Western water typically refers to water resources and rights in the Western US, where water management is influenced by the principles of prior appropriation and beneficial use. This system allocates water based on the timing and purpose of its use, reflecting the region’s unique legal and environmental context.
This is not working. Years of overconsumption and a thirty-year drought have emptied the reservoirs and sent the Colorado River system, which provides water and electricity to millions of people, into a state of crisis with no end in sight. The water shortage could have serious implications for growing sun belt cities, for key industries including agriculture and data centers, and for hydroelectric dams that power millions of homes across the Southwest.
The obvious conclusion is that a new look at allocation is imperative. While about 12 million acre-feet of water now flows down the Colorado in an average year, the century old rules that govern the use of the river have allocated rights to more than 16 million acre-feet. Agriculture is the biggest user of the Colorado River, accounting for approximately half the water consumed, with municipal water systems using about a quarter. A growing share—about 10 percent of the river’s flow—is not consumed at all but evaporates as temperatures climb across the Southwest.
With the seven states, Colorado, Utah, Wyoming, New Mexico, Arizona, California, and Nevada, that rely on the Colorado River unable to reach a water allocation agreement, the Bureau of Reclamation has stepped in. Whether the Federal Government can be helpful in this matter remains to be seen.
Investors, when constructing models of future operating results, should be aware of the issues affecting the availability of water.
Perhaps Mark Twain had it right when he said, “whiskey is for drinking, water is for fighting.”
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA
