Water Trading Site Makes Its Debut

FRAMINGHAM (02/11/2000) - International water company Azurix Corp. has launched the site Water2Water.com to create an online water exchange and tap into what it estimates is a $3 billion market in the Western U.S. But observers said the Houston-based company might also ignite a firestorm over water rights.

Unlike traders in other commodities, water traders have had no central exchange, said Ethan Cohen, an energy and Internet strategy analyst at The Yankee Group in Boston.

The industry has operated via "what we call the ‘good ol' boy network,'" said David Pruner, senior vice president of resource development and management at Azurix.

Creating a water exchange is a timely idea, said Tom LaBerge, a consultant at Web business developer LaBerge and Co. in Portland, Ore. And with similar sites for natural gas and electricity already in operation, "people are used to this way of doing it," he said.

Via the Web site, buyers will be able to check prices "and maybe find out that somebody a couple of districts over is selling water for a lot less than" a district next door, Pruner said.

But the newly created market liquidity will push the issue of who owns water, LaBerge said. "Now, there are more rights than there is water," he noted.

"If water originates in the mountains of Colorado but empties into a valley in California, who owns the water?" Cohen asked. Such ownership issues "have not been hammered out in the courts, and no well-established precedents exist," he said.

"As you put a price on [water], it'll motivate people to solve these problems," LaBerge said.

Market volatility will also encourage water district managers to use such an exchange, Cohen said. Buyers may shop for the best price but eschew low prices for better quality, he said.

Now in beta testing, the site will go live March 15. Bidders will be able to log on and enter the amount of water they want to buy or sell, along with their bid price. For example, a bid might be placed for 500 acre-feet of municipal water for $225 per acre-foot. A buyer and seller will be matched, and then the buyer will be notified that he has bought 450 units at $215 each from one district and 50 units at $225 each from another.

The exchange has "real potential to speed the water-buying process," but more research needs to be done, said Scott Hamilton, resource planning manager at Paramount Farming Co. in Bakersfield, Calif. "The consequences of buying water and not having it delivered are enormous."

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