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Water, Water Everywhere…But Not A Drop To Drink

Sigma Investment Counselors

January 28, 2016

This excerpt from S. T. Coleridge’s “Rhyme of the Ancient Mariner”, while generally an apt description of coastal areas like California, doesn’t have to be true.

California’s water shortages have made the national news with increasingly severe restrictions on water usage.  The State’s problems stem from increasing population, natural fluctuations in precipitation and other factors.

In addition to substantial efforts to reduce demand, there appears to be some progress in addressing the supply side of the problem.

A few weeks ago the San Diego County Water Authority dedicated a new desalination plant which has begun to produce drinking water at an annual rate of 56,000 acre-feet (50 million gallons a day), enough to meet the needs of approximately 400,000 people.  This project grew out of the regions last major drought (1987-92) and demonstrates that it is technically and practically possible to materially augment water supplies.  But why did it have to take 22 years?

In addition, it appears that Mother Nature may also be about to start helping.  While still early, the most recent, end of December survey, indicated that the California snowpack was approximately 110% of normal after several years of drought conditions.  Snowpack accounts for about a third of California’s water supply in a normal year.

Investors should consider that water supply is not really a water problem, but rather, a political problem.  It took about 22 years, dating back to the drought of 1987-92, for the San Diego area to actually implement a substantial solution to its water issues.  We can increase supply and we should recognize that climate fluctuations are normal and have been well known for centuries.  Even the Bible recognized the concept of feast and famine.  In Genesis 41:29-30, Joseph was advised that “seven years of great abundance are coming throughout the land of Egypt, but seven years of famine will follow them.”

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®

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