Average Price of Montana Water?

Lotic is sponsoring of the 9th Annual Montana Water Law Conference in Helena, MT. A six-foot display table is included with the sponsorship package. Rather than go for the standard "science fair board" describing Lotic's services, I decided to head a different direction: ask the attendees a question.

What is the Average Price of 1 Acre-Foot of Montana Water?

Each attendee is encouraged to submit their guess for the average sales and lease price of Montana water between 2003 and 2009. The answer is based on Lotic's comparable sales database of 55 lease agreements and 14 sales and will be posted on this blog October 9th.

The closest guess will receive the following:

1. 1 hour of Lotic's consulting services
2. a Lotic branded coffee mug
3. a bag of premium ground coffee.

I can't promise you these wonderful prizes, but if you would like to submit your guess, please email your answers to chris@loticwater.com.

New Water Book: Heart of Dryness

A friend, and one of the great minds in the emerging water market, Jamie Workman, recently published his first book: Heart of Dryness. I'll let the video above speak for itself. Enjoy!

the economist's take on the water market

Thanks to twitter I recently discovered The Economist's April 2009 article on the water market. I like it so much, I decided to make a post solely on this article. Here are my favorite points taken directly from the text:

1. Ideally, efficient water use would be encouraged by charging for it, but attempts to do so have mostly proved politically impossible. A more practicable alternative is a system of tradable water-usage rights.

2. As our article explains, many water problems have global causes: population growth, climate change, urbanisation and, especially, changing diets. It takes 2,000 litres (530 American gallons) of water to grow a kilo (2.2lb) of vegetables but 15,000 litres to produce a kilo of beef—and people are eating more meat.

3. Because water is usually free, thirsty crops like alfalfa are grown in arid California. Wheat in India and Brazil uses twice as much water as wheat in America and China. Dry countries like Pakistan export textiles though a 1kg bolt of cloth requires 11,000 litres of water.

4. Any economist knows what to do: price water to reflect its value.

5. The result of this trading is a market that has done what markets do: allocate resources to more productive use.

montana mitigation water

The 2007 Montana Legislature created MCA § 85-2-360 Ground Water Appropriation in Closed Basins. This legislation was passed in response to a 2006 “Trout Unlimited” court case that confirmed groundwater and surface water connectivity. The statute requires water users in closed basins to mitigate net depletion of new groundwater use (over 35 gallons per minute and 10 acre feet per year) for permit applications.

The DNRC’s rules governing new groundwater development under this statute require the following: 1) a hydrogeologic study to determine net depletion, 2) augmentation of net depletion mitigation and aquifer recharge, if a net depletion does occur, and 3) an extensive mitigation plan with necessary permit and change applications filed with the DNRC.

Step 3) appears to represent the greatest challenge and the bottle neck to the emerging mitigation market. To date, not one single project has reached final authorization (see graph above). The hope is this process will become more efficient over time. Nevertheless, it is off to a slow start.

consumptive use is king: water market volumes

If you own or run a business, you understand the phrase: "cash is king!" Similarly, consumptive use volume is the cash equivalent in the water market. What do I mean by this? Well, an increasingly common theme for water transactions across the West is for the administrative agencies to only transfer the water right volume of water historically consumed. This action decreases the potential for adverse impacts and helps ease resistance to water market transactions. As a result of this administrative stance, the single most important volume in the water market has become "consumptive use." To better understand this importance, lets look closer at the volumes associated with surface irrigation water rights as they relate to a basic income statement.

1. Diversion Volume (Revenue). The diverted volume pertains to all of the water diverted from the source. For example, lets say a water right's beneficial use is for flood irrigation. If this water right owner opens their headgate and runs 1 cubic feet per second for 120 consecutive days, the diverted volume for this water right is 237.6 acre-feet. For the purposes of the income statement analogy consider the diverted volume the Revenue.

2. Nonconsumptive Volume (Expenses). When applying traditional flood irrigation methods much of the diverted volume is not consumed by the crop. This water includes conveyance water, return flows, waste and seepage water. In essence, this water is the equivalent of expenses. It is required for business (to deliver water), but doesn't appear on the bottom line at the end of the day. The nonconsumptive use varies from project to project and is difficult to calculate because of the dynamics of water.

