Big Business is Investing in Water Banks
Photo Credit: John Bray via Flickr.com
By Darah Fuller
“Water banking” is an emerging practice in the west as water planners work to develop concepts to protect water resources in the face of long-term drought, increasing demand, and a changing climate. In summary, water banking is a voluntary, market-based tool that could facilitate water transactions between willing sellers and buyers. Through water banking, water rights owners are able to temporarily lease their water to those who are willing to pay a premium for it.
Also known as water sharing, it is a mechanism that could help address the impending problems resultant from water supply shortages. John Fleck, director of the University of New Mexico Water Resources Program, noted at the annual Colorado River Water Users Association conference that: “The sense of the crisis was striking… We’ve shifted from having discussions about what we might have to do at some point in the distant future to discussions of what we might have to do next year. It’s really no longer a drill.” Water banking can add predictability and certainty for users of Colorado River water when faced with these shortages. It could also enable agricultural water rights owners to capitalize on the value of their senior rights without selling those rights outright. This has allowed water rights holders the ability to effectively sell, trade, and buy water.
Water banking serves several purposes. Farmers use water banks to sell surplus water to other farmers. Conservation groups use them to manage in-stream flows to protect native fish. Developers use them to secure the water necessary to advance housing and commercial projects. Initially, there was more equitable use of the water banking mechanism, and conservation groups were able to make considerable progress on riverbed and stream projects. However, as scarcity increases and developers and investors reach deeper into their pockets for water, conservation groups are struggling to compete. Speculators are using water banks as a place to park their assets and wait for price increases. Rachel Osborn, longtime water lawyer in Washington State and cofounder of the Washington Water Trust, noted, “I think we are ripe for the picking in terms of speculation and people coming in and trying to get their hands on these water rights,” in a recent interview.
The ongoing decline of family farms across the west has resulted in a consolidation of land, which is quickly becoming synonymous with the consolidation of water rights. Fewer owners result in fewer voices at the table, and recently those owners are becoming increasingly corporate. In 2021, Crown Columbia Water Resources LLC, a Wall Street-affiliated company attempted to acquire private water rights throughout the Columbia River watershed in Washington. Their proposal would have allowed the company to bank and then sell or lease that water. After the application was filed with the Washington State Department of Ecology, substantial public blowback led to the effort being suspended later in 2021. The same company had been in the news two years prior for purchasing water rights across Washington and then attempting to sell or lease them, resulting in an ongoing legislation review of water marketing.
Northwest Natural Holding Company — formed in 2018 as the parent company of longtime Portland-based NW Natural Gas Company — has quickly expanded into public water utility ownership. In 2021, the gas company’s NW Natural Water concern added to its portfolio by acquiring five water companies in Washington, Idaho and Texas, cumulatively investing more than $110 million in the water sector. Harvard University is buying California vineyards and a Canadian teachers pension plan bought more than 6,000 acres of Washington orchards and its attendant water. The Church of the Latter-day Saints outbid Bill Gates’ 100C LLC in an auction to purchase 22,500 acres of land and its corresponding water rights to the tune of over 200 million dollars. This acquisition helped to further solidify the Church of the Latter-day Saints as one of the largest commercial agricultural landowners in the United States, reportedly owning over 1 million acres in the continental US.
Concerns surrounding water speculation and profiting off scarcity have existed for some time, and while drought and climate change exacerbate these anxieties, some experts caution against oversimplification. “Consolidation and water rights, (it) isn’t one plus two equals three. It’s really case-dependent,” said Jamie Short, a water resources program manager for the Washington State Department of Ecology. “I don’t think climate change is going to make anything any easier for us. But in a way, it’s a world we already know. A world of scarcity.”
The Washington state Legislature was asked the department to examine whether water banking is leading to speculative or monopolistic behavior. Dave Christensen, the policy and program manager for the Department of Ecology Water Resources Program commented, “The Legislature has been concerned and Ecology has been concerned because we’ve been hearing it from our stakeholders.” A recent University of Washington study indicated that there was little evidence of water speculation in Washington. There were 54 out-of-basin transfers in Washington State between 1997 and 2019, representing less than 0.3% of the total volume of water used. “The 54 transfers represent 1.5% of the total records that indicate a change of place of use in the Ecology database, implying that the majority of water right transfers in Washington State occur within-basin,” states the study. The Department of Ecology will continue to examine the issue and present the Legislature with a final report, and policy recommendations, in 2022.
Some experts are skeptical of the Department of Ecology’s review process and believe the risk of speculation is greater than it appears. Rachel Osborn is quoted saying, “Ecology convened this group to assess water banking and make recommendations to the Legislature and their recommendations to the Legislature has nothing to do with controlling price or making sure the benefit comes back to the public... Remember these people got these water rights for nothing. Maybe a $10 application fee.” She believes that the state should impose a transaction fee or 10% or more of the water bought and sold.
While private speculation and out-of-basin transfers are a concern, there are also worries about cities and towns holding onto water rights. In Oregon, some cities and towns hold onto water rights, not because they need the water but because they hope to sell it to other municipalities. Calls for increased state oversight have garnered support and drawn criticism by those on separate sides of the aisle. Others have suggested that state oversight is an ineffective mechanism altogether. John DeVoe, the executive director of the Oregon-based WaterWatch commented, “I think state oversight is politically driven,” he says. “And those with the money get to determine how the rules are drawn up and whether they are enforced or not.” The situation may be a matter of “hurry up and wait”, as only time will tell whether or not water speculation will become a growing problem in the west.