I have been on hiatus, thanks to a drunk driver. She was charged with DWI and Possession of a Controlled Substance. What happened to me? Upper back, neck, and right shoulder injuries. I will get back to this blog next week.
aquadoc
Sunday, September 13, 2009
Monday, March 30, 2009
Relaxed Groundwater Restoration Standards at In-Situ Uranium Leach Mines in South Texas
The above is a diagram of an in-situ uranium leach mine.
Before you read any further, I recommend that you download THIS report.
In 2008, I was retained by the law firm of Blackburn & Carter to conduct an evaluation of the Texas Commission on Environmental Quality's record of granting relaxed standards for the restoration of groundwater at in-situ uranium mines in South Texas. Many people are not aware that Texas is a major producer of uranium. The uranium ore is not characteristically considered "high grade," but in-situ mining technology (which owes much of its development to work in Texas) has proved to be efficient enough to make medium-to-low-grade deposits profitable to exploit.
Texas' prominence as a producer of uranium is traceable to the widespread prevalence of uranium roll-front deposits in the formations of the Gulf Coastal Plain. All are exploited by in-situ mining technology. For an explanation of in-situ leach mining, read Chapter 2 of THIS report by Gavin Mudd. For a somewhat more positive description, read THIS web page by the World Nuclear Association.
Rather than describe the geology and geochemistry of roll-front deposits and the methods of in-situ leach mining, I will assume that the reader is sufficiently interested in the matter to peruse the above references carefully before proceeding with this blog post.
What did my client want to know?
My client commissioned the report to find out whether one of the principal environmental regulatory agencies of Texas was fair-minded in its consideration of requests by uranium mining companies with respect to petitions for relaxed (that is, less stringent) restoration standards of groundwater at in-situ mined sites in the uranium ore trend of South Texas.
The basis for the requested study was the client's concern that the Office of Underground Injection Control of TCEQ might be overly generous in its granting of requests for lower restoration standards.
What did I find? Try THIS web page for a reasonable summary of my report. I will let the reader make up his/her own mind, based on the report.
Allow me to point out here that I am not opposed to mining or to nuclear energy. Look around and then ask yourselves how much of what you see cannot be traced to mining? Not much, I assure you. That, however, does not give mining companies Carte Blanche to pollute groundwater, surface water, soil, air. And in this so-called " anthropogenic greenhouse world" (I have my doubts), nuclear energy can play a major role in reducing the concentration of CO2 in the atmosphere.
I know the geochemistry of uranium very well, thank you; and I am convinced that we can extract uranium from roll-front and other sandstone-hosted deposits without leaving a mess for others to clean up ... but you can't do it "on the cheap."
Best Regards,
aquadoc
Southwest Groundwater Consulting, LLC
Tuesday, March 10, 2009
No. 7: Rule of Capture, Economic Inefficiency, and Water Market Requirements
The above figure shows the extent and major subdivisions of the great Edwards Aquifer of Central Texas. Why is a blog post on the Rule of Capture and Economic Inefficiency preceded by a map of the Edwards? The aquifer is a prominent factor in two of three references cited below.
Recently, an attorney who specializes in environmental law wrote to inquire about an observation I have often made that the Rule of Capture (ROC) is an impediment to the development of efficient water markets in Texas. I wrote back to tell him that my observations were based on the following: (1) Documented sales and leases of southern Edwards Aquifer groundwater rights compared with sales and leases of groundwater in ROC areas of the State, and (2) economic theory. Data supporting Point No. 1 will be developed and posted within a couple of weeks. (I am putting together a PowerPoint presentation on groundwater transactions for the Texas Bar Association's April 2009 Conference on Water Rights. The presentation is intended to illustrate that the development of a robust market for Edwards water rights evolved only after the approval of legislation that made it possible for landowners with property overlying the southern Edwards Aquifer region to be granted transferable permits to groundwater by the Edwards Aquifer Authority. A second components of the presentation will be to demonstrate that market values of Edwards water rights have far outstripped the market values of groundwater transactions in areas of the State where rights to groundwater have not been recognized and assigned.) Point No. 2 (the role of economic theory) can be found in one form or another in a variety of papers, especially those dealing with water economics and water marketing. It is Point No. 2 that is the focus of this post.
In my response to the attorney, I cited a concise summary of problems underlying the ROC, as found in Chapter 9 ("Protecting the Edwards Aquifer: an Efficient and Ecological Alternative," authors - Ben F. Vaughn IV and Peter M. Emerson) of Water Marketing - the Next Generation (eds. Terry L. Anderson and Peter J. Hill; Rowman & Littlefield Publishers, Inc., Lanham, Maryland, 1997). The nine chapters of the book are designed (according to a summary on the back cover) to "demonstrate why antiquated government regulations inadvertently encourage the waste of our most vital resource by preventing the evolution of property rights to water marketing." Antiquated government regulations can mean absolute control by the State or a free-for-all system with no provisions for assigning and enforcing well-defined rights to groundwater and/or surface water. In Chapter 9, Vaughn and Emerson propose a market-based solution, rather than one based on heavy-handed regulation by the State or a continuation of the ROC to the management of one of Texas' most significant aquifers.
The Edwards Aquifer is a major source of water for cities (the largest of which is San Antonio), agriculture, springs, streams, recreation, and unique fauna and flora in Central Texas. Scarcity caused by overuse of the aquifer and drought is a matter of concern to all who rely on the Edwards.
It is the opinion of Vaughn and Emerson that any management system that fails to address the problem of scarcity is inadequate to ensure that water will be available when and where it is most needed. Landowners should be granted quantifiable, secure and transferable rights to groundwater; and the State should encourage marketing as a means of allowing groundwater to "flow" to higher valued end-uses. Regulations that prohibit transboundary transfers of groundwater or that compel landowners to restrict the use of groundwater to support "traditional" uses of water are causes of inefficiency and devaluation. In similar fashion, a system based on the English doctrine of Absolute Ownership (e.g., the ROC) promotes inefficiency and devaluation. With regard to the ROC, Vaughn and Emerson write:
The property right in Texas groundwater is the common law rule of capture. Under this law, a landowner has the right to pump an unlimited quantity of water from any aquifer underlying his land (Todd, 1992). The landowner, however, has no right to the water until it is withdrawn from the aquifer. Furthermore, he has no right to protection against well interference or aquifer depletion by any other user and he has no right to pump water for the purpose of storing it for future use. This rule applies throughout the state, with the exception of aquifers included in groundwater districts and certain protection against damage from subsidence caused by groundwater pumping. Also, in Texas groundwater may be pumped for sale to a third party whose use is not on the overlying tract.
This system works well enough when water is not scarce, but with scarcity and no social or legal limits on water use, a "tragedy of the commons" arises. Economic rent associated with water is dissipated, and overexploitation of the resources results as all pumpers race to exercise their rights. Increased pumping costs caused by a declining water level eventually impose a limit on extraction in a deep aquifer. In a shallow aquifer, however, the problems may be more serious, resulting in permanent depletion of the aquifer, the intrusion of poor quality water, and land subsidence.
The problem is that under the common law rule of capture, the property right lacks the characteristics - the rights to use, exclude, and transfer - needed for efficient allocation of resources. The right to use is secured only by contemporaneous use, but there is no right to exclude other users. Hence, the ability to transfer is constrained by one's ability to capture the good before others do. Under these conditions, a market cannot develop nor will water be used efficiently.
The failure of the ROC to form the basis of an efficient system of groundwater marketing is further explained by Kaiser and Phillips (1998):
Water markets differ from other natural resource commodity markets for a variety of reasons, including the long tradition of subsidized water, the concentration of large amounts of public water held by private entities, the equally long tradition that water must support a wide variety of collective public values and the distribution impacts on parties who are not part of the decision process. Thus, unregulated markets do not exist for water transfers, as transfers are directed and controlled by state regulatory agendas. In reality, water transfers more often resemble diplomatic negotiations than simple commodity transactions.
Water markets develop when a combination of economic, legal, institutional and technical factors converge so that buyers can obtain a more certain, consistent and predictable water supply relative to other options and sellers realize greater net benefits by transferring the water than by keeping it in an existing use. The classic economic rationale of gains from trade motivates most water transfers, however, legal, institutional and technical barriers can vitiate transfers.
Finally, R.C. Griffin cuts to the quick in his discussion of The Instruments of Water Marketing (see Chapter 7 [7.1] of Water Resource Economics - the Analysis of Scarcity, Policy, and Projects with the following:
Water markets are enabled by the full or partial adjudication of natural water resources among agents, with the crucial characteristic of transferability included. As long as individual agents possess private property in natural water, they will be able to exchange water for money or other property. Ideally, these rights are severed from the land on which they are originally used, meaning that water can be exchanged separately from land. Such water rights are necessarily quantified, so that a solid basis is established for monitoring water use and enforcing water rights. Unless enforcement is consistent and accurate, water rights can be circumvented, and the incentive to trade will be injured. People don't buy things that can be readily taken from them or that "can be had for the taking."
To be continued in Post No. 8.
Best Regards,
aquadoc
Southwest Groundwater Consulting, LLC
Friday, March 6, 2009
No. 6: Groundwater Management in Texas
It's March 6th. Remember the Alamo!
While outlining the posts to follow my discussion of negative externalities associated with the Rule of Capture and the need to protect a landowner's claim to the groundwater beneath his property through the assignment of well-defined, enforceable, and transferable groundwater rights, I received email from an acquaintance calling my attention to a new publication by the Austin office of the Environmental Defense Fund: Down to the Last Drop (2009 Update: Spotlight on Groundwater Management in Texas). The authors of the report are Laura Brock Marbury and Mary E. Kelly.
I have not read the document thoroughly (I'll get to it soon), although several topics stand out such that the authors' opinions appear to be very close to mine. The first is that surface water and groundwater are not independent of each other and that proper water-resource management should consider the interconnectivity between both sources of water. We tend to divide the field of hydrology into "surface water" and "groundwater," and - because of that division - many politicians, planners, hydrogeologists, and surface water hydrologists often don't think of the many factors that link one with the other.
Streams and lakes are fed by groundwater, and vice versa. Hence, how we choose to manage one part of the surface water/groundwater system might very well have significant implications for what happens to the other. A couple of examples:
(1) Pumping excessive volumes of groundwater might lead to diminished flow to streams or to the cessation of springflow; and
(2) Diverting or impounding surface water might cause reduced recharge of aquifers.
Suffice it to say that it is important to understand how the two are interconnected within a hydrologic basin in order to avoid unintended consequences.
The second point of interest in Down to the Last Drop is the matter of groundwater planning, especially problems associated with Groundwater Management Areas (GMAs)and the Legislature's requirement that each of the 16 GMAs identify Desired Future Conditions (DFCs) for aquifers within their respective jurisdictions. Marbury and Kelly point out that the current approach to establishing DFCs does not require that "future conditions be physically measureable either directly or through an alternative measureable metric." They go on to make a case that "The rules should also require the GMAs to establish protocols for monitoring groundwater resource conditions to ensure that present conditions are consistent with established desired future conditions. Individual groundwater district management plans should also be amended to incorporate applicable metrics for the aquifer under their jurisdiction."
I have heard enough discussion, from representatives of Groundwater Conservation Districts, about DFCs to have concluded long before now that implementing recommendations such as those suggested by Marbury and Kelly would clear up much of the confusion surrounding DFCs by making the process based less on guesswork than on a firm understanding of current conditions and the development of a system (or systems) to measure key indicators of hydrologic conditions within a GMA to determine whether the desired conditions can be achieved. Frankly, some of the DFCs with which I am familiar do not make sense. More about that later.
Suffice it to say that water planning is an evolving process in Texas. Prior to the passage of Senate Bill 1 in 1997, the State lacked an orderly program to guide the development and management of groundwater and surface water resources. Texas is now in the second decade of water planning, and I expect that it will require more time to resolve major differences of opinion and to formulate strategies to ensure that water will be available to all sectors of the State's economy over the next 50 years. If I have learned anything about the pace of water planning in Texas, it is the following: Don't expect too much too soon. Texas has embraced the Rule of Capture (ROC) for many decades; and for as much as I regard that doctrine to be one that promotes inefficiency and devaluation of groundwater, I think that Texas will eventually reach a point at which, through statewide water planning, the ROC will give way to another more sensible doctrine that embraces the role of market-based solutions in the management of water resources.
Best Regards,
aquadoc
Southwest Groundwater Consulting, LLC
While outlining the posts to follow my discussion of negative externalities associated with the Rule of Capture and the need to protect a landowner's claim to the groundwater beneath his property through the assignment of well-defined, enforceable, and transferable groundwater rights, I received email from an acquaintance calling my attention to a new publication by the Austin office of the Environmental Defense Fund: Down to the Last Drop (2009 Update: Spotlight on Groundwater Management in Texas). The authors of the report are Laura Brock Marbury and Mary E. Kelly.
I have not read the document thoroughly (I'll get to it soon), although several topics stand out such that the authors' opinions appear to be very close to mine. The first is that surface water and groundwater are not independent of each other and that proper water-resource management should consider the interconnectivity between both sources of water. We tend to divide the field of hydrology into "surface water" and "groundwater," and - because of that division - many politicians, planners, hydrogeologists, and surface water hydrologists often don't think of the many factors that link one with the other.
Streams and lakes are fed by groundwater, and vice versa. Hence, how we choose to manage one part of the surface water/groundwater system might very well have significant implications for what happens to the other. A couple of examples:
(1) Pumping excessive volumes of groundwater might lead to diminished flow to streams or to the cessation of springflow; and
(2) Diverting or impounding surface water might cause reduced recharge of aquifers.
Suffice it to say that it is important to understand how the two are interconnected within a hydrologic basin in order to avoid unintended consequences.
The second point of interest in Down to the Last Drop is the matter of groundwater planning, especially problems associated with Groundwater Management Areas (GMAs)and the Legislature's requirement that each of the 16 GMAs identify Desired Future Conditions (DFCs) for aquifers within their respective jurisdictions. Marbury and Kelly point out that the current approach to establishing DFCs does not require that "future conditions be physically measureable either directly or through an alternative measureable metric." They go on to make a case that "The rules should also require the GMAs to establish protocols for monitoring groundwater resource conditions to ensure that present conditions are consistent with established desired future conditions. Individual groundwater district management plans should also be amended to incorporate applicable metrics for the aquifer under their jurisdiction."
I have heard enough discussion, from representatives of Groundwater Conservation Districts, about DFCs to have concluded long before now that implementing recommendations such as those suggested by Marbury and Kelly would clear up much of the confusion surrounding DFCs by making the process based less on guesswork than on a firm understanding of current conditions and the development of a system (or systems) to measure key indicators of hydrologic conditions within a GMA to determine whether the desired conditions can be achieved. Frankly, some of the DFCs with which I am familiar do not make sense. More about that later.
Suffice it to say that water planning is an evolving process in Texas. Prior to the passage of Senate Bill 1 in 1997, the State lacked an orderly program to guide the development and management of groundwater and surface water resources. Texas is now in the second decade of water planning, and I expect that it will require more time to resolve major differences of opinion and to formulate strategies to ensure that water will be available to all sectors of the State's economy over the next 50 years. If I have learned anything about the pace of water planning in Texas, it is the following: Don't expect too much too soon. Texas has embraced the Rule of Capture (ROC) for many decades; and for as much as I regard that doctrine to be one that promotes inefficiency and devaluation of groundwater, I think that Texas will eventually reach a point at which, through statewide water planning, the ROC will give way to another more sensible doctrine that embraces the role of market-based solutions in the management of water resources.
Best Regards,
aquadoc
Southwest Groundwater Consulting, LLC
Tuesday, February 24, 2009
No. 5: Resource Allocation and Ownership, Externalities, Water Marketing, and - the State: Initial Comments
I'm a free-marketeer ... mostly. By that, I mean that a quasi-free-market system can provide more efficient solutions to a great many problems related to the ownership, management, and conservation of natural resources than one based entirely on State ownership and heavy-handed government regulation or a system predicated on pure laissez-faire economics.
As a quasi-free-marketeer, I do not discount the role of government, as I think that government exists for many legitimate reasons, especially to "establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty," but not to be dictatorial or to guarantee the garden-variety Socialist's dream of cradle-to-grave security. I became wary, years ago, of politicians and other representatives of government who told me that they were "here to help people." Such language is usually a prelude to more regulations and subtle-to-blatant assaults on the Rights enumerated by the Constitution of the United States of America.
I also learned to be cautious of anyone who thinks that there should be no limits to what anyone can do with whatever he owns or thinks belongs to him, as I think that another's freedoms end where my nose and property boundaries begin. A maxim which I firmly embrace is: "Don't do anything on/to your land for which others will have to suffer the consequences." A FEW examples are listed below:
(1) Don't make "improvements" on your property that will promote erosion and the runoff of silt to the creek that runs across another's land and the pond to which the creek flows, or
(2) Don't diminish the flow of surface water to another landowner's property by diverting excessive amounts of water or impounding water for your own use, or
(3) Don't pump large volumes of groundwater without regard to the impact that your pumpage might have on water tables, wells, springs, and streams beyond the boundaries of your property. (Groundwater is no longer secret and occult.)
When a stream that traverses the property of Landowner A becomes polluted, laden with silt, or streamflow slows to a trickle because of Landowner B's carelessness or efforts to claim either all or an inordinately large share of water, then Landowner A incurs environmental damage and economic loss.
In economics, losses or damages sustained by Landowner A are referred to as "negative externalities." Externalities can be either negative or positive. With regard to pollution, landscape degradation, or the destruction of a commons (e.g., Comanche Spring, Post #3 of this blog), the effects are decidedly negative.
Six points that I will argue in future posts to this blog are:
(1) Individuals, corporations, cities, etc. should be held to account for negative externalities stemming from their respective uses/abuses of water.
(2) A system of clearly defined, enforceable, and transferable groundwater rights is superior to conditions under the Rule of Capture doctrine or absolute ownership and control of groundwater by the State.
(3) Water rights are essential to ensure that one's business operations or property are not damaged or diminished in value by excessive pumpage or mismanagement of groundwater by others.
(4) Water markets, with reasonable degrees of regulation by the State, can provide efficient solutions to problems of water distribution, conservation, and resource valuation.
(5) There must exist a government with the authority to recognize the need for water rights, to assign and enforce water rights and to impose sensible regulations, where necessary, in order for groundwater markets to develop and to operate efficiently.
(6) It is incumbent upon the State and stakeholders within the different sectors of a State's economy to find the appropriate balance between commerce, property rights and regulation, especially with respect to the adoption of doctrines governing the recognition, assignment, and enforcement of groundwater rights.
