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Regional News
February 26, 2009

Las Vegas Running Out of Water Means Dimming Los Angeles Lights

By John Lippert and Jim Efstathiou Jr.

Feb. 26 (Bloomberg) -- On a cloudless December day in the Nevada desert, workers in white hard hats descend into a 30- foot-wide shaft next to Lake Mead.

As they’ve been doing since June, they’ll blast and dig straight down into the limestone surrounding the reservoir that supplies 90 percent of Las Vegas’s water. In September, when they hit 600 feet, they’ll turn and burrow for 3 miles, laying a new pipe as they go.

The crew is in a hurry. They’re battling the worst 10-year drought in recorded history along the Colorado River, which feeds the 110-mile-long reservoir. Since 1999, Lake Mead has dropped about 1 percent a year. By 2012, the lake’s surface could fall below the existing pipe that delivers 40 percent of the city’s water.

As Las Vegas’s economy worsens, the workers are also racing against a recession that threatens the ability to sell $500 million in bonds so they can complete the job.

Patricia Mulroy, manager of the Southern Nevada Water Authority, is the general in this region’s war to stem a water emergency that’s playing out worldwide. It’s the biggest battle of her 31-year career.

‘We’ve Tried Everything’

“We’ve tried everything,” says Mulroy, 56, who made no secret of her desire to become secretary of the U.S. Interior Department before President Barack Obama picked U.S. Senator Ken Salazar of Colorado in December.

“The way you look at water has to fundamentally change,” adds Mulroy, who, after 20 years of running the authority, said in January she’s ready to start thinking about looking for a new job, declining to say where.

Across the planet, people like Mulroy are struggling to solve the next global crisis.

From 2500 B.C., when King Urlama of Lagash diverted water in the Tigris and Euphrates Valley in a border dispute with nearby Umma, to 1924, when Owens Valley, California, farmers blew up part of the aqueduct that served a parched Los Angeles, societies have bargained, fought and rearranged geographies to get the water they need.

Mulroy started her push with conservation. She’s paying homeowners $1.50 a square foot (0.09 square meter) to replace lawns with gravel and asking golf courses to dig up turf. That helped cut Las Vegas’s water use by 19.4 percent in the seven years ended in 2008, even as the metropolitan area added 482,000 people, bringing the total to 2 million. It wasn’t enough.

Paul Bunyan

So she’s planning a $3.5 billion, 327-mile (525-kilometer) underground pipeline to tap aquifers beneath cattle-raising valleys northeast of the city. She’s even suggested refashioning the plumbing of the entire continent, Paul Bunyan style, by diverting floodwaters from the Mississippi River west toward the Rocky Mountains.

If Mulroy’s ideas are extreme, one reason is that the planet’s most essential resource doesn’t work like other commodities.

There’s no global marketplace for water. Deals for property, wells and water rights, such as the ones Mulroy must negotiate to build the pipeline, are done piecemeal. As the world grows needier, neither governments nor companies nor investors have figured out an effective and sustainable response.

“We have 19th-century ways of utilizing water and 21st- century needs,” says Brad Udall, director of Western Water Assessment at the University of Colorado at Boulder.

Unyielding Pressure

Water upheavals are intensifying because the population is growing fastest in places where fresh water is either scarce or polluted. Dry areas are becoming drier and wet areas wetter as the oceans and atmosphere warm. Economic roadblocks, such as the global credit crunch and its effects on Mulroy’s attempts to sell bonds, multiply during a recession.

Yet local governments that control water face unyielding pressure from constituents to keep the price low, regardless of cost. Agricultural interests, commercial developers and the housing industry clash over dwindling supplies. Companies, burdened by slowing profits, will be forced to move from dry areas such as the American Southwest, Udall says.

“Water is going to be more important than oil in the next 20 years,” says Dipak Jain, dean of the Kellogg School of Management at Northwestern University in Evanston, Illinois, who studies why corporations locate where they do.

No Cheap Water

Even before the now decade-long drought began punishing Las Vegas, people used more than 75 percent of the water in northern Africa and western Asia that they could get their hands on in 2000, according to the United Nations.

