Utah Valley has its own Wall Street - on the waterfront.
Water has suddenly become a hot commodity. Water rights and water shares are trading hands as if the New York Stock Exchange had opened a branch office on the shore of Utah Lake. Brokers and speculators are snapping up stock in local irrigation and canal companies, hoping to turn a profit on the most precious of natural resources. Developers and city water managers are scurrying to obtain whatever comes available on the market.Prices for water are soaring in the second driest state in the nation.
"It's the old Cabbage Patch doll syndrome: You only have so many, and the price goes nuts," said Farrell Larson, president of the American Fork Irrigation Co.
Water shares that sold for a few hundred dollars a year or so ago are now priced at a few thousand dollars. The same water rights that traded for $25 an acre-foot out of Utah Lake five years ago have shot up to near $300.
Residential and commercial growth, and the demands posed by impending development - a trend marked most notably by Boise-based Micron Technology's decision in March to build a 3,500-employee semiconductor plant at the base of Traverse Ridge - are driving water
values up. (Micron will use 2 million gallons a day.) But there are other factors.
"The growth along the Wasatch Front has brought this thing to a head. It has caused a feeding frenzy," said Merril Bingham, Provo water resources director.
A Pleasant Grove real estate agent looking to consummate a land deal said he asked a water broker to find him 524 acre-feet of water a few weeks ago. The price was $400 an acre-foot. An acre-foot is 12 inches of standing water on one acre and is the amount an average household consumes in a year. The Realtor was told this past week the price was now $1,400 an acre-foot.
The asking price for water doubled on the heels of Micron's announcement, some observers say.
"That's just the beginning. That's just the first shot," said Bruce LeFavi, a Salt Lake financial consultant who purchased a large block of private water for clients as a moneymaking venture. He said water values are increasing at a faster rate than land values.
"If people are looking at investments, the water is a much higher return on investment than the land itself," LeFavi said.
That's not lost on people who own water rights and water shares. Or on those who've gone into the brokering business.
"Every drop of water that falls from the sky is owned by someone. You can watch it go by, but you can't touch it," says American Fork resident Evan Johnson, who has a standing ad in local weekly newspapers to buy or sell water.
But lately, people are doing a lot more touching than watching.
Newspapers ads like Johnson's are becoming as common as ads for used cars.
"ONE SHARE Lehi irrigation stock for sale. $4,000/OBO."
"FOR SALE. .92 shares of American Fork irrigation water."
You'll find "Water Shares" in the Lehi Free Press' classified ad section between "Topsoil and Gravel" and "Apartments for Rent."
Johnson, who got into water brokering when a friend asked him to sell his water shares, said business is good, but he's not making a killing. "There's not like hundreds of thousands of dollars in this business," he said.
Bingham, the Provo water resources director, lays some of the blame for rising water costs on brokers and speculators.
"It's unfortunate that we've allowed water to become real property, in my opinion," he said.
Some city water officials say the state should never have allowed water rights to be bought and sold separately from a piece of land. In Wyoming, for example, water rights are tied to the point of use. The owner of the land is the only one who can apply to the state to change the use, which limits the amount of bartering that can occur.
What's going on in Utah Valley will ultimately fall on taxpayers. "The bottom line is that the public is going to foot the bill for the speculating, the profiteering, " he said. "The only thing we can do is pass the cost on to our customers."
Jay Garlick, a Wardley Better Homes and Gardens Realtor, takes exception to, one, being called a water broker and, two, anyone suggesting he's pushing values skyward.
"I am not a water broker. I'm a real estate agent who sells land or water," he said. "They're sorely mistaken when they say it's me driving the price of water up."
Ironically, Utah County cities might be responsible for the current situation. Most will no longer accept cash in lieu of water shares on property proposed for development. Cities won't allow homes or business construction on land that does not have water rights, including dry farms that never had any.
Developers and real estate agents frequently run into situations where property owners have sold or traded away the water rights on a piece of ground. That forces them to shop around for water. They then have to apply to the state to transfer those rights.
"We're seeing a lot of change applications," said Jim Riley, state Division of Water Rights director.
Until a year ago, Utah Valley cities would accept about $500 an acre for water from a developer who wanted to build a subdivision. But city officials found that amount wouldn't cover the cost for a sip of water. They watched as water was bought and sold or traded outside the county. Officials figured the only way to get water was for builders to bring it to them.
Orem, one of the few Utah County cities that don't have a water rights ordinance, has made buying more water a top priority this year.
"The real rub in this whole thing is that cities operate culinary systems, yet now they're taking in irrigation water," Larson said. He and others wonder why.
Bingham said cities changed the way they do business to protect what lies within their boundaries. "It seems to me that the water that has historically been used in Provo should stay in Provo," he said.
Bingham's bothered that someone can buy a water share in Provo and obtain permission from the state to transfer it to Lehi by changing the water's diversion point. "Then we're left without that water," he said.
Cities stockpile irrigation water shares with the intention of someday converting it drinking water. That would be possible by allowing the city's share in a ditch, for example, to run into Utah Lake and digging a well elsewhere. The theory behind such an exchange is that the amount of water consumed is the same. It would also be possible to divert surface water in a river or canal to a water treatment plant.
Some cities, Larson said, have collected more water shares than they'll ever use. They run the risk of losing those shares because they're inactive. The state has the right to seize water shares that are not put to beneficial use.
Another factor affecting water prices is an 80-year court battle over water appropriation. That court case will come to an end in the next few years when the state water engineer takes away water shares that are no longer being used appropriately. Some people are trying to unload stock before they lose it.
Because of escalating water prices, cities say collecting a few hundred bucks in place of water shares will compromise their future water supplies.
"A bank full of cash won't buy water," Pleasant Grove Mayor Lloyd Ash said when the city adopted an ordinance last year requiring water shares on development. "When we need the water we won't be able to buy it because it won't be there."
Some worry that residential and commercial development such as Micron will severely tax Utah Valley's groundwater supply.
"There's definitely not an endless supply of water in Utah County," said Riley, the state water rights official. But "there's enough for now at this point."
Utah Valley lies on a large, high-quality aquifer created by its topography and geology.
The altitude of the valley floor ranges from less than 4,500 feet near the lake to 5,200 feet in the mountains. The 11,750-foot-high Mount Timpanogos rises higher than any peak on the snow-capped Wasatch Range. The mountains that adjoin the valley lowlands are bounded by benches formed by glacial Lake Bonneville.
Snowmelt works its way between granite rocks on Lone Peak and fractured limestone on Mount Timpanogos (Timpanogos Cave gives a glimpse of this in action) until it comes to rest in aquifers on the valley floor. It's some of the cleanest water in the state, enhancing its value appreciably. Most of it eventually flows into Utah Lake.
A 1985 U.S. Geological Survey report on north valley groundwater sources predicts that mountains deposit 340,000 acre-feet of water into the earth annually. About 190,000 acre-feet are withdrawn. State engineer Bob Morgan looks at it like a bank account.
"When you look at it from a checking standpoint, we're not in too bad of shape," he said.
From 1963 to 1982, more groundwater was removed than replaced, according to the USGS study. Agricultural use has given way to residential, commercial and industrial needs. The demand continues to rise as the population swells.
No one knows when the current frenzy will end and how it will affect future water resources. Riley said watching Utah Lake will be a good indication. If lake levels drop, the water supply will be diminishing.
Water managers agree that conservation and cities working together could reverse the current trend. Until then, the harried water business in Utah Valley will leave it in a New York state of mind.