The future of water transfers after the 2014 drought

Panel discusses how the water transfer market fared the drought in 2014, and with another dry year possible, they contemplate the future of water transfers in 2015

At the fall conference of the Association of California Water Agencies (ACWA), one of the most well attended sessions was the panel discussion on water transfers. Attorneys Andrea Clark, Spencer Kenner, Andrew Hitchings and David Aladjem, along with principal engineer Darren Cordova discussed the legal framework and technical aspects of water transfers, how the exceptional drought conditions in 2014 affected water transfers, and the outlook for water transfers in 2015, should conditions remain dry, as well as their views on how the water transfer process could be improved.

Here’s what they had to say.

Andrea Clark: Introduction and legal framework of water transfers

Andrea Clark, a partner with Downey Brand, kicked off the session with an overview on the transfer process.

A water transfer in broad terms is a change in the way that water is allocated that typically involves a change in where the water is used or the place it’s used, she said. “Water transfers involve the voluntary sale of water by an entity that foregoes its right to use that water, and in a drought, water transfers can be an important water management tool for moving water to places of critical need,” she said. “The water transfer market also provides incentives for water right holders who have more than sufficient supplies to transfer some water to parties with less than sufficient supplies and perhaps higher value uses. Even in non-drought conditions, water transfers can be an efficient and effective tool for moving water around the system to areas of need.”

She then briefly described three methods of effecting transfers:

Groundwater substitution, which generally involves the transfer or declining to divert water from a stream, letting that water go past, and then pumping that same amount of water from the groundwater basin in order to continue the use over land.
Crop idling and land fallowing which involves the transfer or declining to divert water from the stream and instead of pumping water to irrigate crops, letting agricultural land lie fallow for the season.
Reservoir reoperation, another mechanism for making water available for transfers.

Legal framework

“State policies and statues permit and even encourage water transfers,” she said. “For example, Water Code section 109 provides that it is ‘the established policy of the state to facilitate the voluntary transfer of water where consistent with the public welfare of the place of export and the place of import.’ Moreover, the water rights transfers are legally protected under various sections of the water code. If they weren’t so protected, folks would probably not be willing to do voluntary transfers of water if they didn’t have some guarantee that their rights wouldn’t be impacted.”

Ms. Clark said that there are several state statutes the govern different water transfers, depending on the type of water right underlying the transaction. “Importantly, Water Code section 1810 governs the use of excess conveyance capacity in public agency facilities,” she noted.

There are two important rules related to water transfers that ensure not only other water users but that fish and wildlife are protected from any impacts, she said:

No injury to legal users of water: This rule protects other legal users of water and it protects all other users, not just prior or senior users on the system.
No unreasonable effects on fish and wildlife: There needs to be a showing that there aren’t any unreasonable effects on fish and wildlife. “This usually happens in the context of Water Code 1810 findings where a public agency owner of facilities that will be used to transfer water has to make a determination of no unreasonable effects. They also have to make a determination of no unreasonable effects on the economy of the county from which the water is transferred, and here is where we see county interests and counties getting involved in water transfers.”

Ms. Clark said that there are several different agencies involved in water transfers. “The State Water Resources Control Board is involved where licensed water rights need to be modified in order to effectuate a transfer, typically to change or expand the place of use,” she said. “The Department of Water Resources is involved where DWR’s facilities are utilized for water transfers; DWR is also involved as the operator of the State Water Project and assesses whether transfers will cause any injury to the project as a water user on the system. The Bureau of Reclamation is involved where the Central Valley Project water is being transferred using CVP facilities. Fish and Wildlife Service and the National Marine Fisheries Service is involved in the determination of whether there are unreasonable effects on fish and wildlife. And some counties have policies that restrict the export of water and so some counties are particularly involved in water transfers while others aren’t.”

“Over the last couple of decades, the state has implemented drought water banks in order to facilitate the transfer market by acting as both the buyer and the seller when there have been critical drought conditions, but there was not a drought water bank in 2014,” she said.

