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Cadiz Delay Urged

TIMES STAFF WRITERS

The Metropolitan Water District staff recommended Wednesday that the district’s board indefinitely defer the controversial Cadiz water storage program in the Mojave Desert because environmental concerns and a drought on the Colorado River have dramatically reduced the chances it will provide useful quantities of water to Southern California.

The recommendation, which was transmitted to the board over the signature of MWD Chief Executive Ronald R. Gastelum, said the MWD staff is also concerned about rising cost estimates of the project and about the financial condition of its principal backer, Cadiz Inc.

Gastelum’s recommendation could mean the demise of the project that has undergone five years of federal and state review but has remained an environmental and political lightning rod.

Among its opponents is U.S. Sen. Dianne Feinstein (D-Calif.), who has asked the MWD to reject it on grounds that it could do irreparable damage to the Mojave Desert ecosystem. The 37-member board will take up the issue at its next scheduled meeting Oct. 8.

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Even a temporary deferral of the project would represent a severe financial blow to Cadiz Inc., which has never turned an annual profit and has borrowed heavily against expectations that the project would go forward.

The Cadiz project envisions the storage of as much as 1.5 million acre-feet of surplus Colorado River water in a Mojave Desert aquifer for extraction in dry years.

It was conceived by Cadiz, a Santa Monica company led by Keith Brackpool, a major financial backer of Gov. Gray Davis and one of the governor’s closest advisors on water resource issues.

Cadiz Inc. stands to earn $500 million to $1 billion over the 50-year life of the program, some of it by selling as much as 1.5 million acre-feet of ground water already present in the natural aquifer under its land.

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Critics have contended, however, that extraction of ground water on that scale would dramatically exceed the natural rate of replenishment, damaging the fragile desert environment.

Under tentative contract terms reached in April 2001, the project’s estimated cost of $150 million was to be shared equally by Cadiz and the MWD, which would pay for its share by issuing bonds.

But district sources said cost estimates have risen, requiring further negotiations with the company.

Most of the expense covers construction of a 35-mile pipeline between the MWD’s Colorado River aqueduct and the storage site northeast of Palm Springs.

Under the tentative partnership terms, the MWD was to deliver an upfront payment of more than $54 million to Cadiz upon final approval of the project.

But the district has long been concerned that those funds could be attached by Cadiz creditors, leaving the company without the wherewithal to meet its partnership obligations.

Indeed, Gastelum said in his memo to the board that among the unresolved issues in the district’s negotiations with the company is “the difficulty of fully insulating Metropolitan from a Cadiz default.”

A spokeswoman for Cadiz said late Wednesday that the company believed that its program fit in with the state’s long-term water supply program.

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“Our program is one of the solutions to help reduce California’s reliance on the Colorado River,” said Wendy Mitchell, director of external affairs. “It provides both storage and supply.”

Still, MWD officials said the major impediment to the project’s implementation now is the dearth of surplus Colorado River water needed to fill the storage basin. Because a two-year drought has sharply reduced the river flow, MWD officials said their expectations of available surplus over the next 15 years--even under average rainfall conditions--have been cut to 4 million acre-feet from as much as 9 million. One acre-foot would serve the water needs of two average families for one year.

That’s not enough to justify the construction of major storage project, MWD officials said.

“Water doesn’t appear to be readily available for storage,” MWD General Counsel Jeffrey Kightlinger said Wednesday at a joint hearing of the state Assembly Water, Parks and Wildlife Committee and the Senate Agriculture and Water Resources Committee.

Because Colorado River supplies have become so uncertain, Gastelum said, the money earmarked for Cadiz might be better spent securing new water sources that aren’t dependent on the river surplus.

The Cadiz program reached an important regulatory milestone Aug. 29, when the U.S. Department of the Interior ruled that the desert ecosystem could be protected from damage by the installation of monitoring wells that would alert officials before the drawdown of native ground water became excessive.

On that understanding the agency approved leasing a 35-mile strip of land to the MWD as the path for the water pipeline.

Gastelum is recommending that the board accept the government’s lease terms but stop short of actually executing the lease or paying the annual rent of $10,698.

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