Klamath Water Users Association 

Letter from Dan Keppen
to Mr Braunworth, OSU


March 2, 2004


Mr. Bill Braunworth

Assistant Extension Agriculture Program Leader

College of Agricultural Sciences

138 D Strand Ag Hall

Corvallis, Oregon 97331-2201


Dear Mr. Braunworth:


On behalf of the Klamath Water Users Association (KWUA), I would like to thank you for Oregon State University’s (OSU) continued attention to the water resources challenges we face here in the Klamath Basin. In particular, we are grateful for the efforts of local university extension officials like Ron Hathaway, Ken Rykbost, and Rodney Todd, who understand the dynamics of the local community and truly want to make our agricultural economy stronger and more viable. I am writing today in regards to two recent “briefs” published by William Jaeger, associate professor of agricultural and resource economics at OSU.  



KWUA is a non-profit corporation that has represented Klamath Irrigation Project farmers and ranchers since 1953. Our members include rural irrigation districts and other public agencies, as well as private concerns operating on both sides of the California-Oregon border. Last January 27th, we were surprised to learn that Mr. Jaeger and his staff had published two new briefs on the economic value of irrigation water and the potential benefits of water markets in the Upper Klamath Basin. While we support OSU’s willingness to investigate opportunities to solve Basin challenges, Mr. Jaeger’s recent work, unfortunately, is only the latest in a series of actions that have emanated from Corvallis, with virtually no opportunities for those most affected by these activities – the ranchers and farmers of the Klamath Project – to provide meaningful input. In the case of Mr. Jaeger’s two briefs, we were disappointed that our association – which spent thousands of dollars and over 1,000 man-hours in 2002 preparing a water bank proposal – was not contacted to provide assistance or review on this subject topic.


We know that your efforts are well intended, but, as we repeatedly predicted to you in 2002, selective material pulled from several recent OSU reports has provided the most vocal critics of Klamath Project agriculture with ammunition that has materialized in hostile press releases and in litigation driven by these critics. Despite meeting directly with you and your staff in 2002 on this very issue, we continue to feel that we may be working at cross- purposes with your department, a concern that we would like to soon remedy.


For the present, this letter outlines concerns we have with the two briefs prepared by Mr. Jaeger.


Brief #1: The Value of Irrigation Water Varies Enormously

Across the Upper Klamath Basin


We agree with the following general conclusions made in Brief #1:  The value of water per acre (or per acre-foot) is far greater for growers on high value land, and more economically optimum decisions can be made if all irrigated lands in the watershed are included in the program. The brief correctly states that the value of water varies enormously across the Upper Klamath Basin and infers that irrigation water is the primary source of land value.  While generally correct, this assumption does not take into consideration such things as recreation value, lifestyle choices, proximity to Klamath Falls, scenic value, wildlife, and other uses.


Water Value Assumptions

We question the brief’s implication that the figures used represent the actual value of water.  The methods employed in this brief are much too simplistic to be taken seriously as actual values or even relative values. The brief’s primary premise appears to be one where everything boils down to the dollar value of the land, and all other findings and conclusions are inferred from that. While this may be useful in drawing general relative conclusions, we do not believe terms like “net revenue per acre” are actually identical to value of water.  Rather, it is an estimate of implied productivity from the land values.

The water user will ultimately determine the actual value of water.  For example, a livestock operation could have a very high profitability that is totally tied to the availability of water. If land prices on that operation are low (class 4 soils), then, using the premise inherent in the brief, Mr. Jaeger might therefore predict low returns per acre. However, our ranch manager would disagree. He would argue that most of the expenses might actually lie in operations like moving cows, or purchasing calves, rather than in capital land costs.  But the whole operation may hinge on cheap pasture when grazing allotments run out.  Our own theoretical example is presented to suggest that the approach employed in the brief is too simplistic to justify statements suggesting that the value of water is 85% lower in one region or another.

Other Factors to Consider When Assessing Value of Water


The brief states, “We can infer that the difference between the purchase price of similar irrigated and nonirrigated land reflects the benefits from irrigation.”  This is only one of the factors impacting the value of the land, as further detailed below:  


  • The brief discusses the value of the water but does not address the impact on other businesses, suppliers, dealers, tax revenue, loss of employees, restaurants, grocery stores, etc.


  • The brief does not address the impact on the value of land if there is a one-year contract vs. a multiple year contract.  The farmer may have a personal right to the funds; thus, this may impact the owner/lender relationship due to an adverse impact on the land value.  A one-year contract would have a smaller impact than a longer-term contract.  A property with a contract in place may be more difficult to finance depending on the assignability of the contract.


