Thursday, December 11, 2003

Angry West Texans and some state officials are demanding a halt to a deal that allows a group of politically well-connected Midland oilmen to tap the desert and sell billions of gallons of water from the state's public reserves.

West Texans Sizzle Over a Plan to Sell Their Water

Angry West Texans are demanding halt to water deal

December 11, 2003

ALPINE, Tex. — Angry West Texans and some state officials are demanding a halt to a deal that allows a group of politically well-connected Midland oilmen to tap the desert and sell billions of gallons of water from the state's public reserves.

The venture was advancing without announcement or competitive bidding by the powerful Texas General Land Office, which controls 20 million acres of public lands and the liquids and minerals beneath them.

The agency has never licensed private sale of its water. The eight-man water partnership, Rio Nuevo Ltd., seeks to be the first, pumping out and selling some 16 billion gallons a year to municipalities and ranchers in drought-parched far west Texas, where many people fear that their own wells could go dry as a result.

Since last year, people involved in the matter say, the land office — steward of a nearly $18 billion permanent school fund to benefit public education — has given an exclusive hearing to Rio Nuevo, prodded by the speaker of the Texas House, Tom Craddick, Republican of Midland. The proposed deal has raised a ruckus in this remote town of 6,000 and its Big Bend country sister communities Marfa and Marathon. Since the news leaked out two months ago, lawmakers and others have called on the land commissioner, Jerry Patterson, to avoid any action pending further examination.

Adding to the furor are accounts that Rio Nuevo sought to deliver its water by sending it down the Rio Grande — a plan the state's agriculture commissioner called "cockamamie" — and to pay the state 20 cents an acre for water rights to 646,548 acres in six counties, a yield to the schools of about $129,000.

The company now disavows that figure. The proposed scope was cut to 355,380 acres in four counties at fees Rio Nuevo now says would yield the schools about $7 million a year. The company also says it plans to invest $350 million in water pipes and pumps. Who would buy the water and at what cost is not yet clear, though a likely customer could be the City of El Paso. But Adrian Ocegueda, a spokesman for Mayor Joe Wardy of El Paso, said that studies of the impact on the water level should precede any deal.

A bipartisan State Senate subcommittee was formed to look into the matter, its five members writing Commissioner Patterson that "concerns remain about the lack of a formal process by which this, and any future proposals, will be evaluated and decided upon." Mr. Patterson and Rio Nuevo representatives sat through a heated meeting with 500 residents in this Brewster County seat on Dec. 2 and said a 90-day public comment period would precede any action.

At the meeting, John King, superintendent of Big Bend National Park, warned that the water plan "could cause irreparable harm." A shortage of water outside the 800,000-acre park, Mr. King said after the meeting, could send wildlife streaming into it, disrupting a delicate balance. Mayor Oscar Martinez of Marfa said he had seen several springs go dry. The water deal, he said, should "not even be contemplated."

By Texas law, unless a water district has been formed, landowners control the water beneath their property and can draw it out even if that depletes a neighbor's supply. This is known as the rule of capture, or "the biggest pump wins."

Asked why the talks with Rio Nuevo had not been announced at the time, Mr. Patterson said, "We don't announce a lot of things under consideration." He confirmed that discussions about the lease had been held out of the public eye by the three-member board on which he sits. "We were cautious," he said. "We had never done this before."

The water deal has the region on edge. It has set Mr. Patterson, a former state senator, against the agriculture commissioner, Susan Combs, a rancher and fellow Republican who said Rio Nuevo's plan grew out of a "cockamamie idea" — sending water down the Rio Grande, where much of it could evaporate.

Though big oil entrepreneurs, including T. Boone Pickens, have bought water-mining rights from public conservation districts and private land owners, the state has never opened its water to commercial marketing. But growing demand requires such sales, Mr. Patterson said. He said he would also consider sales of water under prisons, parks and other state property, just as the land office now leases rights to oil, gas, minerals and wind power.

"The big question, the only question, is how much water is there, is there enough to export without doing harm to the local community?" Mr. Patterson said at the Alpine meeting. But Mr. Patterson and Rio Nuevo said they could afford to survey the supply only after a lease was signed. Mr. Patterson also said the land office lacked the money to mine and sell the water itself, though it is preparing to buy a water mining and sales business in Central Texas. He said that because the land office had no track record for letting a water contract, the first one would have to be awarded without bidding.

Local people have turned out in record numbers to protest. "We're already taking more than the skies are putting back," said Tom Beard, a rancher who heads the Far West Texas Regional Water Planning Group. "The only reason they got this far," Mr. Beard said of Rio Nuevo, "is they're very politically plugged in."

An analysis by Texans for Public Justice, a watchdog group, shows that six Rio Nuevo partners gave a total of $83,136 to Republican state candidates in 2001 and 2002 — the bulk of it, $72,886, from Gary Martin, an oil investor and businessman. Mr. Martin declined to answer questions.

Another partner, Roger Abel, a retired president of the Occidental Oil and Gas Corporation, said the project would prove publicly beneficial, taking water "from Texas for Texans" over a wide area.

A third partner is Steve Smith of Austin, founder of Excel Communications, who spent about $4 million buying the hamlet of Lajitas near Big Bend in 2000 and who has invested some $60 million more to make it a luxury resort. Mr. Smith did not return a call but Mr. Abel said he was responding on his behalf.

Other Rio Nuevo partners include Kyle McDonnold, a Midland lawyer, and four partners in a Midland oil exploration company called Falcon Bay Energy: Mike Ford, Anthony Sam, Robert Canon and Steve Cole.

Mr. Canon said that before he and Mr. Cole founded Rio Nuevo, another Midland company, Mexco Energy, had bought an interest in a Falcon Bay oil and gas projects. Mr. Craddick, the House speaker, is a Mexico director, but Mr. Canon said that Falcon Bay and Rio Nuevo were separate entities and that Mr. Craddick had nothing to do with Rio Nuevo.

Mr. Craddick, too, said through a spokesman that he had no connection with Rio Nuevo. But he did not dispute accounts that he had urged Mr. Patterson and David Dewhurst, the land commissioner at the time and now the state's lieutenant governor, to meet with Rio Nuevo partners.

Ms. Combs, the agriculture commissioner, said that around April 2002, Mr. Martin approached her with an idea of marketing state water via the Rio Grande. It was folly, she said, because sending water into the river would entail large losses from evaporation. Not long afterward and at the behest of Mr. Craddick, Mr. Dewhurst said, he met with Mr. Martin to discuss the project. Mr. Dewhurst, who was running for lieutenant governor, said he later returned a contribution from Mr. Martin when he learned the oilman had an issue pending before him as land commissioner. "I thought it was a terrible idea," Mr. Dewhurst said of the proposal.

Mr. Patterson said that at Mr. Craddick's urging, he, too, began meeting with the Rio Nuevo partners, even before he succeeded Mr. Dewhurst in January.

Then, in May, as the legislative session wound down, the Texas House and Senate passed a bill that would allow the Rio Grande watermaster to put into the river "privately owned water" for delivery to clients and directed the state's Commission on Environmental Quality "to expedite any application for a permit" to carry out the act.

Mr. Dewhurst said he remembered Rio Nuevo's pressing for such a bill, but said he did not focus on it during the session. Mr. Craddick's spokesman said the speaker had nothing to do with the bill.

Val Clark Beard, the county judge of Brewster County and its top-ranking official, was skeptical. "It was widely perceived as the speaker's bill," she said. "Unusual things get done at the end of the session."