Price Determination and Efficiency in the Market for South Platte Basin Ditch Company Shares

Water scarcity presents an obstacle to economic development in the western United States. Water rights markets help improve water allocation, allowing states to derive the highest economic benefit from available resources, and supporting new uses and economic development. However, the implicit (marginal) prices of water rights attributes are uncertain. To address this problem, we apply econometric analysis to a unique dataset to estimate the implicit values that market participants place on the attributes of shares of ditch company water rights in Colorado's South Platte River Basin. Our analysis demonstrates that ditch company share buyers value proximity of water diversion, reliability of water deliveries, and temporal flexibility of water use. To assess reliability we introduce the use of the coefficient of variation to capture, in one variable, the randomness of supply from ditch company shares that are not a single water right, but a portfolio of rights with different appropriation dates. Finally, we test and correct for spatial autocorrelation for the first time in a study of water market prices.     

WATER POLICIES FOR ENERGY DEVELOPMENT1

ABSTRACF: Examination of a series of studies of the economically efficient water allocations in the Upper Colorado River, Yellowstone River, and Great Basins indicate that water is not a serious general physical constraint on the development of energy resources, so long as public institutions do not hinder the exchange of water rights in markets. Energy development will cause limited impacts on other water-using sectors, principally agriculture. There appears to be little reason to develop large-scale water storage facilities, even during periods of reduced water production. Water storage developments appear to be necessary only when institutional constraints severely restrict water rights markets and transfers.     

A DIGITAL MODEL APPLIED TO GROUND WATER RECHARGE AND MANAGEMENT1

ABSTRACT: Under Colorado's appropriative water right system, withdrawals by junior ground water rights must be curtailed to protect senior surface water appropriators sharing the same river system unless the ground water users replace the amount of their injury to the river under an approved plan for augmentation. Compensation of such injury with surface water may not only be expensive but unreliable in dry years. As an alternative, the curtailment of pumping may be obviated by recharging unused surface water into the aquifer when available and withdrawing it when needed. In order to manage such an operation, a practical tool is required to accurately determine that portion of the recharge water that does not return to the river before pumping for irrigation. A digital model was used for this purpose in a demonstration recharge project located in the South Platte River basin in northeastern Colorado. This paper summarizes the experiences gained from this project, the results of the digital model, the economic value of recharge, and the feasibility of the operation. It was determined through the use of the digital model that, with the given conditions in the area, 77 percent of the recharged water remained available for pumping. Economic analyses showed that water could be recharged inexpensively averaging about two dollars per acre foot.     

WATER SUPPLY,TREATMENT, DISTRUBTION,AND REUSE OPTIMIZATION IN ARID URBAN AREAS1

ABSTRACT: A Management level model has been formulated in which a system analysis format is employed to answer some of the basic questions regarding urban water management strategies The model incorporates a multilevel optimization scheme to coordinate urban water supply, distribution, and wastewater management. A test of the model's utility is made in an application to the water management problems of the Denver, Colorado metropolitan area. Denver has utilized both agricultural transfers and transmountain diversions to supplement the natural stream resources of the South Platte River. Although plans are being made to increase the capacity of these sources, increasingly stringent standards on the area's effluents are enhancing the feasibility of reclaiming and recycling a portion of the wastewater. The urban model used in this study indicates the decision points at which respective strategies are introduced. However, by formulating the model from a planner's viewpoint, the most important results gained from the analysis are the costs of various institutional constraints which may restrict the decision maker's ability to implement optimal policies.     

Estimating Crop Water Use via Remote Sensing Techniques vs. Conventional Methods in the South Platte River Basin,Colorado

We compared two methods of estimating crop water consumption to assess whether remote sensing techniques provide consumptive use (CU) estimates commensurate with conventional methods. Using available historical satellite and meteorological data, we applied Mapping EvapoTranspiration at high Resolution using Internalized Calibration (METRIC) to 317,455 ha in the South Platte basin, in northeastern Colorado, for the 2001 irrigation season. We then compared these derived CU estimates with values calculated by using the Colorado Water Conservation Board's South Platte Decision Support System StateCU model. Evaluating the data by irrigation ditch service area, we disaggregated the output to allow for comparison by service area size, crop type, irrigation method, water supply source, and water availability. We concluded that METRIC is a suitable alternative to StateCU in the South Platte basin and could help to identify areas with inhibited crop growth or deficit irrigation practices. In addition, METRIC could be used as a complement to StateCU to refine StateCU model parameters, allowing for more accurate estimates of crop water shortages and groundwater recharge associated with irrigation delivery and application.     

