June 5 (Bloomberg) -- Cadiz Inc., the owner of thousands of acres of California desert that’s trying to break into the water business, signed preliminary agreements with four municipal water agencies and a public utility that would allow it to supply more than three million customers in the state.

The agencies and Golden State Water Co., a unit of American States Water Co., agreed to participate in Cadiz’s water-supply project, Los Angeles-based Cadiz said today. The shares rose 45 percent in Nasdaq Stock Market trading, the most since October 2002.

Cadiz wants to supply water to San Bernardino, Riverside, Orange and Ventura counties to become profitable for the first time since 1990. The plan would help municipalities cope with shortages and allow the company to realize a decade-long plan to store water under land in the Mojave Desert and ship it by pipeline to customers. The project had been opposed by environmentalists and U.S. Senator Dianne Feinstein.

These new agreements “will generate long-term, sustainable new water for the benefit of Southern California,” Scott Slater, Cadiz’s general counsel, said in an interview. “The project is the conservation of water that would otherwise evaporate.”

Cadiz, founded in 1983 by British-born entrepreneur Keith Brackpool, owns 70 square miles (181 square kilometers) of land in eastern San Bernardino County. Since the mid-1990s, the company had sought to pull water from the land’s aquifer during dry periods, then use surplus water from the Colorado River to replenish the aquifer during rainy years.

Winning Support

The company now plans to capture rainwater that would otherwise evaporate, add it to the groundwater supply, then pump it and transport it south. The project will cost about $200 million. Cadiz has been growing lemons on 260 acres (105 hectares) of land and dried-on-the-vine raisins on 160 acres while developing the plan.

Cadiz officials said they think the new plan will satisfy environmentalists. It has already won the support of the Natural Heritage Institute, a San Francisco-based conservation group, and California Governor Arnold Schwarzenegger.

“This innovative project, utilizing sophisticated water conservation practices, will sustainably recover more than one million acre feet of water that would otherwise be lost to evaporation and make it available to help provide a reliable source of water for Southern California,” Schwarzenegger said in a statement.

‘Deeply Concerned’

Slater said he also hopes to gain the backing of Feinstein once a complete plan is ready to be presented. Feinstein said today that she still objects to the project even with the planned revisions.

“I am deeply concerned,” Feinstein said in an e-mailed statement. “Although I have not yet seen any formal proposal, I will be looking into this very carefully. If Cadiz intends to drain the water from under the desert, destroying the Mojave ecosystem, I will do everything I can to stop it.”

Cadiz rose $3.90 to $12.50 as of 4 p.m., giving the company a market value of $156.4 million. The shares last traded higher in January. The stock was down 47 percent in the 12 months through yesterday.

Golden State Water, the agencies and Cadiz will serve more than 3 million customers.

Profitability

The project will lift Cadiz to profitability in its first year of operation, Chief Financial Officer Tim Shaheen said. It will take several years to recover the $400 million spent on the project by completion, he said. Shaheen declined to be more specific.

Cadiz in 2008 had a $15.9 million loss on revenue of $992,000, according to a filing with the U.S. Securities and Exchange Commission.

In the city of Los Angeles, population growth is expected to boost water demand by 15 percent by 2030, and the city has restricted the hours residents can water lawns and banned restaurants from serving water to customers who don’t request it.

“Southern California needs alternative water supplies,” said Denise Kruger, senior vice president of regulated utilities at San Dimas, California-based Golden State Water, which has signed a letter of intent with Cadiz. Golden State supplies water to about 625,000 people, with most of its customers in three Southern California counties. “It’s a great project,” she said of the Cadiz plan.

The project, which includes a 44-mile (71-kilometer) underground pipeline to move water south, will need to be reviewed under the California Environmental Quality Act.

Water District

Kruger said she is waiting to see what arrangements Cadiz is able to make with the Metropolitan Water District of Southern California, a group of 26 cities and water districts that supplies water to almost 19 million Californians. Cadiz sued the district in 2005 after it abandoned plans to jointly build a previous version of the project. A settlement was reached this February.

Slater said he expects the district to back the project. District officials didn’t immediately respond to a request for comment.

San Bernardino County Supervisor Brad Mitzelfelt, whose district includes Cadiz’s land, said it appears to be a good plan.

“I believe it’s a viable project, and I think it will be a critical part of the future water supplies for San Bernardino County and Southern California,” Mitzelfelt said in an interview. “Projects like it are really going to be more and more necessary in the future.”

To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net.

Last Updated: June 5, 2009 18:19 EDT