Opportunities for Resolving Water Allocation Conflicts Through Improving Economic Efficiency

Opportunities for Resolving Water Allocation Conflicts Through Improving Economic Efficiency

Opportunities for Resolving Water Allocation Conflicts in the San Pedro River Basin of Arizona

Through Improving Economic Efficiency by

William Robert Bazlen

A Thesis Submitted to the Faculty of the

DEPARTMENT OF HYDROLOGY AND WATER RESOURCES

In Partial Fulfillment of the Requirements

For the Degree of

MASTER OF SCIENCE

WITH A MAJOR IN WATER RESOURCES ADMINISTRATION

In the Graduate College

THE UNIVERSITY OF ARIZONA

1989

STATEMENT BY AUTHOR

This thesis has been submitted in partial fulfillment of requirements for an advanced degree at the University of

Arizona and is deposited in the University Library to be made available to borrowers under rules of the library.

Brief quotations from this thesis are allowable without special permission, provided that accurate acknowledgement of source is made. Requests for permission for extended quotation from or reproduction of this manuscript in whole or in part may be granted by the head of the major department or the Dean of the Graduate College when in his or her judgement the proposed use of the material is in the interests of scholarship. In all other instances, however, permission must be obtained from the author.

SIGNED:

A4

/

/}hkw

A444/

1-

APPROVAL OF THESIS DIRECTOR

This thesis has been approved on the date shown below:

/dni at r /

?r?

William B. Lord

Professor of Hydrology and

Water Resources

ACKNOWLEDGEMENTS

I wish to express gratitude to

Dr. William B. Lord for his guidance and advice throughout the preparation of this thesis.

In addition,

I wish to thank

Dr. Thomas

R. McGuire and Dr. Donald

R.

Davis for their insightful comments.

The work upon which this thesis is based was supported in part by funds provided by the U.S.

Geological Survey,

U.S.

Department of the Interior, Washington D.C., under the

Federal Water Resources

Research

Institute

Program. Contents of this publication do not necessarily reflect the views and policies of the U.S. Department of the Interior, nor does mention of trade names or commercial products constitute their endorsement by the U.S. Government.

3

4

TABLE OF CONTENTS

Page

B LIST OF ILLUSTRATIONS

LIST OF TABLES

ABSTRACT

CHAPTER I. INTRODUCTION

Purpose

Water Scarcity and Conflict

Indian Water Rights

11

12

The Gila River Adjudication

Water Rights Conflict in the San Pedro Basin

12

13

Negotiated Settlement of Conflicting Claims 15

Method

16

CHAPTER II. PHYSICAL SETTING

Geographical Setting

18

18

Hydrogeology

18

20

Regional Aquifer

Floodplain

Alluvial Aquifer 20

22

Surface Water

Hydraulic Connectivity and Flow Patterns

23

9

10

11

11

CHAPTER III. ARIZONA WATER LAW AND

THE SAN PEDRO BASIN

Groundwater

Surface Water

25

25

26

5

Page

26

Hydraulic Connectivity

Effect on The San Pedro River Basin

CHAPTER IV. EXISTING SAN PEDRO BASIN SITUATION

Water

Usage

Agricultural Water Use

Value of

Water in Agriculture

Stockponds and

Reservoirs

Municipal and Domestic Water

Use

Value of

Water in Municipal Uses

Mining and

Industrial Water

Use

Value of

Water in

Industry

Natural Water Uses

Federal Riparian Land

Value of Riparian Habitat Land

CHAPTER V. GILA RIVER INDIAN COMMUNITY

General

Human

Conditions

28

29

29

30

30

33

34

34

37

39

40

41

42

43

43

43

Present Land and Water Use

Planned Land and Water Use

Extent of possible CRIC

claims for San Pedro River

Water

45

46

47

Quantification of Indian Reserved Water Rights

47

Water Contribution Limits of the San Pedro River 47

Estimates of Current Flow and Virgin Flow

. . .

49

Economic Value of San Pedro River Water

to

the

BRIC

Value of Water to Agriculture on Reservation

CHAPTER VI. NEGOTIATIONS AND BENEFITS OF TRADE . .

A Bargaining Model

Potential Benefits from Exchange

The San Pedro Basin and the GRIC

An Application of The Bargaining Model

Gains from Trade

Costs of Transport

Farm Development Costs

Negotiations Internal to the San Pedro Basin .

Municipal and Domestic Users

Mining and Industrial Users

Agricultural Users

Instream

Water Demands

Alternative Sources of Water to Satisfy BRIC

Claims

Cash Settlement Option

The Role of the Federal Government in

Negotiations

Federal Concerns

Federal Responsibilities

CHAPTER VII. SUMMARY AND CONCLUSIONS

Summary

Societal Considerations

6

Page

50

51

54

54

54

56

56

74

77

60

61

65

66

67

68

73

78

78

79

81

81

82

Opportunity Costs

Transferability of Indian Reserved Water

Rights

Federal Subsidies

"What If" Scenarios

Conclusion

APPENDIX A: SAMPLE CALCULATION FOR DERIVING MVP OF

WATER FROM FARM CROP BUDGETS

APPENDIX

B: MODSIM

COMPUTER MODEL

REFERENCES

7

Page

82

91

92

96

83

84

87

90

El

LIST OF ILLUSTRATIONS

Figure

Page

1.

The Gila River System

2.

The San Pedro Watershed and Sub-Watersheds

• . • •

3.

Conceptualized Model of the San Pedro Basin

. . • •

4.

Gila River Indian Community

5.

Marginal Benefits v. Marginal Damages:

From Resource Usage

14

19

24

44

55

6.

Marginal Benefits and Damages:

Water Use at the GRIC and in the San Pedro

Basin

59

7.

San Pedro River Water at the GRIC:

Each Sub-Basin Equally Liable for

2,500 AF . .

62

8.

San Pedro River Water at the GRIC:

Effective Marginal Damages v. Marginal Benefits

64

9.

Effective Marginal Damages:

San Pedro Sub-Basins

10.

Total Benefits v. Total Damages:

All Water from the Winkleman

Sub-Basin . • •

70

72

11.

Marginal Benefits v. Effective Marginal Damages:

All Water from the Winkleman

Sub-Basin . . .

12.

Schematic Diagram of the San Pedro Basin:

MODSIM

Configuration

89

93

9

LIST OF TABLES

Table

Page

1.

San Pedro Basin Water Usage:

1985

Development

Conditions

2.

1987

Marginal Value Product of Agricultural Water in the San Pedro Basin

3.

Recommended

Instream

Flows for the BLM

San Pedro River Properties

4.

Industrial Park Acreage at the

GRIC

5.

1987

Marginal Value Product of Agricultural Water to the GRIC

6.

Annual Value of

10,000

Acre-Feet of Water to

Agriculture at the

GRIC

7.

Channel Losses to Confluence, Land Taken Out of

Production, and Value of Water Given Up

. . .

8.

Irrigated Acreage in the San Pedro Basin

Brought into Production Since

1956

9.

Capitalized Value of

10,000

Acre-Feet to the BRIC

10.

Farm Development Cost for the

GRIC

11.

Value of Water Use and Compensation for

Non-Use

29

32

4 1

4 5

52

53

61

86

69

77

78

1 0

ABSTRACT

A major center of controversy and litigation in the

West today is the issue of Federal reserved water rights for

Indian tribes. The Gila River Indian Community has claimed an early priority to all appropriable water in the San Pedro basin. The time, legal expense, and the uncertain outcome of adjudication create incentive for involved parties to reach a negotiated solution to the conflict. An analysis of this conflict reveals much higher economic returns to San

Pedro River water in the San Pedro basin than at the Gila

River Indian Reservation, due largely to loss of water in transport down river. The existence of divergence of economic returns presents the possibility of negotiating a settlement to the conflict. Negotiation for water rights presumes and is critically dependant upon ability to transfer those rights. Non marketability of Indian water rights maximizes the potential damage to non-Indian water users.

11

CHAPTER I.

INTRODUCTION

Water Scarcity and Conflict

Purpose

Water supply has been

a

critical problem

in the

arid southwestern United States since prehistoric times. The availability of water has dominated the locational choices for settlements of every culture that has inhabited the region.

The development of water resources has been crucial to the settlement and development of the Southwest. Massive amounts of capital have been expended by Federal agencies for dams and other water development projects to aid in economic development of the region.

The era of large water development projects in the West is coming to a close. Closer scrutiny of the benefits and costs of water development projects, budgetary restrictions, and the increasing scarcity of both physical locations for projects and available water are changing societal attitudes toward funding large scale projects.

The focus is shifting toward conservation and better management of existing water supplies. Consequently, competition for existing supplies is increasing with resulting conflicts over efficient

and

equitable

allocation of

supply.

12

Indian Water Rights

At the center of controversy are the water rights of indigenous Indian tribes.

The Winters Doctrine (established by Winters v. U.S.,

1908) grants Indian reservations, and other Federal reservations of land, water rights. It allows a

Federal reservation enough water to fulfill the purpose for which the reservation was made. These water rights are termed Federal reserved rights and are preeminent to any water rights established by state law. The rights date to the creation of the reservation and cannot be lost through non-use.

Although the Winters

Doctrine establishes Federal reserved rights for Indian reservations, the exact nature and magnitude of these rights remain unclear. Until ambiguities of Indian reserved rights are resolved, the stature and value of many non-Indian water rights are uncertain.

Definition of Indian, as well as non-Indian, water rights is the subject of current litigation in many western states.

The Gila River Adjudication

One example of litigation of water rights, currently proceeding, is the

General

Adjudication of the Gila

River

System and Source in the

Superior Court for Maricopa County,

Arizona. The adjudication will make a final determination of the status of all water rights in the Gila

River basin.

13

The spatial area of the Gila River system encompasses over one half of Arizona (Figure 1), including a vast majority of the population, making the adjudication an undertaking of massive proportion. Completion of the adjudication may take another 10 to 20 years (Swan, 1988). The process began in 1974, evolving from a number of separate petitions for determination of conflicting rights in various parts of the Gila River basin to the present comprehensive general adjudication.

Water Rights Conflict in the San Pedro Basin

The San Pedro River basin is a tributary watershed of the Gila River. The process of adjudicating water rights in the San Pedro basin began in 1978 when the American Smelter and Refining Company (ASARCO) filed a petition for determination of conflicting rights. In the same year, the Gila

River Indian Community (GRIC) filed suit seeking a declaratory judgement that it had first priority to the use of all water in the San Pedro basin (ADWR, 1987).

