management Commission (Commission) completes a two and a half-year examination of the Groundwater Code (Code) and water quantity management in Arizona's Active Management Areas (AMA). The Commission concludes that the goals and legal framework of the Code are sound and as such should continue to guide water management decisions and investments in the AMAs. Further, the Commission endorses the statutory management goal of each individual AMA, recognizing as appropriate their differing hydrologic and political characteristics. The Final Report briefly describes the issue identification efforts of the Commission's Technical Advisory Committee (TAC) and the five individual AMA Task Forces that preceded the appointment of the Commission. It also details the Governor's charge to the Commission, the activities of the Commission, and the approximately 50 individual recommendations the Commission is forwarding to the Governor. * * * *



Governor Jane Dee Hull appointed the 49-member Commission in June 2000 to review the 21�year-old Groundwater Management Act and recommend changes -- if necessary -to ensure that the five Active Management Areas within the State continue to maintain a reliable, sustainable water supply to meet current and future needs. Specifically, the Governor charged the Commission to: 1. "Evaluate progress toward meeting the goals of the 1980 Groundwater Management Act and the management goals of each of the five Active Management Areas to assure that the goals are appropriate and achievable." 2. "Evaluate mechanisms to reduce the use of mined groundwater, increase the utilization of renewable water supplies and most efficiently meet the water needs in the Active Management Areas." 3. "Evaluate whether changes are needed in statutes, rules, or policies to improve the effectiveness of water management in the Active Management Areas at the state and local levels of government." The Commission held 18 public meetings and two weekend retreats, also open to the public. Additionally, 300 meetings with extensive public involvement were held by Commission subcommittees and work groups and by the TAC and AMA Task Forces. The issues for Commission consideration were presented in a series of seven issue papers developed by the individual AMA Task Forces and the 33-member TAC. The initial issues included: continued groundwater pumping by existing right holders as well as new industrial users and the impact of this pumping on achieving the management goals; how to address sub-area or critical area conditions; proliferation and concentration of small capacity exempt wells; utilization of renewable supplies; concerns about the Central Arizona Groundwater Replenishment District (CAGRD); and long-term water supply reliability.



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The Commission, after extensive debate, achieved consensus on approximately 50 recommendations for public review. A series of public Open Houses were held in each AMA the first week of October 2001 to solicit public comments. These comments were used to further refine the recommendations and in late October 2001, the Commission adopted their conclusions and the final package of recommendations for the Governor to consider. The Commission recognizes that although groundwater mining has not been eliminated, water users, in response to the goals and requirements set forth in the Code, have significantly reduced groundwater mining in three of the five AMAs since the 1980s. However, current data indicate the Phoenix, Prescott and Tucson AMAs may not reach their goal of safe-yield by 2025. The actions recommended by the Commission, which include a number of statutory changes, are focused on fine-tuning aspects of the Code and other activities. These actions will assist in further reducing groundwater mining and will maintain the stability and certainty necessary for investments in water supplies, delivery infrastructure and efficiency improvements which are vital to Arizona's future. The Commission recommendations will: increase the utilization of renewable supplies to help ensure sustainability; address allowable pumping to reduce groundwater mining; protect ecologically significant habitats; and enhance water resources planning and technical assistance. The major recommendations are summarized below in the seven categories established by the Commission. The full set of recommendations is covered in detail in Section V of the Commission's Final Report. A. Renewable Supplies � Utilization of renewable supplies has increased over the past 20 years, facilitated by the construction of surface water treatment plants and the completion of the Central Arizona Project (CAP) allowing the use of Colorado River water either directly or indirectly through artificial recharge and recovery projects. The Commission addressed issues related to the utilization of renewable supplies in all AMAs. These issues included: 1) how to maximize the use of available renewable supplies until currently unused CAP water is fully utilized by municipal, industrial and Indian entities; 2) how to ensure that regulatory programs and institutions promote efficient storage and use of renewable supplies; 3) how to facilitate cooperative efforts to finance infrastructure; 4) how to define the long-term role of the Central Arizona Groundwater Replenishment District (CAGRD); and 5) how to ensure the long-term adequacy of renewable supplies to achieve a sustainable water supply. Recommendations include authorizing enabling legislation for a multi-jurisdictional infrastructure financing authority to issue revenue bonds or use other financing alternatives intended for financing multi-jurisdictional water infrastructure projects that benefit a specified geographic area. The Commission is also recommending changes to the authority and responsibilities of the CAGRD. The CAGRD is an entity that currently uses excess CAP water to replenish mined groundwater on behalf of certain subdivisions or water providers in the Phoenix, Pinal and Tucson AMAs for assured water supply purposes. Two of the most significant changes recommended are a requirement for the CAGRD to establish a replenishment reserve to help secure water supplies for CAGRD members and an enrollment fee for new subdivisions.



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This "reserve" would take advantage of currently available CAP supplies to store sufficient water to meet 20 years of demand for CAGRD members. The Commission also made a number of general recommendations in the category of Renewable Supplies that do not specify statutory or rules changes, but which are intended to encourage actions outside of the Commission process. B. Allowable Groundwater Pumping - While a number of major water users within the AMAs have become less reliant on groundwater, other existing right holders and even new users continue to rely on groundwater. Issues addressed by the Commission include: 1) the continued pumping of groundwater pursuant to legitimate withdrawal authorities allowed under the Code, described as "holes in the bucket", which are projected to negatively effect the ability to achieve AMA management goals; and 2) the localized impacts that may be created by groundwater withdrawals. Recommendations developed to address these issues include: 1) new well permitting and impact requirements; 2) a "mined groundwater tax" for existing municipal and industrial groundwater users; 3) an obligation for new municipal and industrial groundwater users to utilize renewable supplies or replenish their mined groundwater with renewable supplies; and 4) changes to the exempt well statutes. The Commission considered and then proposed a recommendation that would limit certain new wells from being drilled within "designated riparian area protection zones" located within the AMAs. These zones are proposed to be legislatively delineated on a map and are based on a � mile buffer adjacent to specified stream segments or cienegas within an AMA. The limitations apply not only to non-exempt wells, but exempt wells (a well with a pump capacity of 35 gallons per minute or less). Aside from this recommendation being limited to new wells in an AMA, several other exclusions apply including: 1) replacement wells; 2) stock watering wells; and 3) exempt wells used for domestic purposes and proposed to pump less than two acre-feet per year. There are also provisions that allow certain categories of users to get waivers if a demonstration of hardship or non-impact on the designated riparian area can be made. The Commission is also recommending changes that would eliminate or reduce groundwater mining by certain municipal and industrial water users within the AMAs. (Designated water providers and members of the CAGRD are not included in this recommendation, as they are subject to the Assured Water Supply Rules.) First, the recommendation requires certain existing municipal and industrial water users (who currently have no obligation to use renewable supplies) to pay a phased-in "Mined Groundwater Tax." This tax would be used to replace a portion of the mined groundwater or to fund water-planning activities aimed at finding a mechanism to reduce reliance on mined groundwater. Second, certain new municipal and industrial water users would be required to make use of renewable supplies or replenish all of their mined groundwater over a period of time. This would also result in a statutory expansion of the CAGRD's current authority and allow the CAGRD to enroll industrial customers as well as municipal customers who predate or are not required to comply with the Assured Water Supply Rules. Finally, the recommendation eliminates issuance of certain new groundwater permits or rights without a full replenishment obligation after 2025 (2040 in Pinal AMA). This last proposal applies in all AMAs; however, provisions for Pinal, Prescott and Santa Cruz recognize the unique conditions within these areas. Additionally, certain users are exempted from this

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recommendation including agricultural users, metal mining operations and untreated water providers. The Commission is also recommending changes to the exempt well statutes. These changes only apply within the AMAs. The first proposal would require that new exempt wells be limited to a pump capacity of 20 gallons per minute (a reduction from the current 35 gallons per minute); however, up to 35 gallons per minute could be requested based on a demonstrated need for a higher flow rate. A second set of proposals relates to exempt wells that are within the service area of (or affected by) a water provider or other groundwater withdrawal authority. Within a municipal provider service area, new exempt wells would not be permitted without a denial of service from the provider. Another provision would limit the ability of existing exempt well owners to prevent the drilling of new non-exempt wells (using more than 35 gallons per minute) and would eliminate the ability for a new exempt well owner to protest impacts from a subsequent new non-exempt well. C. Environment & Economic - The Commission recognized that environmental concerns were not addressed in the 1980 Groundwater Code. A number of proposals to protect the environment were presented and discussed. The following recommendations address some of the water needs of environmental habitats within the State. First, the Commission recommends the establishment of zones around specified and legislatively adopted riparian areas for protection from new groundwater withdrawals, within the AMAs. This recommendation is directly linked to the discussion above under the Allowable Groundwater Pumping category. The Commission is also recommending several statutory changes to increase funding and responsibilities of the Arizona Water Protection Fund. D. Conservation � ADWR establishes "conservation requirements" for agricultural, industrial, and municipal water users within the AMAs. Issues raised included the role and effectiveness of conservation efforts in achieving the goals of each AMA and potential improvements for the current programs. The recommendation in this category is for the Governor to initiate creation of a nonprofit cooperative association to serve Arizona's need for effective water conservation, education and research throughout the State. E. Management Goals � The Commission concluded that the management goals were appropriate in each of the AMAs; however, the Commission also recognized the unique needs of the Pinal, Prescott, and Santa Cruz AMAs. As such, the Commission recommends local water users and the Department of Water Resources continue to work together to develop new programs to achieve the management goals in these AMAs. F. Water Resources Planning - The Commission recognizes the need for better data and long range planning in the AMAs and throughout Arizona. Specifically the Commission recommends: 1) continued support for funding the current Rural Watershed Initiative; 2) initiation of discussions between stakeholders from throughout Arizona to develop and fund a planning process for addressing the state's future water demands; and 3) preparation of a



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periodic report on hydrologic conditions and progress towards meeting the goals of each AMA, and a separate biennial summary report of conditions in the AMAs to the Legislature. G. Costs Of Water Management Programs - The Commission recognizes that some of the 50 recommendations they are forwarding to the Governor will create additional work for the Arizona Department of Water Resources and water users throughout the state. The Commission recommends the Governor and the legislature consider mechanisms to ensure the Department of Water Resources has sufficient resources to carry out programs recommended by the Commission, to maintain current programs and to provide timely and quality technical assistance and water management planning for the State of Arizona. Arizonans, by working together on water resources, have already achieved enormous gains in our effort to manage this vital resource effectively. The Commission is confident that implementing the package of recommendations we are forwarding to the Governor will maintain and enhance Arizona's water management efforts.



