The Monterey Amendments to State Water Project Contracts

The California Aqueduct, which transports water exported from the Delta into the contractual arrangements of the Monterey Agreement.

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Courtesy of California Department of Water Resources.

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In 1994, four State Water Project contractors, including the Metropolitan Water District of Southern California (MWD) and the Kern County Water Agency (KCWA) which together control about 75 percent of the state's water, and representatives from Paramount Farming (a private corporation), met secretly in Monterey to resolve their water shortage issues.

Drought from 1987 to 1992, and again in 1994, caused financial stress among State Water Project (SWP)  contractors, and the prospect of tighter  regulation of the SWP's Delta exports  provoked extraordinary changes in the SWP's operating principles. (The U.S Fish and Wildlife Service listed the Delta smelt as ‘threatened’ pursuant to the federal Endangered Species Act in March, 1993.)

The result of their meeting was the Monterey Amendments to the State Water Project contracts.

(C-WIN believes “entitlement” is a misnomer. Since the SWP contracts always contained ‘when-and-if’ clauses making clear that the State could only deliver whatever water became available to its SWP each year, C-WIN believes “entitlement” is a misnomer and that these contract amounts are more correctly the proportional cost responsibility that each contractor bears for the SWP’s “mortgage” and annual operating expenses.)

The 1987-1992 drought conditions were so severe that SWP deliveries to agricultural contracts—consistent with the principles in place in the original SWP contracts—were nearly zero, while their share of the SWP "mortgage" continued apace.

It was the ultimate cost-squeeze: “Entitlements” in the SWP contracts meant little when drought restricted deliveries to these agricultural water districts.

Most of the water delivered in 1991 by the State Water Project, for example, was delivered to the Metropolitan Water District of Southern California, whose customers are largely urban water districts south of the Tehachapi Mountains. This distribution pattern reflected in the SWP contracts a long-standing “urban preference” in state water law that domestic and industrial water rights holders (such as cities and counties holding water rights) would receive water first during droughts, prior to the claims of agricultural water users—on the belief that urban water should not be as easily ‘interrupted’ as can supplies for irrigated agriculture.

Finally, in the 1980s, the California Department of Water Resources acquired lands once owned by Tenneco Corporation, a former oil company with agricultural land holdings in Kern County. These lands became known as the Kern Water Bank, and the Department sought to develop an underground reservoir to provide additional south-of-Delta storage capacity for the State Water Project for greater reliability of water supplies for its southern San Joaquin Valley agricultural and southern California urban water customers.

Under this secret deal in Monterey in 1994, the State agreed to eliminate drought protections for urban areas (deleting Article 18(a) and 18(b), which encouraged “paper water” the give-away of a State-owned groundwater storage bank asset to local interests. To appease urban water interests that participated in this negotiation, DWR agreed to change the rules that control how, when, and under what circumstances water could be moved through the SWP (Article 21 ‘Surplus’ Water'). These water management changes, promoted by the negotiating parties as mechanisms to enhance water management “flexibility,” have contributed to the decline of the Delta by encouraging increased pumping during certain times of the year.

There are four aspects of these amendments that changed the course of California water history:

1. Elimination of Article 18(a). The "Urban Preference".
This removed the "Urban Preference", the safeguard put in the contract in 1960 to make sure that in times of prolonged dry weather, which occur in over one-third of years in California, agricultural allocations would be cut first.

2. Elimination of Article 18(b). The "paper water" safe guard.

Article 18(b) was put in the original contracts to make sure that the total amount of what was promised could actually be delivered on a "firm yield" basis. This clause in the contracts required the total amount of the Table A Allocations to conform to the "safe yield" of the SWP.

The true "safe yield" of the SWP is not the current Table A Allocation total of 4.23 million acre-feet per year (MAFY) because the contracts were premised on full build-out of State Water Project facilities—which has not occurred. In fact, the average actually delivered between 1990 and 2000 was 1.86 MAFY. (By 1990 all SWP contractors were requesting their full contract "entitlements.")

The difference between the 4.23 MAFY and the actual delivered average of 1.86 MAFY is "paper water" in the State Water Project. The Third District Court of Appeal (in its 2000 decision invalidating the Department’s first environmental report on the Monterey Agreement) called this difference "a wish and a prayer."

Developers in southern California did not want the State Water Project to reduce its overall capacity to a smaller amount from 4.23 MAFY because they would have more difficulty showing there was enough water for their developments. This is still one of the most dangerous problems with "paper water" in California today.

(Section 10910 et seq. of the California Water Code requires California communities, as part of the review and approval process for new major projects, to require a ‘water supply assessment’ identifying that water is available to serve the proposed project. To the extent that such water supply assessments might rely upon ‘paper water entitlements’, i.e, rather than actual available water supplies the required water supply assessments could prove misleading.)

Article 18(b) was eliminated in the Monterey negotiations with virtually no environmental review of its consequences.

3. Kern Water Bank Given Away by the State

As part of the Monterey Agreement, the Department of Water Resources turned over a state asset, the Kern Water Bank (a 20,000-acre alluvial fan), to the Kern County Water Agency in exchange for the retirement of 45,000 acre-feet of "paper water" (water that Kern would never receive). As a state asset, it could have been used by DWR to help firm up all of the contractors SWP Table A allocations, especially in times of drought.

