Free Water While It Lasts: An Analysis of Wholesale Water Pricing in the Lower Colorado River Basin States

The Colorado River is facing a shortage of between two million and four million acre-feet per year (MAFY), nearly one-third of its current annual flow and the equivalent of the amount needed to supply up to 30 million people with water each year (Shutt, 2022). Following a century of declining flow and two decades of the worst drought in more than 1,200 years to grip the U.S. Southwest, the U.S. Bureau of Reclamation is putting pressure on states that draw from the Colorado River to reduce water usage and create a long-term plan for responsible water management. But the price that agricultural and municipal water districts and utilities pay to divert federal water supplies in the western United States disincentivizes sustainable water practices and conservation efforts. In this paper, the UCLA Institute of the Environment and Sustainability (IoES) and the Natural Resources Defense Council (NRDC) explored the current state of water pricing for surface water supplies across Arizona, California, and Nevada, the three states comprising the Lower Colorado River Basin. We demonstrate that the vast majority of water sourced through the federal government from the Colorado River and other federal projects is sold or supplied at prices that do not reflect the scarcity of the resource; we also identify significant disparities between large agricultural districts and municipal utilities in the price paid for water at the wholesale level.