April 15, 2007

Water, Adaptation, and Property Rights on the Snake and Klamath Rivers1

By Slaughter, Richard A; Wiener, John D


Water demand in a viable economy tends to be dynamic: it changes over time in response to growth, drought, and social policy. Institutional capacity to re-allocate water between users and uses under stress from multiple sources is a key concern. Climate change threatens to add to those stresses in snowmelt systems by changing the timing of runoff and possibly increasing the severity and duration of drought. This article examines Snake and Klamath River institutions for their ability to resolve conflict induced by demand growth, drought, and environmental constraints on water use. The study finds that private ownership of water rights has been a major positive factor in successful adaptation, by providing the basis for water marketing and by promoting the use of negotiation and markets rather than politics to resolve water conflict.

(KEY TERMS: climate change; drought; irrigation; institutional adaptation; water law; water markets/marketing; water policy/ regulation/decision making.)


In 2001, the National Research Council called for a focus on water institutions, urging that the tools of the 19th century are insufficient to meet the needs of the 21st (NRC, 2001). Blomquist et al. (2004) echoed the call for empirical study of institutions, and especially comparative studies of water basins in which the primary focus is on the institutional differences. This study presents such a comparison, of water institutions relating to the Snake River in Idaho and those of the Klamath River basin in Oregon.

This article focuses on the implementation of the prior appropriation doctrine in the two basins. It does not assume that the doctrine, which confers usufructuary rights in priority to appropriations of water to beneficial use, is inappropriate to today's needs, but argues that the body of law developed under that doctrine provides the necessary basis not only for current allocation but also for any market development through which today's conflicting priorities might be reconciled.

"Western prior appropriation law is a property rights-based allocation and administration system, which promotes multiple use of a finite resource. The fundamental characteristics of this system guarantee security, assure reliability, and cultivate flexibility. security resides in the system's ability to identify and obtain protection for the right of use. Reliability springs from the system's assurance that the right of use will continue to be recognized and enforced over time. Flexibility emanates from the fact that the right of use can be transferred to another, subject to the requirement that other appropriators not be injured by the change." (Hobbs, 1997, p. 2).

Within the framework of Western water law there are embedded significantly different property regimes, established through the evolving history of Federal investments in support of irrigation, beginning with the Reclamation Act of 1902, and through prior natural flow claims pursuant to previous Federal Acts: the Homestead Act (1862), the Desert Land Act (1877), and the Carey Act (1894) (Getches, 1999; Slaughter, 2004). This study does not address questions of the history or policy of reclamation issues. It merely compares two situations that are similar in many but not all important ways.

The authors take advantage of the remarkable contrast offered by the existing regimes within the KIamath River Project in Oregon and California, and the development of the Snake River in Idaho. While the Klamath is a single Bureau of Reclamation (USBR, or Bureau) project, the Snake includes several USBR projects together with development under the Carey Act (1894) and other private development both prior and subsequent to USBR projects. USBR plays an important role in both areas, but market reallocation has progressed much further on the Snake than on the Klamath. The informative value lies in the differing property rights regimes on the two systems. Readers may wish to consider Fiege (1999) and Slaughter (2004), for more complete treatment of the Snake situation. The Klamath situation is described in legal detail in the August 31, 2005 ruling by Judge Allegra in Klamath Irrigation District et al. v. United States et al., (Ct. Claims, No. 01-591L), in Braunworth et al. (2002), and in the NRC report (NRC, 2004) resulting from the unhappy events of 2001.

The Klamath situation involved suspension of USBR irrigation water deliveries in response to environmental mandates under the Endangered Species Act (ESA) and associated findings. Irrigator frustration was nationally reported in provocative terms, stimulating attention to such conflicts (McHenry, 2003). As described below, losses stemmed from agency decision-making in a context of central administration. Economists would note that there was then considerable uncertainty about who held property rights (Benson, 1997), and that this uncertainty might itself have adversely impacted consideration of market reallocation. The Snake River history has not exhibited a similar inability to manage conflict, although many similar problems have been present.


Many objections to the prior appropriation doctrine are based on failure of water law to explicitly incorporate environmental values (Huffman, 2004). Streams can be totally dewatered without fully meeting the requirements of existing diversion rights (e.g., Trout Unlimited, 2002 and 2003; Snake River at Idaho Falls and below Milner). Supporting these complaints is the point that water in the Western U.S. is in a constitutional sense publicly owned (Pisani, 1996; Getches, 1999), and only usufructuary rights have been granted for irrigation or other beneficial use. To further consternation, community interests may not be recognized in water law proceedings, where only injury to other vested water rights falls within the water court's jurisdiction (Hobbs, 1997).

The continuing disconnection between water quantity and water quality makes sense, perhaps, only to those contemplating the technical struggle of how to merge them. How long this separation can be maintained is unclear, but reconciliation of the two without some accepted allocation mechanism is even less clear. For example, effluent limits may reflect mixing zones, dilution factors, or low flow estimates, but discharge permittees may not have the rights to maintain such flows or demand that others do so (Hobbs, 1997; City of Thornton v. Bijou Irrigating Co., 926 P. 2d 1, (CO, 1996)). Both Federal and State authorities have jurisdiction over permits, but not over flows. In practical terms, there are high stakes here for permittees as wells as states bearing the burden of regulatory administration.

