February 8, 2017

California water venture tied to Trump sees prospects rise after years of setbacks

Sacramento Bee

WASHINGTON -- Until Donald Trump won the presidency, prospects looked bleak for Cadiz, a California company that has struggled for years to secure federal permits to transform Mojave Desert groundwater into liquid gold.

With the change of administration, a new day is dawning. In December, the National Governors Association circulated a preliminary list of infrastructure projects provided by the Trump transition team, and Cadiz’s was on the list. The company’s stock price rose on that news, part of a trend that has seen Cadiz’s valuation more than double – to roughly $14 a share – since the election.

Cadiz has worked hard to raise its profile among consultants compiling lists of possible infrastructure projects, says Scott Slater, CEO for the company.

But what has really helped Cadiz is its deep connections to Washington. Slater is part of a Denver law firm – Brownstein, Hyatt, Farber, Schreck – whose attorneys have long lobbied the Interior Department, with some serving inside of it. One of those is Brownstein’s David Bernhardt, who served as Interior’s solicitor during George W. Bush’s presidency, helped Trump during the transition and is a candidate to return to Interior in a top job. He’s also been a lobbyist for the powerful Westlands Water District in California’s Central Valley.

In an interview, Slater said Cadiz still faced hurdles but the project’s future looked brighter than it did a few months ago. “The dynamics have changed,” said Slater, noting that Republicans now control the White House in addition to both houses of Congress.

Slater and his law firm have a lot riding on Cadiz’s success. According to an SEC filing last year, the Brownstein firm stands to earn 200,000 shares of Cadiz stock if the company meets milestones for completing the project and selling water. Brownstein has already earned 200,000 shares for its involvement with the company — a stock portfolio that is sure to appreciate in value if Cadiz can overcome permitting obstacles.

Numerous businesses are hoping to cash in on Trump’s interest in infrastructure. Two weeks ago, McClatchy was the first to report on a list of infrastructure projects that, according to the National Governors Association, the Trump transition team had given the group. Cadiz’s was one of two private California water projects on the list; the other was a desalination project south of Los Angeles.

While Trump is a supporter of traditional public works – touting the need for “new roads, highways, bridges, airports, tunnels and railways” during his inaugural address – fiscal hawks and some GOP leaders are leery of new federal funding for infrastructure. That political calculus has created openings for private infrastructure projects seeking regulatory relief, especially if they have connections. Cadiz’s project falls into both of those categories.

The brainchild of a British financier, Keith Brackpool, Cadiz is a publicly traded company with a stock price that has gyrated for a decade and a half. The company owns 45,000 acres in the Mojave Desert, where it hopes to extract water from an aquifer to sell to thirsty water districts in Southern California.

Fifteen years ago, the company’s stock price approached $200 a share, in part because Brackpool was close to then-Gov. Gray Davis of California, and investors apparently assumed that Cadiz had the political juice to make its project a reality. Yet Cadiz ran into opposition from the Metropolitan Water District of Southern California, which started questioning the company’s financial resources, and also from environmentalists, who feared the project could further dry up the Mojave, a national preserve. By 2011, Cadiz’s stock price had dropped below $10.

That’s when Slater came aboard. An expert in California water law, he became president of Cadiz in 2011 and rose to become CEO two years later. Through Slater’s Brownstein firm and other firms, Cadiz also stepped up its advocacy efforts on Capitol Hill, spending $3.4 million in lobbying from 2011 to 2016, according to a tabulation by the Center for Responsive Politics.

Slater has helped the company win several legal victories. In 2016, California’s 4th District Court of Appeal upheld six lower-court decisions in favor of Cadiz, putting to rest further state court litigation against the company’s environmental impact report.

Yet the company remains blocked by an unexpected 2015 Interior Department decision. That year, the California office of the U.S. Bureau of Land Management, an Interior agency, reversed a 2009 determination that the Cadiz project needed no federal permits. Cadiz had long believed that it could use an existing railroad right of way to build a 43-mile pipeline to transfer its water to potential buyers, and do so without a federal permit.

The BLM ruling opened up the possibility of an uncertain multi-year federal review, frightening potential investors and sending the company’s stock price down to the $4 range.

Slater said in an interview that Cadiz was urging the new administration to rescind the BLM decision, “accelerating our path by removing some of the underbrush.” Cadiz also wants Congress to pass legislation to make clear its intent on how the BLM should handle decisions involving railroad rights of way. The issue is of concern to legislators outside of California, said Slater, because the 2015 BLM decision potentially could affect use of all railroad rights of way in the West.

Matt Lee-Ashley, a former Interior Department official, said that what Cadiz was doing was typical during a White House transition. “Anytime an administration turns over, anyone who had a project with an unfavorable ruling will try to make another run at it,” said Lee-Ashley, who worked in Interior during the Obama administration and now is public lands director at the Center for American Progress, a liberal advocacy group.

Yet even though Cadiz has new friends in a Trump administration, it may not be enough to counter the company’s most formidable foe: U.S. Sen. Dianne Feinstein, the California Democrat who wrote the Desert Protection Act of 1994 and has long been the Mojave’s guardian. She has the ear of ranchers and conservationists who fear that Cadiz’s pumping project could damage the desert’s range lands and ecosystems.

Cadiz disputes those claims, arguing that it will be withdrawing only water – enough to supply 100,000 homes yearly – that would otherwise evaporate from lake beds in the desert. So far, however, Cadiz has been unable to win over California’s senior senator, who succeeded this year in persuading President Barack Obama to create three new national monuments in the Mojave, totaling more than 1.3 million acres.

Things could also get complicated if David Bernhardt, Slater’s colleague at the Brownstein firm, takes a top job at Interior. Brownstein’s 250 lawyers represent scores of clients, and the firm runs a political action committee that has given more than $513,000 to federal candidates and members of Congress since 2014.

According to a recent report in Energy and Environmental News, Bernhardt is a front-runner to serve as deputy to Ryan Zinke, a Montana congressman who is Trump’s interior secretary nominee.

Late last year, Bernhardt withdrew his registration as a lobbyist. If he moved back to Interior, Bernhardt would have to recuse himself from Interior issues involving his former clients, including Westlands.

But it’s less clear whether he’d have to recuse himself from matters involving other Brownstein clients, of which there are many. Attempts by McClatchy to obtain White House clarification were unsuccessful.

Also unclear is how Cadiz’s project ended up on a list of “emergency and national security priority projects” distributed to the National Governors Association and reported by McClatchy. Slater suspects that Cadiz rose on someone’s radar after he made several presentations at infrastructure conferences last year, including one hosted by CG/LA Infrastructure Inc., a national consulting firm. CG/LA is headed by Norman F. Anderson, an infrastructure expert who has ties to Dan Slane, a real estate developer from Ohio who has been helping the Trump administration with transition work.

Anderson couldn’t be reached for comment, but in a telephone interview on Tuesday, Slane said he had met with Cadiz’s CEO and thought it had a worthy project.

“That’s one where they just need some help from us on the permitting side,” said Slane, adding that he thought the Trump administration “could help with expediting permitting.”