Best Regards,
aquadoc
Southwest Groundwater Consulting, LLC
As a quasi-free-marketeer, I do not discount the role of government, as I think that government exists for many legitimate reasons, especially to "establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty," but not to be dictatorial or to guarantee the garden-variety Socialist's dream of cradle-to-grave security. I became wary, years ago, of politicians and other representatives of government who told me that they were "here to help people." Such language is usually a prelude to more regulations and subtle-to-blatant assaults on the Rights enumerated by the Constitution of the United States of America.
I also learned to be cautious of anyone who thinks that there should be no limits to what anyone can do with whatever he owns or thinks belongs to him, as I think that another's freedoms end where my nose and property boundaries begin. A maxim which I firmly embrace is: "Don't do anything on/to your land for which others will have to suffer the consequences." A FEW examples are listed below:
(1) Don't make "improvements" on your property that will promote erosion and the runoff of silt to the creek that runs across another's land and the pond to which the creek flows, or
(2) Don't diminish the flow of surface water to another landowner's property by diverting excessive amounts of water or impounding water for your own use, or
(3) Don't pump large volumes of groundwater without regard to the impact that your pumpage might have on water tables, wells, springs, and streams beyond the boundaries of your property. (Groundwater is no longer secret and occult.)
When a stream that traverses the property of Landowner A becomes polluted, laden with silt, or streamflow slows to a trickle because of Landowner B's carelessness or efforts to claim either all or an inordinately large share of water, then Landowner A incurs environmental damage and economic loss.
In economics, losses or damages sustained by Landowner A are referred to as "negative externalities." Externalities can be either negative or positive. With regard to pollution, landscape degradation, or the destruction of a commons (e.g., Comanche Spring, Post #3 of this blog), the effects are decidedly negative.
Six points that I will argue in future posts to this blog are:
(1) Individuals, corporations, cities, etc. should be held to account for negative externalities stemming from their respective uses/abuses of water.
(2) A system of clearly defined, enforceable, and transferable groundwater rights is superior to conditions under the Rule of Capture doctrine or absolute ownership and control of groundwater by the State.
(3) Water rights are essential to ensure that one's business operations or property are not damaged or diminished in value by excessive pumpage or mismanagement of groundwater by others.
(4) Water markets, with reasonable degrees of regulation by the State, can provide efficient solutions to problems of water distribution, conservation, and resource valuation.
(5) There must exist a government with the authority to recognize the need for water rights, to assign and enforce water rights and to impose sensible regulations, where necessary, in order for groundwater markets to develop and to operate efficiently.
(6) It is incumbent upon the State and stakeholders within the different sectors of a State's economy to find the appropriate balance between commerce, property rights and regulation, especially with respect to the adoption of doctrines governing the recognition, assignment, and enforcement of groundwater rights.
Best Regards,
aquadoc
Southwest Groundwater Consulting, LLC
Thursday, February 19, 2009
No. 4: Basic Groundwater Economics, Texas-Style
With the advent of water planning in Texas and the expectation by many politicians, regulators, and landowners that looming water shortages will lead to efforts by cities and many areas of the State’s industrial sector to compete for secure sources of water, the interest in selling Edwards Aquifer water rights or pumping rights in areas under the Rule of Capture (ROC) or in negotiating leases or supply contracts has grown substantially in the last decade.
The marketing of groundwater in not new to Texas, as landowners have sold pumping rights or negotiated supply contracts with cities and industries for more than 50 years. What is new is the increasing degree of interest in groundwater marketing. In response to growing expectations about the potential for groundwater markets to expand in Texas, the Environmental Defense Fund published, in 2007, "Myths and Facts about Groundwater Marketing: a Guide for Landowners and Groundwater Conservation Districts."
One of the first questions many potential sellers of groundwater ask is: “What’s my water worth?” On the buyers’ side, the question is: “What’s it going to cost me to purchase that water or that landowner’s water right?”
It remains difficult to answer, with certainty, either of the above questions, especially in ROC areas, because there is not a discernible sense of order underlying most groundwater transactions. The reason for the uncertainty is that, outside of the southern Edwards Aquifer region, Texas lacks two of the most fundamental of components required for an efficient groundwater market to function: (1) a system of assigned, quantified, and transferable water rights (not the same as pumping rights under the Rule of Capture) recognized and enforced by the State, and (2) a means of making information on transactions available to all potential buyers and sellers. Information that participants need to make well-reasoned assessments of the market value of groundwater is not easily found, and there are very few consultants who follow transactions closely enough to have a clear understanding of market conditions and organization among sellers and buyers.
Each side brings its expectations to the bargaining table, hoping to negotiate the best possible deal. Unfortunately, it is not uncommon for speculation and misinformation to trump common sense. Applying economists’ standard linear supply-demand curves to groundwater transactions, one might conclude that selling groundwater in Texas is a guaranteed way to get rich. For some, that might be the case now, but for many others, the prospects might be better over the long run … the very long run ... or not at all.
Before reaching conclusions about the market value of groundwater in any area of Texas, buyers and sellers should take heed of the lack of any defined market value for groundwater in the State. There are, instead, many potential market values driven by a number of factors that influence marketability. Landowners and water entrepreneurs often don’t consider these factors when first entertaining the thought of selling water or buying/selling water rights (pumping rights with respect to aquifers other than the Edwards within the jurisdiction of the Edwards Aquifer Authority).
Furthermore, any attempt to assign a market value to groundwater in one region of Texas based on prices negotiated in other regions of the State is not advisable. Accomplishing this task requires an understanding of variable market structures, market conditions, geology/hydrology, and the relative bargaining power of parties within the different regions of the State. Texas is very large and the population is highly concentrated in major urban areas. Hydrologic conditions are often so different from one region to another that it is necessary to break the whole up into smaller parts. All of these steps are essential to developing a reasonable understanding of the factors which drive differences in market value both between and within regions.
For many years, groundwater in Texas had minimal established value, apart from its association with the overlying land. A standard practice of cities and industries was to acquire enough property to develop a well field, then to pump whatever water was needed to meet their respective requirements. This was possible under a strict interpretation and application of the ROC. The cost of groundwater was associated with the cost of the land, the well, the pump, the pipeline, and the electricity or the fuel needed to power a pump.
DETERMINANTS OF MARKETABILITY AND MARKET VALUE
With a reasonable degree of certainty, one can identify, at least eight factors which seem to be significant determinants of marketability and of the market value of groundwater in Texas. These factors are listed below, not necessarily in order of importance:
1. Number of Competitors for the Resource: Competition for groundwater should drive up the price of the resource. If there are few major users of groundwater in a region, then negotiated prices could be much lower than expected by landowners.
2. Number of Known Sources of Groundwater and Sellers of Land, Water Rights or Water: Competition among sellers, all other things being equal and assuming one major buyer or minimal competition among buyers, should act to lower price. Alternatively, if sellers are able to organize a groundwater cartel, then their bargaining position should be stronger and prices negotiated for water or water rights could be higher than under purely competitive conditions among suppliers.
3. Volume of Recoverable Water and Estimated Life of the Resource: Land with a large volume of water in storage might command a higher price than land with a small volume of recoverable groundwater. In addition, property overlying an aquifer which is recharged quickly might command a higher price than a property which lies above a “mined” aquifer. [A “mined” aquifer is for which the rate of withdrawal exceeds the rate of recharge.]
4. Proximity of the Resource to the Purchaser: Transporting water long distances can be very expensive.
5. Expected Costs of Installing Wells and Other Production and Treatment Facilities. Infrastructure can add substantially to the total cost of a project.
6. Estimated Production Costs and the Quality of Groundwater: The investment required to develop a resource and to maintain, transport, and treat groundwater might be sufficient to justify a lower offer price, in the absence of other competitors, where the quality of the groundwater is an issue for the end user.
7. Regulations Limiting the Volume of Water: Regulations which limit the volume of water that can be pumped from an aquifer or which impose spacing requirements for wells must be taken into account, as such rules have the effect of amending/modifying the ROC.
8. The Value of Agricultural Production Attributable to Irrigation: Many farmers are potentially large suppliers of groundwater. They own land over aquifers which are capable of producing large volumes of water. In such cases, the value of groundwater can be related to the market value of crops if irrigated land is involved. For a landowner, the sale of groundwater or a water right represents an opportunity cost associated with the potential loss of income from irrigation. The sale of groundwater or of a landowner’s water right (assuming no duress) should generate sufficient income to cover, at least, the income or any other income associated with the on-property use of groundwater or sale of groundwater for other uses.
It is not possible to precisely quantify the relative significance of each of the above factors in a transaction involving groundwater. Furthermore, one should not expect any factor to carry the same weight across Texas’ many regions. While economic models typically assume access to information and rational behavior by buyers and sellers, few parties to a Texas water negotiation can claim access to all relevant information. Furthermore, there is no guarantee that all participants in a transaction will behave rationally even if all have access to the same data.
OVERVIEW OF TRANSACTIONS
While writing this post, I reviewed groundwater transactions in Texas over the period 1999 – 2008, as reported by Water Strategist and as recorded in my notes of transactions for which I have offered advice to sellers or to purchasers of groundwater. Most of the groundwater transactions during these years took place in central, south, and west Texas. Leases outnumbered sales, with lease terms typically ranging from 5-to-10 years.
