Title: The Shape of Transfers to Come: A Model Water Transfer Act for California
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/WL00002778/00001
 Material Information
Title: The Shape of Transfers to Come: A Model Water Transfer Act for California
Physical Description: Book
Language: English
 Subjects
Spatial Coverage: North America -- United States of America -- Florida
 Notes
Abstract: The Shape of Transfers to Come: A Model Water Transfer Act for California, by Brian E Gray, Vol 4 No 0
General Note: Box 11, Folder 2 ( 17th Annual Water Management Seminar - 1998 ), Item 15
Funding: Digitized by the Legal Technology Institute in the Levin College of Law at the University of Florida.
 Record Information
Bibliographic ID: WL00002778
Volume ID: VID00001
Source Institution: Levin College of Law, University of Florida
Holding Location: Levin College of Law, University of Florida
Rights Management: All rights reserved by the source institution and holding location.

Full Text
-_ .-' ..


The Shape of
Transfers to Come:
A Model Water
Transfer Act for
California


By Brian E. Gray"





































I. o .


Preface

This study of California water transfer policy was pre-
pared under the sponsorship of the California Business
Roundtable. the California Chamber of Commerce, the
California Farm Bureau Federation. and the California
Manufacturers Association. Its purposes are to review
California's experience with voluntary transfers of water over
the past two decades, to identify "second generation" issues
that have arisen from this experience, and to propose a
"Model Water Transfer Act for California" (Model Act) that
consolidates and improves the existing water transfer laws.
Although I served as the principal author of the Model Act
and accompanying report, the policies and text of the Model
Act were drafted with the advice of four other academic experts
on California water transfer law and western water resources
management. The members of the Advisory Group were:

Richard E. Howitt. Professor of Agricultural
Economics. University of California at Davis.'

Lawrence 1. MacDonnell. Former Director of the -
Natural Resources Law Center. University of
Colorado.

Barton H. Thompson. Ir.. Professor of Law. Stanford
University.

Henry I. Vaux. Ir.. Associate Vice President for
Agriculture and Natural Resources. University of
California, and Professor of Agricultural Economics.
University of California at Riverside

The Model Act also reflects the comments and criticism
received from water users, district managers, project opera-
tors. state and federal regulators, environmentalists, and
other persons who have an interest in California water
transfer law and policy. Members of the sponsoring organi-
zations and I conducted two sets of focus group meetings
with interested parties in four regions of the state. These
focus groups were sponsored by the Bay Area Economic
Forum. the Northern California Water Association, the
Southern California Water Committee. and the San loaquin
Valley and Tulare Basin Water Users. A separate meeting
was held with representatives of the United States Bureau
of Reclamation. the California Department of Water
Resources, and the State Water Resources Control Board. I
also received written comments on drafts of the Model Act
from a variety of other individuals and organizations.
The four sponsoring organizations endorsed the Model
Water Transfer Act in May 1996. On lune 18. 1996, Senator
lames Costa and Assemblyman Richard Katz introduced a
preview version of the Model Act as Preprint Senate Bill 15.
Brian E Cray is a Profeso of Law. Univerity of Califomia. Hastkn
College of the Law. I... 1979. University of California at Berkeley. BA. 1976.
Eonomics. Pomnom Cokleg
S-4-1


: .









VbmlI 4. Ita 0


hiC C& Gu


In preparing the Model Water Transfers Act, we
had to make a series of policy choices about how
best to improve California's water transfer laws and
to accommodate the array of interests affected by
those laws. These choices are described in detail
below A: :he outset. however, it is important to
identify the premises on which the Model Act and
report are based. These premises include:

Market allocation of resources. including
water. is preferable to other systems of alloca-
tion. such as allocation by government plan-
ning and reallocation by government fiat. A
:ree market for water would increase both the
efficiency of the use of water and the efficien-
cy of the allocation of water in California.

Markets generally do not take into account
costs to third parties. Therefore. the water
transfer laws must ensure that market-
based transfers do not cause significant
harm to third parties and that any unavoid-
able harm is mitigated or compensated.

Secure property rights are a prerequisite of all
market-based systems of resource allocation.
Although the reasonable and beneficial use
doctrines, forfeiture laws. the public trust. and
the panoply of statutes that protect water
quality. instream uses, and endangered
species render water rights (and contract
rights to water less certain than other forms
of property rights. the law must recognize that
parties to water transfers require enhanced
protection of water rights before, during, and
at the conclusion of water transfers.

Open access to the existing regional and
statewide water supply infrastructure is
essential to the creation and expansion of
markets for water in California. This is
true both for intraregional and interre-
gional water transfers.

Reduction of transaction costs would help
to encourage future voluntary water trans-
fers. The water transfer review procedures
therefore should be expedited to the extent
possible without undermining necessary
protections for third parties who may be
adversely affected by water transfers.
I. McDonald v Bear River 6 Auburn Water Mining Co. 13
Cal. 220. 2320-13 118591. The Court later held that the transfer of
water or water rights must not be to the prejudice of the rights of
others. Butte TM Co. v Morgan. 19 Cal. 609. 61 11862): s Scott
v. Fruit Growers Supply Co.. 258 P 1091. 1097 (19271. This protection


Water transfers are an essential feature of
California's water resources policy and will become
increasingly important as the demand for water
continues to grow in relation to available supplies.
Thus. it is imperative that California's water transfer
laws keep pace with the economic. social, and envi-
ronmental needs of the state. In presenting this
Model Water Transfer Act for California. the author
and Advisory Group members hope to build on the
experience of the past two decades and to help give
shape to the transfers yet to come.

I. Introduction

Water transfers are not new. In fact. voluntary
transfers and changes in water rights have been part
of California water law since its inception, lust as
California was the first state to adopt the prior
appropriation system, so too was it the first to rec-
ognize that water rights may be transferred-inde-
pendent of land-from the original appropriatcr to
another user. Thus, as early as 1859 the California
Supreme Court declared that "Itlhe ownership of
water, as a substantive and valuable property right.
distinct sometimes. from the land through which it
flows ... may be transferred like other property."'
Yet, for much of the state's history, water trans-
fers contributed little to the development and allo-
cation of California's water resources. When water
users in the growing agricultural and urban areas of
California needed additional supplies, they either
pooled local resources or sought government fund-
ing to construct new water projects. The hallmarks
of this era of development include: the All-
American Canal. which delivers Colorado River
water to the Imperial and Coachella Valleys; Los
Angeles' Owens Valley and Mono Basin projects;
San Francisco's Hetch Hetchy system: the East Bay
Municipal Utility District's Mokelumne River facili-
ties; the Colorado River Aqueduct, which supplies
Colorado River water to much of Southern
California; and. most importantly, the Central
Valley Project (CVP) and the State Water Project
(SWP). which completed what Norris Hundley has
called the "hydraulic society."2
The vast interregional water supply infrastruc-
ture created by these projects makes it possible
today for farms in Kern County to irrigate their crops
with water from the Pit River in Modoc County, for
businesses in the Silicon Valley to produce comput-
er chips using the runoff from Mount Lyell in the
of the interests of third-parties remains the principal limitation on
transfers of water in California. Se C.. WAra Coocs 4 1702. 1706
(West 1996).
2. Nonse HumnrtY. Ils. TH GCau Th' CAumroNians
WAT 201 19921.


0


54 -2


I


--M" C y









M IQA


. %"a of WA


Yosemite back country, and for the residents of San
Diego to drink water that originated as snowfall out-
side of Pihedale. Wyoming. Indeed, without the era
of large-scale water development, the California
that we know today would not exist. As William
Kahrl has observed. "Itlhe history of California in
the r entieth century is the story of a state invent-
ing itself with water."'
it would be astonishing. however, if the alloca-
tion of the state's water resources that occurred
over the course of the last one hundred forty years
represented the optimal distribution for the late
twen:.eth and early twenty-first centuries. As
Caii:crnia's economy has moved from gold dust to
silicon chips. and as the state's population has
grown to more than thirty-five million, demands for
water have both expanded and shifted. Yet. the tra-
ditional response to the forces of change-develop-
ment of new supplies-is no longer an easy option.
Several factors have contributed to this new
reality. First. the inflation of the 1970's significantly
increased the cost of new water projects, and the
burgeoning federal budget deficits of the 1980's led
to severe cutbacks in federal funding for such pro-
jects Second. the 1981 decision by Secretary of the
Interior Cecil Andrus to include the north coast
rivers in the National Wild and Scenic Rivers System
precluded future development of a source of new
surface water supplies that equals the combined
annual yield of all of the rivers of the Central Valley.'
Third. the California voters' decisive rejection of the
Peripheral Canal in 1982 signaled an end to the
public's willingness to pay for expensive new water
projects. at least in the absence of a showing of
comneiling need for the new supplies. The defeat of
the Peripheral Canal also demonstrated the power
of environmentalists as a third force in California
water politics, along with urban and agricultural
interests.* Fourth, a series of judicial decisions and
other laws required existing water supply facilities


to be operated to protect the natural environment.
These legal developments made it increasingly dif-
ficult to construct new projects that potentially
would exacerbate environmental problems.'
in response to these limitations on the devel-
opment of new water sources, a number of partici-
pants in California water policy argued that it had
become increasingly important to make better use
of existing sources. In the late 1970's and early
1980's. a handful of observers put forward a seem-
ingly radical idea-to allow free market forces to
guide the reallocation of the state's water resources
by creating price incentives to use water more effi-
ciently so that the surplus could be purchased by
users in areas of new or higher-valued demand.
Early proponents of "water marketing" in California
included the Rand Corporation and the Governor's
Commission to Review California Water Rights Law.
which published influential reports on California
water policy in 1978. The Rand study involved an
extensive analysis of water pricing and other eco-
nomic influences on water use and water resources
planning. It concluded that the available evidence

strongly suggests that when the appropriate
incentives are presented to current water
users, they will respond by making their
water use more efficient, that water within
the state will on average be put to higher-
valued uses. and that the construction of
new and expensive facilities for water devel-
opment can be postponed or eliminated.s

The Governor's Commission echoed this con-
clusion. It noted that increased "construction costs
and concern for environmental quality have made
more difficult the new water supply development
designed to meet the projected water deficit" and
concluded that "Irleforms in existing water rights
laws could encourage ... more efficient use of water


3 WIltuA L KAICm4. WArm Amo POWtu The Conwucr ovm Los
AN LaS W.AT SuPmIY iN Owu VAU v I (1982).
4 See David Rogers. Federal Budt Constuints RaN the Prmur in
Lcn#-Ranning CalIenia Water Dispue. WA. St. I.. [an. 29. 1986. at 64.
Col I. :ver Peterson. Chems Csonf einp Pfdlel A ecy tt Built Water
Pmroers wWst. N.Y. iMEu. a 17. 1985. 1. at 22. Col. I. Indeed.
the House of Representatives recently rejected a bill to authorize
construction of Auburn Dam on the American Rive. in pIt because
of the significant cost to federal taxpayers. S Louis Freedberg.
Houee Pond Vow O Aiiurn Oa m. C. F Caom une 28. 1996.at Al.
col. 1.
S HUNOuw sau note 2. at 330. se County of Del Nore v.
United States. 732 F2d 1462 (9th Cit 1984)
6 HuNmwos. suapm note 2. at 321-30.
7 Significant legal developments included: the United States
S Supreme Courts decision in California v. United States. 438 U.S.
146 119781. that Califoia's instream protection laws could be





.. '* -" _


applied to the Central alley Project ICVP; the Caliomia Supreme
Courts recognition of the public trust as a limitation on the eer-
cise of previously vested water rights in National Audubon Society
v. Superior Court. 68 P.2d 709 1193) the California Court of
Appears landmark Say-elta opinion in United States v. State
Water Resources Control Board. 182 Cal. App. 3d 82 11966);
Congress' enactment of the Central valley Proect Improvement Act
of 1992 ICVPIA). Pub. L No. 102-7. 44 3401-3412.106 StaL 4706
(19921: application of the Endangered Species Act to CVP and Stat
water Project (SWPI diversions from the Delta. saONef v. Unied
States. 0 F.3d 677 (9th Cit 1991); and establishment of new r
quality standards for the Bay-Delta Estuary. CAusoma Sru Wr
RZSCU=m COMnMr. Bol O. WAn OQUAUIW CommaL PuN Fo me SA
F u wco BAYvSAcRAro-SAn loAum= OnuA Esnmpwt WR 95-1
11991).
8. CHwAmJ E. Pw.u5. NANCY Y. MoOet & MoM.t H. CQlmWAiM.
EmMSar Warn Use m CAuroR WAn Ricm WXai Osnam Nu.
WAnm TMA KI 60(1978. -. -


!54.3 1,


b- -


I


cfa I "L--












C]


and assist in reducing this deficit."' The Commission
also observed that "islubstantial variations ... exist
in water values among regions within the State."
which it viewed as evidence of inefficiency in the
allocation of California's water resources.0o The
Commission then recommended a variety of statu-
tory changes designed to create greater incentives to
use water more efficiently and to encourage volun.
tar/ water transfers. These changes included protec-
tion of conserved water from forfeiture. authoriza-
tion of transfers of conserved and surplus water, and
a declaration that the willingness of a user to trans-
fer water may not be used as evidence of prior waste
or unreasonable use Many of these recommenda-
tions subsequently were enacted into law. 2
Several years later, the Environmental Defense
Fund (EDF) became the first environmental organiza-
tion to support water transfers by proposing a trans-
fer of conserved water from the Imperial Irrigation
District to the Metropolitan Water District.: The EDF
proposal was followed by an Assembly Office of
Research case study of a hypothetical sale of con-
served water from the Turlock and Modesto Irrigation
Districts to the Kern County Water Agency to demon-
strate the economic benefits that could be derived
from water transfers Both studies built on the rec-
ommendations of the Rand and Governor's
Commission reports and served as examples of how
long-term, interregional water transfers could create
incentives for more efficient use. provide new water
to the purchasing agencies at costs lower than alter-
native sources, increase net income to farmers with-
in :he selling agencies. and enhance the overall flex-
ibility of the states water management system.
Indeed. for many of these reasons, the EDF proposal
became the foundation of the landmark HID-MWD
long-term transfer agreement."'
Initially. all of these proposals met with skepti-
cism and. in some quarters, hostility. Ironically.
even though the Governor's Commission recom-
mendations included new laws to provide greater
security for the water and contract rights of partici-
? Covt.%cRs5 COMMISSION ,o RVi n CAL.PsM*A WATIE R1cmS
L.- ?.-.A RsZPo' 1 tI0731
10 d at 14
II. Id. at 60-96.
12 SI CAL. WATR C0o 4 1010. 1011. 211 (West 1996).
13 Roscrr STAnws & ZACH Witr.t. TXAO~IN ConSuavAnO
INVwTsmTrs FOR WATER (1983).
14. CAurIFOIA AIsusl.Y OFFcs or Rasaacm. wATn T nuC:
Fau MAIIer Btxarr tFOR Expoma AaNO IMYmors (1981).
I See Kimberly Martin McMorrow & ieffrey W. Schwar. Th
Impnel Im a1io Oiltri cu/MamrPIitaI WtrI DOstt TnSfftr A Cat Slauy.
IN MjAC RSMERu & SAkA 8AUcS. OvmrApw OAMS: aRorM OR
RevcuiOmn FOR WtsnIw WATR 154119901.
16. See Arrmur L. UrmTWOm M EMc L. CGRNE. CANMLou
WaTE 224 11991.


Wum 4, Nmw 0 t


pants in water transfers, the strongest resistance
came from farmers and agricultural water supply
agencies who feared that water transfers would
jeopardize their water rights.'* In addition, the new
proposals for interregional water transfers generat-
ed a widely shared fear that increased use of the
market to allocate water would allow urban water
agencies to remove a large percentage of the water
currently used in the agricultural regions of the
state. As Marc Reisner and Sarah Bates have
observed. "Itlhe tragic fate of Owens Valley ... con-
tinues to haunt rural California seventy years after
Los Angeles acquired its water rights by perfectly
legal subterfuge. This burdensome legacy has great-
ly hampered Ithel state's efforts to implement water
marketing, even though much stronger protections
now exist against a recurrence of an 'Owens Valley'
episode.'" Although Owens Valley may be a partic-
ularly infamous example, it is hardly representative
of California water transfers. Rather. until the mod-
em era. "cities either built water projects to bring in
new supplies or. where possible, condemned the
necessary water."I Moreover. in all of the state's
history, there is no other example of an interregion-
al water project perpetrated by deception, and no
other water development has even come close to
removing all water from the exporting region.
Indeed, in reaction to Owens Valley. the California
Legislature declared the water rights of subsequent
interregional projects such as the CVP and the SWP
to be subordinate to the rights of users within the
areas from which the project water originates.9
At least in retrospect. it is surprising that pro-
posals to transfer water through market processes
should have engendered significant controversy
After all. land and other resources in the United
States are freely traded without fear of loss of prop-
erty rights or concern that the market is an inappro-
priate allocational mechanism. Moreover, water has
been bought and sold throughout the state's histo-
ry. For example, the Bureau of Reclamation has rou-
tinely allowed CVP users to transfer project water
IT. Resua & SAMts. supm note If. at 71 Arthur Lttleworth
and Eric Gamer have added that "Calilornia's history has ... con-
trbuted to the slow development of waterl transfers, which are
often negatively associated with controversial actions taken by Los
Angeles in the early 1900s o obtain water from the Owens Valley."
Lmttworm & GCAm sua note 16. at 223.
18. Barson H. Thompson. Ir.. lftiMtuaul Parw tds ot Waer
Poeky i M art. 81 CAL L Rev. 671. 702 n. 1071 1993).
19. CAL. WaU Coo H4 10505. 10S5.5 (West 1996) (CVP noun-
ty-oorigin laws): id. 4 11460 (SWP area-oforlgin statute): i. #
11128 (applying area-o-orign statute to the CVP)h and 44
12200-1220) Delta Protection Acti. In United States v. State Water
Resources Control soard. 182 Cal. App. 3d 82 (1986). the Californmia
Court of Appeal interpreted these laws as reservingl to the areas
of origin an undefined preferential right to future water needs.
which exports must honor as the inchoate rights are ercised. .
at 139.


26


5.4.4 -


U1i11 E Gry









Fd1996


among themselves on a short-term basis. During the
1980's alone, these transfers exceeded three million
acre-feet.-o In addition, a number of agricultural
water supply agencies have established water banks
and exchange pools through which member agen-
cies and farmers can buy and sell water. These more
formal water transfer systems include water banks
operated by the Kern County Water Agency and the
Westlands Water District and pooling arrangements
administered respectively by the Sacramento River
Water Contractors Association, the Tehama-Colusa
Canal Authority. the Friant Water Users Association.
and the Ar;in-Edison Water Storage District.:!
Finally. during the 1976-1977 drought. the Bureau of
Reclamation created a federal water bank that pur-
chased and sold water throughout the Central
Valley. and the Department of Water Resources orga-
nized a massive exchange agreement among the
Metropolitan Water District. the Los Angeles
Department of Water and Power. users in the San
loaquin Valley. East Bay Municipal Utility District.
and the Marin Municipal Water District.22
These transfers shared one of two defining
characteristics: (1) the informal transfers and ongo-
ing banking and pooling programs were local in
scope and the transferred water therefore remained
0 within the basin or origin or original use: or (2) the
interregional transfers were short-term and the
transfer of water out-of-basin lasted only as long as
the water shortage emergencies that occasioned
the transfers In contrast, the new proponents of
water transfers had in mind larger goals: to use the
market to create permanent economic incentives
for greater efficiency of water use. to encourage
both short-term and long-term transfers in an effort
to enhance the flexibility of the state and local
water deliveries, to respond to acute water short-
ages. and to help supply growing long-term
demands for water. Thus. to many observers, the
water transfers proposed for the future-in which a
"water market" would be a key component of the
state's water resources policy-looked fundamen-
tally different from the water-transfers of the past.
20 Sa Brian E. ray. WorTmrrT ns in CadCmir: 1981-1989. in
LAWEs'cz 1. MACOONuL.. to. THE WARII TKAwslU PNo SS AS A
MA.NAcu4.MCt OPTION Fe Mrsncm CuwMCm ODcumA 22-26 (1990).
21. Ser i. at 24-27; Henry 1. Vauz. Ir.. Wetr Scanity nl Cains
fmtm in Ke CKen Cmou. cabni. in Km rcm 0. FkSmxZCi. o..
SCARCS WAr AN i smmnoMA. w CHN 7 [ 19661; RIrcMAo W. WAL..
MAUm Pon Rftse Wa~rs Susmm. Pncemru RGam. ADo Tn
Bur.A OF R OAMma 138-40 (199): C. Paul Zachry. Wtdr RI i
May em roau Mor LiU4. WAL. Sr. .. Feb. 11. 1996. at A2. coL 2.
22. Sa WA~. suapa note 21. at 136-38; Cuonao T. Le. TNH
TruANFsR or WATEM i CAumroanmt 62-61 (1977) (Covernors
S Commission to Review California Water Rihts Law. Staff Pper No.
S1. CALuWO Wm OCmakNrAn OF WAtE RESOUI C. The 1976-1977
CAurOnOW OmouQc A Rsew 95-97. 114-17. 139-40 (1976). There


- -
"- '.^^'- "


II. The Contemporary Water


Beginning in 1979 and continuing over the next
sixteen years. the California Legislature enacted a
series of statutes designed to promote and to facil-
itate voluntary transfers of water. Although these
laws build on both the common law of water trans-
fers and the long-standing statutory authorization
of changes in permits and licenses to appropriate
water.23 the Legislature took the theory of water
transfers far beyond its historical roots. Water trans-
fers were not simply to be incidental features of
water rights. Rather. the Legislature deemed volun-
tar/ transfers of water to be vital to the long-term
social and economic interests of the state. Thus. in
one of its early pronouncements on the subject, the
Legislature declared "that the growing water needs
of the state require the use of water in an efficient
manner and that the efficient use of water requires
certainty in the definition of property rights to the
use of water and transferability of such rights."z In
furtherance of this finding, the Legislature then
stated that it is "the established policy of this state
to facilitate the voluntary transfer of water and
water rights where consistent with the public inter-
est in the place of export and the place of import."'
Several features of the modem water transfer
laws are particularly important.2 First, accepting
the arguments of the proponents that water trans-
fers should be a permanent feature of California's
water policy, the Legislature expressly authorized
both short-term and long-term transfers.2' Second.
in an effort to promote both greater efficiency in
water use and greater efficiency in the allocation of
water, the Legislature provided that water users
may voluntarily conserve water, transfer conserved
water, transfer water that is surplus to their needs.
and transfer non-surplus water made available by
land fallowing or agreements to reduce or to forego
water deliveries.2' Third. recognizing that secure
property rights are an essential feature of any mar-
ket-based system, the Legislature declared the
transfer of water to be a beneficial use and prohib-
were a variety of other regional and interregional water transfers
and exchanges that occurred during the 1976*1977 drought. Se id.
23 CA.. WArm Coot 04 1700-1706 (West 19961.
24. IdL 1091a1.
21. I.
26. The development of the conlempoiay water aner
statutes is described in rian E Cray. A PrinAr O CAOwl Welr'
Tmnr.e Law. 31 Am. L Rev. 745. 767-,0 (199): and evn M.
O'rien. WatrM Marief in Caifen. 19 PAc. LI. 1161 (1988).
27. CA WAIt Coot 44 1020-1030 (West 19961 water leases
143144-2 Itempary urgency changes): id. 4 1721-1732 (tem-
porary changes): i. 44 173-1737 (long-term transfers).
28. ihi 382. 1011.1745.02.1745.05.
-.4.