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ACKNOWLEDGME NTS

The Commission greatly appreciates the multiple contributions of many individuals and organizations to our efforts. Although it is impossible to list each contributor, the Commission would like to specifically identify and express its gratitude to the local AMA Task Forces, the members of the Technical Advisory Committee, and the Commission staff for their valuable input, hard work in developing and prioritizing the issues, and their continued participation throughout the process. The Commission would particularly like to express its appreciation to Joseph C. Smith, Director of the Arizona Department of Water Resources, for the extensive support he and his staff have provided to the Commission. Without the dedication of these individuals the Commission would have been hard pressed to develop its recommendations in a timely manner. TECHNICAL ADVISORY COMMITTEE A Technical Advisory Committee comprised of 33 representatives of each AMA, ADWR and other water-related interests was appointed by the Director of ADWR to synthesize the input from each of the AMA's and prepare issue papers for Commission consideration. TAC members are identified in Attachment 2. ACTIVE MANAGEMENT AREA TASK FORCES Local AMA task forces began meeting over a year before the creation of the Commission. These AMA task forces identified the priority water management issues for their AMA and discussed proposals to address the issues. The five individual AMA task forces together with their subcommittees and public participation in their meetings involved over 300 individuals. AMA Task Force and subcommittee members are identified in Attachment 3. COMMISSION STAFF Jim Holway, Staff Director Sandra Fabritz, Staff Coordinator and Principal Report Author Amy Mannes Arizona Department of Water Resources Stella Murillo Arizona Department of Water Resources Elizabeth Stoker Arizona Department of Water Resources Kathy Jacobs Arizona Department of Water Resources Jackie Nolan (former staff) SPECIAL ACKNOWLEDGEMENT For those individuals who provided additional staff support: Alejandro Barcenas Arizona Department of Water Chuck Cahoy Arizona Department of Water Randy Edmond Arizona Department of Water Mark Frank Arizona Department of Water Carol Frazier Arizona Department of Water John Hetrick Salt River Project Jim Holt Arizona Department of Water Patricia Hill Arizona Department of Water

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Resources Resources Resources Resources Resources Resources Resources



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Dennis Kimberlin Bob McCain Tom McCann Pam Nagel Cliff Neal Terri Sue Rossi Kenneth Seasholes Patrick Schiffer Ken Slowinski Linda Stitzer Warren Tenney Arizona Department of Water Resources Arizona Municipal Water Users Association Central Arizona Project Arizona Dept of Water Resources Central AZ Groundwater Replenishment Dist. Central Arizona Project Arizona Department of Water Resources Arizona Department of Water Resources Arizona Department of Water Resources Arizona Department of Water Resources Metro Water District



...and to the ADWR Website Development Section Adam Ruminer John Berg Ken Lawrence MAJOR CONTRIBUTORS Numerous other individuals and organizations contributed to the Commission's effort including interested public, regulated water users, other state and local agencies, legislative staff and various consultants and water lawyers. The Commission particularly wishes to recognize the organizations that assisted the Commission process by underwriting lunches at the monthly 5-hour meetings, or snacks, meals and facilities for our two retreats.



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TABLE OF CONTENTS

I. II. III. INTRODUCTION BACKGROUND GOVERNOR'S WATER MANAGEMENT COMMISSION

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Page 1 Page 3 Page 7



Purpose/Charge of the Commission Commission Principles



IV.



WATER MANAGEMENT COMMISSION PROCESS

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Page 9



Organization Operating Procedures Public Open houses



V.



ISSUES & RECOMMENDATIONS OF THE COMMISSION

A. B. C. D. E. F. G. H. Renewable Supplies Allowable Groundwater Pumping Environment and Economics Conservation AMA Management Goals Water Resources Planning Costs of Water Management Programs Summary of Commission Recommendations Page 13 Page 25 Page 37 Page 40 Page 42 Page 45 Page 48 Page 49



Page 13



VI.



FIGURES, MAPS & DATA

1. 2. 3a. 3b. 4. 5a. 5b. 5c. 5d. 5e. Active Management Area Map Structure of the Governor's Water Management Commission Process Time Series - Utilization of Water Supplies Volume by AMA Time Series � Utilization of Groundwater Volume by AMA Time Series � Utilization of Water Supplies Percentage for all AMAs List of Designated Riparian Areas Designated Riparian Area Protection Zones - Phoenix AMA Map Designated Riparian Area Protection Zones � Prescott AMA Map Designated Riparian Area Protection Zones � Santa Cruz AMA Map Designated Riparian Area Protection Zones � Tucson AMA Map Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64



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VII.



ATTACHMENTS

1. 2. 3. 4. 5. 6. 7. 8. Acronyms TAC Membership AMA Task Force Membership Principal Supporting Documents and Papers (TAC Papers & Subcommittee Reports) Issues Discussed with No Recommendations Minority Report on Well Impacts within Riparian Areas Recommendations for the Pinal AMA Municipal & Industrial Sector Discussions Table of Contents for the Supplemental Appendices



Page 65

Page 65 Page 66 Page 67 Page 69 Page 73 Page 75 Page 76 Page 78



VII.



SUPPLEMENTAL APPENDICES (separate document/cd-rom)



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Section I. INTRODUCTION

Governor Jane Dee Hull appointed a Commission in June of 2000 to review the 21-year old Groundwater Management Act and recommend changes if necessary to assure that the five Active Management Areas (AMA) within the State of Arizona continue to maintain a reliable and sustainable water supply to meet current and future needs. This report summarizes the activities of, issues reviewed by, and recommendations of the Governor's Water Management Commission. The Commission process included an extensive public process beginning at the local level within the AMAs, moving to an all-AMA Technical Advisory Committee and ultimately culminating in issue review and recommendation development by the Commission. In June of 2001, the Commission submitted an Interim Report describing the process and progress of the Commission's activities. The recommendations contained in this Final Report are focused on improving the water management programs within the AMAs of this State and represent a consensus of the Commission members. The Commission concludes that the goals and legal framework of the Code are sound and as such should continue to guide water management decisions and investments in the AMAs. Further, the Commission endorses the management goal of safe-yield for the Phoenix, Prescott, Santa Cruz and Tucson AMAs as well as the unique goals of the Pinal AMA to maintain the agricultural economy while preserving water supplies for future municipal and industrial uses, and of the Santa Cruz AMA to maintain local water tables. Modifications recommended by the Commission as a result of their deliberations will enhance the ability of the AMAs to achieve these goals and will maintain the stability and certainty for investments in water supplies, delivery infrastructure and efficiency improvements which are vital to Arizona's future.



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Section II. BACKGROUND

It has been 21 years since the passage of the 1980 Groundwater Management Act. In that time, substantial progress has been made in ensuring Arizona's water future, particularly within the five Active Management Areas (AMAs), illustrated in Figure 1. However, in assessing progress towards the water management goals of the AMAs during the development of the Third Management Plan, the Arizona Department of Water Resources (ADWR) and many of Arizona's water users agreed that additional work is needed to achieve the goals in the statutory timeframe contained in the Groundwater Code (Code). Analysis has shown that achievement of the water management goals has varied between each of the AMAs and that even within individual AMAs hydrologic conditions vary, which could impact the availability and sustainability of water supplies.



Achievement of the AMA Management Goals



Although the management goals of the Phoenix, Prescott, and Tucson AMAs are based on attainment of safe-yield by the year 2025, the water-related issues in these three AMAs are not identical. The Santa Cruz AMA has a goal to maintain safe-yield plus a requirement to manage water levels, and has unique concerns, particularly international water management issues, due to its location on the U.S. and Mexico border. The statutory management goals in the Pinal AMA differ substantially from the four other AMAs. The management goal of the Pinal AMA is to preserve the agricultural economy for as long as feasible, while preserving supplies for future municipal and industrial use. Interpreting the impacts of the Pinal AMA's dual goal on municipal and industrial water users was considered an issue for discussion.



An analysis of the progress towards achieving the management goals, described in the Management Framework Issue paper developed by the Technical Advisory Committee (contained in its entirety in the Supplemental Appendices or in Summary in Attachment 4), found that the rate of groundwater pumping still exceeds the rate of aquifer replenishment in the Phoenix, Pinal and Tucson AMAs and currently exceeds the rate of aquifer replenishment in the Prescott AMA. Despite expanded use of renewable supplies from the Central Arizona Project (CAP) and effluent, this situation could continue past the statutory safe-yield goal date of 20251. Additionally, hydrologic conditions vary widely in the AMAs, ranging from areas experiencing waterlogged conditions to areas with significant groundwater decline. Some portions of AMAs are prone to subsidence or water quality problems, while others are not. Protection of riparian areas is also a high priority in some portions of the AMAs. Renewable supplies are not universally available, and infrastructure to transport such supplies to locations where they are needed can be prohibitively expensive. Water budgets developed for the Commission's review for each of the five AMAs, including historic, current and projected overdraft can be found in the Supplemental Appendices to this Report.



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Safe-yield by the year 2025 is the goal for the Phoenix, Prescott and Tucson AMAs. Safe-yield means a longterm balance between groundwater withdrawals and replenishment on an AMA-wide basis.



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Phoenix, Prescott & Tucson AMAs In the Phoenix and Tucson AMAs, water budgets based on current supply availability projections, indicate that achieving safe-yield may not be as difficult as maintaining that condition. The Assured Water Supply (AWS) Rules require that municipal growth utilize renewable supplies or replenish groundwater use in the AMAs. However, the expected population growth beyond 2025, particularly in the major metropolitan areas, may ultimately exceed the availability of renewable supplies and result in increasing costs for providing renewable water supplies and again put pressure on groundwater availability. This situation may occur earlier in the Prescott AMA, where renewable supplies are not as abundant or readily available. Although these possibilities exist, the Commission believes that the safe-yield goal remains appropriate for the Phoenix, Prescott and Tucson AMAs. Santa Cruz AMA The Santa Cruz AMA goal of preventing long-term declines in local water table levels provides the means to deal with "sub-area" issues and physical water supply conditions, which does not exist in the other AMAs. Local water table levels fluctuate seasonally in the younger alluvium along the Santa Cruz River, in response to surface water flows. Because most of the water demand in the AMA is concentrated along the river, and water use for the municipal sector is expected to rise over time, local water level declines are likely if there are no regulatory or management changes. Management of the water levels is an important objective due to the desire to protect the surface water flows and riparian habitat along the river while maximizing available supplies. Because of its later formation in 1994, and its unique statutory authorities, the Santa Cruz AMA is still in the process of defining and implementing its management program. For these reasons, it is difficult to assess the goal and management programs in the Santa Cruz AMA. The physical realities of water flows in the Santa Cruz AMA are complex, and the management options being considered will need to be designed to meet the unique needs of the area. To increase understanding of the effectiveness of potential management options, groundwater and surface water hydrologic models are being developed for the Santa Cruz AMA. Pinal AMA In the past the water management goal of the Pinal AMA was referred to as "planned depletion." However, this characterization has recently been identified as encompassing only one aspect of the management goal. Preserving future water supplies for nonirrigation users is also an important part of the Pinal AMA management goal. Because agriculture can use mined groundwater supplies in the Pinal AMA until they are no longer affordable, and sufficient groundwater appears to be available based on projected needs, the goal of preserving the agricultural economies for as long as feasible is achievable well beyond 2025. With regard to achieving the goal for non-irrigation uses and accommodating projected population increases, strategies must be identified and implemented to lower overall water use, specifically the non-residential component, and/or secure additional renewable supplies.



