Wyoming Is Missing out on a Wrinkle in Water Law Worth Millions

Agricultural interests are getting rich off temporary transfers of water to serve oil fracking wells. Even though water is considered a public resource in the state, Wyoming receives only tiny fees for each transfer.

Written by Angus M. Thuermer Jr., Wyofile.com Published on Read time Approx. 10 minutes
A rancher flood-irrigates his fields as allowed by an appropriation from the state of Wyoming. The state owns the water but the appropriation is considered a property right that can be transferred – for good money – temporarily by the right holder.Photo by Angus M. Thuermer Jr., Wyofile.com

Lawmakers and water developers, citing well-founded concerns about an increasingly arid future, are considering multiple high-priced water development projects and a sweeping water law rewrite. But while the future of Wyoming water is debated in the public square, public and private rights holders are quietly transferring billions of gallons of it to industry in exchange for cash. The practice is legal, lucrative and without direct financial benefit to the state.

How can state property that is appropriated to users free of charge be converted into millions in private profit? The answer lies in a little-understood wrinkle in Wyoming’s innovative and widely lauded approach to water law.

The Wyoming Constitution adopted and ratified in 1889 says it simply: “Water is state property.” Citizens can obtain a right to use water by demonstrating a beneficial use and seeking an appropriation from the state. Wyoming’s water law is seen as innovative, in part because it followed the doctrine of prior appropriation – first in time, first in right – and tied appropriations to a geographic point. “Water being always the property of the state, rights to its use shall attach to the land,” state law says. There are exceptions, but the general principle remains a foundation of Wyoming water law.

The measure proved prescient in protecting the state’s agricultural base. Colorado, for example, where east slope municipalities are in a frenzy to secure water for a growing population, grapples with a trend known as buy-and-dry. Cities and other entities buy ranches for the water rights and then use the water elsewhere.

Colorado law not only allows this but stipulates that once land is permanently dried out, irrigation and agriculture cannot return, according to a report by National Public Radio. As a result, Colorado has lost 25 percent of its irrigated farmland, according to Water for Colorado, a group that “shares insights and expertise from a variety of organizations that research and study water conservation and natural resource issues.”

By tying the water to the land, Wyoming dodged such pitfalls but it also limited water users’ ability to adapt to changing conditions. So Wyoming enacted its temporary water-use transfer law in the late 1950s, but maintained strict limits. The transfer had to come from an adjudicated or valid water right and could only last for two years.

Transfers would be allowed if no other appropriation would be injured, and would be limited to the amount “consumptively used.” That generally limited transfers to half the amount diverted for flood irrigation, a practice that sees approximately half of diverted water returned to the river or stream. The law insulates the original owner of the water right from any loss, abandonment or impairment of that right.

It also capped transfer fees paid to the state at $100.

Fracking Comes to Town

In the past year, water-rights holders in Laramie and Converse counties sold the rights to 2 billion gallons of water for oil and gas operations like fracking. Wyoming’s water czar – the state engineer – okayed 44 temporary transfers to allow the sales, mostly from groundwater wells in water-poor Laramie County.

Water-rights owners, which include everyone from sod farmers to ranchers to the Cheyenne Board of Public Utilities, reap good money from the temporary transfers. Water-rights holders earn “somewhere in the neighborhood of a penny a gallon,” state engineer Patrick Tyrrell wrote in an article for the American Water Resource Association.

Prices can be higher. Cheyenne, for example, charges slightly more than 1.5 cents a gallon when it temporarily transfers water usage to industrial customers. At those prices, a year’s worth of activity in this two-county market would be valued at some $21 million to $33 million.

But while Wyoming gets revenues from its other natural resources like coal, oil, gas, trona, timber, grass and bentonite, it doesn’t get much when a water-rights holder sells and transfers the use of his or her flows to somebody else. In water year 2017, for example, when irrigators and others transferred to industry millions of gallons, worth millions of dollars, the state received a paltry $2,200 – a $50 fee for processing each transfer.

A Long History of a Free Resource

From the get-go, even before statehood, the idea of charging people for water was anathema to western settlers.

Early irrigators in Wyoming looked on water diversions the same way they looked at hunting before game laws were adopted, Wyoming’s first state engineer Elwood Mead wrote. In 1930, in an unpublished letter uncovered by historian and water expert Anne MacKinnon, who is writing a book tentatively titled “Public Waters; Lessons From Afar: Wyoming,” Mead wrote that residents believed they should be able to use water the same way they use air: “without any limitation from a public authority.” (MacKinnon is a former chairwoman of WyoFile’s board of directors.)

