Unintended Consequences of NRDC v. Jewell: Withering Away the Central Valley Project?

The United States Court of Appeals for the Ninth Circuit decision in NRDC v. Jewell may seem like another stanza in an old song about the Endangered Species Act and water rights.  The en banc court held that that the Bureau of Reclamation did not properly consult with the United States Fish and Wildlife Service or the National Oceanic and Atmospheric Administration’s National Marine Fisheries Service prior to undertaking actions that could affect an endangered or threatened species or their habitat.

The action in this instance was contract renewals for the Central Valley Project.  The threatened species is the delta smelt.  According to the Ninth Circuit, the Bureau of Reclamation must engage in consultation and receive a biological opinion and shape contract renewals accordingly.

Sacramento River Water Right Settlement Contractors

From my perspective, the most interesting part of the decision involved the contract renewals for the Sacramento River Water Rights Settlement Contractors.  The district court held that the Bureau was not required to consult with the environmental agencies because the Bureau’s discretion in renewing those contracts was “substantially constrained.”  The Ninth Circuit argued that consultation is required provided that the Bureau retains “some discretion.”

The legal analysis focused on Article 9(a) of the original Settlement Contracts:

“During the term of this contract and any renewals thereof: (1) It shall constitute full agreement as between the United States and the Contractor as to the quantities of water and the allocation thereof between base supply and Project water which may be diverted by the Contractor . . .; (2) The Contractor shall not claim any right against the United States in conflict with the provisions thereof.”

The Ninth Circuit found “some discretion” for the Bureau.  First, the Bureau is not obligated to renew the contracts.  Second, the Bureau has “discretion to renegotiate contractual terms that do not directly concern water quantity and allocation.”  The Ninth Circuit observed “the Bureau could benefit the delta smelt by renegotiating the Settlement Contracts’ terms with regard to, inter alia, their pricing scheme or the timing of water distribution.”

Analysis of Ninth Circuit Arguments

The Ninth Circuit’s arguments are “legal reasoning” in a historical and factual vacuum.  The Settlement Contractors have state water rights that either pre-existed or were perfected independent of the Central Valley Project.  At the time the Central Valley Project was authorized in 1935, the prior rights of the Settlement Contractors were recognized.  For the Central Valley Project to obtain junior water rights and the project to be constructed and operated, a resolution of the Settlement Contractors’ protests to the state granting of water rights to the CVP had to be resolved.  The 1964 Settlement Contracts were the outcome.

With this history in mind, the “judicial option” of non-renewal is tantamount to the Bureau deciding, after all these years, to operate the CVP with their junior water rights subject to the Settlement Contractors’ senior state water rights.  At the inception of the CVP, this was believed not practical.  Evidently, the Ninth Circuit believes that the Bureau should revisit their analysis on the issue.

The Ninth Circuit’s other reasoning is not much better.  The 1964 contracts state both the amount of base supply and Project water and its timing.  Therefore, the Ninth Circuit’s stated Bureau discretion about “the timing of water distribution” is puzzling at best.

The Ninth Circuit’s best argument about the Bureau’s discretion may be pricing.  However, the pricing tool has limitations.  The Bureau only charges for Project water, not base supply.  Over a decade ago, I examined the water rights and water use situation of a Settlement Contractor.  Base supply rights in their renewed Settlement Contract accounted for 82% of the total contract amount.  Further, they exercised their base supply rights more intensively than their right to Project water—base supply supplied 85% of their water use.  If this circumstance is representative of the Settlement Contractors as a whole, the Bureau’s pricing discretion is targeting only a minor share of total water use.

The annual perspective, of course, obscures the timing of water use over the entire season.  Project water is available in July and August.  In the case of the Settlement Contractor I studied, Project water accounted for 38% of water use in July and 74% of water use in August.

Pricing of Project water can indeed impact the use of base supply.  Farm economics looks at the entire crop cycle.  Nevertheless, the small share of Project water in total water supply limits the ability of Bureau pricing to impact water use decisions.

The Law and Politics of Seniority

Water diversions in the Sacramento Valley and the Delta more generally impact the Delta smelt.  The fundamental policy question involves who bears responsibility for adjusting their water use to take into account the impact on the Delta smelt.  Does seniority matter?  If it does, then the focus should be on the State Water Project and the CVP water service contractors, not the Sacramento River Water Right Settlement Contractors.  If seniority does not matter, what does—perhaps some theory of equitable apportionment?

The parties to the litigation tell an interesting story.  Natural Resources Defense Council and other environmental organizations and interests have garnered the headlines.  They were joined by the Metropolitan Water District of Southern California as a plaintiff in a “related case.”  Are battle lines being drawn to “relive” the debate between seniority versus equitable apportionment that was waged in the 1990s concerning California’s entitlement to Colorado River water?

The parties that joined the Secretary of the Interior, water right holders and farming interests are also interesting—the Department of Water Resources, State Water Contractors and the Kern County Water Agency.  Was their participation driven by the understanding of the critical role of the Sacramento River Water Right Settlement Contracts in allowing the Central Valley Project and State Water Project function?

Can the Bay Delta parties learn from the Quantification Settlement Agreement on the Colorado River?  In the latter case, the parties generally avoided the courtroom and forged ahead with negotiations that included water right holders, and state and federal resource agencies.  A decade or more of litigation was avoided through a negotiated settlement.  While the Quantification Settlement Agreement has its legal challenges, the parties moved forward in accordance with the agreements reached among the parties during the litigation.  In the end, solutions were found through negotiated solutions to water resource issues.

Is it now time for working out the “grand bargain” among water users and environmental interests regarding the Bay Delta?  Continued rounds of litigation (where each round takes years) is not a recipe for success.  When will gridlock in California’s water world stop?  Low reservoir levels, increased groundwater overdraft, and vulnerability to drought and regulatory gridlock all point to California reaching a tipping point https://journalofwater.com/jow/when-will-gridlock-in-water-world-stop/.  On Colorado River matters, Governor Davis a decade ago turned to Bob Hertzberg (former Assembly Speaker) and later Richard Katz (former legislator, State Water Resources Control Board member) to “drive the bus” to a consensus solution.  Is it time for Governor Brown to do the same?  It is only a matter of time.

Written by Rodney T. Smith, Ph.D.