Assured Water Supply Rules

To achieve the statutory management goals of all the AMAs, it is also important to briefly describe other aspects of the Groundwater Code that are instrumental in the AMAs. To begin with, the adoption of the AWS Rules has caused the greatest movement towards

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the use of renewable supplies and has contributed to the achievement of the management goals. The Assured Water Supply program was actually initiated in 1973 when the legislature enacted a statewide water adequacy statute to address the problem of marketing subdivision lots to buyers who were unaware that the developer had not secured water supplies for the subdivision. Under this law, a developer was required to disclose to the buyer that the water supply was "inadequate" if the State had made such a determination for that subdivision. The 1973 water adequacy law continues to apply to lands outside of the AMAs. With the passage of the 1980 Groundwater Code, the provisions of the water adequacy law were bolstered by: prohibiting the sale or lease of subdivided land within an AMA without demonstrating that there was sufficient water of adequate quality available for at least 100 years; that the proposed use of water was consistent with the management plan and goal for the AMA; and the finances were available to construct the delivery system and related features. In 1995, pursuant to statute, ADWR adopted the AWS Rules. Under the AWS Rules, an applicant for a Certificate or a designation2 of Assured Water Supply must meet five statutory criteria as further defined in the AWS Rules. These criteria and the associated rule citations are as follows: 1. Physical, legal and continuous availability of the water supplies for 100 years (R1215-703). 2. Sufficient quality of the water supplies (R12-15-704). 3. Water use must be consistent with the management goal of the AMA (R12-15-705). 4. Water use must be consistent with the management plan of the AMA (R12-15-706). 5. Financial capability to construct any necessary water storage, treatment, and delivery systems (R12-15-707). While these basic criteria have been in effect since 1980, the 1995 AWS Rules significantly strengthened the consistency with management goal component. Prior to 1995 the implementation of the Assured Water Supply statute allowed for continued groundwater pumping. To meet this criterion, an applicant must now demonstrate the use of renewable water supplies, rather than groundwater, in amounts sufficient to meet the majority of the demand of the development for 100 years. Renewable supplies include surface water, CAP water, and effluent. The 1995 AWS Rules also established standards for the use of renewable supplies, raised the physical availability depth-to-waters standard from 1,200 to 1,0003 feet below land surface, and simplified the financial capability standards.



Central Arizona Groundwater Replenishment District



In 1993, the legislature adopted an additional mechanism to help meet the consistency with management goal criterion in the Phoenix, Pinal and Tucson AMAs. The Central Arizona Groundwater Replenishment District (CAGRD) was created to provide landowners, developers and water providers -- who have insufficient or no direct access to CAP water



2



New subdivisions are required to have a Certificate of AWS unless the applicant obtains a written commitment of service from a water provider that has been designated. A designation means that the water provider has a sufficient water supply to serve their current, committed and future demand for 100 years and have met all the other AWS criteria. 3 In the Phoenix, Prescott, Tucson, and Santa Cruz AMAs the criteria is 1,000 feet below land surface. In the Pinal AMA the criteria is 1,100 feet below land surface



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effluent or other renewable supplies -- with an alternative mechanism to help demonstrate a 100 year assured water supply as required under the AWS Rules. Membership in the CAGRD does not waive the requirement under the AWS Rules that an applicant must demonstrate the physical and legal availability of groundwater. Water providers or subdivisions which rely on the CAGRD to meet the consistency with management goal criteria requirement of the AWS Rules must still meet the depth to groundwater criteria established in the AWS Rules and must have the legal right to withdraw groundwater from the point of withdrawal. The CAGRD must replenish in each AMA that amount of groundwater delivered to its members, which exceeds the limitations imposed by the AWS Rules. This category of water is referred to as "excess groundwater." Replenishment may be accomplished via artificial recharge into the aquifer through the operation of underground storage facilities or groundwater savings facilities. Water used for replenishment may be CAP water or water from any other lawfully available source, except groundwater withdrawn from within an AMA. For the foreseeable future, the water that the CAGRD will use for replenishment will be excess CAP water.



Other

Other significant components of the Groundwater Code include well spacing and drilling requirements, a system of groundwater rights and withdrawal permits, management plan provisions that limit the withdrawal of groundwater through conservation requirements, provisions that limit the transportation of Groundwater into the AMAs from non-AMA groundwater basins, and provisions for artificial underground storage.



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Section III. GOVERNOR'S WATER MANAGEMENT COMMISSION

Purpose & Charge of the Commission

In June of 2000, Governor Jane Dee Hull announced the formation of the Water Management Commission (Commission). The Commission was made up of 49 members representing the legislature, industry, cities, agriculture, the general public and other state agencies concerned with water management. The Commission was Co-Chaired by John Mawhinney (former Senate Majority Leader), Jack Pfister (Vice-President for Institutional Advancement at Arizona State University), and Herb Dishlip (Assistant Director for Statewide Water Resources Planning in the Arizona Department of Water Resources who took the place of former ADWR Director Rita Pearson Maguire). The full list of Commission members and their affiliations are contained in the Preface beginning on page ii. In her speech given at the conference "Celebrating the 20th Anniversary of the Groundwater Management Act" in June of 2000, Governor Jane Dee Hull announced the formation of the Commission, with the task to update the Arizona Groundwater Code and assure a sustainable water supply for future generations, stating:



"Water is Arizona's most critical resource. Our Groundwater Code has been nationally recognized as a model of water policy for the West. But Arizona has grown explosively over the last 20 years and it is appropriate to see if changes are needed to prepare us for the future".

The Governor charged the Commission to consider future water needs in Arizona's Active Management Areas (AMA) and evaluate water management statutes, rules, and policies within the AMAs to assure that water management programs are consistent with an effective state plan of water management. By Executive Order 2000-7, the Governor gave the Commission three specific tasks: 1. Evaluate progress towards meeting the goals of the 1980 Groundwater Management Act and the management goals of each of the five AMAs to assure that the goals are appropriate and achievable. 2. Evaluate mechanisms to reduce the use of mined groundwater, increase the utilization of renewable water supplies and most efficiently meet the water needs in the AMAs. 3. Evaluate whether changes are needed in statutes, rules or policies to improve the effectiveness of water management in the AMAs at the state and local levels of government. The Governor also identified the need for the Commission to have access to information from a broad-based constituency directing the formation of a Technical Advisory Committee, appointed by the Director of the Arizona Department of Water Resources (ADWR), to provide technical assistance to the Commission. The Technical Advisory Committee was tasked with evaluating the recommendations developed by local AMA Task Forces and 7



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making recommendations to the Commission regarding changes to laws, rules or policies at the state and local levels of government.



Commission Principles



In December of 2000, the Commission adopted the following principles to guide the discussions and development of recommendations: 1. The discussion and recommendations of the Commission should: � Consider economic and non-economic costs and benefits � Consider environmental values � Consider ways to encourage efficient use of all sources of water � Consider ways to encourage integrated management of all available supplies � Be responsive to different AMAs and sub-AMA critical areas.



2. Water supplies should be sustainable and reliable for current and future generations. 3. The water management goals of the AMAs should be clearly defined and measurable. Water management programs should be designed to achieve the goals. 4. Water management programs to achieve the AMA goals should look beyond current efforts and evaluate alternative approaches (e.g. water markets and water pricing, infrastructure financing, state fiscal or tax policies and conservation programs based on best management practices). 5. Water management programs should maintain or enhance the stability and certainty of the legal framework for water management, and consideration of security for investments in water supplies, delivery infrastructure and efficiency improvements. 6. Water management programs should maintain or enhance the quality of life including ecologically significant habitats.



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Section IV. WATER MANAGEMENT COMMISSION PROCESS

Organization

The Governor's Water Management Commission process included extensive public involvement including local Active Management Area (AMA) Task Forces together with several Task Force Subcommittees, a Technical Advisory Committee (TAC) to the Commission, and the Commission itself plus Subcommittees made up of TAC and Commission members, and Work Groups. Between the Task Forces, the TAC and the Commission, over three hundred meetings were held, all of which were open for public participation. The organizational structure of the Commission is illustrated in Figure 2. AMA Task Forces The process was initiated at the local level, with the water users in the five AMAs creating AMA Task Forces to help identify issues and recommendations for potential solutions. Although the process used to identify issues was different in each AMA, all of the meetings were open to the public and active participation was encouraged. AMA Task Forces, working closely with Arizona Department of Water Resources (ADWR) staff, developed the data and produced written products and issue papers summarizing their findings. The AMA Task Forces were instrumental in identifying the issues that the Commission would ultimately address developing issue papers and information that was passed to the TAC. Technical Advisory Committee The Technical Advisory Committee (TAC), a group of water experts from all sectors representing the five AMAs (including the AMA Directors), was established in April of 2000. Members of the TAC (listed in Attachment 2) were appointed by the Director of ADWR and given the following assignments: � To review issues forwarded from the local task forces and synthesize a group of recommendations for the Commission to consider; � To assist in the preparation of reports and materials for the Commission's consideration on current and future water management issues and to develop alternative approaches to address those issues; and � To articulate water issues as they relate and differ across water use sectors and regions. Based on the issues provided by the local AMA Task Forces as well as discussions held at these meetings, the TAC produced seven issue/background papers (contained in the Supplemental Appendices). These papers identified the following general categories of issues that were prioritized by the TAC and then sent to the Commission for discussion. � Allowable Pumping Issues included issues raised concerning the ability to continue pumping groundwater pursuant to current withdrawal authorities allowed under the Code, described as "holes in the bucket," which were considered to limit the ability to achieve AMA management goals.



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� Renewable Supply Issues included three broad categories of issues related to the use of renewable supplies (described in two separate issue papers). Those categories were: how to guarantee long-term adequacy of renewable supplies to ensure a sustainable water supply picture; how to use renewable supplies to the greatest benefit in the 20 to 30-year transition period until currently available supplies are fully utilized by municipal, industrial and Indian entities; and how to ensure that regulatory programs and institutions promote efficient storage and use of renewable supplies. Assured Water Supply & CAGRD Issues included the drawdown of groundwater levels allowed by the AWS Rules, the use and availability of renewable supplies to meet the AWS requirements, and the lack of AWS Rules consistency between treated and untreated water providers and designated water providers and Certificates of AWS. Concerns were also raised with the volume of allowable groundwater pumping by designated water providers, the size of the groundwater allowance in the Pinal AMA, and the volume of the extinguishment credit calculation. Other issues specific to the CAGRD included the location of groundwater replenishment activities versus the location of groundwater withdrawal and the impact of the Central Arizona Groundwater Replenishment District (CAGRD) on achievement of AMA management goals. Conservation Issues included concerns about the role and extent of conservation efforts in achieving the goals of each AMA and what improvements can be made in current programs. The paper also includes concerns raised in the individual AMAs as to the effectiveness of and the ability to achieve the requirements of the conservation programs contained in the Management Plans, the cost-effectiveness of conservation measures, the adequacy of incentives for the use of renewable supplies, and the effectiveness of ADWR's compliance and enforcement program. Environmental and Economic Issues included issues that related to the protection of riparian areas, including incentives to enhance the environment in the current water management programs, and addressing sub areas of an AMA experiencing conditions that are inconsistent with the AMA management goal. Management Goal Issues included a description of the current status of each AMA and the ability to achieve the statutory management goal. From this discussion, the Prescott, Pinal, and Santa Cruz AMAs were the focus of the Commission discussions due to their unique water supply and management requirements.



