FW: Today at Aguanomics

Exporting Water from the Dust Bowl to the Desert

Posted: 02 Sep 2009 03:22 AM PDT

Last week, a $77 million water sale (not lease) made headlines. The sale is notable for a few reasons:

1.       That's a lot of money for 14,000 af of water rights. At a 5 percent discount rate, that works out to $275/af. (According to my sources, that water has an annual delivery fee -- for infrastructure debts, etc. -- of about $100/af.)

2.       The water is going from an ag seller in "parched" Kings County to an urban buyer in fast-growing San Bernadino County.

3.       Both the buyer and seller are contractors to the State Water Project, which means there are few -- if any -- regulatory barriers to completing the sale.

Here are a few observations:

§ It's clear that money talks as far as water is concerned. Although farmers are complaining of a "dust bowl" (and the media is STILL eating up Westlands agit/prop), what they are really complaining about is an increase in the cost of doing business. I guess that Westlands (et al.!) would rather lobby Feinstein and Vilsack than pay money for more water.*

§ I wonder about the details of the contract. Does the price change if less than 14,000 af/year are available? Seth -- the reporter on the original story -- says that the seller received an average of 50 percent of its contracted deliveries/rights in the past.

§ Other, smaller trades are also occurring: South San Joaquin Irrigation District leased 30,000 af for $6.8 million. Curiously, they sold 25,000 af of "emergency" water to the San Luis-Delta Mendota Water Agency for $250/af, but that same water only sold for $150/af to the City of Stockton and $20/af to the East Stockton Water District. Seems like these deals reflected a compromise between politics and market efficiency.

§ Here's a link to water trades that require SWRCB approval.

Bottom Line: When water is no longer abundant, its scarcity value rises. Some are willing to pay more to maintain their supply, while others prefer to take it thorough political means. (Katheryn Gray rips into the "fake emergency" driving the political debate in Sac.) The latter method, whether using other people's money or political force, is neither efficient nor equitable.

hattips to PB, ED, CM and DW

*Westlands is a CVP contractor, but CVP-SWP trades are now very easy.