Spencer Kenner: Department of Water Resources role in water transfers

Spencer Kenner, Assistant Chief Counsel with the Department of Water Resources, then talked about the Department’s role in water transfers, how drought conditions have affected the 2014 transfer season, and if the drought continues, what DWR plans to do in 2015.

“Comparing 2014 to prior years in water transfers, it seems there was a marked difference between this year and prior years for a lot of reasons,” Mr. Kenner began. “There was just an extraordinary amount of cooperation, not just within agencies but among agencies.” The coordination between the water agencies, the State Water Board and the fish agencies was greatly improved through the RTDOT, or the Real Time Drought Operations Team; documentation was fast tracked, contract procedures were improved, and there were new outreach tools as well as buyer-seller meetings, he said.

The Department of Water Resources did a better job than normal of working together, being nimble and creative, and following the charge of the water action plan to streamline transfers, he said. The Department of Water Resources brought in a consultant was brought in to make sure processes were streamlined as much as possible so there could be fundamentally sound transfers that were still protective of resources, he noted.

Mr. Kenner then gave some numbers on water transfers that occurred during 2014. “This year we had overall nearly 500,000 acre-feet of water that was transferred,” he said. He noted that the State Water Project had 306,000 acre-feet of transfers; twelve were short-term and three were long-term. There were six crop idling transfers, seven groundwater substitution transfers, and five reservoir release transfers.

He said that the MID transfer had to do with the Davis-Grunsky agreement. “Back in the 60s we gave several grants, one of which went to MID to build a reservoir that required minimum storage and minimum releases for fish,” he said. “They wanted to reduce those minimums as a result of the drought, and the transfer of 5000 acre-feet – it ended up being less than that – it was multi-benefit in the fact that they got to transfer the water, it got transferred to Santa Clara, ultimately, and there was a pulse flow benefit for the fish. So it’s not just moving water; it was moving water with a purpose is what happened a little bit this year.”

DWR is required to make findings under Water Code section 1810, such as no injury to other legal users of water, the seller is a bona fide transferor, no unreasonable impact on fish and wildlife or other instream beneficial uses, and no unreasonable impacts on the economy and environment of the source county. “There is some debate about what DWR’s role should be in how stringent and how narrowly we should interpret that statute and whether it should be more relaxed; if not every injury is a legal injury or any kind of injury is a legal injury, but those are the requirements that we’re required to meet with respect to transfers,” Mr. Kenner said. “We also provide technical assistance to agencies, and we act as the responsible agency and make sure folks are complying with GHG emissions.”

For the last couple of years, they have held buyer-seller meetings post mortem do discuss what worked and what didn’t and how the process can be improved in the future. “I think this year, there were some very frank discussions,” he said. “I think generally the [tone] was more cooperative; there was more open mindedness about what can be useful and what can be helpful, and just more cooperation overall.”

One of the topics discussed at the meeting was how the Governor’s proclamation suspended CEQA for state agencies but not for local agencies. “I know that was a difficult issue for local agencies, especially when the state was off the hook but local agencies weren’t, and that created some problems,” he said. “DWR doesn’t have control over that sort of thing but that’s something that will be discussed if we move into another year of drought.” Other items discussed included developing a long-term EIR similar to what the federal agencies have, revising the three party agreements and the conveyance agreements to make them more streamlined and simpler, and the possibility of using forbearance agreements at the state level, similar to what the federal agencies are doing.

The Drought Management Team announced in a December 17, 2013 memo some early actions to expedite, streamline and make transfers happen. He noted that in that memo, Karen Ross, Secretary of Agriculture, complimented DWR for streamlining transfers. “Maybe that’s a little premature but I think we might have met her desire to make things a little simpler,” he said. “Folks may disagree with that but our goal is not to make things more difficult but it is to protect the resource and at the same time, make things happen. I had a law professor in law school who basically said that lawyers can sometimes be seen as the folks that stop things from happening. He said, ‘don’t be like that – be a can-do lawyer,’ and that was sort of ingrained in my thinking so I try to the extent that I can within the law to do that.”