Prior appropriation originally applied only to surface sources, partly because extensive pumping of underground water was not feasible until the 1940s. Efforts to integrate ground and surface water management have been complicated by technical difficulty and the substantial investment in groundwater uses that is now understood to adversely impact surface water uses. Consequences range from unhappy imposition of permitting requirements and regulation, to termination of pumping where surface supplies cannot be made whole, and even interstate litigation where failure to account for groundwater depletions has been held to affect Compact obligations (Kansas v. Colorado, 543 U.S. 86, 2004; Simpson v. Bijou Irrigation Co. et al. 69 P.3d 50, (CO), 2003). The collision of the old mining water allocation system, prior appropriation, with rapid urban and industrial growth in a semi-arid climate without massive ground water sources or riverine flows may be best exemplified by Colorado, which as a result may lead in the evolution of property- rights-based water law (Hobbs, 1997, 2002). Idaho has experienced a lower level of violent conflict, but has, for over a century, continually developed new property-rights-based allocation mechanisms in response to water shortage, industrial demand, and changed social preferences (Slaughter, 2004).

Full review of these and other outcomes-based objections to current water law is well beyond the scope of this article but these objections are a reason why the comparison presented here is important. The examination will show that the environment has been better served in the regime where certainty of interests has allowed transferability and reallocation

through evolving institutions rather than as the result of a more politicized process, where outcomes may be less predictable.


Additionally, climate change poses threats to the assumptions underlying many of the West's water systems, specifically the assumption that snow accumulation at high elevations will provide runoff during the hot summer months. In the Pacific Northwest in particular, substantial elevation-dependent declines in PNW snowpack have been documented, indicating that regional warming is already reducing water supply (Mote, 2003); a runoff advance of 15 days or more has already been documented (Idaho State Journal, 2005). Further, warming is expected to advance the period of peak runoff by 30 days and more over the next quarter to half century, reducing summer w\ater availability by 30-50% (CIG, 2005). A change of that magnitude, even if total precipitation were to rise, would require either changing the allocation of water between uses or finding additional storage on some of the Pacific Northwest's major rivers. The threat is perhaps most acute on the Snake River, which has over 150,000 water rights claims, is fully allocated, has storage for only 43% of annual runoff, and drains 44% of the Columbia Basin (Slaughter, 2004). Parallel threats have been noted for most of the West (Gleick et al., 2000; Ojima et al., 2002; Wagner, 2003).

Pressure for water transfers will increase over time. Even the best-case scenarios described by Barnett et al. (2004), special issue Climatic Change 62(1)) for modeling impacts of climate change, indicates that current management systems are seriously threatened. In a different integrated assessment team effort, Edmonds and Rosenberg's group report the counter-intuitive finding that under all the scenarios, whether higher or lower precipitation for the areas studied, irrigation water use declines, even with strong growth in U.S. agricultural yields and no constraints from fossil fuel for energy or feedstock agricultural inputs, and without competition for water (Edmonds and Rosenberg, 2005, p. 155).

As with discussion stimulated by other stresses and issues in water law, these discussions seldom address how existing property rights are to be recognized and used, instead merely stating concern with public use or common pool issues, and perhaps implying that water use may be re-directed at any time (e.g., NRC, 2001, p. 34; Bell, 1996). "In times of drought, political leaders do the best they can; however, these belated efforts usually point to the necessity of structural and legal arrangements instituted well in advance." (Hobbs, 2002, p. 53).

This cursory sketch of water issues and the increasing need for effective water institutions is a reminder of the context in which the comparison offered takes place. The passions and stakes are high. Although presented concretely, the intent of the following comparison is to argue the somewhat abstract point that given similar situations and similar stresses on the status quo, interests seem to have been better served where institutions are market-like than where institutions are political and/or administrative.


During the summer of 2001, USBR, in compliance with Federal court orders, suspended irrigation water delivery on the Klamath River in Oregon. The suspension was ordered to provide legally required flows for endangered fish stocks in the Klamath as well as flows to Indian tribes required by treaty. The Bureau's action ignited a political firestorm, involving irrigators, environmentalists, the Governor, and the state's Congressional delegation. Political pressure soon forced the Bureau to partially back off, restoring some flows and undertaking to purchase surface water and subsidize ground water to relieve some of the irrigators' losses. Gov. Kitzhaber placed much of the blame for the situation at the feet of Federal management agencies, and proposed, as a solution, to move river management from Federal agencies to a new entity responsible to citizens of the region. His proposal would shift responsibility, but retain planning, public consensus, and authoritative regulation - centralized decision-making - at the core of water management. Jurisdiction over environmental constraints under the Endangered Species Act (ESA) lies with NOAA Fisheries (formerly the National Marine Fisheries Services (NMFS)), and the US Fish and Wildlife Service (USFWS).

In Idaho during the same period, a threatened new Biological Opinion (BiOp, the approved scientific basis for management decisions under ESA), together with tribal claims on the middle Snake and surface/groundwater conflicts on the upper Snake, led to a major negotiated settlement, ratified by Congress, the Idaho Legislature, and the Nez Perce Tribe (IDWR, 2004b). The agreement provides for retiring irrigated lands, state and USBR purchase/ exchange of water rights, a new conservation reserve, economic development support for the Nez Perce nation, and other measures voluntarily arrived at, funded in part by water users whose rights might otherwise be in jeopardy and implemented through existing market mechanisms. A second major conflict is discussed below (see "Water Law - Sources of Dispute").

