Water Marketing in Southern California

Holburt, Myron B.; Atwater, Richard W.; Quinn, Timothy H.

doi:10.1002/j.1551-8833.1988.tb03006.x

Cited by 4 publications

(3 citation statements)

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“…Research on water options has been carried out by many scholars. For instance, Holburt et al [22] introduced the concept of options into water resources and proposed the concept of a water option contract (WSOC). Michelsen et al [23] compared the cost of an option contract with the cost of water supply alternatives, and then proposed an economic benefit evaluation model for water supply operation.…”

Section: Introductionmentioning

confidence: 99%

An Optimal Model for Water Resources Risk Hedging Based on Water Option Trading

Yan

Zhong

Chen

et al. 2018

Water

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Abstract:The uncertainty of forecasted runoffs brings risks of water shortages to water users in the intake area of long-distance water transfer projects, and the uncertainty of spot market prices may cause them to buy water at high prices. In order to hedge these risks, this paper proposes a risk hedging model for decision-making in water option trading from the viewpoint of water users. With the objective of maximizing the expected revenue of water users, the proposed model was solved by an analytical method and an optimal water option strategy was obtained for the users. The proposed model is applied to an intake area of an inter-basin water transfer project in China. The results show that the proposed water option trading model can provide water users with an optimal option strategy. The optimal options trading strategy can effectively reduce the risk caused by the uncertainties of forecasted runoffs and water prices. We also explored the influence of the uncertainty degree of the forecasted runoffs and water price on the option trading strategy. The results show that the expected revenue of water users increases as the variances of the errors of forecasted runoffs and water prices increase.

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Section: Introductionmentioning

confidence: 99%

An Optimal Model for Water Resources Risk Hedging Based on Water Option Trading

Yan

Zhong

Chen

et al. 2018

Water

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“…In Southern California (California south of the Tehachapi Mountains), the combination of a limited water supply and a growth-oriented economy has helped create elaborate physical and institutional systems of water allocation and management with sustained water management controversies. Water managers increasingly look to water transfers and regulated forms of water marketing to improve reliability, quality, and costs (Holburt, et al 1988;Vaux and Howitt 1984;Lund and Israel 1995). Metropolitan Water District of Southern California (MWD) (1997) and San Diego County Water Authority (SDCWA) (1997) both have identified water transfers as a source to augment water supplies.…”

Section: Introductionmentioning

confidence: 99%

Southern California Water Markets: Potential and Limitations

Newlin¹,

Jenkins²,

Lund³

2000

Building Partnerships

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This paper explores the potential and limitations for Southern California water markets using an economic-engineering network flow optimization model, CALVIN. CALVIN is used to estimate how a market would affect overall Southern California water use, to preliminarily assess the economic benefit of more flexible water allocation policies, and to explore the characteristics of an ideal market. Results from CALVIN suggest substantial economic and reliability benefits exist for implementing water market or other transfer mechanisms and these benefits could be achieved with relatively little reallocation of agricultural water. An ideal water market in Southern California would reduce more costly urban water shortages, reducing demand for increased imports from outside of Southern California. Additionally, substantial economic benefits could accrue from expanding some conveyance and storage facilities, particularly the Colorado River Aqueduct and conjunctive use storage capacity. Conveyance Capacity Expansion Most canal capacities in the Southern California system did not have high shadow values (>$100/af-month) under an ideal market scenario. The only facility with significant shadow values in terms of expected and present value is the Colorado River Aqueduct (CRA). CRA water is delivered to the Coachella Valley urban area and all of MWD (Central, Eastern and Western MWD, and SCDWA). Figure 10 shows the shadow values associated with the CRA operating under an ideal market. For the majority of the 72 year hydrologic period, the net benefit of expanding the CRA is $300/af. In the '87-'92 drought, however, shadow values increase to $700/af-yr. Scarcity of up to 62 taf occurs during drought, incurring residential scarcity costs throughout MWD. The economic value of increasing the capacity of the CRA has an average annual value of $398/af-yr and a present value of $13,300/af-yr, at a 3% real interest rate and very long life span. More direct conveyance between the Colorado River and the SDCWA (via the All American Canal), a "Tijuana Canal," has been contemplated as an alternative delivery route for Colorado River water to SDCWA. Since the route would divert Colorado River water at a more southern point than the CRA, this diversion's salinity will be significantly higher, with an additional water quality cost estimated at $79/af (Newlin 2000). The shadow values for a small Tijuana Canal (Figure 10) parallel CRA shadow costs, with the difference from water quality costs ($178/af for the CRA versus $257/af for a Tijuana Canal). The Tijuana canal would provide moderate marginal benefits outside of drought periods and much larger economic benefits during droughts, with an average annual benefit of $318/af. Conclusions and Future Improvements Considering the limitations of this modeling approach and water marketing, the following conclusions can be made from the CALVIN results for Southern California. In the future, more specific and reliable information can be derived with improvements to the CALVIN approach. Conclusions 1. Sub...

