INTERSTATE WATER MANAGEMENT IN THE COLORADO RIVER BASIN IN THE UNITED STATES JEROME C. MUYS MUYS & ASSOCIATES, P.C. WASHINGTON, D.C.

INTERSTATE WATER MANAGEMENT IN THE COLORADO RIVER BASIN IN THE UNITED STATES JEROME C. MUYS MUYS & ASSOCIATES, P.C. WASHINGTON, D.C. PRESENTED AT THE WORLD BANK CONFERENCE ON WATER DEVELOPMENT WASHINGTON, D.C. MARCH 4-6, 2003

I. HISTORICAL BACKGROUND OF FEDERAL AND STATE WATER MANAGEMENT AUTHORITY From the Nation s beginning, the allocation and development of water resources has been a matter predominately within the authority of the states, subject to the power of the federal government to regulate navigation and commerce on navigable waters under the Commerce Clause of the United States Constitution. Almost 160 years ago the Supreme Court declared that the states hold the absolute right to all their navigable waters, and the soils under them for their own common use, subject only to the rights... surrendered by the Constitution to the general government, 1/ and has never altered that fundamental principle.2/ When the United States acquired the vast land areas which subsequently became 37 new states, it became sovereign owner of those lands. As to the waters on those lands, the Supreme Court treated the United States interest in them the same as that recognized in private landowners bordering a stream under the common law of England and later the 13 colonies and early states, i.e., the owner of riparian lands was entitled to the reasonable use of its natural flow. Thus, in 1899 the Court recognized that in the absence of specific authority from Congress a state cannot by its legislation destroy the right of the United States, as the owner of 1/ Martin v. Waddell s Lessee, 16 Pet. 367,410 (1842). 2/ See, e.g., Idaho v. Coeur d Alene Tribe of Idaho, 521 U.S. 261, 283-86 (1997). 1

lands bordering on a stream, to the continued flow of its waters; so far at least as may be necessary for the beneficial uses of the government property.... 3/ It acknowledged that such specific authority had been conferred on the western states by the Desert Land Act of 1877, which provided that the water of all lakes, rivers and other sources of water supply upon the public lands and not navigable, shall remain and be held free for the appropriation and use of the public for irrigation, mining and manufacturing purposes subject to existing rights under state law. However, as in Martin, supra, it held that the jurisdiction conferred on the western states to allocate use rights in such waters remained subject to the superior power of the general government to secure the uninterrupted navigability of all navigable streams. 4/ Water resources development in the West was initially a matter almost solely of private initiative, just as it had been in the East, but the magnitude of the investment needed to develop such resources led to federal assumption of the responsibility for providing water storage and distribution facilities for irrigation throughout the West in the Reclamation Act of 1902.5/ 3/ United States v. Rio Grande Dam & Irr. Co., 174 U.S. 690, 703 (1899). 4/ Id. at 703. The history of the Congressional severance of federal land and water interests in the West is reviewed in California Oregon Power Co. v. Beaver Portland Cement Co., 295 U.S. 142 (1935). 5/ For the history of the development of the federal reclamation program, see California v. United States, 438 U.S. 645 (1978). 2

At about the same time Congress began to focus its attention on development of the hydroelectric power potential of the nation s rivers and in 1920 enacted the Federal Water Power Act, which created the Federal Power Commission (now the Federal Energy Regulatory Commission) to license hydroelectric projects on all federally owned lands and waters subject to federal jurisdiction. A series of devastating floods in the 1920 s and 1930 s led Congress to initiate major flood control programs dependent primarily on the construction of dams and levees by the U.S. Army Corps of Engineers. Thus by the mid-century there were in place (1) the federal reclamation program under the Bureau of Reclamation applicable in the 11 western states, (2) the federal flood control program under the Corps of Engineers, applicable nationwide, and (3) the nationwide federal hydroelectric project licensing program under the Federal Power Commission. The two federal dam construction programs had spawned numerous projects across the nation, including the Bureau s Hoover Dam on the lower Colorado River, the first large scale multipurpose water project providing water supply, flood control and power generation, with power sale revenues providing the principal reimbursement of the project costs. Similarly, FPC-licensed hydro projects had proliferated. With the rapid growth of our population after World War II, recreation was added as an important water project purpose. Generally overlooked in the process were fish and wildlife and other environmental values, along with the historic aboriginal water 3

rights of Native Americans. Both the Bureau and the Corps have traditionally relied on state law for the acquisition of necessary water rights for their projects, the Bureau pursuant to the mandate of section 8 of the Reclamation Act and the Corps as a matter of comity. The Federal Water Power Act also requires a hydro project license applicant to acquire the water rights necessary for a proposed project under state law. There are two basic state legal systems governing the acquisition and use of rights to water in the United States. The first is the riparian system, derived from the common law of England and applicable in most eastern and central states, which permits owners of land adjacent to rivers and other water bodies to make reasonable use of such waters, principally on their riparian lands. The common law rule has been modified in most states by legislation requiring a permit for the exercise of such rights. The second system is the appropriation system, which developed as a matter of necessity in the arid western states. It is not dependent on ownership of riparian lands, but on the application of water to a reasonable beneficial use, and establishes priorities based generally on the principle that first in time is first in right. In addition to these two basic state law systems, the Supreme Court has developed a body of federal law applicable to reserved federal and Indian lands in the western United States (but not yet the East) which can involve substantial quantities of water. 4

