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Earlier this week, the rain hammered down for two days straight here in Pennsylvania. But remarkably, rivers, streams and lakes haven’t risen one iota.

And my son, Noah, hasn’t had to mow the lawn in over a month (something he’s not entirely unhappy about.) Why? We’ve had a bone-dry summer up in the Northeast. But the drought that the Northeast has experienced over the past few months is nothing compared to the situation out west. In a word: desperate…

A River Runs Through It

If you live in any of these seven western states – Colorado, Arizona, Nevada, California, Utah, Wyoming or New Mexico – chances are, you’re dependent on one thing to survive…the Colorado River.

In fact, there are 30 millions Americans who rely on the great river for their water. It’s the lifeblood of these states. Without the Colorado’s steady flow, life there would cease to exist. All seven states would struggle to generate power, grow food and people wouldn’t have water for everyday use. Ah, but the Colorado River has plenty of water, right? Think again…

After an 11-Year Drought, a “Day of Reckoning” Looms for the Southwest

You see, much of the water is all used up before it gets anywhere near the Gulf of California, its historical entrance into the Pacific Ocean. Why? The Southwest is in the middle of an 11-year drought. And that’s just the bad news. The really bad news?

There’s no end in sight – and there’s no real solution to the problem.

Just this week, The New York Times outlined the scale of the problem in an excellent article, entitled: “Water Use in the Southwest Heads for a Day of Reckoning.” And that title is an understatement.

Think of it as a freight train headed full-speed towards a mountain… except there’s no tunnel. The West is headed for a trainwreck… water-style. Let’s take a look at the heart of the problem…

Reservoirs Running Low… Prices Running High

Two key reservoirs – Lake Mead and Lake Powell – are responsible for 80% of the storage for the entire Colorado River Basin. That’s a hefty burden, even at the best of times. And this certainly isn’t the best of times. There are two problems…

  • Both reservoirs are near record low levels. Lake Mead is only at 39% of capacity, while Lake Powell is at 63%.
  • These low water levels are made worse by an even bigger problem: The Colorado River is already oversubscribed. That is, more water is leaving the Colorado than it can supply in an average year. And there hasn’t been one of those in over 11 years.

The bottom line is this: If you live in any of the seven states that I mentioned above, you’re going to be paying ever-higher prices for your water. Gasoline will seem cheap by comparison. But that’s only the tip of the iceberg…

Limited Access to the Most Critical Resource on Earth

If the grim prospect of mandatory water rationing occurs, it could trigger two problems…

  • Housing starts in those states will be all but prohibited via costly water rights “permits.”
  • People will be forced to move to more water-rich states in order to escape the shortages. Water “rustling” will make the cattle rustlers of yore seem lame by comparison.

But it’s not just about green lawns, pretty flowers and clean drinking water. It’s about the other lifeblood of the area’s economic engine: electricity.

No Water = No Power

You see, the power generating stations at Hoover Dam (Lake Mead) and Glen Canyon Dam (Lake Powell) produce a combined 10,000 Gigawatts of electricity for the seven states mentioned above. And it’s not a stretch to imagine that when a lack of water means these stations can no longer produce enough electricity for the region, it will bring about very expensive alternative solutions.

Natural gas peaking plants will be online 24/7 and diesel generators will be brought into neighborhoods to keep the lights on. Even individual homeowners will start producing their own power. If this sounds a little Orwellian, I apologize. But The New York Times article is closer to the truth than most folks realize. It just reiterates a problem that Western states have known about for years. Their solution? They’re hoping for an end to the drought. Good luck with that one.

The Western States’ Doomsday Scenario

In 2007, a National Academy of Sciences study highlighted “future potential problems with availability of water in the region.” But in typical government fashion, it offered no clear timeline, no magnitude of the problem and it proposed no solution. (That’s your tax dollars hard at work.)

In January 2008, Tim Barnett and David Pierce of the Scripps Institution of Oceanography published a much more worthwhile – and ominous – study in the Water Resources Research journal. Not only did they determine the severity of the water problem, but actually when the you-know-what might hit the fan.

And get this for clarity:

  • When the Colorado River’s long-term outflow exceeds inflows, the system is doomed to run dry.
  • Current water loss due to evaporation and runoff has already pushed the Colorado River into a negative net inflow regime. And even periods of positive water inflow won’t make much difference when you include several years of drought. Throw in global warming and current depletions aren’t sustainable.

The authors’ conclusion: Water levels at Lake Mead and Lake Powell will continue to drop. And in their opinion, levels would be so low that the seven western states could experience severe water shortages and power outages as soon as 2013. That would result in personal consumption and hydroelectric power demands not being met.

While the authors’ analysis shows a 10% chance of this scenario occurring by 2013, by 2017, there’s a greater than 50% chance. That’s awful news for the 30 million people who depend on the Colorado River for their water. But there is some hope – for residents and investors alike…

The Companies Aiming to Solve the West’s Impending Water Crisis

I’ve highlighted three companies whose equipment and operations will be critical in helping the West maximize its water supplies:

  • Veolia Environnement (NYSE: VE): As one of the biggest water services companies in the world, it should see additional demand for its water services business, as Western states struggle to use every drop of water efficiently.
  • Caterpillar, Inc. (NYSE: CAT): The infrastructure giant will provide huge numbers of diesel generators to thousands of Western communities. Given the nature of the problem, sales should surge.
  • Kinder Morgan Energy Partners LP (NYSE: KMP): This company and other gas pipeline companies will be shipping huge quantities of natural gas out West in order to keep the peaking plants running. The only thing is, they’ll no longer be called “peaking plants” at that point, as they’ll be needed 24 hours a day.

If you think this Western water doomsday scenario can’t happen, the figures say it already is happening! And if you live in an area that relies on the Colorado River, Lake Mead and Lake Powell for water supplies, you probably know it’s coming, too. The question is, can we do anything about it before catastrophe hits?

Disclosure: none

Source: 3 Ways to Profit From the Western States' Impending Water Crisis