Conservation Opportunities for Securing In-Stream Flows in the Platte River Basin: A Case Study Drawing on Casper, Wyoming’s MunicipalWater Strategy

PROFILEConservation Opportunities for Securing In-StreamFlows in the Platte River Basin: A Case StudyDrawing on Casper, Wyoming’s MunicipalWater Strategy

AARON WALLER

DONALD MCLEOD*

DAVID TAYLOR

Department of Agricultural and Applied EconomicsUniversity of WyomingDepartment 33541000 East University AvenueLaramie, Wyoming 82071, USA

ABSTRACT / The Platte River Basin consists of tributarieslargely in Wyoming, Colorado and Western Nebraska, withthe main stem in Central Nebraska. Critical wildlife habitat onthe main stem requires additional in-stream flows. The wa-tershed is one hosting multiple resources, a variety of users,

and managed by an array of state and federal agencies.This study proposes a basis for securing in-stream flows forthe Platte River. Candidate water supply mechanisms aresuggested based on the way in which Casper, Wyomingsecured water for its municipal needs. Canal lining is com-pared to a dam project, increasing reservoir storage, andpurchasing water rights, with consideration also made forwater pricing to reduce municipal use. Comparisons arebased on economic efficiency, potential water conservation,and property rights criteria. Canal lining, coupled with de-mand management, is shown to conserve water best, giventhe set of efficiency and cost criteria for in-stream flowenhancement. The approach offers an opportunity to orga-nize the water supply choice context in a transboundarywatershed when quantitative information is limited.

Rocky Mountain cities, such as Denver, Colorado orCasper, Wyoming, are experiencing a high rate of in-migration and subsequent increases in municipal waterdemand. Region extractive industries meanwhile seekto maintain their traditional water use levels. Increasedflows, furthermore, are also needed to meet criticalwildlife habitat needs on the main stem of the PlatteRiver in Nebraska. Successive years of below-averageprecipitation in the region currently have exacerbatedthis situation.

Research is offered about municipal water supplyalternatives for Casper, Wyoming along the NorthPlatte River (for additional study details, see Waller1996). Casper, Wyoming’s population has grownbetween 1% and 2% annually. Water rights purchases,improvements to an existing reservoir, construction ofa new dam, and lining irrigation canals (conveyanceloss reduction or CLR) were considered to meet

projected municipal needs. These approaches couldoffer ways to address in-stream shortfalls down river onthe main-stem Platte River. Figure 1 (Kircher andKarlinger 1983) provides a map of the three-state re-gional watershed.

Multiperiod cost–benefit analysis is provided forcomparing the water supply alternatives. Additionalcriteria are developed relevant to the supply choiceand are similarly applicable to enhancing municipal orin-stream water supplies.

The population of the greater Denver metropolitanarea grew by over 10% from 1990 to 1997 (US Census1998). Increased growth translates into more waterconsumption. The South Platte River supplies a por-tion of these water demands. Determining the pricesensitivity of water demand and increasing the cost ofwater consumption might reduce consumption (con-serve water). This might provide some of the neededacre-feet for Platte River in-stream uses. Demanddeterrence along with supply enhancement offer a two-pronged strategy for downstream needs.

Cost per unit of water values will be used to comparesupply mechanisms in order to meet in-stream flowneeds. Price-induced demand reduction will also beconsidered to meet in-stream requirements. A fuller

KEY WORDS: Water conservation; Law; Management; Policy;Resource planning; In-stream flow

Published online December 13, 2004

*Author to whom correspondence should be addressed; email:

[email protected]

Environmental Management Vol. 34, No. 5, pp. 620–633 ª 2004 Springer Science+Business Media, Inc.

DOI: 10.1007/s00267-003-0154-7

accounting of costs, as well as the institutional andlegal framework, needs to be considered. Additionalcosts here might appear as market-price distortionsarising from property rights, negative externality, andtransactions costs considerations. Varying supply-enhancement opportunities that are relevant to avariety of water demands will be drawn from the case ofCasper, Wyoming’s municipal water strategies.

Background: In-Stream Needs

The Platte River Basin in the states of Wyoming,Colorado, and Nebraska is experiencing increasingdemand for in-stream water to meet habitat needs.Nebraska has critical habitat for several endangeredand threatened species, including the whooping crane,piping plover, least tern and palid sturgeon. The hab-itat is on the Platte River in central Nebraska, which isentirely reliant on flows originating upstream in allthree states.

The presence of endangered species, on the mainstem Platte River, has important implications for

basinwide water users. ‘‘…The ESA (Endangered SpeciesAct) forbids all federal actions that may jeopardize alisted species or result in adverse modification of hab-itat, USCA 1536 (a). Courts have interpreted this pro-hibition broadly …’’ (Laitos and Tomain 1992, pp.133–135). Disputes over protected wildlife have movedto the courtroom, affecting federal agency decisions.This has resulted in time-consuming and costly litiga-tion for federal and state interests alike. Many currentPlatte River water uses will be affected by critical habitatdesignation via the actions of the following US agen-cies: US Bureau of Reclamation (USBR) in theirmanagement of the Platte River reservoir regulatedflows; Federal Energy Regulatory Commission by way ofdam re-licensing; US Fish and Wildlife Service (USFand WS) with special-use permits; and US Army Corpsof Engineers in issuing 404 permits (Federal CleanWater Act compliance considerations).

Several states also have management responsibili-ties with respect to the Platte River watershed. Asummary of the tasks is provided in Nebraska v. Wyo-ming (132 L. Ed. 2d 1) (Stratecon Inc. 1995). This

Figure 1. General location of Platte River watershed.