�



�



�



�



The Commission The Commission, which first met in June of 2000, was made up of 49 individuals appointed by the Governor for their leadership capability and knowledge of issues critical to water management. Membership included representatives from the legislature, industry, cities, agriculture, and the general public. The Governor also extended an invitation to representatives of the Arizona Indian Tribes to participate in an advisory capacity to the Commission on issues involving or affecting water use on the Reservations. Prior to receiving the issue papers from the TAC, the Commission spent the first several months reviewing specific background information relevant to the Groundwater Code and each of 10



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the AMAs, reviewing information developed by each of the water using sectors, and participating in briefings on water management issues. As the Commission began receiving the issue papers from the TAC, subcommittees were formed to provide a forum for public discussion and development of alternatives to address the issues brought forward by the TAC. Commission Subcommittees In January of 2001, the Co-Chairs appointed five subcommittees to develop alternatives for consideration by the full Commission. Commission and TAC members were assigned to one of the five subcommittees and public meetings were held weekly through April of 2001. The subcommittees were organized around the following groups of related high priority issues: � Allowable Groundwater Pumping � Renewable Supplies � The Assured Water Supply Rules and the Central Arizona Groundwater Replenishment District � Conservation � Environment and Economics. The majority of the subcommittees began their process with consideration of the priority issues identified by the TAC. There was initially no TAC issue paper prepared on Environmental and Economic issues, although an issue paper on Critical Areas was used as background for this subcommittee. Draft recommendations from each of the subcommittees were presented to the full Commission at a two-day retreat in April 2001. At this retreat the Commission spent time discussing all the proposed recommendations and ultimately identified those issues and recommendations that they felt could be addressed through the Commission process. Some of the recommendations were set aside for future consideration or for discussion outside of the Commission process. Economic and environmental impacts were discussed as background for deliberations on many of the recommendations, however, no extensive analyses of these impacts was conducted. Commission Work Groups Recommendations identified at the April 2001 retreat were discussed and categorized based on the level of consensus support and the amount of additional work or clarification required. The issues and recommendations from that process were then reorganized and assigned to seven Work Groups to draft language for consideration and approval by the full Commission. Public meetings of the Work Groups to develop and submit recommendations were held between May and October of 2001. The Commission publicly debated these recommendations at their July, August, September and October 2001 meetings, and reached consensus on the recommendations described in Section V.



Operating Procedures



The Commission adopted operating procedures to provide guidance on their processes. The focus of the Commission procedures was to reach consensus where possible. Consensus is defined as "a balancing of interests and issues... provid(ing) for differing levels of support ...in constructing a viable set of agreements." The Operating Procedures also outlined the obligations and responsibilities of the members as well as procedures for



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acknowledging alternative views and resolving differences. In cases where there was an inability to achieve consensus, majority and minority reports were allowed.



Public Open Houses



In early October 2001, a series of Public Open Houses were held to provide an opportunity to disseminate the Commission's recommendations and receive from the public comments for consideration by the Commission. Open Houses were held in each AMA where members of the public and the water using community were encouraged to review the Commission recommendations and meet with Commission members and staff to express their views and ask questions. Written comments were requested and several were received. The Commission reviewed these comments at their October 2001 meeting and based on these comments finalized their recommendations for consideration by the Governor.



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Section V. ISSUES & RECOMMENDATIONS OF THE COMMISSION

The following section presents the final recommendations of the Governor's Water Management Commission (Commission). Some of these recommendations may require legislative changes or specific changes to Arizona Department of Water Resources (ADWR) policies or rules, while others affirm existing statutes, policies or rules. Some recommendations advocate action outside of the Commission process. Recommendations that were discussed but not adopted by the Commission are summarized in Attachment 5. The recommendations being forwarded by the Commission have been grouped into six subcategories: Renewable Supplies, Allowable Groundwater Pumping, Environment and Economics, Conservation, Active Management Area Management Goals and Water Resources Planning. These groupings reflect the categorization of the issues that were brought forward to the Commission from the local Active Management Area (AMA) Task Forces and the Technical Advisory Committee (TAC). The Commission generally operated through consensus in developing its recommendations. Where a small minority of Commission members had significant concerns about a recommendation they were invited to file minority reports. Where minority reports have been submitted they are attached and are noted as such under the appropriate recommendation in this section. It should be noted that these minority reports have not been edited or reviewed for accuracy by the Commission or the Commission staff.



A. RENEWABLE SUPPLIES

Since the 1940s, the majority of water demand in what are now the AMAs was met by groundwater pumping. The Groundwater Code of 1980 charted a course for water users in AMAs to move away from the use of groundwater towards renewable water supplies. The majority of the focus on the use of renewable supplies was for the municipal sector; based on the expectation that municipal and industrial demand would continue to grow while the demand for water for agricultural uses would diminish over time. Within the Phoenix, Pinal and Tucson AMAs significant amounts of groundwater use have been replaced with renewable supplies over the 20 years since the passage of the Groundwater Code. The completion of the Central Arizona Project (CAP) and the use of Colorado River water facilitated this transition. (Figures 3a and 3b illustrate the volume in acre-feet of water use by source, within each AMA for the years 1985, 1990, and 1998). It is important to note that although individual entitlements are not now fully utilized, projections indicate that CAP Supplies4 will be fully utilized shortly after 2030. Additionally, although there are current surpluses of effluent in all of the AMAs, some municipal and industrial water users in these AMAs have made substantial investments in reusing effluent and others are expected in the near future to more fully utilize available effluent.



4



Colorado River water delivered by the Central Arizona Project canal.



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An important consideration in the use of renewable supplies is cost. Renewable supplies can be more costly than groundwater. Costs for acquisition, transmission, and the necessary treatment of these supplies for potable uses drive the price higher than the costs of pumping groundwater. Additionally, environmental costs (impacts on riparian habitat and wildlife needs) have to be weighed when considering the use of renewable supplies. The willingness to pay for these supplies will grow as the competition for the supplies increases. The principal factors increasing the demand for these supplies include: growth; a greater recognition of the need to provide stable water supplies for the future; the lack of physically available groundwater in some locations; regulatory constraints on groundwater use and price incentives for CAP water and effluent use. A key regulatory motivation for municipal providers to invest in the infrastructure to use renewable supplies is the Assured Water Supply (AWS) Program. Prior to platting any new subdivision within an AMA, the AWS Program requires a demonstration of sufficient supplies to serve the proposed development for 100 years. Although the statutory criteria for an AWS are contained in the 1980 Groundwater Code, the requirement that the 100 year supply be primarily renewable only went into effect in 1995 with the adoption of the AWS Rules. The AWS Rules demonstrate clearly that Arizona is committed to ensuring a secure long-term future water supply for its citizens, and is willing to make the investments required for infrastructure, treatment and storage facilities. (See the Introduction to Allowable Groundwater Pumping on page 25 for more detail on the AWS Rules). In 1993, in response to the pending adoption of the AWS Rules, the legislature created the Central Arizona Groundwater Replenishment District (CAGRD)5. The CAGRD was established to provide landowners, developers and water providers with a mechanism to help demonstrate an assured water supply. The CAGRD is required to replenish in perpetuity all groundwater that is pumped by its members that is in excess of the groundwater allowed under the AWS Rules. This replenishment must occur within the same AMA from which the excess groundwater is pumped. Use of CAP water in Arizona is in a transition period between the use of short-term "excess" supplies and the use of long-term permanent allocations. While those who hold CAP allocations are not currently fully utilizing their individual entitlements, Arizona has been able to use nearly all of its full CAP entitlement (approximately 1.5 million acre-feet) in recent years. This is due to: 1) the activities of the Arizona Water Banking Authority (AWBA) established in 1996 to store excess CAP water supplies; 2) pricing programs implemented by the Central Arizona Water Conservation District (CAWCD) to encourage the use of excess CAP water instead of groundwater by agricultural users; and 3) a form of recharge known as in-lieu recharge. The transition to full utilization of renewable water supplies is not yet complete, but enormous progress has been made (See Figure 4). Interim uses for CAP water have been identified, and there is a clear path toward increased use by municipal providers and Indian communities within the AMAs. The following recommendations primarily relate to: near5



While CAGRD is not a separate legal district, but a function of the Central Arizona Water Conservation District, the term CAGRD will be used in this Summary to represent that function of the Central Arizona Water Conservation District.



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term use of renewable supplies; cost and financing for putting renewable supplies to use; concerns regarding underground storage and recovery programs; concerns regarding the CAGRD; and efforts to ensure the adequacy of renewable supplies to accomplish the management goals in each AMA.



A.1. INFRASTRUCTURE FINANCING

Problem Statement: The lack of delivery, treatment and storage infrastructure is a major impediment to utilization of renewable supplies by some jurisdictions and water providers. These parties are seeking additional options for financing a renewable water supply infrastructure that can serve multiple jurisdictions and private entities. RECOMMENDATION: A.1: The Commission requests the Governor support the development of enabling legislation for an Active Management Area infrastructure financing authority for multiple jurisdictions. In order to assist some water providers in cooperatively financing the infrastructure necessary for utilizing renewable water supplies, the Commission supports the development of enabling legislation for an AMA Infrastructure Financing authority. The purpose of this new authority would be to assist in the financing of specific water projects involving multiple jurisdictions. The statute would authorize the multiple jurisdictions to issue revenue bonds or use other financing alternatives. The multiple jurisdictions should have the ability to receive assistance from the Arizona Water Infrastructure Financing Authority (WIFA). Such authority would be intended for financing multi-jurisdictional water infrastructure projects that benefit a specified geographic area and would not serve as a water management entity. The Commission encourages all interested parties to work cooperatively in drafting statutory language.



A.2. PROPOSED CHANGES TO THE CENTRAL ARIZONA GROUNDWATER REPLENISHMENT DISTRICT

The Central Arizona Groundwater Replenishment District (CAGRD) was created in 1993 by the Arizona legislature to provide landowners, developers and water providers, who have insufficient or no direct access to CAP water, effluent or other renewable supplies, with an alternative mechanism to help demonstrate a 100 year assured water supply required under the AWS Rules. If a water provider or developer can prove to the ADWR that it has access to sufficient groundwater and desires to rely on that groundwater to demonstrate its assured water supply, it may do so, provided it joins the CAGRD. As a member of the CAGRD6, the landowner or water provider must pay the CAGRD to replenish any groundwater used by the member that exceeds the groundwater limitations imposed by the AWS Rules. The limitation on the use of groundwater varies for each AMA, allows only a portion of the water supply to consist of groundwater, and is calculated differently for service areas that are "designated" and subdivisions that are based on a "Certificate." The balance of the 100 year water supply for new subdivisions must consist of renewable supplies: e.g., CAP water, effluent or other surface water. The AWS Rules allow

6



"Member" is used to collectively describe member lands, platted parcels within a subdivision that have obtained a Certificate of AWS in part through CAGRD membership, and member service areas, a city, town or private water company that has obtained a designation of AWS in part through CAGRD membership.



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development based, in part, on membership in the CAGRD and the accompanying commitment to pay for replenishment of any groundwater used in excess of the volume allowed under the AWS Rules. However, with certain statutory exceptions, those who cannot demonstrate access to 100 years of physical groundwater availability do not qualify for membership in the CAGRD. Although the CAGRD is to replenish in the same AMA from which the groundwater was pumped, the CAGRD is not required to replenish in the same area from where its members pump groundwater. Concerns have been raised that, notwithstanding ADWR's initial determination of physical availability of groundwater, such availability of groundwater for CAGRD members may become a problem beyond the 100 year AWS period. Additionally, the CAGRD is not required to identify the water supplies it intends to use in meeting its long-term obligations beyond its 20-year plan for operation; nor is there a statutory requirement for the CAGRD to actually have secure water supplies to meet its obligations. In the short-term, unused CAP entitlements (subcontracted water that is not currently ordered and used), un-contracted CAP supplies and surplus Colorado River supplies can be given by contract to other users on an annual basis. This is the supply upon which the CAGRD currently relies. These unused entitlements are a temporary resource because as the CAP allocations become more heavily utilized less excess CAP water will be annually available. Concerns have been raised that a permanent demand has been created on temporary supplies. Limited long-term CAP supplies may be available through future Indian leases but probably at a higher cost. Beyond 2025, the CAGRD may also be able to purchase mainstream Colorado River allocations or effluent supplies from other entities with rights to those supplies. The Commission recognizes that the CAGRD's intended role is to maximize use of shortterm water supplies that could not otherwise be used to satisfy the 100 year requirements of the State's AWS Rules. If the CAGRD were required to secure large volumes of long-term water rights in advance, it would have to compete for those long-term supplies with municipal water providers that are legally unable to use shorter-term supplies to demonstrate an assured water supply. Issues raised regarding the CAGRD have focused primarily on: the availability of renewable supplies to meet the CAGRD's long-term replenishment obligations; the future cost of these water supplies; and the limited operational planning horizon required by statute. The Commission recommends the following changes to the statutes related to the CAGRD and requests the Governor to: A.2.a: Request legislation to modify the statutes to require the Central Arizona Groundwater Replenishment District (CAGRD) to establish a "Replenishment Reserve" of up to 20% of the CAGRD's 100-year replenishment obligation. Problem Statement: Enrollment in the CAGRD has exceeded nearly all expectations since the CAGRD's initial Plan for Operation was approved in 1995. A consequence of enrollment is a permanent obligation of the CAGRD to purchase renewable supplies to replenish groundwater pumped to serve member lands or member service areas.



