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Delta fish suffered a crippling decline while taxpayers paid nearly $100 million to a Kern County water wholesaler for an environmental protection program that was largely ineffective, a Contra Costa Times investigation has found. In the process, the wholesaler sold water to the state for as much as $200 an acre-foot and last year bought water from the state for as little as $28 an acre-foot. The Kern County Water Agency was the biggest buyer in a program that delivered discounted Delta water in a way that now appears to have been particularly harmful to the environment. It also was the biggest seller of water to an ill-fated, publicly-financed state program meant to protect the same environment, the investigation found. The Kern agency collected $96 million in taxpayer money -- nearly all of it borrowed on the bond market -- for sales to an "environmental water account" that was shelved after seven years at the end of 2007, records show. While state water officials took steps to ensure they did not directly repurchase the discount water, the exchanges amounted to "classic arbitrage," where investors exploit price differences in financial instruments, said Barry Nelson, a water policy analyst at the Natural Resources Defense Council. "What makes this arbitrage so remarkable is they're buying the water and selling the water to the same entity, using water that should never have been pumped in the first place," Nelson said. Advertisement The newspaper's investigation, which spanned six months and involved dozens of interviews and reviews of hundreds of pages of documents, some of which were obtained through the California Public Records Act, reveals: Regulators were kept in the dark as the California Department of Water Resources delivered far more discounted Delta water than was specified in its environmental permit -- more than four times as much in 2005. The permit contained restrictions that were supposed to protect Delta smelt, a tiny fish whose population has collapsed along with a large part of the Delta's ecosystem. Although state water officials took steps to keep the discount water sales to Kern County and the purchases of environmental water separate, those safeguards may have been compromised. Documents show Kern County water managers discussed trading water that was ineligible for sale to the environmental water account for water that was eligible in order to facilitate sales. Some researchers believe that increased pumping of Delta water at times when the discount water deliveries were occurring -- far in excess of permit limits in the past few years -- may have contributed significantly to the ongoing collapse of Delta smelt, which triggered a court order last year sharply restricting Delta water deliveries and tightening water supplies in parts of the state. The Kern water agency wrested control of the Kern Water Bank from the state in the 1990s by withholding needed local approval and eventually trading a small portion of its contractual water rights for the 20,000-acre site. The bank enhanced the region's ability to buy and sell water. Proceeds from the taxpayer-financed water sales were distributed to Kern County landowners in some cases. That money, "a return on the substantial investment of the district in the acquisition and development of the Kern Water Bank," was distributed to landowners, according to meeting minutes from the Wheeler Ridge-Maricopa Water Storage District. The two water districts the newspaper has identified to date that distributed proceeds to landowners are controlled, at least partly, by some of the wealthiest land companies in California The story of how a powerful water agency was able to gain advantage in state water initiatives developed during the 1990s is coming to light as California's top political leaders once again try to deal with a broken water delivery system. After a punishing drought that ended in the early 1990s, a series of deals were negotiated to stabilize water supplies and protect the environment. Rather than impose cutbacks on water users or accept some environmental degradation, the deals promised all sides' interests would be served by programs paid for with taxpayer-backed bond funds. Instead, the spigot to the state's biggest water users flowed with record amounts of water from the Delta beginning in 2000. And as Delta water pumping reached new highs -- boosted in part by the new discount water program, especially in the past few years -- several fish populations crashed, including Delta smelt, longfin smelt, striped bass and threadfin shad. Pollution, invasive species and other factors are likely also to blame for the collapse, but Delta pumping was a major factor, biologists say. The ecological crisis became severe enough that last year a federal judge stepped in and ordered sharp restrictions on Delta pumping. The result: Despite at least $3 billion spent since 2000 to improve Delta water supplies and the environment, the West Coast's largest estuary is experiencing an ecological collapse and Californians appear to be faced with years of uncertainty about the reliability of future water supplies. The programs set up by the state to sell surplus water in wet years and to buy water for the environment were never directly linked. But both were among the many initiatives that grew out of attempts to resolve water problems in California. The Kern County Water Agency was the largest participant in both, thanks in part to its takeover in 1995 of a 20,000-acre groundwater bank that the state purchased seven years earlier. It was in the bank that the Kern water agency stored about one-third of its purchases from the discount water program and from which it delivered about 60 percent of its sales to the environmental water account, according to the agency. At the same time, the new discount water program known as Article 21 was set up to encourage water agencies like Kern and the Metropolitan Water District of Southern California to buy surplus water during wet periods and store it in local reservoirs. Under Article 21, the agencies buy the water for the cost of pumping it. The idea was that once the water was stored in the southern part of the state, it could be used in dry years when less Delta water is available. But in recent years the water districts took far more Article 21 water than was authorized by the US Fish and Wildlife Service, and some researchers now think that an increase in Delta pumping during winter -- the same months when Article 21 water is delivered -- might have contributed significantly to the ongoing Delta smelt collapse. "It really looks like that was a hit on the head," said Bruce Herbold, a fisheries biologist at the US Environmental Protection Agency. Separately, the environmental water account was supposed to provide supplemental protection for the Delta without restricting water users. The Delta is home to hundreds of species and a crucial link in the migratory paths of birds and salmon. It is also an unrecognizable version of its former self, badly degraded by pesticides, pollution and invasive species. But the water deliveries from the Delta command the most attention. Inevitably, especially at the high levels of recent years, pumping water to more than 23 million Californians and 2 million acres of farmland degrades habitat and kills fish, larvae and eggs. The environmental water account was set up to counter that problem by giving regulators greater flexibility to slow Delta pumping to prevent fish from being sucked into the pumps. If they wanted to decrease pumping rates, they had to keep water users whole by delivering water from the account. Despite the bond funds, the environmental water account never had enough money or provided as much water as planners promised. In addition, the original plan was to use the environmental water account to supplement existing environmental water assets. But a key court ruling reduced the other assets, forcing the environmental water account to make up the difference. In other words, the account was not as big as promised and it had to buy more than was expected. After spending nearly $200 million in ...
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