Type 2 Rights and Long-Term Storage Credits Continue to Trade in Arizona

A total of 6,673.70 AF of Type 2 non-irrigation grandfathered groundwater rights changed hands within three of the five Active Management Areas (“AMAs”) in the first half of 2017. There were no transfers in the Prescott or Santa Cruz AMAs. Prices ranged from $1,500/AF to $2,000/AF, depending on the AMA. (See table below for breakdown of volume and price by AMA).

The variation in prices appears to be driven by water supply constraints. The lowest prices are found in the Phoenix AMA, which has the largest number of Type 2 rights and access to multiple renewable sources, like surface water from the Central Arizona Project and local rivers. The Prescott AMA, which had no transfers of Type 2 rights in first half of 2017, has the lowest number of Type 2 rights, no access to renewable sources, and typically has the highest prices.

Type 2 rights were established under the 1980 code as a means to cap and manage groundwater use. The rights are based on the maximum annual volume pumped for non-irrigation use between 1975 and 1980. They can be used for municipal, industrial, or domestic purposes, and frequently are acquired by golf courses, dairy operators, and industrial users. Type 2 rights are not sought for development and are only occasionally acquired by water suppliers because of the state’s Assured and Adequate Water Supply Programs. The programs, which call for demonstration of a 100-year water supply when a subdivision is developed, require the use of renewable water supplies and allow use of only limited groundwater.

 

Type 2 and LTSC Transfers by AMA (January – June 2017)

Type 2 Non-Irrigation Rights Long-Term Storage Credits
AMA Volume (AF) Price ($/AF) Volume (AF)

Price ($/AF)

Phoenix 6,196.00 $1,500 108,348.81 $179.55 – $375.00
(average of $234.58)
Pinal 471.70 NA 526.20

$200.00 – $220.00

Prescott 1,332.96

$45.00

Santa Cruz

Tucson 6.00 $2,000 23,296.46 $182.58 – $186.04
(average of $184.13)

*Because transactions are usually completed between private entities, some prices are estimated based on information provided by Journal of Water sources.

 

Arizona also has a viable market for long-term storage credits (“LTSCs”). LTSCs are created when water is recharged and stored underground for a year. A certificate issued by the Arizona Department of Water Resources becomes a tradeable instrument. A total of 133,504.43 AF of LTSCs changed hands in four of the five AMAs in the first half of 2017. Of the total volume, 50,000 AF were transferred from Active Resource Management to Central Arizona Groundwater Replenishment District (“CAGRD”) in a previously reported transaction (see “CAWCD and AWBA Purchase Long-Term Storage Credits,” Journal of Water Winter 2017).

Prices for LTSCs ranged from $45/AF to $375/AF. The lowest price was in the Prescott AMA. City of Prescott and Chino Valley Irrigation District executed an effluent exchange contract in 1998 with no escalation on the price—so transfers completed under that agreement are completed at the 1998 price. (See table above for breakdown of volume and price by AMA).

 

Written by Marta L. Weismann