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Because the CAGRD is not required to secure long-term rights to water, there is concern that the CAGRD may not be able to meet its replenishment obligations at a reasonable cost. However, if the CAGRD were required to secure large volumes of long-term water rights in advance, it might no longer make use of short-term supplies and could end up competing with water providers for the limited long-term supplies. Therefore, the challenge is to provide a means of ensuring that the CAGRD can meet its long-term obligations, at a reasonable price, and still maintain the operational and legal flexibility to maximize the use of short-term supplies as they become available. RECOMMENDATION: The Commission recommends that the Legislature modify the statutes to require the CAGRD to accumulate a "replenishment reserve" of long-term storage credits with a recommended target volume of 20% of that portion of CAGRD's 100 year replenishment obligation not otherwise covered by firm water supplies7. The CAGRD should be given 25 years to build the reserve. As new members enroll in the CAGRD, the CAGRD should meet the additional reserve obligation over a 25 year period. This new authority would replace CAGRD's existing authority for performing advance replenishment.8 Additionally, the Commission recommends that the CAGRD be authorized to fund the replenishment reserve through three mechanisms: (1) assessment rates; (2) enrollment fees; and (3) funds advanced by CAWCD. All funds collected for the replenishment reserve component shall be used to purchase and store water to accumulate credits in CAGRD's replenishment reserve account or to repay CAWCD for funds advanced for this purpose. � Assessment Rates - Authorize the CAGRD to add a replenishment reserve component to its regular assessment rate for each AMA. This reserve component would be collected based on the annual volume of excess groundwater use in the AMA reported to CAGRD. Each year, the CAGRD must determine the rate required to achieve the target reserve volume of 20% within 25 years from the year in which the last member was enrolled. � Enrollment Fees - Authorize the CAGRD to collect enrollment fees for: 1) new member lands upon issuance of the public report equal to the cost to purchase and replenish two times the member land's projected annual replenishment obligation at build-out, as determined by ADWR; and 2) new member service areas and existing member service areas equal to the cost to purchase and replenish two times the maximum annual volume that the CAGRD will be responsible for replenishing for all lands within the member service area that are platted at the time of enrollment or within future expansions of the member service areas. In lieu of paying any enrollment fee, a member or applicant may transfer an equivalent amount of suitable long-term storage credits to CAGRD's replenishment reserve account. Funds Advanced by CAWCD - Authorize the CAWCD to provide advance funding totaling no more than $2 million for establishing the replenishment reserve. Any monies advanced by CAWCD must be repaid within 10 years including interest, at a rate approved by the CAWCD Board.



�



7



For example, if the CAGRD's total annual replenishment obligation were 100,000 AF/year, and the CAGRD held rights to 20,000 AF of firm water supplies, then the target reserve volume would be 1,600,000 AF (20% of 80,000 AF x 100 years). 8 Except advance replenishment performed for a specific member pursuant to a contract to replenish groundwater.



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After 2030, the CAGRD may use reserve credits to meet its current replenishment obligations. The CAGRD shall include in its regular replenishment assessment the cost of replacing any reserve credits used to meet current obligations. Funds collected in this manner, together with any interest accrued thereon, shall be used to replace reserve credits when water is available, with a target of maintaining a replenishment reserve of 20 percent. The Director of ADWR must approve any proposed use of replenishment reserve credits that would cause the reserve balance to fall below five percent of the CAGRD's 100 year replenishment obligation. A special provision has been included for a golf course that enrolls after the enactment of the legislation. These facilities may choose to enroll as regular member land (either individually or as part of a larger development) or as special status member land. This choice must be made upon enrollment and is not subject to change thereafter. Golf courses that are already member lands would be given 180 days to decide whether they wish to reclassify as special status member lands. Special status member lands pay neither the replenishment reserve enrollment fee nor the replenishment reserve component of the annual assessment rate. No replenishment reserve credits may be used for the benefit of special status member lands. The CAGRD will establish a separate assessment rate for special status member lands that reflects the actual cost of replenishment for those lands. Only golf courses that are not served by designated water providers are eligible for special status membership. Enrollment as special status member land does not affect the replenishment obligation for those lands. The replenishment reserve program will not apply to water availability status agreements between member service areas and the CAGRD. Water Availability Status agreements will not require an enrollment fee or annual assessment component for the replenishment reserve. Reserve credits may not be used to meet replenishment obligations under Water Availability Status agreements. The CAGRD will establish a separate replenishment assessment for each Water Availability Status member that takes into account any unique costs incurred in meeting that member's replenishment obligation. The proposal would allow the CAGRD (and the State) to take advantage of the significant quantities of unused CAP entitlements assumed to be available until at least 2030 by implementing a plan to store the water, improve reliability of CAGRD water supplies, and increase the CAGRD's ability to maintain stable assessment rates in the future. Costs to member lands and member service areas are constrained by: 1) allowing a full 23 to 25 years to build the reserve; 2) limiting collection of the reserve charge to no more than 25 years; and 3) capping the size of the reserve at 20 percent. Additionally, building the replenishment reserve over a 25 year period, rather than a shorter period, reduces the potential impact on the Arizona Water Bank's ability to meet its goals. Finally, the proposal provides the CAGRD more flexibility in meeting its replenishment obligations and allows use of less reliable water supplies, including excess CAP water available in future surplus years and reduces the CAGRD's need to compete for CAP system capacity during peak periods.



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A.2.b: Request legislation to modify the statutes to clarify the priorities for the use of excess Colorado River water for the CAGRD's Replenishment Reserve and the Arizona Water Banking Authority's municipal and industrial firming supplies. The Commission recognizes that the proposed replenishment reserve program will likely result in increased demands for excess CAP water. The Commission understands that the Arizona Water Banking Authority (AWBA) has been tasked with using excess CAP water to firm existing CAP M&I subcontracts. Because the statutes clearly state that the AWBA shall not store Colorado River water that would otherwise have been used within the state (ARS 45-2427.B.), concerns have arisen that a requirement for the CAGRD to establish a replenishment reserve could supersede the AWBA's use of excess CAP water for M&I firming purposes. This was not the Commission's intent. Therefore, the Commission specifically makes the following additional recommendations: 1) The CAWCD and the AWBA should jointly develop an annual plan that projects the AWBA's and CAGRD's available funding, needs for excess CAP water, and needs for recharge capacity over the subsequent ten year period; and 2) The CAWCD, which maintains exclusive rights to market excess CAP water by virtue of its CAP repayment contract with the United States, should adopt a policy stating that it will establish categories and availability of excess CAP water in accordance with the ten year plan; and 3) The ADWR should adopt a policy stating that it will only recommend approval of Section 5 contracts under the Boulder Canyon Project Act in excess of the apportionments within the CAP master repayment contract and other existing entitlements that clearly state that the contract entitlement is junior in priority to all CAP uses, including use by the AWBA and CAGRD, but not including use for Interstate Banking; and 4) Language to the following effect should be included in the statutes requiring the CAGRD to establish and maintain a replenishment reserve: FOR PURPOSES OF ESTABLISHING AND MAINTAINING THE REPLENISHMENT RESERVE, THE DISTRICT SHALL HAVE ACCESS TO EXCESS CENTRAL ARIZONA PROJECT WATER EQUIVALENT BUT NOT GREATER THAN THE ACCESS THE ARIZONA WATER BANKING AUTHORITY HAS FOR THE PURPOSES SPECIFIED IN � 45-2401(H)(2); and 5) Language to the following effect should be included to authorize the Arizona Water Banking Authority to use Colorado River water as follows: 45-2427. Limitation on powers B. The authority shall not store Colorado river water that would otherwise have been used in this state PURSUANT TO 1) A CONTRACT ENTERED INTO PURSUANT TO A.R.S. SECTION 48-3703 (2) OR 2) A SECTION 5 CONTRACT UNDER THE BOULDER CANYON PROJECT ACT ENTERED INTO BEFORE THE EFFECTIVE DATE OF THIS ACT. THE AUTHORITY SHALL NOT STORE FOR INTERSTATE WATER BANKING PURPOSES COLORADO RIVER WATER THAT WOULD OTHERWISE HAVE BEEN USED IN THIS STATE.

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A.2.c: Request legislation to modify the statutes to require the Central Arizona Groundwater Replenishment District's Plan for Operation be extended to a 100year planning horizon and to provide criteria for ADWR review and approval of the plan. Problem Statement: By statute, the CAGRD Plan for Operation has a 20 year planning horizon, with a requirement to identify firm water supplies for the subsequent five years. This plan is updated every 10 years and reviewed by ADWR9. Concern has been voiced in the Commission process that the current requirements allow CAGRD members to meet the AWS Rules requirement for demonstrating consistency with management goal without sufficient long-term planning requirements. RECOMMENDATION: The Commission recommends that the statutes for submittal and review of the CAGRD's Plan for Operation be modified to require the CAGRD to identify water resources and facilities that are available for the 20 years following submittal of the Plan as well as a description of water resources and facilities that are reasonably expected to be available for the 100 years following submittal of the Plan. Additionally, provisions should be included that allow ADWR to request a revised plan in the period between the statutory submittal (every 10 years) if certain conditions change that impede the ability of the CAGRD to meet its obligations. A.2.d: Request legislation to modify the statutes to allow Member Service Areas to De-Enroll from the Central Arizona Groundwater Replenishment District if the member demonstrates it has sufficient alternative water supplies to maintain its designation of Assured Water Supply. Problem Statement: Under current legislation, there is no mechanism for member lands and member service areas to de-enroll from the CAGRD. Thus, even if a member is no longer using groundwater in excess of the allowable limit and no longer needs CAGRD membership to comply with the AWS Rules, it cannot de-enroll. Indeed, remaining in the CAGRD may be problematic for a number of reasons, including: 1) annual reports must still be filed on behalf of each member; 2) the CAGRD must "carry" these members on its books for purposes of long-term projections and water resource planning; and 3) for parcels within member lands, there is a "cloud" on the title as a result of the enrollment in the CAGRD that may be undesirable if the CAGRD will no longer be needed for the member land's assured water supply. RECOMMENDATION: Modify the statues and AWS Rules to allow CAGRD member service areas to de-enroll if the service area: 1) Can demonstrate that it has an alternative water supply to replace its reliance on the CAGRD for purposes of complying with the AWS Rules; 2) Has paid all amounts owed by the member service area to the CAGRD; and, 3) Can demonstrate that any capital costs incurred by the CAGRD on behalf of the member service area have been repaid or arrangements have been made for repayment.

