If you follow me on twitter, you most likely picked up on my #COwatermarketing tweets delivered live from the 2nd 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.