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WATER EXPORTS


A discussion paper of key issues involved in moving bulk quantities of water from Alaska to
the southwestern states, Mexico, and Pacific Rim Nations using marine transport. The cost data have not been updated since the paper was prepared in 1994.


Developed by

Ric Davidge, MPA

Director of Water
Chief, Alaska Hydrologic Survey
Department of Natural Resources
State of Alaska

(907) 762-2294



This paper will continue to be updated as new information becomes available.
June 1994



TABLE OF CONTENTS






INTRODUCTION


THE MARKET DEMAND FOR WATER
Inland States and Water Transfers
Foreign Markets


SUPPLY - POTENTIAL SOURCES OF WATER
Water Treatment
Source Dependability


DELIVERY SYSTEMS
Pipelines
Tankers and Bags
Bags and Tugs


ECONOMICS OF WATER EXPORTS
Market Price of Water
Cost of Water Delivery


COMPETITORS
Bulk Water Imports
Desalinization


ENVIRONMENTAL QUESTIONS


LIMITATIONS
The Jones Act
Public Perception
The Political Infrastructure of Water Development in Southern California
Can Alaska - Just Say NO?
Conservation and Social Implications
Permitting and Land Management


STRATEGY


WATER RIGHTS APPLICATIONS
Alaska Aquaculture, Inc.
Sun Belt Water, Inc. & Sun Belt Marine, Ltd
City and Borough of Sitka
Municipality of Anchorage


THE NUMBERS
Annual Payload Per Tanker
Gross Receipts
Operational Costs
Capital Amortization
Net Receipts
Bag/Tug Costs
Bag Dimensions and Costs
Drag Force Calculations
Tugs
State of Alaska
Revenue to the State
Jobs for Alaskans
Uses for this new Revenue Stream


BOTTLED WATER
Glacial Ice


ABOUT THE AUTHOR



A L A S K A

W A T E R E X P O R T S



[One Acre Foot = 325,851 gallons or 1,360 short tons]


The vast water resource export potential of Alaska was not seriously considered until the
election of Walter J. Hickel as Governor in 1990. Governor Hickel, who 20 years ago as
Secretary of the Interior explored construction of a water pipeline from Alaska to California,
was asked by the City Council of Los Angeles if he would again consider the pipeline concept.
The Governor made it clear that the state would work with the people of Los Angeles as they
took the initiative to review the sub-sea water pipeline. The City Council and the
Congressional Office of Technology Assessment evaluated the pipeline idea, spurring interest
in developing the less costly bulk marine transport of water by tankers or other technologies.

With legislation passed by the 1992 Alaska Legislature, the Division of Water is facilitating the
development of Alaska's bulk and bottled water exports. With export applications already on
file for 400,000 af/y, the Division is attempting to understand this fast developing commodity
market. According to the US Geological Survey, Alaska owns 40% of our nation's free
flowing fresh water and discharges about 1 billion acre feet a year into the ocean. With 100 to
over 300 inches of annual precipitation in some areas of southeast Alaska, we believe we can
responsibly offer our high quality renewable water resources to a thirsty world. These water
resources are viewed by Alaska as potential new revenue sources, partially offsetting declining
oil and gas income. To assist those with interest in the development of this resource, we
provide this general discussion of the key issues affecting Alaska bulk water exports and
sales. This paper, although not a feasibility study, is intended to demonstrate that: 1) the bulk
marine transport of water to Mexico and California and wheeling agreements with inland states
such as Nevada could readily happen; 2) Alaska is well positioned as a high quality water
source with unique marketability: 3) the economic benefits accruing to Mexico, California, and
other southwestern states, and Alaska, could be significant; and 4) further cooperative work
between all interested parties can accelerate bulk water exports.

Water law in Alaska is recognized as very comprehensive, contemporary, forward thinking,
and environmentally responsible. Our "public interest" considerations in statute are specific and
comprehensive. Our instream protections for fish, recreation, and water quality are a model
copied by many other states. The export of bulk quantities of water from Alaska cannot be
done in a manner that would allow harm to Alaska's fish, wildlife, recreation, or other public
interest values. It's the law!

The key concepts described in this paper are: DEMAND - the market for water; SUPPLY -
sources of water; delivery systems; economics of source development, transport, and
marketing; environmental and social impacts; limitations; and strategies for development. For
more specific information, copies of applicable source materials, or contacts with experts
relied upon in the development of this paper, you may contact the Director, Division of Water,
Department of Natural Resources, State of Alaska at (907) 762-2294.


[ Table of Contents ]


THE MARKET DEMAND FOR WATER

Although interest in bulk water exports from Alaska continues to stimulate international
interest, the most attractive immediate bulk water export markets in the United States for
Alaska are southern Nevada, and southern California. Priorities for bulk water exports to
foreign nations include the northern regions of Mexico, including Baja California, and Pacific
Rim nations including South Korea and Japan.

The areas in the southwestern states and Mexico are most vulnerable to drought and rapidly
growing population pressures. California coastal communities not directly connected to a
surface water delivery system, mainly the California Water Project, and northern Mexico
including Baja California are the most probable delivery points because of pressing shortages,
the cost, and the political difficulties of most alternatives. In addition, coastal communities in
California and Mexico receiving water from the Colorado River may be delivery points for up
river exchanges (wheeling agreements) for areas such as southern Nevada.

As a result of the cost of transportation, Alaska water may or may not be more expensive,
depending on method of transport, source, and delivery point, than some existing southwestern
supplies. But local supplies in the southwest are simply not sufficient to meet increasing
demand, even if every effort by southwestern state and local governments is successful.
According to the Secretary of Natural Resources of the State of California, if every water
option is successful - even if it rains - southern California alone is facing a 4-6 million acre-feet
per year water deficit by 2010. The most recent and longest drought in a series of such events
in the southwest over the past few decades continues in spite of the spring rains of 1993. Local
water experts, however, agree that the 1993 storms were a unique event, not likely to be
repeated, and even with this rain, many reservoirs remain critical due to light snow pack and
ever pressing demand. In addition, storm runoff - according to press reports and government
statements - has resulted in contaminated water not readily usable in the reservoir systems
where it is needed.

Officials in southern Nevada now predict that they will be out of water by 2006 with normal
rainfall . Many coastal communities in northern Mexico are out of water and others will need
new water by 1995, also with normal rainfall . During formal hearings before the Nevada
State Senate Resources Committee in February 1993, a scientific paper developed by the
University of Arizona and presented by the Desert Research Institute of Nevada caused
serious concern. This detailed study reported that an in-depth investigation of drought cycles
over the past 1,000 years (using tree rings and other indicators) in the southwest clearly
establishes that the area has developed at a time of unprecedented precipitation (last 200
years), and that droughts of longer than 20 years are common per century, and droughts in
excess of 150 years in the region have occurred.

Science continues to document the effects of drought on the southwest. Recently, Nature
Magazine (6/16/94) reported findings that prove that a 200 year drought in this region
coincides (about 1350) with the withering of several ancient American civilizations, including
that of the Anasazi cliff dwellers. Anthropologists have long suspected drought as a cause, if
not the cause of the Dust Bowl years from 1928 to 1934 which is now supported by recent
findings in California. What many experts now suspect is a trend of global realignments of
weather patters diverting the Pacific storm track that normally steers rain to California. Another
extended drought occurred in 1112 for about 50 years. Scientists are now emphasizing the
greater importance of changes in precipitation, rather than simply temperature fluctuations
(global warming), when weighing the potential impacts of climate change.

But what is the depth and breath of this problem in the southwestern states? Probably the most
dramatic physical indicator of the "depth" of the water shortage problem of the southwest is
surface subsidence a result of groundwater pumping necessitated because surface water
sources are fully appropriated. In a report released by the American Society of Civil Engineers
in 1993 they characterized surface subsidence in over a dozen areas of California, Arizona,
Nevada, Texas, and Idaho. The greatest area of significant subsidence is in southern
California. An area greater than 5,600 square miles has subsided as much as 9 feet. In any
professionals opinion this is dramatic, alarming, but only a symptom of the larger depletion of
water reserves in the southwest.


1

One of the northern most indicators of this problem is the dramatic drop in the depth of Lake
Merced just south of San Francisco. The San Francisco Chronicle reported in November
1993 that Lake Merced had drooped to almost half of its historic level due to unprecedented
groundwater depletion in the area.

In addition to the impacts growing demand has had on groundwater reserves, regional
population growth (estimated to be over 33% in the next decade), drought, and serious federal
efforts to alter water allocation priorities - surface water reserves are almost depleted or they
are politically being redirected to other than human needs. Experts predict that by the year
2000 all major rivers that flow into the Pacific Ocean in California will be under federal
management due to mandatory reallocations of water for threatened or endangered species.
The Nature Conservancy in a recent report stated that one-third of all fresh water fish are
"threatened". Additionally the federal Bureau of Reclamation has radically altered its policies
from building water storage and delivery systems to taking down dams and reallocating
"federal water" to fish and wildlife.

The San Francisco Bay Delta reallocation due to the Endangered Species Act (ESA) listing of
a small fish is a good illustration of how dramatic these endangered species issues can be for
water reallocation. All agree that this estuary needs more fresh water not only for a few
threatened fish but for the entire ecosystems recovery. But how much is needed? This area
encompasses nearly 1,600 square miles and drains more than 40 percent of the state's land
surface. For years the US Fish and Wildlife Service, Environmental Protection Agency,
Bureau of Reclamation, and the National Marine Fisheries Service have fought with the State
of California and local officials over this issue. In an historic compromise the California Water
Resources Board approved an allocation of over 800,000 acre feet per year for the area, a
dramatic increase. But the federal agencies rejected this allocation and demanded over 1.5
million acre feet a year, a demand that Gov. Wilson may reluctantly have to agree with.

California Department of Water Resources officials say EPA's proposed water quantity and
quality standards will reduce the state's available water supply by 2.2 million acre-feet a year
causing a permanent water shortage to 40 water districts in the San Joaquin Valley alone. The
economic impacts in these 40 districts will include idling 155,000 acres of valuable agricultural
land, farm output will decrease by $263 million, causing an additional $331 million permanent
loss in the output of support industries. The $594 million loss in the regional economy would
include a loss of nearly 12,000 jobs and $342 million in personal services. According to Dave
Kennedy, Director of Water for California, this reallocation demand will require the draining of
almost two full reservoirs every year. As you can see this one ESA decision will cause
significant reallocations of water from upstream users to downstream fish and wildlife along
with vast economic and social impacts, causing a permanent reduction of $8.5 billion in farm
and support industry income and a loss of 12,000 jobs. Even with all of this, the Environmental
Defense Fund argues that additional water reallocations are needed.

