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Virtual Water, Real Profits

Virtual Flood: Virtual Water, Real Profits

March 17, 2005

When the Central Valley Project was built, beginning in 1937, the government was ambitious about the amount of water the Project could supply each year — too ambitious. The pipe dreams of the Bureau and its customers created millions of acre-feet of "paper water," allocated in the system's original contracts, promising far more water than the Project could realistically deliver. Currently, in a given year the Bureau typically provides about 60 percent of contracted water amounts to users. Only in the wettest of years is enough water available to deliver full contract amounts. [1]

With the contracts up for renewal, it was the obvious time for the Bureau to look at the substantial changes in California's water needs and priorities over 40 years and adjust the contracts to more closely match reality. In fact, the Bureau did the exact opposite: Far from adjusting contracted water amounts to levels the agency can actually deliver, the agency has promised farmers their full contract amounts by 2030. [1,2]

The government has promised Central Valley Project districts 43 percent more water by the year 2030.

CVP Contractor Avg amount of water delivered 1990-2003 (acre-feet) Projected water deliveries in 2030 (acre-feet) Percent increase
Westlands Water District 755,635 1,155,393 53%
Madera Irrigation District 155,394 198,280 28%
Lower Tule River Irrigation District 144,244 206,542 43%
Arvin-Edison Water Storage District 135,553 188,528 39%
Delano-Earlimart Irrigation District 123,105 144,410 17%
Chowchilla Water District 121,361 155,800 28%
South San Joaquin Municipal Utility District 109,155 121,000 11%
Glenn-Colusa Irrigation District 96,029 105,000 9%
Sutter Mutual Water Company 86,918 95,000 9%
Del Puerto Water District 82,865 140,198 69%
San Luis Water District 76,717 124,500 62%
Tulare Irrigation District 72,981 97,680 34%
Panoche Water District 59,149 93,900 59%
Shafter-Wasco Irrigation District 58,054 68,488 18%
Westside Water District 42,583 65,000 53%
Orland-Artois Water District 40,459 53,000 31%
Lindmore Irrigation District 37,697 43,560 16%
Colusa County Water District 37,227 68,015 83%
Orange Cove Irrigation District 36,171 39,200 8%
Sacramento River Settlement Contractors: Willows 34,633 42,545 23%
Saucelito Irrigation District 31,159 36,944 19%
Reclamation District # 108 29,873 33,000 10%
West Stanislaus Irrigation District 29,328 50,000 70%
Kanawha Water District 28,647 45,000 57%
Terra Bella Irrigation District 26,853 27,500 2%
Lindsay-Strathmore Irrigation District 26,089 27,300 5%
Porterville Irrigation District 24,413 30,400 25%
James Irrigation District 21,297 35,300 66%
Natomas Central Mutual Water Company 20,631 22,000 7%
San Benito County Water District 20,267 35,550 75%
Fresno Irrigation District 19,265 36,000 87%
Exeter Irrigation District 15,860 20,620 30%
Broadview Water District 15,260 26,980 77%
Reclamation District #1004 14,413 15,000 4%
Santa Clara Valley Water District 14,329 24,065 68%
Princeton-Codora-Glenn Irrigation District 13,514 15,000 11%
Banta-Carbona Irrigation District 13,148 20,000 52%
Kern-Tulare Water District 12,902 40,000 210%
Central San Joaquin Water Conservation District 12,832 49,000 282%
Dunnigan Water District 11,700 19,000 62%
Colusa Drain Mutual Water Company 11,573 58,100 402%
Pixley Irrigation District 11,505 31,102 170%
Meridian Farms Water Company 11,061 12,000 8%
Plain View Water District 10,850 20,180 86%
Corning Water District 10,850 23,000 112%
Bella Vista Water District 10,514 17,000 62%
Feather Water District 10,085 20,000 98%
Patterson Water District 9,734 16,500 70%
Ivanhoe Irrigation District 9,615 11,492 20%
Anderson-Cottonwood Irrigation District 9,531 10,000 5%
Stone Corral Irrigation District 9,112 10,000 10%
Glide Water District 8,486 10,500 24%
Tranquillity Irrigation District 8,341 13,800 65%
Placer County Water Agency 7,661 35,000 357%
Tea Pot Dome Water District 7,188 7,500 4%
Pacheco Water District 6,313 10,000 58%
Maxwell Irrigation District 6,143 6,000 -
Mercy Springs Water District 6,085 2,842 -
Gravelly Ford Water District 5,977 6,720 12%
Clear Creek Community Services District 5,665 5,000 -
Provident Irrigation District 4,513 5,000 11%
La Grande Water District 4,334 7,200 66%
Rag Gulch Water District 4,015 13,300 231%
Garfield Water District 3,361 3,500 4%
Thomes Creek Water District 3,336 6,400 92%
Eagle Field Water District 2,923 4,550 56%
Oro Loma Water District 2,898 4,600 59%
Fresno Slough Water District 2,783 4,000 44%
West Side Irrigation District 2,721 5,000 84%
Proberta Water District 2,594 3,500 35%
Pleasant Grove-Verona Mutual Water Company 2,222 2,500 13%
4-M Water District 2,159 5,700 164%
Coelho Trust 1,917 2,080 9%
Tisdale Irrigation & Drainage Company 1,851 2,000 8%
Davis Water District 1,801 4,000 122%
Pelger Mutual Water Company 1,704 1,750 3%
Widren Water District 1,582 2,990 89%
Holthouse Water District 1,370 2,450 79%
Centinella Water District 1,357 - -
Stony Creek Water District 1,337 2,920 118%
County of Tulare 1,127 3,963 252%
International Water District 1,095 1,200 10%
Lewis Creek Water District 979 1,450 48%
Hills Valley Irrigation District 961 3,346 248%
Cortina Water District 917 1,700 85%
Glenn Valley Water District 831 1,730 108%
Kirkwood Water District 724 2,100 190%
County of Fresno 676 2,400 255%
Carter/Sartain Mutual Water Company 595 672 13%
Laguna Water District 509 800 57%
Sacramento River Settlement Contractors: Shasta 386 981 154%
Contra Costa Water District 320 1,000 213%
Tri-Valley Water District 317 1,142 261%
Roberts Ditch Irrigation Company 268 300 12%
Myers-Marsh Mutual Water Company 150 255 70%
Reclamation District #1606 91 228 150%
County of Sacramento 82 230 182%
4-E Water District 65 20 -
Swinford Tract Irrigation Company 34 40 17%
Hughes M & M/Tranquillity Public Utility District 34 70 104%
Delta Mendota Exchange* 578,507 806,678 39%
Total 3,523,439 5,055,179 43%