He next showed two graphs of runoff from 2014, one from the Sacramento Valley and the other from the San Joaquin, noting that the numbers were among the lowest ever. “So you see that we’re starting off in a very tenuous and difficult position going into this year with two years of drought preceding it.”

Mr. Kenner then discussed the effects of the drought on transfers. “There was very little activity because there was no water, basically, so very few inquiries and very few proposals,” he said. “In February and March we got some rain which kind of threw everything into turmoil because there was sort of an anticipation that we weren’t going to get much more, but hoping that we would, so the upside of that was that we got to do more transfers. There was also a limited transfer window expansion with the fish agencies that helped. In the early part of 2014, not much going on, and then things started picking up later on in the year.”

The precipitation in February and March caused an influx of new proposals, he said. “We had the Governor’s executive orders and proclamations to move water by any other means, including transfers, forbearance agreements, and exchanges, the CEQA suspension for state agencies, and the Board issued curtailments for post-1914 only,” he said. “Clearly if the drought continues, that will expand to pre-1914 in 2015, but that hasn’t been on the table as far as I know, so we’re not there yet.”

He then presented a pie chart showing the distribution of water transfers by use. In 2014, 93% of the transfers were ag to ag, up from around 70% in 2012 and 2013. The overall amount transferred in 2014 was 306,000 acre-feet; transfers in 2013 totaled 268,370 and in 2012, transfers were 188,074 so significantly more water was transferred in 2014, especially compared to 2012, he said.

He next presented a slide of 2014 water transfers by type, noting they were rather evenly split.

“So for 2015, we’re going to continue this process and refining it so we will continue to collaborate, facilitate coordination meetings, look multi-benefit opportunities, and I think we can make things better,” he said. “We’ll continue to foster transparency, we’re getting things on the table done now and early, and getting things evolved sooner this year than last, and because this isn’t over; the drought may be continuing.”

There are a few issues on the horizon for transfers. Mr. Kenner noted that the Delta Stewardship Council one-year exemption for water transfers expiring at the end of 2016. “We need to start thinking about that,” he said. “And in the new water bond, there’s $200 million for water transfers specifically going to the Wildlife Conservation Board and that’s never happened before, so I’m curious to see what happens there.”

Darren Cordova: Technical issues

Darren Cordova, a principal with MBK Engineers, then discussed the key technical elements associated with water transfers. He noted that his perspective on water transfers that primarily comes from a transferor’s perspective, primarily through Delta water transfers, or upstream of the Delta to downstream of the Delta.

Mr. Cordova said that transfers through the Delta have predominantly occurred between 1997 and 2015 period as the state has progressed in its development with most major transfers occurring during the drier years. “As we look from 2014 and into 2015, what is interesting that came out particularly in 2014 is the not only the uncertainty of supply, but also the demand.”

He then presented an example from Shasta operations, acknowledging that the slide is very detailed. “The important point to focus on here is the red line which is storage in Shasta,” he said. “At the beginning of 2014, Shasta was approaching 1.5 MAF, and at that point, there were questions about what is the supply and what is the demand. Ultimately, that throws a wrench in the transfer process because we don’t know how much need there is and how much there is to transfer. That question will only persist in now what we’re heading into, 2015, where Shasta is in an even lower position.”

Mr. Cordova said there were a number of successes that came out of the transfer process from a technical perspective. “The coordination with DWR and Reclamation was critical, especially from an operator’s perspective, their involvement was key. The petitions by the Department of Water Resources to assist in facilitation of certain water transfers, particularly under water right curtailments was very helpful, and the flexibility and understanding with DWR and Reclamation staff was important. Leadership, support, and coordination were also key to facilitating these transfers.”

