05 Sep Cadiz Inc. Updates Development in Federal Railroad Right-of-way Policy Pertinent to Cadiz Water Project Pipeline
US Department of the Interior Publishes New Opinion on the Scope of Railroad Rights-of-Way issued under 1875 Act
September 5, 2017
(9-5-17) On September 1, 2017, the Acting Solicitor and Principal Deputy Solicitor for the United States Department of Interior (“Interior”) issued Memorandum Opinion M-37048 related to the scope of railroad rights-of-way granted pursuant to the General Railroad Right-of-Way Act of March 3, 1875, 18 Stat. 482 (“1875 Act”). M-37048 permanently rescinds M-37025, issued by Interior in November 2011, and concludes that:
“[R]ights-of-way granted to railroad companies under the 1875 Act include the right to lease portions of their easement to third parties without BLM permit or grant provided that such leases are limited to the surface, broadly defined, of the easement and do not interfere with the continued use of the easement as a railroad.”
M-37048 further provides that railroad purposes, as have been required for third party uses, should be interpreted broadly. And, railroads have “wide discretion” in leasing access to rights-of-way and have historically undertaken a broad number of permissible incidental uses.
“Thus, even assuming the 1875 Act right-of-way is limited to a “railroad purpose,” as long as the proposed use is not otherwise prohibited, provides some incidental benefit to the railroad, and does not inhibit the continued use of the right-of-way for railroad operations, the railroad company may lease land within their 1875 rights-of-way for third party uses”.
In September 2008, the Cadiz Water Project leased from the Arizona & California Railroad Company (“ARZC”) a portion of its active 1875 Act railroad right-of-way to co-locate the Project’s water conveyance pipeline and related facilities and enable the delivery of water conserved at Cadiz to Southern California water agencies via the Colorado River Aqueduct. The Project’s activities will be undertaken pursuant to a consensual lease with the ARZC, are not inconsistent with the use of the railroad and further a multitude of railroad purposes all beneficial to the railroad.
Consequently, the Company believes the Cadiz Water Project is clearly within the scope of ARZC’s right-of-way, as defined by the new M-Opinion 37408. In May 2017, the Company’s requested that the US Bureau of Land Management (“BLM”) rescind its October 2, 2015 evaluation of the Project’s proposed activities within the ARZC right-of-way and clarify that the Project’s proposed use is within the scope of the ARZC right-of-way. These requests are still pending.
M-37048 is available at this link: https://www.doi.gov/sites/doi.gov/files/uploads/m-37048.pdf
Following the execution of the Company’s lease with ARZC, in January 2009 Interior opined that the Project’s proposed use of the ARZC right-of-way was within the right-of-way’s scope.
In January 2015, the Company, Santa Margarita Water District (“SMWD”) and the ARZC filed a joint request with the BLM seeking a, then legally-required, certification that the Cadiz Water Project was within the scope of the ARZC right-of-way and therefore needed no further federal permitting from the BLM. On October 2, 2015, the California Office of the BLM changed the position Interior took in 2009 and issued a guidance evaluation advising that the Project was not within the scope of the ARZC right-of-way. The BLM’s review was undertaken pursuant to the November 2011 M-37025 and BLM’s related implementing memoranda issued in 2012 and 2014.
The October 2015 Cadiz evaluation led to expression of concern from bi-partisan members of Congress, the railroad industry, and business, labor and agriculture communities, because it signaled that the co-location of longitudinal infrastructure within railroad rights-of-way would no longer be encouraged by the federal government, as it had for more than 100 years.
In accordance with the lease with the ARZC, the Cadiz Water Project was required to provide many benefits to the ARZC in furtherance of railroad purposes. Yet, inconsistent with the previous M-37025, these purposes were rejected by the BLM in its October 2015 evaluation, because they did not originate from a railroad purpose. The Company believed the October 2015 evaluation was incorrect and biased, as evidenced by documents received through a Freedom of Information Act request. The BLM’s October 2015 Cadiz evaluation was referred to Interior’s Inspector General, the Securities and Exchange Commission and is the subject of an ongoing investigation by the House Oversight Committee.
Further, the evaluation was controversial because it threatened the Company with a referral to the Department of Justice and the filing of a trespass action if we did not obtain a new, separate right-of-way permit to construct within the ARZC’s right-of-way. However, BLM also indicated that it was unable to accept an application, since an annual appropriations rider authored annually by Senator Dianne Feinstein expressly prohibited federal spending on the evaluation of a right-of-way application filed by the Company. That is, if the Company filed an application for a right-of-way, the federal government could not spend any funds to review it.
On March 1, 2017, nineteen members of the US House of representatives from 10 Western State wrote to the Interior Secretary to request that he withdraw the BLM’s implementing memoranda and the California Office’s 2015 Cadiz evaluation and also find that the Cadiz Water Project is within the scope of the ARZC right-of-way, summarizing: “For more than 140 years… co-locating utilities within previously granted and already disturbed rights-of-way has helped minimize additional environmental impacts and disturbances… The new standard is arbitrary and represents a gross expansion of BLM’s authority at a time when BLM struggles to meet its primary mission objectives.”
On March 31, 2017, the BLM withdrew the 2012 and 2014 implementing memoranda. The BLM has not yet acted specific to the outstanding 2015 Cadiz Water Project evaluation.