This information was taken from http://www.picoholdings.com/WaterRightsStorage.html - the Pico Holdings page about their Vidler Water Company holding. As of July 2004 the page appears not to have been updated in some time and is archived here against it's accidental removal.
Vidler Water Company, Inc.
Vidler Water Company, Inc. ("Vidler") is the leading private
company in the water resource development business in the southwestern United
States. PICO identified water resource development in the Southwest as an
attractive business opportunity due to the continued growth in demand for water
resulting from population growth, economic development, environmental
requirements, and the claims of Native Americans. Vidler is not a water utility,
and does not intend to enter into regulated utility activities. We develop new
sources of water for municipal and industrial use, and necessary storage
infrastructure to facilitate the efficient allocation of available water
Opportunities for Vidler result from inefficient allocation
of available water between agricultural users and municipal or industrial users,
or the lack of available known water supply for a particular area:
- the majority of water rights are currently owned or controlled by
agricultural users, and in many locations there are insufficient water rights
owned or controlled by municipal and industrial users to meet present and
- certain areas of the Southwest experiencing rapid growth have insufficient
supplies of known water to support future growth. Vidler identifies and
develops new water supplies for communities with no other known water to
support future growth;
- currently there are not effective procedures in place for the transfer of
water from private parties with excess supply in one state to end-users in
other states. However, regulation and procedures are steadily being developed
to facilitate the interstate transfer of water; and
- infrastructure to store water will be required to accommodate and allow
interstate transfer, and transfers from wet years to dry years. Currently
there is limited storage capacity in place.
We entered the water resource development business with the
acquisition of Vidler in 1995. At the time, Vidler owned a limited quantity of
water rights and related assets in Colorado. Since then, Vidler has acquired:
- additional water rights and related assets, predominantly in Arizona and
Nevada. Vidler seeks to acquire water rights at prices consistent with their
current use, with the expectation of an increase in value if the water right
can be converted to a higher use. A water right is the legal right to divert
water and put it to beneficial use. Water rights are assets which can be
bought and sold. In some states, the use of the water can also be leased. The
value of a water right depends on a number of factors, including location, the
seniority of the right, and whether or not the right is transferable. The
majority of Vidler's water rights are in Nevada and Arizona, the two states
which are leading the nation in population growth and new home construction.
Our objective is to monetize our water rights for municipal and industrial use
in Arizona and Nevada. Typically, our water rights are the most competitive
source of water to support new growth in municipalities and new industry in
Arizona and Nevada; and
- a water storage facility in Arizona and an interest in Semitropic, a water
storage facility in California. Our water storage facility in Arizona is fully
permitted and ready for commercial use, while water has been stored
commercially at Semitropic since 1995.
PICO currently owns approximately 96.2% of Vidler.
Vidler is engaged in the following activities:
- supplying water to end-users in the Southwest, namely water utilities,
municipalities, developers, or industrial users. The source of water could be
from identifying and developing a new water supply, or a change in the use of
water from agricultural to municipal and industrial use;
- development of storage and distribution infrastructure, and then
generating cash flow from charging customers fees for "recharge," or placing
water into storage; and
- purchase and storage of water for resale in dry years.
After an acquisition and development phase spanning several
years, Vidler completed its first significant sales of water rights for
industrial use in 2001 and municipal use in 2002. Vidler's priority is to
monetize or develop recurring cash flow from its most important assets by:
- securing significant supply contracts utilizing its water rights in
Arizona and Nevada; and
- storing water at the Vidler Arizona Recharge Facility.
Vidler has also entered into joint ventures with parties who
have water assets but lack the capital or expertise to commercially develop
these assets. Vidler continues to explore additional joint venture opportunities
throughout the Southwest.
This table details the water rights and water storage assets
owned by Vidler at December 31, 2002. Please note that this is intended as a
summary, and that some numbers are rounded. Item 7 of this Form 10-K contains
more detail about these assets, recent developments affecting them, and the
An acre-foot is a unit commonly used to measure the volume of
water. An acre-foot is the volume of water required to cover one acre to a depth
of one foot. As a rule of thumb, one acre-foot of water would sustain two
families of four persons each for one year.
