During the past two decades, one of the most important and controversial challenges facing California water interests has been the development of effective approaches to facilitate voluntary water transfers. A key element of this policy debate is the evolution of policies regarding the transportation of water. Terms and conditions under which participants in the emerging water market may use facilities owned by others to deliver transferred water (water wheeling) must be established, and are important elements for an efficient water market in California.

The necessity of a water transfer market became apparent during the 1987-1992 drought when the State Department of Water Resources, through the Drought Water Bank, facilitated the transfer of water supplies between agencies across the State. Water marketing is based on an agreement between parties to purchase available or excess water supplies, and the ability to transport the water from the seller to the buyer. During the drought, agricultural users cooperated with urban agencies to help ease the water shortage and capitalize on financial incentives for the sale of their water.

To accommodate water transfers, the rate structure of the Metropolitan Water District of Southern California (MWD) includes a System Access Rate (SAR), a Water Stewardship Rate (WSR), a system power rate, and a treatment surcharge. These four rate components are charged on a per acre-feet basis for all water moving through MWD’s conveyance and/or distribution system. The SAR recovers the cost of providing conveyance and distribution capacity to meet average annual demands. The WSR recovers the costs of providing financial incentives for existing and future investments in local resources, including water conservation and recycled water programs. This structure seeks to encourage development of a water market by providing competition on the supply component while applying an equal charge for all water moved through the system.

The LADWP is considering water transfers as an option to provide for the future water supply needs of the City by purchasing water from other agencies during wet years and store for use during dry years. The transferred water would either be stored or would be delivered into the LADWP distribution system allowing for Los Angeles Aqueducts (LAA) water to be stored in lieu of purchased water. To help facilitate these water transfers, LADWP is in process of constructing an interconnection between the LAA and the California Aqueduct which will allow for potential water transfers along either aqueduct, as well as provide operational flexibility in the event of a disruption in LAA flows.

In conjunction with water transfers, LADWP is exploring the opportunities of groundwater conjunctive use, sometimes referred to as Water Banking. An RFP was issued and currently five proposals are being evaluated to determine the most mutually beneficial agreement for a potential groundwater bank. Water Banking involves contracting with other entities to make use of suitable groundwater basin(s) to store water for future use.

The MWD is also actively seeking marketing agreements and cooperative arrangement opportunities to supplement its water supply. MWD’s water marketing activities are classified as spot transfers, option transfers, core transfers, storage transfers, or exchanges. Each activity is described briefly below.

The MWD is in the process of developing and implementing transfer/exchange/storage projects in the Central Valley, and off-stream banking and dry year supplies of Colorado River water

Other current and potential MWD transfer, storage, and exchange agreements/activities are shown below:

Water marketing activities, such as those mentioned above, will play an increasingly significant role in insuring the reliability of Southern California’s future water supply.