Publications - What's New
Liquid Gold or Water for Pecans: Valuation of Edwards Aquifer Water for the Braggs’ Orchards (08/11/15)
The Texas Supreme Court's Day decision reversed a hundred years of water law in 2012, and changed groundwater ownership rights from a “rule of capture” to ownership of “groundwater in place.” That decision equated groundwater ownership to oil and gas, and concluded that differentiating “between groundwater and oil and gas in their importance to modern life would be difficult.” Day set up a conflict between value of the owner’s groundwater in place, and management of the Edwards Aquifer for public benefit – including the people of San Antonio, who rely on the Aquifer for their public water supply.
The ongoing Braggs v. Edwards Aquifer Authority litigation is the first of what could be a number of Texas cases invoking Day to claim a regulatory taking due to the Edward Aquifer Authority's (EAA) management of the groundwater. On May 1, 2015, the Texas Supreme Court denied petitions by the plaintiffs Mr. & Mrs. Bragg, and the defendant EAA to review the 2013 appellate court ruling. This let stand the Court of Appeals' decision that EAA’s permit denials for the Braggs’ two orchards amounted to a regulatory taking under Penn Central. As a result of the Texas Supreme Court’s denial, the appellate court’s remand for the valuation of Braggs’ damages for their taken water supply is the remaining issue in the case.
Plaintiffs' counsel demands just compensation for Braggs’ water as a tradeable commodity (akin to “Black Gold” for oil in the ground). The EAA based its view of damages for Braggs’ taken water use on the replacement cost of leased water to irrigate their pecan orchards. The difference between the plaintiffs' and the EAA's economic loss estimates is nearly $4 million.
The appellate court remanded for valuation of the pecan orchard land with and without access to Edwards Aquifer water. The Braggs’ land, however, was not the taken property. Rather, the Braggs lost the right to use Edwards’ Aquifer water to irrigate their pecan orchards. The correct valuation method would be the present value of reduced farm income, past and future, with and without access to the EAA water—not FMV of land values. The appellate court remand direction is an economic error. Economic loss of Braggs’ farm income should be measured by standard Daubert-vetted lost income methods.
These problems with both the plaintiff’s and the defendant’s valuation approaches, together with the deficient appellate remand approach, have ramifications for future Penn Central litigation attendant to Day and Bragg. A long history of Penn Central takings cases reveals that Penn Central’s famous three-prong test entails a quantitative measurement of the plaintiff’s severity of economic loss. This begins with a proper economic measurement of losses, and subsequent benchmarking of those losses to a denominator value that reveals whether the plaintiff’s distinct (or reasonable) investment-backed expectations have been frustrated. The property owners' briefs in the Bragg case reveal dissatisfaction with any valuation approach but the tradeable value of the water. The EAA's briefs reveal that no quantitative Penn Central test appears in the proceedings.
In view of the importance of dependable water supplies for Texas, the outcome of the remand is significant to more than the Braggs and EAA. This water resource economist hopes that standard valuation approaches will lead to a balancing of private water rights with public needs for Texas water supply management. If ever-careful attention was needed to Penn Central's famous three-prong ad hoc balancing of property rights and government regulation for the common good, it would seem that the Texas Supreme Court’s denial of the Bragg petition was a missed opportunity.
Unresolved is whether the Braggs might enjoy a sufficient reciprocity of advantage as identified in Penn Central by EAA’s pumpage regulations to offset their losses, or whether the gains all accrue to the rest of Texas while the Braggs unfairly shoulder the burden that in all fairness should be shared across society.
Regulatory Takings, Texas Groundwater, and Hydrofracking (1/15/2013)
Texas may have created the "Takings and Condemnation Lawyer Full-Employment Act."
The Texas Supreme Court in February 2012 reversed a hundred years of water law, changing groundwater ownership rights from a "rule of capture" to ownership of "groundwater in place." (Edwards Aquifer Authority v. Day, 274 SW.3d 742, (Tex. Feb. 23, 2012, "Day")) The decision equated groundwater ownership to oil and gas and concluded that differentiating "between groundwater and oil and gas in their importance to modern life would be difficult." Ownership of the surface provides ownership of the water regardless of capture.
Day sets-up a conflict between value of the owners groundwater in place and management of the larger aquifer for public benefit. Texas Water Lawyer, Drew Miller, who represented Edwards in the litigation, reported that [t]he . . . immediate result of the Day decision is that landowners may assert regulatory takings claims against . . . governmental entities in response to regulation that limits or prohibits access to, or production of, groundwater. (November 8, 2012.) The Day decision invoked SCOTUS legal theories that might govern compensation--Loretto, Lucas and Penn Central--and remanded Day "to the district court for further proceedings" to sort them out.
Here is the rub: water is scarce in Texas and about 2/3 of human consumption is groundwater. Drought is upon the land in 2013 and expected to become increasingly recurrent. Groundwater Conservation Districts (GCDs) regulate usage of groundwater within most Texas counties. Now that title to the water in place resides with the landowner, GCD management of the larger aquifer for the public good runs the risk of a takings claim seeking compensation.
