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LOIS HENRY: Nickel deal waters far-flung developments

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An aerial photo shows the Intertie, a structure that connects the Kern River with the California Aqueduct just north of Taft Highway. In high-flow years it allows Kern water to flow to Southern California.

To say Jim Nickel's great-great grandfather, Henry Miller, would be proud of the family's deal for "lower" Kern River water is an understatement.

Miller, who made up half of the 1888 Miller-Haggin agreement -- what's become known as "the law of the river" -- would have been stunned at what his descendants pulled off in 2001 using the final vestige of their inherited river rights.

The family sold its lower-river "Hacienda right" to the Kern County Water Agency for $10 million in public bond money.

Good money, sure. But that wasn't the sweetest part of the deal.

The Hacienda right is for high-flow water averaging 50,000 acre feet a year -- nearly one-tenth of the capacity of Isabella reservoir. Except the Kern only runs that high every four or five years, which means it often gave the Nickels zero water. It was a golden egg, but an unreliable one.

Until the deal with the KCWA.

The Nickels got the taxpayer dough plus a hard-and-fast promise of 10,000 acre feet each year to be delivered by the agency anywhere in the state the family cared to sell it.

In exchange, the agency retained what it could of the remaining Hacienda water -- when there is any. Plus they get 10 percent of every sale the Nickels make and have access to store what they can in Lake Isabella with up to 30,000 acre feet or so allowed for carryover. Given the price of water these days, that's the real prize to the agency.

Guaranteed water

Drought, no drought, water problems in Sacramento, regulations run amok, nuclear attack, it doesn't matter. The Nickels' 10,000 acre feet a year of water is absolute.

It's made them a fortune and will continue to do so in perpetuity.

"Yeah, certainty is worth a lot," Nickel said.

About $30 million since 2001 alone as the Nickels have peddled the water around the state, including locking it up in two 35-year contracts with the controversial Newhall Ranch development and most recently with DMB Associates for 12,000 houses in Redwood City.

Though Nickel wouldn't say how much he sells the water for, the agency's 10 percent share has worked out to $3.2 million over the last decade.

Clearly, this has been a good deal for the Nickels and the agency.

More and more cities are looking for Central Valley ag water as a solution to their supply problems. But no one in Kern County is debating the wisdom of such permanent transfers or exchanges.

Kern River and far-flung sprawl

Since the Redwood City sale has come to light, at least some Northern California observers -- who don't want houses built on the salt marshes -- are pushing back. They're questioning not only the legality of such an elaborate water transfer but also the impacts to Kern County.

"The idea that there is a substantial amount of water in Kern County that is unneeded and available for sale without redirected impacts is fanciful," Assemblyman Jared Huffman wrote to the Redwood City mayor on March 21 urging the council to kibosh the development. "In reality, California's future water reliability and the Delta ecosystem will require fewer diversions of water from the Central Valley, not more."

Reducing dependence on delta water by maximizing regional sources was adopted as water policy by the Legislature, he said. This deal flies in the face of that policy.

Huffman and others are also questioning the legality of these transfers, which have relied for the last 10 years on a single blanket negative declaration written by the KCWA saying any environmental impacts of exporting the water are outweighed by the overall benefits of the project as a whole.

Court rulings have held that such "netting of benefits," rather than identifying exact benefits for each sale is a no-no, according to a report done by Redwood City on the possible use of the Nickel water.

"The statute of limitations has passed on being able to sue over that 2000 negative declaration," said Stephen Knight, policy director of Save the Bay, which is opposing DMB's project. "But it's still a concern because Redwood City would have to redo CEQA (studies required under the California Environmental Quality Act) legally this time."

It's all good

Back here, we're told it's all good for us.

"It's a huge benefit for Kern County," Nickel said of the agency's purchase of his family's rights.

Before, he said, most of the Hacienda water couldn't be captured and left the county, flowing out the Intertie and into the California Aqueduct to be used by folks on down the line.

Now, the agency can use Isabella and its water banks to regulate the water. They can store it for future use locally or sell it to keep costs lower for farmers who, in theory, then could hire more workers or fallow less land in lean water times. Essentially a "trickle-down theory."

At best, though, it's an indirect benefit and hardly seems worth the cost of tying local water up in houses hundreds of miles away.

Since the Agency bought Nickel's rights, there've been only two years the river flowed high enough to produce Hacienda water, from which the Agency grabbed and banked 83,000 acre feet.

They may have been able to bank that much regardless of the Hacienda right since big flow years mean everyone gets a share if they have a place to put it, which the Agency has had since the 1990s with Kern Water Bank and its Pioneer Project.

Agency managers have said the purchase was the best way to keep the maximum amount of Kern River water here in our watershed.

"Otherwise, the Nickels could have sold all that water out of the watershed," former Agency General Manager Tom Clark has said in the past and current General Manager Jim Beck agreed.

Not exactly. Without a banking facility, the Nickels couldn't regulate the supply enough to ensure steady sales. Certainty, as Jim Nickel said, is worth a lot.

The art of the deal

Yes, the Nickels had been selling at least some of their Hacienda water for years, when they could.

It was a crap shoot though, even with the Isabella storage, Nickel said. In high-water years, no one needed it and they had to find places to park it. Lower-water years yielded smaller amounts or nothing at all, meaning smaller paychecks or zero sales.

Those feast or famine days are gone for the Nickels, who never could have nailed down such long-term development contracts as they have with Redwood City and Newhall Ranch without the certainty this deal gave them.

More than 100 years ago, Nickel's great-great grandfather, Henry Miller fought and won an epic legal battle to keep Kern River water in the river.

What would he think of Nickel's deals today?

Nickel laughed.

"You have to remember the rest of the story," he said. "Yes, he got the riparian rights. But then he turned right around and told the Kern County Land Company, 'You build me a reservoir and I'll give you two-thirds of the river.'

"He violated his own law."

Making a deal, it seems, has always been the true "law of the river."

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