Recognition of Federal reserved water rights for the

Gila River Indian Community may have social and economic impacts on water users in the San Pedro basin, since virtually all of the water rights in the San Pedro basin are more recent than the establishment of the Gila River Indian

Reservation.

State of Arizona

The

Gila

River

System

14

Figure

1.

15

Negotiated Settlement of Conflicting Claims

The time, legal expense, and uncertain outcome of a court adjudication give incentive for the water users involved to reach a negotiated settlement for conflicting claims. To date, two settlements of Indian water

rights claims within the Gila River basin have been accomplished.

The Southern Arizona Water Rights Settlement Act of

1982 settled the water rights conflict of the

Tohono O'Odham

(Papago)

Indians, federal, state, and local interests. In exchange for their tribal claims under the Winters Doctrine, the tribe received a monetary award and a surface water supply to be delivered through the Central Arizona Project

(Shupe,

1986).

The settlement also allows limited pumping of groundwater on the reservation. In addition, the tribe received the right to lease some water off reservation.

The

Ak-Chin

Indian Community of central Arizona negotiated a similar settlement in exchange for foregoing potential claims under the Winters Doctrine. The Community receives water for irrigation from the Central Arizona

Project. Associated development and delivery expenses are paid by the federal government (Shupe,

1986).

Opportunities may exist for

negotiated settlement of

San Pedro water rights conflicts. This study attempts to identify such opportunities.

16

Method

Opportunities for negotiated settlements of conflicts are enhanced by knowledge of the existing social, economic, and legal framework that affects decisions of involved parties. Identification of opportunities for negotiation of

San Pedro River water allocation is attempted here by examining existing and potential economic situations of the affected parties.

A summary of the relevant physiographical and hydrological conditions of the San Pedro basin is presented followed by a brief review of Arizona water law as it applies to the San Pedro basin and the Gila River adjudication.

Quantity of water use and the economic value of water to present uses in the basin are identified to provide a framework to judge potential impacts of recognition of

Federal reserved water rights. Quantity of present and planned water uses on the Gila Indian Reservation and the amount of water that can be supplied from the San Pedro

River to satisfy "Winters" rights claims are identified, along with the economic value of San Pedro River water to the

GRIC for comparison with the economic value of water use in the San Pedro basin.

A bargaining model is constructed, based on marginal benefits of resource usage and marginal damages from not having access to a resource.

The model is applied to the

17

San Pedro basin and Gila River Indian Community conflict to identify opportunities for trade. Opportunities for negotiating allocation of water to the highest valued use while ensuring compensation to those who may lose are examined with and without government involvement and subsidies.

Institutional barriers to trade are examined in view of their effect on both efficient water use and possible levels of government subsidies to those who may lose from reallocation of water rights.

18

CHAPTER II. PHYSICAL SETTING

Geographical Setting

The San Pedro River basin has a total drainage area of over

4,400 square miles of which roughly

700 square miles are in Mexico. The headwaters of the San Pedro River are near

Cananea,

Sonora, Mexico, about

30 miles south of the international border. The river flows north to northwest approximately

170 miles, entering the United States near

Palominas,

Arizona, to its confluence with the Gila River at

Winkleman,

Arizona.

The basin is generally divided into the Upper San Pedro basin and Lower San Pedro basin, with the dividing line drawn at the "narrows" about

40 miles south of San Manuel,

Arizona. The narrows is an area of bedrock constriction of the river valley. The Arizona Department of Water Resources

(ADWR) has further subdivided the basin into two sub-basins in the Upper San Pedro reach and three sub-basins in the

Lower San Pedro reach (Figure

2).

Hydroqeoloov

The San Pedro basin is a block faulted graben typical of the Basin and Range province. The basin is filled with consolidated and unconsolidated alluvial deposits origin-

F

San Pedro

River Watershed

19

- n

IININIa

SIERRA VISTA

ARIZONA

SONOR

A

.

20 ating from the bordering mountains of crystalline and sedimentary rocks. The alluvial basin fill is estimated to range from

500 to

1,200 feet in thickness in the upper basin

(Putnam et al.,

1987) and up to

1,900 feet in the lower basin

(Heindl, 1963).

Regional Aquifer

The basin fill deposits comprise the main aquifer for the basin, generally referred to as the regional aquifer.

ADWR (1987) estimates the volume of recoverable water in the regional aquifer, to the depth of

1,200 feet, to be

63 million acre-feet.

Recharge to the regional aquifer is primarily along the mountain fronts resulting from runoff leaving the impermeable hard rock formations and entering the permeable basin fill alluvium. Lesser recharge occurs when streamflow infiltrates the channels and migrates downward.

Floodplain

Alluvial Aquifer

Along the floodplain of the river are younger, reworked basin fill sediments, called the floodplain alluvium, ranging in thickness from

40 to

150 feet and ranging in width from a few hundred yards to several miles (Putnam et al.

1987).

21

The floodplain alluvium serves as another aquifer unit in the basin, termed the floodplain alluvial aquifer. Due to the recent deposition and lack of consolidation, the floodplain alluvium is more hydraulically conductive than the regional basin fill and stores large amounts of water per unit volume.

The total amount of water stored in the floodplain aquifer is estimated to be about 1.3 million acre-feet

(ADWR, 1987). Although this is small in comparison to the regional aquifer, the floodplain aquifer is important because most of the agricultural wells in the basin pump from

it.

Recharge occurs to the floodplain aquifer from flood flows each summer and winter, often filling the available storage space to capacity. Although water levels in the floodplain aquifer may remain low for several years of low river flow, in the long run the aquifer has always been fully recharged. Recharge to the floodplain aquifer also occurs from groundwater movement from the regional aquifer.

Of lesser importance are small local aquifers in the hard rock formations of the mountains. These aquifers produce poor yields and supply only a few small domestic wells.

22

Surface Water

Streamflow in the San Pedro River has two components, runoff and base flow. Runoff results from surface tributary flow from individual storm events and snow-melt in the mountains. This component is of relatively short duration following storms but may be of longer duration if from snowmelt.

Base flow results from discharge of groundwater to the stream from the floodplain aquifer.

For base flow to occur the stream bed must intersect the water table.

The flow of the river is perennial for approximately

31 miles and intermittent for the rest of its length.

The majority of the perennial reach is within the Sierra Vista area of the basin. The U.S. Bureau of Land Management has recently purchased this stretch of the river with the intention of establishing a protected riparian habitat. Approximately

52 miles of tributary flow is also perennial, including portions of the Babocomari River and Aravaipa Canyon.

The average surface inflow from Mexico is about

23,000 acre feet per year under present development conditions.

The average discharge to the

Gila

River is approximately

41,000 acre feet per year

(ADWR, 1987).

The gains, losses, and locations of gaining and losing reaches of the San Pedro

River between Mexico and the confluence are dependent upon depth to bedrock, season, and pumping rates in the floodplain aquifer.

23

Hydraulic Connectivity and Flow Patterns

The regional aquifer is hydraulically connected to the floodplain aquifer which in turn is connected to the

river

bed. A conceptualized model of the general system is shown in Figure 3.

Groundwater in the regional aquifer flows down gradient toward the center of the basin. The ADWR (1987) reports that groundwater flow rates in the regional aquifer range from 5.8 to 102.5 feet per year based on 18 sample locations. At these rates it takes many years, or even centuries at wide areas of the basin, for the mountain front recharge to reach the floodplain alluvium. Groundwater flow in the floodplain alluvium is generally parallel to the river at high rates (ADWR, 1987).

24

25

CHAPTER III. ARIZONA WATER LAW AND

THE SAN PEDRO BASIN

Groundwater

Arizona water law treats surface and ground water very differently. Groundwater is defined as water that percolates through porous media beneath the surface of the land and is not flowing in underground streams with discernable beds and banks (Kelso et al.,

1973).

Groundwater law in Arizona, as in the rest of the U.S., stems from English common law. Historically, the owner of property had complete right to do what he pleased with water on, beneath, or contiguous to his land. As demand for water grew, U.S. courts softened the English rule with the American rule of reasonable use, which allowed overlying landowners co-equal rights subject to reasonable use (Anderson et al., 1983).

In Arizona, prior to the Arizona Groundwater Management

Act of 1980, a landowner enjoyed the right to pump water from beneath his property within the restraints of reasonable and beneficial use. These provisions continue to apply in the San Pedro basin and other parts of Arizona not included in Active Management Areas or Irrigation Non-Expansion Areas.

26

Groundwater rights in Arizona are appurtenant to the land from which the water is derived. The same party must own both the land and the water rights. However, the party owning the land and the water rights may apply to the Arizona Department of Water Resources to transfer the rights from the land they are assigned to another parcel (Saliba and Bush, 1987).

Surface Water

Surface water, in Arizona, is defined as surface water running in defined natural channels and subsurface water moving in defined subsurface channels with definite beds and banks (Kelso et al., 1973).

Surface water is allocated according to the Doctrine of

Prior Appropriation. Prior appropriation gives highest priority to those who first put the water to beneficial use, usually described as first in time, first in right. In times of shortage those who hold rights junior in time must forego use of appropriable water, if the claims of downstream senior right holders can not be satisfied otherwise.

Hydraulic Connectivity

There is a growing awareness of the hydraulic connection between some subsurface waters and surface water.

Groundwater, in some locales, provides the major source for

27 surface flow. There has been little case history in Arizona recognizing this.

As a result, as part of the Gila River adjudication, the presiding judge, the Honorable Stanley

2. Goodfarb, on

September

9, 1988, issued a pre-trial order further defining what is to constitute surface water. By Judge Goodfarb's order sub-surface flow which supports and is connected to surface flow is appropriable. The order presumes that wells in the "younger alluvium" of a stream basin are pumping subflow. The order further states:

As to wells located in or close to that younger alluvium, the volume of stream depletion would reach

50% or more of the total volume pumped during one growing season for agriculture wells or during a typical cycle of pumpage for industrial, municipal, mining, or other uses, assuming in all instances and for all types of use that the period of withdrawal is equivalent to

90 days of continuous pumping for purpose of technical calculation.

(Superior Court for

Maricopa

County,

1988)

Halpenny (1988) has calculated distances wells located in the "older alluvium" would have to be from the water table of the "younger alluvium" to be considered affecting surface water under the

50 percent,

90 day criteria. The distance is dependent upon local aquifer characteristics, specifically transmissivity (T) and storativity (S).