Why do the two river systems, with similar water uses, similar reclamation backgrounds, and similar claims, exhibit such different behavior in resolving conflicts from similar sources? Both Idaho and Oregon apply the prior appropriation doctrine to determine priority of water rights: Idaho constitutionally in 1890, Oregon statutorily in 1909. Both basins contain private natural flow rights and storage rights to water in Federal projects. Both have tribal claims to water, and are in adjudication. Both have had to contend with stresses emanating from the Clean Water Act, the Endangered Species Act, drought, and growth. Both have highly complex hydrology and are over-appropriated, especially when non-consumptive uses are included.

The two prior appropriation histories differ significantly, as do some of the physical features of the projects. Actual water allocation on the Klamath system has primarily been Bureau of Reclamation (USBR) responsibility, while Snake River irrigators have always been owners of their water and culture in a very real sense, with the State Engineer and his successor, the Idaho Department of Water Resources, functioning more as referee than as central authority. Additionally, in part because Idaho is drier than much of Oregon, drought has been a major factor almost from the beginning, forcing Idaho irrigators to seek water supply solutions far earlier than their Oregon counterparts. The Klamath was developed as a single integrated project, while the Snake grew over time, with private development, multiple USBR projects, and governance driven by over 150,000 water rights claims in the context of evolving prior appropriation.

Physical Comparisons

The Snake River rises in western Wyoming and flows across southern Idaho, crossing the state from east to west before flowing north along the IdahoOregon border and thence westward to the Columbia. This study is concerned with the area in southern Idaho that is extensively irrigated by the Snake River and its associated aquifer.

The Klamath River originates in Upper Klamath Lake in southwestern Oregon, fed. by rivers from mountains east of the Cascades, and generally south of Crater Lake. The basin is located in SW Oregon and in northern California. The Klamath Project consists of irrigated lands, wildlife refuges, reservoirs, pumping stations, and diversions, all under the administration of the Bureau of Reclamation. The overall basin contains 202,000 hectares of irrigable land, of which 97,000 are inside the Project and 81,000 receive Project water (Braunworth et al., 2002, pp. 35, 378).

Tables 1 and 2 show metrics of the Snake and Klamath systems. The Snake system is approximately 6.5 times as large as the Klamath in terms of reservoir storage and irrigates seven times the area of the Klamath basin as a whole and fourteen times the area of the Klamath Project.

Several differences emerge from these data. First, storage on the Snake contains only 43% of an average year's use, while storage on the Klamath totals 133% of annual irrigation. That fact, however, may be misleading: Clear Lake Reservoir was constructed in part to reduce water flows through downstream wildlife refuges, and not for irrigation storage. Because the overall Klamath system is small, it has extremely limited capacity to withstand multi-year droughts. Such droughts have occurred six times in the Project's history, the latest prior to 2000 being 1991-94. During the 1991-94 period, reduced deliveries were made to the two wildlife refuges (Braunworth et al., 2002).

Environmental policy changes exacerbate the vulnerability. Upper Klamath Lake varies from zero storage to more than 600,000 thousand m^sup 3^ over a vertical range of only 2.1 m. In 1994, the lake fell to 1,260.9 m elevation, only 23 cm above dead pool. The 2001 operating plan, required by the final 2001 BiOp, required a minimum elevation of 1,262.6 m on June 1, falling to 1,261.9 m on October 15 (Braunworth et al., 2002, Chapter 2), simultaneously with a requirement for Coho salmon of increased flow at Iron Gate Dam. With those requirements, the lake can provide almost no irrigation support in a critically dry year.

A second, and major, difference is that the Snake combines USBR projects with substantial private irrigation based on natural flow rights, developed before and independently of the Bureau. Most of this irrigation, while not subject to Bureau policy, remains vulnerable to the Bureau's actions because the Bureau controls all large storage on the river. The major natural flow exceptions are 19th century development on the upper Snake, and the Twin Falls project, a Carey Act project near Twin Falls, Idaho. Natural flow rights at the privately constructed MiIner Dam, built as part of the Twin Falls Project, exceed 340 m^sup 3^/s (IDWR, 2005a, "Findings," 42, 46, 48), completely de-watering the river for several miles each summer.

The presence of the Eastern Snake Plain Aquifer (ESPA) introduces a large conjunctive component that is not evident in Klamath management. Approximately the size of Lake Erie, the aquifer has annual recharge and discharge of approximately 7.5 MAF (USER, 1999, Chapter 2). It is recharged by surface irrigation as well as by rainfall, the river, and its tributaries. Pumping in many locales supplants surface water during dry years. Idaho law prohibits mining the aquifer; net drawdowns, excluding drought impacts, are relatively minor (IDWR, 2005a; USBR, 1999, "Findings," 3\, 4, 60, 61).

The combination of natural flow and storage diversion rights on the Snake contributes to a management complexity not present on the Klamath, and may explain some of the evident institutional innovation. As an example, the droughts of 1916 and 1919, when natural flow rights owners saw their headgates shut off while there was still flow in the channel from storage at Jackson Lake in Wyoming, gave rise to the Committee of Nine, an extra-legal governing body that has allocated water between natural flow and storage water users since 1919.


The Snake River

Irrigation on the Snake River began about 1850, when farmers in what is called the Upper Valley in eastern Idaho built temporary structures out into the river to divert water onto their land. Major development began with the 1894 Carey Act, which, by scaling projects up from the individual level to the incorporated irrigation district, led to private dam and canal construction, with flows and participation sufficient to ensure success. Later, under the 1902 Reclamation Act the USBR built large-scale storage dams on the river that eliminated most private storage risk and led to very large- scale irrigation.

