Advantages of a Standardized Water Accounting System Eric Averett August 24, 2016

THOUGHTS Imagine the confusion/challenge if the United States monetary system was based upon a currency printed, controlled and managed by each state………..with the exchange rate different for each state. This is what it will be like to manage a water accounting system within Kern County without some type of standardized system of accounting. System does not create a water market………….it creates a standard system of accounting that provides for the opportunity to manage water. Any transfer/sales or exchanges of water will be subject to rules developed by the GSA’s and incorporated into the GSP’s. Failure to standardize the accounting diminishes the value of the water within the system. Failure to standardize the accounting diminishes the ability to manage the resource.

TERMS Share = Registered system of accounting for water allocations – Think “Checking Account” Shares are “Registered” and tied to the land. Unless and until you make a “deposit” it has a zero balance. Example – Landowner who owns 1 acre receives 1 share. Landowner who owns 5 acres would receive 5 shares. Shares are registered to the land but may be sold (Subject to the rules of the GSA/GSP). Once sold the Share is severed from the land, registered to the new buyer & the land which sold the share will not receive an allocation. Allocation = Amount of water available to each Share– Think “Deposits” to your checking account. Allocations are made by each GSA and are regulated/governed by the GSP. Allocations are based upon GSA management area’s water supply resources…………TBD GSA may make Allocations to groundwater or groundwater & surface water. Example – GSA “allocates” 2.5 acre-feet per Share for first 5 years of GSP implementation. Landowner owns 1 acre has 1 share and receives 2.5 acre-feet (AF) . Landowner who owns 5 acres has 5 shares and would receive 12.5 AF. Subject to the rules of the GSA/GSP, Allocations may be managed by the landowner. For example, they may be used for overlying demands, banked for future use or sold either annually or long-term.

Share/Allocation System of Accounting Subject to GSP Conditions……….. provides for: Sale of Shares within and between GSA management areas Short/long-term sale of annual Allocations between GSA management areas Management of Allocations for common landowners in multiple GSA management areas. Establishes clear rules for and eliminates uncertainty associated with movement/transfer of water within region. Registration of shares and defined accounting creates value Empowers landowners to more efficiently manage their water supplies

GSA 2 GSA 1 Landowner 2 has 160 Shares Landowner 1 has 80 Shares 160 Acres GSA 1 – Landowner 1 80 Acres GSA 2 Landowner 2 has 160 Shares GSA 2 “Allocation” = 2.0AF/Share Landowner 2 has 360 AF Landowner 1 has 80 Shares GSA 1 “Allocation” = 2.5AF/Share Landowner 1 has 200 AF GSA 1

Standardized System of Accounting – Scenario Assumptions GSA 1 & 2 are “coordinated” through their GSP’s Movement of water between GSA’s has no adverse impact to ability to become sustainable. Movement of water between GSA’s has no adverse impact to landowners within the GSA’s. GSA 1 & 2 have no “ratio” adjustment for the exchange/transfer of water between their management areas. Essentially treated as one “Management Area”.

Standardized System of Accounting – Scenario 1 GSA1/landowner 1 (80 acres of alfalfa & 200 AF of Allocation) fallows field & sells Allocation GSA1/Landowner 1 enters into agreement with GSA2/Landowner 2 to sell his allocation of water for 2017- 2020. Landowners execute agreement and provides GSA 1 & 2 copies of agreement documenting sale. Landowner 1 fallows field & Landowner 2 has access to Landowner 1 allocation. GSA 1 & 2 coordinate over term of agreement to ensure accurate accounting of allocations.

Standardized System of Accounting – Scenario 2 GSA1/landowner 1 (80 acres of alfalfa & 200 AF of Allocation) fallows field & reserves Allocation Landowner 1 fallows field for 5 years to create a credit for future water management opportunities. GSA1/Landowner 1 fallows field for 5-years and accrues 1,000 AF. GSA1/Landowner 1 sells 1,000 AF to GSA2/Landowner 2 in 2022 (dry year) for profit.

Standardized System of Accounting – Scenario 3 GSA 1/landowner 1 (80 acres of alfalfa & 200 AF of Allocation) fallows field and transfers Allocation to lands owned by landowner 1 in GSA 2 Landowner 1 fallows field for 10 years and transfers to lands owned in GSA 2. Landowner 1 fallows 80 acres of Alfalfa in GSA 1 for use on Landowner 1 almonds in GSA 2.

Standardized System of Accounting – Scenario 4 GSA 1/landowner 1 (80 Shares) sells shares to GSA2/Landowner 2 GSA1/Landowner 1 sells shares to GSA2/Landowner 2. Landowner 1 & Landowner 2 execute agreement for sale of shares. Agreement is given to GSA 1 &2. “Registry” for GSA1/Landowner 1 shares is transferred to Landowner 2. Landowner 2 will now have 240 Shares (160+80). Landowner 1 acreage now has no Share or Allocation and must be fallowed accordingly. Landowner 1 acreage may not be subsequently developed unless new Shares are acquired. Allocations to shares sold are still based upon GSA 1 Allocations.

Landowner 2 has 160 Shares Landowner 1 has 80 Shares Semitropic WSD GSA 2 – Landowner 2 160 Acres Landowner 2 has 160 Shares GSA 2 “Allocation” = 2.0AF/Share Landowner 2 has 360 AF GSA 1 – Landowner 1 80 Acres Landowner 1 has 80 Shares GSA 1 “Allocation” = 2.5AF/Share Landowner 1 has 200 AF

Standardized System of Accounting – Scenario Assumptions GSA 1 & 2 are “coordinated” through their GSP’s Due to the groundwater temporal and spacial disconnect between GSA 1 and GSA 2 movement of water between GSA’s has conditions. Based upon groundwater modeling (looking at water level and quality issues) Movement of water between GSA’s is approved subject to the following “ratios” whereby movement of water from GSA 1 to 2 is on a 2:1 basis and movement of water from from GSA 2 to 1 is on a 4:1 basis. GSA 1 & 2 require water quality reporting to part of the “rules” which govern the transfer of water. Maximum annual transfers may be limited due to potential water level and/or quality impacts.

Standardized System of Accounting – Scenario 1 GSA1/landowner 1 (80 acres of alfalfa & 200 AF of Allocation) fallows field & sells Allocation to GSA1/Landowner 2 GSA1/Landowner 1 enters into agreement with GSA2/Landowner 2 to sell his allocation of water for 2017-2020. Landowners execute agreement and provides GSA 1 & 2 copies of agreement documenting sale. Landowner 1 fallows field & Landowner 2 has access to Landowner 1 allocation. Landowner 2 can only access/pump 100AF due to the “ratio” requirements. Landowner 1 & 2 must take quarterly water level and quality samples from their groundwater facilities and submit to the respective GSA’s. GSA 1 & 2 coordinate over term of agreement to ensure accurate accounting of allocations.

Standardized System of Accounting – What is needed to implement. GSA’s must agree to adopt the accounting system Registry system must be developed & entity appointed to administer (land use planning agency?). GSP’s must develop rules to accommodate Shares &Allocations. Rules will evolve over time & do not have to be perfect at the start.

Standardized System of Accounting – IF NOT THIS………WHAT IS THE ALTERNATIVE?