Interior Adopts a Ten-Year Framework and Two Years of Operating Rules — The Allocation Question Remains Unresolved Across the Basin
Water has become a gating item for development across the American West. On August 21, 2026, the Secretary of the Interior signed a Record of Decision that sets federal operating boundaries for the Colorado River through 2036 and leaves the central question unresolved: how a shrinking river gets divided among seven states, thirty tribes, Mexico, and the farms, cities, and industries that depend on it. Interior issued two years of operating rules alongside it. Everything past 2028 remains open.
The practical consequence is straightforward. A legal entitlement to water no longer establishes that the water will arrive. Projects in Colorado, New Mexico, Arizona, California, Nevada, Utah, and Wyoming now have to be underwritten against federal operating rules that reset every two years, against reservoir elevations that trigger automatic consultation and possible curtailment, and against the realistic prospect of interstate litigation over the 1922 Compact.
The exposure is not limited to holders of Colorado River contracts. Municipal providers that depend on transmountain diversions, agricultural operations facing pressure to sell or fallow, tribes holding senior but unquantified rights, utilities with hydropower allocations, and industrial and data center projects drawing on stressed local aquifers all sit downstream of the same decision. Site selection, permitting, financing, and long-term supply contracting should account for it now rather than after capital is committed.
What follows is what Interior actually decided, what it expressly declined to decide, and what both mean for water-dependent development in Colorado, New Mexico, and across the Basin.
The Colorado River provides water for more than 40 million people and generates hydropower for seven states. It further serves 30 Native American tribes and two Mexican states, providing water for 5.5 million acres of farmland and agricultural communities throughout the Western United States. Yet growing populations, expanding energy and datacenter industries, and growing project demands have created tensions regarding Colorado River water use.
The seven Colorado River Basin States—Arizona, California, Nevada (the “Lower Basin States”), Colorado, New Mexico, Utah, and Wyoming (the “Upper Basin States”)—have not reached a consensus on a comprehensive long-term replacement of the operating rules set to expire in 2026. The issue largely stems from the Basin States’ dispute regarding Colorado River water withdrawals, population demands, and ultimate uses. Specifically, the Lower Basin States argue that additional conservation should be shared broadly across the entire Basin including the Upper Basin States, whereas the Upper Basin States contend that their users already absorb shortages because they rely more directly on natural river flows.
The Record of Decision confirms how far those talks went. The Secretary convened all seven Colorado River Governors multiple times, which Interior describes as a first in modern history. The States still could not agree. Negotiations remain unresolved. Litigation over the Compact is now a realistic planning assumption rather than a remote one.
What the Record of Decision Adopts
Interior filed the Final Environmental Impact Statement with EPA on July 27, 2026. EPA noticed it in the Federal Register on July 31, 2026. The Record of Decision followed on August 21, 2026.
The Record of Decision adopts operational sideboards for 2027 through 2036. These are outer limits on what future operating rules may do. They are not the operating rules themselves:
- Lower Basin shortages up to a maximum of 3.0 million acre-feet (maf).
- Lake Powell water year releases ranging from 5.0 maf to 12.0 maf.
- Storage and delivery of conserved system and non-system water up to 3.0 maf in Lake Powell and up to 8.0 maf in Lake Mead.
- Lower Basin surplus of up to 500,000 acre-feet beyond any surplus available near or during flood control releases.
- Maximum use of the CRSP Upper Initial Units within their existing Records of Decision, plus voluntary Upper Basin contributions of up to 200,000 acre-feet per year subject to hydrology.
- A federally managed pool of up to 1.0 maf in Lake Mead, established on the effective date of the Record of Decision, for tribal firming obligations under authorized Indian water rights settlements and for protection of federal infrastructure.
Consultation triggers sit inside those ranges. Interior must coordinate with the Basin States and Basin Tribes when a 24-Month Study projects Lake Powell below elevation 3,500 feet, a ten-foot buffer above the 3,490-foot threshold at which water can pass only through the river outlet works. A parallel trigger applies when Lake Mead is projected below elevation 1,000 feet.
What It Does Not Adopt
This is the part press coverage has largely missed, and it matters to anyone relying on reported numbers.
Interior states expressly that it is not adopting the specific shortage volumes, shortage distributions, or conservation activities reflected in the assumptions used to model the preferred alternative, and is not predetermining future operations on those matters. Those assumptions, in Interior’s own words, were developed for analytical purposes.
The widely reported state-by-state reductions for 2027 and 2028 are real, but they live in the separate 2027-2028 Operating Guidelines rather than in the ten-year decision, and Interior conditions them on an agreement that does not yet exist. The Record of Decision states that the Lower Division States have not finalized agreements on several matters, including the volume and distribution of future shortages and the continued storage and delivery of conserved and non-system water in Lake Mead.