Early projects featured private, natural flow diversions. Later, the Reclamation Act brought major expansion, but because of the prior private development did not result in the centralized structure known in the Klamath Basin. Groundwater began to be a factor after 1950, resulting in largescale groundwater use not related to Bureau control.

Beginning with droughts in the early 20th century, Snake irrigators and the State have been active institutional innovators. The first innovation of significance was a 1913 contract whereby an irrigation interest in what later became the Minidoka Project (in southern Idaho) paid to raise Jackson Lake dam (in Wyoming) by 5.2 m, and USBR contracted to provide water not just from Jackson Lake, but from any federal reservoir, including the one closest to the project. This provision later came to be of enormous value to the earliest natural flow irrigators, because it allowed joint management of the entire reach, including legal provision of water to irrigators upstream from the reservoir in which they owned storage (Gertsch, 1974, pp. 136-8). It also merged federal and private ownership interests, of importance in later decision dynamics.

Other innovations have included the Committee of Nine, created ad hoc in 1919 to arbitrate natural flow and storage rights on the upper and middle Snake (Fiege, 1999, 90-112), and since that time entrusted with management of the world's largest irrigation district; re-defining "beneficial use" to allow the clock to be suspended for any water assigned to a rental pool or water bank; providing for transfers from agricultural to industrial use; and creation of several species of water banks and rental pools. The rental pools and water banks have been used not only to move the point of diversion, but also to change the nature of use, primarily for hydro and fish. In 2005, these innovations, together with sophisticated modeling of the Snake hydrology that supports conjunctive management over the entire aquifer, enabled the State to move forward on resolution of major water conflicts whose consequences could be vastly greater than those on the Klamath.

The Klamath Project

The Klamath Project was authorized in 1905 by the Bureau of Reclamation, and opened to homesteaders in 1917. Most of the Project's institutional history has flowed from agency and congressional policy, including the rights of Indian and former- Indian lands (1975 filing, US vs. Adair, 2002 Adair III opinion: Braunworth et al., 2002, pp. 83-85); establishment of the wildlife refuges; the Klamath River Basin Compact (1957); ESA designations; US Fish and Wildlife Service (USFWS) BiOp on suckers (1992); and National Marine Fisheries Service (NMFS, now NOAA Fisheries) BiOp on coho salmon (1999) (Braunworth et al., 2002, Chapters 1, 3).

USBR administers all land in the project below Upper Klamath Lake with regard to water supply (Braunworth et al., 2002). Though individual water rights exist, and droughts occurred to foreshadow the 2001 crisis, there were evidently no shortages prior to 2001 sufficient to create an institutional crisis. Droughts in the 1990s resulted in loss of water for fish and wildlife rather than irrigators.

BiOps were issued in 1992 and 1999. In January 2001, on the basis of predictions for the lowest inflow on record into Upper Klamath Lake, USFS and NMFS issued new opinions that resulted in a higher minimum level in Upper Klamath Lake, and simultaneously a higher flow at Iron Gate Dam. Following the BiOp, USBR informed Project irrigators that no water from the Upper Lake would be available for either irrigation or the wildlife refuges during the 2001 irrigation season. In July, on the basis of higher than expected precipitation, USBR released over 49 million m^sup 3^ (40,000 acre-feet) for irrigation, and 32 million m^sup 3^ (26,000 acre-feet) for the refuges.


Prior Appropriation

Both states use prior appropriation as the basis for water allocation. Idaho adopted prior appropriation at statehood in its constitution in 1890 (Article XV, Section 3). Prior appropriation's inclusion in the Constitution may have been because mining was the state's first economic base, and miners had long memories of their California and Colorado experience (Personal communication with Hal N. Anderson, Administrator, Planning and Technical Services, Idaho Department of Water Resources, May 12, 2003). Because of private development prior to Reclamation projects, there is a rich body of case law supporting water use in Idaho. Also, because the basic law is in the constitution, the legislature has tended to address issues through definition of terms rather than change the basis of allocation. Groundwater was brought under State jurisdiction by statute in 1951 (Slaughter, 2004), after the development of efficient pumps in the 1940s enabled developers to make practical use of the Desert Lands Act of 1877 (Slaughter, 2004).

Oregon adopted prior appropriation by statute in 1909. Prior to that time the state had followed the riparian doctrine, which was well suited to conditions in the Cascades. Water was abundant in western Oregon, and there was little need to transport water from a source to a place of use; individuals looked to themselves or local courts for rights enforcement (OWRD, 2004, p. 6). All new appropriations have been subject to a permitting process since 1909, and adjudication is underway in the Klamath Basin for rights that pre-date 1909. The 1909 statue post-dates the 1905 acts that appropriated all water in the Klamath Basin to the United States for the Klamath Project. The Klamath Project is thus under Reclamation law, though the water rights are defined and held under state law (Allegra, 2005). The State assisted in acquisition and transfer of water rights to the Bureau in order to establish the Project, which still holds title.

Sources of Dispute

Idaho water disputes have primarily centered on irrigation use; for that reason, most water law and institutional innovations have been worked out between irrigators, irrigation districts, hydroelectric companies, and the state legislature, which for most of its history has been dominated by agricultural interests. Over 95% of diversions are for irrigation, and environmental pressures only began to develop in the 1970s. Appropriations for minimum flows may only be undertaken by the Idaho Water Resource Board (Title 42, Chapter 15, Idaho Code). The Board may not accept gifts of water rights for instream flows .

