Windfall
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The investable universe of hydrocommerce was small—about four hundred publicly traded companies, according to Summit—and the recent gush of new investors was dramatic, and prices had become inflated. “I’m a value investor,” Dickerson said. Rather than try to time the ups and downs of the market, he bought stocks strictly based on their price in relation to what the company itself was worth. So in overheated 2007 and 2008, he found himself selling more than buying—and the resulting cash hoard was one reason Summit had survived the financial crisis largely unscathed.
Dickerson’s second response to creeping global drought and sudden pressure from rival investors was more intriguing and, as other funds again began to follow his lead, more significant: He had decided that hydrocommerce—things merely related to water—wasn’t enough. He wanted actual water: “wet water,” as he called it. Raw water. The thing itself. In June 2008, he opened a second hedge fund, the Summit Water Development Group, to amass water rights in Australia and the American West. Already the new fund had attracted hundreds of millions of dollars. “I’ve watched water rights go up and up,” Dickerson told me. “Just tick, tick, tick, tick.” He lifted a hand in the air, jerkily raising it higher and higher. “The real future,” he said, “is going to be the direct assets—not through the medium of a utility, not through the medium of a pump company—but the direct, physical water assets.”
• • •
“WATER FLOWS UPHILL to money,” wrote Marc Reisner in Cadillac Desert. The adage captures the spirit of the moment, but as a description of what is happening to water the more the world warms, the more rivers like the Colorado wither, it is imprecise. Water is heavy—about 8.3 pounds per gallon—and to move it in bulk without significant help from gravity or the Army Corps of Engineers was still too expensive for privateers to profitably pull off. If Citigroup’s Willem Buiter was right about the future of international water markets, parts of that future were proving slow to arrive.
The comparative shrewdness of zero-sum strategies like that of the Summit Water Development Group, which bought up rights within a stressed river system rather than importing water from overseas, is illustrated by the failures of recent bulk-shipping schemes. In the Mediterranean, a $150 million water treatment and export facility was completed in 1998 near the mouth of Turkey’s southerly Manavgat River, and four hundred miles south an intake pipeline was built in Ashkelon, Israel, now home to the massive desalination plant I visited with IDE. The two countries’ 2004 “water for arms” deal—certain high-tech weapons would go to Turkey, 13 billion gallons of Manavgat water a year to Israel—quickly fell apart over high costs and diverging politics. In Sitka, Alaska, one company after another signed one-cent-per-gallon contracts for up to 2.9 billion gallons a year from the city’s Blue Lake. A pipeline was built in 2007 to fill tanker ships with 60 million gallons apiece, and the Texas-based S2C Global Systems, the latest lessee, declared that it was creating its first “World Water Hub” in southern India. But the contracts in Sitka kept requiring extensions; especially in India, the water-poor are often money-poor, and S2C has seemed unable to find the right buyer. Not a drop has been shipped from the harbor.
In Iceland, per capita the most water-rich country in the world, at least until Greenland gets its independence, three successive ventures have negotiated leases in which they would pay a tenth as much per gallon as S2C for the water running off the Snaefellsjökull, the volcano from Jules Verne’s Journey to the Center of the Earth. One was a fraudulently run hedge fund managed by a Canadian former dentist named Otto Spork, another a more aboveboard venture by a British hedge fund called Moonraker. None has exported more than a few bottles, let alone turned a profit. In 2011, I visited Spork’s half-built water plant on the flanks of the volcano: sheet metal, dirt floors, 100,000 square feet, two pipelines dumping ninety liters per second of glacier water uselessly into the sea. “Everywhere in the world,” explained one Icelander who had run the numbers on shipping costs, “it is cheaper to do desalination.”