The Arkansas Valley “Super Ditch”— An Analysis of Potential Economic Impacts1

McMahon, Tyler G. and Mark Griffin Smith, 2012. The Arkansas Valley “Super Ditch”— An Analysis of Potential Economic Impacts. Journal of the American Water Resources Association (JAWRA) 00(0):000‐000. 1‐12. DOI: 10.1111/jawr.12005 Abstract: In Colorado’s Arkansas River basin, urban growth and harsh farming conditions have resulted in water transfers from agricultural to urban uses. Several studies have shown that these transfers have significant secondary economic impacts associated with the removal of irrigated land from production. In response, new methods of sharing water are being developed to allow water transfers that benefit both farm and urban economies, compared with previous permanent transfers that negatively impacted surrounding farm communities. One such project currently under development is the Arkansas Valley “Super Ditch,” which is a rotational crop fallowing plan based on long‐term water leasing designed to provide an annual supply of 25,000 acre‐feet of water (31.6 Mm³). This article analyzes the net benefits of implementing the “Super Ditch” for both the farmers and the surrounding community.     

GROUND WATER AS A SOURCE OF NUTRIENTS AND ATRAZINE TO STREAMS IN THE SOUTH PLATTE RIVER BASIN1

ABSTRACT: Concentrations of nitrite plus nitrate, ammonia, orthophosphate, and atrazine were measured in streams and ground water beneath the streams at 23 sites in the South Platte River basin of Colorado, Nebraska, and Wyoming to assess: (1) the role of ground water as a source of nutrients and atrazine to streams in the basin, and (2) the effect of land-use setting on this process. Concentrations of nitrite plus nitrate, ammonia, orthophosphate, and atrazine were higher in ground water than in the overlying streams at 2, 12, 12, and 3 of 19 sites, respectively, where there was not a measurable hydraulic gradient directed from the stream to the ground water. Orthophosphate was the only constituent that had a significantly higher (p ≤ 0.05) concentration in ground water than in surface water for a given land-use setting (range land). Redox conditions in ground water were more important than land-use setting in influencing whether ground water was a source of elevated nitrite plus nitrate concentrations to streams in the basin. The ratios of nitrite plus nitrate in ground water/surface were were significantly lower (p ≤ 0.05) at sites having concentrations of dissolved oxygen in ground water ≤ 0.5 mg/L than at sites having dissolved oxygen concentrations ≥ 0.5 mg/L. Elevated concentrations of ammonia or atrazine in ground water occurred at sites in close proximity to likely sources of ammonia or atrazine, regardless of land-use setting. These results indicate that land-use setting is not the only factor that influences whether ground water is a source of elevated nutrient and atrazine concentrations to streams in the South Platte River Basin.     

Water Use for Hydraulic Fracturing of Oil and Gas in the South Platte River Basin,Colorado

Water use for oil and gas development (i.e., hydraulic fracturing) is a concern in semiarid basins where water supply is often stressed to meet demands, and oil and gas production can exacerbate the situation. Understanding the impacts of water use for hydraulic fracturing (HF) on water availability in semiarid regions is critical for management and regulatory decisions. In the current work, we quantify water use for HF at several scales — from municipal to state‐wide — using the IHS Enerdeq database for the South Platte Basin. In addition, we estimate produced water (a by‐product of oil and gas production), using data from the Colorado Oil and Gas Conservation Commission to explore reuse scenarios. The South Platte River Basin, located in northeastern Colorado, encompasses the Denver‐Metro area. The basin has one of the most productive oil and gas shale formations in Colorado, with much of the production occurring in Weld County. The basin has experienced higher horizontal drilling rates coupled with an increasing population. Results show water use for horizontal and vertical wells averages 11,000 and 1,000 m³, respectively. Water use for HF in the South Platte Basin totaled 0.63% of the basin's 2014 total water demand. For Weld County, water use for HF was 2.4% of total demand, and for the city of Greeley, water use was 7% of total demand. Produced water totaled 9.4 Mm³ in the basin for 2014, which represents 42% of the total water used for HF.     

