The Need to Reallocate Water Resources
There are continual shifts in the Utah economy and public perspective that require the flexibility to shift how and why we use the state’s water resources. Like most of the Western U.S., Utah manages the use of state water resources through a system of water rights that define exactly who can use water and for what purpose. The certainty provided by the water rights system is critical for planning and investment across the state. In many areas of the state, the ability to further use or develop water sources is limited, such that any new uses must reallocate existing rights. As population growth requires municipal water utilities to expand their water holdings, as new industries come to the state, and as we provide water for environmental health, this ability to reallocate water from existing to new uses allows Utah to adapt and prosper.
Regulatory Requirements
Water rights define allowable water use under strict conditions – including where, when, and how the water right holder can access and use state water resources. Any uses that deviate from these strict water right conditions need to be approved by the Utah Division of Water Rights, and therefore any reallocation of water rights to a new use requires a formal transfer process with state oversight and public review. This process ensures that other water right holders and water users are not “injured” by a proposed water transfer, and that the new (proposed) use of water fits within the laws and policies of Utah water administration. In short, any voluntary agreement or negotiated trade to transfer water away from its current water uses requires state agency approval.
Methods to Transfer Water
In Utah, water transfers occur through voluntary market mechanisms, with willing sellers negotiating deal terms with willing buyers. Within this general market construct, there are various methods employed to transfer water on a temporary or permanent basis. Some of the common structures used to connect interested parties and negotiate deal terms include: two-party agreements, auctions, bulletin boards, and agricultural conservation programs. The types of transactions used to transfer water are similar to methods employed in the real estate sector and include sales, leases, options, and exchanges. The attached tables provide a summary of common methods used for marketing and transacting water in Utah.
The result of voluntary water transfers is establishment of local water markets across the state. Long distance water transfers are relatively rare and typically require extensive infrastructure such as pipelines and canals to physically move the water resource to the buyer location. The vast majority of water transfers move water within a watershed or groundwater basin because there are hydrologic boundaries on where the new water use can exist. Market activity varies considerably across these local markets with some areas potentially seeing one transfer each decade and other areas seeing consistent annual trading activity. There is not a single statewide water market within Utah but rather a collection of relatively small markets that allow for local water transfers.