Water & Drought

Why CalPERS is pouring millions into a Southern California water deal

On the edge of the Mojave Desert, beneath 1,800 acres of scrubland and tumbleweeds, California’s giant public pension fund is trying to make a killing in the water business.

CalPERS is the primary owner of the Willow Springs Water Bank, an underground reservoir that could hold as much water as Folsom Lake when fully developed. Its customers, mainly a collection of Los Angeles-area water agencies, pay fees to store water beneath the Kern County soil to bolster their supplies during dry periods.

The water bank, one of several in this part of the state, operates on a simple concept: Agencies that get water from the California Aqueduct divert it about 8 miles east via pipeline to Willow Springs, where it percolates into the natural aquifer below. When they need it back, they extract it through a pumping station, which returns it to the aqueduct.

“They make a deposit, or they can make a withdrawal,” said Paul Mouchakkaa, managing investment director for real assets at the California Public Employees’ Retirement System.

CalPERS’ investment in Willow Springs, which opened for business six years ago, underscores the enduring monetary value of water in the West. Even as the drought loosens its grip after five-plus years, experts say water will remain a scarce commodity in the long run and a source of considerable temptation to investors.

“We’re trying to help the state’s water problems. … It can have a public benefit,” Mouchakkaa said. “But it’s meant to have a private return. It’s a private investment vehicle.”

By the lofty standards of the California Public Employees’ Retirement System, the investment in Willow Springs is just a toe in the water – about $30 million out of a portfolio of $310 billion, Mouchakkaa said. It’s attracting notice, however.

Water policy experts say the presence of CalPERS, the nation’s largest public pension fund, is a sign that big investment dollars are starting to pour into a business dominated by government regulatory agencies.

“We’ve seen … funds like CalPERS or other institutional investors looking at water, but the actual amount of investment has been quite small,” said Clay Landry of WestWater Research LLC, an Idaho company that advises investors on water deals. “You’re just starting to see institutional investment come into the sector.”

CalPERS and its partner in the water investment, Los Angeles real estate firm CIM Group, shouldn’t expect profits to flood in overnight. After years of drought, water agencies haven’t had a lot of surplus water to store, and demand for space in Willow Springs has built gradually. As of 2015, water agencies had purchased 55,000 acre-feet of space in the bank, or about 10 percent of the total available space, according to a memo filed with the California Water Commission. CIM officials declined to provide an updated figure or to discuss its fee arrangement with the participating water agencies.

Willow Springs – originally called Antelope Valley Water Bank, after the area of the Mojave where it’s located – was conceived more than a decade ago. Phase 1, which can hold 500,000 acre-feet of water, was built in part with a $5 million grant from the 2009 federal economic stimulus package, according to state documents.

The bank sits in a desolate stretch of Kern County, an hour southeast of Bakersfield just above the Los Angeles County line. The landscape is barren, interrupted by pumping stations, man-made berms surrounding the percolation ponds and the occasional snake. Some of the water lies beneath solar panels, which are owned and operated by a subsidiary of Warren Buffett’s Berkshire Hathaway that paid the CalPERS partnership for the right to build there.


Plant life, such as it is, generally doesn’t last long. CIM brings in sheep to keep the vegetation to a minimum. Off in the distance to the north is an armada of windmills; the area is so windy that waves sometimes form in the percolation ponds when water is being injected into the ground.

Bleak, but also perfect for the task at hand.

Kern County is California’s water bank capital, with 15 groundwater storage projects, and that’s not by accident. The county sits on an enormous aquifer, with a total of 10 million acre-feet of capacity, and is blessed with gravelly soils that are ideal for letting water seep into the ground. Most of the banks, including Willow Springs, are within easy pumping distance of the California Aqueduct, the state-run superhighway of California’s water delivery system.

CalPERS and CIM want to double Willow Springs’ storage capacity to 1 million acre-feet of water, slightly more than Folsom Lake holds. An acre-foot is about 326,000 gallons.

That will take work. The partnership will need to build more wells, pumping stations, pipelines and “percolation ponds,” the gently sloped earthen basins that temporarily hold customers’ water as it seeps into the aquifer.

The estimated cost to complete the project is $200 million. CalPERS and CIM plan to apply to the state for up to $100 million in proceeds from Proposition 1, the $7.5 billion bond approved by voters in 2014 to build water infrastructure projects.

The California Water Commission, which will allocate the Proposition 1 dollars, doesn’t expect to make a decision until sometime next year. The commission says the awards will be based on a variety of factors, with a requirement that projects must provide “public benefits” such as improvements to the state’s ecosystem. Willow Springs, in a preliminary application, says the bank would aid the environment by reducing the need to pump water to Southern California through the fragile Sacramento-San Joaquin Delta.

Commission spokesman Chris Orrock said CalPERS’ status as a state agency won’t give the Willow Springs application a leg up. “We’re looking at: ‘What are we getting in return?’ ” Orrock said.

Water banks have their downsides; moving water in and out is cumbersome compared to above-ground reservoirs.

But Jolly Singh, a CIM vice president, said underground storage has advantages, too. For starters, groundwater basins aren’t prone to evaporation. And there are no dangers to the surrounding area, as was the case in the recent crisis at Lake Oroville.

Willow Springs “benefits from being an underground water storage facility, as compared to surface reservoirs that have issues with ongoing evaporation loss and with none of the safety risks of big dams,” Singh said.

Dale Kasler: 916-321-1066, @dakasler