9



The CAP Board has approved a 100-year planning horizon and a twenty-year identification of water supplies.



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ADWR must approve the change in the water provider's designation of AWS that replaces reliance on the CAGRD with an alternative water supply. Upon obtaining this approval in writing, the Member Service Area Agreement between the CAGRD and the municipal provider would be terminated. The member service area may not apply to reenroll in the CAGRD for at least 10 years. However, if the water provider falls out of compliance with its designation, ADWR may require re-enrollment. In any case, a condition of re-enrollment would include payment of all costs that the member would have otherwise paid had it remained in the CAGRD. Because of the complexities related to individual parcel ownership within member lands, the Commission is not recommending that member lands be allowed to de-enroll. In addition, statutes are already in place that eliminate the need for annual reporting by member lands that have subsequently become part of a designated service area. A.2.e: Request legislation to modify the statutes to authorize municipal and industrial groundwater users in the Phoenix, Pinal and Tucson AMAs, required to replenish under Recommendations B.3.c and B.3.d., to enroll in the Central Arizona Groundwater Replenishment District. (See Sub-Section B, Allowable Groundwater Pumping � Reductions in Municipal and Industrial Groundwater Mining beginning on page 28.) A.2.f: Encourage the Central Arizona Water Conservation District Board to address the additional issues raised in the Commission process relevant to the Central Arizona Groundwater Replenishment District (CAGRD) through an appropriate public process. These issues include the location of replenishment activities, the need to obtain secure water supplies, and the long-term role of the CAGRD. The Commission has identified additional issues that still need to be addressed regarding the CAGRD. These issues include the location of replenishment activities, the need to obtain secure water supplies, and the long-term role of the CAGRD. These issues require detailed analysis and discussion that cannot be completed during the life of the Commission. The CAWCD/CAGRD Board of Directors has expressed a need and a commitment to resolve these issues. Therefore, the Commission recommends that these CAGRD issues continue to be addressed by the CAWCD Board of Directors through an appropriate public process. A.2.g: Request legislation to repeal the unused authorization for an Active Management Area Water District pursuant to Title 48, Chapter 28. The Commission also recommends that the relevant state statutes be modified to eliminate the AMA Water District (A.R.S. Title 48, Chapter 28 and all related references in Titles 45 and 48). After reviewing the plan for operation requirements, the Commission concluded that all references to "AMA Water Districts" are no longer necessary because this entity is no longer operational.



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A.3. TRANSFER OF LONG-TERM STORAGE CREDITS FROM THE AWBA TO THE CAWCD

Problem Statement: CAWCD is the entity responsible for delivering CAP water to its subcontractors. The AWBA develops long-term storage credits for the benefit of municipal and industrial (M&I) CAP subcontractors and others, using a 4-cent ad-valorem tax collected in Maricopa, Pinal, and Pima counties. These credits are to be "distributed" to CAWCD to meet the demands of CAP M&I subcontractors during times of Colorado River shortages or CAP system outage. Some M&I CAP sub-contractors believe that it is important that the storage credits earned from these funds be transferred to CAWCD on an annual basis to ensure that the credits will be available when needed for their intended purposes. Others believe that the language currently in statute ensures that this will occur, however, they are willing to clarify the statute. RECOMMENDATION: A.3: Request legislation to modify the statutes to clarify that the Central Arizona Water Conservation District (CAWCD) Board determines the amount of long-term storage credits, earned via the 4-cent ad-valorem tax, that need to be transferred to CAWCD by the Arizona Water Banking Authority. The Commission recommends that the statutes be revised to clarify that the CAWCD, after consultation with the Director of ADWR, determines the amount of long-term storage credits stored using the 4-cent ad-valorem tax that shall be distributed to the CAWCD by the AWBA. This proposal would not require the AWBA to distribute long-term storage credits to CAWCD in an amount greater than 20 percent of the total municipal and industrial water subcontracts in any one year.



A.4. GENERAL RECOMMENDATIONS OF THE COMMISSION

The following section describes the general recommendations of the Commission related to the use of Renewable Water Supplies. The following recommendations do not result in statutory, rule or policy changes, but may encourage action outside of the Commission process. Specifically, the Commission requests the Governor: A.4.a: Support options to encourage the development of additional recharge capacity. Many entities are actively operating recharge and recovery projects to increase the use of renewable supplies to meet current and future water demands. The Commission encourages the development of additional recharge sites with emphasis on long-term hydrologic feasibility. A.4.b: Encourage the Arizona Department of Water Resources (ADWR) to continue discussions on improvements to ADWR's recharge permitting process through the Recharge Stakeholder Group. The Commission discussed the need for improvements to ADWR's recharge permitting process, including providing more clarity regarding application requirements and increasing the efficiency of the review process. A Recharge Stakeholder Group that is providing input to the ADWR is discussing these issues. The Commission concluded that the group is addressing the permitting concerns. The Commission recommends that the Recharge

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Stakeholder Group conclude their work in an expeditious manner and that ADWR continue its commitment to this facilitated focus group process, including enhanced public participation. A.4.c: Encourage the Arizona Department of Water Resources to develop guidelines to facilitate permitting of multi-purpose recharge projects through the Recharge Stakeholder Group. The Commission recommends that the Recharge Stakeholder Group and ADWR give priority to developing specific guidelines, with input from interested parties, to facilitate the permitting of multiple benefit recharge projects consistent with current artificial lake restrictions. A.4.d: Support the Commission's recommendation that no additional regulation of effluent is needed, at this time. The Commission acknowledges that the reuse of effluent is an essential element of water management in Arizona and recognizes that optimal use of effluent requires flexibility in the regulatory system. From a water quality perspective, effluent reuse is already regulated by the Department of Environmental Quality. The Commission recommends no changes to the current administrative requirements on effluent use, at this time. A.4.e: Support the current incentives for use of remediated water resulting from the Comprehensive Environmental Response and Compensation Liability Act and the Water Quality Assurance Revolving Fund (federal and state superfund pumping). The Environmental Protection Agency administers a federal program that prioritizes, manages and funds the cleanup of contaminated groundwater. The State Water Quality Assurance Revolving Fund provides a similar program for sites identified by the Arizona Department of Environmental Quality. There are incentives in place through the AWS Rules and AMA Management Plan conservation programs to encourage remediation of contaminated water. The Commission recommends that no changes be made to the existing incentives included in the AWS Rules and AMA Management Plan conservation programs for use of water resulting from Comprehensive Environmental Response and Compensation Liability Act (CERCLA) and Water Quality Assurance Revolving Fund (WQARF) pumping. A.4.f: Support the Commission's recommendation that the Arizona State Land Department (ASLD), the Arizona Department of Water Resource, the Central Arizona Water Conservation District, and other stakeholders to have discussions on a process for distribution of the ASLD's Central Arizona Project allocation outside the Commission process. The Arizona State Land Department (ASLD) holds a CAP subcontract associated with certain land holdings within the AMAs. Concerns were raised about failures to transfer CAP allocations with the associated land obtained by individual entities. The Commission is recommending that informal discussions be held between the ASLD, the ADWR, CAWCD and other stakeholders regarding the use of the ASLD's CAP allocations. 23



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A.4.g: Support the existing Central Arizona Water Conservation District rate setting procedures for excess Central Arizona Project water. The CAWCD establishes prices for excess CAP water available for use by municipal and industrial customers, non-Indian agricultural customers, the CAGRD, and the Arizona Water Banking Authority. In setting its prices, the CAWCD Board considers a number of factors, including maximizing the use of CAP water in place of mined groundwater. The CAWCD Board has adopted policies that balance recovery of costs with incentives to encourage use of the available Colorado River supplies. These policies have been successful in significantly increasing the use of Colorado River water in central Arizona. The Commission supports the CAWCD's existing rate setting procedures for excess CAP water, at this time. A.4.h: The Commission recommends that a letter be sent, from the Commission, to the Arizona Corporation Commission (ACC): � � Recognizing recent ACC decisions supporting the use of and affirming the benefits of CAP water and other renewable supplies. Encouraging the continuation of the ACC's Water Task Force (Docket No. W-00000C-98153) Water Supply Subcommittee that is exploring private water company planning for CAP water use and related cost recovery. Encouraging the ACC to continue to exercise its ratemaking jurisdiction and discretion in a manner which further allows private water companies to plan for and acquire longterm renewable supplies and to recover reasonable costs associated with using and holding contracts for renewable supplies for future use. Supporting a continuing dialogue among the interested parties on water issues important to Arizona.



�



�



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B.



ALLOWABLE GROUNDWATER PUMPING



Within the AMAs, the Groundwater Code authorizes water users and water providers to use groundwater in accordance with a system of water rights that recognize historic groundwater uses and a system of rights, permits and withdrawal authorities for certain new municipal and industrial users. A separate authority is required for water users and water providers to drill a well to exercise the right or permit. A Notice of Intention to Drill (NOI) is required to be filed with ADWR for all proposed exempt wells (a well with a pump capacity of 35 gallons per minute or less) inside an AMA. An application for a Drilling Permit is required for proposed non-exempt wells (a non-exempt well is a well within an AMA with a pump capacity over 35 gallons per minute). Under current law, ADWR is required to review all applications for new non-exempt wells in AMAs to ensure that the withdrawals of groundwater from the well or wells will "not cause unreasonably increasing damage to surrounding land or water users from the concentration of wells." The primary mechanism for reducing dependence on mined groundwater is the Assured Water Supply (AWS) Rules, adopted in 1995. An assured water supply determination by the ADWR is required within AMAs to gain approval of a subdivision plat by local governments, and to obtain authorization to sell subdivided lots by the Arizona Department of Real Estate. To obtain an assured water supply determination, the statute requires a demonstration of: 1) physical, legal and continuous water availability for 100 years; 2) ability to meet water quality standards; 3) financial capability to construct the water delivery system and related features; 4) consistency with the AMA's management plan; and 5) consistency with the AMA's management goal. Developers seeking a Certificate of AWS must demonstrate that sufficient qualifying water supplies are available to meet the subdivision demands for at least 100 years. Water providers seeking a designation of AWS must demonstrate that sufficient qualifying supplies are available to meet current demand, committed demand (i.e. that which is associated with recorded, undeveloped lots) and at least two years of projected growth for a 100 year period. The Commission is recommending the following actions to reduce the amount of allowable groundwater pumping or the impacts of that pumping in the AMAs: new well permitting and impact requirements; a mined groundwater tax for certain existing municipal and industrial groundwater users; a renewable supply or replenishment obligation for certain new municipal and industrial groundwater users; and changes to the exempt well statutes.



