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Critics Raising Concerns About Cadiz Water Project

Resources: The stakes are high--financially and politically--for the Santa Monica company and its proposed partner, the Metropolitan Water District.

May 19, 2002|MICHAEL A. HILTZIK | TIMES STAFF WRITER

The project also ran into stiff opposition from environmentalists, who questioned Cadiz's claim that as much as 30,000 acre-feet a year could be extracted from an aquifer under its parcel. (Cadiz would charge the MWD more than twice as much for this "indigenous" water than it would for the storage component.) Experts from the U.S. Geological Survey contended that the figure was closer to 3,000 acre-feet, based on what it computed is the rate at which the water is naturally replenished.

The discrepancy was important because extracting too much water could expose the aquifer to environmental contamination from neighboring brine deposits.

The disagreement was never resolved; instead it was finessed by an agreement to install a network of monitoring wells around the tract to detect early signs of contamination, and to cease the extraction if they appear.

But MWD officials have worked hard to resolve the financial issues raised by Cadiz's fiscal condition. Gastelum said the final contract to be presented to the MWD and Cadiz boards will insulate the district's assets from the company's fortunes.

Among other things, it will give the district veto power over all of Cadiz's financing terms, such as any that might expose the district's contribution to the claims of existing creditors. The project would have to be operated by a new subsidiary fenced off from most of Cadiz's existing liabilities. (Such an arrangement would require the approval of Cadiz's existing creditors.) The negotiated terms also call for the district to gain ownership of the land and construction if Cadiz defaults on its obligations.

"If they were to disappear, the Met would essentially get the project," said MWD general counsel Jeffrey Kightlinger.

MWD officials say working with Cadiz does have its pluses. For one thing, the company has shown remarkable staying power by surviving years of litigation and environmental scrutiny while better-heeled private investors have bailed out of similar water projects. And because many of the MWD's other proposed water supply programs may die because of political or environmental challenges, the advanced stage this one has reached adds to its value.

Still, some water experts and board members say it is not too late to reexamine the project and its financial terms. Although Brackpool has long intimated that the Cadiz project is all but indispensable to Southern California's water future, that's no longer an unchallenged view at the Los Angeles headquarters of the MWD.

District officials say their goal is to build about 3 million acre-feet of storage capacity that can provide 300,000 to 400,000 acre-feet a year to the Colorado River Aqueduct in a dry year. Any more than that might be wasted, as the aqueduct's total capacity is only 1.25 million acre-feet and other sources could help keep it filled.

MWD Considering Large-Scale Storage

Of five separate projects under consideration, Cadiz included, the district would need to complete only two or three to reach that goal. The MWD's $67-million Hayfield project, which is on MWD-owned land adjacent to the aqueduct near its eastern end, already is operating and eventually could provide up to half the needed storage and transmission capacity.

The MWD also may have to reconsider moving ahead with plans for large-scale storage, which would require years of a reliable supply of surplus water from the Colorado River. The federal government recently threatened to cut off the surplus next year out of irritation with California's lagging water planning. If that happens, said the MWD's Gastelum, the district probably would put all storage programs on indefinite hold.

Brackpool, for his part, continues to exude confidence that the Cadiz project will win approval from the MWD board and will be profitable for both sides.

As the price of water rises, he told investors in a conference call two weeks ago, the MWD will view its contracted cost of water from Cadiz as "very advantageous." Continuing droughts in the Midwest, environmental challenges to alternative California projects and rising demand for water will only make the Cadiz program seem more promising as time goes on.

"We just continue to see the fundamentals moving absolutely in the direction we want," he said.

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