Pattison delays appeal hearing after Chicago Mercantile Exchange eyes water trading

The Jordan Aquifer, shown in yellow, is a key well water source across the state. A Clayton sand mining operation wants to send water from its Jordan wells to dry western states by rail tankers. (Map courtesy of the Iowa Department of Natural Resources)

A judge has granted Pattison Sand Co. a one-year delay in a hearing on its proposal to export Iowa water to western states after the Chicago Mercantile Exchange announced it would pursue water futures trading on NASDAQ.

Pattison is seeking a permit allowing it to export water from wells in Clayton along the Mississippi River to out-of-state customers.

The proposed trading of water futures in Chicago could make Pattison’s proposal more financially lucrative, or bring in competition that sours the deal, company officials told a judge. The Clayton, Iowa, sand-mining company wants to export hundreds of millions of gallons of water from Iowa to western states, company official told Administrative Law Judge Joseph Ferrentino.

A hearing on Pattison’s appeal of the Iowa Department of Natural Resources’ denial of a permit for the project now is scheduled for Dec. 1-2, 2021. It had been scheduled for Monday and Tuesday. 

James Pray, Pattison’s Des Moines lawyer, said the company will review the financial wisdom of the proposal, given the possible exchange, before deciding whether to proceed.

“Some proof of concept issues need to be dealt with,” Pray said in an interview. “In the meantime, depending on how that plays out, my client can ask to either proceed with the appeal or dismiss it before that deadline.”

CME Group, which runs the Chicago exchange, on Sept. 17 announced a proposed water futures exchange aimed at California’s $1.1 billion water industry.

Ferrentino also ruled that the nonprofit environmental group Sierra Club can’t intervene in the case because it lacks legal standing and a relevant role in Pattison’s argument with the Iowa Department of Natural Resources. Pray had argued in a brief filed with the judge that Sierra Club had not shown direct evidence that any of its members’ wells would be affected by the project.

Sierra Club had argued that granting the water withdrawal permit would set a bad precedent and would affect other users of the Jordan Aquifer, a major source of drinking water in Iowa. 

Sierra Club lawyer Wallace Taylor of Cedar Rapids said the judge denied Sierra Club’s petition to intervene “without prejudice,” which means the organization can and will try again to participate in the case if the hearing happens at a later date.

Taylor added that Sierra Club members sent 469 messages to Gov. Kim Reynolds opposing Pattison’s plan.

It is unclear if the exchange plan will make it past regulators, Taylor said.

“How can you sell a resource like Iowa water on a commodity exchange?” Taylor asked.

DNR has rejected Pattison’s permit application three times. State water officials argued that state law prevents the use of water in a way that doesn’t benefit Iowans, and that this project doesn’t qualify. They also said allowing the export would set a bad precedent that would lead to similar requests from others. 

A state hydrologist also has opposed the plan.

Pattison has said the plan would benefit businesses and residents of drought-stricken western states, and would allow the company to rehire workers sidelined by a downturn in the oil business. Pattison mines sand used in fracking.

The case now rests with the Iowa Department of Inspection and Appeals.