Klamath Water Users Association
Letter from Dan Keppen
March 2, 2004
Mr. Bill Braunworth
Assistant Extension Agriculture Program Leader
College of Agricultural Sciences
138 D Strand Ag Hall
Corvallis, Oregon 97331-2201
Dear Mr. Braunworth:
On behalf of the Klamath Water Users
Association (KWUA), I would like to thank you for Oregon State University’s
(OSU) continued attention to the water resources challenges we face here in
the Klamath Basin. In particular, we are grateful for the efforts of local
university extension officials like Ron Hathaway, Ken Rykbost, and Rodney
Todd, who understand the dynamics of the local community and truly want to
make our agricultural economy stronger and more viable. I am writing today
in regards to two recent “briefs” published by William Jaeger, associate
professor of agricultural and resource economics at OSU.
KWUA is a non-profit corporation that has represented Klamath Irrigation Project farmers and ranchers since 1953. Our members include rural irrigation districts and other public agencies, as well as private concerns operating on both sides of the California-Oregon border. Last January 27th, we were surprised to learn that Mr. Jaeger and his staff had published two new briefs on the economic value of irrigation water and the potential benefits of water markets in the Upper Klamath Basin. While we support OSU’s willingness to investigate opportunities to solve Basin challenges, Mr. Jaeger’s recent work, unfortunately, is only the latest in a series of actions that have emanated from Corvallis, with virtually no opportunities for those most affected by these activities – the ranchers and farmers of the Klamath Project – to provide meaningful input. In the case of Mr. Jaeger’s two briefs, we were disappointed that our association – which spent thousands of dollars and over 1,000 man-hours in 2002 preparing a water bank proposal – was not contacted to provide assistance or review on this subject topic.
We know that your efforts are well intended, but, as we repeatedly predicted to you in 2002, selective material pulled from several recent OSU reports has provided the most vocal critics of Klamath Project agriculture with ammunition that has materialized in hostile press releases and in litigation driven by these critics. Despite meeting directly with you and your staff in 2002 on this very issue, we continue to feel that we may be working at cross- purposes with your department, a concern that we would like to soon remedy.
present, this letter outlines concerns we have with the two briefs prepared
by Mr. Jaeger.
Brief #1: The Value of Irrigation Water Varies Enormously
the Upper Klamath Basin
We agree with the following general
conclusions made in Brief #1: The value of water per acre (or per
acre-foot) is far greater for growers on high value land, and more
economically optimum decisions can be made if all irrigated lands in the
watershed are included in the program.
The brief correctly states that the
value of water varies enormously across the Upper Klamath Basin and infers
that irrigation water is the primary source of land value. While generally
correct, this assumption does not take into consideration such things as
recreation value, lifestyle choices, proximity to Klamath Falls, scenic
value, wildlife, and other uses.
Water Value Assumptions
We question the brief’s implication
that the figures used represent the actual value of water. The methods
employed in this brief are much too simplistic to be taken seriously as
actual values or even relative values. The brief’s primary premise appears
to be one where everything boils down to the dollar value of the land, and
all other findings and conclusions are inferred from that. While this may be
useful in drawing general relative conclusions, we do not believe terms like
“net revenue per acre” are actually identical to value of water. Rather, it
is an estimate of implied productivity from the land values.
Other Factors to Consider When Assessing Value of Water
The brief states, “We can infer that the difference between the purchase price of similar irrigated and nonirrigated land reflects the benefits from irrigation.” This is only one of the factors impacting the value of the land, as further detailed below:
For such a preliminary assessment, a
broad-brush approach may need to be taken. However, the reader should be
warned that this approach does not consider the financial situation of
various producers. The study brief suggests that a 6% return on the
difference in value between irrigated and nonirrigated land may be fair.
However, the situation of the individual producers is not taken into
consideration. Some are better managers, and therefore able to consistently
produce a larger, higher quality crop and, most likely, more profit. Others
have a higher debt to service, and a capitalization rate approach may not
cover their fixed expenses. Still an irrigation district that has a higher
cost to deliver the water may serve others. All of these - and many more -
factors make it difficult to determine the economic impact that the loss of
irrigation water will have on each individual and the community as a whole.