Conflicts between federal water resource development projects and non-federal projects dependent on water rights acquired under state law were inevitable. In accordance with traditional preemption law grounded on the Supremacy Clause of the Constitution, in cases of irreconcilable conflict between federal and state law federal law must prevail. In the 1950 s and early 1960 s a series of Supreme Court decisions tilting the respective roles of state and federal law in water resources development more to the federal government6/ and expanding the magnitude of Indian reserved water rights and water rights for other federal reservations7/ created consternation in the western states, but the Supreme Court later mitigated the impact of its earlier decisions.8 / II. ALLOCATION AND MANAGEMENT OF INTERSTATE WATERS Over this same time period the Supreme Court was implementing a national policy with respect to interstate waters. The United States Constitution anticipated that regional disputes might arise within the newly-created federal system that would be beyond the power of a single state to deal with and yet not within what were then thought to be relatively narrow powers which the states had delegated to the Congress. Hence it provided two express mechanisms for dealing with them. Article 6/ See, e.g., FPC v. Oregon, 349 U.S. 435 (1955); Ivanhoe Irr. Dist. v. McCracken, 357 U.S. 275 (1958); City of Fresno v. California, 372 U.S. 627 (1963). 7/ Arizona v. California, 373 U.S. 546 (1963). 5

1, section 10, clause 3 authorized the continued use of interstate agreements or compacts (a device which had been liberally used in Colonial America to resolve boundary disputes), subject only to the requirement of Congressional consent to assure protection of any national interest that might be implicated in such agreements. The second mechanism for the settlement of interstate disputes was an original action by a state against one or more other states in the Supreme Court provided for in article III, section 2. In a number of decisions the Court progressively developed the guiding principle that each state in an interstate river basin is entitled to an equitable share of the river, determined by the Court s evaluation of a number of factors relevant to an equitable apportionment. It was not until the Supreme Court s 1963 decision in Arizona v. California, 373 U.S. 546, that a third avenue for the resolution of interstate water disputes was discovered, namely Congressional exercise of its broad authority under the Commerce Clause of the Constitution to allocate the waters of interstate rivers. A. Interstate Compacts Article I, section 10, clause 3 of the United States Constitution provides that No State shall, without the Consent of Congress... enter into any Agreement or Compact with another State or with a foreign Power. Although the compact clause 8 / California v. United States, 438 U.S. 645 (1978), and United States v. New Mexico, 438 U.S. 696 (1978). 6

seems to mandate prior Congressional consent for all interstate agreements, the Supreme Court has held that consent is required only where the compact threatens to significantly impinge on national interests and may be evidenced either before or after agreement is reached.9 The typical practice is for Congress to enact specific / consent legislation after the states have reached agreement, which consent may contain conditions adding to or modifying the compact and usually expressly reserving authority for Congress to revoke or amend its consent. Moreover, Congressional consent does not preclude a later Congress from enacting legislation inconsistent with the approved compact, even if the consent legislation does not preserve that right. Although the Court has emphasized that compacts are essentially contracts, it has also held that the Congressional consent legislation also makes a compact a federal statute,10 which under accepted principles of statutory interpretation / presumably may supercede inconsistent state and federal laws except as otherwise provided in the compact or consent legislation. This dual status presents a number of significant conceptual and legal issues which the Court has not yet sorted out. Congress has approved some three dozen compacts relating to water resources 9 / Virginia v. Tennessee, 148 U.S. 503 (1893) 10 / Cuyler v. Adams, 449 U.S. 433 (1981) 7

management.11 A study of interstate water compacts prepared for the National / Water Commission in 1972 evaluated the effectiveness of existing water compacts and compared the compact mechanism to other institutional approaches to interstate river basin management.12 It concluded that the chief advantage of the compact / approach is its adaptability to the special, often unique physical, social or political needs of a particular basin. Since a compact must be the product of agreement among the states, it can be shaped as the states desire in accordance with their particular regional philosophy of appropriate intergovernmental relations, rather than being imposed by Congress or the Supreme Court. It can be targeted on a single problem, such as water allocation, or may seek more comprehensive, multipurpose goals that permit flexible, adaptive management of the compact allocations. Similarly, it may create a permanent administrative entity and endow it with such powers as the states consider appropriate to accomplish their regional objectives, provided they are not inconsistent with broad national goals. Beginning with the Colorado River Compact of 1922, discussed in Part III infra, Congress has granted its consent to about some 26 water allocation compacts, mostly in the West and all still in effect. They reflect a number of different 11 / For a highly useful compilation of the text of all of the Supreme Court s interstate water decisions and interstate water compacts, see G.W. Sherk, Dividing the Waters: The Resolution of Interstate Water Conflicts in the United States (Kluwer Law Int. 2000) 12 / Muys, Interstate Water Compacts (July 1971), U.S. Dep t of Commerce, National Technical Information Service (PB 202998). 8