In 2002, 8 percent of the world suffered chronic shortages. By 2050, 40 percent of the projected world population, or about 4 billion people, will lack adequate water as entire regions turn dry, the UN predicts.

“We can no longer assume that cheap water is available,” says Peter Gleick, editor of The World’s Water 2008-2009 (Island Press, 2009). “We have to start living within our means.”

Over the Sierra Mountains from Las Vegas, Shasta Lake, California’s biggest reservoir, is less than a third full because melting snow that fed it for six decades is dwindling. A winter as dry as the previous two may mean rationing for 18 million people in Southern California this year, says Jeffrey Kightlinger, general manager of the Metropolitan Water District.

Across the Pacific Ocean, wildfires fueled by a 10-year drought and fanned by 60-mile-per-hour winds around Melbourne killed more than 200 people in February.

Developing Giants

In Asia, developing giants are battling pollution as their populations grow. China, home to 21 percent of the world’s people last year, has just 7 percent of the water. Nine in 10 Chinese-city groundwater systems are fouled by industrial toxins, pesticides and human waste, says Maude Barlow, the first senior adviser on water to the UN and author of “Blue Covenant” (New Press, 2007).

In India, with 1.2 billion people, three-quarters of the surface water is contaminated, that country’s government said in September.

In the Mideast, where the Dead Sea is dropping 3 feet (1 meter) a year, Israel, Jordan and Syria are diverting water upstream from the Jordan River. That’s adding another source of discord to an already volatile region.

‘Gambling, Gluttony and Girls’

“There’s a growing risk of conflict over water shared by nations, ethnic groups or economic interests,” Gleick says.

Las Vegas, an adult-entertainment haven carved into the Mojave Desert, may not draw much sympathy as a poster child for water emergencies.

For decades, new residents imported their cravings for lawns, sprinklers, pools and golf courses to a region that receives 4 inches (10 centimeters) of rain a year, about 1/10 of what Chicago enjoys. Casinos and hotels with water slides and river rides sucked up limited groundwater.

Until the real estate meltdown, Nevada was the fastest- growing U.S. market, with a 33 percent surge in new homes from 2000 to ‘07.

Now the city is getting a dose of reality, says Cecil Garland, a rancher in neighboring Utah who opposes Mulroy’s groundwater pipeline.

“Las Vegas is a place of gambling, gluttony and girls,” Garland, 83, says.

He says there’s no extra water along the proposed route, which travels through valleys green with 3-foot-tall shrubs called greasewood. If pumping kills the greasewood, dust storms that plague his town of Callao would soar 5,000 feet into the sky, he says.

‘Driest Areas’

“We live in one of the driest areas of the driest part of the U.S.,” Garland says. “How in the world can anybody with reason or common sense think they can pump water in the amount they’re talking about and leave the integrity of the valley in place?”

Mulroy says Nevada’s resorts use 3 percent of the state’s water compared with 90 percent going for farms and ranches.

For the past two decades, Mulroy, a lifelong government employee whose business attire tends toward pantsuits with the collar of her blouses pointed up behind her neck, has wrestled with the competing truths that dog all water managers: There’s only so much to go around, somebody has already claimed most of it, and citizens and companies keep demanding more.

“People view water as a human right and expect it to be virtually free,” says Michael LoCascio at Boston-based Lux Research Inc., which analyzes water issues. “Governments respond to that, and you end up with inefficiency.”

Without price-setting markets, water that cost 33 cents a cubic meter for the first 15 cubic meters delivered to homes in Memphis, Tennessee, in June 2007 was $3.01 in Atlanta and 57 cents in Las Vegas.

That’s cheap compared with Copenhagen, where the same amount that month was $7.71 per cubic meter, Gleick says.

Human Survival

Robert Glennon, a University of Arizona law professor, says governments must provide enough water for human survival. Beyond that, only freely functioning markets can allot it to people who need it most, he says.

Fast-growing cities should buy from farmers who use water on marginal land, says Glennon, author of “Unquenchable” (Island Press, 2009). That would cut inefficiency caused by irrigating deserts, such as those around Las Vegas, to raise alfalfa or beef, he says.

Worldwide, about 60 percent of fresh water goes to irrigate crops through flooding, losing 70 percent of the moisture to evaporation, Lux Research says.

