Archives for category: buying and selling water

The importance of change

May 10, 11 //

This blog post is about CHANGE. CHANGE is tough. A water right CHANGE is really tough. Not only does a water right CHANGE impact social norms, but it also impacts the basis of life–water. A CHANGE process that receives scrutiny from the state’s administrative agency, and also the public potentially adversely affected.

Even so, our ability to change water rights among users and uses is a basic premise of water marketing. And for markets to efficiently allocating resources, CHANGE is essential.

For this reason, I wanted to highlight a recent article on Montana water rights changes by the Trout Unlimited, Montana Water Project: Changing Changes; A Road Map for Montana’s Water Management. This article was first published in the University of Denver Law Review and can be purchased here. I recommend doing so.

I’ll be the first to admit reading law review articles is not what gets me up in the morning, but this article is the exception.

This paper states it best: ”The hallmark of twenty-first century water management is the transfer of water from one use to another.”

kissing frogs in the water market

May 7, 11 //

In a recent conference call with a water investor he stated:

“You kiss a lot of frogs to find a prince!”

As a consultant in this market, this quote hits close to home. So close to home, I wanted to elaborate on this fairy tale analogy. Water’s complex nature makes defining these rights difficult. Proper due diligence is essential to all water rights transactions. Evaluating these rights is like kissing a frog. The paper filing (frog) for water rights rarely depict the actual water use and more importantly the amount of water that will survive the administrative change process to new uses.

Kissing frogs isn’t pretty, but it is essential to finding a prince in the water market.

chilean water market (revisited)

January 14, 11 //

On a January 2009 trip to Chile, I posted a blog on the country’s water market. Here’s the link to this original post. Well I’m back — in Chile, that is — and I wanted to revisit the status of their water market. In my original blog post, I addressed the challenges the country faces with administration of water rights.

A few months later, the New York Times published an article highlighting these issues: Chilean Town Wither in Free Market for Water. This article accurately portrays the need for regulations to administer trades. Most importantly, the need to govern the amount of water entitled to and used. We still face these challenges in the American West. A failure to measure and allocate accordingly undermines the entire private property rights system.

However, I also found some of the information in the article misleading and inaccurately critical of markets. For example, the town that has gone dry, just happens to be hailed as the “driest place on earth.” And this was a place that water rights were used to grow alfalfa and corn. If water trades have displaced citizens from this community, this could be a result of markets doing what they do best–encouraging resource conservation. Should we really be trying to grow water loving corn and alfalfa in the driest place on earth?

what the water market can learn from christmas gifts

December 24, 10 //

On the eve of Christmas, I wanted to recognize the water market implications of this morning’s NPR story - Why Economist Hate Presents.

In this story, seventh graders were randomly given gifts (candy) and asked to rank (1 lowest, 10 highest) the value of their gifts. The score was 50. Then, the class was allowed to trade, which they were naturally inclined to do, and, in fact, came up with the idea of “trade”on their own. After a frenzied marketplace exchange, the new value of the same gifts was 82 . The net worth of the exact same gifts in an different allocation increased 32 points.

Now imagine your Christmas gift is 1863 water right. Although the perceived value of this right to the original claimant was an 8, the perceived value to you is much less. Now, imagine you could change its historic use or trade the right to a higher valued use. Just think of the gains from trade that would occur. And that is how and why the water market works.

Merry Christmas!

colorado water marketing conference – highlights

December 13, 10 //

If you follow me on twitter, you most likely picked up on my #COwatermarketing tweets delivered live from the 2^nd Annual Colorado Water Marketing Conference. If you don’t follow me on twitter, you should. Since I was already in the neighbor and have completed a couple projects in Colorado, I couldn’t miss the opportunity to hear what the water wizards of Colorado had to allow. Rather than keeping this knowledge to myself, I felt inclined to share my highlights.

Water Rights Valuation. The foundation of all water values are clearly defined underlying water rights. Historic consumptive use remains the basis of most valuations in Colorado. Appraisals can be orders of magnitude off, if the volume is not accurately quantified. For example, are you appraising a one story house or a two story house?

Water’s New Paradigm. We are facing a shift in paradigms. The old paradigm of resource extraction is shifting to a new paradigm focused on sustainability.

Instream Flows. Colorado is making strides in its recognition and execution of instream flows. This work is being advanced through the tenacity and execution of the Colorado Water Trust. Although strategic legislation, such as tax credits, bring additional value to instream flows, Colorado still suffers from a lack of private ownership that are driving the most active instream flow markets.

Ag to Urban Transfers. “Property rights held by farmers are valuable assets.” Exactly! – a resonating theme in almost all of my material. One obvious change is the transition from buying and drying to interruptible leases and efficiency projects. Also of interest was water transfers involving NPDES programs. This could result in an interesting alignment of water quantity and quality markets.

Augmentation. Referred to as mitigation in many Western states, I consider Colorado the leader in Augmentation/Mitigation plans. The basic premise is in an over appropriated basins, you must mitigate or augment new water use or changes in water use to prevent injury to senior water users. These augmentation plans vary from umbrella storage release plans in the Upper Gunnison to small augmentation recharge basins in the South Platte.

Changes and Transfers. Although Colorado’s water market is one of the most advanced, it still struggles with exceptionally high transaction costs. One figure estimated transferring 25 ac-ft at up to $500,000 in engineering and attorney fees – excluding water costs. In my opinion, this is not a good thing and transaction costs are one of the biggest challenges water markets face.