approaches, but whatever the allocation formula, existing uses and rights are usually protected. Approximately half of them provide that the allocations are to include all federal uses and it is likely that the others would be so interpreted. With respect to the water supply estimates that formed the basis of the allocations in the older compacts, time has shown many of them to be unreliable. Similarly, the western states entered into almost all the existing water allocation compacts before the full impact of the reservation doctrine of federal and Indian water rights was announced by the Supreme Court in Arizona v. California in 1963. Consequently, the estimated water requirements that were the basis of the compact allocations were probably significantly understated for those states with substantial areas of reserved federal and Indian land. Although Indian tribes had no role in the negotiation or subsequent administration of these compacts, their undefined rights were usually protected, as in the Colorado River Compact.13 Likewise, few compacts / anticipated the impact of the federal environmental programs of the last forty years, such as those under the Clean Water Act and the Endangered Species Act, on compact allocations and their utilization. Indeed, many of the allocation compacts are so environmentally outdated that it seems unlikely that most of them would currently receive congressional consent. With that background, it is almost 13 / See e.g., Article VIII of the Colorado River Compact which provides that Nothing in this compact shall be construed as affecting the obligations of the United States of America to Indian tribes. 9

inevitable that disputes have and will continue to arise under many compacts. However, since none of the compacts provide for binding arbitration, the only avenue open for resolution of such disputes is an action in the Supreme Court by one or more of the states to enforce the compact as they contend it should be interpreted.14 / Most of the compacts, provide for the establishment of a permanent interstate administrative agency or commission to carry out the functions essential for achieving the compact s objectives. However, none of these compact commissions possess the power to alter the original compact allocations in response to changing conditions. Consequently, even though the compact parties may be in agreement as to an appropriate course of action, the only option is to formally amend the compact and return to Congress for its approval, which has seldom happened. Although the states generally possess ample authority to confer broad powers on compact commissions, the historic pattern reflects a lack of serious commitment to any cooperative regional effort that requires a significant delegation of state powers to an interstate entity that they may not be able to control. The irony of this approach is that the more successful the states have been in hobbling compact 14 / The United States enjoys sovereign immunity from lawsuits unless Congress has expressly waived such immunity. Although Congress has enacted a waiver for comprehensive intrastate stream adjudications, 43 U.S.C. 666, it has not done so for interstate litigation, except in the Colorado River Basin. 43 U.S.C. 620m. Consequently, given the broad impact of the federal water related programs discussed in Part I supra, it might be considered an indispensable party to any Supreme Court litigation to enforce a compact or secure an equitable apportionment of an interstate stream. See Idaho v. Oregon and Washington, 444 U.S. 380 (1980) Consequently, unless it intervenes the litigation cannot go forward. 10

agencies to protect their individual sovereign prerogatives, the more likely it has become that regional water problems will become subject to federal programs superseding state authority. Consequently, if states are to have a stronger role in regional water development, they must recognize and use the potential of the compact as a mechanism for positive action on regional water problems and confer adequate powers on the compact agencies to deal with such problems effectively. Many of the water allocation compacts merely invite the president to appoint a federal representative to sit as a neutral, nonvoting chair of their commissions, occasionally granting that person the right to cast decisive votes when the states cannot agree. The federal government in these situations appears to be little more than an observer, without obligation to see to the coordination of federal plans or programs in the region to the maximum extent feasible with those of the states. Obviously a compact plan for an interstate river basin is not comprehensive if it does not encompass federal water and, optimally, land planning and use as an integral part of the effort, nor can it serve any meaningful function unless all interests in a basin, and particularly the federal government, are committed to carrying out their respective programs in accordance with it to the maximum extent consistent with federal law. Against a generally unimpressive historical backdrop of interstate compact performance, the federal-interstate compact on the Delaware River, which traverses 11

New York, New Jersey, Pennsylvania and Delaware, emerged in 196115 to provide / (1) the essential linkage between federal and state planning and program implementation and (2) the regional emphasis lacking in earlier compact approaches. The Delaware River Basin Compact created the Delaware River Basin Commission ( DRBC ) to unify regional development and control in place of the duplicating, overlapping, and uncoordinated administration of some forty-three state agencies, fourteen interstate agencies, and nineteen federal agencies exercising a multiplicity of responsibilities. It embodied two significant innovations. First, it established a structure for meaningful comprehensive planning by including the United State as a signatory party and imposing significant coordinating constraints on both the states and the federal government. Second, it ensured a more regionally oriented approach through a broad grant of powers to the DRBC and provided for the injection of a broader perspective of basin problems through the federal government s active participation in the compact program. To ensure that all water projects in the basin are in general conformity with the comprehensive plan required to be developed by the DRBC, the compact confers a licensing power on the commission. It provides that no project having a substantial effect on the water resources of the basin shall be undertaken unless it has been approved by the Commission, which must approve any project that it finds 15 / 75 Stat. 688. A similar compact was negotiated on the Susquehanna River among New York, Pennsylvania and Maryland and approved by Congress in 1970. 84 Stat. 1509. 12