The above discussion of the San Francisco Bay Delta is only one illustration, of how dramatic
ESA listings can impact water allocations and economic stability of large and diverse
communities. Environmental groups in southern California claim they have over 200 new water
dependent species ready for ESA listing.

One of the most dramatic reallocations of surface water over the next decade will be in the
Colorado River, according to a growing consensus of both upper and lower basin users. It is
clear that this community of users has yet to really understand the implications of the number of
species that will be listed along this vast and vulnerable watershed under the Endangered
Species Act causing significant reallocations of water from humankind to fish and wildlife. At
this printing recent designations of critical habitat for endangered fish, the Colorado Squawfish,
humpback chub, bonytail chub, and razorback sucker, have resulted in special protection for
1,980 miles of the Colorado River and its tributaries. Robert Walsh, US Bureau of
Reclamation said that this critical habitat designation will make it more difficult for Colorado,
New Mexico, Utah, and Wyoming to develop any new water projects.

Additionally many expect very serious legal challenges to old senior appropriations that will
most likely result in the "Law of the River" being rewritten by Congress. We should note that
there is a legal theory that Congress does not have sole jurisdiction over this historic
agreement, but that only the parties to the agreement do. Never-the-less, on June 8-9 the U.S.
Senate Energy and Natural Resources Committee's Water and Power Subcommittee held
oversight hearings on "water quality and quantity problems and opportunities facing the lower
Colorado River area." The hearing was chaired by Senator Bill Bradely (D-NJ), long a critic
of the Bureau of Reclamation and an outspoken advocate of far greater allocations of water to
fish and wildlife. With a list of witnesses almost as long as the Colorado River and as
impressive as the Grand Canyon, the Senator concluded that Congress was concerned but
would give the state's of Nevada, Arizona, and California more time to work out massive
reallocations. Add to this mix the implications of Indian water rights (quantity and quality), the
treaty with Mexico (quantity and quality), and recent U.S. Supreme Court decisions directly
affecting the Colorado, it is clear that the Colorado River will be the weather vane of water
reallocation in the southwest for the near future. This author believes that within 3 - 5 years
Congress will begin a serious effort to reallocate the waters of the Colorado not limited to
lower basin users.

A report for the California Urban Water Agencies (April 1991) looked at the economic
impact that extended water shortages will have on their economies. According to this report a
one-year 30% water shortage would cause a direct economic loss of $8 billion and 56,000
jobs statewide. But this survey only included an analysis of 53% of all manufacturing industries
in the state employing only about 18% of the work force. In addition, potential "ripple" effects
could multiply the economic and job losses substantially. A similar report done in southern
Nevada (1992) came to the conclusion that a loss of 100,000 jobs and a steady decline in
employment over the following years would result in the appearance of a new "Great
Depression" with massive out-migrations, devaluation of homes and businesses, and a
catastrophic cost to families. The experts agree that a water shortage in the southwest will
cause significant economic and social destruction.

In light of these studies and the reality that water has become a significant limitation on
economic sustainability in this region, many businesses are relocating or considering relocation.
These include computer and office equipment, food industries, aircraft/aerospace, and
communications companies. Many manufacturing interests in the market area are very
dependent on large quantities of high quality water. Examples of such industries are:

- Breweries - The Anheuser Busch Plant in the San Fernando Valley is the largest single
commercial water user in the Metropolitan Water District of Southern California.

- Computer manufacturing

- All water-based products including cosmetics and beverages

- Food industries

All solutions to developing new water for the southwest depend on local weather, except
imports from Alaska and desalinization. Rather than consider relocation, these industries have
the potential to obtain a competitive advantage in their markets by staying in the southwest and
using Alaska water. Phrases, such as "Made from fresh Alaska water" , "Clear Glacier
Water" , or "Alaska Ice Water" , that use the image and mystique of Alaska have proven
very attractive and successful marketing tools.

The southwestern states all need new water. " New Water ", in this context, is water that
cannot be developed locally through conservation, diversion, storage, reclamation, or other
means. In considering the development of new water, public officials must look at all
economic, environmental, and political costs to make informed, rational, and sustainable public
policy decisions. This paper suggests that importing Alaska water to the southwestern states
and Mexico is economically, environmentally, and politically far more attractive than the
alternatives available, especially desalinization or new surface storage and transport.

Inland States and Water Transfers

Many land-locked western states, particularly Nevada, are interested in augmenting their
existing water supplies in the face of growing demand. Communities dependent on the
Columbia River, Sacramento River, and especially the Colorado River are suitable for water
imports through exchanges or "wheeling" agreements with California or Mexican coastal
communities. This would work in the following way: When Nevada decides they need new
water, they could either contract for water from a private firm or secure water rights directly
from the State of Alaska and then contract for delivery. The actual delivery would be to a
coastal community in California or Mexico served by the Colorado River or a system
connected to it, allowing that community to "transfer" its downstream appropriation from the
Colorado River to southern Nevada in exchange for the imported Alaskan water. Nevada
users would pay for the delivered Alaska water and then receive more water from the
Colorado River, and the Californian or Mexican community would receive the benefit of fresh
water from Alaska. Due to the significant differences in water quality between Alaskan water
and Colorado River water, there could be an offset payment by the California or Mexican
coastal community, lowering the cost to the Nevada buyer. These types of water transfers or
"wheeling" agreements are common in the western United States.

Recently the Division of Water sent a letter to the Governor of Baja California, Mexico
suggesting that this area of northern Mexico could receive up to a million acre feet a year of
free clean water from Alaska if they could negotiate a wheeling agreement with southern
Nevada. Such an exchange would allow Nevada to acquire the water for 20% less than if it
were delivered to San Diego due to the Jones Act and other cost factors. Baja would receive
high quality water in exchange for "dirty" Colorado River water and could also sell its excess
Alaskan water to San Diego, for a profit, using existing pipelines. The Baja government has
asked for meetings with Alaska to explore in detail these concepts.

Such wheeling concepts have opened an entire new area in this market. In meetings of the
Western State's Water Council (17 western states), a number of states have expressed an
interest in exploring this concept as they prepare their Drought Contingency Plans required
under new federal law.

Foreign Markets

Officials in the World Bank, the United Nations, England, and other international development
organizations, claim that enhancement of domestic water supplies is the most cost effective
way of supporting developing economies. Even in countries with sufficient water quantity, they
have serious problems with water quality. Often the cost of cleanup far exceeds the cost of
importing bulk quantities of water from Alaska.

According to Bob Engelman, co-author of a report by Population Action International, "The
rate of population growth in countries experiencing water scarcity is vastly outpacing
population growth of the world as a whole." This report, Sustaining Water: Population and
the Future of Renewable Water Supplies , predicts that by 2025, one out of three people
will be living in countries without adequate fresh water supplies. The current ratio is about one
out of 15. The report is based on projections of population growth for 150 countries,
combined with known data on renewable fresh water supplies.

While most of the industrialized world takes clean drinking water for granted, more than a third
of all residents of the world's poorest countries have no access to safe water and 80 percent
subsist on inadequate sanitation facilities, according to a survey by the United Nations
Development Program. "The drinking water situation is not keeping pace with the population,"
according to the chief of the program's water resources section in India. The United Nations
found that some of the lowest percentages of populations having access to clean drinking
water were in Pacific Rim nations. The report found that even with increased funding in recent
years, 1.3 billion people do not have access to safe drinking water.

The Worldwatch Institute, in July 1993, reported that no less than 26 countries have larger
populations then their water supplies can adequately support. The report stated that water
tables are falling pervasively as a result of over-pumping of groundwater in much of northern
China, India, Mexico, Thailand, the western U.S. and the Middle East. In 1978, for the first
time in history, the world's irrigated land area dropped in relation to population growth due to
the loss of water. Global water use has more than tripled since 1950. They also recognized
that although conservation and better allocation have helped address this dramatic rise in
demand, these techniques alone will not solve the problem.

In light of the above, there continues to be interest expressed by a number of potential foreign
markets. These include Taiwan, South Korea, Japan, and other Pacific Rim nations and
private groups from the Middle East. In addition to its own limited efforts, the Division is
working closely with the Municipality of Anchorage in a supportive role as the Mayor's
representative attempts to develop these markets. The Division continues to provide technical
assistance to private firms exploring bulk packaged exports to these markets. Although we
now anticipate serious applications from a number of foreign nations for water, due to the very
limited budget of the Division and pressing higher priorities, the Division is not actively involved
in the exploration or development of water exports to foreign interests. If applications for
water are received by the Division for appropriations or sales to foreign interests, the Division
will give this market area a higher degree of attention.

The market potential in South Korea has recently stimulated significant interest in both bulk
and bottled water exports since their lifting of import restrictions.

Bottled Water and Glacier Ice

Bottled Alaska water and glacier ice are marketed by a growing number of Alaskan
companies. These companies are rapidly expanding in local (AK), domestic (USA), and
international markets. Additionally, a number of new bottled water companies are exploring
locations in Alaska for placement of bottling facilities. (see appendix for more information on
bottled water and Glacier Ice)



[ Table of Contents ]


SUPPLY - POTENTIAL SOURCES OF WATER

The southeast region of Alaska is considered to be the most probable location of sources of
bulk exportable water (see enclosed map). It is approximately 42,000 sq mi in area, with 100
to over 400 inches of annual precipitation; the mean annual surface runoff from southeast
Alaska is estimated to be about 300 million acre-feet per year. Considering drainages that
extend into Canada, total discharges of streams in the region are even greater. Although there
are dozens of high quality clear water sources in southeast Alaska, there are some limits to
potential water capture sites. First, some of the larger streams drain basins containing extensive
glaciers. This results in high sediment discharges and the need for more extensive treatment of
the water prior to use. Additionally, much of southeast Alaska is comprised of low coastal
mountain ranges and islands, resulting in thousands of small to moderate-sized drainages up to
about 50 square miles in size. Selection of sites must, therefore, consider quality of water and
drainage basin size in addition to precipitation, natural storage capacity (lakes), shipping
access, existing delivery systems, and land ownership and management policies. As a result of
the large size and diversity of southeast Alaska, initial export site selections should be
determined from an initial pool of the dozens of potential sites identified by the Division of
Water on the enclosed map.

Peak stream discharges in southeast Alaska occur in July, August, and September, coinciding
with peak water demand months in most market areas. Seasonally low discharges during the
winter months are expected to coincide with periods of low demand in the market areas.

Six potential sources of water in southeast Alaska are already developed with hydroelectric
facilities, and existing municipal systems at tidewater may be useable. Use of existing
developments could greatly reduce initial capital risk, minimize environmental impacts, and
decrease delivery delays associated with undeveloped sites.