28

Effect

on The San Pedro River Basin

For a well located in a portion of the San Pedro basin with aquifer characteristics similar to those found around

Sierra Vista (T = 49,700 gpd/ft, S = .12) a pumping well would be considered affecting surface water at a distance of

1,267 feet. The largest distance Halpenny calculated for the basin

(2,543 feet) was for a well in a hypothetical portion of the aquifer with over double the transmissivity and half of the storativity values found around Sierra

Vista.

Many of the groundwater wells in the San Pedro basin are located in the younger alluvium of the river basin or within a quarter of a mile from it. The water pumped from these wells is likely to be recognized as appropriable water by the courts. Currently these wells are governed by groundwater law subject only to the restriction of reasonable and beneficial use. Identification of this water as contributing to surface flow and recognition of prior downstream rights, if substantial, will result in the curtailment of pumping from these wells in all but the wettest of years.

29

CHAPTER IV. EXISTING SAN PEDRO BASIN SITUATION

Water Usage

Current water usage in the San Pedro basin includes irrigated agriculture, stock watering, reservoir storage, domestic uses, municipal supply, mining, and industrial use.

In addition there are natural depletions from phreatophytes and channel evaporation. Under

1985 conditions, total cultural depletions were

69,020 acre-feet per year and total natural depletions were

69,450 acre-feet per year. Table

1 presents ADWR estimates of 1985 water usage for each subbasin.

Table 1

San Pedro Basin Water Usage:

1985

Development Conditions

Acre-Feet Per Year

Sub-watersheds

Sierra

Vista Benson

Redington

Cultural

Depletions:

Irrigation

Domestic

Municipal

Stockponds

Reservoirs

Mining

Industrial

Total Cultural

9,430 15,290

470 220

8,190

2,510

760

1,540

630

940

150

500

-

210

22,320 18,520

10,400

140

Winkleman

7,890

290

1,300

1,400

200

1,350

140

3,140

10

80

1,260

20

17,030 11,090

/1

Total

43,010

1,120

10,950

6,800

1,410

5,340

390

69,020

Natural Depletions:

Channel

Evaporation 1,550 1,320

Phreatophytes

3,910 13,640

Total Natural

Total Use

/1 includes Aravaipa

5,460

14,960

27,780

33,480

2,770

1,680

21,090

23,490

7,320

62,130

23,860 25,170 69,450

40,390 36,260 137,910

30

Agricultural Water

Use

Irrigated agriculture is the largest consumptive use of water in the basin, comprising over

60 per cent of all man caused depletions. There are currently

19,730 acres developed for irrigation. An average of

15,630 acres are irrigated annually consuming approximately 42,050 acre feet of water per year (ADWR, 1987).

Over

84 per cent of irrigated land is supplied solely by well pumpage.

Acreage supplied solely by surface water is less than three per cent of the total. Of the remaining acreage the majority is irrigated with commingled surface and groundwater with 389 acres being supplied by effluent.

In recent years, roughly 90 per cent of Upper Basin irrigated land has been used for pasture. Alfalfa for crop is grown on approximately 900 acres (Young,

1988).

The Redington sub-basin of the Lower Basin is similar to the Upper

Basin with respect to cropping patterns. The

Winkleman subbasin is roughly planted

50 per cent in upland cotton,

40 per cent in small grains, and 10 per cent irrigated pasture.

In all sub-basins there are lower-valued and higher-valued crops grown, but the acreage is relatively small.

Value of

Water

in Agriculture

Direct estimation of a water demand function, for agricultural uses, from quantities of water used at various

price levels is not possible because farmers do not generally face a varying water rate schedule (Saliba and Bush,

31

1987).

A farm crop budget analysis is used here to determine the maximum average willingness to pay for water and the marginal value product of water to various crops. Representative farm crop budgets are prepared by county agriculture extension agents. Crop budgets include revenues, operating costs and fixed costs, including taxes and interest on assessed values of land and improvements. The assessed value of agricultural land is determined according to

Arizona Department of Revenue guidelines (Hathorn et al.,

1987a,b).

Total crop revenues less non-water input costs gives the maximum amount the farmer could pay for water and still cover costs of production. This value divided by the amount of water applied to the crop, gives the maximum average willingness to pay per unit of water per crop cycle, also called the average value product (AVP) of water (Gibbons,

1986). If production output and costs are considered constant for every acre planted the AVP is also the marginal value product (MVP), (Bush and Martin, 1986).

The MVP and AVP, being dependant on revenues and costs, change constantly. The revenues of a crop yield obviously depend on crop prices set in the open market and change day

32 to day. In recent times the most variable cost has been the price of energy to extract water.

The MVP of water is the willingness to pay for an additional unit of water. Long run MVP is determined using total costs and short run MVP is determined using only operating costs. The annual long run 1987 MVP of water for several crops in the San Pedro basin are displayed in

Table 2.

Table 2

1987 Marginal Value

Product of

Agricultural Water in the San Pedro Basin

Crop

Alfalfa

Upland

Wheat

Milo

Cotton

Perennial Pasture

Summer

Pasture

Irrigation

Method

Pivot

Furrow

Furrow

Furrow

Furrow

Furrow

Long

Run

MVP of

Water

$/AF

43.98

47.50

25.03

10.52

42.17

58.40

Sample Calculations are presented in

Appendix

A.

All dollar values in this study are reported in 1987 dollars, adjusted using the implicit GNP price deflator.

Pasture land is not included in the crop budgets. In

the San Pedro basin most pasture is used to raise calves which are sold to feedlots after approximately six months.

In this time they generally grow to a weight of 300 to 400 pounds with a pasture carrying capacity of about one calf

33 per acre, although this varies with productivity of the land. Some producers in the basin buy calves to raise. The added weight from a season on pasture roughly averages

350 pounds (Crockett,

1988).

The cost of raising pasture for grazing is about the same as raising small grains or wheat, without the cost of harvesting and with lesser water requirements (Gustafson,

1988; Swenison, 1988).

Calculation of MVP of water for pasture is made here using

1987 prices for calves on the hoof and the cost of raising wheat without harvesting.

Stockponds and

Reservoirs

There are

1,985 stockponds in the basin, of which

316 have a surface area greater than one acre. The stockponds are spread over much of the basin. Depletion from evaporation from stockponds is estimated to be

6,800 acre-feet per year

(ADWR, 1987).

Since most of the ponds are located in the remoter areas of the basin, it is doubtful that the water consumed could be considered surface water.

There are

454 reservoirs (excluding stockponds) in the basin. Common uses are irrigation supply regulation, fish, wildlife, recreation, and capture of irrigation runoff.

Estimated total surface area of reservoirs is

290 acres, with an evaporation depletion of

1,410 acre-feet per year.

Thirty nine of the reservoirs are supplied solely with sur-

face water,

22 are supplied with commingled surface water and groundwater, with the rest being supplied solely by wells (ADWR, 1987).

34

Municipal and Domestic Water Use

Total consumptive water use by municipalities and domestic wells in the basin is approximately 12,000 acrefeet per year under

1985 development conditions

(ADWR,

1987).

This amount is approximately

17 per cent of total cultural depletions.

The city of Sierra Vista accounts for roughly

60 per cent of total municipal and domestic usage.

The town of San Manuel is the next largest municipality using roughly

8 per cent of total municipal and domestic water. Other towns of size in the basin include Tombstone,

Benson, and

Winkleman.

Value of Water in Municipal Uses

The only way to obtain the marginal value of water to municipal users requires the use of a water demand function

(Gibbons,

1986).

While demand functions have been estimated for Tucson, no similar studies have been made for municipalities in the San Pedro basin.

35

The shape of a demand function is dependent upon the price elasticity.

1 For a municipality elasticity is dependent upon many variables, including average personal income, weather, ratio of indoor and outdoor uses, and percent of municipal demand accounted for by industrial and commercial uses. These factors vary between municipalities due to geographical location and differing demographics. Even if demand functions derived from Tucson data were directly transferable to the San Pedro basin, there exists no consensus among investigators as to what the actual shape of the demand curve would be.

2

Municipal water in the San Pedro basin is supplied by numerous small water companies. In the Sierra Vista area the weighted average price for water is $1.39 per thousand gallons

($453.14 per acre-foot). The range is from $1.09 to

$3.49 per thousand gallons (Brown and Caldwell, 1984).

The variance is a result of operational costs and economies of scale.

1

Price elasticity is the ratio of the percentage change in quantity demanded over the percentage change in price.

2 Different investigators report a significant range of price elasticities for municipal water in Tucson. Young

(1973) reports a decrease in elasticity from -0.62 to

-0.41

for the two periods

1946 to

1965 and

1965 to

1971 respectively. Billings and

Agthe (1980) estimate a value between

-0.39 and

-0.63.

Martin et al.

(1984) estimate an elasticity of

-0.26 for the years

1976 to

1979.

36

Prices paid by municipal water users are for delivered potable water and are not directly comparable to the value of raw water. (Saliba and Bush, 1987). Prices paid for purchases of raw water by municipal suppliers are a more accurate assessment of the value of raw water to municipalities. However, prices paid reflect the location of the water and delivery costs to get water from the source to the city, but not the value of the water itself.

There is not a well defined market for water in Arizona, although in recent years some of the larger municipalities have been buying farm land solely for the water rights attached to it. No such transactions are known to have occurred in the San Pedro basin.

Purchasing water rights is not directly comparable to purchasing water, since a right allows a quantity of water to be withdrawn yearly. The capitalized worth of a water right is the expected annual benefit divided by an appropriate discount factor.

3

Similarly, the annual cost of a perpetual right to an acre-foot of water yearly is the

3 CW = AB/i

Where: CW is Capitalized Worth

AB is Annual Benefits i is the discount rate

37 capital investment for that right times the discount rate.

4

For example, if

$500 is paid today for a perpetual right to one acre-foot of water annually then, at a discount rate of

10 per cent, the present value of the annual cost is

$50 per acre-foot.

Tucson has been buying agricultural land to obtain the water rights associated with it, and is the closest municipality to the San Pedro basin which has been doing so.

Again, direct comparison is probably not accurate but prices paid by Tucson may be roughly comparable. Tucson has

been

buying land with water rights in nearby

Avra

Valley since

1971.

If one assumes that the land has no value once the water is removed for city use, recent purchase prices

(1987 dollars) for

Avra

Valley water rights have averaged

$600 to

$900 per acre-foot (Saliba and Bush,

1987).

Accordingly, the annual cost per acre-foot (at a

10 per cent discount rate) ranges from

$60.00 to

$90.00.