Today’s state engineer Tyrrell put Wyoming’s cultural history with water in the same framework. Water is “an absolute necessity for life,” he said in an interview. Charging for it would be akin to “charging for going outside and breathing.”

Kristi Hansen, a University of Wyoming associate professor with a PhD in agricultural economics, framed the concept even tighter. In arid Wyoming, where sagebrush roots grow 40ft deep in search of sustenance, “water is life,” she said.

It is also, however, undeniably a valuable economic commodity

“Water is gold,” former Wyoming Sen. Gerald Geiss told the joint Agricultural, State and Public Lands and Water Resources Committee at a recent meeting in Pinedale. “If you have the water, that’s where people are going to come.” On further consideration, he revised his initial statement.

“Water is worth more than gold,” he told the legislative committee.

Gold Rush for Something More Precious

A crew drills a groundwater monitoring well at a study location near Lone Tree Creek in Laramie County, Wyoming. Declining groundwater levels have led to restrictions on new water development and a rush by energy companies to buy and temporarily transfer water use from irrigators and others. (Photo coutesy U.S. Geological Survey)

Laramie County started seeing a water transfer rush in 2009, Tyrrell said. At that time, oil and gas companies began exploiting the Niobrara, Frontier, Carter, Sussex and Parkman formations. High volumes of water are used in unconventional oil and gas operations that require hydraulic fracturing. Generally, drillers require between 2 and 8 million gallons of water to frack a well, according to the activist website Gasland. Climate Central put the figure at up to 9 million gallons or more a well.

After waning recently, oil and gas industry interest is picking back up again, Tyrrell said. His office provided a spreadsheet of 44 2017 temporary water use agreements, as the transfer deals are officially known, in which the end use was for oil and gas operations in Laramie and Converse counties. The office approves some 100 temporary water use agreements a year. Those made for energy drilling are often in Laramie and Converse counties, some of them for use in Colorado’s Weld County.

In “water year” 2017, the latest full year available, which ran from October 1, 2016 through September 30, 2017, agreements covered the transfer of 2 billion gallons. The volume equates to 6,695 acre-feet or some 48.4 million 45-gallon oilfield barrels.

Since 2013, water-rights holders in Laramie County have received permits to transfer 4.9 billion gallons of water for oil and gas exploration and several other uses, according to another state spreadsheet obtained by WyoFile from an industry analyst. At a penny a gallon, that could make water transfers a $49-million industry in just one dry county during that period.

Because the water transfer market is largely private, it’s hard to say exactly what the going rate is for water. Although the state approves and records transfers, it doesn’t require water-rights holders to reveal their rates. In his article, Tyrrell used anecdotal information to estimate a low price of about three gallons a penny, but he told WyoFile in an interview that a penny a gallon is the price “bouncing around the street.”

Wyoming State Geological Service’s interactive map shows the large Silo Field north of Cheyenne with 197 oil wells and 150 horizontal wells. “Multistage-fracture stimulation” of the horizontal wells suggests production could grow from 500 to 2,000 barrels of oil a day, according to a 2011 study. (Image courtesy Wyoming State Geological Service)

WyoFile found two wildly different prices from two public entities that have recently transferred water use. The Bureau of Reclamation (BoR) has sold and transferred water use from Glendo Reservoir to an oil and gas operator for the lowest price WyoFile could find: 43 gallons for a penny (or $75 an acre-foot). Cheyenne’s penny-and-a-half per gallon (or $15.45 per 1,000 gallons) is the highest public price WyoFile could find.

(A 2017 Glendo Reservoir temporary water service contract sale described by Mahonri Williams, the agency’s chief of resources management division at the Wyoming area office in Mills, involved a somewhat complex agreement. The BoR allowed Chesapeake Operating LLC to draw water from upstream of the reservoir, which limited its extraction to only two-thirds of the contracted amount.)

The price of water transfers also can be converted to dollars per acre-foot, a more common unit of measure among irrigators. The BoR transferred its Glendo Reservoir water for $75 an acre-foot. Cheyenne’s 1.5 cents a gallon works out to be about $4,887 an acre-foot. At Tyrrell’s anecdotal price of a penny a gallon, water-use buyers would pay $3,258 an acre-foot.

In the relatively water-rich Green River drainage in western Wyoming, a pilot water conservation program paid irrigators up to $200 an acre-foot to forego late-season irrigation. Permanent water supplies in water-starved communities can be vastly more expensive, Tyrrell said. He recalled hearing of a permanent supply along Colorado’s Front Range going for about $20,000 an acre-foot, he said.

