Pipe Dreams

LINCOLN COUNTY, NEVADA — Out here in a rock-strewn, desolate sweep of creosote bush and blackbrush called the Tule Desert, there’s a patch of land bulldozed clear of vegetation. Standing in the middle of it is a well called PW-1. It doesn’t look like much; just a 32-inch-diameter steel pipe, painted black and sticking out of the desert. But in heartbreak country like Lincoln County, it’s a beacon of hope.

Over a century ago, the county’s mining towns — places with names like Hiko and Pioche — boomed with the discovery of gold and silver. Now, they’re dirt-poor. The county sprawls across 10,634 square miles, and has just 4,500 residents. Economically, they’re in a straitjacket: Ninety-eight percent of the land is federally owned, so opportunities for private development are limited and tax revenues are woefully small. But PW-1 taps the magical — and most elusive — ingredient in the recipe for economic success in the West: water.

“Water’s one of the last natural resources we have that we can do anything with,” says Spencer Hafen, the chairman of the Lincoln County Commission, who owns a land-surveying business and splits his time between Panaca, in Lincoln County, and Mesquite, just over the Clark County line to the south.

Lincoln County sits on a water gold mine, but until PW-1, it had no way to get at the water; wells and pumps and pipelines cost millions of dollars. And while the county thought of the water as its own, in reality, it belonged to no one: Western water law says that you can only lay claim to water if you can convince the state that you have the ability to put it to “beneficial use.”

This left Lincoln County’s water vulnerable: The county line is only 45 miles north of one of the fastest-growing cities in the country, Las Vegas, which has been eyeing the water in Lincoln and other rural counties for more than a decade. In all likelihood, Vegas would have snatched Lincoln County’s water before the locals could do anything about it. Many Lincoln County residents feared a possible repeat of Los Angeles’ infamous early-1900s water grab from the rural Owens Valley — a grab that turned that valley into a dustbowl, and later inspired the movie Chinatown.

But in 1998, Lincoln County found a way to beat Vegas to the punch. County commissioners teamed up with Vidler Water Company, a pathbreaking private water developer. Vidler had the money to drill wells like PW-1 into the desert and to start pulling the water out. The company agreed to provide the initial investment in return for a cut of the county’s profits, once the water was sold to developers, power plants, or whoever needed it. At stake were thousands of acre-feet of water — and millions of dollars in revenue.

For Lincoln County — whose major employers are the county government, a treatment center for troubled youth, and a minimum-security prison — the water deal is one of what Hafen calls “the many could-bes” that might lead the county out of its economic slump.

But the water deal has touched off a scuffle across Nevada, the driest state in the nation. Critics accuse Vidler of water speculation, or acquiring water rights in the hope of reselling them and turning a profit. The practice is anathema in the Western water world, where the “use-it-or-lose-it” paradigm reigns supreme. They see Vidler’s deal with Lincoln County as a major step toward privatizing water, which has long been viewed as an essential public resource.

But water has always existed on murky legal ground, and even the West’s water wizards don’t really know what to make of Vidler. It’s by no means the first private water-development company, but experts are at a loss to name any other outfit that’s so artfully blurred the lines between the private and public realms.

Are private companies like Vidler the future of water development in the West? Or will Vidler be swept away as the water flows uphill — as water tends to do in these parts — toward the money in the fastest-growing cities? Answers to these questions are being fought over in the Statehouse and the courts. In the meantime, PW-1 sits silently in the desert.

“We’re going to crack the nut”

In one telling of the story, Vidler is a visionary company. While multinational companies like Vivendi Universal, Suez and Bechtel are taking over municipal water-supply systems in places like Bolivia, South Africa and Atlanta, Ga., Vidler has a much simpler modus operandi. “We’re not a utility, and we’re not a water marketer,” says Dorothy Timian-Palmer, the company’s president, who cut her teeth as the manager of the water department in Carson City, Nevada’s capital. “We’re a water developer.”

Not so long ago, Vidler — named after its founder, Rees Vidler, a turn-of-the century Colorado real estate developer — was an unpretentious Colorado company with one asset: a tunnel carrying water from western Colorado under the Continental Divide to the city of Golden. Things changed in 1995, when La Jolla, Calif.-based PICO Holdings bought Vidler and began pumping in money from its other ventures to finance water projects.