The water quality of these sources is very high. Many were surveyed for fish hatchery
development due to very low levels of organic and mineral constituents. The water should be
attractive for high-technology manufacturing and beverages with minimal or no treatment,
depending on the end user. One of the most often points of information requested by potential
exporters is specific water quality data for sources. Funding for this level of site
characterization has not yet been achieved, however it is hoped that with the Memorandum of
Understanding in final stages of approval between the Division and the U.S. Forest Service
and US Geological Survey such water quality data can be acquired.

Water Treatment and Sterilization

Although the water quality of the sources identified as having potential in SE Alaska is reported
to be high, a number of parties interested in exporting bulk quantities of water have pointed out
that they will need to ensure a drinking water quality standard. With the use of tankers,
sterilization may be accomplished at loading or in the tanker or bag during transport. With the
use of bags, sand filtration and/or sterilization may also be achieved at loading.

Source Dependability

Year-round access and dependability are also key issues. These concerns were factored in as
the Division of Water surveyed two dozen potential sources in SE Alaska. The enclosed map
illustrates the location and status of 21 potential bulk export sources that would be
dependable.

Initial review of potential export sites suggests that approximately 1 million acre-feet of water
per year is exportable in the near term. This could be achieved by developing many sites,
producing an average of 140 acre-feet/day per site.




[ Table of Contents ]


DELIVERY SYSTEMS

Pipelines

The Congressional Office of Technology Assessment, at the request of members of Congress
from California, evaluated the feasibility of constructing a sub-sea water pipeline from
California to Alaska. They found that the per acre-foot cost of a pipeline was high compared
to market willingness. They also commented in their report that the use of tankers or other
marine transport technologies may be economically viable and that eventually a pipeline may
also be economically viable and should not be completely dismissed. Although interest in the
pipeline concept has diminished, the Division of Water continues to receive requests from
around the world for various studies on the pipeline concept. A collection of key studies and
papers on the water pipeline are maintained in the files of the Division of Water.

Tankers and Bags

The most promising immediate transfer technology is the use of single-hull very large crude
carrier (VLCC) or ultra large crude carrier (ULCC) class tankers with near shore temporary
storage in coated nylon bags. With changes in petroleum tanker regulations requiring double
hulls, according to marine transport experts, many used single-hull tankers are on the
wholesale market at prices from $6 - $10 million. In addition, a number of new, never used,
single-hull tankers are available at a cost of about $80 - $85 million.

The VLCC class tanker is most attractive because its size allows it to access a variety of
sources in southeast Alaska and provides sufficient volume to make it economical. VLCC and
ULCC class tankers, respectively, can carry 225 to 307 acre feet of water per trip, with a turn
around time of 10-11 days depending on vessel speed, water source location, and delivery
point. These tankers can be outfitted with large pumps, allowing them to be filled or pumped
off within 20 hours.

One concern with tankers is ballast water discharge in Alaska, especially if the ballast is
collected in contaminated coastal waters near California. Ballast tanks are not the same tanks
used for cargo transport. Tanker engineers advise that almost all ballast is discharged prior to
docking and, if contamination is an issue, standard operating procedure is to exchange ballast
in the open ocean after leaving the harbor. Regardless, any discharge is subject to appropriate
federal or state permitting.

Bags and Tugs

Bag technology was originally developed by Dunlap Rubber of Great Britain based on
Cambridge Professor Sir William Hawthorn's (dracone) invention in 1956. The objectives even
then were conveyance of fresh water by sea at speeds of 6 or more knots mainly for defense
needs. During the 1960's the concept (pillow tanks) was developed for the capture of oil spills
from tankers. Direct application of bag technology has taken many years to achieve as a result
of cost, material, and technological limitations. Research and development continued and
adaptation for water transfers was explored by UNITOR (Norway), Avon Rubber (United
Kingdom), Yokohama Rubber (Japan), and Medusa Corporation, Inc. (Alberta, Canada).
Limited application by NATO and US Forces during the Gulf War did provide some
experience, however, this information is not yet available.

Extensive tank testing of a patented design has been conducted by Medusa Corp. at the
University of British Columbia, Vancouver (tow testing for drag and stability) and at The
National Research Council in Ottawa, which has the largest wave basin in Canada.
Current-generation bags are constructed of a commercially available industrial coated nylon
fabric with reinforced stress-diffusing straps. The bags can be used for offshore storage or
transport. The bags have an expected life of 10 years when used for storage and 7 to 8 years
when towed. Bags can be constructed in shapes ranging from flattened hot dogs to hockey
pucks. The largest bag of this type manufactured to date was a scale model for sea trial which
held 5,000 tons of water, but according to James Cran (President, Medusa Corporation) bags
can be constructed to hold up to 1,600 acre-feet for storage. A 225 acre-foot bag, sufficient
to fill a VLCC tanker, would be 500 feet in diameter and 50 feet deep in a disk shape. For
additional technical data on bag technology and cost, refer to The Numbers section of this
paper.

Bags float just below the surface, allowing them to absorb wave and wind energy. They can be
filled through flexible, collapsible, and portable nylon filling tubes using gravity. Tankers can
load from bags using their own pumps and single mooring support techniques that may also
include pumps. The use of bags also significantly reduces the energy cost of water with a
savings of nearly two thirds of the energy cost of desalinization.

Extensive testing has provided solutions for tug operator concerns with "fish-tailing" of towable
bags. Solutions include speed reduction, rudders, and other design modifications. Illustrations
of sea trials are appended to this discussion paper to assist in your understanding of the
technology. Although the Division of Water does not endorse the Medusa Corporation, for
permission to use these photographs we have included the front cover of this corporation's
publication. The Division also has a video tape of the Medusa sea trial. We have also included
some information from Bell Avon, Innovel which markets the Aquarius Water Carrier, and a
Jumbo Barge Carrier developed by the AP Petroleum Corporation. We encourage those
interested to contact other vendors as well.

Some communities in southern California are exploring the use of bags for transporting treated
sewage for deep ocean disposal. Other applications under negotiation include hauling water
from Turkey to Israel, according to the Wall Street Journal. Contacts from a group in the
Philippines have resulted in the possible development of three 100 acre-foot bags to move
water from larger islands to a city on an outer island. The application of bag technology for
storage and transport may also warrant evaluation as a solution to rural Alaska domestic
drinking water needs and emergency drinking water needs in the event of a natural disaster
such as the 1964 earthquake.

The use of bag technology for offshore storage offers Alaska a number of attractive solutions
to storage, stream flow rate, transfer, and on-shore environmental permitting problems. One
challenge in using tankers is the need for sufficient on-site storage that allows a tanker to fill
within 20 hours. This requires a flow rate (approximately 140 cfs) that exceeds the capturable
natural flow rate of many accessible sources during most of the year. With the use of off-shore
storage bags, sufficient water can be accumulated over a few days or weeks using natural
diversion rates. The point of diversion of the water should not require extensive on-shore
pumping, pipeline, or service camp construction, thus significantly reducing permitting
complexity, environmental impact, and cost.

The application of bag technology makes water exports attractive to small Alaska communities
with existing tidewater delivery systems that have a surplus of potable water. With little or no
investment risk and few permitting concerns, a community could either acquire a storage bag
and contract with a transport firm for a scheduled stop once sufficient water is captured and
available, or enter into a joint venture with a purchaser of water whereby the purchaser
provides the bag, or enter into a cooperative venture with the state and a private firm. Small
communities could participate in the development of this resource in a variety of ways.

The use of bag technology for offshore storage is an important ingredient in the concept of bulk
water exports. The bags can greatly reduce cost and capital risk, environmental problems of
on-shore development, permitting costs and delays, energy costs, opening new opportunities
for small communities in southeast Alaska to participate in a new revenue source.

If an Alaska firm can capture the construction of bags for bulk water exports as an industry,
Mr. Crans estimates the manufacturing facility would generate hundreds of long-term jobs for
SE Alaska. The efficiency of the operation would attract world interest as the specialized
training and job skills developed would not be cost effective to duplicate in other locations.
Medusa reports that American made materials for bag construction are the least expensive in
the world.




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ECONOMICS OF WATER EXPORTS

Markets for bulk water sales are relatively new in the western United States because only
recently have sufficient transport systems been developed to provide market liquidity. Markets
also tend to vary somewhat from state to state because of different water rights laws among
the states. The critical factors in any water market, however, are the concepts of price,
availability, and security of source. Prices can commonly be determined by historic
transactions, but availability can be a limiting factor because of the lack of transportation
means, drought, or the unwillingness of sellers. This results in a wide variation in market prices,
with low market prices not always being useful to potential buyers because of the lack of
availability. The water market should be viewed as a collection of individual transactions, many
of which occur under somewhat unique circumstances with most subsidized by federal or state
projects.

Market Price of Water

The price of water in the market area is highly variable due to location, quantity, quality,
government subsidies, source, precipitation, time of delivery, and type of water. Existing prices
for water in the southwestern states are difficult to compare due to significant, long-standing
subsidies by the Federal government (Bureau of Reclamation and the Army Corps of
Engineers) and state governments. Capitalization, amortization, and depreciation of extensive
and expensive surface delivery and storage systems are rarely totally passed on to the
consumer in the delivered price of water, making it difficult to establish a market based value.
The former Commissioner of the Bureau of Reclamation reported, upon his departure, that
some agricultural water contracts are subsidized by as much as 93%.


Known wholesale prices for water in the western states are:

Average cost of delivered water to large coastal communities tied into the California State
Water Project is about $200 to $700 per acre-foot (LA Times 3/94). It is not clear if this cost
includes the value of all subsidies (capital and operating). For example, the federal Bureau of
Reclamation reports that they have over $16 billion (not adjusted for inflation) in water-related
capital investment in the west.

The Metropolitan Water District of Southern California (MWD) is offering water agencies
reduced water rates to encourage storage. Untreated water at $138 per AF, however, full
price of $269 AF was increased to $385 in July '93, and some water districts now report they
are paying as much as $461.00 per acre foot.

Water transferred from Central Valley farmland sells from $75 to $175 per AFY, but the
supply often remains in the control of the farmer and the sources are not always secure.

Average cost of reclaimed water (treated sewage) with delivery ranges from $350 to
$1,400 per acre-foot. As a source of public drinking water, California has not had good
success with reclaimed water, however, there is a willingness to use reclaimed water for
agriculture. This will require significant capital investment as most reclaimed water is in coastal
communities and most agriculture is inland.

