30 July 2010

Big Ag sells to Big Urban

I've been participating in an email discussion about Westland's plan to sell 50-100,000 acre feet of water to Metropolitan Water District (Spreck broke the news; this article gives more background).

This ag-to-urban, central-to-southern California sale upsets enviros. Why?
  1. WWD has been making A HUGE FUSS about how it needs MORE water. How is it possible now that they can be selling water? (Short answer is that WWD has to sell it, to avoid losing it from storage; the long answer is that WWD will eventually sell ALL of its water to SoCal urban buyers. No, it's NOT about the workers, food or community. It's about MONEY.)
  2. MWD's water has driven SoCal sprawl, and more water means more lawns at MWD and more sprawl into new housing developments.
  3. Some enviros just dislike WWD (and other irrigators using imported surface water); they want it shut down and its water left in the environment/Delta.
I am not upset about these "business facts" (or even anti-ag emotions), especially when water is going from willing sellers to willing buyers, for beneficial use.

OTOH, I am not happy about this (prospective) sale:
  1. WWD water is subsidized.That means that price may be too low and profits come out of our pockets.
  2. A backroom sale does not allow others to bid. That's not good from a social perspective.
  3. Feinstein and other politicians are writing special rules, changing the definition of water rights to make them worth more cash -- and more water -- when we have already overallocated our water supplies. These special interest giveaways merely rob The Public a second time.
My suggestion? WWD auction its "surplus" water to the highest bidder and use the revenue to repay the money it spent to acquire it.* The remaining money should stay at WWD, as a reward for its special relationship with DiFi and others. (I don't like those special interest/lobbying rents, but I don't think they should be taken away. We need politicians who are brave enough to change the policies that produce these rents. Anyone?)

Bottom Line: Water trading is good, as long as the good for sale is clearly owned and the price reflects its real cost.
* It's interesting that they are talking about a water swap -- 3 af today for 2 af in the future -- instead of a cash sale. The swap makes sense for three reasons: (1) They do not want to haggle over price (except that "net af" of water), (2) they do not want the public to know how valuable the water is if it WAS priced, and (3) they do not want to worry about cash flows. OTOH, the swap creates a long term relationship (good!), but also creates uncertainty. Will MWD be able to return the water in the future? What if it's dry for 5 years and MWD needs the water for toilets, showers and lawns?
Addendum: Tom Birmingham wrote me an email on this post, and I am waiting for him to let me post it as a comment. Until then, the gist of his comment is that this is a swap, not a sale, and that MWD has the storage space to let it happen. I replied that this swap seems a poor substitute for a market (in which WWD and MWD would be able to buy and sell when and if they wanted), but a necessary substitute given the current distribution of water rights -- a distribution that favors WWD and MWD over other water users.

16 comments:

Josh said...

Price almost never reflects "real" costs. Price reflects where D=S, and both of those variables are driven by many factors, cost being one of them.

Saying that price should reflect real cost pretends that profits don't exist - but profit (&esp. the idea that it will increase in the future) is what drives almost all markets.

Anyhoo, besides that, I'm glad you pointed this out, I hadn't heard about it. Of course, I'm a mix of #'s 2 and 3, 3 because I'm from the Delta, not because I'm an enviro.

You can also add #4, that many folks think that MWD would be better served by cutting off any agreements or alliances with WWD, because they threaten the safety and security of MWD's water quality and transport.

Also, add that MWD just wants to flood its constituents with water right now, so that when the next drought occurs, they can shove home the Proposition they asked to be delayed. Watch and see.

(Your declaration by fiat that some particular, private entity should get special treatment merely because of its special relationship is exactly how government becomes corrupted. It flies in the face of the rule of law and the Constitution. I'd tread carefully on any kind of de facto thinking when it comes to these deals. It may sound pragmatic or understanding, but it quickly leads down a bad, bad road.)

Mike Wade said...

David….how can you be so wrong?

1. It’s not a sale as you describe it in the beginning of your post (yes, I saw your footnote at the end in which you backtrack and call it a “swap”). It is an exchange with no money passing between Westlands and Metropolitan.

2. No one with any true knowledge has mentioned “the long answer is that WWD will eventually sell ALL of its water to SoCal urban buyers.” You have no proof of this because it is false. Why do you continue to spread such misinformation?

3. Westlands is paying for the water it receives. The construction costs for Lake Shasta and other infrastructure must be repaid by contractors receiving this water. That is a requirement before the contractors could receive their first drop of water. If you’re referring to Congress deciding not to charge for the interest expense on the construction cost, well…we can only hope Congress would make more decisions like that because look at the return to the lives and economy which far outweighs the interest expense.

4. Again, it’s not a sale and it certainly is not a backroom deal. Before it can be implemented, the U.S. Bureau of Reclamation must go through the public review process before the exchange can proceed.


Mike Wade
California Farm Water Coalition

David Zetland said...

@Josh -- you say "Your declaration by fiat that some particular, private entity should get special treatment merely because of its special relationship is exactly how government becomes corrupted."

(1) WWD is a public entity, a part of CA's government.

(2) I am POINTING OUT the corruption, which I prefer to be revoked by those who created it, rather than taken over by another division of government force.

David Zetland said...

@Mike -- (2) WWD has said, on tape, that they intend to do this. (4) It's backroom as long as there is no open bidding among competing purchasers.

watermaven said...