..^ .,L

i-:.. :" --"


s *


U


. 4-:.


-.1.*
hTapdsbCr i

'Trazufr Law












BimE. Gm


I



ri


,le 4. Iwl fl


ited the forfeiture of water that is transferred to
another beneficial use.2 Fourth. acknowledging
that the extensive water supply infrastructure of the
state is vital to the physical movement of trans-
ferred water, the Legislature authorized 'bona fide
transferors" to use state and local water supply
facilities to wheel water.0 Fifth. incorporating and
embellishing the common law and statutory prohi-
bition against injuries to other legal users of
water." the Legislature acted to protect "fish,
wildlife, and other instream beneficial uses." as well
as groundwater resources from unreasonable harm
caused by water transfers."
The enactment of these statutes significantly
liberalized California water transfer policy. From
1980 through 1995. the State Water Resources
Control Board (SWRCB) approved seventy-six peti-
tions to transfer water based on these laws, autho-
rizing the transfer of more than 2.3 million acre-
feet.n Included among these is a series of large
transfers of stored water from the Yuba County
Water Agency to the Department of Water
Resources (DWR) that have greatly enhanced the
DWR's ability to meet its water supply obligations
and to comply with Bay-Delta water quality require-
ments." Also included are a variety of water
exchanges, supplemental supply arrangements, and
dry-year option agreements between large water
agencies, such as the DWR and the Bureau of
Reclamation. and the Kern County Water Agency
and the Westlands Water District. SWRCB also has
under consideration, pending completion of an
environmental impact report a long-term dry-year
option arrangement between the Metropolitan
Water District and the Arvin-Edison Water Storage
District." These and other transfers have added
valuable flexibility to regional and state-wide water
supply administration. Indeed. without the contem-
porary water transfer laws, it might not have been
possible to operate the 1991 and 1992 Emergency
brought Water Banks. which provided essential
water supplies to critically dry areas throughout
California.1)
29. 14. 4 10241(c. 1244. 174 07
30. Id. 14 1810-1814.
31. I. 44 1702. 1706.
32. I. 4 1028. 14351(b. 1725. 1736. 1745.10. 1745. 11
33. For a list and brief description of these transfers, see
Appendix B. infa.
34. Se Gray. supra note 20. at 12
35. For a description of these transfer arrangements, see i. at
13-22; set ao lAY R. I.u. rr A... RacE CAUOaNIA WAa TAIcs
EmIIsac OpnoNs in WAnt MA iAc*.rT 67-79 119921 (UC. OaviS
Center for Environmental and Water Resources Engineering Report
No. 92-1).


The modem transfer laws also have contributed
to the protection of the natural environment.
Between 1985 and 1992. the California Department
of Fish and Game and the United States Fish and
Wildlife Service acquired more than 400.000 acre-
feet from the Bureau of Reclamation and other agen-
cies to enhance instream flows for anadromous fish
and to augment supplies to wildlife refuges and
other wetlands.n Finally, the Legislature's authoriza-
tion of transfers of conserved water has encouraged
conservation investments within the Imperial and
Palo Verde Irrigation Districts with the consequent
transfer of salvaged Colorado River water to the
Metropolitan Water District."
The successes of the modem water transfer laws
have underscored the diverse range of interests that
have joined together to promote the influx of market
principles into California's water resources system.
Economists have long supported water transfers as
a means of achieving greater efficiency in water use.
The opportunity to engage in water transfers, they
argue, increases efficiency because users are con-
fronted with the opportunity costs of their existing
water management practices. Thus.

lal market provides incentives to farmers to
change their crop mixes in drought years, to
idle marginal land. and to invest in more
efficient irrigation equipment. Urban users
are encouraged to use water more carefully
and to install more efficient water-saving
devices when they recognize that their water
bills rise as supplies become tighter.9

Economists also have urged that water trans-
fers would promote greater allocative efficiency, as
well as increased efficiency of use. As Charles
Meyers and Richard Posner stated in an influential
report to the National Water Commission in 1971.

when criteria of allocation other than will-
ingness to pay are used, it is very difficult to
decide which uses (or users) of a resource
36. S I CAL. Oup'r o WaM RmSOUtcs. CAUPOucA WAre PUR
UPOA SuumN 160-93. 287 (1993. or a legal analysis of the 1991
State water Bank. see Brian E Cray. Tf7 Mar t and te Ciomauny:
Lessns fmm Calfbris OmupuIo erw &a. I Wesi B+m. I W 17
119941.
37. 1 CALjumNA WAA PLm Umpros supr note 36. at 265.
38. So 2 CAuFuoarm w r PL Uprot su note 36. at 264.
For an analysis of the Imperial Irigation District conservation and
transfer agreement with MWO. see McMorrow & Schwarz. spi note
IS. at 149-66: Brian E Cray. Tk Modm Emra i CaIalnle War LMr. 45
HAsuTcI LI. 249. 296-306 (1994).
39. Ro .Lo H. SacMor f Fsa=acM CAoe.. UswigC Wn r1TTm
A MAmBASMn T-APof 1o CufoMA S WaI CS 8 11991).


.-


Mm E Gm V 4- *mhw




A..


11119 of1a s 1i is CaM


would be most productive. To answer
administratively such questions as whether
a piece of land would be more valuable as a
site of an apartment building or of a shop-
ping center is extraordinarily expensive and
time consuming. In contrast, the price sys-
tem produces an unambiguous and usually
quite satisfactory answer. The party in whose
hands the property will be most productive
is the party who values it most highly and is
accordingly willing to pay the most for it.*0

:n addition to these theoretical justifications.
many participants in Califomia's water policy have
come to support greater use of water transfers for
more pragmatic reasons. A number of environmental
organizations have viewed water transfers as a means
of protecting and enhancing the state's instream
water resources. They argue that reallocation of
developed supplies through market transactions
should reduce the pressure to build new water pro-
jects. Moreover. by creating incentives to conserve
and transfer, a market-based system could have the
incidental benefits of making additional water avail-
able for instream uses and of reducing pollution from
excessive irrigation return flows.'4 Indeed. this is the
S principal reason why the Environmental Defense
Fund promoted the IID-MWD transfer of conserved
water described above.42 and why the Natural
Heritage institute has advocated greater reliance of
water transfers as one means of reducing agricultur-
al drainage in western San loaquin Valley.'"
Many urban water agencies also have included
transfers in their array of water planning strategies.
These agencies now view transfers as a means of
obtaining reliable short-term supplies during times
of drought and of acquiring additional long-term
supplies to meet growing demands within their ser-
vice areas at a lesser economic (and political) cost
than through alternative means such as construc-
tion of new projects or requests to encroach further
upon water quality and other environmental stan-
dards." Indeed, it is for this reason that the
Metropolitan Water District became one of the
strongest supporters of the Central Valley Project
40. C. U I. Mn.as 6 R& n o A. PCaSit MUW TWOstM or
WAnL R~cuts; TowAD Am IapowD MUsm', WU AoUism ~ $(19t71.
41. S ZACm WuY. Ecowono DMOPE y~ tAo S EmvrMOnm nvA
OQuA~n CA*uo0mi's wAm SvsWU 30-31 11985).
42. So Stavins & Wiley. swu note 11.
43 CitEoov A. ThomMs & M&.cu LucaKnO-SolWAtr. L.AL
Amo ImSnTmvnoNK StucTruEs oa MAN A&cG AGcumruot. DnRmAcN
rTr SAM lOAQUm VALLYs. DUIrsImG A FuTuet (1990).
44 So. e .. Canril Valfy Proct Iprvemant Act: HNring d4re ke
Su6oumm. *o Watr and Powr of dl Conn. an Ep and Ndauml
Rasarmus f th UmtUl Stal Sam. 102d Conq.. Ist Se. 370 119911


Improvement Act of 1992. which expressly autho-
rizes the transfer of project water to non-CVP con-
tractors." Moreover. as noted above, a number of
agricultural water supply agencies also have begun
to engage in large interbasin transfers for many of
the same reasons. Since 1989. for example, the
Westlands Water District has acquired more than
385.000 acre-feet from various parties, including the
Kern County Water Agency, the Department of Water
Resources. and the Modesto Irrigation District.*
Other water agencies have recognized the eco-
nomic benefits of transferring surplus water or water
that they make available for transfer through conser-
vation or reduction in demand within their service
areas. As noted previously, the Yuba County Water
Agency and the Imperial Irrigation District have
transferred substantial quantities each year over the
past decade. And. a variety of other agencies and
individual farmers found it more economically ben-
eficial to transfer water to the 1991-1992 State Water
Banks than to use the water to irrigate crops."
Finally. the enactment and implementation of
the modem water transfer statutes is an acknowledg-
ment that agencies such as the State Water
Resources Control Board and the Department of
Water Resources alone cannot adequately supervise
the administration of California's water rights system
to ensure that the state's water resources are used in
accordance with the reasonable and beneficial use
requirements of Article X. Section 2 of the California
Constitution. The transfer laws ease the state's regu-
latory burden by creating market incentives to use
water efficiently-and hence reasonably-without
the threat of reallocation by government fiat.* "One
need not be an extreme exponent of nineteenth cen-
tury laissez fair liberalism to prefer institutional
arrangements that minimize the importance of gov-
ernment in people's lives. One of the principal attrac-
tions of the market is that it involves a minimum of
governmental participation."*
The contemporary water transfer statutes
therefore reflect the widely shared view that the.
market will produce greater efficiency in water use.
as well as create incentives to conserve, by allowing
water users to realize the full value of their existing
(Statement of Car oraay. General Manager of the Metopoltan
water Dstric of Soutern Caliornia,.
45. Id.. s Central Valley Project Improvement Ac. Pub. .. No.
102-71. 4 340. 106 Stat. 4706. 4709 11992).
46. SH Appendix 8 itn.
47. Harold O. Carter & Henry I. au It. Trind-Pui r Edfs: The
RartL ChfdbkI in HAOcXL CA~Tu. Hvr I. VAux. Ia. & AN F.
SatCuanM. aOs.. SKANC SCAaoT CAINCS AnM L.OSS IN WAnt
MAnrimc 44-52 (1994).
48. So SaC nr & CAMMo. suM note 19. at 7.
49. Mancs & Puasa. sawp note 40. at 1. -


fPdItA


Wv IVIA










'hlM4. I all r


I


allocations. This occurs only when each user has
the option to decide whether its current use or an
alternative would produce greater net revenues and
is thereby confronted with the opportunity costs of
continuing its present water management and con-
sumption practices. It is the market that "sortlsl
out the competing uses for water and deliverisl it
to those who put the highest value on it" and mar-
ket prices that "signal to all potential water users
the value placed on water."'

III. Second Generation Issues

in retrospect, the mcdem water transfer laws
may be seen as a "first generation" effort to accom-
plish four basic goals: (1) to use economic incen-
tives to encourage conservation and greater efficien-
cy of use: (2) to promote the transfer of water from
willing sellers to willing buyers; (3) to provide
increased security to water right holders and other
water users who choose to conserve and to transfer
water; and (4) to ensure the protection of third par-
ties who may be adversely affected by water trans-
fers. including other water right holders and'envi-
ronmental uses. Accomplishment of each of these
goals is a prerequisite to the establishment of an
effective and fair market-based allocational system.
In varying degrees, the modem transfer laws
have fulfilled each of these prerequisites. As a con-
sequence, water transfers have become a fixture of
California's water resources system. Despite the
successes of the contemporary laws. however, there
remain a variety of questions about water markets.
These questions are appropriately characterized as
"second generation" issues that arise from the
administration of the existing water transfer laws.
These "second generation" issues include the fol-
lowing topics:

A. Lack of Coherence in the Existing Water
Transfer Laws.
The modern transfer statutes have been enact-
ed seriatim in response to specific problems that
arose at specific times during the past sixteen
years. The principal laws that seek to provide secu-
rity for the rights of parties to water transfers were
passed in 1980 in response to the recommenda-
tions of the Governor's Commission." The same
legislation also created a system of "trial transfers"
50. SCmor & CAcmN. sum note 39. at 8.
sI. Ct. WAM uco e 10 ll b). 1244 (West 1996).
52 1980 Cal Sta. ch. 933. 4 12. The Lislature repealed the
trial transfer laws in 1988. 1988 Cal. Sat ch. 1145. 2.
53. C.. WAU COC 0 30-387. 1435-1442 (West 1996).
54. Id. 44 172-1732. 1735-1737.


in which effects on third parties could be evaluated
on a trial basis.2 In 1982. the Legislature enacted a
statute that authorized local water agencies to
transfer surplus water and created a system for
changing water rights on a "temporary urgency'
basis." Six years later, the Legislature repealed the
trial transfer laws and replaced them with separate
provisions on "temporary changes" and "long-term
transfers."' Then, in response to the increasingly
severe drought, the Legislature provided for the
leasing of water in 1991." The following year. it
expressly authorized local water agencies to enter
into contracts with the State Water Bank and other
water agencies to transfer water that is conserved
or otherwise made available for transfer by mem-
bers of the agency.s
These laws have been essential to the creation
of a functioning water market in California, and they
played an important role in facilitating the transfer
of water during the last drought. An unfortunate
consequence of the sequential and situational
enactment of water transfer statutes, however, is
that the law now lacks coherence. There are four
sets of laws that 'potentially apply to long-term
transfers"' and five that govern short-term trans-
fers.n Although this state of affairs can be explained
by the serial development of the statutes, there is
no justification for having multiple-and. in some
cases, inconsistent-laws to govern water transfers.

B. Protection of Water Rights.
Despite the statutory protections for the water
rights of :he parties to water transfers, there exists
significant uncertainty among existing water users
on three questions: First, would a decision to trans-
fer water jeopardize the transferor's water rights or
contract rights? Second. if the transfer is of con-
served or surplus water that the transferor arguably
was using unreasonably or not using at all, what
assurances does the transferee have that the trans-
ferred water will not be subject to waste, unreason-
able use. or forfeiture proceedings? Third. at the
conclusion of the term of a water transfer agree-
ment. does the law provide adequate guarantees
that full rights to the water will revert back to the
transferor? Comments received from the focus
groups confirmed that the uncertainty produced by
these questions undermines the willingness of
some water users to participate in the water market.
55. Id. 4 1020-1030.
56. Id. 4 1745-1741.11.
SId. 14 380-387. 1700-1705.5. 1735-1737. 1745-174.1 .
58. W. J4 380-387. 1020-1030. 1700-1705 5. 1725-1732.
1745-1745. I


B~im E. u


C0


~ ~ ~m~x--~bri .~trr~a~c~w~3a --- -


Ift-- E Gm


::

sct~f~:,~










Fd 1996


C. Water Transfer Review Procedures.
Although the Legislature has designated the
SWRCB as the principal agency to review proposals
to transfer water, the Board's authority is limited in
practice. The SWRCB has jurisdiction only over
transfers that require a change in the point of diver-
sion. place of use. or purpose of use as set forth in
a permit or license to appropriate water."1 This
means that transfers of water appropriated pur-
suant to pre-1914 rights and transfers of water
appropriated under permit or license that do not
require a change in the terms of the permit or
license are exempt from review by the SWRCB. As a
result of this definition of the SWRCB jurisdiction.
the lion's share of water transfers that have
occurred in California over the past two decades
have been undertaken without the SWRCB review
or approval.60
The absence of a comprehensive system to
review water transfer proposals is not necessarily a
failing of existing law. The extensive informal trans-
fers among CVP users function well without the
involvement of the Board. as do the regional pool-
ing and exchange programs described earlier.
Moreover, there is substantial evidence that the
1991-1992 State Water Banks would not have been
as effective in transferring water during the last
drought if transfers administered through the Bank
had been subject to review by the Board.61 Finally.
there was a widely shared consensus among the
participants in the focus groups that significant
expansion of the Board's jurisdiction would impede
the water transfer process.
Nevertheless, there are three problems with the
existing law regarding review of water transfers
First. from the perspective of the parties to the
transfer. the principal advantage of Board review is
the opportunity to obtain legal authorization before
the water is transferred. This approval insulates the
parties from subsequent legal actions for damages
allegedly caused by the transfer that may be
brought by third parties. The advantages of this sys-
tem are not currently available to pre-1914 appro-
priators and other users who do not fall within the
Board's statutory jurisdiction. These parties run the
risk of a post hoc judicial determination that the
transfer is illegal and that they therefore must pay
damages to third parties who are injured by the
59 Id. 44 1435. 1701. 1725. 1731
60. Sa Cray. supr note 20. at 39.
61 Cray. supa note 36. at 43.
62. Id
Ii 63 Sa CAM. Wau Coc 44 386. 1435l1b. 1725. 1736; f. ii. 4
I 102lib Iwater leases 'shall include enforceable terms which will
i J ensure that the water lease will not injure any legal user and will


transfer. Second, the time and expense associated
with the Board's review of transfers over which it
does have jurisdiction may frustrate some short-
term transfer proposals, because the need for the
water may have passed by the time the Board con-
ducts the review and authorizes the transfer.62 Third.
the statutory protections for fish, wildlife, and other
instream uses that may be adversely affected by
water transfers apply only to transfers over which
the Board has jurisdiction.6a Thus. the restricted
scope of the Board's review authority severely limits
the applicability of the laws that protect these third
party interests.

D. Protection of Third Parties.
All water transfers are limited by the long-
standing principle that the transfer must not harm
other water right holders. This limitation is part of
the common law of water rights and therefore is
applicable to transfers of water based on pre-1914
appropriations,6" as well as to transfers of water
appropriated pursuant to permit or license.61 As
just noted, however, the statutory protections for
fish. wildlife, and other instream uses are con-
tained; in the same laws that govern the Board's
water transfer jurisdiction and therefore are inap-
plicable to transfers over which the Board has no
review authority. Moreover, the one statute that
purports to prevent water transfers that would
"unreasonably affect the overall economy of the
area from which water is being transferred" has
never been used.5 Thus, the current laws grant
non-proprietary third party interests only sporadic
and haphazard recognition.

E. Transfers to Instream Uses.
In 1991. the Legislature authorized existing
water right holders to petition the State Water
Resources Control Board to change their water
right "for purposes of preserving or enhancing wet-
lands habitat, fish and wildlife resources, or recre-
ation in. or on. the water."67 A variety of questions
have been raised concerning the administration of
this provision. One of the most important ques-
tions is how the Board and other regulatory agen-
cies would treat water that is dedicated to instream
uses in the form of a water right. As Greg Thomas
recently observed.
not unreasonably affect fsh. wildlife, or other instream benefit
uses').
64 Sctt v Fruit Growers Supply Co.. 2 P. at 1097: Butte T.M
Co. v Morgan. 19 CaL at 615; ct. CA. WA Coos 1706 (Wet 1996)
(codifying common law rule.
65 CAL WATr COOc 4 1702 IWest 19961.
66. Id. 4 386. sr Appendix infre.
67. CAL Wat COOL I 1707 (West 1996).


5. +9_


Fdl 199&


ra %" of do is GI









r`` i


Potential market participants face an
obstacle that [Califomia's instream use
statute does not address and that can only
be solved legislatively: under current law.
water transfers to instream uses will not. in
most cases. create increased stream flows
because preexisting streamflow require-
ments will simply absorb the transfers."