The California Water Bank purchased government subsidized water from agricultural water
right holders for $125 per acre-foot in 1991 and $75 per acre-foot in 1992, and in most cases
reallocated that water to urban users connected to existing delivery systems.

"Additional water" from the California State Water Project, and other sources is $400 to
$1,100 per acre foot.

A new water pipeline, now under construction, for Santa Barbara, connecting it to the state
water system delivering 70,000 AFY, is reported (in congressional testimony by Ionics, the
developer of the desal plant in Santa Barbara) to cost $5400 per acre-foot; however, the
California Director of Water, David Kennedy, claims the cost to be closer to $1200 per
acre-foot.

The purchase of water in areas of Colorado (Colorado-Big Thompson Project) is averaging
about $2,000 to $2,143 per acre-foot. These are often municipal purchases from farmers.

In Reno, Nevada, subdivision developers are purchasing water rights at $2,000 to $2,500 an
acre-foot in order to meet local ordinance requirements that stipulate that any new
development must prove it has a dedicated source prior to securing local approval to build.

The contract price for desalinated water (desalinization) from the newest plant in the market
area (Santa Barbara) is $1965 per acre-foot for delivered water and $1312 per acre-foot
when on short-term standby, and $1231 per acre-foot on long-term standby against a 3200
acre foot total delivery contract with no water being produced . A report out in early 1994
staggered this industry by reporting that the actual cost of "delivered water" from this plant
exceeded $20,000 per acre-foot to date. The original capital cost of the plant was about $30
million, however, this was recently revised upwards by 18% to $35 million, and the plant has
shut down after operating for less than 3 months due to a resupply of natural water (rain) in the
area.

A new study of public preferences conducted by the Urban Water Districts of California
presents a new twist to the question of cost. This report concludes, from extensive surveys,
that southern Californians are willing to pay up to $10 extra each month to ensure their water
supply. In other words the consumer will pay $10 per month to avoid water shortages such as
those experienced in past droughts. If this pricing approach is implemented it could provide
water districts with the capital to initiate bulk water imports as the most cost and
environmentally responsible means of "insuring" water supplies.

Since 1989 the price of water in many countries, for example Australia, Italy, and Britain, has
increased substantially faster than each country's rate of inflation. This is a function of
governments reducing subsidies as they face revenue difficulties. In many cases, this phased
reduction of subsidization has resulted in prices rising as much as 20% in a year (US Water
News). As the southwestern states, in response to state and federal budget constraints, and
northern Mexico begin to face the real cost of water and pass it on to customers, the
competitive edge of Alaska water imports to this region is sharpened. In 1994, President
Clinton included in his budget package new federal water use fees that will greatly increase the
per unit price of water in the west.

An important factor in the market price of water is the cost of treatment. Treated water
typically has a different value than raw water, especially if the raw water is high in dissolved
minerals, making it unsuitable for some uses. The price of high quality water for specialty uses,
such as manufacturing and water-based products, can be significantly higher than general
market prices. It is reported that some manufacturing firms are spending up to $.05 per gallon
for treated water. At $1700 an acre-foot using tankers, pure Alaska water would only cost
$.005 a gallon with bag transport at $500 per acre foot the cost would be $.0015 a gallon.
More specific information on the cost of water to manufacturing and bottled water products is
being solicited.


Cost of Water Delivery

When the notion of using existing tanker technology to transport water from Alaska to
southern California, Nevada, and northern Mexico was first proposed to the Division of Water
by firms from California, we were skeptical of its economic feasibility. Ed Arobio, a
commodities economist with the Department of Natural Resources - and a skeptic - reviewed
the economics of tankering water from Alaska to the market and determined it not only viable
but attractive with the savings of bag transport, bulk water sales are highly attractive
investments. The division has identified the key variables in the bulk water export business and
has attempted to develop preliminary cost estimates to evaluate the economic feasibility of the
concept.

The important cost variables considered in marine transport systems are:

Length of contract (depreciation, amortization)
Annual volume of water delivered
Distance of delivery
Security of source
Capital cost of tankers/bags or tugs/bags
Capital cost of on-shore or near-shore facilities at source and delivery points
Permitting and compliance costs at source and delivery points
Operating cost of transport system (tankers/bags or tugs/bags)

Of these variables one of the most significant is the length of contract. Capital amortization and
depreciation of initial capital investment and permitting compliance costs over a ten-year
contract versus a twenty-year or longer contract is a significant factor in cost per acre-foot.
Operation and maintenance is generally static depending on the use of tankers versus bags and
tugs.

The "day-cost" of a new tanker, fitted for water transfer, is about $30,460 per day or less
according to Robert Byrd, a noted marine transport expert from California and a former US
Coast Guard officer with Alaskan experience. This includes an assumption of a 10-year debt
service, with interest and capitalization, crew cost of about $7,900 per day, and fuel cost of
about $9,300 per day. If the debt service for a new tanker is extended to 20 years, the day
cost would be less. Assuming a 10-day average round trip schedule and 225 acre-feet per
trip, the estimated cost of transporting water is $1353/acre-foot. This day cost can be
reduced by acquiring a used, less expensive, or a larger tanker and by using ballast tanks to
haul potable water, increasing capacity by 20%. The overall cost of delivery must also include
such variables as shore facilities, bags, and on-shore systems as necessary. With the careful
selection of an already developed source and an existing delivery system at the point of sale,
these additional costs can be minimized. For more information refer to The Numbers section of
this paper.

Although available for near-shore storage, bags are not yet a proven technology for towing at
large scales. The use of a tug and bag configuration for storage and transport could greatly
reduce the cost of transporting water. According to James Cran, President, Medusa
Corporation, a 225 acre foot towable bag would cost about $1 million with a life expectancy
of 10 years. Near shore storage bags would be less expensive per acre-foot depending on
design needs. Transport time, according to Robert Byrd, a marine transport expert, and James
Cran, for towing bags is estimated to be about 14 days when traveling south under load with a
return time of 4 to 5 days depending on distance and weather. These estimates are based on
extensive tank simulations but limited sea trials. The amount of drag on a large bag is estimated
but, without actual sea trials of a large bag, drag effect is undetermined, resulting in towable
cost estimates that may prove incorrect. Assuming a 20-day turnaround time, a
one-tug/one-bag configuration could make 20 trips/year. For ocean going tugs at 5000-6000
horsepower, the estimated cost of a tug and bag system is about $5000/day as compared to
$30,000 a day for tankers. In the event larger bags are used, tugs with 10-15,000 horsepower
capabilities would be necessary. (see "The Numbers" in appendix) Actual costs from reported
applications in the middle east have not yet been acquired.

Although we continue to explore the numbers on bag/tanker configurations, we believe the
application of bag technology for storage and especially for transport will bring the economics
of transporting water into competition with reclaimed water, desalinization, and some
conventional land-based delivery systems in the market area. Due to our interest in bag
applications, we are encouraging investment groups actively pursuing water imports from
Alaska to develop a full-size bag and begin sea trials immediately.

The Division of Water has been contacted by a group from the Philippines who are now
working with Medusa Corp. in the development of three 100 AF bags for the purpose of
moving fresh water about 20 miles from a large island to one of the outer island cities. This
project may provide greater opportunity for cost analysis of the use of bag technology.

The community of Aberdeen, Washington has entered into a friendly cooperative effort with
the State of Alaska in jointly pursuing the implementation of bag technology. This community
has received ownership of a large, former Corps of Engineers, water storage facility resulting in
a significant discharge of high quality drinking water into the ocean. The Mayor, city council,
and Director of Public Works are exploring a pilot project, after reviewing this discussion
paper, to transport bulk (100,000 AFY) from this source to a market in California.

It is in the best interest of Alaska to work cooperatively with Aberdeen in order to facilitate the
proven use of bag technology in the Pacific Ocean.



[ Table of Contents ]


COMPETITORS

Alaska water competes in the marketplace with desalinization, water reclamation (from
sewage), redistribution, ground-water management, land-based delivery systems,
conservation, expanded storage, water marketing, and new source development. All except
desal and new source development focus on making better use of existing water resources in
the market area. All are dependent on local weather except desal and Alaska imports. Such
efforts will continue, but these techniques will become increasingly constrained by economic,
political, and environmental forces as population expands and national and state efforts to
dedicate more water to fish and wildlife increase. Only two prospects offer significant potential
for providing new water to the market area allowing sustained growth: bulk water imports and
desalinization.

Bulk Water Imports

Potential sources of bulk import water for southern California are located in northern
California, Oregon, Washington, British Columbia, Panama, and Alaska. Legal, political,
economic, technical and environmental problems associated with sources in northern
California, Oregon, and Washington convinced private industry to look further north, to British
Columbia. Consequently, about a dozen contracts were negotiated based on water sources in
British Columbia. A subsequent change in attitude and political leadership in the British
Columbia government resulted in the imposition of a moratorium on all bulk water transfers.
This moratorium was to be for one year; however, it has been extended indefinitely. This
action and the economic uncertainty it created caused a number of ventures to lose significant
investment, time, and delivery contracts - and for many, the courage to proceed with the
concept. Recent discussions with some of the parties impacted by the moratorium report
significant litigation that further clouds the viability, stability, and security of these competing
sources, even if the moratorium is eventually lifted.

Another potential source of water is Panama. In addition to the political uncertainties in
Panama and the difficulty of shipping against prevailing currents and winds, Panama is farther
from southern California and northern Mexico than southeast Alaska is. Gradually, most firms
have left Panama although Sun Belt Water, Inc. reports that they still retain contracts for
Panamanian sources of water.


Desalinization

A major competitor for water imports from Alaska is desalinization. Meetings with government
officials in Mexico revealed that they received seven desalinization proposals and only one
import proposal. The California Urban Water Agencies have also been involved in an intensive
investigation of desalinization. Desalinization technology has several significant disadvantages
compared to Alaska water imports: 1) the energy consumption of desalinization far exceeds
the energy cost of imported water; 2) desalinization generates a significant stream of
hard-to-dispose-of waste products including sludge, processed chemicals, and concentrated
brine; 3) other solid waste disposal costs include membranes and cartridge filters; 4)
desalinization does not typically remove all dissolved salts in water, a concern for public health
as well as costly corrosive impacts on existing delivery systems; 5) desalinization plants occupy
valuable coastal property; 6) since all of California's major urban areas are not in compliance
with federal air quality standards, major new distillation projects will be difficult, if not
impossible, to permit in these areas; and 7) existing plant development costs and contract
prices of desalinated water may not represent real costs or future contract prices because of
underpricing of desalinated water to promote the technology. These issues are explored further
below.
At the request of the California Urban Water Agencies, the Boyle Engineering Corporation
conducted a comprehensive review of desalinization technologies, cost comparisons with
alternatives, and potential technological breakthroughs. Their 1991 report concludes that,
although desalinization has been understood in principle since Greek sailors in the 4th Century
BC used an evaporation process, the difficulty of developing practical methods to desalt water
is evident in the limited worldwide use of desalinization. They also concluded that desalinization
technology is mature and, other than the discovery of a new cheaper source of energy, no
significant technological breakthroughs or cost reductions are anticipated.