B.1. NEW WELL PERMITTING, WELL IMPACTS, AND SUBMITTAL OF A HYDROLOGIC REPORT

Problem Statement: In 1983, the Director of ADWR adopted temporary rules to govern well spacing and well impacts. The rules apply only to applications for new wells and replacement wells in new locations. Currently, the statutes exclude certain wells from the well impact requirements including exempt wells, replacement wells in the same location, and wells associated with certain withdrawal authorities. The current rules allow the Director to approve applications for the location of new wells and replacement wells in new locations only if the Director determines that the well will "not cause unreasonably increasing damage to surrounding land or water users from the concentration of wells." 25



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The statute does not currently authorize the Director to recognize potential or existing problems in riparian areas10 when determining whether to issue a well-drilling permit.11 RECOMMENDATION: The Commission is recommending that the statutes be revised to limit the ability to drill new wells to withdraw groundwater within a riparian area protection zone specifically designated by the legislature within an AMA12. This proposal exempts wells used for stock watering, any existing wells, and replacement wells in the same location. It also protects property owners by providing that new exempt wells, irrigation wells, and wells using Type One rights can be drilled if the owner does not have an affordable alternative water supply. Additionally, an applicant can drill a new well if the applicant establishes that their pumping will not harm the riparian area protection zone or, if the well is for domestic purposes, the applicant agrees to limit withdrawals to two (2) acre-feet per year. This proposal applies only within the AMAs and does not extend to wells used for diversion of surface water or for recovering credits from a recovery well located within the area of hydrologic impact. The proposal, to protect a limited number of legislatively designated riparian area protection zones from impacts caused by new wells, was one of the most frequent subjects of public comments to the Commission. Comments ranged from advocating stronger riparian and surface water protections to opposition and claims that this proposal would restrict land use or otherwise take away an individual's property right to groundwater. Regarding this issue of ownership and rights to groundwater, the Groundwater Code and subsequent Court cases have clearly established that there can be no ownership of groundwaters until "they are reduced to actual possession and control by the person claiming them because of their migratory character....13" Although individuals may receive a right or permit to use groundwater, they do not own or have any property right to the groundwater beneath their lands and furthermore "may not assert a wrongful taking of their property....14" In this proposed recommendation the concerns expressed by property owners have been dealt with in the provisions stated above.



A riparian area is defined in 45-101.7. as "a geographically delineated area with distinct resource values, that is characterized by deep-rooted plant species that depend on having roots in the water table or its capillary zone and that occurs within or adjacent to a natural perennial or intermittent stream channel or within or adjacent to a lake, pond or marsh bed maintained primarily by natural water sources. Riparian area does not include areas in or adjacent to ephemeral stream channels, artificially created stockponds, man-made storage reservoirs constructed primarily for conservation or regulatory storage, municipal and industrial ponds or man-made water transportation, distribution, off-stream storage and collection systems." 11 For a more detailed overview of the current well impact requirements, please see Briefing Notebook, Part Three, Chapter II, Section B (contained in the Supplemental Appendices). 12 The mechanism for designating these areas will be legislative adoption of a map. The initial maps will be based on a � mile buffer (protection zone) adjacent to each stream segment to be protected. 13 Town of Chino Valley v. City of Prescott, 131 Ariz. 78, 638 P2.d 1324 (1982) 14 Cherry v. Steiner, 543 F. Supp. 1270 (D.C.Ariz., 1982),



10



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Specifically, the Commission recommends the Governor: B.1.a: Request legislation to modify the statutes to restrict certain new exempt and non-exempt wells that may adversely impact legislatively designated riparian areas located within an Active Management Area15. Exemptions from this provision include applicants for new wells that can demonstrate through a hydrologic analysis that the proposed well will not impact a riparian area. Furthermore, a drill card for an exempt well for domestic purposes within the riparian zone may be issued under the following conditions: 1) Water service is not available from a municipal provider at a connection and water cost equivalent to charges for other customers of the municipal provider; 2) The well is for domestic purposes as defined in � 45-454(I)(1); 3) The maximum pump capacity is 20 gallons per minute; 4) The well is metered16; and, 5) Annual withdrawals shall not exceed two acre-feet per year. Additional exemptions are provided for wells used to withdraw groundwater for stock watering purposes and Irrigation Grandfathered Rights and existing Type One Grandfathered Rights proposing to drill where the applicant can demonstrate that the cost of securing water from another source is more than two times the cost of drilling and installing the proposed well. Existing wells, replacement wells drilled within 660 feet of an existing well, recovery wells withdrawing stored credits from within the area of hydrologic impact and wells used for the diversion of surface water are also exempted from the proposal. A minority report opposing the riparian area protection is attached to this Report as Attachment 6. B.1.b: Modify the statutes to require the Director of the Arizona Department of Water Resources to adopt rules that establish criteria for determining whether a proposed exempt or non-exempt well in a designated riparian area protection zone adversely impacts the riparian area.



B.2. GENERAL WELL IMPACT MODIFICATIONS

In addition to the proposed limitations within the designated riparian area protection zones, the proposal would provide ADWR with the ability to analyze well impacts for multiple wells, call for the formation of advisory groups to assist in well impact rule-making processes, and recommend the formation of a task force to analyze the impacts of subsidence.



Currently 45-598 requires that the well spacing and impact rules prevent "...unreasonably increasing damage to surrounding land or other water users from the concentration of wells...." This provision would remain in statute. The riparian areas to be one-half mile buffers on certain reaches of the listed streams and cienegas would initially be designated and periodically reviewed by the legislature (See related recommendation under C.1, pages 37 and 38). 16 The owner of the well shall submit a short form annual report showing total water withdrawn. The owner may have the annual reporting requirement waived by entering into an agreement to allow annual water level measurements by ADWR. Withdrawals from the domestic well shall not be subject to any withdrawal fees.



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Specifically, the Commission recommends the Governor: B.2.a: Request legislation to modify the statutes to authorize the Director of the Arizona Department of Water Resources to assess the cumulative impacts of multiple wells drilled by an applicant in approximately the same location. The Commission recommends that the Director be authorized to consider the cumulative impacts of the proposed wells recently issued, or currently pending, to the same applicant and within the area of impact of the wells. Prior to the implementation of this recommendation, the Commission also recommends that the Director develop clear guidance through a rule-making process, in cooperation with interested parties, on the standards and timeframe to be used in evaluating the cumulative impact of multiple wells. B.2.b: Support the Commission's recommendation that the Director of the Arizona Department of Water Resources form a task force to research the cause and effects of land subsidence and appropriate limitations on the drilling of new and replacement wells to limit damage that may be associated with land subsidence. B.2.c: Request legislation to modify the statues to direct the Arizona Department of Water Resources to form advisory groups to the Director to study available data and develop proposed review standards for criteria affecting the Well Impact Rules.



B.3. REDUCTIONS IN MUNICIPAL AND INDUSTRIAL GROUNDWATER MINING

Problem Statement: Under current law, certain portions of the municipal sector, most current and new industrial users, and current agricultural users have no requirement to use renewable supplies to contribute to safe-yield or other AMA management goals. However, after 1995, cities, towns, and private water companies who expect or wish to continue to grow are required to demonstrate that new residential demands will be met with renewable supplies. This creates equity problems, since some water users are making more significant contributions to achievement with the safe-yield AMA management goals than others. RECOMMENDATION: The initial Commission recommendation supported at its April Retreat was to require a replenishment obligation for all municipal and industrial water users not covered by the current AWS Rules. However, during the course of the discussions some user groups were omitted from the proposal and existing groundwater users were made subject to a limited tax on a portion of their mined groundwater use in order to reach a consensus. The recommendation being forwarded by the Commission would require certain existing groundwater users to pay an annual mined groundwater tax. Additionally, certain new groundwater users would either be required to utilize renewable supplies or incur a replenishment obligation for their annual mined groundwater pumping. Groundwater users specifically exempted from this proposal include untreated water providers, metal mining operations, agricultural water users, certain CERCLA and WQARF (contaminated groundwater clean up efforts) pumping, and withdrawal permits other than new Mineral Extraction Permits and General Industrial Use Permits. Since they are covered by the

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current AWS Rules, designated water providers and CAGRD members are also not included in this proposal. Additionally, this recommendation applies to the Pinal, Prescott and Santa Cruz AMAs only under certain conditions identified below in the description of the specific recommendation. For the purposes of this recommendation, "mined groundwater" includes all groundwater withdrawals less an incidental recharge factor, except groundwater withdrawn pursuant to: groundwater allowances under the AWS Rules; groundwater withdrawn from Irrigation Grandfathered Rights; extinguishment credits used pursuant to the AWS Rules; metal mining and metallurgical recovery permits (or Type Two Rights and Type One Rights used solely for metal mining and metallurgical purposes); dewatering permits; drainage water withdrawal permits; hydrologic testing permits; certain WQARF and CERCLA pumping; and poor quality groundwater withdrawal permits. In the Santa Cruz AMA, this recommendation would only be imposed if the ADWR has determined: 1) that groundwater mining is preventing the AMA from attaining or maintaining its management goals; 2) there are inadequate management tools to maintain the management goals; and 3) there are inadequate funding mechanisms to attain or maintain the management goals. The recommendation of the Commission is to modify the statutes, rules and management plans, where appropriate. Specifically, the Commission recommends the Governor: B.3.a: Request legislation to modify the statutes to require certain existing municipal and industrial (M&I) groundwater users in the Phoenix, Prescott and Tucson AMAs (and under certain conditions in the Pinal and Santa Cruz AMAs) to pay a "Mined Groundwater Tax" of $20 per acre-foot, phased-in over a 10 year period, on a percentage (50% for Municipal and 25% for Industrial) of their mined groundwater. Existing municipal groundwater users include groundwater users in the Phoenix, Prescott, and Tucson AMAs (and under certain conditions in the Santa Cruz AMA) that are withdrawing groundwater pursuant to a Service Area Right or other Non-Irrigation Rights or permits established prior to the date of enactment of the statute for this recommendation. This also includes future customers located within the area defined by the Certificate of Convenience and Necessity (CC&N) of a private water company or within the corporate boundaries of a city or town as they existed on the date of enactment of the statute. This does not apply to Large Untreated Water Providers delivering untreated groundwater for non-potable uses, municipal providers who have obtained a designation of AWS, and deliveries from an undesignated municipal provider to customers who have obtained a Certificate of AWS or are member lands subject to a replenishment obligation. Existing industrial groundwater users include groundwater users in the Phoenix, Prescott, and Tucson AMAs (and under certain conditions in the Pinal and Santa Cruz AMAs) that withdraw groundwater pursuant to Type One and Type Two Non-Irrigation Grandfathered Rights and General Industrial Use Permits established prior to the date of enactment of the statute for this recommendation. For the Pinal AMA, existing industrial groundwater users include withdrawal authorities issued only for concentrated animal industries - dairies and feedlots - prior to the effective date of this recommendation



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pursuant to Type One and Type Two Non-Irrigation Grandfathered Rights and General Industrial Use Permits. For existing groundwater users identified above that also use renewable supplies, the amount of taxable mined groundwater shall be determined by the following formula: Taxable Mined Groundwater = ((Total Water Used x [(50% for undesignated providers) or (25% for industrial users)]) � Total Renewable Water Supplies Used to Serve the Uses Otherwise Subject to this Tax) B.3.b: Request legislation to modify the statutes to establish a mechanism for the Mined Groundwater Tax, collected pursuant to Recommendation B.3.a. (and B.3.c. in the Prescott AMA), to be used in the AMA in which it is collected for groundwater recharge or for water resource planning and technical investigations. Two options have been identified for the use of the mined groundwater tax: 1) replace a portion of the existing mined groundwater in each AMA with non-recoverable groundwater recharge; and/or 2) focus on AMA-Wide comprehensive water planning and technical investigations. ADWR would collect the mined groundwater tax from the water providers, right holders, or permit holders through the existing annual report and withdrawal fee process. Once the fees are collected, the Groundwater Users Advisory Council (GUAC) in each AMA would identify the priorities for non-recoverable groundwater recharge, water resources planning or both and then would recommend to the Director of ADWR what portion of the fees collected should be used for these functions17. Groundwater Recharge - The portion of the funds that the Director determines will go to non-recoverable groundwater recharge will then be annually transferred to the Arizona Water Banking Authority (AWBA) on behalf of the Phoenix, Pinal and Tucson AMAs. For the Prescott and Santa Cruz AMAs, who currently cannot use the services of the AWBA, the funds will be annually transferred to an agency specifically authorized by legislation to conduct groundwater recharge or replenishment in those AMAs. The AWBA (or new entity in the Prescott or Santa Cruz AMAs) would be required to recharge water, without recovery, in locations that maximize the benefit of the recharge to those groundwater users that pay the tax, and specifically in the AMA from which the funds are transferred. AMA-Wide/Subbasin Planning and Technical Investigations - The portion of the funds that the Director determines will go to water resources planning would be directed by ADWR, with recommendations from the GUAC, to facilitate AMA-wide water planning functions. The taxes would be used in each of the AMAs where the tax is collected. In addition to AMA-wide planning, subbasin or critical area planning could also be addressed. Included in this umbrella planning proposal, could be long term water supply and infrastructure planning, regional recharge and recovery planning, subsidence management planning, drought/climate change planning, and technical investigations.