At December 31, 2002, Vidler owned or had the right to
acquire approximately 49,559 acre-feet of transferable ground water in the
Harquahala Valley, approximately 75 miles northwest of metropolitan Phoenix,
Arizona. We believe that Vidler's water rights in the Harquahala Valley
represent the most practical and competitive source of water to support the
growth of greater metropolitan Phoenix, which is one of the fastest growing
areas in the nation.
Vidler's water rights in the Harquahala Valley are primarily
located in Maricopa County. According to census data, Maricopa County was the
fastest growing county in the U.S. between April 1, 2000 and July 1, 2001, with
53,367 new homes added, an increase of 4.3% in 15 months. Vidler anticipates
that there will be municipal demand for water from the Harquahala Valley to
support the growth of the west side cities in Maricopa County, which are part of
greater metropolitan Phoenix.
Any new residential development in Arizona must obtain a
permit from the Arizona Department of Water Resources certifying a "designated
assured water supply" sufficient to sustain the development for at least 100
years. The Harquahala Valley ground water meets the designation of assured water
supply. In order for the ground water to be used by municipalities in the
heavily populated parts of Arizona, the water must be "wheeled", or transported,
from the Harquahala Valley to the end users. The Arizona State Legislature has
passed legislation which allows Harquahala Valley ground water to be made
available as assured water supply to cities and communities in Arizona through
agreements with the Central Arizona Groundwater Replenishment District.
In March 2002, Vidler concluded its first sale of Harquahala
Valley ground water for municipal use, with the sale of 3,645 acre-feet of water
rights and 1,215 acres of land in the Harquahala Valley ground water basin, to
golf course developers near Scottsdale. The sale price represents $1,450 per
acre-foot of water. The sale added $5.2 million to revenues and approximately
$1.9 million to gross margin in 2002.
The Arizona State Legislature has passed several pieces of
legislation which recognize the Harquahala Valley ground water as a future
municipal supply for the Phoenix metropolitan area. In 1991, the expansion of
irrigated farming in the Valley was prohibited, and the transfer of the ground
water to municipalities was authorized. In order to protect the Harquahala
Valley ground water from large commercial and industrial users which were moving
into the Basin, legislation was enacted in 2000 placing restrictions on
commercial and industrial users utilizing more than 100 acre-feet of water
annually. These users are required to purchase irrigable land and to withdraw
the water that they need from the land at no more than 3 acre-feet per annum per
acre of land.
Vidler has closed two sales of Harquahala Valley ground water
to an industrial user within the Harquahala Basin:
- in March 2001, Vidler sold 6,496.5 acre-feet of water rights and 2,589
acres of land. This transaction added $9.4 million to revenues and $2.3
million to gross margin in 2001; and
- in May 2002, Vidler sold 480 acre-feet of water rights and 240 acres of
land. This transaction added $1 million to revenues and $556,000 to gross
margin in 2002.
Vidler is working on further sales of Harquahala Valley
ground water to both industrial users and communities and developers in the
Phoenix metropolitan area who need to secure further water to support expected
Vidler has been increasing its ownership of water rights in
northern Nevada through the purchase of ranch properties and entering into joint
ventures with parties owning water rights, which they wish to maximize the value
Nevada is the state experiencing the most rapid population
growth and new home construction in the United States. The population is
concentrated in southern Nevada, which includes the Las Vegas metropolitan area.
- Lincoln County
- Sandy Valley, Nevada
- Muddy River water rights
The Muddy River is a perennial river fed by the Muddy
Springs in Southern Nevada, originating in Nevada and flowing into Lake Mead.
Currently, Muddy River water rights are utilized for agriculture and
At December 31, 2002, Vidler owned approximately 221
acre-feet of Muddy River water rights, and had the right to acquire an
additional 45.6 acre-feet. The Southern Nevada Water Authority has been
acquiring Muddy River water rights as a water resource for future growth.
