Why are you so sceptical it won't do those things for water when it's done those things for other commodities? Ask a large scale farmer how worse off they'd be if they couldn't hedge their harvest risks with futures.
Just stop pretending like you give a shit about anything other than money. I'm sick of being gaslit by people like you. Talk about prices. Play your money games. But please stop pretending like you actually know anything about the real world, just because you play with money all day.
One thing that people don't tend to realize is that speculation happens anyway, it's just not made in a public manner and through other types of contracts. In fact, if futures do reduce volatility then they reduce speculation, since it's volatility what drives speculation profits.
Water is not onions. You cannot just talk about onions and pretend like you've said anything substantial about water futures.
By the way, the reason the US has a prohibition for onion futures is that someone did actually corner the market for onions. Off course that would be very hard to reproduce nowadays.
When you're done with the ad hominems, try reading and understanding what people are saying.
Anyway, regarding this contract. What happens if a bunch of random people bet on water scarcity? Well, if there is no water scarcity they will simply lose all their money.
If there is water scarcity, however, this will be a clear signal of trouble ahead several weeks (or even months) before the scarcity becomes a real problem for real people.
Yes, these greedy speculators will earn a lot of money (from people hedging and from other speculators); but it will not be because of losses of ordinary people using water on a day-to-day basis.
Those people, if water scarcity sets in, will have to ask their supplier (the state I suppose? or are there private companies in CA?) why this is happening and solve the problem.