WATER POLITICS

Holding back the Colorado River at the Hoover Dam, Lake Mead serves as a visual marker for water scarcity in the Southwest. During the past 20 years, Lake Mead has fallen so far that visitors today are met with a chalky bathtub ring at the reservoir.

That is what’s visible. But there is a lot about this water that we cannot see.

Namely, that a portion of water in the lake has already been divided up. Much of the water in Lake Mead is assigned to bank accounts. To be precise, nearly 40% last year.

Lake Mead, the nation’s largest reservoir, has come to serve as the Southwest’s water bank, with accounts and accountants, deposits and withdrawals. Instead of operating as a place to store cash, the Lake Mead bank is a place to store water. Like banks in our economy, this one has come to play a key (if invisible) role in a complex system.

It can also influence the incentive structure for cutting back water on the over-tapped Colorado River. Depositing water in a savings account allows for it be withdrawn and used in the future. Rather than reducing overall use permanently, it defers the use.

A bank incentivizes cutbacks for the short-term but not always permanent reductions for the long-term — the type of cuts that are also necessary to address overallocation.

That is the analysis presented in a new paper from Kathryn Sorensen, Sarah Porter, and John Fleck, Colorado River experts at Arizona State University and the University of New Mexico. In the paper, they look at how the bank functions and whether the river’s negotiators should seek changes to how water banking on the Colorado works.

That discussion matters now because the bank could soon be expanded. The current operating guidelines for the river expire in 2026, and water users are negotiating new rules for the river’s reservoirs, including Lake Mead, in an era of drier conditions and limits. A key part of those talks centers on how water is banked and on what terms.

How the bank works:

Overuse, amplified by climate change and the worst drought for the Southwest in 1,000+ years, has squeezed the Colorado and drained its reservoirs since the 2000s.

There is, at its core, a math equation that does not line up.

During the past two decades, water users have had to cut back and find ways to use less. To incentivize this, the federal government, in the mid-2000s, allowed agencies that draw from Lake Mead — in California, Nevada and Arizona — to create accounts within the reservoir. If the agencies conserved water, they were allowed to deposit (or assign) the unused water into their savings account, a ledger in their name that they could withdraw from later. This water is known as “Intentionally Created Surplus,” or ICS, and there are many different types. The paper refers to it as “Assigned Water.”

Saving water was good. It meant stabilizing the dropping reservoirs in the short-term.

And from a physical perspective, this was easy to accomplish. A unit of water saved was a unit of water that could stay in Lake Mead. The water that stayed in Lake Mead could be assigned to the account of whatever agency was responsible for conserving it.

“Individual resilience:”

For water users, it created flexibility. Instead of reducing water use permanently, they could put it in a savings account for a rainy day, waiting for when it was most needed. It also protected users on the river from shortage cuts. Since those cuts are tied to the elevation of the reservoir, keeping more water in Mead meant avoiding shortage cuts. It created further incentive for conservation without forfeiting or abandoning water. For some (especially urban water users), having flexibility to count on surplus water in years when they needed it most became an essential part of crafting a water portfolio.

As a result, the authors argue this created “individual resilience” for account holders:

“Assigned Water creates critically important operational flexibility; it allows its owner to either forgo water deliveries in one year—or pay someone else to—and take delivery of that water during another potentially desperate time.”

With some caveats: This individual resilience was not open to everyone. Right now, the bank at Lake Mead has open accounts for only seven users: Metropolitan Water District of Southern California, the Imperial Irrigation District, the Central Arizona Water Conservation District, the Colorado River Indian Tribes, the Gila River Indian Community, the Republic of Mexico and the Southern Nevada Water Authority.

“There are important elements of transparency and fairness at play,” the paper says. “The large, powerful players on the River gained access to Assigned Water through direct conversations and negotiations not available to others—meaning, there was no open bidding process or invitation to smaller entities to acquire this valuable water.”

Individual resilience for one might undercut resilience for another, the authors note, since rules for banked water tends to shield those who benefit from the conventional way water is managed in the West: “First in time, first in right.” Those with the oldest water rights are the last to be cut in times of scarcity. Priority to banked water differs.

Banking water, the authors note, can also change the timing of when shortages are declared, affecting the established priority system for water: “To the extent Assigned Water delays shortage in one year and creates a deeper shortage in a subsequent year, it potentially protects lower priority water to the detriment of higher priority water.

“Collective resilience:”

Assigned water — that is, banked water — is not the only type out there.

There is also what water managers describe as “system water.”

System water results from permanent conservation, reduced to benefit not only one user but the whole Colorado River Basin. The politics of permanent reductions are much harder to surmount (of course), yet these cuts get closer to addressing overuse.

In making these cuts, system water bolsters “collective resilience” for all.

But, as the authors argue, with the presence of a banking system that allows you to defer use (while only losing a marginal 10% to account for losses), why would anyone default to investing in permanent system water unless pushed to? In fact, the paper argues, only when water users reached account limits did they move to system water.

The creation of System Water—unassigned water in Lake Mead—bolsters water levels to the benefit of everyone in the priority system. Yet what rational actor would invest in schemes to conserve water that results in System Water when instead he can invest in the same activities and receive a class of water protected from priority system constraints and loss during shortage?

The answer is evident: it was not until forms of Assigned Water subject to limits of total accumulation reached those limits while water levels in Lake Mead continued to drop precipitously that creation of System Water occurred at scale.

There are also questions about how the bank operates around “collective resilience” and the timing of withdrawals. Although there are limits on withdrawals, there are certain cases when the withdrawal of banked water can create deeper shortages, with impacts for other water users. If this all sounds abstract, it is not. Expanding the bank and changing its rules to benefit the account holders was what got the important 2019 Colorado River drought shortage plan to the finish line, the authors note in the paper.

Bank reform?

The bank clearly has its benefits, and it clearly incentivizes conservation.

But the paper raises several important issues: Does the bank do it in a way that fairly weighs “individual resilience” of individual users against “collective resilience” for all? Do its current rules displace funding for much-needed long-term system water?

So to get to the main question: Does it need reform? Is there a way to better balance, as the paper frames it, individual resilience with collective resilience? It’s the age-old water question. These questions are especially important as the bank looks to expand, potentially broadening it beyond public entities to non-governmental organizations.

There are many more too: What does governance look like? Who gets to participate?

A few suggestions from the paper that I found striking:

• Should there be a greater cost for using the bank? The paper suggests that water users, in the future, might need to make permanent water reductions for using the bank. That is, they would need to contribute a certain percentage of system water to bolster “collective resilience.” The paper suggests 50%. If assigned water is so valuable, the thinking goes, water users will be willing to front the system water.
• Should stored water be priority neutral? This gets technical, so I’m not writing about it exactly how it’s discussed by water officials. But essentially, the idea is to rethink the bank so that it better conforms with the existing rules of the river and the priority system that many (some who lack any access to a bank) depend upon.

I’m not sure what the answers are but the paper raises important questions that are worth thinking about as negotiators look at how to mange the river going forward