He noted that at one point, they were notified that there may not be funding available for DWR to conduct groundwater level monitoring, but fortunately, DWR was able to come through with the funding to do groundwater level monitoring in order to support the transfers. “This really helped put in a key piece that limited the overall expense to the transfer participants and allowed important monitoring to continue,” he said.

He then discussed the three methods of making water available of transfer: groundwater substitution, crop idling, and reservoir releases.

Groundwater substitution

“Groundwater substitution involves pumping groundwater from a well for use upon land in lieu of diverting surface water, thus making that surface water available in the stream for transfer, subject to other limitations,” he said. “The requirements are important: The sellers involved in transfers need to make sure that their discharges at the groundwater wells include the proper measuring equipment so that we know the quantity because the quantity is important. Many of them need to go through and retrofit their wells and there’s an expense associated with that. Ultimately, it just adds more time to the transfer process so we have to start as early as we can.” He noted that other considerations with monitoring include energy use, hours of operation, water quality and groundwater levels.

He then presented a map marked with a series of red dots from Stockton to Redding, noting that the red dots represent existing groundwater monitoring wells that are monitored by DWR. “It’s really to show the extent of this existing well network,” Mr. Cordova said. “In addition to those, the participants involved in groundwater substitution transfers incorporate additional monitoring wells to avoid third party impacts and impacts to the environment.”

He then presented a graph showing monthly groundwater level measurements at a particular well, noting that monthly measurements are in red and the weekly measurements are the white circles. “This well is a production well, and it was operating generally between mid May to the end of August,” he said. “The key element out of this that we’re discussing with the agencies is the appropriate frequency of monitoring. Is it weekly? Is it monthly? It’s something we need to figure out. It may depend on the time period associated with the water transfer, but the key is there’s a significant expense associated with weekly monitoring and do we need that. What is the appropriate level to get us the data that we need, and what are we doing with that data.”

When a well is drilled, the driller is required to fill a well completion report, but not all do, he said. “This is an issue that’s been raised. We’re working with the agencies to address what do we do when there is not a well completion report, and how do we provide some comparable level of information.”

Other important issues that need to be considered, relative to groundwater substitution transfers, are groundwater and surface water interaction, decreased groundwater levels due to persistent drought, land subsidence and air quality.

Crop idling

Crop idling involves the fallowing or idling of land temporarily in order to make surface water available for transfer. “The important part of this graphic is to show that the consumptive use that is saved as a result of crop idling transfer is made available on this pattern,” he explained. “Along the Sacramento River, traditionally, water has really only been able to be made available between July through September. With the drought this year, it was actually able to be made available during May through September, and that is a key element, in terms of the economic viability of crop idling and crop shifting transfers.”

Giant garter snake and other terrestrial habitat are other considerations associated with crop idling and shifting transfers include giant garter snake and other terrestrial habitat, he said. Also, Water Code Section 1018 involves preserving or encouraging leaving some natural vegetation on idled fields; another consideration is how to quantify that water use by the natural vegetation, and how that impacts transfer quantities.

Reservoir release/reoperation

“Reservoir release type of transfers, involve releases of water from storage that would have otherwise been held in storage in order to make that water available for downstream water users,” Mr. Cordova said, presenting a graph of a daily flow schedule for a reservoir release transfer. He noted that the green line represents the target flow for the reservoir releases, the red bar shows the actual transfer quantities on a daily basis, and the blue bars show a base flow against which the transfer quantities are measured.

“Operationally, it’s really difficult,” he said. “This kind of operation really requires coordination with the transfer participants, DWR, Reclamation, the Real Time Drought Operations Team, USFWS, NOAA, DFW, and all of those entities were involved in this transfer in order to make it successful, but it’s very time consuming, and very intensive to get through and coordination is really key.”

In order to avoid impacts to other users of water, a reservoir refill accounting is done. “It’s really an accounting to avoid impacts to other water users which may occur, as the refill may occur years after the transfer occurs.”

