What I've been saying would happen is happening.

California —in the third year of a drought— is issuing some of the tightest water restrictions the state has ever seen. This comes after a Federal judge limited the amount of water that could be taken from the California Bay Delta due to deteriorating ecological conditions (read: running out of water).

It all led to a very surreal scene this week in the Golden State, where The Governator, in his trademark accent, led hundreds of farmers chanting: "We need water. We need water."

This is the moment we, as investors, have been waiting for: water panic to take root.

It's only when that happens that the water industry gets the attention it deserves, and people are willing to conserve or pay more for water. Reaping water profits is also the easiest at this time.

California Water Crisis: A Case Study

I recently came across a story about a Budweiser-owned brewery in Los Angeles. The plant makes 12 million barrels of beer each year, or 372 million gallons at 31 gallons per barrel.

For each barrel of beer they use 4 barrels of water. So the brewery goes through about 1.49 BILLION gallons of water each year. (This is the nexus.)

If that seems like a lot, consider that that plant has reduced its water consumption by 30% over the past two years.

Why?

Simple economics.

The brewery was built in the 1950s, when L.A's population was still subdued and water was cheap and plentiful.

Fifty years have passed, and the brewery now pays as much for water as it does for its staff of 800.

In a very real way, the water problem has hit home and, in some cases, is making long-standing business unprofitable.

To combat the problem those business are doing exactly the thing I've been saying they would do: spending money to reduce their water use.

In fact, according to story I saw, Budweiser has already "invested millions of dollars in reclamation and recycling."

Perhaps some of that money went to Calgon Carbon (NYSE: CCC), a water treatment play that readers of Alternative Energy Speculator just cashed out of for 16%. Or maybe some of it went to Veolia Environment (NYSE: VE) for water engineering services. We just closed that one for 21%.

There should be no surprises here. This is the materialization of water problems (and the resultant profits) that have been looming for some time.

And it's not just businesses feeling the pinch and driving water stocks higher.

Water Rates Rise

L.A. Residents are also about to get wet.

With the three-year drought worsening, the L.A. Department of Water and Power recently voted to ration water for the first time in two decades.

Customers will be given a monthly allowance. If they go over it, their rate nearly doubles.

Stop and take this in.

This is the nations largest municipal utility rationing water for 3.8 million households and businesses. The nation's second largest city has succumb to water woes.

How long before San Diego falls? Las Vegas?

Conservation can only do so much.

The last time California rationed water ( in 1991) demand fell by 25%. But as I said earlier, a Federal judge has already limited the amount of water that can be drawn from the state's northern deltas. According to Reuters, "state water managers have cut the amount of delta water they provide to irrigation districts and cities around the state to 15 percent of their usual contracted allotment for the year and may curb those deliveries further."

Conserving 25% is a drop in the bucket if one of your main supply sources is down 85%.

Curbing demand is great, but it can only go so far. Population is still rising, which will eventually push demand higher, and supplies are constantly falling.

The only true solution, as I said last week, is increasing supply. And the only way to do that is through desalination. California is already in hot pursuit of that solution, allocating $10 billion to improving water infrastructure.

But I'm more interested in the investment potential of desalination, something Forbes said could "redefine the rules of supply and demand and change the marketplace."

Readers of Alternative Energy Speculator have already staked their claim. And I'm confident this will be our next double-digit water cash-out. This report has all you need to stay ahead of—and profit from—this trend.

You'll be glad you're investing in water when your water rate doubles.

Call it like you see it,

Nick