Contracts To Provide Space in Federal Reservoirs for Future Water Supplies Should Be More Flexible

CED-80-78: Published: May 16, 1980. Publicly Released: May 16, 1980.

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As part of its ongoing effort to contribute to a better understanding of, and timely consideration of, ways to solve the key water problems facing the Nation, GAO reviewed Federal contracting procedures for municipal water supply storage at Federal reservoirs and the need to include cost estimates for transporting such water to the user's treatment facilities. The Water Supply Act of 1958 authorizes the expenditure of funds by the Army Corps of Engineers and the Department of the Interior's Water and Power Resources Service to include space in reservoirs for future municipal and industrial water supplies. These agencies must obtain reasonable assurance that the water supplies will be needed and that users will repay the Federal costs within the life of the project.

The Corps of Engineers provides future storage space with little assurance of community water use and repayment ability. Generally, it relies on nonbinding written assurances and contracts which do not require potential users to repay any of the costs until they start using the water supplies. The reliability of assurances is questionable because the Corps does not present the entire financial picture to the potential user. The Corps does not usually build conveyance facilities to transport water to the user, nor does it include estimates of conveyance costs in its design memorandums. These conveyance facilities can cost more than the Corps' initial construction of storage for future water supplies. The Water and Power Resources Service requires potential users to repay Federal costs for including water storage space even if they never use the water. This requirement exceeds the intent of the Water Supply Act of 1958. Such repayments could cause undue hardships on local communities if they fail to experience the growth anticipated when they signed the contracts. Both the Corps and the Resources Service contracts give potential users permanent and exclusive rights to the storage space. At several Resources Service reservoirs, option-type contracts are used. Potential users pay fees to reserve rights for water delivery but can terminate the contracts if they reduce their estimates of future water needs. The Resources Service can also terminate the contracts if it receives bona fide offers from other parties with earlier needs.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Army Corps of Engineers and the Department of the Interior's Water and Power Resources Service should adopt option contracts which: (1) charge for the option to purchase water storage rights; (2) allow the agencies to cancel contracts of a bona fide water user, which has obtained or will obtain the rights to the water and requests the water before the option holder has started using it, and the option holder elects not to initiate immediate repayment; and (3) allow the option holder to terminate all or part of the contract if its water needs do not materialize as estimated. The Corps of Engineers' design memorandums should include estimated costs of conveyance facilities and information on whether the users can pay for them.

    Agency Affected:

 

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