Suppose you are the GCD for part of an aquifer within a Texas County. Assume that the aquifer provides the municipal water supply for a town of 200,000. For decades, surrounding ranchers have relied on the aquifer to provide a few hundred acre-feet of water for their livestock and a few homes. Now, assume that the county overlies a large shale oil and gas resource and several of the ranchers have leased their land and water rights to an oil company that plans to produce (an unknown but maybe) thousands of acre-feet of groundwater for hydrofracking wells for years to come.
The ranchers, the oil company, the GCD and the municipal water users are about to find out exactly how much the water is worth and whether the produced oil and gas or the life-sustaining water is more valuable. Besides working out what might be the terms of exchange between the ranchers and the oil company for the water, I can think of a number of engineering, hydrologic, environmental and other economic issues that must be sorted out to even consider litigating a regulatory taking case.
If Penn Central were the governing legal theory, I can imagine a number of empirical hurdles to surmount to establish severity of economic impact and frustration of distinct investment backed expectations. Penn Central average reciprocity of advantage might invoke careful scrutiny of the benefits and burdens at issue. In short, "further proceedings" for the Penn Central test invoke myriad challenges for those who follow the arcane nuances of regulatory takings – well-beyond multiplying some water price times a quantity to claim damages!
Regional Economic Impacts
TransCanada Tar Sands Oil - Keystone XL Pipeline REMI/EWE Estimates of Economic Impacts (PDF)
The Keystone XL Pipeline: Presentation:
Keystone XL REMI/EWE Presentation (2/26/2012)
Regulatory Takings
Dr. Wade has specialized in the economics of Regulatory Takings since1995. This experience springs from his background in finance and project evaluation. Dr. Wade has been the expert witness in eight past & current takings cases, which involve measurement of the Penn Central test and damages. Four 2010 - 2013 articles discuss Federal Courts' and experts' analyses of the Penn Central test.
Recent Articles:
“Liquid Gold or Water for Pecans: Valuation of Edwards Aquifer Water for the Braggs’ taken Orchards,” Environmental Law Reporter 1, October 2015.
“Misconstruing Size of Economic Impacts as the Determinant of Penn Central test Does Not Invoke Average Reciprocity of Advantage,” 21 West Northwest Journal of Environmental Law & Policy, No.2, 197 (summer 2015).
"Tahoe Sierra, Regulatory Takings and The Denominator Problem, " (ELR February 2013)
Recent Water Supply Valuation Cases
Dr. Wade has been expert economist in four large water supply loss/contamination cases in recent years. These cases entailed supply planning, demand estimation, econometric valuation techniques. Expert reports were submitted for direct and rebuttal testimony. Depositions and trial testimony occurred.
City of Franklin v. HWRA
Defendant expert. (SELC) Filed Expert Report with TDEC calculating cost of City’s treated water v. purchased HVUD treated water and other social and environmental values at risk to City’s desired new water treatment plant. Testified at TDEC public hearing and follow-on conference at TDEC. Ongoing, 2015. Provided follow-on reports on rates and demand forecasts.
City of Waynesboro TN v.
Mountain States Contractors
Plaintiff expert. (Boston, Holt, et. al.) Filed Expert Report demonstrating value of municipal water supply lost due to engineering disruption of producing aquifer. Case settled, January 2015.
Little Hocking v. DuPont
Defendant expert. (Spilman, Thomas and Battle, counsel) Filed Expert
Report rebutting plaintiff economist’s damage estimates, May 2014. Ongoing 2015.
San Diego v. Kinder Morgan Defendant expert. (DLAPiper and Downey Brand counsel, 2010-2012.
Reports Filed. Dauber motion filed to exclude plaintiff's economist.
Tampa Bay v. HDR, et al Defendant expert. (Holland& Knight and Stanislaw Ashbaugh, counsel), 2010-2011. Plaintiff's lost use damages eliminated based on my testimony and a successful Daubert challenge.
Royals v. Campbell County VA Plaintiff expert. (Gentry Locke Rakes & Moore, Roanoke,
counsel), 2007 - 2009. Trial decision for plaintiff -- awarded my damage estimate; overturned on appeal.
State of MS v. City of Memphis Plaintiff expert. (Daniel Coker Horton & Bell, Oxford MS,
counsel), 2006 – 2008. Case moved from Federal Court to Supreme Court sua sponte on eve of trial without prejudice. $1.2 billion damage estimate.
Work on these recent cases builds-on wide ranging water resource economic expertise developed since 1986 working coast to coast and in the Midwest in policy and litigation venues for attorneys, water districts, state and federal agencies and municipalities. Dr. Wade’s national water resource economics practice addresses diverse water resource challenges. For example, he has analyzed reallocation of water supplies among users in California and the Midwest; water supply plans in Georgia, Tennessee, and the Midwest; reservoir management plans across multiple states for the Tennessee Valley Authority and in California.
Part 1 Franklin must rethink Harpeth River’s value
Part 2: Franklin’s changes demand new look at Harpeth River
Part 3 Harpeth River Management Plan to Create a Gateway to Franklin
Energy & Water Economics 1021 Riverview Drive, Franklin TN 37064
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