would not substantially impair or conflict with the comprehensive plan. With respect to federal projects, a reservation in the Congressional consent legislation provides that whenever a comprehensive plan, or any part or revision thereof, has been adopted with the concurrence of the member appointed by the president, the exercise of any powers conferred by law on any officer, agency, or instrumentality of the United States with regard to water and related land resources in the Delaware River Basin shall not substantially conflict with any such portion of such comprehensive plan. Because the content of the comprehensive plan is determined by majority vote of the DRBC, on which the federal government has a single vote with each of the states, the consent legislation provides that the federal government need not shape its projects to a plan with which it is not in agreement and authorizes the president to suspend, modify or delete any provision of the comprehensive plan affecting federal interests when the president shall find... that the national interest so requires. Perhaps the most unique feature of the compact is the DRBC s power to allocate the waters of the basin among the signatory states in accordance with the Supreme Court s doctrine of equitable apportionment, discussed below, a provision designed as an alternative to (1) what was considered to be the relatively inflexible apportionments made by traditional water allocation compacts and (2) litigation in the Supreme Court. However, this allocation power, which permits essential adaptive 13

management of the Basin, as well as all other DRBC authority, is not allowed to affect the rights and obligations of the states under a 1954 Supreme Court decree, other than by unanimous agreement. Based on the DRBC s track record at the time,16 the National Water / Commission s 1973 report, Water Policies for the Future, recommended the federalinterstate compact approach as the preferred institutional arrangement for water resources planning and management in multi-state regions (Rec. No. 11-18) and it has been the model for recent compacts governing the apportionment of certain interstate rivers in Georgia, Alabama and Florida.17 / II. SUPREME COURT EQUITABLE APPORTIONMENT The basic premise of the Supreme Court s equitable apportionment decisions is that each interstate basin state is entitled to an equitable share of the basin s water and fish resources.18 / Thus the Court s focus has traditionally been primarily on quantitative 16 / Unfortunately, a recent study of the DRBC reports that in recent years the federal representative and agencies have not taken their obligations seriously, to the point that Congress zeroed out its financial support of the federal representative a few years ago. 17 / Alabama - Coosa - Tallapoosa River Basin Compact, 111 Stat. 2233 (1997); Apalachicola - Chattachooche - Flint River Basin Compact, 111 Stat. 2219 (1997). For a review of current problems in implementing an allocation formula under those compacts, see Hearing on the ACT and ACF River Basin Compacts before the Subcommittee on Commercial and Administrative Law of the House Judiciary Committee, 107 th Long., 1 st Sess. (2001). 18 / Because a state seeking an equitable apportionment is considered to be acting in a parens patriae capacity for all of its citizens, third parties are generally not granted intervention. New Jersey v. New York, 345 U.S. 369 (1953). Although the Special Master in Nebraska v. Wyoming, p.18 infra, rejected petitions to intervene by several environmental groups claiming the United States had failed to develop an adequate 14

allocation, not management of allocations or the watershed that produces the water to satisfy them. The Court applies interstate federal common law, 19 drawing on state, federal, and international law 20 and considering all relevant facts to secure an equitable apportionment without quibbling about formulas. 21 In Kansas v. Colorado, the first interstate river dispute to come before the Court, the controversy between Kansas and Colorado over the Arkansas River, it listed only a few relevant factors. 22 Twenty years later, in Wyoming v. Colorado, 259 U.S. 419, 484 (1922), the Court added reasonable use as a criterion, stating that the doctrine [of prior appropriation applied in each state and used as the basis for the Court s decision] lays on each of these states a duty to exercise her right [in the Laramie River] reasonably and in a manner calculated to conserve the common supply. An expansive list of equitable considerations was later set forth in Nebraska v. Wyoming, 325 U.S. 589, 618 (1945): [I]n determining whether one State is using, or threatening to use, more than its equitable share of the benefits of a stream, all the factors which create equities in favor of one State or the other must be weighed as of the date when the controversy is mooted. [citation omitted]that case did not involve a controversy between two appropriation States. But record to protect certain wildlife and their habitat, he afforded them broad participatory rights as amici curiae. 19 Kansas v. Colorado, 206 U.S. 46, 98 (1907). 20 Kansas v. Colorado, 185 U.S. 125, 146-47 (1902). 21 New Jersey v. New York, 283 U.S. 336, 343 (1931). 22 185 U.S. at 147 (emphasis added). 15

if an allocation between appropriation States is to be just and equitable, strict adherence to the priority rule may not be possible. For example, the economy of a region may have been established on the basis of junior appropriations. So far as possible those established uses should be protected though strict application of the priority rule might jeopardize them. Apportionment calls for the exercise of an informed judgment on a consideration of many factors. Priority of appropriation is the guiding principle. But physical and climatic conditions, the consumptive use of water in the several sections of the river, the character and rate of return flows, the extent of established uses, the availability of storage water, the practical effect of wasteful uses on downstream areas, the damage to upstream areas as compared to the benefits to downstream areas, if a limitation is imposed on the former -- these are all relevant factors. They are merely an illustrative, not an exhaustive catalogue. Wasteful uses were later given careful attention in the Vermejo River dispute, where the Court made it clear that the availability of reasonable conservation measures to reduce both Colorado s proposed upstream diversion and New Mexico s existing downstream uses was an important consideration. Colorado v. New Mexico, 459 U.S. 176, 186 (1982). The Court remanded the case to its Special Master for more specific findings on the conservation issues and later concluded that Colorado had not established by the requisite clear and convincing evidence that its proposed diversion should be permitted. Colorado v. New Mexico, 467 U.S. 310 (1984). The Court emphasized that the Special Master also erred in considering the extent of the contribution to the interstate river made by the portion of the Vermejo watershed in Colorado (id. at 324): 16

