Information on the Resale of Federal Project Water Supplies by Intermediaries

GAO was requested to provide information for five Water and Power Resources Service and Army Corps of Engineers reservoirs on the following matters: (1) supplemental water deliveries to intermediaries, their resales, and resale profits; (2) requirements that the Resources Service and the Corps be notified of and approve intermediary resales; and (3) the Secretary of the Interior's authority to establish price and profit controls and to require expedited repayments for resales in contracts with intermediaries. GAO selected five reservoirs with actual or potential water resales which were identified in another GAO review.

During the last 5 years, no intermediaries have received supplemental water deliveries. Water has been resold at three reservoirs; at the other two reservoirs, potential water consumers have requested water sales contracts. The intermediaries resold the water at amounts substantially higher than their payments to the Federal project for the water supply. Although the Resources Service contracts require that the contracting officer be notified of and approve intermediary water resales agreements, these requirements were not included for water resales in the Corps of Engineers contract; however, the Corps of Engineers was notified of the resale. The Corps of Engineers contract does not require notification of and approval for the sale of reservoir storage space. The Secretary of the Interior has the general authority for new or amended contracts and, under certain circumstances for existing contracts, to establish price or profit controls over intermediaries' water resales as well as to require expedited repayment. GAO believes that the Secretary has broad authority to limit the prices charged by intermediaries for resale of water from Federal projects. Also, the Secretary could, in appropriate cases, require that amounts received by intermediaries in excess of their costs and administrative expenses be paid into the reclamation fund. If it is desired to limit the Secretary's discretionary powers under his general authority and to ensure that third parties do not pay exorbitant prices for Federal water purchased from an intermediary, then legislation would need to be enacted.