Kern County a hub of the water trade

By Dale Kasler, Sacramento Bee

Published July 14, 2002

BAKERSFIELD -- He was known as the cattle king of California, a legendary speculator who became the largest private landowner in the United States more than a century ago.

But Henry Miller was one of California's original water barons as well, and today his descendants are wheeling and dealing in water with style and gusto. Just last year they pulled off a trade that brought them millions of dollars' worth of water on the California Aqueduct -- the state's main waterway and an ideal trading post.

"We consider ourselves farmers," said Miller descendant Jim Nickel, who runs a 10,000-acre ranch east of Bakersfield. "But we have to admit the water marketing has become a bigger part of our balance sheet than it used to be. It's significant now."

The family's acumen has rubbed off on its neighbors -- and helped make Kern County a hub in an infant industry.

Kern agricultural water districts have sold tens of millions of dollars' worth of water to California cities and a government-run environmental program. They've also entered into lucrative contracts with the Metropolitan Water District of Southern California and other urban agencies to store their water in underground reservoirs.

Take the Semitropic Water Storage District, which delivers water to farmers northwest of
Bakersfield. Named for a fruit company that once operated in the area, Semitropic runs an underground aquifer, one-and-a-half times the size of Folsom Lake that stores water for clients from Los Angeles to the Silicon Valley.

Revenue has totaled $80 million since the facility opened in 1995, and there's more to come. The district -- known jokingly as "the Bank of Semitropic" -- is planning a $130 million reservoir expansion, to be funded by a Los Angeles company jockeying to get into the water business.

Kern's success hasn't been without controversy.

In 1994 state officials, seeking to settle disputes arising during droughts, negotiated an overhaul of the State Water Project. As part of the deal, Kern water districts were given title to the Kern Water Bank, a state-owned reservoir in Bakersfield with strategic value for making deals. In return, the Kern districts permanently surrendered some of their water rights to the state and agreed to sell certain other water rights to cities up and down the state.

Environmentalists blasted the transfer of the water bank as a giveaway and won a court ruling invalidating the agreement. But in the meantime, the Kern districts have been selling water, more than $100 million worth, to cities throughout the state.

What's more, the Kern districts have made hay from a state-funded program that delivers water to the environment.

Last year the county Water Agency and a half-dozen Kern water districts, which pay the state about $161 an acre-foot, sold water to the state's Environmental Water Account for $250 an acre-foot, or $29 million. The account devotes water to fish and rivers.

State officials said they're not troubled by the sellers' profits.

"This is an example of a market remedy to help the environment," said Jerry Johns, chief of water transfers at the state Department of Water Resources.

Kern is well positioned to be a water-industry mecca. The steep drop of the Kern River as it leaves the Sierra has created a thick, fan-shaped wedge of gravel and sand that acts as a sponge for underground storage.

But the county's business savvy is a purely man-made trait -- inspired, many say, by Miller's descendants.

Miller amassed a vast 19th-century land empire and was a party to one of California's first big water wars, settled when he and a rival split the rights to the Kern River in 1888.

Long after his death, the state was building the California Aqueduct in the early 1960s and needed a water supply in Kern for construction purposes. Miller's great-grandson George Nickel Jr. obliged by piping in water from a nearby ranch.

After the aqueduct was done, the state repaid him with three times as much water. He banked it in an aquifer and years later sold it to Chevron and Union Oil for drilling.

Totalling $8 million, these were among the first farm water sales, said Gene McMurtrey, a Bakersfield lawyer and historian.

"It was so important to make use of what rights you had," said Nickel, 84.

Said Jim Nickel: "My father was marketing water way before anybody else, before it was cool."

Last year Jim Nickel swapped some family water with the county Water Agency for $10 million and some water on the California Aqueduct. He got less water than he had, but the location was worth it.

A few months later he sold every drop of the year's allotment to the state's environmental
account for an eye-popping $460 an acre-foot, or $4.6 million.

More deals are coming. "I believe the real money is in long-term contracts," Nickel said.