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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 [email protected] ALMOST ON PAR WITH 50’S DROUGHT. Developed Supplies Per Capita. 1950’s.

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Marketing Your Water: Tips for Selling or Leasing of Groundwater and Surface Water Rights

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Marketing your water tips for selling or leasing of groundwater and surface water rights

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

[email protected]


Marketing your water tips for selling or leasing of groundwater and surface water rights

ALMOST ON PAR WITH 50’S DROUGHT

Developed Supplies Per Capita

1950’s

TODAY


Water development timeline

DAM BUILDING ERA

“NO DEVELOPMENT”

PERIOD

1980’s to Date

1960’s-1980’s

Water Development Timeline

DEVELOPED SUPPLIES

1950’s

DROUGHT


Number and capacity of large reservoirs completed by decade

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.


Marketing your water tips for selling or leasing of groundwater and surface water rights

Currently,

our “dam builders,”

the Bureau of Reclamation and the Corps of Engineers,

have only onelarge water storage project underway

in the entire country.


Water development timeline1

NEEDED SUPPLIES

POPULATION

DOUBLES

IN 2050

UNPARALLELED

GROWTH

EXISTING SUPPLIES

DECREASE BY

20%

DAM BUILDING ERA

“NO DEVELOPMENT”

PERIOD

FUTURE

1980’s to Date

1960’s-1980’s

Water Development Timeline

DEVELOPED SUPPLIES

1950’s

DROUGHT


Marketing your water tips for selling or leasing of groundwater and surface water rights

2007

2002

State Water Plan

“if a drought occurs in 2050,

almost half (43 percent)

of the municipal demand

could not be satisfied

by current sources.”

if a drought occurs in 2060,

about 85 percent

of the municipal demand

could not be satisfied

by current sources.


Marketing your water tips for selling or leasing of groundwater and surface water rights

We need

3.7 million acre-feet

of new waterby 2010.

That is20%of current developed supplies and 1/2 of our additional long term need.


Marketing your water tips for selling or leasing of groundwater and surface water rights

That is almost enough water to flood every city in Texas ½ foot deep.

And, it is needed in 2010.


Marketing your water tips for selling or leasing of groundwater and surface water rights

2002

2007

State Water Plan

Cost of Necessary New Projects =

$30.7 billion

approx. $18 billion


Marketing your water tips for selling or leasing of groundwater and surface water rights

Where will the money come from?


Marketing your water tips for selling or leasing of groundwater and surface water rights

since 1980, federal spending has been flat.

CBO, May 1999, “Trends in Public Infrastructure Spending”


Marketing your water tips for selling or leasing of groundwater and surface water rights

Actually, in real terms . . .

FEDERAL SPENDING

70%

In Last Twenty Years


Marketing your water tips for selling or leasing of groundwater and surface water rights

Federal Spending

State Spending

Local Spending


Marketing your water tips for selling or leasing of groundwater and surface water rights

3 out of 10drinking 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.


Marketing your water tips for selling or leasing of groundwater and surface water rights

Private Capital


Marketing your water tips for selling or leasing of groundwater and surface water rights

Myth #1

There is no demand for private capital or involvement of the private sector


Marketing your water tips for selling or leasing of groundwater and surface water rights

What are the benefits of private capital?

availability

&

risk


Marketing your water tips for selling or leasing of groundwater and surface water rights

Typical Project Risk/Return Profile

50

Risk

Return

40

Potential Return

30

Level of Risk/Return ($ millions)

20

10

0

1

3

4

5

6

7

8

9

2

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

Project Phase (years)

Proposal

Development

Construction

Operation

Residual

Source: The National Council for Public Private Partnerships


Marketing your water tips for selling or leasing of groundwater and surface water rights

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.


Marketing your water tips for selling or leasing of groundwater and surface water rights

Popularity of Financing Methods

Source: U.S. Conference of Mayors Urban Water Council, “National City Water Survey 2005.”


Marketing your water tips for selling or leasing of groundwater and surface water rights

Myth #2

Water marketing will result in

price gouging


Marketing your water tips for selling or leasing of groundwater and surface water rights

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.


Marketing your water tips for selling or leasing of groundwater and surface water rights

Myth #3

Water marketing will result in

abuse of

the right of capture


Marketing your water tips for selling or leasing of groundwater and surface water rights

Source: USGS


Marketing your water tips for selling or leasing of groundwater and surface water rights

How to

Value

a Water Right


Marketing your water tips for selling or leasing of groundwater and surface water rights

Sr.

