A New Water Rush

By John Mattingly

The right to domestic water, like the right to own guns, is constitutional. (Imagine Charlton Heston pointing at a glass of water.)

The Colorado Constitution states no citizen of the state shall ever be denied access to clean drinking water. It’s a guarantee from the early days of statehood, when the East-West, urban-rural, wet-dry splits hardly mattered because there was plenty of water to go around. As Colorado’s population grew, the state still had plenty of water, even though a lot of the water originating in the state was successfully claimed by lower basin states, Colorado being home to seven major river headwaters.

After all out-of-state, downstream claims were finalized in compacts, Colorado still had plenty of water, but it wasn’t located where the majority of people lived. Given the constitutional guarantee of fresh water to all Colorado citizens, the legal system came alive to establish the doctrine of the Great and Growing Cities (GGCs).

Because the Western Slope has about 20 percent of the people and 80 percent of the water, while the Front range has about 20 percent of the water and 80 percent of the population, case law built a framework for the GGCs of the Eastern Slope to get long-lasting conditional decrees on Colorado’s western slopes, and, in time, transfer the historical consumptive use (HcU) of those decrees to the GGCs. (Of note: only the HcU of a water right can be transferred; a point to be elaborated on later.) There are rules that disallow the GGCs from engaging in pure speculation on Western Slope water, but as the GGCs sprawled, the need for water became obvious.

The Eastern Slope has a lot of water, probably enough to provide for a strip city from Trinidad to Wellington, but most of that water is adjudicated as ag water. To change its use to municipal/industrial use would reduce open space and amputate farmers from their land, while diminishing the very qualities of life that draw people to live on the Eastern Slope. But most important: any water converted from ag to municipal use within the basin does not increase the supply; it only re-distributes it.

To actually increase supply in a basin, Colorado water law provides, by statute, that when water is introduced into a stream system from a totally disconnected stream system, the “foreign water” as it is sometimes called, is given special status in the priority system because it represents an increase in supply. The holder of an appropriation of foreign water “may make a succession of uses of such water by exchange, or otherwise to the extent that its volume can be distinguished from the volume of the streams with which it is introduced.”

So, compared to the native water on the Eastern Slope, foreign water from the West is gold: measured, managed, and carefully accounted – tasks willingly undertaken by its users to maximize re-use. As long as foreign water remains in the control of the appropriators, or their successors-in-interest, the foreign water can be used and reused to extinction. Extinction here is a term of art, meaning that foreign water can be used and re-used until the entire volume of the appropriation has been consumptively used.

Not only do Colorado water laws incentivize inter-basin water transfers, government agencies and private consultants are super keen on re-use systems. The treated effluent from water districts that use foreign water can re-supply their own district, or the water can be sold, exchanged, or used as a substitute supply in an augmentation plan.

Based on public reporting of a meeting held December 6, 2018 at the Rio Grande Conservation District office in Alamosa, Renewable Water Resources (RWR) is proposing to export 22,000 acre-feet of San Luis Valley water to Denver. This is the third group to organize a water export proposal in the Valley – following American Water Development Inc. (AWDI) and Stockmans Water Company (Stockmans) – both of whom tried to bring together the water needs of Denver with willing sellers in the Valley.

AWDI failed on the merits of its application to the water court, being schooled by the Rio Grande Conservation District, Principia Mathematica, and finally District Judge Robert Ogburn about the tributary nature of the Valley’s groundwater systems. Ogburn subsequently became lionized by farmers and conservation groups for his colorful dicta that ripped the husks off big name law firms from Denver, and scolded AWDIs local players. There was a time in the Valley when being a supporter of AWDI might get you shunned by local businesses.

Gary Boyce and Stockmans came along shortly after AWDI folded, but Stockmans failed because it never made an application to the water court, in part because the AWDI case stimulated legislation that mandated studies and rules governing the confined aquifer that put Stockmans in a costly holding pattern with venture capitalists. Then some of the land and water rights central to the Stockmans project were purchased by the federal government for the Sand Dunes National Park, and sold to the Valley as a final deterrent to future water export projects.