PICO moved Vidler to Carson City, where the water company shares a staff of 12 — including lawyers, water engineers and mapping specialists — with its sister, a real estate company called the Nevada Land and Resource Company. Nevada Land’s 1.2 million acres, originally granted to the Central Pacific railroad in the mid-1800s during the building of the transcontinental railroad, make it the largest private landowner in Nevada.

Vidler has quickly turned the West’s water problems into business opportunities. Need water that’s tied up in agriculture? Vidler is there to act as a middleman. Need a place to store water for use during dry years? Vidler’s got space in underground “water banks.” Looking for a new water source? Vidler knows where to find it — and has the money to bring it to market.

It’s a model that even attracted the interest of Marc Reisner, the author of Cadillac Desert: The American West and its Disappearing Water, who served on Vidler’s board of directors for about a year until his death in 2000. To Reisner, Vidler was enlisting economics to move scarce Western water toward its “highest and best use.”

But Vidler is up against tough odds: A raft of other water companies have self-destructed spectacularly in recent years. The Enron water subsidiary Azurix has gone the way of its parent company, and the stock prices of Cadiz Inc. dropped through the floor last fall, after the collapse of its water-storage deal with Southern California’s Metropolitan Water District (HCN, 5/21/01: Will the Met wring the desert dry?).

Debra Coy, a Washington, D.C.-based water analyst with the investment firm Schwab Capital Markets, says that as water supplies become ever scarcer — and more valuable — the lure of profit will draw investors to the field. “Water seems inherently valuable, and if you can put deals together to sell water, there’s got to be money to be made.” But so far, she says, efforts to make this work have “all been disasters.”

Still, Vidler has insulated itself from some of the risk. PICO is a “closely held” company; its majority shareholders are insurance companies and investment funds that can ride out short-term economic turbulence. It has also tried to keep itself out of the limelight. The company’s key to success, says Timian-Palmer, lies in maintaining a lower profile than companies like Cadiz and Azurix, which blundered into public-opinion minefields with their swashbuckling deal-making.

“We’re going to crack the nut,” she says.

Before it came to Lincoln County, the company’s record had been mixed. Its greatest success came in Arizona’s Harquahala Valley, 75 miles west of Phoenix. In 1996, the company began buying farms that carried rights to the groundwater below them. Then, it leased the land back to the farmers and waited for water buyers. In 2001, Vidler clinched a $9.4 million deal with Allegheny Energy for land and water for a power plant in the valley.

A project near Bakersfield, Calif., didn’t turn out so well. In 1998, the company bought into the Semitropic groundwater banking project, which would store water underground during wet years and then sell it to thirsty cities during dry ones. Hamstrung by a welter of regulations and overlapping jurisdictions, Vidler has since sold off most of its stake in Semitropic. It’s now developing its own groundwater banking project below the Harquahala Valley.

Its experience in Nevada had also been troubled. In 2000, the company moved into Sandy Valley, 35 miles southwest of Las Vegas, with plans to develop groundwater and sell it to nearby Primm, a glorified truck stop on the California line with a couple of casinos, a fashion outlet and a new power plant. But Vidler’s application inspired a folksy self-defense movement among the valley’s retirees and hermits, who have tied up the company’s water application in court.

Overall, however, Vidler’s bottom line looked good. Last year, its parent company, PICO Holdings, generated $29 million of revenue for an impressive 20 percent profit margin. Half of those revenues came from Vidler.

Partnership raises hackles

Water transfers and water banking are standard fare for private water companies. But in Lincoln County, Vidler is playing a different game.

In Pioche, the county seat — a busted mining town perched on a rocky piñon- and juniper-covered hillside — county commission chairman Hafen and county manager Doug Carriger are looking for an economic jumpstart. “We’ve been in decline here for about 100 years, ever since mining petered out,” says Carriger.

Nothing could happen without water, which was in abundant supply in the ground, but completely inaccessible without the money to drill wells and build pipelines.

Then Vidler showed up, and changed all that. Under the company’s deal with the county, Vidler would tap groundwater with wells, file joint applications for water rights, and scout out customers. Once Vidler recoups its infrastructure investments (which total $4 million so far), half the profits will go to Lincoln County. Vidler will walk away with the other half.

