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Cadiz Proposal Has Serious Flaws, Groups Tell Water District

July 17, 2002

Cadiz Proposal Has Serious Flaws, Groups Tell Water District

FOUNTAIN VALLEY, Calif. ? The Municipal Water District of Orange County (MWDOC) should oppose the proposed Cadiz water storage project because its financing is questionable, some key project facts have been overstated and the groundwater?s ownership is in question, representatives of Public Citizen told the MWDOC board on Wednesday.

Faramarz Nabavi and John Earl, field representatives for Public Citizen, a nonprofit organization that fights for government and corporate accountability, appeared before the MWDOC board. They spoke in opposition to the proposed Mojave Desert project, which would subsidize a financially troubled corporation, harm the desert environment and potentially cause Southern California water rates to soar.

Under pressure to secure water resources for its growing 17 million customer base, the Metropolitan Water District of Southern California (MWD) has given preliminary approval to a plan that would allow Cadiz, Inc. to sell water stored in an aquifer underlying the ecologically fragile Mojave Desert. The proposal calls for construction of a $150 million, 35-mile pipeline to transport Colorado River water to the Cadiz aquifer for storage and allows the resale of the water by Cadiz to Southern California residents, including those in Orange County, for a profit. The tentative plan would also permit Cadiz to extract native groundwater to sell, although there is great uncertainty about how much groundwater can be drawn out without permanently depleting the aquifer.

Cadiz has given more than $275,000 in campaign contributions to Gov. Gray Davis since 1998, and the company?s CEO, Keith Brackpool, has become one of the governor?s most trusted advisors on water policy. Now Brackpool is aiming to cash in on his connections for profit, Earl said. Despite the ravished financial condition of the company and the potential financial burden the deal would create for taxpayers and ratepayers, the project is a front-runner at the MWD. There is speculation that Brackpool?s significant political connections account for this.

According to Public Citizen, the MWDOC should oppose the Cadiz project for at least three reasons:

  1. The project?s financing is highly questionable. Cadiz, Inc. has never made a profit and is in serious financial trouble, casting doubts on its ability to live up to its proposed agreement with MWD. Between 1993 and 2001, Cadiz posted more than $105 million in losses, and as of the end of last year was $141.5 million in debt to creditors. In the past several weeks, a cash infusion by a Saudi corporation fell through, leaving Cadiz without badly needed equity and causing stock value to plummet. Currently, Cadiz would be unable to pay its fair share of $150 million in infrastructure costs of the project, leaving ratepayers to pick up the entire tab if it goes through.
  2. The capacity and replenishment rates for the aquifer?s native groundwater have been overstated. Cadiz claims that the aquifer underneath its Mojave Desert property can yield and replenish up to 30,000 acre-feet per year, but scientists for the U.S. Geological Survey (USGS) put the amount at about 3,000 acre-feet per year. The economics of the Cadiz project cannot be effectively evaluated until a credible estimate of the native groundwater yield is available. According to the USGS recharge projections, the project does not make economic sense. Its costs will be significantly higher than projected and will create a burden for the MWD?s customers.
  3. The ownership of the native groundwater is in question. Although the aquifer lies directly beneath Cadiz property, it feeds from other underground water sources in the Fenner Valley, making ownership difficult to determine and adding to the uncertainty about actual availability of native groundwater.

This project is the first private storage project of any size for the MWD. This is an arena fraught with risks for ratepayers and the general public, Earl and Nabavi said. Cadiz proponents tout the project as a way to ensure an adequate water supply in dry years, but environmental and consumer experts see it as another special interest boondoggle that brings up recent nightmares such as electricity deregulation and the Oracle scandal. In short, approval of Cadiz would set a dangerous precedent that would imperil the desert environment, rob consumers? pocket books and take away the public?s control of its water resources, Public Citizen maintains.