Although there are a number of desalinization technologies, according to the Boyle report, the
three most common methods of desalinization used today are:

1.Distillation (thermal) processes,
2.Membrane processes, and
3.Ion exchange (not cost effective for desalting sea water).

All existing technologies for desalinization are greatly dependent on low cost energy.
Desalinization consumes energy to a point that many argue against it due to its significant
environmental costs. Consumption of energy also creates fuel storage and delivery and air
quality concerns. A delivery price for desalinized water based on low cost energy is
misleading. After the capital plant is developed (59% of the unit cost), a buyer is vulnerable to
rising operation and maintenance costs (41% of unit cost) due to energy costs and is
constrained by fixed energy inefficient technology. According to Stratecon, Inc., publishers of
Water Intelligence Monthly, current trading in crude oil options reveals a standard deviation of
the annual percentage change in fuel prices equaling about 20 percent. When compounded
over the 20 to 30-year life of a desalinization plant, this price volatility is substantial, suggesting
that operation of a desalinization plant will be subject to substantial risk of escalating operating
costs. With any significant increase in the cost of energy or the cost of implementing ever more
restrictive environmental regulations, the price of desalinized water will escalate directly.

The use of VLCC tankers to transport water from Alaska to southern California use less than
half the energy desalinization does with little or no impact on local air quality. A single VLCC
tanker can deliver more water per year than the largest desal plant in the market
area. Ocean going tugs pulling bags would use less than a third of the energy of desalinization.

The various processes used to desalinate ocean water generate waste streams. In addition to
the generation of concentrated brine and sludge, depending on the technology used, one must
dispose of large volumes of arsenic and other chemicals used to inhibit scale (chemical
inhibitors). No one anticipates the cost of waste stream management to go down, and most
expect it to increase faster than the rate of inflation. Recent studies on the ecological impacts of
large-scale concentrated brine discharges offshore have raised serious questions about impacts
on aquatic life and commercial and sport fishing (tourism) industries. The Santa Barbara plant
was permitted under a declared water emergency, allowing it to come on-line without the
normal stipulations and permitting review requirements. As a result a number of modifications
are now being required, raising the capital cost of the plant by 18% and greatly impacting
operational costs. It is, therefore, difficult to make an informed analysis of all the environmental
costs/questions and permitting costs that will surround other desalinization proposals in this
area.

How much salt do you want in your water? A single stage reverse osmosis seawater
desalinization plant does not remove all salt from the water. Desalinization is allowed up to 800
milligrams per liter of total dissolved solids (TDS) in its delivered water. This standard has
more to do with taste than health concerns. Desalinization experts report that over 90% of the
TDS from seawater desalinization is salt. What are the long-term human health concerns of this
large unnatural consumption of salt? We have not been able, at this point, to satisfactorily
resolve this question. There are reports of medical problems in the middle east where
desalinization has operated for long periods of time, but we have yet to receive independent
confirmation of those reports. However, in discussions of the choices between desalinization
and fresh Alaska water, the question is often asked, "Do you know of any health professionals
that recommend putting more salt in your water?" Most health experts recommend serious
reduction of salt intake. But why take the risk when pure Alaskan water is cheaper, far
more environmentally responsible than desal with a TDS of less than 50 in many
export viable sources?

In addition to the health questions about desalinated water, there are other concerns with its
corrosive nature. According to Tom Maddock, PE, Chairman of the Boyle Engineering
Corporation, this is a concern that many proponents of desalinization have not adequately
addressed in their considerations. As a result of the corrosive nature of desalinated water, post
treatment or mixing facilities/zones are essential to limit infrastructure damage. This single factor
may increase the delivered cost of desalinized water by $100 to $200 an acre foot.

Desalinization plants require very expensive coastal property that, in general, is already
over-utilized. Few sites are available for applications that would not compete with existing
users. Placement of large scale facilities may be less controversial when associated with
electrical power generation plants. Nevertheless, marine transportation, by contrast, can be
implemented in a way that will have little on-shore land use or cost impact.

Finally, one of the difficulties with desalinization is the representation of delivery price versus
real cost. The only real example we have is the new $35+ million sea water desalinization plant
(1992) in Santa Barbara. This facility is the only sea water desal plant of its size operating in
the United States and many experts claim it was underpriced to encourage further
desalinization development in the market area. The headlines of the Santa Barbara newspaper
on December 31, 1992, reported plant costs had increased by 18% above the original
representation by Ionics. In early 1994 a very controversial report was issued that has caused
serious political upheaval. This report states that Santa Barbara has paid in excess of $20,000
per acre-foot for "delivered" water from the desalinization plant. This cost comes from the
total payments by the community for actual water delivered by the plant. Since the plant was
only in operation a few months and the community must continue to pay for water, even if not
delivered, this again raises economic questions as to the value of this type of capital investment
- when extra water is only needed during shortages. With water imports from Alaska at $500
per acre foot, and the flexibility to start and stop based on demand/need, the cost effectiveness
and public policy implications of importing Alaska water take on new stature.

Remember that one tanker can deliver more water in a year, at less cost both economically
and environmentally, with far better water quality, then the largest sea water desalinization plant
can produce in California. And, bags are less than one fourth the cost of tankers.



[ Table of Contents ]


ENVIRONMENTAL QUESTIONS

What are some of the environmental questions involved in the bulk export of water from
Alaska? First, as pointed out earlier, Alaska water law (Title AS46.15) is considered one of
the best in the western United States. In considering any appropriation of water for the
purpose of export, the law requires that water be reserved for fish and the future needs of
the state before water can be removed from a hydrologic unit. The "public interest" must be
considered including the effect of an appropriation on fish and game resources, public health,
water quality, public recreation, the economic activity resulting from the appropriation, and the
effect of loss of the water for future needs. Additionally, the rights of prior appropriators,
adequate means of diversion, the use must be beneficial and give benefit to the applicant, any
harm to others must be assessed and considered, the intent and ability of the applicant to
complete the project must be determined and considered, and any effect on access to
navigable or public waters must be reviewed.

In addition to the considerations listed above, any person, including state agencies (ADF&G),
can apply for an instream reservation of water for fish and wildlife, public recreation, water
quality, sanitation, navigation, and transportation purposes ensuring additional opportunities for
resource protection.

But what are the open questions, yet unanswered? What is the environmental impact of an
appropriation of water, in bulk quantities, at the point of discharge on salt water estuaries?
Good question. In some cases the extraction of fresh water, that now is being discharged into
the ocean, would remove an unnatural (man-made) discharge and thus return salinity to a
pre-project level. This is the case for a number of sites in southeast Alaska that have
hydroelectric facilities. In most cases this is a site specific impact question that will need to be
addressed by the applicant. Appropriate environmental studies will be completed as a
condition of water permits for the purpose of removing water from a hydrologic unit.
Additionally, all sites identified to date as potential export sources fall within the Coastal Zone
and, thus fall under strict review requirements of the Alaska Coastal Management Act.

The Division of Water has already facilitated meetings of all state and federal agencies on the
Sun Belt Water, Inc. applications, and has asked the University of Alaska to cooperate in the
calling of an academic discussion of a full range of public policy issues. The division has also
been in contact with scientists from the University of Washington who have been looking at
some of the environmental issues that may develop. We invite comments on known or yet to
be explored environmental questions developing from bulk water exports.

It is important to understand some of the numbers. Removing 225 acre-feet a day (one VLCC
tanker) from a source, logistically is very difficult, and would require the appropriation of
82,125 af/y from that source. If the annual discharge rate of the source were 500,000 af/y, the
removal of this amount of water would be less than 20% of the total annual discharge. Because
seasonal flows fluctuate, the Division does not appropriate based on annual flow, but rather
seasonal flow. This is why we believe the industry will use a number of sources, reducing
environmental impact on any single source. All applicants to date have made it clear they are
not interested in any source that will conflict with existing uses such as commercial fishing or
public recreation.

On the other end of this water delivery system are other important environmental questions as
well. As most experts agree the problem in the southwestern states is population and growth.
Often during interviews we are asked about "our" collective responsibility to this pressing issue.
We must in all honesty answer that this is not an issue the State of Alaska can address for the
people of the southwest. Population and growth in an area of little precipitation are the real
problem, but without significant changes in the US Constitution and legal framework, dramatic
political change, let alone the host of theological and philosophical issues that become involved,
we do not anticipate any real success in this area for sometime. In the meantime, water is
needed.




[ Table of Contents ]


LIMITATIONS

The Jones Act

Delivery of water from Alaska to California, other than from the Yukon River, is subject to the
Jones Act. This federal Act, passed after World War II, requires that cargo transported from
one American port to another must use vessels constructed in the United States and operated
by American crews. This greatly increases the cost of capital investment and labor. The use of
existing single-hull tankers built by other nations allows a far less risky capital investment.
Some of those investigating large water transfers from one American port to another advocate
a specific exemption in the Jones Act for the transport of fresh water. With the use of towable
bags, the bags could be constructed in Alaska, creating hundreds of new jobs. Water
deliveries from Alaska to Mexico do not fall under the Jones Act, resulting in an estimated
20% savings over deliveries to San Diego, California.

Public Perception

"Water from Alaska?" "You've got to be kidding!" "Get real!" The general public, both in
Alaska and in the southwestern states, thinks of the viability of water imports from Alaska as
an exotic notion. Limited public appearances by the Director of Water in southwestern
communities have had some impart on this disbelief, but this effort is greatly limited by the
minimal budget of the Division. We have found, however, once the technologies and
economics are explained and technical questions are addressed directly and understandably,
the audience is receptive to the notion of water imports by tanker or bag and willing to
investigate this concept further. This paper has been a great help in this effort.

The Political Infrastructure of Water Development in Southern
California

For decades the politics of water in southern California and the southwest have dominated
state and local power struggles. Massive bureaucracies and political systems have developed
to support various distribution schemes. Despite all the environmental and technological
problems of desalinization and despite the millions of dollars spent by communities to research
desalinization - few are opening their minds to consider a more environmentally and
economically viable external solution. Considering that desalinization cannot produce the
volume or quality of water that marine transport can at a lower price, with no municipal facility
construction or long-term debt and far less environmental damage, it is even more perplexing
that bulk imports are not considered. Thousands of engineers are now employed by
governments at all levels in the market area to "design" solutions; they are all looking inward,
when at least a part of the solution may be outside of their experience or perspective.