Vidler and Lincoln County applied to the state engineer — who decides whether or not to grant water rights applications — for rights to almost 100,000 acre-feet of water across the county (an acre-foot is enough water for a family of four for a year). And when Vidler drilled PW-1 in the summer of 2001, it hit paydirt: The well pumped up to 1,700 gallons per minute. Suddenly, the many economic “could-bes” that Hafen talks about seemed like they might, someday, bear fruit.

There were a couple of hopeful prospects. Down south, just over the line in Clark County, beckoned a vision of what Lincoln County might become: the gambling oasis of Mesquite, growing like crazy and running north toward the county line. In 2000, a bill sponsored by Sen. Harry Reid, D, directed the BLM to sell off 13,000 acres of land in Lincoln County, land that could soak up growth sprawling across the county line from Mesquite (and would take plenty of water to do so). The developers of the massive, 50,000-home Coyote Springs development, straddling the Lincoln-Clark county line, might need more water. And Lincoln/Vidler did manage to land one firm contract, for water to cool a North Carolina company’s proposed Toquop power project, also at the southern end of the county.

But while Vidler’s private money might empower a poor rural county, critics say the company had an ulterior motive — one that ultimately shook up a nine-year-old standoff between Nevada’s rural counties and Las Vegas.

In 1989, Las Vegas had filed applications for 300,000 acre-feet of groundwater — equal to southern Nevada’s entire cut of the Colorado River — across four counties. Because it is a city, Vegas could file for water rights that it claimed were necessary for future growth, but didn’t immediately need.

“It unleashed quite a hullabaloo,” says Patricia Mulroy, the German-born, famously hard-nosed head of the Southern Nevada Water Authority, which provides the water that fuels Las Vegas’ white-hot growth and sizzling economy (HCN, 4/9/01: The water empress of Vegas). The move drew a flurry of protests from the rural counties.

When the smoke finally cleared, Vegas got rights to water from the Virgin River instead. The city agreed to hold off on its claims in Lincoln, Nye and White Pine counties, and even relinquished claims to water that the rural counties would need for near-term growth. Legally, Vegas still had first crack at the water. But if Lincoln County could develop it, it had a chance to get some first — and Vidler saw this.

Acting alone, Vidler would have to step to the back of the line for water rights; but by partnering with the Lincoln County government to develop groundwater in the county, the company could jump to the front. But there was a huge bomb tucked inside Vidler’s 1998 agreement with Lincoln County: It contained provisions to sell the water outside the county — which most observers read as plans to sell to Vegas.

Pat Mulroy was livid. She said Vidler had “imploded” the truce between Las Vegas and Lincoln County: “They’re sandwiching themselves in the middle to make money.”

Vidler and Lincoln later backpedaled and said that the water would only be used within Lincoln County. But they had already incurred Mulroy’s wrath: In November 2001, Vegas launched a legal counterattack, asking the state attorney general’s office to issue an opinion on the legality of the Lincoln-Vidler partnership.

In March 2002, the deputy attorney general declared that the agreement was illegal after finding “no provision of Nevada law that … permits the County to form a partnership with a private corporation and to share in a for-profit enterprise of this nature.” Vidler promptly took the opinion to state court, where it still lingers.

Meanwhile, Las Vegas was only getting thirstier. The city’s population had more than doubled since 1989, when Mulroy made her big claim to rural water. At the same time, a massive drought had hit the seven-state Colorado River Basin, which supplies 90 percent of the city’s water.

The rural counties’ water was looking more attractive all the time, and Mulroy began making noises about asking the state engineer to start processing the city’s 1989 applications.

Then, she went to Lincoln County to negotiate a so-called “stand down”: In March, the city and county signed a deal dividing up contested groundwater throughout the county. Vegas agreed to leave some water to the county (including that tapped by PW-1), while Lincoln County agreed not to contest the city’s water-right applications elsewhere in the county.

For Vegas, the “stand-down” deal was a way to get some rural water quickly. For Lincoln County, it was a way to hang on to at least some of its water. Otherwise, says County Commissioner Hafen, “We’d have a lot of dust and an uphill battle in court, and in the end we’d run out of money, and Clark County” — the home of Las Vegas — “would still be fat and sassy and wet.”

