Desert Water Entrepreneur Closely Tied to Governor

Unknown to most Californians, Keith Brackpool, a British-born investment banker, has become a key advisor to Gov. Gray Davis on California’s water policy while simultaneously amassing a huge financial stake in the direction that policy takes.

Brackpool has bet heavily on a controversial proposal by his firm, Santa Monica-based Cadiz Inc., to extract and sell a vast amount of water stored naturally beneath the Mojave Desert.

If he is right, his plan could prove a significant boost to the development future of Southern California. If he is wrong, which some scientists fear, the plan could cost taxpayers tens of millions of dollars only to drain the desert and play havoc with a fragile ecosystem.

Within political circles, the 42-year-old Brackpool’s dual roles as an influential insider and a potential beneficiary of state water policy have made him an object of envy, suspicion and speculation--perhaps more than any of Davis’ other unofficial advisors.

“Frankly, there’s been a lot of suspicion about Keith because he’s a private [businessman] and yet he’s become a confidant of the governor,” said Mark Watton, member of the San Diego County Water Authority and the governing board of the Metropolitan Water District of Southern California.

The speed with which Brackpool has become a major player in water politics has surprised many water veterans.

“He’s new on the scene of water, but he’s got the governor’s ear, and that makes him relevant to all discussions of water in California,” said Mary-Ann Warmerdam, director of natural resources and governmental affairs for the California Farm Bureau.

Urbane and well tailored, Brackpool brings the smoothness of a salesman and the engaging wit of an after-dinner raconteur to an arena more accustomed to water bureaucrats, uncompromising environmentalists and farmers in cowboy boots. His British accent marks him as an outsider, a fact he exploits by suggesting that maybe an outsider can help end the fratricidal warfare of California water politics.

In interviews and speeches, his message is that this is a particularly good time for California to tackle its water problems: There’s no drought, there’s no recession and there’s a centrist governor in Sacramento not aligned with any particular faction. Brackpool makes no attempt to hide his impatience with his critics.

“We seem to have developed an extraordinary notion that any [water] solution requires 100% consensus to make it happen,” he said in a speech last month. “We encourage and we [give incentives] to those who oppose progress. . . . We have to change the mind-set.”

Brackpool and the governor’s office insist that Brackpool is only one of several people to whom the governor looks for advice on settling the state’s never-ending water wars.

“Absolutely there is nothing inappropriate” about Brackpool’s role, said Michael Bustamante, the governor’s press secretary. “He’s an expert in water matters, and he can look at the issues from business, conservation and environmental standpoints and translate those very technical issues into laymen’s terms.”

Indeed, it is not unusual for a governor to have advisors and kitchen-cabinet pals whose businesses can make money from government decisions. But the relationship between Davis and Brackpool is unique because Brackpool seems not only to speak to the governor, but also to speak for him.

After his 1998 election, Davis appointed Brackpool to a key transition committee on water and agricultural issues. The governor has relied on the entrepreneur’s advice ever since. Brackpool was one of the strategists behind the $1.9-billion water bond that state voters approved last month, and he headed the committee that raised $2 million to promote the bond.

Acquires Platform for Policy Discussion

Brackpool was also named by Davis to be co-chairman of the Governor’s Commission on Building for the 21st Century, a platform that allows him to discuss both public policy issues and his own project.

“He’s a real operator,” said Steve Erie, history professor at UC San Diego who has served with Brackpool on the commission. “He’s shrewd, and I don’t mean that in a pejorative sense. He’s out there defending Cadiz’s interests at all times.”

Brackpool has also taken part in delicate negotiations between state and federal officials over the future of the imperiled Sacramento-San Joaquin Delta, to the surprise of many people with decades of involvement in water issues.

And because of his closeness to the governor, he is in demand as a speaker by groups eager to know the governor’s views on the state’s water future. When Davis could not fit a speech to the Northern California Water Assn. into his schedule, the group was delighted that Brackpool gave the address, for which he was billed as a “major California water policy leader.”

“He’s trying to use the process to make some things happen, to advance water policy in this state,” said David J. Guy, the association’s executive director. “Clearly he has a monetary interest, but . . . I don’t think we should get all hung up on that if the public interest is also being served.”

Last fall, Davis invited Brackpool on a business development trip to the Middle East, where the two met privately with Egyptian President Hosni Mubarak. The occasion afforded Brackpool his first opportunity to confer with the leader of a country where his firm is participating in a massive public works project.