Rudimentary Markets

The rudiments of water markets are cropping up across the American West.

In 2005, after 19 years of negotiations, Los Angeles’s Metropolitan Water District signed a 35-year “dry year option” with the Palo Verde Irrigation District south of Las Vegas in California. Los Angeles pays 7,000 farmers to leave land fallow during droughts and ship their water to city residents. The city gives a one-time payment of $3,170 an acre (0.4 hectare) to farmers who sign up and then $630 per year for every acre not farmed.

Companies and investors that see moneymaking opportunities in strategies to quench the world’s thirst may draw lessons from corporations that have tried.

In October, General Electric Co. named the third head of its water unit in three years. GE had paid $3.8 billion to buy several treatment and filtration companies, including Watertown, Massachusetts-based Ionics Inc., which makes reverse-osmosis membranes for purifying salt water.

Big Deals

Last year, GE opened a $250 million desalination plant, Africa’s largest, with state-owned Algerian Energy Co. GE had hoped to profit from its newly acquired water technologies with the backing of its General Electric Capital Corp. financing arm, says Jeffrey Fulgham, chief marketing officer for the Trevose, Pennsylvania-based unit. Instead, GE wound up footing a lot of the building work for the plant, he says.

“At the end of these big hardware deals, there isn’t much profit,” says Fulgham, who adds that GE now focuses on water technology and avoids construction.

Pure Cycle Corp., which buys and transports water for housing developments near Denver, seemed to have scored a windfall. Starting in 1976, it paid $110 million for water rights valued at $4 billion last year, Chief Executive Officer Mark Harding says. Yet shares in the Thornton, Colorado, company tumbled by 47 percent during the six months ended on Feb. 25. to trade at $3.25 apiece.

The real estate slowdown convinced investors that profits from water rights may be years away, Harding says.

Just financing water for municipal use is getting harder in the global recession.

$8.3 Billion

The southern Nevada authority is about halfway through a 30-year, $8.3 billion construction campaign. Last year, 57 percent of the money for it came from a $6,310 fee to hook up new homes. The Las Vegas real estate slump is so severe that total hookup collections dropped to $61.5 million last year from $188.4 million in 2006. Mulroy says the authority actually lost money on hookups in January because of refunds to developers who abandoned construction projects.

As a result, reserves in the construction fund dropped 6 percent in the first six weeks of 2009, to $480 million. Without those reserves, Mulroy says, she couldn’t assure investors the authority would be able to repay the $500 million in bonds she plans to start selling by early fall to complete the Lake Mead project. The authority had $3.9 billion in liabilities on June 30.

‘Rub Two Sticks Together’

The authority also gets money from water deliveries, property taxes and fees from federal land sales. If she has to protect the reserves, Mulroy says, she’ll raise water rates, which total about $21 a month for a single-family home.

She’s asked fellow Nevadan Harry Reid, the U.S. Senate majority leader, for a federal guarantee on the bonds. Reid is exploring how to help big municipal water systems, including Mulroy’s, get easier access to credit, spokesman Jon Summers says.

In February, Mulroy presented such a dire description of the authority’s finances to the Nevada legislature that Jerry Claborn, chairman of the Natural Resources Committee, told her, “You’ll have to do like you did years ago: rub two sticks together.”

Mulroy said afterward she wanted to quash any notion that cash-strapped legislators could appropriate her reserves for some other purpose.

To Richard Bunker, who hired her as an administrative assistant when he managed Clark County, Nevada, in 1978, Mulroy’s hardball tactics are a delight.

“She walks into a room with guys who’ve been on the river 50 and 60 years and they just cringe,” he says with a smile.

‘Pay Me Enough’

One thing Mulroy has ruled out, even in the economic meltdown, is using water as an excuse to limit Las Vegas’s growth.

“During the next 50 years, this country’s population is expected to explode by another 140 million,” she says, citing U.S. Census projections. “I always ask, ‘Where do you want the people to go?’”

Mulroy also opposes the idea of privatizing water, or giving investors power to set prices.

“You’d be telling people, ‘Pay me enough or I withhold it,’” she says, her voice rising, in the cafeteria of Clark County’s terra cotta-colored municipal headquarters. “It’s like you’re telling me I can live.”