Lately as more and more public officials review this paper and the concepts it presents, we
have heard a continuing refrain. "We agree with your numbers, we agree with the concept but
we just can't do it politically." When asked why they answer, "Our political leaders can not
admit that they can't solve this problem within the region." Some even state that, "We need a
real water emergency/disaster to force them to face reality." In response to this undercurrent,
we have decided to go directly to the water users in the region in hopes that they will begin to
ask the questions essential to enable political courage.

Can Alaska - Just say NO?

Some in Alaska have said that they do not want Alaskan water exported anywhere. There is
immediate concern with environmental impacts on fish, wildlife and other public interest values
such as recreation. Once audiences become more familiar with Alaska water laws and
regulations, these concerns become less feverish; however, Alaskans do keep close vigil on
the state to ensure responsible management decisions are made consistent with law. In addition
most Alaskans are unaware that under the U.S. Constitution, as articulated by the U.S.
Supreme Court, water is a commodity in interstate commerce and, thus, falls under the
Commerce Clause of the Constitution. This simply means that a state cannot deny the export
of water. Water that is necessary, under Alaska law, to the needs of Alaska cannot be
exported. Only water that is determined excess to the hydrologic unit under Alaska law, can
be exported.

Conservation and Social Implications

One of the issues raised in discussions of the transport of water from Alaska to southern
California, Nevada, and Mexico, is water conservation and the question of local responsibility.
Some would argue that it is philosophically wrong to encourage greater growth in the
southwest by providing new water; that the availability of water is a "natural" limitation on
population and economic growth in the area, and to import water into this region delays local
or national public policy decisions that should have been addressed years ago. When these
questions are considered only in the context of the market area, which is often the case, this is
a fair point for political debate. However, when considered in a broader context, the reality of
shortages of water, energy, food, shelter, and space are evident in many parts of the world. Is
it humane to tell starving people in regions of the world that it is more responsible to not send
them food or the means of creating food because "their" environment may not support them? Is
it humane to tell developing nations and struggling communities that they cannot reach for
economic independence because "we" believe "their" dreams should be limited by our
perception of "their" values in context with "our" understanding of "their" environments?

For centuries humankind has moved commodities found in large natural supply in one region to
areas of the world with high demand and short supply. This is true for energy, food, minerals,
construction materials, and water to name just a few. History has found that people will live
where they want to live based on many factors including economic vitality and employment
opportunities, weather, and life style, and will adjust their expectations based on these same
considerations. The projections of population increases in the southwest are built on the trends
of significant immigration from outside of the United States. Persons immigrating to
southwestern states find economic opportunities and lifestyles that are far more attractive than
those they left. This perception may not be shared by some in the middle or upper economic
classes, but these perceptions are real and very motivating to persons and their families
climbing out of poverty or socio-political oppression.

The conservation of water is greatly affected by price and government restrictions. Some
reports claim that Los Angeles County reduced its water consumption by 25% in one year as
a result of drought ordinances alone. However, according to the Metropolitan Water District
of Southern California, this conservation success resulted in an increase in the cost per
acre-foot at the tap. So, rather than rewarding people and industry for conservation, rates
were raised. Many now claim the higher price for conserved water worked as an economic
disincentive after their conservation achievement. The economic incentive to further encourage
conservation must be price. Studies on price and consumption clearly establish a relationship
between greater conservation as a result of higher price. Price is also a much more cost
effective tool than regulation. The study conducted by the Bay Area Economic Forum
(October 1991) Using Water Better: A Market-Based Approach to California's Water
Crisis is one of the most far thinking studies done of the relationship of price to consumption
and is critical of continued government subsidies for infrastructure, operation, and maintenance
costs that do not encourage conservation.

Alaska is blessed with natural resources, including water, at a scale unknown in many regions
of the planet. For those in the southwest who survive on less than 10 inches of rain a year, it is
not possible for them to envision an area that receives over 300 inches a year. Alaska believes
it is appropriate and responsible to offer these resources to the world. As a sister state and a
member of nation states, Alaska believes it responsible to offer its surplus water for people in
need. The export of water from Alaska is a sound economic and environmental decision
endorsed by the State Legislature and the Governor.

Permitting and Land Management

Bulk water exports must to be conducted under existing laws and regulations, and conform to
land management guidelines. Concerns of local residents or agencies about potential impacts
on fish or other environmental values are addressed through these channels. As mentioned
previously, Alaska law protects fish, wildlife, recreation, water quality, and many other public
interest concerns. (copies of Alaska Water Laws are available upon request to the Division of
Water)


[ Table of Contents ]


STRATEGY

The Alaska Department of Natural Resource's strategic plan calls for the responsible
development of our natural resources, including water, while conserving Alaska's wild, scenic,
and cultural values. The Division of Water has prepared a tactical plan to implement that
strategy. Copies are available upon request.

The division intends to continue to evaluate the market. We understand that the export of
water from Alaska by itself will not solve the major water deficit problems of the southwest or
northern Mexico. Alaska water can be a part of a broader array of solutions to these
problems. Price and security of source are, and will continue to be, the cornerstones of buyer
and seller decisions.

Alaska, in cooperation with private transport companies, can offer in the marketplace a very
competitive price for a higher quality water with greater delivery volume, source security, little
or no facility-construction risk to the customer, lower environmental cost, and significant
flexibility in volume, delivery points, and schedules.

The target price for delivered water to this market must be less than the current price of
desalinization (about $2,000 per acre-foot) if Alaska is to compete with desalinization. To
compete with other new sources of water, we need to deliver water for less than $1500 per
acre-foot. We can deliver water at $500 an acre foot.

Alaska water imports may not be competitive in some areas of the southwest; however the
mixing of Alaska water with local supplies through systems like the California Water Project
may ensure a greater confidence of supply in times of drought. By blending Alaska water with
existing sources in the market area, the economic impact on end users is significantly reduced.
For example, if Alaska water is delivered at $2000 per acre-foot and mixed with a source in
the market area priced at $100 per acre-foot, the end "marginal" cost is $1100 per acre-foot.
Using bags, water can be delivered at $500 per acre foot making the marginal cost $300 per
acre-foot. Considering the high reliability of water from Alaska, this cost can be viewed as the
price of insurance. In addition, the mixing of pure Alaska water with local sources will
significantly enhance the quality of the combined water.

An exciting market opportunity is in Baja California, specifically Rosa Rita Beach, Tijuana, and
Ensenada. These communities have an immediate need that can be satisfied within months by a
single tanker. Additional tankers or bags can subsequently be added to meet demand.
Deliveries to Baja are not subject to Jones Act limitations, allowing lower (20%) capital and
operating cost. The Baja government has stated they will finance and build whatever on-shore
delivery systems are necessary in Mexico, thus reducing risk to investors and quickening the
pace. Delivery to Baja also avoids potential political or permitting problems faced in southern
California. With the potential of an instream wheeling agreement between Mexico and
Nevada, Baja has become a key area of focus from many angles.

Formal proposals, based on the use of tankers, by such firms as Sun Belt Water, Inc. offer
delivered water to market areas from Alaska at between $1000 and $2000 per acre-foot,
depending on variable assumptions, the most important of which are length of contract and
distance. Delivery using bags will greatly reduce asking price (to possibly $500 per acre-foot)
and increase profit opportunities.

We have raised important questions in the minds of California and Mexico officials about the
long-term economic and environmental viability of the desalinization proposals they have
received. Continuing discussions indicate that many are willing to work with the State of
Alaska to obtain water imports.

Another possible market approach is a direct contract or appropriation (water rights) between
Alaska and the buyer of the water, other than through a transport company. The buyer would
then arrange its own transport. Discussions on this approach have usually been short once the
customer realizes the value of what private companies have already contributed in knowledge
and investment. The Division of Water is willing to enter into negotiations with any qualified
party interested in securing water rights or a purchase contract for water.

In discussions with southern Nevada officials, it is now clear that they will require a long-term,
secure contract or water rights if they make a commitment to water imports and wheeling
agreements. They are also looking at the Virgin River as a potential new water source,
however, this would require agreements with other states, significant pretreatment, and
desalinization due to high TDS (1,900 to 4,600) when the river is flowing. This source is also
dependent on weather, low energy costs, and cost effective resolution of significant waste
management and waste disposal problems. The Virgin River has also been listed as one of the
most threatened rivers in America. Sources in southern Nevada report that the federal
government is not enthusiastic about this option or the alternative to develop large well-fields
on public (federal) land.

The division also intends to further evaluate and characterize potential sources for bulk water
export. With water achieving new stature as a valuable bulk commodity, basic information
about water resources is essential.

The division intends to identify potential regulatory or land management concerns within state
and federal governments in Alaska, and search for ways to resolve them. As an example, the
Division of Water is completing negotiations with the U.S. Forest Service and the U.S.
Geological Survey on a Memorandum of Agreement on a coordinated inventory and
characterization of water export sources in SE Alaska. With appropriate information about the
quantity and quality of these export sources and the localized effects of exporting water, these
concerns should be resolvable.

An important part of the Division of Water's strategy is to promote public awareness of the
possibilities of bulk water exports. The appeal of establishing a sustainable earth-friendly
economic enterprise in Alaska, while conserving capital and environmental resources in
Nevada, California or Baja should be compelling. Additionally, the division is concerned with
domestic water and sewer problems in 135 Alaska rural villages. The development of this new
revenue stream could, through separate accounting, provide the fiscal basis for addressing
these problems. We believe the revenue from water exports should pay for solving Alaska's
domestic water challenges.

The development of a full scale 225 acre-foot bag and towing it by tug from a source in SE
Alaska to a delivery point in the market area will greatly accelerate the development of this
industry. A number of firms are involved in an effort to accomplish this with Medusa
Corporation. The Division was contacted in 1993 by officials from the Philippines who had
reviewed this discussion paper and are now working with Medusa Corporation to develop
three 100 AF bags to move water from large islands to smaller islands. Additionally a group in
England (Innovel) claims to have advanced the Medusa design to meet some unspecified
concerns. They are involved in the middle east water market and report to be associated with
Bell Avon and have manufacturing facilities in Mexico and Marwest, Canada. The Division is
hoping to receive more information about this groups efforts.

The U.S. State Department requested copies of the discussion paper for possible application
to Middle East Peace negotiations, as water is an important issue. The State Department has
requested independent engineering analysis of bag concepts. The Division is awaiting the
results of these reports.