Both Colorado and New Mexico recognize the doctrine of prior appropriation,... and appropriative, as opposed to riparian, rights depend on actual use, not land ownership.... It follows, therefore, that the equitable apportionment of appropriated [sic] rights should turn on the benefits, harms, and efficiencies of competing uses, and that the source of the Vermejo River s waters should be essentially irrelevant to the adjudication of these sovereigns competing claims. Whether the same conclusion would be reached where some or all of the contesting states apply the riparian doctrine is debatable. Contemporaneously with its Vermejo decisions, the Court held in Idaho v. Oregon and Washington, 462 U.S. 1017 (1983), that the doctrine of equitable apportionment was applicable to a dispute among the three states over their respective shares of the anadromous fish in the Columbia-Snake River System. The basic principle it applied was that states have an affirmative duty under the doctrine of equitable apportionment to take reasonable steps to conserve and even to augment the natural resources within their borders for the benefit of other states. Id. at 1025 (emphasis added). Most recently, the Court concluded in Nebraska v. Wyoming, 515 U.S. 1, 11-13 (1995), that it is appropriate in an equitable apportionment case to consider evidence of impacts of an upstream state s proposed actions on downstream wildlife and wildlife habitat and related environmental injury: The Court in other interstate water cases not involving equitable apportionments has recognized a state s duty (1) to protect other states against floods resulting from artificial changes in an upstream watershed, North Dakota v. Minnesota, 263 U.S. 365, 374 17

(1923), and (2) to avoid polluting the water used by a downstream state. Missouri v. Illinois, 200 U.S. 496 (1906). Although the Court later concluded that the federal Clean Water Act has fully occupied the field of interstate water pollution, 23 it seems likely that the Court will consider the impact of upstream state actions on the quality of water downstream in an equitable apportionment case. Decrees in equitable apportionment cases do not provide for arbitration of any disputes that may arise under the decree, so that a dissatisfied state is forced to bring an action in the Supreme Court to enforce the decree in accordance with its views. See Nebraska v. Wyoming, 515 U.S. 1 (1995). C. Congressional Apportionments Only two interstate water disputes have been resolved directly by federal legislation: the allocation of the mainstream of the Lower Colorado River by the Boulder Canyon Project Act of 1928, discussed in Section III, and of the Truckee and Carson Rivers between California and Nevada. 104 Stat. 3289. Congress can later amend such legislation or even a decree interpreting it, as it has done on the Lower Colorado River. The Truckee -- Carson legislation presumably can be enforced in a federal district court. 23 Milwaukee v. Illinois, 451 U.S. 304 (1981); Arkansas v. Oklahoma, 503 U.S. 91 (1992). 18

III. INTERSTATE WATER MANAGEMENT IN THE COLORADO RIVER BASIN The Colorado River System (mainstream and tributaries) is the principal water resource in the arid Pacific Southwest. From its headwaters in the Rocky Mountains the Colorado River flows 1,440 miles to the Gulf of California. Its drainage encompasses 244,000 square miles and includes portions of seven states and the Republic of Mexico. The seven states are Arizona, California, Colorado, Nevada, New Mexico, Utah and Wyoming. (See attachment). The Colorado River is of major importance to each of those states and Mexico. It is managed pursuant to a body of interstate compacts, federal laws, water contracts, state laws, a 1944 treaty and other agreements with Mexico, Supreme Court decrees, agreements and federal and state administrative actions, collectively generally referred to as the Law of the River. All of the Basin states have adopted the prior appropriation system of water allocation, with some remnants of the riparian system still operative in California. A. INTERSTATE APPORTIONMENTS There are three classes of interstate apportionments on the Colorado River System: (1) the interbasin apportionments made by the 1922 Colorado River Compact; (2) the interstate apportionments among the Upper Basin states made by the 1948 Upper Colorado River Basin Compact, and (3) the interstate apportionments of Lower Colorado River Basin mainstream water to Arizona, 21

