Forget it, Jake: It's Cadiz
Commentary: Just when it seems that a water grab with the shorthand name of “Cadiz” can’t get any stranger, it can. In May, an appellate court in Orange County affirmed that a suburban water company in Orange County is the rightful municipal steward for a privately run groundwater mining operation 200 miles away in the Mojave, and that its central purpose of exporting desert water for sale to Southern California cities qualifies as “conservation.”
The court might as well have told us that, yes, it's checked, the wolf in the bonnet is our grandmother.
If there is good news in the down-is-up and up-is-down world of what is now known as the "Cadiz Valley Conservation, Recovery and Storage Project," it’s that late last year, public land managers rejected the speculators’ claim to exemption from federal environmental review. Adding to this, an edgy blog run by hedge fund managers argues the company is on the brink of collapse. Those bloggers say they’re “shorting” Cadiz, market speak for betting on its collapse. In the course of what is now Cadiz’s 22-year-bid for water, not a drop has been exported from the desert, but millions of dollars raised by the company still flowed back to the founder — who can now be found running the racetrack at Santa Anita Park.
My, what sharp teeth he has.
It's fitting, somehow, that for many years the public face of Cadiz was a British bon vivant with a history of hoarding politicians so compulsively that House of Cards might reject the script for a Cadiz episode as too improbable. Various accounts in the Wall Street Journal, New York Times and London Guardian have Keith Brackpool arriving in the US while still in his twenties in 1988 or '89, as head of the North American operations of a British food multinational Albert Fisher PLC. Big title, short tenure. Brackpool quit in 1992 after it was discovered that he had what the Guardian described as a multi-million dollar share in a direct competitor. It wasn't just any competitor, either, but a subsidiary of Polly Peck, Britain's answer to Enron.
It was all completely innocent according to representatives for Fisher, but the CEO who sent Brackpool to the US soon lost his job and the company that had once been a profitable if modest British greengrocery firm became the very poster company for 80s overexpansion. As Fisher reversed trajectory into a decade-long plummet toward bankruptcy, its share price reportedly dropping from roughly $2 to 4 cents, Brackpool turned west, toward California, lured by rumors of an ocean of untapped groundwater roughly 180 miles east of Los Angeles in California’s Mojave Desert. What one of his company's annual reports would soon describe as a mother lode of water lying in a 1,400-square-mile "horseshoe-shaped mountainous catchment area known as the Cadiz Valley" had already attracted speculators, but no one with Brackpool's brio and recklessness.
Sure enough, NASA satellite images did suggest that water briefly pooled in the Cadiz Valley during scant winter rains. Moreover, as was long understood by hydrologists and pretty much anyone familiar with the place, the ground underneath the Mojave can indeed be full of water. Only pressure from desert aquifers keeps the Mojave's seeps and springs flowing. And these startling fonts of water in such a dry place support such an astonishing array of plants and animals that in the early 1990s, almost simultaneously as Brackpool began buying acres in the Cadiz Valley, Senator Dianne Feinstein shepherded the California Desert Protection Act through Congress and to Bill Clinton’s desk. This act created the Mojave National Preserve, granting greater legal protection to the plants and animals very near Brackpool's horseshoe.
Wait a second. He was growing grapes for the prince?
Cadiz's water right was agricultural, so Brackpool’s young company began leasing a small patch of its holdings in the Mojave to citrus and table grape operation. Then, to the amazement of onlookers, it bought up the biggest ag operation in Riverside County. The New York Times described Cadiz's purchase of Sun World International farms and packing operations as a “mouse-swallowing-the-elephant sort of deal.”
The acquisition gave him such unlikely ag-cred that, in 1999, Brackpool was in talks with a Saudi royal, Alwaleed Bin Talal, about Cadiz running a grape farm in Egypt’s Nile delta. Behind lavish showmanship, however, nothing had changed from 1996, when, after the New York Times observed that Cadiz's farm side lost money, Brackpool replied, “The real long-term play is water."