Super Ditch. I didn’t place Super Ditch under Ag – Urban transfers because I feel strongly it deserves its own section – probably its own blog post. Nevertheless, the Super Ditch is a collaboration of 7 ditch companies in the Arkansas River Basin to lease water back to various municipal institutions at $500 an ac-ft. The beauty of this structure is the joint-effort allows for rotational cropping and a leasing structure where Ag maintains control of their water rights assets. Rather than the municipalities walking in the back door and striking 1 – off water deals, they now have a store front (Hi, welcome to the Super Ditch) they can visit. In my mind, this is a win for agriculture and a win for the water market.

5 lessons from my first water marketing job

November 19, 10 //

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An evolved version of my first water marketing job has opened up. If you are interested in environmental water transaction experience in Western Montana, I recommend you apply. This current project manager position is with the Clark Fork Coalition, who recently took in the Montana Water Trust. I was the first project manager for the Montana Water Trust. In this position, I sowed my seeds and developed my passion for water markets. I also learned some valuable lessons and thought I’d share.

1.Focus on the goal, not the method. At the time I was executing some of the first “private” instream flow leases in the state and there was no road map for this work. As a result, we defined our specific objective for each project and then pursued any option possible to achieve this objective. The finish line is what matters, not how you got there.

2. Measure the results. In the world of conservation and ecology, successes can be difficult to measure. When you lease a water right you can physically see and measure this achievement. This makes the work fun, rewarding, and meaningful. Develop metrics and measure results.

3. Tell success stories. In one of Montana Water Trust’s first instream flow leasing meetings a skeptical rancher expressed: “This is the worst idea since the reintroduction of wolves.” Today, more than 390+ CFS has been leased instream through 50+ private transactions. It became obvious early, the next transaction came from the success story of the previous. Tell your success stories – again and again.

4. Trust is everything. I entered this job with a water resources degree (fly-fishing) and a desire to restore flows for fish. I soon found a love for driving down dusty roads and putting together water deals. What I learned is its not about water or fish, its about establishing relationships – thanks Delbert. Trust is the foundation for water rights transactions.

5. Vigorously execute. It’s better to vigorously execute than to perfectly plan. The Montana Water Trust had a simple vision: restore streamflows. Rather than spending our time, energy, and resources planning the perfect deal, we devoted these resources to putting the deals together.

2 cents on California water deal

November 15, 10 //

Kings County, CA

I just read “Farmers Water Deals Stirs Debate” in the New York Times and couldn’t resist sharing my two scents. Maybe it was the use of the word “debate” that got me excited?

As a quick disclaimer, I’ve worked on water rights projects in 18 states and California is not one of them. If there is a critical detail to California that I’m missing, please don’t hesitate to let me know at hello@loticwater.com.

Here we go….

1. Lets put this deal into perspective. Based on volumes (AC-FT) we are referring to roughly 2,000 irrigated acres (assuming a conservative 1 ac-ft per acre). According to the USDA, King County has 421,571 irrigated acres. The “water deal” equates to less than 0.4% of all the irrigated acres in King County. So, please don’t make it sound we won’t have any food left to eat if this deal goes through. We’ll have plenty.

2. “What am I going to tell folks when farmers sell their water and put farm workers out of a job and they make millions at the publics’ expense?” Well, Juan I would tell them something like this: Folks, we just sold water associated with a small portion of the Dudley Ridge Water District for a 1,070% return on investment or $10.7 million profit. Since this water accounts for less than 10% of the irrigated acres in this District, we will be reinvesting these proceeds into the district. This money will not only help with the current water risk and uncertainty in delivery, but also decrease the tax burden of the district – not to mention, reduce public expenses on the property. Finally, the beauty of this deal is we are only selling the water. Thus, we can still pursue less water intensive management practices on the land historically irrigated with this water. Thank you for your time. Juan in 2012!

3. Simple economics. For the record, I’m not an economist, but I have plenty of friends who are, so I’m sure they’ll check me on this one. As the article reads, this water deal is drying approximately 2,000 acres of agricultural land. Irrigation that the article describes as follows: “without a consistent supply of water, farmers face economic chaos, if not ruin.” If completed, the water will be used to service a proposed development of 23,000 homes. Without crunching the numbers, I’m pretty sure this project will create a net gain in California jobs and wealth.

20th Water Marketing Presentation of the Year, Thank You!

November 13, 10 //

This coming week I am making the commute – thank goodness for an iPod full of great podcasts – to Billings America for my 20th water marketing presentation of the year. This presentation will be delivered at the 2010 annual convention of the Montana Association of Conservation Districts. I’ve posted the meeting agenda below. As with previous presentations, this talk will provide an overview of the water market – focusing on clearly defined water rights, market structure, market drivers, market challenges, market activity, success stories, the nuances of buying and selling water rights, etc.

In addition to extending an invitation to this event, I also wanted to take the opportunity to thank all the organizations, agencies, and businesses that have given me an opportunity to present this year.

2010 Convention Agenda

buying and selling water rights presentation

November 6, 10 //

In addition to my written materials from the Montana Water Law conference, I’ve received requests for my presentation. Enjoy!

Buying and Selling Water Rights in Montana: What’s Working and What’s Not?

View more presentations from Lotc Water Marketing .

Buying and Selling Water Rights in Montana: What's Working and What's Not?

October 25, 10 //

Below is a summary paper for my presentation at a recent Montana Water Law Conference. The document provides a brief introduction to what is working and what’s not in the Montana Water Market.

Buying and Selling Water Rights in Montana: What’s Working and What’s Not?