General Water

Cadiz Inc Continues Work to Provide California Much-Needed New Water

By Courtney Degener, Vice President, Communications & Investor Relations A part of the Cadiz team for over 12 years

The Mojave Desert’s Cadiz Valley in eastern San Bernardino County, Cali­fornia, is a hot, dry place. The sandy soil supports only sparse, low brush well adapted to the hot dry climate where summer temperatures reach up to 120 degrees. It’s just about the last place you’d go looking for water.

But in the 1980s, our Company found­ers did just that. Guided by early NASA satellite imagery, they postulated that the unique geology of the Cadiz Val­ley, which is about the size of Rhode Island, could indicate that groundwater had been collecting under the soil for millennia. We purchased land, drilled exploratory wells and, indeed, found plentiful, high-quality groundwater.

Later modeling and field work would show the Cadiz aquifer system holds as much as 34 million acre-feet of wa­ter – more than 11 trillion gallons and an amount equal in volume to Lake Mead, America’s largest reservoir. Our wells have been prolific, or as one drill­ing contractor said during field work in 2010, “based on 43 years of experience – I’ve been involved with hundreds, possibly thousands, of drilling projects – and without a doubt (Cadiz well) TW1 was the most productive production well I’ve ever been involved with.”

Over time we continued our land acqui­sition and began to farm, relying upon this groundwater for irrigation. Today we are the largest private landowner in San Bernardino County, with 45,000 acres and a sustainable farming operation of aquifer-watered lemon orchards and vineyards that provide a lush green spot in the sparse Mojave landscape.

Creating an Environmentally Benign Water Project

In the 1990s as California’s population grew and the State’s water supplies in­creasingly came under pressure, we also started considering the potential to make our property available for a water supply and groundwater storage project. Givenour proximity to the Colorado River Aqueduct, which carries water from the river to 19 million people from Ventura County to San Diego County, both the supply and storage concepts proved feasible. The plan has evolved with the times. Once envisioned as a groundwa­ter storage-focused project in partner­ship with the Metropolitan Water Dis­trict of Southern California, today the Cadiz Valley Water Conservation, Re­covery and Storage Project is smaller in scale and scope than earlier envisioned, but remained focused on a pledge to do no harm to the environment.

The project, which will be implemented in two phases, will actively manage the groundwater basin underlying our prop­erty to create a new reliable water sup­ply for Southern California, as well as a new opportunity for groundwater stor­age. The first phase will capture approx­imately 50,000 acre-feet of groundwater per year–enough for 400,000 people –from a wellfield on the Cadiz property and deliver that water via a pipeline to the Colorado River Aqueduct and then to local communities throughout South­ern California. Over the 50 year life of the project, only 3-6% of water in stor­age would be withdrawn and this water would be replenished over time. Ac­cording to Anthony Brown, M.Sc. En­gineering & Hydrology, who conducted an independent peer review of the proj­ect’s science, “given the low amount of proposed pumping relative to the significant size of the basin, the Cadiz project can be intelligently managed to provide a new beneficial use without any harm.”

“Conservation” is a critical part of the project’s name and objectives because all of the water in the Cadiz aquifer presently flows to desert dry lake pla­yas, where it turns ten times saltier than the ocean and evaporates. Without the project, over 10 trillion gallons of water are lost every year. The project aims to manage these outflows to the dry lakes and create integrity in the aquifer system so that in a second phase we can utilize its immense storage capacity to hold up to one million acre-feet of imported wet-year water from the Colorado River or State Water Project until needed in subsequent dry years.

When designing the project, protecting the environment was a top priority, and we worked with our project partners, San Bernardino County and best-in-class ex­perts, to ensure the project would do no harm. We plan to build our pipeline in a disturbed railroad right-of-way, rather than crossing undisturbed federal land to ensure no species are impacted. We have also committed to an 80-foot hard floor on groundwater withdrawals for the avoidance of doubt about water re­source impacts. The project includes an extensive, prescient groundwater man­agement plan regulated by the county to enforce our commitments.

Public Review & Approval

In July 2012 the project received ap­proval under California’s rigorous en­vironmental laws–generally regarded as the most protective in the nation. The Environmental Impact Report was prepared and certified, after extensive public review, by Santa Margarita Wa­ter District (SMWD). Nine water agen­cies from across the region, including SMWD, have signed up to purchase the water made available by the project. San Bernardino County, which oversees groundwater at the project area, served as a Responsible Agency in the project and separately approved the project and the management plan in October 2012.

As occurs so frequently with large projects in California, litigation fol­lowed. Cadiz, SMWD and San Ber­nardino jointly defended challenges to the project’s approvals. Some lawsuits were dropped early on and several went to trial. In 2014 all of the project’s ap­provals and environmental documents were upheld without any changes. As expected, opponents appealed these rul­ings and the matters are now before the California Court of Appeals. We remain confident in the thorough environmen­tal review conducted in accordance with California’s tough environmental laws and are optimistic the Appeals Court will uphold the 2014 trial court deci­sions.

A Big Boost for the Local Economy

As it has waded through the CEQA pro­cess and now CEQA litigation, the need for the project has not diminished and the state’s unpredictable hydrological cycles have only made it clearer that a groundwater supply and storage proj­ect in Southern California would be a benefit to the entire system. Southern California economic consulting firm Stratecon Inc. recently valued the water supply, storage, and water quality ben­efits attributable to the project at $6.1 billion. These benefits would not only be realized by Project subscribers, but experienced by all water users throughout the entire region, which has faced significant water rate increases over the last 10 years.

In addition to tremendous water supply benefits, the project is also expected to create needed jobs and local investment. The $250 million project, which we will privately finance, will create and sup­port over 1,500 jobs per year of con­struction and generate nearly a billion dollars in economic activity. Under a pledge we made to the county, 80% of the capital investment will be dedicated to San Bernardino County-based busi­nesses and 50% of the jobs to county-based workers, including 10% to local veterans.

Next steps…

To reach construction and implementa­tion, we must still complete three pri­mary tasks: (1) resolve the outstanding appeals of the CEQA permits; (2) re­solve a dispute with the federal Bureau of Land Management (BLM) over ac­cess to the railroad right-of-way for our conveyance pipeline; and, (3) complete final contracts for the water. We expect the appeals will be decided this summer and the contracts are expected to follow. Thanks to the support of a broad bi-par­tisan delegation of California Congres­sional members, we are in dialogue with the BLM about how we can resolve our dispute and reach a final path forward for the pipeline.

While we continue to believe that the water project would be the highest and best use of our properties and resources, we also recognize that water in Califor­nia is a tough business and can take a long time. Therefore, we’ve also recent­ly announced plans to expand farming operations in Cadiz so we can put our most valuable asset to work while we continue to pursue the water project.

The initial expansion will expand farm­ing on 2,100 acres and ultimately could reach 9,600 acres, which would utilize an amount of water comparable to our Water Project permits. Our agricultural partners will install water and energy infrastructure that later will be used by the project once final approvals are received. The well-field infrastructure and related improvements required for agriculture are substantially similar to water project infrastructure, so they can be fully integrated into the project once it is permitted.

As a long-time desert business, whether pursuing agriculture or water supply development at the property, we also intend to maintain a variety of legacy commitments in Cadiz, including a tour­ist-based steam train, cultural center, kit fox research, and the largest desert tor­toise land mitigation bank in California. We are more than the water project, and as our CEO, Scott Slater, reminds our team regularly, we will always do proj­ects that our kids can be proud of.

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