Not quite. Neither of the prior failures to export Valley water scared off the folks from Renewable Water Resources, who may have learned a few things from their predecessors. To wit: (a) RWR has not paraded about in private jets and limos with big shot lawyers from Denver; (b) they allow that the project will take at least a decade; (c) they want the project to succeed on the merits; (d) they seek a structure for the project that results in a win-win when fully operational; and finally, (e) they propose an opening budget of about a billion dollars, the first realistic projection of what such a project would cost.

RWR projects $550-600 million for infrastructure: impacts, easements, pooling points, pumping stations and pipelines, all to be paid for by the GGCs. It isn’t clear if this number includes legal fees, which could be tens of millions more. Then, to acquire 22,000 acre-feet of historically consumed water rights, they suggest $2,000 an acre-foot or $44 million, a number that is probably too low for a couple of reasons.

First, not all paper water rights are the same. Some are more valuable than others by virtue of their location or priority, and some have higher HcU than others. Parsing the tedious differences will result in variable pricing that will cause confusion and play badly with the various guardians of SLV water, such as the Rio Grande Conservation District. Second, when the value of foreign water to the GGCs is better understood, wise water sellers in the Valley will either want more money or a piece of the future revenue. So $200-300 million is more realistic for acquiring the water rights.

RWR further offers that they will create and fund a $50 million trust for the benefit of Valley citizens, the details of which are not entirely clear, but could include a boost to the Valley Commons in many ways, though the offer will likely be accused of trying to buy off some of the Valley’s purity.

Finally, RWR’s project will incur operating costs for the infrastructure and measurement systems for, and in, trades across basins. There will be inevitable environmental accommodations, all of which will be ongoing expenses, but will also create some solid job opportunities in the local economy.

Looking at the magnitude of these numbers and the sheer number of moving parts, it’s easy to feel like a duck trying to read a parking meter. We all get it that water is essential, and therefore no upper limit can be placed on its value, but these numbers are not in common usage among most farmers and ranchers. Yet, given a billion dollar budget, it appears that the RWR project is possible and profitable. Pipelines can be engineered and pumping stations installed and trades made with other water users to physically move water to Denver. It would be expensive, and probably take longer than ten years, but it’s not like colonizing Mars.

Pretend for a moment that 22,000 acre-feet of foreign water is piped or exchanged to Denver from the Valley. The water would be operated by a district to supply households, and that water would then pass through the domestic drainage system at the rate of about half an acre-foot per household annually, and all that water would end up in a treatment plant. Once treated, there could easily be 20-22,000 acre-feet eligible for re-use. Most household usage accrues from toilet flushing, showering, and washing, 95% or more of which returns to the system. And we bring fluids into the household like beer, pop, bottled water, and milk, some of which also returns to the system. Like wine from water, 22,000 acre-feet of foreign water can amplify to 200,000 acre-feet or more annually.

There is a rub, though. All SLV subscribers to the RWR project would have to file a change-of-water-right application with the Division III water court to change ag water to municipal/industrial water, and receive a determination as to historical consumptive use (HcU). The HcU is a factual determination made by engineers using diversion records, cropping histories, and weather patterns to determine the acre-feet historically consumed by a paper water right, defendable in court.

The rule of thumb is that half of the water diverted by a typical Colorado water right returns to the regime and half is consumed by the crop and evaporation. The HcU number usually goes down from there, not up, meaning that to acquire 22,000 acre-feet of HcU water could involve 40-60,000 acre-feet of gross paper water rights. The HcU determination can be adversarial, as every water right has a unique history and thus a unique potential to injure some other water right. The proceedings to determine HcU typically err to the conservative side, and incur legal and engineering expenses. This is why I suggest that the cost of acquiring 22,000 acre-feet of HcU water from Valley water rights will be closer to $200-300 million.