Conservation Opportunities for Securing In-Stream Flows 621

document includes 11 separate water managementissues as well as those pertaining to endangeredspecies. These two states, as well as Colorado and theUS Department of the Interior (DOI), entered into acooperative agreement concerning endangered spe-cies habitats along the main-stem Platte River. Thecooperative efforts were initiated to deter courtmandates and regulatory outcomes due to imple-mentation of the ESA.

This outcome is the latest in a series of water useand rights issues among the three states as well as thefederal government concerning management of thePlatte River watershed. The typical joint managementof a transboundary watershed in the United States is byinterstate compact, as authorized by the compactpowers of states in the US Constitution, Art. I, §10, cl.3.

The waters of the Platte River are managed andhistorically allocated under the context of a priorappropriation system of rights for individual users. Thisapproach consists of water being diverted and used forsome historically identifiable beneficial use. The pri-ority of use is then established by the seniority in timeof the water right. When supplies are scarce, junior ornewer rights may not be filled.

Questions arise as to the right of in-stream flow in aprior appropriation system. Three means are generallyused to address in-stream flows at the state level. Spe-cific legislation might be used to permit a state agencyto designate in-stream flows. Specific streams can beremoved from prior appropriation. Finally, states canrely on public trust doctrine to maintain in-streamflows so as to permit transportation, commerce, andangling. Interested readers should look at Laitos andTomain (1992, pp. 356–397) for a useful overview ofUS water law.

The cooperative agreement indicates various meth-ods to increase flows in the Central Platte regionaccording to the recommendations as set out by theUSF and WS (Bowman 1994). The three states havecommitted to a combination of storage options toprovide 70,000 acre-ft annually of the 130,000–150,000acre-ft of desired flow augmentation in the criticalhabitat area. The remaining 60,000 plus acre-feet ofthe minimum desired augmentation will be accom-plished by ‘‘water conservation/supply’’ projects dur-ing the following 10–13 years of the agreement (USDepartment of Interior 1997, Attachment III, pp. 9–10). The challenges confronting the three states miti-gating the above in-stream flow shortfall are compara-ble to those associated with the municipal needs ofCasper, Wyoming. It, too, considered a set of optionsrequired to fulfill anticipated shortfalls.

Candidate Water Supply EnhancementAlternatives

Casper examined a range of water supply alterna-tives, which might also be candidates for the three statewildlife mitigation efforts. It is the contention here thatthese alternatives are relevant options for enhancingin-stream flows as dictated by the aforementionedCooperative Agreement.

Conveyance Loss Reduction

Conveyance loss reduction (CLR) is one form of anegotiated adjustment. Negotiated adjustments areagreements under which parties contract to takeactions that result in increased access to water for thebuyer. An adjustment in one pattern of water usereleases water to the financier’s chosen application.Conservation improvements to existing irrigationfacilities (CLR) financed by a water buyer (partiesconcerned with in-stream flow) are an example. Thisallows agricultural water users to maintain or improveproduction and revenue levels due to increased deliv-ery efficiencies while providing some water for thebuyer. The Kendrick Project on the North Platte in-volved payment from the city of Casper to the Casper–Alcova Irrigation District (CAID) to line various por-tions of irrigation canals. A variety of asphalt andconcrete mixes were employed depending on theparticular reach of the canal. See Figure 2 (Waller1996) for the North Platter River and canal location.

A New Water Reservoir

The Deer Creek Project would be constructed on atributary to the North Platte and provide municipalwater for Casper, Wyoming and nearby municipalities.The Deer Creek project might adversely impact criticalwildlife habitat and irrigators downstream in Nebraska.Nebraska has responded with litigation contendingthat the reservoir, although permitted, was in violationof the 1945 North Platte River Decree. See WyomingWater Development Commission (1998) for moreinformation.

Reservoir Storage Improvement

The Pathfinder Dam is an existing USBR structure.The project will increase the height of the reservoir by2.37 ft. This will be accomplished through the use of aninflatable bladder that will form a barrier at the damspillway. Additional reservoir storage will mitigate 90years of sedimentation. The perpetual yields offeredhere are liberal in that no additional sedimentation isassumed. The DOI, the USBR, affected municipal

622 A. Waller and others

water users, and the Wyoming State Legislature mustreview and approve the project. National Environ-mental Policy Act (NEPA) and Section 404 clearancesmust be secured for the project. Institutional supportmust be secured in a multistate and federal context toprovide storage for Nebraska river flow maintenance.

Water Purchases

Industrial water rights surrounding Casper are pres-ently unused. These rights are seen as a high-probabilitysource of water by the municipality. The purchase ofthese water rights would yield water perpetually.

Criteria for Water Supply Enhancement

Discounted market costs per project alone do notcapture important considerations for choosing a strat-egy for conserving water and enhancing water supplies

for river maintenance. Means for improving technicaland allocative efficiency as well as minimizing existingor introduced negative externalities and project trans-action costs are provided in the following subsections.Property rights considerations also are pertinent to thewater supply choice decision. These concerns must beaddressed in the context of what actually constituteswater savings.

Increasing Technical Efficiency

Technical efficiency can be alternately defined asleast amount of waste per unit of water applied orgreatest amount of use per unit supplied. Any supplymechanism considered must increase the amount ofwater available for intended uses and in a way thatminimizes loss of water from the basin.

