Mojave Water Agency Acquisition of State Water Project Entitlement: Valuing Water Rights with Deferred Delivery

The Mojave Water Agency purchased 14,000 AF of Table A Contract Amount in California’s State Water Project in 2009 from a landowner in Dudley Ridge Water District.  In the transaction, Mojave paid a price of $5,250/AF of Table A Contract Amount, or $73.5 million.[1]  Under the terms of the transaction, the Table A Contract Amounts were transferred in accordance with the following schedule:


Table A Contract Amount


7,000 AF


3,000 AF


4,000 AF


What is a reasonable economic valuation of a Table A Contract Amount from this transaction?

The stated price ($5,250/AF) may be viewed as a starting point.  However, Mojave paid the $73.5 million and will receive delivery of the Table A Contract Amount on the above schedule.  There is a time value of money (measured by an interest rate) and a potential risk of non-delivery (“default risk”) not taken into account by the $5,250/AF price.  We want to find a price value that if it were paid when Table A Contract Amounts are delivered, the expected present value of those payments would equal $73.5 million.

The price value is significantly above the stated $5,250/AF price depending on the default risk for the potential non-delivery of Table A Contract Amount (see table).  If there were no default risk, the value established for Table A Contract Amount would be $6,410/AF.  With default risk, the implied premium would be higher.  Reasonable assumptions about default risk depend on the contractual provisions securing Mojave’s interest in future delivery of Table A Contract Amount and a risk assessment of the likelihood and costs facing Mojave for enforcing its contract right in the case of breach.

Price Value in Mojave Transaction by Default Risk
(Valuation as of 2009)

Default Risk

Price Value

Premium Over
Face Amount











Note:  calculations assume that the long-term, risk free interest rate is 4.5%

The valuation stated above is for Table A Contract Amount.  It is well understood that a Table A Contract Amount is not the same as a water supply.  Translating a valuation of the Table A Contract Amount into a valuation of water supply is a subject for future analysis.

By Rodney T. Smith, Editor

[1] Water Strategist, September 2009, p. 2.