Instead, the day after DWR turned over the Kern Water Bank to the Kern County Water Agency, the Agency turned over somewhere between 58 to 68 percent of the Kern Water Bank to Paramount Farms, a private corporation owned by Stewart and Lynda Resnick as part of a newly constituted public-private partnership called the Kern Water Bank Authority (a joint powers authority that was allowed under state law to include a private corporation as a partner).

This privatization of the Kern Water Bank allowed the water bank owners to buy cheap so-called “surplus" water (Article 21 water, see below), store it underground in their “bank”, and then sell it to the highest bidder for large profits. The various subsidiaries of the Resnick empire have been doing this ever since taking over the water bank and have made many millions of dollars in profits off the tax payers of California.

4. Article 21 so-called "surplus" water.

The Monterey Amendments enable state water contractors—particularly those in the southern San Joaquin Valley and those under the umbrella of the Metropolitan Water District of Southern California—to make much greater use of surplus water in the State Water Project—that is, when surplus water is available. During the 1990s, SWP deliveries were well below projected entitlements for SWP contractors, and very little surplus water was available. During the 2000s, more surplus water came available after the federal government and the state of California adopted the CalFED Record of Decision, which enabled greater export pumping from the Delta.

Where in early SWP contract amendments from the 1970s, Article 21(g)(1) prohibited commitment of surplus water—which may not be available from one year to the next—the Monterey Agreement and its amendments called for elimination of this provision.

State Water Project contract Article 21 provides for sale of surplus water available in the SWP system during periods of heavy flow and could be sold for just the cost of transporting it to the buyer. This is part of the shell game used to manipulate the price of the water for the Kern Water Bank as journalist Mike Taugher demonstrated in his series on water sales in May 2009 for the Contra Costa Times. It is a gamble made by the state water contractors that the State Water Project would be able to increase its supplies. When dry times hit, the project still cannot be counted on.

Exporting the Article 21 water from the Delta also has devastating fishery impacts, particularly on migratory steelhead.

The National Marine Fisheries Service considers Central Valley steelhead “threatened” with extinction in the region soon. The mainstem Sacramento Valley steelhead population has plummeted from 19,615 spawning fish in 1968 to 339 in 2008. By allowing extra Delta export pumping for 40 years under Article 21, Californiaʼs government has failed to protect Central Valley steelhead populations from excessive water diversions. 

The Monterey Agreementʼs Article 21 water surplus program emerged in 1995 to allow contractors to take delivery of water over and above approved and scheduled contract deliveries on a short-term, interruptible basis. Contractors are not supposed to count on these supplies year-to-year, but when available, theyʼre cheap to get. And DWR and the contractors try very hard to prevent interruptions in this cheap source of water, regardless of whether California is in a drought or a wet year, and at the expense of steelhead habitat.

Article 21 water is pumped from the Delta in coordination with reservoir releases at the rim dams of the Central Valley and delivered to contractors between November and April - the same time of year when adult steelhead return from the ocean to spawn in cold Central Valley streams. Their larvae hatch and rear in the floodplains and wetlands of the Central Valley and Suisun Marsh before the trout that will migrate to sea undergo key physiological changes and exit the Delta, provided these young steelhead avoid getting killed at the export pumps near Tracy.

Unfortunately, in this decade, heavy pumping through 2007 of this Article 21 water helped cause the Delta’s open water ecosystem decline (which was first identified in 2005), as well as closure of the commercial salmon fisheries in 2008 and 2009. This is the water that federal judge Oliver Wanger and the new biological opinions covering Delta smelt and the salmon fisheries restricted sharply under the Endangered Species Act. With low precipitation and runoff since 2006, hydrologic restrictions have reduced Delta exports, but the dry conditions have also hindered recovery of the Delta’s open water ecosystem and the Central Valley salmon resources that depend upon Delta through-flows and water quality during their life cycle.

The SWP contracts lay out the contractors’ and the state’s obligations concerning delivery of water under both surplus and drought conditions. In each contract, there is a “Table A” schedule that details how much water the contractor is “entitled” to each year. These "entitlements" quantified the maximum delivery of SWP water that each contractor could expect—and the share of SWP costs for which each contractor would be responsible. 

The original SWP contracts contained provisions that discouraged contractors from requesting large volumes of water during the winter and spring months; instead, they would usually request water when it was most needed, in the summer and fall. The proposed SWP Amendments encourage contractors to request the maximum amount of water, from a variety of sources, at all times of the year. This is a likely cause of over-pumping from the Delta in the winter and spring months, which has arguably contributed to the massive decline of the Delta smelt and other Bay-Delta fish populations.

The Monterey Amendments Must be Overturned
C-WIN believes that one of the best ways to solve MWD’s water problems would be to overturn the Monterey Amendments. This would mean returning the taxpayer created Kern Water Bank to the State’s control to be used in dry times, as it was originally intended, to meet Urban Preference requirements. This would increase the real wet water that MWD could count on from their Table A Allocation.

Reinstating Article 18(b) would mean that the Department of Water Resources could reduce the overall “entitlements” of “Table A” in each of the project contracts to water that the Department can actually deliver. This would ultimately lead to more reliable water service by the State Water Project to its contractors.

The Monterey Amendments must be overturned to stop the privatization of the SWP.  This is the best way to ensure that the Kern Water Bank benefits all Californians, without soaking them further in increased water system costs and increased rates in the process.