The institutions developed by irrigation and hydro interests have also served current issues well: the statewide water bank; storage rental pools; legal and technical support for transfers between users and uses; conjunctive management; aquifer recharge; and others. These developments all reduce the transactions costs involved in changing the use of water. The speed and expense of transactions are important: high costs block some transactions and limit the returns on others, costing society the benefit of many small, incremental changes.

A remaining unresolved major conflict has roots ranging from the Desert Land Act of 1877 to major efficiency improvements adopted by surface irrigators in the wake of the severe 1977 drought. Much of southern Idaho's irrigated land is above the Eastern Snake Plain Aquifer. Diversions in excess of consumption since the early 190Os caused the aquifer level, and discharge from the "Thousand Springs," to rise until the mid-1950s, when increased groundwater pumping, made possible by new technology, tapped into the aquifer. Then, in the wake of the 1977 drought, surface irrigators began switching from flood irrigation to sprinklers, reducing their diversion requirements, and their recharge, in the process. At the same time, the improved efficiencies increased their consumptive use, by evenly irrigating high ground that had previously been unproductive.

Both changes reduced aquifer recharge, and ultimately reduced spring outflows to the river. The first "calls" from senior users for enforcement of their rights came from trout farmers in the early 1990s (see "Conjunctive Management," below). The issue has been before irrigator working groups and the Legislature for several years. Lawsuits have been twice deferred, but are again before the courts. Resolution is difficult in part because the parties on whom the costs will fall - ground water pumpers, including municipalities - are only partially responsible for the problem. Ironically, the present issue results from efficiency increases in first use, which seems desirable until one considers use-dependent water rights rights that are met from return flows or recharge (Huffaker et al., 2000).

Prior appropriation law has \difficulty with this issue because it is not a simple matter of allocating available water between senior and junior users. The senior users all have surface rights (mostly pre-1920); the junior users, ground water rights (mostly post1950). In April 2005, the IDWR Director, in his role as referee, issued an order that would resolve much of the problem if and when accepted by the parties. Holding to the prior appropriation doctrine but changing Idaho practice, he effectively ruled that surface irrigators' diversion rights are limited to the diversions required to meet their consumptive use under their current practice, rather than the technology in use when the appropriation was made (IDWR, 2005c; see Neuman, 1998). When - and if - upheld by the courts, this formula will reduce the impact on junior groundwater rights holders without significantly harming senior surface rights, because diversion in excess of consumption cannot be sold. For those whose rights are curtailed, including municipal and industrial users, water for use during dry years will have to be obtained by purchase of existing senior rights.

Salmon, of course, are a major environmental issue on the Snake. The Bureau has released surplus water, when available, from its storage since 1995 to support a 527 million m3 flow requirement. Beginning in 2006, it will lease firm water from the State and farmers for that purpose under the 2005 Nez Perce agreement. These sales will dry up significant acreage in southern Idaho. Idaho Power Co. manages releases from its Hells Canyon complex to support fish flow, and the Nez Perce agreement contains flow guarantees with "time immemorial" rights (before 1860) (IDWR, 2004b).

Because Idaho has a small population, conflicts between agricultural and municipal uses are only now becoming evident. While domestic uses have a constitutional preference, there is no preference for lawn watering or industrial use within cities. In 1996, the legislature provided that municipalities could acquire water rights for a reasonable future period, defined as up to 50 years, instead of the normal five years plus one five-year extension, the allowable period of non-use before loss of the right. The first case invoking a 50-year planning horizon is now before the Department (IDWR, 2002b).

Most Idaho cities have historically derived their water from groundwater pumping, and have not been concerned about their water rights, since their uses have been small in comparison with both the resource and agricultural use. With the advent of meaningful conjunctive management, however, many cities with wells drilled since about 1949 now have reason to be concerned.

Oregon water bank program designs suggest that the primary motivation for innovation has been the protection of environmental uses of water (Clifford et al., 2004). The institutions that support water transfers and trading - the Oregon Water Trust, the Walla Walla Lease Bank, the Deschutes Water Exchange Annual Leasing Program and the Deschutes Groundwater Mitigation Bank - all have stream flow and habitat protection as their primary objective. Even the Klamath Basin programs, initiated by the Bureau of Reclamation in the wake of the 2001 curtailment, would likely not exist but for the over-riding need to protect water levels in Upper Klamath Lake and stream flow below Iron Gate Dam. Jaeger, however, suggests that water trading has been active in Oregon since the 1980s, with "more than 250 applications per year for out-of-stream uses and five applications for transfers to in-stream uses ..." (Jaeger, 2002, p. 382). Half of these transfers are between agricultural uses, and half move water to other uses.

The Klamath situation stands in stark contrast to both the Snake and Oregon experience outside the Klamath Basin. There appears to be continuing resistance to water markets in the Klamath region (Jaeger, 2002), and recent judicial decisions have made clear that the Klamath is largely governed by Reclamation contracts, with the Bureau in the role of a water supplier under contract, and subject to other Federal mandates. The Allegra decision (Allegra, 2005) makes clear that individual districts and irrigators on the Klamath have only limited claims to water, because their rights are claims for delivery, under certain conditions, of water acquired by the Bureau under water rights it holds.


Klamath rights for claims prior to 1909 remain in adjudication. Those rights include most of the claims for sources above Upper Klamath Lake. As of this writing approximately 90% of 5,663 contests, and 76% of 730 claims have been resolved (http:// www.wrd.state.or.us/OWRD/ADJ/index.shtml). The Snake Basin is also in adjudication, with 87% of 145,700 claims, 50,000 of them Federal, either decreed or submitted for decree, in a process that began in 1987 (IDWR, 2003, 2005d).

