LONG-TERM WATER ASSETS

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Long-term water assets consist of water and water contracts held for future use or sale. The water is held at cost, which includes the price paid for the water and the cost to pump and deliver the water from the California aqueduct into the water bank. Water is currently held in a water bank on Company land in southern Kern County and by the Tejon-Castac Water District (TCWD) in the Kern Water Banks.

The Company has secured State Water Project, or SWP, entitlements under long-term SWP water contracts within the Tulare Lake Basin Water Storage District, or Tulare Lake Basin, and the Dudley-Ridge Water District, or Dudley-Ridge, totaling 3,444 acre-feet of SWP entitlement annually, subject to SWP allocations. These contracts extend through 2035 and have been transferred to the Antelope Valley East Kern Water Agency, or AVEK, for the Company's use in the Antelope Valley. In 2013, the Company acquired a contract to purchase water that obligates the Company to purchase 6,693 acre-feet of water each year from Nickel Family, LLC, or Nickel, a California limited liability company that is located in Kern County.

The initial term of the water purchase agreement with Nickel runs to 2044 and includes a Company option to extend the contract for an additional 35 years. The purchase cost of water in 2022 is $861 per acre-foot. The purchase cost is subject to annual cost increases based on the greater of the consumer price index or 3%.

Water assets will ultimately be sold to water districts servicing the Company’s commercial/industrial and resort/residential real estate developments, and for the Company's own use in its agricultural operations. Interim uses may include the sale of the temporary “right-of-use” of portions of this water to third-party users on an annual basis until this water is fully allocated to Company uses, as previously described.

Water revenues and cost of sales were as follows for the nine months ended ($ in thousands):


	September 30, 2022		September 30, 2021
Acre-Feet Sold	9,600		13,199

Revenues	$	13,635	$	14,986
Cost of sales	8,944		10,297
Profit	$	4,691	$	4,689

The costs assigned to water assets held for future use were as follows ($ in thousands):


	September 30, 2022		December 31, 2021
Banked water and water for future delivery	$	23,855	$	25,020
Water available for banking, sales, or internal use	2,093		2,879
Total water held for future use at cost	$	25,948	$	27,899

Intangible Water Assets

The Company’s carrying amounts of its purchased water contracts were as follows ($ in thousands):


	September 30, 2022				December 31, 2021
	Costs		Accumulated Depreciation		Costs		Accumulated Depreciation
Dudley-Ridge water rights	$	11,581	$	(5,669)	$	11,581	$	(5,307)
Nickel water rights	18,740		(5,729)		18,740		(5,247)
Tulare Lake Basin water rights	6,479		(3,326)		6,479		(3,148)
	$	36,800	$	(14,724)	$	36,800	$	(13,702)
Net cost of purchased water contracts	22,076				23,098
Total cost water held for future use	25,948				27,899
Net investments in water assets	$	48,024			$	50,997

Water contracts with the Wheeler Ridge Maricopa Water Storage District, or WRMWSD, and TCWD are also in place, but were entered into with each district at the inception of the respective contracts, were not purchased later from third parties, and do not have a related financial value on the books of the Company. Therefore, there is no amortization expense related to these contracts. Total water resources, including both recurring and one-time usage, are:


(in acre-feet, unaudited)	September 30, 2022	December 31, 2021

Water held for future use
TCWD - Banked water owned by the Company	53,448	56,189
Company water bank	50,349	50,349
Water available for banking, sales, or internal use	2,874	4,203
Total water held for future use	106,671	110,741
Purchased water contracts
Water Contracts (Dudley-Ridge, Nickel and Tulare)	10,137	10,137
WRMWSD - Contracts with the Company	15,547	15,547
TCWD - Contracts with the Company	5,749	5,749
Total purchased water contracts	31,433	31,433
Total water held for future use and purchased water contracts	138,104	142,174

Tejon Ranchcorp, or Ranchcorp, a wholly-owned subsidiary of Tejon Ranch Co., entered into a Water Supply Agreement with Pastoria Energy Facility, L.L.C., or PEF, in 2015. PEF is a current lessee of the Company in a land lease for the operation of a power plant. Pursuant to the Water Supply Agreement, PEF may purchase from the Company up to 3,500 acre-feet of water per year until July 31, 2030, with an option to extend the term. PEF is under no obligation to purchase water from the Company in any year but is required to pay the Company an annual option payment equal to 30% of the maximum annual payment. The price of the water under the Water Supply Agreement for 2022 is $1,224 per acre-foot, subject to 3% annual increases over the life of the contract. The Water Supply Agreement contains other customary terms and conditions, including representations and warranties that are typical for agreements of this type. The Company's commitments to sell water can be met through current water assets.