Main MenuHedge funds eye water markets that could net billions, as levels drop in Lake Powell
Reservoir levels sit at just 40% of capacity. Will private equity attempt to rewrite Western water law?
Water managers in the Upper Colorado River Basin know the number by heart: 3,525.
It refers to an elevation, a topographic ring around the shores and walls of Lake Powell, and it signals a crisis.
At 3,525 feet above sea level, the federally owned reservoir could only spare another 35-foot drop before reaching the point where power generation at the Glen Canyon Dam becomes impossible. Below that lies a worst-case scenario known as “dead pool” where hundreds of billions of gallons of water would be trapped with no easy way to release them into the Grand Canyon below.
The reservoir is currently 40% full and its elevation is 50 feet above 3,525, but that level could be exposed in just a couple of bad snow years in the river’s headwaters, given the continued demands of the 40 million people across seven states, two countries and 29 Native American nations who rely on the river.
“Dead pool” is a stage nearly everyone who pays attention to Colorado River flows wants to avoid — from environmentalists to farmers to river runners to water managers in and outside of the basin.
The question, and the point where consensus begins to fracture, is what to do.
Many see a need to continue what’s always been done in the river basin: the hashing out of differences in board meetings and conference halls, or, more likely for the near future, Zoom meetings. Others hear a death knell for Glen Canyon Dam.
But another controversial vision has roared back to life in recent months that would upend nearly a century and a half of precedent. Hedge funds and other Wall Street interests want to rewrite the “Law of the River” in the Colorado River Basin and use the free market to solve the problem of scarcity — while potentially raking in immense profits.
The next oil?
Privatizing water resources has long been the dream of libertarian-leaning think tanks, and publications from the Financial Times to Forbes have referred to water as “the next oil.” If geopolitical conflicts and vast swaths of the global economy in the 20th century were driven by fossil fuels, some analysts predict a repeat in this century with a different commodity.
Partners at Water Asset Management (WAM), a New York-based hedge fund that invests in water around the world, have been involved with Western water since the 1990s. But as the situation in the basin grows more dire, WAM has grown increasingly vocal about the need to reform the system in the Colorado River Basin, where rising temperatures linked to the burning of fossil fuels are leading to reduced runoff. Average flows have diminished by 18% over the past two decades compared to the previous century, a trend known as the Millennium Drought.
“I have seen time and again the wisdom of using incentives that attract private-sector investment and innovation,” James Eklund, legal counsel for WAM, recently told The New York Times. “Dealing with the threat of climate change to our water requires all sectors, public and private, working together.”
Eklund formerly served as a top water negotiator for Colorado, and his comments in the article set off a flurry of rebuttals from environmental groups, water managers and farm advocates.
WAM had invested $300 million in farmland in Colorado, California, Arizona and Nevada as of last year, including $16.6 million on 2,220 acres of farmland with senior water rights in Colorado’s Grand Valley just upstream from where the Colorado River crosses into Utah. So far, farming has continued on the hedge fund’s plots in the Grand Valley, and investors have said their goal is to make the agricultural techniques more water efficient.
They also expect a hefty return on investment. The hedge fund’s co-founder and president, Matthew Diserio, has called water in the United States “a trillion-dollar market opportunity.” WAM’s New York office did not respond to The Salt Lake Tribune’s request for comment.
Disque Deane Jr., another partner at WAM, told ProPublica in 2016 that he is interested in freeing up rules that regulate water trading.
Deane argued that commodifying water and making it a tradable asset on the market would encourage conservation, rewarding those who cut back on use and enabling them to sell it to others who would in turn be encouraged to conserve during droughts. The current system, which requires farmers to use their water right or risk losing it, can encourage waste of a limited resource.
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