Marketing on the Klamath may be inhibited by the ongoing adjudication, because presumably most of the claims in adjudication are those above Upper Klamath Reservoir, and not in the Project. The Snake adjudication, however, does not appear to have inhibited transfers or banking. A more likely explanation is the centralized allocation mechanism operating on the Klamath, in which the only marketing arrangement is the annual bid process of the Bureau, and that only since 2001 (Braunworth et al., 2002; statements made by John W. Keyes, III, Commissioner of the Bureau of Reclamation, and Mr. Dan Keppen, former Executive Director, Klamath Water Users Association, Boise, Idaho, April 19, 2005).

Changes in Use

Water rights may be separated from the land and moved to other agricultural use and to different uses in both states. In Idaho, interest has grown since the Snake River became fully appropriated in the 1970s, a moratorium was placed on new diversions in the 1980s, and a prohibition on new consumptive appropriation from the ESPA in 1992. Permits for rights transfers in most years after 1992, when the prohibition went into effect, are approximately double the number filed in previous years.

Institutional support for temporary transfers takes two forms. First, changes in prior appropriation definitions were made to provide for water banking as a beneficial use. This change allows a rights holder to bank water for an indefinite period of time without losing the right. second, legal support for a water bank (statewide, primarily natural flow) and rental pools (stored water, in specific watersheds) was enacted and regulations promulgated by the Idaho Water Resource Board in the late 1970s. Using the rental pools and the water bank, water has been increasingly moved between users and uses over the past decade.

Permanent transfers are now common in both states, other than on the Klamath. In Idaho, only the consumptive use can be transferred, because water diverted but not consumed - used by plants or evaporated - returns to the system through runoff or recharge.

Injury to other water rights holders is handled somewhat differently in the two states. In Oregon, transfers that cause third party injury are prohibited (OWRD, 2004), though OWRD has some authorization to attach conditions to ameliorate the injuries. Hydrologie studies can be performed in specific instances, but pre- existing models for determination of mitigation requirements do not exist, due to their cost (Personal interview, Bernadette Williams, Oregon Water Resources Department, November 9, 2005.). In Idaho, the IDWR toolkit includes a procedure for determining the extent of potential injury and any required mitigation (Meyer, 2002; IDWR, 2002a). Backing up that policy process is a hydrologic modeling system developed in conjunction with the Idaho Water Resources Research Institute (IWRRI), of the University of Idaho. A revision of December 2003 makes possible the calculation of 100-year mitigation requirements for transfers from any of 10,447 active grid cells in the ESPA to any other. The model calculates the resulting increase or decrease in response function - the gain to the river - for five discharge reaches on the Snake River and six spring discharge reaches (IDWR, 2002a; IWRRI, 2003, 2003a). This capacity enables the parties to efficiently identify the transactions costs for any proposed transfer, resulting in transfers taking place that would not otherwise occur.

Impacts on third-parties other than water rights holders are a different set of issues in discussion West-wide. The widely asserted lack of adequate representation for these interests (such as environmental, or socio-economic interests related to agricultural use of water) is at the heart of much of the complaint noted above as "outcomes-based objections" to the prior appropriation system.

Recharge is also becoming more common, frequently as mitigation for water transfers. Water may now be stored underground (aquifer recharge) in both states, a beneficial use, to change the timing of delivery within or between water years (IDWR, 1999; OWRD, 2005).

Rental pools, a mechanism through which privately owned storage in Federal reservoirs is rented during an irrigation season to other irrigators, for hydropower, or flow augmentation, have come to play a major role in moving water between Idaho uses and users. Most pools are under the jurisdiction of Water District #1, a mammoth district that incorporates most Snake River irrigation and several Federal projects. The district was formed in the 1920s by combination of several existing districts, and is governed by the "Committee of Nine," an extra-legal institution created to allocate water between natural flow and storage rights owners, and to lobby Congress for a storage dam at American Falls (Gertsch, 1974; Fiege, 1999).

In 2003, Idaho District #1 formed a "Global Rental Pool," which automatically includes all unused stored water, thus increasing the percentage of stored water available during drought. In that year, the t\hird year of the driest period on record on the Snake, the global pool succeeded in preventing any delivery reductions, even though water consumption was at record levels (Annual Meeting, Water District #01, Idaho Falls, Idaho, May 6, 2004). Further, there were no crop losses in 2004, another drought year. A study by the Washington Department of Ecology indicates that Idaho water markets are the oldest and most developed of any western state (Clifford et al., 2004).


Blomquist, et al. define conjunctive management as the active management of surface and groundwater sources to maximize water availability, partly through use of groundwater during times of drought (Blomquist et al., 2004). Conjunctive management here is defined as the management of water rights for both surface and groundwater within the same body of law and regulation (IDA, 2005), not as management for maximum availability. There are two reasons for this approach. First, as Glennon points out, many states do not manage groundwater at all; in some, anyone can just stick a straw in the ground and pump at will. In others, e.g., California, surface and groundwater sources are managed separately, making rights enforcement and water marketing difficult or sometimes irrational where surface water flows have been sold and groundwater substituted regardless of hydrologic reality (Dixon et al, 1993; Glennon, 2002; Slater, 2005). This is an important failure to specify property rights.

