Information on the Resale of Water Provided Under Contract by the Federal Government in California

The Department of the Interior's Water and Power Resources Service's five largest water customers in California are districts which were established under State laws to supply water to users within their service areas. GAO was asked to investigate the resale of Federal water supplied under contract to State and local districts to determine whether: (1) the Resources Service's policies and procedures address water resales; (2) the five districts are profiting from the resale of federally supplied water outside their service areas; and (3) provisions in new water service contracts require the periodic recalculation of water rates.

The Resources Service's current policy and contract provisions provide that water resales outside a service area must meet specific requirements and be approved by the Resources Service. GAO found that none of the five districts have resold federally supplied water outside of their service areas. However, one of the districts purchased water from other districts at rates equal to the applicable Resources Service and district costs. Since the Resources Service adopted a policy of periodically recalculating water rates, only two long-term contracts have been negotiated for federally supplied water in California, both of which include a 5-year rate adjustment provision.