The water industry’s biggest dreamers are the “bag and drag” men: those who would fill enormous polyester bags with freshwater and tow them through the oceans. Best known is Terry Spragg, the obsessed inventor of the Spragg Bag (www.waterbag.com). In the early 1970s, the Rand Corporation was studying how to tow icebergs to perennially water-stressed Southern California, and Spragg, who was ski bumming through the Rockies at the time, got in touch with the authors. Soon he was representing Prince Mohamed Al-Faisal of Saudi Arabia, the founder of Iceberg Transport International Ltd. and sponsor, in 1977, of the First International Conference and Workshops on Iceberg Utilization for Fresh Water Production, Weather Modification, and Other Applications. (Papers and talks included the succinctly titled “Calving.”) The next year, Spragg got the California legislature to endorse iceberg towing. But gradually he lost faith in it himself. Icebergs melted too quickly. “I said: ‘Let’s just go to the mouth of a river and fill a bag,’” he told me. “I’m just trying to solve a problem: There’s enough water in the world, just not in the right places.”
Spragg made his first water bag in 1990 and tested it in Puget Sound near Seattle. He filled it up at the edge of the rain forest on the Olympic Peninsula—“the best place in the whole United States for water”—and began to tow, then watched the bag split open and spill 700,000 gallons into the sound. Undeterred, he had an MIT professor help him design and patent a zipper system with big enough teeth to hold two big water bags together. He hired the Colorado engineering firm CH2M Hill—ubiquitous in the profitable battle against drought, with tunnel projects near Las Vegas and desalination plants in Australia—to design a water bag loading and unloading system. He began envisioning bladders the shape and general size of a nuclear submarine, zipped one to the next in fifty-bag trains and deposited one by one in depots worldwide. In 1996, he completed a successful drag across Puget Sound to Seattle, only to have a tugboat run into his docked prototype. He had no insurance.
Spragg took interest in the Manavgat, hiring an agent in Israel, as he would later do in Australia as the Murray-Darling ran dry. He wrote a heroic novel about saving the Middle East via water bags—Water, War, and Peace—that starred a thinly autobiographical character named Gerald Earl Davis. But the Manavgat still flows mostly to the sea and the novel remains unpublished, and for two decades Spragg has been trying to raise money for another prototype. As for the common petroleum-to-plowshares dream of shipping water with old single-hull oil tankers—which are in low demand after the Exxon Valdez—he and other experts are dismissive. Single-hull tankers may be inexpensive to buy, but they are expensive to retrofit. Not only do the ships’ holds need to be cleaned, but pipes, pumps, valves, and washers need to be replaced. “I’ve seen the numbers,” says Spragg. “Basically, it’s cheaper to take the tanker and cut it down and use it for scrap than to redo it.”
Another would-be bagger was Ric Davidge, a deputy to Secretary of the Interior James Watt during the Reagan administration who later became Alaska’s first director of water. In 2000, he enraged Northern Californians with a proposal to bag water from two Mendocino-area rivers, the Albion and the Gualala, and tow it six hundred miles south to import-dependent San Diego. The plan had to be abandoned in the face of angry opposition, and Davidge had to rename his company. At the time he was also chairman of a consortium called World Water SA, which consisted of a large Japanese shipping line, a Saudi industrial conglomerate, and a Scandinavian water bag company, Nordic Water Supply. Nordic’s bags were among the few in history to see commercial use, delivering five million gallons a pop from the Manavgat to arid Cyprus. Bags of freshwater float high in the salty Mediterranean, but Nordic’s costs were more crippling than Davidge and the other partners were told. Nordic went bankrupt soon after Davidge was run out of Mendocino. The “first law of Davidge water,” he explained to me, “is that everybody lies about transport costs. Don’t talk to me about sources. I know sources all over the world. T
alk to me about conveyance systems.”
A decade later, Davidge had mostly given up on water bags. There were promising new tanker designs coming out of Europe and Asia, he said, and his new company, Aqueous, had lately been negotiating with Sitka. Spragg, meanwhile, had not given up. “In Spragg’s perfect world,” he told me, “which may be crazy, I could store the bags on a big spit on the Olympic Peninsula, then take them out into the ocean and let them go, track them by GPS. The currents will take them all the way to Southern California.”