Since his arrival on the state political scene in the mid-1990s, Brackpool, who cannot vote because he is not a U.S. citizen, has also become a generous contributor to campaigns. He gave $134,000, either personally or through his firm, to Davis’ 1998 campaign for governor.

Altogether he spent more than $415,000 to support legislators and county officials in the 1998 election cycle. He also has cultivated close ties with other power brokers, including Tony Coelho, the former Central Valley congressman who heads Al Gore’s presidential campaign.

Brackpool’s emerging role is attracting notice in part because his firm wants to become one of the biggest private water dealers in the state.

Cadiz proposes to pump vast quantities of water from beneath land it owns in a remote valley in the eastern Mojave. The firm would sell the water, at market rates, to the Metropolitan Water District, the region’s largest water wholesaler, which already has reached a tentative agreement with Cadiz.

That tentative deal was reached when Pete Wilson was still governor, but MWD officials say that some of the financing to make it work depended on passage of this year’s water bond. The project would be eligible for as much as $50 million from the bond money to pay for infrastructure.

MWD officials say the 50-year project could be worth about $500 million in revenue to Cadiz. The venture would be one of several MWD projects that make use of desert aquifers but is the only one involving a private firm.

The project still needs regulatory approval before going ahead. It also requires Cadiz to demonstrate that it can draw water--and a lot of it--from a desert.

Scientists with the U.S. Geological Survey say that Brackpool is overstating by as much as 15 times the amount of water his wells can safely extract from beneath Cadiz Valley, a remote desert area 100 miles east of Barstow. They warn that if they are correct, the project would begin to exhaust the water supply required to sustain desert springs, plants and animals.

Some critics say the project could risk creating the same conditions that have generated toxic dust storms in the Owens Valley, the Eastern Sierra region that supplies most of the water used in the city of Los Angeles.

Cadiz’s experts dispute those conclusions. Brackpool says that his company is committed to doing whatever is necessary to “assure the public that the project will be managed and monitored to protect the aquifer.” Cadiz officials say they plan to monitor springs in a 1,300-square-mile area to ensure that the project causes no ill effects.

Not surprisingly, given the state’s long history of epic battles over water, many people--particularly desert residents--do not trust such assurances.

“I think they’re trying to steal the water, just like they did with Owens Valley,” said Howard Blair, a 73-year-old rancher whose family runs a cattle herd that depends on wells and springs scattered around the Mojave.

Other critics include officials of the National Park Service who oversee the Mojave National Preserve, University of California botanists and biologists and several environmental groups.

Brackpool is no stranger to controversy over his motives and tactics. Cadiz is the corporate successor to a failed venture to grow jojoba plants in the Arizona desert. Brackpool, who was part of the earlier venture, bought the company, renamed it, bought agricultural holdings in California and began making political contributions and involving himself in California water issues.

Ever since, he has attracted criticism--some of it virulent, not all of it well substantiated.

When he opposed plans by Waste Management Inc. for a landfill near the Cadiz holdings in the Mojave, proponents dug up records showing he had been fined $3,000 for violating British securities laws more than 20 years ago. Landfill boosters also found that some investors in the jojoba venture in Arizona felt that Brackpool and his partners had overestimated the profit potential and the availability of water.

The campaign by Waste Management boomeranged. Not only was the landfill idea defeated, but those connected with the anti-Brackpool campaign were indicted, accused of illegally trying to undercut the value of Cadiz stock.

Of the opposition to his Cadiz project, Brackpool has said: “With arrows coming out of every part of my back, I know what it’s like to be a pioneer.”

The Wall Street Journal reported this month that Cadiz is attempting to sell its Mojave Desert property to a Houston-based international water development firm that has been seeking entry into the California water market.

If the sale takes place, Cadiz would profit by selling property whose value has been enhanced enormously by its potential deal with the MWD, while leaving the buyer to work out the difficult details of making the project work.

A Cadiz spokeswoman said it is the firm’s policy not to discuss “speculative” news stories.

Brackpool’s defenders say he is being unfairly vilified.

“I know it’s unusual for a private citizen to play the role for a governor that Keith has, but I’ve seen absolutely no evidence that he has abused his role to help his own interests,” said state Sen. Steve Peace (D-El Cajon), a leader in the Legislature on water matters. “If anything, he has been a moderating voice in trying to get agricultural and environmental interests together.”

The Cadiz venture is founded on the belief that enough water--both natural runoff and stored water--can be safely extracted from the desert aquifers to meet the annual water needs of about 80,000 families for 50 years.