Mr. Cordova then gave some of his observations about water transfers. “It goes back to property in a way: Location, location, location,” he said. “That’s one of the driving factors in transfers. And timing is also important.”

He said another complication that came up this year was determining baseline conditions. “What that means is taking action above an action or any other actions that you would have taken absent the transfer in order to make that transfer water available,” he said. “But determining what you would have done during a drought in absence of a transfer is not easy, and so each case is really unique in trying to sort through that which is challenging.”

Scheduling is also challenging, he said. “The majority of the work of transfers occurs during the period of February through June with the transfer period generally being July through September,” he said. “What this schematic on the top shows is that preparation for transfers can begin as generally as early as July of the previous year, the water transfer period may only be the following July through September, and by the time you get through all of the monitoring and reporting, it’s July of the following year, so it’s almost a two year process for a transfer that’s three months. So it’s quite involved and scheduling is a limiting factor because of these considerations. That does play a part in how to plan and prepare for long-term and short-term transfers especially under these drought conditions.”

“So bottom line, water transfers are complicated and involve a number of assumptions and limitations,” he said. “From my perspective, they’re fun, but probably because they are challenging.”

Andrew Hitchings: Key aspects of transfers in 2014

Andy Hitchings, an attorney with Somach Simmons and Dunn, started out with the disclaimer that these are his views and not necessarily the views of any of the clients he represents. He also noted that he typically represents sellers in the Sacramento Valley.

He said there were some key aspects of transfers in 2014 that were different due to the drought. “First of all, there were some significant swings this year in transfer pricing, as far as the amount per acre-foot on the sales price,” he said. “They had to meet the needs within a district before transferring water out of a district. A lot of our sellers in the Sacramento Valley and the Feather River watershed didn’t know what their allocation was or what their reduction might be under their contract until early to mid-April, so that created a lot of uncertainty, not only in the transfer market but how to meet in-district, in-company, in-seller needs.”

He then presented a slide showing transfer prices for the last five years, noting that there is a trend of decreasing prices per acre-foot paid. “2009 was probably the closest year as far as water conditions, but 2014 was obviously worse, but the prices paid per acre-foot had gone down over a period of time,” he said. “When the initial buyers offer came out, it was $165 an acre-foot. … There was very little interest from landowners in the seller district to participate at that level, and in fact, most of the districts I represent, it just wasn’t worth it. They would make more money growing their crops and that’s what the landowners preferred to do.”

Subsequent offers were made that were up to $250 per acre-foot, but ultimately, once sellers knew what their contract amounts were, the price for north to south transfers settled out at $500 per acre-foot, generally. “For some, it could escalate up to $600 an acre-foot if the Delta carriage loss that was calculated was going to be 25 or less, because they would have gotten more water in the Delta through that transfer.”

Mr. Hitchings noted that in the previous years, there had been a cap of $20,000 for reimbursement of administrative costs that the sellers would receive from the buyers. “In 2014, ultimately for the north to south transfers, there was 100% reimbursement for those costs on the State Water Project side. For some Central Valley north to south transfers, they had gone up to $50,000 of reimbursement,” he said. “There were some in basin transfers and the price on that was a little bit less, it was $325 and acre-foot, that was based upon the settlement contract supply of 75%. If that supply had gone down, the price would have gone up. If the supply had gone up, the price would have gone down, but that’s ultimately where it settled out. So pricing was a key difference this year and it will be interesting to see how that may carry forward for 2015 and after.”

There was also water broker involvement this year that had he had not seen in prior years. “This was helpful for some individual entity buyers that weren’t a district, to put them in contact with sellers or if there were individual districts that wanted to operate outside of the general buyers pools,” he said. “There is a question of the potential impact of that on sale prices paid to sellers … that may have made less funds available to pay the sellers on a per acre-foot price.”