Where regulatory standards are established in
the form of ambient water quality or flow require-
ments, there is a danger that the dedication of water
to instream uses in the form of an instream water right
simply would allow the other water users who are sub-
ject :o the regulatory standards to increase their diver-
sions until ambient water quality or stream flows
return to the regulatory minima. Thus. instream water
rights would "merely replace water used to meet reg-
ulatory instream flow requirements" and would not
"yield a net increase in actual instream flows" or water
quality.69 Until this question is answered, transfers to
instream uses will be deterred, because the transferor
has no assurance that the dedication of water will
serve the transferor's intended purposes.

F. The Role of Local Water Agencies.
One of the most vexing issues of California water
policy over the past decade has been the relationship
between local water agencies and their members or
customers who seek to transfer water. Most of the
developed water in this state is supplied to the end
user by an intermediary agency-an irrigation district.
water district water storage district, municipal water
district. or some other form of local water agency. In
many cases, the water right is held by the agency The
Turlcck Irrgation District. which has pre-1914 appro-
priative rights to the Tuolumne River. is an example. In
other situations, the water right is held by a statewide
agency-such as the Bureau of Reclamation for the
CVP or the Department of Water Resources for the
State Water Project-which delivers water by contract
to member agencies. The local agencies then distrib-
ute the project water to their respective members.
And. in a few cases, water is delivered from the water
right holder to a county water agency to member
water districts and then distributed to individual farm-
ers. The Kern County Water Agency, which receives
water from the State Water Project and distributes
project water to member districts within the County, is
an example of this type of arrangement.'0
68. Cregry A. Thomas. Cn Wni u AUei BEdiwesit A CrOdll
Compa oon f Utal Tools fr Aupummain Strmm Flws in Ca~ibnd. 1
SrAN. ENv LI 3. 49tt9961.
691d
70. Sa jenmla Sarton H Thompson. Ir. The Future of Water
Markets: Emerging Institutions. Shifting Paradigms. and
Organizations 19-21 11993) (unpublished manuscript) (on nfl with


California law presently authorizes members of
local water supply agencies to transfer their individ-
ual allotments, but only with the consent of the
agency."t For example, farmers in the Turlock
Irrigation District (TID) may sell their individual
shares of the water allocated by the District to
another water user (such as the neighboring
Modesto Irrigation District or the City and County of
San Francisco. which also appropriates water from
the Tuolumne River), but only with the consent of
the TID's board of directors. Indeed, in a well publi-
cized case from the mid-1980's. a group of farmers in
the Berrenda-Mesa Irrigation District received
authorization from the District to transfer their water
allocations to users located outside Kern County.
but the transfer was vetoed by the Kern County
Water Agency (KCWA). which supplies the water to
Berrenda-Mesa. KCWA took the position that if there
was "surplus" water available, it reverted (without
compensation) to the agency for use within Ker
County.7 Thus. while existing law recognizes that
individual water users possess transferable entitle-
ments to the water they receive from the agency.
transfers of those entitlements are impossible with-
out the approval of the agency that holds the under-
lying water right or. in the case of CVP and SWP con-
tractors. the intervening contract right.
SThe current law suffers from a fundamental con-
tradiction. On the one hand, the transfer statutes are
premised on the theory that the price incentives
offered by potential buyers will motivate existing
water users to use water more efficiently and to
transfer water in situations where the net revenues
from conservation and transfer are likely to exceed
those generated by the users' current practices. On
the other hand, the law vests the ultimate power to
decide whether to enter into transfers in the boards
of directors of the local agencies that deliver water
to the users, rather than in the users themselves.
The current law therefore separates the financial
incentives that are intended to motivate water users
to conserve and transfer from the authority to decide
whether the transfers may in fact occur.

C. 'Wheeling."
The Legislature enacted a set of laws in 1986 to
govern "wheeling." The statute authorizes "bona fide
transferors of water to use up to seventy percent of
the "unused capacity" of water conveyance facilities
owned or operated by public water agencies to trans-
the author).
71. C.AL. ar Cot ~4 33. 1745.02 (Wat !99G1.
72. For a more detailed description. see generally. Brian .
Cray. Bruce C Driver & Richard W. Wahl. Tie Tmurnwrmtv f Waer
Pidel tidw State Water PoEct anld d Cotnil ValeV PniLct: A Rqort to
tre San loiiuin Valle Orainae Pogranm. in ThoMuA & Lc4Tron-
So0WAmi, swU note 43


i.


&im E. Gy 'ftN 4,muNbr O


5.4to'.


p








Fd19~6 ii. 9uI~s d~ ~ Cam


port the water that is the subject of the transfer agree-
ment." These laws are important, because the avail-
ability of a physical means of conveyance is essential
for the implementation of most water transfers.7
In recent years, however, several important ques-
tions have arisen under these laws. First. the wheeling
statute defines "unused capacity" as the space that is
available within the operational limits of the con-
veyance system and which the owner lof the system
is not using during the period for which the transfer is
proposed and which space is sufficient to convey the
quantity of water proposed to be transferred."" It is
unclear whether this definition requires the agency to
determine the amount of unused capacity available
for wheeling transferred water based on its own water
supply commitments that exist at the time the wheel-
ing request is made, or whether the agency may con-
clude that it has no unused capacity within its system
because it might need to use the full capacity of its sys-
tem at a later date.
Second. the statute requires the wheeling parties
to pay the agency "fair compensation" for the use of
its system and defines "fair compensation" as the
"reasonable charges incurred by the owner of the con-
veyance system, including capital. operation, mainte-
nance, and replacement costs, increased costs from
any necessitated purchase of supplemental power.
and including reasonable credits for offsetting bene-
fits for the use of the conveyance system."76 This def-
inition does not state nearly whether the agency may
charge the wheeling parties only for the additional
costs attributable to the conveyance of the wheeled
water, or whether the agency also may impose
charges designed to ensure that the wheeling parties
pay the same rates for use of the agency's facilities as
paid by the agency's own members and customers.
Third. although existing law authorizes the
agency to establish conditions on wheeling that
include "water quality requirements."" it does not
adequately address the respective rights of the par-
ties where the water proposed for wheeling through
the agency's system is of substantially different
quality than the agency's water. The agency has a
vital interest in protecting the quality of the water
within its system, because treatment is expensive
and. in some cases, it may not be. possible to ade-
quately treat the blended water using the agency's
existing treatment facilities. Moreover, the effects of
water quality degradation may last for years beyond
the initial introduction of the "wheeled" water into
the agency's water supply system.
These and other questions have been at the
heart of the recent dispute between the
73. C WAT Cw o oo 1810-1814 (West 1996).
74. So Thoups lsup note 70. at 16-18.
75. CAL WA. t CooCt 181 lie (West 1996).


Metropolitan Water District (MWD) and its largest
member agency, the San Diego Water Authority. In
response to San Diego's request to wheel water
through the Colorado Aqueduct and other MWD
facilities. MWD recently adopted a set of "Wheeling
Principles." These principles would allow San Diego
and other parties to use MWD's system to wheel
transferred water subject to ten conditions:

I. evel Playing Field. Metropolitan customers
receiving comparable service must pay
comparable costs for service.

2. Cost Rcovery. Wheeling charges must fully
recover properly allocable fixed and vari-
able costs of conveying water through
Metropolitan's fixed system.

3. Financial Impacts. Use of Metropolitan's sys-
tem for wheeling must create no financial
harm to non-participating member agencies.

4. Capital Commitments. Metropolitan's wheel-
ing charges must recover a fair share of
committed capital expenditures on the
same basis as for customers receiving com-
parable service.

5. Recognition of Wheeling Benefits. Wheeling
arrangements will account for benefits to
the Metropolitan system on a case-by-case
basis as mutually agreed by the wheeling
party and Metropolitan.

6. Wheeling Capacity. The use of Metropolitan's
delivery system for wheeling of water sup-
plies must not result in a reduction in
Metropolitan's ability to meet its water ser-
vice obligation to its member agencies.

7. Reliaility. Use of Metropolitan's delivery
system for the wheeling of water supplies
must not result in a reduction in reliability
to member agencies.

8. Water Quality. Wheeling must not result in
unmitigated adverse water quality impacts.

9. Resoue Manaement. Wheeling policies and
arrangements must be consistent with the
ongoing commitment of Metropolitan and its
member agencies to water management pro-
grams such as reclamation and conservation.
76. d. 1811cl.
77. Id.4 1812lb).


. 33


- I


rI ShpadgfdhiaBCgu


Fd 1996











iimEG a


*I
Cl


knet 4.1tpe 0


10. W ieling Preference. Metropolitan should
accommodate wheeling arrangements that
would result in water deliveries to member
agencies before arrangements that would
result in deliveries to non-members.'s

San Diego has argued that these conditions are
contrary to the wheeling provisions of the Water
Code. It contends that MWD's interpretation of the
law would allow MWD to claim most of the con-
sumer surplus associated with the transfer.
The MWD-San Diego controversy raises an
array of other questions that are beyond the scope
of this report. Nevertheless, it provides ample evi-
dence that the existing law does not adequately
define the respective rights of the parties to wheel-
ing arrangements. Commentary from the focus
groups confirms this conclusion."'

H. Surface Water Transfers and Groundwater
Replacement
During the last drought. a number of surface
water users who transferred water to the State
Water Bank increased their use of groundwater to
replace the transferred surface water. Although
Water Bank officials approved this practice, a variety
of overlying landowners, water managers, and other
public officials in Yolo and Solano Counties
expressed concerns that this type of conjunctive use
could harm other groundwater users and perhaps
cause compaction of the aquifer.3 This experience
confirmed fears expressed by water users through-
out the Central Valley that unregulated use of
groundwater to replace surface water transferred
out-of-basin may cause or exacerbate conditions of
groundwater overdraft.
The Legislature addressed this problem in a 1992
statute that prohibits surface water transferors from
replacing the transferred water with groundwater unless
the groundwater extraction is either: (a) consistent with
an authorized groundwater management plan: or (b)
78. Mtmoraomun WATu DiOmic or Souitn CAuLmoIA.
WktEUNC PfqrotrS (Nov 1. 19961
79 At this wrntng. San Dileo has entered into a draft agreement
with the Bass Brothers of Fort worh. Teas who own approximately
40.00 acres of irrigatd land in the impenal Valley. to purchase water
that would be wheeled to San through Metropolitan Water
District (MWDI facilities. MWO continues to oppose the transfer. SW
lames Sternd. A Obwk r Wa rflalimace Sn Om S(ria OaDf wi
liael VerW. rl is Las AqUpW. N.Y. Th. Aug 6.1996. at Al. col. 2
80. Sat Eduardo Bautista & Edward McBean. Efct of Watse
MaretiUng 0e PtisicKul d id BuIisil Ritssowt. in CArTE. VAuX &S
SCEumamc. supr note 47. at 7. 66-75
81. C.. WAS Coot 4 1745 10 (West 19961.
82. Section 1220 o the California Water Code provides that
Ino groundwater shall be pumped for eportt fom within
the combined Sacramento and Delta-Central Sierra


34


approved by "the water supplier from whose service
area the Isurfacel water is to be transferred and chat
water supplier ... determines that the transfer will not
create. or contribute to. conditions of long-term over-
draft in the affected groundwater basin.""
While this law responds to the concerns of
landowners and other parties that may be adversely
affected by groundwater overdraft. it suffers from two
problems. First, the restriction on conjunctive use
applies only to surface water transfers governed by
the 1992 act. which covers water transfers by local
agencies and their members. Because the statute is
the only legislation that protects groundwater
resources from surface water transfers. the existing
law is of limited applications2 Second. as a categori-
cal prohibition, the act would presumptively ban sur-
face water transfers that involve substituted ground-
water use by the transferor even in areas of the state
with high and replenishable groundwater tables
where these types of conjunctive use transfers should
be encouraged. Although the statute allows local
water agencies to approve such transfers, it creates no
standards to govern this process. Moreover, the law
delegates to surface water agencies authority to regu-
late groundwater use. which the agencies would not
have in the absence of the surface water transfer.

I. California Environmental Quality Act.
The California Environmental Quality Act
(CEQA) requires public agencies that transfer water
to prepare an environmental impact report on the
proposed transfer if the agency's actions "may have a
significant impac: on the environment."- The envi-
ronmental review provisions of CEQA also apply to
the State Water Resources Controt Board when it
reviews water transfer petitions. Existing law
exempts some short-term transfers from CEQA.C
Environmental impact reports prepared under
CEQA often provide valuable information about the
potential consequences of water transfers on the nat-
ural environment, and CEQA itself requires the parties
Basins. as defined in Department of Water Resources'
Bulletin 160-74. unless the pumping is in compliance with
a groundwater management plan that is adopted by ordi-
nance .. by the county board of supervisors, in full con-
sultation with affected water districts, and that is subse-
quently approved by a vote in the counties or portions of
counties that overli the groundwater basin ....
Id. 4 1220. Although this statute could be applied to limit transfers
of surface water for which groundwater is substituted, it is easilydr-
cumvented. As occurred with transfers to the 1991 Water Bank. the
transferor could claim that there is no export of groundwater
because only the surface water is physically transferred out of
basin. The groundwater that the transferor uses to replace the
exported surface water remains in-basin. For a more detailed analy-
sis. see Gray. swipt note 36. at 34-36.
83. CM Pus Rs. Cooa 21080 (West 19961.
84. CA. W u COC i4 i729 (West 19961.


*" .. :.'I


-------r


- --- ---- --


_m









Fd 1996

to undertake feasible mitigation measure" to lessen
significant adverse environmental effects." For water
transfers that are subject to the jurisdiction of the State
Water Resources Control Board. however, the CEQA
requirements are often duplicative of the Board's own
review and decisionmaking processes. Such duplica-
tion unnecessarily increases transaction costs and
should be avoided where the water transfer laws them-
selves provide adequate procedural and substantive
standards to protect the natural environment.

I. Transfers Under the Central Valley Project
Improvement Act.
In the Central Valley Project Improvement Act
of 1992 (CVPIA). Congress authorized CVP users to
transfer project water within or outside the existing
CVP service area." Although the CVPIA provides
that all transfers of project water must comply with
California law,37 it also establishes a complex set.of
federal standards with which transfers of CVP water
must comply. These federal criteria include:

I The transfer may not exceed the average
quantity of water delivered to the transfer-
or or contracting agency that supplies
water to the transferor "during the last
three years of normal water supply" pre-
ceding the enactment of the CVPIA.

2. Transfers are limited to "water that would
have been consumptively used or irretriev-
ably lost to beneficial use during the year
or years of the transfer.

3 The Secretary of the Interior must deter-
mine that the transfer would riot create
"significant long-term adverse impact on
groundwater conditions in the transferor's
service area."

4. The Secretary also must conclude that the
transfer "will have no significant adverse
effect" on the. delivery of water to meet CVP
contract obligations and for fish and wildlife
as required by other provisions of the CVPIA.

5. The Secretary may not approve a transfer if
he determines that the transfer "would
result in a significant reduction in the
quantity or decrease in the quality of water
85. CM. Pus. RCoo. # 21002 West 1996).
86. Pub. L No. 102-575. 3401. 106 Stat 4706. 4709 11992).
7. 4. 3401(a)( I(E). 341 (al.
S $88. 14. 3405(a)( )(A-HMI
89. Id. 4 3407(d)|2)(A).


11e SitSope oflte Cle Gia
supplies currently used for fish and wildlife
purposes, unless the Secretary determines
... that such adverse effects would be more
than offset by the benefits of the proposed
transfer."


6. Other CVP contractors have a right of first
refusal to purchase water offered for trans-
fer to users located outside the service area
of the CVP.M

Transfers of project water to non-CVP users also are
subject to a S25 per acre-foot surcharge that is
payable to the Fish and Wildlife Restoration Fund
established by the Act."
Perhaps the most important water transfer pro-
vision of the CVPIA is the modification of the
authority that local agencies have under California
law to veto or to place conditions on transfers pro-
posed by their members. The Act states that local
agencies have no authority over user initiated
transfers of up to twenty percent of the water deliv-
ered by the CVP to the agency."" For transfers that
exceed twenty percent of project deliveries, the Act
limits the agency's review authority to the criteria
-set forth above.91
The CVPIA was an historic and important
enactment, and its water transfer provisions were
needed to dispel an array of significant questions
about the transferability of project water.9 Yet. the
special water transfer rules of the CVPIA conflict in
some cases with the requirements of California law.
and the resolution of these conflicts is difficult to
predict because the CVPIA mandates compliance
both with the federal transfer standards and
California water transfer law. Moreover, the exis-
tence of federal standards to govern transfers of
CVP water and separate state standards to govern
all other surface water transfers is likely to produce
confusion and concerns about unequal treatment.
Local agency authority, which is unfettered by
California law. is now divided and circumscribed by
the provisions of the CVPIA. And. third party inter-
ests. which are given sporadic and inconsistent
recognition under state law, are afforded far more
certain protection by federal law. As transfers of
CVP water-particularly long-term transfer agree-
ments with non-CVP users-become accepted and
routine, the need for separate legal standards to
govern the CVP may well diminish.
90. 1.. 4 3401all 1.
91. For an anlysis of *e ar Uansfer provisions of the CVPA.
see ray. sme note 38. at 285-9.
92 So anan E. Gray. et al.. Tmnlfs of Fdmral RIacmadlne Wea
A Case Study of CfWolWnis Sn INaiqn VedV. 2t ENVTL L 911 (1991).


35


5 .4.13-1


:1i



''I6


~ '.-








WME E M V obxu4, Wbr O


I




CI


IV. A Model Water Transfer Act

The Model Water Transfer Act (Model Act)
addresses many of these "second generation"
issues and proposes extensive amendments and
additions to the current water transfer system. The
Model Act embodies most of the ideas developed
by the author, the Advisory Group members, and
the participants in the focus groups. In two areas-
the scope of the Act and the provisions on local
agency authority-the Model Act reflects by omis-
sion contemporary political realities and leaves for
'third generation" studies important questions
regarding transfers of groundwater. mandatory
review of transfers of water based on pre-1914
appropriative rights, and the authority of local
agencies over transfers proposed by their members
and customers. In a third area-resolution of the
inconsistencies between California water transfer
law and the transfer provisions of the CVPIA-the
Model Act recognizes that state legislative reform
cannot alter federal law. The approach to common
issues set forth in the Model Act and in this report
may serve as a guide, however, to future considera-
tion of :he CVPIA transfer rules.

A. A Unified Water Transfer Law
Although an original purpose of the project was
to draft a comprehensive statute that would govern
transfers of all types of water and water rights, prac-
tical and political realities have produced a Model
Act of more limited scope. Except for an important
provision on the conjunctive use of groundwater to
replace surface water that is transferred out-of-
basin the Model Act does not apply to groundwa-
ter Early in the drafting process, it became appar-
ent that unified coverage of transfers of groundwa-
ter and surface water would require creation of a
groundwater management code-a task that is far
beyond the scope of this project."
Another early purpose of the project was to
draft a unified set of surface water transfer laws
that would govern transfers of all types of surface
water. including transfers of water based on pre-
1914 appropriations. While many provisions of the
Model Act apply to transfers of all surface water.
the central sections that establish pre-transfer
review processes apply to transfers of water based
on pre-1914 rights only at the option of the water


93. Thus. while the Model Act proposes to revise section
1745.10 of the Water Code. which govwn the use of groundwater
to replace transferred surface water it does not address section
1220 of the Code because that section governs groundwater per r.
rather than groundwater in conjunctive use with surface water
transfers. So su note 82.
94. Moon. WAr TAwUess Acr Mo CALurORN. p"tal in 4


War-Nomnwwar 3. Parts & .
91. d. Partn 0.
96. I. Pat E.
97. S id. Parts 3.C. F. H. I & 1.
98. Sa. .g.. C.. WATIA CooC 44 380-387. 1020-1030.
1435-1442. 1700-1701.5. 1725-1740 (West 1996).


5.4.14


right holder.*" In this respect, the Model Act does
not propose to expand the mandatory jurisdiction of
the State Water Resources Control Board. Both cur-
rent law and the Model Act require review by the
Board only for transfers of surface water that
involve a change in a permit or license adminis-
tered by the Board.
The Model Act contains an important addition
to current law. however. It would allow pre-1914
appropriators and other transferors of surface
water not subject to the Board's mandatory juris-
diction to submit transfer proposals to the Board
to take advantage of the pre-transfer authorization
provisions of the Act that would insulate the trans-
feror from post hoc claims for injunctive relief or
damages." The Model Act also would permit such
transferors to employ the expedited processes
applicable to transfers of conserved water.6 To the
extent that pre-1914 appropriators and other
transferors avail themselves of these sections.
third parties potentially affected by such transfers
would benefit by the application of a variety of
procedural and substantive protections for fish.
wildlife, other instream uses, groundwater
resources, and local economies that do not exist
under current law.
Finally, in marked contrast to the existing
water transfer statutes, the Model Act would
establish a single, unified set of transfer rules.
Thus. provisions that ensure compliance with
water quality standards and other environmental
laws. terms that govern transfers within or through
the Delta. protections for groundwater resources.
and clarifications of the relationship between the
transfer laws and CEQA would apply to all surface
water transfers, not simply to transfers based on
specific statutory sections as is the case with exist-
ing law." Moreover, there would be a single set of
procedures and standards to govern transfers that
are subject to the jurisdiction of the Board. rather
than the multiplicity of rules discussed above."
This reform also would ensure that the procedural
and substantive protections for third parties apply
in all cases that come before the Board for its
review and authorization.
Part B of the Model Act defines the scope of its
coverage and sets forth many of the other provi-
sions that would apply to all transfers of water gov-
erned by the Act.








Fd 1q96 m. si.. ~ raid. ~ Co..