Reservoir creation and improvement stores waterfor a variety of uses. Problems exist with evaporation of

Figure 2. Map of the Casper, Wyoming Canal Lining Project and the north Platte River area.


stored supplies and sedimentation (reduction) ofcapacity over time. These supply options do permitrelease of water to downstream uses when needed,given the seniority of rights. Purchase of water mightnot yield an amount equaling the purchased amountdue to conveyance losses. The availability and amountof water for sale could be limiting factors.

A consequence of conveyance inefficiency is thatlandowners farther from the point of diversion usewater at a higher cost than those by the river. Themarginal cost differential between head and tail endusers is reduced as main irrigation canals are mademore efficient: rapid flow of delivery due to less sedi-ment load, less evaporation, less seepage, and lesstranspiration when free of phreatophytes. CLR makesdistant deliveries more efficient and less costly. Theprimary effect of CLR is that less water is necessary todeliver the water right holder’s allotment in the pre-scribed amount in a timely fashion.

The US Geological Survey estimates that Wyoming’sagricultural water users annually lose 2.4 million acre-ftof water that was diverted for beneficial use (Solley andothers 1993). Water ‘‘lost’’ becomes quite diffuse. Itmight evaporate from the canal. It might be taken upby undesirable canal side vegetation, known as phre-atophytic consumption or consumptive waste (seeRobinson 1970; McDonald and Hughes 1968). It mightseep out of the unlined canal and be deposited in anaquifer (Wachyan and Rushton 1987; Yussef and others1994). All are means by which water is potentiallyunavailable for surface use or in-stream flow. Theabove might not be considered as consumptive uses,yet they can be construed as potential leakages fromthe river basin. See Figure 3 (Interagency Task Force1979) for a variety of means by which water might leavea watershed.

It could be argued that inefficient canals do con-tribute to river flow when some portion of seepagewater returns downstream (stays in the basin) from adiversion point. There might be significant value in notdiverting flows in certain reaches of a basin when theintent is to augment downstream flows. When water isleft in the river, flows are more measurable, less diffuse,and less prone to be become unavailable due to otherprocesses. Fragmented flows can return to the basin,but the quantities and location of these return flowsexacerbate local in-stream flow and/or water deliverydifficulties, particularly under drought conditions.

The Kendrick CLR project reduced seepage on 17miles of targeted main canal and laterals in a networkof over 200 miles. The entire irrigation district had aconveyance efficiency of 66% with a postproject effi-ciency of 74% (Davis 1996). Finding the least efficient

stretches and lining less than 9% of the system led to8% overall efficiency gains. A variety of materials wereused and rates of water conserve cost-effectivenessexperienced during this project. The main canal liningwas a more efficient use of funds (see Table 3). This isdue to higher cross-sectional areas, water flows, and,therefore, higher seepage rates on these sections.Construction is limited to when the canals are dry,during winter months. Lining main canals in thenonirrigation season yields more total water savings perconstruction season.

Conveyance loss reduction reduced both the seep-age of water on delivery canals and the amount of flow(carriage water) required to move water through anentire irrigation district. The needed diversions(amount) of water from the Platte River were reduced.Less water diverted means more becomes available forriver flow maintenance. CLR projects could be con-ducted elsewhere in the basin, notably on the SouthPlatte River in Colorado.

Secondary benefits are generated due to the use ofsmaller pumps, less electricity, and greater use ofgravity flow. Farmers experience a higher value ofmarginal product from the same water right, for agiven marginal factor cost, as a result of the improveddelivery (Davis 1996). Table 1, second column, pro-vides a summary of technical efficiency issues for thefour water supply alternatives.

Increasing Allocative Efficiency

Allocative efficiency concerns the distribution of aresource across competing demands to its most valueduse. If a good or service contributes to some use valuedmore than an alternative use to a user, then the initialuse is a more efficient allocation. Alternately, the usewith the highest opportunity cost in comparison is themost efficient allocation.

Jacobs and Taylor (1989) indicated that state-fun-ded water projects generate inexpensive water. Thewater secured ‘‘...promotes an inefficient water-usingpolicy...’’ (p. 261). The policy has high social costsbecause nonbeneficiaries (state citizens) finance thesubsidies, which allow a select group of water users toreceive low-cost supplies. Both the Deer Creek Damand the Pathfinder expansion projects are made pos-sible by appropriations by the Wyoming State Legisla-ture. Beneficiaries pay far less than actual water supplycosts and are enjoying a reduced cost (partially free oreasy) ride. The opportunity costs of project expendi-tures and of subsidies, values of alternative uses offunds or resources, are important considerations.

Water Rights Purchases to supply new demands arebased on moving water out of a low-valued agricultural


use to one of higher marginal product. Sellers have anincentive to part with their property rights but com-munities might suffer because traditional water usepatterns change. Potentially, a loss of agricultural pro-ductive capacity occurs, reducing local agriculturalviability. Consequently, open space and rural quality oflife are at risk. Colorado is currently facing issuesconcerning the water sales and the dewatering ofagricultural land.

Inefficient allocation of water would arise if a givenacre-foot of water was not put to its most valued andbeneficial use because of a subsidized price. Themarginal benefit of water in irrigation would be lessthan the marginal benefit of water in other uses.Inefficient (underpriced) allocations of water at thefarm level give rise to undercapitalized water utiliza-tion. Using public water supplies without a permit(free-riding) would be more prevalent for shallow

wells and ephemeral stream users due to seepagefrom unlined canals.