That distinction is not academic. Section 5.3.A.3 of the Guidelines provides that if the Lower Division States have not fully executed the applicable or necessary implementing agreements, the Secretary determines the quantities and the apportionment among them in accordance with applicable law. The reduction still comes out of the Lower Basin. Only the allocation among the three states changes, and it changes to priority under the Consolidated Decree in Arizona v. California, 547 U.S. 150 (2006). Arizona’s junior Central Arizona Project priority absorbs the difference.
The 2027-2028 Operating Guidelines: The Rules That Actually Bind
The Guidelines cover Operating Years 2027 and 2028 only. Interior states they are not intended to represent a long-term operational strategy and create no precedent. They take effect on two conditions: execution by the Secretary, which has occurred, and execution of the necessary implementing and parallel agreements, which has not.
Lake Mead and the Lower Basin. The Secretary has determined that a shortage condition exists. Interior will apportion 6.25 maf for consumptive use in the Lower Basin States, a reduction of 1.25 maf from the normal condition apportionment of 7.5 maf. Subject to a Lower Basin implementing agreement, that breaks out as 2.04 maf for Arizona, 3.96 maf for California, and 250,000 acre-feet for Nevada, reflecting reductions of 760,000, 440,000, and 50,000 acre-feet respectively. Contractors in the Lower Division States will conserve an additional 700,000 acre-feet of System Conservation water across 2026, 2027, and 2028, again subject to voluntary agreements.
Lake Powell. Releases are set by three ranges keyed to the projected October 1 elevation. At or above 3,565 feet, Reclamation evaluates 8.23 maf first, then 8.0 and 7.5. Below 3,565 and at or above 3,540 feet, it evaluates 8.0 maf first, then 7.5 and 7.0. Below 3,540 feet, in what Interior calls the Lower Elevation Infrastructure Protection Range, it assumes 7.0 maf and may adjust downward to no less than 6.0 maf. The operations are designed to protect a minimum elevation of 3,500 feet by initially seeking to hold 3,510 feet. Maximum and minimum Glen Canyon releases are 12.0 maf and 5.0 maf.
Intentionally Created Surplus. ICS carries forward, but on terms worth reading closely. Absent a Lower Basin agreement, no new ICS may be created after December 31, 2026. With an agreement, ICS may be created through December 31, 2028 and delivered through December 31, 2038. Annual delivery is capped at 300,000 acre-feet for Arizona, 400,000 for California, and 300,000 for Nevada, with total combined delivery from January 1, 2026 through December 31, 2028 not to exceed 800,000 acre-feet. Extraordinary Conservation ICS creation is capped at 125,000 acre-feet for Arizona, 400,000 for California, and 125,000 for Nevada, within a combined annual limit of 650,000 acre-feet. Accumulation caps run 1.0 maf for Arizona, 2.0 maf for California, and 800,000 acre-feet for Nevada.
Elevation triggers at Lake Mead. No ICS may be delivered in a year when the January 1 elevation is below 1,000 feet, and between 1,025 and 1,000 feet the Secretary consults before approving any delivery and may reduce or deny it. A projection below 1,010 feet in the next twelve months triggers Basin-wide consultation. Below 950 feet, releases are restricted to the upper penstock outlet works and hydropower stops. There is an upside trigger as well: if Mead is likely to reach 1,125 feet or above during 2027 or 2028, Interior consults on increasing apportionments.
The federally managed pool. The Federally Managed Water Resources Pool is capped at 450,000 acre-feet of accumulated ICS. Its purposes run in order of precedence: federal firming and delivery obligations under congressionally authorized Indian water rights settlements first, then offsets of up to 25 percent of tribal wet water shortages to Mainstream Lower Colorado River or Central Arizona Project entitlements. Tribes bear the remaining 75 percent.
The Number to Watch Is 8.23
The Long-Range Operating Criteria set a minimum objective release from Lake Powell of 8.23 maf per year. The Record of Decision confirms Interior met or exceeded that figure in 13 of 19 years and averaged 8.5 maf annually from 2008 through 2026.
It then says the objective has been and will be increasingly difficult to meet.
The sideboards permit releases as low as 5.0 maf, and Interior identifies 5.0 maf as the lowest release anticipated during the ten-year term. In water year 2026 Interior already released 660,000 acre-feet to 1.0 maf of additional flows from Flaming Gorge and cut scheduled Glen Canyon releases by roughly 1.5 maf, producing an annual release of 6.0 maf. Combined storage in Powell and Mead reached 12.5 maf, a level not seen since before Powell began filling.
