WATER AND WATER RIGHTS TRANSFERS: A NEW POLICY FOR NEBRASKA1

ABSTRACT: Nebraska has abundant supplies of high quality surface and ground water. The U.S. Supreme Court decision in 1982, declaring ground water to be an article of commerce, is widely perceived as giving neighboring states easier access to Nebraska water. Some neighboring states, particularly Colorado and Wyoming, are in water short situations. Additionally, current legal restrictions on certain types of transfers within the State could be inhibiting the “highest and best use” of Nebraska's water. Thus, in 1987 the Nebraska Legislature called for the development of a new water policy for Nebraska that would promote the economically efficient use of water, yet protect the environment as well as the rights of individuals (for example, third parties) and the public. Through an interagency study employing an extensive public involvement process, a policy to be recommended to the Legislature in 1989 emerged. The policy revises the basic definition of water rights and transfers and eliminates most of the inconsistencies in the water allocation system by treating most types of water resources, most types of water users, and most locations of use similarly in the permitting process. (The principal exception is the individual irrigator using ground water on the overlying land where overlying land is one government surveyed section; such use is not defined to be a transfer nor is a permit required.) An impact assessment would be required of most new water uses except on site uses of ground water. Compensation measures could be specified as a condition of the permit where appropriate. The permit would be issued only if the benefits of the proposed transfer clearly outweigh adverse effects that could not be avoided or effectively compensated. The policy allows for the sale or lease of “salvaged” water. It calls for the State to facilitate transfers by acting as a clearinghouse for potential buyers and sellers, and it allows the State to sponsor water projects. An annual fee to be paid by many water users, in order to provide a fund for compensation and for state sponsored water projects, was proposed. However, it met with extensive opposition. Thus, the policy recommends only that the Legislature examine potential funding programs and equitable user fees.     

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.     

WATER SUPPLY COSTS FOR SMALL PRIVATE UTILITIES1

ABSTRACT: This paper examines the cost of water supply for small and mid-sized private water utilities. An econometric approach was employed in which data on utility costs and characteristics were used to estimate a total water supply cost function from which average and marginal costs were derived. The results suggest that although average and marginal costs decline with output, the rate of decline rapidly approaches zero, and unit costs therefore appear to remain relatively constant over a wide range of output. Implications of the results for pricing policy are examined.     

WATER TRANSFERS AND THEIR IMPACTS: LESSONS FROM THREE COLORADO WATER MARKETS1

ABSTRACT: This paper presents an analysis of the effects of different institutional arrangements and economic environments on water markets. Characteristics of water rights transfers in the South Platte Basin of Colorado and transfers of shares of the Northern Colorado Water Conservancy District (NCWCD) are compared to show how different institutional arrangements can affect the types and size distributions of transfers. The characteristics of water rights transfers in the prosperous South Platte are then compared with water rights transfer characteristics in the economically marginal Arkansas River basin of Colorado to identify the effects of different economic environments. Finally, the economic losses from reductions in irrigated acreage resulting from water transfers are estimated for the South Platte and Arkansas and compared with purchase prices by municipalities. Transfers in the South Platte were to new uses in the same basin, while more recent transfers in the Arkansas were to out of basin users. Transfers of South Platte rights and especially NCWCD shares were small and continuous over time, while transfers in the Arkansas were dominated by a few very large transfers. The negative impacts are judged to be more severe in the Arkansas basin than in the South Platte. Purchase prices paid by municipalities substantially exceeded capitalized transitional losses in the selling areas. In the South Platte, gains and losses were in the same basin, while the Arkansas absorbed the losses, with the benefits going to the purchasing basin.     

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.     

MOTIVATING REDUCTIONS IN DRAIN WATER WITH BLOCK-RATE PRICES FOR IRRIGATION WATER1

ABSTRACT: Increasing block-rate prices for irrigation water were implemented during 1989 in a 10,000-acre irrigation district in California's San Joaquin Valley. The program motivated improvements in irrigation practices that reduced the volume of water delivered to farm fields and the volume of drain water collected in on-farm drainage systems. The ratio of net crop water requirements to field deliveries increased from 0.65 in 1988 to 0.73 in 1989. The volume of drain water collected at a subset of 20 drainage systems was reduced by 351.1 acre-feet (11.5 percent). Estimated loads of salt, boron, and selenium were reduced by 2,407 tons (11.0 percent), 3.33 tons (11.0 percent), and 0.07 tons (9.2 percent).     

ECONOMICS AND FEDERAL WATER PROJECTS1

While the science of economics is widely used in Federal water resource development projects, the usual procedure of applying an analytical discipline to arrive at a conclusion is reversed. The “answer” is usually provided ahead of time and economics is assigned the task of justifying the preconceived conclusion. This leads to a series of mitigatory effects in which economics as a science is not allowed to freely function. This article attempts to illustrate some of these “unusual” uses of economics in Federal water projects and note the “answers” we would logically expect from the economic discipline. Even though the theory of economics is often subverted, there are positive aspects to the role of economics in evaluating Federal water projects.     

