Long-term Storage Credits in Central Arizona

Long-term storage credits in Central Arizona are a by-product of the state’s 1980 Groundwater Management Act, through which the Arizona legislature applied its police power to “conserve, protect and allocate the use of groundwater resources of the state and to provide a framework for the comprehensive management and regulation of the withdrawal, transportation, use, conservation and conveyance of rights to use the groundwater in this state.”  The Act created  Active Management Areas  in which groundwater withdrawals are highly regulated and Irrigation Non-expansion Areas in which the expansion of irrigated agriculture is not allowed.  

A legal system of underground water storage, savings, and replenishment was established in 1993 through which the legislature hoped to “Protect the general economy and welfare of this state by encouraging the use of renewable water supplies, particularly this state's entitlement to Colorado river water, instead of groundwater through a flexible and effective regulatory program for the underground storage, savings and replenishment of water.”

This legal system included the establishment of permits to operate and to store water at underground storage facilities.  An underground storage facility (USF) is an area of land at which water can be released to percolate through top soils down into the aquifer below, or alternatively, a well that is essentially operated in reverse to force water back into the aquifer.  Aquifers are “recharged” through this release and percolation of water.  Water is considered to be stored in the aquifer through this activity if a like amount of water is not pumped from a “recovery” well within the same calendar year.  That is, water is stored in the aquifer if it is not immediately pumped back out.

 Annual reports are filed for both the operation of the USF as well as the storage of water at the facility.  Thus, the state is able to track who is storing water in aquifers and how much water is being stored in this manner.   The state assigns a long-term storage credit to each entity that stores water at a USF equal to 95% of each acre-foot of surface water* or Colorado River water stored, and equal to 100% of each acre-foot of reclaimed water stored.

Current permitted storage capacity in all USFs in all Active Management Areas totals approximately 1 million acre-feet per year.  

Any entity with a water storage permit and an agreement with the operator of a USF may store water at the USF and create a long-term storage credit.  The state carefully tracks the creation of long-term storage credits and they become a property right to their owner.  Long-term storage credits can be transferred or sold to any entity, but the Arizona Department of Water Resources may invalidate a transfer if the entity receiving the credit would not have met the requirements for obtaining the storage credit.

Long-term storage credits can also be created through Groundwater Savings Facilities.  A Groundwater Savings Facility (GSF) is an entity (usually an irrigation district or farm) with rights to pump groundwater in an Active Management Area or Irrigation Non-expansion Area that has established a permit with the state that demonstrates that operation of the facility will cause the direct reduction of groundwater withdrawals by means of delivery of water other than groundwater pumped that the recipient will use in lieu of groundwater.  

Operators of the GSF use this water rather than pumping groundwater.  The groundwater thus “saved” becomes a long-term storage credit in the partner’s name.  As with USFs, the water-delivering partner earns a long-term storage credit equal to 95% of each acre-foot of Colorado River water or surface water* stored, and equal to 100% of each acre-foot of reclaimed water stored.

Current permitted storage capacity in all GSFs in all Active Management Areas totals over 900,000 acre-feet per year.  

Long-term storage credits can be used to provide a legal basis for pumping groundwater from a well (called “recovery” of a long-term storage credit), and they can be used to demonstrate an Assured Water Supply (water adequate to meet projected demands for at least 100 years).  Thus, long-term storage credits are valuable to entities that wish to pump groundwater from a well in an Active Management Area and to municipal water providers that wish to secure a designation from the state of having a 100-year Assured Water Supply.  

Because long-term storage credits constitute a valuable property right that is enforced by the state, exclusive to the owner, and transferrable, there is a very active market for long-term storage credits in Central Arizona. 

As of 2021, nearly 13.7 million acre-feet of long-term storage credits exist in Central Arizona.  

The  Arizona Water Banking Authority  owns the largest number of long-term storage credits, nearly 4.4 million acre-feet.  The Arizona Water Banking Authority was created, among other purposes, to:

• Increase utilization of Arizona's Colorado river entitlement that would otherwise be unused in Arizona by delivering that water into central Arizona through the central Arizona project aqueducts,

• Store water brought into this state through the central Arizona project to protect Arizona municipal and industrial water users against future water shortages on the Colorado river and disruptions of operation of the central Arizona project,

• Provide the opportunity for storing water brought into this state through the central Arizona project to be available to implement the settlement of water right claims by Indian communities within Arizona,

• Provide the opportunity to authorized agencies in the states of California and Nevada to store otherwise unused Colorado river water in Arizona to assist those states in meeting future water needs, and

• Provide the opportunity to facilitate the storage of water and stored water lending arrangements by entities in Arizona that may not have the opportunities or resources needed to store water.

A relatively small number of long-term storage credits are owned by private water companies.  This is at least in part because the proactive development and purchase of long-term storage credits for private water companies can be somewhat speculative and risky given that the Arizona Corporation Commission might not allow the cost of the long-term storage credit to be included in the private water company’s rate base.  Thus, while publicly owned municipal water providers (whose rates are not subject to Arizona Corporation Commission oversight) have invested heavily in the development and acquisition of long-term storage credits to shore up their designations of 100-year Assured Water Supply, private water companies have not. 

The  Central Arizona Groundwater Replenishment District  (CAGRD) owns a large amount of long-term storage credits.  CAGRD has developed these credits to offset its obligation to replenish groundwater pumped to serve its members.

Tribes also own a large number of long-term storage credits.  While tribes are sovereign nations that are not subject to the groundwater pumping restrictions in the state’s 1980 Groundwater Management Act within their trust-land boundaries, tribes know that long-term storage credits are valuable to those who are subject to the state’s groundwater management laws.  Tribes have thus used much of their water to invest in the creation of long-term storage credits as a business enterprise.  

The vast majority of long-term storage credits in the Phoenix, Pinal, and Tucson AMAs were created with Colorado River water imported through the Central Arizona Project canal.    As drought, climate change and over-allocation reduce the flows of the Colorado River, it is very likely that less Colorado River water will be available in Central Arizona for delivery to USFs and GSFs over the next few decades.  Thus, it can be expected that fewer long-term storage credits will be created.  Those entities that wish to continue to rely on long-term storage credits for purposes of shoring up designations of 100-year Assured Water Supply and for continued groundwater pumping in compliance with the 1980 Groundwater Management Act will need to purchase credits owned by others or increase the development of future credits through surface water* and reclaimed water supplies. 

*only surface water made available by dams constructed or modified after August 13, 1986 is eligible for creation of long-term storage credits.

The Kyl Center for water policy has developed an interactive dashboard to explore the long term storage credits by credit holders per each facility type.

You can open the dashboard in a new full screen by clicking on the top right icon.