AGRICULTURAL NITRATE CONTAMINATION OF GROUND WATER: AN EVALUATION OF ENVIRONMENTAL POLICY1

ABSTRACT: The contribution of agriculture to nitrate pollution of 8Urface and ground water is a growing concern throughout the world. The objective of this article is to evaluate the current environmental policy governing nitrate contamination of ground water in the South Platte alluvial aquifer. In particular, the “best management practice” approach is assessed in its relationship to optimal policy design. First, the current physical environmental problem and existing institutional arrangements are described. Second, legal and economic criteria are brought to bear on the question of appropriate policy design. Finally, the strengths and weaknesses of the existing policy are evaluated in this context and changes in policy that would increase effectiveness are recommended. Considerable justification is found for state-initiated control because victims of ground water pollution are dispersed and risk assessment is technically demanding. However, ex post elements of existing policy must be improved, perhaps through targeting and some devolution in monitoring and enforcement responsibilities.     

AN IMPLICIT APPROACH TO PRICING AGRICULTURAL WATER TRANSFERS TO URBAN USES1

ABSTRACT: The increased agricultural efficiency of the American farmer has been a substantial impetus to this nation's rapid urbanization. In many western regions where total water supplies are limited, urbanization has required the transfer of heretofore agricultural water rights to the urban use. A major problem in such transfers has been the value or price of the water. A management level model of a typical urban water system was developed to optimize water supply, distribution, and wastewater treatment alternatives. The values of agricultural transfers were determined as the cost advantages of increasing allowable reuse levels of urban effluents which imply the use of a downstream right. This procedure is justified by the economic theory of alternative cost. Results for a test application to the Denver, Colorado area indicate values on the order of $1,000 per acre-foot of transferable water depending on effluent water quality restrictions and operational policies.     

INSTITUTIONAL OPTIONS FOR THE COLORADO RIVER1

ABSTRACT: In many interstate river basins, the institutional arrangements for the governance and management of the shared water resource are not adequately designed to effectively address the many political, legal, social, and economic issues that arise when the demands on the resource exceed the available supplies. Even under normal hydrologic conditions, this problem is frequently seen in the Colorado River Basin. During severe sustained drought, it is likely that the deficiencies of the existing arrangements would present a formidable barrier to an effective drought response, interfering with efforts to quickly and efficiently conserve and reallocate available supplies to support a variety of critical needs. In the United States, several types of regional arrangements are seen for the administration of interstate water resources. These arrangements include compact commissions, interstate councils, basin interagency committees, interagency-interstate commissions, federal-interstate compact commissions, federal regional agencies, and the single federal administrator. Of these options, the federal-interstate compact commission is the most appropriate arrangement for correcting the current deficiencies of the Colorado River institution, under all hydrologic conditions.     

TEMPORARY WATER TRANSFERS FOR DRY-YEAR WATER SUPPLY1

ABSTRACT: Temporary transfers of water for dry year water supply are analyzed for cost and operational feasibility. The temporary transfer is implemented as part of a water rights option agreement (WROA) between a lesson and a lessee. First, engineering analysis determines the technical feasibility and operations plan under the Colorado doctrine of prior appropriation. The cost of the WROA to a water utility is estimated. Other considerations in the agreement are discussed. The WROA is compared to other dry-year supply alternatives using a water system simulation model to obtain expected cost and operational performance characteristics.     