EVALUATING INTERDEPENDENT WATERSHED CONSERVATION AND GROUND WATER MANAGEMENT REFORMS1

Abstract: Conserving the watershed can help to preserve ground water recharge. Preventing overuse of available water through pricing reforms can also substantially increase the value of an aquifer. Inasmuch as users are accustomed to low prices, efficiency pricing may be politically infeasible, and watershed conservation may be considered as an alternative. We estimate and compare welfare gains from pricing reform and watershed conservation for a water management district in Oahu that obtains its water supply from the Pearl Harbor aquifer. We find that pricing reform is welfare superior to watershed conservation unless the latter is able to prevent very large recharge losses. Watershed conservation that yields net gains in combination with pricing reform may cause net losses without the pricing reform. If adoption of watershed conservation delays the implementation of pricing reform, the benefits of the latter are significantly reduced.     

NORMALIZED AGRICULTURAL PRICES AND WATER RESOURCES PLANNING1

ABSTRACT: Short-term fluctuations in agricultural markets necesitate adjustments in market prices for use in water resources planning. Two procudures for this price normalizing are described and evaluated. The linear treand and weighted average normalizing procedures perform reasonably well, except in cases of dramatic price oscillations.     

POTENTIAL WATER USE AND AGRICULTURAL PRODUCTION PATTERNS UNDER ALTERNATIVE WATER PRICES1

Out study deals with the demand for water and alternative agricultural production and land use patterns under varying prices for both surface and ground water. We derive irrigation water demands for both the United States and regions of it. Not only is a different amount of water used at each set of water prices but also a different mix of crops, livestock, and production technology develops among the different regions. Under the highest set of prices used, more than fourteen million acres are converted into dryland farming. Total irrigated water use decreases by more than 25 million acre-feet. Irrigated crop yields are reduced and cropping patterns shift away from irrigation. Commodity shadow prices increase as much as 15 percent under high prices for both surface and ground water. A redistribution of farm income occurs between irrigated and dryland regions.     

PRICING IRRIGATION WATER IN DEVELOPING COUNTRIES1

ABSTRACT Alternative combinations of water pricing and regulations are possible in allocating irrigation water. The best combination will depend on the value of water, ability to control deliveries, desire to subsidize agriculture, ownership traditions, crops grown, return flows, drainage problems, staff training, ability to collect fees, the number of farmers involved, etc. Marginal cost pricing is just one possible alternative and it is more a way of thinking about prices rather than a set system. The possibilities for achieving an equitable and efficient distribution of water are improved if some form of marginal cost pricing is included in the system of water charges.     

WATER RESOURCES DEVELOPMENT IN AN ENVIRONMENTALLY-CONSCIOUS ERA1

The Sierra Club, which has long fought selected water resource projects that it believes would be environmentally damaging, has come to the conclusion in recent years that much more basic reforms are required in water resources development activities if the demands for environmental quality now evidenced by the American people are to be satisfied. These reforms should not be limited to those that would have a direct effect on the environmental aspects of proposed projects, but also many others long advocated by the economics profession that would have favorable indirect effects. Among the urgent reforms with indirect effects are those involving revision of the procedures used in evaluating proposed projects. These procedures should be revised so that future evaluations will much more accurately reflect the economic and environmental merits of proposed projects. Basic reforms of tax policies are also needed that will eliminate most of the private profit available to those who can persuade the government to increase the value of their land through the construction of water projects. Finally, some additional actions can be taken that will have a direct impact on lessening the adverse environmental impact of water projects beyond the provisions of the National Environmental Policy Act of 1969.     

FEASIBILITY OF SEASONAL WATER PRICING CONSIDERING METERING COSTS1

ABSTRACT: Efficiency implications of seasonal pricing, uniform pricing, and optimal seasonal pricing with metering costs are analyzed qualitatively using classical optimization technique. The first two schemes are special cases of the last pricing scheme. A nonlinear-integer programming model is formulated for a case study application to Salt Lake City to examine the feasibility of seasonal pricing. The analysis indicates that uniform pricing is preferable unless metering costs are substantially lower than present levels.     

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.     

