The pipe dream may not be dead after all.
Cadiz Inc., an L.A. company with an ambitious plan to store water in a desert aquifer and sell it to local water agencies, was dealt what many saw as a death blow in the fall when the federal Bureau of Land Management determined its proposed pipeline could not escape an extensive environmental review. That review would open up Cadiz to another round of opposition and lawsuits over its plan.
But this month, under pressure from Congress, the BLM backed off, and instead the bureau will meet once again with company executives to review the issue.
The news, made public Feb. 16, briefly sent Cadiz’s share price higher. But last week, that gain was wiped out and more as the stock lost nearly a quarter of its value in three trading days, making it the biggest loser on the LABJ Stock Index for the week ended Feb. 24. (See page 58.) It closed Feb. 25 at $4.39.
Cadiz stock is thinly traded, so it’s possible that a single investor’s decision to sell – possibly for reasons unrelated to Cadiz – could have roiled the market for the stock. It’s also possible that investors might have taken a closer look at the hurdles that lie ahead for the company.
Cadiz has been trying for nearly 25 years to develop a water storage and sales project for an aquifer under its 45,000-acre holdings in the Cadiz Valley east of the Twentynine Palms Marine Corps Air Station. An initial plan was rejected in 2002 by regional wholesaler Metropolitan Water District of Southern California.
Cadiz came back in 2009 with a scaled-down plan and has signed agreements with six water agencies to pump water out of the aquifer and send it via pipeline to the MWD-operated Colorado River Aqueduct. That plan received environmental approvals three years ago and survived the first round of legal challenges from environmental groups.
On Oct. 5, Cadiz disclosed that the BLM’s outgoing California Director James Kenna had rejected the company’s plan to avoid a costly and time-consuming environmental review for its pipeline. Cadiz had hoped to invoke an obscure federal provision allowing the pipeline to be built without further environmental review because it would lie within a railroad right-of-way and would serve the purpose of the railroad.
Cadiz then enlisted nine members of the California congressional delegation – six Republicans and three Democrats, including L.A.’s own Tony Cardenas – to write a letter of support for the project and its pipeline to the agency. On Feb. 10, BLM Director Neil Kornze responded to the congressional letter, saying the earlier BLM determination can be revisited. Kornze then ordered the bureau’s new California director, Jerome Perez, to meet with Cadiz executives and get briefed on the project.
“We along with the many project stakeholders welcome the opportunity to meet with BLM California Director Perez as soon as possible so we can collectively remove all doubt that the widely supported project pipeline substantially serves railroad purposes while also delivering water that would otherwise evaporate into the atmosphere every year,” said Cadiz Chief Executive Scott Slater.
The course change from BLM could prove crucial for the prospects of the Cadiz water project, according to one local expert familiar with the proposal.
“Reconsideration of the adverse BLM decision is a key event for Cadiz,” said Larry Kosmont, an L.A. economic development consultant who was on the MWD board 15 years ago when that regional wholesale agency considered – and later rejected – the earlier version of Cadiz’s water storage and marketing project. “If a reversal were available, it would accelerate Cadiz’s strategy to monetize its stored water resources,” Kosmont said.
A decision is still months in the future.
Meanwhile, investors’ attention in coming weeks will be focused on appeals of lawsuits filed by environmental groups seeking to block the project. Oral arguments are set to be heard in state appellate court later this month.
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