For more than 100 years and maybe back to the days of outlaw Butch Cassidy, water from the Green River has nourished fields of sweet watermelons near the tiny town of Green River, Utah.

But now a part of that water may be siphoned off for another use: cooling the twin reactors of a nuclear power plant that would tower above the town and its melons.

The nuclear facility is the concept of Blue Castle Holdings, a Utah-based and politically connected upstart nuclear development company that has been working on the project for more than three years.

If the $16 billion facility is built, it would generate 3,000 megawatts of electricity, enough to power 3 million households.

It also would be a further drain on the Green River, one of the most robust tributaries of the shrinking Colorado River, which serves 30 million people and Mexico along with irrigating 3.5 million acres of cropland. The river that once flowed freely 1,450 miles from its headwaters in the Rocky Mountains of Colorado and into the Gulf of California has been used so ruthlessly that it now slows to a dribble 50 miles short of the sea.

The plant would consume about 53,000 acre feet of water annually to cool its reactors and generate steam to power its turbines. That’s enough to supply 200,000 people—roughly the population of Little Rock, Ark., or Tacoma, Wash.—for a year.

Blue Castle’s proposal reignited a long-standing debate over how much more water can be drained from the Colorado River system before the river can no longer sustain the cities, farms and industries that have grown up around it. The Colorado’s water has been divvied up, wrangled and fought over for more than a century, resulting in a tangled web of water rights that allots specific amounts of water to seven western states and hundreds of local water districts.

Still, Utah’s state engineer, the ultimate arbitrator on how water is used in Utah, has already given approval for the project to proceed using the Green River water. With that authorization in hand, Blue Castle can move on to the next phase—the laborious process of seeking consent from the Nuclear Regulatory Commission.

Utah’s approval came with an ominous caveat, however, which was included in a news release issued by the state’s Department of Natural Resources: “Approval of the application does not guarantee sufficient water will always be available from the river to operate the plant.”

The news release added that Blue Castle would have to have contingency plans if, for some reason, less water is available. The company plans to solve that problem by building an onsite reservoir that would hold a 30-day supply of water.

Blue Castle’s chief executive officer is Aaron Tilton, who sat on the legislature’s utilities committee, where he was an outspoken proponent of nuclear energy. While he was still in office, Tilton formed a nuclear energy development company, a forerunner to Blue Castle. When he testified about the project before the utilities subcommittee, on which he served as vice chairman, he attracted a storm of unfavorable publicity.

Blue Castle’s management team includes a past NRC chairman, former nuclear industry executives and a former general manager of Intermountain Power Agency, one of largest power producers in the Western United States.

In an interview with InsideClimate News, Tilton acknowledged that “water is everything” in the West. But he also pointed out that the nuclear facility will use less than one percent of Utah’s water allotment while increasing the state’s electricity production by 50 percent.

“This is Utah’s water to use as it sees fit,” he said. “We’re not taking water away from anyone.”

In fact, Tilton says that by leasing the water, his project will help Utah preserve its water rights for future generations.

“Then in 60 years, at the end of the generator’s life, the water will be returned to the state for drinking or agricultural use when it may be needed for those purposes,” he said.

Tilton also argued that nuclear power generators use far less water than other thermal generating facilities, especially the coal-fired plants that have dominated western power generation for decades.

“If we are talking about water conservation, the most efficient use of water is thermal nuclear generation,” he said.

Opponents of the Blue Castle project are trying to stop it before it goes any further. More than 200 environmental groups, residents, business owners and the U.S. Bureau of Reclamation filed protests when the state engineer, Kent Jones, was considering Blue Castle’s application. The opponents were on edge about the disposition of radioactive fuel rods and the consequences of a nuclear meltdown. But water use was their primary worry.

“The stark reality is we are going dry,” said John Weisheit, conservation director for Living Rivers, a Moab, Utah-based environmental organization. “This project has a complete lack of water consciousness.”

Weisheit also complains that the power the plant would produce wouldn’t be used in Utah, but in California and surrounding states. A study by the Western Electricity Coordinating Council predicts the region’s power needs will grow 1 and a half percent per year over the next decade.

“The people living here ask why do we have to take all of the risks but not get any of the benefits,” Weisheit said.

Neither the Bureau of Reclamation nor any other federal agency has authority over how water from the Colorado River system is used. But the bureau did have two concerns about the project—that endangered fish in the Green River be protected and that the water rights of Utah’s residents would supersede the water rights of the nuclear facility. Both those concerns have been satisfied, and the bureau hasn’t taken an official position on the project.

However, Wayne Pullan, a deputy manager for the bureau’s Utah office, said new demands on the water must be carefully considered.

“Regardless of what the public thinks about the generating facility, the public needs to think about the water footprint of this plant,” Pullan said. “Whether the public is in favor of this plant or not, the public must ask if the use of water for this purpose is the most beneficial use of the water.”

Among those monitoring the project is Brad Udall, director of the National Oceanic and Atmospheric Administration Western Water Assessment Earth Research laboratory at the University of Colorado in Boulder.

In the scheme of things, Udall says withdrawing another 53,000 acre feet of water from the Colorado may not seem like a big deal. But he said every new use must be carefully considered because the river is taxed almost to its limit. Climate change is taking a toll, too. Research done by Udall’s laboratory shows it could cut the river’s flow by 20 percent in the next 40 years.

“This is a very fragile balance,” Udall said. “If there isn’t a shift in priorities for the river, the demands on the river will become far greater than the available supply.”

Water Rights: Counties to Reap Windfall

The 1,700-acre site for the Blue Castle facility is five miles northwest of Green River city. Almost 4.4 million acre-feet of water flow by the town every year, but to tap into it Blue Castle had to secure the appropriate water rights, a commodity hoarded like gold in the West.