- Fish Springs Ranch
During 2000, Vidler purchased a 51% interest in Fish
Springs Ranch, LLC ("Fish Springs") and a 50% interest in V&B, LLC. These
companies own the Fish Springs Ranch and other properties totaling
approximately 8,600 acres in Honey Lake Valley in Washoe County, 45 miles
north of Reno, Nevada. Approximately 8,000 acre-feet of permitted water rights
associated with Fish Springs Ranch are transferable to the Reno/Sparks area.
The water rights at Fish Springs have been identified as the most economical
and proven new source of supply to support new growth in the North Valley
communities of Washoe County. This county was in the top 2% of all counties in
the U.S. for new home construction between April 1, 2000 and July 1, 2001.
According to census data, almost 5,500 new homes were constructed over that 15
month period, a 3.8% increase.
Vidler is holding discussions with a number of potential
users for the Fish Springs water rights, including developers and industrial
users. There is strong demand for water in the North Valleys, and few
alternative sources of supply. The future demand of the North Valleys area is
estimated to exceed 12,000 acre-feet annually. If water from Fish Springs
could be supplied to the North Valleys, this would reduce their reliance on
Truckee River water which comes through Reno, thereby providing environmental
benefits and additional water to support growth in and around Reno, an area
which has been experiencing consistent growth.
In October 2002, the Regional Water Planning Committee
accepted the North Valley Water Supply Comparison report. This study
re-evaluated the feasibility and potential cost of supplying future North
Valleys water demands with continued exportation of water from the Truckee
River Basin, or, alternatively, meeting the demands from Fish Springs and two
other basins. The study indicated that groundwater from Fish Springs would be
the most economical source of supply. Alternatively, if the capacity of nearby
transmission lines can be expanded, we believe that Fish Springs Ranch would
be an attractive site for gas-fired electricity generation.
- Big Springs Ranch
Big Springs Ranch consists of approximately 37,500 acres of
deeded ranch land, located approximately 65 miles east of Elko, Nevada, in the
northeastern part of the state. Currently the ranch land is leased to farmers,
although parts of the property have the potential for a higher and better use.
There are 6,000 acre-feet of certificated water rights at
Big Springs Ranch, which are the only known practical source of water to
support new growth for West Wendover, Nevada and Wendover, Utah.
In addition, there are 6,000 acre-feet of permitted water
rights related to the ranch, and Vidler has filed applications for an
additional 5,950 acre-feet of water rights.
- West Wendover, Nevada
Vidler is working jointly with Lincoln County to locate and
develop water resources in Lincoln County, Nevada. Lincoln County and Vidler
have filed applications for more than 100,000 acre-feet of water rights,
covering substantially all of the unappropriated water in the County, with the
intention of supplying water to rapidly growing communities and industrial
users. We believe that this is the only known new source of water for Lincoln
Vidler anticipates that up to 40,000 acre-feet of water
rights will ultimately be permitted from these applications, and put to use in
Lincoln County. We anticipate demand from industrial users locating new
facilities in Lincoln County, and from municipalities. Under the Lincoln
County Land Act, more than 13,000 acres of publicly owned land in southern
Lincoln County will be offered for sale near the fast growing City of
Mesquite. Additional water will be required if this land is to be developed.
In 1998, Lincoln/Vidler filed for 14,000 acre-feet of water
rights for industrial use from the Tule Desert Groundwater Basin. In November
2002, the Nevada State Engineer granted an application for 2,100 acre-feet of
water rights, and ruled that another 7,244 acre-feet could be granted, but
would be held in abeyance while Lincoln/Nevada pursues additional studies.
The Lincoln County undertaking is an example of a
transaction where Vidler can partner with an entity, in this case a
governmental entity, to provide the necessary capital and skills to
commercially develop water assets.
In 1999, Vidler filed an application for approximately
2,000 acre-feet of water rights near Sandy Valley, Nevada. In June 2002, the
Nevada State Engineer awarded Vidler 415 acre-feet of the water rights. Vidler
has filed an appeal regarding the balance of the water applied for.
Pending resolution of the final amount of water to be
permitted, Vidler has reached tentative agreement to put this water to
beneficial use within Nevada, to support additional growth at Primm, Nevada.