And Vidler? There was one small provision in the deal that had enormous significance: Mulroy agreed to abandon her opposition to Vidler’s partnership with Lincoln County. With Mulroy and Las Vegas out of the way, Vidler set out to legalize the partnership. To do that, however, the company would have to change Nevada state law.

Changing the rules

Vidler was well-positioned to get its way: Its office is three miles from the state Legislature’s doorstep in Carson City; Stephen Hartman, Vidler’s corporate counsel, once worked for a prominent Carson City law firm, where his former law partner was Mark Amodei, who is now a state senator; and Vidler’s 16-person lobbying force in the state Legislature is a third again as big as the company’s staff.

One week after the Lincoln-Las Vegas “stand-down” agreement took effect, state Sen. Dean Rhoads, R, who represents Lincoln County, introduced a bill that would legalize public-private partnerships in any county with a population of less than 400,000. That’s every county in the state, except for Clark.

Vidler’s opponents read that as opening up practically the entire state to the company. “(Vidler is) half-owner in all these water rights in Lincoln County,” says Mike Winters, general manager of Mesquite’s Virgin Valley Water District, who believes that pumping in the Tule Desert — where the PW-1 well is located — would suck up Mesquite’s groundwater. “Well, now, let’s go up to Douglas County, Churchill County. Let’s go over to Nye County, all these places that are struggling. Pretty soon, you’ve got a private company owning half your water rights. And it’s purely for speculation.”

On April 21, Sen. Rhoads’ bill passed the Senate, 15-6, and headed to the Assembly — Nevada’s version of a House of Representatives. During the Senate debate, however, Sen. Warren Hardy, R, sounded an impassioned warning that the deal “makes our most important natural resource an instrument of commerce.” And suddenly, Vidler wasn’t flying under the radar screen anymore.

Hardy caught people’s attention and thrust Vidler uncomfortably into the spotlight. As the Legislature neared its June 2 end of session, opponents, including Nevada’s environmental community, rallied in determined opposition.

“It was really unprecedented. We generated more phone calls on this issue than any other one in this legislative session,” says Grace Potorti, director of the Nevada Conservation League. “We packed the hearing, and we did it in like 48 hours.”

Critics said Vidler was pushing Nevada into a brave new world, a hazy conflation of the public and private realms, where economic development in a poor rural county would have to generate good-looking numbers on the company’s quarterly profit-and-loss statement. From the sidelines, Pat Mulroy went so far as to say the deal put Lincoln County under a “corporate dictatorship.”

In spite of the rally, the bill passed the assembly’s Government Affairs Committee. But insiders say that an informal poll by the leadership of the Democrat-dominated Assembly revealed that its members had little stomach for a floor vote on such a controversial bill, and committee chairman Mark Manendo, D-Las Vegas, kept the bill from ever making it to the full Assembly.

“We had the votes,” says Vidler president Timian-Palmer, “but they wouldn’t let it go to the floor.”

Two days before the session ended, legislators from Lincoln County introduced an amendment to another bill that created a “Lincoln County Water District,” run by the county commission, with powers to issue bonds, secure loans and apply for federal grants. That gave Vidler a chance to redo its contracts with the county on less contentious ground, but it meant the end of the company’s statewide push.

As the dust settles yet again, some say Vidler is stuck with a dry hole, as its prospects in Lincoln County may be evaporating. Cogentrix bailed out of the Toquop power project last year, and although Vidler bought the project, it’s still nothing more than paper; the massive Lincoln County Land Act, meanwhile, is tied up in the U.S. Department of the Interior’s Board of Land Appeals.

Vidler hasn’t given up, however. “Some people say the Lincoln County Land Act is pie-in-the-sky, but that’s what they used to say about Mesquite,” says Hartman, Vidler’s corporate counsel. “Development in southern Nevada has gone weird places in incredibly short periods of time.”

A human right, or a money machine?

Whatever the fate of Vidler, its activities in Nevada have raised an important debate about the future of the West’s most precious resource.

