WATER MARKETS AT WATER MARKETS AT

WORK: AN IDAHO MODELWORK: AN IDAHO MODEL

Don Reading, Ph.D.Don Reading, Ph.D.Climate Impacts Group, University of WashingtonClimate Impacts Group, University of Washington

Ben Johnson Associates, Tallahassee, FloridaBen Johnson Associates, Tallahassee, Florida

Climate Prediction Applications Science Workshop Climate Prediction Applications Science Workshop Research and Applications on Use and ImpactsResearch and Applications on Use and Impacts

March 9-11, 2004March 9-11, 2004Tallahassee, FloridaTallahassee, Florida

How Markets Work

Fee simple transfer of ownership of property or commodity

Must have a property right to transfer

Benefit to both sides – win/win situation

Market prices reflect societies value of a good

Water is NOT owned in a physical fee simple sense

Water rights are usufructuary – it is a right to divert and use

Water supply is NOT fixed

Water is a ‘necessity of life’

The nature of property rights for water

The evolving nature of water rights

►Riparian ...legal theory that owners of land abutting lakes, rivers, or streams were guaranteed the ‘natural flow without diminution or alterations’ of the water course. The idea was that property was an estate to be enjoyed for is own sake and left undisturbed. (Water Follies: Groundwater Pumping and the Fate of America’s Fresh Waters, Robert Glennon)

►Prior AppropriationThe essence of this doctrine is a queuing system based on “first-in-time first-in-right”. (Water Follies)

►Hybrid of Riparian & Prior AppropriationThere is also a relative new-comer to the water rights scheme that is being embraced by a growing number of eastern states, that of a hybridized version of the riparian and prior appropriation doctrines.(Sea Grant Law Center, University of Mississippi)

Idaho Water Idaho Water MarketMarket StructureStructure

Prior Appropriations water rights are defined by:

SourcePriority DataPoint of diversionPlace of usePurposes of useTime of useQuantity divertedConsumptive Use

Water Marketing in IdahoGeneral Parameters

Water banking considered beneficial use (1977)

No injury to third party (Pareto Optimal)

Mitigation required

Conjunctive management with groundwater

Established procedure for determining injury/mitigation

Moving party does not have to bear burden

Hydrologic modeling used to determine impact

Only consumptive use to buyer

Rental pools (1936)

Lemhi, Payette (2000)

LocationDate Start Length of Term

Water Source Administration

Recent Price - Posted Price or

Minimum (acre foot)

Activity (acre feet per year) Purchaser

Rent or Lease

Rental Pools:

District 1 Upper Snake 1930's Up to 20 years Stored Committee of 9 $2.95/$10.50 250,000 Irrigation/Power/In Stream

District 63 Boise River 1988 Annual Stored Local Dist. 63 Board $6.50/$6.93 3,000 Irrigation/Power

District 65 Payette River 1990 Annual Stored Local Dist. 65 Board $3.20/$8.50 150,000 Irrigation/Power/In Stream

Shoshone-Bannock Upper Snake 1990 Up to 5 years Stored Tribe

In-Stream Flows:

Lemhi River Lemhi River 2000 Part Year to Annual Surface Local Committee

based on net economic

benefit ($75-$100) 300 In Stream (BoR)

District 65K Payette - Lake

Fork Creek 2001 Annual Surface Local Committee $2.70 2 Conservation

Water Bank:

State State 19791 year lease to

permanent transferSurface/ Ground Water Resource Board $11+ 5,000 Irrigation/Power

Snake River 2001 AnnualIn Stream (NMFS) Water Resource Board $50 40,000 In Stream (BoR)

Permanent Transfer

State State 1900's PermanentSurface/ Ground Water Resource Director Various All

Idaho Water Markets - Recent Values

WATER BANKWATER BANK

The owner/lessor acknowledges the following:

1. Payment to the owner/lessor is contingent upon the sale or rental of the right from the bank.

2. While a right is in the bank, the owner of the right may not use the right even if the right is not rented.

3. A right accepted into the bank stays in the bank until the Board releases it or until the lease term expires.

4. While a water right is in the bank forfeiture provisions are stayed.

5. IDWR reviews validity of water right – not legally binding.

Water Bank Conditions

WATER BANK ACTIVITY

In 2003 approximately 175,000 acre feet in the Water Bank

However only approximately 5,000 acre feet annually are sold, rented or leased

Primary reason for bank is to stay the clock (use-it-or-lose-it)

Activity has been increasing in recent years

Lease activity has been increasing each year

RENTAL POOLSRENTAL POOLS

Idaho Rental Pools

Limitations• Administratively determined price• “Last to fill” penalty for water in the pool

Global Rental Pool (2003, District 1)• All storage owners must participate (abandoned)• All owners share in rental receipts• “Last to fill” is eliminated• In 2003, the driest year on record, there were no curtailments, but

“price too low”

Caveats• Three checks written: administrative fee, official price, payment

“under the table”

Considerations for Rental

• For use in Idaho only (year by year legislation for in stream)

• No injury to other water rights (Pareto Optimum)

• No enlargement in use of a right

• Water must be beneficially used

• Water must be sufficient for the intended use

• Water use must be in the local public interest

(effects on public water resource – not secondary effects)

Global Pool

• Modify rental pool procedures

• Carry over greater than 25% of the water right

• Distribution of rented storage by formulaFor Suppliers

For Rental Price

• Aimed at making mitigation available every year

• Universal participation abandoned 1st year

• Pricing formula administrated – auction preferred?