Mining and Industrial Water Use

There are two major mining companies using San Pedro basin water and one major industrial water user. Magma

4

AC

=

CI x i

Where: AC is annualized cost

CI is capital Investment (one time payment) i is the discount rate

38

Copper Company operates a mine, mill, and smelter near San

Manuel. The American Smelting and Refining Company (ASARCO) withdraws water for its operations near Hayden, Arizona from wells along the San Pedro River near Winkleman. The Apache

Powder Company, located near Benson also, withdraws basin water. Total mining and industrial water consumption in the basin, under 1985 conditions, was 5,730 acre-feet or just over eight per cent of cultural depletions (ADWR, 1987).

Magma Copper Co. obtains its water from 11 deep wells

(1,200 to 2,000 feet) screened in a confined portion of the regional aquifer. Although the Magma wells are located along the river, the water from the deep confined aquifer is probably not in hydrologic connection with the river and therefore is not subject to appropriation law. Under 1985 conditions Magma withdrew roughly 3,100 acre-feet of water, of which it sold roughly 880 acre-feet to the Arizona Water

Company for the Town of San Manuel municipal supply.

Asarco obtains water from 9 wells along the San Pedro

River. Six of these wells were formerly owned by Kennecott

Copper Company. In 1977 Kennecott entered into an agreement with the Gila River Indian Community to pay the Community for water pumped from the Gila River watershed (ADWR, 1987).

In 1978 Asarco filed a petition with the Arizona State Land

Department for a determination of conflicting rights. Under

39

1985 conditions Asarco pumped roughly

1,260 acre-feet of water.

The Apache Powder Company is owned by the Phelps-Dodge

Corporation and manufactures explosives for the mining industry. In recent years the company has pumped an average of 425 acre-feet of water (Sittig,

1988).

There are small mining operations near Tombstone that operate as the price of silver permits, but their water usage is small and is located far from the river thereby not affecting river flow.

Value of Water in Industry

Water costs are a small proportion of overall production costs in mining, as in most industrial processes. Due to lack of better ways to estimate the value of water to industry, industrial water values have been equated with the industry's cost of recycling water (Gibbons,

1987). This approach is based on the assumption that the industrial user would pay no more for water than what it would cost to recycle water already in use. The value obtained is therefore an upper bound on the value of additional water (Saliba and Bush,

1987).

The Magma mine at San Manuel produces mostly sulfide porphyry copper ore (70 per cent of production), which is processed using a froth flotation method. Thirty per cent

40 of San Manuel production is oxide ore, processed using heap leaching technology.

Griffin et al. (1981) estimate the cost of conserving water in the froth flotation process to be $302 per acrefoot (1987 dollars) using a discount rate of 12 per cent.

They also estimate that reducing seepage from tailings ponds by underlaying ponds with a rubber membrane would cost $478 per acre-foot.

Griffin et al. (1981) estimate that 75 per cent of water consumed in heap leaching with sprinklers could

be

saved using a vertical pipe method. The costs of a vertical pipe method versus a sprinkling method appear to be similar since the choice of method is usually based solely on the manager's judgement and experience. Increased cost of water or restrictions on supply may make the vertical pipe method more attractive to the mining companies.

Natural Water

Uses

Evapo-transpiration from vegetation is the primary natural consumer of water. Phreatophytes, plants along the river whose roots tap the water table, consume 62,130 acrefeet per year in the San Pedro basin (1985 conditions).

Direct channel evaporation consumes 7,320 acre-feet per year

(ADWR, 1987). Total natural depletions are slightly greater than all cultural depletions combined.

41

Federal Riparian

Land

Recently the Bureau of Land Management purchased, from the Tenneco Corporation, 44,000 acres of riparian land along the San Pedro River in the Sierra Vista and Benson subbasins. This is a 37 mile reach, starting approximately six miles north of the international border, most of which has perennial flow. The purpose of the acquisition is to establish a protected riparian habitat to be called the San Pedro

Riparian National Conservation Area (USDI,

1988).

Table 3 presents the BLM recommended flows for the San

Pedro River, at two gage stations, needed to maintain the riparian habitat.

Table 3

Recommended Instream Flows

for the

BLM San

Pedro River

Properties

Period

Month

Flow Recommendation (AF/day)

Fall

Winter

Spring

Summer

October

November

December

January

February

March

April

May

June

July

August

Palominas

7.3

7.1

10.9 *

15.6 *

17.0 *

12.5 *

4.9

2.4

1.2

13.9 **

13.9 **

Charleston/Tombstone

12.2

26.9

33.9 *

38.6 *

40.2 *

18.9 *

24.2

15.6

8.3

37.6 **

37.6 **

September

13.9 **

* This value or 80% of instantaneous flow, whichever is greater.

37.6 **

** This value or 60% of instantaneous flow, whichever is greater.

42

The

Palominas gage is located roughly two miles upstream of the

BLM property and the Charleston gage is within the property. In addition to surface flow requirements, present phreatophytes on the FILM properties consume approximately

3,722 acre-feet per year, based on

ADWR (1987) maps and figures.

Value of

Riparian

Habitat Land

Prior to the

BLM purchase a cash figure had not been applied to phreatophytes, in the San Pedro basin, for their intrinsic worth. The sale price of the tract was approximately

$1,000 per acre

(Halpenny, 1988).

Although this price is probably not indicative of a true market price under perfect competition, it is the only known purchase of riparian land in the San Pedro basin to be used solely for natural purposes.

43

CHAPTER V. GILA RIVER INDIAN COMMUNITY

General

The Gila River Indian Community (GRIC) consists of Pima and Maricopa Indians on the Gila River Indian Reservation.

The reservation is located in central Arizona in Maricopa and Pinal counties (Figure 4). The Gila River runs through the central portion of the BRIC flowing West to Northwest.

The Pima and Maricopa peoples historically irrigated an extensive area of land with diversions from the Gila River.

After the land became part of the United States, non-Indians settling upstream cut off most of the river's usable flow.

Less water is being delivered and less land farmed than before the diversions (Franzoy Corey, 1985).

Human Conditions

Reservation population was 7,176 in 1983 and is expected to increase to 9,635 in 2003. The 1983 labor force was

3,241 with a 31 per cent unemployment rate. Agriculture accounts for 18 per cent of reservation employment. Public administration accounts for 32 per cent of employment. The remaining employment is divided between manufacturing, processing, wholesale trade, retail sales, and services. Median family income in 1980 was $9,781 (Franzoy Corey, 1985).

IN

The Gila River Indian Community (IC)

Figure 4.

44

45

Present

Land and

Water

Use

There are 372,929 acres of reservation land,

74 per cent of which are tribally owned. The remaining acreage is allotted land. Irrigated acreage averages 15,000 to 20,000 acres in a typical year. Industrial and commercial land uses occupy less than one per cent of reservation land.

(Franzoy Corey, 1985).

There are three primary industrial parks owned by the tribe and operated by tribal corporations. Industrial tenants lease land and buildings from the tribe. Available and occupied acreage of the industrial parks are presented in

Table

4.

Table

4

Industrial

Park

Acreage at

the

GRIC

Industrial

Park

Pima-Chandler

Santan

Pima-Coolidge

Total

Available

Acres

572

550

500

1622

Occupied

Acres

286

60

40

386

Percent

Occupied

50

11

8

24

Water for domestic, industrial, and commercial purposes is supplied solely from 34 wells pumping groundwater. Irrigation water is both from surface water, supplied by the San

Carlos Irrigation District, and from wells.

46

Planned

Land and

Water

Use

Franzoy

Corey Engineers and Architects

(1985) prepared a detailed master plan for reservation development. The plan calls for agricultural land to increase to 146,330 acres requiring

771,600 acre-feet of water for

irrigation.

Estimates of agricultural development costs range from

$375.9 million to $427.5 million.

Tribal plans for industrial growth indicate a desire to fill the existing industrial parks and expansion of the

Pima-Chandler Park. In addition the tribe desires to develop land for purposes ranging from retail facilities to landfills. Total projected commercial and industrial land use is 7,290 acres. Total estimated water use for these lands is

14,580 acre-feet per year.

The

GRIC desires to re-establish areas of riparian habitat along the Gila River and tributaries.

Franzoy

Corey

(1985) merged these desires along with expressed desires for other undeveloped acreage into the concept of a River Resource Management Area. The river resource plan, as presented in the master plan, would require

2,400 acre-feet per year.

The master

plan developed by

Franzoy

Corey

(1985) indicates that water requirements for all planned uses will be

791,100 acre-feet per year.

47

Extent of possible

GRIC

claims for San Pedro River Water

Quantification of Indian Reserved Water Rights

Recognition and award of Federal reserved water rights for Indian reservations requires a method for quantifying the extent of those rights. In the case of Arizona v. California

the U.S. Supreme

Court quantified the water rights of five Colorado River tribes, thereby allowing a final apportionment of Colorado River water among the states of Arizona, California, and Nevada. The method of quantification used in this case, providing a precedent for other Indian

water rights conflicts, is that of Practicably Irrigated

Acreage (PIA).

The PIA standard gives the reservation enough water to irrigate all acreage for which irrigation is technically and economically feasible. As shown in a previous section, this could amount to a substantial amount of water in the case of the

BRIC, depending on economic feasibility.

Water Contribution Limits of the San Pedro River

The portion of the claims that can be satisfied by

San

Pedro River water is logically limited by the amount of

water that the San Pedro contributed to the Gila River prior to diversion of water by rights holders junior in time to the BRIC. Judge

Goodfarb has articulated this rationale in a pre-trial order to the Gila River adjudication, dated Sep-

48 tember 9, 1988 (Superior Court for Maricopa County, 1988).

Since virtually all San Pedro basin water users have rights junior in time to the GRIC, the maximum amount of water contributable by the San Pedro River equals the amount of water prior to non-Indian settlement, in other words the virgin flow.

Calculation of virgin flow is complicated by a number of factors. The earliest continuous records of stream flow in the San Pedro basin start in 1912 at the Charleston gage station. The Charleston gage is located in the Sierra Vista sub-basin approximately 100 miles upstream of the confluence with the Gila River. The stream gage at Winkleman, near the confluence, has records for only 16 years, 1962 to 1978.