B. Enhanced Protection of Water Rights
The Model Act would strengthen the legal pro-
tections afforded water right holders and other
water users who transfer surface water. These
enhanced legal protections would apply to all
stages of the transfer process, including the consid-
eration and negotiation of transfer agreements. the
conservation and offer of water for sale. the use of
water during the term of the transfer agreement.
and the reversion of all rights to the transferor at
the conclusion of the transfer agreement.
Two of the provisions on water rights are par-
ticularly significant. First, the Model Act states
that. throughout the term of all water transfer
agreements compliance with Article X. Section 2 of
the California Constitution and other laws govern-
ing waste and unreasonable use "shall be deter-
mined based on an assessment of the reasonable-
ness of the tmnsfera's use of the transferred water."
This provision is of special importance to transfers
of surplus water or of water that the transferor has
conserved through salvage or other changes in effi-
ciency of use. In such cases, the security of the
transferor's future rights to the water may be in
question. The shift of focus from the transferor's
practices to the transferee's uses is designed to
assure both parties that the transferor's alleged
prior waste, unreasonable use, or non-use of the
(\ transferred water will not be a basis for reduction
or divestment of the rights to the transferred water
during the term of the transfer agreement.
The Model Act thus would codify the practice
employed by the State Water Resources Control
Beard with respect to the Imperial Irrigation
District's transfer of conserved water to the
Metropolitan Water District. In that case. the Board
permitted IID to conserve and transfer water that
the Board had concluded was subject to defeasance
for prior waste and unreasonable use.9 The Board's
decision was based on a policy trade-off. The Board
may be criticized on the ground that it rewarded
past waste and unreasonable use by allowing 110 to
retain the economic value of water to which it
arguably has no rights because of its earlier waste-
ful practices. Yet. the Board appropriately decided
not to divest lID of the water subject to the unrea-
sonable use order because it concluded that IID's
conservation and transfer of such water both would
improve the efficiency of IID's water supply practices
and would result in greater allocative efficiency by
allowing the conserved water to be transferred to
higher valued uses within MWD.'10


99. Sa Imperial Irrigation District v State Water Resources
Control Board. 225 Cal. App. 3d 48 119901: Imperial Irrigation
District v State Water Resources Control Soard 225 Cal. App. 3d


The Model Act adopts this same philosophy.
Although it would be possible to rely exclusively on
the waste and unreasonable use laws to enhance
the efficiency of water use in California. it is prefer-
able to employ the water transfer laws to achieve
the same purpose. The Board has exercised its pow-
ers under Article X. Section 2 and related laws
exceedingly sparingly, and that practice is unlikely
to change in the near future. Moreover, reallocation
of water and other resources by government fiat
should be a last resort, reserved for those situations
in which alternative means (such as the market) are
not available. In this case. water transfers provide a
viable alternative to governmental forfeiture of
water rights and therefore should be the preferred
alternative. The Model Act would not remove the
Board's authority to enforce the reasonable use
laws. Rather. it simply would direct the Board not to
employ such laws to divest a user of water where
that user voluntarily, or under threat of state sanc-
tion, corrects past waste or unreasonable use and
transfers the water conserved by such efforts to a
reasonable and beneficial use.
The second significant change to the existing
protections for water rights is the declaration that.
at the end of the term of a water transfer agreement.
all rights in, and to the use of. the water subject to
the transfer agreement shall revert back to the
transferor. This declaration would be reinforced by
the directive that neither the transferee nor any
other beneficiary of the transfer may bring a claim
for a continuation of the water supply made avail-
able by the transfer agreement and by the prohibi-
tion of claims to a continued supply of water based
on reliance, estoppel. intervening public use, water
shortage emergency. unforeseen or unforeseeable
increases in demand, or any other cause.
This provision is based on statements from all
of the focus groups that existing law does not con-
tain adequate assurances that the transferor's rights
will be respected at the conclusion of the term of
water transfers: particularly long-term transfer
agreements. The declarations set forth in the Model
Act provide the strongest possible legal protections
for the reversionary rights of transferors.
The "Protection of Water Rights" sections
appear in Part C of the Model Act.

C. Expedited Transfer Processes
One of the principal goals of the project has
been to devise alternative means of transferring
water on an expedited basis while strengthening


1160. 231 Cal. Rpr 283 (19861.
100. For more detailed analyses, see Cray. supm note 38. at
296-306:. McMoiamw SowAt. supra note 15. at 149-66.


37

u "ii

-'-- j


Fdi1"6


%h sm Of %do 10 can 6









Bri E. Gr


'I

rj(


Vimn 4. Ibnr 0


the protections in existing law for third parties who e
may be adversely affected by water transfers. The j
Model Act contains a variety of proposed changes p
that would help to accomplish this goal. These i
changes include
a
1. Improvement of the Procedures Governing State e
Water Resources Control Board Review of Petitions
to Transfer Water.
As described above. the State Water Resources I
Control Board presently has jurisdiction over peti- r
tions to transfer water that require a change in a per- ;
mic or license issued by :-e Board. The Model Act
would nct expand this ,;ursdicticn except to make c
this pre-transfer review available to other transferors
at their option. Based on comments received from
several of the focus groups, however, the Model Act
would amend the procedures by which the Board eval-
uates water transfer petitions. The Model Act defines
these procedures in substantially greater detail than
does existing law and imposes specific time limits on
the Board's exercise of its investigation, review, and
decisionmaking responsibilities. Moreover, in an
effort to expedite transfers during droughts and other
water emergencies, the Mcdel Act exempts short-term
transfers from the hearing requirements of existing
law. These procedural changes appear in Part D. sec-
tion 403 of the Model Act.

2. Creation of an Expedited Process for Transfers of
Conserved Water.
In a provocative ar.::e on water transfers and
::.rd party interests. icseph Sax urged that new
transfer laws endeavor :o protect third parties
through what he termed formulaic" limitations. The
alternative approach of 'extensive participation and
elaborate public interest hearings" he observed.
"threatens to make all but the largest water trans-
fers uneconomic and untimely."01
Consistent with this exhortation, one of the cen-
tral features of the Model Act is the creation of an
expedited process for transfers of water conserved or
salvaged by the transfercr The goal of this process is
to permit certain types of transfers to occur relative-
ly quickly and inexpensively without substantive pre-
transfer review by the State Water Resources Control
Board and without post hoc substantive review by the
courts. As a substitute for these procedural safe-
guards for third parties who may be adversely affect-
101. loseph L Sax. UndrmdNTat i TvilE Commauniy RIfs nd
tke PriMa#ei:do f was. I Wasr-Ncirnmsr 13. 16 119941.
102. The penultimate draft of the Model Act also provided
that the California Environmental Oulity Act ICEQAI would not
apply to lone-trmn transfer agreement that are submitted to the
Board for review pursuant to Pats or E of the Act The purpose of
this change was to recogni that the Board's review is the fnc-
tional equivalent of an environmental impact report and that a at-


54L~~~


d by expedited transfers. the Model Act would sub-
ect such transfers to a categorical protection for third
arty interests. This categorical protection is written
n the form of a restriction on the quantity of water
hat may be transferred on an expedited, non-review-
ble basis. Thus. the Model Act would limit expedit-
d transfers to the transferor's historic consumptive
ise plus water irretrievably lost to all beneficial uses.
Because this water would not be available for other
egal water users, instream uses. and groundwater
charge even if the water transfer did not occur, third
arties would not be harmed by the transfer of such
water. The standards and procedures governing expe-
iced transfers of conserved water are set forth in Part
E of the Model Act.

3. Amendment of the California Environmenial
Quality Act
As noted previously, the environmental review
requirementss of the California Environmental
Quality Act serve the valuable function of informing
decisionmakers and the public about the potential
environmental consequences of proposed govern-
ment actions. In the water transfer area. however.
:he application of CEQA to petitions that are sub-
ect to the jurisdiction of the State Water Resources
Control Board can result in duplicative review and
unnecessarily increase transaction costs without
concomitant environmental, benefits. To address
this problem, the Model Act would amend CEQA in
two ways. First. CEQA would not apply to short-
term transfers, which the Act defines as transfer
agreements the term of which is two years or less.
Second. the environmental review requirements of
CEQA would commence only at the time a public
agency decided whether to approve, to amend. to
renew, or to rescind a transfer agreement.'02 The
amendments to CEQA are contained in Part B. sec-
tion 209 of the Model Act.

4. Authorition of a State Water Bank and Regional
Water Bans. -
In a recent study of water banking in the west-
ern states Lawrence MacDonnell concludes that
"lwlater banks offer a highly flexible framework
within which water transfers may occur. They can
operate at any level, ranging from interstate down
to water district or ditch company. ... As an institu-
tionalized mechanism intended to facilitate water
egorical exemption from CEQA would help to expedite the transfer
process without neglecting environmental considerations. During
the final consideration of the Model Act. however, this provision
was removed at the request of agricultual. environmental and
rural advocates who expressed theconcern tha CEA review would
provide valuable Information about the potential environmental
effects of water transfers that would not be gained during the
Soam-s review process.


&W E. Qq









Th Shmir daf s Cm


transfers they can develop clear, well defined rules
S and procedures that should help to reduce transac-
tion costs."1to The 1991-1992 Emergency Drought
Water Bank confirms that a statewide bank can pro-
vide a valuable service in bringing together poten-
tial buyers and sellers and. under severe time con-
straints, administer an extensive water transfer pro-
gram with due regard to the rights of both the par-
ticipants and third parties.'10 Moreover, as noted
earlier, a number of regional water banks and
exchange pools have operated informally in
California for many years.
The Model Act would build on these experi-
ences and authorize the creation of a State Water
Bank and regional water banks. The banks would
be empowered to undertake a variety of actions to
facilitate voluntary water transfers. As with the
1991-1992 State Water Bank. the banks would have
authority to supervise transfers that are exempt
from mandatory review by the Board. Moreover.
the State Water Bank would be given permanent
authority to administer the expedited transfer pro-
visions of Part E. and the Board could delegate
similar authority to regional water banks. This
direct supervision of expedited transfers would
reduce duplicative administrative requirements
and would enhance the ability of agencies involved
in the day-to-day administration of expedited
water transfers to move water quickly through the
banks. The water bank provisions of the Model Act
appear in Part I.

D. Expanded Protections for Third Party Interests
The National Research Council concluded its
influential report on water transfers with the obser-
vation that

recognition and protection of third party
interests are essential if water transfers are
to achieve their potential to reallocate water
to meet new demands. ... Transfers can
bring the benefits of the market to a system
that has often subordinated efficiency to dis-
tributional concerns. But the West has never
treated water as just another commodity
and should not do so now. There must be a
balance between efficiency and fairness.
Each jurisdiction must devise its own laws
and processes to achieve this balance.',0

The Model Act would expand the existing protec-
tions for third party interests in a variety of ways:


103 Lawrence I. MacOonnell. UNtaaiue cit Gdlu taut if


103. Lawrence 1. MacOonnell. Un0nlinm du GCornL KAt of
Wrter Watlr. 41 RooC Mr. M.m. L INt 22-1. 22-60 (1995).
104. Sr CA Mr. VAUX & SCHOcuuI. frpn note 47.


I. Improwmenrt f Consideralton ProtUi
As described above. the State Water Resources
Control Board would have jurisdiction under Part D
of the Model Act over water transfers that require a
change in a permit or license administered by the
Board and other transfers that the parties may sub-
mit to the Board for its review. The Board would
evaluate proposed transfers under a set of three
substantive standards that are designed to ensure
that third parties would not be harmed by the
transfer of water Based on suggestions received
from the focus groups, these standards create a
legal hierarchy that would distinguish between
transfers that are unlikely to harm third parties (.for
example, short-term transfers and transfers limited
to the transferor's prior consumptive use) and
those that have greater potential to cause harm to
other legal water users, instream uses, and local
economies (for example, long-term transfers based
on the fallowing or retirement of previously irrigat-
ed land). This legal hierarchy would be divided in
the following manner:

a. Short-term Transfer Agreements.
For short-term transfers-which the Model Act
defines as proposals or agreements the term of
which is two years or less-the Board would be
directed to approve the proposal unless it deter-
mined that the transfer would result in significant
injury to any legal user of water or would unreason-
ably affect fish, wildlife, or other instream beneficial
uses. The petitioner would have the burden of pro-
ducing prima facie evidence that the proposed trans-
fer would comply with these standards. The estab-
lishment of a prima face case then would shift the
burden of proof to opponents of the transfer to
establish that the proposed transfer would not com-
ply with the foregoing requirements.

b. Long-Term Transfer Agreements.
Long-term transfers-proposals or agreements
to transfer water over a term longer than two
years-have a far greater potential to cause
irreparable harm to third parties. For this reason.
the Model Act would prohibit the Board from
approving a long-term transfer unless it concluded
that the transfer would not result in significant
injury to any legal user of water and would not
unreasonably affect fish. wildlife, or other instream
beneficial uses. In these cases, the burden of proof
would remain on the petitioner throughout the
proceedings.


101 NATIONt RSIAm*C Couwat. WaT TrAMSMrR IN m1 WES.
Entcan. SowiY. An Wg EPnMioe mn 3 11992).


39.
AIieK
I r -^a itH ^


6P 91 9


- .


FA 1"6









Slim E. G"y -11


I


r>I


c. Long-Term Agreements Based on
Land Fallowing or Retirement
Some types of long-term transfers have the
potential to create undue burdens on the
economies and local governments in the area from
which water was transferred. For example, in 1992.
the Yolo County Board of Supervisors

submitted a S129.305.00 bill to the
Department of Water Resources for reim-
bursement of the County's additional expen-
ditures for General Assistance and Aid to
Families With Cependent Children allegedly
caused by the increase in unemployment
attributable to land fallowing and the trans-
fer of water to the 1991 Water Bank. The
Board of Supervisors estimated that the fal-
lowing of 40.200 acres in Yolo County
decreased the demand for agricultural labor.
services, and supplies within the County and
consequently put 450 persons out of work.
The unemployed workers then made claims
for general assistance and AFDC entitle-
ments, which in turn increased the County's
social services costs by S 129.305 00.'

Although this claim was not sustained, it does illus-
trate the concerns that local communities have that
some water transfers based on land fallowing or
retirement may cause unemployment, reduce local
taxes, and increase social services expenses.
To address these concerns, the Model Act would
impose a third substantive criterion on long-term
transfers that are derived from the fallowing or retire-
ment of previously irrigated land and that would
change the place of use or transfer the water to uses
outside the county or counties in which the water pre-
viously has been used. In addition to the standards
that protect other legal water users and fish, wildlife.
and other instream beneficial uses described above.
the Board could not approve a petition for this type of
transfer if it concluded that "the proposed transfer
would cause substantial harm to the economy in the
area from which the water is to be transferred." In
making this determination, the Board would be
required to "consider any actions that the petitioner


106. Cray. sups note 36. at 41.
107. In recognition of the desirability of encouraging water
transfers to create financial incentives to retire irrigated land with-
Sin the drainage problem area of the western San loaquin Valley. the
standard of review described in this paragraph would not apply to
long-term water transfers based on the (allowing or retirement of
previously irrigated land within the San loaquin Valley Drainage
Program study area--s defined In U S. DepArmxrT or TH ImTace
& CaU.oIeIA RsoUeCas Acic.c. A MAIUcM.,r PLAN roe AAGMcuU AL
Suasurct DOuWAM on "a wesrMsor ma SAM loa*uIn VAuX. FIRAL


RosRr of Tt SAn ICACU"N VALL.u OeM.cZ PROGRAM (1990)-that the
Board concludes would contribute to the reduction of agricultural
drainage that adversely affects surface water or groundwater quall-
ty.
108. Section 386 oi che Water Code sates that the Board may
approve any change associzau .id a tra ,r p urnt r this ckpcronaly
if it finds that the change. does not unreasonably affect the oer-
all economy of the area from which the water is being transferred.
CAL. Wu Cooe 4 386 (West 1996) (emphasis added).
109. Sa Appendix B. infi.


'5.4,1g


or other parties to the transfer agreement have taken
to mitigate harm to the economy in the area from
which the water is to be transferred." The burden of
proof would be placed on the petitioner.s7o
These substantive standards are derived from
existing law. which contains protections for other
legal water users; fish. wildlife, and other instream
beneficial uses; and. in one instance, the local econ-
omy of the area from which water is transferred. The
Model Act would expand these protections in two
ways. First. as discussed above, it would create
incentives for transferors who are not currently sub-
iect to the Board's jurisdiction to use the water trans-
fer procedures set forth in Part D. To the extent that
this occurs, these transfers would be governed by the
substantive third party protection standards.
Second. the lone protection for local economies in
current law applies only to transfers of conserved or
surplus water governed by sections 380-387 of the
Water Code.'10 This statute has never been applied.
because no transfers have been undertaken pursuant
to these sections of the Code.109 By extending the
protection for local economies to all transfers
reviewed by the Board under.Part D. the Model Act
would ensure that this third party interest is includ-
ed in the evaluation of all long-term transfers based
on the fallowing or retirement of previously irrigated
land. which are the transfers that have the greatest
potential to harm local economic interests.
The third party protections standards applica-
ble to transfers of water pursuant to Part D of the
Model Act are set forth in section 404.

2. Categorical Protection of Third Parties Potentially
Affected by Expedited Transfers of Conserved Water.
For expedited transfers of conserved water
undertaken pursuant to Part E. the Model Act pro-
vides a different type of protection for third party
interests. As described above, expedited transfers
are limited to the transferor's historic consumptive
use plus any water that is irretrievably lost to all
beneficial uses. This limitation on the quantity of
water that may be transferred on an expedited basis
establishes a categorical protection for third par-
ties. in contrast to the considerational approach
applicable to transfers governed by Part D. Because


'-rJt~ w.


a








Ed 19~6 The ~ b~w is Cam


the transferred water would not be available for
\ other legal water users. instream uses. and ground-
water recharge even if the expedited transfer did not
occur, these third party interests should not be
harmed by the transfer of such water.
To provide extra protection for local economies.
the Model Act states that long-term transfers based
on land fallowing or retirement are not eligible for
the expedited transfer procedures and must be
reviewed by the State Water Resources Control
Board in accordance with the general transfer stan-
dards and procedures of Part D. Moreover, as an
additional precaution, transferees who receive
water transferred on a expedited basis would be
required to post security of five dollars per acre-foot
to provide monetary compensation to third parties
who may be injured despite the categorical protec-
tions. Claims for compensation would be subject to
binding arbitration. All funds not required to satisfy
judgments based on the compensation claims
would be returned to the transferee.
The categorical protections for third party inter-
ests associated with expedited transfers may be
found in Part E. sections 502 and 503. The security
and compensation provisions appear in Part E. sec-
tions 505 and 506.

C>. 3. Protection of Groundwater Resources.
As noted above, a 1992 statute that governs
transfers of water by local agencies prohibits trans-
ferors of surface water from initiating or increasing
their use of groundwater to replace the transferred
surface water unless the groundwater pumping is
authorized by a local groundwater management
plan or is approved by the !ccal agency t: The pur-
pose of this statute is to guard against conditions of
long-term overdraft of the groundwater basin.
The Model Act would change this statute in
four respects. First, it would prohibit the substitu-
tion of groundwater for surface water transferred
out of basins that the Department of Water
Resources has designated in the Bulletin 118 Series
as "subject to critical conditions of overdraft." This
prohibition would not apply, however, to the use of
groundwater that has been "stored for the purpose
of subsequent extraction for surface water replace-
ment or direct transfer as part of a groundwater
banking program carried out by direct recharge.
delivery of surface water in lieu of groundwater
pumping, or by other means." The purpose of this
restriction is to prevent surface water transferors
from initiating or increasing their use of groundwa-
110. CAL WA~MCOot C 174I 0 (West 19961.
1I1. CAL Do'W O WArI RESOUIcts. CaouNO WArn BASINS IN
CauOmNIA A Rpotr TO TH CAUPomIA LCacSaues IN RespoNt To





-. i


ter to replace exported surface water supplies in
those basins that are in sustained conditions of
overdraft. The groundwater basins that currently
would be covered by this restriction are: the Santa
Cruz-Pajaro basin: the Cuyama Valley basin: the
Ventura County basin; the Eastern San loaquin
County basin: and the Chowchilla. Madera. Kings.
Kaweah. Tulare Lake. Tule. and Kern County
basins.:" The list of groundwater basins protected
by this export prohibition would change as DWR
updates the Bulletin 118 Series.
Second. the Model Act would authorize trans-
fers of surface water for which groundwater is sub-
stituted from basins that are not subject to critical
conditions of overdraft, subject to three criteria:

a. The transferor must have legal authority to
use groundwater and may not exceed his or
her groundwater rights under state and
local law.

b. The transferor's use of groundwater must be
consistent with all valid laws that govern
the extraction, appropriation, and use of
groundwater. including groundwater man-
agement statutes. local groundwater man-
agement plans adopted pursuant to sec-
tions 10750 through 10755.4 of the Water
Code. city or county ordinances authorized
by the recent decision in Baldwin v. County of
Tehama."' judicial decisions and decrees
governing the extraction and use of ground-
water. and the provisions of CEQA.

c. The transferor's use of groundwater may not
cause the long-term operating safe yield of
the groundwater basin to be exceeded.