The company found two local water districts, one in San Juan County and the other in Kane County, which had water rights to the Colorado River system but weren’t using their full allotment. Both districts say they won’t need the water for decades and will reap a financial windfall—$800,00 for San Juan County and $1 million for Kane County annually—by selling the water instead of letting it flow down the river.

The executive director of the Kane County district was Mike Noel, who served with Tilton in the Utah legislature. When Tilton was vice-chair of the legislature’s Public Utilities and Technology Committee, Noel was the chair.

Once the water rights were secure, Blue Castle turned to Jones, the state engineer, for permission to use the water for the nuclear plant.

Under Utah law, applications for water rights must be approved if the applicant can demonstrate that a number of requirements have been met, including securing a water source and demonstrating that existing water rights won’t be impaired and that the project is financially feasible.

After Jones approved Blue Castle’s application in January, the project’s opponents filed an appeal. Jones rejected the appeal in March.

“That amount of water is not a lot on the Green River,” Jones said in a prepared statement released at the time of his decision. But he also acknowledged that the Blue Castle water is “a significant portion of the water Utah has left to develop on the Colorado River and a significant new diversion from the Green River.”

The project’s opponents filed a lawsuit in Utah district court on March 27, asking that Jones’s decision be overturned. They are attacking the project on a number of fronts, including its financial stability, its harmful impact on the river, the detrimental effect on current water users and the river’s diminishing capacity.

“The state engineer had an obligation take a close look at the withdrawal of so much water for such a risky plan,” said Sarah Fields with Moab-based Uranium Watch, one of the plaintiffs. “He didn’t do it.”

Tilton is confident the lawsuit will fail. He said his critics “are simply wrong and have no credibility.”

Project Stuck in a Financial Mire

Money, not water, may be Blue Castle’s Achilles’ heel.

In June 2010, the company issued a news release announcing that LeadDog Capital, a New York-based hedge fund, was a major financial backer and had pledged up to $30 million toward the project in exchange for stock options.

But five months later, the Securities and Exchange Commission charged LeadDog with scamming investors, and Blue Castle distanced itself from the hedge fund.

Blue Castle now maintains it never received any backing or funding from LeadDog and says the company had merely expressed an interest in the nuclear project, like a number of other potential investors. Tilton wouldn’t release the names of its current roster of investors but said they are all viable financial partners.

But Matt Pacenza, policy director for HEAL Utah, a group that opposes nuclear power and favors clean energy and is one of the plaintiffs in the lawsuit, doesn’t think Blue Castle has the financial wherewithal to pull it off.

A review of the NRC’s website shows that the pending requests for plant construction come from billion-dollar utilities, including the Tennessee Valley Authority, Detroit Edison Company and Duke Energy.

“If you look at the American Nuclear industry proposals, they come from giant utilities who can contemplate multi-billion dollar projects,” Pacenza said. “… It makes no sense to award so much of our state’s precious water to a project with such a shaky financial foundation.”

Ellen Vancko, a nuclear engineer and climate change project manager for the Union of Concerned Scientists, also doubts that the project is viable.

“It looks like this is a project in search of a customer, a project in search of a final plan,” she said. “What I see is only a project on paper.” The Union of Concerned Scientists is a national nonprofit that monitors environmental issues and nuclear power.

Tilton defended the project, saying that the state engineer had examined and approved the company’s finances. He said Blue Castle is financially strong enough to pay for the NRC’s initial Early Site Permit review, which he hopes will begin within a year. Once the NRC has signed off and development begins, Tilton said a number of utility companies are prepared to jump in with billions in financial backing. He envisions the utilities owning up to 90 percent of the completed project.

Tilton said more than a dozen utilities from throughout the west are already interested in buying power from the Blue Castle facility. He declined to identify them because he said they want to remain anonymous at this point.

“The demand for this power is there,” he said. “There is such a level of uncertainty on the future availability of power generated by other means that we offer a solution.”

But Vancko of the Union of Concerned Scientists said nuclear power isn’t an economical solution.

“When you compare nuclear power with other sources, especially natural gas and renewable energy sources like wind, nuclear is vastly uneconomical,” she said. “So the question is who would want to buy this expensive power.”

Plant Proposal Divides a Town

In tiny Green River city, passion runs high both for and against the Blue Castle project.

Bob Quist is second-generation owner of Moki Mac River Expeditions, a whitewater river running company started by his father in 1947. He fears the nuclear plant will scare tourists away and overwhelm the little town, which has no stop lights on its main street and just 15 seniors in the high school’s class of 2012.

People don’t want to float though one of the most pristine settings in the west only to be confronted by a steam belching behemoth, said Quist, who hopes to pass his rafting company on to his children.

“It just doesn’t make sense,” he said. “There are so many things wrong with the idea … Green River would be overwhelmed.”

Green River Mayor Pat Brady, who teaches math and coaches track at the high school, disagrees. The plant would bring in thousands of construction workers and then leave behind hundreds of permanent jobs. For a town whose median income and housing values rank well below the state average, Brady said the new prosperity leaves nothing to apologize for.

Already the city is making plans to accommodate the influx by developing new zoning laws and preparing strategies for upgraded city services.

“If we are to survive, we need Blue Castle,” Brady said.

The town is behind the idea. In the November election Brady said pro-nuclear candidates were pitted against anti-nuclear candidates for three of the five city council seats—and all the pro-nuclear candidates came out on top.

“We do understand the concerns that have been raised about the water and environment,” the mayor said. “But we really feel that the economic benefit to the community is much more important.

“I am placing my faith in Blue Castle and what they are telling us.”