One of the key issues was that needs in the seller service area must be met before the water is transferred, he said. “Most recent transfers have been with 100% seller supplies and this year, sellers had shortages or they thought they had shortages until received their contract notices by mid-April. Ultimately for public entity districts in particular, and even mutual water company sellers, first and foremost, their duty is to meet district needs in the district and first deliver water for those supplies. They are typically ones that own and hold the water rights for the benefit of the landowners within that district, so it’s important for sellers to really work through that to find out whether they really have surplus supplies or if they can set up a mechanism internally to make that water available outside the district for out of district transfers.”

Generally, districts may only transfer water that is surplus to the needs of the district. “Irrigation district law has that under Water Code section 22259 and California water district code law has that under 35424, but in shortage years, there are exceptions or authority under the water code 380 and 1745 that allow you as a district to sell in shortage years,” he said. “But it is permissive, so it’s important for the districts to make sure that it’s done in a reasonable way and not arbitrarily and capriciously, that it’s done in accordance with law, and that it’s not going otherwise unreasonably affect other district landowners. Transfer policies are a way for sellers to address that.”

There were some exceptions this year to the typical State Water Project buyer-seller and Central Valley Project buyer-seller arrangements, he said. “Typically, the SWP buyers buy from Feather River Settlement Agreement holders that hold agreements with DWR, and on the CVP side, you have CVP south of Delta buyers buying from Sacramento River water rights settlement agreement holders up in the Sacramento Valley,” he said. “Those delineations do help to streamline the process. You have less change of place of use issues, you also don’t have to address the contractor preference issues – that if it’s within DWR or the Bureau, you have preference for conveyance capacity, preference power, storage charges are less, so it’s typically been delineated that way.”

In 2014, two Feather River Settlement Agreement holders executed purchase and sale agreements with CVP buyers, which was different. “Garden Highway Mutual Water Company sold to San Luis Delta Mendota and Biggs West Gridley Water District sold a portion of their supplies to some farming entities within Westlands Water District,” he said. “One of the ways that this was done on the CVP side at least was by using forbearance agreements, which in those cases, allows the seller to forego use of a portion of their water and that accrues to the Bureau under their CVP water rights permits; therefore the water can be transferred under the Bureau’s water rights under that contract. That’s all done because there’s a settlement contract, and it can be done within that framework.”

Mr. Hitchings noted that even within those agreements, the Bureau imposed conditions that included compliance with DWR white papers and compliance with NEPA. “There were two instruments that were used: there was a three-party forbearance agreement between the Bureau, the seller, and the buyer; then there were two-party purchase and sale agreements just between the buyer and the seller which basically contained the financial terms. The Bureau had not done forbearance agreements since about 2005, so they were very helpful year to getting transfers to move through, particularly when there were curtailments.”

“On the State Water Project side, while there aren’t forbearance agreements that were used, there is a three-party storage and conveyance agreement; then there were two party purchase and sale agreements for those transfers as well,” he added.

Curtailments were an issue for some transfers this year. “An example was Garden Highway Mutual Water Company,” he said. “They have a senior water right license; they filed their petition for change with the state board for the transfer, and after they filed the petition, the curtailment notice came out so there was a question as to whether they could transfer under that. Then DWR filed its petition for change to cover that, so that was very helpful that DWR was poised and ready to do that and I appreciate Spencer and his colleagues work on that. I know my client does.”

The CEQA suspension that was intended to facilitate and streamline water transfers, exchanges, forbearance agreements, so they could take place as quickly as possible was limited in it only applied to state agencies, he said. “There were still a lot of transfers that didn’t have the one-year CEQA exemption under the water code that still had to go through CEQA,” he said. “That suspension expires on December 31^st of this year, and some transfer proponents have suggested that if we do have another drought year and this proclamation stays in effect, to extend that through a supplemental proclamation so that it extends to local agencies, not just DWR and the State Water Board. In that case, you’d still have NEPA review for any transfers that involve federal approvals, and you would still have DWR being required to make it’s determinations under 1810 on effects on fish and wildlife, so there still would be some level of environmental review conducted for that.”

