RECYCLED WATER, KNOWN AS effluent, has joined oil, gas, lumber, and real estate as commodities to be auctioned to the highest bidder.
To help sustain its economic growth, Prescott Valley, Ariz., recently conducted what it claimed was the largest auction of effluent rights in the U.S. On Nov. 1 through 3, 2,724 acre-feet of effluent produced by the town were put up for bid to raise more than $50 million. (One acre-foot equals 325,851 gallons.) The total amount of water being auctioned could support up to 12,000 new homes, according to the town.
Water is a particularly precious commodity in the West, and one that's getting more expensive. In September, Prescott Valley's Town Council approved a record 22 percent rate hike for water use. And while there have been only a few water auctions so far, Clay Landry, managing director of Vancouver, Wash.–based West Water Research, predicts they will become more common over time. Prescott Valley retained West Water, a water marketing and asset management consultant, to conduct its auction.
West Water sent auction packages to 50 interested investors, developers, and private equity firms. Landry notes, however, that builders have gotten involved in some past auctions. For example, between 2003 and 2005, Washoe County, Nev., conducted three auctions to sell 300 acre-feet of existing water associated with a local golf course. The first auction was modestly successful, but the second flopped. By the time of the third auction, in 2005, Reno's housing market was booming and the county's major source of water supply, Truckee Meadows Water Authority, was running dry.
The third auction, for nearly 190 acre-feet, attracted 30 bidders, including Centex Homes, some of whose winning bids were more than double those of other parties, such as Lennar and Truckee Meadows. The county encouraged large companies to compete against smaller companies, which some believe caused bid inflation.
Learn more about markets featured in this article: Reno, NV.