April 2009, Vol. 21, No.4

Purchasing for Water Security

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Governments and municipalities are committing capital toward buying water rights or land to ensure long-term supply for ecosystems and populations

Securing water flow and storage for the future is becoming more critical every year in areas that continue to experience acute water shortages. As a safeguard against drought, more efforts are being made by governments and municipalities to purchase land, water shares, or entitlements — acquisitions to protect people and natural systems from running out of water. But as the market value of water is driven higher, enticing water rights holders to sell, communities and industries in regions where water is leaving could face uncertain futures.

Environmental Restoration for Improving Water Storage 

In the latter part of last year, the South Florida Water Management District (WMD) board approved a $1.34 billion deal to purchase 73,000 ha (180,000 ac) of agricultural land from U.S. Sugar Corp. (Clewiston, Fla.) for purposes of Everglades restoration. In addition to reclaiming former Everglades terrain and bringing about considerable environmental benefits, the acquisition is anticipated to increase greatly the region’s ability to store and treat water.

 

“First and foremost, this deal is about securing water for the natural system,” said Shannon Estenoz, vice chair of the WMD governing board. “To restore the Everglades ecosystem, we must increase water storage capacity. By doing so, we are building flood protection and water supply flexibility into the system to meet the needs of both humans and the environment in the future.”

 

The deal, which at press time was still subject to financing approval, will help boost water supply for the River of Grass, Lake Okeechobee, as well as the St. Lucie and Caloosahatchee rivers and estuaries. “No one ever imagined that there would be a shortage of water in South Florida,” Estenoz said. “In fact, originally, the problem was that there was too much water in the Everglades for agriculture and development. So after more than 50 years of draining water out of the Everglades, the system’s storage capacity has been significantly reduced. There is still plenty of water, but our flood protection system dumps it out to sea because there is no place else to store it.”

 

According to WMD, in addition to huge increases in the availability of water storage, the environmental goals of the acquisition include the ability to deliver cleaner water to the Everglades during dry times and greater water storage to protect the natural system during wet years. In order to fund the purchase, WMD will issue debt in the form of certificates of participation, then use its existing revenue stream to pay the debt service.

 

“In addition to being an ecosystem unique in the world, the Everglades is the water supply source for this region,” Estenoz said. “This deal … moves us a big step closer to restoring the region’s original water balance and making it more sustainable. We need to re-engineer and rethink the way that we manage water in South Florida so we won’t have such devastating impacts on the Everglades in the future.”

 

Water as a Commodity

In the arid regions of the U.S. Southwest, water always has been valued because of its scarce supply, but in desert communities where water flow is allocated by and divided into shares, the value of water is taking on a new dynamic.

Such is the case in the small Nevada communities of Mesquite and Bunkerville, located about 130 km (80 mi) northeast of Las Vegas. These small communities are positioned along the Virgin River, which originates from snow pack in the high plateaus of Zion National Park and flows southwest through Utah, Arizona, and Nevada before eventually discharging into Lake Mead, the largest reservoir in the United States and the primary water source for Las Vegas. Water shares in these two towns are administered through the Mesquite and Bunkerville Irrigation companies and are owned by several long-standing farming families with roots in the community that stretch back to the early 1900s. In Mesquite, one water share is equal to approximately 8900 m3 (7.2 ac-ft) of water per year, while in Bunkerville one share allows the owner 12,000 m3 (10 ac-ft) of water per year. These water shares have been passed down through generations and are old enough to predate the 1922 Colorado River Compact.

Since water shares can be sold, leased, or traded in an open-market sense, they are also subject to market forces and priced according to market demand. As such, they are similar to commodities. In the last year, the value of Mesquite and Bunkerville water shares has been driven substantially higher by hefty offers from the Southern Nevada Water Authority (SNWA), which is seeking more flow to bump up the water volume in Lake Mead, a reservoir with dropping capacity. While many farmers have opted to lease their water to SNWA for 1- to 5-year terms with rates of $0.25/m3 ($300/ac-ft), SNWA’s buy offers, priced at $7/m3 ($8700 per ac-ft), are nearly triple the rate of what the Virgin Valley Water District (VVWD; Mesquite) traditionally has paid water share owners.