Article III(d) of the 1922 Colorado River Compact obligates the Upper Basin States not to deplete the flow at Lee Ferry below 75 million acre-feet in any ten consecutive years. Sustained releases below 8.23 maf accelerate that arithmetic. The Record of Decision never mentions Article III(d). It does not have to.
Instead, it preserves every argument. Interior states that Secretarial actions under any Operating Guidelines shall not prejudice the position or interests of the Upper or Lower Basin States, any Basin State, any Basin Tribe, or any Contractor. Cooperation with, consent to, or failure to object to the Framework waives no right, claim, or defense, and does not impede any party from bringing an action to enforce the Law of the River. Interior built this document to defer a fight, not to settle one.
What it does not provide is long-term certainty.
The Upper and Lower Basin States remain divided over responsibility for future reductions, and litigation remains a possibility if negotiations fail. At the same time, the federal framework contemplates operating decisions that may be revisited in roughly two-year increments rather than establishing a single long-term allocation formula. Interior anticipates two-year operating intervals across the full ten-year term, with each set of Operating Guidelines superseding the last. Capital committed against a multi-decade horizon is being underwritten against rules that reset every twenty-four months.
For businesses developing energy, infrastructure, manufacturing, data-center, and other water-intensive projects in the West, that uncertainty has practical consequences.
What This Means by Sector
Energy. Thermoelectric cooling, produced water handling, mineral processing, and hydrogen production all carry water intensity that permitting agencies now scrutinize. Hydropower economics move with reservoir elevation. Minimum power pool at Glen Canyon Dam sits at 3,490 feet, and the sideboards allow operations that approach it. Utilities holding Western Area Power Administration allocations should model generation loss alongside supply risk.
Agriculture. Conservation, fallowing, and forbearance programs are becoming a revenue line rather than a contingency. The sideboards authorize up to 8.0 maf of conserved water storage in Lake Mead and up to 3.0 maf in Lake Powell, and that water requires willing sellers. Agricultural users with senior rights hold an asset. Those with junior rights maintain liability. Both should price the position before the next Operating Guidelines cycle rather than after. The 700,000 acre-feet of additional System Conservation water across 2026 through 2028 has to come from somewhere, and the Guidelines say it comes from voluntary agreements with Contractors.
Data centers, manufacturing, and industrial development. One sentence from the Record of Decision belongs in front of every board evaluating a western site. Operating Guidelines issued under the Framework are not intended to, and do not, guarantee or assure any water user a firm supply for any specified period. A signed municipal service agreement does not change that. Neither does a decreed water right.
Municipalities and special districts. Providers will face pressure to demonstrate supply adequacy for new industrial connections. That pressure travels downstream into development agreements, tap fees, and conditions of service.
What Developers and Water Users Should Be Considering Now
A water right on paper may no longer be enough. Current and future project planning and diligence need to address:
- Long-term physical supply. Will the proposed source remain reliable during extended drought?
- Priority and curtailment risk. How could shortages, conservation requirements, or future operating decisions affect actual deliveries? For Colorado and New Mexico users, model a Compact call scenario separately from a Lower Basin shortage scenario. They run in opposite directions.
- Groundwater and municipal constraints. Projects that do not directly rely on Colorado River water may still face increasing pressure on local supplies. This is especially true in New Mexico, which already faces an ever-changing landscape pursuant to groundwater restrictions.
- Project design. Cooling technology, reuse, alternative supplies, storage, and conservation measures may affect both permitting risk and project economics.
- Financing and development risk. Water availability should be evaluated early in site selection, permitting, contracting, and financing. This should not occur after major development decisions have already been made.
- Contractual water positions. Intentionally created surplus balances, forbearance agreements, and delivery agreements carry forward under the Framework but on terms the next Operating Guidelines may adjust. Confirm what a counterparty actually holds before pricing it.
- Reopener risk in long-term contracts. Water supply agreements written against the 2007 Interim Guidelines reference a framework that expires this year. Review force majeure, shortage-sharing, and price adjustment provisions against the new two-year cycle.
- Tribal water rights. The Record of Decision anticipates integration of unquantified tribal water rights once resolved. Settlements in progress will change the arithmetic in specific basins, and the federally managed pool is a discretionary federal instrument rather than a substitute for quantified rights.
Why This Matters in Colorado
Colorado is an Upper Division State. It takes no mandated delivery reduction under the 2027-2028 Operating Guidelines. That is not the same as insulation. Three exposures matter.