Nearly all groundwater transactions involved leases of groundwater or the acquisition of groundwater rights to support municipal uses. Sales to industrial or agricultural interests were less common. Most lease prices for municipal use ranged from $66 - $77 per acre-ft per year, but the San Antonio Water System acquired Edwards leases for $130 per acre-ft within the last year. Transactions involving the sale of groundwater rights (with no transfer of the surface estate) range from $270/AF (Canadian River Municipal Water District) to $250/acre (Mesa Water). In Central Texas, water rights associated with land overlying the Edwards aquifer sold for $700 per acre-ft 10 years ago, then rose to between $1,750 to $2,000 per acre-ft by 2005, and broke $5,000 per acre-ft within the last two years. There have been a few undocumented sales of Edwards Aquifer rights of $10,000 per acre-ft within the last year. If there is any doubt that a system of assigned water rights leads to higher market values for groundwater, then one need look no further than the disparity between prices paid for southern Edwards Aquifer groundwater rights and prices paid for groundwater in areas still under the ROC.
Clearly, there is no established market value for groundwater in Texas. It is necessary to consider the mix of factors outlined above before reaching any conclusion about current or future lease prices and permanent transfers of water rights. Such exercises are not trivial, especially where an outright purchase is involved transferring a water right in perpetuity. Nevertheless, many landowners are now looking at groundwater, which has, for many decades, been used to support ranching and farming operations, as a resource with potentially greater market value than associated with its traditional uses.
FINAL COMMENTS
Expect market values of groundwater in many areas of Texas to rise over the next decade. This will be in response to efforts by cities and regional water authorities to acquire secure sources of water to meet projected long-term needs. As noted above, there are many factors which influence sales prices. For the foreseeable term, it is highly probable that landowners will prefer leases with terms of 5-to- 10 years, rather than longer-term leases or sales. This strategy will be an outgrowth of expectations by landowners that market values will continue to rise as the population of the state grows and as major users try to lay claim to secure supplies to avoid shortages and economic problems stemming from supply shortfalls. Buyers and sellers of groundwater would be wise to take stock of existing resources and the number of competitors and potential suppliers of water. Other factors to consider include projections of water demand by the Texas Water Development Board and negotiated lease and sales prices, although such data can be difficult to find without the assistance of a consultant. It is advisable to assess both demand-side and supply-side structures and market conditions. By assembling reliable information, one can enter into negotiations as a well-informed participant, bargaining from the strongest position possible.
Over the next couple of weeks, I will post an analysis of pricing over time and by region of the state.
Best regards,
aquadoc
Southwest Groundwater Consulting, LLC
The marketing of groundwater in not new to Texas, as landowners have sold pumping rights or negotiated supply contracts with cities and industries for more than 50 years. What is new is the increasing degree of interest in groundwater marketing. In response to growing expectations about the potential for groundwater markets to expand in Texas, the Environmental Defense Fund published, in 2007, "Myths and Facts about Groundwater Marketing: a Guide for Landowners and Groundwater Conservation Districts."
One of the first questions many potential sellers of groundwater ask is: “What’s my water worth?” On the buyers’ side, the question is: “What’s it going to cost me to purchase that water or that landowner’s water right?”
It remains difficult to answer, with certainty, either of the above questions, especially in ROC areas, because there is not a discernible sense of order underlying most groundwater transactions. The reason for the uncertainty is that, outside of the southern Edwards Aquifer region, Texas lacks two of the most fundamental of components required for an efficient groundwater market to function: (1) a system of assigned, quantified, and transferable water rights (not the same as pumping rights under the Rule of Capture) recognized and enforced by the State, and (2) a means of making information on transactions available to all potential buyers and sellers. Information that participants need to make well-reasoned assessments of the market value of groundwater is not easily found, and there are very few consultants who follow transactions closely enough to have a clear understanding of market conditions and organization among sellers and buyers.
Each side brings its expectations to the bargaining table, hoping to negotiate the best possible deal. Unfortunately, it is not uncommon for speculation and misinformation to trump common sense. Applying economists’ standard linear supply-demand curves to groundwater transactions, one might conclude that selling groundwater in Texas is a guaranteed way to get rich. For some, that might be the case now, but for many others, the prospects might be better over the long run … the very long run ... or not at all.
Before reaching conclusions about the market value of groundwater in any area of Texas, buyers and sellers should take heed of the lack of any defined market value for groundwater in the State. There are, instead, many potential market values driven by a number of factors that influence marketability. Landowners and water entrepreneurs often don’t consider these factors when first entertaining the thought of selling water or buying/selling water rights (pumping rights with respect to aquifers other than the Edwards within the jurisdiction of the Edwards Aquifer Authority).
Furthermore, any attempt to assign a market value to groundwater in one region of Texas based on prices negotiated in other regions of the State is not advisable. Accomplishing this task requires an understanding of variable market structures, market conditions, geology/hydrology, and the relative bargaining power of parties within the different regions of the State. Texas is very large and the population is highly concentrated in major urban areas. Hydrologic conditions are often so different from one region to another that it is necessary to break the whole up into smaller parts. All of these steps are essential to developing a reasonable understanding of the factors which drive differences in market value both between and within regions.
For many years, groundwater in Texas had minimal established value, apart from its association with the overlying land. A standard practice of cities and industries was to acquire enough property to develop a well field, then to pump whatever water was needed to meet their respective requirements. This was possible under a strict interpretation and application of the ROC. The cost of groundwater was associated with the cost of the land, the well, the pump, the pipeline, and the electricity or the fuel needed to power a pump.
DETERMINANTS OF MARKETABILITY AND MARKET VALUE
With a reasonable degree of certainty, one can identify, at least eight factors which seem to be significant determinants of marketability and of the market value of groundwater in Texas. These factors are listed below, not necessarily in order of importance:
1. Number of Competitors for the Resource: Competition for groundwater should drive up the price of the resource. If there are few major users of groundwater in a region, then negotiated prices could be much lower than expected by landowners.
2. Number of Known Sources of Groundwater and Sellers of Land, Water Rights or Water: Competition among sellers, all other things being equal and assuming one major buyer or minimal competition among buyers, should act to lower price. Alternatively, if sellers are able to organize a groundwater cartel, then their bargaining position should be stronger and prices negotiated for water or water rights could be higher than under purely competitive conditions among suppliers.
3. Volume of Recoverable Water and Estimated Life of the Resource: Land with a large volume of water in storage might command a higher price than land with a small volume of recoverable groundwater. In addition, property overlying an aquifer which is recharged quickly might command a higher price than a property which lies above a “mined” aquifer. [A “mined” aquifer is for which the rate of withdrawal exceeds the rate of recharge.]
4. Proximity of the Resource to the Purchaser: Transporting water long distances can be very expensive.
5. Expected Costs of Installing Wells and Other Production and Treatment Facilities. Infrastructure can add substantially to the total cost of a project.
6. Estimated Production Costs and the Quality of Groundwater: The investment required to develop a resource and to maintain, transport, and treat groundwater might be sufficient to justify a lower offer price, in the absence of other competitors, where the quality of the groundwater is an issue for the end user.
7. Regulations Limiting the Volume of Water: Regulations which limit the volume of water that can be pumped from an aquifer or which impose spacing requirements for wells must be taken into account, as such rules have the effect of amending/modifying the ROC.
8. The Value of Agricultural Production Attributable to Irrigation: Many farmers are potentially large suppliers of groundwater. They own land over aquifers which are capable of producing large volumes of water. In such cases, the value of groundwater can be related to the market value of crops if irrigated land is involved. For a landowner, the sale of groundwater or a water right represents an opportunity cost associated with the potential loss of income from irrigation. The sale of groundwater or of a landowner’s water right (assuming no duress) should generate sufficient income to cover, at least, the income or any other income associated with the on-property use of groundwater or sale of groundwater for other uses.
It is not possible to precisely quantify the relative significance of each of the above factors in a transaction involving groundwater. Furthermore, one should not expect any factor to carry the same weight across Texas’ many regions. While economic models typically assume access to information and rational behavior by buyers and sellers, few parties to a Texas water negotiation can claim access to all relevant information. Furthermore, there is no guarantee that all participants in a transaction will behave rationally even if all have access to the same data.
OVERVIEW OF TRANSACTIONS
While writing this post, I reviewed groundwater transactions in Texas over the period 1999 – 2008, as reported by Water Strategist and as recorded in my notes of transactions for which I have offered advice to sellers or to purchasers of groundwater. Most of the groundwater transactions during these years took place in central, south, and west Texas. Leases outnumbered sales, with lease terms typically ranging from 5-to-10 years.
Nearly all groundwater transactions involved leases of groundwater or the acquisition of groundwater rights to support municipal uses. Sales to industrial or agricultural interests were less common. Most lease prices for municipal use ranged from $66 - $77 per acre-ft per year, but the San Antonio Water System acquired Edwards leases for $130 per acre-ft within the last year. Transactions involving the sale of groundwater rights (with no transfer of the surface estate) range from $270/AF (Canadian River Municipal Water District) to $250/acre (Mesa Water). In Central Texas, water rights associated with land overlying the Edwards aquifer sold for $700 per acre-ft 10 years ago, then rose to between $1,750 to $2,000 per acre-ft by 2005, and broke $5,000 per acre-ft within the last two years. There have been a few undocumented sales of Edwards Aquifer rights of $10,000 per acre-ft within the last year. If there is any doubt that a system of assigned water rights leads to higher market values for groundwater, then one need look no further than the disparity between prices paid for southern Edwards Aquifer groundwater rights and prices paid for groundwater in areas still under the ROC.
