Unbundling Water Rights, Unbundling, pgs 10-12

The main concept here — formally separating a water right into its components — is a neat trick.  One part is the right to keep getting water allocations into the future (share).  The other part is the immediate allocation, based on the current hydrology.  Here in California, we saw a couple transfers of the entire water right in the last drought, and the media absolutely could not make the distinction between buying some of this year’s wet water and buying the right to that water in perpetuity.  Nearly every story was about the shockingly high costs of a water transfer ($5K) and how people were paying sky high rates per acrefoot.  But the buyers were buying all the future acre-feet in that water right as well.

The article starts to get into converting water rights to shares, mentioning converting senior and junior rights.  Later in the paper, it gives more detail on how to weight those proportions so senior rights holders get more and junior rights holders get less.  This is the first place we see that this paper is precisely about what it says: converting appropriative rights to an unbundled system.  It doesn’t address pueblo rights, riparian rights, or a horrible mixture of rights.  I do think we could we could find a formula for converting those as well, if we wanted to make this happen.

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Since I’ve never seen a super-duper water market, maybe I just don’t understand what a super-duper water market would be like.  Maybe there would be an ease of transaction that I am not picturing.  But I don’t have the sense that transactions here are substantially legally hampered by the distinction between this year’s water and the right itself.  Buyers and sellers know what they’re trading.  If it is a few hundred dollars per acre-foot, it is a chunk of this year’s water.  If it is a few thousand dollars, it is the right with all its future water as well.

My sense is that when trades are locked into legal disputes, they’re not locked up over the nature of the right.  They’re locked up over details particular to the exchange.  A third party lives off the return flows from the seller.  A local group contends that a seller sold surface supplies, replaced them with groundwater and damaged a spring.

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OK, so far I think I’ve got it.  Unbundling the right into the current allocation of water and the share of total supply into the future.  A mention of water accounts, of water brokers.  I see the same thing as before, that the promised rewards are predominantly economic.  I am starting to get the vibe that this solution is a hammer looking for nails, that the problems it describes aren’t exactly California’s problems (but still withholding judgment).  I would love to know what you guys are getting from this.

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2 Comments

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2 responses to “Unbundling Water Rights, Unbundling, pgs 10-12

  1. Dave W.

    Having read ahead a little bit, it looks like he gets to what he sees as the main advantage of unbundling around page 16 – the fact that there’s no requirement to actually use the water in a given year to maintain the underlying right. You are far more aware of the current state of CA water law than I, but I seem to recall from the discussion in Cadillac Desert that a senior rights holder could lose some of that right if they didn’t make beneficial use of their full allocation every year it was available. I’m sure things have changed somewhat since that book was written, but I don’t know how much. Under his plan, as I understand it, a rights holder could decide not just to use or sell their water, but to hold it in storage for the time being and use or sell it later.

  2. onthepublicrecord

    I’m going to write more about that when we get to page 16. I don’t think the Use It Or Lose It provision is the bugaboo that it is made out to be. I don’t think rightsholders are very afraid of its enforcement, in the first place. In the second place, if they were facing an enforcement action, they’d be allowed to amend their right so that it matches what they want to do.

    I think it is more that farmers love it as an example of GOVERNMENT REGULATIONS having a contradictory result. I could be wrong, but I doubt it is a big factor in water transfer decision-making.