A market has developed among members of the Appropriative Pool in the Chino Basin in Southern California. The Chino Basin has a long history beginning with the execution of a Memorandum of Agreement in 1974, a judgement adjudicating the basin in 1978, the development of the Optimum Basin Management Program in 1998, execution of the Peace Agreement in 2000—which established the parties’ intent to implement the Optimum Basin Management Program, and execution of another agreement, known as Peace II—which provided for reoperation of the basin.
The judgement established an initial safe operating yield of 145,000 acre-feet annually, and divided it among three classes of users:
- The Agricultural Pool was allocated 82,800 AF per year.
- The Non-Agricultural Pool, which is composed of commercial and industrial water users, was allocated 7,366 AF per year.
- The Appropriative Pool, which represents cities, water districts and water companies, was allocated 54,834 AF per year.
Water market activity generally occurs in the form of annual leases among members of the Appropriative Pool. The watermaster records two additional types of transfers: 1) transfers that are recorded as the manner of utilizing water company shares and 2) exchanges for water from another basin. These transfers are excluded from JOW’s analysis because they are administrative—not water market—transactions.
Parties enter into leases to meet water supply needs or to offset overproduction. When water is transferred to offset overproduction, a portion of the cost may be subsidized under what is known as the “85/15 Rule.” However, the buyer must be an 85/15 party, and the water must be acquired to offset overproduction. If those conditions are met, then 15% of the lease price is paid by the 85/15 parties collectively. Most of the Appropriators are 85/15 parties; the small number that are not, either opted out or intervened in the judgement later (so they were not original parties to the adjudication).
A total of 18,074.5 AF were leased in FY 2014-15—compared to 15,221.5 AF in FY 2013-14 (see chart). The median volume for the 10-year period from FY 2004-05 through FY 2014-05 is 24,257.562 AF. So while the driest year on record saw an increase in leasing activity, it does not yet signal a disruption of the correlation between leasing activity and hydrologic conditions.
During the last 10 years, the years with the three lowest volumes (FY 2007-08, FY 2011-12 and FY 2012-13) were also drought years. Conversely, the years with the two highest volumes (FY 2005-06 and FY 2009-10) were also wetter than normal. 2006 was the last time that the State Water Project provided 100% allocations, and FY 2009-10 saw increased rainfall after the 2007-2009 drought.
The average price rose to $509.63/AF, a 1.6% increase over FY 2013-14. Prices have more than doubled over the last 10 years increasing from $218.37/AF in FY 2004-05. The average annual increase is 10.4% (with a median annual increase of 6.9%).
The trend suggests that leasing will pick up in the short-term if El Niño materializes as forecasted. In addition, the Chino Basin Watermaster is currently overseeing the finalization of a Safe Yield Redetermination and Reset Agreement, which is currently being circulated for signatures. Once implemented, water market activity could pick up as Appropriators seek to meet water supply needs and offset over-pumping under the new safe yield determination.
Written by Marta L. Weismann