PRESCOTT VALLEY, ARIZ.—The town of Prescott Valley, Ariz., sold 2,724 acre-feet of effluent water for more than $67 million during a two-day auction in late October. The town awarded the effluent water to the highest bidder—Water Property Investors LLC, a New York-based water resource-investment firm—for $24,650 per acre-foot. Water Property Investors can re-sell or use the water to meet state water supply requirements for new subdivision developments.

The auction attracted both local and national bidders through the use of a price-floor bid process that the town’s consultants, WestWater Research LLC, developed and arranged. The town set a minimum-bid price by negotiating a $53 million agreement with Aqua Capital Management LP, a Nebraska-based water resource investment and management company. The company worked cooperatively with Prescott Valley for more than nine months to develop a price-floor agreement that provided financial security for the effluent water auction. The agreement provided the town a guaranteed price of $19,500 per acre-foot and would have awarded the effluent water to Aqua Capital if no qualified bids were received during the two-day auction.

"An auction format with a price-floor agreement is an innovative way to address the increasing water needs in the Southwest and to create a market environment for water trading," said Clay Landry, managing director of WestWater Research. "The Aqua Capital price-floor agreement provided financial security for the town and created an auction format that encouraged a competitive-market outcome that generated an additional $14 million."