Further complicating estimation of virgin flow is that most of the irrigated acreage in the San Pedro basin is located in the floodplain, occupying land that previously was occupied by phreatophytes. Much of the water currently consumed by agriculture, if not more, was consumed by phreatophytes. The amount of phreatophyte water consumption depends upon the mixture of plant species, density of plants and length of growing season. The Arizona Department of

Water Resources (ADWR, 1987) estimates phreatophyte consumptive uses, in the basin, to range from .99 acre-feet per acre to 5.59 acre-feet per acre per year.

49

Estimates of Current Flow and Virgin Flow

ADWR (1987) estimates current average river discharge at

Winkleman to be

41,050 acre-feet per year. They further estimate long term average discharge to be nearly 50,000 acre-feet per year based on correlations with longer term stream gages.

Any river modeling approach to obtaining virgin flow depends greatly on estimations of historic phreatophyte densities and species mixture. Average virgin flow estimates in this study were obtained using a network optimization model

(MODSIM) to simulate the hydrologic system of the

San Pedro River (for model explanation see Appendix 8).

MODSIM was calibrated for average inflow and 1985 levels of demand. All demands except those from natural sources were then removed, with agricultural demand replaced by phreatophyte demand varying from zero replacement to full replacement with dense phreatophyte stands. The virgin flow estimate, obtained with

MODSIM, at the confluence is over

80,000 acre-feet per year, when assuming no phreatophyte replacement of agricultural land. When all irrigated acreage is replaced with dense phreatophyte stands, the estimate of virgin flow is nearly

34,000 acre-feet.

For the purpose of this study the virgin discharge of the San Pedro River at the confluence with the Gila River is estimated to be approximately

51,000 acre-feet per year, or

50 roughly a

10,000 acre-foot per year increase over current average discharge. The

51,000 acre-feet per year discharge figure is deemed to represent a reasonable replacement of irrigated acreage with phreatophytes, and agrees closely with the

ADWR (1987) estimate of long term average flow.

The figure is used here to represent the maximum average discharge requirement to fulfill

GRIC water rights claims on the San Pedro River.

Economic Value of San Pedro River Water to the

GRIC

The San Pedro River and the Gila River carry substantial sediment loads. The high sediment load has been a major deterrent to building storage dams on the Gila River.

Early in this century a dam and reservoir were constructed near

Sacaton on the Gila River. Within a few years the facility was filled with sediment

(Franzoy

Corey,

1985).

High sediment load also generally restricts San Pedro

River water uses. Untreated San Pedro River water is generally suited only to agricultural purposes, and even for agriculture settling ponds may be necessary to reduce the sediment load.

51

Value of Water to Agriculture on Reservation

Franzoy Corey (1985) identified three likely cropping patterns for the GRIC. Three crops; cotton, wheat, and alfalfa dominate all scenarios with their total percentage of acreage ranging from 61 to 68 percent. In the baseline

scenario, the percentage of acreage devoted to cotton, wheat and alfalfa is 30 per cent, 23 per cent, and 15 per cent respectively.

In addition they include a category of "Homestead", which accounts for 17 percent of acreage under all scenarios. The homestead category consists of family gardens, orchards, livestock, pasture, and cultural crops such as mesquite. Remaining acreage is planned for specialty crops.

It is extremely difficult, or impossible, to evaluate the MVP of water to the homestead category of farming and is not attempted here.

The long run 1987 MVP of water to cotton, wheat, and

alfalfa, on the reservation, under two situations, are shown in Table 5. Column one shows the MVP of water on developed farms. The cost of farm development must be added to the production function for presently undeveloped land. Column

two presents the MVP of water, including development costs

5

52 annualized at a discount rate of ten per cenO

Table

5

1987 Mar qinal Value Product of Agricultural Water to the G RIC

Developed Farms

Presently

Undeveloped

Land i = 10%

Long Run

MVP

Long Run

MVP

Crop

Cotton

Alfalfa

Wheat

S/AF

47.46

32.88

$/AF

16.00

7.71

Multiplying the

1987

MVP of these crops with the quantity of water necessary to grow them gives an estimate of what the value of the water is to agriculture on the reservation. Table 6 presents estimated values of water for

10,000 acre-feet of water and the two MVP scenarios of

Table

5.

The water required to grow the crops is based on a total of

10,000 acre-feet being used for cotton, alfalfa, and wheat with the acreage percentages in the

Franzoy Corey

(1985) base condition normalized to 100 per cent.

5

Development costs are based on developing acreage in the Gila River Farms area of the reservation, under Alternative

2 of the Franzoy Corey (1985) master plan. Water distribution development costs are $302 per acre and farm development costs are $1573 per acre (1987 dollars).

6

A discount rate of ten per cent is used throughout this study. It is used here to approximate the cost of borrowing to finance development.

53

The figures in Table 6 do not account for channel losses from the confluence of the San Pedro and Gila Rivers to the reservation. These losses may be up to

10 percent based on stream gage flow records for the Gila River and precipitation records for the area.

Table 6

Crop

Cotton

Alfalfa

Wheat

Annual Value of 10,000

Acre-Feet of Water to Agriculture at the BRIC

Currently

Developed Farms

Undeveloped

Land

/1 i = 10 •

Acres

Required

AF

Value of

Water

$

Acres

Required

AF

Value of

Water

$

978 4,890

232,079

478 2,988

98,245

717 2,122

32,955

1,238

610

-

6,190

3,811

-

99,040

29,383

-

Total 2,173 10,000 363,279

1,848 10,000

128,431

/1

For currently undeveloped land the MVP of water to wheat is negative. For undeveloped land in this table the Franzoy

Corey percentages for Cotton and Alfalfa were normalized to 100 per cent.

54

CHAPTER VI. NEGOTIATIONS AND BENEFITS OF TRADE

A Bargaining Model

Potential Benefits from Exchange

The following discussion utilizes marginal analysis applied to resource usage conflicts to identify opportunities for negotiation and trade. Negotiation and trade may lead to increased benefits derived from resource usage.

These gains from trade are distributed between parties as a result of bargaining making all parties better off than they were (or at least as well off). The discussion assumes that the parties are willing and able to negotiate and the cost of doing so (transaction cost) does not exceed the benefits derived from trade.

Figure 5 illustrates a two party situation (A and B), in which both parties desire to use a given resource. As party A consumes he benefits with each succeeding unit of the resource consumed benefitting him less (along the marginal benefits curve, MB A). Party A will cease consumption at Q

1 where he no longer will benefit from another unit, assuming there is a cost to using the resource or the resource is exhausted at this point. Party A's total benefits are then the area under the MB A curve. As A increases the quantity he consumes and moves along the MB A curve, costs

0

A

55

56

(damages) accumulate to party B, since less quantity is available to him. Party B's marginal cost curve rises since, with each successive unit of the resource unavailable, he must forego use of the resource in higher valued uses or use less in present operations. Party B's total cost (damage) resulting from A using the resource is the area under the MC B curve.

Party B has an incentive to approach A and negotiate to pay him to decrease consumption at every Q beyond Q * since everywhere past this point the cost to B is greater than the benefit to A. Party B will be willing to pay an amount up to his marginal cost (damage) of not having the resource.

Party A will be willing to negotiate and accept payment to reduce consumption as long as the payment offered is greater than or equal to the marginal benefit he would receive from consumption.

The San Pedro Basin and the GRIC

An Application of The Bargaining Model

The conflict over water rights is one of legal priority for the use of San Pedro water. An adjudication would resolve this question but the process is costly, time consuming, and has uncertain outcome for the parties involved.

In addition, from a societal point of view, an adjudication may result in net losses to some participants, losses which

57 may more than offset net gains to others (a negative-sum game) .

7

There may exist opportunities for a negotiated settlement involving more efficient use of the resource.

Gains from Trade

Any chance of recognition of Federal reserved water rights for the Gila River Indian Community creates uncertainty of property rights and value in the San Pedro basin.

The San Pedro basin water users are then in a position where they can wait and have the results of the Gila River Adjudication determine the final allocation or negotiate on the possibility of the eventual legal recognition of GR1C water rights.

For the following discussion let us assume that the

GRIC will be given a prior right to the virgin flow of the

San Pedro River. For this study, as explained in Chapter V, this is taken to be an increase of average discharge, at the confluence with the Gila River, of 10,000 acre-feet annually.

7

The term negative-sum game is borrowed from game theory. The theory of games is a mathematical theory dealing with behavior in situations involving conflict of interest (Van Nostrand, 1976). If the sum of all gains to "players" (participants) is always zero it is a zero-sum game.

Otherwise, it is a non-zero-sum game (a Positive-sum or

Negative-sum game).

58

Figure

6 presents a MVP curve for agricultural water for the

GRIC (GRIC

MB), and a marginal damage curve (loss of

MVP) for agricultural water resulting from foregoing use of water in the San Pedro basin (S.P. MC).

The

GRIC MB curve is based on the potential crop mix presented in the master plan for the

GRIC

(Franzoy

Corey,

1985) and the marginal benefits, for developed farms, attributable to water (MVP) as derived from

1987 Pinal

County crop budgets. It is a decreasing step function since it is assumed the farm managers will first grow the crops with the greatest benefits with the first available water and will use successive units of water for lower valued crops.

The S.P. MC curve represents the lost benefits to San

Pedro Agriculture from giving up quantities of water at the location of the farms. It is derived from the estimated

1987 aggregated crop mix and both

Pinal and

Cochise

County crop budgets. It increases step-wise since it is assumed that agricultural users in the basin will take the least valued crops out of production first if faced with less available water.

Figure

6 suggests that the optimal allocation, from the sense of maximization of returns to water, of

the

10,000 acre-feet is roughly split even between agriculture at the

GRIC and agriculture in the San Pedro basin. This might be

o

.

) o o

o

o

1.1

AV/$

0 o cNi

0

o

59

60 expected given the similar agricultural markets both entities face and the relatively similar MVP of water to various agricultural uses.

Costs

of Transport

The benefit and cost functions of Figure 6 are based on water on developed farms and do not reflect any cost for moving water from one location to another. In fact, there may be substantial costs in moving water down the channel of a river due to channel losses (seepage and evaporation).

The farther upstream that land is taken out of production to supply downstream users with water translates to the more land needed to be taken out of production to satisfy a given downstream discharge requirement because an increasing share of the saved water will be subsequently lost to seepage and evaporation. These channel losses increase with the transport distance.

Average channel losses to the confluence, from each sub-basin, have been estimated with the MODSIM model.

Table 7 presents losses along with the amount of land needed to be taken out of production to supply the required discharge, assuming that each sub-basin is equally liable.

Channel losses from the confluence to the GRIC of about 10 per cent of discharge have been estimated using Gila River stream gage and precipitation data.

