Entrepreneurs Chart Plans to Sell Their Ground Water to Thirsty Cities

The playing field of the new water market is still being laid out. In two of the largest water deals by private entrepreneurs so far, eventual profits are likely to be affected by decisions still to be made by politicians and the courts.

Franklyn Jeans, for instance, is betting that his Nevada water basin won’t be too well-connected to the water basins of his California neighbors.

Jeans, a former newspaper reporter and Oakland attorney, bought a $2-million ranch in the Honey Lake Valley, north of Reno, to raise alfalfa and cattle. He found an unexpected bonanza of underground water, lost his interest in cows and is now planning an $86-million water pipeline.

The idea struck him on a train ride back to Oakland one Sunday in November, 1985. Jeans, a self-confident Westerner, was commuting regularly then, spending one week at work on the new ranch and the next at his law business in Oakland.

On the train with his wife, Susan, now a vice president of one of his companies, Jeans read a report by Bob Firth, manager of water resources for Westpac Utilities, the Reno water company. The report warned that the city was running out of municipal water.

The next time that he was in Reno, Jeans arranged to meet Firth.

“If I told you there was maybe 12,000 acre feet of available (water) supply in the Honey Lake Valley,” Jeans remembers asking him, “what would you do?”

“He said,” recalls Jeans, smiling at the memory of the normally taciturn Firth, ‘ “I’d kiss you.’ ”

Taking Most of Risk

As it happens, the deal with Westpac fell through. Jeans has since become partners with Washoe County in an arrangement that leaves him risking $4 million in start-up costs for a possible $12-million return--his share of the $120-million sale of permanent water rights at an expected $6,000 per acre-foot.

He admits that this is a “premium” return, but points out that his company is taking the biggest share of risk in a private-sector structure that he predicts will become more common around the West.

“It used to be if the government wanted to build a water infrastructure project, build Hoover Dam,” says Jeans, “it went out and took taxpayer’s money and it spent $5 million to do a study so that all the government types would be protected if it went bad. And then they’d hire a contractor for $40 million and they’d build a facility. And then they’d use tax revenues to pay the bonds off.”

The Honey Lake pipeline project, Jeans notes, is financed not by current taxpayers but by fees that ultimately will be passed on to new homeowners. “It’s the incoming people,” he says, “who get to pay for the right to move here. . . . In effect, what we’re doing is we’re putting a cost on moving here that will help us keep the quality of life up.”

Jeans takes pains to point out that his scheme will not end up as a repeat of the ecological disaster that befell Owens Valley.

For one thing, Jeans says, only the amount of underground water that is naturally replaced each year in the Honey Lake basin will be piped south. There will be no ground water mining.

Also, Honey Lake Valley, at least on the Nevada side, is almost uninhabited, he points out.

“You can’t develop ground water basins,” says Jeans, “in areas where there’s substantial population, because it just screws it up for the people who are there. You’ve got to go find essentially isolated agricultural areas.”

Plans Water Ranch

That’s exactly the point made by the 4,000 Honey Lake Valley residents on the California side, who apparently share a set of interconnected water basins. Their concern is that their water table will drop when Jeans starts pumping. A U.S. Geological Survey team has been studying the basins and both sides hope that modern hydrology will help produce a fair plan for dividing the water.

A far larger ruckus has been raised over the project of Ron Ober, a Phoenix developer. Ober is piecing together a 30,000-acre water ranch in rural western Arizona. He plans to sell water to the cities, when the price is right.

At the current price that Phoenix is paying, Ober’s water would be worth about $85 million, and that’s not counting the cost of pumping it out of the ground and transporting it to the cities. Ober thinks that the $85 million could be as little as 5% of the total price that cities will ultimately pay.

Arizona’s urban areas are in a squeeze. When former presidential candidate Bruce Babbitt was governor, he promoted and signed a water law that bans ground water mining around the cities. But the law also requires cities to demonstrate that they have additional water supplies, enough to last 100 years, for any new development.

An unforeseen consequence has been to force the politically powerful cities to cast a covetous eye on rural water basins, where legally almost any amount can be taken. The state Legislature has lately been trying to develop yet another water bill, to both meet the cities’ needs and treat rural residents decently.

But this year’s bill foundered when the site of Ober’s ranch, La Paz County’s water basin, became what Babbitt, now an attorney representing the county, termed “the designated victim,” the only rural area that would be left open to big-time ground water mining. La Paz politicians stopped the bill by complaining loudly in the Arizona press that they were about to become “another Owens Valley.”

Rules Could Change

But water for Arizona’s cities, where most voters live, must come from somewhere, and the biggest water ranch scheme in La Paz County, not to mention the state, is Ober’s. This gives him a lot of clout in the Legislature, and in the fight over the latest water bill, many environmentalists and rural Arizonans considered Ober to be wearing a gray if not black hat.

Environmentalists are concerned, for one thing, that he plans to mine the ground water, not treat it as a renewable resource.

Ober has already committed himself financially. Some water-policy observers see considerable risk in this, since the Legislature can come along later and set new rules for Arizona ground water.

Ober doesn’t agree, especially in light of the powerful need for water in the state. “The bottom line,” he says, citing the simple economic engine that still drives the West, “is that it’s probably all going to get sold, because there is more demand than there is supply.”

Ober doesn’t necessarily mean this literally. For instance, in the failed Arizona water bill of this spring, La Paz County’s water would have been divided, with 65% being open to sale, and 35% being kept in the ground, for the locals’ future use.

Ober could even hear less environmental concern over his proposed ground water mining--or in water parlance, an overdraft, when underground water is taken out faster than nature replaces it.

“We used to just say, ‘ground water overdraft is bad,’ ” Thomas Graff, a senior attorney with the Environmental Defense Fund, notes. “We now say, ‘It’s something to worry about, because you want to husband resources over the long haul.’ On the other hand, we mine everything else. We mine coal. We mine oil.”

Still, Graff isn’t about to encourage ground water mining.

“You build up an economy based on water that you eventually exhaust, and then what?” he asks. “You have to go somewhere else, and usually that means environmental degradation in some distant locale.”