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CALIFORNIA:
ENRON AND THE DOT COM BUBBLE THAT BURST
The San Joaquin Valley, located in
the central valley of California, is one of the
world’s most productive agricultural regions.
This prosperous farmland is only possible because
of irrigation. The clear spring water from the Sierra
Nevada Mountains to the east is controlled by dams,
and diverted through canals so that every drop of
water is used to produce things like almonds, grapes,
alfalfa, cotton.
From the northern part of the state, where there
is no shortage of water, manmade waterways bring
more of the essential resource to the crops of the
San Joaquin Valley, and further south to Los Angeles
to feed the needs of the bustling city.
ENRON IN THE
WATER BUSINESS
In 1998, Enron entered the global water business.
Enron had been an aggressive energy trader since
1985, and at its peak was earning more than a $100
billion a year. They got into the water business
by purchasing a successful British Water Company
called Wessex Water for over $2 billion dollars.
By taking over Wessex, they purchased the employees
and the know-how to compete on the international
market.
They named the company Azurix.
The new global water player did not stop at public
utilities. They blended the notion of water as a commodity
and the tools of the internet. The Wall Street Journal
reported on February 9th, 2000 that “Azurix
Corp., a Houston-based water company, is launching
an exchange on the Internet for buying, selling, storing
and transporting water in the West, hoping to make
water a traded commodity much like natural gas or
electricity.”
The marketing idea was simple:
to create a cyber market, where people could buy and
sell water, and make money off prospects. Instead
of investing money in IBM or Nortel, people could
invest in water that was sitting under a ranch in
California. The web site was called www.water2water.com.
MADERA RANCH
But how internet water trading was going to actually
work was complicated and controversial. It involved
buying the Madera Ranch- a 52-square kilometre property
in the heart of the San Joaquin Valley. The Madera
Ranch sat atop an aquifer that could absorb up to
480 billion litres of water, enough water to supply
1.6 million people for a year. Azurix was going
to sell storage space under the ranch. A water bank.
The ranch is close to the Mendota
Pool, a body of water that is a junction of rivers,
canals, and aqueducts. During months or years when
there was a surplus of water, clients could ask
Azurix to pump their water out of the Mendota Pool
and up a canal to percolate under their ranch. During
drought years, when water was needed by farmers,
or cities, Azurix would send the commodity back
to the pool.
From here, a group of farmers in the
region could use that water. And they wouldn’t
have to get their water from the northern part of
the state, something they had been doing for decades.
This government-allocated water was now unaccounted
for and could be sold to the highest bidder.
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Chris Wasden
was a managing director at Azurix and the brain
behind the water trading web site: And
so in wet years what we would do is we would sell
storage to farmers. So we’d go to a farmer
and say okay, it's a wet year this year, you’re
getting more water than you need and than you normally
plan on. We will sell you storage in our aquifer
for periods of time. If you want one year storage,
two year storage, three year storage. And then they
would then pay us a fee for that storage. And so
the way that water trading works is that you’re
really not trading the actual molecule of water
that you own with someone else’s water molecule.
So I have this amount of water, and now let’s
swap it in such a way that I get access to water
when I need it but it’s not the actual water
that’s going there, it’s an allocation
of water.
A FARMER OPPOSES WATER BANKING
IN HIS COMMUNITY
Denis Prosperi lives next door
to the Madera Ranch. He understood the Azurix plan.
Denis Prosperi: Basically
a gentleman could be sitting in his office in Philadelphia,
wake up the morning, decide he wants to buy a couple
thousand acres of water in the Madera water bank and
he could speculate. If there’s a dry year the
price of water went up and you’d be able to
park it. It would be like the Chicago Board of Trade
on water. Prosperi is an
almond and grape grower. He draws his water from
the same aquifer that Azurix was going to turn into
a bank. He made it his business to prevent Azurix
from taking his water. For Prosperi, not only was
it a fight for his precious resource, but it was
a question of economics.
Denis Prosperi: Without
water, this is a desert. We can’t function without
water. Without water, there would be no farming in
the San Joaquin Valley…Water is as valuable
if not more valuable than land. His
message was that Azurix planned to export the community’s
water. He mounted a successful public relations
campaign against Azurix and organized the local
farmers. He got the attention of the local media
and they reported on his cause. In the end, he became
the obstacle for Azurix. And finally Azurix went
home.
At the end of the day, Azurix could
not convince the locals about the benefits of the
water bank. For them, it was taking away their livelihood.
Denis Prosperi:
I’m a capitalist in the
truest sense. I farm almonds and wine grapes which
are two of the commodities that have no subsidies.
We have booms and we have busts. We’re just
coming out of one of the worst busts that the grape
business has seen in 50 years. The almond business
is booming. Five years ago it was down. I believe
in free enterprise. But I also believe that if the
price of almonds goes to $2.50 a pound, it’s
not catastrophic if people who can’t afford
them don’t want to eat them. If the price
of wine goes up a dollar a bottle, it’s not
going to make much difference to the world economy.
But when you’re talking about water, you’re
talking about the lifeblood of life itself.
For Chris Wasden, his time at
Azurix taught him that the water business is not
a good investment.
Chris Wasden:
I had an executive approach
me the other day that said that he had the backing
from a very wealthy family in New York…that
had just read a World Bank report on the situation
of the water industry globally. And talked about
what will happen by 2015 what needs to happen with
regards to water. Because we have this looming crisis
of water. And he says you know these people they’re
really smart investors and they see this and think
water’s the place to be. Well you’ve
worked for a big water company you’ve looked
at this stuff all over the world and what do you
think? I said I wouldn’t touch it. Nobody
wants to let anybody make money on water.
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