Only the location of the Cadiz Valley, 40 miles from the Colorado River Aqueduct, made a "long play" plausible. To get his water to the canal operated by the Metropolitan Water District of Southern California and carrying Southern California's municipal water supply from the Colorado River to cities such as Los Angeles, Brackpool needed two key things: A pipeline to carry water from his wells and clearance to blend that water with the rest of the water in the aqueduct.
By 2000, environmental impact reviews were in process for what had evolved on the drawing board into plans for The Cadiz Valley Groundwater Storage Project. The pump-and-dump logic of getting water out of the ground and into the So Cal municipal supply was still the heart of the project, but the scope had come to include a savings bank side. Under this, Metropolitan could wheel in any surplus it might have from the Colorado, infiltrate it into Cadiz ground where it would be safe from evaporation, then pull it out when needed. This “aquifer storage and recovery” side was intensely fashionable at the time, and would give the project a high conservation-value sheen as it approached environmental review.
Because Cadiz’s pipeline would cross Department of Interior land, the project triggered not only state but also federal scrutiny. Metropolitan would be the lead agency for the state review, the Bureau of Land Management lead for the federal environmental impact statement. Federal participation meant Cadiz sustainability claims would be reviewed by the best desert hydrologists in the country, the US Geological Survey.
The local water might kill you and there's not enough of it.
Among the USGS observations about Cadiz’s storage and export project as proposed to Metropolitan: Mojave groundwater is prone to high levels of the carcinogen Chromium VI. Beyond a now "Erin Brockovich"-sized question suddenly hanging over the idea that a Cadiz Valley was a good place to store drinking water, the USGS suspected that it could take 15 times longer than Cadiz claimed for desert rains to replenish the groundwater the company pumped.
Pumping too much groundwater too fast might dry out the springs of what, since 1994, had become part of America's revered National Park system. The USGS proffered a pumping plan that would protect the Mojave National Preserve, but this time Metropolitan balked. What if damage from pumping was detected before it had even paid off the tens of millions it would cost to build Brackpool’s pipeline?
This is the juncture when friends with influence should have helped Keith Brackpool. Nobody greased more palms than Cadiz. Gray Davis received hundreds of thousands of dollars and rides in airplanes. Former speaker of the Assembly Antonio Villaraigosa got tens of thousands, and Cadiz never neglected the bottomless wants of San Bernardino County Supervisors. But when Cadiz needed their clout the most, there was the LA Times giving over its premier slot, the Sunday Report, to diagramming his generosity.
In 2002, Metropolitan left Cadiz at the altar.
Cadiz scrambled for new financing as Sun World went bankrupt. So much for growing grapes for the prince. As if to reassure shareholders, Cadiz filed a breach of promise suit against Metropolitan that would cost the water district’s ratepayers another $1 million. A pincer movement attempt to take over Met from within by seating an ally as general manager failed. The “long play” looked played out when up popped Susan Kennedy, a former Public Utilities Commissioner whom Cadiz had paid $10,000 a month for “consulting” the previous year.
Behold Arnold Schwarzenegger's new chief of staff.
With Kennedy’s help and ex-officio endorsements of the project from the governor, Cadiz stock roared back on the NASDAQ.
"I miss that English guy." -- KPCC radio host Larry Mantle, after interviewing Keith Brackpool's replacement, lawyer Scott Slater, for the first time.
Bruised by yet more LA Times articles dwelling on his cash trails to politicians and even a guilty plea for securities trading without a license back in London, Brackpool became a silent chairman. Late in 2008, a disarmingly boyish-looking water lawyer named Scott Slater stepped forward as the face of Cadiz 2.0.
The new, Slater-era strategy: don't argue with the USGS about safe yield estimates. Rather, lock them out. Then repeat unchallenged rent-a-science that Cadiz had paid private consultants to put on charts and graphs. This went, roughly, Cadiz pumps will not harm the basin. Nay, they’ll be good for it, yes good for it! Cadiz will capture water that would otherwise just evaporate!