It’s important for sellers to put transfer policies in place, Mr. Hitchings said. “It provides them a road map and a comprehensive approach for how are they going to address transfers in a drought year like 2014 moving forward,” he said. “The types of topics you would include in that would be the goals of the policy, whether the seller district will prioritize certain types of transfers, whether it will be in-basin as a first priority and then look out of basin, or whether it be ag to ag or environmental purposes. I represent a number of clients who do have these policies in place and its helpful; you can give them to landowners and it’s something that’s there for them to look at. You can also put in those policies the mechanics of how you are going to transfer water in shortage years so that you meet in-district needs.”

It’s also important to include how the transfer revenues will be used, he said. “Policies help provide for characterizing what the landowner payments will be if they crop idle, district operational costs, district monitoring costs, and also for environmental restoration projects as a number of sellers have dedicated a portion of their revenues for those types of purposes.”

“So with that … “

David R. E. Aladjem: Policy Considerations

David Aladjem began by saying that the views he would be offering are his own and not to be attributed to Downey Brand or any of their clients. He said he was asked to step back today and offer his views on what we are doing as a state and where we should potentially going with water transfers.

Mr. Aladjem said that he’s been involved heavily in water transfers since 2001, and there are a lot of characteristics that have developed in the system. “I am going to invite you to suspend disbelief for just a moment, and go with me and let’s try to figure out what would a water transfer policy would look like that made it happen in a way that we have to, but avoids a lot of the technical problems that Darren [Cordova] has been talking about. So I want to offer you where we go with this.”

“I want to begin by saying that Spencer is absolutely right that the Department and also the State Water Board have made tremendous strides this particular year in coordination and in working together both internally and amongst agencies, and that’s a really, really good development,” he said. “We need to take it to the next level.”

Mr. Aladjem noted that Mr. Kenner had mentioned that the Department of Water Resources, like the Bureau of Reclamation, is talking about a long-term transfer deal. He then offered his suggestions of that components would go into that.

“First of all, we need to get away from the notion that we are going to triple and quadruple check every water transfer,” he said. “We have clients who have transferred water in every drought year since 2001 and we go through this process every single time. Are you going to meter, are you going to do this, etc, etc. At a certain point in time, I think we can sort of pre-qualify a lot of these clients who say, ‘ know what the rules are, and we’re going to do them.’ Period. End of story.”

“As a lawyer, I would remiss if I don’t make the point that the water transfer guidelines … are underground regulations,” Mr. Aladjem said. “They are illegal, and we definitely need to rethink what we are doing with them. They are in my mind again really intended not to protect the project contractors, not to protect the sellers, but to protect the Department and Reclamation’s interests and we need to have a candid conversation about the way in which they work. I firmly believe that we can protect the contractor’s interests and the operator’s interests. There is an absolutely legal legitimate way to protect that, but we need to get away from ‘oh no if we can’t do it immediately, if we don’t understand it immediately, we can’t do it.’ Spencer was talking about lawyers who are obstacles; the same thing applies, with all due respect here to Darren, to engineers.”

The baseline issue is another good example, he said. “It’s extremely difficult to figure out what you would have done, absent a drought, in a drought year. And let’s all be honest about that. What we need to do is come to an agreement that if that is the case, how do we actually maximize not the seller’s interests, not the buyer’s interests, not the operator’s interests, but the state of California writ large, all of us – what’s our interests? Our interests, I would submit to all of you, is moving water to where it’s needed, doing so on a voluntary basis, and on a free market basis, I daresay.”

