Unintended Consequences of Water Legislation

The population of Texas is expected to double by 2060. The Texas Lower Rio GrandeValley is one area in which alternative water sources and potable treatment methods are beingsought to support a rapid population growth. An emerging and promising approach toexpanding potable water supplies is brackish groundwater desalination. Due to recenttechnology developments in desalination membranes and increasing prices of surface waterrights, the economics of desalination have become competitive with conventional treatmentmethods.The seemingly comparable competitive economics relationship between conventionaland desalination treatments was impacted by Floor Amendment 60 of Texas Senate Bill 3, whichwas an attempt to meet the increased demand for municipal water. This amendmentestablished the price at which irrigation water in the Valley can convert to municipal water, as aresult of urban/residential development of agricultural land, at 68 percent of the market price,effective January 1, 2008. Preliminary economic and financial investigations suggest thislegislation could affect the adoption of water treatment technology. This paper identifies andanalyzes the economic and financial implications, both intended and unintended, of FloorAmendment 60 on the Valley water market, and the associated adoption of alternativetechnologies for producing potable water.