Third, inasmuch as the purpose of local control
is to protect the sustained production of the
aquifer, the Model Act states that local groundwa-
ter management plans and ordinances may not
prohibit the use of groundwater to replace trans-
ferred surface water except as necessary to ensure
that the long-term operating safe yield of the
aquifer is not exceeded as a result of the conjunc-
tive use arrangement.
Fourth. these limitations on groundwater
replacement would apply to all surface water trans-
fers. In contrast, the existing restrictions apply only
to transfers of surface water by local agencies gov-
erned by sections the 1992 legislation."'
WATI Cooe SecnoN 12924. 4 (1980) 1(ulletin I 1-80).
112. 31 Cal. App. 4th 166(19941.
113. CA.WA r Coost 1745.10 (West 19961.


41 '.*.


, 5.4.t
i -~"-~ "" 1 "


The Shm of TiWaes ftml


Fd 1996








U\


Un9rw4111114 -% 0


The protections for groundwater resources are
set forth in Part B. section 208. of the Model Act.

4. Clarification of Other Laws Governing Protection
of Third Party Water Rigts, Instream Resources.
and Water Quality.
The final set of protections for third parties are
:!arifications of the responsibility of water transfer-
ors to comply with a variety of laws governing water
rights. instream resources, and water quality. Thus.
:he Model Act would codify the established princi-
ple that. throughout the term of all water transfer
agreements. the parties to the transfer

shall comply with all requirements of fed-
eral law and state law where applicable.
including but not limited to: Article X.
Section 2 of the California Constitution:
sections 1410-1418 of the California Civil
Code: other provisions of this Code: terms
and conditions imposed by permit or
license administered by the State Water
Resources Control Board: and other judi-
cial and administrative decisions respect-
ing water rights, water quality, and other
beneficial uses.

Existing law also provides that water leases
that transfer water within or through the
Sacramento-San loaquin Delta must include suffi-
cent "carriage water" to maintain the same quality
water that would exist in the absence of the lease.
as well as water for salinity repulsion and other
environmental purposes as required by the State
Water Resources Control Board. :' The Model Act
would rewrite these requirements to state that
transfers of water within or through the Delta may
not cause a violation of the water quality standards
(including flow requirements and temperature stan-
dards) applicable to the Delta as established under
state and federal law. The Board would promulgate
regulations to implement this requirement, and
compliance with the regulations would be deemed
compliance with the statutory requirement. The
Model Act also would extend this protection for
Delta water quality to all types of transfers within or
through the Delta. In contrast, the current law lim-
its the express statutory protections only to trans-
fers based on the water leasing provisions of the
Water Code.
These clarifications are set forth respectively in
Part B. sections 205 and 206.


E. Transfers to Instream Uses
The Model Act also would address the problem
that transferors of water to instream uses have no
assurance under existing law that the water they
dedicate to instream protection will actually achieve
their intended purposes. As described previously.
this uncertainty arises because the current inrstream
transfer law does not require water quality adminis-
trators to set aside from :he regulatory standards
water held in the form of an instream water r-ght.
The Model Act declares that all water :hat is
transferred to instream uses shall be in addition to
water devoted to instream uses pursuant to federal.
state or local regulatory requirements. This would
mean :hac the State Water Resources Control Board
and other water quality agencies would be ;r:hibit-
ed from including in their calculation of the amount
of water or flows needed to meet water quality or
minimum stream flow standards any water trans-
ferred to instream uses and thus held as an
instream water right. Based on recommendations
from the focus groups. the Model Act adds the
caveat that if the transferor chooses to use the
water transferred to instream uses for the purpose
of satisfying its obligations under such regulatory
standards, that water would be credited toward the
transferors regulatory responsibilities.
The instream transfer provisions are se: fcrth in
Part F of the Model Act.

F. Local Agency Authority and "User Initiated"
Transfers
One of the original gcais of the project: was :2
define mere precise!'y he respective powers &f Iccal
water agencies and their mr embers or custom ers wh-.
seek to transfer water As Ziscussed supra. Part ili ?
California law presently authorizes water users with-
in an agency to transfer their individual water enti-
tlements. but only with the consent of the agency
This arrangement separates the price incentives that
serve as the inducement to voluntary water transfers
from the power to decide whether to engage in such
a transfer. For a market-based allocational system to
function properly, the price incentive, which is
directed at the user, must be joined with the deci-
sionmaking authority, which is now held by the
agency.*0 Moreover. unlimited agency control may
stifle transfers proposed by their members or cus-
tomers. because the agency may claim as "surplus"
any water that the users offer for sale to purchasers
located outside the agency."' These concerns are
particularly important in California. because the


116. S. e.g.. Cray. sura note 38. at 279-83.
I17 For a thoughtful analysis of this issue, see Thompson.
sru note 1I. at 723-39


5.4.20


inm F R M


114 1i 4 1027
It si


VUmlu r..tisr 0







Fdl996 The Shape ~f rU~5 ~ Came


lion's share of water used in this state is supplied
and therefore controlled by local water agencies."
r The draft of the Model Act that was reviewed
.; the focus groups addressed the question of user
initiated transfers by establishing criteria to gov-
ern the local agency's consideration of transfers
proposed by their members and customers. The
draft provided:

Notwithstanding any other provision of
law. members and customers of local water
agencies may transfer water with the
approval of the governing board of the
agency. Local agencies shall make avail-
able their water supply and distribution
system to the extent necessary to imple-
ment transfers by their members and cus-
tomers. Subject to the requirements of this
section. the financial terms and opera-
tional conditions of such transfers shall be
established by agreement of the local
agency and the members or customers who
participate in the transfer.

A local agency may deny or place terms and
conditions on water transfers proposed by
their members and customers only in accor-
dance with the following standards:

a. The agency shall have authority to
ensure that the transfer does not
deprive members and customers
of the agency who do not partici-
pate in the transfer of surface
water, surface runoff, return flow.
percolating water, or groundwater
to which the nonparticipating
members and customers would
have been entitled under contract.
agency regulation, bylaw, or other
legal authority if the proposed
transfer did not occur.

b. The agency shall have authority to
protect the groundwater resources
over which it has jurisdiction or
proprietary rights from excee-
dence of the long-term sustain-
able yield of the groundwater
basin caused by the transfer or to
which the transfer would con-
tribute significantly.


118 Farm and ranch surveys and other census data indicate
that between 1 percent and 68 percent of all irigated acreage in
California receives water supplied by an institution. rather than


c. The agency shall have authority to
protect the land. wetlands, surface
water, groundwater, fish and
wildlife, and other natural
resources within its jurisdiction
from pollution or degradation that
would be caused by the transfer or
to which the transfer would con-
tribute significantly.

d. The agency shall have authority to
ensure that the transfer does not
increase the cost of water or other
service provided by the agency to
its members and customers who
do not participate in the transfer .

e. The agency also may charge a rea-
sonable fee for the administrative
expenses and operation and
maintenance costs incurred in the
review, negotiation, or implemen-
tation of the transfer (including
any additional power costs
required to effectuate the trans-
fer). The agency shall credit to the
transferor any operation and
maintenance cost savings (includ-
ing any decrease in power costs)
attributable to the transfer.

The draft also would have referred disputes
between the agencies and their members or cus-
tomers to binding arbitration and would have
placed the burden of proving compliance with the
foregoing criteria on the local water agency.
In contrast, the final version of this section as it
appears in the Model Act states simply:

Members and customers of local water
agencies may transfer water with the
approval of the governing board of the
agency. The financial terms and opera-
tional conditions of such transfers shall be
established by agreement of the local
agency and the members or customers who
participate in the transfer.

This significant change from the draft to the
final version was made in deference to strong state-
ments received from the two Central Valley focus
groups. Participants in those meetings argued that
from water rights owned by the individual irrigators. Se M. at 667.
Because these data include groundwater. the percentage of swf
water supplied by local agencies is even greater.


5/4.21


S1996


The Shwe .f i4 o t% o 8nM










' I


iL EL G


%=ui4 I4. WO 0


ntost districts are now receptive to water transfers by
'heir members and recommended that individual
districts be given time to establish their own policies
,n this question. Several participants also stated
'hat legislative intervention in this area would be
.ounterproductive. because it could heighten con-
.erns of those district board members who are
'*,posed to or fear water transfers. We ultimately
uere persuaded by these arguments and therefore
-'moved the criteria governing agency review of user
nitiated transfers from the Model Act. The section
'"'m the earlier draft would be available as an alter-
'-itive solution to this problem, however, if the
centralizede. agency-by-agency approach fails to
-*Ilow members and customers of local agencies to
n'tiate and to engage in individual water transfers.
As noted previously, the Central Valley Project
improvement Act of 1992 declares that up to twenty
percent of the water delivered to CVP contractors
may be transferred by the individual members of the
contractingg agencies. subject only to the approval of
*he Secretary of the Interior.' The future experience
',nder this law will serve as a useful comparison with
existingg California law If there are significant user
initiated transfers within the CVP. and relatively little
-*ctivity in non-CVP contracting agencies that main-
rin restrictive transfer rules, it may become neces-
;,ary to amend California law to limit the authority of
local agencies by the criteria set forth above.
The provisions of the Model Act that address
the authority of locall agencies over transfers pro-
,(osed by :heir members and customers are set forth
it Part H

G. Reduction of Constraints on Wheeling
Barton Thompson has observed that

lalccess to existing transportation systems
can ... become an important constraint on
water markets. ... IAsl market activity
increases. .. transportation access is likely
to become a serious issue. Indeed. access
issues have already begun to worry and
influence some purchasers who fear that
the owners or operators of transportation
facilities will use their power over transfers
either to control water markets or garner
additional rents.'12

As discussed earlier. San Diego's contentious nego-
tiations with the Metropolitan Water District to
wheel acquired water through MWD's system con-
firm this hypothesis.
119. Central Vallae Project bmpovaent A Pub. L No. 102-
175. f 340taM I). 106 Sta 4706 (1992).


The Model Act would modify the wheeling provi-
sions of existing law in three important respects. First.
although it would continue the current authorization of
the use of up to seventy percent of the "unused capac-
ity" of public water supply systems for wheeling.'2' the
Act would require the calculation of "unused capacity
to be made at the time the wheeling request is filed.
The Model Act also would define 'unused capacity" as

the portion of the public water supply
agency's supply system, if any. not required
by the agency during the term of the water
transfer agreement to supply water
obtained by the agency or its members and
customers from water rights, contracts. or
other entitlements that exist at the time
the legal water user requests permission to
use the agency's water supply system.

These changes would prohibit the agency from deny-
ing or limiting a wheeling request based on the
agency's prediction that it might need currently avail-
able capacity in its system for its own uses, even
though it does not presently have binding legal com-
mitments to supply such uses. The new definition also
would prevent the agency from making all wheeling
agreements subordinate to its own future dse of the
system, unless the wheeling party agreed to such a
subordination. Under this approach to "unused capac-
ity." the agency would be protected to the extent that
it has firm legal obligations to use presently available
unused capacity in the future. In addition, agencies
also would be protected by the seventy percent limi-
tation on the mandated opening of unused capacity.
Second. the Model Act would clarify the criteria
applicable to the agency's evaluation of requests to
wheel water through its system. The agency would
have authority to protect its own existing water sup-
ply obligations, water quality within its system, and
its financial interests.
Third. the Model Act would alter the existing
statutory definition of "fair reimbursement." The new
definition would allow the agency to charge the wheel-
ing party for the marginal costs of transporting water
through its system. The Model Act would prevent the
agency. however, from fixing rates for wheeling at the
same rates charged to the agency's own members or
customers, unless equal rates were justified by the
marginal costs of the wheeling. The Act also would
prohibit the agency from imposing "stranded invest-
ment" charges or otherwise obtaining a share of the
consumer surplus generated by the water transfer that
forms the basis of the wheeling arrangement.
12o. os0. on.. sUpw note 70. at 17-I
121. CM. WA=U Coo #t 1i1 I(e). 1814 (Wet 1996).


5.4.22: .. .


.ii






M 199A


Thel whei6poiin o h oe c a


The wheeling provisions of the Model Act may
be found in Part I.

.onaduslon

The Water Transfer Act is the product of a com-
prehensive and exhaustive evaluation of California's
water transfer laws in the light of sixteen years of
experience with the modem transfer statutes. The
transfers that have occurred during these years have
firmly established the concept of voluntary alloca-
tion of the state's water resources in response to
market-based incentives as one of the cornerstones
of Califomia's water policy. This "first generation"
experience has generated an array of "second gen-
eration" issues, many of which are addressed in the
Model Act. Although we have left a few such issues
for future studies, we do so with the understanding
that California's water transfer policies will continue
to evolve in response to the state's ever changing
hydrologic, economic, environmental, and social
conditions. There will. in short, be opportunities for
reconsideration of the water transfer laws-includ-
ing the questions left unresolved by this report-in
light of "third generation" policy issues and subse-
quent experiences.
The Model Water Transfer Act therefore should
be viewed as a beginning point for the future
debate over water transfers in California. Although
eter marketing is not a panacea, water transfers
e now a vital component of California's water
policy and will continue to grow in importance as
the demands for water evolve and expand relative
to supply. The challenge for all participants and
interested observers is to devise better means of
freeing the market, enhancing the security of water
and contract rights, expediting the regulatory and
review processes, ensuring the protection of third
parties, and opening the channels of supply and
distribution.


APPENDIX A; Samary of te ModelAt a -


S-


The balance of this report is a working outline
and summary of the Model Water Transfer Act. It
should be read in conjunction with the text of the
Act. but not as a substitute for the Act itself. For
the language of the Act reveals, far more dearly
than can any summary, the policy choices and
pragmatic decisions that form the basis of this
comprehensive reconsideration. of California's
water transfer laws.
The Model Act is divided into twelve Parts, each
of which covers a particular topic area. The Parts are:


Part A Purposes and Policies

Part 8 General Authority

Part C Protection of Water Rights

Part D General Standards and Procedures
Governing Transfers of Water

Part E Standards and Procedures for
Expedited Transfers of Conserved
Water

Part F Transfers of Water to Instream Uses

Part G Water Transfer Fees

Part H Authority of Local Water Agencies

Part I Wheeling

Part I Water Banks

Part K State Water Resources Control Board

Part L Miscellaneous


This section of the report provides a summary
of the twelve topic areas covered by the Model Act.

Part A: Purposes and Poilces

Part A describes the purposes and policies of
the Act.
Section 101 begins with the declaration that "the
voluntary transfer of water is an essential feature of
water resources management and planning* In
California and that such transfers "improve the
administration of California's existing water resoures
by increasing the flexibility of water supply and alto-
cation, particularly during droughts and other water

45


-..-.;-









mf .u


i
]


am 4.)i lwO


shortages." it also states that water transfers are in
the public interest and promote the purposes of
Article X, Section 2 of the California Constitution.'
Section 101 further declares that "the protection of
water rights and contract rights to the use of water is
in the public interest and is necessary to facilitate the
voluntary transfer of water in California." These decla-
rations largely reiterate existing law.12
In addition. section 101 contains several other
declarations of policy that focus on some of the
specific provisions of the Model Act. These include:
a statement of the importance of protecting the
rights and interests of third parties who may be
adversely affected by otherwise beneficial transfers;
recognition of the important role that local water
agencies play in the water transfer process; and an
emphasis of the need for other legal changes pro-
posed in the Model Act. such as revision of the law
governing the State Water Resources Control
Board's review of water transfers within its statutory
jurisdiction, authorization of expedited transfers of
conserved and salvaged water, improvement of the
processes for transferring water to instream uses.
authorization of regional water banks, and clarifica-
tion of the relationship between the water transfer
laws and the California Environmental Quality Act.
Section 102 continues with a statement of the
purposes of the Model Act. These purposes are list-
ed in the sequence in which they appear in the
Model Act. and Section 102 therefore provides a
useful outline to the Act itself.
Finally. section 103 provides a working title for
the Model Act-the "California Water Transfer Act."

Part B: General Authority

Part B is something of a potpourri. It contains
nine discrete sections. each of which addresses sub-
jects that apply to subsequent Parts of the Model
Act. For example. section 201 delimits the coverage
of the Act and defines the terms "water transfers" and
"transfers of water" as they are used throughout the
Act. Section 208 sets forth general rules governing
the use of groundwater to replace surface water that
is transferred. And. section 209 articulates several
important changes to the California Environmental
Quality Act. These rules would apply to all water
transfers, not simply those regulated by the proce-
122. Article X. Section 2, of the Califomia Constituion pro-
vides in relevant pan
The right to water oro the use or ow of water in or rom any
natural seam water course in is State is and shal be
limited to such wae a shall be rasonabl required tor the
beneficial use to be served, and such fht does not and shall
not xtend to the wam or unreasonableue or reasonable
method of use or unreasonable method of dMnion of waste
Ripaian righ in a scmamm or waose attach to. but to no
moce than so much of ow ithe o asm abeqid or
used amsisendy with this secdon Ir the puposes or di


dures and standards set forth in Parts 0 and E of the
Model Act. Thus. an understanding of Part B is essen-
tial to an understanding of the Model Act as a whole.
As lust noted. section 201 defines the coverage
of the Model Act. It states that the Act applies to
three types of transactions

I. Voluntary changes in surface water rights that do not
involve a transfer of water from the casting water
right holder to another user This category
includes changes in water rights where the
water right holder needs to alter the place of
use or purpose of use set forth in its existing
permit or license for example, but does not
wish to transfer; water to another user.

2. Voluntary changes in surface water rights that do
involve a transfer of wtr from the listing water right
holder to another user This category includes
water transfers that may be accomplished
only by an accompanying change in the trans-
feror's permit or license. These types of trans-
fers currently are governed by sections 1700
through 1705.5 of the Water Code.'z'

3. Voluntary transfers of water that do not require a
change in water rights. This category includes
transfers that may be accomplished without
changing a water right. Transfers between
members of an irrigation district that holds
appropriative rights and transfers between
State Water Project Contractors would be
examples of this category.'2

For simplicity. section 201 states that. as used
throughout the Model Act. the terms "water trans-
fers" and "transfers of water" include voluntary
changes in surface water rights, voluntary transfers of
surface water rights. and voluntary transfers of water.
It is important to emphasize, as doessection 201.
that the Model Act applies only to voluntary changes in
water rights and voluntary transfers of water. Moreover.
except for section 208. the Model Act applies only to
changes in surface water rights and transfers of water
based on surface water rights. As described in more
detail below, section 208 addresses only the substitu-
tion of groundwater for transferred surface water. This
subject is governed by existing statutory law.'26
such lands arm or maybe made adaptable, in view o such rea-
sonable and beneald uses ....
C.. Cos. art X4 2. For an analysis o Arti e X. Section 2. see
Gray. sup note 38. at 253-72.
123 Set. e... CAL. Wau Coo 44 109.471 (West 1996).
124. For transfers that require a change in a pre-1914 appro-
pnative night. see id. 1706.
125. See Cray. sar note 26. at 779-80.
126. CAL Walr CoOC4t 1011.S. 1745.10. 1741.11 (West 1996).


*wil










.I
,,


5.4 24.


&im 1- 9- %M.0w









CA IA -The --m -o Wd ic Cm Am&


Finally, the Model Act applies only to certain
wp"es of changes in surface water rights or transfers
Sweater based on surface water rights. It does not
apply at all to pueblo rights and governs changes in
riparian rights only as provided in section 207. This
section restates the existing statutory authorization
of transfers cf quantio d riparian rights'2 and would
codify the practice approved during the 1991 Water
Bank of allowing riparians to forego the exercise of
their water rights without formally transferring the
water made available by such forbearance.12
Moreover, as discussed above, the general water
transfer procedures and standards of Part D and the
expedited rules governing transfers of conserved
water under Par E apply on a mandatory basis only to
transfers of water that require a change in the term of
a permit or license within the exiting statutory juris-
diction of the State Water Resources Control Board.
Section 202 is considerably more simple. It
declares that surface water rights and surface water.
as defined in section 201. may be transferred in
accordance with the provisions of the Act.
Section 203 then defines in broad terms the
types of legal arrangements that qualify as water
transfer agreements. Legal agreements include "pur-
chase and sales contracts. deeds, leases, exchange
agreements. options. futures contracts, subordina-
ion agreements. gifts, agreements to forego the use
()water. and other types of arrangements to transfer
..ater that are mutually agreeable to the parties." A
number of observers have recognized the impor-
tance of affording the parties to water transfers sub-
stantial freedom to define the structure of. and
terms by which they agree to transfer water.'12 This
section would authorize such parties to enter into
any type of contractual arrangement that they
believe would best serve their interests, subject of
course to compliance with the requirements of the
Model Act and other applicable law.
Section 204 distinguishes between short-term
and long-term transfers. It defines short-term trans-
fers as "proposals or agreements the term of which
is two years or less." Long-term transfers are "pro-
posals or agreements the term of which is greater
than two years." Long-term proposals and agree-
ments include permanent changes in water rights
and permanent transfers of water. To take into
account the possibility that the parties to a water
transfer might seek to avoid the requirements
applicable to long-term transfers by stringing
together a series of short-term transfer agreements.
section 204 also provides:
127 Id. 41740
128 S Cray. supra note 36. at 29-31.
129 See. e .. Steven I. Shupe. Gary D. Weathecrfd & Elizabeth


If a water right holder or water transferor
enters into successive short-term agree-
ments with the same party (or agents, rep-
resentatives. subcontractors, assignees, or
beneficiaries of the same party), and such
successive agreements have commence-
ment dates within two years of each other
and result in the transfer of water for a term
in excess of three years, the agreements
shall be regarded as a long-term agree-
ment and the provisions of this Act govern-
ing long-term agreements shall apply to
the second agreement and any successive
agreements.


definition of short-term and long-term
by reference to the term of the proposal or
it is significant, because this section would
long-term any arrangement by which water
rly transferred throughout the term of an
at greater than two years in length and any
ent for the sporadic, limited time transfer of
r the course of an agreement of longer than
Duration. Thus. a ten-year "dry year option"
nt pursuant to which the transferee has the
receive water from the transferor during dry
al water years-would be regarded as a long-
tement. even though water may be physical-
arred only for two or three months at any
e during the term the agreement.
distinction between short-term and long-
nsfers is an acknowledgment that certain
trictions should not apply to transfers of
Duration because the harm that might occur
party interests from short-term transfers
e temporary and therefore reparable. In
third-parties could be irremediably injured
term transfers unless their interests are
ed at the outset before water is transferred
g-term or permanent basis.
Model Act distinguishes between short-
d long-term transfers in five places:

Section 209 categorically exempts short-
term water transfer proposals and agree-
ments from the environmental review
requirements of the California Environ-
mental Quality Act. This exemption is
based on existing law.11

Section 403(g) provides that the State
Water Resources Control Board may con-
Wawr Wwur fRsip TsU M of R aloid s. 29 NAT. Rs. I.
12(1989).
CA. WAi CoK 4 1729 West 1996).


