2006-387E-Minutes for Meeting December 19,2005 Recorded 4/7/2006t
DESCHUTES RIVER
CONSERVANCY
Testimony for County Hearing
RE: Thornburg Development
Deschutes River Conservancy
December 19th, 2005
Summary
The Deschutes River Conservancy (DRC) is an Oregon not-for-profit corporation working to
restore streamflow and improve water quality in the Deschutes Basin through the use of market-
based approaches. We seek to achieve this mission by:
a. Conserving Water
b. Leasing Water Rights (temporary transfers instream)
c. Acquiring Water Rights (permanent transfers instream)
Water Conservation. We live in a desert and believe that it is everyone's responsibility to
conserve water. We have worked with five irrigation districts in Central Oregon to increase the
efficiency of their canals. The water conserved from these projects has significantly increased
streamflow throughout the Deschutes Basin. We would like to see the county adopt practices
that would create strong incentives for water conservation in all new developments.
Water Banking (Leasing and Acquiring The other important method for improving
streamflows is water banking. This approach requires a stable marketplace and we are
concerned that the county may inadvertently cause market instability and undermine the work of
the DRC and its partners.
a.. Requiring developers to obtain all water in advance will significantly impede Deschutes
River streamflow restoration. If developers are forced to acquire today all the water they
may need for a development that will be built over the next decade or longer, the demand
for water today will increase dramatically. And since the supply of water for this purpose
is constrained, the price of water would rise dramatically resulting in rampant
speculation. These conditions would likely create enormous instability in Central
Oregon's irrigation districts whose patrons own most of the water rights. Such an
outcome would undermine the collaborative, market-based approach to river restoration
supported by Central Oregon tribes, cities, irrigation districts and the Deschutes River
Conservancy (DRC).
Exhibit_ F_
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b. The county should take advantage of the Groundwater Mitigation Bank. A facility
designed to move surface water rights to groundwater rights in an orderly fashion and in
a way that restores water to the Middle Deschutes. The Deschutes River from Bend
downstream to Lake Billy Chinook is virtually dewatered in the summer and the Bank
can make a significant contribution to restoring flows in this area of critical need.
c. Thornburg Development participates in the Bank thereby supporting a stable marketplace
for water and contributing significant stream flow (6 cubic feet per second) to the Middle
Deschutes.
Groundwater Mitigation Bank
The Deschutes Water Exchange Groundwater Mitigation Bank (Bank) is a program of the
Deschutes River Conservancy (DRC). The Bank is the first and only groundwater mitigation _
bank in the Deschutes Basin. The Bank's charter was approved by the Oregon Water Resources
Commission on February 14th, 2003 pursuant to Chapter 659, 2001 Oregon Laws (HB 2184) and
OAR Chapter 690, Division 521. As an integral part of the State's Deschutes Basin
Groundwater Mitigation Program, (Mitigation Program), the Bank is authorized by the
Commission to obtain, hold and assign mitigation credits, including temporary mitigation credits,
for the purposes of facilitating transactions with groundwater applicants in the Deschutes
Groundwater Study area. Only groundwater mitigation banks are authorized to obtain, hold and
assign temporary mitigation credits based on instream leasing of surface water rights in the
Deschutes Basin.
The Bank, Thornburgh Resort and Temporary Mitigation Credits
In the 2005 water year, the Bank generated 1806.5 groundwater mitigation credits. All of these
credits were available for use in the General Zone of Impact, which is the zone of impact for
Thornburgh Resort's mitigation obligation. The Bank allocated 37% of these credits to 21
different clients for use as credits and reserves in 2005. The vast majority of the DRC's Water
Leasing Program in 2005, however, went for the purposes of river restoration (as opposed to
groundwater mitigation). In 2005 the DRC leased water instream from 5,500 acres in the upper
Basin. This leased water may be switched to mitigation use as demands on the Bank increase.
In sum then, in 2005 the DRC used just 8.1% of its total leased water for groundwater mitigation.
Under the Mitigation Program, for every acre leased instream 1.8 mitigation credits are produced
(roughly equalling the consumption of water by a typical crop in the area). Thornburgh has
contracted with the Bank for 325 credits, or in acre terms 180 acres. It is important to note that
when using leasing for temporary credits the Bank must hold 2 acres of water for every 1 acre in
credits it dispenses. The State put this policy in place in part to deal with the higher risk
associated with temporary, as versus, permanent credits. Thus, the credits for which Thornburgh
has contracted will result in the lease of 361 acres or 6 cfs instream.