*The Delta Mendota Exchange is not a typical CVP water contractor, but does receive CVP irrigation water.

Source: [1]

A study by the Bureau of Reclamation and the state Department of Water Resources completed in 2003 identified six possible sites on the San Joaquin River for a new or expanded dam and reservoir. [3] Yet none of those options is projected to supply more than 235,000 additional acre-feet a year — and the construction cost to taxpayers is estimated to be as much as $1.75 billion. Officials are also considering raising Shasta Dam on the Sacramento River, with construction costs ranging from $280 and $480 million. [4] But the most water this would provide is 146,000 acre-feet per year, and it would come at a cost beyond construction: The inundation of 780 acres along the McCloud River, considered sacred by the Winnemem Wintu Tribe. [5] Even if one or more of the San Joaquin or Shasta proposals were given the green light this year — which seems unlikely in a time of government austerity both in Washington and Sacramento — it could easily take more than a decade for new supplies to come on line.

Whether or not new supplies are developed, it is clear that the Bureau plans to leave less water in the rivers, Delta and Bay for fish and wildlife and divert more to farms. A long-term CVP operation plan unveiled last June includes large increases in pumping from the San Francisco Bay-Delta. If implemented, this plan (known as the Operations, Criteria, and Plan or OCAP) would increase diversions from the Bay-Delta by approximately 200,000 to 300,000 acre-feet, leaving less water for already devastated fish and wildlife populations. [6]

In August 2004, the first draft of a report by the National Oceanic and Atmospheric Administration's (NOAA) fisheries concluded that OCAP was "likely to jeopardize the continued existence" of several endangered species of fish. But when a revised draft was released the next month, it said just the opposite — that the plan would not impact threatened fish populations. [7] The change occurred after NOAA shared the draft report with the Bureau of Reclamation, prompting nineteen members of Congress to call for an investigation into possible political interference. In an October 8, 2004 letter to the Inspectors General of the Departments of Interior and Commerce, the lawmakers — including Reps. George Miller, Mike Thompson, Hilda Solis, Ellen Tauscher, and House Democratic Leader Nancy Pelosi — noted that the situation was "especially troubling given the recent history of political intervention in NOAA Fisheries' review process, which resulted in the well-documented and catastrophic failure to protect the fish of the Klamath River." [8]

With the Bureau promising contractors a substantial increase in their water supplies over the next 25 years, a real concern is whether the contractors will sue the government if they don't get it. In December a group of San Joaquin water districts received a $17 million settlement from the Bush administration after they sued the federal government for "taking" what they claimed was their private property. [9] At issue was about 480,000 acre-feet worth of water the state Department of Water Resources kept in the San Joaquin river to protect two endangered species of fish during the drought of the early 1990s.

