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

In the first half of 2018, a total of 1,126 AF Type 2 non-irrigation grandfathered groundwater rights changed hands within Phoenix and Tucson Active Management Areas (“AMAs”). There were no transfers in the Pinal, Prescott or Santa Cruz AMAs. Prices ranged from $1,300/AF to $2,000/AF, depending on the AMA. (See table below for breakdown of volume and price by AMA).

A previously identified correlation between water supply constraints and pricing continues to hold true. 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 2018, 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 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 (June 2017- December 2017)

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

Price ($/AF)

Phoenix 1,076 AF $1,300/AF – $1,346/AF
(average of $1,340/AF)
24,611 AF $186/AF – $395/AF
(average of $207/AF)
Pinal
Prescott
Santa Cruz
Tucson 50 AF $2,000/AF 9,294 AF $149.94 – $193.48/AF
(average of $169/AF)

*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 33,905 AF of LTSCs changed hands in the first half of 2018. Transfers of LTSCs also occurred in only the Phoenix and Tucson AMAs.

Prices for LTSCs ranged from $150/AF to just under $400/AF. (See table above for breakdown of volume and price by AMA).

 

Written by Marta L. Weismann