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“…Second, future water transfers may lower the maximum request. Proposed transfers from agriculture to MWD[Holburt et al, 1988] would increase MWD's authorized depletion, concomitantly lowering the maximum excess MWD depletion because the total depletion is limited by the capacity of the aqueduct. 1990) corresponds to the expected delivery to municipal and industrial users.…”

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confidence: 99%

Marginal Economic Value of Streamflow: A Case Study for the Colorado River Basin

Brown¹,

Harding²,

Payton³

1990

Water Resources Research

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The marginal economic value of streamflow leaving forested areas in the Colorado River Basin was estimated by determining the impact on water use of a small change in streamflow and then applying economic value estimates to the water use changes. The effect on water use of a change in streamflow was estimated with a network flow model that simulated salinity levels and the routing of flow to consumptive uses and hydroelectric dams throughout the Basin. The results show that, under current water management institutions, the marginal value of streamflow in the Colorado River Basin is largely determined by nonconsumptive water uses, principally energy production, rather than by consumptive agricultural or municipal uses. The analysis demonstrates the importance of a systems framework in estimating the marginal value of streamflow. INTRODUCTIONAs surface water supplies approach full utilization and competition for existing supplies increases, it becomes increasingly important to know the value of changes in flow. Estimates of the value of flow changes are useful for evaluating water supply augmentation projects, such as alterations in vegetation of upland watersheds, cloud seeding, and transbasin diversions.Such value estimates are also useful in understanding the effect of flow decreases, such as might occur from increasing vegetative cover, climatic changes, or increased upstream consumption. Perhaps nowhere in the United States is the specter of water scarcity more prominent than in the Colorado River Basin. Efforts to control the Colorado's flow and to allocate its water have long been a focal point of concern among water interests [e.g., Fradkin, 1981;Hundley, 1975;Ingram, 1969]. This highly regulated and much litigated river provides a fitting setting for a study of the marginal value of water.The specific objective of this study was to estimate the economic value of increases in runoff that could be created by timber harvest in forested areas of the Colorado River Basin. Watershed research has shown that overstory removal in some vegetation types can reduce evapotranspiration and thereby increase streamflow, and much of this research has been carried out at sites in the Colorado River Basin [e.g., Leaf, 1975;Hibbert, 1979; Troendle, 1983]. Although this study focuses on the effects of timber harvest, the analysis has implications for all the aforementioned sources of flow change. The effect of streamflow change on water use is shown, via a systems approach [Maass et al., 1962], to depend on when the flow increases occur and on all the factors affecting water allocation, including storage and delivery facilities and the institutions affecting water management.The analysis incorporates in considerable detail the complex and highly developed water management arrangements that currently determine water allocation in the Basin, including current water laws, major facilities and reservoir operation rules. The sensitivity of the allocation and marginal value of flow to changes in existing management arrangements was ...

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Water Marketing in Southern California

Cited by 4 publications

References 0 publications

An Optimal Model for Water Resources Risk Hedging Based on Water Option Trading

An Optimal Model for Water Resources Risk Hedging Based on Water Option Trading

Southern California Water Markets: Potential and Limitations

Marginal Economic Value of Streamflow: A Case Study for the Colorado River Basin

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