Mulroy’s unflagging commitment to keeping Las Vegas green and growing gets the blessing of casino owner Stephen Wynn.

“Pat is the best public servant I’ve met in my 40 years on the Strip,” says Wynn, who credits her with teaching him to save money by using treated groundwater for the lagoons surrounding the artificial volcano at the Mirage hotel, now owned by MGM Mirage.

Lake Mead

Finding the water for casinos is one reason crews are working around the clock at Lake Mead.

In 2002 alone, lack of rainfall lowered the deep-blue waters by 24.6 feet, leaving white bathtub-ring-like marks on the brown cliffs and stranding docks half a mile from shore.

Today, the lake is 1,112 feet above sea level. Should it fall to 1,075 feet, the federal government would cut the water to seven states that depend on the Colorado River, according to an agreement they all signed in 2007. If that happens, the states would likely renegotiate a 1922 pact that divided up the river’s water rights in the first place, Mulroy says. Mexico’s allocation under a 1944 treaty could also change.

If the drought persists and more water is diverted from the Colorado, the lake could drop to 1,050 feet. That would prevent water from flowing into the intake pipe and cut 40 percent of Las Vegas’s supply -- the disaster Mulroy is trying to head off. Hoover Dam, completed in 1935 to regulate the river and form Lake Mead, wouldn’t be able to produce electricity for the 750,000 people it supplies in Los Angeles.

No More Water

At 1,000 feet, the remaining intakes and the rest of the Lake Mead water would go. Because of climate change and population growth, chances of this are as great as 50 percent by 2026, the University of Colorado’s Udall says.

When Mulroy, a daughter of a civilian employee of the U.S. Air Force, arrived in Las Vegas in 1974, the city had yet to be consumed by a water quest. Until the 1940s, parts of downtown had freely flowing springs.

Mulroy, a native of Germany, studied German literature; got her master’s degree from the University of Nevada, Las Vegas; and went to work for Bunker at Clark County. A Mormon bishop, he later ran the state’s Gaming Control Board and the Nevada Resort Association.

Shoeboxes

Bunker supported her promotion to administrator for the county justice court, which was storing records in shoeboxes when she took over. In 1989, he backed her as general manager of the Las Vegas Valley Water District, which the state legislature had formed four decades earlier. Mulroy helped create the seven- community Southern Nevada Water Authority two years later.

“Absent her being here, I don’t know where we’d be,” Bunker says.

Around the time Mulroy became water czar, Wynn unleashed the era of Wall Street-financed megaresorts with his 30-story Mirage. He tinted the hotel’s windows with real gold.

Mulroy raced to boost water deliveries throughout the city by as much as 20 percent a year. With Bunker’s help, she started planning the pipeline to tap melting snow under Wheeler Peak, Nevada’s second-highest mountain.

The pipeline’s planned path runs northeast out of Las Vegas, enters Lincoln County and passes through the Pahranagat National Wildlife Refuge, where, in December, gold leaves of cottonwoods shimmer and migratory birds swoop onto lakes fed by artesian springs. Farther north, hilltops are dotted with abandoned mining towns and bands of wild horses.

‘Already Spoken For’

As Mulroy marched north to secure land and permits, she ran headfirst into what Gleick says is a fundamental truth about water across the U.S. and other parts of the world.

“Nearly every drop is already spoken for, often more than once,” he says.

Determined to get what she required, Mulroy went into horse-trading mode.

“You need a large amount of money and some very powerful people to make water projects happen,” says Greg James, a California water rights attorney and a consultant for pipeline opponents.

She struck a deal with Harvey Whittemore, then Nevada’s top gambling lobbyist. Members of Whittemore’s law firm include Rory Reid, Harry Reid’s son. The younger Reid later served as the water authority’s vice chairman, from 2003 to ‘08.

120,000 New Homes

Whittemore, 56, is also a developer who’s planning a new suburb called Coyote Springs, 55 miles north of the Las Vegas Strip. Even with the real estate crash, Coyote Springs will have 120,000 homes and a dozen golf courses when it’s finished in four or five decades, he says.

