Column

The Cadiz water scheme: How political juice kept a bad idea alive for years

It has never been a great idea to count Cadiz entirely out of the race to sell its costly water deal to the public, considering its long history of lining up powerful political friends. Yet it hasn't been a great idea to bet on the company either, since its stock, after spending a few quarters around the turn of the century in the $200+ stratosphere, more recently has been snuggled down in the single-digit cellar.

But it now looks as though Cadiz has run out its string. The Dept. of the Interior may have put the final kibosh on the firm's always-questionable plan to pump groundwater out of the Mojave Desert and deliver it via a 35-mile pipeline to the Colorado Aqueduct, and thence to Southern California.

Specifically, the agency last week nixed Cadiz's proposal to escape environmental review by running its desert pipeline over existing railroad rights-of-way. The agency's Bureau of Land Management said the project would still require environmental review, which may be tantamount to a death sentence.

Cadiz's CEO, a water attorney named Scott Slater, vowed to "press on," but he'll be marching along a very long trail. Cadiz shares closed Wednesday at $4.01, down nearly 50% from Friday, before the BLM action was made public.

The real question about Cadiz is how it has managed to carry on a losing fight for so long. The answer has much to do with political influence, so it's worth taking a look at this company's discreditable history, which we've been following for 13 years.

Cadiz was the brainchild of an investment promoter named Keith Brackpool, who came to the U.S. after pleading guilty to criminal charges relating to securities trading in Britain. His idea was to store trillions of gallons of Colorado River water in the sands beneath a 27,000-acre tract Cadiz owned in the desert, while also extracting water from an aquifer underlying the property. 

The $150-million project had limited appeal for the Metropolitan Water District, which serves most of Southern California and was to be Cadiz's putative partner (but which would have had to put up most of the money). It had no appeal for environmentalists, who pointed to studies showing that Cadiz was planning to extract more underground water than could be naturally replenished, and who were horrified at the ecological impact of a pipeline stretching miles across the desert.

What Cadiz had in abundance, however, was political juice. While he was pushing the deal at the MWD, Brackpool served as a contributor and fund-raiser for then-Gov. Gray Davis, a political adversary of the MWD who named his friend to two statewide water committees. "The thinking was: You make a deal with Keith Brackpool, and you're on the good side of Gray Davis," a former MWD board member told me in 2002.

Former Rep. Tony Coelho of California, an important Democratic Party fund-raiser, served on the Cadiz board. Ex-Interior Secretary Bruce Babbitt, a former Democratic governor of Arizona, joined its payroll to work on international water deals, none of which came off. In 2005, the company paid then-Public Utilities Commissioner Susan Kennedy, soon to become Gov. Arnold Schwarzenegger's chief of staff, a $120,000 consulting fee. In 2009, while she was working for Schwarzenegger, he endorsed the Cadiz scheme as "a path-breaking, new, sustainable groundwater conservation and storage project."

Brackpool hobnobbed with former Los Angeles Mayor Antonio Villaraigosa, contributing to his political campaigns, giving him a job between electoral posts and joining him on an East Asia trade junket. The one shadow over the political landscape was cast by Sen. Dianne Feinstein of California, an inveterate Cadiz opponent who for years has placed a rider in the federal budget barring the BLM from spending money on anything related to the groundwater project, including environmental review.

Still, the firm's other connections helped to keep the plan afloat even after it was rejected by the MWD in 2002, overcoming the implicit threat of retaliation by Davis. The scheme, as I wrote in 2009, had "a sort of shimmering authenticity, like a desert mirage." Brackpool and Cadiz promoted it as an answer to the state's long-term water shortage, perhaps hoping that no one would notice the inherent contradiction of spending money to store "surplus" water from the Colorado River when there isn't any surplus to store.

For years Cadiz Inc. has struggled on, occasionally signing up credulous water districts as partners. But it has mostly been a stock-trading play, its shares rising and falling in a sawtooth pattern as the occasional news release about new supporters is balanced with the reality that the deal looks like an enormous long shot. Its lifeblood is debt, which had been passed around like a hot potato by investors betting on the come — figuring that sometime, somehow, lightning may strike and the Cadiz deal gets done. 

Brackpool remains chairman, collecting $275,000 in cash and stock grants last year. That's down from the more than $1 million he got in cash and stock grants in 1999, but it's not bad, especially since the company lost about $19 million last year on revenues of $336,000 from farming. In fact, financial disclosures don't show that Cadiz has ever had a profitable year, one reason that Metropolitan Water District officials didn't regard it as an especially alluring financial partner. 

Slater can still be heard on occasion pushing the idea that the California drought and water shortage is a great opportunity for investors in water companies like his. The truth is probably just the opposite: The realities of water in the West are what make schemes like the Cadiz project look good only to the unwary.

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