Table 7

Channel Losses to Confluence, Land Taken Out of

Production, and Value of Water Given Up

Sub-basin

Benson

Redington

Average Delivered

Channel Water loss

Liability

%

Sierra Vista

65

54

40

AF

2,500

2,500

2,500

Winkleman /1 14

Total

/1.

2,500

10,000

Includes Aravaipa

Effective

Water

Liability

AF

7,143

5,435

4,167

2,907

19,651

Acreage

Lost to

Production

Value of

Water

Wgtd

Avg

MVP

X O

Ac

2,082

1,584

1,215

709

5,591

$

305,043

229,130

176,425

95,081

805,679

61

The effective water liability of Table 7 is calculated using the average transmission loss from each sub-basin.

The value of the water lost to production is obtained by multiplying effective water liability with the weighted average MVP of the crops in production in each sub-basin.

Farm Development Costs

In addition to not reflecting channel losses, the idealized scenario presented in Figure 6 did not take into account farm development costs for the GRIC to utilize water.

Figure 7 presents the effective annual total damages to the San Pedro Basin (SP TC) and the annual total benefits to the

GRIC from 10,000 acre-feet of water delivered to the confluence (resulting in 9,000 acre-feet at the GRIC) for

o

o-a_

E

V)

CD

U

(.2

62

o o o o o o a

0 o co o o tt)

63 two scenarios of development.

8 As shown, the costs are greater than the benefits for both scenarios. The net loss of aggregate returns to water (SP TC less

BRIC TB) ranges from over

$450,000 to over

$700,000 depending on the state of development. The loss of returns to water use is the consequence of not using water in its highest valued use.

It is a negative-sum game (due to channel losses and development costs) in which the losses to non-Indians exceed the gains to Indians. A classic example for beneficial exchange exists.

The effective marginal damages (lost MVP) to the San

Pedro basin (S.P. MC) and the marginal benefits, for the two development assumptions explained in footnote 8, to the BRIC

(GRIC MB 1, BRIC MB 2) of water delivered to the confluence are presented in Figure

8.

Since marginal benefits to the

BRIC are lower than effective marginal damages to the San

Pedro basin at all quantities of delivered water, the basin is in a position where it could advantageously negotiate to buy or lease water rights from the

CRIC.

The relationship in Figure

8 also points out that without the

BRIC having

8

The two scenarios are defined as:

GRIC

TB

1:

MVP of water on developed farms times quantity.

BRIC TB

2:

MVP of water including annualized development cost at a discount rate of

10 per cent times quantity.

64 o

.-1

- o o a aD o co av/$

o

-o

0 cv

C

0

65 legal priority rights the CRIC would not be able to pay the

San Pedro basin to deliver any water.

The GRIC is likely to have prior rights to at least some of the San Pedro River water under the Winters Doctrine. Compensation to the GRIC can be guaranteed, for relinquishing water rights, and efficiency maximized if the

GRIC water rights are acknowledged and there exists a legal framework where negotiation can occur to effect transfer of the rights to their higher valued uses. In this case the actual values of the uses have been shown to be similar, yet efficiency can be increased by using the water before nature

"reclaims" it.

Negotiations Internal to the San Pedro Basin

Assuming that the San Pedro basin water users are required to furnish the virgin flow of the San Pedro River, at the confluence with the Gila River, there will be a shifting of water usage patterns in the basin. With an increase of discharge to the Gila River of

10,000 acre-feet, those who hold the most junior rights in the basin will be required to stop diversions and pumping of floodplain water or find another source of water to satisfy the claims.

The holders of the most junior appropriable rights include agricultural users, domestic users, mines and pos-

66 sibly some municipalities. For a number of reasons, to be explained, any "wet" San Pedro River water delivered to the

Gila River will come from agricultural land.

Municipal and

Domestic Users

Judge Goodfarb has ruled that domestic and stock

water wells are to be excluded from the adjudication (Superior

Court for

Maricopa

County,

1988), thereby relieving this category of responsibility.

Roughly

60 per cent of municipal water usage is consumed by the City of Sierra Vista. The city's well fields are approximately eight miles from the river and are therefore not pumping appropriable water according to the

50 percent,

90 day rule for groundwater pumpage

(see pg 27).

Most of the other municipal wells are either outside of possible appropriable water boundaries or are pumping deep water from the regional aquifer. Wells inside the floodplain but screened in the regional aquifer, will have to be judged on an individual basis to determine if they affect streamflow, although most are not likely do so.

If any municipal wells are determined to be pumping appropriable water, there are three scenarios

that may ensue. The municipalities can drill new wells outside of the area of influence of groundwater on river water, nego-

tiate to purchase water rights from agricultural land or negotiate directly with the GRIC to continue water usage.

It is assumed the municipalities will choose the least expensive alternative.

67

Mining and

Industrial Users

As discussed in Chapter IV the Magma Copper Company pumps water from deep wells (1,200 to

2,000 feet) screened in a confined portion of the regional aquifer. It is highly unlikely these wells will be found to deplete stream flow.

If these wells do not have direct impact on surface flow the water is not appropriable. Similarly, the Apache Powder

Company pumps from deep wells that are most likely outside of the area of influence on stream flow. ASARCO pumps from wells in the floodplain alluvium with rights ranging from fairly senior to recent.

If any liability is assigned to the mines or industries, they too have the opportunity to relocate wells, buy agricultural rights, or negotiate directly with the

GRIC.

The mines have a MVP of water of about $302 per acrefoot, as developed in Chapter III. Griffin et al.

(1981) estimate that if the price of water to the mines were increased by $200 per acre-foot the cost of producing a pound of copper would increase by only a penny. It becomes obvious that the mines could easily purchase agricultural

rights to alleviate any liability, and they could do so at less cost than it would take to reduce water consumption.

68

Agricultural Users

Agricultural water users in the floodplain do not have the range of opportunity for negating liability that was shown for municipalities and industry. Drilling and pumping from deep wells or transporting from wells located away from the cropland is economically infeasible in most situations.

Agricultural water users with junior rights must either negotiate with the CRIC for water usage, purchase more senior rights, or relinquish use of appropriable water.

Junior agricultural water rights exist throughout the basin. There exists much more agricultural land with relatively junior water rights than would be necessary to supply a levy of

10,000 acre-feet against San Pedro basin water users. Table

8 presents the number of irrigated acres in each sub-basin brought into production since 1956.

Figures in Table

8 are derived from ADWR (1987).

Table

8 shows that the largest percentage of junior water rights exist in the sub-basins farthest upstream from the confluence. Since the users upstream suffer more damages, due to channel losses, from being required to deliver water to the confluence there exist possibilities for negot-

69 iation for water among upstream and downstream agricultural users.

Table

8

Irrigated Acreage in the San Pedro Basin

Brought into Production Since 1956

Sub-basin

Sierra Vista

Benson

Redington

/1

Winkleman /2

Total

/1

828

9,094

reflects Tenneco sale to BLM

/2

Irrigated

Acreage

Percent of

Total Basin

Since

1956

Irrigated

Percent of

Acreage

Acres

2,895

Acreage

11.9

Since 1956

31.9

3,212

2,149

16.3

10.9

35.3

23.7

9.1

100.0

includes Aravaipa

5.1

44.1

Figure 9 presents the average effective marginal cost to each sub-basin of having to supply water to the confluence. Again, the effective marginal cost is the MVP of the quantity of water use foregone at a point in the basin in order to deliver a certain quantity at the confluence. Using the average transmission loss figures from Table 7, if a water user in the Sierra Vista sub-basin must deliver an acre-foot of water to the confluence, then he must forego usage of

2.86 acre-feet at the site of consumption. Similarly, in the

Winkleman sub-basin an acre-foot of liability translates to 1.16 acre-feet of water. The divergence of effective MVP again presents opportunities for trade.

cog

El)

4

M

.

0 be fa

54)

1 )

cn cel

ti

70

0

71

If a water user in the Sierra Vista sub-basin is liable to deliver one acre-foot to the confluence and buys 1.16

acre-feet of water from a Winkleman sub-basin rights holder, and lets it flow to fulfill his liability, it effectively grants the Sierra Vista sub-basin user the use of 2.86 acrefeet. The actual cost per acre-foot to the Sierra Vista user is then diluted. For example, if he pays $50.00 per acre-foot in Winkleman, the use of an acre-foot in Sierra

Vista costs him slightly over $20.00.

It is thus possible to imagine a situation where all of the actual delivered water would come from agricultural land in the lower basin. Figure 10 presents the total effective damages to the aggregated San Pedro basin (SP TC) if all water is delivered from agricultural water in the Winkleman sub-basin, compared with the total benefits to the

GRIC

(GRIC

TB

1,

BRIC TB

2)

9 from the delivery of 10,000 acrefeet of water to the confluence. As shown total damages and total benefits are similar for developed farms since transmission losses are small. However, when farm development costs are added the difference becomes significant.

9

The two GRIC scenarios are the same as presented in

Figure 7:

BRIC TB 1: MVP of water on developed farms times quantity.

GRIC

TB 2: MVP of water including annualized development cost (discount rate of 10 per cent) times quantity.

C-)

C1-

u

.)

1-

CE

r. ••"!

'40.4

I-

Fe

-

72

00 a

1 9 C

n

J

0 o a

73

Instream Water Demands

The BLM riparian land purchase encompasses about 2,000 acres of the floodplain agricultural land in the Sierra

Vista sub-basin. This land is now retired from production.

The remaining floodplain agricultural land in the Sierra

Vista sub-basin (approximately 1,750 acres) is located upstream of the BLM property. In addition there are about

1,750 acres of agricultural land located fairly close to the floodplain. Wells pumping from this land will have to be evaluated on an individual basis to determine if they are pumping appropriable water.

The BLM property has an extremely junior right, but flow is at least partially protected through the property as long as the senior rights of the St. David Irrigation District, located downstream, are protected. Similarly, if water is allowed to flow from upstream of BLM river property to satisfy GRIC prior rights, it serves the purpose of maintaining flow through the riparian habitat area.

The recommended flows for riparian purposes are presently being met only in years of average or above average river discharge. If the BLM were to purchase all the floodplain agricultural land upstream, which it has taken initiatives to do (USDI, 1988), they could increase average annual flow at the southern end of the riparian habitat

area by up

to

4200 acre-feet per year, which is about

19 per cent of median annual flow at the

Palominas gage.