Again, Brief #1 has merit because it illustrates that the value of water is likely to vary within the Basin. However, the conclusions derived from this brief appear to go too far by estimating the range of values, or more critically, by implying that these figures reflect the actual value of water in one region or on a given soil type. The bottom line to us is this: Our current agricultural systems in the Basin cannot work without water. Only the operator – based on the nature of his / her unique position - can determine the value of continuing an operation.
#2: Potential Benefits of Water Banks and Water Transfers
We have some serious concerns with Brief #2, entitled “Potential Benefits of Water Banks and Water Transfers”. While the topic of this brief is “water banking”, the discussion does not focus in detail on the actual water bank programs that have been implemented in the Klamath Basin for the past two years. Instead, it proposes what appears to be a theoretic exchange program occurring between Project irrigators and water users above Upper Klamath Lake. As correctly noted in this brief, such a paradigm cannot exist until the water rights certification process if completed, which many legal experts believe will not occur for ten years or more.
The description of the 2003 Klamath Project water bank presented in this brief is also not entirely accurate, as noted further below.
KWUA Role in 2003 Pilot Water
The 2003 Klamath Project water bank was initiated by the U.S. Bureau of Reclamation (Reclamation), not the Klamath Water Users Association, as noted in the brief. KWUA in March 2003 announced it would support, and assist the Department of Interior in the implementation of, a Klamath Project Pilot Environmental Water Bank in 2003 to provide over 50,000 acre-feet of additional water for environmental purposes. While noting that Reclamation’s pilot program does not closely resemble KWUA’s vision for a long-term bank, water users agreed last year to continue to work with Reclamation and Interior to complete a long-term water bank proposal.
Reclamation’s 10-year Biological Assessment (BA) developed in February 2002 proposed an environmental water bank through which willing buyers and sellers will provide additional water supplies for fish and wildlife purposes and to enhance tribal trust resources. Reclamation’s BA estimated the size of the water bank to be up to 100,000 acre feet – depending on water year type - with “deposits” coming from a variety of sources, including on-farm storage, temporary crop idling, and groundwater substitution.
Water users committed to pursue developing a bank with Reclamation in January 2002. At that time, KWUA was asked by Reclamation to develop a Project-wide water bank to assist with meeting environmental water demands in drier years. KWUA’s Water Bank and Supply Enhancement Committee (Committee), chaired by Malin farmer Dave Cacka, held over 30 meetings in 2002-03 to develop the 65-page report/proposal for a long-term water bank, which differs substantially from the pilot water bank implemented by Reclamation in 2003. Reclamation chose not to implement our recommended proposal, primarily due to concerns regarding supply certainty.
Certainty of water supplies is a key principle imbedded in KWUA’s draft long-term water bank proposal. Endangered Species Act - driven limits on Upper Klamath Lake mean there are no guarantees that water banked or transferred will in fact be available should hydrologic conditions or high down stream flow requirements “bust” the lake limits. This is similar in concept to a bank giving out money until it is gone, and then sending customers home when they try to withdraw their savings. Local water users in 2002 insisted that, in exchange for voluntary participation in a Project water bank, 100% of the irrigation demand for remaining Project acreage would be satisfied, season-long.
While we expressed cautious support for Reclamation’s 2003 pilot program, we still see the Project water bank as one element in a package. Other measures – like development of new, permanent storage facilities and acknowledgement of restoration benefits - will assist in minimizing, and ultimately eliminating the need for - water bank requirements in the future. Water users also believe that the water bank concept proposed in the coho salmon biological opinion must be modified before a long-term water bank can be finalized. The concept of providing flexibility in operations management by relaxing rigid lake levels or stream flow requirements is one that has long been pushed by local water users.