VVWD recently raised its development water fees to $7/m3 in order to equal the new market value for a water share set by SNWA. However, VVWD board members are concerned about SNWA’s buying power and the potential detrimental impacts of more water leaving the communities in the future.

According to Mike Winters, general manager of VVWD, farmers in the community who hold water shares have a significant dilemma on their hands. “Farmers who are bound by tradition and have family history in the region are interested in keeping water in the community, but at the same time they are being offered so much money for their water shares that it makes it difficult to pass on,” he said. “These are tremendous prices that are being offered and represent more money than what they could otherwise make from farming.”

Although most deals that have been struck with SNWA are lease agreements, some farmers have sold their water shares outright, fallowing their land and walking away from their farming operations. “Many people in Mesquite are worried by this,” Winters said. “They feel that Las Vegas is capable of entering this market and outspending them — that a community of 20,000 people cannot match the buying power of a metropolis like Las Vegas.”

However, despite the community concerns, Winters said that the two water districts have a good working relationship and that both are actively working together to find solutions that will meet the water needs for both regions.

 

“The SNWA has made it clear that they will not pursue Virgin River water in a quantity that would be detrimental to our operations or the Mesquite and Bunkerville communities,” Winters said. “Water is the lifeblood of any community in the desert, but it’s also very important that water municipalities do everything possible to help each other survive. Las Vegas is the engine for Nevada, so we need to strike a balance with the SNWA to ensure that Mesquite and Bunkerville have sufficient supply but that Las Vegas remains viable and growing. If Las Vegas stops growing, then Nevada stops growing.”

 

Water Security Down Under

To address widespread water shortage in Australia brought about by climate change, the Australian government has initiated a 10-year plan aimed at securing long-term water supply for the population, as well as providing water to restore health to the country’s stressed river systems. Australia’s $12.9 billion Water for the Future plan is built around four key priorities, including taking action against climate change, using water wisely, securing water supplies, and supporting healthy rivers. In addition to a $1 billion allocation to support desalination, water recycling, and stormwater reuse, as well as $250 million allocated to pipelines, water-saving infrastructure, and water treatment plants, the plan will reserve $3.1 billion for buying back water entitlements from willing sellers under the Restoring the Balance in the Murray–Darling Basin program.

 

The objective of this program is to use water acquired from entitlements toward improving the health of the basin’s rivers, wetlands, and floodplains, which are located in the states of New South Wales, Victoria, Queensland, and South Australia. According to the Australian government’s Department of the Environment, Water, Heritage, and the Arts, the basin ecosystems are under considerable pressure due to overuse of water resources for irrigation and other extractive uses. This problem is anticipated to worsen as water availability declines. Without sufficient water, the basin’s ecosystems will continue to deteriorate, threatening many species, as well as water security for the region’s cities and towns.

Bob Smith, the founder and former CEO of Tandou Ltd. (Mildura, Victoria), a large-scale agribusiness that has been at the forefront of water trading due to its location on the Murray–Darling Basin, said the government’s water entitlement purchase program is an important step toward restoring water flow to critical areas in the basin. However, despite the program’s merits, concerns remain.

 

“The government is buying water entitlements exclusively from basin farmers,” Smith said. “Many of the farms are located as far as 50 miles [80 km] from the river systems and are supported by extensive irrigation channels and infrastructure. When farmers sell and halt operations, those that remain are left with higher capital costs for maintaining these systems.”

 

As is the case in Nevada, Smith said many farmers also are fearful of the negative consequences of water leaving their communities and the potential economic impacts to the whole farming base.

 

Still, the government’s purchase program, along with water trading in the basin in general, is beneficial to the region because it allows the market to move water to its highest value. “Water used to be tied to the land, but as the water market freed up and trading became more prevalent, water use became more efficient,” Smith said. “It promoted higher production per each megaliter of water. This is especially important when the region is dealing with drought.” 

— Jeff Gunderson , WE&T