  • It does appear from the graphs presented in the brief that to idle x-number of acre-feet of water outside of the Klamath Project would be less expensive.  However, this assumption only relies on the general value of the land, and does not consider the efficiency of delivery of this water.  In other words, would idling 50,000 acre-feet near the town of Sprague River deliver more water to the lake or river than idling 50,000 acre feet within the Klamath Project? The cost assessment should look at the amount of water delivered as well as the amount of water idled.  Other factors could include ease of monitoring, cost of enforcement, impact on the current crop (i.e. drying up permanent pasture vs. grain land), measurement of water idled, and impact on the Klamath Project delivery system.


For such a preliminary assessment, a broad-brush approach may need to be taken. However, the reader should be warned that this approach does not consider the financial situation of various producers.  The study brief suggests that a 6% return on the difference in value between irrigated and nonirrigated land may be fair.  However, the situation of the individual producers is not taken into consideration.  Some are better managers, and therefore able to consistently produce a larger, higher quality crop and, most likely, more profit.  Others have a higher debt to service, and a capitalization rate approach may not cover their fixed expenses. Still an irrigation district that has a higher cost to deliver the water may serve others.  All of these - and many more - factors make it difficult to determine the economic impact that the loss of irrigation water will have on each individual and the community as a whole.


Again, Brief #1 has merit because it illustrates that the value of water is likely to vary within the Basin. However, the conclusions derived from this brief appear to go too far by estimating the range of values, or more critically, by implying that these figures reflect the actual value of water in one region or on a given soil type. The bottom line to us is this: Our current agricultural systems in the Basin cannot work without water.  Only the operator – based on the nature of his / her unique position - can determine the value of continuing an operation.



Brief #2: Potential Benefits of Water Banks and Water Transfers


We have some serious concerns with Brief #2, entitled “Potential Benefits of Water Banks and Water Transfers”. While the topic of this brief is “water banking”, the discussion does not focus in detail on the actual water bank programs that have been implemented in the Klamath Basin for the past two years. Instead, it proposes what appears to be a theoretic exchange program occurring between Project irrigators and water users above Upper Klamath Lake. As correctly noted in this brief, such a paradigm cannot exist until the water rights certification process if completed, which many legal experts believe will not occur for ten years or more.


The description of the 2003 Klamath Project water bank presented in this brief is also not entirely accurate, as noted further below.


KWUA Role in 2003 Pilot Water Bank


The 2003 Klamath Project water bank was initiated by the U.S. Bureau of Reclamation (Reclamation), not the Klamath Water Users Association, as noted in the brief. KWUA in March 2003 announced it would support, and assist the Department of Interior in the implementation of, a Klamath Project Pilot Environmental Water Bank in 2003 to provide over 50,000 acre-feet of additional water for environmental purposes. While noting that Reclamation’s pilot program does not closely resemble KWUA’s vision for a long-term bank, water users agreed last year to continue to work with Reclamation and Interior to complete a long-term water bank proposal. 


Reclamation’s 10-year Biological Assessment (BA) developed in February 2002 proposed an environmental water bank through which willing buyers and sellers will provide additional water supplies for fish and wildlife purposes and to enhance tribal trust resources. Reclamation’s BA estimated the size of the water bank to be up to 100,000 acre feet – depending on water year type - with “deposits” coming from a variety of sources, including on-farm storage, temporary crop idling, and groundwater substitution.


Water users committed to pursue developing a bank with Reclamation in January 2002. At that time, KWUA was asked by Reclamation to develop a Project-wide water bank to assist with meeting environmental water demands in drier years.  KWUA’s Water Bank and Supply Enhancement Committee (Committee), chaired by Malin farmer Dave Cacka, held over 30 meetings in 2002-03 to develop the 65-page report/proposal for a long-term water bank, which differs substantially from the pilot water bank implemented by Reclamation in 2003. Reclamation chose not to implement our recommended proposal, primarily due to concerns regarding supply certainty.


Certainty of water supplies is a key principle imbedded in KWUA’s draft long-term water bank proposal. Endangered Species Act - driven limits on Upper Klamath Lake mean there are no guarantees that water banked or transferred will in fact be available should hydrologic conditions or high down stream flow requirements “bust” the lake limits.  This is similar in concept to a bank giving out money until it is gone, and then sending customers home when they try to withdraw their savings. Local water users in 2002 insisted that, in exchange for voluntary participation in a Project water bank, 100% of the irrigation demand for remaining Project acreage would be satisfied, season-long.


While we expressed cautious support for Reclamation’s 2003 pilot program, we still see the Project water bank as one element in a package. Other measures – like development of new, permanent storage facilities and acknowledgement of restoration benefits - will assist in minimizing, and ultimately eliminating the need for - water bank requirements in the future. Water users also believe that the water bank concept proposed in the coho salmon biological opinion must be modified before a long-term water bank can be finalized. The concept of providing flexibility in operations management by relaxing rigid lake levels or stream flow requirements is one that has long been pushed by local water users.