• • •
A HUNDRED MILES east of San Diego, I witnessed the lengths to which the city was already going to secure more water supplies, how it was getting by until the tankers and water bags appeared. The first sign that something was odd was near the dusty town of Imperial, California, where there was lettuce growing in the desert. As I drove along Interstate 8, the lettuce gave way to cabbage. The cabbage gave way to alfalfa. “Now you see where all that water goes,” my host, an engineer named Todd Shields, said. We continued east, and soon enough it all gave way to sand once again. Just south of the freeway and just north of the new border fence with Mexico was the All-American Canal: the biggest irrigation canal on the planet, California’s first and biggest claim on the waters of the Colorado River, and, most recently, the site of the biggest bulk-water deal in history—a measure of the market that men like John Dickerson were chasing.
In 1899, the Canadian American entrepreneur George Chaffey, an irrigation genius who had founded the “model colony” of Ontario, California, before being recruited to Australia to duplicate his efforts on the banks of the Murray River, had begun staking out his latest venture, Imperial. Chaffey’s publicist sold settlers on the image of the Imperial Valley as the Egyptian delta, the Colorado River as the Nile, themselves as Joseph and the chosen people—pilgrims, not just pioneers. On May 14, 1901, near a volcanic outcropping called Pilot Knob, the wooden Chaffey Gate began diverting the waters of the Colorado through a series of trenches and canals toward Imperial. Water rights being a matter of seniority, not geography, it may have been the most important moment in California’s history—the start of its claim to a river whose flows come entirely from other states and the start of a system of aqueducts that have allowed its cities to flourish where no city should rightly be. Under the 1922 Colorado River Compact between seven western states and Mexico, California is apportioned 4.4 million acre-feet of water a year, or about 1.4 trillion gallons—the most of any state in the system, more than a third of what’s promised to the rest. If there’s any surplus above the 1.5 million acre-feet committed by treaty to flow onward to Mexico, California takes much of that, too. Thanks to the All-American, which got its name after an earlier canal was rerouted in the 1930s to stay wholly north of the border, the obscure Imperial Irrigation District (IID) now controls 20 percent of the Colorado’s flows. Imperial receives 2.92 inches of rain a year, a third of what San Diego gets. The surrounding desert, once known as the Valley of the Dead, has become one of America’s prime farming regions. Two-thirds of the country’s winter fruits and vegetables are grown here.
In 2003, as the Colorado fell into drought, the IID agreed under threat of federal intervention to sell a record 277,000 acre-feet of All-American water—equivalent to 90 billion gallons, 5,000 Panamax tankers, or 20,000 Spragg Bags—to the San Diego County Water Authority. Most of the new All-American water would go to the City of San Diego, where until 2012 voters kept rejecting the idea of bolstering their meager water supply with treated sewage. Most of the city’s water, if history was any guide, would go to keeping four hundred parks and golf courses green. Residents themselves would dump half their water into their yards. In poorer, politically weaker Imperial, farmers would idle tens of thousands of acres of cropland and take generous water-rights buyouts, some happily, many grudgingly. For me, the All-American Canal symbolized the essential truth of Marc Reisner’s adage about water and money, along with its corollary in a warming world: Shit rolls downhill.
Todd Shields, my host, was managing the most controversial part of the record water deal. For most of a century, the All-American Canal had been lined with dirt, and at least twenty-two billion gallons—enough for 122,000 American households—were lost each year through its porous walls. The IID would now line the canal with concrete, and San Diego would pay the $290 million in construction costs. The problem was that for most of a century the lost water had slipped under the Algodones Dunes, ignoring the international border, and percolated up in the Mexicali Valley. Farmers there had used the leakage to turn Mexicali into one of their country’s largest producers of alfalfa, asparagus, scallions, and cotton. Take it away, and soon hundreds of people would be out of work, tens of thousands of people would be out of potable water, and sensitive wetlands would be drained. Lawsuits against the canal upgrade had been filed by environmental groups, the city of Calexico, California, and the Mexicali Economic Development Council. But they’d been trumped by a provision slipped into the final lines of a 279-page tax bill in the final hours of the final congressional session of 2006. The edict—ignore environmental-assessment requirements and, “without delay, carry out the All-American Canal Lining Project”—was the doing of three Colorado River system senators: Dianne Feinstein of California, Harry Reid of Nevada, and Jon Kyl of Arizona. “In a time of increasing population and decreasing water supplies as a result of global warming,” said Feinstein, “I believe it is critical to save every drop of water.”