California and Nevada by the Secretary of the Interior ( Secretary ) by contract under the Boulder Canyon Project Act of 1928 ( BCPA ), 43 U.S.C. 617-617t, which authorized the construction of Hoover Dam and approved the Colorado River Compact. 1. The Colorado River Compact Apportionments The Colorado River Compact, the first interstate water compact, was entered into in 1922 by the seven Colorado River Basin states and became effective in 1929 pursuant to the Congressional consent provisions of the BCPA. The Compact made annual apportionments of the beneficial consumptive use of 7.5 and 8.5 million acre-feet (MAF) of system water to the Upper Basin (Colorado, New Mexico, Utah, Wyoming and a small portion of Arizona) and Lower Basin (Arizona, California, Nevada, and small portions of Utah and New Mexico), respectively, but made no apportionments to individual states and did not provide for an interstate commission to administer its provisions. 2. The Upper Colorado River Basis Compact Apportionments In 1948 the five Upper Basin states entered into a compact establishing their respective shares of the Upper Basin apportionment under the Colorado River Compact, providing a formula for meeting the Upper Basin s delivery obligations to the Lower Basin under that compact, and creating a commission to oversee the Upper Basin apportionments and deal with the Lower Basin states. Each state 22

allocates its share in accordance with state law, while the Secretary administers federal reclamation projects throughout the Upper Basin, as well as Glen Canyon Dam on the mainstream of the Colorado River at the dividing point between the Upper and Lower basins for storage and delivery of water to which the Lower Basin is entitled under the Colorado River Compact. 3. The Arizona, California and Nevada Apportionments The BCPA had also given advance consent to a tri-state compact among Arizona, California and Nevada with respect to Lower Basin waters, but it was not adopted by those states. Arizona did not ratify the Colorado River Compact until 1944 and engaged in a continuing controversy with California over the Compact s interpretation and California s share of the Lower Basin apportionment. In 1952 it finally filed an original action in the Supreme Court seeking an equitable apportionment of the Lower Basin s Compact allocation. The Supreme Court s decision in Arizona v. California, 373 US 546 (1963), held that the Compact and the doctrine of equitable apportionment were irrelevant to a determination of the Arizona, California and Nevada shares because the BCPA had authorized the Secretary to make a contractual interstate allocation of the Lower Colorado River mainstream consistent with the authorized but unconsummated tri-state compact and he had done so. The Court also held that the Secretary was authorized to make 23

allocations to users within each state without regard to state law, in effect making the Secretary a federal water master on the Lower Colorado River. Section 5 of the BCPA provides that no person shall have or be entitled to have the use for any purpose of the water stored [by the project] except by contract [with the Secretary]. The Secretary s exclusive allocation authority under section 5 is unique in federal reclamation law, which the Supreme Court has held requires the Secretary to comply with state law in the acquisition and administration of water rights for reclamation projects unless it conflicts with express provisions of the federal authorizing legislation, in which event the latter controls. California v. United States, 438 U.S. 645 (1968). Thus the Secretary has acquired water rights under state law for all federal reclamation projects in the Upper Basin and for some in the Lower Basin, but no appropriation was made under either Arizona, California or Nevada law for the water stored in Lake Mead for allocation to those states. The interstate apportionments of Lower Colorado River mainstream water made by the Secretary to Arizona, California and Nevada pursuant to the BCPA were made by master contracts with the States of Arizona (1944) and Nevada (1942, 1944), and a number of individual contracts with California water agencies in the early 1930 s. A normal year apportionment of 7.5 (MAF) of beneficial consumptive use by the Secretary allocates 2.8 MAF to Arizona, 4.4 MAF to California, and 300,000 AF to Nevada, with increased deliveries in surplus years and reduced 24

deliveries in shortage years. But the water supply and demand predictions of 70 years ago have not matched reality. In the early 1990 s, the other Basin States became seriously concerned about the extent of California s use, which has ranged from 4.5 to 5.2 MAF over the past 10 years, and urged California to find ways to live within its normal year 4.4 MAF apportionment when necessary. Fortunately, Article II(B)(6) of the Supreme Court s decree in Arizona v. California, 376 U.S. 340, 342 (1964), provides that the Secretary may make a state s unused apportionment temporarily available to another state on an annual basis, but with the express caveat that no rights to the recurrent use of such water shall accrue by reason of [such] use. Consequently, California has long been meeting a substantial portion of its requirements by use of Arizona s and Nevada s unused apportion-ments and, more recently, with its use of water which the Secretary has declared to be surplus under the 1964 decree, of which California is entitled to one half. However, Nevada and Arizona are currently using all of their annual apportionments. 4. The Instrastate Allocation of Interstate Apportionments a. California The Secretary entered into the first water delivery contract under the BCPA in 1930 with the Metropolitan Water District of Southern California ( MWD ), an urban water district formed to contract with the Secretary for a water supply for the Southern California coastal plain. That action generated concern among the 25

