UPHOLDS INTERIOR Policy, but REQUIRES ADDITIONAL INFORMATION FOR CADIZ SPECIFIC EVALUATION
On Friday, June 21, 2019, the Los Angeles Central District Federal Court issued rulings in consolidated cases brought by the Center for Biological Diversity and the National Parks Conservation Association against the United States federal government that challenged a legal Memorandum Opinion (“M-Opinion”) issued by the U.S. Department of the Interior in 2017 regarding acceptable third party uses of railroad rights-of-way, as well as a 2017 evaluation by the U.S. Bureau of Land Management (“BLM”) specific to the Cadiz Water Project’s proposed use of the Arizona and California Railroad (“ARZC”) right-of-way for a water conveyance pipeline and related facilities. In 2018, the Company intervened in the litigation in support of the federal government’s defense of these cases.
In his ruling, Judge George H. Wu rejected the challenge to the M-Opinion but remanded the Cadiz Water Project evaluation back to the BLM, concluding that the agency needed to explain more explicitly why it withdrew and reversed specific findings previously made in 2015 on the same issue by BLM. Judge Wu did not find that the conclusions of the 2017 evaluation were in error and agreed that BLM applied the correct right-of-way legal standard in its review.
The Company expects no delays to project implementation as a result of Friday’s ruling.
BLM’s previous evaluation in 2015 was marred by controversy. In response to Freedom of Information Act requests, it was disclosed that the principal author of the 2015 BLM position was communicating with project opponents and short sellers in the Company’s public securities while the evaluation was ongoing. Several railroad, infrastructure, agriculture and labor organizations, as well as members of Congress from both sides of the aisle, called for a reversal of BLM’s 2015 position, (letters) asserting it did not comply with the agency’s own internal review standards and was contrary to 100 years of federal precedent that encouraged the co-location of infrastructure in railroad rights-of-way in order to protect adjoining federal lands from environmental impacts.
The Judge’s decision to remand the 2017 BLM evaluation of the pipeline back to agency was based on purely procedural grounds. The decision does not call into question the facts upon which BLM relied in 2017 to conclude the pipeline sufficiently furthered railroad purposes and therefore did not require additional permits from the BLM, nor does it trigger any new environmental review. Although the Court believed that BLM applied the correct legal standard in making its 2017 evaluation, Judge Wu sent the evaluation back to BLM to provide the explanation he desired concerning the change in position. While the federal government argued, and the Company believes, that the record fully supported the BLM’s 2017 findings “as is”, we are confident that BLM will swiftly prepare an amended evaluation completely compliant with the Court’s direction.
Background
About the Project
The Cadiz Valley Water Conservation, Recovery and Storage Project is an innovative, California water project pursued by a California Company for the benefit of Californians. The Project will conserve a new 50-year water supply for approximately 400,000 people every year by capturing water that is presently lost to evaporation at the base of a vast Mojave Desert watershed. The Project is a public–private partnership between Cadiz Inc., the largest private farming enterprise in the area, and public water providers in Southern California. The Project will provide reliable water supply that can be part of the solution to the region’s persistent water supply challenges without harm to the environment. The Project will be built entirely on private land owned by Cadiz, Inc. that has been used for sustainable farming for more than 25 years and using existing utility corridors and facilities to the maximum extent possible avoiding harm to the local environment. In the Project’s second phase, the project will import and store up to 1 million acre-feet of imported surplus water for use during future dryyears.
In accordance with the California Environmental Quality Act (CEQA), the most stringent environmental law in the nation, the Cadiz Water Project went through a thorough, transparent review process that examined all potential impacts to biological, cultural, paleontological, water and natural scenarios – and ultimately confirmed that Project operations would not cause adverse impacts on the environment with application of an extensive groundwater management plan imposed by San Bernardino County. The Project will undergo annual review over the next 50 years and in deference to Project opponents, the County imposed a “stopper” on groundwater withdrawals if any threat of harm was observed. The Project’s CEQA approval and the County management plan have been upheld and validated by California’s courts in 12 separate decisions against CBD and NPCA.In addition to adding a new reliable water supply in Southern California, Project construction is expected to create and support thousands of jobs and generate close to $1 Billion in economic activity. Over the long-term, the Project will create $6 billion in savings for water users throughout Southern California.
About the Project’s Use of a Railroad Right-of-Way
In 2008, Cadiz entered a 99-year lease with the Arizona & California Railroad (“ARZC”) to utilize 43-miles of its existing right-of-way for the Project’s water pipeline and also agreed to provide necessary railroad improvements in furtherance of railroad purposes. This included providing water and power to the railroad, improving access roads and its transloading operations along the route. In January 2009, the U.S. Department of Interior determined that the Project could proceed within the right-of-way without additional federal permits, because it was within the scope of the ARZC right-of-way grant. BLM policies and appropriations language subsequently authored by Sen. Dianne Feinstein (D-CA) created a unique requirement for the Project to demonstrate to BLM that its proposed use was within the scope of the ARZC right-of-way.
In response to submittals offered by Cadiz and ARZC over several years, on his last day in office in October 2015 the former Director of BLM California mailed Cadiz a letter that reversed DOI’s January 2009 opinion, rejected the judgement of the railroad as to critical railroad benefits, and concluded that the Project was outside the scope of the ARZC right-of-way and therefore required its own right-of-way permit. BLM California reached this conclusion even though elements of the Project furthered railroad purposes, the legal test established by the agency. The finding was inconsistent with then-applicable controlling law and historical policy precedent encouraging co-location of longitudinal infrastructure within existing federal corridors. Consequently, the 2015 evaluation clouded thousands of third-party rights and uses of railroad rights-of-way across the Western United States.
Almost immediately following BLM’s controversial 2015 evaluation, it was subject to bi-partisan criticism and heightened scrutiny by lawmakers. Subsequent responses by the BLM to Freedom of Information Act (“FOIA”) requests revealed that BLM officials who reviewed the Project may have been biased in their analysis and communicated details on the timing and outcome of the review to people with ties to the Wall Street investment community who were short-selling Cadiz, Inc. public securities. In 2016, the US Department of the Interior Inspector General and the US House Oversight Committee launched investigations into the activities of third parties and the conduct of the BLM.
Throughout 2016 and 2017, multiple requests from dozens of congressional representatives and a broad coalition of national labor organizations, water districts, railroads, rural communities, farmers and numerous stakeholders urged action to clarify the scope of railroad rights-of-way over federal lands and criticized BLM’s October 2015 evaluation of the Cadiz Water Project.
In September 2017 the BLM withdrew the 2015 evaluation and concluded that the proposed 43-mile pipeline furthered railroad purposes and required no additional federal action. The new ruling issued by Judge Wu will require BLM to augment its September 2017 evaluation, which we expect will be addressed swiftly by BLM. The timeline for implementation remains unaffected by Judge Wu’s ruling.
No Court has ever concluded the Project will impact the environment or could not be operated sustainably.
To view the 2017 BLM evaluation – http://www.cadizinc.com/downloads/Letter-BLM_Nedd_to_Cadiz_10-13-2017.pdf
To view Judge Wu’s ruling – click here.
Historical coverage of this issue –