Clearly, there is no established market value for groundwater in Texas. It is necessary to consider the mix of factors outlined above before reaching any conclusion about current or future lease prices and permanent transfers of water rights. Such exercises are not trivial, especially where an outright purchase is involved transferring a water right in perpetuity. Nevertheless, many landowners are now looking at groundwater, which has, for many decades, been used to support ranching and farming operations, as a resource with potentially greater market value than associated with its traditional uses.
FINAL COMMENTS
Expect market values of groundwater in many areas of Texas to rise over the next decade. This will be in response to efforts by cities and regional water authorities to acquire secure sources of water to meet projected long-term needs. As noted above, there are many factors which influence sales prices. For the foreseeable term, it is highly probable that landowners will prefer leases with terms of 5-to- 10 years, rather than longer-term leases or sales. This strategy will be an outgrowth of expectations by landowners that market values will continue to rise as the population of the state grows and as major users try to lay claim to secure supplies to avoid shortages and economic problems stemming from supply shortfalls. Buyers and sellers of groundwater would be wise to take stock of existing resources and the number of competitors and potential suppliers of water. Other factors to consider include projections of water demand by the Texas Water Development Board and negotiated lease and sales prices, although such data can be difficult to find without the assistance of a consultant. It is advisable to assess both demand-side and supply-side structures and market conditions. By assembling reliable information, one can enter into negotiations as a well-informed participant, bargaining from the strongest position possible.
Over the next couple of weeks, I will post an analysis of pricing over time and by region of the state.
Best regards,
aquadoc
Southwest Groundwater Consulting, LLC
No. 3: We Get to the Tragedy of the Commons,
or - "When everybody owns everything, nobody will take care of anything." Aristotle
INTRODUCTORY OBSERVATIONS
The above photo is of the old pool at Comanche Spring (Fort Stockton, Texas), probably taken during the late 1940s or early 1950s. Comanche Spring was the third largest spring in Texas. It was also a source of irrigation water for at least 90 years, and a rare oasis in the semi-arid region of Trans-Pecos Texas. Average daily discharge was estimated to be 21 million gallons. Comanche Spring ceased to flow more 50 years ago, after Clayton Williams, Sr. developed a well field to supply water to his crops. Williams' well field dried up the spring and captured the groundwater that had been used for decades to irrigate more than 6,000 acres of farmland near Fort Stockton. Comanche Spring stands out as a prime example of the destruction of a commons, as well as a basis for reasonable regulation of groundwater pumpage AND the assignment of well-defined and enforceable rights to groundwater in Texas.
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A principal problem underlying the 1949 and 1985 GCD amendments was the failure to recognize that the flow of groundwater is not controlled by political, but by hydrogeologic, boundaries. Furthermore, there was no requirement that GCDs overlying a common aquifer develop a cooperative set of management plans. In most cases, there was no evidence that GCDs intended to develop plans that would have led to co-operation or to minimal departures from the Rule of Capture (ROC). Most GCDs, in fact, seem to have been committed to preserving the doctrine under the guise of “local control.”
GROUNDWATER MANAGEMENT AREAS – A STEP BEYOND GROUNDWATER CONSERVATION DISTRICTS
As noted above, many GCDs were delineated on the basis of political — not hydrogeological — boundaries. Although the districts have been encouraged to work with each other to produce coherent management plans, prior to 2005, it was often the case that there was little interaction among the districts and that many GCDs pursued objectives which were not in sync with those of neighboring districts. To rectify shortcomings of the GCD system, the Legislature, in 2005, adopted House Bill 1763, which required joint planning among the districts within designated Groundwater Management Areas (GMAs) that cover all of the State’s major and minor aquifers.
The Legislature specified that TWDB was to use aquifer boundaries or subdivisions of aquifer boundaries in its delineation of each GMA. TWDB proposed 16 management areas, with boundaries which reflect those of the major hydrogeologic areas. (Mace, R.E., R. Petrossian, R. Bradley, and W.F. Mullican, III, A Streetcar Named Desired Future Conditions: The New Groundwater Availability for Texas; presented at the 7th Annual The Changing Face of Water Right in Texas, State Bar of Texas, May 18-19, San Antonio, TX.
Under the provisions of the 2005 law, representatives of GCDs are required to meet at least once every year to conduct joint planning and to review groundwater management plans and accomplishments in their respective GMAs. The intended long-term effect is to get GCDs to work together under rules which will lead to a better understanding of hydrogeological conditions and the availability of groundwater throughout the State. From this, it is expected that coherent sets of regional management plans will be developed to ensure that groundwater resources will be available to residents of Texas through the year 2060.
ECONOMIC IMPLICATIONS OF THE RULE OF CAPTURE – AN INTRODUCTION TO THE TRAGEDY OF THE COMMONS
Was anything ever to be gained by embracing the ROC as the principal groundwater doctrine of Texas?
Two factors which might be cited in favor of the ROC are:
1. The ROC encourages economic development through maximum utilization of a source or sources of groundwater; and
2. The ROC entails minimal government involvement in the operations of water wells.
It should be noted that “maximum utilization” is not synonymous with “optimal utilization.” Microeconomic theory emphasizes optimal over maximum utilization, as optimal utilization embodies the concept of economic efficiency, as measured by marginal cost/profit. Maximum utilization embodies neither. This is the equivalent of saying that one can produce a natural resource over a given period of time in a manner that would maximize total revenue (assuming that the marginal profit of the last unit produced is zero) instead of producing the resource over a shorter period of time, such that the production schedule fails to yield a marginal profit of the last produced unit of zero. With respect to the exploitation of nonrenewable natural resources (e.g. gold, oil, uranium), this is best explained by Harold E. Hotelling’s theory of the mine (The Economics of Exhaustible Resources, in The Journal of Political Economy, v. 39, pp. 137–175 (1931)), in which Hotelling postulates that optimal resource exploitation is achieved when the marginal profit of the last extracted unit is zero. Although Hotelling’s theory is most often applied to mining operations, it is reasonable to extend the theory to an exhaustible or potentially exhaustible resource, such as groundwater.
With regard to the second point above, there is nothing in economics to suggest that unfettered exploitation of a natural resource such as groundwater is economically efficient or amounts to sensible resource management. With respect to groundwater, “minimal government involvement” might be required to prevent over-exploitation, depletion, contamination, and, insofar as groundwater can be considered to be a “public good,” promotion of the health, safety, and welfare of the public.
Factors which might be cited as reasons to amend or replace the ROC with a different groundwater rights doctrine are:
1. The potential for overproduction and depletion;
2. Inefficient use and devaluation of the resource;
3. The potential for a Tragedy of the Commons; and
4. The ROC ignores the needs of future generations.
Points 1 and 2 are well-established consequences associated with the aggressive exploitation not only of water but of other natural resources that can be considered to form a commons (e.g., petroleum reservoirs, “forests, rangeland, parks). As such, both are factors that underlie the devaluation and/or destruction of a commons, cited as point #3 above. A prima facie example of points #1 and #2 is found in the petroleum industry of Texas, particularly in the overexploitation of early giant fields such as Spindletop (near Beaumont, Texas).
Discovered in January 1901, Spindletop attracted thousands of speculators and producers to Beaumont, Texas. Each producer sought to extract as much oil as possible from his small lease, under the assumption that other producers would drain “his” oil if he did not produce it first. The result was a proliferation of closely spaced drilling rigs, each producing from the same reservoir. The effect of the production frenzy was rapid depletion of reservoir pressure and rapidly decreasing output. Initial production was as much as 100,000 barrels of oil per day, and total production in 1902 was 17,500,000 barrels (47,945 barrels per day). By 1904, total production was 3,650,000 barrels (10,000 barrels per day).
The Big Oilfields website notes the following with regard to the production of oil at Spindletop:
Mineral rights to the oil under the leases worked according to the old English "rule of capture." Under this principle, anybody who had property or a lease anywhere over the pool of crude had the right to suck it out of the ground as fast as he could.
With little understanding of the underground pressures of natural gas and water, the producers extracted too much oil too quickly. Water seeped into the reservoir. The flow of oil forced to the surface by pumps slowed to a trickle.
The original production area at Spindletop was reduced to a minor oil field by 1909.
Point #4 is a much-discussed and debated matter involving commitments of one generation to its successors. Given the opportunity to exploit aquifers, petroleum reservoirs, forests, and rangelands, it is reasonable to inquire whether the current generation has an obligation to generations yet to come to ensure that adequate resources will be available or that public lands will not be degraded from overuse.
DEFINITION OF A COMMONS AND THE TRAGEDY OF THE COMMONS
A "commons" is any resource which is used as though it belongs to all. An aquifer would easily qualify as a commons. If anyone can use a shared resource simply because one wants or needs to use it, then one is exploiting a commons. A commons can be destroyed by uncontrolled use.
Garrett Hardin described factors that underlie the destruction or degradation of a commons in his essay The Tragedy of the Commons. (Refer to Science, Vol. 162, No. 3859, Dec. 13, 1968.
Hardin’s essay is developed around a parable about the grazing of animals on open pastureland. The owners of the animals are motivated to increase their personal wealth by adding one head of stock at a time to their respective flocks. However, each animal added to the total stretches the carrying capacity of the land. The degradation attributable to each additional animal is small, yet if all owners pursue this strategy, the carrying capacity will be exceeded and the property severely damaged or destroyed. It is not necessary for all users of a commons to behave as described by Hardin. The destruction of the resource can occur if only one user attempts to dominate the commons.
