REGIONAL — A recent webinar on trading of guaranteed future water prices on the stock market showed the potential to drive up the price tag of water for public agencies.
During a Feb. 2 California Department of Food and Agriculture (CDFA) virtual meeting, water stock market advocates were clear that prices would rise. However, they stated that it would be a good thing, because water has been undervalued and therefore wasted. Their approach would encourage more efficient use of water, they told the CDFA board.
The meeting followed a recent announcement of the prestigious Chicago Mercantile Exchange (CME), which started in the 1800s trading corn futures, stating it would handle water trades.
The first and only water trading so far occurred Dec. 7, 2020, with 36 trades recorded. The average price settled at $496 per acre foot (AF). An acre foot is the amount of water that covers 1 acre to a depth of 1 foot, or about 325,000 gallons. It is enough to meet the needs of two typical households for one year.
It’s difficult to find a yardstick price among public agencies regarding the worth of water. Zone 7 — which serves the Livermore and Pleasanton municipal water agencies, Dublin San Ramon Services District (DSRSD) and the private California Water Service — purchased surplus water from Napa Water District for $230 per AF in a contract that later can be renewed.
Zone 7 is one of 29 State Water Project contractors. It has been paying in the range of $300 to $375 per AF, said Carol Mahoney, Zone 7 manager of integrated water resources.
The future of water looks like everything else in California — growing more expensive all the time, and forcing out residents who no longer can afford to live here.
Population Causes Water Shortages
The shortage of water causes even more concern for public water agencies than the possibility of higher prices. One slide at the CDFA meeting showed trouble ahead for all Californians — whether they live in cities, own farms, or are connected to industry. In 20 years, there will be less water available in the underground water storage basins, which means everyone will be paying more for water, regardless of the water stock market.
The blame for the shortage was placed on the state’s population boom.
In 1960, there were about 15 million people living in California. This year, updated census figures show about 40 million. As economists say, costs get inflated if supply is not increased to keep up with demand.
Because of executive orders issued by former Gov. Jerry Brown and subsequent legislation, all water basins are supposed to arrive at sustainable levels by 2042. The sustainable levels are not there yet. Most underground basins are in overdraft and don’t meet the 2042 goal now, although some districts are working hard to achieve it in the future.
The late Marc Reisner, who wrote a classic book about water in the west, summed up what he said was the basic problem for the West’s water shortages — too much development envisioned for such a naturally dry area from Colorado to California. His book was titled “Cadillac Desert: The American West and Its Disappearing Water.”
Reisner said that the Army Corps of Engineers and the federal Bureau of Reclamation were simply enabling the U.S. policy of settling the West, a region light on rainfall and unsustainable for much agriculture or much population.
A Look at Local Water Conservation
The state Department of Water Resources (DWR) praised Zone 7 Water Agency for how well it has managed its basin in the past. The DWR held up Zone 7 as a model to other agencies about what they should be doing.
But even Zone 7 is up against the same pressure, as it searches for a future water supply. Five months ago, the Zone 7 board committed to spending between $400,000 and $1 million to continue a study of expanding Los Vaqueros Reservoir, near Vasco Road north of Livermore, which would pipe water directly over to the South Bay Aqueduct, where it could be sent to Zone 7.
Pryor said that range is a package, but she would like it to be negotiated in specific amounts, each near the $400,000 mark. In 2016, the Zone 7 board committed $400,000 to help pay for an earlier study, the environmental survey on the project.
Zone 7 also is following developments concerning the Sites Reservoir, which is being discussed as a potential new water dam and reservoir 70 miles northeast of Sacramento.
Competition on the Horizon
In conclusion, it’s possible that water traders will compete against Zone 7 and other public agencies, as indicated by a question in the CDFA webinar. One panelist asked if Sites might be a “source for futures trading.”
One of the stock market experts answered, “The potential depends on who and how it moves into the market.”