47

!,t.~ A 2


.1
i:11:


I
''
..Z,.


i.tit;l


nY~Bard'~iaa~aarCwrhr~A


U 6 9IXF







Volme 4 Ntular 0


CI


sider short-term transfer petitions within
its jurisdiction without conducting a live
hearing, which is mandatory in the case of
long-term transfers.

3. Sections 404(a) and 4041b) assign to the
transferor the burden of proving that the
transfer of water pursuant to a long-term
transfer agreement would not "result in sig-
nificant injury to any legal user of water" or
"unreasonably affect fish. wildlife, or other
instream beneficial uses." in contrast, for
short-term transfer agreements. the trans-
feror would simply have the burden of pro-
ducing vrima facie evidence of compliance
with these protections for third parties.
Once the transferor produced such evi-
dence. the burden of proof would shift to
persons opposed to the transfer to prove
that the short-term transfer would cause
significant harm to other legal water users
or would unreasonably affect fish. wildlife.
or other instream beneficial uses.

4 Section 404(c) applies an additional substan-
tive criterion to long-term agreements to
transfer water that are based on the fallowing
or retirement of previously irrigated land. In
these cases, the State Water Resources
Control Board would have to find that the
long-term transfer would also not "cause
substantial harm to the economy in the area
from which the water is to be transferred."

5 Section 507 provides that long-term trans-
fers of water made available by land-fal-
lowing or retirement are not eligible for the
expedited transfer provisions of Part E.

Only the first of these provisions-the exemption
from CEQA-would apply to all types of water trans-
fers. The second, third and fourth are relevant only to
transfers that are subject to the jurisdiction .of the
State Water Resources Control Board according to the
provisions of Part D. and the fifth applies only to expe-
dited transfers of conserved water pursuant to Part E.
Section 204 changes existing law. which uses
one year as the dividing point between short-term
and long-term transfers."' There was a broad con-
sensus among the participants in the focus groups
that the present definition of short-term transfers
as one year or less is overly restrictive, because it
leaves too little time to implement short-term
transfer arrangements.
131. Id 1728. 1735.


Section 205 simply codifies the well established
legal requirement that. during the term of all water
transfers, the parties must comply with other applica-
ble state and federal laws. These laws include: Article
X. Section 2 of the California Constitution: sections
410O-1418 of :he California Civil Code. which govern
pre-1914 appropriative rights acquired pursuant to
the Civil Code of 1872: other provisions of the Water
Code: the terms and conditions of the transferor's and
transferee's water rights permits or licenses: and
other judicial and administrative decisions respecting
water rights. water quality, and other beneficial uses.
Section 206 addresses transfers of water within
or through the Sacramento-San loaquin Delta. It
has been the practice of the State Water Resources
Control Board to require such transfers to meet two
requirements. First, the transferor must contribute
water for salinity repulsion and other water quality
requirements as determined by the Board. Second.
the transfer must include a "carriage water" compo-
nent that represents the water "lost" to the system
when water is moved across the Delta. Indeed. this
practice has now been codified as a section of the
Water Code applicable to "water leases."'3
A number of participants in the focus groups
objected to the Board's assertion of authority to
take a portion of water transferred through the Delta
for salinity control and other water quality require-
ments in addition to those set forth in the Water
Quality Control Plan for the Bay-Delta. Other partic-
ipants challenged the carriage water requirements.
questioning whether any water was lost during
transport through the Delta
The Mode! Act responds to these issues in twc
ways The first paragraph of section 206 states simply
that no transfer of water within or through the Delta
"shall cause a violation of the water quality standards
(including flow requirements and temperature stan-
dards) applicable to the Delta as established under
state and federal law." This approach is consistent with
the general environmental limitation on water trans-
fers that they not alter the status quo in a way that caus-
es a violation of water quality standards or creates
injury to fish. wildlife, and other instream beneficial
uses. To answer the concern that. at least for some
transfers. no carriage water is needed to move water
through the Delta. the second and third paragraphs of
section 206 would require the Board to address this
question by rulemaking. If the Board determines that
carriage water is required. it would have to include in
the regulations "a table that states the additional
amount of carriage water that must accompany each
transfer of water within or through the Delta for vari-
ous hydrologic conditions and types of transfers."
132. I. 4 1027


5.4.2?(


ih L _


r. r


C'



I.








FrIl1996 ra %p of ide lo Cog fAuin A


Section 207. as noted previously, is the only pro-
vision of the Model Act that addresses riparian rights.
SIt does so in two ways. First, section 207 authorizes
the transfer of riparian rights that have been quanti-
fied in a statutory adjudication to be transferred as
though :hey are appropriative rights. This is a restate-
ment of current Water Code section 1740.
Second. section 207 allows riparians voluntarily
to forego the exercise of their riparian rights for the
benefit of another party. In such cases, there is no
transfer of water. As a legal matter. the water returns
to the river system where it may be claimed by other
riparians or appropriated by other lawful water
users As a practical matter, however, the water may
be usec sy the 'purchasing party" to meet its own
water quaiicy and instream flow obligations. This in
turn may make other water owned or controlled by
the "purchasing party" available for other consump-
tive uses. In 1991. the Department of Water
Resources entered into forbearance arrangements
with riparians along the lower Sacramento River and
in the Delta. The Department used the "acquired"
water to meet its Delta water quality requirements.
which freed other water in its system for distribution
to its own. contractors and to customers of the Water
Bank.:3 This was an important and effective strate-
gy. Accordingly section, 207 also preserves the
authority of riparians to enter into similar agree-
C ments to forego the exercise of their riparian rights.
Section 208 defines the circumstances under
which a transferor of surface water may initiate or
increase its use of groundwater to replace surface
water :-at it transfers out-cf-basin..A transferor of
surface wacer generally may replace the transferred
surface water with groundwater if three conditions
are satisfied. First, the transferor must have legal
authority to use groundwater and may not exceed
his or her groundwater rights under state and local
law. Second. the transferor's use of groundwater
must be consistent with all valid laws that govern
the extraction, appropriation, and use of groundwa-
ter. including groundwater management statutes.
local groundwater management plans adopted pur-
suant to sections 10750 through 10755.4 of the
Water Code. city or county ordinances, judicial deci-
sions and decrees, and the provisions of CEQA.
Third. the transferor's use of groundwater may not
cause the long-term operating safe yield .of the
groundwater basin to be exceeded.'"1
133 For a description and analysis of this aspect o the 1991
Water Bank. including an explanation of how DWR calculated the
quantity of water returned to the river by virtue of the riparians' for-
bearance of use, see Gray. sure note 36. at 29-31.
134 The Model Act also states that local groudwater man-
agement plans and ordinances may not prohibit the use of gound-
water to replace transferred surface water except as necessary to


Special provisions govern groundwater subtitu-
tion to replace surface water exported from "basins
subject to critical conditions of overdraft" as defined
in the Department of Water Resources' Bulletin 118
Series. Section 208 prohibits the substitution of
groundwater in these circumstances, unless the
grcundwater previously was "stored for the purpose
of subsequent extraction for surface water replace-
ment or direct transfer as part of a groundwater bank-
ing program carried out by direct recharge, delivery of
surface water in iiu of groundwater pumping, or by
other means." The groundwater basins that currently
would be covered by this restriction are: the Santa
Cr.z-Paiaro basin; the Cuyama Valley basin: the
Vertura County basin the Eastern San loaquin
County basin: and the Chowchilla. Madera. Kings.
Kaweah. Tulare Lake. Tule. and Kern County
basins.'" The list of groundwater basins protected by
this export prohibition would change as DWR
updates the Bulletin 118 Series.
Finally. section 209 concludes Part B with a clar-
ification of the applicability of the environmental
review requirements of the California Environmental
Quality Act to water transfers. It states that CEQA
shall not apply to short-term transfer agreements.
This exemption is based on current law.'13

Part C: Protection of Water Rights

Part C is comprised of four sections that
expand on the existing legal protections for water
rights in the context of water transfers. As noted
previously. the Water Code presently authorizes
transfers of conserved and surplus water and
declares that the transfer of water shall be deemed
a beneficial use by the transferor.:;r The purpose of
these laws is to create incentives to water right
holders and other water users to conserve and
transfer water and to provide assurances to poten-
tial transferees that the water they may acquire will
be secure throughout the term of the transfer agree-
ment.' Despite these protections. many of the par-
ticipants in the focus groups expressed the concern
that existing law does not adequately protect the
rights of the parties to water transfer agreements
and that legal changes are needed to create the
security of property rights required in any market-
based allocational system. The provisions of Part C
are a response to these concerns. Because ques-
ensure that the long-term operating safe yield of the aquifer is not
exceeded as a result of the coniunctive use arrangement
135. D.. Olp'T O WAmh RtiourCis. ts$pr note I 1 at 4.
136. CM. WAlE Coot 4 1729 (West 19961.
137 Id. 44 10 lilb. 1244. 1745.07
138. Sa Cray. supre note 38. at 275-77


FaMl 1996


ihr 01999 of immrin a 6aK ~i~rPIPh it







I
Cl


tions about water rights arise in virtually every type
of water transfer. the protections set forth in Part C
would apply to all water transfers, not simply to
those governed by Parts D and E of the Model Act.
Section 301 protects the water rights of the
transferor it states that the transferors "offer of water
for transfer the transfer negotiations. and the agree-
ment :o transferr water shall not be used as evidence
of the transferor's waste or unreasonable use. or ces-
sation of use. of the water made available for trans-
fer.' Section 301 also provides that the transfer of
water or water rights shall not "cause. or be the basis
of. a forfeiture or abandonment of any water rights.
conr-ac: rights or other right to use water." These
dec:arct:cr.s are based on existing sections i'0 l(bi.
102.i i 2-4 and 1745 07 of the Water Code.
Section 302 continues these protections during
the term of the agreement to transfer water. It pro-
vides that, throughout the term of all water transfer
agreements, compliance with Article X. Section 2 of
the California Constitution and other laws governm-
ing waste and unreasonable use "shall be deter-
mined based on an assessment of the reasonable-
ness of the transfer's use of the transferred water."
The purpose of section 302 is to assure both parties
to :he transfer that the transferors alleged prior
waste, unreasonable use. or non-use will not be a
basis for reduction or divestment of the rights to the
transferred water during the term of the transfer
agreement. As described supra Part I. this section
would codify the practice employed by the State
Water Resources Control Board with respect to the
[mper:al irrigation District's transfer of conserved
water :t :he Metropolitan Water District.
Sec::cn 303 follows by clarifying the rights of
transferors at the conclusion of the term of water
transfer agreements Participants in all of the focus
groups stated that the current laws do not ade-
quately protect the rights of transferors at this stage
of the transfer process, and consequently some
users are deterred from transferring water because
they fear that they will not regain the rights to such
water at the end of the transfer agreement. Section
303 addresses these concerns by declaring that "at
the conclusion of the term of a water transfer agree-
ment. all rights in. and to the use of. the water sub-
ject to the transfer agreement shall revert back to
the transferor." For additional emphasis, it then
stipulates that "neither the transferee Inorl any
beneficiary of the transfer claim any right to a con-
tinued supply of water based on reliance, estoppel.
intervening public use. water shortage emergency.
unforeseen or unforeseeable increases in demand.


139 C4 WATu Coo iO 10t11 Wesrt I199
140 Id 44 1701. 1723. 1731.


Pnm 4. IlmU n


or any other cause." Section 303 provides the
strongest possible legal protections for transferors
at the conclusion of the term of water transfers.
Finally. section 304 states that the "conserva-
tion. salvage, or other reduction in the use of water
for the purpose of transferring the amount so con-
served. salvaged, or reduced shall be deemed a rea-
sonable and beneficial use of water" This language
is simply a restatement of existing law.'"

Part D: General Standards and Procedures
Governing the Transfer of Water

Part 0 articulates the general rules applicable
to water transfers governed by the Model Act.
Section 401 states that. with the exception of
expedited transfers of conserved water governed by
Part E. all transfers of water must comply with the
requirements of Part D. This broad statement of
coverage is limited, however, by the terms of section
402. which make clear that the central provisions of
Part --the transfer procedures of section 403 and
the transfer standards of section 404-apply on a
mandatory basis only to transfers that necessitate a
change in the term of a permit or license subject to
the current statutory jurisdiction of the State Water
Resources Control Board.
Section 402 thus defines the scope of the
Board's jurisdiction under Part D. It states that the
Board shall review all petitions to transfer water
appropriated under permit or license and petitions
to transfer quantified riparian rights "where the
transfer requires an alteration of the purpose of use.
place of use. point &f diversion, point of return flow.
or any other term or condition of the water right as
set forth in the applicable permit, license, or
decree." This does not expand the Board's mandato-
ry jurisdiction as defined in the existing water trans-
fer laws.' 1 Indeed. to emphasize this point. section
402 also stipulates that the Board "shall not have
jurisdiction over any other transfers of water unless
the water right holder requests the Board to exercise
jurisdiction pursuant to sections 403 and 404."
Section 403 sets forth the procedures that
would govern the Board's review of petitions to
transfer water. Petitions may be filed by the water
right holder and. with the water right holder's per-
mission, by a contractor or user supplied directly or
indirectly by the water right holder. The balance of
section 403 defines the process by which transfer
petitions are reviewed by the Board. These proce-
dures are a consolidation and improvement of the
existing transfer review procedures."' Important
141. sai. 4 1700-170 .5. 1725-1732. 1735-1737.






.aild


mn ; ~1


-'I

I


Arim : Um 4, Nm-w


--


'5~~1







Fi 1996


changes from the current law include. imposition of
specific time limits on the Board's exercise of its
investigation, review, and decisionmaking responsi-
bilities: and exemption of short-term transfer peti-
tions from the hearing requirements of current law.
Section 403 also provides for judicial review of the
Board's decision to grant or to deny transfer peti-
tions. A court could overturn a decision by the
Board only for procedural errors, for statutory or
constitutional violations, or if the court found that
the decision was not supported by substantial evi-
dence. A court would have no authority to award
damages or any other type of monetary relief.
Section 40. follows with an articulation of the
sucs;antive standards that would govern the Board's
decision on water transfer petitions. As described
earlier this section was the result of comments
received from participants in the focus groups that
the Model Act should create a hierarchy of types of
transfers that would encourage transfers that are
likely not to result in significant injuries to third par-
ties, while subjecting transfers that have greater
potential for third party harm to greater scrutiny. To
accomplish this salutary goal. section 404 delineates
three categories of transfers and would require the
Board to apply:different legal standards in its review
of transfer petitions for each of these categories.
Section 404(a) applies to short-term transfers-
i.e.. proposals and agreements the term of which is
two years or less. It states that the Board shall
approve a short-term transfer petition "unless it con-
cludes that the proposed transfer: (I) would result in
significant injury to any legal user of water: or (2)
would unreasonably affect fish. wildlife, or other
in steam beneficial uses 'The petitioner would have
the burden of producing pnma face evidence that the
proposed transfer would comply with these two
requirements. The establishment of a prima facie case
then would shift the burden of proof to the parties
that have filed protests in accordance with the
requirements of section 403. The protestants would
have to prove that the proposed transfer would not
comply with the standards of this subsection.
Section 404(b) addresses long-term trans-
fers-i e.. proposals and agreements the term of
which is longer than two years. It provides that the
Board shall not approve a long-term transfer peti-
tion unless it concludes that the proposed trans-
fer: (I) would not result in significant injury to any
legal user of water: and (2) would not unreason-
ably affect fish. wildlife, or other instream benefi-
cial uses. For long-term transfers, the burden of
proof would remain on the petitioner throughout
the proceedings.
142. SW SAN ICACUIN VAL. Y ORAIiNac PRaCAM. A MAwMV4rC
P Cm Fe ACMCUW uA. SUSUSUAC 0 DtaWcgOI RLuo Pamoas ON


As 9Miis of 'rWo to Cow Am* A


Section 404(c) creates an additional substan-
tive requirement for long-term transfers based on
the fallowing or retirement of previously irrigated
land that would change the place of use or transfer
the water to uses outside the county or counties in
which the water previously has been used. In addi-
tion to the standards of section 404(b). the Board
could not approve a petition for this type of transfer
if it concluded that "the proposed transfer would
cause substantial harm to the economy in the area
from which the water is to be transferred.' In mak-
ing this determination, the Board would be required
to "consider any actions that the petitioner or other
parties to the transfer agreement have taken to mit-
igate harm to the economy in :he area from which
the water is to be transferred." Section 404(c)
assigns the burden of proof to the petitioner. The
substantive protection for local economies would
not apply to long-term water transfers based on the
fallowing or retirement of irrigated land within the
San loaquin Valley Drainage Program study area
that the Board concludes "would contribute to the
reduction of agricultural drainage that causes injury
to land and natural resources or adversely affects
surface water or groundwater quality." This exemp-
tion was included specifically to facilitate the retire-
ment of land within the drainage problem area of
the western San loaquin Valley.142
To the extent that a transfer petition includes
water that would be consumed by the transferor in
the absence of the proposed transfer. section 404(d)
would allow the Board to use the quantification
processes of Part E to calculate the amount of such
water available for transfer The Board would apply
a rebuttable presumption that the transfer of this
water would not result in significant injury to any
legal user of water or unreasonably affect fish.
wildlife, or other instream beneficial uses.
Section 404(e) states that. if the Board "deter-
mines that both the release of water for transfer and
the diversion or rediversion of the transferred water
would comply with the terms and conditions of
existing permits and licenses that protect other
legal water users, fish. wildlife, and other instream
beneficial uses affected by the appropriation and
use of the water that is the subject of the petition."
then the Board shall conclude that the proposed
transfer would comply with the requirements of sec-
tions 404(a) and 404(b). Section 404(f) comple-
ments this provision by directing the Board only to
consider the effects of the proposed transfer on the
third party interests protected by section 404. The
Board may not deny. or place conditions on its
approval of. a water transfer in order to mitigate
miL WUrsia oC mt S5AM ISOaUIN VAL.Z ( 1990).


5-4.4v


Fd1 "


'.:':
C .r


i It








,.- c -


m ,. r. Mly


Sl


adverse effects on fish. wildlife, or other instream
beneficial uses. or to mitigate harm to the economy
in the area from which the water is to be transferred.
that would be caused by factors other than the pro-
posed water transfer. The purpose of these sections
is to ensure that the Board does not impose on the
parties to water transfers the burden of correcting
environmental or economic problems caused by
factors beyond the parties' control.
Section 404(g) declares that. in all cases, the
petitioner has the burden of proving that it has valid
water rights to the water included in the transfer
petition. The burden of proof on all of the substan-
tive standards set out in section 404 would be by a
preponderance of the evidence
Section 405 establishes brief notice require-
ments for water transfers that are not subject to
the Board's jurisdiction under sections 403 and
404. Thus, it would apply to transfers of pre-1914
appropriative rights that involve a change in the
purpose of use. place of use. point of diversion, or
point of return flow from that of the existing use.
In such cases. section 405 simply would require
the water right holder to provide notice and a brief
explanation of the changes to the Board. the
Department of Fish and Game. and the Supervisors
of the county or counties from which the water is
to be transferred. Section 405 would not authorize
the Board to review or otherwise have jurisdiction
over these transfers.
Section 406 provides a segue to Part E by allow-
ing the petitioner to use the expedited procedures
for transfers of conserved water for any portion of
the petition that qualifies ruder Part E.