Conveyance loss reduction has the advantage ofmaintaining current use regimes while adding anadditional use. Purchasers negotiate a price for someamount of water to be conserved (not to be divertedand avoiding some fraction potentially leaking fromthe basin) and finance the canal lining. This conserveswater and allows that water to be put to the financingparties’ valued use. Table 1, third column, provides asummary of allocative efficiency considerations for thesupply options.

Decreasing Negative Externalities

Negative externalities occur when the actions of oneparty affect a second party and the latter must bear thecosts of the former’s actions. Existing negative exter-nalities, arising from changes in flow regimes and loss

Figure 3. Diagram of water leaving a watershed.


of floodplain habitat brought on by dam constructionand water storage, do not change for the Pathfinderproject. The Deer Creek Dam introduces more of theseproblems. Water purchases do not necessarily lead tochanges in negative externalities.

Environmental damage might result from excessivesurface runoff from agricultural fields. An exampleoccurred at the Kesterson Wildlife Refuge in centralCalifornia, where excessive runoff from agriculturalfields caused selenium contamination. A similar con-tamination problem exists within the Kendrick project(Deason 1989; Davis 1996). Poorly constructed, main-tained, or unlined canals might fill with silt. Siltedwater can both reduce canal capacity as well as lead todamages to water pumping devices. Negative exter-nalities generated by irrigation water delivery can bereduced with canal lining.

Canal lining might also be preferred over waterreservoir facilities because the sediment trappingassociated with reservoir facilities is not present withCLR. This prevents public (nonuser) costs as well asan intergenerational transfer of dam maintenanceliability arising from future reservoir dredging. SeeTable 2, column three, for a summary of externalityissues.

Decreasing Transactions Costs

Transactions costs can be defined as costs associatedwith both searching for agents, negotiating, contract-ing, contract enforcement, and/or changes in institu-tional arrangements to obtain, for example, enhancedin-stream flows.

Redefining the water rights in storage for the Path-finder expansion project might incur transactionscosts. Downstream users who would be adversely af-fected by increasing water capture upstream mightrequest suspension of the project, litigate or requirecompensation. Permitting uncertainty, given the vari-ety of federal, state, and private entities affected, makesthe Deer Creek Reservoir alternative extremelyexpensive in terms of transaction costs.

Water sales entail the permanent transfer of allbenefits, costs, risks, and obligations related to a waterright subject to constraints. Transactions costs occur inassociation with the sale. Third parties might makeclaim to benefits that resulted from the use of theoriginal water right, effectively incurring costs ofinvestigating water rights.

Water conserved from the CLR is designated as anirrigation water right for use in the district. Special

Table 1. In-stream flow augmentation-decision matrix for economic and property rights criteria

ApproachTechnicalefficiency

Allocativeefficiency Conservation

Negotiatedadjustment(CLR)

+ Improves existingwater use efficiency

+ Multiple beneficiariescost share project

+ Upstream conservation, downstreamflow enhancement

+ Lower marginal deliverycosts to distant users

+ Lower opportunity costsas rehabilitation project

? Does water diversion reduction equalconservation?

Water rightspurchase

+ Production of greatermarginal product

) Yield uncertainty causesopportunity costs

? Does rearranging water right ownershipproduce conservation?

? Traditional water user deliverycosts increase

) Sufficient water,sellers

Modify existingstorage

+ Increases capacityof river system

+ Low cost water ? Does increased storagemean increasedconservation?

) Evaporation ) Subsidy to few beneficiaries) Conveyance of gains

Construct newstorage

+ Increases capacity ofriver system

) Extreme constructioncost

? Does increased storagemean increasedconservation?

) Evaporation ) Opportunities costs) Conveyance of gains ) Subsidies

Commonissues

� Conveyance � Opportunity costs of publicfunding

� Institutional recognitionof conservation

� Yield � Least cost per unit � Technical definitionof conservation

� Subsidies

Note: (+) positive component of approach, ()) negative component of approach, (?) uncertain.


legislation was created to transfer CLR water rights,thus reducing expected transactions costs (see discus-sion in Water Conservation section). The scope of theparties affected by canal lining is less than for a damconstruction or maintenance project, due, in part, tothe localized impacts of the CLR project. Fewer partiesimpacted, and therefore involved, translate into lowertransactions costs for decision-making and implemen-tation. Table 2, column four, summarizes these issues.

Property Rights Preservation and Creation

Those who are most directly affected by the CLRproject, such as traditional water users, are assuredminimal disruption to their property rights. Waterrights pertain only to natural flows. Rights to seepageflows have been denied in all cases. Seepage that cre-ates flow in ephemeral creeks or shallow wells is notnatural flow under Wyoming Water Law (State v.Hiber, 48 Wyo.17, 44 1935). Recognized propertyrights are not lost as a result of CLR because users ofnon-natural flows on the CLR project lack recognizedproperty rights (Bratton 1996). Chakravorty and Rou-masset (1994) have confirmed that more efficient dis-tribution and carriage of irrigation water does have thepotential to increase overall water use. This occurs asimproved conveyance efficiency reduces return flowsfrom the irrigation network. What was previously afragmented return flow is not diverted as before and isreallocated elsewhere.

The CLR project increases technical and allocativeefficiency as well as reducing project transactions costand negative externalities relative to the other options.Neither consideration of the transfer of property rightsnor change in seniority of use of the base amounts ofwater is needed in the case of CLR. The application ofthe property rights set of criteria is summarized inTable 2, in the second column, across the supplyoptions.

