Transcript Slide 1
Marketing Your Water:
Tips for Selling or Leasing of Groundwater and Surface Water Rights
Texas Water Laws and Regulations HalfMoon Seminars San Antonio, Texas July 31, 2008
Lynn Sherman
ALMOST ON PAR WITH 50’S DROUGHT 1950’s TODAY
Water Development Timeline 1950’s DROUGHT DAM BUILDING ERA “NO DEVELOPMENT” PERIOD 1960’s-1980’s 1980’s to Date
Number and Capacity of Large Reservoirs Completed by Decade Source: GAO, July 2003, “Freshwater Supply: States’ Views of How Federal Agencies Could Help Them Meet the Challenges of expected Shortages,” GAO-03-514.
Currently,
our
“dam builders,”
the Bureau of Reclamation and the Corps of Engineers, have
only one
large water storage project underway
in the entire country.
Water Development Timeline UNPARALLELED GROWTH POPULATION DOUBLES IN 2050 EXISTING SUPPLIES DECREASE BY 20% 1950’s DROUGHT DAM BUILDING ERA “NO DEVELOPMENT” PERIOD FUTURE 1960’s-1980’s 1980’s to Date
State Water Plan
could not be satisfied by current sources.
We need 3.7 million acre-feet of new water by 2010.
That is
20%
of current developed supplies and
1/2
of our additional long term need.
That is almost enough water to flood every city in Texas ½ foot deep.
And, it is needed in
2010
.
Cost of Necessary New Projects =
Where will the money come from?
since 1980, federal spending has been flat.
60,000 50,000 Total Public Spending Federal Spending 40,000 30,000 20,000 10,000 0 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 Year 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94
CBO, May 1999, “Trends in Public Infrastructure Spending”
Actually, in real terms . . .
FEDERAL SPENDING
70% In Last Twenty Years
Federal Spending State Spending Local Spending
3 out of 10 drinking water utilities and 4 out of 10 wastewater utilities do not collect enough revenue from users and other local sources to cover the cost of service.
Source: GAO, March 2004, “Water Infrastructure: Comprehensive Asset Management Has Potential to Help Utilities Better Identify Needs and Plan Future investments” GAO-02-764.
Private Capital
Myth #1
There is no demand for private capital or involvement of the private sector
What are the benefits of private capital?
availability & risk
50 40 30 20 10 0
Typical Project Risk/Return Profile Risk Return Potential Return Project Phase (years) Operation Residual
Source: The National Council for Public Private Partnerships
Compare experience in solid waste
• Crisis in early ’80s due to declining landfill capacity and increasing costs.
• Congress responded by eliminating tax exempt private activity bond cap for municipal solid waste disposal projects.
• As a result, over $15 billion in PABs have been issued since 1986 to solve the crisis.
Source: Stephen H. Howard, Sr. V.P., Lehman Brothers, Inc., testifying to the Congressional Transportation and Infrastructure Subcommittee on Water Resources and Environment, June 14, 2005.
Popularity of Financing Methods Source: U.S. Conference of Mayors Urban Water Council, “National City Water Survey 2005.”
Myth #2
Water marketing will result in price gouging
Why “price gouging” will not occur?
• Water is not sold on a wholesale basis unless it is cheaper than the next best alternative.
• There are no government granted monopolies for the sale and distribution of wholesale water.
• Private wholesalers have no ongoing rate setting authority, so rate increases must be set out in the initial contract.
Myth #3
Water marketing will result in abuse of the right of capture
Source: USGS
How to Value a Water Right
A Sr .
D G E Sr.
B C G 2 G 3 G 1 F
County Growth from 2000 to 2025 (certainly not an exhaustive list)
• Demand Growth Source: Lieutenant General Robert B. Flowers, Chief of Engineers, U. S. Army Corps of Engineers, before the Subcommittee on Water Resources and Environment, Committee on Transportation and Infrastructure, United States House of Representatives, May 7, 2003.
Percent Change in Projected Demand in Texas by Region
Pricing Considerations (certainly not an exhaustive list)
• Demand Growth • Adequacy of existing supplies
Cities surveyed nationwide that do not have an adequate 20-year water supply?
35%
Source: U.S. Conference of Mayors Urban Water Council, National City Water Survey 2005.”
Pricing Considerations (certainly not an exhaustive list)
• Demand Growth • Adequacy of existing supplies • Susceptibility to drought
“at least some part of the United States has experienced severe or extreme drought conditions every year since 1896.” Source: GAO, July 2003, “Freshwater Supply: States’ Views of How Federal Agencies Could Help Them Meet the Challenges of Expected Shortages,” GAO-03-514, p. 15.
Areas Prone to Drought 1895 to 1995
Source: GAO, July 2003, “Freshwater Supply: States’ Views of How Federal Agencies Could Help Them Meet the Challenges of Expected Shortages,” GAO-03-514, Figure 3.
Adequacy of Stored Supplies During a Significant Drought
Source: S. Roy,
et al.
, October 2005, “Evaluation of the Sustainability of Water Withdrawals in the United States, 1995 to 2025,”
Journal of the American Water Resources Association
, calculated using typical withdrawals and the lowest 3-year rolling average precipitation between 1934 and 2002 based on data from Solley
et al. (1998) and CPC (2003).
Pricing Considerations (certainly not an exhaustive list)
• Demand Growth • Adequacy of existing supplies • Susceptibility to drought • Total Quantity • Established Water Market • Location • Water Quality
According to the EPA,
45%
of assessed waters nationwide do not fully meet water quality standards
Source: ASCE,
et al.,
September 2004, “All Dried Up: How Clean Water is Threatened by Budget Cuts.”