IN STREAMIN STREAM

Lemhi

• Instream flows (HB 385)

• Less than full season allowed (now other basins)

• No effect on existing permanent water right

• Junior right holders cannot divert (not specific to Lemhi)

• Priority of water right is maintained

• BoR rent on a per acre basis

Payette – Lake Fork Creek

• Irrigation districts invest in conservation measurescontrol structuresremote water monitoring gaugesdam modification

• Restore habitat for native fish

• Leased water (small amount) to supplement project

PRIVATE TRANSFERSPRIVATE TRANSFERS

Private Transfers

• For use in Idaho only (additional tests on supply and “reasonably anticipated” demands for water)

• No injury to other water rights (Pareto Optimum)

• No enlargement of a right – only consumptive use transferred to buyer

• Water must be beneficially used

• Consistent with “conservation of water resources”

• Basin of origin local economy not “adversely affected”

• Water use must be in the local public interest

(effects on public water resource – not secondary effects)

Number of Water Rights Transfers - Idaho

0

50

100

150

200

250

300

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Fiscal Year

Num

ber o

f per

mits

Snake River Moratorium after 1992 ( no new water rights)

Recent transfers are a high percent 'change of use' (dairies)

This is the number of permits not volume of water

LocationDate Start Length of Term

Water Source Administration

Recent Price - Posted Price or

Minimum (acre foot)

Activity (acre feet per year) Purchaser

Rent or Lease

Rental Pools:

District 1 Upper Snake 1930's Up to 20 years Stored Committee of 9 $2.95/$10.50 250,000 Irrigation/Power/In Stream

District 63 Boise River 1988 Annual Stored Local Dist. 63 Board $6.50/$6.93 3,000 Irrigation/Power

District 65 Payette River 1990 Annual Stored Local Dist. 65 Board $3.20/$8.50 150,000 Irrigation/Power/In Stream

Shoshone-Bannock Upper Snake 1990 Up to 5 years Stored Tribe

In-Stream Flows:

Lemhi River Lemhi River 2000 Part Year to Annual Surface Local Committee

based on net economic

benefit ($75-$100) 300 In Stream (BoR)

District 65K Payette - Lake

Fork Creek 2001 Annual Surface Local Committee $2.70 2 Conservation

Water Bank:

State State 19791 year lease to

permanent transferSurface/ Ground Water Resource Board $11+ 5,000 Irrigation/Power

Snake River 2001 AnnualIn Stream (NMFS) Water Resource Board $50 40,000 In Stream (BoR)

Permanent Transfer

State State 1900's PermanentSurface/ Ground Water Resource Director Various All

Idaho Water Markets - Recent Values

FLORIDA WATER MANGEMENTFLORIDA WATER MANGEMENT

Consumptive Use Permit (CUP)—Allows a user to withdraw a specified amount of water, either from the groundwater or from a lake or river. The water can be used to irrigate crops, nursery plants or golf courses; manufacture various products, including citrus; operate industrial plants; and provide drinking water for domestic consumption. CUPs were created as the key mechanism by which the water management districts and the state can regulate the consumption of water from the most beneficial uses and in the best interest of the public.

Because water is a public resource benefiting the entire state, Florida law requires waters in the state to be managed on a state and regional basis. Water is a statewide resource that is permitted and managed by districts for the benefit of all within the state. While it is politically important to look to local sources first, it may be in the best interest of the environment, and the potential sending and receiving regions, to revisit the impacts of allowing transfers, both economically and environmentally. One of the unintended consequences of Florida’s “local sources first” policy is that districts and localities think they “own their water,” and must prevent access by any other district or locality. (Improving Florida’s Water Supply Management Structure, A Report form the Florida Council of 100, p. 14.)

Florida law states water is a ‘public resource’

Recommendation 4. Find ways to encourage public-private partnerships and public-public

partnerships.

Allowing market-driven forces to play a role in water management would enhance water supply,

conservation, distribution efficiency and the environment. Creating a structure and atmosphere

that better supports creative solutions to Florida’s water storage and distribution problem

would help to ensure that we are using water in a sustainable manner. Establishing more wholesale

water agencies that can make multiyear contracts to private enterprise would enable partnerships

to develop.

Furthermore, creating incentives for private companies and public entities to develop water

resources and build new water supplies and infrastructure are innovative ways to address future

water needs. If we are able to lease public lands for tree farming and other ventures, why not lease

lands for water supply development to public water suppliers? Excess water (i.e., excess to minimum

flows and levels and local consumption needs now and for the future) on and within state

land could become an income generator for the state and the locals from which water is supplied.

Improving Florida’s Water Supply Management Structure

A Report from the Florida Council of 100

Don Reading, Ph.D.Don Reading, Ph.D.

Climate Impacts GroupClimate Impacts Group

University of WashingtonUniversity of WashingtonKing BuildingKing Building4909 25th Avenue NE4909 25th Avenue NESeattle, WA 98195 Seattle, WA 98195

Ph: 206.616.5350Ph: 206.616.5350Fax: 206.616.5775Fax: 206.616.5775karpov@u.washington.edukarpov@u.washington.edu

Ben Johnson AssociatesBen Johnson Associates

Tallahassee Office: Tallahassee Office: 2252 Killearn Center Blvd. - Suite 2D 2252 Killearn Center Blvd. - Suite 2D Tallahassee, Florida 32309 Tallahassee, Florida 32309 Ph: (850) 893-8600 Ph: (850) 893-8600 Fax: (850) 668-2731 Fax: (850) 668-2731 email: staff@benjohnsonassociates.comemail: staff@benjohnsonassociates.com

Boise Office:Boise Office: 6070 Hill Road 6070 Hill Road Boise, Idaho 83703 Boise, Idaho 83703 Ph: (208) 342-1700 Ph: (208) 342-1700 Fax: (208) 384-1511 Fax: (208) 384-1511 email: dreading@mindspring.comemail: dreading@mindspring.com