1. WATER MARKETS AT WORK: AN IDAHO MODEL Don Reading, Ph.D. Climate Impacts Group, University of Washington Ben Johnson Associates, Tallahassee, Florida Climate Prediction Applications Science Workshop Research and Applications on Use and Impacts March 9-11, 2004 Tallahassee, Florida

2. How Markets Work Fee simple transfer of ownership of property or commodity Must have a property right to transfer Benefit to both sides – win/win situation Market prices reflect societies value of a good

3. Water is NOT owned in a physical fee simple sense Water rights are usufructuary – it is a right to divert and use Water supply is NOT fixed Water is a ‘necessity of life’ The nature of property rights for water

4. The evolving nature of water rights ►Riparian...legal theory that owners of land abutting lakes, rivers, or streams were guaranteed the ‘natural flow without diminution or alterations’ of the water course. The idea was that property was an estate to be enjoyed for is own sake and left undisturbed. (Water Follies: Groundwater Pumping and the Fate of America’s Fresh Waters, Robert Glennon) ►Prior Appropriation The essence of this doctrine is a queuing system based on “first- in-time first-in-right”. (Water Follies) ►Hybrid of Riparian & Prior Appropriation There is also a relative new-comer to the water rights scheme that is being embraced by a growing number of eastern states, that of a hybridized version of the riparian and prior appropriation doctrines. (Sea Grant Law Center, University of Mississippi)

5. Idaho Water Market Market Structure Structure

6. Prior Appropriations water rights are defined by: Source Priority Data Point of diversion Place of use Purposes of use Time of use Quantity diverted Consumptive Use

7. Water Marketing in Idaho General Parameters Water banking considered beneficial use (1977) No injury to third party (Pareto Optimal) Mitigation required Conjunctive management with groundwater Established procedure for determining injury/mitigation Moving party does not have to bear burden Hydrologic modeling used to determine impact Only consumptive use to buyer Rental pools (1936) Lemhi, Payette (2000)

9. Please send your comments/suggestions to Massimo Casulini. Massimo Casulini WATER BANK

10. The owner/lessor acknowledges the following: 1. Payment to the owner/lessor is contingent upon the sale or rental of the right from the bank. 2. While a right is in the bank, the owner of the right may not use the right even if the right is not rented. 3. A right accepted into the bank stays in the bank until the Board releases it or until the lease term expires. 4. While a water right is in the bank forfeiture provisions are stayed. 5. IDWR reviews validity of water right – not legally binding. Water Bank Conditions

11. WATER BANK ACTIVITY  In 2003 approximately 175,000 acre feet in the Water Bank  However only approximately 5,000 acre feet annually are sold, rented or leased  Primary reason for bank is to stay the clock (use-it-or-lose-it)  Activity has been increasing in recent years  Lease activity has been increasing each year

12. RENTAL POOLS

13. Idaho Rental Pools Limitations Administratively determined price “Last to fill” penalty for water in the pool Global Rental Pool (2003, District 1) All storage owners must participate (abandoned) All owners share in rental receipts “Last to fill” is eliminated In 2003, the driest year on record, there were no curtailments, but “price too low” Caveats Three checks written: administrative fee, official price, payment “under the table”

14. Considerations for Rental For use in Idaho only (year by year legislation for in stream) No injury to other water rights (Pareto Optimum) No enlargement in use of a right Water must be beneficially used Water must be sufficient for the intended use Water use must be in the local public interest (effects on public water resource – not secondary effects)

16. Global Pool Modify rental pool procedures Carry over greater than 25% of the water right Distribution of rented storage by formula For Suppliers For Rental Price Aimed at making mitigation available every year Universal participation abandoned 1 st year Pricing formula administrated – auction preferred?

20. IN STREAM

21. Lemhi Instream flows (HB 385) Less than full season allowed (now other basins) No effect on existing permanent water right Junior right holders cannot divert (not specific to Lemhi) Priority of water right is maintained BoR rent on a per acre basis

22. Payette – Lake Fork Creek Irrigation districts invest in conservation measures control structures remote water monitoring gauges dam modification Restore habitat for native fish Leased water (small amount) to supplement project

23. PRIVATE TRANSFERS

24. Private Transfers For use in Idaho only (additional tests on supply and “reasonably anticipated” demands for water) No injury to other water rights (Pareto Optimum) No enlargement of a right – only consumptive use transferred to buyer Water must be beneficially used Consistent with “conservation of water resources” Basin of origin local economy not “adversely affected” Water use must be in the local public interest (effects on public water resource – not secondary effects)

25. Snake River Moratorium after 1992 ( no new water rights) Recent transfers are a high percent 'change of use' (dairies) This is the number of permits not volume of water

27. FLORIDA WATER MANGEMENT

28. Consumptive Use Permit (CUP)—Allows a user to withdraw a specified amount of water, either from the groundwater or from a lake or river. The water can be used to irrigate crops, nursery plants or golf courses; manufacture various products, including citrus; operate industrial plants; and provide drinking water for domestic consumption. CUPs were created as the key mechanism by which the water management districts and the state can regulate the consumption of water from the most beneficial uses and in the best interest of the public.

29. Because water is a public resource benefiting the entire state, Florida law requires waters in the state to be managed on a state and regional basis. Water is a statewide resource that is permitted and managed by districts for the benefit of all within the state. While it is politically important to look to local sources first, it may be in the best interest of the environment, and the potential sending and receiving regions, to revisit the impacts of allowing transfers, both economically and environmentally. One of the unintended consequences of Florida’s “local sources first” policy is that districts and localities think they “own their water,” and must prevent access by any other district or locality. (Improving Florida’s Water Supply Management Structure, A Report form the Florida Council of 100, p. 14.) Florida law states water is a ‘public resource’

30. Recommendation 4. Find ways to encourage public-private partnerships and public-public partnerships. Allowing market-driven forces to play a role in water management would enhance water supply, conservation, distribution efficiency and the environment. Creating a structure and atmosphere that better supports creative solutions to Florida’s water storage and distribution problem would help to ensure that we are using water in a sustainable manner. Establishing more wholesale water agencies that can make multiyear contracts to private enterprise would enable partnerships to develop. Furthermore, creating incentives for private companies and public entities to develop water resources and build new water supplies and infrastructure are innovative ways to address future water needs. If we are able to lease public lands for tree farming and other ventures, why not lease lands for water supply development to public water suppliers? Excess water (i.e., excess to minimum flows and levels and local consumption needs now and for the future) on and within state land could become an income generator for the state and the locals from which water is supplied. Improving Florida’s Water Supply Management Structure A Report from the Florida Council of 100

31. Don Reading, Ph.D. Climate Impacts Group University of Washington King Building 4909 25th Avenue NE Seattle, WA 98195 Ph: 206.616.5350 Fax: 206.616.5775 karpov@u.washington.edu Ben Johnson Associates Tallahassee Office: 2252 Killearn Center Blvd. - Suite 2D Tallahassee, Florida 32309 Ph: (850) 893-8600 Fax: (850) 668-2731 email: staff@benjohnsonassociates.com Boise Office:6070 Hill Road Boise, Idaho 83703 Ph: (208) 342-1700 Fax: (208) 384-1511 email: dreading@mindspring.com