Making an effluent market


Note: This article is a sidebar to this issue's feature story, "Facing the Yuck Factor."

A sprawling town whose population has grown by more than 50 percent since 2000, Prescott Valley, Ariz., is thirsty and lacks a reliable surface water supply. In most of Arizona, such a combination is no barrier to growth. But Prescott Valley lies in one of Arizona's five designated Active Management Areas, where the state seeks to prevent declines in groundwater levels by requiring that well-water use be balanced by recharge into aquifers. Though a great deal of new construction was permitted in and around Prescott Valley before that regulation went into effect in 1999, developers seeking new building permits now have to prove that they can obtain water supplies from sources other than conventional wells. 

Among Prescott Valley's arid brown hills, there's no source more tempting than the roughly 2,500 acre-feet of water discharged by the town's sewage treatment plant each year. Most of that water now is poured into the usually dry bed of the Agua Fria River, where it helps to recharge underground supplies. For every acre-foot that soaks into the ground, the Arizona Department of Water Resources allows Prescott Valley to pump an acre-foot of groundwater from its wells. Legally, the state treats the groundwater as the same stuff that's pumped out of the treatment plant, even though it's physically not the same water. A hydrological study has estimated it will take 20 years for the recharged effluent to travel underground to the nearest groundwater well. 

Like many other towns and cities in the West, Prescott Valley uses some of its treated wastewater for non-potable purposes: irrigating a golf course, filling a couple of small lakes. But the municipality is exploring a brave new frontier in Western water sales by preparing to hold an auction, scheduled for late October, at which it will sell rights to its future supply of treated effluent - which the state estimates will be 2,724 acre-feet a year. The town could continue to sell small quantities of effluent credits to single buyers, but, like a farmer who sees more current value in his land as a chunk of real estate than as producing fields, it's looking to cash out in hopes of a single big payoff. It will continue to produce and treat wastewater, but how the credits that water represents are sold will be up to private developers or investors. 

Prescott Valley officials say they're doing this in part because they sincerely believe in free markets for water. "We're trying to break the cycle of subsidized water resources," says John Munderloh, the town's water resources manager. "Rather than subsidize the right to water, we believe one of the best ways to manage it is to let the market manage it. It's a great incentive to conservation. For the first time in Arizona history, we're trying to let the market determine the value for the water." 

Whoever buys the water will, in one sense, only be purchasing paper; Prescott Valley's treated wastewater will continue to pour onto the sands of the Agua Fria, just as it does now. But each acre-foot bought will translate into the right to pump an acre-foot of groundwater elsewhere in the town. In Prescott Valley's booming housing market, that will translate pretty directly into a permit to build. 

Yet defining how much all those future water credits are worth now is tricky, since it depends on speculating about how much new construction will take place in town not just in the next few years, but in coming decades. Prescott Valley originally scheduled the wastewater auction for the fall of 2006, but postponed it when it looked as though bids wouldn't rise high enough because new construction in the town had slowed. WestWater Research, a water-marketing consultancy that's running the auction for the town, has since been negotiating with a private investment group that has placed a "price floor" bid for the entire allotment of effluent. That deal has allowed the auctioneers to set a minimum auction bid price of more than $61 million. 

"This is an unprecedented auction of both size and type," says WestWater's executive director, Clay Landry, who describes himself as "a rah-rah guy" when it comes to water markets. 

Even if Prescott Valley realizes no more than the minimum bid price, a developer would be paying more than $22,500 for the right to pump an acre-foot of groundwater annually for the next 100 years. That's a fortune, when you consider that municipalities in the Phoenix area have recently negotiated deals with nearby Native American communities to buy the use of tribal water for the next century for $1,500 to $1,800 per acre-foot. An acre-foot, or 325,851 gallons, is generally considered to be about the amount a typical American family of four uses annually, so the Phoenix price works out to only $15 to $18 for a family's water for a year - a figure that shows just how cheap, and how subsidized, water is in much of the West. 

Prescott Valley doesn't have access to the Central Arizona Project canals that convey huge quantities of Colorado River water to the Phoenix area. If water in Prescott Valley ends up costing at least 12 times more than what it costs in Phoenix, that may be an accurate reflection of the true worth of water in the area - and the higher price may, as Landry suggests, help promote far wiser use. 

"When water gets to $22,500 per acre-foot," he says, "lots of conservation features become affordable for new developers." 

Beyond free-market ideology, though, Prescott Valley needs the money - now. It's cashing out not just because of an abstract belief in water markets, but because it needs to supply water to all the new developments that have already been permitted. Town officials plan to do that by means of a water pipeline that will carry groundwater 30 miles from the Big Chino Aquifer - a defiantly old-school means of Western water supply that will cost the town at least $78 million. 

"We could go out and sell bonds to pay for the pipeline," says Munderloh, "but that would keep us from doing many of the other infrastructure-related things in town, such as building roads."

High Country News Classifieds
    Popular vacation house, furnished, 2 bed/1 bath, yard, dog-friendly. Lee at [email protected] or 520-791-9246.
    Crested Butte Land Trust seeks a development director to lead its fundraising efforts. Remote and unspoiled, Crested Butte is located in one of the Rockies...
    5-Acre Home Site, Great Views with Spectacular Sunsets From a South Facing Home Site. Excellent for Passive Solar Design. Covenants, No HOA. Keller Williams Co....
    3 bed/2 bath, detached strawbale building. 11.7 acres, barn, corrals, fenced. Wells, solar panels, greenhouses. Paved access. 575-535-2568.
    WildEarth Guardians seeks two public interest-focused staff attorneys with a minimum of 5 years experience to join our legal team. Experience with at least some...
    The New Mexico Wildlife Federation is seeking an Executive Director, a visionary leader who is passionate about public lands, dedicated to executing an innovative strategic...
    HIGH COUNTRY NEWS Customer Service Specialist I General Statement of Duties: Works closely with the customer service manager performing high-volume routine computer database work. Also...
    The Aravaipa Land Steward coordinates preserve stewardship work and general operations including maintenance and general preserve management. Implements preserve management plans, which may include species...
    seeks a talented and dynamic development professional, with a passion for protecting our natural environment, to lead our development and fundraising team.
    The Native American Fish and Wildlife Society seeks an Executive Director in Denver, CO to serve as the Chief Administrator of the national Native American...
    High Country News seeks a development assistant to assist with fundraising campaigns. HCN is an award-winning, national news magazine. Strong candidates will have experience administering...
    Energiekontor US seeks experienced local candidate, must reside in western South Dakota. Send resume and cover letter to: [email protected]
    Seeking passionate full-time Executive to lead the oldest non-profit organization in Idaho. Must have knowledge of environmental issues, excellent organizational, verbal presentation and written skills,...
    Carbondale based public lands advocate, Wilderness Workshop, seeks a Conservation Director to help direct and shape the future of public land conservation on the West...
    The Bighorn River Basin Project Manager identifies and implements projects to improve streamflows, restore stream and riparian habitat, improve fish passage and rehabilitate or replace...
    Dream of owning your own business, being your own boss, working from home ... this is the one. 928-380-6570, More info at
    Create a base in the center of Southern Utah's Grand Circle of National Parks. Multiple residential property with three established rental units and zoning latitude...
    4 standard or custom lengths. Rugged protection for backpacking. Affordable pricing.
    5 acres, well. Abuts Carson NF; hike fish ski; deer turkey elk.
    9+ acre inholding. Passive solar strawbale off the grid and next to the Continental Divide Trail in ponderosa pine/doug fir forest at 7400.