MWD to Buy Water on Open Market

In another sign of change roiling the water industry, the Metropolitan Water District of Southern California appears ready to take the plunge into the free market as a buyer of water.

Although it may be a long time before water stocks are as hot as Internet stocks or water futures are hawked with the fury of pork belly futures, Metropolitan is prepared to help hasten a “water market,” with profits to be made by private sellers and water flowing to the highest bidder.

Metropolitan General Manager Ronald Gastelum has decided it is time the mega-agency cast its net to willing water sellers, public or private, wherever they may be. The goal is to ensure that the MWD can satisfy its future needs and fill the giant reservoir under construction in southern Riverside County.

In a memo to board members released Monday, Gastelum said that while the MWD’s short-term needs seem assured, it seems prudent to look for water deals.

“We see a role for a water market,” Gastelum said in an interview. He added that Metropolitan’s decision “points in a clear direction. A market is going to happen.”

Gastelum said the MWD looks forward to “fair competition between willing sellers, both public and private”--precisely the kind of competition the agency viewed as an anathema until recently.

The memo comes less than a week after the MWD and two agricultural water districts, the Imperial Irrigation District and the Coachella Valley Water District, reached an agreement on a list of issues and grievances that have prevented the three from working cooperatively, threatening the state’s water supply.

Part of the agreement deals with the buying and selling of water, with the implicit understanding that water transfers are the wave of the future.

The agreement clears the way for the sale of up to 200,000 acre-feet of water from the Imperial Irrigation District to the San Diego County Water Authority, a member of Metropolitan.

Imperial decided to sell to San Diego after overtures to sell to Metropolitan were rebuffed. Metropolitan, unhappy with the prospect of its aqueduct being used to bring the Imperial water to San Diego, branded the deal as profiteering by farmers.

For several years, state and federal water officials, as well as key politicians, have insisted that the future of water allocation lies in water deals--called transfers--among various water districts and between water districts and private companies with water to sell.

But the MWD, water wholesaler to 16 million people in six counties, has been reluctant to get involved in the haggling and complications of buying and selling water outside its historic framework.

That reluctance has been significant because of the MWD’s size and because it owns Southern California’s major water conveyance facility, the 242-mile-long Colorado Aqueduct. The MWD’s seeming lack of enthusiasm for water transfers has irritated key state legislators of both parties.

Philosophically, the MWD’s position has been that water should be treated as a public utility, not a bartered commodity.

Now, Gastelum foresees Metropolitan signing option agreements that it could exercise in the event of “dry year” reductions in its allocation from the Colorado River and the State Water Project, which brings water to Southern California from the state’s northern reaches.

Metropolitan should not have trouble finding sellers. For example, two Indian tribes along the Colorado River, the Quechan and Chemehuevi, have expressed interest in selling part of their annual allocations to Metropolitan.

And private firms like Northern California-based Western Water and Santa Monica-based Cadiz Inc., and others that are subsidiaries of European conglomerates, are poised to jump in.

Western Water, Cadiz and La Jolla-based Vidler Water Co. have begun to buy property throughout the state that has water rights attached, waiting for a water market to be established. There are numerous agricultural irrigation districts and municipal water districts that might be tempted to sell water.

Bill Craven, state director of the Sierra Club, said environmentalists do not oppose water deals as long as the environmental and so-called third-party effects are assessed. The latter can include job losses for farm workers in agricultural areas that decide to sell water to urban areas.

“Water, by definition, is a public trust resource,” Craven said. “Water is not like steel or other things that are sold to whoever has the money.”

Transfers are seen as increasingly important as California learns to live within its allocation from the Colorado River rather than asking each year for large quantities of surplus water from the river.

Those surpluses may not be as readily available to California as other states that depend on the Colorado River, notably Nevada and Arizona, begin to demand their full allocations to meet growing needs.

There are also uncertainties about allocations from the State Water Project, as state and federal officials try to balance the competing demands of agriculture, the environment and urban users.