“One of the things that I would submit to the Department and Reclamation is we need to think about saying that if we meet Delta criteria, if we meet some pretty basic standards about how you make water transfers happen, and we have full accountability, let’s have a free market,” Mr. Aladjem said. “The Department, to its credit, is moving away from the water bank approach and moving towards letting sellers and buyers negotiate. That’s a great thing; that’s the way we get water to exactly where it’s needed in exactly the right way, but we need to make sure that we have the institutional and regulatory coverage to do that. I think it’s quite possible; we’ve gone down that road with joint point of diversion and place of use, so let’s do that with water transfers.”

Another interesting issue is CEQA exemptions, he said. “The water code already provides a one-year exemption in terms of the State Water Board’s process,” he said. “But all of you know, particularly with the case of pre-14 water, that water transfers get challenged for CEQA purposes every year. One of the advantages of a large market with free trading within it, is we can simply say we understand what this is going to be, we do a CEQA document – I’d actually prefer an exemption – but I’ll take a CEQA document, and then we’re good.”

“Some of the courts have looked at this and said that it’s not an emergency,” he said. “I understand the rulings when we say the drought is not an emergency as it’s not sudden like an earthquake, but at the same time, we all know that you cannot plan for the extent of drought. No one could have told us a year ago exactly what we went through this last year, so we really need to have that sort of generalized CEQA exemption or long term coverage for water transfers in order to move water where we need it. And I think that comes back to my theme about moving water. That’s what we really need to be doing.”

“We have a situation, and we lawyers created this one, where the burden is always on the proposed transferors and transferees to justify the transfer as being consistent with 1810,” Mr. Aladjem said. “If we had some prequalifications, let’s flip that burden of proof because that is the best way to move water around California. Specifically, if a proposed water transfer would comply with the BiOps and other requirements in the Delta, then the burden should be on those objecting the proposed transfer to demonstrate why there will be harm to the environment, particularly when the transfer complies with requirements that the regulatory agencies say are needed to protect the environment.”

“Last but not least, we need to talk about the no injury rule,” he said. “Let’s figure out what are the things we can all agree on. I daresay if you put a bunch of managers and attorneys and engineers in a room, within a day or two, we could actually have a pretty good agreement on a bunch of things. Let’s get those agreed upon and say that if you’re in that category, you check the box. It should be a one page form to the water board, the Department, and Reclamation that says this is what we’re going to do, and we’re done.”

“Now if we had that type of an arrangement, think about how nimble we could have been this last year in responding to the various strange hydrology,” he said. “Think about the ways in which we could have moved water south of the Delta early on, and the ways in which we could have done in more nimble in shifting water in north state during the summertime. We did a good job; we could have done better in the ways in which we could have moved water this fall to provide assurances to those who are south of the Delta that if this water year becomes another 2014, they have something to arrive. Those are the things we need to be thinking about, big picture.”

“I would invite all of us, because we’re all involved in this together, to really begin to say, let’s not necessarily only do what we need to do immediately in front of us … but think about how we really change the process so that we all, as people in the state as well as the fish and wildlife, are going to better off in the future.”

“Thank you.”

During the question and answer period, the panel was asked what impact they thought the Sustainable Groundwater Management Act will have on groundwater substitution water transfers.

“I actually think it is going to enhance groundwater substitution transfers, and here’s why,” responded David Aladjem. “I think one of the reasons that people get very concerned about groundwater substitution is that there is this feeling that because groundwater is below ground and we can’t see it so somehow the groundwater substitution transfer is sucking the aquifer dry. I don’t agree with that, but I think that’s the fear, and I don’t want to dismiss it. I think that once we have the Sustainable Groundwater Management Act in full operation, with plans, then people will say that if you’re going to be transferring on a groundwater substitution transfer, some of your surface water and drawing on your groundwater, we know that you’re going to do it in a way that is consistent with long term sustainability. That doesn’t mean that the total groundwater pumped in the basin is going to be the same every year, obviously it’s going to be more in drought years because we’re using the groundwater basins as reservoirs, but it does mean that some is minding the store and that we have a plan to make sure that’s consistent with the long term health of the basin. That’s why I think it’s going to be a good thing, long term.”