Water Conservation

There is not general agreement as to whether waterdiversion reduction is, in fact, conservation. Huffakerand Whittlesey (2000) stated that conservation involvesreturning water to its natural state by reducing con-sumptive use. They maintained that when return flowsare reduced, property rights of third parties (down-stream or groundwater users) are diminished. Returnflows often augment downstream river flows. Down-stream appropriators have a stake in upstream effi-ciency gains. Western water law permits only the sale ofconsumptive use portions of water rights.

Conservation permits greater use per acre-foot ofwater for whatever intended purpose. Honhart (1995)reviewed several western states’ experiences with con-servation and concluded that failures in California,Colorado, and Montana were due to a lack of appro-priate conservation incentives for financing convey-ance improvements. If a potential conservator does not

Table 2. In-stream flow augmentation-decision matrix for economic and property rights criteria (continued)

ApproachPropertyrights

Negative/positiveexternalities

Transactionscosts

Negotiatedadjustment (CLR)

+ Traditional water rightsare maintained

+ Mitigation of damage fromexcessive drainage

+ Legislation lowersadministrative costs

+ Expansion in overall water useincreases property rights

+ On farm secondary benefits + Minimal two-partycontract

Water rightspurchase

) Impacts on third-party propertyrights

) Environmental benefit of prioropen space use eliminated

) Cost to identify third-party impacts

+ Incentive for water users to selltheir water rights

) Local historical and economicimpact

+ One time negotiationcost at time of transfer

Modify existingstorage

) Effects on downstream users ? Unknown impact on existingusers of storage

) Cost to redefine storageamong multiple users

? Uncertainty related to prioritydates and water law

? Sedimentation of dam ) Cost of interaction amongnumerous regulatoryauthorities

Construct newstorage

+ Creates new water rights ) Negative impacts on riversystems

) Permitting very expensive

+ Uncertainty related to prioritydates and water law

) Sedimentation of dam ) Uncertain regulatoryatmosphere

Common issues � Changes to existing water rights � Local hydrology � Negotiation of project� Incentives � Community impacts � Project permitting� New water rights creation � Conveyance of gains � Fewer parties = less cost

Note: (+) positive component of approach, ()) negative component of approach, (?) uncertain.


have clear right to the water conserved, or anticipateshigh transactions costs, then the project may not bepursued. Institutional factors such as proving a lack ofthird-party effects might deter successful negotiatedadjustments to conserve water.

Prior appropriation doctrine requires that water beused beneficially (Section 8 of the 1902 ReclamationAct, 32 Stat 388; 43 U.S.C. 391). This has implicationsfor those wishing to conserve water from inefficientcanals. Water administrators have taken two ap-proaches to water conservation in the West.

The enforcement of beneficial use, in California,increases user efficiency by threatening the loss ofexisting water rights (California Water Code 10111995). The Imperial Irrigation District would not haveagreed to conserve water for the benefit of the Metro-politan Water District municipal water users without‘‘…the State Water Resources Control Board’s findingthat Imperials’ original appropriation was wasteful andan unreasonable use of water…’’ (Honhart 1995,p. 834). Honhart reported that conservators wishing toappropriate water that they had salvaged in Californiawere denied rights to the water. The State WaterResource Board challenged claims to conserved waterbecause water conserved was evidence of prior wasteful(nonbeneficial) use. Investments to improve convey-ance efficiencies would be based on the supposition ofthe retention of existing property rights.

Oregon’s conservation statute allows those whoconserve water to retain up to 75% of the conservedwater for transfer, lease, or sale. The State determines ifmitigation is necessary to protect third parties or theenvironment (Oregon Revised Statutes 437.455-5001993). The Oregon Water Resources Department filed‘‘in-stream flow right’’ for the remaining 25%. A suc-cessful example of this approach occurred on the NorthUnit Irrigation District in Central Oregon (Stratecon,Inc. 1996a,b). Improvements in irrigation deliveryfacilities were financed to conserve water for realloca-tion to in-stream flows. Junior water users received im-proved water deliveries as a result. Property rights weregained when parties invested in conservation.

The State of Wyoming enacted project-specific leg-islation covering rehabilitation of the CAID distribu-tion system. The purpose of the legislation was for bothcanal improvements and ‘‘…to also provide a munici-pal water supply to the city of Casper equal to theamount of the improvements to the irrigation system…’’ (1985, Wyo. Sess. Laws, Chap. 90, sect. 3j, pp. 103–104). Canal improvements were to be monitored andsavings tabulated. The water savings were to be solelydedicated to municipal supply for Casper. Caspercould apply to the State of Wyoming for lease, sale,

assignment, or transfer of CLR project waters (seeSquillace 1989). A highly specific but incentive-com-patible legal arrangement provided the basis for theCLR project to occur.

This discussion does not resolve which approach towater conservation should be preferred by wateradministrators. Clearly, water ‘‘lost’’ in conveyancemight not disappear from the system but becomefragmented (evaporation, groundwater, or return flow)and might have direct benefits to human or naturalsystems. Water consumptive trees and shrubs alongunlined canals, for example, might provide otherbenefits such as wildlife habitat. Inefficient canalsmight recharge wetlands. The problem with strict def-initions of technical efficiency is that it is difficult toquantify 100% of all diffuse water flows in an opensystem. This has implications for quantifying andimplementing water delivery. An overview of conser-vation issues for the alternatives is given in Table 1,fourth column.

Administrators have chosen incentive-based mea-sures of technical efficiency, giving impacts that aremeasurable at a reasonable cost. Incentives take theform of a right to water conserved at a diversion point.Consideration of third-party impacts are based on theestablishment of significant impacts to property rightsdue to conservation.