“These issues are becoming more and more visible to the public,” says Hugh Jackson, a Las Vegas-based policy analyst for the watchdog group Public Citizen. “The more the public thinks about it, the more they think, ‘Gosh, water is a human right, water’s a necessity of life, and not everything has to be privatized and profited from.’ Nevada was a little microcosm of that awakening.”

And at a time when the conservation ethic is finally gaining steam in the West, many argue that private water development works in precisely the opposite direction. “Wall Street works on selling more,” says Pat Mulroy. “You can’t do that (with water). You have to find ways to use less, not more.”

She points to the 2001 energy crisis in California as a classic example of what can go wrong in a deregulated market. “Financially, (the power companies) couldn’t promote conservation, because they needed to sell more to dig themselves out,” she says.

But for Mulroy, there’s something viscerally disturbing about Vidler’s foray into Lincoln County. “Peel away all the layers, and it’s really Owens Valley in a different form,” she says, referring to the notorious L.A. water grab. In Mulroy’s mind, Vidler plays the role of L.A., robbing rural water.

But behind the high-minded talk — the kind of talk that rallied opponents to pack the public hearing — Mulroy also has a cold bottom line: She needs to provide water for Las Vegas. And there’s the great irony: Strip away Vidler, strip away questions about commodifying a public resource, strip this story down to its most basic elements, and you are left with a story that parallels Owens Valley. In the end, though, it’s Las Vegas, not Vidler, that may ultimately walk away with the water.

Warren Hardy — the state senator who so eloquently warned of privatizing a public resource — is a former lobbyist for the Virgin Valley Water District, which, once Mulroy agreed not to challenge the Lincoln/Vidler agreement, became Vegas’ proxy in the fight against Vidler. Hardy is also president of the Associated Builders and Contractors of Southern Nevada, which clearly has an interest in quashing water-development deals that could threaten Vegas’ growth.

Mulroy herself concedes that lining up water to meet Las Vegas’ plans for the future means severely limiting Lincoln County’s hopes for its future. In fact, that’s a fate that Vegas itself narrowly avoided. Back in 1922, Las Vegas got stuck with a relatively paltry 300,000 acre-foot cut of the Colorado because it was just a podunk railroad depot.

“That’s what’s wrong with a lot of the water law,” she says. “(If) we need it now (and) you have no use for it, the assumption comes along that you’ll never have a use for it. Well, that’s not true. We’re living proof of that, or we’d have gotten more out of the Colorado River. So I feel kind of like a hypocrite, singing out of both sides of my mouth.”

Mulroy is careful to say that “we don’t ever want that Owens aura,” and that the rural counties’ water is a “shared resource” for both them and Las Vegas.

But up in Lincoln County, County Commissioner Hafen is scratching his head about the “could-bes.” Maybe the deal with Vidler will work out, and maybe the power plant or the Lincoln County Land Act will come through, or the Coyote Springs development will need more water. But if they don’t, the water under Lincoln County will be fair game for Vegas, smacking its lips to the south.

“No matter what we’d like to do, or how much we’d like to call it our own, it’s the state’s water,” says Hafen. “They can do whatever the state feels is in the best interest of the people. And if Vegas has a need for it, it would be shipped south.”

And stacked against Hafen’s “could-bes,” there’s one stark certainty. Last year, the population in Clark County hit 1.6 million, 400 times larger than Lincoln County’s. Even in the middle of the fourth year of drought on the Colorado, Vegas’ growth boom seems to be unstoppable: The population is forecast to nearly double by 2035.

In the end, perhaps it doesn’t matter whether water is privatized or not — it’s going to move. And, as the old saying goes, it’s going to move uphill, toward the big money in the cities.

Matt Jenkins is an assistant editor at High Country News.

The following sidebar articles accompany this feature story:

- Rural ‘Water Warriors’ take on a water wrangler

- County’s hopes rest on a roller-coaster power market

This story was funded with a grant from the William C. Kenney Watershed Protection Foundation.

• Vidler Water Company 775-885-5000, www.vidlerwater.com
• Public Citizen Hugh Jackson, 702-436-9239
• Nevada Conservation League Grace Potorti, 775-972-7733, nevadaconservationleague.org
• Sandy Valley Water Warriors Beth and John Bacher, 702-723-1567

• Water