In a letter dated October 2, 2015, the California State Office of the Bureau of Land Management (“BLM”) announced an administrative determination that the Cadiz Valley Water Conservation, Storage & Recovery Project is not within the scope of the Arizona and California Railroad’s (“ARZC”) right-of-way over federal lands. The determination was based on a conclusion that the Cadiz Project “does not derive from or further a railroad purpose.” As a result, the Cadiz Project would require a separate BLM authorization for a right-of-way over federal lands.
BLM’s Analysis of Cadiz Project
BLM concluded that the main project components for its evaluation were a water conveyance pipeline with in-line turbines for power generation and other water uses, an access road, a water-based fire suppression system utilizing fiber optic, a power distribution line and related facilities, and a steam-powered tourist excursion train. BLM found that none of these components meet the legal tests specified in a 2011 Department of the Interior Solicitor’s Opinion and a 2014 BLM Instruction Memorandum.
Water Conveyance Pipeline. BLM observed that a water conveyance pipeline is not a railroad purpose and is not necessary for railway construction or operations. The power generation from the in-line turbines does not result from railroad purposes.
Fire-Suppression System. BLM observed that use of water for fire suppression is an uncommon industry practice. The common practice involves the use of dry sand. As such, the water-based hydrants and fiber optic to operate them do not derive from or further a railroad purpose.
Access Road. An access road may serve railroad purposes. But BLM argues that its origin comes from the non-railroad purpose of water conveyance. BLM also expressed uncertainty about how the location and design of the road is within ARCZ’s right-of-way. It noted that more information about this aspect of the Cadiz Project “may change this recommendation.”
Power Lines and Related Facilities. Power lines providing ARCZ access to a new power supply “may serve railroad purposes.” However, BLM notes that the origin of the power links back to the water conveyance pipeline, which is not within the scope of ARCZ’s granted right-of-way.
Steam-Based Excursion Train: BLM noted that a steam-based excursion train “may derive from or further a railroad purpose.” BLM focused on the “small use of water” for the train that does not convert the excursion train, the water pipeline, or the water running through the pipeline into “a legitimate railroad purpose.”
BLM concluded that the water conveyance pipeline and fire suppression system do not derive from or further a railroad purpose. Hence, for these activities to be conducted on federal lands, Cadiz would require BLM approval. The access road, power line and excursion train also do not derive from or further a railroad purpose due to their reliance on the water conveyance pipeline. However, they may be considered separately from a water conveyance pipeline.
On October 5, 2015, Cadiz sent a response letter to the Director of U.S. Bureau of Land Management, Neil Kornze outlining errors in BLM’s application of relevant law.
Water Conveyance. The issue is not whether water conveyance is a railroad purpose, but whether water conveyance furthers a railroad purpose. BLM’s suggestion that the activity must be a railroad purpose “disregards” the 2011 Solicitor’s opinion.
Power Production from In-Line Turbines. As with water conveyance, the issue is not whether power production is a railroad purpose, but whether power production furthers a railroad purpose.
Fire Suppression. BLM’s employs an “industry standard” test not found in the Solicitor’s Opinion. Cadiz argues that water-based fire suppression should be judged on the merits.
Access Road. The origin of the access road is not relevant. Instead, the relevant issue is whether the proposed access road furthers a railroad purpose.
Power Lines and Transload Facilities. Again, the origin of the lines and facilities are not determinative. Instead, what is relevant is whether those facilities further a railroad purpose.
Excursion Train. The “small” use of water by the train is not relevant. Instead, the relevant issue is whether the use of some water from the water pipeline to power an excursion train furthers a railroad purpose.
Cadiz further discussed the 2011 Solicitor’s Opinion arguing that the Solicitor rejected BLM’s formulation that an activity’s primary purpose is determinative of whether an activity is within the scope of a granted right-of-way on federal lands. She wrote with approval about an earlier Solicitor’s conclusion that installation by MCI of a fiber-optic line was within the scope of a railroad’s right-of-way, even though “MCI’s line was primarily a commercial trunk line because a small “portion of [the line’s] capacity was dedicated to the railroad and used by the railroad “to improve the efficiencies of its own communication systems, and thereby the safety of its operations.”
In conclusion, the Cadiz letter stated that BLM’s determination is contrary to law and should be rescinded and replaced.
From an economics perspective, many activities have multiple purposes and joint products (multiple products generated from a common production process). BLM’s formulation starts with activities undertaken by railroads. In effect, it asks whether an activity is what railroads do. Cadiz’s formulation places an emphasis on whether an activity undertaken by a railroad or a third party furthers the purpose of railroads. In the instance of MCI’s fiber-optic line installed in a railroad right-of-way, MCI’s activities had multiple purposes and potentially the joint product of communication for a commercial trunk line as well as for the railroad’s own communication system. Under this approach, a railroad may grant access to its right-of-way to a third party if that party’s activities provide satisfactory economic benefits to railroads operations.
What is interesting about the Cadiz situation is that there is a voluntary agreement between ARZC and Cadiz. Economists would presume that ARZC found the economic benefits of sharing its right-of-way with the Cadiz Project were worth any costs or burdens from sharing the right-of-way. For the ARZC-Cadiz agreement not to further a railroad purpose, ARZC’s economic benefits from the transaction must not be related to railroad purposes.
Impact of Issue
The proper formulation of a test for activities consistent with an original grant of right-of-way will have significance for all western states. There are many water projects being contemplated throughout the west that need right-of-way. The ease or burdens placed on the use of railroad right-of-ways for water projects will have a lasting impact far beyond the ongoing saga of the Cadiz Project.
Concerning the Cadiz Project, press reports indicate that Senator Feinstein (D-CA) has successfully included a rider in the federal budget preventing the use of federal funds to process a BLM application for the Cadiz Project. In its letter, Cadiz copied Representative Rob Bishop (R-UT), Chairman of the House Committee on Natural Resources and Representative Tom McClintock (R-CA), Chairman, Subcommittee on Federal Lands, House Committee on Natural Resources.
Written by Rodney T. Smith, Ph.D.
Editor’s Note: The MCI commercial truck line challenged AT&Ts regulated monopoly of telephone services, culminating in the Department of Justice’s successful anti-trust action to break-up “Ma Bell” into regional telephone carriers that have “morphed” into the telephone carriers serving the United States today. https://en.wikipedia.org/wiki/MCI_Communications
Publisher’s Note: In June 2015, Stratecon Inc., publisher of the Journal of Water, released a study on the wheeling capacity of the Colorado River Aqueduct for water from the Cadiz Water Project. The analysis, opinions and conclusions expressed, as always in the Journal of Water, are the author’s own and do not reflect the opinions or positions of any past or current clients of Stratecon Inc.