10

74

Alternative Sources of Water to Satisfy BRIC Claims

Supplying the BRIC with "wet" San Pedro River water may not be the most attractive possibility to any of the parties involved. As shown above, channel losses are significant and would require San Pedro basin water users to relinquish more water than the BRIC may have claim to.

In a pre-trial order to the Gila River Adjudication

(Superior Court for

Maricopa

County,

1988),

Judge

Goodfarb issued his opinion that Federal reserved water rights guarantee water to Indian reservations but there is no case history to suggest that the source of the water is important.

Alternatives to supplying San Pedro River water include purchasing Central Arizona Project (CAP) water to be delivered to the reservation. CAP water is of better quality than San Pedro River water and may be preferred by the

W

This assumes

1,750 acres of irrigation with an average annual consumptive use of

2.4 acre-feet per acre

(ADWR,

1987).

GRIC.

11

In addition, CAP water is more dependable than the

75

San Pedro River.

The Central Arizona Water Conservancy District administers the CAP and has set the price of CAP water at

$58.00 per acre-foot upon completion of the project (about

1992).

In addition, the U.S. Bureau of Reclamation will assess charges (per acre foot of delivery) to repay construction costs (Saliba and Bush,

1988).

Construction charges are differentiated between three types of water purchases; municipal and industrial uses, non-Indian agriculture, and Indian agriculture. Charges assessed to municipal and industrial users are repayable with interest, amortized at a rate of

3.342 per cent. These charges initially will be

$5.00 per acre-foot and gradually increased. Non-Indian agricultural users will pay an additional $2.00 per acre-foot. This charge is not to be increased and reflects no interest. On reservation Indian agricultural users will have a construction cost repayment surcharge deferred as long as the water is used on tribal land (Saliba and Bush,

1988).

The $58.00 per acre-foot charge, for CAP water to be used for on reservation agriculture, is above the highest

See Chapter V for a discussion of the sediment load of the San Pedro River and restrictions on water use associated with it.

76

1987

MVP of water to agriculture on the reservation. This indicates that under present conditions the

GRIC can not afford to purchase CAP water for agricultural uses, even on developed farms.

If the San Pedro basin water users were to reimburse the

GRIC for purchases of

10,000 acre-feet of CAP water the cost would be about

$580,000, which is more than

$200,000 below the total effective cost estimated for the basin shown in Figure

7.

The same analysis as used for the scenario in the preceding section, for upstream users buying downstream water rights, is applicable to CAP water. If a Sierra Vista sub-basin water user were to alleviate one acre-foot of liability with CAP water, at

$58.00 per acre-foot, it would enable use of

2.86 acre-feet (using channel loss rates from

Table

7) at an effective price of just over

$20.00 per acrefoot. This benefit decreases for the downstream users. A

Winkleman sub-basin user alleviating one acre-foot of liability with CAP water would be paying an effective cost of nearly

$50.00 per acre-foot making the CAP alternative appear to be less attractive for downstream users, if not infeasible.

A side effect of the availability of CAP water is that it puts an effective cap on what downstream users can sell

their water for to upstream users. At a price of about

$50.00 per acre-foot the upstream users are better off buying CAP water.

77

Cash

Settlement

Option

An alternative

settlement option is for the San Pedro water users to offer the GRIC a cash settlement in lieu of water. The magnitude of the settlement would have to be negotiated. The value of water use on the

GRIC serves as a basis for negotiation.

Table 9 presents the capitalized value of

10,000 acrefeet of water to the

GRIC for developed and undeveloped farms for three crop mixes. Again, capitalized value equals

Table 9

Capitalized

Value of

10,000 Acre-Feet to the

GRIC

Millions of Dollars

/1

(1)

Cotton,

Crop Mix /2

(2) (3)

Alfalfa Z. Cotton Z.

Wheat

Alfalfa

$M $M

All Cotton

$M

Developed Farms:

(10

7. discount rate)

Undeveloped Acreage:

3.63

4.19 4.75

(10 7.

discount rate) -

/1 rounded to 3 significant figures

1.28

1.60

/2

Crop mix

(1) assumes the three predominate crops presented in the Franzoy

Corey (1985) master plan.

Crop mix

(2) assumes 67 % of acreage is to be put in cotton and

33 % in Alfalfa.

Crop mix

(3) assumes all acreage is put into cotton, the crop with the highest MVP of water.

78 annual benefits divided by the discount rate. For Table

9, annual benefits are taken to be the

1987

MVP of water to the crops presented times the quantity of water applied.

Table 10 presents acreage, development cost, and annualized development cost for the three crop mixes presented in Table 9.

H

Table 10

Farm Development Cost

for the

GRIC /1

Annualized

Total Cost Cost (i = 10%)

Crop Mix

Crop Mix (1) acres

2,173

$

4,070,000

$/yr

407,000

Crop Mix (2) 1,848

3,470,000 347,000

Crop

Mix (3) 2,000 3,750,000

375,000

/1 all dollar values rounded to

3 significant figures.

The

Role

of the

Federal Government

in

Negotiations

Federal Concerns

To this point this study has focused largely on the

BRIC and the San Pedro water users. The Federal government is involved in a number of ways.

As discussed previously, the Bureau of Land Management

(BLM) has recently become a major riparian land owner in the

San Pedro basin. The BLM is concerned with maintaining

H

Development costs are based on the

Franzoy

Corey

(1985) master plan using Alternative

2 for the undeveloped

Gila River Farms area of the reservation. Water distribution development costs are

$302 per acre and farm development costs are $1573 per acre (1987 dollars).

79 perennial flow through it's land and as such is interested in water usage upstream. As mentioned in a previous section, the agency has taken initiatives to purchase upstream agricultural land and water rights. There are other Federal properties in the basin, but these are far enough away from

the river that any water usage associated with them is not appropriable.

Federal Responsibilities

The Bureau of Indian Affairs has the responsibility of trusteeship for Indian land and welfare. In this role, the government is interested in protecting water rights of the reservation and in fortifying the

GRIC position in any negotiated settlement.

At the same time, the government has encouraged the settlement and development that led to the present conflict.

It would seem unjust to now lay the burden of restoration of virgin flow solely upon non-Indian water users.

Judge

Goodfarb has expressed this concern in the pretrial order to the Gila River adjudication, dated September

9, 1988.

The Judge wrote that it was the opinion of the

Court that any judgement must be structured so that it minimized impacts on those who had no fault in utilizing water which will now be used to fulfill Indian and Federal

80 reserved rights, while still providing a source to fulfill those rights (Superior Court for

Maricopa

County,

1988).

The Federal government is thus inherently involved in a number of facets of the conflict. As such, it is inherently involved in possible settlement scenarios.

81

CHAPTER

VII.

SUMMARY AND CONCLUSIONS

Summary

The source of conflict in the San Pedro basin is a potential reallocation of water rights from individuals in the basin to the Gila River Indian Community. But this potential reallocation also admits the possibility of gains from trade by allowing water to remain in present uses.

Higher returns to limited water supplies can be obtained from using San Pedro River water in the San Pedro basin rather than on the Gila River Reservation. The increase stems primarily from putting the water to productive use prior to nature reclaiming it in the form of channel losses en route down river. In addition, there are greater benefits derived from using water on established farms rather than developing new acreage simply because of development costs.

The significance of increased returns to efficient water usage is that these benefits can be distributed to make everyone better off. The device used for accomplishing distribution in the previous chapter is voluntary negotiation. As pointed out, negotiation requires parties that are willing and able to negotiate, the cost of doing so being less than the benefits derived, and the ability to freely trade property (rights).

82

When viewed from the perspective of the present distribution of de facto, if not de jure, property rights, water rights reallocation is really a redistribution of income from the San Pedro basin to the

GRIC.

A question of equity arises by placing the burden for remedy of past transgressions against Indians solely on individuals who have been using water through legal entitlement. It will likely require government involvement and assistance to resolve the conflict in an equitable and efficient manner. The question becomes, what solutions are efficient and equitable?

Societal Considerations

Opportunity Costs

Identifying the net returns to water in alternative uses also points out the opportunity cost of inefficient water use. Figure

7 (pg ?) displays the value of water usage lost to water users in the aggregate from using San

Pedro River water on the Gila River Indian Reservation instead of in the San Pedro basin. The lost returns to water range from over $450,000 to over

$700,000 annually, depending on assumed development state.

To allow water to

go

to

the

highest valued

use and

thereby eliminate opportunity cost requires institutional

arrangements that permit free trade and transferability of water rights.

83

Transferability

of

Indian Reserved Water Rights

The exact nature of Indian Reserved Water Rights remains unclear. One unresolved issue is the off reservation marketability of the rights.

Congress has not authorized tribes in general to sell

"Winters" water rights. The Southern Arizona Water Settlement Act of 1982 has provisions for off reservation leasing or sale of "Winters" rights by the Tohono O'Odham Nation.

However, the act specifies that it has no effect on the general question whether "Winters" rights may be sold for off reservation use (Collins, 1985).

Palma (1980) maintains that there is no legal foundation supporting transferability of "Winters" water rights for off reservation use. However, there is growing pressure to allow sale or leasing of the rights. State and Federal governments tend to favor transferability to assure maximum utilization of water (Collins, 1985).

If off reservation marketing of "Winters" rights is forbidden, the GRIC must use San Pedro water for on reservation uses or not receive any benefits from "Winters" rights to the San Pedro River. As shown, there are substantial opportunity costs resulting from doing so if on reservation

84 use is limited to irrigation. Restrictions placed on marketing Indian water rights thus are not only inefficient but in effect mandate inefficiency.

Federal Subsidies

Every legislated Indian water rights settlement to date has included Federal subsidies to the Indians at least, and possibly to non-Indians as well. Non-marketability of "Winters" rights raises the cost of any agreed upon compensation to those who may lose from award of the rights. Federal compensation has included money to construct, operate, and maintain water distribution systems to Indian lands, as well as development money for tribes.

The addition of Federal money to the negotiating process in effect increases the total to be distributed through negotiation. Contributing money to enhance settlement opportunities also benefits the government by ending costly litigation. Swan

(1988) estimates that the Bureau of Indian

Affairs alone is spending between $500,000 to

$1,000,000 per year on the Little Colorado River and Gila River adjudications. In addition, settlements of Indian water claims have resulted in ending litigation that may have held the government liable for failure to fulfill it's trust responsibility.