Despite the fact that legally the water belonged to the people of California and the districts only had a contractual arrangement with the state for some of this water, the farmers claimed the water was theirs and demanded compensation from the government. The judge ruled in the farmers' favor, a mistake that Senator Feinstein warned Attorney General John Ashcroft and Interior Secretary Gale Norton would "establish a precedent that could require the public to pay tens of millions of dollars to water users in many cases where even a small portion of their anticipated deliveries are needed to protect endangered salmon or other fish." [10]

The Bush administration ignored similar warnings from the National Oceanic and Atmospheric Agency, California Attorney General Bill Lockyer, and the state Water Resources Control Board which represented Gov. Arnold Schwarzenegger's administration, announcing that the federal government would settle rather than appealing the case to a higher court. [9,11-13] It was the first federal court ruling applying the Fifth Amendment to actions in compliance with the Endangered Species Act — a radical extension of the takings doctrine — but may not be the last.

In 2001, farmers and irrigation districts in the Klamath River Basin in Oregon and Northern California filed a lawsuit against the government in the Court of Federal Claims. The $1 billion suit (since reduced to $100 million) challenges the Bureau of Reclamation's 2001 restrictions on the release of irrigation water from Klamath Lake — referred to as water banking — to maintain lake levels for the protection of endangered sucker fish and threatened Coho salmon. [14-16] (Recently, West Coast fishermen were allowed to join the case on the side of the government, directly pitting fish against farming.) Now that the barrier has been breached, it is not hard to foresee CVP farmers suing if the Bureau doesn't deliver the water it has promised.


Imaginary farmland, real money

In September 2004, Rep. George Miller wrote the Bureau of Reclamation demanding an explanation for how the agency could promise water that doesn't exist. The agency responded that it "did not over-allocate the water supplies in the renewal contacts." [17] The Bureau said it had prepared "water needs analyses" for all CVP water users, and the quantities in the contracts were what the contractors demonstrated they would need by 2030. [18] A closer look at these so-called "water needs analyses" shows that they have little basis in reality and are obvious schemes by districts to stake a claim to excess water they can sell at a profit.

Through the Public Records Act, EWG obtained the water needs analyses for 65 districts (all that were complete at the time of our request). We found that more than 75 percent assume that irrigated acreage in the district will increase by 2030 — by as much as twofold in some cases. Overall, the 65 water needs analyses estimated that irrigated acreage will increase by 200,000 acres. But according to the U.S. Department of Agriculture's agricultural census data, in the 18 counties served by the CVP, irrigated farm acreage has remained constant for the last fifteen years. [19]

farm acreage steady chart

What's more, while the Bureau of Reclamation is projecting a substantial increase in agricultural water demand in the over the next 25 years, the state Department of Water Resources is predicting a substantial decline over this period. [20] Statewide, the Department estimates that if current trends continue agriculture will use 3.9 million acre-feet less water per year in 2030. The state says most of this decline in acreage will be in the Central Valley.

Not to mention that 34,000 acres of cropland are being removed from production in Westlands Water District because of severe drainage problems, with the help of a federal buyout. In December 2002, a federal judge in Fresno approved a $139 million dollar deal, with $107 million coming from taxpayers. [21] Nineteen families will share the settlement, but four of these families will get two-thirds of the money. [22] The land is part of an estimated 200,000 acres in Westlands considered unsuitable for production that officials ultimately want to remove from production.

So where did the Bureau get its projections for the water needs assessments? From the contractors themselves. It's not surprising that the contractors would claim that irrigated acreage would increase. They knew this was the key to getting more water. And water is money — big money.