California agricultural agencies with claims to senior rights in the natural flow of the Colorado River under state law, who feared that MWD would obtain a senior federal contractual priority to their senior state appropriative rights. The dispute among the potential water contractors in California as to their entitlements to Colorado River water under the BCPA was resolved through the 1931 Seven Party Agreement, which established entitlements and priorities for the California agencies totaling 5,362,000 AF annually. The Secretary s allocation of 5,362,000 AF to the California agencies, even though California s normal year apportionment was 4.4 MAF, reflected overly optimistic future water supply estimates at the time which were expected to make substantial quantities of surplus water available at Lake Mead, to which California was entitled to one-half under the BCPA. The Secretary incorporated the recommended entitlements into general regulations in 1931, and later into the water delivery contracts with the California agencies. The fact that the Seven Party Agreement did not include (1) any proposed allocations for mainstream Indian reservations (except that the Fort Yuma (Quechan) Indian Reservation was to be served as part of the Reservation Division of the federal Yuma Reclamation Project), which later received some 50,000 AF of entitlements in Arizona v. California or (2) any specific quantities or priority dates for the individual agricultural agencies collectively sharing the first three priorities has produced several critical problems 26

that have been the subject of intense negotiations in California over the past five years, which still have not been resolved, with the result that the implementation of revised guidelines for Secretarial surplus determinations of water availability at Lake Mead for 15 years while California undertakes a variety of conservation projects and water transfers to reduce its uses to 4.4 MAF annually has been stalled. b. Arizona In 1944 the Secretary and the State of Arizona entered into a master contract for the delivery to Arizona of a maximum of 2.8 MAF annually. Following the Supreme Court s decision in Arizona v. California in 1963, Congress in 1968 enacted the Colorado River Basin Project Act, 43 U.S.C. 1501 et seq., which authorized the Secretary to construct the Central Arizona Project ( CAP ) to enable Arizona to put to beneficial use that portion of Arizona s annual apportionment of mainstream Colorado River water not previously allocated. Although the 1964 decree in Arizona v. California had largely left to the Secretary s discretion the allocation of shortages among the three Lower Division States in years when 7.5 MAF was not available for apportionment, 376 U.S. at 342-43, the 1968 Act limited diversions by the CAP in such years to the extent necessary to assure the availability of 4.4 MAF for use in California. In 1972, the Secretary entered into a contract with the Central Arizona Water Conservation District for delivery of the CAPs water entitlement and repayment of Arizona s share of the project costs. The CAWCD and the Secretary 27

then entered into subcontracts with Arizona municipal and industrial users, non- Indian agricultural users, and a number of Indian tribes. c. Nevada Following Nevada s 1942 and 1944 master contracts, the Secretary entered into a number of water delivery contracts with private entities and public agencies. After the Southern Nevada Water Authority ( SNWA ) was created in 1991, it subsequently entered into a contract with the Secretary which granted it the right to the unallocated remainder of Nevada s 300,000 AF apportionment and any Colorado River water made available due to reduction, expiration, or termination of any individual contractual entitlements, surplus water, and other states unused apportionments. All of the demands within SNWA s service area are municipal. B. THE RESPONSE OF THE LOWER DIVISION STATES TO CURRENT SUPPLY SHORTAGES 1. Conservation and Water Marketing As indicated in the preceding section, urban municipal users in the Lower Basin hold a very junior priority in California, are at the top of the CAP s junior priority in Arizona, and are entitled to all of the Nevada allocation. Consequently, California and Nevada municipal users are currently at the forefront of efforts to find 28

additional supplies, while Arizona remains concerned about its supply in shortage years because of California s 4.4 MAF priority under the 1968 Act. In response, reductions of user demand and a number of projects for the transfer of conserved water from agricultural to urban users have been consummated or are in the final stages of negotiation and approval by the Secretary. a. California In the late 1980 s MWD instituted a major incentives program to induce its member agencies to promote installation of water saving plumbing equipment by their customers, as well as other conservation efforts of its own and by those agencies. These efforts are estimated to have conserved 740,000 AF through 2002. In addition MWD and, later, one of its member agencies, the San Diego County Water Authority, took the initiative on a number of major water transfers from the California Colorado River agricultural contractors. This effort was complicated by the fact that the Secretary had never promulgated regulations or guidelines for the transfer or leasing of water entitlements among the BCPA contractors. Although the Secretary was held to have broad regulatory authority in Arizona v. California over use of Lower Colorado River mainstream water, no comprehensive program for administration of those entitlements was proposed until the early 1990 s, when the Bureau of Reclamation circulated for comment proposed regulations which dealt, inter alia, with (1) the transfer or leasing of contractual entitlements, (2) criteria for 29

reasonable beneficial use of entitlements, (3) reduction in entitlements due to nonuse, and (4) water conservation. Action on the Bureau s regulations was suspended in 1994 while Arizona, California and Nevada sought to reach agreement on a regional solution to their water supply problems, which has not yet come to fruition. (1). The All-American Canal Lining Project Federal construction of the All-American Canal ( AAC ) was authorized by the BCPA to deliver Colorado River water to the Imperial and Coachella Valleys in California. Legislation proposed by MWD was enacted by Congress in 1988 authorizing the Secretary to conserve and reallocate extensive seepage losses from the AAC. The California contractors would pay for canal lining or a new canal and would receive the conserved water by operation of the BCPA water delivery contract priorities. California enacted legislation in 1998 funding the conservation work on both the AAC and its Coachella Branch. Current plans are for MWD to receive 77,700 AF of the conserved water from both lining projects and 16,000 AF would be used to facilitate the San Luis Rey Indian water rights settlement in San Diego County. However, Mexican farmers claim to have established rights to use of the historic seepage waters from the AAC reaching adjacent groundwater basins in Mexico. The United States maintains that such seepage is surface water to which the 30