The DRC has prepared a draft Documentary Evidence form for the Thornburgh credits for 325
and the credits (and water) are in hand. In fact the DRC has a large portion of the Thornburgh
credits locked in through 2008 through the Thornburgh contract and a corresponding multi-year,
non-opt out lease.
Deschutes River Conservancy Testimony - Thornburgh Development
Exhibit
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The Mitigation Program provide for the Bank to play an important role in supplying liquidity to
the groundwater mitigation market. The Bank has enabled 21 clients, including another
destination resort, to obtain their groundwater permits and has every intent of supplying
temporary credits to service the market in the future. Further, the DRC is now working with
local irrigation districts on a collaborative water bank that will enable the DRC to graduate
members of the Bank to permanent credits as they become available. Despite many delays and
difficulties, the State's Mitigation Program is developing as intended and is starting to work,
which is why the Thornburgh ruling by the Hearings Officer is disappointing.
Thornburgh has diligently followed the Mitigation Program for developing new groundwater
permits in the Deschutes and has proactively sought out and paid for mitigation before it would
be required - thereby assisting the DRC in its efforts to restore flows to the Middle Deschutes,
while offsetting impacts on the lower Deschutes. The County Hearings Officers ruling is
therefore not only contradictory to State law and regulation, but is a setback for the many
organizations in Central Oregon that are doing their best to make these State rules work for the
sake of the Deschutes River - and build a lasting consensus about how a cooperative approach
can lead to the satisfaction of not just some, but all interested parties.
Perspective on the County's Role
Under the State's Groundwater Mitigation Program for the Deschutes Basin new groundwater
rights in the upper Deschutes Basin (above Lake Billy Chinook in effect) are permitted only
when their impacts on Scenic Waterway flows in the lower Deschutes River can be offset by
projects that provide equal amounts of mitigation water to the hydrologic system. Mitigation
water is measured in consumptive use of water, which is that amount of water that is evaporated
or transpired in the process of `using' water for agricultural, drinking, industrial or other uses.
As Basin surface waters were closed for further appropriation since 1913 and the Mitigation
Program requires the trading of one consumptive use for another in order to obtain a new
groundwater right, a cap has now been effectively placed on the use (where this refers to
consumptive use) of water in the basin.
From 1998 until 2002, when the Mitigation Program rules were approved, the upper Basin was
closed to further groundwater permits. In the three years since some progress has been made in
granting new groundwater rights. With the resolution of the Waterwatch Court of Appeals case
and the passing of HB 3414 in 2005, the Mitigation Program is set to reach full operational
stride. Uncertainty over the future of the program and speculation in water rights have greatly
impeded the development of an orderly market and a stable business-like environment. With the
uncertainty largely resolved by HB 3414 the remaining issue faced is that of speculation and the
confusion it causes amongst buyers and sellers of credits and water rights. In simple terms,
speculation consists of buying water from landowners at $1,000 an acre, paying an exit fee of
$1,000 and then marketing the resulting credits at $5,000 or $6,000 an acre. Given that we are in
the middle of a transition that is just producing the first permanent mitigation credits there are
individuals willing to pay such high prices to `finalize' their new groundwater rights.
Deschutes River Conservancy Testimony - Thornburgh Development
Exhibit C
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This creates confusion in the marketplace as many landowners feel they should access a portion
of these profits, or even worse that their water is worth $6,000 an acre. This simply makes price
another barrier to the orderly transition in use of water that the DRC and its partners have been
investing in for years. As the 2002 USDA National Agricultural Census shows that net income
to farm operations in Deschutes County was negative $4.3 million it seems clear that in the long
run the lower end of the price range is more likely to be reflective of a true market clearing price.
A determination by the county (or cities) that developers must have all their water rights in hand
in order to obtain approval is counter-productive and can have large unintended consequences
for the success of the Mitigation Program and of the DRC's efforts at restoration.
The DRC is working with irrigation districts, cities, landowners and tribes to find a cooperative
and collaborative solution to future water management in the Basin, which will involve a
transition to a more diverse and productive use of water and from different sources. The
transition from a temporary reallocation - reflected in the water leasing and temporary credits -
to a permanent reallocation will take time. A County determination that new developments need
all their water up front will only exacerbate market pressures and feed continued speculation in
water rights.
All over the United States, communities are struggling to confront issues related to groundwater
use and management. The Deschutes Program is the first program of its type in the United States
and hews to best management practices for collaborative, market approaches to environmental .
problems. The Deschutes River Conservancy looks forward to future discussions with
Deschutes County in the expectation that the County will want to partner in a proactive way with
the DRC, the irrigation districts, cities and tribes and steer this Program to success and our rivers
back to health.
Deschutes River Conservancy Testimony - Thornburgh Development
Exhibit
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