ADMINISTRATIVE,INSTITUTIONAL, AND STRUCTURAL CHARACTERISTICS OF AN ACTIVE WATER MARKET1

ABSTRACT: Voluntary water transfers through markets have been advocated by many diverse groups as a means to reallocate scarce water supplies in the semi-arid western U.S. Although transfers of water rights have occurred almost since the creation of prior appropriation laws over a century ago, functioning water markets have been very slow to develop and are few in number. The structure, composition, administration and transactions of one of the most well established water markets, shares in the Bureau of Reclamation, Colorado-Big Thompson project, are examined to better understand the institutional and transfer conditions that sustain an active water market. Results from a detailed study of C-BT project records reveal that between 1970 and 1993 there were 2,698 transactions through which over one-third of the project water changed ownership or type of use. Further analysis shows that the transactions involved many individual sellers and categories of buyers with different uses, including agricultural buyers. The transfer activity and efficiency of the C-BT market has lead some to suggest that it be used as a model for other markets. However, because this market has fewer institutional restrictions, a well developed infrastructure and unique market conditions, it will be difficult to transfer this model to other areas without accompanying modifications in water right administration and institutions.     

Barriers to Water Conservation in the Rio Grande Basin1

Abstract: The Rio Grande basin shares problems faced by many arid regions of the world: growing and competing demands for water and river flows and uses that are vulnerable to drought and climate change. In recent years legislation, administrative action, and other measures have emerged to encourage private investment in efficient agricultural water use. Nevertheless, several institutional barriers discourage irrigators from investing in water conservation measures. This article examines barriers to agricultural water conservation in the Rio Grande basin and identifies challenges and opportunities for promoting it. Several barriers to water conservation are identified: clouded titles, water transfer restrictions, illusory water savings, insecure rights to conserved water, shared carry‐over storage, interstate compacts, conservation attitudes, land tenure arrangements, and an uncertain duty of water. Based on data on water use and crop production costs, price is found to be a major factor influencing water conservation. A low water price discourages water conservation even if other institutions promote it. A high price of water encourages conservation even in the presence of other discouraging factors. In conclusion, water‐conserving policies can be more effectively implemented where water institutions and programs are designed to be compatible with water’s underlying economic scarcity.     

IMPACTS OF A SEVERE SUSTAINED DROUGHT ON COLORADO RWER WATER RESOURCES1

ABSTRACT: The impacts of a severe sustained drought on Colorado River system water resources were investigated by simulating the physical and institutional constraints within the Colorado River Basin and testing the response of the system to different hydrologic scenarios. Simulations using Hydrosphere's Colorado River Model compared a 38-year severe sustained drought derived from 500 years of reconstructed streamflows for the Colorado River basin with a 38-year streamflow trace extracted from the recent historic record. The impacts of the severe drought on streamflows, water allocation, storage, hydropower generation, and salinity were assessed. Estimated deliveries to consumptive uses in the Upper Basin states of Colorado, Utah, Wyoming, New Mexico, and northern Arizona were heavily affected by the severe drought, while the Lower Basin states of California, Nevada, and Arizona suffered only slight shortages. Upper Basin reservoirs and streamflows were also more heavily affected than those in the Lower Basin by the severe drought. System-wide, total hydropower generation was 84 percent less in the drought scenario than in the historical stream-flow scenario. Annual, flow-weighted salinity below Lake Mead exceeded 1200 ppm for six years during the deepest portion of the severe drought. The salinity levels in the historical hydrology scenario never exceeded 1100 ppm.     

ALTERNATIVES FOR SALINITY MANAGEMENT IN THE COLORADO RIVER BASIN1

ABSTRACT The Colorado River Basin faces the dilemma of an increasing demand for water while presently struggling with salinity concentrations approaching critical levels for some water uses. Based upon projected development salinity concentrations are predicted to exceed 1200 mg/1 at Imperial Dam by the year 2010. Annual losses to the basin economy associated with increased salinity will exceed $50 million by the year 2010. Although methods of controlling salt discharges are relatively unrefined, certain conclusions, based upon Bayesian statistical methods, can be reached. Five basic alternatives for coping with the problem are presented and evaluated in this paper: (1) do nothing; (2) adopt arbitrary salinity standards; (3) limit development; (4) control salt discharges at a cost equal to the cost of doing nothing, or (5) minimize total costs to the basin. Total costs associated with any given alternative, or the given salinity resulting, are the sum of salinity detriments (cost to users for water of increased salinity plus economic multiplier effects) plus the cost of constructing salt discharge control works. These impacts upon basin economy and Colorado River water quality for each alternative are presented and related to questions of equity which will play a role in arriving at any long-term solution to the Basin's problem.     

Institutional Constraints on Cost‐Effective Water Management: Selenium Contamination in Colorado's Lower Arkansas River Valley

Ground and surface water selenium (Se) contamination is problematic throughout the world, leading to harmful impacts on aquatic life, wildlife, livestock, and humans. A groundwater reactive transport model was applied to a regional‐scale irrigated groundwater system in the Lower Arkansas River Basin in southeastern Colorado to identify management practices that remediate Se contamination. The system has levels of surface water and groundwater Se concentrations exceeding the respective chronic standard and guidelines. We evaluate potential solutions by combining the transport model with an assessment of the cost to employ those practices. We use a framework common in economics and engineering fields alike, the Pareto frontier, to show the impact of four different best management practices on the tradeoffs between Se and cost objectives. We then extend that analysis to include institutional constraints that affect the economic feasibility associated with each practice. Results indicate that although water‐reducing strategies have the greatest impact on Se, they are the hardest for farmers to implement given constraints common to western water rights institutions. Therefore, our analysis shows that estimating economic and environmental tradeoffs, as is typically done with a Pareto frontier, will not provide an accurate picture of choices available to farmers where institutional constraints should also be considered.     

Conservation Opportunities for Securing In-Stream Flows in the Platte River Basin: A Case Study Drawing on Casper,Wyoming’s MunicipalWater Strategy

The Platte River Basin consists of tributaries largely in Wyoming, Colorado and Western Nebraska, with the main stem in Central Nebraska. Critical wildlife habitat on the main stem requires additional in-stream flows. The watershed is one hosting multiple resources, a variety of users, and managed by an array of state and federal agencies. This study proposes a basis for securing in-stream flows for the Platte River. Candidate water supply mechanisms are suggested based on the way in which Casper, Wyoming secured water for its municipal needs. Canal lining is compared to a dam project, increasing reservoir storage, and purchasing water rights, with consideration also made for water pricing to reduce municipal use. Comparisons are based on economic efficiency, potential water conservation, and property rights criteria. Canal lining, coupled with demand management, is shown to conserve water best, given the set of efficiency and cost criteria for in-stream flow enhancement. The approach offers an opportunity to organize the water supply choice context in a transboundary watershed when quantitative information is limited.     

Water transfers,agriculture, and groundwater management: a dynamic economic analysis

Water transfers from agricultural to urban and environmental uses will likely become increasingly common worldwide. Many agricultural areas rely heavily on underlying groundwater aquifers. Out-of-basin surface water transfers will increase aquifer withdrawals while reducing recharge, thereby altering the evolution of the agricultural production/groundwater aquifer system over time. An empirical analysis is conducted for a representative region in California. Transfers via involuntary surface water cutbacks tilt the extraction schedule and lower water table levels and net benefits over time. The effects are large for the water table but more modest for the other variables. Break-even prices are calculated for voluntary quantity contract transfers at the district level. These prices differ considerably from what might be calculated under a static analysis which ignores water table dynamics. Canal-lining implies that districts may gain in the short-run but lose over time if all the reduction in conveyance losses is transferred outside the district. Water markets imply an evolving quantity of exported flows over time and a reduction in basin net benefits under common property usage. Most aquifers underlying major agricultural regions are currently unregulated. Out-of-basin surface water transfers increase stress on the aquifer and management benefits can increase substantially in percentage terms but overall continue to remain small. Conversely, we find that economically efficient management can mitigate some of the adverse consequences of transfers, but not in many circumstances or by much. Management significantly reduced the water table impacts of cutbacks but not annual net benefit impacts. Neither the break-even prices nor the canal-lining impacts were altered by much. The most significant difference is that regional water users gain from water markets under efficient management.