COMANCHE SPRING
One such example of damage to a commons involving the production of water is the matter of Comanche Spring, located at Fort Stockton, Texas (refer to the photo at the beginning of this post). Comanche Spring was a source of water for animals and humans, and the substantial discharge (estimated to be as much as 21 million gallons per day Mgd) made the spring a prime hunting ground for Indians and an ideal location for an army post and a stagecoach stop. The spring also provided water for irrigation, and, in later years, it was the site of a large pool in a municipal park. The spring, however, ceased to flow as a result of pumping to support irrigation, principally by one farmer.
In A Primer for Understanding Texas Water Law, Timothy L. Brown describes the facts and legal issues at the core of the matter. The Comanche Spring case (Pecos County Water Control and Improvement District No. 1 v. Williams, 271 SW2d 503 (Tex.Civ.App–El Paso 1954, writ ref’d n.r.e.) is prominent in Texas water law. Brown’s account of the matter is reproduced below:
At Fort Stockton, Texas, there were large, prolific springs, named Comanche Springs. The springs provided a water supply for numerous irrigators in the Pecos County Water Control and Improvement District, which upon development, supplied water to irrigate over 6,000 acres.
Up gradient from the springs was land owned by Clayton Williams (Sr.) …. At the time the case arose, Texas was in the early stages of the Great Drought of the 1950s and Williams needed water for his crops. He developed a well field and began to pump water from the formation. The pumping resulted in drying up the springs, which cut off the water supply for the irrigators in the district. Litigation followed. The irrigators asserted that they and their predecessors had owned the location and flow of the spring and that they had used the water beneficially for ninety years. By virtue of this, they alleged, they acquired the right to be protected in the subsurface source of the water. They also plead in the alternative that if they did not own the source of the water supply, they were nevertheless entitled to a fair share of the source of supply. The gist of this argument was that they had a correlative right to the water. They also alleged that the spring was not fed by percolating groundwater, but rather by a well-defined underground stream in which they acquired rights by virtue of claims filed with the Board of Water Engineers. The remedy they sought was an injunction against Williams’ pumping.
Williams countered by filing exceptions to the plaintiffs’ petition. He asserted that the water was percolating groundwater and since no waste had been alleged, he was entitled to a judgment on the basis of the East case. He also asserted that the plaintiffs’ allegation about a well-defined underground stream was insufficient because the source, location, beds and banks and course of the so-called well-defined channel were not provided. The trial court sustained Williams’ exceptions. The irrigators appealed.
The El Paso Court of Civil Appeals affirmed the trial court judgment. The court held that Williams absolutely owned the water beneath his land and the plaintiffs had no correlative rights in it. As to the general allegation about the well-defined stream, Williams’ exceptions were well taken because there was no evidence to support the proposition. As to the failure of the spring when Williams pumped, that did not prove the existence of a well-defined underground channel.
On appeal to the Texas Supreme Court, the plaintiffs attempted to avoid the effect of the East case with an interesting argument. The argument was that the percolating groundwater referred to in the East case did not include water moving in well-defined underground strata. Percolating groundwater, according to modern hydrology, is divided into two classes: first, “diffused percolating water,” defined as slowly moving water which cannot be traced directly as the source of a natural stream, and, second, “percolating water feeding a natural water course,” defined as water which supplies a surface water stream. The former definition was what was used to define percolating groundwater at common law, so East did not apply.
The significance of this argument was, if the Supreme Court adopted the definitions, East would have been stripped of its significance. This is because the facts about most groundwater are known or subject to being known. Thus, once groundwater reached a known water sand, it would no longer be percolating water subject to private ownership as provided by East. This comports with the Attorney General’s earlier opinion.
The Supreme Court declined to take the case and did not write an opinion. By declining to take the case, we can only infer that the Supreme Court apparently rejected the proposition.
The Comanche Spring case stands out as an example of the destruction of a commons for several reasons:
1. By 1954, hydrogeology had advanced enough since the formulation of Darcy’s law in 1856 that the fundamental principles of hydrostratigraphy and the flow of groundwater on local to subregional scales were well understood.
2. By 1954, the effects of pumping on water levels were not mysterious, many thanks to the work of hydrogeologists and civil engineers with the Water Resources Division of the United States Geological Survey.
3. Arguments that Comanche Spring was fed by “percolating water” (as understood in the East case) instead of “water moving in well-defined underground strata” (as made on appeal) were clearly absurd. All that was required to counter the claims of Williams’ attorneys was an investigation of the hydrostratigraphy of the area, measurements of water levels in wells between Williams’ property and properties downstream of the spring, and evaluation of drawdown and recovery from pumping tests.
4. Williams’ pumping caused water levels to fall below the discharge point of the spring, and the lower water levels led to the cessation of discharge. This amounted to as much as 21 Mgd of captured flow to support Williams’ farm and to the loss of water to support irrigation on 6,000 acres that had been sustained by spring flow for many years. This effectively gave Williams a monopoly over a commons that had served a great many people for at least 90 years.
5. The cessation of flow also destroyed a rare water resource in west Texas and denied residents of Fort Stockton and the surrounding area the recreational and aesthetic equivalent of the springs of Balmorhea (Reeves County) or Barton Springs (Travis County).
I have not attempted to calculate the total economic loss stemming from the destruction of what might be referred to as the Comanche Spring Commons. Suffice it to say that the losses were and remain significant, particularly in the form of lost agricultural production and incomes, and losses to the City of Fort Stockton associated with the recreational and aesthetic values of the spring. It is far easier to calculate economic damage caused by the loss of irrigation water, than it is to place a dollar value on the loss of a recreational and aesthetic resource to a city, such as Comanche Spring. Imagine Zilker Park and Austin without Barton Springs, and then ask yourself what is the value of the springs at the park to the City of Austin and to Travis County.
Best Regards,
aquadoc
Southwest Groundwater Consulting, LLC
Tuesday, February 10, 2009
No. 2: The History of The Rule of Capture, an Example of The Tragedy of the Commons
Much of the following was extracted from my article "Rule of Capture and Groundwater Management in Texas", as published in the April 2007 edition of The Water Report. In my next post, I will explain why the capture rule is an example of The Tragedy of the Commons.
HISTORY OF THE RULE OF CAPTURE
Among the states which make up the southwestern and western areas of the United States of America, Texas stands out as an anomaly with respect to the access to and use of groundwater. While most western states long ago adopted one allocation program or another based on systems of permits, correlative rights or prior appropriation, Texas has remained averse to state control of groundwater, preferring instead to rely on the English Common Law doctrine (Acton v. Blundell, 12 M. & W. 324, 152 Eng. Rep. 1223 (Ex. 1843)) of absolute ownership (i.e. the “Rule of Capture”). Under the Rule the Capture, landowners are granted the “right” to pump water from wells on their respective properties, notwithstanding the impact on others, provided the pumping: (1) can be claimed to be for beneficial use; and (2) not be a cause of environmental damage. At least in Texas, pumping which is deemed to be wasteful or for malicious purposes is not protected by the doctrine.
(The different water rights doctrines of the United States of America are explained in Who Owns the Water: A Summary of Existing Water Rights Laws (a Water Systems Council Report).
The Rule of Capture was enunciated in 1904 by the Supreme Court of Texas in Houston & Texas Central Railroad Co. v. East (98 Tex. 146, 81 S.W. 279 (1904)) and reaffirmed over the next 95 years in several cases which sought to overturn or modify the doctrine in order to establish pumping limits. For a complete discussion of this history, see Potter, H.G. III, “History and Evolution of the Rule of Capture” in 100 Years of Rule of Capture: From East to Groundwater Management, eds. William F. Mullican III and Suzanne Schwartz. Texas Water Development Board Report 361, Ch. 1, p 1-10. The Court’s decision in East was based on consideration of two factors which were first stated in a case decided in 1861 in Ohio (Frazier v. Brown, 12 Ohio St. 294 (1861)):
In East, the Court quoting from the English doctrine, ruled as follows:
The phrase damnum absque injuria (Latin) means "loss or damage without injury."
The Court’s description of the flow of groundwater as “secret, occult, and concealed” has for many decades been a source of pointed commentary by hydrogeologists in Texas (see Mace, R.E., Cynthia Ridgeway, and J.M. Sharp, Jr. (2004), “Groundwater is No Longer Secret and Occult – a Historical and Hydrogeological Analysis of the East Case” in 100 Years of Rule of Capture: From East to Groundwater Management, eds. William F. Mullican III and Suzanne Schwartz, Texas Water Development Board Report 361, Ch. 5, p 63-88. The commentary serves to underscore what some might regard as a sharp divide between the perspective of the legal establishment with respect to matters of natural-resource evaluation and management, as opposed to that of hydrogeologists, who rely upon well-established principles of physics and hydraulics to describe, predict, and manage the flow of subsurface fluids.
THE CONSERVATION AMENDMENT
Texas, however, has not been entirely unrelenting in its support of the Rule of Capture, as indicated by the passage, in 1917, of the Conservation Amendment of the Texas Constitution (Const. art. XVI, § 59(a)) in the wake of droughts in 1910 and 1917. The Conservation Amendment declared:
H.G. Potter, III, in History and Evolution of the Rule of Capture, explains:
The Court, for example, cited the amendment in a 1996 ruling (Barshop v. Medina County UWCD, et al., 925 S.W.2d 618 (Tex. 1996)). In Barshop, the Court determined that the State has the responsibility under the Texas Constitution to preserve and conserve water resources (groundwater and surface water) for the benefit of all Texans. The effect of the ruling was to emphasize that natural resource management is the responsibility of the Legislature, not the Court. See Wasinger, B., “Groundwater (Background & Recent Cases),” Paper presented at Texas Water Law Institute – Water Law for the New Millennium; Austin, TX, Sept. 30 – Oct. 1, 1999.