Second, management for maximum water availability may lead to expansion of use. By reducing drought impacts, pressures to constrain use are relieved, resulting in higher usage growth and increased stress during the next drought (Slaughter, 2004). Given climate change potential, there is no way to know whether the effects of a multi-year drought are transitory or the result of a changing climate. Attempts to maximize use during the short term could well exacerbate long-term stress.

Conjunctive management has developed in Idaho since the 1993 call by surface users in the Thousand Springs area of the Snake, where the Eastern Snake Plain Aquifer discharges through springs in a bluff above the river. When the call was issued, the requisite tools for conjunctive management did not exist, but the courts determined that Idaho law required it anyway (Raines, 1996). Tools and policy developed in the past few years provide the basis for current orders conjunctively managing the resource (Idaho Department of Water Resources (IDWR), 2005a).

While it is generally understood that groundwater pumping will reduce return flows to surface streams, Oregon law and practice appear to allow replacement of surface flows with new groundwater sources, in some instances subsidizing groundwater pumping to increase in-stream flow. This can have the effect of enlarging the water right, as in this example from the Oregon Water Trust:

"...three ... water right holders sold their ... ditch rights to OWT ... in exchange for $1,000 to $1,500 an acre [$2,471 - $3,707 per hectare]. One of the landowners has converted to a groundwater source, and OWT helped to facilitate this process. The application to transfer these water rights to an in-stream right has been approved by the Oregon Water Resources Department. Deschutes County, the Deschutes Resources Conservancy and OWT funded the purchase of these rights." [emphasis added] (http://www.owt.org)

The critical benefit of conjunctive management is its ability to improve the certainty of water rights, which in turn supports economic reallocation. The OWT example illustrates insufficient integration, which by allowing new rights out of priority undermines the conditions required for markets. Failure to adequately specify property rights is always a problem; here, it undermines surface water rights, with predictably unhappy results. In another example, Colorado paid a high price for delaying the integration of ground and surface water management in the Kansas v. Colorado case (543 U.S. 86, 2004), and in the South Platte River Basin (Simpson v. Bijou Irrigation Co., 69 P. 3d 50 (CO 2003)).

Oregon practices conjunctive management of groundwater sources where a clear hydrologie connection exists, generally within one mile of a surface source (OWRD, Aquabook, 2004; Williams interview). The practice is to require full mitigation, or replacement of water pumped within the zone, in a hydraulically connected region. Water pumped further from the source, where the connection is less definite and/or the effect occurs over a period of years, is considered groundwater and is not controlled without specific hydrologic studies (Williams interview).


In 2001, the Bureau adopted a revised management plan, combining requirements for minimum flow at Iron Gate Dam, below the Project, as determined by the National Marine Fisheries Service (NMFS) for coho salmon; and water depths in Upper Klamath Lake (UKL), agreeable with the US Fish and Wildlife Service (USFWS), for shortnose suckers. The agreed plan required minimum flows at Iron Gate Dam of approximately 48.1 m^sup 3^/s (1700 cfs), in contrast to the USBR's proposed minimum flow in a critically dry year of 11.3 m^sup 3^/s (398 cfs) in August, and approximately 14.2 m^sup 3^/s (500 cfs) the remainder of the summer. Because flows had to be met while the lake level was maintained, the Bureau curtailed water from a large portion of the Project during the 2001 irrigation season (Braunworth et al., 2002, Chapter 2).

The economic loss resulting from that decision included an estimated US$74 million gross loss to farmers in the Project, not including secondary losses to communities in the area. That estimate is net of groundwater substitution, estimated to have been worth US$13 million. Because the basin has the potential for substitution of Upper Klamath Lake (UKL) water with water from upstream sources, the presence of a water market would have enabled farmers with upstream rights to sell or lease water to Project farmers (Jaeger, 2002, pp. 374-77).

Figure 1 illustrates the unrealized market potential. The USBR controls flows out of UKL, for use in the Project and wildlife refuges below the lake. The management plan codified in a BiOp impacts only USBR decisions. Thus, the decision structure in place provides no avenue for moving resources not under USBR control from lower value land above the lake to higher value Project land.

Table 3 shows the values that could be accessed by a market. Class IV and V land (low productivity) constitutes some 87% of the acreage above UKL and 70% of all non-project lands, with an average marginal return on water of about US$9.73 per thousand m^sup 3^ (US$12 per acre foot (AF)). In contrast, land inside the Project, subject to USBR regulation, is 71% Class II and III, and returns an average of about US$40.54 per thousand m^sup 3^ (US$50 per acre- foot). A market structure that would allow rights holders above the lake to sell water for use below the lake would benefit all parties. Jaeger estimates that a market would have reduced the gross primary impact from US$74 million to US$6 million (Jaeger, 2002).

The Bureau conducted a bid auction for water to meet part of the BiOp requirements in 2002. Through the bid process, USBR obtained water from 6,687 Project hectares at an average of US$412 per hectare or US$67.29 per thousand m^sup 3^ (US$167 per acre or US$83 per acre-foot), well above the marginal return on water (Table 3). The Bureau also paid for groundwater substitution at an average US$26.75 per thousand m^sup 3^, for 82,643 thousand m^sup 3^ (67,000 AF) of groundwater. The USER used market mechanisms to obtain water, but paid substantially more than might be expected from a market where farmers were both buyers and sellers. Project farmers would likely not have paid more for water than they expected to realize from its use.

Four years later, USBR continues to purchase water directly, based on an advance assessment of requirements for the current year. There is no true market in place (Statement by John W. Keyes, III, Commissioner of the Bureau of Reclamation, Boise, Idaho, April 19, 2005).