Primm is a resort town on the border between California and Nevada, in the
Interstate 15 corridor. The water rights awarded to Vidler are the only known
water to support future growth in Primm and surrounding areas in Nevada near
the California state line.
In 1999, a land exchange was completed in which approximately
70,500 acres of ranchland at Big Springs Ranch was exchanged with the Bureau of
Land Management for several parcels of developable land near West Wendover,
Nevada, totaling approximately 6,300 acres. West Wendover is adjacent to the
Nevada/Utah border in the Interstate 80 corridor. Governmental officials are
considering a proposal to adjust the state line and then merge the cities of
West Wendover, Nevada and Wendover, Utah. West Wendover is approximately 120
miles from Salt Lake City, Utah, and attracts a significant number of drive-in
visitors from Utah, a state where gaming is prohibited. The land owned by Vidler
will stay in Nevada.
The first parcel to be developed is approximately 82 acres of
industrial land. In September 2002, Vidler sold 7 acres of unimproved land for
$500,000, or approximately $71,429 per acre, to a developer who is responsible
for installing offsite utilities and access road improvements for an industrial
park. We anticipate that these improvements will allow Vidler to sell the
remaining 75 acres as higher-value industrial land.
Vidler is examining alternatives for the remaining parcels,
including industrial, commercial, hotel/casino, and residential development.
Vidler has almost completed the process of monetizing its
water rights in Colorado, through sale or lease.
- Vidler Arizona Recharge Facility
During 2000, Vidler completed the second stage of
construction at its facility to "bank," or store, water underground in the
Harquahala Valley, and received the necessary permits to operate a full-scale
water "recharge" facility. "Recharge" is the process of placing water into
storage underground. Vidler has the permitted right to recharge 100,000
acre-feet of water per year at the Vidler Arizona Recharge Facility, and
anticipates being able to store in excess of 1 million acre-feet of water in
the aquifer underlying much of the valley. When needed, the water will be
"recovered," or removed from storage, by ground water wells.
Vidler has the only permitted, complete private water
storage facility in Arizona. Given that Arizona is the only southwestern state
with surplus flows of water available for storage, we believe that Vidler's is
the only private water storage facility where it is practical to "bank", or
store, water for users in other states, which is known as "interstate
banking". Having a permitted water storage facility also allows Vidler to
acquire, and store, surplus water for re-sale in future years.
The Vidler Arizona Recharge Facility is the first privately
owned water storage facility for the Colorado River system, which is a primary
source of water for the Lower Division States of Arizona, California, and
Nevada. The water storage facility is strategically located adjacent to the
Central Arizona Project ("CAP") aqueduct, a conveyance canal running from Lake
Havasu to Phoenix and Tucson. The water to be recharged will come from surplus
flows of CAP water. We believe that proximity to the CAP is a competitive
advantage, because it minimizes the cost of water conveyance.
Vidler is able to provide storage for users located both
within Arizona and out-of-state. Potential users include industrial companies,
developers, and local governmental political subdivisions in Arizona, and
out-of-state users such as municipalities and water agencies in Nevada and
California. The Arizona Water Banking Authority ("AWBA") has the
responsibility for intrastate and interstate storage of water for governmental
Vidler intends to charge customers a fee based on the
amount of water "recharged," and then an additional fee when the water is
"recovered." The revenues generated from this asset will depend on the
quantity of water which the AWBA, and private users, store at the facility.
The quantity of water stored will depend on a number of factors, including the
availability of water and available storage capacity at publicly owned
We believe that a number of events in recent years have
increased the scarcity value of the project's storage capacity. At a public
hearing in March 2000, the AWBA disclosed that the Bureau of Reclamation has
indicated that, before permits are issued for new facilities to store water
for interstate users, extensive environmental impact studies will be required.
The AWBA also indicated that the first priority for publicly owned storage
capacity in Arizona is to store water for Arizona users. At the same hearing,
the states of California and Nevada again confirmed that their demand for
storage far exceeds the total amount of storage available at existing
facilities in Arizona. Consequently, interstate users will need to rely, at
least in part, on privately owned storage capacity.