THE EFFECTWENESS OF PRICING AS A STAND-ALONE WATER CONSERVATION PROGRAM1

ABSTRACT: Economic theory clearly indicates that the use of increasing rate structures will reduce the demand for water and produce monetary incentives for consumers to conserve. One problem with estimating the effectiveness of using rate structures as a conservation program is that they are usually accompanied by other conservation efforts. Thus, it is difficult to determine the effectiveness of any one conservation component. This paper examines the effectiveness of increasing rate structures in a situation where no other conservation program was introduced. The paper uses customer data from the Spalding County (Georgia) Water Authority where an increasing rate structure replaced a descending rate structure in January 1991. Since the imposition of the increasing rate structure, the number of customers has increased 21 percent while total water demand has gone up only 15 percent and per customer water use has declined 5 percent. The daily water use per connection has declined from 243 gallons in 1990 to 231 in 1993, and monthly use has gone from 7,381 gallons to 7,028 per connection over the same period. Statistical tests indicate that water consumption during the two periods was significantly different while weather factors were not.     

A MODEL FOR ACHIEVING CONSISTENCY FOR COST SHARING IN WATER RESOURCE PROGRAMS1

ABSTRACT: Three basic principles of responsibility have influenced the Federal/non-Federal cost sharing rates for water resources programs (1) full payment by beneficiaries (2) exclusive Federal assumption of costs and (3) joint Federal/non-Federal sharing. The efforts to determine appropriate cost sharing rates have resulted in several hundred complex arrangements involving contributions, user charges and direct sales based on many variations of payment terms. This basic present value model was developed to determine the non-Federal cost shares which are expected to be paid for 32 different functional purposes emanating from Federal water resources programs and projects for both implementation and OMR stages. The model introduces the concept of a composite (implementation plus OMR) cost share as a focus developing appropriate cost sharing rates for the private, public and mixed outputs produced through public water resources investments. The model can be used as a focus for policy decisions on cost sharing which seek to achieve consistent and equitable cost shares for purposes provided while maintaining an efficient allocation of resources within water programs.     

INVESTMENT SEQUENCING RECOGNIZING EXTERNALITIES IN WATER DESALTING1

ABSTRACT. The failure to recognize the learning process in new technologies such as desalting may lead to incorrect water resource investment decisions for two reasons. First, to neglect cost reductions stemming from “learning by doing” implies an overestimation of desalting costs. Second, since learning in a particular plant may result in external (learning) benefits to other plants, these may serve as the basis for a subsidy intended to internalize such benefits. Accordingly, the research reported below includes an estimation of learning functions for desalting and the results of a formulation designed to measure external benefits on the basis of these learning functions. These results are then incorporated into a decision framework for water resource investments which recognizes uncertainty in determining optimal timing of desalting construction.     

THE OPPORTUNITY COST OF TIME AND AVERTING EXPENDITURES FOR SAFE DRINKING WATER1

ABSTRACT: A survey of individuals during a Giardia contamination incident provided data to calculate the cost of boiling, hauling, or purchasing water to avoid infection. Three different approaches to the valuation of time were used to assess the implications of the opportunity cost of time for the measurement of averting costs. Mean monthly household averting costs were $33.47 using family income to value time, $13.07 using the minimum wage to value time, and $5.60 using zero opportunity cost of time. Comparisons of the mean costs for different sources and household characteristics indicated the value of time from family income was too high and that the other methods of valuing time were superior.     

THE ENHANCED ROLE OF WATER CONSERVATION IN THE COST-BENEFIT ANALYSIS OF WATER PROJECTS1

The concept of water conservation has increased in importance because of revisions in the rules and procedures for performing cost-benefit analyses of federal water projects. These revisions include a requirement that nonstructural and water conservation measures be incorporated into economic assessments of projects. Project analyses will now proceed as if water supplies were allocated “most effectively,” that is, to their highest valued uses. A related requirement provides that the net benefits of any project should now be valued using willingness to pay measures. A specific cost-benefit methodology accommodating the revisions is constructed and discussed. Informational requirements for applying this methodology are identified. In addition to being consistent with federal mandates, this technique offers important advantages over the traditional “requirements” approach to water supply planning.     

IMPROVING WATER RESOURCE ALLOCATION THROUGH DEMAND-ORIENTED WATER POLICY1

ABSTRACT. In the arid and semi-arid regions of the Western United States the water problem is generally perceived as one of “inadequate” supply. This conception of the problem engenders supply-oriented water policy, or policy focusing exclusively upon a single class of solutions–the various schemes for augmenting an area's water supply. In a more complete or balanced conceptualization, the water problem is viewed as one of “inadequate” supply and/or “excessive” demand. When the water problem is so conceived, water policy is broadened to include demand-oriented water policy, or policy aimed at reducing the quantity of water demanded in an area. The purpose of this paper is to describe and explain demand-oriented water policy. Basically it consists of changing the set of commodities produced by the economy, cutting back and/or eliminating goods requiring large quantities of water in their production and introducing and/or expanding goods which require little water. This paper also reports briefly on research undertaken to test demand-oriented policy in Arizona. Results indicate that such a policy can be extremely efficacious in solving a region's water problem.