Study suggests Ute project may cost more than residents willing to pay

A 2003 U.S. Bureau of Reclamation economic analysis estimates the Ute Water Project could cost more than residents in many communities would be willing to pay.

The study — written in May 2003 by Steven Piper, a BOR resource economist, for use in the project’s conceptual design — states Clovis residents would be willing to pay $114.54 more per year for project water, touted as an alternative to the imperiled Ogallala Aquifer.

But estimates of the amount Clovis water rates would rise under the project range from $168 a year to $372 a year, respectively, in studies by Jason Bass, an economist for Dornbusch Associates of Tucson, Ariz., and by Clovis Public Works Director Harry Wang.

Piper’s study also says Portales residents would be willing to pay $88.92 more per year for project water, while Bass and Wang’s estimates of the increase in Portales annual range from $223.80 to $420, respectively.

Dornbusch Associates was hired in October 2003 by the board of the Eastern New Mexico Rural Water Authority to double check Piper’s study. Bass said last week he questions the study’s methodology.

But his own attempt to design a willingness to pay study using a different method has yet to be turned in to the authority, and has proven inconclusive, he said.

As a result, planners of the Ute Water Project still don’t know how much of an increase in their water bills area residents would accept for project water.

“I would say we don’t know with any precision,” Piper said, adding that he believes his study is accurate “within orders of magnitude.”

ENMRWA Project Manager Scott Verhines said willingness to pay studies, which are based on statistical models, are too abstract and that neither study directly asked residents what they would be willing to pay for water.

A “willingness-to-pay” study uses a statistical model to predict the maximum amount a study group would be willing to pay for a good or service, based on the satisfaction they expect to receive from that good or service, Piper said.

Piper developed his numbers by plugging variables — including household size, water cost, age and household income — into a formula he based on three other projects on which he has worked, in north central Montana, near Souix Falls, S.D., and the Gallup-Navajo project in western New Mexico.

He said this method, called the “benefits transfer method,” has its shortcomings.

“Some assumptions have to be made when you do that. The first is you’re assuming the significant relationships you found in other areas also apply in eastern New Mexico,” he said.

However, he said he believes the locales he was comparing are similar enough that comparisons can be made “within orders of magnitude.”

“There might be a difference of $10 to $14, and $14 would be at the high end of the range of difference,” he said.

Bass said transferring assumptions made in South Dakota to New Mexico leads to “highly uncertain” conclusions.

“Using coefficients from another study with data from the area is, to me, problematic; every area is specific,” Bass said.

But Bass said his attempt to develop a more site-specific willingness-to-pay study fell apart because of problems with the data he was using, water consumption and pricing data for more than 80 New Mexico communities from the state Environment Department’s Construction Program Bureau.

“In the Environment Department’s data, numbers for household and commercial use were collected together. The model proved to have limited predictive value, due to extreme variability in commercial water use,” he said.

Bass said he has stopped trying to develop a “willingness-to-pay” study and is now concentrating on different schemes for allocating water costs.

According to the ENMRWA’s board minutes, Dornbusch Associates were hired both to review Piper’s study and to recommend schemes for allocating water costs. In part, the board wanted a second opinion because cost estimate problems have surfaced in other, similar, water projects, the minutes say.

While Dornbusch representatives have not provided a final report, they have provided periodic progress reports, Verhines said.

Verhines said Bass will report on his work at the project board’s May 26 meeting. However, Dornbusch Associates probably will not attempt to complete a willingness-to-pay study, he said.

“Both of these studies are based on models and nobody’s approached the public and said, ‘What are you willing to pay for water?’” Verhines said.

The project doesn’t have the time or the budget for a thorough, scientific survey of residents’ preferences, but it does plan a public information campaign, starting this month or in early June, he said.

The campaign will include public meetings in every project community, informational brochures, and public comment forms and questionaires, some of which will be put in towns’ water bills. It should take about six months to complete, he added.

Both Piper and Bass said work beyond their studies would be helpful to the project. Piper said a scientific survey of area residents would be useful. Bass said he would like to have collected more, and more detailed, data.

“From a credibility level, to really have a good, strong analysis, they’re going to have to go beyond what Steve Piper and I have done. It will take two things: Collecting the data necessary to do a demand curve, and going to communities to have public meetings,” he said.