Part E: Standards and Procedures for Expedited
Transfers of Conserved Water

As described above, one of the central features
of the Model Act is the creation of an expedited
process for transfers of water conserved or salvaged
by the transferor. This expedited process would
improve California's water transfer laws. because it
would allow transfers'of conserved and salvaged
water to occur relatively quickly, without substantive
review by the State Water Resources Control Board.
but subject to categorical protections for third party
interests. The standards and procedures that would
govern expedited transfers are set forth in Part E.
Section 501 defines "conserved water" that may
be transferred on an expedited basis as "water that:
(1) the transferor is legally entitled to use during the
term of the transfer agreement pursuant to existing
water rights, contracts, or other legal authority: and


143. CML WAME CaOt 1241 West 1996).


543
-7-


(2) the transferor has used within the five years
immediately preceding the transfer agreement. This
definition is designed to ensure that the transferor
has rights to and would have used the water pro-
posed for transfer if the transfer did not occur-i.e..
that transfers under Part E are limited to transfers of
'wet water." The requirement that the transferor have
used the water within five years is based on the five-
year period for forfeiture of appropriative rights for
non-use."' Section 501 also gives examples of con-
served water, including: water that the transferor
conserves through salvage of water irretrievably lost
to all consumptive uses during storage, transporta-
.:on. or distribution. increased efficiency of irriga-
:.on or other use: changes in the acreage or type of
crop irrigated: land fallowing or retirement; changes
in operations: reduction in demand within the trans-
feror's place of use or service area; substitution of
reclaimed or recycled water; pricing changes: and
other conservation measures.
Section 502 then defines the quantity of con-
served water that may be transferred under the
expedited procedures. It provides:

Transfers of conserved water shall not
exceed, for any water accounting year dur-
ing the term of the transfer, the lesser of:
(1) the amount of water that is legally and
physically available to the transferor during
the water year; or (2) the average annual
quantity of water consumed by the trans-
feror, or irretrievably lost to all consump-
tive uses, during the ten water years imme-
diately preceding the transfer

The purpose of this section is to create the cate-
gorical protection for third party interests
described above. By limiting the quantity of trans-
ferable water to the lesser of the amount physical-
ly available to the transferor or the average con-
sumptive use plus irretrievable losses, section 502
ensures that additional water within the transfer-
or's appropriative rights on which third parties
may rely will remain available to them after the
.consumptive use and irretrievable loss component
is transferred. Thus. the definition of transferable
quantities contained in section 502 protects other
legal water users who use the transferor's surface
runoff or appropriate the transferor's return flow.
groundwater users who have rights to the perco-
lating waters produced by the transferor's existing
irrigation practices, and wetlands and instream
uses of the surface runoff and return flow from the
transferor's current practices.


Volustle 4, Itailer 0




Li 1 i ijW C .l.l._ Jf. ...i....- .- ....- ii.i ,iiu i.n. .


* .. ..~ .y.-. '; s


l 14in


SecuSn 103 esAasea s the pess by which
the Wcon eZu$r I $utrteidiaer isf an*-
fled. DMjirw qwantMiiton uijhedf apply
deia. ndti .onS. riQatofhe csasd water
I For transfers of.wa pOenr violy uspd by
tht cmnsterer for irrigfcig .,and cpknrvedd
by crop sublrim0cuon land faUllowng the
crasfer*le c i wieni b.d y ine d t d
by rufwermnt.o a. 'W c*' Cq iumtt)on
rTale for C~ibtlw A Tewr.-s TWAte
would bs mlnUi i by ahe.l bcarw. w
would contain a flcutlaios dtAe wtr
consumedd in trh iiatirfL of adh crop
grown in Calfmnia. Thela le would corw
tain separate wer eIsuft 'daa per
crop for each hydaoloic region of state.

2. For transfers of water evtously uod by
the crmanerar or any ash pE ii eand
consered by dhenes is.(a ti aq
use..satwsv of gr irrerievatty ai>^l< tt -
other contarotwoe awsn.'UMW atlOwina
or recycled wate. Prtid cdht4gp f uct-
cion in demand. or er medrotodie esn-~
servation. the wuingfata quantiy would
be detefrrined by the actual water con-
sumptibn data.

The purpose of using geuric babies for the first cat-
egory of transfer. rther than rrel wa m nsmp
cion data. is to exptdle the tranfer proc i by
relieving both the'partie to the trainer .and the
Scared of the difficult andixpisive ta*rf calculat-
ing the transferors e acta historic water consump-
tion during the years preceding the transfer.
Because of the emultpHeit o.f wai of capssrving
water through dhangein weldciency ofse. a *nd
the conseqa nt ii'poailitit y of onealeqnner-
ic waer Cw prawtsefliatemabg.dCYs iatdI*eoAd .
calasepry S wltc. beoaletmtino t&beases<>f
actual water s*IA .
Slettn soW t~wkfth the poedted peacdumes
applkiablemawerite qnMlWd *ait* PsMuOnt
to fart u. ThuesnOi rer waa.ktb wB aisito ab-
mit to fthe State \ar# 4tesenates Coffolr Bard its
catuertioa of chatfeut c of conqsieda'atur dtat it
pronhose W trandfelal to pqSualgtseU a t .c(h
pROOMaa* to Wt1p titmt VS "sand Gq e aMd
to e Spervwisors of *d county or oandis *om
which the iatr will be tranferred. The aBerd
would not ha authority to review the popoinwl as
it woud cmnsfer petitona filed under Part 0.
Rather, tIe aurd simply would review the transfer-
oas calculation of the quantity of conserved water


1;!


ufiqa diaort b
Ow & sot*itE4MiM ;I., t:0"AMWO
wates nfr te.#wsai'#lald not
nRr': tiggkSe or by
culgionsa ga'ittM i


9u.rmEtainp fmmW oW Sdawon
for -app iew n wa loulb rwe teo.

nat14et ibum ntf hae.. ae6oMr* to award
drmages otf gvrarMo y retlf.
.At ie ftsioew bt amp War Anss'cme

Chl ow wer irtirtM, akoftwC*r t^y4t
doha not .oisa & of. US*uI$IWWIIUF
hlond o the o i OUI
1th1*5e0jsilt.mssiw raothurf.w-


ThA suweaabeola of PAt E powfide
b.4diwp prwfYayggtWsr thipt naib. in the -m
*et^ tEh gteamtekp pafei'j ons iocribod above
fall in i*iAdl 0aIt. Ths Wltia ppAimeSionh
are s$EL tbe4scam thfgd py it would not
have the *ri&, tsp"I ar or fttonelq i l:iwt40
of d*atrwan tO rteir occ Thu*s, if
the q, prtee tSos worews f% f lWtbgmd
third mafis-aqlot hMv siner meRsit obweisakw
compenaiAlbe The-slecurfty req wubt of ec*
tioan W tOd hO cOp enpiasle n fiwn of section
506 are dsitnd to. adiie this purpose. They
woutd. "ey ewdlurvety to expedited transfers
un4daW|isk aggrt ro Parnt.
Sawionft W widV sowpe ewyt peonor enti-
ty the hgalditjStatawfef fiwf dor Put E to

ThiqilH uiH-' HipR fla bI IBinfH
'**^*^wv~vm^:>v Wr An ^iw^y*^^^pf^fK ^
Ce rj-^^'^^ b k *.u~b.j^^a~ ^i~ile~ .f'.L .


accordance wth the sa soln SOL
s9g,rCw,:,i, lM1 e111Jlfliftk W1 C,. ft r
Seal On 70 o, e dpa n urlml
for claims on the secudty latrets pqad under
section 505. Elibl clamnets ire mited tmo


,s ,h "d .,d ,

t k, kmd ......... .. -


.l L, i i


W' INA


, i






I


5 .









Bihn E.Gr


I



o1U


lum 4. iNumi 0


(1) the Department of Fish and Game, which may
seek compensation on behalf of the public for
"reduction in water quantity or flows and
diminution in water quality caused by the
transfer that adversely affects fish and
wildlife, recreation, other instream uses,
aquatic and riparian habitat, or wetlands;"

(2) the county or counties from which water is
transferred, which may seek compensation
for loss of tax revenues and increased social
services costs caused by the transfer, and

(3) other legal water users, who may seek com-
pensation for "reduction in the supply of water
that the claimant is legally entitled to use.
diminution in water quality that adversely
affects the claimant's water use. and increased
pumping costs caused by the transfer"

Claims for compensation would be subject to
binding arbitration. To prevail on the merits, the
claimant would have to prove that the injuries were
caused by the expedited transfer and not by other
factors such as

drought or other water shortages; changes in
the operation of water facilities not con-
trolled by the parties to the transfer. changes
in river flows, groundwater extraction, or
groundwater recharge not related to the
transfer: changes in commodities prices, cost
of goods and services, or labor costs;
changes in the general economic conditions
of the region: and other hydrologic and eco-
nomic conditions not related to the transfer.

The arbitrator would be appointed by the State
Water Resources Control Board and would have
authority to award monetary damages up to the
amount of the security posted under section 505.
Section 507 completes Part E. It addresses con-
cerns raised in the focus groups by representatives
of rural communities and small farmers that it
would be inappropriate to allow expedited transfers
of water in situations that could cause significant
economic harm to the area from which the water
would be transferred. Thus. section 507 provides
that the expedited procedures of Part E do not
apply to long-term agreements to transfer con-
served water that (I) would obtain water for transfer
by fallowing or retirement of land previously used
for agricultural purposes and (2) would transfer the
water to uses outside the county or counties in


144. ___ U._ 9 77 A.5 hea. a_ os0.a 9


which the water was used before the transfer
occurred. To allow opponents of these types of
transfers to express their objections. section 507
mandates that they be subject to review by the
Board in accordance with the provisions of Part D

Part F: Transfers of Water to Instream Uses

The Water Code presently allows existing water
right holders to dedicate all or a portion of their rights
to instream uses.'- The three sections that comprise
Part F incorporate this statute and address an impor-
tant question left unanswered by the existing law
Section 601 simply restates the current law and
authorizes water right holders and other legal users
of water to transfer their water to instream uses.
These transfers would be governed by the general
transfer rules of Part 0 or, in appropriate cases, by
the expedited transfer provisions of Part E.
As discussed above, environmentalists and
other proponents of instream water rights have ques-
tioned whether the State Water Resources Control
Board and other agencies with jurisdiction over water
quality and instream flow protection could claim
water dedicated to instream water rights as part of
the water needed to comply with the regulatory stan-
dards. They have worried that these agencies might
reduce the quantity of water or flows required to
meet the regulatory standards by an amount equal to
the quantity or flows dedicated to instream uses in
the form of instream water rights. This absorption of
the instream water rights would effectively defeat the
purpose of the instream dedication. '4
Section 602 addresses this concern by declaring
that water transferred to instream uses shall be in
addition to water devoted to instream uses pursuant
to federal, state, or local regulatory requirements.
This would prevent the Board and other agencies
from including in their calculation of the amount of
water or flows needed to meet water quality stan-
dards or minimum stream flow requirements any
water dedicated or transferred to instream uses and
held in the form of an instream water right. Section
602 therefore would ensure that water that is trans-
ferred to instream uses under section 601 would aug-
ment any water devoted to water quality or instream
flow standards through the regulatory system.
Section 603 was added at the suggestion of
several participants in the focus groups. It provides
that. if the transferor chooses to use the water ded-
icated to instream uses for the purpose of satisfying
its obligations under such regulatory standards. the
dedicated water shall be credited toward the trans-
feror's regulatory duties.


.4
I



C

4











Ic
A'
.


__I L11 1I-~-IVCL-


,, 11


14. lM. 1707.


145. S T1omma. amp notl 68. at 49.







F 1996 Ih SWl eof lim tols Cum G i= VPA


Part G: Water Transfer Fees

Participants in several of the focus groups ques-
S.,ned whether the State Water Resources Control
Board would have adequate resources to discharge
the responsibilities assigned to it by Parts 0 and E of
the Model Ac:. They suggested that a nominal water
transfer fee be established to provide funding to sup-
port the Board's review of water transfers that fall
within its statutory jurisdiction. This idea received
broad support among the other focus groups. Part G
was drafted in response to this recommendation.
Section 701 requires every person or entity that
acquires water transferred pursuant to Parts D and E
to pay a water transfer fee. For transfers governed by
Part 0. this fee applies only to those over which the
Board exercises jurisdiction pursuant to sections 403
and 404. Thus. it does not apply to transfers of water
appropriated pursuant to pre-1914 rights or to trans-
fers of water appropriated under permit or license
that do not require an amendment of the permit or
license and that are not submitted to the Board for
review. Transfers to instream uses under Part F also
are exempt from the transfer fee. Moreover, the fee
does not apply to carriage water required for
through-Delta transfers as set forth in section 206.
Section 702 directs the Board to promulgate a
"Water Transfer Fee Schedule" by regulation. In
104cognition of the likely economies of scale associat-
1 with the cost of the Board's review of larger trans-
fers. the amount of the transfer fee declines as the
quantity of water proposed for transfer increases. The
fees for expedited transfers undertaken pursuant to
Part E are less that the fees for transfers governed by
Part D. because the expenses incurred by the Board
in checking the transferor's quantification of con-
served water available for transfer under Part E likely
would be substantially less than the costs of review
under Part D. Section 702 directs the Board to set the
fees at levels that are adequate, but no greater than
necessary, to pay for the costs of administration of
Parts D and E. It also establishes a schedule of max-
imum fees that the Board could not exceed.
Section 703 authorizes the Board to use the
proceeds of the water transfer fees to implement
the requirements of Parts 0 and E. This section also
permits the Board to use any residual proceeds to
support its other administrative responsibilities.
Section 704 is designed to ensure that the
water transfer fees would be a permanent source of
funding to pay for the Board's administration of the
water transfer laws. Thus. it prohibits the state from
including the proceeds of the fees as part of the
general state budget and from using the fees to
(- meet general state obligations.
146. Sr Cv WXrtr CoM 382.1022. 1745-1745 II IWes 1996).


Part H: Authortty of Local Water Agencies

Part H addresses four related topics: (1) the
authority of local water agencies to transfer water:
(2) the authority of members and customers of local
agencies to transfer water: (3) the authority of local
water agencies to receive transferred water; and (4)
the authority of members and customers of local
agencies to receive transferred water. As discussed
in detail above. Part H reflects a variety of signifi-
cant changes from earlier drafts based on com-
ments received from the focus groups.
Section 801 provides general authority to local
water agencies to transfer water to purchasers
located outside the agency's existing service area.
Subsection 801(a) would allow the agency to trans-
fer water to which the agency has water rights or
contract rights that is in excess of the reasonable
and beneficial demands of its members and cus-
tomers and water that is made available for transfer
by conservation measures undertaken or funded by
the agency. Subsection 801(b) would permit local
agencies to transfer water for the benefit of individ-
ual members or customers who ask the agency to
transfer the water on their behalf. These provisions
are reiterative of existing law.;'
There are two important limitations on agency
authority to transfer water. First, subsection 801(a)
provides:

Without the consent of the member or cus-
tomer, the agency shall not declare as
"excess" water that a member or customer of
the agency has authority to use. or to trans-
fer pursuant to section 802. during the term
of the transfer proposed by the agency, if the
member or customer has applied the same
quantity of water to a beneficial use, or has
transferred the same quantity of water pur-
suant to the provisions of section 802. at
least once during the preceding five years.

The purpose of this caveat is to prevent local agen-
cies from claiming water to which a member or cus-
tomer has an individual entitlement and which the
member or customer seeks to transfer to a purchas-
er located within or outside the agency. Second,
subsection 801(c) stipulates that local agencies
may not transfer or claim water to which an individ-
ual member or customer holds water rights or con-
tract rights with a party other than the agency. The
purpose of this restriction is to protect the rights of
members or customers to water that is not supplied
by the agency and over which the agency should not
exercise decisionmaking authority.


.
.









s isI & Gray


I



i1


Vdum 4, IaOr 0


Section 802 provides simply that members and
customers of local water agencies may transfer water
with the approval of the agency and that the financial
terms and operational conditions of such transfers
sail be established by agreement between the
agency and the participating members or customers.
As described above, this section recognizes the
authority that local agencies possess under existing
law to decide how water that they control and distrib-
ute to their members and customers may be used.
Section 803 complements section 801 by
authorizing local water agencies to acquire trans-
ferred water for distribution to their members and
customers on behalf of their members and cus-
:omers. and for other reasonable and beneficial
uses. This section would not change existing law.
Section 804 is the counterpart to section 802. It
authorizes members and customers of a local water
agencies to acquire transferred water from sources
other than the agency. If the transfer would not
require use of the agency's water supply system, the
agency would have no authority over the transfer. If
the transfer would require use of the agency's sys-
tern. the terms of the transfer would be subject to
the rules governing "wheeling" set: forth in Part I.
Section 805 defines the term "local water
agency" for purposes of Part H. Local water agencies
include all public and private entities that provide
water service in California. The provisions of Part H
are not applicable, however, to the United States
Bureau of Reclamation, the Army Corps of Engineers.
.r the California Department of Water Resources.

Part 1: Wheeling

Part I addresses the topic of "wheeling"-the
use of water supply facilities by someone other than
the owner or operator to transport water. The wheel-
ing rules apply both to the use of water supply sys-
tems by members and customers of the agency that
owns the system and to the use of water supply sys-
tems by nonmembers. Part I is based on the wheel-
ing provisions of existinglaw. 14
Section 901(a) authorizes any legal water user
who transfers water or who receives transferred
water to use up to seventy percent of the "unused
capacity" of water supply systems owned or operat-
ed by public water supply agencies to transport the
water. The seventy percent limitation is taken from
current law and is designed to provide public agen-
cies with a "buffer" to ensure that they retain suffi-
cient capacity to meet their own future water trans-
portation needs during the term of wheeling
arrangements under Part I.1'"
147 U. 44 1810-1814.
148. S id. 4 1814.


5.4~.34:I


Section 901(a) also states that the legal water
user shall have the right to wheel water through the
agency's water supply system throughout the term
of the water transfer agreement. This is an impor-
tant clarification of existing law. which does not
address whether the agency may preempt its
wheeling agreements if the agency decides to make
its own use of the portion of the 'unused capacity'
through which the water is wheeled. Section 901 (a
makes clear that. once a wheeling commitment is
made. the agency is obligated to honor that com-
mitment throughout the term of the wheeling
agreement. The parties would be free. of course, to
enter into an interruptible wheeling arrangement
by mutual consent.
Section 901(b) defines several terms that are
relevant to the administration of Part I. "Water sup-
ply system" includes all of the public water supply
agency's diversion, storage, transportation, treat-
ment. distribution, and related facilities required to
accomplish the transfer of water by the legal water
user. The term "unused capacity" is defined as:

the portion of the public water supply
agency's supply system. if any. not required
by the agency during the term of the water
transfer agreement to supply water
obtained by the agency or its members and
customers from water rights, contracts, or
other entitlements that exist at the time
the legal water user requests permission to
use the agency's water supply system.

This definition clarifies the current legal definition of
'unused capacity"'" by stipulating that the existence
and amount of unused capacity must be determined
as of the date on which the legal water user requests
permission to wheel water through the agency's facil-
ities, taking into account the agency's then existing
water supply obligations. Many of the participants in
the focus groups agreed that this would be a valuable
clarification of the present definition of "unused
capacity." which does not specify that the determina-
tion of capacity available for wheeling made at the
outset of the wheeling agreement shall be binding on
the agency throughout the term of the agreement.
Section 901(b) also defines which "public water
supply agencies" are subject to the wheeling rules
of Part 1. In contrast to the definition of "local water
supply agency" as used in Part H. the definition of
public water supply agencies for purposes of Part I
includes the United States Bureau of Reclamation
and the California Department of Water Resources.
but excludes privately owned water suppliers.
149. S id. 181 11ie.


"

r

7



-,
t





c::


;~






,,


W E Gm-Ii.-







dl 199


Section 902 establishes procedures for the
agncy's review of wheeling requests. All such
t #ests must be made in writing and must include
Sscription of the water transfer that is the subject
of the request. a statement of the quantity of water
involved, the dates on which the requested wheeling
would occur, and identification of the portion of the
agency's water supply system to which the request
applies. The agency would have thirty days to deter-
mine the amount of unused capacity available to
serve the wheeling request and to notify the request-
ing party of its decision. If the agency granted the
request, the notice would include a statement of the
terms and conditions of the wheeling arrangement.
Section q03 sets forth the substantive standards
applicable to wheeling agreements. The agency
could impose reasonable terms and conditions to
protect the water quality of its system, to ensure that
it receives "fair reimbursement" for the use of its sys-
tem. and to protect other defined legal interests.
Subsection 903(a) authorizes the agency to to
deny, or to place conditions on. wheeling in accor-
dance with the following criteria:

I. If the wheeling could be implemented only
by blending the transferred water with
other water in the agency's supply system.
the agency may charge the legal water user
for any additional costs of treatment of the
blended water attributable to the addition
of the transferred water to the system.

2. If the wheeling could be implemented only
by blending the transferred water with
other water in the agency's supply system.
and :he addition of the transferred water
would diminish the quality of the water in
the system to such an extent that the
blended water could not be treated for dis-
tribution to the agency's other members
and customers using the agency's existing
water treatment facilities, the agency may
prohibit or place conditions on the transfer
as required to protect the water quality
within its system

Subsection 903(a) also would permit the agency to
impose other reasonable terms and conditions to
comply with applicable water quality and environ-
mental standards.
Subsection 903(b) defines the financial charges
that the agency may impose on the use of its facili-
ties. This subsection limits the agency to "fair reim-
bursement" of the costs attributable to the use of its
tem. "Fair reimbursement" is defined as:


Th Shb of tie tws Co a JaM~* A


I. the portion of the capital, operation.
maintenance, and replacement costs paid
by the agency for the portion of the
unused capacity made available by the
agency for the transfer of water by the legal
water user:


2. the cost of supplemental power pur-
chased or used by the local water agency to
transfer the additional water for the benefit
of the legal water user;

3. the additional cost of treating the
water in the agency's water supply system
caused by the blending of the water trans-
ferred by the legal water user with the other
water in the agency's system: and

4. a reasonable fee for the administrative
costs incurred by the agency in its review of the
legal water user's request to use the unused
capacity in the agency water supply system.