Whittemore’s land included one of the most productive wells ever drilled in southern Nevada. He sold 9,000 acre-feet of groundwater that he wasn’t using to Mulroy for $30.1 million. (One acre-foot equals about 326,000 gallons, or 1,240 kiloliters, enough for two average U.S. homes for a year.) That led to what Mulroy describes as a partnership in which Whittemore will help pay for the pipeline and use it to ship water to Coyote Springs.

In 2003, Mulroy bargained with reluctant officials in neighboring Lincoln County, persuading them to drop opposition to the project by ceding back to them some of the water rights that she held.

In 2006, farther up the route, she learned how tough the water business can be. She paid $22 million for a ranch that had cost $4.5 million six years earlier. The seller, Carson City, Nevada-based Vidler Water Co., a unit of PICO Holdings Inc., based the price on similar purchases Whittemore had made, Vidler President Dorothy Timian-Palmer says.

Fight Over Greasewood

Last year, Mulroy got into a fight over greasewood with Tim Durbin, a hydrologist who’d once been a consultant for her. Durbin disputed Mulroy’s assessment that the pipeline would avoid major damage to the shrub. In his rebuttal, Durbin described a scene that still touches an open wound in the psyche of the American West.

In 1913, William Mulholland built a 223-mile aqueduct from Owens Valley in California’s Sierras to Los Angeles, where he was water superintendent. The aqueduct drained a 40-foot-deep lake, exposing the valley floor and unleashing dust storms that plagued Los Angeles throughout the 20th century. The aqueduct also inspired the 1974 movie “Chinatown.” In 1970, Los Angeles built a second aqueduct.

‘A Model’

Today, the valley’s 75-mile-long expanse looks like it did a millennium ago. The water diverted to Los Angeles makes economic development in the valley impossible.

“Because of groundwater pumping, vegetation was disappearing in the Owens Valley,” says Durbin, who was chief hydrologist for the U.S. Geological Survey in California and Nevada before becoming a private consultant in 1984. “It’s a model for what one would expect in eastern Nevada.”

Because of such memories, Mulroy hasn’t won many friends among eastern Nevada’s old-timers.

Rancher Dean Baker fears Mulroy’s pipeline would drain the water that’s let him survive in Snake Valley, in the shadow of Wheeler Peak, for more than half a century.

Baker, 69, remembers when people staked uranium claims only to realize their Geiger counters were clicking because of residue from atomic tests outside Las Vegas. He recalls flying solo in a Piper J-3 Cub before he could drive.

Most of all, Baker remembers water. He rose at dawn to deliver it to cattle 50 miles away. He culled his herd and watched greasewood wither during droughts. It took 20 years for him to afford a backhoe with a jackhammer that could break rocks that covered a spring on his ranch.

Legacy of Dust

“Water is the limiting factor in everything we do,” Baker says. “The legacy of this pipeline will be dust.”

Baker says people who want to move to Las Vegas should look instead to Mississippi and Louisiana. “People should go where there’s water,” he says.

Mulroy says her job is to bring water to the people. Last year, she said she thought the proposed pipeline could begin transporting water in 2015. Now, because of the recession, she doesn’t know when she’ll have the money to build it.

She says she’ll wait for the economy to recover to decide -- unless Lake Mead drops even more and forces her to act.

Mulroy’s struggle to get water to a growing desert population wouldn’t have surprised John Wesley Powell, the first known explorer to pass through the entire Grand Canyon 130 miles east of Las Vegas.

“You are piling up a heritage of conflict and litigation over the water rights,” he told the International Irrigation Congress in Los Angeles in 1893. “There is no sufficient water to supply the land.”

‘Little Bubbles’

Four generations later, Mulroy is a veteran of these age- old conflicts. She says the region’s water emergency is becoming more dangerous because of climate change and population growth. The crisis is too big to be solved one river or one continent at a time, she says.

“We’ve managed water in such small, incremental units,” she says. “We won’t be able to survive in our little bubbles.”

Even people who agree with Mulroy’s warning won’t have an easy time acting on it. As she has, they’ll discover the effort it will take to quench the world’s thirst and realize that the time and money to do so -- like water itself -- are running short.

To contact the reporter on this story: John Lippert in Chicago at jlippert@bloomberg.net

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