Conservation resulting from the Platte River Coop-erative Agreement must consider these constraints.One approach might be to enforce technical efficiencyin the basin. Solutions that ignore incentive-based cri-teria might not increase flows for habitat in centralNebraska.

Cost–Benefit Criteria for Water Supply Options

The cost–benefit approach used for the followinganalysis draws on several important factors for projectcomparison. The costs associated with various watersupply alternatives are calculated for the supply optionsavailable to Casper, Wyoming. These are drawn fromthe city’s need for municipal supply enhancementchoices but could be for most other types of waterneeds, such as in-stream flow. Mutually exclusive pro-jects that have different lengths and are initiated indifferent periods are being compared. A commonaccounting stance is used for determining a bench-mark year: Past costs are compounded to 1996 andfuture costs are discounted back to 1996. CLR, forexample, is the focus project analyzed ex-post (afterconstruction) requiring such costs to be compoundedto the benchmark year (see Tables 3 and 4, for exam-ple, for timing of CLR costs). Other projects were


analyzed ex-ante for their estimated lifetime (prior toimplementation, during feasibility analysis). Costs aregiven in 1996 dollars, with the benefits of each projectexpressed as acre-feet of water yielded; thus, the cost–benefit values are dollars of cost per acre-foot. Thedesign of this analysis makes all project costs, per unitbenefit, comparable.

The city agreed, in 1982, to a CLR project with theCAID, to obtain more water. The CLR project has atime horizon of 40 years, from 1982 until 2021. Projectconstruction (canal lining) was completed in 1996.Irrigation project debt repayment to the USBR was partof Casper’s obligations. Water is available to the cityonly during the summer season and unused quantitiescannot be carried over to subsequent years. Tables 3(Anderson 1996; Davis 1996; Horsch 1994) and 4(Anderson 1996; Horsch 1994) indicate the type andtiming of project cost details. The CLR water yieldfound in Table 4 reduces annual river diversionamounts in excess of 7000 acre-ft; yet, 4700 acre-ftconstituted the annual water yield, given system con-veyance efficiencies.

All costs that accrue over the 40 years of the CAID–City of Casper contract are adjusted to 1996 terms. Thiswill involve compounding (see Equation 1) the pastcosts from 1982 up to the benchmark year of 1996 anddiscounting (see Equation 2) the future costs until2021 back to 1996. This permits the comparison of thevaried timing of project costs at a given point of time,which is 1996.

The cost-benefit equations are as follows:

Compounding : PV ¼ Cnð1 þ i Þn ð1Þ

Discounting : PV ¼ Cn=ð1 þ i Þn ð2Þ

where i = appropriate discount rate, n = number ofyears from present, PV = present value (1996 dollars),and Cn = nominal cost in the period.

An annuity of net cost will establish the yearly cost ofthe conserved water for the period of the contract. Thecosts are assessed in nominal terms as they occur overtime and then discounted back or compounded for-ward to 1996. Project costs accrue as long as the water isavailable for use in Casper. The annualized costs peracre-foot benefit will then be contrasted to those costsfrom the other alternative municipal supply options.

The costs per acre-foot are calculated as the annu-alized present value of an annuity for the life of a waterproject. The annuity is given by the following equation:

A ¼X

PVC½ið1 þ iÞn�

½ð1 þ iÞn � 1� ð3Þ

where i = appropriate discount rate, n = number ofyears in project, A = annualized value, andP

PVC = sum of present value costs.

Three discount rates are used for this analysis. A 4%

rate accounts solely for time preference, a 7.5% rateaccounts for additional risk concerning project com-pletion, and a 10% rate represents the higher oppor-tunity costs of funds used for public waterdevelopment. High opportunity costs result becausefunds are not available for other public projects.Inflation is not explicitly addressed in the designationof discount rate levels.

Costs for Water Supply Options

Annualized costs per acre-foot of water are given forthe options in Table 5. The perpetual yield of thePathfinder expansion assumes that sedimentation willnot diminish capacity in the future. Some of the pro-ject cost includes selenium-contamination cleanupfunding on the CAID. CLR and the Pathfinderexpansion experience conveyance losses in the NorthPlatte River before they are drawn out at the watertreatment plant in Casper, resulting in the net yields

Table 3. Annual materials cost and water conserved for CLR

YearCanalsection

Constructionmaterials

Nominalcosts

Acre-ftsaved

Nominal($/acre-ft)

1984 Lateral #41 PVC pipeline $180,200 382 $4721985 Lateral #210(I) Concrete ditch $268,394 333 $8061987 Lateral #210 (II) Concrete ditch $184,974 479 $3861988 Lateral #210 (III) PVC pipeline $162,082 266 $6091989 Lateral #218 (siphon) PVC pipeline $60,522 149 $4061989 Lateral #102 (upper) Concrete ditch $156,082 243 $6421991 Lateral #102 (lower) Concrete ditch $170,876 182 $9391992 Main 145 PVC membrane $250,004 911 $2741993 Main 139 Asphalt membrane $173,696 547 $3181994 Lateral #128 PVC pipeline $243,412 445 $5471995 Main (Lonetree) Asphalt membrane $950,760 2.449 $3881996 Main 40.2 Asphalt membrane $109,386 944 $115


shown (Mathison 1996; States West Water ResourcesCorp. 1992) Water rights purchases are assumed toyield a net amount equal to the purchased amount.