In a case decided in 1999 (Sipriano, et al. v. Great Spring Waters of America, Inc., et al., 1S.W. 2d 75, 77, 79-80 (Tex. 1999)) the Court commented on the Legislature’s efforts to fulfill its responsibility for water management under the provisions of the Conservation Amendment:
(NOTE: Senate Bill 1 is a comprehensive water planning bill passed by the 75th (1997) Legislature in response to a multi-year drought that wracked the State during the 1990's. SECTION 1.01 of Senate Bill 1 amended SECTION 16.051 of the Water Code to read as follows:
The Court’s rulings in Barshop and in Sipriano serve as much needed reminders that the Constitution of the State of Texas establishes the basis for the management of all of the State’s natural resources. This is good news for people who object to judicial activism, and bad news for all who hope for a solution, in the form of a Court-administered sledgehammer, to what they regard as a matter of major concern to all Texans. It was also a stern message to the Legislature that Texas could not continue to ignore current and future problems associated with the capture rule. Thus, it seems reasonable to infer that the Court will not intercede in water issues, as long as the Legislature takes seriously its obligation as required by the Conservation Amendment, to manage the State’s water resources for the benefit of the State’s residents.
ATTEMPTS TO SCUTTLE THE RULE OF CAPTURE
The Rule of Capture notwithstanding, the State has sought to manage groundwater through a decentralized system of conservation districts which allow a high degree of local control. In 1949, the Texas Legislature authorized the establishment of “groundwater conservation districts” — GCDs). The establishment of GCDs was in response to recommendations in the 1930s and 1940s by the Texas Board of Water Engineers (TBWE), a predecessor agency of the Texas Water Development Board) calling for a law to declare all underground waters to be public waters of the State.
In his book Land of the Underground Rain: Irrigation on the Texas High Plains, 1910 – 1970 (Green, D.E., 1973, The University of Texas Press, Austin, TX, p. 295), Donald Green quotes from TBWE’s 11th biennial report (1934) in which the board recommended a law
According to Green, TBWE reiterated in its 13th report (issued in 1938), the recommendation to declare groundwater a public resource. This was followed by recommendations from urban and industrial interests who were concerned about falling water levels throughout the High Plains and other areas of Texas. Green also notes that bills dealing with State control of groundwater were defeated in the Texas Legislature in 1937, 1941, and 1947.
The issue of the control of groundwater came up again in the 1949 session of the Texas Legislature. Opposition from High Plains irrigation interests, however, was strong enough to defeat a proposal by the Texas Water Conservation Association (TWCA) that would have substituted a doctrine of correlative rights for the Rule of Capture. The Water Systems Council describes The Correlative Rights doctrine as one which:
AN APPARENT COMPROMISE
Negotiations between TWCA and the High Plains Water Conservation Users Association (HPWCUA)led to a compromise bill based on locally controlled districts. Green points out that some irrigators regarded the compromise as a capitulation by TWCA. He quotes the editor of Southwestern Crop and Stock:
That commentary can be considered as little more than a foolish and myopic understanding of the matter. What did the editor of the periodical think was to gained by a policy that turns a blind eye to the waste of groundwater in a semi-arid region of the State?
Under the 1949 law, districts could be established either by special legislation or by a petition from landowners. In 1985, an amendment also allowed TWDB and the Texas Commission on Environmental Quality (TCEQ) to recommend the formation of a district. As of 2009, there are 91 GCDs in Texas.
This is the end of Part 2. In Part 3, I will explain how the rule of capture is an example of The Tragedy of the Commons.
Best regards,
aquadoc
Southwest Groundwater Consulting, LLC
HISTORY OF THE RULE OF CAPTURE
Among the states which make up the southwestern and western areas of the United States of America, Texas stands out as an anomaly with respect to the access to and use of groundwater. While most western states long ago adopted one allocation program or another based on systems of permits, correlative rights or prior appropriation, Texas has remained averse to state control of groundwater, preferring instead to rely on the English Common Law doctrine (Acton v. Blundell, 12 M. & W. 324, 152 Eng. Rep. 1223 (Ex. 1843)) of absolute ownership (i.e. the “Rule of Capture”). Under the Rule the Capture, landowners are granted the “right” to pump water from wells on their respective properties, notwithstanding the impact on others, provided the pumping: (1) can be claimed to be for beneficial use; and (2) not be a cause of environmental damage. At least in Texas, pumping which is deemed to be wasteful or for malicious purposes is not protected by the doctrine.
(The different water rights doctrines of the United States of America are explained in Who Owns the Water: A Summary of Existing Water Rights Laws (a Water Systems Council Report).
The Rule of Capture was enunciated in 1904 by the Supreme Court of Texas in Houston & Texas Central Railroad Co. v. East (98 Tex. 146, 81 S.W. 279 (1904)) and reaffirmed over the next 95 years in several cases which sought to overturn or modify the doctrine in order to establish pumping limits. For a complete discussion of this history, see Potter, H.G. III, “History and Evolution of the Rule of Capture” in 100 Years of Rule of Capture: From East to Groundwater Management, eds. William F. Mullican III and Suzanne Schwartz. Texas Water Development Board Report 361, Ch. 1, p 1-10. The Court’s decision in East was based on consideration of two factors which were first stated in a case decided in 1861 in Ohio (Frazier v. Brown, 12 Ohio St. 294 (1861)):
“… the existence, origin, movement, and course of such waters, and the causes which govern and direct their movements, are so secret, occult, and concealed that an attempt to administer any set of legal rules in respect to them would be involved in hopeless uncertainty, and would, therefore, be practically impossible.”
In East, the Court quoting from the English doctrine, ruled as follows:
That the person who owns the surface may dig therein, and apply all that is there found to his own purposes at his free will and pleasure; and that if, in the exercise of such right, he intercepts or drains off the water collected from the underground springs in his neighbor’s well, this inconvenience to his neighbor falls within the description damnum absque injuria, which cannot become the ground of an action.
The phrase damnum absque injuria (Latin) means "loss or damage without injury."
The Court’s description of the flow of groundwater as “secret, occult, and concealed” has for many decades been a source of pointed commentary by hydrogeologists in Texas (see Mace, R.E., Cynthia Ridgeway, and J.M. Sharp, Jr. (2004), “Groundwater is No Longer Secret and Occult – a Historical and Hydrogeological Analysis of the East Case” in 100 Years of Rule of Capture: From East to Groundwater Management, eds. William F. Mullican III and Suzanne Schwartz, Texas Water Development Board Report 361, Ch. 5, p 63-88. The commentary serves to underscore what some might regard as a sharp divide between the perspective of the legal establishment with respect to matters of natural-resource evaluation and management, as opposed to that of hydrogeologists, who rely upon well-established principles of physics and hydraulics to describe, predict, and manage the flow of subsurface fluids.
THE CONSERVATION AMENDMENT
Texas, however, has not been entirely unrelenting in its support of the Rule of Capture, as indicated by the passage, in 1917, of the Conservation Amendment of the Texas Constitution (Const. art. XVI, § 59(a)) in the wake of droughts in 1910 and 1917. The Conservation Amendment declared:
The conservation and development of all of the natural resources of this State … and the preservation and conservation of all such natural resources of the State are each and all hereby declared public rights and duties; and the Legislature shall pass all such laws as may be appropriate thereto.
H.G. Potter, III, in History and Evolution of the Rule of Capture, explains:
This constitutional amendment would become critical to water law issues confronting the courts from the time of its passage to the present and would form the basis for much of the judicial branch’s reluctance to interfere with what it viewed as a legislative prerogative.
The Court, for example, cited the amendment in a 1996 ruling (Barshop v. Medina County UWCD, et al., 925 S.W.2d 618 (Tex. 1996)). In Barshop, the Court determined that the State has the responsibility under the Texas Constitution to preserve and conserve water resources (groundwater and surface water) for the benefit of all Texans. The effect of the ruling was to emphasize that natural resource management is the responsibility of the Legislature, not the Court. See Wasinger, B., “Groundwater (Background & Recent Cases),” Paper presented at Texas Water Law Institute – Water Law for the New Millennium; Austin, TX, Sept. 30 – Oct. 1, 1999.
In a case decided in 1999 (Sipriano, et al. v. Great Spring Waters of America, Inc., et al., 1S.W. 2d 75, 77, 79-80 (Tex. 1999)) the Court commented on the Legislature’s efforts to fulfill its responsibility for water management under the provisions of the Conservation Amendment:
By constitutional amendment, Texas voters made groundwater regulation a duty of the Legislature. And by Senate Bill 1, the Legislature has chosen a process that permits the people most affected by groundwater regulation in particular areas to participate in democratic solutions to their groundwater issues. It would be improper for courts to intercede at this time by changing the common-law framework within which the Legislature has attempted to craft regulations to meet this State’s groundwater conservation needs. Given the Legislature’s recent actions to improve Texas’s groundwater management, we are reluctant to make so drastic a change as abandoning our rule of capture and moving into the arena of water-use regulation by judicial fiat. It is more prudent to wait and see if Senate Bill 1 will have its desired effect, and to save for another day the determination of whether further revising the common law is an appropriate prerequisite to preserve Texas’s natural resources and protect property owners’ interests.
