What you're reading: We built Luniter because we love science and want to know what's coming next, and which companies are actually building it. We track 200 of them. Every Monday we pick the one story from that world we think is worth your time and explain it in plain English. It takes about ten minutes. If you're new here, welcome.

In 1922, seven states divided the Colorado River on paper, handing out more water than the river actually carries. The river runs from the Rockies to Mexico, filling the country's two largest reservoirs on the way. Lake Powell sits behind Glen Canyon Dam; Lake Mead, the larger, sits behind Hoover Dam.

Lake Mead has set a new all-time low nearly every day since early August. As of Friday it stood at 1,038.9 feet above sea level — beneath the old record of 1,040.6 feet from July 2022, and lower than it was the day before.

Ten days ago, Washington decided which states get less.

The deal was the 1922 Colorado River Compact. It drew a line across the river in northern Arizona, split the seven states into an Upper Basin and a Lower Basin, and assigned each half a share of the flow. The shares were set from the gauge records of the day, and those records came from an unusually wet stretch of years.

The river of this century has not come close. The basin has been in drought for most of it, and warming has deepened the shortfall, with more of the mountain snowpack lost to evaporation and dry ground before the runoff ever reaches the river. Across the last twenty-five years the river has averaged about 12.4 million acre-feet a year: a foot of water covering 12.4 million acres. The shares add up to considerably more.

For most of a century, the gap did not matter, because the reservoirs covered it. Powell and Mead together can store several years of river flow, a savings account the states drew down whenever the river came up short, and for decades every state got its full share anyway.

Most of that stored water is now gone. Mead and Powell have fallen about 75 percent from their peak volumes, by the Bureau of Reclamation's accounting, and as of Friday the two together held about 12.1 million acre-feet, roughly a quarter of what they can hold. By the count of Utah State's Center for Colorado River Studies, that combined total is the lowest since 1957, when Glen Canyon Dam was still being built. The reservoirs crossed that line in July.

The drawdown has left a visible mark. Around Mead's canyon walls runs a white mineral band roughly 185 to 190 feet tall, the bathtub ring, tracing how far the lake has fallen.

A system that low forces the question the states had spent three years failing to answer: who takes less. They set themselves a deadline this February to agree on a plan and missed it, for the second time. The four upstream states held that no cuts should be forced on them, arguing the drought already cuts them at the source; the three downstream states answered that a seven-state river needs seven states sharing the reductions.

Only the federal government could break the tie, and its power covers just half the river. A Supreme Court ruling, Arizona v. California, lets the Interior Secretary decide how the lower river's water divides among Arizona, California, and Nevada. Over the four upstream states he has no such power. So when Washington acted, the cut landed in the only place it could, on the three downstream states.

On August 21, Interior Secretary Doug Burgum signed the new rules for the river. They cover 2027 and 2028, and they set the cut. Starting January 1, the three Lower Basin states lose 1.25 million acre-feet of Colorado River water a year. That is roughly a fifth of what they have lately drawn, about six million acre-feet a year.

For now, the states choose how to divide the loss. Their sharing plan gives Arizona the biggest share of the cut, and the rules accept that plan on one condition. The three states have to finish signing the deal that makes it official. If they do not, the Interior Secretary divides the water for them.

The upstream states face no mandated cuts, only a voluntary conservation target. "This is a bridge, not a permanent solution," JB Hamby, California's Colorado River commissioner, said the day the rules landed. "But three states cannot carry the responsibility of all seven." The rules are already in court — Nevada sued three days later, asking a federal judge to set them aside.

The two-year rules come with a longer plan behind them, one that runs through 2036. If the river stays dry, that plan allows cuts of up to 3.0 million acre-feet a year later in the decade. That would be 40 percent of the 7.5 million acre-feet the Lower Basin was historically promised. The cuts are not one-way, though. If projections show Lake Mead climbing back to 1,125 feet during 2027 or 2028, the Secretary and the states discuss sending more water again.

What does a cut like that hit first? Not city taps. Phoenix draws only about 40 percent of its water supply from the canal system taking Arizona's cut and says no household restrictions are coming.

No investable company we track sits at the center of this story. But a story like this is why our universe looks the way it does. When a river comes up short against the demands on it, water stops being something a city finds and starts being something a city builds. Recycled wastewater, hardened storage, desalination plants that pull drinking water out of the ocean. That construction project runs for decades, and it is already underway.

Two of our twenty themes exist to watch it. Pure Water tracks the companies that treat, move, and manufacture water, the machinery of a supply that has no substitute. Climate Systems is the wider lens: civilization hardening itself against heat, flood, and drought. Between them they hold twenty-two of the two hundred companies we score, and we built both for the era these rules just confirmed.

The rules decide which states lose water. They do not decide which uses lose it. Of the water drawn straight from the river, farms take roughly three times as much as everything else combined, by the water researcher Brian Richter's accounting.

Next Monday: the fields where the cut lands.

Anthony

The Luniter Observatory

Research and educational analysis only — not financial advice. Every investment carries risk.