United States is entitled under the 1944 Mexican Water Treaty and that it has the right to conserve those waters. Negotiations are ongoing. (2). The MWD-IID Water Conservation Agreement (1989) After a Bureau study estimated that 354,000 acre-feet could be conserved by Imperial Irrigation District ( IID ) through various improvements in its distribution facilities and water management programs and a decision by the California Water Resources Control Board that the beneficial use requirements of California law imposed a duty on IID to implement programs to conserve at least 100,000 AF annually, MWD offered to fund those improvements in return for the conserved water. Pursuant to a series of agreements approved by the Bureau, MWD agreed to bear the capital costs, indirect costs and annual direct costs of fifteen conservation projects constructed by IID. In return, MWD is entitled to approximately 110,000 AF of conserved water annually. (3). The MWD-Palo Verde Irrigation District Land Fallowing Agreements In 1992 MWD and Palo Verde Irrigation District ( PVID ) entered into a twoyear trial program for MWD to pay participating PVID farmers located along the Colorado River in California to take their lands out of agricultural production with MWD entitled to store the conserved water at Lake Mead. That fallowing program produced about 186,000 AF of water and the parties are close to signing a similar 35 year agreement to make up to 111,300 AF available annually when needed by MWD. 31

(4). Water Banking at Lake Mead In 1992, building on its successful experience with its intrastate Drought Water Bank in 1991, California proposed an Interstate Water Bank at Lake Mead operated by a forum created by the seven Basin states, which would store up to 6.8 MAF of unused Upper Basin water to help the states meet their individual and collective water supply needs during critical or emergency water supply periods. The responses of the other Basin states to the proposal were cool, expressing concern that the proposal could not be implemented within the Law of the River. Consequently, the California proposal appears dead. Section 8 of the California Seven Party Agreement provides that MWD shall have the exclusive right to withdraw and divert into its aqueduct any water in Boulder Canyon Reservoir accumulated to the individual credit of said district (not exceeding at any one time 4,750,000 acre-feet in the aggregate) by reason of reduced diversions by said district subject to such conditions as to accumulation, retention, release, and withdrawal as the Secretary may prescribe. MWD has not formally petitioned the Secretary to exercise its banking right, so any conditions the Secretary might impose on its exercise are uncertain. (5). The IID-San Diego County Water Authority Transfer In the mid-1990 s San Diego County Water Authority ( SDCWA ), MWD s largest customer, determined that it wanted to acquire its own block of Colorado 32

River water to help meet its burgeoning demands. Since the mainstream water available to California was already over-allocated, SDCWA negotiated an agreement with IID in late 1997 (but not finally signed until, December 2002) to purchase up to 200,000 AF of water annually that would be made available as the result of conservation investments by IID and its farmers financed by the SDCWA payments. MWD agreed to transport the conserved water to SDCWA by exchange through MWD s 242 mile long Colorado River Aqueduct. The agreement was subject to a number of important conditions, including (1) California s enactment of legislation providing $235 million to fund the lining of the AAC and its Coachella Branch, as well as conjunctive use storage programs necessary to implement California s proposed Colorado River Water Use Plan to reduce its annual use to 4.4 MAF when necessary, (2) separate quantification of each of the first three collective agricultural priorities under the Seven Party Agreement, and (3) implementation by the Secretary of revised Lake Mead operating criteria that would make more surplus water available for allocation to California, Arizona, and Nevada under the decree in Arizona v. California to keep MWD s 1.3 MAF Colorado River Aqueduct full through 2015. As to those conditions, (1) the California legislation has been enacted, (2) a 1999 Quantification Settlement Agreement ( QSA ) would establish individual entitlement caps for IID and Coachella Valley Water District and allocate the burden of some 50,000 AF of Indian rights that were not addressed in the 33

Seven Party Agreement, and (3) the Basin States and the Secretary reached agreement on revised interim surplus criteria, subject to approval of the QSA by the California agencies by December 31, 2002. The required approval by IID by that date did not occur, principally because IID was unwilling to bear its share of the cost of mitigating the environmental impacts of the SDCWA transfer on the Salton Sea, a large, dying lake that is an important part of the Pacific Flyway for migratory birds. Consequently, the interim surplus criteria have not gone into effect and the Secretary has cut back deliveries to California for 2003 to 4.4 MAF with significant impacts on MWD and IID. IID has sued the Secretary over its curtailment and MWD has intervened in support of the Secretary, but negotiations among the parties are continuing. (6) Desalination MWD is currently exploring with its member agencies the development of a seawater desalination plant that would provide 50,0000-150,000 AF annually. b. Arizona In 1996 Arizona created the Arizona Water Banking Authority ( AWBA ) to implement a program by which Arizona s unused annual Colorado River apportionment from the Secretary could be stored underground and later withdrawn for use in Arizona. It was also authorized to carry out a program for interstate banking and exchange of unused apportionments. In November 1999, the Bureau 34