Downtown-based water infrastructure company Cadiz Inc. recently won a major victory when a federal agency approved the company’s latest pipeline plan to convey water from its desert aquifer to water-hungry communities nearby and throughout the Southwest.
The U.S. Bureau of Land Management on July 8 approved Cadiz’s plan to convert an abandoned natural gas pipeline to transport aquifer water, a crucial step in the creation of what Cadiz calls the Mojave Groundwater Bank.
“This is the last permit we need to begin construction,” said Susan Kennedy, chief executive of Cadiz.
But will this victory truly bring Cadiz closer to its decades-long quest to monetize its aquifer under the eastern Mojave Desert? Or will it prove yet another mirage as project opponents manage to place yet more obstacles in Cadiz’s path?
That’s the question now confronting Cadiz and its patient but long-suffering shareholders who have seen several water plans put forward over the last nearly 30 years, only to be rejected or dealt severe blows.
Shareholders showed brief optimism about news of the BLM decision, sending shares up 10% on July 10, the day of the company announcement. But over the next three trading sessions, Cadiz shares gave back all of that gain and then some, ending July 15 at $3.64, about 9% below the close on July 9 (the day before the announcement).
Kennedy said the tremendous need for water in the drought-ravaged Desert Southwest is now helping drive the project forward. In a quarterly letter to shareholders released in late May, she cited the 25-year drought impacting the Colorado River watershed.
“Today, the lack of reliable and affordable long-term water supplies represents an existential threat to many communities, particularly in Lower Colorado River Basin states like Arizona,” she said.
Earlier this month, Cadiz signed a memorandum of understanding with the Central Arizona Irrigation and Drainage District for the purchase and sale of up to 10,000 acre-feet per year of water from the groundwater bank. It was the latest in a series of water-purchase agreements
Cadiz has negotiated with public water agencies and investor-owned utilities.
Opponents promise action
But Cadiz faces stiff opposition to its water project from a broad coalition of environmental groups, Native American tribes, other activists and elected officials.
Opponents have long disputed Cadiz’s claims that the water pumped out of the desert aquifer can be entirely replaced through natural runoff. The opponents say water would be pumped out at a much faster rate than it can be replenished, which in turn would deprive plant and animal wildlife in the Cadiz Valley and surrounding areas of vital water supplies.
In the three decades since Cadiz unveiled its initial water plan, opponents have filed several rounds of lawsuits – all of which the company has gotten dismissed – and tried several legislative and regulatory maneuvers to stop the project.
In 2019, opponents convinced the state Legislature to pass a law requiring an additional environmental review for projects on desert lands.
Three years later, they persuaded the administration of former President Joseph Biden to file a lawsuit to overturn an approval by the first administration of President Donald Trump for another Cadiz pipeline along a railroad right of way.
And this month, just days after the Bureau of Land Management approval of the conversion of the natural gas pipeline, this coalition issued a press release condemning the approval and promising further action.
“The Cadiz project has been recognized for decades as an environmental disaster that would drain an ancient desert aquifer that is critical to sustain life-giving desert springs, seeps and water sources for wildlife and local residents,” Ileen Anderson, senior scientist and California Desert Director for the Washington D.C.-based environmental group Center for Biological Diversity, said in the release. “We’ll continue our fight to stop this ill-conceived zombie project,” she added.
While the coalition did not outline specific steps it would take, if past actions are a guide, a lawsuit challenging the BLM’s approval of the pipeline conversion would seem likely.
Opponents note that the BLM’s review of the pipeline conversion proposal did not look at the water-pumping portion of Cadiz’ Mojave Groundwater Bank project. The agency’s six-page “Finding of No Significant Impact” only considered potential impacts of the pipeline conversion portion of the overall project.
Long winding path
Despite the opposition, Cadiz is marching ahead with this third iteration of its water plan.
The Cadiz aquifer – the discovery of which in the early 1980s led to the formation of the company – is estimated to contain up to 30 million acre-feet of water. It takes just over two acre-feet of water to fill a standard 660,000-gallon Olympic-sized swimming pool.
The key difficulty for Cadiz has always been finding a way to move its aquifer water to market, either through existing pipelines or by building a new one.
Cadiz’s initial plan, unveiled in the late 1990s, would have involved a 50-year agreement with the Metropolitan Water District of Southern California, the giant regional water wholesaler. Under the agreement, the MWD would have used its Colorado River Aqueduct to store up to 1.5 million acre-feet of surplus Colorado River water in the Cadiz aquifer and then remove it as needed and transport it through the aqueduct to its member agencies.
The MWD board, under pressure from project opponents, rejected that plan in 2002.
In 2009, Cadiz came back with a scaled-down version of the plan, capping annual water withdrawals at 50,000 acre-feet. Six local water agencies, mostly in coastal counties, signed on to the plan, which relied on the construction of a new pipeline heading south from the Cadiz holdings to the Colorado River Aqueduct.
That pipeline then got caught up in regulatory flip-flops as federal administrations changed in Washington D.C.
This second version was superseded at the beginning of 2024 when, under the new leadership of Kennedy, Cadiz pivoted to the Mojave Groundwater Bank proposal, with its focus of providing water to communities in the Mojave Desert and the Desert Southwest via the natural gas pipeline that has now been cleared for conversion to water. The plan for the new pipeline to the Colorado River Aqueduct still remains active, despite some regulatory and legal setbacks.
Quest for funds
The company is now seeking several sources of funding for the estimated $450 million cost of setting up the physical infrastructure for the groundwater bank.
Last fall, the project received a critical boost when the Santa Rosa-based Lytton Rancheria of California Native American tribe agreed to fund up to $51 million for development of the groundwater bank.
With its BLM permit in hand, the push for funds is continuing.
“With long-term offtake agreements and construction contracts in place, this federal permit marks a key milestone as we finalize project financing with prospective investors,” Kennedy said in the permit announcement.
Cadiz is seeking to close most of the remaining $400 million funding gap with public sector funds. The company has applied for $194 million from a water infrastructure finance program administered by the U.S. Environmental Protection Agency. In May, Cadiz was awarded an unspecified amount from the U.S. Bureau of Reclamation to be used for making the case for future significant federal investment in the project.
Cadiz is also in late-stage discussions with several unidentified parties for purchase agreements for the aquifer water.
If all this proves successful, the company could begin the pipeline conversion by the end of this year, Kennedy said in her quarterly letter to shareholders in late May. The entire water storage and conveyance project could be operational in three years, she added.
But Kennedy also acknowledged the long and twisty path the company and project