The values reflect construction, materials, andmaintenance costs for all but the water purchases. TheCLR alternative involves several materials (asphaltmembrane, PVC pipeline, or concrete lining) over 17miles of main or lateral irrigation canals (see Table 3).Pathfinder costs include installation and maintenanceof the inflatable bladder, which increases reservoirstorage. Deer Creek Dam costs are composed of con-struction and maintenance segments.

Conveyance loss reduction is more cost-effectivethan purchasing water rights and construction of theDeer Creek Dam. The dam improvements are the mostcost-effective due to high water yield, which reducesthe cost per acre-foot. The dam improvements havedrawbacks in terms of economic and property rightscriteria. Seventy-five percent or more of damimprovement costs will likely be paid by state appro-priations (Hill 1996). Deer Creek was to be fundedentirely by the state. Industrial water rights purchasesare not funded under the State Water DevelopmentProgram.

Table 4. Cost data for Kendrick CLR project

YearAnnual watersavings (ac-ft)

Hydrologicinvestigationcosts

Constructioncosts

USBR debtrepayment

USBR watermanagementcharges

Nominalcosttotals

1982 0 150,000 — 250,000 9,600 409,6001983 0 150,000 — 250,000 3,300 403,3001984 382 180,200 250,000 11,568 441,7681985 333 268,394 9,092 277,4861986 0 150,000 — 1,100 151,1001987 479 184,974 12,596 197,5701988 266 162,082 8,684 170,7661989 392 216,604 11,908 228,5121990 0 150,000 — 4,700 154,7001991 182 170,876 10,968 181,8441992 911 250,004 26,464 276,4681993 547 173,696 17,728 191,4241994 445 243,412 14,380 257,7921995 2,449 950,760 61,976 1,012,7361996 944 109,386 24,156 133,5421997 7,330 11,700 11,7001998 7,330 11,700 11,7001999 7,330 11,700 11,7002000 7,330 11,700 11,7002001 7,330 11,700 11,7002002 7,330 11,700 11,7002003 7,330 11,700 11,7002004 7,330 11,700 11,7002005 7,330 11,700 11,7002006 7,330 11,700 11,7002007 7,330 11,700 11,7002008 7,330 11,700 11,7002009 7,330 11,700 11,7002010 7,330 11,700 11,7002011 7,330 11,700 11,7002012 7,330 11,700 11,7002013 7,330 11,700 11,7002014 7,330 11,700 11,7002015 7,330 11,700 11,7002016 7,330 11,700 11,7002017 7,330 11,700 11,7002018 7,330 11,700 11,7002019 7,330 11,700 11,7002020 7,330 11,700 11,7002021 7,330 11,700 11,700

Totals 190,580** 600,000 2,910,388 750,000 520,720 4,781,108


Table 5 indicates the effect of the discount rate onthe ex-post project (CLR). Start-up costs become moresignificant when compounded to a 1996 present valueat the higher rate. CLR is attractive when minimal riskand opportunity costs allow a low discount rate to beused. When compared to structural water developmentalternatives, conservation of irrigation water has lowaggregate costs (low opportunity costs) and a highprobability of completion (low risk).

Price-Induced Demand Conservation

Water demand reduction in the basin is a likelyalternative that can be jointly pursued with supplyenhancement. Although many types of urban waterconservation mechanisms are possible, this researchpresents price-driven demand reduction. Western USwater demand is highly price inelastic, with the priceelasticity of demand (Ed) equal to )0.3 to –0.9 for thewestern United States (Winpenny 1994; Brookshireand others 2003).

The elasticity of demand (Ed) is a ratio indicatinghow sensitive quantity demand is to price changes. Thenegative values arise from the inverse price and quan-tity relationship of demand. The closer Ed is to zero,the less sensitive quantity changes are to price changes.The further Ed is from zero, the more sensitive quantitychanges are to price changes. Ed can be used if quantitychange is already known (e.g., the desired yield of 4700acre-ft) and the new price determined from the cor-responding price change. The initial price used here isapproximately $395 per acre-foot. The total annualacre-feet used by Casper equaled 11,885. The goal is toapply the demand information, given by the Ed values,to find the needed price to induce water use reduction.

This model identifies the top 40% of total water useas the target block in the case of Casper, Wyoming

(e.g., water use in excess of 60% of annual average).This consumption occurs largely in the period fromMay through September. Price increases are proposedto conserve water equal to the average net annual yieldof the CAID–Casper CLR project (4700 acre-ft) as anexample of how price-driven municipal conservationmight work. Demand reduction can be viewed as acomplementary approach for use with a supply strat-egy.

An estimation of the impact of demand reductionequivalent to the CLR project water yield is given as anexample. Targeting the top 40% of annual use in thecity allows price increases to reduce demand by the netaverage annual yield of the Casper–Alcova ConservationProject or 4700 acre-ft. Targeting all water use above anindividual’s winter average monthly use does not im-pact users uniformly. If a user has little or no winteruse, most of their total water use will occur undersubstantially higher prices (e.g., golf courses or parks).

Sensitivity analysis is conducted via a range of Ed

values. Table 6 indicates that the less price-sensitivedemand (Ed) requires higher prices to achieve thewater conservation level of CLR. Large price changesare needed to stimulate the required reduction inconsumption.

Demand management based on the above or othercriteria might well be most useful as a complementaryapproach, with the best supply augmentation strategy.It could be implemented elsewhere in the Platte RiverBasin. One application could be on Front Range mu-nicipal users of South Platte River water in Colorado.The population and use levels are orders of magnitudegreater than Casper. The above changes in water feeswould produce a much larger water savings, some ofwhich could be dedicated to Platte River in-streamflows. Care should be taken to obtain the most currentand accurate price elasticity of demand measures. Useof such values provides a more precise estimate of po-tential price-induced water savings.