Pricing Considerations (certainly not an exhaustive list)
• Demand Growth • Adequacy of existing supplies • Susceptibility to drought • Total Quantity • Established Water Market • Location • Water Quality • Development Costs (e.g., infrastructure, pumping, treatment) • Storage/Firm Supply/ Dependability • Seniority/Potential Effects on Others • Interbasin Transfer (surface water) • Instream and Other Natural Flow Needs
The environmental condition of our coastal areas is largely Fair to Poor.
Source: U.S. EPA, December 2004. National Coastal Condition Report II. Office of Research and Development/Office of Water. EPA 620/R-03/002. Overall national and regional coastal condition between 1997 and 2000.
Pricing Considerations (certainly not an exhaustive list)
• Demand Growth • Adequacy of existing supplies • Susceptibility to drought • Total Quantity • Established Water Market • Location • Water Quality • Development Costs (e.g., infrastructure, pumping, treatment) • Storage/Firm Supply/ Dependability • Seniority/Potential Effects on Others • Interbasin Transfer (surface water) • Instream and Other Natural Flow Needs • Indirect Reuse Potential • Operating History • Applicable Rules and Regs • Local Considerations (e.g., economic and political) • Existing Rates • Export Fees and Taxes • Timing
Shorthand Standard:
Cheaper
Marginal Cost/Value Pricing
alternative ― all things considered.
City of Round Rock's Water Supply Options
as evaluated by HDR in its "Lake Travis Raw Water Supply System," September 2005 (Draft)
Water Supply Option Lake Travis (Cedar Park) Lake Belton & Lake Travis (BRA & CP) Lake Travis (CP) & Lake Georgetown af/yr
19,000 19,000 19,000
Sum Total of Annual Costs (2005 to 2050)
$361,220,076 $371,439,125 $390,618,690
Average Annual Cost
$8,027,113 $8,254,203 $8,680,415
Unit Cost (af/yr)
$422.48
$434.43
$456.86
Unit Cost ($/1,000 )
$1.30
$1.33
$1.40
Groundwater (WaterTexas) Groundwater (Brozos Valley Water Alliance)
19,000 19,000 $439,374,507 $477,745,557 $9,763,878 $10,616,568 $513.89
$558.77
$1.58
$1.71
Groundwater (WaterTexas) Lake Travis (COA) & Lake Georgetown
19,000 19,000 $481,812,672 $520,388,026 $10,706,948 $11,564,178 $563.52
$608.64
$1.73
$1.87
Lake Travis (City of Austin) Groundwater (Southwest Water Company)
19,000 19,000 $526,081,465 $566,096,494 $11,690,699 $12,579,922 $615.30
$662.10
$1.89
$2.03
Average of all options
$1.65
Pricing Examples
Raw Water Rates of Certain River Authorities $140.00
$126.00
$120.00
$100.00
$96.00
$93.87
$74.95
$80.00
$58.65
$60.00
$51.88
$49.65
$40.00
$20.00
$0.00
LCRA GBRA LNRA SJRA LNVA (i) LNVA (m) BRA
City of Austin Wholesale Water Rates $8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.21
$2.00
$2.32
$2.47
$2.64
$2.67
$4.93
$3.10
$7.24
$1.00
$0.00
N ig ht H aw H k ig W h S V C all ey Cr ee W dm SC oo M r ar M sh ah a W a W SC SC A nd er so n W M ill ell M s B U D ra n R iv ch er M cr U D es N t W or th SC to w n M U D N or th A us Ci tin ty M o U f S D un # 1 Lo se st t V C re all ek ey V illa M U D ge o f S Tr av an L is C ea o.
nn a Ci W ty C o ID f R # 1 oll 0 Sh in ad gw y H oo d oll M an ow vil M U le D W W in SC de m er Ci e U ty o tili f P ty C flu o.
ge rv ille
1,000 gallons of water $13,000 ≈ most expensive (Source: Wine Spectator, April 30, 2003) $11,280 = evian (@ 82 nd and Quaker) $1.83 = City of Lubbock tap water
Ag vs. Urban Values
In California, an acre foot used in the semi conductor business produces $980,000 in gross state revenue, while the same acre foot generates only $60 when used on cotton or alfalfa.
In the Rio Grande Valley, the average transfer from ag to urban use produced net benefits of $10,000 per acre-foot in 1992.
Western State Water Transfers: Average Price Comparison (annual price per acre-foot) $747 Ag-to-Urban $197 Ag-to-Ag Based on 1,836 transfers in 12 western states from Jan. 1987 to Dec. 2005.
J. Brewer, R. Glennon, A. Ker, and G. Libecap, “Water Markets: Western Water Transfers from Agriculture to Urban Uses, 1987-2005” (Sept. 1, 2006).
Price Differentials: Ag-to-Ag vs.
Ag-to-Urban 1987 to 2005
The price difference between ag-to-ag and ag-to-urban rose from $111 in 1993 to $1,362 in 2003.
G. Libecap, Dept. of Economics, Univ. of Arizona, Tucson; Nat’l Bureau of Economic Research, Hoover Inst. (Nov. 29, 2005), Figure 2, p. 7.
Other Examples
Edwards Aquifer Transactions (price per acre-foot)
$ 6,000 $ 5,000 $ 4,000 $ 3,000 $ 2,000 $ 1,000 1998 1999 2000 2001 2002 2003 2004 2005 2006
$450 $400 $350 $300 $250 $200 $150 $100 $50
Roberts County Transactions (price per acre)
1975 1996 2000 2003 2006