I watched the border fence rise and fall as Shields updated me on his four-hundred-person crew’s progress: twenty-three million cubic yards of sand and soil moved, eighteen of twenty-three miles nearly done, thirteen months to go. We passed an ad hoc roadblock stopping traffic in the opposite lane: orange cones and white SUVs with green bands marked “Border Patrol,” a cluster of officers looking for illegals. Since the All-American’s 1942 completion, there had been almost six hundred documented drownings of undocumented migrants—almost one a month—and workers regularly collected the dead from the pools above the hydropower plants. “There’s a trash rack before the water goes through,” Shields explained. “You don’t want debris to go into the turbines. That’s generally where they find the bodies.”
Near where the freeway crossed the canal, not far from Pilot Knob, Shields and I pulled over. Workers had dug an entirely new trench in this section, and there was a waterless, rectilinear canyon 150 feet across and nearly 100 feet deep, swarming with men and machines. Otherworldly “jumbos”—inclined platforms that stretched top to bottom on the far bank—were creeping east on metal tracks. One had four giant blue spools of plastic joint material and a vertical sluice that brought down endless streams of wet concrete. Another had a team of eight men in hard hats and blue jeans who buffed the concrete, leaning forward on what looked like industrial mops, straining in the sun. In this heat, the concrete would be dry within thirty minutes, and then another jumbo would grind past and spray sealant, and the bank would go from gray-brown to gleaming white. In about a month, Shields told me, they would cut the weirs at both ends, and the new section of canal would flood with water. He had donned a yellow safety vest over his flannel shirt, and now he stood at the edge of the void and watched his men work. They were speaking to one another in Spanish.
“This is kind of a special project for me,” Shields said. His grandfather Clyde had led the All-American’s 1930s survey crews, he explained, and had later worked on the California State Water Project. Shields had been inspired to become a civil engineer himself, but unlike his grandfather he was not technically a government employee: He had been remanded to the IID from Parsons, the Los Angeles engineering firm that had been the first to dream up NAWAPA, the North American Water and Power Alliance, which I had heard about when sitting in on Michael Byers’s class at the University of British Columbia. Early in his career, Shields had seen a scale model of it once, had gotten to really study the megaproject that had so scared Canadian water
nationalists. “It was just this huge board with all these systems,” he said, “interesting as hell to me.” He thought it could work. “I’m sure it would work,” he told me. “It’s technically feasible. You know, it would solve water needs. It would probably violate lots of environmental needs. It’s a societal value judgment.”
Shields told me he believed the climate could be changing, sure, but he didn’t believe humans were causing it, and he didn’t believe it was a crisis. “What that whole global-warming fear leaves out,” he said, “is that there will also be positive effects.”
The next day, I crossed the border. The Mexicali Valley’s fields were flat, straight, perfectly manicured, lorded over by the Algodones Dunes yet radiantly green. An American company named El Toro shuttled workers back and forth in school buses, and massive sprinkler systems watered the land. In the city of Mexicali, three blocks from a border wall where the streets abruptly ended, near a florist and a health clinic, I entered a small blue building housing a plaintiff in the lawsuit against the lining project. René Acuña, the director of the Mexicali Economic Development Council, wore a maroon shirt and sat in a leather chair and explained, calmly at first, that Mexicali wasn’t some maquiladora town. It had a million people, and its entire population could live for a year on the water taken by the new Canal Todo Americano. A third of its economy was agriculture. “Our prosperity has always been based on water,” he said. He showed me a photograph of the clear, filtered water that bubbled up from the border—not too saline, not yet. “But those fields are going to die,” he said. “And then see where the people go.”
• • •
JOHN DICKERSON HAD wanted to make sure I understood how a water-rights hedge fund like his could exist, so he took the time to explain how something like water could be bought. The concept was straightforward: In some parts of the world, a water title was like a land title. The details, on the other hand, were extremely complicated.