San Diego Gears Up to Deal Water Across the West

This October marks 20 years since San Diego cut a famous deal that protected it from drought but paved the way for putting a high price on otherwise free water from the Colorado River.  

The hard-fought deal – called the Quantification Settlement Agreement, or QSA – dramatically lowered how much water California takes each year from this river that makes life possible in seven western U.S. states and northern Mexico. It ensured, for the first time, that California wouldn’t use any more than its share. And it achieved that by putting a cap, for the first time, on how much water the farmers in Imperial Valley could take. Water officials would now meticulously count every gallon that once haphazardly emptied from farm fields into the Salton Sea. Today, that massive lake is in danger of becoming a massive public health and ecological disaster. 

San Diegans now drink most of the water Imperial Valley farmers gave up. For the first time in California, a city would purchase water from a farming district, at very high rates. That’s partly why San Diegans’ water bills are now some of the highest in the country, so high that some of its own local buyers are running from the region.  

Decades later, San Diego officials say it’s a good deal. Such a good deal, in fact, San Diego now has plenty of water – enough that they think investors from across the American West could help ease the burden on San Diegan pocketbooks. They want to transform San Diego from a desperate city at the end of the water line beholden to forces much larger into a water distributor itself. They set expectations for how much conserving a drop of water on a farm is worth to an urbanite. 

The QSA turned the San Diego County Water Authority and the Imperial Irrigation District and even the gigantic Los Angeles-based Metropolitan Water District of Southern California from adversaries into long-term partners. These agencies’ leaders now see the deal as a success story and something other river users like Arizona should replicate.  

They will need to do something. Trouble is on the horizon. 

In two years, almost every major agreement keeping battle swords sheathed on the Colorado River between California, Arizona, Nevada, Utah, Wyoming, New Mexico and Colorado will expire. Though California lowered its take from the river, it wasn’t enough to preserve the whole watershed and its users well into the future. Now, everyone must wrestle with the fact that climate change and overuse mean the river has less water for their people and industries than before. And they have until 2026 to get new agreements to use much, much less water in place. 

Water Is Free, Until You Move It 

Rain and snow are free. The minute someone tries to move water, that’s when price tags accumulate.  

Farmers in the Imperial Valley were some of the first to colonize and develop the Colorado River for business. That history is respected in the so-called “law of the river” that guarantees to those who first started using the water that they’d be the last to lose it in times of shortage. The Imperial Irrigation District manages those contracted rights and it pays some of the cheapest prices for Colorado River water, $20 for an acre-foot. (An acre-foot is enough to cover an acre of land, one foot deep). That’s because it’s using the same irrigation system its founders set up in the early 1900s: River water flows by gravity from a large canal to irrigation ditches winding between farm fields. 

Colorado River water travels a long way to get to San Diego. First, Metropolitan carries water toward Los Angeles via a 242-mile long aqueduct from the river’s edge that snakes through a desert and is pumped over mountains. Some water is sent south toward San Diego through another set of aqueducts.  

San Diego, on the other hand, pays Imperial Valley nearly $730 an acre-foot under the QSA deal inked in 2003. The San Diego County Water Authority doesn’t own a canal or pipe connecting it to the Colorado River. And that’s why it made a bargain with its neighbors: San Diego will pay top dollar for Imperial Valley water and some of that money will help farmers pay for water-saving technology on their farms.  

San Diego also agreed to pay to line the All-American Canal to keep valuable water from seeping away. It represented a massive investment by San Diego water ratepayers. They were sending millions to Imperial County.  

It wasn’t as simple as that. San Diego still needed to move the water and thus needed to involve Metropolitan. The cost of that service became a lawsuit that still isn’t resolved. The deal took over a decade to finalize and everybody sued each other along the way.  

“As you can imagine, there were serious arm’s length negotiations to come to a fair price. Obviously, a fair price is what a willing buyer and a willing seller agree upon,” said Dan Hentschke who was the San Diego County Water Authority’s general counsel during the QSA deal.  

Fear that San Diego had little control over its water source during a major drought in the 1990s positioned the region to spend big. It was also the first time Imperial Valley farmers — fiercely opposed to giving up water meant for farming to city folk — eased their grip.  

Did San Diego Overpay for Colorado River Water? 

It never occurred to San Diego to buy water from Imperial Valley until the major drought of the 1990s. The origin of almost every major investment in San Diego water – every deal, every lawsuit – originates from the drought 30 years ago when San Diego faced a huge water ration from its only supplier at the time: Metropolitan.

Suddenly, paying a lot more for reliable water from Imperial Valley didn’t sound so bad to San Diego.  