Low Supply and High Demand Means Big Profits

Laramie County sees a lot of temporary water transfers – they are limited to two years each – because of a confluence of factors. For one, there’s little surface water in the eastern part of the county compared to areas like the Green River Basin, the Bighorn Basin and the Snake River drainage. And the boom of water-hungry oil and gas development drove demand.

The city of Cheyenne has to pipe water under the Continental Divide – from the Little Snake River drainage – to the North Platte River drainage to meet a portion of its needs.

“Our system is very complex,” Brad Brooks, director of the Cheyenne Board of Public Utilities, wrote in an email. “[W]e have Hog Park/Rob Roy [reservoirs], Crow Creek, groundwater wells, reclaimed water and recycled water permitted rights that we use to provide water to our customers.”

In 1981, worried about a dropping water table, the state created the Laramie County Control Area, encompassing the eastern two-thirds of the county. Establishing the control area empowered the state engineer to restrict water development to protect existing water-rights holders. A monitoring network found groundwater continued to decline in the High Plains Aquifer, particularly around Albin, Pine Bluffs and Carpenter, and prompted engineer Tyrrell to act.

In 2012, Tyrrell issued a temporary order restricting the density of new wells and placing limits on their use. He extended that order three times through 2015 before issuing a new five-year version in 2015. It closes some areas to the permitting of large-capacity wells in the High Plains Aquifer and institutes well-spacing requirements for new wells that are permitted. The order limits some drawdowns to 20 percent of the water available in a given well and requires installation of some monitoring devices, among other things.

“People can’t go where they want and drill their own water,” Tyrrell said.

Such restricted supply makes water transfers a requisite for some oil and gas development protects – they couldn’t get the water they need otherwise. It also sets the stage for potentially “a sweet deal” for water-rights holders, Tyrrell said.

For energy companies, the fees for water are “probably one of the smaller costs they have,” Tyrrell said. Irrigators or other water-rights holders who transfer use temporarily must, naturally, forego use of the amount they transfer. (In the case of surface water rights where irrigators legally divert more than their appropriation, the reduction in diversion is double the transfer.)

“When the person gives up the right to use this water, they are also giving up the right to irrigate,” Tyrrell said.

The State’s Cut?

Having established the precedent of relatively free access to water, western states have rejected modern attempts to charge for it, Tyrrell said. “A direct tax on the use of water has been debated around the West a couple of times,” he said. “Where they have tried it, they have routinely failed.”

Montana and Colorado each passed new water-tax laws, he said, but “in the following year in both cases those were repealed.

“The notion of charging somebody to use water,” Tyrrell said, “was not at all popular.”

For an irrigator with water rights, “they’re turning the water into money – hay,” Tyrrell said. By temporarily transferring a water use, “the farmer gets to take the summer off. They’re just getting their money in another way. They’re going to take their income in trade for water.”

There certainly are other $30-million industries in Laramie County – think lawyers, accountants, newspaper advertising – that aren’t subject to sales taxes. But water is state property, not a service or product, and it enjoys a unique position in the state’s history, development and growth.

Some Wyoming legislators and water experts don’t see much of an opportunity or desire to begin taxing temporary water transfers. “That would not be a very popular proposal,” said William “Jeb” Steward, a former state representative (R-Encampment) and former member of the Wyoming Water Development Commission.

Rep. Stan Blake (D-Green River) said the state incurs costs in administering water rights and monitoring water use, but he doesn’t see a need to tax water transfers. “If it’s your water right, it’s almost yours to do with what you want,” he said.

Rep. Dan Zwonitzer (R-Cheyenne) didn’t embrace the idea of a tax on water transfers either, unless perhaps if a transfer resulted in water leaving the state, as it has in some cases. “People get pissed off if Wyoming water is going somewhere else,” he said.

Amending Wyoming’s water laws can be a difficult prospect, Blake said, pointing to the struggles Wyoming had in getting in-stream flow legislation passed. Tyrrell has documented similar difficulties with efforts to change the law regarding temporary use transfers.

Many of the changes were driven by a desire for in-stream flows, a protocol that protects river habitat and fish, among other things. In a PowerPoint presentation Tyrrell gave on transfers, he wrote that there have been at least 12 attempts since the year 2000 to change the state’s temporary water-use laws.

Not one has passed.

This article was originally published by WyoFile.com, an independent nonprofit news organization focused on Wyoming people, places and policy.

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