Project Pilot Water Bank Key Facts
We have questions about some of the statements – as well as important omissions - made in this brief. For example, based on information provided to us from Reclamation, more than 14,000 acres of idled land were enrolled in the water bank, not 12,000 acres, as noted in the brief. Also, we saw no mention made of the groundwater substitution component of the water bank, which essentially resulted in forbearance of Klamath Project water on over 11,000 acres of additional land. We have prepared the following information for your consideration in the event that further briefs are planned on Klamath Project water banking issues.
Contracts were entered into Reclamation and Klamath Project landowners for the 2003 Project Pilot Water Bank. The following figures, provided by Reclamation, summarize the program that was implemented. The pilot project water bank was intended to help meet the environmental water targets specified in the 2002-2012 Klamath Project Operations Plan.
Acreage Enrolled (Total)……………….…14,456
Total Water in Bank:
59,651 AF Total Cost: $4,525,246
We believe the current brief should be
withdrawn and modified to explain that the concept proposed by Mr. Jaeger
appears to be based on economic theory, rather than a summary of what
actually happened with the 2003 pilot water bank. While his approach to the
water bank appears to be driven by his assumptions for pricing irrigated
land (see Brief #1) and the theory that a Klamath Basin water market can be
driven by competitive market forces, it simply does not address what
actually happened in 2003 in the Upper Klamath Basin. In that case, a price
per unit of environmental water was developed, based on similar programs
developed in the western United States.
KWUA in 2002-03 evaluated and assessed similar water purchase programs conducted in the West in order to use those experiences to benefit the 2003 pilot water bank program. Various experiences included the following:
1. Sacramento R. Contractors 2001 Forbearance Agreement with Westlands Water District
2. Palos Verde to Metropolitan Water District transfer initiated and beginning in 2003.
3. Various water transfers to
the Department of Water Resources through CALFED’s Environmental Water
4. The Klamath Basin Rangeland
Trust to USBR transfer in 2002 (Oregon).
5. The Klamath Water Users demand reduction program of 2001 (Oregon / CA).
6. The CVPIA transfer of water
from Orange Cove Irrigation District to the Bureau of Reclamation proposed
for 2003 (Sacramento Valley, California).
Based on our assessment of these
similar programs, it was clear that unique and individual circumstances
drive the overall water pricing for the various programs, but that a price
of $75 per acre-ft was justified, and agreed upon in 2003.
Future Coordination Between OSU and
We remain perplexed by your department’s apparent hesitation to work directly with the individuals who best understand demand reduction programs in the Klamath Basin – the board members, producers and district managers that comprise the membership of our association. Further, our engineering consultant – MBK Engineers of Sacramento – has on-the-ground experience with actual administration of water banking programs in California. I personally was also involved with some of these programs when I was working in Sacramento for Reclamation and Sacramento Valley irrigation districts. While theoretical exercises are interesting to ponder, we have found that empirical results derived from working with people who are actually involved with project implementation provides an invaluable means of applying “lessons learned” to future endeavors.
Again, we view the water bank as one element of an overall approach. A part of that
approach must also be the re-introduction of flexibility in annual operating procedures to
ensure that water supply certainty requirement is met. The biological opinions and
Project operations plans must recognize variability, and incorporate flexibility. As
previously stated, local water users view the environmental Water Bank as an interim
measure that can be employed to compensate irrigators in drier years. Ultimately, the
legitimate water demands of the Klamath Basin can best be satisfied through the
development of new water storage facilities. We believe Reclamation must move with all
possible haste to undertake feasibility studies authorized by the Klamath Basin Water
Supply Enhancement Act of 2000.
I hope you will understand that these comments are intended to be constructive. We believe that improved coordination regarding OSU researchers and the local irrigation community can only further enhance what we both seek: realistic and effective solutions to the resources challenges we face in the Klamath Basin.
I look forward to your response to our concerns.
cc: U.S. Senator Ron Wyden
U.S. Senator Gordon Smith
U.S. Rep. Greg Walden
Senator Steve Harper
Rep. Bill Garrard
Klamath County Commission
Dean Thayne Dutson
Klamath Water Users
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