Subsection 903(b) also requires the agency to cred-
it to the wheeling parties the value of any benefits
that might accrue to the agency from the wheeling
arrangement, including decreases in power or treat-
ment costs. It does not permit the agency to equal-
ize the costs of wheeling and the costs charged to
the members of the agency for use of the facilities.
nor does it allow the agency to charge the wheeling
parties for the "stranded investment" of the agency.
Subsection 903(c) was added to address con-
cerns expressed at several of the focus groups
regarding the possible legal consequences of private
use of public facilities. This subsection would per-
mit the agency to deny. or to place reasonable
terms and conditions on, the use of its system by
private persons or entities "to ensure that the pri-
vate use of the agency's system does not jeopardize
the agency's tax-exempt status, affect the agency's
authority to issue tax-exempt bonds, or violate the
requirements or limitations of federal law." The last
criterion was included in response to San
Francisco's concerns that the use of its Hetch
Hetchy Project by private water purveyors might vio-
late the terms of its Raker Act grant.
Section 904 provides that disputes arising under
Part I would be subject to binding arbitration. These
arbitrable disputes would include arguments over
the existence or quantification of unused capacity.
disputes over the agency's imposition of terms and
conditions to protect water quality, and disagree-
ments regarding calculation of "fair reimbursement"
Disputes arising under section 903(c) would be


i


14
:i





5.4.35
r *.
--I


_A 6








Brim G Ov


I


I]


oum 4, hrU 0


exempt from arbitration and would be subject to
judicial review. In all arbitrations under Part I. the
water supply agency would have the burden of proof.
Section 905 simply grants public water supply
agencies authority to promulgate rules, bylaws. and
other policies to govern the wheeling of water in
accordance with the requirements of Part I.

Part 1: Water Banks

Water users in a variety of areas have formed
regional water banks or pooling arrangements to
facilitate the transfer of water within the region. In
addition during each of the last two severe
droughts-!976 to 1977 and 1987 through 1992-
statewide water banks were created to assist in the
transfer of water from areas of surplus to areas of
severe shortage.'0 Part I recognizes the importance
of these innovations and therefore would provide
permanent statutory authority for the creation of a
state water bank and regional water banks.
Section 1001 empowers the Governor to estab-
lish a State Water Bank on either a temporary or per-
manent basis. The State Water Bank would be
administered by the Department of Water Resources
and would have authority to take any action to facil-
itate voluntary transfers of water, including the
acquisition of water or water rights for subsequent
transfer to willing buyers or for other state purposes.
"including augmentation of water supplies to wet-
lands. fish and wildlife, and other instream benefi-
cial uses." To reduce the possibility of the State
Water Bank dominating California's water market.
'he Bank would not have exclusive jurisdiction over
water transfers. Thus. section 1001 declares that
'"alny person or entity may transfer water without
the involvement of the State Water Bank."
In 1993. the Department of Water Resources pre-
pared a programmatic environmental impact report
on the 1991-1992 State Water Bank."' Accordingly.
section 1001 provides that the establishment and
operation of the State Water Bank would be exempt
from the environmental review requirements of
CEQA. The Department would be required to review
and revise the programmatic EIR at least once every
five years. however, to ensure the currency and accu-
racy of information required to assess the environ-
mental consequences of State Water Bank opera-
tions. Moreover. consistent with section 209 of the
Model Act. section 1001 also states that short-term
agreements to transfer water by or through the State
Water Bank are exempt from CEQA.
Finally, section 1001 allows the Governor to
delegate to the State Water Bank authority to


150. Sa swa tet at notes 22. 6.


58


1I1. CLM. C OIT OF WAuS RsOUKeC. PWOGCM EONMonUaMr'A
IMPA R POo SWr OIeoUac WaM u S 119931.


administer expedited transfer provisions of Part E
for expedited transfers of conserved water by or
through the Bank. The State Water Bank successfuL-
ly administered most of the water transfers that
occurred during the 1991-1992 drought, and section
1001 provides permanent statutory authorization
for future State Water Banks to assume regulatory
responsibility for expedited transfers.
Section 1002 authorizes local water agencies.
local governments, and individual water users to
create regional water banks. Regional water banks
would have authority to take a variety of actions to
facilitate voluntary water transfers, including:

1. establishment of a list of current offers to
sell and to purchase water and water rights;

2. acquisition of water for subsequent sale or dis-
tribution to members of the water bank or for
sale to willing buyers outside the water bank;

3. acquisition and storage of water during
periods of surplus for sale and distribution
during periods of shortage:

4. acquisition and sale of water transfer
options, water futures, subordination
agreements, and other types of arrange-
ments to transfer water for the benefit of
the members of the water bank;

5. establishment of a local or regional program
for the conjunctive management and use of
surface and ground water supplies owned or
controlled by members of the water bank:

6. augmentation of water supplies to wet-
lands. fish and wildlife, and other instream
beneficial uses:

7. facilitation of transfers by management of
water storage, water delivery, accounting,
financing, or other matters relevant to the
interests of the members of the water bank;

8. provision of assistance to potential transfer-
ors and transferees in the negotiation and
implementation of transfer agreements; and

9. creation of an insurance system to pay
claims for compensation brought by third
parties against water transfers implement-
ed through the bank on behalf of the mem-
bers of the bank.


5.-4.3(


Itim E sm







.Fd 1996. So Cm A=* A.


All actions taken by regional water banks must be
consistent with the other provisions of the Model Act.
%.As with the State Water Bank. regional water
Ss would not have exclusive jurisdiction over
water transfers within their jurisdictional area.
Thus. section 1002 states that "lainy person or enti-
ty may transferr water without the involvement of a
regional water bank." The establishment of regional
water banks would be subject to CEQA. Consistent
with section 209. however, short-term agreements
to transfer water by or through regional water banks
would be exempt from CEQA's environmental
review requirements.
Finally, to decentralize the administration of
expedited transfers. section 1002 authorizes the
Board to delegate to regional water banks its
authority to supervise expedited transfers of con-
served water undertaken pursuant to Part E.

Part K: State Water Resources Control Board

Part K is comprised of three brief sections that
address the responsibilities of the State Water
Resources Control Board.
Section 1101 preserves the Board's authority to
enforce the terms and conditions of permits or
licenses within its existing statutory jurisdiction and
to ensure that. throughout the term of all water trans-
,rs. the impoundment, storage, diversion. distribu-
Sn. use. and return flow of water comply with applic-
aole water quality standards, the reasonable use laws.
and other relevant provisions of state and federal law.
Section 1102 was added at the suggestion of
several environmental representatives who partici-
pated in the focus groups. It requires the Board to
create and maintain a "Water Transfer Registry" of
all water transfers governed by the Model Act. The
Registry would include the names of the parties to
the transfer. a brief description of the transfer, and
an explanation of the changes in water storage, tim-
ing and point of diversion, place and purpose of
use, consumption, and timing and point of return
flow caused by the transfer. The purpose of the
Registry is to consolidate information regarding
water transfers so that government agencies and
interested members of the public could obtain cur-
rent and accurate data regarding water transfers.
This Registry would be particularly important for
transfers to instream uses governed by Part F.
because it would help to inform the Board and
other agencies of the quantity of water that is dedi-
cated to instream purposes and therefore must be
set aside from regulatory water quality and stream
flow requirements in accordance with section


602.12 To promote public access and use of the
water transfer data. section 1102 instructs the Board
to ensure that the Water Transfer Registry is avail-
able both in print form and over the Internet.
Section 1103 simply directs the Board to review
its existing rules and policies and amend such rules
and policies as necessary to ensure that they com-
ply with the terms of this Act. Section 1103 also
states that the Board has authority to promulgate
other rules that it determines would assist in the
implementation of the Model Act.

Part L Miscellaneous

Part L concludes the Model Act with a few
"housekeeping details."
Section 1201 repeals, as of the effective date of
enactment of the statute, the existing water transfer
laws that the Model Act would supersede. The provi-
sions of the Water Code that would be repealed are
sections 109. 380-387, 470-484. 1020-1030. 1435-
1442. 1700-1707. 1725-1745.ll. and 1810-1814.
Section 1202 states that the courts generally
would have authority to enforce the requirements of
the Model Act, but would have no power to adjudi-
cate disputes arising under Parts D. E. and I. except
as specifically provided in those Parts. This excep-
tion is included because Parts D. E. and I either
limit the scope of judicial review or refer most dis-
putes over implementation to binding arbitration.
Section 1203 provides simply that. whenever the
Model Act refers to any other statute, "the reference
shall apply to all amendments of the other statute."

APPENDIX B: Petitions for Temporary Actions

See Next Page.


("N 152 St. Thomas. sum note 68. at 49-51.


lie gm d kndn a bnre ~k A


6991l aF








S

lift E Gm




Ptluimlawa
(Temon"


columnn 4. mnr In


Appendix B
umaljy of wtar MlI& Pedtser Thqrpomm ACOnO
Mqan Chilat- W"31. TlOMoP Chais -172 ad am Thal Tmu -17311


It


Filed

1-2742
: S1-.944
5 7-19-44
4 2.21-45
1 6-1941
6 6.2741
S -20-801
S 9-2O41
4 10-241
:0 Itt-124
:: 1-246
:: 12-1146

:3 6-30.6
. :1.12.87
.1 2.27.47

.7 7.2147
:3 9.1447
49 10-2347
20 11.-I1847
21 39.48
22 4.1848
23 5-10448
24 1-1748
:1 6-1088
26 7.748
27 S-18488
:3 9-30.8
29 10-1788
10 12-2148
3: 2-2489
1: 2-27-89
33 2-27-9
U 3-21849
31 4-28-49
36 S-149
37 8-3-89
38 8-8-89
39 9-13-89
40 9-2749
4I 11 8-89
42 2-23-90
43 3-::-40
4. 4-4-40
4 o-2-40
.o 3-:1-40
47 6-!6-40


10 3122-91
11S 3.28-91
12 1.9-91

54 9-.91
5S 10-7-91
16 416-92
17 6-24-92
8 8-6-92
s9 8.6.92
60 8-28-92
1i 9.17.92
62 4-20 91
6i3 121-93
64 7-12-93
61 7-16.93
66 *-1-94
67 ll11-94
68 1231-94
70 5-1144

71 6-27-94
72 6.27-94
71 7-21-94
74 4-24-91
71 5-24.95
76 6-3095


War Code


1721
1721
1721
1431
1721
172
!431
1721



1435
1411
1731
1721


1431




1411
1721
1731

1431


17l
1431
1721
1411
1431
1711
1411
1721
1431
1721
1431
1431
1411

1721
1721
14i3








I I
17215
14315
1721
1431
1431
1435

1721
I721
:7:1


*:1
431


721
17n21





1721
17:1

1725
in








1411
1721
1721
1721

1721
1721
1721






1721
Ins









1721
1721
1721
1721









Ins
t?29


YCWA
YCJJA
USSR
L'.55
*fCWA
USSR
YCYVA
USSR
SSMUD
USSR

VIMUO
USSR
YCMA
USSR
;SaR

USSR
USSR
8MUD
BSA
USSR
YC*A
USSR
Paynt
USSR
.CAftthur t aL.
YCWA
USSR
USSR
USSR

YCWA
PW&E
YC3IA
USSR

USSR
YCWA
ICCWA
AE'MSO

Payne
YCNA
YCWA;
OWR


PCJJA
YCWA
PCWVA
USSR
Raub
YCWA
0*10
MID
Hafte
SVI0
PCWA
0*10
Patnck
MID
NMWO
0*3


MMWO
Britbois
0*10
MID
YCWA
ama




























PCWA
Owlt
WADA





















D0*
SC1'0
0*3l


TWmsnefm


nwhal.tl. tt a 7.1t82 3-1142
Newhail. ft al. 7-i-44 -31-44
:'WR V'.Ms~e lie .1-1-44 7-3145
;F 1-41 6-10.41
Newma4I. et aI. 7*-!1 5-3-1n1
uW. Musc CIrve 3-!41 7-11-86
CW3 9.1981 1011-81
CCMD 9-21-4 12-111-
zraesiands -11-841 31-86
siylark Nursely 11- 1141 :1-1-86
CClS 1.1-46 410-46
F 2-24-46 4-746
N*ew ;l ei al. 7-146 910046
=-.- al. 31-47 2-90-88
"S .-;.47 -::3147
:7-47 --30-67
.SS 4147 4-30.88
:FC 12-1-47 2-298
;CC3I 11-147 12-31147
Ki'it I11-2087 1-19-8
W*R 3-14-8 4-10-88
Stw 7.-14-8 9.3048
U3MUO 7-188 6.30-89
Hedunck arms 6-11-88 -31048
3WR 7-1-8 2-28-89
M-iadlch ydro 11-148 12-31-48
DWR 8-18-88 9-118
0DW 10-1-18 31-149
:IR 10-78 3.31-89
WR 1 1-89 3-11-49
3-MbUD 3-1-89 2-28-89
NAPA 4-:.49 9.30"89
El:orado0 31-1-9 31-1049
3*W 51-89 930489
FG 1-10.4 3-2049
Ca. Valey Land 6-1149 3-1049
USFWS 911-89 12-11-9
DFG 8-23-9 11-30.9
Westdands 9-2149 12-3149
,MWD 1991 2015
Muca Farm 1990 1990
ecdr.-k ?arms 6-15-90 3-10-90
NA?.A 4.t.0 10.1S-00
1'-:;-.4 :2-31-.0
Sa.y-e A4!.--enCn SAP :2-31 40
w.et:arcs 2-.9.40 33 1-3 1
Tcor eal -23.-0 :0.; 5-90
-0 te a 10-2-40 13-31-91
NAA 4.-1-1 !0-:541
SF & SC/WD 77-91 7.17-92
USSR 9.1-91 10.141
Woods 9.1-91 11-1-91
WR Water Bank ASAP 10.1-91
DWR Watr ak ASAP 10.26.91
SLWO 10.11-91 12-31-91
WWD ASAP 12-31-92
OFG 8-6-92 910.92
OWR 9.2-92 10-31-92
OWR 1014-92 11-3092
Rl ASAP 8.28-9
OFG 10-24-42 12-1-92
G.acomini 1-1-93 10.27-9)
W'O A.SAP 12.1-91
WWO ASAP 7-14-93
*WD ASAP 12.31-93
GuCcoami 1-1-94 10-27.94
codon AAP 11.--44
OWR Water Bank 9.1-94 11-3094
WWD 8.1-94 9.144
DWR Wer Sank ASAP 10.144
County oa Sac 10.144 9-30.41
O*R Water Beak ASAP 9-1044
0WR Water ank .2-92 10.3144
WWO ASAP 3-31-96
CountyofSac. 10.1-94 9.30.96
WlO ASAP .-11-96


Soume
Authoaned

Sullalds Bar
aullards Bar

8llfr

CIP
C.?P
aulird3* Br


Camanche
CvP
Unnamed St.


Suilar s 3ar
CVP
OIP
uitlards 3ar
CIP
C'P
Camanche
Scout es.
CVP
Sullartd Bar
CV,
YaloGypeas
CVP
Iverson Ras.


Sullaids Sa

Sullards Bar
Charges Lake
Suilalds Sa
CVP
Ylo Bypass
C'P
Suilaids Bar




3ullards Bar
Suiardis Sar
San '.us es
S Feather
Yuba River
MF Amer & Rub
Sultards Bar
MF Amer & Rub
CVP
Wadsworth Can
Sullards aar
S.F. Feather
Meaced River
San Luis Res.


S.F Feather
oc Creek
Merced River
Latunitas Cre
San .uis Res.
Me!ned River
San Lue Re*
Launea Cfe
Ladgewood Cc
S. either
Merad River
Sullalds Bar
Of Crleek
Dry Creek
MR Amer & Rub
San Luis Res.
Dry Clek
San Lus Res.


*---

A.
I-
'*


5s4.30 ,







Fd 1996 bAsOnhf N 1 AM B


Soue~ Califamri ODpalimentW of Warwi |eIam


S Acet-l Use Comments
AooIC-d Authorts'
I .000 In
2 2.266 In.
3 I00 Mt.I S3a -- Accauc.ns 3363 et ii
4a M.100 ? &'u W W 11 it.*ea 3ass Test
9 ?-0 Ur.
6 100 M &:1 SaR Acciaclon 9363 et ai.
7 12.100 M& I :: anca ::ra County
S $1.000 M 6 I Reduc sodium and Chlonde:e dls
9 28.000 F :s.30X0 aor oest Grasslands and reduced the petition to 22.0 at for Gnsads
10 :s ;:. Stoc. &6 Re
II 1.000 M & I Reduce scatum and cilondek:evels
12 100.000 F6&W -;. 364 tred Se l'est
I .3 Itt 2enimd. FG 2rcested abouc io .tnscreens at :umos
It 3 Irt so 300 i; set:tn withdawn. SR required
Is 3 Multiourpose :0 300 ai etacn -ithdrawn. 1R aquired
16 13 :: rr. M & ; :. .ve; :rc t!le
i ::.: Multipurase Vt '..). ':. 4errcw it . I J.c:C .Multpiurcose ;. -:1. '.:r aimn :uCmItra(:cn
19 M1& aucar quality study
20 1 Rec. MR S7T. 1.ought reief
21 100.-00 Multpurpose 'R 58-2
22 110.00C War l W y :. -i. arr over mn Oroville C0lta Outflow
23 a M61 WXR W-I. denied for snvuoaafmea and public heath seasons
24 1.410 Ift Suoply wter dann a split
21 81.00 Mulop tpose WR a.8 8.'for Watertwl manaiemntl samon spawningd and DOt wate quality
26 100 It. Stock. Rec. Test of Muck vill Powerhouse
27 12.000 Water Quality WR*-8-- lT. cam o ive to lovle
28 126.500 M4ultpposu e W'R 8821. fr 'Wateifowl management. salmon spanint
29 4.000 Multipurpose WR 5-2. or Watersowl management. salmon spawmnin
30 10.000 MultipurpOse W' S.1. 'cr tack Slough 014O
31 66.000 Itr. M 1&I ;n.nCtlncy Supply fo eaiMUD. approved but not used tSee WR 89-201
32 7.000 Irr. M l & SuBglemenal supolyfor N pat l.
33 600 M & I L 39- .1iR .23 ReconsideratonL Temporary redistribution of storage
34 .003 00 Ir. M & I R 59-i: Santa Clara i0.000 as CW) and 'lSlate Sasin (1100.00 les Cs
31 30.000 Multiourpose *li 39-!0. aimen outmigraion studies
36 3 Irr. Pet:lon cthdrawn. no surplus caacty at SWP Bnks
37 j.o00 F &W WR 9-21. for waterfowl at Ker National Wildlife Refuge
39.000 Inr. WtR 80. r waterfowl in the Grasslands WO ar relates to 2/8 UMUOI
11.000 In. 'R 5-24. nit repKCWA wih water
S131.000 M&I .on-tern transfer. rounder nking change needs IR before a hearing
Ia 1.700 inr. 'b save wo cichards from drying up
42 1.410 In. water tor nr :ap
43 7.000 Irt. M & I Supplemental supply for Napa et al.
44 146 C00 Irr. M s v\i0-4. .o :2 00.00 01 atwth further approval
41 1.00 ln. t.c aeques: : -cv S.000 aS irom 'irlace area to Westlands .rea I
46 :1.C irr .;erass ; ai'ey 0!00 ail and Sly Creek 1000 aO
47 ;:Cc :rr Mt ac :4 Vater to reLace US3R s 10% cutbacks fdor Tudor MWO and Feater W
46 1.5CO Irr. M : 'iUstianis anC SLWO *40.100 at' and SLEON 11.000 fll
49 -7 CO ri. CM & s ;cere.-*:Ai ugciy for 'apa at al.
1 40 000 Ir.. UM &! San Francsc. Sant Clar. and :he aty of Carmchael
1 31 .0 Irr.. M t se3 SP 3niis to nmakeL p or pumprin Soen inneM ad lune 1991 Umbrellal
52 210 Irriauon Jse ol water on 0 acres of the adjacent property
13 :17.200 In.. M & I FG nidlle preserm s, the San Franisco. and SWP emrce aras
14 10.000 Ife. M & I titlee Grasa iley Il.OO al ad Sly Creek (.000 all
13 0 Imuganon iO-17.000 a rquested Petion waswithdirn Oelt timing
16 12.000 Irriation Hans Fmms Oudley Ride to Weslands wD sa
I7 .000 F6 Excane with OWR to Movde witer to Cay Lodge WWUdie Refuge
M1 10.000 M L I.t 1992 Water 3ank
1~ 10.000 M & L Its 1992 Water 3ak
60 0 F&W 4.1 0 a rqueted or mntrsm uses Petiion waswthdrawn
61 11.000 F FW Insteam n se and at Los Sanos. San Lus. and vola Wldlife Refuge
62 300 rcgation Proect dtefe.rd installation of a Salinity 0am
63 3.000 nation Supplementai water soume
64 60.000 Irrgation Spoliental water source
61 92.500 Irrgation Frant afterr ac4iangd -- 10.000 at or Shannon Farms
66 0 Irrigaon Proiect =eferd installation of a Salinity Dam
67 30 IniatIon
68 10.000 M &L r. 199 IWatrl Sank
69 10.000 nlmlgaon Supplemetal water source
70 30.100 It. M &1 ODF woldlife peri,. the Sml Frantsco. and SWP service area
71 2.000 M & I CGouadmwatr chuar e ;
72 3.000 M&I 199 W'ater Sank .
71 20.000 M & L .r 1994 waterr nk
74 32.52 trriation oof Iat. nWta Viete Farm and Shannon lands
71 2.000 M 1 Groundwater .echar e
76 11.000 Ingaion Within the istric '



r 61

5.4.3c
o _.


1~C__ _




University of Florida Home Page
© 2004 - 2010 University of Florida George A. Smathers Libraries.
All rights reserved.

Acceptable Use, Copyright, and Disclaimer Statement
Last updated October 10, 2010 - - mvs