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<br />DRAFT <br /> <br />C. Appropriate Forms of Compensation <br /> <br /> <br />Thus far we have argued that the amount of compensation that <br /> <br /> <br />should be paid by the parties transferr ing water out-of-basin <br /> <br /> <br />should be the present value of all current and future losses <br /> <br /> <br />imposed on unprotected parties, i.e. those not automatically <br /> <br /> <br />compensated by sale of water rights nor protected from injury by <br /> <br /> <br />the courts. What of the form that compensation should take? <br /> <br /> <br />Generally speaking, the most useful form of compensation would be <br /> <br /> <br />an unrestricted grant of ~he appropriate present value, placed in <br /> <br /> <br />escrow at interest, and to be used by the basin of origin <br /> <br /> <br />whenever and for whatever purposes they wish. <br /> <br /> <br />Compensation should definitely not be aimed at keeping water <br /> <br /> <br />prices (or costs of construction) to. in-basin users from rising <br /> <br /> <br />as water becomes scarcer. Water prices should reflect the real <br /> <br /> <br />scarcity value of water. As water is transferred outside a basin <br /> <br /> <br />because of its greater value there, water does become scarcer in <br /> <br /> <br />the basin than it otherwise would have been. The cost of water <br /> <br /> <br />to user s should then reflect the fact of thi s scarc i ty and not <br /> <br /> <br />the scarcity of some by-gone era. The effect of provisions like <br /> <br /> <br />those in the Colorado Water Conservancy District Act quoted <br /> <br /> <br />earlier, that "present...and...prospective appropriations of <br /> <br /> <br />water...will not be impaired nor increased in cost" is to distort <br /> <br /> <br />.the real scarcity signals to in-basin water users and to induce <br /> <br /> <br />them to apply water to uses and in quanti ties that are not <br /> <br /> <br />justifiable from the state point of view in light of current <br /> <br /> <br />scarcities. <br /> <br />50 <br />