California's Water Market

How to you sell water in California?:

To try to understand the difficulties in trading water, I decided to set up a hypothetical exchange. I talked to Dale Melville, manager-engineer of the Dudley Ridge Water District in the southern San Joaquin Valley. "Suppose I’m a farmer in your water district," I told Melville, "and I want to sell my water. I’ve got some old almond trees that aren’t producing anymore, and instead of planting more I’d just like to sell 100,000 acre feet of irrigation water. What do we do first?"

"We’d start by asking if there was anyone in the district who wanted that water," he said. This is just good manners, and if you can sell the water locally you avoid a significant hassle. Then he’d call up a few buyers from around the state. The market is small enough that you learn whom to call, he said.

So he’d make some calls and spread the word: Hey, I’ve got 100,000 acre-feet we are looking to sell at $400 an acre-foot. (The definition of an acre-foot is the amount of water it takes to fill an acre one foot deep — 325,851 gallons.)

One of those likely buyers is the Metropolitan Water District of Southern California — the Los Angeles water system, or Metro for short. Let’s say we agree to a price with Metro and shake hands. Now do I get my check? Melville laughed. "It might take a little while," he said.

Next we’d need to get approval from someone like Nancy Quan at California Department of Water Resources. "If you are going to use our facilities to transport the water, you have to show that the sale is going to have no negative impact to the economy, or the environment, and that it’s not going to injure other water users," she told me. And I’d have to be pretty thorough.

Usually the Department of Water Resources will have a scientist visit me to check out my situation and ask questions. It wants to ensure that I’m actually letting water flow past that I would have used if I weren’t making a sale. I’d have to show that nothing was growing on the land, not even weeds. The whole process might take a couple months, Melville said. (I’m actually making it seem simpler than it is by skipping some subtleties here. To understand the full regulatory process see the chart below, which comes from this white paper.)