21 July 2010

He who lives by the sword

via CM
It was attention-grabbing news last year: A big Kings County landowner sold $73 million in water rights to the Mojave Water Agency in Southern California as local agriculture struggled against drought.

The Kings County grand jury thought it was controversial enough to investigate... The report went on to say that the Kings County Water Commission, which exists to advise supervisors, "failed to submit any written comments or to advise the Board of Supervisors to do so ... However, the grand jury concluded that "no actual breaking of California law was found."

[snip]

County officials say Vidovich had the right to sell the water, which didn't belong to Kings County anyway, since it was imported from the Sacramento-San Joaquin River Delta under the auspices of the Department of Water Resources.

[snip]

Dudley Ridge had no water prior to 1969, when it began taking deliveries from the California Aqueduct, Neves said.

The report raised concerns that other landowners could also sell their water, turning Dudley Ridge back to empty land. Neves shot that down, saying that water use has gotten so efficient that farming in Dudley Ridge - despite the high cost of Aqueduct water - will likely continue.
Neves is probably wrong. Dudley Ridge had no water until 1969, and it will have no water in a few years, if outside urban areas are able to buy it. It's purely a matter of willingness to pay versus value in use. Not even almonds produce as much value as showers and flushing toilets...

Bottom Line: When there's profit to be made, water will trade.

3 comments:

  1. They need to sell the government systems, too, and make the whole process private.

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  2. I know this is an old post but the following needs to be said. There is so much misinformation and confusion about not only what happened in the Dudley Ridge transfers but in general with regard to similar SWP/CVP water transfers.

    1) Water rights were not sold. Rather, the farmers sold contractual rights to water. There is a major difference between water rights, which are property rights, and contract rights, which are controlled by the contract itself.

    2) Water rights, the kind that are property, can and are sold regularly just as you would sell any piece of property such as a house or car. Those transfers are generally not controversial.

    3) Contractual rights are just that, the right to receive the performance of the other party. The transfer of contractual rights may also transfer duties and obligations of the seller to the buyer.

    4) Dudley Ridge and its farmers sold/transfered a contract to Mojave Water Agency and Tejon Ranch. Among other things, the contract says that Department of Water Resources (DWR) will deliver and sell water at a given price. In return, Mojave Water Agency and Tejon Ranch will need to pay the purchase price of the water, costs related to transporting that water, and some infrastructure costs. In that regard, assertions that farmers are buying subsidized water and selling it for much higher prices is only partly true.

    5) DWR only contracts with the water districts, not individual farmers. The farmers have a secondary contract with the water district for a particular allocation of water. DWR contracts are online at: http://www.water.ca.gov/swpao/wsc.cfm

    6) Contracts can forbid or provide for transfers of contractual rights. They can also require consent of the other party. In this case, the farmers likely needed approval from the district to sell their allocation and perhaps even approval of DWR (I have not read their contracts,yet).

    7) It is not clear yet how much the farmers and the water district actually received, that they received a profit, or what the money went toward. It is quite likely that the bulk of the money went to the water district to pay infrastructure costs. Water districts sell bonds to pay for water delivery systems within a water district. It then sets fees based on expected water sales to its farmers. Farmers dropping out of the district will upset the water district’s revenue forecasts because those farmers will no longer pay those water delivery fees. This is especially true when large farms drop out (e.g. Sandridge). It is also possible that the farmers contractually would still be on the hook to the water district despite taking no water deliveries.

    Bottom line: Please use the correct terms and differentiate between contract rights and water (property) rights. They are very different creatures of the law.

    As a public entity, Dudley Ridge is subject to California open records laws. Feel free to contact it for a copy of the contracts it has with these farmers and those contracts related to the transfers. There is a lot of drama still left in this story and it will be retold many times over in the next decade.

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  3. @DFB -- thanks for the useful clarification; doesn't seem to change the point of the post, just the details....

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