In the Prescott and Santa Cruz AMAs the tax would be used for water resources planning until an entity is created that is authorized to conduct recharge or replenishment.



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B.3.c: Request legislation to modify the statutes to require certain new municipal and industrial groundwater users in the Phoenix, Prescott and Tucson AMAs (and under certain conditions in the Pinal and Santa Cruz AMAs) to either use renewable supplies or have a phased-in 100% replenishment obligation by 2025 (2040 in the Pinal AMA). The modification would also need to require certain new municipal and industrial groundwater users in the Prescott AMA to pay a "Mined Groundwater Tax", 1.5 times the rate required under B.3.a, for 100% of the mined groundwater until a renewable or alternative water supply is available for replenishment. New municipal groundwater users in the Phoenix, Prescott and Tucson AMAs (and under certain conditions in the Santa Cruz AMA) would include all new deliveries of groundwater to a customer not covered by a Certificate of AWS by an undesignated water provider pursuant to a Service Area Right or other Non-Irrigation Rights or permits. This would only apply in those portions of the service area that have expanded beyond the CC&N boundary of a municipal provider regulated by the Arizona Corporation Commission or the corporate boundaries of the city or town supplying water for non-irrigation uses, as they existed on the date of enactment of the statute. For a municipal provider that does not fall into either of these categories, this would only apply to those portions of the service area that have expanded beyond the boundary of the service area as it existed on the date of enactment of the statute. The undesignated water provider would be responsible for meeting this requirement and for reporting and replenishing any mined groundwater use by such new municipal groundwater users. New industrial water users would include groundwater users in the Phoenix, Pinal, Prescott and Tucson AMAs (and under certain conditions in the Santa Cruz AMA) that withdraw groundwater pursuant to Type One or Type Two Non-Irrigation Grandfathered Rights and General Industrial Use and Mineral Extraction Permits. Although subject to this provision, alternatives have been developed for dairies and feedlots in all AMAs and for the Prescott AMA. A new dairy or feedlot utilizing a Type One Non-Irrigation Grandfathered Right that has been converted from an Irrigation Grandfathered Right shall be treated as an existing industrial user. Instead of being required to replenish, the rightholder will be required to pay the Mined Groundwater Tax of $20 per acre-foot on 25 percent of the mined groundwater used pursuant to that Right. In the Prescott AMA the renewable supply or replenishment requirement for new municipal and industrial groundwater users will be delayed until a determination is made by the Director of the ADWR that sufficient imported or renewable supplies are available to meet the replenishment obligations being imposed by this provision. During the period of the delay, new municipal and industrial water users must pay a mined groundwater tax that is 1.5 times the fee paid by existing municipal and industrial groundwater users in B.3.a. The Director of the ADWR shall review the status of the availability of imported and renewable supplies in the fifth calendar year after the effective date of the legislation and, unless the Director of ADWR has made such a determination, every other year thereafter to determine if the AMA has available supplies to replenish the groundwater mined by new municipal and industrial users. For the purposes of this recommendation, after the date of enactment of the statute, uses of Type Two Non-Irrigation Grandfathered Rights at new locations for different

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purposes are considered new industrial uses. Additionally, a General Industrial Use Permit issued after the date of enactment of the statute would be considered a new industrial use unless it is a renewal of the GIU for a dairy or feedlot for the same use in the same location. B.3.d: Request legislation to modify the statutes to eliminate issuance of all new General Industrial Use (GIUs) Permits or Mineral Extraction and Metallurgical Processing (MEPs) Permits and establish a new permit, with a 100% replenishment obligation, for limited non-irrigation uses without direct access to renewable supplies in the Phoenix, Pinal, Prescott, and Tucson AMAs (and under certain conditions in the Santa Cruz AMA) after 2025 or 2040 in the Pinal AMA, B.3.e: Request legislation to modify the statutes to authorize municipal and industrial groundwater users in the Phoenix, Pinal and Tucson AMAs, required to replenish under Recommendations B.3.c and B.3.d, to enroll in the Central Arizona Groundwater Replenishment District. ADWR staff and CAGRD staff should continue to work together to develop the details of implementing this recommendation for inclusion in the statutory language. Detailed language also needs to be developed to clarify that the CAGRD is not responsible for making the initial identification of these new members and, for example, clarifying that undesignated water providers would be responsible for meeting this requirement for their customers and for reporting and replenishing any mined groundwater use by such new municipal groundwater users.



B.4. CHANGES TO THE EXEMPT WELL STATUTES

Problem Statement: Groundwater withdrawals by exempt wells are not monitored because they are exempt from most of the regulatory provisions in the Code. They are limited to pumping no more than 35 gallons per minute, which can amount to as much as 56 acre-feet of groundwater use in a year, or 10 acre-feet per year for non-domestic exempt wells. Even though the total volume of groundwater withdrawn from exempt wells is not known, it appears that the overall impact on the water budget in most AMAs is relatively small. However, in the Prescott AMA, over 7,000 exempt wells are estimated to be in use, accounting for approximately 10 percent of municipal water use. With the ongoing practice of parcel splits not subject to the State's subdivision laws, exempt wells are expected to increase. In the Santa Cruz AMA, there is concern that the proliferation of exempt wells could result in: declines in local water table levels; increased susceptibility to drought; and inefficient, non-conserving uses of water. Dry lot developments (where each lot owner drills their own well due to lack of centralized water service) may increase in both the Santa Cruz and Prescott AMAs. In the Phoenix and Tucson AMAs, the issue of exempt wells is primarily a concern in areas where there are high densities of exempt wells in sensitive areas, particularly near riparian habitat. Parcel/lot-splitting is also an issue in the Tucson AMA. Exempt well users do not currently participate in efforts to achieve the AMA management goals, since they have no replenishment obligation, no conservation requirements, no requirement to pay withdrawal fees, and no requirements to measure and report withdrawals. In some cases, existing exempt wells pose problems for municipal water providers proposing to drill new service area wells. When drilling a new non-exempt well, an impact

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analysis is generally required18 and all well owners in the impacted area must be identified. Often a municipal water provider has purchased a site for a future well only to find when the site is to be developed that exempt wells have been drilled in the area. If an impact is projected (a projected water level decline due to the new well of greater than 10 feet in five years), the applicant for the new non-exempt well must reduce pumping sufficiently to keep the drawdown to less than 10 feet or they must obtain a waiver of the impacts from all well owners in the impact area, including exempt well owners. This is sometimes very difficult, as the exempt well owner may be difficult to locate or unwilling to provide a waiver. If it cannot be done, then the municipal water provider must find a new well site to benefit its customers, which may be difficult to locate and at additional cost to customers. RECOMMENDATION: The Commission recommends amendments to the current statutes relating to exempt wells. Specifically, the Commission recommends the Governor: B.4.a: Request legislation to modify the statutes to reduce the maximum pump capacity of new exempt wells that file a Notice of Intention to Drill a well after the effective date of the legislation, to 20 gallons per minute unless the Director of the Arizona Department of Water Resources (ADWR) determines that a higher rate is needed for a particular use. In such cases, the statute would also need to be modified to authorize ADWR to request the installation of a meter and the submittal of an annual report to the ADWR. B.4.b: Request legislation to modify the statutes to increase the processing time frame for exempt well permits from the current 15 day limit to a longer time frame only for those applicants who request a higher pump capacity (under B.4.a) or for those wells affected by the new well permitting requirements for protection of riparian areas (under B.1.a). B.4.c: Request legislation to modify the statutes to prohibit new exempt wells that file a Notice of Intention to Drill a well after the effective date of this legislation from being drilled within a municipal water provider's service area (city, town, private water or irrigation district delivering water for potable uses) unless the municipal water provider denies service. This would prohibit new exempt wells from being permitted in an AMA after the effective date of the legislation within a municipal water provider's service area, unless the water provider denies service. The service area is the physical extent of the potable water distribution system for a city, town, private water company or irrigation district and does not always correspond with the political boundary of a municipality or the area covered by the Certificate of Convenience and Necessity of a private water company.



18 A non-exempt well is a well with a pump capacity in excess of 35 gallons per minute. The exceptions from the impact analysis include wells drilled outside of an AMA, wells drilled in an INA, exempt wells, pre-code wells, replacement wells in the same location and Article 7 withdrawal permits other than GIUs.



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B.4.d: Request legislation to modify the statutes to require existing exempt well owners to file an objection within 30 days to an application for a new nonexempt well filed after the effective date of this legislation and require the Director of the Arizona Department of Water Resources to disregard the impacts of the proposed non-exempt well if the non-exempt well applicant offers to the existing exempt well owner a no-cost connection to a municipal provider's water service area. Under the temporary well spacing rules, the Director must give notice to owners of exempt wells of record, delivered to the last address on file with ADWR, who may be adversely impacted by the drilling of the proposed non-exempt well or wells. For the purposes of this proposal, an existing exempt well is a well drilled or NOI issued within in an AMA before the effective date of this legislation. The Commission's recommendation would require that owners of existing exempt wells have a set period of time (30 days) to object to the permitting of a new non-exempt well. If no objection is filed within the timeframe, the owner of the exempt well has no other recourse. If the owner of the exempt well objects and if the applicant for the proposed non-exempt well or wells offers to connect the exempt well owner to a municipal system at no connection cost, then the Director shall not consider the potential hydrologic impact of the new non-exempt well on the exempt well when determining whether to issue the permit. B.4.e: Request legislation to modify the statutes to authorize existing exempt well owners whose well has gone dry, contrary to the conclusions of the well impact analysis for a non-exempt well permitted after the effective date of this legislation, to seek recourse, through a civil action in Superior Court, against the non-exempt well owner. If the hydrologic analysis of the applicant for the proposed well incorrectly characterizes the impact on an existing exempt well as less than 10 feet of drawdown in 5 years and the exempt well later goes dry due to the applicant's well, the applicant must arrange to provide an alternative supply whether it be through connection of the exempt well owner to a municipal provider at no cost to the exempt well owner or other mechanism. A process to establish criteria should also be identified to limit this clause from being open-ended and unmanageable. Statutory criteria should address: time limitations for claiming damage; an upper limitation on the cost of the extension; and a possible requirement to abandon wells after the extension has been completed. Furthermore, the statute should clearly state that the burden of proof should fall on the exempt well owner making the claim and as such should be a civil action dealt with through Superior Court. B.4.f: Request legislation to modify the statutes to require the Director of the Arizona