CAP proposes locking in long-term $50/AF capital charge using reallocation reserves

CAP proposes locking in long-term $50/AF capital charge using reallocation reservesTo provide municipal and industrial customers with rate certainty amid Colorado River supply constraints, the Central Arizona Project is weighing a plan to smooth out capital charges over the next decade using back payments from the 2021 NIA reallocation.

CAP staff proposed using back capital charges and interest collected from the 2021 NIA reallocation to establish a flat $50 per acre-foot capital charge ceiling through 2036.

Without the smoothing proposal, the 2028 capital charge is projected to spike to $65 per acre-foot due to declining federal Basin Development Fund credits.

The 2027 water delivery rate is proposed at $326 per acre-foot, based on an estimated delivery volume of 825,000 acre-feet.

The utility also introduced a new blended recovery rate of $400 per acre-foot for 2027 to cover varied recovery methods and potential treatment infrastructure.

Municipal and industrial (M&I) water customers of the Central Arizona Project (CAP) could see a decade of rate certainty on a key portion of their water bills, following a novel financial proposal introduced during a May 14, 2026, stakeholder rate briefing. CAP staff presented a plan to use reserve funds generated from the 2021 Non-Indian Agricultural (NIA) reallocation to stabilize the utility's capital charge, which M&I customers pay to cover the federal debt repayment for the original construction of the CAP canal. The federal repayment is set at $54 million for 2027 and will gradually decline to $48 million by 2032. Typically, a portion of this repayment is offset by federal credits in the Basin Development Fund, generated by Hoover and Parker Davis mill levies. However, with lower Colorado River water volumes driving those levies down, CAP expects a drop in federal credits, forcing the balance onto the M&I capital charge. Under current projections, the unmitigated capital charge would sit at $58 per acre-foot in 2027 before jumping to $65 per acre-foot in 2028. To prevent this rate shock, CAP is proposing to utilize funds from the 2021 NIA reallocation of approximately 44,000 acre-feet. Takers of that water right were required to pay back capital charges and associated interest over a five-year period. With those funds now fully collected and sitting in reserves, CAP staff suggested applying the money to future federal repayment schedules. If both the back capital and associated interest are applied, CAP could lock in a flat capital charge of $50 per acre-foot from 2027 through 2036. If only the back capital is used, the rate would be locked at $52 per acre-foot. A CAP staff member noted that because the capital charge is the only rate component independent of water volume, this move would provide M&I customers with long-term financial predictability for infrastructure planning, despite ongoing volatility on the Colorado River. Beyond capital charges, Business Financial Planning Supervisor Darrell Funk outlined the proposed 2027 water delivery rates, which total $326 per acre-foot and are projected to rise to $340 per acre-foot in 2028. These figures assume a delivery volume of 825,000 acre-feet, aligning with the recent three-basin state proposal. Finance and Accounting Manager Doug Dunlap also introduced a new recovery rate set at $400 per acre-foot for 2027. The figure is a blended rate designed to cover various recovery methods across the service district. Responding to a question from Queen Creek Water Resources Manager Nicole Sonnenberg, Dunlap confirmed the $400 rate incorporates potential capital costs, including drilling wells and building treatment plants for direct recovery. The rate proposals will advance to CAP committees and the full Board of Directors for consideration in June.