(NOTE: Senate Bill 1 is a comprehensive water planning bill passed by the 75th (1997) Legislature in response to a multi-year drought that wracked the State during the 1990's. SECTION 1.01 of Senate Bill 1 amended SECTION 16.051 of the Water Code to read as follows:
No later than September 1, 2001, and every five years thereafter, the board shall adopt a comprehensive state water plan that incorporates the regional water plans approved under Section 16.053 of this code. The state water plan shall provide for the orderly development, management, and conservation of water resources and preparation for and response to drought conditions, in order that sufficient water will be available at a reasonable cost to ensure public health, safety, and welfare; further economic development; and protect the agricultural and natural resources of the entire state.
The Court’s rulings in Barshop and in Sipriano serve as much needed reminders that the Constitution of the State of Texas establishes the basis for the management of all of the State’s natural resources. This is good news for people who object to judicial activism, and bad news for all who hope for a solution, in the form of a Court-administered sledgehammer, to what they regard as a matter of major concern to all Texans. It was also a stern message to the Legislature that Texas could not continue to ignore current and future problems associated with the capture rule. Thus, it seems reasonable to infer that the Court will not intercede in water issues, as long as the Legislature takes seriously its obligation as required by the Conservation Amendment, to manage the State’s water resources for the benefit of the State’s residents.
ATTEMPTS TO SCUTTLE THE RULE OF CAPTURE
The Rule of Capture notwithstanding, the State has sought to manage groundwater through a decentralized system of conservation districts which allow a high degree of local control. In 1949, the Texas Legislature authorized the establishment of “groundwater conservation districts” — GCDs). The establishment of GCDs was in response to recommendations in the 1930s and 1940s by the Texas Board of Water Engineers (TBWE), a predecessor agency of the Texas Water Development Board) calling for a law to declare all underground waters to be public waters of the State.
In his book Land of the Underground Rain: Irrigation on the Texas High Plains, 1910 – 1970 (Green, D.E., 1973, The University of Texas Press, Austin, TX, p. 295), Donald Green quotes from TBWE’s 11th biennial report (1934) in which the board recommended a law
“first to declare the underground water of the State to be the property of the State; second, to guarantee the vested rights of those who have already made beneficial use of underground water; and third, to exercise proper control over future underground-water development.”
According to Green, TBWE reiterated in its 13th report (issued in 1938), the recommendation to declare groundwater a public resource. This was followed by recommendations from urban and industrial interests who were concerned about falling water levels throughout the High Plains and other areas of Texas. Green also notes that bills dealing with State control of groundwater were defeated in the Texas Legislature in 1937, 1941, and 1947.
The issue of the control of groundwater came up again in the 1949 session of the Texas Legislature. Opposition from High Plains irrigation interests, however, was strong enough to defeat a proposal by the Texas Water Conservation Association (TWCA) that would have substituted a doctrine of correlative rights for the Rule of Capture. The Water Systems Council describes The Correlative Rights doctrine as one which:
...maintains that the authority to allocate water is held by the courts. As a result, owners of overlying land and non-owners or transporters have co-equal or correlative rights in the reasonable, beneficial use of groundwater.A major feature of the Correlative Rights doctrine, however, is the concept that adjoining lands can be served by a single aquifer. Therefore, the judicial power to allocate water permits protects both the public’s interest and the interests of private users.
AN APPARENT COMPROMISE
Negotiations between TWCA and the High Plains Water Conservation Users Association (HPWCUA)led to a compromise bill based on locally controlled districts. Green points out that some irrigators regarded the compromise as a capitulation by TWCA. He quotes the editor of Southwestern Crop and Stock:
Until such time as they deem it necessary to call in state assistance to protect the water supply, West Texans can consider the water their own — to use or to waste as they please.
That commentary can be considered as little more than a foolish and myopic understanding of the matter. What did the editor of the periodical think was to gained by a policy that turns a blind eye to the waste of groundwater in a semi-arid region of the State?
Under the 1949 law, districts could be established either by special legislation or by a petition from landowners. In 1985, an amendment also allowed TWDB and the Texas Commission on Environmental Quality (TCEQ) to recommend the formation of a district. As of 2009, there are 91 GCDs in Texas.
This is the end of Part 2. In Part 3, I will explain how the rule of capture is an example of The Tragedy of the Commons.
Best regards,
aquadoc
Southwest Groundwater Consulting, LLC
Sunday, February 8, 2009
No. 1: The Economics of Groundwater in Texas
I never thought, when I was a young guy dreaming of a career as a pitcher in Major League Baseball, that life would guide me through the study of economics and hydrogeology/geochemistry, instead of appearances at the great ballparks across the country. In retrospect, I'm glad that fate (in the form of an aching left elbow) made me realize that I was not destined to be the next Sandy Koufax or Warren Spahn.
So I embarked on a long course of study that took me through the fields of geology, mineral economics, and then hydrogeology/geochemistry. I eventually found myself delving into a form of hybrid consulting that most of my colleagues thought of as "unusual" for someone working in the field of water resources. It was not long after I accepted a position with a consulting firm in Austin, TX that I was asked whether I could use my background in mineral economics to address a problem involving the economic value of groundwater beneath an 1,800-acre parcel of land in west-central Texas. I had worked briefly with the Minerals Availability Field Office (U.S. Bureau of Mines) at the Denver Federal Center during my grad studies at Colorado School of Mines, but I dealt exclusively with economic models of operating costs at copper-lead-zinc mines in North America. After returning to UT-Austin for my Ph.D. program in hydrogeology, I didn't think much about economics for several years.
The challenge of developing models of the economic value of groundwater, especially in Texas (where there was no effective regulation) was something that caught my attention. Under the rule-of-capture (or absolute-ownership) system embedded in Texas water law, there was no firm basis for advising potential buyers or sellers of groundwater what to expect with regard to market values. My initial surveys supported the conclusion that the conditions for an efficiently functioning market (or system of markets) for groundwater did not exist in Texas, even though markets for surface water were well developed, owing to the State's long-standing system of issuing permits or granting rights based on a Prior Appropriation system similar to the appropriation systems of other western states.
As I dug into the matter, the more I realized that there was not a discernible sense of order underlying groundwater transactions, as Texas lacked two of the most fundamental of components required for an efficient groundwater market to function: (1) a system of assigned, quantified, and transferable water rights recognized and enforced by the State, and (2) a means of making information on transactions available to all potential buyers and sellers. Everyone, it seemed, functioned with blinders, and speculation was the rule, not the exception.
A common question in the early days of my entry into this area of groundwater consulting was: "What's my water worth?"
The flip side of the above was: "How much is it going to cost me to buy that water?"
In this blog, I will address the highly varied and evolving matter of groundwater economics in a State which has had no semblance of regulation or long-term management until recent years. Along the way, I expect that I will step on a few toes, but my objective is to disseminate what I have learned and to learn what I can from others. My next topic will be a summary of the history and the deleterious long-term effects of the Rule of Capture ... a doctrine which I regard as promoting inefficiency, waste, and devaluation of groundwater in Texas.
Best Regards
aquadoc
Southwest Groundwater Consulting, LLC
So I embarked on a long course of study that took me through the fields of geology, mineral economics, and then hydrogeology/geochemistry. I eventually found myself delving into a form of hybrid consulting that most of my colleagues thought of as "unusual" for someone working in the field of water resources. It was not long after I accepted a position with a consulting firm in Austin, TX that I was asked whether I could use my background in mineral economics to address a problem involving the economic value of groundwater beneath an 1,800-acre parcel of land in west-central Texas. I had worked briefly with the Minerals Availability Field Office (U.S. Bureau of Mines) at the Denver Federal Center during my grad studies at Colorado School of Mines, but I dealt exclusively with economic models of operating costs at copper-lead-zinc mines in North America. After returning to UT-Austin for my Ph.D. program in hydrogeology, I didn't think much about economics for several years.
The challenge of developing models of the economic value of groundwater, especially in Texas (where there was no effective regulation) was something that caught my attention. Under the rule-of-capture (or absolute-ownership) system embedded in Texas water law, there was no firm basis for advising potential buyers or sellers of groundwater what to expect with regard to market values. My initial surveys supported the conclusion that the conditions for an efficiently functioning market (or system of markets) for groundwater did not exist in Texas, even though markets for surface water were well developed, owing to the State's long-standing system of issuing permits or granting rights based on a Prior Appropriation system similar to the appropriation systems of other western states.
As I dug into the matter, the more I realized that there was not a discernible sense of order underlying groundwater transactions, as Texas lacked two of the most fundamental of components required for an efficient groundwater market to function: (1) a system of assigned, quantified, and transferable water rights recognized and enforced by the State, and (2) a means of making information on transactions available to all potential buyers and sellers. Everyone, it seemed, functioned with blinders, and speculation was the rule, not the exception.
A common question in the early days of my entry into this area of groundwater consulting was: "What's my water worth?"
The flip side of the above was: "How much is it going to cost me to buy that water?"
In this blog, I will address the highly varied and evolving matter of groundwater economics in a State which has had no semblance of regulation or long-term management until recent years. Along the way, I expect that I will step on a few toes, but my objective is to disseminate what I have learned and to learn what I can from others. My next topic will be a summary of the history and the deleterious long-term effects of the Rule of Capture ... a doctrine which I regard as promoting inefficiency, waste, and devaluation of groundwater in Texas.
Best Regards
aquadoc
Southwest Groundwater Consulting, LLC
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