A

F

E

Sr.

C

B

G

D

G3

G1

G2


Pricing considerations certainly not an exhaustive list

County Growth from 2000 to 2025

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.

Pricing Considerations(certainly not an exhaustive list)

  • Demand Growth


Marketing your water tips for selling or leasing of groundwater and surface water rights

Percent Change in Projected Demand in Texas by Region


Pricing considerations certainly not an exhaustive list1

Pricing Considerations(certainly not an exhaustive list)

  • Demand Growth

  • Adequacy of existing supplies


Marketing your water tips for selling or leasing of groundwater and surface water rights

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 list2

Pricing Considerations(certainly not an exhaustive list)

  • Demand Growth

  • Adequacy of existing supplies

  • Susceptibility to drought


Marketing your water tips for selling or leasing of groundwater and surface water rights

“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.


Marketing your water tips for selling or leasing of groundwater and surface water rights

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.


Marketing your water tips for selling or leasing of groundwater and surface water rights

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 list3

Pricing Considerations(certainly not an exhaustive list)

  • Demand Growth

  • Adequacy of existing supplies

  • Location

  • Susceptibility to drought

  • Total Quantity

  • Established Water Market

  • Water Quality


Marketing your water tips for selling or leasing of groundwater and surface water rights

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 list4

Pricing Considerations(certainly not an exhaustive list)

  • Demand Growth

  • Interbasin Transfer

  • (surface water)

  • Adequacy of existing supplies

  • Location

  • Instream and Other

  • Natural Flow Needs

  • Susceptibility to drought

  • Total Quantity

  • Established Water Market

  • Water Quality

  • Development Costs

  • (e.g., infrastructure, pumping, treatment)

  • Storage/Firm Supply/

  • Dependability

  • Seniority/Potential Effects

  • on Others


Marketing your water tips for selling or leasing of groundwater and surface water rights

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 list5

Pricing Considerations(certainly not an exhaustive list)

  • Demand Growth

  • Interbasin Transfer

  • (surface water)

  • Adequacy of existing supplies

  • Location

  • Instream and Other

  • Natural Flow Needs

  • Susceptibility to drought

  • Total Quantity

  • Indirect Reuse Potential

  • Established Water Market

  • Operating History

  • Applicable Rules and Regs

  • Water Quality

  • Local Considerations

  • (e.g., economic and political)

  • Development Costs

  • (e.g., infrastructure, pumping, treatment)

  • Existing Rates

  • Storage/Firm Supply/

  • Dependability

  • Export Fees and Taxes

  • Timing

  • Seniority/Potential Effects

  • on Others


Marketing your water tips for selling or leasing of groundwater and surface water rights

Shorthand Standard:

Cheaper

than

the

next

best

alternative

Marginal Cost/Value

Pricing

― all things considered.


Marketing your water tips for selling or leasing of groundwater and surface water rights

Example:

City of Round Rock


Marketing your water tips for selling or leasing of groundwater and surface water rights

Pricing

Examples


Marketing your water tips for selling or leasing of groundwater and surface water rights

1,000

$13,000 ≈ most expensive

(Source: Wine Spectator, April 30, 2003)

$11,280 = evian (@ 82nd and Quaker)

gallons

of water

$1.83 = City of Lubbock tap water


Marketing your water tips for selling or leasing of groundwater and surface water rights

Ag vs. Urban

Values


Marketing your water tips for selling or leasing of groundwater and surface water rights

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.


Marketing your water tips for selling or leasing of groundwater and surface water rights

In the Rio Grande Valley, the average transfer from ag to urban use produced net benefits of $10,000 per acre-foot in 1992.


Marketing your water tips for selling or leasing of groundwater and surface water rights

$747

Ag-to-Urban

$197

Ag-to-Ag

Western State Water Transfers:

Average Price Comparison

(annual price per acre-foot)

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).


Marketing your water tips for selling or leasing of groundwater and surface water rights

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.


Marketing your water tips for selling or leasing of groundwater and surface water rights

Other Examples


Marketing your water tips for selling or leasing of groundwater and surface water rights

(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

Edwards Aquifer Transactions


Marketing your water tips for selling or leasing of groundwater and surface water rights

(price per acre)

$450

$400

$350

$300

$250

$200

$150

$100

$50

1975

1996

2000

2003

2006

Roberts County Transactions


Marketing your water tips for selling or leasing of groundwater and surface water rights

?’s


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