Given the expectations of growth in the southwestern United States and Mexico and a variety
of developments impacting existing and potential local sources of water in the market area,
such as hundreds of new listings of instream dependent species under the Endangered Species
Act and the required dedication of water to their recovery, and new directions in Congress for
the Bureau of Reclamation that require more local water to be dedicated to fish and game,
market demand will continue to grow - even if it rains. Although political leaders and
professional water managers in the market area are making every effort to solve their water
deficits with local sources, conservation, reclamation, and even desalinization, many have
already come to the practical realization that it cannot be done. New sources of water must be
found and the importation of water from Alaska can be a part of the solution to this challenge.

As a result of recent developments with out-of-court settlements on hundreds of new listings
and other Endangered Species Act (ESA) complications, many experts predict that all of the
key 35 rivers that flow to the pacific ocean in the west will be under some federal ESA
limitations further increasing demand for imports by the year 2000.

The greatest market potential is southern California, northern Mexico, southern Nevada, and
other southwestern inland states. Although we do not believe the State of California will allow
significant economic harm to their agricultural industry by forcing large transfers of water from
irrigation to industrial and urban uses, there is the potential under sufficient stress for political
change. Some analysts predict this change may be completed at prices that may make imports
and/or desal not competitive in the next decade, while other analysts conclude that local prices
will have to be much higher before any significant policy change takes place. There is no such
potential in southern Nevada with practically no agriculture or northern Mexico where very
limited agriculture is based on over-drafted groundwater.

With the delivery of the first shipment transferring water from Alaska to southern California,
Nevada, or northern Mexico - the world will change . Those who have objectively examined
marine transport (tanker or bag) as a mechanism to bring new water to the market area agree
that once it is real - once a contract is signed and delivery begins - marine transport will
become a dominant force in the water market.

The Division of Water continues to explore all of these key issues. Although this paper is not
intended as a complete analysis of all aspects of bulk water exports, we have attempted to
identify and address the issues we and others have raised so far. We are very interested in
your opinions, concerns, or suggestions about this paper. If you believe our facts or
assumptions are not correct or that we may have missed an important issue for discussion,
please contact the Director of Water at (907) 762-2294.

References on information contained in this paper are available upon request of the
Director of Water (907) 762-2294.


[ Table of Contents ]


WATER RIGHTS QUESTIONS


Alaska Aquaculture, Inc. (Burnett Inlet Hatchery)

In an effort to pay off outstanding state loans for the development of the fish hatchery at
Burnett Inlet and provide some operating capital, Alaska Aquaculture, Inc. applied for and the
Division issued a Temporary Water Use Permit to export up to one million gallons a week
from the Burnett River system. Using a small tanker, this water is to be sold as potable water
for no more than one cent a gallon to RainMaker Resources in Corte Madera, California.

Sun Belt Water, Inc. & Sun Belt Marine, Ltd.

Sun Belt Water, Inc., of California, which was involved for over three years in efforts in British
Columbia and Panama, studied water sources in Alaska and contacted the new Division of
Water within days of its creation by the Governor. These discussions resulted in two
applications for water from two sources in southeast Alaska for a total of 350,000 AFY using
marine transport technologies. Sun Belt withdrew one application when it was discovered the
source was located in a federal wilderness area and replaced it with another application.

City and Borough of Sitka

Following a presentation by the Division of Water at the SE Conference in Sitka, a group of
business and community leaders set up a meeting with the Division to explore local government
involvement in water exports. This resulted in two applications from the City and Borough of
Sitka for 54,750 acre-feet per year from Blue Lake and 56,000 acre-feet per year from
Green Lake. Both of these sources are already developed for hydro-electric power and/or
drinking water.

Municipality of Anchorage

The Office of the Mayor of Anchorage has been exploring treated bulk water exports to
Pacific Rim (South Korea) and Middle East (Greece, Saudi Arabia) customers. The Eklutna
Pipeline has significant excess capability that could be sold and exported, accelerating debt
retirement for the line and relieving growing economic pressure on domestic water service fees.
The Division of Water is cooperatively exploring regulatory questions with the Municipality on
the development of this expanded beneficial use. Eklutna is also providing private firms the
opportunity to export treated water from the Port of Anchorage. Alaska Glacier, a bottling
company in Anchorage, reports having signed a letter of intent with a Middle East group for
bulk exports. The first of four tankers a year may arrive as early as August 1995 to begin
exporting close to 58 million gallons a year to a Saudi bottlers.

Although the Division of Water often receives calls and visits from individuals, firms,
communities, and groups, these are the only pending applications for water rights with the state
for exporting bulk quantities of water. The division does anticipate additional applications from
communities in SE Alaska such as Ketchikan and Yakutat, a regional native corporation, and
private firms such as Sun Belt Water. In the absence of competing applications, the Division of
Water is working with these applicants for the export of over 450,000 acre-feet per year. The
division is working closely with the Alaska Water Management Council, the Division of
Governmental Coordination, and the Attorney General's Office to ensure that these
applications are processed according to applicable statutes and regulations.


[ Table of Contents ]


THE NUMBERS

A typical VLCC Class tanker hauls 225 acre feet
A ULCC Class tanker can haul up to 300 acre feet

[In each class if ballast tanks are used for fresh water transfers capacity can be increased by
20%]

[Towable Bags may haul more than 300 acre feet]

These numbers are estimates based on discussions with marine transport experts that have
investigated the cost of the marine transport of water. The actual costs and profits may be
higher or lower than presented.

Annual Payload Per Tanker



Number of Tankers @225 AF @300 AF
1 can deliver 8,212.5 10,950 acre feet a year*
2 16,425.0 21,900
3 24,637.5 32,850
4 32,850.0 43,800
5 41,062.5 54,750
9 73,912.5 98,550
10 82,125.0 109,500
20 164,250.0 219,000

* 36.5 trips per tanker per year assuming a 10 day round trip

Gross Receipts

per tanker @ $1,700 per acre foot

VLCC tanker per trip is $382,500 per year is $13,961,250
ULCC tanker per trip is $510,000 per year is $18,615,000


Operational Costs

(fuel/manpower)

$ 7,900 crew and $9,300 fuel = $17,200 per day


Capital Amortization

over 10 years is $13,260 per day

Total "Day Cost " for a 10 year contract is $30,460 with a total cost per round trip of
$304,600

Net Receipts

(gross minus cost) per tanker @ $1,700 per acre foot

VLCC tanker per trip is $77,900 per year w/36.5 trips is $2,843,350
ULCC Tanker per trip is $205,400 per year w/36.5 trips is $7,497,100

BAG/TUG Costs

(Provided by Medusa, Inc.)
[these numbers are under independent review by the Division of Water]

225 AF Bag 1600 AF Bag

Velocity through water 3.0 knots 2.0 knots
Velocity including California current 3.3 2.3
Velocity, miles per day 92.0 mpd 63.5 mpd

Loaded trip time 21 days 30 days
Return 7 days 10 days
Load and Unload 2 days 4 days

Total Cycle 30 days 44 days

Arrivals per year 12.16 8.3

Annual deliveries per bag 2,738 AF 13,280 AF

No. of bags to deliver 250,000 AF/Y 91 bags 19 bags

Capital Cost $1,270,000 $6,000,000

Annual charge @ 19.2% p.a.
(8% money, 7 year life) $244,000 $1,152,000
Insurance @ 2% 25,000 120,000
Repair @ 2% 25,000 120,000

Annual Cost of Bag $294,000 $1,392,000

Tug size 2,000 Hp 3,000 Hp
Annual cost $1,332,000 $1,698,000

Total Annual Cost $1,626,000 $3,090,000

Per AF Delivered $594/AF $233/AF


Note: This is an example of the optimization process, which should also include the cost of the
terminal (less for shallower bags). A complete optimization will certainly find a cost less than
the $233/AF haul cost shown here.

Bag Dimensions and Costs


225 AF Bag 1600 AF Bag

Length L 1,250 Ft 2,400 Ft

Width (filled w 296 568

Depth (total) d 41.7 80.0

Draft 40.6 78.0

Area of top (filled) 25,939 yd2 95,622 yd2

Area of top (empty) 32,020 118,022

Total fabric area 69,040 236,044

Calculated volume 275,875 m3 1,951,800 m3
before expansion due to 223.6 AF 1,582 AF
pressure several percent

Costs @ $15/yd2 $ 961,000 N/A

Costs @ $20/yd2 $1,281,000 $4,721,000


Note: To these costs must be added engineering costs, interest during construction (if many
bags) and contingency. Also tackle, lights, reflectors, balloons, etc.

Drag Force Calculations


Friction Drag Form Drag

Ff = 1/2 Pcf U2 Aw Fd = 1/2 Pcd U2 An Newtons

Cf = .075/(log10Re-2)2 = .00175 CD = .05

Re = ULw/v (Re = Reynold's #) v = viscosity p, density of seawater, = 1025 kg/m3

Aw = wetted area An = largest cross section
normal to flow


Total Drag = Friction Drag + Form Drag + Wave Drag

Wave drag, which varies as 3rd power of U, is ignored at low speeds, e.g., < 3 knots

Total Drag = 1/2p (CfAw + CDAn)U2 Newtons

For Medusa bags, Aw = 7.504V2/3, An = .2714V2/3

Total Drag = .00154V2/3U2, V = capacity in cubic meters
U = velocity thru water, m/s
1 Newton = .00011242 short tons


Examples

Velocity, knots 1 2 3 4

Total drag 225 AF bag 1.72 6.88 15.48+ 27.53++

Short Tons 1,600 AF bag 6.55 25.06 55.02+ 95.98++

Tugs

Costs for a U.S. west coast tug of 5,000 Hp, 50 ton Bollard pull, capital cost $7 million in
volume purchase.

$000's

Crew 660

Maintenance @ 4% 275
Insurance @ 2% 140
Other op. costs @ 2% 140
Fuel 6000 tpy @ 100% 600
Lube 50

Total 1,205

Service of capital @ 8% pa
including depreciation 625

30 year basis 1,830 + 660 = $2,490/y or $7,700/d


Capital costs are roughly linear with bollard pull so estimate is for smaller sizes:

Bollard pull (Tons) 10 20 30 40

Tug costs, inc. cap 366 732 1,098 1,464

Crew costs 500 600 600 660

Total $000's 866 1,332 1,698 2,124

Day rate, 325 d/y $2,665 $4,098 $5,225 $6,535



[ Table of Contents ]


THE NUMBERS

State of Alaska


Although initially it was suggested that Alaska could export up to 2 million acre feet a year
from southeast Alaska we find this unlikely, in the near term, using tanker or bag/tug
technologies. We do believe a more probable target of one million acre feet a year more
realistic.