In contrast, Snake basin water has rented for prices ranging from US$2.19 to US$40.54 per thousand m^sup 3^ during the 2001-2005 period (Table 4). A state purchase from an irrigation project for in- stream use under the Nez Perce agreement is priced at US$324.29 per thousand m^sup 3^, about US$18.24 annual value (IDWR, 2005b). There is anecdotal evidence that additional payments have been made "under the table" for water rentals, but no substantiated records of those transactions exist. The prices quoted for District One are administrative costs set by the Committee of Nine, so sales reported at that level likely understate the value of the full transaction. In Oregon, water sales during the 1990s averaged US$291.86 per thousand m^sup 3^, or US$17.84 annual value at a six percent interest rate (Jaeger, 2002, p. 382).


Two features stand out from the comparison. First, property rights relative to water diversions are somewhat stronger on the Snake than on the Klamath. Second, the Idaho system is characterized by a very high level of ownership and decision-making participation on the part of water users, the owners of the usufructuary rights in question. The Klamath system has been characterized by centrally administered allocation (Allegra, 2005). Both systems feature USBR projects dating from the early 1900s; both had irrigated agriculture prior to that date. On the Klamath the USBR has been central to development and allocation from the beginning, whereas in Idaho the Bureau is but one of the players, both as owner of unallocated storage and as a buyer of water for fish.

It is, of course, possible to push this too far. The different outcomes may be merely an historical accident; it may be that if pushed to the same extent by ESA, t\he Idaho system would also break, and seek purely political solutions. As of this writing, the ESPA dispute between surface and groundwater users has not been resolved, but to date the system has not broken. The system has been sufficiently robust to create settlements in the face of crisis: current ESA requirements and tribal claims are the subject of a large scale negotiated settlement recently approved by the State Legislature, Congress, and other parties, and the Legislature remains involved in the ESPA dispute (IDWR, 2004a,b; "Sources of Dispute," above).

This suggests something other than the superior political genius of Idahoans. On the Snake, water allocation was in the hands of the users from the beginning, and prior appropriation pre-dates the Constitution. When large scale Federal storage became part of the system, the allocation of stored water had to be integrated with existing natural flow rights; conflicts, together with occasional drought and demand growth, gave rise to a series of institutional responses by, and on behalf of, the water users. There has never been a central authority with the right to actually allocate water, as opposed to policing the system. Under environmental pressure (NEPA, ESA, etc), and demands from Indian nations for treaty rights, settlements have been negotiated and a large-scale adjudication has taken place. While political institutions have been involved, they have done so as parties or interested third parties, not as authoritative allocators.

From a transactions cost viewpoint, the Snake experience can be considered a case study in post-hoc ordering, with the parties to a contract changing contract terms when circumstances change, by non- judicial means (Williamson, 1985; p. 20-29). This is possible on the Snake, because the rights distribution allows owners to negotiate directly with each other, the Legislature, IDWR, and Federal agencies (Slaughter, 2004). The public role has been to reduce transactions costs by enforcing the rules and efficiently providing information (on aquifer flows) not otherwise available. These outcomes are more difficult on the Klamath, where decision authority resides in the Bureau of Reclamation, bureaucratically subject to other Federal mandates (e.g., ESA. Allegra, 2005), and full conjunctive management is cost-prohibitive. To affect the decision process, water users have had to use political tools, reaching to Congress in the first instance (Kitzhaber, 2001).

Two related hypotheses can be offered for further research. First, that water markets are a beneficial, and perhaps the most efficient, means available for moving water between users and between one major use and another; and second, that such markets are most likely to develop in systems that exhibit robust ownership on the part of water users, with the public role focused on reducing transactions costs.

While there is considerable literature on water markets and on the shortcomings of prior appropriation, there has been little focus in the water literature on the underlying institutional structure - the distribution of bundles of legal rights (Coase, 1960; North, 1990) - in which markets exist. Recent research (e.g., Clifford et al., 2004) focuses on the design of markets or water banks, or on markets as a tool for water resources management. But as noted above, many discussions appear to assume that (1) movement to environmental uses is an unqualified good, and (2) ownership of water formally lies with states (or the public), so that re- allocation is a matter of policy and not of law. The former assumption pre-supposes social policy and the latter, while nominally accurate, ignores the vast body of case law supporting prior appropriation. Future research might more profitably focus on water markets as institutional structures and the legal context in which they can be most effective.


Don Reading, Joel Hamilton, Amy Snover, Edward Miles, and Chris Meyer all provided helpful suggestions for an earlier draft of this manuscript. Charles Howe also provided useful insights. This is JISAO contribution number 1046; this publication is funded by the Joint Institute for the Study of the Atmosphere and Ocean (JISAO) under NOAA Cooperative Agreement No. NA17RJ1232. Additional support was provided through National Oceanic and Atmospheric Administration Office of Global Programs, Human Dimensions, Social and Economic Impacts.

This publication is funded by the Joint Institute for the Study of the Atmosphere and Ocean (JISAO) under NOAA Cooperative Agreement No. NA17RJ1232, Contribution #1046. Additional support was provided through National Oceanic and Atmospheric Administration Office of Global Programs, Human Dimensions, Social and Economic Impacts.

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1 Paper No. J05053 of the Journal of the American Water Resources Association (JAWRA). Received April 26, 2005; accepted April 19, 2006. 2007 American Water Resources Association.


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Richard A. Slaughter and John D. Wiener2

2 Respectively, Consulting Economist, Climate Impacts Group, University of Washington; and