85

If the government can aid in negotiating a settlement by compensating losers while maximizing efficient water usage, society as a whole benefits. Table

11 presents three scenarios with full government compensation to any parties who stand to lose from reallocation of water rights. The figures in Table 11 are based on an award to the GRIC of rights to 10,000 acre-feet of water at the confluence for which each San Pedro sub-basin is equally liable

(9,000 acre-feet will reach the reservation).

Development of new farm land on the Gila River Indian

Reservation necessary to utilize the water is assumed with development costs annualized at a discount rate of ten per cent. The figures of Table 11 reflect the estimated cropping patterns of 1987 for the San Pedro basin and an assumed crop mix of 67 per cent cotton and 33 per cent alfalfa at the

GRIC.

All monetary reimbursements for water rights or water use foregone are assumed to equal the MVP of the water times the quantity.

The Three scenarios presented are as follows:

I. Transfer of rights is legally infeasible. Delivery of

"wet" San Pedro water to the

GRIC with compensation to water users in the San Pedro basin.

U. Negotiation and transfer of rights is feasible. Negotiations for "wet" San Pedro water result in the

water being used in the basin with compensation to the

GRIC for the water rights.

III. CAP alternative. GRIC is awarded

9,000 acre-feet of

CAP water.

86

Table

11

Scenario

I.

H.

III.

Value of Water Use and Compensation for Non-use

(Compensation for value of water only)

1

$1,000's

annually

2 3

4 5

SPB

GRIC

Govt to

6

Subs.

to

7

Total

Net

(+) (-)

806 806

0

0

(+)

120

120

(-)

0

0

SPB

-806

GRIC

0

0 -120

Change

-686

0

0 0

120

0 0 -522

-402

Column

1 reflects compensation for loss of benefits derived from currently used water.

Column

3 reflects MVP of water usage or Gov't compensation for loss of benefits derived from water.

Columns

2 and

4 are losses from not having water available.

Columns

5 and

6 are compensation payment from the

Federal government to the SPB and

GRIC respectively.

Column

7 is total net change from the current situation.

The most expensive solution is the

GRIC using water on the reservation without the opportunity to trade the rights.

The CAP solution is a negative net change from the current situation since the price charged for CAP water is greater than the value of the water to reservation agriculture.

While Arizona is not currently using its full allocation of

CAP water, California is willing to appropriate any excess.

Thus, from a nationwide viewpoint the water of the Colorado

87

River is fully utilized and using it in one application takes away from another. From a viewpoint of monetary returns to water usage, the optimal solution is direct cash payment to the GRIC for water rights. The acceptance of cash by the GRIC is dependant upon perceived non-market value of water by the GRIC and tradeoffs between total value of "wet" water and alternative investment opportunities presented by a monetary award.

"What If" Scenarios

In the preceding analysis the effects of channel losses caused major differences in the value of water use in each location. The results may turn out significantly different in a situation where the geographical or hydrological realities are different. For example, what if the those with junior rights were located primarily in the lower reaches of the San Pedro basin, negating the major effects of channel losses (or channel losses were insignificant)?

If liability to deliver water was restricted to those close to the reservation (lower basin), and the channel losses were thus lowered, the value of water usage on developed farms on the GRIC and in the San Pedro basin are very similar. Figure 10 (pg 72) showed the total damages and benefits to the parties under the developed farms and undeveloped land scenarios if all water was delivered from the

88

Winkleman sub-basin. Figure 11 presents the 1987 MVP for the estimated crop mix in the Winkleman sub-basin and the

1987 MVP of the assumed crop mix at the GRIC

°

for the two development scenarios previously presented.

14

As shown, with the effects of channel losses diminished, the declining marginal value of water use at each location would cause the water allocation resulting from bargaining to be roughly equal.

The bargaining process then actually revolves around what the possible crop mixes, and resulting value of water usage, at the two locations are perceived to be. The similarity of benefits of water usage in the two localities may preclude negotiation at all, since the perceived gains from trade may be less than the cost of bargaining at all.

Another theoretical scenario that would change the results of analysis is a possible situation where the geographical location of the GRIC were upstream of present water users, the resulting damages and benefits from award of prior water rights to the GRIC would be quite different.

n

The assumed crop mix is 67 per cent cotton and 33 per cent alfalfa based on the percentages of crops presented in the Franzoy Corey master plan (1985), normalized to 100 per cent.

The two development scenarios are:

GRIC TB 1: MVP of water use on developed farms.

GRIC TB 2: MVP of water use factoring in development cost

(10% discount rate).

,-

(NJ

1.1)

r3)

CD CO

1:3

E

Q:

0 V

E E vi e e

89

o

90

The value of using agricultural water on the GRIC would outweigh the value of using water (in agricultural uses) downstream due to channel losses incurred in transport.

The lower effective value of downstream water usage would preclude the junior rights holders from purchasing upstream rights. From a subsidy perspective, it would be less expensive to compensate downstream users for loss of water than to compensate the GRIC for foregoing water use.

Conclusion

The lengthy time required, expense, and uncertain outcome of adjudicating water rights make negotiated settlement of water rights conflicts attractive. Identification of divergence of the value of water in differing uses or locales, and hence the opportunity cost of inefficient use, provides a basis for negotiation.

For negotiation to occur the divergence of value of water usage must be significant enough for gains from trade to outweigh the costs of negotiation. Specific hydrologic conditions and geographical locations of involved parties play a significant role in maximizing the returns to water usage.

APPENDIX

A

SAMPLE CALCULATION FOR DERIVING MVP OF WATER

FROM FARM CROP BUDGETS

Revenues and costs are from

"1987

Arizona Field Crop

Budgets:

Cochise

County"

by Scott

Hathorn et al..

91 example: Alfalfa Hay (Pivot Irrigation)

Water Well

#2, 440 ft. lift,

600 ft. depth, natural gas power.

Water Use:

4.67 AF/ac/yr

Revenue

Total Operating Cost

Operating Water Cost (pumping)

Total Fixed Cost

Fixed Well Cost

$/ac

$629.00

392.67

199.21

315.33

85.04

Symbol

R

TOC

OWC

TFC

FWC

Total Cost

(TOC + TFC)

Total Water Cost

(OWC + FWC)

AVP =

Average Value Product

MVP

=

Marginal Value Product

$708.00

284.25

TO

Short Run

AVP =

ER

- (TOC - OWC)] / AF

= $E629.00 - (392.67 -199.21)] / 4.67 AF

= $93.26 / AF

TWC

Long Run

AVP =

ER

-

(TC

- TWC)] / AF

= $E629.00 - (708.00 - 284.25)] / 4.67 AF

= $43.95 / AF

If revenue and production cost are constant for every acre planted then:

AVP =

MVP (Bush and Martin,

1984).

92

APPENDIX

B

MODSIM

COMPUTER

MODEL

A network optimization model (MODSIM) is used to simulate the hydrologic system of the San Pedro basin. MODSIM represents river basins as a capacitated network of nodes and links. Surface reservoirs and groundwater basins are represented as storage nodes. Non-storage nodes may be river intersections, instream or consumptive demands, and locations of unregulated inflow. Figure 11 presents a schematic diagram of the Modsim network configuration for the San Pedro basin.

Each sub-basin is assigned a river node and a groundwater storage node. The groundwater node is directly linked to the river node, for groundwater to river flow and river to groundwater seepage. Unregulated inflows (runoff and recharge) are input to the river nodes and groundwater nodes.

Each sub-basin has demands attached to it. Groundwater pumping is represented by demand nodes with "artificial" links to the groundwater node. Artificial links connect nodes internally in the model (i.e. they are not input by the user). The user specifies which groundwater storage node to extract from, aquifer characteristics, and distance of the well from the river. At the end of the river reach modeled a "dummy" reservoir is placed to facilitate complete

circulation for mass balance computations.

L

0

.0-1

„S4 ft

W

› 12)

It

Lj

.4 a

$.,

o

O

D

0

D

n

••

nn

_

'1!

.

5

•••".

to

L.,

G) a) t1-1

S.J

•..4

4-I

5

&

IV

H

0)

C

'8

G)

4) m

G) a)

rIQP

It.)

• tO

Li

0

2

ft)

C

(0

1., in

0.)

.1_3 w

'?

Z a) z

>

t a

4

.,,

, m

E

n

-4

rx tit

8

_6

T ov

0

93

rI4

o

1:1

U.S.

Mexico

94

MODSIM was developed by Shafer

(1979) as an enhancement of the

SYMYLD model developed by the Texas Water Development

Board

(1972). MODSIM has been adapted to numerous water resource problems (e.g., Labadie and Shafer, 1979).

The model uses a network optimization algorithm known as the out-of-kilter algorithm

(OKA). The OK A solves network optimization problems using an efficient primal-dual technique described by Barr et al., (1974).

Mass balance computations are completed for each node and the total configuration on a monthly or weekly basis. MODSIM optimizes water allocation monthly or weekly based on costs, benefits, or water rights priorities.

The model was used here to estimate the channel losses and virgin flow of the San Pedro River. The model was calibrated using

1985 water demands and ten years of historical hydrologic data obtained from stream gage and precipitation records. Estimates of channel losses were obtained in the calibration process. Costs associated with links to the groundwater nodes were adjusted until links that correspond with river gages matched historical flow. The amount of water entering the groundwater node is then the channel loss for that sub-basin.

Average virgin flow estimates were obtained by calibrating the model for long term average inflows and

1985 levels of demand. All demands except those from natural sources

95

(seepage, evaporation, and phreatophytes) were then removed with agricultural demand replaced by phreatophyte demand varying from zero replacement to full replacement with dense phreatophyte stands.

96

REFERENCES

Anderson, T. L., O. R. Burt, and D. T. Fisher, "Privatizing

Groundwater Basins: A Model and Its Application."

Chapter

7,

Water Rights, ed.

T.L.

Anderson. Pacific

Institute for Public Policy Research, pp.

223-248,

1983.

Arizona Department of Water Resources, "Preliminary Hydrographic Survey Report for the San Pedro Watershed."

Vol.

1,

Phoenix, Arizona,

1987.

Arizona

v. California,

373

U.S.

546 (1963), decreed in final form,

376

U.S.

340 (1964).

Barr, R. S., F. Glover, and D.

Klingman,

"An Improved Version of the Out-Of-Kilter Method and a Comparative

Study of Computer Codes." Mathematical Programming,

Vol.

7, pp.

60-86, 1974.

Billings, R. B., D. E.

Agthe,

"Price Elasticities for Water:

A Case of Increasing Block Rates."

Land

Economics,

Vol.

56, pp.

73-84,

February,

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