Revenue to the State

With a "Conservation Fee " at a range from $5 to $20 per acre foot, as required by law, the
total revenues generated to the state would be about $20,000,000 per year. The Conservation
Fee must be graduated up (higher cost per unit) as more water is removed from a hydrologic
unit (see State Laws in appendix).

In considering the long term economic impact of this new source it is important to keep in mind
that the price of water will increase in the market area. All experts agree on that. The
Conservation Fee will be adjusted accordingly increasing the total revenue to the state. In
addition the annual adjustment for inflation will be applied.

Income from other sources of taxation on this new industry may increase this annual revenue.

Jobs for Alaskans

Although Alaska can not insist that those involved with water exports train and hire Alaskans,
we have been very encouraged with the interest of those actively pursuing water exports in
training and hiring Alaskans. The phrase often stated is, "It only makes sense if we are doing
business in Alaska, to train and hire Alaskans." In small villages and rural communities in
southeast Alaska, this is a critical issue.

With the application of bag technology, and concerns with the Jones Act, it is anticipated that
the bags would be constructed in Alaska. According to James Cran with the Medusa
Corporation, such an enterprise could, he estimates, employ several hundred Alaskans.

Uses for this new Revenue Stream

Although Alaska does not allow the dedication of revenue, through separate accounting, the
legislature may wish to use this revenue stream to resolve many other water related challenges.
Yearly appropriations to the Village Safe Water Program and the purchase of single family
water distillation systems in many remote areas would be two obvious choices.
Based on existing applications :

Sun Belt Inc., exporting 350,000 AFY, would generate $1,750,000 to $7,600,000 in
Conservation Fees Sitka, exporting about 100,000 AFY, would generate $500,000 to
$2,000,000 in Conservation Fees

Water Sales - Revenue is unknown at this time




[ Table of Contents ]


Bottled Water

Alaska has several bottled water and beverage industries with plants located in Anchorage and
Juneau. WETCO bottles water under the name Beluga Water with a large share of the shelf
space in Anchorage retail outlets. WETCO water products are also delivered to other areas of
the state and exported to Japan for perfume manufacturing. Alaska's Best Water of
Anchorage supplies drinking water to many office buildings in Anchorage in five-gallon bottles.
Alaska Pure Water Products and Alaska Pure Mountain Spring Water of Juneau, also
supply drinking water in various size bottles to local markets with limited exports.

The Municipality of Anchorage has a limited contract to supply water to Alaska Glacier from
the Eklutna Water Project, that is truck tankered on barges to Washington state for bottling in
a test market. This is a back-haul using milk tank trucks from the Seattle area. If this market
proves out, the owners will consider opening a bottling company near the municipal Eklutna
Water Treatment Plant.

Alaska Aquaculture, Inc. (Burnett Inlet Hatchery), in southeast Alaska, has a permit to export
one million gallons of water a week from the Burnett River system to RainMaker , a firm in
California. A small tanker will be used for transport, and they anticipate 52 shipments a year
for a total export of 52 million gallons or 159.6 acre feet. The hatchery will charge as much as
1 cent a gallon at the point of transfer. This income will pay off the debt (state loan) on the
hatchery.

A group of businesses involved in the tourism market in SE Alaska have advanced the concept
of bottling local water as a souvenir. This may prove to be a successful enterprise focused
initially at a very limited market, however, with development and experienced marketing this
approach may open new markets outside of Alaska.

The Taiwan government and private interests are actively exploring the development of a large
bottling plant in Sitka Alaska at our suggestion. They anticipate producing 100,000 bottles per
day with up to 50 containers for ocean transport per week. Their principle market will be in
the Pacific Rim.

Test-markets by private companies using Alaska bottled water have been very successful. The
cost of shelf space and an economically viable delivery system are the greatest challenges to
developing markets outside of Alaska. These are the same challenges faced by most in the
bottled water industry.

Glacier Ice

The harvesting and export of glacier ice continues to increase. Currently there about 20
permitted harvesters and a number of pending applications. The market demand for glacier ice
continues to be predominately Japan and Hawaii. We have seen a recent increase in the level
of interest in glacier ice exporting and in use for domestic tourism markets. The last reported
wholesale price for "clean" glacier ice is $500 per ton.


[ Table of Contents ]


About the Author


Appointed Alaska's first Director of Water in June 1991, Ric Davidge is responsible for the
management of 40% of our nation's free fresh water resources. He is also responsible for the
State Dam Safety Program, Title Navigability determinations, the Alaska Hydrologic Survey,
State Water Policy and Management Strategies, Water Resource Management and
Development, and represents the Governor on the Western States Water Council and the
President's Council on Western Water Policy. Ric has been a pioneer in the export and sale of
water from Alaska and was successful in getting unique legislation passed in 1992 that
authorizes state water sales and water conservation fees. Ric also heads the Strategic Planning
Team for the department and has completed DNR's first strategic plan and a series of tactical
plans and reports.

Although a full time employee of the State of Alaska, Ric continues to be active, although
part-time, in his private ventures in Orlando, Florida and as a management consultant in
Anchorage.

Ric Davidge came to Alaska in 1973 to attend and teach at the University of Alaska,
Fairbanks. He received his BA degree at the Fairbanks campus and his MPA degree from the
Juneau campus. While at the University, Ric was elected Student Body President and later
appointed to the Board of Regents by Governor Hammond. Ric started the Alaska Student
Lobby representing almost 10% of the voting population of Alaska.

In 1978 Ric joined the staff of Alaska's senior U.S. Senator Ted Stevens and was involved in
the final year of Congressional action on ANILCA. He initiated a number of national policy
reviews on federal land management issues resulting in a series of GAO investigations which
began a period of national reform. As a result of his work with Senator Stevens, Ric was hired
as the Washington, D.C. representative of the National Property Owners Association as a
recognized authority on federal policies towards private land ownership and developed a very
successful consulting and representation firm in the nation's capital.

During the 1980 campaign for President, Ric was asked to prepare a number of issue papers
for the Reagan Campaign which were adopted and became a cornerstone of Dept. of Interior
policy following Reagan's election as President. Ric was then appointed to a sub-cabinet
position in the Dept. of Interior and selected to Chair the Federal Land Policy Group which
oversees land policy issues for the Interior Dept. and the U.S. Forest Service. He was also
responsible for developing innovative historic preservation policies and tax reforms that caused
a national surge in private historic property restoration. Among many other responsibilities with
the administration, Ric served as the Federal Commissioner to the New Jersey Pinelands, a
member of the President's Council on Historic Preservation, and Chairman of the Coastal
Barriers Task Force that delineated over 900 miles of east and gulf coast shore line which
Congress placed into a new conservation system.

In 1983 Ric returned to Alaska to head the Office of the Assistant Secretary for Fish, Wildlife
and Parks in Anchorage and begin oversight of the conservation system management planning
requirements in ANILCA. Working closely with the Alaska Land Use Council, a joint
State/Federal group, he headed a number of initiatives for the Assistant Secretary. With the
growing controversy in subsistence and access questions facing the US Fish and Wildlife
Service, Ric was appointed as Assistant to the Director of the US Fish and Wildlife Service to
head a series of high profile and controversial State/Federal task forces.

Ric left federal employment to join the campaign staff of Walter Hickel who was running for
Governor in 1986. As Director of Issues for the campaign Ric wrote most of the campaign
issue papers and speeches for Governor Hickel. After the Primary election, Ric left the
campaign to serve as Ex Dir of the Citizens Coalition for Tort Reform and helped organize and
set the direction for the organization including preparing a number of major legislative reforms.

In 1987, Ric was hired as the Director of Development Services for the Mat-Su Borough. In
this capacity he directed 6 divisions, headed international trade missions to Europe and Asia,
articulated economic development strategies in port and industrial park development, forest
management and wood fibre production, recreation, mining and other industries. Ric was
appointed as the Acting Borough Manager in the absence of the Manager.

Continuing his economic development efforts Ric was hired by Susitna Industries as Vice
President and Assistant General Manager. In this capacity Ric was responsible for the
development and financing of projects ranging from $250 million to $1.5 billion. While working
for Susitna Industries Ric also served as President of his own public policy consulting firm, was
often heard on national radio talk shows discussing Alaska; he also wrote a number of issue
papers for political candidates. Ric also served as Ex Dir of the Alaska Professional
Sportsman's Association, a professional trade organization concerned with professional
standards, tourism development, marketing and state/federal relations.

With the Exxon tanker accident in Valdez, Ric was hired to immediately staff and set up
environmental compliance offices in the Gulf of Alaska for VECO under contract to Exxon.
Over the next few months Ric designed and had constructed the second largest and most
diverse waste separation, transportation and management system on the spill in Seward. By
the end of the summer Ric was asked to accept the position of Director for Planning,
Permitting and Government Affairs with a leading environmental consulting firm in Anchorage.
In this capacity he was instrumental in bringing this firm together with Soviet/Russian leaders
resulting in a very large and successful joint venture for environmentally responsible resource
development in a former Soviet Republic. While still working with the firm Ric was asked by
Senator Jack Coghill to develop and manage all issues for his campaign for Lt. Governor. Ric
was also brought in to prepare candidates for statewide TV debates and with Gov. Hickel
joining the campaign Ric again took responsibility for issue papers and special interest group
questionnaires.

In February of 1991, Governor Walter Hickel asked if Ric would join his personal staff as
Special Assistant for Policy and Legislation. In this capacity Ric served as the Governor's
principle assistant on Subsistence and the Governor's liaison with the House Minority. With the
creation of the new Division of Water and the end of the legislative session, Ric was appointed
Alaska's first Director of Water.

Community Service

Since coming to Alaska in 1973 Ric has been very active in community service. In addition to
his leadership in post secondary education, he also served as Chairman of the Commission on
Public Transit which developed the first mass transit system in the Fairbanks North Star
Borough. He has served on a number of statewide private and public boards and commissions
and as a Director in such organizations as the Resource Development Council and The Alaska
Support Industry Alliance. Ric has written many articles and participated in writing books such
as the Commonwealth North publication, "Going up in Flames ". Ric was an original member
of the Alaska Coalition for American Energy Security. He currently serves on the Board of
Directors of Friends of Children, an organization attempting to address some of the legal
complications in dealing with the abuse of children. Ric continues to participate in theater
activities in the community when his schedule allows and is a sought after soloist for special
occasions.

Education
Bachelor of Arts, Univ of AK, Fairbanks
Post Graduate work in Economics, Political Science and Management
Masters in Public Administration, Univ of AK, Juneau



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