Moreover, this time around, the company would be running a pipeline to the aqueduct along a railroad easement held by the Arizona & California Railroad and would not need a federal right of way, or to waste taxpayer money on a federal environmental review. Rather than frame it as Cadiz ducking the best expert scrutiny, the company emphasized efficiency. Think of all the money that Cadiz could save the taxpayer by eliminating US Geological Survey review! As for a new state environmental review, there was no getting around it. Cadiz needed a new lead public agency for to get its water into municipal infrastructure. Replacing the former “lead agency” Metropolitan would be tough. If the largest water wholesaler outside of Reclamation thought the project too expensive and fraught, who could replace it?
San Bernardino County was the obvious lead agency. It’s home to the Cadiz Valley and its supervisors were already well lubed with campaign donations by the company. A Cadiz press release even flirted with the notion. Only Slater knows if he passed on the County because he sensed a coming public corruption scandal that would embroil the county assessor and two supes and put a stink over all of California east of Interstate 5. For whatever reason, Slater kept looking.
Huntington Beach-based environment lawyer Debbie Cook thinks she knows how Cadiz ultimately lighted on Santa Margarita Water District, a south Orange County water company serving 150,000 people compared to Metropolitan’s 19 million. It was led by one of Slater’s cronies, she argued in a scathing Voice of OC commentary. With generous help from Slater’s team, the Santa Margarita Water District conducted a new environmental impact report, reviewed the report, then certified the report. And so it became lead agency of a water project 200 miles away with no other qualification to tackle a project of this scope other than its general manager knew Scott Slater. As icing, an Orange County judge affirmed the water district’s standing as lead agency in May.
Put my 401K on No Regrets in the third.
Slater and Cadiz were on a roll until April 2015, when a little known hedge fund blog called Seeking Alpha argued that federal review was inevitable and put a “strong sell” on Cadiz. So began a shareholder lawsuit against Cadiz. Call it ankle biting by a pseudonymous blogger, or insight by the rare, sharp financial analyst who does his or her homework. Either way, six months later, Seeking Alpha was proved right about one thing: The Bureau of Land Management wrote Cadiz rejecting the railroad gambit. The Santa Margarita self-certification under state review would not be enough. The project would have to undergo a federal review if Cadiz wanted to run a pipeline across federal land. Then, last February, the screws tightened yet again when the president declared yet more land around Cadiz to be part of a new Mojave Trails National Monument.
After issuing an indignant barrage of tweets condemning the BLM decision, then marshaling a stage army of outraged congressional reps, Slater is currently circling in protest mode. Time will tell if he can muster some kind of congressional exemption or if he’ll sue the federal government. Whatever he does, again it’s hail Mary time for Cadiz as Seeking Alpha doubled down on its junk rating, calling the company “worth $0 intrinsically.”
If Cadiz goes bankrupt, the shareholders already made poorer by repeated stock dilutions may be hit hard. (Cue to check where any mutual funds might have parked your 401K). But, as far as the directors stand, going bust could scarcely happen to a bunch of richer, better remunerated players. Seeking Alpha calculates that over the years more than $47 million of hundreds of millions raised for the company went to compensating insiders. Brackpool came out of the shadows after parlaying a 2009 appointment by Schwarzenegger to California Horse Racing Board into part ownership and a management post at Santa Anita Park in LA County. He’s now most often found in the sports pages commenting, say, on a recent redesign of the “Chandelier Room.”
One of the major companies buying up Cadiz debt is a Wall Street investment firm Water Asset Management. A ProPublica profile earlier this year found it systematically buying up agricultural water rights around the West to redirect the flows to cities. This is chastening for anyone who imagines that a Cadiz bankruptcy alone would protect the Mojave National Preserve from dewatering by the project, or keep the Cadiz Valley’s Chromium VI out of public drinking water.
“Let's say Cadiz does go bankrupt,” said one of three analysts interviewed on the condition of anonymity for this piece. “What’s to stop Water Asset Management from hiring Scott Slater? Or what's to stop President Trump from appointing Scott Slater Secretary of the Interior?”
Forget it, Jake. It’s Cadiz.
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Banner: Cadiz Valley, putative new source of water for Southern California cities. Chris Clarke photo.