Conclusions

Cost analysis alone indicates that the Pathfinderexpansion project should be the chosen option to

Table 5. Annualized costs of water supplies at three discount rates ($/acre-ft)

Discountrate

Casper–CAIDCLR (4700 acre-ft)

Water rightspurchases(variable yield)

Pathfinder expansion(11,400 acre-ft)

Deer CreekDam (9700 acre-ft)

4% $66 $100 $38 $2457.5% $134 $188 $53 $25510% $211 $250 $70 $266

Table 6. Price increases required to equal the wateryield of CLR

Elasticity (Ed) )0.3 )0.5 )0.7 )0.9

New price($/acre-ft)

$1161 $1161 $824 $693


couple with fee-induced demand reduction. Criteriasuch as transactions cost and property rights as well astechnical and allocative efficiency are also importantand deserve consideration. Issues summarized inTables 1 and 2, in addition to values reported inTables 5 and 6, have a role in the choice of project, ifeven just described but not measured.

Targeting of costs to beneficiaries is a more accurateassessment of the efficiency of the water allocation.The extent to which the cost of Casper’s options foraugmenting water supply are usable for in-stream flowenhancement depends, in part, on how subsidies areviewed. Nebraska v. Wyoming (132 L. Ed. 2d 1; Stratecon,Inc. 1995) and the Platte River Cooperative Agreementstipulate that the aforenoted water conservation is theresponsibility of the three states. This assumes that in-stream flow is a public good, with the public as bene-ficiaries of its provision, just as in the case of municipalsupplies obtained by Casper, Wyoming. A state agencycan also finance a negotiated adjustment that wouldprovide for in-stream flow enhancement in the Platteor any other watershed. This certainly does not pre-clude a nongovernmental entity from providing for thepublic good, just as land trusts can purchase develop-ment rights to preserve the flow of public goods asso-ciated with agricultural lands.

Conveyance loss reduction offers several benefits forpursuing negotiated adjustments of conserved water.Technical efficiency is improved through seepage,evaporation, and phytophreatic consumption reduc-tion on inefficient canals. Hydrologic investigationscan target conveyance structures where seepage isworse and where water savings are the greatest (Davis1996). Improved efficiencies are possible throughselected conservation investments. Chakravorty andRoumasset (1994) note that such investments have notoccurred previously because benefits cannot be appro-priated by investing parties: institutional arrangementsand property rights are important to this conservationstrategy.

Transactions costs are minimized and incentives toconserve on the delivery of irrigation waters stimulated,if property rights to conserved water are established.Water and property rights as well as environmentalconcerns could be handled with few legal difficultiesgiven the appropriate legal and institutional environ-ment. Involving the relevant federal and state agenciesas well as the principal private interests throughout theprocess makes CLR a politically acceptable and col-laborative solution. Irrigation district canals on theCLR project were made more efficient, providingbenefits to landowners while no acreage was taken outof production.

Preservation of property rights for agriculture is animportant issue. Agricultural operations depend onwater as a vital input. Preserving agricultural waterrights by lining irrigation canals does not impede suchoperations from continuing production. This is a crit-ical element of this policy opportunity.

Agricultural lands and the associated wildlife habitatin the Platte River Basin are rapidly being converted toresidential uses (Long 1996). Similarly, raising muni-cipal water fees transfers some of the costs of waterconservation to urban populations while not impactingdesirable amenity values associated with agriculturallands. All basin entities, then, would be accommodat-ing water conservation whether in terms of adoptingnew technology, changing legal institutions, and/orpaying more for municipal water.

Western states might or might not have provisionsfor negotiated adjustments. Wyoming used project-specific legislation. The Oregon statute encourageswater conservation by permitting appropriation of watersavings. The Water Resources Department determinesand mitigates the potential impacts of new efficiencies.The State balances this cost with taxes on water savingsin order to improve stream flow maintenance.

Wilkinson (1992, p. 285) has referred to the Casper–Alcova Conservation (CLR) Project as one of the‘‘…encouraging signs on the water conservationfront….’’ Allocating conserved water to stream flowmaintenance can also occur with CLR projects whereinterested parties make investments in canal lining.CLR could be used in conjunction with fee-driven de-mand conservation to secure water for in-stream flows.They both are based on a user pay approach and directwater to higher-valued uses. Demand management is afeasible companion to CLR water savings in regionalsettings, where unlined irrigation canals are in use andthe political will exists to tax segments of water de-mand. Jointly, CLR and demand reduction conservewater, thus satisfying the Platte River Cooperativeagreement.

It is important to note that, globally, there exists anarray of transboundary watersheds. Rivers on everycontinent often pass through politically and ecologi-cally diverse terrain. The above analysis and descriptionoffer a way for policy-makers to organize decision-making criteria. This is particularly germane in a con-text where incomplete information, particularly estab-lished market prices for ecological and recreationservices as well as incomplete property rights, persists.

The costs of providing enhanced water supplies areoften estimable. The benefits of providing water fromdifferent sources and ensuing consequences might beless so. Policy-makers are then left to determine the


threshold expense when different water projects withdifferent arrangements are considered. Conservation,using canal lining with price-induced demand reduc-tion, is suggested as a cost-efficient and conflict-mini-mizing way to meet water needs.

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Documents

Conservation Opportunities for Securing In-Stream Flows in the Platte River Basin: A Case Study Drawing on Casper, Wyoming’s MunicipalWater Strategy