3. Consumptive Use Volume (Cash): Consumptive use pertains only to the annual volume of water used for beneficial purposes. The consumptive use for irrigation includes water transpired by growing vegetation, and evaporated from soils. This is water that does not return to ground or surface water. As a result, this is the water that is available for transfers -without adversely impacting other users- and directly represents the water market "profit" at the end of the day.

When viewing your water rights from a business perspective, diverted volume (revenue) minus your nonconsumptive volume (expenses) equals you water right conumptive use (cash). This value dictates you water right value and defines the water market opportunities for your water right assets.

oregon water right conservation: andy fischer interview

Andy Fischer is currently the Conservation Project Manager for the Deschutes River Conservancy located in Bend, OR. He works to restore streamflow in the Deschutes River Basin through implementing large-scale irrigation efficiency projects. Andy is a native of Missoula, MT and enjoys fishing, cycling, skiing and hunting. In addition to his work in the Deschutes, Andy is currently a graduate student at the University of Montana and is involved in an instream flow project for Montana Trout Unlimited.

1. What is your experience with irrigation efficiency projects?

I currently work with irrigation districts and landowners in the Deschutes River Basin to help them improve their irrigation systems and return conserved water to the river. I’ve been involved implementing irrigation efficiency projects since I started as an intern for the Deschutes River Conservancy in 2006. Since the inception of our conserved water program, we’ve permanently restored over 55 cfs of streamflow in the Deschutes River and its tributaries.

2. What framework exists in this market (that doesn't exist in other markets) that makes these projects possible?

First, the regulatory framework in Oregon allows for carry water (irrigation water that is lost to seepage and evaporation due to inefficiencies in an irrigation delivery system) to be protected instream or spread to new lands as a result of an efficiency improvement. The opportunity to apply conserved water to another beneficial use is through Oregon’s Conserved Water statute (ORS 537.455 to 537.500, OAR Chapter 690, Division 18). The Oregon Water Resources Department has a staff person dedicated to processing these applications.

Second, we have access to a wide range of funding sources including hydroelectric facilities on the Deschutes River that have mitigation funds available for projects that improve the fishery.

Third, there are huge canals systems in Central Oregon that waste a lot of water. This means there are plenty of opportunities for conservation.

3. What are the primary challenges facing these efforts?

a. Funding: Chasing funding opportunities is a never-ending process with constant ups and downs. Restoration funders rarely pay for an entire project. We rely on a diverse array of funding sources including District or landowner cost share. Securing funding for these projects requires close coordination with the irrigation districts and a significant cost share commitment.

b. Permitting: Depending on the funding sources, we are often required to conduct a NEPA consultation in the form of an environmental assessment. Since canal systems are often very old, are often considered valuable cultural resources by the State Historic Preservation Office. We frequently have to propose mitigation such as photo documentation, interpretive signage, or an agreement to never pipe a particular section.

c. Legal Challenges: Landowners living adjacent to canals have challenged the easements rights of irrigation districts to pipe their canals. In addition, there are a variety of challenges that individual water right holders and landowners have employed to stall projects.

d. Budget forecasting and cash flow: Despite our best efforts to refine budgets, they often change due to fluctuating prices on piping materials. Revising grant budgets and aligning grant payments with construction invoices is always challenging.
4. What water market opportunities exist efficiency projects?

Conserved water can be used instream, for mitigation or spread to new lands. Currently, the largest demand is for instream use. Our conservation program Sometimes there are hydroelectric opportunities when enclosing a canal in a pipeline. A number of irrigation districts in Central Oregon have partially financed their piping projects through future hydro revenues.

5. Where to you see this aspect of the water market headed?

My hope is that other Western States will follow Oregon’s lead by adopting laws that allow for the transfer of seepage water to instream flow as a result of conservation activities. Conservation has the potential to meet increasing demands for consumptive uses and instream flows.