When districts don't need as much water as they have been given, they can sell it on the open market as long as they meet certain provisions established by the Central Valley Improvement Act (CVPIA) of 1992. As the Act's author, Rep. Miller, points out in his September 2004 letter to the Bureau, this can be highly profitable:

"[B]y allowing some contractors to pay below-market rates for far more water than can be used beneficially — or indeed used at all — the Bureau is encouraging those contractors to resell the water at much higher rates, reaping windfall profits for themselves which otherwise would go to the taxpayers who paid for the development of these water resources. The CVPIA did not encourage water transfers with the goal of providing [farmers] an annuity ..." [17]

Agricultural water contractors aren't limited to selling their water to other agricultural contractors. They can sell to thirsty municipalities, and can even enter into long-term water transfer agreements to provide water for growing urban areas. Another option is to sell water to the Environmental Water Account (EWA), which provides a unique mechanism for farmers to profit at the expense of taxpayers' pocketbooks.

The EWA, which has been in operation since 2000, is like a virtual water district where the customers are fish. EWA buys water from willing sellers within the CVP and State Water Project (SWP) at market rates to use for environmental purposes, such as improving water quality in a particular section of river or helping to restore threatened fish species such as salmon and smelt. As the EWA is a publicly funded entity, the government is in effect selling CVP and SWP water to farmers at very low prices, then buying it back later at much higher rates— even though the water never leaves the river. [23]

According to EWG's analysis of the Bureau of Reclamation's records, while CVP farmers paid an average of $17.14 an acre-foot for irrigation water in 2002, the EWA paid an average price that was seven and a half times higher: $129.48 per acre-foot. In 2000, the EWA paid as much as $460 an acre-foot for water from one irrigation district. [23]

Since 2000, the largest broker of water to the EWA has been a powerful SWP contractor known as the Kern County Water Agency. From 2000 to 2004, Kern sold a total of 277,400 acre-feet of water to the EWA at an average price of $198 per acre-foot, making $38.6 million in profit in the process. [9] With the Bureau promising to deliver almost 45 percent more agricultural water to CVP contractors over the next 25 years than today, the profits from water resales will increase accordingly.

Bureau fails to assess environmental impacts of increased deliveries

Under the National Environmental Policy Act, the Bureau of Reclamation is required to assess the potential environmental impacts of the CVP contract renewals and consider alternatives to reduce adverse environmental impacts. The Bureau has issued a series of Draft Environmental Impact Statements (DEIS), ostensibly fulfilling its statutory obligations. Yet in a major — and illegal — oversight, the DEIS did not examine the impacts of delivering the full contract amounts the agency says it will deliver by 2030.

In a January 25, 2005, letter from the U.S. Environmental Protection Agency (EPA) to the Bureau, the EPA concludes that the Bureau's "environmental analysis is inadequate" and needs to be "formally revised", pointing out that:

"The proposed action enables full delivery of contract quantities each year, amounting to almost 1.4 million acre feet per year for a period of up to 40 years. However, the DEIS ... assumes the continuation of current conditions, which equal average annual deliveries of approximately 50 to 60 percent of the full contract amount." [2]

There is no question that increased water deliveries will have significant environmental impacts. Reduced stream flows can lead to altered water temperature, impaired passage, and decreased spawning and rearing habitat, all of which can be major stressors for fish populations. In the early 90s, higher delivery rates — still far lower than those being proposed for 2030 — combined with a drought, forced emergency action to save the Delta smelt and Chinook salmon from extinction, which led to the "takings" lawsuit and $17 million settlement. [9]

The Bureau's failure to assess the environmental impacts of increased water deliveries is not the only problem with the DEIS: As the EPA points out in its letter, the DEIS also "does not address the impacts of water deliveries under the contracts and drainage service on water quality." [2] This is a particularly significant omission given that irrigated agriculture is known to be a major source of water quality problems for the nation's rivers, lakes and estuaries and the fact that "water quality problems in the project area are well-documented," according to the EPA. [24,25]

Today, more than 700 miles of rivers and 55,000 acres of wetlands and estuaries in the Central Valley are listed as "impaired" under the federal Clean Water Act -and the water quality problems in question are linked to agriculture. [25] ("Impaired" means that these waters are unsuitable for drinking, swimming, fishing or wildlife habitat.) At current water delivery rates, agriculture discharges an average of 280,000 tons of salt each year to the Lower San Joaquin River. [2] With increased deliveries, it is likely that more agriculture-related pollutants will be discharged.

The Bureau failed to consider these obvious potential environmental impacts. In a Feb. 25, 2005, press release, the Bureau stated that none of the contracts will be executed until all environmental review requirements are met. [26] But if the Bureau considers the environmental impacts only after negotiating the contracts, were the impacts ever seriously part of the decision?