The parties negotiated a price that started at $258 per acre-foot that would increase incrementally by a set amount. Eventually, a market would develop with similar water trades like San Diego’s, the negotiators opined in the QSA. And that would later dictate the value of Imperial Valley’s water.  

“That was the whole premise of the agreement… that we would create this market for water transfers in California,” said Dan Denham, the new general manager of the Water Authority. 

But that market never matured.  

Instead, San Diego and Imperial Valley settled on tying the price to an inflation rate based on the nation’s gross domestic product until 2035, 12 years before the agreement officially expires. 

Amid soaring water costs, some of the Water Authority’s customers have been looking to leave and buy cheaper water elsewhere. Denham says San Diego’s move to purchase Colorado River water from Imperial Valley – while expensive – was a good idea. It’s water the region can count on, and cheaper than building new desalination plants, pipelines or canals. The most recent drought proved San Diego’s investments meant it could circumvent water rations even when its powerful neighbors to the north could not.    

Urban centers across Southern California, including San Diego and Los Angeles, are building high-priced projects to develop new water sources via recycling wastewater or treating ocean water to make it drinkable. The cost of San Diego’s desalinated water in 2023 was $3,110 an acre-foot. Imperial Valley’s water is more than four times cheaper. 

“That price doesn’t exist anymore for similar amounts of water,” Denham said. “It’s market value for Colorado River water but it’s below market value for all new water development.” 

San Diego Setting Up to be a Water Dealer 

Denham said the Water Authority is interested in trading, leasing or someone buying into the Carlsbad plant, maybe parties like Los Angeles or Orange County or even Arizona or Nevada which desperately need more water especially in drought. 

“The Water Authority needs to think more transactionally. So, who are partners out there with needs for what we have, High priority drought-proof water, and can we offer it at a price they’re willing to pay?” Denham said.  

Denham said investors in some of San Diego’s water assets could help ease ever-rising water rates. 

But San Diego doesn’t have power to trade water on the Colorado River like some of its major rights holders like Metropolitan, Imperial Irrigation District or water authorities in Nevada or Arizona. It’s between those players where most of the major investment action is happening. 

States that use Colorado River water are already teasing at a potential interstate water trading market. Right now, the rules that govern the river don’t allow for that. But the Southern Nevada Water Authority is already investing in pieces out-of-state projects like Pure Water Southern California, a huge wastewater to drinking water project in Los Angeles County. 

The thinking is, if California can reuse more water, that frees up more volatile Colorado River water for others. 

A lot of rules would have to change for San Diego to step into this water trading space. San Diego doesn’t have an ability to store water, like a bank account, in Lake Mead. That’s one of the key attributes to broker major deals on the river. 

“I do think the markets are evolving on the Colorado River within states and between states,” said Kathryn Sorensen, director of research at the Kyl Center for Water Policy at Arizona State University.  

The federal government recently OK’d Arizona tribes to lease water to the state’s central urban centers. Sorensen pointed to Nevada paying Arizona to store some of its Colorado River water in Arizona aquifers.  

“Markets can help ensure that water is delivered to a higher valued use. Where that gets controversial is, what is a higher valued use and to whom and for what,” Sorensen said. “A city dweller would say my drinking water is a higher valued use than your alfalfa field but a farmer would feel differently.” 

Biden Promised to Pay for Conservation – Then It Rained 

Another record-breaking drought reared its head across the west. Last year, major reservoirs on the Colorado River dropped to historic lows. The Bureau of Reclamation sounded the alarm, calling on states and nations to find a way to cut back on a quarter of the water they collectively get. The Biden Administration responded by putting over a billion dollars from the Inflation Reduction Act on the table to pay farmers and other river users to conserve water.  

The question was: How much would Colorado River water be worth under this prolonged drought? Negotiations began. Imperial Valley offered to cut use by 400,000 acre-feet to help restore reservoir levels on the river. Then came the rain, which obliterated drought in much of the west, filled reservoirs and saturated land meaning everyone needed less from the Colorado River.  

Imperial Valley, for instance, ordered 200,000 acre-feet less this year from the 3.1 million of California’s 4.4 million acre-foot guarantee from the river. Farmers and the feds are still bargaining over what that conserved water is now worth. 
 
Tina Shields, water department manager for the Imperial Irrigation District, said the feds are probably looking to get the biggest bang for their buck – but wouldn’t say how much they’ve offered Imperial Valley per acre foot of water.  

“We have very senior water rights and we could sit back and watch everybody else do stuff but that’s not being a good team player – with longer-term issues,” Shields said. “(The Colorado River) is our only water supply … It wouldn’t be very smart to say we’re not a partner moving forward. You could end up decimating your community.”