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Monterey Amendments must be overturned to stop state water privatization


by Dan Bacher
Saturday Jan 2nd, 2010 3:15 PM -- The Monterey Amendments must be overturned to stop the privatization of the State Water Project (SWP), according to this article published by the California Water Impact Network (C-WIN). This is the best way to ensure that the Kern Water Bank benefits all Californians, without soaking them in increased water rates in the process.

Drought from 1987 to 1992, and again in 1994, financial crisis among state water contractors, and the prospect of severe regulation of Delta exports by the State Water Project (SWP) provoked the project’s most serious crisis.

In 1994 four of its contractors, including the Metropolitan Water District of Southern California and the Kern County Water Agency which together control about 75 percent of State Water Project allocations, met in secret in Monterey with representatives of Paramount Farming (a private corporation) to attempt to resolve their water shortage.

The result was the Monterey Amendments to the State Water Project contracts.

These contracts lay out the contractors’ and state’s obligations concerning delivery of water under both surplus and drought conditions. In each contract, there is a “Table A” schedule that details how much water the contractor is “entitled” to each year. It was originally intended to be a ceiling on the amount they would be responsible for.

But the drought conditions of 1987 to 1992 were so severe, and the reductions of deliveries to near zero for SWP agricultural contractors meant they had to pay the “mortgage” costs of the project while receiving little or no water that year.

It was an ultimate cost-squeeze: “Entitlements” in the SWP contracts meant little when drought prevented deliveries from occurring to contractors’ constituents. (C-WIN believes “entitlement” is a misnomer, and that these amounts should merely be seen as “allocations” since the state cannot guarantee water deliveries each year.)

Most of the water delivered in 1991 by the State Water Project, for example, was delivered to the Metropolitan Water District of Southern California, whose customers are largely urban water districts south of the Tehachapi Mountains. This distribution pattern reflected in the SWP contracts a long-standing “urban preference” in state water law that domestic and industrial water rights holders (such as cities and counties holding water rights) would receive water first during droughts, prior to the claims of agricultural water users. The theory in state law is that water for people is a higher social priority than water for farming.

Finally, in the 1980s, the California Department of Water Resources acquired lands once owned by Tenneco Corporation, a former oil company with agricultural land holdings in Kern County. These lands became known as the Kern Water Bank, and the Department sought to develop an underground reservoir to provide additional south-of-Delta storage capacity for the State Water Project for greater reliability of water supplies for its southern San Joaquin Valley agricultural and southern California urban water customers.

There are four aspects of these amendments that changed the course of California water history:

1. Elimination of Article 18(a). The "Urban Preference".

This removed the "Urban Preference", the safeguard put in the contract in 1960 to make sure that in times of prolonged dry weather, which occur in over one-third of years in California, agricultural allocations would be cut first.

2. Elimination of Article 18(b). The "paper water" safe guard.

Article 18(b) was put in the original contracts to make sure that the total amount of what was promised could actually be delivered on a "firm yield" basis. This clause in the contracts required the total amount of the Table A Allocations to conform to the "safe yield" of the SWP.

The true "safe yield" of the SWP is not the current Table A Allocation total of 4.23 million acre-feet per year (MAFY) because the contracts were premised on full build-out of State Water Project facilities; this has not occurred. In fact, the average actually delivered between 1990 and 2000 was 1.86 MAFY. (1990 was the first year full contract entitlements were to have been delivered by the project.)

The difference between the 4.23 MAFY and the actual delivered average of 1.86 MAFY is "paper water" in the State Water Project. The Third District Court of Appeal in its 2000 decision invalidating the Department’s environmental report on the Monterey Agreement called this difference "a wish and a prayer."

Article 18(b) was eliminated with virtually no environmental review of the consequences.

Developers in Southern California did not want the State Water Project to reduce its overall capacity from 4.23 MAFY to a smaller amount because then they could not prove there was enough water for their developments. This is still one of the most dangerous problems with "paper water" in California today.

3. Kern Water Bank Given Away by the State

As part of the Monterey Agreement, the Department of Water Resources turned over a state asset, the Kern Water Bank (a 20,000-acre alluvial fan), to the Kern County Water Agency in exchange for the retirement of 45,000 acre-feet of "paper water" (water that Kern would never receive). As a state asset, it could have been used by DWR to help firm up all of the contractors SWP Table A allocations, especially in times of drought.

Instead, the day after DWR turned over the Kern Water Bank to the Kern County Water Agency, the Agency turned over somewhere between 58 to 68 percent of the Kern Water Bank to Paramount Farms, a private corporation owned by Stewart and Lynda Resnick as part of a newly constituted public-private partnership called the Kern Water Bank Authority (a joint powers authority that was allowed under state law to include a private corporation as a partner).

This privatization of the Kern Water Bank allowed the water bank owners to buy cheap so-called “surplus" water (Article 21 water, see below), store it underground in their “bank”, and then sell it to the highest bidder for large profits. The various subsidiaries of the Resnick empire have been doing this ever since taking over the water bank and have made many millions of dollars in profits off the tax payers of California.

4. Article 21 so-called "surplus" water.

The Monterey Amendments enable state water contractors—particularly those in the southern San Joaquin Valley and those under the umbrella of the Metropolitan Water District of Southern California—to make much greater use of surplus water in the State Water Project—that is, when surplus water is available. During the 1990s, SWP deliveries were well below projected entitlements for SWP contractors, and very little surplus water was available. During the 2000s, more surplus water came available after the federal government and the state of California adopted the CalFED Record of Decision, which enabled greater export pumping from the Delta.

State Water Project contract Article 21 provides for sale of surplus water available in the SWP system during periods of heavy flow and could be sold for just the cost of transporting it to the buyer. This is part of the shell game used to manipulate the price of the water for the Kern Water Bank as journalist Mike Taugher demonstrated in his series on water sales in May 2009 for the Contra Costa Times.

Unfortunately, in this decade, heavy pumping through 2007 of this Article 21 water helped cause the Delta’s open water ecosystem decline (which was first identified in 2005), as well as closure of the commercial salmon fisheries in 2008 and 2009. This is the water that federal judge Oliver Wanger and the new biological opinions covering Delta smelt and the salmon fisheries restricted sharply. With low precipitation and runoff since 2006, hydrologic restrictions have reduced Delta exports, but the dry conditions have also not helped recovery of either the open water ecological conditions or the salmon fisheries of the Delta.

C-WIN believes that one of the best ways to solve MWD's water problems must include overturning the Monterey Amendments. This would mean reinstating the Kern Water Bank as a DWR asset that would be used in dry times to fulfill the urban preference. This would increase the real wet water that MWD could count on from their Table A Allocation.

Reinstating Article 18((b) would mean that the Department of Water Resources could reduce the overall “entitlements” of “Table A” in each of the project contracts to what water the Department can actually deliver. This would ultimately lead to more reliable water service by the State Water Project to its contractors.

The Monterey Amendments must be overturned to stop the privatization of the SWP. This is the best way to ensure that the Kern Water Bank benefits all Californians, without soaking them in increased water rates in the process.