2003 Klamath Project Pilot Water Bank Key Facts


We have questions about some of the statements – as well as important omissions - made in this brief. For example, based on information provided to us from Reclamation, more than 14,000 acres of idled land were enrolled in the water bank, not 12,000 acres, as noted in the brief. Also, we saw no mention made of the groundwater substitution component of the water bank, which essentially resulted in forbearance of Klamath Project water on over 11,000 acres of additional land. We have prepared the following information for your consideration in the event that further briefs are planned on Klamath Project water banking issues.


Contracts were entered into Reclamation and Klamath Project landowners for the 2003 Project Pilot Water Bank. The following figures, provided by Reclamation, summarize the program that was implemented. The pilot project water bank was intended to help meet the environmental water targets specified in the 2002-2012 Klamath Project Operations Plan.


Crop Idling


Contracts Signed…………………………..… 223

Acreage Enrolled (Total)……………….…14,456

Acreage Enrolled (California)…...…………2,316

Acreage Enrolled (Oregon)..……………...12,140


Groundwater Substitution


Contracts Signed………..………………..……92

Acreage Enrolled (Total)…..……………...11,133

Acreage Enrolled (California)………..…….5,133

Acreage Enrolled (Oregon)………….……..6,000

Total Water in Bank:   59,651 AF                 Total Cost:    $4,525,246


We believe the current brief should be withdrawn and modified to explain that the concept proposed by Mr. Jaeger appears to be based on economic theory, rather than a summary of what actually happened with the 2003 pilot water bank. While his approach to the water bank appears to be driven by his assumptions for pricing irrigated land (see Brief #1) and the theory that a Klamath Basin water market can be driven by competitive market forces, it simply does not address what actually happened in 2003 in the Upper Klamath Basin. In that case, a price per unit of environmental water was developed, based on similar programs developed in the western United States.  

Assessment of Similar Programs in the West


KWUA in 2002-03 evaluated and assessed similar water purchase programs conducted in the West in order to use those experiences to benefit the 2003 pilot water bank program.  Various experiences included the following: 


1.         Sacramento R. Contractors 2001 Forbearance Agreement with Westlands Water District

2.         Palos Verde to Metropolitan Water District transfer initiated and beginning in 2003.

3.         Various water transfers to the Department of Water Resources through CALFED’s Environmental Water Account (California).

4.         The Klamath Basin Rangeland Trust to USBR transfer in 2002 (Oregon).

5.         The Klamath Water Users demand reduction program of 2001 (Oregon / CA).

6.         The CVPIA transfer of water from Orange Cove Irrigation District to the Bureau of Reclamation proposed for 2003 (Sacramento Valley, California).


Based on our assessment of these similar programs, it was clear that unique and individual circumstances drive the overall water pricing for the various programs, but that a price of $75 per acre-ft was justified, and agreed upon in 2003.   

Future Coordination Between OSU and KWUA


We remain perplexed by your department’s apparent hesitation to work directly with the individuals who best understand demand reduction programs in the Klamath Basin – the board members, producers and district managers that comprise the membership of our association. Further, our engineering consultant – MBK Engineers of Sacramento – has on-the-ground experience with actual administration of water banking programs in California. I personally was also involved with some of these programs when I was working in Sacramento for Reclamation and Sacramento Valley irrigation districts. While theoretical exercises are interesting to ponder, we have found that empirical results derived from working with people who are actually involved with project implementation provides an invaluable means of applying “lessons learned” to future endeavors.


Again, we view the water bank as one element of an overall approach. A part of that

approach must also be the re-introduction of flexibility in annual operating procedures to

ensure that water supply certainty requirement is met. The biological opinions and

Project operations plans must recognize variability, and incorporate flexibility. As

previously stated, local water users view the environmental Water Bank as an interim

measure that can be employed to compensate irrigators in drier years. Ultimately, the

legitimate water demands of the Klamath Basin can best be satisfied through the

development of new water storage facilities. We believe Reclamation must move with all

possible haste to undertake feasibility studies authorized by the Klamath Basin Water

Supply Enhancement Act of 2000.


I hope you will understand that these comments are intended to be constructive. We believe that improved coordination regarding OSU researchers and the local irrigation community can only further enhance what we both seek: realistic and effective solutions to the resources challenges we face in the Klamath Basin.


I look forward to your response to our concerns.





Dan Keppen

Executive Director


cc:        U.S. Senator Ron Wyden

U.S. Senator Gordon Smith

U.S. Rep. Greg Walden

Senator Steve Harper

Rep. Bill Garrard

Klamath County Commission

Dean Thayne Dutson

            William Jaeger

            Ron Hathaway             


Klamath Water Users Association
2455 Patterson Street, Suite 3
Klamath Falls, Oregon 97603
(541)-883-6100 FAX (541)-883-8893 kwua@cvcwireless.net

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