But because of government scientists’ doubts about those projections, the U.S. Bureau of Land Management, which controls much of the surrounding desert, last month rescinded its approval and ordered a supplementary review of the project.

The fear is that Cadiz would suck more water out of the ground than is replenished by rain and snow runoff from nearby mountains.

Brackpool has dismissed the scientific criticism as amateurish: “It was a two-week exercise by people who didn’t visit the site. It wasn’t peer-reviewed, and it was based on desert research done in Utah,” he said.

Aquifer Would Store Excess River Water

As proposed, the project would work like this: Cadiz would tap desert aquifers and pump the water into the Colorado River aqueduct, for distribution by the Metropolitan Water District.

In years when there is excess water available to the MWD from the nearby Colorado River, Cadiz would allow the district to store river water in the aquifers. Without storage, that excess river water could otherwise be lost to California.

The MWD would pay Cadiz both to supply water and to store it. The MWD would buy the water at a price lower than what San Diego County agreed to pay Imperial Valley farmers for water under last year’s historic agreement.

Under the tentative deal with Cadiz reached two years ago, the MWD also agreed to pay half the $150-million cost of building the pipeline, a well field and other utilities, such as injectors to pump water into the aquifers and sprinklers that would spread water and allow it to percolate down for storage.

The venture’s benefits to Southern California’s water supply could be significant. The MWD could store nearly 1 million acre-feet in the Cadiz aquifers and save the cost of constructing new reservoirs.

Water from the desert aquifers also could help California cope with federal threats to reduce the state’s claim on the Colorado River and ease pressure on the Sacramento-San Joaquin river system, the state’s most over-stressed water source.

Brackpool has adroitly positioned himself to benefit from two emerging trends in the state’s changing water picture: an increasing role for private companies in the storing, transporting and sale of water and a desire among water agencies to bank water in existing underground aquifers rather than build environmentally damaging and politically controversial dams and reservoirs.

Although he is still viewed as a newcomer, Brackpool understands a fundamental truth about the water business in California, water veterans say.

“Keith is very smart, and he knows that to be successful in water in California you need to be politically active,” said Tom Levy, general manager of the Coachella Valley Water District. “I wish more of my directors were that active.”

Brackpool and MWD officials insist that the deal between Cadiz and the MWD will be decided solely on its economic and environmental merits, without any political influence for or against the project.

Brackpool says he first became convinced that there was a huge water surplus beneath the desert floor after looking at satellite photographs. The images revealed drainage patterns that strongly suggest the existence of huge aquifers collecting water from a 1,300-square-mile desert basin.

Eventually, Cadiz acquired about 27,000 acres of desert and proposed to extract as much as 2 million acre-feet of water from the underlying aquifers over the next half century.

But in their evaluation of the project, Geological Survey scientists said Cadiz had overestimated the amount of “recharge”--the annual precipitation that penetrates the ground and replenishes the aquifers.

The moisture that replenishes the aquifers falls across a vast region, much of it in mountain ranges as much as 40 miles away from the desert floor. At issue is how much reaches the aquifers, which lie 200 feet or more below ground.

Although the project itself doesn’t require legislative approval, it does need the Legislature to appropriate money from the bond funds approved by voters in March.

The bond was always intended to help finance water development projects. Originally, however, the amount available to any one project was to be limited to $25 million. A last-minute change before the Legislature put the measure on the ballot upped the limit to $50 million. In addition, limits on the amount of water that could be extracted from an aquifer were lifted.

Brackpool said that he had nothing to do with the changes and that the financing of the Cadiz project has never depended on passage of the bond issue.

A 1998 memorandum from the MWD’s former general manager, however, said that without the bond money the agency would have to reevaluate its partnership with Cadiz.

Ron Gastelum, the agency’s current general manager, said that if the MWD proceeds with the project, it will “almost certainly” seek the bond financing. Without state support, he said, the project might drive up water rates charged to the MWD’s 16 million customers.

“Mr. Brackpool is an entrepreneur who called it right, and he is well positioned to fill a need” for more water for Southern California, Gastelum said. “Whether he should be representing the governor at water policy meetings is the governor’s call.”

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Water From the Desert

A Santa Monica firm is proposing to extract a vast amount of water from beneath the Mojave Desert. If the project proceeds, the firm would pump water from a system of underground desert aquifers. In years when excess water is available from the Colorado River, the firm would allow the Metropolitan Water District to store river water in the aquifers.