Example: A field of alfalfa irrigated by a 130-acre center pivot might receive a gross diversion of three acre-feet per acre per year, but only half of that was historically consumed by the crop, and that half is all that can be eligible, and thus available, for a change-of-water-right application. Fields that have been flooded historically can have as little as 10 percent HcU, meaning 90 percent return flows, flows that go on downstream and become someone else’s water right.

Adding further to the complexity, ag water is used from roughly April to October. Municipal/industrial water is used year around. It is not uncommon for a paper water right to have a disappointing HcU number, and then be subject to a further reduction, or shrink, to compensate for the expanded time of use.

Finally, for RWR to work on the merits, subscribers would have to work with the relevant Rio Grande Conservation Subdistricts to prove and insure that the water rights subscribed to the project were in harmony with the recharge requirements of the subdistrict. This might require a pay-it-forward agreement, where RWR subscribers would be required to pool a reserve of water to mitigate any disruptions or irregularities caused by the timing of removal of the HcU water from the subdistrict.

There may be a potential benefit to the Valley’s aquifers in the RWR project. When a water right is used to irrigate a crop, the consumptive use leaves the Valley in the crop. It can be argued that RWR is simply offering to take no more water than would be consumed by crops and making that water available to the GGCs where its value is exponentially higher. This means that return flows from RWR-subscribed water rights would, in effect, stay in the aquifer.

Given the thumb rule of a 50 percent HcU factor, and adjusting for the low HcU of surface rights, it would, as stated earlier, require at least 50,000 acre-feet of paper rights to yield 22,000 acre-feet of HcU water, meaning that (based on 200 acre-feet average gross diversions for a center pivot) about 250 center pivots would no longer operate and would simply pump their HcU acre-feet to Denver and leave the remainder of the water right in the ground. The actual number might be more or less, but given that there are about 2,000 center pivots operating in the Valley, ten to fifteen percent reduction would not necessarily imperil the Valley’s agricultural future. The money received by subscribers to RWR would, as noted by Peggy Godfrey at the December 6 hearing, allow some people to Live the Dream, SLV edition.

Assuming that RWR has solid contracts on the Eastern Slope for the 22,000 acre-feet, the revenue potential looks promising. The annual value of 22,000 acre-feet used once and then sold, could provide an annual income of $100 million to RWR, based on 20,000 acre-feet recovered at $5,000 an acre foot, minimum. More likely the foreign water would be worth upwards of $10-15,000 an acre-foot in ten years. Perhaps a better name for water exporters is Reusable Water Resources.

Projects like this are often undertaken by public or quasi-public entities who can raise patient capital through bond issues and have government admin shepherd the project through the rules and regs. This may ultimately happen with this project if the water supply situation for the Eastern Slope becomes sufficiently desperate and the GGCs must keep the promise of the Colorado constitution that Colorado citizens will never be deprived of domestic water. It may be better to work now with the marketplace than to wait and eventually be forced to deal with all the tangles of condemnation proceedings.

As expected, the Rio Grande Conservation District has issued a statement opposing the RWR project. The District is charged with conserving the water in the Rio Grande basin, not looking for ways to pipe it outward. The question is whether the Valley can politically tolerate water leaving in a pipeline for the GGCs rather than water leaving as crops.

A suggestion: If the RWR project moves forward, the sellers’ contract should stipulate that the seller receive an annual dividend in addition to a lump sum payment for the HcU water rights, and that the dividend be tied to the ground from which the water was exported – basically, a water royalty. With such a mechanism in place, the economic impact of exporting water in a pipeline would approximate the impact of exporting water in conventional crops.

But what about unconventional crops? Can they compete with the GGCs, both economically and constitutionally? Hemp and cannabis growers want to find out.

John Mattingly cultivates prose, among other things, and was most recently seen near Moffat.