The Southern Nevada Water Authority Water Resource Plan,
which can be viewed at www.snwa.com, calls for 1.2 million acre-feet of
water to be stored in Arizona in order to meet forecast demand after 2015. The
AWBA is currently finalizing agreements to store water on behalf of Nevada.
Once these agreements have been concluded, the AWBA can begin to negotiate
storage for California. The AWBA will be able to store water at existing
publicly owned sites and at the Vidler Arizona Recharge Facility, which is one
of the largest water storage facilities. Vidler has agreed on a price of
$48.00 per acre-foot of water recharged in 2003, if any of the users
represented by the AWBA store water at the facility in 2003.
In addition to the potential demand from the public users
represented by the AWBA, demand from private users could potentially utilize
up to 100% of the site's storage capacity.
Vidler has not yet stored water for customers at the
facility, but the company has been recharging water for its own account since
1998, when the pilot plant was constructed. Vidler purchased the water from
the CAP, and intends to resell this water at an appropriate time. At December
31, 2002, Vidler has net recharge credits of approximately 14,000 acre-feet of
water at the facility.
Once Vidler has concluded agreements to store water, it
will know the rate at which customers will need to be able to recover water.
At that time, Vidler will be able to design, construct, and finance the final
stage of the project which will allow full-scale recovery. The users of the
facility will bear the capital cost of the improvements required to recover
water at commercial rates.
Vidler anticipates being able to recharge 100,000 acre-feet
of water per year at the facility, and to store in excess of 1 million
acre-feet of water in the aquifer. Vidler's estimate of the aquifer's storage
volume is primarily based on a hydrological report prepared by an independent
engineering firm for the Central Arizona Water Conservation District in 1990,
which concluded that there is storage capacity of 3.7 million acre-feet.
Recharge and recovery capacity is critical, because it
indicates how quickly water can be put into storage or recovered from storage.
In wet years, it is important to have a high recharge capacity, so that as
much available water as possible may be stored. In dry years, the crucial
factor is the ability to recover water as quickly as possible. There is a long
history of farmers recovering significant quantities of water from the
Harquahala Valley ground water aquifer for irrigation purposes.
Vidler originally had an 18.5% right to participate in the
Semitropic Water Banking and Exchange Program, which operates a 1,000,000
acre-foot water storage facility at Semitropic, near the California Aqueduct,
northwest of Bakersfield, California.
The strategic value of the guaranteed right to recover an
amount of water from Semitropic every year -- even in drought years -- became
clear to water agencies, developers, and other parties seeking a reliable water
supply. For example, developers of large residential projects in Kern County and
Los Angeles County must now be able to demonstrate that they have sufficient
back-up supplies of water in the case of a drought year before they are
permitted to begin development. Accordingly, during 2001, Vidler took advantage
of current demand for water storage capacity with guaranteed recovery, and began
to sell its interest in Semitropic. The strategic value of the guaranteed right
to recover water was again highlighted by two court decisions in February 2003
which held that developers could not rely on water from state water projects. In
May 2001, Vidler closed the sale of 29.7% of its original interest (i.e.,
approximately 55,000 acre-feet of water storage capacity) for $3.3 million,
resulting in a pre-tax gain of $1.6 million. In September 2001, Vidler closed
the sale of another 54.1% of its original interest for $6.9 million, resulting
in a pre-tax gain of $4.1 million.
Vidler's remaining interest includes approximately 30,000
acre-feet of storage capacity. We have the guaranteed right to recover a minimum
of approximately 2,700 acre-feet every year. In some circumstances, we have the
right to recover up to approximately 6,800 acre-feet in any one year. We are
considering various alternatives for the remaining interest, including sale to
developers or industrial users. Currently Vidler is not storing any water at
Semitropic for third parties.
Vidler routinely evaluates the purchase of further
water-righted properties in Arizona and Nevada. Vidler also continues to be
approached by parties who are interested in obtaining a water supply, or
discussing joint ventures to commercially develop water assets and/or develop
water storage facilities in Arizona, Nevada, and other states.