Southeastern CO Water Conservancy Arkansas Valley Conduit Project Updated Cost Estimates

Description: The Southeastern Colorado Water Conservancy District Released this Breakdown of Cost Estimate Increases for the Arkansas Valley Conduit Project and Gave a Presentation in Rocky Ford, Colorado on June 27, 2024...

June 20, 2024

Arkansas Valley Conduit Project Updated Cost Estimates

Background

The Arkansas Valley Conduit (AVC) Project took a leap forward after the Bureau of Reclamation (Reclamation) and the Southeastern Colorado Water Activity Enterprise (Enterprise) developed a Path Forward plan in late 2019 and Reclamation allocated $28 million to the project in early 2020. There were significant changes in the configuration of the AVC Project at this time. The major changes were the use of the Pueblo Board of Water Works' (Pueblo Water's) system to treat and deliver AVC water to the project and St. Charles Mesa Water District leaving the project. Also, the AVC Project was divided into the Reclamation Sub-Project, which consists of the trunk line and certain other facilities, and the Southeastern Sub-Project, which consists of the spur and delivery lines. Reclamation will construct its sub-project with funding from federal appropriations. Construction of the Southeastern Sub-Project is the responsibility of the Enterprise, with costs to be borne by Participants to the extent financing comes from loans as opposed to grants.

Initial and Updated AVC Project Cost Estimates

Reclamation's initial cost estimates for the reconfigured AVC Project were based on feasibility designs developed by Reclamation in 2016 with adjustments for the 2019 changes in project configuration. In addition, costs were indexed up from 2016 price levels to 2019. The resulting preliminary total estimated cost for the project was $564-610 million.

Reclamation and the Enterprise have updated the cost estimates for their respective sub-projects to reflect October 2023 prices, new information, and changes in the design and scope. The total updated estimated cost for the entire AVC Project is about $1.375 billion, $75 million of which is for the Southeastern Sub-Project and $1.3 billion for the Reclamation Sub-Project. Generally speaking, the increase in estimated costs is driven primarily by: (1) inflation, (2) changes in design and scope due to new information about site conditions (poorer soil strength, greater trench dewatering, and more rock than anticipated) and right-of-way considerations, and (3) refinements in estimates.

AVC Project Funding To Date

Since 2020 Reclamation has received $321 million for its sub-project -- $71 million in annual appropriations and $250 million from the federal Infrastructure, Investment, and Jobs Act (including the May announcement of $90 million affirming Reclamation's commitment to the Project).

For the Southeastern Sub-Project, the Enterprise has secured a $30 million grant and a $90 million low interest loan from the Colorado Water Conservation Board. The Enterprise has also received $3 

million in American Resource Plan Act (ARPA) funds for design work. Finally, the Enterprise has supported the sub-project in the amount of $4.8 million.

Impact on AVC Project Construction Schedule

The construction schedule continues to be dependent on the pace of future federal funding for the Reclamation Sub-Project. Infrastructure Act funding is available through fiscal year 2026, but what the Project receives in 2025 and 2026 is dependent on allocations to be made by Reclamation. After 2026, Reclamation will have to rely on annual federal appropriations. The schedule for the construction of spur and delivery lines will be timed to stay ahead of the trunk line.

Impact on AVC Project Repayment

Under current legislation, 35% of the total cost of the AVC Project must be paid by the Enterprise (for spur and delivery lines) or repaid to Reclamation. The legislation allows for revenues arising from the storage of non-Fry Ark project water in Pueblo Reservoir pursuant to excess capacity and exchange contracts (referred to as miscellaneous revenues) to be used for repayment. When the legislation was enacted in 2009 it was anticipated that the Project would be entirely constructed by Reclamation and miscellaneous revenues would be enough to repay the required 35%. With the updated cost estimates, preliminary analysis indicates that miscellaneous revenues plus credits for expenditures by the Enterprise on its sub-project will not be sufficient to repay the entire 35%. The Enterprise will immediately begin to develop legislative strategies for addressing this issue.

Next Steps

The Enterprise board was briefed on the AVC Project updated cost estimates on June 20, 2024. A meeting to brief AVC Project participants is scheduled for June 27, 2024. Briefings with the congressional delegation and Colorado officials and state agencies are also scheduled. The Enterprise will continue to advocate for allocations of Infrastructure Act funding in 2025 and 2026 and work to increase annual appropriations. The Enterprise will also continue to work on finding additional grants or forgivable loans for the financing of the spurs and delivery lines. Finally, the Enterprise will analyze options and work with the congressional delegation for any needed legislation to be introduced not later than early 2025.

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