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.
In 1994, state officials and five of the 29 State Water Project (SWP) contractors met secretly in Monterey to resolve water shortage issues. The contractors included the Metropolitan Water District of Southern California (MWD) and the Kern County Water Agency (KCWA), which together hold contracts for about 75 percent of the state's water, and representatives from Paramount Farming, a private agricultural corporation.
The result of their meeting was the Monterey Amendments to the State Water Project contracts. C-WIN has filed a lawsuit to overturn this latest effort to privatize California’s water.
The conclave was driven by an extended drought from 1987 to 1992.This devastating dry period had caused great financial stress among SWP agricultural contractors, and had provoked significant changes in the SWP's operating principles. Further increasing the contractors’ angst was the U.S Fish and Wildlife Service’s 1993 listing of the Delta smelt as ‘threatened’ under the federal Endangered Species Act.
Drought conditions were so severe in 1991 that SWP deliveries to agricultural contracts were zero. While this was consistent with the principles of the original SWP contracts, the strictures enraged agricultural contractors; they were also distressed by their obligation to maintain payments on their share of the SWP "mortgage." It was the ultimate cost-squeeze: “Entitlements” outlined in the SWP contracts meant little to agricultural contractors when drought restricted deliveries.
Most of the water delivered in 1991 by the State Water Project, for example, was sent to the Metropolitan Water District of Southern California, which largely serves urban water districts south of the Tehachapi Mountains. This reflected a long-standing “urban preference” in state water law and SWP contracts that decreed domestic and industrial water rights holders (such as cities and counties holding the requisite rights) would receive water first during droughts, prior to the claims of agricultural water users. The urban preference was established in the belief that it is more problematic to interrupt urban water deliveries than agricultural deliveries. The Monterey Amendments eliminated the urban preference, greatly imperiling secure water supplies to California’s cities.
In the 1980s, the California Department of Water Resources (DWR) acquired lands owned by Tenneco Corporation, a former oil company with agricultural holdings in Kern County. These lands became known as the Kern Water Bank, with the department seeking to develop an underground reservoir to provide additional south-of-Delta State Water Project storage capacity as insurance for its southern California urban water customers.
Under the secret 1994 Monterey Amendments, DWR agreed to eliminate drought protections for urban areas. To appease urban water contractors and real estate speculators, DWR agreed to change the rules that control water transport through the SWP. These changes, promoted by the negotiating parties as a means of enhancing water management “flexibility,” have contributed to the ecological decline of the Delta by encouraging increased pumping during certain times of the year.
The Monterey Amendments changed the course of California water history in four ways:
1. Elimination of The "urban preference" (Article 18(a))
2. Elimination of the "paper water" safe guard (Article 18(b))
Article 18(b) was included in the original contracts to guarantee that the total amount of water 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. Table A water is the maximum amount of water deliverable to each contractor.
However, there is an inherent flaw in the State’s concept of "safe yield." The true safe yield of the SWP is not the current Table A Allocation total of 4.23 million acre-feet of water a year (MAFY). This is because the contracts were premised on a full build-out of State Water Project facilities. This has not occurred. In fact, the average amount of water actually delivered between 1990 and 2000 was 1.86 MAFY.
The difference between the SWP’s 4.23 MAFY and the actual delivered average of 1.86 MAFY is known as "paper water." In its 2000 decision invalidating DWR’s first environmental report on the Monterey Agreement, the Third District Court of Appeal called this difference "a wish and a prayer."
Developers in southern California did not want the State Water Project to reduce its overall commitment from 4.23 MAFY to a smaller figure because they would have more difficulty demonstrating there was sufficient water for their developments. This remains one of the greatest problems with paper water in California today.
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 to the Kern County Water Agency. As noted above, the Kern Water Bank is a 20,000-acre alluvial fan that was established as “drought insurance” for SWP urban contractors. Water can be injected or withdrawn from this aquifer easily. The state transferred the bank in exchange for the retirement of 45,000 acre-feet of paper water. In other words, the state gave up a valuable public asset for “undelivered” water to Kern that didn’t even exist.
One day after DWR transferred the Kern Water Bank to the Kern County Water Agency, the Agency turned over a majority interest in 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.
This privatization of the Kern Water Bank allowed the new owners to buy cheap “surplus" water (known as Article 21 water; see below), store it underground, and then sell it to the highest bidder for gargantuan returns. The Resnicks have reaped millions of dollars in profits since seizing the water bank, all courtesy of California’s water ratepayers.
In March, 2014 as a result of C-WIN’s lawsuit, Sacramento County Superior Court Judge Timothy Frawley struck down the environmental review conducted for the Kern Water Bank, ruling it did not adequately address the full impacts of the water bank’s operation by San Joaquin Valley agribusiness interests. Further legal action is expected.
4. Article 21: "surplus" water.
State Water Project contract Article 21 provides for the sale of “available” surplus water during periods of heavy flow; this water can be sold just for the cost of transporting it to the buyer. Article 21 water was originally intended only for temporary crops, not for permanent crops such as nut orchards, or for real estate developments.
The Monterey Amendments enable state water contractors to exploit available “surplus” water in the State Water Project. This applies particularly to contractors in the southern San Joaquin Valley and those under the umbrella of the Metropolitan Water District of Southern California. During the 1990s, SWP deliveries were well below projected entitlements for project contractors, and very little surplus water was available. During the 2000s, more surplus water was made available after the federal government and the state of California adopted the CalFed Record of Decision, which enabled greater export pumping from the Delta.
The Monterey Agreement’s “surplus” Article 21 water program allowed contractors to take water above scheduled contract deliveries on a short-term, interruptible basis. Contractors are not supposed to count on these supplies year-to-year. But as Contra Costa Times reporter Mike Taugher revealed in a 2009 series on water sales, this is a shell game used to manipulate the price of the water for the Kern Water Bank. It is a bet made by contractors that the State Water Project is able to increase its supplies. But as we have seen, the SWP cannot be counted on when dry times hit. When Article 21 water is available, it is cheap, and DWR and its contractors try very hard to prevent interruptions in this inexpensive source of water, regardless of drought, and at the expense of fisheries habitat.
Heavy pumping through 2007 of Article 21 water was a primary factor in the Delta’s open water ecosystem decline and contributed to the closure of California commercial salmon fisheries in 2008 and 2009. 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 on Delta through-flows and water quality.
SWP contracts stipulate the obligations of the state and its contractors 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" quantify the maximum delivery of SWP water that each contractor can expect—and the share of SWP costs for which each contractor is responsible.
The original SWP contracts contained provisions that discouraged contractors from requesting large volumes of water during the winter and spring months; instead, they were encouraged to request water when it was most needed, in the summer and fall. Subsequent SWP Amendments encourage contractors to request the maximum amount of water, from a variety of sources, at all times of the year. This can result in over-pumping from the Delta in the winter and spring months, contributing to the massive and ongoing decline of salmon and other Bay-Delta fish populations.
Overturning the Monterey Amendments would resolve the MWD’s water problems. By returning the taxpayer-created Kern Water Bank to state control, water from this reserve could be used to meet urban preference requirements during drought, as was the original intention. This would substantively increase the water available to MWD from their Table A Allocation.
 As part of the review and approval process for any new major projects, Section 10910 et seq. of the California Water Code requires communities to conduct ‘water supply assessments’ to identify water that is available to serve the proposed projects. To the extent that water supply assessments might rely upon paper water rather than actual available water, they could be misleading.
 Releases of Article 21 water were restricted sharply in 2007 under the U.S. Endangered Species Act by federal judge Oliver Wanger and by subsequent new federal biological opinions covering Delta smelt and salmon.