First, the CRSP Upper Initial Units. The sideboards contemplate maximum use of Flaming Gorge, Blue Mesa (the primary storage reservoir of the Aspinall Unit), and Navajo Reservoir to release additional water if needed to protect infrastructure at Glen Canyon Dam. Interior states these units will be operated consistently with their current authorities and existing Records of Decision, none of which this Record of Decision modifies, and anticipates executing an agreement describing a planning process within those authorities. No new authority has been claimed and no agreement has been executed. Blue Mesa drawdowns nonetheless reach Gunnison Basin storage, hydropower generation, and recreation-dependent economies on the Western Slope.
The Guidelines sharpen this. Section 5.2 provides that Interior will conduct drought operations at the CRSP Upper Initial Units under a process set out in an agreement concerning drought operations at those facilities, and states that the provision assumes the Upper Basin States reach agreement. If they do not, the Secretary conducts drought operations consistent with existing authorities. Colorado has a negotiating position here and a limited window in which to use it.
Second, voluntary Upper Basin contributions of up to 200,000 acre-feet per year. Voluntary at the federal level does not mean costless at the state level. Someone supplies that water. Colorado agricultural users are the most likely source, and the mechanism will be compensated fallowing, forbearance, or conserved-use agreements rather than administrative curtailment.
Third, Compact exposure. A Lee Ferry shortfall is an Upper Division problem first. Colorado holds the largest Upper Basin apportionment under the 1948 Upper Colorado River Basin Compact. Administration under a Compact call would reach post-1922 rights, and that category includes much of the West Slope irrigation base along with the transmountain diversion infrastructure that supplies Front Range municipal and industrial demand. Front Range data center, semiconductor, and manufacturing projects that never touch a Colorado River diversion still sit downstream of that risk through their municipal providers.
Why This Matters in New Mexico
New Mexico is not presently facing the same federal shortage structure as Arizona, California, and Nevada. It is an Upper Basin State, and the 2027-2028 Operating Guidelines impose no delivery reduction on it. But that does not make New Mexico projects immune from the broader trend. Local water shortages, groundwater constraints, interstate obligations, drought, and growing demand from large-scale development are placing increasing scrutiny on whether proposed projects have a dependable long-term water supply, not merely a legal entitlement to withdraw water.
New Mexico carries a specific exposure the other Upper Basin States do not. Navajo Reservoir is one of the three CRSP Upper Initial Units named in the sideboards. It also carries Navajo Nation settlement obligations and supplies the Navajo-Gallup Water Supply Project. The San Juan Basin depends on that system for oil and gas operations, power generation, and municipal supply. Any drawdown to protect Glen Canyon Dam runs through a reservoir that is already committed several times over. The same Section 5.2 contingency applies: absent an Upper Division agreement, Interior proceeds under existing authorities.
The larger point for New Mexico is that pressure arrives on two systems at once. Most of the state’s population and irrigated acreage sits in the Rio Grande Basin, which faces its own constraints from interstate litigation and Lower Rio Grande groundwater administration. A company evaluating a New Mexico site is underwriting exposure in both basins, not one.
The result is a changing diligence landscape: water availability is becoming a core siting, permitting, financing, regulatory, and project-risk issue.
What Comes Next
The Record of Decision is a milestone, not a resolution. Several dates follow.
- New operations begin October 1, 2026, under the 2027-2028 Operating Guidelines.
- The Guidelines take effect only on execution of the necessary implementing and parallel agreements. Those agreements are not yet in place, in either basin.
- Absent a Lower Basin implementing agreement, no new Intentionally Created Surplus may be created after December 31, 2026. Contractors relying on ICS should confirm status well before that date.
- A Section 106 programmatic agreement for historic properties is anticipated for execution before October 2026.
- An amendment to the Lower Colorado River Multi-Species Conservation Program Habitat Conservation Plan and an associated Biological Opinion are anticipated in January 2027, extending incidental take coverage to 2055.
- The binational process with Mexico under the 1944 Water Treaty proceeds separately through the International Boundary and Water Commission and is not yet complete.
- Interior will issue the next set of Operating Guidelines in the August preceding the following two-year interval, after consultation with the Basin States and Basin Tribes and a public comment opportunity.
Developers, utilities, municipalities, lenders, agricultural producers, and major industrial water users should expect continued regulatory change. Evaluate now how future shortages, conservation obligations, or a Compact call could affect planned projects and existing operations.
Beatty & Wozniak, P.C. is closely monitoring the post-2026 Colorado River process and its implications for energy, infrastructure, industrial, agricultural, and other water-intensive development throughout the West. Clients evaluating water supply, project siting, permitting, or regulatory risk should consider these issues early in the development process. For more information, contact Bret Sumner, Miguel Suazo, and Devon Bell.