As California Drought Deepens, Those With Water Can Sell at a High Price

By Garance Burke
Associated Press

Throughout California's desperately dry Central Valley, those with water to spare are cashing in.

As a third drought year forces farmers to fallow fields and lay off workers, two water districts and a pair of landowners in the heart of the state's farmland stand to make millions of dollars by pumping their groundwater and selling it.

Nearly 40 others also are seeking to sell surplus water this year, according to state and federal records.

Economists say it's been decades since the water market has been this hot. In the last five years alone, the price has grown tenfold to as much as $2,200 an acre-foot. That's about 326,000 gallons of water, typically described as enough to supply two average California households for a year.

Unlike the previous drought in 2009, the state has been hands-off, letting the market set the price even though severe shortages prompted a statewide drought emergency declaration this year.

Some water economists have called for more state regulation to keep aquifers from being depleted and ensure the market is not subject to manipulation such as that seen in the energy crisis of summer 2001, when the state was besieged by rolling blackouts.

"If you have a really scarce natural resource that the state's economy depends on, it would be nice to have it run efficiently and transparently," said Richard Howitt, professor emeritus at UC Davis.

In California, the sellers include some who hold claims on water that date back a century, private firms that are extracting groundwater and landowners who stored water when it was plentiful in underground storage facilities called water banks.

"This year the market is unbelievable," said Thomas Greci, general manager of the Madera Irrigation District, which recently made nearly $7 million from selling about 3,200 acre-feet. "And this is a way to pay our bills."

All of the Madera's district's water went to farms. The city of Santa Barbara, which has its own water shortages, was outbid.

The prices are so high in some rural pockets that water auctions have become a spectacle.

One agricultural water district amid the almond orchards and oil fields northwest of Bakersfield announced earlier this year it would sell off extra water it acquired through a more than century-old right to use flows from the Kern River.

Local TV crews and journalists flocked to the district's office in February to watch as manager Maurice Etchechury opened dozens of bids enclosed in sealed envelopes.

"Now everyone's mad at me, saying I increased the price of water. I didn't do it, the weather did it," said Etchechury, who manages the Buena Vista Water Storage District, which netted about $13.5 million from the auction of 12,000 acre-feet of water.

The severity of this year's drought means that the amount of water shipped from Northern California to the San Joaquin Valley and Southern California has been severely limited.

During the last drought, the state Department of Water Resources (DWR) ran a drought water bank, which helped broker deals between those who were short of water and those who had plenty. But several environmental groups sued, alleging the state failed to comply with the California Environmental Quality Act in approving the sales, and won.

This year, the state is standing aside, saying buyers and sellers have not asked for the state's help. "We think that buyers and sellers can negotiate their own deals better than the state," said Nancy Quan, a supervising engineer with the department.

The DWR, the U.S. Bureau of Reclamation and the State Water Resources Control Board have tracked at least 38 separate sales this year, but the agencies are not aware of all sales, nor do they keep track of the price of water sold, officials said.

The maximum volume that could change hands through the 38 transactions is 730,323 acre-feet, which is about 25 percent of what the State Water Project has delivered to farms and cities in an average year in the last decade.

That figure still doesn't include the many private water sales that do not require any use of government-run pipes or canals, including several chronicled by the AP. It's not clear, however, how much of this water will be sold via auctions.

Some of those in the best position to sell water this year have been able to store their excess supplies in underground banks, a tool widely embraced in the West for making water supplies reliable and marketable. The area surrounding Bakersfield is home to some of the country's largest water banks.

The drought is so severe that aggressive pumping of the banked supplies may cause some wells to run dry by year's end, said Eric Averett, general manager of the Rosedale-Rio Bravo Water Storage District, located next to several of the state's biggest water banks.

Farther north in the long, flat Central Valley, others are drilling new wells to sell off groundwater.

Earlier this month, Stanislaus County's Del Puerto Water District approved a project to buy up to 26,000 acre-feet of groundwater pumped by two landowners in neighboring Merced County.

Since the district is getting no water from the federal government this year, the extra water will let farmers keep their trees alive, said Anthea Hansen, general manager of the arid Del Puerto Water District.

Hansen estimated growers would ultimately pay $775 to $980 an acre-foot — a total of roughly $20 million to $25.5 million.

"We have to try to keep them alive," Hansen said. "It's too much loss in the investment and the local economy to not try."