Westlands IS trying to run this transfer through a backroom deal, by attempting to run the transfer through a consolidation in Place of Use, rather than through the normal review by the Bureau of Reclamation. The CVP transfer process includes a right of first refusal by water users within the CVP service area.

David Zetland said...

Anon emails: "It's not that the San Luis Reservoir is "Expected to Spill." It's that Westlands isn't going to use 350,000 acre feet of their allocation this year.

That's right -- THEY COULDN'T USE 350,000 ACRE FEET OF WATER this year."

TragerWaterReport.wordpress.com said...

The auction idea is a great one. From there, then move to privatization.

Josh said...

David, I understand that you want to eliminate corruption, and I don't mean to infer that you don't. But, your declaration that they should get to keep some amount of public money merely because of their relationships is graft.

As for the WWD's status, it's quasi-governmental, not public.

David Zetland said...

@Josh -- it's not graft. It's profits 9rents) from property rights given to WWD LONG ago by the government. That's not corruption, but poor public policy. (Yes, lobbying is legal corruption, but this isn't even that...)

Josh said...

David, then when you wrote this: "The remaining money should stay at WWD, as a reward for its special relationship with DiFi and others", you weren't being factually accurate? I took you at your word, here.

albionwood said...

"Westlands isn't going to use 350,000 acre feet of their allocation this year."

I look forward to the massive media coverage of this news. Will Sean Hannity wax indignant at the terrible loss of jobs and income for the poor CV workers, because the WWD farmers decided not to use their allotment after all? Will the Republicans call for breaking up the big-government entities (WWD and MWD) that made this happen?

Mark said...

For any non-farmers reading this, let me educate you. Growers must plant crops according to the calendar. We can't plant cotton nor processing tomatoes in June. They would never harvest before winter rains. Garlic is planted in September for the following year's July-Aug harvest. Planting it later would result in disater at the late fall-winter harvest window. Melons are planted in April-May...for peak summer harvest, and the extensive crop mix grown in Westlands goes on. All these crops command unique and specific water dates. Additionally, almonds, pistachios and grapes are perennial crops and therefore require timely irrigation every year, or they die. So, this year the Bureau's announcements for 2010-11 water allocations for Westlands came as follows:
February 19th @ 0 to 10%; Feb 26 @ 5%; March 16 @ 25%; April 15 @ 30%; May 4 @ 40%; and June 14 @ 45%.
Keep in mind that processors contract well in advance of planting dates and growers must till and pre-irrigate prior to planting. So, for crops grown in 2010, the lead time for both contracting and soil preparations well preceded the Bureau's water announcement dates, in most instances by weeks or months. Unfortunately, in 2010-11 with unsure water supplies on the horizon, many acres were idled, as water supply enhancements only occurred with the April, May and June Bureau allocation announcements. Only then did growers have adequate/surplus water to meet their reduced-acreage crop needs. Ironically, we are now blessed with more water than can be put to beneficial use in 2010-11. If we do nothing and the San Luis Reservoir fills, which is likely, growers not only lose this "excess" water, but we also have to pay for what we don't receive! The "exchange" win-win discussion with MET, which allows excess water to be transferred to Southern Calif. urban reservoirs now...and "exchanged" for MET water to be delivered in 2011-12...just makes sense! Southern California users secure water now and refill depleted reservoirs, and Central Valley farmers are able to substitute this saved water (albeit only 2:3) for use next season. Attempting to characterize this as an "off the radar" or "backroom" deal...is nonsense. It has been public from day one. It is a win-win for everyone: Urban and Ag. Importantly, as explained by the planting calendar above, growers would have preferred NOT to fallow lands in 2010, but for the critical delays in Bureau announcements of final 2010-11 allocations. You do nobody a service by spreading your slanted/biased/accusations. Water is a precious resource in this State, and creative management which preserves water and allows users to cooperatively manage it to everyone's benefit is the future. I hope you will rethink your hateful and dishonest rants, and in the future attempt to be part of the solution.

David Zetland said...

@Mark -- I am worried that you call my post "hateful" or "dishonest." As you will have read, I was more interested in an open bidding process -- not the MWD-WWD deal that was agreed without outside bidding.

I totally understand crop planting decisions, timing and contracts. I even understand the problem with BurRec release figures and San Luis capacity constraints (some people claim that SL is NOT going to spill).

I'm on your side, since I always favor the highest and best use of California water. Read a few more posts and please come back more often.

Josh said...

Mark, it ain't a win-win. I'm on the Delta. I lose.

I believe that any additional money should go to the water source - either the Delta, or the watersheds from which the water came. These places provide the water quality that makes this water better than Central-Southern California's own, because they keep it/contaminate it with downstream flows. Why else would you need a P.C.?

As for growing almonds and cotton in the WWD, good Lord, man! The only thing that place has going for it is sunlight - there's no plant nutrition that can't be trucked, no water that can't be pumped there. Ironically, the farming practices, and the need to truck all that stuff there contributes to knocking out the sunlight, even (I've heard a 15% reduction in yield from smog effects).

Sell your own water.

vett58 said...

In Northern Nevada, open water rights auctions have proven to artificially raise water right prices, sending the whole system into a tailspin. Perhaps these types of deals...with transparency ...are the way to go

David Zetland said...

@vett58 -- what's an artificially high market price? Do you mean that prices are volatile? That's GOING to happen until volume -- or history -- grows...